Opinion
D071555
11-29-2017
ANTONIO GALINDO, Plaintiff and Appellant, v. GARY POLAKOFF, as Trustee, etc., Defendant and Respondent.
Haskins & Associates, Steve W. Haskins; Hellmann Law Group and Lawrence P. Hellmann for Plaintiff and Appellant. Arendsen Cane Molnar, Hamilton E. Arendsen, Christian S. Molnar, Lindsey E. Laughlin and Levi Lesches for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2012-00075741-CU-BC-SC) APPEAL from a judgment of the Superior Court of San Diego County, Joel R. Wohlfeil, Judge. Affirmed. Haskins & Associates, Steve W. Haskins; Hellmann Law Group and Lawrence P. Hellmann for Plaintiff and Appellant. Arendsen Cane Molnar, Hamilton E. Arendsen, Christian S. Molnar, Lindsey E. Laughlin and Levi Lesches for Defendant and Respondent.
Plaintiff and appellant Antonio Galindo brought this action for breach of a commercial lease contract against his former landlord, defendant and respondent Gary Polakoff, as trustee of a family trust (Polakoff or defendant). Galindo sought to recover an amount representing a withheld security deposit under the lease. Polakoff countered with evidence of unpaid rents from the 2009-2010 time frame, as an affirmative defense of setoff. (Code Civ. Proc., § 431.70.) Following a bench trial, the court issued a statement of decision and judgment that allowed a setoff to be applied for past due rent from 2006, effectively denying Galindo any relief. Subsequently, the trial court denied Galindo's new trial motion and determined that Polakoff was the prevailing party who was entitled to an award of costs and attorney fees in the amount of $52,407.50, pursuant to the lease's attorney fees clause.
All further statutory references are to this code unless noted. In relevant part, section 431.70 allows for cross-demands for money to be offset in litigation pursuant to assertion of an affirmative defense, "notwithstanding that an independent action asserting the person's claim would at the time of filing the answer be barred by the statute of limitations. If the cross-demand would otherwise be barred by the statute of limitations, the relief accorded under this section shall not exceed the value of the relief granted to the other party."
On appeal, Galindo contends the trial court's statement of decision erroneously determined that Polakoff was entitled to a setoff for past due rent, for several reasons. Galindo argues that as a matter of law, an intervening bankruptcy discharge he obtained in 2013 precluded the use of the 2006 past due rent as a setoff. He also contends there is no sufficient evidence showing that the 2006 rent was clearly placed into issue at trial or proven to be due and owing.
Galindo further contends the trial court abused its discretion in denying his new trial motion, and in rejecting his claims of surprise and mistake at trial, or irregularities in the proceedings. (§§ 657, 662 [application to vacate statement of decision].) He argues he had not produced evidence at trial about whether the 2006 rent was paid, because he did not know it would be claimed as an offset. Based on his arguments that the setoff amount was incorrectly imposed, Galindo contends Polakoff should not have been deemed to be the prevailing party after trial for purposes of costs and fees awards.
We construe Galindo's single notice of appeal as encompassing not only the judgment and the denial of his new trial motion, but also the award of attorney fees. (§ 904.1, subd. (a)(1), (2); Grant v. List & Lathrop (1992) 2 Cal.App.4th 993, 997-998 (Grant); Cal. Rules of Court, rules 8.100(a)(2), 8.104(d)(2) [all rule references are to these rules].) Having considered each of his arguments, we find they lack merit and affirm the judgment and related orders.
I
BACKGROUND; TERMS OF STATEMENT OF DECISION
Beginning in 2006, Galindo and a partner (not a party to this appeal) began to occupy premises owned by Polakoff under a commercial lease, and they arranged to have a security deposit of $20,662 paid to Polakoff. Evidence at trial showed that Polakoff at times accepted reduced payments of rent, pursuant to oral modifications of the lease arrangement. In June 2010, a subtenant took over the premises and Galindo stopped paying rent. Galindo requested that Polakoff refund the $20,662 security deposit, and Polakoff refused.
In July 2010, Galindo filed a petition for Chapter 7 bankruptcy, and received a discharge in 2013, as a debtor who had no assets. In the meantime, in March 2012, Galindo filed this state court action seeking return of the deposit, on theories of breach of contract and money had and received. Polakoff answered and raised several affirmative defenses, including setoff. Polakoff initially alleged that the parties had arranged that he would receive a $20,000 payment when a subtenant was approved.
As relevant here, Polakoff also asserted as an affirmative defense that Galindo had failed to pay rent at times, entitling Polakoff to a setoff in the amount of the unpaid sums. Galindo and Polakoff each provided evidence to the trial court in the form of accounting charts, as well as responses to interrogatories and correspondence. Galindo's exhibit 14 chart showed payments he made from May 2006 through May 2010, and attached copies of some rent checks. Polakoff's exhibit 36 was a timeline of the recorded deficiencies in rents paid from January 2009 through June 2010, totaling $46,600.
Following the presentation of evidence, the court issued its statement of decision, first rejecting Galindo's claim for money had and received. The court also rejected Polakoff's affirmative defense about being entitled to a subtenancy fee, as unproven. However, with respect to Galindo's breach of contract claim, the court ruled that Galindo had been able to show the parties had a contract which they had modified through their business practice and custom, and Polakoff had not returned the security deposit, as requested. The court identified an exception to its finding that Galindo had performed under the contract and had suffered economic harm from Polakoff's failure to return the security deposit, as follows. The exception was that pursuant to Polakoff's asserted affirmative defense, Polakoff was entitled to a setoff against the security deposit claimed, in the amount of $22,000 in unpaid rent from September 2006 and December 2006, as impliedly admitted by Galindo in his chart through his omissions of any references to payments made for those months, and in his testimony.
The court accordingly concluded that Galindo had failed to pay rent in September and December 2006, without justification, and such rental sums remained due and owing to Polakoff, as a valid basis for setoff against any sums due and owing to Galindo. Polakoff had carried his burden in proving entitlement to the affirmative defense of setoff in those amounts. The court ruled, "As the aggregate rental amount due and owing for the months of September and December 2006 exceeds the amount of the security deposit, Defendant's claim for set-off entirely extinguishes Plaintiff's claim for a return of the security deposit." The court found Polakoff had prevailed on Galindo's breach of contract claim, such that Galindo was not entitled to a return of the security deposit, "by virtue of Defendant's larger claim for set-off for unpaid rent."
The statement of decision required that further proceedings be held on costs and a regularly noticed motion for attorney fees, and judgment was issued accordingly. Galindo then filed his section 657 motion for new trial and alternatively, sought a revision of the bench trial decision pursuant to section 662.
We shall defer until part IV of this opinion, post, setting forth a summary of the posttrial proceedings. The court denied Galindo's new trial motion on October 28, 2016, and allowed further briefing on the pending attorney fees motion. After a hearing on December 16, 2016, the court granted Polakoff's motion for an award of attorney fees, in the amount of $52,407.50. The court interlineated that amount on the face of the judgment that had been previously filed in September 2016. Galindo's notice of appeal from the judgment was filed November 23, 2016.
II
APPEALABILITY ISSUES: ATTORNEY FEES
In the respondent's brief, Polakoff contends that Galindo's failure to file a separate notice of appeal from the proceedings on the attorney fees motion has deprived this court of jurisdiction to review that ruling. With respect to the December 2016 attorney fees award, the November 2016 notice of appeal arguably was premature. However, rule 8.100(a)(2) specifies that notices of appeal shall be liberally construed. Rule 8.104(d)(2) allows us to treat a notice of appeal that is filed after an intended ruling, before the rendering of judgment, as being filed in a timely manner, and rule 8.104(e) includes appealable orders within that treatment.
Since the September 2016 judgment clearly ruled in favor of Polakoff on all claims and identified him as the prevailing party who was entitled to receive costs and fees, it is appropriate to interpret the respective orders in the record as allowing for a later determination of the amount of reasonable fees due. In such a case, the filing of a notice of appeal regarding a judgment that awarded entitlement to attorney fees and costs is deemed to encompass the later order fixing the amount of the award. (Grant, supra, 2 Cal.App.4th at pp. 997-998 ["when a judgment awards costs and fees to a prevailing party and provides for the later determination of the amounts, the notice of appeal subsumes any later order setting the amounts of the award"]; Green v. County of Riverside (2015) 238 Cal.App.4th 1363, 1373; Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, 1316-1317.)
Based on the manner in which the court handled the trial and posttrial proceedings, by deciding the attorney fees entitlement issue in the judgment and interlineating the amount of the award after conducting later proceedings on the attorney fees motion, we find that jurisdiction exists for review of the attorney fees portion of the judgment. (§ 904.1, subd. (a)(1), (2).) We discuss its specifics in part V, post.
III
STATEMENT OF DECISION
The record provided of the trial proceedings is somewhat sparse and does not include the pleadings or the trial briefs. In the statement of decision, the trial court properly noted that Polakoff, as defendant, had the burden to establish the validity of his affirmative defenses. (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 794-795.) The facts are mainly undisputed and most of the relevant documentation relevant to the issues on appeal was provided in the new trial and attorney fees motion proceedings, as well as documentary trial exhibits included in the record.
A. Applicable Standards
The general rule on appeal is that judgments and orders of the lower courts are presumed correct. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133 (Arceneaux).) Where a judgment is issued following a statement of decision by the trial court, special rules apply. A statement of decision is adequate if it fairly and completely sets forth the factual and legal basis for the court's decision, by listing all the ultimate facts necessary to decide the issues placed in controversy by the pleadings. (Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1124-1125 (Muzquiz); see Akins v. State of California (1998) 61 Cal.App.4th 1, 35, fn. 29.) It need only state "ultimate rather than evidentiary facts because findings of ultimate facts necessarily include findings on all intermediate evidentiary facts necessary to sustain them." (In re Cheryl E. (1984) 161 Cal.App.3d 587, 599.)
Galindo contends the legal and factual conclusions in the statement of decision about the affirmative defense of setoff were erroneous in two respects, concerning a bankruptcy discharge and the operation of statutes of limitations. With respect to each claim, Galindo did not file opposition to the statement of decision or seek correction of it. He does not now contend there are factual omissions or ambiguities in the trial court's statement, but instead, argues the legal conclusions reached on the given set of factual findings were incorrect. (See United Services Auto. Assn. v. Dalrymple (1991) 232 Cal.App.3d 182, 185-186 [legal errors appearing on the face of the statement of decision may be corrected on appeal even if objections were not brought to the trial court's attention].)
According to the appellate briefs, both parties testified at trial, but no reporter's transcript has been designated as part of our appellate record. In cases in which no reporter's transcript has been provided, the judgment is presumed to be correct on evidentiary matters. (In re Estate of Fain (1999) 75 Cal.App.4th 973, 992.) An appellant cannot attempt to show error through arguing the content of unreported trial testimony. (Ibid.) The appellate court is not precluded, however, from considering whether any error is apparent on the face of the existing record. (United Services Auto. Assn. v. Dalrymple, supra, 232 Cal.App.3d at pp. 185-186.)
B. Setoff Analysis
Section 431.70 "does not create a substantive right to raise setoff as a defense to a claim for monetary relief, but merely describes the procedures to be followed in raising this defense." (Granberry v. Islay Investments (1995) 9 Cal.4th 738, 744; Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352, 362.) The substantive entitlement to a setoff depends on the factual and legal context of the case. Section 431.70 provides in relevant part:
"Where cross-demands for money have existed between persons at any point in time when neither demand was barred by the statute of limitations, and an action is thereafter commenced by one such person, the other person may assert in the answer the defense of payment in that the two demands are compensated so far as they equal each other, notwithstanding that an independent action asserting the person's claim would at the time of filing the answer be barred by the statute of limitations. If the cross-demand would otherwise be barred by the statute of limitations, the relief accorded under this section shall not exceed the value of the relief granted to the other party."
Defendants may not ordinarily "obtain affirmative relief (that is, relief beyond defeating the plaintiff's claims) without filing a cross-complaint." (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 197 (Construction Protective Services); § 431.30, subd. (a).) In that case, the court interpreted section 431.70 as allowing a setoff claim to be used defensively, as an assertion that the claim constituted prior payment for the amount being sought by the plaintiff, even where there was a potential statute of limitations bar to bringing a new action for the setoff amount. (Construction Protective Services, supra, at p. 197.) This statutory language is intended to provide partial relief from the statute of limitations, as to such a defense. (Id. at p. 195.)
The setoff issues in this case arise from the interplay of Galindo's breach of contract claim based on the security deposit ($20,662), and the affirmative defense by Polakoff that there was still money owing in the form of past due rent ($46,600, plus $22,000 in 2006). Galindo made out the elements of his claim of breach of the modified contract, but failed to show a continuing affirmative right to recovery after the setoff defense was litigated. Even though Galindo had generally complied with his payment obligations under the modification, the evidence showed that he had failed to do so in one important respect. His showing of harm, from Polakoff's retention of the security deposit, was subject to an exception due to the operation of Polakoff's reservation of his rights to claim setoff as to unpaid rent. The court analyzed the evidence as follows:
"Written evidence was presented, in the form of an accounting chart prepared by Plaintiff GALINDO, showing the payments made by Plaintiff to Defendant POLAKOFF, during the entirety of the parties' relationship. Plaintiff testified that the chart was full and complete, and accurate as to the full amount paid under the lease. However, such chart omits any reference to rental payments made in the months of September, 2006, or December, 2006, and Plaintiff was unable to present any evidence that he had made such rental payments. Accordingly, the court finds the Plaintiff's accounting chart to constitute an admission that Plaintiff failed to pay rent in September and December, 2006, in the aggregate sum of $22,000.00."
The trial court thus concluded that all the evidence established that Galindo failed to pay rent in September and December 2006, without justification, and therefore, "such rental sums remain due and owing to Defendant, and are a valid basis for set-off against any sums due and owing to Plaintiff from Defendant. Consequently, Defendant has carried his burden as to the affirmative defense of set-off, equal to the amounts due and owing to Defendant for September, 2006 and December, 2006 rent. As the aggregate rental amount due and owing for the months of September and December 2006 exceeds the amount of the security deposit, Defendant's claim for set-off entirely extinguishes Plaintiff's claim for a return of the security deposit."
Consequently, Polakoff was found to be the prevailing party on Galindo's cause of action for breach of contract, and the court ruled that Galindo was not entitled to a return of any portion of the security deposit "by virtue of Defendant's larger claim for set-off for unpaid rent."
C. Bankruptcy Discharge Claims of Legal Error
Galindo requests de novo review of alleged errors of law on the face of this record, concerning the trial court's application of bankruptcy law to this established set of facts. He contends that under California law, Polakoff, as a creditor, cannot properly use discharged debt as a setoff. At trial, exhibits were admitted about a portion of the bankruptcy proceedings, and they are also attached to Galindo's attorney's declaration at the new trial stage. These include a bankruptcy docket entry showing that Galindo had filed for Chapter 7 bankruptcy in July 2010, and received a discharge as a "no asset" debtor in August 2013. He now argues his September and December 2006 past due rent amounts were "prepetition debts" that are ineligible for setoff because they must have been discharged in bankruptcy.
Galindo asserts that under cases such as In re Marriage of Williams (1984) 157 Cal.App.3d 1215, 1224 (Williams), the trial court should have concluded that a discharge of the debtor in bankruptcy must operate as an injunction against any action to recover an offset against him. (11 U.S.C. § 524(a)(2); see In re Marriage of Lynn (2002) 101 Cal.App.4th 120, 125-126 [bankruptcy discharge of debt prohibits creditor from pursuing it].)
The court in Williams, supra, 157 Cal.App.3d 1215, 1221 was resolving a family law dispute over community property and support obligations, and applied the principle that support obligations are generally not dischargeable in bankruptcy. (Ibid.; 11 Witkin, Summary of Cal. Law (11th ed. 2017) Marriage, § 354 at p. 425.) However, the family court may consider, as a factor in determining whether existing support obligations should be modified, a bankruptcy discharge that the supporting spouse obtained as to his or her property settlement debt. (In re Marriage of Lynn, supra, 101 Cal.App.4th 120, 125.) Bankruptcy law discharges do not eliminate an underlying secured debt, but only allow the debtor to be protected from personal enforcement of the debt by the creditor. (In re Marriage of Walker (2015) 240 Cal.App.4th 986, 996.)
In Williams, supra, 157 Cal.App.3d 1220, the court applied bankruptcy statutes to the facts presented and concluded "that offset cannot be used to revive in a state court proceeding a debt already discharged in bankruptcy." (Id. at p. 1224.) California family law principles were interpreted in that case as being "intended to redress the inequities which could result from a discharge in bankruptcy of community debts assigned to one spouse to the extent it was possible to do so within the limitations imposed by the supremacy of the bankruptcy law." (Id. at p. 1226; italics omitted.) Such statements about the supremacy of bankruptcy law and the effect of a bankruptcy discharge on an unsecured debt must be read within the family law factual and legal context in which the discussion was made, where the respective obligations were clearly identified as support or debt. More generally, rights to setoffs are founded on equitable principles allowing cross-demands for money to be applied against one another, to allow fair compensation. (Kruger v. Wells Fargo Bank, supra, 11 Cal.3d 352, 360-361, 363.)
To argue that this setoff was legitimately allowed here, Polakoff cites to federal cases such as In re De Laurentiis Entertainment Group, Inc. (9th Cir. 1992) 963 F.2d 1269, for the concept that bankruptcy statutes are intended to allow setoffs in bankruptcy to the same extent they are allowed under state law. (Id. at p. 1277 ["setoffs in bankruptcy have been 'generally favored,' and a presumption in favor of their enforcement exists"]; see In re Buckenmaier (Bankr. 9th Cir. 1991) 127 B.R. 233, 237 ["setoffs are allowed in bankruptcy to the extent that they are based upon mutual obligations existing between the debtor and a creditor, based on a concept of fairness, in order to prevent injustice"].)
"For a discharge in bankruptcy, (a) the judgment must involve a 'debt' [citation]; (b) the debt must not be of a kind excepted from discharge [citation]; and (c) the debtor must not by his or her status or conduct, e.g., obtaining a prior discharge within a prescribed period and in stated circumstances, be subject to denial of discharge." (8 Witkin, Cal. Procedure (5th ed. 2008) Enforcement of Judgment, § 514, p. 552.) The parties have not adequately addressed the status of bankruptcy discharge law with respect to Galindo's potential waiver of any bankruptcy defense to the operation of Polakoff's setoff defense. As explained in a treatise, former law required that a debtor must plead the bar of a discharge in bankruptcy before judgment on the debt, or the defense was waived. (Id. at § 531, p. 567; Maryland Casualty Co. v. Lipscomb (1940) 40 Cal.App.2d 171, 173; Davison v. Anderson (1954) 125 Cal.App.2d Supp. 908, 911; see Forman v. Scott (1964) 231 Cal.App.2d 340, 344 [defendant was estopped to raise bankruptcy adjudication as a defense/bar, where stipulated modification of the judgment existed].) We have no sufficient record to consider the dischargeability of Galindo's debt as a defense to Polakoff's defense, under current bankruptcy statutes. (11 U.S.C. § 524(a)(1), (c); see 8 Witkin, Cal. Procedure, supra, § 530, p. 566 ["Showing Dischargeability by Evidence Outside Record"].)
On the record before us, the dispute between Galindo and Polakoff does not require us to base our decision on such bankruptcy law principles. In this factual and legal context of a nonmarital, commercial contract dispute, Galindo did not make a showing to the trial court of the proper extent of the bankruptcy discharge he obtained, and whether he disclosed all his assets and liabilities to the bankruptcy court. It is unclear if he brought the 2006 security deposit and past due rents from that year before the bankruptcy court, or if that record would support a legal conclusion they must have been included in the 2013 discharge he obtained. Nothing in the record at this trial apparently addressed the existence of the security deposit debt, compared to the past due rent, for purposes of applying the body of law developed about discharges and setoffs.
Further, Galindo's new trial moving papers included, as an exhibit, an objection filed in the bankruptcy court by Polakoff in 2014, at a time when Galindo was apparently requesting that his bankruptcy case be reopened. Polakoff's objection gave the history of the dealings between the parties, beginning with his receipt of the $20,662 security deposit paid on behalf of Galindo. Polakoff asserted to the bankruptcy court that Galindo was in arrears in rent from 2009 and 2010 in the amount of $46,600, but Polakoff said he had not been listed as a creditor and never received any notice of the bankruptcy proceedings or about Galindo's supposed assets. Polakoff's objection stated that if he had received any notice, he would have filed a claim about his offset.
Galindo contends this evidence about the bankruptcy proceedings served as Polakoff's admission that the 2006 rent was not in dispute at that time. However, the evidence in the record is insufficient to allow or compel any legal conclusions that the "no assets" bankruptcy discharge Galindo received in 2013 applied to the 2006 sums, in the nature of a setoff. Moreover, in its later ruling on the attorney fees motion, the court explicated the problems with Galindo's claim: "In this instance, Defendant persuaded the Court that Plaintiff's failure to pay two months of rent could be used to off-set Defendant's obligation to return Plaintiff's security deposit. The Court remains comfortable with this finding. Plaintiff cannot, at trial, assert that his bankruptcy action does not limit his ability to recoup his deposit, and post-trial, shield himself from an attorney fee award while inconsistently asserting a discharge order." (Italics added.)
By the same token, Galindo cannot reasonably argue on appeal that he was entitled to recover his 2006 security deposit as a nondischarged bankruptcy asset, apparently because he did not disclose it to the bankruptcy court. That argument is inconsistent with his claim that the past due rental amounts from the same year cannot be taken into account as part of the overall landlord-tenant balance sheet. No legal error has been shown in the trial court's statement of decision in this respect.
D. Insufficiency of Evidence Argument on Setoff
Galindo's alternative attack on the statement of decision claims there is no sufficient evidence in support of Polakoff's affirmative defense of setoff. According to Galindo, the trial court mistakenly interpreted his own accounting omissions as impliedly admitting certain nonpayments in 2006. Galindo's reply brief claims that during his cross-examination at trial, he unsuccessfully objected to the admission of any evidence regarding the 2006 unpaid rent, on the grounds that prior to trial, Polakoff did not make any claims that Galindo's own accounting was wrong. Galindo also now claims that during discovery, Polakoff withheld information about what was being sought.
An initial problem with these arguments is that Galindo did not object to the accuracy of the factual findings in the statement of decision, and we may accordingly imply findings in favor of the prevailing party on issues such as credibility and the appropriateness of allowing an equitable offset. Section 634 allows a finding of waiver of such claims. (Arceneaux, supra, 51 Cal.3d at pp. 1133-1134 [where party does not bring deficiencies to the trial court's attention, waiver of claims on appeal about defective statement of decision results].) "[A] trial court rendering a statement of decision is required only to set out ultimate findings rather than evidentiary ones." (Muzquiz, supra, 79 Cal.App.4th at p. 1125.) Due to the lack of a reporter's transcript, we presume the court's rulings on evidentiary matters were correct. (In re Estate of Fain, supra, 75 Cal.App.4th at p. 992.)
Galindo's breach of contract allegations and Polakoff's affirmative defense of setoff required the trial court to analyze the respective accountings provided by the parties. The court noted that although Galindo started his accounting in 2006, he did not claim any payments were made during September and December of that year. (See pt. IV, post for new trial arguments that he did not know any such payments were being sought during this tenant-landlord litigation.) The court was entitled to draw conclusions and make inferences about the factual showings and credibility of the parties. (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874 ["When atrial court's factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination, and when two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court."].)
We decline to address Polakoff's new claim on appeal of other 2006 unpaid rent obligations. --------
To the extent Galindo argues as a matter of law that time-barred obligations were incorrectly used as setoffs to the security deposit amount he sought to recover, we look to the rules of setoffs, as codified in section 431.70. We examine on a de novo basis the trial court's application of the statute to the facts as established in the record. (Gonzales v. County of Los Angeles (2004) 122 Cal.App.4th 1124, 1129.) Where such cross-demands exist, relief by way of setoff is limited to reducing or defeating plaintiff's claim, and section 431.70 prevents one party from depriving the other of a statute of limitations defense. (Constructive Protective Services, supra, 29 Cal.4th at p. 195.)
Under section 431.70, Polakoff's setoff claim of 2006 rent amounts due was properly proven and used defensively, to oppose the amount sought in Galindo's breach of contract complaint based on the security deposit. This statement of decision properly set forth the factual and legal basis for the trial court's decision. (§ 632.) As of the time of trial, this was an accurate summary of the evidence, and Galindo has not shown otherwise. Sufficient evidence in the trial record supports the setoff finding. We next turn to the new trial arguments, which put a different slant on the setoff issue.
IV
NEW TRIAL ARGUMENTS
Galindo seeks reversal of the trial court's order denying his new trial motion, and contends he adequately demonstrated entitlement to a new trial, on grounds of accident or surprise. His preparation of evidence was limited, because he argues he was not fairly placed on notice before trial that Polakoff might be claiming unpaid rent from 2006. Galindo requested a new trial or a change in the judgment, based on new evidence that came to light (his 2006 payments), and based on irregularities in the court proceedings, in the form of false testimony by Polakoff that those payments were not made. (§ 657, subds. (1), (3), (4).)
In Galindo's supporting declaration, he explained that after trial, he searched for his own copies of checks for rent payment for September and December 2006. He was able to locate them after an extensive and extremely difficult search. He stated that he was quite shocked at trial when Polakoff gave testimony that the September and December rents for 2006 were not paid, and added, "I knew that I did pay the rent for those months and I believe that I testified as such [at] trial when asked specifically about payments for those two months." He had misplaced those canceled checks, but if he had known that more rent was being sought, he would have searched more carefully for them. Galindo further stated that he was unable to obtain replacement copies directly from his bank, due to the passage of time.
A. Applicable Standards
Section 657 provides that a new trial may be granted on grounds that a party's substantial rights were materially affected. A trial court has broad discretion in ruling on a motion for new trial and its exercise of that discretion is given great deference on appeal. (Sherman v. Kinetic Concepts, Inc. (1998) 67 Cal.App.4th 1152, 1160; City of Los Angeles v. Decker (1977) 18 Cal.3d 860, 871-872.) In reviewing an order denying a motion for new trial, we review the entire record and make an independent determination whether any asserted error was prejudicial. (Plancarte v. Guardsmark (2004) 118 Cal.App.4th 640, 645 (Plancarte); Sherman, supra, at pp. 1160-1161.) Absent prejudicial error, there is no discretion to grant a new trial. (Ibid.; Cal. Const., art. VI, § 13.) Section 662, applicable to a bench trial, allows the trial court to change or modify the judgment or grant a new trial on all or part of the issues.
To grant a motion for new trial based on surprise, the moving party must not have been able to prevent the surprise by the exercise of ordinary prudence, and the surprise must have detrimentally impacted, or prejudiced, that party. (McCoy v. Pacific Maritime Assn. (2013) 216 Cal.App.4th 283, 305.) Similarly, a party seeking a new trial based on newly discovered evidence must show the evidence was newly discovered, he or she exercised reasonable diligence in discovering and producing it, and it is material to the party's case. (Plancarte, supra, 118 Cal.App.4th at p. 646.)
B. Text of Ruling
The trial court heard argument and issued a minute order denying the new trial motion, setting forth its reasoning as follows. Polakoff had cross-examined Galindo at trial about exhibit 14, an accounting of rental amounts paid by Galindo to Polakoff. The court found it significant that Galindo had prepared exhibit 14; "however, absent from the accounting were checks to corroborate Plaintiff's testimony that he paid rent for the months of September and December 2006."
In describing the evidence as a whole, the court explained that due to the passage of time until trial, "the Court was disinclined to put much, if any, weight on the testimony of either party based on memories of events which took place up to a decade prior to the trial. Correspondingly, the Court was much more impressed with corroboration evidence to support either party's testimony. [¶] The Court's findings and orders were in favor of Plaintiff with one exception; namely, based on the absence of the September and December 2006 checks, Defendant had carried his burden to show Plaintiff's apparent failure to pay two months of rent off-set Defendant's obligation to return the security deposit to Plaintiff." (Italics added.)
The court then evaluated the newly presented evidence, Galindo's two checks which appear to corroborate his payment of September and December 2006 rent. The court recalled that during trial, Galindo had prepared an exhibit "14," his table of rents paid since 2006, and had testified about it. The court found that the existence of that exhibit undermined any current argument of surprise and prejudice stemming from the cross-examination. Galindo had acknowledged that the checks were at all times in his possession, although he could not find them, which served to undermine his assertion that the checks constitute "newly discovered evidence."
Continuing the analysis, the court's minute order identified the real issue as whether the claim of offset should be deemed time-barred, since a four-year limitations statute presumably applied (e.g., § 337.2, concerning actions on a lease), unless the setoff statute controlled. The court stated that since neither of the parties had adequately addressed the issue, the court did its own independent research on the applicability of section 431.70 (i.e., its reference to the existence of "cross-demands for money . . . at any point in time when neither demand was barred by the statute of limitations"). Citing to Construction Protective Services, supra, 29 Cal.4th 189, 195, the court noted that an important function of the section 431.70 setoff procedure " 'is to provide partial relief from the statute of limitations.' " The statute allows the assertion of a defense of payment of one of the demands, even if an independent action to enforce the obligation would be time-barred.
In conclusion, the order found no irregularity in the proceedings had occurred, and even though the court "empathizes with the circumstances outlined in [Galindo's] Motion," his new trial motion was denied. The court reasoned that "to permit Plaintiff, post-trial, to submit the checks to refute Defendant's off-set defense strikes the Court as wholly unfair to Defendant."
C. Analysis
Galindo had prepared records of payments going back to 2006. He did not make a demonstration of an exercise of reasonable diligence in preparing his case, or of error that prejudiced him. (Plancarte, supra, 118 Cal.App.4th at p. 646.) Galindo's breach of contract complaint, considered together with Polakoff's answer, served to put at issue the entire tenant-landlord relationship between the parties, subject to applicable limitations periods. The operation of statutes of limitations applicable to setoffs, pursuant to section 431.70, was well within the scope of the issues pleaded and then presented at trial. The trial court did not have to accept Galindo's arguments that he believed he was required to supply only limited financial records and thus was genuinely surprised by the extent of the unpaid rent being sought from him, over the term of the tenancy. (See Campain v. Safeway Stores, Inc. (1972) 29 Cal.App.3d 362, 366 [new trial proper if new issue was injected into trial, causing genuine surprise that prejudiced other party's defense]; Smith v. Smith (1961) 195 Cal.App.2d 707, 713 [no error to deny new trial for alleged newly discovered evidence where moving party had knowledge of subject matter through discovery and testimony "but did not choose to further develop the evidence on this issue."].)
In part because of the lack of a reporter's transcript, we are unable to fully evaluate Galindo's claim that his late provision of the checks showing he paid rent in 2006 demonstrated that Polakoff committed perjury at trial, when he testified it was not paid. The court weighed the testimony and considered the equities in evaluating the facts of the case. No showing has been made that the trial court abused its discretion in evaluating the circumstances set forth in the record, concerning the progress of the trial and the showing made at the motion proceeding.
V
AWARD OF ATTORNEY FEES
A. Background
Galindo's challenge to the trial court's award of attorney fees is based on his interpretation of the limitations on affirmative relief that may be granted pursuant to section 431.70 (a time-barred cross-demand may support relief not exceeding value of relief granted to the other party). Galindo seems to be claiming that since he recovered zero dollars for breach of contract, therefore the award of attorney fees and costs to Polakoff amounted to affirmative relief on the merits of the case, that was greater than Galindo's recovery. He again argues the court misinterpreted the limitations terminology in the setoff statute, when it concluded Polakoff was the prevailing party.
After the new trial motion was heard, the court permitted the parties to submit additional briefing on the pending motion for attorney fees. With respect to costs, the court required that the ordinary costs be awarded pursuant to the memorandum of costs statutory procedure. The court heard argument on the fees request, which was made pursuant to an attorney fees clause in the lease agreement allowing an award to the prevailing party in litigation. (§ 1032, subd. (b); Civ. Code, § 1717.) The court determined that the amount being requested was in the reasonable range for the work performed.
The court then addressed the supplemental opposition filed by Galindo, in which he continued to assert that the 2013 bankruptcy discharge precluded any award of relief or attorney fees in this action. Galindo was relying on In re Marriage of Lynn, supra, 101 Cal.App.4th 120, 125 and its statement that "the discharge of a debt in bankruptcy operates as an injunction prohibiting a creditor thereafter from taking any action to collect or recover the debt." (Williams, supra, 157 Cal.App.3d at pp. 1224-1225, 1227 [family court could not effectively revive a spouse's discharged property settlement debt, by using it as an offset against other periodic payments].)
In its ruling, the court rejected Galindo's position as follows: "In this instance, Defendant persuaded the Court that Plaintiff's failure to pay two months of rent could be used to off-set Defendant's obligation to return Plaintiff's security deposit. The Court remains comfortable with this finding. Plaintiff cannot, at trial, assert that his bankruptcy action does not limit his ability to recoup his deposit, and post-trial, shield himself from an attorney fee award while inconsistently asserting a discharge order. [¶] The Court awards Defendant attorney fees in the reasonable amount of $52,407.50."
B. Analysis
We have interpreted the judgment as appealable on its determination of costs and fees, because the terms of the original judgment were not substantially changed when the amount of the award was written in. (Pt. II, ante; Grant, supra, 2 Cal.App.4th at p. 998; Pfeifer v. John Crane, Inc., supra, 220 Cal.App.4th 1270, 1316-1317.) Consistent with section 1032, the trial court identified Polakoff as the prevailing party and had the discretion to allow costs to him. The scope of the judgment included the separate fees award, which was statutorily authorized by the costs procedures and Civil Code section 1717. The attorney fees recovery, as a contractual matter, had a different source in the lease from the terms giving rise to the rent/deposit disputes.
Under section 1033.5, subdivision (a)(10)(A), attorney fees authorized by contract are allowable as costs pursuant to section 1032. In turn, section 1032, subdivision (b) allows a prevailing party to recover costs. Under section 1032, subdivision (a)(4), the definition of a prevailing party includes, as relevant here, "a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant."
Once the setoff ruling was made, Galindo as the plaintiff did not recover any breach of contract relief against Polakoff. The setoff that Polakoff received was not in the nature of affirmative relief or monetary recovery, but instead, it merely canceled out the security deposit amount to which Galindo could have been entitled for the breach of contract asserted. There is nothing in section 431.70 that supports Galindo's interpretation to equate a subsequent prevailing party attorney fees award with the relief on the underlying dispute, through allowing a setoff amount claimed pursuant to cross-demands.
Accordingly, the contractual prevailing party attorney fee recovery issues were not identical to the "relief accorded" under section 431.70. Polakoff's fee entitlement was not to be measured by the value of the relief that was only preliminarily granted to the losing party, Galindo. The trial court's reasoning is a correct application of both setoff principles and the rules for making a prevailing party determination regarding costs and attorney fees.
DISPOSITION
The judgment and order are affirmed. Costs on appeal to Polakoff.
HUFFMAN, J. WE CONCUR: McCONNELL, P. J. IRION, J.