Opinion
A120324
2-27-2009
GLOBAL REACH INVESTMENT CORPORATION, Plaintiff and Appellant, v. BURLINGAME INVESTMENT CORPORATION, Defendant and Respondent.
Not to be Published in Official Reports
Global Reach Investment Corporation (Global Reach) appeals an award of attorney fees and costs made under Civil Code section 1717 to Burlingame Investment Corporation (BIC). The court dismissed Global Reachs action to collect on several promissory notes after Global Reach failed to post a court-ordered undertaking as security for BICs fees and costs. Global Reach argues that because the dismissal was based on a procedural issue and there was no final determination of Global Reachs contract claims, BIC was not the prevailing party on the contract. We conclude BIC was entitled to attorney fees because it successfully defended Global Reachs action. (See Hsu v. Abbara (1995) 9 Cal.4th 863, 877.) We therefore affirm the trial courts order awarding attorney fees to BIC as the prevailing party.
FACTUAL AND PROCEDURAL BACKGROUND
According to the allegations of the operative complaint, Global Reach is a Panamanian corporation and the assignee of several promissory notes executed by BIC. Each note contains a provision that entitles the payee to recover its attorney fees and costs incurred in any effort necessary to enforce the note. Global Reach filed this action against BIC seeking to recover principal and interest due on the notes, as well as attorney fees and costs.
BIC moved under Code of Civil Procedure section 1030 to require Global Reach to file an undertaking to secure an award of BICs attorney fees and costs. Section 1030 requires such an undertaking when the plaintiff is a foreign corporation, costs and attorney fees may be awarded in the action, and "there is a reasonable possibility that the moving defendant will obtain judgment in the action or special proceeding." (§ 1030, subds. (a)-(c).) Following briefing and argument, the court granted BICS motion in mid-April 2007, finding there was a reasonable possibility BIC would obtain judgment. The court ordered Global Reach to post a $1 million undertaking within 30 days or suffer dismissal.
A few days later, Global Reach formed a California subsidiary called Global Reach Collection, Inc. (GRC). Global Reach then assigned the promissory notes and its claims thereunder to GRC. On April 20, 2007, Global Reach moved to substitute GRC as a plaintiff in Global Reachs action against BIC and to amend the complaint. Global Reach also sought reconsideration of the courts order that required Global Reach to post security under Code of Civil Procedure section 1030. BIC opposed the motions and argued, inter alia, that the assignment was a sham designed to evade the courts order for an undertaking and to allow Global Reach to pursue its claims against BIC through a judgment-proof alter ego subsidiary. The trial court denied both motions. Global Reach later told the court "The formation of GRC and assignment of claims would have been unneeded if the Court had denied defendants motion to post security," and described the assignment of its claims to GRC as "a way to escape the trap" of section 1030.
GRC was wholly owned by Global Reach. In exchange for the assignment of the notes and Global Reachs claims, GRC issued 4,210,881 shares of common stock to Global Reach. GRC had no assets other than the assigned notes and claims, no employees or revenues, and no real property.
After the 30-day period for Global Reach to post the court-ordered undertaking expired, BIC moved under Code of Civil Procedure section 1030, subdivision (d) to dismiss the action. Global Reach opposed dismissal, and argued that the need for the bond had been obviated by the assignment of its claims to GRC. Two days before the hearing on BICs dismissal motion, GRC filed a separate action against BIC to recover on the assigned notes.
Code of Civil Procedure section 1030, subdivision (d) provides: "If the plaintiff fails to file the undertaking within the time allowed, the plaintiffs action or special proceeding shall be dismissed as to the defendant in whose favor the order requiring the undertaking was made."
Upon Global Reachs unopposed request, we take judicial notice of several documents filed in GRCs action against BIC, to the extent those documents are relevant to the issues raised by this appeal. Those documents include GRCs complaint for damages filed June 11, 2007, and the trial courts November 2007 order that stayed GRCs action pending resolution of the case here on appeal.
The court granted BICs motion to dismiss due to Global Reachs failure to comply with the courts order to post an undertaking. BIC then moved for an award of approximately $1.2 million in attorney fees under Civil Code section 1717. The court found BIC was the prevailing party under section 1717, and awarded BIC $810,000 in attorney fees. Global Reach timely appealed.
Global Reachs appeal of the dismissal was untimely and dismissed by this court in February 2008. (Global Reach Investment Corporation v. Burlingame Investment Corporation (Feb. 11, 2008, A118969) [nonpub. opn.].)
BIC also sought costs of $12,373.76 and Global Reachs motion to tax costs was denied by the trial court.
In July 2008, we granted BICs unopposed motion to augment the record on appeal with the reporters transcript of the hearing on the attorney fees motion. We note the transcript is also contained in the appellants appendix as an exhibit to the supplemental declaration of BICs counsel in support of BICs motion for attorney fees.
DISCUSSION
Global Reach contends BIC was not entitled to attorney fees under Civil Code section 1717 because the dismissal of Global Reachs suit was based on its failure to post an undertaking under Code of Civil Procedure section 1030, and did not constitute a determination of the merits of the underlying contract claims. Thus, Global Reach argues that BIC was not the prevailing party on the contract. We disagree. California law does not require that the merits of underlying contract claims be determined before attorney fees may be awarded to a prevailing party. (See, e.g., Elms v. Builders Disbursements, Inc. (1991) 232 Cal.App.3d 671 [attorney fees recovered where plaintiff failed to bring action to trial within mandatory five-year deadline]; see also Wong v. Thrifty Corp. (2002) 97 Cal.App.4th 261, 263, 265 [lessor entitled to attorney fees after accepting lessees offer to compromise]; cf. Bank of Idaho v. Pine Avenue Associates (1982) 137 Cal.App.3d 5, 15 [trial court properly deferred determination of plaintiffs claim for attorney fees following reversal of demurrer without leave to amend because there was no final disposition].)
The parties differ on the standard we must employ to resolve this appeal. Global Reach argues our review is de novo, while BIC argues we should reverse the trial court only if we conclude there was an abuse of discretion. In light of Global Reachs challenge to the applicability of Civil Code section 1717 as authority for the courts award of fees, we agree that our standard of review is de novo. (Blickman Turkos, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 894.)
Civil Code section 1717 provides in relevant part: "(a) In any action on a contract, where the contract specifically provides that attorneys fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract . . . shall be entitled to reasonable attorneys fees in addition to other costs. [¶] . . . [¶] (b)(1) The court, upon notice and motion by a party, shall determine who is the party prevailing on the contract for purposes of this section, whether or not the suit proceeds to final judgment. Except as provided in paragraph (2) [governing actions "voluntarily dismissed or dismissed pursuant to a settlement of the case"], the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. The court may also determine that there is no party prevailing on the contract for purposes of this section." "[T]he statute contemplates that a party prevailing on a contract will `receive attorney fees as a matter of right . . . whenever the statutory conditions have been satisfied." (Estate of Drummond (2007) 149 Cal.App.4th 46, 50, quoting Hsu v. Abbara, supra, 9 Cal.4th at p. 872.)
"When a defendant obtains a simple, unqualified victory by defeating the only contract claim in the action, [Civil Code] section 1717 entitles the successful defendant to recover reasonable attorney fees incurred in defense of that claim if the contract contained a provision for attorney fees." (Hsu v. Abbara, supra, 9 Cal.4th at p. 877 [concluding "[t]he trial court has no discretion to deny attorney fees to the defendant in this situation by finding that there was no party prevailing on the contract"].) "[I]n deciding whether there is a `party prevailing on the contract, the trial court is to compare the relief awarded on the contract claim or claims with the parties demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by `a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions." (Id. at p. 876.)
This is not a case where the judgment "must be considered good news and bad news to each of the parties" (Kytasty v. Godwin (1980) 102 Cal.App.3d 762, 774), or "where the victory and loss is evenly divided . . . ." (Nasser v. Superior Court (1984) 156 Cal.App.3d 52, 59.) As the trial court observed during the hearing on the attorney fees motion, BIC "got what they wanted" when the case was dismissed because "this lawsuit is over for them," and Global Reach "[took] nothing by this suit." When Global Reachs attorney argued the dismissal was not a "final resolution of the case," the trial court further explained: "were talking . . . only about this particular lawsuit because thats the only thing in front of me right now. As far as this lawsuit is concerned, its over."
Global Reach relies on the Sixth Districts decision in Drummond to argue the trial court was wrong. In that case, the appellate court had previously determined that an attorneys probate petition to recover fees from will contestants who were his former clients was barred by the compulsory cross-complaint rule when the former clients had previously filed a civil action against the attorney for fraud. (Estate of Drummond, supra, 149 Cal.App.4th at p. 49.) Under those circumstances, the court affirmed the trial courts exercise of its discretion to deny the clients motion for attorney fees, based upon their achieving dismissal of the attorneys probate petition. The Court of Appeal observed that "appellants obtained only an interim victory, based on [the attorneys] having attempted to pursue his claims in the wrong forum." (Id. at p. 51.) "Dismissal of the probate petition thus . . . determined nothing except that [the attorney] had to pursue his claims against appellants in the civil case." (Id. at p. 52; see also Otay River Constructors v. San Diego Expressway (2008) 158 Cal.App.4th 796, 807 [Drummond dismissal "simply moved action to another forum"].)
The Drummond court also noted that "Nothing prohibited [the attorney] from taking up his claims in the other department; indeed he did so, and has now recovered a judgment against appellants. . . . [¶] . . . even accepting appellants premise that the court below had the power to award fees, . . . the interim nature of appellants success provided a sound basis for a discretionary finding that neither party prevailed on the contract." (Estate of Drummond, supra, 149 Cal.App.4th at pp. 53-54, fn. omitted.)
Global Reachs reliance on Drummond is misplaced. In this situation, there is no pending litigation between Global Reach and BIC and the lawsuit between them has terminated in BICs favor. GRCs separate action against BIC is not a relevant consideration to determine who was the prevailing party as between Global Reach and BIC in the action between them. (See Profit Concepts Management, Inc. v. Griffith (2008) 162 Cal.App.4th 950, 955 [defendant dismissed for lack of personal jurisdiction was properly awarded attorney fees under Civil Code section 1717, despite pending case in another jurisdiction]; Cole v. BT & G, Inc. (1983) 141 Cal.App.3d 995, 998 [no bar to award of attorney fees to defendants as prevailing parties in action on confession of judgment when independent lawsuit was required to pursue defendants liability for the obligation under the contract].) While Global Reach argues that Civil Code section 1717 requires that the party awarded fees must prevail "on the contract," the Supreme Court explained in Hsu that the Legislature "evidently [used that language] to emphasize that the determination of prevailing party for purposes of contractual attorney fees was to be made without reference to the success or failure of noncontract claims." (Hsu v. Abbara, supra, 9 Cal.4th at pp. 873-874; cf. Estate of Drummond, supra, 149 Cal.App.4th at p. 51 ["the phrase `prevailing on the contract . . . implies a strategic victory at the end of the day, not a tactical victory in a preliminary engagement"].) The only claims asserted in this case by Global Reach were contractual, and BIC prevailed against all of them when the action was involuntarily dismissed.
Our conclusion is also supported by the principle of mutuality of remedy that Civil Code section 1717 is intended to advance. "[A] party is entitled to attorney fees under section 1717 `even when the party prevails on grounds the contract is inapplicable, invalid, unenforceable or nonexistent, if the other party would have been entitled to attorneys fees had it prevailed." (Hsu v. Abbara, supra, 9 Cal.4th at p. 870.) There is no question that Global Reach would have been entitled to fees had it prevailed on its claim. The principle of mutuality of remedy supports an award of fees to BIC.
Global Reach also argues that if BIC defeats the separate action brought by GRC to collect on the notes, it can claim all its fees, including those it incurred in securing the dismissal of this case. But there is no assurance that BICs efforts in this case will be considered to have been necessarily incurred in a successful defense of the action brought by GRC. (See Carroll v. Import Motors, Inc. (1995) 33 Cal.App.4th 1429, 1437-1439.)
Civil Code section 1717 provides "the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract," and directs the trial court to "determine who is the party prevailing on the contract for purposes of this section, whether or not the suit proceeds to final judgment." (§ 1717, subd. (b)(1).) Section 1717 does not preclude a party who obtains an involuntary dismissal, as BIC did here, from being considered the prevailing party. (Cf. § 1717, subd. (b)(2) ["Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section"].) Nor does California law require that all possible litigation be completed before a defendant who prevails in an action on the contract may be awarded attorney fees under section 1717. (See, e.g., Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 784, 786 [attorney fees awarded to defendants upon denial of plaintiffs petition to compel arbitration where plaintiffs dismissed complaint without prejudice, and court recognized that plaintiffs may "seek to renew their litigation"]; Pueblo Radiology Medical Group, Inc. v. Gerlach (2008) 163 Cal.App.4th 826, 828-829 [proper award of attorney fees under section 1717 to defendants who prevailed on alter ego issue, despite continuing litigation of breach of contract claim]; Otay River Constructors v. San Diego Expressway, supra, 158 Cal.App.4th at p. 807 ["courts have awarded attorney fees to a party obtaining an appealable order or judgment in a discrete legal proceeding even though the underlying litigation on the merits was not final"]; Carroll v. Import Motors, Inc. (1995) 33 Cal.App.4th 1429, 1437 [defendants were prevailing parties within meaning of section 1717 when court dismissed action after striking complaint for violation of compulsory cross-complaint rule]; Cole v. BT & G, Inc., supra, 141 Cal.App.3d at pp. 996-998 [defendants who successfully vacated confession of judgment were prevailing parties entitled to attorney fees under section 1717 even though litigation on the contract was not final].) The court did not err when it awarded BIC attorney fees as the prevailing party within the meaning of section 1717 following the involuntary dismissal of Global Reachs action on the contract.
We will not address the parties arguments regarding whether further litigation to enforce the underlying notes is barred by the statute of limitations or whether equitable tolling would preclude such a defense to GRCs suit. Those issues arise in separate litigation between GRC and BIC, have not yet been addressed by the trial court, and are not properly before us for review.
DISPOSITION
The trial courts award of attorney fees and costs is affirmed.
We concur:
McGuiness, P.J.
Jenkins, J.