Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of Riverside County. Super. Ct. No. RIC393105 Erik Michael Kaiser, Judge.
Luce, Forward, Hamilton & Scripps, Charles A. Bird, Ronald D. Getchey; McKenna, Long & Aldridge, James A. Tabb, and Christian D. Humphreys, for Defendants and Appellants.
A. Benjamin Getchell and Mitchell S. Wagner for Plaintiffs and Respondents.
OPINION
MILLER, J.
INTRODUCTION
This case involves a buy/sell bonus agreement entered into between Chemicon International, Inc. and two of its employees, Don McCasland and Dale Dembrow (collectively plaintiffs). The agreement essentially provided that McCasland and Dembrow would receive, upon the sale of Chemicon, bonuses equal to eight percent and two percent, respectively, of the net sales price. McCasland and Dembrow eventually sued Chemicon and David Beckman, Chemicon’s founder, for breach of contract and related causes of action and, after a court trial, judgment was entered in their favor. McCasland and Dembrow were also awarded attorney’s fees in an amount corresponding to the contingent fee arrangement they had with their attorneys. On appeal, defendants contend the court erred in interpreting certain terms of the agreement upon which the amount of the bonus was predicated and also challenges the propriety of the fee award. We affirm the judgment, but reverse for a redetermination of attorney’s fees.
Except for the percentage amount of the bonus, the agreements between Chemicon and each of the plaintiffs are virtually identical. We refer to both as “the agreement.”
Beckman died on March 12, 2006, after the conclusion of trial but before entry of judgment. The appeal is brought in the names of Chemicon and Keiko Beckman (Beckman’s wife) (collectively defendants).
FACTUAL AND PROCEDURAL BACKGROUND
Chemicon, a supplier of immunological reagents, immunodiagnostics and molecular biology products to the biotechnology industry, was formed in 1981 by Beckman who, along with his wife, Keiko Beckman, were the company’s sole shareholders. In 1989, Chemicon hired McCasland and Dembrow.
A. The agreement.
In January 1989, McCasland was given an employment agreement providing that he would receive a lump sum of $500,000 or eight percent of the gross sales price, whichever was greater, upon Beckman’s sale of Chemicon. In 1991, Dembrow signed a bonus agreement providing that upon Beckman’s sale of Chemicon, he would receive a bonus equal to two percent of the net sales price. In 1992, McCasland signed a new agreement providing for a bonus payment of eight percent of the net sales price. According to the agreement, Chemicon created its “contractual bonus program” as a means of “foster[ing] a sense of common goals” and giving its long-term employees “a long-term incentive to stay and give their best.”
B. The sale of Chemicon—a chronology.
In November 2002, Serologicals Corporation wrote to the Beckmans, offering to purchase, on a debt-free basis, 100 percent of the equity interest in Chemicon.
In December 2002, counsel for the Beckmans filed a certificate of formation to form Falcon International Investment Holdings LLC.
In January 2003, counsel for plaintiffs, Benjamin Getchell, wrote to Jeffrey Linton, Vice President of Serologicals, informing him of the bonus agreements. Getchell, Dembrow, and McCasland then met with the Beckmans, who provided “some general numbers for the sale, but nothing specific, and refused to say how much the bonuses would be.” The Beckmans demanded that McCasland and Dembrow sign a “‘Clarification & Understanding’” to change the terms of the bonus agreement, i.e., to provide that the bonuses would be paid only on amounts “‘actually received by the Beckman Family Trust.’” In response to an inquiry as to why they could not keep the basic bonus agreement, Beckman indicated that if plaintiffs wanted to stick with their original agreements, the matter would have to be resolved by a third party. Beckman also implied that he could be forced to resort to the “49 percent solution,” referencing the fact that the agreement provided for bonuses only if 50 percent or more of Chemicon’s stock was sold. A few days later, Getchell learned that Linton did not know about the bonus agreements.
On February 11, 2003, Serologicals and Chemicon entered into an agreement whereby Serologicals was to purchase the stock in a debt-free Chemicon for nearly $81 million. At that time, Chemicon had debt of about $17 million. The agreement provided, among other things, that Chemicon’s lenders were to be paid directly as an element of the purchase price in order to make Chemicon debt-free at closing. In addition, $19 million of the purchase price was to be held in escrow to compensate Serologicals for direct or indirect claims or losses, including bonuses. And, pursuant to an indemnification agreement entered into between Serologicals and the Beckmans, the Beckmans indemnified Serologicals from and against any liability arising from payment of the bonuses under the agreement.
By agreement dated as of April 7, 2003, Serologicals delivered $19 million to Wilmington Trust FSB as escrow agent for the benefit of the Beckmans. A purpose of the agreement was to protect Serologicals’s rights under the indemnification agreement dated as of February 11, 2003.
In late February 2003, Getchell was informed by Russell Gold (Gold), counsel for defendants, that the sale would close on approximately March 31, 2003, and that Getchell’s clients “will each receive a bonus payment within 30 days of receipt of the money upon closing.” However, the letter also referenced the fact that a clause in the agreement provided that “payment to the employee will be held until all disputes arising from the Agreement are settled.” The letter further stated that “a substantial portion of the purchase price for Chemicon is subject to a hold back and will be placed in an escrow account for up to four years. Therefore, a substantial portion of your clients’ payments will be made over an extended period as those funds are released from escrow.” Dembrow and McCasland were also asked to sign nondisclosure agreements before any confidential information concerning the sale and the amount of the bonuses would be disclosed. Execution of an “Employee Confirmation and Release,” included with the nondisclosure agreement, would also be required, and although the amount of the bonus was not disclosed, it provided that “to permit the release of funds to me under the Agreement, I hereby confirm that I have no dispute with Chemicon . . . .” Getchell instructed his clients not to sign the nondisclosure agreements, opting instead to “defer” to Chemicon and the Beckmans to provide an honest accounting of the net sales price and agreed to have his clients sign releases when they received the bonuses.
The sale closed on April 7, 2003, at a purchase price of $81 million. The sale was consummated by means of holding companies created by Beckman for that express purpose, i.e., Falcon Charitable Trust and Falcon International Investment Holdings. The transaction was implemented by Michael Mead, an offshore insurance specialist who managed Falcon. At the direction of the Beckmans’ counsel, Mead accepted Chemicon’s stock in exchange for a private annuity agreement in favor of the Beckmans, assigning a value to Chemicon of $60 million and providing for quarterly payments of $1.3 million beginning in 2013. Additionally, Mead entered into an agreement with a Falcon offshore trust, whereby Falcon International assigned to Falcon Investment Fund the right to the proceeds from the sale of Chemicon and assumed the obligation to make the payments to the Beckmans. At this time, $17 million was wired to creditors to pay off Chemicon’s debt. Mead also wired $48 million to Falcon accounts offshore.
At trial, after counsel for the Beckmans refused plaintiffs’ offer to stipulate, uncontroverted evidence was presented that Falcon had been created for the sole purpose of providing a conduit for the proceeds from the sale of Chemicon.
On April 8, 2003, Getchell wrote to Linton, now President of Chemicon, referencing the provision in the agreement that payments were due in 30 days and asking for a calculation of amounts due. Linton responded on April 17, reiterating that under paragraph II of the agreement, “‘Bonus to be paid only on money received.’ Chemicon received no money as result of the sale,” and stating that any obligation belonged to Beckman.
The following week, Getchell asked Gold to give him a “bottom-line” number; Gold refused. On May 10, Getchell wrote to Gold requesting payment or a tender and again demanding a “bottom-line” figure. Getchell also rejected Beckman’s offer to mediate, stating “[y]our client’s offer . . . seems no more than a straw man. We would first need something to mediate, but Mr. Beckman hasn’t put forward any facts that he disputes or proposed any bottom line at all. There is no dispute from us. So, we ask again, please tell us what your position is. Advise us of the bonus amounts he is paying and the basic calculation for them . . . . Time is important to my clients. What is your client’s bottom line?” Gold replied on May 16 that the bonuses had “not yet accrued” and that McCasland and Dembrow had breached confidentiality.
At trial, Chemicon maintained that this occurred when McCasland and Dembrow, as part of their efforts to obtain their bonuses, told Getchell about the sale of Chemicon, and Getchell then informed Linton about the bonus agreements.
C. The complaint.
McCasland and Dembrow filed their lawsuit on May 15, 2003. The complaint initially alleged only breach of contract. However, after learning from defendants’ first amended answer that Beckman’s stock had been transferred from the Beckman Family Trust to Falcon International Investment Holdings LLC and thus there had been no money received by Beckman to trigger payment under the agreement, plaintiffs amended their complaint to allege intentional and negligent interference with the agreement. Later, after learning through discovery that $19 million of the purchase price had been placed in escrow to indemnify Chemicon and Serologicals for potential liabilities of Chemicon, including bonuses for McCasland and Dembrow, plaintiffs filed a second amended complaint and obtained a preliminary injunction in an effort to preserve enough of the $19 million in escrow for payment of bonuses.
In their third amended complaint, plaintiffs alleged causes of action for breach of contract and breach of implied covenant of good faith and fair dealing; intentional interference with contract; negligent interference with prospective economic advantage; declaratory relief to impose resulting or constructive trust; and transfer in fraud of creditors. Defendants filed a motion for summary judgment/adjudication, which was denied.
Later, after plaintiffs filed their third amended complaint, defendants brought another motion, and this time the court granted summary adjudication as to the cause of action for negligent interference. The court also denied a summary judgment motion brought on behalf of Serologicals.
On August 19, 2005, defendants released a total of approximately $4.2 million to McCasland and Dembrow.
Trial commenced in early November of 2005, and lasted the better part of 14 days. Among those testifying were Dembrow, McCasland, Linton, Getchell, and Gold. Moreover, as agreed by the parties, Beckman’s videotaped deposition was played in its entirety as part of the trial.
Pursuant to stipulation, Falcon was dismissed as a defendant in October 2004, and in late November 2005, Serologicals was similarly dismissed from the case. By these stipulations, both parties agreed to be bound by whatever judgment and order the court entered concerning the $19 million escrow.
D. The court’s statement of decision.
Based on its interpretation of the bonus agreement and evidence adduced at trial, the court concluded that “debt is included in the number used to calculate the bonuses.” The court reasoned that the Beckmans personally paid off Chemicon debt; that Beckman agreed to a gross sale price to determine McCasland’s first bonus agreement; that Beckman did not include the term “debt” in either McCasland’s or Dembrow’s bonus agreement; and that the example set forth in the agreements “does not reflect a deduction [for] debt.”
In its tentative decision filed on January 20, 2006, however, the court concluded “[t]he term ‘net sale of Chemicon’ when read in conjunction with the phrase ‘bonus is to be paid on money received,’ does not include debt as part of the bonus payment.” The court clarified its position at a hearing held on March 10, 2006.
The court found that Chemicon “breached the bonus agreements before a dispute arose over the terms and conditions of the bonus agreements. A timely unconditional tender of the bonus amounts was not made by Chemicon. Therefore, Chemicon cannot invoke the dispute clause.” The court considered extrinsic evidence with regard to the meaning of “net sales price” in the agreement. Looking at the language of the agreement, the court noted the definition of “net sales price” does not include debt because it is defined as “‘gross amount of sale less any sales commission to the outside brokers, accounting fees directly related to the purchase, or other related costs.’” “Debt is not generally thought to be a ‘cost’[;] it is a liability.” Finally, the court considered the fact that the Beckmans had paid off the debt in 1990, around the time the agreements were made, and thus there was “some evidence the Beckmans considered the debt as a personal obligation.”
The court ruled in favor of Chemicon, however, as to plaintiffs’ contention the proceeds derived from the sale of Chemicon Ltd. (Europe) should be included for purposes of the percentage bonuses. Furthermore, the court found that plaintiffs had failed to meet their burden of proof as to all causes of action with the exception of breach of contract.
Finally, the court found that plaintiffs were the prevailing parties, and in reaching that decision had considered the fact that Chemicon had assigned the obligation to the Beckmans, who had not tendered payment before May 7, 2003. Thus, plaintiffs were to recover their bonus payments, interest and attorney’s fees from May 7, 2003, with the amount of fees to be determined by appropriate motion.
E. The judgment.
Judgment was entered on May 15, 2006. Based upon a net sales price of $77,642,970, McCasland was awarded $6,211,438, less $3,361,882 (the amount received on August 16, 2005), plus 10 percent interest of $1,639,290, for a total amount of bonus and interest owing of $4,488,846; Dembrow was awarded $1,552,860, less $840,470 (the amount received on August 16, 2005), plus 10 percent interest of $410,454, for a total of bonus and interest owing of $1,122,844.
F. Motions to amend or vacate the judgment, and for attorney’s fees.
Before entry of judgment, plaintiffs filed their motion for attorney’s fees. In essence, they argued, “the reasonable fees to which they are entitled are the percentage fees they actually incurred.” Further, they indicated that the so-called “lodestar” figure amounted to $959,525, but that their clients were still responsible for the amounts due under their contingent fee agreement. After judgment was entered, defendants filed a motion to amend or vacate the judgment. For purposes of attorney’s fees, defendants argued the Beckmans were prevailing parties against McCasland and Dembrow. Defendants further argued that McCasland and Dembrow were required to allocate fees between their one successful cause of action and all of the others. Finally, they challenged plaintiffs’ contingent fee claim, asserting that it amounted to an unprecedented and improper 2.8 multiplier on top of their lodestar figure. The court heard argument on these matters on July 7, 2006.
G. Award of attorney’s fees.
By order filed August 4, 2006, the court denied defendants’ motion and granted plaintiffs’ motion for attorney’s fees. The court found that the Beckmans and Chemicon “were inextricably merged and that the Beckmans were responsible with Chemicon for not paying plaintiffs their bonuses.” In addition, the court found that “the tort action was intertwined with the contract action. Plaintiffs are thus entitled to attorneys’ fees . . . and the Beckmans are not.” In awarding $2,187,120 in fees to McCasland and $546,961 to Dembrow, the court stated: “The lawsuit was hard fought on both sides. There were numerous difficult issues. The actual contingent fee of 25% before trial and 30% on commencement of trial is less than customary percentages of 33-1/3% before trial and 40% on commencement of trial and is reasonable.”
DISCUSSION
A. In calculating the amounts due plaintiff as bonuses, the trial court correctly included as part of the net sales price both Chemicon’s $17 million debt and the $19 million deposited into escrow.
The agreement provides: “Bonus is to be determined as a percent of net sale of Chemicon. Net sales price would be the gross amount of sale less any sales commission to outside brokers, accounting fees directly related to the purchase, or other related costs. [¶] . . . [¶] Bonus is to be paid only on money received. For example, if 60% of Chemicon was sold for twelve million dollars, all bonuses would be based upon the twelve million dollars.”
Defendants contend the trial court misinterpreted the agreement insofar as it (1) awarded plaintiff’s bonus on Chemicon’s $17 million debt, which was paid as part of the stock sale, and (2) accelerated plaintiffs’ entitlement to the $19 million escrow. In construing the provisions of the agreement upon which defendants’ contentions are predicated, we apply well-settled rules.
“‘The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.’ [Citation.] ‘Such intent is to be inferred, if possible, solely from the written provisions of the contract.’ [Citation.] ‘If contractual language is clear and explicit, it governs.’ [Citation.]” (Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 868.) If the language is ambiguous or uncertain, we interpret the contract against the party who caused the uncertainty. (Civ. Code, § 1654; International Billing Services, Inc. v. Emigh (2000) 84 Cal.App.4th 1175,1184.) We interpret the terms in context by considering the contract as a whole and giving effect to every part of the agreement, “‘each clause helping to interpret the other.’” (Stamm Theatres, Inc. v. Hartford Casualty Ins. Co. (2001) 93 Cal.App.4th 531, 538; Civ. Code, § 1642.)
Pursuant to Civil Code section 1647, “[a] contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.” Thus, extrinsic evidence may be received to prove a meaning to which the language is “reasonably susceptible.” (Pacific Gas & Elec. Co. v. G. W. Thomas Drayage Co. (1968) 69 Cal.2d 33, 37.) Where the court receives extrinsic evidence and finds it is undisputed, the inferences to be drawn from that evidence and the interpretation of the contract remain issues of law. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166, fn. 3.) In that instance, both the inferences and the contract’s interpretation are reviewed de novo. (Parson v. Bristol Development Co. (1965) 62 Cal.2d 861, 866, fn. 2.)
However, “where the interpretation of the contract turns upon the credibility of conflicting extrinsic evidence which was properly admitted at trial, an appellate court will uphold any reasonable construction of the contract by the trial court. . . .” (Warburton/Buttner v. Superior Court (2002) 103 Cal.App.4th 1170, 1180.) Thus, “[w]here there is conflicting parol evidence that requires a resolution of credibility issues, the appellate court will be guided by the substantial evidence test. [Citation.]” (Id. at p. 1181.)
Applying the foregoing principles, we conclude that the term “net sales price” includes both the debt of $17 million and the escrowed funds of $19 million.
1. The term “net sales price” includes Chemicon’s debt.
Defendants contend the clause, “Bonus is to be paid only on money received,” “screams that all . . . charges [that actually reduce the benefits to the shareholder] must be deducted.” Insisting that the provision can only be interpreted to mean “no bonus on debt,” and that the term “net” by definition means “after debt,” they assert that “[r]ead as a whole, the text can have only the meaning that ‘[n]et sales price’ is identical to ‘money received’ by the selling shareholder.” We cannot agree. As we see it, Chemicon, who drafted the agreement, could only have intended the words “money received” to mean that upon which the bonus would be calculated, and not literally the amount of cash received in the transaction.
We agree with plaintiffs that defendants’ position ignores the rule that words will be given the ordinary meaning used by the parties. (Civ. Code, § 1644.) As plaintiffs point out, the term “net sales price” is defined in the agreement as “the gross amount” less specified deductions. Debt, however, is not one of the deductions specified. Further, the term “gross” means “without or before deductions.” According to plaintiffs, to give “debt” the meaning ascribed by Chemicon would be to give the employees an equity interest in the stock rather than an interest in the sales price—which is what the court found. In this regard, we note that Beckman himself testified that he did not want to grant stock to plaintiffs.
In reaching its decision, the trial court considered the undisputed testimony of McCasland and Dembrow to the effect that Beckman never said that debt was to be deducted in calculating the net sales price. McCasland testified that he and Beckman had discussed the fact that the bonus would be paid only on money received, which he understood to mean “on that portion [of Chemicon] sold” and not on “a prorated, theoretical full value of Chemicon.” Dembrow testified that Beckman did not go over any of the terms of the agreement with him. The court also noted that the first time the word “debt” was mentioned as a deduction was in the “clarification and understanding” which Beckman demanded be signed by plaintiffs in 2003, but which was refused. The court also considered the fact that the Beckmans had paid off any debt of Chemicon in 1990 and that they considered the debt to be their personal obligation. Thus, the court impliedly found that it was objectively reasonable for plaintiffs to expect that any debt would not be deducted for purposes of calculating their bonuses.
2. The term “net sales price” includes the $19 million escrow.
The trial court concluded that plaintiffs were entitled to immediate payment of their percentage interest in the $19 million deposited into escrow because the escrow was for Chemicon’s benefit, and Serologicals’s deposit into escrow meant that Chemicon had “received money.” Defendants contend the court erred in improperly accelerating what it describes as plaintiffs’ “conditional entitlement to be paid if and as the $19 million escrow is released to Falcon.” They maintain that it was improper to characterize the escrowed funds as “money received” until their release to the seller under the indemnity and escrow agreements, which they say were intended to protect Serologicals’s investment. We disagree. Simply stated, where defendants deposited the proceeds from the sale to Serologicals, and what they intended to do with those proceeds, have nothing at all to do with McCasland’s and Dembrow’s entitlement under the agreement. Indeed, the escrowed funds were part of the purchase price and as such, were subject to the formula for determining the amount of plaintiffs’ bonuses.
We reject plaintiffs’ contention that defendants essentially waived this issue in that Chemicon’s counsel conceded at trial that plaintiffs were entitled at that time to a percentage of the $19 million in escrow. During closing argument, counsel stated that it is just a “timing difference” and “we are not disputing [plaintiffs] are entitled to $1.9 million at this point.” In taking this position, plaintiffs rely heavily on the words “at this point.” We disagree with that interpretation. In fact, counsel for Chemicon made it clear his position was that plaintiffs were not entitled to an immediate payment on the escrow hold back. Thus, a more likely interpretation is that the words “at this point” were intended to modify “we are not disputing,” rather than plaintiffs “are entitled to $1.9 million.”
B. Substantial evidence supports the trial court’s finding that Chemicon breached the contract by not tendering payment on or before the due date under the contract.
The agreement provides: “Legal fees regarding any disagreement or legal disputes arising from this agreement will be deducted [from] the employee[’]s portion of payment. Payment to employee will be held until all disputes are settled.”
Defendants contend Chemicon was entitled to await resolution of any dispute about the bonuses before making any payment to McCasland and Dembrow. The trial court disagreed, finding by a preponderance of the evidence that “Chemicon breached the bonus agreements before a dispute arose over the terms and conditions of the bonus agreements. A timely unconditional tender of the bonus amounts was not made by Chemicon. Therefore, Chemicon cannot invoke the dispute clause.” The court also found that the letters written by Getchell to Linton and Gold “do not raise a dispute over the amount of the bonus payments.”
Contending that the objective existence of a dispute—even if not memorialized in writing—should have been enough for the provision to apply, defendants urge us to examine the above-referenced letters. Having done so, we conclude they do not establish that a dispute existed.
In his first letter to Linton, dated January 20, 2003, Getchell wrote: “The purpose of this letter is simply to provide notice to Serologicals Corporation of the contracts . . . .” In the next paragraph, Getchell wrote: “This letter is sent only to provide the requisite notice and to ensure all rights that Mr. Dembrow and Mr. McCasland may have vis-à-vis Chemicon are preserved with regard to the sale of the company stock.” In his second letter, dated April 8, 2003, Getchell acknowledged that the sale had been completed and urged Linton to provide him with Chemicon’s calculation of the bonus amounts due and “any release agreements required or, otherwise, forward its preferred process to resolve this matter of the bonus payments.” The final letter, dated May 10, 2003, addressed to Gold, reiterates Getchell’s request for a bottom-line figure. In responding to Chemicon’s offer to mediate the matter, Getchell wrote: “Presently, your client’s offer to mediate seems no more than a straw man. We would first need something to mediate, but Mr. Beckman hasn’t put forward any facts that he disputes or proposed any bottom line at all. There is no dispute from us. So, we ask again, please tell us what your position is.”
We do not find that these letters evidence the existence of a dispute between plaintiffs and Chemicon. In any event, even if the final letter could be construed as evidence of a dispute, it was written after May 7, 2003, the date on which the bonus payments were due. Furthermore, both Dembrow and McCasland testified that there was no dispute because nothing had been provided to them which could have been the basis of a dispute.
Nonetheless, defendants essentially contend they were not required to give Getchell a bottom-line figure “when it was objectively true that McCasland and Dembrow had rejected Chemicon’s position about how to calculate bonus.” They point to Gold’s testimony, wherein he said he did not give Getchell a bottom-line number because they were far apart in their interpretation of the contract: “We were so far apart that it was imperative in my view to sit down and meet with Mr. Getchell. Go over all the documents with him and try to explain to him and show him what the deductions and debt were. [¶] And his comment to me that unless I’m in his ballpark there is no point in doing that.” We are not persuaded. As plaintiffs assert, it would not have been an idle act for Gold to give Getchell a bottom-line figure “because it would have given plaintiffs an opportunity to determine whether to accept the offer or risk litigation over any disputes they chose to assert.”
Defendants further contend the fact that plaintiffs employed counsel long before May 7, 2003, and signed a contingent fee agreement anticipating litigation, demonstrates there was a dispute. We disagree. Retaining a lawyer as a precautionary measure does not, without more, mean that a dispute is already in existence. Indeed, attorneys are commonly retained to be available to their clients if and when their services are needed.
Finally, as plaintiffs assert, defendants apparently interpret the dispute clause to mean that Chemicon was permitted to withhold payment as long as a dispute existed, even if Chemicon was the cause of the dispute. Plaintiffs cite Ecco-Phoenix Electric Corp. v. Howard J. White, Inc. (1969) 1 Cal.3d 266, a case in which our high court rejected as “patently inequitable” the literal interpretation of an attorney’s fee clause providing that “plaintiff is to pay the costs and fees incurred whenever any litigation is necessary, regardless of who brings the action and who is responsible for making it necessary.” (Id. at p. 272.) Applying that same rationale, plaintiffs maintain—and we agree—that defendants may not urge a “‘patently inequitable’” interpretation of the agreement, which Chemicon drafted, permitting Chemicon to withhold payment because of a dispute and litigation it caused and thereby avoid liability for accrued interest and attorney’s fees to plaintiffs.
C. The trial court acted within its discretion in refusing to award attorney’s fees to the Beckmans as prevailing parties; however, reversal of the fee award is required because it cannot be ascertained from the record if the trial court properly determined the amount.
1. The trial court exercised sound discretion in finding that plaintiffs were the prevailing parties and that the Beckmans were not.
As indicated above, the agreement provided that “[l]egal fees regarding any disagreement or legal disputes” would be charged to the employee, i.e., McCasland and Dembrow. However, under Civil Code section 1717, subdivision (a), the “otherwise unilateral right to attorney fees [is] reciprocally binding upon all parties to actions to enforce the contract. [Citation.]” (Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1342.) Thus, it follows that whichever side prevailed is entitled to attorney’s fees.
Here, in denying defendants’ motion and granting plaintiffs’, the trial court found that the Beckmans and Chemicon “were inextricably merged and that the Beckmans were responsible with Chemicon for not paying plaintiffs their bonuses.” And, having found that “the tort action was intertwined with the contract action,” the court concluded that “[p]laintiffs are thus entitled to attorneys’ fees . . . and the Beckmans are not.”
On appeal defendants maintain the court erred in not awarding attorney’s fees to the Beckmans who, they insist, “prevailed” on the tort cause of action and were also compelled to defend the contract causes of action alleged against them. Defendants also contend the court did not have discretion to deny the Beckmans their attorney’s fees. We cannot agree.
“Generally, the trial court’s determination of the prevailing party for purposes of awarding attorney fees is an exercise of discretion which should not be disturbed on appeal absent a clear showing of abuse of discretion. [Citations].” (Kim v. Euromotors West/The Auto Gallery (2007) 149 Cal.App.4th 170, 176.)
Plaintiffs contend the Beckmans waived this issue by failing to file a motion in the trial court. Defendants, insisting that the issue has not been forfeited, maintain there was no need to file an express request for attorney’s fees because the trial court “directed the parties before judgment to address the issue of attorney fees.” Thus, they assert the Beckmans were not required to file a motion and that to have done so would have been an idle act. Without deciding if forfeiture has occurred, we conclude the court did not abuse its discretion in determining that an award to the Beckmans was not warranted.
The evidence supports the court’s finding that the acts of Chemicon and the Beckmans were inextricably intertwined. Defendants contend otherwise, asserting that the Beckmans did not control Chemicon. In essence, they concede that the Beckmans controlled Chemicon before the transaction closed, before payment was due, but argue that even after the closing, the payments were not made because of the dispute they allege existed between the parties, not because the Beckmans were calling the shots. We are not persuaded. Indeed, Chemicon and the Beckmans were represented for most of the litigation by the same attorney, who filed a joint answer in which he took the position that bonuses were not due until 2013. That Chemicon and the Beckmans were represented by different counsel at the time of trial does not, without more, signify that their interests were no longer aligned or that they were not, as the trial court found, “inextricably merged.” In this regard, Beckman testified that during the time he and his wife were the sole shareholders of Chemicon, he viewed the corporation and himself as “one and the same.” Furthermore, the refusal to comply with the request of counsel for McCasland and Dembrow for a bottom-line figure was made on behalf of both Chemicon and the Beckmans.
As stated in Hsu v. Abbara (1995) 9 Cal.4th 863, 877: “[I]n determining litigation success, courts should respect substance rather than form, and to this extent should be guided by ‘equitable considerations.’ . . . [A] party who is denied direct relief on a claim may nonetheless be found to be a prevailing party if it is clear that the party has otherwise achieved its main litigation objective. [Citations.]”
Here, although plaintiffs did not receive “direct relief” against the Beckmans, they certainly did achieve their “main litigation objective.” As plaintiffs aptly assert, “[i]n finding the Beckmans and Chemicon ‘inextricably merged,’ the court thus recognized that an inequity would result if it allowed the Beckmans to recover their attorneys’ fees for a lawsuit they caused.” We agree and refuse to interfere with the trial court’s exercise of discretion.
2. Reversal of the attorney’s fee award is required as it cannot be ascertained from the record that the award was not based solely upon the contingent fee agreement between plaintiffs and their attorneys.
In the trial court, plaintiffs sought and received an award of attorney’s fees equal to the amount they actually incurred under their contingent fee arrangement with their attorneys. Defendants contend this was error, as the agreement’s terms “are no more than a factor that a court may consider.” Defendants’ position has merit. While we are unable to say with certainty that the amount of the award was unjustified, we conclude that remand is required for a redetermination of the amount in light of applicable principles.
“While the amount to be awarded as attorney fees is a matter committed to the court’s discretion [citation], courts have developed general rules to guide the exercise of that discretion in determining a reasonable fee. [Citation.]” (People ex rel. Dept. of Transportation v. Yuki (1995) 31 Cal.App.4th 1754, 1767 (Yuki).) “A trial court may not determine a ‘reasonable’ attorney fee solely by reference to the amount due under a contingency agreement. [Citations.] However, the court may consider the contingent nature of the fee agreement as one factor in determining a reasonable fee. Other factors to be considered by the court, where appropriate, include: the novelty and difficulty of the questions involved and the skill required to perform the legal services properly; the likelihood that the acceptance of this particular employment would preclude other employment by the attorneys; the amount involved and the results obtained; the time limitations imposed by the clients or by the circumstances of the case; the nature and length of the professional relationship with the client; the experience, reputation, and ability of the attorneys who performed the services; the time and labor required of the attorneys; and the informed consent of the client to the fee agreement. [Citations.]” (Id. at pp. 1770-1771.)
“[T]he fee setting inquiry in California ordinarily begins with the ‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate. ‘California courts have consistently held that a computation of time spent on a case and the reasonable value of that time is fundamental to a determination of an appropriate attorneys’ fee award.’ [Citation.] The reasonable hourly rate is that prevailing in the community for similar work. [Citations.] The lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided. [Citation.] Such an approach anchors the trial court’s analysis to an objective determination of the value of the attorney’s services, ensuring that the amount awarded is not arbitrary. [Citation.] [¶] Thus, applying the lodestar approach to the determination of an award under Civil Code section 1717, the Court of Appeal in Sternwest Corp. v. Ash (1986) 183 Cal.App.3d 74, 77 . . . explained: ‘Section 1717 provides for the payment of a “reasonable” fee. After the trial court has performed the calculations [of the lodestar], it shall consider whether the total award so calculated under all of the circumstances of the case is more than a reasonable amount and, if so, shall reduce the section 1717 award so that it is a reasonable figure.’” (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095-1096 (PLCM).)
The trial court has broad discretion in determining what constitutes reasonable attorney’s fees. (PLCM, supra,22 Cal.4th at p. 1096.) Moreover, “‘[t]he value of legal services performed in a case is a matter in which the trial court has its own expertise. [Citation.] The trial court may make its own determination of the value of the services contrary to, or without the necessity for, expert testimony. [Citation.] The trial court makes its determination after consideration of a number of factors, including the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure, and other circumstances in the case.’ [Citation.]” (Ibid.)
Clearly, the trial court may supplement its lodestar figure with a fee enhancement, the purpose of which is primarily “to compensate the attorney for the prevailing party at a rate reflecting the risk of nonpayment in contingency cases as a class. To the extent a trial court is concerned that a particular award is excessive, it has broad discretion to adjust the fee downward or deny an unreasonable fee altogether.” (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1137-1138 (Ketchum).) In Ketchum, noting that the trial court is not required to include a fee enhancement for such factors as contingent risk, our high court observed that it “retains discretion to do so in the appropriate case,” and that “the party seeking a fee enhancement bears the burden of proof.” (Id. at p. 1138.) The court continued: “In each case, the trial court should consider whether, and to what extent, the attorney and client have been able to mitigate the risk of nonpayment, e.g., because the client has agreed to pay some portion of the lodestar amount regardless of outcome. It should also consider the degree to which the relevant market compensates for contingency risk . . . under [Serrano v. Priest (1977) 20 Cal.3d 25].” (Ibid.)
“The economic rationale for fee enhancement in contingency cases has been explained as follows: ‘A contingent fee must be higher than a fee for the same legal services paid as they are performed. The contingent fee compensates the lawyer not only for the legal services he renders but for the loan of those services. The implicit interest rate on such a loan is higher because the risk of default (the loss of the case, which cancels the debt of the client to the lawyer) is much higher than that of conventional loans.’ [Citation.] ‘A lawyer who both bears the risk of not being paid and provides legal services is not receiving the fair market value of his work if he is paid only for the second of these functions. If he is paid no more, competent counsel will be reluctant to accept fee award cases.’ [Citations.]” (Ketchum v. Moses, supra, 24 Cal.4th at pp. 1132-1133.)
Plaintiffs rely on Glendora Community Redevelopment Agency v. Demeter (1984) 155 Cal.App.3d 465, a condemnation case in which an award 12 times the amount of the actual hourly fees was upheld on appeal. The court’s statement of decision indicated that it was awarding fees in accordance with the respondents’ contingent fee agreement. The court expressly said that the fees were reasonably and necessarily incurred and that they were reasonable based upon consideration of the factors which the appellate court directed it to consider on remand. The Court of Appeal concluded, “while a trial court, in the exercise of its discretion, is not bound by the terms of an attorney fee contract, it should, nevertheless, consider those terms and even award attorney fees in the same amount as would be called for by the terms thereof so long as other factors also bearing on reasonableness are considered as well.” (Id. at p. 473.) The reviewing court was careful to point out, however, that “the trial court may not do so without considering whether an award in the amount set by the agreement is reasonable in the context of all of the factors which we have set forth. However, we are not equating the contingency fee agreement with reasonable attorney fees.” (Ibid.) The Court of Appeal had before it the trial court’s statement of decision wherein the court “wrote at length on each of the factors necessary to a determination of reasonableness.” (Id. at p. 475.)
We are not as fortunate. Here, the trial court’s reference to the factors it had considered is limited to the following oral remarks: “Well, considering the statement that I put on the record, and considering how hard-fought this entire litigation was, and the numerous issues that were difficult, and the pretrial work put in by all the parties, the Court does not find that a contingency fee of 25 percent and 30 percent, in light of the general fee in litigation, as I understand it, is one-third and 40 percent, that the request for attorney’s fees by the two plaintiffs, the Court does not find that to be unreasonable. Under the circumstances, taking into consideration the nature of this litigation’s difficulty, the skill required, the skill employed in handling the litigation, the efforts by the attorneys on both sides with respect to this litigation, and the—I guess you could say the intricacies of the litigation, the Court would grant the attorney fee award for . . . Mr. McCasland in the sum of $2,187,120, and for Mr. Dembrow in the sum of $546,961.”
Presumably the court was referring to the following: “[W]ith respect to the motion to amend the judgment and/or vacate the judgment, the following statements apply also to the motion for attorney’s fees, because it’s clear to the Court that the acts of Chemicon and the Beckmans were inextricably merged. [¶] First, the Beckmans and Chemicon asserted an affirmative defense that plaintiffs’ bonuses were not due until 2013, when trust payments began. Chemicon refused to provide any information concerning the calculations of the bonuses on or before May 7, 2003, which was the due date for the bonus payments. Chemicon contended that payment of the bonus agreements was Beckman’s obligation. Beckman and Chemicon entered into an indemnity agreement where Beckman agreed to indemnify Chemicon for the bonus payments, and Beckman kept representing that he was going to make the payments, and the payments were never made, nor did Beckman ever send to the plaintiffs any indication prior to the lawsuit of what the bonus payments would be.”
While the court did mention some of the factors which trial courts are instructed to consider in determining the reasonableness of a fee award, including the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, and the attention given, we cannot say that the mere articulation of these factors, without an explanation as to their relationship to the particular case at hand, is sufficient to support an award which is exactly the same as the amount calculated pursuant to the contingent fee agreement.
Defendants further contend the trial court abused its discretion in declining to apportion its award of attorney’s fees between the contract and tort causes of action. Citing Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-130, defendants contend “[w]hen an action contains both contract and non-contract causes of action, the party claiming attorney fees under a contract is entitled only to fees incurred to litigate the contract matters.”
“‘Apportionment of a fee award between fees incurred on a contract cause of action and those incurred on other causes of action is within the trial court’s discretion.’ [Citation.] ‘A trial court’s exercise of discretion is abused only when its ruling “‘exceeds the bounds of reason, all of the circumstances before it being considered.’” [Citation.]’ [Citation.]” (San Dieguito Partnership v. San Dieguito River Valley Regional etc. Authority (1998) 61 Cal.App.4th 910, 920.) However, a fee award need not be apportioned “where plaintiff’s various claims involve a common core of facts or are based on related legal theories.” (Drouin v. Fleetwood Enterprises (1985) 163 Cal.App.3d 486, 493.)
Here, the trial court found that “the tort action was intertwined with the contract action.” Although plaintiffs point to that finding in support of their position that apportionment was not required, defendants insist that the court’s finding pertains not to the intertwining of tort and contract issues, but rather, the relationship between Chemicon and the Beckmans. The order states: “The Court finds that the Beckmans and Chemicon were inextricably merged and that the Beckmans were responsible with Chemicon for not paying plaintiffs their bonuses. The Court also finds that the tort action was intertwined with the contract action. Plaintiffs are thus entitled to attorneys’ fees, as set forth in the Court’s Statement of Decision, and the Beckmans are not.”
We disagree with defendants’ interpretation. It seems to us abundantly clear that the court’s finding as to the intertwining of the tort and contract actions is separate and apart from its finding regarding the relationship between Chemicon and the Beckmans. Moreover, we agree with plaintiffs that “the core issues and the evidence adduced at trial all were factually intertwined. All causes of action were to assure that plaintiffs could collect their bonuses from Chemicon or, alternatively, the Beckmans, and do so now (rather than 2013), and that money would be available for the bonuses.” Accordingly, we find no abuse of discretion in refusing to apportion the fee award.
DISPOSITION
The cause is remanded to the trial court for a new hearing to determine, in accordance with the views expressed herein, the amount of attorney’s fees to be awarded to plaintiffs. In all other respects, the judgment is affirmed. Each party is to bear their own costs on appeal.
Citing Code of Civil Procedure section 170.1, subdivision (c), defendants have asked us to “consider whether in the interests of justice [we] should direct that further proceedings be heard before a trial judge other than the judge whose judgment or order was reviewed by the appellate court.” The motion was predicated on allegations of potential bias in that Judge Kaiser participated along with plaintiffs’ attorneys in a seminar regarding attorney’s fees held more than six months after plaintiffs’ fee motion was heard. Plaintiffs having filed opposition, we ordered that the ruling be reserved for decision with the appeal. We now deny the motion. Because Judge Kaiser is no longer sitting as a judicial officer in the superior court, the issue appears to be moot. In any event, should Judge Kaiser nonetheless be assigned to conduct a new hearing, defendants may proceed under section 170.6, subdivision (a)(2), which authorizes a motion to disqualify a judge “following reversal on appeal of a trial court’s final judgment, if the trial judge in the prior proceeding is assigned to conduct a new trial on the matter.”
We concur: HOLLENHORST, Acting P.J. McKINSTER, J.