Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC330552, Mel Red Recana, Judge.
Fingal, Fahrney & Clark and Christopher R. Clark for Plaintiff and Appellant.
Bauer & Associates, Sandra L. Bauer and Robert A. Lytle for Defendant and Respondent.
KLEIN, P. J.
Pierce & Weiss, LLP, appeals a jury award in favor of Sandra Bauer on Bauer’s cause of action for intentional interference with prospective economic advantage and the award of attorney fees in favor of Bauer. We affirm the award of damages in favor of Bauer but reverse the award of attorney fees.
FACTS AND PROCEDURAL BACKGROUND
1. Overview.
This case involves Bauer’s withdrawal from Pierce & Weiss, a Los Angeles law firm. The relationship commenced in June of 2003 when Bauer brought 75 construction defect litigation cases to Pierce & Weiss from another firm. Pierce & Weiss opened an Orange County office to handle Bauer’s cases. The 75 cases Bauer brought to Pierce & Weiss had been assigned to Bauer’s prior employer on a flat fee basis by Continental Casualty Insurance (CNA), a large construction defect insurer. During the 18 months that Bauer was a member of Pierce & Weiss, CNA assigned 70 additional construction defect cases to Pierce & Weiss. Federated Insurance also began to assign cases to the firm. These cases resulted in gross income of $1.68 million to Pierce & Weiss.
2. Bauer’s withdrawal from Pierce & Weiss.
On January 31, 2005, Bauer withdrew from Pierce & Weiss, started her own firm and took the construction defect cases with her. Bauer filed notices of association of counsel in each of the 58 active construction defect cases in the office at the time of her withdrawal. Pursuant to these notices, Bauer’s new firm, Bauer and Associates, continued to represent the clients in the cases and report to CNA. Bauer also obtained substitution of attorney forms from each of the insureds involved in the active construction defect cases. However, Pierce & Weiss refused to sign the substitutions until the insurer provided written authorization permitting Pierce & Weiss to transfer responsibility for the files to Bauer’s new firm. CNA did not provide the written authorization until June 30, 2005. In this interim, Pierce & Weiss refused to sign and return the substitutions of attorney, despite receiving demand letters from corporate counsel for several of the insureds.
On February 28, 2005, Pierce & Weiss advised Bauer by e-mail that the telephone system, the fax machine, the postage machine, the copiers and the furniture would be removed from the Orange County office on March 1, 2005. The same e-mail indicated Pierce & Weiss would take the CNA files when they moved and Pierce & Weiss and would not allocate to Bauer any portion of the flat fees CNA had paid to Pierce & Weiss.
On the evening of March 1, 2005, four partners of Pierce & Weiss, movers and an armed guard arrived at the Orange County office and removed the office equipment and furniture. Bauer retained the CNA files by entering into a handwritten agreement that required her to provide Pierce & Weiss authorizations from CNA permitting Pierce & Weiss to withdraw as counsel within two weeks or to provide Pierce & Weiss complete copies of the CNA files.
Bauer was to commence paying rent on the Orange County office space on March 1, 2005. When she failed to do so, Pierce & Weiss sued Bauer for unlawful detainer. Bauer moved her new firm from the Orange County office space.
On March 18, 2005, Pierce & Weiss sued Bauer in Los Angeles County and Bauer sued Pierce & Weiss in Orange County. The cases were consolidated and went to the jury trial in Los Angeles on various tort and contract causes of action.
3. Trial evidence.
a. General matters.
Pierce & Weiss presented evidence indicating the firm settled its obligation under the five-year lease of the Orange County office space by agreeing to pay the building $120,150.20. Pierce & Weiss sought indemnity from Bauer for this amount. Pierce & Weiss also sought liquidated damages in the amount of $287,000, which represented $2,500 for each of the 115 cases Pierce & Weiss claimed Bauer took with her. Bauer denied the liquidated damages clause was part of the partnership agreement she signed and claimed there were only 60 active cases.
Pierce claimed Bauer had been paid advances that exceeded the amount she was entitled to under the partnership agreement by $57,256. Pierce & Weiss additionally sought damages for breach of the handwritten agreement in the amount of the cost to make the copies of the files.
Bauer claimed she was owed $132,000 in unearned flat fees that were paid to Pierce & Weiss by CNA. Bauer claimed Pierce & Weiss did not accurately calculate her net profit from the Orange County office and that she was owed $105,675 under the partnership agreement. Bauer also alleged Pierce & Weiss fraudulently induced her to join the firm and converted the office furniture.
b. The dispute over the two CNA checks.
Toward the end of Bauer’s relationship with Pierce & Weiss, CNA assigned the representation of two different insureds to Pierce & Weiss and issued checks payable to Pierce & Weiss in the amounts of $12,750 and $15,000, respectively. When Pierce & Weiss learned the checks had been sent but not received, the person responsible for collections at Pierce & Weiss asked CNA to reissue the checks. CNA advised the checks had been sent to the Orange County office and had been cashed. At the request of a CNA investigator, managing partner David Pierce signed affidavits of forged instruments with respect to the checks. The bank reimbursed CNA on the check in the amount of $12,750 but not the $15,000 check.
Bauer testified she cashed the checks because she was going to do the work on the cases and had the client’s permission to represent them. Also, Pierce & Weiss had a conflict of interest in one of the cases.
c. Bauer’s claim of intentional interference with prospective economic advantage.
After Bauer left Pierce & Weiss, she went from getting 70 cases in 18 months that generated $972,570 in flat fees to 8 cases in the year after she left the firm. Bauer testified, “I had to try to mend fences . . . with clients and carriers and explain this embarrassing situation I found myself in.” Bauer indicated the “embarrassing situation” included having to replace all of her office equipment and moving to new office space after being sued for unlawful detainer.
Pierce & Weiss presented the testimony of several CNA employees, including Leroy Schmidt and Julie Guibert. Schmidt, the claims manager at CNA, testified he conducted a survey of CNA’s construction defect claim handlers and learned “they were generally dissatisfied with the results they were getting [from Bauer].” Schmidt decided not to include Bauer on CNA’s panel of approved law firms. Schmidt testified this decision had nothing to do with anything Pierce & Weiss, David Pierce or Jeffrey Weiss did.
On cross-examination, Schmidt admitted that, in early February of 2005, Bauer advised him that she had separated from Pierce & Weiss and would be handling the CNA cases. Schmidt thereafter heard rumors that Pierce & Weiss had accused Bauer of forgery and embezzlement. Schmidt could not recall from whom he had heard the rumor. Schmidt then distanced himself from this testimony and indicated he knew only that Bauer and Pierce & Weiss were involved in mutual litigation. Schmidt denied he had heard rumors of forgery at the time he made the decision not to put Bauer on the panel of approved attorneys and agreed that none of that information had any impact whatsoever on his decision.
Guibert managed numerous CNA adjusters whose cases were assigned to Bauer. In 2005, Guibert told Schmidt she did not believe Bauer should handle “the high exposure cases” because Bauer’s reporting was not adequate in that it frequently was not timely or thorough. Bauer also asked for more authority than Guibert felt was needed. Guibert told Schmidt, “I don’t want her on any of my files. That’s what I said.”
Guibert denied that either Pierce & Weiss or anyone at the firm did anything to affect her decision as to whether Bauer should handle CNA files. Guibert denied she was aware of litigation between Bauer and Pierce & Weiss in early 2005. However, Guibert admitted she subsequently heard that “a couple checks made out to Pierce & Weiss had been cashed by [Bauer].”
4. Verdict and award of attorney fees.
Pierce & Weiss recovered $38,645.98 from Bauer on a cause of action for breach of the covenant of good faith and fair dealing in the partnership agreement. On two remaining contract causes of action, one brought by Pierce & Weiss against Bauer and the other brought by Bauer against Pierce & Weiss, the jury found neither Bauer nor Pierce & Weiss had performed as required by the contract and thus could not recover against the other for breach of contract. On Pierce & Weiss’s cause of action for conversion, the jury found Pierce & Weiss had the right to possess the two CNA checks and that Bauer interfered with that right, causing damage in the amount of $15,000. On Bauer’s cause of action for intentional interference with prospective economic advantage, the jury found Pierce & Weiss intentionally interfered with Bauer’s relationship with CNA and/or Federated and awarded Bauer $81,746.94.
On all remaining causes of action, the jury denied recovery.
In post trial proceedings, the trial court awarded Pierce & Weiss attorney fees in the amount of $165,330 and awarded Bauer attorney fees in the amount of $137,320.
CONTENTIONS
Only Pierce & Weiss appealed. Pierce & Weiss contends the evidence affirmatively demonstrated Pierce & Weiss did not interfere with Bauer’s relationship with CNA and the award of attorney fees in Bauer’s favor must be reversed.
DISCUSSION
1. Substantial evidence supports the jury’s award in favor of Bauer.
Pierce & Weiss contends the evidence demonstrated it did not interfere with Bauer’s relationship with CNA or Federated, Pierce & Weiss was not involved in CNA’s decision to omit Bauer from CNA’s list of approved counsel and Pierce & Weiss had nothing to do with the reduction in the number of cases Bauer received from CNA. Pierce & Weiss claims the only evidence before the jury on the issue of causation was the testimony of CNA’s employees Schmidt and Guibert, both of whom testified Bauer was omitted from the panel of approved counsel based on her unsatisfactory performance. Pierce & Weiss notes even Bauer and her associate, Adam Salamoff, testified they did not know what Pierce or Weiss did or did not do to cause CNA to assign only eight cases to Bauer in the year after she left Pierce & Weiss. Pierce & Weiss concludes that, because uncontradicted evidence affirmatively demonstrated Pierce & Weiss did not interfere with Bauer’s economic relationship with CNA, the jury’s finding on the cause of action for intentional interference with prospective economic advantage must be set aside. (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633.)
The law to be applied is well settled. “A challenge in an appellate court to the sufficiency of the evidence is reviewed under the substantial evidence rule. [Citations.] ‘ “Where findings of fact are challenged on a civil appeal, we are bound by the ‘elementary, but often overlooked principle of law, that . . . the power of an appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted,’ to support the findings below. [Citation.] We must therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor in accordance with the standard of review so long adhered to by this court.” [Citation.]’ [Citations.]” (Lenk v. Total-Western, Inc. (2001) 89 Cal.App.4th 959, 968.)
Here, the jury made specific findings in the special verdict that Pierce & Weiss knew Bauer had a relationship with CNA and/or Federated, Pierce & Weiss intentionally engaged in “wrongful conduct” through “breach of contract, conversion of property or misappropriation of fees” that was a substantial factor in causing interference with Bauer’s economic relationships and that Pierce & Weiss acted with malice, oppression or fraud. Based on the evidence presented, the jury reasonably could conclude Pierce & Weiss conducted the various aspects of the dispute with Bauer with the intent to harm Bauer’s relationship with CNA. Thus, the evidence supports Bauer’s recovery on her cause of action for intentional interference with prospective economic advantage.
“The five elements for intentional interference with prospective economic advantage are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Youst v. Longo (1987) 43 Cal.3d 64, 71, fn. 6.) “Although varying language has been used to express [the causation] requirement, the cases generally agree it must be reasonably probable that the prospective economic advantage would have been realized but for defendant’s interference.” (Id. at p. 71.)
With respect to Pierce & Weiss’s claim Bauer failed to prove causation, Schmidt admitted that, after Bauer advised him in early February of 2005, that she had separated from Pierce & Weiss, he heard rumors Pierce & Weiss had accused Bauer of forgery and embezzlement. Although Schmidt later testified he knew only that Bauer and Pierce & Weiss were involved in mutual litigation and denied he had heard rumors of forgery at the time he made the decision not to put Bauer on the panel of approved attorneys, the jury was entitled to credit Schmidt’s initial admission and discount his assertion these allegations did not affect his decision to exclude Bauer from the panel of approved counsel.
Pierce & Weiss argues Bauer presented no evidence with respect to interference with her relationship with Federated Insurance. However, this is of no consequence given that the verdict form required a finding Pierce & Weiss interfered with Bauer’s relationship with “CNA and/or Federated.”
Pierce & Weiss also argues the jury’s finding Pierce & Weiss engaged in “wrongful conduct” with respect to the claim for intentional interference with prospective economic advantage is inconsistent with the jury’s findings against Bauer on her claims for breach of contract, fraud and conversion. However, this case presented numerous interrelated claims. The jury’s finding in favor of Bauer on some causes of action and in favor of Pierce & Weiss on others does not amount to an inconsistent verdict. For example, the fact the jury found in favor of Pierce & Weiss in the amount of $15,000 on the cause of action for conversion does not mean the jury could not also find the manner in which Pierce & Weiss set about recovering the $15,000 interfered with Bauer’s economic relationship with CNA.
In sum, the evidence supports the jury’s finding in Bauer’s favor on the cause of action for intentional interference with prospective economic advantage.
2. Attorney fees.
Pierce & Weiss contends the order granting Bauer attorney fees must be reversed because the attorney fees provision in the partnership agreement includes attorney fees attributable only to actions “on” the contract or “to enforce” the contract or due to a “breach” of the contract and does not include actions “arising out of” the contract. (Santisas v. Goodin (1998) 17 Cal.4th 599, 615; Civ. Code, § 1717, subds. (b) & (c).) Pierce & Weiss prevailed on Bauer’s cause of action for breach of contract and recovered $38,645.98 on its contract cause of action for breach of the implied covenant of good faith and fair dealing. Bauer successfully defended one of Pierce & Weiss’s two contract claims, but Bauer recovered nothing on the contract. Pierce & Weiss concludes it was the prevailing party on the contract, and there was no other basis for an award of attorney fees. Thus, the award of attorney fees in Bauer’s favor must be reversed.
The Pierce & Weiss agreement provides: “If any party to this Agreement commences an action against another party to this Agreement to interpret or enforce any terms of this Agreement, or because of the other party’s breach of any provision set forth in this Agreement, the losing party shall pay the prevailing party’s reasonable attorneys’ fees . . . .”
It appears Pierce & Weiss is correct.
Generally, we review an award of attorney fees after trial under an abuse of discretion standard. “ ‘However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees and costs in this context have been satisfied amounts to statutory construction and a question of law.’ [Citations.]” (Wakefield v. Bohlin (2006) 145 Cal.App.4th 963, 978; Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175.)
Civil Code section 1717 allows attorneys fees only to “the party prevailing on the contract,” in an “action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded . . . .” (§ 1717, subd. (a).) Civil Code section 1717 consistently has been held not to afford recovery of fees for tort claims arising out of or related to a contract. (E.g., Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129; Stout v. Turney (1978) 22 Cal.3d 718, 730; Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 709.)
Here, the trial court awarded Bauer fees based on her successful defense of Pierce & Weiss’s contract cause of action against her. However, as a matter of law, the prevailing party on the contract causes of action was Pierce & Weiss, not Bauer. It follows that Bauer was not entitled to attorney fees.
Bauer argues she was the prevailing party because her $81,746.94 recovery for intentional interference with prospective economic advantage should be included in determining the prevailing party on the contract. Bauer claims the intentional interference was a tort and a breach of two provisions of the partnership agreement, one that required partners to use good faith best efforts to transfer cases to withdrawing partners and another requiring each partner to maintain a standard of professional conduct. Bauer also argues the cause of action for intentional interference with prospective economic advantage was defined in the jury instructions to require a finding of wrongful conduct arising out of “breach of contract, conversion of property or misappropriation of fees.” Because the tort was based on breach of contract, and the attorney fees clause of the partnership agreement provided for fees in actions based on breach of the contract, Bauer concludes the trial court properly awarded her attorney fees under the Santisas rule.
Section 7.6.1 of the partnership agreement provides: “Upon notice of withdrawal, the Partners shall use their good faith efforts to transfer such matters to the withdrawing Partner as the withdrawing Partner originated . . . .” Section 8.1 of the partnership agreement requires each partner to maintain a standard of professional conduct.
These arguments fail because the jury did not find Pierce & Weiss in breach of the contract on any of the three causes of action that arose out of the contract. Thus, breach of contract was not the basis of the wrongful conduct at the heart of the intentional interference with prospective economic advantage.
Bauer’s reliance on Santisas is misplaced. Santisas held that parties to a contract may agree “ ‘the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract.’ ” (Santisas v. Goodin, supra, 17 Cal.4th at p. 608.) However, in Santisas, the parties entered into a contract which allowed a prevailing party to recover attorney fees incurred in any action “arising out of the execution of the agreement.” (Id. at p. 607; see Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1344.) The attorney fees clause in the partnership agreement is not as broadly written as the attorney fees clause in Santisas.
We conclude Bauer’s tort recovery must be excluded from consideration in determining the prevailing party on the contract causes of action. Based thereon, it is apparent that Bauer did not prevail on the contract and thus was not entitled to an award of attorney fees. We therefore reverse the award of attorney fees in Bauer’s favor.
DISPOSITION
The judgment in favor of Bauer on her cause of action for intentional interference with prospective economic advantage is affirmed; the award of attorney fees in favor of Bauer is reversed. Each side to bear its own costs.
We concur: CROSKEY, J., KITCHING, J.