Opinion
B321119
04-26-2024
PROFESSIONAL TAX APPEAL, Plaintiff and Appellant, v. BEVERLY GEMINI INVESTMENTS CORPORATION et al., Defendants and Respondents
Michael H. Lapidus for Plaintiff and Appellant. Levy, Small & Lallas, Tom Lallas and Mark D. Hurwitz for Defendants and Respondents.
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. BC705523, Rupert A. Byrdsong, Judge.
Michael H. Lapidus for Plaintiff and Appellant.
Levy, Small & Lallas, Tom Lallas and Mark D. Hurwitz for Defendants and Respondents.
LUI, P. J.
Professional Tax Appeal (PTA) settled its lawsuit for unjust enrichment before trial. Respondents paid the settlement but did not admit liability. After settling, PTA asked the trial court to impose attorney fees and prejudgment interest. The court denied PTA's request.
Respondents are Beverly Gemini Investments Corporation; Beverly Gemini Investments, LLC; and Beitler & Associates, Inc. We refer to them collectively as "BGIC."
The court did not abuse its discretion. First, no statute or contract allows for attorney fees. (Code Civ. Proc., § 1021.) Second, there is no evidence of bad faith. (Id., § 128.5.) Third, a court cannot add prejudgment interest after the parties settle their dispute. (Civ. Code, § 3288.) We affirm.
FACTS AND PROCEDURAL HISTORY
Background
PTA contracted in 2009 to file a property valuation appeal with the county assessor on behalf of Mission A.S.C., Inc. The contract entitled PTA to 40 percent of Mission's tax refund as a contingent fee for services. Mission lost its property in foreclosure in 2012, then went out of business.
BGIC purchased Mission's property from the foreclosing lender in 2014. As part of the purchase, BGIC paid Mission's delinquent property taxes, interest, and penalties. In 2015, the assessment appeal succeeded and BGIC received refunds from the county assessor.
BGIC was unaware of the 2009 PTA-Mission contract. It did not know why the county sent a refund, but deposited the checks without inquiry. In 2017, PTA learned of the refund and demanded its fee. BGIC did not respond to PTA's demand.
PTA Sues, Then Settles Before Trial
PTA sued BGIC in 2018. The complaint is not in our record, but PTA's trial brief stated that it sued for unjust enrichment and conversion. PTA argued that BGIC cannot justly retain the entire tax refund that resulted from PTA's efforts in the assessment appeal.
BGIC denied any legal obligation to PTA. However, a 2018 opinion held that PTA could proceed against a subsequent property owner on an unjust enrichment theory by proving at trial that the new owner "knew or had reason to know of [PTA's] claim for fees based on its work in procuring the property tax refunds . . . and that [PTA] had worked on a contingent fee basis." (Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc. (2018) 29 Cal.App.5th 230, 241 [addressing the sufficiency of PTA's claims on demurrer].)
The parties settled this lawsuit before trial. It is undisputed that BGIC did not stipulate to liability.
PTA Requests Interest and Attorney Fees
After settling, PTA asked the court to award prejudgment interest and attorney fees, claiming these issues were "carved out" for future resolution. PTA cited its 2009 contract with Mission and its success with the county assessor, resulting in a refund of over $177,000.
PTA opined that BGIC "needlessly prolonged the case" and failed to conduct discovery. PTA deposed BGIC's "person most knowledgeable" in 2021. One day before trial, in 2021, BGIC agreed to pay PTA 40 percent of the refund from the tax reduction. PTA requested attorney fees for "bad faith litigation" and argued that it is entitled to prejudgment interest because BGIC had no reasonable defense to PTA's lawsuit. In opposition, BGIC argued that there is no statutory basis for imposing interest or attorney fees.
At the hearing, the court said it allowed attorney fees and costs to be raised on the mistaken "assumption . . . that either there is a statute involved or there was a contract that had an attorney-fee provision." If there is a "bad faith exception" to the customary rule that parties bear their own fees, the court found "there aren't any facts to say there was bad faith." Nor is there a basis for awarding prejudgment interest because "this is a case the parties settled." It denied PTA's motion for interest and attorney fees and dismissed the lawsuit.
DISCUSSION
1. Attorney Fees
A ruling denying attorney fees is reviewed for an abuse of discretion. (Chavez v. City of Los Angeles (2010) 47 Cal.4th 970, 989.) "Awards of attorney's fees by courts are the exception rather than the rule. Generally, a court may properly award attorney's fees only pursuant to an agreement of the parties or statutory authority." (Bauguess v. Paine (1978) 22 Cal.3d 626, 634 (Bauguess).) "[T]he so-called American rule requires both winners and losers to bear their own legal fees in this as in all litigation." (Covenant Mutual Ins. Co. v. Young (1986) 179 Cal.App.3d 318, 321.)
The American rule is codified in Code of Civil Procedure section 1021: "Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys . . . is left to the agreement, express or implied, of the parties."
PTA did not produce an agreement requiring an award of legal fees to the prevailing party. (Civ. Code, § 1717, subd. (a).)
PTA contracted with Mission, not with BGIC. Nor does PTA cite a statute authorizing an award of attorney fees. Instead, PTA claims the court has "equity powers to fashion exceptions where justice requires," citing D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1 (D'Amico).
D'Amico identified two exceptions to the American rule, though neither apply to litigants D'Amico or PTA. It assumed, without deciding, that a court could "award attorney's fees to one party as a sanction for vexatious and oppressive conduct on the part of another party or its counsel." (D'Amico, supra, 11 Cal.3d at p. 27.) A few years later, the court addressed whether "a court may award attorney's fees as a sanction under its supervisory power" and concluded that "[i]t would be both unnecessary and unwise to permit trial courts to use [attorney] fee awards as sanctions." (Bauguess, supra, 22 Cal.3d at p. 637.)
The exceptions are the" 'common fund' principle" and the" 'substantial benefit' rule," both of which relate to actions that benefit a group of people. (D'Amico, supra, 11 Cal.3d at p. 25.) PTA's lawsuit benefitted only itself, not a group of people.
In response to Bauguess, the Legislature enacted Code of Civil Procedure section 128.5, authorizing trial courts to award attorney fees for" 'bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay.'" (Olmstead v. Arthur J. Gallagher &Co. (2004) 32 Cal.4th 804, 809.) Sanctionable actions or tactics include making or opposing motions, or filing and service of a complaint, answer, or other responsive pleading. (Code Civ. Proc., § 128.5, subd. (b)(1).)" 'Frivolous'" means "totally and completely without merit or for the sole purpose of harassing an opposing party." (Id., subd. (b)(2).)
PTA did not cite Code of Civil Procedure section 128.5, or attempt to meet the statute's requirements. Even if PTA had done so, the trial court did not abuse its discretion by denying attorney fees after finding no evidence of bad faith.
PTA claims BGIC acted in bad faith by denying a "clear legal entitlement." We fail to see a legal entitlement. PTA had no contract with BGIC, which bought Mission's property from a third party. PTA sued for unjust enrichment, an equitable theory. (Van de Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 854-855.) PTA concedes that it sought equitable relief, and did not claim it was entitled to contract damages.
Quoting deposition testimony that is not in our record, PTA takes BGIC to task for not realizing that PTA might claim part of a property tax refund. No evidence shows that when BGIC bought the former Mission property, it knew of PTA's existence, let alone that PTA had a claim. BGIC eventually paid PTA without admitting liability. PTA cites no authority for the notion that a defendant may be punished merely for waiting to settle a dispute. (Triplett v. Farmers Ins. Exchange (1994) 24 Cal.App.4th 1415, 1422, 1425 [a defendant cannot be sanctioned for failing to settle, or for standing on its constitutional right to a trial and demanding that the plaintiff prove her case].)
Sanctions "penalize the most egregious misconduct." (Optical Surplus v. Superior Court (1991) 228 Cal.App.3d 776, 784-785.) As the trial court found, there was no evidence of egregious, bad faith misconduct here. There was no specious motion, failure to produce a witness, or other wrongful conduct. At most, BGIC failed to settle fast enough for PTA's taste. This does not amount to a sanctionable action or tactic.
2. Prejudgment Interest
PTA seeks prejudgment interest pursuant to Civil Code section 3288: "In an action for the breach of an obligation not arising from contract, and in every case of oppression, fraud, or malice, interest may be given, in the discretion of the jury." Only an abuse of discretion would justify overturning the court's ruling on a request for interest. (Bullis v. Security Pacific National Bank (1978) 21 Cal.3d 801, 815 (Bullis).)
Prejudgment interest "is an element of damages." (Lineman v. Schmid (1948) 32 Cal.2d 204, 208-209.) Here, there was no trial, no damages award, and no judgment. PTA cites no authority for the trial court to add prejudgment interest to a voluntary settlement. PTA relies on cases that are inapposite, in which interest arose from a judgment: Bullis, supra, 21 Cal.3d at page 805 (appeal from "a judgment for damages in favor of respondents") and Lineman, at pages 205, 209 (appeal from a judgment awarding breach of contract damages).
State policy encourages settlement, which is" 'highly favored'" to reduce litigation. (Franck v. Polaris E-Z Go Div. of Textron, Inc. (1984) 157 Cal.App.3d 1107, 1118-1119.) It would discourage settlement if a defendant was subject to prejudgment interest after settling, particularly when, as here, the defendant did not admit liability. PTA's desire to collect interest had to be part of its settlement negotiations. PTA raises a new claim that the parties had a "partial settlement," but forfeited it for review by failing to raise it below. The court's dismissal of the lawsuit indicates that this was a full settlement. The court had no discretion to impose prejudgment interest on a settlement.
DISPOSITION
The order denying attorney fees and interest is affirmed. Respondents are entitled to recover their costs on appeal from appellant.
We concur: ASHMANN-GERST, J., CHAVEZ, J.