Case Number: BC588007 Hearing Date: April 09, 2018 Dept: 47

Christine Petrikas Ireland v. Charles Dunn Company, Inc., et al.

MOTION FOR ATTORNEY’S FEES

MOVING PARTY: Defendants Charles Dunn Company, Inc. and Hamid Soroudi

RESPONDING PARTY(S):Plaintiffs Christine Petrikas Ireland, an individual and as trustee of the Petrikas Family Bypass Trust and the Petrikas Family Survivor Trust, Petrikas Family Limited Partnership, and 14426 Palmdale Road, LLC

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff alleges that Defendants breached fiduciary duties owed to Plaintiff in connection with real estate transactions in order to obtain commissions.

This Court (Judge Weintraub presiding) granted Defendants’ motion to compel arbitration in part and denied it in part. The Court of Appeal reversed the portion of the order denying arbitration and ordered the trial court to grant the motion to compel arbitration in its entirety.

Defendants Charles Dunn Company, Inc. and Hamid Soroudi move for an award of attorneys’ fees and costs following interlocutory appeal.

TENTATIVE RULING:

Defendants Charles Dunn Company, Inc. and Hamid Soroudi’s motion for attorneys’ fees and costs following interlocutory appeal is DENIED.

Plaintiffs’ request for sanctions pursuant to CCP § 128.5 is DENIED.

DISCUSSION:

Plaintiff’s Evidentiary Objections

The Court declines to rule on Plaintiffs’ Evidentiary Objections to Defendants’ evidence, as the Court has not considered Defendants’ evidence on the merits.

Motion For Attorney’s Fees and Costs Following Interlocutory Appeal

By virtue of obtaining a reversal of Judge Weintraub’s order denying the motion to compel arbitration, whereby the Court of Appeal directed the trial court to enter a new order granting Defendants’ motion to compel arbitration in its entirety, Defendants merely obtained a right to resolve the instant dispute in arbitration. In other words, Defendants were successful in transferring this dispute to an alternative forum. The California Supreme Court recently held that his does not make the party who obtains such an interim victory the prevailing party for purposes of recovering contractual attorney’s fees pursuant to Civil Code § 1717.

[S]ection 1717, subdivision (a), provides in part: “In any 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 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, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.” Subdivision (b)(1) of the statute provides: “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) [relating to voluntary dismissals and settlements], 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.”

The trial court ruling on a motion for fees under section 1717 is vested with discretion in determining which party has prevailed on the contract, or that no party has. (Hsu v. Abbara, supra, 9 Cal.4th at p. 871 (Hsu).) “If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees.” (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109 [86 Cal. Rptr. 2d 614, 979 P.2d 974].) As we explained in Hsu, a party who obtains an unqualified victory on a contract dispute, including a defendant who defeats recovery by the plaintiff on the plaintiff’s entire contract claim, is entitled as a matter of law to be considered the prevailing party for purposes of section 1717. (Hsu, supra, at p. 876.) But “when the results of the [contract] litigation are mixed,” the trial court has discretion under the statute to determine that no party has prevailed. (Ibid.)

In Hsu, the trial court granted the defendants’ motion for judgment on the complaint for breach of contract but denied the defendants’ motion for fees under section 1717. (Hsu, supra, 9 Cal.4th at pp. 868–869.) The plaintiffs contended the trial court could properly conclude neither party had prevailed, and deny the fee request, because the defendants had acted inequitably in the disputed transaction. (Id. at pp. 869, 871.) We rejected the plaintiffs’ interpretation of section 1717, holding that when one party has achieved an unqualified victory on the only disputed contract claim, that party has prevailed; the trial court may not invoke equitable considerations unrelated to litigation success as grounds to deny fees under the statute. (Hsu, supra, at pp. 876–877.)

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We articulated our general holding in Hsu, that the prevailing party determination depended on success vis-à-vis the disputed contract claim or claims, as follows: “Accordingly, we hold that in 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.’” (Hsu, supra, 9 Cal.4th at p. 876.)

Applying these principles, we conclude the trial court acted within its discretion in determining that Score had not “prevail[ed] on the contract” within the meaning of section 1717, subdivision (b)(1), by moving the litigation to Florida. While Score had succeeded in enforcing the forum selection clauses in two of its agreements with DisputeSuite, it had not defeated DisputeSuite’s breach of contract and related claims. Because none of those claims had yet been resolved and the litigation was still ongoing in Florida, the California trial court was in no position to “compare the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their litigation objectives”; that comparison could be made only “upon final resolution of the contract claims.” (Hsu, supra, 9 Cal.4th at p. 876.) Score was therefore not the prevailing party as a matter of law, and the trial court could reasonably decide that at the time fees were sought “neither party [had] prevailed sufficiently to justify an award of attorney fees.” (Scott Co. v. Blount, Inc., supra, 20 Cal.4th at p. 1109.)

. . . [*975] . . .

The Drummond court did not rule out the possibility a defendant might prevail on the contract within the meaning of section 1717 by winning a purely procedural dismissal. If refiling in another forum would be legally barred—by the statute of limitations, for example—or would be otherwise impossible or impracticable, the defendant might be deemed the prevailing party without obtaining a resolution on the merits. (Drummond, supra, 149 Cal.App.4th at p. 53.) In Drummond, however, the attorney had already refiled his contractual claim in the civil action. “The dismissal of his petition in the probate matter did not defeat his contract claims; it merely deflected or forestalled them.” (Ibid.)

The same may be said of Score’s achievement in the California trial court. In obtaining dismissal in favor of a Florida venue, Score did not defeat DisputeSuite’s breach of contract and related claims, but succeeded only in moving their resolution to another forum. This is not a case in which the claims’ prosecution in another forum is barred or even doubtful; DisputeSuite had already refiled in Florida at the time Score requested its fees for obtaining dismissal in California. Far from “obtain[ing] a ‘simple, unqualified win’” on the contract claims (Hsu, supra, 9 Cal.4th at p. 877), Score merely obtained a different forum in which to oppose them. Such a victory was insufficient to make Score the prevailing party as a matter of law.

The court in Lachkar v. Lachkar (1986) 182 Cal.App.3d 641 [227 Cal. Rptr. 501] reached a similar conclusion in the arbitration context. After granting the plaintiffs’ petition to compel arbitration of a dispute arising from a contract for sale of a business (without any civil action on the contract having yet been filed), the trial court awarded the plaintiffs their attorney fees expended on the petition to compel under the sale agreement’s attorney fee provision. [*976] (Id. at pp. 643–645, 647.) The appellate court reversed. Applying the then-current version of section 1717, which defined the prevailing party as “‘the party who is entitled to recover costs of suit,’” the court reasoned the statute required a “final disposition of the rights of the parties” and a reckoning by the trial court of the “‘net success of the respective parties,’” which could not be ascertained “‘until the final termination of the suit.’” (Id. at pp. 648–649.) In ordering the dispute to arbitration, the trial court had not determined the parties’ substantive rights; no party had yet prevailed within the meaning of section 1717. (Lachkar v. Lachkar, at p. 649; accord, Green v. Mt. Diablo Hospital Dist. (1989) 207 Cal.App.3d 63, 76 [254 Cal. Rptr. 689].)

Although decided under an earlier version of section 1717, Lachkar’s conclusion accords with Drummond’s: A party does not become the prevailing party under the statute merely by obtaining a forum for resolution of the contractual dispute or by moving it from one forum to another. Lachkar’s view that the prevailing party cannot be determined until the contractual dispute reaches a final disposition and the parties’ respective achievements can be compared prefigured this court’s direction that the trial court should decide which party, if either, has prevailed “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.’” (Hsu, supra, 9 Cal.4th at p. 876.)

Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515 [141 Cal. Rptr. 3d 834] (Frog Creek), also an arbitration case, followed Lachkar and Drummond in denying fees for prevailing on an interim motion that did not resolve the parties’ substantive dispute. In Frog Creek, a property owner filed a civil action against a builder for breach of an agreement to construct improvements on the property; the builder cross-complained. The defendant builder twice petitioned to compel arbitration under the contract. The trial court denied the first petition but, pursuant to an appellate court order, granted the second. In arbitration, the defendant won a substantial award. (Frog Creek, supra, at pp. 521–523.) At issue on appeal was the propriety of awarding the plaintiff, rather than the defendant, attorney fees incurred opposing the first, unsuccessful, petition to compel arbitration. (Id. at p. 523.)

The Frog Creek court held that under section 1717, attorney fees for the first petition to compel should have been awarded to the defendant, who prevailed on the contract dispute as a whole, rather than to the plaintiff, who won only an interim victory on the first petition. That victory did not make the plaintiff the prevailing party on the contract because denial of the petition to compel arbitration “did not resolve the parties’ contract dispute; instead, the merits of that dispute remained before the court in [the plaintiff’s] complaint and [the defendant’s] cross-complaint.” (Frog Creek, supra, 206 Cal.App.4th at p. 546.) That dispute was ultimately resolved in the defendant’s favor through arbitration. The defendant was thus the prevailing party on the contract and, under prior appellate decisions, was “entitled to all of its fees, including fees incurred during the lawsuit in proceedings where it did not prevail.” (Ibid.)

Although Frog Creek is not closely analogous to this case procedurally—the petition to compel for which fees were sought there did not result in moving the litigation to another forum, as the dismissal motion here did—it supports the denial of fees in this case by its invocation of the general principle, equally applicable here, that fees under section 1717 are awarded to the party who prevailed on the contract overall, not to a party who prevailed only at an interim procedural step. (Frog Creek, supra, 206 Cal.App.4th at p. 546; accord, Presley of Southern California v. Whelan (1983) 146 Cal.App.3d 959, 961 [196 Cal. Rptr. 1] [reversing an award of fees under § 1717 to plaintiff who obtained reversal of defense summary judgment on appeal, on grounds that the overall victor of the contract action “is yet to be determined”].) While section 1717, subdivision (a), entitles the prevailing party only to its reasonable attorney fees, allowing the trial court in its discretion “to exclude from a fee award the fees incurred by a prevailing party in making frivolous procedural maneuvers,” the general rule remains that the prevailing party is entitled to all reasonable fees, without offset for interim victories by the other party. (Presley of Southern California v. Whelan, supra, at p. 963; see Mustachio v. Great Western Bank (1996) 48 Cal.App.4th 1145, 1148, 1150 [56 Cal. Rptr. 2d 33] [plaintiff who prevailed on contract action was entitled to her reasonable fees under § 1717, including fees expended on multiparty appeal, even though appeal resulted in reversal of a punitive damages award].)

As was the case for the plaintiff in Frog Creek, here Score prevailed only on an interim motion that did not resolve the parties’ contract dispute. Whether Score will ultimately be the overall victor, and become entitled to its attorney fees pursuant to the agreements, remains to be seen.

. . .

[*979]

. . .

. . . But we hold here that the trial court properly considered the fact that DisputeSuite’s contract claims remained to be resolved in Florida, where it had refiled the action, in determining that neither party had yet prevailed on the contract. We therefore disapprove Profit Concepts Management, Inc. v. Griffith, supra, 162 Cal.App.4th 950 and PNEC Corp. v. Meyer, supra, 190 Cal.App.4th 66 to the extent they state the prevailing party determination under section 1717 must be made without regard to the contract litigation’s continuation in another forum.

Score also relies on Turner v. Schultz (2009) 175 Cal.App.4th 974 [96 Cal. Rptr. 3d 659] (Turner), which affirmed a fee award to defendants who obtained dismissal of the plaintiff’s San Francisco action seeking to enjoin arbitration of a contract dispute between the parties that had been ordered by a Contra Costa County court in an action filed by the same plaintiff. (Id. at pp. 977–979.) The appellate court concluded the trial court had properly awarded fees to the defendants under the contract and section 1717, because the dismissed San Francisco action was distinct substantively and procedurally from the action continuing in Contra Costa: “The fees at issue were incurred in connection with an independent complaint for declaratory and injunctive relief. … [T]he only issue before the court—whether the arbitration should be allowed to proceed—was resolved in defendants’ favor in this discrete legal proceeding. … Under the circumstances, it appears that defendants’ entitlement to attorney fees in this legal action is independent of the outcome of the arbitration of the merits of the underlying dispute … .” (Turner, at p. 983.) The court also observed that it was the plaintiff “who initiated both actions; he must accept the consequences of forcing defendants to fight on two fronts.” (Id. at p. 985.)

The California and Florida actions in the present case were not substantively independent in the manner of the San Francisco and Contra Costa actions in Turner. Whereas in Mr. Turner’s San Francisco action only the question of arbitration was at issue, and not the substance of the contractual dispute being litigated in Contra Costa County, here DisputeSuite’s California lawsuit put at issue the entirety of its claims against Score, claims that, at the time the California court denied Score’s fee motion, were still being litigated in Florida. Nor did DisputeSuite choose to make Score “fight on two fronts” (Turner, supra, 175 Cal.App.4th at p. 985); DisputeSuite initiated its second action only after Score successfully applied to dismiss the California suit in favor of possible litigation in Florida. Turner thus does not suggest the superior court in this case abused its discretion in denying attorney fees for a preliminary decision determining the proper forum.

. . .

The Christensen court did not discuss section 1717’s definition of “prevailing party” or whether the defendants’ defeat of the petition to compel arbitration should be considered merely an interim victory, given that the plaintiff’s civil action had been dismissed without prejudice. (See Christensen, [*981] . . .

Score argues that an award of fees under section 1717 should not require a victory on the merits of the contractual dispute, as opposed to a victory on procedural grounds. We agree. A procedural victory that finally disposes of the parties’ contractual dispute, such as an involuntary dismissal with prejudice and without any likelihood of refiling the same litigation in another forum, may merit a prevailing party award of fees under section 1717. The flaw in Score’s claim to be the prevailing party here is not that its victory in the California trial court was procedural but that it was not dispositive of the contractual dispute. By the time of the trial court’s decision on fees, that dispute was already being litigated in a Florida court.

Score also warns that a failure to award attorney fees here will encourage “distant forum abuse,” especially in debt collection cases: “unscrupulous creditors will be encouraged to file consumer collection actions in the wrong forum, knowing that a dismissal based on forum non conveniens will never trigger contractual fee shifting.” We do not, however, hold fees may never be awarded for obtaining a dismissal on grounds of improper forum, only that to deny fees here, where the action had been promptly refiled in the appropriate forum, was not an abuse of the court’s discretion. And as noted earlier (ante, fn. 1), the fees may ultimately be shifted should the defendant prevail in the contract action. Finally, if a defendant believes the action has been filed in California for an improper purpose, such as to harass the defendant or cause him or her needless litigation costs, the defendant may seek sanctions under Code of Civil Procedure section 128.7, which may include attorney fees incurred as a result of the improper filing. (Id., subds. (b)(1), (d).)

DisputeSuite.com, LLC v. Scoreinc.com (2017) 2 Cal.5th 968, 973-81 (bold emphasis and underlining added).

Defendants’ argument that attorneys’ fees are proper because the motion to compel arbitration was a discrete action is not persuasive. This lawsuit (BC588007) was initiated when Plaintiff filed her Complaint on July 13, 2015 alleging causes of action against breach of fiduciary duty, constructive fraud, fraud, negligence, undue influence, violation of B & P Code § 17200, and declaratory relief. On September 8, 2015—in the context of the already-existing lawsuit filed by Plaintiff—Defendants brought a motion to compel arbitration. Thus, Defendants’ motion to compel arbitration was not a “discrete action.” In order to constitute a “discrete action,” before Plaintiff filed a lawsuit, Defendants would have had to institute an independent lawsuit by filing a petition to compel arbitration (and thus obtaining a BSXXXXXX case number), whereby the only issue presented in the proceeding would be whether or not the Court should issue arbitration.

“In the absence of any existing contract action, a … petition [to compel arbitration] may be filed independently, in which case it commences an independent lawsuit to enforce the agreement to arbitrate. … ‘The right to file a petition to compel arbitration rests on the agreement of the parties and upon the arbitration statutes, not on the existence of a legal action.’ … However, where, as in the present case, there is an existing lawsuit involving the same underlying contractual dispute, the petition to compel arbitration must, under [Code of Civil Procedure] section 1292.4, be filed within the existing suit. Section 1292.4 provides, ‘If a controversy referable to arbitration under an alleged agreement is involved in an action or proceeding pending in a superior court, a petition for an order to arbitrate shall be filed in such action or proceeding.’ …

Roberts v. Packard, Packard & Johnson (2013) 217 Cal.App.4th 822, 839.

Indeed, as the Second District recognized in Roberts, even obtaining a victory on a petition to compel would not entitle Defendants to an award of attorney’s fees where the dispute awaits resolution in arbitration:

Thus, we conclude the trial court erred in awarding attorney fees and costs to defendants for prevailing on the petition to compel arbitration filed in this lawsuit. Only one side—plaintiffs or their former attorneys—can prevail in enforcing the contingency fee agreement, and the determination of the prevailing parties must await the resolution of plaintiffs’ causes of action by an arbitrator. Attorney fees under section 1717 may be awarded only to the parties that prevail in the “action.”

Roberts v. Packard, Packard & Johnson (2013) 217 Cal.App.4th 822, 839-43.

Because Plaintiffs may very well prevail on their claims in arbitration, Defendants are not the “prevailing party” on the purchase agreements for purpose of recovering contractual attorney’s fees pursuant to Civil Code § 1717.

Accordingly, the motion for attorney’s fees and costs is DENIED.

Plaintiffs’ request for sanctions pursuant to CCP § 128.5 against Defendant for brining this motion is DENIED. The Court does not find that Defendants’ filing of this motion was the result of bad faith actions or tactics, or that the motion was frivolous or solely intended to cause unnecessary delay. CCP § 128.5(a).

Moving Party to give notice, unless waived.

IT IS SO ORDERED.

Dated: April 9, 2018 ___________________________________

Randolph M. Hammock

Judge of the Superior Court