Filed 11/27/19 Kaddu, Inc. v. Gauze CA6

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

KADDU, INC. et al.,

Cross-complainants and Respondents,

v.

ARLETTE GAUZE et al.,

Cross-defendants and Appellants.

H045090

(Santa Clara County

Super. Ct. No. 1-13-CV-241439 )

Appellants Arlette Gauze and Remy Sanouillet appeal from a postjudgment order denying their motion for attorney fees under Civil Code section 1717. We reverse and remand with directions.

I. FACTUAL AND PROCEDURAL BACKGROUND

This case arises out of a transaction between Sandrine Cornet, who is Gauze’s daughter and Sanouillet’s stepdaughter, and respondent Kaddu, Inc. (Kaddu) for the purchase of a restaurant (the Restaurant) in downtown Mountain View.

Cornet sued Kaddu, among others, for breach of contract and other causes of action based on the transaction. Her second amended complaint, filed in July 2013, alleged that she began working at the Restaurant as a waitress in 2005. She became manager in 2007. In late 2011, she entered into an agreement to purchase the Restaurant and paid a $200,000 deposit. In January 2012 Cornet incorporated Opa Verde. Later that month, Opa Verde entered into a Business Purchase Agreement for the purchase of the Restaurant from Kaddu.

The Business Purchase Agreement identified Opa Verde as “Buyer” and “Kaddu, Inc., Surjit Brar” as “Seller.” Paragraph No. 31 of the Business Purchase Agreement stated: “In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney fees and costs from the non-prevailing Buyer or Seller, except as provided in paragraph 42A.” In paragraph No. 42A, the Buyer and Seller agreed “to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action.” Paragraph No. 42A further provided that a party that “commences an action without first attempting to resolve the matter through mediation . . . shall not be entitled to recover attorney fees, even if they would otherwise be available to that party in any such action.”

Kaddu filed a cross-complaint alleging that Cornet and Opa Verde had breached the agreement to purchase the Restaurant. Kaddu later added Gauze and Sanouillet as defendants and asserted claims for breach of contract, declaratory relief, and accounting against them. Kaddu alleged two alternative theories of Gauze and Sanouillet’s liability: that they were in an undisclosed partnership or joint venture with Cornet and Opa Verde to purchase the Restaurant or that they were alter egos of Opa Verde. In its prayer for relief Kaddu sought “[a]ttorneys’ fees pursuant to paragraph 31 of the Business Purchase Agreement and any other applicable law.”

Gauze and Sanouillet successfully moved for summary judgment and obtained a judgment of dismissal in their favor. They then moved for attorney fees under section 1717, subdivision (a). The trial court denied Gauze and Sanouillet’s motion on August 2, 2017, reasoning that the attorney fee provision “specifically limits the recovery of fees to one of the defined parties to the agreement.” Gauze and Sanouillet timely appealed.

II. DISCUSSION

A. Legal Principles and Standard of Review

We review de novo whether section 1717 provides a legal basis for an award of attorney fees. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 894 (Blickman Turkus); Plotnik v. Meihaus (2012) 208 Cal.App.4th 1590, 1615.)

Section 1717, subdivision (a) provides, in relevant part, that “[i]n 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.”

“Section 1717 was enacted to establish mutuality of remedy where [a] contractual provision makes recovery of attorney’s fees available for only one party [citations], and to prevent oppressive use of one-sided attorney’s fees provisions. [Citation.]” (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128 (Reynolds).) Therefore, a party prevailing on a contract claim generally is entitled to fees under section 1717 “ ‘ “whenever that party would have been liable under the contract for attorney fees had the other party prevailed.” ’ ” (Hjelm v. Prometheus Real Estate Group, Inc. (2016) 3 Cal.App.5th 1155, 1168.)

Given section 1717’s purpose of ensuring mutuality of remedy, courts have held “ ‘that a party is entitled to attorney fees under section 1717 “even when the party prevails on grounds the contract is inapplicable, invalid, unenforceable or nonexistent, if the other party would have been entitled to attorney’s fees had it prevailed.” [Citations.]’ [Citation.] ‘If section 1717 did not apply in this situation, the right to attorney fees would be effectively unilateral—regardless of the reciprocal wording of the attorney fee provision allowing attorney fees to the prevailing attorney—because only the party seeking to affirm and enforce the agreement could invoke its attorney fee provision.’ ” (Linear Technology Corp. v. Tokyo Electron Ltd. (2011) 200 Cal.App.4th 1527, 1535.)

Similarly, courts have held that a prevailing “nonsignatory defendant,” meaning one who is not a party to the contract at issue but was sued on the “contract as if he were a party to it,” is entitled to attorney fees under section 1717 because the “plaintiff would clearly [have been] entitled to attorney’s fees should [he or she have prevailed] in enforcing the contractual obligation against the defendant.” (Reynolds, supra, 25 Cal.3d at p. 128.) For example, in Reynolds, the plaintiff sued the shareholders and directors of two insolvent corporations seeking to hold them personally liable on an alter ego theory for the corporations’ debts. One of the claims was based on unpaid promissory notes, which included a provision for attorney fees. The defendants prevailed and were awarded attorney fees. Our Supreme Court concluded that the defendants were entitled to attorney fees under section 1717, despite never having signed the promissory notes, because “they would have been liable for attorney’s fees pursuant to the fees provision had plaintiff prevailed . . . .” (Reynolds, supra, at p. 129; see Burkhalter Kessler Clement & George LLP v. Hamilton (2018) 19 Cal.App.5th 38, 46 [“even though Hamilton was not a party to the contract, she is entitled to recover her attorney fees under section 1717, because Burkhalter would have been entitled to recover its attorney fees against Hamilton had it prevailed on its alleged alter ego theory of liability”].)

B. Legal Principles and Standard of Review

Gauze and Sanouillet argue that Reynolds is directly on point and, under our Supreme Court’s reasoning in that case, they are entitled to attorney fees under section 1717. Kaddu responds that this court’s decision in Blickman Turkus, and not Reynolds, is controlling. In Blickman Turkus, the plaintiff sued for breach of a commission agreement between the defendant and a third party; the plaintiff claimed to be a third-party beneficiary of that agreement. The plaintiff lost, and the defendant sought attorney fees. This court concluded that the defendant was not entitled to fees because “[t]he fee provision at issue allowed fees in ‘any litigation between the parties hereto to enforce any provision of this Agreement . . . .’ ” (Blickman Turkus, supra, 162 Cal.App.4th at p. 896.) Because the provision limited the recovery of attorney fees to litigation between the signatories, and the plaintiff was not a signatory, the defendant could not recover fees.

Kaddu contends that the language of the attorney fee provision at issue here, which is set forth in paragraph No. 31 of the Business Purchase Agreement, contains a limitation similar to the one in Blickman Turkus. Paragraph No. 31 states: “In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney fees and costs from the non-prevailing Buyer or Seller, except as provided in Paragraph 42A.” (Italics added.) Pointing to the italicized language, Kaddu says paragraph No. 31 “expressly limits recovery of attorney’s fees to litigation between the signatories.” In Kaddu’s view, it would not have been entitled to attorney fees under paragraph 31 from Gauze and Sanouillet had it prevailed against them because they were not signatories to the Business Purchase Agreement. It follows, Kaddu says, that Gauze and Sanouillet likewise cannot recover attorney fees.

Gauze and Sanouillet have the better argument. Reynolds is on all fours with this case, whereas Blickman Turkus is distinguishable. Here, as in Reynolds, the plaintiff brought an action on a contract against defendants who were not signatories to the contract on the theory that those defendants were alter egos to a signatory. In both cases, the plaintiff failed to show that the defendants were alter egos of the signatory and thus failed to establish that the defendants were liable on the contract. By contrast, in Blickman Turkus, there was no allegation that the nonsignatory was the alter ego (i.e., stood in the shoes) of a contracting party. Instead, the claim was that the nonsignatory was a third-party beneficiary of the contract.

By alleging that Gauze and Sanouillet were alter egos of Opa Verde, the Buyer under the Business Purchase Agreement, Kaddu effectively claimed that Gauze and Sanouillet were the Buyers under that agreement. Had Kaddu prevailed on that theory, paragraph No. 31’s language limiting its application to actions “between Buyer and Seller” would not have precluded Kaddu from recovering attorney fees from Gauze and Sanouillet. It follows that Gauze and Sanouillet are entitled to recover attorney fees from Kaddu under section 1717. (Reynolds, supra, 25 Cal.3d at p. 128.)

Kaddu also maintains that Opa Verde’s failure to mediate its claims against Kaddu before bringing suit, as required by paragraph 42A of the Business Purchase Agreement, precludes Gauze and Sanouillet from recovering attorney fees. Kaddu reasons that if it is the alter ego allegations that entitle Gauze and Sanouillet to attorney fees, then they must suffer the consequences of the failure of their alter ego, Opa Verde, to comply with the mediation provision. Not so. Gauze and Sanouillet are entitled to fees because they prevailed against Kaddu, and in so doing, they demonstrated that they are not alter egos of Opa Verde. Therefore, whether Opa Verde might have been entitled to attorney fees in its action against Kaddu has no bearing on whether Gauze and Sanouillet are entitled to the attorney fees they incurred defending against Kaddu’s claims.

Finally, Kaddu urges us to affirm because Gauze and Sanouillet failed to submit copies of the Business Purchase Agreement and the judgment of dismissal with their motion for attorney fees. While the trial court noted the absence of the contract from the moving papers, it also noted that Kaddu supplied a copy. Any deficiencies in the moving papers did not preclude the trial court from ruling on the merits of the motion. We decline to affirm the denial of the meritorious motion based on technicalities that did not impact the trial court’s ruling.

III. DISPOSITION

The postjudgment order denying Gauze and Sanouillet’s motion for attorney fees is reversed. The matter is remanded to the trial court with directions to grant the motion and determine the amount of reasonable attorney fees to be awarded to Gauze and Sanouillet. Gauze and Sanouillet shall recover their costs on appeal.

_________________________________

ELIA, ACTING P. J.

WE CONCUR:

_______________________________

GROVER, J.

_______________________________

DANNER, J.

Kaddu, Inc. et al. v. Gauze et al.

H045090