Filed 9/30/19 McAlister Investments, Inc. v. Thomas CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FOURTH APPELLATE DISTRICT

DIVISION THREE

MCALISTER INVESTMENTS, INC.,

Plaintiff and Respondent,

v.

JOHN THOMAS et al.,

Defendants and Appellants.

G056330

(Super. Ct. No. 30-2015-00796785)

O P I N I O N

Appeal from an order of the Superior Court of Orange County, Nathan R. Scott, Judge. Reversed and remanded with directions.

Palmieri, Tyler, Wiener, Wilhelm & Waldron, Don Fisher and Erin K. Oyama for Defendants and Appellants.

Voss, Cook & Thel, and James G. Damon for Plaintiff and Respondent.

* * *

Defendants John Thomas and a limited partnership known as Florida Groves appeal from a postjudgment order awarding attorney fees to plaintiff McAlister Investments, Inc. Defendants contend the court erred by awarding attorney fees to plaintiff because the contractual attorney fees provision relied upon in making the award is inapplicable. We agree. The relevant attorney fees provision in this case is triggered only if a breach of a covenant or agreement in the underlying contract is presented to a court. While the dispute concerned the parties’ contractual rights, the parties’ disagreement about their rights did not amount to a breach of contract. Attorney fees accordingly were not authorized under the contract. We therefore reverse the order.

FACTS

The Lease and Applicable Attorney Fees Provision

Plaintiff owns 33 acres of land in Hemet, California, and the chain of title goes back to the 1951 owners, the Cummings. Defendants own neighboring property where they operate a citrus orchard known as Florida Groves. Defendants’ chain of title goes back to the 1951 owners, three partners doing business as Rancho Linda Vista. Defendants drew water for their citrus orchard from a well located on plaintiff’s property, and the well was in place when defendants purchased their property in 1981.

In 1951, the prior owners of plaintiff’s property—the Cummings—and the prior owners of defendants’ property—Rancho Linda Vista—entered into a 99-year lease (the Lease). The Cummings leased a parcel of their property to Rancho Linda Vista “for the purpose, among other things, of enabling the Lessees to drill for and develop water for irrigation purposes, together with the right to erect, construct, and maintain reservoirs, pipe lines, buildings and other buildings and facilities for the uses and purposes of the Lessees.” The Lease does not mention the well, and the well was not located on the leased property. The Lease also provides it “shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of the respective parties hereto.” It further includes the following attorney fees provision, which is relevant to this appeal: “In the event of the breach of any covenant and or agreement herein contained and it is necessary or proper that the same be presented to any Court of competent jurisdiction for determination, then the party hereto which shall lose any such suit shall pay to the other party, such reasonable fees for such party’s attorneys and such Court costs as may be awarded.”

When plaintiff attempted to sell its property in 2014, the buyer wanted to have the Lease amended to preclude defendants from building structures on the leased area. Plaintiff knew defendants were using the well. Defendants told plaintiff they had rights to the well under the Lease and did not agree to amend the Lease. Plaintiff’s sale fell through.

Pleadings and Trial

In 2015, plaintiff filed a complaint against defendants seeking declaratory relief, injunctive relief, and ejectment. Among other things, plaintiff alleged defendants were “operating the [w]ell under claim of right pursuant to an assignment of the Lease.” According to plaintiff, there was no valid assignment to defendants and defendants were “not successors in interest to the Lease.” Plaintiff also alleged the well was “not located within the physical parameters provided for in the Lease.” Based on these allegations, plaintiff sought declaratory relief declaring the Lease was invalid and had “no force or effect.” Plaintiff also sought injunctive relief and requested the court eject defendants from occupying plaintiff’s land and operating the well.

Defendants filed an answer and asserted several affirmative defenses. One of the defenses stated: “The [c]omplaint is barred by the express terms of the recorded lease, including conditions, exclusions, and limitations set forth in the written, recorded lease.”

At trial, several witnesses testified about the Lease. One witness testified the Lease had never been assigned. Plaintiff’s attorney testified defendant Thomas had indicated he was the assignee or tenant under the Lease. Another witness testified the well did not fall within the area described in the Lease.

Judgment and Order Granting Attorney Fees

The court entered judgment in favor of plaintiff, declared defendants had no right “whether by lease or otherwise” to occupy plaintiff’s property or to operate the well, enjoined defendants’ conduct, and ejected defendants from plaintiff’s property. In its revised statement of decision, the court explained the well was never leased, the Lease was not assigned to defendants, and defendants were not successors to the Lease just because they bought land formerly owned by Rancho Linda Vista.

The court also granted plaintiff’s motion for attorney fees and found plaintiff could recover its fees pursuant to the Lease. First, the court found plaintiff was entitled to its attorney fees based on “the statutory reciprocity of attorney fee agreements.” The court noted defendants would have recovered their attorney fees under the Lease if they had prevailed by vindicating their alleged leasehold rights. Relying on Civil Code section 1717, the court then explained “[a]ttorney fee agreements are reciprocal in ‘any action on a contract.’” The court found plaintiff’s declaratory relief action was “on a contract” because plaintiff sought a declaration that the Lease was invalid. Second, the court held plaintiff was entitled to recover its attorney fees even though it was “a stranger to the contract” because “it would have been liable for attorney fees had [defendants] prevailed.”

Finally, the court found the attorney fees provision in the Lease applied because it awarded fees “whenever any ‘breach’ is ‘presented’ to the court.” The court explained: “If plaintiff’s alleged failure to honor the lease was not even presented here, why was the lease in evidence? Why did the parties offer so much briefing and argu[e] it? Why did the court have to determine whether defendants could enforce it against plaintiff?” Because the “entire case circled around plaintiff’s alleged breach of lease” and defendants “asserted rights under the lease,” the court held defendants were liable for plaintiff’s attorney fees. After reducing the requested fees, the court ordered defendants to pay $169,534.60 in attorney fees to plaintiff.

DISCUSSION

Defendants contend the court erred by awarding attorney fees to plaintiff. First, defendants claim section 1717 does not apply because plaintiff’s action was based on tort and equitable claims rather than a contract. While defendants acknowledge they raised the Lease as an affirmative defense, they claim this did not transform the action to one “‘on contract.’” Second, defendants argue the Lease’s attorney fees provision does not apply because plaintiff did not assert a claim for breach of the Lease and plaintiff and defendants were not parties to the Lease. Third, defendants contend plaintiff is not entitled to attorney fees under section 3334, which plaintiff had raised in its motion for attorney fees. We agree with defendants’ latter two contentions—attorney fees were not authorized under the Lease because neither party asserted a breach of the Lease. Attorney fees also were not authorized under the cost provision of section 3334. The court accordingly erred by awarding attorney fees to plaintiff.

Plaintiff Was Not Entitled to Attorney Fees Under the Lease

Code of Civil Procedure section 1032 provides: “Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.” (Id., subd. (b).) “Under Code of Civil Procedure section 1033.5, subdivision (a)(10), attorney fees are allowable as costs . . . ‘when authorized by any of the following: [¶] (A) Contract. [¶] (B) Statute. [¶] (C) Law.’” (Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 143.) Where the lawsuit is an “action on a contract,” (§ 1717, subd. (a)), the reciprocity provisions of section 1717 come into play, and the parties devote their initial appellate arguments to the question of whether section 1717 applies to this action, i.e., whether this lawsuit is an “action on a contract.” But “[b]efore section 1717 comes into play, it is necessary to determine whether the parties entered an agreement for the payment of attorney fees and, if so, the scope of the attorney fee agreement.” (Maynard v. BTI Group, Inc. (2013) 216 Cal.App.4th 984, 990.)

Here, the relevant attorney fees provision awards fees to the prevailing party “[i]n the event of the breach of any covenant and or agreement herein contained . . . presented to any Court . . . .” (Italics added.) This language is narrow and requires an asserted breach of the Lease before attorney fees are authorized. First, looking to whether any breach of the Lease by defendants was presented to the court, plaintiff’s complaint does not allege any breach of the Lease (anticipatory or otherwise) by defendants. Instead, the primary theory of plaintiff’s case was that defendants claimed rights they did not have. Plaintiff argued defendants were not even parties to the Lease, not that they breached the Lease or were in violation of any Lease covenants.

To support its argument that defendants’ “breaches” were presented to the court, plaintiff points to the following: “[The] complaint presented to the court [d]efendants’ claim of right or interest to the Well as purported assignee to the written Lease. [Citation.] [Plaintiff] further alleged that the Well being operated by [d]efendants was not located within the physical parameters provided for in the Lease. [Citation.] The complaint also alleged that [d]efendants were operating the Well under claim of right pursuant to an assignment . . . but there was never any valid assignment to [d]efendants . . . . [Citation.] [Plaintiff] further alleged that [d]efendants were not successors in interest to the Lease. [Citation.] The complaint further declared that an actual dispute and controversy exists between [plaintiff] and [d]efendants concerning the Lease and operation of the Well on the Land . . . .”

While the above list details the parties’ disputes, none of those disputes constituted a “breach” of a “covenant” contained within the Lease. In fact, this list emphasizes that the central theory of plaintiff’s case was that defendants were not even parties to the Lease and claimed rights they did not have. The court accordingly acknowledged the dispute concerned the parties’ rights under the Lease. But a disagreement about the parties’ rights (or absence of rights) does not amount to a breach.

At oral argument, plaintiff’s counsel further argued defendants breached certain covenants restricting defendants’ activities because defendants operated the well outside the area defined by the Lease. But the Lease covenants granted certain rights to the lessee; they did not specify activities that were prohibited (e.g., defendants’ use of the well outside of the leased property). The issue accordingly was whether defendants trespassed onto plaintiff’s land and not whether they breached the Lease. Indeed, plaintiff’s case rested on its assertion that defendants had no rights to be on the land (i.e., defendants were trespassing). In other words, plaintiff asserted defendants breached their common law duty not to enter another’s land without permission, not that they breached the Lease by doing so.

Second, we consider whether defendants asserted that plaintiff breached the Lease. The single allegation made on this issue was defendants’ affirmative defense that “[t]he [c]omplaint is barred by the express terms of the recorded lease, including conditions, exclusions, and limitations set forth in the written, recorded lease.” Defendants claimed they had certain rights under the Lease, but they did not assert plaintiff breached any provision of the Lease. They also never argued plaintiff breached the Lease by interfering with their enjoyment of the property, nor was there any evidence that plaintiff did so prior to the filing of its complaint. The essence of defendants’ argument was the validity of the Lease and that they were tenants under the Lease.

We also note that plaintiff’s initiation of an ejectment action did not constitute a “breach” by plaintiff that was “presented” to the court. The basis of plaintiff’s ejectment claim was defendants’ trespass, not their breach of the Lease. It cannot be the case that an action seeking to eject a stranger from one’s property is a breach of a lease to which the stranger is not a party. The unlawful detainer cases make this clear. In Mitchell Land & Improvement Co. v. Ristorante Ferrantelli, Inc. (2007) 158 Cal.App.4th 479, our court explained: “If an unlawful detainer is brought to oust a holdover tenant following expiration of a lease, then the action is premised on tortious conduct (e.g., trespass), and it is an action sounding in tort. [Citations.] By logical extension, if the unlawful detainer action is premised on a breach of the lease, like any other action on a contract, it is subject to section 1717, subdivision (b)(2).” (Id. at p. 486.) Here, as explained above, plaintiff’s entire case rested on its assertion that defendants were trespassers. There is simply no Lease provision, whether defendants were a party or not, that prohibited plaintiff’s common law right to remove a trespasser. Thus, the ejectment action cannot possibly be a breach of the Lease to which defendants were not a party.

Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744 (Mountain Air) is helpful in demonstrating the need to carefully interpret the language of a contractual attorney fees clause before proceeding to consider the reciprocity provisions of section 1717. In Mountain Air, it was undisputed that the action was “on a contract” so that section 1717 would apply if the dispute was within the scope of the contractual attorney fees provision invoked by the defendants. The plaintiff in Mountain Air alleged the defendants breached the parties’ repurchase agreement. (Id. at pp. 748-749.) The defendants prevailed on their affirmative defense that the repurchase agreement was superseded by the parties’ option agreement. (Id. at p. 749.) The option agreement included an attorney fees provision awarding fees in “‘any legal action or any other proceeding . . . brought for the enforcement of this Agreement or because of an alleged dispute . . . in connection with any provision of this Agreement . . . .’” (Id. at p. 752, original italics omitted, italics added.)

Interpreting this attorney fees provision, our Supreme Court held that no “action” or “proceeding” had been brought by the defendants by asserting the option agreement as an affirmative defense. (Mountain Air, supra, 3 Cal.5th at pp. 753-754.) The affirmative defense accordingly did not trigger the attorney fees provision. (Ibid.) However, the second part of the attorney fees provision was triggered because the plaintiff brought its action “‘because of an alleged dispute . . . in connection with’ the option agreement.” (Id. at p. 759.)

Unlike the attorney fees provision in Mountain Air, the attorney fees provision in the Lease is limited to a single predicate—the provision is triggered only if a breach of the Lease is presented to the court. There is no other alternative. The parties undoubtedly “presented” plenty of evidence about the Lease and asserted conflicting positions about their respective rights under the Lease. But there was no evidence that either party asserted a breach of any “covenant . . . herein contained . . . .” Indeed, there was no “covenant . . . herein contained” that prohibited either party from “presenting” a dispute about their rights under the Lease to the court. And that is all that happened here. Under this unique attorney fees provision, and the claims and assertions of the parties, the provision was not triggered.

Plaintiff contends its “position [that the Lease was invalid] would have constituted an anticipatory breach” if “[d]efendants prevailed in proving that the Lease was valid, and [p]laintiff was required to honor the terms of the Lease.” But the filing of a declaratory relief action contesting the validity of an agreement does not constitute an anticipatory breach. Instead, a declaratory relief action “serves to set controversies at rest before they lead to repudiation of obligations.” (Babb v. Superior Court (1971) 3 Cal.3d 841, 848, italics added.) As stated in the commentary to the Restatement Second of Contracts: “Generally, a party acts at his peril if, insisting on what he mistakenly believes to be his rights, he refuses to perform his [contractual duties]. His statement is a repudiation if the threatened breach would, without more, have given the injured party a claim for damages for total breach. Modern procedural devices, such as the declaratory judgment, may be used to mitigate the harsh results that might otherwise result from this rule.” (Rest.2d Contracts, § 250, com. d, pp. 274-275, italics added.)

Other courts have reached the same conclusion and held a declaratory relief action contesting the validity of an agreement does not constitute an anticipatory breach. (See Harrison v. Cabot Oil & Gas Corp. (Pa. 2015) 110 A.3d 178, 184-185 [“It is widely recognized . . . that the filing of declaratory judgment action merely contesting the validity or scope of an agreement does not entail such an unequivocal refusal to perform”]; Lincoln Nat.l Life Ins. Co. v. Schwarz (D.N.J., June 9, 2011, No. 09-03361 (FLW)) 2011 U.S.Dist. Lexis 62031, *8 [“The Court joins with numerous courts, albeit construing different state laws, which have held that ‘an action for declaratory judgment does not indicate an unconditional refusal to comply with contractual obligations, but rather an attempt to carry them out’”]; Landwehr v. F.D.I.C. (D.D.C. 2010) 734 F.Supp.2d 161, 169 [finding a declaratory relief action seeking a declaration that plaintiffs had no obligation to repay retention loans was not an anticipatory breach]; Principal Life Ins. Co. v. Lawrence Rucker Ins. (D.Del. 2009) 674 F.Supp.2d 562, 568 [finding a declaratory relief action seeking a declaration that the relevant policy was void did not constitute an anticipatory breach].)

We agree with the above authorities. Because the parties did not present a breach of any covenant or agreement in the Lease to the court, the attorney fees provision was never triggered. Attorney fees accordingly were not authorized under the Lease, and we need not address the parties’ arguments regarding section 1717.

Plaintiff Was Not Entitled to Attorney Fees Under Section 3334

Defendants also contend plaintiff is not entitled to attorney fees under section 3334. Section 3334, subdivision (a) provides: “The detriment caused by the wrongful occupation of real property . . . is deemed to include the value of the use of the property for the time of that wrongful occupation, not exceeding five years next preceding the commencement of the action or proceeding to enforce the right to damages, the reasonable cost of repair or restoration of the property to its original condition, and the costs, if any, of recovering the possession.” (Italics added.) In its motion for attorney fees, plaintiff argued the “costs” recoverable under the latter portion of section 3334 includes attorney fees. But the court did not rely on section 3334 in awarding attorney fees. Regardless, we agree with defendants that the cost provision in section 3334 does not include attorney fees and note that plaintiff fails to present any contrary argument on appeal.

Under California law, “costs” include attorney fees only if they are specifically allowed by contract, statute, or law. (Code Civ. Proc., § 1033.5, subd. (a)(10)(A)-(C); Department of Forestry & Fire Protection v. Lebrock (2002) 96 Cal.App.4th 1137, 1140 [“a prevailing party is entitled to attorneys fees only when specifically authorized by statute, contract or law” (italics added)].) Although defendants have not cited any cases holding that attorney fees are not recoverable as costs under section 3334 (and we have likewise found none), defendants have cited many cases holding as a matter of statutory construction that “costs” awardable under other cost recovery statutes do not permit the award of attorney fees. (E.g., Department of Forestry & Fire Protection, at pp. 1139-1142 [interpreting Health & Saf. Code, § 13009]; People v. United States Fire Ins. Co. (2012) 210 Cal.App.4th 1423, 1426-1428 [interpreting Pen. Code, § 1305.3].) “‘Costs’ have been construed to mean those fees and charges that are required by law to be paid to the courts or some of their officers or an amount that is expressly fixed by law as recoverable as costs. [Citation.] In contrast, the term ‘attorney fees’ has been construed to mean the consideration that a litigant actually pays or becomes liable to pay in exchange for legal representation. [Citation.] Attorney fees and the expenses of litigation, whether termed costs, disbursements, outlays, or something else, are mutually exclusive. In other words, attorney fees do not include costs and costs do not include attorney fees.” (United States Fire Ins. Co., at pp. 1427-1428.)

Here, section 3334 only references “costs” and does not specifically authorize attorney fees. Plaintiff accordingly could not recover attorney fees under section 3334.

DISPOSITION

The order is reversed and the matter remanded with directions to enter a new order denying plaintiff’s motion for attorney fees. Defendants shall recover their costs incurred on appeal.

IKOLA, J.

WE CONCUR:

BEDSWORTH, ACTING P. J.

FYBEL, J.