Brown Bark III v. Haver

 

 

 

 

 

 

 

 

 

Filed 8/26/13  Brown Bark III v. Haver 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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

 

 
>

BROWN BARK III, L.P.,         Plaintiff and Respondent,               v.   JAIMIE HAVER, et al.,         Defendants and Appellants.

G047198            (Super. Ct. No. 30-2009-00122631)            O P I N I O N

 

Appeal
from an order of the Superior Court
of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Orange
County, Derek W. Hunt, Judge. 
Affirmed in part, reversed in part, and remanded.

AlvaradoSmith,
W. Michael Hensley, Kevin A. Day and Gregory G. Snarr for Defendants and
Appellants.

Lanak
& Hanna, Jennifer M. Schildbach and Mac W. Cabal for Plaintiff and
Respondent.

*                      *                      *

Plaintiff and respondent
Brown Bark III, L.P. sued defendants and appellants Jaimie Haver and Westover
Capital Corporation to recover funds Westover Financial, Inc. failed to repay
on a revolving line of credit.href="#_ftn1"
name="_ftnref1" title="">[1]  Although Westover Capital was not a party to
the contracts that created the line of credit, Brown Bark sued Westover Capital
for breach of those contracts on a successor liability theory.  Brown Bark also sued Haver and Westover
Capital for conversion and fraud, alleging they converted the Westover
Financial assets pledged as security for the line of credit and made
misrepresentations to prevent and delay Brown Bark’s efforts to recover the
outstanding balance from Westover Financial. 
Following a bifurcated jury and court trial, Haver and Westover Capital
obtained a favorable judgment on all of Brown Bark’s causes of action.  They subsequently sought their attorney fees
under the fee provisions in the line of credit contracts, but the trial court
denied their fee motion.  Haver and
Westover Capital now appeal.

We
conclude the trial court erred in failing to award Westover Capital its
attorney fees on the breach of contract causes of action.  Civil Code section 1717 makes an
otherwise unilateral attorney fee provision reciprocal and entitles a
noncontracting party to recover contractual attorney fees when it defeats a
contract-based cause of action that would have made the noncontracting party
liable for contractual attorney fees had it lost.href="#_ftn2" name="_ftnref2" title="">[2]  Brown Bark would have recovered its attorney
fees if it had prevailed on its successor liability theory against Westover
Capital because the line of credit contracts made its fee provisions binding on
the contracting parties’ successors. 
Section 1717 therefore allows Westover Capital to recover its
attorney fees because it defeated claims for breach of the line of credit
contracts that would have exposed Westover Capital to attorney fee liability
had it lost.  Section 1717 only
applies to contract causes of action, however. 
We therefore affirm the trial court’s order denying Westover Capital
attorney fees on the tort causes of action.

We
also affirm the trial court’s order denying Haver’s fee motion.  She was not a party to the line of credit
contracts and Brown Bark did not sue her for breaching those contracts.  Because Haver never faced attorney fee
liability under the line of credit contracts, she may not invoke section 1717
to recover her fees.

We
remand the matter to the trial court to determine (1) whether and how to
allocate Westover Capital’s attorney fees between the breach of contract and
successor liability issues and the tort issues; (2) whether and how to
allocate the fees for the attorneys who jointly represented Westover Capital
and Haver; and (3) the amount of attorney fees Westover Capital may
recover for this appeal. 

I

Facts and Procedural History

Westover
Financial was a leasing and equipment finance company Joseph G. Woodley founded
in the mid-1980’s.  Woodley, his wife,
and Steven R. Jones were the only shareholders. 
Westover Financial later hired Haver as an employee and she eventually
became corporate secretary, but she never held any shares or voting rights and
lacked authority to bind the corporation. 


In
2007, Westover Financial opened a $1 million revolving line of credit with
First Heritage Bank, N.A. (First Heritage). 
To open the line of credit Westover Financial entered into several
contracts with First Heritage, including the “Credit Agreement,” the “Revolving
Line of Credit Promissory Note” (Promissory Note), the “Security and Pledge
Agreement” (Security Agreement), and the “Custodian Agreement” (collectively,
“Line of Credit Contracts”).  Woodley and
Jones also personally guaranteed Westover Financial’s performance.  The Line of Credit Contracts each contained
unilateral attorney fees provisions entitling the “Lender” or “Secured Party”
to recover from the “Borrower” or “Debtor” all attorney fees incurred in any
dispute relating to the interpretation, enforcement, or performance of any of
the Line of Credit Contracts. 

Westover
Financial failed to repay more than $850,000 it borrowed from First Heritage
under the line of credit.  In January
2009, the Federal Deposit Insurance Corporation, as receiver for First
Heritage, sold and assigned all interests in Westover Financial’s line of
credit to Brown Bark. 

In
May 2009, Brown Bark filed this action against Westover Financial, Woodley, and
Jones, seeking the outstanding balance on the line of credit plus interest,
penalties, costs, and attorney fees. 
Brown Bark quickly obtained an ex parte right to attach order
against Westover Financial.  Around the
time Brown Bark filed this action, Westover Financial began the process of
dissolving as a corporation.  It
completed the process and filed its certificate of dissolution in November
2009. 

Westover
Financial’s decision to dissolve left Haver unemployed.  She subsequently formed Westover Capital in
June 2009 to capitalize on the leasing and equipment finance expertise she
acquired while working for Westover Financial. 
Haver filed the articles of incorporation and all other documents
necessary to incorporate Westover Capital just 10 days after Brown Bark
obtained its right to attach order against Westover Financial.  Haver is Westover Capital’s sole shareholder,
officer, and director. 

Brown
Bark amended its complaint to add Haver and Westover Capital as defendants when
it learned Haver continued to operate a business in the leasing and equipment
finance industry.  Brown Bark took
Westover Financial’s default when it failed to respond to any of Brown Bark’s
complaints and dismissed Woodley and Jones after they each filed for bankruptcy
protection.  The operative third amended
complaint alleged the following causes of action against the remaining
defendants:  (1) breach of the
Credit Agreement, Promissory Note, and Security Agreement against Westover
Financial and Westover Capital; (2) breach of the Custodian Agreement
against Westover Financial and Westover Capital; (3) conversion against
Westover Capital and Haver; (4) fraud against Westover Capital and Haver;
and (5) suppression of material facts against Westover Capital and Haver. 

Brown
Bark alleged Westover Capital was liable for Westover Financial’s breach of the
Line of Credit Contracts because Westover Capital was either Westover
Financial’s alter ego or a successor in interest formed to fraudulently avoid
Westover Financial’s debts and liabilities. 
According to Brown Bark, Haver was an officer and director of both
Westover Financial and Westover Capital, she transferred Westover Financial’s
assets to Westover Capital without any consideration, and she used those assets
to conduct the same business under the Westover Capital name.  The conversion cause of action alleged Haver
and Westover Capital converted all of Westover Financial’s assets it pledged as
collateral for the line of credit. 
Finally, the two fraud claims alleged Haver and Westover Capital
misrepresented and concealed facts from Brown Bark to prevent or delay its
efforts to collect on Westover Financial’s line of credit.href="#_ftn3" name="_ftnref3" title="">[3] 

On
the first day of trial, Brown Bark dismissed its alter ego allegations and
proceeded against Westover Capital on the breach of contract claims based
solely on a successor liability theory. 
Westover Capital asked the trial court to bifurcate the trial and hear
the successor liability issues first. 
Brown Bark opposed that motion because it intended to offer the same
evidence to prove the successor liability theory and the conversion and fraud
claims.  The trial court decided to
bifurcate the trial, but not as Westover Capital had requested.  Instead, the court bifurcated the trial into
a liability phase and a damages phase. 
The court explained the successor liability theory and the conversion
and fraud claims would both be tried during the liability phase, with the jury
deciding the conversion and fraud claims and the court deciding the successor
liability theory.  The court also
explained it would treat the liability phase as a default prove-up for the
breach of contract claims against Westover Financial. 

At
the close of trial, the court instructed the jury on the conversion and fraud
claims only.  Although the record fails
to explain why, the parties agreed not to submit the breach of contract claims
to the jury.  The court therefore did not
instruct the jury on breach of contract and the jury did not return a verdict
on the breach of contract claims.  The
court’s instructions told the jury “not to be concerned about” Brown Bark’s
claim that Westover Capital was Westover Financial’s successor in interest, but
rather to simply assume that claim was true. 
The jury returned a verdict in Haver and Westover Capital’s favor,
finding they neither converted Brown Bark’s property nor “defrauded [Brown
Bark] by the creation of Westover Capital.” 


The
trial court did not make any express findings or rulings regarding the
successor liability theory, but entered judgment for Haver and Westover Capital
on all causes of action.  Specifically,
the court’s judgment stated (1) Brown Bark “sought adjudication of its
First and Second Causes of Action for Breach of Contract against Westover
Capital Corporation on a theory of successor liability”; (2) Brown Bark
“shall recover nothing from Defendants Jaimie Haver and Westover Capital
Corporation on the following causes of action: 
[¶]  First and Second Causes of
Action for Breach of Contract;  [¶]  Sixth Cause of Action for Conversion;
and  [¶] 
Eighth and Ninth Causes of Action for Fraud”; and (3) Brown Bark
“shall take nothing from Defendants Jaimie Haver and Westover Capital
Corporation on any cause of action in the Third Amended Complaint.”  The judgment awarded Brown Bark a default
judgment against Westover Financial on the breach of contract claims in the
principal amount of more than $750,000. 

After
entry of judgment, Haver and Westover Capital jointly sought more than $170,000
in attorney fees and costs based on the attorney fee provisions in the
Line of Credit Contracts.  The trial
court denied the motion, finding Haver and Westover Capital were not entitled
to the benefit of the Line of Credit Contracts’ attorney fee provisions because
Brown Bark did not sue Haver on those contracts and Haver and Westover Capital
only prevailed on the two tort causes of action, not a contract cause of
action. 

Haver
and Westover Capital timely appealed the trial court’s decision denying their
fee motion.  Neither side appealed from
the trial court’s judgment.

II

Discussion

A.        Governing Legal
Principles on Contractual Attorney Fee Awards

A
party may not recover attorney fees unless expressly authorized by statute or
contract.  (Code Civ. Proc., § 1021;
Sessions Payroll Management, Inc. v.
Noble Construction Co. (2000) 84 Cal.App.4th 671, 677 (>Sessions).)  In the absence of a statute authorizing the
recovery of attorney fees, the parties may agree on whether and how to allocate
attorney fees.  (Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th
1338, 1341 (Xuereb).)  They may agree the prevailing party will be
awarded all the attorney fees incurred in any litigation between them, limit
the recovery of fees only to claims arising from certain transactions or
events, or award them only on certain types of claims.  The parties may agree to award attorney fees
on claims sounding in both contract and tort. 
(Id. at pp. 1341‑1342.)

To
ensure mutuality of remedy, however, section 1717 makes an attorney fee
provision reciprocal even if it would otherwise be unilateral either by its
terms or in its effect.  (>Santisas v. Goodin (1998)
17 Cal.4th 599, 610 (Santisas); >Reynolds Metals Co. v. Alperson (1979)
25 Cal.3d 124, 128 (Reynolds).)  Specifically, section 1717 states, “In
any action on a contract, where the contract specifically provides that
attorney[] 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[] fees in addition to other costs.”  (§ 1717, subd. (a).)

Section 1717
makes an otherwise unilateral attorney fee provision reciprocal in at least two
situations relevant to this appeal.  The
first “is ‘when the contract provides the right to one party but not to the
other.’  [Citation.]  In this situation, the effect of
section 1717 is to allow recovery of attorney fees by whichever
contracting party prevails, ‘whether he or she is the party specified in the
contract or not’ [citation].”  (>Santisas, supra, 17 Cal.4th at pp. 610-611.)

“The
second situation in which section 1717 makes an otherwise unilateral right
reciprocal . . . is when a person sued on a contract containing a
provision for attorney fees to the prevailing party defends the litigation ‘by
successfully arguing the inapplicability, invalidity, unenforceability, or
nonexistence of the same contract.’ 
[Citation.]  Because these
arguments are inconsistent with a contractual claim for attorney fees under the
same agreement, a party prevailing on any of these bases usually cannot claim
attorney fees as a contractual right.  If
section 1717 did not apply in this situation, the right to attorney fees
would be effectively unilateral . . . because only the party seeking
to affirm and enforce the agreement could invoke its attorney fee
provision.”  (Santisas, supra,
17 Cal.4th at p. 611.) 
Accordingly, section 1717 allows a party who defeats a contract
claim by showing the contract did not apply or was unenforceable to nonetheless
recover attorney fees under that contract if the opposing party would have been
entitled to attorney fees had it prevailed. 
(Ibid.)

This
second situation arises not only when a signatory to a contract defeats another
signatory’s claims, but also when a nonsignatory
defeats a signatory’s efforts to enforce the contract.  As our Supreme Court explained in the seminal
Reynolds case:  “Its purposes require section 1717 be
interpreted to further provide a reciprocal remedy for a nonsignatory
defendant, sued on a contract as if he were a party to it, when a plaintiff
would clearly be entitled to attorney[] fees should he prevail in enforcing the
contractual obligation against the defendant.” 
(Reynolds, >supra, 25 Cal.3d at p. 128;
see also Real Property Services Corp. v.
City of Pasadena (1994) 25 Cal.App.4th 375, 382 (Real Property Services) [“in cases involving nonsignatories to a
contract with an attorney fee provision, the following rule may be distilled
from the applicable cases:  A party is
entitled to recover its attorney fees pursuant to a href="http://www.mcmillanlaw.com/">contractual provision only when the
party would have been liable for the fees of the opposing party if the opposing
party had prevailed”].)

In
Reynolds, the signatory plaintiff
sued two nonsignatories to recover on a promissory note, alleging they were
liable as the alter egos of the corporation that signed the note.  (Reynolds,
supra, 25 Cal.3d at
p. 127.)  The nonsignatories
prevailed by showing they were not the corporation’s alter egos and therefore
the plaintiff could not enforce the note against them.  The Supreme Court allowed the nonsignatories
to recover their attorney fees under a fee provision in the note because the
plaintiff would have been entitled to recover its fees under that provision if
the plaintiff had succeeded in enforcing the note against the
nonsignatories.  (Id. at p. 129; see also Pueblo
Radiology Medical Group, Inc. v. Gerlach (2008) 163 Cal.App.4th 826,
828-829 (Pueblo).)

Section 1717
and its reciprocity principles, however, have “limited application.  [They] cover[] only contract actions, where the theory of the case is breach of
contract, and where the contract sued upon itself specifically provides for an
award of attorney fees incurred to enforce that
contract.  [Section 1717’s] only
effect is to make an otherwise unilateral right to attorney fees reciprocally
binding upon all parties to actions to enforce the contract.”  (Xuereb,
supra, 3 Cal.App.4th at
p. 1342, original italics.) 

Tort
and other noncontract claims are not subject to section 1717 and its
reciprocity principles.  (>Santisas, supra, 17 Cal.4th at p. 615; Gil v. Mansano (2004) 121 Cal.App.4th 739, 742-743 (>Gil).) 
The parties to a contract are free to agree that one or more of them
shall recover their attorney fees if they prevail on a tort or other
noncontract claim, but the right to recover those fees depends solely on the
contractual language.  (>Gil, at p. 743; >Exxess Electronixx v. Heger Realty Corp.
(1998) 64 Cal.App.4th 698, 708 (Exxess).)  Section 1717 does not make a unilateral
fee provision reciprocal on tort or other noncontract claims.  (Moallem
v. Coldwell Banker Com. Group, Inc. (1994) 25 Cal.App.4th 1827, 1831-1832
(Moallem).)

Accordingly,
to invoke section 1717 and its reciprocity principles a party must show
(1) he or she was sued on a contract containing an attorney fee provision;
(2) he or she prevailed on the contract claims; and (3) the opponent
would have been entitled to recover attorney fees had the opponent
prevailed.  (Santisas, supra,
17 Cal.4th at pp. 610-611; Reynolds,
supra, 25 Cal.3d at
pp. 128-129; Exxess, >supra, 64 Cal.App.4th at
p. 706.)  The court must disregard
any tort claims included in the action when determining whether
section 1717 applies.  (>Santisas, at p. 615; >Exxess, at p. 708.) 

“On
appeal this court reviews a determination of the legal basis for an award of
attorney fees de novo as a question of law.” 
(Sessions, >supra, 84 Cal.App.4th at
p. 677; see also Dell Merk, Inc. v.
Franzia (2005) 132 Cal.App.4th 443, 450 (Dell Merk).)

B.        Section 1717
Entitles Westover Capital to Recover
Its Attorney Fees on the Breach of Contract Claims

Westover
Capital sought to recover its attorney fees based on the attorney fee
provisions in the Line of Credit Contracts between First Heritage and Westover
Financial.  Each of these Contracts
included a unilateral attorney fee provision entitling the “Lender” or “Secured
Party” to recover its attorney fees and costs from the “Borrower” or
“Debtor.”  For example, the Credit
Agreement provided, “in the event that any dispute arises (whether or not such
dispute is with Borrower) relating to the interpretation, enforcement or
performance of this Agreement or any of the other Loan Documents, Lender shall
be entitled to collect from Borrower on demand all reasonable fees and expenses
incurred in connection therewith, including but not limited to fees of
attorneys . . . .” 

As
a nonsignatory seeking to recover its attorney fees for successfully defeating
Brown Bark’s efforts to hold it liable for Westover Financial’s breach of the
Line of Credit Contracts, Westover Capital must show (1) Brown Bark sued
Westover Capital on the Line of Credit Contracts; (2) Westover Capital
prevailed on Brown Bark’s breach of contract claims; and (3) Brown Bark
would have been entitled to its attorney fees had it prevailed on the href="http://www.fearnotlaw.com/">breach of contract claims.

1.         Brown
Bark Sued Westover Capital on the Line of Credit Contracts

“California
courts construe the term ‘on a contract’ liberally.  ‘“As long as the action ‘involve[s]’ a
contract it is ‘“on [the] contact”’ within the meaning of
section 1717.  [Citations.]”  [Citations.]’ 
[Citation.]”  (>Turner v. Schultz (2009)
175 Cal.App.4th 974, 979-980; Dell
Merk, supra, 132 Cal.App.4th
at p. 455.)  To determine whether an
action is on the contract, we look to the complaint and focus on the basis of
the cause of action.  (>Mepco Services, Inc. v. Saddleback Valley
Unified School Dist. (2010) 189 Cal.App.4th 1027, 1047 (>Mepco); Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 347; >Kangarlou v. Progressive Title Co., Inc.
(2005) 128 Cal.App.4th 1174, 1178-1179.) 
Any action that is based on a contract is an action on that contract
regardless of the relief sought.  (See >Kachlon, at pp. 347-348 [lawsuit to
quiet title and for declaratory and
injunctive relief is an action on a contract because the action was based
on a promissory note and deed of trust].)

The
third amended complaint named Westover Capital as a defendant on both the first
and second causes of action for breach of contract.  These claims alleged both Westover Financial
and Westover Capital breached the Line of Credit Contracts, and sought to
recover damages caused by Westover Financial’s failure to repay the funds
borrowed under those contracts.  Brown
Bark alleged Westover Capital was liable for those damages on a successor
liability theory because Westover Capital was a mere continuation of Westover
Financial that Haver fraudulently formed so Westover Financial could escape it
debts and liabilities.  Brown Bark
pursued its successor liability theory against Westover Capital throughout this
action.  For example, it amended its
complaint several times seeking to adequately allege the breach of contract
claims based on successor liability, it opposed Westover Capital’s summary
adjudication motion challenging the breach of contract claims, it argued the
successor liability theory in its trial brief, and it presented evidence at
trial seeking to prove Westover Capital was merely a continuation of Westover
Financial.  Accordingly, Brown Bark sued
Westover Capital on the Line of Credit Contracts. 

Brown
Bark nonetheless argues it did not sue Westover Capital on the Line of Credit
Contracts or any other contract, but rather it sued Westover Capital on a
successor liability claim only.  To
support this contention, Brown Bark relies on an unpublished federal district
court case, Sunnyside Development Co.,
LLC v. Opsys, Ltd. (N.D.Cal., Aug. 29, 2007, C 05 0553 MHP) 2007 WL 2462141
(Sunnyside), which concluded attorney
fees could not be recovered on a successor liability claim because “successor
liability is an equitable doctrine [citation] and is therefore not a contract
claim.  [Citation].”  (Id.
at p. *4.)  We disagree with Brown
Bark’s characterization of its claims against Westover Capital and decline to
follow Sunnyside for three reasons.href="#_ftn4" name="_ftnref4" title="">[4]

First,
successor liability is not a separate claim independent of Brown Bark’s breach
of contract claims.  To the contrary,
successor liability is an equitable doctrine that applies when a purchasing
corporation is merely a continuation of the selling corporation or the asset
sale was fraudulently entered to escape debts and liabilities.href="#_ftn5" name="_ftnref5" title="">[5]  (Franklin,
supra, 87 Cal.App.4th at
p. 621; Rosales v.
Thermex-Thermatron, Inc. (1998) 67 Cal.App.4th 187, 195-196.)  Successor liability requires an underlying
cause of action and merely extends the liability on that cause of action to a
corporation that would not otherwise be liable. 
(Cf. Design Associates, Inc. v.
Welch (1964) 224 Cal.App.2d 165, 171 [as an equitable doctrine
extending a corporation’s liabilities to the individuals who control it, the
alter ego doctrine requires an underlying cause of action]; >McMartin v. Children’s Institute
International (1989) 212 Cal.App.3d 1393, 1406 [civil conspiracy
requires an underlying tort because it merely extends liability for the tort to
individuals who shared in the tortfeasor’s plan or design, but did not actually
commit the tort].)

Second,
successor liability’s nature as an equitable doctrine does not prevent it from
forming the basis for a contractual claim under section 1717.  For example, alter ego is an equitable
doctrine that also extends a corporation’s liability on a cause of action to
another corporation or individual when the doctrine’s requirements are met.href="#_ftn6" name="_ftnref6" title="">[6]  (Webber
v. Inland Empire Investments, Inc. (1999) 74 Cal.App.4th 884, 900-901.)  It is well settled a breach of contract claim
based on an alter ego theory is still a claim on the contract and a
nonsignatory who successfully defends against the claim may recover its
attorney fees under section 1717.  (>Reynolds, supra, 25 Cal.3d at pp. 128-129; Pueblo, supra,
163 Cal.App.4th at pp. 828‑830 [“The claim of ‘alter ego’ was a
step directly implicated in the contract action”].)  In the same manner, a breach of contract
claim based on a successor liability theory is still a claim on the contract
under section 1717.

Brown
Bark contends Reynolds and its
progeny do not apply to breach of contract claims based on a successor
liability theory because alter ego and successor liability are distinct
concepts.  This argument misses the mark.  Although the showing required to invoke these
two equitable doctrines is different, their effect is the same.  Under both doctrines, the legal distinction
between two corporations (or a corporation and an individual) is disregarded
and they are treated as one entity, at least when the basis for the successor
liability is that one corporation is a mere continuation of another
corporation. 

Here,
Brown Bark based it successor liability theory on its claim Westover Capital
was a mere continuation of Westover Financial and therefore they should be
treated as the same entity.  In applying
section 1717 and Reynolds, it is
irrelevant whether the plaintiff sought to disregard a corporation’s separate
legal existence because the individuals running the corporation failed to
respect its separate existence (alter ego doctrine) or transferred all of the
corporation’s assets to another corporation to escape liability (successor
liability doctrine).  The critical point
is that the corporation and its shareholders or another corporation are treated
as one for determining the underlying liability.

Third,
Sunnyside does not address a
defendant’s right to recover attorney fees for defeating a breach of contract
claim brought on a successor liability theory. 
Sunnyside involved a plaintiff
who prevailed on a breach of lease and other claims against one defendant, but
lost on its claims against a second defendant. 
The district court granted the plaintiff’s attorney fee motion, but
limited the fees to those incurred on the successful breach of lease
claim.  The court denied fees on tort
claims that were not covered by the attorney fee provision and on the
plaintiff’s unsuccessful successor liability claim against the second
defendant.  (Sunnyside, supra,
2007 WL 2462141, *4.)  Because the
party seeking attorney fees in Sunnyside
was the plaintiff who lost on the successor liability theory, >Sunnyside did not consider whether >Reynolds and its progeny required an
attorney fee award to a defendant who defeats a href="http://www.mcmillanlaw.com/">breach of contract claim brought on a
successor liability theory.  Sunnyside
therefore does not support Brown Bark’s position.  (Nevarrez
v. San Marino Skilled Nursing & Wellness Centre, LLC (2013)
216 Cal.App.4th 1349, 1363 [“A case is not authority for a proposition the
court did not consider”].) 

2.         Westover
Capital Prevailed on Brown Bark’s Breach of Contract Claims

Section 1717
defines “the prevailing party on the contract” as “the party who recovered a
greater relief in the action on the contract.” 
(§ 1717, subd. (b)(1).) 
The prevailing party determination is made by “‘compar[ing] 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.’  [Citation.]” 
(Scott Co. v. Blount, Inc.
(1999) 20 Cal.4th 1103, 1109 (Scott).) 

Here,
the trial court did not make an express ruling on the successor liability
theory, but the court’s judgment declared Brown Bark “sought adjudication of
its First and Second Causes of Action for Breach of Contract against Westover
Capital Corporation on a theory of successor liability” and determined Brown
Bark “shall take nothing from . . . Westover Capital Corporation on >any cause of action in the Third Amended
Complaint.”  (Italics added.)  Westover Capital therefore prevailed on the
contract claims because it recovered the greater relief.  (§ 1717, subd. (b)(1).)  Specifically, Brown Bark sought to recover more
than $850,000 in principal, interest, attorney fees, and costs from Westover
Capital on the breach of contract claims, but it recovered nothing and the
trial court entered judgment in Westover Capital’s favor.  When a defendant completely defeats all breach
of contract claims alleged against it, the defendant is the prevailing party
under section 1717 as a matter of law. 
(Hsu v. Abbara (1995)
9 Cal.4th 863, 866, 876 (Hsu).)

The
trial court nonetheless denied Westover Capital’s fee motion because it found
Westover Capital prevailed only on the two tort claims for conversion and
fraud.  The court acknowledged Brown Bark
sued Westover Capital on the Line of Credit Contracts, but it concluded
Westover Capital did not prevail on those contract claims because the parties
agreed not to submit the breach of contract causes of action to the jury.  The trial court erred in reaching this
conclusion.

Whether
the parties submitted the breach of contract claims to the jury is irrelevant
to the question of who prevailed on those claims.  (See Mepco,
supra, 189 Cal.App.4th at
p. 1047.)  Indeed, it does not
matter how or why a party prevailed on the contract; it only matters that the
party prevailed.  (Real Property Services, supra,
25 Cal.App.4th at p. 384, fn. 7.)  Section 1717 required the trial court to
determine the prevailing party by comparing the relief sought and the relief
obtained on the Line of Credit Contracts. 
(§ 1717, subd. (b)(1); Scott,
supra, 20 Cal.4th at
p. 1109.)  That comparison shows
Westover Capital prevailed on Brown Bark’s two breach of contract claims
because Brown Bark obtained nothing from Westover Capital on those claims. 

Brown
Bark contends it prevailed on the breach of contract claims because it obtained
a default judgment against Westover Financial for the full amount due under the
Line of Credit Contracts.  This argument
fails because it ignores that Westover Capital and Westover Financial are
independent entities and the trial court’s judgment did not hold Westover
Capital responsible for any of Westover Financial’s liabilities.  When a plaintiff sues more than one
independent party on the same contract, the trial court must separately
determine who prevailed on the plaintiff’s claim against each independent
defendant.  (Cf. Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996)
47 Cal.App.4th 464, 491 [“When an action involves multiple, independent
contracts, each of which provides for attorney fees, the prevailing party for
purposes of . . . section 1717 must be determined as to each
contract regardless of who prevails in the overall action”]; 7 Witkin,
Cal. Procedure (5th ed. 2008) Judgment, § 94, p. 633 [“One defendant
who prevails may recover costs even though the plaintiff recovers against
another defendant”].)  Brown Bark’s
default judgment against Westover Financial on the breach of contract claims in
no way changes the outcome on the breach of contract claims between Brown Bark
and Westover Capital.  Westover Capital
remains the prevailing party because it obtained a judgment against Brown Bark
on those claims.

Brown
Bark also argues Westover Capital failed to show the trial court abused the
broad discretion it had under section 1717 to determine the prevailing
party.  Brown Bark overstates the extent
of the trial court’s discretion.  If
neither party achieves a complete victory, a trial court has discretion to
determine which party, if any, prevailed. 
(Scott, supra, 20 Cal.4th at p. 1109.)  A trial court, however, lacks discretion to determine whether there was a prevailing party
when one party obtains “a simple, unqualified victory by completely prevailing
on or defeating all contract claims.”  (>Ibid.) 
In that situation, the party obtaining the unqualified victory is
entitled to attorney fees under section 1717 as a matter of law.  (Hsu,
supra, 9 Cal.4th at
pp. 866, 876.)  Here, Westover
Capital obtained an unqualified victory and therefore the trial court had no
discretion to determine Westover Capital did not prevail.

3.         Brown
Bark Would Have Been Entitled to Its Attorney Fees Had It Prevailed on the
Breach of Contract Claims

If
Brown Bark had succeeded in showing Westover Capital was merely a continuation
of Westover Financial that Haver formed to fraudulently avoid Westover
Financial’s debts and liabilities, then the successor liability doctrine would
allow Brown Bark to recover from Westover Capital for Westover Financial’s
breach of the Line of Credit Contracts. 
(Franklin, >supra, 87 Cal.App.4th at
p. 621; Ray, >supra, 19 Cal.3d at
p. 28.)  Moreover, Brown Bark would
have been entitled to recover its attorney fees under the Line of Credit
Contracts’ attorney fee provisions because those agreements included the
following provision making all their terms binding on the contracting parties’
successors:  “This Agreement
. . . shall be binding upon
and inure to the benefit of Borrower and Lender and their respective >successors and assigns
. . . .”  (Italics
added.)  Accordingly, because Westover
Capital would have been subject to the burden of the Line of Credit Contracts’
attorney fee provisions if Brown Bark had prevailed, section 1717’s
reciprocity principles entitle Westover Capital to the benefit of those
attorney fee provisions and authorize it to recover the fees it reasonably
incurred in prevailing on Brown Bark’s breach of contract claims.  (Reynolds,
supra, 25 Cal.3d at
pp. 128-129; Pueblo, >supra, 163 Cal.App.4th at
pp. 828‑829.)

The
trial court, however, denied Westover Capital’s fee motion because it found
Westover Capital would not have been liable for Brown Bark’s attorney fees had
Brown Bark prevailed.  According to the
trial court, Brown Bark’s successor liability claim “was nothing more than a
theory” on which Brown Bark could never prevail because “it was quite clear”
Westover Capital was not a continuation of Westover Financial.  The trial court erred in reaching this
conclusion. 

Whether
Brown Bark’s successor liability theory lacked merit is irrelevant to whether
Westover Capital could recover its attorney fees under section 1717.  (Dell
Merk, supra, 132 Cal.App.4th
at p. 455.)  Regardless of the
theory’s merit, Brown Bark sued Westover Capital on that theory and forced
Westover Capital to incur attorney fees to defend against it through trial.  “[T]he pertinent inquiry for purposes of
. . . section 1717 is whether [Brown Bark] would have been
entitled to attorney fees in a hypothetical situation in which [it] did prevail
on its claim[s].”  (Mepco, supra,
189 Cal.App.4th at p. 1047.) 
Had Brown Bark succeeded in proving Westover Capital was Westover
Financial’s successor, the Line of Credit Contracts would have allowed Brown
Bark to recover its attorney fees from Westover Capital.  Accordingly, Westover Capital is entitled to
recover its attorney fees on the breach of contract claims under the Line of
Credit Contracts’ attorney fee provisions.

C.        Westover Capital May
Not Recover Attorney Fees on the Conversion and Fraud Causes of Action

In
addition to the two breach of contract claims, Brown Bark also sued Westover
Capital on tort claims for conversion and fraud.  The jury rejected these claims and returned a
verdict for Westover Capital.  The trial
court concluded Westover Capital had no right to recover attorney fees on these
tort claims because the Line of Credit Contracts’ attorney fee provisions did
not identify Westover Capital as a party entitled to the benefit of those
provisions.  We agree.

“[S]ection
1717 does not apply to tort claims; it determines which party, if any, is
entitled to attorney[] fees on a contract
claim only.  [Citations.]  As to tort claims, the question of whether to
award attorney[] fees turns on the language of the contractual attorney[] fee
provision, i.e., whether the party seeking fees has ‘prevailed’ within the
meaning of the provision and whether the type of claim is within the scope of
the provision.  [Citation.]  This distinction between contract and tort
claims flows from the fact that a tort claim is not ‘on a contract’ and is
therefore outside the ambit of section 1717.  [Citations.]” 
(Exxess, supra, 64 Cal.App.4th at p. 708, original italics;
see also Santisas, >supra, 17 Cal.4th at p. 615; >Gil, supra,
121 Cal.App.4th at pp. 742-743; Xuereb,
supra, 3 Cal.App.4th at
p. 1342.)

Section 1717’s
reciprocity principles therefore make a unilateral attorney fee provision
reciprocal only on contract claims; they do not make a unilateral provision
reciprocal on tort claims.  (>Gil, supra,
121 Cal.App.4th at pp. 742-743; Exxess,
supra, 64 Cal.App.4th at
p. 708; Xuereb, >supra, 3 Cal.App.4th at
p. 1342.)  A party may recover
attorney fees on a tort claim only if an attorney fee provision broad enough to
cover tort claims expressly identifies that party as a party entitled to its
benefits.  (Moallem, supra,
25 Cal.App.4th at pp. 1830-1832.) 


In
Moallem, the plaintiff successfully
sued its real estate broker for negligence and breach of fiduciary duty and
then sought attorney fees under a fee provision in the href="http://www.fearnotlaw.com/">brokerage agreement.  (Moallem,
supra, 25 Cal.App.4th at
pp. 1828‑1829.)  Although the
fee provision’s language was otherwise broad enough to cover the plaintiff’s
tort claims, the Moallem court
affirmed the trial court’s decision denying the plaintiff’s fee motion because
the fee provision’s language limited the right to recover attorney fees to the
broker only; it did not authorize the plaintiff to recover attorney fees on any
type of claim.  Because the claims at
issue were not on the contract, the plaintiff could not rely on
section 1717’s reciprocity principles to make the unilateral fee provision
reciprocal.  (Moallem, at pp. 1831-1832.)

As
explained above, the attorney fee provisions in each of the Line of Credit
Agreements authorized the “Lender” or “Secured Party” to recover its attorney
fees from the “Borrower” or “Debtor.” 
The provisions did not authorize the Borrower or Debtor to recover its
attorney fees under any circumstance. 
Westover Capital may rely on section 1717 and its reciprocity
principles to recover its attorney fees on the contract claims, but those
principles do not apply to Brown Bark’s tort claims.  (Gil,
supra, 121 Cal.App.4th at
pp. 742-743; Exxess, >supra, 64 Cal.App.4th at
p. 708; Xuereb, >supra, 3 Cal.App.4th at
p. 1342.)

Westover
Capital argues it is entitled to recover its attorney fees on the tort claims
because the fee provisions in the Line of Credit Contracts are broad enough to
cover tort claims.  But the type of
claims the fee provisions cover is only half of the analysis.  The fee provisions also must identify
Westover Capital as a party entitled to the benefit of those provisions.  (Moallem,
supra, 25 Cal.App.4th at
pp. 1830-1832.)  The fee provisions,
however, are unilateral provisions that only authorize the Lender or Secured
Party to recover attorney fees.  Even the
“sharp quillets of the law” will not permit Westover Capital to invoke section
1717 and make the unilateral fee provisions reciprocal as to the tort
claims.  (Henry VI, part 1, act 2, scene
4, line 19.)  The trial court therefore
properly denied Westover Capital’s motion to recover the attorney fees it
incurred on the tort claims. 

D.        Haver Is Not Entitled
to Recover Any of Her Attorney Fees Under the Line of Credit Contracts

Brown
Bark did not name Haver as a defendant on either of the breach of contract
causes of action, but rather sued her only on the conversion and fraud
claims.  The trial court denied the fee
motion as to Haver because she was not sued on a contract and therefore had no
right to recover attorney fees under any of the Line of Credit Contracts.  We agree.

As
explained above, section 1717 only applies when a party is sued on a
contract.  Because Brown Bark did not sue
Haver on the Line of Credit Contracts, she may not invoke section 1717 to
seek the benefit of the attorney fee provisions in those Contracts.  The trial court therefore properly denied the
fee motion as to Haver.

E.         The Trial Court Must
Determine Whether and How to Allocate Attorney Fees Between the Contract and
Tort Claims and Between Westover Capital and Haver

“Where
a cause of action based on the contract providing for attorney[] fees is joined
with other causes of action beyond the contract, the prevailing party may
recover attorney[] fees under section 1717 only as they relate to the
contract action.”  (Reynolds, supra,
25 Cal.3d at p. 129; Amtower v.
Photon Dynamics, Inc. (2008) 158 Cal.App.4th 1582, 1603-1604 (>Amtower).) The prevailing party
therefore must generally allocate the attorney fees it incurred between the
causes of action on the contract and the noncontract causes of action.  (Ibid.) 

Attorney
fees, however, “need not be apportioned when incurred for representation on an
issue common to both a cause of action in which fees are proper and one in
which they are not allowed.  All expenses
incurred with respect to [issues common to all causes of action] qualify for
award.”  (Reynolds, supra,
25 Cal.3d at pp. 129-130; Amtower,
supra, 158 Cal.App.4th at
pp. 1603-1604.)  The governing
standard is whether the “issues are so interrelated that it would have been
impossible to separate them into claims for which attorney fees are properly
awarded and claims for which they are not.” 
(Akins v. Enterprise Rent-A-Car
Co. (2000) 79 Cal.App.4th 1127, 1133 (Akins); see also Abdallah v.
United Savings Bank (1996) 43 Cal.App.4th 1101, 1111 (>Abdallah) [allocation not required when
the claims are “‘“inextricably intertwined”’ [citation], making it
‘impracticable, if not impossible, to separate the multitude of conjoined
activities into compensable or noncompensable time units’”].)

Allocation
also is generally required when the same lawyer represents one party who is
entitled to recover its attorney fees and another party who is not.  As with allocation among causes of action,
allocation among jointly represented parties “is not required when the
liability of the parties is ‘so factually interrelated that it would have been
impossible to separate the activities into compensable and noncompensable time
units. . . . 
[Citation.]’  [Citation.]”  (Cruz
v. Ayromloo (2007) 155 Cal.App.4th 1270, 1277; Zintel Holdings, LLC v. McLean (2012) 209 Cal.App.4th 431,
443.)

Here,
the trial court did not address allocation because it found neither Westover
Capital nor Haver was entitled to recover attorney fees on any cause of
action.  “The trial court[, however,] is
the best judge of the value of professional services rendered in its court” (>Akins, supra, 79 Cal.App.4th at p. 1134) and allocation of
attorney fees “is a matter within the trial court’s discretion” (>Amtower, supra, 158 Cal.App.4th at p. 1604; Abdallah, supra,
43 Cal.App.4th at p. 1111). 
Accordingly, on remand the trial court must determine (1) whether
and how to allocate Westover Capital’s attorney fees between the breach of
contract and successor liability issues and the tort issues; (2) whether
and how to allocate the fees for the attorneys who jointly represented Westover
Capital and Haver; and (3) the amount of attorney fees Westover Capital
may recover for this appeal (Akins,
at p. 1134). 

III

Disposition

We
affirm the trial court’s order denying Haver her attorney fees and denying
Westover Capital attorney fees on the conversion and fraud causes of
action.  We reverse the trial court’s
order denying Westover Capital attorney fees on the breach of contract claims
and remand for further proceedings to determine the amount of fees Westover
Capital may recover consistent with the views expressed in this opinion.  Westover Capital and Haver shall recover
their costs on appeal.

 

 

                                                                                   

                                                                                    ARONSON,
J.

 

WE CONCUR:

 

 

 

BEDSWORTH,
ACTING P. J.

 

 

 

FYBEL, J.