Multi-Specialty Surgical Center v. Arden Realty Finance

Filed 3/18/08 Multi-Specialty Surgical Center v. Arden Realty Finance CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from an order of the Superior Court of Los Angeles County, Gerald Rosenberg, Judge. Affirmed.

McGarrigle, Kenney & Zampiello, Patrick C. McGarrigle and Philip A. Zampiello; Law Offices of Patrick C. McGarrigle, Patric C. McGarrigle and Philip A. Zampiello for Defendant and Appellant.

Law Offices of James S. Uyeda and James S. Uyeda for Plaintiff and Respondent.

_________________________

Arden Realty Finance V., L.L.C. (Arden) appeals from the trial courts order denying its motion for attorney fees following the voluntary dismissal by Multi-Specialty Surgical Center, Inc. (MSSC) of its claims against Arden for imposition of a constructive trust and declaratory relief. Because none of the attorney fee provisions in the lease agreements involved in this commercial landlord-tenant dispute authorizes an award of fees in the circumstances present here, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Parties Lease and Sublease Agreements

In November 1996 South Spalding Associates, L.L.C., Ardens predecessor-in-interest and the owner of a commercial office building located at 120 South Spalding Drive, Beverly Hills, entered into a written lease agreement with Aristeia Corporation for commercial office space in the building (Master Lease). In November 1999 MSSC purchased the assets of the surgery center operated at that location from Dr. Laurence A. Reich and two companies he controlled, Aristeia and Solutions Multi-Specialty Surgical Center, Inc. (Solutions). According to the allegations in MSSCs second amended complaint, the assets purchased included Aristeias rights to the office space at 120 South Spalding Drive, which Aristeia sublet to MSSC through a written sublease agreement as of November 10, 1999. Although the Master Lease required Ardens prior written consent to any sublease, no such consent was obtained.

There apparently were no disagreements of any significance for the next several years; MSSC paid rent on the office space directly to Arden. However, to resolve an ongoing dispute over common area maintenance charges under the original lease, Arden and an affiliate of Solutions entered into a new lease for the premises on April 1, 2002. Thereafter, Dr. Reich, who had been retained as a consultant by MSSC and served as MSSCs medical director, informed MSSC the new lease between Solutions and Arden terminated the original Master Lease and, as a consequence, MSSCs sublease of the premises.

2. MSSCs Lawsuit

Alleging Dr. Reich had purportedly been negotiating on its behalf, not Solutions, with the understanding MSSC was to be identified as the tenant in the new lease with Arden, on August 27, 2002 MSSC sued Dr. Reich, Aristeia and Solutions for breach of contract, breach of fiduciary duty and fraud, seeking damages, declaratory relief confirming its entitlement to possession of the office space and imposition of a constructive trust over the leased property. Arden was added as a defendant in the declaratory relief and constructive trust causes of action in a second amended complaint, filed by MSSC on January 2, 2003.

In the 12th cause of action MSSC sought a declaration that it was entitled to exclusive possession of the leased premises pursuant to the various agreements between MSSC, on the one hand, and Dr. Reich, Aristeia and Solutions, on the other hand, including the sublease ‑‑ a claim necessarily predicated on the validity of the sublease. Alternatively, MSSC asserted it should be recognized as the beneficiary under a constructive trust theory with respect to the new lease between Solutions and Arden. The 18th cause of action sought imposition of the constructive trust, requiring, in effect, Dr. Reich and related defendants to transfer the rights under the new lease to MSSC and Arden to recognize MSSC as the tenant.

Arden responded to MSSCs claims by maintaining it had never consented to the sublease, as required by the Master Lease, and the sublease in any event terminated when Solutions and Arden entered into the new lease. After litigating the matter for a year, Arden moved for summary judgment on February 19, 2004. On March 2, 2004, well before the due date for its response to Ardens motion, MSSC filed a request for voluntary dismissal of Arden without prejudice. The dismissal was entered the same day.

3. The Lease Agreements Attorney Fee Provisions

a. The original Master Lease

Paragraph 24 of the Master Lease provides, In any action or proceeding involving or relating in any way to this Lease, the court or other person or entity having jurisdiction in such action or proceeding shall award to the party in whose favor judgment is entered the reasonable attorneys fees and costs incurred.

The Master Lease also contained an indemnification/hold-harmless provision (paragraph 14.2), which obligated Aristeia to defend, protect, indemnify and hold Landlord . . . harmless from and against any and all claims . . . including reasonable attorneys and consultants fees, arising out of, connected with, or resulting from any use of the [office space] by Tenant . . . .

b. The MSSC-Aristeia sublease

The sublease agreement between MSSC and Aristeia incorporated by reference all terms and conditions of the Master Lease: This sublease incorporates by reference all terms and conditions set forth [in] the lease between lessor, South Spalding Associates, L.L.C., otherwise Arden Realty, Inc., the present owner of the building (hereafter lessor) and Aristeia Corporation (hereafter Aristeia). The sublease expressly provides sublessee [MSSC] is subject to all of Aristeias obligations under said lease, and MSSC agreed to perform all of the Master Leases terms and conditions: Sublessee agrees to perform and observe the covenants, conditions, and terms of the lease on the part of lessee (Aristeia) to be performed and observed, and to indemnify lessor against all claims, damages, and expenses arising out of nonperformance or nonobservance of such covenants, conditions and terms.

The sublease has its own attorney fee provision: If any legal action is filed to enforce this sublease, or any part of the sublease, the prevailing party shall be entitled to recover reasonable attorneys fees, to be fixed by the court, and costs of the action.

c. The new lease

The new lease between Solutions and Arden negotiated by Dr. Reich also contains an attorney fee provision, In any action to enforce the terms of this Lease . . . the losing party shall pay the successful party a reasonable sum for attorneys fees and costs in such suit . . . whether or not such action is prosecuted to judgment.

4. The Trial Courts Order Denying Ardens Motion for Attorney Fees

Following MSSCs voluntary dismissal of its claims against Arden, Arden moved for an award of $146,000 in attorney fees, arguing MSSCs complaint asserted purported rights under the Master Lease, the sublease and the new lease, each of which had an attorney fee provision that authorized fees for Arden as the prevailing party in the litigation.[1] Acknowledging that Civil Code section 1717, subdivision (b)(2), bars an award of attorney fees on contract claims that have been voluntarily dismissed,[2]Arden asserted MSSCs claims against it under the parties agreements arose out of the underlying tort claims of fraud and fiduciary duty alleged against Dr. Reich, Aristeia and Solutions.

The trial court denied the motion for attorney fees on May 27, 2004. The court found the 12th cause of action for declaratory relief, to the extent it seeks to enforce the sublease and Master Lease, is an action on the contract; the voluntary dismissal of the claim by MSSC therefore precludes an award of fees under Civil Code section 1717, subdivision (b)(2). The alternative constructive trust theory, in both the 12th and 18th causes of action, however, could be construed as a tort theory, in which case Arden would be entitled to attorney fees. Nonetheless, the court noted the constructive trust theory is based on the alleged fraud of Dr. Reich in negotiating a new lease for himself and Solutions; MSSC did not allege any fraudulent conduct by Arden and simply joined Arden as a defendant to ensure complete relief.

The court further concluded, because Arden was not a party to the sublease, the attorney fee provision in that agreement was not applicable to MSSCs unsuccessful claims. Finally, the court explained the attorney fee provision in the new lease was limited to an action to enforce the terms of the lease. A cause of action to impose a constructive trust does not seek to enforce the agreement itself and thus falls outside the scope of the attorney fee provision.

DISCUSSION

1. The Automatic Stay in MSSCs Bankruptcy Proceeding Does Not Preclude this Court from Deciding Ardens Appeal

a. MSSCs bankruptcy and the stay of appellate proceedings

Arden filed a notice of appeal from the trial courts order denying its motion for attorney fees on June 25, 2004. The appeal was fully briefed in this court on February 7, 2005. On March 2, 2005 MSSC filed a voluntary petition for bankruptcy pursuant to chapter 7 of the Bankruptcy Code (11 U.S.C. 701 et seq.). A notice of bankruptcy proceedings and automatic stay was filed in this court on March 3, 2005, and we stayed all proceedings pursuant to title 11 United States Code section 362(a) on March 9, 2005.

After receiving and reviewing periodic status reports regarding the bankruptcy proceedings, on September 11, 2007 we issued an order indicating Ardens appeal did not appear to be subject to the automatic stay because MSSC, the debtor in the bankruptcy proceedings, had initiated the underlying action. We directed the parties to submit supplemental briefs on the issue of the applicability of the automatic stay provisions of the Bankruptcy Code.

Arden filed a supplemental brief, noting it could find no case directly on point, but suggesting the appeal is subject to the provisions of the automatic stay because its efforts to obtain and enforce an award of attorney fees against MSSC after the dismissal of MSSCs affirmative claims is akin to a counterclaim or cross-claim against MSSC, which would be subject to the stay. MSSC did not respond to our order directing further briefing on this threshold issue. On December 5, 2007 we vacated the March 9, 2005 stay of proceedings and ordered Ardens appeal returned to active status.[3]

b. This court has jurisdiction to decide an appeal from an order denying attorney fees in an action initiated by the debtor in bankruptcy proceedings

The filing of a bankruptcy action operates as a stay, applicable to all entities, of ‑‑ [] (1) the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the [bankruptcy action], or to recover a claim against the debtor that arose before the commencement of the [bankruptcy action] . . . . (11 U.S.C.  362(a)(1).) The statute contains 18 specific exemptions from the automatic stay, none of which is applicable here. (11 U.S.C. 362(b).) Actions taken in violation of the automatic stay are void. (See Grant v. Clampitt (1997) 56 Cal.App.4th 586, 590.)

At least with respect to actions in the trial court, the automatic bankruptcy stay provision is inapplicable to suits initiated by the debtor. (Shah v. Glendale Federal Bank (1996) 44 Cal.App.4th 1371, 1375 [automatic stay is inapplicable to superior court actions initiated by the debtor]; Shorr v. Kind (1991) 1 Cal.App.4th 249, 253 [when bankruptcy debtor is plaintiff, the state court does not lose jurisdiction, time periods are not tolled and the automatic stay provision[s] . . . are inapplicable].) In deciding whether an appeal is the commencement or continuation of an action or proceeding against the debtor, California appellate courts, as well as the majority of Federal Circuit Courts of Appeals considering the issue, have held the proper inquiry is whether the underlying lawsuit was brought against the debtor, not whether the debtor filed the appeal. (Shah, at p. 1377 [whether an action is against the debtor within the meaning of section 362(a)(1) is determined by the debtors status at the inception of the action; regardless whether the debtor is the appellant or the respondent]; Keitel v. Heubel (2002) 103 Cal.App.4th 324, 332-333; see Parker v. Bain (9th Cir. 1995) 68 F.3d 1131, 1135-1136 & fn. 6, and cases cited therein.) Accordingly, neither a request for attorney fees in the trial court by a defendant who has prevailed in an action brought by the debtor nor an appeal from the trial courts denial of that request is barred by the automatic stay. As a matter of equity, the automatic stay should not tie the hands of a defendant while the plaintiff is given free rein to litigate. (In re Merrick (9th Cir. BAP 1994) 175 B.R. 333, 338 [defendant granted summary judgment and awarded $12,000 costs against plaintiff/bankruptcy debtor].)[4]

2. Because No Judgment Was Entered in Favor of Arden, It Is Not Entitled to an Award of Attorney Fees

a. Standard of review

An order granting or denying an award of attorney fees is generally reviewed for an abuse of discretion. (See, e.g., MHC Financing Limited Partnership Two v. City of Santee (2005) 125 Cal.App.4th 1372, 1397; Salawy v. Ocean Towers Housing Corp. (2004) 121 Cal.App.4th 664, 669.) However, the question of a partys entitlement to attorney fees is a legal issue subject to de novo review. (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175-1176; Leamon v. Krajkiewcz (2003) 107 Cal.App.4th 424, 431; Carver v. ChevronU.S.A., Inc. (2002) 97 Cal.App.4th 132, 142.) Similarly, we independently determine as a question of law the scope of a contractual attorney fee provision when, as here, the interpretation does not turn on extrinsic evidence. (Kalai v. Gray (2003) 109 Cal.App.4th 768, 777; Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 705 (Exxess Electronixx).)

b. The Master Lease requires entry of a judgment as a prerequisite to an award of attorney fees

Arden concentrates its appellate argument on the fee provision in the original Master Lease, which provides reasonable attorney fees shall be awarded to the party in whose favor judgment is entered in any action involving or relating to this Lease. Arden contends, first, the language in the agreement, which was incorporated by reference in MSSCs sublessee with Aristeia, is sufficiently broad to include tort and other noncontract actions between these parties; and second, the trial court erred in concluding MSSCs claims against it were solely contractual in nature.[5] As to the first point, we agree with Arden regarding the nature of claims covered by the Master Lease fee provision. (See Santisas v. Goodin (1998) 17 Cal.4th 599, 602, 608 (Santisas) [[w]hether attorney fees incurred in defending tort or other noncontract claims are recoverable after a pretrial dismissal depends upon the terms of the contractual attorney fee provision; [i]f a contractual attorney fee provision is phrased broadly enough, . . . it may support an award of attorney fees to the prevailing party in an action alleging both contract and tort claims]; Gil v. Mansano (2004) 121 Cal.App.4th 739, 743 [parties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract]; Allstate Ins. Co. v. Loo (1996) 46 Cal.App.4th 1794, 1799 [contract providing for attorney fees in any action relating to the demised premises encompasses tort actions].)

Even if we were to agree with Ardens second point and accept its characterization of MSSCs claims, however, Arden would not be entitled to an award of fees; for the contractual fee provision does not broadly authorize an award of attorney fees to the prevailing party in any litigation involving the lease but rather limits attorney fees to the party in whose favor a judgment has been entered. Although contractual fee provisions are generally enforceable in voluntary pretrial dismissal cases except as barred by Civil Code section 1717 (Santisas, supra, 17 Cal.4th at p. 622), the Supreme Court clearly anticipated the parties in their agreement could provide that no fees would be recoverable in the event an action is dismissed prior to judgment. (Ibid. [a court may determine whether there is a prevailing party, and if so which party meets that definition, by examining the terms of the contract at issue, including any contractual definition of the term prevailing party and any contractual provision governing payment of attorney fees in the event of dismissal].) By restricting an award of fees to those instances in which a judgment has been entered, that is precisely what Arden (through its predecessor-in-interest South Spalding Associates) and MSSC (through Aristeia, from whom it obtained whatever lease rights it had) did: A pretrial voluntary dismissal without prejudice is simply not a final judgment. (Syufy Enterprises v. City of Oakland (2002) 104 Cal.App.4th 869, 879 [[b]y definition, a voluntary dismissal without prejudice is not a final judgment on the merits]; see Gutkin v. University of Southern California (2002) 101 Cal.App.4th 967, 975 [voluntary dismissal without prejudice does not have legal effect of a final judgment].)[6]

In marked contrast, the attorney fee provision in the new lease between Solutions and Arden expressly provides for an award of fees to the successful party whether or not such action is prosecuted to judgment. However, even were that fee provision applicable in an action brought by nonsignatory MSSC against Arden, this contractual provision is limited to actions to enforce the terms of this Lease, which do not include claims for fraud and breach of fiduciary duty. Civil Code section 1717, subdivision (a), makes clear that a tort claim does not enforce a contract. That statute expressly refers to, and therefore governs, attorneys fees . . . which are incurred to enforce th[e] contract. Because section 1717 does not encompass tort claims [citations], it follows that tort claims do not enforce a contract. (Exxess Electronixx, supra, 64 Cal.App.4th at p. 709; see Rosen v. Robert P. Warmington Co. (1988) 201 Cal.App.3d 939, 941, fn. 1 [disallowing fees for defending against contract and tort claims after pretrial dismissal when contract provision authorized fees in action to enforce any other provision, condition or agreement of this lease]; see also Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1342-1343 [attorney fees not permitted on tort claims under contractual provision authorizing fees in action to enforce contract].)

DISPOSITION

The order denying attorney fees is affirmed. Multi-Specialty Surgical Center, Inc. is to recover its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

PERLUSS, P. J.

We concur:

WOODS, J.

ZELON, J.

Publication courtesy of San Diego pro bono legal advice.

Analysis and review provided by Poway Property line attorney.

San Diego Case Information provided by www.fearnotlaw.com

[1] Arden also argued in the trial court it was entitled to recover its fees pursuant to former section 2033, subdivision (o), of the Code of Civil Procedure (now Code Civ. Proc., 2033.420), which authorizes an award of fees in favor of a party who proves the genuineness of any document or the truth of any matter after the opposing party fails to admit genuineness or truth in a request for admissions. The trial court rejected Ardens contention MSSCs voluntary dismissal of its claims after Arden moved for summary judgment fell within the ambit of this statute. Arden does not pursue this theory on appeal.

[2] Civil Code section 1717, subdivision (b)(2), provides, Where an action has been voluntarily dismissed or dismissed pursuant to settlement of the case, there shall be no prevailing party for purposes of this section.

[3] Because of the delay between the briefing on the merits and the order returning the matter to active status, we invited the parties to file supplemental briefs presenting any new or additional authorities they wanted us to consider.

[4] As discussed below, we conclude on the merits the trial court properly denied Ardens motion for attorney fees. If we had decided the trial court erred and directed entry of an order granting the request for fees, enforcement of any award against MSSC would be a matter properly addressed to the bankruptcy court.

[5] As it did in the trial court, on appeal Arden concedes, in light of MSSCs voluntary dismissal of its claims against it, it is barred by Civil Code section 1717, subdivision (b)(2), from recovering attorney fees incurred in defending against any of MSSCs contract claims. (Santisas v. Goodin (1998) 17 Cal.4th 599, 602 [in voluntary pretrial dismissal cases, Civil Code section 1717 bars recovery of attorney fees incurred in defending contract claims].)

[6] MSSC did not argue in the trial court, as it does on appeal, that the attorney fees provision in the original Master Lease requires entry of a judgment and is not generally applicable to any prevailing party. Although Arden is correct a reviewing court ordinarily will not consider for the first time on appeal claims that could have been but were not presented to the trial court, we have discretion to consider a new theory when it is purely a matter of applying the law to undisputed facts. (See Brown v. Boren (1999) 74 Cal.App.4th 1303, 1316; Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 847.)