Opinion
B297299 B301777
10-05-2021
LEGENDARY BUILDERS CORPORATION, Cross-complainant and Appellant, v. GROVEWOOD PROPERTIES, LLC, Cross-defendant and Respondent. GROVEWOOD PROPERTIES, LLC, Cross-complainant and Appellant, v. LEGENDARY BUILDERS CORPORATION et. al., Cross-defendants and Appellants.
The Soni Law Firm, M. Danton Richardson, Leo E. Lundberg, Jr. and Michael A. Long for Legendary Builders Corporation, Juan Parades, and Surjit P. Soni. Manning & Kass, Ellrod, Ramirez, Trester, John Hochhausler and Kevin H. Louth for Grovewood Properties, LLC.
NOT TO BE PUBLISHED
APPEAL from a judgment and an order of the Superior Court of Los Angeles County Nos. BC628705, BC628705 Holly J. Fujie, Judge. Judgment reversed. Order affirmed in part and reversed in part.
The Soni Law Firm, M. Danton Richardson, Leo E. Lundberg, Jr. and Michael A. Long for Legendary Builders Corporation, Juan Parades, and Surjit P. Soni.
Manning & Kass, Ellrod, Ramirez, Trester, John Hochhausler and Kevin H. Louth for Grovewood Properties, LLC.
CURREY, J.
INTRODUCTION
In this consolidated appeal, Legendary Builders Corporation (“Legendary”) challenges: (1) the judgment entered in favor of Grovewood Properties, LLC, (“Grovewood”) on Legendary's claims against it; and (2) the trial court's order granting in part and denying in part the motion filed by Legendary and its two principals, Juan Parades and Surjit P. Soni, for attorneys' fees incurred in successfully defending against Grovewood's claims. Grovewood also appeals from the order on the Legendary Defendants' motion for attorneys' fees.
On March 8, 2021, we consolidated the appeals in B297299 and B301777 for argument and decision.
Throughout this opinion, we will refer to Legendary, Soni, and Parades collectively as “the Legendary Defendants.”
For the reasons discussed below, we reverse the judgment entered in favor of Grovewood. In addition, we affirm in part and reverse in part the order on the Legendary Defendants' motion for attorneys' fees. We remand the case to the trial court to determine, upon the existing evidentiary record: (1) whether Legendary is entitled to payment from Grovewood under Payment Applications 21 and 22 and the retainage funds; (2) whether Legendary is entitled to attorneys' fees incurred in defending against Grovewood's claims and, if so, the reasonable amount of those fees; and (3) the amount of reasonable attorneys' fees incurred by Parades in defending against Grovewood's claims.
BACKGROUND
This case arises out of a construction contract between Legendary and Grovewood. Legendary agreed to serve as the general contractor on the construction of a condominium complex on property owned by Grovewood. A number of disputes arose between the parties throughout construction. Ultimately, Legendary ceased work on the project before its completion.
Subsequently, Techno-Advanced, Inc., one of Legendary's subcontractors, initiated the underlying action by filing a complaint against Legendary and Grovewood. Legendary and Grovewood then filed cross-complaints against each other.
Techno Advanced, Inc., is not a party to this appeal.
In its operative cross-complaint, Legendary alleged it fully performed its obligations under the contract except for those excused by Grovewood's alleged breaches of the contract. Legendary therefore alleged it was entitled to payment of a balance owed by Grovewood. Specifically, it alleged it was owed, among other things: (1) the balance due on two pay applications, Pay Applications 21 and 22; (2) payment for “work performed” under “[r]ejected and/or unapproved” change order requests; and (3) delay costs. Based on these allegations, Legendary asserted the following claims against Grovewood: breach of contract; common counts; and foreclosure of a mechanic's lien. It sought $1, 548, 043.97 in damages, with interest, foreclosure of its mechanic's lien, and attorneys' fees and costs.
Although Legendary's cross-complaint refers to “Payment Application[s], ” the briefs on appeal refer to the same documents as “Pay Applications.” According to Grovewood, “[a] pay application is a form submitted by Legendary listing the amounts due for the work completed on the [p]roject by Legendary and the subcontractors that month.” Legendary does not appear to dispute Grovewood's definition.
Legendary also asserted claims against Michael Dubelko, Grovewood's principal. The trial court granted summary judgment in favor of Dubelko on these claims. He is not a party to this appeal.
Grovewood's cross-complaint alleged Legendary's deficient performance under the contract resulted in extensive delays and construction defects. Moreover, Grovewood alleged Legendary “wrongfully suspended work on the project based on the erroneous claim that Grovewood failed to pay... improperly issued change orders.” It further alleged Parades and Soni were alter egos of Legendary. Based on these allegations, and others, Grovewood asserted the following claims against the Legendary Defendants: intentional interference with contract; negligence; extortion; abuse of process; and slander of title. It also asserted the following claims solely against Legendary: breach of contract; fraud; fraudulent inducement; breach of the implied covenant to perform work in a good and competent manner; breach of the implied covenant of good faith and fair dealing; and negligent misrepresentation.
Grovewood initially asserted additional claims against Parades and Soni, but “dropped” them before trial.
Following a 15-day bench trial, the trial court issued a Statement of Decision. The trial court determined neither Legendary nor Grovewood demonstrated entitlement to relief on their claims asserted against the other in their respective cross-complaints. With respect to Grovewood's claims against Soni and Parades, the trial court found “the evidence submitted d[id] not support a finding that either [of them] is an alter ego of [Legendary].” Accordingly, it entered judgment in favor of the Legendary Defendants on Grovewood's claims, and entered judgment in favor of Grovewood on Legendary's claims.
The Legendary Defendants moved for $789, 570 in attorneys' fees incurred in defending against Grovewood's claims. Following a hearing, the trial court denied the motion with respect to Legendary and Parades, finding they were not entitled to fees under Civil Code section 1717. The court granted the motion with respect to Soni in part and awarded him $86, 711 in fees, which represented its determination of “the reasonable attorney[s'] fees incurred by Soni in defense of [Grovewood's] claims[.]”
DISCUSSION
I. Appeal from the Judgment in Grovewood's Favor
Legendary contends the judgment entered in favor of Grovewood must be reversed for two reasons. First, it argues the trial court erred by finding it was barred from recovering against Grovewood because it failed to prove by competent evidence that it was a licensed contractor throughout the period it worked on the project. Second, Legendary contends the Statement of Decision failed to address its entitlement to payment under Pay Applications 21 and 22. We address each argument in turn below.
A. Licensure
1. Background
Following the close of evidence, the parties submitted written closing arguments to the trial court. In its closing argument brief, Grovewood argued, for the first time, “[a]ll of Legendary's claims against [it] must be dismissed because Legendary never produced at trial a verified certificate of licensure from the [Contractors State Licensing Board (“CSLB”)] to prove it was licensed as required by [Business and Professions Code section 7031, subdivision (d).]” (Fn. omitted.)
Subsequently, the trial court issued a tentative Statement of Decision, finding Legendary was barred from recovering on the contract because of its failure to prove due licensure.
A week before the hearing on the tentative Statement of Decision, Legendary filed a request for judicial notice (“RJN”). It asked the trial court to take judicial notice of a “Certification of Records” from the CSLB. A copy of the Certification of Records is attached to this opinion as Appendix A. The record does not reflect Grovewood objected to or opposed the RJN. At the hearing, the parties presented arguments on whether Legendary had satisfied its burden of proving due licensure based upon the Certification of Records.
In its final Statement of Decision, the trial court reiterated that, during the evidentiary phase of trial, Legendary did not produce a verified certificate of licensure establishing it was licensed while it worked on the project, and therefore did not demonstrate entitlement to relief under the contract at trial. Nevertheless, the trial court granted the RJN and considered whether the Certification of Records satisfied Legendary's burden of proving due licensure.
The trial court ultimately concluded Legendary “failed to prove by competent evidence that it was properly licensed by the CSLB during the course of the construction on the [p]roject.” In support of its conclusion, the trial court found the Certification of Records showed the license issued to Legendary was originally “based upon the issuance of an ‘Exemption from Workers' Compensation Insurance' on file with the CSLB[.]” It noted, however, that “Exemptions from Workers' Compensation Insurance are only valid as to entities that have no other employees[, ]” but Legendary “had employees throughout the period of construction on the [p]roject[.]” Based on these findings, the trial court found the Certification of Records “indicate[d] that [Legendary] failed to file a current and valid Certificate of Workers' Compensation Insurance or Certification of Self-Insurance in [Legendary's] business name with the CSLB while the [p]roject [w]as ongoing[.]” It therefore determined Legendary “was not entitled to a valid license based on an Exemption from Workers' Compensation Insurance throughout the period of construction[.]” Accordingly, the trial court concluded Legendary “has not established that its license was not suspended by operation of law pursuant to... Business and Professions Code, Section 7125 during the period of construction due to this ineligibility[.]” (Underlining omitted.)
2. Applicable Law and Standard of Review
“On appeal from a judgment based on a statement of decision after a bench trial, we review the trial court's conclusions of law de novo and its findings of fact for substantial evidence. [Citation.]” (McPherson v. EF Intercultural Foundation, Inc. (2020) 47 Cal.App.5th 243, 257.)
Pursuant to Business and Professions Code section 7031, subdivision (a): “[N]o person engaged in the business or acting in the capacity of a contractor[ ] may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract regardless of the merits of the cause of action brought by the person[.]”
Unless otherwise noted, all further undesignated statutory references are to the Business and Professions Code.
Section 7031, subdivision (d) provides: “If licensure or proper licensure is controverted, then proof of licensure... shall be made by production of a verified certificate of licensure from the [CSLB] which establishes that the individual or entity bringing the action was duly licensed in the proper classification of contractors at all times during the performance of any act or contract covered by the action.... When licensure or proper licensure is controverted, the burden of proof to establish licensure or proper licensure shall be on the licensee.” Here, there is no dispute that licensure was controverted.
A contractor's production of a verified certificate of licensure is necessary, but not always sufficient, to satisfy his or her burden of proof under section 7031, subdivision (d). (See Buzgheia v. Leasco Sierra Grove (1997) 60 Cal.App.4th 374, 390-392 (Buzgheia).) A verified certificate of licensure is “‘prima facie' evidence” of licensure (id. at p. 390), which “establishes a rebuttable presumption of licensure” (id. at p. 391) and “shifts the burden of producing evidence” to the party opposing the contractor's claims. (Id. at p. 390.) “Upon production of ‘evidence... which would support a finding' of nonlicensure, the presumption of proper licensure disappear[s] and [the contractor] reassume[s] the burden of proof. [Citation.]” (Id. at p. 392.)
With respect to workers' compensation insurance, section 7125, subdivision (a) states: “[T]he board shall require as a condition precedent to the issuance, reinstatement, reactivation, renewal, or continued maintenance of a license, that the applicant or licensee have on file at all times a current or valid Certificate of Workers' Compensation Insurance or Certification of Self-Insurance in the applicant's or licensee's business name.” Section 7125, however, “does not apply to an applicant or licensee who meets both of the following conditions: [¶] (1) Has no employees provided that he or she files a statement with the board on a form prescribed by the registrar prior to the issuance, reinstatement, reactivation, or continued maintenance of a license, certifying that he or she does not employ any person in any manner so as to become subject to the workers' compensation laws of California or is not otherwise required to provide for workers' compensation insurance coverage under California law. [¶] (2) Does not hold a C-39 license[.]” (§ 7125, subd. (b)). C-39 is a license to “install[ ] products and repair[ ] surfaces that seal, waterproof and weatherproof structures[ ]” as “[a] roofing contractor.” (Cal. Code Regs., tit. 16, § 8 32.39.)
Section 7125.2 states, in relevant part: “The failure of a licensee to obtain or maintain workers' compensation insurance coverage, if required under this chapter, shall result in the automatic suspension of the license by operation of law....”
3. Analysis
Legendary argues the trial court erred by finding it did not meet its burden of proof under section 7031, subdivision (d). In support, Legendary contends it satisfied its initial burden of production by submitting the Certification of Records, which constituted “prima facie evidence Legendary was properly licensed” and established a rebuttable presumption of licensure. (Italics omitted.) Although not entirely clear, Legendary appears to contend the trial court erred by finding there was sufficient evidence of nonlicensure to rebut this presumption. Specifically, it argues: (1) there is insufficient evidence to support a finding that Legendary failed to provide the CSLB with a Certificate of Workers' Compensation Insurance or a Certification of Self-Insurance as required under section 7125, subdivision (a) while it was performing under the contract; and (2) even if the evidence supported such a finding, Legendary's noncompliance with section 7125 did not result in the automatic suspension of its license by operation of law, and therefore did not warrant denial of relief under section 7031, subdivision (a).
In response, Grovewood does not challenge the trial court's decision to grant the RJN, or the trial court's consideration of the Certification of Records' contents in evaluating whether Legendary satisfied its burden of proof under section 7031, subdivision (d). Indeed, it concedes the Certification of Records is a “facially valid verified certificate” of licensure. Instead, Grovewood primarily contends the trial court correctly concluded Legendary's license had been “automatically suspended” under section 7125.2.
Grovewood also contends “the issue of licensure is moot” because “the trial court analyzed Legendary's claims at trial and determined that Legendary had been overpaid $1, 012.44 and was not entitled to any damages even if it had been properly licensed.” We disagree. As discussed below, the trial court's analysis on the merits of Legendary's claims was incomplete. (See section I.B.3, post.)
As discussed below, we agree with Legendary's arguments and reject Grovewood's contentions to the contrary.
Based on their appellate briefs, the parties do not appear to dispute the Certification of Records is “a verified certificate of licensure” under section 7031, subdivision (d), which, on its face, shows Legendary held valid licenses to perform the work done under the contract during the relevant time period (i.e., from May 2014 to May 2016). Thus, they do not dispute that by producing the Certification of Records, Legendary submitted “‘prima facie' evidence” of licensure, which “establishe[d] a rebuttable presumption of licensure[ ]” and shifted to Grovewood the burden of producing “‘evidence... which would support a finding' of nonlicensure[.]” (Buzgheia, supra, 60 Cal.App.4th at pp. 390, 392.) The issue of licensure therefore turns on whether the trial court erred when, in effect, it found Grovewood satisfied that burden. As discussed below, we conclude it did.
We acknowledge that at oral argument, Grovewood contended Legendary did not satisfy its initial burden of production under Buzgheia, and therefore failed to meet its burden of proof under section 7031, subdivision (d), because the Certification of Records on its face demonstrated Legendary was not “duly licensed” within the purview of subdivision (a). (§ 7031, subd. (a), italics added.) Specifically, it argued that a notation in Certification of Records, described below, established Legendary's license was facially invalid. This argument, however, was not only not raised in Grovewood's brief, it was conceded because, as noted above, Grovewood acknowledged the Certification of Records was “a facially valid certificate” of licensure. It therefore need not be considered. (See Ace American Ins. Co. v. Walker (2004) 121 Cal.App.4th 1017, 1027 fn. 2.)
At the bottom of the section entitled “Additional Information[, ]” the Certification of Records states: “This license has an ‘Exemption from Workers' Compensation Insurance' on file.” As noted above, based on this notation and undisputed evidence showing Legendary had employees while performing work on the project, the trial court found Legendary “failed to file a current and valid Certificate of Workers' Compensation Insurance or Certification of Self-Insurance in [its] business name with the CSLB while the [p]roject [w]as ongoing[ ]” as required by section 7125, subdivision (a). This finding was the basis for the trial court's determination that Legendary's license had been automatically suspended by operation of law under section 7125, as Legendary “was not entitled to a valid license based upon an Exemption from Workers' Compensation Insurance throughout the period of construction[.]”
The trial court's factual finding regarding Legendary's non-compliance with section 7125, subdivision (a) is unsupported by substantial evidence. As noted above, the Certification of Records contains a notation stating Legendary's “license has an ‘Exemption from Workers' Compensation Insurance' on file.” But this notation alone does not establish that Legendary did not file a Certificate of Workers' Compensation Insurance or a Certification of Self-Insurance with the CSLB while working on the project. The Certification of Records does not contain a legend or other information clarifying the notation's meaning and effect. And Grovewood offered no other evidence on that issue.
Under these circumstances, we conclude the evidence does not reasonably support an inference that Legendary did not file a Certificate of Workers' Compensation Insurance or a Certification of Self-Insurance with the CSLB during the project's construction as required by section 7125, subdivision (a). (See § 7125, subd. (a).) “While substantial evidence may consist of inferences, such inferences must be ‘a product of logic and reason' and ‘must rest on the evidence' [citation]; inferences that are the result of mere speculation or conjecture cannot support a finding [citations].” (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633 (Kuhn).)
In any event, even if the trial court's finding was supported by substantial evidence, any failure by Legendary to file with the CSLB the documents required under section 7125, subdivision (a) would not result in the automatic suspension of its license by operation of law. Nothing in section 7125 et seq. provides for the automatic suspension of a contractor's license by operation of law when a contractor runs afoul of section 7125, subdivision (a). (See § 7125 et seq.) Instead, section 7125.4, subdivision (a) provides, in relevant part: “The filing of the exemption certificate prescribed by this article that is false, or the employment of a person subject to coverage under the workers' compensation laws after the filing of an exemption certificate without first filing a Certificate of Workers' Compensation Insurance or Certification of Self-Insurance in accordance with the provisions of this article... constitutes cause for disciplinary action.” In addition, per section 7126: “Any licensee... who violates, or omits to comply with, any of the provisions of this article is guilty of a misdemeanor.”
Additionally, we reject Grovewood's contention that the trial court correctly determined Legendary's license was invalid because “[t]he license of a contractor who falsely claims to the CSLB that it has no employees is automatically suspended by operation of law[ ]” under section 7125.2. The statute does not provide for the automatic suspension of a license based on a contractor's misrepresentations to the CSLB. Rather, it is the contractor's “failure... to obtain or maintain workers' compensation insurance coverage” when required to do so that “result[s] in the automatic suspension of the license by operation of law[.]” (§ 7125.2.) The trial court did not rely on section 7125.2 in finding Grovewood met its burden of producing “‘evidence... which would support a finding' of nonlicensure[.]” (Buzgheia, supra, 60 Cal.App.4th at p. 392.) Instead, it incorrectly determined “it is immaterial whether [Legendary] actually had workers' compensation insurance during [the relevant] period, as [it] failed to submit evidence of said insurance to the CSLB during the period of construction in any event.” Rather than basing its decision on whether Legendary demonstrated compliance with section 7125, subdivision (a), the trial court's focus should have been on whether Grovewood satisfied its burden of producing evidence of nonlicensure. (See Buzgheia, supra, 60 Cal.App.4th at pp. 390, 392.)
Moreover, even if the trial court relied on section 7125.2, the record lacks sufficient evidence to support a finding of nonlicensure. Grovewood did not produce any evidence showing Legendary failed to obtain or maintain workers' compensation insurance as required by law while it was performing under the contract. Instead, its position, both at trial and on appeal, is that the Certification of Records' notation stating Legendary's “license has an ‘Exemption from Workers' Compensation Insurance' on file[ ]” demonstrates Legendary lacked workers' compensation insurance during the relevant time period. Absent other evidence, however, the notation does not reasonably support an inference that Legendary failed to obtain or maintain workers' compensation insurance when required to do so. (See Kuhn, supra, 22 Cal.App.4th at p. 1633.) The notation therefore does not establish Legendary's license was suspended by operation of law under section 7125.2.
In sum, the parties do not dispute Legendary produced prima facie evidence of licensure by submitting the Certification of Records. Thus, the burden shifted to Grovewood to produce evidence sufficient to support a finding of nonlicensure. (See Buzgheia, supra, 60 Cal.App.4th at pp. 390, 392.) For the reasons discussed above, the trial court erred by determining Grovewood met its burden. Accordingly, by establishing an unrebutted presumption of licensure, Legendary satisfied its burden of proving licensure. Thus, Legendary was not barred from recovering on the contract pursuant to section 7031, subdivision (a).
We take judicial notice of the existence of Legendary's Workers' Compensation Insurance History, but not the truth of its contents. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.) Contrary to Legendary's assertion, the contents of the Workers' Compensation Insurance History cannot be used on appeal to establish Legendary had workers' compensation insurance while performing under the contract. In any event, in light of our conclusion on licensure above, we need not address whether Legendary had workers' compensation insurance during the relevant time period. Nor do we need to decide if it “substantially complied with the licensure statutes” within the meaning of section 7031, subdivision (e).
In defense of the trial court, we note the parties poorly communicated the import of Buzgheia's burden-shifting analysis. Additionally, the parties failed to produce competent evidence of the meaning and import of the notation on the Certification of Records.
B. Omission of a Material Issue from the Statement of Decision
1. Background
At trial, Legendary sought payments based on numerous change order requests submitted to Grovewood and amounts allegedly due under two pay applications, Pay Applications 21 and 22. Legendary provided the trial court with a table summarizing the damages it was requesting at trial as an exhibit to its closing argument brief. The table reflects the payments sought under Pay Applications 21 and 22 were distinct from the payments sought under the change order requests. According to Legendary, the table also shows it sought to recover “retainage funds” in connection with its requests under Pay Application 22.
According to Legendary, “[r]etainage funds are funds held back under a construction contract to provide a source of funds to fix any issues with the contractor/subcontractor's work.” Grovewood does not appear to dispute this definition.
In its final Statement of Decision, the trial court concluded Legendary was not entitled to relief on its claims because: (1) it failed to prove due licensure; and (2) even if it proved licensure, it “would not have been awarded a positive recovery under the... Contract[.]” The latter conclusion was based entirely on findings related to Legendary's claims for payment under the disputed change order requests. Specifically, based on those change order requests, the trial court found Legendary would have actually owed Grovewood $1, 012.44 on the contract. The trial court's analysis of Legendary's claims does not mention or otherwise address Legendary's entitlement to payment under Pay Applications 21 and 22.
2. Applicable Law
“Upon the timely request of one of the parties in a nonjury trial, a trial court is required to render a statement of decision addressing the factual and legal bases for its decision as to each of the principal controverted issues of the case. (Code Civ. Proc., § 632.)” (Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1124.) “A trial court rendering a statement of decision under Code of Civil Procedure section 632 is required only to state ultimate rather than evidentiary facts.... Only where a trial court fails to make findings as to a material issue which would fairly disclose the determination by the trial court would reversible error result.” (Nunes Turfgrass v. Vaughan-Jacklin Seed Co. (1988) 200 Cal.App.3d 1518, 1525.)
3. Analysis
Legendary contends the trial court committed reversible error because its Statement of Decision “did not address the sums due to Legendary under Pay Application Nos. 21 and 22 and the retainage funds.” In response, Grovewood contends we need not address this issue because: (1) Legendary failed to prove due licensure at trial and was barred from recovering any relief under the contract, including payments allegedly due under Pay Applications 21 and 22; and (2) Legendary did not bring the alleged deficiency in the Statement of Decision to the trial court's attention. Grovewood also argues that because the trial court addressed Legendary's entitlement to payment under Pay Applications 21 and 22 at the hearing on its tentative Statement of Decision, its omission of the issue from the final Statement of Decision was not reversible error.
For the reasons discussed below, we agree with Legendary.
We first reject Grovewood's contention that we need not address this issue. As discussed above, Legendary satisfied its burden of proving licensure under section 7031. (See section I.A.3, ante.) Therefore, the omission of Legendary's entitlement to payment under Pay Applications 21 and 22 from the Statement of Decision has not been rendered “[m]oot” by its failure to prove licensure. (Bolded text omitted.)
Moreover, contrary to Grovewood's argument, the record reflects the asserted deficiency in the Statement of Decision “was brought to the attention of the trial court... prior to entry of judgment” as required under Code of Civil Procedure section 634. (Code Civ. Proc., § 634; see also In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134.) Specifically, at the hearing on the tentative Statement of Decision, counsel for Legendary stated: “One thing the tentative doesn't address are the moneys due to Legendary... [on] Pay Applications 21 and 22.” Although Legendary did not expressly mention the retainage funds in raising the point to the trial court, the record reflects the retainage funds were expressly sought as part of the amount due under Pay Application 22. Consequently, by notifying the trial court that the tentative Statement of Decision did not discuss its entitlement to payment under Pay Application 22, Legendary effectively informed the trial court the tentative Statement of Decision did not discuss its entitlement to the retainage funds. Accordingly, the issue in dispute has not been forfeited, and the doctrine of implied findings does not apply here. (See In re Marriage of Arceneaux, supra, 51 Cal.3d at pp. 1133-1134.)
Next, we reject Grovewood's contention that the trial court adequately addressed Legendary's entitlement to payment under Pay Applications 21 and 22 through its comments at the hearing on the tentative Statement of Decision. We acknowledge the trial court's remarks from the bench suggest it was not inclined to award Legendary relief on Pay Applications 21 and 22 based on its “evaluation of the credibility of evidence presented by Legendary.” Those “oral comments, ” however, “were not final findings” on the matter. (Key v. Tyler (2019) 34 Cal.App.5th 505, 539, fn. 16.) “This is because a trial court retains inherent authority to change its decision, its findings of fact, or its conclusions of law at any time before entry of judgment and then the judgment supersedes any memorandum or tentative decision or any oral comments from the bench. [Citations.] Thus, a trial court's pre-judgment oral expressions do not bind the court or restrict its power to later declare final findings of fact and conclusions of law in the judgment. [Citation.]” (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 268.)
Having rejected Grovewood's contentions, we consider whether the Statement of Decision omitted “findings on a material issue which would fairly disclose the trial court's determination[.]” (Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1230.) We conclude that it did.
While the trial court determined Grovewood did not owe Legendary any money under the contract based on the disputed change order requests, it did not address whether Legendary could recover the amounts allegedly owed under Pay Applications 21 and 22 or the retainage funds. So far as we can tell, the record reflects Legendary's claims for payment on those grounds were wholly separate from its claims for payment based on the change order requests. Resolution of the issue in dispute therefore would have been pertinent to the trial court's ultimate determination on Legendary's ability to recover from Grovewood under the contract. Accordingly, because it did not discuss Legendary's entitlement to the sums set forth in Pay Applications 21 and 22 or the retainage funds, the Statement of Decision improperly omitted “[a] ‘material' issue... which is relevant and essential to the judgment and closely and directly related to the trial court's determination of the ultimate issues in the case. [Citations.]” (Kuffel v. Seaside Oil Co. (1977)69 Cal.App.3d 555, 565.) On remand, the issue should be addressed.
II. The Parties' Appeals from the Attorneys' Fees Order
A. General Principles and Standard of Review
Pursuant to Civil Code section 1717, subdivision (a): “In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract... shall be entitled to reasonable attorney's fees in addition to other costs.” Under Civil Code section 1717, subdivision (b)(1), the trial court, “upon notice and motion by a party, shall determine who is the party prevailing on the contract for purposes of this section....” “The court may also determine that there is no party prevailing on the contract for purposes of this section.” (Ibid.)
“Generally, an order granting or denying an award of attorney fees is reviewed under the abuse of discretion standard of review. [Citation.] However, the determination of whether the criteria for an award of attorney fees and costs have been met is a question of law for our de novo review. [Citations.] As for any disputed factual issues, the trial court's findings are reviewed under the substantial evidence rule and must be affirmed if supported by substantial evidence. [Citation.]” (Soni v. Wellmike Enterprise Co. Ltd. (2014) 224 Cal.App.4th 1477, 1481.)
B. Legendary's Attorneys' Fees
1. Background
The trial court denied the Legendary Defendants' motion for attorneys' fees with respect to Legendary. In doing so, it acknowledged Legendary successfully defended against Grovewood's claims, and “would be deemed the prevailing party” under Code of Civil Procedure section 1032, subdivision (a)(4). Because neither Legendary nor Grovewood succeeded on their claims asserted against the other in their respective cross-complaints, however, the trial court determined “there was no prevailing party in this action as between Legendary and Grovewood. [Citations.]” It therefore concluded Legendary was not entitled to attorneys' fees under Civil Code section 1717.
Code of Civil Procedure section 1032, subdivision (a)(4) states in relevant part: “‘Prevailing party' includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant.”
2. Analysis
The Legendary Defendants argue the trial court erred by finding Legendary was not entitled to attorneys' fees because Legendary was the “prevailing party” on Grovewood's claims under Code of Civil Procedure section 1032, subdivision (a)(4).
We need not address the Legendary Defendants' argument on the merits. As noted above, the trial court determined “there was no prevailing party in [the underlying action] as between Legendary and Grovewood[ ]” because neither party was awarded damages on its claims against the other. Accordingly, the trial court's ruling on Legendary's entitlement to attorneys' fees rested in significant part on its conclusion that Legendary was not entitled to affirmative relief under the contract. For the reasons discussed above, however, we have determined the judgment entered in favor of Grovewood on Legendary's claims must be reversed. (See section I, ante.) Under these circumstances, we also reverse the portion of the order denying fees to Legendary.
C. Parades's Attorneys' Fees
1. Background
In support of their motion for attorneys' fees, the Legendary Defendants submitted two declarations by M. Danton Richardson (the “Richardson Declarations”). Richardson testified he was “one of the attorneys of record for Cross-Defendants, SURJIT P. SONI and JUAN PARADES, in the [underlying action].” He further related that he “personally review[ed]” the billing entries for the services performed for his clients, and believed “[t]he attorney and paralegal fees incurred on this action, as well as the costs incurred by on behalf of [sic] Cross-Defendants were reasonable and necessary for the defense of the Cross-Claims a[g]ainst them.” Attached to his first declaration was “a spreadsheet containing a breakdown of the attorney[s'] fees incurred in this matter” on behalf of his clients.
The first declaration was submitted as an exhibit to the Legendary Defendants' motion for attorneys' fees. A second declaration was later submitted with the Legendary Defendants' supplemental memorandum in support of their motion for attorneys' fees.
Richardson also stated: “I hereby confirm that the obligation to pay for the fees and costs in this matter is the Cross-Defendants [sic], subject to the standard reimbursement obligation under the Operating Agreement.” He did not, however, set forth or otherwise describe the terms of the “Operating Agreement.” A copy of the “Operating Agreement” has not been included in the record.
In ruling on the Legendary Defendants' motion for attorneys' fees, the trial court found Parades was the prevailing party on Grovewood's claims against him. It further found, however, Parades “neither incurred nor paid attorney[s'] fees in defense of this case, in that Soni, a principal of the [Soni Law Firm, the law firm representing the Legendary Defendants], testified at trial that Parades'[s] defense costs were ‘a company obligation.'” Accordingly, the trial court denied the Legendary Defendants' motion with respect to Parades.
2. Analysis
The Legendary Defendants argue the trial court erred by finding Parades has not “incurred” any attorneys' fees within the meaning of Civil Code section 1717, subdivision (a). Specifically, they contend whether attorneys' fees are “incurred” does not depend on who is responsible for payment thereof; instead, “the issue is whether the attorney has performed legal services for the benefit of his client[.]” Accordingly, they contend the record reflects Parades “incurred” attorneys' fees in defending against Grovewood's claims because it shows those fees arose out of services performed on his behalf pursuant to an attorney-client relationship.
Grovewood counters that “[t]he trial court correctly determined that Parades was not entitled to a fee award because he neither paid nor was he obligated to pay his attorneys, ” as the evidence established “it was Legendary's obligation to pay[.]” In support, it relies on Trope v. Katz (1995) 11 Cal.4th 274 (Trope). In Trope our Supreme Court stated: “To ‘incur' a fee, of course, is to ‘become liable' for it [citation], i.e., to become obligated to pay for it.” (Id. at p. 280, italics omitted.) It further argues the Richardson Declarations “[are] not competent evidence” that Parades “incurred” attorneys' fees because they “merely assert[ ] a legal conclusion without any evidentiary facts and without any showing of personal knowledge[.]”
As discussed below, we agree with the Legendary Defendants' argument.
As noted above, the trial court determined Parades “neither incurred nor paid attorney[s'] fees in defense of this case[ ]” based on Soni's testimony at trial. Specifically, it relied on his testimony that Parades “has... [not] paid for any of the attorney[s'] fees or costs in this lawsuit[ ]” because “[i]t's a company obligation.” In doing so, the trial court concluded Parades had not “incurred” any attorneys' fees under Civil Code section 1717, subdivision (a) because Legendary was ultimately responsible for payment of his defense.
This conclusion, however, is contrary to caselaw. Specifically, in Lolley v. Campbell (2002) 28 Cal.4th 367 (Lolley), our Supreme Court recognized “California courts have routinely awarded fees to compensate for legal work performed on behalf of a party pursuant to an attorney-client relationship, although the party did not have a personal obligation to pay for such services out of his or her own assets.” (Id. at p. 373, fn. omitted.) In discussing this caselaw, the Supreme Court noted that in PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084 (Drexler): “We explained that attorney fee awards were not limited to situations in which a client was required to pay for representation on a fee-for-service basis. [Citation.] We [also] specifically rejected the contention of the defendant [in that case], essentially repeated by [the respondent] herein, that attorney fees ‘incurred' means only fees a litigant actually pays or becomes liable to pay from his own assets. [Citation.] Instead, we focused on the fact that the client in Drexler was seeking statutory fees to pay for legal services provided pursuant to an attorney-client relationship. [Citations.]” (Lolley, supra, 28 Cal.4th at p. 374, italics in original.)
Further, in Lolley, our Supreme Court made clear that the language in Trope defining what it means for a party to “incur” a “fee” for legal services-the very language Grovewood relies on in support of its argument on this issue-has been limited in application to the facts presented in Trope. (Lolley, supra, 28 Cal.4th at pp. 376-377.) It explained the “language... was not intended to resolve issues... not raised in Trope[ ].” (Id. at p. 377.) Trope addressed “whether an attorney who chooses to litigate in propria persona rather than retain another attorney to represent him in an action to enforce a contract containing an attorney fee provision can... recover ‘reasonable attorney's fees' under Civil Code section 1717....” (Trope, supra, 11 Cal.4th at p. 277.) Thus, for the reasons stated in Lolley, we reject Grovewood's argument and conclude the trial court erred by finding Parades was not entitled to fees because he was not personally obligated to pay them.
We likewise reject Grovewood's contention that the Richardson Declarations were insufficient to establish Parades “incurred” attorneys' fees within the meaning of Civil Code section 1717, subdivision (a). To determine whether a party has “incurred” attorneys' fees, we consider whether “there was an attorney-client relationship, the attorney performed services on behalf of the client, and the attorney's right to fees grew out of the attorney-client relationship.” (Musaelian v. Adams (2009) 45 Cal.4th 512, 520; see also Lolley, supra, 28 Cal.4th at pp. 373-374.)
As discussed above, the Richardson Declarations stated: (1) Richardson represented Parades and Soni as one of their “attorneys of record” in the underlying proceedings; (2) Richardson and his associates at the Soni Law Firm defended Parades and Soni against the claims asserted in Grovewood's cross-complaint; and (3) the fees being sought arose out of their defense against those claims.
Richardson's statements on these points are statements of fact describing the nature of his professional relationship with Parades and Soni and the fees being sought. His statements are supported by his personal knowledge as counsel of record. They adequately establish he and his associates performed legal services on Parades's behalf pursuant to an attorney-client relationship, and that their right to fees grew out of that relationship. Accordingly, the Richardson Declarations reflect Parades “incurred” attorneys' fees in defending against Grovewood's claims. (See Musaelian v. Adams, supra, 45 Cal.4th at p. 520; see also Lolley, supra, 28 Cal.4th at pp. 373-374.)
Lastly, we reject Grovewood's contention that Parades did not prove the existence of an attorney-client relationship because he did not produce the “written fee agreement” governing his arrangement for legal services. In support of its position, Grovewood relies exclusively on section 6148, subdivision (a). As Grovewood correctly points out, that statute requires contracts for services “in which it is reasonably foreseeable that total expense to a client, including attorney fees, will exceed one thousand dollars ($1000), ” to be “in writing.” (§ 6148, subd. (a).) It does not, however, require a party seeking to prove the existence of an attorney-client relationship governed by a written agreement to do so by producing a copy of thereof. (See ibid.)
In sum, for the reasons discussed above, we conclude the trial court erred by finding Parades was not entitled to attorneys' fees.
D. Soni's Attorneys' Fees
1. Soni's Entitlement to Attorneys' Fees
i. Background
Unlike Parades, the trial court determined Soni was entitled to attorneys' fees, reasoning that although he testified “Parades'[s] defense costs were ‘a company obligation[, ]' [¶]... [¶] [t]here is no similar evidence regarding Soni's attorney[s'] fees.” It further found “that a true attorney-client relationship exist[ed] between the attorney litigant Soni and his colleagues working on the case. [Citation.]”
ii. Analysis
Grovewood contends Soni was not entitled to attorneys' fees because he “did not submit any evidence to the trial court that he paid or was obligated to pay any of the attorney[s'] fees incurred.” Specifically, it reiterates that the Richardson Declarations “contain[ ] only a legal conclusion without any evidentiary facts and without any showing of personal knowledge that Soni ‘incurred' fees to himself.” We addressed this argument in section II.C.2 above and conclude for the reasons stated therein that the record demonstrates Soni “incurred” attorneys' fees in defending against Grovewood's claims.
In the alternative, Grovewood argues that even if Soni was entitled to attorneys' fees, the award “should have been made to Legendary because Legendary is the party primarily responsible to actually pay the fees.” In support, it relies on Staples v. Hoefke (1987) 189 Cal.App.3d 1397 (Staples). The Legendary Defendants argue Grovewood's reliance on Staples is misplaced. We agree with the Legendary Defendants and conclude Grovewood's argument is unavailing because it is unsupported by legal authority.
In Staples, the plaintiffs argued the trial court erred by awarding the defendant attorneys' fees because “the fees would go to [the defendant's] insurance carrier, rather than [the defendant], since the carrier provided for defense of the lawsuit.” (Staples, 189 Cal.App.3d at p. 1409.) The Court of Appeal rejected their argument, reasoning: “Assuming [the] plaintiffs did establish that the fees ultimately went to [the defendant's insurance company], we can perceive of no reason why [the] plaintiffs should profit from [the defendant's] foresight in obtaining insurance coverage. [The] [p]laintiffs were not entitled to avoid their contractual obligation to pay reasonable attorney fees based on the fortuitous circumstance that they sued a defendant who obtained insurance coverage providing a defense.” (Id. at p. 1410.) In arriving at this conclusion, the Court of Appeal did not hold or otherwise suggest the defendant's attorneys' fees could have been awarded to the insurance company had it been a party to the underlying suit, as Grovewood contends. (See id. at pp. 1409-1410). Therefore, even if Legendary was responsible for paying Soni's defense costs, Staples does not support Grovewood's argument that “the trial court should have made [Soni's] fee award to Legendary[.]” Grovewood does not cite, and we have not located, any other authority to support its position.
In sum, for the reasons discussed above, we conclude: (1) the trial court properly determined Soni “incurred” attorneys' fees within the meaning of Civil Code section 1717 subdivision (a); and (2) Grovewood has not established Legendary should have been awarded Soni's fees.
2. Reasonableness of Soni's Fee Award
i. Background
The trial court granted in part the Legendary Defendants' motion for attorneys' fees with respect to Soni and awarded him $86, 711, the amount it concluded constituted “the reasonable attorney[s'] fees incurred by Soni in defense of [Grovewood's] claims.” In arriving at this conclusion, the trial court found Soni could not recover fees “for certain matters[ ] [where] the [attorney] time spent cannot be attributed to Soni, such as:... [(1)] the amount of Legendary's mechanic's lien, which was the subject of a large amount of attorney[s'] fees, [and] did not relate to the affirmative claims by Grovewood against Soni, but only to Legendary's affirmative claims [in its cross-complaint]; [(2)] the motions in limine, which were filed only on behalf of and against Legendary and not Soni; [and] [(3)] discovery and motions to compel which were brought only by Legendary[.]”
Next, the trial court “acknowledge[d] that time entries regarding... the Motion for Judgment on the Pleadings filed by Parades and Soni would be appropriate for being awarded half to Soni.” It “not[ed], however, that the Motion for Judgment on the Pleadings was ultimately denied due to failure to give sufficient notice....” The trial court therefore “t[ook] into account in determining reasonableness that the failure to give proper notice on the Motion for Judgment on the Pleadings could reasonably be considered to be the cause of Soni's being required to prepare for trial.”
Lastly, the trial court declined to award Soni attorneys' fees for billing entries reflecting “extraordinarily excessive time spent on certain tasks by various billers[, ]” “blatant... over-billing[, ]” the “substantial duplication of effort by attorneys and excessive time to complete various tasks[, ]” billing for “clerical tasks[, ]” and improper block-billing.
ii. Analysis
The Legendary Defendants contend the portion of the trial court's order awarding Soni $86, 711 in attorneys' fees must be reversed. In support, they advance two arguments. We address each in turn below.
First, the Legendary Defendants contend the trial court erred by “exclud[ing] [from Soni's fee award] fees which it believed were not expressly incurred on behalf of Soni or otherwise related to the defense of the claims specifically against Soni[.]” They argue that because Grovewood “sought to hold Soni... personally liable for all of the alleged wrongs of Legendary[ ]” based solely on “alter ego allegations, all fees incurred in defending the claims against Legendary were also necessary for defending the claims against Soni..., even if not stated as specifically against such individual[ ].” (Italics omitted.) They therefore contend Soni should have been awarded attorneys' fees related to Legendary's mechanic's lien, the motions in limine filed on behalf of and against Legendary, and discovery by Legendary.
In support of their argument, the Legendary Defendants rely exclusively on Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129 (Reynolds Metals). As discussed below, this case does not support their position.
There, the defendants were the shareholders and directors of a company, which owned and operated a subsidiary. (Reynolds Metals, supra, 25 Cal.3d at p. 127.) The subsidiary, with the company as its endorser, executed and delivered two promissory notes to the plaintiff. (Ibid.) Later, the company and its subsidiary became insolvent and commenced bankruptcy proceedings. (Ibid.) In addition to filing a creditor's claim in those proceedings, the plaintiff sued the defendants to hold them personally liable for the debts the company and its subsidiary owed to the plaintiff on a theory of alter ego liability. (Ibid.) The trial court rejected the plaintiff's alter ego theory and awarded the defendants attorneys' fees. (Ibid.)
The appellate court considered whether the defendants, who were not signatories to the promissory notes held by the plaintiff, could recover attorneys' fees under Civil Code section 1717 for successfully defending against the action seeking to enforce them. (See id. at p. 128.) In so doing, it held: “Section 1717 was enacted to establish mutuality of remedy where 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.] [¶] Its purposes require section 1717 to be interpreted further to 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's fees should he prevail in enforcing the contractual obligation against the defendant.” (Ibid.) Applying those principles, the court concluded that “[h]ad plaintiff prevailed on its cause of action claiming defendants were in fact the alter egos of the corporation[ ] [citation], defendants would have been liable on the notes. Since [defendants] would have been liable for attorney's fees pursuant to the fees provision had the plaintiff prevailed, they may recover attorney's fees pursuant to section 1717 now that they have prevailed.” (Id. at p. 129.)
Accordingly, the appellate court in Reynolds Metals considered issues that are irrelevant to this appeal. Specifically, it interpreted Civil Code section 1717to clarify when a defendant who is not a signatory to a contract against whom the plaintiff seeks enforcement can recover attorneys' fees under the statute. (See Reynolds Metals, supra, 25 Cal.3d at pp. 128-129.) Contrary to the Legendary Defendants' argument, the appellate court did not hold or otherwise suggest that a defendant sued on a theory of alter ego liability may be entitled to attorneys' fees incurred in the corporation's defense of the plaintiff's claims because those fees were also necessary to the defendant's defense. (See ibid.) Reynolds Metals therefore does not assist the Legendary Defendants in demonstrating reversible error, and they do not cite any other authority supportive of its argument on this point. Consequently, we conclude their argument is unavailing because they have not shown it is supported by legal authority.
Lastly, the Legendary Defendants argue that “[i]t was legal error for the [t]rial [c]ourt to reduce [Soni's] fees in preparing for trial[.]” Specifically, they contend the trial court should not have considered that Soni's motion for judgment on the pleadings was denied based on failure to give sufficient notice in determining the reasonableness of the fees he incurred in defending against Grovewood's claims.
“It is well established that the determination of what constitutes reasonable attorney fees is committed to the discretion of the trial court, whose decision cannot be reversed in the absence of an abuse of discretion. [Citations.]” (Melnyk v. Robledo (1976) 64 Cal.App.3d 618, 623.) We discern no abuse of discretion here. As noted above, the trial court acknowledged Soni was entitled to fees for half the attorney time spent on the motion for judgment on the pleadings, as it was also filed on Parades's behalf. The court did not indicate to what extent, if any, Soni's fee award was reduced in light of the denial of his motion due to failure to give proper notice. In any event, we are not convinced the trial court “‘exceeded the bounds of reason'” (Bustos v. Global P.E.T., Inc. (2017) 19 Cal.App.5th 558, 563) by observing Soni was partially responsible for the denial of a pretrial motion that could have disposed of the claims asserted against him, and taking that into consideration in evaluating the reasonableness of the fees incurred in his defense.
DISPOSITION
The judgment entered in favor of Grovewood on Legendary's claims is reversed. The portions of the trial court's order denying Legendary and Parades attorneys' fees are also reversed. The portion of the order awarding Soni $86, 711 in attorneys' fees is affirmed. The case is remanded to the trial court to determine, upon the existing evidentiary record: (1) whether Legendary is entitled to payment from Grovewood under Payment Applications 21 and 22 and the retainage funds; (2) whether Legendary is entitled to attorneys' fees incurred in defending against Grovewood's claims and, if so, the reasonable amount of those fees; and (3) the amount of reasonable attorneys' fees incurred by Parades in defending against Grovewood's claims. Legendary and Parades shall recover their costs on appeal.
We concur: MANELLA, P.J., WILLHITE, J.APPENDIX A
APPENDIX A
(Appendix A Omitted)