Opinion
G052704 G052984
06-29-2017
NEWPORT HARBOR OFFICES & MARINA, LLC, Plaintiff and Appellant, v. KENT A. MCNAUGHTON AND ASSOCIATES, Defendant and Respondent.
Alston, Alston & Diebold and Elaine B. Alston for Plaintiff and Appellant. Prevonost, Normandin, Bergh & Dawe and Michael G. Dawe for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2008-00068364) OPINION Consolidated appeals from an order and judgment of the Superior Court of Orange County, Sheila Fell, Judge. Affirmed. Request for judicial notice. Granted. Alston, Alston & Diebold and Elaine B. Alston for Plaintiff and Appellant. Prevonost, Normandin, Bergh & Dawe and Michael G. Dawe for Defendant and Respondent.
Plaintiff Newport Harbor Offices & Marina, LLC (NHOM) appeals from a postjudgment order denying its motion for an award of attorney fees against Kent A. McNaughton & Associates (McNaughton), and from an amended judgment reflecting the post-judgment order. The two appeals have been consolidated.
Although the McNaughton named in this portion of the litigation is "Kent A. McNaughton & Associates," our prior experience with this case teaches us that Kent A. McNaughton & Associates is effectively indistinguishable from Kent McNaughton, the individual. Consequently, we will refer to McNaughton as though it were he.
The attorney fee dispute followed a complicated hybrid proceeding to resolve a lease dispute, with both an arbitration and a court trial. Although the landlord, NHOM ultimately obtained a money judgment against its erstwhile tenant, McNaughton, the amount awarded was much less than it sought, and the court later determined there was no prevailing party for purposes of attorney fees under Civil Code section 1717 (section 1717).
NHOM argues the attorney fee ruling must be reversed because: (1) both the arbitrator's decision and the court judgment, which this court previously affirmed, specified NHOM was entitled to an award of attorney fees against McNaughton; and (2) the court abused its discretion in determining there was no prevailing party for purposes of awarding attorney fees under section 1717.
In support of its appeal, NHOM has requested we take judicial notice of various documents filed with this court in connection with the prior appeal, and of our own orders and opinion filed in connection with that appeal. The request is granted.
In his respondent's brief, McNaughton fails to address the first point, and he devotes only a small fraction of the brief to addressing the second. Instead, the bulk of McNaughton's 47-page brief is devoted to rehashing his contention that because he is a 50 percent owner of NHOM, its counsel could not have been authorized to represent it, or to pursue any litigation against him, absent his own consent. Although this contention was squarely rejected by the arbitrator, and the rejection was expressly endorsed by this court in the prior appeal, McNaughton persists—going so far as to selectively quote from our prior opinion in an effort to persuade us it supports the opposite conclusion from the one we reached. He does this while simultaneously excoriating NHOM's counsel for her supposedly questionable ethics and integrity, and lamenting the enormous waste of resources this "sorry saga" has occasioned.
McNaughton's effort accomplishes nothing more than to inspire some regret we must affirm the court's order denying NHOM its requested fees. We find no error in the order because (1) the arbitrator's decision expressly left the determination of NHOM's damages—including attorney fees—to the court, and (2) the court's original judgment, which reflected an award of attorney fees to NHOM in an unspecified amount, was merely interlocutory. Consequently, neither the arbitrator's decision nor the earlier judgment precluded the court from adjudicating NHOM's entitlement to fees in the context of its postjudgment motion.
On the merits of the ruling, we note section 1717 explicitly gives the court discretion to determine neither party prevailed in litigation for purposes of awarding contractual attorney fees. And in this case, where the money judgment NHOM obtained against McNaughton was in an amount far below what NHOM had sought, we cannot say the court abused its discretion in determining neither party prevailed for purposes of awarding fees under section 1717. Thus, we affirm the order and amended judgment.
FACTS
The litigation underlying NHOM's attorney fees dispute is detailed in our prior opinion, (Newport Harbor Offices & Marina, LLC v. McNaughton (Sept. 5, 2014, G047424, G048095) [nonpub. opn.]) (NHOM 1), and we will merely summarize it here.
McNaughton and Paul Copenbarger became equal owners of NHOM, an entity created to own and manage commercial real estate, in 2004. McNaughton was also a tenant of the building controlled by NHOM.
However, when the business relationship between the two men soured, McNaughton stopped paying rent and Copenbarger caused NHOM to file an unlawful detainer action against him. McNaughton soon vacated the leased premises and initiated an arbitration action against Copenbarger, intending to establish NHOM could not properly pursue any lawsuit against him—a 50 percent owner—unless he agreed to it.
McNaughton next moved to include NHOM's unlawful detainer action (by then converted into an ordinary civil claim for damages based on McNaughton's breach of the lease) in the pending arbitration as well. The motion was granted and the court ordered the lease dispute litigation stayed in court.
Copenbarger then filed a cross-claim in the arbitration, seeking damages arising from McNaughton's alleged self-dealing and mismanagement of NHOM, and seeking to enforce a "Buy/Sell" provision in the NHOM agreement.
At the conclusion of the arbitration, the arbitrator found Copenbarger did have the unilateral authority to cause NHOM to initiate legal proceedings against McNaughton for unlawful detainer, noting McNaughton had expressly delegated authority over legal affairs to Copenbarger. Moreover, the arbitrator noted Copenbarger was the "only 'disinterested' owner of NHOM who could make the decision to pursue an unlawful detainer action against McNaughton as tenant, and reasoned "[t]o need or require McNaughton's approval for enforcement of the lease agreements against himself is simply illogical and invites a whole host of conflict issues. . . ."
The arbitrator then found McNaughton had "breached the terms of his leases with NHOM by improperly withholding rent for 3 months and is responsible for damages including payment of base rent, holdover rent, late fees, attorney fees and court costs." However, the arbitrator determined the "calculation of unlawful detainer damages, if any, would be made and ruled upon by the court and not determined in the arbitration proceedings." (Italics added.)
The arbitrator also concluded McNaughton had been overpaid by NHOM for property management, and awarded attorney fees and costs to Copenbarger as the prevailing party.
The court subsequently granted Copenbarger's petition to confirm the arbitration award and then assessed damages against McNaughton in the lease dispute. However, the court found McNaughton had exercised the 90-day termination provision in his lease, and NHOM had either waived any objection to the exercise or was estopped from objecting to it. Those findings prevented NHOM from holding McNaughton liable for future rent accruing during the balance of McNaughton's original 10-year lease term. Consequently, the court awarded NHOM only $14,283 in damages, instead of the more than $300,000 it sought.
In July 2012, the court entered a judgment encompassing both the confirmed arbitration award and the court's award of damages arising from the lease dispute. With respect to the latter, the judgment stated: "[NHOM] shall recover from . . . McNaughton . . . the sum of Fourteen Thousand Two Hundred Eighty-Three Dollars and Twenty-Four Cents ($14,283.24) with interest thereon at the rate of ten percent (10%) per annum from the date of the entry of this judgment until paid, together with costs in the amount of ___ and attorney's fees in the amount of ___, together with interest on such costs and fees at the rate of ten percent (10%) [per] annum from May 13, 2008 until paid."
Both McNaughton and NHOM appealed the judgment. Among other things, McNaughton challenged the arbitrator's determination Copenbarger could unilaterally authorize NHOM's filing of the unlawful detainer action against him, and claimed the outcome of the lease dispute was rendered moot when we recognized the arbitrator had erred. We squarely rejected that argument, explaining: "McNaughton's portrayal of the arbitrator's decision as one which effectively 'neuter[ed] the equal ownership rights provisions of the [o]perating [a]greement' simply ignores the particulars of that ruling. As the arbitrator explained, while the general provisions of the NHOM operating agreement gave the two men equal control over its management, those provisions were modified by the more specific provision delegating to Copenbarger exclusive authority to handle NHOM's 'legal affairs.' NHOM's choice to pursue litigation - against McNaughton or anyone else - falls squarely within that authority and thus the arbitrator properly concluded Copenbarger had 'both the duty and responsibility to initiate and prosecute an action against a delinquent tenant . . . .' And of course, the fact this delegated authority over legal affairs was revocable changes nothing, since McNaughton failed to actually revoke it until after NHOM had already filed the lease dispute. At that point, the revocation could accomplish nothing more than to ensure that any future changes in NHOM's litigation strategy - such as a decision to dismiss or settle the case - would likely have required the consent of both Copenbarger and McNaughton." (NHOM 1, supra, G047424, G048095.)
For its part, NHOM argued the court had erred in concluding McNaughton successfully invoked a 90-day cancellation provision in the lease prior to vacating the leased premises. We rejected that contention as well, and affirmed the judgment with only a slight modification to the date upon which prejudgment interest began accruing in favor Copenbarger. (NHOM 1, supra, G047424, G048095.) However, neither the parties, nor we, addressed the issue of NHOM's entitlement to an award of attorney fees against McNaughton in the prior appeal.
NHOM filed a motion for attorney fees shortly after the judgment was entered in the court. McNaughton opposed the motion, arguing among other things, NHOM was not authorized to retain an attorney to represent it in litigation against him absent his approval as 50 percent owner, notwithstanding the arbitrator's contrary decision.
By the time NHOM's attorney fees motion was heard in the court, both NHOM and McNaughton had filed their appeals from the judgment. Consequently, the court delayed resolution of the attorney fees issue until after this court issued its opinion resolving those appeals.
After the prior appeals were finally resolved (following the denial of McNaughton's petition for review by the Supreme Court), NHOM again filed a motion for attorney fees against McNaughton, seeking to recover fees incurred through the appeal. McNaughton again opposed the motion vigorously, renewing his assertion NHOM's counsel was not authorized to represent it, but also arguing NHOM should not be considered the prevailing party in the lease dispute.
Following some procedural delays, the court heard the attorney fees motion in July 2015, taking the matter under submission. In August 2015, the court denied the motion. The court concluded there was no prevailing party for purposes of awarding attorney fees under section1717. The court subsequently issued an amended judgment deleting any reference to the award of attorney fees to NHOM. NHOM appealed from both the order and the amended judgment, and those appeals were consolidated.
DISCUSSION
1. Binding Effect of Attorney Fee Language in Arbitrator's Award and Judgment
NHOM first contends the court was precluded from denying it an award of attorney fees because the arbitrator expressly found McNaughton breached the lease and was thus "responsible for damages including payment of base rent, holdover rent, late fees, attorney fees and court costs." (Italics added.) In NHOM's view, the court had no authority to reconsider the arbitrator's determination, which was subsequently confirmed as part of the judgment, that the damages McNaughton was required to pay would include NHOM's attorney fees.
However, we find the assertion unpersuasive because it ignores the fact the arbitrator also expressly stated it would be the court's job to determine whether, and to what extent, the damages flowing from the unlawful detainer would be assessed. Specifically, the arbitrator stated "the calculation of unlawful detainer damages, if any, would be made and ruled upon by the court and not determined in the arbitration proceedings." (Italics added.) Thus, the arbitrator's decision only established McNaughton had breached the lease, and would be responsible for whatever damages the court found were appropriate as a consequence of the breach. The arbitrator's decision did not compel any award of damages at all.
NHOM next argues the court's own judgment in this case—which we reviewed in the prior appeal—specified NHOM was entitled to an award of attorney fees, and the court had no power to change that determination. Again, the argument is unpersuasive.
The judgment entered in this case did not actually award any attorney fees to NHOM. Rather, it stated NHOM was entitled to $14,283.24 in damages caused by McNaughton's breach of the lease, "together with costs in the amount of ___ and attorneys' fees in the amount of ___." This is a fairly typical way of wording a judgment entered before the court has had an opportunity to evaluate the merits of a party's cost and attorney fees requests. "When a judgment includes an award of costs and fees, often the amount of the award is left blank for future determination." (Grant v. List & Lathrop (1992) 2 Cal.App.4th 993, 996.)
As explained in P R Burke Corp. v. Victor Valley Wastewater Reclamation Authority (2002) 98 Cal.App.4th 1047, 1052, this is done because the court often has no opportunity to evaluate these issues prior to entry of the judgment: "Ordinarily, contractual attorney's fees must be sought by noticed motion. [Citations.] This is true regarding both the entitlement to, and the amount of, the fees. [Citation.] The necessary motion may be filed after the judgment has already been entered [citation]—and almost always is, for good reasons. First, before the entry of judgment, there is technically no prevailing party. [Citation.] Second, the parties may still incur additional fees."
Consequently, a provision in a judgment awarding costs and fees without specifying an amount is deemed "interlocutory," rather than final. (P R Burke Corp. v. Victor Valley Wastewater Reclamation Authority, supra, 98 Cal.App.4th at p. 1053 ["if a judgment determines that a party is entitled to attorney's fees but does not determine the amount, that portion of the judgment is nonfinal and nonappealable"].) In light of the nonfinal status, the court was not precluded from later issuing a postjudgment ruling that there was no prevailing party and thus NHOM was not entitled to recover attorney fees.
Moreover, on "appeal from a postjudgment order awarding attorney's fees, we may review the entitlement to, as well as the amount of, the fees awarded." (P R Burke Corp. v. Victor Valley Wastewater Reclamation Authority, supra, 98 Cal.App.4th at p. 1055; City of Santa Paula v. Narula (2003) 114 Cal.App.4th 485, 492.) So we now turn to the court's ruling on the merits. 2. Court's Ruling on the Merits
NHOM argues even if the court had the authority to deny it an award of attorney fees, it abused its discretion by doing so. Again, we disagree.
NHOM's request for attorney fees was grounded on the attorney fee provision included in the parties' lease agreement. Hence, the court's award of such fees was governed by section 1717, which states in pertinent part: "(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, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs." (§ 1717, subd. (a).)
While section 1717 sets forth the general rule, "the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract," it also explicitly empowers the court to "determine that there is no party prevailing on the contract for purposes of this section." (§ 1717, subd. (b)(1).) The court is given discretion to make the determination, and "in deciding whether there is a 'party prevailing on the contract,' the court is to compare 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. The prevailing party determination is to be made only upon final resolution of the contract claims and only by 'a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions.'" (Hsu v. Abbara (1995) 9 Cal.4th 863, 876.) However, "'[t]ypically, a determination of no prevailing party results when both parties seek relief, but neither prevails, or when the ostensibly prevailing party receives only a part of the relief sought.'" (Id. at p. 875, italics added.)
In this case, NHOM did succeed in establishing McNaughton breached the lease, which certainly qualified it as the "'ostensibl[e] prevailing party.'" (Hsu v. Abbara, supra, 9 Cal.4th at p. 875.) But the damages awarded to it—less than $15,000—equated to about five percent of the $300,000 it had claimed. Thus, NHOM recovered only a small fraction of the monetary relief it sought in the lease dispute. In light of the discrepancy between the damages sought and the damages recovered, it is impossible for us to conclude the court abused its discretion by concluding there was no prevailing party pursuant to section 1717.
Of course, NHOM argues its objectives in this litigation were not limited to the recovery of damages, and claim, because it achieved its other objectives in addition to obtaining damages, the court was compelled to conclude it was the prevailing party under section 1717. Specifically, NHOM points out it also: (1) obtained possession of the leased premises; (2) obtained an order allowing Copenbarger to defend it in a separate unlawful detainer action filed by Morris Cerullo World Evangelism; and (3) defeated all attempts by McNaughton to disqualify its counsel from representing it. We are not persuaded the resolution of those additional issues demonstrates the court abused its discretion by declining to award fees to NHOM.
While it is true possession of the leased premises was in dispute when the unlawful detainer case was filed in May 2008, McNaughton gave NHOM written notice on the same day the case was filed, stating he was exercising his right to terminate the lease in 90 days. McNaughton then vacated the leased premises in August 2008, at the end of the 90-day period.
And it was not until nearly a year later, in July of 2009, that McNaughton moved to compel the lease dispute into arbitration—a proceeding not completed until April 2011. The court trial was conducted thereafter, and judgment in the lease dispute was finally entered in July 2012, nearly four years after McNaughton had vacated the leased premises. Thus, while possession of the premises can be viewed as a disputed issue during the first 90 days the case was pending, it was rendered moot for the remaining four years of the litigation. Consequently, the court did not err in giving the issue little weight in determining whether NHOM "prevailed" on the possession issue for purposes of recovering its attorney fees.
And while it is also true NHOM persuaded the court presiding over this lease dispute to issue an order allowing it to retain counsel to defend it in a different unlawful detainer case—a move McNaughton had opposed, out of apparently obstreperousness—that does not alter the prevailing party analysis either. Stated simply, NHOM fails to demonstrate how the separate unlawful detainer case relates to this lease dispute with McNaughton, let alone how retaining counsel there qualifies as achieving one of NHOM's objectives here. We cannot say the court abused its discretion by giving those facts little weight in assessing whether NHOM was the prevailing party for purposes of recovering attorney fees under its lease dispute with McNaughton.
And finally, NHOM argues the court abused its discretion by failing to recognize NHOM achieved a significant litigation objective by successfully fending off McNaughton's relentless attempts to disqualify its counsel from continuing to represent it in this case. We have some sympathy for this position.
It was McNaughton who demanded the lease dispute be submitted to arbitration, specifically seeking a declaration that because he was a 50 percent owner of NHOM, it could not pursue any litigation against him (or anyone else) without his own consent. And when the arbitrator instead ruled against him on the issue, he was undaunted. He filed numerous motions and documents reasserting his belief NHOM could not pursue litigation against him without his consent, both before and after we issued our opinion in NHOM I, endorsing the arbitrator's view.
In fact, we even expanded on the arbitrator's reasoning, pointing out if McNaughton had validly revoked Copenbarger's delegated authority over NHOM's legal affairs following its initiation of the lease dispute against him, revocation would "change[] nothing." (NHOM I, supra, G047424, G048095.) Instead, we said such a "revocation could accomplish nothing more than to ensure that any future changes in NHOM's litigation strategy - such as a decision to dismiss or settle the case—would likely have required the consent of both Copenbarger and McNaughton." (Ibid., second italics added.) Our point was even if McNaughton had regained the right to participate in future decisions concerning NHOM's pursuit of litigation—an issue we did not specifically address—that would still not have empowered him to upset the status quo in an ongoing case. It would only be future changes in litigation strategy, such as a decision to dismiss or settle such a case, that McNaughton might claim a right to participate in. In no way did we suggest that by rescinding Copenbarger's sole authority over litigation, McNaughton could deny NHOM authority to continue on the course it had already set, which in this case was to pursue the lease dispute against him.
Unfortunately, McNaughton was likewise undaunted by our opinion. Rather than acknowledge what we said, he attempted to suggest it meant the opposite of what we intended—i.e., once he had rescinded his delegation of litigation authority over NHOM to Copenbarger, he could thereafter unilaterally "disapprove[] any [further] litigation conduct by NHOM under the putative representation of [it's counsel]." Indeed, McNaughton went so far as to selectively quote language from our opinion back to us in his current respondent's brief, claiming we had previously concluded once he rescinded his prior delegation of authority to Copenbarger, "all subsequent 'litigation strategy'" in NHOM's case against him would likely have required his consent. Not that "changes in NHOM's litigation strategy - such as a decision to dismiss or settle the case," might require his consent, which is what we said, but that all strategy would.
And having misrepresented what we said, McNaughton then asserted our supposed conclusion qualifies as "law of the case" which retroactively voided all the work done by NHOM's counsel in this case since June 2008—thus precluding counsel's recovery of any fees for those years of work. This assertion is disingenuous and specious.
Still, no matter how unreasonably zealous McNaughton might have been in seeking to undermine the authority of NHOM's counsel to continue pursuing this litigation against him, it does not elevate the goal of "preserving its relationship with counsel" into one of the objectives NHOM sought to achieve in pursuing this litigation. NHOM did not sue McNaughton in an effort to establish its right to retain counsel. Rather, NHOM's objectives in pursuing this lease dispute were to establish McNaughton breached the parties' lease, and to obtain a judgment for the approximately $300,000 in damages it claimed McNaughton owed as a result of the breach. NHOM was only partially successful in achieving those objectives.
And given NHOM's limited success in achieving its objectives in the lease dispute, we cannot conclude the court abused its discretion by deciding there was no prevailing party for purposes of recovering attorney fees pursuant to section 1717.
DISPOSITION
The order and judgment are affirmed. The parties are to bear their own costs on appeal.
THOMPSON, J. WE CONCUR: BEDSWORTH, ACTING P. J. ARONSON, J.