Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC377973, Helen I. Bendix, Judge.
Bradley & Gmelich, Lena J. Marderosian, Gary J. Bradley and Arnold S. Levine for Plaintiffs, Cross-defendants and Appellants.
Gibson Law and Richard H. Gibson, for Defendant, Cross-complainant and Appellant.
MANELLA, J.
In the underlying action, which arose out of the purchase of a nursing home, respondents Ankur and Mahesh Patel asserted claims against appellant Jasvant Modi for breach of contract and breach of fiduciary duty, and Modi asserted a cross-claim against the Patels for nonpayment of a $400,000 promissory note. The trial court awarded Ankur $850,000 in damages, but reduced the award by Modi’s recovery on the promissory note; in addition, the court found that Ankur was the prevailing party in the Patels’ action against Modi for purposes of a contract-based award of attorney fees. Modi noticed appeals from the judgment and fee ruling, challenging the findings regarding the breach of fiduciary duty claim and the identity of the prevailing party in the Patels’ action against Modi; the Patels noticed a cross-appeal, challenging Modi’s recovery on the promissory note. We affirm.
Because Ankur and his father Mahesh share a surname, we refer to each by his first name, with no disrespect intended.
Although the Patels jointly filed a notice of appeal, only Ankur filed briefs.
RELEVANT FACTUAL AND PROCEDURAL BACKGROUND
A. Complaint and Cross-Complaint
In September 2007, the Patels initiated the underlying action against Modi and Gautam, Inc. (Gautam), a corporation controlled by Modi, asserting claims for breach of a partnership agreement, breach of written and oral contracts, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, and fraud. Their complaint alleged the following facts: Ankur is the assignee of Mahesh’s rights in a partnership formed in November 2005 regarding the Milestone Health Center (Milestone), a nursing home in Costa Mesa. Under the partnership agreements, Mahesh and Modi were to be equal shareholders in a corporation named “Newport Mesa, Inc.” (Newport), which was to buy Milestone. Mahesh and Modi also were to be equal shareholders in a second corporation named “A1 Equipment Leasing” (A1 Equipment), which was to buy Milestone’s desks, beds, and other moveable equipment. After the purchase, Modi and Gautam were to manage Milestone.
Of the defendants, only Modi is a party to this appeal and cross-appeal.
The complaint further alleged that between December 2005 and May 2006, Newport and A1 Equipment entered into agreements for the purchase of the nursing home, but the sale never closed. Instead, Mahesh and Modi decided to obtain title to Milestone by foreclosing on a debt secured by Milestone. However, after the foreclosure proceedings, Gautam obtained Milestone’s title and Modi repudiated his partnership with Mahesh.
In February 2008, Modi filed a cross-complaint against Mahesh and Ankur, alleging that they had failed to repay a $400,000 promissory note.
B. Trial
In January 2009, the trial court conducted a six-day bench trial on the parties’ claims.
1. The Patels’ Evidence
The Patels presented evidence supporting the following version of the underlying events: Since 1981, Mahesh has been active in the hotel industry. In 1999, Mahesh diversified his business by purchasing Milestone through a corporation named “AP Investments” (API). In 2003, Allan Kandel and Tony Ricci each bought one-third of API’s stock, and Ricci assumed primary management responsibilities for Milestone. Mahesh owned one-third of API’s stock and acted as “a silent partner.”
In 2001, Ankur began working with Mahesh in the family business.
According to Mahesh and Kandel, Ricci mismanaged Milestone. Because Milestone’s revenues were low, Ricci failed to pay various taxes, resulting in tax liabilities totaling approximately $1.5 million. In addition, by 2005, Milestone was subject to secured debts totaling $4 million. In 2005, Ricci sold his interest in API to Kandel, who became Milestone’s primary manager. In view of Milestone’s financial condition, Mahesh and Kandel tried to sell Milestone.
Allan Kandel testified that Ricci unilaterally decided not to pay the taxes, and that Mahesh was unaware of Ricci’s decision.
In June 2005, Mahesh met Modi, whom Mahesh came to view as a potential “50/50... partner” with respect to Milestone. On November 30, 2005, after Mahesh disclosed his interest in API and Milestone’s financial circumstances, Modi and Mahesh executed a memorandum of understanding (MOU) and a related agreement regarding Milestone. Under the MOU, Mahesh and Modi -- which the MOU characterized as “partners” -- were to arrange for Newport to buy Milestone. Mahesh was to contribute $550,000 for a 50 percent share in Newport; Modi was to contribute $1.2 million for a 50 percent share in Newport; and Modi and Gautam were to manage Milestone after the purchase. The MOU further provided that if Mahesh was “not able to bring the full amount [i.e., his $550,000 contribution], ” Modi would lend Mahesh the requisite funds. Mahesh and Modi were also to hold equal shares in A1 Equipment Leasing, which was to buy Milestone’s moveable equipment. The related November 30, 2005 agreement stated that Patel and Modi were to be equal shareholders in a corporation described -- apparently erroneously -- as “API, ” and that Gautam was to manage Milestone “upon [the] close of escrow.” Later, in December 2005, Modi and the Patels executed additional agreements regarding Milestone’s management and Modi’s and Mahesh’s roles as shareholders in Newport and A1 Equipment.
At trial, Mahesh testified that the name “API” referred to the corporation -- presumably, Newport -- through which Mahesh and Modi intended to control Milestone.
On December 21, 2005, Newport and A1 Equipment entered into an agreement with API to buy Milestone for $1.75 million. Kandel executed the agreement on behalf of API. According to Kandel and the Patels, although nursing homes similar to Milestone were worth $8 million, Milestone’s distressed circumstances reduced its gross market value to approximately $5.7 million. The sales price reflected an adjustment for Milestone’s debts and tax liabilities.
The Patels testified that Kandel had authority to execute documents on behalf of API during the transaction.
To facilitate Newport and A1 Equipment’s purchase of Milestone, Mahesh agreed to contribute $550,000, and Modi agreed to contribute $1.2 million. Mahesh discharged his obligation by providing $200,000 of his own funds and borrowing another $400,000 from Modi. On January 6, 2006, the Patels executed a $400,000 promissory note to Modi, due on December 31, 2006. The note was secured by the Patels’ stock in Newport and A1 Equipment. Mahesh testified that the terms of the MOU anticipated such a loan from Modi, and that Modi was obliged to place the funds in an escrow account for the purchase of Milestone.
The Patels also testified that they provided $10,000 to open bank accounts for Newport and A1 Equipment, and paid an additional $50,000 to a broker to facilitate the closing of escrow.
In connection with this note, Ankur and Modi executed a stock pledge agreement specifying the security for the loan.
No sale was consummated under the December 2005 sales agreement. According to Kandel, the structure of the sales transaction, viewed as a whole, reflected a collateral agreement between API and the Internal Revenue Service regarding Milestone’s tax liabilities and the release of certain tax liens. The sale agreement required the buyers to provide the purchase funds directly to API so that it could pay $1 million in tax liabilities. Upon receipt of the payments, the Internal Revenue Service had agreed to release the tax liens. API was to deposit the remaining funds in escrow; following the release of the tax liens, the buyers were to receive clear title to Milestone. Kandel further testified that Modi deposited the purchase funds in an escrow account, rather than paying them directly to API, and that he never gave API funds sufficient to obtain the release of the tax liens. According to the Patels, Modi refused to complete the purchase, asserting that he was concerned about the tax liens.
As the Internal Revenue Service was pressing for the satisfaction of Milestone’s tax liabilities, Kandel cooperated with Modi in the hope that Modi would finalize the purchase. In early January 2006, Kandel permitted Modi to begin managing Milestone, even though API retained title to it. However, Kandel declined to transfer Milestone’s nursing home license, which was essential for collecting payments from government entities.
On January 25, 2006, the parties to the December 2005 sales agreement executed amendments to its terms in an effort to address Modi’s concerns regarding the tax liens. The amendments also specified that after the purchase, title to Milestone would be transferred to Gautam. Regarding this provision, Ankur testified that he read and signed the amendments without noticing it. He further testified that he would not have approved the provision because it “‘zero[ed the Patels] out.’” Mahesh testified that he did not examine the amendments in detail because he trusted Modi.
Despite the amendments, Modi failed to complete the sale. On May 16, 2006, the parties executed a second set of amendments to the sales agreement intended to resolve Modi’s concerns, Under the second set of amendments, Modi was obliged to release $750,000 from the escrow fund to resolve the tax liens and other liabilities, but he failed to do so. Because Modi did not make the payments required under the amendments, the sale again was not completed.
The parties to the transaction decided to implement an alternative plan. Under the plan, Modi was to remove $400,000 from the escrow account, buy a debt secured by Milestone that was senior to the pertinent tax liens, and foreclosure on the debt; after he obtained title to Milestone and extinguished the tax liens through the foreclosure proceedings, he was to transfer Milestone’s title to Newport. All the parties involved in the December 2005 sales agreement agreed to the plan, including the Patels.
In June 2006, prior to the foreclosure proceedings, Modi asked the Patels to share the expenses he had incurred in operating Milestone. Although Mahesh was prepared to cooperate with Modi, he declined to share expenses, as Modi showed him no financial records, and Mahesh believed that Modi’s unnecessary delays in completing the purchase of Milestone impeded Modi’s ability to obtain a license to operate Milestone.
In September 2006, Modi obtained title to Milestone through foreclosure proceedings. According to the Patels, he then departed from the plan by transferring the title to Gautam, not Newport. He told the Patels, “You are no longer a partner. Gautam... owns the property.” He further informed them that if they “want[ed] back in, ” they would have to pay one-half of the expenses he had incurred in operating Milestone. Because Newport and A1 Equipment had obtained no interest in Milestone, the Patels refused to share Milestone’s operating expenses and declined to pay the $400,000 owed to Modi under the promissory note.
2. Modi’s Evidence
Modi testified as follows: He has practiced as a physician in the United States since the mid-80’s. In 2004, he began operating a nursing home. In August or September 2005, he entered into negotiations with Mahesh regarding Milestone. No attorney represented him during the transaction, and he had little experience with tax liens and foreclosures. Although he knew that Milestone secured $4 million in debt and was subject to tax problems, Mahesh failed to explain the tax problems, and otherwise provided him with few documents regarding Milestone’s financial circumstances. Regarding the December 2005 sales agreement, Modi testified that he placed $1.2 million in escrow for the purchase of Milestone, but refused to pay out the funds before the tax liens were released.
Modi further testified that in early 2006, Mahesh explained the gravity of Milestone’s tax problems to Modi, and asked him to take over Milestone before the sales transaction was complete. According to Modi, he and Mahesh entered into an oral agreement related to the transaction. Under the agreement, Mahesh authorized Gautam to take title to Milestone so that Gautam could obtain financing for Milestone’s operations. Mahesh also undertook an obligation to pay one-half of Milestone’s operating expenses, in addition to his $550,000 partnership “buy in.” Gautam was to transfer Milestone’s title to Newport after Mahesh paid his share of the operating expenses and Milestone’s financial problems abated. Modi maintained that Gautam’s entitlement to Milestone’s title was reflected in the first set of amendments to the December 2005 sales agreement.
In rebuttal, the Patels denied that Mahesh entered into an agreement with Modi authorizing Gautam to take title to Milestone.
On January 16, 2006, Modi assumed operational control of Milestone, even though the sale was not complete. Because he lacked a nursing home license, he was unable to secure adequate funds by billing governmental programs. When he asked Mahesh for funds to meet Milestone’s January 25, 2006 payroll, Mahesh provided only $100,000. As the Patels advanced no more funds, Modi eventually arranged for Gautam to borrow $2.6 million at a rate of 15 percent per annum to pay Milestone’s 2006 operational losses. The lenders were Modi’s children, who obtained a deed of trust on Milestone as security for the loan.
According to Modi, because Milestone’s income increased after 2006, he no longer had to use his own funds to sustain Milestone.
In May 2006, the parties involved in Milestone’s sale decided to resolve the problems impeding the transaction through a foreclosure proceeding. According to Modi, following the foreclosure, Gautam took title to Milestone, as anticipated by the first set of amendments to the December 2005 sales agreement. He further testified that his relations with the Patels remained amicable in 2006, even though Mahesh declined to share Milestone’s operating costs.
On cross-examination, Modi acknowledged that his children’s deed of trust reflected a $3.5 million loan to Milestone. He also acknowledged that Milestone was obliged to pay him $240,000 per year in management fees, and that his children received $711,600 per year in lease payments from Milestone.
C. Judgment and Fee Ruling
Following the bench trial, the trial court found that after Modi entered into the partnership with Mahesh, he “engaged in self-help measures in breach of his fiduciary and contractual duties.” The court determined that Modi violated his fiduciary duties by failing to direct the purchase funds to API to cure Milestone’s tax problems, as required under the December 2005 sales agreement; by failing to release the $750,000 required under the second set of amendments to the sales agreement; by arranging for Gautam to take title to Milestone after the foreclosure proceedings; and by encumbering Milestone with excessive debt, management fees, and lease payments through self-dealing transactions. For similar reasons, the trial court determined that Modi had breached the terms of the December 2005 sales agreements and the subsequent amendments to it. The court concluded (1) that Ankur was Mahesh’s assignee for purposes of the claims asserted in the complaint; (2) that Ankur had established his claims, with the exception of the fraud claim; (3) that Ankur had suffered $850,000 in damages due to Modi’s misconduct; and (4) that Modi was entitled to recover on the $400,000 promissory note.
On May 29, 2009, the trial court entered a judgment in favor of Ankur and against Modi for the sum of $350,123.12, which reflected an offset of $499,876.87 for Modi’s recovery with interest on the promissory note. After Modi noticed his appeal from the judgment, the Patels filed their cross-appeal. Following the entry of judgment, Ankur and Modi each sought an award of attorney fees based on provisions in the contracts underlying their respective claims. On January 14, 2010, the trial court ruled that Ankur was entitled to 95 percent of the fees he requested, and Modi was entitled to 5 percent of the fees he requested. Modi also noticed an appeal from this ruling.
Although the ruling does not direct the payment of determinate fee awards, we conclude that it is appealable. In issuing the ruling, the trial court ordered the parties to calculate the amount of the fee awards on the basis of the percentages it had determined. As the calculations in question appear to be mechanical in nature, the order was sufficiently “dispositive of the rights of the parties” to constitute a final order (In re Marriage of Skelley (1976) 18 Cal.3d 365, 368). (See San Diego Unified Port Dist. v. Douglas E. Barhart, Inc. (2002) 95 Cal.App.4th 1400, 1402-1403, fn. 1 [order directing party to share pre-trial case management costs for certain tests was final and separately appealable, though party’s ultimate share of the costs not fixed at the time of the order]; Marsh v. Mountain Zephyr, Inc. (1996) 43 Cal.App.4th 289, 297-299 [order directing party to pay a fixed hourly fee for deposing expert witness was final and separately appealable, though order did not direct payment of determinate amount of money]).
DISCUSSION
Modi challenges the trial court’s determination that he breached his fiduciary duties to Mahesh; in addition, he maintains that Ankur was not the prevailing party in the Patels’ action against him. In the cross appeal, Ankur contends that the trial court improperly permitted Modi to recover on the promissory note.
A. Breach of Fiduciary Duty
Modi contends that the trial court erred in concluding that he breached his fiduciary duties to Mahesh. We disagree.
To the extent Modi challenges the trial court’s factual findings, we examine the record for substantial evidence to support the findings. (Nordquist v. McGraw-Hill Broadcasting Co. (1995) 32 Cal.App.4th 555, 561.) On such review, our inquiry “begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination [of the trier of fact], and when two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the [trier of fact].” (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873 874, italics omitted.) In contrast, to the extent Modi challenges the trial court’s resolution of questions of law, our review is de novo. (Home Depot, U.S.A., Inc. v. Contractors’ State License Bd. (1996) 41 Cal.App.4th 1592, 1599.)
Generally, “[t]he elements of a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.” (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.) Fiduciary duties arise in many ways, including the establishment of legal relationships such as partnerships and joint ventures. (Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 631-633.) As fiduciaries, partners and joint venturers are “‘“bound to act in the highest good faith”’” toward co-partners or co-venturers, and may not take exclusive advantage of property that is the subject of the partnership or joint venture. (Leff v. Gunter (1983) 33 Cal.3d 508, 514.) This duty encompasses “‘all the partnership transactions, including the transactions contemplated by the firm and constituting the object and purpose for which the partnership was formed.’” (Ibid., quoting Koyer v. Willmon (1907) 150 Cal. 785, 787, italics omitted.)
Here, the trial court found (1) that Modi and Mahesh entered into a partnership. The court further found that after entering into the partnership, Modi “engaged in self-help in derogation of the parties’ various agreements and his fiduciary obligations to his partner.” On these matters, the court determined that Modi breached his fiduciary duties (2) by failing to buy Milestone under the December 2005 sales agreement, which impaired the partnership’s ability to obtain a nursing home license; (3) by failing to release the $750,000 necessary to resolve the tax liens, in contravention of the second set of amendments to the sales agreement; (4) by arranging for Gautam to retain title to Milestone after the foreclosure; and (5) by burdening Milestone with excessive debts and obligations that benefited only Modi and his family.
Modi contends that there is insufficient evidence to support these findings. We disagree. To begin, regarding item (1), he contends that Modi and Mahesh never established a partnership, as the partnership agreement required Mahesh to contribute relatively few funds to acquire a 50 percent interest in the business. This contention disregards established principles regarding partnerships. Unless the partnership agreement specifies otherwise, “it is the general rule that [partners] participate equally in the profits and losses, irrespective of any inequality in the amounts each contributed.” (Kirkpatrick v. Smith (1952) 113 Cal.App.2d 409, 411.)
To the extent Modi suggests there is no evidence of a partnership, his contention fails in view of the MOU and the Patels’ testimony at trial.
Regarding item (2), Modi argues that Milestone’s 2006 losses were attributable to Kandel’s refusal to transfer the nursing home license to him in January 2006, rather than his failure to complete the purchase. However, as Kandel testified that he refused to transfer the license because Modi had not honored the sales agreement, the trial court reasonably concluded that Modi’s conduct caused the losses.
Regarding item (3), Modi contends that the trial court “misstated the facts” regarding the nonpayment of the $750,000 because Modi took title to Milestone by foreclosure, not by escrow. We see no misstatement. The trial court heard testimony that the parties permitted Modi to acquire Milestone through foreclosure only because he failed to release the $750,000, as required under the second set of amendments to December 2005 sales agreement.
Regarding item (4), Modi maintains that the first set of amendments to the December 2005 sales agreement demonstrate Gautam’s entitlement to Milestone. However, the record conclusively shows that Gautam acquired Milestone through a foreclosure proceeding, not through the December 2005 sales agreement and its amendments. With respect to these matters, the Patels testified that they were unaware that the first set of amendments permitted Gautam to take title to Milestone, and that in approving the foreclosure proceeding, they agreed that Milestone’s title would be transferred to Newport and A1 Equipment. This testimony is sufficient to establish that Modi breached his fiduciary duties by permitting Gautam to retain Milestone’s title.
Regarding item (5), Modi contends there is insufficient evidence that he had encumbered Milestone with cognizable debts and liabilities, pointing to his testimony that Milestone had not paid his $240,000 management fee. In so arguing, Modi disregards other portions of his testimony that support the findings regarding self-dealing. Although Modi testified that Milestone had not paid his management fees, he stated that Milestone’s income had materially increased after 2006, thereby raising the reasonable inference that Milestone would eventually discharge its obligation regarding the fees. In addition, Modi testified that Milestone secured a $3.5 million debt to Modi’s children. Modi stated that Milestone had incurred this debt to pay its 2006 losses, which Modi valued at $2.6 million, but acknowledged that Milestone’s financial statements reported its 2006 losses as only $1.4 million. Modi further acknowledged that Milestone had made lease payments to his children amounting to $711,600 per year. This testimony is sufficient to establish Modi’s self-dealing.
Modi also maintains that the trial court erred in concluding that he had fiduciary duties to Mahesh during the pertinent events. The crux of his argument is that the creation of Newport and A1 Equipment superseded the partnership between himself and Mahesh, and extinguished their fiduciary duties as partners. For the reasons explained below, we reject this contention.
Ordinarily, “a partnership does not continue to exist after the formation of a corporation.” (Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1157 (Persson)). Under this rule, “after a partnership is incorporated, the rights or obligations which partners can enforce against each other no longer exist.... They have the rights and obligations of shareholders, not partners....” (Id. at p. 1159.) Nonetheless, the rule is subject to an exception. “Partners may, by agreement, continue their relations as copartners in conjunction with their relationship as stockholders of a corporation, and ‘the law [will] take cognizance of such dual relationship and deal with “the parties in the light of their agreement..., independently of their incorporation”....’ [Citations].” (Id. at p. 1158, quoting Downey v. Cavasso (1918) 36 Cal.App. 316, 318.) Thus, “the courts will enforce preincorporation agreements among partners or joint venturers who have incorporated in order to carry out the agreement between or among the partners or joint venturers.” (Persson, supra, at p. 1159.)
An instructive application of the exception is found in Elsbach v. Mulligan (1943) 58 Cal.App.2d 354. There, the plaintiff entered into a joint venture with the defendant to establish a business engaged in the importation and distribution of wines and other alcoholic drinks. (Id. at pp. 357-358.) To facilitate the business, they agreed to establish a corporation in which they would be equal shareholders. (Id. at p. 359.) After the corporation was created, the defendant secretly persuaded the business’s overseas suppliers to sell their products exclusively through the defendant. (Id. at pp. 359-362.) In affirming the judgment in the plaintiff’s favor, the appellate court held that the plaintiff was entitled to recover from his co-venturer in view of their fiduciary relationship, notwithstanding the existence of their corporation. (Id. at p. 368.) The court rejected the defendant’s contention that the trial court had improperly disregarded the corporation and treated the parties as partners, reasoning that there was sufficient evidence that “the corporate form was employed merely as a convenient method of carrying out the agreement of the parties.” (Id. at pp. 363, 368-370.)
We reach the same conclusion here. The MOU, which created the partnership, expressly provided that it governed Modi’s and Mahesh’s agreement “for purchasing [Milestone] under a new corporation from the present owners.” The partnership was thus established to arrange for the transfer of Milestone’s title from API to Newport and A1 Equipment. Accordingly, the trial court properly concluded that despite the creation of Newport and A1 Equipment, Modi had continuing fiduciary obligations to Mahesh regarding Milestone while its title passed to Newport and A1 Equipment.
Modi’s reliance on Persson is misplaced. There, two individuals established a business as a partnership in 1991, and then incorporated the business in 1994. (Persson, supra, 125 Cal.App.4th at p. 1147.) They held equal shares in the corporation, and observed all corporate formalities. (Id. at p. 1156.) In 1999, they fell into a dispute, and one agreed to sell his shares to the other. (Id. at pp. 1148-1149.) After the sale was consummated, the seller brought an action for breach of fiduciary duty against the buyer, alleging that the buyer had concealed information about the corporation’s future profits, thereby causing the seller to offer his shares at less than their actual value. (Ibid.) The trial court found that despite the creation of the corporation, the individuals had maintained a “de facto partnership” after 1994 that subjected the seller to the fiduciary duties of a partner. (Id. at pp. 1156-1157, italics omitted.) In concluding that this finding failed for want of substantial evidence, the appellate court determined that the parties had made no agreement that preserved the partnership after the corporation was established. (Persson, supra, at p. 1159.) For the reasons explained above, that is not the case here.
In a related contention, Modi suggests that Mahesh effectively dissolved the partnership in June 2006, when he rejected Modi’s requests to share Milestone’s 2006 operating expenses. However, as the agreements governing the partnership specified that the partners were subject to contributions only after Newport acquired Milestone, the trial court reasonably concluded that sharing Milestone’s 2006 operating expenses prior to the transfer of Milestone’s title to Newport and A1 Equipment fell outside Mahesh’s duties under the partnership. In sum, the trial court properly concluded that Modi breached his fiduciary duties to Mahesh.
On this matter, we note that the December 20, 2005 agreement regarding shareholder duties obliged the Patels to contribute to Milestone’s operating expenses only in “any month [in which] Newport own[ed]” the nursing home.
B. Recovery on $400,000 Promissory Note
Ankur contends that the trial court erred in permitting Modi to recover on the $400,000 promissory note, which was secured by Mahesh’s share of Newport’s and A1Equipment’s stock. It is undisputed that the Patels never repaid the funds by December 31, 2006, as specified in the note. Pointing to California Commercial Code sections 9610 and 9615, Ankur argues that Modi’s failure to foreclose on the collateral securing the note barred Modi’s recovery on the note. We reject this contention.
All further statutory citations in this section are to the California Commercial Code, unless otherwise indicated.
The provisions pertinent to Ankur’s contention are found in California’s version of the Uniform Commercial Code (UCC). Regarding secured transactions, section 9601, subdivision (a)(1), provides that after default, a secured party “may... [r]educe a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial proceeding.” With respect to foreclosure, section 9609, subdivision (a)(1), provides that after default, a secured party may “[t]ake possession of the collateral.” Section 9610 states that the secured party “may sell, lease, license, or otherwise dispose of any or all of the collateral, ” but mandates that the disposition “must be commercially reasonable.” (§ 9610, subds. (a), (b).) Section 9615 specifies that when the security interest subject to disposition secures payment of an obligation, “the obligor is liable for any deficiency, ” provided that certain conditions are satisfied. (§ 9615, subd. (d)(2).)
Ankur maintains that these provisions obliged Modi to foreclose on the security underlying the promissory note before seeking a judgment on the note. Although we have found no published case addressing this specific contention, we conclude that it fails. To begin, subdivision (a)(1) of section 9601, by its plain language, permits a secured creditor to seek a judgment or foreclose. Section 6 of the comment to UCC section 9-601, upon which California’s provision is based, makes this clear: “Under subsection (a)[, ] a secured party may reduce its claim to judgment or foreclose its interest by any available procedure outside this Article under applicable law.” (U. Com. Code com., reprinted at 23C West’s Ann. Com. Code (2002 ed.) foll. § 9601, p. 27.)
Our conclusion finds further support from the authority regarding former sections 9501 and 9504, the predecessors of sections 9601, 9609, 9610, and 9615. Former section 9501, which was based on former UCC section 9-501, provided that upon default, a secured creditor “may reduce his or her claim to judgment, foreclose, or otherwise enforce the security interest by any available judicial procedure” (former § 9501, subd. (1)). (In re Egbe (B.A.P. 9th Cir. 1989) 107 B.R. 711, 712 (Egbe).) Former section 9504, which was based on former UCC section 9-504, permitted secured creditors who foreclosed on collateral to obtain deficiency judgments only when they acted “in a commercially reasonable manner” (former § 9504, subd. (2)(c)). (Cerritos Valley Bank v. Stirling (2000) 81 Cal.App.4th 1108, 1113-1114 (Cerritos Valley Bank); Crocker Nat. Bank v. Emerald (1990) 221 Cal.App.3d 852, 859 (Crocker Nat. Bank).)
In 1999, the Legislature repealed former sections 9501 and 9504 and enacted sections 9601, 9609, 9610, and 9615 to reflect revisions in the underlying UCC provisions, namely, the replacement of former UCC sections 9-501 and 9-504 with sections 9-601, 9-609, 9-610, and 9-615. (Stats. 1999, ch. 991, § 35, pp. 5840, 5844-5845, 5848-5849; see History and Statutory Notes, 23C West’s Ann. Com. Code (2002 ed.) foll. §§ 9601, 9609, 9610, 9615, pp. 28, 82, 93, 161.)
Regarding former section 9501, at least two courts concluded that the enumerated creditor’s remedies were cumulative and nonexclusive. Thus, in Egbe, the court held that a secured creditor that had initially obtained a judgment on an unpaid debt did not thereby forego further remedies available in bankruptcy proceedings. (Egbe, supra, 107 B.R. at p. 712.) Similarly, in In re A & E Products, Ltd. (Bankr. C. D. Cal. 1985) 49 B.R. 120, 122, the court held that the secured creditor’s attempt to obtain a judgment on the unpaid debt did not bar the creditor’s efforts to obtain other relief.
These holdings reflect an established interpretation of former UCC sections 9-501 and 9-504 and the successor UCC provisions, which underlie the current statutes. Relying on decisions by numerous courts in other states, a UCC treatise explains: “Under the [UCC, ] the creditor may choose between two basic methods of getting its money out of a balky creditor. First, it can repossess the goods subject to the security interest and... resell them and apply the proceeds to the debt.... [¶] Alternatively, the creditor can ignore its security interest and obtain a judgment on the underlying obligation....” (4 White & Summers, U. Com. Code (6th ed. 2010) Creditor’s Alternatives Upon Default, § 34-4, pp. 411-412, fn. omitted; see also 10 Anderson, Anderson on the U. Com. Code (3d ed. 1999 rev.) Secured Transactions, § 9-501:88, pp. 265-266 [“The creditor’s remedies... are cumulative so that the creditor is not required to make an election as to which one to pursue.”] fn. omitted.)
The cases upon which Ankur relies are inapposite. In each case, the creditor sold some or all of the security and sought a deficiency judgment (or similar form of relief) to obtain the balance of the funds owed. (Cerritos Valley Bank, supra, 81 Cal.App.4th at p. 1114; Crocker Nat. Bank, supra, 221 Cal.App.3d at p. 857; Canadian Commercial Bank v. Ascher Findley Co. (1991) 229 Cal.App.3d 1139, 1147-1148; Buran Equipment Co. v. H & C Investment Co. (1983) 142 Cal.App.3d 338, 340-341.) The appellate court in each case thus resolved a narrow issue under former section 9504, namely, whether the creditor had sold the collateral in a manner that entitled it to a deficiency judgment. (Cerritos Valley Bank, supra, at pp. 1114-1118; Crocker Nat. Bank, supra, at pp. 859-862; Canadian Commercial Bank v. Ascher Findley Co., supra, at pp. 1151-1157; Buran Equipment Co. v. H & C Investment Co., supra, at pp. 341-344.) That issue is not presented here, as Modi sought a judgment on the note without foreclosing on the security. As explained above, he was entitled to do so.
Bank of Sonoma County v. Dorries (1986) 185 Cal.App.3d 1291, which Ankur discusses for the first time in his reply brief, is also inapposite. There, the appellate court held that under Civil Code section 2983.8, foreclosure is the sole remedy available to a mobilehome seller under a purchase agreement secured by the mobilehome. (Bank of Sonoma v. Dorries, supra, at pp. 1293-1294.) However, Civil Code section 2983.8 is a provision of the Rees-Levering Motor Vehicle Sales and Finance Act (Rees-Levering Act) (Civ. Code, § 2981 et seq.), which provides special protections to motor vehicle buyers beyond those provided in sections 9601, 9609, 9610, and 9615. (§ 9201, subds. (b), (c); see Bank of America v. Lallana (1998) 19 Cal.4th 203, 208-214.)
In addition to the statutory authority conferred on Modi to elect whether to proceed by way of judgment or foreclosure, the parties’ agreement expressly authorized him to do so. As the trial court found, the parties had agreed in the stock pledge agreement that if Ankur failed to make timely payments on the note, Modi was entitled to request the transfer of the pledged stock, but was expressly relieved of any obligation to do so. On appeal, Ankur argues that the relevant provisions of the California Commercial Code cannot be waived or varied. As we have determined that nothing in the California Commercial Code obligated Modi to foreclose first on the collateral, we find the parties did not improperly purport to waive any rights Ankur possessed under the statute.
C. Fee Ruling Regarding Ankur
Modi challenges the trial court’s ruling regarding Ankur’s fee request. Following the entry of judgment, Ankur sought an award of attorney fees under Civil Code section 1717 and the fee provisions in the contracts underlying the Patels’ claims. In support of the request, Ankur pointed to a fee provision in an agreement executed on November 30, 2005, when Modi and Mahesh signed the MOU regarding their partnership, and to fee provisions in other agreements related to the partnership. The trial court ruled that Ankur was entitled to 95 percent of the fees he requested. As explained below, we see no error in the trial court’s ruling.
All further statutory citations are to the Civil Code.
The trial court also awarded Modi 5 percent of the fees that he requested under a fee provision in the $400,000 promissory note. As neither side has challenged this ruling on appeal, we do not address it.
1. Governing Law
The issues raised on appeal concern the propriety of the fee ruling under section 1717. Subdivision (a) of this provision states: “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.” Subdivision (b)(1) of section 1717 further provides that, with exceptions not relevant here, “the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract.”
The trial court’s determination of the prevailing party under section 1717 is examined for abuse of discretion. (Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1158.) However, we review a party’s entitlement to an award of contractual attorney fees de novo, insofar as the award relies on the resolution of questions of law or contractual interpretation that do not implicate factual disputes. (Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 705.) To the extent the award relies on factual findings, whether express or implied, we examine the record for substantial evidence to support the findings. (Federal Home Loan Mortgage Corp. v. La Conchita Ranch Co. (1998) 68 Cal.App.4th 856, 860; Roddis v. All-Coverage Ins. Exchange (1967) 250 Cal.App.2d 304, 309.)
2. Modi’s Contentions
Modi challenges the ruling regarding Ankur’s fee request on several grounds. To begin, he contends that he and Mahesh executed no partnership agreement capable of supporting a fee award. We disagree. For purposes of a fee award under section 1717, a court may properly conclude that several documents form a single contract when they “concern[] the same subject and [are] made as part of the same transaction.” (Boyd v. Oscar Fisher Co. (1989) 210 Cal.App.3d 368, 378.) Under this principle, the documents need not be contracts or address precisely the same subjects, and it is not essential that they be executed by the same parties or at the same time. (Ibid.; see Harm v. Frasher (1960) 181 Cal.App.2d. 405, 412-416; 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 747, pp. 835-836.) Whether the documents form a single agreement subject to a fee provision contained in one of the documents is ordinarily a factual question. (Boyd v. Oscar Fisher Co., supra, at p. 378.)
Here, the Patels’ complaint asserted a claim for breach of the partnership agreement, as stated in the November 30, 2005 MOU and agreement. Although the MOU lacks a fee provision, the related agreement authorized a fee award to the prevailing party in a suit “to enforce any of the terms or conditions of [the agreement].” The agreement was signed by Mahesh and Modi, who signed both individually and as Gautam’s president.
In addition, the Patels pointed to three other partnership-related contracts containing attorney fee provisions. The contracts, executed in December 2005 and January 2006, concerned the management of Milestone, the duties of shareholders in Newport and A1 Equipment, and the stock securing the $400,000 promissory note. Each was signed by Ankur and Modi, either as an individual or as president of a corporation.
As we have explained (see pt. A., ante), there is ample evidence to support the trial court’s finding that Modi and Mahesh established a partnership that continued after the creation of Newport and A1 Equipment. In view of this evidence, the trial court reasonably concluded that the MOU and related documents formed a single partnership agreement subject to the fee provisions found in the documents.
Modi also maintains that the trial court, in resolving the Patels’ contract-based claims, did not find that he breached the partnership agreement. He argues that the trial court found only that he had breached fiduciary duties and engaged in other tortious conduct, which cannot support an award under section 1717. We reject this contention.
We recognize that the statement of decision does not expressly state that Ankur prevailed on the Patels’ claim for breach of the partnership agreement, which alleged that Modi violated his contractual duties by “refusing to complete the agreement whereby [Newport] and [A1 Equipment] were to acquire Milestone and instead using [Gautum] to acquire Milestone solely for himself.” However, “a statement of decision is adequate if it fairly discloses the determinations as to the ultimate facts and material issues in the case.” (Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, 513; In re Marriage of Burkle (2006) 139 Cal.App.4th 712, 736-737, fn. 15.) Here, the trial court’s determinations regarding Modi’s breaches of fiduciary duty necessarily establish that he also breached the partnership agreement.
As this court has explained, an award under section 1717 may rest on a breach of fiduciary duty when the duty “arose out of and is not outside” the pertinent contract. (Kangarlou v. Progressive Title Co., Inc. (2005) 128 Cal.App.4th 1174, 1179 [section 1717 award was properly based on escrow company’s breach of fiduciary duties “undertaken in the contract”].) Furthermore, the trial court is not required to adjust a fee award to reflect claims outside the scope of section 1717 when the issues raised under those claims are “‘“inextricably intertwined”’” with the issues arising under the covered claims. (Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1111, quoting Finalco, Inc. v. Roosevelt (1991) 235 Cal.App.3d 1301, 1308.)
The trial court found that Modi, after entering into the partnership, breached his fiduciary and contractual duties to Ankur, Mahesh’s assignee. As we have explained (see pt. A., ante), the partnership agreement obliged the partners to arrange for the transfer of Milestone’s title from API to Newport and A1 Equipment. Although the trial court did not expressly specify Modi’s breaches of the partnership agreement, it enumerated four breaches of fiduciary duty by Modi: Modi twice failed to release funds necessary to complete Milestone’s purchase, placed Milestone’s title with Gautam after the foreclosure proceeding, and engaged in self-dealing while managing Gautam. Of these, at least three -- Modi’s failures to complete the transaction and improper placement of Milestone’s title -- were also breaches of his contractual duties under the partnership agreement. As Modi’s misconduct was inextricably tied to his duties under the partnership agreement, the trial court properly concluded that it supported an award under section 1717. (Kangarlou v. Progressive Title Co., Inc., supra, 128 Cal.App.4th at pp. 1177-1178.)
In addition, the trial court found that Modi had breached the implied covenant of good faith and fair dealing, as alleged in the Patel’s complaint, which asserted that Modi violated the implied covenant in the partnership agreement (and related contracts) by acquiring Milestone “solely for himself.”
Finally, Modi contends that the trial court erred in determining that Ankur was the prevailing party under section 1717. He argues that his recovery on the $400,000 promissory note exceeds Ankur’s net recovery of $350,123.12 on the Patels’ complaint. He is mistaken. Regarding the determination in question, our Supreme Court has explained: “[I]n deciding whether there is a ‘party prevailing on the contract, ’ the trial 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.’ [Citation.]” (Hsu v. Abbara (1995) 9 Cal.4th 863, 876.)
Under these principles, we see no abuse of discretion in the trial court’s determination. Assuming -- without deciding -- that the trial court was obliged to consider Modi’s recovery for purposes of determining whether Ankur was the prevailing party on the Patels’ claims, Ankur’s gross recovery of $850,123.12, exceeded Modi’s gross recovery of $499,876.87 In sum, the trial court did not err in issuing the ruling regarding Ankur’s fee request.
DISPOSITION
The judgment and fee ruling are affirmed. The parties are to bear their own costs on appeal.
We concur: EPSTEIN, P. J., WILLHITE, J.