Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of San Diego County, No. GIN040858 Thomas P. Nugent, Judge.
McDONALD, J.
In this appeal, plaintiff Pauma Ridge Mutual Water Company (Water Company), which prevailed in the underlying litigation against defendant Bruce Birch as trustee for Future Mountain Development Trust, challenges the trial court's order denying its request for attorney fees. In that underlying litigation, the parties contested two issues. First, the parties disputed whether certain water rights, which would otherwise have been appurtenant to the land owned by Birch, had been severed from the land and were owned by Water Company. If the court found Water Company owned the water rights, the second issue contested by the parties was the damages Water Company could recover for the water Birch converted to his own use. The trial court determined Water Company owned the water rights, and subsequently determined Birch was liable to pay damages for the water he converted to his own use. In a related appeal, we affirmed those determinations.
After trial, Water Company sought attorney fees under the attorney fees clause in its bylaws. The court concluded the action was not one to enforce the bylaw provisions containing the attorney fees clause and denied the request. In the present appeal, we evaluate Water Company's challenge to that order.
I
FACTUAL BACKGROUND
A. The Water Company
In 1977, California Property Brokers, Ltd. (CPB) recorded a Declaration of Establishment of Restrictions (DER) for land it owned in Pauma Valley subdivided into six parcels. The land use restrictions specified the owners of the parcels would form Water Company, a mutual water company, and that CPB would convey to Water Company certain portions of the parcels below the 700 foot elevation (the watershed lands). Water Company's purpose was to extract water from the watershed lands and provide water service to the six parcels. The DER provided that all rights in the watershed lands would be held by Water Company and granted easements to Water Company for water lines, roads and other paths and stations throughout the watershed lands to accomplish its purpose. The DER provided it could be amended by majority vote of the owners of the parcels, and would expire in 20 years unless an amendment was adopted extending the expiration date.
Under the bylaws of Water Company (Bylaws), the stock in Water Company was appurtenant to ownership of the benefitted parcels. The Bylaws also specified that water supplied by Water Company could only be used on the benefitted parcels, and no shareholder could connect to the water system or take water except with the consent of Water Company and subject to Water Company's rules.
In 1979, the owners formed the Pala Mountain Partnership (PMP) the sole business of which was to acquire assets (including water tanks, pumps and valves) to be used by Water Company. PMP financed and installed the water system for Water Company and, since 1979, Water Company has drilled wells (two of which were on watershed lands later acquired by Birch), and has maintained and operated the water distribution system, has extracted water from wells on the watershed lands, and has supplied water to the owners of the participating parcels.
B. Conveyance and Reconveyance of the Watershed Lands
Between 1977 and 1989, the parcel owners and Water Company discussed how to convey title to the watershed lands to Water Company as contemplated by the DER. In 1981, CPB and another parcel owner (PRR) transferred title to the watershed lands to Water Company by grant deed, subject only to an accounting of the final purchase price for the watershed lands. However, because CPB's subsequent efforts to obtain a new parcel map for its retained land necessitated that CPB reacquire the watershed lands from Water Company, Water Company transferred those watershed lands back to CPB by a 1982 grant deed. However, it was contemplated that, after CPB's map was approved, CPB would then reconvey the watershed lands back to Water Company. Although Water Company reconveyed title to the watershed lands back to CPB, the 1982 grant deed was subject to two caveats. First, Water Company did not convey the entire fee to CPB, but instead reserved an easement allowing Water Company to construct, maintain and operate water wells and water lines on the watershed lands. Second, the parties contemplated the transfer was to be a temporary one--the parties anticipated CPB would reconvey to Water Company all interests in the watershed lands it acquired from Water Company. CPB successfully subdivided its land into four parcels, one of which was later acquired by Birch.
In the several years following CPB's subdivision, the interested parties continued discussions on the final terms of the transfer of fee title to the watershed lands to Water Company, including the price to be paid for the watershed lands, but were never able to reach final agreement. By the late 1980's, CPB's principal tired of dealing with the County of San Diego on land use issues and wanted to sell all four of his parcels, including the parcel that included CPB's interests in the watershed lands. To sell the land, however, CPB needed to remove the encumbrance created by Water Company's contractual right and obligation to acquire fee title to the watershed lands. Accordingly, the parties entered into a rescission agreement (referred to as the Rescission Agreement).
C. The Rescission Agreement
In 1989, CPB and Water Company entered into a recorded Agreement of Rescission of Land Sale Obligations (the Rescission Agreement), which terminated CPB's obligations to transfer the entire fee title to the watershed lands to Water Company and provided that Water Company would be refunded its down payment. However, the Rescission Agreement also provided:
"The rescission of land transfer commitments shall have no effect on [Water Company's] water rights and water removal rights throughout the area of its district. [Water Company] retains, throughout the river valley, the exclusive right to drill wells, extract and distribute water. [Water Company] also retains the right of all reasonable access to its wells and water transmission facilities. [CPB] and Pauma Ridge agree that whatever development they may in the future make of the lands in question, they shall take no action which in any way impedes or obstructs the rights of [Water Company]."
The Rescission Agreement also required CPB to protect Water Company's existing wells from flooding, and specified the Rescission Agreement constituted an acknowledgement that CPB had "the exclusive right of development and utilization of [the land] (excepting for water removal and development) including the right to mine and extract sand." (Italics added.)
D. Birch's Property and Water Use
In October 1990, CPB sold the watershed lands to Birch as trustee for the Future Mountain Development Trust. Birch became a shareholder in Water Company and a partner in PMP. However, by 1993, Birch had become delinquent in capital contributions to PMP, and the PMP partnership agreement was amended to provide Birch would not be obligated to pay assessments or capital contributions to PMP unless and until Birch commenced developing his land for agricultural uses and began using water provided by Water Company. After 1993, Birch did not make any payments or capital contributions to use the water system, and has not sought or received consent from Water Company to use its water.
However, in July 2003 Birch began extracting water from Well No. 5. He diverted the water to supply a campground on a separate parcel adjacent to the land he acquired from CPB. In September 2004, he tapped into Well No. 1 to supply additional water to the campground. Water Company did not authorize or consent to his actions. There is no evidence the campground parcel was one of the parcels entitled under the Bylaws to use the water supplied by Water Company.
II
THE LITIGATION
A. The Pleadings
Water Company filed this action against Birch pleading numerous claims. Water Company's first cause of action sought a declaration that Birch had no right to extract or use Water Company's water or its supply system without Water Company's consent. The second cause of action sought an injunction barring Birch from diverting water from the water system and from interfering with Water Company's maintenance easements. The third and fourth causes of action pleaded claims for damages sounding in conversion for wrongful diversion of the water. The fifth cause of action alleged that, because Birch had constructed an earthen berm that wrongfully interfered with Water Company's easement to operate and maintain the water system, it was entitled to damages for nuisance caused by the wrongful interference
Water Company's sixth cause of action pleaded, as an alternative claim for relief, that in the event the court determined Birch did have the right to access and use the water, Birch should be compelled to contribute to the reasonable charges imposed by Water Company and another water district for maintaining the system and obtaining the water distributed by Water Company through its system.
B. Trial Proceedings and Judgment
Water Company moved for summary adjudication of its declaratory relief claim, and the court entered summary adjudication in Water Company's favor, concluding Water Company "held exclusive water rights by virtue of the rescission agreement." The parties stipulated to trial before a referee of the damage claims, and the referee awarded damages to Water Company for the water taken by Birch and general damages for construction of the earthen berm that obstructed Water Company's maintenance easement.
The court's final judgment declared (1) Water Company had exclusive water rights in the watershed lands under the 1982 deed and 1989 Rescission Agreement, (2) Birch had no right to access or use Water Company's water supply or water system without first complying with the Bylaws, rules and regulations and (3) Birch could not interfere with Water Company rights to maintain and operate its water system. The court enjoined Birch from accessing or using Water Company's water supply or water system without complying with its Bylaws, rules and regulations, or from interfering with Water Company's right to maintain and operate its water system. The judgment also required Birch to pay for the water he diverted from Water Company.
In the related appeal, this court concluded the trial court correctly held the exclusive water rights were vested in Water Company under the 1982 grant deed and 1989 Rescission Agreement, and substantial evidence supported the damage award.
C. The Attorney Fees Motion
Water Company, as prevailing party, sought its attorney fees. Water Company relied on the attorney fees clause contained in the Bylaws, which provide:
"Each shareholder shall be liable for payment of and shall pay to [Water Company] upon its demand all expenses incurred by [Water Company] in collection or enforcing payment from such shareholder of any delinquent assessment or assessments charges, toll or other indebtedness, including reasonable attorney's fees incurred in the enforcement of any lien whether by court action or otherwise and all expenses of sale."
Water Company asserted that because Civil Code section 1717, subdivision (a), makes the attorney fees clause applicable to any action to enforce the provisions of the Bylaws, the fees were recoverable even though its lawsuit was not an action solely to collect unpaid assessments. Water Company argued that because Birch was a shareholder in Water Company, and the underlying action involved both an effort to collect payment from one of its members for water taken from Water Company system and an effort to defeat one of its members' claim that Water Company did not have exclusive rights to control and distribute water from the watershed lands, the attorney fees provision applied to this action.
Birch, although not disputing Water Company was the prevailing party, argued Water Company could not collect attorney fees because it had neither pleaded nor tried a claim for breach of its Bylaws. Instead, Birch argued the dispute revolved around whether Water Company had exclusive water rights under the DER or by virtue of the 1982 deed and 1989 Rescission Agreement. Although Water Company had prevailed by obtaining a declaration in its favor on the latter claim, those documents did not contain an attorney fees clause. Birch also noted that the issue of damages, dependent on the declaratory relief determination, was based on a conversion claim rather than on enforcement of a contractually-based right to collect for water delivered to Birch under a contract, and a tort claim does not support an attorney fees award.
The trial court agreed with Birch that the attorney fees clause in the Bylaws was inapplicable to the present dispute and denied the motion. Water Company timely appealed the order.
III
ANALYSIS
Our independent review of the operative pleadings, as well as the judgment entered below, convinces us the trial court correctly held the attorney fees clause in the Bylaws was inapplicable. First, the declaratory and injunctive relief sought and obtained by Water Company was predicated on contracts other than the Bylaws, and those contracts contained no attorney fees clause and were not inextricably interwoven with the Bylaws. Second, the damages award was premised on and measured by Birch's misappropriation of water for his campground, a claim sounding in tort, and was not premised on a claim that Birch had breached an existing contractual relationship with Water Company and caused damage.
A. Water Company Prevailed on the Declaratory and Injunctive Relief Claims Based on Rights Arising from Agreements That Contain No Attorney Fees Clause
In the proceedings below, Water Company claimed the exclusive appropriative water rights under two distinct theories: the DER conferred those rights on Water Company; and the intent and effect of the 1982 deed and 1989 Rescission Agreement was to sever those rights from Birch's land and transfer them to Water Company. The trial court's declaratory relief judgment, which we have affirmed on appeal, declared Water Company obtained those exclusive rights by virtue of the 1982 deed and 1989 Rescission Agreement. However, those documents do not contain an attorney fees clause, and therefore the principal aspect of the action on which Water Company prevailed did not involve a declaration of the rights of the parties arising out of a contract containing an attorney fees clause.
Water Company argues that because its pleadings referred to its Bylaws, and the judgment contains language declaring Birch could only access the water system after complying with Water Company's rules and regulations including its Bylaws, Water Company's claim arose out of the Bylaws for purposes of attorney fees. We are not persuaded because we construe the principal thrust of the judgment as declaring that Water Company holds the exclusive appropriative water rights in the watershed lands under the 1982 deed and 1989 Rescission Agreement and enjoining Birch from interfering with that right. Although the judgment refers to the Bylaws, it does so in the context of confirming that Water Company's rights to the water are exclusive and therefore Birch must adhere to Water Company's rules, regulations, Bylaws, terms, conditions and charges before he may draw water from its system. Thus, the declaratory and injunctive relief obtained by Water Company did not arise out of the Bylaws, but instead arose out of contractual rights under the 1982 deed and 1989 Rescission Agreement, and the references to Water Company's Bylaws are ancillary to and merely implement the relief obtained from those other documents.
Water Company asserts that, under Neptune Society Corp. v. Longanecker (1987) 194 Cal.App.3d 1233, the attorney fees clause in the Bylaws may be extended to encompass any litigation concerning its property rights under the 1982 deed and 1989 Rescission Agreement. However, we conclude Longanecker is not applicable to this case. In Longanecker, plaintiff and Longanecker contemporaneously signed a limited partnership agreement (contemplating Longanecker would obtain a franchise for a new business) and three promissory notes containing attorney fee clauses. Longanecker agreed to make certain payments on the notes (as well as royalty payments) to plaintiff and, in return for such payments, plaintiff agreed to perform various services in furtherance of the new business. However, Longanecker stopped making payments because of purported breaches by plaintiff, and plaintiff sued Longanecker to collect the sums due on the promissory notes. Longanecker responded with a cross-complaint for rescission, restitution, dissolution of partnership and declaratory relief. (Id. at p. 1239.) Longanecker prevailed on his cross-complaint and defeated the collection action, and the trial court awarded him attorney fees under the attorney fees clauses in the promissory notes. This court affirmed, reasoning that because "the promissory notes were inherent parts of the agreement, which is the subject matter of the litigation, the attorney's fees provisions are properly construed as applying to the entire contract." (Id. at pp. 1249-1250.)
Longanecker is not applicable here because, in that case, the promissory notes containing the attorney fees clause evidenced one of the obligations imposed by the primary contractual document, and as such were part and parcel of that primary contract and covered litigation over that contract. Accordingly, the attorney fees clause was required to be "construed as applying to the entire contract" under Civil Code section 1717, subdivision (a). Here, the primary contractual documents upon which the trial court's declaratory relief judgment rested were not the Bylaws, but were instead two contracts (e.g. the 1982 deed and 1989 Rescission Agreement) executed many years after the adoption of the Bylaws. Nor were the Bylaws adopted merely to evidence or implement one of the obligations imposed by the primary contractual documents to make the Bylaws part and parcel of the 1982 deed or 1989 Rescission Agreement. We conclude Longanecker is not applicable to the present matter.
Although Water Company prevailed in its claim that it had obtained exclusive appropriative rights to the water rights appurtenant to the watershed lands, it prevailed because of rights obtained from contracts not containing attorney fees clauses.
B. The Damages Award Was Premised on Tort and Not on a Contract Containing an Attorney Fees Clause
Water Company's complaint sought damages for conversion to the extent Birch took water for use at his campground, and the referee awarded "damages [for] misappropriation" of water from the two wells without referring to any obligations imposed by the Bylaws. Ordinarily, a party cannot obtain an award of attorney fees after successfully prosecuting a claim for conversion. (See, e.g., Flyer's Body Shop Profit Sharing Plan v. Ticor Title Ins. Co. (1986) 185 Cal.App.3d 1149, 1157-1158.)
Water Company asserts that characterizing its claim for damages as a conversion claim is not dispositive because the courts have permitted an award of attorney fees under contractual clauses where the plaintiff's tort recovery was premised on a duty arising out of the contract. For example, Water Company relies on Mustachio v. Great Western Bank (1996) 48 Cal.App.4th 1145, 1151, in which the court concluded the conversion claim against the defendant bank permitted an attorney fee award because bank's liability was based on failure to perform a contractual duty to safeguard contents of a safety deposit box. However, Mustachio merely holds that, where the same misfeasance constituting the tort can also constitute breach of a contractual obligation, the prevailing party can recover under the attorney fees clause in the contract even though his or her recovery sounded in tort. Accordingly, unless Water Company's recovery was premised on acts by Birch that breached his contractual obligations under the Bylaws, Mustachio is inapplicable.
Water Company also relies on Fairchild v. Park (2001) 90 Cal.App.4th 919, in which the court concluded a tenant could recover attorney fees when it prevailed on a claim for breach of the implied warranty of habitability contained in the lease. However, Fairchild turned upon the recognition that "[t]here is 'a common law implied warranty of habitability in residential leases in California . . . .' [Quoting Green v. Superior Court (1974) 10 Cal.3d 616, 619.] In the present case, the tenants 'did assert a contractual cause of action: breach of the implied warranty of habitability.' [Quoting Allstate Ins. Co. v. Loo (1996) 46 Cal.App.4th 1794, 1798.] 'An action by a tenant alleging a breach of the warranty of habitability is an action on the contract that authorizes the recovery of fees pursuant to an attorney fee provision in the rental agreement.' [Quoting 9 Miller & Starr, Cal. Real Estate (2001 supp.) § 30:17, p. 383.]" (Fairchild v. Park, supra, at pp. 924-925.) Unless Water Company's claim for damages arose from Birch's contractual obligations under the Bylaws, which we conclude it did not, Fairchild is inapplicable.
Although Birch, as owner of the watershed lands, was subject to the contractual obligations imposed by the Bylaws, the claim against Birch was premised on his diversion of water as owner of the campground. In that latter capacity, Birch did not owe contractual obligations under the Bylaws. The courts have recognized that, because the underlying purpose of Civil Code section 1717 is to ensure reciprocity of the attorney fees provisions in contracts, a prevailing party may not recover attorney fees under a contractual provision unless the opposing party, had he or she prevailed in the litigation, would also have been entitled to attorney fees under the contractual provision. (See, e.g., Real Property Services Corp. v. City of Pasadena (1994) 25 Cal.App.4th 375, 382.) Birch could not have recovered attorney fees if he had prevailed below against Water Company's conversion claim because Birch, as owner of the campground to which the water was diverted, had no right to the water unless he established that the 1982 deed and 1989 Rescission Agreement--neither of which contained an attorney fees clause--did not confer on Water Company the exclusive appropriative rights to the water drawn from the watershed lands. Indeed, Birch could not have recovered attorney fees by prevailing under a contractual theory premised on the Bylaws because Birch, as owner of the campgrounds, was a nonsignatory to those Bylaws. Thus, if Birch had prevailed on the damages claim, he necessarily would have prevailed because he was entitled to extract the water as owner of the watershed lands, not because he was entitled to extract such waters under the rights and privileges bestowed by the Bylaws, and because that entitlement would have derived from contracts without attorney fees clauses (the 1982 deed and 1989 Rescission Agreement) rather than from a contract (the Bylaws) containing such clause, Birch could not have recovered attorney fees had he prevailed.
C. Conclusion
We conclude the trial court correctly held the attorney fees clause in the Bylaws was inapplicable because the declaratory and injunctive relief sought and obtained by Water Company was predicated on contracts other than the Bylaws, and the damages award was premised on Birch's misappropriation of water for his campground, a claim sounding in tort, rather than on contractual obligations arising out of the Bylaws.
DISPOSITION
The order is affirmed.
WE CONCUR: BENKE, Acting P. J., IRION, J.