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Attorney's Fees Prevailing Party

 Attorney's Fees Prevailing Party

D. The expansion of the equitable ambit of section 1717

[3] The history of section 1717, as set forth above, consistently adheres to the theme of equity in the award of fees and demonstrates legislative [60 Cal.App.4th 1151] intent to expand the original ambit of the statute by the addition of provisions allowing the court to determine the prevailing party as well as the reasonableness of the fees to be awarded. Because the statute allows such discretion, it must be presumed the trial court has also been empowered to identify the party obtaining "a greater relief" by examining the results of the action in relative terms: the general term "greater" includes "[l]arger in size than others of the same kind" as well as "principal" and "[s]uperior in quality." (American Heritage Dict. (3d ed. 1992) p. 792.)

As stated by the Supreme Court in Trope v. Katz, supra, 11 Cal.4th at page 289, "... the legislative purpose underlying section 1717... is to ensure that contractual attorney fee provisions are enforced evenhandedly." The simplest definition of evenhanded has always been "equitable" (Random House Unabridged Dict. (2d ed. 1993) p. 671) and "[d]ealing equitably with all." (American Heritage Dict. (2d college ed. 1985) p. 470). Resort to the dictionary is instructive, but hardly necessary, because the identification of the party obtaining "a greater relief" itself requires an immediate assessment more equitable in nature than the checklist supplied by section 1032.

The sort of relativist inquiry required to determine which among several aspects of relief may predominate certainly suggests more than a simple mathematical calculation of which party recovered more money. The Legislature's use of the more general term "greater relief" and the term's persistence in the face of various amendments, even while section 1032, subdivision (a)(4) was enacted to add the threshold reference to "net monetary recovery" to the Code of Civil Procedure, makes it obvious the original purpose of the section no longer constrains its application. Sears v. Baccaglio (1998) 60 Cal.App.4th 1136 , 70 Cal.Rptr.2d 769

When deciding who prevailed under section 1717, " '... equitable considerations must prevail over both the bargaining power of the parties and the technical rules of contractual construction.' " (Bank of Idaho v. Pine Avenue Associates (1982) 137 Cal.App.3d 5, 17 [186 Cal.Rptr. 695].) Applying this equitable principle, the court may conclude the person receiving the greater monetary judgment may not be the party recovering "greater relief" on the contract action. In National Computer Rental, Ltd. v. Bergen Brunswig Corp. (1976) 59 Cal.App.3d 58 [130 Cal.Rptr. 360] (National Computer Rental), the plaintiff received a judgment for unpaid rent and taxes but was not the prevailing party pursuant to section 1717. Since the "crux" of the case involved a dispute over a termination fee in a computer equipment lease and the defendant prevailed on that issue, the court awarded attorney's fees to the defendant notwithstanding the plaintiff's net monetary judgment. The dissent in this case does not conflict with our position. The dissent argued plaintiff alleged unpaid rent and taxes in the complaint, [60 Cal.App.4th 1152] successfully litigated these issues, and was, therefore, the prevailing part. (National Computer Rental, supra, 59 Cal.App.3d at p. 70 (conc. and dis. opn. of Jefferson, J.).)

Even when no party receives a net recovery, a party may prevail under section 1717 (Pirkig v. Dennis, supra, 215 Cal.App.3d 1560). In Pirkig, plaintiffs settled with every defendant except one prior to the damages phase of the trial. After trial of the damages, the court offset the awarded damages by the amount of the settlement, resulting in a judgment of zero. Even so, the court found plaintiff prevailed on the contract action and awarded plaintiff attorney's fees which the defendant argued could not be supported by either section 1032 or section 1717. The court found either section could support the award.

Nevertheless, the argument has continued not only over whether section 1717 applies only to contracts authorizing fees to one party and not the other, but also over the court's power under section 1717 to disregard a nominal judgment in favor of a party whose claims were actually defeated. In the case before us, even though he recovered far less of the amount in controversy, the appellant contends his "net recovery" of a relatively small judgment entitles him to attorney's fees as a matter of right. This contention swims against the prevailing tide of authorities which have assumed section 1717's vesting of broad equitable discretion in the trial court. The contention also ignores the express provision of section 1717 allowing the court to find that no party prevailed.

In National Computer Rental, supra, 59 Cal.App.3d 58, 70-71, the court held the defendant was the prevailing party and entitled to attorney's fees under section 1717 even though plaintiff recovered a nominal judgment. Defendant had admitted liability on the first two causes of action on which the plaintiff prevailed, but controverted and successfully defeated the third cause of action. The court concluded the defendant effectively prevailed on the only issue litigated at trial, even though the plaintiff obtained a money judgment. (See also Lewis v. Alpha Beta Co. (1983) 141 Cal.App.3d 29 [189 Cal.Rptr. 840].)

In Olen, supra, 21 Cal.3d at page 223, the Supreme Court considered whether to adopt a rule that would permit a defendant to automatically recover fees when a plaintiff attempted to avoid liability for fees by pretrial dismissal. Reasoning it was faced with "a Hobson's choice of either (1) adopting an automatic right to attorney fees, thereby encouraging the maintenance of pointless litigation and violating the equitable principles which should govern attorney fee clauses, (2) providing for application of equitable [60 Cal.App.4th 1153] considerations, requiring use of scarce judicial resources for trial of the merits of dismissed actions, or (3) continuing the former rule, denying attorney fees in spite of agreement ...." (Id. at 225.) The court concluded: "We are satisfied that concern for the efficient and equitable administration of justice requires that the parties in pretrial dismissal cases be left to bear their own attorney fees, whether [the] claim is asserted on the basis of the contract or section 1717's reciprocal right." (Ibid., italics added.) The Supreme Court also cited National Computer Rental with approval and referred to other cases which "have likewise recognized that the contractual provisions for attorney fees will not be inflexibly enforced and that the form of the judgment is not necessarily controlling, but must give way to equitable considerations. [Citations.]" (Id. at p. 224.) Subsequently, in 1981, the Legislature added subdivision (b)(2) to section 1717 specifically barring an award of fees after a voluntary pretrial dismissal. Sears v. Baccaglio (1998) 60 Cal.App.4th 1136 , 70 Cal.Rptr.2d 769

In reaching its decision the Supreme Court thus overrode the contractual right to fees, which it acknowledged was extended by section 1717 to both sides, by stating the court's equitable power to deny fees is coextensive with the discretion to award or to deny fees under section 1717. This recognizes section 1717 is more than a simple provision for reciprocity and suggests that such inherent equitable power could as easily be used to award fees in a case such as the one before us, as it could be to deny them in the case of a pretrial dismissal under the former section 1717.

The Supreme Court summarized the historical purpose of section 1717 as follows: "Enactment of section 1717 commands that equitable considerations must rise over formal ones. Building a reciprocal right to attorney fees into contracts, and prohibiting its waiver, the section reflects legislative intent that equitable considerations must prevail over both the bargaining power of the parties and the technical rules of contractual construction." (Olen, supra, 21 Cal.3d at p. 224.)

In keeping with this sentiment, but disagreeing with the result (which was to prohibit recovery of costs by a party as to whom the action was dismissed prior to trial) Justices Mosk, Jefferson and Tobriner dissented. Justice Mosk pointing out that "[i]n view of the consistent references to statutory and contractual attorney's fees as an element of costs, we should construe section 1717 as providing for recovery of such attorney's fees whenever other costs are properly recoverable." (Olen, supra, 21 Cal.3d at p. 226 (dis. opn. of Mosk, J.) italics added.)

Justice Jefferson found "no magic in language used by the majority-sound public policy and equitable considerations. Both of these concepts, like beauty, have different meanings, dependent upon the eyes and ideas of [60 Cal.App.4th 1154] the beholder." (Olen, supra, 21 Cal.3d at p. 229 (dis. opn. of Jefferson, J.).) He went on to suggest that equitable considerations and public policy would, contrary to the majority's opinion, support an award of fees under the facts of the case. (Id. at pp. 229-230.) Justice Tobriner concurred in both dissents. (See id. at p. 230; id. at p. 226 (dis. opn. of Mosk, J.).)

The language of the majority opinion, as well as the dissents, in Olen, supra, 21 Cal.3d 218, make it obvious there is more to section 1717 than a merely mechanical determination of the form of a particular judgment. In different ways, each of the opinions acknowledged the equitable nature of the statute and presumed flexibility in its application.

The Supreme Court reiterated this view in Hsu, supra, 9 Cal.4th at page 877. The court applied section 1717 and concluded, "[w]e agree that in determining litigation success, courts should respect substance rather than form, and to this extent should be guided by 'equitable considerations.' For example, a party who is denied direct relief on a claim may nonetheless be found to be a prevailing party if it is clear that the party has otherwise achieved its main litigation objective. [Citations.]"

In Hsu, the trial court determined no party prevailed, thus denying fees to the appellant. The Supreme Court reversed on the grounds the results of the litigation were not "mixed" but rather the appellants had achieved " 'a simple, unqualified win.' " (Hsu, supra, 9 Cal.4th at p. 876.) Under the facts of Hsu the only issue was whether the trial court had discretion to deny fees to the only parties who recovered anything in the contract action by concluding no party prevailed; it was an "either or" situation. Thus, the court did not directly consider the situation where a party "prevailed" by recovery of substantially less than what was sought, and less of the funds at issue than the opposing party.

The Supreme Court in Hsu (9 Cal.4th at p. 876) answers the question posed in the instant case: "[W]e hold that in 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.]"

We conclude the party recovering "greater relief in the action on the contract" under section 1717, subdivision (b)(1) does not necessarily mean the party receiving the greater monetary judgment. In the event one party [60 Cal.App.4th 1155] received earlier payments, settlements, insurance proceeds or other recovery, the court has discretion to determine whether the party required to pay a nominal net judgment is nevertheless the prevailing party entitled to attorney's fees pursuant to section 1717.

E. Harmonizing the attorney's fees statutes

The result would not be different under Code of Civil Procedure section 1032. Even under section 1032, the court is not constrained to award attorney's fees to the party with the greatest net monetary recovery. While Civil Code section 1717 does not expressly require preliminary determinations of "net monetary recovery" to be made, section 1032 itself provides, in subdivisions (a)(4) its own broad provision for equitable relief where net monetary recovery may not be the best measure of who prevailed: "When any party recovers other than monetary relief and in situations other than as specified, the 'prevailing party' shall be determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not and, if allowed may apportion costs ...." (§ 1032, subd. (b), italics added.)

The use of "when" in this context implies two different circumstances: (1) when other than money is recovered; and (2) in situations other than as specified. Since the preceding portion of section 1032 refers only to monetary recovery, and to terminations without recovery, it would be unnecessary to refer to "other situations" if money were to be the only measure of success. Moreover, section 1032, subdivision (a)(4) states the " '[p]revailing party' includes the party with a net monetary recovery" (italics added) thus implying "other situations" without specific limitation. Nothing in the statute limits the court's inquiry solely to net monetary recovery; to do so would be to ignore, among others, the problems presented by contract-derived claims against multiple parties and net recoveries which were actually Pyrrhic victories.

Obviously this inquiry is fact intensive and therefore requires us to give considerable deference to the fully informed determinations of the trial court. While the trial court cannot arbitrarily deny fees to a less than sympathetic party, it remains free to consider all factors which may reasonably be considered to indicate success in the litigation. We agree the court may not abuse its discretion as in Deane Gardenhome Assn. v. Denktas (1993) 13 Cal.App.4th 1394, 1398-1399 [16 Cal.Rptr.2d 816], where the appellant was clearly the prevailing party, but the trial court refused to issue attorney's fees because of the frustration of having to try a case which it felt should have been handled in small claims court. And we also note that failure to succeed on all but one of several "shotgun" causes of action has [60 Cal.App.4th 1156] been held insufficient to deny a party fees and costs. (Michell v. Olick (1996) 49 Cal.App.4th 1194, 1199 [57 Cal.Rptr.2d 227].) However, where there is evidence of other success, such as in this case by collection of a portion of the funds at issue, whether by settlement or through a collateral action, the court is entitled to take such recovery into account when calculating which side prevailed. This should be true under Civil Code section 1717 as well as under Code of Civil Procedure section 1032. Sears v. Baccaglio (1998) 60 Cal.App.4th 1136 , 70 Cal.Rptr.2d 769

After the introductory limitation "unless the context clearly requires otherwise," Code of Civil Procedure section 1032, subdivision (a) initially provides four objective guidelines which may be considered within the discretion of the court before finding "situations other than as specified" (id. subd. (a)(4)) which would permit an award of fees. Civil Code section 1717's approach is more subjective, but it is not inconsistent. An analysis under section 1717's equitable purview would almost certainly include consideration of the factors enumerated by section 1032; and the trial court's rejection of a strong showing of any particular factor, such as a sizable net monetary recovery, would risk abuse of discretion under section 1717 just as it would under "the other than as specified" portion of section 1032. The statutes inform and reinforce one another.

Why then are there two statutes which permit the award of fees and costs? Leaving aside the historical vagaries of the legislative process, the most obvious reason is that the two sections are not identical in their language and therefore differ in application. In construing a statute, the court's objective is to ascertain and effectuate legislative intent. (Kimmel v. Goland (1990) 51 Cal.3d 202, 208 [271 Cal.Rptr. 191, 793 P.2d 524].) To determine legislative intent, the court begins with the words of the statute because they generally provide the most reliable indicator of the intent of the Legislature. (Burden v. Snowden (1992) 2 Cal.4th 556, 562 [7 Cal.Rptr.2d 531, 828 P.2d 672].)

The most obvious difference between the statutes is section 1717's option of finding no party prevailed in the action. In Foothill Properties v. Lyon/Copley Corona Associates (1996) 46 Cal.App.4th 1542 [54 Cal.Rptr.2d 488], the parties agreed the option agreement provided for attorney's fees to the prevailing party in the event of litigation. The court noted section 1717 speaks directly of contract provisions for attorney's fees and costs and provides that the prevailing party, in other words, the party who recovered greater relief on contract issues, is entitled to attorney's fees. The court also emphasized the discretion authorized by section 1717 for the court to determine no party prevailed. (§ 1717, subd. (b)(1).) Compare section 1032, which defines "prevailing party" as a party with a net monetary recovery, and also as a defendant who obtains a dismissal or avoids all liability. The [60 Cal.App.4th 1157] court also noted, as we do, that under section 1032 "... in all situations not specified, the court has discretion to determine who is the prevailing party." (46 Cal.App.4th at p. 1553.)

The court in McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn., supra, 231 Cal.App.3d at page 1456, was faced with a situation where both sides claimed attorney's fees as an item of section 1032 costs and held: "We emphatically reject the contention that the prevailing party for the award of costs under section 1032 is necessarily the prevailing party for the award of attorneys' fees. Civil Code section 1717 declares the party recovering a greater relief in the action on the contract is the prevailing party. But it further provides the trial court may 'determine that there is no party prevailing on the contract for purposes of [section 1717].' [Citation.]" (Italics omitted.) Sears v. Baccaglio (1998) 60 Cal.App.4th 1136 , 70 Cal.Rptr.2d 769

We need not consider whether one party can be the prevailing party for purposes of costs under Code of Civil Procedure section 1032 while another is determined to have prevailed for purposes of awarding fees on a contract claim under Civil Code section 1717, although that result is one of the permutations suggested by the differences between the statutes. The question here is the extent of the discretion available under each statute and whether one is to be preferred in its application to contract claims.

[4] We think the latter question was correctly answered by the court in McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn., supra, 231 Cal.App.3d at page 1456 when it said: Section 1717 is the applicable statute when determining whether and how attorney's fees should be awarded under a contract. It is the statute that expressly deals with attorney's fees under a contract, and to apply section 1032 in such cases would obviate section 1717. (See Levine v. Pollack (1995) 37 Cal.App.4th 129, 138 [43 Cal.Rptr.2d 491] [" 'A statute must be construed in the context of the entire statutory scheme of which it is a part, in order to achieve harmony among the parts. [Citation.] Also to be considered is the maxim that " '... statutes should be interpreted in such a way as to make them consistent with each other, rather than obviate one another.' " [Citation.]' [Citation.] Moreover, a statute must be construed ' " 'in context, keeping in mind the statutory purpose, and statutes or statutory sections relating to the same subject must be harmonized, both internally and with each other, to the extent possible' " [Citation.]' [Citations.]"].)

We also conclude the only practical difference in the discretion permitted under Code of Civil Procedure section 1032's guidelines is found in the lower initial threshold provided by Civil Code section 1717, which does not [60 Cal.App.4th 1158] require the court to begin by determining whether there has been a net monetary recovery, dismissal or stalemate. Both statutes reserve to the court the final determination of who prevailed. The impact of section 1032 may be seen to prioritize the inquiry in order to quickly allocate the costs attendant to simple money judgments and pretrial dismissals, which probably represent the majority of cases, while arming the court to guard against the inequity of fees being collected by a party who was, for all intents and purposes, the loser. The court cannot ignore the criteria described by section 1032; but where section 1032 is inapplicable or where these criteria are found ill-suited, the court should begin its inquiry in any contract action with the provisions of section 1717 and be guided in the proper exercise of its discretion by the equitable principles fundamental to that section.

Civil Code section 1717's definition of prevailing party depends upon an equitable determination of which party obtained "a greater relief in the action" (id. subd. (b)(1)) and permits the court to find no party prevailed. Code of Civil Procedure section 1032 requires a prevailing party to be identified but also allows the court, in its discretion, to determine how the section may apply and, even in those "situations other than as specified" (id. subd. (a)(4)) to fix the amount of costs to be received or apportioned between the parties. Thus, section 1032 does not supplant or conflict with section 1717, but rather provides complementary discretion for the award of statutory costs, including fees where they may properly be considered as costs. The historical context of the various statutes and amendments establishes section 1717 as the fundamental statute to be applied to fees and costs claimed under a contract. Section 1717 was properly applied here.
Sears v. Baccaglio (1998) 60 Cal.App.4th 1136 , 70 Cal.Rptr.2d 769

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