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Frog Creek Partners, LLC v. Vance Brown

May 24, 2012

FROG CREEK PARTNERS, LLC, PLAINTIFF, CROSS-DEFENDANT, AND RESPONDENT,
v.
VANCE BROWN, INC., DEFENDANT, CROSS-COMPLAINANT, AND APPELLANT.



Superior Court of San Mateo County, No. CIV445004, Rosemary Pfeiffer, Judge Super. Ct. No. CIV445004)

The opinion of the court was delivered by: Simons, Acting P.J.

CERTIFIED FOR PUBLICATION

(San Mateo County

Two parties enter into a contract with an arbitration clause and a separate attorney fee provision. A dispute arises, a lawsuit is filed, and the defendant petitions to compel arbitration. Under Civil Code section 1717, if the plaintiff defeats that petition, is it entitled to recover attorney fees, even if the plaintiff ultimately loses the substantive contractual dispute? This court considered an analogous question in Green v. Mt. Diablo Hospital Dist. (1989) 207 Cal.App.3d 63 (Green). There, albeit with relatively little discussion, we held that a party's request for Civil Code section 1717 attorney fees for defeating a petition to compel arbitration filed in a pending lawsuit was "premature." (Green, at pp. 76-77.) In the present case, we reaffirm Green's holding in light of the relevant legislative history and more recent case law. In particular, we hold that, under Civil Code section 1717, there may only be one prevailing party entitled to attorney fees on a given contract in a given lawsuit.*fn1 On that basis, we reverse the trial court's fee award, which awarded attorney fees to both parties on the same contract in the same lawsuit. On remand, we direct the court to award appellant Vance Brown, Inc. (Brown), reasonable attorney fees for the proceedings on its first petition to compel arbitration, which need not be in the amount requested by Brown. We also direct the court to award Brown reasonable attorney fees on the present appeal.

BACKGROUND*fn2

Brown agreed to build a multi-million dollar home for Jeffrey Drazan, the managing director of a venture capital firm, Sierra Ventures. Drazan formed his own limited liability company, Frog Creek Partners, LLC (Frog Creek), to manage the construction project. Brown began constructing Drazan's home on September 18, 2002, before a written contract had been executed. On September 20, Brown presented Frog Creek with a draft contract that included a dispute resolution provision requiring mediation of all disputes followed, if necessary, by arbitration of all disputes involving $50,000 or less. On September 24, Norman McKay, counsel for Frog Creek, responded with a five-page letter suggesting various changes to the contract, including elimination of the $50,000 cap on disputes subject to arbitration.

The suggested change to the dispute resolution provision was made by Brown in a subsequent draft of the contract. A number of drafts passed between the parties, and Brown made several other changes at Frog Creek's request. Frog Creek was given a typewritten version of the contract and made a number of handwritten notations and changes, none of which affected the dispute resolution provision. Drazan signed this version of the contract in late 2002. He was not represented by counsel at that time.

Brown's president signed a "clean" version of the typewritten contract that did not contain the handwritten changes that had been made by Frog Creek to its version.*fn3 The appellate record does not include a single version of the contract containing signatures of representatives of both parties, and the parties have not presented separate but identical signed versions of the contract. The dispute resolution, arbitration, and attorney fee provisions in each party's version of the contract are identical.

Frog Creek filed this suit against Brown seeking damages for breach of contract, conversion, and other causes of action arising out of the construction project. The first amended complaint alleged in relevant part that, in December 2002, Frog Creek and Brown entered into a written construction agreement entitled "Construction Agreement for the Residence at 3 Bridle Lane, Woodside, California" (hereafter, Contract), under which Brown agreed to construct certain improvements on the real property. It further alleged a true and correct copy of the Contract was attached to the first amended complaint as exhibit A. Frog Creek's version of the Contract, the version with the handwritten notations, was the document attached to the first amended complaint as exhibit A.

In March 2005, Brown filed a petition to compel arbitration under Code of Civil Procedure section 1281.2, attaching two typewritten contract pages specifically addressing dispute resolution.*fn4 At the same time, Brown filed a cross-complaint asserting causes of action for breach of contract, quantum meruit, and foreclosure of its mechanic's lien. No full copy of the Contract was attached to the cross-complaint; instead, the cross-complaint attached only the same two-page dispute resolution provision attached to the petition to compel arbitration. Ultimately, Brown produced its version of the Contract in support of its petition to compel arbitration, i.e., the version that was signed only by Brown's president and did not contain Frog Creek's interlineations. The trial court denied the petition to compel.

Brown appealed and, in July 2006, this court affirmed the trial court's order in Frog Creek I. We reasoned that Brown's petition was based on the arbitration clause contained in Brown's version of the Contract, which Frog Creek had never signed and to which no mutual assent could be found. We specifically noted that we took no position on whether Frog Creek's version of the Contract was a binding agreement or whether the parties were required to arbitrate under the Contract.

Following issuance of this court's opinion in Frog Creek I, Brown filed a renewed petition to compel arbitration based on Frog Creek's version of the Contract, which Brown stipulated was "the controlling agreement" between the parties regarding the construction of the home. Frog Creek opposed the petition, arguing that it was not properly before the trial court because there had been no changed circumstances as required by Code of Civil Procedure section 1008, that there was no valid agreement to arbitrate, and that if an arbitration agreement existed it was unconscionable. The trial court denied the petition, but, in December 2007, this court reversed in Frog Creek II and directed the trial court to stay the proceedings and send the dispute to arbitration.

Following 50 days of arbitration hearings, an American Arbitration Association panel issued a 65-page decision awarding Brown damages against Frog Creek of $1,905,902.90, plus $2,517,687.31 in attorney fees for the arbitration proceeding and $666,422.78 in costs. The arbitrators declined to rule on whether attorney fees and costs might be awarded for litigation activity before the arbitration. Frog Creek paid the arbitration award in February 2010, and the trial court entered judgment on it on April 7, 2010.

On May 17, 2010, Brown filed a motion for attorney fees and costs pursuant to Civil Code section 1717, seeking $998,260 in prearbitration and postarbitration costs and fees, including attorney fees for its unsuccessful March 2005 petition to compel arbitration and the Frog Creek I appeal. On May 20, Frog Creek filed a motion for $229,510.75 in attorney fees and costs pursuant to section 1717 in connection with its successful opposition to that petition and the Frog Creek I appeal. Frog Creek argued it was the "prevailing party" on Brown's unsuccessful effort to compel arbitration under Brown's version of the Contract.

In July 2010, the trial court entered its order on attorney fees. The court determined that Brown was the prevailing party in the arbitration and awarded Brown prearbitration attorney fees of $692,293 and postarbitration fees of $96,000. The court determined that Frog Creek was the prevailing party on the initial petition to arbitrate and awarded Frog Creek attorney fees of $125,000, including fees for the Frog Creek I appeal. The court denied Brown the $128,000 in attorney fees that Brown had sought for those proceedings. The net award of prearbitration and postarbitration attorney fees to Brown was $663,293. This appeal followed.

DISCUSSION

Brown contends the trial court erred in granting Frog Creek attorney fees in the amount of $125,000 for successfully opposing Brown's March 2005 petition to compel arbitration and prevailing in the Frog Creek I appeal. Brown also makes the related contention the court erred in denying Brown attorney fees in the amount of $128,000 for those proceedings. " 'On appeal this court reviews a determination of the legal basis for an award of attorney fees de novo as a question of law.' [Citation.]" (Butler-Rupp v. Lourdeaux (2007) 154 Cal.App.4th 918, 923 (Butler-Rupp).)

Civil Code section 1717 governs awards of attorney fees based on a contract and authorizes an award of attorney fees "[i]n any action on a contract" to "the party prevailing on the contract" if the contract provides for an award of attorney fees. (§ 1717, subd. (a).)*fn5 "[T]he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract." (§ 1717, subd. (b)(1).) The legislative history to section 1717 "generally reflects a legislative intent to establish uniform treatment of fee recoveries in actions on contracts containing attorney fee provisions and to eliminate distinctions based on whether recovery was authorized by statute or by contract." (Santisas v. Goodin (1998) 17 Cal.4th 599, 616 (Santisas).) The determination of which party prevailed in an action on a contract is within the discretion of the trial court. (Hsu v. Abbara (1995) 9 Cal.4th 863, 871 (Hsu).)

The critical issue of statutory interpretation in the present case is whether Frog Creek's success in defeating Brown's March 2005 petition to compel arbitration under Code of Civil Procedure section 1281.2 made Frog Creek "the party who recovered a greater relief in the action on the contract" within the meaning of Civil Code section 1717, such that the trial court could award Frog Creek fees for prevailing on the petition and also award Brown fees for prevailing on the underlying contract claims. Frog Creek argues the petition to compel arbitration was a distinct "action on a contract" within the meaning of Civil Code section 1717, but Brown contends the petition and subsequent appeal were "really just a forum fight" that could not provide a basis for a separate attorney fee award.

" '[I]n construing a statute, a court [must] ascertain the intent of the Legislature so as to effectuate the purpose of the law.' [Citation.] In determining that intent, we first examine the words of the respective statutes: 'If there is no ambiguity in the language of the statute, "then the Legislature is presumed to have meant what it said, and the plain meaning of the language governs." [Citation.] "Where the statute is clear, courts will not 'interpret away clear language in favor of an ambiguity that does not exist.' [Citation.]" ' [Citation.] If, however, the terms of a statute provide no definitive answer, then courts may resort to extrinsic sources, including the ostensible objects to be achieved and the legislative history. [Citation.] 'We must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences.' [Citation.]" (People v. Coronado (1995) 12 Cal.4th 145, 151.)

As noted previously and described in greater detail below (part II.B., pp. 17-21), in Green, supra, 207 Cal.App.3d at pages 76-77, this court held that a party was not entitled to attorney fees under Civil Code section 1717 for defeating a petition to compel arbitration filed in a pending lawsuit. Green followed the decision in Lachkar v. Lachkar (1986) 182 Cal.App.3d 641, 648-649 (Lachkar), which held that a party was not entitled to attorney fees for prevailing on a petition to compel arbitration, where the arbitration had not yet taken place. However, because of subsequent amendments to section 1717, neither Green nor Lachkar discussed the specific language at issue in the present case, including the definition of "party prevailing on the contract" as "the party who recovered a greater relief in the action on the contract." Moreover, recent case law has suggested that these changes in the statutory language have superseded Lachkar (and, by implication, Green). Thus, we re-examine the foundation for the holding in Green in light of the legislative history and more recent case law.

In this decision, we first examine the evolution of the definition of prevailing party in Civil Code section 1717, including Lachkar's analysis of aspects of the legislative history. Second, we address cases that have considered requests for attorney fees under section 1717 in the context of disputes over arbitrability, including this court's decision in Green. Third, we discuss cases from outside the arbitration context, to the extent they shed light on whether there can be more than one prevailing party on a given contract in a given lawsuit. Fourth, we distinguish the present case from those cases in which courts have awarded fees to multiple prevailing parties on multiple contracts involved in a single lawsuit. Finally, we address Acosta v. Kerrigan (2007) 150 Cal.App.4th 1124 (Acosta), which held that a party was entitled to attorney fees for prevailing on a petition to compel arbitration based on specific contractual language, rather than under section 1717. We disagree with the rationale of Acosta and, in any event, find it inapplicable in the present case. Ultimately, we conclude that Brown, rather than Frog Creek, was entitled to fees under section 1717 for the proceedings on the March 2005 petition. We reverse the fee award to Frog Creek and remand for the trial court to award reasonable fees to Brown for those proceedings and the present appeal.

I. The Evolution of the Definition of Prevailing Party in Civil Code Section 1717 Supports a Conclusion That There May Only Be One Prevailing Party on a Contract in a Given Lawsuit

We begin by examining the evolution of the definition of prevailing party in Civil Code section 1717. The court in Lachkar, supra, 182 Cal.App.3d at page 648, summarized part of the relevant legislative history as follows: "As originally enacted, section 1717 defined the prevailing party as the party in whose favor final judgment was rendered. The 1981 Legislature changed the definition of prevailing party such that except for the situations set out in subdivision (b)(2) of the section, the prevailing party is the party entitled to costs. The amendment appears to be a direct legislative response to Samuels v. Sabih (1976) 62 Cal.App.3d 335, 340, ...


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