California Court of Appeals, Fourth District, Third Division
MESA SHOPPING CENTER-EAST, LLC et al., Plaintiffs and Respondents,
ROBERT O HILL et al., Defendants and Appellants.
Appeal from a judgment and postjudgment orders of the Superior Court of Orange County No. 30-2011-00451572, Linda Marks, Judge.
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Law Office of Kimberly A. Knill, Kimberly A. Knill; Call & Jensen and David R. Sugden for Defendants and Appellants.
Weintraub Tobin, Gary A. Waldron, and Sherry S. Bragg for Plaintiffs and Respondents.
“[T]he party prevailing on the contract” in a breach of contract action is entitled to recover reasonable attorney fees if the contract “specifically provides” for such recovery. (Civ. Code, § 1717, subd. (a); see Code Civ. Proc., § 1033.5, subd. (a)(10)(A).) But “there shall be no prevailing party” if “an action has been voluntarily dismissed” (Civ. Code, § 1717, subd. (b)(2)),
something plaintiffs may do without prejudice before “the actual commencement of trial.” (Code Civ. Proc., § 581, subds. (b)(1), (c).) 
We are faced with applying these rules in a context not yet addressed in the case law. Plaintiffs sought declaratory and injunctive relief against defendants in this action. But the complaint explicitly acknowledged it was “ancillary to” contemplated private arbitration of disputes arising out of the parties’ contractual relationship. The court denied plaintiffs’ motion for a preliminary injunction and the parties stipulated to stay the action “pending arbitration.” Plaintiffs voluntarily dismissed this action (purportedly without prejudice) after the arbitral claims were submitted for final resolution and the arbitrator had issued an interim award favorable to defendants. The interim arbitral award was shortly thereafter made final without substantive revision, except for adding plaintiff’s attorney fees and costs incurred in the arbitration.
The court denied defendants’ motion to vacate the dismissal, reasoning that the arbitration and this case were separate proceedings and that plaintiffs had dismissed this action before trial commenced. We disagree and therefore reverse. This lawsuit was based on the same causes of action submitted to the arbitrator; it differed only in the remedies sought (i.e., injunctive relief in court, damages from the arbitrator). Once the hearing on the merits of the parties’ dispute commenced at the arbitration, it was too late for plaintiffs to dismiss this action without prejudice and thereby avoid an attempt by defendants to recover attorney fees as the prevailing party in this action.
The Parties’ Contractual Relationship
Approximately 20 years ago, plaintiffs and defendants together purchased two adjacent parcels in Newport Beach on which private golf and tennis clubs were the allowed and existing uses (the Properties). Defendant Robert O Hill purchased 50 percent of the Properties through two of his companies, which are also defendants in this action; we shall refer to defendants collectively as the O Hill Investors. Plaintiffs Mesa Shopping Center-East, LLC, Mira Mesa Shopping Center-West, LLC, and The Fainbarg Trust dated April 19, 1982 purchased the remaining shares of the Properties; we shall refer to plaintiffs collectively as the Mesa Investors.
The parties agreed to two nearly identical contracts to govern ownership and management issues at each of the Properties (the Agreements). One of
the O Hill Investors was designated as the managing owner, whose tasks included paying expenses, maintaining books and records, preparing status and financial reports, and distributing cash generated by operations.
The Agreements both stated, “ALL DISPUTES ARISING UNDER THIS AGREEMENT WILL BE RESOLVED BY SUBMISSION TO ARBITRATION AT THE ORANGE COUNTY OFFICES OF JUDICIAL ARBITRATION & MEDIATION SERVICES, INC. (‘JAMS’) FOR BINDING ARBITRATION.” “NOTHING IN THIS PARAGRAPH SHALL IN ANY WAY LIMIT OR OTHERWISE RESTRICT A PARTY’S RIGHT OR ABILITY TO OBTAIN INJUNCTIVE RELIEF OR APPOINTMENT OF A RECEIVER THROUGH THE COURT SYSTEM.”
The Agreements also provided, “Should any dispute arise between the parties hereto or their legal representatives, successors or assigns concerning any provision of this Agreement or the rights and duties of any person in relation thereto, the party prevailing in such dispute shall be entitled, in addition to such other relief that may be granted, to reasonable attorneys fees and legal costs in connection with such dispute. For purposes of this Paragraph, a dispute shall include, but not be limited to, an arbitration proceeding or a court action for injunctive relief.”
Complaint and Application for Preliminary Injunction
On February 18, 2011, the Mesa Investors filed a complaint against the O Hill Investors. The complaint featured two causes of action, each one devoted to a property and its accompanying Agreement. Each cause of action was characterized as a request for declaratory and injunctive relief. The basic allegations were the same in both causes of action: (1) The O Hill Investors violated the Agreements and their fiduciary duties to the Mesa Investors by spending money on obtaining entitlement changes to the Properties (e.g., general plan and zoning amendments) without the permission of the Mesa Investors; (2) the O Hill Investors used rents generated by the Properties to fund these projects; (3) the O Hill Investors ignored repeated objections to their management of the Properties by the Mesa Investors since 2008; and (4) the O Hill Investors failed to provide sufficient access to financial records pertaining to the Properties. In their prayer for relief, the Mesa Investors sought judicial determinations as to the parties’ rights under the Agreements in connection with the O Hill Investors’ disputed conduct, as well as injunctive relief (both preliminary and permanent) and attorney fees pursuant to the Agreements.
The complaint quoted the arbitration clauses in the Agreements. The complaint explained, “[T]he injunctive relief sought in this Complaint is
properly before this Court, and while this action is ancillary to an anticipated Demand for Arbitration to be filed by Plaintiffs with [the JAMS] shortly hereafter, immediate injunctive relief from this Court is necessary and proper to protect the rights and interests of the Plaintiffs....”
Less than a week after filing the complaint, the Mesa Investors applied for a preliminary injunction. At the end of April 2011, the parties stipulated and the court ordered “that, with the exception of [the Mesa Investors’] pending Motion for Preliminary Injunction, the above-captioned action is stayed pending arbitration of any claims and disputes between [the Mesa Investors], on the one hand, and [the O Hill Investors], on the other hand, arising under the Agreement.”
The court denied the Mesa Investors’ motion for preliminary injunction on May 20, 2011, finding “no irreparable harm shown by” the Mesa Investors. The court also observed, “This dispute appears to be one of breach of contract that should be resolved by arbitration by the parties under the terms of their agreement.” Thereafter, the parties repeatedly ...