Damian v. Tamondong

review. It presents an issue of first impression: whether the defendant in a deficiency action brought under the Rees-Levering Automobile Sales Finance Act (Civ. Code, § 2981 et seq.) (hereinafter, the Rees-Levering Act or the Act)^[1] can be the “prevailing party” for purposes of awarding attorney fees pursuant to section 2983.4^[2] where, prior to trial, the plaintiff has voluntarily dismissed the underlying contract-based action without prejudice.

Because neither the Rees-Levering Act nor section 2983.4 defines the term “prevailing party,” respondent L. Damian urges us to look to section 1717, subdivision (b)(2)—which provides that there is “no prevailing party for purposes of [section 1717]” where an action has been voluntarily dismissed—and, on that basis, affirm the order of the municipal court denying appellant Romana D. Tamondong’s request for attorney fees.^[3] In a supplemental letter brief, Damian further contends that our Supreme Court’s recent decision in Santisas v. Goodin (1998) 17 Cal.4th 599 [ 71 Cal.Rptr.2d 830 , 951 P.2d 399 ] (Santisas) compels such a result.

Tamondong claims she is a “defendant in whose favor a dismissal [was] entered” within the meaning of Code of Civil Procedure section 1032, subdivision (a)(4), and is, thus, a “prevailing party” entitled to an award of attorney fees “as a matter of right” {id., subd. (b)), and as an element of her “costs” (id., § 1033.5, subd. (a)(10)(B)). In her supplemental letter brief, Tamondong contends that Santisas has no bearing on this case because the source of her right to recover attorney fees is not a contract, but rather a fee-shifting statute, i.e., section 2983.4.

Relying on Heather Farms Homeowners Assn. v. Robinson (1994) 21 Cal.App.4th 1568 [ 26 Cal.Rptr.2d 758 ] {Heather Farms) and its reading of the legislative history of section 2983.4, the appellate department rejected both parties’ arguments^[4] and held instead, without elaboration, that the determination of the “prevailing party” issue under a fee-shifting statute such as section 2983.4 must be resolved using a “pragmatic approach,” i.e., a determination of “which party had prevailed on a practical level.” (Heather Farms, supra, at p. 1574.) The appellate department was concerned, inter

Cal.Rptr.2d 526 ], quoting Coast Bank v. Holmes (1971) 19 Cal.App.3d 581 , 597, fn. 3 [ 97 Cal.Rptr. 30 ], citing § 1811.1 [Installment Sales Contracts]; § 2983.4 [Conditional Sales Contracts]; § 1794.1 [Sale Warranties of Consumer Goods]; § 1812.94 [Health Studio Contracts]; former § 1732 [Swimming Pool Construction Contracts]; see also Joseph Magnin Co. v. Schmidt (1978) 89 Cal.App.3d Supp. 7 , 10 [ 152 Cal.Rptr. 523 ] [section 1811.1 was designed to encourage attorneys to accept cases when the buyer has a good defense].) However, as we will explain, Damian focuses too heavily upon the similarities and ignores a fundamental difference between sections 2983.4 and 1717, the only two of these statutes truly at issue in this case.

Damian’s analysis of the early legislative history of these statutes is also flawed. Damian ascribes great significance to the Legislature’s failure to adopt language—which was included as part of section 1717 when it was first proposed as Assembly Bill No. 563 in 1968, and would have been added by the same bill as an amendment to sections 1811.1 and 2983.4— defining the term “prevailing party” as “including a defendant as to whom the action is dismissed.” (See Assem. Bill No. 563 (1968 Reg. Sess.) Feb. 14, 1968.)^[5] Nothing in the legislative history provided by Damian explains either why this language was originally proposed or why it was dropped. Nevertheless, Damian contends it would be error for us to infer that the Legislature did indirectly (i.e., defined “prevailing party” for purposes of section 1811.1 and 2983.4 as “including a defendant as to whom the action is dismissed”) what it declined to do directly. We disagree.

When it enacted sections 1811.1 and 2983.4, the Legislature was undoubtedly aware of existing statutes which already provided an award of costs to

a prevailing defendant, including one “as to whom the action is dismissed,”^[6] and case law which had long recognized that attorney fees awarded pursuant to statute were recoverable as “costs” of suit (Woodward v. Bruner (1951) 104 Cal.App.2d 83 , 85 [ 230 P.2d 861 ]; City Investment Co. v. Pringle (1920) 49 Cal.App. 353 , 355 [ 193 P. 504 ]),^[7] such that it was unnecessary to so define the term “prevailing party” for the new attorney fees statutes. Moreover, when it had the opportunity in 1968 to define the term “prevailing party” so as to make it uniform for sections 1811.1, 2983.4, and 1717, it declined to do so. Instead, it specifically limited the term “prevailing party” “as used in” section 1717 to mean “the party in whose favor final judgment is rendered” (Stats. 1968, ch. 266, § 1, p. 578), left the term undefined as to sections 1811.1 and 2983.4, and gave no indication that the limitation enacted for section 1717 was to apply to sections 1811.1 and 2983.4. The Legislature also considered, but rejected, the possibility of achieving uniformity among these three statutes by enacting a statutory fee-shifting provision that would have mandated an award of attorney fees to the “prevailing party” in any action on any contract—a complete reversal^[8] of the so-called “ ‘American Rule’ ” (see Santisas, supra, 17 Cal.4th at p. 607, fn. 4; City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105 , 115 & fn. 7 [ 48 Cal.Rptr.2d 42 , 906 P.2d 1196 ]; Trope v. Katz (1995) 11 Cal.4th 274 , 278-279 [ 45 Cal.Rptr.2d 241 , 902 P.2d 259 ]; Sears v. Baccaglio (1998) 60 Cal.App.4th 1136 , 1143-1144 [ 70 Cal.Rptr.2d 769 ] (Sears)) for all contract actions. But again, it declined to do so. The net result of this early legislative history, to the extent it is coherent, suggests that the Legislature intended to reverse the “American Rule” by statute as to specific types of contracts— including those subject to the Unruh and Rees-Levering Acts—but only to accomplish reciprocity as to other types of contracts in which the parties agreed to a fee-shifting provision. (See Sears, supra, 60 Cal.App.4th at pp. 1143-1144.)

Of course, section 1717 was amended in 1981, in part to codify the holding of International Industries, Inc. v. Olen (1978) 21 Cal.3d 218 [ 145 Cal.Rptr. 691 , 577 P.2d 1031 ] (Olen), wherein our Supreme Court held— based on considerations of equity and public policy—that there can be no “prevailing party” in an action subject to section 1717 where the plaintiff has voluntarily dismissed an action on a contract. (Santisas, supra, 17 Cal.4th at p. 616; Hsu v. Abbara, supra, 9 Cal.4th at p. 873.) At that time, the Legislature added subdivision (b) to section 1717, as follows: “(b)(1) The court, upon notice and motion by a party, shall determine who is the prevailing party, whether or not the suit proceeds to final judgment. Except as provided in paragraph (2), the prevailing party shall be the party who is entitled to recover costs of suit. [^D (2) Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section. HD Where the defendant alleges in his or her answer that he or she tendered to the plaintiff the full amount to which he or she was entitled, and thereupon deposits in court, for the plaintiff, the amount so tendered, and the allegation is found to be true, then the defendant is deemed to be a prevailing party within the meaning of this section.” (Stats. 1981, ch. 888, § 1, p. 3399, eff. Sept. 28, 1981.)^[9]

Damian appears to suggest that, by enacting subdivision (b) of section 1717, the Legislature intended to limit the definition of the “prevailing party” in all voluntarily dismissed contract actions, including those subject to the Unruh Act or Rees-Levering Act. This argument finds no support in the legislative history of the 1981 amendments to section 1717. On the contrary, section 1717(b)(2) was specifically formulated to limit the definition of prevailing party “for purposes of this section,” by excluding from the range of possibilities a finding that a defendant in an action subject to that section could be found to have prevailed where the plaintiff voluntarily dismissed the action. On the other hand, the Legislature considered and expressly incorporated into section 1717 some language it had previously included in sections 1811.1 and 2983.4, thereby expanding the class of defendants who could be found to be “prevailing parties” for purposes of section 1717 to those who could plead and prove that they “tendered to the plaintiff the full amount to which he or she was entitled, and thereupon deposited] in court for the plaintiff, the amount so tendered . . . .” But here again, the Legislature declined an opportunity to make uniform the attorney fees provisions of sections 1811.1, 2983.4, and 1717.

Regardless of the foregoing legislative history, there remains a fundamental difference between section 1717, on the one hand, and sections 1811.1 and 2983.4, on the other: The latter are independent statutory sources of attorney fees in contract-based actions, whereas the former gives rise to a right to recover attorney fees only if the contract on which the action is based contains an attorney fees provision. We have no doubt that when the Legislature enacted section 2983.4, it intended to ensure reciprocity when dealers included attorney fees provisions in automobile sales contracts subject to the Rees-Levering Act. But section 2983.4 goes beyond that objective by providing an award of attorney fees to the “prevailing party” in such cases regardless of whether the parties to the action had a prior agreement about allocation of responsibility for fees in the event of a dispute. Nothing in the legislative history on which Damian relies, or in any of the case law, even remotely suggests that the Legislature intended a different outcome on attorney fees for those parties to a Rees-Levering Act who had made no “agreement” on that issue and those who did.^[10]

As the appellate department observed, numerous California courts have held that section 1717 does not control upon dismissal of an “action on a contract” where a fee-shifting statute, as opposed to a contract, authorizes an award of attorney fees.^[11] (See, e.g., Heather Farms, supra, 21 Cal.App.4th at p. 1572.) Thus, attorney fees may be awarded as sanctions under Code of Civil Procedure section 128.5 even after the plaintiff has voluntarily dismissed what was, in essence, a contract action. (West Coast Development v. Reed, supra, 2 Cal.App.4th at p. 706.) Similarly, in an action brought under the Consumer Legal Remedies Act (§ 1750 et seq.) and the Song-Beverly Consumer Warranty Act, commonly known as the California “Lemon Law” (§ 1790 et seq.), our colleagues in the Fourth Appellate District have noted that section 1717 does not preclude a fee award to a prevailing plaintiff after pretrial dismissal of an action subject to those statutes and their fee-shifting provisions. (Reveles v. Toyota by the Bay (1997) 57 Cal.App.4th 1139 , 1150-1151, 1154 [ 67 Cal.Rptr.2d 543 ].) Other courts have rejected attempts to import the section 1717(b)(2) definition of “prevailing party” into other statutes which provide for a fee award on that basis. (Adler v. Vaicius (1993)

party only for ‘costs’ under that section and does not purport to define it for other statutes.”].)^[12]

Of course, the Heather Farms court observed that the definitions of “prevailing party” found in section 1717(b), and in Code of Civil Procedure section 1032, subdivision (a), might nevertheless be persuasive as to the meaning intended in section 1354 under the principle that similar language used in statutes “in pari materia” (i.e., in statutes dealing with the same subject matter), should be given similar effect. (Heather Farms, supra, 21 Cal.App.4th at pp. 1572-1573.) Ultimately, however, the Heather Farms court eschewed reliance on both provisions because they provide “conflicting definitions of the critical term,” and because neither party had supplied a principled reason for selecting one definition over the other. {Ibid..) Instead, the court examined case law utilizing a “pragmatic approach” to determine who is a “prevailing party” under other fee-shifting statutes with language similar to that of section 1354, subdivision (f). (Heather Farms, supra, 21 Cal.App.4th at pp. 1573-1574, citing Donald v. Cafe Royale, Inc., supra, 218 Cal.App.3d at p. 185; Elster v. Friedman (1989) 211 Cal.App.3d 1439 , 1444 [ 260 Cal.Rptr. 148 ]; Winick Corp. v. Safeco Insurance Co., supra, 187 Cal.App.3d at pp. 1506-1508.)

There is, however, a critical difference between Heather Farms and the instant case. In Heather Farms, there was no attorney fees provision in the CC&R’s or in any of the other governing documents involved in the action, and the dismissed defendant was seeking fees only under a statute, i.e., section 1354. (21 Cal.App.4th at p. 1572.) Here, although Tamondong avers that her attorney fees claim is based solely on section 2983.4, it is nevertheless true that the loan agreement she signed contained an attorney fees clause—albeit a unilateral one. Damian contends that the mere existence of an attorney fees provision in the sales contract brings this case within section

1717 and requires us to find, in accordance with section 1717(b)(2), that there was no prevailing party after the voluntary dismissal in this case.

There is broad language in Santisas which, taken out of context, may be read to support Damian’s position. After recounting the legislative history of section 1717, and amendments thereto, the Santisas court held: “[S]ection 1717 applies to contracts containing reciprocal as well as unilateral attorney fee provisions, including provisions . . . authorizing recovery of attorney fees by a ‘prevailing party.’ ” (Santisas, supra, 17 Cal.4th at p. 614.)^[13] The Supreme Court further noted that, “The operative language of section 1717 states that it applies ‘[i]n 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 . . . .’ [Citation.] Consistent with this language, this court has held that section 1717 applies only to actions that contain at least one contract claim. [Citations.]” (17 Cal.4th at p. 615, italics in original.) The Santisas court further reasoned: “Because plaintiffs’ complaint includes a claim for breach of contract within the scope of section 1717, we must look to section 1717 to determine whether the seller defendants are ‘part[ies] prevailing on the contract’ who may recover attorney fees incurred in the defense of that claim.” (17 Cal.4th at p. 615.) Thus, although the seller defendants in Santisas were the “prevailing” parties both for purposes of the general cost statutes (Code Civ. Proc., § 1032, subd. (a)(4)), and—as a matter of contract interpretation—within the meaning of the reciprocal attorney fees provision in the real estate purchase agreement (in the ordinary or popular sense of that term, as the parties who succeeded in their litigation objective), section 1717 barred them from recovering attorney fees incurred to defend the “causes of action sounding in contract and based on a contract containing an attorney fees provision” because the plaintiff voluntarily dismissed those causes of action, among others. (17 Cal.4th at p. 617.)

But those statements from Santisas have meaning only in the context of the case in which they were made. As the Santisas court itself noted: “An appellate decision is not authority for everything said in the court’s opinion but only ‘for the points actually involved and actually decided.’ [Citations.]” (17 Cal.4th at p. 620.) In Santisas, the defendants asserted a “contractually based right” to recover attorney fees “arising from an express provision of the real estate purchase agreement” at issue in that case, so as to bring the

is a “defendant in whose favor a dismissal [was ] entered” (Code Civ. Proc., § 1032, subd. (a)(4)), and, thus, “entitled as a matter of right” to an award of attorney fees as part of her costs pursuant to Code of Civil Procedure sections 1032, subdivision (b), and 1033.5, subdivision (a)(10)(B). As we understand the Supreme Court’s holding in Santisas, supra, 17 Cal.4th 599 , recoverable litigation costs do include attorney fees when the party entitled to costs has an independent statutory basis upon which to claim recovery of attorney fees. (See 17 Cal.4th at pp. 606-607.) In this case, an award of attorney fees is clearly “authorized by” section 2983.4 and is, thus, an item of litigation “costs” recoverable “as a matter of right” by a “prevailing party,” including “a defendant in whose favor a dismissal is entered.” (Code Civ. Proc., §§ 1032, subds. (a), (b), 1033.5, subd. (a)(10)(B).)

However, we are not prepared to hold that every defendant as to whom a voluntary dismissal has been entered is also invariably a “defendant in whose favor a dismissal is entered” (Code Civ. Proc., § 1032, subd. (a)(4), italics added), and, therefore, as a matter of law, the “prevailing party” for purposes of a statutory fee award.^[14] As our Supreme Court observed in Santisas, “[I]t seems inaccurate to-characterize the defendant as the ‘prevailing party’ if the plaintiff dismissed the action only after obtaining, by means of settlement or otherwise, all or most of the requested relief, or if the plaintiff dismissed for reasons, such as the defendant’s insolvency, that have nothing to do with the probability of success on the merits.” (17 Cal.4th at p. 621.)^[15] The Heather Farms court also recognized that a defendant as to whom the plaintiff has voluntarily dismissed is not necessarily the “prevailing party” in the action. (21 Cal.App.4th at p. 1574 [dismissal was more the result of obdurate behavior on the part of the defendant rather than any successful legal strategy].) On the other hand, it is certainly possible to view a dismissal as having been entered “in favor” of a defendant where a “plaintiff with only a marginal chance at recovery [has] invested] only the filing fee to commence an action, [and] forc[ed] the opposing party to engage in expensive discovery, only to dismiss the action prior to final judgment when it appeared the case was sinking, Titanic-like, beneath the waves of overwhelming adverse evidence.” (Catello v. I.T.T. General Controls, supra, 152 Cal.App.3d at p. 1013.)