Burkhalter Kessler Clement & George LLP v. Hamilton

Burkhalter Kessler Clement & George LLP (Burkhalter) subleased a portion of its office space to the Eclipse Group LLP (Eclipse). The sublease contract had a provision for an award of reasonable attorney fees to

In May 2015, Eclipse and Hamilton filed a joint demurrer to the complaint. At all times Eclipse and Hamilton were jointly represented by Avyno. As to Hamilton, the demurrer generally alleged that Burkhalter had failed to adequately plead its alter ego theory. The court agreed and found that Burkhalter's alter ego allegations were "conclusory. They amount to little more than recitation of the elements necessary for imposition of alter ego. [¶] However, the defendants have jointly demurred. When several defendants file a joint demurrer, it will be overruled if the complaint is good against any of them. [Citation.]"

The First Amended Complaint

In November 2015, Hamilton moved for a judgment on the pleadings. Hamilton again generally alleged that Burkhalter had failed to adequately plead its alter ego allegation in its initial complaint. The trial court granted Hamilton's motion for a judgment on the pleadings, with leave to amend. Burkhalter filed a first amended complaint against Eclipse and Hamilton, again alleging (in greater detail) the alter ego theory against Hamilton.

In January 2016, Hamilton filed a separate demurrer to the first amended complaint. The trial court sustained "the general demurrer of defendant Jennifer Hamilton with leave to amend."

The Second Amended Complaint

In February 2016, Burkhalter filed a second amended complaint, this time naming only Eclipse as a defendant. The trial court granted a motion for summary judgment in favor of Burkhalter, with an award of attorney fees in an amount to be determined. Hamilton later moved for a dismissal with prejudice. The trial court granted the motion. The court stated that "failing to amend after the court sustains a demurrer with leave to amend results in a dismissal with prejudice."

Hamilton's Motion for Attorney Fees

In July 2016, Hamilton filed a motion asking the trial court "to enter judgment in her favor and, as the prevailing party, award her reasonable attorney fees in the amount of $105, 928.00 and verifiable costs." Hamilton attached supporting declarations and invoices. Avyno had split its attorney fees evenly between Eclipse and Hamilton. A few weeks later, the trial court filed its ruling. "The court grants the motion, in part. The court grants judgment in favor of Hamilton and permits her to recover costs under [California Rules of Court, rule] 3.1700, but not attorney's fees." Hamilton filed an appeal from the court's denial of her motion for attorney fees.

DISCUSSION

In civil litigation, "each party to a lawsuit ordinarily pays its own attorney

Khan v. Shim (2016) 7 Cal.App.5th 49 , 55, 212 Cal.Rptr.3d 292 .) "Thus, it is a discretionary trial court decision on the propriety or amount of statutory attorney fees to be awarded, but a determination of the legal basis for an attorney fee award is a question of law to be reviewed de novo." ( Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132 , 142, 118 Cal.Rptr.2d 569 .)

Here, the record is silent as to the trial court's rationale for denying Hamilton's motion for attorney fees. Burkhalter primarily argues that Hamilton was not a "prevailing party" within the meaning of section 1717, and therefore she is not legally entitled to any attorney fees. We disagree for reasons we shall review de novo.

However, to the extent that the trial court may have exercised its discretion regarding the "propriety or amount" of Hamilton's requested attorney fees, we are not being asked to address that issue in this appeal. Thus, we will leave it to the court's sound discretion on remand. (See Brown Bark III, L.P. v. Haver (2013) 219 Cal.App.4th 809 , 830, 162 Cal.Rptr.3d 9 [" 'The trial court ... is the best judge of the value of professional services rendered in its court ...' [citation] and allocation of

because it did not ultimately prevail on the breach of contract claim. ( Id . at pp. 531, 547, 141 Cal.Rptr.3d 834 .) However, the court noted that it was not "confronted with a contract involving more than two parties and have not considered how that would affect the application of Civil Code section 1717." ( Id . at p. 520, fn. 1, 141 Cal.Rptr.3d 834 .)

In this case, we are confronted with the situation left unconsidered in Frog Creek : the application of section 1717 when there are more than two parties in a lawsuit involving an alleged breach of a contract. We find the holding of an earlier appellate case, Pueblo Radiology Medical Group, Inc. v. Gerlach (2008) 163 Cal.App.4th 826 , 77 Cal.Rptr.3d 880 ( Pueblo Radiology ), to be directly on point.

In Pueblo Radiology , the plaintiff sued a corporation and two individuals for breach of contract; the complaint alleged that the individuals were liable under an alter ego theory. ( Pueblo Radiology , supra , 163 Cal.App.4th at p. 827, 77 Cal.Rptr.3d 880 .) The trial court bifurcated the alter ego claim and tried it before the substantive breach of contract claim. ( Id . at p. 828, 77 Cal.Rptr.3d 880 .) Following a 15-day bench trial, the trial court found that the two individuals were not the corporation's alter ego and entered a judgment in their favor. The individuals then successfully moved for contractual attorney fees before the trial on the substantive breach of contract claim against the corporation. ( Ibid . )

The appellate court approved of the trial court's award of attorney fees. ( Pueblo Radiology , supra , 163 Cal.App.4th at p. 829, 77 Cal.Rptr.3d 880 .) "The trial court's determination that [the individual defendants] were not the alter egos of the corporation effectively ended the case as to them. They were entitled to recover attorney fees under the contract." ( Ibid . ) The court reasoned that is an "accepted rule that attorney fees may be awarded to a defendant when a final determination has been made in defendant's favor. (See, e.g.,

have waited to file the motion for attorney fees until after the trial court had ruled on the motion for entry of judgment. But that is not required under section 1717. Further, Hamilton filed the motion for attorney fees after she had been dismissed from the lawsuit with prejudice. Moreover, Burkhalter was given notice of the motion for attorney fees, filed a written opposition, and the court ultimately ruled in its favor.

DISPOSITION

The trial court's order denying Hamilton's motion for attorney fees is reversed. On remand, the court is instructed to award Hamilton reasonable attorney fees that were incurred by Avyno solely in her defense, subject to the court's sound discretion. Costs on appeal are awarded to Hamilton.

WE CONCUR:

O'LEARY, P. J.

ARONSON, J.

fees and court costs as part of such action or proceeding."

The Initial Complaint

In April 2015, Burkhalter filed a complaint, naming Eclipse and Hamilton as defendants. Breach of contract was the sole cause of action. Burkhalter claimed that Eclipse had vacated its premises and owed Burkhalter about $40,000 in unpaid rent and other costs. Burkhalter further alleged that Hamilton is the "alter ego" of Eclipse: "Adherence to the fiction of the separate existence of ... Eclipse as an entity distinct from Hamilton ... would permit an abuse of the limited liability partnership privilege, and would promote injustice."

fees." ( Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744 , 751, 220 Cal.Rptr.3d 650 , 398 P.3d 556 .) However, the allocation of attorney fees can be provided for by contract, subject to the protections of section 1717. "In any action on a contract, where the contract specifically provides that attorney's fees and costs ... shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees ...." ( § 1717, subd. (a).)

The Legislature enacted section 1717 in order "[t]o avoid the perceived unfairness of one-sided attorney fee provisions ...." ( International Billing Services, Inc. v. Emigh (2000) 84 Cal.App.4th 1175 , 1182, 101 Cal.Rptr.2d 532 .) Another legislative purpose was to "provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney's fees should he prevail in enforcing the contractual obligation against the defendant." ( Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124 , 128, 158 Cal.Rptr. 1 , 599 P.2d 83 .) Upon notice and motion, a trial court must "determine who is the party prevailing on the contract" for purposes of awarding reasonable attorney fees. ( § 1717, subd. (b).)

A. Standard of Review

A trial court generally has broad discretion to determine the amount of reasonable attorney fees under section 1717, and the award of such fees is governed by equitable principles. ( Hill v. Affirmed Housing Group (2014) 226 Cal.App.4th 1192 , 1195-1196, 172 Cal.Rptr.3d 811 .) Trial courts also generally have "discretion in determining which party has prevailed on the contract, or that no party has." ( DisputeSuite.com, LLC v. Scoreinc.com (2017) 2 Cal.5th 968 , 973, 216 Cal.Rptr.3d 109 , 391 P.3d 1181 .) However, "a party who obtains an unqualified victory on a contract dispute ... is entitled as a matter of law to be considered the prevailing party for purposes of section 1717." ( Ibid ., italics added.)

A trial court's determination that a litigant is a prevailing party under section 1717 is generally reviewed for abuse of discretion, but if the challenge to that determination is solely one of law, the de novo standard of review applies. (

attorney fees" into compensable and noncompensable time units is a matter within the trial court's discretion]; see also Serrano v. Unruh (1982) 32 Cal.3d 621 , 635, 186 Cal.Rptr. 754 , 652 P.2d 985 ["A fee request that appears unreasonably inflated is a special circumstance permitting the trial court to reduce the award or deny one altogether"].)

B. The Designation of a Prevailing Party Under Section 1717

Generally, under section 1717, "there can be only one prevailing party" in a particular lawsuit. ( Frog Creek Partners, LLC v. Vance Brown Inc. (2012) 206 Cal.App.4th 515 , 531, 141 Cal.Rptr.3d 834 ( Frog Creek ).) In Frog Creek , two parties entered into a contract containing an arbitration clause, as well as a provision for attorney fees. One of the parties filed a lawsuit for breach of contract; the defendant filed a petition to compel arbitration. The plaintiff won on the arbitration issue, but ultimately lost on the breach of contract claim. ( Id . at p. 520, 141 Cal.Rptr.3d 834 .) The trial court awarded attorney fees to both parties (to the plaintiff for prevailing on the arbitration petition; to the defendant for prevailing on the breach of contract claim). ( Id . at p. 523, 141 Cal.Rptr.3d 834 .)

After conducting an extensive review of the legislative history of section 1717, the appellate court found error. ( Frog Creek , supra , 206 Cal.App.4th at pp. 546-547, 141 Cal.Rptr.3d 834 .) Frog Creek held that "in any given lawsuit there can only be one prevailing party on a single contract for the purposes of an entitlement to attorney fees"; thus, the court reversed the plaintiff's attorney fee award

First Security Bank of Cal. v. Paquet (2002) 98 Cal.App.4th 468 , 475 [ 119 Cal.Rptr.2d 787 ] [where an action is final as to defendants in their individual capacities, trial court properly determined they had prevailed in the action for purposes of awarding section 1717 attorney fees].)" ( Ibid . )

Here, Burkhalter's success on the breach of contract claim and recovery of its contractual attorney fees against Eclipse did not prevent Hamilton from recovering her contractual attorney fees against Burkhalter. Just as in Pueblo Radiology , Burkhalter's alter ego claim against Hamilton must be separately examined to determine the "prevailing party" as between those two litigants. This is an application of the general principle that a judgment's finality must be separately determined based on the plaintiff's claims against each defendant when there is more than one defendant. (See, e.g.,

entry of judgment. Burkhalter apparently maintains that Hamilton should