OLIVER v. BRADSHAW (1999)

Plaintiff Y. Kimmie Oliver appeals from an order awarding attorney's fees and costs to defendants Stephen Bradshaw and Richard Filipowicz.   Relying on Civil Code section 1717, she contends defendants were not entitled to an award of attorney's fees.   We affirm.

Statement of Facts

On September 26, 1994, Oliver executed a secured promissory note in which she agreed to pay Bradshaw and Filipowicz $99,000 plus interest by October 28, 1995.   In addition, the note stated:  “If action be instituted on this note, I promise to pay such sum as the Court may fix as attorney's fees.”

Oliver also entered into a construction contract with Bradshaw, a general contractor.   However, on March 28, 1995, Oliver and Bradshaw mutually terminated the construction contract.   After a dispute arose as to the amounts due for work performed, Bradshaw brought an action (contract action) against Oliver.   Filipowicz was not a party to the complaint filed by Bradshaw or to the cross-complaint filed by Oliver in the contract action.

On November 17, 1995, plaintiff received a notice of foreclosure after she failed to make payments on the note.   Oliver did not dispute her obligation to pay the sum due Bradshaw and Filipowicz on the note.   However, on November 22, 1995, Oliver brought an action (note action) in which she sought declaratory relief, an injunction and interpleader against Bradshaw and Filipowicz.   Oliver asserted the right to offset the indebtedness on the note against sums for which Bradshaw was allegedly liable in the contract action.

Peter Hoss, defendants' counsel, repeatedly advised Julian Lastowski, Oliver's counsel, that the claim of offset was invalid, because the parties and the transactions were separate.¹  (See Carnation Co. v. Olivet Egg Ranch (1986) 189 Cal.App.3d 809, 820, 229 Cal.Rptr. 261.)   Hoss also advised Lastowski that if Oliver pursued the invalid offset claim, defendants would seek to recover their attorney's fees.   Rather than filing a cross-complaint which asserted various causes of action against Oliver for filing the note action, Hoss proposed to mitigate damages by requesting that Oliver pay the undisputed amount due on the note and that the matter of attorney's fees be deferred until a later date.   After extensive negotiations, Lastowski agreed to the proposition.   In March 1996, the parties entered into an agreement in which Oliver would pay the amount due on the note, defendants would cancel the foreclosure proceedings, and upon receipt of the original note and reconveyance, Oliver would dismiss the action with prejudice.

The agreement also states in relevant part:  “7. The note attached to the Complaint contains an attorneys' fees clause. [¶] 8. Although the principal, interest and foreclosure costs advanced on the note are not in dispute, there is a dispute between Oliver and Filipowicz/Bradshaw as to the reasonable amount of attorneys' fees due under the note, and as to whether there are any attorneys' fees payable at all, and as to which party attorneys' fees are payable. [¶] ․ [¶] 13.   The parties agree to submit for determination by the above-referenced court, all questions pertaining to attorneys' fees, including but not limited to, whether attorneys' fees are payable at all, to whom they are payable, and the amount payable.”

In addition, the stipulation in the note action made performance contingent upon performance of the stipulation in the contract action.  “This Stipulation also contains terms which are also included in a separate stipulation as a condition precedent to performance hereunder․”   These terms included that “[t]he parties agree to execute an arbitration agreement in the form attached.”

On April 25, 1996, defendants filed their motion for attorney's fees.   The hearing was set for May 10, 1996.   It was then continued until June 28, 1996.   Meanwhile, on May 15, 1996, Oliver filed a request for dismissal without prejudice and dismissal was entered the same day.   Following a hearing on the motion for attorney's fees, the trial court found the “motion premature, no attorney fees until arbitration completed.”

The arbitration proceedings on the contract action were delayed until after counsel for Bradshaw's insurance carrier agreed to arbitration.   On November 18, 1996, the arbitrator entered an award in the amount of $42,805.86 in favor of Oliver.

Defendants subsequently sought attorney's fees which did not include fees related to the contract action.   Following a hearing, the trial court awarded attorney's fees in the amount of $15,194.00.

Discussion

Relying on Civil Code section 1717, Oliver contends that since she dismissed the action pursuant to a settlement of the case the trial court erred in awarding attorney's fees to defendants.   We disagree.

 The determination of the basis for an award of attorney's fees is a question of law which an appellate court reviews de novo.  (Honey Baked Hams, Inc. v. Dickens (1995) 37 Cal.App.4th 421, 424, 43 Cal.Rptr.2d 595, overruled on another ground in Santisas v. Goodin (1998) 17 Cal.4th 599, 614, 71 Cal.Rptr.2d 830, 951 P.2d 399.)

 Civil Code section 1717 states in relevant part:  “(a) In any action on a contract, where the contract specifically provides that the 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, 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 in addition to other costs [¶] ․ [¶] (b)(2) Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no party prevailing on the contract for purposes of this section․”

In Santisas v. Goodin, supra, 17 Cal.4th 599, 71 Cal.Rptr.2d 830, 951 P.2d 399, the plaintiffs brought a contract and tort action which they subsequently dismissed with prejudice.   Pursuant to the parties' agreement the trial court then awarded attorney's fees to the defendants as the prevailing parties.   The Supreme Court held that Civil Code section 1717 barred the recovery of attorney's fees by the defendants on the contract claim, however, it held that the defendants were entitled under Code of Civil Procedure section 1032 to recover costs which they incurred in defending against the tort claims.   In its discussion, the court stated:  “[W]e construe subdivision (b)(2) of section 1717, which provides that ‘[w]here 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,’ as overriding or nullifying conflicting contractual provisions, such as provisions expressly allowing recovery of attorney fees in the event of voluntary dismissal or defining ‘prevailing party’ as including parties in whose favor a dismissal has been entered.   When a plaintiff files a complaint containing causes of action within the scope of section 1717 (that is, causes of action sounding in contract and based on a contract containing an attorney fee provision), and the plaintiff thereafter voluntarily dismisses the action, section 1717 bars the defendant from recovering attorney fees incurred in defending those causes of action, even though the contract on its own terms authorizes recovery of those fees.”  (Id. at p. 617, 71 Cal.Rptr.2d 830, 951 P.2d 399, emphasis added and omitted.)

In the instant case, if Oliver had dismissed the action pursuant to a settlement agreement, which did not reserve the right to seek attorney's fees, Santisas and section 1717 would have barred recovery of attorney's fees by either party.   However, Santisas is distinguishable from the instant case.   Here an attorney's fee provision is included not only in the underlying contract, as in Santisas, but also in the settlement agreement itself.   By renegotiating their respective positions and entering into an entirely separate contract that included an attorney's fees provision, both parties reserved the right to seek an award of attorney's fees as the prevailing party.   Accordingly, section 1717 does not bar the recovery of attorney's fees in the instant case.²

 Oliver argues, however, that Bradshaw breached the condition precedent to performance under the stipulation and thus her request for dismissal was not pursuant to the stipulation.   We are not persuaded by this argument.

Here the stipulation on the note action was signed in March 1996.   It incorporated the stipulation in the contract action that an arbitration agreement would be finalized, but neither stipulation specifies when this event would occur.   On May 15, 1996, after the note was paid, Oliver requested dismissal of the note action.   However, as of that date, the arbitration agreement on the contract action had not yet been finalized, because counsel for Bradshaw's insurance carrier had not signed the agreement.   The agreement was eventually signed and the contract action was resolved by the arbitrator.   Thus, Bradshaw did not breach the condition precedent to performance under the stipulation, because he was not required to complete arbitration prior to the dismissal in the note action.   Since there was no breach, Oliver cannot claim her request for dismissal was not pursuant to the stipulation in the note action.

 Oliver also contends there is no equitable basis for an award of attorney's fees.   However, an award of attorney's fees is not governed by equitable principles, but is authorized by statute or contract.  (Code of Civil Proc., § 1021.)

 Oliver next points out that she recovered $42,805.86 in the contract action.   Yet the fact that she prevailed in the unrelated contract action does not make her the prevailing party in the note action in which defendants recovered $106,038.38.   Oliver's additional arguments relating to the lack of discovery, her alleged offer to pay into the court the full amount due on the note, and her request for consolidation are equally without merit.   These factors do not limit a party's right to an award of attorney's fees.

Oliver also argues the award of attorney's fees in the amount of $15,194.00 is excessive.

 The amount of an award of attorney's fees lies within the discretion of the trial court.  (Bussey v. Affleck (1990) 225 Cal.App.3d 1162, 1165, 275 Cal.Rptr. 646.)  “As stated by Mr. Witkin:  ‘Verdicts and judgments for the reasonable value of attorneys' services are usually upheld.   The only basis for reversal would be that the amount was so large (or so small) as to “shock the conscience” and suggest that passion and prejudice influenced the determination.   But the various factors to be considered ․ give such discretion to the trial court or jury that the attempt to show an abuse thereof on appeal is seldom successful․  ” [Citation.]  (Shannon v. Northern Counties Title Ins. Co. (1969) 270 Cal.App.2d 686, 688-689, 76 Cal.Rptr. 7.)

 Hoss's declaration in support of the motion for attorney's fees outlines the lengthy series of negotiations which were required to obtain payment of the principal, interest and foreclosure costs on the note.   He also states “[a]ll of [his] time was reasonably necessary to obtain payment on the note and overcome the claim brought for the offset.   Admittedly, it should have not taken this much time or effort to obtain payment on the note.   However, all of the actions were necessitated by the conduct of plaintiff.”   For example, Oliver insisted upon exacting conditions regarding the contract action, such as the production of various documents, as a condition of complying with the stipulation in the note action.   The trial court reviewed the claim for attorney's fees and concluded, “In reviewing the entire file, I can't say the fees for this particular action are unreasonable, so I will grant them as requested.”   After reviewing the entire record, we find no abuse of discretion.

Oliver also contends public policy favors settlement and alternative dispute resolution without the imposition of attorney's fees.   This contention has no merit.   A policy that allows the parties to reserve their right to seek attorney's fees would encourage settlement.   Moreover, the instant action could have been easily resolved if Oliver had paid the amount which she always agreed was due on the note.   Instead she improperly attempted to withhold payment as an offset against the contract action and brought an action which should never have been filed.

 Defendants contend they are entitled to an award of attorney's fees on appeal.   We agree.

“It is well settled that where a promissory note provides for the recovery of reasonable attorney's fees incurred in the enforcement thereof it includes an allowance for legal services rendered on appeal as well as in the trial court.”  (American City Bank v. Zetlen (1969) 272 Cal.App.2d 65, 67, 76 Cal.Rptr. 898.)   Thus, here defendants are entitled to an award of attorney's fees on appeal.

Disposition

The order is affirmed.   After the remittitur is filed, the trial court is directed to hear an application for attorney's fees for services on appeal and determine the reasonable amount.

FOOTNOTES

1.   Hoss first advised Lastowski regarding the invalidity of the offset in a letter dated November 1, 1995.   This letter was sent before the action on the note was filed and before defendants filed notice of default on the note.   On November 9, 1995, Lastowski responded by threatening protracted litigation.   Defendants filed notice of default on November 15, 1995.   On December 18, 1995, Hoss declined a request by Lastowski to consolidate the note action and the contract action.   On February 2, 1996, Hoss cited legal authority that the offset claimed in the note action was invalid and invited an offer to mitigate damages.

2.   In Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 75 Cal.Rptr.2d 376, the defendant entered into a settlement agreement that retained the right to move for costs and attorney's fees.   The trial court granted the motion for attorney's fees and the reviewing court reversed.   Citing Santisas, the court stated that “an award of attorneys' fees is not permitted where an action ‘on a contract’ has been dismissed as part of a settlement.”  (Id. at p. 707, 75 Cal.Rptr.2d 376.)   We respectfully disagree with the holding of Exxess.

MIHARA, J.

COTTLE, P.J., and BAMATTRE-MANOUKIAN, J., concur.