LA GALLERIA CONDOMINIUM OWNERS ASSOCIATION v. WELLS FARGO BANK (1997)

 This case presents the now familiar question of whether a plaintiff avoids contract-based liability for defendant's attorney fees and costs by voluntarily dismissing either prior to trial or before some other proceeding resolves the rights of the parties.   Plaintiff, La Galleria Condominium Owners' Association, appeals from an order modifying its voluntary dismissal of an action against defendant, Wells Fargo Bank, N.A. (Wells), to be a dismissal with prejudice ¹ and also appeals from an order determining Wells to be the prevailing party and awarding it attorney fees.

The factual setting of the case can be briefly summarized.   La Galleria Condominiums are built on two parcels of property, one of which was purchased in fee simple by the developers while the other was leased to them beginning July 1, 1980, for 99 years by Archie R. Scheffer.   Scheffer died in 1988 and in 1989 Wells Fargo became the trustee of his testamentary trust.

Under the condominium project's Covenants, Conditions and Restrictions the Association has the responsibility “to make rent payments under the terms of the Ground Lease.”

The lease provided for annual rent of $47,500 for the first five years of its term.   After that the annual rent was to be recalculated every five years to reflect increases or decreases in the Consumer Price Index (CPI).   Shortly before the third five-year period was to begin Wells notified the Association that the annual rent for that period would be $78,459.13.   Wells reached this sum by applying the CPI formula called for in the lease to a sum which had been similarly calculated for the second five-year period.   The Association disputed this amount.   By its reading the lease called for calculating each five-year rental rate by applying the CPI adjustments to the initial rent of $47,500, rather than applying the CPI adjustment to the rent of the immediately preceding five-year period.

The lease provides:  “When Landlord is the prevailing party, Tenant covenants and agrees to pay, and to indemnify Landlord against, all legal costs and charges, including reasonable attorneys' fees, ․ in enforcing any covenant or agreement of Tenant herein contained, or in the event Landlord is brought into any proceedings commenced by or against Tenant, or Tenant's Assignees.”

On April 2, 1993, the Association filed a complaint naming Wells and the various corporate and individual developers as defendants.   While the complaint alleged many causes of action only the first cause of action for declaratory relief and a second cause of action for breach of lease were asserted against Wells.²  Plaintiff's motion to sever for trial the declaratory relief claim was granted.   In April 1995 Wells successfully moved for and received from Judge Cahill summary adjudication as to its interpretation of the rent adjustment clause.   Some months later on December 6, 1995, the Association filed a voluntary dismissal without prejudice of Wells.   Wells in turn moved under Civil Code section 1717 for a declaration that it was the prevailing party in the contract action, for a determination of attorney fees and costs, and to modify the voluntary dismissal without prejudice into a dismissal with prejudice.

Finding the adjudication of the first cause of action-the interpretation of the rent adjustment clause-to be “dispositive” of the second cause of action-the claim for breach of lease, Judge Garcia found Wells to be the prevailing party and ordered the Association to pay Wells $154,852.85 as reasonable attorney fees and costs.   The court also granted Wells' motion to modify the dismissal and directed the dismissal be one “with prejudice.”

I. Discussion

The Association makes a timely appeal contending the court erred under Civil Code section 1717, subdivision (b)(2) in finding Wells to be the prevailing party despite the voluntary dismissal by the Association of its claims against Wells.   And corollary to that claim it maintains that the court exceeded its jurisdiction in modifying the dismissal to a dismissal with prejudice.   Finally, it challenges the reasonableness of the sum awarded for attorney fees.

A. Prevailing Party

(1) Civil Code Section 1717

 Both sides rely upon Civil Code section 1717 ³ as authority for totally opposite outcomes.   Plaintiff maintains that because it voluntarily dismissed its entire action without prejudice prior to trial (Code Civ. Proc., § 581, subd. (c)) there was no prevailing party on the contract (Civ.Code, § 1717, subd. (b)(2)) and it was error to award attorney fees against it.   For its part Wells maintains that before the voluntary dismissal it had achieved a declaration that its interpretation of the rent adjustment clause was correct, a ruling which disposed of the other claim against it.   Thus, Wells argues it became the prevailing party with that ruling, and plaintiff had nothing to dismiss.

The question of whether a pretrial voluntary dismissal of a claim precludes recovery by the defendant of attorney fees under a contractual provision for such fees is presently before our Supreme Court.⁴  We have previously expressed the view that International Industries, Inc. v. Olen (1978) 21 Cal.3d 218, 145 Cal.Rptr. 691, 577 P.2d 1031 controls the answer, namely that the “[r]ecovery of attorney fees based on a contract provision is not permitted when the action is voluntarily dismissed prior to trial.”  (Jue v. Patton (1995) 33 Cal.App.4th 456, 460, 39 Cal.Rptr.2d 364.)

Wells, however, seeks to come within an exception to the rule of Olen.   Wells argues that all of plaintiff's claims against it were resolved in its favor by the court's ruling that Wells was correctly interpreting the rent adjustment clause.   In various situations courts have refused to give effect to voluntary dismissals made by plaintiffs after there was a dispositive ruling which effectively disposed of plaintiff's case.  (Wells v. Marina City Properties, Inc. (1981) 29 Cal.3d 781, 789, 176 Cal.Rptr. 104, 632 P.2d 217 [right to a voluntary dismissal is extinguished if after a general demurrer with leave to amend plaintiff does not amend within the time provided or receive an extension of time];  Kelley v. Bredelis (1996) 45 Cal.App.4th 1819, 1832, 53 Cal.Rptr.2d 536 [judgment was properly entered on a judicial arbitration award in favor of defendants once plaintiffs who had sought trial de novo then voluntarily dismissed prior to trial];  Sweat v. Hollister (1995) 37 Cal.App.4th 603, 614-615, 43 Cal.Rptr.2d 399 [voluntary dismissal filed several days after summary judgment was rendered by final, telephonic order had no effect on judgment against plaintiff];  M & R Properties v. Thomson (1992) 11 Cal.App.4th 899, 905, 14 Cal.Rptr.2d 579 [order granting motion to dismiss for five year failure to prosecute was not trumped by plaintiff's subsequent voluntary dismissal filed prior to the entry of an order of dismissal].)  In each of these cases the plaintiff's right to voluntarily dismiss was superseded by a ruling or determination which resolved the rights of the parties.

Wells sought and received its prevailing party ruling from Judge Garcia on the ground that interpretation of the rent clause had disposed of all plaintiff's claims against it.   Plaintiff's second cause of action is entitled breach of land lease and it alleges that from July 1, 1990, plaintiff was compelled to pay higher rent than called for by the lease.   At the time of the motion for summary adjudication plaintiff raised the claim that the terms of the lease had been waived by Scheffer's conduct in that he had failed to adjust the rent during the second five-year period and had waived increased rent by continuing to accept rent at the base rate of $47,500 during the second five-year period.

Indeed, at the time the motion for summary adjudication was heard by Judge Cahill there was considerable discussion of the waiver issue.   Counsel for Wells assured Judge Cahill that the issue was “raised by the second cause of action” for breach of the ground lease.   Judge Cahill noted that “What I didn't want to accidentally do is to make a ruling where I ruled on whether there was a waiver or not․   This may have been overcautious on my part because I have had experience with people using my rulings for things other than the purpose for which I intended them to be used․   Just so long as it's clear on this record that no ruling here addresses whether or not the landlord waived any increases by accepting rent payment checks before the bank caught what they think is the error and then charged you.”   To this counsel for Wells replied:  “Then we would raise that by a separate motion with respect to the second cause of action.”   Some minutes later at the end of the hearing the court reiterated:  “The only issue left is whether the landlord waived the rent by whatever actions were taken by the parties;  right?”   Again counsel for Wells replied:  “Correct.   If they want to raise that, we'll deal with that on the second cause of action.”

After the order issued by Judge Cahill on April 21, 1995, supporting Wells' interpretation of the rent escalation clause, the parties apparently discussed a settlement in late November whereby plaintiff would dismiss its second cause of action against Wells in exchange for a discount of Wells' attorney fees.   On December 1 the parties entered into a stipulation to the effect that “[p]laintiff's claims for relief against [Wells as] Trustee are limited to those alleged in the First and Second Causes of action.”   By a letter also of December 1 Wells indicated that it intended to file a motion for summary adjudication as to the second cause of action unless plaintiff accepted its offer of “a small discount on the fees.”   On December 6 plaintiff filed its voluntary dismissal without prejudice.   On December 21 Wells filed its motion later heard by Judge Garcia by which it sought to be named the prevailing party, to vacate or modify plaintiff's dismissal into one with prejudice and to determine attorney fees.

In short, it is obvious and undisputed that the purpose of plaintiff's voluntary dismissal was to avoid liability for the attorney fees incurred by Wells in defending its interpretation of the ground lease.   It is equally obvious that as of December 1 (as indicated by its letter to plaintiff's counsel), Wells was espousing the position that the declaratory relief order of the previous April had not resolved plaintiff's second cause of action which Wells was now threatening to challenge by a motion for summary adjudication.

Plaintiff relies on Cal-Vada Aircraft, Inc. v. Superior Court (1986) 179 Cal.App.3d 435, 224 Cal.Rptr. 809 for the proposition that a summary adjudication of some, but not all of the issues raised in a cross-complaint is not “commencement of trial” under Code of Civil Procedure section 581, subdivision (c) so as to preclude the cross-complainant from voluntarily dismissing.  (Cal-Vada Aircraft, Inc. v. Superior Court, supra, at pp. 447-448, 224 Cal.Rptr. 809.)  Cal-Vada can also be read, however, to support Wells' position.   For the corollary to Cal-Vada's holding is that if a summary adjudication does have the effect of completely determining the parties' rights-is in effect a summary judgment, as Wells argued before Judge Garcia-that ruling should terminate plaintiffs' rights to voluntarily dismiss with prejudice.   Plaintiff's second cause of action does not plead injury for rents paid during the second five-year period when Scheffer apparently waived the increased rent to which he would have been entitled under the court's reading of the lease.   Accordingly, plaintiff's second cause of action sought only those payments it believed to be overpaid beginning with the third adjustment which took place July 1, 1990, or exactly the same question which was resolved against it by the declaratory relief order.

Wells, however, espoused this reading of the second cause of action only after plaintiff had voluntarily dismissed.   It obtained the declaratory relief order in April, flirted with settlement in exchange for a slight discount of its fees in November and only in late December some two weeks after plaintiff voluntarily dismissed asserted that all claims against it had been resolved by the April order.   In short, it cannot be heard to complain that the summary adjudication procedure was somehow undermined by plaintiff's voluntary dismissal (see Mary Morgan, Inc. v. Melzark (1996) 49 Cal.App.4th 765, 771, 57 Cal.Rptr.2d 4 [plaintiff not allowed to voluntarily dismiss during a continuance of hearing on a motion for summary judgment when the continuance had been granted in order for plaintiff to produce evidence] ) or that plaintiff sought to slip its dismissal in before a summary judgment could be entered on the April order.   At the time plaintiff voluntarily dismissed, while it may actually have had no claim pending against Wells which was not resolved by the summary adjudication, neither side was espousing that legal position to the court or to one another.

Wells argues in the alternative that even if a claim against it survived summary adjudication it became the prevailing party once plaintiff dismissed the second cause of action.   The contention ignores the express language of Civil Code section 1717 since once the action is voluntarily dismissed there is “no prevailing party for purposes of this section.”  (Civ.Code, § 1717, subd. (b)(2).)

(2) Code of Civil Procedure sections 1032 and 1033.5

 Wells argues that, independent of Civil Code section 1717, the award of attorney fees to them was proper as an item of costs allowable under Code of Civil Procedure sections 1032 and 1033.5.⁵  We addressed this contention before and rejected it in Jue v. Patton, supra, 33 Cal.App.4th at pp. 460-461, 39 Cal.Rptr.2d 364.

Our reading of the interplay between Civil Code section 1717 and the fee provisions of the Code of Civil Procedure has recently been adopted in Ryder v. Peterson (1996) 51 Cal.App.4th 1056, 59 Cal.Rptr.2d 562.   In that case the defendants contended even if they were precluded from recovering their attorney fees under Civil Code section 1717 by plaintiff's voluntary dismissal, they had an independent contractual right to recover attorney fees under Code of Civil Procedure section 1021.⁶  (Ryder v. Peterson, supra, at p. 1059, 59 Cal.Rptr.2d 562.)   The court rejected that notion, concluding it would be “somewhat anomalous to allow a recovery of attorney fees after a voluntary pretrial dismissal under Code of Civil Procedure section 1021 when that specific result is barred under the provisions of Civil Code section 1717, subdivision (b)(2).”  (Ibid.)

This reasoning is especially apposite in the case before us, which does not involve, any non-contractual claims.   Therefore even if the entitlement to fees as costs under the Code of Civil Procedure sections is broader than that under Civil Code section 1717, that added breadth is irrelevant here.   This case falls squarely within the rule of International Industries, Inc. v. Olen, supra, 21 Cal.3d at page 223, 145 Cal.Rptr. 691, 577 P.2d 1031.

The award of attorney fees to Wells cannot be upheld under the costs provisions of the Code of Civil Procedure, since to do so would render the dictates of Civil Code section 1717, subdivision (b)(2) a nullity.   The trial court erred in making a fee award to Wells as prevailing party on the purely contractual claims asserted against it after plaintiff voluntarily dismissed as to Wells.

B. Dismissal with Prejudice

 Plaintiff maintains the trial court acted in excess of its jurisdiction by modifying its dismissal without prejudice into a dismissal with prejudice.   Plaintiff is correct.   A voluntary dismissal under Code of Civil Procedure section 581, subdivision (l) is a ministerial act which takes effect immediately, and once the dismissal is entered the trial court loses jurisdiction except for the limited purpose of awarding costs and statutory attorney fees.  (Associated Convalescent Enterprises v. Carl Marks & Co., Inc. (1973) 33 Cal.App.3d 116, 120, 108 Cal.Rptr. 782.)   Therefore, the trial court acted in excess of its jurisdiction when it modified the dismissal without prejudice and entered an order dismissing with prejudice.  (Harris v. Billings (1993) 16 Cal.App.4th 1396, 1405, 20 Cal.Rptr.2d 718.) ⁷

II. Disposition

The post dismissal order of the trial court modifying the dismissal of Wells to a dismissal with prejudice is void.   Plaintiff dismissed its complaint as to Wells acting as the Trustee for the Testamentary Trust of Archie Scheffer without prejudice effective December 6, 1995.

The order of the trial court determining Wells to be the prevailing party and awarding it $154,852.85 in attorney fees is reversed.

FOOTNOTES

1.   An order of dismissal made by the court and filed becomes a judgment which is appealable.  (Code Civ. Proc., §§ 581d, 904.1, subd. (a);  D'Hondt v. Regents of University of California (1984) 153 Cal.App.3d 723, 726, fn. 2, 200 Cal.Rptr. 628.)

2.   The Association in a stipulation of December 1, 1995, agreed that its only claims for relief against Wells were those contained in the first and second causes of action.

3.   That section provides in pertinent part:  “(b)(1) The court, upon notice and motion by a party, shall determine who is the party prevailing on the contract for purposes of this section, whether or not the suit proceeds to final judgment.   Except as provided in paragraph (2), the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract․  [¶] (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.”

4.   Santisas v. Goodin (1995) 48 Cal.App.4th 158, 45 Cal.Rptr.2d 877, review granted February 15, 1996 (S050326).

5.   Code of Civil Procedure section 1032 defines prevailing party and provides in pertinent part:  “(b) Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.”Code of Civil Procedure section 1033.5 includes under allowable costs “(10) Attorney fees, when authorized by any of the following:  [¶] (A) Contract.  [¶] (B) Statute.  [¶] (C) Law.”

6.   “Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties;  but parties to the actions or proceedings are entitled to their costs, as hereinafter provided.”  (Code Civ. Proc., § 1021.)Defendant's recovery of attorney fees under Code of Civil Procedure section 1021 despite a pretrial dismissal was upheld by Honey Baked Hams, Inc. v. Dickens (1995) 37 Cal.App.4th 421, 43 Cal.Rptr.2d 595.   That case was critical of our decision in Jue v. Patton, supra, 33 Cal.App.4th at p. 456, 39 Cal.Rptr.2d 364, and instead argued that the cost provisions of the Code of Civil Procedure provide an alternative avenue by which contractual fees can be recovered despite a pretrial dismissal.   (Honey Baked Hams, Inc. v. Dickens, supra, at p. 429, 43 Cal.Rptr.2d 595.)

7.   In light of our holding it was improper for the trial court to award attorney fees to Wells we need not reach plaintiff's final contention on appeal that the reasonableness of the dollar amount of the fee claimed was unsupported by adequate evidence.

POCHÉ, Acting Presiding Justice.

REARDON and HANLON, JJ., concur.