Michael Rauch v. Larry Francis Klosowski, et al.

5. Purpose of Agreement. This Agreement is entered into by the Parties in good faith for the purpose of settling any and all claims which were or could have been asserted against CGD in the Complaint in any way arising out of or related to the Property or the Agreement.

16. Costs. Each Party will bear its own costs, expenses, and attorneys’ fees that it has heretofore incurred in connection with or arising out of the matters set forth in the Recitals hereinabove, the matters and claims released hereunder and the negotiation of this Agreement, excepting those incurred in regard to CGD Cross- Complaint, RAUCH’s Answer, affirmative defenses and defenses to CGD’s Cross-Complaint.

(Declaration of Carlos Huet-Cox (“Huet-Cox Decl.”), Exh. A.)

On February 23, 2026, trial of Gouveia’s affirmative claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and copyright infringement commenced. On February 27, 2026, after the closure of all evidence and testimony, Rauch brought a nonsuit as to Gouveia’s claims for breach of the implied covenant and copyright infringement. Gouveia dismissed both claims before the Court made a decision on Rauch’s motion. (Huet-Cox Decl., ¶11, 12.) On February 27, 2026, the jury reached a verdict finding that Rauch breached his contract with Gouveia and that Gouveia suffered $162,500 as a result of the breach. Judgment was entered in favor of Gouveia on February 27, 2026.

II. Motions for Attorney’s Fees

Both Rauch and Gouveia have brought a motion for attorney’s fees under Civil Code Section 1717.

A. Section 1717

Section 1717 provides:

(a) In 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, 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 . . . .

Reasonable attorney’s fees shall be fixed by the court, and shall be an element of the costs of suit.

Attorney’s fees provided for by this section shall not be subject to waiver by the parties to any contract which is entered into after the effective date of this section. Any provision in any such contract which provides for a waiver of attorney’s fees is void.

(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. The court may also determine that there is no party prevailing on the contract for purposes of this section.

(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 . . . .

(c) In an action which seeks relief in addition to that based on a contract, if the party prevailing on the contract has damages awarded against it on causes of action not on the contract, the amounts awarded to the party prevailing on the contract under this section shall be deducted from any damages awarded in favor of the party who did not prevail on the contract. If the amount awarded under this section exceeds the amount of damages awarded the party not prevailing on the contract, the net amount shall be awarded the party prevailing on the contract and judgment may be entered in favor of the party prevailing on the contract for that net amount.

Where one party obtains a “simple, unqualified victory” on the only contract claim in the action, that party is entitled to attorney’s fees as a matter of law and the court may not deny fees by finding there was no prevailing party on the contract. (Hsu v. Abbara (1995) 9 Cal.4th 863, 876-877.) Where the results of the litigation are mixed, however, the trial court exercises its

discretion in determining the prevailing party. “[T]he trial court is to compare the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and other similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by ‘a comparison of the extent to which each party ha[s] succeeded and failed to exceed in its contentions.’” (Id. at p. 876 [citation omitted].) “[C]ourts should respect substance rather than form, and to this extent should be guided by ‘equitable considerations. For example, a party who is denied direct relief on a claim may nonetheless be found to be a prevailing party if it is clear that the party has otherwise achieved its main litigation objective.” (Id. at p. 877.)

“Section 1717 as amended in 1987, makes it clear that the party who obtains greater relief on the contract action is the prevailing party entitled to attorney fees under section 1717, regardless of whether another party also obtained lesser relief on the contract or greater relief on noncontractual claims.” (Maynard v. BTI Group, Inc. (2013) 216 Cal.App.4th 984, 990 [citation and internal quotations omitted].) “Thus, when the attorney fee provision provides that the party who prevails on the contract claim shall recover its attorney fees, only that party may recover its fees even if the other party obtains greater relief under a noncontractual cause of action.” (Ibid.)

B. The Letter Agreement

The parties entered into a Letter Agreement on October 19, 2019. Sections 2.8 and 5.6 reference attorney’s fees:

2.8 Payment Terms. Design invoices will be issued on a monthly or bi-monthly basis at the designer’s discretion and will be due and payable by Owner within 14 days. Travel time will be billed at half the hourly rate. Accounts unpaid 30 days after invoice date may be subject to a monthly service charge of $50 and will bear interest at the rate of 1.5% on the unpaid balance; and shall bear interest at a rate of 10% per annum or the maximum permissible by law. The client shall pay costs of collection, including reasonable attorney’s fees and costs in the event any portion or all of an account remains 60 days after invoice.

In addition to any and all other rights that we may have, should you fail to make any payment due to us in accordance with this Agreement, including payment of design fees, margins, or referral fees, etc. we shall have the right to withhold delivery of any item of Merchandise and/or suspend performance of any service required to be performed by us under this Agreement. Design fees and costs must be paid prior to delivery to the Owner's address; and any additional charges unknown at the time of delivery must be paid by the client.

5.6 Attorney Fees. In the event of Binding Arbitration as final recourse between the parties with respect to this Agreement, the performance of the obligations hereunder or the effect of a termination under this Agreement, the losing party shall pay all costs

and expenses incurred by the prevailing party in connection with such litigation, including reasonable attorneys’ fees and costs. This includes collection costs, mediation fees/costs, arbitrator filing fees, court reporters, administrative fees/costs, storage fees and moving costs.

(Id.)

C. Gouveia’s Motion for Attorney’s Fees

1. The parties can recover attorney’s fees under Section 2.8 but not Section 5.6

Section 5.6 does not allow for an award of attorney’s fees in this case, as there is no dispute that the parties did not go to arbitration.

Gouveia can potentially recover her fees under Section 2.8, which states that “[t]he client shall pay costs of collection, including reasonable attorney’s fees and costs in the event any portion or all of an account remains 60 days after invoice.” Gouveia incurred attorney’s fees in recovering amounts due from Rauch, up through the time of the jury verdict. Courts have awarded fees based on similar language. (See Calvo Fisher & Jacob LLP v. Lujan (2015) 234 Cal.App.4th 608, 622; Finalco, Inc. v. Roosevelt (1991) 235 Cal.App.3d 1301, 1306-1307; Malibou Lake Mountain Club, Ltd. v. Smith (1971) 18 Cal.App.3d 31, 36.)

Rauch argues in a footnote that Section 2.8 does not apply because he paid the $162,500 judgment on March 17, 2026, and therefore there is no judgment to collect. This argument misreads Section 2.8, which allows for the recovery attorney’s fees for collecting amounts that remained unpaid 60 days after invoice. The section does not, as Rauch implies, allow only for fees incurred in the collection of a judgment. Rauch also argues, in the same footnote, that Section 2.8’s “generalized terms are subsumed by the specificity of the prevailing party fee provision in section 5.6 of the Contract.” (Opp., p. 4 n. 2.)

This argument also fails as neither section is more “specific” than the other such that it essentially preempts the other. The case cited by Rauch, Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 754, does not support Rauch’s argument as it involved entirely different language that is not similar in any way to the language in the parties’ Letter Agreement here. The Court also notes that Rauch himself moves for attorney’s fees under Section 2.8 (and/or Section 5.6).

a. The June 9, 2023 Order does not preclude Gouveia from recovering her fees

Rauch argues that Gouveia’s request for attorney’s fees was already adjudicated in Rauch’s favor in Judge Chou’s June 9, 2023 Order. This argument fails as the Order granted summary adjudication only because the request was made in a procedurally improper manner, i.e., as a separate cause of action and not as a remedy in the prayer for relief. The Court then stated that Gouveia could request fees in a different manner. The fact that Gouveia did not amend her Cross-Complaint to specifically include the request in her prayer for damages does not preclude her from recovering fees now. (See Shames v. Utility Consumers’ Action Network

(2017) 13 Cal.App.5th 29, 39; Faton v. Ahmedo (2015) 236 Cal.App.4th 1160, 1169; Washburn v. City of Berkeley (1987) 195 Cal.App.3d 578, 583; (Ganey v. Doran (1987) 191 Cal.App.3d 901, 911).

b. Prevailing party

Gouveia argues that she is the prevailing party on the contract due to the jury verdict in her favor.

Rauch argues that he is the prevailing party, not Gouveia, because he recovered twice as much in the settlement of his Complaint as Gouveia did with the jury verdict on her Counterclaim, he prevailed on various motions or disputes during the course of the litigation such as Gouveia’s motion to compel arbitration, and Gouveia voluntarily dismissed her breach of the implied covenant and copyright infringement causes of action before the close of evidence at trial.

Rauch’s second and third arguments lack merit because they improperly focus on interim victories and not the final outcome of the parties’ claims. Rauch’s first argument properly focuses on the ultimate outcome but improperly focuses on all of the claims asserted by the parties in this case and not just the contract-based claims. For example, Rauch argues that he sought $250,000 jointly and severally from five defendants, including Gouveia, and obtained a $325,000 settlement from Gouveia, and that Gouvia sought in excess of $600,000 from Rauch and was awarded only $162,500.

However, this argument – along with many of Rauch’s other arguments - groups together contract and non-contract claims for purposes of the Section 1717 prevailing party analysis. This approach is misplaced as the prevailing party analysis requires that the court compare the relief awarded on only the contract claims. “If an action asserts both contract and tort or other noncontract claims, section 1717 applies only to attorney fees incurred to litigate the contract claims.” (Santisas v. Goodin (1998) 17 Cal.4th 599, 615; see also David S.

Karton, A Law Corp. v. Dougherty (2014) 231 Cal.App.4th 600, 609.) By its terms, Section 2.8 only applies to claims related to the collection of fees due under the parties’ agreement. A narrow attorney’s fee provision such this one does not support an award of attorney’s fees to a party prevailing on non-contract claims. (See Orozco v. WPV San Jose, LLC (2019) 36 Cal.App.5th 375, 408; Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 709; Santisas, 17 Cal.4th at p. 622 n. 9; Stout v.

Turney (1978) 22 Cal.3d 718, 730; Boyd v. Oscar Fisher Co. (1989) 210 Cal.App.3d 368, 377.) The court’s determination of “the party prevailing on the contract” for purposes of contractual attorney fees must be made “without reference to the success or failure of noncontract claims.” (Hsu, 9 Cal.4th at pp. 873-874; see also Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230, 239 [“The determination of the party prevailing on the contract for purposes of awarding attorney fees under section 1717 must be made independently of the determination of the party prevailing in the overall action for purposes of awarding costs under Code of Civil Procedure Section 1032”] [emphasis in original]; Federal Deposit Ins.

Corp. v. Dintino (2008) 167 Cal.App.4th 333, 358 n. 12 [“a trial court cannot consider a party’s success on noncontract causes of action, or in achieving its litigation objectives in general ... in determining which party is the prevailing party on the contract for purposes of Civil Code section 1717”].)

Limiting Rauch’s argument to the parties’ contract claims only, the Court next considers Rauch’s claim that he obtained more in the settlement than what Gouveia obtained in her jury verdict and therefore he is the prevailing party, not Gouveia.

The Court first notes that Rauch dismissed his claims against Gouveia with prejudice in connection with the Settlement Agreement, and therefore he cannot be the prevailing party with respect to those claims. “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.” (Code Civ. Proc. § 1717(b)(2).)

With respect to Rauch’s argument that the Court can consider the settlement for purposes of determining Gouveia’s overall litigation result, neither party cites to authority which addresses the specific issue before the Court. This specific issue is whether an earlier settlement between the same parties covering only some of the claims between them, in which there is no allocation of the settlement amount between contract and non-contract claims and both parties agreed to pay their own attorney’s fees and costs, can affect the prevailing party analysis after a jury verdict on the remaining contract-based claims.

Rauch cites to a single case, Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, in which the court stated: “We conclude the party recovering ‘greater relief in the action on the contract’ under section 1717, subdivision (b)(1) does not necessarily mean the party receiving the greater monetary judgment. In the event one party received earlier payments, settlements, insurance proceeds or other recovery, the court has discretion to determine whether the party required to pay a nominal net judgment is nevertheless the prevailing party entitled to attorney's fees pursuant to section 1717.” (Id. at pp. 1154-1155.)

The court also stated that “where there is evidence of other success, such as in this case by collection of a portion of the funds at issue, whether by settlement or through a collateral action, the court is entitled to take such recovery into account when calculating which side prevailed. This should be true under Civil Code section 1717 as well as under Code of Civil Procedure section 1032.” (Id. at p. 1156.)

Sears is distinguishable from this case. There, the guarantor plaintiff sued the defendant building owner to recover money the guarantor paid to the owner on the guaranty. The court found that the plaintiff was liable under the guaranty, but was entitled to recover $67,000 he had paid under the guaranty not because the owner was liable for breach of contract, but rather due to the “fortuitous circumstances” of the owner’s receipt of funds from a bankruptcy estate which mitigated the guarantor’s damages.

The court found that the owner received “greater relief in the action on the contract” and awarded the owner attorney’s fees pursuant to Section 1717, notwithstanding the monetary judgment in favor of the guarantor for part of his initial payment. (Id. at p. 1159.) Unlike the owner in Sears, Rauch here was found to have breached his contract with Gouveia and the damages awarded by the jury was a direct result of that breach, not “fortuitous circumstances”.

Further, with respect to the Sears court’s reference to “settlements”, courts have held that a settlement can be considered if it reduces the amount the plaintiff can ultimately collect against the defendant. For example, a court can consider a settlement between a plaintiff and other defendants which reduces the plaintiff’s ultimate net recovery on a specific cause of action against the remaining defendant. (See Silver v. Boatwright Home Inspection, Inc. (2002) 97

Cal.App.4th 443, 452 [“We construe the Supreme Court’s reference to parties who attain their litigation objective by settlement (Santisas, supra, 17 Cal.4th at pp. 621 & 622, 71 Cal.Rptr.2d 830, 951 P.2d 399) as including a plaintiff who obtains a settlement from a party other than a defendant who has been voluntarily dismissed prior to trial and who is asserting entitlement to contractual attorney’s fees under sections 1032 and 1033.5”] [emphasis in original]; Goodman v. Lozano (2010) 47 Cal.4th 1327, 1334-1335 [citing CCP § 887].) Therefore, even if the Court could consider the impact of the Settlement Agreement for purposes of determining the prevailing party, it could only consider the agreement to the extent it reduced Rauch’s liability on Gouveia’s breach of contract cause of action against him.

Here, the Settlement Agreement covered more than just Rauch’s breach of contract claims against Gouveia. The parties also settled Rauch’s claims against Gouveia for common counts, fraud and deceit, negligent misrepresentation, violations of the Business & Professions Code, breach of implied warranty, and negligence. Only settlement funds relating to the collection of amounts due under the parties’ contract could potentially factor into the prevailing party analysis, but there was no allocation in the Settlement Agreement as to how much value was placed on the contract claims vis a vis the other claims. Therefore, even if the Court could consider the settlement payment to Rauch, there is no showing that any portion of that amount was allocated to Rauch’s breach of contract claim.

Rauch also contends that he sought $250,000 in connection with his breach of contract claim, but he also sought that amount and possibly additional amounts in connection with his other claims against Gouveia (fraud and deceit, negligent misrepresentation, performance of work without a license/Business & Professions Code § 7000 et seq., fraudulent inducement) that were based on the unlicensed status of two other defendants who physically performed the flooring and painting work. Rauch also alleged breach of warranty, sought the return of a $69,798.50 payment for flooring work and $29,500 for painting work based on the licensure issue in his common count for money had and received, and asserted claims for negligence and unfair competition which also sought $250,000.

Therefore, Rauch’s implication that the settlement amount he received somehow reflected only a win with respect to his breach of contract claims, without consideration to the multiple other claims he asserted, is unsupported.1

Because it is not possible based on this record to tell how much of Rauch’s recovery in settlement was for his contract claims, the Court cannot determine which party prevailed on the

1 Rauch also contends that Gouveia sought over $600,000, but this also included her claims for breach of the implied covenant and copyright infringement. Gouveia’s Issue Conference Statement broke down her damages as follows: (1) $45,780 in unpaid design fees; (2) $84,866.28 in unpaid referral fees and markups on verified payments to vendors and tradespeople; (3) an additional 50% of her contract damages as a result of accrued interest on unpaid amounts (which she stated would amount to at least $88,213.14); and (4) $198,000 for breach of the covenant of good faith and fair dealing.

The statement skipped copyright infringement (see pages 11-12), but it is reasonable to conclude that Gouveia sought $183,140.58 for this cause of action ($600,000- $45,780-$84,866.28-$88,213.14-$198,000). Thus, under Gouveia’s own breakdown, she sought only $218,859.42 in connection with her breach of contract claim ((1)-(3), above). The jury awarded her $162,500, or a little over 74% of what she requested in connection with her claim.

contract. This is not a case in which there is a clear win by either side. The Court has broad equitable discretion to determine which party prevailed, or to determine that there is no prevailing party. (Sears, 60 Cal.App.4th at p. 1151.) The Court concludes there is no prevailing party, and neither party is entitled to fees under Section 1717. Gouveia’s motion for attorney’s fees is therefore denied.

D. Rauch’s Motion

Rauch’s motion makes the same arguments Rauch made in his Opposition to Gouveia’s motion for attorney’s fees. As discussed above, neither party is the prevailing party on the contract. The Court therefore denies Rauch’s motion in its entirety.

III. Rauch’s Motion to Strike/Tax Costs

Rauch moves to strike Gouveia’s Memorandum of Costs on the ground that Gouveia is not the prevailing party under Code of Civil Procedure Section 1032. In the alternative, Rauch moves to tax individual costs identified in the Memorandum.

The prevailing party for an award of costs under Section 1032 is not necessarily the prevailing party for an award of fees under Section 1717. (See DeSaulles v. Community Hospital of Monterey Peninsula (2016) 62 Cal.4th 1140, 1147; Zintel Holdings, LLC v. McLean (2012) 209 Cal.App.4th 431, 438; David S. Karton, 231 Cal.App.4th at p. 607.) The term “prevailing party” for purposes of Section 1032 is defined as “includ[ing] the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant . . . .” (Code Civ. Code § 1032(a)(4).)

The last three circumstances in subsection (a)(4) do not apply here. With respect to the first, Rauch contends that Gouveia is not the prevailing party because she did not obtain a “net monetary recovery”. A “net monetary recovery” includes consideration of the results of both a plaintiff’s claims against a defendant and a defendant’s cross-claims against the plaintiff. (See Michell v. Olick (1996) 49 Cal.App.4th 1194, 1198 [“Certainly when the defendant in an action had filed a cross-complaint such that plaintiff and defendant had competing monetary claims, then the party in whose favor the net amount is due qualifies as the prevailing party, the party with a net monetary recovery”].)

Because the Court now looks at the total net monetary recovery of all claims, its consideration of the effect of the settlement compels a different “prevailing party” determination than the one the Court reaches in connection with the parties’ attorney’s fees motions. In Goodman v. Lozano (2010) 47 Cal.4th 1327, the court held that the plaintiff’s settlement with other defendants completely offset damages assessed by the remaining defendant, resulting in a zero judgment. Here, Gouveia paid $325,000 to Rauch to settle Rauch’s claims against her, and then recovered $162,500 against Rauch in the jury verdict for her Cross-Complaint. Gouveia’s net monetary recovery – as it pertains to all claims at issue in this litigation - was less than zero.

Rauch’s motion to strike Gouveia’s Memorandum is granted. Gouveia is not the prevailing party under Section 1032 and therefore cannot recover her costs.

IV. Motion for Prejudgment Interest

Gouveia has filed a “motion for award of pre-judgment interest or new trial”, requesting that the Court award her prejudgment interest that began to accrue when Rauch did not pay amounts due under the contract.

Civil Code Section 3287(b) provides: “Every person who is entitled under any judgment to receive damages based upon a cause of action in contract where the claim was unliquidated, may also recover interest thereon from a date prior to the entry of judgment as the court may, in its discretion, fix, but in no event earlier than the date the action was filed.” Section 3287(b) “allows the trial court the flexibility to determine whether an award of prejudgment interest is appropriate in light of the particular facts and circumstances in the case.

By allowing an award of prejudgment interest, but only for a limited time period and only if the trial court finds it reasonable in light of the factual circumstances of a particular case, Civil Code section 3287, subdivision (b), seeks to balance the concern for fairness to the debtor against the concern for full compensation to the wronged party.” (Faigin v. Signature Group Holdings, Inc. (2012) 211 Cal.App.4th 726, 751-752 [citations and internal quotations omitted].)

Paragraph 2.8 of the Letter Agreement provides that “Accounts unpaid 30 days after invoice date may be subject to a monthly service charge of $50 and will bear interest at the rate of 1.5% on the unpaid balance; and shall bear interest at a rate of 10% per annum or the maximum permissible by law.” Gouveia represents that the time from filing of the Cross- Complaint (July 1, 2021) to the jury verdict on February 27, 2026 is four years and 252 days. Therefore, Gouveia requests an award of prejudgment interest, at 10%, or $75,773.75. The total judgment would then be $238,273.75.

Rauch does not dispute Gouveia’s math as it pertains to how she calculates the $75,773.75 she seeks. Rather, Rauch argues that Gouveia should not be awarded any prejudgment interest at all because the jury verdict already gave her more than what she claimed to be her contract damages. Specifically, in her Issue Conference Statement, Gouveia stated that her contract damages were $130,646.28, and the jury awarded her $162,500. (See footnote 1.) Rauch argues that it is likely the jury already awarded Gouveia interest because Gouveia’s counsel made multiple references to the jury that Gouveia had been terminated from the project in late 2020 and had not received payment from Rauch since August 2020, and Gouveia’s RFA responses which also included this reference were introduced as an exhibit at trial and was provided to the jury to consider during deliberations.

Gouveia does not dispute that the jury award exceeded her claimed contract damages and does not provide any alternative explanation for this discrepancy.2 On the other hand, the Court finds that Gouveia is entitled to prejudgment interest as the parties expressly agreed to this in the Letter Agreement. The Court will therefore award Gouveia prejudgment interest of $43,920.03, which is the amount of the requested prejudgment interest minus $31,853.72 (the difference

2 The clerk’s records do not reflect the filing of a Reply in connection with this particular motion. If Gouveia did file a Reply, the Court requests that she bring an endorsed copy to the hearing.

between the jury verdict and Gouveia’s claimed contract damages). The total judgment including prejudgment interest will be $206.420.03.

All parties must comply with Marin County Superior Court Local Rules, Rule 2.10(B) to contest the tentative decision. Parties who request oral argument are required to appear in person or remotely by ZOOM. Regardless of whether a party requests oral argument in accordance with Rule 2.10(B), the prevailing party shall prepare an order consistent with the announced ruling as required by Marin County Superior Court Local Rules, Rule 2.11.

The Zoom appearance information for July, 2026 is as follows: https://marin-courts-ca-gov.zoomgov.com/j/1615487764?pwd=Ob4B5J7LLKcpnkxzJjjEOSHNzEGafG.1 Meeting ID: 161 548 7764 Passcode: 502070

If you are unable to join by video, you may join by telephone by calling (669) 254-5252 and using the above-provided passcode. Zoom appearance information may also be found on the Court’s website: https://www.marin.courts.ca.gov