Pueblo Radiology Medical Group, Inc. v. Gerlach

California Court of Appeal Jun 4, 2008 No. B194106Published

Before: Perren, Gilbert, Yegan

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Holding. The court held that individual defendants who successfully defeat an alter ego claim in a contract action are prevailing parties entitled to attorney fees under Civil Code section 1717, even if the underlying breach of contract claim against the corporation remains undecided.

Issues

Whether an award of attorney fees under Civil Code section 1717 is premature when the alter ego issue is decided in favor of individual defendants but the underlying breach of contract claim is not yet resolved.

Disposition. affirmed

Quotations verified verbatim against the opinion

“The trial court’s finding that Gerlach and Parker were not personally liable was a favorable termination of the case as to each of them as individuals.”

“The trial court’s determination that respondents 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.”

Opinion

PERREN, J.

— Appellant Pueblo Radiology Medical Group, Inc. (Pueblo), filed a breach of contract action against Vitascan, Inc. (Vitascan), and respondents J. Dalton Gerlach (Gerlach) and Daniel Parker (Parker). The allegations against Gerlach and Parker were that they were the alter egos of Vitascan. The trial court found they were not and judgment was entered accordingly, including an award of attorney fees to them under Civil Code section 1717.

Pueblo asserts the award of fees was premature because there has been no determination of whether a breach of contract occurred. We disagree. The action was on the contract. The trial court’s finding that Gerlach and Parker were not personally liable was a favorable termination of the case as to each of them as individuals. Accordingly, we affirm.

FACTUAL AND PROCEDURAL HISTORY

Pueblo entered into a contract with Vitascan to provide interpretation services of imaging scans from the Vitascan mobile Imatron electron beam tomography scanner. Gerlach signed the contract on behalf of Vitascan. Gerlach was Vitascan’s president, and Parker was Vitascan’s secretary. Gerlach and Parker were the sole shareholders.

The contract was for the period from June 1, 2001, to December 30, 2003. The contract contained an attorney fee clause as follows: “If litigation or

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arbitration shall be required to enforce this Agreement or address any dispute arising hereunder, the prevailing party, as determined by the court or arbitrator in the matter, shall be entitled to court or arbitration costs and reasonable attorneys’ fees from the other party(ies).”

In mid-March 2002, Vitascan advised Pueblo that its services were no longer needed. In June 2002, Pueblo filed a complaint for damages for breach of contract, common counts and an accounting, naming Vitascan, Gerlach and Parker as defendants. The complaint alleged that Gerlach and Parker were the alter egos of Vitascan. Vitascan ceased operations in September 2003 and filed for bankruptcy in March 2004.

Pueblo Radiology Medical Group, Inc. v. Gerlach

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PERREN, J.

FACTUAL AND PROCEDURAL HISTORY

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