U.S. Grant Hotel Ventures v. American Property Management Corp. CA4/1 (2016) · DecisionDepot
U.S. Grant Hotel Ventures v. American Property Management Corp. CA4/1
California Court of Appeal May 11, 2016 No. D066490AUnpublished
Filed 5/11/16 U.S. Grant Hotel Ventures v. American Property Management Corp. CA4/1 OPINION ON REHEARING
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
U.S. GRANT HOTEL VENTURES, LLC, D066490
Plaintiff and Respondent,
v. (Super. Ct. No. GIC 845130)
AMERICAN PROPERTY MANAGEMENT CORPORATION et al.,
Defendants and Appellants.
APPEAL from an order of the Superior Court of San Diego County, Joan
Lewis, Judge. Affirmed.
Williams Iagmin and Jon R. Williams for Defendants and Appellants.
Procopio, Cory, Hargreaves & Savitch, Anthony J. Dain, Frederick K.
Taylor and Brian J. Kennedy, for Plaintiff and Respondent.
American Property Management Corporation (APMC), APMC San Diego
Hotel Management, LLC (Hotel Management), and Michael Gallegos appeal from
an order awarding U.S. Grant Hotel Ventures, LLC (USG) attorney's fees as the
prevailing party on its tort claims for breach of fiduciary duty and conversion
arising out of a contract. Appellants contend the trial court erred in awarding USG
its attorney's fees. We filed our opinion, reversing the award of attorney's fees
The "party prevailing" is "the party who recovered a greater relief in the action on
the contract." (§ 1717, subd. (b)(1).)
We review a trial court's prevailing party determination for abuse of
discretion and its determination of the legal basis for an award of attorney fees de
novo. (Silver v. Boatwright Home Inspection, Inc. (2002) 97 Cal.App.4th 443,
448-449.) In interpreting a contract, we apply the general rules of contract
interpretation with the objective of giving effect to the mutual intent of the parties
at the time of contracting. (City of Chino v. Jackson (2002) 97 Cal.App.4th 377,
382.) Where no extrinsic evidence is offered to interpret the agreement, it is solely
a judicial function to interpret the written instrument. (Id. at pp. 382-383.)
II. Analysis
The Operating Agreement provided: "If any legal action . . . is commenced
arising out of this Agreement, the prevailing party shall be entitled to an award of
its attorneys' fees and expenses . . ." "The phrase 'prevailing party' shall include a
party who receives substantially the relief desired whether by dismissal, summary
judgment, judgment or otherwise." The language of this provision is broad
enough to encompass both contract actions and actions in tort. (Lerner v. Ward
(1993) 13 Cal.App.4th 155, 157-158, 160 [noting the language " 'arising out of this
agreement' " supported an award of attorney's fees for tort-based causes of
action].)
The Operating Agreement does not define the word "party" and the attorney
fee provision is not limited to the actual parties to the contract. (Compare,
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Blickman, supra, 162 Cal.App.4th at p. 896 [attorney fees provision expressly
limited to " 'litigation between the parties hereto' " precludes recovery by third
parties].) Accordingly, USG may be entitled to the benefit of the attorney fee
provision if it is a party or a third party beneficiary to the Operating Agreement.
The jury concluded that USG and Hotel Management did not enter into the
Operating Agreement. Thus, USG is not a party to the Operating Agreement in
the traditional sense. (Black's Law Dictionary (10th ed. 2014), p. 1297 [defining
"party" as someone taking part in a transaction].) Nonetheless, under California
law, third party beneficiaries of contracts have the right to enforce the terms of a
contract made expressly for their benefit. (§ 1559.) " 'If the terms of the contract
necessarily require the promisor to confer a benefit on a third person, then the
contract, and hence the parties thereto, contemplate a benefit to the third person.' "
(Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th
1004, 1022.)
"The party claiming to be a third party beneficiary bears the burden of
proving that the contracting parties actually promised the performance which the
third party beneficiary seeks. This remains largely a question of interpreting the
written contract." (Loduca v. Polyzos (2007) 153 Cal.App.4th 334, 341.) While
third party beneficiary status is often a question of fact, where "the issue can be
answered by interpreting the contract as a whole and doing so in light of the
uncontradicted evidence . . . the issue becomes one of law that we resolve
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independently." (Prouty v. Gores Technology Group (2004) 121 Cal.App.4th
1225, 1233.)
As a threshold matter, while belated, USG did rely on a third party
beneficiary theory before the trial court. Additionally, USG argued this theory in
its respondent's brief on appeal. Thus, we reject Hotel Management's argument
that USG waived this theory.
As Hotel Management concedes, the Operating Agreement burdened USG
with certain duties and responsibilities, including: indemnifying Sycuan Investors
or Hotel Management; entering into the Managing Agreement; reimbursing Hotel
Management's expenses in connection with the formation and organization of
USG; maintaining bank accounts in its name; and being liable for the return of
Sycuan Investors's capital account. Additionally, the Operating Agreement
created contractual duties that Hotel Management owed to USG, including not
taking certain actions impacting USG without prior written approval from Sycuan
Investors. The Operating Agreement also expressly provided that Hotel
Management owed USG a fiduciary duty. Critically, the Operating Agreement
does not expressly disclaim that it creates any rights or confers any benefits on
third parties. The Operating Agreement, as a whole, shows the intent to benefit
USG, thus qualifying USG as a third party beneficiary. We reject Hotel
Management's argument that this matter should be remanded to the trial court to
determine the parties' intent as the provisions of the Operating Agreement are
unambiguous. (Wolf v. Walt Disney Pictures & Television (2008) 162
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Cal.App.4th 1107, 1126.) Where, as here, the contract is clear and explicit, the
parties' intent is determined solely by reference to the language of the agreement.
(See §§ 1638, 1639, 1641, 1644.)
To be entitled to a contractual fee award under section 1717, USG must be
"the party prevailing on the contract." (§ 1717, subd. (b)(1).) We first address
whether USG's claims were "on the contract" and then examine whether USG was
the prevailing party on these claims.
" 'Whether an action is based on contract or tort depends upon the nature of
the right sued upon, not the form of the pleading or relief demanded. If based on
breach of promise it is contractual; if based on breach of a noncontractual duty it is
tortious. [Citation.] If unclear the action will be considered based on contract
rather than tort. [Citation.] [¶] In the final analysis we look to the pleading to
determine the nature of plaintiff's claim.' " (Kangarlou v. Progressive Title Co.,
Inc. (2005) 128 Cal.App.4th 1174, 1178-1179 (Kangarlou).) We liberally
construe the phrase "on a contract" to extend to any action that involves a contract.
(Turner v Schultz (2009) 175 Cal.App.4th 974, 979-980.) One court distilled the
following principle: "An action (or cause of action) is 'on a contract' for purposes
of section 1717 if (1) the action (or cause of action) 'involves' an agreement, in the
sense that the action (or cause of action) arises out of, is based upon, or relates to
an agreement by seeking to define or interpret its terms or to determine or enforce
a party's rights or duties under the agreement, and (2) the agreement contains an
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attorney fees clause." (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012)
211 Cal.App.4th 230, 241-242.) Both of these prongs are satisfied.
USG sued Hotel Management for breach of the Operating Agreement,
breach of fiduciary duty and conversion. The Operating Agreement shows that
Hotel Management agreed to be USG's manager and assumed a contractual
fiduciary duty to USG. USG alleged that Hotel Management improperly
transferred $1.35 million from USG's operating account and claimed this transfer
amounted to conversion and breach of the fiduciary duty that Hotel Management
owed to USG under the Operating Agreement. These claims were based on the
Operating Agreement for purposes of an attorney fees award under section 1717.
(Kangarlou, supra, 128 Cal.App.4th at pp. 1178-1179 [breach of fiduciary duty
claim arising out of escrow agreement entitled prevailing plaintiff to attorney fees
under section 1717]; Mustachio v. Great Western Bank (1996) 48 Cal.App.4th
1145, 1151 [conversion claim based on contract allowed fee award under section
1717].)
USG did not prevail on its claim for breach of the Operating Agreement as
the jury concluded that USG did not enter into the Operating Agreement with
Hotel Management. USG, however, prevailed on both its breach of fiduciary duty
and conversion claims with the jury awarding it $1.35 million in damages. Where,
as here, neither party obtained a complete victory on all contract claims, the trial
court has the discretion to determine which party prevailed on the contract. (Scott
Co. of Calif. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.) In making this
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determination the trial court compares the relief awarded on the contract claims
with the parties' demands and litigation objectives. (Ibid.) We determine that the
trial court did not abuse its discretion in concluding that USG was the prevailing
party on the Operating Agreement.
Section 1717 authorizes attorney's fees "to the prevailing party . . . whether
he or she is the party specified in the contract or not . . . ." A nonsignatory who
prevails in an action on the contract is entitled to attorney's fees provided it would
have been liable for fees had the other party prevailed. (Reynolds Metals Co. v.
Alperson, supra, 25 Cal.3d at p. 129.) Here, had Hotel Management prevailed on
the breach of fiduciary duty and conversion claims USG would have been liable
for fees. As third-party beneficiaries to the Operating Agreement USG was
entitled to attorney's fees by operation of the contract. (Steve Schmidt & Co. v.
Berry (1986) 183 Cal.App.3d 1299, 1313, 1315-1317 [a third party beneficiary of
a contract is entitled to attorney's fees if he is a prevailing party in litigation on the
contract].) We therefore conclude that the trial court properly awarded USG its
attorney's fees. Based on this conclusion, we need not address the parties'
remaining arguments.
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DISPOSITION
The order is affirmed. USG is awarded its costs on appeal.
McINTYRE, J.
WE CONCUR:
HUFFMAN, Acting P. J.
NARES, J.
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AI Brief
AI-generated · verify before citing
Holding. The court held that a nonsignatory third-party beneficiary to a contract containing an attorney's fee provision is entitled to recover attorney's fees under Civil Code section 1717 when it prevails on tort claims that arise out of that contract.
Issues
Whether a nonsignatory third-party beneficiary may recover attorney's fees under Civil Code section 1717.
Whether tort claims for breach of fiduciary duty and conversion can be considered 'on a contract' for purposes of a contractual attorney's fee provision.
Whether the trial court abused its discretion in determining the prevailing party on the contract.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“The Operating Agreement, as a whole, shows the intent to benefit USG, thus qualifying USG as a third party beneficiary.”
“A nonsignatory who prevails in an action on the contract is entitled to attorney's fees provided it would have been liable for fees had the other party prevailed.”