Contreras Construction v. Fansler

Filed 9/17/08 Contreras Construction v. Fansler CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from a judgment of the Superior Court of San Diego County, Judith F. Hayes, Judge. Affirmed.

M.R. Contreras Construction, Inc. (the company) and Manuel R. Contreras appeal from a judgment awarding attorney fees and costs of almost $30,000 to Edmund M. Fansler and Kim L. Fansler as trustees of the Fansler Family Living Trust (together the Fanslers) under Civil Code section 1717 and the attorney fees provision of a home renovation contract (the contract) into which the parties had entered. The company sued the Fanslers for money they allegedly owed under the contract, and the Fanslers cross-complained against the company and Contreras for negligence and breach of contract (among other claims), alleging they failed to complete the project in a timely fashion and the work was substandard.

Following a bench trial, the court awarded damages in favor of both the Fanslers and the company─$54,250 to the Fanslers and $38,958 to the company─and found that (1) the company's Code of Civil Procedure section 998 offer to settle the Fanslers' lawsuit in the amount of $90,001 was ambiguous and unenforceable, and (2) the Fanslers were the prevailing parties for purposes of awarding attorney fees and costs.

The company and Contreras contend (1) the court abused its discretion in finding that the Fanslers were the prevailing parties pursuant to Civil Code section 1717, and (2) the court abused its discretion in finding that the Code of Civil Procedure section 998 offer to compromise was ambiguous and not subject to acceptance. We conclude the court did not abuse its discretion. Accordingly, we affirm the order and judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Contreras is the company's owner and managing agent. The Fanslers entered into a written contract with the company for the renovation of their home in Coronado. Section 11 of the contract contained the following attorney fees provision: "Attorney Fees. If either party becomes involved in litigation arising out of this contract or the performance thereof, the court in such litigation, or in separate suit, shall award reasonable costs and expenses, including attorney fees to the prevailing party. In awarding attorney fees, the court will not be bound by any court fee schedule; but shall, if it is in the interests of justice to do so, award the full amount of costs, expenses, and attorney fees paid or incurred in good faith." (Italics added.)

The contract price of $487,500 included a complete remodel of the Fanslers' residence in accordance with architectural plans and design drawings they furnished to the company. The Fanslers subcontracted out several jobs involving kitchen cabinets, wood flooring, doors, and plumbing fixtures.

The Fanslers intended to move out of their home and into a rental unit for eight months, the agreed-upon duration of the construction project specified in the contract. The actual length of construction exceeded 16 months.

At some point after construction began, the Fanslers began to notice problems in the quality of the work and the level of supervision of the company's workers. Contreras and the company had numerous job supervisors during the project, some of whom complained to the Fanslers about the number of untrained laborers working on the job. In turn, the Fanslers complained to Contreras about the untrained workers and insisted they not return to the job site. According to one supervisor, the workmanship of the untrained workers was so poor that much of the work had to be dome two or three times, resulting in delays.

Most of the delay problems were occasioned by Contreras's lack of supervisory involvement. However, one of the delays, which did not exceed two months and was not attributable to Contreras, resulted from the only change in the contract: the addition of about 120 square feet to the downstairs media room.

Finally, in April 2004, about 16 months after the commencement of the project, the Fanslers sent Contreras and the company a letter of termination.

During the remodel work, two of the subcontractors hired by the company recorded mechanics liens against the Fanslers' property for nonpayment, and ultimately filed two separate actions against the company and the Fanslers to foreclose those liens.^[1] The two cases were eventually consolidated.

The company cross-complained against the Fanslers claiming they owed money due under the contract and for extra work performed at the Fanslers' request.

The Fanslers cross-complained against Contreras and the company for breach of contract, negligence, constructive fraud, contribution, express indemnity, implied indemnity and recovery on a license bond, claiming that the company failed to complete the project in a timely and workmanlike fashion, and that Contreras was personally liable as the supervising general contractor. Counsel for both the company and Contreras filed a single answer to the Fanslers' cross-complaint on their behalf, answering each allegation jointly without differentiating.

On August 30, 2006, the company served on the Fanslers a Code of Civil Procedure section 998 offer to compromise in the amount of $90,001 (hereafter the section 998 offer) "as full and final judgment in favor of [the Fanslers]." However, the section 998 offer, which was prepared and served by attorneys Russell Arens and Laura Thatcher, named only the company as the party making the offer. The Fanslers did not respond to the offer, which was deemed rejected by operation of law.

In their written closing argument following a bench trial, the Fanslers requested $145,767.90 in damages on their claim for breach of contract, plus $141,375 in damages on their claim for negligence. In their written closing argument, Contreras and the company requested either (1) $82,862.95, consisting of $56,580 allegedly owed under the contract plus $26,282.95 allegedly owed for extra work completed; or (2) $41,500 allegedly incurred by the company to defend and resolve the subcontractors' mechanics' liens cases.

In its amended statement of decision, the court found that the slow progress and resulting delay in completion of the project was primarily attributable to Contreras's failure on behalf of the company to meet the standard of care in the management and supervision of job supervisors, subcontractors, and workers employed by the company; and Contreras admitted his failure to supervise in an apologetic message he left on the Fanslers' message machine. The court rejected the claim by Contreras and the company that the eight-month delay in completion of the project was caused by an excessive number of changes proposed by the Fanslers and found that the only significant change in the contract, which caused at most a two-month delay that was not attributable to Contreras, was the enlargement of the downstairs media room.

The court also found that in failing to complete the work in a timely fashion and in performing work that fell below the standard of care for general contractors in the community, the company was liable for both breach of contract and negligence; and Contreras was liable for his negligent failure to supervise the work and the workers.

Concluding that the Fanslers could not recover damages on their cross-complaint under both a contract theory and a tort theory, the court found the company was liable for breach of contract and both Contreras and the company were jointly and severally liable for negligence, and awarded to the Fanslers damages in the amount of $54,250 for repairs and completion costs for work that was the subject of the contract. The court awarded $38,958 in damages to the company on its cross-complaint. After offsetting the damages awarded to the company on its cross-complaint, the court stated it intended to enter judgment in favor of the Fanslers and against Contreras and the company in the net amount of $15,292.

The Fanslers brought a motion for attorney fees and costs under Code of Civil Procedure sections 1032 and 1033.5 and Civil Code section 1717, arguing they were the prevailing parties. The company and Contreras brought a similar motion claiming they were the prevailing parties because (1) Contreras was the prevailing party under Code of Civil Procedure section 1032 as the Fanslers did not prevail against him on any of their causes of action, and (2) the company was the prevailing party under Civil Code section 1717 as it recovered the greater relief in the action on the contract. In that motion, the company also claimed it was entitled to costs, including attorney fees, from August 30, 2006, under Code of Civil Procedure section 998 because the Fanslers rejected the $90,001 section 998 offer that the company made on that date but they failed to obtain a more favorable judgment.

On July 27, 2007, after hearing the motion and taking the matter under submission, the court issued a formal order finding that the company's section 998 offer was "ineffective to shift costs" to the Fanslers because it was "uncertain as to whether, if [the Fanslers] settled against the [company], they would then be required to proceed against the individual defendant[, Contreras]," and "[t]his ambiguity [made] the offer not subject to acceptance and constitute[d] a fatal defect under [Code of Civil Procedure] section 998." The court also found that the Fanslers were the prevailing parties and entitled to costs, including attorney fees, but excluding expert witness fees.

On that same date, the court entered judgment against Contreras and the company, jointly and severally, on the Fanslers' cross-complaint in the amount of $54,250 plus attorney fees in the amount of $27,279 and ordinary costs in the amount of $2,226.88; and against the Fanslers on Contreras and the company's complaint in the amount of $38,958. This appeal followed.

DISCUSSION

I. FINDING THAT THE FANSLERS WERE THE PREVAILING PARTIES

Contreras and the company contend the court abused its discretion in finding the Fanslers were the prevailing parties under Civil Code section 1717. We reject this contention.

A. Applicable Legal Principles

Civil Code section 1717 governs the award of attorney fees in an action based upon a contract and authorizes an award of reasonable attorney fees to the "party prevailing on the contract" if the contract provides for an award of attorney fees. (Civ. Code, 1717, subd. (a).)^[2] A trial court is given wide discretion in determining which party is the prevailing party within the meaning of Civil Code section 1717, and we will not disturb the trial court's determination absent a clear abuse of discretion. (Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1158 (Sears).) "The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason." (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478.)

The statutory language of Civil Code section 1717, however, does not explain what considerations should guide the trial court in the exercise of that discretion. (Hsu v. Abbara (1995) 9 Cal.4th 863, 871 (Hsu).) In determining litigation success and who prevailed for purposes of that section, trial courts "should be guided by 'equitable considerations.'" (Id. at p. 877; see also Sears, supra, 60 Cal.App.4th at p. 1151.)

Subdivision (b)(1) of Civil Code section 1717 provides in part (with exceptions not pertinent here) that "the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract." (Italics added.) The phrase "greater relief . . . on the contract" does not necessarily mean greater monetary relief. (Sears, supra, 60 Cal.App.4th at p. 1154.)

Although the trial court has discretion under Civil Code section 1717 to determine who, if anyone, is the prevailing party on the contract, that section also contemplates that a party prevailing on a contract will "receive attorney fees as a matter of right . . . whenever the statutory conditions have been satisfied." (Hsu, supra, 9 Cal.4th at p. 872, italics omitted.) Accordingly, "[w]hen a party obtains a simple, unqualified victory by completely prevailing on or defeating all contract claims in the action and the contract contains a provision for attorney fees, [Civil Code] section 1717 entitles the successful party to recover reasonable attorney fees incurred in prosecution or defense of those claims. [Citation.] If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees." (Scott Co. of California v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.)

The California Supreme Court has explained that "in deciding whether there is a 'party prevailing on the contract,' the 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 similar sources." (Hsu, supra, 9 Cal.4th at p. 876.) The Hsu court, however, did not preclude the trial court from considering other equitable factors bearing on the question of which party prevailed by obtaining "greater relief . . . on the contract" for purposes of Civil Code section 1717.

B. Analysis

Contreras and the company acknowledge that the court awarded the Fanslers damages on the contract in the amount of $54,250, and it awarded only $38,958 in damages on the contract to the company, such that the Fanslers "won" damages on the contract in the net amount of $15,292.

However, Contreras and the company maintain the company was the prevailing party within the meaning of Civil Code section 1717 because the comparative relief the company obtained on the contract was greater than that received by the Fanslers. Specifically, Contreras and the company assert that the Fanslers demanded at trial $145,767.90 on their breach of contract claim, plus $141,375 on their negligence claim, and thereby sought damages in the total amount of $287,142.90; and their net damages award of $15,292 was less than 6 percent of that total amount. Contreras and the company maintain the company obtained greater relief because it demanded either $82,862.95 or $41,500, depending on the court's interpretation of the contract; it was awarded damages in the amount of $38,958; and thus it received 47 percent of the $82,862.95 request, or 94 percent of the alternative $41,500 request.

We reject the contention by Contreras and the company that the company obtained the "greater relief . . . on the contract" within the meaning of Civil Code section 1717. First, their premise that the Fanslers sought damages in the total amount of $287,142 is unavailing. It is true that in their written closing argument the Fanslers asked for $145,767.90 on their breach of contract claim, plus $141,375 on their negligence claim, for a total of $287,142.90. However, citing Pugh v. See's Candies, Inc. (1988) 203 Cal.App.3d 743, 760, the court properly found in its amended statement of decision that the Fanslers could not recover damages on their cross-complaint under both a contract theory and a tort theory.

Second, and more important, the overriding equitable consideration in this matter is that this breach of contract action arose because the company breached the contract by failing to complete the remodel project within the promised eight-month period, and many of the work quality problems underlying this dispute were attributable to the negligence of the company's owner and managing agent, Contreras. Specifically, Contreras and the company do not contest the court's findings that (1) in failing to complete the work in a timely fashion and in performing work that fell below the standard of care for general contractors in the community, the company was liable for both breach of contract and negligence; and (2) Contreras was liable for his negligent failure to supervise the work and the workers.

For the foregoing reasons, we conclude under Civil Code section 1717 the court did not abuse its discretion in finding that the Fanslers were the prevailing parties.

II. UNENFORCEABILITY OF THE SECTION 998 OFFER TO COMPROMISE

Contreras and the company also contend the court abused its discretion in finding that the $90,001 section 998 offer to compromise was ambiguous and not subject to acceptance. We reject this contention.

A. Standard of Review

De novo review is required where the matters before the appellate court involve the resolution of pure questions of law. (Topanga and Victory Partners v. Toghia (2002) 103 Cal.App.4th 775, 779-780.) To the extent we are called upon to review the trial court's interpretation of a written instrument, we apply a de novo standard of review unless the trial court's interpretation turns upon the credibility of extrinsic evidence. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) In this case, we review de novo the court's determination that the section 998 offer was ambiguous and unenforceable, as we are called upon to review the court's interpretation of that written offer.

B. Background

In support of its ruling that the company's section 998 offer was "ineffective to shifts costs" to the Fanslers, the court found that there was a "unity of interest" between the company and Contreras. The court noted that counsel for both the company and Contreras filed a single answer to the Fanslers' cross-complaint on their behalf, answering each allegation jointly without differentiating the company from Contreras; and their counsel never withdrew as counsel for Contreras. The court also noted that on January 5, 2007, counsel for the company and Contreras submitted a single closing argument brief on their behalf, and thereafter appeared as counsel for both of them. The court then found it was "uncertain" whether the Fanslers, if they settled against the company, would then be required to proceed against Contreras, and this "ambiguity" made the section 998 offer "not subject to acceptance and constitute[d] a fatal defect under [Code of Civil Procedure] section 998."

C. Analysis

"'[A] section 998 offer must be strictly construed in favor of the party sought to be subjected to its operation.'"(Burch v. Children's Hospital of Orange County Thrift Stores, Inc. (2003) 109 Cal.App.4th 537, 543 (Burch); Barella v. Exchange Bank (2000) 84 Cal.App.4th 793, 799.)

Here, it is undisputed that both the company and Contreras were parties to this litigation at the time the section 998 offer was made. The section 998 offer was titled, "DEFENDANT [COMPANY'S] CODE OF CIVIL PROCEDURE  998 OFFER TO COMPROMISE"; and it was prepared by Arens and Thatcher, and signed by Thatcher, on behalf of the company only. The body of the offer stated that "Cross-Defendant [company] hereby offers NINETY THOUSAND ONE DOLLARS AND NO/100 ($90,001) as full and final judgment in favor of Cross-complainants [the Fanslers] with all the requirements and penalties found in [Code of Civil Procedure] section 998 as if fully set forth[] herein. [] Each party agrees to bear their [sic] own costs, and by acceptance of his offer of settlement, the plaintiff expressly waives any claim for attorneys fees." (Original boldface, italics added.)

Citing Code of Civil Procedure section 577, the California Supreme Court has explained that "[a] judgment is the final determination of the rights of the parties." (Griset v. Fair Political Practices Com'n (2001) 25 Cal.4th 688, 697, italics added.)

The language of the section 998 offer at issue here indicated that the company, as the sole offeror, was offering $90,001 "as full and final judgment" in favor of the Fanslers on their cross-complaint. However, the company was not the only cross-defendant named in that pleading. Contreras was also named as a cross-defendant, and, at the time the company made its section 998 offer, Contreras was still a cross-defendant against whom the Fanslers were seeking to recover damages based on theories of liability that did not include breach of contract, one of the claims alleged against the company.

The company's section 998 offer did not promise a "full and final judgment" against both the company and Contreras in exchange for the Fanslers' acceptance of the offer. Because it failed to do so, the section 998 offer was fatally ambiguous as to whether the Fanslers' acceptance of the offer would result in a final determination of the rights of all of the parties in this matter, including Contreras. Absent such a determination, there could be no "full and final judgment."

Construing the written section 998 offer strictly in favor of the Fanslers, as we must (Burch, supra, 109 Cal.App.3d at p. 543), we conclude the offer was ambiguous and thus unenforceable under Code of Civil Procedure section 998, as the court properly found, because (1) a unity of interest existed between the company and Contreras; (2) both the company and Contreras were parties to this litigation at the time the offer was made; (3) the offer indicated on its face that a "full and final judgment" in favor of the Fanslers would result in the event they accepted the offer; and (4) any reasonable offerees in the Fanslers' position would similarly conclude the offer was ambiguously silent as to whether the Fanslers' cross-claims against Contreras would be compromised upon acceptance of the offer. Accordingly, we conclude the court did not err.

DISPOSITION

The judgment is affirmed. The Fanslers shall recover their costs on appeal.

NARES, J.

WE CONCUR:

HUFFMAN, Acting P. J.

AARON, J.

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^[1] The subcontractors settled their claims before trial and are not parties to this appeal.

^[2] Civil Code section 1717, subdivision (a) provides: "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." (Italics added.)