Huene v. Guarantee Financial Real Estate

Filed 10/25/06 Huene v. Guarantee Financial Real Estate CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

APPEAL from a judgment of the Superior Court of Fresno County. Alan M. Simpson, Judge.

McCormick, Barstow, Sheppard Wayte & Carruth, David R. McNamara and Constance E. Roberts for Plaintiffs and Appellants.

Caswell Bell & Hillison, Robert K. Hillison and Randolf Krbechek for Defendants and Appellants.

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Each side appeals from a judgment for damages after a jury trial. Defendants’ appeal challenges the trial court’s resolution of ambiguity in the verdicts and the award of attorney fees. Plaintiffs’ cross-appeal contends the court erred in denying plaintiffs’ motion for new trial based on inadequacy of the award of damages or, alternatively, the judgment should be amended to a greater amount. We will reverse the damages portion of the judgment due to ambiguity of the verdicts and remand for a new trial on damages. Additionally, we will determine that the trial court did not abuse its discretion in awarding attorney fees; on remand, the court will be empowered to again award attorney fees.

FACTS AND PROCEDURAL HISTORY

Plaintiffs Donald R. Huene and Annette S. Huene, as Trustees of The Donald R. Huene and Annette S. Huene Family Trust (plaintiffs), owned a parcel of undeveloped real estate in Fresno. They entered into a listing agreement with defendant Guarantee Financial Real Estate Company, Inc. (Guarantee), through its agent, defendant James Phillips. (We will refer to Guarantee and Phillips collectively as defendants except when referring to actions taken by Phillips personally.) Plaintiffs agreed to sell the property to Daniel Stetson, also represented by defendant. (The dual role of the broker was properly disclosed.) The agreement contemplated immediate construction of improvements on the parcel, provided for payments to the seller by the buyer at five stages of that construction, and provided that the seller would subordinate its purchase money financing to buyer’s construction financing.

Phillips represented to plaintiffs that Stetson was an “accomplished developer, and he was reliable, trustworthy, and he also had what’s called a deep pocket.” After escrow had been opened, the title company discovered that Stetson had liens filed against him for unpaid taxes and child support. The title company notified Stetson and Phillips. Stetson then requested that his son, Scott Stetson (Scott), be substituted as buyer. Phillips represented to plaintiffs that Stetson wanted this substitution because Scott was in a lower tax bracket. Plaintiffs agreed and escrow closed.

Plaintiffs subordinated their loan to a construction loan. Scott soon defaulted on both loans. The construction lender conducted a foreclosure sale from which plaintiffs received about $70,000.

Plaintiffs sued Daniel and Scott Stetson, the construction lender, Guarantee, and Phillips. Plaintiffs served and recorded a notice of pendency of action (Code Civ. Proc., § 405.2 et seq.) against the Stetsons and the construction lender. (See id., § 405.22.) Thereafter, plaintiffs requested mediation from defendants, who declined.

The first amended complaint included causes of action against defendants for breach of contract, breach of fiduciary duty, intentional misrepresentation, negligent misrepresentation, rescission, and declaratory relief. The rescission and declaratory relief causes of action are against all of the defendants jointly.

The construction lender was dismissed from the case; Stetson settled with plaintiffs; Scott was dismissed from the action after he filed for bankruptcy. The case went to trial against defendants Guarantee and Phillips on the causes of action for breach of contract, breach of fiduciary duty, and intentional and negligent misrepresentation. The jury returned a separate special verdict form for each cause of action. It found for defendants on the intentional misrepresentation cause of action. It found for plaintiffs on the remaining three causes of action. On each of the three special verdict forms it awarded plaintiffs damages in the amount of $37,333.

After the verdicts were returned, counsel for plaintiffs pointed out that the verdicts were ambiguous as to the total amount the jury intended to award. After an unreported side-bar conference, the parties stipulated that the jury would be discharged and the court would resolve any ambiguity after briefing from the parties. The jury was discharged.

In posttrial proceedings, defendants contended the jury intended to award a total of $37,333 in damages. Plaintiffs contended the jury intended to award a total of $111,999. Plaintiffs also filed a motion for new trial on damages, contending that even an award of $111,999 was inadequate and in conflict with the undisputed evidence. The court determined the jury intended to award $111,999. The court also awarded plaintiffs attorney fees in the amount of $76,893.95, over defendants’ objection that the listing agreement required plaintiffs to offer to mediate the dispute before filing suit as a condition to its right to prevailing-party attorney fees. The court entered judgment accordingly. The court denied plaintiffs’ motion for new trial.

Defendants filed a timely notice of appeal; plaintiffs filed a timely cross-appeal from the order denying its motion for new trial.

DISCUSSION

I. The Appeal

A. The Verdicts.

1. Additional Facts.

Defendants did not address the issue of damages in argument to the jury; their attorney focused entirely on liability and causation issues. Plaintiffs’ counsel did argue the issue of damages. Counsel presented a summary to the jury that designated plaintiffs’ claimed damages as $201,010.48. Plaintiffs’ counsel also explicitly recognized the potentially confusing nature of the verdict forms to be submitted to the jury. He made the following statements at various points in his opening and closing argument to the jury:

“I’m going to take time to talk about [the instruction] that talks about duplicate damages. There are both tort theories and contract theories, but I’m, I’m not asking you, for example, if on all four of those causes of action, if you awarded me $201,000, trust me, [plaintiffs] wouldn’t get $804,000. Those damages would be duplicative, but it’s important to identify the different causes of action. In other words, even though the damages support a claim for breach of contract, they [may be] the same for intentional and negligent misrepresentation, as well as fraud . There is an instruction, and the court will address that, we won’t total up the amount at the end, but I think that the same damages apply to all four causes of action .”

“As I said, if you put the same amount of damages on all four [verdict forms], it will not total $800,000.”

“And again, remember this instruction on duplicate damages . [W]hen I’m asking you to put 201,000 in all of these claims, we don’t total it up at the end, the judge controls that, and the maximum that [plaintiffs] can recover is $201,000.”

“Now, when you go through the verdict forms, I think you will sign them, and I’m asking that you fill in the $201,010.48 on all of those claims.”

After instructing the jury on the elements of the breach of contract cause of action and prior to instructing on the tort causes of action, the court instructed: “[Plaintiffs have] made claims for breach of contract and intentional misrepresentation and negligent misrepresentation. If you decide that [plaintiffs have] proved both claims, the same damages that resulted from both claims, can be awarded only once.” (In the written version of the instructions provided to the jury, the final comma is omitted and the phrase reads: “the same damages that resulted from both claims can be awarded only once.”) The court then instructed the jury on the three tort causes of action.

The jury retired to deliberate. It sent out several notes to the trial judge over the course of the day, concluding with the following: “Can we have further instructions on how to apply damages? Do the damages accumulate for each item or do they [not].” The court consulted with counsel and they stipulated that the following response would be given to the jury: “Please refer to the jury instructions. Please consider them carefully. The instructions you have contain the answer to your question.”

Shortly thereafter, the jury returned the verdicts as described above. Before the jury was discharged, plaintiffs’ counsel stated: “Before the jury is discharged I think there is an inconsistency in the verdict.” After some further remarks to the jury concerning its service, the court conducted an unreported side bar conference. On the record, the court then stated: “The record should reflect the court and counsel had a brief side bar discussion and we have to the satisfaction of the court and counsel figured out a way to resolve any remaining dispute, if there is one.” Counsel concurred and the court discharged the jury.

After the members of the jury departed, the court summarized the side bar conference and stated, as relevant here: “The second issue was the question about the total damages and that is whether or not $37,333 would be awarded in total or whether $37,333 and another $37,333 and another $37,333 or some variance thereof would be awarded under the theories where there was an award in breach of fiduciary duty, breach of contract, and negligent misrepresentation, and we have discussed this during the side bar. We could ask the jury what they intended, but in discussing it further with counsel, it’s my understanding that counsel will brief this issue and we’ll have a hearing here in court regarding that .” Again counsel concurred. The court stayed the judgment and established a briefing schedule.

At the hearing on this issue, the court stated that its tentative ruling would be to enter judgment for damages in the amount of $111,999. Defendants’ counsel made reference to counsel’s argument to the jury, said that the tort verdicts clearly merged as a matter of law, and that plaintiffs had to elect between their contract damages and the merged tort damages. The court found that “the only substance from which one could draw an inference” that an aggregated award of damages would be duplicative “is the fact that the amounts [on each form] are equal.” The court reasoned that if the amounts had differed, reference to the argument and instructions would not, in themselves, lead to an inference that the three awards were for the same injury. As long as the aggregated amount was less than the total sought by plaintiffs, the court implied, the equal awards on each verdict form did not support a conclusion that the jury sought to award only $37,333 in total damages.

2. Discussion: Meaning of the Verdicts.

Defendants contend the trial court “trebled” the jury’s damage award. They also contend that, as a matter of law, plaintiffs were only entitled to recover their damages “once” because plaintiffs’ three causes of action all asserted a single primary right. Plaintiffs, on the other hand, contend that the record supports the trial court’s “interpretation” of the verdicts and that we must affirm the judgment if there is “substantial evidence” to support the finding that the jury intended to award damages of $111,999. The parties never quite come to grips with the real issue raised by the identical damages awards in each of the three verdicts.

The true issue is whether it is possible to determine what the verdicts mean at all -- that is, to determine what the jury actually intended to award as damages. If it could be determined that the jury in fact awarded damages of $111,999, then a judgment in plaintiffs’ favor in that amount would only award damages “once” on the primary right plaintiffs asserted in their various causes of action; in that case defendants’ argument would be meritless.^[1] Similarly, if it could be determined that the jury intended to award damages in the total amount of $37,333, the judgment could be reversed, but plaintiffs would be permitted to renew their new trial motion challenging the adequacy of damages. (Woodcock v. Fontana Scaffolding & Equip. Co. (1968) 69 Cal.2d 452, 459 (Woodcock).)

The first step, however, is to determine whether the intention of the jury can be clearly ascertained at all or whether the “verdict is hopelessly ambiguous.” (Woodcock, supra, 69 Cal.2d at p. 457.) Where, as here, the verdict is ambiguous on its face, our inquiry is whether “the intention of the jury [becomes] clear from the language of the verdict, considered in connection with the pleadings, the evidence and the instructions.” (Telles v. Title Ins. & Trust Co. (1969) 3 Cal.App.3d 179, 187; see also Woodcock, supra, 69 Cal.2d at p. 456.) If the intent does not become clear from this examination of the record, the matter must be remanded for retrial of the issue of damages. (Id. at p. 457.)

In this case, the complaint and the evidence are not helpful guides to the jury’s intent, since the causes of action submitted to the jury did not separately allege damages for each cause of action and the request for relief applied to all causes of action generally. Similarly, plaintiffs’ evidence made no attempt to assign either particular conduct of defendants or particular instances of harm to the separate causes of action. Further, nothing in the evidence suggests a basis for concluding plaintiffs’ damages were either $37,333 or $111,999. Neither the complaint nor the evidence suggests a resolution of the facial ambiguity of the verdict: did the jury allocate the total damages of $111,999 among the three causes of action or, instead, did the jury find total damages of $37,333 and indicate by repetition that the same conduct and injury could be characterized three different ways?

Nor do the jury instructions shed any further light on the issue. The jury was instructed on the elements of each separate cause of action. For, and only for, the breach of contract claim, the jury was instructed that it could award interest on the damages and the jury was instructed on mitigation of damages (plaintiffs are “not entitled to recover damages for harm that [defendants] prove could have been avoided with reasonable efforts or expenditures” by plaintiffs). The interest instruction, in particular, would seem to support the view that the jury would not simply have repeated the negligent misrepresentation damages (no interest) as the same damages arising from the breach of contract, instead of a figure 10 percent higher for the contract damages.

However, the jury also was instructed that plaintiffs had made claims under several distinct causes of action and that “the same damages that resulted from both [sic] claims can be awarded only once.” As quoted above, plaintiffs’ counsel expressly told the jury that if it separately entered $201,000 as the damages for each cause of action, the total judgment would be for only $201,000. The instruction and counsel’s argument might support an inference that the jury awarded the damages “only once” and repeated the same award for each cause of action. That inference is diminished somewhat both by the different measure of damages noted for the contract claim and by the fact, recognized by the trial court, that the amount awarded on each verdict form was not the maximum amount claimed by respondent and that the total of the three causes of action was still significantly below the total claimed damages of $201,000.

Further diminishing the likelihood of either possible inference is the jury’s own expression of confusion: after deliberating, the jury asked for “further instructions on how to apply damages.” In particular, the jury asked “Do the damages accumulate for each item or [not].” As noted, the trial court, in consultation with counsel, declined to provide further guidance.

As a result of all of these factors, we must conclude that the trial court erred in attributing a clear meaning to the verdicts. We conclude that the verdicts are hopelessly ambiguous and cannot be implemented through entry of judgment for either amount suggested by the parties. We will, therefore, reverse the judgment and remand for retrial of the issue of damages. (Woodcock, supra, 69 Cal.2d at p. 457.)

B. The Award of Attorney Fees.

Defendants’ appeal of the attorney fees award addresses primarily plaintiffs’ legal entitlement to attorney fees under the contract. Because we will determine the trial court committed no error in finding plaintiffs were so entitled and plaintiffs’ status as prevailing party is unlikely to change on remand, rather than deem this issue moot, we include this discussion.

Defendant Guarantee and plaintiffs entered into a listing agreement on a standard form promulgated by the California Association of Realtors. That form provides for attorney fees: “In any action between Seller and Broker regarding the obligation to pay compensation under this agreement, the prevailing Seller or Broker shall be entitled to reasonable attorney fees and costs .” It also contains a section entitled “Dispute Resolution.” The relevant provisions of that section contain an agreement to mediate any dispute or claim between the parties arising out of the listing agreement or any subsequent sale pursuant to the listing agreement and that a party who “commences an action without first attempting to resolve the matter through mediation shall not be entitled to recover attorney fees, even if they would otherwise be available to that party in any such action.” Finally, as relevant here, the dispute resolution section states: “The filing of a court action to enable the recording of a notice of pending action shall not constitute a violation of the mediation provisions.”

As noted in our summary of the history of this case, plaintiffs filed an action and recorded a notice of pendency of action before requesting mediation with defendants. Defendants objected to an award of attorney fees below on the basis that the request for mediation was not sent before commencement of the action. They contended that the listing agreement’s exception for litigation commenced to enable filing of a notice of pendency is inapplicable in this case because the notice did not name, and had nothing to do with, defendants. They renew that contention on appeal.

Defendants do not attempt a reasoned construction of the listing agreement that would import a requirement that the notice of pendency be directed to the other party to the listing agreement, where no such requirement exists in the plain words of the contract.^[2] Nor do they contend the notice of pendency was a sham, filed by plaintiffs in order to bypass the mediation requirement.

Two primary factors, beyond the plain meaning of the listing agreement, lead us in this case to the conclusion that plaintiffs satisfied the mediation-first requirement. Those factors are, first, that the complaint asserted two causes of action (rescission and declaratory relief) against all of the defendants jointly and, second, that plaintiffs offered to mediate the dispute almost immediately after filing the complaint and notice of pendency. (Defendants declined mediation precisely because the parties against whom the notice of pendency was filed were unavailable to participate in mediation.)

The mediation requirement acts as a forfeiture of the right to attorney fees “even if they would otherwise be available to that party in any such action,” as phrased in the listing agreement. Forfeiture provisions in contracts are strictly construed (Hawley v. Orange County Flood etc. Dist. (1963) 211 Cal.App.2d 708, 712-713) and ambiguities are resolved against the drafter to prevent a forfeiture (International Billing Services, Inc. v. Emigh (2000) 84 Cal.App.4th 1175, 1184).

The three cases upon which defendants rely are distinguishable. In two of the cases, the party seeking attorney fees had simply failed to offer mediation before suing. (See Leamon v. Krajkiewcz (2003) 107 Cal.App.4th 424, 426; Johnson v. Siegel (2000) 84 Cal.App.4th 1087, 1101.) In the third case, the party seeking fees had refused to mediate the dispute after the plaintiff had offered to do so. (Frei v. Davey (2004) 124 Cal.App.4th 1506, 1513.)

Our holding in this case is limited: Where a seller files an action against the buyer and the real estate broker to enable the recording of a notice of pending action against the buyer, the mediation condition of the listing agreement is met when the seller requests mediation of its dispute with the broker within a reasonable time after filing the action. We express no opinion on circumstances in which the seller does not request mediation after the action is filed, or where the seller files a notice of pendency only against a broker who has no interest in the property subject to such notice.

Defendants also contend the award was excessive because the attorney fees clause of the listing contract, by its terms, applied only to any action “regarding the obligation to pay compensation under this agreement.” According to defendants, most of plaintiffs’ attorney fees arose from prosecuting the tort claims, not the breach of contract claim seeking refund of the compensation (commission) paid to defendants.

Defendants, however, fail to address in any way Civil Code section 1717, subdivision (a), cited to and impliedly relied upon by the trial court. That section states, in relevant part: “Where a contract provides for attorney’s fees, that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract.” As explained in Harbor View Hills Community Assn. v. Torley (1992) 5 Cal.App.4th 343, 348-349, Civil Code section 1717 was amended in 1983 specifically to expand the right to attorney fees in circumstances such as those present in the case before us. Further, the contract and tort claims were closely intertwined. (See Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1111.) The trial court did not abuse its discretion in its award of attorney fees.

II. The Cross-Appeal

Plaintiffs contend they are entitled to entry of judgment in the amount of $201,010.48 because the proof of damages “was uncontroverted and determined with objective, mathematical criteria.” Although plaintiffs cite ample authority for the proposition that inadequate damages can support an award of a new trial on the issue of damages (see, e.g., Wilson v. R.D. Werner Co. (1980) 108 Cal.App.3d 878, 883; Buniger v. Buniger (1967) 249 Cal.App.2d 50, 54-55 [trial court’s denial of new trial motion reversed]), plaintiffs do not cite any authority for the proposition that this court can remedy a claim of inadequate damages by ordering entry of judgment in the amount a plaintiff has proved.

In very limited circumstances, a trial court can enter an award for damages on a plaintiff’s motion for judgment notwithstanding the verdict (JNOV). (See Spillman v. City etc. of San Francisco (1967) 252 Cal.App.2d 782, 786.) In the present case, plaintiffs did not file a JNOV motion in the trial court and did not attempt in the trial court to establish its right to JNOV. (See Code Cov. Proc., § 629 [After verdict, court “shall render judgment in favor of the aggrieved party notwithstanding the verdict whenever a motion for a directed verdict for the aggrieved party should have been granted had a previous motion been made.”].) Accordingly, we decline to consider the issue for the first time on appeal.

DISPOSITION

The judgment is reversed and remanded for a new trial on the issue of damages. The award of attorney fees is vacated, subject to the power of the trial court to award attorney fees at the conclusion of proceedings on remand. The parties shall bear their own costs on appeal.

_____________________________

VARTABEDIAN, Acting P. J.

WE CONCUR:

________________________________

CORNELL, J.

________________________________

DAWSON, J.

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^[1] In no event did the trial court award treble damages as a punitive measure, as defendants also assert; the court merely concluded that the jury had sought to award compensatory damages in the larger total amount. We additionally note that, on appeal, defendants distort a significant portion of the events that led to the court’s resolution of the ambiguity in the verdict. We offer two examples. While plaintiffs’ brief reports only that plaintiff’s counsel acceded to the court’s summary of the side bar, the brief does not report that, immediately prior to discharge of the jury and before the exchange in which the court summarized the agreement to resolve the issue through further briefing, both counsel expressly agreed when the court advised the jury that “we have to the satisfaction of the court and counsel figured out a way to resolve any remaining dispute, if there is one.” Additionally, the court made no ruling that “the final amount of damages is a question of law not a question of fact to be resolved by the jury,” as is represented by plaintiffs. Not only was the court merely implementing a stipulation of counsel entered into at the side bar conference, the stipulation in no way limited the parties’ arguments in the trial court to issues of law. That is, any party was free to argue that the jury had, in fact, determined the final amount of damages.

^[2] We note that in the typical situation involving a nonowner real estate broker, the broker would never have an interest in the property chargeable by a notice of pendency of action. A construction that limited the agreement’s exception to actions in which the notice of pendency addresses the interest of the opposing party deprives the exception of any meaning for sellers.