Temple v. Kors

Filed 8/29/06 Temple v. Kors CA1/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.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

FIRST APPELLATE DISTRICT

DIVISION ONE

Alette and Robert Temple sued their professional adoption facilitator, Nancy Hurwitz Kors, after learning that the putative birthmother they met through Kors had faked her pregnancy and defrauded them out of several thousand dollars. The Temples eventually voluntarily dismissed their suit against Kors whereupon Kors moved for an award of attorney fees as the prevailing party under Family Code section 8635. The trial court denied the motion, finding that neither side was a prevailing party for purposes of that section. On appeal, Kors contends that she is entitled to fees as a matter of law. We affirm the trial court’s ruling denying a fee award.I. BACKGROUND

Kors is a professional adoption facilitator. (See Fam. Code, § 8623 et seq.)[1] In December 2003, Kors entered into a contract to provide adoption facilitation services to the Temples. Under the contract, Kors was to be paid a fee of $12,950 for her services in attempting to locate and match the Temples with a prospective birthmother, and for acting as an intermediary between the Temples and the birthmother and assisting them in making decisions relating to the adoption process.

Through Kors, the Temples were matched with prospective birthmother, Maya-Ann Mays, who lived in Oregon. Beginning in January 2004, the Temples paid out $11,639 to Mays and to third party vendors for Mays’s travel, medical expenses, and other expenses ostensibly related to her pregnancy. During this time, Kors corresponded with Mays and the Temples and, according to the Temples, repeatedly reassured them that Mays’s claimed expenses were legitimate. In March 2004, a medical test that Mays had kept postponing established that she had never in fact been pregnant. Mays was promptly arrested in the Bay Area. A jury eventually found her guilty of three felony grand theft counts for obtaining money and other goods from the Temples by falsely representing that she was pregnant and would allow the Temples to adopt her unborn child.

The Temples sued Mays and Kors in June 2004. The complaint alleged causes of action for rescission of the adoption facilitation contract, fraud, breach of contract, civil conspiracy, and negligence. The principal allegations against Kors were that she: (1) falsely represented that she would use her best efforts to match the Temples with a suitable birthmother when, in fact, she made no effort to determine if the birthmothers she introduced to the Temples were suitable or even pregnant; (2) breached the contract by, among other things, failing to advertise or conduct outreach programs sufficient to ensure an adequate number of birthmother leads and failing to adequately screen the leads she received; (3) regularly encouraged the Temples to send money to Mays for numerous expenses and, when they balked at some of the expenses, pressured them to continue paying lest they lose their opportunity to adopt Mays’s baby; (4) assured the Temples that Mays was pregnant and that Kors had medical proof of the pregnancy, when in fact she had no such proof; (5) knew or should have known that Mays was not pregnant, yet nevertheless conspired and acted in concert with Mays to defraud the Temples; (6) falsely assured the Temples that she too had been fooled by Mays and that nothing like this had happened to her before; and (7) was negligent in carrying out the adoption facilitation, causing injury to the Temples. The complaint sought compensatory and punitive damages, as well as attorney fees and costs of suit pursuant to Family Code section 8635.[2]

A default was entered against Kors in July 2004. Contending that she had not been served with the summons and complaint, Kors filed a motion to quash service and remove the default. The court issued a tentative ruling denying Kors’s motion and rejecting her claim that she had not been served. In October 2004, the parties stipulated to set aside Kors’s default. As part of the stipulation, Kors agreed to pay $6,500 to the Temples as reimbursement for costs incurred in opposing Kors’s motion to quash service and remove the default. Pursuant to the stipulation, the parties also participated in a nonbinding mediation in November 2004, which failed to resolve the lawsuit.

In December 2004, Kors retained new counsel in the case. On January 10, 2005, Kors served the Temples with a motion for sanctions pursuant to Code of Civil Procedure section 128.7, asserting that the Temples had no evidence to support the allegations of their complaint. After the 21-day waiting period required by the statute, the motion was filed on February 3, 2005, supported primarily by a declaration from Kors. At the time the motion was served, no significant discovery had been completed by either side. The Temples had not yet taken Kors’s deposition, which had first been noticed in July 2004 and had been postponed four times at her request. Kors served a first set of contention interrogatories on the Temples in January 2005, but their responses were not yet due at the time the motion was filed.

In her declaration supporting the sanctions motion, Kors denied and disputed the allegations of the Temples’ complaint. Among other things, she averred that she had no knowledge Mays was not pregnant until March 17, 2004. According to Kors, Mays faxed a copy of a “positive pregnancy test verification” from an Ogden, Utah “pregnancy care center“ to her. Kors had her assistant telephone the center “to verify the legitimacy of the documentation and accuracy of the results.” An employee of the center told Kors’s assistant that the “document and the results stated in the document were legitimate and accurate.” Kors averred that she immediately passed all of this information along to the Temples and their adoption attorney.[3]

By the time the sanctions motion was heard on April 7, 2005, Kors had filed three briefs, seven declarations, and 25 exhibits in support of it, and the Temples had filed two briefs, four declarations, and eight exhibits in opposition to it. The exhibits included excerpts from the limited discovery that had been completed while the motion was pending. The trial court ultimately denied Kors’s motion without prejudice, finding that “[t]he Court does not have sufficient information to conclude that the allegations lack evidentiary support, and/or that it is unlikely that there will be support for said allegations.”

Following denial of the sanctions motion, the parties clashed over a series of discovery issues. The Temples moved for a protective order to prevent Kors from taking the depositions of Alette Temple’s parents, Edward and Karen Coble, citing Karen Coble’s illness and ongoing medical treatment. Kors moved for an order allowing her attorney to complete the deposition of the Temples’ adoption lawyer, Bonnie Johnson. The Temples had suspended the deposition on the ground that Johnson allowed Kors’s attorney to see one or more documents assertedly reflecting attorney-client communications with the Temples. In connection with that motion, the Temples sought a protective order to disqualify Kors’s attorney, and to prevent Johnson from divulging attorney-client information to Kors’s attorneys.[4] The parties also got into disputes over: (1) dates when Alette Temple would be available for the completion of her deposition; (2) the adequacy of the Temples’ responses to Kors’s interrogatories and document requests; and (3) discovery concerning the Temples’ successful adoption of a child through another intermediary after Mays was arrested. By order entered on May 24, 2005, the discovery department ordered the deposition of Johnson to resume. It deferred any ruling on the motions concerning the depositions of the Cobles and to disqualify Kors’s attorney.

On May 25, 2005, the Temples voluntarily dismissed their complaint against Kors without prejudice. Kors thereafter filed a motion for an award of $224,564.74 in legal fees and costs under Family Code section 8635, asserting that, by virtue of the dismissal, Kors was the prevailing party for purposes of that section.

In opposition to the fee motion, the Temples averred that they dismissed the lawsuit for personal reasons unrelated to its merits. They cited the following reasons, among others: (1) Alette Temple was going to be losing her job in a few months and the Temples could no longer afford to fund the lawsuit; (2) the Temples’ litigation expenses greatly increased due to the “scorched-earth” litigation tactics of the attorneys Kors hired in December 2004; and (3) the Temples were concerned about the effect Kors’s intended future discovery would have on the health of Alette’s parents, on the Temples’ own health, and on their recent adoption, due particularly to the aggressive discovery tactics of Kors’s attorneys. Alette summed up the Temples’ decision to dismiss as follows: “[T]he pursuit of an action in which we were seeking to recover only approximately $25,000 in actual damages was simply not worth the vast effort, emotional damage, financial ruin and damage to the relationships with the people whom we hold dear in our lives. On that basis, and not because of any flaws in the case against Kors, we determined that it was in our best interest to cease the pursuit of this litigation.”

The trial court ruled that Kors was not the “prevailing party” for purposes of Family Code section 8635, and denied the motion for fees, citing Heather Farms Homeowners Assn. v. Robinson (1994) 21 Cal.App.4th 1568 (Heather Farms). This appeal followed.

II. DISCUSSION

In reliance on Hsu v. Abbara (1995) 9 Cal.4th 863 (Hsu), Kors contends that the trial court had no discretion to deny her an attorney fee award. She maintains that, as a result of the Temples’ dismissal of their complaint, she obtained a “simple, unqualified win” in the lawsuit. (Id. at p. 876.) According to Kors, Hsu and later Supreme Court cases establish the proposition that a trial court only has discretion to deny statutory prevailing-party attorney fees if the result of the litigation is mixed such that neither side can fairly claim complete victory. (See Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109 (Scott Co.) [if neither party achieves a complete victory on all contract claims, trial court has discretion to determine that neither side prevailed on the contract]; Santisas v. Goodin (1998) 17 Cal.4th 599, 609 (Santisas) [voluntary dismissal of action with prejudice makes defendants the “prevailing part[ies]” for purposes of construing a contractual attorney fee clause].)

We do not find Hsu, Scott Co., or Santisas controlling in this case. All three cases involve the enforcement and interpretation of contractual fee clauses under Civil Code section 1717.[5] In Hsu, the court was trying to harmonize two potentially contradictory provisions of section 1717. (Hsu, supra, 9 Cal.4th at pp. 871-872.) The statute provides on the one hand that the party determined to be the party prevailing on a contract containing a valid fee clause “shall be entitled to reasonable attorney’s fees” in the case, but also that “[t]he court may also determine that there is no party prevailing on the contract for purposes of this section.” (Ibid.) To reconcile these provisions, the court held that when one side’s litigation success in a contract action is not fairly disputable, it is entitled to fees as a matter of right under Civil Code section 1717, but when the results were mixed, the trial court did have discretion to deny attorney fees to a party claiming a contractual right to fees even if that party seemingly achieved most of its litigation objectives. (Hsu, at pp. 875-876.)

Hsu is not relevant to this case. It does not purport to address voluntary dismissals, whether under Civil Code section 1717 or under any other statute providing for an award of fees to the prevailing party. The central issue Kors raises-whether a voluntary dismissal must be treated as an “unqualified win” for the defendant-cannot even arise in a case like Hsu that is governed by section 1717. As discussed in Santisas, the statute was amended in 1981 to bar any award of contractual attorney fees in the case of a voluntary dismissal or a dismissal given as part of a settlement. (Santisas, supra, 17 Cal.4th at pp. 614, 621; see Civ. Code, § 1717, subd. (b)(2).) Although Kors claims Santisas supports her position that an award of fees to the defendant is mandatory in a voluntary dismissal case, the Supreme Court’s analysis in Santisas actually undermines that argument.

In Santisas, the Supreme Court explained that the 1981 amendment to Civil Code section 1717 came about as a direct response to, and codified, the Supreme Court’s decision in International Industries, Inc. v. Olen (1978) 21 Cal.3d 218 (Olen). (Santisas, supra, 17 Cal.4th at pp. 616, 621.) At the time Olen was decided, section 1717 did not address whether a contractual fee award to the prevailing party was appropriate or mandatory when the plaintiff voluntary dismissed its contract claims against the defendant. (Santisas, at p. 614; Olen, at p. 222.) In Olen, the Supreme Court specifically considered and rejected any rule-such as the rule Kors contends for here-that a defendant is automatically entitled to its fees in that circumstance: “Because award of contractual attorney fees is governed by equitable principles, we must reject any rule that permits a defendant to automatically recover fees when the plaintiff has voluntarily dismissed before trial. Although a plaintiff may voluntarily dismiss before trial because he learns that his action is without merit, obviously other reasons may exist causing him to terminate the action. For example, the defendant may grant plaintiff-short of trial-all or substantially all relief sought, or the plaintiff may learn the defendant is insolvent, rendering any judgment hollow. . . . Moreover, permitting recovery of attorney fees by defendant in all cases of voluntary dismissal before trial would encourage plaintiffs to maintain pointless litigation in moot cases or against insolvent defendants to avoid liability for those fees.” (Olen, at p. 224.) Based on what it considered to be “sound public policy and recognized equitable considerations” (id. at p. 223), the Supreme Court in Olen instead adopted the rule now codified in section 1717 that no fees may be awarded, based on contractual prevailing party fee clauses, in pretrial dismissal cases. (Olen, at p. 225.)

In Santisas, the plaintiff voluntarily dismissed tort as well as contract claims against a defendant. (Santisas, supra, 17 Cal.4th at p. 603.) The contract contained a broad prevailing party, attorney fee clause that applied to all claims arising out of the execution of the parties’ contract. (Id. at pp. 603, 608.) The principal issue in Santisas was whether Civil Code section 1717, subdivision (b)(2), or the Olen rule, operated to broadly prohibit any award of fees to the defendant, including an award of fees incurred to defend against the tort claims. (Santisas, at pp. 609-623.) The court held that the prohibition on granting fee awards in the case of voluntary dismissals only applied to contract claims governed by section 1717 and that the Olen rule was also limited to fees coming within the scope of section 1717. (Santisas, at pp. 614-622.)

Thus, Santisas addresses whether there is any general rule precluding an award of fees to the defendant in voluntary dismissal cases. The court did not purport to decide whether a voluntarily-dismissed defendant has an automatic right to an award of fees under fee-shifting statutes in general, much less under Family Code section 8635 in particular, or whether a trial court has discretion to deny fees in order to advance the policies discussed in the Olen case. But the Santisas court was not wholly silent on the latter point. It specifically embraced the reasoning the Olen court utilized in rejecting any rule mandating an award of fees in pretrial dismissal cases: “The Olen majority soundly reasoned that attorney fees should not be awarded automatically to parties in whose favor a voluntary dismissal has been entered. In particular, it seems inaccurate to characterize the defendant as the ‘prevailing party’ . . . if the plaintiff dismissed for reasons, such as the defendant’s insolvency, that have nothing to do with the probability of success on the merits.” (Santisas, supra, 17 Cal.4th at p. 621.) Rather than supporting Kors’s position, Santisas thus undercuts it.

Scott is also inapposite. It addresses the application of Civil Code section 1717 in cases not involving voluntary dismissals. It does not address fee statutes other than section 1717, and does not purport to analyze whether fees may or must be awarded when the plaintiff voluntarily dismisses the action. As to nondismissal cases, Scott merely reiterates the holding of Hsu that “a simple, unqualified victory by . . . defeating all contract claims in the action” entitles the successful party to fees under section 1717. (Scott, supra, 20 Cal.4th at p. 1109.) Scott is not controlling or helpful in deciding the case before us.

In determining that it had discretion to find no prevailing party for purposes of Family Code section 8635, the trial court cited Heather Farms. Heather Farms arose from an action filed by a homeowners association against a homeowner to enforce certain restrictions in the covenants, conditions, and restrictions governing the development in which the homeowner had purchased his units. (Heather Farms, supra, 21 Cal.App.4th at p. 1570.) Various cross-complaints and subsidiary actions involving additional parties were eventually filed. (Ibid.) Ultimately, a settlement was reached with all parties except the original homeowner, who refused to settle with the association. (Ibid.) The settlement required the association to voluntarily dismiss its suit against the homeowner without prejudice. (Ibid.) Following entry of the dismissal, the homeowner sought attorney fees as the “prevailing party” under a statute awarding fees to the prevailing party in an action to enforce an equitable servitude. (Id. at p. 1571; see Civ. Code, § 1354.)[6]

The appellate court in Heather Farms framed the central issue as being how a court should identify the prevailing party, if any, under a statute that provides no guidance for making that determination. (Heather Farms, supra, 21 Cal.App.4th at p. 1571.) The Heather Farms court declined to adopt any automatic or per se rule that a defendant in whose favor a dismissal is entered is the prevailing party. (Id. at p. 1572.) The court examined a number of cases in which a party sought fees as a statutory prevailing party after its opponent dropped or compromised claims against it. (Id. at pp. 1573-1574.) It drew the following principle from its analysis of these cases: “[The cases] all share a common theme. In each case, the court declined to adopt a rigid interpretation of the term ‘prevailing party’ and, instead, analyzed which party had prevailed on a practical level. [The cases] further clarify that the trial court must determine who is the prevailing party, and that the court’s ruling should be affirmed on appeal absent an abuse of discretion. We conclude similar rules should apply when determining who the ‘prevailing party’ is under [Civil Code] section 1354.” (Heather Farms, at p. 1574.) Applying those rules to the case before it, the appellate court in Heather Farms upheld the trial court’s determination that there was no prevailing party, notwithstanding the voluntary dismissal entered in favor of the homeowner. (Ibid.)

A number of cases have followed Heather Farms in holding that: (1) a trial court has broad discretion-even in the case of a voluntary, pretrial dismissal-to determine which party, if any, is the “prevailing party” for purposes of a fee-shifting statute that does not further define the term; and (2) such determination should be affirmed on appeal absent an abuse of discretion. (See Castro v. Superior Court (2004) 116 Cal.App.4th 1010, 1018-1023 [withdrawal of lis pendens while motion to expunge is pending does not automatically entitle the moving party to attorney fees since there may be “reasons for the withdrawal . . . that are unrelated to the merits of the motion” or “other facts and circumstances that have nothing to do with the lis pendens claimant’s avoiding liability for attorney fees”]; Galan v. Wolfriver Holding Corp. (2000) 80 Cal.App.4th 1124, 1127-1130 [trial court had discretion to determine that defendants in whose favor voluntary dismissal was entered were not statutory prevailing parties where (1) plaintiffs had settled with other defendants and made a practical determination that it was not worth pursuing the remaining defendants through a costly trial, and (2) merits of plaintiffs’ claims against defendants were never resolved]; Damian v. Tamondong (1998) 65 Cal.App.4th 1115, 1128-1130 [defendant voluntarily dismissed by plaintiff is not necessarily the prevailing party for purposes of Rees-Levering Act fee-shifting provision; matter is left to the sound discretion of the trial court]; Gilbert v. National Enquirer, Inc. (1997) 55 Cal.App.4th 1273, 1276-1278 [affirming trial court determination that defendant was not the prevailing party on claims that plaintiff voluntarily dismissed in order to expedite her appeal from the involuntary dismissal of other causes of action].)

None of the foregoing cases is factually on all fours with the case before us. Nonetheless, the cases stand for certain legal principles that we find fully applicable in this case: First, under the typical prevailing party language found in fee-shifting statutes such as Family Code section 8635, a defendant in whose favor a voluntary dismissal has been entered is not automatically the prevailing party. If the dismissal is taken due to facts and circumstances unrelated to the merits of the plaintiff’s claims (or to the plaintiff’s probable liability for the defendant’s fees), the trial court has wide discretion to determine whether the defendant, or neither party, is the prevailing party for purposes of a statutory fee award, subject to appellate review for abuse of discretion only. Second, in the exercise of the trial court’s discretion to determine whether there is a prevailing party in the case of a voluntary dismissal, the extent to which each side has realized its litigation objectives is a relevant but not dispositive factor. Other pragmatic factors unrelated to the merits, such as the cost of the litigation, the plaintiff’s ability to finance it, the possible insolvency of the defendant, or the amount in controversy, are also relevant.

Thus, the issue for this court is whether-drawing all reasonable inferences and resolving all evidentiary conflicts in a light most favorable to its ruling-the trial court could have rationally concluded that there was no prevailing party. (Jermstad v. McNelis (1989) 210 Cal.App.3d 528, 552-553.) For that purpose we may infer that the trial court accepted the Temples’ proffered reasons for dismissing the action, even though the court made no explicit findings of fact. (Federal Home Loan Mortgage Corp. v. La Conchita Ranch Co. (1998) 68 Cal.App.4th 856, 860; Gilbert v. National Enquirer, Inc., supra, 55 Cal.App.4th at p. 1277.)

In our view, the trial court did not abuse its discretion. First, the court could rationally conclude that the Temples’ decision to dismiss was unrelated to the perceived merits of their case. The dismissal was made “without prejudice.” No dispositive motion was then pending that would have led in all likelihood to a defense judgment. In fact, the record indicates that no such motion would have been granted had one been on file at that stage of the litigation. Approximately one and one-half months before the Temples’ dismissal, the trial court had denied Kors’s sanctions motion, finding there was insufficient information to conclude that the Temples’ allegations lacked evidentiary support or would not be supported upon completion of further discovery.[7] The information before the court when it made that finding included extensive party declarations and deposition excerpts, exhibits, and briefs, laying out each side’s factual and legal positions in some detail. By the time the court decided Kors’s fee motion, the parties had filed extensive additional discovery, documents, and declarations going to the merits of the case, including materials in support of and in opposition to a renewed motion for sanctions by Kors, which the court also denied. While the evidence that Kors conspired with Mays to defraud the Temples was sparse or nonexistent, there was enough substance to the Temples’ rescission, breach of contract, and negligence claims that the court could have rationally determined that the Temples’ decision to dismiss the entire action was not motivated by fear that a defense judgment was inevitable.

Further, the Temples’ stated reasons for dismissing the action were not so inherently implausible as to be unworthy of credence. The intensity and expense of the litigation were grossly out of proportion to the compensatory damages at stake. The early sanctions motion served a few weeks after Kors retained new counsel in December 2004, and the discovery disputes that developed soon thereafter, might rationally be construed as indicative of an aggressive defense strategy that raised the Temples’ cost of litigation-emotionally as well as financially-beyond a level they could tolerate.

In sum, considering all of the facts and circumstances for which there was credible evidence in the record we cannot say that the trial court abused its discretion in determining that there was no prevailing party for purposes of Family Code section 8635.

III. DISPOSITION

The order denying Kors’s motion for an award of attorney fees is affirmed.

_________________________

Margulies, J.

We concur:

_________________________

Marchiano, P.J.

_________________________

Swager, J.

Publication Courtesy of California attorney referral.

Analysis and review provided by Vista Property line Lawyers.

[1] Family Code section 8623 defines adoption facilitators as follows: “A person or organization is an adoption facilitator if the person or organization is not licensed as an adoption agency by the State of California and engages in either the following activities:

(a) Advertises for the purpose of soliciting parties to an adoption or locating children for an adoption or acting as an intermediary between the parties to an adoption.

(b) Charges a fee or other valuable consideration for services rendered relating to an adoption.”

[2] Family Code section 8635 reads as follows: “In any action to revoke or enforce the [adoption facilitation] contract, a prevailing party may recover reasonable attorneys’ fees and costs.”

[3] Alette Temple’s opposition declaration averred that Kors told her, when she first matched the Temples with Mays, that she had “medical proof” Mays was pregnant. According to Alette, Kors did not show her the Utah “pregnancy test verification” document until after Mays was arrested. That document stated on its face that Mays had “self-administered” a commercial pregnancy test at the center, and that “[t]he client read the test result as positive.” The document further stated: “The Pregnancy Care Center of Ogden is not a medical facility. The client has been advised that only a licensed medical practitioner can diagnose a pregnancy . . . .”

[4] Johnson had been recommended to the Temples by Kors. Johnson was a longtime friend of Kors. She had formerly represented Kors, worked with her on other adoptions, and shared office space with her.

[5] Civil Code section 1717 provides in relevant part as follows: “(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 . . . to the prevailing party, then the party who is determined to be the party prevailing on the contract . . . shall be entitled to reasonable attorney’s fees in addition to other costs.

. . .

(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 . . . . 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. . . .”

[6] Subdivision (c) of Civil Code section 1354 provides: “In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.”

[7] We also note that the sanctions motion misstated the allegations of the Temples’ complaint in certain respects, and did not address all of the allegations that, if true, might have supported the Temples’ claim for damages. For example, the complaint does not allege, as stated in the sanctions motion, that Kors insisted that the Temples pay “all of . . . Mays’ living expenses.” The motion also does not address whether Kors should have done more-as a matter of contract or tort law-to verify that Mays was pregnant before introducing her to the Temples. In our view, the record as truncated by the dismissal does not resolve these issues one way or the other.