Sparber Rudolph Annen, APLC v. DSouza

Filed 10/12/07 Sparber Rudolph Annen, APLC v. DSouza 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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, Joel M. Pressman, Judge. Affirmed.

I.

INTRODUCTION

Defendants Dinesh and Dixie D'Souza appeal from the trial court's judgment awarding plaintiff Sparber Rudolph Annen, APLC (SRA) damages as determined by a jury, plus interest on the damage award calculated at 1.5 percent per month. The trial court concluded that the written retainer agreement (Agreement) the parties entered into specified an interest rate of 1.5 percent per month. The D'Souzas challenge the trial court's interpretation of the contract, arguing that the 1.5 percent per month charge was a "late fee," and not a stipulated prejudgment interest rate. According to the D'Souzas, any award of prejudgment interest should be calculated using the statutory default rate of 10 percent per year, as provided in Civil Code^[1]section 3289, subdivision (b).

We conclude that the Agreement provides for interest at the rate of 1.5 percent per month on fees and costs that remain unpaid 30 days after billing. Pursuant to section 3289, subdivision (a), 1.5 percent per month is the applicable interest rate for calculating an award of prejudgment interest in this case. We therefore affirm the judgment of the trial court.

II.

FACTUAL AND PROCEDURAL BACKGROUND

SRA represented the D'Souzas during litigation of a real estate contract matter. The parties entered into a retainer agreement. After the entry of final judgment in the underlying contract matter, SRA and the D'Souzas disagreed as to how much the D'Souzas owed SRA for legal services.

In July 2004, SRA filed a complaint against the D'Souzas seeking $196,362.02 in damages as a result of the D'Souzas' failure to pay their legal bill. The D'Souzas cross-complained, alleging malpractice by SRA.

On March 16, 2006, a jury found in favor of SRA on its claim that the D'Souzas breached their contract with SRA by failing to pay the amount due under the Agreement. The jury concluded that the D'Souzas owed SRA $148,349.54 in unpaid legal fees and costs. The trial court apparently entered judgment in favor of SRA and awarded SRA prejudgment interest.^[2]

On June 14, 2006, SRA moved "for an order determining [SRA] to be the prevailing party . . . and for an order awarding them reasonable attorneys' fees and costs . . . ." SRA also moved "for an order for prejudgment interest in the amount of $92,267.51 pursuant to Civil Code sections 3287 and 3289."

In a statement of decision filed July 14, 2006, the trial court denied SRA's request for attorney fees, but awarded SRA prejudgment interest in the amount of $92,267.51. The court concluded that the Agreement provided for interest at the rate of 1.5 percent per month on payments not made within 30 days of billing, and that SRA was entitled to prejudgment interest at that contract rate, not at the statutory rate of 10 percent per year.

On July 25, the trial court entered judgment in favor of SRA for $148,349.54the amount the jury determined the D'Souzas owed under the Agreementplus $92,267.51the amount the court awarded in prejudgment interest.

The D'Souzas filed a timely notice of appeal on October 4, and an amended notice of appeal on October 20.^[3] On appeal, the D'Souzas challenge only the award of prejudgment interest at the rate of 1.5 percent per month.

III.

DISCUSSION

A. The parties agreed to a contractual interest rate of 1.5 percent per month

The D'Souzas acknowledge that SRA is entitled to some amount of prejudgment interest.^[4] The parties disagree, however, as to the rate of interest that should be used to calculate the award of prejudgment interest in this case.

Section 3289 sets forth the rule for determining the appropriate prejudgment interest rate in a case such as this one:

"(a) Any legal rate of interest stipulated by a contract remains chargeable after a breach thereof, as before, until the contract is superseded by a verdict or other new obligation.

"(b) If a contract entered into after January 1, 1986, does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after a breach."

According to the D'Souzas, the Agreement does not itself provide a rate of interest and, therefore, the statutory default rate of 10 percent per year should be used to calculate the prejudgment interest award. SRA asserts that the trial court correctly interpreted the Agreement as providing for prejudgment interest at the rate of 1.5 percent per month.

The "'interpretation of a contract is subject to de novo review where the interpretation does not turn on the credibility of extrinsic evidence.'" (People ex rel. Lockyer v. R.J. Reynolds Tobacco Co. (2003) 107 Cal.App.4th 516, 520, quoting Morgan v. City of Los Angeles Bd. of Pension Comrs. (2000) 85 Cal.App.4th 836, 843.)

"'"Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation."'" (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 647 (MacKinnon); see also 1636.) "'"Such intent is to be inferred, if possible, solely from the written provisions of the contract. [Citation.] The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,'  . . . controls judicial interpretation. [Citation.] [Citations.] A . . . provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. [Citation.] But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract.' [Citation.]" (MacKinnon, supra, 31 Cal.4th at pp. 647-648.)

"Interpretation of a contract 'must be fair and reasonable, not leading to absurd conclusions. [Citation.]' [Citation.] 'The court must avoid an interpretation which will make a contract extraordinary, harsh, unjust, or inequitable. [Citation.]' [Citation.]" (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1269.) "In the event other rules of interpretation do not resolve an apparent ambiguity or uncertainty, 'the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist.' [Citation.]" (Ibid., citing 1654.)

The Agreement does not unambiguously provide a prejudgment interest rate to be applied by a trial court after litigation between the parties. Noting that the only reference in the Agreement to prejudgment interest is to the statutory rate, the D'Souzas maintain that the proper rate of prejudgment interest is the statutory rate.

The Agreement does refer to the statutory rate of interest, but this reference appears in a provision entitled "Arbitration." The relevant language in the Arbitration provision states: "In the event a dispute between the parties is submitted to arbitration, the prevailing party shall be awarded reasonable attorneys' fees and costs, including interest at the proper statutory rate." Thus, under the terms of the Agreement, if a disagreement between the parties was arbitrated and one party was entitled to recover pursuant to the arbitration, the statutory rate of 10 percent per year would apply.

According to the D'Souzas, the inclusion of the phrase "proper statutory rate" in the Arbitration section of the Agreement demonstrates that the parties intended that the prejudgment interest rate after litigation between the parties would be the statutory rate as well, not a stipulated rate. However, the section of the Agreement on which the D'Souzas rely specifically refers to a dispute between the parties that has been "submitted to arbitration." This case was not submitted to arbitration, and no similar provision exists with regard to prejudgment interest related to claims litigated in the trial court.

Interpreting the language of the Agreement as a whole, it is clear that the parties agreed that the D'Souzas would pay SRA interest at the rate of 1.5 percent per month on amounts that the D'Souzas failed to pay within 30 days of billing. The first paragraph of the "Billing Statements" section includes a reference to the accrual of interest on unpaid bills: "This firm will bill you on a monthly basis for attorneys and others working on this matter. Interest will be charged to you on any unpaid, deferred amount for fees or costs billed to you." Three paragraphs later in the same section, the Agreement provides:

"Statements are due upon presentation, and must be paid within thirty (30) days after the date of mailing by our firm. In the event you fail to pay any statement within the specified time period, you will be charged and agree to pay a late fee equal to one and one-half percent (1-1/2%) per month on the outstanding balance due."

We conclude that the interest to be charged for late payments, identified in the first paragraph of the Billing Statements section, refers to the same charge as the 1.5 percent per month "late fee" identified later in that section. It would be unreasonable to conclude that the Agreement provides two different charges for late payments, as the D'Souzas suggest. Under the D'Souzas' theory, they would be liable for both a late fee at 1.5 percent and also for interest at an unidentified rate on unpaid balances. Practically speaking, however, the statement that "[i]nterest will be charged" on unpaid bills is virtually meaningless without the inclusion of the rate of interest that is to be charged. The D'Souzas' interpretation is particularly unreasonable given that the Agreement does, in fact, provide for a specific rate of interest to be applied to unpaid balances later in the same section.

A contract should not be interpreted in a manner that renders one of two provisions meaningless when a different interpretation will give meaning to both provisions. In this case, both provisions can be given meaning if one interprets the "[i]nterest" referred to in the first paragraph to mean the same thing as the "late fee," calculated as a percentage of the unpaid amount, that is referred to in the fourth paragraph. Additionally, both paragraphs impose a requirement that amounts owed must be paid within 30 days of billing to avoid an additional charge. It would be unreasonable to interpret these two paragraphs as creating two different, cumulative fees to be imposed when the client fails to pay his or her bill within the same 30-day period. It would also be unreasonable to conclude that the client would agree to pay interest on late payments without knowing the rate of interest, or that the client would agree to pay some unspecified rate of interest in addition to a 1.5 percent per month late fee. The most reasonable interpretation is that both paragraphs refer to the same charge for late payments ─ a late fee calculated as interest at a rate of 1.5 percent per month.

Our interpretation of the contract also satisfies the statutory rule that unresolved ambiguities are to be interpreted against the party who caused the uncertainty to exist. (See 1654.) The D'Souzas suggest that an interpretation of the term "[i]nterest" in the billing section of the Agreement should be informed by the Agreement's reference to the "proper statutory rate" in the section regarding arbitration. According to the D'Souzas, because both provisions refer to interest, the interest referred to in the billing section should be interpreted to mean that SRA would charge interest at the statutory rate of 10 percent per year. Under this interpretation, the 1.5 percent per month "late fee" would be separate from and in addition to the interest to be charged for late payments, which, according to the D'Souzas, should be presumed to be interest at the 10 percent statutory rate. Under the D'Souzas' interpretation, they could have been liable for both charges. Such an interpretation would favor SRA.^[5] Because SRA drafted the Agreement, however, questions about the meaning of the Agreement's provisions should be interpreted against SRA, not in its favor.

The D'Souzas argue that the words "late fee" indicate that this charge is meant to be distinct from a stipulated interest rate. They contend, without authority, that "'[l]ate fees' are not 'interest' for purpose[s] of deciding on prejudgment interest." However, "late fees" have been considered to be a subset of "interest" in a variety of other contexts. For example, the Supreme Court concluded that "interest" may include "late payment fees" for purposes of the National Bank Act:

"Thus, the term 'interest' readily embraced a periodic charge based on a percentage of a certain sum, either the amount lent or some other, payable absolutely by maturity.

"But the word was not so limited. As reported decisions demonstrate, it could include as well a late payment fee, payable contingently in the event of default after maturity. Such a fee could be calculated as a periodic percentage charge. [Citations.] It could also be fixed as a flat fee. [Citations.]

"In view of the foregoing, we believe that the term 'interest' in section 30 of the National Bank Act should be construed to cover late payment fees . . . . Recall the definition of 'interest' as a 'sum of money paid or allowed by way of compensation for the loan or use of another sum' [citation], or the 'compensation which is paid by the borrower to the lender or by the debtor to the creditor for its use' [citation]. Such language easily encompasses late payment fees, as compensation for use of money, specifically, its retention, beyond the loan's term. (Smiley v. Citibank (South Dakota), N.A. (1995) 11 Cal.4th 138, 152-154, fn. omitted.)

We conclude that the most reasonable interpretation of the Agreement is that the "[i]nterest" to be charged for late payments is interchangeable with the "late fee" of 1.5 percent per month on late payments. Because the parties stipulated to this 1.5 percent per month rate of interest, that is the "legal rate of interest stipulated by [the] contract," and thus is the proper rate to be used to calculate prejudgment interest on the award of damages to SRA for unpaid fees. ( 3289, subd. (a).)

B. The interest rate does not amount to an illegal penalty

The D'Souzas contend that an interest rate of 1.5 percent per month on unpaid fees, which amounts to 18 percent per year, constitutes a penalty, and should be considered unenforceable. This argument presumes an answer to the legal question at issue in this appeal, and is unsupported by citations to relevant authority. In asserting that "late charges" are unenforceable penalties if they are determined to be unreasonable, it appears that the D'Souzas are relying on the "reasonableness" requirement in section 1671, which governs liquidated damages provisions in contracts.^[6] As we have concluded, however, the 1.5 percent late fee is the contractual interest rate, not a provision for liquidated damages. At least one other court has enforced a contractual interest rate of 1.5 percent per month. (See Granite Constr. Co. v. Am. Motorists Ins. Co. (1994) 29 Cal.App.4th 658, 670-671.) The D'Souzas have provided no basis for this court to conclude that the stipulated interest rate in the Agreement constitutes an unenforceable penalty.

C. The trial court did not deny the D'Souzas jury trial rights

The D'Souzas argue that they were entitled to a jury decision on the issue "whether 'late fees' were interest" and "whether the 'late fees' were reasonable." However, whether the Agreement used the words "late fee" and "interest" interchangeably or as separate concepts is a question of contract interpretation, which presents solely a question of law. The material facts are not in dispute and the parties have offered no extrinsic evidence to assist in ascertaining the meaning of the Agreement. There is thus no conflict in the extrinsic evidence that would require a jury's consideration. (See Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912-913 [only "[w]here the interpretation of contractual language turns on a question of the credibility of conflicting extrinsic evidence" does it become the jury's "responsibility to resolve any conflict in the extrinsic evidence properly admitted to interpret the language of a contract"].) In addition, it was appropriate for the trial court to determine the proper amount of prejudgment interest. The authority the D'Souzas cite to suggest otherwise is inapplicable. (See Barry v. Roskow (1991) 232 Cal.App.3d 447, 457 [discussing entitlement to prejudgment interest under section 3288, which expressly gives the jury discretion to award prejudgment interest in non-contract actions]). Further, the D'Souzas offer no authority to support their assertion that they have a right to have a jury decide the question "whether the 'late fees' were reasonable," or even whether they have any right to a determination of the "reasonableness" of the stipulated interest rate.^[7]

IV.

DISPOSITION

The judgment of the trial court is affirmed.

AARON, J.

WE CONCUR:

HUFFMAN, Acting P. J.

HALLER, J.

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^[1] Further statutory references are to the Civil Code unless otherwise indicated.

^[2] The court's original judgment is not in the appellate record. However, based on documents that are in the record, we infer that the trial court entered judgment in favor of SRA and awarded prejudgment interest. In particular, a letter from SRA to the trial court dated May 5, 2006, provides in part: "We are writing in response to Mr. Peterson's letter dated April 29, 2006 . . . challenging the award of prejudgment interest to [SRA] in the Judgment."

^[3] Notice of entry of judgment was filed on August 11.

^[4] SRA brought this lawsuit to recover unpaid legal fees from the D'Souzas in an amount certain that was known to the D'Souzas. Section 3287, subdivision (a) authorizes an award of prejudgment interest in cases in which a party is entitled to recover liquidated damages: "Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt."

^[5] It is only because of the current procedural status of this case that an interpretation of the Agreement that would otherwise generally favor SRA now favors the D'Souzas. If we were to conclude that this interpretation is correct, the D'Souzas could have been liable at the outset not only for the principal amount of the unpaid bills, but also for the 1.5 percent "late fee" on that principal and for statutory prejudgment interest at 10 percent. However, in this case, SRA did not claim any unpaid late fees as damages, and the jury did not award as damages a 1.5 percent per month late fee, in addition to the principal amount. At this point in the litigation, SRA would have forfeited any damages resulting from unpaid late fees that it might have been entitled to under the Agreement if it is interpreted as the D'Souzas suggest. Because of this circumstance, the D'Souzas are not concerned with the possibility that they will have to pay two charges for their unpaid bills, even if we were to conclude that the Agreement called for both a late fee and prejudgment interest. The D'Souzas face only an award of prejudgment interest at this point, and an award of prejudgment interest calculated at the statutory rate of 10 percent per year would be significantly less than an award of prejudgment interest calculated at the Agreement's stated rate of 1.5 percent per month.

^[6] Section 1671 provides: "(a) This section does not apply in any case where another statute expressly applicable to the contract prescribes the rules or standard for determining the validity of a provision in the contract liquidating the damages for the breach of the contract. [] (b) Except as provided in subdivision (c), a provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made. [] (c) The validity of a liquidated damages provision shall be determined under subdivision (d) and not under subdivision (b) where the liquidated damages are sought to be recovered from either: [] (1)  A party to a contract for the retail purchase, or rental, by such party of personal property or services, primarily for the party's personal, family, or household purposes; or [] (2)  A party to a lease of real property for use as a dwelling by the party or those dependent upon the party for support. [] (d) In the cases described in subdivision (c), a provision in a contract liquidating damages for the breach of the contract is void except that the parties to such a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.

^[7] As discussed in section II.B., ante, it appears that the D'Souzas are referring to the reasonableness limitation section 1671 places on liquidated damage provisions. The trial court was awarding prejudgment interestnot liquidated damageswhen it awarded SRA an additional $92,267.51 in the judgment. The requirements of section 1671 are thus inapplicable to the award at issue here.