Twin Rivers Ranch v. Renwood Properties

Filed 9/29/06 Twin Rivers Ranch v. Renwood Properties CA3

NOT TO BE PUBLISHED

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 This opinion has not been certified for publication or ordered published for purposes of rule 977.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

THIRD APPELLATE DISTRICT

(Amador)

----

This malicious prosecution action was based on a cross-complaint for fraud in an underlying action that arose out of the sale of a vineyard by plaintiff Twin Rivers Ranch (Twin Rivers) to defendant Renwood Properties, Ltd. (Renwood Properties). Sitting without a jury, the trial court decided that the defendants in this action -- Renwood Properties, Renwood Winery, Inc. (Renwood Winery), and Robert Smerling (chief executive officer of Renwood Properties and Renwood Winery) (jointly the Renwood defendants) -- “had probable cause to prosecute the cross-complaint” and “did not act with malice.”

Following entry of a judgment in favor of the Renwood defendants, they filed a motion to recover attorney fees and costs incurred in defending this action pursuant to a clause in the real estate sales contract, which provided for the recovery of reasonable attorney fees and costs in any action “arising out of this Agreement.” In turn, Twin Rivers filed a motion for sanctions against the attorney for the Renwood defendants, Whitney Davis, claiming the fee motion was frivolous.

The trial court denied the fee motion on the ground that the malicious prosecution action did not arise out of the real estate sales contract. The trial court also sanctioned Davis in the sum of $3,000 for seeking to recover on behalf of the Renwood defendants “huge fees for work not done in the representation of the moving defendants.”

On Twin Rivers’ appeal from the judgment, we conclude Twin Rivers has failed to carry its burden of showing that the judgment is not supported by substantial evidence. Accordingly, we will affirm the judgment.

On the Renwood defendants’ appeal from the order on the motion for attorney fees and costs, we conclude the trial court erred in determining that this malicious prosecution action did not arise out of the real estate sales contract that led to the underlying litigation on which this action was based. Accordingly, we will reverse that order and remand the matter to the trial court for further consideration of the fee motion.

Finally, on what we will deem to be Davis’s appeal from the sanctions order, we conclude the trial court abused its discretion in sanctioning Davis. Accordingly, we will reverse the sanctions order.

FACTUAL AND PROCEDURAL BACKGROUND

In 1999, Renwood Properties purchased a vineyard from Twin Rivers pursuant to the terms of a “Commercial Property Purchase Agreement” (the Agreement). Shortly thereafter, Twin Rivers sued the Renwood defendants for damages based on an alleged oral agreement to reimburse Twin Rivers for certain farming costs. Renwood Properties filed a cross-complaint for fraud against Twin Rivers, based primarily on the allegation that Twin Rivers had failed to disclose the extent to which the vineyard was infested with phylloxera. Renwood Properties was represented in the case by Robert Tourtelot of Tourtelot & Butler. (We will refer to this case as the underlying litigation.)

The trial court in the underlying litigation, sitting without a jury, found against Twin Rivers on its complaint and against Renwood Properties on its cross-complaint, entering judgment in October 2001. In October 2002, Twin Rivers commenced this action for malicious prosecution against the Renwood defendants and Tourtelot,^[1] asserting they had filed the cross-complaint without probable cause and with malice.

Initially, Tourtelot represented the Renwood defendants in the matter, as well as representing himself. In January 2004, however, in the face of a threat of a recusal motion for conflict of interest, Tourtelot substituted out of the case as counsel of record for the Renwood defendants but continued to represent himself, along with the assistance of his law partner, Laurie Butler. Whitney Davis, of Charter Davis LLP, became counsel of record for the Renwood defendants.

The case came to trial before the court, sitting without a jury, in August 2004. As an adverse witness in Twin Rivers’ case-in-chief, Smerling testified that one of the reasons he thought he had been “duped” by Twin Rivers into buying the vineyard was that the day after escrow closed on the sale, the vineyard manager (JoAnn Stirk-Smith) told him (in tears) that Twin Rivers had known about phylloxera in other parts of the vineyard that were not revealed to Smerling before the deal closed. Smerling further testified that he told his lawyer, Tourtelot, about his conversation with Stirk-Smith soon thereafter. In his own testimony, Tourtelot confirmed that Smerling had told him about the conversation with Stirk-Smith.^[2]

After the lunch recess on August 12, 2006 -- the third day of the four-day trial -- Twin Rivers voluntarily dismissed Tourtelot as a defendant in the action in exchange for a waiver of costs. Tourtelot immediately rejoined Davis as counsel of record for the Renwood defendants.

Later, Stirk-Smith testified and contradicted Smerling’s version of their conversation.

At the end of Twin Rivers’ case-in-chief, the Renwood defendants made a motion for judgment under Code of Civil Procedure^[3] section 631.8, arguing that Twin Rivers had failed to prove lack of probable cause for the cross-complaint or malice.

Following the receipt of extensive briefing on the matter, the trial court issued a statement of decision in March 2005 in which it found that the Renwood defendants “had probable cause to prosecute the cross-complaint” and “did not act with malice.” In its statement of decision, the trial court specifically stated that it believed Smerling’s testimony about Stirk-Smith’s “confession” and Tourtelot’s corroborating testimony.

The trial court entered judgment against Twin Rivers in March 2005, and in May 2005, Twin Rivers filed a timely notice of appeal from the judgment (case No. C049904).

Thereafter, Renwood Properties filed a motion for $228,864.52 in attorney fees and $14,627.60 in costs based on a clause in the Agreement which provided that “[i]n any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney’s fees and costs . . . .”^[4] In its motion, Renwood Properties sought to recover the attorney fees and costs it incurred “on behalf [of] itself, Renwood Winery, Inc. and Robert Smerling” in defending this action. In addition to fees incurred for the services of Charter Davis, LLP, Renwood Properties sought to recover $110,377.50 in attorney fees for the services of Tourtelot & Butler.^[5] Renwood Properties asserted (in an unsworn memorandum of points and authorities) that this amount reflected “a fee exclusion of $10,417.50 attributed to Mr. Tourtelot’s separate defense issues.”

In an accompanying declaration, Tourtelot asserted that he “expended 221.25 hours [at the rate of $375 per hour] in defending Renwood Properties, Renwood Wineries [sic], and Robert Smerling in this matter” and that Butler “expended 120.75 hours [at the rate of $325 per hour] in the defense of this claim.” He further asserted that “[a]s a courtesy to the client, Tourtelot and Butler reduced its fee by $10,417.50.” Tourtelot did not explain the reason for this “courtesy,” nor did he explain how the amount of the reduction was calculated. Accompanying Tourtelot’s declaration were copies of his invoices to Renwood Properties and copies of checks from Renwood Properties evidencing various payments, including payments of more than $50,000 for services provided and expenses incurred by Tourtelot & Butler between February 1, 2004 and July 31, 2004.

Twin Rivers opposed the fee motion, contending (among other things) that the motion was frivolous because the Agreement “was extinguished by operation of law” as a result of its merger into the judgment in the underlying litigation. Twin Rivers also filed a motion for sanctions, which was directed against Whitney Davis, the attorney for the Renwood defendants, who was responsible for the fees motion. In addition to claiming the attorney fees motion was frivolous, Twin Rivers sought sanctions against Davis because he was “seek[ing] an award of attorneys fees based, in part, on services performed by Tourtelot & Butler . . . which were performed at a time that said firm was not representing defendant [Renwood] Properties but was representing Robert Tourtelot as an individual defendant.” Twin Rivers contended that the fees being claimed for the services of Tourtelot & Butler from January 26, 2004 (when Tourtelot substituted out of the case as counsel of record for the Renwood defendants) through August 12, 2004 (when Tourtelot substituted back into the case as counsel of record for the Renwood defendants) “cannot properly be claimed by [Renwood] Properties as attorneys fees incurred in defending the malicious prosecution lawsuit.” Twin Rivers further asserted that the attempt to recover those fees from Twin Rivers under the contract was “sanctionable because Davis knew that Tourtelot was representing solely himself until noon on August 12 at which time he was associated as co-counsel” and because Renwood “Properties had been defended solely by Davis from January 23, 2004, to the time of trial as counsel of record.”

In its opposition to the motion for sanctions, Renwood Properties did not address the foregoing argument, except to assert that it was “seek[ing] to recover all fees [Renwood] Properties incurred to defend [itself], its office[r] Robert Smerling, and its former attorney Robert Tourtelot”^[6] and that “Twin Rivers makes no argument that [Renwood] Properties should not have paid counsel to defend Smerling and Tourtelot by agreement.”

In its tentative ruling on the sanctions motion, the trial court tentatively concluded that “it was frivolous and absolutely legally unreasonable” for Davis to seek to recover on behalf of Renwood Properties “substantially all the fees of attorney Robert Tourtelot, as well as all the fees of attorney Lori [sic] Butler” because “[t]he substantial bulk of the $82,968.75 in fees that Defendants request for Tourtelot’s services were incurred during the period January 26th to August 12, 2004, while he was representing nobody but himself,” and “[a]ll the $39,243.75 in fees that Defendants request for Butler’s services were incurred on behalf of Tourtelot, not on behalf of any of the other Defendants.”

In response to the court’s tentative ruling, Davis argued that “from the date Mr. Tourtelot and Ms. Butler got off the case as counsel of record, they continued to work on behalf of the Renwood Defendants with me to prepare me for this trial. . . . It took months, and they didn’t do it for free, and they billed the clients.

And the client being Renwood Properties had to pay for the defense of Mr. Smerling, and it had to pay for the defense of Renwood Winery, Inc. But as we set forth in other [sic] motions for attorney’s fees, it would not pay money for the defense of Robert Tourtelot. There was a $10,000 credit, essentially, that it would not pay.”

After taking both motions under submission, the court denied the fee motion but granted the sanction motion. On the fee motion, the trial court rejected Twin Rivers’ merger argument,^[7] but concluded the malicious prosecution action did not arise out of the Agreement. According to the court, “While it is true that the present malicious prosecution action arose out of the earlier litigation over the contract, that hardly establishes that this action itself arose out of the contract. The relationship of this action with the underlying contract appears far too attenuated to have been within the reasonable contemplation of the parties at the time they wrote their attorney’s fee provision into the contract.”

On the sanctions motion, the court affirmed its tentative ruling, concluding it was “frivolous and legally unreasonable” for Davis to seek “huge fees for work not done in the representation of the moving defendants.” Accordingly, the court ordered Davis to pay sanctions in the sum of $3,000.

The Renwood defendants filed a timely notice of appeal from the order denying the fee motion and the order granting the sanction motion (case No. C051401). We later consolidated their appeal with Twin Rivers’ appeal from the judgment.

DISCUSSION

I

Twin Rivers’ Appeal

A

Probable Cause To Sue For Fraud

As previously noted, in granting the Renwood defendants’ motion for judgment under section 631.8, the trial court concluded they had “probable cause to prosecute the cross-complaint in the underlying litigation.” Twin Rivers’ arguments on appeal relate to whether this conclusion is supported by substantial evidence.

“[T]he existence or absence of probable cause has traditionally been viewed as a question of law . . . , rather than [as] a question of fact . . . .” (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 875.) However, “if the facts upon which the defendant acted in bringing the prior action ‘are controverted, they must be passed upon by the jury before the court can determine the issue of probable cause . . . .’” (Id. at p. 877.)

Here, the parties apparently agree we are dealing with a dispute over the facts upon which the Renwood defendants acted in bringing the fraud cross-complaint in the underlying action because both sides have framed the issue as whether substantial evidence supports the trial court’s determination that they acted with probable cause. Accordingly, that is the issue we will address.

“The standard of review after a trial court issues judgment pursuant to Code of Civil Procedure section 631.8 is the same as if the court had rendered judgment after a completed trial--that is, in reviewing the questions of fact decided by the trial court, the substantial evidence rule applies. An appellate court must view the evidence most favorably to the respondents and uphold the judgment if there is any substantial evidence to support it.” (Pettus v. Cole (1996) 49 Cal.App.4th 402, 424-425.)

An appellant “who challenges the sufficiency of the evidence to support a trial court finding” faces a “daunting burden.” (In re Marriage of Higinbotham (1988) 203 Cal.App.3d 322, 328-329.) “A reviewing court must presume that the record contains evidence to support every trial court finding of fact, and an appellant which contends that some particular finding is not supported must set forth in its brief a summary of the material evidence on that issue. Unless the appellant does so, the error assigned is deemed to be waived. The appellant must state fully, with transcript references, the evidence that it claims to be insufficient to support the trial court’s findings.” (Trailer Train Co. v. State Bd. Of Equalization (1986) 180 Cal.App.3d 565, 587-588.) “It is neither practical nor appropriate for [an appellate court] to comb the record on [the appellant’s] behalf.” (In re Marriage of Fink (1979) 25 Cal.3d 877, 888.)

What that means here is that to support its contention the trial court’s finding of probable cause was not supported by substantial evidence, Twin Rivers was required to set forth in its opening brief all of the material evidence on that issue and explain why none of that evidence, viewed in the light most favorable to the Renwood defendants, was sufficient to support a finding of probable cause. (See Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881 [if appellants contend “‘some particular issue of fact is not sustained, they are required to set forth in their brief all the material evidence on the point and not merely their own evidence‘”].) Twin Rivers did not do that. Instead, Twin Rivers focused exclusively on the testimony of Smerling and Tourtelot regarding Stirk-Smith’s “confession,” arguing that that testimony in particular “did not constitute substantial evidence” because it was “fabricated” and “willfully false.”

Even after the Renwood defendants pointed out in their respondents’ brief Twin Rivers’ failure to set forth and discuss all the material evidence on the issue of probable cause, Twin Rivers declined to rectify its failure. Instead, in its reply brief, Twin Rivers implicitly admits the record may contain substantial evidence other than the testimony of Smerling and Tourtelot regarding Stirk-Smith’s “confession” that would support the trial court’s finding of probable cause. Twin Rivers argues, however, that we should not “affirm the judgment of the trial court based upon purported ‘substantial evidence’ cited by Renwood in support of that judgment when the trial court itself did not rely on that evidence.”

This argument need not detain us long. As an appellate court, “we review the correctness of the trial court’s ruling, not the reasons underlying it.” (People v. Koontz (2002) 27 Cal.4th 1041, 1075, fn. 4.) “A judgment or order correct in theory will be affirmed, even where the trial court’s given reasoning is erroneous.” (Punsly v. Ho (2003) 105 Cal.App.4th 102, 113.) In the context of a substantial evidence challenge, that means it does not matter what particular evidence the trial court relied on in making a finding; we will uphold the finding if there is any substantial evidence in the record to support it.^[8] (See Foreman & Clark Corp. v. Fallon, supra, 3 Cal.3d at p. 881 [“‘When a finding of fact is attacked on the ground that there is not any substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the finding of fact’”].)

Of course, as we have noted, the burden is on the appellant to persuade us there is no such evidence in the record, and this can be done only if the appellant sets forth all of the evidence material to the finding in question and shows us why it is nonetheless insufficient to support the finding. This principle flows from the fundamental rule that “‘[a] judgment or order of the lower court is presumed correct . . . , and error must be affirmatively shown. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error.’“ (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.)

In an attempt to avoid its obligation to show by reference to all the material evidence in the record that there is no substantial evidence to support the trial court’s finding of probable cause, Twin Rivers argues that “the usual appellate rules” should not apply here and that “the appellate court’s duty to avoid the perpetration of fraud takes precedence over the rules requiring deference to the trial court’s findings.” Twin Rivers goes on to assert that “public policy and principles of judicial administration clearly authorize this Court to grant priority to the avoidance of fraud on the court, even though it requires this Court to ignore the normal judicial principles requiring affirmation of a judgment supported by substantial evidence.” Regardless of whether there may be other substantial evidence in the record to support the trial court’s finding of probable cause, Twin Rivers wants this court to: (1) find that the testimony of Smerling and Tourtelot regarding Stirk-Smith’s “confession” was willfully false and fabricated; and (2) treat “Renwood’s reliance on [this] willfully false and fabricated testimony [as] an implicit admission that there is no other substantial evidence sufficient to support a finding of probable cause.” Based on this “implicit admission,” Twin Rivers would then have this court not only reverse the trial court’s judgment in favor of the Renwood defendants, but also “rule, as a matter of law, that the underlying [cross-complaint] was filed without probable cause, with malice” and order “that punitive damages should be awarded, leaving only the amount of those damages to be determined on a remand.”

As is readily apparent, Twin Rivers’ unique challenge to the sufficiency of the evidence rests on the proposition that this court has the power to conclude that evidence the trial court accepted as true was, instead, false. Technically, it is true that the appellate courts have this power. (See Dunaway v. Anderson (1913) 22 Cal.App. 691, 694.) However, an appellate court “is in no position to exercise the power justly or to be assured that the finding or verdict is wrong where it is supported by substantial testimony that is not inherently improbable. This arises from the circumstance, to which attention has been often directed, that the appellate court is deprived ‘of those important aids to the attainment of a correct conclusion, which the jury and the court below find in the appearance and general bearing of the witnesses.’” (Ibid.)

“A written transcript of testimony is but a pallid reflection of what actually happens in a trial court. ‘”The best and most accurate record is like a dehydrated peach; it has neither the substance nor the flavor of the fruit before it was dried.” It resembles a pressed flower.’ [Citation.] ‘The cold record cannot give the look or manner of the witnesses; their hesitations, their doubts, their variations of language, their precipitancy, their calmness or consideration. A witness may convince all who hear him testify that he is disingenuous and untruthful, and yet his testimony when read, may convey a most favorable impression.’ . . .

. . . [A] great deal of that highly delicate process we call evaluating the credibility of a witness is based on what might be called, for lack of a better word, ‘intuition’--that intangible, inarticulable capacity of one human being to evaluate the sincerity, honesty and integrity of another human being with whom he comes in contact. There is no way of knowing or proving how much of the testing process is encompassed in the ‘traditional’ tests of credibility such as provable bias or interest, contradiction or impeachment, all demonstrable on the record, and how much of that evaluation process comes from the purely subjective reaction of the trier of facts to the attitude, demeanor and manner of testifying of the witness--not demonstrable on the record.” (Meiner v. Ford Motor Co. (1971) 17 Cal.App.3d 127, 140-141.)

Thus, because of the trial court’s (or jury’s) unique position for judging the credibility of witnesses, the power of an appellate court to reject testimony as unworthy of credence is strictly limited to testimony that, by its very nature, is inherently improbable. And such a showing is not easily made. “‘Although an appellate court will not uphold a judgment or verdict based upon evidence inherently improbable, testimony which merely discloses unusual circumstances does not come within that category [citation]. To warrant the rejection of the statements given by a witness who has been believed by a trial court, there must exist either a physical impossibility that they are true, or their falsity must be apparent without resorting to inferences or deductions. [Citations.] Conflicts and even testimony which is subject to justifiable suspicion do not justify the reversal of a judgment, for it is the exclusive province of the trial judge or jury to determine the credibility of a witness and the truth or falsity of the facts upon which a determination depends. [Citations.]’ [Citations.] There are expressions--nearly all dicta--in one form or another to the effect that an appellate court will reject testimony inherently improbable or impossible of belief in some 40 civil cases collected in 2 McKinney’s Digest, Appeal and Error, section 1267. However, only in one of these cases did the appellate court actually reject as unbelievable testimony believed by the trier of facts, and that one case, Lind v. Closs (1891), 88 Cal. 6 [25 P. 972], is a rape case in which the Supreme Court rejected the testimony of the complaining witness so that the subject matter gives it an exceptional character. The absence of decisions rejecting testimony believed in the trial court is understandable when we see that for rejection it is required that the testimony be ‘wholly unacceptable to reasonable minds’ [citation]; ‘unbelievable per se‘ [citation] such that ‘no reasonable person could believe the testimony.’ [Citation.] It has even been held that an appellate court will not substitute its evaluation of the evidence or its opinion as to the credibility of the witnesses for that of the trial court ‘even though to some triers of fact the evidence . . . would have seemed so improbable, impossible and unbelievable that a judgment contrary to that . . . on appeal would have inevitably followed.’” (Evje v. City Title Ins. Co. (1953) 120 Cal.App.2d 488, 492.)

In short, the bar that must be hurdled for an appellate court to reject as unbelievable testimony the trial court believed is virtually, albeit not entirely, insurmountable. Where (as here) it is physically possible for the testimony to be true, an appellate court can reject testimony as inherently improbable only if there exists “such a state of facts so clearly apparent that nothing need be assumed nor any inferences drawn to convince the ordinary mind of the falsity of the story.” (Powell v. Powell (1919) 40 Cal.App. 155, 159.) “The appellate court will not indulge in lengthy and dubious computations, nor seek far for a reason, no matter how ingenious may be the argument by which it is urged, to determine that witnesses have committed perjury.” (Ibid.)

Here, the fact that Twin Rivers has to spend 12 pages of its opening brief explaining 12 reasons why the testimony of Smerling and Tourtelot regarding Stirk-Smith’s “confession” must have been false strongly suggests that this is not one of the rare cases in which inherent improbability can be shown. We need not decide, however, whether that testimony was false because there still remains the other evidence Twin Rivers has refused to address. Without any authority, Twin Rivers urges us to treat the use of the allegedly false testimony of Smerling and Tourtelot as an implicit admission by the Renwood defendants that there is no other substantial evidence sufficient to support a finding of probable cause, even though there may in fact be other substantial evidence in the record to support the trial court’s finding of probable cause.

Twin Rivers contends we should do this because “one of the duties of this Court is to insure that fraud is not perpetrated on a trial court which results in detriment or injury to a party in the trial court proceedings.” What Twin Rivers fails to explain, however, is what detriment or injury it suffered because of the allegedly false testimony of Smerling and Tourtelot if there is other substantial evidence in the record to support the trial court’s finding of probable cause. We do not mean to suggest in any manner that we condone the offering of perjured testimony (nor to suggest there was any such testimony in this case). But if substantial, unperjured testimony supports a trial court’s finding of fact, then the offering of perjured testimony on the same subject -- no matter how offensive that conduct may be -- provides no basis for rejecting the trial court’s finding.

Again, it is a fundamental rule of appellate law that we presume the judgment was correct and the appellant bears the burden of demonstrating otherwise. Here, that means we presume there was substantial evidence of probable cause unless and until Twin Rivers demonstrates otherwise. Twin Rivers has not done so and in fact has not even attempted to do so. Even if Twin Rivers were to persuade us the testimony of Smerling and Tourtelot was false, which it has not, that showing would be to no avail because support for the trial court’s finding of probable cause may lie in the evidence Twin Rivers has refused to address.

It is not our role in reviewing a trial court’s findings to punish litigants for presenting false testimony. That is what the criminal law is for. (See Pen. Code, §§ 118 [criminalizing perjury], 127 [criminalizing subornation of perjury], 653f, subd. (a) [criminalizing solicitation of perjury or subornation of perjury].) Our role is to determine if a party suffered from prejudicial trial court error -- such as by the imposition of an adverse judgment based on findings that are not supported by substantial evidence. Here, because Twin Rivers has failed to carry -- indeed, has not even attempted to carry -- its burden of showing that the trial court’s finding of probable cause was not supported by substantial evidence, we are in no position to grant Twin Rivers the relief it seeks.^[9]

B

Probable Cause To Claim Damages

Twin Rivers next contends that regardless of whether they had probable cause to sue for fraud, there was no substantial evidence that the Renwood defendants had probable cause to allege in the cross-complaint in the underlying litigation that Renwood Properties had suffered damages ranging from $2 million to $4 million, and the trial court should have denied the motion for judgment on that basis. We disagree.

In Citi-Wide Preferred Couriers, Inc. v. Golden Eagle Ins. Corp. (2003) 114 Cal.App.4th 906, the appellate court held that “a malicious prosecution action [can] be maintained where most but not all of the amount sought in the prior action was claimed without probable cause.” (Id. at p. 914.) Twin Rivers asks us to apply that holding here based on various allegations in Renwood’s cross-complaint in the underlying litigation that it suffered damages “in excess of $2,000,000,” “in a sum in excess of $2,000,000.00,” “in the sum not less than $4,000,000,” and “in a sum in excess of $2,500,000.”

There are at least two flaws in Twin Rivers’ argument. First, we have explained already that if an appellant contends there is no substantial evidence to support a finding of fact, it must set forth in its brief all of the material evidence on the point, viewed in the light most favorable to the respondent, and explain why none of that evidence was sufficient to support the finding. Once again, Twin Rivers has failed to carry this “daunting burden.” (In re Marriage of Higinbotham, supra, 203 Cal.App.3d at pp. 328-329.)

For example, in its opening brief Twin Rivers asserts that Smerling “admitted that he had no facts in support of th[e] damages allegations” in the complaint and that “he did not know where Tourtelot got the $2 million figure.” Neither of these statements fairly characterizes Smerling’s testimony in the light most favorable to the Renwood defendants. First of all, the examination of Smerling to which Twin Rivers refers did not relate directly to the various damages allegations in the cross-complaint. Instead, it related to a certain prefatory allegation that in reliance on Twin Rivers’ allegedly false representations, Renwood Properties “incurred loss of income over the course of the next ten crop years in excess of 2,000,000.” Second, far from testifying that “he did not know where Tourtelot got th[is] $2 million figure,” Smerling suggested exactly where that figure came from. Specifically, when Twin Rivers’ attorney asked Smerling if Smerling “ever ask[ed] [Ed] Fahey [Renwood Winery’s vice president of finance] whether he believed that claimed loss of income of excess of $2 million was realistic,” Smerling responded, “He told me we were going to lose $200,000 in the first year and times ten years which it says ten years crop. That’s were he came up with the $[2] million. He must have told Mr. Tourtelot.”

Thus, contrary to Twin Rivers’ claim that there were no facts to support the damages allegations, there was evidence that the claim of $2 million in damages was based on a belief that Renwood Properties would lose $200,000 per year over a period of 10 years as a result of Twin Rivers’ alleged fraud. At no point does Twin Rivers make any attempt to challenge the reasonableness of this belief or point to any evidence that Fahey did not communicate this belief to Tourtelot. Indeed, Twin Rivers makes virtually no mention of Tourtelot’s testimony and specifically ignores Tourtelot’s testimony that the information about losing $200,000 per year over a period of 10 years did come from Fahey.

Under these circumstances, we are entitled to deem Twin Rivers’ substantial evidence argument regarding the claims for damages forfeited. Even if we did not do so, however, it would be of no avail to Twin Rivers. This is so because even if we were to conclude there was no substantial evidence that Renwood Properties had probable cause to claim damages of more than $2 million to more than $4 million that conclusion would not justify reversal of the judgment against Twin Rivers because the trial court also found that the Renwood defendants did not file the cross-complaint with “any actual hostility, ill will or subjective intent to misuse the legal system that is required for malice.” To secure a reversal, Twin Rivers would have to show -- again, by reference to all the evidence in the record material to the issue viewed in the light most favorable to the Renwood defendants -- that there was no substantial evidence they acted without malice in inflating the damage claims in the cross-complaint. Stated another way, Twin Rivers would have to show that even viewing all of the material evidence in the light most favorable to the Renwood defendants, the only reasonable conclusion is that in asserting inflated claims for damages they acted out of “actual hostility or ill will . . . or a subjective intent to deliberately misuse the legal system for personal gain or satisfaction at the expense of” Twin Rivers. (Downey Venture v. LMI Ins. Co. (1998) 66 Cal.App.4th 478, 498-499.)

Twin Rivers has not made the necessary showing. Twin Rivers contends “malice, as a matter of law, is established by the damages allegations of the [cross-complaint] which allege damages in amounts so grossly excessive as to show that Smerling could not have had a good faith belief in their validity at the time the [cross-complaint] was filed.” Without pointing to any evidence in particular, Twin Rivers further argues that “[t]he evidence showed that the damages allegations were known by Smerling to be so excessive that they bore no reasonable relation to the actual damages suffered.” Finally, Twin Rivers argues that “[t]his Court should find malice on the part of Defendants based on Smerling’s testimony that, at the time the [cross-complaint] was filed, he had no information substantiating the multiple claims of damages in the multi-million-dollar range as alleged in the [cross-complaint].”

These arguments fail because Twin Rivers: (1) does not provide citations to the record for any specific evidence in support of them; (2) mischaracterizes the testimony of Smerling that we have discussed already; (3) ignores evidence (also previously discussed) that Fahey provided Tourtelot with a factual basis for claiming $2 million in damages over a 10-year period; and (4) ignores evidence that the claim in the cross-complaint for in excess of $4 million in damages was a typographical error.^[10]

For the reasons set forth above, we conclude Twin Rivers has failed to carry its burden of showing the trial court’s judgment is not supported by substantial evidence. Accordingly, we will affirm the judgment.

II

Renwood’s Appeal

A

Denial Of Attorney Fees And Costs

In their appeal, the Renwood defendants contend the trial court erred in denying the motion for attorney fees and costs under the Agreement because this malicious prosecution action arose out of the Agreement. We agree.

“‘It is . . . solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence.’ [Citation.] Accordingly, ‘An appellate court is not bound by a construction of the contract based solely upon the terms of the written instrument without the aid of evidence . . . . Under these circumstances, there is no issue of fact, and it is the duty of an appellate court to make the final determination in accordance with the applicable principles of law.’” (Stevenson v. Oceanic Bank (1990) 223 Cal.App.3d 306, 315.)

Since the parties here did not offer any extrinsic evidence regarding the intended meaning of their agreement, the question before us is one of law that we determine independently of the trial court; namely, is this malicious prosecution action an action “arising out of” the real estate sales contract? “To answer this question, we apply the ordinary rules of contract interpretation. ‘Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The ‘clear and explicit’ meaning of these provisions, interpreted in their ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage’ (id., § 1644), controls judicial interpretation. (Id., § 1638.) Thus, if the meaning a layperson would ascribe to contract language is not ambiguous, we apply that meaning.” (Santisas v. Goodin (1998) 17 Cal.4th 599, 608.)

The parties do not claim they ascribed to the phrase “arising out of” a particular or special meaning. Accordingly, we must interpret that phrase in its ordinary and popular sense.

To “arise” means “to originate from a source” or “to come into being or to attention.” (Merriam-Webster’s Collegiate Dict. (10th ed. 2000) p. 62, col. 2.) Thus, the question is whether this malicious prosecution action originated, or came into being, from the Agreement. We conclude that it did.

We find support for this conclusion in Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338. In Xuereb, the dissatisfied purchasers in a real estate deal sued (among others) the real estate broker and real estate agent for (among other things) negligence, breach of fiduciary duty, and concealment and misrepresentation. (Id. at pp. 1340-1341.) After the jury found in favor of the broker and the agent on those claims, they sought an award of attorney fees under a clause similar to the one at issue here. (Id. at p. 1341.) On appeal from the trial court’s denial of that motion, the appellate court determined that “[t]he critical question, under the language of the parties’ attorney fees agreement, [wa]s whether [the purchasers’] lawsuit arose from the Purchase Agreement.” (Id. at p. 1343.)

In answering that question in the affirmative, the appellate court first noted that “but for the Purchase Agreement by which the allegedly defective property was sold to [the purchasers], the dispute between the parties would not have arisen. Certainly, but for the execution of the Purchase Agreement and the subsequent close of escrow, [the purchasers] would have had no basis on which to claim detrimental reliance or damages, as alleged in their lawsuit.” (Xuereb v. Marcus & Millichap, Inc., supra, 3 Cal.App.4th at pp. 1343-1344.) The court also noted that “[i]n ordinary popular speech, as well as in legal opinions, it is common to use the phrase ‘arises from’ or ‘arises out of’ in a far more general, transactional sense than is suggested by phrases such as ‘derives from’ or ‘proximately caused by.’” (Id. at p. 1344.)

Twin Rivers contends this case is distinguishable from Xuereb because there “the rights sought to be vindicated in the lawsuit all arose from the contract containing the attorneys fees clause.” (Bold emphasis deleted.) Twin Rivers contends this action did not arise out of the Agreement because “a malicious prosecution action does not seek to enforce rights or duties arising out of any contract which may have existed between the parties. A malicious prosecution action involves rights and duties based entirely on the common law.” (Bold emphasis deleted.)

We are not persuaded. The causes of action at issue in Xuereb were for negligence, breach of fiduciary duty, and concealment and misrepresentation. As the Renwood defendants point out, “the right to be free from intentional fraud” is based on the common law of torts just as much as the right to be free from malicious prosecution. Thus, just like this malicious prosecution action, the misrepresentation claim in Xuereb could have been characterized as arising from the common law, rather than from the contract. Still, the court in Xuereb concluded the misrepresentation claim -- as well as the negligence and breach of fiduciary duty claims -- arose from the real estate sales contract within the meaning of the attorney fees clause in that contract. Twin Rivers has offered no reason why we should not reach a similar conclusion here.

If there is a valid distinction between this case and Xuereb, it is the one the trial court implicitly recognized. In Xuereb, the purchasers’ claims were based on their allegation that the property they bought was delivered to them “in defective condition.” (Xuereb v. Marcus & Millichap, Inc., supra, 3 Cal.App.4th at p. 1341.) In other words, they claimed the broker and the agent failed to disclose to them, or actively concealed from them, the defective nature of the property they bought. This was comparable to Renwood Properties’ cross-complaint for fraud in the underlying litigation here, in that Renwood Properties alleged Twin Rivers failed to disclose, or actively concealed, various pertinent facts about the vineyard Renwood Properties was buying. Thus, under the reasoning of Xuereb, the cross-complaint in the underlying litigation certainly arose from the agreement between Renwood Properties and Twin Rivers. As the trial court recognized, however, this malicious prosecution action is one step removed from the underlying litigation, because it is based on the underlying litigation, which in turn was based on the Agreement. Does this mean the malicious prosecution action did not arise from the Agreement? We think not.

In the ordinary and popular sense of the phrase, this malicious prosecution action arose from the contract by which Twin Rivers sold the vineyard to Renwood Properties because but for that contract, there would have been no malicious prosecution action. Twin Rivers contends this “but for” connection is “too attenuated to support an award of fees,” but we are not persuaded. There might, hypothetically, be some situation in which a claim would not have come into being “but for” the underlying contract, but the immediate facts of the claim are far removed from the contract.^[11] That, however, is not the situation here.

As the Renwood defendants point out, a malicious prosecution is, in some aspects, “a relitigation of the prior action.” (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 986.) Here, Renwood Properties sought to prove in the underlying fraud action that Twin Rivers defrauded Renwood Properties into buying the vineyard. In this malicious prosecution action, Twin Rivers sought to prove that it did not defraud Renwood Properties into buying the vineyard and, in fact, the Renwood defendants had no probable cause to believe Twin Rivers had done so. In other words, the purpose of this action was to prove that the underlying fraud action was without foundation. If the underlying fraud action arose from -- i.e., originated from -- the contract to sell the vineyard, then so too did this malicious prosecution action. That the malicious prosecution action is a step further removed from the Agreement than the underlying fraud action does not alter this conclusion given the ordinary and popular meaning of the phrase “arising from.”

For the foregoing reasons, we conclude the trial court erred in denying Renwood’s motion for attorney fees and costs under the Agreement, and we will remand the case to the trial court to further consider the fee motion.

B

Sanctions

We begin our consideration of the sanctions issue on appeal by addressing an issue none of the parties has raised. As we have noted, the sanctions order was imposed against Davis, not against his client Renwood Properties, which was the party seeking the fee award. No notice of appeal, however, was filed on Davis’s behalf. Instead, it was the Renwood defendants -- Davis’s clients -- who filed a notice of appeal from the sanctions order.

“[A] party may not take an appeal based upon an error that injuriously affects only a nonappealing third party.” (Bratcher v. Buckner (2001) 90 Cal.App.4th 1177, 1184.) Accordingly, at first glance it appears the proper resolution of the Renwood defendants’ appeal of the sanctions order is to dismiss it, since they are not aggrieved by that order. (See Code Civ. Proc., § 902 [a party has standing to appeal only if it is “aggrieved” by the order appealed from].)

Under the California Rules of Court, however, “The notice of appeal must be liberally construed.” (Cal. Rules of Court, rule 1(a)(2).) In past cases, the rule of liberal construction has been invoked in cases like this where the attorney who was the subject of a sanctions award failed to file a separate notice of appeal challenging the award, but instead filed a notice of appeal on behalf of his client challenging the award, even though no sanctions were imposed against the client. (See Kane v. Hurley (1994) 30 Cal.App.4th 859, 861, fn. 4.) “The strong public policy in favor of hearing appeals on the merits operates against depriving an aggrieved party or attorney of a right to appeal because of noncompliance with technical requirements.” (Moyal v. Lanphear (1989) 208 Cal.App.3d 491, 497.) Because Twin Rivers was not prejudiced or misled by Davis’s failure to file a notice of appeal on his own behalf (Beltram v. Appellate Department (1977) 66 Cal.App.3d 711, 715), we will liberally construe the notice of appeal he filed on behalf of his clients to include his challenge to the sanctions order against him. Accordingly, we turn to the merits of what we now treat as Davis’s appeal.

“Under . . . Code of Civil Procedure section 128.7 . . . , there are basically three types of submitted papers that warrant sanctions: factually frivolous (not well grounded in fact); legally frivolous (not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law); and papers interposed for an improper purpose.” (Guillemin v. Stein (2002) 104 Cal.App.4th 156, 167.) Here, the trial court expressly stated its belief that Davis did not present the attorney fees motion “to harass or to cause unnecessary delay or a needless increase in the cost of litigation, or to commit a fraud upon the court.” Accordingly, the only basis the trial court could have had for imposing sanctions under section 128.7 was that Renwood Properties’ request for attorney fees for the services of Tourtelot & Butler was either factually frivolous or legally frivolous.

As noted above, the trial court concluded that “the portion of the defendants’ motion that sought huge fees for work not done in the representation of the moving defendants was frivolous and legally unreasonable.” We treat this as a conclusion that this portion of the motion was not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law (see § 128.7, subd (b)(2)), and we review that ruling for abuse of discretion. (Guillemin v. Stein, supra, 104 Cal.App.4th at p. 167.)

As previously noted, the attorney fees clause at issue here provided that “[i]n any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney’s fees and costs . . . .” Renwood Properties was the “Buyer” and had prevailed in the malicious prosecution action by securing a judgment in its favor. Thus, the question is whether there was a reasonable basis for believing that an award of “reasonable attorney’s fees and costs” to Renwood Properties under the contract could properly include amounts Renwood Properties incurred for the services of Tourtelot & Butler between January 26, 2004, and August 12, 2004. Only if any reasonable attorney would have agreed that Renwood Properties’ request for those fees was totally and completely without merit can the sanctions award against Davis be deemed proper. (See Guillemin v. Stein, supra, 104 Cal.App.4th at p. 167.)

We conclude that standard was not met here and the trial court abused its discretion in concluding otherwise. The trial court’s ruling was based on the premise that none of the legal services Tourtelot performed between January 26, 2004, and August 12, 2004, and none of the legal services Butler performed at all (which were performed almost entirely within that same period)^[12] were performed in the representation of the Renwood defendants. The problem with that premise is that it is not supported by evidence. To the extent there is any evidence in the record about the relationship between the Renwood defendants and Tourtelot & Butler following Tourtelot’s substitution out of the case in January 2004 as counsel of record for the Renwood defendants, the evidence suggests that Tourtelot & Butler continued to perform legal services for the Renwood defendants, albeit not as counsel of record. The invoices attached to Tourtelot’s declaration show that Tourtelot & Butler continued to bill Renwood Properties for legal services related to this case between January 26, 2004, and August 12, 2004, and Renwood Properties continued to pay for those services.

The fact that Tourtelot & Butler was not counsel of record for the Renwood defendants during that period has no particular bearing on whether Renwood Properties is entitled to recover fees for the services provided. What matters is whether Tourtelot & Butler was, in fact, providing services for the Renwood defendants (rather than solely for Tourtelot himself) and whether the fees charged for those services were reasonable. (See West Coast Development v. Reed (1992) 2 Cal.App.4th 693, 706-707 [attorney fee award for counsel not of record is proper]; Mix v. Tumanjan Development Corp. (2002) 102 Cal.App.4th 1318, 1324-1325 [same].)

It would have been better here if, in moving for an award of attorney fees and costs, Renwood Properties had offered a specific explanation to the court of the nature of its continuing relationship with Tourtelot & Butler during the time that firm was not serving as counsel of record for the Renwood defendants. But the absence of such an explanation does not make the fee request sanctionable where the other evidence before the court shows that Renwood Properties continued to pay for legal services from Tourtelot & Butler during that time, and where there was no evidence that all of the services Tourtelot & Butler performed during that time were solely for the benefit of Tourtelot. Under these circumstances, it cannot be said that the disputed fees were unquestionably “for work not done in the representation of the [Renwood] defendants,” as the trial court concluded. Accordingly, the trial court acted unreasonably and arbitrarily in sanctioning Davis $3,000 for seeking to recover these fees on behalf of Renwood Properties.

In reaching this conclusion, we do not mean to suggest that Renwood Properties is necessarily entitled to recover the disputed fees from Twin Rivers. That is a matter the trial court will have to resolve on remand of the fee motion, and in doing so it may be appropriate (if possible) for the trial court to allocate the disputed fees between the defense of the Renwood defendants and the defense of Tourtelot himself. It may also be appropriate for the trial court to deny Renwood Properties’ request for the disputed fees because Renwood Properties failed to attempt any such allocation itself. We express no opinion on these matters. For our purposes, it is sufficient to conclude that the trial court abused its discretion in sanctioning Davis for even trying to recover the disputed fees on behalf of Renwood Properties.

There is one issue relating to the sanctions motion that remains to be addressed. In his declaration in support of the fee motion, Tourtelot asserted that “true and correct copies of Tourtelot and Butler’s billings for the defense of this matter“ were attached to his declaration. (Italics added.) Attached were 14 bills, which covered every month between January 2004 and September 2004, as well as May and June 2003, August 2003, October 2003, and February 2005. Each of those bills showed a “Client Number” of “433 001” and was addressed to “Renwood Properties, Inc.” Underneath that name appeared “Renwood Adv Twin Rivers,” which apparently represented a description of the matter (i.e., an adversarial proceeding between Renwood and Twin Rivers).

In addition to those 14 bills, however, Tourtelot also included two other bills, one from September 2004 and one from August 2004 -- months already covered in the bills discussed above. Each of these bills showed a “Client Number” of “448 001” and was addressed to “Renwood Properties.” Underneath that name appeared “General.” The September bill is for .75 hours in services by Tourtelot (worth $281.25) described as “Telephone call from client - discussion and advice various subjects.” The August bill is for 4.50 hours in services by Tourtelot (worth $1,687.50), with descriptions that appear to have nothing to do with this malicious prosecution action, such as “Telephone call with client, review correspondence from client re: Phillsbury Winthrop; research professional rule of conduct 3-310E.”

Based on the August 2004 “General” bill,^[13] in its motion for sanctions Twin Rivers contended sanctions were appropriate because “reimbursement was sought on this motion for services which clearly were not related to the defense of [Renwood] Properties.” The trial court did not address this argument in its ruling on the sanctions motion.

On appeal, Twin Rivers points