Filed 2/19/16 U.S. Grant Hotel Ventures v. American Property M anagement C orp. CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS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). Th is opinion has not been certified for publication or ordered publishe d for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE
STATE OF CALIFORNIA

U.S. GRANT HOTEL VENTURES, LLC , Plaintiff and Respondent ,

v. AMERICAN PROPERTY MANAGEMENT CORPORATION et al

. , Defendants and Appellants

. D066490

(Super. Ct. No. GIC 845130 )

APPEAL from a n order of the Superior Court of San Diego County, Joan Lewis , Judge. Reversed

. Williams Iagmin and Jon R. Williams for Defen dants and Appellants. Procopio, Cory, Hargreaves & Savitch, Anthony J. Dain, Frederick K. Taylor and Brian J. Kennedy, for Plaintiff and Respondent. American Property Management Corporation (APMC) , APMC San Diego Hotel Management, LLC ( Hotel Management ) , a nd Michael Gallegos appeal from an order awarding U.S. Grant Hotel Ventures, LLC (USG) attorney ' s fees as the prevailing party on its tort claims for breach of fiduciary duty and conversion arising out of a contract

.2

Appellants contend the trial court err ed in awarding USG its attorney ' s fees. We agree and reverse the order.
FACTUAL AND PROCEDURAL BACKGROUND In 2003, Sycuan Investors

— U.S. Grant, LLC (Sycuan Investors ) formed USG to own and acquire the U.S. Grant Hotel (the hotel) through the adoption o f an Operating Agreement. The Operating A greement named Hotel Management as the m anage r of
USG. The Operating Agreement anticipated that USG and Hotel Management would enter into another agreement whereby Hotel Management would manage the hotel operation s. Two days later , US G and Hotel Management executed the Hotel Management Agreement ( Managing Agreement ) setting forth the terms and conditions under which Hotel Management would manage the hotel

. In 2005, USG notified Hotel Management that it was termin ating the Managing Agreement due to alleged " mismanagement, misappropriation of funds and breach of fiduciary duty. " Thereafter, USG sued APMC, Hotel Management , and Gallegos alleging, among other things, that APMC and Hotel Management breached the Managi ng Agreement and APMC, Hotel Management and Gallegos breached the Operating Agreement

. In turn, Hotel Management and Gallegos filed a cross

- complaint against USG asserting , among other things, that Hotel Management was entitled to liquidated damages
due t o USG ' s wrongful terminat ion of the Managing Agreement

. USG prevailed on the claims, but this court reversed the judgment on the ground the trial court erred in not permitting extrinsic evidence offered by Hotel Management

. (See U.S. Grant Hotel Ventures , LLC v. American Property Management Corp. et al.3

(Oct. 16, 2008, D048746 ) [ non pub. opn.] , ( U.S. Grant I ).) On remand, the trial court granted USG ' s motion to dismiss the cross

- complaint finding USG was entitled to sovereign immunity as a subordinate eco nomic entity of the Sycuan tribe. This court rejected USG ' s belated assertion of sovereign immunity, reversed the lower court ' s dismissal of Hot el Management and Gallegos ' s c ross - c omplaint, and remanded the matter for further proceedings. ( American Prope rty Management Corp. v. Superior Court ( U.S. Grant Hotel Ventures, LLC ) (2012) 206 Cal.App.4th 491 , 495, 508.) On remand, the jury rejected USG ' s claim that Hotel Management breached the Operating Agreement on the ground USG and Hotel Management did not e nter into the Operating Agreement. T he jury , however, found in favor of USG on its claim s for breach of the Managing Agreement , breach of fiduciary duty and conversion of $1,350,000 from

an operating account. The jury awarded USG the total of $1,350,000 in damages

. Hotel Management ' s operative cross

- complaint alleged that USG breached the Managing Agreement by wrongfully terminating the agreement and refusing to pay fees and liquidated damages. On this claim, the jury found in favor of Hotel Managemen t and awarded it liquidated damages and other damages for a total of over $5 million. Posttrial
motions resulted in a condition al remittitur which reduced Hotel Management ' s damages to about $3.2 million. Thereafter, the trial court granted Hotel Managem ent its attorney ' s fees and costs under Civil Code section 1717 as the prevailing part y under the Managing Agreement , with Hotel Management receiving about $3.35 million in attorney ' s fees. USG then sought to be declared the prevailing party under Code of Civil Procedure section 1021 on4

the Operating Agreement for its success on its tort claims for breach of fiduciary duty and conversion arising out of the Operating Agreement. T he trial court awarded USG about $4 .2 million in attorney ' s fees as the prevai ling party under the Operating Agreement

. Hotel Management timely appeal ed from th is postjudgment order

. Although there are two other appellants, the order awarded fees solely against Hotel Management ; accordingly, we limit our discussion to this party.
DISCUSSION
I

. General Legal Principles
In California each party to a lawsuit ordinarily must pay his or her own attorney ' s fees. ( Musaelian v. Adams (2009) 45 Cal.4th 512, 516 .) " Code of Civil Procedure section 1021 codifies the rule, providing that th e measure and mode of attorney compensation are left to the agreement of the parties ' [e]xcept as attorney ' s fees are specifically provided for by statute. ' " ( Ibid. ) (Undesignated statutory references are to the Code of Civil Procedure.) One such statu te is Civil Code section 1717 which provides " [i] n any action on a contract, where the contract specifically provides that attorney ' s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the
preva iling party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney ' s fees in addition to other costs. " (Civ. Code, § 1717, sub d. (a).) The purpose of Civil Code section 1717 is to establish a mutuality of remedy and

" prevent oppressive use of one

– sided attorney ' s fees provisions. " ( Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128.) To accomplish this purpose the statu te has been5

interpreted to provide for an award of attorney ' s fees to a defendant who has not signed a contract, but is sued as if it had, if the plaintiff would have been able to recover attorney ' s fees under the contract if the plaintiff prevailed. ( Ibi d. ) " W hen an action involves multiple, independent contracts, each of which provides for attorney fees, the prevailing party for purposes of Civil Code section 1717 must be determined as to each contract regardless of who prevails in the overall action. [Citation.] The fact that a party ' obtained a higher net recovery in the lawsuit is irrelevant to the determination of which party prevailed on any particular action on a contract. ' " ( Arntz Contracting Co. v. St. Paul Fire
& Marine Ins. Co. (1996) 47 Ca l.App.4th 464, 491 ( Arntz ).)
To invoke Civil Code section 1717 and its reciprocity principles a party must show (1) it was sued on a contract containing an attorney fee provision; (2) it prevailed on the contract claims; and (3) the opponent would have be en entitled to recover attorney ' s fees had the opponent prevailed. ( Santisas v. Goodin (1998) 17 Cal.4th 599, 610

- 611.)
N oncontract claims are not subject to Civil Code section 1717 and its reciprocity principles. ( Id. at p. 615.) Thus, in determining whether Civil Code section 1717 applies,

t he court disregard s any tort claims included in the action. ( Ibid. ) In contrast, under section 1021 " parties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation be tween themselves, whether such litigation sounds in tort or in contract. " ( Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1341.) " If the attorney fee provision encompass [es] noncontractual claims, the prevailing party entitled to recover f ees normally will be the party whose net recovery is greater, in the sense of most accomplishing its litigation objectives, whether or6

not that party prevailed on a contract cause of action. " ( Maynard v. BTI Group, Inc. (2013) 216 Cal.App.4th 984, 992 .) The question to be determined is which party prevailed in the lawsuit, not which party prevailed on the contract. ( Id. at p. 993.) We review for abuse of discretion a trial court ' s determination that a litigant is a prevailing party , along with i ts award of fees and costs. ( Goodman v. Lozano (2010) 47 Cal.4th 1327 , 1332.) " However, [if] the issue

. . . involves the interpretation of a statute, [it is] a question of law that we review de novo. " ( Ibid. )
II. Analysis Hotel Management asserts the attorne y ' s fee award in favor of USG under the Operating Agreement must be reversed because USG was not a prevailing party entitled to its attorney ' s fees under the fee provision contained in the Operating Agreement . We
agree. USG sought to be declared the prev ailing party under section 1021 on the Operating Agreement for its success on its tort claims for breach of fiduciary duty and conversion arising out of the Operating Agreement. USG did not seek attorney ' s fees under Civil Code section 1717 and conceded i n its motion that this statute does not apply. As a threshold issue, USG confusingly argue s legal concepts specific to Civil Code section 1717, including the concept that w hen an action involves multiple, independent

contracts there can be a prevailing pa rty designation as to each separate contract sued
upon. ( Arntz , supra , 47 Cal.App.4th at p. 491 .) We disregard these arguments and focus on whether the trial court properly declared USG to be the prevailing party under section
1021 for USG ' s success on i ts tort claims for breach of fiduciary duty and conversion7

arising out of the Operating Agreement. To answer this question we turn first to the attorney ' s fee provision in the Operating Agreement. The Operating Agreement provide d : " If any legal action

. . . is commenced arising out of this Agreement, the prevailing party shall be entitled to an award of its attorneys ' fees and expenses . . . " " The phrase ' prevailing party ' shall include a party who receives substantially the relief desired whether by dis missal, summary judgment, judgment or otherwise. " The language of this provision is broad enough to encompass both contr act actions and actions in tort. ( Lerner v. Ward (1993) 13 Cal.App.4th 155, 157

- 158, 160 [noting the language " ' arising out of this a greement ' " supported an award of attorney ' s fees for tort

- based causes of action ].) The next question is whether USG has a right to recover attorney ' s fees under the Operating Agreement. Sycuan Investors and Hotel Management entered into the Operating A greement. The Operating Agreement outlines the creation of USG by Sycuan
Investors and provides that Hotel Management will manage USG. USG is not a p arty to the Operating Agreement and the attorney ' s fee provision does not identify USG as a party entitle d to the benefit of this provision. The j ury expressly found USG did not enter in to the Operating Agreement with Hotel Management ; a finding USG did not challenge on appeal. The trial court acknowledged that USG was not a signatory to the Operating Agree ment, but nonetheless found USG could recover attorney ' s fees on the ground (1) USG could be considered a party to the Operating Agreement and (2) the law contemplates that a limited liability
company may enforce operating agreement s. The trial court erre d.8

USG moved to strike that portion of Hotel Management ' s reply brief arguing the trial court erred in finding USG was a party to the Operating Agreement in ruling on
USG ' s attorney ' s fee motion. USG asserts Hotel Management did not raise this argument
i n its opening brief. The motion is denied. The question whether USG is entitled to an attorney ' s fee award under section 1021 presents a question of law. Accordingly, whether USG was a de facto " party " to the Operating Agreement under the Corporations C ode or some other theory is a question we must address regardless of whether Hotel Management raised it. In concluding that USG was a party to the Operating Agreement, t he trial court relied on certain portions of the Operating Agreement describing variou s obligations of
USG under the O perating A greement , namely paragraphs: 2.4, 2.6, 2.8, 2.9 and 4.4

. Briefly, these paragraphs provide that USG will: indemnify Sycuan Investors or Hotel Management ; enter into the Managing Agreement ; reimburse Hotel Manageme nt ' s expenses in connection with the formation and organization of USG; maintain bank accounts in its name; and be liable for the return of Sycuan Investors ' s capital account. Even broadly interpreted, none of these paragraphs and nothing in the Operating Agreement provide that USG can be considered a " party " to the Operating Agreement entitled to recovery under the attorney ' s fee provision therein

. Significantly, the trial court and USG ignored that portion of the Operating Agreement providing that it " s hall inure to the benefit of and be binding upon [Sycuan Investors] and [ Hotel Management ]

. . . [and] their respective successors and assigns. " USG cited no authority to support its proposition9

that a nonsignatory to a contract is entitled to enforce an attorney ' s fee provision in the

contract on noncontr act claims under section 1021. Moallem v. Coldwell Banker Com. Group, Inc. (1994) 25 Cal.App.4th 1827 is instructive. In this case , plaintiff successfully sued its real estate broker for negligence
and breach of fiduciary duty and then sought attorney ' s fees based on a fee provision in the brokerage agreement. ( Id. at pp. 1828

- 1829.) Although the brokerage agreement contained a broad attorney ' s fee provision, the trial court properly denied plaintiff ' s fee motion because the fee provision limited the right to recover attorney ' s fees to the broker only; it did not authorize the plaintiff to recover attorney ' s fees on any type of claim. ( Id. at pp. 1831

- 1832.) The trial court also cited Corp orations Cod e sections 17005 and 17701.11 for the proposition that a limited liability company may enforce operating agreement s. T hese statutes are inapplicable. Subdivision (a) of former Corporations Code section 17005 provided: " Except as provided in subdivision s (b) and (c), relations among members and between the members and the limited liability company are governed by the articles of organization and operating agreement. To the extent the articles of organization or operating agreement do not otherwise provi de, this title governs relations among the members and between the members and the limited liability company

. " (Italics added.) ( Former Corp

. Code, § 17005 , as amended by Stats. 1996, ch. 57, § 5, and r epealed by S tats. 2012, c h . 419 , § 19, operative Jan. 1, 2014 .)10

USG is a limited liability company. Sycuan Investors is the sole m ember of USG. Hotel Management is designated in the Operating Agreement as the manager of USG, it is not a member. Put simply, the plain language of former Corporations Co de section 17005 does not advance USG ' s argument that it may recover attorney ' s fees on tort claims against

a nonmember on an operating agreement to which it is not a party

. The trial court also erroneously relied on newly enacted Corp orations Code sectio n 17701.11

. In 2012, the Legislature enacted the California Revised Uniform Limited Liability Company Act (C orp. Code. § 17701.01 et seq.). (Stats . 2012, ch. 419 , § 20 , operative Jan. 1, 2014 .) Subdivision (a) of Corp orations Code section 17701.11 provi des

" [a] limited liability company is bound by and may enforce the operating agreement. " Sycuan Investors , however, formed USG under a prior version of the Corporations Code in effect at that time

. Additionally, the amendments which added Corp orations
Co de section 17701.11 became effective January 1, 2014 (Corp. Code , § 17713.13) , and do not affect an action commenced, proceeding brought, or right accrued before January 1, 2014 (Corp. C ode, § 17713.03) . Here, USG commenced its action in 2009. Accordingl y, newly enacted Corp orations Code section 17701.11 does not advance USG ' s argument that it may recover attorney ' s fees on tort claims against a non - member on an operating agreement to which it is not a party

. Moreover, the Operating Agreement expressly p rovides that the sole purpose of USG was to own, operate and manage the hotel and all property incidental to the hotel and
USG " shall not engage in any activities or exercise any powers " beyond those enumerated in the Operating Agreement , " regardless of wh ether permitted to do so under the laws of11

the State of California. " This provision supports the conclusion that Sycuan Investors and Hotel Management did not intend to give USG the right to sue under the Operating Agreement. Finally, Hotel Management ar gued in its opening brief that the attorney ' s fee award in favor of USG could not be affirmed on third party beneficiary theory, noting that USG advanced " a vague third party beneficiary theory throughout its underlying briefing. " We reviewed USG ' s motion and conclude that USG did not rely on a third party beneficiary theory below. The trial court did not rely on this theory and USG cannot rely on it now. ( Perez v. Grajales (2008) 169 Cal.App.4th 580, 591

- 592 [arguments raised for the first time on appea l are deemed forfeited].) In any event, USG cited no authority allowing a nonsignatory to a contract to enforce a contractual attorney fee provision under section 1021. Although a third party beneficiary theory has been applied to award fees under Civil Code section 1717, a third party beneficiary may not invoke a contractual attorney fee provision unless the contracting parties specifically intended that provision to benefit the third party

. ( Sessions Payroll Management, Inc. v. Noble Const. Co., Inc. ( 2000) 84 Cal.App.4th 671, 680

- 681 ; Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 546

. ) USG point ed to nothing in the Operating Agreement demonstrating Sycuan Investors and Hotel Management intended the attorney ' s fee provision to benefit USG , and the Operating Agreement expressly provided that the Operating Agreement benefited and bound only Sycuan Investors and Hotel Management

.12

Accordingly, the order awarding USG its attorney ' s fees under section 1021 is reversed.
DISPOSITION The order is reversed

. Hotel Management i s awarded its costs on appeal.

McINTYRE, J. WE CONCUR:

HUFFMAN , Acting P. J.

NARES , J.