Court Opinion

ID: 9926864
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Date Created: 2024-01-25 20:02:22.302901+00
Date Added: 2024-06-11T09:22:04.285294
License: Public Domain

Filed 1/25/24 Hot Rods v. Northrop Grumman Systems Corp. CA4/3

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     FOURTH APPELLATE DISTRICT

                                                 DIVISION THREE

 HOT RODS, LLC,

      Plaintiff and Respondent,                                        G061449

           v.                                                          (Super. Ct. No. 30-2009-00118853)

 NORTHROP GRUMMAN SYSTEMS                                              OPINION
 CORPORATION,

      Defendant and Appellant.

                   Appeal from an order of the Superior Court of Orange County, Ann L.
Kough, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Reversed and
remanded.
                   Lewis Brisbois Bisgaard & Smith, R. Gaylord Smith, Ernest Slome and
James A. Geocaris for Defendant and Appellant.
                   Horvitz & Levy, David M. Axelrad, John B. Sprangers and Jeremy B.
Rosen; Jackson Tidus, A Law Corporation, Michael L. Tidus and Kathryn M. Casey for
Plaintiff and Respondent.
                                             *               *               *
              This is a long-running litigation between Northrop Grumman Systems
Corporation (Northrop) and Hot Rods, LLC (Hot Rods). The latest appeal from a
postjudgment motion asks a simple question: Under the contract at issue in this case,
may attorney fees be awarded to the “prevailing party” in a motion to appoint a
replacement referee for all purposes? We conclude that while the attorney fees provision
is broad enough to encompass fees incurred for such a motion, the referee should have
refrained from deciding who was the “prevailing party” until it resolved the contractual
issues that were the subject of the reference. Accordingly, we reverse the attorney fee
award of $54,914.25 to Hot Rods and remand for further proceedings.

                                             I
                                         FACTS
Prior Appeals
              This case has been before us multiple times. The first time, we affirmed the
denial of Northrop’s anti-SLAPP motion. (Hot Rods, LLC v. Northrop Grumman
Systems Corporation (Mar. 8, 2012, G044976) [nonpub. opn.].) In 2015, we considered
Northrop’s appeal after judgment. (Hot Rods, LLC v. Northrop Grumman Systems Corp.
(2015) 242 Cal.App.4th 1166 (Hot Rods II).) The underlying facts are set forth in that
opinion. In 2018, we affirmed judgment after remand in favor of Hot Rods. (Hot Rods,
LLC v. Northrop Grumman Systems Corporation (Dec. 5, 2018, G054432) [nonpub.
opn.] (Hot Rods III).) Additional appeals are pending, including one that is stayed
pending the outcome of this case and another, which is the companion case to this appeal,
case No. G062150.
              As we mentioned previously: Simply put, this case involves environmental
contamination of a property in Anaheim that was sold by Northrop to Dan and Kathy
Welden, who assigned their interest to Hot Rods, an LLC owned entirely by the Weldens.
(Hot Rods II, supra, 242 Cal.App.4th at p. 1172.) The trial court, pursuant to a referee’s

                                             2
recommendation, originally awarded Hot Rods $1,116,450 in damages plus $2,091,130
in attorney fees and costs. (Id. at pp. 1174-1175.) The court also granted Hot Rods’
request for declaratory relief, finding an indemnity clause in the relevant contract covered
both first and third party claims. (Id. at p. 1182.) This court affirmed in part and
reversed in part. For a number of reasons, we reversed the bulk of the damage award and
remanded the attorney fee award.
              On remand after Hot Rods II, the referee awarded a judgment of $117,050
in damages, $1,344,823.80 in attorney fees, and $258,390 in costs in favor of plaintiff
Hot Rods. We rejected Northrop’s argument that the referee incorrectly determined that
Hot Rods was the prevailing party or that the attorney fees award was excessive.
Accordingly, we affirmed the judgment. (Hot Rods III, supra, G054432.)

Further Litigation
              In April 2021, the referee at the time, Justice Wallin (ret.), recused himself
from the case for personal reasons. At that time, Hot Rods had several motions pending
for loss of use damages and consultant and attorney fees.
              The parties negotiated regarding a new referee. Although both agreed to
appoint Judge Kough (ret.), they did not agree on the scope of the referral. Hot Rods
wished to have the referee appointed for all future disputes, while Northrop wanted to
limit the reference to the pending motions and any motions Hot Rods planned to file in
the foreseeable future.
              Hot Rods eventually filed its motion in the superior court, requesting the
appointment of Judge Kough for all purposes. The court granted this motion in October
2021, appointing Judge Kough for all purposes relating to the Purchase and Sale
Agreement (PSA). The court excepted disputes unrelated to current disputes, judgments,
or environmental contamination in and around the property.

                                              3
              In February 2022, Hot Rods brought a motion seeking reimbursement for
the fees and costs with its motion to appoint the new referee. It argued that such fees
were recoverable under the PSA’s provision requiring disputes arising under the
agreement to be adjudicated by the referee and under the environmental indemnity
provision requiring reimbursement for expenses, including attorney fees, arising out of
any environmental condition or liability involving the property. Northrop opposed,
arguing the PSA only permitted recovery of attorney fees in disputes before the referee,
while the reference motion had proceeded in the superior court. Further, Northrop argued
Hot Rods was not the prevailing party by winning an interim procedural motion.
Northrop also argued that fees for litigating procedural disputes were not covered by the
environmental indemnity provision.
              The referee issued a statement of decision concluding that Hot Rods was
the prevailing party in the reference motion. Accordingly, the referee awarded Hot Rods
$54,914.25 for counsel’s work in connection with the referee’s appointment.
              Northrop appeals the postjudgment order.

                                             II
                                       DISCUSSION
Standard of Review
              The legal basis for an attorney fee award is reviewed de novo. This
includes cases where the right to recover attorney fees is dependent on the interpretation
of a contract without extrinsic evidence. (San Francisco CDC, LLC v. Webcor
Construction, L.P. (2021) 62 Cal.App.5th 266, 285.) As we concluded in Hot Rods II,
supra, 242 Cal.App.4th at page 1176, the plain language of the PSA’s integration clause
prohibits the use of extrinsic evidence.

                                             4
Governing Principles Relating to Attorney Fee Awards
                As we explained in Hot Rods III, supra, G054432, the general rule that
each party pays its own legal fees may be abrogated by contractual agreement. Under
Civil Code section 1717, subdivision (a),1 “In any action on a contract, where the
contract specifically provides that attorney’s fees and costs, which are incurred to enforce
that contract, shall be awarded either to one of the parties or to the prevailing 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.”

Scope of the PSA’s Attorney Fee Provision
                Section 15 of the PSA is entitled “Settlement of Disputes.” Under this
section, any “controversy or dispute” regarding the PSA shall be decided under the
reference procedures set forth in Code of Civil Procedure section 638 et seq. The
following subdivisions state the reference procedure can be initiated by either party, and
if the parties could not agree on a referee, the court would decide. Section 15.4 is entitled
“Compensation for Referee/Costs.” It states: “Each party shall bear one-half of the fees
of the Referee. Unless waived in writing by both parties, a reporter shall be present at all
proceedings before the Referee and the fees of any reporter shall be borne equally by
each party. The prevailing party shall be entitled to reimbursement of its reasonable
attorneys’ fees and costs from the other party, including all reasonable attorneys’ fees and
costs relating to an appeal from a judgment of the Referee.”
                Northrup argues that under the PSA’s language, the attorney fee provision
only applies to proceedings after the referee’s appointment. “We begin our review with
some basic principles of contract interpretation. We must interpret a contract so as to

1
    Subsequent statutory references are to the Civil Code unless otherwise indicated.

                                               5
give effect to the mutual intent of the parties at the time the contract was formed.
[Citation.] ‘The language of a contract is to govern its interpretation, if the language is
clear and explicit, and does not involve an absurdity.’ [Citation.] Courts must also
endeavor to give effect to every part of a contract, ‘if reasonably practicable, each clause
helping to interpret the other[s].’” (Thrifty Payless, Inc. v. Mariners Mile Gateway, LLC
(2010) 185 Cal.App.4th 1050, 1060.)
              As noted, section 15 is entitled “Settlement of Disputes” and we examine
the other provisions within that context. Section 15.4 is a bit of a hodgepodge. Although
it is entitled “Compensation for Referee/Costs,” it does not deal only with sharing the
costs of the referee. It also addresses the requirement of a court reporter and how the
costs are to be shared for that expense. Finally, it includes the attorney fee clause: “The
prevailing party shall be entitled to reimbursement of its reasonable attorneys’ fees and
costs from the other party . . . .” Had the parties intended to limit the attorney fee
provision to proceedings before the referee, and not the court, such a provision could
have been included; we decline to add such language where it does not exist.
              The cases Northrup cites on this point do not help, because each concerned
matters where courts enforced express limitations on attorney fees. (Kalai v. Gray (2003)
109 Cal.App.4th 768, 772-773 [provision awarding fees to prevailing party in arbitration
proceedings did not apply to court proceeding]; Tanner v. Tanner (1997) 57 Cal.App.4th
419, 422 [attorney fee provision requiring party to “‘pay all legal fees associated with this
dissolution’” did not apply to postdissolution challenge to agreement]; Stockton Theaters,
Inc. v. Palermo (1954) 124 Cal.App.2d 353, 357-358 [attorney fee provision for actions
concerning default under lease did not apply to declaratory relief action seeking to void
lease or unlawful detainer action].)
              Here, the attorney fee clause has no express limitation. It is a broad
provision, which, as we previously determined, applies to both tort and contractual
claims. (Hot Rods III, supra, G054432.) Had the parties wished to do so at the time the

                                              6
PSA was drafted, they could have limited the scope of the attorney fee provision.
Because they did not, we apply the agreement as written and find it applies to matters
both before the court and before the referee.

“Prevailing Party” On the Reference Motion
              Northrup next argues that Hot Rods did not establish it was the prevailing
party on the contract within the meaning of section 1717. Section 1717, subdivision (a),
states: “In any action on a contract, where the contract specifically provides that
attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded
either to one of the parties or to the prevailing 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.”
              The trial court has discretion in determining which party has prevailed on
the contract, or that no party has prevailed. (Hsu v. Abbara (1995) 9 Cal.4th 863, 871
(Hsu).) But a party who obtains an unqualified victory on a contract dispute, including a
defendant who defeats recovery by the plaintiff on the plaintiff’s entire contract claim, is
entitled as a matter of law to be considered the prevailing party under section 1717.
(Hsu, at p. 876.) “[W]hen the results of the [contract] litigation are mixed,” the court has
discretion under the statute to determine that no party has prevailed. (Ibid.)
              In Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th
515 (Frog Creek ), a property owner sued a builder for breach of an agreement to
construct improvements on the property; the builder cross-complained. The builder’s
first petition to compel arbitration under one version of the parties’ contract was denied,
and the denial was affirmed on appeal. Using a different version of the contract, the
builder filed a second petition to compel arbitration. The trial court again denied the
petition, but the court of appeal reversed and directed the trial court to send the dispute to
arbitration. (Id. at pp. 521-522.)

                                                7
              The builder was awarded considerable damages and attorney fees by the
arbitrators, but the panel refused to decide whether the builder was entitled to attorney
fees incurred prior to the arbitration. (Frog Creek, supra, 206 Cal.App.4th at p. 522.)
After the arbitration was complete, the builder sought attorney fees in court pursuant to
section 1717 for litigation before and after the arbitration, including attorney fees for its
initial petition to compel arbitration. The property owner filed its own motion for
attorney fees in connection with its successful opposition to the first petition and the
subsequent appeal of that order. (Frog Creek, at p. 523.) The court determined the
builder was the prevailing party in the arbitration, but the property owner was the
prevailing party on the initial petition to compel arbitration. Accordingly, the court
awarded attorney fees to both sides. (Ibid.)
              The appellate court reversed in part. It held attorney fees for the first
petition to compel arbitration should have been awarded to the builder, who had prevailed
on the contract dispute as a whole, rather than to the property owner, who won only an
interim victory on the first petition. That victory did not make the property owner the
prevailing party on the contract under section 1717 because denial of the petition to
compel arbitration “did not resolve the parties’ contract dispute; instead, the merits of that
dispute remained before the court in [the property owner’s] complaint and [the builder’s]
cross-complaint.” (Frog Creek, supra, 206 Cal.App.4th at p. 546.) That dispute was
ultimately resolved in the builder’s favor through arbitration. The builder was thus the
prevailing party on the contract and was “entitled to all of its fees, including fees incurred
during the lawsuit in proceedings where it did not prevail.” (Ibid.)
              In DisputeSuite.com, LLC v. Scoreinc.com (2017) 2 Cal.5th 968
(DisputeSuite), the plaintiff sued defendant for breach of contract and related causes of
action. The contract at issue included a forum selection clause specifying Florida. (Id. at
pp. 971-972.) The defendant brought a motion to dismiss on grounds of forum non
conveniens, which the trial court granted. (Id. at p. 972.) The defendant subsequently

                                               8
moved to recover its attorney fees, citing a provision in the contract. The court denied
the motion because the forum non conveniens motion, which led to the plaintiff refiling
the case in Florida, did not mean it had prevailed on the breach of contract claims. The
appellate court agreed, holding the defendant was not entitled to fees because it had not
obtained a final victory on the contract. (Ibid.)
              The California Supreme Court affirmed the lower court’s holding that the
defendant was not entitled to attorney fees under section 1717, concluding the forum non
conveniens motion was only an interim procedural step, rather than a victory on the
contract. (DisputeSuite, supra, 2 Cal.5th at p. 977.) The court first discussed its holding
in Hsu regarding how a prevailing party was to be determined: “[W]e hold that in
deciding whether there is a ‘party prevailing on the contract,’ the trial court is to compare
the relief awarded on the contract claim or claims with the parties’ demands on those
same claims and their litigation objectives as disclosed by the pleadings, trial briefs,
opening statements, and similar sources. The prevailing party determination is to be
made only upon final resolution of the contract claims and only by ‘a comparison of the
extent to which each party ha[s] succeeded and failed to succeed in its contentions.’”
(Hsu, supra, 9 Cal.4th at p. 876.)
              In addition to discussing Frog Creek, the court also reviewed other lower
court cases touching this issue. (DisputeSuite, supra, 2 Cal.5th at pp. 976-977.) Section
1717’s “phrase ‘prevailing on the contract’. . . implies a strategic victory at the end of the
day, not a tactical victory in a preliminary engagement.” (Estate of Drummond (2007)
149 Cal.App.4th 46, 51.) “A party does not become the prevailing party under the statute
merely by obtaining a forum for resolution of the contractual dispute or by moving it
from one forum to another.” (DisputeSuite, at pp. 975-976 [discussing Lachkar v.
Lachkar (1986) 182 Cal.App.3d 641, 648-649].)
              “Applying these principles, we conclude the trial court acted within its
discretion in determining that [the defendant] had not ‘prevail[ed] on the contract’ within

                                              9
the meaning of section 1717, subdivision (b)(1), by moving the litigation to Florida.
While [the defendant] had succeeded in enforcing the forum selection clauses in two of
its agreements with DisputeSuite, it had not defeated DisputeSuite’s breach of contract
and related claims. Because none of those claims had yet been resolved and the litigation
was still ongoing in Florida, the California trial court was in no position to ‘compare the
relief awarded on the contract claim or claims with the parties’ demands on those same
claims and their litigation objectives’; that comparison could be made only ‘upon final
resolution of the contract claims.’ [Citation.] [The defendant] was therefore not the
prevailing party as a matter of law, and the trial court could reasonably decide that at the
time fees were sought ‘neither party [had] prevailed sufficiently to justify an award of
attorney fees.’” (DisputeSuite, supra, 2 Cal.5th at p. 974.)
              The general principle to be considered, the court held, was that “fees under
section 1717 are awarded to the party who prevailed on the contract overall, not to a party
who prevailed only at an interim procedural step.” (DisputeSuite, supra, 2 Cal.5th at p.
977.) Interim victories do not confer prevailing party status because, by definition, they
are “not dispositive of the contractual dispute.” (Id. at p. 981.) When a party “prevail[s]
only on an interim motion that did not resolve the parties’ contract dispute,” it still
“remains to be seen” whether that party “will ultimately be the overall victor.” (Id. at
p. 977.)
              The court also upheld and distinguished Turner v. Schultz (2009) 175
Cal.App.4th 974 (Turner), which addressed the attorney fee consequences of a dispute
over arbitration outside the typical context of a motion to compel. The plaintiff in Turner
filed a declaratory relief action, contending his dispute with the defendants was not
arbitrable, and sought preliminary relief preventing the arbitration from proceeding.
(Id. at p. 978.) The trial court denied relief and ultimately rendered judgment for the
defendants, after a successful demurrer and motion for judgment on the pleadings. (Ibid.)
The trial court then awarded defendants their attorney fees. (Id. at pp. 978-979.) The

                                              10
plaintiff appealed, arguing the fee award was premature because the arbitration was yet to
be resolved. (Id. at p. 980.) The appellate court affirmed the attorney fees award,
concluding that “[t]he fees at issue were incurred in connection with an independent
complaint for declaratory and injunctive relief,” upon which the defendants entirely
prevailed, and “[plaintiff] must accept the consequences of forcing defendants to fight on
two fronts.” (Id. at pp. 983, 985.)
              The DisputeSuite court noted that the two actions in Turner were
“substantively independent,” unlike the forum non conveniens motion before the court.
(DisputeSuite, supra, 2 Cal.5th at pp. 979-980.) Further, the court noted, “A procedural
victory that finally disposes of the parties’ contractual dispute, such as an involuntary
dismissal with prejudice and without any likelihood of refiling the same litigation in
another forum, may merit a prevailing party award of fees under section 1717.” (Id. at
p. 981.)
              What distinguishes Frog Creek, DisputeSuite, and the cases discussed
therein are that all of them involve preliminary motions at the outset of the case, while we
have before us postjudgment motions, not only in this appeal but in the related appeal.
The overall procedural posture of this case at this point in its history is somewhat
unusual, given the ongoing and continuing nature of the cleanup litigation and multiple
disputes.
              Accordingly, we find that the award of attorney fees here was not
necessarily erroneous, but premature. We conclude that instead of determining a
prevailing party on the reference motion only – which, despite Hot Rods’ arguments to
the contrary, was an interim procedural step – the referee should decide this issue in
connection with the rulings made after Hot Rods’ reference motion was decided. This
appears to be the most equitable answer that both enforces the intent of the PSA’s
attorney fee provision and comports with existing law. Accordingly, on remand, the
referee must consider, in light of the resolution of the substantive motion (which was

                                             11
reversed by this court), which party, if any, is a prevailing party and what attorney fees to
each party, if any, are appropriate.

Indemnity Clause
              Because fees are available under section 15.4 of the PSA, we need not
consider whether fees are separately available under the Environmental Indemnity
provision.

                                             III
                                       DISPOSITION
              The order awarding attorney fees on the reference motion is reversed, and
the matter is remanded for further proceedings. Northrop is entitled to its costs on
appeal.

                                                   MOORE, J.

WE CONCUR:

O’LEARY, P. J.

GOODING, J.

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