Court Opinion

ID: 858737
Source: CourtListenerOpinion
Date Created: 2013-04-22 20:33:37.55008+00
Date Added: 2024-06-11T15:05:51.322800
License: Public Domain

Filed 4/22/13 6126, LLC v. DNAM Apparel Industries CA2/4
                    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for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

                                         SECOND APPELLATE DISTRICT

                                                        DIVISION FOUR

6126, LLC,                                                                    B239780

                      Plaintiff and Respondent,                               (Los Angeles County
                                                                              Super. Ct. No. BC459842)
                     v.

DNAM APPAREL INDUSTRIES, LLC,

                          Defendant and Appellant.

          APPEAL from an order of the Superior Court of Los Angeles County,
Ralph W. Dau, Judge. Reversed and remanded with directions.
          Law Offices of Michael J. Perry, Michael J. Perry and Adam S. Rossman for
Defendant and Appellant.
          Law Offices of Perry C. Wander and Perry C. Wander for Plaintiff and
Respondent.
                                         ______________________________
         DNAM Apparel Industries, LLC, appeals from an order denying its motion for
attorney fees. It argues the trial court erroneously ruled that Civil Code section 1717
barred the motion. We agree and reverse.

                     FACTUAL AND PROCEDURAL SUMMARY
         Respondent 6126, LLC, owns the trademark to a clothing line created by actress
Lindsay Lohan. In 2009, respondent gave appellant an exclusive license for the
manufacture, marketing, and distribution of trademarked apparel. Section 17.16 of the
license agreement provides broadly: “In any dispute arising out of this Agreement, the
prevailing party as determined by the Court shall be entitled to its reasonable attorneys‟
fees and costs.” Under section 17.8 of the contract, the parties agree to submit any
dispute to mediation before filing a lawsuit; if a party files a lawsuit without making a
good faith attempt to mediate, it waives the right to attorney fees and costs.
         In April 2011, respondent sued appellant and its managing member, Henry Levy,
for breach of the license agreement, fraud and negligent misrepresentation. Appellant
and Levy demurred on the grounds that Levy was not a party to the contract, and that the
claims for fraud and misrepresentation were not sufficiently alleged. Instead of opposing
the demurrer, respondent filed a first amended complaint, asserting the same three causes
of action and alleging an agency relationship between appellant and Levy. Another
demurrer followed. Respondent filed a second amended complaint, which included a
request for an accounting and alleged an alter ego relationship between appellant and
Levy. It was followed by a third demurrer, which the court sustained with leave to
amend. In the meantime, the parties engaged in initial discovery, some of which
concerned respondent‟s alter ego theory as to Levy‟s liability on the breach of contract
claim.
         The third and final amended complaint, filed in November 2011, asserted claims
for breach of contract and fraud, and requested an accounting. Appellant and Levy
demurred to the fraud cause of action. Meanwhile, respondent presented to the court a

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notice of voluntary dismissal of the case without prejudice, which was entered in
December 2011.
       Appellant moved for attorney fees under Code of Civil Procedure sections 1021
and 1033.5, and Civil Code section 1717. In opposition, respondent represented that it
had dismissed the case in order to submit the dispute to mediation pursuant to the
mediation clause in the licensing agreement. Respondent argued there was no prevailing
party under the circumstances, and in the alternative, that the court should apportion the
fees. Appellant replied that respondent‟s mistake in not submitting the case to mediation
before filing the lawsuit had cost $21,000 in attorney fees, and it requested an award in
that amount, without apportionment, because many issues were common to both the
breach of contract and fraud claims. The trial court denied appellant‟s motion on the
ground that it was barred by Civil Code section 1717 because all causes of action were
based on the contract.
       This timely appeal followed.

                                      DISCUSSION
       Application of statutory and case authority to awards of attorney fees presents a
question of law, which we review de novo. (Silver v. Boatwright Home Inspection, Inc.
(2002) 97 Cal.App.4th 443, 448–449.)
       Code of Civil Procedure section 1032 generally provides that a prevailing party,
including “a defendant in whose favor a dismissal is entered,” is entitled to recover its
costs “as a matter of right” in any action or proceeding. (Id., § 1032, subd. (a)(4) & (b).)
Attorney fees are recoverable as costs under section 1032 when authorized by either
contract, statute, or law. (Id., § 1033.5, subd. (a)(10).) Civil Code section 1717
specifically allows an award of attorney fees to the prevailing party “[i]n any action on a
contract,” where the contract provides for attorney fees and costs. (Id., subd. (a).) But
when a case is voluntarily dismissed, “there shall be no prevailing party for purposes of
this section.” (Id., subd. (b).)

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       In Santisas v. Goodin (1998) 17 Cal.4th 599 (Santisas), the court resolved the
conflict between the general cost statutes and Civil Code section 1717 by holding that
when a case is voluntarily dismissed, section 1717 bars an award of attorney fees for
defending contract claims, but not other claims. (Id. at p. 602.) The court explained that
“[t]his bar . . . applies only to causes of action that are based on the contract and are
therefore within the scope of section 1717. If the voluntarily dismissed action also
asserts causes of action that do not sound in contract, those causes of action are not
covered by section 1717. . . .” (Id. at p. 617.) Rather, the attorney fee provision in the
parties‟ agreement, if phrased broadly enough, “may afford the defendant a contractual
right, not affected by section 1717, to recover attorney fees incurred in litigating those
causes of action” under the general costs statutes, Code of Civil Procedure sections 1032
and 1033.5. (Ibid.)
       Here, the trial court incorrectly ruled that Civil Code section 1717 barred recovery
of attorney fees since all causes of action were “based on the contract.” The complaint,
in all its permutations, always included a fraud claim in addition to the breach of contract
claim. An action for fraud “„sounds in tort, and is not “on a contract” for purposes of an
attorney fee award, even though the underlying transaction in which the fraud occurred
involved a contract containing an attorney fee clause.‟” (Loube v. Loube (1998) 64
Cal.App.4th 421, 430.) Section 1717 does not bar recovery of attorney fees incurred in
defending against claims sounding in tort. (Santisas, supra, 17 Cal.4th at p. 617.)
       As to noncontract claims, under Santisas, “the court must look to the parties‟
contractual attorney‟s fees provision to determine if it defines who is a prevailing party or
addresses voluntary pretrial dismissals. If the contract does not provide such guidance,
the court must utilize its discretion in determining whether [the] defendant should be
considered a prevailing party for the purpose of recovering attorney‟s fees as costs under
[Code of Civil Procedure] sections 1032 and 1033.5. In exercising that discretion, the
court may consider the reason for the dismissal, including whether the parties have
reached their litigation objectives by settlement, judgment, or other means.” (Silver v.
Boatwright Home Inspection, Inc., supra, 97 Cal.App.4th at p. 452.)

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       The Santisas court stated that “it seems inaccurate to characterize the defendant as
the „prevailing party‟ if the plaintiff dismissed the action only after obtaining, by means
of settlement or otherwise, all or most of the requested relief, or if the plaintiff dismissed
for reasons, such as the defendant‟s insolvency, that have nothing to do with the
probability of success on the merits.” (Santisas, supra, 17 Cal.4th at p. 621.) It also
stated that “scarce judicial resources should not be used to try the merits of voluntarily
dismissed actions merely to determine which party would or should have prevailed had
the action not been dismissed.” (Ibid.)
       On remand, the court should exercise its discretion to determine, in the first
instance, whether appellant is the prevailing party under the pragmatic approach adopted
in Santisas.
       Whether attorney fees were incurred on issues common to both contract and non-
contract claims is relevant to fee apportionment rather than to the initial determination of
whether appellant is the prevailing party. (See Santisas, supra, 17 Cal.4th at p. 623,
fn. 10.) “Attorney‟s fees need not be apportioned when incurred for representation on an
issue common to both a cause of action in which fees are proper and one in which they
are not allowed.” (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129–130.)
Only if the court concludes that appellant is the prevailing party under Santisas should it
consider whether appellant incurred attorney fees in its defense on any issue common to
both the contract and non-contract claims. Additionally, the court should consider the
extent, if any, to which appellant seeks to recover attorney fees incurred solely for the
defense of Levy, who was not a party to the motion for attorney fees and who signed the
parties‟ agreement only on appellant‟s behalf. (See Topanga and Victory Partners v.
Toghia (2002) 103 Cal.App.4th 775, 786 [only party to agreement may be prevailing
party under Santisas].)

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                                      DISPOSITION
       The order is reversed, and the case is remanded to the trial court for further
proceedings consistent with this opinion. Appellant is entitled to its costs on appeal.
       NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                         EPSTEIN, P. J.
We concur:

       WILLHITE, J.

       SUZUKAWA, J.

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