Court Opinion

ID: 9691044
Source: CourtListenerOpinion
Date Created: 2023-08-24 20:04:10.844441+00
Date Added: 2024-06-11T09:10:06.037272
License: Public Domain

Filed 8/24/23 Sushi KJ Corp. v. Hana Escrow Co. CA2/2
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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has not been certified for publication or ordered published for purposes of rule 8.1115.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 TWO

 SUSHI KJ CORPORATION et                                      B325421
 al.,
                                                              (Los Angeles County Super.
      Plaintiffs and                                          Ct. No. 20STCV41331)
 Respondents,

           v.

 HANA ESCROW COMPANY
 INC.,

           Defendant and Appellant.

      APPEAL from an order of the Superior Court of Los
Angeles County, Holly J. Fujie, Judge. Affirmed in part, reversed
in part, and remanded for further proceedings.
      Glenn A. Williams for Defendant and Appellant.

     Law Offices of Gregory S. Kim, Gregory S. Kim and Vincent
Chan for Plaintiffs and Respondents.

                             ******
      The seller in a commercial real estate transaction told the
buyer that it had no outstanding tax liability; that was untrue.
As pertinent here, the buyer sued the escrow company for
negligent misrepresentation. The trial court dismissed that
claim on demurrer, and we affirmed the judgment for the
company in a prior appeal. The trial court also denied the escrow
company’s motion for attorney fees from the buyer and the
buyer’s predecessor in interest. We conclude that the court was
correct in denying the motion as to the predecessor, but erred in
denying it as to the buyer. Accordingly, we affirm in part,
reverse in part, and remand for further proceedings.
         FACTS AND PROCEDURAL BACKGROUND
I.    Facts
      In December 2017, Sang Woo Lee (Lee) entered into a
contract to buy a restaurant from Yamato Kura, LLC (Yamato).
Lee and Yamato contracted to have Hana Escrow Company, Inc.
(Hana) serve as the escrow agent for the transaction.1
      The original December 2017 escrow instructions, in a
section denoted “General Provisions,” contained an attorney fees
provision stating:

1     The parties did not include a copy of this contract in the
record below.

                                 2
      “The parties hereto, jointly and severally, promise to
      pay on demand, as well as to indemnify and hold the
      escrow holder harmless from any and all costs,
      damages, judgments, attorney fees, expenses and
      liabilities of any kind or nature whatsoever,
      occasioned [by] any party, including costs incurred by
      the escrow holder in connection with instituting,
      prosecuting or defending litigation, which in good
      faith the escrow holder may thus incur and sustain. . .
      .” (Italics added.)

       In a January 2018 amendment to those instructions, Lee
assigned “all rights, title, interest in and to the” restaurant to
Sushi KJ Corporation (Sushi).
       In an April 11, 2018 amendment to those instructions, (1)
Sushi and Yamato instructed Hana to close escrow that day; (2)
Yamato “guarantee[d] and warrant[ed]” that there were no
undisclosed liens against the restaurant; (3) Sushi and Yamato
instructed Hana to withhold $75,000 of the sales price from
Yamato until Yamato provided proof—outside of escrow—that
there were no outstanding tax liabilities; and (4) Sushi and
Yamato agreed to absolve Hana of any liability for disbursing the
$75,000 and Sushi agreed to “indemnify, release and hold Hana .
. . harmless from any/all liabilities, including but not limited to
attorney fees . . . in regards to any excess taxes due . . . .”
       Over a year later, the California tax authorities informed
Sushi—as Yamato’s successor—that it owed $285,137.08 in past
taxes, interest and penalties imposed against the restaurant.

                                 3
II.    Procedural Background
       A.    Sushi and (eventually) Lee sue Yamato and
Hana
       In October 2020, Sushi sued Yamato, Hana, and others. In
the operative third amended complaint, Sushi and Lee
(collectively, plaintiffs) sued Hana for negligent
misrepresentation. Specifically, and as we noted in our prior
opinion, this claim rested on what boiled down to four
misrepresentations—namely, that (1) Hana "warranted and
represented” (in a document entitled “Transfer Disclosure
Statement”) that Yamato had never been more than three
months in arrears on tax payments; (2) Yamato and its principal
“warranted and represented” in the escrow instructions that they
would pay taxes with the $75,000 Hana withheld during escrow;
(3) Hana provided Sushi with an “inaccurate closing statement”
that “showed . . . only $1,900.00 was due” to the state rather than
the $285,137.08 actually due; and (4) Hana “with[held]
information” of an unspecified nature that somehow made the
“above described” “statements” “misleading” and “incomplete.”
       B.    The trial court sustains Hana’s demurrer, and
we affirm
       Hana demurred to the sole claim against it, and the trial
court sustained that demurrer without leave to amend and
entered a judgment declaring Hana to be the “prevailing party.”
Plaintiffs appealed, and we affirmed that judgment in an
unpublished opinion. (Sushi KJ Corporation v. Hana Escrow
Company, Inc. (Apr. 27, 2023, B321923) [nonpub. opn.].)
Specifically, we ruled that the first two misrepresentations were
not actionable because they were not made by Hana; that the
third misrepresentation was based on a misreading of the closing

                                 4
statement; and that the fourth was not pled with the requisite
specificity.
       C.    Hana moves for attorney fees
       While plaintiffs’ appeal of the demurrer was pending, Hana
filed a motion with the trial court for $20,080 in fees, invoking
the attorney fees clause in the original escrow instructions. After
further briefing and a hearing, the trial court denied Hana’s
motion. The court reasoned that Hana was not entitled to
attorney fees because (1) Civil Code section 1717 entitles a
prevailing party to its fees “in any action on a contract,” and (2)
plaintiffs’ negligent misrepresentation claim was not an “action
on a contract.”
       D.    Hana appeals
       Hana filed this timely appeal.
                           DISCUSSION
       Hana argues that the trial court erred in denying its
motion for attorney fees against both Sushi and Lee. Although
the denial of attorney fees is reviewed for an abuse of discretion
(Walker v. Ticor Title Co. of Cal. (2012) 204 Cal.App.4th 363,
370), we independently review any subsidiary legal issues
(including the meaning of statutes and contracts) as well as the
subsidiary application of contractual or statutory terms to
undisputed facts (Blickman Turkus, LP v. MF Downtown
Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 894; Khan v. Shim
(2016) 7 Cal.App.5th 49, 55; Reyes v. Beneficial State Bank (2022)
76 Cal.App.5th 596, 604-605 (Reyes)).
       California follows the so-called “American rule” when it
comes to attorney fees: Parties in civil litigation bear their own
unless a contract or statute provides otherwise. (Code Civ. Proc.,
§§ 1021, 1032, subd. (b), 1033.5, subd. (a)(10); Santisas v. Goodin

                                 5
(1998) 17 Cal.4th 599, 606 (Santisas); Mountain Air Enterprises,
LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 751
(Mountain Air).) Thus, “‘[p]arties may validly agree that the
prevailing party will be awarded attorney fees incurred in any
litigation between themselves, whether such litigation sounds in
tort or in contract.’” (Santisas, at p. 608; Mountain Air, at p. 751;
Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338,
1341.) Further, and alternatively, parties may seek fees under
Civil Code section 1717, which provides an additional,
supplemental basis for awarding “reasonable attorney’s fees.”
(Civ. Code, § 1717.) In some respects, this statute is similar to
(and thereby reinforces) the parties’ general right to contractually
reallocate who pays attorney fees because it is triggered only
where there is a contract that “specifically provides that
attorney’s fees and costs . . . shall be awarded.” (Ibid.) Yet the
relief Civil Code section 1717 authorizes is both simultaneously
narrower and broader than the parties’ general right to contract:
It is narrower because it only applies in “an[] action on a
contract” and limits the recovery of fees to those “incurred to
enforce that contract,” even when parties incur fees litigating
other non-contract-based claims (Civ. Code, § 1717, subds. (a) &
(c); Eden Township Healthcare Dist. v. Eden Medical Center
(2013) 220 Cal.App.4th 418, 426), and it is broader because it can
authorize an award to a litigant who is otherwise not entitled to
attorney fees under the plain text of the contract (specifically, a
litigant can recover fees under the reciprocal effect of Civil Code
section 1717 even if the contract only authorizes recovery by one
of the parties to the contract and even if that litigant is trying to
negate the contract in response to the opposing party trying to
enforce the contract) (Santisas, at pp. 610-611).

                                 6
       With this background in mind, we turn to the two questions
presented in this appeal: (1) Was there a contractual or statutory
basis for Hana to recover attorney fees from Sushi, and (2) was
there a contractual or statutory basis for Hana to recover
attorney fees from Lee?
I.     Attorney Fees from Sushi
       There is a contractual basis for requiring Sushi to pay
Hana attorney fees in prevailing against the negligent
misrepresentation claim. As noted above, the italicized portion of
the passage from the original escrow instructions provides “[t]he
parties . . . promise to pay” “any and all . . . attorney fees”
“incurred by the escrow holder in connection with . . . defending
litigation . . . .” These executed escrow instructions constitute a
contract (see Steel v. Duntley (1931) 115 Cal.App.451, 453 [so
noting]; Domino v. Mobley (1956) 144 Cal.App.2d 24, 28 [same];
Crescenta Valley Moose Lodge v. Bunt (1970) 8 Cal.App.3d 682,
685 [same]), and their plain text obligates Sushi (a party) to pay
any and all attorney fees incurred by Hana (the escrow holder) in
defending the litigation Sushi initiated. (Accord, Santisas, supra,
17 Cal.4th at p. 608 [plain text controls]; Mountain Air, supra, 3
Cal.5th at p. 752 [same]; see generally Civ. Code, § 1636 [“mutual
intention of the parties” controls].) Because “any and all” is
broadly phrased, this clause renders Sushi liable for attorney fees
Hana incurs in defending itself against tort claims as well as
contract claims. (Santisas, at p. 608 [“broadly” phrased language
“may support an award of attorney fees to the prevailing party in
an action alleging . . . tort claims”]; Reyes, supra, 76 Cal.App.5th
at p. 618 [same].)
       The trial court order focused solely on whether Civil Code
section 1717 authorized an award of fees, and concluded that it

                                 7
did not because a claim for negligent misrepresentation is not
“[a]n action on a contract.” We need not examine whether this
ruling was correct because, as noted above, the parties’ contract
independently authorized an award of attorney fees against
Sushi, making it unnecessary to resort to Civil Code section 1717.
       Sushi responds by asserting that our reading of the original
escrow instructions is overbroad because (1) the language we rely
upon appears in a paragraph that functions solely or primarily as
an indemnity clause, and (2) attorney fees provisions that appear
in indemnity clauses only authorize recovery of fees when those
fees were incurred by Hana in litigation with a third party, not
litigation with a party to the contract. We reject this assertion.
To be sure, Sushi is correct that the paragraph we cite contains
language that obligates the parties to “indemnify and hold
[Hana] harmless” from any attorney fees “occasioned [by] any
party.” Sushi is also correct that “indemnity provision[s]”
“generally” “allow[] one party to recover costs incurred defending
actions by third parties, not attorney fees incurred in an action
between the parties to the contract.” (E.g., Alki Partners, LP v.
DB Fund Services, LLC (2016) 4 Cal.App.5th 574, 600; Rideau v.
Stewart Title of Cal., Inc. (2015) 235 Cal.App.4th 1286, 1298; see
also Myers Building Industries, Ltd. v. Interface Technology, Inc.
(1993) 13 Cal.App.4th 949, 971 [“A provision including attorney
fees as an item of loss in an indemnity clause is not a provision
for attorney fees in an action to enforce the contract”].) But the
paragraph we cite is more than an indemnity clause. (Cf.
Campbell v. Scripps Bank (2000) 78 Cal.App.4th 1328, 1335-1338
[denying attorney fees based on a clause that was solely an
indemnity clause].) By stating that “[t]he parties . . . promise to
pay . . . as well as to indemnify and hold the escrow holder

                                8
harmless from any and all . . . attorney fees . . . occasioned” by
“any party, including costs incurred by the escrow holder in
connection with . . . defending litigation . . .” (italics added), this
paragraph is both an indemnity clause and a “promise to pay”
fees directly incurred in litigation between the parties; to read
this clause as being solely an indemnity clause would render the
“promise to pay” language a nullity, and we are not allowed to
nullify the parties’ contractual language (Civ. Code, § 1641;
Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36
Cal.4th 495, 503; Brandwein v. Butler (2013) 218 Cal.App.4th
1485, 1507). We accordingly reject Sushi’s contention at oral
argument that an attorney fees provision is valid only if it is
contained in a stand-alone clause. What is more, the original
escrow instructions and one of the amendments also contain
stand-alone indemnity clauses that would render the language
we cite superfluous if it is read solely as a general indemnity
clause.
II.    Attorney Fees from Lee
       There is no basis for awarding fees against Lee.
       There is no contractual basis. The attorney fee clause that
authorizes a fee award against Sushi only applies to “part[ies].”
When Lee assigned “all rights, title, interest in and to the”
restaurant to Sushi, he ceased to be a “party” to the escrow
instructions, and hence no longer liable for attorney fees as a
“party.” (National Reserve Co. v. Metropolitan Trust Co. of Cal.
(1941) 17 Cal.2d 827, 832-833 [assignment of a contract vests in
the assignee all rights and remedies incident thereto]; Johnson v.
County of Fresno (2003) 111 Cal.App.4th 1087, 1096 [same].)
Indeed, the parties conceded in the prior appeal that, as a result
of the assignment, Lee was not a proper plaintiff to the negligent

                                   9
misrepresentation claim against Hana. (Sushi KJ Corporation v.
Hana Escrow Company, Inc. (Apr. 27, 2023, B321923) [nonpub.
opn.], at p. 5.) Nor does the indemnity language aid Hana either;
to the extent Lee is now viewed as a “third party,” the indemnity
language would potentially entitle Hana to recover attorney fees
from Sushi for having to defend against Lee’s negligent
misrepresentation claim—not from Lee.
       There is also no statutory basis under Civil Code section
1717. As noted above, this statute only authorizes an award of
attorney fees incurred in “[a]n action on a contract.” (Civ. Code, §
1717, subd. (a).) Here, not only is Lee no longer a party to the
contract, but a claim for negligent misrepresentation is also
generally viewed as a claim sounding in tort, and not “[a]n action
on a contract.” (E.g., McKenzie v. Kaiser-Aetna (1976) 55
Cal.App.3d 84, 89.) Of course, not all negligent
misrepresentation claims are tortious; if such a claim is based on
a failure to disclose where the duty to disclose arises from a
contract-based fiduciary duty, the claim may still at bottom be
“[a]n action on a contract.” (See Kangarlou v. Progressive Title
Co., Inc. (2005) 128 Cal.App.4th 1174, 1178-1179; Amtower v.
Photon Dynamics, Inc. (2008) 158 Cal.App.4th 1582, 1602.) But
three of the four negligent misrepresentations alleged by
plaintiffs are affirmative misrepresentations and the sole alleged
nondisclosure is phrased as a failure to disclose the untruth of
the three affirmative misrepresentations; this claim is therefore
grounded in the general tort duty not to make affirmative
misrepresentations. (E.g., OCM Principal Opportunities Fund,
L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835,
854.) What is more, the fact that Lee prayed for attorney fees for
this claim does not alter our analysis because Lee is not entitled

                                10
to them for the reasons we have explained; thus, Civil Code
section 1717’s mandate that attorney fee provisions be construed
as being bilateral does not help Hana.
                            *     *     *
      In light of our analysis, we have no occasion to reach the
parties’ alternative arguments regarding whether the breach of
contract claims alleged in prior iterations of the complaint
support an award of attorney fees.
                           DISPOSITION
      The order is reversed as to the denial of attorney fees for
Hana against Sushi only, and remanded for the trial court to
determine the amount of fees to be awarded. In all other
respects, the order is affirmed. Hana is entitled to its costs on
appeal.
      NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

                                     ______________________, J.
                                     HOFFSTADT
We concur:

_________________________, Acting P. J.
ASHMANN-GERST

_________________________, J.
CHAVEZ

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