Waterwood Enters., LLC v. City of Long Beach

58 Cal.App.5th 955

273 Cal.Rptr.3d 12

WATERWOOD ENTERPRISES, LLC, Plaintiff and Appellant,

v.CITY OF LONG BEACH, Defendant and Respondent.

B296830

Court of Appeal, Second District, Division 1, California.

Filed December 18, 2020

Stuart Kane, Donald J. Hamman and Eve A. Brackmann, Newport Beach, for Plaintiff and Appellant.

Amaro Baldwin, Michael L. Amaro and Sanaz Cherazaie, Long Beach, for Defendant and Respondent.

BENDIX, J.

This appeal follows a 10-day trial, a $45,050 damage award in plaintiff's favor on a single cause of action, and the parties’ combined attorney fees of more than $500,000. The issue before us is whether the trial court erred in finding that defendant was the prevailing party pursuant to a contractual attorney fee provision.

We conclude the trial court abused its discretion in finding that defendant—who lost the only cause of action in the case—was the prevailing party. We reject both parties’ arguments based on the definition of prevailing party in the attorney fees provision in their contract. Any such definition would not trump the definition of prevailing party in Civil Code ¹ section 1717. We also conclude the trial court's consideration of the parties’ settlement offers in determining which party achieved the greater relief under section 1717 ’s definition of prevailing party was contrary to precedent.

Finally, we reject defendant's argument that it prevailed because it admitted it owed plaintiff a portion of the contractual damages plaintiff was seeking, and the jury's lump sum award was for less than plaintiff's damages claim at trial. Defendant's argument is inconsistent with section 1717, subdivision (b)(2), under which a defendant who owes a debt becomes a prevailing party by tendering to the plaintiff the full amount owed and alleging such tender in the defendant's answer. Defendant never tendered any portion of plaintiff's damages, let alone any portion it admitted it owed. To the contrary, it denied all liability in its answer, and requested a jury instruction indicating that it "denies" that it breached the contract. Defendant apparently did not consider section 1717, subdivision (b)(2), and after a jury trial, defendant lost the sole cause of action in the case. The trial court thus abused its discretion in finding defendant was the prevailing party.

On remand, the trial court's discretion is limited to finding either (1) plaintiff was the prevailing party; or (2) there was no prevailing party. We reverse the amended judgment only insofar as it orders plaintiff to pay defendant's attorney fees.

BACKGROUND

The City of Long Beach (the City) sold property to Waterwood Enterprises, LLC (Waterwood) in 2005, then leased it back for a 10-year term beginning on October 14, 2005. The City used the property as a police evidence storage facility. The lease terminated on October 31, 2015.

1. The Lease Terms

The lease provides: "Tenant [the City] at its sole cost and expense, shall maintain the Demised Premises and each part thereof, structural and nonstructural, in good order and condition, and ... shall make any necessary Repairs thereto, interior and exterior, whether extraordinary, foreseen or unforeseen. When used in this Article VII, the term ‘Repairs’ shall mean all Alterations necessary for Tenant to properly maintain the Demised Premises in at least the same order and condition as of the date hereof, normal wear and tear excepted." (Boldface & underscoring omitted.) The lease defines "Demised Premises" as the land and its improvements.

Article XXXV of the lease contains the following attorney fee provision: "If any legal action should be commenced in any court regarding any dispute arising between the parties hereto ... concerning any provision of this Lease or the rights and duties of any person in relation thereto, then the prevailing party therein shall be entitled to collect its reasonable expenses, attorney fees and court costs, including the same on appeal. As used herein, the term ‘prevailing party’ means the party who, in light of the claims, causes of action, and defenses asserted, is afforded greater relief."

2. The Complaint

On August 29, 2016, Waterwood filed its complaint against the City alleging a single cause of action for breach of a written contract. Waterwood averred that when the City left the premises, the roof had multiple leaks. "The leaks were so bad that, in the rain storm within two months of the surrender of the Premises, ceiling tiles became waterlogged and collapsed, carpet and the underlying padding were damaged, and a new tenant was unable to fully use the Premises." Waterwood alleged that the City "has acknowledged that it should have paid for repairs to the roof, but failed to do so."²

Waterwood further alleged that when the City left the premises, "the air conditioner was inoperable and the HVAC system had not been properly maintained or repaired. The air conditioner was operating and effective when the Lease was entered, and its failure was not the result of reasonable wear and tear." Waterwood also alleged when the City left the premises, that "the block wall at the southeast co[rn]er of the Premises was damaged as if hit by a truck, such that concrete blocks were cracked, fence supports were tilted, and fencing was leaning." Waterwood further averred that when the City left the premises, "grass was growing in, and causing deterioration of, asphalt at the Premises, and there were [sic ] severe indentations occurred in the asphalt." When the City left the premises, "concrete on the Premises had been broken, cracked, and subsided or shifted such that water ponds [sic ] and may cause deterioration of the base under the concrete, and has allowed grass to grow in the concrete areas." Waterwood reiterated that the foregoing conditions were not mere reasonable wear and tear.

Waterwood alleged it was informed and believed the amounts due under the lease totaled at least $150,000. Waterwood also requested its reasonable attorney fees.

3. The City's Answer

The City answered on October 4, 2016. The City entered a general denial, denying that "the Plaintiff sustained damages in the sum or sums alleged, or in any other sum or sums, or at all." Although the City raised 18 affirmative defenses, it did not allege or acknowledge in those defenses any debt owed to plaintiff or that it had tendered any such debt to plaintiff.

4. Trial

The record on appeal does not include a reporter's transcript. We thus rely on the description of the trial in the trial court's statement of decision following the posttrial motions for attorney fees: "At trial, there was considerable testimony as to various items plaintiff contended that defendant had a duty to repair before the lease expired and that because defendant failed to repair the items, plaintiff argued it was entitled to recover as damages the cost to repair the items. The significant contested items were plaintiff's contention that: (a) defendant was required to remove and replace an entire roof on one of the buildings; (b) defendant was required to replace two air conditioners; and (c) defendant was required to tear up and replace all of the existing asphalt parking lot on the property and nearby concrete pads." The City contended "that the roof did not require replacement, because any deterioration was due to reasonable wear and tear. As to the two air conditioners, defendant argued that neither air conditioner required replacement. As to the condition of the asphalt, defendant admitted that plaintiff was entitled to recover some of its claimed damages to repair the asphalt, because some of the asphalt had deteriorated based on use that was beyond any reasonable wear and tear." The City argued it "was not liable for the replacement cost of the entire parking lot or the concrete pads."

5. Jury Instructions

The record also contains the trial court's jury instructions, which demonstrate that the trial court instructed the jury: "Waterwood Enterprises LLC claims that it and The City of Long Beach entered into a written contract for the 10-year lease of the subject commercial property. Waterwood Enterprises LLC claims that The City of Long Beach breached this contract by not surrendering the premises at the end of the lease broom clean and in the same order and condition as the premises was in [sic ] on the date the lease began subject to reasonable wear and tear; by not performing repairs and maintenance during the ten-year tenancy, and by not repairing certain damage to the property that occurred during the term of the lease.

"Waterwood Enterprises LLC also claims that The City of Long Beach's breach of this contract caused damages to Waterwood Enterprises LLC for which the City of Long Beach should pay."

The trial court further instructed the jury: "The City of Long Beach denies that it breached the lease agreement, and contends that it completed the repairs required under the lease agreement, except for items caused by reasonable/normal wear and tear." (Italics added.)

Regarding damages, the trial court told the jury that it could award Waterwood damages only if Waterwood proved all of the following:

"1. That Waterwood Enterprises LLC and The City of Long Beach entered into a contract;

"2. That Waterwood Enterprises LLC did all, or substantially all, of the significant things that the contract required it to do;

"3. That The City of Long Beach failed to do something that the contract required it to do;

"4. That Waterwood Enterprises LLC was harmed; and

"5. That The City of Long Beach's breach of contract was a substantial factor in causing Waterwood Enterprises LLC's harm."

6. Judgment

The jury found in favor of Waterwood on the only cause of action before it. The jury found the City had breached the contract (the lease) and awarded Waterwood $45,050 in contractual damages. In a special verdict, jurors answered the following two questions affirmatively: (1) "Did Defendant, City of Long Beach, breach the written lease contract?"; and (2...