Waterwood Enters. v. City of Long Beach

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WATERWOOD ENTERPRISES, LLC, Plaintiff and Appellant, v. CITY OF LONG BEACH, Defendant and Respondent.

B316269

California Court of Appeals, Second District, First Division

April 26, 2023

NOT TO BE PUBLISHED

APPEAL from orders of the Superior Court of Los Angeles County Super. Ct. No. NC060787, Mark C. Kim, Judge.

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

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

BENDIX, J.

In Hsu v. Abbara (1995) 9 Cal.4th 863 (Hsu) our Supreme Court held: "[I]n 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.' [Citation.]" (Id. at p. 876.)

In the prior appeal involving the same parties-Waterwood Enterprises LLC (Waterwood) and the City of Long Beach (the City)-we reversed the trial court's finding that the City was the prevailing party. Relying on Hsu, we remanded the case for the trial court to determine in its discretion whether Waterwood prevailed on the parties' contract or whether there was no prevailing party. (Waterwood Enterprises, LLC v. City of Long Beach (2020) 58 Cal.App.5th 955 [Waterwood I].) We remanded the case to the trial court because Waterwood, "the ostensibly prevailing party receive[d] only a part of the relief sought.' [Citation.]" (Hsu, supra 9 Cal.4th at p. 875.)

Upon remand, a judicial officer (Judge Mark Kim) different from the one who presided over trial (Judge Patrick Madden), found there was no prevailing party. Waterwood appeals again arguing that the trial court (Judge Kim) abused its discretion in finding no prevailing party. In doing so, Waterwood emphasizes the evidence most favorable to it and ignores the evidence supporting the trial court's decision and thus also ignores our highly deferential standard of review. We reject Waterwood's argument that the trial court (Judge Kim) relied solely on improper criteria, namely the first judicial officer (Judge Patrick Madden)'s statement of decision, portions of which we rejected in Waterwood I. Ultimately, Judge Kim agreed with Judge Madden's view that Waterwood did not achieve its litigation objectives as disclosed from the sources approved in Hsu-a finding consistent with our instructions in Waterwood I.

Because Waterwood was not the prevailing party in the underlying litigation, it is not entitled to attorney fees incurred on appeal in pursuing Waterwood I. Fees based on prevailing party status are awarded to the party prevailing in the entire lawsuit, not a discrete portion of it. In contrast, the trial court erred in not entering judgment on Waterwood's unopposed costs from Waterwood I, as described in Waterwood's memorandum of costs.

The trial court's orders denying Waterwood attorney fees incurred in the trial and appellate courts are affirmed. The trial court is directed to enter judgment on costs in favor of Waterwood.

BACKGROUND

1. Events preceding trial

In 2005, the City and Waterwood entered into a 10-year lease. The lease includes an attorney fee provision.

On August 29, 2016, Waterwood filed a complaint alleging a single cause of action for breach of contract. Waterwood alleged the City failed to pay for repairs to the roof, rendered the HVAC (heating, venting, and air conditioning) system inoperable, damaged the concrete and fence on the property, broke an electrical conduit, allowed grass to grow, which damaged the asphalt, and allowed grass to grow in areas containing concrete.

Waterwood further alleged that it was damaged "in an amount according to proof, but which is believed to be in excess of $150,000."^[1] Waterwood additionally sought payment of attorney fees and costs.

In its answer, the City generally denied the allegations and asserted 18 affirmative defenses.

The parties' joint statement of the case recited: "When Plaintiff [Waterwood] purchased the property from Defendant [the City] in 2005, Plaintiff leased it back to Defendant under a written lease that expired in October 2015, after a period of 10 years. [¶] Plaintiff contends that according to the Lease, Defendant City of Long Beach, had certain obligations to maintain and repair the property, and when it vacated, Defendant was required to deliver possession 'broom clean and in the same order and condition' as the property was in at the outset of the lease, 'reasonable wear and tear excepted.' Plaintiff Waterwood also contends that the City did not properly maintain and repair the property during the ten-year term of the lease and return it in the same condition as the property was in at the outset of the lease, reasonable wear and tear excepted. Accordingly, Plaintiff alleges that the City breached the lease terms, and seeks damages for the repairs and replacement necessary to return the property to the same condition as it was in at the outset of the lease, reasonable wear and tear excepted."

The joint statement also stated: "The City contends that it performed all of the repairs and maintenance required under the lease, and any repairs or maintenance that were not so completed were the result of reasonable wear and tear over the 10 year lease term. Defendant denies that it breached the lease terms."

2. Jury trial

Judge Patrick Madden presided over a 10-day trial. Our record of the trial proceedings is limited. For example, we do not have transcripts from the jury trial that led to our first opinion. As explained in our Discussion, we reject the City's efforts now to augment the record with transcripts the trial court did not have in determining, on remand, that there was no prevailing party.

The parties appear to agree that at trial, Waterwood's expert indicated the City owed Waterwood $224,000 in damages. Citing that expert's estimate summary reflected on a chart attached to the expert's deposition, the City points out Waterwood's expert claimed the City owed Waterwood $224,150 consisting of work on the masonry structure, roof, heating, venting, and air conditioning, electrical issues, paving, concrete, fences, gates, and walls. The chart does not further describe the repairs Waterwood claimed were the City's responsibility. In addition to the costs for these items, Waterwood's expert also opined that the City was responsible for contractor's overhead, contractor's profit, insurance, a bond, a "contingency on construction costs," construction management, architect design, engineering design, testing inspection and permit fees. (Capitalization omitted.) Citing the same estimate summary chart, Waterwood acknowledges that its "expert claimed at trial to [sic] hard costs of $170,000, and with soft costs and contingency, to be $224,000." (Italics added.)

The jury found in Waterwood's favor and awarded $45,050 in damages. In a special verdict, the jury answered the following question affirmatively: "Did Defendant, City of Long Beach, breach the written lease contract?" The jury concluded the breach was a substantial factor in causing Waterwood's damages. The special verdict did not address the City's affirmative defenses.

3. The trial court awards costs to Waterwood and attorney fees to the City

After trial, both parties filed motions for attorney fees based on the attorney fee provision in the lease. The trial court (Judge Madden) evaluated the parties' settlement offers to assess which party achieved its litigation objectives. The trial court described the contested items at trial as follows: "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. As to these items, it was defendant's argument 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; however, defendant contended the City was not liable for the replacement cost of the entire parking lot or the concrete pads."

The trial court stated, "[E]xamining the parties' position during the trial, the City clearly succeeded on its claims and Waterwood did not....Simply stated, the jury's verdict was very good news to the City and terrible new[s] for Waterwood. Based on the litigation objectives of the parties, defendant is clearly the prevailing party." Pursuant to Civil Code section 1717 (section 1717), the court awarded the City attorney fees in the amount $172,375. With respect to costs, the court found Waterwood was the prevailing party and ordered the City to pay Waterwood's costs in the amount of $19,905.04.

The amended judgment provided: "Waterwood Enterprises LLC shall recover from Defendant, The City of Long Beach, interest on the damages of $45,050 at the rate of 10% per annum." The court added $1,987.06 in interest.

"The City of Long Beach shall pay to plaintiff Waterwood Enterprises LLC on all...