5 Folsom Associates v. Prometheus Development Co.

• Decision Date: 08 August 1990
• Docket Number: No. A040222,A040222
• Citation: 272 Cal.Rptr. 227,223 Cal.App.3d 1
• Court: California Court of Appeals Court of Appeals
• Parties: 580 FOLSOM ASSOCIATES, Plaintiff, Respondent and Appellant, v. PROMETHEUS DEVELOPMENT COMPANY et al., Defendants, Appellants and Respondents, Brobeck, Phleger & Harrison, Objector and Appellant.

Page 227

272 Cal.Rptr. 227

223 Cal.App.3d 1

580 FOLSOM ASSOCIATES, Plaintiff, Respondent and Appellant, v. PROMETHEUS DEVELOPMENT COMPANY et al., Defendants, Appellants and Respondents Brobeck, Phleger & Harrison, Objector and Appellant.

No. A040222.

Court of Appeal, First District, Division 2, California.

Aug. 8, 1990.

As Modified Sept. 6, 1990.

Review Denied Oct. 25, 1990.

Certified for Partial Publication. ^*

Pettit & Martin, John B. Clark, James B. Harrington, Sharon L. O'Grady, David M. Rice, San Francisco, for 580 Folsom Associates.

Jack L. Slobodin, William L. Jacobson, Cartwright, Slobodin, Bokelman, Borowsky, Wartnick, Moore & Harris, Inc., San Francisco, for Prometheus Develop. Co.

John E. Sparks, S. Alan Childress, Brobeck, Phleger & Harrison, San Francisco, for Brobeck, Phleger & Harrison.

BENSON, Associate Justice.

This action involves three separate appeals taken from the judgment entered in a single action in the trial court after that court entered summary adjudication of issues in favor of 580 Folsom Associates ("Folsom") and against Prometheus Development Company ("Prometheus"). Appellant Folsom seeks costs and attorneys' fees incurred in defending against a petition for writ of mandate filed in this court by Prometheus. Appellant Brobeck, Phleger & Harrison ("Brobeck"), trial counsel for Prometheus, seeks to overturn the trial court's order which awarded sanctions jointly and severally against the law firm and Prometheus under Code of Civil Procedure section 128.5. Appellant Prometheus seeks reversal of the order granting summary adjudication of issues and awarding sanctions against it. We shall affirm the judgment and the order granting sanctions. As amended, we shall affirm the order denying attorneys' fees.

PROCEDURAL BACKGROUND

On July 1, 1986, Folsom commenced this action by filing a complaint against Prometheus and Sanford Diller, the chairman and sole shareholder of Prometheus, seeking to quiet title to real property and alleging breach of an indemnity agreement by Prometheus. The complaint also alleged various tort claims which are not relevant to this appeal. With its answer, Prometheus filed a cross-complaint against Folsom and Ronald Kaufman ("Kaufman"), a general partner of the Kaufman Family Partnership, which was in turn a general partner of Folsom.

On March 17, 1987, Folsom and Kaufman filed a motion for summary judgment or, in the alternative, for summary adjudication of issues addressing the first, fourth, fifth, sixth and seventh causes of action of the complaint and the entire cross-complaint. This motion was scheduled for hearing on April 15, 1987. The motion also sought sanctions against Prometheus and/or Brobeck under Code of Civil Procedure section 128.5 on the grounds the allegations of the cross-complaint were fabrications and the cross-complaint was filed for the purpose of frustrating Folsom's efforts to obtain the relief to which it was entitled.

Hearing on the motion was continued to May 21, 1987. At this hearing, Prometheus objected to new evidence presented by Folsom in its reply brief. The hearing was continued to June 8, 1987 to allow At the final hearing on the motion on July 29, 1987, the court granted Folsom's motion as to the first cause of action of the complaint for breach of contract and the entire cross-complaint. Turning to the matter of sanctions, the court very reluctantly "concluded that the actions taken here by Prometheus were not in good faith" and that sanctions were warranted both for the filing of a cross-complaint containing allegations that were "frivolous and ... totally and completely without merit," and for submission of pleadings in opposition to Folsom's motion that the court found "contain[ed] lengthy citations to the record which, upon review, either do not relate to the factual proposition[s] for which they are cited, or ... contain no competent evidence and refer to materials which are clearly incompetent." The court scheduled a further hearing to determine the amount of sanctions that would be assessed and the amount of attorneys' fees that would be awarded to Folsom based upon the contract clause authorizing an award of attorneys' fees to the prevailing party in any action brought to enforce the contract.

Prometheus to respond to this new matter. At the continued hearing the court indicated it was inclined to grant Folsom's motion but was concerned that Folsom had not met its burden of proof concerning its entitlement to money due its sublessees for tenant improvements. Rather than forcing Folsom to start its motion all over again, the court again continued the hearing to allow the parties to present additional evidence. At this June hearing, Prometheus also stipulated it would provide Folsom a quitclaim deed to clear Folsom's title to the property, thus removing that issue from the action and mooting Folsom's fourth, fifth, sixth and seventh causes of action.

Prometheus then filed a petition for a writ of mandate in this court seeking to set aside the trial court's grant of summary adjudication. This court requested a response to the petition from Folsom and gave written advisement to Folsom that a peremptory writ might be issued in the first instance under Code of Civil Procedure section 1088, citing Palma v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171, 203 Cal.Rptr. 626, 681 P.2d 893. Folsom filed its opposition brief; this court, by order dated September 17, 1987, denied the petition without issuing an alternative writ or an order to show cause. A petition to the Supreme Court was similarly denied.

Brobeck then filed in the trial court a motion for reconsideration of the order granting sanctions against it. Prometheus separately joined in this motion. This motion was heard at the previously scheduled hearing to determine the amount of attorneys' fees and sanctions. The court denied the motion for reconsideration, awarded Folsom $160,000 in attorneys' fees and $20,000 in sanctions. This ruling was later embodied in a written order. Folsom then voluntarily dismissed its remaining tort causes of action and final judgment was entered on October 19, 1987. Prometheus and Brobeck filed their appeals. Folsom moved the trial court for additional attorneys' fees incurred in the writ of mandate proceedings. The court denied this request and Folsom then filed its appeal.

FACTUAL BACKGROUND

In September 1979, Kaufman and his wife acquired a renewable long-term lease with purchase options of certain improved real property situated at the corner of Folsom and Second Streets in San Francisco, known as 299 Second Street. In early 1980, the leasehold was transferred to a newly-created partnership called "580 Folsom Associates," plaintiff in this action. An 80 percent share of Folsom was held by the Kaufman Family Partnership and the remaining 20 percent was held by another partnership called "W/P Folsom," the general partners of which are two local architects, Francis Whisler and Piero Patri. Kaufman was the managing partner of Folsom and was vested with general power to conduct the partnership business.

Prometheus is a California corporation engaged in the business of real estate development, management and investment. Sanford N. Diller ("Diller") is the president Portions of this property were leased by Folsom to various subtenants, the principal one of which was the firm of Whisler Patri, a corporation through which Whisler and Patri conducted their architectural practice. All of the subleases provided for termination by Folsom upon the giving of certain specified notices. The subleases also provided that the subtenants would make certain improvements to the property to render it suitable for use as office space. The subleases further provided that, in the event of termination of the sublease prior to its expiration, Folsom would reimburse the subtenant, at the time it vacated the premises, for the unamortized cost of these improvements.

chief executive officer and sole shareholder of Prometheus.

At one time Folsom had given consideration to undertaking development of a high-rise office building on the property but when presented with an acceptable offer to purchase its interest by Prometheus, Folsom decided to sell its interest. Prior to receipt of the offer from Prometheus, Folsom had entertained several offers for purchase of the leasehold by various other prospective developers during 1980 through 1983.

In early 1983, Kaufman decided to begin the application process with the city for a site permit for construction of a highrise building on the property. Whisler and Patri had informed Kaufman that "things [were] getting tighter and tighter in planning and zoning." In order to preserve the development potential of the property, Kaufman began seeking approval of the city planning department for eventual development of the site. Kaufman's purpose in submitting an application was to "get in line" at the planning department so that the development potential, and consequently the resale value of the property, would not be eliminated by future controls on downtown development.

Prometheus's offer to purchase the leasehold interest was unsolicited by Folsom; it was presented to Folsom by realtor John Cecconi of the firm of Coldwell Banker. The offer was in the amount of $4,040,000 and provided for an initial deposit of $250,000 and an extended escrow period of 18 months, at the conclusion of which the buyer would have the option either of closing the transaction by payment of the balance of the purchase price or of terminating the transaction and forfeiting its deposit.

Following receipt of this offer, negotiation of a formal purchase contract was carried out by Kaufman of Folsom, Cecconi of Coldwell Banker and Dale Frost of Prometheus. These negotiations ultimately resulted in the execution of a Real Estate Purchase Contract dated August 16, 1983. The final version of the contract was prepared...