Hong Sang Mkt., Inc. v. Peng

• Decision Date: 13 February 2018
• Docket Number: A140653,A141640
• Citation: 229 Cal.Rptr.3d 99,20 Cal.App.5th 474
• Court: California Court of Appeals
• Parties: HONG SANG MARKET, INC., Plaintiff, Cross-defendant and Respondent, v. Vivien PENG, Defendant, Cross-complainant and Appellant.

20 Cal.App.5th 474

229 Cal.Rptr.3d 99

HONG SANG MARKET, INC., Plaintiff, Cross-defendant and Respondent,

v.Vivien PENG, Defendant, Cross-complainant and Appellant.

A140653

A141640

Court of Appeal, First District, Division 3, California.

Filed February 13, 2018

Certified for Partial Publication.^*

John Kao Law Office and John K. Kao, San Francisco for Defendant, Cross-complainant, and Appellant.

Steven Adair MacDonald & Partners, Steven Adair MacDonald, Jethro S. Busch, San Francisco; Bradley, Curley, Asiano, Barrabee, Abel & Kowalski and Michael A. King for Plaintiff, Cross-defendant, and Respondent.

McGuiness, Acting P.J.^**

These appeals arise out of a commercial tenancy dispute. In one appeal, defendant and cross-complainant Vivien Peng challenges a judgment awarding damages for back-due rent to her former landlord, plaintiff and cross-defendant Hong Sang Market, Inc. (Hong Sang). Peng argues that a judgment in a prior unlawful detainer action against her, in which Hong Sang was awarded one month's back-due rent along with possession of the premises, has a res judicata effect and bars any further claims for rent owed to Hong Sang.

In the other appeal, Peng challenges an order awarding attorney fees and costs to Hong Sang.¹ She contends that fees incurred by Hong Sang in defending against a cross-complaint she filed are outside the scope of the parties' contractual attorney fee clause, that fees may not be awarded for work on a motion to strike the cross-complaint as a strategic lawsuit against public participation² (SLAPP) in light of this court's earlier decision reversing orders granting the motion and awarding statutory attorney fees, and that some fees appear to have been incurred before the effective date of the attorney fee clause or may be duplicative of fees recovered in the unlawful detainer action.

In the published portion of this opinion, we conclude the unlawful detainer judgment did not preclude Hong Sang from pursuing a separate civil action for back-due rent that accrued in months other than the one month for which damages were awarded in the unlawful detainer action. In the unpublished portion of the opinion, we conclude the trial court erred in awarding Hong Sang attorney fees incurred in defending against Peng's cross-complaint, and we also make an adjustment to the fee award to ensure that Peng receives the benefit of an agreed-upon reduction in the award associated with fees incurred before the effective date of the attorney fee clause. Accordingly, we shall modify the attorney fee award but otherwise affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Peng's Tenancy

Hong Sang owned a two-unit commercial building in San Francisco. In 2002, Ming Kee Game Birds, Inc. (Ming Kee) leased the entire premises and sublet one of the two units to Peng for a period of ten years.

Ming Kee sued Peng for breach of the sublease in 2004. Peng cross-complained against Ming Kee and ended up securing a judgment against Ming Kee in the sum of $46,545. In 2009, Peng was granted an additional award of attorney fees payable by Ming Kee in the sum of $47,800. She managed to collect $46,500 in partial satisfaction of the outstanding judgment.

In August 2009, while Peng was still attempting to collect her judgment against Ming Kee, she was informed that Hong Sang and Ming Kee had agreed to terminate the master lease. A new tenant, Ming's Poultry, LLC, immediately took possession of the property formerly leased by Ming Kee and continued the same poultry business that had been conducted by Ming Kee. According to Peng, the change in ownership was a fraudulent conveyance designed to prevent her from collecting the unpaid portion of the judgment against Ming Kee through a setoff of rent owed under the sublease. Peng rejected Hong Sang's offer of a lease and demand for rent.

As of September 2009, Peng remained in possession of the premises with Hong Sang's knowledge and consent. By operation of law, she became Hong Sang's tenant at the rental rate of $4,725 per month. Hong Sang filed an unlawful detainer action against Peng in 2009 but ultimately dismissed the case voluntarily in early January 2011, when it acknowledged that the three-day notice to pay rent or quit that was served on Peng in 2009 was arguably defective. Peng did not pay any rent for the premises during the period from September 2009 through February 2011.

In January 2011, Hong Sang served Peng with a written notice of change in terms of the tenancy pursuant to Civil Code section 827 (the section 827 notice). The change in terms became effective on March 1, 2011. Among other things, Hong Sang confirmed that Peng's monthly rent was $4,725. It also amended the terms of the tenancy to include an attorney fee clause, which provides in relevant part that the prevailing party in "any legal action, arbitration or proceeding arising out of or relating to the ... tenancy" shall be entitled to attorney fees and costs "reasonably and actually incurred in the action or proceeding by the prevailing party."

Hong Sang's Unlawful Detainer Lawsuit

Following the effective date of the section 827 notice, Peng paid Hong Sang rent of $4,725 per month in March and April 2011. In May 2011, Peng became delinquent in her rent payments. On May 13, 2011, Hong Sang served Peng with a three-day notice to pay rent or quit as well as a thirty-day notice to quit. The three-day notice to pay rent or quit stated that Peng's rent was delinquent in the amount of $4,725 for the month of May 2011 but also expressly reserved Hong Sang's rights to recover rent for the period before March 1, 2011, in a separate legal action. Peng did not comply with either of the May 2011 notices.

Hong Sang filed an unlawful detainer action against Peng in June 2011. It sought to recover possession of the premises and requested back-due rent in the amount of $4,725, which was the amount demanded for the month of May 2011 in the three-day notice to pay rent or quit. In September 2011, the trial court granted summary judgment in favor of Hong Sang in the unlawful detainer action. The judgment awarded Hong Sang possession of the premises and directed Peng to pay $4,725 in back-due rent. In an amended judgment, the court awarded Hong Sang an additional $21,669 in attorney fees and $845 in costs attributable to the unlawful detainer action. Peng did not appeal the 2011 unlawful detainer judgment and it subsequently became final.

Hong Sang's Breach of Contract Lawsuit and Peng's Cross-complaint

In March 2011, Hong Sang filed an action for breach of contract against Peng in which it sought back-due rent for the period from September 2009 through February 2011.³ It sought a total of $85,050 as damages for back-due rent plus attorney fees. Hong Sang's breach of contract lawsuit is the subject of this appeal.

Peng filed a cross-complaint against Hong Sang, Ming Kee, and Ming's Poultry, LLC. Peng alleged four causes of action against Hong Sang: interference with contractual relations, breach of the covenant of quiet enjoyment, declaratory relief, and conspiracy. Peng alleged that Hong Sang had falsely advised her that Ming Kee was in default under the master lease and that her sublease was terminated as a result. She claimed that she was forced to hire an attorney as a consequence and incur attorney fees and costs to defend herself against the unlawful detainer action filed by Hong Sang in 2009. In the conspiracy cause of action, Peng alleged that the cross-defendants had conspired to render Ming Kee insolvent and prevent her from collecting her judgment against Ming Kee by offsetting the amount of the judgment against rents owed to Ming Kee. The declaratory relief cause of action sought a declaration of the parties' rights and duties pertaining to the premises occupied by Peng.

Anti-SLAPP Motion and Disposition of Peng's Cross-complaint

Hong Sang filed a special motion under Code of Civil Procedure section 425.16 (anti-SLAPP motion) to strike three of the causes of action in Peng's cross-complaint on the ground they were based on an act in furtherance of its right to free speech—i.e., the filing of an unlawful detainer action. The anti-SLAPP motion did not seek to strike the declaratory relief cause of action. The trial court granted Hong Sang's special motion to strike the challenged causes of action, reasoning that they arose at least in part from protected activity. The court awarded Hong Sang attorney fees of $7,834.75 and costs of $3,953 as the prevailing moving party on the special motion to strike. ( Code Civ. Proc., § 425.16, subd. (c)(1).) Peng appealed the court's orders granting Hong Sang's anti-SLAPP motion and awarding fees and costs under the anti-SLAPP statute in appeal numbers A133044 and A134394, which we consolidated for purposes of decision.

On appeal, we reversed the trial court's order granting Hong Sang's anti-SLAPP motion. We concluded that the challenged causes of action did not arise from protected activity. We did not reach the question of whether Peng had demonstrated a probability of prevailing on the merits of her causes of action. The reversal required that we also vacate the award of attorney fees and costs because there was no longer a statutory basis for the award.

While the court's anti-SLAPP order was on appeal, Peng filed an amended cross-complaint containing a single cause of action for declaratory relief against Hong Sang. In 2012, the court granted a demurrer without leave to amend as to the declaratory relief cause of action. The court noted that the controversy alleged in the declaratory relief cause of action no longer existed. Peng did not challenge the court's order dismissing the declaratory relief cause of action.

After this court issued the remittitur in the appeals challenging the court's anti-SLAPP orders, Peng filed a second amended cross-complaint that re-alleged the causes of action against Hong Sang for interference with contractual relations, breach of the covenant of quiet enjoyment,...