Lesser v. Huntington Harbor Corp.

• Decision Date: 29 October 1985
• Citation: 173 Cal.App.3d 922,219 Cal.Rptr. 562
• Court: California Court of Appeals Court of Appeals
• Parties: Louis LESSER, Plaintiff and Appellant, v. HUNTINGTON HARBOR CORPORATION, the Christiana Companies, Inc., et al., Defendants and Respondents. Civ. B007558.

Page 562

219 Cal.Rptr. 562

173 Cal.App.3d 922

Louis LESSER, Plaintiff and Appellant, v. HUNTINGTON HARBOR CORPORATION, the Christiana Companies, Inc., et al., Defendants and Respondents.

Civ. B007558.

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

Oct. 29, 1985.

As Modified Nov. 27, 1986.

David Bernard Rabinek, Los Angeles, for plaintiff and appellant

Hill Wynne Troop & Meisinger and Steven M. Dixon, Neil R. O'Hanlon and Marc J. Graboff, Los Angeles, for defendants and respondents.

KLEIN, Presiding Justice.

Plaintiff and appellant Louis Lesser (Lesser) appeals from an order awarding defendants and respondents Huntington Harbor Corporation and The Christiana Companies (collectively respondents) attorney's fees and costs of $59,148.10 incurred in defense of a fraud action.

Because Lesser was not afforded adequate notice and opportunity to be heard, the judgment is reversed and remanded for a new hearing.

PROCEDURAL AND FACTUAL BACKGROUND

The trial court awarded attorney's fees and costs under the authority of Code of Civil Procedure section 128.5 (section 128.5) to respondents after they prevailed in a suit brought by Lesser. ¹

Lesser initiated the lawsuit in the summer of 1977, alleging a breach of fiduciary duty, fraud, and interference with prospective economic advantage. A second amended complaint was filed in March 1978.

In June 1978, Lesser filed a lis pendens against the subject matter of the action, the Huntington Harbor Beach Club. In August 1978, the lis pendens was expunged with Huntington Harbor required to post a bond of $100,000.

Lesser sought relief by writs of mandate on certain issues before the appellate court and the California Supreme Court. Interrogatories were taken by both parties, as well as four sets of depositions.

After the five-year statute was waived, the case proceeded to trial on May 16, 1983. The respondents submitted a trial brief which asked for an award under section 128.5.

Lesser presented his case in one and one-half days and at the conclusion, the respondents moved for a nonsuit. After hearing argument, the trial court granted the motion, finding the evidence was unbelievable and did not substantiate Lesser's claims.

The trial court concluded by stating the case was a proper one for an award of attorney's fees and costs and thereby sanctions under section 128.5 and it would hold a hearing the next morning to determine the amounts thereof.

Shortly after the outset of the hearing, Lesser's counsel moved for a continuance so as to afford Lesser an opportunity to employ new counsel, which was denied.

After hearing testimony by respondents' counsel concerning the expenses of defending the suit during the six years, and from Lesser about the propriety of the award, the trial court awarded Huntington Harbor $59,148.10 in attorney's fees and costs incurred in the action.

CONTENTIONS

Lesser contends the trial court erred in making an award pursuant to section 128.5 because: (1) he did not receive adequate notice; (2) he was denied an adequate opportunity to be heard; (3) his lawsuit was not frivolous or in bad faith; and (4) the order was insufficient in detail as to the conduct or circumstances justifying the award.

Neither party contests the propriety of that trial court's application of section 128.5 to the entire lawsuit.

DISCUSSION

1. Section 128.5 expenses are appropriate when the trial court finds the entire lawsuit to be frivolous.

Section 128.5 was passed in direct response to the Supreme Court ruling in Bauguess v. Paine (1978) 22 Cal.3d 626, 150 Cal.Rptr. 461, 586 P.2d 942. In Bauguess, after plaintiff's attorney's conduct caused a mistrial, the attorney was ordered by the trial court to pay $700 to defendant's counsel. The Supreme Court reversed, holding the award of such attorney's fees was not within the equitable or supervisory power of the trial court, and was not authorized by any statute. (Id., at pp. 635-639, 150 Cal.Rptr. 461, 586 P.2d 942.) The Bauguess decision was based in large part on the possibility of "serious due process problems" if monetary sanctions were imposed "without appropriate safeguards and guidelines." (Id., at pp. 638-639, 150 Cal.Rptr. 461, 586 P.2d 942.)

To remedy this lack of statutory authority, the California Legislature passed section 128.5 in 1981. The Legislature stated: " '[i]t is the intent of this legislation to broaden the powers of the trial courts to manage their calendars and provide for the expeditious processing of civil actions by authorizing monetary sanctions now not presently authorized by the interpretation of the law in Bauguess v. Paine (1978) 22 Cal.3d 626 [150 Cal.Rptr. 461, 586 P.2d 942].' " (Ellis v. Roshei Corp. (1983) 143 Cal.App.3d 642, 648, 192 Cal.Rptr. 57 citing Stats.1981, ch. 762, § 2.)

An order to pay reasonable expenses, including attorney's fees and costs, pursuant to section 128.5 is in effect an award of sanctions.

Section 128.5 does not specifically mention frivolous lawsuits, but the Supreme Court has recognized that section 128.5 sanctions might serve to take the place of a malicious prosecution suit. In City of Long Beach v. Bozek (1982) 31 Cal.3d 527, 530, 183 Cal.Rptr. 86, 645 P.2d 137, [certiorari granted, vacated and remanded 459 U.S. 1095, 103 S.Ct. 712 , reaffirmed and reissued (1983) 33 Cal.2d 727, 190 Cal.Rptr. 918, 661 P.2d 1072], when the city brought a malicious prosecution complaint against Bozek who had unsuccessfully sued the city, the trial court sustained Bozek's general demurrer without leave to amend on the ground municipalities should not be permitted to sue for malicious prosecution. The city appealed. The Supreme Court affirmed, holding that maintenance of malicious prosecution actions by government entities would generate a potentially chilling effect on the exercise of the right to petition the government through the courts for redress of grievances. (Id., 31 Cal.3d at pp. 532-536, 183 Cal.Rptr. 86, 645 P.2d 137.) Although the city waived punitive damages in this action and the court, therefore, did not decide whether such damages would be available to cities (id., at pp. 531-532, fn. 3, 183 Cal.Rptr. 86, 645 P.2d 137) an award in a malicious prosecution suit may include punitive damages. (4 Witkin, Summary of Cal. Law (8th ed. 1974) Torts, § 898, p. 3185; Bertero v. National General Corp. (1974) 13 Cal.3d 43, 65-67, 118 Cal.Rptr. 184, 529 P.2d 608.)

The City of Long Beach court also reasoned the city had several other remedies available to it, including an award of expenses in the initial suit under section 128.5. It explicitly recognized that section 128.5's purpose was to discourage "frivolous litigation" and in some instances it (City of Long Beach v. Bozek, supra, 31 Cal.3d at p. 537, 183 Cal.Rptr. 86, 645 P.2d 137) "is a clearly preferable remedy to an independent action for malicious prosecution with its costs in terms of additional attorney's fees and imposition upon judicial resources." (Id., at p. 538, 183 Cal.Rptr. 86, 645 P.2d 137.)

Atchison, Topeka & Santa Fe Ry. Co. v. Stockton Port Dist. (1983) 140 Cal.App.3d 111, 189 Cal.Rptr. 208, further supports the propriety of section 128.5 expenses for frivolous actions. There, the trial court made an award to defendant under section 128.5 following plaintiff's dismissal with prejudice. The plaintiff sought an award based on an alleged frivolous motion by the Port, while the Port asserted plaintiff's entire action was frivolous. The trial court found plaintiff's action was without merit. (Id., at pp. 114-115, 189 Cal.Rptr. 208.)

The Atchison court reversed holding, inter alia: "[W]hether a party has a 'meritorious cause of action' is not a proper basis for imposing sanctions pursuant to section 128.5. The fact that an action is determined to be 'without merit' does not, a fortiori, place it in the category of frivolous. (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650 [183 Cal.Rptr. 508, 646 P.2d 179].) Obviously, where an action is initiated for an improper motive, or a party knows or should know the facts or law or both preclude the action or any recovery, yet prosecutes the action in any event, the question of a frivolous action is raised. (Ibid. )" (Atchison, Topeka & Santa Fe Ry. Co. v. Stockton Port Dist., supra, 140 Cal.App.3d at p. 116, 189 Cal.Rptr. 208, italics added.)

Most recently, a trial court granted defendants' motions for summary judgment and awarded certain of the defendants attorneys' fees under section 128.5. (Pyne v. Meese (1985) 172 Cal.App.3d 392, 405, 218 Cal.Rptr. 87) The Pyne court affirmed the award, holding the defendants' inclusion in a 42 United States Code section 1983 action to be " 'so clearly contrary to the established law in this matter it can only be characterized as frivolous and in bad faith.' " (Ibid. ) ² Nothing in section 128.5's language limits the section's application only to tactics or motions. In fact, the section specifically states frivolous actions are not limited to making or opposing motions without good faith. A reasonable interpretation is that the section also applies to entire actions not based on good faith which are frivolous or cause unnecessary delay in the resolution of a dispute. ³

2. Notice required before imposing expenses is dependent upon the circumstances.

Lesser contends neither respondents nor the trial court gave adequate notice before the imposition of expenses.

Adequate notice is mandated not only by statute, but also by the due process clauses of both the federal (U.S. Const., 14th Amend.), and state (Cal. Const., art. I, § 7) Constitutions. (O'Brien v. Cseh (1983) 148 Cal.App.3d 957, 961, 196 Cal.Rptr. 409.)

The Legislature recognized the notice and opportunity to be heard concerns expressed in Bauguess v. Paine, supra, 22 Cal.3d 626, 150 Cal.Rptr. 461, 586 P.2d 942, when it specifically provided for such in subdivision (b) of section 128.5. (See footnote 1, ante.) However, the section is not...