Paul v. Schoellkopf

• Decision Date: 05 April 2005
• Docket Number: No. B170379.,B170379.
• Citation: 26 Cal.Rptr.3d 766,128 Cal.App.4th 147
• Court: California Court of Appeals Court of Appeals
• Parties: Shobhan PAUL et al., Plaintiffs and Appellants, v. Juergen Adolf SCHOELLKOPF et al., Defendants and Respondents.

26 Cal.Rptr.3d 766

128 Cal.App.4th 147

Shobhan PAUL et al., Plaintiffs and Appellants, v. Juergen Adolf SCHOELLKOPF et al., Defendants and Respondents.

No. B170379.

Court of Appeal, Second District, Division 4.

April 5, 2005.

Certified for Partial Publication.^*

Rehearing Denied April 28, 2005.

Review Denied June 15, 2005.

Edward J. Horowitz, Los Angeles, for Plaintiffs and Appellants.

Shoop & Leanse and Paul Shoop, Malibu, for Defendants and Respondents.

EPSTEIN, P.J.

This case arises from a dispute between buyers and sellers of residential property. The buyers were awarded judgment, including attorney fees. In the published portion of this opinion we hold that a provision for attorney fees in escrow instructions limited to fees incurred by the escrow company in collecting for escrow services does not apply to other disputes between the buyer and seller over their land sale contract. Because the attorney fees provision in this case is so limited, and the dispute between the parties had nothing to do with the adequacy of services performed by the escrow company or payment of its fees and expenses, we shall reverse the award of attorney fees. In unpublished portions of the opinion we reduce the amount of damages and reject arguments by the appellant concerning a setoff and the bar of the statute of limitations.

FACTUAL AND PROCEDURAL SUMMARY

In 1988, Shobhan and Gurmit Paul sold a piece of unimproved real estate located at 31499 Pacific Coast Highway in Malibu (the "Schoellkopf property") to Juergen and Monika Schoellkopf. The Pauls own an adjacent lot, located at 31505 Pacific Coast Highway, where they built a house and currently reside.

The parties signed three documents regarding the sale: the purchase agreement, the addendum, and the escrow instructions. The Schoellkopfs agreed to pay $325,000 for the lot. The Pauls agreed to build road and water connections to the lot, and the Schoellkopfs agreed to pay half the costs, up to $65,000. The Pauls also promised to install a new fire hydrant, without charge to the Schoellkopfs, or buy into an existing one and share the cost. The parties also agreed that the Pauls would have the right to approve the location and height of the Schoellkopfs' new home. The agreement of the parties was contingent upon approval by the California Costal Commission of the proposed improvements on the Schoellkopfs' property.

The Schoellkopfs hired an architect to design plans for their new home. In 1989, they showed these plans to the Pauls and then submitted them to the County of Los Angeles, which approved them. The plans were then submitted to the California Coastal Commission for review, where Mr. Paul spoke in favor of approval. The plans ultimately were approved by the Coastal Commission.

Mr. Paul subsequently informed the Schoellkopfs that he did not approve the plans due to the house's elevation. The parties attempted to negotiate a different elevation, but they could not reach an agreement. In the meantime, the Pauls completed construction of their residence by 1991.

In 1998, the Schoellkopfs hired a new architect and prepared new plans. The parties continued to disagree over elevation of the house, which was modified multiple times. The Pauls interfered with the Schoellkopfs' attempts to obtain approval for the plans from the Coastal Commission and the City of Malibu. Ultimately, in September 2001, the Pauls notified the Schoellkopfs that they approved the plans.

Prior to that, in 2000, the Pauls filed suit against the Schoellkopfs for breach of contract and for specific performance, primarily concerning the house's height and location. The Schoellkopfs cross-complained against the Pauls, alleging breach of the purchase agreement's implied covenant of good faith and fair dealing, for declaratory relief, and for monetary damages. The Pauls filed a cross-complaint against the Schoellkopfs, and both parties subsequently amended their cross-complaints.

After a bifurcated bench trial, the court found in favor of the Schoellkopfs. The court awarded damages for breach of contract, including $75,000 for failure to install the fire hydrant and $30,499.92 for loss of use of their property. The court also awarded the Schoellkopfs $371,942 in attorney fees. The Pauls filed this timely appeal, challenging the damages award and attorney fees.

DISCUSSION

I

The Pauls argue the trial court improperly awarded $371,942 in attorney fees to the Schoellkopfs. The trial court found that the escrow instructions, which had an attorney fee clause, were part of the overall agreement between the parties. Reasoning that Civil Code section 1717 (section 1717) requires recovery for all parties if any one party can recover attorney fees for any aspect of a contract, the trial court granted attorney fees to the prevailing party, the Schoellkopfs. We review de novo an award of attorney fees under a contractual provision where, as here, extrinsic evidence has not been offered to interpret the contract, and the facts are not in dispute. (Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142, 118 Cal.Rptr.2d 569.)

Except where a contract or statute provides otherwise, each party to a lawsuit must pay its own attorney fees. (Code Civ. Proc., § 1021.) Section 1717 was enacted to "avoid the perceived unfairness of one-sided attorney fee provisions. ..." (International Billing Services, Inc. v Emigh (2000) 84 Cal.App.4th 1175, 1182, 101 Cal.Rptr.2d 532.) It now provides that "if a contract gives one party the right to recover attorney fees in an action arising out of the contract, the other party, [if it prevails], is [also] entitled to fees." (Ibid.)

The statute also provides, in relevant part: "In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonably attorney's fees in addition to other costs. [¶] Where a contract provides for attorney's fees, as set forth above, that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract." (Civ. Code, § 1717, subd. (a).)

"One purpose of section 1717 is to avoid uncertainty and clarify the issue of [attorney] fees, so both sides can make rational evaluations about the case, including prospects of settlement and so forth." (International Billing Services, Inc. v. Emigh, supra, 84 Cal.App.4th at pp. 1186-1187, 101 Cal.Rptr.2d 532.) If a clause "does not put the principals to [an agreement] on notice that it is an attorney fees clause," section 1717 does not give all parties a right to recover attorney fees. (Campbell v. Scripps Bank (2000) 78 Cal. App.4th 1328, 1337, 93 Cal.Rptr.2d 635 [refusing to award attorney fees based on an indemnification clause in escrow instructions].)

Of the three documents signed by the parties, only one, the escrow instructions, contains an attorney fees provision. It states: "In the event of failure to pay fees or expenses due you hereunder, on demand, I agree to pay a reasonable fee for any attorney's service which may be required to collect such fees or expenses." In the agreement, the term "you" refers to Townsgate Escrow, the escrow company handling the transaction. By this provision, the escrow company and the parties manifested an intent to pay attorney fees to the escrow company if its fees or expenses went unpaid and an attorney's services were required to collect them.

We note that section 1717 would have made this right reciprocal had the lawsuit been over the performance of the escrow. The Legislature amended section 1717 in 1983 by adding the second paragraph.¹ The express purpose of this amendment was to overturn Sciarrotta v. Teaford Custom Remodeling, Inc. (1980) 110 Cal. App.3d 444, 167 Cal.Rptr. 889. (Harbor View Hills Community Assn. v. Torley (1992) 5 Cal.App.4th 343, 349, 7 Cal. Rptr.2d 96; Sen. Com. on Judiciary, Analysis of Sen. Bill No. 886 (1983-1984 Reg. Sess.) as amended May 16, 1983, p. 2.) In that case, property owners sued a contractor for breach of contract to build a house in a workmanlike manner. (Sciarrotta v. Teaford Custom Remodeling, Inc., supra, 110 Cal.App.3d at p. 446, 167 Cal.Rptr. 889.) After prevailing on their claims, the property owners sought attorney fees under the following provision in the written contract: "In the event that default should occur in the payment of the Contract price or of any part thereof, Owner agrees to pay Contractor's reasonable attorney's fees and court costs incurred by Contractor to enforce payment herein." (Ibid.) The court denied plaintiffs' request because "the contractual language was clear, explicit and unambiguous in limiting attorney's fees to a certain kind of action," and the suit was not over the failure to pay the builder's contract price. (Id. at p. 452, 167 Cal.Rptr. 889.) The Legislature disagreed, and amended the law "to provide complete mutuality of remedy where a contractual provision makes recovery of attorney fees available to one party." (Harbor View Hills Community Assn. v. Torley, supra, 5 Cal.App.4th at p. 349, 7 Cal.Rptr.2d 96, fn. omitted.) Thus, parties may not limit recovery of attorney...