Scott Co. of California v. Blount, Inc.

Decision Date19 July 1999
Docket NumberNo. S057126,S057126
Citation979 P.2d 974,20 Cal.4th 1103,86 Cal.Rptr.2d 614
CourtCalifornia Supreme Court
Parties, 979 P.2d 974, 99 Cal. Daily Op. Serv. 5732, 1999 Daily Journal D.A.R. 7311 SCOTT CO. OF CALIFORNIA, Plaintiff and Appellant, v. BLOUNT, INC., Defendant and Appellant

Morgenstein & Jubelirer, Eliot S. Jubelirer, Rocky N. Unruh, Jeffrey R. Williams, Lewis D. Barr and Stephen M. Hankins, San Francisco, for Defendant and Appellant.

McInerney & Dillon, Timothy F. Winchester and Jewell J. Hargleroad, Oakland, for Plaintiff and Appellant.

KENNARD, J.

A party's entitlement to attorney fees in a lawsuit based on a contract containing an attorney fees provision often depends not just upon the language of the contractual provision but also upon the complex interaction of several statutes that affect a party's contractual right to attorney fees, as this case illustrates.

Here, plaintiff sued defendant for contract and tort claims; the contract included a unilateral attorney fees provision permitting defendant to recover its attorney fees if it sued to enforce the contract or to recover damages for its breach, but not authorizing plaintiff to recover its fees. Section 1717 of the Civil Code, however, which governs enforcement of contractual attorney fees provisions, provides that any contractual attorney fees provision must be applied mutually and equally to all parties to the contract, even if it is written otherwise.

Defendant made a pretrial settlement offer that plaintiff rejected. At trial, plaintiff received a money judgment in its favor, but for less than defendant's offer. Under Code of Civil Procedure section 998 as it existed at the time of trial in this case, if a defendant in a civil action makes a pretrial settlement offer that the plaintiff rejects and thereafter the plaintiff does not obtain a more favorable judgment, "the plaintiff shall not recover his or her costs and shall pay the defendant's costs from the time of the offer." Under Code of Civil Procedure sections 1032 and 1033.5, costs include attorney fees if authorized by contract.

From these facts and statutes, two issues arise concerning the parties' entitlement to attorney fees and other costs: May plaintiff recover its preoffer attorney fees and other costs under the contractual attorney fees provision and Civil Code section 1717 as the prevailing party, or does Code of Civil Procedure section 998 cut off plaintiff's right to fees and other costs to which it would otherwise be entitled? May defendant recover its postoffer attorney fees, either under the cost-shifting provision of Code of Civil Procedure section 998 or as a prevailing party under Civil Code section 1717? We conclude, as did the trial court, that plaintiff is entitled to its preoffer attorney fees and other costs, and that defendant is entitled to its postoffer attorney fees.

I

Defendant Blount, Inc. was the general contractor for construction of the San Jose Convention Center. Defendant entered into a subcontract with plaintiff Scott Co. of California for plaintiff to perform mechanical work on the project. The subcontract between plaintiff and defendant contained an attorney fees provision.

Plaintiff subcontractor sued defendant and others, claiming that their actions had caused it to incur large cost overruns in performing its work on the project. As relevant here, plaintiff alleged that defendant, by its poor management of the project, had breached the contract and had been negligent. After resolving its causes of action against the others, plaintiff received a bench trial on its remaining causes of action against defendant. Plaintiff sought damages of over $2 million.

Before trial, however, defendant offered to settle for $900,000; plaintiff rejected this offer and made its own settlement offer of $1.5 million.

In its decision after trial, the trial court found that defendant's "management of the project as the general contractor was at times inadequate, constituting negligence and in breach of its implied contractual obligation to [plaintiff] of good faith and fair dealing...." After disallowing many of plaintiff's items of alleged damage, the trial court awarded plaintiff $442,054 in damages.

After trial, plaintiff and defendant both sought awards of costs and attorney fees. Plaintiff sought its costs, including attorney fees, for the entire lawsuit as the prevailing party in the lawsuit, relying on the contractual attorney fees provision, Civil Code section 1717, and Code of Civil Procedure section 1032; defendant sought under Code of Civil Procedure section 998 its attorney fees and other costs incurred after the time of its offer to plaintiff on the ground that plaintiff's recovery was less than defendant's offer. The trial court ruled that under section 998 plaintiff was entitled to only its preoffer costs, including attorney fees, which totaled $226,812.

With respect to defendant, the trial court held that it was entitled to its postoffer costs, including attorney fees. The trial court awarded defendant its postoffer attorney fees and other costs in the amount of $633,983.60 (of which $568,925 were attorney fees); the trial court also awarded defendant its expert witness fees of $247,652, for a total award to defendant of $881,635.60, an amount greater than the total damages, attorney fees, and other costs awarded to plaintiff.

On appeal, the Court of Appeal agreed with the trial court that plaintiff was entitled to its preoffer attorney fees and other costs but disagreed that defendant was entitled to its postoffer attorney fees.

We granted defendant's petition for review to decide whether plaintiff was entitled to its preoffer attorney fees and other costs and whether defendant was entitled to its postoffer attorney fees.

II

The trial court awarded plaintiff its preoffer attorney fees, finding them authorized by the combined operation of the contractual attorney fees provision, Civil Code section 1717 (hereafter section 1717), and Code of Civil Procedure section 998; it also awarded plaintiff its other preoffer costs, finding them authorized by section 998. The Court of Appeal affirmed this award.

In analyzing the correctness of this award, we shall proceed step by step, first examining Code of Civil Procedure section 1032 (hereafter section 1032), the general cost award statute. Next, we consider the attorney fees provision of the contract, then the effect of section 1717 on the attorney fees provision, and finally the effect of Code of Civil Procedure section 998 as it existed at the time of trial in this case in 1994 (Stats.1987, ch. 1080, § 8, p. 3655, hereafter section 998), especially subdivision (c).

Section 1032 is the fundamental authority for awarding costs in civil actions. It establishes the general rule that "Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." (§ 1032, subd. (b).) For purposes of section 1032, a party with a net monetary recovery, like plaintiff here, is a " '[p]revailing party.' " (§ 1032, subd. (a)(4).)

Section 1033.5 of the Code of Civil Procedure (hereafter section 1033.5) specifies the "items ... allowable as costs under Section 1032." It lists as one category of costs "[a]ttorney fees, when authorized by ... [p] (A) Contract." (§ 1033.5, subd. (a)(10)(A).)

The attorney fees provision in the contract between defendant and plaintiff provides: "Should Sub-Contractor [plaintiff] default in any of the provisions of this subcontract and should Contractor [defendant] employ an attorney to enforce any provision hereof, or to collect damages for breach of the subcontract, ... Sub-Contractor and his surety agree to pay Contractor such reasonable attorney's fees as he may expend therein."

On its face, the attorney fees provision is unilateral, giving only defendant and not plaintiff a right to attorney fees. Section 1717, however, renders the provision mutual, giving either plaintiff or defendant, if a prevailing party, a right to attorney fees on any claims based on the contract. It provides: "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 reasonable attorney's fees in addition to other costs.... [p] ... [p] Reasonable attorney's fees shall be fixed by the court, and shall be an element of the costs of suit." (§ 1717, subd. (a).)

When a party obtains a simple, unqualified victory by completely prevailing on or defeating all contract claims in the action and the contract contains a provision for attorney fees, section 1717 entitles the successful party to recover reasonable attorney fees incurred in prosecution or defense of those claims. (Hsu v. Abbara (1995) 9 Cal.4th 863, 877, 39 Cal.Rptr.2d 824, 891 P.2d 804.) If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees. "[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." (Id. at p. 876, 39 Cal.Rptr.2d 824, 891 P.2d 804.)

At trial in this case, plaintiff sought to prove more than $2 million in damages; it succeeded in establishing only about $440,000 in damages. Although plaintiff here did not achieve all of its litigation objectives,...

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