West Coast Development v. Reed

• Decision Date: 10 January 1992
• Docket Number: No. D013816,D013816
• Citation: 3 Cal.Rptr.2d 790,2 Cal.App.4th 693
• Court: California Court of Appeals Court of Appeals
• Parties: WEST COAST DEVELOPMENT, etc., Plaintiff and Appellant, v. Ronald Charles REED, etc., Defendant and Respondent.

Page 790

3 Cal.Rptr.2d 790

2 Cal.App.4th 693

WEST COAST DEVELOPMENT, etc., Plaintiff and Appellant, v. Ronald Charles REED, etc., Defendant and Respondent.

No. D013816.

Court of Appeal, Fourth District, Division 1, California.

Jan. 10, 1992.

[2 Cal.App.4th 697] Robert T. Pasulka, San Diego, for plaintiff and appellant.

Perez & McNabb and Donna M. Peizer, Orinda, for defendant and respondent.

FROEHLICH, Associate Justice.

We deliberate here on the subject of sanctions for frivolous actions. The trial court, after the case had been voluntarily dismissed by plaintiff West Coast Development, awarded sanctions against plaintiff (but not plaintiff's attorney) under CODE OF CIVIL PROCEDURE SECTION 128.5¹ in the sum of $5,000. Plaintiff appeals, seeking a reversal of the award of sanctions. ² We agree with the trial court that sanctions were appropriate, but reverse and remand because of procedural error.

TRIAL COURT RULING AND SCOPE OF REVIEW

The written order granting sanctions contains no findings or specification of the grounds for sanctions. The oral statement granting defendant's motion was as follows "I am going to grant the motion to enter judgment for costs in favor of the defendant in the amount of $122. In addition, under section 128.5, the Court finds that the lawsuit initially filed by the plaintiffs was filed without merit; that it was pursued without merit; that settlement offer made by the plaintiff, accepted by the defendants and then refused by the plaintiff in the dismissal without prejudice on the eve of trial was done in bad faith and sanctions are awarded against the plaintiff and in favor of the defendant in the amount of $5,000."

Plaintiff attacks this judgment on a number of grounds. The principal contention, however, appears to be that the facts surrounding the litigation and plaintiff's tactics related thereto do not constitute the bad faith tactics calculated to harass an opposing party which are required, under section 128.5, in order to assess sanctions. This is, then, principally a review of the evidence supporting the trial judge's determination. Thus, we search for "substantial" evidence in support of the court's implied findings. (Summers v. City of Cathedral City (1990) 225 Cal.App.3d 1047, 1070-1071, fn. 19, 275 Cal.Rptr. 594.) Assuming some evidence exists in support of the factual findings, the trial court's exercise of discretion will not be disturbed unless it exceeds the bounds of reason. (Winick Corp. v. County Sanitation Dist. No. 2 (1986) 185 Cal.App.3d 1170, 1176, 230 Cal.Rptr. 289.)

In reviewing the facts which led the trial court to impose sanctions, we must accept the version thereof which supports the trial court's determination, and must indulge in the inferences which favor its findings. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564, 86 Cal.Rptr. 65, 468 P.2d 193; Homestead Supplies, Inc. v. Executive Life Ins. Co. (1978) 81 Cal.App.3d 978, 984, 147 Cal.Rptr. 22.) Certain background facts are disputed by the parties, and the ultimate inferences to be made therefrom are very much in dispute. Our statement of the factual background of the case, therefore, reflects the interpretation of the evidence most favorable to the defendant.

FACTUAL BACKGROUND

Plaintiff partnership is the owner of residential rental real estate. The partnership was represented in all aspects of this case by its agent, Joseph Segal (Segal). Defendant Ronald Reed (Reed) is a small businessman engaged in the sale and installation of aluminum shingle roofs. Reed is a sole proprietor and the successor-in-interest to his father, Charles Reed, who was in the same business before defendant. The lawsuit giving rise to the judgment for sanctions was filed by plaintiff in October 1989, and involved claims against Reed for work done (or not done) on two parcels of plaintiff's realty: the Fern Glen property and the Ingraham property.

Reed, after having been served with the complaint, had some difficulty in responding, but he finally filed a form of general denial in propria persona in March 1990. Thereafter, Reed retained attorney Peizer to represent him, and Peizer undertook a course of telephonic and letter negotiation with attorney Pasulka, counsel for plaintiff. Peizer did not, however, become attorney of record. When negotiations failed to result in settlement of the case, Peizer prepared for trial and traveled to San Diego the day before trial was scheduled. That very same day, after discussing the merits of the case with his client, Pasulka filed a dismissal without prejudice.

Attorney Peizer then entered her formal appearance on behalf of Reed by filing contemporaneously a memorandum of costs and a motion for sanctions under section 128.5. Peizer sought a total of $7,860.11, based upon fees she had charged Reed and costs incurred in preparing for trial. Nothing in the record indicates the court's basis for imposing sanctions of only $5,000, rather than the higher amount established by Peizer's affidavit. ³

The trial court's oral statement of reasons for imposing sanctions covers essentially the entire course of plaintiff's litigation. The court found that the case was without merit when filed, that it was maintained without merit, and that plaintiff's settlement negotiations and ultimate dismissal without prejudice evidenced bad faith. In order to assess the evidentiary support for these conclusions, it is necessary that we review in some detail the transactions leading to the litigation and the course of the litigation itself. We proceed to do that.

The first work on property being managed by Segal occurred in 1983 when Charles Reed (Reed's father) installed a new roof on the Ingraham property for a contract price of $7,097. The job was done in accordance with a written contract. The contract provided for a 40-year guarantee from Alcoa, the manufacturer of the roofing shingles. However, Segal testified that Charles Reed agreed to warrant the roof "for life," and to do any necessary repair or replacement without further charge. The work under this contract was completed and Charles Reed was paid in full.

In 1989, when discussing roof work on the Fern Glen property with Reed, Segal was informed that Charles Reed had died and Reed had taken over his business. At some point following the eruption of the dispute concerning the Fern Glen property, Segal learned that Reed would not stand behind the "lifetime" guarantee of his father as to the Ingraham property. Notwithstanding that no defects had yet been noticed in the roof of the Ingraham property, Segal regarded this as something of an anticipatory breach of contract, and included a claim based on same in his complaint (which otherwise related only to the Fern Glen job).

Turning to the Fern Glen contract: This was a written contract to install an aluminum shingle roof for a fee of $8,100. At some point in negotiations (whether before or after execution of the written contract is disputed) Reed orally agreed to install some Styrofoam pads under a portion of the roof to provide additional support. Reed's evidence as to the value of these pads is that they would have cost $32 and would have required not more than an hour of labor to install.

Reed forgot to install the Styrofoam pads. Segal therefore paid Reed for the job except for a withholding of $924, which he agreed to pay Reed when the pads had been installed. Reed's first attempt to install the pads failed because his worker did not show up on schedule. This resulted in disputes and/or misunderstandings between Reed and Segal, and Segal imposed additional conditions on the payment of the $924 which Reed was unwilling to accept. Reed's second attempt to install the pads was then blocked by Segal. This led to the filing of a mechanic's lien by Reed, followed by the filing of the instant lawsuit by Segal (the named plaintiff was the partnership owner of the property; no one verified the complaint; the moving force on behalf of plaintiff, however, was Segal).

A review of the form of the lawsuit filed by Segal gives flavor to the excess of zeal imparted to this case by Segal and his lawyer, Pasulka. The mechanic's lien had been filed in June 1989. Since no action to foreclose it had been commenced within 90 days, the lien expired in September in accordance with Civil Code section 3144. At the time of filing of the lawsuit in October 1989, the recorded lien was therefore legally a nullity. However, we will assume that some "reasonable attorney" (to use the language of In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650, 183 Cal.Rptr. 508, 646 P.2d 179) might consider it necessary or appropriate to take action in superior court to establish of record the nullity of The other causes of action were: One: intentional misrepresentation (fraud) on the theory that when Reed promised to install the $32 pads he secretly intended not to do so; Two: negligence, in the sense that if the misrepresentation was not intentional it was at least negligent; Three: breach of contract for failing to install the pads; Four: slander of title for filing a false mechanic's lien; Six (there were two "Sixth" causes of action) declaratory relief as to whether Segal owed Reed the $924 and a request for a declaration of rights that such amount was not owed because the Styrofoam pads were omitted; Seven: an action framed as declaratory relief based upon Reed's repudiation of his father's lifetime guarantee on the Ingraham roof.

the paper lien. That claim, however, was contained in the fifth and sixth causes of action of the complaint.

Thus we see the majesty by which a $32 small claims (or possibly as much as a $924 small claims) action coupled with the existence of a null mechanic's lien can give rise to a full-blown action based upon intentional and negligent torts, breach of contract, and miscellaneous rights to declaratory relief. While possibly irrelevant to our review, one cannot help but remark...