Fourth District, Division One So Rules in Interpreting Civil Code section 1717 and Code of Civil Procedure section 998.
The next case is a nice refresher on Civil Code section 1717 “prevailing party” principles and on clarity requirements for Code of Civil Procedure section 998 offers. (For more case discussion, see our cross-referenced categories of “Section1717” and “Section 998” which can be found at the left-hand side of the site’s first page.)
M.R. Contreras Construction, Inc. v. Fansler, Case No D051771 (4th Dist., Div. 1 Sept. 17, 2008) (unpublished) had its genesis in a homeowner-contractor dispute arising out of a home renovation contract with an attorney’s fees clause.
Contractor and contractor’s owner/managing agent sued to recover either $82,862.95 (under the contract for allegedly unpaid work and for unpaid extras) or $41,500 (for defense and resolution of subcontractor mechanic’s liens), while homeowners cross-complained to recoup $145,767.90 (under the contract) and $141,375 (for negligence) based on contractor’s failure to complete the project in a timely and workmanlike manner. (Some trial evidence was bad for contractor, including a recorded phone message in which he apologized for a lack of supervision. BLOG OBSERVATION—Save those recorded messages; they can be killer proof during trial.) Contractor (the company, not the owner) served a 998 offer upon homeowners, offering to compromise in the amount of $90,001 “as full and final judgment in favor of the [homeowners].” The 998 lapsed when homeowners did not respond.
After a bench trial, homeowners were awarded $54,250 for repairs and completion costs based on contractor/owner’s failure to properly complete the project, while contractor was awarded $38,9058 on its suit—both determinations arising under the home renovation contract. The net judgment was $15,292 in favor of homeowners and against contractor/owner.
That brings us to the phase that happens to be most pertinent for us blogs. Both sides brought “dueling” attorney’s fees motions, with both sides claiming they were the “prevailing parties” and with contractor company claiming it was the winner based on homeowners’ failure to exceed the 998 offer.
The trial court found homeowners were the prevailing parties and that the 998 offer was too ambiguous to have validity. The result was an award of attorney’s fees in the amount of $27,279 and costs in the amount of $2,226.88 to homeowners and against contractor company/owner, with both litigants appealing the adverse fee award.
The Fourth District, Division One—in a 3-0 opinion authored by Justice Nares—affirmed the fee award and awarded costs on appeal to homeowners.
First, the appellate panel discussed the “prevailing party” issue. Civil Code section 1717 was the governing statute, with the trial court tasked with determining who had litigation success based on “equitable considerations” reviewed under the deferential abuse of discretion standard of review. (See Sears v. Baccaglio, 60 Cal.App.4th 1136, 1151, 1158 (1998).) Generally, the trial court compares the relief awarded on the contract claims with the parties’ demands on those claims and their litigation objectives, as disclosed by pleadings, briefs, opening statements, and similar sources. (Hsu v. Abbara, 9 Cal.4th 863, 876 (1995) [one of our Leading Cases].) Nevertheless, Justice Nares cogently observed that “[t]he Hsu court, however, did not preclude the trial court from considering other equitable factors bearing on the question of which party prevailed by obtaining ‘greater relief …on the contract’ for purposes of Civil Code section 1717.” (Slip Opn., at p. 9.) Contractor/owner creatively argued that homeowners obtained less than 6% of the relief they sought when presenting $287,142.90 as their total damage claim during written closing argument, while contractor/owner received 47% of the $82,862.95 damage demand or 94% of the $41,500 alternate damage demand. The Court of Appeal found that the trial court had clarified in its amended statement of decision that homeowners could not recover both in contract and tort, such that the relevant damages award was only half of what was relied on in contractor/owner’s argument. However, more importantly, the overriding equities were what predominated—the action arose from contractor/owner’s failure to properly complete the project and supervise the renovation. The negligence of the contractor/owner made it proper for the lower court to find homeowners were the “prevailing parties.”
Second, attention next shifted to the impact of contractor company’s 998 offer.
This entailed a de novo review, because it involved the interpretation of a written offer (with contractual interpretation being a classic legal exercise). In the end, the Court of Appeal found that the 998 offer was ambiguous and unenforceable. Because contractor company and owner had a “unity of interest,” their 998 offer was uncertain in stating that acceptance of the $90,001 would result in a “full and final judgment in favor of [homeowners]” when owner had been omitted from the offer’s calculus. Because owner had been omitted, there could by force of logic be no “full and final judgment” had homeowners accepted the offer. It similarly was unclear whether homeowners’ cross-claims against owner would be compromised by the offer, because this subject was not addressed at all. Because 998 offers are strictly construed in favor of offerees subject to their potential adverse consequences, the offer in this case was correctly found by the lower court to be ambiguous in nature. (Burch v. Children’s Hospital of Orange County Thrift Stores, Inc., 109 Cal.App.4th 537, 543 (2003).)