Two Separate Contracts Were At Issue – With Plaintiff Prevailing On The Asset Purchase Agreement And Defendant Prevailing On The Employment Contract.
In Colaco v. Cavotec SA, Case NO. G059418 (4th Dist., Div. 3 June 24, 2021) (unpublished), plaintiffs corporation and its sole shareholder/CEO entered into an Asset Purchase Agreement and Plan of Reorganization with defendant corporation for its purchase of plaintiff corporation’s assets. Additionally, plaintiff shareholder became defendant’s president and member of its board of directors, with the parties entering into an Employment Contract to govern the terms of plaintiff shareholder’s employment. Disputes arose and litigation ensued – with each side alleging the other breached the Purchase Agreement. Defendant also alleged plaintiff shareholder breached the Employment Contract and his fiduciary duties, and had converted funds from defendant for his personal use.
Ultimately, the trial court entered judgment against plaintiffs – jointly and severally – for about $1.3 million in damages for breaches of the Purchase Agreement and Employment Contract, and against plaintiff shareholder for $2 million in punitive damages. Additionally, it entered judgment against defendant for breach of the Purchase Agreement for failure to make the final $2 million Performance Earn-out payment, and $687,000 in compensatory damages. As to the parties’ postjudgment Civ. Code § 1717 fees motions – the trial court determined defendant was the prevailing party on the Employment Contract claims and awarded it approximately $4.6 million in attorney fees after applying a .25 negative multiplier to account for fees incurred on its unsuccessful claims and lack of success in the damages defendant demanded, and found plaintiff corporation to be the prevailing party because it had been 100% successful in being awarded the $2 million it sought for defendant’s breach, whereas defendant was only 9.23% successful by being awarded only $1.3 million out of the $12 million it sought in damages for plaintiffs’ breaches. After applying the loss limitations provision of the Purchase Agreement, the trial court awarded plaintiff corporation $2 million in prevailing party attorney fees.
On appeal, each side argued the trial court erred the prevailing party determinations that were not in their favor. Plaintiffs argued that the trial court should have performed a collective contract analysis because the Purchase Agreement and Employment Contract were a single transaction among the parties – thereby making plaintiffs the sole prevailing party on the contract – and that any fees awarded to defendants should have been subject to the loss limitations provision of the Purchase Agreement. Defendants argued against the trial court’s calculations determining the prevailing party on the Purchase Agreement.
The 4/3 DCA disagreed and, in a 3-0 opinion authored by Justice Moore, affirmed. As to the Purchase Agreement and Employment Contract, the panel had determined in a previous appeal in this case that they were “separate agreements” and not to be treated as a single contract. The liability cap applied to losses arising from claims brought under the Purchase Agreement – not to attorney fees arising from claims brought under the Employment Contract. Finally, as to the Purchase Agreement, the trial court’s prevailing party determination would have been the same using defendant’s calculations because defendant’s own calculations showed plaintiffs achieved significantly more of their litigation goal than did defendant.