Remedies, Fee Shifting Provisions and Settlement Efforts: Appellate Court Partially Reverses Based On Lack Of Privity But Sustains Other Fees In Complex Development Agreement Case

Fourth District, Division 1 “Multitasks” in Covering a Wide Gamut of Fee Issues in Recent Unpublished Opinion.

     Here is a review of a complex and wild decision covering a myriad of remedy and fees issues in the context of City of Novato’s dispute with a developer and its successor over performance of two separate development agreements to build streets and make improvements to seven homes as well as preserve certain acreage as open space in a residential subdivision. Developer later transferred four buildable lots to Mr. Morf, even though there was no assignment or direct assumption of any development agreement with City. Litigation began in 2002 over development agreement performance, with City cross-complaining for both damages and specific performance. The jury awarded zero damages to City (finding damages were too difficult to ascertain), but the trial court granted specific performance of the development agreements in favor of City and against developer and Mr. Morf. Eventually, City was awarded net attorney’s fees of $476,713 as the prevailing party under contractual fee clauses as against developer and Morf, with both appealing the adverse determinations.

     The First District, Division 3, in a 3-0 opinion authored by Presiding Justice McGuiness, addressed a myriad of remedy and fee issues in City of Novato v. MCCE Development, LLC, Case Nos. A116957, 120137 (1^st Dist., Div. 3 June 17, 2009) (unpublished), reversing the specific performance decree against Mr. Morf and reversing the award of fees to City as against Mr. Morf. Except for these limited reversals, the judgment was affirmed, but remanded for reconsideration of the scope of equitable relief against Mr. Morf and a reconsideration of the amount of the City’s fees to be reimbursed by developer in light of the Morf reversal. So, here we go on synopsizing this 43-page opinion on fee topics.

     The problem with the fee award against Mr. Morf was that he was not a party to the City-developer development agreement with the fees clause. City argued that a statute—Civil Code section 3395—was an appropriate fee entitlement basis. The Court of Appeal disagreed, finding that it only applied to protect a buyer’s specific performance remedy where property is conveyed to a third party by the seller—a situation not at play. (Glynn v. Marquette, 152 Cal.App.3d 277, 281-282 (1984).) City then argued that Mr. Morf was bound because the performance covenants ran with the land or were equitable servitudes binding upon him. Wrong again, said the appellate panel, because the fee provision is more in the nature of a personal obligation and does not involve benefits to the land itself. The fee award against Mr. Morf was reversed entirely.

     That brought the intermediate court to the award of fees against developer. Developer had a harder time and ultimately did not prevail on its merits-based arguments.

     First, developer argued that City did not “prevail” for Civil Code section 1717 purposes because City was awarded no damages and the specific performance decree was nothing more than an affirmation of the development agreements. The panel disagreed. “Merely because the trial court awarded City its second choice of a remedy does not mean the City failed to achieve the ‘greater relief’ on the contract.” Because City did obtain a judicial decree for developer’s performance of its obligations, a primary litigation objective was achieved such that City was a “prevailing party.”

     Second, developer argued that City should be denied fees because it rejected an eve-of-trial settlement proposal from developer that would have given it most of what City eventually got from the specific performance decree. This pitted two conflicting cases—Meister v. Regents of University of California, 67 Cal.App.4^th 437, 449-450 (1998) [where fees can be reduced where plaintiff unreasonably rejects a nonstatutory settlement offer that would have preempted litigation that roughly came to the same result] and Greene v. Dillingham Construction N.A., Inc., 101 Cal.App.4^th 418, 425 (2002) [disagreeing with Meister; trial court does not have to consider an informal settlement offer when deciding if fees were reasonably spent]—a “crosshairs” battle that the First District avoided. “We need not decide whether Greene or Meister is the better reasoned analysis, or whether Greene is inapplicable under the specific facts of this case.” Rather, even assuming Meister applied, the lower court correctly assessed that the settlement proposal from developer had many non-monetary features that could not be valued so that it could not be used for comparative purposes vis-à-vis the subsequent judgment. Beyond that, the judgment was indeed superior to the settlement proposal such that this factor militated against reduction of fees on this basis.

     Third, developer challenged an award of fees billed by a City attorney who later became a witness in the action. The trial court did not err in determining the fees were appropriate, especially given that it reduced the City attorney’s fees by 20% in fashioning the award.

     The last procedural issue is what effect the partial reversals had on the fee awards. Recognizing that some partial reversals may require reconsideration of the entire judgment or entire fee award, the appellate panel found this case to be different in nature. It found a limited remand prejudiced none of the parties. The reversal as to Mr. Morf did not affect the outcome of the developer-City litigation. However, the reversal of the fee award as to Mr. Morf did require a limited remand for the lower court to redetermine the appropriate amount of fees that City should receive from developer (because the trial court may have included some fees related solely to Morf’s involvement in the case). Nevertheless, the appellate panel indicated that the limited remand did not mean any reconsideration needed to be given to the merits-based arguments that were rejected earlier in the decision.