In an important decision which may require a ruling from the California
Supreme Court, the California Court of Appeal, Fourth Appellate District
specifically ruled that a defendant in a contract case which proceeds to trial and
obtains a “net zero” monetary judgment based on pre trial settlements with codefendants
can be considered the prevailing party and thereby be entitled to
attorney’s fees, even though the trier of fact found the defendant liable and
awarded damages (albeit less than the sum of pre trial settlements with coobligors).
As many are aware, attorney’s fees can be recovered in contract disputes
where the contract provides that the prevailing party is entitled to recover fees.
See, Civil Code section 1717 and Santisas v. Goodin (1998) 17 Cal.4th 599. A
question arises, however, where the plaintiff has sued a number of defendants
and some of the defendant co-obligors settle before trial. In those cases, the
nonsettling defendant may enjoy offsets or credits for the amount of the
settlements under Code of Civil Procedure section 877 and the plaintiff could,
potentially, win a judgment against the nonsettling defendant which results in a
“net zero” judgment because the pre trial settlements exceed the award at trial.
As reported in the December 2006 edition of The Morrison Law Journal,
the Court of Appeal, Sixth District, ruled in Wakefield v. Bohlin (2006) 145
Cal.App.4th 963 (“Wakefield”) that the plaintiff which suffered a “net zero”
judgment would still be considered the prevailing party and could still recover
attorney’s fees. In a case with eerily similar facts, Goodman v. Lozano (2008)
DJDAR 2135 (“Goodman”), the Court of Appeal, Third District, ruled that the
majority decision in Wakefield was decided in error and affirmed an award of
attorney’s fees in favor of a defendant who obtained a “net zero” judgment.
In Wakefield, a divided panel of the California Court of Appeal, sixth
district, ruled that a plaintiff in a breach of contract case involving the sale of real
property was to be considered the “prevailing party” as a matter of right and
entitled to recover statutory costs and attorney’s fees under contract against the
defendant, even though the plaintiff did not achieve a monetary award against
the defendant due to pre trial settlements with co-defendants. That decision was
issued on December 19, 2006 and was based in part on the 1989 Court of Appeal
decision in Pirkig v. Dennis (1989) 215 Cal.App.3d 1560 which found a plaintiff
purchaser in a real estate dispute to be the prevailing party against a defendant
broker in spite of the fact that the award against the broker was only $7,500 and
that amount was reduced to zero based on a pre trial settlement with the
property sellers in that case.
In Goodman, Randall Goodman and Linda Guinther (herein, collectively
the “Goodmans”) purchased a newly constructed home in Laguna Beach,
California from Jesus Lozano and Natalia Lozano (the “Lozanos”). The home
was constructed by AMPM Construction, which was owned by another couple,
Alberto Mobrici and Patricia Mobrici (herein, collectively the “Mobricis”), who
had partnered on a number of homes with the Lozanos.
Suit was later filed by the Goodmans against the Lozanos, Alberto
Mobrici, AMPM Construction, the architect and real estate brokers based on
various construction defects in the home. The Lozanos were sued on the
purchase contract, which contained an attorney’s fee clause. Prior to the trial,
Alberto Mobrici and AMPM Construction settled for the sum of $200,000. Other
defendants, except for the Lozanos, paid $30,000 in settlement.
The matter went to a bench trial and the Goodmans obtained a “total
damage award” of approximately $146,000. The trial court then ruled that,
under Code of Civil Procedure section 877, the Lozanos would be entitled to a set
off in the amount paid by the Mobricis and AMPM Construction ($200,000) given
evidence that they had been in partnership with the Lozanos and may have been
jointly liable under the purchase contract (based on California Corporations
Code section 16306).
The trial court then exercised its discretion to adjudge the Lozanos who
“didn’t have to pay a thing” to be the prevailing party and awarded $132,000 in
fees and $12,000 in costs to the Lozanos.