Opinion
No. C-97-2516 WHO
January 31, 2002
MEMORANDUM DECISION AND ORDER
In this long-running dispute between Pajaro Dunes Rental Agency, Inc. ("RDRA") and Pajaro Dunes Association ("the Association"), two post-trial motions are pending before the Court. First, the Association moves for an award of attorneys' fees. Second, PDRA moves to stay execution of the judgment pending appeal. For the reasons set forth below, the Association's motion for attorneys' fees is DENIED. PDRA's motion to stay execution of the judgment pending appeal is GRANTED, subject to certain conditions set forth below.
I.
The underlying facts of this dispute have been examined at length in previous opinions, and at trial, and will not be repeated here.
In separate memorandum decisions filed on November 1, 2001 and November 16, 2001, the Court granted summary judgment for the Association on all of PDRA's claims, and on all of the Association's counterclaims. The Court ordered that the Association was entitled to payments due under the 1982 Agreement, plus property taxes and maintenance costs paid by the Association on PDRA's behalf, in the amount of $384,698.82, plus prejudgment interest. The Court also ordered PDRA to convey to the Association forthwith, free and clear of all encumbrances, the PDRA office building at Pajaro Dunes, and the land on which it is situated, pursuant to the terms of paragraph 6 of the 1982 Agreement. The Court also enjoined PDRA from continuing its rental and seminar business at Pajaro Dunes. The only issue that was not resolved on summary judgment was whether the Association was also entitled to additional compensation for loss of use (rental value) of the PDPA office building. That single remaining damages issue was tried to a jury on December 3, 4, 5, 6, and 10, 2001. On December 10, 2001, the jury returned a verdict for PDRA on that issue. Judgment was entered on December 12, 2001. An amended judgment was entered on December 26, 2001.
II.
The Association now moves for an award of attorneys' fees, on three separate theories. First, the Association contends that fees should be awarded pursuant to paragraph 12 of the 1982 Agreement. Second, the Association seeks fees for defending against PDRA's unsuccessful federal civil rights claims, pursuant to 42 U.S.C. § 1988 (b). Third, the Association seeks an award of fees pursuant to the Davis-Stirling Common Interest Development Act, California Civil Code § 1350 et seq.
A.
Paragraph 12 of the 1982 Agreement provides in its entirety:
[PDRA] shall hold [the Association] free and harmless from all liability arising from the operation of [PDRA's] business and [PDRA] shall indemnify [the Association] for all loss and damage including attorney's fees and court costs sustained by [the Association] arising from the operation of the business of [PDRA]. [PDRA] shall maintain public liability and property damage insurance for protection against liability arising as an incident to the operation of the business by [PDPA]. The limits of liability under this insurance shall not be less than One Million Dollars ($1,000,000) for any one person injured, Five Million Dollars ($5,000,000) for any one accident, and Five Hundred Thousand Dollars ($500,000) for property damage. Such insurance shall include [the Association] as an additional named insured and [PDRA] shall provide [the Association] with a certificate evidencing such insurance and obligating the insurance company to notify [the Association] at least thirty (30) days prior to any change or cancellation thereof. [PDRA] further agrees that the minimum liability and property damage limits listed herein are to be periodically increased over the life of this agreement so as to reasonably provide the same quality of protection to [the Association] as the minimum liability and property damage limits listed herein.
(Aker Decl., Ex. A at 5-6, ¶ 12 (emphasis added).) The Association contends that it is entitled to fees, pursuant to paragraph 12, because this action arose out of the operation of PDRA's business.
Neither party has submitted any parol evidence about the meaning of this clause. Reading paragraph 12 in its entirety, however, it clearly contemplates that PDRA would indemnify the Association if any third party sought to hold the Association liable for any injury caused in the operation of PDRA's business. Nothing in paragraph 12 suggests that it authorizes fee awards in lawsuits between PDRA and the Association. As no such third party claims were involved in this action, paragraph 12 provides no basis for an award of fees to the Association.
The Association argues, however, that the second paragraph of California Civil Code § 1717(a) requires any fee provision in a contract to apply to the entire contract and to any action relating to the contract, regardless of the actual language of the fee provision. The Court rejects the Association's argument, for the reasons set forth below.
Section 1717(a) currently provides:
In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.
Where a contract provides for attorney's fees, as set forth above, that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract.
Cal. Civ. Code § 1717(a). In 1982, when the parties entered into the 1982 Agreement, section 1717(a) consisted only of the first paragraph. A California court has held, however, that the second paragraph of § 1717(a) should be applied retroactively to contracts entered into before the statute was amended. Harbor View Hills Community Ass'n v. Torley, 5 Cal.App.4th 343, 346-49, 7 Cal.Rptr.2d 96, 98-100 (1992). Accordingly, the Court will apply both paragraphs of § 1717(a) to determine the legal effect of paragraph 12 of the 1982 Agreement.
Section 1717 was originally enacted to limit the ability of a dominant contracting party to impose on the other contracting party a contractual attorney's fees clause that benefitted only the dominant party. Sears v. Baccaglio, 60 Cal.App.4th 1136, 1144, 70 Cal.Rptr.2d 769, 774-75 (1998). Section 1717 was enacted in 1968 to provide for reciprocity where a contract specifically provided for attorney's fees and costs to be recoverable by only one party. Id. at 1144-45, 70 Cal.Rptr.2d at 775.
In 1980, an appellate court interpreting § 1717(a) held that where a contractual attorneys' fees clause provided for fees to be awarded to a party only for enforcing a certain part of the agreement, the other party could receive fees only for enforcing that part of the agreement and not for seeking to enforce the remainder of the contract. Sciarotta v. Teaford Construction Co., 110 Cal.App.3d 444, 450-51, 167 Cal.Rptr. 889, 893-94 (1980). The second paragraph of § 1717(a) was enacted specifically to overrule Sciarotta. Sears v. Baccaglio, 60 Cal.App.4th at 1147, 70 Cal.Rptr.2d at 776. The second paragraph of § 1717(a) requires, as a matter of law, that a contract which provides for an award of attorney's fees for enforcing any part of a contract must be interpreted to provide for an award of attorney's fees for enforcing any part of the contract, regardless of any limitation in the language of the fees clause. Myers Building Industries, Ltd. v. Interface Technology, Inc., 13 Cal.App.4th 949, 968, 17 Cal.Rptr.2d 242, 253 (1993).
Section 1717 expands the scope of an attorney's fees clause only where that clause provides for an award of fees incurred in enforcing the contract, however. Id. at 971, 17 Cal.Rptr. 2d at 255. "A provision including attorney fees as an item of loss in an indemnity clause is not a provision for attorney fees in an action to enforce the contract." Id. Thus, the second paragraph of § 1717(a) does not make a contractual indemnity provision reciprocal and applicable to the entire contract.Id. Paragraph 12 of the Agreement does not provide for an award of fees incurred in enforcing the Agreement. Following Myers, then, § 1717(a) has no application here.
The Association concedes that this is the holding in Myers, but argues that this Court should follow instead the Ninth Circuit's holding inUnited States for Use and Benefit of Reed v. Callahan, 884 F.2d 1180 (9th Cir. 1989). The court in Myers specifically rejected the Ninth Circuit's interpretation of § 1717(a) in Reed, however. Myers, 13 Cal.App.4th at 971, 17 Cal.Rptr. 2d at 255. This Court is not bound by Ninth Circuit rulings on matters of state law that have been rejected by the state courts. Owen v. United States, 713 F.2d 1461, 1464 (9th Cir. 1983). As the plain language of § 1717 supports the holding in Myers, this Court will follow Myers.
Accordingly, the Court finds that because paragraph 12 of the 1982 Agreement addresses fee awards only in the context of indemnification for third party claims against the Association for damages arising out of PDRA's operation of its business, it does not apply to this action between PDRA and the Association. There is no contractual provision providing for fees to the prevailing party in actions between PDRA and the Association to enforce the 1982 Agreement. Accordingly, § 1717(a) and paragraph 12 of the 1982 Agreement provide no basis for awarding fees in this action.
B.
The Association also seeks fees pursuant to 42 U.S.C. § 1988 (b) for successfully defending against PDPA's federal constitutional claims. Section 1988(b) provides, in relevant part:
In any action or proceeding to enforce a provision of sections 1981, 1981a, 1982, 1983, 1985, and 1986 of this title, . . . the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorneys fee as part of the costs[.]42 U.S.C. § 1988 (b). The Court may, in its discretion, award fees under § 1988 to a prevailing defendant if the plaintiff's lawsuit was frivolous, unreasonable, or without foundation, even if it was not brought in bad faith. Christiansburg Garment Co. v. E.E.O.C., 434 U.S. 412, 421 (1978) (interpreting Title VII of the Civil Rights Act of 1964);Hughes v. Rowe, 449 U.S. 5, 14-15 (1980) (applying Christiansburg standard to fee requests brought pursuant to § 1988); Hensley v. Eckerhart, 461 U.S. 424, 429 n. 2 (1983) ("A prevailing defendant may recover an attorney's fee only where the suit was vexatious, frivolous, or brought to harass or embarrass the defendant."). The district court should "resist the understandable temptation to engage in post hoc reasoning by concluding that, because a plaintiff did not ultimately prevail, his action must have been unreasonable or without foundation."Christiansburg, 434 U.S. at 421-22. "Even when the law or the facts appear questionable or unfavorable at the outset, a party may have an entirely reasonable ground for bringing suit." Id. at 422. "Hence, a plaintiff should not be assessed his opponent's attorneys' fees unless a court finds that his claim was frivolous, unreasonable, or groundless, or that the plaintiff continued to litigate after it clearly became so."Christiansburg Garment Co., 434 U.S. at 422.
PDRA alleged two federal constitutional claims against the Association: a claim for denial of due process, and a claim for violation of equal protection. The due process claim was based on PDRA's contention that the 1982 permit issued by the County of Santa Cruz to the Association, which permitted the Association to conduct a vacation rental business at Pajaro Dunes, was constitutionally invalid. The equal protection claim was based on the allegation that the Association exercised the authority purportedly granted by the 1982 permit in an arbitrary, capricious and irrational manner by charging more rent to PDRA than it charged to Holzman and Daw for conducting a similar business at Pajaro Dunes.
The Court granted summary judgment on the due process claim because it was time-barred. PDRA voluntarily dismissed the equal protection claim when it filed its second amended complaint.
Although the Court found that PDRA's due process claim was time-barred because its claim arose when the permit was issued in 1982, PDRA presented a legitimate, if ultimately unsuccessful, argument why the enactment of an allegedly invalid permit does not commence the running of the statute of limitations. Although the Court rejected this argument, the Court does not find that PDRA's creative reading of relevant authority was so unreasonable that its constitutional claims should be considered frivolous, unreasonable, or groundless for purposes of awarding attorney's fees. See, e.g., Mitchell v. Los Angeles Community College District, 861 F.2d 198, 202 (9th Cir. 1988) (affirming denial of attorneys' fees under § 1988, even where plaintiff's claims were barred by the statute of limitations). Accordingly, the Court denies the Association's motion for attorneys' fees under § 1988(b).
C.
The Association's final argument is that fees should be awarded under the Davis-Stirling Common Interest Development Act ("Davis-Stirling Act"), California Civil Code § 1350 et seq. The Davis-Stirling Act addresses property ownership in common interest developments, such as a community apartment project, a condominium project, a planned development, or a stock cooperative. See Cal. Civ. Code §§ 1351(c), 1352. Section 1353 requires the owners to record a declaration setting forth, among other things, the restrictions on the use and enjoyment of any portion of that common interest development that are intended to be enforceable equitable servitudes. Cal. Civ. Code § 1353. "Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both." Cal. Civ. Code § 1354(a). Section 1354(f) provides for an award of attorney's fees to the prevailing party in "any action specified in subdivision (a) to enforce the governing documents[.]"
The Association contends that it should be awarded fees under § 1354(a) because the 1982 Agreement provides that PDRA "agrees to continue to provide a high-quality rental and seminar program, and shall conduct its business in full compliance with the CCR's [Covenants, Conditions and Restrictions] of" the Association. (Aker Decl., Ex. A at 2 ¶ 4.) The Association contends that because this action involved the validity of the 1982 Agreement, it also involved the validity of the CCR's. Thus, it contends that it should be awarded fees for prevailing in a suit to enforce the validity of the CCR's.
The problem with the Association's argument is twofold. First, it did not bring an action under § 1354(a) to enforce the CCR's, which is a condition precedent to being awarded fees under § 1354(f). See Cal. Civ. Code § 1354(f). Second, the validity of the CCR's was never actually litigated at any point in this litigation. The Association's attempt to shoehorn this litigation into the confines of the Davis-Stirling Act is unavailing. Accordingly, the Court denies the Association's motion for an award of fees pursuant to § 1354(f) of the Davis-Stirling Act.
D.
For the reasons set forth above, the Association's motion for an award of attorneys' fees is denied.
III.
Also pending before the Court is PDRA's motion to stay the judgment pending appeal. PDRA seeks an order setting the amount of a supersedeas bond to stay the monetary portion of the judgment. PDRA also seeks a stay of the nonmonetary portion of the judgment.
A.
Rule 62(d) of the Federal Rules of Civil Procedure provides that "[w]hen an appeal is taken the appellant by giving a supersedeas bond may obtain a stay," subject to exceptions not relevant here. Fed.R.Civ.P. 62(d). "Under Fed.R.Civ.P. 62(d), an appellant may obtain a stay as a matter of right by posting a supersedeas bond acceptable to the court."Bennett v. Gemmill (In re Combined Metals Reduction Co., 557 F.2d 179 (9th Cir. 1977); see also American Manufacturers Mutual Ins. Co. v. American Broadcasting-Paramount Theatres, Inc., 87 S.Ct. 1 (1966) (mem.). "District courts have inherent discretionary authority in setting supersedeas bonds[.]" Rachel v. Banana Republic, Inc., 831 F.2d 1503, 1505 n. 1 (9th Cir. 1987). "The purpose of a supersedeas bond is to secure the appellees from a loss resulting from the stay of execution and a full supersedeas bond should therefore be required." Id.
"The bond may be given at or after the time of filing the notice of appeal or of procuring the order allowing the appeal, as the case may be." Fed.R.Civ.P. 62(d). "The stay is effective when the supersedeas bond is approved by the court." Id.
In the amended judgment entered on December 26, 2001, the Court awarded the Association $384,698.82 in damages, plus prejudgment interest at 7% per year. The parties agree that the total amount of prejudgment interest is $76,715. The Association also seeks costs in the amount of $43,464. Although the Association's bill of costs is still pending before the Clerk of the Court, the Court will add the amount of costs sought to the amount of the supersedeas bond. The parties also agree that the Association is entitled to post-judgment interest at 2.23% per year, and that postjudgment interest through the end of 2003 is calculated to be $22,930. The Court agrees with the parties that approximately two years worth of postjudgment interest should be added to the amount of the supersedeas bond to allow an appropriate amount of time for the appeal. Thus the minimum amount necessary to secure payment of the monetary portion of the judgment is $527,807.82. The parties have agreed to a supersedeas bond of $550,000. As this amount is clearly adequate to secure payment of the monetary portion of the judgment, the Court will grant PDRA's motion for a stay of execution of the monetary portion of the judgment on the condition that PDRA file a supersedeas bond in the amount of $550,000.
B.
In the amended judgment entered on December 26, 2001, the Court also ordered PDRA to convey to the Association forthwith, free and clear of all encumbrances, the PDRA office building at Pajaro Dunes, and the land on which it is situated. The Court also enjoined PDRA from continuing its rental and seminar business at Pajaro Dunes. PDRA moves for a stay of this nonmonetary portion of the judgment, pursuant to Rule 62(c) of the Federal Rules of Civil Procedure.
Rule 62(c) provides:
When an appeal is taken from an interlocutory or final judgment granting . . . an injunction, the court in its discretion may suspend . . . an injunction during the pendency of the appeal upon such terms as to bond or security as it considers proper for the security of the rights of the adverse party.
Fed.R.Civ.P. 62(c). Rule 62(c) is "merely expressive of a power inherent in the court to preserve the status quo where, in its sound discretion, the court deems the circumstances so justify." McClatchy Newspapers v. Central Valley Typographical Union No. 46, 686 F.2d 731, 734 (9th Cir. 1982).
In considering whether to stay a judgment pending appeal, the Court should consider the following factors: "(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.Hilton v. Braunskill, 481 U.S. 770, 776 (1987). The Ninth Circuit has applied a slightly different test for staying an injunction, pursuant to Rule 62(c). The Ninth Circuit uses the same standard that applies to preliminary injunctions: the moving party must demonstrate either (1) a combination of probable success on the merits and the possibility of irreparable injury or (2) that serious questions are raised and the balance of the hardships tips sharply in its favor. Tribal Village of Akutan v. Hodel, 859 F.2d 662, 663 (9th Cir. 1988). The Court may also consider the public interest in appropriate cases. Id.
The Court ordered PDRA to convey the PDRA office building at Pajaro Dunes to the Association, pursuant to the terms of the 1982 Agreement, because PDRA committed a major breach of that Agreement by ceasing the monthly payments to the Association required by that Agreement. Although the Court found that PDRA was bound by the 1982 Agreement, PDRA raised serious issues about the validity of the 1982 Permit, upon which the 1982 Agreement is based. PDRA also argued that the Association had failed to perform its duties under the Agreement because it failed to obtain a valid permit from the County. This Court found that PDRA's claims with respect to the 1982 Permit were time-barred, but the Ninth Circuit may disagree. PDRA also contended that it was not bound by the 1982 Agreement because it was not a party to that Agreement. The Court found that PDRA assumed the obligations of the 1982 Agreement, both expressly and by implication, but specifically noted that the 1983 contract of sale transferring the rental business's assets from Hare, Brewer Kelley, Inc. to PDRA was not absolutely clear regarding the assignment of the 1982 Agreement. (Memorandum Decision and Order, filed November 1, 2001, at 14.) Although the Court found that PUPA did assume the obligations of the 1982 Agreement, PDRA's claims that it did not so were not frivolous, and the Ninth Circuit may ultimately decide that this Court erred. Thus, although the Court does not find that PDRA has a strong likelihood of success on the merits, it does find that PDRA has raised serious issues going to the merits of its claims.
The public interest is not substantially affected in this property dispute between two private parties. Accordingly, it has no effect on the Court's decision whether to issue a stay.
If the Court does not issue a stay, PDRA may be irreparably injured because the Association may dispose of the property, or irreversibly alter it, while the judgment is on appeal, thus rendering it impossible to return the property to PDRA in its current condition if PDRA prevails on appeal. On the other hand, the Association will be injured by the issuance of a stay, because it will be deprived of the use of the property to which it is entitled under the Agreement. It already has been deprived of the use of that property since PDRA stopped making monthly payments in 1996, however, and there is no evidence before the Court that the Association has any plans to use the property that cannot be postponed until the appeal of this matter is resolved. On the whole, the Court finds that the balance of the hardships tips sharply in favor of PDRA, because PDRA, and its predecessors and successors, have been using the property for their rental business since 1982, and will be irreparably deprived of the ability to do so if a stay is not issued pending appeal.
The injury caused to the Association by the issuance of a stay can be partly addressed by requiring PUPA to post additional security. It is undisputed that PDRA's yearly rent to the Association is approximately $75,000. By requiring PDRA to add an additional $150,000 to the supersedeas bond, the Association will be guaranteed that it will receive the already agreed-upon value of the building.
The Association contends that it also should receive the profits that PDRA is receiving from PDRA's 1999 lease of the building to Holzman Daw. The Association did not prove at trial, however, that it was entitled to any compensation for loss of use of the building in addition to the monthly payments required by the 1982 Agreement. Accordingly, the Court will not require PDRA to post additional security equivalent to the profits it is receiving from its lease of the building to Holzman Daw.
The Association also argues that it may be irreparably damaged if the Court does not require PDRA to refrain from selling or altering the property while the case is on appeal. The Court agrees. The Court will order PDRA to (1) refrain from selling, transferring, or encumbering any interest in the PDRA office building at Pajaro Dunes or the land upon which it is situated during the pendency of the appeal; and (2) refrain from making any alterations to the property without the consent of the Association.
With these conditions, the Court will grant PDRA's motion to stay the non-monetary portions of the judgment.
C.
As the Court has found that a supersedeas bond of $550,000 is necessary to secure payment of the monetary portion of the judgment, and an additional $150,000 is necessary to address the financial injury to the Association in staying the nonmonetary portion of the judgment pending appeal, the Court will require PDRA to file a supersedeas bond in the total amount of $700,000.
IV.
For the reasons set forth above,
IT IS HEREBY ORDERED that:
1. Pajaro Dunes Association's motion for attorneys' fees is DENIED.
2. Pajaro Dunes Rental Agency, Inc.'s motion to stay execution of the judgment pending appeal is GRANTED, on the following conditions. First, PDRA will file a supersedeas bond with the Court in the amount of $700,000. Second, PUPA is enjoined from selling, transferring, or encumbering any interest in the PDRA office building at Pajaro Dunes or the land upon which it is situated during the pendency of the appeal. Third, PDRA is enjoined from making any alterations to that property without the consent of the Association. Execution of the judgment will be stayed pending completion of the appeal, without need for further order of the Court, when the supersedeas bond is filed.
3. No motions for reconsideration will be entertained.
* * CERTIFICATE OF SERVICE * *
I, the undersigned, hereby certify that I am an employee in the Office of the Clerk, U.S. District Court, Northern District of California.
That on February 5, 2002, I SERVED a true and correct copy(ies) of the attached, by placing said copy(ies) in a postage paid envelope addressed to the person(s) hereinafter listed, by depositing said envelope in the U.S. Mail, or by placing said copy(ies) into an inter-office delivery receptacle located in the Clerk's office.