Artesia Medical Development Co. v. Regency Associates Ltd.

Citations: 214 Cal. App. 3d 957; 266 Cal. Rptr. 657; 1989 Cal. App. LEXIS 1273Docket: Docket Nos. B005802, B018233

Court: California Court of Appeal; July 13, 1989; California; State Appellate Court

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Artesia Medical Development Co. (Artesia) appeals a court ruling awarding $275,000 in attorney's fees and $11,715 in costs to defendants Lite Convalescent Hospital, Inc., Fleet Financial Services, Inc., Richard J. Footner, and Quality Care Facilities, Inc. (collectively, Lite). Artesia initiated an unlawful detainer action against its tenant, Regency Associates, Ltd. (Regency), and Lite, claiming that Regency violated lease terms by assigning the lease to Lite without Artesia’s written consent. The court found the assignment void due to lack of consent and determined that Artesia had not unreasonably withheld consent.

Artesia initially developed the premises as a healthcare facility and later leased it to Regency, which profited from operations after a challenging start. Regency, aiming to capitalize on its improved position, attempted to assign the lease to Lite, who accepted the assignment without consent and assurances from Regency that consent would not be an issue. The court noted that Regency knowingly failed to obtain the necessary consent or provide financial documentation to Artesia.

During the trial, Lite occupied the premises without making payments. Artesia, feeling aggrieved by Regency’s profitable deal, did little to assist in securing consent for the assignment. Efforts to resolve the matter prior to litigation were unsuccessful. The court rejected a management agreement between Lite and Regency aimed at concealing the lease breach and ruled in favor of Artesia, ordering lease forfeiture and restoration of possession.

Regency appealed the judgment, while Lite sought a new trial and equitable relief from the lease forfeiture. The trial court denied the new trial motion, vacated the possession judgment against Lite, and allowed Lite to remain in possession under specific conditions, including full payment of overdue rents as per Code of Civil Procedure section 1179.

Lite fulfilled all court-imposed conditions for relief from forfeiture, leading the court to issue a final judgment against Regency for significant damages, including attorney fees and costs, as well as forfeiting the Regency lease and transferring its rights to Artesia. Appeals by the Regency defendants were abandoned. The judgment specified that Artesia would not recover anything from Fleet Financial Services, Inc., Quality Care Facilities, Inc., and Richard J. Footner, while reserving the issue of attorney's fees against them. The court awarded equitable relief from forfeiture, granting possession of the premises to Lite and its principals, confirming that the conditions for relief had been met. In its decision, the court recognized Lite and its principals as lessees of Artesia under previously negotiated terms. Artesia and Lite appeared to be content with the judgment's terms, except regarding the determination of the 'Prevailing Party' and associated attorney's fees and costs, prompting further proceedings. The court subsequently ruled Lite as the prevailing party and awarded attorney's fees and costs, which are the subject of ongoing appeals.

Initially, the case was limited to unlawful detainer for possession; however, with all parties' consent, the scope expanded to address issues such as overdue rent, damages, fees, and conditions of relief from forfeiture. The document discusses the availability of attorney's fees to non-contracting parties, referencing California case law, which states that attorney's fees are not recoverable without statutory or contractual authorization. Civil Code section 1717 allows for attorney's fees to be awarded to the prevailing party in contract disputes, even to non-signatories, when a plaintiff would be entitled to such fees if they prevailed. Lite argues that, under section 1717 and the precedents set in Reynolds Metals Co. v. Alperson, it does not need to be a contract party to claim attorney fees, citing that the lease between Artesia and Regency included a provision for such fees in lease disputes.

Defendants, who the plaintiff sought to hold personally liable, were not signatories to the notes and were not deemed alter egos of either the parent or subsidiary, resulting in their victory on the merits and an award of attorney's fees. The case of Reynolds Metals Co. was determined to be irrelevant to Lite, as it involved a clear contractual dispute. Artesia's unlawful detainer suit against Lite did not seek to enforce contractual rights for attorney's fees, as Artesia successfully had the lease declared null and void. Although the plaintiff initially sought attorney's fees from Lite, this claim was abandoned before the final judgment. The trial court ruled that Lite was in illegal possession of the premises due to an invalid lease assignment, as the lessee, Regency, had not obtained Artesia's consent. Consequently, there was no contractual basis for Artesia to recover fees from Lite, and Lite was not entitled to attorney's fees under Civil Code section 1717. The Lite defendants were included in the lawsuit due to their wrongful possession of the premises, but there was no contractual relationship with Artesia. The trial court confirmed a lack of privity between Lite and Artesia, which would only exist with consent. Even if a contractual basis were found, Lite could not recover attorney's fees due to its wrongful possession. Finally, to claim costs or attorney's fees, Lite must demonstrate that it is the prevailing party, as stated in Code of Civil Procedure section 1179, which allows a court to relieve a tenant from lease forfeiture under specific conditions.

A tenant or interested party may file a verified petition for relief from forfeiture, contingent upon full payment of rent or compliance with lease conditions. The trial court's procedure failed to adhere to section 1179 of the Code of Civil Procedure, which mandates that such applications be filed within 30 days after forfeiture is declared. The court initially denied forfeiture relief before judgment, and no verified petition was submitted, although Lite's motion for a new trial expressed intent for relief. Despite procedural deficiencies, the parties were deemed to have waived these issues. 

Lite lost the possession suit but was granted financial relief by the court, which should not be construed as a victory that warrants attorney's fees. The ruling established that neither party is entitled to recover fees from the other since both achieved their objectives: Artesia retained a solvent tenant at higher rent, and Lite maintained its business with a valid lease. The case referenced a Hawaii Supreme Court decision that similarly denied attorney's fees despite the lessee receiving equitable relief, affirming that the lessor remained the prevailing party. Consequently, the order awarding attorney's fees to Lite is reversed, and the case is remanded to determine costs for the prevailing party. Costs on appeal are awarded to Artesia.