California

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

JLRB Associates et al. v. Mark T. Livingston,
No. D042738, D043800 (Cal.App. 01/20/2005)

COURT OF APPEAL OF CALIFORNIA, FOURTH APPELLATE DISTRICT,
DIVISION ONE

January 20, 2005, Filed

NOTICE: [*1] NOT TO BE PUBLISHED IN OFFICIAL REPORTS. CALIFORNIA RULES OF COURT, RULE 977(a), PROHIBIT COURTS AND PARTIES FROM CITING OR RELYING ON OPINIONS NOT CERTIFIED FOR PUBLICATION OR ORDERED PUBLISHED, EXCEPT AS SPECIFIED BY RULE 977(B). THIS OPINION HAS NOT BEEN CERTIFIED FOR PUBLICATION OR ORDERED PUBLISHED FOR THE PURPOSES OF RULE 977.

PRIOR HISTORY: APPEALS from orders of the Superior Court of San Diego County, No. 637806. Lisa Foster, Judge.

DISPOSITION: Affirmed in part and reversed in part.

JUDGES: NARES, Acting P. J.; McINTYRE, J., IRION, J. concurred.

OPINIONBY: NARES

OPINION: In this action we are asked to determine whether the court abused its discretion in denying the cross-complainant JLRB Associates' (JLRB's) motion to amend a judgment it obtained for rent, damages and attorney fees based upon a breach of a commercial lease, against the defendant Mark T. Livingston's professional corporation, Mark T. Livingston, CPA, An Accountancy Corporation (MTL). JLRB asserted that Livingston was the alter ego of MTL, and therefore should be added as a judgment debtor. The court, however, denied JLRB's motion, finding that it was untimely as JLRB waited 10 years after it instituted its action against MTL, and five years [*2] after it obtained a judgment against MTL, before filing its motion to add Livingston as a defendant, and that JLRB knew or should have known facts that raised the possibility of an alter ego claim at an early stage in the proceedings. The court also awarded Livingston attorney fees and costs for defending against the motion to amend, based upon an attorney fee clause in the lease that formed the basis for JLRB's claim.

JLRB appeals from the orders denying its motion to amend the judgment and granting Livingston's motion for attorney fees, asserting that (1) Livingston was the alter ego of MTL; (2) the motion to amend was timely; (3) Livingston did not show that he was prejudiced by the delay in bring the motion to amend; (4) the award of attorney fees was improper as JLRB was seeking to enforce the judgment, not the underlying lease; (4) the award of attorney fees was improper as against its general partner Lewis & Lewis as it was not a party to the lease and did not seek to recover attorney fees thereunder; and (5) Livingston was not entitled to costs as he did not file a timely cost memorandum.

We conclude that the court did not abuse its discretion in denying JLRB's motion to [*3] amend the judgment to add Livingston as a judgment debtor, as JLRB failed to act with reasonable diligence in pursuing its alter ego claim. We also conclude that Livingston need not demonstrate he was prejudiced by JLRB's delay. Accordingly, we need not determine whether JLRB presented sufficient facts to demonstrate that Livingston was the alter ego of his professional corporation, MTL. We further hold that the court did not err in awarding attorney fees to Livingston incurred in defending against the motion to amend, as JLRB was attempting to hold him liable for fees it was awarded under a contract containing an attorney fee provision. We reverse that portion of the attorney fee award directed at JLRB's general partner Lewis & Lewis. We further hold that the court did not err in awarding costs to JLRB.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Lease Agreement

Livingston is a licensed certified public accountant. In 1986 he formed a partnership named Campbell, Boyd & Livingston (CB&L) with accountants Ronald Boyd and Thomas M. Campbell. Campbell conducted his practice through a professional corporation. Livingston and Boyd practiced as individuals.

On December 15, 1988, CB&L [*4] entered into a written lease with JLRB for commercial office space in Del Mar. The lease was signed by Livingston and Boyd as individuals and by Campbell's professional corporation. The lease term was five years beginning January 5, 1989, and ending July 5, 1994.

A lease addendum was also drafted to allow for the individual lessees Livingston and Boyd to substitute professional corporations as the obligors on the lease and thereby extinguish their personal liability on the lease. In this regard, paragraph 53 of the lease addendum provides:"If the partners of CB&L elect to reorganize their business into a corporation, or if any of the partners of CB&L (or successor merged partnership) elect to incorporate individually, the landlord agrees to cancel the existing lease and re-execute a new lease (replacement lease) under the same terms, conditions and remaining lease term of the existing lease (as long as tenant is not in default) except that landlord agrees to allow tenants to re-execute (sign) the replacement as a corporation, or partnership consisting of corporations and/or individuals. Tenant agrees to pay the sum of $ 100 upon signing of replacement lease."

CB&L took [*5] possession of the leased premises in January 1989. At the same time it merged with the accounting practice of Thomas Epperson. The partnership then became known as Campbell, Boyd, Livingston & Epperson (CBL&E).

B. Livingston's Professional Corporation

In February 1989 Livingston formed MTL. The stated business of this professional corporation was "to engage in the practice of accountancy and any other lawful activities" under Livingston's license. Livingston designated himself as the sole shareholder and officer and listed his place of employment as the corporate address.

C. Boyd Leaves CBL&E

In May 1989, just after the merger that created CBL&E, Boyd announced his decision to leave. The partners agreed to his withdrawal and a written agreement governing his departure was drafted. As part of that agreement, MTL was substituted as a partner in place of Livingston individually. The value of MTL's capital account in the partnership at that time was $ 169,911.22. The partnership's name was changed to Campbell, Livingston & Epperson (CLE).

D. Livingston Departs CLE

In September of 1989, Motels of America, Inc. (MOA), one of Livingston's major clients, offered [*6] him a job as its chief financial officer. In January 1990, Livingston left CLE to work for MOA.

E. Livingston Substitutes His Professional Corporation on the Lease

Beginning in July or August of 1989, Livingston requested JLRB, per paragraph 53 of the lease, to substitute MTL on the lease and release him from any personal liability. On October 24, 1989, JLRB wrote Livingston to acknowledge his request, but did not agree at that time to the substitution. Livingston informed JLRB of his absolute right to substitute MTL on the lease. Livingston also provided JLRB with a January 1, 1989 financial statement for CLE (at the time known as CB&L) showing the value of MTL's capital account as $ 169,911.22. The substitution was signed in late January 1990. The second addendum to the lease provided in part:"Mark T. Livingston previously having executed the Lease individually on December 14, 1988 has formed a professional corporation and wishes to replace himself individually with his professional corporation as the Tenant of the Lease. [P] Therefore, Mark T. Livingston is individually relieved of any obligation under the terms of the Lease . . . and [MTL] is substituted [*7] in his place as the Tenant." (Italics added.)F. Dissolution of CLE

After Livingston left CLE, the remaining partners agreed to dissolve the partnership effective October 31, 1990. Prior to the dissolution, a settlement agreement was reached between Livingston and CLE. Under the terms of that agreement, MTL received a buyout capped at $ 30,000, to be paid out of certain accounts receivable. MTL's capital account, goodwill, clients, book of business, and accounts receivable all remained with CLE. As of January 1990, the value of MTL's assets that remained with CLE totaled approximate.y $ 310,000.

G. The Underlying Litigation

In May 1991 CLE filed a lawsuit against JLRB claiming that certain actions of JLRB had resulted in their constructive eviction from the building. JLRB answered and cross-complained for rent it alleged was due, as well as other damages and attorney fees incurred in pursuing the action pursuant to an attorney fee provision in the lease. Included as a defendant on the cross-complaint was CLE and Livingston's professional corporation, MTL, as a partner in CLE. Livingston was not named as an individual defendant in JLRB's cross-complaint.

In [*8] July 1992 JLRB threatened to pursue the individual principals of the defendant partnership and their assets if they prevailed in the litigation over rent alleged to be due, based upon alleged misrepresentations concerning their assets and distributions of money to the individuals to the detriment of creditors. However, JLRB did not pursue Livingston on an alter ego theory. In fact, according to Livingston, JLRB sought his cooperation in the litigation and assured him that it would not pursue him personally.

In November 1993, following a bench trial, the court found for CLE on its constructive eviction claim, although it awarded no damages to CLE, and found against JLRB on its cross-complaint for rent. However, that judgment was appealed by JLRB and this court reversed the judgment in January 1997 (Campbell, Livingston & Epperson v. JLRB Associates (Jan. 22, 1997, D020467) [nonpub. opn.]).

Following the reversal in 1997, counsel for JLRB again threatened to pursue Livingston on an alter ego theory. However, JLRB took no action to name Livingston as a cross-defendant or otherwise pursue an alter ego theory against him in the retrial.

Following the retrial in December 1997, [*9] judgment was entered in January 1998 in favor of JLRB and against CLE and MTL in the amount of $ 462,608.72. After posttrial proceedings, a revised judgment was entered in January 1999 in the amount of $ 516,830.61, which included $ 144,790.13 in attorney fees and costs.

In March 2002 JLRB brought a motion to amend the judgment to add Livingston as a judgment debtor. In support of the motion JLRB asserted that Livingston and MTL were alter egos and that a failure to disregard the corporate entity would sanction fraud and promote injustice. JLRB asserted that when Livingston requested the substitution of MTL for himself on the lease, he misrepresented that the corporation was a solid going concern in order to relieve him from any liability under the lease. JLRB further asserted that it did not determine that Livingston had used MTL as an alter ego corporation to avoid the debt to JLRB until it conducted postjudgment investigation. In opposition, Livingston argued that (1) JLRB had agreed, over 12 years before it filed the motion, to relieve him from any personal liability on the lease; (2) MTL was not a "shell" corporation and was not Livingston's alter ego; (3) JLRB was barred from [*10] relitigating issues that were already encompassed within the judgment; (4) the alter ego claim was untimely; and (5) the alter ego claim violated his due process rights.

In May 2003, after taking the matter under submission, the court denied JLRB's motion and rendered a statement of decision, finding that the motion was not timely filed as JLRB's "decision to wait five years after the judgment was entered and over ten years since its cross-complaint was filed before filing this motion cannot be characterized as due diligence." The court rejected JLRB's claim that it first suspected that Livingston was the alter ego of MTL when it took Livingston's judgment debtor's exam in March of 1999. The court noted that JLRB had threatened to hold Livingston personally liable as early as 1992, thereby showing that "over 10 years ago, JLRB plainly suspected that Livingston may have been the alter ego of the accountancy corporation." The court also found that the evidence showed that JLRB knew early on that Livingston had left CLE, stating: "It is frankly incredible that they did not know that he had left the firm in early 1990 at or shortly after he departed." The court also stated that because [*11] "JLRB believed that the sole asset of [MTL] was Livingston's capital account with CLE, his departure from the firm alone should have indicated to JLRB that the corporation might not have the assets they originally believed it to have." The court also found that, "given what JLRB knew about the situation, the additional fact that [MTL] was a professional corporation alone should have put them on notice that an alter ego issue might be present."

Livingston thereafter brought a motion for attorney fees and costs, arguing that as JLRB unsuccessfully attempted to enforce the lease against him personally, he was entitled to an award of attorney fees under the lease as the prevailing party. The motion also sought fees as against JLRB's general partner, Lewis & Lewis, who was not a signatory to the lease, but was a party to the motion to amend the judgment. JLRB opposed the motion, asserting that Livingston was not entitled to fees because (1) the motion to amend was based upon the judgment, not the underlying lease; and (2) Livingston could not recover fees from Lewis & Lewis, which was not a signatory to the lease and did not attempt to impose liability against Livingston on the judgment [*12] in favor of JLRB. JLRB also asserted that the court should not award Livingston costs because he had not timely filed a memorandum of costs.

The court granted the motion, awarding Livingston fees and costs in the amount of $ 40,677.50. In doing so, the court found that "had JLRB prevailed on its alter ego claim, it would have been awarded attorney's fees based on the underlying contractual clause." Because of this, the court held that case law and equity "require that the converse be true as well." Although the court did not discuss Lewis & Lewis's liability for fees, because the court granted Livingston's motion, which sought fees against both JLRB and Lewis & Lewis, and it recognized in its order that the motion was brought against both parties, it appears that the order was against Lewis & Lewis as well. Finally, the court rejected JLRB's claim that costs could not be awarded because Livingston did not timely file a cost memorandum.

JLRB appealed separately from the order denying its motion to add Livingston to the judgment and the order awarding him fees and costs. Pursuant to a stipulation of the parties, we consolidated the appeals by an order dated February 26, 2004.

DISCUSSION

I. [*13] STANDARD OF REVIEW

In reviewing whether the court erred in denying JLRB's motion to add Livingston as a judgment debtor on an alter ego theory, we apply the abuse of discretion standard. (Alexander v. Abbey of the Chimes (1980) 104 Cal. App. 3d 39, 47-49, 163 Cal. Rptr. 377 (Alexander) [review of order amending judgment to add individual on an alter ego theory reviewed for an abuse of discretion].) Under this standard, we will only reverse the court's order where "the trial court exceeded the bounds of reason, all of the circumstances before it being considered. [Citations.] . . . When two or more inferences can reasonably be deduced from the facts, a reviewing court lacks power to substitute its deductions for those of the trial court." (In re Marriage of Connolly (1979) 23 Cal.3d 590, 598, 153 Cal. Rptr. 423.)

As we are reviewing the legal basis for the court's award of fees, on undisputed facts, we review the court's decision awarding attorney fees and costs to Livingston under the de novo standard. (Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 705.)

II. ANALYSIS

A. Waiver [*14]

Livingston asserts that JLRB has waived the right to challenge the court's ruling denying its motion to amend the judgment by failing to support the facts stated in its brief with citations to the record on appeal. A review of JLRB's opening brief reveals that in some instances JLRB has failed to support factual assertions made in its brief with any citation to the record or has made argumentative statements that it asserts as facts. Other factual statements are supported by citation to the record, but the parties dispute what those facts show. To the extent that JLRB has made factual statements that are unsupported by citation to the record, we have not considered them in resolving this appeal. (City of Lincoln v. Barringer (2002) 102 Cal.App.4th 1211, 1239.)

B. The Motion To Amend the Judgment

There are two requirements for piercing the corporate veil and imposing alter ego liability on individuals owners of corporations: "(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result [*15] will follow." (Automotriz etc. De California v. Resnick (1957) 47 Cal.2d 792, 796.)

Further, in order to accomplish this goal, "'a court may amend its judgment at any time so that the judgment will properly designate the real defendants.'" (Dow Jones Co. v. Avenel (1984) 151 Cal. App. 3d 144, 149, 198 Cal. Rptr. 457.) This "is an equitable procedure based on the theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant. [Citations.] 'Such a procedure is an appropriate and complete method by which to bind new individual defendants where it can be demonstrated that in their capacity as alter ego of the corporation they in fact had control of the previous litigation, and thus were virtually represented in the lawsuit.' [Citation.] In other words, 'if the claim of individual liability is made at some later stage in the action, the judgment can be made individually binding on a person associated with the corporation only if the individual to be charged, personally or through a representative, had control of the litigation and occasion to conduct it with a diligence corresponding [*16] to the risk of personal liability that was involved.'" (NEC Electronics Inc. v. Hurt (1989) 208 Cal. App. 3d 772, 778-779, 256 Cal. Rptr. 441.)

However, "'to justify the addition of new defendants, plaintiff must have acted with due diligence to bring them in as parties.' [Citation.]" (Alexander, supra, 104 Cal.App.4th at p. 48.) Thus, in Alexander, the Court of Appeal reversed a trial court order amending two judgments to add an alleged alter ego as a judgment debtor on the grounds that the moving party unreasonably delayed in seeking the amendment, even though the appellate court concluded that there was sufficient evidence to support the trial court's alter ego finding. As the Court of Appeal explained in Alexander: "Here, there is no explanation in the record for the close to seven-year delay in filing the subject motion. There is no suggestion that respondents have ever made any effort to satisfy the judgment until this motion was filed. There is likewise no suggestion that respondents were unaware of appellant's connection with Abbey at the time of the filing of the complaints or at the time of trial. [P] When considering the application [*17] of the alter ego doctrine to a particular situation, it must be remembered that it is an equitable doctrine and, though courts have justified its application through consideration of many factors, their basic motivation is to assure a just and equitable result. [Citation.] [P] 'Equitable relief from a judgment may be refused to a party thereto if [P] (a) before or after the judgment was rendered the complainant or a person representing him failed to use care to protect his interests, or [P] (b) after ascertaining the facts the complainant failed promptly to seek redress.' (Rest., Judgments, § 129.) In its comment on clause (b), the Restatement states: 'In determining whether the delay by the complainant in seeking relief has been unreasonable, many circumstances are to be considered. Although length of time in itself, aside from its likelihood of producing hardship, is not a bar, nevertheless the length of time which has elapsed from the time when the complainant knew or should have known of the facts . . . is an important element where no reason is suggested for the delay.' In the instant action, respondents waited nearly seven years after judgment was final to seek to include [*18] an unnamed defendant, the alter ego of the corporation against which they had received judgment. . . . Respondents knew or should have known that appellant was the alter ego of Abbey either at the time of the original proceedings or shortly thereafter. 'Equitable relief will not ordinarily be granted merely because the representative of a party, whether counsel, trustee or agent in charge of an action, has negligently failed to avail himself of facts which he should have known.' (Rest., Judgments, § 129, com. on cl. (a).) Accordingly, we find that in the absence of any reasonable explanation for nearly a seven-year delay in moving for amendment, the trial court abused its discretion in granting this belated motion for amendment of the judgment." (Alexander, supra, 104 Cal. App. 3d at pp. 48-49.)

The court did not abuse its discretion in declining to add Livingston as a judgment debtor on an alter ego theory by finding that JLRB had unreasonably delayed in bringing its motion. The facts show that JLRB knew as early as 1992 of facts that would put a reasonable person on notice that he or she should investigate whether those facts supported an alter ego claim against [*19] Livingston. In fact it threatened at that time to pursue Livingston and other principals of the defendant partnership individually because of purported misrepresentations concerning the financial standing of the partnership. JLRB knew at that time that Livingston had substituted his professional corporation for himself personally on the lease, thereby eliminating any personal liability on the lease. JLRB knew that his professional corporation MTL's sole asset was its interest in CLE; that Livingston was the sole officer, director, shareholder and employee of MTL; that in January 1990 Livingston left CLE to go to work for MOA; that Livingston and MTL's interest in CLE terminated at that time; and that CLE stopped doing business in 1990. In June 1997 JLRB again threatened to pursue a claim of alter ego liability against Livingston, a year before the judgment after retrial, two years before the amended judgment was entered in 1999, and another five years before the motion to amend was brought. As the court noted in its findings, JLRB's "decision to wait five years after the judgment was entered and over ten years since its cross-complaint was filed before filing this motion cannot be [*20] characterized as due diligence."

The only excuse JLRB offered for its delay was the contention that it was not until Livingston's debtor's exam taken in March of 1999 that it learned that MTL had no assets and that Livingston had been prosecuting and defending the underlying action. However, JLRB gives no explanation as to why all of the above facts did not put it on notice to investigate a possible alter ego claim. Further, JLRB does not attempt to explain its counsel's letters, one in 1992 and another in 1997, showing that it at least suspected that it had a claim for personal liability against Livingston at those times.

JLRB also asserts that it was not until a 2002 debtor's exam of CLE principal Campbell that it discovered that Livingston had decided to leave CLE months before substituting his professional corporation MTL for himself on the lease and that he had misrepresented the worth of that corporation to JLRB. However, Livingston presented evidence that he informed JLRB that he was leaving to work for MOA "well before" the second addendum was executed, and the court rejected JLRB's claim otherwise as "frankly incredible." As to the alleged misrepresentation of the worth [*21] of MTL, counsel for JLRB in 1992 accused the partners of having "misrepresented . . . their respective net worth, the value of the partnership, and so on," and at that time asserted that it would pursue the partners individually.

All of the evidence submitted shows that the court did not abuse its discretion in determining that JLRB failed to act with due diligence in pursuing an alter ego claim. The facts show that JLRB "knew or should have known" it had a possible claim for personal liability as early as 1992 or, at the latest, 1997, and yet did not pursue that claim until 2002 and, further, has offered no reasonable explanation for the delay.

JLRB asserts that the court used an improper standard by placing the burden upon it of showing due diligence in pursuing its alter ego claim. JLRB asserts that the court should have applied the due diligence requirement under the doctrine of laches, which is an affirmative defense for Livingston to prove and which requires the court to find that Livingston was prejudiced by JLRB's delay. Because Livingston presented no evidence that he was prejudiced, JLRB asserts that there could be no laches defense. This contention is unavailing.

The [*22] due diligence showing announced in Alexander is not based upon the defense of laches. Rather, because the motion to amend to add a judgment debtor is itself an equitable proceeding, committed to the court's sound discretion, it is the party seeking amendment that must demonstrate due diligence. (Alexander, supra, 104 Cal. App. 3d at pp. 48-49 [burden is on moving party to offer a "reasonable explanation" for any delay in moving to amend].)

The sole basis for this assertion by JLRB is its reference to a passage in Alexander, quoted ante, where the Court of Appeal stated: "'In determining whether the delay by the complainant in seeking relief has been unreasonable, many circumstances are to be considered. Although length of time in itself, aside from its likelihood of producing hardship, is not a bar, nevertheless the length of time which has elapsed from the time when the complainant knew or should have known of the facts . . . is an important element where no reason is suggested for the delay.'" (Alexander, supra, 104 Cal. App. 3d at p. 48, quoting com. (b), Rest., Judgments, § 129, italics added.) However, the highlighted passage [*23] did not constitute adoption by the Alexander court of a laches defense, where the burden was upon the defendant to prove he or she was prejudiced by the delay. Throughout that opinion, as noted ante, the Court of Appeal made clear that the burden of proof was upon the moving party seeking an amendment to add an alleged alter ego. Further, the court was merely stating that the length of the delay was only one of several factors to be considered. In conjunction with the length of delay encountered in Alexander, the court also focused on the fact that no reasonable excuse was given for the delay, and on that basis ruled the trial court had abused its discretion in granting the motion to add an alter ego defendant. (Alexander, supra, 104 Cal. App. 3d at p. 48.) Nowhere in that opinion, however, did the Court of Appeal require the proposed alter ego to prove that he had been prejudiced by the delay or that the appropriate analysis was a laches defense. (Ibid.) There is no merit to JLRB's contention that Livingston needed to demonstrate prejudice before the court could deny its motion because of its unreasonable delay in seeking leave to amend.

JLRB also [*24] questions the reasoning of the court's decision, claiming that the court found that the mere fact that Livingston formed a professional corporation should have caused JLRB to sue Livingston and that implicit in this finding was the court's determination that Livingston was the alter ego of MTL. This assertion is unavailing. First, the court only found that, under the circumstances, the fact that Livingston formed a professional corporation for the sole purpose of eliminating his personal liability "should have put [JLRB] on notice that an alter ego issue might be present." Further, the court never found that Livingston was the alter ego of MTL; it did not reach that issue because it found that JLRB had unreasonably delayed in bring its motion to add Livingston as a judgment debtor. We also do not reach that issue, given our holding in this case.

C. Attorney Fee Award

JLRB asserts that the court erred in awarding attorney fees to Livingston for successfully defending against its attempt to add him as a judgment debtor on the grounds that its motion was not an action on the contract (i.e., the lease, which contained an attorney fee clause), but rather an action on the judgment [*25] to substitute a different judgment debtor. JLRB also contends that the court erred by making its order effective as against its general partner Lewis & Lewis, who was not a party to the lease and did not seek to collect attorney fees from JLRB. JLRB last asserts that the court erred in awarding costs to Livingston because he waived the right to receive costs by not timely filing a memorandum of costs. We conclude that the court erred in awarding fees and costs as against Lewis & Lewis. We reject the remainder of JLRB's contentions.

1. Attorney fee award

In Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128, 158 Cal. Rptr. 1 (Reynolds Metal), the California Supreme Court held that "[Civil Code s]ection 1717 was enacted to establish mutuality of remedy where contractual provisions makes recovery of attorney's fees available for only one party." The court went on to state: "Its purposes require [Civil Code] section 1717 be interpreted to further provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney's fees should [*26] he prevail in enforcing the contractual obligation against the defendant." (Reynolds Metal, supra, at p. 128, italics added.) Thus, the Reynolds Metal court concluded that because the plaintiff sought to enforce a contractual claim against nonsignatories on the basis of alter ego liability, and the contract sued upon had an attorney fees clause, the prevailing defendant was able to claim attorney fees under that contract: "Had plaintiff prevailed on its cause of action claiming defendants were in fact the alter egos of the corporation [citation], defendants would have been liable on the notes. Since they would have been liable for attorney's fees pursuant to the fees provision had plaintiff prevailed, they may recover attorney's fees pursuant to [Civil Code] section 1717 now that they have prevailed." (Reynolds Metals, supra, 25 Cal.3d at p. 129.)

Similarly, in this case, had JLRB prevailed on its motion to amend the judgment based upon its alter ego theory, Livingston would have been substituted as a judgment debtor on its action under the lease and held liable for damages incurred under the terms of the lease. In addition, [*27] JLRB sought to hold Livingston liable for attorney fees under the lease that were included as part of the judgment. JLRB would also have been entitled to attorney fees in bringing that motion as the right to attorney fees under a contract includes postjudgment matters. (Code Civ. Proc., § 685.040.) n1 Therefore, the reciprocity requirements of Civil Code section 1717 requires an award of fees to Livingston where JLRB sought to hold Livingston liable upon a contract containing an attorney fee clause, and JLRB would have been entitled to fees under the contract had it prevailed.

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

n1 All further statutory references are to the Code of Civil Procedure unless otherwise specified.

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JLRB attempts to distinguish the holding in Reynolds Metal, supra, 25 Cal.3d 124 because it sought to hold Livingston liable upon an alter ego theory after the judgment was entered, while in Reynolds Metal the plaintiffs had originally named the individual defendants [*28] on an alter ego claim. JLRB asserts that because all its contractual rights were merged into and extinguished by the judgment, it only had rights as set forth in the judgment itself, not the contract. Therefore, according to JLRB, it was not suing upon the contract and would not be entitled to fees under that contract had it prevailed. This contention is unavailing.

In support of its position, JLRB cites Chelios v. Kaye (1990) 219 Cal. App. 3d 75, 268 Cal. Rptr. 38, wherein a judgment creditor appealed a court's denial of its request for attorney fees incurred in enforcing a judgment. At the time of that decision, section 685.040 provided: "Attorney's fees incurred in enforcing a judgment are not included in costs collectible under this title unless otherwise provided by law." Relying in part on this statute, the Court of Appeal held there was no right to attorney fees as "provided by law" incurred to enforce a judgment:"In this case there was no extant contractual attorney's fees clause to trigger the application of Civil Code section 1717. When, as here, a lawsuit on a contractual claim has been reduced to a final, nonappealable judgment, [*29] all of the prior contractual rights are merged into and extinguished by the monetary judgment, and thereafter the prevailing party has only those rights as are set forth in the judgment itself. [Citations.] . . . [P] . . . [P] Because the Chelioses' fees were incurred to enforce a judgment bereft of an attorney's fees clause, and the underlying contract had been extinguished by merger before the herein disputed attorney's fees were incurred, there is no attorney's fees clause upon which to premise the statutory rights of Civil Code section 1717. Because statutory authorization for attorney's fees in enforcing the judgment is thus lacking, the absolute bar of section 685.040 precludes the Chelioses from collecting their postjudgment attorney's fees." (Chelios, supra, 219 Cal. App. 3d at pp. 80-81, fn. omitted.)

However, Chelios is inapposite. First, Chelios is no longer good law as section 685.040 was amended in 1992 to permit recovery of attorney fees "incurred in enforcing a judgment . . . if the underlying judgment included an award of attorney's fees to the judgment creditor." This amendment was designed to change [*30] the rule enunciated in Chelios: "There the court held that an attorney fees clause in a contract was merged with the judgment, and thus could not be the basis for the imposition of postjudgment attorney fees. But Chelios was decided under section 685.040 prior to the 1992 amendment. The 1992 amendment was obviously intended to change the rule applied in Chelios." (Miller v. Givens (1994) 30 Cal.App.4th 18, 22.) Here, the judgment included an award of attorney fees. Therefore, it falls directly within the language of amended section 685.040, which allows the recovery of attorney fees to enforce the judgment in such circumstances. Because JLRB would have been able to recover contractual attorney fees that were a part of the judgment if it were successful in adding Livingston as a judgment debtor, Livingston, as the prevailing party, would also be entitled to recover fees incurred in defending that action.

A similar result was reached in Rainier National Bank v. Bodily (1991) 232 Cal. App. 3d 83, 282 Cal. Rptr. 926 (Rainier), which involved the unsuccessful attempt to enforce a sister state judgment. Rainier received a judgment, including [*31] an award of attorney fees, against the Bodilys in Washington in an action on a guarantee contract which provided for attorney fees in the event of an action to enforce its terms. Rainier applied to enter the Washington judgment in California. Judgment was entered against the Bodilys, but the court granted their motion to vacate the judgment on the grounds, among others, that Washington did not have jurisdiction over the Bodilys. However, when the Bodilys sought attorney fees under the underlying contract, the trial court denied their request, reasoning that the action was on the judgment, not the underlying contract. (Id. at p. 85.) The Court of Appeal in Rainier reversed, holding that because the Washington judgment included an award of attorney fees and Rainer was seeking to enforce that award in California, the action was one to enforce the underlying contract, not merely the judgment, and equity required that the Bodilys receive attorney fees in their successful defense of that effort: "Despite Rainier's argument that the Washington judgment is not a contract within the provisions of Civil Code section 1717, we believe that the original [*32] contract action instituted by Rainier, albeit a contract on which the Bodilys were found to be not liable, controls under [Civil Code] section 1717. It is without question that: (1) the purported guaranty provided for attorney's fees in the event of a legal action to enforce its terms; (2) Rainier was awarded attorney's fees by the Washington court; (3) Rainier attempted to domesticate the entire Washington judgment; and (4) the Bodilys are now the prevailing party. Had Rainier initiated the litigation in California, it is indisputable that the Bodilys would be entitled to an award of attorney's fees under the authority of the previously cited cases. It matters little to the Bodilys' pocketbook whether their attorney was employed to resist an action initially filed in California or to set aside a sister state judgment. Rainier's argument also overlooks the fact that it actually received an award of attorney's fees which it tried to enforce. To disallow attorney's fees in this factual situation would reward Rainier for selecting an improper forum and would be contrary to logic and to the spirit of Civil Code section 1717. [P] Rainier [*33] also asserts that it was not entitled to obtain attorney's fees for its efforts in entering the judgment in California, and thus there is no mutuality of remedy for the Bodilys to recover fees. Since we have held that the basis of recovery of attorney's fees is the underlying contract and not the judgment, we need not address that issue." (Rainier, supra, 232 Cal. App. 3d at p. 86.)

Because the motion to add Livingston as a judgment debtor here sought to enforce a judgment that included attorney fees, the mutuality requirements of Civil Code section 1717 required that Livingston receive attorney fees for his successful defense of that motion. Further, JLRB should not be rewarded for waiting until long after its judgment was entered before pursuing its alter ego claim.

JLRB objects to the award because it included not only itself as obligated to pay the fees, but also Lewis & Lewis, its general partner. We agree that the court mistakenly made Lewis & Lewis subject to the attorney fee award.

It is true, as Livingston points out, that Lewis & Lewis was a moving party on the motion to amend. Based upon this fact, JLRB brought its motion for attorney [*34] fees against both JLRB and Lewis & Lewis. However, Lewis & Lewis did not recover any money damages or attorney fees against MTL in the underlying judgment. Rather, JLRB was the only party that recovered against MTL. Lewis & Lewis only recovered costs for its successful defense against the claim brought by CLE. Thus it appears that Lewis & Lewis was named a party to the motion to amend solely to recover the costs it was awarded in defense of that action. Because Lewis & Lewis was not a signatory to the lease and did not seek to recover fees under that lease against Livingston on the motion to amend, it was improper to award attorney fees as against Lewis & Lewis.

Livingston argues that it makes no difference that the court awarded attorney fees as against Lewis & Lewis because, as the general partner of JLRB, it was liable for JLRB's debts. (See Corp. Code, §§ 15643, subd. (b), 16306, subd. (a).) However, that is a matter for enforcement of the award, not who is liable for the attorney fees under the terms of the lease. It was not appropriate to award fees and costs as against Lewis & Lewis and that portion of the award must be reversed. [*35]

2. Cost award

JLRB asserts that the court erred by awarding costs because Livingston did not file a memorandum of costs within the time period required by section 1034 and California Rules of Court, rule 870. n2 Section 1034 provides in part:

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n2 All further rule references are to the California Rule of Court.

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"Prejudgment costs allowable under this chapter shall be claimed and contested in accordance with rules adopted by the Judicial Council." (Italics added.)

Rule 870 provides in part:

"(a) [Claiming costs] [P] (1) [Trial costs] A prevailing party who claims costs shall serve and file a memorandum of costs within 15 days after the date of mailing of the notice of entry of judgment or dismissal by the clerk under Code of Civil Procedure section 664.5 or the date of service of written notice of entry of judgment or dismissal, or within 180 days after entry of judgment, whichever is first. . . . [P] . . . [P] [*36] (b) . . . [P] . . . [P] (3) [Extensions of time] The party claiming costs and the party contesting costs may agree to extend the time for serving and filing the cost memorandum and a motion to strike or tax costs. This agreement shall be confirmed in writing, specify the extended date for service, and be filed with the clerk. In the absence of an agreement, the court may extend the times for serving and filing the cost memorandum or the notice of motion to strike or tax costs for a period not to exceed 30 days." (Italics added.)

As can be seen from the language of section 1034 and rule 870, the mandatory time period specified for filing a memorandum of costs is for prejudgment trial costs, the time being measured from entry of judgment. Here, the costs claimed were for responding to a postjudgment motion to amend the judgment and the time limits of rule 870 therefore do not apply.

Further, even assuming that rule 870 applied to Livingston's claim for costs, the court nevertheless had the discretion to ignore the failure to timely file a memorandum of costs. (Lee v. Wells Fargo Bank (2001) 88 Cal.App.4th 1187, 1198-1199; Nazemi v. Tseng (1992) 5 Cal.App.4th 1633, 1641 [*37] ["The decision whether a party has waived costs by virtue of a late filing is left to the sound discretion of the trial court"].) Therefore, the court did not err in awarding costs to Livingston.

DISPOSITION

The award of attorney fees is reversed as to Lewis & Lewis. In all other respects, the orders are affirmed. Parties to bear their own costs on appeal.

NARES, Acting P. J.

WE CONCUR:

McINTYRE, J.

IRION, J.

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