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and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT DIVISION FOUR

B167113

2004.CA.0004754

May 27, 2004

LIQI INTERNATIONAL ECONOMIC DEVELOPMENT, INC., U.S.A.,
PLAINTIFF AND RESPONDENT,
v.
HERMAN YEE, ET AL., DEFENDANTS AND APPELLANTS.

APPEAL from a judgment of the Superior Court of Los Angeles County, Michael L. Stern, Judge. Affirmed in part and reversed in part. (Los Angeles County Super. Ct. No. KC036230)

Michael B. Montgomery for Defendants and Appellants.

Rayman & Blanda and Jon O. Blanda; Alan M. Goldberg for Plaintiff and Respondent.

The opinion of the court was delivered by: Hastings, J.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits 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 This opinion has not been certified for publication or ordered published for purposes of rule 977.

Defendant and appellant NCI Apparel, Inc. (NCI) appeals from a judgment entered in favor of plaintiff Liqi International Economic Development, Inc., U.S.A. (respondent Liqi). NCI contends the trial court erred in failing to order the matter to arbitration.

NCI's president, defendant and appellant Herman Yee, appeals from a post-judgment order which determined that Yee was not a "prevailing party," eligible for costs within the meaning of Code of Civil Procedure section 1032, subdivision (a)(4). *fn1

We conclude the trial court did not err in denying NCI's motion requesting that the matter be ordered to arbitration. But the trial court erred when finding Yee was not a "prevailing party" pursuant to section 1032, subdivision (a)(4). We affirm the judgment in favor of NCI but remand for further proceedings in connection with costs sought by Yee.

FACTS

In June 2001, respondent Liqi filed suit against corporate appellant NCI and its president, appellant Yee, asserting common counts of account stated, open book account, and goods sold and delivered. Respondent alleged that Yee was NCI's alter ego. It claimed that appellants owed respondent $1,420,559.82. The next month, appellants filed an answer and a cross-complaint for breach of contract. *fn2R>

Appellants were initially represented by attorney Philip Sheldon, but in late June 2002 he substituted out of the case with Yee's written consent. About a month later, Sheldon was replaced by attorney Michael Montgomery, with Yee again consenting on behalf of himself and NCI. Meanwhile, in early June, trial was set for September 9, 2002.

Less than a week before the September 9 trial date, on September 3, appellants applied ex parte for an order shortening time for a hearing on a motion to compel arbitration, and for either an order staying the action or a continuance of the trial. The trial court granted the application and set the hearing for September 6, 2002.

In support of the motion to compel arbitration, appellants' attorney, Montgomery, filed a declaration attaching a copy of the two-page contract. He declared that he knew "of no modification or express waiver of the right to arbitrate this dispute."

Yee also filed a declaration in support of the motion. He stated that English is his second language and that when he signed the contract he only concerned himself with the order items on page one, not the terms on page two where the arbitration clause was set out. He further declared: "I would gladly accept arbitration to save the costs of litigating this action, especially since I cannot collect attorney's fees if I win. [] 7. I have never waived the right to arbitration, and request it now."

The contract at issue, dated April 1, 1999, names respondent as the seller of men's clothing and appellant NCI as the buyer. Page one lists the clothing items purchased. Page two sets forth the following arbitration clause: "All disputes, controversies or differences which may arise between the parties, out of or in relation to or in connection with this contract, or for the breach hereof, shall be settle[d] by arbitration in accordance with the rules of the Institute of the International Chamber of Stockholm. The award shall be final and binding on both parties."

Respondent opposed the motion, primarily based on the argument that appellants had waived their right to arbitration. Respondent's counsel presented a declaration which stated: "Plaintiff will be unduly prejudiced by an order for arbitration at such a late date, as trial is scheduled to commence on September 9, 2002. Plaintiff is scheduled to arrive in Los Angeles, from Hong Kong, on September 4, 2002. Additionally, Plaintiff has expended substantial amounts for legal expenses in anticipation of litigation."

The motion to compel was apparently denied at trial, which commenced on November 27, 2002. *fn3 On that date the court stated that it found appellants "by virtue of their conduct have waived the arbitration rights by participation in this litigation up to and including the time of trial."

A proposed judgment was provided by counsel for respondent. As pertinent, it awarded respondent the sum of $920,031.76 against NCI. It also provides: "[Respondent] is not entitled to recover against Herman Yee." Yee filed an objection to the proposed judgment on the ground that it does not name Yee as a "prevailing party" for the purpose of costs. Yee stated that his objection is "based upon the statutory and decisional dictates that a Defendant who prevails in the complaint is a prevailing party for the purposes of costs, even though a co-defendant has suffered judgment. See Code of Civil Procedure § 1032(a)(4); McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn. (1991) 231 Cal.App.3d 1450."

The court overruled Yee's objection to the judgment in a detailed minute order. It noted that while respondent failed to meet its burden of proof to establish alter ego liability against Yee, it found that Yee, as the "principal owner of NCI and the person who transacted NCI's business with Liqi as a cross-complainant . . . was unsuccessful in obtaining a judgment against Liqi on the Cross-Complaint." (Italics added.) It explained its analysis as follows:

"In analyzing who is the `prevailing party' in a case where competing pleadings and results make unclear who is the clear-cut `winner,' the courts compare the extent to which each party has succeeded or failed in the contentions. Pacific Custom Pools, Inc. v. Turner Construction Co., 79 Cal.App.4th 1254, 1272 (2000). Thus, `in determining litigation success, courts should respect substance rather than form and to this extent should be guided by equitable consideration, for example, a party who is denied direct relief on a claim may nonetheless be found to be a prevailing party has otherwise achieved its main litigation objective.' Hsu v. Abbara, 9 Cal.4th 863, 876-877 (1995).

"In this instance, Liqi is the successful `clear winner' and prevailing party under these principles. Liqi's litigation objective[s] were attained. It would be disesingenuine [sic] to conclude otherwise. Defendants and cross-complainants NCI and Yee's interests are virtually synonymous. Yee avoided personal liability, but failed in his contentions regarding Liqi's participation in the subject transactions."

Judgment was entered and this timely appeal was noticed.

DISCUSSION

1. Arbitration

"Whether a party to an arbitration agreement has waived the right to arbitrate is a question of fact, and a trial court's determination on that matter will not be disturbed on appeal if supported by substantial evidence. [Citations.]" (Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 991.)

"While `. . . no single test delineates the nature of the conduct of a party that will constitute such a waiver,' our Supreme Court has `found a waiver of the right to demand arbitration in a variety of contexts, ranging from situations in which the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration [citations] to instances in which the petitioning party has unreasonably delayed in undertaking the procedure. [Citations.]" (Sobremonte v. Superior Court, supra, 61 Cal.App.4th at p. 992.) "In determining waiver, a court can consider `(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether "the litigation machinery has been substantially invoked" and the parties "were well into preparation of a lawsuit" before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) "whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place"; and (6) whether the delay "affected, misled, or prejudiced" the opposing party. [Citations.]' [Citation.]" (Ibid.)

Significantly, although appellants' answer to the respondent's complaint asserted 16 affirmative defenses, not one asserted the right to arbitration. The cross-complaint alleged breach of the very contract containing the arbitration clause, yet it too was silent about arbitration. Not until less than a week before the initial trial date did appellants request arbitration. More than a year had passed from commencement of the litigation and Liqi had undertaken various forms of formal discovery. Also significant was the fact that appellants did not controvert respondent's trial attorney's declaration regarding expenses incurred in preparation for trial.

We conclude substantial evidence supports the trial court's finding that appellants waived their contractual right to arbitration. (See Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 557-559.)

2. Prevailing Party

The trial court concluded that Yee was joined in interest with NCI in the litigation and therefore should not be deemed a "prevailing party" pursuant to subdivision (a)(4) of section 1032. In support of this conclusion, it cited and relied upon the cases of Hsu v. Abbara, supra, 9 Cal.4th 863 and Pacific Custom Pools, Inc. v. Turner Construction Co., supra, 79 Cal.App.4th 1254. The trial court's reliance on these cases was misplaced. Here, we are dealing with the concept of prevailing party as defined within section 1032, subdivision (a)(4). In each of those cases the courts were dealing with the concept of prevailing party for an award of attorney fees pursuant to Civil Code section 1717. The term "prevailing party" is not defined within section 1717 but has been developed by case law, the most recent Supreme Court case addressing the issue being Hsu v. Abbara.

The concept of "prevailing party" described within section 1032 is different from the concept of "prevailing party" under Civil Code section 1717. This is demonstrated by reference to a passage in the opinion in Pacific Custom Pools. There, the Court of Appeal reversed the trial court's determination that Turner Construction Company was not a prevailing party for an award of attorney fees. The Court of Appeal reversed and remanded the matter to the trial court to determine the amount of fees to be awarded. While section 1032 was cited and quoted within the opinion, it was not relevant to the outcome. At footnote 13, inserted immediately after citation to section 1032, the court states: "Although helpful in the analysis of who is the prevailing party under Civil Code section 1717, the determination of the prevailing party for the purposes of costs is not controlling as to the issue of prevailing party for the entitlement of attorney fees. [Citations.]" (Pacific Custom Pools, Inc. v. Turner Construction Co., supra, 79 Cal.App.4th at p. 1271.)

Respondent cites the case of Smith v. Circle P Ranch Co. (1978) 87 Cal.App.3d 267 for the proposition that defendants who have prevailed in the litigation, but are joined in interest with a non-prevailing defendant, may not recover costs against the plaintiff who prevailed against the losing defendant. When Smith was decided, section 1032 provided: "`[C]osts are allowed of course: . . . To the defendant upon a judgment in his favor . . . [and] when there are several defendants in any action . . . not united in interest, and making separate defenses by separate answers, and plaintiff fails to recover judgment against all, the court must award costs to such of the defendants as have judgment in their favor.'" (Smith v. Circle P Ranch Co., supra, 87 Cal.App.3d at p. 271, italics in original, underlining added.) Former section 1032, addressed in Smith, was repealed in 1986 and replaced by the current version.

The current version of section 1032, subdivision (a)(4), provides: `"Prevailing party' includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant. When any party recovers other than monetary relief and in situations other than as specified, the `prevailing party' shall be as determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not and, if allowed may apportion costs between the parties on the same or adverse sides pursuant to rules adopted under Section 1034." (Italics added.) Under the circumstances presented, Yee falls within both of the categories we have italicized. Plaintiff Liqi obtained no relief against Yee and Yee obtained no relief as a cross-complainant against Liqi.

Instructive are the cases of Andersen v. Pacific Bell (1988) 204 Cal.App.3d 277 and Nelson v. Anderson (1999) 72 Cal.App.4th 111. Each address the issue of prevailing party under the current section 1032.

In Andersen v. Pacific Bell, Pacific Bell was sued by a number of its employees on claims of discrimination. Summary judgment was granted in favor of Pacific Bell against all but two plaintiffs, who remained in the action. Pacific Bell sought costs against all plaintiffs against whom summary judgment was entered. The trial court concluded that Pacific Bell could not be deemed a prevailing party because the two plaintiffs who remained in the action could prevail at trial and be entitled to recover costs against Pacific Bell. The Court of Appeal reversed: "Although the Code of Civil Procedure gave Pacific Bell, as the prevailing party, an absolute right to recover these costs,[] the trial court refused to award them. . . . [] . . . The court erred. Pacific Bell's statutory right as prevailing party to recover its own costs from the dismissed plaintiffs is not dependent on any hypothetical, future right the remaining plaintiffs might have to recover their different costs." (Andersen v. Pacific Bell, supra, 204 Cal.App.3d at pp. 286-287, footnote reference omitted, criticized on another point in Pintor v. Ong (1989) 211 Cal.App.3d 837, 845.)

Footnote 10, referenced in the above passage after the word "costs" in the first sentence, provided the authority for this result: "`Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.' (Code Civ. Proc., § 1032, subd. (b) [italics added.]) "`Prevailing party' includes . . . a defendant as against those plaintiffs who do not recover any relief . . . .' (Code Civ. Proc., § 1032, subd. (a)(4)." (Id. at p. 286.)

In Nelson v. Anderson, plaintiff Nelson and two other plaintiffs sued actress Loni Anderson and her attorneys, Musick, Peeler & Garrett (MPG), for interference with contract and legal malpractice, among other claims. MPG settled with the two other plaintiffs, but not Nelson. Nelson ultimately prevailed against Anderson but not against MPG, which sought costs against Nelson. Nelson filed a motion to strike the costs. The trial court granted costs in favor of MPG, but reduced the amount awarded by two-thirds: "As the court explained in its minute order granting the motion [to strike costs], it reduced MPG's pretrial costs `because . . . [MPG] settled with the other two Plaintiffs, and . . . one of the terms of those settlements was that MPG would waive its right to collect costs; it would be unfair to Plaintiff Nelson, and would constitute an inappropriate windfall to MPG to allow it to collect all of its pre-trial costs from Nelson.'" (Nelson v. Anderson, supra, 72 Cal.App.4th at p. 128.) MPG appealed the order reducing costs by two thirds.

The Court of Appeal concluded that MPG was a prevailing party: "Since MPG was a defendant against whom Nelson obtained no relief, MPG was the prevailing party. (Code Civ. Proc., § 1032, subd. (a)(4).) `Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.' (Code Civ. Proc., § 1032, subd. (b).) This means that the prevailing party is entitled to all of his costs unless another statute provides otherwise. [Citation.] Absent such statutory authority, the court has no discretion to deny costs to the prevailing party. [Citation.] [] Code of Civil Procedure section 1033 enumerates allowable costs and costs which are not allowable, and restricts allowable costs to those reasonably necessary to the conduct of the litigation. We have found no statutory authority for reducing allowable costs for any of the reasons advanced by the trial court. `A court should be cautious in engrafting exceptions onto the clear language of Code of Civil Procedure section 1032.' [Citation.]" (Nelson v. Anderson, supra, 72 Cal.App.4th at pp. 128-129.) The Court of Appeal reversed the two-thirds reduction ordered by the trial court.

As in Nelson, the trial court here engrafted an exception to section 1032 which is not justified. Yee is a prevailing party pursuant to the language of the section. By reaching the conclusion that Yee was not a prevailing party, the trial court never reached the issue of what costs may appropriately be awarded to Yee. Thus, the matter must be remanded for a further hearing on costs.

DISPOSITION

The judgment is affirmed. The order denying Yee prevailing party status is reversed and the matter is remanded for the trial court to address what costs should be awarded to Yee. Appellant Yee's costs on appeal are awarded to Yee against respondent, and respondent's costs on appellant NCI's appeal are awarded.

NOT TO BE PUBLISHED

We concur:

EPSTEIN, Acting P.J.

CURRY, J.

Opinion Footnotes

*fn1 All further statutory references are to the Code of Civil Procedure.

*fn2 The cross- complaint also asserted tortious interference with prospective business advantage, but that cause of action was dismissed at appellants' request.

*fn3 The record is silent about what occurred on September 6 and during the interim.

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