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Date: 10-28-2017

Case Style: City of West Hollywood v. Anne Kihagi

Case Number: B270416

Judge: Johnson

Court: California Court of Appeals Second Appellate District Division One on appeal from the Superior Court, Los Angeles County

Plaintiff's Attorney: Julie N. Nong, Isaac R. Zfaty, Ryan N. Burns and Sam B. Maralan

Defendant's Attorney: Michael Jenkins and Alison G. Regan

Description: Anne Kihagi, 1263 North Crescent, LLC, and Aquat
009, LLC (collectively Kihagi) appeals the trial court
judgment in favor of City of West Hollywood (City) finding
that Kihagi violated her settlement agreement with the City
and permanently enjoining her from terminating tenancies
at 1263–1267-1/2 North Crescent Heights Boulevard in West
Hollywood. The trial court also awarded attorney fees to the
City. We affirm the trial court’s determination that Kihagi
violated the settlement agreement. However, because the
permanent injunction in its current state is unenforceable,
we reverse the trial court’s imposition of the injunction.
Given this holding, we also reverse the trial court’s attorney
fee award.
BACKGROUND
A. The Ellis Act
The Ellis Act prohibits a city or county from
“compel[ling] the owner of any residential real property to
offer, or to continue to offer, accommodations in the property
for rent or lease.” (Gov. Code, § 7060, subd. (a).)1
Enacted in 1985, the statute was a legislative response
to the California Supreme Court decision in Nash v. City of
Santa Monica (1984) 37 Cal.3d 97. In Nash, a landlord

1 All further statutory references are to the
Government Code unless otherwise indicated.
3
“disenchanted . . . with operating rental housing” wanted to
evict his tenants from the rent-controlled apartment
building he owned in order to demolish the building and
keep the land as an investment. (Id. at p. 101.) However, a
city ordinance prohibited the landlord from evicting his
tenants and removing his rental units from the housing
market without the proper city-issued removal permit. (Id.
at p. 99.) To secure the permit, the landlord had to show he
could no longer earn a reasonable return on his investment.
(Id. at p. 101.) Knowing he could not make the required
showing for the permit, the landlord petitioned for a writ of
mandate. (Ibid.) The California Supreme Court denied the
writ, concluding the ordinance was reasonably related to the
city’s legitimate goal of maintaining adequate rental
housing. (Id. at p. 109.)
The Ellis Act’s express purpose was to supersede Nash
v. City of Santa Monica, supra, 37 Cal.3d 97, to the extent
Nash conflicts with the act, in order to permit a residential
landlord “to go out of business.” (§§ 7060.7, 7060, subd. (a).)
However, while establishing an owner’s right to exit the
residential rental business, the act did nothing to
“[d]iminish[ ] or enhance[ ] any power in any public entity to
mitigate any adverse impact on persons displaced by reason
of the withdrawal from rent or lease of any
accommodations.” (§ 7060.1, subd. (c).)
In order to prevent abuses by landlords who would
falsely remove rent-controlled units from the market and
then attempt to return them to the rental market at current
4
market rates, the Ellis Act uses a three-tiered timeline,
during which a landlord who returns previously withdrawn
units to the market suffers a penalty for doing so.2
(§ 7060.2.) Thus, if the landlord offers the previously
withdrawn rental units for rent within two years of their
withdrawal, the landlord must offer the unit for rent or lease
to the displaced tenant at the previous rental plus any
intervening annual adjustments, the landlord is liable to the
displaced tenant for actual and exemplary damages, and the
landlord may be liable to the local public entity for
exemplary damages. (§ 7060.2, subd. (b).)
If the landlord offers the previously withdrawn rental
units for rent within five years of their withdrawal, the
landlord must offer the unit for rent or lease to the displaced
tenant at the previous rental plus intervening annual
adjustments, and the landlord is liable to the displaced
tenant for punitive damages (not to exceed six months’ rent)
for failure to offer the rental to the displaced tenant.
(§ 7060.2, subd. (a)(1)-(2)(B), (c).)
If the landlord offers the previously withdrawn rental
units for rent within 10 years of their withdrawal, the
landlord must offer the unit for rent or lease to the displaced
tenant, and the landlord is liable to the displaced tenant for
punitive damages (not to exceed six months’ rent) for failure

2 The West Hollywood Municipal Code section
17.52.010 (MC 17.52.010) imposes the same penalties
outlined in the Ellis Act.
5
to offer the rental to the displaced tenant. (§ 7060.2,
subd. (c).)
B. Kihagi I3
1263 North Crescent LLC owns an eight-unit
apartment building at 1263 to 1267-1/2 North Crescent
Heights Boulevard in West Hollywood. Kihagi is the
managing member of 1263 North Crescent LLC and Aquat
009 LLC. The apartment building is subject to the City’s
Rent Stabilization Ordinance (RSO), West Hollywood
Municipal Code section 17.040.010 et seq.
On July 17, 2008, Kihagi notified the City that the
apartment building would be withdrawn from the rental
market. At the time, four of the units were occupied and the
other four units were vacant. (The vacant units were units
1263-1/2, 1265, 1265-1/4, and 1267-1/2. The occupied units
were units 1263, 1265-1/2, 1265-3/4, and 1267.) Kihagi
notified the tenants in the four occupied units that their
tenancies would be terminated as of November 14, 2008.
On August 8, 2008, Kihagi rented one of the vacant
units, unit 1263-1/2, to Moshe Stratz (Stratz) for $500 per

3 The following facts are from our unpublished opinion
in City of West Hollywood v. Kihagi (Jan. 7, 2014, B244072)
[2014 WL 47072] (Kihagi I) because the relevant facts
remain unchanged. In a second unpublished opinion, Sheehe
v. Kihagi (July 19, 2016, B259455) [2016 WL 3944580]
(Kihagi II), we held that our decision in Kihagi I did not bar
the City from moving for a preliminary injunction enjoining
Kihagi from re-renting units at the property pending trial.
6
month. Kihagi did not notify the City she was renting the
apartment. When Stratz learned that Kihagi had
withdrawn the units from the rental market, he went to the
City to get further information. When Kihagi discovered
Stratz had gone to the City, she told him he must move
immediately, and if he did not, she would make his life
miserable. As part of her rental agreement with Stratz,
Kihagi agreed to pay the utilities; however, Kihagi shut off
the electricity in Stratz’s unit, obstructed the gas company
and electricity company’s attempts to turn on the utilities in
the apartment, and failed to connect the hot water line to
Stratz’s apartment. Kihagi also failed to deliver a lease to
Stratz and refused to accept his rent check for October 2008.
On October 23, 2008, the City inspected the unit and
discovered there was no electricity or hot water in Stratz’s
unit, and found unpermitted plumbing work in the
bathroom. The City told Kihagi she needed to restore
electricity to the unit immediately, but she refused to do so.
The City issued three citations against Kihagi for failing to
properly maintain the unit.
On October 30, 2008, the City filed an action seeking a
temporary restraining order and permanent injunction
against Kihagi to enjoin Kihagi from further violations of the
RSO. On October 30, 2008, the court issued a temporary
restraining order enjoining Kihagi from refusing to restore
electricity and hot water to 1263-1/2, performing any
plumbing work on the unit, as well as enjoining her
termination of the four remaining tenancies.
7
In January 2009, the City and Kihagi reached a
settlement of the matter. The settlement provided that the
notice of termination of tenancy would be extended for an
additional 90 days from November 14, 2008 for occupied
units 1263 and 1265-1/2. In addition, “[t]he vacant or
vacated units at the property will not be rented during the
notice period or during the period in which restrictions apply
under the Ellis provision of the RSO.” If Kihagi violated
these terms, the City would be entitled to a permanent
injunction and $10,000 in liquidated damages. Kihagi would
be given no opportunity to cure her breach. The parties
agreed that the City would dismiss the complaint, but that
the trial court would retain jurisdiction under Code of Civil
Procedure section 664.6 in order to enforce the terms of the
settlement agreement.
On March 1, 2012, Kihagi notified the City she would
be renting units 1263-1/2, 1265, and 1265-1/2. In April 2012,
Elisabeth Dillon rented unit 1265 for $1,800 per month;
Kihagi told her there were other units in the building for
rent. In April 2012, Kihagi rented unit 1263-1/2 to two
tenants for $1,895 per month.
On May 16, 2012, the City moved to enforce the
settlement agreement, contending that Kihagi had violated
the agreement by renting the units during the period in
which restrictions applied under the Ellis provisions of the
City’s RSO. The City sought entry of judgment according to
the terms of the settlement agreement, as well as attorney
fees. The City argued that the RSO, section 17.52.010,
8
subdivision (15)(d) contained restrictions that applied to
rental units for 10 years after their withdrawal; under those
restrictions, Kihagi was prohibited from renting the units
until after July 18, 2019. The City sought to enjoin Kihagi
from renting or offering for rent the remaining vacant units
at the property until July 18, 2019; charging more than the
historic maximum allowable rents (MAR) for units 1263,
1265-1/2, 1265-3/4, and 1267; and failing to offer the former
tenants the right of first refusal to return to their units at
the MAR in effect at the time of their occupancy.
Kihagi countered that she did not violate the
settlement agreement because she did not agree to keep the
units off the rental market for 10 years. Rather, the
agreement required her to comply with the Ellis Act, which
she had done; further, the settlement agreement could not
legally require a 10-year moratorium on renting the units.
Kihagi stated that when units 1263-1/2 and 1265 were
withdrawn from the market, they were vacant, and “as
[those units] were unoccupied, there were no notices of
interest to re-rent submitted to me” and further that “as
[those units] were vacant when they were withdrawn from
the market, there was no maximum allowable rent set.”
Kihagi stated that units 1263-1/2 and 1265 were being
rented at reasonable market rates, and that she did not
understand the settlement agreement to prohibit rental of
the units for any time during which the Ellis Act imposed
any type of regulation. Kihagi said that if she had
9
interpreted the settlement agreement in that fashion, she
would not have entered into it.
In reply, the City asserted that the agreement’s rental
restrictions began to apply when the units were withdrawn
from the market on July 17, 2009. Further, the settlement
agreement reflected the requirements of the Ellis Act, which
was to insure that landlords do not evict tenants in order to
re-rent the units at higher market rates. As a result, Kihagi
was required to first offer the units to the displaced tenants.
The trial court found that Kihagi was in breach of the
settlement agreement, and entered judgment enjoining
Kihagi “from proceeding with the termination of tenancies at
1263–1267-1/2 N. Crescent Heights Blvd. under the Notice to
the City of Intent to Withdraw Rental Units from the
Market” filed on July 17, 2008. The trial court further
ordered Kihagi to pay the City liquidated damages in the
sum of $10,000 as well as the City’s attorney fees.
We reversed.
We held that under the terms of the settlement
agreement, Kihagi could return units where tenants had
been displaced to the rental market as long as she complied
with the Ellis Act. The facts established that Kihagi had
complied with the Ellis Act and thus was not in breach of the
settlement agreement. As noted above, when Kihagi told the
City that the eight-unit property would be withdrawn from
the rental market, four units were occupied (1263, 1265-1/2,
1265-3/4, and 1267) and four units were vacant (1263-1/2,
1265, 1265-1/4, and 1267-1/2.) More than two years had
10
elapsed when Kihagi sought to return units 1263-1/2, 1265,
and 1265-1/2 to the rental market in 2012; thus the Ellis
Act’s five-year provisions would apply.
However, the units actually rented in 2012 (1263-1/2
and 1265) had been voluntarily vacated in 2008, and thus
unoccupied, when Kihagi notified the City that the
apartment building would be withdrawn from the rental
market. Therefore, these two units did not need to be offered
to the former tenants or offered at their former rents. With
respect to unit 1265-1/2, which was in fact occupied at the
time of the notice of withdrawal, Kihagi had not re-rented
the unit in 2012, when the City sought enforcement of the
settlement agreement. Therefore, Kihagi could not be in
breach of the Ellis Act as to this unit because no rental had
actually occurred.
PRESENT APPEAL
A. Ellis Act Violations
We handed down Kihagi I in January 2014. According
to the City, Kihagi has now done exactly what we expressly
prohibited her from doing—re-rented formerly-occupied
units (units 1265-1/2, 1265-3/4, and 1267) without adhering
to the Ellis Act. As noted above, the Ellis Act requires an
owner to provide the right of first refusal to the former
tenant if the unit is re-rented within 10 years of its
withdrawal and the tenant has given notice of his or her
11
interest in re-renting the unit.4 Here, the property was
withdrawn from the rental market on July 17, 2008.
5 Thus,
according to the City, Kihagi was bound by this Ellis Act
requirement until July 17, 2019.
Nevertheless, on May 5, 2014, Kihagi returned unit
1265-1/2 to the rental market without offering the displaced
tenant (John Sheehe) the right of first refusal to return to
the unit. On November 1, 2014, Kihagi returned unit 1267
to the rental market without offering the displaced tenant
(Kevin King) the right of first refusal to return to the unit.
On May 1, 2015, Kihagi returned unit 1265-3/4 to the rental
market without offering the displaced tenant (Hugh
Faulkner) the right of first refusal to return to the unit.
Because all three tenants notified Kihagi of their interest in
re-renting the units but were not offered the opportunity to
do so, Kihagi was in breach of the settlement agreement.

4 If the landlord fails to offer the rental to the displaced
tenant, the landlord is then liable to that tenant for
exemplary damages (not to exceed six months’ rent).
(§ 7060.2, subd. (c).)
5 According to the settlement agreement, the units
were withdrawn from the market on July 17, 2008.
However, the last tenant (who occupied unit 1267) did not
vacate his unit until July 17, 2009. According to the City,
this renders July 17, 2009 as the withdrawal date for all of
the units. Kihagi counters that the July 17, 2009
withdrawal date applies only to unit 1267. As discussed
below, we agree with Kihagi on this point.
12
On November 20, 2015, the City filed a motion to
enforce the settlement agreement. On December 31, 2015,
the trial court found that Kihagi had violated the terms of
the settlement agreement and entered judgment in favor of
the City. The trial court permanently enjoined “Kihagi,
their agents, representatives, successors, assigns, and all
those acting in concert with them . . . from proceeding with
the termination of tenancies at 1263–1267-1/2 N. Crescent
Heights Blvd. under the Notice to the City of Intent to
Withdraw Rental Units from the Market” filed on July 17,
2008.
6 The court also ordered Kihagi pay the City $10,000
in liquidated damages as well as the City’s attorney fees in
bringing the motion.
Kihagi does not contest the facts on appeal, conceding
there is “no dispute” the three units were re-rented. Instead,
Kihagi posits a purely legal argument, claiming the
settlement agreement bars her from re-renting the units for
10 years, an unenforceable prohibition in direct
contradiction of the Ellis Act. As noted by the City, this is
the precise argument Kihagi raised in Kihagi I. We
addressed this claim in Kihagi I, holding that the agreement
did not in fact bar Kihagi from re-entering the rental
market. Rather, Kihagi could return formerly-occupied

6 Kihagi contends that this permanent injunction
“leads to a legal impossibility and an absurd result” given
that the three tenancies at issue had been terminated as of
2009.
13
units to the rental market as long as she complied with the
Ellis Act.
The present appeal simply applies the same legal
argument made in Kihagi I to three units that had yet to be
re-rented at that time. However, our holding in Kihagi I
remains binding. Indeed, the “law of the case” doctrine
dictates that an appellate court’s holding, on a rule of law
necessary to an opinion, must be adhered to throughout the
case’s subsequent progress in the trial court and on
subsequent appeal, as to questions of law (though not as to
questions of fact). (Gunn v. Mariners Church, Inc. (2008)
167 Cal.App.4th 206, 213.) Thus, we cannot interpret the
settlement agreement once again. Furthermore, because
Kihagi does not dispute she re-rented the three units, she
has waived any argument that the trial court’s findings were
not supported by substantial evidence.7 (See Chicago Title
Ins. Co. v. AMZ Ins. Services, Inc. (2010) 188 Cal.App.4th
401, 427–428.)
Nevertheless, at oral argument, we asked the parties
how Kihagi could be permanently enjoined from proceeding
with the termination of the tenancies when doing so would

7 Kihagi also contends that the City cannot invoke the
former tenants’ rights under the Ellis Act when there is no
statutory provision allowing the City do so. Since these
tenants are not before this court, Kihagi argues, the City
lacks standing to assert claims on their behalf. However, it
is the settlement agreement that is at issue here. The City
is a party to that agreement and thus has standing to
enforce its terms.
14
unfairly displace the units’ current tenants. We also asked
how the rental rate would be determined if the units were
offered to the units’ former tenants given that several years
had passed since their displacement.
At argument, the parties crafted a joint stipulation
seemingly agreeable to both sides—“Should units 1265-1/2,
1265-3/4, and 1267 be vacated voluntarily before July 17,
2019, Kihagi will notify the former tenants Sheehe,
Faulkner and King, within 7 days of a vacancy by written
notice to the City of West Hollywood. The former tenants
will have 30 days to accept the offer. If accepted, the rental
rate will be negotiated by the parties to the agreement and
the former tenant.”
In postargument briefing, however, Kihagi argues that
the permanent injunction is “fatally defective and cannot be
revived by simply making some adjustments.” The City now
concedes that the permanent injunction as currently worded
in the judgment should be stricken. According to the City,
the injunction “cannot be rescued at this stage” and we “need
not fashion any language to substitute for the existing
wording.” We construe Kihagi’s argument, and the City’s
subsequent concession, to mean both parties have now
abandoned the joint stipulation drafted and agreed to during
oral argument before the appellate court.
We agree with the parties that the injunction in its
current state is unenforceable and thus ineffectual. At this
stage, we decline to draft a permanent injunction for the
parties. Rather, the parties may, if they so choose, return to
15
the trial court for a determination of the appropriate
language, guided, as always, by the Ellis Act.
Citing Embassy LLC v. City of Santa Monica (2010)
185 Cal.App.4th 771, 777 (Embassy), our colleague’s dissent
observes that public entities cannot avoid the Ellis Act’s
prohibitions by acting through contract, rather than through
regulation. Thus, a property owner’s purported contractual
waiver of rights under the Ellis Act is unenforceable.
(Conc. & dis. post, at p. 4.) At the outset, we note that our
instant opinion holds that the parties must adhere to the
Ellis Act. Indeed, every opinion we have issued in this case
has so held. Thus, in accordance with Embassy, we have
repeatedly made clear that a contractual waiver of the Ellis
Act’s requirements is unenforceable.
However, we must note that Embassy, supra, 185
Cal.App.4th 771 is factually distinguishable from the instant
case and inapposite. In Embassy, the parties entered into a
settlement agreement that expressly and quite deliberately
waived the Ellis Act’s requirements. (Id. at p. 774.)
Conversely, the parties in this case entered into an
agreement that explicitly mandated compliance with the
Ellis Act. Thus, to the extent our colleague reads Embassy
as prohibiting parties from resolving disputes by entering
into settlement agreements, that reading is overbroad.
Continuing to read Embassy, supra, 185 Cal.App.4th
771 too broadly, the dissent next contends that the foregoing
preemption analysis applies equally to the trial court’s
award of liquidated damages and attorney fees. (Conc. &
16
dis. post, at p. 5.) Under the settlement agreement, if Kihagi
violated the terms of the agreement, the City would be
entitled to $10,000 in liquidated damages as compensation
for the breach. Yet, under the Ellis Act, the City could
potentially receive exemplary damages if Kihagi offered the
previously withdrawn rental units for rent within two years
of their withdrawal. (See § 7060.2, subd. (b).) As discussed
below, we have now determined that Kihagi offered the units
within 10 years of their withdrawal, not two. However,
nothing within the Ellis Act prevents a public entity from
seeking further relief in the form of compensatory damages
in addition to the potential punitive damages offered under
the statute. Nor does the Ellis Act prohibit a public entity
from seeking attorney fees. Indeed, no case has discussed
such a sweeping proposition and our colleague does not cite
one. Furthermore, under Code of Civil Procedure
section 1021, unless attorney fees are specifically provided
for by statute—which they are not here—“the measure and
mode of compensation of attorneys and counselors at law is
left to the agreement, express or implied, of the parties; but
parties to actions or proceedings are entitled to their costs.”
With respect to rental rates, the City argues that
Kihagi should be able to charge no more for those units than
the rent in place on the date the tenants were evicted. We
reject this argument. Unit 1265-1/2 was returned to the
market on May 5, 2014, while unit 1267 was returned to the
market on November 1, 2014, and unit 1265-3/4 was
returned to the market on May 1, 2015. Assuming for the
17
sake of argument that all three units were withdrawn from
the market on July 17, 2009, Kihagi returned unit 1265-1/2
to the market four years and nine months after it was
withdrawn, while she returned unit 1267 to the market five
years and three months after it was withdrawn, and
returned unit 1265-3/4 to the market five years and nine
months after it was withdrawn.
Thus, under the Ellis Act, Kihagi would have to offer
unit 1265-1/2 to the displaced tenant at the previous rental
rate plus intervening annual adjustments. She would also
be liable to the displaced tenant for exemplary damages (not
to exceed six months’ rent) for failure to offer the rental to
the displaced tenant. (See § 7060.2, subd. (a)(1), (c).) With
respect to units 1267 and 1265-3/4, however, Kihagi would
only have to offer the units for rent or lease to the displaced
tenants. She would not have to offer the units to these
tenants at the previous rental rate. She would also be liable
to the displaced tenants for exemplary damages (not to
exceed six months’ rent) for failure to offer the rental to the
displaced tenant. (See § 7060.2, subd. (a)(1), (c).)
In her supplemental brief, Kihagi concedes that the
date of withdrawal for unit 1267 was July 17, 2009.
However, Kihagi argues, the date of withdrawal for units
1265-1/2 and1265-3/4 was actually November 14, 2008, not
July 17, 2009. Thus, according to Kihagi, unit 1265-1/2 was
returned to the market five years and five months after it
was withdrawn, while unit 1265-3/4 was returned to the
market six years and five months after it was withdrawn.
18
Whether we adopt the November 14, 2008 withdrawal date
or the July 17, 2009 withdrawal date, unit 1265-3/4 was
returned to the market more than five years after it was
withdrawn.
With respect to unit 1265-1/2, we agree with Kihagi
that section 7060.4, subdivision (b), controls in this instance.
Under this section, “the date on which the accommodations
are withdrawn from rent or lease . . . is 120 days from the
delivery in person or by first-class mail of that notice to the
public entity.” Because Kihagi provided notice on July 17,
2008, unit 1265-1/2 would have been deemed withdrawn
from the market on November 14, 2008. The withdrawal
date is extended by a year only if the tenant is at least 62 or
disabled, and has lived in the apartment for at least one year
before the landlord provided notice of intent to withdraw.
(See § 7060.4, subd. (b).) It is undisputed that only unit
1267 fell under this exception.
Thus, Kihagi offered units 1265-1/2, 1265-3/4 and 1267
for rent within 10 years of their withdrawal. As a result,
Kihagi must offer the previously withdrawn units for rent or
lease to the displaced tenants.
8 (See § 7060.2, subd. (c).)
However, Kihagi does not have to offer the units at their
previous rental rates. (See § 7060.2, subd. (a)(1)-(2)(B).)

8 Punitive damages for failure to offer the rental to the
displaced tenants are not at issue here because the tenants
are not plaintiffs in this case. (See § 7060.2, subd. (c).)
19
B. Attorney Fees
With respect to attorney fees, the parties’ settlement
agreement provides that: “Except as set forth in this
agreement, if any litigation or arbitration claim concerning
any controversy, claim, or dispute between the parties arises
out of, or in relation to, this settlement agreement or its
interpretation, the prevailing party shall be entitled to
recover from the other party its reasonable expenses and
costs, including attorney’s fees, incurred in conjunction
therewith or in the enforcement or collection of any
judgment or award rendered therein. The ‘prevailing party’
means the party determined by the court to have prevailed,
even if that party did not prevail in all matters, not
necessarily the party in whose favor a judgment or award is
rendered.”
Kihagi contends that because she prevailed in a single,
discrete “dispute or controversy” during the course of the
litigation, she is thus entitled to an award of fees and costs
under the terms of the settlement agreement. Kihagi is
incorrect.
The City initially filed its motion to enforce the
settlement agreement on or about September 4, 2014. The
trial court entered judgment in favor of the City on
November 6, 2014. However, on June 11, 2015, the trial
court found Kihagi had not been properly served with the
City’s motion to enforce the settlement agreement and
granted Kihagi’s motion to set aside the judgment. The City
simultaneously informed Kihagi that it would be re-filing its
20
motion to enforce the settlement agreement. Nevertheless,
on July 22, 2015, Kihagi filed a motion for an award of
attorney fees in connection with the motion to set aside the
judgment. The City again informed Kihagi that it planned
to re-file its motion to enforce the settlement agreement and
requested that Kihagi take her motion for attorney fees off
calendar because it was premature. Kihagi ignored the
request. At a status conference on August 11, 2015, the City
again requested that Kihagi take the motion for attorney
fees off calendar since the merits of the motion to enforce the
settlement agreement had not yet been heard. Kihagi
refused to do so.
On November 20, 2015, the City re-filed its motion to
enforce the settlement agreement. On December 15, 2015,
the City filed its opposition to Kihagi’s motion for attorney
fees. In its opposition, the City noted that a hearing on the
merits of the motion to enforce the settlement agreement
was still pending and that until then, there is no “prevailing
party” as that term is used in the settlement agreement and
Civil Code section 1717.9 The term “prevailing party” refers

9 Civil Code section 1717, subdivision (a) 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 . . . to the prevailing
party, then the party who is determined to be the party
prevailing on the contract . . . shall be entitled to reasonable
attorney’s fees in addition to other costs.” Under
subdivision (b)(1) of the statute, “the party prevailing on the
contract” is the party who recovered “a greater relief” in the
21
to the party who ultimately prevails in the litigation on the
contract, not in any single hearing within the litigation, the
City argued. “[S]uch an interpretation as Kihagi espouses
would wreak havoc with our judicial system and result in
multiple motions on every conceivable subject within the
litigation to subject each party to endless motions for
attorneys’ fees.” Kihagi filed a reply to the City’s opposition
on December 30, 2015.
On December 31, 2015, the trial court again entered
judgment in favor of the City. The judgment included a
permanent injunction and liquidated damages in the sum of
$10,000 against Kihagi as well as the City’s attorney fees in
bringing the motion. On January 7, 2016, the trial court
denied Kihagi’s motion for attorney fees in connection with
the motion to set aside the judgment. “[T]he settlement
agreement provides for attorney’s fees to the prevailing
party in ‘litigation’ involving a controversy over the
settlement agreement,” the court observed. “[Kihagi] did not
prevail in this litigation.”
A trial court’s determination as to which party has
prevailed “ ‘will not be disturbed on appeal absent a clear
abuse of discretion.’ ” (Smith v. Krueger (1983) 150
Cal.App.3d 752, 756–757.) Under Civil Code section 1717,
subdivision (b)(1), a prevailing party is defined as “the party

action on the contract. Parties to a contract cannot enforce a
definition of “prevailing party” different from that provided
in section 1717. (Walker v. Ticor Title Co. of California
(2012) 204 Cal.App.4th 363, 373.)
22
who recovered a greater relief in the action on the contract.”
The parties are bound by this definition. (Walker v. Ticor
Title Co. of California, supra, 204 Cal.App.4th at p. 373.)
Furthermore, fees under section 1717 are awarded to
the party who prevailed on the contract overall, not to a
party who prevailed only at an interim procedural step.
(Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206
Cal.App.4th 515, 546 [denying fees for prevailing on interim
motion that did not resolve substantive dispute]; accord,
Presley of Southern California v. Whelan (1983) 146
Cal.App.3d 959, 961 [reversing fee award because overall
victor “is yet to be determined”]; Hsu v. Abbara (1995) 9
Cal.4th 863, 876 [prevailing party determination to be made
by comparing parties’ degrees of success “upon final
resolution” of claims]; Estate of Drummond (2007) 149
Cal.App.4th 46, 53 [defendants’ fees denied because
dismissal of plaintiff’s petition “merely deflected or
forestalled” plaintiff’s claims].)
We recognize, of course, that a defendant might prevail
within the meaning of section 1717 by winning a purely
procedural dismissal. If re-filing would be legally barred—
by the statute of limitations, for example—or would be
otherwise impossible or impracticable, the defendant might
be deemed the prevailing party without obtaining a
resolution on the merits. (Estate of Drummond, supra, 149
Cal.App.4th at p. 53.) Indeed, the California Supreme Court
recently held that section 1717 does not require a victory on
the merits of the contractual dispute, as opposed to a victory
23
on procedural grounds. (DisputeSuite, LLC v. Scoreinc.com
(2017) 2 Cal.5th 968, 989.) But it does require a victory.
Here, as in Estate of Drummond, the dismissal of the
plaintiff’s action was not dispositive. It did not defeat the
City’s contract claims, but instead merely deflected or
forestalled them. Indeed, Kihagi was well aware of this fact
when filing her motion for attorney fees. Kihagi’s interim
victory did not make her the prevailing party under
section 1717, and the trial court therefore acted within its
discretion in denying Kihagi’s motion for attorney fees.
Based on the trial court’s judgment, the City was
unequivocally the prevailing party and entitled to recover
attorney fees. (See Hsu v. Abbara, supra, 9 Cal.4th at p.
876.) Because the injunction is reversed, however, the City
has received, at most, only a part of the relief it sought. In
this situation, the court has discretion to find that the City is
not a prevailing party. (Id. at p. 875.) In exercising its
discretion, the court must “compare the relief awarded on
the contract claim or claims with the parties’ demands on
those same claims and their litigation objectives as disclosed
by the pleadings, trial briefs, opening statements, and
similar sources. The prevailing party determination is to be
made only upon final resolution of the contract claims and
only by ‘a comparison of the extent to which each party ha[s]
succeeded and failed to succeed in its contentions.’ ” (Id. at
p. 876.) Thus, after remand and upon motion, the trial court
should exercise its discretion and determine once again
which party is entitled to recover attorney fees.

Outcome: The trial court’s determination that Kihagi violated the
settlement agreement is affirmed. However, we reverse the
trial court’s imposition of a permanent injunction. Should
the parties seek to draft a new injunction, they may return
to the trial court to do so. Given this holding, we also
reverse the trial court’s attorney fee award. The trial court
should exercise its discretion and determine once again
which party is entitled to recover attorney fees. The parties
are to bear their own costs on appeal.

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