Pueblo Radiology Medical Group, Inc. v. Gerlach
Filed June 4, 2008
Court of Appeal in the State of California, Second Appellate District, Division Six
Cite as 2008 SOS 3275

Defendant is Entitled to Attorney’s fees in a Contract Action

Pueblo Radiology Medical Group, Inc. entered into a contract with Vitiscan Inc. to provide interpretation services of imaging scans from the Vitiscan Mobile Imatron Electron Beam Tomography scanner. The contract covered the period from June 1, 2001 to December 30, 2003. The contract was signed by J. Dalton Gerlach and Daniel Parker, the President and Secretary, respectively of Vitiscan Inc. Both were the sole shareholders of the company.

The contract contained a clause relating to attorney’s fee which has the import that in any litigation arising from the contract, whether for enforcement, or for any dispute, the prevailing party as determined by the court or arbitrator shall be entitled to court or arbitration costs and reasonable attorneys' fees from the other party or parties.

March 2002, Vitascan Inc. advised Pueblo Radiology Medical Group, Inc. that its services were no longer needed.

Thus, in June 2002, Pueblo Radiology Medical Group, Inc. filed a complaint for breach of contract, common counts and an accounting, against Vitascan Inc., J. Dalton Gerlach and Daniel Parker in the Superior Court of Santa Barbara County. The complaint alleged that Gerlach and Parker were the alter egos of Vitascan Inc.

Meanwhile, Vitascan Inc. ceased operations in September 2003 and filed for bankruptcy in March 2004.

On July 13, 2004, Gerlach and Parker filed a motion to bifurcate the breach of contract claim from the alter ego issue.

This was opposed by Pueblo Radiology Medical Group, Inc.

The trial court granted the motion and heard the alter ego issue first.

On March 16, 2006, the trial court found Gerlach and Parker were not the alter ego of Vitiscan Inc. and judgment was entered accordingly, including an award of attorney fees to them under Civil Code section 1717.

Pueblo Radiology Medical Group, Inc. appealed to the Court of Appeal in the State of California, Second Appellate District Division of Six challenging the trial court’s award of attorney’s fees alleging that the same was premature because the breach of contract issue has not been decided.

In affirming the trial court’s findings, the appellate court held that where trial court found defendants were not personally liable to plaintiff under an alter ego theory on a breach of contract claim, the determination that defendants were not personally liable was a favorable termination of the case as to defendants as individuals rendering defendants entitled to attorney fees pursuant to Civil Code Sec. 1717, which entitles the prevailing party in a contract action to attorney fees because the alter ego claim was a step directly implicated in the contract action.