Judge Edward B. Moreton, Jr, Case Number: 20SMCV00492, Date: 2025-01-09 Tentative Ruling

Judge: Edward B. Moreton, Jr, Case: 20SMCV00492, Date: 2025-01-09 Tentative Ruling

Superior Court of California

County of Los Angeles – West District

Beverly Hills Courthouse / Department 205

EDGAR A. MEINHARDT, et al.,

Plaintiffs,

SUNNY ACRE LLC, et al.,

Defendants.

Case No.: 20SMCV00492

Hearing Date: January 9, 2025

[TENTATIVE] order RE:

DEFENDANTS’ MOTION FOR

ATTORNEYS’ FEES

This action arises out of a refinance loan transaction. In 2019, Plaintiff Corp Realty USA LLC (“Borrower”) refinanced its loan with Defendants Sunny Acre LLC (“Sunny Acre”) and Tsasu LLC (“Tsasu”) (the “Lender Defendants”), in the amount of $3.5 million (the “2019 Loan”). Defendants Universal Commercial Capital and Eric Tran were the mortgage broker involved in originating the refinance loan. The 2019 Loan was secured by a Deed of Trust recorded against the title to Borrower’s real property located at 10936 Pacific View Drive, Malibu, California 90265 (the “Property”), and a Promissory Note Secured By a Deed Of Trust (“Promissory Note”) signed by Borrower in 2019.

In response to the Lender Defendants’ recording of a Notice of Default and then a Notice of Sale following the Borrower’s immediate default in mortgage payments, Plaintiff Edgar A. Meinhardt filed the instant action in March 2020 seeking to halt Lender Defendants’ foreclosure sale of the Property and asserting various claims regarding the refinance loan provided to Borrower in 2019. On June 4, 2024, this Court dismissed the entire action, based on Meinhardt’s failure to comply with the Court’s Trial Preparation Order and the Local Rules of the Los Angeles Superior Court regarding the filing of the required pre-trial documents at the Final Status Conference. The Court then entered a final Judgment of Dismissal.

This hearing is on the Lender Defendants’ motion for attorneys’ fees. The Lender Defendants argue that under the attorneys’ fees provision in the Promissory Note signed by Borrower in connection with the 2019 Loan, Borrower agreed that the Lender Defendants would be entitled to recover their “attorney fees” to enforce the Note, and under Civ. Code § 1717, the Lender Defendants can recover their attorneys’ fees as the prevailing party, as the complaint against them was dismissed by the Court. Lender Defendants seek $245,871.78 in attorneys’ fees.

The party claiming attorneys’ fees must establish entitlement to such fees and the reasonableness of the fees claimed. (Civic Western Corporation v. Zila Industries, Inc. (1977) 66 Cal.App.3d 1, 16.) “Except as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties[.]” (Code Civ. Proc., § 1021.) “It is well established that the determination of what constitutes reasonable attorney fees is committed to the discretion of the trial court, whose decision cannot be reversed in the absence of an abuse of discretion.” (Melnyk v. Robledo (1976) 64 Cal.App.3d 618, 623.)

In determining the proper amount of fees to award, courts use the lodestar method. The lodestar figure is calculated by multiplying the total number of reasonable hours expended by the reasonable hourly rate. (Serrano v. Priest (1977) 20 Cal.3d 25, 48, 141 Cal. Rptr. 315, 569 P.2d 1303.) A reasonable hourly rate must reflect the skill and experience of the attorney. (Id. at 49.)

And whether the number of hours expended is reasonable is based on an objective standard of reasonableness. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1090, 95 Cal. Rptr. 2d 198, 997 P.2d 511.) The value of legal services performed in a case is a matter in which the trial court has its own expertise. (Id. at 1096.) The trial court may make its own determination of the value of the services without the necessity for expert testimony. (Id.) The trial court makes its determination after consideration of a number of factors, including the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure, and other circumstances in the case. (Id.)

Here, the principal agreement between Borrower and the Lender Defendants relating to the 2019 Loan is the Promissory Note which contains the following attorneys’ fee provision:

Attorneys Fees. Borrower agrees to pay the following costs, expenses, and attorney fees paid or incurred by Lender, or adjudged by a court: (a) reasonable costs of collection and costs, expenses, and attorney fees paid or incurred in connection with the collection or enforcement of this Note, whether or not suit is filed; (b) reasonable costs, expenses, and attorney fees paid or incurred in connection with representing Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under this Note; (c) reasonable costs, expenses, and attorney fees incurred to protect the lien of the Deed of Trust; and (d) costs of suit and such sum as the court may adjudge as attorney fees in any action to enforce payment of this Note or any part of it.

(Exh. B to Slome Decl.) Thus, in the event of any claims arising out of the collection or enforcement of the 2019 Loan, the Promissory Note provides that the Lender Defendants are entitled to recover their attorneys’ fees. (Id.)

Where a contract provides for attorneys’ fees, Civil Code § 1717 entitles the prevailing party to recover reasonable attorneys’ fees. (See Scott Co. of Calif. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109; Hsu v. Abbara (1995) 9 Cal.4th 863, 865-866; David S. Karton A Law Corp. v. Dougherty (2014) 231 Cal.App.4th 600, 608-609.) Here, the Lender Defendants are deemed to be the “prevailing party” under Section 1717 when the Court dismissed the action. (See Carroll v. Import Motors, Inc. (1995) 33 Cal.App.4th 1429, 1437; see also Code Civ. Proc. § 1032 (prevailing party includes “a defendant in whose favor a dismissal is entered”.)

Meinhardt argues that because the contract is between the Lender Defendants and Borrower, not Meinhardt, Lender Defendants may only seek to recover fees in connection with claims brought by Borrower, which were dismissed on September 8, 2023. Lender Defendants never address this argument. Instead, they sidestep the issue, by arguing that where there are “common issues” between the claims to be litigated in a case, the prevailing party is entitled to recover all of their attorneys’ fees incurred in connection with both the recoverable and non-recoverable claims litigated in the case. (Reply at pp. 8-9.) But this argument does not address the threshold issue of whether there is even a recoverable claim against Meinhardt since he is a non-signatory to the attorneys’ fees provision.

In cases involving non-signatories to a contract with an attorney fee provision, the following rule applies: “A party is entitled to recover its attorney fees pursuant to a contractual provision only when the party would have been liable for the fees of the opposing party if the opposing party had prevailed. Where a non-signatory plaintiff sues a signatory defendant in an action on a contract and the signatory defendant prevails, the signatory defendant is entitled to attorney fees only if the non-signatory plaintiff would have been entitled to its fees if the plaintiff had prevailed.” (Real Property Services Corp. v. City of Pasadena (1994) 25 Cal. App. 4th 375, 382.)

Here, Meinhardt claimed he was entitled to attorneys’ fees pursuant to his breach of contract claim if he prevailed. (Compl. ¶ 225.) This case, therefore, falls within the narrow exception articulated in Real Property for the award of attorneys fees to a signatory defendant against a non-signatory plaintiff.

Plaintiffs next argue that the Lender Defendants may only recover fees incurred in connection with contract claims, namely the claims for breach of contract, quiet title and declaratory relief. But, as the Lender Defendants argue, courts have held that where there are common issues between recoverable claims and claims for which attorneys’ fees are not allowed, “the joinder of causes of action should not dilute the right to attorney fees. Such fees need not be apportioned when incurred for representation of an issue common to both a cause of action for which fees are permitted and one for which they are not. All expenses incurred on the common issues qualify for an award.” (Akins v. Enterprise Rent–A–Car Co. of San Francisco (2000) 79 Cal.App.4th 1127, 1133.)

Here, Plaintiffs’ breach of contract claims and other claims are “interrelated” and based on the following “common issues” warranting the recovery of all such fees: (1) Whether Lender Defendants’ 2019 Loan and Promissory Note Deed were enforceable; and (2) Whether Lender Defendants’ Deed of Trust was enforceable and supported a foreclosure sale of the Property. Thus, the Lender Defendants are entitled to fees relating to all claims asserted in this action, as they all are based on common or interrelated issues.

The starting point of any fee award is the lodestar. The lodestar figure is calculated by multiplying the total number of reasonable hours expended by the reasonable hourly rate. (Serrano, 20 Cal.3d at 48.) A reasonable hourly rate must reflect the skill and experience of the attorney. (Id. at 49.)

Here, the principal attorney representing the Lender Defendants in this action was Troy Slome whose hourly rate in this matter is $300, below his normal billing rate of $350 per hour. Slome is a partner at Meylan Davitt Jain Arevian & Kim LLP (“MDJA”). He has been practicing for over 29 years and has tried civil and arbitration trials as lead counsel. The Lender Defendants are also represented by Peter Mastan of Dinsmore & Shohl LLP in connection with Plaintiff’s filing of a Chapter 7 Proceeding and Adversary Proceeding in the United States Bankruptcy Court, Central District of California. Mastan has been practicing law for over 27 years, with experience in bankruptcy matters, and his hourly rate is $600-$740 per hour. The Court concludes these hourly rates are reasonable given counsel’s skill, experience and comparable rates in this legal market.

In terms of the hours expended, the factors to be considered include the nature of the litigation, the skill employed in the litigation, and the results achieved. (See Hadley v. Krepel (1985) 167 Cal.App.3d 677, 682.) “By and large, the court should defer to the winning lawyer’s professional judgment as to how much time he was required to spend on the case; after all, he won, and might not have, had he been more of a slacker.” (Moreno v. City of Sacramento (9th Cir. 2008) 534 F.3d 1106, 1112.)

Here, the Lender Defendants seek the following attorney’s fees to the following law firms and lawyers: (1) MDJA, totaling $99,000.00; and (2) Dinsmore & Shohl LLP, totaling $146,871.78. (See Slome Decl., page 16, ¶ 16.) Meylan represented the Lender Defendants in this action and in two separate actions for unlawful detainer and to expunge lis pendens. Dinsmore represented the Lender Defendants in Meinhardt’s bankruptcy proceedings.

Meinhardt argues that the hours sought should not include hours spent in his bankruptcy litigation. The Lender Defendants do not address this argument. The attorneys’ fees provision allows for recovery of costs for “bankruptcies”. But the Lender Defendants cite no authority that they may claim those fees in state litigation, as opposed to the bankruptcy proceedings themselves. Arguably, the better practice is to seek these fees in bankruptcy court where that court is more familiar with whether the hours expended are reasonable. The standards a bankruptcy court relies upon are different from a standard this court would rely on, and arguably are a bit more stringent given the nature of the bankruptcy proceeding. Accordingly, the Court agrees with Meinhardt that any fees related to the personal bankruptcy of Meinhardt are improper and must be denied. This means that all of the fees incurred by the Lender Defendants’ bankruptcy counsel, $146,871.78, must be denied.

Similarly, the Lender Defendants seek attorneys’ fees in connection with a separate unlawful detainer action. All hours related to the unlawful detainer must be denied because the unlawful detainer action is a statutory action for possession in which the debt and title are not at issue. It is not an action in connection with the enforcement and collection of the Note. Plaintiffs contend that $9,000 of Defendants’ fees are attributable to the unlawful detainer action, and accordingly, the Court reduces the fee award by $9,000.00.

Plaintiffs also argue that the Lender Defendants were denied attorneys’ fees for their motion to expunge lis pendens and accordingly, cannot seek those fees here, and in any event, the law required the Lender Defendants to ask for them through the lis pendens proceedings. The Lender Defendants respond that the Court in that separate action denied the attorneys fees and costs pursuant to Code Civ. Proc. section 404.38, and did not decide the Lender Defendants’ right to recover attorney’s fees as the “prevailing party” in this matter under Civ. Code section 1717. The Lender Defendants ignore Plaintiffs’ argument that the fees they seek are for a separate action and the law required the Lender Defendants to seek those fees in that separate action.

Nevertheless, the Court cannot conclude based on the one case cited by Plaintiffs, that the Lender Defendants were required to seek the fees exclusively through the lis pendens proceedings. Notwithstanding, the Court finds that the more practical approach is for the Lender Defendants to seek these fees in the lis pendens proceedings where the judge in that action may have a better understanding whether the fees incurred were reasonable. For this reason, the $5,400.00 in fees regarding the lis pendens will be denied.