Judge Randolph M. Hammock, Case 20STCV33601 2023-01-25 Tentative Ruling

Plaintiff Arica, LLC alleges that in October of 2017, third party Viltar, LLC issued Plaintiff a secured promissory note in the principal amount of $800,000. The note was secured by a deed of trust on the real property at 12509 W. Sunset Boulevard, Los Angeles, CA. Plaintiff alleges that note was never paid and is still owing in full.

Plaintiff further alleges that in February of 2019, Plaintiff issued back to Viltar, LLC a secured promissory note to pay Viltar the principal amount of $90,000.00. At some point after, Viltar, LLC assigned the $90,000 note and accompanying deed of trust to Defendant in this case, Yukmi, Inc. Defendant now seeks to foreclose on the $90,000 note. However, Plaintiff alleges that it is entitled to an offset based on the $800,000 note Viltar, LLC owes under the first promissory note. Thus, Plaintiff brought an action against Yukmi, Inc. for Declaratory Relief.

On December 17, 2021, Plaintiff filed a First Amended Complaint, adding a second cause of action for breach of contract. Plaintiff alleges the parties had a binding agreement to settle this matter but Defendant reneged on the agreement.

On August 30, 2022, this court granted Plaintiff Arica’s motion for summary judgment on both causes of action in the First Amended Complaint and entered judgment in Plaintiff’s favor on October 4, 2022. [FN 1]

Plaintiff Arica, LLC alleged that in October of 2017, it obtained a secured promissory note in the principal amount of $800,000 from a third party, Viltar LLC. The note was secured by a deed of trust on the real property at 12509 W. Sunset Boulevard, Los Angeles, CA. Plaintiff alleges that Viltar LLC has not made any payments on the note and is still owing in full.

Plaintiff further alleged that in February of 2019, Plaintiff issued back to Viltar, LLC a secured promissory note to pay Viltar the principal amount of $90,000.00. At some point after, Viltar, LLC assigned the $90,000 note and accompanying deed of trust to Defendant in this case, Yukmi, Inc. That assignment was recorded on December 23, 2019.

Defendant Yukmi then sought to foreclose on the $90,000 note. However, Plaintiff alleged that it was entitled to an offset based on the $800,000 note Viltar, LLC, owed it under the first promissory note. Thus, Plaintiff brought an action against Yukmi, Inc., for Declaratory Relief.

On December 17, 2021, Plaintiff filed a First Amended Complaint, adding a second cause of action for breach of contract. Plaintiff alleged the parties had a binding agreement to settle this matter, but Defendant reneged on the agreement after it obtained new counsel. Defendant denied that any binding agreement existed.

On August 30, 2022, this court ruled on the parties’ concurrent motions for summary judgment or adjudication, granting Plaintiff Arica’s motion for summary judgment and denying Defendant’s motion.

Plaintiff now moves to recover its reasonable attorney’s fees. In opposition, Defendant makes three arguments: (1) that the “attorney’s fee clause” in the February 2019 Deed of Trust “relates only to the defense and indemnity obligation of [Plaintiff] should action be taken by a third party affecting the rights under the deed of trust;” (2) that Plaintiff waived any claim to attorney’s fees; and (3) that the judgment in Plaintiff’s favor on the second cause of action for breach of the settlement moots the cause of action for declaratory relief. In short, this Court agrees with the first and third arguments, either of which will result in the denial of this motion for attorney’s fees.

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 either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.

Plaintiff argues this is “an ‘action on a contract’ as it ‘involves a contract,’ the $90,000 Note and February 2019 Deed of Trust, and sought declaratory relief to avoid enforcement of obligations under the note and foreclosure of the Property secured by the note.” (Mtn. 6: 3-6.) Plaintiff also argues that “the February 2019 Deed of Trust that accompanies the $90,000 Note, and is a part of the same transaction, includes an attorney fee provision.” (Mtn. 6: 10-11.)

To protect the security of this Deed of Trust…Trustor [Arica, LLC] agrees . . . (3) to appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Trustee [Chicago Title Company] or Beneficiary [Viltar, LLC]; and to pay all costs and expenses, including cost of evidence of title and attorney’s fees in a reasonable sum, in any action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed of Trust.

Standing alone, the clear and unambiguous language of this claimed “attorney’s fee provision” only applies when the Plaintiff Arica does, in fact, “appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Trustee [Chicago Title Company] or Beneficiary [Viltar, LLC].” (Emphasis added.) That is simply not the situation here. Arica is the sole party who instigated this lawsuit. It did not “appear and defend” anyone, let alone the Trustee of the Beneficiary. Indeed, Arica sued the Assignee of the Beneficiary, not the other way around.

Next, Arica agreed to pay to the Trustee or Beneficiary all reasonable costs and attorney’s fees incurred by them, “in any action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed of Trust.” Certainly, this is not a “suit brought by Beneficiary to foreclose this Deed of Trust.”

This case arguably could be an action in which the Beneficiary has “appeared,” vis-à-vis its assignee. However unlikely that is, if this were that situation, the Plaintiff’s contention that “to ensure the mutuality of remedy,” the law requires this provision to be construed as mutual obligation to pay attorney’s fees, is still not a valid one. (Mtn. 6: 19.)

The “primary purpose of section 1717 is to ensure mutuality of remedy for attorney fee claims under contractual attorney fee provisions,” and it does so in two ways. (Santisas v. Goodin (1998) 17 Cal. 4th 599, 610.) First, when a contract “provides the right to one party but not to the other,” section 1717 “allow[s] recovery of attorney fees by whichever contracting party prevails, ‘whether he or she is the party specified in the contract or not.’” (Id. at 610-11.) Second, “when a party litigant prevails in an action on a contract by establishing that the contract is invalid, inapplicable, unenforceable, or nonexistent, section 1717 permits that party's recovery of attorney fees whenever the opposing parties would have been entitled to attorney fees under the contract had they prevailed.” (Id. at 611.)

Defendant, on the other hand, argues that “section 1717’s rule of reciprocity is subject to an exception where the recovery of attorney’s fees is authorized as an item of loss or expense in an indemnity agreement or provision.” (Opp. 3: 16-18.) The provision here, Defendant argues, is an indemnity provision “requiring Plaintiff to indemnify any claims that affect the title to the property secured by the deed of trust.” (Opp. 4: 5-7.)

“A clause which contains the words ‘indemnify’ and ‘hold harmless’ is an indemnity clause which generally obligates the indemnitor to reimburse the indemnitee for any damages the indemnitee becomes obligated to pay third persons.” (Myers Bldg. Indus., Ltd. v. Interface Tech., Inc. (1993) 13 Cal. App. 4th 949, 969.) Contractual provisions purely of this nature—those that constitute third party claims indemnity clauses—are not subject to the provisions of Civil Code section 1717. (Id.) “A contrary conclusion would defeat the purpose of an indemnity agreement. The very essence of an indemnity agreement is that one party hold the other harmless from losses resulting from certain specified circumstances. The provisions of Civil Code section 1717 were never intended to inflict upon the indemnitee the obligation to indemnify his indemnitor in similar circumstances.” (Id. at 973.)

Thus, a threshold question is whether the provision here is an “attorney fee clause[] that section 1717(a) requires to be reciprocal or [is] instead an element of loss within the scope of the indemnity agreements, thus rendering the statute inapplicable.” (Baldwin Builders v. Coast Plastering Corp. (2005) 125 Cal. App. 4th 1339, 1344.)

Where an indemnity agreement “not only provides [for] a right to indemnity for liabilities to third parties and expenses including attorney fees) arising out of the subcontract work,” but also requires the other party to pay “all costs, including attorney's fees, incurred in enforcing [the] indemnity agreement,” that clause will be construed as reciprocal. (Baldwin Builders, supra,125 Cal. App. 4th at 1344–45 [italics in original].) In contrast to general provisions requiring indemnity for third party claims, these or similar clauses “unambiguously contemplate an action between the parties to enforce the indemnity agreements…and thus section 1717(a) would appear to be applicable.” (Id. at 1345.)

The provision here requires Arica to pay attorney’s fees “in any action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed of Trust.” (Scalini Decl., Exh. 2.) Accordingly, like in Baldwin Builders, the provision here is not limited to third-party losses, but also includes any suit “by Beneficiary to foreclose this Deed of Trust.” (Id.) Because the “express language of the attorney fee clause[] authorizes the recovery of attorney fees where one of the parties to the agreement brings an action to enforce the indemnity[,]” section 1717 reciprocity applies. (Baldwin Builders, supra, 125 Cal. App. 4th at 1346.) \

In the same sense, the provision here is distinguishable from that in Myers, supra, which was a “standard indemnity provision” including attorney’s fees only “as losses or expenses recoverable under the indemnity agreement,” but not as a “provision providing for an award of attorney fees in an action to enforce the contract.” (Myers Bldg. Indus., Ltd.,13 Cal. App. 4th at 973.)

Accordingly, the provision in the February Deed of Trust here, which expressly allows Beneficiary to recover attorney’s fees in an action to foreclose the deed of trust itself, is subject to the reciprocity requirements of section 1717.

Be that as it may, as noted earlier, it is undisputable that this is not an action brought by Beneficiary to foreclose this Deed of Trust. It was an action initially brought by Arica to have this Court declare the rights and duties of the parties in this situation, and more specifically, whether Arica had a right to an offset of the entire $90,000 (which was assigned to Defendant) from the $800,000 note owed by the Assignor.

Defendant next argues that Plaintiff waived any right to attorney’s fees, because Plaintiff’s counsel “stated there was no attorney’s fee provision” during the hearing on the motions for summary judgment. (Opp. 4: 22-23.)

First, Defendant has not provided a transcript from the hearing, and has failed to establish what was said regarding attorney’s fees, if anything. Even so, Defendant has not provided any authority in which a party’s attorney waived recovery of attorney’s fees based on a mistaken statement that no means of recovery existed. Thus, the argument fails.

Defendant then argues that Plaintiff is not entitled to recover attorney fees because the settlement agreement, which this Court enforced, did not provide for a recovery of attorney fees. (Opp. 4: 26-27.) “In obtaining a judgment enforcing that settlement agreement, which disposed of the ‘case in its entirety,’ Plaintiff waived any right whatsoever to obtain Declaratory Relief or attorney’s fees pursuant to that Declaratory Relief cause of action.” (Opp. 5: 4-6.) This Court agrees.

In other words, assuming for the sake of argument that somehow there was a viable attorney’s fees clause applicable in the First Cause of Action for Declaratory Relief, that cause of action was essentially mooted when the parties entered into an enforceable settlement agreement. That settlement agreement did not have any attorney’s fees clause.

This Court flatly disagrees with Plaintiff that Plaintiff’s success on the declaratory relief cause of action essentially “renders moot Plaintiff’s Second Cause of Action” —and not, as Defendant argues, the other way around. (Reply 3: 2-5.)

Although this Court granted summary adjudication on both causes of action, the ruling on the first cause of action was only necessary or needed if it turns out that this Court was in error when it found that there was a binding settlement agreement. Plaintiff’s position was clear and unequivocable: There was a binding settlement agreement reached by the parties as to the declaratory relief action. Hence, this Court finds that this settlement agreement essentially mooted the need for this Court to declare anything under the First Cause of Action. [FN 2]

This is another independent reason for the denial of the instant motion for attorney’s fees. Neither party would be entitled to such fees under the enforceable settlement agreement, since no such attorney’s fees clause is contained therein.

Relatedly, Defendant has filed a motion to strike Plaintiff’s memorandum of costs. In that memorandum of costs, Plaintiff seeks a total of $2,148.49 in costs, made up of $1,030.40 in filing and motion fees, $254.00 in service fees, $345.14 in electronic filing fees, and $518.95 for “Remote Court Appearance Fees and Courtesy Copies Delivered to Court.” (Memorandum of Costs, ¶¶ 1, 5, 14, 16; Attach. A.)

Defendant argues that it is Defendant, and not Plaintiff, that is the prevailing party in this action, because “the Court’s ruling and Judgment in this case entitles Defendant to a payment of $5,000.00 which is owed to it by the Plaintiff.” (Mtn. 3: 8-9.) Not quite so.

Once again, the settlement agreement is silent on the issue of costs. In general, the prevailing party is entitled as a matter of right to recover costs for suit in any action or proceeding. (Code Civ. Proc., §1032(b); Santisas v. Goodin (1998) 17 Cal.4th 599, 606; Scott Co. Of Calif. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1108.) With regard to the definition of “prevailing party”, section 1032(a)(4) provides that:

“‘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. If 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.”

In determining litigation success, Courts should “respect substance rather than form” and consider “the unique facts and circumstances of each case.” (Marina Pacifica Homeowners Assn. v. S. California Fin. Corp. (2018) 20 Cal. App. 5th 191, 206.) A court may award costs in a declaratory relief cause of action that reduced a Plaintiff’s potential liability, even where there is no “net monetary recovery” by a Plaintiff. (Id. at 212, 213.)

Here, the Plaintiff has not technically received a net-monetary relief. However, by prosecuting its first cause of action, Plaintiff essentially prevented Defendant from any future attempts in foreclosing on the $90,000 note and deed of trust. That only cost them a mere $5,000. Moreover, at worst, Plaintiff was relieved from liability of this $90,000.00 by successfully showing that Defendant had reneged on the agreement to settle the claims for $5,000. Defendant’s argument ignores that Plaintiff brought this action seeking to avoid paying Defendant $90,000 purportedly owed under the February Note and Deed of Trust. In short, Plaintiff received exactly what it asked for in both causes of action. Thus, because this is a situation “other than as specified,” in section 1032, this court “in its discretion” allows costs for Plaintiff as the prevailing party. [FN 3]

Defendant does not point to any item in the cost bill that it contends is unrecoverable or unreasonable. It is the challenging party that has the burden of demonstrating that those costs are unreasonable or unnecessary. (Adams v. Ford Motor Co., 199 Cal. App. 4th 1475, 1486 (2011); 612 South LLC v. Laconic Limited Partnership, 184 Cal. App. 4th 1270, 1285 (2010).) Thus, the court finds as the prevailing party, Plaintiff is entitled to $2,148.49 as its reasonable and necessary costs.

Judge of the Superior Court

FN 1 - However, that judgment was likely entered prematurely by this Court, as when entering that judgment, this Court had not yet ruled upon the Defendant’s objections to that judgment. Indeed, this exact issue is currently pending before this Court and is also to be heard at the same time of these motions.

FN 2 - Upon reflection, this Court should have made such a point clearer when granting the summary judgment in this case.

FN 3 - The bottom line is this. The “net monetary” recovery, if any, to Defendant by means of the settlement agreement is a Pyric victory, at best. The Defendant’s position in this lawsuit was that it was owed $90,000. It turns out that Defendant was incorrect, based upon this Court’s alternative ruling on the First Cause of Action. Defendant wisely chose to accept $5,000 in settlement – which is better than zero, which they would have received in the First Cause of Action.