Opinion
A155484
01-30-2020
CITIMORTGAGE, INC., Plaintiff and Appellant, v. LINDSEY YATES et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Sonoma County Super. Ct. No. SCV-250399)
Both plaintiff Citimortgage, Inc. (Citi) and defendants Lindsey Yates and Zachary Yates (the Yateses) appeal from an order ruling that neither of them was the prevailing party in this action and consequently that neither of them was entitled to attorney's fees under Civil Code section 1717. We affirm.
All further statutory references are to the Civil Code, unless otherwise indicated.
I. BACKGROUND
This is the third appeal in litigation between defaulting property owners and their lender that began in 2011. We summarize here the background and other facts pertinent only to the attorney fee issue presented in this appeal, borrowing from the recitations in our earlier opinions. (Citimortgage v. Yates et al. (Sept. 27, 2019, A153940) [nonpub. opn.].)
The Yateses acquired two adjacent properties, 4401 and 4405 Price Avenue in Santa Rosa, California. In January 2004, Lindsey Yates executed a promissory note for $342,000 for the 4405 property in favor of SCME Mortgage Bankers, Inc., who transferred the loan to Citi.
The note contained an attorney fee clause, which provided in part: "If the Note Holder has required me to pay immediately in full as described above, the Note Holder will have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees."
Ms. Yates signed a deed of trust to secure repayment of the loan. The deed of trust also contained an attorney fee clause, which stated that, in the event of a default on the loan, "[i]f the default is not cured on or before the date specified in the notice [of default], Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may invoke the power of sale and any other remedies permitted by Applicable Law. Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to, reasonable attorneys' fees and costs of title evidence."
The original deed of trust for the 4405 property was solely in Lindsey Yates's name.
The recorded deeds for the two properties contained incorrect legal descriptions; the 4405 property deed of trust described the 4401 property, while the 4401 property deed of trust described the 4405 property. When the Yateses defaulted on their loan payments on the 4405 property, Citi sought to initiate foreclosure proceedings on that parcel, but could not do so because the deed had been reconveyed back to the Yateses in error.
In September 2011, Citi filed this action against the Yateses, asserting causes of action for quiet title, reformation of instruments, and declaratory relief. After a bench trial in 2014, the trial court found Citi's action was not barred by the statute of limitations. Although the issue had not been raised by either party, the court added that Citi had a viable "equitable mortgage" claim. While the deed of trust lacked formal requirements due to an error in the legal description of the property, equity empowered the court to recognize a mortgage where the parties expressed an intent to make the 4405 property security for the Yateses' debt. Thus, the court recognized that the deed of trust created an equitable mortgage. The court issued a judgment in favor of Citi.
The Yateses appealed. In an unpublished opinion, we reversed, finding Citi's claims for quiet title, reformation of instruments, and declaratory relief to be untimely, and we remanded the case to allow Citi to plead an equitable mortgage cause of action and to allow the Yateses to defend against it. (Citimortgage, Inc. v. Yates, et al. (May 23, 2016, A142698) [nonpub. opn.].)
In December 2016, Citi filed the operative Fourth Amended Complaint alleging causes of action for equitable mortgage and declaratory relief. The Yateses filed a demurrer to the complaint asserting those claims were barred by the statute of limitations. The trial court overruled the demurrer, concluding the equitable mortgage claim was timely. The court, however, noted that Citi would be unable to enforce the mortgage through a judicial foreclosure, as the statute of limitations (Code Civ. Proc., § 337) barred that remedy. For this reason, the court denied Citi's subsequent motion for leave to file a Fifth Amended Complaint to assert a judicial foreclosure cause of action.
Citi then filed an unopposed motion for summary judgment for a court decree establishing the existence of an equitable mortgage. The court granted the motion and in February 2018 entered judgment acknowledging the creation and existence of the equitable mortgage.
After entry of judgment, Citi appealed from the order denying leave to file a Fifth Amended Complaint. In an unpublished opinion, we affirmed, finding that Citi had forfeited the assertion that a judicial foreclosure cause of action was timely under California Uniform Commercial Code section 3118 by failing to raise that argument in the trial court. (Citimortgage, Inc. v. Yates, et al. (Sept. 27, 2019, A153940) [nonpub. opn.].)
Meanwhile, both parties filed separate motions for attorney's fees. Each claimed it was entitled to fees as the prevailing party under section 1717. Citi claimed it was the prevailing party in this case because it obtained a judgment acknowledging the existence of an equitable mortgage on the 4405 property. The Yateses asserted that they were the prevailing party because they established that the claims Citi asserted in its Third Amended Complaint were barred by the statute of limitations.
Each party filed a memorandum of costs and separately moved to strike and/or tax the costs claimed by the other party. In May 2018, the court heard all four motions. It granted Citi's motion to strike the Yateses' memorandum of costs. The court also granted the Yateses' motion to tax Citi's costs as to all sums incurred up until the disposition of the first appeal for a total amount of $4,888.57 and awarded Citi $620 in costs for reimbursement of post-appeal filing fees.
The court, however, denied both motions seeking attorney's fees. Citing section 1717 and Hsu v. Abbara (1995) 9 Cal.4th 863 (Hsu), the court ruled that there was no prevailing party because "neither party obtained the result the party was seeking or is happy with the outcome of the case."
In August 2018, the court entered judgment. The parties separately appealed.
The parties challenge only the court's denial of attorney fees under section 1717, not the granting of Citi's motion to strike the Yateses' costs or the Yateses' motion to tax Citi's costs pursuant to the general costs statute (Code Civ. Proc., § 1032).
II. DISCUSSION
A. Section 1717 and Attorney Fee Awards
Attorney's fees, when authorized by contract, are allowable as costs. (Code Civ. Proc., § 1033.5, subd. (a)(10)(A).) Section 1717 governs fee awards for enforcing contracts that include attorney fee provisions. Subdivision (a) of section 1717 provides in relevant part: "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."
Section 1717, subdivision (b)(1) states that "[t]he court, upon notice and motion by a party, shall determine who is the prevailing party . . . , whether or not the suit proceeds to final judgment." Unless an action has been dismissed voluntarily or pursuant to a settlement, "the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. The court may also determine that there is no party prevailing on the contract for purposes of this section." (§ 1717, subd. (b)(1), (2).)
"The primary purpose of section 1717 is to ensure mutuality of remedy for attorney fee claims under contractual attorney fee provisions." (Santisas v. Goodin (1998) 17 Cal.4th 599, 610.) "Courts have recognized that section 1717 has this effect in at least two distinct situations." (Ibid.) In the first situation, " '[w]here a contract provides that only one party may obtain attorney fees in litigation, [section 1717] makes the right to such fees reciprocal, such that the "party prevailing on the contract" claim will be entitled to recovery of fees " 'whether he or she is the party specified in the contract or not.' " ' " (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 346.) In the second situation, "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 the party's recovery of attorney fees whenever the opposing parties would have been entitled to attorney fees under the contract had they prevailed." (Santisas, at p. 611.)
In this case, both Citi and the Yateses invoke section 1717 as the statutory basis for their fee requests. Citi contends that the attorney fee clauses in the promissory note and the deed of trust authorize an award of attorney fees to the prevailing party in this case. While the Yateses dispute the applicability of the promissory note, they agree that the deed of trust entitles a prevailing party to fees and assert that section 1717 gives them a reciprocal right to recover those fees because they prevailed.
Neither party attaches any significance to the fact that the deed of trust was erroneously executed. Thus, both parties appear to concede that the validity of the deed of trust is not a prerequisite to an award of attorney's fees under section 1717.
However, the Yateses deny the applicability and effect of section 1717 and the deed of trust's attorney fee provision, contending that Citi's successful equitable mortgage claim is not a cause of action "on the contract" and therefore section 1717 does not apply as to Citi. The Yateses also argue that Citi may not recover under the deed of trust's attorney fee clause because Citi failed to satisfy the conditions precedent specified therein.
We note that the Yateses' contentions, on their face, are contradictory and arguably undermine both parties' claimed entitlement to attorney's fees. If the Yateses are correct that neither the deed of trust nor the promissory note authorizes Citi's recovery of attorney's fees, then the Yateses, too, lack a contractual basis for their fee request. We need not address this inherent tension in their position, however, given our resolution of the ultimate question as to who is the prevailing party in this action. As we will explain, the trial court acted within its discretion in denying both parties' motions for attorney's fees based on its determination that neither party had prevailed. B. Determination of No Prevailing Party
Section 1717 does not define the phrase "prevailing party." However, the principles governing a court's determination of the prevailing party under a contractual attorney fee provision are articulated in Hsu, upon which the court in this case relied.
In Hsu, prospective homebuyers sued the sellers for breach of contract, claiming that the sellers reneged after an exchange of offers and counteroffers had resulted in an agreement to sell. (Hsu, supra, 9 Cal.4th at pp. 866-867.) The trial court found for the sellers after determining that the buyers' new offer, made after their purported acceptance, extinguished the previously accepted counteroffer. (Id. at pp. 867-868.) The court, without explanation, declined to award the sellers their attorney's fees pursuant to a contractual fee provision, and the court of appeal affirmed. (Id. at pp. 869-870.)
The Supreme Court reversed, concluding that the sellers were the prevailing parties as a matter of law because they achieved an unqualified win. (Hsu, supra, 9 Cal.4th at pp. 876-877.) The Court explained "that in deciding whether there is a 'party prevailing on the contract,' the trial court is to 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 by 'a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions.' " (Id. at p. 876.)
Our high court further observed that, " '[t]ypically, a determination of no prevailing party results when both parties seek relief, but neither prevails, or when the ostensibly prevailing party receives only a part of the relief sought.' " (Hsu, supra, 9 Cal.4th at p. 875.) By contrast, a trial court has no discretion to deny attorney fees to a successful litigant, "when the results of the litigation on the contract claim are not mixed—that is when the decision on the litigated contract claims is purely good news for one party and bad news for the other." (Id. at pp. 875-876.) "Thus, when a defendant defeats recovery by the plaintiff on the only contract claim in the action, the defendant is the party prevailing on the contract under section 1717 as a matter of law. [Citations.] Similarly, a plaintiff who obtains all relief requested on the only contract claim in the action must be regarded as the party prevailing on the contract for purposes of attorney fees under section 1717." (Id. at p. 876.)
Applying these principles here, we conclude that neither party obtained a " 'simple, unqualified win.' " (Hsu, supra, 9 Cal.4th at p. 876.) On the one hand, Citi obtained a judgment acknowledging the existence of an equitable mortgage on the 4405 property that "will continue to encumber the property until [the] loan . . . is satisfied in full." On the other hand, the Yateses successfully established that Citi's other causes of action for quiet title, reformation of instruments, and declaratory relief, as well as the proposed judicial foreclosure cause of action, were untimely. Accordingly, the trial court was free to view this as a mixed result and then exercise its discretion to determine whether one party prevailed, or whether neither party prevailed because neither achieved its practical litigation objectives.
"A court abuses its discretion if its ruling is so irrational or arbitrary that no reasonable person could agree with it." (Olive v. General Nutrition Centers, Inc. (2018) 30 Cal.App.5th 804, 827 (Olive).) "An abuse of discretion occurs if, in light of the applicable law and the relevant circumstances, the court's decision exceeds the bounds of reason, resulting in a miscarriage of justice. (Id. at pp. 827-828.) The trial court here reasonably concluded "that neither party obtained the result the party was seeking or is happy with the outcome of the case."
As illustrated in Aguilar v. Bocci (1974) 39 Cal.App.3d 475 (Aguilar), Citi and the Yateses are equally disadvantaged in their lack of a present remedy to enforce their rights with respect to the 4405 property. In Aguilar, an attorney agreed to represent a client on a criminal charge for a $10,000 fee, and the client made a deed of his home (in which he had a half interest) to defendant. (Id. at p. 476.) Some eight years later, the client sued to quiet title. (Ibid.) The attorney argued the statute of limitations barred the client's claims, then sought to quiet title in himself to an undivided half interest in the property and recover the unpaid balance of the fee. (Ibid.)
The court of appeal held that neither party was entitled to the relief sought. (Aguilar, supra, 39 Cal.App.3d at pp. 477-478.) It found that, where the deed was intended as security for a debt, an equitable mortgage was established. (Id. at p. 477.) Thus, the only remedy of the attorney, a mortgagee not in possession, was to foreclose on the property. (Ibid.) However, because the statute limitations had run on both the underlying debt and the foreclosure remedy (Code Civ. Proc., § 337), the attorney "ha[d] no present remedy, either to quiet title or secure possession." (Aguilar, at p. 477.)
The Aguilar court further explained that the "barring of [attorney's] remedy, however, does not mean that [client] can quiet title without discharging his debt. The cloud upon his title persists until the debt is paid. [Citation.] He is entitled to remain in possession, but cannot clear his title without satisfying his debt." (Aguilar, supra, 39 Cal.App.3d at pp. 477-478.) Thus, the Aguilar court concluded that "[e]ach party has foreclosed himself from remedy through the courts, [client] by failing to pay the debt his property secures, and [attorney] by sleeping upon his rights." (Id. at p. 478.) As such, "both parties are left without available remedy for the present." (Ibid., italics added.)
Aguilar accurately describes the parties' present positions in this case. Because Citi "sle[pt] upon [its] rights," and the Yateses "fail[ed] to pay the debt [their] property secures," we also find that both parties "are left without available remedy for the present." (Aguilar, supra, 39 Cal.App.3d at p. 478.) Thus, we cannot say the trial court's determination that neither Citi nor the Yateses were the prevailing party was "so irrational or arbitrary that no reasonable person could agree with it." (Olive, supra, 30 Cal.App.5th at p. 827.) Accordingly, we conclude that the court acted within its discretion in denying both motions for attorney's fees.
On a final note, without an available remedy before the courts, the parties would be well advised to follow the Aguilar court's admonition and consider resolving this eight-year litigation in their mutual self-interest. (Aguilar, supra, 39 Cal.App.3d at p. 478 ["Although both parties are left without available remedy for the present, self-interest should permit disposition by agreement, or the occurrence of events inevitable with the passage of time will break the impasse."].)
III. DISPOSITION
The judgment is affirmed.
/s/_________
BROWN, J. WE CONCUR: /s/_________
STREETER, ACTING P. J. /s/_________
TUCHER, J.