Opinion
B299157 B301716
02-15-2022
HSBC BANK USA, et al., Plaintiffs and Appellants, v. AMIR MALEKAN et al., Defendants and Respondents. ELIZABETH MALEKAN, an individual, Cross-complainant and Respondent, v. HSBC BANK USA, et al. Cross-defendants and Appellants. HSBC BANK USA, et al. Plaintiff s and Respondents v. AMIR MALEKAN et al. Defendants and Appellants ELIZABETH MALEKAN, an individual, Cross complainant and Appellant v. HSBC BANK USA, et al., Cross defendants and Respondent s
Songstad Randall Coffee & Humphrey, William D. Coffee for HSBC Bank USA, National Association as Trustee for Merrill Lynch Mortgage Investors, Mortgage Pass-Through Certificates, MANA Series 2007-OAR5. Kerendian & Associates, Shab Kerendian and Edrin Shamtob; Benedon & Serlin, Gerald M. Serlin and Judith E. Posner for Amir Malekan, Elana Malekan, and Elizabeth Malekan.
NOT TO BE PUBLISHED
APPEALS from a judgment and an order of the Superior Court of Los Angeles County, No. BC614030 Patrick T. Madden, Judge.
Songstad Randall Coffee & Humphrey, William D. Coffee for HSBC Bank USA, National Association as Trustee for Merrill Lynch Mortgage Investors, Mortgage Pass-Through Certificates, MANA Series 2007-OAR5.
Kerendian & Associates, Shab Kerendian and Edrin Shamtob; Benedon & Serlin, Gerald M. Serlin and Judith E. Posner for Amir Malekan, Elana Malekan, and Elizabeth Malekan.
CURREY, J.
INTRODUCTION
In this consolidated appeal, HSBC Bank, USA, National Association as Trustee for Merrill Lynch Mortgage Investors, Inc., Mortgage Pass-Through Certificates, MANA Series 2007-OAR5 (HSBC) challenges the judgment entered (1) in favor of Amir Malekan, Elana Malekan, and Elizabeth Malekan (collectively, the Malekans) on HSBC's claims against them; and (2) in favor of Elizabeth on her first cause of action for quiet title in her cross-complaint. The Malekans appeal the trial court's order denying their motion for attorneys' fees.
On November 21, 2019, we consolidated the appeals in B299157 and B301716 for briefing, argument, and decision.
When referring to Amir Malekan, Elana Malekan or Elizabeth Malekan individually, we use their first names to avoid confusion. No disrespect is intended.
For the reasons discussed below, we conclude the court erred by entering judgment in favor of Amir and Elana on HSBC's quiet title claim, and we remand the matter to the trial court for further proceedings with respect to the Malekans' affirmative defenses of statute of limitations and laches. We affirm the order denying the Malekans' motion for attorneys' fees.
FACTUAL AND PROCEDURAL BACKGROUND
A. Elizabeth's Guardianship and Purchase of the Subject Property
In 1994, Elizabeth, a minor child at the time, was hit by a car while crossing a street. After the accident, Elizabeth received a monetary settlement. Because she was a minor, a court supervised guardianship was created to manage the settlement proceeds (the Guardianship). The court appointed Elizabeth's parents, Amir and Elana, as guardians.
In 1999, the court entered an order authorizing Amir and Elana to use $80,628.91 from the Guardianship estate to contribute to the down payment for the purchase of a single-family residence in Calabasas, California (the Property) and to contribute $2,000 per month to the monthly mortgage. The court further ordered that Amir and Elana initially take title to the Property in their names as individuals and then transfer a 40.31 percent share of the property to the Guardianship.
Amir and Elana purchased the Property for $736,000. They obtained a loan from First Nationwide Mortgage Corporation in the amount of $552,000 to finance the purchase of the Property, which was secured by a deed of trust in that amount recorded against the Property on June 18, 1999.
B. Multiple Refinances and Increase of the Guardianship's Interest in the Property
In 2000, Amir and Elana encumbered the Property with a second position deed of trust to secure a line of credit from Wells Fargo Bank in the amount of $100,000. The following year, Amir and Elana refinanced the original loan of $552,000, together with the $100,000 line of credit, and obtained a new loan of $650,000 secured by a deed of trust. In 2002, after obtaining another line of credit of $100,000, Amir and Elana refinanced again, securing a new loan from Wells Fargo of $650,000 secured by a deed of trust. That same year, Amir and Elana conveyed the 40.31 percent interest in the Property to the Guardianship.
Based on the loan refinancing activity described above, the court entered an order requiring Amir and Elana to transfer an additional 10 percent interest in the Property to the Guardianship. On January 17, 2003, a grant deed was recorded that conveyed title of the Property to "Amir Malekan and Elana Malekan, Husband and Wife as Joint Tenants, as to an Undivided 49.69 [percent] Interest" and "Amir Malekan and Elana Malekan, Guardians of the Guardianship of the Estate of Elizabeth Malekan, as to an Undivided 50.31% Interest."
In 2003, Amir, Elana, and the Guardianship refinanced the 2002 loan with a new loan from Wells Fargo secured by a first position deed of trust in the amount of $641,000 that was recorded against the Property (the 2003 Wells DOT).
In 2005, Amir and Elana quitclaimed their interest in the Property as joint tenants to themselves as trustees of their family trust. Later in 2005, after Elizabeth turned 18, the court entered an order terminating the Guardianship. Pursuant to the order, on November 10, 2005, Amir and Elana as guardians transferred the Guardianship's 50.31 percent interest in the Property to Elizabeth individually, which continued to be encumbered by the 2003Wells DOT. Thus, Amir and Elana held a 49.69 percent property interest as trustees of their trust, and Elizabeth held a 50.31 percent property interest individually.
C. The Refinance of the 2003 Wells DOT and the Preferred Financial Group Promissory Note and DOT
The loan and deed of trust that are the subject of this action arose in 2007 when Amir and Elana again decided to refinance. Specifically, in June 2007, Amir and Elana sought to refinance the 2003 Wells DOT with a new loan from Preferred Financial Group (PFG) in the amount of $1,000,000 (the PFG Loan).
The preliminary title report for the Property stated that as of May 25, 2007, title to the Property was vested in: "Amir Malekan and Elana Malekan, Husband and Wife as Joint Tenants, as Their Interest Appear[s] of Record." In connection with the PFG Loan review and approval process, however, PFG was apprised of Elizabeth's partial ownership of the Property through various documents and representations. First, PFG obtained a property appraisal report, which indicated Elizabeth was "Owner of Public Record." Second, the appraisers provided PFG with a supplemental addendum that, in identifying the property's sales history, listed Elizabeth as a buyer. Third, the preliminary title report indicated the only property transfer in the past 24 months was that from Amir and Elana as guardians of a 50.31 percent interest to Elizabeth individually. Lastly, PFG's underwriter noted in its internal "conditions sheet" the following: "[Letter of explanation] required - Grant Deed Recorded 11/10/05 shows our borrowers are not the sole title holders. Will Elizabeth remain on title?" In response, Amir and Elana provided a letter stating "Elizabeth Malekan is our daughter and we would like to keep her on title of the property."
Despite her 50.31 percent ownership interest in the Property, Elizabeth did not sign any documents related to the PFG Loan. Nor did she have any knowledge of Amir and Elana's refinancing efforts.
The PFG Loan was finalized in June 2007 through the execution of several documents. Initially, Amir and Elana executed a grant deed providing that "Amir Malekan and Elana Malekan Husband and Wife as Joint Tenants, As Their Interest Appear[s] of Record" grant the Property to "Amir Malekan and Elana Malekan, Husband and Wife As Joint Tenants." Amir and Elana also executed a promissory note based on a loan amount of $1,000,000 with an adjustable interest rate (the PFG Note).
The PFG Loan closed on June 29, 2007. Proceeds of the PFG Loan were used to pay the 2003 Wells DOT in the amount of $598,797.19. The balance of the loan proceeds remaining after payment of the 2003 Wells DOT and closing costs ($386,400.05) was disbursed to Amir and Elana.
The PFG Loan was secured by a deed of trust (the PFG DOT), which was recorded on June 29, 2007. The PFG DOT purported to cover the entire Property, despite Elizabeth's 50.31 interest in the Property, and her lack of signature on the loan application, promissory note, or the deed of trust.
In 2009, the PFG Loan and DOT were assigned to Countrywide. Later that year, Countrywide assigned the PFG Loan and DOT to Bank of America Home Loans.
D. Default on the PFG Loan
Amir and Elana defaulted on the PFG Loan in 2009. After Amir and Elana were eight months in default, Bank of America sent them a notice of intent to accelerate, stating that if they did not cure their default in 30 days, by March 21, 2010, their mortgage payment "will be accelerated." Amir and Elana were unable to cure their default. Thus, in November 2010, Bank of America recorded a notice of default and election to sell in which it affirmed its debt acceleration and declared all sums immediately due and payable. In February 2013, Bank of America rescinded the notice of default.
E. Assignment of the PFG Loan and PFG DOT to HSBC
In 2013, HSBC purchased the defaulted PFG Loan and DOT from Bank of America. On July 29, 2014, HSBC recorded a new notice of default. Amir and Elana did not cure the default.
On March 24, 2015, HSBC sent a letter to Amir and Elana requesting they obtain a signed notarized deed from Elizabeth transferring the 50.31 percent interest to Amir and Elana. Amir and Elana did not respond to the letter or comply with the request.
F. The Underlying Lawsuit
On March 16, 2016, HSBC filed a complaint against the Malekans. HSBC alleged Amir and Elana were in default on the PFG Loan, and that "HSBC assumed all rights and interest in and to the [PFG DOT] and is the current beneficiary." It further alleged that Amir and Elana "covenanted as borrowers to [PFG], that they were lawfully seised [sic] of the [Property] and have the right to grant and convey the [ ] Property and that the [ ] Property is unencumbered, except for encumbrances of record. HSBC relied upon [Amir and Elana's] representations of title in distributing the corresponding loan proceeds in the amount of $1,000,000.00." The complaint further stated that "[a]t the very least," HSBC was seeking "a determination that its interest in the [ ] Property is at least 49.69 [percent] arising both in equity and/or created from issuance of the loan proceeds secured by the [PFG DOT], and which is superior and precedent to any purported interests in the . . . Property asserted by [the Malekans], as of the date of the [PFG DOT] was recorded, June 29, 2007." Based on these allegations, HSBC asserted the following causes of action: (1) quiet title; (2) equitable lien; (3) equitable subrogation; (4) declaratory relief; and (5) partition by sale.
HSBC dismissed its cause of action for partition by sale before trial.
Elizabeth filed a cross-complaint, alleging causes of action for: (1) quiet title; (2) negligence; (3) violation of Truth in Lending Act; (4) violation of California Business & Professions Code section 17200; (5) implied indemnity; (6) comparative indemnity; (7) contribution; and (8) declaratory relief. Among other things, Elizabeth sought to quiet title to her 50.31 percent interest in the Property, asserting she had no knowledge of the PFG Loan obtained by Amir and Elana, and that PFG had actual knowledge of, or negligently failed to identify, Elizabeth's interest in the Property.
Following a three-day bench trial on HSBC's complaint and Elizabeth's cross-complaint, the trial court issued its ruling. At the trial court's request, the Malekans submitted a proposed tentative statement of decision. After considering HSBC's objections, and the Malekans' reply to those objections, the trial court made minor edits to the proposed statement of decision and filed the final statement of decision on April 30, 2019. The court found in favor of the Malekans on HSBC's causes of action in its complaint, and in favor of Elizabeth on the quiet title cause of action in her cross-complaint.
Regarding HSBC's quiet title cause of action, the court found HSBC "failed to meet its burden of proof to demonstrate that it possesses legal title and/or interest in the Property, which could support a quiet title action, as against any of the three defendants." With respect to HSBC's equitable causes of action, the court found PFG's "actual knowledge of the crucial facts, combined with its negligence in closing the transaction despite the absence of Elizabeth's knowledge, assent, and participation, taken collectively, do not merit the application of any equitable remedy." It further held PFG and "HSBC are chargeable with culpable and inexcusable neglect, which warrants the denial of equitable relief." Based on these findings, the court also held HSBC was not entitled to declaratory relief. On Elizabeth's claim for quiet title, the court found Elizabeth sufficiently demonstrated legal title to 50.31 percent of the Property. It found in favor of HSBC on Elizabeth's remaining causes of action. Accordingly, the court entered judgment in favor of the Malekans on HSBC's claims against them, and in favor of Elizabeth on her quiet title claim, declaring Elizabeth holds a "50.31 [percent] interest in the Property and her interest is free of any encumbrance from Plaintiff HSBC or its predecessors."
Following entry of judgment, HSBC moved for a new trial. The court denied the motion, finding HSBC did not meet its burden for a new trial.
The Malekans moved for attorneys' fees incurred in defending the action, and Elizabeth moved for attorneys' fees incurred in prosecuting the cross-complaint. They argued they were prevailing parties entitled to attorneys' fees under Civil Code section 1717. The trial court denied their motion on the grounds the contract at issue (the PFG DOT) did not contain an attorneys' fee provision, and they could not rely on the PFG Note as a basis for attorneys' fees because HSBC did not sue on the Note.
All further undesignated statutory references are to the Civil Code.
HSBC appeals from the judgment, and the Malekans appeal from the trial court's order denying their motion for attorneys' fees.
DISCUSSION
I. HSBC's Appeal from the Judgment in the Malekans' Favor
A. Quiet Title
HSBC contends the trial court erred by not quieting title in its favor as to Amir and Elana's 49.69 percent interest in the Property. It argues the undisputed facts establish that when Amir and Elana executed the PFG DOT, at a minimum, they validly encumbered their 49.69 percent interest in the Property. The Malekans counter with two arguments made for the first time on appeal: HSBC's quiet title claim fails because it did not prove the amount of the unpaid balance due on the PFG Loan, and the PFG DOT is invalid because it describes the entire property (not only Amir and Elana's 49.69 percent). For the reasons discussed below, we agree with HSBC and conclude the Malekans' arguments are without merit.
1. Applicable Law and Standard of Review
"On appeal from a determination of failure of proof at trial, the question for the reviewing court is "'whether the evidence compels a finding in favor of the appellant as a matter of law.'" [Citation.] Specifically, we must determine "'whether the appellant's evidence was (1) 'uncontradicted and unimpeached' and (2) 'of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding.'"'" (Almanor Lakeside Villas Owners Assn. v. Carson (2016) 246 Cal.App.4th 761, 769.)
Code of Civil Procedure section 760.020, subdivision (a) provides that a plaintiff seeking to establish title to real property against adverse claims may file an action to quiet title. The purpose of a quiet title action is to "'finally settle . . . all conflicting claims to the property in controversy, '" and to determine the interest to the property to which each party may be entitled. (Newman v. Cornelius (1970) 3 Cal.App.3d 279, 284; see also Lechuza Villas West v. California Coastal Com. (1997) 60 Cal.App.4th 218, 242 ["'The object of the [quiet title] action is to finally settle and determine, as between the parties, all conflicting claims to the property in controversy, and to decree to each such interest or estate therein as he may be entitled to.'"].)
A cause of action for quiet title requires the plaintiff to plead and prove the following: (1) a description of the property; (2) the basis for the plaintiff's claim of title; (3) the adverse claims to the title of the plaintiff against which a determination is sought; (4) the date as of which determination is sought; and (5) a prayer for the determination of the plaintiff's title against the adverse claims. (Code Civ. Proc., § 761.020.)
2. Analysis
The trial court held HSBC "failed to meet its burden of proof as to the second and third elements" of a cause of action for quiet title. Specifically, it stated that HSBC "failed to meet its burden of proof to demonstrate that it possesses legal title and/or interest in the Property[, ]" and "did not meet its burden of proof to show that an amount, if any, is due and payable under the [PFG] DOT or the [PFG Loan]." The evidence in the record, however, compels a finding in favor of HSBC on its quiet title action based on its 49.69 percent interest in the Property.
First, the following uncontroverted facts establish the second element of a quiet title cause of action, i.e., the basis for HSBC's claim of title: (1) Amir and Elana executed the PFG DOT to secure the $1,000,000 PFG Loan;; (2) when the PFG DOT was recorded in 2007, Elana and Amir owned a 49.69 percent interest in the Property, and Elizabeth owned a 50.31 percent interest; (3) the PFG Loan paid the 2003 Wells DOT in full so that the PFG DOT would constitute a first lien against the Property; (4) Amir and Elana defaulted on the PFG Loan in 2009; and (5) HSBC purchased the defaulted PFG Loan and DOT from Bank of America. These undisputed facts demonstrate HSBC's legal interest in the property is based on the PFG DOT.
Second, the trial court provided no explanation in support of its finding that HSBC failed to prove the third element of a quiet title cause of action. The record demonstrates HSBC established the adverse claims to which HSBC sought to quiet title: each of the defendants in the underlying action (Amir, Elana, and Elizabeth) disputed the validity of the PFG DOT. The Malekans do not argue to the contrary.
For the first time on appeal, the Malekans argue HSBC did not prove "an amount, if any was due on the PFG [L]oan such that HSBC had a basis to quiet title to the property. We are unpersuaded. The Malekans conceded, both at trial and on appeal, that Amir and Elana defaulted on the PFG Loan in 2009. The Malekans cite no authority for the proposition that HSBC must demonstrate the precise balance due on the PFG Loan to prove its interest in the Property based on the PFG DOT. To the contrary, a quiet title action is not a collection action, but rather a means by which to "'finally settle and determine, as between the parties, all conflicting claims to the property in controversy.'" (Lechuza Villas West v. California, supra, 60 Cal.App.4th at p. 242.)
We likewise reject the Malekans' alternative argument that HSBC's quiet title claim fails because the PFG DOT describes the entire Property as opposed to Amir and Elana's 46.69 percent. Again, the Malekans provide no authority for this argument. (See e.g. Dabney v. Dabney (2002) 104 Cal.App.4th 379, 384 ["We need not consider an argument for which no authority is furnished."].) In any event, that the PFG DOT purports to cover the entire Property does not preclude HSBC's claim to Amir and Elana's 46.69 percent interest. On this point, Kane v. Huntley Financial (1983) 146 Cal.App.3d 1092 (Kane) is instructive. There, a husband and wife held title to property as husband and wife in joint tenancy. (Id. at p. 1094.) The husband executed a promissory note and deed of trust encumbering the entire property. (Ibid.) The wife, however, had no knowledge of and did not consent to the execution of the trust deed. (Ibid.) The deed of trust granted "'the property' rather than merely [the husband's] interest" in it to the trustee. (Id. at p. 1096, italics in original.) The court held the husband could only encumber his interest in property; thus, although the deed of trust described the entire property, it only encumbered the husband's interest in the property. (Id. at pp. 1097-1098.)
As in Kane, the PFG DOT here describes the entire Property despite Elizabeth's lack of knowledge of and consent to the PFG DOT. Elizabeth's lack of consent, however, does not invalidate the PFG DOT entirely, but rather establishes the PFG DOT is a valid encumbrance only on Amir and Elana's 49.69 percent interest in the Property. (See Kane, supra, 146 Cal.App.3d at p. 1097.)
Accordingly, we conclude the "uncontradicted and unimpeached" evidence discussed above compels a finding that the PFG DOT is a valid encumbrance against Amir and Elana's 49.69 percent interest in the Property. (Almanor Lakeside Villas Owners Assn. v. Carson, supra, 246 Cal.App.4th at p. 769.) The court therefore erred by finding HSBC "failed to meet its burden of proof to demonstrate that it possesses legal title and/or interest in [49.69 percent of] the Property[.]"
B. Equitable Claims
Next, HSBC contends the trial court erred by denying HSBC's claim for equitable subrogation against Elizabeth, and, alternatively, by declining to impose an equitable lien against Elizabeth's interest in the Property. As discussed in detail below, we conclude the trial court was well within its discretion in denying HSBC equitable relief after balancing the equities.
1. Standard of Review and Applicable Law
The doctrine of equitable subrogation and the imposition of an equitable lien "invoke[ ] the trial court's equitable jurisdiction, and, to the extent the court exercised its discretion and balanced the equities of the parties," we review its decision for abuse of discretion. (Branscomb v. JPMorgan Chase Bank, N.A. (2014) 223 Cal.App.4th 801, 806.) "In applying the abuse of discretion standard, we determine whether the trial court's factual findings are supported by substantial evidence." (Valley Crest Landscape Development, Inc. v. Mission Pools of Escondido, Inc. (2015) 238 Cal.App.4th 468, 482.)
"As applied in the real property context, equitable subrogation provides an exception to the 'first in time, first in right' system of lien priorities where equity requires a different result. [Citations.] When a lender "'advances money to pay off an encumbrance on realty at the instance of either the owner of the property or the holder of the incumbrance, either on the express understanding, or under circumstances from which an understanding will be implied, that the advance made is to be secured by a first lien on the property, '" and "'the new security is for any reason not a first lien on the property, '" then the lender who holds that security, "'if not chargeable with culpable and inexcusable neglect, will be subrogated to the rights of the prior encumbrancer under the security held by him, unless the superior or equal equities of others would be prejudiced thereby.'"" (Bank of New York Mellon v. Citibank, N.A. (2017) 8 Cal.App.5th 935, 948.)
"[E]quity will create a lien on property where this is necessary to accomplish substantial justice and protect creditors. Thus, courts will construe the existence of equitable liens where the parties have erroneously created a defective mortgage [citations]; where, despite the lack of any formal mortgage or deed of trust it is apparent that the parties intended to create a security interest in property [citations]; where the parties have otherwise clearly attempted or intended to make real property security for an obligation [citations]; or, even in the absence of any agreement, where it is necessary to prevent unjust enrichment." (Grappo v. Coventry Financial Corp. (1991) 235 Cal.App.3d 496, 509.)
2. Analysis
In concluding HSBC failed to demonstrate it was entitled to equitable subrogation against Elizabeth's interest in the property, the trial court found: "[HSBC's] predecessor [PFG] was negligent and that negligence is imputed to HSBC as the assignee. In addition, [PFG] and HSBC are chargeable with culpable and inexcusable neglect, which warrants the denial of equitable relief. It is indisputable that [HSBC], through its predecessor, [PFG], was apprised and specifically notified of Elizabeth Malekan's interest in the Appraisal, the Supplemental Addendum, the Preliminary Title Report, and via Elana and Amir's cash out letter. These documents . . ., thoroughly prove and evidence that [PFG] held actual knowledge notice of Elizabeth's 50.31 [percent] interest in the Property. . . . [¶] . . . [¶] Perhaps most importantly, equitable subrogation requires the Court to balance the equities between the parties. . . . On this count, the Court finds the equities, in this case, favor each defendant, but particularly Elizabeth in all respects. Elizabeth did not apply for a loan or consent to an encumbrance of her interest in the Property; she utilized proceeds from a personal injury recovery to purchase the Property as a place for her to live. . . . Moreover, because [PFG] never took steps to contact Elizabeth or to ask that she agree to encumber her interest in the Property, Elizabeth was never provided any disclosures pertaining to the risks of an adjustable rate mortgage ..... On the other hand, [HSBC] and [PFG] were negligent in making a loan as to only Amir and Elana Malekan, held irrefutable, actual knowledge of Elizabeth's interest, and waited nearly ten years from the date of execution of the [PFG] DOT to commence a corrective action."
The trial court denied HSBC's claim for an equitable lien on similar grounds, finding: "[T]he negligence of [HSBC's] predecessor, [PFG], is the cause of the predicament [HSBC] finds itself today. At the time [HSBC] purchased the [PFG] DOT and [PFG Loan], [HSBC] was aware of the delinquent, and problematic nature of these instruments. Furthermore, the Court finds that rather than misrepresenting their interest in the Property, as asserted on numerous occasions by [HSBC], Elana and Amir specifically disclosed Elizabeth's interest therein to [PFG] prior to the loan closure. Indeed, the undisputed fact remains that [PFG] had actual knowledge of Elizabeth's interest in the Property . . . and was in a position to avoid the resultant harm. Nevertheless, despite this knowledge, [PFG] acted negligently and failed to take steps to protect its interests. [PFG's] actual knowledge of the crucial facts, combined with its negligence in closing the transaction despite the absence of Elizabeth's knowledge, assent, and participation, taken collectively, do not merit the application of any equitable remedy, including the imposition of an equitable lien."
Substantial evidence supports the trial court's findings. As discussed above (and as HSBC acknowledges), the preliminary title report contained a note that referenced the November 10, 2005 deed where Amir and Elana as guardians of the Guardianship conveyed the 50.31 percent interest in the Property to Elizabeth. PFG's underwriter noted this fact in its internal "conditions sheet," and posed the following question: "Will Elizabeth remain on title?" In response, Amir and Elana provided a letter stating "Elizabeth Malekan is our daughter and we would like to keep her on title of the property." Moreover, Elizabeth testified she had no knowledge of the 2007 refinance of the Property and the PFG Loan until HSBC sued her in this action. She testified she never received any disclosures or other communications regarding the PFG Loan or the notice of default. According to Elizabeth, had she known before the lawsuit that a claim of ownership existed on her share of the Property, she would have sought the advice of an attorney, spoken to her family, investigated selling her interest, and otherwise explored her options.
That PFG may have "intended" to encumber the entire Property, as HSBC contends, is of no consequence. The fact remains the evidence in the record supports the trial court's finding that PFG and HSBC are chargeable with "culpable and inexcusable neglect" by not obtaining Elizabeth's consent. We acknowledge that in their loan application, Amir and Elana failed to mention Elizabeth's interest in the Property. Rather, when asked how they held title to the Property, Amir and Elana answered "jointly with your spouse." As discussed above, however, several other documents clearly disclosed Elizabeth's interest in the Property, and we will not reweigh the evidence and equities on appeal. (See In re Marriage of Balcof (2006) 141 Cal.App.4th 1509, 1531 [appellate courts do not reweigh evidence.].)
Accordingly, we conclude the trial court properly exercised its discretion in denying HSBC's claims for equitable subrogation and an equitable lien.
C. Declaratory Relief
HSBC's declaratory relief claim is entirely premised on its claims for quiet title, equitable subrogation, and equitable lien. Because the trial court found in favor of the Malekans on all of HSBC's other claims, it concluded HSBC was not entitled to declaratory relief: "[HSBC] failed to demonstrate by a preponderance of the evidence a basis upon which it is entitled to [d]eclaratory [r]elief against any of the defendants, including quiet title, equitable lien, equitable subrogation, or any other theory."
In light of our conclusion that the trial court erred by not quieting title in favor of HSBC as to 49.69 percent of the Property, on remand, if the trial court rejects the Malekans' affirmative defenses (as discussed below), it is directed to reconsider HSBC's declaratory relief claim. We leave it to the trial court on remand to decide whether to exercise its discretion under Code of Civil Procedure section 1061 to grant HSBC declaratory relief. (See Code Civ. Proc., § 1061 ["The court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances."].)
D. The Malekans' Affirmative Defenses
The trial court found the Malekans' affirmative defenses were moot based on its "findings as to Plaintiff HSBC's Complaint and each cause of action contained therein." HSBC urges this court, however, to rule on the merits of the Malekans' affirmative defenses in the first instance. They argue the Malekans' affirmative defenses based on laches and statute of limitations grounds have no merit as a matter of law based on the undisputed facts. The Malekans counter that even if we "were to reverse the judgment, in whole or in part, a remand would be required for the trial court to resolve" their affirmative defenses. We agree with the Malekans.
"Laches is 'a failure on the part of a plaintiff to assert his rights in a timely fashion accompanied by a period of delay with consequent results prejudicial to the defendant.'" (Luxury Asset Lending, LLC v. Philadelphia Television Network, Inc. (2020) 56 Cal.App.5th 894, 913.) Here, factual disputes exist regarding the Malekans' laches defense. The Malekans assert HSBC unreasonably delayed bringing this action by filing it almost seven years after Amir and Elana's default, and three years after its own notice of default. They further assert they were prejudiced by the delay because "Elana testified, [by the time HSBC filed this action], she could not obtain information from the escrow company, PFG, the loan brokerage company, or Countrywide, as all entities were out of business" and she was therefore "unable to obtain documents . . . to educate the Malekans in their defense . . ." HSBC contends none of these facts constitute evidence of prejudice. Whether the Malekans were prejudiced by the delay "is a question of fact to be determined by the trial court in light of all of the applicable circumstances." (Truck Ins. Exchange v. Workers' Comp. Appeals Bd. (2016) 2 Cal.App.5th 394, 402; see also Blaser v. State Teachers' Retirement System (2019) 37 Cal.App.5th 349, 378 ["The question of whether a party has committed laches "'is a question of fact for the trial court."'"].)
Because we have concluded that remand is necessary for the trial court to consider the Malekans' laches defense, we also direct the trial court to consider and decide the Malekans' affirmative defense based on the statute of limitations.
The Malekans assert either the four-year limitation in Code of Civil Procedure section 337, or the six-year limitation period in Commercial Code section 3118, subdivision (a) applies because HSBC's causes of action are contractual in nature. HSBC, on the other hand, argues its causes of action seek to protect its right to conduct a non-judicial foreclosure under the HSBC DOT and therefore, the 10-year limit for proceeding under a power of sale in a deed trust under section 882.020 applies.
E. Elizabeth's Cause of Action for Quiet Title in her Cross-Complaint
Lastly, HSBC contends the trial court erred in finding in favor of Elizabeth on her cause of action in her cross-complaint to quiet title to her 50.31 percent interest in the Property because, according to HSBC, it "is entitled to either an equitable subrogation lien or an equitable lien against Elizabeth's interest in the Property." We rejected those arguments, however, for the reasons discussed above in section I.B.2 of this opinion. Because HSBC proffers no additional arguments in support of this contention, we conclude the court properly quieted title in favor of Elizabeth to 50.31 percent of the Property.
II. The Malekans' Appeal from the Order Denying Attorneys' Fees
A. General Principles and Standard of Review
Pursuant to section 1717, subdivision (a): "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." "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.)
We review a determination of the legal basis for an award of attorneys' fees de novo as a question of law. (California Wholesale Material Supply, Inc. v. Norm Wilson & Sons, Inc. (2002) 96 Cal.App.4th 598, 604.) "Attorney fees are not recoverable as costs unless a statute or contract expressly authorizes them." (Ibid.)
B. Background
After the trial court entered judgment in favor of the Malekans, the Malekans sought their attorneys' fees under section 1717. They primarily relied on section 9 of the HSBC DOT, which they asserted was an attorney's fees provision.
In relevant part, section 9 provides: "If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, [or] (b) there is a legal proceeding that might significantly affect Lender's Interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which may attain priority over this Security Instrument or to enforce laws or regulations) . . . then Lender may do and pay for whatever is reasonable or appropriate to protect Lender's Interest in the Property and rights under this Security Instrument . . . . Lender's actions can include, but are not limited to: (a) paying any sums secured by a lien which has priority over this Security Instrument; (b) appearing in court; and (c) paying reasonable attorney's fees to protect its Interest in the Property and/or rights under this Security Instrument." Section 9 further provides that "any amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument."
Alternatively, the Malekans argued they were entitled to recover attorneys' fees based on either section 14 or 22 of the PFG DOT, or section 7(E) of the PFG Note. Section 14 states, in pertinent part: "Lender may charge Borrower fees for services performed in connection with Borrower's default, for the purpose of protecting Lender's interest in the Property and rights under this Security Instrument, including, but not limited to, attorney fees." Section 22 is an acceleration provision, which states, in relevant part: "If the default is not cured . . . Lender at its option may require immediate payment in full of all sums secured by this Security Instrument . . . . The Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limit to, reasonable attorney's fees." Finally section 7(E) of the PFG Note states: "If the Note Holder has required me to pay immediately in full as describe 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 attorney's fees."
The trial court denied the Malekans' motion for attorneys' fees, finding: "[T]he cases of Chacker v. JPMorgan Chase Bank (2018) 27 Cal.App.5th 352 and Hart v. Clear Recon Corp. (2018) 27 Cal.App.5th 322 are dispositive. Both cases hold that [section] 9 is not an attorney fees provision and provide no basis for a prevailing party to obtain their attorney fees. The same is true as to [section 22]. It, too, is not an attorney fee provision, but if it is deemed one, then . . . [section] 22 [does] not apply to this case, since [HSBC] did not seek to accelerate the payment of the indebtedness. As to Clause 7(E) of the note, since [HSBC] did not sue on the note, it cannot be a basis to find that [section] 1717 . . . mandates reciprocity as to attorney fees."
C. Analysis
The Malekans contend that because they were prevailing parties on contracts with attorneys' fees provisions, the trial court erred by finding they were not entitled to attorneys' fees. HSBC concedes the Malekans were prevailing parties in the underlying action, but argue the provisions on which the Malekans rely in the PFG DOT do not constitute attorneys' fee provisions for purposes of section 1717, and the attorneys' fee provision in the PFG Note is inapplicable because HSBC did not sue on the Note.
At the outset, we acknowledge that pending the outcome of the case on remand, Amir and Elana may no longer be considered prevailing parties. If the trial court rejects the Malekans' affirmative defenses on remand, HSBC will prevail on its quiet title claim as to Amir and Elana's 49.69 percent interest in the Property. Because we affirm the judgment with respect to Elizabeth, however, she will remain a prevailing party. We therefore address the merits of the Malekans' appeal.
1. Section 9 of the PFG DOT Is Not an Attorneys' Fees Provision
As discussed above, the trial court concluded the decisions in Hart v. Clear Recon Corp. (2018) 27 Cal.App.5th 322 (Hart) and Chacker v. JPMorgan Chase Bank (2018) 27 Cal.App.5th 352 (Chacker) preclude an award of attorneys' fees to the Malekans based on section 9 of the PFG DOT. We agree.
In Hart, the plaintiffs sought injunctive and declaratory relief against defendant lender to halt a foreclosure and to determine the lender's authority to proceed with foreclosure while the plaintiffs' interfamily title dispute was pending. (Hart, supra, 27 Cal.App.5th at p. 324.) The trial court entered summary judgment in favor of the lender. (Ibid.) The lender then filed a motion to recover attorneys' fees as a prevailing party, relying on section 9 of the deed of trust, which it asserted was an attorneys' fees provision. (Ibid.) The trial court granted the lender's motion. (Id. at p. 326.) The Court of Appeal reversed, concluding section 9 "simply does not provide for a separate award of fees per motion." (Id. at p. 329.) The court explained: Section 9 provides that "'[a]ny amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument.' This is not a provision that attorney's fees 'shall be awarded'; it is, instead, a provision that attorney's fees, like any other expenses the lender may incur to protect its interest, will be added to the secured debt." (Id. at p. 327.)
Similarly, in Chacker, plaintiff borrower sued defendant lender to stop a foreclosure. (Chacker, supra, 27 Cal.App.5th at p. 352.) After the lender prevailed, it filed a motion to recover attorneys' fees based on section 9 of the deed of trust. (Id. at p. 354.) The trial court granted the lender's fee motion. (Id. at p. 355.) The Court of Appeal reversed, coming to the same conclusion as the court in Hart. Specifically, it held section 9 of the deed of trust authorized the addition of attorneys' fees to the loan amount, but not a separate award to pay fees. (Id. at p. 356.) It reasoned: "The plain text of [section 9] authorizes attorney fees to be added to the loan amount; section 9 does not provide for a separate award of attorney fees." (Id. at p. 357.)
The lender also relied on section 14 of the deed of trust. (Id. at p. 354.) We will discuss that aspect of the opinion below.
Hart and Chacker are directly on point. Section 9 of the PFG DOT is identical to section 9 of the deeds of trust at issue in Hart and Chacker. We therefore conclude that, based on its plain terms, section 9 of the PFG DOT is not an attorneys' fee provision that triggers application of section 1717. Instead, it merely allows attorneys' fees, like any other expenses the lender may incur to protect its interest, to be added to the loan amount.
The Malekans attempt to distinguish Hart and Chacker because here, the lender (HSBC) commenced the action and the titleholders (the Malekans) prevailed (as opposed to the lenders in Hart and Chacker). We are unpersuaded. The courts in Hart and Chacker held the trial court improperly awarded attorneys' fees to the lender, not based on the status of the parties, but because Section 9 of the deeds of trust was not an attorneys' fee provision. (See e.g. Hart, supra, 27 Cal.App.5th at p. 327 ["Civil Code section 1717 applies only where a 'contract specifically provides that attorney's fees . . . shall be awarded' to one party or the prevailing party. We must consider whether [section] 9 of the deed of trust specifically so provides. By its plain language, it does not."].)
We likewise reject the Malekans' assertion that, despite the holdings in Hart and Chacker, "[f]or at least 40 years, [section] 9 [of the PFG DOT] has been deemed to authorize recovery of attorney[s'] fees by titleholders under section 1717." The Malekans' reliance on Saucedo v. Mercury Sav. & Loan Assn. (1980) 111 Cal.App.3d 309 (Saucedo) and Wilhite v. Callihan (1982) 135 Cal.App.3d 295 (Wilhite) for this proposition is misplaced.
In Saucedo, the plaintiffs purchased a residential property subject to an existing loan secured by a deed of trust. (Saucedo, supra, 111 Cal.App.3d at p. 311.) The lender elected to enforce the due-on-sale clause in the promissory note and instituted nonjudicial foreclosure proceedings. (Ibid.) The plaintiffs sued the lender to prevent it from proceeding to foreclose and prevailed in the underlying action. (Id. at p. 312.) The plaintiffs requested attorneys' fees based on the note, which stated: "If the holder of this note institutes legal action to enforce this note and prevails in such action, I shall pay his attorney fees in connection with such action." (Id. at p. 311.) The trial court denied plaintiffs' motion for attorneys' fees because plaintiffs were not parties to the note or deed of trust. The Court of Appeal reversed, reasoning: "While the nonassuming grantee would not have been personally liable for payment of attorney fees under the note and deed of trust, the trustee and/or beneficiary would have been entitled to attorney fees under the provisions of the deed of trust had they prevailed, and these fees would have become part of the debt secured by the deed of trust. To prevent foreclosure of his interest, the non-assuming grantee would have had to payoff the secured debt, including the attorney fees, by refinancing or otherwise. This practical 'liability' of the non-assuming grantee is sufficient to call into play the remedial reciprocity established by Civil Code section 1717." (Id. at p. 315)
The deed of trust also contained a provision stating the trustor agreed "'to pay all costs and expenses, including . . . attorney's fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear.'" (Id. at p. 311, italics omitted.)
The relevant facts in Wilhite are virtually identical to those in Saucedo. Like Saucedo, in Wilhite the plaintiff was a non-assuming grantee who was forced to file a lawsuit to enjoin a foreclosure after the lender sought to foreclose based on a due-on-sale clause in a promissory note. (Wilhite, supra, 135 Cal.App.3d at pp. 297-298.) Based on the attorneys' fee provision in the deed of trust (identical to the provision in the deed of trust at issue in Saucedo), the trial court granted plaintiff's motion for attorneys' fees. (Id. at p. 301) In affirming the fee award, the Court of Appeal stated that had the plaintiff lost, he "would have been placed in a position where he would have to proffer attorney fees to forestall foreclosure and protect his security. Any renegotiation of the debt or relief from the due-on-sale clause would most certainly involve payment of attorney fees." (Id. at p. 302)
Saucedo and Wilhite are inapplicable. Neither case involved a provision like section 9 of the PFG DOT (providing that attorneys' fees incurred by the lender could be added to the secured debt). Rather, it was undisputed in Saucedo and Wilhite that the provisions in the notes and/or deeds of trust contained attorneys' fee provisions subject to section 1717. Thus, the issue in those cases was whether a nonsignatory to the note and deed of trust could enforce the attorneys' fee provisions in those contracts. In that context, the Saucedo and Wilhite courts concluded there was a practical reason to apply section 1717 to the nonsignatory plaintiff. We decline to extend the holdings in Saucedo and Wilhite to the facts of this case. (See Dell Merk, Inc. v. Franzia (2005) 132 Cal.App.4th 443, 454 [describing Saucedo and Wilhite as cases which arose in a "peculiar context" of an action by a nonsignatory plaintiff to prevent foreclosure for nonpayment of a real property promissory note secured by a deed of trust].)
The Malekans suggest equity considerations should weigh in favor of construing section 9 as an attorneys' fee provision subject to the reciprocity principles of section 1717. They argue that if prevailing lenders are allowed to recover attorneys' fees from a subsequent foreclosure, but prevailing titleholders, such as the Malekans, maintain no such opportunity, that result would be inequitable. But as discussed above, section 1717 applies only where a "contract specifically provides that attorney's fees . . . shall be awarded" to one party or the prevailing party. Here, the plain language of section 9 does not so provide.
Accordingly, we conclude section 9 of the PFG DOT is not an attorneys' fee provision subject to section 1717.
2. No Other Provision Constitutes an Attorneys' Fee Provisions
Alternatively, the Malekans contend sections 14 and 22 of the PFG DOT constitute attorneys' fee provisions subject to section 1717.
Section 14, headed "Loan Charges," states a lender may charge borrower fees for services performed in connection with the borrower's default, including attorney's fees. The court in Chacker held that, like section 9, the "plain language of this provision does not provide for a separate award of attorney fees." (Chacker, supra, 27 Cal.App.5th at p. 357.) Rather, the court explained, "it entitles the lender to charge the borrower fees, and the usage of the word 'charge,' particularly in combination with the 'Loan Charges' heading and the other clauses in section 14, is naturally read to permit the lender to add any attorney fees it may have incurred to the outstanding amount due under the promissory note. There is no language in section 14 that indicates the trust deed permits a freestanding contractual attorney fees award." (Ibid.) We agree with Chacker, and for the same reasons discussed above with respect to section 9, conclude section 14 does not constitute an attorneys' fee provision under section 1717.
Section 22, headed "Acceleration' Remedies," states that after giving notice to the Borrower that, among other things, the failure to cure the default may result in acceleration of the sum secured by the security instrument, and if the default is not cured, "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 law. The Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to, reasonable attorney's fees and costs of title evidence." Even assuming section 22 constitutes an attorneys' fee provision subject to section 1717, it does not apply here. HSBC sought a determination of the validity of the HSBC DOT, not to accelerate the payment of the defaulted loan.
For the first time in their appellate reply brief, the Malekans contend section 22 should not be restricted to fees incurred in pursuing acceleration remedies in light of "section 1717(a)'s scope expansion principle." (See section 1717, subd. (a) ["Where a contract provides for attorney's fees . . . that provision shall be construed as applying to the entire contract."].) They forfeited this argument, however, by failing to raise it in their opening brief on appeal or in the trial court. (See California Building Industry Assn. v. State Water Resources Control Bd. (2018) 4 Cal.5th 1032, 1050 [where appellant fails to raise an argument "until its appellate reply brief," it "has forfeited the argument."]
3. HSBC Did Not Sue on The Note
Lastly, the Malekans contend that even if none of the provisions in the PFG DOT constitute attorneys' fee provisions, they are still entitled to attorneys' fees based on Section 7(E) of the PFG Note. They argue the PFG Note and DOT constitute one, inseparable agreement forming the basis of HSBC's action.
The Malekans rely on section 1642, which provides that "[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together." They also cite Nevin v. Salk (1975) 45 Cal.App.3d 331 (Nevin). There, plaintiff buyer sued defendant seller for fraud in connection with the sale of property, and sought rescission, restitution of monies paid pursuant to two promissory notes, and damages. (Nevin, supra, 45 Cal.App.3d at p. 335.) The trial court held that an agreement of sale, two promissory notes, a deed of trust, a security agreement and other documents formed a single contract. (Ibid.) The trial court, therefore, awarded attorneys' fees despite the fact the agreement of sale did not contain an attorneys' fee provision (only the two notes and the deed of trust contained attorneys' fees provisions). (Ibid.) The Court of Appeal affirmed, holding "the trial court properly concluded all the instruments formed a single contract and the fact the agreement itself contained no provision for payment of fees in the event of a lawsuit is of no consequence." (Ibid.)
In contrast to Nevin, here, the trial court did not find the PFG DOT and PFG Note were one contract. And, unlike in Nevin, HSBC did not sue on the PFG Note or seek to enforce collection of the PFG Note from the Malekans. Rather, HSBC's complaint sought to quiet title based on the HSBC DOT and/or establish an equitable lien with respect to the Malekans' respective interests in the Property. Thus, HSBC's action was not "on the" PFG Note, as required by section 1717. (See § 1717, subd. (a) ["In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract . . . ." (Emphasis added.)]; see also Hart, supra, 27 Cal.App.5th at 330, fn. 6 [stating attorneys' fees could not be awarded under the attorneys' fees clause in the promissory note because there is no basis to hold a party liable on a contract he "did not sue on."].)
The Malekans failed to raise the argument in the trial court until their reply brief in support of their motion for attorneys' fees.
Because we conclude this was not an action on a contract containing an attorneys' fees provision subject to section 1717, we need not address whether Elizabeth, a nonsignatory to the contracts at issue, would be entitled to recover attorneys' fees had those contracts contained an attorneys' fees provision.
DISPOSITION
The portion of the judgment entered in favor of Elizabeth is affirmed. The matter is remanded for further proceedings with respect to the Malekans' affirmative defenses. Judgment shall be entered in favor of HSBC on its quiet title cause of action as to Amir and Elana's 49.69 percent interest in the Property unless Amir and Elana prevail on one of their affirmative defenses. If the trial court rejects Amir and Elana's affirmative defenses, it is also directed to reconsider HSBC's claim for declaratory relief (we leave it to the trial court to decide whether to exercise its discretion under Code of Civil Procedure section 1061 to grant HSBC declaratory relief). The court shall enter judgment accordingly. The order denying the Malekans' motion for attorneys' fees is affirmed. The parties shall bear their own costs on appeal.
We concur: WILLHITE, Acting P.J. MICON, J. [*]
[*]Judge of the Los Angeles County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.