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Tentative Ruling
Judge Pauline Maxwell
Department 6 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION

Gary Paudler vs American Financial Network Inc

Case No: 15CV01140
Hearing Date: Wed Feb 14, 2018 9:30

Nature of Proceedings: Motion to Tax Costs; Attorney Fees

                       

TENTATIVE RULINGS: For the reasons articulated herein, Plaintiff’s motion to tax costs is denied in its entirety.

       For the reasons articulated herein, Defendant’s motion for attorneys’ fees is granted in part; defendant is awarded attorneys’ fees in the amount of $135,000.

 

BACKGROUND: On September 13, 2011, plaintiff obtained a Federal Housing Administration insured mortgage loan from American Financial Network in the amount of $737,047.00. The mortgage loan was secured by a promissory note and deed of trust on real property located at 202 Olive Street, Summerland, California, which mortgage documents governed the parties’ obligations and rights. The Deed of Trust identifies American Financial Network as the “Lender,” and provides, in relevant part of ¶ 7:

“If Borrower fails to make these payments or the payments required by paragraph 2, or fails to perform any other covenants and agreements contained in this Security Instrument, or there is a legal proceeding that may significantly affect Lender’s rights in the Property (such as a proceeding in bankruptcy, for condemnation or to enforce laws or regulations), then Lender may do and pay whatever is necessary to protect the value of the Property and Lender’s rights in the Property, including payment of taxes, hazard insurance and other items mentioned in paragraph 2.

“Any amounts disbursed by Lender under this paragraph shall become an additional debt of Borrower and be secured by this Security Instrument. These amounts shall bear interest from the date of disbursement at the Note rate, and at the option of Lender shall be immediately due and payable.”

At ¶ 18, it provided further:

            “18. Foreclosure Procedure. If Lender requires immediate payment in full under paragraph 9, Lender 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 paragraph 18, including, but not limited to, reasonable attorneys’ fees and costs of title evidence.”

The Promissory Note executed by plaintiff required monthly payments of $3,625.83. It defined the “Lender” to mean American Financial Network and its successors and assigns. Paragraph 6 of the Note, entitled Borrower’s Failure to Pay, provides at subdivisions (B) and (C):

(B) Default

“If Borrower defaults by failing to pay in full any monthly payment, then Lender may, except as limited by regulations of the Secretary in the case of payment defaults, require immediate payment in full of the principal balance remaining due and all accrued interest. . . .

(C) Payment of Costs and Expenses

“If Lender has required immediate payment in full, as described above, Lender may require Borrower to pay costs and expenses including reasonable and customary attorneys’ fees for enforcing this Note to the extent not prohibited by applicable law. Such fees and costs shall bear interest from the date of disbursement at the same rate as the principal of this Note.”

On October 25, 2011, Bank of America, N.A. (BANA) gave notice to plaintiff that the loan had been acquired by BANA and that BANA was his new creditor. BANA separately gave notice to plaintiff that BANA would also be servicing the mortgage loan.

While BANA owned and serviced the Mortgage, Plaintiff encountered payment difficulties, including falling behind on payments and eventually missing several payments, resulting in letters from BANA notifying him of his loss mitigation options. BANA subsequently notified Plaintiff of the default on the loan on April 19, 2013, and notice of intent to accelerate the loan on July 5, 2013.

Plaintiff twice applied for loan modifications with BANA in 2013, but was advised that he did not qualify because he had failed to provide required documentation. BANA ultimately advised him, however, that he qualified for a Special Forbearance Agreement due to claimed unemployment. The Forbearance Agreement required that the past due amount under the loan of $23,287, be paid in 12 monthly installments of approximately $1,940.00, at the end of which he would “resume the regular monthly payments required under your note and security instrument.” It provided further, however, it “does not modify the terms of the note and security agreement you originally signed in connection with the Loan, and except as provided in this Agreement during the term hereof, all of the provisions of the note and security instrument shall remain in full force and effect.” It notified the Borrowers that if they had previously been notified that the loan was accelerated and/or due in full, it remains accelerated and/or due in full, although they may be entitled by law to cure the default by bringing the Loan current rather than paying it off. It further provided that Borrowers would be considered in default of the Forbearance Agreement if they failed to comply with any other provision of the original note and security agreement other than the prior failure to pay the amounts that would be repaid by the agreement.

Plaintiff accepted the Forbearance Agreement, and paid the required forbearance amount each month for one year, through August 2014. Plaintiff did not, however, make his regular monthly payments at any time after August 2013, although he contended he could have made the regular monthly payments during the forbearance period and could have paid the full amount required to reinstate his loan at the end of the forbearance period. Plaintiff was aware that he had the right to apply for a loan modification after receipt of the Forbearance Agreement, including during the forbearance period, but did not apply for a loan modification during the twelve month forbearance period.

On July 25, 2013, plaintiff received notice that the servicing of his mortgage loan was being transferred to M&T Bank, effective August 2, 2013. Plaintiff also later learned that the loan had been sold by BANA to Lakeview Loan Servicing, LLC, which became the creditor under the loan. During the forbearance payment period, M&T Bank sent plaintiff monthly statements noting receipt of the forbearance payments, and also noting non-payment of the regular monthly loan payments, which monthly statements showed a progressively increasing new past due amount based on non-payment of the regular monthly payments due under the loan. Beginning in January 2014, in addition to the monthly statements, M&T Bank sent plaintiff delinquency letters noting the number of days his loan was past due, inquiring of payment difficulty, providing HUD approved housing counseling contact information and notifying plaintiff that his loan was under review for legal action

On August 6, 2014, M&T Bank sent a letter to plaintiff notifying him that the forbearance period had ended and that he needed to re-apply for a loss mitigation review. The following day, M&T Bank sent a letter to plaintiff notifying him of his payment default under the mortgage loan, indicating that it had not been able to contact him and/or had not received a workout package from him, noting that the creditor on his loan was Lakeview Loan Servicing and that the matter would be referred to foreclosure, but that if he had questions he could contact M&T Bank’s single point of contact team. A seek later, M&T Bank wrote to plaintiff advising him of loss mitigation options along with HUD contact information and an FHA save your home brochure listing potentially available FHA options.

In September 2014, plaintiff submitted his another loan modification package to M&T Bank, and was notified that he did not qualify for a modification under FHA guidelines. He appealed, and the denial of his appeal was confirmed.

On December 29, 2014, a Notice of Default and Election to Sell under Deed of Trust was recorded with the Santa Barbara County Recorder’s office. However, no further action on the election to sell was initiated by the creditor, Lakeview, or any loan servicer for Lakeview.

Between January and March 2015, plaintiff submitted three more loan modification packages to M&T Bank. After each submittal, he was advised by M&T Bank that he did not qualify for a modification pursuant to then-applicable FHA requirements. He appealed the denial of the first two applications, which appeals were denied, but did not appeal from the third denial.

Plaintiff filed this action on May 18, 2015, originally alleging causes of action for (1) promissory estoppel, (2) fraud, (3) violation of the Rosenthal Act, (4) declaratory relief, (5) negligence, (6) fraudulent conveyance, (7) breach of the implied covenant of good faith and fair dealing, (8) violation of Business & Professions Code sections 17200, et seq., and (9) quiet title. His complaint sought rescission of the Promissory Note and Deed of Trust, to quiet title in his favor and against defendants, and for “reasonable attorneys’ fees according to proof,” among other relief.

After a series of demurrers filed by various parties to the action, plaintiff’s operative second amended complaint against M&T Bank ultimately included causes of action for promissory estoppel, violation of the Homeowner’s Bill of Rights (HBOR), negligence, breach of forbearance agreement, breach of the implied covenant of good faith and fair dealing, and violation of Business & Professions Code sections 17200, et seq. M&T Bank’s demurrer to the second amended complaint had been sustained without leave to amend as to plaintiff’s causes of action for fraud, Rosenthal Act violations, quiet title (which does not appear to have been directed toward M&T), and declaratory relief. Plaintiff’s SAC had sought attorneys’ fees within its fraud, Rosenthal Act, HBOR, negligence, and UCL causes of action.

In 2017, during the pendency of the action, plaintiff submitted updated financial and other materials to M&T Bank, which resulted in his qualification for an FHA loss mitigation option under new FHA guidelines. He was notified on April 18, 2017 that he qualified for a trial payment plan program which would lead to a permanent loan modification if he complied with the trial payment terms and conditions. He accepted the loss mitigation option two days later, on April 20, 2017.

Plaintiff’s action went to jury trial starting on April 20, 2017. The jury found in M&T Bank’s favor on the breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, and promissory estoppel causes of action. The trial court then issued its Statement of Decision on the equitable causes of action for violation of the HBOR and violation of Business & Professions Code sections 17200, et seq., finding against plaintiff on each claim.

Judgment was entered in favor of M&T Bank on August 2, 2017, but was not mailed by the clerk until October 2, 2017. M&T Bank filed a Memorandum of Costs on October 20, 2017. Plaintiff’s motions for new trial and for judgment notwithstanding the verdict were denied by the court on November 29, 2017.

Currently before the court are (1) plaintiff’s motion to tax costs claimed by M&T Bank, and (2) the motion by M&T Bank for an award of attorneys’ fees of $402,377.50, and non-statutory costs of $9,474.92, against plaintiff.

MOTION TO TAX COSTS: Plaintiff seeks to tax certain costs claimed by M&T Bank in its Memorandum of Costs.

First, plaintiff’s notice of motion seeks to tax the $20 fee claimed by M&T Bank for the application to allow its corporate representative to appear at the MSC by telephone, on the grounds that it was unnecessary and not reasonably helpful to aid the trier of fact. His points and authorities in support of his motion appear to extend his challenge to the remainder of the “filing and motion fees” claimed, on the basis that M&T Bank did not identify why the entire amount claimed was reasonable or necessary for the preparation for trial.

Second, plaintiff seeks to reduce the $7,718.25 claim for deposition costs to $5,606.35, contending that travel fees and video costs claimed by M&T Bank were unnecessary and solely the result of M&T Bank’s refusal to comply with plaintiff’s multiple deposition notices for the PMK deposition to take place at his attorney’s office in Santa Monica. Travel time is also sought for depositions taken at locations M&T Bank selected. He further contends that the video fees for plaintiff’s deposition were unnecessary and not reasonably helpful to aid the trier of fact, in that they were never presented to the jury, and were unreasonable in light of the amount of damages at issue in the case. Finally, he objects that documentation to support the costs claimed was not provided, and is necessary for the court to assess whether they were reasonably necessary to the litigation and reasonable in amount.

M&T Bank opposes the motion, noting that its verified Memorandum of Costs is prima facie evidence of the propriety of the costs claimed, and there is no requirement to append documentation to the Memorandum of Costs. Its counsel provided a declaration authenticating the invoices and documentation for the costs objected to by plaintiff. M&T Bank notes that it is entitled to these costs as a prevailing party, and the burden is on plaintiff to show that they are not reasonable or necessary. Further, video recording costs are expressly recoverable under code of Civil Procedure section 1033.5(a)(3)(A), regardless of whether the video was used at trial. There is no limitation on the claiming of travel costs for depositions taken at a location chosen by the party seeking the costs, and they are recoverable so long as reasonably necessary to the conduct of the litigation.

No reply papers were filed.

Analysis: The motion is denied in its entirety.

M&T Bank timely filed its verified Memorandum of Costs, following the clerk’s October 2, 2017 service of the entered judgment. (Cal. Rules of Court, rule 3.1700, subd. (a)(1); Code Civ. Proc., § 1013, subd. (a).) The initial verification of the Memorandum of Costs suffices to establish the reasonable necessity of the costs claimed, and there is no requirement that it attach copies of the documentation supporting the costs. Rather, such documentation must be submitted only if costs have been put in issue by a motion to tax costs. (Jones v. Dumrichob (1998) 63 Cal.App.4th 1258, 1267.)

If items on their face appear to be proper charges, the verified memorandum of costs is prima facie evidence of their propriety, and the burden is on the party seeking to tax costs to show they were not reasonable or necessary. (Bender v. County of Los Angeles (2013) 217 Cal.App.4th 968, 989.) If the items are properly objected to, they are put in issue and the burden of proof is on the party claiming them as costs. (Ladas v. California State Automobile Association (1993) 19 Cal.App.4th 761, 774.) Whether an item listed on the memorandum was reasonably necessary is a question of fact for the trial court. (Adams v. Ford Motor Co. (2011) 199 Cal.App.4th 1475, 1486.)

The costs claimed by M&T Bank were, on their face, appropriately claimed costs. Filing fees are appropriately claimed costs. Similarly, travel costs for depositions, and the cost to videotape depositions, are both statutorily authorized costs. Consequently, the burden was on plaintiff to demonstrate that they were not reasonable or necessary.

A $20 filing fee charged for an application to allow M&T Bank’s corporate representative to appear at the MSC by telephone was reasonable, and certainly cannot be found unnecessary to the litigation. Costs of videotaping depositions are appropriately claimed (Code Civ. Proc., § 1033.5, subd. (a)(3)(A)), and under the circumstances presented by this case, the Court cannot find that the cost was either unreasonable or unnecessary to the litigation. Travel expenses to attend depositions are likewise statutorily recoverable. (Code Civ. Proc., § 1033.5, subd. (a)(3)(C).) There is no statutory restriction on the cost. Where depositions are schedule at distant locations to accommodate the witnesses being deposed, it is not be unusual for counsel to need to travel to the deposition location, even when the deponent is a party-related witness. Plaintiff has failed to show why any of the objected-to costs are either unnecessary or unreasonable. Consequently, the motion to tax costs will be denied in its entirety.

MOTION FOR ATTORNEYS’ FEES: M&T Bank seeks an award of attorneys’ fees of $402,377.50, and non-statutory costs of $9,474.92, against plaintiff, on two theories: (1) that the underlying Promissory Note and Deed of Trust provide for attorneys’ fees for enforcing the note, and (2) plaintiff’s complaints claimed a right to recover attorneys’ fees, and the reciprocal rules regarding fees justify their imposition.

To the extent the motion is seeking contractual attorneys’ fees, it is based upon certain provisions of the Promissory Note and Deed of Trust executed by plaintiff. Specifically, the Deed of Trust provides, in relevant part of ¶ 7:

“If Borrower fails to make these payments or the payments required by paragraph 2, or fails to perform any other covenants and agreements contained in this Security Instrument, or there is a legal proceeding that may significantly affect Lender’s rights in the Property (such as a proceeding in bankruptcy, for condemnation or to enforce laws or regulations), then Lender may do and pay whatever is necessary to protect the value of the Property and Lender’s rights in the Property, including payment of taxes, hazard insurance and other items mentioned in paragraph 2.

“Any amounts disbursed by Lender under this paragraph shall become an additional debt of Borrower and be secured by this Security Instrument. These amounts shall bear interest from the date of disbursement at the Note rate, and at the option of Lender shall be immediately due and payable.”

The Promissory Note executed by plaintiff provides that “Lender” means American Financial Network and its successors and assigns. Paragraph 6 of the Note, entitled Borrower’s Failure to Pay, provides in relevant parts at ¶ 6 (B) (C):

(B) Default

“If Borrower defaults by failing to pay in full any monthly payment, then Lender may, except as limited by regulations of the Secretary in the case of payment defaults, require immediate payment in full of the principal balance remaining due and all accrued interest. . . .

(C) Payment of Costs and Expenses

“If Lender has required immediate payment in full, as described above, Lender may require Borrower to pay costs and expenses including reasonable and customary attorneys’ fees for enforcing this Note to the extent not prohibited by applicable law. Such fees and costs shall bear interest from the date of disbursement at the same rate as the principal of this Note.”

M&T Bank contends that as authorized loan servicer for the lender, it is included in the definition of “lender” in both the Note and Deed of Trust, which include the successors and assigns of the lender, and it is therefore entitled to the fees provided for in these instruments. It asserts that plaintiff specifically challenged enforcement of the Note and Deed of Trust in each of his complaints, including the operative second amended complaint, by asserting each was unenforceable and that M&T Bank had improperly attempted to enforce their terms. Plaintiff claimed the security was subject to rescission in numerous allegations, and the prayer sought to void the security by seeking rescission of the deed of trust, for a declaration that any assignment of the deed of trust be found void ab initio, and to quiet title. M&T Bank contends that plaintiff’s challenges to efforts to enforce the terms of the mortgage were a direct attack on its enforcement, bringing the action within the terms of the fee provision.

M&T Bank asserts that when a contract provides for payment of attorneys’ fees incurred in the enforcement of the contract, fees incurred in defending against a challenge to the underlying validity of the obligation are recoverable. (Siligo v. Castellucci (1994) 21 Cal.App.4th 873, 878-880.

M&T Bank further asserts that neither the Note nor the Deed of Trust confine fee recovery to breach of contract suits, and broadly allow recovery of fees whenever an action might affect rights or interests under the Deed of Trust, or when necessary to enforce the provisions of the Note. As a result, M&T contends that it is entitled to recover its fees for tort, contract, statutory, and equitable claims. All tort claims asserted by plaintiff were alleged to have arisen out of the underlying Note and Deed of Trust, the enforcement of which plaintiff challenged. M&T Bank prevailed on all claims, either obtaining a dismissal on demurrer, or a judgment in its favor at trial.

M&T Bank then asserts that its requested amounts for attorneys’ fees and non-statutory costs are reasonable. It seeks its lodestar fees for the entire action, without application of a multiplier. Its counsel’s effective average hourly rate for the time billed was $320.32/hour, a rate it contends is substantially lower than the rates charged by other large firms. Mr. Bates’ current rate is $810/hour. M&T Bank further contends that the time it spent was reasonable and necessary, an necessitated by both the length of time the case was pending, the numerous issues plaintiff advanced, and plaintiff’s tenacity. M&T Bank seeks compensation for 1,255.9 hours of work, which includes 366.8 hours by lead counsel Terry Bates, and 584.50 hours by second chair trial counsel Megan Farrell, who was primarily responsible for pleading and discovery stages of the litigation (which leaves 304.6 hours performed by other attorneys). A chart of tasks and time spent is attached to the Bates declaration submitted in support of the motion. It contends the case was “leanly staffed,” with most work conducted by these two attorneys.

M&T Bank seeks non-statutory costs incurred for lodging and airfare for the 9-day jury trial. It is represented nationally by Reed Smith LLP, which does not have Santa Barbara offices. Mr. Bates’ office is in Los Angeles; Ms. Farrell works in Pittsburgh, PA. $933.94 was spent for Ms. Farrell’s airfare, and both counsel stayed at the Kimpton Canary Hotel (along with plaintiff’s attorney), because of its proximity to the courthouse, incurring $8,540.98 in lodging expenses.

Opposition: Paudler has opposed the motion. He disputes that he made any request for attorneys’ fees pursuant to any of the security instruments, and only sought fees under the HBOR. He contends there were no claims to nullify the mortgage loan and security interest after the demurrer to the SAC was sustained, and such claims have not been a part of the action since March 2016. He contends his position in this case is that M&T breached the special forbearance agreement—which does not have an attorneys’ fees clause—and not the Note or Deed of Trust.

Paudler argues that the SFA is the contract at issue in the action, and that it does not contain an attorneys’ fees clause, and does not seek attorneys’ fees. The Note was not part of the contract he contends M&T breached, and was never attached to any of his pleadings. Even had it been attached, it does not include a prevailing party fee clause, instead relating to attorneys’ fees related to a borrower’s default and foreclosure. Its terms allow attorneys’ fees when seeking immediate payment in full to enforce the Note, after immediate payment had been required by the Lender. M&T never required immediate payment in full, and the action was never based on M&T trying to enforce the Note. M&T’s fees were not incurred to enforce the Note, and there has never been anything to prevent M&T from directing the house be sold at a trustee’s sale. The case is not part of a foreclosure proceeding, and M&T has not foreclosed. M&T attempts to muddy the distinction between the Special Forbearance Agreement and the other agreements, including the Note. Plaintiff sued M&T for breach of the SFA, not the note. Paudler asserts that the only paragraphs in the DOT that provide for attorneys’ fees relate to the foreclosure process, but the fees were not incurred in furtherance of selling the property through foreclosure.

Paudler further asserts that M&T is not entitled to fees for the tort claims, which only sought statutory fees. HBOR provides a statutory entitlement to fees for a prevailing borrower. (Civ. Code, § 2924.12, subd. (h).) M&T contends that all plaintiff’s tort claims arise out of the Note and DOT, but M&T has acknowledged (in demurring to the SAC) that the allegations are based on its alleged breach of the SFA. Plaintiff’s tort claims are based on the SFA and the HBOR violations. His fraud claims are based upon misrepresentations made regarding his modification application, and that it would abide by the terms of the SFA. They do not relate to any duty outlined in the terms of the Note or DOT. The negligence claim was based upon M&Ts handling and servicing of the modification, and none of the terms of the Note or DOT are at issue; only HBOR and the SFA.

Finally, plaintiff asserts that the claim that he should have to pay M&T’s fees is not reasonable, and not supported by the evidence provided. He argues that there is nothing unique about this case that should have required the expenditure of $402,377.50 in fees, and $9,474.92 in costs. There were duplicative services provided by successive attorneys, most of whom do not provide declarations to support their claims for services. There are multiple lawyers talking with each other and preparing repeated status updates, showing how inefficient the defense was. Mr. Bates’ stated rate of $810 is not below market rates. The fees and costs claimed are not reasonable, given that the amount at issue in the case is a slight percentage of the amount M&T claims.

Reply: In reply, M&T contends that plaintiff’s narrow focus on the SFA is a distortion of the facts, since he initiated the action in response to M&T’s efforts to enforce Loan payment obligations set forth in the Note and DOT. Even after the demurrers, plaintiff continued to maintain causes of action which characterized M&T’s efforts to enforce the Note and DOT payment obligations as improper, in bad faith, and actionable, based on his mistaken interpretation. Not only did he seek to rescind and avoid the obligations of the Note and DOT, M&T’s efforts to seek payments in accordance with the terms of the Note and DOT support its request for fees and costs.

M&T contends that it is entitled to fees because the action “involves” a contract containing an attorneys’ fee clause. The Note and DOT authorize fees where legal action is necessary to defend or enforce the contractual terms, and because plaintiff sought fees in numerous causes of action and the reciprocal rules regarding fees justify their imposition. Throughout the action, plaintiff directly challenged his continuing monthly payment obligations under the Note and DOT, as well as M&T’s efforts to enforce the agreements, claiming that his payment obligations were altered by the Forbearance Agreement, and M&T’s attempts to enforce payments pursuant to the Note and DOT were therefore contract, tort, and statutory violations.

For purposes of Civil Code 1717, an action is “on a contract” if it involves an agreement, by arising out of, being based upon, or being related to an agreement by seeking to define or interpret its terms or to determine or enforce a party’s rights or duties under the agreement, and the agreement contains a fee clause. (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230, 241.)

M&T contends the action “involves” the Note and DOT, because plaintiff’s claims sought to invalidate those agreements, as well as challenge M&T’s efforts to enforce them. The Forbearance Agreement addressed that the borrowers were already in default, and had received a notice of intent to accelerate because they were in arrears. It allowed repayment of the delinquent amount, but did not modify the note or DOT, and required continued compliance with them. Because Borrowers did not make the regular payments during the forbearance period, they owed an additional $55,888.80 at its end. They sued to avoid payment of that arrearage, contending the forbearance agreement had modified the loan, waived the regular payments, and M&T could not require payment of that amount to reinstate the loan. The SAC contains numerous allegations that the Note and DOT should be rescinded and found void, including in claims that survived demurrer. (¶¶ 101, 121, 124, 143.)

Further, fees are authorized by both the Note and DOT, and not limited to foreclosure proceedings, as claimed by plaintiff. In the Note, where there has been a notice to accelerate, Lender may require Borrower to pay costs and expenses including fees for enforcing the Note. In defending plaintiff’s challenge to the validity of his payment obligations, M&T was enforcing the note. M&T prevailed against plaintiff on the challenges.

Plaintiff argues the DOT only authorizes foreclosure costs and fees and expenses properly associated with foreclosure proceedings, but that is a different provision than that relied on by M&T to support its fee request. At ¶ 7, it authorizes M&T to do and pay for whatever is necessary to protect the value of the Property and Lender’s rights in the property in the event of a legal proceeding that might significantly affect Lender’s interest in the Property and/or rights under this Security Instrument.

Further, M&T reasserts that the fees and non-statutory costs it seeks are reasonable. Plaintiff argues there was nothing unique about the case to warrant the amount of fees, but does not point to any time entry as being unreasonable. Plaintiff’s counsel tenaciously prosecuted the action, and frequently attempted to relitigate issues, frequently filing corrected oppositions and seeking continuances when he had filed over-length, untimely, and error-ridden oppositions. There was extensive written discovery, and six depositions were taken, compounded by plaintiff’s counsel’s decision to unilaterally terminate plaintiff’s deposition, and his failure to appear at the time for the rescheduled deposition. M&T has expended an additional 100 hours in post-trial motions, not included in this motion, including a motion for new trial, motion for JNOV, and motion to tax costs. Mr. Bates’ time was not billed at $810/hour, and the effective hourly rate of all work by M&T’s counsel was at $320.32/hour, even though some of the very experienced attorneys regularly bill at much higher rates. The $320.32/hour is less than plaintiff’s counsel charges per hour. Finally, plaintiff does not specifically object to the non-statutory costs sought by M&T, which involved lodging and airfare for the 9 day jury trial. Plaintiff’s counsel stayed at the same hotel.

Plaintiff claims the amounts are unreasonable given the amount at issue in the case was a “slight percentage” of the amount sought. Even if that were relevant, M&T asserts that plaintiff sought to invalidate a loan of $737,047.

Analysis: Defendant’s motion is granted in part; defendant is awarded attorneys’ fees in the total amount of $135,000.

Defendant’s motion sets forth two separate bases for its fee claim: (1) a claim that M&T Bank has a reciprocal right to fees because plaintiff sought fees in his SAC; and (2) an entitlement to contractual attorneys’ fees under the fee clauses contained within the Promissory Note and Deed of Trust.

California follows the “American rule,” under which each party to a lawsuit must pay its own attorney fees unless a contract or statute or other law authorizes a fee award. (Code Civ. Proc., §§ 1021.1033.5, subd. (a)(10); Mosaelian v. Adams (2009) 45 Cal.4th 512, 516.) Civil Code section 1717 governs attorney fee awards authorized by contract and incurred in litigating claims sounding in contract. Section 1717(a) provides, in relevant part:

(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.

Where a contract provides for attorney’s fees, as set forth above, that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract.

Reasonable attorney’s fees shall be fixed by the court, and shall be an element of the costs of suit.

Section 1717 expressly makes the right to contractual fees reciprocal, in allowing the prevailing party to obtain fees, whether or not they were the party specified in the contract as being entitled to fees. Further, in order to truly make the right to fees reciprocal, section 1717 has also been interpreted to allow an award of attorney fees to a person who was sued on a contract containing a provision for attorney fees, who successfully defends the action by arguing the inapplicability, invalidity, unenforceability, or nonexistence of the contract sued upon. (See Santisas v. Goodin (1998) 17 Cal.4th 599, 611.) Since the prevailing party cannot claim fees as a contractual right, section 1717 ensures mutuality of remedy by permitting the recovery of fees under those circumstances, whenever the opposing parties would have been entitled to attorney fees under the contract had they prevailed. (Id.)

            A.        Reciprocal Fee Claim

M&T Bank contends that it is entitled to fees because plaintiff’s SAC sought fees against it. The circumstances presented by this case do not meet the requirements for reciprocal fees.

The mere allegation in a complaint that the plaintiff is entitled to receive attorney fees does not provide a sufficient basis for awarding them to the opposing party if the plaintiff does not prevail. (Sessions Payroll Mgmt., Inc. v. Noble Constr. Co. (2000) 84 Cal.App.4th 671, 682.) In order for the reciprocal right to fees established by the Santisas case to arise, the plaintiff must have sued on the contract containing the fee provision, and must have been entitled to fees under that provision had he prevailed. Further, for a losing plaintiff to be required to pay attorney fees, the party claiming fees must still prove that the contract allows fees. (M. Perez Co. v. Base Camp Condominiums Association No. One (2003) 111 Cal.App.4th 455.)

Plaintiff did not sue for breach of the Promissory Note or Deed of Trust, did not seek attorneys’ fees pursuant to the terms of those agreements, and would not have been entitled to fees pursuant to the terms of those agreements had he prevailed in the action. As a result, M&T Bank has no separate entitlement to attorneys’ fees simply based upon the fact that plaintiff’s pleadings sought fees in some form. Rather, the only basis upon which fees could possibly be awarded to M&T Bank is if it can establish a direct entitlement to fees under the terms of the Promissory Note or the Deed of Trust. The Court will therefore proceed to analyze whether there is an entitlement under those agreements.

            B.        Contractual Fees

As noted above, section 1717 establishes a right to contractual attorney fees in any case “on a contract,” where the contract specifically provides that fees and costs incurred to enforce the contract shall be awarded either to one of the parties or to the prevailing party. (Civ. Code, § 1717, subd. (a).) California courts construe the term “on a contract” liberally. (Turner v. Schultz (2009) 175 Cal.App.4th 974, 979.) In determining whether an action is “on the contract” under section 1717, the proper focus is not on the nature of the remedy, but on the basis of the cause of action. (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 347.) It includes not only traditional actions for breach of a contract containing an attorney fee clause, but also any other action that “involves” a contract under which one of the parties would be entitled to recover attorney fees if it prevails in the action. (Eden Township Healthcare District v. Eden Medical Center (2013) 220 Cal.App.4th 418, 426.) An action or cause of action is “on a contract” for purposes of section 1717 if (1) the action or cause of action “involves” an agreement, in the sense that it arises out of, is based upon, or relates to an agreement by seeking to define or interpret its terms or to determine or enforce a party’s rights or duties under the agreement, and (2) the agreement contains an attorney fees clause. (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230, 241-242.)

Further, where an attorney fee clause provides for an award of fees incurred in enforcing the contract, the prevailing party is entitled to fees for any action “on the contract,” whether incurred offensively or defensively; fees under section 1717 are properly awarded to the extent the action in fact is an action to enforce—or to avoid enforcement of—the specific contract. (Turner v. Schultz, supra, 175 Cal.App.4th at 980, citing Shadoan v. World Savings & Loan Assn. (1990) 219 Cal.App.3d 97, 107-108.) In other words, the obligation to pay attorney fees incurred in the enforcement of a contract includes attorneys’ fees incurred in defending against a challenge to the underlying validity of the obligation. (Siligo v. Castellucci (1994) 21 Cal.App.4th 873, 878, quoting Finalco, Inc. v. Roosevelt (1991) 235 Cal.App.3d 1301, 1308.)

M&T Bank has moved for an award of $402,377.50 in attorney’s fees, and $9,474.92 in non-statutory costs, contending that it is contractually entitled to such fee and cost award under the authority of ¶ 7 of the Deed of Trust, and ¶ 6 of the Promissory Note, both executed by plaintiff. M&T Bank contends that its defense of plaintiff’s action constituted an enforcement of the underlying Promissory Note and Deed of Trust, and that it is entitled to fees for the entirety of its defense to the action.

The first task for the Court is to ascertain whether the terms of the Promissory Note and Deed of Trust provide authority for M&T Bank’s fee claim. As noted above, ¶ 7 of the Deed of Trust provides, in relevant part:

“If Borrower fails to make these payments or the payments required by paragraph 2, or fails to perform any other covenants and agreements contained in this Security Instrument, or there is a legal proceeding that may significantly affect Lender’s rights in the Property (such as a proceeding in bankruptcy, for condemnation or to enforce laws or regulations), then Lender may do and pay whatever is necessary to protect the value of the Property and Lender’s rights in the Property, including payment of taxes, hazard insurance and other items mentioned in paragraph 2.

“Any amounts disbursed by Lender under this paragraph shall become an additional debt of Borrower and be secured by this Security Instrument. These amounts shall bear interest from the date of disbursement at the Note rate, and at the option of Lender shall be immediately due and payable.”

While ¶ 11 of the Deed of Trust also provides for attorney’s fees for foreclosure related activities, M&T Bank has made clear that its fee request is made solely under the authority of ¶ 7, and is not made under ¶ 11.

Paragraph 6 of the Promissory Note, entitled Borrower’s Failure to Pay, provides at subdivisions (B) and (C):

(B) Default

“If Borrower defaults by failing to pay in full any monthly payment, then Lender may, except as limited by regulations of the Secretary in the case of payment defaults, require immediate payment in full of the principal balance remaining due and all accrued interest. . . .

(C) Payment of Costs and Expenses

“If Lender has required immediate payment in full, as described above, Lender may require Borrower to pay costs and expenses including reasonable and customary attorneys’ fees for enforcing this Note to the extent not prohibited by applicable law. Such fees and costs shall bear interest from the date of disbursement at the same rate as the principal of this Note.”

When the transaction between the parties is expressed in several documents, and only one of those documents contains a fee-shifting clause, the documents are generally construed as one contract and the fee clause is applied even if the action is to enforce a document that does not contain a fee shifting clause. (See Torrey Pines Bank v. Hoffman (1991) 231 Cal.App.3d 308, 325.) Here, the Deed of Trust and Promissory Note both form a part of the same greater transaction between plaintiff and the original Lender, American Financial Network, Inc., i.e., the lending of funds by American Financial to plaintiff, repayment of which was secured by a lien on the property. Consequently, any entitlement to contractual fees under one of the agreements would similarly apply to the other agreement.

In essence, the Deed of Trust permits the “Lender” to recover whatever amount is necessary to protect the value of the Property and the Lender’s rights in the Property, if the Borrower fails to make the required payments, or there is a legal proceeding that may significantly affect the Lender’s rights in the Property. Under the Promissory Note, if the Borrower defaults in payments, and the Lender requires immediate payment of the principal balance and all accrued interest, the “Lender” may require Borrow to pay costs, including attorneys’ fees, required to enforce the note.

Although plaintiff has not argued the point in opposition to the motion, under the express terms of both agreements, M&T Bank is entitled to seek fees only if it qualifies as the “Lender” under the agreements. American Financial Network was the original Lender under the agreements. It separated the Lender’s ownership of the loan from the obligations of servicing the loan in separately transferring ownership and loan servicing to BANA. BANA maintained that separation by transferring the loan servicing functions to M&T Bank, while retaining its ownership of the loan. Ownership was later transferred to Lakeview Loan Servicing, while M&T Bank continued to service the loan. The Promissory Note defined “Lender” to mean American Financial Network and its successors and assigns. As an assignee which derives its Lender functions with respect to the loan from the original Lender under the agreement, M&T Bank is a Lender under the agreement, for purposes of the attorney fee clause, even though it was not a signatory to the underlying agreement.

With respect to the fee clause contained in the Deed of Trust, it is clear that plaintiff was in default with respect to the mortgage payments, and that a legal proceeding was instituted. Standing in the shoes of the “Lender,” M&T Bank can therefore seek any fees necessary to protect the value of the Property and the Lender’s rights in the Property.

With respect to the fee clause contained in the Promissory Note, it is clear that plaintiff defaulted in his payments, and that BANA, as the then-Lender, notified plaintiff that if the default was not cured by a date certain, the loan would be accelerated and the full principal balance and all accrued interest would be due and owing. Plaintiff did not cure the default by that date certain. Consequently, standing in the shoes of the “Lender,” M&T Bank can therefore seek whatever fees it incurred to enforce the note. As articulated above, such fees would be permitted where the defense of a particular claim required M&T Bank to defend on the basis that the terms of the note were enforceable.

The Court must therefore analyze each of plaintiff’s claims, and ascertain whether M&T Bank’s defense of that specific claim was either required protect to the value of the property and the lender’s rights in the property, or required M&T bank to prove the enforceability of the note.

1st c/a for promissory estoppel. Plaintiff alleged he had been led to believe he only had to make the reduced payments during the forbearance period, after which he would then resume making regular payments, and that he relied on his belief by making only the reduced payments and not taking other actions that would have been available to him to cure the default, modify the loan, sell the property, or consider bankruptcy. He sought damages in the amount of the higher reinstatement amount, higher loan amounts, etc. The claim does not impair the value of the property or the Lender’s rights in the property. It seeks damages for conduct by the Lender which prevented plaintiff from taking action which would have cured the default, etc. Similarly, the claim did not require M&T Bank to prove the enforceability of the Note in order to prevail, but only that it made no promises to plaintiff that could have given rise to a claim for promissory estoppel. The cause of action is therefore not “on the contract.” No fees are warranted on this cause of action.

2nd c/a for fraud. The action was eliminated by the Court’s ruling on M&T Bank’s demurrer to the SAC. It was largely similar to the cause of action for promissory estoppel, and for the same reasons does not warrant an award of fees.

3rd c/a for violation of the Rosenthal Fair Debt Collection Practices Act, which was also eliminated by the Court’s ruling on M&T Bank’s demurrer to the SAC. Plaintiff alleged various conduct by defendants which constituted unfair debt collection practices by the defendants. The claims did not impair the value of the property or the lender’s rights in the property, precluding an award of fees based on the terms of the Deed of Trust. Defense of the claim was unrelated to the terms of the promissory note or their enforcement, and was therefore not “on the contract.” Consequently, no fees are warranted for this cause of action.

4th c/a for violation of the Homeowner’s Bill of Rights. The action alleged various statutory violations of the HBOR. Under the HBOR, a borrower can obtain an injunction against foreclosure until requirements are complied with, or, if a foreclosure sale has already taken place, it provides for an action for damages incurred because of the violations. (Civ. Code, § 2924.12, subds. (a) and (b); Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 951.) However, violation of the HBOR does not entitle a borrower to cancellation of a notice of sale. (Gilmore v. Wells Fargo Bank N.A. (N.D. Cal. 2014) 75 F.Supp.3d 1255.) As a result, the HBOR claim could not possibly either impair the value of the property, or the Lender’s rights in the property, precluding any award of fees under the terms of the Deed of Trust. Similarly, M&T Bank’s defense of the HBOR claim was necessarily based upon proof that it complied with the terms of the HBOR, and was unrelated to the terms of the Promissory Note or any enforcement thereof. It was therefore not “on the contract” containing the fee provision. No fees are warranted.

5th c/a for negligence. The negligence claim was based upon the breach of the duty of reasonable care in the review and processing of loan modification applications, including failing to review modification applications in a timely manner, seeking to foreclose while under consideration for HAMP modification, mishandling applications by relying on incorrect information and applying erroneous FHA standards, etc., and corresponding negligent failures to train or supervise employees, resulting in a pattern and practice of mishandling accounts. Once again, the cause of action does not allege anything that would impair the value of the property or the rights of the Lender in the property, nor does it relate in any way to the terms of the promissory note or enforcement thereof. As a result, no fees are warranted for the cause of action.

6th c/a for breach of the Special Forbearance Agreement. Plaintiff alleged that the contract only required him to pay the reduced payment during the forbearance period, after which the regular payments would resume, and that defendants breached the agreement by increasing the principal owed on the loan. Because the claim required M&T Bank to not only refute that no other payments were required during the forbearance period, but also to establish that the terms and conditions of the underlying Note remained enforceable during that period, this claim is “on the contract” for purposes of the fee clause within the Promissory Note. Fees are awardable under this cause of action.

7th c/a for breach of the implied covenant of good faith and fair dealing. This cause of action includes a mélange of allegations, including that defendants did not act or deal in good faith with plaintiff in connection with the deed of trust. It specifically contended that the note and deed of trust were void and unenforceable, and subject to rescission. The claim not only impaired the Lender’s rights under the Deed of Trust, but also required M&T Bank to prove the enforceability of the terms of the Note, in order to defend the cause of action, rendering its defense of the claim “on the contract.” Fees are awardable for this cause of action.

8th c/a for unfair business practices in violation of Business & Professions Code sections 17200, et seq. The cause of action alleged a variety of allegedly unfair business practices, including the failure to contact the borrower to discuss his financial situation or options to avoid, the improper charging of excessive late fees, improperly characterizing customers’ accounts as being in default to generate unwarranted fees, instituting improper or premature foreclosure, and executing and recording false and misleading documents. The conduct alleged is largely performed in servicing the loan, and does not either impair the value of the property or the Lender’s interest in the property, or require enforcement of the terms of the promissory note in order to defend the claim. As a result, the Court does not find that fees are awardable for this cause of action.

9th c/a to quiet title. The cause of action was eliminated upon the Court’s ruling on M&T Bank’s demurrer to the SAC. It sought to quiet title to the property in plaintiff, and against American Financial Network and all persons claiming any legal or equitable right, title, estate, lien or interest in the property adverse to plaintiff’s. The claim both impaired the Lender’s interest in the property, and required M&T Bank to prove the enforceability and validity of both the Note and Deed of Trust in order to defend the claim. Fees are permissible under this cause of action.

10th c/a for declaratory relief. The cause of action was eliminated upon the Court’s ruling on M&T Bank’s demurrer to the SAC. Among other things, it sought declarations that the Promissory Note and Deed of Trust were unenforceable because they were unconscionable. The claim both impaired the Lender’s interest in the property, and required M&T Bank to prove the enforceability and validity of both the Note and Deed of Trust in order to defend the claim. Fees are permissible under this cause of action.

The end result of this analysis is the Court’s conclusion that M&T Bank is entitled to fees only for 4 of the 10 causes of action against it, and two of those causes of action terminated with the Court’s March 2016 ruling on the demurrer. It is clear to the Court that M&T Bank is not entitled to the entirety of its claim for an award of $402,377.50 in attorney’s fees, and $9,474.92 in non-statutory costs. The manner in which its fee motion is presented does not make allocation of the fees among the claims for which they are warranted easy to discern. Rather than disclosing the hourly rates of each billing attorney, M&T Bank merely states the average hourly rate of their work. M&T Bank provides nearly 60 pages of time entries related to its attorneys’ work on the case, each page containing 25-30 fine-print entries of work conducted. There exist an abundance of entries wherein attorneys communicated with, discussed with, or conferred with other attorneys in the firm.

While M&T Bank, in its reply, chastises plaintiff for not specifying particular time entries of which he is critical, doing so would have required days of work and dozens of hours of analysis. Particularly given the general manner in which M&T Bank approached its fee request, in setting forth only an average hourly billing rate, and grouping the time into generic categories (e.g., pleadings, written discovery, depositions, dispositive motions, etc.), the Court has no criticism of plaintiff for not providing an exhaustive list of complaints and issues. The Court, similarly, has no intention of making an entry-by-entry evaluation of the work for which M&T Bank is seeking fees.

Based upon its experience, and after consideration of all of the factors which can and should be considered in calculating a reasonable attorney fee award including, but not limited to, the nature of the litigation and the issues raised, the hours spent, the skill of counsel, the billing rate(s) of counsel, the manner in which the tasks were allocated among counsel, the nature of the billing entries, the fact that M&T Bank was entitled to fees only on 4 of the 10 causes of action asserted against it, among other various factors, the Court has determined that the amount of $135,000 constitutes a reasonable attorneys’ fee for the work conducted by M&T Bank in defense of this action.

            C.        Non-Statutory Costs.

M&T Bank also seeks to recover $9,474.92 in non-statutory costs, contending that it is entitled to such costs under the authority of the contractual fee provisions. The amount is sought to reimburse counsel for the airfare and hotel costs incurred for trial of the action. M&T Bank cites no legal authority for the claim, nor does it provide any analysis of the contractual provisions to support its contention.

Generally speaking a contractual attorney fee award may not include expenses expressly denominated by statute as non-recoverable cost items. (See Hsu v. Semiconductor Systems, Inc. (2005) 126 Cal.App.4th 1330, 1342.) Unless the contractual provision provides otherwise, its reference to costs and expenses is limited to those costs recoverable under Code of Civil Procedure section 1033.5. (Id. at p. 1341.) While parties are free to contractually define costs and expenses in a manner that extends beyond those costs recoverable by Section 1033.5, the availability of such non-statutory costs is a question of fact which turns upon the intentions of the contracting parties (Id.), and they must ordinarily be pleaded and proven at trial. (Jones v. Union Bank of California (2005) 127 Cal.App.4th 542, 551.) M&T Bank did not do so, and the Court declines to award it the non-statutory airfare and hotel costs it claims.

 
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