Katakis
Filed 1/23/13 Flake v. Katakis CA5
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
STANLEY
FLAKE et al.,
Plaintiffs and
Appellants,
v.
ANDREW KATAKIS et al.,
Defendants and
Respondents.
F060574
(Super.
Ct. No. 332233)
APPEAL
from a judgment of the Superior Court
of
County. Roger M.
Beauchesne, Judge.
Downey
Brand, Janlynn R. Fleener, Ramaah Sadasivam and Katie Konz for Plaintiffs
and Appellants.
McCormick, Barstow,
Sheppard, Wayte & Carruth, D. Gregg Durbin, Todd W. Baxter and
John M. Dunn for Defendants and Respondents.
-ooOoo-
In this
appeal, Stanley Flake, individually and as trustee of Capstone Trust,
challenges the posttrial order
awarding $750,000 in attorney fees against all plaintiffs, jointly and
severally, to defendants Andrew Katakis, his company California Equity
Management Group, Inc. (CEMG), and the Fox Hollow of Turlock Owners Association
(FHOA). Flake contends the trial court
erred in awarding attorney fees against him because: (1) he did not bring an action to enforce the
governing documents within the meaning of Civil Code section 1354, nor did he
bring an action on a contract within the meaning of section 1717; and (2)
defendants did not prevail because substantial evidence did not support the
unclean hands findings as to him and the trust.
Alternatively, (3) the trial court abused its discretion by imposing
fees jointly and severally, so the matter must be remanded for the trial court to
apportion the attorney fee award among the plaintiffs. We disagree and affirm the order.
FACTual and PROCEDURAL summary
The factual
and procedural summary relevant to the underlying lawsuit is set forth in
repeated here. The factual and
procedural summary relevant to this appeal is as follows.
Factual Summary
Stanley
Flake, individually and as trustee of Capstone Trust, was a lesser player in
the litigation, but his specific role never was made clear. The lack of clarity commenced with the
allegations of the fifth amended complaint.
Flake and Capstone Trust were two of the seven plaintiffs who brought
the action. Every plaintiff alleged
every cause of action against every defendant.
In pertinent part, the complaint alleged:
·
Mauctrst, LLC (Mauctrst) acquired all Fox Hollow
lots subject to a blanket deed of trust on all 19 lots in favor of Capstone
Trust.
·
Defendants acquired title to a number of lots in
Fox Hollow from the note holders and subsequent owners with knowledge of
plaintiffs’ prior rights and contracts and interfered with plaintiffs’
ownership and contractual rights.
·
Defendants wrongfully asserted claims superior
to those of plaintiffs in and to the Fox Hollow properties.
·
Katakis conspired with third parties to take
over the FHOA to obtain control so he could acquire all the property in the
subdivision and interfere with plaintiffs’ ownership, acquisition, and business
advantage. The conspiracy included
actions to defeat plaintiffs’ ownership rights, and to gain ownership and
control of all the Fox Hollow properties.
·
Plaintiffs retained ownership of several of the
garage lots on the premises as well as other portions of the original Fox
Hollow complex, including but not limited to lots 2A, 6A, 8A, 9A and 18A (the
garage lots).
The
pertinent causes of action were:
o
Declaratory relief as to disputes regarding the
ownership interests of plaintiffs and defendants to the Fox Hollow
property. Plaintiffs sought a judicial
determination that their position was correct, defendants had committed the wrongs
alleged, and defendants were liable to plaintiffs for damages and other
remedies.
o
Injunctive relief against defendants who
improperly interfered with plaintiffs’ ownership, acquisition, and operation of
Fox Hollow and who improperly operated the homeowners association.
o
Slander of title: Defendants’ wrongful publication of false
statements about plaintiffs’ ownership of the property and wrongful nonjudicial
foreclosure and subsequent mismanagement cast the property in a bad light to
plaintiffs’ detriment.
o
Conversion:
Defendants took plaintiffs’ property, rents, and profits to the loss and
detriment of plaintiffs.
o
Misrepresentation: Defendants’ misrepresentations were made
without a good faith basis for believing them to be true and were relied upon to
plaintiffs’ financial detriment.
o
Interference with contractual relationship: Defendants intentionally interfered with
plaintiffs’ contracts with the holder of the notes and deeds of trust and the
homeowners association, to plaintiffs’ detriment.
o
Negligent interference with contract: Defendants negligently interfered with
plaintiffs’ contracts with its lenders and others, causing damages.
o
To set aside foreclosure: Defendants’ nonjudicial foreclosures of
plaintiffs’ property resulted in invalid trustees’ deeds that were void.
In
plaintiffs’ pretrial brief, Flake, individually and as trustee, was described
as “formerly an owner of Fox Hollow.â€
Counsel asserted plaintiffs had one thing in common: they were wrongfully divested of their
interests in Fox Hollow by the actions of Katakis. Plaintiffs requested the court restore title
to plaintiffs and award them damages to compensate for the harm caused by
defendants.
The trial
interests in Fox Hollow. Flake testified
he was a plaintiff as the trustee of Capstone Trust. Flake held Fox Hollow for about 16 months and
did little to improve the property physically while he held it. He filed the first subdivision map, however,
which created four separate lots at Fox Hollow, although the improvements
required by the City of Turlock to
create those lots had not been completed.
Flake then sold the property to Gregory Mauchley for a substantial
profit, which was the result of the illusory increased value of the property
with the individual lots.
When Flake
sold Fox Hollow to Mauchley in 1997, he formed Capstone Trust to hold the
$444,888 promissory note and deed of trust he carried back from Mauchley. The note and deed of trust were subordinate
to notes and deeds of trust to GMAC Mortgage Corporation (GMAC). Mauchley made some payments to him, but the
note was still in force when Mauchley transferred Fox Hollow to Mauctrst in
July 1998. Flake made a demand on the
Mauctrst–Mauchley escrow for the full amount due on the $444,888 note plus
interest. He testified he was paid out
of the escrow but did not remember the amount.
Documentary evidence indicated Mauchley’s finance of the Fox Hollow lots
generated enough funds to pay Flake fully.
In 1998,
Flake advanced Mauctrst $271,000 on a “‘blanket second note and deed of trust’â€
covering the 18 residential lots and the common areas of Fox Hollow. Neither Flake nor Mauchley recalled the
purpose for the $271,000 advance. Adding
to the confusion, Flake testified that although the loan was to Mauctrst, Flake
believed Mauchley owed him the money.
Both Mauchley and Richard C. Sinclair “continued to recognize that
obligation,†and Flake believed “they intend[ed] to pay.â€
Flake, as
trustee for Capstone Trust, joined Mauctrst’s 2001 settlement agreement with
GMAC regarding lots 1, 11, 18, and 19 as a means of reducing the $271,000
note. The GMAC foreclosures eliminated
the property securing Flake’s $271,000 note.
The settlement agreement, which Sinclair negotiated, provided that
Flake, for Capstone Trust, would purchase the lots from GMAC and sell them at a
profit to Sinclair. The profit would
reduce the amounts Mauctrst owed Capstone Trust on the promissory note.
Sinclair
testified that Mauchley continued to own the garage lots after he sold Fox
Hollow to Mauctrst. Mauchley testified
Flake retained a security interest in the garage lots that were not attached to
a unit. Flake testified his collateral
included the garage lots.
Additional
evidence raised an inference that Flake and Capstone Trust continued to assert
an interest in Fox Hollow when this litigation commenced in April 2003. In October 2002, Sinclair wrote Katakis that
he represented Mauctrst; Brandon Sinclair; Mauchley; Capstone, LLC; Lairtrust,
LLC and Flake, who collectively “own more than 5% of Fox Hollow.†Sinclair objected, for the owners, to the
proposed meeting to hold elections for the board of directors of the FHOA. Sinclair wrote the board of directors two
weeks later, reiterated that he represented the owners of six lots plus a
number of garages, and objected to the board’s actions, which he alleged were
outside the scope of its authority under the covenants, conditions, and
restrictions (CC&R’s) and the bylaws.
Two months later, Sinclair again wrote for plaintiffs and threatened the
FHOA board “with a number of baseless charges while claiming the prior Board
had in fact not resigned.†Again, in
July 2003, after this lawsuit was filed, Sinclair wrote Katakis on behalf of
Mauctrst; Lairtrust, LLC; Capstone, LLC; Brandon Sinclair; himself; Mauchley
and “Stan Flake†and objected to FHOA actions, including the special
assessments.
Further, in
2008, Sinclair sent each Fox Hollow tenant a notice of termination of tenancy
that said, “NOTICE IS HEREBY GIVEN that you must remove yourself from and
deliver up possession … of the premises described above [the common area] … to
[Sinclair] for and on behalf of its owner, Mauctrst LLC, and Greg Mauchley, or
their predecessor in interes,t [sic]
Stanley Flake, Trustee, on or before May 19, 2008.†Sinclair testified he did not believe
Mauctrst or Mauchley or Flake owned the common area but sent the notice because
Katakis asserted the prior owners had not properly deeded the common area to the
FHOA.
Finally,
Flake testified he challenged the foreclosure sales of lots 3, 7, 9, and 14,
which Mauctrst was seeking to set aside, based on his being the holder of a
second trust deed on those lots. He was
cooperating with Sinclair in the lawsuit to help Mauchley recover the money
necessary to pay off the note to Capstone Trust.
In
plaintiffs’ posttrial brief, counsel again reiterated that plaintiffs
wrongfully were divested of their interests in the lots by the actions of
Katakis. Plaintiffs asked the trial
court to use its equitable powers to fashion a remedy to set aside the wrongful
foreclosures of lots 1 and 19, and 3, 7, 9, and 14 and to restore record title
to “Plaintiffs,†and to award damages to plaintiffs to compensate them for the
harm caused by defendants. Plaintiffs
specifically requested damages of $57,326 for “Stanley Flake†on plaintiffs’
interference with contract claims related to lots 11 and 18. Plaintiffs did not specify any damages for
Capstone Trust.
The trial
court recognized the intertwined nature of all plaintiffs’ claims and found
against all plaintiffs on all causes of action.
Procedural Summary
After the
trial court entered judgment for defendants on plaintiffs’ complaint,
defendants moved to be declared the prevailing parties and sought attorney fees
of $1,202,604.50. Defendants contended
they were the prevailing parties entitled to fees pursuant to Civil Code
section 1354, subdivision (c) on claims to enforce the governing documents of
the FHOA, and pursuant to section 1717 on claims based on the contracts containing
an attorney fee provision—the promissory notes and deeds of trust on lots 3, 7,
9, and 14 and the FHOA CC&R’s.
Defendants used the lodestar method, supported by detailed declarations
and exhibits, to justify the amount of fees requested. They asserted the fees should be awarded to
all defendants against all plaintiffs.
Sinclair
filed opposition on behalf of all plaintiffs, the rulings of which are at issue
in Sinclair v. Katakis, F060497. Flake hired new counsel and filed separate
opposition. Flake asserted, without
citation to authority, that defendants bore the burden of segregating the time
they spent defending each cause of action so that Flake would not be saddled
with the entire cost of the litigation.
He insisted each cause of action was distinct, so defendants’ failure to
“distinguish between the time spent defending the deed of trust alleged by
Mr. Mauchley, that which is strictly alleged by Mr. Sinclair, and
that which is simply alleged by the trusts of Mr. Flake†was fatal to
their claim for fees against him. Flake
conceded, “[this wa]s a sprawling mess of a case and fragmented.†But, “clearly, some [causes of action] apply
to only Mr. Sinclair and some apply to Mr. Mauchley.†“As such, it cannot be said that the entirety
of the award can be made as against Mr. Flake or his trusts …, those who
mistakenly and tangentially trusted [Sinclair,] in hopes of reaping an
unwarranted, massive judgment.†Flake
did not delineate the causes of action that applied to him nor did he propose a
fee allocation he viewed as fair.
At the
hearing, Flake’s counsel stated they were arguing the issue of apportionment of
fees only. Flake “was not an active
participant in the plans and machinations†of Sinclair and had only a minor
role in the litigation. Flake should not
be made responsible for “the sins and misdemeanors of Mr. Sinclair.â€
The trial
court asked Flake’s counsel:
“Based on your argument that the Court should allocate
fees proportionately, how do I make that determination? I can’t just pick a number out of the clear
blue sky. Do I have counsel submit
follow-up declarations indicating ‘I spent this many hours on these causes of
action’? I think that’s a practical impossibility
at this point to go back in time in that regard. What portion of trial days were allocated to
the causes of action to which Mr. Flake was only involved? How do I do it?â€
Counsel responded, “I don’t know. But that’s not my burden.… Mr. Flake wasn’t in any part of the causes of
action that allowed for attorney’s fees.â€
Counsel urged the court to impose no liability for attorney fees on
Flake.
The trial
court recognized the intertwined nature of plaintiffs’ claims and the
defendants’ burden in defending against those ill-defined claims. The court awarded defendants attorney fees of
$750,000—about 62.5 percent of the $1.2 million requested—against all
plaintiffs, jointly and severally, to compensate defendants for the cost of
defending the portions of the action to enforce the Fox Hollow governing
documents and on the promissory notes and
deeds of trust. Flake filed a
separate appeal from the order.
DISCUSSION
1. Award of Attorney Fees
The trial
court found that defendants were the prevailing parties on an action to enforce
the governing documents of the FHOA and were entitled to an award of attorney
fees under Civil Code section 1354, subdivision (c). It also found they were the prevailing
parties in an action on contract (the CC&R’s, promissory notes, and deeds
of trust, which had attorney fee clauses) and thus were entitled to an award of
reasonable attorney fees under section 1717.
Further, the issues related to the defense of the action to enforce the
governing documents and the defense of the action on the promissory notes and
deeds of trust were inextricably intertwined.
Therefore, the court exercised its discretion not to apportion fees
among the various causes of action on which fees were awardable and awarded
them against each plaintiff jointly and severally.
Flake
contends the court erred in awarding attorney fees against him individually and
as trustee because (a) he did not bring any action to enforce the governing
documents within the meaning of Civil Code section 1354, and (b) he did not
bring any action on a contract within the meaning of section 1717. He seeks to limit his role in the lawsuit to
the tort claims of contract interference related to lots 11 and 18 and thereby
shield himself and Capstone Trust from liability for attorney fees. He argues that, as a matter of law, he
asserted no claim to enforce the governing documents of the FHOA, which were
alleged only in relation to lots 1 and 19, and no claim on the contracts
underlying the foreclosures of lots 3, 7, 9, and 14.
Defendants
counter that Flake joined the other plaintiffs on every claim made, and all
plaintiffs had a collective litigation goal to protect their alleged common
ownership and financial interests in Fox Hollow. Thus, the trial court did not err in awarding
attorney fees against Flake.
In
analyzing this issue, we note that although Flake, individually and as trustee
of Capstone Trust, was a lesser player in the litigation, his specific role
never was made clear. He did not define
his claims in the pleadings—he, individually and as trustee, brought and sought
relief on every cause of action against every defendant. Nor did he adequately delimit his role at
trial. Accordingly, his belated attempt
to limit his role on appeal fails.
A. Waiver
Defendants claim Flake is
attempting to raise five issues on appeal that he did not raise in the trial
court: (1) Flake did not bring the
underlying lawsuit to enforce the FHOA governing documents; (2) neither Flake
nor Capstone Trust were signatories to the Granite Bay Funding notes and deeds
of trust or the CC&R’s; (3) he did not bring the underlying lawsuit “on the
contract†based on the Granite Bay Funding notes and deeds of trust or the
CC&R’s; (4) defendants are not prevailing parties because Flake did not
bring claims either to enforce a contract or to enforce the CC&R’s; and (5)
there is no substantial evidence to support the court’s finding that Flake
engaged in unclean hands.
Flake
responds that these issues were raised in Sinclair’s opposition on behalf of
all plaintiffs, including the Flake plaintiffs.
We generally agree.
Although
the first four issues were not raised with the specificity with which they are
addressed on appeal, they were raised.
Plaintiffs did not make claims to enforce governing documents under [Civil Code
section] 1354†and “all Plaintiffs did not make claims on contract.†Only Lairtrust, LLC, and Capstone, LLC,
brought claims to enforce the governing documents, and only Mauctrst brought
claims under the promissory notes and deeds of trust. There were no fee claims brought on behalf of
Flake or Capstone Trust. Flake acted as
trustee seeking to enforce the GMAC settlement agreement and no attorney fees
are recoverable for this tort claim.
“All Plaintiffs that are not signatories are not responsible for fees
under [Civil Code section] 1717.†While
the Sinclair opposition did not discuss the issues with the depth Flake employs
on appeal, we cannot say the issues were not raised in the trial court. Accordingly, we will consider Flake’s
statutory challenges to the award of attorney fees.
B. Standard of Review
On appeal,
we review the determination of the legal basis for an award of attorney fees de
novo. (Sessions Payroll Management, Inc. v. Noble Construction Co. (2000)
84 Cal.App.4th 671, 677.) We review an
order awarding attorney fees to the prevailing party for an abuse of
discretion. (PLCM Group, Inc. v. Drexler
(2000) 22 Cal.4th 1084, 1095.)
C. Statutory and Contractual
Bases for Attorney Fee Award
Flake
contends the court erred in awarding attorney fees against him, individually
and as trustee, because (1) he did not bring an action to enforce the governing
documents within the meaning of Civil Code section 1354, and (2) he did not
bring any action on a contract within the meaning of section 1717. Defendants assert that Flake joined the other
plaintiffs on every claim made, and all plaintiffs had a collective goal to
protect their alleged common ownership and financial interests in Fox
Hollow. We conclude there was no error.
(1) Civil Code section 1354
Civil Code
section 1354, subdivision (c) provides that in an action to enforce the
governing documents of a common interest development, the prevailing party
shall be awarded reasonable attorney fees and costs.
Flake
argues he cannot be liable for attorney fees under Civil Code section 1354
because he did not sign the CC&R’s, either individually or as trustee, and
had no ownership interest in any Fox Hollow lot when the claims arose. While Capstone Trust had a second deed of
trust on all lots within Fox Hollow, the deed was a security interest and did
not entitle Capstone Trust to membership in the FHOA. Further, Flake did not testify regarding the
allegations pertaining to the CC&R’s.
Therefore, neither Flake individually nor as trustee sought to enforce
the terms of the CC&R’s or to challenge the foreclosures of lots 1 and 19
because he had no ownership or security interest in the lots.
Flake’s
arguments—in essence, that he lacked standing to bring these claims—ignores
case law that a plaintiff’s standing is irrelevant to the prevailing party’s
right to attorney fees under Civil Code section 1354. For example, in Farber v. Bay View Terrace Homeowners Assn. (2006) 141 Cal.App.4th
1007, the court affirmed the dismissal of a condominium unit seller’s complaint
against her former homeowners association for lack of standing to sue and
awarded the association attorney fees.
The seller claimed the CC&R’s required the association to fix the
buyer’s roof. Her suit was an attempt to
enforce the CC&R’s when she no longer owned the condominium unit, so her
action properly was dismissed for lack of standing. (Id. at
p. 1012.) Because the lawsuit was an
action to enforce the CC&R’s, the association was the prevailing party entitled
to attorney fees under section 1354. (
supra, at p. 1014; accord,
1038-1039 [award of attorney fees to homeowners association was mandatory under
Civ. Code, § 1354, subd. (c) after plaintiffs brought action to enforce
governing documents but were unsuccessful because they lacked standing].)
Likewise in
this case, even if Flake, individually and as trustee, lacked standing to
assert claims against the FHOA, he is liable for attorney fees under Civil Code
section 1354 if he brought an action to enforce the governing documents of the
FHOA. To make this determination, we
look to the gist of the action as revealed by the record. (Kaplan
v. Fairway Oaks Homeowners Assn. (2002) 98 Cal.App.4th 715, 720.)
Flake
contends the record made clear that the claims regarding the governing
documents of the homeowners association related only to lots 1 and 19. And only Sinclair, Brandon Sinclair and their
companies had an interest in and brought the claims regarding lots 1 and
19. In addition, Flake did not testify
regarding the allegations that Katakis had wrongfully reconstituted the FHOA
board of directors or that Katakis breached his fiduciary duty as a director of
the FHOA. As such, Flake did not bring
the claims to enforce the governing documents, and it was error to find him
liable for attorney fees pursuant to Civil Code section 1354. Alternatively, even assuming the declaratory
and injunctive relief causes of action contained allegations relating to the
CC&R’s and the FHOA, those allegations relate only to lots 1 and 19, as
shown by the statement of decision, and neither Flake nor Capstone Trust had
any interest in those lots.
Flake’s
contentions disregard the allegations of the complaint that all plaintiffs
retained an interest in Fox Hollow and that defendants’ wrongful acts in
relation to the homeowners association interfered with “Plaintiffs’ ownership …
and business advantage.†Moreover, the
evidence at trial did not establish as a matter of law that Flake did not
have—or claim to have—an interest in Fox Hollow. There was ambiguity as to whether he retained
or claimed to retain an interest in the Fox Hollow common area, which was
threatened by Katakis’s alleged wrongful acts with respect to the homeowners
association. Further, letters written
shortly before and after the litigation was filed stated that Flake asserted an
interest in Fox Hollow and challenged the homeowners association’s decisions
and assessments.
Flake’s
belated assertion on appeal that there was no evidence he authorized Sinclair
to send the letters on his behalf does not change the evidence. Flake’s repeated assertion that “the record
is clear†regarding who brought which claim does not make it so. Flake made all the allegations jointly with
the other plaintiffs. He was an active
participant in the case where the stated goal was to protect plaintiffs’ common
ownership and financial interests in Fox Hollow. Given the indefinite allegations and evidence
regarding Flake’s claims and the remedies he sought, the trial court did not
err in making Flake, individually and as trustee, liable for attorney fees
under Civil Code section 1354.
(2) Civil Code section 1717
Flake next
contends there was no basis in contract for defendants to recover attorney fees
from him under Civil Code section 1717 because:
he, individually and as trustee, never signed the notes or deeds of
trust that contained the attorney fee provisions, he was not a party to those
contracts, and neither he nor Capstone Trust brought the underlying claims on
those contracts. We disagree.
Civil Code
section 1717, subdivision (a) provides that in any action on a contract, which
provides that attorney fees incurred to enforce the contract shall be awarded
either to one of the parties or to the prevailing party, the prevailing party
shall be entitled to reasonable attorney fees.
a. Contracts with attorney fee
provisions
The Granite
Bay Funding promissory notes and deeds of trust for lots 3, 7, 9, and 14
included attorney fee provisions. The
notes provided that the borrower will pay the costs and expenses of enforcing
the note to the lender, or anyone who took the note “by transfer and who is
entitled to receive payments under†the note.
The deeds of trust provided that in a legal proceeding involving the
breach of the security instrument, or in legal proceedings to protect the
lender’s rights in the property, the lender may do and pay for whatever is
necessary to protect the value of the property and the lender’s rights in the
property. Further, the “Lender shall be
entitled to collect all expenses incurred in pursuing the remedies provided
[upon the buyer’s default], including … reasonable attorneys’ fees.â€
Here, all
plaintiffs, including Flake individually and as trustee, alleged that
defendants’ wrongful acts deprived them of their interests in lots 3, 7, 9, and
14. Plaintiffs alleged that defendants
improperly interfered with their ownership, negligently and intentionally
interfered with their contracts with the holder of the notes and deeds of
trust, and wrongfully foreclosed.
Plaintiffs asked the trial court to restore record title to them and to
award damages to them. In response to
discovery requests and at trial, Flake asserted that he was challenging the
foreclosure sales of lots 3, 7, 9, and 14 based on the second deed of trust he
held on those lots.
The
evidence at trial disclosed that Mauchley, as borrower, and Granite Bay
Funding, as lender, were the original parties to the notes and deeds of
trust. Defendant CEMG was the successor
of Granite Bay Funding and, as such, was subject to the terms of the notes and
deeds of trust. Mauchley assigned his
rights and obligations, as borrower, under the notes and deeds of trust to
Mauctrst. The trial court found Mauchley
and Sinclair were the alter egos of Mauctrst,
attorney fees under the promissory notes and deeds of trust.
Flake was
not a party to either contract nor was he found to be an alter ego of
Mauctrst. But Flake joined all the
allegations asserted by those plaintiffs and pursued the meritless action that
challenged the legality of the foreclosure sales related to the notes and deeds
of trust based on his second deed of trust on those lots. Flake testified he challenged the foreclosure
sales of lots 3, 7, 9, and 14, which Mauctrst was seeking to set aside, based
on his being the holder of a second trust deed on those lots. He pursued the lawsuit for himself and
Capstone Trust to help make Mauchley whole so Mauchley could, in turn, repay
the debt Mauchley owed Flake on Capstone Trust’s second trust deed.
b. The law
California
courts liberally construe “on a contract†to extend to any action that involves
a contract and one of the parties would be entitled to recover attorney fees
under the contract if that party prevailed in its lawsuit. (California
Wholesale Material Supply, Inc. v.
Norm Wilson & Sons, Inc.
(2002) 96 Cal.App.4th 598, 605.) Because
Flake, individually and as trustee, joined the allegations of every cause of
action, he brought the underlying claims on the notes and deeds of trust. Defendants incurred attorney fees to enforce
CEMG’s rights against plaintiffs’ claims involving the notes and deeds of
trust. As the prevailing parties,
defendants were entitled to attorney fees under the attorney fee clauses and
Civil Code section 1717 from plaintiffs, the nonprevailing parties. The issue before this court is whether those
fees were properly imposed against Flake.
In actions
on a contract, where a nonsignatory plaintiff sues a signatory defendant who
prevails, the signatory defendant is entitled to attorney fees only if the
nonsignatory plaintiff would have been entitled to fees had the plaintiff
prevailed. (Sessions Payroll Management, Inc.
v. Noble Construction Co., supra,
84 Cal.App.4th at p. 679; Leach v. Home
Savings & Loan Assn. (1986) 185 Cal.App.3d 1295, 1307.) The court does not consider whether the
nonsigning plaintiff could have prevailed, only whether if it had prevailed, it
would have been entitled to fees. (
Cal.App.4th 898, 906.)
Case law is
instructive but not dispositive.
name="_ftnref3" title="">[3] Flake relies on Leach v. Home Savings & Loan Assn., supra, 185 Cal.App.3d 1295.
In Leach, Bell and Leach were
entitled to the remainder of a trust, whose primary asset was their mother’s
residence. Bell, acting as trustee,
repeatedly encumbered the property. (
Bell and the lenders to have the various deeds of trust declared void. Leach alleged that Bell had no authority to
act as trustee when the loans were made.
The lenders successfully moved for summary judgment on the ground they
were unaware of Bell’s purported lack of authority to act as trustee. (Id. at
p. 1300.) The lenders, as prevailing
parties, argued they were entitled to attorney fees from Leach under Civil Code
section 1717 and the attorney fee clauses in the promissory notes and deeds of trust. The court disagreed. The signatory defendant lenders sought fees
from the nonsignatory plaintiff Leach, who had no
receive fees if she had prevailed.
Leach’s allegation in the complaint that she was entitled to receive
attorney fees did not provide a sufficient basis for awarding them to the
prevailing opposing party.
name="_ftnref4" title="">[4] Where the plaintiff did not sign the
contracts containing attorney fee provisions and had no independent right to
recover fees under contractual attorney fee clauses, the defendants, as
prevailing parties, could not recover attorney fees from the plaintiff. (Leach
v. Home Savings & Loan Assn., supra,
at p. 1307.)
Defendants
cite Abdallah v. United Savings Bank
(1996) 43 Cal.App.4th 1101. There, after
a foreclosure sale, the appellants sued the lenders for fraud and breach of
contract in connection with the foreclosure, including claims that the lenders
violated the bankruptcy court’s automatic stay.
Although appellant Fred Abdallah had not signed the note or deed of
trust—the other two appellants had—the complaint alleged that Fred Abdallah
owned a legal and equitable interest in the property, and he had acted as the
appellants’ agent in dealing with the respondents. After the respondents’ demurrers were
sustained without leave to amend and judgment entered for them, the court
ordered the appellants to pay the respondents’ attorney fees. (Id.
at pp. 1104-1106.)
Fred
Abdallah argued on appeal that he was not liable for attorney fees because he
was not a signatory to the contracts on which the fee awards were based. (Abdallah
v. United Savings Bank, supra, 43
Cal.App.4th at p. 1111.) The court
concluded that although Fred Abdallah did not sign the note or deed of trust,
he sued the respondents for breach of those contracts, and he sought to recover
attorney fees from the respondents on his breach of contract action and related
claims. The court found Fred Abdallah’s
status as a nonsignatory irrelevant; the only question was whether he would
have been entitled to his fees if he had prevailed. Since it was undisputed that he would have
been entitled to fees had the appellants prevailed, there was no question that
he was liable for fees as a losing party.
(Ibid.)
Flake’s
situation is more analogous to Abdallah’s than Leach’s. Flake, like Abdallah, alleged an interest in
the property related to the notes and deeds of trust, and he joined in the
other plaintiffs’ allegations of wrongful foreclosure and interference with
contract. Flake maintained this position
during discovery and did not disavow an interest in the four lots at
trial. Further, the trial court did not
find that Flake had no interest under the notes and deeds of trust.
If
plaintiffs had prevailed on their claims, they would have been entitled to
attorney fees under the notes and deeds of trust and Civil Code section
1717. Because plaintiffs employed a
single law firm and the same counsel to represent all of their interests, Flake
would have reaped the benefit of the fee award had plaintiffs prevailed on
their claims on the notes and deeds of trust.
Moreover, because Flake joined all the allegations, defendants had to
defend against his allegations and incurred attorney fees to establish that
Flake’s allegations on the contracts were meritless. Because Flake failed to limit his claims
until appeal, fairness dictates that he share the burden of attorney fees that
his claims engendered. (See, e.g.,
(1995) 32 Cal.App.4th 1641, 1671-1672 [because plaintiff was compelled to
retain counsel to secure an order enjoining conduct engaged in by all
defendants, it is proper to hold all accountable for plaintiff’s attorney
fees].) Thus, the trial court did not err
in finding Flake was liable for attorney fees, along with the other
nonprevailing plaintiffs, on the contract claims under Civil Code section 1717.
Flake also
argues that he, individually, should not be liable for attorney fees because he
did not, and could not, bring an action on the notes and deeds of trust. We are not persuaded. The reasons set forth above apply equally to
Flake as an individual and as the trustee for Capstone Trust. Flake, individually and as trustee, made
every allegation in the complaint and did not establish during trial that his
claims were limited as he now asserts on appeal. We conclude there was no error.
Both
parties address whether Flake was a third party beneficiary under the contracts
with attorney fee clauses. Given our
conclusion that the trial court did not err in finding Flake liable for
attorney fees under the allegations of the complaint and the evidence at trial,
we need not consider this additional theory of liability, which was not raised
in the trial court.
2. Finding of Unclean Hands
Flake
contends, “[t]he sole basis for the trial court’s determination that
[defendants] had prevailed against the Flake [plaintiffs] was its finding that
[defendants] had established their equitable defense of unclean hands. (SCT 26.)â€
He continues, because there is no substantial evidence to support the
unclean hands findings as to the Flake plaintiffs, the court abused its
discretion in finding defendants to be the prevailing parties for purposes of a
fee award against the Flake plaintiffs.
The issue—a
substantial evidence challenge to the trial court’s unclean hands findings—is
not cognizable in this appeal. The issue
was raised and decided in Sinclair v.
Katakis, F058822, the appeal of the underlying judgment. We need not address it again.
3. Apportioning Attorney Fees
Among Plaintiffs
Finally,
Flake claims the trial court abused its discretion by imposing attorney fees
against all plaintiffs jointly and severally.
He concedes that liability for a fee award against multiple parties is
presumed to be a joint obligation. But,
he argues, in light of his lesser involvement in the case, he should not be
equally liable for fees. In his reply
brief, Flake urges us to apportion fees by excluding him from liability for the
fees. We conclude there was no abuse of
discretion.
Here, the
trial court found that the issues related to the defense of the action to
enforce the governing documents and the defense of the action on the promissory
notes and deeds of trust were inextricably intertwined. It, however, expressly did not award fees for
time spent on nonfee claims. Further, in
response to Flake’s counsel’s arguments that the court should apportion attorney
fees, the trial court asked, “[H]ow do I make that determination? … I think that’s a practical impossibility at
this point to go back in time in that regard.â€
Flake’s counsel responded, “I don’t know.†The trial court ultimately exercised its discretion
not to apportion fees among the various causes of action on which fees were
awardable and imposed the award against each plaintiff, jointly and severally.
Liability
for an attorney fee award imposed on more than one party is presumed to be
joint and several. The nonprevailing
parties are not entitled to apportionment of the award among themselves. (Friends
of the Trails v. Blasius (2000) 78 Cal.App.4th 810, 838.) Rather, the trial court’s decision whether to
apportion the award is within its broad discretion. The trial court abuses its discretion only when
it exceeds the bounds of reason under the circumstances before it. (Carver
v. Chevron U.S.A., Inc. (2004)
119 Cal.App.4th 498, 505.) The party
challenging the award bears the burden of establishing the trial court abused
its discretion and a miscarriage of
justice resulted. (
A court
need not allocate attorney fees when the liability of the parties is so
factually interrelated that it would be impractical, if not impossible, to
separate the attorneys’ time into compensable and noncompensable units. (Cruz
v. Ayromloo (2007) 155 Cal.App.4th 1270, 1277.) For example, in Friends of the Trails v. Blasius, supra, 78 Cal.App.4th 810, the court rejected an argument that the
trial court had abused its discretion in failing to apportion attorney fees
because one party was less culpable than the other parties. The court noted that the nonprevailing
parties, generally, are not entitled to an apportionment of their liability for
attorney fees. (Id. at pp. 837-838.) And the
nonprevailing party had cited no case law holding that the trial court abused
its discretion by failing to apportion an award upon request. (Id. at
p. 838.)
While case
law recognizes that the trial court may exercise its discretion and assess a
greater percentage of an attorney fee award against one party (e.g.,
213 Cal.App.3d 231, 250-251), we have found no case law holding that the trial
court abuses its discretion in failing to apportion the award among multiple
unsuccessful parties. (See, e.g., 1
Pearl, Cal. Attorney Fee Awards (Cont.Ed.Bar 3d ed. 2012) § 2.42, pp.
53-54 [cases cited] and 7 Witkin, Cal. Procedure, supra, Judgment, § 320, pp. 927-928 [same].)
In his
briefs, Flake contends the trial court abused its discretion in not
apportioning fees because his “alleged misconduct†was not on the same scale as
that of the other plaintiffs. He argues
that he should not be liable for any attorney fees because he did not join the other
plaintiffs in every claim alleged, his claims were not inextricably intertwined
with the claims of the other plaintiffs, and the trial court made no findings
that warrant the imposition of attorney fees as to him.
Those
arguments fail here as they did in the trial court. First, Flake, individually and as trustee,
alleged every cause of action against every defendant. His assertion, in effect, that he did not
intend to do so is irrelevant. Second,
because he alleged every claim and failed to delimit his claims during
discovery or at trial, his claims were inextricably intertwined with those of
the other plaintiffs. Third, the trial
court, in its statement of decision, found against “plaintiffs,†which the
court defined as including Stanley Flake and Capstone Trust, on all of their
claims. While the trial court
occasionally mentioned individual plaintiffs by name, it made all of its
findings against all “plaintiffs.†As
such, Flake presents nothing to suggest that the trial court abused its
discretion in imposing attorney fees against him.
Flake’s
claim that he did not have the burden to apportion attorney fees for the trial
court may be correct in principle but is counterproductive in this case. As his counsel conceded, “[this wa]s a
sprawling mess of a case†and he did not know how to apportion attorney fees
fairly among plaintiffs.
The blame
for the “sprawling mess†lies squarely with plaintiffs, including Flake in his
individual and trustee capacities.
Plaintiffs failed adequately to define and segregate their individual
claims before, during, and after trial.
As such, the trial court appropriately found that it could not separate
out individual claims for purposes of apportioning attorney fee liability
because the claims were inextricably intertwined. Flake has failed to show that the trial court
abused its discretion in imposing the attorney fee award against plaintiffs
jointly and severally under the circumstances before it.
Disposition
The order
is affirmed. The defendants are awarded
their costs on appeal. The trial court is
directed to determine the amount of attorney fees to be awarded to defendants
for legal services on appeal. (
__________________________
CORNELL, J.
WE CONCUR:
________________________________
WISEMAN, Acting P.J.
________________________________
LEVY, J.
name="_ftn1" title="">[1]We
address Flake’s challenge to the unclean hands finding under part 2,
name="_ftn2" title="">[2]Mauchley
did not challenge the finding on appeal and Sinclair’s challenge to the finding
was rejected in Sinclair v. Katakis,
F058822.
