Lucas v. Deutsche Bank National Trust Company, 2018 WL 300393 (Cal. Ct. App. 2018).
In a dispute between a lender and a borrower for attorney fees, the Court of Appeal did not award the lender attorney fees where the relevant provisions of the contracts did not sufficiently provide for such attorney fees.
In March 2007, plaintiff Barbara Bausch (“Bausch”) obtained a loan in the amount of $1,080,000 (the “Loan”). Ultimately Bausch fell behind in payments on the Loan. In March 2013, a notice of default was recorded. In May 2013, Bausch filed a lawsuit, with a complaint asserting several causes of action. The named defendants, Meridian Foreclosure Service and several other banks (collectively, “Meridian”), moved for summary judgment, which the trial court ultimately granted.
Afterwards, Meridian moved for attorney fees. The trial court denied the motion, finding neither the applicable note (the “Note”) nor the applicable deed of trust (the “Deed of Trust”) provided for an award of attorney fees to the prevailing party. Meridian appealed from the order denying their motion for attorney fees, which led to the instant case, wherein the Court of Appeal ultimately agreed and affirmed the judgment of the trial court, stating that neither the Note nor the Deed of Trust sufficiently provided for attorney fees.
The Court of Appeal first addressed Meridian’s argument that the following provision in the Deed of Trust supported their argument for attorney fees: “If . . . there is a legal proceeding that might significantly affect Lender’s interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which may attain priority over this Security Instrument or to enforce laws or regulations) . . . then Lender may do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument . . . Lender’s actions can include, but are not limited to: . . . paying reasonable attorneys’ fees to protect its interest in the Property . . . [and any] amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument.” The Court of Appeal held that this provision in the Deed of Trust did not provide for an award of attorney fees for two reasons. First, while the provision contemplated third party actions or bankruptcy, it did not contemplate simple contractual disputes between the parties. Second, the lender’s express remedy was not a separate award of attorney fees, but instead to add the fees incurred to the borrower’s account on the Note.
The second provision Meridian relied on in the Deed of Trust to support their argument for attorney fees provided the following: “Lender may charge Borrower fees for services performed in connection with Borrower’s default, for the purpose of protecting Lender’s interest in the Property and rights under this Security Instrument, including, but not limited to, attorneys’ fees, property inspection and valuation fees.” The Court of Appeal held that this provision similarly did not contemplate simple contractual disputes between the parties, but instead focused on outside threats to the lender’s security interest. Also, the provision did not mention an award of fees to a prevailing party in a lawsuit.
The third provision that Meridian relied on in the Deed of Trust provided the following: “If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may invoke the power of sale and any other remedies permitted by Applicable Law. Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to, reasonable attorneys’ fees and costs of title evidence.” The Court of Appeal again held that this provision in the Deed of Trust did not mention an award of fees to a prevailing party in a lawsuit and that it instead served to authorize the lender to “collect” attorney fees in connection with a foreclosure.
The final provision that Meridian relied on, which was in the Note, provided the following: “If the Note Holder has required me to pay immediately in full…, the Note Holder will have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys’ fees.” The Court of Appeal held that this provision did not provide for an award of attorney fees for the same reasons as the previous three provisions, including that while it authorized the lender to be “paid back,” it did not specifically authorize a separate award of attorney fees to a prevailing party in a lawsuit. The Court of Appeal cited to California Civil Code section 1717, which requires a contract to specifically provide for attorney fees. Thus, the Court of Appeal affirmed the decision not to award attorney fees to Meridian, and it advised that a specific citation to Civil Code section 1717, though not required, can make a party’s intent abundantly clear when it comes to attorney fees.
