Opinion
A155189
06-08-2020
REGINALD RATLIFF, Plaintiff and Appellant, v. TROJAN CAPITAL INVESTMENTS, LLC, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. HG15789502)
Reginald Ratliff sued Trojan Capital Investments, LLC (Trojan), alleging several causes of action based on his contention that Trojan improperly sought to foreclose on his second mortgage loan. The trial court granted summary judgment to Trojan and subsequently awarded Trojan attorney fees based on provisions in the Note and the deed of trust (DOT). Ratliff challenges the fee award, and we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
We have described the underlying litigation in our opinion, filed this day, in Ratliff v. Trojan Capital Investments, LLC et al. (A153044) [nonpub. opn.], in which we affirm summary judgment in favor of Trojan. Ratliff alleged that the loan on which Trojan sought to foreclose had been extinguished or, if not extinguished, that Trojan was required to modify it or treat it as having been modified under a federal program. (Id. at p. 6.) Trojan moved for summary judgment based in part on the undisputed facts that the loan had never been paid off or discharged, and that Trojan was not, and never had been, a participant in the federal program. (Id. at pp. 3-4.)
Ratliff's original complaint alleged the assignment of the loan was invalid. By the time the operative Third Amended Complaint was filed, that cause of action had been abandoned.
After judgment was entered for Trojan, the foreclosure sale was completed. The property was sold for $339,863.72, an amount that was about 93 percent of the amount due on the Note for principal and outstanding interest from 2008 to 2018. According to the Trustee's Deed Upon Sale, the total unpaid debt with costs was about $639,000, which included over $230,000 in attorney fees.
About three weeks after the non-judicial foreclosure sale, Trojan filed a motion based upon Code of Civil Procedure section 1021, Civil Code section 1717, and certain provisions of the DOT and Note to recover $210,000 in attorney fees as the prevailing party in an action on a contract.
Trojan represented that the request represented a discount from the actual amount of fees incurred, which was over $245,000.
Ratliff opposed the motion on three grounds: the award of fees would violate public policy by discouraging people from bringing valid claims to save their homes; for the duration of the trial, Trojan was not licensed or registered to do business in California; and if fees were awarded, they should be in the amount of about $2,000, using the method for calculating foreclosure-related attorney fees specified in Civil Code section 2924c, subdivision (d)(1).
The trial court requested further briefing on two questions: were proceeds of the foreclosure sale applied to the attorney fees sought in Trojan's motion, and was the Note a recourse or non-recourse note. The parties agreed that the Note was a recourse note but disagreed as to whether proceeds from the foreclosure sale should have any effect on the amount of fees to be awarded.
The trial court subsequently issued an order concluding that under the Note and DOT, Trojan was entitled to recover $210,000 as reasonable attorney fees incurred for defending against Ratliff's lawsuit.
Ratliff timely appealed.
DISCUSSION
On appeal, Ratliff raises several arguments relating to the fee award: the terms of the Note and DOT do not support an award of attorney fees under Civil Code section 1717; fees cannot be recovered under section 1717 because the lawsuit was not an action "on a contract"; the fee award violates the antideficiency bar that applies to nonjudicial foreclosures; Trojan's fee motion was not supported by evidence that Ratliff was in default on the loan; and, in the alternative, the fee award can be no more than the amount allowed by section 2924d. We consider the arguments in turn. A. Standard of Review
Statutory references are to the Civil Code unless otherwise stated.
As a general rule, we review an award of attorney fees for abuse of discretion. (Conservatorship of Whitley (2010) 50 Cal.4th 1206, 1213.) We review de novo challenges to the legal basis of a fee award, including challenges that require us to interpret statutes and contracts. (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230, 237 (Barnhart).) B. Provisions of the DOT and Note
We start with Ratliff's argument that the trial court erred by awarding fees under contract terms that do not support fee awards under section 1717.
1. Additional Background
Trojan sought and was awarded its attorney fees under two provisions of the DOT and one provision of the Note, the relevant parts of which we reproduce below.
Section 8 of the DOT: "If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, [or] (b) there is a legal proceeding that might significantly affect Lender's interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which has or may attain priority over this Security Instrument or to enforce laws or regulations), . . . then Lender may do and pay for whatever is reasonable and appropriate to protect Lender's interest in the Property and rights under this Security Instrument . . . . Lender's actions can include . . . paying reasonable attorneys' fees to protect its interest in the Property and/or rights under this Security Instrument . . . . [¶] Any amounts disbursed by Lender under this Section 8 shall become additional debt of Borrower secured by this Security Instrument if allowed under Applicable Law. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment." (Italics added.)
Section 21 of the DOT: If a default by the borrower is not cured after 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 21 , including, but not limited to, reasonable attorneys' fees . . . . [¶] . . . [¶] . . . Trustee shall apply the proceeds of the sale in the following order: (a) to all expenses of the sale, including, but not limited to, reasonable Trustee's and attorneys' fees; (b) to all sums secured by this Security Instrument; and (c) any excess to the person or persons legally entitled to it." (Italics added.)
Section 11 of the Note: "If you are in default, . . . we may do any of the following: . . . (dd) recover all expenses related to retaking, holding, preparing for sale and selling the Property and reasonable collection costs, attorneys' fees . . . and legal expenses as permitted by 11 U.S.C. 506 and applicable state law." (Italics added.)
On appeal, Ratliff relies on two recent cases, Hart v. Clear Recon Corp. (2018) 27 Cal.App.5th 322 (Hart) and Chacker v. JPMorgan Chase Bank, N.A. (2018) 27 Cal.App.5th 351 (Chacker), to argue that these provisions do not support an award of attorney fees under section 1717, which applies only where a "contract specifically provides that attorney's fees . . . shall be awarded either to one of the parties or to the prevailing party." (§ 1717, subd. (a).) Although Ratliff did not raise this argument below, we exercise our discretion to consider the merits of the argument because it presents a purely legal question and relies on two cases that were decided after the trial court ruled on the attorney fees motion. (Redevelopment Agency v. City of Berkeley (1978) 80 Cal.App.3d 158, 167 [considering for first time on appeal "a legal question determinable from facts which not only are uncontroverted in the record but which could not be altered by the presentation of additional evidence"]; Palmer v. Shawback (1993) 17 Cal.App.4th 296, 300.)
2. Analysis
In both Hart and Chacker, appellate panels construed provisions essentially identical to section 8 of Ratliff's DOT. (Hart, supra, 27 Cal.App.5th at p. 325; Chacker, supra, 27 Cal.App.5th at p. 354.) In each case, the appellate court concluded that the language does not " 'specifically provide[ ] that attorney's fees . . . shall be awarded' " to one party or the prevailing party as required by section 1717, subdivision (a), but instead authorizes the addition of certain attorney fees to the loan amount. (Hart, supra, 27 Cal.App.5th at p. 327; Chacker, supra, 27 Cal.App.5th at p. 357.)
Ratliff argues that under Hart and Chacker, section 8 of his DOT does not support the trial court's award of attorney fees here. Trojan argues that the facts of Hart and Chacker are distinguishable, but we agree with Ratliff that the analyses of Hart and Chacker apply equally to section 8 of his DOT.
Therefore, we turn to consideration of section 11 of the Note and section 21 of the DOT. Ratliff acknowledges that neither Hart nor Chacker addressed provisions similar to those sections, but he asserts, without more, in his opening brief that "the same reasoning applies." Because this assertion is not supported by legal authority or reasoned argument, we treat it as forfeited. (Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 52 (Allen).)
Ratliff offers some further discussion about why section 21 of the DOT and section 11 of the Note do not support the award of attorney fees. Section 21 is three paragraphs long, but in his discussion Ratliff quotes and refers to just a single sentence: "Trustee shall apply the proceeds of the sale [of the property] in the following order: (a) to all expenses of the sale, including but not limited to, reasonable Trustee's and attorneys' fees; (b) to all sums secured by this Security Instrument; and (c) any excess to the person or persons legally entitled to it." Ratliff observes, correctly, that "this language only addresses how the proceeds of a foreclosure sale should be applied." But in referring to the quoted sentence as "the attorney's fees language" in section 21 (italics added), Ratliff implies that the sentence is the only language in the section that addresses attorney fees, and that is not the case. Ratliff entirely ignores the portion of section 21 stating that the lender is entitled to "collect all expenses, . . . including, but not limited to, reasonable attorneys' fees," that it incurs in pursuing its remedies in case of default, even though the trial court relied upon this language in its opinion. Ratliff's argument is therefore unconvincing, but we need not address it further, because we conclude that section 11 of the Note authorizes the award of attorney fees.
By its terms, section 11 of the Note states that in case of default, the lender is entitled to recover "all expenses related to retaking, holding, preparing for sale and selling the Property," including attorney fees. (Italics added.) Ratliff contends that section 11 concerns only the lender's right to recover fees in an action by the lender to collect the debt. This assertion is not supported by any legal authority, and is belied by the language of the Note, which authorizes the recovery of fees in an action by the lender but does not limit the recovery of fees to such an action. Trojan's attempt to sell Ratliff's property through foreclosure led to Ratliff filing suit to prevent the sale. Accordingly the fees incurred in defending against that suit were expenses related to selling the property in question.
Because Trojan is entitled to recover its attorney fees under section 11 of the Note, Ratliff fails to show error in the trial court's conclusion that there was contractual support for an award of fees to Trojan under section 1717. C. Action "On a Contract"
Ratliff argues that even if provisions in the Note and DOT allow for an award of attorney fees under section 1717, the trial court order must be reversed because as a matter of law his lawsuit against Trojan was not an action "on a contract" as required by section 1717, subdivision (a). He argues that the Third Amended Complaint alleged causes of action for statutory violations and negligence, which he asserts are not based on any contract.
Trojan urges us to disregard the argument, because Ratliff never raised it in the trial court, but we will exercise our discretion to reach the merits of Ratliff's purely legal argument. We conclude that it is not persuasive.
As explained in Barnhart, supra, 211 Cal.App.4th at pp. 240-241, " 'California courts construe the term "on a contract" liberally.' [Citation.] The phrase 'action on a contract' includes not only a traditional action for damages for breach of a contract containing an attorney fees clause [citation], 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 on the action [citation]. '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 (Kachlon).)" Reviewing cases that applied section 1717, the Barnhart court distilled the "following principle: 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 the action (or cause of action) 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." (Id. at p. 242.)
Ratliff's action against Trojan meets both these requirements. Ratliff challenged the Note and DOT (both of which were attached to his original complaint as exhibits), seeking among other things a determination that Trojan had no right under the Note or DOT to foreclose. All of Ratliff's claims directly relate to Trojan's enforcement of the Note and DOT through foreclosure. And, as we have discussed, both the Note and DOT contain attorney fees clauses.
Kachlon, the sole case on which Ratliff relies for his argument that his action is not "on a contract," does not help him. In Kachlon, which concerned "lawsuits involving, broadly speaking, allegations of wrongful foreclosure under a deed of trust," the Court of Appeal concluded that the action in that case was on a contract for purposes of section 1717, noting that courts have treated actions seeking to enjoin nonjudicial foreclosure appropriate for an award of attorney fees under section 1717 and provisions in the applicable deed of trust. (Kachlon, supra, 168 Cal.App.4th at pp. 324, 348.)
Ratliff's causes of action and allegations against Trojan changed over the course of this lawsuit, as reflected in differences between the original complaint he filed in October 2015 and the Third Amended Complaint he filed in February 2017. Ratliff suggests we restrict our attention to the Third Amended Complaint. Even if we do, we conclude that his action is "on a contract" for purposes of section 1717. Among other things, Ratliff claimed that Trojan had no right to foreclose on the property under the Note and DOT, because the loan had been "extinguished." In sum, Ratliff challenged Trojan's rights under the Note and DOT, and in so doing brought an action "on a contract." D. Antideficiency Bar
Ratliff argues that the attorney fee award violates the antideficiency bar of Code of Civil Procedure section 580d, which "precludes a judgment for any loan balance left unpaid after the lender's nonjudicial foreclosure under a power of sale in a deed of trust or mortgage on real property." (Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 237.) Ratliff did not make this argument below, below]; even though he had the opportunity to refute Trojan's argument that the antideficiency bar does not apply. We nevertheless exercise our discretion to address it.
"A deficiency judgment is a money judgment against the trustor for the difference between the unpaid balance of the secured debt (plus expenses) and the amount produced by the sale or the fair value of the security, whichever is greater." (1 Bernhardt et al., Cal. Mortgages, Deeds of Trust and Foreclosure Litigation (Cont.Ed.Bar 4th ed. 2020) § 5.3, p. 5-4 [citing Code Civ. Proc., § 726, subd. (b)].) Ratliff's argument that the award of attorney fees constitutes a deficiency judgment assumes that Trojan could recover attorney fees only under section 8 of the DOT, an argument we have rejected.
Further, California courts have rejected arguments similar to Ratliff's in cases including Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496 (Passanisi) and Jones v. Union Bank of California (2005) 127 Cal.App.4th 542, 548 (Jones). As the court in Passanisi explained, "The purpose of [Code of Civil Procedure] section 580d is to put judicial foreclosure on parity with private foreclosure. [Citation.] When a creditor judicially forecloses, the debtor retains the right to redeem the property and this right has the effect of insuring that the security will satisfy a realistic share of the debt. [Citation.] In a nonjudicial foreclosure there is no right to redeem, but the proscription against a deficiency judgment has a comparable effect of making the security satisfy a realistic share of the debt. [Citation.] Thus, the creditor may elect a nonjudicial foreclosure, in which case the sale transfers nonredeemable title but no deficiency judgment may be sought, or he may proceed with a judicial sale in which he can obtain a deficiency judgment but title is redeemable. [Citation.]" (Passanisi, supra, 190 Cal.App.3d at pp. 1507-1508.)
The borrower in Passanisi "brought an action to enjoin foreclosure of a deed of trust. The borrower lost the action and the court awarded the lender attorneys' fees pursuant to a clause in the note. The borrower claimed the lender's effort to collect the award of fees after a nonjudicial foreclosure was barred by [Code of Civil Procedure] section 580d. In rejecting the borrower's argument, the court stated, 'In considering the purposes of section 580d, we conclude that when a creditor-beneficiary prevails in an action brought by the debtor-trustor to restrain foreclosure of the security and is awarded attorney's fees and costs the subsequent sale of the property at a trustee's sale does not render the judgment for attorney's fees and costs unenforceable. Section 580d does not by its express terms apply in such a case, nor does the policy behind section 580d dictate such a result. Enforcement of the judgment for attorney's fees and costs is not simply a subterfuge for the collection of a deficiency on the secured note. The award for attorney's fees and costs is neither measured by, nor interrelated to, a deficiency on the note. Such an award is not attributable to a general condition of the real estate market, but is the result of the debtor-trustor's voluntary act in bringing an unmeritorious suit which the creditor-beneficiary was required to make expenditures to defend. The judgment for attorney's fees and costs is entirely independent of the problems encompassed by antideficiency legislation and the enforcement of such a judgment will not affect the parity of remedies such legislation is intended to foster. [Citation.] For these reasons we reject plaintiffs' argument that the judgment for attorney's fees and costs must be deemed unenforceable by virtue of section 580d. [Fn. omitted.]' (Passanisi, supra, at p. 1509.)" (Jones, supra, 127 Cal.App.4th at pp. 546-547.)
The court in Jones applied the same reasoning in declining to overturn an award of fees to the lender in a case where the borrowers sought to set aside a foreclosure sale, rather than enjoin it. (Jones, supra, 127 Cal.App.4th at pp. 547-548.)
We find the reasoning of Passanisi and Jones persuasive, and adopt it here. Ratliff argues that Passanisi and Jones are distinguishable, noting that the courts in those cases did not analyze attorney fee provisions like the ones at issue here, but that is of no matter, because we have rejected Ratliff's argument that the Note and DOT "provide for such fees only as part of the secured debt." Ratliff also notes that in neither case was there any indication that the lender added its fees to the debt, while here at least some of the attorney fees sought were treated by Trojan as part of Ratliff's unpaid debt at the time of the sale. That is of no matter, either, because there was unrefuted evidence before the trial court that the amount paid at the foreclosure sale did not include any amounts for those fees. Finally, he notes that the fees were awarded in Passanisi before the foreclosure sale, unlike the fees here. He does not explain the significance of that distinction, nor does he address the conclusion of the court in Flynn v. Page (1990) 218 Cal.App.3d 342, 349 that the distinction is not determinative. "We are not required . . . to supply arguments for . . . litigants" (Allen, supra, 234 Cal.App.4th at p. 52), and we decline to do so here. E. Evidence of Default
Ratliff argues that the trial court's award must be reversed because Trojan was required to submit evidence of the default in support of its motion but failed to do so, and that therefore "there is no evidence to support the necessary condition to the attorney's fees order."
This is another argument Ratliff failed to raise below. He claims he can raise it for the first time on appeal, because "where there is a failure of proof by the party with the burden of proof, the question on appeal is one of law, and the standard of review is de novo." For this proposition he simply cites, without more, Sonic Manufacturing Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 465. That case is not applicable here. Sonic presupposes that the trier of fact concluded that the party with the burden of proof failed to meet its burden and then appealed; in that case, the question is one of law and the standard of review is de novo. (Id. at pp. 465-466.) But that is not what happened here.
Even if we were to consider Ratliff's claim, it fails. There is no dispute that Trojan's entitlement to fees rests on contractual provisions that presuppose Ratliff's default on his mortgage loan. The motion for attorney fees stated that it was based on the records and pleadings on file in the case, which included evidence of Ratliff's default submitted in support of Trojan's motion for summary judgment. Ratliff introduced no evidence to dispute the default; indeed, in his response to Trojan's statement of undisputed facts he conceded that he had not made any payments on the loan in question since 2008 and that the loan was never paid off or discharged. Further, in opposing Trojan's motion for fees, Ratliff conceded that, if the trial court rejected his argument that an award of attorney fees was inappropriate in view of public policy or Trojan's alleged lack of registration, fees could be awarded under section 2924c, calculated upon the amount and instructions in the notice of default, a copy of which was attached to the declaration of Ratliff's attorney.
In sum, Ratliff fails to show that the trial court lacked substantial evidence of his default on his second mortgage. F. Section 2924d Does Not Apply
In opposing Trojan's motion for attorney fees, Ratliff's fallback argument was that any fee award must be limited by the formula set forth in section 2924c, which, he argued, was "specifically designed" for cases like his. On appeal, he takes a similar fallback position, that we should remand for the trial court to award fees in compliance with section 2924d. We will not do so.
As the Court of Appeal concluded in Jones, "[S]ections 2924c and 2924d provide for maximum sums that may be claimed as expenses of foreclosing on the property. These maximum amounts do not include other costs, including legal fees, which may be incurred by a creditor in protecting the security." (Jones, supra, 127 Cal.App.4th at p. 548.) Such is the case here, where the fees sought by Trojan were not the expenses of foreclosure, but were instead the costs of defending Ratliff's lawsuit, which lasted more than two years. Accordingly, we reject Ratliff's final argument.
In Jones, the borrowers sued the lender to vacate a foreclosure sale. (Jones, supra, 127 Cal.App.4th at p. 545.) The lender prevailed, sought attorney fees, and was awarded $1 million. (Id. at pp. 545-546.) The borrowers appealed, and among their arguments was that the fee award was limited by section 2924c and 2924d to under $40,000. (Id. at p. 548.) The Court of Appeal concluded that the fees incurred in the case to vacate the foreclosure sale were not expenses of the foreclosure, but instead were costs incurred by the creditor in protecting the security. (Ibid.) As he argued in connection with his antideficiency argument, Ratliff points out that the lender in Jones did not add the attorney fees to the borrower's debt for the purposes of the foreclosure, unlike Trojan, which added the attorney fees to the debt it sought to recover in the foreclosure sale. This is a distinction without a difference for our purposes. The attorney fees sought in Jones could not have been included in the debt as of the time of the foreclosure, because the lawsuit was not filed until after the foreclosure. (Id. at p. 545.) Further, as we discussed above, there was unrefuted evidence before the trial court here that the amount paid at the foreclosure sale did not include any amounts for attorney fees. And, as we discussed above, the foreclosure sale did not eliminate Ratliff's obligation to pay those fees, an obligation he undertook by agreeing to section 11 of the Note, which provides that in case of default, the borrower could recover expenses, including attorney fees, "related to" retaking, holding, and selling the property and that disposal of the property would not relieve Ratliff of the obligation to pay those expenses.
Ratliff also claims that Jones did not analyze the language of 2924d or the "similar provision in . . . section 2924c," and relied on a case that construed only 2924c. This argument might have some force if Ratliff had provided legal argument analyzing the language of those code sections and discussing their similarities and differences, but he did not, and we decline to make his argument for him. (See Allen, supra, 234 Cal.App.4th at p. 52.)
DISPOSITION
The order appealed from is affirmed. Trojan shall recover its costs on appeal.
/s/_________
Miller, J. WE CONCUR: /s/_________
Kline, P.J. /s/_________
Stewart, J.