The standard Residential Purchase Agreement in California provides for the recovery of attorneys fees to the prevailing party, if an attempt to mediate is made, and this can be an important remedy in any litigation concerning contractual disputes.
In the recent case of De La Carriere v. Greene, the trial court's decision regarding which of the litigants would recover their attorneys fees was reversed by the Court of Appeal based upon certain principals that can be applied to many contractual disputes.
Appellant Greene obtained a judgment in his favor and against Respondent Carriere for breach of a written loan agreement. The trial court declared Greene the prevailing party and awarded him attorney fees pursuant to a contractual attorney fees provision.
Greene nonetheless appealed, contending the trial court erred in calculating his damages. After the Appellate Court questioned whether Greene waived his right to appeal by accepting payment on the judgment and executing an acknowledgment of satisfaction of judgment, Greene voluntarily dismissed his appeal.
Carriere then moved for an award of attorney fees incurred on appeal, as the prevailing party on the appeal, which the trial court granted. In his appeal, Greene contended the trial court erred in awarding Carriere her attorney fees given that Greene was the prevailing party in the trial.
The Court of Appeal agreed with Green, and reversed the trial court’s order.
Greene and Carriere were close friends for many years. In 1997, Greene agreed to loan Carriere $175,000 to help her purchase a home. As part of the agreement, Carriere executed a promissory note (Note) and deed of trust (Trust Deed), which named Greene’s retirement trust as the beneficiary, and his consulting business as the trustee. The interest rate on the loan was 14.5 percent, and the loan came due in 2008.
In 2012, the parties’ relationship soured, and Greene demanded payment on the loan. By that time, Carriere had made only a few payments, all of which went to interest. Greene threatened to foreclose Carriere’s property if she did not pay the full amount due.
In a preemptive strike, Carriere filed a complaint against Greene, seeking to void the Note and Trust Deed. Greene, in turn, filed a cross-complaint against Carriere, asserting a claim for breach of the Note.
The trial court conducted a four-day bench trial, after which it found Carriere’s claims meritless and entered judgment of dismissal against her. On Greene’s cross-complaint, the court found Carriere breached the Note, but agreed with Carriere that the interest rate was usurious. After subtracting the usurious interest payments from the outstanding principal, the court entered judgment against Carriere and in favor of Greene for $150,329.21.
An important exception to the usury law is whether a broker "arranges" the loan, so any loan that exceeds the usury limit (typically 10% per annum) needs to be arranged by a licensed broker.
The trial court additionally awarded Greene $123,975 in attorney fees pursuant to a provision in the Note stating if any action is instituted on the note, the undersigned promised to pay such sum as the Court may fix as attorney’s fees.
The court explained the basis for its decision as Carriere commenced this action with a complaint that asserted incendiary claims such as forgery, self-dealing and breach of professional responsibilities. The Defendants defeated those claims, and Greene's trust recovered affirmative relief on its cross-complaint. Under those circumstances, the trial court ruled that Greene, his trust, and the trustee were the prevailing parties within the meaning of Civil Code §1717(b)(1).
Carriere and Greene filed cross notices of appeal. In his opening brief on appeal, Greene argued the trial court erred in subtracting interest payments from the principal owed under the Note.
While the appeals were pending, Carriere paid Greene the full amount owed under the judgment and as attorney fees. Greene, in turn, executed an acknowledgement of full satisfaction of judgment (acknowledgment of satisfaction), which Carriere filed in the trial court.
According to Carriere, Greene also agreed to reconvey the Trust Deed and return the Note and Trust Deed, but failed to do so. As a result, Carriere filed a motion to expunge the lis pendens and compel reconveyance of the encumbrance, which the court denied for lack of jurisdiction while the appeal was pending.
Around the same time, Carriere filed a motion in the Appellate Court to dismiss Greene’s appeal as moot. In response, the Appellate Court issued an order to show cause (OSC) inviting Greene to address why the appeal should not be dismissed. The Appellate Court noted the general rule that a party cannot accept the benefits of a judgment while challenging it on appeal, but noted there are exceptions to that rule.
Rather than respond to the OSC, Greene requested dismissal of his appeal, which was granted. The Appellate Court noted that Carriere would recover her costs on appeal. The next day, Carriere requested dismissal of her cross-appeal.
Carriere then filed in the trial court a motion for attorney fees incurred in Greene’s appeal and her post-trial motion to expunge the lis pendens and compel reconveyance of encumbrances. She made the request pursuant to Civil Code § 1717 and the attorney fees provision in the Note. Carriere alternatively requested that the court sanction Greene pursuant to Code of Civil Procedure § 128.5, for pursuing a frivolous appeal.
Greene opposed the motion, arguing the trial court had already determined he was the prevailing party in the lawsuit. He also argued that Carriere was not the prevailing party on appeal given he had voluntarily dismissed his appeal.
The trial court awarded Carriere $67,238 in attorney fees, explaining that an appeal and post-judgment are separate phases of the proceedings. California Rules of Court, rule 8.278 designates the standards for determining the prevailing party for recovering costs on appeal, and the Court of Appeal’s remittitur specifically designated Carriere as the prevailing party entitled to costs on appeal.
Based on this Appellate Court’s review of the post-trial proceedings related to the lis pendens, Carriere was the prevailing party for those procedures as well. As the prevailing party, the trial court found that Carriere was entitled to recover fees under Civ. Code § 1717.
Greene contended the trial court erred in awarding Carriere attorney fees given he was the prevailing party in the action, and the Appellate Court agreed.
A prevailing party is entitled to recover costs in any action or proceeding, except as otherwise expressly provided by statute. These costs, however, do not include the attorney fees the prevailing party has incurred in the litigation unless (1) an agreement between the parties provides for the recovery of those fees (e.g., written contract), or (2) a statute creates a right of recovery.
Here, Carriere sought attorney fees pursuant to the terms of the Note and Civil Code § 1717, which provides generally that, in any action on a contract with an attorney fees provision, the party prevailing on the contract shall be entitled to reasonable attorney fees in addition to other costs. Civil Code § 1717(b)(1) clarifies that the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. Under Civil Code § 1717, there may only be one prevailing party entitled to attorney fees on a given contract in a given lawsuit.
An action on a contract as used in Civil Code § 1717 refers to the whole of a lawsuit rather than to discrete proceedings within a lawsuit. The trial and appeal, therefore, are considered part of the same action for purposes of determining contractual attorney fees.
The trial court determined that Greene was the prevailing party in the lawsuit after finding he defeated Carriere’s claims and obtained affirmative relief on the cross-complaint. Carriere’s subsequent success on appeal and her post-judgment motion did not affect that determination.
Indeed, both before and after appeal, Greene received a net judgment of $150,329.21. Consequently, he recovered the greater amount on the action on the contract and remained the prevailing party for purposes of Civil Code § 1717. As such, he was the only party entitled to attorney fees under the Note. The trial court erred in finding otherwise.
LESSONS
1. The best chance to recover attorney fees is by winning the trial and being found to be the prevailing party in the discretion of the trial court.
2. There can only be one prevailing party, and even winning an appeal or compelling a voluntary dismissal may not change the prevailing party.
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