Deed Of Trust, POOF!, Prevailing Party, Section 1717: $427,951.93 Fee Award Based On Deed Of Trust Fee Provision Went POOF! Because Nonjudicial Foreclosure Purchaser Relied On Trustee’s Deed Upon Sale Having No Fees Clause

Purchaser’s Action Against Tax Authorities Did Not Really Focus On Deed Of Trust With Fees Clause.

            CP III Rincon Towers, Inc. v. Assessment Appeals Bd. of the City and County of San Francisco (Rincon EF Realty LLC), Case No. A155714 (1^st Dist., Div. 4 Dec. 17, 2019) (unpublished) shows that Civil Code section 1717”s “on the contract” requirement can sometimes lead to no fee recovery based on what contract is involved as the gravamen of a litigant’s action rather than simply a backdrop to the dispute.

            What occurred in this one was that a prior owner (Rincon) purchased a property, financing the property with a $110 million loan with a lender who later sold the loan to CP III.  The original deed of trust had various fees clauses.  Rincon filed four tax assessment applications.  CP III, after acquiring the loan, purchased the property at a nonjudicial foreclosure sale and obtained a trustee’s sale upon sale, including rights to some personal property (possibly the tax assessment applications), which had no fees clauses.  CP III then sought to become a party to the tax assessment proceedings, ultimately being denied the opportunity in three of the four proceedings.  Rincon filed a motion for attorney’s fees under Civil Code section 1717 based on the deed of trust fees clauses, with the lower court awarding it as against CP III a sum of $427,951.93.

            CP III wisely appealed, because the fee award went POOF! upon review by the 1/4 DCA.

            The appellate court determined that CP III was relying on the trustee’s deed with no fees clause rather than basing its rights to intercede in the tax assessment proceedings upon the deed of trust (which had the fees clauses).  In determining whether an action is “on the contract” under Civil Code section 1717, a contract with a fees clause will not provide fee entitlement if it is only a backdrop of a case rather than an agreement which is critical (rather than merely peripheral) to the overall nature of the dispute.  (Orozco v. WPV San Jose, LLC, 36 Cal.App.5^th 375, 407-408 (2019) [discussed in our June 19, 2019 post]; Pellegrini v. Weiss, 165 Cal.App.4^th 515, 533-535 (2008).)  Here, after a careful review of the gravamen of CP III’s action, the reviewing court determined that the trustee’s deed, not the deed of trust, was the “trigger point” for fee entitlement—and it did not have a fees clause.  So, the fee award went POOF!