Judgment Enforcement, Section 1717, Undertaking: Denial Of § 1717 Attorney Fees To Third Party Entities Defeating Postjudgment Alter Ego Claims Reversed, But Denial Of Release Of Undertaking To Successful Member/Partner Affirmed

The Third District Followed The Reciprocity Principle Of § 1717 Set Forth In Reynolds Metals, MSY Trading, And 347 Group In Reversing The Fees Denial, But Affirmed Trial Court’s Denial Of Release Of Undertaking Based On Member/Partner’s Failure To Provide Notice.

            In Westwood Homes, Inc. v. AGCPII Villa Salerno Member, LLC, Case No. C089127 (3d Dist., June 21, 2021) (published), two third party entities were denied the $34,212 in prevailing party attorney fees they sought under Civ. Code § 1717 after defeating judgment creditors’ postjudgment attempt to add them as alter ego judgment debtors.  Additionally, a member/partner of the entities unsuccessfully moved, under Code Civ. Proc. § 720.160, to have a $10,000 undertaking posted by one of the judgment creditors released to her to partially cover the $43,450 in fees she incurred in establishing a third party claim of superior right of possession to real property on which that judgment creditor had obtained a writ of execution. Third party entities and member/partner appealed.

            Based on the reciprocity principle of § 1717, the Third District reversed and remanded as to the fees denial – finding that “[s]o far as the substance of the alter ego allegations is concerned, it is as though [third party entities] were parties to the original action, and prevailed.”  Had third party entities defeated the alter ego claims in the underlying action, they would have been prevailing parties under § 1717 and entitled to fees under the CC&R’s supporting judgment creditors’ entitlement to fees in the underlying action.  (Reynolds Metals Co. v. Alperson, 25 Cal.3d 124 (1979) [our Leading Case No. 5]; MSY Trading Inc. v. Saleen Automotive, Inc., 51 Cal.App.5^th 395 (2020) [discussed in our June 30, 2020 post]; and 347 Group, Inc. v. Philip Hawkins Architect, Inc., 58 Cal.App.5^th 209 (2020) [discussed in our December 8, 2020 post].)

            As to member/partner’s request for release of a $10,000 undertaking posted by one of the judgment creditors, the panel found no error in the trial court’s denial.  Member/partner’s noticed motion for fees, under Code Civ. Proc. § 720.160, made no mention of releasing the undertaking as a partial fee award.  Instead, member/partner orally requested release of the undertaking at the hearing on her motion – thus denying judgment creditors with a proper opportunity to address her request.  However, as the panel pointed out, member/partner’s request was denied without prejudice leaving her free to move, on a properly noticed motion, for an order releasing the undertaking.