Deeds Of Trust, Section 1717: $31,617 Attorney’s Fees Award Under Deed Of Trust Fees Clause Affirmed Against A Nonsignatory Who Was An Alter Ego In A Fraudulent Conveyance DOT Case

DOT Fees Clause Was Broad, Encompassing The Tort Claim For Fraudulent Conveyance. 

            In the deed of trust area, whether a lender can obtain recovery of contractual attorney’s fees after prevailing in a case depends on its breadth:  if it is broad, lender likely prevails; if it is narrow (such as only saying the fees get added to the loan debt), the lender likely loses.

            Lender was on the “happy” side of that equation in Northpoint Capital Fund, LLC v. McClenahan, Case No. H050514 (6^th Dist. Nov. 30, 2023) (unpublished) based on a broadly worded DOT fees clause.

            There, lender prevailed in a matter alleging that certain defendants conspired or aided and abetted in a scheme to fraudulently transfer a deed of trust, which the lower court agreed with by vacating the subsequent DOT and ruling in favor of lender.   McClenahan, one of the parties, was found to be an alter ego, even though he did not sign the fraudulent DOT.  The original DOT had a broad contractual fees clause that the borrower agreed to pay reasonable attorney’s fees “in any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee.”  The lower court awarded lender $31,617 in attorney’s fees under the DOT fees clause against McClenahan.

            McClenahan’s efforts to overturn the fee award were unsuccessful.  Because he was established as the alter ego of the borrower, McClenahan faced fee exposure under Reynolds Metals Co. v. Alperson, 25 Cal.3d 124, 129 (1979) [our Leading Case #5].  Because Civil Code section 1717 “on the contract” language is construed liberally, the breadth of the clause encompassed the fraudulent DOT conveyance win by lender.