Feinberg v. GMAC Mortgage

Filed 8/30/06 Feinberg v. GMAC Mortgage CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from an order of the Superior Court of Los Angeles County. Rolf M. Treu, Judge. Affirmed.

McCarthy & Holthus, Thomas J. Holthus and Daniel J. Goulding for Defendant and Appellant.

No appearance by Plaintiffs and Respondents. (Cal. Rules of Court, rule 17(a)(2).)

_________________

Trustors under a deed of trust of a foreclosed residential property brought suit against the lender asserting claims for wrongful foreclosure, breach of an oral forbearance agreement, fraud, negligent misrepresentation, and intentional infliction of emotional distress. The trustors' action sought compensatory and exemplary damages. The lender prevailed in the action and thereafter sought an award of attorney fees based on an attorney fee provision in the deed of trust. The trial court found the attorney fee clause did not relate to any of the claims asserted in the underlying action and denied the lender's request for attorney fees. We affirm.

FACTS AND PROCEEDINGS BELOW

In 1993 respondents, Harvey and Shulamit Feinberg, borrowed $400,000 from appellant GMAC Mortgage Corporation (GMAC) to purchase a residence in Studio City. The loan was evidenced by a promissory note and a deed of trust secured by the property.

In November 1998 respondents stopped making payments under the note. Dr. Harvey Feinberg was then experiencing difficulties with his medical license and practice. In early 1999 GMAC recorded a notice of default on the property. The amount of the arrearages was then approximately $14,000. A few months later the Feinbergs filed for bankruptcy protection. Their initial bankruptcy case was dismissed without prejudice.

The Feinbergs refiled their bankruptcy action in August 1999. This had the effect of temporarily staying impending foreclosure proceedings.

Apparently, the value of the Feinbergs' residence had substantially increased in value. In 1999 the house had been appraised at $800,000. The Feinbergs decided to find new financing to pay off the arrearages and satisfy their indebtedness to GMAC. Dr. Feinberg discussed his refinancing plans with GMAC. He requested a payoff demand statement and other information from GMAC to assist him in securing new funding. According to Dr. Feinberg, when he relayed his refinancing plan to his primary contact at GMAC, GMAC promised not to proceed with the foreclosure if the Feinbergs dismissed their bankruptcy action and agreed to a 180-day bar to any refiling. Based on this alleged promise from GMAC, the Feinbergs retained a mortgage broker, received an appraisal and started the process of securing new funding to bring their loan with GMAC current. The Feinbergs then permitted their bankruptcy action to be dismissed.

In mid-November 1999 GMAC provided the Feinbergs with a pay-off statement showing a total of approximately $46,000 in delinquent payments and other charges. On December 19, 1999 the Feinbergs' mortgage broker informed them a loan had been approved.

The house was sold in a nonjudicial foreclosure sale the next day on December 20, 1999 for less than $414,000, or essentially the amount due GMAC. The Feinbergs claimed they had no notice GMAC intended to proceed with the foreclosure despite its promise to the contrary.

The Feinbergs and their three teenage daughters were evicted. Movers hired by the new owner moved and/or allegedly trashed the Feinbergs' possessions. In his deposition, Dr. Feinberg testified they found religious artifacts, family photos and other personal belongings with sentimental value in the trash behind the house together with boxes of medical files from his psychiatric practice. According to Dr. Feinberg, the experience traumatized his entire family.

In March 2000 the Feinbergs filed an action against GMAC seeking compensatory and punitive damages for wrongful foreclosure; breach of an oral forbearance agreement; fraud; negligent misrepresentation; intentional infliction of emotional distress; and injunctive relief.[1] Each of the asserted causes of action was based on GMAC's alleged failure to honor its agreement to postpone the foreclosure proceeding in exchange for the Feinbergs' agreement to dismiss their bankruptcy proceeding to permit them to secure replacement funding to satisfy the GMAC loan.

After considerable procedural maneuvering over the years the parties finally stipulated to bifurcate trial of the issues of liability and damages with the liability issue tried to the court. The court ruled in favor of GMAC at the conclusion of the presentation of evidence in the liability phase of the trial. The court found the Feinbergs had failed to carry their burden of proving GMAC had made any promise to postpone foreclosure proceedings until the Feinbergs refinanced the loan.

Thereafter, GMAC moved for an award of attorney fees as the prevailing party. GMAC argued the attorney fee provision in the deed of trust together with Civil Code section 1717 entitled it to an award of fees.

Paragraph seven of the deed of trust is entitled "Protection of Lender's Rights in the Property" and includes the following attorney fee provision: "If Borrower fails to perform the covenants and agreements contained in this Security Instrument, or there is a legal proceeding that may significantly affect Lender's rights in the Property (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture or to enforce laws or regulations), then Lender may do and pay for whatever is necessary to protect the value of the Property and Lender's rights in the Property. Lender's actions may include paying any sums secured by a lien which has priority over this Security Instrument, appearing in court, paying reasonable attorneys' fees and entering on the Property to make repairs. . . . "[2]

The trial court denied GMAC's request for attorney fees. The trial court noted all the claims for injunctive relief had been dismissed pretrial. The dismissal of these claims, the court noted, had the effect of making the suit exclusively one for damages which could not affect the value of or GMAC's interest in the property. Moreover, the court noted the property interests protected by the attorney fee clause were nonexistent at the time the action was filed because the property had already been sold at foreclosure. The court further noted the clause regarding paying sums secured by superior liens and entering the property to effect repairs all pertained to GMAC's secured interest. By contrast, the tort causes of action all sought damages which had nothing to do with protecting the value of the property or GMAC's rights in the property. Accordingly, the trial court found the attorney fee clause did not authorize an award of attorney fees in this litigation.

GMAC appeals from the adverse ruling.

DISCUSSION

I. STANDARD OF REVIEW OF AN ORDER DETERMINING ENTITLEMENT TO AN AWARD OF CONTRACTUAL ATTORNEY FEES.

In determining whether GMAC is entitled to attorney fees, we examine the applicable statutes and the provision in the deed of trust. Extrinsic evidence has not been offered to interpret the attorney fees clause of this contract and the facts are not in dispute. We therefore review the trial court's decision de novo.[3]

II. THE ATTORNEY FEE CLAUSE OF THE DEED OF TRUST DID NOT APPLY TO THE CLAIMS ASSERTED IN THE FEINBERGS' ACTION.

GMAC asserts the provision in the deed of trust entitled it, as the prevailing party, to an award of attorneys fees as a matter of right.[4] GMAC argues this is so whether the causes of action asserted in the underlying action were based in contract, tort or otherwise. GMAC argues the attorney fee clause is broad enough to encompass all the causes of action in the underlying lawsuit and for this reason, GMC claims, there is no need to distinguish between the contract and tort causes of action, nor any need to apportion its requested fee amount between or among the contract and noncontract causes of action.

To recall, paragraph seven of the deed of trust is entitled "Protection of Lender's Rights in the Property" and includes an attorney fee provision. This clause provides: "If Borrower fails to perform the covenants and agreements contained in this Security Instrument, or there is a legal proceeding that may significantly affect Lender's rights in the Property (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture or to enforce laws or regulations), then Lender may do and pay for whatever is necessary to protect the value of the Property and Lender's rights in the Property. Lender's actions may include paying any sums secured by a lien which has priority over this Security Instrument, appearing in court, paying reasonable attorneys' fees and entering on the Property to make repairs. Although Lender may take action under this paragraph 7, Lender does not have to do so."[5]

"Section 1032 is the fundamental authority for awarding costs in civil actions. It establishes the general rule that '[e]xcept as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.' [Citation.] . . .

Section 1033.5 of the Code of Civil Procedure . . . specifies the 'items . . . allowable as costs under Section 1032.' One category of allowable costs is '[a]ttorney fees, when authorized by . . .

(A) Contract.' [Citation.]"[6]

Civil Code section 1717 authorizes an award of attorney fees to the prevailing party on a contract claim. This section provides, "In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded . . . to the prevailing party, then the party who is determined to be the party prevailing on the contract . . . shall be entitled to reasonable attorney's fees . . . "[7]

GMAC was undeniably the prevailing party in the action. Moreover GMAC is the party identified in the contract entitled to attorney fees incurred "to protect the value of the Property and Lender's rights in the Property." Thus, GMAC would not need to rely on Civil Code section 1717's mutuality of remedies to potentially be entitled to an award of attorney fees.[8] Civil Code section 1717 nevertheless applies in determining whether a party is entitled to an award of fees under a contractual fee provision.[9]

The essence of all of the Feinbergs' causes of action were founded on the claim GMAC breached a separate, subsequent, oral agreement to forebear foreclosing on the mortgage in exchange for their agreement to dismiss their then pending bankruptcy action. This was the only potential contract claim involved in the entire action. However, this contract claim arose after, and without regard to the terms of, the deed of trust containing the attorney fee provision. It was independent of and entirely separate from the parties' agreement embodied in the deed of trust. In asserting this cause of action the Feinbergs did not seek to either challenge or vindicate any rights created by the deed of trust. They instead sought damages for GMAC's alleged breach of an entirely different promise. Thus, in this case, there was no claim "on the contract" containing the attorney fee provision which would authorize an award of attorney fees under Civil Code section 1717.

Moreover, Civil Code section 1717 does not authorize fee awards for tort claims.[10] This section determines which party, if any, is entitled to attorney fees on contract claims only.[11] Tort claims redress the breach of the general duty to society which the law imposes without regard to the substance of the contractual obligation. For this reason tort claims are not "on the contract" and accordingly are outside the reach of Civil Code section 1717.[12]

Instead, whether attorney fees incurred in defending tort or other noncontract claims are recoverable depends entirely on the terms of the contractual attorney fee provision.[13]

Broad, general language in a contractual attorney fee provision may support an award for all manner of contract, tort, equitable and other claims.[14] Thus, an attorney fee clause for all claims "arising out of the execution of th[e] agreement or the sale" was broad enough to embrace both tort and breach of contract claims.[15] Similarly, an attorney fee provision applicable to "any dispute under the [agreements]" was sufficiently broad to include the assertion of a contractual defense to fraud and breach of fiduciary duty causes of action.[16]

All of the decisions GMAC cites in support of its position either concerned actions directly on the contract,[17] or concerned attorney fee clauses with sufficiently broad language to encompass contract claims, tort claims and other causes of action as well.[18]

However, and unlike the attorney fee provisions in the decisions on which GMAC relies, the attorney fee provision in the present case is very narrowly-worded. It only covers fees incurred "to protect the value of the Property and Lender's rights in the Property."

The tort claims asserted in the underlying action of fraud, misrepresentation, and intentional infliction of emotional distress did not arise out of the deed of trust or even directly concern the property. They instead arose from GMAC's alleged failure to honor its separate agreement to forbear foreclosing on the property in exchange for the Feinbergs' promise to dismiss their then pending bankruptcy action. This in turn resulted in the traumatic eviction and loss of personal property. These tort claims based on later occurring events did not relate to the deed of trust, except in only the most peripheral way.

More importantly, the tort claims did not relate to GMAC's interest in the property, or concern the value of the property. As the trial court noted, GMAC's rights and interests protected by the attorney fee clause no longer existed when the Feinbergs' filed their complaint. The foreclosure had long since occurred. GMAC's security interest had long since been paid off. The property was already in the possession of the successful bidder at the foreclosure sale. GMAC could no longer incur fees or costs to enter to make repairs. Nor could it legally take any other action with respect to the property. Because GMAC no longer had an interest in the property its value similarly was no longer GMAC's concern. Accordingly, because this action did not concern GMAC's rights in the property, nor the value of the property, the attorney fee clause in the deed of trust was inapplicable.

In sum, attorney fees could not be awarded under Civil Code section 1717 because the only potential contract claim in the underlying action was not on the contract containing the attorney fee clause. Moreover, attorney fees could not be awarded under the more general cost statutes because the attorney fee clause was too narrowly-worded to encompass the noncontract claims. Accordingly, we find the trial court did not err in denying GMAC an award of attorney fees in this action.

DISPOSITION

The order is affirmed. GMAC to bear its own costs of appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

JOHNSON, Acting P. J.

We concur:

WOODS, J.

ZELON, J.

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[1] The court dismissed the causes of action for injunctive relief once it learned the property had already been sold in a foreclosure sale and there were no longer any proceedings to enjoin.

[2] Italics added.

[3] Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 705; accord, Blackburn v. Charnley (2004) 117 Cal.App.4th 758, 767 ["On appeal, we review the determination of the legal basis for an award of attorney fees de novo as a question of law."]

[4] Code of Civil Procedure sections, 1021, 1032, and 1033.5, subdivisions (a)(10)(A) and (c)(5) and Civil Code section 1717.

[5] Italics added.

[6] Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1108.

[7] Civil Code section 1717, subdivision (a), italics added.

[8] Compare, Moallem v. Coldwell Banker Com. Group, Inc. (1994) 25 Cal.App.4th 1827, 1831-1833 [party who prevailed on his negligence and breach of fiduciary duty causes of action but lost on his contract claim could not invoke the mutuality of remedy provided by Civil Code section 1717 because the section applies only to attorney fees for contract actions and not to tort claims].

[9] Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1149, 1157-1158 [whether the attorney fee provision is bilateral or unilateral, Civil Code section 1717 controls in the determination of whether and how attorney fees should be awarded under a contract].

[10] Stout v. Turney (1978) 22 Cal.3d 718, 730; Santisas v. Goodin (1998) 17 Cal.4th 599, 608, 615, 619; Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 550.

[11] Santisas v. Goodin, supra, 17 Cal.4th 599, 617, 619; Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129.

[12] Stout v. Turney, supra, 22 Cal.3d 718, 730; Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393.

[13] Santisas v. Goodin, supra, 17 Cal.4th 599, 602.

[14] Exxess Electronixx v. Heger Realty Corp., supra, 64 Cal.App.4th 698, 712.

[15] Santisas v. Goodin, supra, 17 Cal.4th 599, 608.

[16] Thompson v. Miller (2003) 112 Cal.App.4th 327, 335-337. Numerous courts have interpreted similarly broad contract language to include tort actions. (Santisas v. Goodin, supra, 17 Cal.4th 599, 607 ["arising out of the execution of the agreement"]; Allstate Ins. Co. v. Loo (1996) 46 Cal.App.4th 1794, 1799 ["relating to the demised premises"]; Moallem v. Coldwell Banker Com. Group, Inc., supra, 25 Cal.App.4th 1827, 1831 ["'relating to' the contract"]; Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1342-1343 ["any action arising out of this agreement" or "any 'lawsuit or legal proceeding' to which this Agreement gives rise"]; Johnson v. Siegel (2000) 84 Cal.App.4th 1087, 1100-1102 ["[i]n any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement'].)

[17] Valley Bible Center v. Western Title Ins. Co. (1983) 138 Cal.App.3d 931 [trustor successfully challenged trustee's right to foreclose because of an alleged default under a deed of trust]; International Billing Services, Inc. v. Emigh (2000) 84 Cal.App.4th 1175, 1186-1190 [employer which sought attorney fees in its action for breach of confidentiality agreements was judicially estopped from claiming the successful employee defendants were not entitled to an award of fees as the prevailing parties in the contract action under the reciprocal provisions of Civil Code section 1717] .

[18] Allstate Ins. Co. v. Loo, supra, 46 Cal.App.4th 1794, 1798-1799 [clause awarding attorney fees to the prevailing party "In any legal action brought by either party to enforce the terms hererof or relating to the demised premises . . . " was broad enough to cover contract and tort claims]; Lerner v. Ward (1993) 13 Cal.App.4th 155, 160 [clause providing for attorney fees for "any action or proceeding arising out of this agreement . . . " was applicable to an action for fraud]; Adam v. DeCharon (1995) 31 Cal.App.4th 708, 712 [attorney fee provision covering "any action . . . arising out of this agreement . . . " was broad enough to encompass contract as well as tort claims].