In re Giusto

532 B.R. 760

In re Jacqueline Giusto, Debtor.

Case No. 13–55547–ASW

United States Bankruptcy Court, N.D. California.

Signed April 21, 2015

Nina C. Decker, The Mlnarik Law Group Inc., Santa Clara, CA, for Debtor.

MEMORANDUM DECISION RE: MOTION FOR ATTORNEY'S FEES

Arthur S. Weissbrodt, U.S. Bankruptcy Judge

Before the Court is the motion of Debtor Jacqueline Giusto (“Debtor”) for recovery of attorney's fees under Cal. Civ. Code § 1717 (“CCC § 1717 ”) as the prevailing party in litigation of Green Tree Servicing LCC's (“Green Tree”) motion for relief from the automatic stay. Debtor is represented by attorney Jim Erickson. Green Tree is represented by attorney Nathan Smith. For the reasons explained below, the motion is granted.

I. FACTS

Debtor filed a chapter 13 bankruptcy case on October 21, 2013.¹ Listed on Schedule A was the real property located at 3971 Arbuckle Drive, San Jose, California (the “Property”). Debtor's Schedule D states that Debtor is not listed on the mortgage, the mortgage is currently in Debtor's deceased grandmother's name, and that Debtor has been making the mortgage payments for the past decade.

In June 2001, Debtor's grandmother, Maddelena E. Giusto, executed a note (“Note”) and deed of trust (“DOT”) in favor of Bank of America, N.A., which encumbers the Property. After Debtor's grandmother passed away in 2002, Debtor's uncle inherited the Property; upon Debtor's uncle's death, the Property passed to Debtor by intestate succession. The parties do not dispute that Debtor is the owner of the Property.

The Note and Deed of Trust contain the following relevant contractual provisions:

Paragraph 11 of the Note provides that, in the event of a default, the bank has the right to declare the note due and payable at once; foreclose on the collateral; cancel any service contract;

(4) exercise all other rights, powers, and remedies given by law; and (5) recover from you all charges, costs, and expenses, including all collection costs and reasonable attorneys' fees incurred or paid by the Bank in exercising any right, power or remedy provided by this Loan Agreement or by law, together with interest on such collection costs, and fees at the interest rate in effect from time to time for the loan.

Paragraph 12 of the Note provides that if the borrower defaults, the borrower promises to pay the Bank

all reasonable costs and expenses it may incur, plus interest on those costs and expenses from the date incurred at the rate in effect for the loan. Those expenses may include, for example, to the extent allowed by law, reasonable attorney's fees for the Bank's own salaried attorneys or independent counsel that it hires.

The Short Form Deed of Trust executed by Maddalena E. Giusto and recorded on June 29, 2001, incorporates provisions (3) to (20) of the fictitious deed of trust recorded in Santa Clara County on July 15, 1999. Paragraph 7 of the fictitious deed of trust provides:

If I fail to perform my obligations under this Deed of Trust, or if any action or proceeding adversely affects Bank's interest in the Property, Bank may, at Bank's option, take any action reasonably necessary (including, without limitation, paying expenses and attorneys' fees) to perform my obligations or to protect Bank's interest. Any sums that Bank pays in accordance with this Paragraph will be an additional indebtedness secured by this Deed of Trust. These payments will be subject to finance charge in accordance with the variable rate terms of the Loan Agreement and will be due and payable by me immediately upon Bank's demand.

Paragraph 11 of the fictitious deed of trust provides, in relevant part, “This Deed of Trust will bind and benefit the successors in interest of Bank and me, subject to Paragraph 14 below.”²

On December 30, 2013, Green Tree, acting under a Limited Power of Attorney by Bank of America, N.A., filed a motion for relief from the automatic stay under 11 U.S.C. § 362(d) (the “RFS Motion”). The RFS Motion and supporting declaration focused on the parties' contractual relationship, i.e., the Note and Deed of Trust. The RFS Motion and supporting declaration both state:

On or about June 20, 2001, Bank of America, N.A., made a loan in the amount of 149000.00[sic] (“Loan”) to Debtors. In exchange for the Loan, Debtor [ ] executed and delivered a note in the original principal amount of $149,000.00 (“Note”) to Bank of America, N.A. As additional consideration, and as security for repayment of the Loan, Debtors made, executed, and delivered to Bank of America, N.A., as beneficiary, a Deed of Trust (“Deed”) dated June 20, 2001. True and correct copies of the Note and the Deed are attached as Exhibits “1” and “2” to the Declaration of Chassidy Kennedy filed concurrently herewith and is [sic] incorporated herein by reference.

Under its Power of Attorney, Green Tree Servicing LLC has the authority to enforce the note and deed of trust. A true and correct copy of the Limited Power of Attorney is attached as Exhibit “3” to the Declaration of Chassidy Kennedy and is incorporated herein by reference.

The Deed encumbers the property commonly known as 3971 Arbuckle Drive, San Jose CA 95214 (“Property”).

Both the Note and the Deed require monthly payments of principal and interest to be made by Debtor[ ].

RFS Motion, page 2; Declaration of Chassidy Kenney, page 2 (Docket no. 28). The RFS Motion and declaration alleged that Debtor was delinquent in making payments required under the Note and Deed of Trust:

The [Debtor is] delinquent in making the payments required under the Note and the Deed. Post-petition payments are due from November 1, 2013 in the total post-petition amount of $2,387.34. Further, Movant anticipates that the January 1, 2013 payment will be due by the hearing.

RFS Motion, page 2; Declaration, page 2. The RFS Motion requested relief to enforce Movant's rights under the Note and Deed of Trust as permitted by state law:

Movant desires to enforce its rights under the Note and the Deed by, among other things, pursuing foreclosure proceedings. Accordingly, Movant hereby requests that the automatic stay against enforcement by Movant of its rights under the Note and the Deed be terminated and that Movant be permitted to proceed in enforcing its rights, including but not limited to, foreclosing under the Note and the Deed as permitted by state law.

RFS Motion, page 3. In the alternative, the RFS Motion requested that the Court order adequate protection payments.³

Debtor opposed the RFS Motion, arguing that Green Tree had failed to establish that it had standing to bring the RFS Motion or that it was in possession of the Note. This Court agreed and, on March 24, 2014, the Court entered an order requiring Green Tree to file an amended declaration by an officer or attorney for the lender or servicer that addressed Debtor's opposition no later than April 9, 2014. Green Tree did not file an amended declaration, and the RFS Motion was denied without prejudice on April 11, 2014. The Court's ruling was not based on a finding that Green Tree lacked standing, but that Green Tree had not demonstrated that it was the real party in interest entitled to enforce the Note and Deed of Trust.

Debtor now moves the Court for an order awarding attorney's fees and costs on the grounds that Debtor was the prevailing party in an action on a contract, and thus attorney's fees and costs should be awarded pursuant to CCC § 1717. Debtor seeks $21,590.00 in attorney's fees.⁴

Green Tree opposes the motion for fees, arguing that CCC § 1717 is not applicable in actions based upon § 362(d). In the alternative, Green Tree argues that even if CCC § 1717 could be applied to the stay litigation, Debtor is not entitled to attorney's fees because Debtor is not a party to the contract or an intended beneficiary of the contract, and Debtor does not stand in the shoes of the borrower. Green Tree has not made a substantive objection to the amount of fees, except for a footnote in Green Tree's supplemental brief opining that the fees “appear to be unreasonable.” As discussed below, the Court finds that under California law, Green Tree's motion is an “action on a contract” because the RFS Motion was a necessary step for Green Tree to enforce the contract. Under the loan documents, Green Tree would have been entitled to its attorney's fees for litigating the RFS Motion. Therefore, the Debtor is entitled to reciprocal attorney's fees as the prevailing party, despite her nonsignatory status.

II. ISSUES

1. Whether Debtor is entitled to reciprocal attorney's fees under CCC § 1717 in

litigating a motion for relief from stay, in light of the Supreme Court's decision in Travelers Cas. & Sur. Co. v. Pac. Gas & Elec. Co., 549 U.S. 443, 448, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007).

2. Whether Debtor is entitled to attorney's fees under the loan documents when Debtor is not a signatory to those documents.

III. ANALYSIS

A. Entitlement to Attorney's Fees in a Bankruptcy Proceeding

In general, a prevailing litigant is not usually entitled to collect attorney's fees from the losing party. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). This default rule, also known as the American Rule, may be overcome by statute or by an enforceable contract allocating attorney's fees. Travelers Cas. & Sur. Co. v. Pac. Gas & Elec. Co., 549 U.S. 443, 448, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007) (citing Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 717, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967) ). In California, one such statute is CCC § 1717, which provides, in relevant part:

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 either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to

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