797 F.Supp.3d 1167
E.D. Cal.2025Background
- Appellees (Buettner and Krone) obtained second mortgages and later completed Chapter 13 plans that treated those junior liens as valued at $0.00 and to be "stripped" and reconveyed on completion.
- After plan completion and discharge, lenders did not reconvey; Appellees filed adversary complaints seeking declaratory relief, extinguishment/reconveyance of the deeds of trust, damages, and attorneys’ fees.
- Lenders (Appellants) recorded full reconveyances after the complaints were filed; the adversary proceedings were consolidated and summary judgment motions followed.
- The Bankruptcy Court granted summary judgment for Appellees and awarded attorneys’ fees under California Civil Code § 1717, treating the actions as "on the contract" and Appellees as prevailing parties.
- On appeal, the district court reviewed de novo and held the fee clauses in the deeds/notes did not "specifically provide that attorney’s fees shall be awarded" as required by § 1717, so the Bankruptcy Court’s fee award under § 1717 was reversed and the case remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cal. Civ. Code § 1717 applies to the deeds/notes' fee clauses | Appellees: deed/note fee clauses are reciprocal and permit § 1717 awards | Appellants: clauses only permit lender-incurred fees to be added to loan balance and do not "award" fees under § 1717 | Held: § 1717 inapplicable — clauses do not "specifically provide that attorney's fees shall be awarded"; fee award reversed |
| Whether Appellees were the § 1717 prevailing parties | Appellees: reconveyances and court rulings made them prevailing parties | Appellants: reconveyances were voluntary and mooted contract relief; Appellees did not obtain contractual relief via judgment | Held: Court did not decide because reversal on § 1717 grounds made prevailing-party analysis unnecessary |
Key Cases Cited
- Travelers Cas. and Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443 (U.S. 2007) (American Rule and statutory exceptions to fee shifting)
- Santisas v. Goodin, 17 Cal.4th 599 (Cal. 1998) (purpose of § 1717 to ensure reciprocity of contractual fee provisions)
- Penrod v. AmeriCredit Fin. Servs. (In re Penrod), 802 F.3d 1084 (9th Cir. 2015) (elements for § 1717 fee entitlement; action "on a contract")
- Hart v. Clear Recon Corp., 27 Cal. App. 5th 322 (Cal. Ct. App. 2018) (deed clause allowing lender to add attorney fees to loan does not "award" fees under § 1717)
- Chacker v. JPMorgan Chase Bank, N.A., 27 Cal. App. 5th 351 (Cal. Ct. App. 2018) (similar holding: fee-addition clauses do not authorize separate fee awards under § 1717)
- AFI Holding, Inc. v. Mackenzie (In re AFI Holding, Inc.), 525 F.3d 700 (9th Cir. 2008) (de novo review standard for bankruptcy summary judgment)
- Spear v. Wells Fargo Bank, N.A. (In re Bartoni-Corsi Produce, Inc.), 130 F.3d 857 (9th Cir. 1997) (federal courts must follow state intermediate appellate decisions absent indication the state supreme court would rule differently)