Hart v. Clear Recon Corp.
237 Cal. Rptr. 3d 907
| Cal. Ct. App. 5th | 2018Background
- Sara and Guy Hart (nonborrowers) sued Nationstar to halt a foreclosure and for declaratory relief while title to the property was disputed; they sought attorney's fees in their complaint.
- Nationstar obtained summary judgment: Sara and Guy are not borrowers under the deed of trust and therefore lack rights to stop foreclosure; this was affirmed on appeal.
- While the Harts' appeal was pending, Nationstar moved in the trial court for attorney's fees as the prevailing party, relying on paragraph 9 of the deed of trust.
- Paragraph 9 authorizes the lender to incur and pay attorneys' fees to protect its interest and provides that amounts disbursed under that section "shall become additional debt of Borrower secured by this Security Instrument."
- The trial court awarded Nationstar $59,750 in fees, finding paragraph 9 an attorney's-fees provision and alternatively ruling the Harts judicially estopped from denying a contractual basis for fees.
- The Court of Appeal reversed the fee award, holding paragraph 9 does not provide for an award of litigation attorney's fees under Civil Code § 1717 and that judicial estoppel did not bar the Harts from contesting the contractual basis for fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether paragraph 9 of the deed of trust is a contractual provision that "specifically provides" for an award of attorney's fees under Civil Code § 1717 | Paragraph 9 does not provide for an award of fees in litigation; it makes lender-incurred fees into additional borrower debt | Paragraph 9 is an attorney-fees provision entitling the lender to fees as prevailing party | Paragraph 9 is not an attorney's-fees clause for awards in litigation; it makes fees recoverable by adding them to the borrower's secured debt |
| Whether paragraph 22 (acceleration clause) justifies the fee award | N/A (not argued below) | If paragraph 9 fails, paragraph 22 authorizes recovery of fees as expenses in pursuing remedies | Paragraph 22 raised for first time on appeal; no trial-court evidence of notice/acceleration, so it cannot justify the award |
| Whether the Harts are judicially estopped from denying a contractual basis for fees because they prayed for fees in their complaint | Harts: mere prayer for fees without identifying contractual basis does not estop them | Nationstar: Harts sought fees, so they should be estopped from denying contract basis | Court: pleading a general prayer is insufficient; judicial estoppel cannot be used to bar their challenge; prior dicta suggesting broader estoppel is no longer good law |
| Whether equitable considerations require a different result (i.e., prevent enforcement of paragraph 9 as written) | Harts: paragraph 9 should be read as written; equitable concerns irrelevant to its interpretation | Nationstar: enforcing paragraph 9 would unfairly shift fee burden to borrower Don rather than nonparty who brought suit | Court: equity does not change textual interpretation; paragraph 9 is an indemnity/add-back clause and not inequitable on its face |
Key Cases Cited
- California Wholesale Material Supply, Inc. v. Norm Wilson & Sons, Inc., 96 Cal.App.4th 598 (discusses standard for recovering contractual attorney fees)
- Cargill, Inc. v. Souza, 201 Cal.App.4th 962 (explains § 1717 reciprocal-fee rule)
- International Billing Servs. v. Emigh, 84 Cal.App.4th 1175 (discussed judicial estoppel re: fee claims; later treated as overly broad)
- M. Perez Co. v. Base Camp Condominiums Assn. No. One, 111 Cal.App.4th 456 (rejects broad application of judicial estoppel for fee pleadings)
- Santa Clara Sav. & Loan Assn. v. Pereira, 164 Cal.App.3d 1089 (addressed fee challenges under similar deed-language but did not analyze whether clause permits litigation fee awards)