Hart v. Clear Recon – Ca. Ct. App. holds that parties not judicially estopped from challenging award attorney’s fees by their own prayer for fees

The following is a case update prepared by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, analyzing a recent decision of interest:

SUMMARY:

A California appellate court has held that the language of a deed of trust did not authorize a separate award of attorney’s fee in favor of a prevailing lender, and the unsuccessful plaintiffs were not judicially estopped by their own prayer for fees. [Hart vs. Clear Recon Corp., 2018 Westlaw 4443242 (Cal.App.).]

FACTS: Two individuals were in a title dispute with a family member; those individuals were not signatories to the note and deed of trust encumbering the property. The trust deed provided that any fees incurred by the lender “shall become additional debt of Borrower secured by this Security Instrument.”

The nonsignatory individuals brought a wrongful foreclosure action against the lender. The lender prevailed on summary judgment and then obtained an award of attorney’s fees against the unsuccessful plaintiffs.

REASONING: The appellate court reversed, holding that the quoted clause did not authorize an award of fees:

The paragraph allows the lender to take numerous actions, including incurring attorney’s fees, to protect its interest. It then provides, in the language we emphasized above, that “any amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument.” This is not a provision that attorney’s fees “shall be awarded”; it is, instead, a provision that attorney’s fees, like any other expenses the lender may incur to protect its interest, will be added to the secured debt.

The lender argued that since the unsuccessful plaintiffs had sought fees in their own complaint, they were judicially estopped from denying the lender’s right to fees, citing International Billing Services v. Emigh, 84 Cal.App.4th 1175, 101 Cal.Rptr.2d 532 (2000). But the court held that Emigh was no longer good law: “[S]imply pleading a right to attorney’s fees is not a sufficient basis to judicially estop a party from challenging the opposing party’s alleged contractual basis for an award of attorney’s fees.”

AUTHOR’S COMMENT: This decision is consistent with the very recent result in Chacker vs. JPMorgan Chase Bank, N.A., 2018 Westlaw 4474732 (Cal. App.). For a discussion of Chacker, see —– Comm. Fin. NL —- , Attorney’s Fees Incurred by Prevailing Defendants Against Plaintiff Borrower Had to Be Added to Loan Balance, Rather Than in a Separate Award.

With reference to the issue of judicial estoppel, the court is correct that Emigh has been repudiated by several courts. Unfortunately, there is still no clear guidance on this question from the California Supreme Court. Until that guidance emerges, there is still some risk in including an unwarranted prayer for fees in a complaint.

These materials were written by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, for his Commercial Finance Newsletter, published weekly on Westlaw. Westlaw holds the copyright on these materials and has permitted the Insolvency Law Committee to reprint them.