First District, Division 2 Deals With Interesting Finality Issue With Respect to Prevailing Party Status.
The interesting (and fun) part of this blog is reviewing unpublished decisions that actually confront very challenging issues arising from the array of procedural twists that can (and do) occur in civil litigation.
The next one deals with a situation where a prevailing party was found because a plaintiff lost under a promissory note and then failed to timely pursue foreclosure remedies under an equitable mortgage—establishing defendant as the prevailing party under Civil Code section 1717.
In Penna v. Ergur, Case Nos. A117629, A118491, & A118699 (1st Dist., Div. 2 Sept. 29, 2009) (unpublished), defendant executed a promissory note with a fees clause in favor of plaintiff, but no trust deed was signed (even though the parties contemplated that it would be secured). Plaintiff sued to recover under the note, and defendant brought a cross-claim for fraud and negligent performance of contract. Defendant’s cross-claims were dismissed in an unconventional procedural context, but plaintiff’s note/common count claims went to trial. The trial court held the note was an equitable mortgage such that defendant’s one action rule/security first defense was well taken. Importantly, the trial court also denied a motion to amend to allow plaintiff to foreclose on the mortgage, finding that the failure to allege this earlier was prejudicial given the dismissal of defendant’s cross-claims. Defendant moved to recover fees as the prevailing party, with the trial court awarding him $85,230 fees out of a requested $116,000 in fees and costs.
Plaintiff appealed.
Presiding Justice Kline, on behalf of a 3-0 panel, affirmed the fee award.
The appellate panel found that plaintiff’s note/common count action was “on a contract,” while defendant’s cross-claims were tort claims not encompassed by Civil Code section 1717. Because defendant defeated exposure under the note, he achieved his litigation objectives so as to be the section 1717 “prevailing party.”
Plaintiff’s most interesting argument, based on Estate of Drummond, 149 Cal.App.4th 46 (2007), was that defendant did not prevail because further litigation on the contract was contemplated (namely, that plaintiff could foreclose upon his equitable mortgage). However, the appellate panel rejected this argument because plaintiff had lost his right to foreclose through prior rulings by the trial court. Given the foreclosure remedy was no longer available, defendant had prevailed under the note and was entitled to fees. (See Estate of Drummond, supra, 149 Cal.App.4th at 53 [a party can prevail even under a procedural dismissal without prejudice where the other side cannot obtain relief under the contract, for example, based upon a statute of limitations bar].)