Buyers Had Substantial Justification To File A Specific Performance Suit And Oppose The Lis Pendens Expungement Motion.
Under CCP § 405.38, a prevailing party on a motion to expunge a lis pendens is entitled to recover reasonable attorney’s fees and costs “unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney’s fees and costs unjust.” (§ 405.38.) The term “ ‘[s]ubstantially justified’ ” has been construed to mean “ ‘not necessarily a prevailing position’ but one which is ‘ “justified to a degree that would satisfy a reasonable person” or . . . has a “ ‘reasonable basis both in law and in fact.’ ” ’ ” (Lennane v. Franchise Tax Bd. (1996) 51 Cal.App.4th 1180, 1188-1189.) Where “reasonable minds could . . . differ,” a party’s position will be deemed to be substantially justified. (Id. at p. 1189; accord, Northwest Energetic Services, LLC v. California Franchise Tax Bd. (2008) 159 Cal.App.4th 841, 870.) The trial court’s decision is reviewed for abuse of discretion. (Lennane, at p. 1188.)
In Smith v. Superior Court, Case No. C102068 (3d Dist. May 29, 2025) (unpublished), plaintiffs/buyers challenged a lis pendens expungement order in favor of defendant/seller after seller failed to provide a tenant the required notice in connection with tenant’s right of first refusal to buy the property under an existing lease with seller. The lower court also awarded seller $29,166, as the prevailing party, on the lis pendens expungement motion under section 405.38.
The Third District sustained the expungement order, but it reversed the fee award to seller. Even though the tenant had a superior right to purchase the property and buyers had constructive knowledge based on receiving the lease during the due diligence period, the appellate panel decided it would be unjust to saddle buyers with fees because seller caused the dispute, with buyers having substantial justification to record the lis pendens and oppose the expungement motion. Under the circumstances, the fee award was an abuse of discretion.