Opinion
B313009
09-20-2022
JOHN MERINO, Plaintiff and Respondent, v. MANUEL GARCIA et al., Defendants and Appellants.
Culver Law Group, Justin D. Graham for Defendants and Appellants. Schorr Law, Zachary D. Schorr and Stephanie C. Goldstein for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from a postjudgment order of the Superior Court of Los Angeles County, No. BC635651 Robert Broadbelt, III, Judge. Reversed and remanded.
Culver Law Group, Justin D. Graham for Defendants and Appellants.
Schorr Law, Zachary D. Schorr and Stephanie C. Goldstein for Plaintiff and Respondent.
RUBIN, P. J.
In this unusual quiet title action, plaintiff John Merino sought to quiet title not in himself but in defendants Manuel and Maria Garcia, subject to a deed of trust in plaintiff's favor. The Garcias did not disagree with quieting title in their names subject to the deed of trust, and defaulted. Despite their default, they exercised their statutory right to participate in the quiet title action (Code Civ. Proc., § 764.010), in order to ensure that their title was clean, subject only to the deed of trust in favor of Merino. After lengthy litigation, the court quieted title in the manner sought by both parties. Merino then moved for an award of contractual attorney fees, as prevailing party in litigation arising out of the deed of trust. The Garcias opposed the motion, but the trial court did not consider their opposition, finding that the Garcias had no standing to oppose the motion due to their default. The court awarded Merino his attorney fees.
All undesignated statutory references are to the Code of Civil Procedure.
The Garcias appeal the fee award. We conclude that, because Merino's complaint did not seek attorney fees in connection with his quiet title cause of action, the Garcias' default did not preclude them from contesting the attorney fee award. As a result, the trial court erred in disregarding the Garcias' opposition to the attorney fee motion. We reverse and remand for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
This litigation arose out of an unrecorded sale of real property, and the parties' efforts to fix record title after the seller died.
1. Merino's Predecessor in Interest Sells the Property to the Garcias
Plaintiff John Merino is the son of Eugene Merino, who is now deceased. In 1996, Eugene Merino owned a house in San Fernando, which he sold to his then-tenants, the Garcias. By agreement dated March 5, 1996 (Purchase Agreement), Eugene Merino agreed to sell the property to the Garcias for $150,000, consisting of a minimal down payment and a 30-year loan, secured by a deed of trust, in the amount of $149,980. The Purchase Agreement states that the parties elected not to use escrow services or a title report. It provides, "Title shall be free of liens, except as provided in this Agreement" and specifically provides, "Seller[] take[s] full responsibility of any liens prior to change of title."
We use "Merino" alone to refer to plaintiff and appellant John Merino.
The promissory note was signed by the Garcias on December 31, 1996 (Note). The deed of trust, securing payment of the note, was executed on April 1, 1996, and notarized December 31, 1996 (Deed of Trust).
It appears that the Note was executed eight months after the Deed of Trust securing it. While the Purchase Agreement setting forth the terms of the transaction was signed in March 1996, and the Deed of Trust shortly thereafter in April, the Note was not signed until December 1, 1996, the same date the Deed of Trust was notarized. The record also reflects a second version of the Note was signed a few months later, on March 25, 1997. The parties make no argument concerning the timing of the execution of the Note and Deed of Trust.
Each of these three documents - the Purchase Agreement, the Note, and the Deed of Trust - contains some language relating to attorney fees. Because we resolve the appeal without addressing the substantive merits of Merino's claim for attorney fees, we need not discuss the contractual clauses on which he relies.
On March 25, 1997 - a year after the parties signed the purchase agreement - Eugene Merino executed a grant deed transferring the property to the Garcias (Grant Deed). It was never recorded and, apparently, not timely given to the Garcias.The Deed of Trust in favor of Eugene Merino was also never recorded.
The Garcias submitted a declaration stating that they did not receive the deed until 2012, after Eugene Merino had died.
On July 31, 2009, Eugene Merino died intestate.
2. Eugene Merino's Heirs Unsuccessfully Attempt to Fix Recorded Title
In 2013, Eugene Merino's heirs tried to deed the property to the Garcias, but this was unsuccessful. Eventually, the heirs all transferred Eugene Merino's interest in the Purchase Agreement, Note, and Deed of Trust to John Merino, the plaintiff here
The result was this: The Garcias owned the property, but record title was still in the name of Eugene Merino, who was deceased. Plaintiff Merino was the new beneficiary of the Deed of Trust, but he could not record it against the Garcias' title, because the Garcias were not the owners of record.
The Garcias stopped making payments on the Note in late 2015. They assert that this was on advice of counsel, based on Merino's failure to convey marketable title to them.
3. Merino's Complaint
On September 28, 2016, Merino filed his complaint in quiet title against the Garcias and anyone else claiming an interest in the property. Merino sought a judgment that the Garcias are owners in fee simple of the property, subject to Merino's beneficial interest in the Deed of Trust. He also sought costs and "such further relief as the court considers proper." He did not seek attorney fees in connection with this cause of action.
However, Merino's complaint alleged two additional causes of action: declaratory relief and imposition and foreclosure of equitable lien. Merino alleged a right to attorney fees, under the Note, in connection with his third cause of action, for foreclosure of his equitable lien. His prayer for relief was itemized cause of action by cause of action, and he prayed for attorney fees only in connection with the third cause of action (for foreclosure of his equitable lien) and not in connection with the first cause of action (for quiet title). Eventually, after succeeding in his quiet title action, Merino would dismiss his other two causes of action.
4. The Garcias Default
The Garcias failed to timely answer the complaint and their defaults were entered. They moved to vacate the default, on the ground of mistake or excusable neglect. Their motion to vacate was denied. However, their moving papers explained that they did not contest the quiet title judgment sought. They explained, "To be clear, defendants do not oppose quieting title in favor of Maria and Manuel Garcia, as they are the rightful owners of the Property. Neither do they contest the validity of the [D]eed of [T]rust ...." They sought to vacate the default, however, because they wanted to pursue counterclaims. They submitted a draft cross-complaint for breach of contract, intentional interference with prospective economic advantage, and other causes of action, all arising from Eugene Merino's failure (and John Merino's subsequent failure) to timely give them, or record, the Grant Deed. The Garcias also sought to contest Merino's claim for costs and attorney fees, representing that Merino "is seeking costs and attorney's fees in a case which had to be filed because plaintiff's own father refused to record the grant deed and deed of trust prior to his death. To be sure, the quiet title claim can be bifurcated from the remaining causes of action, with the parties stipulating to a recordable quiet title order validating the Garcias' fee simple [interest] in the Property as well as the Merino [D]eed of [T]rust."
The Garcias had appeared, representing themselves, at the case management conference. They claimed that they were unaware that a written answer was also required.
After the Garcias' motion to vacate their default was denied, they filed their cross-complaint as a complaint against Merino in a separate case. Although they filed a notice of related case, the court determined the two cases were not related.
5. Lengthy Proceedings Leading to the Quiet Title Judgment
Despite their default, the Garcias were statutorily permitted to contest the quiet title relief sought by Merino. The relevant quiet title statute provides: "The court shall examine into and determine the plaintiff's title against the claims of all the defendants. The court shall not enter judgment by default but shall in all cases require evidence of plaintiff's title and hear such evidence as may be offered respecting the claims of any of the defendants, other than claims the validity of which is admitted by the plaintiff in the complaint. The court shall render judgment in accordance with the evidence and the law." (§ 764.010.) Division Three of the Fourth Appellate District has explained, "The Legislature has not left anything to the imagination about whether a trial court can enter a default judgment in a quiet title action. 'The court shall not enter judgment by default' is unequivocal. Moreover, unlike the ordinary default prove-up, in which a defendant has no right to participate [citation], before entering any judgment on a quiet title cause of action the court must 'in all cases' 'hear such evidence as may be offered respecting the claims of any of the defendants.' Although the statute does not spell out who offers this evidence among the three possible candidates-the plaintiff, the court, or the defendant-the only sensible alternative is the defendant. [Citation.]" (Harbour Vista, LLC v. HSBC Mortgage Services, Inc. (2011) 201 Cal.App.4th 1496, 1502.) This procedure is mandated because "real property is unique, and the vast majority of these actions deal with real property." (Id. at p. 1505.) Under this statute, a quiet title judgment requires "a hearing in open court." (Id. at p. 1507.)
When the trial court denied the Garcias' motion to vacate default, it set the hearing on Merino's prove-up for June 12, 2017. It took until July 10, 2019 - more than two years - for Merino actually to obtain the quiet title judgment which both Merino and the Garcias had wanted from the start. While the precise reasons for the delay are not before us, it is fair to say that Merino blamed the Garcias for engaging in dilatory tactics, while the Garcias fault Merino for being unable to properly document title sufficiently to satisfy the court.
While we underline that the issue is not before us, we recognize that at least a portion of the delay appears to have arisen from the Garcias' identification (through a Preliminary Title Report) of a lien that was still on the property from before the Purchase Agreement, and Merino's refusal to serve that lienholder, even when directed by the court to do so. The issue was ultimately resolved only after Merino obtained a release of lien, which the Garcias agreed was sufficient.
On July 10, 2019, the court held the final evidentiary hearing. At the hearing, it granted Merino's motion to dismiss his second and third causes of action without prejudice, leaving only the quiet title cause of action. The court entered a judgment quieting title in favor of the Garcias pursuant to the Grant Deed, with the Deed of Trust as a "first priority lien" against the property, securing the Note.
6. Proceedings on Attorney Fees
Throughout the proceedings, in repeated briefing for the quiet title prove-up hearing, Merino claimed a right to attorney fees in connection with his quiet title claim. The Garcias repeatedly opposed any award of attorney fees, although they did not specifically argue that Merino had failed to plead a right to attorney fees in connection with his quiet title cause of action. By stipulation at the final prove-up hearing, the parties agreed that any requests for attorney fees may be made by postjudgment motion.
Although there was no documented stipulation in the record and no reporter's transcript or agreed or separate statement on appeal (Cal. Rules of Court, rules 8.134, 8.137), the court referred to the stipulation in a minute order and acted accordingly.
On September 5, 2019, Merino moved for attorney fees of $90,407.50, as prevailing party on the Purchase Agreement, Note, and Deed of Trust. He argued, "As defendants who are and have been in default during the duration of this lawsuit, [the Garcias] do not have any standing to challenge [Merino's] request for attorney's fees. While [the Garcias] had standing to participate in the default prove-up hearing regarding title to the subject property, the law is clear that [the Garcias] do not have any standing to challenge any monetary claims, i.e., [Merino's] request for attorney's fees. Accordingly, the Court should disregard any opposition by [the Garcias] to [Merino's] request for fees." (Original emphasis.)
On January 13, 2020, the Garcias filed their opposition. They first argued that they were, in fact, entitled to file an opposition. Addressing the merits, they argued that Merino could not recover attorney fees in this action, because attorney fees are costs and costs are not recoverable, by statute, in a default quiet title action. They further argued that, in this case, the determination of the prevailing party is in the court's discretion. The Garcias took the position that, considering the equities in the case, both parties prevailed, and it was Merino's predecessor in interest (Eugene Merino) who was the one truly at fault for the situation which caused the litigation in the first place.
The argument, which the Garcias pursue on appeal, is this: A quiet title statute provides, "If the defendant disclaims in the answer any claim, or suffers judgment to be taken without answer, the plaintiff shall not recover costs." (§ 761.030.) Because attorney fees can be recovered as an item of costs (§ 1033.5, subd. (a)(10)), the Garcias argue that attorney fees are included in "costs" in section 761.030, and cannot be awarded in a quiet title action that proceeds by default. We observe that Merino's prayer for relief for each of his three causes of action sought costs. Only the prayer for the third cause of action - one of the two causes of action that Merino dismissed - included: "For reasonable attorneys fees incurred herein ...." As to the allegations in the body of the complaint, only the third cause of action in paragraphs 42-44 alleged a right to attorney fees.
In reply, Merino repeated that the Garcias lacked standing to oppose his motion for attorney fees, and Merino was the prevailing party.
The hearing, which was originally scheduled for January 28, 2020, was continued due to COVID. The matter was ultimately argued, by telephone, on March 23, 2021.
On March 24, 2021, the court issued its order. The court specifically held that the Garcias did not have standing to oppose Merino's motion because their defaults had been entered. The court therefore disregarded the Garcias' opposition documents "to the extent [the Garcias] address the merits of [Merino's] motion for attorney's fees ...." On the merits, the court concluded that the quiet title action was an action "on the contract" with respect the Purchase Agreement, Note, and Deed of Trust. The court concluded that Merino was the prevailing party "because judgment was entered in [Merino's] favor and against [the Garcias] on July 10, 2019." The court awarded $84,957.50 in fees.
The judgment, both in its caption and in its text, stated that it was "against" the Garcias. This is a bit of a misnomer because the Garcias equally wanted the quiet title judgment.
The Garcias filed a timely notice of appeal.
DISCUSSION
On appeal, the Garcias initially pursued their procedural argument against the award of fees: costs cannot be imposed on defendants who default in quiet title actions and attorney fees are an element of those costs. We requested the parties to brief a different issue: whether Merino could obtain attorney fees by default in connection with a quiet title cause of action when he had not pleaded a right to attorney fees in that cause of action or the attendant prayer for relief.
The Garcias also challenged the trial court's award of fees on its substantive merits, which we need not address; and argued that proceeding to resolve the issue of attorney fees by noticed motion was somehow error, even though they had stipulated to that very procedure.
Addressing the last issue first, we conclude that a plaintiff cannot recover by default attorney fees that were not pleaded in the complaint to which the defendant defaulted, and that Merino's prayer for attorney fees in connection with a dismissed cause of action is not sufficient. This conclusion requires a remand for reconsideration of Merino's motion for attorney fees, with directions for the trial court to consider the Garcias' opposition papers and arguments on the merits.
Section 580, subdivision (a) provides, in pertinent part: "The relief granted to the plaintiff, if there is no answer, cannot exceed that demanded in the complaint . . .; but in any other case, the court may grant the plaintiff any relief consistent with the case made by the complaint and embraced within the issue...." It is the first clause that governs in this case: when a defendant is in default, the plaintiff's relief "cannot exceed that demanded in the complaint."
The question has arisen as to whether this language limits the type of relief a plaintiff can receive on default of the defendant, the amount of relief, or both. The answer is both. "[T]he language of section 580 does not distinguish between the type and the amount of relief sought. The plain meaning of the prohibition against relief 'exceed[ing]' that demanded in the complaint encompasses both of these considerations. [Citations.]" (Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489, 493-494 (Becker).)
As to the type of relief, it is well-established that a plaintiff cannot recover attorney fees against a defaulting defendant if the plaintiff did not plead a right to attorney fees. (Becker, supra, 27 Cal.3d at p. 495 ["Plaintiffs failed to set forth in their complaint a prayer for attorney's fees. Under section 580, the trial court exceeded its authority when it granted such relief."]; Feminist Women's Health Center v. Blythe (1995) 32 Cal.App.4th 1641, 1675 (Feminist Women's Health) ["If plaintiff believed it was entitled by statute to attorney fees, it had to allege that fact in its complaint and demand the fees in the prayer in order to obtain such relief against defaulting defendants."]; Wiley v. Rhodes (1990) 223 Cal.App.3d 1470. 1474 (Wiley) [when complaint did not allege entitlement to attorney fees, trial court erred in awarding them as costs in a default case].)
In response to our request for letter briefing on this issue, Merino raised two arguments. First, he argued that, since he pleaded the right to attorney fees in connection with another cause of action and attached the Purchase Agreement and Deed of Trust to his complaint, the Garcias were on actual notice that he sought attorney fees. But actual notice is not sufficient for default prove up matters. "Since Becker, the Courts of Appeal have insisted that due process requires formal notice of potential liability; actual notice may not substitute for service of an amended complaint. [Citation.]" (Greenup v. Rodman (1986) 42 Cal.3d 822, 826.) "[C]ourts have held that due process requires not only actual notice of the damages being sought, but 'formal notice.' [Citation.] As one court observed: 'Section 580 constitutes a statutory expression of the mandates of due process, which require "formal notice of potential liability." [Citations.]' [Citation.] Thus, courts have subjected section 580 to a 'strict construction.' [Citation.]" (Electronic Funds Solutions, LLC v. Murphy (2005) 134 Cal.App.4th 1161, 1176.)
Second, Merino argues that a plaintiff is generally not required to plead a right to attorney fees. Merino here confuses the first clause of section 580, subdivision (a) with the second. We quote the statute again: "The relief granted to the plaintiff, if there is no answer, cannot exceed that demanded in the complaint . . .; but in any other case, the court may grant the plaintiff any relief consistent with the case made by the complaint and embraced within the issue...." (Emphasis added.) It is only in "any other case," that is, a case where there is an answer, that a plaintiff may be awarded any relief consistent with the case made by the complaint. In Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175, disapproved on other grounds by DeSaulles v. Community Hospital of Monterey Peninsula (2016) 62 Cal.4th 1140, 1158, a prior panel of this division recognized the distinction. In that case, which did not proceed by default, the court held that the plaintiff need not plead a right to attorney fees in order to recover attorney fees as costs. (Id. at p. 194.) The court distinguished Wiley, supra, explaining that in Wiley, "an award of attorney fees as part of a default judgment was reversed on appeal for lack of a specific prayer for fees in the complaint. However, the due process considerations involved in a default judgment do not apply in this case." (Ibid.)
The law is therefore clear that Merino could not obtain attorney fees in connection with his quiet title default judgment, as he did not plead the right to attorney fees in that cause of action.
We next address the remedy. "A default judgment that violates section 580 is void; it can be challenged and set aside at any time. [Citations.]" (Simke, Chodos, Silberfeld &Anteau, Inc. v. Athans (2011) 195 Cal.App.4th 1275, 1286.) When a default judgment violates section 580 by including attorney fees that were not pleaded, appellate courts simply strike the award of attorney fees, rather than vacating the entire judgment. (Becker, supra, 27 Cal.3d at p. 495; Feminist Women's Health, supra, 32 Cal.App.4th at pp. 1674-1675; Wiley, supra, 223 Cal.App.3d at p. 1475.)
However, when a plaintiff seeks relief in default which was not initially pleaded, the plaintiff always has the option to amend the complaint to seek that relief, which would reopen the default and permit the defendant to answer. (Sass v. Cohen, supra, 10 Cal.4th at p. 880.) Similarly, there are some circumstances in which a plaintiff who initially proceeded by default can seek attorney fees related to a defendants' subsequent attempts to avoid the default. In those situations, the attorney fees may be sought by noticed motion, which the defendant has the right to oppose. (Garcia v. Politis (2011) 192 Cal.App.4th 1474, 1479, fn. 3 [postjudgment enforcement costs may be litigated, even by a defaulting debtor]; see also Vincent v. Sonkey (2020) 59 Cal.App.5th 160, 163-164 [not specifically addressing the right to oppose, but indicating the proceeding had become "a contested adversarial proceeding"].) Here, by stipulation, Merino pursued his attorney fees by noticed motion following the default judgment. Whether construed as an attempt to impliedly amend his complaint to allege attorney fees, or as a postjudgment motion to seek fees in what was, to all appearances, a contested proceeding, the result is the same: the Garcias are entitled to litigate the issue. The trial court erred in refusing to consider the Garcias' opposition, and we remand for a rehearing in which the Garcias may be heard on the merits of the attorney fee motion.
To the extent Merino argues he is entitled to his attorney fees as a matter of law, we disagree. The court should exercise its discretion to resolve the issue. (Hsu v. Abbara (1995) 9 Cal.4th 863, 876.) We express no opinion on the Garcias' argument that the statute barring costs in uncontested quiet title actions (§ 761.030) bars an award of attorney fees in this case.
DISPOSITION
The postjudgment order awarding Merino his attorney fees is reversed and the matter remanded for rehearing, with the Garcias permitted to oppose the request on the merits. The Garcias are entitled to their costs on appeal.
WE CONCUR: BAKER, J., KIM, J.