Opinion
NOT TO BE PUBLISHED
APPEALS from a judgment of the Superior Court of Imperial County, Joseph W. Zimmerman, Judge. Super. Ct. No. ECU03797
NARES, J.
In the first appeal in this matter, we affirmed the court's sustaining of a demurrer to New Century Corporation's (NCC's) complaint seeking to set aside a foreclosure sale of property NCC pledged as collateral for a loan with Positive Investments, Inc. (PII). (New Century Corporation v. Positive Investments, Inc. (Apr. 29, 2009, D052650) [nonpub. opn.] (New Century I).) In this second appeal, NCC seeks to set aside an award of attorney fees to PII based upon an attorney fee clause in the loan agreement. NCC asserts that if on the first appeal we reversed the judgment, we must also reverse the award of attorney fees as PII would no longer be the prevailing party. NCC also asserts the court's award of attorney fees was premature because the appeal in New Century I was pending. PII has also appealed the attorney fee award, asserting the court erred by (1) failing to award it the attorney fees it incurred in enforcing the loan in bankruptcy proceedings initiated by NCC and (2) failing to award fees against James Lo, the principal of NCC.
We conclude NCC's appeal is moot because in our decision on the first appeal we affirmed the judgment in favor of PII. We also hold the court did not err by awarding attorney fees while NCC's appeal was pending. On PII's appeal we further conclude (1) the court erred in failing to award PII attorney fees it incurred in NCC's (and its related entity Imco Incorporated's (Imco's)) bankruptcy proceedings, and (2) the court did not err in refusing to award attorney fees against Lo individually.
FACTUAL AND PROCEDURAL BACKGROUND
We take our discussion of the underlying action largely from the first appeal in New Century I.
A. The Loan
In December 2004 James Lo, president of NCC, approached Rao Yalamanchili, president of PII, to obtain a loan due to NCC's default on an existing mortgage on the property, 320 acres of real estate in Imperial County, California (the property). It was represented that NCC had a purchaser for the property but would need a six-month bridge loan in order for the buyer to have time to provide the purchase money for the sale. PII provided an initial loan in the amount of $5.3 million, secured by a deed of trust on the property. The deed of trust named PII as the beneficiary and NCC as the trustor.
B. Default and Foreclosure Proceedings
When the note became due, NCC failed to tender the amount owing. PII informed NCC it was in default on the note, explained the late fees that were owed, and stated that foreclosure proceedings would be initiated if payment were not forthcoming.
In response, NCC presented a letter of intent from a new buyer. Thereafter, as an accommodation to NCC, and in the hopes of avoiding foreclosure proceedings, PII extended the due date for the loan for an additional four months.
When the new due date arrived, NCC did not pay the amount due on the loan. In June 2006 PII recorded a notice of default with the Imperial County Recorder's Office. Two days later, PII served NCC with a 10-day notice of default. In July 2006 PII served NCC with a 30-day notice of default. Thereafter, in September 2006, PII recorded a notice of trustee's sale. On that same day, PII posted a notice of trustee's sale at the Imperial County courthouse, and thereafter published a public notice of sale in the Imperial Valley Weekly. PII scheduled the foreclosure sale for 3:00 p.m. on October 12, 2006.
C. NCC Files for Bankruptcy Protection
On October 11, 2006, one day before the scheduled foreclosure sale, NCC filed a chapter 11 bankruptcy petition with the Southern District Bankruptcy Court. The primary asset listed in the petition was the property.
PII filed a motion for relief from stay, which was heard by the court at two separate hearings. Following the initial hearing, Lawrence Yang, bankruptcy counsel for NCC, incorporated a new entity, Imco.
At the second hearing, after hearing testimony regarding the value of the property, the court indicated that it was going to grant PII's petition for relief from stay.
D. NCC Transfers the Property to Imco
On the same day as the second hearing on PII's relief from stay petition, NCC's principal Lo executed a quitclaim deed transferring the property to Imco. The transfer was without the knowledge, permission or authorization of the Southern District Bankruptcy Court.
E. Imco Files for Bankruptcy Protection
The next day, Imco filed its own chapter 11 proceeding, but in the Central District Bankruptcy Court. Yang again appeared as counsel for the debtor, Imco. Lo signed the bankruptcy petition as president of Imco. Imco listed the property as its primary asset.
PII again moved for relief from stay, on an ex parte basis, requesting that such relief bind all subsequent transferees of the property, and also requesting sanctions. At the ex parte hearing, the court swore in Yang as a witness and asked him a series of questions about the quitclaim deed from NCC to Imco. The court found it appeared there had been bankruptcy fraud on the part of Imco, its principal, Lo, and its counsel, Yang, and set the matter for a sanctions hearing. In doing so, the court (The Honorable Barry Russell, United States Bankruptcy Judge) made the following comments:
"This is probably the worst abuse that I've ever seen in the bankruptcy system.... [¶]... [¶] And I'm also going to set this as a very serious matter, and I─but the reason I [set this] on short notice, because it seems so outrageous─I always hope in these cases that maybe there's another side to it, in this case, there wasn't.... [¶]... I know I have inherent power under Rule 9011 [of the Bankruptcy Rules of Procedure] on any number of matters. But I think sanctions certainly are warranted in this case. I just don't know for what. It's just amazing. I'm not ruling on that now, but it's clear to me that they are warranted."
The court granted PII relief from stay and made the order binding on any debtor in a subsequent bankruptcy proceeding and against any successor or assignee of Imco. The court further prohibited Imco, Lo and Yang from further transferring the property.
At the sanctions hearing the court ordered sanctions in the amount of $23,049.73, jointly and severally against Imco, Lo, and Yang. Thereafter, the court ordered disgorgement of fees paid to Yang, found the transfer was "a scheme designed to defeat the relief from stay proceedings in the [NCC] case" and found Yang's actions "were not consistent with those of an officer of the court."
All orders of the Central District Bankruptcy Court are final and have not been appealed.
F. PII's Foreclosure Sale of the Property
On June 27, 2007, the day after PII obtained relief from stay, PII, through First American Title Insurance Company (First American) caused the foreclosure sale to proceed, and PII was the successful bidder, obtaining title to the property.
G. The Instant Action
In July 2007 NCC filed a complaint against PII, seeking to set aside the foreclosure sale. NCC also filed and recorded a lis pendens against the property. PII filed a demurrer, arguing among other things that NCC lacked standing to pursue the action given the transfer of the property to Imco. The court sustained the demurrer with leave to amend.
NCC filed a first amended complaint, which is the operative pleading on this appeal (hereafter, the complaint). The complaint described the loan and the deed of trust. The complaint alleged that the deed of trust "provides that (1) [NCC] is the trustor; (2) [PII] is the beneficiary; (3) [PII] appointed Equal Escrow Inc. as the trustee; and (4) [NCC] granted [PII] the power to sell the property in case of default. The [d]eed of [t]rust between [NCC] and [PII] established contractual and legal privity between [PII] and [NCC]. Because of said legal and contractual privity, [NCC] has standing to assert [a] cause of action concerning the [d]eed of [t]rust against [PII]."
The complaint alleged, on information and belief, that PII, when it originally recorded its notice of trustee's sale in September 2006 and scheduled a foreclosure sale for October 2006, "failed to either post or publish the notice of sale" in compliance with California law. The complaint further alleged that the transfer of the property by NCC to Imco during NCC's bankruptcy was "void a[b] initio" and a "nullity" as it was accomplished "without prior court order from the Bankruptcy Courts." Thus, NCC alleged, "Even after the execution of the [q]uitclaim [d]eed, [NCC] retained all right, title and interest in the [p]roperty. Moreover, [PII's] representation to the Bankruptcy Court that the transfer of the title to the [p]roperty by the [q]uitclaim [d]eed was legally invalid was a binding judicial admission. [PII] is therefore [e]stopped to rely on the [q]uitclaim [d]eed against its own admission."
The complaint alleged on information and belief that "during the automatic stay of the foreclosure sale imposed by either the First or Second [bankruptcy petition], [PII] did not give any notice of postponement or otherwise reschedule the foreclosure sale by informing [NCC] of the new date, time and place of sale." The complaint further alleged that "[i]mmediately after the stay relief being granted and without noticing [NCC] or otherwise posting or publishing the notice of sale, [PII] allegedly conducted a public auction within 24 hours and became the only bidder at such auction...." The complaint alleged on information and belief that "[PII], acting alone or with others, fixed or restrained bidding at the foreclosure sale of June 27, 2007 which resulted in the unreasonable and unfair purchase price of $5,565,000.00 and operated as a fraud or deceit upon [NCC] as the trustor." NCC alleged the true value of the property was "over $16 million."
The complaint stated causes of action seeking to (1) set aside the foreclosure sale, (2) cancel the deed conveying the property to PII, (3) quiet title to the property in NCC, and (4) impose a constructive trust on the property. NCC also sought damages for an alleged breach of trustee's duty and collusive bidding practices and sought an accounting and injunctive relief.
H. PII's Demurrer and Motion To Expunge Lis Pendens
PII demurred to the complaint, arguing NCC lacked standing because it had quitclaimed the property to Imco. PII argued that, while under the Bankruptcy Code such transfers may be set aside as fraudulent, the transfer of the property was never set aside in this case, and title never reverted back to NCC. PII noted that at the time of the foreclosure sale, Imco held title to the property and that NCC in its complaint admitted the transfer to Imco.
PII also argued NCC should not be allowed leave to amend to add Imco as a plaintiff, as that entity lacked standing to sue as well. NCC pointed out that notices of a foreclosure sale must only be sent to the trustor, not subsequent owners of the property. Therefore, it argued, Imco could not allege any failure to provide it with notice of the sale.
NCC opposed the motion, arguing that as the trustor for the property, NCC had contractual standing to contest the foreclosure sale. Further, NCC asserted that it did not lose standing to contest the sale by quitclaiming the property to Imco. NCC also opposed the motion to expunge the lis pendens, asserting that it had evidence no trustee's sale occurred on June 27, 2007.
I. Motion for Leave To Amend
NCC also moved for leave to amend to add Imco as a plaintiff. NCC argued Imco had standing to pursue the action as the titleholder of the property. In doing so, NCC withdrew its allegations in the complaint that "the quitclaim deed was automatically void. Upon further review of applicable bankruptcy law, the quitclaim deed was voidable, but not void ab initio." The proposed second amended complaint also named First American, the foreclosure sale manager, as a defendant in addition to PII.
J. Court's Order Sustaining Demurrer Without Leave To Amend.
The court sustained PII's demurrer without leave to amend. In doing so, the court found NCC lacked standing to prosecute the action because it quitclaimed all title and interest to Imco. Further, the court rejected NCC's assertion it had standing based upon contractual privity with PII as a trustor. In denying leave to amend to add Imco as a plaintiff, the court indicated Imco had remedies it could pursue in separate litigation and found it was "too prejudicial to both the parties to allow possible dual theories of standing via an additional cause of action in quiet title...."
II. MOTION FOR ATTORNEY FEES
In April 2008 PII brought a motion for attorney fees, pursuant to an attorney fees clause in the note between it and NCC. The provision provided: "If action be instituted on this note, I promise to pay such sum as the Court may fix as attorney's fees." PII sought fees totaling $114,339.77 against both NCC and its principal, Lo.
The motion sought not only the fees incurred in defending NCC's state court action, but also those fees incurred in obtaining relief from stay in the two bankruptcy proceedings. The motion sought fees against Lo based upon the argument that NCC and Lo, because of their actions in the bankruptcy court and language in the bankruptcy court's order imposing sanctions, should be treated as one and the same.
The trial court granted PII's motion, awarding attorney fees in the amount of $83,329 for the attorney fees incurred in defending the superior court action. However, the court refused to impose personal liability for fees against Lo, stating the court was "not convinced that it has the authority to award attorney fees against non party [Lo] jointly and severally due to language in the decision of the Central District bankruptcy court." The court also denied the request for fees incurred in the bankruptcy court proceedings, totaling $31,010.77, finding it did not have "the authority to award attorney fees in the bankruptcy court actions under 11 [United States Code section] 506(b) in the absence of any California authority clearly so indicating."
II. FIRST APPEAL
In New Century I, we affirmed the judgment in favor of PII, rejecting NCC's arguments (1) it had standing to sue PII because its transfer to Imco was void as it was in violation of bankruptcy laws, (2) it had standing as the trustor on the deed of trust foreclosed upon, and (3) the court abused its discretion in refusing to allow it to amend its complaint to cure the standing defect by adding Imco as a plaintiff. (New Century I, supra, at p. 2.)
DISCUSSION
I. NCC'S APPEAL IS PARTIALLY MOOT
An appeal becomes moot when, through no fault of the respondent, the occurrence of an event renders it impossible for the appellate court to grant the appellant effective relief. (Eye Dog Foundation v. State Board of Guide Dogs for the Blind (1967) 67 Cal.2d 536, 541; In re Jessica K. (2000) 79 Cal.App.4th 1313, 1315-1316.) "'[T]he duty of this court, as of every other judicial tribunal, is to decide actual controversies by a judgment which can be carried into effect, and not to give opinions upon moot questions or abstract propositions, or to declare principles or rules of law which cannot affect the matter in issue in the case before it. It necessarily follows that when, pending an appeal from the judgment of a lower court, and without any fault of the defendant, an event occurs which renders it impossible for this court, if it should decide the case in favor of plaintiff, to grant him any effectual relief whatever, the court will not proceed to a formal judgment, but will dismiss the appeal.'" (Consolidated Vultee Aircraft Corp. v. United Auto. etc. (1946) 27 Cal.2d 859, 863.)
As noted, ante, we have affirmed the judgment in New Century I. To the extent the present appeal is premised upon a reversal in that prior appeal, we cannot grant NCC effective relief. Accordingly, that portion of NCC's appeal is moot and must be dismissed.
II. COURT PROPERLY AWARDED FEES DURING PENDENCY OF FIRST APPEAL
When a judgment has been appealed, the trial court retains jurisdiction to decide matters that are collateral to the judgment. (Code Civ. Proc., § 916, subd. (a).) This includes the power to award attorney fees to the prevailing party. (Pazderka v. Caballeros Dimas Alang (1998) 62 Cal.App.4th 658, 666.)
Moreover, California Rules of Court, rule 3.1702(b)(1) provides that a motion for attorney fees "for services up to and including the rendition of judgment" must be filed within the time for the filing of a notice of appeal. Failure to timely file such a motion may result in a waiver of the right to seek attorney fees. (Hydratec, Inc. v. Sun Valley 260 Orchard & Vinyard Co. (1990) 223 Cal.App.3d 924, 929.)
Thus, not only did the court have the power to award fees while the appeal in New Century I was pending,PII was required to seek its fees within the same time limit as NCC's notice of appeal.
Relying primarily on Butler-Rupp v. Lourdeaux (2007) 154 Cal.App.4th 918, NCC asserts it was premature to determine PII was the prevailing party and award it fees until the appeal in New Century I was decided. This contention is unavailing.
In Walsh v. New West Federal Savings & Loan Assn. (1991) 234 Cal.App.3d 1539, 1547, we rejected the identical argument made by the losing party in that case: "The Walshes further argue New West's request for attorney's fees was 'premature' because a final decision had not yet been 'rendered on appeal.' The argument is inconsistent with statutory authority requiring a prevailing party to move for attorney's fees as an item of cost within a specified period of time after the court enters an order or judgment." We also noted that earlier authority holding attorney fees could not be awarded until an appeal had been resolved was no longer good law because "section 1717 was amended to delete any requirement that a final judgment be entered before fees can be awarded." (Id. at pp. 1547-1548; see also Bankes v. Lucas (1992) 9 Cal.App.4th 365, 368-369 [following Walsh]; Nazemi v. Tseng (1992) 5 Cal.App.4th 1633, 1639 [same].)
Nor does Butler-Rupp v. Lordeaux, supra, 154 Cal.App.4th 918 support NCC's position. That case concerned an award of attorney fees incurred on appeal. The issue there was not whether an award of fees incurred up to the entry of judgment was premature during the pendency of an appeal. Rather, the Court of Appeal was asked to decide whether language in the disposition ordering both sides to bear their own costs on appeal barred either side from later claiming to be the prevailing party on the appeal. (Id. at pp. 922-923, 925-926.)
Likewise, Presley of Southern California v. Whelan (1983) 146 Cal.App.3d 959, upon which NCC also relies, is distinguishable because it involved attorney fees incurred on appeal where the Court of Appeal reversed a grant of summary judgment. Because reversal of the summary judgment was "an interim stage of the litigation" and did not decide who would ultimately win the lawsuit, an award of fees to the prevailing party on the appeal was premature in that case. (Id. at p. 961.) Here, by contrast, a final judgment has been entered, resolving the matter in favor of PII.
For the first time at oral argument, counsel NCC argued that a case pending in the Los Angeles Superior Court, allegedly involving the same parties and seeking rescission of the note, made an award of attorney fees premature and created a danger of "inconsistent rulings." However, NCC has forfeited this issue by failing to address it in its appellate brief. (Lyons v. Chinese Hospital Assn. (2006) 136 Cal.App.4th 1331, 1336, fn. 2.)
Further, there is no merit to this contention. The issues have been resolved in favor of NCC in this action, and it has been determined to be the prevailing party. Nothing that occurs in the Los Angeles litigation, a separate lawsuit in a separate court, will change that result. Accordingly, that litigation has no impact on the court's award of fees in this matter.
III. PII'S APPEAL
A. Fees Incurred in Bankruptcy Proceedings
In Circle Star Center Associates, L.P. v. Liberate Technologies (2007) 147 Cal.App.4th 1203 (Circle Star), a commercial tenant stopped paying rent and filed for bankruptcy. The landlord successfully moved to dismiss the bankruptcy case. Then, the landlord sued the tenant for breach of lease, defamation, and conversion and sought attorney fees based upon a provision in the lease. (Circle Star, supra, at pp. 1206-1207.) The trial court sustained the commercial tenant's demurrer to one cause of action and upon the tenant's motion struck the landlord's claim for attorney fees expended in the bankruptcy court, concluding that the fees were expended in litigating primarily federal law issues. The landlord appealed from the judgment challenging the rulings on the demurrer and motion to strike. (Id. at p. 1208.)
The Court of Appeal agreed with the landlord's contention that it had a "right to pursue the bankruptcy-related fees in state court as a matter of contract because dismissal of the bankruptcy case restored to the parties their preexisting rights and remedies." (Circle Star, supra, 147 Cal.App.4th at p. 1208.) In doing so, the Court of Appeal reasoned: "When a case remains within the jurisdiction of the bankruptcy court, the rule is well settled: A party may not recover attorney fees incurred in litigating purely bankruptcy law issues unless the fees are under a specific provision of the Bankruptcy Code." (Id. at pp. 1208-1209, fn. omitted.) However, this principle does not preclude a party from pursuing the fees incurred in obtaining the dismissal of a bankruptcy proceeding in postbankruptcy, state court contract actions. (Id. at p. 1209.) The landlord's case was not against a bankruptcy estate and the commercial tenant's bankruptcy petition had been dismissed. After the bankruptcy was dismissed, the bankruptcy case was undone and the tenant's debts "restored to the status they were in before it filed for bankruptcy...." (Ibid.) The state court contract action could proceed, as the issue was " 'subject to the general laws, unaffected by bankruptcy concepts.' [Citation.]" (Ibid., italics omitted.) Permitting the landlord "to seek contractual attorney fees incurred in securing the dismissal of [the commercial tenant's] bankruptcy proceeding does not interfere with the uniformity required by federal bankruptcy law or risk conflating federal procedural remedies with state tort lawsuits. Nor does permitting the recovery of contractual attorney fees interfere with the bankruptcy court's control of its proceedings." (Id. at p. 1210.)
Circle Star Center also rejected the argument that "the threat of a state court award of contract-based attorney fees incurred in bankruptcy litigation might discourage some from seeking the protection of the bankruptcy court." (Circle Star, supra, 147 Cal.App.4th at p. 1210.) The appellate court stated that when fees incidental to a bankruptcy are awarded by a state court following a dismissal of a bankruptcy "or with the bankruptcy court's acquiescence that a lawsuit outside of bankruptcy may proceed... they are awarded as a matter of contract to a party who prevails in the state litigation, and they are awarded as an item of costs, not as a penalty." (Ibid., fn. omitted.) Thus, "potential liability for contract-based attorney fees does not have the same disincentive specter that tort liability and damages for misuse of bankruptcy processes would have." (Ibid.; see also Chinese Yellow Pages Co. v. Chinese Overseas Marketing Service Corp. (2008) 170 Cal.App.4th 868, 882, 884-885 ["federal bankruptcy law does not affect the power of a trial court to impose reasonable and necessary attorney fees and costs pursuant to a state statute... after the automatic stay has expired," relying in part on Circle Star.)
Here, the court denied PII's request for attorney fees incurred in seeking relief from stay in the two bankruptcy proceedings based upon its belief there was no California authority authorizing such an award. However, as Circle Star makes clear, the court did have the powerand authority to award such fees in the state court litigation. Moreover, such an award was appropriate under the attorney fee clause of the note because the actions taken by PII in the bankruptcy proceedings were part of PII's attempt to enforce the note and conduct the foreclosure sale pursuant thereto. Accordingly, the court should have awarded the attorney fees incurred by PII in the bankruptcy proceedings, and we reverse that part of the court's order denying an award of such fees and order the court to award an additional $31,010.77 in fees to PII.
We note that NCC did not file a brief in response to PII's cross-appeal, arguing for the first time at oral argument the court did not abuse its discretion in declining to award fees incurred in the bankruptcy proceedings. Accordingly, it has waived the right to challenge PII's entitlement to those fees. (Lyons v. Chinese Hospital Assn., supra, 136 Cal.App.4th at p. 1336.)
B. Fees Award Against Lo Individually
PII also argues that the court should have awarded fees against Lo, the principal of NCC, individually. This contention is unavailing.
It well settled that contractual attorney fees ordinarily may only be awarded as between the parties to the contract containing the attorney fee clause. (Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 545-546; Glynn v. Marquette (1984) 152 Cal.App.3d 277, 281.) Moreover, it is undisputed that Lo was not a party to the note containing the attorney fee clause and not a party to the state court action. Accordingly, he has no obligation to pay PII's attorney fees incurred in enforcing the note.
PII asserts it was appropriate to award fees against Lo as a principal and fiduciary of NCC and Imco, as the bankruptcy court, in sanctioning Lo, NCC and Imco, jointly and severally, "necessarily found that [Lo] and [NCC] may be treated as identical."
However, whether the bankruptcy court had the power to sanction Lo as an individual has no bearing on our analysis of who must bear contractual attorney fees under a contract to which Lo was not a party. As noted, ante, in its motion for attorney fees PII sought to impose fees against Lo individually based upon the bankruptcy court's imposition of sanctions against him, jointly and severally, with Imco and his counsel. Based upon this ruling, PII argues Lo and NCC should be "treated as identical." However, the bankruptcy court never determined that Lo was the alter ego of PII, much less that Lo was the alter ego of NCC. Moreover, PII never submitted evidence in its motion for attorney fees that Lo was the alter ego of NCC. The proper procedure would be for PII, upon remand, if the facts so justify, to seek to enforce the attorney fees award against Lo as a judgment debtor under a theory of alter ego liability. (See Hennessey's Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal.App.3d 1351, 1358; NEC Electronics, Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778.) Without such an evidentiary showing, however, it would be improper to impose liability for attorney fees personally against Lo, who was not a party to the contract containing the attorney fees clause and not a party to the state court litigation in which the fees were sought.
DISPOSITION
NCC's appeal is partially dismissed as moot. The court's order denying fees to PII it incurred in the bankruptcy proceedings is reversed, and the court is ordered to award PII an additional $31,010.77 in attorney fees. In all other respects, the judgment is affirmed. PII shall recover its costs on appeal.
WE CONCUR: McCONNELL, P. J., McINTYRE, J.