2nd Civ. No. B182816 IN THE COURT OF APPEAL, STATE … Opening Brief - Cover and TOC.pdf · SECOND APPELLATE DISTRICT (DIVISION FOUR) ... A Law Corporation 4215 ... 5 Witkin, Summary

2nd Civ. No. B182816

IN THE COURT OF APPEAL, STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT (DIVISION FOUR)

DONALD J. MARKOWITZ; DEBRA W. MARKOWITZ, Plaintiff and Respondent, v. MORDECHAI KACHLON, MONICA KACHLON; BEST ALLIANCE FORECLOSURE AND LIEN SERVICES, Defendants and Appellants. ____________________________________________________________

OPENING BRIEF OF APPELLANT BEST ALLIANCE

FORECLOSURE AND LIEN SERVICES APPEAL FROM JUDGMENT ENTERED FEBRUARY 3, 2005, AND

FROM AMENDED JUDGMENT ENTERED MARCH 30, 2005 ____________________________________________________________

Appeal from the Superior Court of California, County of Los Angeles, LASC Case Nos. BC291979 (cons. w/BC301492)

Honorable Aurelio Munoz, Judge Presiding PHILLIP M. ADLESON, ESQ. SBN: 69957 ADLESON, HESS & KELLY A Professional Corporation 577 Salmar Ave., 2nd Floor Campbell, CA 95008 Telephone: (408) 341-0234 Facsimile: (408) 341-0250 Attorneys for Defendant and Appellant BEST ALLIANCE FORECLOSURE AND LIEN SERVICES

G. ARTHUR MENESES, ESQ. SBN: 105260 BERGER KAHN, A Law Corporation 4215 Glencoe Avenue, 2nd Floor Marina Del Ray, CA 90292 Telephone: (310) 821-9000 Facsimile: (310) 578-6178 Attorneys for Defendant and , Appellant BEST ALLIANCE FORECLOSURE AND LIEN SERVICES

Appellant’s Opening Brief – B182816

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TABLE OF CONTENTS

Table of Authorities.....................................................................................iv

I. INTRODUCTION..................................................................... 1

II. STATEMENT OF FACTS........................................................ 2

III. PROCEDURAL HISTORY...................................................... 6

IV. STANDARD Of REVIEW ..................................................... 11

V. LEGAL ARGUMENT ............................................................ 11

A. The Limited Statutory Role of the Trustee (Authority and Duties) Precluded Best Alliance From Taking Any Steps Other Than Refusing To Act. ................................................................................ 11

(1) A Nonjudicial Foreclosure Is Initiated Solely By Instructions From The Beneficiary Regardless Of Whether The Trustor Concurs Or Consents. ............................ 14

(2) A Trustee Has No Duty To Investigate The Beneficiary’s Declared Default Or To Resolve Disputes Over The Obligation.............. 15

(3) A Substitution of Trustee Was Effective Upon Recording of the Substitution Whether or Not the Trustee Accepted Its Position............ 18

(4) Best Alliance Could Not Rescind the Notice of Default Without the Beneficiary’s Consent. .............................................................. 19

(5) Best Alliance Could Not Reconvey the Deed of Trust Without The Beneficiary’s Consent. .... 19

B. Best Alliance’s Recording and Mailing of a Notice of Default Was An Absolutely Privileged Communication............................................................. 20


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C. The Court Abused Its Discretion By Awarding the Markowitzs’ Attorneys’ Fees and Costs Under the Judgment and Under The Amended Judgment............. 24

(1) Statutory and Contractual Basis For Awarding Attorneys’ Fees.................................. 24

(2) Where The Markowitzs Did Not Prevail On Any Allegations Of Wrongdoing Against Best Alliance, It Was An Abuse Of Discretion To Find The Markowitzs To Be The Prevailing Party As To Best Alliance ......... 26

(3) Legislative Development Since The Valley Bible Center Case. .............................................. 30

(4) Merely Including Claims For Equitable Relief Did Not Make the Markowitzs the Prevailing Party Over Best Alliance Which Was Neither Interested In Nor Opposed To Those Causes of Action. ..................................... 34

(5) In A Dispute Between A Trustor, Beneficiary And Trustee, Each Must Be Viewed Individually To Determine Who Is The Prevailing Party With Respect To The Other Parties. ...................................................... 35

(6) The Markowitzs Did Not Prevail Against Best Alliance Simply Because They Were Entitled To Equitable Relief In Which Best Alliance Was Not Interested And Which It Did Not Oppose. ................................................. 38

(7) A Pragmatic Evaluation Of The Rights And Interests Of The Individual Parties Shows That As To Best Alliance, The Markowitzs Were Not The “Prevailing Parties” .................... 41


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(8) Best Alliance Achieved All Its Litigation Objectives and Is, Therefore, the Prevailing Party .................................................................... 43

VI. CONCLUSION ....................................................................... 44


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TABLE OF AUTHORITIES Page

Cases

1-800 Contacts, Inc., 107 Cal. App. 4th at 587-588.....................................22

Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101..................13

Carver v. Chevron U.S.A., Inc., (2002 ) 97 Cal.App.4th 132, 142 .............11

Claussen v. First American Title Guaranty Co. (1986) 186 Cal.App.3d 429............................................................................................44

Coltrain v. Shewalter (1998) 66 Cal. App. 4th 97 ......................................43

Diediker v. Peelle Financial Corp.,(1998) 60 Cal.App.4th 288 ..................17

Drum v. Bleau, Fox & Assoc. (2003) 107 Cal. App. 4th 1009.....................22

Hatch v. Collins (1990) 225 Cal.App.3d 1104, 1111............................13, 40

Huckell v. Matranga (1979) 99 Cal.App.3d 471.................35, 36, 37, 38, 39

I.E. Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d. 281 ...........................................................................12, 16, 21, 29, 30, 32, 39 Jackson v. Homeowner’s Association Monte Vista Estates – East (2001) 93 Cal.App.4th 773...........................................................................43 Moeller v. Lien (1994) 25 Cal.App.4th 822 ....................................13, 14, 17 Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496 .............................................................................................................29 Paul v. Schoellkopf (2005) 128 Cal.App.4th 147.............................11, 41, 42 Perez v. 222 Sutter St. Partners (1990) 222 Cal. App. 3d 938 .............16, 17 Pettitt v. Levy, (1972) 28 Cal. App. 3d 484, 490 ..................................22, 23 PLCM Group, Inc. (2000) 22 Cal.4th 1084, 1095 ......................................11


v

Residential Capital, LLC v. Cal-Western Reonveyance (2003) 108 Cal.App.4th 807............................................................................................17

Rubin v. Green (1993), 4 Cal. 4th 1187 .......................................................22

Santisas v. Goodin 17 Cal. 4th 599 (Cal. 1998) 621 ....................................44

Sears v. Baccaglio (1998) 60 Cal.App.4th 1136 .........................................37

Silber v. Anderson, (1990) 50 Cal.3d 205 ..................................................23

Swanson v. St. John’s Regional Medical Center, (2002) 97 Cal. App. 4th 245 .........................................................................................................22

Valley Bible Center v. Western Title Insurance Co., 138 Cal.App. 3d 931 ..............................................................................................27, 28, 29 30

Statutes

Civil Code § 47. ..............................................................................21, 22, 31

Civil Code § 1058.5...............................................................................30, 31

Civil Code § 1058.5(b) ...............................................................................31

Civil Code § 1717..................9, 11, 24, 26, 27, 28, 34, 35, 36, 37, 41, 42, 43

Civil Code § 2920........................................................................................31

Civil Code §§ 2920 through 2944.5 ............................................................21

Civil Code § 2924..............................9, 10, 11, 14, 15, 21, 23, 28, 31, 39, 44

Civil Code § 2924b................................................................................17, 31

Civil Code § 2924c(a)(2).............................................................................19

Civil Code § 2924d(d) .................................................................................32

Civil Code § 2924g......................................................................................14

Civil Code § 2924j.................................................................................30, 32

Civil Code § 2924j, adding subparagraph (h) .............................................32


vi

Civil Code § 2924k......................................................................................30

Civil Code § 2924l............................................................8,10, 32, 33, 34, 43

Civil Code § 2934a......................................................................................18

Civil Code § 2941..................................................................................19, 36

Civil Code § 2945.3(h) ................................................................................32

Code of Civil Procedure § 580(d) ...............................................................29

Code of Civil Procedure § 663 ....................................................................10

Code of Civil Procedure § 425.16 ...............................................................43

Other Authorities

4 Miller & Starr, California Real Estate (3rd Ed.) Deeds of Trust & Mortgages ..................................................................................13, 18, 38, 40

Witkin, Summary of California Law...........................................................21

5 Witkin, Summary of California Law (10th Ed.) § 563, p. 820 .................22

Session Laws Stats. 1989, Ch. 849.....................................................................................30

Stats. 1993 ...................................................................................................31

Stats 1996, Ch. 483 §1...........................................................................21, 31

Stats. 2000, Ch. 636 § 6...............................................................................31

Stats. 2001, Ch. 438 § 2...............................................................................31

Stats. 2002, Ch. 809 §1................................................................................31

Stats. 2004, Ch. 177...............................................................................18, 32


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I. INTRODUCTION

This appeal involves a disputed promissory note secured by a deed

of trust between Mordechai Kachlon and Monica Kachlon (“Kachlons” or

“Beneficiary”) and Debra W. Markowitz and Donald J. Markowitz

(“Markowitzs” or “Trustor”). Appellant Best Alliance Foreclosure and

Lien Services (“Best Alliance”) was a substituted trustee under the deed of

trust. Upon instructions of the Kachlons, Best Alliance commenced a

nonjudicial foreclosure by recording the statutorily required notice of

default (“NOD”). After being notified of Markowitzs’ claim that the debt

was satisfied, Best Alliance informed both parties that it would not process

the nonjudicial foreclosure until the parties resolved their dispute.

The Trustor filed a twelve cause of action complaint against a

number of defendants attempting to state causes of action for declaratory

relief, for an injunction, for quiet title, for slander of title and for negligence

against Best Alliance. (JA 16-51.) After a jury trial on the nonequitable

causes of action and a court trial on the three equitable causes of action, the

trial court granted Best Alliance’s motion for judgment notwithstanding the

verdict, setting aside the jury verdict for negligence. While finding no

wrongdoing on Best Alliances’ part, the trial court nevertheless entered an

amended judgment, leaving intact a prior award of attorneys’ fees and costs

which was joint and several against the Kachlons and against Best Alliance.

Best Alliance was then left in the anomalous position of having done

nothing wrong, with no finding of breach of contract or tortious conduct by

Best Alliance, yet facing an attorneys’ fees award of over $200,000.00.

Clearly, this unjust result is not supported by the law. Best Alliance

appeals from the judgment and amended judgment.


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II. STATEMENT OF FACTS

In April of 1998, Donald and Debra Markowitz, then husband and

wife, agreed to rent and subsequently bought a home at 5322 Leghorn

Avenue, Sherman Oaks, California (“the Property”) from Mordechai and

Monica Kachlon, husband and wife. (JA at 1-5 and 18; RT at 1046-1049.)1

Mr. Kachlon, a licensed contractor, was in the midst of renovating the

Property. It was agreed that the Markowitzs would rent the Property for a

time to permit both the completion of repairs and to arrange purchase

financing. (RT at 996-997, 1045-1051, and 1202-1207; JA at 137-146) The

purchase transaction was completed in September of 1998. (JA at 18.) As

part of the purchase price, the Markowitzs agreed to give the Kachlons a

$53,000 promissory note (“Note”) secured by a deed of trust on the

Property. (“Deed of Trust”; JA at 18.)

Within weeks of the Markowitzs’ moving into the Property in April

of 1998, Ms. Markowitz and Mr. Kachlon began a love affair that lasted the

next several years. (RT at 1003-1004 and 2237-2239; JA at 108.) Over this

same period of time the Markowitzs and the Kachlons entered into a series

of agreements and transactions that lead to the disputes involved in this

case.

The Markowitzs and Mr. Kachlon entered into a verbal agreement

for Mordechai to perform home improvements to the Property for which

the Markowitzs would pay, including construction of a “floating”

swimming pool with a “Jacuzzi” and waterfall, a guest house, a fireplace,

1 The following abbreviations shall be used herein to refer to the record: Joint Appendix = “JA” and Reporter’s Transcript = “RT” followed by a colon and line numbers where applicable.


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an automatic (electric) gate and substantial landscaping. (RT at 996-997;

JA at 137-146.) The parties then agreed that the Markowitzs would give

Mr. Kachlon the use of a Jaguar owned by the Markowitzs. (RT at 990-

991; JA at 8-23.) The Markowitzs would continue to make loan, insurance,

tax, and registration payments on the car which would then be credited

against the $53,000 purchase money Note. (RT 18-23; RT 990-991.)

Ms. Markowitz, who is an attorney, agreed to provide legal services

to Mr. Kachlon. (RT at 977-981; JA at 137-146.) Mr. Kachlon agreed to

loan Ms. Markowitz additional sums of money. (JA at 4-5, 18-24 and 141-

142.) On May 28, 2002, the Markowitzs and the Kachlons signed a

“reconciliation agreement” stating that the original $53,000 note “shall be

reduced by $41,000.00 to reflect the payments and/or credits already

received by Kachlon from Markowitz.” (JA at 58 and 2024.)

On March 12, 2003, Mr. Kachlon sued the Markowitzs over the

home improvement work he allegedly performed. (JA 1-5). On June 2,

2004, Mr. Kachlon filed a first amended cross-complaint against the

Markowitzs that included a legal malpractice claim against Ms. Markowitz

arising from her legal representation of him, asserting that her

representation effectively voided other agreements between them. (JA 136-

154.) The Markowitzs maintained that the “reconciliation agreement”

coupled with a $12,000.00 payment to Kachlon from a line of credit

obtained by Mr. Markowitz satisfied the balance of the $53,000 Note. (JA

at 18-25, 83 and 128-134.) The Kachlons maintained that the payment

simply reflected an effort to permit the Markowitzs to make a partial

payment on that debt from Mr. Markowitz’s line of credit. (RT at 1256-

1254; JA at 143-145.) The Kachlons claimed that the home improvement

agreement was for a lump sum of $250,000. (RT at 1202-1206 and 1564-


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1566.) The Markowitzs claimed that the only actual agreed upon price was

the swimming pool for $25,000 and the balance of the work to be paid on a

“time and materials” basis. (RT at 239-2241.)

In addition to these “business” dealings between the other parties,

their personal relationships also led to other disputes, all of which were

aired in the trial below. For example, after Ms. Markowitz terminated her

affair with Mr. Kachlon and began dating another man, her personal

relationship with Mr. Kachlon lead to further conflicts. (RT at 2767-2775

and 4010-4026.) Ms. Markowitz accused Mr. Kachlon of harassing her,

throwing acid on her car, stalking her, and threatening her physically,

financially, and emotionally. (RT at 4010-4026 and 4865-4867.)

Ultimately Ms. Markowitz sought and obtained a restraining order against

Mr. Kachlon. (RT at 4014-4015.)

Mr. Markowitz brought an action to dissolve his marriage with Ms.

Markowitz. (RT at 2761-2762.) Allegedly, this dissolution action, coupled

with Ms. Markowitz’s termination of her affair with Mr. Kachlon, lead to

Kachlon soliciting Mr. Markowitz to assist in efforts to “ruin” or destroy

Ms. Markowitz financially, professionally and emotionally. (RT at 2767-

2775.)

In January of 2002, a dispute between the Markowitzs and the

Kachlons arose over transferring title of the Jaguar and the amount due

under the Note. (JA at 19-20.) Allegedly to obtain leverage in this dispute,

on May 7, 2002, the Kachlons commenced a foreclosure action alleging

that the Markowitzs were in default on the Note. (JA at 20.) Before June of

2003, the Kachlons allegedly commenced two nonjudicial foreclosures on


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the Deed of Trust. On June 6, 2003, Best Alliance was substituted in as

trustee under the Deed of Trust. (JA at 24; RT at pp. 3904-3906.)2

It is in the context of this long and tortured story (which makes

“Desperate Housewives” seem like a Sunday school story) that Best

Alliance become involved in June of 2003. The Kachlons substituted Best

Alliance in as trustee (JA at 24; RT at pp. 3904-3906) and executed and

delivered to it a Declaration of Default stating that the debt secured by the

Deed of Trust was in default and instructing Best Alliance to commence a

nonjudicial foreclosure. (RT at 3906-3911; 3919 and 4849; JA at 1765.)

The Kachlons provided Best Alliance with copies of the Note and of the

Deed of Trust, but not the originals. (Id.) Best Alliance then obtained a

Trustee’s Sale Guaranty (“TSG”), a title company product that informs the

trustee of the essential information (e.g., vested owner, persons entitled to

notice etc.) necessary to conduct a nonjudicial foreclosure. (RT at 3929.)

No prior reconveyance having been recorded, the TSG reflected that the

Deed of Trust was still of record. (RT at 3929.)3 Based upon a valid

substitution of trustee and a declaration of default from the beneficiary of

2 Best Alliance is a company that provides services as a trustee or substitute trustee under deeds of trust with a power of sale. (JA at 17 ¶ 6.) 3 Defendant, Fidelity National Title Company, which for failure to reconvey, obtained a nonsuit after Ms. Markowitz’s counsel admitted that Ms. Markowitz had signed Ms. Kachlon's name to the request for reconveyance that Mr. Kachlon later used to obtain the release from escrow of the $12,000 out of Mr. Markowitz’s line of credit. Because Ms. Markowitz "forged" Ms. Kachlon’s signature on the request for reconveyance, the trial court found that Fidelity could not be held liable for failing to reconvey based upon a forged document. Because of this conduct, there was no reconveyance deed of record to put Best Alliance on notice that the Deed of Trust was extinguished. (JA at 23-25).


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the deed of trust of record, Best Alliance recorded and mailed a Notice of

Default (“NOD”; JA at 2036-38.)

Within ten days of Best Alliance recording the NOD, Gary Kuist,

counsel for the Markowitzs, sent Best Alliance a letter detailing the various

transactions and dealings between the Markowitzs and the Kachlons that

supported his conclusion that the underlying debt was not in default. He

threatened litigation if the foreclosure were not withdrawn. (RT at 3923-

3929; JA at 2039-2045.)

Sid Richman, Best Alliance’s President, communicated Mr. Kuist’s

claims to Mr. Kachlon who disputed the claim that the debt was satisfied.

(RT at 3937-3939, and 3954-3955.) In light of the disputed obligation, Mr.

Richman advised both Mr. Kuist and the Kachlons that Best Alliance would

put its file “on hold” until the dispute was resolved. (RT at 3932-3933,

3947, 3953 and 3956.) There was no evidence offered or admitted below

that Best Alliance ever took, threatened, or promised any further action in

connection with the foreclosure after recording the NOD. (RT at 3948.)

Recording the NOD was Best Alliance’s only connection with this

case, and the only action it ever took. (JA at 24 and 1520; RT at 3948.)

Best Alliance was not involved in the series of dealings and conflicts

between the Kachlons and the Markowitzs which spanned several years out

of which this action arose. (JA at 18-24). Nothing in the record indicates

Best Alliance was even aware of these dealings prior to recording the NOD.

III. PROCEDURAL HISTORY

Mr. Kachlon filed case no. 291979 against the Markowitzs on March

12, 2003, alleging failure to pay for the home improvements to the


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Property. (“Home Improvement Action”; JA at 1-5.) Best Alliance was

never a party to the Home Improvement Action.

On August 27, 2003, the Markowitzs filed an action (case no.

301492) against the Kachlons, Best Alliance, City National Bank, and

Fidelity National Title Company (“Fidelity”) containing twelve causes of

action. (JA at 16-51.) The Markowitzs’ complaint sought: (1) declaratory

relief (canceling note and to reconvey deed of trust); (2) an injunction

against the foreclosure; (3) quiet title; (4) statutory damages for failure to

reconvey; (5) slander of title; (6) negligence; (7) damages for breach of

fiduciary duty; (8) damages for negligence; (9) statutory damages; and,

(10) damages for intentional infliction of emotional distress. (Id.) The only

causes of action that arguably applied to Best Alliance were the equitable

causes of action (declaratory relief, injunction and quiet title), the slander of

title action, and the negligence action. (Id.)

The Markowitzs sought damages from Best Alliance in their causes

of action for slander of title and negligence based upon the contention that

Best Alliance recorded the NOD after receiving copies (not originals) of the

Note and Deed of Trust from the Kachlons and because Best Alliance failed

to rescind the notice of default or to reconvey the Deed of Trust after

receiving the letter from the Markowitzs’ attorney. (RT at 945-946; JA at

23-25 and 34-38.) The Markowitzs argued that had Best Alliance requested

the original note, it would have discovered that the Kachlons were no

longer in possession of it because it was surrendered in exchange for the

$12,000 they received from Mr. Markowitz from his line of credit. (JA at


8

34-38.) 4 The Markowitzs asserted that the Kachlons lied about the debt

being in default and sought compensatory and punitive damages from them.

(JA at 30-38.)

The two cases were consolidated on October 3, 2003. (JA at 76.) On

June 2, 2004, the Kachlons amended their complaint alleging, among other

things, legal malpractice arising from Ms. Markowitz’s representation of

Mr. Kachlon. (JA 135-154.)

After Best Alliance told both the parties that it refused to take any

further actions to process the nonjudicial foreclosure until their dispute over

the obligation was resolved (RT at 3932-33, 3947-48, 3953 and 3956) and

before Best Alliance appeared in the case, the Markowitzs sought and

obtained a temporary restraining order and then a preliminary injunction

enjoining the Kachlons and Best Alliance from continuing the nonjudicial

foreclosure. (JA at 72-75 and 85-86.) Best Alliance did not take sides with

respect to the application for the injunction and it did not file opposition to

the Markowitzs’ application. The interim relief was granted on November

24, 2003. (JA at 85-86.) Best Alliance answered the Markowitz complaint

on January 23, 2004, asserting that it was a disinterested party under Civil

Code § 2924l. (JA at 97- 98.)

A jury trial commenced on September 17, 2004 and, after

presentation of evidence to the jury, Best Alliance brought a motion for a

nonsuit. (RT at 5118-5133.) The motion was granted as to the Sixth Cause

of Action for slander of title but denied as to the negligence cause of action.

4 Of course, had Ms. Markowitz not forged the request for reconveyance that Fidelity did not honor, a reconveyance deed would have been recorded putting the world on notice that the Deed of Trust was extinguished.


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(RT at 5133:9-13.) The jury rendered its verdict in a Special Verdict Form,

awarding $30,000.00 in damages to each of the Markowitzs against Best

Alliance. (JA at 409-418.)

All of the parties except Best Alliance submitted briefs on the

equitable issues. (JA at 420-441, 642-711, 712-806, 812-815, and 816-

827.) On the equitable actions, the trial court declared the Note satisfied,

the Deed of Trust discharged, ordered that the Deed of Trust be

reconveyed, issued a permanent injunction against further foreclosure and

quieted title to the Property in the Markowitzs. (RT at B-1 – B-11; JA at

420-441 and 971-972.)

The Markowitzs sought attorney’s fees under the terms and

provisions of the Note and Deed of Trust against the Kachlons and Best

Alliance. (JA at 27-30.) The trial court ruled that the Markowitzs were the

“prevailing parties” under Civil Code § 1717, and thus were entitled to an

award of attorney’s fees as against Best Alliance based on the attorneys’ fee

provision in the Deed of Trust. (JA at 972, 978, 998-1011.)

On March 30, 2005, Best Alliance made a motion for judgment

notwithstanding the verdict (“JNOV”; JA at 1084-1087 and 1103-1123.)

Best Alliance also brought a motion to tax costs, including the attorneys’

fee award. (JA at 1088-1100.) Best Alliance argued that Civil Code §

2924 provided it immunity from liability because recording of the NOD

was privileged. (JA at 1112-1114.) Best Alliance also argued that it had no

duty to investigate the validity of the underlying debt before commencing

foreclosure, and, in particular, that it had no duty to obtain the original

Note. (JA at 1114-1119.) In addition, Best Alliance challenged the finding

that the Markowitzs were the prevailing parties entitled to attorneys’ fees

under section 1717. (JA at 1119-1121 and 1323-1328.)


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While granting Best Alliance’s motion for JNOV (JA at 1519-1520),

the trial court denied the motion to tax costs as to the attorneys’ fees. (JA at

1427.) The Court held that Best Alliance’s only act - recording the NOD -

was privileged under Civil Code § 2924 and that the negligence claim

against Best “should never have gone to the jury”. (JA at 1519-1520.)

Despite this ruling, on May 30, 2005, the trial court entered a new,

amended judgment that, while deleting the award of damages against Best

Alliance, maintained the award of over $220,000.00 in attorneys’ fees and

costs against Best Alliance, jointly and severally with the Kachlons. (JA at

1522-1530.)

On the same day the trial court granted Best Alliance’s motion for

JNOV, reasserting the affirmative defense in its answer, Best Alliance filed

a Declaration of Non-Monetary Status under Civil Code § 2924l. (JA at

1509-1518.) By virtue of this declaration, and in accordance with section

2924l, Best Alliance reasserted its lack of interest in the Property and in the

parties’ disputes relating to the Note and Deed of Trust. Consistent with

this declaration, Best Alliance took no action to oppose the Markowitzs’

claims for equitable relief.

Best Alliance appealed the judgment filed February 3, 2005 (JA

1890), and also the May 30, 2005 amended judgment which was left in

place when the trial court denied its Civil Procedure § 663 motion to vacate

the amended judgment. (JA at 1632, 1970.) Best Alliance argued that it

was inconsistent to find the Markowitzs the “prevailing parties” and to

award them attorneys’ fees given the trial court’s recognition of Best

Alliance’s statutory immunity, lack of interest in, and lack of opposition to,

the equitable causes of action. It argued that these facts warranted vacating

the judgment of fees and costs as to Best Alliance. (JA at 1642-1649 and


11

1955-1960.) However, the trial court denied Best Alliance’s motion to

vacate.

IV. STANDARD OF REVIEW

The award of attorneys’ fees against Best Alliance following grant

of JNOV should be reviewed de novo. As this Court recently explained:

“We review de novo an award of attorney fees under a contractual

provision where, as here, extrinsic evidence has not been offered to

interpret the contract, and the facts are not in dispute.” Paul v. Schoellkopf,

128 Cal.App.4th 147 (2005), citing Carver v. Chevron U.S.A., Inc., 97

Cal.App.4th 132, 142 (2002). Here, no extrinsic evidence was offered to

interpret the attorney fee provision in the Deed of Trust on which the fee

award was based, nor was there any dispute over the fact that Best Alliance

only recorded a notice of default.

The determination of whether the amount of attorneys’ fees awarded

was reasonable as required by Civil Code section 1717 is reviewed for

abuse of discretion. PLCM Group, Inc. 22 Cal.4th 1084, 1095 (2000.)

V. LEGAL ARGUMENT A. The Limited Statutory Role of the Trustee (Authority and

Duties) Precluded Best Alliance From Taking Any Steps Other Than Refusing To Act.

All that occurred in this case was that the record beneficiary

substituted in Best Alliance as trustee and gave it a declaration of default

under the Deed of Trust. Pursuant to the Beneficiary’s instruction, Best

Alliance recorded and mailed a notice of default, required by statute to

commence a nonjudicial foreclosure. (Civ. Code § 2924.) When informed

by the Trustor of their claim that the underlying obligation was satisfied,

Best Alliance refused to further process the nonjudicial foreclosure until the


12

Beneficiary and the Trustor resolved their dispute. Notwithstanding Best

Alliance’s position, the Markowitzs sought a preliminary injunction which

Best Alliance did not oppose. While the Markowitzs’ demanded that the

foreclosure be rescinded and that the Deed of Trust be reconveyed, these

were actions that Best Alliance could not take unilaterally without

instructions from the beneficiary or a court order.

The Markowitzs, and to some extent, the trial court, fail to

understand the role and duties of a trustee and other parties under a deed of

trust and the significant public policy underlying the comprehensive

legislative scheme regulating nonjudicial foreclosure. As noted by the

California Supreme Court in I.E. Associates v. Safeco Title Ins. Co. (1985)

39 Cal.3d. 281:

"The rights and powers of trustees in nonjudicial foreclosure proceedings have long been regarded as strictly limited and defined by the contract of the parties and the statutes. [Citations.] No case holding that a trustee of a deed of trust has any additional common law duties with respect to notice has been cited or found. . . .

“In short, there is no authority for the proposition that a trustee under a deed of trust owes any duties with respect to exercise of the power of sale beyond those specified in the deed and the statutes. There are, moreover, persuasive policy reasons which militate against a judicial expansion of those duties. The nonjudicial foreclosure statutes--an alternative to judicial foreclosure--reflect a carefully crafted balancing of the interests of beneficiaries, Trustor, and trustees. Beneficiaries, of course, want quick and inexpensive recovery of amounts due under promissory notes in default. Trustor, on the other hand, need protection against the forfeiture of valuable property rights. Trustees, the middlemen, need to have clearly defined responsibilities to enable them to discharge their duties efficiently and to avoid embroiling the parties in time-consuming and costly litigation. . . [Citations.]"


13

(Id., at pp. 287-288, emphasis added; and Moeller v. Lien (1994) 25

Cal.App.4th 822, 829). The comprehensive legislative scheme regulating

nonjudicial foreclosure is intended to strike a balance between the rights

and interests of the trustor, beneficiary and the trustee. As stated in 4

Miller & Starr, California Real Estate (3rd Ed.) Deeds of Trust &

Mortgages, § 10:3:

“As an agent for the parties, the trustee of a deed of

trust is a passive, special agent with limited powers.[fn. om.] Its agency is only for a specific, limited purpose: conducting a sale of the property upon the trustor’s default, [fn. om.] or the ministerial act of reconveying upon the satisfaction of the debt. [fn. om.] . . ..

“The trustee is not a fiduciary and does not have general fiduciary duties to either the trustor or beneficiary other than the general obligation of acting honestly in the conduct of its limited duties. [fn. Om.]”

(Id., at pp. 20-21, and see pp. 18-19; Hatch v. Collins (1990) 225

Cal.App.3d 1104, 1111-1114; emphasis added). The Markowitzs would

have the trustee act as judge and jury regarding disputes involving the

validity of the obligation. This is far beyond the highly limited scope of the

trustee’s duties under a deed of trust. A trustee under a deed of trust is not

a true agent, not a fiduciary and performs, on the whole, only ministerial

acts. (Id. and see, Abdallah v. United Savings Bank (1996) 43 Cal.App.4th

1101, 1109.) Moeller v. Lien, supra, delineated the specific duties of a

trustee:

“The statutory scheme can be briefly summarized as follows. Upon default by the trustor, the beneficiary may declare a


14

default and proceed with a nonjudicial foreclosure sale. [ct. om.] The foreclosure process is commenced by the recording of a Notice of Default and Election to Sell by the trustee. [ct. om.] After the Notice of Default is recorded, the trustee must wait three calendar months before proceeding with the sale. [ct. om.] After the three month period has elapsed, a Notice of Sale must be published, posted and mailed 20 days before the sale and recorded 14 days before the sale. [ct. om.] The trustee may postpone the sale at any time before the sale is completed. [ct. om.] If the sale is postponed, the requisite notices must be given. [ct. om.] The conduct of the sale, including any postponements, is governed by Civil Code section 2924g. [ct. om.] The property must be sold at public auction to the highest bidder. [ct. om.]”

(Moeller v. Lien, supra at 830).

(1) A Nonjudicial Foreclosure Is Initiated Solely By Instructions From The Beneficiary Regardless Of Whether The Trustor Concurs Or Consents.

The trustee’s duties regarding notice are strictly limited by the

contract (deed of trust) and by the statutes. (Civ. Code §§ 2924 et seq.) The

deed of trust, which is the trustor’s instructions to the trustee upon creating

the deed of trust, provides, in pertinent part:

“To protect the Security of This Deed of Trust, Trustor Agrees:

11. That upon default by Trustor in payment of any indebtedness secured hereby or in performance of any agreement hereunder, Beneficiary may declare all sums secured hereby immediately due and payable by delivery to Trustee of written declaration of default and demand for sale and of written notice of default and of election to cause to be sold said property, which notice Trustee shall cause to be filed for record.”

(JA at 2032.) This is the trustor’s express instruction to the trustee to take

instructions regarding default and initiating a foreclosure solely from the


15

beneficiary. Nothing requires that the trustee investigate the truth or

accuracy of the beneficiary’s declaration of default. Civil Code § 2924

provides, in pertinent part, that:

“[T]he trustee, mortgagee, or beneficiary, or any of their authorized agents shall first file for record, . . . , a notice of default, . . ., and setting forth the nature of each breach actually known to the beneficiary and of his or her election to sell or cause to be sold the property to satisfy that obligation . . . secured by the deed of trust . . . that is in default, . . ..”

The declaration of default must be “actually known by the beneficiary”,

not by the trustee! Civil Code § 2924 also sets forth the contents of the

NOD. Here, after substituting Best Alliance in as trustee, the Kachlons, as

Beneficiary, gave Best Alliance a written instruction and declaration of

default and demand for sale. (RT at 3906-11, 3919 and 4849; JA at 1765.)

The Deed of Trust provides that “Trustee shall cause [a NOD] to be filed

for record.” (JA at 2032.) Best Alliance was required to commence and

process a nonjudicial foreclosure solely upon the instructions of the

Beneficiary. It has no duty to investigate the underlying declaration of

default, to determine whether the trustor disputes the default or to resolve

any dispute between the parties.

(2) A Trustee Has No Duty To Investigate The Beneficiary’s Declared Default Or To Resolve Disputes Over The Obligation.

If a trustee were charged with verifying the default or with resolving

disputes between a trustor and beneficiary over the underlying obligation or

over the nature and extent of the breach, all trustors would dispute the

obligation or breach and no trustee’s sale would ever be completed. That

is, trustees would fear being held liable for damages for huge attorneys’


16

fees and costs awards even where, as here, the trustee refused to proceed to

process the nonjudicial foreclosure until the dispute between the Trustor

and Beneficiary was resolved by a court. The net result would be to

destroy the trustee’s role as a middleman and to disturb the careful balance

between the parties created by the comprehensive legislative scheme. If

trustees are unwilling to serve due to the liability, there will be a flood of

judicial foreclosures which are slower, more expensive and which drain

valuable judicial resources.

As noted by the Supreme Court: “[T]here is no authority for the

proposition that a trustee under a deed of trust owes any duties with respect

to exercise of the power of sale beyond those specified in the deed and the

statutes. (I.E. Associates v. Safeco Title Ins. Co., supra at 288.)5 The Court

held that the trustee did not have a common law duty to investigate the

trustor’s address when the address on the deed of trust was the “last known

address” of the trustor and where the trustor had moved without recording a

request for notice of default listing its new address. (Id., at 288-289.) The

courts of appeal have consistently followed the Supreme Court’s 1985

holding in I.E. Associates.

In Perez v. 222 Sutter St. Partners (1990) 222 Cal. App. 3d 938, the

issue was whether a trustee was required to give notice to easement holders

of record who had not recorded a request for NOD. Observing that the

Legislature had specified who is entitled to notice, the court of appeal held

5 While certain common law duties exist relating to the actual auction sale (not totally preempted by statute), these duties are irrelevant in the instant case which only involves the recording and mailing of an NOD. (I.E. Associates v. Safeco Title Ins. Co., supra, at 285, fn. 3.)


17

that requiring trustees to give notice to all easement holders of record

"would impose untold risks and burdens on trustees, marking a dramatic

departure from the Legislature's practice of balancing the interests involved.

[Citation.]" (Diediker v. Peelle Financial Corp., Supra at p. 949 citing the

Perez decision.)

In Diediker v. Peelle Financial Corp. (1998), 60 Cal. App. 4th 288,

295, the court of appeal noted that the Legislature in Civil Code § 2924b

had designated the specific persons entitled to be mailed notice of sale. It

refused to impose upon trustees a common law duty of due care to

purchasers at a trustee’s sale to give the IRS a notice of sale where the IRS

had recorded tax liens against the secured property. (Id., at 294-297.)

Similarly, in Moeller v. Lien, 25 Cal. App. 4th 822 (1994), the second

district held that the comprehensive legislative scheme provided an

exhaustive scheme for curing foreclosures and, therefore, rejected an

attempt to apply general provisions against forfeitures which are not a part

of that comprehensive statutory framework. (Id., at 834.)

In Residential Capital, LLC v. Cal-Western Reconveyance (2003)

108 Cal.App.4th 807) the court of appeal held that the trustee could not be

liable for negligence to a third party purchaser for failing to verify the status

of a pending foreclosure (i.e., whether it had been cured) with the

beneficiary before conducting the trustee’s sale. (Id., at 825.)

As the trial court obviously understood in granting Best Alliance’s

motion for JNOV on the negligence cause of action, Best Alliance had no

duty to investigate the Beneficiary’s declaration of default before recording

and mailing the NOD.


18

(3) A Substitution of Trustee Was Effective Upon Recording of the Substitution Whether or Not the Trustee Accepted Its Position.

A beneficiary may unilaterally substitute a new trustee subject to

certain restrictions in the deed of trust or in the statutes. (JA at 2032 DOT ¶

12; Civ. Code § 2934a; 4 Miller & Starr, Cal. Real Estate (3rd Ed.), Deed of

Trust, § 10:8, pp. 36-39). Upon recordation of the substitution of trustee,

the substituted trustee succeeds to “all the powers, duties, authority, and

title granted and delegated to the trustee named in the deed of trust.” (Civ.

Code § 2934a(a)(4).)6 The substituted trustee does not have to consent to

or accept the trust appointment as a condition of the substitution becoming

effective. (Civ. Code § 2934a(d); 4 Miller & Starr, Supra § 10:4, p. 22.)

The trustee itself does not have the right to substitute in a new trustee if it

does not want to serve. (4 Miller & Starr, supra, § 10:9, p.41). Once

appointed, the only thing a trustee can do is to refuse to act under the

deed of trust. Often, as here, the substituted trustee will not know at the

time of its substitution as trustee of any dispute between the beneficiary and

the trustor until after the NOD has been recorded. After recording the NOD

on June 6, 2003, around June 16, 2003, Best Alliance was notified of the

Markowitzs’ claim. It then told the parties that it would not continue with

the foreclosure until the parties resolved their dispute. What else could the

trustee do? While the Markowitzs asserted that Best Alliance should have

rescinded the NOD and reconveyed the Deed of Trust, all it legally could

do was refuse to continue processing the nonjudicial foreclosure.

6 Changes to the Code effective on January 1, 2005, make the substitution effective from the date the substitution is executed. (2004 Stats Ch. 177).


19

(4) Best Alliance Could Not Rescind the Notice of Default Without the Beneficiary’s Consent.

Civil Code § 2924c(a)(2) provides, in pertinent part:

“If the trustor, . . ., or other person authorized to cure the default pursuant to this subdivision does cure the default, the beneficiary . . . shall, within 21 days following the reinstatement, execute and deliver to the trustee a notice of rescission which rescinds the declaration of default and demand for sale and advises the trustee of the date of reinstatement. The trustee shall cause the notice of rescission to be recorded within 30 days of receipt of the notice of rescission and of all allowable fees and costs.”

Absent a written instruction from the Beneficiary or a court order,

Best Alliance could not rescind the NOD which was recorded prior to it

being informed of the Markowitzs’ and Kachlons’ dispute.

(5) Best Alliance Could Not Reconvey the Deed of Trust Without The Beneficiary’s Consent.

Once Best Alliance was substituted in as the new trustee under the

Deed of Trust, even if it believed that the Trustor had satisfied the

obligation, it could not reconvey under the terms of the Deed of Trust or

statute without the written instruction of the Beneficiary.

The Deed of Trust constituted the Trustor instruction at the time it

was executed to the trustee to reconvey only “upon written request of

Beneficiary stating that all sums secured [by the Deed of Trust] have been

paid, . . ..” (JA at 2032 DOT, ¶ 9.) Without a written instruction from the

Beneficiary, Best Alliance was not authorized to, and was powerless to,

reconvey the Deed of Trust. Civil Code § 2941 provides, in pertinent part:


20

“(b)(1) Within 30 calendar days after the obligation secured by any deed of trust has been satisfied, the beneficiary . . . shall execute and deliver to the trustee the original note, deed of trust, request for a full reconveyance, and other documents as may be necessary to reconvey, or cause to be reconveyed, the deed of trust.

(A) The trustee shall execute the full reconveyance and shall record or cause it to be recorded in the office of the county recorder in which the deed of trust is recorded within 21 calendar days after receipt by the trustee of the original note, deed of trust, request for a full reconveyance, the fee that may be charged pursuant to subdivision (e), recorder's fees, and other documents as may be necessary to reconvey, or cause to be reconveyed, the deed of trust.”

(Emphasis added). Under the plain meaning of the statute, Best

Alliance was powerless to reconvey the Deed of Trust until the Beneficiary

fulfilled the conditions precedent set forth above. It is undisputed that none

of the preconditions occurred which would have empowered Best Alliance

to reconvey the Deed of Trust. (JA at 25-28.) Best Alliance simply could

do nothing unless it was instructed by the Beneficiary or pursuant to a valid

and final court order.

B. Best Alliance’s Recording and Mailing of a Notice of Default Was An Absolutely Privileged Communication.

The Markowitzs contended that Best Alliance was negligent in

performing its duties as a foreclosure trustee: (i) by failing to obtain the

original (instead of a copy) of the Note and Deed of Trust before recording

the NOD; and (ii) by failing to record a rescission of the NOD or by failing

to reconvey the Deed of Trust once it was notified of the Markowitzs’

claimed that the obligation had been satisfied. The jury verdict of


21

negligence against Best Alliance was against the law because Best

Alliance’s conduct in recording and mailing the NOD was absolutely

privileged. The trial court correctly granted Best Alliance’s motion for a

JNOV on the negligence cause of action. In fact, Best Alliance should

never have been put through the jury trial as this same issue was raised in

its motion for a nonsuit. (RT at 5118-5133.)

Clearly addressing the very type of case that is before this Court in

the instant case, the legislature amended Civil Code § 2924 in 1996 to

provide:

“The mailing, publication, and delivery of notices required herein, and the performance of the procedures set forth in this article, shall constitute privileged communications within Section 47.”

(Stats 1996 Ch. 483 §1; Emphasis Added.) The “Article” referred in this

amendment covers Civil Code §§ 2920 through 2944.5. Recording and

mailing of the NOD is one of the procedures set forth in Civil Code § 2924.

Obviously, the Legislature was attempting to amend the comprehensive

legislative scheme relating to nonjudicial foreclosure to continue to “reflect

a carefully crafted balancing of the interests of beneficiaries, trustors, and

trustees” mentioned in I.E. Associates v. Safeco. (I.E. Associates v. Safeco,

supra, at 288.) There was no reason for the above amendment other than to

protect trustees from being dragged into disputes between Trustor and

beneficiaries in cases such as the one here where the trustee is being sued

solely for performing acts as trustee pursuant to Civil Code §§ 2924 et seq.

As noted in Witkin, Summary of California Law “[s]tatutes outside

C.C. 47 may provide that certain matters are absolutely privileged under

that provision. Thus the mailing, publication, and delivery of notices of


22

default or of sale under a deed of trust . . . and the performance of related

procedures, are deemed privileged communications within C.C. 47. (C.C.

2924.)” (5 Witkin, Summary of California Law (10th Ed.) § 563, p. 820.)

The Markowitzs can attempt to plead around this privilege, but regardless

of the pleading contortions in which they engage, they are still suing Best

Alliance for the simple act of recording and mailing an NOD pursuant to

the instructions of the Beneficiary as provided in the Deed of Trust.

The privilege that applies to communications made in connection

with a proceeding authorized by law is absolute. (Rubin v. Green (1993), 4

Cal. 4th 1187, 1193-1194; Drum v. Bleau, Fox & Assoc. (2003) 107 Cal.

App. 4th 1009, 1021.) The recordation of notices regarding a potential

interest in real property falls within the purview of the absolute privilege of

Civil Code § 47. (Drum, supra at 1028 n.9 [a lien recorded against real

property is, at its core, a notice to the world of a potential interest in the

property]; Swanson v. St. John’s Regional Medical Center (2002) 97 Cal.

App. 4th 245, 249 [“Lien notices authorized by law are protected by the

litigation privilege.”].) Moreover, steps taken in preparation of the

privileged communication are absolutely privileged as well. (Rubin, supra

at 1194-1196); 1-800 Contacts, Inc., 107 Cal. App. 4th at 587-588; Pettitt v.

Levy (1972) 28 Cal. App. 3d 484, 490-491. The courts have extended the

privilege to cover such activity because “the fear of being harassed

subsequently by derivative tort actions” arising from steps taken in

preparation of the privileged communication would “chill” protected

communication. (Rubin, supra at 1194-1195; Pettitt v. Levy, supra at 490-

491.) In order to assure the broadest protection to privileged

communications, the courts have made clear that the absolute privilege

constitutes a defense to all tort claims, except for a malicious prosecution


23

claim. (Pettitt v. Levy, supra at 489; Silber v. Anderson (1990) 50 Cal.3d

205, 212.)

Here, the undisputed evidence at trial established that: (i) Best

Alliance prepared, recorded and mailed the NOD based upon the

instructions and upon information provided to it by the Beneficiary, the

Kachlons (JA at 2036 and RT at 4848-4849); (ii) on June 16, 2003,

Attorney Kuist advised Best Alliance that the Markowitzs disputed the

existence of the underlying secured debt (JA at 2039-2045 and RT at 3923-

3930); (iii) upon notice of the existence of the dispute Best Alliance

notified Mr. Kachlon and Attorney Kuist that no further foreclosure steps

would be taken until the dispute was resolved (RT at 3932-3933, 3947,

3953 and 3956); and (iv) no further foreclosure steps were taken to pursue

the nonjudicial foreclosure. (RT at 3948).

The preparation, mailing and recordation of the NOD was absolutely

privileged under Civil Code §2924. Because that privilege immunized Best

Alliance from liability on all tort claims (except for a claim of malicious

prosecution), the court below properly granted Best Alliance’s JNOV. Best

Alliance was dragged into this lawsuit by the Markowitzs and assessed with

substantial attorneys’ fees where the conduct was privileged and where the

court did not find that Best Alliance, under any allegation of the complaint,

did anything wrong. The same conduct the Markowitzs alleged as the basis

for their slander of title and negligence causes of action served as their only

allegations against Best Alliance in the equitable causes of action. (See, JA

24 ¶ 30, JA 25-27 ¶¶ 32 & 33; JA 28 ¶¶ 36, 38, 39 & 40, JA 29 ¶¶ 43-45,

47 and compare to JA 34-38.)


24

C. The Court Abused Its Discretion By Awarding the Markowitzs’ Attorneys’ Fees and Costs Under the Judgment and Under The Amended Judgment.

The original judgment contained the award of attorneys’ fees and

costs to the Markowitzs. After the JNOV in Best Alliance’s favor on the

negligence claim, the trial court entered the May 30, 2005 amended

judgment which left intact its prior award of attorneys’ fees and costs. The

trial court denied Best Alliance’s motion to vacate which was directed at

curing this error in the amended judgment. (See, JA 1632-33.) The motion

called upon the trial court to revisit the issue of attorneys’ fees because the

amended judgment, as to Best Alliance, consisted solely of attorneys’ fees

and costs. All causes of action alleging wrongdoing, and all allegations of

wrongful conduct against Best Alliance, were ultimately resolved in favor

of Best Alliance. The court did not find that Best Alliance engaged in any

wrongful conduct or breached any contract it may have had with the

Markowtizs.

While in an appropriate case an award of attorney’s fees in a dispute

with a beneficiary or a trustee may be permissible under the wording of a

deed of trust, this is not such an appropriate case. Under the facts of this

case, it was an abuse of discretion for the trial court to find that Trustor was

the prevailing party as to Best Alliance and to award the Markowitzs

attorneys’ fees and costs against Best Alliance.

(1) Statutory and Contractual Basis For Awarding Attorneys’ Fees

The attorneys’ fees award, which was made prior to the JNOV, was

based on provisions of the Deed of Trust and Civil Code § 1717. The

attorney fee provision in the Deed of Trust states as follows:


25

“To protect the security of this Deed of Trust, trustor agrees: . . .

“3. To appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of the Beneficiary or Trustee; and to pay all costs and expenses including cost of evidence of title and attorney’s fees in a reasonable sum, in any such action or proceeding in which the beneficiary or Trustee may appear and in any suit brought by Beneficiary to foreclose this deed.”

This provision provides that the Trustor (the Markowitzs) covenant

to appear and defend the trustee in disputes over the security or the rights

and powers of the trustee. Here, after (not before) Best Alliance had

already recorded and mailed the NOD, it was informed of the dispute

between the Trustor and the Beneficiary. (JA at 2039-2045 and RT at

3923-3930.) Best Alliance, before the litigation was filed, took the position

that it was not going to do anything more to process the nonjudicial

foreclosure (put it “on hold”) until the parties resolved their dispute over

the obligation. (RT at 3932-33, 3947-48, 3953 and 3956.) Best Alliance

was actually taking the Markowitzs’ side by refusing to move forward with

the nonjudicial foreclosure (i.e., it did not assert the validity of the security

or insist on exercising powers under the Deed of Trust.) The Markowitzs

should have appeared and defended Best Alliance and reimbursed its

attorney’s fees for taking such a position. Instead, they unnecessarily sued

Best Alliance for nothing more than a privileged act, which was ultimately

found in Best Alliance’s favor.


26

(2) Where The Markowitzs Did Not Prevail On Any Allegations Of Wrongdoing Against Best Alliance, It Was An Abuse Of Discretion To Find The Markowitzs To Be The Prevailing Party As To Best Alliance

The operative language of Civil Code Section 1717 states, in

relevant part:

“ (a) In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.

(b) (1) The court, . . ., shall determine who is the party prevailing on the contract for purposes of this section, . . .. Except as provided in paragraph (2), the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. The court may also determine that there is no party prevailing on the contract for purposes of this section.”

(Emphasis Added.) The trial court determined that the Markowitzs were

the “prevailing parties” under Civil Code § 1717 and, therefore, entitled to

attorney fees against Best Alliance based on the provisions of the Deed of

Trust quoted above. The Markowitzs never sued Best Alliance for breach of

contract, and the evidence presented in support of their claim for fees

showed that the vast majority of the fees were incurred in proving claims

against the Kachlons or defending claims the Kachlons brought against

them in the Home Improvement Action. (JA at 447-453, 557-640, and

1055-1081.)

It is quite simple, really. Best Alliance is actually the prevailing

party. The standard in determining the “prevailing party” is “who


27

recovered a greater relief in the action on the contract”. Here, no relief was

obtained by the Markowitzs against Best Alliance on any contract. It is true

that the Note and Deed of Trust were determined to be satisfied. However,

such was not relief against Best Alliance. It was relief against the

Kachlons. Here the trial court determined that notwithstanding Best

Alliance’s immunity from claims for damages, the Markowitzs were the

prevailing parties because they obtained the equitable relief declaring the

Note to be satisfied, the Deed of Trust to be extinguished and reconveyed,

restraining any further attempts to nonjudicially foreclose and granting the

Markowitzs quiet title. (JA 16-32; 1525-26.) The trial court felt that Best

Alliance “initiated this action by seeking to foreclose on what turned out to

be an invalid deed of trust.” (JA at 1968.) By adopting the schoolyard logic

of Valley Bible Center v. Western Title Insurance Co. (1983) 138 Cal.App.

3d 931, 933 that, “[w]hat is sauce for the goose is sauce for the gander,” the

trial court not only abused its discretion, it effectively refused to exercise

that discretion as required by § 1717. Rather than undertaking an analysis

of which of these three sides to this litigation (trustor, beneficiary and

trustee) obtained the “greater” relief or achieved its litigation objectives, the

trial court did precisely what the cases cited above prohibit: it replaced its

discretion with a rule that automatically defines the prevailing party in any

action regarding rights set forth in a Deed of Trust as the party who obtains

any kind of relief, without regard to whether the party against whom fees

are awarded was in any way interested in or affected by that relief.

The trial court failed to consider the differences between the

interests of the Kachlons (the beneficiaries who actually provided the

declaration of default and instructed Best Alliance to commence a

foreclosure) and those of the trustee. Here, Best Alliance prevailed on the


28

negligence and slander of title causes of action. While the Markowitzs

prevailed on the equitable causes of action, it was due to Kachlons’

conduct, not any wrongful conduct on the part of Best Alliance. Best

Alliance did not breach any contract, it followed it. The Markowitzs would

have prevailed on the equitable causes of action because they were based

upon proof that the obligation was satisfied, not based on Best Alliance

recording or mailing an NOD or refusing to rescind the NOD or record a

reconveyance deed (things it could not do by law without instructions from

the beneficiary).

In Valley Bible Center, a trustor successfully enjoined a trustee’s

foreclosure sale of property following an alleged default on a deed of trust

asserted by the beneficiary. The trial court denied the trustor’s request for

attorneys’ fees under Civil Code § 1717, and the Fifth District Court of

Appeal reversed. There are a number of distinctions and issues with the

Valley Bible Center decision. First, the decision is devoid of any factual

basis to determine on what basis the court of appeal concluded that the

trustor was the prevailing party as to the trustee. There is no indication in

the Valley Bible Center opinion: (1) whether the trustee failed to follow the

procedures mandated by Civil Code §§ 2924 et seq. or under the deed of

trust; (2) whether the dispute (as here) was solely one between the trustor

and beneficiary over payment or satisfaction of the obligation; (3) whether

the trustee, as here, refused to continue to process the foreclosure in light of

the dispute; or (4) whether the trustee had any interest in, or took any action

to oppose, the injunction being sought by the trustor.7

7 It may well be this lack of factual foundation that explains why the Valley Bible Center opinion has only been cited in one published decision, and


29

For all that can be determined from the Valley Bible Center case, the

trustee may have aggressively opposed the application for an injunction or

may have engaged in wrongful conduct that served as the basis for the trial

court issuing an injunction. No such facts exist here.

In all litigated disputes involving notes secured by deeds of trust one

of the real parties in interest (the trustor or beneficiary) will prevail. Under

the logic of the trial court, applying the Valley Bible Center holding, the

trustee, as a middleman, by just being named in the lawsuit between the

trustor and a beneficiary, may always be liable to someone for attorneys’

fees and costs regardless of the facts, the conduct of the trustee or the issues

being litigated. This is too simplistic and is not the law. If this were the

case, it would totally destroy the public policy underlying the

comprehensive legislative scheme regulating nonjudicial foreclosures

described by the Supreme Court in I.E. Associates, supra, which attempts to

balance the rights and duties of the beneficiary, trustor and trustee. This

public policy is intended to clearly define the responsibilities of trustees,

who are middlemen, “to enable them to discharge their duties efficiently

and to avoid embroiling the parties in time-consuming and costly

litigation”. (I.E. Associates v. Safeco Title Ins. Co., surpa at pp. 287-288.)

The trial court must apply a deeper analysis of the trustee’s role in general,

its role in the litigation, what the trustee is alleged to have done (and the

that decision only cites it for a proposition not before this court (i.e., whether an award of attorney’s fees was barred by the provisions of the antideficiency statute found in Code of Civil Procedure § 580d; Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1509.)


30

findings on such allegations) and who, between the trustee and the party

seeking attorneys’ fees, really achieved the greater relief based upon their

interest and conduct in the litigation. Here, Best Alliance achieved all of its

litigation objectives by defending all of the damages causes of action and

by proving that any conduct alleged in the equitable causes of action was

either privileged, or prohibited by law (e.g., reconveying or rescinding an

NOD without an instruction from the beneficiary) and not the basis for

equitable relief it did not even oppose or have an interest in. Had the

Markowitzs been able to establish wrongdoing on Best Alliance’s part in

their equitable causes of action, their negligence cause of action would not

have been resolved in Best Alliance’s favor pursuant to the JNOV. The

Markowitzs won nothing against Best Alliance. On the contrary, Best

Alliance won everything it sought.

(3) Legislative Development Since The Valley Bible Center Case.

The Valley Bible Center case was decided in 1983, prior to the

Supreme Court’s 1985 decision in I.E. Associates, prior to its progeny and

prior to the Legislature’s enactment of numerous provisions designed to

protect the trustee, as a middleman, from constantly becoming embroiled in

litigation and to maintain balance in the nonjudicial foreclosure system.

The 1989 Legislature passed Civil Code § 2924j and 2924k allowing

a simple method for trustees to distribute excess proceeds bid at trustee’s

sale without the necessity of a more costly and time consuming interpleader

action. (Civil Code §§ 2924j and 2924k; Stats 1989 ch. 849).

In 1993, the Legislature passed Civil Code § 1058.5 which provided

a simple method for a trustee to rescind a trustee’s sale that was invalidated


31

by “bankruptcy or otherwise”. (Civ. Code § 1058.5(b); Stats. 1993), ch.

724.)

In 1996, the Legislature added the provisions to Civil Code § 2924

that provide that: “The mailing, publication, and delivery of notices

required herein, and the performance of the procedures set forth in this

article, shall constitute privileged communications within Section 47.”

(Stats 1996 Ch. 483 §1). The article referenced covers all of the conduct

allegedly involved in this case, that is, recording and mailing a notice of

default, rescinding NODs, and reconveying deeds of trust.)

In 1999, the Legislature amended Civil Code § 2924 again to

provide that:

“In performing acts required by this article [§§ 2920-2944.5], the trustee shall incur no liability for any good faith error resulting from reliance on information provided in good faith by the beneficiary regarding the nature and the amount of the default under the secured obligation, deed of trust, or mortgage.”

In 2000, the Legislature amended Civil Code 2924 to make it clear

that trustees are exempt from the California Fair Debt Collection Practices

Act in performing services under Civil Code §§ 2920 et seq. (Stats. 2000,

ch. 636 § 6.)

In 2001, the Legislature amended Civil Code § 2924b to require that

the trustee send notices of sale to the IRS where a tax lien has been

recorded against the Property. In 2002, the Legislature amended that same

section to provide that failure of the trustee to send such a notice of sale is a

ground for rescinding the trustee’s sale under Civil Code § 1058.5. (Stats.

2001 ch. 438 § 2; Stats. 2002, ch. 809 §1.)


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In 2004, the legislature amended 2924j, adding subparagraph (h),

which exempted the trustee from liability for providing to any person who

is entitled to notice of surplus proceeds under Civil Code § 2924j,

information set forth in, or a copy of, Civil Code § 2945.3(h) [relating to

information foreclosure consultants and surplus proceeds]. (Stats. 2004 ch.

177, § 1.)

These legislative changes since the 1985 I.E. Associates case make it

clear that the Legislature has attempted to protect the trustee from

unnecessary liability and from becoming embroiled in disputes between the

trustor, beneficiary or third party purchasers. The result in the trial court

below is wholly inconsistent with the public policy underlying the

comprehensive Legislative scheme as amended in recent years. Here, the

trustee did all that it legally could do. It stopped processing the foreclosure.

It legally could do nothing more. And, for that, it should pay attorneys’

fees of over $200,000 in a case where its fee is less than $600? (Civ. Code

§§ 2924d(d).) The very concept is absurd.

In 1995 the legislature added Civil Code § 2924l which provides, in

pertinent part: “(a) In the event that a trustee under a deed of trust is

named in an action . . . in which that deed of trust is the subject, and in the event that the trustee maintains a reasonable belief that it has been named in the action or proceeding solely in its capacity as trustee, and not arising out of any wrongful acts or omissions on its part in the performance of its duties as trustee, then, at any time, the trustee may file a declaration of nonmonetary status. . . ..[¶ (b)]

(c) The parties who have appeared in the action . . . shall have 15 days from the service of the declaration by the trustee in which to object to the nonmonetary judgment status of the trustee. Any objection shall set forth the factual basis


33

on which the objection is based and shall be served on the trustee.

(d) In the event that no objection is served within the 15-day objection period, the trustee shall not be required to participate any further in the action . . ., shall not be subject to any monetary awards as and for damages, attorneys' fees or costs, shall be required to respond to any discovery requests as a nonparty, and shall be bound by any court order relating to the subject deed of trust that is the subject of the action or proceeding. (e) In the event of a timely objection to the declaration of nonmonetary status, the trustee shall thereafter be required to participate in the action or proceeding.”

Clearly, in enacting Civil Code § 2924l the legislature was

attempting to protect the trustee from becoming embroiled in litigation

between the trustor and beneficiary that arises “… solely in its capacity as

trustee, and not arising out of any wrongful acts or omissions on its part.”

From the beginning of the instant case, Best Alliance’s alleged conduct was

solely that in its capacity as trustee (i.e., the privileged act of recording and

mailing an NOD upon the instructions of the beneficiary or its refusal to

rescind the NOD or to reconvey a deed of trust which, by law, cannot be

done except upon instruction of a beneficiary or order of a court). When

confronted with the dispute between the Markowitzs and the Kachlons,

Best Alliance remained neutral and refused to further process the

nonjudicial foreclosure until the dispute was resolved.

In its answer to the Markowitz’s complaint, Best Alliance alleged

2924l as an affirmative defense. Best Alliance was asserting that its only

conduct was in its capacity as trustee and expressed (again) its lack of

interest in the equitable actions between the parties.

The trial court’s granting of Best Alliances JNOV affirmed what

Best Alliance asserted all along: that it had done nothing wrong and was


34

being sued solely in its capacity as a trustee. At that point, Best Alliance

filed a declaration of nonmonetary status under section 2924l. (JA at 98.)

However, even at that point, with no wrongful conduct having been found

to exist on Best Alliance’s part, the Markowitzs still objected to Best

Alliance’s § 2924l declaration claiming that Best Alliance had been named

due to alleged breaches of its duties as trustee. (JA at 1560-1570 and 2017-

2023.)8 What duties? Neither the judgment nor the amended judgment set

forth any breach of duties of the trustee that served as the basis for any

damages or the decision in the equitable actions. The trustee could not do

any of the things requested by Trustor (other than refuse to act) without an

instruction from Beneficiary or an order of the court.

(4) Merely Including Claims For Equitable Relief Did Not Make the Markowitzs the Prevailing Party Over Best Alliance Which Was Neither Interested In Nor Opposed To Those Causes of Action.

The Markowitzs also opposed Best Alliance’s motion to vacate the

amended judgment for fees and costs against Best Alliance by claiming

their entitlement to equitable relief meant they were “prevailing parties”

under Civil Code § 1717. (JA at 1901-1907.) Although the trial court

found Best Alliance liable for attorneys’ fees for “initiating” the nonjudicial

foreclosure, the undisputed evidence at trial was that after recording the

NOD at the instruction of the Kachlons, Best Alliance took no further

action in connection with the foreclosure. (RT at 3948.) Recording a notice

8 The Markowitzs also claimed that Civil Code § 2924l(a) expressly provides that the declaration was untimely. However, § 2924l expressly provides that the declaration may be filed “at any time”. Only an objection to the declaration has a time limit.


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of default at the instruction of a beneficiary, even under the facts of this

case, is not wrongful nor is it a breach of contract. It cannot serve as the

basis for an award of attorneys’ fees against Best Alliance.

Payments on a note (including full satisfaction) are facts generally

known only to the trustor (payor) and the beneficiary (payee). The trustee

(Best Alliance) would have no idea about payments or satisfaction of the

Note except as set forth in the Beneficiary’s instruction to foreclose and its

statement of default. The Markowitzs’ true objectives in the equitable

causes of action were to obtain a declaration that the Note was satisfied;

that the Deed of Trust was extinguished and should be reconveyed; and that

title be quieted in them free of the Kachlon Deed of Trust. All of these

objectives are based upon a preexisting dispute solely between the

Markowitzs and the Kachlons. Best Alliance was not involved in this

dispute and attempted to remain neutral (as a middleman) by refusing to act

until the parties resolved their dispute. (RT at 3932-33, 3947-48, 3953 and

3956.)

(5) In A Dispute Between A Trustor, Beneficiary And Trustee, Each Must Be Viewed Individually To Determine Who Is The Prevailing Party With Respect To The Other Parties.

A pragmatic evaluation of the relative achievements of the parties is

demonstrated by the decision of the court in Huckell v. Matranga (1979) 99

Cal.App.3d 471. In Huckell, a trustee appealed from an award of attorneys’

fees under Civil Code § 1717. The Trustor had paid off a note secured by a

deed of trust and sought reconveyance but the original note was lost.

Although the beneficiaries signed both a request for reconveyance and a

personal indemnity agreement in lieu of the note, the trustee refused to

reconvey without a bond issued by a corporate surety. (Id. at 476.) The


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Trustor brought an action to quiet title and sought attorneys’ fees. They

obtained summary judgment on their quiet title cause of action. The issue

of damages went to trial. The trial court found the trustee’s insistence on a

bond was “vexation and oppressive conduct,” and awarded attorneys’ fees

and costs. (Id. at 476.)

The Court of Appeal in Huckell noted that both Civil Code § 2941

governing reconveyance and the deed of trust required presentation of the

original note for cancellation as a condition of the trustee’s obligation to

execute a reconveyance deed. (Id. at 476-479.) Accordingly, the court of

appeal held that the trustee’s insistence on a corporate bond was reasonable

and that “the judgment must be reversed as it imposes liability on the

[trustee] either under the complaint or [the beneficiaries’] cross-complaint

[for indemnity].” (Id at 481.) The Court in Huckell then addressed the

issue of attorneys’ fees that were awarded based on the attorneys’ fees

provision in the note under Civil Code § 1717, stating:

“Since judgment quieting title was entered, [the Trustor’] status as a prevailing party was not an issue before the court; there was a judgment favoring [the Trustor]. While they are clearly the prevailing parties, there were two parties defendant and we must determine who they prevailed against.

As we have determined, the [trustee] did nothing wrong in insisting on the indemnity bond by a corporate surety and judgment for damages against it was improper. There is nothing in the record to indicate it resisted [the trustors’] quiet title action other than to put in issue those matters of which it had no knowledge or which were contrary to the apparent interests of record. The quiet title action was required by reason of the inability of the beneficiaries to deliver the original note as required under the terms of the agreement. They alone occasioned [the trustors’] action.


37

Civil Code section 2941, subdivision (a) requires the beneficiary to deliver to the trustee the original note paid or satisfied. The breach of the requirement caused the need for this quiet title action so it can only be said [the trustors] prevailed against the beneficiaries and, pursuant to the terms of the note, attorney’s fees should be allowed only as against them. Recovery of fees on the contract as against the [trustee] on either the complaint or the cross-complaint was not proper.”

(Huckell v. Matranga at 482; Emphasis added.)

In Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, the court

reviewed the legislative history of section 1717 and concluded that, “[t]he

continuing theme of the Legislature’s discussion of section 1717 has been

the avoidance of narrowly defined procedures, which have been seen as

favoring the dominant party, in favor of an equitable consideration of who

should fairly be regarded as the winner.” (Id. at 1147-1148; emphasis

added.) Elaborating on this statement, the court of appeal in Sears

explained that:

“The history of section 1717, as set forth above, consistently adheres to the theme of equity in the award of fees and demonstrates legislative intent to expand the original ambit of the statute by the addition of provisions allowing the court to determine the prevailing party as well as the reasonableness of the fees to be awarded. Because the statute allows such discretion, it must be presumed the trial court has also been empowered to identify the party obtaining ‘a greater relief’ by examining the results of the action in relative terms: The general term ‘greater’ includes ‘larger in size than others of the same kind’ as well as ‘principal’ and ‘[s]uperior in quality’ [citation].”

(Sears, supra, at 1150-1151; Emphasis Added.)

Here, what could be less “equitable” than awarding over $200,000

against the trustee for doing nothing more than exercising its legal duties


38

under the Deed of Trust and the statutes? No wrongdoing or breach of

contract was ever determined against Best Alliance.

(6) The Markowitzs Did Not Prevail Against Best Alliance Simply Because They Were Entitled To Equitable Relief In Which Best Alliance Was Not Interested And Which It Did Not Oppose.

As in our case, the Trustor in Huckell named the trustee in their

action to quiet title. Just as the trustee in Huckell, Best Alliance had no

interest in the quiet title action and did not oppose it. As noted in Miller &

Starr, supra:

“Because all the incidents of ownership are retained by the trustor [fn. om.], the only res transferred to the trustee is the power of sale, [fn. om.] which is conditioned on the beneficiary’s express declaration of default and instructions to the trustee to sell the property according to legal procedures. [fn. om.] Nothing else is reposed in the trust.”

(4 Miller & Starr, supra, § 10:4, p. 25; Emphasis Added.) That is all that

Best Alliance did: record an NOD upon the instructions of the record

beneficiary. There is no evidence it had any knowledge of the many

shenanigans between the Markowitzs and the Kachlons. Miller & Starr,

supra, also notes that:

“The trustee has no duty to protect the property for the benefit of the trustor, and has no responsibility to protect the lien or interest of the beneficiary.”

(Id. at p. 27.) Therefore, Best Alliance had no interest in prosecuting or

defending any of the equitable actions as they were based on disputes over

the underlying obligation and not on wrongful conduct of Best Alliance in

its capacity as trustee.


39

Under different facts, the trustee might oppose such equitable relief

where the dispute was over whether the trustee properly recorded or mailed

an NOD or notice of sale as required by the Code. However, those are not

the facts here. The only finding of the trial court here was that the trustee

had done nothing wrong in its capacity as trustee. The trials court’s sole

rationale was that the trustee initiated a foreclosure based upon the

instructions of the Beneficiary, exactly what the Markowitzs authorized the

trustee to do under the Deed of Trust. Under the trial court’s theory, a

trustee becomes almost a guarantor of attorneys’ fees for whichever party

does not prevail under a deed of trust as long as the trustee has also been

named in the action. If this were the law, would any rational trustee accept

a nonjudicial foreclosure based upon the declaration of default of a

beneficiary as required by the deed of trust and by Civil Code § 2924?

Contrary to the Supreme Court’s admonition in I.E. Associates, supra, the

trial court’s conclusion would encourage parties to embroil trustees in all

litigation involving deeds of trust because they might be awarded attorneys’

fees from the trustee who has no real interest in the litigation, who does not

oppose the equitable relief sought but who cannot extricate itself.

As the court of appeal did in Huckell, the trial court here found that

Best Alliance did nothing wrong. Unlike the trial court here, the court of

appeal in Huckell recognized that the necessity for the equitable relief to

which the Trustor were entitled was not a result of the actions of the

trustee but rather those of the beneficiaries.

The Markowitzs lost all of their claims for damages against Best

Alliance because Best Alliance was immune from liability. Yes, the

Markowitzs prevailed on the declaratory relief, injunction and quiet title


40

causes of action but only because the trial court found that the underlying

obligation had been satisfied, not because of anything Best Alliance did.

The trustee is a passive, special agent for both parties (not a true

fiduciary) with limited powers for the specific purpose of conducting the

trustee’s sale or reconveying, in either case upon instructions of the

beneficiary. (4 Miller & Starr, California Real Estate (3rd Ed.) Deeds of

Trust & Mortgages, § 10:3, p. 20-21 and see pp. 18-19; Hatch v. Collins

(1990) 225 Cal.App.3d 1104, 1111-1114). The Markowitzs in signing the

Deed of Trust authorized the trustee to take instructions from the

Beneficiary (the Kachlons). That is precisely what Best Alliance did: it

took instructions from the Beneficiary and initiated a nonjudicial

foreclosure by recording and mailing an NOD. It did nothing wrong.

Was it wrongful for Best Alliance to fail to do any of the things

demanded by the Markowitzs? Best Alliance had no power or control.

Best Alliance could not substitute itself out. Thus, all Best Alliance could

do was refuse to proceed with the foreclosure. That is precisely what Best

Alliance did.

The Markowitzs did not “prevail” against Best Alliance simply

because they obtained equitable relief on causes of action in which Best

Alliance was disinterested, uninvolved and did not oppose. The trial court

should have done the deeper analysis discussed above and found either that

Best Alliance was the prevailing party or, at worst, that there was no

prevailing party.


41

There was, therefore, no reasonable basis for finding Best Alliance

“jointly and severally liable” with the Kachlons for attorneys’ fees and

costs. The court below abused its discretion and violated the law.9

(7) A Pragmatic Evaluation Of The Rights And Interests Of The Individual Parties Shows That As To Best Alliance, The Markowitzs Were Not The “Prevailing Parties”

The disputes here were over the underlying debt, and other

transactions between the Markowitzs and the Kachlons. These disputes did

not involve Best Alliance. The provision in the Deed of Trust on which the

award of fees was based does not extend so far as to include fees incurred

on these disputes in which Best Alliance had no part.

In Paul v. Schoellkopf (2005) 128 Cal.App.4th 147, the court of

appeal rejected an award of attorneys’ fee under Civil Code § 1717 to the

buyer of real property pursuant to an attorney fees provision in escrow

instructions because the performance of the escrow was not really a part of

the dispute between the parties. As this Court explained in Paul, the courts

must examine “the parties’ reasonable expectations to determine whether

section 1717 creates the right for recovery of attorney’s fees.” (Id. at 154,

citing Claussen v. First American Title Guaranty Co. (1986) 186

Cal.App.3d 429, 435.)

In Paul, plaintiff and defendant entered into several agreements

regarding the sale and improvement of real estate. A dispute arose as to

9 In granting judgment notwithstanding the verdict, the court below recognized its error in permitting the claims for damages against Best Alliance to go to the jury. (JA at 1519.) By thereafter refusing to alter its award of attorney’s fees, the trial court essentially called upon Best Alliance to pay fees for the trial court’s own error.


42

each party’s performance and each sued the other. Attorneys’ fees of

$371,942 were awarded. The losing party appealed. The attorneys’ fee

provision in the escrow instructions stated, “[i]n the event of failure to pay

fees or expenses due you hereunder, on demand, I agreed to pay a

reasonable fee for any attorney’s service which may be required to collect

such fees or expenses.” The court explained that the term “you” referred

not to either of the parties, but to the escrow company handling the

transaction.

“By this provision, the escrow company and the parties manifested an intent to pay attorney’s fees to the escrow company if its fees or expenses went unpaid and an attorney’s services were required to collect them.

We note that section 1717 would have made this right reciprocal had the lawsuit been over the performance of the escrow.”

(Paul v. Schoellkopf, surpa, at 152).

After granting the JNOV, the court below should have revisited the

attorneys’ fees award because there was then no claim against Best

Alliance. Best Alliance’s conduct had nothing to do with the equitable

causes of action and it could do nothing but remain a neutral middleman

and await (without taking sides) the trial court’s resolution of the parties’

dispute over the obligation.

Best Alliance could not have given the Markowitzs the equitable

relief they sought. Best Alliance could not unilaterally quiet title to the

property, discharge the note, rescind the NOD or reconvey the Deed of

Trust. Restraining Best Alliance alone would have given the Markowitzs

no measure of relief for there would be no reason the Kachlons could not

substitute in another trustee to pursue foreclosure after Best Alliance


43

refused to proceed. The only thing Best Alliance could do was that which

it did: voluntarily agree to take no further action pending resolution of the

dispute. Best Alliance could not even file effectively a Civil Code § 2924l

declaration because it was clear that the Markowitzs wrongly asserted that

Best Alliance was included in the litigation due to alleged wrongful

conduct in its capacity as a trustee under the Deed of Trust.

(8) Best Alliance Achieved All Its Litigation Objectives and Is, Therefore, the Prevailing Party

In Coltrain v. Shewalter (1998) 66 Cal. App. 4th 97, the court of

appeal held that in the context of a SLAPP suit a trial court has discretion to

determine which party “prevailed” under Code of Civil Procedure § 425.16.

The court further held that in exercising this discretion:

“[T]he critical issue is which party realized its objectives in the litigation. Since the defendant’s goal is to make the plaintiff go away with its tail between its legs, ordinarily, the prevailing party would be the defendant. The plaintiff, however, may try to show it actually dismissed because it had substantially achieved its goal through a settlement or other means, because the defendant was insolvent, or for other reasons unrelated to the probability of success on the merits.”

(Coltrain v. Shewalter, supra at 107.)

Jackson v. Homeowner’s Association Monte Vista Estates – East

(2001) 93 Cal.App.4th 773, involved review an award of attorneys’ fees

under Civil Code § 1717 in an action that had been resolved by a settlement

agreement reserving for the trial court the right to determine the prevailing

party. The court of appeal upheld the award.

“[A] court may determine whether there is a prevailing party, and if so, which party meets that definition, by examining the terms of the contract at issue, including any contractual definition of the term ‘prevailing party’ and any contractual provision governing payment of attorney’s fees in the event


44

of dismissal. If, as here, the contract allows the prevailing party to recover attorney’s fees but does not define ‘prevailing party’ or expressly either authorize or bar recovery of attorney’s fees in the event an action is dismissed, a court may base its attorney fees decision on a pragmatic definition of the extent to which each party has realized its litigation objectives, whether by judgment, settlement, or otherwise. [Citation.]”

(Id. at 784, emphasis added; citing Santisas v. Goodin, supra at 621-622.)

Here, Best Alliance had one objective: defend claims against it

seeking damages alleging wrongful conduct. Best Alliance achieved that

objective when the court granted its motion for JNOV because the one

thing Best Alliance did, record a NOD, was privileged under Civil Code §

2924. The Markowitzs sought damages from Best Alliance, but the grant

of JNOV established that Best Alliance prevailed on those claims.

Thereupon, the trial court determined the only relief the Markowitzs were

entitled to as against Best Alliance was on their equitable claims. But

because Best Alliance had no interest in the property, or the Note, it never

contested these claims.

VI. CONCLUSION

All of Best Alliance’s conduct was privileged or statutorily or

contractually mandated. While the trial court recognized Best Alliance’s

immunity by granting the JNOV and entering the amended judgment, it

abused its discretion in leaving intact in the amended judgment an

attorneys’ fees and costs award against Best Alliance in excess $200,000.

The trial court abused its discretion by not reassessing who was the

“prevailing party” as between Best Alliance and the Markowitzs.

Best Alliance achieved all of its litigation objectives. It was the

Beneficiary’s actions, not Best Alliance’s, which served as the basis of the


45

dispute and the equitable relief granted. Best Alliance did not oppose the

equitable relief sought. Its interests were not affected by the equitable relief

granted. Its conduct did not serve as the basis for equitable relief. It was an

abuse of discretion to impose full joint and several liability on Best

Alliance for attorneys’ fees and costs awarded to the Markowitzs under the

original judgment and rubber-stamped in the amended judgment.

The judgment and the amended judgment against Best Alliance

should be reversed and remanded with instructions to enter a new and

different judgment providing that Best Alliance was the prevailing party

and for further proceedings in accordance therewith. DATED: March 22, 2006

ADLESON, HESS & KELLY, a PC BY PHILLIP M. ADLESON, and PATRIC J. KELLY BY:_____________________________

PHILLIP M. ADLESON Attorneys for Defendant, Appellant, and Respondent BEST ALLIANCE FORECLOSURE AND LIEN SERVICE BERGER KAHN, A Law Corporation G. ARTHUR MENESES, ESQ. Attorneys for Defendant, Appellant, and Respondent BEST ALLIANCE FORECLOSURE AND LIEN SERVICE


46

CERTIFICATE OF COMPLIANCE

I, PHILLIP M. ADLESON, counsel for defendant and appellant,

pursuant to Rule 14 (c) (1) of the California Rules of Court, certify that the

attached brief is proportionally spaced, has a typeface of 13 points and

contains 13,158 words of the Microsoft Word Program, including

footnotes.

DATED: March 23, 2006 ADLESON, HESS & KELLY, a PC BY:_____________________________

PHILLIP M. ADLESON Attorneys for Defendant, Appellant, and Respondent BEST ALLIANCE FORECLOSURE AND LIEN SERVICE


47

PROOF OF SERVICE I am over the age of eighteen years and not a party to the within-entitled action. I am employed in Los Angeles County, California, with the law firm of . My business address is 4215 Glencoe Avenue, 2nd, Floor, Marina del Rey, CA 90292. On March ______, 2006, I served upon the interested party(ies) in the action the foregoing document described as:

OPENING BRIEFOF APPELLANT BEST ALLIANCE FORECLOSURE AND LIEN SERVICES – APPEAL FROM JUDGMENT ENTERED FEBRUARY 3, 2005, AND FROM

AMENDED JUDGMENT ENTERED MARCH 30, 2005

[X] By placing ____ the original X true copy(ies) thereof enclosed in sealed envelope(s) addressed to:

CALIFORNIA SUPREME COURT (4 copies) Second Floor 300 South Spring Street Los Angeles, CA 90013 JUDGE AURELIO MUNOZ (Copy) LOS ANGELES SUPERIOR COURT DEPARTMENT 47 111 North Hill Street Los Angeles, CA 90012

ATTORNEYS PARTIES Gary G. Kuist, Esq. 1837 Kelton Avenue Los Angeles, CA 90025 Fax: (310) 477 4357

Attorneys for Def, Ptf, and X-Complainant, DONALD MARKOWITZ

Edwin B. Stegman, Esq. 12304 Santa Monica Blvd., #300 Los Angeles, CA 90025-2593 Fax: (310) 820 6868

Attorneys for Def. Ptf. And X-Complainant, DEBRA MARKOWITZ


48

Mitchel J. Ezer, esq. SBN 30100 Ezer Williamson & Brown, LLP 1888 Century Park East, #1550 Los Angeles, CA 90067-1720 Phone: (310) 277 7747 Fax: (310) 277 2576

Attorneys for Ptf, Def. And X-Complainants MONICA AND MORDECHAI KACHLON

John Derrick The Law Office of John Derrick 21 East Pedregosa Street Santa Barbara, CA 93101 Tel: (805) 284-1660 Fax: (805) 456-4440

Atorneys for Appellants MONICA AND MORDECHAI KACHLON

[ X ] BY MAIL I deposited such envelope(s) with postage thereon fully

prepaid in the United States mail at a facility regularly maintained by the United States Postal Service at Campbell, California. I am "readily familiar" with the firm’s practice of collecting and processing correspondence for mailing. Under the practice it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid at Campbell, California in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing, pursuant to this affidavit.

[ ] BY FEDEX I caused such envelope(s) to be placed for FedEx

collection and delivery at Campbell, California. I am “readily familiar” with the firm’s practice of collection and processing correspondence for FedEx mailing. Under that practice it would be deposited with the FedEx office on that same day with instructions for overnight delivery, fully prepaid, at Campbell, California in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if the FedEx delivery date is more than one day after date of deposit with the local FedEx office, pursuant to this affidavit.


49

[ ] BY FACSIMILE I caused the transmission of the foregoing document by facsimile to the offices of the addressee(s), and such transmission was reported as complete and without error.

[ ] BY PERSONAL SERVICE I caused such envelope(s) to be

delivered by hand to the offices of the addressee(s) pursuant to CCP § 1011.

[ X ] (STATE) I declare under penalty of perjury under the laws of the State of California that the above is true and correct.

Executed on March ____, 2006 at Campbell, California. ________________________________ STEPHANIE ROSSI

Documents

2nd Civ. No. B182816 IN THE COURT OF APPEAL, STATE … Opening Brief - Cover and TOC.pdf · SECOND APPELLATE DISTRICT (DIVISION FOUR) ... A Law Corporation 4215 ... 5 Witkin, Summary