Crescent Associates LLC v. Dror

• Court: United States Bankruptcy Court, C.D. California
• Decided: March 30, 2021
• Docket: 2:18-ap-01310
• Status: Unknown

Opinion

2 FILED & ENTERED

4 MAR 30 2021

5 CLERK U.S. BANKRUPTCY COURT 6 C Be Yn k t ar a a l u D m i s o t a r ni c Dt E o Pf UC Ta Yli f Cor Ln Eia RK 7 NOT FOR PUBLICATION

8 UNITED STATES BANKRUPTCY COURT 9 CENTRAL DISTRICT OF CALIFORNIA—LOS ANGELES DIVISION 10 In re: CHAPTER 11 11 CRESCENT ASSOCIATES, LLC., Case No.: 2:18-bk-20654-WB 12 Adv No: 2:18-ap-01310-WB

13 MEMORANDUM OF DECISION

14 Debtor(s). D ate: January 26, 2021 15 CRESCENT ASSOCIATES, LLC., Time: 2:00 PM Courtroom: 1375 (via Zoomgov) 16 Plaintiff(s), 17 v.

18 EYAL BEN DROR, 19 20 Defendant(s). 21 22 This matter is before the Court for ruling on the Trial Brief and Motion for Damages and 23 Attorney Fees (“Motion for Damages”) [Docket No. 63] filed by the plaintiff, Crescent 24 Associates LLC. Oral argument on the Motion for Damages was heard on October 20, 2020 and 25 January 26, 2021. Based on the pleadings, record, and oral argument of the parties, and for the 26 reasons that follow, the Court finds that the plaintiff is entitled to its attorneys’ fees under Civil 27 Code section 17171 in the amount of $98,369.00 as the prevailing party with respect to this 28

1 All references to Civil Code refer to the California Civil Code. 1 adversary proceeding. 2 I. FACTS 3 On October 4, 2018, debtor and plaintiff, Crescent Associates LLC (“Plaintiff”), filed a 4 Notice of Removal of Action styled Crescent Associates LLC v. Eyal Ben Dror, et al. (the 5 “Complaint”) from the Los Angeles County Superior Court to the bankruptcy court. The 6 Complaint alleged claims for declaratory relief and damages for slander of title and for 7 cancellation of instrument. Plaintiff alleged that it was the record title holder of two parcels of 8 real property (the “Multiview Properties”) as a result of a foreclosure sale on May 14, 2018. 9 Prior to the foreclosure sale, ADY Property, LLC and MJK 18 LLC owned the Multiview 10 Properties. 11 Approximately four years earlier, on September 8, 2014, Joe Klein and his business 12 entity, MJK 18 LLC, entered into an agreement with Eyal Ben Dror (“Dror” or “Defendant”) 13 entitled Statement of Understanding and Investment Agreement (the “Klein Agreement”). In 14 summary, the Klein Agreement provided the terms for the parties’ acquisition of unrelated real 15 property on Beverly Glen Drive (the “Beverly Glen Property”). Defendant was to advance all 16 funds, and any additional costs, for the purchase of the Beverly Glen Property with Defendant 17 and Klein each holding a 50% interest. In turn, Klein and MJK 18 agreed to guarantee 18 Defendant’s investment and provided, as security for the guarantee, junior deeds of trust on the 19 Multiview Properties (the “Dror Deeds of Trust”). The Klein Agreement provided that in the 20 event Klein was unable to provide his required funds, Klein would withdraw his ownership in the 21 Beverly Glen Property or quitclaim his interest to Defendant. In the event of withdrawal of 22 Klein’s shares, Dror agreed not to seek any recovery on the Klein guarantee. Because Klein was 23 unable to fulfill his obligations under the Klein Agreement, Defendant sued, and obtained 24 judgment against Klein, granting Dror sole ownership of the Beverly Glen Property pursuant to 25 the Klein Agreement. However, Dror did not release the Dror Deeds of Trust and subsequently 26 filed a claim in Plaintiff’s bankruptcy case. 27 In the Complaint, Plaintiff sought declaratory relief that the obligations secured by the 28 Dror Deeds of Trust have been satisfied and that the guarantees were extinguished by the entry 1 of judgment in favor of Dror and the transfer of title to the Beverly Glen Property to Dror. 2 Plaintiff sought cancellation of the Dror Deeds of Trust and sought damages for slander of title 3 (the “Slander of Title Claim”) based on Dror’s refusal to remove the Dror Deeds of Trust from 4 and after July 26, 2018 as demanded by Plaintiff. Plaintiff sought punitive damages in 5 connection with the Slander of Title Claim. 6 On January 30, 2019, Plaintiff filed its motion for partial summary judgment. On 7 February 11, 2019, Defendant filed his motion for summary judgment. The Court held a hearing 8 on the motions on February 26, 2019 and issued an oral ruling and findings of fact and 9 conclusions of law on April 9, 2019. The Court entered orders granting Plaintiff’s motion and 10 denying Dror’s motion on May 17, 2019 (see Docket Nos. 43, and 44). In granting Plaintiff’s 11 Motion for Summary Judgment in part, the Court determined that in electing to take title to the 12 Beverly Glen Property, Defendant no longer had the right to “seek any recovery on any 13 guarantees” provided in the Klein Agreement, which “guarantees” were secured by the Dror 14 Deeds of Trust at issue here. By enforcing paragraph 25 of the Klein Agreement, the guarantee 15 obligations were extinguished and the obligations under the Dror Deeds of Trust were 16 extinguished. The Court ordered the Dror Deeds of Trust cancelled and of no further force and 17 effect and held that, as a result, Dror had no claim against the estate. The issue of damages 18 remained open as well as Plaintiff’s right to attorneys’ fees. 19 The Court scheduled a trial for July 28, 2020 to determine damages and attorneys’ fees. 20 This hearing was continued to address the form of the trial and to allow Dror the opportunity to 21 obtain counsel. At the continued status conference, Dror appeared without counsel. The parties 22 agreed on the record that the matter would be submitted on written evidence and argument (the 23 “Trial by Motion”). The Court set a briefing schedule and scheduled a hearing for October 20, 24 2020. 25 Plaintiff timely filed its Motion for Damages, the Declaration of Steven Morris in 26 Support of Motion for Damages and Attorney Fees (see Docket No. 64), the Declaration of 27 Edward Friedman in Support of Motion for Damages and Attorney Fees (see Docket No. 65) and 28 the Declaration of Robert Yaspan in Support of Motion for Damages and Attorney Fees (see 1 Docket No. 66). Dror did not file any opposition and did not appear at the hearing on October 2 20, 2020. The Court heard oral argument from Plaintiff’s counsel, Steven A. Morris (“Morris”), 3 and took the matter under submission. 4 On November 18, 2020, Defendant filed a Stipulation re Continuance of Hearing on 5 Motion for Damages (“Stipulation”). See Docket No. 68. Pursuant to the Stipulation, the parties 6 agreed to continue the deadline for Defendant to file an opposition to the Motion For Damages 7 and to continue the hearing on the Motion For Damages. The Stipulation was signed by 8 Defendant on October 5, 2020 and by Morris, on behalf of Plaintiff, on October 8, 2020. Morris 9 failed to mention the Stipulation at the hearing on October 20, 2020. 10 Approving the Stipulation, the Court set a continued hearing on the Motion for Damages 11 for January 12, 2021 at 2:00 p.m. On December 30, 2020, Defendant filed an Opposition to Trial 12 Brief and Motion for Attorneys Fees (“Opposition”) (see Docket No. 71), the Declaration of 13 Michael P. Rubin in Support of Eyal Ben Dror’s Opposition (see Docket No. 72), and the 14 Declaration of Eyal Ben Dror in support of Opposition (see Docket No. 73). The Court entered 15 an order accepting the Defendant’s late-filed Opposition and declarations for consideration, set a 16 reply deadline and continued the hearing to January 26, 2021. See Docket No. 74. 17 II. DISCUSSION 18 In the Motion for Damages, Plaintiff argues that as the prevailing party in the adversary 19 proceeding it is entitled to attorneys’ fees and costs under Civil Code § 717 from July 11, 2018, 20 the date of entry of judgment in the state court litigation (the “State Court Judgment”), through 21 confirmation of the plan in the underlying bankruptcy case. Plaintiff seeks additional damages 22 pursuant to Civil Code § 2941(d) and punitive damages under Plaintiff’s Slander of Title Claim. 23 Plaintiff asserts the following attorneys’ fees and costs were incurred: 24 1) Bankruptcy counsel’s fees in the amount of $178,804.94 (see Docket No. 66, 25 Declaration of Robert Yaspan); 26 2) Special counsel’s fees in the amount of $98,369 (see Docket No. 64, Declaration of 27 Steven Morris); and 28 1 3) United States Trustee’s (“U.S. Trustee”) fees in the amount of $27,324.34 (see 2 Docket No. 65, Declaration of Edward Friedman). 3 In total, Plaintiff seeks actual damages of attorneys’ fees and costs of $304,498.28 pursuant to 4 the Klein Agreement and Civil Code § 1717 and as damages, and punitive damages of 5 $76,124.57. 6 A. Award of Fees under Civil Code § 1717 7 Plaintiff argues it is entitled to attorneys’ fees and costs under § 1717 as the prevailing 8 party in this adversary proceeding based on the attorneys’ fees provision in the Klein Agreement. 9 Section 14 of that agreement provides that the prevailing party in any dispute arising from or 10 relating to the Klein Agreement shall be awarded costs and attorneys’ fees. Plaintiff contends 11 that while it is not a party to the original contract, established case law indicates that in certain 12 circumstances such as this, that distinction is without a difference. 13 Defendant argues that Plaintiff is not entitled to attorneys’ fees because it is not a party to 14 the Klein Agreement, § 1717 is not applicable because the attorneys’ fees provision is not 15 unilateral and Plaintiff is not a third party beneficiary to the agreement nor a successor to the 16 agreement. 17 Section 1717 provides that in any action on a contract, where a contractual provision 18 provides a right to attorneys’ fees recovery to one party or to the prevailing party, the prevailing 19 party is entitled to reasonable attorneys’ fees, whether it is the party specified in the contract or 20 not.2 Cal. Civ. Code § 1717(a). 21 In Santisas v. Goodin, the California Supreme Court made clear that § 1717 does not 22 just apply to contracts with one-sided provisions but that it applies to “contracts containing 23 reciprocal ... attorney fee provisions ... authorizing recovery of attorney fees by a ‘prevailing 24 party.’ ” Santisas v. Goodin, 17 Cal.4th 599, 614–16 (1998). Section 1717, which was enacted 25

26 2 Section 1717(a) states that: “[i]n 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 27 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 28 not, shall be entitled to reasonable attorney's fees in addition to other costs.” Cal. Civ. Code § 1717(a). 1 to ban unfair one-sided fee provisions, has been expanded over time to cover reciprocal fee 2 agreements as well. For example, the rules in § 1717 regarding the identification of a 3 “prevailing party”—including the rule that there is no prevailing party in an action that is 4 voluntarily dismissed or that is settled—apply to all actions “on a contract” in which parties seek 5 to recover attorneys’ fees. Id. at 616-17. Section 1717, thus, allows recovery of attorneys’ fees 6 by whichever contracting party prevails in a contract enforcement action, whether the prevailing 7 party is the party specified in the contract or not. Id. at 611. Section 1717 applies, however, 8 only to actions that contain at least one contract claim. Id. at 615 (citation omitted). The action 9 must be “on the contract” and the party must prevail “on the contract.” Thus, any contractual 10 attorney fee provision must be interpreted in light of Civil Code § 1717. Khan v. Shim, 7 11 Cal.App.5th 49, 55 (2016). Contrary to Dror’s assertion, § 1717 does apply to the Klein 12 Agreement and its provision providing attorneys’ fees to the prevailing party. 13 Next, the Court must determine whether Plaintiff, as a non-signatory party to the Klein 14 Agreement, may recover attorneys’ fees under the contract and § 1717. Generally, absent 15 contractual language providing otherwise, a contract providing for attorneys’ fees to be awarded 16 to a contracting party does not typically apply to a non-signatory party. See Cargill, Inc. v. 17 Souza, 201 Cal.App.4th 962, 966, 968–69 (2011). However, a non-signatory party may be 18 entitled to contractual attorneys’ fees for litigation in which “the non-signatory party “stands in 19 the shoes of a party to the contract.” Id. at 966 (citation omitted). That is, if the non-signatory 20 party sues or is sued “as if he were a party” to the contract containing the attorneys’ fees 21 provision, the prevailing party may be entitled to an award of fees. Reynolds Metals Co. v. 22 Alperson, 25 Cal.3d 124, 127–28 (1979) (non-signatory party who was sued as alter ego of 23 signatory party entitled to contractual attorneys' fees); Cargill, 201 Cal.App.4th at 966–70 (third 24 party beneficiary of contracting party entitled to attorneys’ fees); Exarhos v. Exarhos, 159 25 Cal.App.4th 898, 900, 903–8 (2008) (non-signatory party who sued as deceased contracting 26 party’s successor in interest required to pay contractual attorneys’ fees); California Wholesale 27 Material Supply, Inc. v. Norm Wilson & Sons, Inc., 96 Cal.App.4th 598, 601, 608 (2002) (non- 28 signatory party who brought action based on assignment of contract rights from signatory party 1 required to pay contractual attorneys’ fees). 2 Here Plaintiff, as purchaser of the Multiview Properties at a foreclosure sale, stood in the 3 shoes of Klein and was required to litigate with Defendant to enforce the terms of the Klein 4 Agreement in order to obtain removal of the Dror Deeds of Trust. Section 14 of the Klein 5 Agreement provides that the prevailing party in any dispute arising from or relating to the Klein 6 Agreement shall be awarded costs and attorneys’ fees. Thus, Plaintiff as successor to the prior 7 owners of the Multiview Properties may recover reasonable attorneys’ fees incurred in an action 8 on the contract. 9 Plaintiff seeks attorneys’ fees under the Klein Agreement for the successful prosecution 10 of the adversary proceeding, the conduct and confirmation of a plan of reorganization and for the 11 U.S. Trustee fees paid in the bankruptcy case. There is no dispute that the adversary proceeding 12 is an action on the contract. The Complaint sought a declaration regarding the Klein Agreement 13 and cancellation of the Dror Deeds of Trust pursuant to the terms of the Klein Agreement. The 14 same cannot be said for the pursuit of the bankruptcy case and the concomitant payment of U.S. 15 Trustee fees. Plaintiff seeks the fees of its chapter 11 bankruptcy’s general counsel, Robert 16 Yaspan (“Yaspan”), in the amount of $178,804.94, and quarterly fees charged by the U.S. 17 Trustee, among other costs, in the amount of $27,324.34.3 Plaintiff maintains that the only 18 reason the bankruptcy was filed was to enable Plaintiff to sell the Multiview Properties, free and 19 clear of the Dror Deeds of Trust. Further, Plaintiff contends that its other option, remaining in 20 state court, presented significant delays inherent within that judicial system. Plaintiff asserts that 21 but for the Dror Deeds of Trust, Plaintiff had no other reason to file bankruptcy as it was not 22 insolvent and there was sufficient equity to pay all debts, including Defendant’s, had he 23 prevailed. 24 Plaintiff has not demonstrated that the bankruptcy case was an action on the contract. In 25 Bos v. Board of Trustees, 818 F.3d 486 (9th Cir. 2016), the Ninth Circuit explained that where 26

27 3 The Declaration of Robert Yaspan (see Docket No. 66) provides a breakdown of fees and costs incurred by Plaintiff for bankruptcy services for the period of September 11, 2018 through July 28 31, 2020 in the following general categories of: case administration, fee applications, motions, chapter 11 plan, Defendant related issues, sale of real property and costs. 1 the contract is collateral to the dispute, it is not an action on the contract and attorneys’ fees 2 cannot be awarded under § 1717. It is not an action on a contract if the action does not litigate 3 the validity of the contract or consider state law governing the contract. The Court is 4 unpersuaded by Plaintiff’s contention that the bankruptcy case was an action on the contract. 5 Plaintiff’s assertion that it had no other recourse but to file bankruptcy in order to clear title and 6 sell the Multiview Properties does not make the case an action on the contract. Filing 7 bankruptcy was merely one of Plaintiff’s options. Plaintiff could have settled or resolved its 8 dispute in state court and brought the matter to a conclusion there. But, as asserted by Plaintiff, 9 under these circumstances it chose to seek what in its view was a more expeditious route via the 10 bankruptcy courts. 11 Moreover, Plaintiff addressed issues related to confirmation of the plan of reorganization 12 that were unrelated to the Dror Deeds of Trust, including the claims asserted by EPCO 13 Consultants, Inc. The Court cannot find that pursuit of the bankruptcy case through confirmation 14 was an action on the contract. Accordingly, the Court denies Plaintiff’s claim to recover its 15 chapter 11 bankruptcy’s general counsel’s fees and costs and the quarterly fees imposed by the 16 U.S. Trustee under the Klein Agreement and § 1717. 17 Plaintiff is entitled to its reasonable attorneys’ fees and costs as the prevailing party in the 18 adversary proceeding. Plaintiff seeks attorneys’ fees and costs of its special counsel, Morris, in 19 the amount of $98,369.00. Morris was principally responsible for the litigation against 20 Defendant in this adversary proceeding. Morris and his firms’ services commenced from the 21 date the judgment was entered in the Klein v. Dror state court action on July 11, 2018 (the date 22 Defendant should have reconveyed the Dror Deeds of Trust) until title on the Multiview 23 Properties was cleared. See Declaration of Steven Morris, Docket No. 64. Morris attests that the 24 work included: (1) in-depth legal research concerning the sale of real property subject to the 25 Multiview Deeds of Trust; (2) basic discovery (including a document demand and deposition of 26 Defendant); (3) preparation of the Motion for Partial Summary Judgment; and (4) opposing 27 Defendant’s Motion for Summary Judgment. The Court grants Morris’ fees in the amount of 28 $98,369.00 under § 1717 and finds that they are reasonable and necessary costs incurred with 1 respect to the action on the contract. 2 B. Civil Code § 2941(d) 3 Plaintiff also seeks an award of attorneys’ fees under Civil Code § 2941(d). Plaintiff did 4 not assert a claim for recovery of fees under § 2941(d) in the Complaint, raising this claim for 5 the first time in the Motion for Damages.4 6 Section 2941(b)(1) requires that within 30 days of the obligation secured by a deed of 7 trust having been satisfied, the beneficiary [Defendant] shall deliver to the trustee under the deed 8 of trust an executed request for reconveyance and supporting documents. The trustee under the 9 deed of trust then has 21 days from receipt of the request for reconveyance to reconvey the deed 10 of trust. Cal. Civ. Code § 2941(b)(1)(A). The trustee under the deed of trust, not the beneficiary, 11 is responsible for providing a copy of the reconveyance to the owner of the property. Cal. 12 Civ. Code § 2941(b)(1)(B)(ii). 13 Section 2941(d) provides that a violation of § 2941 makes the violator liable to the 14 plaintiff for all damages sustained by reason of the violation, and additionally requires the 15 violator to pay the plaintiff $500.00 in statutory damages. Cal. Civ. § 2941(d). Section 2941(d) 16 does not grant a statutory right to attorneys’ fees for § 2941 litigation with the creditor. See In re 17 Luchini, 511 B.R. 664, 677 (Bankr. E.D. Cal. 2014). 18 Plaintiff asserts that Dror failed to reconvey the Dror Deeds of Trust by August 29, 2018 19 (the last day to do so following entry of the July 11, 2018 judgment in the state court action). 20 Plaintiff’s alleged damages from this violation are attorneys’ fees incurred for the Dror litigation, 21 the sale of the Multiview Properties through these bankruptcy proceedings and the attorneys’ 22 fees associated with the administration of this bankruptcy case. First, the Court will award 23 attorneys’ fees for the Dror litigation under the Klein Agreement. With respect to the attorneys’ 24

25 4 Although Plaintiff did not allege a claim for damages under § 2941(d) in the Complaint, Fed.R.Bankr.P. 7015(b) allows the pleadings to be conformed to the evidence raised 26 at trial “at any time.” “[T]he lack of an amendment will not affect the judgment in any way.” Dunn v. Trans World Airlines, 589 F.2d 408, 412–13 (9th Cir. 1978). “Failure to formally 27 amend the pleadings will not jeopardize a verdict or judgment based upon competent evidence. If an amendment to the pleadings to conform to the proof should have been made, the Courts of 28 Appeals will presume that it is so made to support the judgment.” Id. quoting Decker v. Korth, 219 F.2d 732, 739 (10th Cir. 1955). 1 fees and U.S. Trustee fees incurred in connection with the bankruptcy case, Plaintiff has not 2 demonstrated that these are damages that flow from the refusal to reconvey the Dror Deeds of 3 Trust. This Court was required to make a determination as to the application of the 4 reconveyance requirement in the Klein Agreement based on the ruling in the state court 5 litigation. Further, as noted above, Plaintiff did not demonstrate that the bankruptcy case was 6 necessary for it to enforce the Klein Agreement. Indeed, the adversary was filed originally in 7 state court and removed to the bankruptcy court upon the filing of the chapter 11 case. The 8 Court cannot find that all of the fees associated with the chapter 11 case were the result of the 9 Dror litigation and his failure to release the Dror Deeds of Trust. As a result, no damages will be 10 awarded. Finally, Plaintiff did not demand an award of the statutory damages of $500.00. 11 C. Slander of Title 12 Slander of title is a “tortious injury to property resulting from unprivileged, false, 13 malicious publication of disparaging statements regarding the title to property owned by 14 plaintiff, to plaintiff's damage.” Southcott v. Pioneer Title Co., 203 Cal.App.2d 673, 676 (1962). 15 “ ‘The recordation of an instrument facially valid but without underlying merit will give rise to 16 an action for slander of title.’ ” Nguyen v. Bank of Am. Nat. Ass’n, 2011 WL 5574917 at *7 (N.D. 17 Cal. Nov. 15, 2011), citing Stamas v. County of Madera, 2011 WL 2433633 at *14 (E.D. Cal. 18 June 14, 2011). 19 Under California law, slander of title requires allegations that a person, without a 20 privilege to do so, published a false statement that disparaged title to property and caused the 21 property owner some special pecuniary loss or damage. Sumner Hill Homeowners’ Ass’n, Inc. v. 22 Rio Mesa Holdings, LLC, 205 Cal. App. 4th 999, 1030 (2012), citing Fearon v. Fodera, 169 Cal. 23 370, 379–80 (1915). The elements of the tort are (1) a publication, (2) without privilege or 24 justification, (3) falsity, and (4) direct pecuniary loss. Truck Ins. Exchange v. Bennett, 53 Cal. 25 App. 4th 75, 84 (1997). 26 Plaintiff alleges in the Complaint that Defendant maintained and refused to reconvey the 27 Dror Deeds of Trust on the Multiview Properties which Defendant had a legal duty to reconvey. 28 The Complaint essentially alleges that the act of failing to reconvey the Dror Deeds of Trust 1 || constitutes a false representation and disparages, without authority, Plaintiff’s title to the 2 || Multiview Properties. However, Plaintiff cites no authority for the proposition that Defendant’s 3 || failure to remove a lien can form the basis for a slander of title claim; specifically, that such 4 || failure satisfies the publication requirement, and the Court has found none. Having failed to 5 || satisfactorily establish an essential element of its Slander of Title Claim, the Court declines to 6 || award actual or punitive damages. 7 Iii. CONCLUSION 8 Based on the foregoing, the Court awards Plaintiff attorneys’ fees in the amount of 9 || $98,369.00. A separate order consistent with this memorandum of decision will be entered. 10 Hitt 11 12 13 14 15 16 17 18 19 20 21 22 23 24 . i) 25 Date: March 30, 2021 Talla Ae ‘ ad 6 United States Bankruptcy Judge 27 28