Tuesday, August 4, 2015
No Fee Award for Setting Aside Fraudulent Conveyance—C.A.
By a MetNews Staff Writer
The Court of Appeal for this district declared yesterday that no attorney fees may be awarded under a fee-shifting provision in a lease in connection with setting aside the lessee’s fraudulent conveyance of the premises.
Los Angeles Superior Court Judge William D. Stewart awarded fees relating to legal services provided to the plaintiff in an action against a tenant, Francesca De La Flor, for breach of the lease, but denied fees as to services the lawyers performed concerning the defendant’s fraudulent conveyances.
The plaintiff sought $337,180 in fees and was awarded $101,154.
The lease provided:
“If any Party...brings an action or proceeding to enforce the terms herefor or declare rights hereunder, the Prevailing Part....in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees.”
Arguing for reversal, Scott W. Carlson and Richard A. McDonald of Carlson & Nicholas said:
“All of the attorneys’ fees were incurred to in order to enforce the contract, i.e. to collect the rent owing under the Lease. In addition to establishing the breaches of Lease by Defendant de la Flor, and defeating her fabricated defenses. Plaintiff was required to expend considerable sums to establish and set aside the fraudulent transfers. This work involved extensive discovery to Defendants, discovery to third party lenders and other entities, numerous depositions, as well as obtaining expert testimony concerning the transactions.”
Unpersuaded, Presiding Justice Paul A. Turner of Div. Five wrote:
“Claims under the Uniform Fraudulent Transfer Act, such as the causes of action at issue here, are considered torts….The Courts of Appeal have held regarding the applicability of contractual attorney’s fee provisions to tort claims.”
The appellant’s counsel insisted that they couldn’t have gained enforcement of the lease against De La Flor had they not shown that the transfers were to her alter egos.
“Here, plaintiff established: Ms. De La Flor and plaintiff had an existing lease agreement; Ms. De La Flor breached the lease by failing to pay rent and vacating the premises prior to the lease’s expiration; it performed all of the terms and conditions under the lease; and Ms. De La Flor’s breach caused damages. Plaintiff cites to no part of the record which required that it rely on Ms. De La Flor’s alter egos in order to prevail on its contract breach claim.”
Code Section Cited
Carlson and McDonald pointed to Code of Civil Procedure §685.040 which allows an award of attorney fees to a judgment creditor in connection with enforcing a judgment. They asked that the principle underlying that statute be applied.
The presiding justice wrote:
“Under the American rule of attorney’s fees, which California follows, each party ordinarily pays his or her own fees….The exception to this rule is when attorney’s fees are allowed as costs to the prevailing party when authorized by contract, statute or law….Plaintiff has identified no contract, statute or law which authorizes an award of attorney’s fees incurred for the fraudulent transfer causes of action here. Code of Civil Procedure section 685.040 has nothing to do with this case.”
Justice Richard Mosk said in a concurring opinion:
“The parties agree that the attorney fees clause could in theory cover services to enforce the agreement as against alter egos. They disagree over whether any such fees could be allocated in this case. There is no indication that any significant amount of attorney fees should be allocated to alter ego claims apart from the other claims. I agree with the affirmance.”
The case is 330 South Fair Oaks Avenue, LLC v. De La Flor, B253991.
Attorneys Marc Epstein and Jeffrey B. Ellis represented De La Flor.
Copyright 2015, Metropolitan News Company