ALLIANCE MORTGAGE COMPANY v. TRANSAMERICA TITLE INSURANCE COMPANY

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Court of Appeal, Sixth District, California.

ALLIANCE MORTGAGE COMPANY, Plaintiff and Appellant, v. TRANSAMERICA TITLE INSURANCE COMPANY, et al., Defendants and Respondents.

No. H010664.

Decided: November 04, 1994

Jean L. Bertrand, Robert B. Mullen, Morgenstein & Jubelirer, San Francisco, for appellant. Peter Uzzi, McManis, Faulkner & Morgan, San Jose, for respondent:  Transamerica Title Ins. Co. Scott A. Sommer, Leslie A. Baxter, Tobin & Tobin, Walnut Creek, for respondents:  Security Union Title Ins. Co., Dee Schuman, Transamerica Title Ins. Co., Leslie Cron, Fidelity Nat. Title Ins. Co.

Plaintiff Alliance Mortgage Company (Alliance) appeals from (1) a judgment entered after the trial court granted defendant escrow companies' 1 motion for summary judgment based on expiration of applicable statutes of limitations, and (2) an order granting defendant Transamerica's motion for contractual attorney fees.   For reasons we shall explain, we affirm the underlying judgment but reverse the attorney fee award.

FACTS

Alliance, a Florida corporation, maintained a branch office in San Jose from 1983 to 1985.   By late 1985, it noticed that the number of real estate loans going into default from its San Jose branch was unusually high.   It investigated.

In February 1986, Alliance advised its mortgage bankers' blanket bond carrier, Lloyd's of London, and its secondary carriers, the Aetna and I.N.A., that it suspected its San Jose branch of “fraudulently originat[ing]” over 1,000 loans.   On April 25, 1986, Alliance submitted a sworn preliminary proof of loss to the bond companies, claiming losses in excess of $6 million, and possibly as high as $20 million, based on “the fraudulent origination of mortgage loans” at the San Jose branch.   Alliance listed by escrow number some 1,068 loans it was “currently investigating” for fraud.   All 14 loans involved in this lawsuit were on that list.

The bond companies and the Federal Bureau of Investigation launched an intensive campaign to bare the fraud.   They uncovered a massive scheme by certain mortgage brokers, real estate appraisers, and escrow companies to defraud Alliance (and other purchase money lenders) of millions of dollars by preparing false purchase agreements, false loan applications, false appraisals and inaccurate title reports.   The principals in the scheme also enlisted certain title insurance companies, for example, to certify falsely that down payments had been made.   The investigation ascertained that Alliance's San Jose employees were not implicated.

The principal participants in the scheme included Laurie Rothwell, a real estate appraiser and broker, who subsequently has been imprisoned, and Seaport Financial, a mortgage broker involved in many of the questioned loans.   Alliance foreclosed on all 14 properties involved in this lawsuit between March 1986 and August 1987, making full credit bids at foreclosure and receiving trustees' deeds to the real property security.

In 1987, Alliance filed suit against Rothwell, Seaport Financial and others in the San Francisco County Superior Court (hereafter suit # 1).   Seaport Financial was the mortgage broker for 13 of the 14 loans that are the subject of this action.

As Alliance's investigation into the fraud continued, additional culpable parties were discovered.   In 1989, Alliance filed a second lawsuit in the Solano County Superior Court (hereafter suit # 2), naming a different set of defendants who allegedly had also participated in the scheme.

In 1990, Alliance discovered that the escrow company defendants named in this lawsuit were also allegedly involved.   Alliance alleges it was unaware of these defendants' complicity until it subpoenaed the 14 subject loan files in August 1990, in connection with the San Francisco superior court action (suit # 1).   The escrow files were not produced until February 1991.   A review of those files implicated the escrow company defendants in the fraud scheme.   On May 16, 1991, Alliance filed suit against them in the Santa Clara County Superior Court (suit # 3).

The escrow company defendants demurred to and filed summary judgment motions (that the court considered as motions for judgment on the pleadings) on Alliance's original complaint, its first amended complaint, and its second amended complaint, all on grounds the applicable statutes of limitations were expired.   Each time the demurrer was sustained and/or the motion was granted, and Alliance was given leave to amend “to allege with sufficient specificity how plaintiff or a reasonable person in plaintiff's position could not have discovered the alleged wrongful acts now attributed to defendants prior to the expiration of the statute of limitations.”

After Alliance amended its complaint a third time, defendants filed another motion for summary judgment.   This time the court granted the motion.   Subsequently, the court granted defendant Transamerica's motion for attorney fees.

Alliance timely appeals from the judgment entered following the grant of summary judgment and from the order granting Transamerica its attorney fees.

DISCUSSION

A. Summary Judgment **

B. Attorney Fees

In section A of this opinion, we held that Alliance may not assert its potentially meritorious claims against the various escrow company defendants because it failed to meet deadlines established by statute for asserting the claims.   In this section of the opinion, we agree with Alliance and hold that defendant Transamerica is not entitled to its attorney fees because it, too, failed to meet a deadline-that specified in California Rules of Court,6 rules 870(a)(1) and 870.2.  (See also, Code Civ.Proc. §§ 1033.5, 1032, and Civ.Code § 1717, subd. (b)(1).)

Rule 870.2, adopted in 1986, provided in 1992:  “Any notice of motion to claim attorney fees as an element of costs under Civil Code section 1717 shall be served and filed before or at the same time the memorandum of costs is served and filed.   If only attorney fees are claimed as costs, the notice of motion shall be served and filed within the time specified in rule 870(a)(1).”

Rule 870(a)(1) specifies:  “A prevailing party who claims costs shall serve and file a memorandum of costs within 15 days after the date of mailing of the notice of entry of judgment or dismissal by the clerk under Code of Civil Procedure section 664.5 or the date of service of written notice of entry of judgment or dismissal, or within 180 days after entry of judgment, whichever is first.   The memorandum of costs shall be verified by a statement of the party, attorney, or agent that to the best of his or her knowledge the items of cost are correct and were necessarily incurred in the case.”  (Emphasis added.)

In this case, defendants mailed the notice of entry of judgment to Alliance on October 23, 1991.   Transamerica's motion for attorney's fees was filed six days later, but was not served on Alliance until November 10, 1992, some 18 days “after the date of mailing of the notice of entry of judgment.”

Transamerica argues that because the notice of entry of judgment was served by mail, the time within which Transamerica was required to serve its motion was extended by five days, presumably 7 pursuant to Code of Civil Procedure section 1013.   We disagree.   The five-day extension to time limits “applies only when the prescribed period begins with ‘service of the document served by mail.’ ”  (San Mateo Federation of Teachers v. Public Employment Relations Bd. (1994) 28 Cal.App.4th 150, 152, 33 Cal.Rptr.2d 387.)

The fact that the Judicial Council chose to start the 15-day period from the date of “mailing” presupposes service by mail.   In comparison, subdivision (b)(1) of the same rule, setting forth the time limits for the losing party to contest the costs, states:  “Any notice of motion to strike or to tax costs shall be served and filed 15 days after service of the cost memorandum.   If the cost memorandum was served by mail, the period is extended as provided in Code of Civil Procedure section 1013.”  (Italics added.)   We believe the choice of the word “mailing” in subdivision (a)(1) was not intended to be synonymous with the term “service” in subdivision (b)(1).   This conclusion is bolstered by the Judicial Council's specific reference to Code of Civil Procedure 8 section 1013 in subdivision (b)(1) only.

Furthermore, there is no conflict between the Judicial Council rules and the corresponding statutes, which by definition take precedence over the rules.   Civil Code section 1717, which authorizes attorney's fees to a prevailing party in an action on a contract containing an attorney fee provision, provides that attorney fees “shall be fixed by the court, and shall be an element of the costs of suit,” (italics added) and that the prevailing party will be determined “upon notice and motion.”   In 1990, section 1033.5 was amended to specifically allow attorney fees as an element of costs when authorized by a contract or a statute.   Subdivision (c)(5) states:  “Attorney's fees awarded pursuant to Section 1717 of the Civil Code are allowable costs under Section 1032․”

The 1990 comment to the amendment of section 1033.5 provides:  “The Legislature finds and declares that there is great uncertainty as to the procedure to be followed in awarding attorney's fees where entitlement thereto is provided by contract to the prevailing party.   It is the intent of the Legislature in enacting this act to confirm that these attorney's fees are costs which are to be awarded only upon noticed motion, except where the parties stipulate otherwise or judgment is entered by default.   It is further the intent of the Legislature to vest the Judicial Council with the discretion provided in Section 1034 of the Code of Civil Procedure to adopt procedural guidelines establishing the time for the hearing on these motions, but the Legislature finds and declares that the criteria set forth in Section 870.2 of the California Rules of Court provide a fair and equitable procedure for the motions.”  (Stats.1990, ch. 804, § 2.)

As the court aptly noted in Russell v. Trans Pacific Group (1993) 19 Cal.App.4th 1717, 1725, 24 Cal.Rptr.2d 274, “[t]his declaration of legislative intent could not be more clear.”   Where such legislative intent is clear, “the trial court does not have discretion to disregard noncompliance.” 9  (Ibid.;   accord Bankes v. Lucas (1992) 9 Cal.App.4th 365, 370-372, 11 Cal.Rptr.2d 723.)   In the instant case, Transamerica was required by rule 870.2 to file and serve its motion for attorney fees within 15 days of the mailing of the notice of entry of judgment.   It failed to do so.   Accordingly, the award of attorney fees must be reversed.

While the trial court does not have discretion to disregard noncompliance with rule 870.2, it does have discretion to grant a party relief under Code of Civil Procedure section 473 from its failure to move for fees in the prescribed manner.   This is because the time limits in rule 870.2 are not jurisdictional in character.  (Russell v. Trans Pacific Group, supra, 19 Cal.App.4th at pp. 1725-1729, 24 Cal.Rptr.2d 274.)   In this case, however, even assuming Transamerica could make the threshold showing of mistake, inadvertence, surprise, or excusable neglect, the motion for relief would serve no purpose.   As we shall explain, Alliance cannot be liable for attorney fees upon losing a lawsuit where, as here, it would not have been entitled to attorney fees had it won the suit.  (Cf. Civ.Code, § 1717 provisions establishing mutuality of remedy.)

We note preliminarily that Alliance's only contract with Transamerica, its “Loan Closing Instructions,” did not include an attorney fee provision.   In the instructions, Alliance demanded that defendants provided certain documentation to it prior to the release of funds.   Among the documents requested were:  evidence of fire insurance, copies of the “CC & R's and Modifications,” HUD-1 statements, and “buyer's ․ instructions.”

The attorney fee clause relied upon by Transamerica is contained in the “buyer's instructions.”   It provides that if “[y]ou are the prevailing party in any action or proceeding between you and some or all of the parties to the escrow, you shall be entitled to all costs, expenses, and reasonable attorney's fees expended or incurred in connection therewith.”   Despite Transamerica's repetitive references to Alliance as a “party to the escrow,” the buyer's instructions mention Alliance only tangentially, as the party to whom the promissory note is owed and in whose favor the deed of trust is written.   Transamerica drafted the instructions to be given to buyers using its services as escrow company.  (The other escrow company defendants also drafted their own forms, which do not include attorney fee provisions.)   If every entity mentioned in Transamerica's buyer's instructions were a “party to the escrow,” as Transamerica implies, then fire and mortgage insurance companies, pest inspection services, county property tax collectors and county recorders would all be bound by an attorney fee clause to which only the buyer and Transamerica agreed.

While Alliance did seek attorney fees in its complaint against Transamerica-claiming it was an alleged “third party beneficiary” of the Transamerica buyer's instruction agreements-this does not mean it would have been entitled to fees had it prevailed in the lawsuit.   A losing nonsignatory plaintiff, like Alliance, suing to enforce a contract will be liable for the other party's fees under Civil Code section 1717 only if it would have been entitled to the fees had it won the lawsuit.  (Brusso v. Running Springs Country Club, Inc. (1991) 228 Cal.App.3d 92, 110, 278 Cal.Rptr. 758.)

Notwithstanding Transamerica's offer to stipulate after the grant of summary judgment that Alliance would have been entitled to attorney fees had it prevailed in this lawsuit, we believe that Alliance would not have been entitled to its attorney fees.

In Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 20 Cal.Rptr.2d 193, the court reversed an award of attorney fees to a defendant real estate broker based on an attorney fee provision in the purchase contract, to which the broker was not a signatory.   The court observed that “even assuming a buy-sell contract automatically confers ‘third party beneficiary’ status on the broker, Wang cites no authority suggesting a third party beneficiary has any right other than to collect the benefits the contracting parties agreed to confer on him.   Indeed, the basic premise underlying attorney fee clauses, i.e., a party is not liable for attorney fees unless he agrees to the clause, is inconsistent with Wang's theory, because a third party beneficiary does not participate in reaching the agreement.   Wang's theory would have the third party beneficiary bound by an agreement to which he did not consent.”  (Id., at p. 546, 20 Cal.Rptr.2d 193;  accord Leach v. Home Savings & Loan Assn. (1986) 185 Cal.App.3d 1295, 1306-1307, 230 Cal.Rptr. 553;  Wilson's Heating & Air Conditioning v. Wells Fargo Bank (1988) 202 Cal.App.3d 1326, 1333, 249 Cal.Rptr. 553, fn. 7.)

We believe the same reasoning applies with equal force here.   Accordingly, the award granting Transamerica $80,000 of its claimed $123,661.50 in attorney fees is reversed.

DISPOSITION

The order awarding Transamerica its attorney fees is reversed.   In all other respects, the judgment is affirmed.   Each party shall bear its own costs on appeal.

FOOTNOTES

1.   These include Security Union Title Insurance Company, formerly Safeco Title Insurance Company, and its escrow officer, Dee Schuman (collectively Security Union);  Transamerica Title Insurance Company, and its escrow officer, Leslie Cron (collectively Transamerica);  and Fidelity National Title Insurance Company, formerly Western Title Insurance Company (Fidelity National).

FOOTNOTE.   See footnote *, ante.

FN6. All further references to “rules” are to the California Rules of Court..  FN6. All further references to “rules” are to the California Rules of Court.

7.   Transamerica cites neither statute nor case law to support this contention.

FN8. All further statutory references are to the Code of Civil Procedure unless otherwise specified..  FN8. All further statutory references are to the Code of Civil Procedure unless otherwise specified.

9.   At oral argument, Transamerica was asked if rules 870.2 and 870(a)(1) requiring an attorney fee motion to be served and filed within 15 days after the date of mailing of the notice of entry of judgment meant what they said.   Transamerica responded that these rules were not mandatory as noncompliance could be disregarded if no prejudice to the other party resulted, citing Gunlock v. Walk on Water, Inc. (1993) 15 Cal.App.4th 1301, 19 Cal.Rptr.2d 197.   We believe Gunlock was incorrectly decided for the reasons stated in Russell v. Transpacific Group, supra, 19 Cal.App.4th at pp. 1727-1729, 24 Cal.Rptr.2d 274.

COTTLE, Presiding Justice.

ELIA and BAMATTRE-MANOUKIAN, JJ., concur.

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