KACHLON v. MARKOWITZ

• Decision Date: 17 November 2008
• Docket Number: No. B182816.,B182816.
• Citation: 85 Cal.Rptr.3d 532,168 Cal.App.4th 316
• Court: California Court of Appeals Court of Appeals
• Parties: Mordechai KACHLON, et al., Plaintiffs and Appellants, v. Debra W. MARKOWITZ, et al., Defendants and Appellants. Donald J. Markowitz, et al., Plaintiffs, Cross-defendants and Appellants, v. Mordechai Kachlon, et al., Defendants, Cross-complainants and Appellants; Best Alliance Foreclosure and Lien Services, Defendant and Appellant.

168 Cal.App.4th 316

85 Cal.Rptr.3d 532

Mordechai KACHLON, et al., Plaintiffs and Appellants,

v.Debra W. MARKOWITZ, et al., Defendants and Appellants.

Donald J. Markowitz, et al., Plaintiffs, Cross-defendants and Appellants,

v.Mordechai Kachlon, et al., Defendants, Cross-complainants and Appellants;

Best Alliance Foreclosure and Lien Services, Defendant and Appellant.

No. B182816.

Court of Appeal, Second District, Division 4, California.

Nov. 17, 2008.

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The Law Office of John Derrick, Santa Barbara, for Plaintiffs and Appellants Mordechai Kachlon and Monica Kachlon.

Gary G. Kuist, Los Angeles, and Timothy D. McGonigle, Santa Monica, for Plaintiffs, Cross-defendants and Appellants Donald J. Markowitz.

Edwin B. Stegman, Los Angeles, for Defendant and Appellant Debra W. Markowitz.

Adleson, Hess & Kelly, Phillip M. Adleson, Campbell, Berger Kahn, and G. Arthur Meneses, Los Angeles, for Defendant and Appellant Best Alliance Foreclosure and Lien Services.

Kirby & McGuinn, Martin T. McGuinn, and Dean T. Kirby, Jr., San Diego, for Amicus Curiae United Trustee's Association on behalf of Defendant and Appellant Best Alliance Foreclosure and Lien Services.

WILLHITE, J.

INTRODUCTION

This appeal arises following a joint trial in two consolidated lawsuits involving, broadly speaking, allegations of wrongful foreclosure under a deed of trust and breach of a home improvement contract. The relationships among the parties giving rise to the lawsuits are complicated. The relevant events began in September 1998, when the Markowitzes (Donald and Debra, husband and wife) purchased a residence from the Kachlons (Mordechai and Monica, also husband and wife). ¹ As part of the transaction, the Markowitzes executed a promissory note for $53,000 in favor of the Kachlons, secured by a second deed of trust on the home. Thereafter, Mordechai provided contractor services for the Markowitzes involving various home improvement projects. Debra, an attorney, provided legal services to Mordechai, and also became romantically involved with him.

The parties' dealings soured, resulting in two lawsuits. In the first, Mordechai sued the Markowitzes for allegedly breaching his home improvement contract and failing to repay personal loans. In the second, the Markowitzes sued the Kachlons, alleging that they wrongfully initiated nonjudicial foreclosure proceedings on the residence under the deed of trust. The Markowitzes also named as a defendant, among others, Best Alliance Foreclosure and Lien Services (Best Alliance), which the Kachlons substituted in as the trustee to conduct the nonjudicial foreclosure. In the Markowitzes' action, Mordechai filed a cross-complaint against Debra for legal malpractice and breach of fiduciary duty.

Following consolidation, the two lawsuits were tried together. The results of the trial, along with the trial court's rulings on motions for directed verdict, judgment notwithstanding the verdict, and attorney fees, create a thicket of appeals by the Kachlons, Donald and Debra Markowitz (who appeal separately, having been separately represented in the trial court as well), and Best Alliance.

So as to discuss related issues from the appeals and cross-appeals together, we divide our opinion into two main parts. We ultimately affirm the judgment, except for the court's award of $16,000 in attorney fees to Debra Markowitz under Civil Code section 1717 as against the Kachlons and Best Alliance. We remand that issue to the trial court for a redetermination of the attorney fees to which Debra is entitled under Civil Code section 1717, and direct the court to use the lodestar method as described in PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095-1096, 95 Cal.Rptr.2d 198, 997 P.2d 511 ( PLCM ).

In part I of our opinion, we consider issues relating to the Markowitzes' lawsuit against the Kachlons and Best Alliance for wrongful foreclosure on the residence under the deed of trust. In the published portion of part I, we hold that Civil Code section 2924 deems the statutorily required mailing, publication, and delivery of notices in nonjudicial foreclosure, and the performance of statutory nonjudicial foreclosure procedures, to be privileged communications under the qualified common-interest privilege of Civil Code section 47, subdivision (c)(1). We conclude that Best Alliance's recording of the notice of default on instruction by the Kachlons was privileged, that the evidence failed to demonstrate Best Alliance acted with malice, and that therefore Best Alliance was immune from the Markowitzes' slander of title and negligence claims. Also, we reject the Markowitzes' claim that the scope of the privilege is limited by another provision of section 2924, which grants the trustee immunity for any good faith error resulting from reliance on information provided in good faith by the beneficiary regarding the default under the deed of trust. We further conclude that, unlike Best Alliance, the Kachlons are not entitled to privilege protection. Finally, we hold that the trial court properly found, under Civil Code section 1717, that the Markowitzes were prevailing parties entitled to attorney fees against the Kachlons and Best Alliance on the Markowitzes' equitable claims arising out of the $53,000 promissory note and deed of trust.

In the unpublished portion of part I, we conclude that the court did not abuse its discretion in determining the amount of attorney fees to which Donald was entitled. Regarding the single aspect of the judgment as to which we reverse, we conclude that the trial court erred in limiting Debra's award of attorney fees on the claims arising out of the promissory note and trust deed to an amount purportedly based on the contingency fee agreement between Debra and her counsel. We remand solely for a redetermination of the attorney fees to which Debra is entitled under Civil Code section 1717.

In part II of our opinion, which is unpublished, we consider issues relating to the Kachlons' action to recover sums allegedly owing on the home improvement contract and unsecured personal loans. We find no error in this portion of the case.

I. THE WRONGFUL FORECLOSURE AND RELATED CLAIMS

A. FACTUAL AND PROCEDURAL BACKGROUND

1. The Original Promissory Note and Second Deed of Trust

In 1998, the Markowitzes purchased a home from the Kachlons. In the sale, the Markowitzes executed a promissory note for $53,000 in favor of the Kachlons, secured by a second deed of trust on the residence. In addition, the parties agreed that Mordechai Kachlon would take possession of a 1995 Jaguar automobile owned by the Markowitzes, and Donald Markowitz would continue to make all payments on the car. These payments were to be credited toward the monthly payments due on the promissory note. Debra Markowitz and Mordechai also agreed that Debra would provide legal services to Mordechai, which were to be credited toward the amount owed on the promissory note.

Over time, the parties' entanglements increased, as Mordechai began performing various construction and home improvement projects at the Markowitzes' home, and Mordechai and Debra began an affair. Eventually, in late 2001, Donald initiated divorce proceedings from Debra.

2. The Kachlons' First Nonjudicial Foreclosure, and the 2002 Reduction of the Note

In early 2002, a dispute arose between the Kachlons and the Markowitzes regarding the amount still owing under the promissory note. Donald asserted that he had made over $30,000 in payments on the Jaguar that should have been credited against the note. In early May 2002, the Kachlons initiated nonjudicial foreclosure proceedings, claiming the Markowitzes were in default on the promissory note. Ultimately, the Kachlons and the Markowitzes entered into an oral agreement to resolve the dispute. The Kachlons agreed to withdraw the foreclosure action, and acknowledge that the obligation on the promissory note had been reduced by $41,000. In turn, the Markowitzes agreed to transfer title to the Jaguar to Mordechai. In late May 2002, the parties executed a written agreement stating the obligation on the promissory note was reduced by $41,000 to reflect payments and credits received from the Markowitzes.

Later in 2002, Mordechai insisted the Markowitzes still owed him additional money. In July 2002, Debra signed an unsecured promissory note in Mordechai's favor. Under the note, Debra agreed to pay Mordechai $7,000 in return for his forgiving $7,000 due on the original $53,000 note. ²

3. Donald's Line of Credit

In July 2002, City National Bank (Bank) agreed to extend to Donald a $200,000 line of credit, which was to be secured by a new second deed of trust on the Markowitz residence. To complete this transaction, the Bank required that the original $53,000 promissory note issued by the Markowitzes to the Kachlons be repaid in full, and that the Kachlon's second deed of trust, which secured the note, be reconveyed. The Bank retained Fidelity National Title Company (Fidelity) to provide a policy of title insurance, and Fidelity also agreed to act as a subescrow to hold and exchange money and documents between Donald and the Kachlons.

Fidelity sent the Kachlons a ”request for demand“ in July 2002 stating that Donald had made a loan request to be secured by the Markowitz residence, and that the encumbrance held by the Kachlons was to be paid in full. The request for demand was accompanied by a beneficiary's demand in which the Kachlons were to state the amount remaining due on the note, and a request for reconveyance in which they were to consent to reconveyance of the deed of trust upon receipt of payment. Fidelity requested that the Kachlons complete and sign the beneficiary's demand and request for reconveyance, and deliver them along with the original promissory note and deed of...