Court Opinion

ID: 9556561
Source: CourtListenerOpinion
Date Created: 2023-08-17 18:03:42.474171+00
Date Added: 2024-06-11T08:09:51.397417
License: Public Domain

Filed 8/17/23 Shetty v. Doshi CA2/4
            NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

         IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                  SECOND APPELLATE DISTRICT

                                                DIVISION FOUR

 NIKI-ALEXANDER SHETTY,                                                 B321391

           Plaintiff and Appellant,                                     (Los Angeles County
                                                                         Super. Ct. No. 20STCV25324)
           v.

 TEJAS DOSHI and PARAS DOSHI,

           Defendants and Respondents.

         APPEAL from a judgment of the Superior Court of Los Angeles County,
Teresa A. Beaudet, Judge. Reversed.
         Kousha Berokim for Plaintiff and Appellant.
         Epps & Coulson, Dawn M. Coulson and Jeffrey A. Cohen for
Defendants and Respondents.
                             INTRODUCTION
      Plaintiff brought an action claiming he had overpaid on a promissory
note, which included an allegedly usurious interest rate. Following plaintiff’s
voluntary dismissal of two defendants, the trial court awarded those
defendants their attorney fees as the prevailing parties pursuant to a fee-
shifting provision contained in the promissory note. Plaintiff challenges the
attorney fees award on appeal, contending Civil Code section 17171 precludes
a finding that defendants were the prevailing parties. We agree and reverse
the trial court’s order.

             FACTUAL AND PROCEDURAL BACKGROUND
      The operative first amended complaint alleges the following facts. In
November 2018, plaintiff Niki-Alexander Shetty (Shetty) borrowed money
from defendants Tejas and Paras Doshi (the Doshis) pursuant to a
promissory note secured by a deed of trust on his real property located in
Redlands, California. The promissory note provided Shetty would receive a
principal sum of $125,000, on which he would pay interest at 12 percent per
annum. However, the Doshis only lent him the principal sum of $108,000,
rather than the $125,000 indicated on the note itself. When a notice of
default was recorded against the property, Shetty tendered the full and
correct amount due under the note to avoid default. This offer was rejected
by the Doshis.
      Based on these allegations, Shetty sued the Doshis and others,
asserting four causes of action: usury, common counts, violation of Financial
Code section 22750, and unfair competition under Business and Professions

1     All further statutory references are to the Civil Code unless otherwise
stated.
                                       2
Code section 17200. Shetty claimed the interest paid under the note was
usurious and that he had never received the full balance of the principal as
provided by the note. In essence, Shetty contended he had been forced to
overpay on the note to avoid foreclosure. These allegations form the basis of
each cause of action asserted by Shetty. Shetty’s cause of action for usury is
based on the 12 percent interest rate set forth in the note, his cause of action
for common counts is premised on his alleged overpayment under the note,
the cause of action for violation of Financial Code section 22750 asserts the
Doshis operated as unlicensed lenders and charged impermissible interest
and fees in connection with the note, and the cause of action for unfair
competition is based on the interest rate and purported demand that Shetty
pay more than was owed to satisfy the note. The complaint seeks, among
other things, the return of all money paid under the note and a judicial
determination that the provisions of the note concerning the repayment of
principal and interest are void.
      The Doshis filed a demurrer to the operative complaint. Before the
demurrer hearing, Shetty filed a request for dismissal without prejudice as to
the Doshis. The trial court then entered that dismissal.
      The Doshis filed a motion to recover their attorney fees pursuant to a
fee provision in the underlying promissory note. The provision states, “In any
action to enforce this Note, the prevailing party shall receive attorney fees.”
The trial court entered an order finding the Doshis were entitled to recover
their attorney fees as prevailing parties in the action but continued the
hearing on the motion to allow for supplemental briefing as to the amount of
the fee award. Following supplemental briefing, the court entered an order

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granting the motion and awarding the Doshis $20,041.50 in attorney fees.
Shetty filed a notice of appeal of this order.2

                                  DISCUSSION
    A.      Standard of Review
         “On appeal this court reviews a determination of the legal basis for an
award of attorney fees de novo as a question of law.” (G. Voskanian
Construction, Inc. v. Alhambra Unified School Dist. (2012) 204 Cal.App.4th
981, 995.) Whether a party is entitled to attorney fees under section 1717 is a
question of law subject to de novo review. (347 Group, Inc. v. Hawkins (2020)
58 Cal.App.5th 209, 213.)

    B.      Civil Code Section 1717
         California follows the “American rule,” under which each party to a
lawsuit must pay its own attorney fees unless a contract, statute, or other
law authorizes a fee award. (Code Civ. Proc., §§ 1021, 1033.5, subd. (a)(10);
Musaelian v. Adams (2009) 45 Cal.4th 512, 516.)

2      The Doshis note Shetty did not appeal from the order finding the
Doshis were entitled to an award of attorney fees as prevailing parties on
Shetty’s claims, and instead only appealed from the subsequent order setting
the amount of this fee award. This distinction is immaterial. In such
situations, we will liberally construe the notice of appeal to encompass review
of both the determination that a party is contractually entitled to attorney
fees, as well as the amount of fees awarded. (Whiteside v. Tenet Healthcare
Corp. (2002) 101 Cal.App.4th 693, 706–707; accord, P R Burke Corp. v. Victor
Valley Wastewater Reclamation Authority (2002) 98 Cal.App.4th 1047, 1053–
1054.) The question of whether the Doshis are contractually entitled to an
award of attorney fees pursuant to the promissory note is thus properly
before us.
                                         4
      “[A] prevailing party is entitled as a matter of right to recover costs in
any action or proceeding” except as otherwise expressly provided by statute.
(Code Civ. Proc., § 1032, subd. (b).) The term “prevailing party” is defined as
“the party with a net monetary recovery, a defendant in whose favor a
dismissal is entered, a defendant where neither plaintiff nor defendant
obtains any relief, and a defendant as against those plaintiffs who do not
recover any relief against that defendant.” (Id., at subd. (a)(4).) The costs
recoverable include attorney fees when authorized by contract. (Code Civ.
Proc., § 1033.5, subd. (a)(10).) The attorney fee award here was based on the
attorney fee provision in the promissory note.
      Shetty contends the Doshis’ right to recover attorney fees is limited by
section 1717 because all of his causes of action are based “on a contract” (i.e.,
the promissory note). Under section 1717, subdivision (a), “In any action on a
contract, where the contract specifically provides that attorney[] 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[] fees
in addition to other costs.” However, under section 1717, subdivision (b)(2),
where an action is “on a contract” pursuant to section 1717 and has been
voluntarily dismissed, there is no prevailing party. (§ 1717, subd. (b)(2)
[“Where an action has been voluntarily dismissed or dismissed pursuant to a
settlement of the case, there shall be no prevailing party for purposes of this
section”].)
      “California courts construe the term ‘on a contract’ liberally.” (Turner
v. Schultz (2009) 175 Cal.App.4th 974, 979.) “Any action that is based on a
contract is an action on that contract regardless of the relief sought.” (Brown

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Bark III, L.P. v. Haver (2013) 219 Cal.App.4th 809, 821.) “In determining
whether an action is ‘on the contract’ under section 1717, the proper focus is
not on the nature of the remedy, but on the basis of the cause of action.”
(Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 347.)

   C.      Attorney Fee Award
        Courts have recognized “‘“[i]t is difficult to draw definitively from case
law any general rule regarding what actions and causes of action will be
deemed to be ‘on a contract’ for purposes of [section] 1717.”’” (Douglas E.
Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230, 241.)
“Nevertheless, we distill . . . the following principle: An action (or cause of
action) is ‘on a contract’ for purposes of section 1717 if (1) the action (or cause
of action) ‘involves’ an agreement, in the sense that the action (or cause of
action) arises out of, is based upon, or relates to an agreement by seeking to
define or interpret its terms or to determine or enforce a party’s rights or
duties under the agreement, and (2) the agreement contains an attorney fees
clause.” (Id. at pp. 241–242.)
        The causes of action raised in Shetty’s operative complaint satisfy this
two-part test as actions “on a contract” under section 1717. Each of these
causes of action are based on the same operative facts concerning the
promissory note and Shetty’s assertion that he overpaid the principal and
interest due on the note to avoid foreclosure. Shetty’s cause of action for
usury is based on the promissory note and alleges the 12 percent interest rate
exceeded the maximum permissible interest rate under article XV of the
California Constitution. Shetty’s common counts cause of action is based on
Shetty’s purported overpayment of the amount due on the note to avoid
foreclosure. Shetty’s third cause of action alleges the Doshis violated

                                          6
Financial Code section 22750 by operating as unlicensed lenders and in
charging impermissible interest and fees. Shetty’s cause of action for unfair
competition is based on the allegation that the Doshis knowingly and
intentionally charged Shetty for monies they had not actually lent to him,
and in applying a usurious interest rate on the note. The relief sought by
Shetty included the return of all principal, interest, and other charges he
paid, treble damages, attorney fees, and the adjudication that the provisions
of the note concerning the return of the principal and payment of interest
“are null and void and have no force or effect.”
      Therefore, Shetty’s operative complaint as a whole—and each cause of
action asserted therein—arises out of the promissory note and seeks to
determine the parties’ respective rights or duties under the note, specifically
the amount owed by Shetty in principal and interest. This satisfies the first
element as “involving” a contractual agreement.3 “Candidly, it is difficult to
think of an action that is more likely to be characterized as an ‘action on a
contract’ than one in which the party bringing the action explicitly seeks to
have the subject contract declared void and invalid in its entirety.” (Eden
Township Healthcare Dist. v. Eden Medical Center (2013) 220 Cal.App.4th
418, 427 [holding an action for declaratory and injunctive relief which sought
to invalidate an agreement is an action “on a contract” under section 1717].)
It is uncontested that the second element has been satisfied, as both parties
acknowledge that the promissory note contains an attorney fee clause.

3     See Forte v. Nolfi (1972) 25 Cal.App.3d 656, 692 [“usury can only arise
by reason of an agreement, executed or executory, to receive compensation for
the loan or forbearance of money in excess of the rate provided by the
Constitution and the usury law. Therefore, the wrong involved is dependent
on a contract”].
                                       7
      Shadoan v. World Savings & Loan Assn. (1990) 219 Cal.App.3d 97
(Shadoan) is instructive. In Shadoan, the plaintiffs and defendant had
entered into a loan agreement which included a prepayment penalty
provision. The plaintiff borrowers paid the penalty to defendant.
Subsequently, they brought suit against defendant on behalf of themselves
and other similarly situated borrowers, alleging in a single cause of action
that the prepayment penalty was an unfair business practice under Business
and Professions Code section 17200. In their individual capacities, plaintiffs
sought to recover the prepayment penalty they had paid to defendant. In
their representative capacity, they sought to enjoin defendant from collecting
prepayment penalties from other borrowers. (Id. at pp. 100–101.) The
plaintiffs’ loan agreement with defendant contained an attorney fee
provision. The trial court sustained defendant’s demurrer to the complaint
and dismissed the action. Defendant then moved for an award of attorney
fees pursuant to the attorney fee clause in the loan agreement. The trial
court found under section 1717, defendant was only entitled to an award of
attorney fees incurred in defending plaintiffs’ private action for relief from
their contract but was not entitled to recover the fees it incurred in defending
the claim for injunctive relief brought in a representative capacity on behalf
of similarly situated borrowers. (Id. at p. 107.)
      The Court of Appeal affirmed, holding defendant was only “entitled to
its fees to the extent that they were incurred in an action ‘on the contract’”
under section 1717. (Shadoan, supra, 219 Cal.App.3d at p. 107.) The court
reasoned “that fees should be awarded to the extent that the action in fact is
an action to enforce—or avoid enforcement of—the specific contract.” (Id. at
p. 108.) Thus, the plaintiffs “in their private capacity, suing on their own
contract,” were required to pay defendant’s attorney fees in defending that

                                        8
claim, whereas their claim for injunctive relief brought in a representative
capacity did not seek to enforce or avoid enforcement of a specific contract
and thus fell beyond the scope of section 1717. (Id. at p. 109.)
       Here, Shetty’s cause of action for unfair competition seeks to invalidate
the provisions of the note requiring the repayment of $125,000 in principal
and the payment of allegedly usurious interest. Under Shadoan, this claim is
“on a contract” for purposes of applying section 1717.
       Respondent’s reliance on Santisas v. Goodin (1998) 17 Cal.4th 599
(Santisas) and Winnett v. Roberts (1986) 179 Cal.App.3d 909, 923 (Winnett) is
misplaced. The complaint at issue in Santisas alleged causes of action for
breach of contract, negligence, deceit, negligent misrepresentation, and
suppression of fact arising from the sale of a home. (Santisas, supra, 17
Cal.4th at p. 603.) The court determined the cause of action for breach of
contract “sounds in contract, not tort, and is therefore an ‘action on a
contract’ within the meaning of section 1717.” (Id. at p. 615.) As the
plaintiffs in that action had voluntarily dismissed the action, the court held
the defendants could not recover attorney fees incurred to defend the breach
of contract cause of action but were entitled to such an award as to the
remaining causes of action, which the court characterized as sounding in tort
without further discussion. (Id. at p. 619.) As such, Santisas offers little
guidance as to whether Shetty’s claims arise “on a contract” in this action or
not.
       Similarly, Winnett contains no discussion of whether a particular action
or claim is deemed to be “on a contract” for purposes of section 1717. The
court in Winnett was faced with a contractual attorney fee provision which
stated: “‘If action be instituted on this note, I promise to pay such sum as the
Court may fix as attorneys’ fees.’” (Winnett, supra, 179 Cal.App.3d at p. 922.)

                                        9
The court determined this fee provision was “broad enough to encompass a
lawsuit attacking the note as usurious.” (Id. at p. 923.) Unlike the instant
action, there was no voluntary dismissal in Winnett, nor was there any
question regarding whether the plaintiffs’ claims constituted an action “on a
contract” under section 1717.
        Having found that Shetty’s action is “on a contract” for purposes of
section 1717, we find the trial court erred in finding the Doshis were entitled
to an award of attorney fees as the prevailing parties on Shetty’s claims. As
Shetty’s claims were “on a contract” and Shetty voluntarily dismissed those
claims against respondents, there can be no prevailing parties on those
claims for purposes of the attorney fee provision in the promissory note.
(§ 1717, subd. (b)(2).)

   D.      Scope of the Attorney Fee Provision
        The same result would follow even if the Court were to adopt the
Doshis’ reasoning and hold Shetty’s claims sounded purely in tort and were
not “on a contract” under section 1717. “Civil Code section 1717 does not
apply to tort claims; it determines which party, if any, is entitled to attorneys’
fees on a contract claim only. [Citations.] As to tort claims, the question of
whether to award attorneys’ fees turns on the language of the contractual
attorneys’ fee provision, i.e., whether the party seeking fees has ‘prevailed’
within the meaning of the provision and whether the type of claim is within
the scope of the provision.” (Exxess Electronixx v. Heger Realty Corp. (1998)
64 Cal.App.4th 698, 708.) “If a contractual attorney fee provision is phrased
broadly enough, . . . it may support an award of attorney fees to the
prevailing party in an action alleging both contract and tort claims: ‘[P]arties
may validly agree that the prevailing party will be awarded attorney fees

                                        10
incurred in any litigation between themselves, whether such litigation
sounds in tort or in contract.’” (Santisas, supra, 17 Cal.4th at p. 608.) “The
court must determine whether the contract provides for attorney fees in a
tort action under the procedural posture of the particular case.” (Gil v.
Mansano (2004) 121 Cal.App.4th 739, 743 (Gil).)
      The fee provision at issue here provides “In any action to enforce this
Note, the prevailing party shall receive attorney fees.” We find this language
does not support an award of attorney fees on non-contractual tort claims.
      Gil is squarely on point as it involved an attorney fee clause similar to
the one found in the promissory note at issue here. The clause in Gil stated
“‘In the event action is brought to enforce the terms of this [Release], the
prevailing party shall be paid his reasonable attorney[] fees and costs
incurred therein.’” (Gil, supra, 121 Cal.App.4th at p. 742.) The court held
such language could not support an award of attorney fees to a party
prevailing on tort claims, holding “The language ‘brings an action to enforce
the contract’ is quite narrow.” (Id. at p. 744.) In finding the clause did not
authorize an award of attorney’s fees in connection with tort claims, the court
reasoned “A tort claim does not enforce a contract. [Citation.] Where a
contract authorizes an award of attorney fees in an action to enforce any
provision of the contract, tort claims are not covered.” (Id. at p. 743.) The
court also noted the provision did not authorize an award of attorney fees
where the contract was raised as a defense to tort claims. (Id. at pp. 743–
744.) Other courts have similarly held that provisions authorizing the
recovery of attorney fees incurred to “enforce” a contract do not encompass
tort claims. (See e.g., Exxess Electronixx v. Heger Realty Corp., supra, 64
Cal.App.4th at p. 709 [holding tort claims for constructive fraud and breach
of fiduciary duty were not covered by fee provision authorizing a fee award in

                                       11
an action to “enforce the terms” of a contract and collecting cases analyzing
similar fee provisions].)
      The Doshis rely on Winnett, supra, 179 Cal.App.3d at page 923, which
held “An attorney fee provision in a promissory note is broad enough to
encompass a lawsuit attacking the note as usurious,” citing Thunderbird
Investment Corp. v. Rothschild (1971) 19 Cal.App.3d 820, 830 (Thunderbird)
and Berge v. International Harvester Co. (1983) 142 Cal.App.3d 152, 164
(Berge). The Doshis argue that because Shetty asserted a cause of action
against them for usury, this claim must necessarily fall within the scope of
the fee provision in the promissory note. However, the fee provision at issue
in Winnett was much more broadly worded than the clause in Shetty’s
promissory note here. The clause in Winnett stated “‘If action be instituted
on this note, I promise to pay such sum as the Court may fix as attorneys’
fees.’” (Winnett, supra, 179 Cal.App.3d at p. 922.) The same is true of the
clause before the Court in Thunderbird, which stated “‘If action be instituted
on this note, I promise to pay such sum as the court may fix as attorney’s
fees.’” (Thunderbird, 19 Cal.App.3d at p. 830.)
      Winnett and Thunderbird do not establish a blanket rule that usury
claims will always fall within the scope of an attorney fee provision
regardless of how narrowly that provision is drawn. Rather, they simply
illustrate the point made in Gil that “Broad language in a contractual
attorney fee provision may support a broader interpretation” which would
permit an award of attorney fees incurred on tort claims. (Gil, supra, 121
Cal.App.4th at p. 744.)
      Berge is similarly inapposite as it did not involve a usury claim at all.
In Berge the plaintiff brought suit against a vehicle manufacturer for breach
of express and implied warranties. The manufacturer cross-complained for

                                       12
damages it incurred in repossessing the subject vehicle after the plaintiff
defaulted on her payments. The sales contract contained a unilateral
attorney fee provision, made reciprocal pursuant to section 1717, subdivision
(a), stating: “‘Purchaser also agrees to pay all expenses, including reasonable
attorney’s fees to the extent permitted by law, incurred in the collection, by
suit or otherwise, of any amount payable under this contract.’” (Berge, supra,
142 Cal.App.3d at p. 163, fn. 8.) The plaintiff successfully defended against
the cross-complaint and moved for an award of attorney fees. The trial court
denied the motion and the Court of Appeal reversed, finding the cross-claim
was founded “on a contract” and thus plaintiff was entitled to an award of
attorney fees as the prevailing party on the cross-complaint pursuant to
section 1717. (Id. at pp. 163–164.) Berge offers no support for respondents’
contention that the fee provision in the promissory note extends to tort
claims.
      As the attorney fee provision in the promissory note is limited to fees
incurred in an “action to enforce this Note,” it does not authorize an award of
fees incurred in connection with the defense of non-contractual tort claims.
To the extent Shetty’s claims sound in tort and are not “on a contract” such as
to trigger the application of section 1717, subdivision (b)(2), they fall outside
the scope of the fee provision contained in the promissory note and cannot
support an award of attorney fees to the Doshis.

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                               DISPOSITION
     The order granting the motion for attorney fees is reversed. Shetty is
awarded his costs on appeal.
       NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                   ZUKIN, J.
     WE CONCUR:

     CURREY, P. J.

     MORI, J.

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