Preview
1 Nicholas Honchariw
429 Dubois Lane
2
PO Box 1452
3 Genoa NV 89411
(415) 225 3048
4 nh@nhpart.com
5
Ca. State Bar No: 55126
6 Attorney for Petitioners
Nicholas and Sharon Honchariw
7
8
9 SUPERIOR COURT OF THE STATE OF CALIFORNIA
10 COUNTY OF SONOMA
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12 In the Matter of the Arbitration ) CASE NO.: SCV-267331
13
Between )
Nicholas and Sharon Honchariw, ) SUPPLEMENTAL MEMORANDUM
14 ) IN SUPPORT OF PETITIONERS’
Petitioners ) MOTION FOR COSTS AND
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) ATTORNEY FEES
16 and )
)
17 FJM Private Mortgage Fund, LLC, )
FJM Capital, Inc., dba First Bridge )
18
Lending, FJM Management, LLC, dba ) Hearing: TBD
19 First Bridge Lending, and DOES 1-5, ) Department: 18
) Hearing Judge:
20 Respondents ) Hon. Christopher Honigsberg
) Action Filed: November 2, 2020
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 TABLE OF CONTENTS
2
3 TABLE OF CONTENTS 2
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TABLE OF AUTHORITIES 3
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ARGUMENT 5
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7 A. Petitioners are prevailing party entitled to attorney fees under
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CCP §1021.5 ………………..…………………………………………………….…..… 5
9 B. Petitioners are entitled to attorney fees in ordinary course because
they meet all three requirements of CCP §1021.5, including significant
10
benefit to the public………………………………….. …...………………..….…….. 8
11
12 CONCLUSION 14
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 TABLE OF AUTHORITIES
2
State Cases:
3
4 Bartling v. Glendale Adventist Med. Ctr. (1986) 184 CA3d 97 ……………………… 7
5 Beasley v. Wells Fargo Bank (1991) 235 CA2d 1407 ……………………………….. 9
6
Broad Beach Geologic Hazard Abatement Dist. v. 30156 Victoria
7 Point LLC (2022) 81 CA4th 1068 …………………………………………..…………. 13
8 City of Oakland v. Oakland Police & Fire Retirement Sys. (2018) 29 CA5th 688 …10
9
City of Los Angeles v. Metropolitan Water Dist. (2019) 42 CA5th 290 …..………...10
10
Collins v. City of Los Angeles (1012) 205 CA4th 140 ………………………………. 13
11
12 Department of Water Resources Envt’l Impact Cases ………………………………. 5
13 Early v. Becerra (2021) 60 CA5th 726 …………………………………………………. 8
14
Folsom v. Butte County Ass’n of Gov’ts (1982) 32 C3d 668 ………………………… 5
15
Garrett v. Coast & Southern Fed. Sav. & Loan Ass’n (1973) 9 C3d 731 …….8,11,14
16
Graham v. Daimler-Chrysler Corp. (2004) 34 C4th 553 ……………………………… 5
17
18 Honchariw v. FJM Private Mortgage Fund LLC (2022) 83 CA5th 893 (“FJM”). passim
19 In re Adoption of Joshua S. (2008) 42 C4th 945 …………………………………….. 13
20
Los Angeles Protective League v. City of Los Angeles (1986) 188 CA3d 1 ….….. 14
21
Lyons v. Chinese Hosp. Ass’n (2006) 136 CA4th 1331 ………………………..……. 8
22
23
MBNA Am. Bank v. Gorman (2006) 147 CA4th Supp 1 ……………………..…… 8,12
..
24 Moncharsh v. Heily & Blasé (1992) 3 C4th 1 ………………………………………….. 8
25 Monterossa v. Superior Court (2015) 237 CA4th 747 ……………… ……………….. 7
26
Press v. Lucky Stores, Inc. (1983) 34 C3d 311 …………………..…………………. 11
27
Richey v. Autonation, Inc. (2015) 60 C4th 909 …………..…………………………… 8
28
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 Tipton-Whittingham v. City of Los Angeles (2004) 34 C4th 604 …………….…..….. 5
2
Woodland Hills Residents Ass’n v. City Council (1979) 23 C3d 917 ……..…..…. . 10
3
4
5
State Statutes:
6 B&PC §10248.3…………………………………………………………………………… 5
7 B&PC §10240.1…………………………………………………………………………… 5
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CC §1671 ………………………………………………………………..…………..passim
9
CC §1717 ………………………………………………………………….…….…………5
10
..
11 CCP §1021.5 ………………………………………………………………..………passim
12 CCP §1286.2 ……………………………………………………………………………… 8
13
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15 Secondary Authorities
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Cal. Attorney Fee Awards (3d ed Cal CEB) …………………………..……….. passim
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5 Miller & Starr, Cal. Real Estate Practice, §13:96…………………………….……. 11
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 ARGUMENT
2 A. Petitioners are prevailing party entitled to attorney fees under CCP §1021.5.
3 Under §1021.5, the “successful party” is entitled to attorney fees. “Successful
4 party” is a variation of “prevailing party” – in the case of fee-shifting statutes, the terms
5 are synonymous. 1 Tipton-Whittingham v. City of Los Angeles (2004) 34 C4th 604, 610;
6 Graham v. Daimler-Chrysler Corp. (2004) 34 C4th 553, 570; Cal. Attorney Fee Awards
7 (3d ed Cal CEB) §2.44 1.
8 Courts have taken a “broad, pragmatic view” of what constitutes a prevailing or
9 successful party under fee-shifting statutes. See, eg, Graham, supra, 34 C4th at 565;
10 Folsom v. Butte County Ass’n of Gov’ts (1982) 32 C3d 668, 685; Department of Water
11 Resources Envt’l Impact Cases (2022) 79 CA5th 556, 571 (quoting Graham). As
12 observed in Cal. Attorney Fee Awards, supra, §2.45 2,
13 [“t]he typical formulation is as follows: ’It is settled that ‘plaintiffs may be
considered ‘prevailing parties’ for attorney’s fee purposes if they succeed
14
on any significant issue in litigation which achieves some of the benefit the
15 parties sought in bringing suit.’ [ital. in orig] Graciano v. Robinson Ford
Sales, Inc. (2006) 144 CA4th 140, 153 (quoting Henseley v. Eckerhart
16 (1983) 461 US 424, 433. See also Folsom, supra, 32 C3d at 685 (if party
17
has obtained some relief from ‘benchmark conditions’ challenged in lawsuit
and if that relief is attributable in some way to lawsuit, then that party is
18 prevailing party).”
19 Petitioners were the successful party. FJM unanimously awarded them complete
20 and unconditional relief on their primary claim ---- default interest upon the principal
21 balance of a loan for a late instalment is unlawful and petitioners are entitled to restitution
22 under CC §1671. The complementary causes of action are secondary and / or derivative.
23 Claims under the Real Property Loan Law are limited to real estate loans made or
24 negotiated by real estate brokers, B&PC §10248.3, and may be limited to dwellings,
25 B&PC §10240.1. Other claims are derivative, eg, the claim for breach of fiduciary duty
26 derives from the unlawfulness of default interest here. While Respondents have blithely
27
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1 The California Supreme Court has adopted a different formulation for CC §1717 cases. Hsu v. Abbara
(1995) 9 C4th 863; Cal. Attorney Fee Awards, supra, §2.45 2.
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 asserted that “the parties have simply been ordered back to arbitration” (Opp at 15), the
2 First District ordered reversal of the court’s original denial of Petitioners’ petition to
3 vacate, determined the default interest unlawful here, ordered vacatur of the original
4 arbitral decision, and held that Petitioners are entitled to restitution. The only outstanding
5 issue on re-arbitration under §1671 is the amount of damages. Petitioners prevailed.
6 Respondents have expressly conceded the liability in the arbitration proceedings
7 in their motion for summary judgment on the secondary causes of action left to arbitration
8 by the First District:
9 “[T]he court determined that liquidated damages in the form of a penalty
assessed during the lifetime of a partially matured note against the entire
10
outstanding loan amount are unlawful penalties … Since this arbitration was
11 initiated, Respondents have conceded that position and offered the return
of the default interest charged.”
12
13
[NH Supp Decl ¶8, quoting Respondents’ Notice of Motion and Motion at 20] The First
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District correctly recognized that there was no need to address the secondary claims
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because its holding on the §1671 claim was sufficient to mandate vacatur of the original
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arbitral award. FJM, 83 CA5th at 901 fn 3.
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An award is ripe now with the conclusion of these judicial proceedings. As detailed
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in the opening memorandum, an “interim award” of attorney fees may be called for before
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a full resolution on the merits of a dispute. As explained in Cal. Attorney Fee Awards,
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supra, §11.18,
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“Awarding interim fees (ie, a fee award made before the case is completed)
is an accepted procedure in federal courts. [cit. omitted] An application for
22 interim fees can be filed at any time after the moving party has obtained
some of its objectives, even though other parts of the action remain to be
23 resolved. There are no established time limits for interim fee motions.
24
Entitlement to an interim fee award depends upon obtaining relief under a
25 fee-shifting statute at an interim stage of the litigation. If such relief is
obtained, the party is entitled to prompt payment of its attorney fees for
26
having achieved that success. [underline added]
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To qualify for an interim award, however, the plaintiff must have prevailed
28 on the merits at some interim stage; an interim procedural victory will not
suffice.”
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1
Petitioners have prevailed on the merits here. As continued in §11.19:
2
“California courts are likely to follow the federal approach to interim fees …,
3
as they have done on other issues. See, eg, Westside Community for
4 Indep. Living, Inc. v. Obledo (1983) 33 C3d 348, 352 n5; Folsom v. Butte
County Ass’n of Gov’ts (1982) 32 C3d 668, 685.”
5
6
In fact California courts have followed the federal approach. In Bartling v. Glendale
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Adventist Med. Ctr. (1986) 184 CA3d 97, the plaintiff had won an appellate ruling
8
affording him the right to refuse medical treatment. The trial court denied his request for
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fees under §1021.5 because the issue of his consent to treatment had not yet been
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resolved. The appellate court reversed, holding that plaintiff’s entitlement to fees was
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established by its favorable ruling on the merits and did not depend on the ultimate
12
resolution of his claim.
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The same result is proper here – indeed necessary. These judicial proceedings
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have been completed with the Final Judgment filed February 1 2023. Apart from these
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fee proceedings, this court has discharged its duties with finality. There will be no further
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opportunity to move for a judicial award of attorney fees or costs. If future judicial
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proceedings arise, they will be a new action, with new issues, likely initiated by a new
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petition to vacate / correct / or affirm the new arbitral award.
19
Respondents have acknowledged that §1021.5 allows interim fees (Opp at 15 ln
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18) but assert that interim awards are available only “when the underlying statute
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specifically calls for it” (Opp at 15) under Monterossa v. Superior Court (2015) 237 CA4th
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747. Monterossa says no such thing. The contention is simply false. The case did not
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even deal with §1021.5 but CCP §2924.12, a narrow provision providing for attorney fees
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to the “prevailing party” in residential foreclosure disputes, expressly including a party
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which succeeds in obtaining an injunction against foreclosure. The court simply held that
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a preliminary injunction was an “injunction” within the meaning of the statute. Period.
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 B Petitioners are entitled to attorney fees in ordinary course because
they meet all three requirements of CCP §1021.5, including significant
2
benefit to the public.
3
As explained in MBNA Am. Bank v. Gorman (2006) 147 CA4th Supp 1, 9:
4
‘Entitlement to fees under section 1021.5 requires a showing that the
5 litigation: (1) served to vindicate an important public right; (2) conferred a
significant benefit on the general public or a broad class of persons; and (3)
6 [was necessary and] imposed a financial burden on plaintiffs which was out
7
of proportion to their individual stake in the matter.’” [citations omitted]
8 While §1021.5 is phrased in discretionary terms (ie, the court “may award” fees),
9 Petitioners are entitled to fees in normal course:
10 “prevailing plaintiffs are ‘ordinarily entitled’ to reasonable attorney fees, and
fees may be denied only when ‘special circumstances’ would render an
11 award ‘unjust’. See Serrano v. Unruh (Serrano IV) (1982) 32 C3d 621, 632
12
(CCP §1021.5 requires fully compensatory fee awards ‘unless special
circumstances would render such an award unjust’); Bartling v. Glendale
13 Adventist Med. Ctr. (1986) 184 CA3d 97, 104.”
14
Cal. Attorney Fee Awards, supra, §2.51(1). Early v. Becerra (2021) 60 CA5th 726,
15
736; Lyons v. Chinese Hosp. Ass’n (2006) 136 CA4th 1331, 1344; Cal. Attorney
16
Fee Awards, supra, §3.7 2.
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Important Public Right. The importance of the right here is evidenced by First
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District’s de novo review of Petitioners’ petition to vacate and reversal of the court’s
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original order denying their petition. Ordinarily arbitration awards are subject to very
20
limited judicial review. Eg, Moncharsh v. Heily & Blasé (1992) 3 C4th 1. One of the few
21
exceptions is where an arbitrator exceeds her powers, CCP §1286.2(a)(4), by denying a
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non-waivable statutory right or a right reflecting an express legislative statement of public
23
policy. Ibid; Richey v. Autonation, Inc. (2015) 60 C4th 909. Following Garrett v. Coast &
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Southern Fed. Sav. & Loan Ass’n (1973) 9 C3d 731, the First District recognized that
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Petitioners’ statutory rights were both non-waivable and constituted an express legislative
26
statement of public policy. That is why it was enpowered to review the arbitral award de
27
novo and reverse the court’s original order denying the petition to vacate.
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 This straight-forwardly satisfies the broad interpretation accorded “important right”:
2 “Under CCP 1021.5, the concept of ‘important right has generally been
broadly interpreted. Although not every statutory violation constitutes an
3
‘important right’ [citation], courts frequently reject attempts to characterize
4 rights in their most narrow or personal light.”
5 Cal. Attorney Fee Awards, supra, §3.40. Illustrative is Beasley v. Wells Fargo Bank
6 (1991) 235 CA2d 1407, 1417 2, in which an action attacking credit card overcharges was
7 held to be appropriately characterized as a consumer protection action, not merely an
8 action to vindicate the private rights of cardholders. See Cal. Attorney Fee Awards,
9 supra, §3.46(b). This is much more significant, as evidenced by the extensive California
10 statutory provisions governing real estate loan charges. 3
11 Its importance is further manifest by the First District’s certification of the opinion
12 for publication. As stated in Cal. Attorney Fee Awards, supra, §3.42(3):
13 “[A]n appellate court’s decision to publish its opinion on the merits is, in light
14
of the rules governing publication (Cal. Rules of Ct., 8.1100-8.1125), strong
evidence that an important right is involved. [citations] ‘[W]hile the fact of
15 publication does not reach the level of a prima facie showing the right was
important, … it goes some distance in that direction.” [citations] See, e.g.,
16 Doe v. Westmont College, 60 CA5th at 764 (“The publication of an opinion
17
suggests that the case involved a matter of public importance ….”).”
18 Its importance is highlighted by the ensuing flurry of legal activity by Respondents
19 and the industry. Upon filing of FJM, Respondents substituted counsel to bring in one of
20 the law firms most closely associated with the promotion of “default interest”, Geraci Law
21 Firm in Irvine CA, which promptly filed a comprehensive petition for rehearing. It was
22 denied. The Geraci Firm then filed a comprehensive petition for review in the California
23
2 Disapproved on other grounds in Olson v. Automobile Club of S. Cal. (2008) 42 C4th 1142, 1153 n6.
24
3 Protection against predatory lending practices underlies California’s usury laws and the myriad of
25 statutory provisions in specific contexts limiting penalty fees and costs for late monthly instalments. Eg,
CC §2954.4 (late payment charges in residential mortgage loans are generally limited to no more than
26 a flat 6% of late principal and interest), B&PC §10242.5 (late payment charges in real estate loans
secured by dwellings arranged by licensed real estate brokers may not consist of an interest charge
27 upon the entire principal balance and are limited to no more than a flat 10% of late principal and
interest). In the context of real estate loans, imposition of a default interest rate severely restricts a
28 borrower’s ability to reinstate his loan in the face of non-judicial foreclosure by a lender. Borrowers
unable to raise the cash to cover the accruing default interest on top of a loan’s note rate would lose
their property..
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 Supreme Court. The Geraci Firm added a request for depublication. It was joined by
2 amicus briefs on behalf of the California Bankers Association, California Mortgage
3 Bankers Association, Mortgage Bankers Association, California Mortgage Association,
4 National Private Lenders Association, and the American Association of Private Lenders.
5 The Supreme Court denied both petitions.
6 Significant benefit to public. The charge for the court is to determine the
7 significance of the benefit, as well as the size of the class benefitting, “from a realistic
8 assessment, in light of all of the pertinent circumstances, of the gains which have
9 resulted in a particular case”. Woodland Hills Residents Ass’n v. City Council (Woodland
10 Hills II) (1979) 23 C3d 917, 939. The assessment is to be decided “from a practical
11 perspective” on the facts of each case. City of Oakland v. Oakland Police & Fire
12 Retirement Sys. (2018) 29 CA5th 688, 711; Cal. Attorney Fee Awards, supra, §3.51(1).
13 As with the important right factor, courts “have broadly construed the significant benefit
14 factor”. Ibid. See, eg, City of Los Angeles v. Metropolitan Water Dist. (2019) 42 CA5th
15 290, 306.
16 FJM has provided significant benefit through published “binding precedent”
17 protecting mortgage (and other) borrowers from an oft used predatory provision bringing
18 the practice in the private mortgage lending industry to a halt. The opinion definitively
19 held the practice unlawful. Publication of a definitive opinion is itself sufficient under
20 §1021.5, for benefits may be “doctrinal and conceptual in nature”. Cal. Attorney Fee
21 Awards, supra, §3.52(a). But here this benefit was supplemented by the actual real-world
22 effects of FJM. As Respondents’ own expert witness has declared, FJM put a halt to the
23 industry practice. Documenting and charging default interest upon the principal balance
24 of a mortgage loan for a late monthly instalment was common --- Respondents say
25 routine --- pre-FJM. Now it has stopped. In a Declaration in the pending arbitration, their
26 expert, practicing attorney David Doss, conceded:
27 “Large loan servicers … collected default interest routinely prior to the
decision in Honchariw but stopped doing so shortly thereafter.”
28
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Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 [NH Supp Decl, ¶6, Exh A ¶10] The real world effects are dramatic. Here the default
2 interest surcharge of 9.99% per annum upon the principal balance of the loan – which
3 exceeded the note rate of 8.5% per annum --- was the equivalent of 110.5% per month
4 on the overdue monthly instalment of $39,667, or 1410% per annum. A loan sharking
5 rate --- and for a loan well-secured by real estate, allowing the lender a non-judicial right
6 of foreclosure upon non-payment. The pressure on late borrowers was immense.
7 Respondents’ posture here has been flagrantly duplicitous. At oral argument as in
8 their Opposition, Respondents asserted that the First Circuit conferred no significant
9 benefit upon the public because Garrett had been good law for 50 years. (Opp at 13)
10 Actually this is correct. The pre-eminent real estate treatise in California steadfastly
11 declared before FJM:
12 “These legislative changes [1977 revision] have not altered the fundamental
requirement that a late charge must be reasonable …. A late charge based
13
on a percentage of the unpaid balance of the loan is unreasonable and
14 punitive, and as a penalty, it is deemed a forfeiture which the debtor can
recover ….”
15
16 5 Miller & Starr, Cal. Real Estate Practice, §13:96 at 13-394. One wonders why
17 Respondents did not comply. But this argument gains Respondents nothing. There is no
18 requirement that an action create new law. In Press v. Lucky Stores, Inc. (1983) 34 C3d
19 311, the Supreme Court rejected defendant’s contention that an action that merely
20 enforces a previous landmark decision does not confer a significant benefit. The court
21 held that the enforcement of well-defined, existing obligations had consistently been the
22 basis for an award of fees and that the scope of §1021.5 could not be so narrowly
23 construed because rights secured in landmark cases would be meaningless without
24 subsequent lawsuits to enforce them. Id. at 318; Cal. Attorney Fee Awards, supra,
25 §3.55(d).
26 Yet, while asserting that Garrett had been well-settled for 50 years, Respondents
27 argued strenuously that the default interest charges were legal under the 1977
28 amendments to §1671 at all stages of these proceedings, starting with the arbitration,
then at this court, and then at the First District, imposing increased costs upon
11
Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 Petitioners. In his Declaration, their expert trumpeted that the industry was blind-sided by
2 FJM:
3 “Prior to the decision in [FJM] … it was exceedingly rare to see a business
purpose loan that did not contain a provision in the loan documents
4
increasing the interest rate upon default, a so-called default interest
5 provision. I would estimate that the odds of seeing loan documents without
a default interest provision to be 1 in 100 …. The decision … came as quite
6 a shock and surprise to the private money industry. ‘Blindsided’ is the best
7
description for the industry’s reaction to that decision. I had written
hundreds of loan documents containing default interest provisions and I had
8 no inkling whatsoever that the result in Honchariw could happen. Large loan
servicers … collected default interest routinely prior to the decision in
9 Honchariw but stopped doing so shortly thereafter. The practice was so
10
common that the software company that First Bridge used to draw the
Honchariw loan documents, The Mortgage Office, had the provision
11 imbedded in its default form of Note at paragraph 4(B). It is patently absurd
to suggest that either FJM Management, LLC, dba First Bridge Lending, or
12
FJM had or should have had any suspicion whatsoever that the default
13 interest provisions in the Honchariw loan documents were contrary to the
law.” [underline in orig] [bold-type. added]
14
[NH Supp Decl ¶6, Exh A ¶10] Respondents’ assertion of no “significant benefit” is belied
15
by their own evidence. By their own admission, the industry practice was common until
16
FJM but has now stopped. This was a seismic event.
17
Disproportionate burden. Petitioners have carried a disproportionate burden to
18
achieve their success. As noted by MBNA, 147 CA4th Supp 1 at 10:
19
“’An award on the ‘private attorney general’ theory is appropriate when the
20
cost of the claimant’s legal victory transcends his personal interest, that is,
21 when the necessity for pursuing the lawsuit placed a burden on the plaintiff
‘out of proportion to his individual stake in the outcome’. [citations] Even if a
22 litigant is initially motivated by his or her own economic interests, if the
burden of litigation is disproportionate to the individual stake, and the other
23
requirements of section 1021.5 are met, fees may be awarded. [citations]”
24
The amount of default interest charged Petitioners for a single late payment made later
25
that month was $29526. This was not an amount adequate to justify the cost, time, and
26
effort of the protracted proceedings here. Petitioners persevered to protect important
27
public rights, at considerable time, expense, and effort, including liability for a judgment
28
against them for attorney fees in connection with the initial judgment of this court.
12
Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 This is the prototypical case for §1021.5 fees. As elaborated in Cal. Attorney Fee
2 Awards, supra, §3.4C:
3 “The California Supreme Court has repeatedly recognized the doctrine’s
purpose:
4
5 ‘The doctrine rests upon the recognition that privately initiated lawsuits are
often essential to the effectuation of fundamental public policies – and that,
6 without some mechanism authorizing the award of attorney fees, private
7
actions to enforce such important public policies will as a practical matter
frequently be infeasible.’
8
Respondents argue that even if the amount of default interest was small,
9
Petitioners sought millions of dollars in damages in this action, and significant damages
10
in other actions 4, disqualifying them under §1021.5. But this is simply misdirection. In
11
determining financial interest, the amount of damages sought in the complaint, especially
12
punitive damages, is not the measure of a plaintiff’s financial interest. The controlling
13
factor is the expected value of the claim at the time the action is commenced, which is
14
compared with the costs of litigation. In In re Adoption of Joshua S. (2008) 42 C4th 945,
15
952, the Supreme Court stated:
16
“A court generally determines whether the litigation places a
17 disproportionate burden on the individual by comparing the expected value
18
of the litigation at the time it was commenced with the costs of litigation.”
19 See Collins v. City of Los Angeles (1012) 205 CA4th 140, 154; Cal Attorney Fee Awards,
20 supra, §3.56(a). Indeed, this is recognized by Respondents’ primary citation, Broad
21 Beach Geologic Hazard Abatement Dist. v. 30156 Victoria Point LLC (2022) 81 CA4th
22 1068, 1096-97:
23 “[A] party seeking fees will be eligible for an award unless the expected
value of the party’s financial interest ‘exceeds by a substantial margin the
24
actual litigation costs’.” [cit. omitted]
25
26
27 4 The alleged financial interest from the other actions referenced by Respondents is zero. At the time of
filing this action, Petitioners had just closed the refinancing of the FJM loan with a new bridge loan from
28 PMF, with no claims of any kind against PMF. Those claims did not arise until February 2021, well after
Petitioners had lost the original arbitration and filed this court action.
13
Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
1 As noted, actual damages here consisted of default interest of $29,526. While the
2 damages claimed in Petitioner’s original arbitration demand in October 2019 was the
3 default interest plus double the amount of the commission earned by the Respondent
4 broker from the transaction, with punitive damages, the expected value of Petitioners’
5 financial interest was $29,526, discounted for the possibility of losing the litigation (as
6 indeed Petitioners lost the arbitration and lost at this court on their petition to vacate).
7 Once the litigant’s stake is determined, the court must assess the actual cost of
8 the litigation and compare the two. Los Angeles Protective League v. City of Los Angeles
9 (1986) 188 CA3d 1, 9; Cal Attorney Fee Awards, supra, §3.67. The actual litigation costs
10 here swamped the expected value of the litigation.
11 Stepping back, the necessity of private action, with disproportionate costs borne
12 by a borrower, is reflected in the fact that there had been no FJM for the fifty years since
13 Garrett in 1973. As declared by Respondents’ expert, non-compliance with Garrett was
14 the norm. The industry commonly charged unlawful default interest without challenge.
15 Despite numerous impositions of default interest acknowledged by Respondents, no
16 action had ever been brought against Respondents since their organization in 2012. 5
17 CONCLUSION.
18 Petitioners respectfully request that this court award reasonable attorney fees in the
19 amount of $575,365, and costs of $12,107.50, for a total award of $587,472.50, as itemized
20 in the Memorandum, plus fees of $7700 for 11 hours incurred in connection with the Reply,
21 plus $8400 for 12 hours incurred in connection with this Supplemental Memorandum, for
22 an updated total award of $603,572.50.
23 _____________________________
24 Nicholas Honchariw, Counsel for Petitioners
25
26
27 5 Respondents note that Petitioners have a parallel action pending against Private Mortgage Fund LLC in a
reference proceeding under the jurisdiction of the LA Superior Court. Following FJM, the referee, Hon
28 John Zebrowski, issued a statement of decision awarding Petitioners recovery of default interest paid
under §1671. In discovery, defendants there conceded that although they had imposed default interest
from their inception in 2009, they had never faced a litigation challenge. [NH Supp Decl. ¶7]
14
Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees
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1 Nicholas Honchariw 429 Dubois Lane 2 PO Box 1452 3 Genoa NV 89411 (415) 225 3048 4 nh@nhpart.com 5 Ca. State Bar No: 55126 6 Attorney for Petitioners Nicholas and Sharon Honchariw 7 8 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 COUNTY OF SONOMA 11 12 In the Matter of the Arbitration ) CASE NO.: SCV-267331 13 Between ) Nicholas and Sharon Honchariw, ) SUPPLEMENTAL MEMORANDUM 14 ) IN SUPPORT OF PETITIONERS’ Petitioners ) MOTION FOR COSTS AND 15 ) ATTORNEY FEES 16 and ) ) 17 FJM Private Mortgage Fund, LLC, ) FJM Capital, Inc., dba First Bridge ) 18 Lending, FJM Management, LLC, dba ) Hearing: TBD 19 First Bridge Lending, and DOES 1-5, ) Department: 18 ) Hearing Judge: 20 Respondents ) Hon. Christopher Honigsberg ) Action Filed: November 2, 2020 21 ------------------------------------------------------ 22 23 24 25 26 27 28 1 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 TABLE OF CONTENTS 2 3 TABLE OF CONTENTS 2 4 TABLE OF AUTHORITIES 3 5 ARGUMENT 5 6 7 A. Petitioners are prevailing party entitled to attorney fees under 8 CCP §1021.5 ………………..…………………………………………………….…..… 5 9 B. Petitioners are entitled to attorney fees in ordinary course because they meet all three requirements of CCP §1021.5, including significant 10 benefit to the public………………………………….. …...………………..….…….. 8 11 12 CONCLUSION 14 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 TABLE OF AUTHORITIES 2 State Cases: 3 4 Bartling v. Glendale Adventist Med. Ctr. (1986) 184 CA3d 97 ……………………… 7 5 Beasley v. Wells Fargo Bank (1991) 235 CA2d 1407 ……………………………….. 9 6 Broad Beach Geologic Hazard Abatement Dist. v. 30156 Victoria 7 Point LLC (2022) 81 CA4th 1068 …………………………………………..…………. 13 8 City of Oakland v. Oakland Police & Fire Retirement Sys. (2018) 29 CA5th 688 …10 9 City of Los Angeles v. Metropolitan Water Dist. (2019) 42 CA5th 290 …..………...10 10 Collins v. City of Los Angeles (1012) 205 CA4th 140 ………………………………. 13 11 12 Department of Water Resources Envt’l Impact Cases ………………………………. 5 13 Early v. Becerra (2021) 60 CA5th 726 …………………………………………………. 8 14 Folsom v. Butte County Ass’n of Gov’ts (1982) 32 C3d 668 ………………………… 5 15 Garrett v. Coast & Southern Fed. Sav. & Loan Ass’n (1973) 9 C3d 731 …….8,11,14 16 Graham v. Daimler-Chrysler Corp. (2004) 34 C4th 553 ……………………………… 5 17 18 Honchariw v. FJM Private Mortgage Fund LLC (2022) 83 CA5th 893 (“FJM”). passim 19 In re Adoption of Joshua S. (2008) 42 C4th 945 …………………………………….. 13 20 Los Angeles Protective League v. City of Los Angeles (1986) 188 CA3d 1 ….….. 14 21 Lyons v. Chinese Hosp. Ass’n (2006) 136 CA4th 1331 ………………………..……. 8 22 23 MBNA Am. Bank v. Gorman (2006) 147 CA4th Supp 1 ……………………..…… 8,12 .. 24 Moncharsh v. Heily & Blasé (1992) 3 C4th 1 ………………………………………….. 8 25 Monterossa v. Superior Court (2015) 237 CA4th 747 ……………… ……………….. 7 26 Press v. Lucky Stores, Inc. (1983) 34 C3d 311 …………………..…………………. 11 27 Richey v. Autonation, Inc. (2015) 60 C4th 909 …………..…………………………… 8 28 3 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 Tipton-Whittingham v. City of Los Angeles (2004) 34 C4th 604 …………….…..….. 5 2 Woodland Hills Residents Ass’n v. City Council (1979) 23 C3d 917 ……..…..…. . 10 3 4 5 State Statutes: 6 B&PC §10248.3…………………………………………………………………………… 5 7 B&PC §10240.1…………………………………………………………………………… 5 8 CC §1671 ………………………………………………………………..…………..passim 9 CC §1717 ………………………………………………………………….…….…………5 10 .. 11 CCP §1021.5 ………………………………………………………………..………passim 12 CCP §1286.2 ……………………………………………………………………………… 8 13 14 15 Secondary Authorities 16 Cal. Attorney Fee Awards (3d ed Cal CEB) …………………………..……….. passim 17 5 Miller & Starr, Cal. Real Estate Practice, §13:96…………………………….……. 11 18 19 20 21 22 23 24 25 26 27 28 4 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 ARGUMENT 2 A. Petitioners are prevailing party entitled to attorney fees under CCP §1021.5. 3 Under §1021.5, the “successful party” is entitled to attorney fees. “Successful 4 party” is a variation of “prevailing party” – in the case of fee-shifting statutes, the terms 5 are synonymous. 1 Tipton-Whittingham v. City of Los Angeles (2004) 34 C4th 604, 610; 6 Graham v. Daimler-Chrysler Corp. (2004) 34 C4th 553, 570; Cal. Attorney Fee Awards 7 (3d ed Cal CEB) §2.44 1. 8 Courts have taken a “broad, pragmatic view” of what constitutes a prevailing or 9 successful party under fee-shifting statutes. See, eg, Graham, supra, 34 C4th at 565; 10 Folsom v. Butte County Ass’n of Gov’ts (1982) 32 C3d 668, 685; Department of Water 11 Resources Envt’l Impact Cases (2022) 79 CA5th 556, 571 (quoting Graham). As 12 observed in Cal. Attorney Fee Awards, supra, §2.45 2, 13 [“t]he typical formulation is as follows: ’It is settled that ‘plaintiffs may be considered ‘prevailing parties’ for attorney’s fee purposes if they succeed 14 on any significant issue in litigation which achieves some of the benefit the 15 parties sought in bringing suit.’ [ital. in orig] Graciano v. Robinson Ford Sales, Inc. (2006) 144 CA4th 140, 153 (quoting Henseley v. Eckerhart 16 (1983) 461 US 424, 433. See also Folsom, supra, 32 C3d at 685 (if party 17 has obtained some relief from ‘benchmark conditions’ challenged in lawsuit and if that relief is attributable in some way to lawsuit, then that party is 18 prevailing party).” 19 Petitioners were the successful party. FJM unanimously awarded them complete 20 and unconditional relief on their primary claim ---- default interest upon the principal 21 balance of a loan for a late instalment is unlawful and petitioners are entitled to restitution 22 under CC §1671. The complementary causes of action are secondary and / or derivative. 23 Claims under the Real Property Loan Law are limited to real estate loans made or 24 negotiated by real estate brokers, B&PC §10248.3, and may be limited to dwellings, 25 B&PC §10240.1. Other claims are derivative, eg, the claim for breach of fiduciary duty 26 derives from the unlawfulness of default interest here. While Respondents have blithely 27 28 1 The California Supreme Court has adopted a different formulation for CC §1717 cases. Hsu v. Abbara (1995) 9 C4th 863; Cal. Attorney Fee Awards, supra, §2.45 2. 5 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 asserted that “the parties have simply been ordered back to arbitration” (Opp at 15), the 2 First District ordered reversal of the court’s original denial of Petitioners’ petition to 3 vacate, determined the default interest unlawful here, ordered vacatur of the original 4 arbitral decision, and held that Petitioners are entitled to restitution. The only outstanding 5 issue on re-arbitration under §1671 is the amount of damages. Petitioners prevailed. 6 Respondents have expressly conceded the liability in the arbitration proceedings 7 in their motion for summary judgment on the secondary causes of action left to arbitration 8 by the First District: 9 “[T]he court determined that liquidated damages in the form of a penalty assessed during the lifetime of a partially matured note against the entire 10 outstanding loan amount are unlawful penalties … Since this arbitration was 11 initiated, Respondents have conceded that position and offered the return of the default interest charged.” 12 13 [NH Supp Decl ¶8, quoting Respondents’ Notice of Motion and Motion at 20] The First 14 District correctly recognized that there was no need to address the secondary claims 15 because its holding on the §1671 claim was sufficient to mandate vacatur of the original 16 arbitral award. FJM, 83 CA5th at 901 fn 3. 17 An award is ripe now with the conclusion of these judicial proceedings. As detailed 18 in the opening memorandum, an “interim award” of attorney fees may be called for before 19 a full resolution on the merits of a dispute. As explained in Cal. Attorney Fee Awards, 20 supra, §11.18, 21 “Awarding interim fees (ie, a fee award made before the case is completed) is an accepted procedure in federal courts. [cit. omitted] An application for 22 interim fees can be filed at any time after the moving party has obtained some of its objectives, even though other parts of the action remain to be 23 resolved. There are no established time limits for interim fee motions. 24 Entitlement to an interim fee award depends upon obtaining relief under a 25 fee-shifting statute at an interim stage of the litigation. If such relief is obtained, the party is entitled to prompt payment of its attorney fees for 26 having achieved that success. [underline added] 27 To qualify for an interim award, however, the plaintiff must have prevailed 28 on the merits at some interim stage; an interim procedural victory will not suffice.” 6 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 Petitioners have prevailed on the merits here. As continued in §11.19: 2 “California courts are likely to follow the federal approach to interim fees …, 3 as they have done on other issues. See, eg, Westside Community for 4 Indep. Living, Inc. v. Obledo (1983) 33 C3d 348, 352 n5; Folsom v. Butte County Ass’n of Gov’ts (1982) 32 C3d 668, 685.” 5 6 In fact California courts have followed the federal approach. In Bartling v. Glendale 7 Adventist Med. Ctr. (1986) 184 CA3d 97, the plaintiff had won an appellate ruling 8 affording him the right to refuse medical treatment. The trial court denied his request for 9 fees under §1021.5 because the issue of his consent to treatment had not yet been 10 resolved. The appellate court reversed, holding that plaintiff’s entitlement to fees was 11 established by its favorable ruling on the merits and did not depend on the ultimate 12 resolution of his claim. 13 The same result is proper here – indeed necessary. These judicial proceedings 14 have been completed with the Final Judgment filed February 1 2023. Apart from these 15 fee proceedings, this court has discharged its duties with finality. There will be no further 16 opportunity to move for a judicial award of attorney fees or costs. If future judicial 17 proceedings arise, they will be a new action, with new issues, likely initiated by a new 18 petition to vacate / correct / or affirm the new arbitral award. 19 Respondents have acknowledged that §1021.5 allows interim fees (Opp at 15 ln 20 18) but assert that interim awards are available only “when the underlying statute 21 specifically calls for it” (Opp at 15) under Monterossa v. Superior Court (2015) 237 CA4th 22 747. Monterossa says no such thing. The contention is simply false. The case did not 23 even deal with §1021.5 but CCP §2924.12, a narrow provision providing for attorney fees 24 to the “prevailing party” in residential foreclosure disputes, expressly including a party 25 which succeeds in obtaining an injunction against foreclosure. The court simply held that 26 a preliminary injunction was an “injunction” within the meaning of the statute. Period. 27 28 7 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 B Petitioners are entitled to attorney fees in ordinary course because they meet all three requirements of CCP §1021.5, including significant 2 benefit to the public. 3 As explained in MBNA Am. Bank v. Gorman (2006) 147 CA4th Supp 1, 9: 4 ‘Entitlement to fees under section 1021.5 requires a showing that the 5 litigation: (1) served to vindicate an important public right; (2) conferred a significant benefit on the general public or a broad class of persons; and (3) 6 [was necessary and] imposed a financial burden on plaintiffs which was out 7 of proportion to their individual stake in the matter.’” [citations omitted] 8 While §1021.5 is phrased in discretionary terms (ie, the court “may award” fees), 9 Petitioners are entitled to fees in normal course: 10 “prevailing plaintiffs are ‘ordinarily entitled’ to reasonable attorney fees, and fees may be denied only when ‘special circumstances’ would render an 11 award ‘unjust’. See Serrano v. Unruh (Serrano IV) (1982) 32 C3d 621, 632 12 (CCP §1021.5 requires fully compensatory fee awards ‘unless special circumstances would render such an award unjust’); Bartling v. Glendale 13 Adventist Med. Ctr. (1986) 184 CA3d 97, 104.” 14 Cal. Attorney Fee Awards, supra, §2.51(1). Early v. Becerra (2021) 60 CA5th 726, 15 736; Lyons v. Chinese Hosp. Ass’n (2006) 136 CA4th 1331, 1344; Cal. Attorney 16 Fee Awards, supra, §3.7 2. 17 Important Public Right. The importance of the right here is evidenced by First 18 District’s de novo review of Petitioners’ petition to vacate and reversal of the court’s 19 original order denying their petition. Ordinarily arbitration awards are subject to very 20 limited judicial review. Eg, Moncharsh v. Heily & Blasé (1992) 3 C4th 1. One of the few 21 exceptions is where an arbitrator exceeds her powers, CCP §1286.2(a)(4), by denying a 22 non-waivable statutory right or a right reflecting an express legislative statement of public 23 policy. Ibid; Richey v. Autonation, Inc. (2015) 60 C4th 909. Following Garrett v. Coast & 24 Southern Fed. Sav. & Loan Ass’n (1973) 9 C3d 731, the First District recognized that 25 Petitioners’ statutory rights were both non-waivable and constituted an express legislative 26 statement of public policy. That is why it was enpowered to review the arbitral award de 27 novo and reverse the court’s original order denying the petition to vacate. 28 8 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 This straight-forwardly satisfies the broad interpretation accorded “important right”: 2 “Under CCP 1021.5, the concept of ‘important right has generally been broadly interpreted. Although not every statutory violation constitutes an 3 ‘important right’ [citation], courts frequently reject attempts to characterize 4 rights in their most narrow or personal light.” 5 Cal. Attorney Fee Awards, supra, §3.40. Illustrative is Beasley v. Wells Fargo Bank 6 (1991) 235 CA2d 1407, 1417 2, in which an action attacking credit card overcharges was 7 held to be appropriately characterized as a consumer protection action, not merely an 8 action to vindicate the private rights of cardholders. See Cal. Attorney Fee Awards, 9 supra, §3.46(b). This is much more significant, as evidenced by the extensive California 10 statutory provisions governing real estate loan charges. 3 11 Its importance is further manifest by the First District’s certification of the opinion 12 for publication. As stated in Cal. Attorney Fee Awards, supra, §3.42(3): 13 “[A]n appellate court’s decision to publish its opinion on the merits is, in light 14 of the rules governing publication (Cal. Rules of Ct., 8.1100-8.1125), strong evidence that an important right is involved. [citations] ‘[W]hile the fact of 15 publication does not reach the level of a prima facie showing the right was important, … it goes some distance in that direction.” [citations] See, e.g., 16 Doe v. Westmont College, 60 CA5th at 764 (“The publication of an opinion 17 suggests that the case involved a matter of public importance ….”).” 18 Its importance is highlighted by the ensuing flurry of legal activity by Respondents 19 and the industry. Upon filing of FJM, Respondents substituted counsel to bring in one of 20 the law firms most closely associated with the promotion of “default interest”, Geraci Law 21 Firm in Irvine CA, which promptly filed a comprehensive petition for rehearing. It was 22 denied. The Geraci Firm then filed a comprehensive petition for review in the California 23 2 Disapproved on other grounds in Olson v. Automobile Club of S. Cal. (2008) 42 C4th 1142, 1153 n6. 24 3 Protection against predatory lending practices underlies California’s usury laws and the myriad of 25 statutory provisions in specific contexts limiting penalty fees and costs for late monthly instalments. Eg, CC §2954.4 (late payment charges in residential mortgage loans are generally limited to no more than 26 a flat 6% of late principal and interest), B&PC §10242.5 (late payment charges in real estate loans secured by dwellings arranged by licensed real estate brokers may not consist of an interest charge 27 upon the entire principal balance and are limited to no more than a flat 10% of late principal and interest). In the context of real estate loans, imposition of a default interest rate severely restricts a 28 borrower’s ability to reinstate his loan in the face of non-judicial foreclosure by a lender. Borrowers unable to raise the cash to cover the accruing default interest on top of a loan’s note rate would lose their property.. 9 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 Supreme Court. The Geraci Firm added a request for depublication. It was joined by 2 amicus briefs on behalf of the California Bankers Association, California Mortgage 3 Bankers Association, Mortgage Bankers Association, California Mortgage Association, 4 National Private Lenders Association, and the American Association of Private Lenders. 5 The Supreme Court denied both petitions. 6 Significant benefit to public. The charge for the court is to determine the 7 significance of the benefit, as well as the size of the class benefitting, “from a realistic 8 assessment, in light of all of the pertinent circumstances, of the gains which have 9 resulted in a particular case”. Woodland Hills Residents Ass’n v. City Council (Woodland 10 Hills II) (1979) 23 C3d 917, 939. The assessment is to be decided “from a practical 11 perspective” on the facts of each case. City of Oakland v. Oakland Police & Fire 12 Retirement Sys. (2018) 29 CA5th 688, 711; Cal. Attorney Fee Awards, supra, §3.51(1). 13 As with the important right factor, courts “have broadly construed the significant benefit 14 factor”. Ibid. See, eg, City of Los Angeles v. Metropolitan Water Dist. (2019) 42 CA5th 15 290, 306. 16 FJM has provided significant benefit through published “binding precedent” 17 protecting mortgage (and other) borrowers from an oft used predatory provision bringing 18 the practice in the private mortgage lending industry to a halt. The opinion definitively 19 held the practice unlawful. Publication of a definitive opinion is itself sufficient under 20 §1021.5, for benefits may be “doctrinal and conceptual in nature”. Cal. Attorney Fee 21 Awards, supra, §3.52(a). But here this benefit was supplemented by the actual real-world 22 effects of FJM. As Respondents’ own expert witness has declared, FJM put a halt to the 23 industry practice. Documenting and charging default interest upon the principal balance 24 of a mortgage loan for a late monthly instalment was common --- Respondents say 25 routine --- pre-FJM. Now it has stopped. In a Declaration in the pending arbitration, their 26 expert, practicing attorney David Doss, conceded: 27 “Large loan servicers … collected default interest routinely prior to the decision in Honchariw but stopped doing so shortly thereafter.” 28 10 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 [NH Supp Decl, ¶6, Exh A ¶10] The real world effects are dramatic. Here the default 2 interest surcharge of 9.99% per annum upon the principal balance of the loan – which 3 exceeded the note rate of 8.5% per annum --- was the equivalent of 110.5% per month 4 on the overdue monthly instalment of $39,667, or 1410% per annum. A loan sharking 5 rate --- and for a loan well-secured by real estate, allowing the lender a non-judicial right 6 of foreclosure upon non-payment. The pressure on late borrowers was immense. 7 Respondents’ posture here has been flagrantly duplicitous. At oral argument as in 8 their Opposition, Respondents asserted that the First Circuit conferred no significant 9 benefit upon the public because Garrett had been good law for 50 years. (Opp at 13) 10 Actually this is correct. The pre-eminent real estate treatise in California steadfastly 11 declared before FJM: 12 “These legislative changes [1977 revision] have not altered the fundamental requirement that a late charge must be reasonable …. A late charge based 13 on a percentage of the unpaid balance of the loan is unreasonable and 14 punitive, and as a penalty, it is deemed a forfeiture which the debtor can recover ….” 15 16 5 Miller & Starr, Cal. Real Estate Practice, §13:96 at 13-394. One wonders why 17 Respondents did not comply. But this argument gains Respondents nothing. There is no 18 requirement that an action create new law. In Press v. Lucky Stores, Inc. (1983) 34 C3d 19 311, the Supreme Court rejected defendant’s contention that an action that merely 20 enforces a previous landmark decision does not confer a significant benefit. The court 21 held that the enforcement of well-defined, existing obligations had consistently been the 22 basis for an award of fees and that the scope of §1021.5 could not be so narrowly 23 construed because rights secured in landmark cases would be meaningless without 24 subsequent lawsuits to enforce them. Id. at 318; Cal. Attorney Fee Awards, supra, 25 §3.55(d). 26 Yet, while asserting that Garrett had been well-settled for 50 years, Respondents 27 argued strenuously that the default interest charges were legal under the 1977 28 amendments to §1671 at all stages of these proceedings, starting with the arbitration, then at this court, and then at the First District, imposing increased costs upon 11 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 Petitioners. In his Declaration, their expert trumpeted that the industry was blind-sided by 2 FJM: 3 “Prior to the decision in [FJM] … it was exceedingly rare to see a business purpose loan that did not contain a provision in the loan documents 4 increasing the interest rate upon default, a so-called default interest 5 provision. I would estimate that the odds of seeing loan documents without a default interest provision to be 1 in 100 …. The decision … came as quite 6 a shock and surprise to the private money industry. ‘Blindsided’ is the best 7 description for the industry’s reaction to that decision. I had written hundreds of loan documents containing default interest provisions and I had 8 no inkling whatsoever that the result in Honchariw could happen. Large loan servicers … collected default interest routinely prior to the decision in 9 Honchariw but stopped doing so shortly thereafter. The practice was so 10 common that the software company that First Bridge used to draw the Honchariw loan documents, The Mortgage Office, had the provision 11 imbedded in its default form of Note at paragraph 4(B). It is patently absurd to suggest that either FJM Management, LLC, dba First Bridge Lending, or 12 FJM had or should have had any suspicion whatsoever that the default 13 interest provisions in the Honchariw loan documents were contrary to the law.” [underline in orig] [bold-type. added] 14 [NH Supp Decl ¶6, Exh A ¶10] Respondents’ assertion of no “significant benefit” is belied 15 by their own evidence. By their own admission, the industry practice was common until 16 FJM but has now stopped. This was a seismic event. 17 Disproportionate burden. Petitioners have carried a disproportionate burden to 18 achieve their success. As noted by MBNA, 147 CA4th Supp 1 at 10: 19 “’An award on the ‘private attorney general’ theory is appropriate when the 20 cost of the claimant’s legal victory transcends his personal interest, that is, 21 when the necessity for pursuing the lawsuit placed a burden on the plaintiff ‘out of proportion to his individual stake in the outcome’. [citations] Even if a 22 litigant is initially motivated by his or her own economic interests, if the burden of litigation is disproportionate to the individual stake, and the other 23 requirements of section 1021.5 are met, fees may be awarded. [citations]” 24 The amount of default interest charged Petitioners for a single late payment made later 25 that month was $29526. This was not an amount adequate to justify the cost, time, and 26 effort of the protracted proceedings here. Petitioners persevered to protect important 27 public rights, at considerable time, expense, and effort, including liability for a judgment 28 against them for attorney fees in connection with the initial judgment of this court. 12 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 This is the prototypical case for §1021.5 fees. As elaborated in Cal. Attorney Fee 2 Awards, supra, §3.4C: 3 “The California Supreme Court has repeatedly recognized the doctrine’s purpose: 4 5 ‘The doctrine rests upon the recognition that privately initiated lawsuits are often essential to the effectuation of fundamental public policies – and that, 6 without some mechanism authorizing the award of attorney fees, private 7 actions to enforce such important public policies will as a practical matter frequently be infeasible.’ 8 Respondents argue that even if the amount of default interest was small, 9 Petitioners sought millions of dollars in damages in this action, and significant damages 10 in other actions 4, disqualifying them under §1021.5. But this is simply misdirection. In 11 determining financial interest, the amount of damages sought in the complaint, especially 12 punitive damages, is not the measure of a plaintiff’s financial interest. The controlling 13 factor is the expected value of the claim at the time the action is commenced, which is 14 compared with the costs of litigation. In In re Adoption of Joshua S. (2008) 42 C4th 945, 15 952, the Supreme Court stated: 16 “A court generally determines whether the litigation places a 17 disproportionate burden on the individual by comparing the expected value 18 of the litigation at the time it was commenced with the costs of litigation.” 19 See Collins v. City of Los Angeles (1012) 205 CA4th 140, 154; Cal Attorney Fee Awards, 20 supra, §3.56(a). Indeed, this is recognized by Respondents’ primary citation, Broad 21 Beach Geologic Hazard Abatement Dist. v. 30156 Victoria Point LLC (2022) 81 CA4th 22 1068, 1096-97: 23 “[A] party seeking fees will be eligible for an award unless the expected value of the party’s financial interest ‘exceeds by a substantial margin the 24 actual litigation costs’.” [cit. omitted] 25 26 27 4 The alleged financial interest from the other actions referenced by Respondents is zero. At the time of filing this action, Petitioners had just closed the refinancing of the FJM loan with a new bridge loan from 28 PMF, with no claims of any kind against PMF. Those claims did not arise until February 2021, well after Petitioners had lost the original arbitration and filed this court action. 13 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees 1 As noted, actual damages here consisted of default interest of $29,526. While the 2 damages claimed in Petitioner’s original arbitration demand in October 2019 was the 3 default interest plus double the amount of the commission earned by the Respondent 4 broker from the transaction, with punitive damages, the expected value of Petitioners’ 5 financial interest was $29,526, discounted for the possibility of losing the litigation (as 6 indeed Petitioners lost the arbitration and lost at this court on their petition to vacate). 7 Once the litigant’s stake is determined, the court must assess the actual cost of 8 the litigation and compare the two. Los Angeles Protective League v. City of Los Angeles 9 (1986) 188 CA3d 1, 9; Cal Attorney Fee Awards, supra, §3.67. The actual litigation costs 10 here swamped the expected value of the litigation. 11 Stepping back, the necessity of private action, with disproportionate costs borne 12 by a borrower, is reflected in the fact that there had been no FJM for the fifty years since 13 Garrett in 1973. As declared by Respondents’ expert, non-compliance with Garrett was 14 the norm. The industry commonly charged unlawful default interest without challenge. 15 Despite numerous impositions of default interest acknowledged by Respondents, no 16 action had ever been brought against Respondents since their organization in 2012. 5 17 CONCLUSION. 18 Petitioners respectfully request that this court award reasonable attorney fees in the 19 amount of $575,365, and costs of $12,107.50, for a total award of $587,472.50, as itemized 20 in the Memorandum, plus fees of $7700 for 11 hours incurred in connection with the Reply, 21 plus $8400 for 12 hours incurred in connection with this Supplemental Memorandum, for 22 an updated total award of $603,572.50. 23 _____________________________ 24 Nicholas Honchariw, Counsel for Petitioners 25 26 27 5 Respondents note that Petitioners have a parallel action pending against Private Mortgage Fund LLC in a reference proceeding under the jurisdiction of the LA Superior Court. Following FJM, the referee, Hon 28 John Zebrowski, issued a statement of decision awarding Petitioners recovery of default interest paid under §1671. In discovery, defendants there conceded that although they had imposed default interest from their inception in 2009, they had never faced a litigation challenge. [NH Supp Decl. ¶7] 14 Petitioners’ Supplemental Memorandum ISO Motion for Costs and Attorney Fees