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Dufour v. Allen

United States District Court, C.D. California

April 20, 2017

FRANK DUFOUR
v.
ROBERT ALLEN ET AL.

          Present: The Honorable CHRISTINA A. SNYDER.

          CIVIL MINUTES - GENERAL

         Proceedings: (IN CHAMBERS) - DEFENDANT FREEDOM MORTGAGE'S MOTION FOR ATTORNEYS' FEES (Dkt. 272, filed March 8, 2017) DEFENDANTS ROBERT ALLEN, D.A.H.A.R., PROSPER, INC., PROSPER HOLDINGS INCORPORATED, AND R.A.H.A.D.'S MOTION FOR ATTORNEYS' FEES (Dkt. 274, filed March 8, 2017)

         I. INTRODUCTION & BACKGROUND

         This lawsuit commenced on February 8, 2012, when plaintiff Frank DuFour filed a complaint in Los Angeles County Superior Court. Plaintiff filed the operative Fourth Amended Complaint (“FAC”) on December 27, 2013, also in Superior Court. See Dkt. No. 1-2. The FAC names as defendants Robert Allen, Enlightened Wealth Institute International, L.C., Enlightened Wealth Institute, L.C., Prosper, Inc., Green Planet Services, Opteum Financial Services, Midland Mortgage Company, Aurora Loan Services, Sherson Lehman, Millennium Home Loans, Charlie Payne, and Giddens & Giddens, as well as other Doe defendants. Id. ¶¶ 2-26. On February 28, 2014, the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver of defendant Millennium Bank, N.A., a failed bank.[1] See Dkt. 1. On July 19, 2014, the FDIC removed this action to federal court because, where the FDIC is a party, a case is deemed to arise under the laws of the United States. Id. The case was transferred to the undersigned on July 25, 2014. Dkt. 10. A number of defendants have been dismissed pursuant to prior orders of this Court.

         In brief, plaintiff alleges in the FAC that defendants schemed to induce plaintiff to enroll in a fraudulent real estate investment course offered by Allen and Prosper to buy fraudulently marketed properties, from which defendants profited through undisclosed relationships with management and financing companies. Plaintiff alleges that Allen is the co-founder of entities which offer real estate investment instruction. Plaintiff contends that Allen, through multiple incarnations of the same business model, deceptively promoted risky and illegal investment techniques, and fraudulently induced him to pay thousands of dollars to enroll in a real estate investment course. According to plaintiff, Prosper is a corporation affiliated with Allen and other defendants, and after plaintiff was referred to Prosper by Allen, Prosper employees provided plaintiff with training materials and coaching and eventually connected plaintiff with other players in the alleged scheme. Plaintiff asserts that Freedom employees fraudulently induced plaintiff to make a series of real estate investments in Mississippi. Plaintiff also alleges that Allen and other defendants breached an implied contractual duty of good faith and fair dealing by failing to disclose that Freedom and other defendants “were all doing business together” with Prosper, which was “associated with, affiliated and involved in a joint venture business arrangement with . . . Allen.”[2]

         On December 23, 2013, just prior to the filing of the FAC, Prosper filed a cross-complaint for breach of contract against plaintiff. Dkt. No. 153 Ex. 1 (“Cross-Complaint”). Prosper alleged in this cross-complaint that plaintiff breached an Enrollment Agreement he purportedly entered into with Prosper by failing to fulfill his obligations as an enrollee in the course and refusing to mediate or arbitrate this dispute. Id. ¶ 10. Plaintiff filed a demurrer to the Cross-Complaint in the Superior Court, which was overruled. Plaintiff subsequently filed a so-called “Cross-Cross-Complaint, ” (“CCC”) which this Court dismissed on September 15, 2014, on the ground that it impermissibly duplicated claims already raised in the FAC. Dkt. 46. Plaintiff appealed the order dismissing the CCC to the Court of Appeals for the Ninth Circuit. On March 19, 2015, the Court granted Prosper's motion for voluntary dismissal without prejudice of its Cross-Complaint. Dkt. 160.

         In May 2014, before this case was removed to federal court, the Superior Court granted summary judgment in favor of defendants Freedom Home Mortgage Corporation (“Freedom”), as well as defendants Allen, Prosper, Inc., Prosper Holdings, Inc., Education Success, Inc., R.A.H.A.D., Inc., and D.A.H.A.R., Inc. (collectively the “Prosper Defendants”). On November 21, 2014, this Court entered judgment in favor of Freedom and the Prosper Defendants. Dkt. 90. On December 19, 2014, plaintiff appealed to the Court of Appeals for the Ninth Circuit the entry of judgment in favor of Freedom and the Prosper Defendants. Dkt. 110.

         On December 10, 2014, Freedom and the Prosper Defendants filed motions for attorneys' fees. Dkts. 100, 101. On January 26, 2015, the Court denied without prejudice Freedom and the Prosper Defendants' motions for attorneys' fees. Dkt. 140. The Court concluded that the best course of action was to defer ruling until the resolution of plaintiff's appeal. Id. at 4. On February 22, 2017, the Ninth Circuit affirmed this Court's (1) grant of summary judgment in favor of Freedom and the Prosper Defendants and (2) dismissal of plaintiff's cross-cross-claim. Dkt. 271.

         Accordingly, on March 8, 2017, Freedom and the Prosper Defendants filed renewed motions for attorneys' fees, along with requests for judicial notice. Dkts. 272 (“Freedom Motion”), 274 (“Prosper Motion”). On March 20, 2017, plaintiff filed oppositions to both motions, dkts. 275 (Opp'n to Freedom), 277 (“Opp'n to Prosper”), along with related evidentiary objections and a request for judicial notice, dkts. 276, 278, 279.[3] The Freedom and Prosper Defendants filed their replies on March 27, 2017. Dkts. 281 (“Freedom Reply”), 282 (“Prosper Reply”).

         Having carefully considered the parties' arguments, the Court finds and concludes as follows.

         II. LEGAL STANDARDS

         Federal Rule of Civil Procedure 54(d)(2) “creates a procedure but not a right to recover attorneys' fees.” MRO Commc'ns, Inc. v. Am. Tel. & Tel. Co., 197 F.3d 1276, 1280 (9th Cir. 1999). Accordingly, “there must be another source of authority for such an award.” Id. at 1281 (quoting Abrams v. Lightolier, Inc., 50 F.3d 1204, 1224 (3d Cir. 1995)). “The requirement under Rule 54(d)(2) of an independent source of authority for an award of attorneys' fees gives effect to the ‘American Rule' that each party must bear its own attorneys' fees in the absence of a rule, statute, or contract authorizing such award.” Abrams, 50 F.3d at 1224.

         When a district court “exercis[es] its subject matter jurisdiction over a state law claim, so long as ‘state law does not run counter to a valid federal statute or rule of court . . . state law denying the right to attorney's fees or giving a right thereto, which reflects a substantial policy of the state, should be followed.'” MRO Commc'ns, 197 F.3d at 1281 (quoting Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 259 n.31 (1975)). California has codified the American Rule in Code of Civil Procedure Section 1021, which provides: “Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties.” Cal. Civ. Proc. Code § 1021; see Sears v. Baccaglio, 60 Cal.App.4th 1136, 1143-44 (1998) (explaining that Section 1021 codifies the rule that “each party to a lawsuit must ordinarily pay his or her own attorney's fees”). The freedom to contract out of the American Rule is limited by Code of Civil Procedure Section 1717, which provides in part:

In any action on a contract, where the contract specifically provides that attorney's 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's fees in addition to other costs.

Cal. Civ. Proc. Code § 1717(a). “[S]ection 1717 was originally enacted to limit the ability of a dominant contracting party to provide for a right to attorney's fees on only one side of an agreement.” Sears, 60 Cal.App.4th at 1144. Accordingly, “[i]f the contract provides for fees at all, then the prevailing party may recover them, even if the contract purports to specify only one of the parties as eligible.” 7 Witkin, California Procedure, Judgment § 165 (5th ed. 2008). “Whether a contractual attorney fee clause provides for a fee award in a particular case is a question of contract interpretation.” Windsor Pac. LLC v. Samwood Co., Inc., 213 Cal.App.4th 263, 273 (2013).

         Parties may also contractually agree to award attorneys' fees for tort actions, along with claims arising under contract. “There is nothing in [Section 1021] that limits its application to contract actions alone. It is quite clear from the case law interpreting Code of Civil Procedure section 1021 that parties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract.” Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4th 1338, 1341 (1992). Whether an attorneys' fee provision applies to tort actions, in addition to contract claims, depends on the breadth of the attorneys' fees provision. See Johnson v. Siegel, 84 Cal.App.4th 1087, 1101 (2000); Lerner v. Ward, 13 Cal.App.4th 155, 160 (1993) (“[T]he clause in the contract concerning attorney fees was . . . not limited merely to an action on the contract, but to any action or proceeding arising out of the agreement. This included any action for fraud arising out of that agreement.”).

         III. DISCUSSION

         A. Freedom's Motion for Attorneys' Fees

         1. Judicial Estoppel

         Plaintiff argues that Freedom is judicially estopped from seeking attorneys' fees for two reasons: (1) Freedom now takes a position that is inconsistent with Freedom's prior motion to strike plaintiff's request for attorneys' fees from the second amended complaint (“SAC”); and (2) Freedom previously argued there was no written contract upon which to sue-resulting in the application of a three-year statute of limitations, as opposed to a four-year limitations period-and Freedom therefore lacks any basis for claiming contractual attorneys' fees. Opp'n to Freedom at 8-9.

         Judicial estoppel “prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase.” New Hampshire v. Maine, 532 U.S. 742, 749 (2001) (quotation marks omitted). The Supreme Court has directed courts to consider (1) whether the party's “later position [is] ‘clearly inconsistent' with its earlier position; (2) “whether the party has succeeded in persuading a court to accept that party's earlier position”; and (3) “whether the party seeking to assert an ...


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