Frank Dufour v. Robert Allen et al

Filing 288

MINUTES (IN CHAMBERS) - DEFENDANT FREEDOM MORTGAGE'S MOTION FOR ATTORNEYS' FEES; DEFENDANTS ROBERT ALLEN, D.A.H.A.R., PROSPER, INC., PROSPER HOLDINGS INCORPORATED, AND R.A.H.A.D.'S MOTION FOR ATTORNEYS' FEES by Judge Christina A. Snyder: The Court DENIES Freedom's motion for attorneys' fees 272 and GRANTS the Prosper Defendants' motion for attorneys' fees 274 . The Prosper Defendants shall submit a supplemental request for attorneys' fees on or bef ore 4/24/2017, specifying the amount of costs and fees they seek to recover, documenting the hours expended and the hourly rates of their counsel, and demonstrating that those rates are consistent with those prevailing in the community given the skil l, experience, and reputation of the Prosper Defendants' counsel. Plaintiff shall file an opposition to this request on or before 5/8/2017. Thereafter the matter will be taken under submission unless the Court believes a hearing is necessary. Court Reporter: Not Present. (gk)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

Present: The Honorable

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April 20, 2017

CHRISTINA A. SNYDER

Catherine Jeang
Deputy Clerk

Not Present
Court Reporter / Recorder

Attorneys Present for Plaintiffs:

N/A
Tape No.

Attorneys Present for Defendants:

Not Present
Not Present
(IN CHAMBERS) - DEFENDANT FREEDOM MORTGAGE’S
Proceedings:
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
1

The FAC named “Millennium Home Loans, an unknown business entity,” as a
defendant, but did not name Millennium Bank. See generally FAC. However, on May
21, 2014, plaintiff filed in the Superior Court an application to amend the FAC based on
an “incorrect name.” Dkt. 7-3. This application represented that plaintiff had discovered
the true name of “Millennium Home Loans” to be “Millennium Home Loans a/k/a
Millennium Bank, N.A.” Id.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

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April 20, 2017

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 crosscomplaint for breach of contract against plaintiff. Dkt. No. 153 Ex. 1 (“CrossComplaint”). 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

2

These facts are drawn from the Court’s prior orders dated September 15, 2014,
dkt. 46, November 10, 2014, dkt. 75, and March 19, 2015, dkt. 160.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

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April 20, 2017

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,
3

The Court does not rely on the evidence to which plaintiff objects and therefore
need not resolve the evidentiary objections he raises.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

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April 20, 2017

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).

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

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April 20, 2017

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 inconsistent position would derive an unfair advantage or impose an
unfair detriment on the opposing party if not estopped.” Id. at 750–51 (citations omitted).

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

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April 20, 2017

In Freedom’s motion to strike, Freedom argued:
Plaintiff makes no allegation that any contract exists which specifically
provides that attorneys fees are recoverable, nor does Plaintiff sue to enforce
a contractual obligation that might give rise to attorneys fees under such a
contractual provision for fees. Indeed, Plaintiff’s sole contract-related cause
of action (the Third Cause of Action for Breach of Contract/Implied
Covenant of Good Faith and Fair Dealing) seeks relief relating to precontractual obligations, and is entirely unrelated to any alleged contract pled
in the SAC.
Dkt. No. 120-3 (DuFour’s Request for Judicial Notice (“DRJN”)) Ex. 1 at 4. The
Superior Court accepted this argument, reasoning that plaintiff had alleged no contractual
authority for attorneys’ fees and granting the motion to strike with leave to amend.
DRJN Ex. 2 at 18. Plaintiff did not include a request for attorneys’ fees in his third and
fourth amended complaints. Plaintiff portrays the motion to strike as a successful
contention by Freedom that plaintiff was not party to any contract with Freedom
providing for attorneys’ fees. Opp’n to Freedom at 9. This argument is unpersuasive.
Freedom argued in the context of a motion to strike allegations that plaintiff had not
adequately alleged any contract-based entitlement to attorneys’ fees, not that no contract
existed that could entitle either party to attorneys’ fees. Such an argument is not “clearly
inconsistent” with a later attempt to seek attorneys’ fees.
Plaintiff also contends that the Superior Court, this Court, and the Ninth Circuit
concluded that a three-year statute of limitations for fraud applied to plaintiff’s claims
because there was no applicable written contract upon which to sue. Opp’n to Freedom
at 9. That is simply not the case. The Superior Court concluded that plaintiff’s claims
against Freedom were time barred, regardless of whether three- or four-year statute of
limitations applied. Dkt. 273, Freedom’s Request for Judicial Notice (“FRJN”), Ex. 11 at
11 (“Therefore, even if the longer four-year SOL applies for the breach of implied
covenant claim as to Freedom, Plaintiffs’ claims against Freedom were time-barred by
February 13, 2013.”). That is the basis on which this Court entered judgment in favor of
Freedom, dkt. 90, which the Ninth Circuit subsequently affirmed, dkt. 271. Furthermore,
plaintiff brought a claim against Freedom for breach of the covenant of good faith and
fair dealing on the basis of the Deeds of Trust. FAC ¶¶ 109–20. Accordingly, plaintiff
may not now claim that the Deeds of Trust did not exist.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

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April 20, 2017

Freedom is therefore not estopped from seeking attorneys’ fees.
2.

Choice of Law

For the first time in over five years of litigation, plaintiff argues that Mississippi
law should govern the interpretation of the Deeds of Trust. Opp’n at 10–11. The Deeds
of Trust provide that they “shall be governed by federal law and the law of the
jurisdiction in which the Property is located.” FRJN Ex. 1 ¶ 16, Ex 2. ¶ 16; Ex. 3 ¶ 16.
The properties are alleged to be located at (1) 3829 Northview Drive, Jackson,
Mississippi 39206; (2) 6716 George Washington Drive, Jackson, Mississippi, 39213; and
(3) 188 Texas Avenue, Jackson, Mississippi, 39206. FAC ¶ 116(a)–(c).
Freedom argues that plaintiff has waived the choice of law provision in the Deeds
of Trust by seeking remedies under California law in a California court. Freedom Reply
at 12. The Court agrees. See Ellison Framing, Inc. v. Zurich Am. Ins. Co., 805 F. Supp.
2d 1006, 1011 n.1 (E.D. Cal. 2011) (“Although a choice of law provision in the
agreement appears to provide that disputes are governed by New York law, both parties
have cited California law in their papers. It appears to this court that the parties have by
their conduct waived the New York law provision.” (citations omitted)); Panno v. Russo,
186 P.2d 452, 454 (Cal. Ct. App. 1947) (“[A] party to a contract may by conduct or
representations waive the performance of a condition thereof or be held estopped by such
conduct or representations to deny that he has waived such performance.”); Air Liquide
Am. Corp. v. Cont’l Cas. Co., 217 F.3d 1272, 1275 n.2 (10th Cir. 2000) (finding the
choice of law issue had been waived where “throughout the proceedings below, both the
parties and the district court have argued and applied Oklahoma law in interpreting these
insurance contracts”). Accordingly, the Court applies California law in interpreting the
Deeds of Trust.
3.

The Attorneys’ Fees Provision

Freedom argues that it is entitled to an unapportioned award of attorneys’ fees in
defense of plaintiff’s tort- and contract-based claims because plaintiff’s claims arise from
his purchase of properties that were financed through three Deeds of Trust, and each
Deed of Trust authorizes an award of attorneys’ fees. See Freedom Motion 3–13.
According to Freedom, plaintiff’s action falls within the scope of the attorneys’ fee
provision articulated in Section 9 of the Deeds of Trust because plaintiff sought to rescind
the Deeds of Trust and/or impose a constructive trust over the payments plaintiff made
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

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April 20, 2017

under the Deeds of Trust, thereby implicating Freedom’s rights in the property and its
security interest in the Deeds of Trust. Freedom Motion at 8. Plaintiff, in turn, argues
that Section 9 does not entitle Freedom to attorneys’ fees under Rule 54(d)(2) because
Section 9 does not permit an award of fees in litigation, but only permits an addition to
the secured debt. Opp’n to Freedom at 7.
Section 9 of each Deed of Trust provides:
9. Protection of Lender’s Interest in the Property and Rights Under this
Security Instrument. If (a) Borrower fails to perform the covenants and
agreements contained in this Security Instrument, (b) there is a legal
proceeding that might significantly affect lender’s interest in the Property
and/or rights under this Security Instrument (such as a proceeding in
bankruptcy, probate, for condemnation or forfeiture, for enforcement of a
lien which may attain priority over this Security Instrument or to enforce
laws or regulations), or (c) Borrower has abandoned the Property, then
Lender may do and pay for whatever is reasonable or appropriate to protect
Lender’s interest in the Property and rights under this Security Instrument,
including protecting and/or assessing the value of the Property, and securing
and/or repairing the Property. Lender’s actions can include, but are not
limited to: (a) paying any sums secured by a lien which has priority over this
Security Instrument; (b) appearing in court; and (c) paying reasonable
attorneys’ fees to protect its interest in the Property and/or rights under this
Security Instrument, including its secured position in a bankruptcy
proceeding. Securing the Property includes, but is not limited to, entering
the Property to make repairs, change locks, replace or board up doors and
windows, drain water from pipes, eliminate building or other code violations
or dangerous conditions, and have utilities turned on or off. Although
Lender may take action under this Section 9, Lender does not have to do so
and is not under any duty or obligation to do so. It is agreed that Lender
incurs no liability for not taking any or all actions authorized under this
Section 9.
Any amounts disbursed by Lender under this Section 9 shall become
additional debt of Borrower secured by this Security Instrument. These
amounts shall bear interest at the Note rate from the date of disbursement

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

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April 20, 2017

and shall be payable, with such interest, upon notice from Lender to
Borrower requesting payment.
FRJN Exs. 1, 2, 3.
On its plain terms, Section 9 of the Deeds of Trust does not entitle Freedom to
obtain attorneys’ fees through a Rule 54(d)(2) motion. Other courts that have considered
the same language and squarely addressed this question have reached the same
conclusion. For example, a Hawaii district court, addressing a mortgage that contains
nearly identical language, concluded:
[T]he mortgage states that any amounts disbursed in protecting the Bank
Defendants’ rights under the mortgage, including for attorneys’ fees, “shall
become additional debt of Borrower secured by this Security Instrument . . .
and shall be payable, with such interest, upon notice from Lender or
Borrower requesting payment.” As such, the mortgage does not entitle the
Bank Defendants to recover attorneys’ fees as an award pursuant to the
instant litigation. Rather, as provided in the mortgage, the Bank Defendants
may convert the amounts spent on attorneys’ fees into additional debt
secured by the mortgage.
As such, the Court finds that the attorneys’ fee provision in the mortgage
does not provide an independent basis for an award of attorneys’ fees in the
instant litigation.
Valencia v. Carrington Mortg. Servs., LLC, No. 10-cv-00558-LEK, 2013 WL 3223628,
at *10 (D. Haw. June 25, 2013) (citations omitted).
Similarly, the deed of trust at issue in Tyler v. Wells Fargo Bank, N.A., No.
E063985, 2016 WL 3752394 (Cal. Ct. App. July 8, 2016) included language identical to
Section 9. Id. at *4. Recognizing that Valencia was not binding precedent, the California
Court of Appeal nevertheless found Valencia persuasive and “conclude[d], as in
Valencia, that the [deed of trust] attorney fee provision does not provide an independent
basis for awarding attorney fees.” Id. at *8. In both Valencia and Tyler, the courts
denied the lenders’ motions for attorneys’ fees. Id.; Valencia, 2013 WL 3223628, at *10.
To rebut this argument, Freedom cites several cases in which “courts have held
nearly identical (or verbatim identical attorneys’ fees clauses authorize an award of
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

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April 20, 2017

attorneys’ fees in litigation.” Freedom Reply at 4. However, the attorneys’ fees
provisions in most of the cases that Freedom cites are neither “nearly identical” nor
“verbatim identical.” For example, Freedom argues that Evergreen Community
Development Association v. Columbia Associates, 996 F.2d 1224, 1993 WL 212643 (9th
Cir. 1993) affirmed an award of attorneys’ fees under a similar clause in a case where the
borrower claimed that the lender misrepresented a prepayment clause and penalty terms.
See Freedom Reply at 4. However, the Ninth Circuit does not recite the language of the
relevant deed of trust in its decision, nor is there any indication that there was similar
disbursement language in deed of trust at issue in Evergreen. See Evergreen, 1993 WL
212643, at *3 (“The provision states that after the grantor (Columbia) fails to make a
payment on the loan instrument, the beneficiary (U.S. Bank) may participate in any
action affecting the security or ‘the rights or powers of Beneficiary’ and that Columbia
will pay costs including attorney’s fees.”). Freedom also cites Coppes v. Wachovia
Mortgage Corporation, No. 2:10-cv-01689-GEB, 2011 WL 4852259 (E.D. Cal. Oct. 12,
2011). See Freedom Reply at 4. However, the deed of trust in Coppes included the
following language:
If . . . someone, including me, begins a legal proceeding that may
significantly affect Lender’s rights in the Property, (including but not limited
to any manner of legal proceeding in bankruptcy, in probate, for
condemnation or to enforce laws or regulations), then Lender may do and
pay for whatever it deems reasonable or appropriate to protect the Lender’s
rights in the Property. Lender’s actions may include, without limitation,
appearing in court, paying reasonable attorneys’ fees[.]
2011 WL 4852259, at *2. The deed of trust further provided:
I will pay to Lender any amounts which Lender advances under this
Paragraph 7 with interest, at the interest rate in effect under the Secured
Notes. I will pay those amounts to Lender when Lender sends me a notice
requesting that I do so. Interest on each amount will begin to accrue on the
date that the amount is advanced by Lender However, Lender and I may
agree in writing to terms that are different from those in this Paragraph 7
This Security Instrument will protect Lender in case I do not keep this
promise to pay those amounts with interest

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

‘O’
April 20, 2017

Coppes, No. 2:10-cv-01689-GEB, dkt. 35, Wachovia Request for Judicial Notice, Ex D
¶ 7. Therefore, the deed of trust in Coppes did not require that amounts disbursed by the
lender be treated as additional debt of the borrower. Freedom also cites Gilbert v. World
Savings Bank, FSB, No. 10-cv-05162 WHA, 2011 WL 995966 (N.D. Cal. Mar. 21,
2011). See Freedom Reply at 4. The mortgage in Gilbert contained the following
provision:
Payment of Lender’s Costs and Expenses. The Lender will have the right to
be paid back by me for all its costs and expenses in enforcing this Note to
the extent not prohibited by applicable law. Those expenses may include,
for example, reasonable attorneys’ fees and court costs.
Gilbert, 2011 WL 995966, at * 2. The deed of trust in Gilbert further provided:
[If] someone, including me, begins a legal proceeding that may significantly
affect Lender’s rights in the Property . . . then Lender may do and pay for
whatever it deems reasonable or appropriate to protect the Lender's rights in
the Property. Lender’s actions may include, without limitation, appearing in
court [and] paying reasonable attorneys’ fees . . .
I will pay to Lender any amounts which Lender advances under this
Paragraph 7 with interest, at the interest rate in effect under the Secured
Notes.
Id. Again, the mortgage and the deed of trust in Gilbert did not require that the attorneys’
fees expended by the lender be treated as additional debt of the borrower. See also Krug
v. Wells Fargo Bank, N.A., No. 4:11-cv-519-YGR, 2012 WL 3257814, at *1 (N.D. Cal.
Aug. 8, 2012) (“The Deed of Trust provides that if someone, including the borrower,
initiates legal proceedings that could affect the lender’s rights in the property, then the
lender may take whatever action it deems necessary, including incurring attorneys’ fees,
which the borrower must repay.”); Krug, 4:11-cv-519-YGR, dkt. 1-3, Ex. A (deed of trust
used the same language as the Coppes deed of trust); Passanisi v. Merit-Mcbride
Realtors, Inc., 190 Cal. App. 3d 1496, 1504 (1987) (no recitation of the language of the
attorneys’ fees provision). In contrast to Section 9, the provisions cited in these cases
expressly provide for the payment of attorneys’ fees, not for an increase in the debtor’s
principal.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

‘O’
April 20, 2017

Freedom cites three cases in which the attorneys’ fees provisions were, in fact,
identical in all relevant respects to Section 9. However, none of those cases squarely
addressed whether the language constituted an attorneys’ fees provision sufficient to
support a Rule 54(d)(2) motion. See Whittle v. Wells Fargo Bank, N.A., No. 10-cv0229-LJO-SMS, 2010 WL 1444675, at *2 (E.D. Cal. Apr. 12, 2010) (awarding attorneys’
fees on the basis of the same language as the Deeds of Trust in this case, but not
addressing whether that language constitutes an applicable attorneys’ fees provision); In
re Velazquez, 660 F.3d 893, 899 (5th Cir. 2011) (same); Richardson v. Wells Fargo
Bank, N.A., 740 F.3d 1035, 1040 (5th Cir. 2014) (where a deed of trust included an
attorneys’ fees provision identical to the one presented here, the court concluded that
motions for attorneys’ fees provided by contract were permissible under Rule 54(d)(2),
but remanded the case for resolution on its merits). Moreover, state law governs the
interpretation and application of contractual attorneys’ fees provisions. See Resolution
Trust Corp. v. Midwest Fed. Sav. Bank, 36 F.3d 785, 800 (9th Cir. 1993); Berkla v. Corel
Corp., 302 F.3d 909, 919 n.11 (9th Cir. 2002). Thus, Tyler, which was decided by the
California Court of Appeals in 2016, is the most persuasive authority on how this Court
should interpret Section 9. Consistent with Tyler, the Court finds that the Deeds of Trust
do not entitle Freedom to recover attorneys’ fees pursuant to the instant litigation.
At oral argument on April 10, 2017, Freedom’s counsel referred to Wilson v.
Nationstar Mortgage LLC, D070965 (Cal. Ct. App. Jan. 20, 2017), in which the
California Court of Appeals purportedly affirmed an attorneys’ fee award on the basis of
a deed of trust that included the same language as Section 9. Pursuant to the Court’s
request, Freedom’s counsel submitted the decision in Wilson to the Court. Having
reviewed the Wilson decision, the Court finds that Wilson too fails to consider expressly
whether the relevant language in Section 9 constituted an attorneys’ fees provision
sufficient to support a Rule 54(d)(2) motion. Freedom’s counsel also submitted cases
that the Court did not request. Nonetheless, these decisions present the same problem –
none squarely addresses whether a contract permitting attorneys’ fees to be added to a
debtor’s principal supports a Rule 54(d)(2) motion.
Finally, on April 18, 2017, the Ninth Circuit denied Freedom’s application for
attorneys’ fees. Dufour v. Allen, 14-57009, dkt. 74 (9th Cir. Apr. 18, 2017). In its
denial, the Ninth Circuit wrote only: “Freedom Home Mortgage Corporation’s
application for attorney’s fees is denied.” Id. Notably, however, Freedom argued before
the Ninth Circuit that it was entitled to attorneys’ fees because it was the prevailing party
and the Deeds of Trust authorized an award of attorneys’ fees – precisely the same
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Page 12 of 17

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

‘O’
April 20, 2017

argument that Freedom advances here. See id. dkt. 72. The Ninth Circuit’s denial of
Freedom’s application for attorneys’ fees is persuasive, if not binding, authority on this
Court.
The Court therefore DENIES Freedom’s motion for attorneys’ fees on plaintiff’s
contract and tort claims.
B.

The Prosper Defendants’ Motion for Attorneys’ Fees

The Prosper Defendants’ argue that they are entitled to attorneys’ fees pursuant to
an indemnity provision contained in an Enrollment Agreement entered into by plaintiff
when he enrolled in the Prosper investment course. Prosper Motion at 6. According to
the Prosper Defendants, plaintiff agreed to indemnify them for actions that fall within the
scope of the Enrollment Agreement, including payment of attorneys’ fees for actions
related to the parties’ relationship. Id. The indemnity provision provides:
You understand and agree to defend, indemnify and hold Prosper, Inc., and
its officers, directors, employees, independent contractors, instructors,
coaches, and their related companies harmless from an against all damages,
liabilities, costs, losses, expenses, claims, and/or judgments, including legal
costs and reasonable attorney’s fees and disbursements which any of them
may occur or become obligated to pay arising out of or resulting from (I) the
activities pursuant to this agreement (with the exception of willful
misconduct on the part of Proper, Inc.) and (II) the breach of the User of any
of its representation, warranties, covenants, obligations, agreements (with
the exception of the breach of/or a default under any other agreement,
instrument, order, law or regulation applicable to us or by which it may be
bound) and claims of injury or otherwise arising from the sales of any
products or services pursuant to this enrollment agreement
274-4, Ex. A at 3 (“Enrollment Agreement”) (emphasis added). The Enrollment
Agreement states that it is “governed by the laws of the State of Utah.” Id. The Prosper
Defendants assert that the agreement is governed by Utah law, Prosper Motion at 11, but
they go on to apply California law in advancing an interpretation of the indemnity
provision, see id. at 14–22. Plaintiff appears to contest the applicability of Utah law.
Opp’n to Prosper at 8.

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Page 13 of 17

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

‘O’
April 20, 2017

“The first step in interpreting the [choice-of-law] clause is to apply the correct
choice-of-law rules. In a federal question action where the federal court is exercising
supplemental jurisdiction over state claims, the federal court applies the choice-of-law
rules of the forum state—in this case, California.” Paracor Fin., Inc. v. Gen. Elec. Capital
Corp., 96 F.3d 1151, 1164 (9th Cir. 1996). By contrast, where a court has exclusive
jurisdiction over a federal question case, as in a bankruptcy case, the court should apply
federal choice-of-law rules rather than the choice-of-law principles of the forum state.
See In re Vortex Fishing Sys., Inc., 277 F.3d 1057, 1069 (9th Cir. 2002); In re Lindsay,
59 F.3d 942, 948 (9th Cir. 1995).
The Court has jurisdiction over this case pursuant to 12 U.S.C. § 1819(b)(2)(A)
because the FDIC was a party. Bullion Servs., Inc. v. Valley State Bank, 50 F.3d 705,
707 (9th Cir. 1995) (“[A]ny case in which the FDIC is a party is ‘deemed to arise under
the laws of the United States.’” (quoting 12 U.S.C. § 1819(b)(2)(A))); see also FDIC v.
Griffin, 935 F.2d 691, 696 (5th Cir. 1991) (allowing federal jurisdiction even when the
FDIC has been voluntarily dismissed as a party). Where the FDIC is a defendant or is
substituted as a party to a case, Section 1819 permits the FDIC to remove the case to
federal district court. 12 U.S.C. § 1819(b)(2)(B). Removal, however, is not required. Id.
(“[T]he Corporation may, without bond or security, remove any action, suit, or
proceeding from a State court to the appropriate United States district court before the
end of the 90-day period beginning on the date the action, suit, or proceeding is filed
against the Corporation or the Corporation is substituted as a party.” (emphasis added)).
Accordingly, federal courts do not have exclusive jurisdiction pursuant to 12 U.S.C.
§ 1819(b)(2)(A). The Court thus applies the choice-of-law rules of the forum state,
California.
Under California law, in deciding whether or not to apply a choice-of-law
provision in a contract, the Court must determine either “(1) whether the chosen state has
a substantial relationship to the parties or their transaction or (2) whether there is some
other reasonable basis for the parties’ choice of law.” Nedlloyd Lines B.V. v. Superior
Court, 834 P.2d 1148, 1152 (Cal. 1992). “If neither of these tests is met, that is the end
of the inquiry, and the court need not enforce the parties’ choice of law.” Id. This action
was brought in California and has been litigated in California for more than five years;
plaintiff is a resident of California; and the real estate course offered by Allen and
Prosper was conducted in California; the properties that plaintiff purchased are in
Mississippi. The only relationship to Utah appears to be that Prosper is a Utah
corporation. However, the Prosper Defendants acknowledge that the parties have
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Page 14 of 17

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

‘O’
April 20, 2017

“effectively stipulated to the application of California law throughout the duration of this
case (given its similarity to Utah law).” See Prosper Reply at 5. The Prosper Defendants
appear to have no objection to the Court’s applying California law in interpreting the
Enrollment Agreement. Moreover, no party argues that there is a material difference
between California and Utah law on this issue. The Court therefore finds that Utah lacks
a substantial relationship to this case and there is no other reasonable basis for the
application of Utah law. Accordingly, the Court applies California law in interpreting the
Enrollment Agreement.
The Prosper Defendants assert that the Enrollment Agreement and its indemnity
provision are enforceable because plaintiff asserted claims seeking affirmative relief
under the Enrollment Agreement in his CCC. Prosper Motion at 14. In the CCC,
plaintiff alleged that: (1) he “substantially and timely performed his duties and
obligations alleged entered into under the Enrollment Agreement”; (2) the Prosper
Defendants accepted plaintiff’s “payments and benefits derived from this Enrollment
Agreement alleged entered into by [plaintiff], including the illegal benefits heretofore
alleged”; (3) the Prosper Defendants “failed to comply with its duties and obligations
pursuant to the alleged Enrollment Agreement entered into by cross-cross-complainant by
instituting and maintaining a lawsuit” rather than submitting to mediation “as required by
the alleged Enrollment Agreement”; and (4) the Prosper Defendants “breached the
contract and will be unjustly enriched by failing to comply terms and conditions of the
purported Enrollment Agreement[.]” CCC ¶¶ 90, 92, 95. Accordingly, the Prosper
Defendants argue that plaintiff is estopped from denying the enforceability of the
Enrollment Agreement. Id. The Court agrees. It would be inequitable to allow plaintiff
to repudiate the existence of a contract under which he has attempted to enforce his
rights. Cf. Avina v. Cigna Healthplans of California, 211 Cal. App. 3d 1, 3 (1989) (“To
allow respondent to assert rights and benefits under the contract and then later repudiate it
merely to avoid arbitration would be entirely inequitable.”); Cal. Civ. Code § 1589 (“A
voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the
obligations arising from it, so far as the facts are known, or ought to be known, to the
person accepting.”); Cal. Civ. Code § 3521 (“He who takes the benefit must bear the
burden.”).
The Court therefore considers whether the Prosper Defendants are entitled to
attorneys’ fees under the indemnity provision of the Enrollment Agreement. The Prosper
Defendants argue that they are entitled to attorneys’ fees pursuant to California Civil

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

‘O’
April 20, 2017

Code § 2778, or alternatively under California Civil Code § 1717. See Prosper Motion at
15, 20.
“Indemnity is a contract by which one engages to save another from a legal
consequence of the conduct of one of the parties, or of some other person.” Cal. Civ.
Code § 2772. When interpreting a contract of indemnity, California Civil Code
§ 2778(3) provides: “[a]n indemnity against claims, or demands, or liability, expressly, or
in other equivalent terms, embraces the costs of defense against such claims, demands, or
liability incurred in good faith, and in the exercise of a reasonable discretion[.]” Cal. Civ.
Code § 2778 (3) (emphasis added). “An indemnity provision of a contract is to be
construed under the same rules governing other contracts with a view of determining the
actual intent of the parties.” Gribaldo, Jacobs, Jones & Assocs. v. Agrippina
Versicherunges A., 476 P.2d 406, 410 (Cal. 1970) (quotation marks omitted). “Although
indemnity generally relates to third party claims, this general rule does not apply if the
parties to a contract use the term ‘indemnity’ to include direct liability as well as third
party liability.” Zalkind v. Ceradyne, Inc., 194 Cal. App. 4th 1010, 1024 (2011); see also
Atari Corp. v. Ernst & Whinney, 981 F.2d 1025, 1032 (9th Cir. 1992) (“The plain,
unambiguous meaning of ‘indemnify’ is not ‘to compensate for losses caused by third
parties,’ but merely ‘to compensate.’ Atari could have limited its obligation to
compensate Federated officers to actions brought by third parties, but it did not.”).
The Prosper Defendants argue that the indemnity provision in the Enrollment
Agreement authorizes them to recover attorneys’ fees because plaintiff agreed to “defend,
indemnify and hold Prosper harmless from and against all damages . . . [and] claims,
including legal costs and reasonable attorney’s fees.” Prosper Motion at 16 (quoting
Enrollment Agreement at 3). The Prosper Defendants further contend that the indemnity
provision applies to direct claims because the provision is broadly worded and not limited
to third party claims. Prosper Motion at 17; see Atari, 981 F.2d at 1032; Zalkind v.
Ceradyne, Inc., 194 Cal. App. 4th 1010, 1027 (2011). Finally, the Prosper Defendants
argue that the indemnity provision extends to plaintiff’s tort and contract claims because
the indemnity provision: (1) states that plaintiff will indemnify Prosper against “all
damages, liabilities, costs, losses, expenses, claims, and/or judgments”; and (2) separately
addresses indemnity related to breach of contract and other non-contractual injury claims.
See Prosper Motion at 18–19 (citing Enrollment Agreement at 3–4 (emphasis added)).
Plaintiff does not dispute any of these arguments. Rather, he contends that the indemnity
provision does not apply if Prosper engages in “willful misconduct” and the Prosper
Defendants have “never disproved the merits” of plaintiff’s allegations of fraud. Opp’n
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Page 16 of 17

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.
Title

CIVIL MINUTES - GENERAL
14-cv-05616-CAS(SSx)
Date
FRANK DUFOUR v. ROBERT ALLEN ET AL.

‘O’
April 20, 2017

to Prosper at 9 (quoting Enrollment Agreement at 3–4). Yet plaintiff has never proved
such misconduct. Plaintiff also contends that the Prosper Defendants have failed to meet
their burden of justifying their entitlement to a particular amount of attorneys’ fees,
thereby denying plaintiff an opportunity to contest the reasonableness of the fees. Opp’n
to Prosper at 5. However, the Prosper Defendants assert that they intend to submit an
affidavit regarding the amount of fees sought “after a determination by this Court on
whether a fee award is proper.” Prosper Motion at 25. After the submission of such an
affidavit, plaintiff will have an opportunity to challenge the reasonableness of the fees
sought. Accordingly, the Court concludes that the Prosper Defendants are entitled to
recover reasonable costs and attorneys’ fees that they incurred in defending against
plaintiff’s claims, pursuant to the indemnity provision of the Enrollment Agreement. 4
IV.

CONCLUSION

In accordance with the foregoing, the Court DENIES Freedom’s motion for
attorneys’ fees and GRANTS the Prosper Defendants’ motion for attorneys’ fees. The
Prosper Defendants shall submit a supplemental request for attorneys’ fees on or before
April 24, 2017, specifying the amount of costs and fees they seek to recover,
documenting the hours expended and the hourly rates of their counsel, and demonstrating
that those rates are consistent with those prevailing in the community given the skill,
experience, and reputation of the Prosper Defendants’ counsel. Plaintiff shall file an
opposition to this request on or before May 8, 2017. Thereafter the matter will be taken
under submission unless the Court believes a hearing is necessary.
IT IS SO ORDERED.
00
Initials of Preparer

:

00

CMJ

4

Accordingly, the Court need not address whether the Prosper Defendants are
entitled to such fees pursuant to California Civil Code § 1717, based on the Enrollment
Agreement or the Deeds of Trust. See Prosper Motion at 20–25.
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