Compass Bank v. Morris Cerullo World Evangelism

Filing 319

ORDER denying Plaintiff's 301 Motion for Attorney Fees. Signed by Judge Cynthia Bashant on 10/20/2015. (jah)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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COMPASS BANK, an Alabama
banking corporation, d/b/a “BBVA
COMPASS,”

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Case No. 13-cv-654-BAS-WVG

Plaintiff,

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ORDER DENYING PLAINTIFF’S
MOTION FOR ATTORNEY’S
FEES

v.

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MORRIS CERULLO WORLD
EVANGELISM, a California
corporation,

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Defendant.

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AND RELATED CROSS-ACTIONS.

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I.

INTRODUCTION

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Plaintiff BBVA Compass Bank (“BBVA”) brings this Motion for Attorney’s

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Fees under California Commercial Code section 5111(e). (ECF No. 301.) Defendant

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Morris Cerullo World Evangelism (“MCWE”) opposes. (ECF No. 312.) The Court

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finds this motion suitable for determination on the papers submitted and without oral

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argument. See Civ. L.R. 7.1(d)(1). Because this action was not premised on Article 5

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of the California Commercial Code and BBVA fails to provide any other grounds for
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the request, the Court DENIES BBVA’s Motion.

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II.

PROCEDURAL HISTORY

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BBVA brought a declaratory relief action under 28 U.S.C. § 2201(a) against

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MCWE to declare that a $5.2 million standby letter of credit purportedly issued by

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BBVA and held by MCWE was fraudulent and unenforceable. (ECF No. 1.) MCWE

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answered and countersued BBVA along with third-party defendants Larry Sorenson,

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Christopher Hammatt, and Jack Wilkinson. (ECF No. 6.) In its operative pleading,

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the Second Amended Counter-Claim, MCWE asserted breach of contract and

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promissory estoppel claims against BBVA; breach of contract, promissory estoppel,

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conversion, and two counts of fraud against Arrowmark and Hammatt; promissory

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estoppel, conversion, and two counts of fraud against Sorenson; and one count of

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fraud against Wilkinson. (ECF No. 31.) Notably, none of the parties raised claims

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under the California or Uniform Commercial Code.

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Throughout the litigation, BBVA contended that none of MCWE’s claims had

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anything to do with the California or Uniform Commercial Code. For example, in

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its Response to MCWE’s Motion for Summary Judgment, BBVA argued “MCWE

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never pled anything having to do with the California Commercial Code . . . and

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MCWE cannot now attempt to amend its pleadings to assert new claims and new

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theories.” (ECF No. 144.) Similarly, in its Reply to the Opposition to its Motion for

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Summary Judgment, BBVA repeated “MCWE pled no claim or defense under the

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California Commercial Code.” (ECF No. 148.)

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In Motions in Limine, BBVA moved to preclude any evidence relating to any

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claim or defense under the California Commercial Code, opining that “[a]ny

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evidence relating to [these] Unpled Statutory Claims is irrelevant.” (ECF No. 226–

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1.) BBVA explained that “MCWE failed to plead a wrongful dishonor claim or assert

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any defenses pursuant to the UCC” and that such “failure to plead a cause of action

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for wrongful dishonor of a letter of credit results in forfeiting any claim or defense

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provided by the UCC.” (ECF No. 226–1) (emphasis in original.)
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In MCWE’s Motions in Limine, MCWE argued that the UCC’s

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“independence principle” prohibited BBVA from introducing evidence of the

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underlying loan transaction leading up to issuance of the letter of credit. (ECF No.

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215.) In response, BBVA argued “[t]his Court should deny MCWE’s Motion solely

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because it failed to plead any defenses or claims pursuant to the UCC.” (ECF No.

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253.) BBVA added “MCWE’s failure to plead a cause of action for wrongful

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dishonor results in forfeiting any claim or defense provided by the UCC.” (ECF No.

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253.)

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BBVA also argued throughout that BBVA never issued any Letter of Credit

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to MCWE and that any purported Letter of Credit was invalid on its face. (ECF Nos.

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120–1, 144, 285, 290.)

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This Court agreed. It denied MCWE’s Motion in Limine, finidng that the

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“independence principle” was inapplicable because the causes of action were not

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based on a claim for wrongful dishonor. And in its Findings of Fact and Conclusions

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of Law, the Court found that Article 5 of the UCC was inapplicable because there

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was no wrongful dishonor claim and there was no letter of credit actually issued by

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BBVA. (ECF No. 295.)

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III.

ANALYSIS

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Although generally in federal court the “American Rule” is followed, such

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that a party in a lawsuit bears its own attorney’s fees, this can be changed by express

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statutory authorization to the contrary. Hensley v. Eckerhart, 461 U.S. 424, 429

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(1983). BBVA argues that it is entitled to attorney’s fees under California

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Commercial Code section 5111(e).

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The California Commercial Code parallels the UCC in the respects relevant

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here. Cal. Com. Code § 1101. Section 5111(e) provides that “reasonable attorney’s

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fees and other expenses of litigation must be awarded to the prevailing party in an

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action in which a remedy is sought under this article.” Cal. Com. Code § 5111(e).

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Article 5 of the California Commercial Code concerns letters of credit, and section
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5111, in particular, concerns the wrongful dishonoring of letters of credit. Cal. Com.

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Code § 5111(a). Section 1201(b)(1) defines the term “action” used in section 5111(e)

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“in the sense of a judicial proceeding, includ[ing] recoupment, counterclaims, setoff,

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suits in equity, and any other proceeds in which rights are determined.” Cal. Com.

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Code. § 1201(b)(1).

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BBVA argues that it brought this action for declaratory relief pursuant to

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section 5109 of the California Commercial Code, and that MCWE’s counterclaim

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for breach of contract was the equivalent of a wrongful dishonor claim (ECF No.

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301.) This argument is ironic given BBVA’s vociferous arguments throughout the

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case that this was not a case brought under the California Commercial Code, and

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that MCWE could not bootstrap in a wrongful dishonor claim. (ECF Nos. 144, 148,

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226–1, 215, 253.) This Court agreed with BBVA and found that Article 5 of the

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California or Uniform Commercial Code was not applicable to this action. (ECF No.

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295.) Accordingly, the attorney’s fees provision in the California Commercial Code

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is also not applicable.

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The cases cited by BBVA are inapposite. In both, the Plaintiffs filed claims

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for wrongful dishonor under the UCC. See Export-Import Bank of the U.S. v. United

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California Disc. Corp., No. CV 09–2930 CAS (PLAx), 2011 WL 165312 (C.D. Cal.

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Jan 12, 2011); 2002 Irrevocable Trust ex rel. Hvizdak v. Shenzhen Dev. Bank, Co.,

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Ltd, No. 2:08–cv–556–FtM–36DNF, 2011 WL 4112776 (M.D. Fl. Sept. 15, 2011).

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Here, however, as BBVA rightfully pointed out throughout this case, MCWE failed

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to bring any claims for wrongful dishonor or, in fact, any causes of action under

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either the California or Uniform Commercial Code. This Court will not allow BBVA

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to now claim that the case was actually premised on wrongful dishonor claims and

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thus that the attorney’s fees provision of 5111(e) applies.

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IV.

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CONCLUSION
For the foregoing reasons, BBVA’s Motion for Attorney’s Fees is DENIED.

(ECF No. 301.)
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IT IS SO ORDERED.

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DATED: October 20, 2015

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