ECO Property Group, LLC v. Snider Investments, LLC, et al

Case Number

19CV04971

Case Type

Hearing Date / Time

Wed, 01/29/2025 - 10:00

Nature of Proceedings

Motion of Defendant ReProp Investments, Inc. for Attorneys’ Fees and Costs in the Amount of $150,388.50

Tentative Ruling

For Plaintiff ECO Property Group, LLC: Shahrokh Sheik, Jason D. Annigian

For Defendants David Snider and Snider Investments, LLC: Robert B. Forouzandeh

For Defendant ReProp Investments, Inc.: Howard D. Hall, Taylor R. Dalton                                  

[For additional appearances see list.]

                       

RULING

For the reasons set forth below, the motion of ReProp Investments, Inc., for attorneys’ fees and costs in the amount of $150,388.50, to be paid to ReProp Investments, Inc. by ECO Property Group, LLC, is granted.

Background

This action commenced on September 17, 2019, and arises out of a cannabis business venture. In 2016, Plaintiff ECO Property Group, LLC (“ECO”) and Defendant Snider Investments, LLC (“SIL”) formed Morongo Equity Partners I, LLC (“MEPI”) for the purpose of constructing and developing a cannabis cultivation facility at 13310 Little Morongo Road, Desert Hot Springs, California. Pursuant to the MEPI operating agreement, SIL owned an 80% interest in the company and ECO owned a 20% interest. The managers of MEPI were SIL and SIL member, Defendant David Snider (“Snider”). The Morongo Road property included a 46,425 sq. ft. greenhouse that was leased by MEPI to Seed to Soul Management (“Seed to Soul”), a cannabis cultivation company. MEPI later terminated the lease with Seed to Soul pursuant to a settlement agreement.

On June 23, 2020, ECO filed a derivative complaint on behalf of MEPI in Riverside County (“derivative action”). While the case was still pending in Riverside County, and as part of that action, ECO filed a Notice of Pendency of Action (“lis pendens”) regarding the cannabis cultivation facility at 13310 Little Morongo Road, Desert Hot Springs. On September 1, 2020, this court ordered the Riverside case transferred and consolidated with this action.

On December 23, 2021, with leave of court, ECO filed its first amended derivative complaint (“FADC”), on behalf of MEPI, for: (1) Breach of Contract, (2) Breach of the Implied Covenant of Good Faith and Fair Dealing, (3) Breach of Fiduciary Duty of Loyalty, (4) Breach of Fiduciary Duty to Use Reasonable Care, (5) Conversion, (6) Money Had and Received, (7) Fraudulent Concealment, (8) Fraudulent Misrepresentation, (9) Declaratory Relief, (10) Violation of Corporations Code section 17704.10, (11) Violation of Corporations Code section 17713.07, (12) Violation of Corporations Code section 17713.06, and (13) Unfair Business Practices. ReProp Investments, Inc. (“ReProp”) was one of the named Defendants in the FADC.

To provide some context: A portion of the allegations made against ReProp in the FADC, include:

On December 16, 2016, SIL and MEPI entered into a promissory note and corresponding deed of trust attached to the property for $1,000,000 with ReProp. (FADC, ¶ 49.) Snider did not personally guarantee the loan, nor did he indemnify and hold MEPI harmless in connection with the loan. (FADC, ¶ 50.) Contrary to the agreement, MEPI has paid the ReProp loan, which was taken by Snider in connection with the SIL contribution. (Ibid.) As part of the loan application, Snider gave several documents to ReProp, including a copy of the agreement, a copy of the lease between MEPI and Snider’s company, Fountain of Wellbeing (“FOW”). (FADC, ¶ 51.) Snider additionally gave ReProp a fake lease agreement with forged signatures between SIL and “Seed to Soul Farms”, and a fake lease agreement between SIL and FOW. (FADC, ¶ 52.) Both documents covered the same space and same terms as those found in the Seed to Soul lease and the FOW lease. (Ibid.) ReProp know that there was no lease agreement between SIL and Seed to Soul Farms, or between SIL and FOW, and that the purported leases were fabricated, because Snider previously provided ReProp with the real leases. (FADC, ¶ 53.) By accepting the fake leases and approving the ReProp loan, Snider, SIL, and ReProp fraudulently indebted and encumbered the property. (Ibid.) In addition, ReProp and Snider also obtained, and ReProp approved, two other loans, one for $2,500,000, and another for $1,500,000 for site development. (FADC, ¶ 54.) Neither Snider, SIL, ReProp, or anyone on their behalf, informed ECO of the additional loans or the site development. (FADC, ¶ 55.) ReProp, and other Defendants, orchestrated a secret sale to sell a portion of Building I to Fiore Management, to pay off debts, for approximately $4,400,000 below market value. (FADC, ¶ 57.)

Among other relief, ECO sought judgment “invalidating ReProp Loan II [the $2,500,000 loan] and the corresponding deed of trust, and clearing any encumbrances or liens on the Property.” (FADC, ¶ 112.)

Trial of the action was divided into two phases. Phase 1, consisting of the SIL and MEPI cross-complaints, plus the cross-complaint of the Seed to Soul members, was tried over thirteen days in November and December 2021. Phase 2, consisting of ECO’s direct complaint, has not yet taken place.

On January 20, 2022, the court entered its final statement of decision (“SOD”) for Phase 1. The court found in favor of SIL and MEPI on their cross-complaints for recission of the MEPI operating agreement, the commercial lease between MEPI and Seed to Soul, and the settlement agreement between MEPI and Seed to Soul, and for damages. The court also found in favor of cross-Defendants on the cross-complaint of Seed to Soul members Owens, MacFarlane, Newby, and Walker.

The court found, among other things, that ECO fraudulently induced Snider and SIL into the operating agreement. As such, the operating agreement was rescinded. As a result, ECO is no longer a member of MEPI. The lease of the property and the settlement agreement between MEPI were also rescinded due to fraudulent inducement by ECO.

ECO appealed the judgment arguing that substantial evidence did not support the court’s finding of fraudulent inducement. The appellate court treated the appeal as a petition for an extraordinary writ and rejected ECO’s arguments. This court’s judgment, with respect to this aspect of the appeal, was affirmed.

Pursuant to its opinion, filed with this court on July 10, 2024, the court of appeals findings include:

“We agree that the judgment on the cross-complaints fully adjudicated ECO’s derivative complaint.” “The rescission of the Operating Agreement means that ECO lacked standing to bring the derivative action on behalf of Morongo [MEPI] because it was never a member of the limited liability company.”

As a result of the Phase 1 trial, and remitter from the court of appeal, on October 21, 2024, Judgment was entered on the FADC for all Defendants, including ReProp, and against ECO.

ReProp now moves for contractual attorneys’ fees and costs as the prevailing party. ECO opposes the motion.

Analysis

            Request for Judicial Notice

ReProp requests that the court take judicial notice of: (1) “Deed of Trust dated May 16, 2019 and recorded on June 6, 2019 in the Official Records of Riverside County as document no. 2019-0204154.”; and (2) “The First Amended Derivative Complaint filed by Plaintiff ECO PROPERTY GROUP, LLC, derivatively on behalf of Morongo Equity Partners I, LLC (“Eco” or “Plaintiff”) on December 23, 2021 in Santa Barbara County Superior Court, including exhibits, in the case entitled Eco Property Group, LLC v. Snider Investments, LLC, et al., case no. 19CV04971.”

ECO objects to the court taking judicial notice.

Judicial notice may be taken of “[r]ecords of (1) any court of this state or (2) any court of record of the United States or any state of the United States,” and “Facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code, § 452, subds. (d), (h).)

“The trial court shall take judicial notice of any matter specified in Section 452 if a party requests it and:

(a) Gives each adverse party sufficient notice of the request, through the pleadings or otherwise, to enable such adverse party to prepare to meet the request; and

(b) Furnishes the court with sufficient information to enable it to take judicial notice of the matter.” (Evid. Code, § 453.)

ECO’s objections are overruled. The court will take judicial notice of the documents.

            Attorney Fees and Costs

“California law ordinarily does not allow for recovery of attorneys’ fees. [Citation.] One exception is where the parties contractually obligate themselves to pay attorneys’ fees. [Citation.] These contractual provisions are governed by California Civil Code § 1717, . . ..” (Farmers Ins. Exchange v. Law Offices of Conrado Joe Sayas, Jr. (2001) 250 F.3d 1234, 1237.)

Civil Code section 1717 provides that “[i]n 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.” (Civ. Code, § 1717, subd. (a).)

ReProp seeks $150,388.50 in attorneys fees and costs, against ECO, pursuant to Civil Code section 1717 and Code of Civil Procedure sections 1021 and 1033.5, subdivision (a)(10). In doing so, ReProp relies on the language contained in the Promissory Note dated May 16, 2019 (“promissory note”), and the Deed of Trust dated May 16, 2019 (“deed of trust”).

The promissory note and the deed of trust are both between MEPI and ReProp, and are signed by Snider as Manager of MEPI.

The promissory note provision relied on by ReProp states:

“Borrower and all endorsers, guarantors, sureties, accommodation parties hereof and all other persons liable or to become liable for all or any part of this indebtedness agree to pay all costs of collection, including reasonable attorneys’ fees and all costs of suit, if this Note is not paid when due, or if it is necessary to protect the security of this Note or to commence foreclosure proceedings under the Deed of Trust or any of the Other Security Documents, or if Lender is made a party to any litigation because of this note, the Deed of Trust or any other Security Documents, whether or not suit is filed, and whether through courts of original jurisdiction, as well as in courts of appellate jurisdiction, or through a bankruptcy court or other legal proceedings. Such costs of collection shall include attorney’s fees and costs in all aspects of bankruptcy proceedings affecting the security for this Note or performance hereunder, including plain objection proceedings, objections to discharge, claim objection proceedings, preference actions, relief from stay litigation, motions to dismiss, covert or appoint a trustee, case monitoring and serving on a creditor’s committee.” (Note, ¶ 7, p. 6 of 7; italics added.)

The deed of trust provision relied on by ReProp states:

“If an Event of Default occurs, Beneficiary may, but is not required to, and without notice to or demand on Trustor and without releasing Trustor from any obligation, make or do the same in such manner and to such extent as Beneficiary may deem necessary or advisable to protect the security hereof. Beneficiary is authorized to enter upon the Trust Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Trust Property or to foreclose this Deed of Trust or collect the Debt, and the cost and expense thereof (including attorneys’ fees and expenses) with interest as provided in this Paragraph, shall be due upon demand from Beneficiary to Trustor. All such costs and expenses incurred by Beneficiary in remedying such Event of Default or in appearing in, defending, or bringing any such action or proceeding shall be paid at the Default Rate as stated and defined in the Note and secured by this Deed of Trust.” (Deed of Trust, ¶ 21, p. 12 of 19.)

ReProp also quotes paragraphs 19, 24, and 37 of the deed of trust as entitling it to attorneys’ fees.

ReProp argues that it is permitted to enforce the attorney fee provisions as the prevailing party under both the promissory note and deed of trust. There is no dispute that ReProp is the prevailing party. ReProp further argues that ECO stepped into the shoes of MEPI to invalidate and cancel the $2,500,000 loan made by ReProp to MEPI, when it filed the derivative action on behalf of MEPI, thus entitling ReProp to enforce the attorney fees provisions against ECO rather than MEPI.

ECO argues that the motion fails because: (1) ECO was not a signatory to either document, and (2) The attorney fee provisions do not encompass tort claims.

“The primary purpose of [Civil Code] section 1717 is to ensure mutuality of remedy for attorney fee claims under contractual attorney fee provisions. [Citation.] Courts have recognized that section 1717 has this effect in at least two distinct situations.

“The first situation in which section 1717 makes an otherwise unilateral right reciprocal, thereby ensuring mutuality of remedy, is “ ‘when the contract provides the right to one party but not to the other.’ ” [Citation.] In this situation, the effect of section 1717 is to allow recovery of attorney fees by whichever contracting party prevails, “ ‘whether he or she is the party specified in the contract or not’ ” (§ 1717, subd. (a)).

“The second situation in which section 1717 makes an otherwise unilateral right reciprocal, thereby ensuring mutuality of remedy, is when a person sued on a contract containing a provision for attorney fees to the prevailing party defends the litigation “ ‘by successfully arguing the inapplicability, invalidity, unenforceability, or nonexistence of the same contract.’ ” [Citation.] Because these arguments are inconsistent with a contractual claim for attorney fees under the same agreement, a party prevailing on any of these bases usually cannot claim attorney fees as a contractual right. If section 1717 did not apply in this situation, the right to attorney fees would be effectively unilateral - regardless of the reciprocal wording of the attorney fee provision allowing attorney fees to the prevailing attorney - because only the party seeking to affirm and enforce the agreement could invoke its attorney fee provision. To ensure mutuality of remedy in this situation, it has been consistently held that when a party litigant prevails in an action on a contract by establishing that the contract is invalid, inapplicable, unenforceable, or nonexistent, section 1717 permits that party’s recovery of attorney fees whenever the opposing parties would have been entitled to attorney fees under the contract had they prevailed. [Citations.]” (Santisas v. Goodwin (1998) 17 Cal.4th 599, 610-611.)

“[W]hen Plaintiffs lose a shareholder’s derivative action it seems appropriate that they, not the corporation, must bear the burden of costs and attorneys fees. After all, Plaintiffs undertook the action because the corporation failed to act, and, as it turned out, for good reason. Therefore, they take the risk that they might have to pay if they are unsuccessful. Otherwise, they could prosecute frivolous lawsuits on the corporation’s behalf without fear if only the corporation were liable.” (Brusso v. Running Springs Country Club, Inc. (1991) 228 Cal.App.3d 92, 99-100.)

Here, ECO’s FADC sought to, among other things, invalidate the $2,500,000 loan and the corresponding deed of trust. (FADC, ¶ 112.) Despite its arguments to the contrary, had ECO prevailed, there is little doubt that it would have been entitled to recovery of attorneys’ fees, and it would have sought prevailing party attorney fees under the promissory note or the deed of trust. The court finds that the FADC, as it pertains to ReProp, was on the contract, and that by bringing the action derivatively on behalf of MEPI, ECO is subject to any valid attorneys’ fee provision contained in said contract.

ECO’s second argument, that the claims are outside the scope of the attorneys’ fees provisions, is unpersuasive.

“In resolving a motion for attorney fees, the court should consider the pleaded theories of recovery, the theories asserted and the evidence produced at trial, if any, and also any additional evidence submitted on the motion in order to identify the legal basis of the prevailing party's recovery. [Citations.]” (Boyd v. Oscar Fisher Co. (1989) 210 Cal.App.3d 368, 377.)

Here, regardless of what certain causes of action were labeled, the FADC, as against ReProp, was clearly a contract action. The goal of ECO, as noted above, was to invalidate the loan and corresponding deed of trust. The attorney fees language of the provisions, as set forth above, is directly applicable to this action, because it includes: “ . . . or if Lender is made a party to any litigation because of this note, the Deed of Trust or any other Security Documents”. The court has reviewed the provisions in the context of the documents in which they exist. The provisions are broadly worded to encompass defending a derivative action, such as this, that is intended to invalidate the loans and the deed of trust.

Finally, ECO argues that ReProp should not recover attorneys’ fees for the 88.8 hours claimed in relation to Phase 1 of trial, because the action against ReProp was not at issue during Phase 1 and ReProp was only present to monitor the case.

The court finds ECO’s argument unpersuasive. As the court has noted more than once previously, “issues in the case overlap to such an extent that it is not really

possible to distinguish between the two phases.” (March 15, 2022, Minute Order; October 2, 2024, Minute Order.) Given the nature of this matter, and the pervasive overlapping issues, it would have been remiss of ReProp to not closely monitor Phase 1 of trial.

[Note: ECO does not argue that any of the other claimed fees were unreasonable or that any other listed billing events were not reasonably necessary for the conduct of the litigation.]

“[T]he fee setting inquiry in California ordinarily begins with the ‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate. ‘California courts have consistently held that a computation of time spent on a case and the reasonable value of that time is fundamental to a determination of an appropriate attorneys’ fee award.’ [Citation.] The reasonable hourly rate is that prevailing in the community for similar work. [Citation.] The lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided. [Citation.] Such an approach anchors the trial court’s analysis to an objective determination of the value of the attorney’s services, ensuring that the amount awarded is not arbitrary. [Citation.].” (PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1095.)

“[T]he verified time statements of the attorneys, as officers of the court, are entitled to credence in the absence of a clear indication the records are erroneous.” (Horsford v. Board of Trustees of California State University (2005) 132 Cal.App.4th 359, 396.)

“[T]rial courts must carefully review attorney documentation of hours expended” in assessing reasonable and necessary attorney fees. (Ketchum v. Moses (2001) 24 Cal.4h 1122, 1132.) “The ‘ “experienced trial judge is the best judge of the value of professional services rendered in his court, and while his judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong.” ’ ” (Ibid.)

“ ‘[A] reasonable hourly rate is the product of a multiplicity of factors .... the level of skill necessary, time limitations, the amount to be obtained in the litigation, the attorney’s reputation, and the undesirability of the case.’ ” (Margolin v. Regional Planning Com. (1982) 134 Cal.App.3d 999, 1003–1004.)

“[T]he [party] ... seeking fees and costs ‘ “bear[s] the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates.” [Citation.]’” (Christian Research Institute v. Alnor (2008) 165 Cal.App.4th 1315, 1320.) “‘To that end, the court may require [a] Defendant[ ] to produce records sufficient to provide “‘a proper basis for determining how much time was spent on particular claims.’” [Citation.]’” (Ibid.) “The evidence should allow the court to consider whether the case was overstaffed, how much time the attorneys spent on particular claims, and whether the hours were reasonably expended. [Citation.]” (Ibid.)

The declaration of ReProp counsel, Howard D. Hall, as well as the billing statements submitted in support of the motion, include a description of the work performed, who performed the work, and the rates charged.

The rates for each attorney range from $225 to $350 per hour. The paralegal rate ranged from $120 to $150 per hour.

Based on its own familiarity with the legal market as well as information and descriptions provided by ReProp regarding the nature of the services performed and the educational and professional background of each timekeeper identified in the Hall declaration, which the Court finds informative, the hourly rates claimed by ReProp are reasonable, and the tasks performed necessary for the conduct of the litigation.

Attorney fees will be awarded in favor of ReProp, and against ECO, as requested.