Full Standard Properties, LLC v. SJ 6070, LLC

Background

In February 2019, Full Standard Properties, LLC ("Plaintiff") obtained a $19,500,000 commercial loan from a nonparty bank, secured by real property in San Jose, California. The loan was assigned to SJ 6070, LLC ("Defendant") in August 2024. Plaintiff thereafter defaulted, and Defendant elected to foreclose. Foreclosure proceedings were briefly stayed during Plaintiff's bankruptcy filing in July 2025, but resumed after the bankruptcy stay was lifted. A foreclosure sale was scheduled for October 8, 2025.

On October 2, 2025, Plaintiff filed suit in the Santa Clara County Superior Court raising eight claims: (1) declaratory relief; (2) wrongful foreclosure under California Civil Code § 2924; (3) breach of the implied covenant of good faith and fair dealing; (4) unfair business practices under California Business and Professions Code § 17200 et seq.; (5) unconscionability; rescission/reformation; (6) intentional interference with contractual relations; (7) accounting; and (8) injunctive relief. Plaintiff's application for a temporary restraining order to stop the foreclosure sale was denied, and the property was sold at foreclosure auction in October 2025.

Defendant removed the case to federal court based on diversity of citizenship (meaning the parties are citizens of different states, giving federal courts jurisdiction) and filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) (failure to state a claim upon which relief can be granted). Plaintiff responded by voluntarily dismissing the action without prejudice.

Prior Fee Motion and Sanctions Matter

Defendant filed a first motion for attorneys' fees, which the court denied without prejudice because neither party had adequately briefed the relevant issues. The court also issued an order to show cause directing Plaintiff's counsel to explain why he should not be sanctioned for citing nonexistent cases in opposition to the first fee motion. The parties resolved that matter informally: Plaintiff's counsel paid Defendant $14,500 in attorneys' fees. The court discharged the order to show cause.

The Renewed Motion for Attorneys' Fees

Defendant filed a renewed motion seeking $93,226 in attorneys' fees (subject to a $14,500 setoff) and $792.38 in costs, invoking the fee-shifting provision in Section 10.13(a) of the loan agreement. That provision requires Plaintiff (as Borrower) to reimburse Defendant (as Lender) for all reasonable attorneys' fees incurred "in connection with" defending any action "under or affecting" the Borrower, the loan agreement, the property, or any other loan security.

Legal Framework

Because the case is in federal court on diversity jurisdiction, state law governs both the right to fees and their calculation. California permits parties to allocate attorneys' fees by contract and allows contractually authorized fees to be recovered as costs by the prevailing party. California Civil Code § 1717 provides that in any action "on a contract" containing an attorney-fee clause, the prevailing party may recover reasonable fees — but critically, § 1717(b)(2) provides that where an action is voluntarily dismissed, there is no prevailing party for purposes of § 1717. The California Supreme Court in Santisas v. Goodin established that this bar applies only to contract claims, not to tort or other non-contract claims, which remain subject to whatever the contractual fee provision says.

Entitlement to Fees

Prevailing Party Status

When Plaintiff voluntarily dismissed the action without prejudice, Defendant became the prevailing party under California Civil Procedure Code § 1032(a)(4), which defines "prevailing party" to include a defendant in whose favor a dismissal is entered, whether with or without prejudice. Defendant was therefore entitled to recover as costs any attorneys' fees authorized under the loan agreement — subject to the § 1717 limitation.

Which Claims Were "On a Contract"

The court applied the test from Khan v. Shim, 7 Cal. App. 5th 49 (2016): a claim is "on a contract" if it (1) arises out of, is based upon, or relates to an agreement by seeking to define or interpret its terms or to determine or enforce a party's rights or duties under the agreement, and (2) the agreement contains an attorney-fee clause. A defining characteristic is that the cause of action must seek to define or interpret the contract's terms or to determine or enforce the parties' rights under it.

The court found that Plaintiff's Fifth Cause of Action — seeking rescission or reformation of the loan agreement — was "on a contract" for purposes of § 1717, consistent with the Khan court's treatment of a similar rescission claim. Because this action was voluntarily dismissed, § 1717 bars recovery of fees incurred in defending that claim.

All other substantive claims (wrongful foreclosure, breach of the implied covenant of good faith and fair dealing, unfair business practices, unconscionability, intentional interference with contractual relations, declaratory relief, accounting, and injunctive relief) were tort or statutory claims in the nature of torts. The court rejected Plaintiff's argument that these claims were "on a contract" simply because they related to the loan agreement or fell within the broad fee-shifting provision. The court held that Defendant is entitled to recover attorneys' fees reasonably incurred in defending all claims other than the rescission claim.

Calculation of Fees

The court used California's lodestar method, which calculates fees based on the number of hours reasonably spent multiplied by a reasonable hourly rate, with possible adjustments for case-specific factors.

Secretarial Work

The court declined to award fees for clerical work performed by legal secretaries, treating those tasks as subsumed in normal overhead expenses. This deduction amounted to $2,720 (eight hours of secretarial time).

Attorney Time and Rates

The court found all attorney time spent defending the case to be reasonable, particularly given the need to litigate Plaintiff's temporary restraining order application in state court and prepare a motion to dismiss in federal court. Hourly rates ranging from $375 to $750 were found to be consistent with rates in the community for similar work. After deducting the secretarial fees, the court determined that Defendant reasonably incurred $90,506 in attorneys' fees to defend the case as a whole.

Reduction for Rescission Claim

At the hearing, the court engaged in discussion with counsel about how to apportion fees to exclude those attributable to the rescission claim. Because the record did not permit precise identification of hours spent on that claim, the court proposed a five percent reduction. Neither party objected. Applying the five percent reduction ($4,525.30) to $90,506, the court arrived at a fee award of $85,980.70.

Setoff

The $85,980.70 award is subject to a setoff of $14,500 already paid by Plaintiff's counsel in connection with the sanctions matter.

Costs

Defendant's request for $792.38 in costs was denied. The court noted that court filing fees are taxable costs under 28 U.S.C. § 1920 and therefore cannot be recovered through an attorneys' fees motion (which covers only nontaxable expenses). The court found that Defendant had not provided adequate support for recovery of any allowable nontaxable expenses.

Disposition

- The order to show cause against Plaintiff's counsel was discharged. - Defendant's renewed motion for attorneys' fees and costs was granted in part and denied in part. - Defendant's request for costs ($792.38) was denied. - Defendant's request for attorneys' fees was granted in part; Defendant is awarded $85,980.70 in attorneys' fees, subject to a setoff of $14,500 already paid.