by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

LANDLORD TENANT; LANDLORD'S REMEDIES; ATTORNEY'S FEES: Under statute providing that a court, in considering whether to stay an eviction on appeal, may impose whatever conditions it deems "just," it was a breach of discretion for a court to require a appeal bond for landlord's attorney's fees to be posted by purported sublessee who was not a party to the lease containing attorney's fee provisions.

Selma Auto Mall, II v. Kararian, 52 Cal. Rptr. 2d 599 (Cal. App. 1996)

First Tenants had a ten year lease for an auto dealership. Facing financial difficulties, they negotiated and signed a new lease with a longer term but easier provisions. The new lease contained an attorney's fee provision (probably the first one did as well, but the court doesn't make this clear). First Tenants then moved their dealership to another location and purported to sublet the instant premises under the original, shorter, lease to Second Tenant, an entity owned in part by one of the First Tenants. Second Tenant went into possession, and some time later belatedly asked permission of the landlords to consent to the sublease, as required under the leasing instrument.

Landlord objected to the sublease, contending that the new lease superceded the old one and that the First Tenants had violated a number of sections of the new lease. The court doesn't tell us the grounds on which the Second Tenant argued that it had a right to operate as sublessee under the first lease. Apparently Second Tenant only wanted occupancy under the relatively brief remaining term of the first lease. Then it planned to relocate the business in any event.

The issues in the case have to do entirely with the appeal of the eviction order. In the trial court, the court found that the First Tenants indeed had violated the new lease, which was in effect, and ordered the First Tenants pay damages of $25,000 and $234,000 in attorney's fees. The court also awarded possession to Landlord. All First Tenants turned out to be judgment proof. Second Tenant, however, appealed the eviction order.

In setting the appeal bond, the trial court concluded that Second Tenant should post a bond for the attorney's fees it had ordered First Tenants to pay as well as a bond (for $240,000) for accruing rent pending appeal.

Second Tenant appealed this order. It claimed that even though the statute permitted the trial court to stay eviction proceedings "on whatever conditions it deems just," the statute nevertheless did not authorize the trial court to require a bond for attorney's fees that the appealing party otherwise had no obligation to pay.

On appeal, held: Bond for attorney's fees set aside. Where there is no contract provision binding a party to pay attorney's fees, none may be ordered, and consequently no bond may be required, even under the broad discretionary powers granted by the statute. The Second Tenant was, at best, a sublessee, and not bound by the attorney's fee provisions under the second lease (note that the Second Tenant in any event argued that the first lease was the relevant instrument.)

Landlord pointed out that Second Tenant's appeal sufficiently delayed matters so that Second Tenant effectively obtained what it wanted - possession for the brief remaining term of the first lease for no cost other than the rent. It argued that Second Tenant must have been "behind" the vigorous and expensive defense mustered by First Tenants at the trial court, specifically to continue its "squatter's" occpuancy. Consequently, Second Tenant had enriched itself and in the process compelled Landlord to expend attorney's fees, a fact that the trial court's bonding requirement took into effect. The appeals court responded that "[t]o admit such factors [into the analysis of what is a `just' condition on appeal] would convert the attorneys fee motion from a perfectly uncomplicated evaluation of the parties' comparative litigation success into a formless, limitless attack on the ethics and character of every party who [defends an unlawful detainer action.]"

Comment 1: If, indeed, the appeal itself is frivolous, and undertaken for the sole purpose of extending Second Tenant's position, sanctions would be available. The same would have been true if the trial court indeed had found that the defenses raised by tenants in the initial action were without foundation. It appears instead that the trial court was "prejudging" the merits of the appeal from its own ruling by imposing a significant risk on Second Tenant specifically related to the appeal. This clearly was inappropriate, and the court was correct in striking down the bond.

Comment 2: Although we know little of the merits here, it seems absurd that the parties would have expended the kinds of fees involved in this case (note that the $238,000 did not include the additional fees expended on this appeal) rather than find some middle ground for settlement. If Second Tenant was in a position to post $500,000 in bonds (which it did), then there must have been enough money in this deal to give both parties a "win" and to save the public the considerable expense of dealing with this dispute.

Comment 3: Before you conclude that Second Tenant's lawyer must have been righteously clever, you should know that a separate issue the court dealt with was the fact that the lawyer, although fighting the bond requirement, "inadvertantly" actually did produce a bond for attorney's fees. The Landlords claimed upon the bond before the error was discovered. The merits of the dispute over that bond were sent back to the trial court.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Laprica Mims at the ABA. (312) 988 6233.

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.