Opinion
A130123
09-22-2011
WAUKEEN Q. MCCOY, Plaintiff and Appellant, v. KEN PAGE et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(City and County of San Francisco Super. Ct. No. CGC 10-501448)
Waukeen Q. McCoy filed a lawsuit against Ken Page, Buena Vista Park, LLC (Buena Vista), and Chicago Title Company (Chicago Title) for, among other things, injunctive relief to stop a non-judicial foreclosure. Subsequently, he filed a motion for a preliminary injunction. The court granted his request for a preliminary injunction and imposed various conditions. McCoy objects to the condition that during the pendency of this action he must pay Page and Buena Vista $4,971.76 per month, which is the monthly interest due on his loan. We conclude that the lower court did not abuse its discretion in imposing this condition, and affirm the judgment.
BACKGROUND
McCoy filed his complaint against Page, Buena Vista, and Chicago Title (collectively, defendants) on July 12, 2010. His lawsuit concerned his purchase of property on Buena Vista Avenue East in San Francisco (the residence). He alleged that Page and "his now-defunct business entity," Buena Vista, sold him the residence for $3,875,000, and failed to disclose defects known to Page, but not known by McCoy, that impacted the true value of the residence. He also asserted that Page persuaded him to assume financing that involved serious irregularities and improprieties that violated various statutes and common law. The pleading further alleged that Page and Buena Vista were seeking to foreclose upon a note but, according to McCoy's pleading, he was not in default. McCoy set forth causes of action for declaratory relief, injunctive relief, breach of contract, accounting, misrepresentation, and wrongful foreclosure.
On July 12, 2010, McCoy applied ex parte for a temporary restraining order and an order to show cause (OSC) regarding a preliminary injunction. The court issued an OSC and a temporary restraining order. The court set the OSC hearing regarding a preliminary injunction for August 12, 2010.
In his papers in support of his motion for a preliminary injunction, McCoy asserted that defendants were wrongfully attempting to foreclose upon the residence. He maintained that he was entitled to a preliminary injunction "due to (1) the existence of fraud in the original transaction; (2) the beneficiary has no valid lien; (3) the amount the beneficiary claims owed is incorrect; (4) the Notice of Default and Notice of Sale contains material defects; (5) the intended conduct at the trustee's sale will be improper; and (6) that [d]efendants failed to comply with statutory notice and disclosure requirements."
McCoy stated that he purchased the residence, a single-family dwelling, from Page and the now-defunct business entity, Buena Vista, in 2007 for $3,875,000. He agreed to make a down payment of $875,000 and to finance the balance of the purchase price. He asserted that Page deceived him into believing that he had structured the sale of the residence "via a debt instrument known as a wraparound 'All Inclusive Note and Deed of Trust.' The all-inclusive deed of trust was to include the total obligation of approximately $3 million and result in a single encumbrance (i.e., a first deed of trust) recorded against the property. Instead, Defendant Page left the Chevy Chase Bank[, F.S.B. (Chevy Chase Bank)] deed of trust [the $2.1 million owed by Page and Buena Vista to Chevy Chase Bank] in place and created a duplicate deed of trust for $3 million leaving a total encumbrance on the [r]esidence of $5 million—$2 million more than warranted." McCoy stated that a conventional financing arrangement would have resulted in Page's having to pay a prepayment penalty of about $60,000. McCoy declared that Page knew that he was an "unsophisticated purchaser with ample cash reserves." Furthermore, McCoy averred that he had a "long-standing and intimate friendship" with Page and his domestic partner. McCoy believed the residence had a single deed of trust, "which secured the amount owed to the Chevy Chase Bank and that the addition[al] amount owed to Defendant Page and Buena Vista, LLC was essentially an unsecured obligation." At the time of the sale, Page owned a five percent interest in the property and Buena Vista had a 95 percent interest.
McCoy asserted that Page dissolved and cancelled Buena Vista on April 11, 2008. However, McCoy believed that there was no transfer of the assets.
When McCoy attempted to refinance the residence, he discovered, according to his pleading, that the title to the residence showed, "in addition to the All-Inclusive Deed of Trust in the sum of $3 million, a senior lien in the sum of $2 million in favor of Chevy Chase Bank." He further asserted that because of this over encumbrance of $2 million, he could not refinance the loan. When McCoy confronted Page about the over-encumbrance, Page, according to McCoy, promised to " 'make it right.' "
On March 24, 2009, at Page's request, Chicago Title prepared a new short form deed of trust and assignment of rents evidencing a loan in the sum of $895,763.68 in favor of Buena Vista and Page. The short form deed of trust was backdated to December 18, 2007, and recorded by Chicago Title on March 31, 2009. McCoy asserted that, "[i]n reality, and unknown to [him], Defendant Page and Defendant Chicago Title used their promise to 'make it right' as a pretext to transmute the wraparound financing into a second deed of trust—an arrangement [d]efendants knew was prejudicial to [him] and in contravention of the parties' original agreement. . . . However, by taking the actions described herein, Defendant Page utterly deprived [him] of the benefit of the original bargain for the following reasons: (1) Defendant Page attempted to 'bifurcate' the $3 million loan into a secured obligation (i.e., the $895,000 secured by the Short Form Deed of Trust) and an unsecured obligation (i.e., the $2.1 million owed to Chevy Chase Bank) and by so doing exposed [him] to a deficiency judgment on the unsecured $2.1 million portion of the loan, and (2) the end result was the creation of a first and second deed of trust on title in contravention of their express agreement."
McCoy asserted that he made all payments due under the note from December 2007 through June 2009. However, he became aware of serious and substantial construction defects in July 2009. McCoy declared that Page knew, but failed to disclose, that the sewer line to two apartment complexes backed up, which resulted in raw sewage flooding the backyard of the residence. This raw sewage then flowed down the hill into adjacent properties. He further asserted that the Department of Building Inspection issued a notice of violation to correct the unsafe conditions caused by the sewer. He avowed that the estimated cost to remedy the problem could "possibly exceed $150,000.00." McCoy stated that his neighbor told him that it was an ongoing problem and Page, according to McCoy, acknowledged the problem when he contacted him. McCoy ceased making payments to Page in July 2009 for a portion of the sums owed on the note. He, however, continued to make payments to Chevy Chase Bank on the underlying note.
On August 20, 2009, Page, individually and as a signatory for Buena Vista, "purported to record a Notice of Default And Election To Sell Under Deed of Trust, through Defendant Chicago Title, with respect to the Short Form Deed of Trust." McCoy declared that, in order to foreclose on the residence and in an attempt to conceal the fact that Page had cancelled and dissolved the original Buena Vista company, Page created an identically named entity on August 29, 2009.
McCoy argued that he was entitled to a preliminary injunction because of Page's fraud in the original and subsequent transactions. He also maintained that there were procedural defects in the debt instruments and the notice of sale.
In response, defendants assert that McCoy is not an unsophisticated purchaser but a lawyer who is an expert in contract law. They also pointed out that the contract provided that the financing would be subject to the existing Chevy Chase Bank loan of over $2,000,000. They emphasized that McCoy signed loan documents expressly stating that he had a "wrap deed of trust" and the reason for his inability later to refinance the loan was his lack of cash in his accounts. They provided evidence indicating that McCoy did not have sufficient money to refinance and that the property was over encumbered with tax liens. Defendants asserted that it was McCoy, not Page, who insisted on unwrapping the seller's lien, and submitted letters from McCoy urging Page to do this. They also argued that McCoy provided no competent evidence that the sewer line was defective or that the sellers knew about the problem with the sewer before the sale. They also mounted several other arguments against McCoy's likelihood of succeeding on his causes of action. Page requested a bond or undertaking in the event the court decided to grant the preliminary injunction. He claimed that McCoy would be able to live in the residence without bearing the full economic costs if he was not ordered to make the payments due Page. Page also alleged that the property had declined in value. With regard to the amount of bond, he set forth the following reasons for setting the bond at a "minimum" of $195,000: "The property value declined at least $375,000 since the sale to McCoy, based on market conditions alone. . . . This amounts to an erosion of about $13,000 per month. The property is tax defaulted and current taxes are unpaid as well, in an amount of $20,928. . . . Assuming that it may take as long as a year to arbitrate this case, a bond in the amount of the delinquent taxes ($20,298), the current taxes ($19,188) and a year's erosion in equity (12 x $13,000=$156,000) means the court should order the defendant to bond the injunction in the minimum amount of $195,000."
To support their request for a bond of $195,000, defendants submitted the declaration of James Nunemacher. Nunemacher stated that he was employed full time as a real estate agent and broker with Vanguard Properties. He opined that the residence's fair market value was $3,500,000 if bought in top condition, which was a decline from the previous sale price of $3,875,000.
The court held the OSC hearing on August 12, 2010. The court stated that its tentative ruling was to grant the preliminary injunction and to require McCoy to post a bond in the amount of $100,000. After counsel for defendant argued that it was not probable that McCoy would prevail on the merits of his claims, counsel argued the issue of a bond. Counsel declared that McCoy was "financially distressed borrower who really" was not "bondable in probably . . . any amount."
Counsel contended that McCoy was not seeking to rescind the contract but wanted to keep the property and collect damages. Consequently, defendants' attorney maintained that McCoy should have to pay the amounts not in dispute. Counsel observed that McCoy was claiming that the sewer repair would cost $150,000. He proposed that this sum be credited for the purposes of the injunction and that the court order McCoy to pay interest on the undisputed amount, which was approximately $895,000 minus $150,000.
In support of this argument, counsel cited to Weil & Brown, California Practice Guide: Civil Procedure Before Trial (The Rutter Group 2010) paragraphs 9:672 to 9:674, page 9(11)-42. These paragraphs state: "Attempts to enjoin foreclosures under the usual power of sale provisions in deeds of trust are common. The usual showing attempted is that there is a dispute over the right to sell or the amount necessary to reinstate." (Id. at [¶] 9.672.) "The court will examine the claim carefully to make sure that there is a bona fide dispute as to enforceability or default, rather than a mere attempt to 'stall' payment of an amount clearly due. [Citation.]" (Id. at [¶] 9.673.) "If a bona fide dispute exists, [preliminary injunctions] are frequently granted, but on conditions designed to prevent prejudice to the defendant. The common conditions are payment of amounts not in dispute, continuing payments during litigation, keeping prior liens out of default, paying taxes and insurance, and waiving any claim that accepting payments pursuant to the conditions waives the default." (Id. at [¶] 9.674.)
The court responded: "So the way I calculate it, it would be interest on [$]745,000; is that correct?" Counsel for defendants agreed. Counsel explained that the original note amount was $5,971 and $1,000 a month could be deducted as that equaled the interest on $150,000, since the interest rate was 8 percent. Counsel stated that if McCoy resumed payments of $4,971.76 per month to Page starting on the effective date of the injunction and continued to pay that amount as well as keeping the taxes current, then a bond would not be needed.
Counsel for McCoy responded that if McCoy had been able to refinance, the interest rate would have been significantly less than 8 percent. He also argued that he did not want to make payments to this "imposter LLC."
The court advised that it wanted to ensure that defendants would not be harmed by the injunction. The court favored the solution urged by defendants' counsel as it believed that this solution would maintain the status quo until the matter was resolved.
The court asked McCoy's attorney whether he preferred a $100,000 bond. The court expressed concern over the fact that McCoy owed taxes and that Page was not receiving any payment on the note. The court elaborated: "But in the meantime the defendant is not getting paid on that note at all. He is not getting a thing. And initially the way that I understand the sale of the property, Mr. McCoy was going to come up with a loan for $3 million. He is currently only paying a loan for $2 million. Somewhere there is additional money, which should be going to the defendant to maintain the status quo. That is not occurring. [¶] So I could put in place the $100,000 bond or if you prefer order him to pay $4,971.76 to the defendants, also maintaining the Chevy Chase [Bank loan], or the payments on the property, the taxes, the insurance, without prejudice to any party's rights to maintain their action, whether it's in court or before an arbitrator. What I am trying to do is maintain the status quo. So which would you prefer?"
Counsel replied that he could not respond because he had not had an opportunity to confer with McCoy.
The court declined the request to continue the matter one day and made the following ruling: "I am going to put in place the preliminary injunction . . . . And instead of a $100,000 bond, I am going to impose a $1,000 bond. But in addition, the plaintiffs will continue payments on that mortgage and taxes on the insurance and also the $4,971.76 [monthly payment]. . . ."
On October 1, 2010, the court filed its order granting the preliminary injunction. The court ordered defendants restrained and enjoined from conducting a non-judicial foreclosure sale of the residence. The issuance of the injunction was conditioned upon McCoy posting a bond in the amount of $1,000. Additionally, the continuance and maintenance of the injunction was expressly conditioned upon various acts to be performed by McCoy, including the following: McCoy was to pay all payments owed to Chevy Chase Bank, was to keep the residence fully insured, was to pay before delinquency all real property taxes and assessments levied against the residence, and was to pay Page and Buena Vista a monthly payment of $4,971.76.
The court concluded with the following in its order: "Any payments made to defendants . . . may be made by [McCoy] without prejudice to any contentions of any kind as to the standing of a defendant to demand or collect such payment or to enforce the sellers' Note and all amendments thereof, which are alleged in the moving papers. All payment accepted by defendants under this Injunction, . . . , shall be without prejudice to the defendants, if allowed at some future time, to proceed with any enforcement of the Note and/or the foreclosure sale, provided however, that all such payments shall be duly credited to [McCoy] in any such enforcement actions."
McCoy filed a timely notice of appeal from the order granting his request for a preliminary injunction and ordering him to post a bond of $1,000 and to pay defendants $4,971.76 a month.
DISCUSSION
McCoy appeals the condition that he pay $4,971.76 per month to Page, which was attached to a preliminary injunction obtained by him to stop foreclosure on his residence. McCoy contends that the lower court disregarded the evidence showing that Page was untrustworthy and engaged in shady deals. He also argues that the sum is excessive and punitive in nature.
Upon granting a preliminary injunction, a court must require an undertaking (Code Civ. Proc., § 529, subd. (a)) to protect the party against whom the injunction lies. The judge determines the amount of the undertaking, but the undertaking must be in an amount sufficient to pay defendants "any damages . . . [they] may sustain by reason of the injunction, if the court finally decides that the applicant was not entitled to the injunction." (§ 529, subd. (a).) When estimating the amount of the required undertaking, the trial court must assess defendants' damages under the assumption that the preliminary injunction was wrongfully issued. (Abba Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 15.)
All further unspecified code sections refer to the Code of Civil Procedure.
The bond requirement may be waived or forfeited. (Smith v. Adventists Health System/West (2010) 182 Cal.App.4th 729, 740.)
--------
A trial court's ruling on an application for a preliminary injunction is reviewed for an abuse of discretion. (Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286.) The party challenging the order has the burden of making a clear showing of an abuse of discretion. (Biosense Webster, Inc. v. Superior Court (2006) 135 Cal.App.4th 827, 834.) An abuse of discretion occurs when the decision has no reasonable basis or is contrary to the undisputed evidence. (14859 Moorpark Homeowner's Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402-1403.)
In their briefs in this court, both parties vigorously argue the issues in the underlying lawsuit. McCoy cites to his evidence indicating that Page defrauded him and highlights what he believes are the problems with or defects in the notes. He also cites to the evidence showing that Page created, dissolved, and then recreated Buena Vista to support his claim that neither Page nor Buena Vista could foreclose on the residence. He maintains that the lower court found that he demonstrated a reasonable probability of prevailing on the merits and that there were several serious ambiguities in the documents and, therefore, it abused its discretion in requiring him to make payments to the party that he claims defrauded him.
The trial court granted McCoy's request for a preliminary injunction and stated that McCoy had satisfied his burden of establishing a reasonable probability of prevailing on the merits, but it made it very clear that it was not deciding the merits of the lawsuit. The court emphasized that the ruling would be designed to maintain the status quo. Thus, the court followed the basic rule that " '[a] preliminary injunction is an interim remedy designed to maintain the status quo pending a decision on the merits. [Citation.] It is not, in itself, a cause of action." (Korean American Legal Advocacy Foundation v. City of Los Angeles (1994) 23 Cal.App.4th 376, 398-399.)
In order to maintain the status quo, the trial court ordered McCoy to pay Page the monthly payments due since he had stopped making these payments. The court explained: "And initially the way that I understand the sale of the property, Mr. McCoy was going to come up with a loan for $3 million. He is currently only paying a loan for $2 million. Somewhere there is additional money[,] which should be going to the defendant to maintain the status quo. That is not occurring. [¶] So I could put in place the $100,000 bond or if you prefer order him to pay $4,971.76 to the defendants, also maintaining the Chevy Chase, or the payments on the property, the taxes, the insurance, without prejudice to any party's rights to maintain their action, whether it's in court or before an arbitrator. What I am trying to do is maintain the status quo. So which would you prefer?"
The trial court clearly had a reasonable basis for ordering McCoy to pay the monthly sum owed to Page. This amount was not a penalty, as this was the sum owed. McCoy's argument that this sum is a penalty contradicts his statement in his opening brief in this court that he is "willing and able to make monthly payments of $4,971.76 but not to the defendant[s] who have been cheating and defrauding him for nearly four years." Furthermore, McCoy asks this court to reverse and remand to have the payments be made to a trustee to be appointed by the court during the period of the injunction. Thus, he implicitly acknowledges that the amount the court ordered him to pay was fair.
McCoy also cannot establish that the trial court's ruling contravenes undisputed evidence. The trial court stated that the original documents for sale has "some gross ambiguities" and that McCoy's "procedural argument has some merit." The court never suggested that the evidence showed that his argument was, in fact, meritorious and that defendants failed to submit any contrary evidence.
When arguing that the lower court abused its discretion, McCoy sets forth the evidence he submitted in support of his preliminary injunction. He thus stresses the evidence he provided about the creation and dissolution of Buena Vista and the evidence that he claims shows that neither the first Buena Vista nor the second Buena Vista is a limited liability company. He also maintains that the evidence shows that the first and second Buena Vista are different companies. This evidence, according to McCoy, establishes that the foreclosure was improper because the original Buena Vista was no longer in existence and Page did not have standing because he owned only five percent of the loan and that amount had already been paid. He asserts that making payments to Page unjustly enriches him because he owned only a small percentage of the loan. He also presents other evidence indicating that there were other procedural irregularities and defects making the foreclosure illegal. Finally, McCoy asserts that he is not in default because he has been making payments to Chevy Chase Bank on Page's loan.
The question before us is not whether some evidence or even significant evidence supports McCoy's claims. In order to prevail, McCoy must show that the evidence that defendants defrauded him and illegally attempted to foreclose on the residence was undisputed. McCoy ignores much of the evidence submitted by defendants that indicated he did understand the financing and that his problems regarding refinancing were related to his own financial problems, not any deception or fraud committed by defendants. He may dispute Page's argument that the judicial foreclosure was procedurally proper because Buena Vista was a limited liability company that could continue to exist for the purposes of winding up its affairs under Corporations Code section 17354, but this is a heavily disputed issue of fact. Defendants provided some evidence that Page was the sole member of Buena Vista and that he received the assets of the dissolved company subject to its known debts and liabilities. Defendants also argued and provided evidence that Page and Buena Vista held the deed of trust as tenants in common. Finally, McCoy ignores the evidence suggesting that he knew or reasonably should have known that the sewer line on the residence was shared with two large apartment buildings.
Here, the lower court found that a bona fide dispute existed. Whether Page or Buena Vista had standing to foreclose on the residence is an issue to be decided at trial or arbitration. Additionally, the issues of fraud and what McCoy understood or did not understand when he signed the contracts and what he knew or reasonably should have known about the sewer problems are issues that will be settled by arbitration or trial. The evidence regarding these issues is not undisputed.
There was no dispute, however, that McCoy was obligated to pay interest each month on the principal of $895,763. Indeed, McCoy did not ask for rescission in his lawsuit. The court recognized that he was claiming an injury of $150,000 for the sewer repair and deducted the interest on the $150,000 from the amount it was requiring McCoy to pay each moth. Thus, the court took great pains to be more than fair to McCoy since it did not have to deduct this disputed amount. (Abba Rubber Co. v. Seaquist, supra, 235 Cal.App.3d at p. 15 [the court is to assess defendants' damages under the assumption that the preliminary injunction was wrongfully issued].)
McCoy argues that his monthly payments of $4,971.76 should be paid to a receiver, rather than to Page. However, such a solution would prejudice Page. Page presented evidence that he needs the cash and that he was suffering because McCoy had not made any payments on the residence for over one year. Accordingly, the court's order followed the dictates of section 529, subdivision (a).
The record establishes that the lower court granted McCoy's request for a preliminary injunction and took great care to ensure that the status quo was maintained. McCoy has failed to show that the lower court abused its discretion when it granted his request for a preliminary injunction with the condition that he pay Page a little under $5,000 a month.
DISPOSITION
The judgment is affirmed. McCoy is to pay the costs of appeal.
Lambden, J. We concur: Kline, P.J. Haerle, J.