Opinion
E070909
11-19-2019
CITY OF FONTANA, Plaintiff and Respondent, v. U.S. BANK, N.A., as Trustee, etc., Defendant and Appellant; RICHARDSON C. GRISWOLD, as Receiver, etc., Movant and Respondent.
Reed Smith, Raffi L. Kassabian, Kasey J. Curtis and Zachary C. Frampton for Defendant and Appellant. Silver & Wright, Curtis R. Wright and Daniel J. Pasek for Plaintiff and Respondent. The Guerin Law Firm and Regis A. Guerin for Movant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super.Ct.No. CIVDS1708435) OPINION APPEAL from the Superior Court of San Bernardino County. Michael A. Sachs, Judge. Dismissed. Reed Smith, Raffi L. Kassabian, Kasey J. Curtis and Zachary C. Frampton for Defendant and Appellant. Silver & Wright, Curtis R. Wright and Daniel J. Pasek for Plaintiff and Respondent. The Guerin Law Firm and Regis A. Guerin for Movant and Respondent.
Plaintiff and respondent City of Fontana (the City) petitioned the trial court to place the house of Romualdo Rodriguez and Rosa Rodriguez (the house) into receivership. Defendant and appellant U.S. Bank (the Bank) has a security interest in the house. On March 5, 2018, the trial court appointed a receiver for the house. On June 29, 2018, the trial court authorized the receiver to hire a real estate agent to list the house for sale in as-in condition.
The Bank contends (1) the trial court erred by approving a plan to sell the house " 'free and clear' of [the] Bank's preexisting lien"; (2) "the court's order approving lien stripping" is contradicted by statutes; (3) if the house were sold free and clear of the Bank's security interest, then such a sale would be an unconstitutional taking; and (4) if the house were sold free and clear of the Bank's security interest, then such a sale would be an unconstitutional reformation of the Bank's contract with Romualdo Rodriguez and Rosa Rodriguez (collectively, the Owners). We dismiss the appeal.
FACTUAL AND PROCEDURAL HISTORY
A. PETITION
On May 3, 2017, the City filed a nuisance and receivership petition against the Owners and the Bank. The petition concerned the house, which is a single-family home purchased by the Owners in March 2004. The Bank holds a security interest in the house. The house is located in the City.
In its petition, the City alleged, "In October 2014, the City received several complaints about a garage made into a house that is being rented; a room with a bedroom and kitchen built in the back of the house that is also being rented out; an empty pool; auto/mechanic work done on the property; and piles of trash creating rodent harborages." On October 22, 2014, the City sent a notice of violation to the Owners.
The City inspected the property on November 3. On November 4, the City sent the Owners a notice of violation "noting the illegal conversion of the garage into a residence with bathroom, kitchen and bedroom, which must be converted back into its original state within thirty days. It further noted the illegal unpermitted additions to the house including a bathroom and bedroom, that either needed to be removed or plans needed to be submitted to the planning department, bringing the additions up to code and obtaining the proper permits. In addition, trash needed to be removed, the yard needed to be restored; smoke detectors and carbon monoxide detectors needed to be installed, vehicles needed to be parked on [a] paved surface, and address numbers needed to be installed on [the] house."
The City sent a follow-up notice of violation to the Owners on December 4. The Owners requested more time to comply. Over the next several months, the City issued the Owners five additional notices. On October 16, 2016, the City again inspected the house. The City found the prior violations had not been remedied and that the house "remained extremely substandard and still contained several conditions that threatened the life and safety of occupants and the general public."
The City asserted the house had (1) an unpermitted subdivision of the main residence, so as to make it a two-unit residence; (2) unpermitted garage construction; (3) a buckling ceiling in the garage that posed a danger of collapsing; (4) dilapidated interior walls that presented a fire danger; (5) exposed electrical wiring; (6) unpermitted electrical wiring; (7) unpermitted plumbing; (8) substandard mechanical equipment, such as thermostats and an HVAC system; (9) missing or damaged switch plates and outlet covers; (10) rotting fascia boards; and (11) chipped or cracking exterior paint.
On March 2, 2017, the City sent Owners and the Bank a notice and order to repair or abate. The City explained the various violations. The City asserted the violations had to be remedied within 30 days or the house could be placed into receivership. In its May 3 petition, the City alleged that the violations had not been remedied. The City's first cause of action was for receivership. (§ 17980.6.) The City requested the trial court "appoint a receiver to take possession and control" of the house.
The City requested the trial court permit the receiver to "[s]ecure all borrowed funds, costs, expenses, and fees associated with the rehabilitation of the [house] with first-priority liens against the [house], superior to any and all pre-existing liens." The City also requested the trial court permit the receiver to "[b]orrow funds to pay the City its reasonable costs, expenses, and attorney['s] fees out of the receivership estate, and to secure those funds against the [house] with first-priority liens the same as all other borrowed funds, as provided by H&S sections 17980 et sequentes and 17980.7, subdivisions (c)(11) and (d)(1)." The City further requested the trial court authorize the receiver to "[b]orrow funds to pay the City its reasonable and actual enforcement costs including, but not limited to, inspection costs, investigation costs, enforcement costs, and all costs of prosecution out of the receivership estate, and to secure those funds against the [house] with first-priority liens the same as all other borrowed funds, as provided by H&S section 17980 et sequentes and 17980.7(d)(1)."
B. DEFAULT AND MOTION TO APPOINT A RECEIVER
The trial court clerk entered the Bank's default on May 23, 2017. The trial court clerk entered Rosa Rodriguez's default on May 26. The trial court clerk entered Romualdo Rodriguez's default on June 16.
On December 20, the City filed a motion for movant and respondent Richardson Griswold (Griswold) to be appointed as the receiver. The City requested Griswold be authorized "to secure funding for the receivership estate through the issuance of receiver's certificates that may be recorded as first priority liens on the [house] pursuant to H&S section 17980.7(c), jurisprudence, and equity." The City also requested Griswold be permitted to recover "the City's costs, expenses, and attorney['s] fees out of the receivership estate, to be secured as a first priority lien on the [house] the same as all other receiver's certificates, as authorized by H&S section 17980.7(c)(11) and 17980.7(d)(1), jurisprudence, and equity." The City supported its motion with points and authorities, and declarations. The declarations concerned the condition of the house, the notices sent to the Owners, and Griswold's qualifications.
On January 23, 2018, the Bank moved to set aside its default. The Bank explained that it had defaulted because it believed "the City would not actively pursue this litigation." The trial court granted the Bank relief from its default.
The Bank opposed the City's motion to appoint a receiver. The Bank asserted the trial court could not grant the City's motion because the trial court had not yet made "any findings concerning the condition of the Property." Alternatively, the Bank asserted that the City failed to provide legal support "for its bald assertion that [the] Bank should share the burden of receivership costs with [the Owners]. [Citations.] Although the Court has discretion to issue certificates with priority over existing lienholders, such authority 'is subject to limits.' " The Bank concluded, "In sum [the] Bank objects to [the] City's request to establish a super-priority lien regarding its costs, fees and receivership certificates unless and until the Court determines that any work proposed by the City or the (ultimately appointed) receiver is, in fact, necessary to remediate property code violations and that the Receiver has satisfied his fiduciary obligations to the receivership estate."
The City replied to the Bank's opposition. The City asserted the Owners and the Bank had notice of the violations at the house, but no one, including the Bank, remedied the violations. The City asserted the Bank's deed of trust permitted the Bank "to protect its collateral, for example, through inspections and power to make repairs." The City asserted the trial court did not need to make independent findings concerning the condition of the house; rather, the City asserted "the City's determination within its order or notice to repair or abate under H&S section 17980.6 is determinative."
In regard to the super-priority lien, the City asserted, "Without such equitable prioritization, no court receiver would be able to commit to the necessary rehabilitation work, for example, without assurances that it will be able to pay its lenders. . . . Without ordering, at the onset of the receivership, the prioritization of receivership debts, the court's receiver will be unable to adequately fund the receivership to fix the [house]."
The trial court held a hearing on the motion. The Bank conceded that a receiver should be appointed to remedy the various violations, but the Bank objected to excessive costs associated with the repairs and the costs being paid by the Bank, as opposed to being paid by the Owners. The trial court found the house constituted a hazard to the public. The trial court appointed Griswold as the receiver. The court ordered Griswold to "obtain [the court's] approval prior to incurring any expenditures of any funds."
The City asked if it would need to bring a noticed motion regarding Griswold's plans for the property. The trial court said, "Here is two things [sic] are gonna happen there. Mr. Griswold is gonna go out to the property, say yes, for X amount of dollars it can be fixed. The more likely possibility is that it's cost prohibitive to fix the property or I'm gonna either demo or sale, et cetera. Those are typically two possibilities we see in any case such as this. [¶] In either scenario, I'm requiring there to be a hearing. Typically there is. But give notice to [the] Bank so they have an opportunity to review what is being proposed and voice any concerns they may have. . . . [¶] [The] Bank could have stepped up and taken care of this themselves. They've got interest in the property so now you're in [the] position where you're at. What's the status of the property is it going through foreclosure, anything like that?"
The Bank responded, "It is, Your Honor. Not yet but it is in default." The Bank asked, "Is Your Honor granting all the relief in the proposed order?" The trial court responded, "Yes, I am."
The trial court issued its order on March 5, 2018. The trial court's order provided, in part, "Court Receiver may borrow funds as necessary to pay for the rehabilitation of the [house] and to pay the costs and debts of the receivership estate. All funds borrowed by Court Receiver on behalf of the receivership estate shall be entitled to become first-priority liens against the [house] superseding all other interests subject to this Receivership Order. Court Receiver may issue and record Court Receiver's Certificates of Indebtedness ('Certificates') to evidence and secure the debts of the receivership estate. The debt evidenced by the Certificates shall be due and payable upon completion of Court Receiver's duties hereunder with respect to the rehabilitation of the [house]. If the Certificates cannot be immediately satisfied when they become due, Court Receiver may apply to this Court to sell the [house] free and clear of all subordinate liens and encumbrances pursuant to CCP section 586.5."
The trial court authorized Griswold "to immediately borrow up to $20,000 on behalf of the receivership estate for purposes of securing the [house] and developing a viable rehabilitation plan." The trial court's order further reflects, "Court Receiver shall reimburse the City out of the receivership estate for all the City's reasonable inspection costs, investigation costs, enforcement costs, court costs, administrative fines, and attorney's fees incurred related to this Action. The City shall be entitled to submit demands upon the receivership estate for recovery of these reasonable costs, expenses, and fees, which shall be paid by Court Receiver upon receipt to the extent sufficient funds are available in the receivership estate."
C. MOTION TO APPROVE RECEIVER'S PLAN
1. GRISWOLD'S MOTION
Griswold moved the trial court to approve his plan for the house. Griswold estimated the house had an as-is value of approximately $225,000. Griswold explained that the house was already subject to the following debts: (1) a county judgment lien of $125,000; (2) an initial receivership lien of $20,000; (3) the City's attorney's fees of $49,974; and (4) the Bank's mortgage of $360,000. Griswold asserted that an as-is sale could satisfy the County's lien, receiver's lien, and the City's attorney's fees. Griswold explained, "After all sale transaction costs and receivership fees and costs have been satisfied, the remaining sale proceeds would be disbursed to [the Bank] to partially satisfy its existing private mortgage lien."
Alternatively, Griswold set forth a plan for repairing the house. Griswold estimated the house would be worth $365,000 after repairs. Griswold explained that, in the scenario of repairing the house, the house would be subject to the same debts listed ante, except the receivership lien would increase from $20,000 to $295,000. In a declaration, Griswold estimated he would need an additional $275,000 to rehabilitate the property because he would need $165,685 to repair the house, $15,000 for additional receivership fees and insurance, $12,000 to relocate the 14 occupants of the house, $49,974 for the City's attorney's fees, and $33,000 for additional construction costs that might arise. Griswold concluded that rehabilitating the house would put the house "into a dire financial condition."
Griswold's accounting appears to contain an error. Griswold counted: (1) $165,000 for repairs; (2) $33,000 for additional construction costs; (3) $49,974 for the City's attorney's fees; (4) $20,000 for an initial receivership certificate; (5) $15,000 for additional receivership fees and insurance; and (6) $12,000 to relocate the 14 occupants of the house. Those costs total $294,974.
When Griswold listed the debts that would need to be paid if the house were rehabilitated, he listed, in part, (1) $295,000 for the receivership lien, and (2) $49,974 for the City's attorney's fees. Thus, in listing the debts, Griswold included the City's attorney's fees twice—once as an independent line item and a second time as part of the $295,000.
Moreover, Griswold asserted he could not borrow the money needed to (1) repair the house, and (2) pay the fees associated with the case. Griswold contended the maximum amount he could borrow against the house would be $120,000, which would not "cover all receivership fees and costs, plus the rehab project." Griswold recommended an as-is sale of the house. Griswold explained that "the buyer would be contractually obligated to remedy the [house] pursuant to the City's violation list under the Court's and [Griswold's] ongoing supervision."
2. THE BANK'S OPPOSITION
The Bank opposed Griswold's motion. First, the Bank contended its secured interest could not be subordinated to paying Griswold and the City's attorney's fees. Second, the Bank asserted Griswold (a) failed to provide evidence, such as an appraisal, for his estimate that the house would be worth $225,000 if it were sold as-is; (b) failed to obtain competitive bids for the construction costs; and (c) failed to provide evidence of the $125,000 lien by San Bernardino County.
The Bank asserts, "[T]he Receiver asserts that there is a $125,000 judgment lien in favor of Riverside County, but there does not appear to be any such lien recorded in the public record." Griswold declared there is a lien against the house held by San Bernardino County, not Riverside County.
3. THE CITY'S JOINDER
The City joined in Griswold's motion. The City contended an as-is sale of the house provided "the Court with the best option to ensure the [house] . . . is rehabilitated given the unfortunate financial realities." The City asserted the Bank's opposition sought to relitigate the trial court's March 5 order subordinating the Bank's secured interest and permitting the City to be paid from the receivership estate. The City asserted that "case law and equity support the priority of [a receivership] lien." The City asserted , "it is not equitable to expect the Receiver to bear the risk of funding the receivership estate or expect his lenders to do the same without ensuring they will recoup what is borrowed once rehabilitation is complete—rehabilitation that improves the secured collateral of a lienholder, namely here, [the] Bank." (Underscore omitted.)
4. GRISWOLD'S REPLY
The receiver asserted that, on May 18, 2018, he e-mailed the Bank's attorney with an informal report including his property value estimates and initial plans, but the Bank's attorney did not respond. Therefore, Griswold filed his motion with the court on May 24. Griswold asserted the Bank's desired outcome was unclear, other than that the Bank wants its loan paid in full. In regard to lien priority, Griswold explained that the trial court, on March 5, ordered the receivership estate to have first-priority liens, and the Bank appeared to be relitigating the issue. As to paying the City's attorney's fees from the receivership estate, Griswold asserted he was complying with the trial court's March 5 order that authorized such a payment.
5. HEARING
The trial court held a hearing on Griswold's motion. The trial court explained that, on March 5, 2018, it "ordered that the court receiver shall reimburse the City out of the receivership estate for all the City's reasonable inspection costs, investigation costs, enforcement costs, court costs, administrative fines, and attorney's fees incurred in conjunction with the action. [¶] The City shall also be entitled to submit a demand upon the receivership estate for recovery of these reasonable costs, expenses, and fees, which shall be paid by the court receiver upon receipt, to the extent sufficient funds are available in the receivership estate." The trial court explained that it also ordered, on March 5, "All funds borrowed by the court receiver on behalf of the receivership estate shall be entitled to become first-priority liens against the [house], super[s]eding all other interests subject to this receivership order."
The trial court explained, "Now, in reviewing the papers again in opposition, they don't really appear to add anything new. All these issues were addressed previously by the Court." The court said, "And at this point in time, the Court doesn't believe there is anything set forth in the papers that are new that would force this Court to consider changing its opinion—previous opinion."
The Bank asserted there is no statutory authority permitting the City's attorney's fees to take priority over the Bank's security interest. The City asserted there is statutory authority permitting the City to recover its fees, and that there is case law providing for the City's fees to receive priority. Further, the City asserted the Bank could have preserved the priority of its security interest by remedying the violations at the house under its deed of trust. The City explained that because it had to go through the trouble of seeking a receivership, the City's fees should take priority over the Bank's security interest. The City asserted, "[T]he [B]ank, unfortunately, may be out some money, but they had years of time to protect their interest, save that money, maybe put a little elbow grease in to fix the property, but they didn't, your Honor." The Bank asserted it is against public policy to foreclose on homeowners who are paying their loans.
The trial court took the matter under submission. On June 29, 2018, the trial court issued an order (1) approving and ratifying the actions taken by Griswold, and (2) permitting Griswold to hire a real estate agent to list the house for sale in as-is condition. The Bank appealed from the June 29 order.
DISCUSSION
The Bank contends (1) the trial court erred by approving Griswold's plan to sell the house " 'free and clear' of [the] Bank's preexisting lien"; (2) "the court's order approving lien stripping" is contradicted by statutes; (3) if the house were sold free and clear of the Bank's security interest, then such a sale would be an unconstitutional taking; and (4) if the house were sold free and clear of the Bank's security interest, then such a sale would be an unconstitutional reformation of the Bank's contract with the Owners.
The City contends the Bank's appeal should be dismissed because it is late. The City asserts the Bank should have appealed from the trial court's March 5 order in which the court (1) ordered that the Bank's security interest could be subordinated, and (2) authorized Griswold to sell the house. Griswold contends the Bank's appeal is premature because (A) the trial court has not yet authorized the sale of the house; (B) the June 29 order only authorized the hiring of a real estate agent to list the house for sale; and (C) the June 29 order is not a final judgment.
" '[T]he California Supreme Court has repeatedly held that the right to appeal is wholly statutory.' " (City and County of San Francisco v. Shers (1995) 38 Cal.App.4th 1831, 1835.) By statute, "an order appointing a receiver" is appealable. (Code Civ. Proc., § 904.1, subd. (a)(7).) Thus, the March 5 order in which the trial court appointed Griswold was an appealable order.
On June 29, the trial court ratified Griswold's past actions and permitted Griswold to hire a real estate agent to list the house for sale in as-is condition. (See People v. Riverside University (1973) 35 Cal.App.3d 572, 582 [a trial court may ratify and approve of a receiver's past actions].) The June 29 order did not confirm the sale of the house or approve a final accounting, thus, there is no indication that it is a final judgment. (See Code Civ. Proc., § 904.1, subd. (a)(1) [appeal from a final judgment]; see also Code Civ. Proc., § 568.5 [a "sale is not final until confirmed by the court"]; see also Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8 Cal.App.5th 910, 926 ["a party must immediately appeal from the order approving the final accounting"].) Because there is no statutory authority permitting an appeal from an order authorizing a receiver to hire a real estate agent to list a house for sale, we conclude the appeal must be dismissed. (City and County of San Francisco v. Shers, supra, 38 Cal.App.4th at p. 1835 [" 'the right to appeal is wholly statutory' "].)
The Bank asserts the June 29 order "finally resolves the priority of the parties' claims to the subject property . . . and directs both lien stripping and distribution of sale proceeds." The Bank reads far too much into the trial court's order authorizing Griswold to hire a real estate agent to list the house for sale. The trial court did not confirm the sale of the house. The June 29 order only permitted Griswold to hire a real estate agent to list the house for sale. (See Code Civ. Proc., § 568.5 [a receiver may sell real property "pursuant to an order of the court" and a "sale is not final until confirmed by the court"].)
Any number of things might occur after the house is listed for sale. For example, no one may offer to purchase the house, the house might collapse due to the buckling ceiling and be demolished, or a person may make a large offer for the house that would satisfy all the liens and the Bank's security interest. The point being that the June 29 order is not final and cannot be interpreted as being final because any number of things could occur that might result in (1) the trial court not authorizing the sale of the house, or (2) the Bank not being aggrieved by its security interest being subordinated, e.g., a large purchase offer for the house. In sum, we are not persuaded by the Bank's assertion that the June 29 order "finally resolves" the issues.
The Bank contends that if it did not appeal from the June 29 order, then, in a later appeal, it would face the argument that it "is forever precluded from challenging the stripping of its lien and use of the sale proceeds to pay other obligations." If the Bank were to face such an argument in the future, then it would likely be due to the Bank's failure to appeal from the March 5 order appointing Griswold because the March 5 order was appealable. (Code Civ. Proc., § 904.1, subd. (a)(7).) In other words, we find the Bank's argument to be unpersuasive because we do not see how the City or Griswold would reasonably argue that the June 29 order is appealable.
The Bank asserts that if the June 29 order is not appealable then this court has discretion to treat the appeal as a petition for writ of mandate. "An appellate court has discretion to treat a purported appeal from a nonappealable order as a petition for writ of mandate, but that power should be exercised only in unusual circumstances." (H.D. Arnaiz, Ltd. v. County of San Joaquin (2002) 96 Cal.App.4th 1357, 1366.) The Bank fails to provide an argument as to why the circumstances in this case are unusual such that we should exercise our discretion to treat this appeal as a petition for writ of mandate. Because the Bank fails to provide a reasoned legal argument, we conclude the issue has been forfeited. (Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852.)
The Bank requests this court take judicial notice of (1) approximately 600 pages of legislative history; (2) a complaint filed against the Owners by the County of San Bernardino in 2011 for past due medical bills; (3) an abstract of judgment from 2012 reflecting the Owners owed the County of San Bernardino $74,511.91; and (4) a 2017 declaration of accrued interest reflecting the County's judgment against the Owners accrued $36,388.41 in interest. We deny the request because the documents are irrelevant to the issues discussed in this opinion. (Western States Petroleum Assn. v. Superior Court (1995) 9 Cal.4th 559, 573, fn. 4 ["only relevant evidence is subject to judicial notice"].)
DISPOSITION
The appeal is dismissed. Respondents are awarded their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
MILLER
Acting P. J. We concur: FIELDS
J. MENETREZ
J.