Opinion
B227308
01-31-2012
CITY OF LA HABRA HEIGHTS, Plaintiff and Respondent, v. McALISTER INVESTMENTS, INC., Defendant and Appellant; DAVID J. PASTERNAK, as Receiver, etc., Respondent.
Brown, Wegner & Berliner, Matthew K. Wegner, Matthew A. Berliner and Katherine R. Stevens for Defendant and Appellant. Dapeer, Rosenblit & Litvak and William Litvak for Plaintiff and Respondent. Pasternak, Pasternak & Patton, John W. Patton and David J. Pasternak for Receiver and Respondent David J. Pasternak.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. VC047381)
APPEAL from an order of the Superior Court of Los Angeles County. Yvonne T. Sanchez, Judge. Affirmed.
Brown, Wegner & Berliner, Matthew K. Wegner, Matthew A. Berliner and Katherine R. Stevens for Defendant and Appellant.
Dapeer, Rosenblit & Litvak and William Litvak for Plaintiff and Respondent.
Pasternak, Pasternak & Patton, John W. Patton and David J. Pasternak for Receiver and Respondent David J. Pasternak.
McAlister Investments, Inc. (McAlister) appeals from an order approving the final report and account of receiver David J. Pasternak (Receiver) and ordering McAlister to pay the Receiver's costs and compensation. Respondent City of La Habra (the City) obtained a receivership over property that had a nuisance condition for purposes of abating the nuisance, and Pasternak was appointed Receiver. Prior to the receivership, the property was subject to a conditional use permit requiring abatement of the nuisance, but the original property owner and his successor failed to abate the nuisance. After McAlister acquired the property at a trustee's sale, in order to abate the nuisance, the Receiver was required to expend considerable funds and eventually sold the property at auction to a third party, but insufficient funds in the receivership remained to pay the Receiver's expenses and compensation.
On appeal, McAlister contends the trial court erred in ordering it to pay the Receiver's unrecouped costs and compensation, and violated its due process rights because it failed to hold an evidentiary hearing to determine that a nuisance existed on the property, or that McAlister was liable for the Receiver's costs and compensation. We affirm.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
1. Background Facts
This appeal concerns real property located on Dorothea Road in the City of La Habra Heights (the Property) consisting of approximately 1.6 acres of vacant land zoned for residential acreage. The Property is in a hillside area. In 2001, Jack Susseov, Jr. (Susseov), the owner of the Property, received zoning approval to construct a retaining wall not in excess of 17 feet, and to import no more than 500 cubic yards of fill. However, during the period 2001 to 2002, Susseov constructed a retaining wall approximately 20 feet high and conducted illegal grading, including the depositing of uncompacted fill in excess of the approved amount.
On August 30, 2005, Susseov and the City entered into an agreement pursuant to which the City gave Susseov a conditional use permit (CUP) to grade the Property, remove the illegal fill and retaining wall, and construct a residence thereon. The CUP acknowledged that the grading on the Property was illegal, stating the "site was previously illegally graded and is proposed to be restored to its original landform, or as closely as possible, to its original landform." The CUP was recorded on September 1, 2005.
On September 27, 2005, after Susseov had failed to undertake the corrective work outlined in the CUP, Dean Smith purchased the Property from Susseov, and on October 3, 2005, McAlister loaned Smith $525,000, secured by a deed of trust on the Property. On September 11, 2006, the City granted Smith a conditional use permit on nearly identical conditions as that granted to Susseov, and Smith agreed that such covenants ran with the land. Smith's CUP expired after six months pursuant to its terms because Smith never undertook the contemplated repair work on the Property.
On September 28, 2006, the City commenced an action for injunctive relief against Smith, asserting that the condition of the property constituted a public nuisance and violated the City's Municipal Code.
On March 21, 2007, the City and Smith stipulated to the appointment of a receiver for the primary purpose of remediating the nuisance on the Property by hiring contractors to bring the Property into compliance with the City's building codes. The Receiver was given authority to borrow funds of up to $150,000 in order to accomplish his duties, and was also given authority to sell the Property. The Receiver recorded the Stipulation with the Los Angeles County Recorder on April 7, 2007.
During the period March 26, 2007 through November 30, 2009, the Receiver filed 32 monthly reports detailing services performed and monies received and disbursed.
On July 24, 2007, McAlister filed a notice of default and election to sell under its deed of trust. McAlister's counsel spoke to the Receiver on August 3, 2007 and they confirmed that any purchaser would take title subject to the receivership. On February 7, 2008, McAlister acquired title to the Property through a trustee's sale.
On February 25, 2008, the Receiver moved ex parte to borrow funds from First Century Bank in the sum of $285,000 and to give the bank a priority lien on the Property; to enter into a listing agreement to list the Property for sale for $595,000; and to enter into contracts for the purpose of rehabilitating the Property. The Receiver stated the Property posed a risk to neighboring properties during the rainy season. The Receiver had formulated a rehabilitation plan for the Property, but obtaining funding had proved difficult due to the weak real estate market, and as a result, the Property appraised lower than expected. The Receiver estimated a cost of $280,800 to regrade the Property, plus additional related costs for landscaping, engineering services, testing, and planning, for a total of $362,259.90.
The Receiver's application noted that traditional lenders were reluctant to lend money because the Property was "distressed property," in that it violated local ordinances and building codes, and lenders who were willing to advance funds wanted interest at the rate of 20 percent. First Century Bank was willing to lend funds at a rate of nine percent for a term of one year based only on its prior business relationship with the Receiver. The Property appraised at $550,000 after remediation had been completed.
McAlister opposed the Receiver's application on the basis that the retaining walls and grading had taken place in 2001 to 2002, and therefore there was no emergency. Further, it argued that it was the owner of the Property pursuant to a trustee's sale conducted on February 14, 2008, and was not a party to the stipulation appointing the Receiver because the stipulation was between Smith and the City.
The City supported the Receiver's application on the basis that the Receivership was an in rem remedy that attached to the Property, ran with the land, and thus survived McAlister's nonjudicial foreclosure.
On April 4, 2008, the City amended the complaint to add McAlister as a Doe defendant. On April 8, 2008, McAlister filed a cross-complaint against the City for inverse condemnation.
On May 22, 2008, the trial court granted the Receiver's motion, and ordered that the Receiver be permitted to borrow $285,000 from First Century Bank. The court ordered that First Century Bank's lien was given a first priority position on the Property, and authorized the Receiver to list the Property for sale for $595,000.
On July 2, 2008, McAlister dismissed its cross-complaint without prejudice.
On June 24, 2009, the Receiver filed his ex parte application to enter into an auction agreement with a real estate broker to sell the Property. The application asserted that the Receiver had substantially completed the remediation of the Property; the Property had decreased significantly in value since his appointment; the Property, which had been previously listed for sale, had failed to generate any offers; the repayment of the First Century Bank loan was coming due; and the Receiver believed the auction of the Property would enable him to pay the First Century Bank loan and bring the receivership to an end. The Receiver noted that the sale of the Property would generate sufficient funds to pay First Century Bank's loan in full and the costs of sale, but would leave a balance owing to one of the contractors who had worked on the Property, and would generate insufficient funds to pay the Receiver's fees.
On July 24, 2009, the trial court entered its order granting the Receiver's application.
On February 2, 2010, the Receiver filed an ex parte application for order authorizing him to sell and confirming the sale of the Property to Roger Tung for $260,000. The Receiver requested the sale be made free and clear of three mechanic's liens filed against the Property on behalf of contractors who had done remediation work because there were insufficient funds to pay those liens in full. On February 2, 2010, the court approved the Receiver's sale of the Property.
On February 23, 2010, the City moved for judgment on the pleadings in its action against Smith, relying on the recitals in the CUP and the order appointing the Receiver to establish that Smith had no defense to the City's claims of nuisance and code violations. The trial court denied the motion, finding that whether McAlister was bound by the stipulation between Smith and the City required an examination of evidence outside the four corners of the pleadings.
2. Receiver's Final Report and Account
On July 8, 2010, the Receiver filed his final report and account, seeking approval of the Receiver's compensation and ordering McAlister to pay $221,583.48 to the Receiver for his unpaid compensation and sums owing to contractors for remediation on the Property. The receiver sought $90,099.29 for his compensation, $110,000 for soil work on the Property, $2,000 for engineering services, $4,025 for environmental testing, $13,423.41 to First Century Bank for the balance of the loan, and $2,057.35 for the auction company.
McAlister opposed the Receiver's application, contending the court lacked jurisdiction to order it to pay the Receiver's costs. McAlister argued it was not a party to the Stipulation appointing the Receiver, nor did it create the alleged nuisance.
The City supported the Receiver's application, arguing the receivership benefited the Property's owners, including McAlister and that property owners are liable for nuisances on their property.
On August 4, 2010, the court entered its order approving the receiver's final report and account, and ordered McAlister to pay the Receiver $221,583.48 (August 4 Order).
DISCUSSION
McAlister argues that the August 4, 2010 Order violates its due process rights because (1) the trial court erred in ordering it to pay the Receiver's costs of administration in abating the nuisance and compensation without first holding an evidentiary hearing to determine that McAlister was liable or that a nuisance existed, and (2) the trial court erred in ordering it pay such costs and compensation when it received no benefit whatsoever.
The function of the receiver is to aid the court in preserving and managing the property involved in a particular lawsuit for the benefit of those to whom it can ultimately be determined to belong. (Free Gold Mining Co. v. Spiers (1901) 135 Cal. 130, 132.) A receiver is an officer of the court and is subject to the court's continuing control; a receiver only has those powers granted to it by statute or order of court. (Code Civ. Proc., § 568; City of Santa Monica v. Gonzalez (2008) 43 Cal.4th 905, 930.) The receiver, acting for the court, is not the agent of any party, but acts for the benefit of all holding an interest in the receivership property. (Cal. Rules of Court, rule 3.1179(a).)
Code of Civil Procedure section 568 provides: "The receiver has, under the control of the Court, power to bring and defend actions in his own name, as receiver; to take and keep possession of the property, to receive rents, collect debts, to compound for and compromise the same, to make transfers, and generally to do such acts respecting the property as the Court may authorize."
California Rules of Court, rule 3.1179(a) provides: "The receiver is the agent of the court and not of any party, and as such: [¶] (1) Is neutral; [¶] (2) Acts for the benefit of all who may have an interest in the receivership property; and [¶] (3) Holds assets for the court and not for the plaintiff or the defendant."
A receivership is a type of quasi in rem jurisdiction based on the court's authority over the jurisdiction in which the property is located. (Atkinson v. Superior Court (1957) 49 Cal.2d 338, 342-343.) As such, it is different from in personam jurisdiction over the person. A judgment quasi in rem affects particular persons who have an interest in the specific property. (Shaffer v. Heitner (1977) 433 U.S. 186, 199.) In Shaffer v. Heitner, supra, 433 U.S., 186, the Supreme Court held the judge must determine whether the exercise of jurisdiction over the property is consistent with due process, and to that end, must apply the "minimum-contacts" analysis of questions of personal jurisdiction. (Id. at p. 207.) The question is whether constitutionally sufficient contacts exist between the forum state and the owners of the property to justify the assertion of personal jurisdiction. (Id. at pp. 207-208.) If claims to the property are the source of the controversy between the parties, the location of the property within the state is sufficient to confer jurisdiction. (Id. at p. 207.)
A receiver has the power, pursuant to such court control, to take possession of property, to receive rents, collect debts, to borrow money, and to sell real or personal property in receivership pursuant to court order. (Code Civ. Proc., §§ 568, 568.5.) The receiver acquires no title in the property but instead acts as an officer of the court, and title remains vested in those persons or entities in whom it was vested when the receiver was appointed. (North v. Cecil B. DeMille Productions, Inc. (1934) 2 Cal.2d 55, 58.) The receiver takes the property in the condition at the time of his or her appointment, "'cum onere, in the plight and condition existing at the time of his appointment, subject to all liens and equities, including the right of set-off, and impressed with the legal and equitable rights and claims of creditors.'" (Wright v. Standard Engineering Corp. (1972) 28 Cal.App.3d 244, 248.)
Code of Civil Procedure section 568.5 provides: "A receiver may, pursuant to an order of the court, sell real or personal property in the receiver's possession upon the notice and in the manner prescribed by Article 6 (commencing with Section 701.510) of Chapter 3 of Division 2 of Title 9. The sale is not final until confirmed by the court."
Pursuant to court order, a receiver may sell real or personal property in his or her possession with notice and in the manner prescribed in Code of Civil Procedure sections 701.510 to 701.680. A receiver's sale is a judicial sale and the court may authorize a receiver to sell property at either a public or private sale. (People v. Riverside University (1973) 35 Cal.App.3d 572, 583.) Evidence that the property is faced with imminent destruction or substantial devaluation can justify an immediate sale to any available purchaser. (Cal-American Income Property Fund VII v. Brown Development Corp. (1982) 138 Cal.App.3d 268, 275, fn. 7.)
The amount of compensation allowed to a receiver is within the trial court's discretion. (People v. Riverside University, supra, 35 Cal.App.3d at p. 587.) Normally, the receiver's compensation is paid from the receivership estate. (Ephraim v. Pacific Bank (1900) 129 Cal. 589, 592; Baldwin v. Baldwin (1947) 82 Cal.App.2d 851, 856.) However, when those funds are insufficient to provide remuneration, the receiver may properly seek compensation from any or all of the parties for whose benefit the receivership was created. (Stanton v. Pratt (1941) 18 Cal.2d 599, 603.) "'Courts generally are vested with large discretion in determining who shall pay the cost and expenses of receiverships. The court may assess the costs of a receivership against the fund or property in receivership or against the applicant for the receivership, or it may apportion them among the parties, depending on the circumstances.'" (Baldwin v. Baldwin, supra, 82 Cal.App.2d at p. 856.)
In City of Santa Monica v. Gonzalez, supra, 43 Cal.4th 905, the City of Santa Monica obtained a receivership over property based upon Health and Safety Code section 17980.7, subdivision (c) in order to abate unsafe and unsanitary conditions in rental housing. (Id. at pp. 915-916.) Prior to seeking a receiver, the City had given the property owner several notices to abate the conditions on the property, but he had failed to do so. (Id. at pp. 913-915.) The receiver was given the power to "'rehabilitate or demolish'" the property if necessary consistent with plans submitted to the court. (Id. at p. 916.) The property owner sought reconsideration of the receivership order, contending he was denied due process because the City failed to issue an order or notice to repair prior to seeking the receiver. (Ibid.) The receiver filed an application to borrow funds and to enter into a contract to demolish the building based upon the receiver's evaluation that demolition would yield $150,000 more equity in the property than rehabilitation of the structures on the property. (Id. at p. 917.)
Health and Safety Code section 17980.7, subdivision (c) provides: "The enforcement agency, tenant, or tenant association or organization may seek and the court may order, the appointment of a receiver for the substandard building pursuant to this subdivision. In its petition to the court, the enforcement agency, tenant, or tenant association or organization shall include proof that notice of the petition was served not less than three days prior to filing the petition, pursuant to Article 3 (commencing with Section 415.10) of Chapter 4 of Title 5 of Part 2 of the Code of Civil Procedure, to all persons with a recorded interest in the real property upon which the substandard building exists."
The property owner argued that the City failed to comply with the relevant Health and Safety Code provisions in seeking the receiver because it failed to provide him with notice that failure to abate the conditions could result in the appointment of a receiver, and argued that the order of demolition was in error because his property had sufficient equity to pay for rehabilitation. (City of Santa Monica v. Gonzalez, supra, 43 Cal.4th at pp. 918-919.) The Supreme Court concluded that although the City failed to give the property owner the statutorily required notice that failure to correct the condition on the property might result in a receivership, the City afforded such required notice when it sought appointment of the receiver. (Id. at p. 921.) With respect to the order of demolition, the Supreme Court observed that the trial court's discretion was very broad in receivership matters and entitled to considerable deference on review. (Id. at p. 931.) The Supreme Court further observed that the issue was not whether the trial court abused its discretion in failing to defer to the property owner's desire to rehabilitate the property, but whether the trial court acted properly in authorizing the receiver to demolish the property based upon a finding the property was uninhabitable and rehabilitation was not economically feasible. (Id. at pp. 931-932.) In finding the trial court did not abuse its discretion in ordering demolition, the Supreme Court relied on the fact the property owner had failed to abate the conditions on the property after years of effort by the City to compel him to do so, and substantial evidence supported the receiver's determination rehabilitation was not economically feasible. (Id. at pp. 932-933.)
Here, the court did not abuse its discretion in holding McAlister liable for the costs and compensation of the receiver. The receivership existed by virtue of a stipulation between McAlister's predecessor-in-interest and the City, and existed for the benefit of permitting remediation of the nuisance conditions of the property. The original owner (Susseov) could have been liable for the receiver's costs and compensation (if the property had not been sold to Smith and McAlister had not acquired the property through the foreclosure sale of Smith's interest) because the Property benefited from the receiver's remediation efforts. The receivership, however, attached to the property by virtue of the court's quasi in rem jurisdiction over the property within its jurisdiction, and thus ran with the land. McAlister, as a subsequent purchaser of the property, had actual and constructive notice of the receivership (through the recorded receivership order and its conversations with the receiver, as well as its notice of and later participation in the receivership proceedings) and therefore took subject to the receivership and the trial court's jurisdiction over the property. As a consequence, the court was not required to hold a separate evidentiary hearing to determine factually whether McAlister could be liable for the receiver's costs and compensation; rather, McAlister could be liable as a matter of law for such sums because those obligations ran with the land by virtue of the receivership, and McAlister has not established it did not have actual or constructive notice of the receivership.
Pursuant to its request, we take judicial notice of the City's minutes of its meetings held in 2003, 2005 and 2006 and the City's planning commission's resolution concerning the condition of the Property. (Evid. Code, § 452, subd. (c).) Nonetheless, the question of whether, as McAlister argues, there were sufficient administrative hearings on the condition of the Property to establish a nuisance became irrelevant upon the granting of the receivership because the stipulation appointing the receiver conceded the condition of the Property.
McAlister is thus partially correct in its argument that in this instance a de novo standard of review would apply. In determining that the receivership ran with the land as a matter of law, we are not reviewing questions of whether the trial court improperly approved the receiver's actions, which are reviewed for abuse of discretion.
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Thus, in apportioning the costs of the receivership to McAlister, the court was within the lawful confines of its discretion. In selecting McAlister as the party to bear those costs did not constitute an abuse of that discretion based upon the refusal of the Property's owners to abate the nuisance and the fact McAlister stood by while the Receiver handled the remediation of the Property. As the Property's owner, McAlister stood to benefit from those efforts.
In addition, the City was not required, through a new evidentiary hearing, to establish the existence of a nuisance on the property with respect to McAlister because McAlister is collaterally estopped from asserting the issue anew with respect to the property by virtue of the receivership because the findings of the receivership order, which runs with the land, are binding on all successor persons holding an interest in the property. (See Bostick v. Flex Equipment Co., Inc. (2007) 147 Cal.App.4th 80, 96-97 [collateral estoppel bars the relitigation of identical issue previously litigated against parties or those in privity].)
Further, after McAlister purchased the property in February 2008, McAlister became a party to the action by addition as a Doe defendant, and had an opportunity to appear, present evidence, and object at all subsequent proceedings, including the sale of the property, the remediation, and the finding the conditions on the property constituted a nuisance. It did not do so. It cannot now contend that the court's order approving the receiver's final report and account was erroneous on the basis it was not given an opportunity to contest its liability for the receiver's costs and compensation to abate the nuisance. (Junkin v. Golden West Foreclosure Service, Inc. (2010) 180 Cal.App.4th 1150, 1158; Carlton v. Quint (2000) 77 Cal.App.4th 690, 697.)
DISPOSITION
The order is affirmed. Respondent is to recover its costs on appeal.
NOT TO BE PUBLISHED.
JOHNSON, J. We concur:
ROTHSCHILD, Acting P. J.
CHANEY, J.