Opinion
B228334
01-12-2012
CITY OF SOUTH GATE, Plaintiff and Respondent, v. SALVADOR JAUREGUI et al., Defendants and Appellants.
Michael B. Montgomery for Defendants and Appellants. Alvarodosmith, Keith E. McCullough, Kevin A. Day, and Gregory G. Snarr for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. BC380303)
APPEAL from a judgment of the Superior Court of Los Angeles County, Charles F. Palmer, Judge. Affirmed.
Michael B. Montgomery for Defendants and Appellants.
Alvarodosmith, Keith E. McCullough, Kevin A. Day, and Gregory G. Snarr for Plaintiff and Respondent.
Appellants owned the subject property when this eminent domain action was filed, but they subsequently lost the property through foreclosure. After the foreclosure sale, appellants' successor in interest stipulated to respondent city's acquisition of the subject property for an agreed price. The superior court entered a stipulated interlocutory judgment that terminated the action as to appellants, on the ground that they had been divested of all interest in the property and therefore lacked standing to object to the terms of the settlement or to seek greater compensation. In this appeal from the stipulated interlocutory judgment, we reject appellants' contentions and we affirm.
BACKGROUND
Plaintiff and respondent City of South Gate (South Gate) filed a complaint in eminent domain to acquire the subject property at 4861 Firestone Boulevard (4861 Firestone property) for "the construction and development of the Firestone Boulevard/Atlantic Avenue Intersection Improvement Project." When the complaint was filed, the property was owned by defendants and appellants Salvador Jauregui and Norma A. Jauregui "as husband and wife in joint tenancy." The Jaureguis had obtained a loan from defendant Golden Security Bank (Bank), which was secured by a first priority deed of trust against their 4861 Firestone property and their 3382 Firestone property.
For the sake of clarity and convenience, we will refer to the individual appellants by their first names, with no disrespect intended.
The Bank is not a party to this appeal.
In order to acquire the 4861 Firestone property, South Gate utilized the quick-take procedure of the Eminent Domain Law and deposited $1.45 million with the State Treasurer as the amount of probable compensation. (Code Civ. Proc., §§ 1230.010, 1255.010.) Although the Jaureguis could have withdrawn the deposited funds to remain current on their loan, they did not do so and defaulted on their loan payments to the Bank.
All further undesignated statutory references are to the Code of Civil Procedure. "The Eminent Domain Law delineates two different types of proceedings for the governmental taking of property. The first is a standard condemnation proceeding in which the public agency does not take possession and title to condemned property until after a jury has awarded just compensation; thus, the 'taking' and the 'compensation' are contemporaneous and occur at the conclusion of court proceedings. Until then, the property owner bears the risk of loss to the property. (Redevelopment Agency v. Maxwell (1961) 193 Cal.App.2d 414, 417-418; § 1268.030.) The second procedure, a quick-take proceeding, allows a public agency to take possession of a condemned property and the property owner to obtain the probable compensation for that property well in advance of the termination of court proceedings. Under section 1255.010, a public entity may accomplish an early taking of property by making a deposit of the 'probable amount of compensation' at any time prior to entry of judgment. The amount of the deposit must be based on an appraisal of an expert qualified to express an opinion as to the value of the property and must be supported by a written statement of, or summary of the basis for, the appraisal. (§ 1255.010, subd. (b).) [Fn. omitted.] After a deposit of probable compensation has been made, the court may order that possession of the property be transferred to the condemner, after considering any opposition from the owner of the property and making certain findings regarding the public entity's legal right to take the property and the relative hardships that would befall the parties were title not transferred until after legal proceedings are completed. (§ 1255.410.) Once the deposit is made, the property owner can apply to withdraw 'all or any portion of the amount deposited,' and the court 'shall order the amount requested in the application, or such portion of that amount as the applicant is entitled to receive, to be paid to the applicant.' (§§ 1255.210, 1255.220.)" (Redevelopment Agency of San Diego v. Mesdaq (2007) 154 Cal.App.4th 1111, 1120-1121.)
As a result of the Jaureguis' default on their loan, the Bank instituted foreclosure proceedings under the deed of trust to the 4861 Firestone property. The foreclosure proceedings were interrupted, however, when Norma filed a voluntary petition for bankruptcy in 2009. Norma listed both the 4861 Firestone property and the 3382 Firestone property among the assets of her bankruptcy estate, for which a trustee was appointed.
The record states that "On or about July 26, 2009, Norma Alicia Jauregui (the 'Debtor') filed a Voluntary Petition under Chapter 11 of the Bankruptcy Code, Case No. 2:09-bk-26342-SB. The case was converted to Chapter 7 on September 11, 2009, and the Trustee was appointed."
On November 3, 2009, the bankruptcy court granted South Gate's motion for relief from the automatic stay in order to proceed with this action to acquire the 4861 Firestone property for the intersection improvement project.
On November 16, 2009, the superior court granted South Gate's request for an order to take prejudgment possession of the 4861 Firestone property. This order took effect on December 17, 2009.
The trustee for the bankruptcy estate, Alberta P. Stahl, concluded that because the outstanding loan obligation exceeded the value of the 4861 Firestone property, the automatic stay should be lifted in order to allow the Bank to proceed with the foreclosure sale of the 4861 Firestone property. In February 2010, Stahl entered into a compromise agreement with the Bank concerning the two Firestone properties. Stahl agreed that the 4861 Firestone property would be sold at a foreclosure sale and the 3382 Firestone property would be placed on the market for sale. Stahl and the Bank further stipulated to the lifting of the automatic stay in order to allow the Bank to foreclose against the 4861 Firestone property.
According to the compromise agreement, it was contemplated that the Bank would make a full credit bid of $1.53 million to purchase the 4861 Firestone property at the foreclosure sale, and the Bank would then transfer the property to South Gate for $1.53 million. The compromise agreement stated that in addition to the $1.53 million sale price, which exceeded the $1.45 million deposit of probable compensation, the Bank would receive a first priority deed of trust on the 3382 Firestone property in the amount of $250,000, which would be paid upon the sale of that property by the bankruptcy trustee.
The compromise agreement stated in relevant part: "Previously, the Trustee, Bank and the City stipulated to allow City relief from the automatic stay to continue prosecution of the State Court Action concerning the 4861 Firestone Property ('City Stipulation'). Based upon the City Stipulation, and the lack of any opposition, this Court granted South Gate's motion for relief from the automatic stay on November 3, 2009. [¶] . . . In the City Stipulation, the Trustee also agreed to stipulate to judgment in favor of the City in the State Court Action, and to consent to the transfer of the 4861 Firestone property to the City to accomplish the public goals of the State Court Action. [¶] . . . The Trustee wants to sell the 3382 Firestone Property for the benefit of unsecured creditors. The Trustee has employed a real estate broker to sell the 3382 Firestone Property. [¶] . . . The City has agreed to pay the sum of $1,530,000.00 to acquire the 4861 Firestone Property in the State Court Action. The Bank is currently owed the approximate sum of $1,860,000.00. After payment of the $1,530,000.00 to purchase the 4861 Firestone Property, the remainder of the balance owed to the Bank (approximately $330,000.00) will be discounted to $250,000.00 and will continue as a first priority deed of trust on the 3382 Firestone Property and will be paid upon a sale of the 3382 Firestone Property."
Stahl filed the compromise agreement and motion for relief from the automatic stay in the bankruptcy court. This prompted Salvador to file a written objection in the bankruptcy court, in which he argued that the compromise agreement and foreclosure sale would deny him the right to obtain greater compensation for the 4861 Firestone property in the eminent domain action. Salvador's objection stated in relevant part: "The Trustee has entered into an agreement with the secured lender to have the [property] foreclosed, and then sell [the property] to the City at a pre-agreed price . . . . [¶] . . . [¶] This proceeding harms the economic interests of the bankrupt and the objectors herein, in that they are deprived of their claim to greater compensation." "The procedure that the bank and trustee wish to follow deprives the objectors, as well as the bankrupt, of their constitutional rights."
Over Salvador's objection, the bankruptcy court approved the compromise agreement and lifted the automatic stay. The lifting of the stay allowed the Bank to proceed with the trustee's sale of the 4861 Firestone property according to the terms of the compromise agreement.
The trustee's sale of the 4861 Firestone property was held on May 27, 2010. The Bank purchased the property by making a full credit bid of $1.53 million, as was contemplated in the compromise agreement. The Bank acquired title to the 4861 Firestone property upon the recording of the trustee's deed of sale on June 1, 2010.
The Bank and South Gate then filed a "Stipulation for Interlocutory Judgment in Eminent Domain" (stipulation), which led to the entry of the August 23, 2010 stipulated interlocutory judgment that is the subject of this appeal. According to the stipulated interlocutory judgment, the Bank is now the sole owner with standing to litigate the taking and compensation issues in this action. The stipulated interlocutory judgment terminated the action as to the Jaureguis, who, as a result of having lost the 4861 Firestone property through foreclosure, had been divested of all right, title, or interest in the property, and therefore lacked standing to remain in this action.
The stipulated interlocutory judgment stated in relevant part that the Bank "is the only Defendant, party, entity, or individual with any ability to advance any claim for, or related to, the just compensation from the real property . . . being acquired by South Gate for the Project pursuant to the trustee's sale and Trustee's Deed (Recorded Instrument Number 20100738461 in the Official Records of Los Angeles County). . . . [¶] . . . Pursuant to the trustee's sale and operation of the Trustee's Deed referenced in Paragraph 5 above, the Court further finds that Defendants Norma Jauregui and Salvador Jauregui have no claim of right and/or title related to the Subject Property being acquired herein, to include any and all claims for compensation or damages resulting therefrom, including but not limited to, the real property, loss of business goodwill, improvements pertaining to the realty, personal property, relocation assistance, challenges to South Gate's right to take the Subject Property, moving expenses, reestablishment, severance damages, precondemnation damages, attorneys' fees, litigation expenses, costs of any kind, interest, and any and all other kind of compensation, damages or other claims arising out of or relating to the taking of said Subject Property."
The Jaureguis filed a timely notice of appeal from the August 23, 2010 stipulated interlocutory judgment. They contend in their opening brief that: (1) South Gate's resolution of necessity was defective; and (2) the foreclosure sale of the 4861 Firestone property did not extinguish their claim for greater compensation.
We conclude that the August 23, 2010 interlocutory judgment is appealable notwithstanding the word "interlocutory" in the title, because it disposes of all of the causes of action between the City and the Jaureguis. "Judgments that leave nothing to be decided between one or more parties and their adversaries, or that can be amended to encompass all controverted issues, have the finality required by section 904.1, subdivision (a)." (Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 741.)
DISCUSSION
South Gate contends that the Jaureguis "lack standing to bring this appeal because they were divested of all ownership of the Subject Property by virtue of the foreclosure." South Gate points out that "the Chapter 7 Trustee and the Bankruptcy Court determined that there was no equity in the Subject Property, and [the Bank] could proceed to foreclosure on that basis. . . . If Appellants took issue with the Bankruptcy Court's determination, they were required to appeal the Bankruptcy Court's orders," which they did not do. South Gate further maintains that "[a]ppellants are barred by the doctrine of res judicata from seeking to litigate their 'excess value' claim by way of this appeal. The Bankruptcy Court already approved the foreclosure sale and transaction between [the Bank] and South Gate, and any attempt to disturb that court's finding cannot be countenanced here. [¶] This is particularly true because Appellants filed opposition papers in the Bankruptcy Court related to the Chapter 7 Trustee's Motion to Approve the Compromise Agreement. [Internal record reference omitted.] The opposition papers raised the exact same arguments that Appellants raised in the Trial Court, and are currently making here . . . ."
The record supports South Gate's position. When Salvador opposed the compromise agreement in the bankruptcy court, he argued that the foreclosure sale and subsequent transfer of the 4861 Firestone property to South Gate at the agreed price would eliminate his claim for greater compensation in this action. By making this argument, Salvador implicitly challenged the bankruptcy trustee's valuation of the 4861 Firestone property as too low. The bankruptcy court implicitly rejected this challenge when it lifted the automatic stay for the purpose of allowing South Gate to acquire the property at the agreed price.
A bankruptcy court may lift the automatic stay if the debtor has no equity in the property and the property is not necessary to an effective reorganization. (11 U.S.C.A. § 362(d)(2).) By lifting the stay to allow the foreclosure sale of the 4861 Firestone property to occur, the bankruptcy court implicitly found, over Salvador's objection, that the Jaureguis had no equity in the property. The express and implied findings of the bankruptcy court are final for purposes of res judicata unless the order is reversed on appeal, modified, or set aside in that court. None of these acts occurred.
"'In certain cases, however, the stay may work an inequity on creditors. If so, the creditor may obtain relief from the stay under 11 U.S.C. § 362(d) (1982). Such relief is granted (1) for cause, including lack of adequate protection of a creditor's security interest in collateral; or (2) when the debtor has no equity in the collateral and the collateral will not help the debtor to reorganize effectively or rehabilitate his business. . . .' (In re Arnold (9th Cir. 1986) 806 F.2d 937, 939, citations omitted, italics added.)" (Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 143.)
"California gives full faith and credit to a final order or judgment of a federal court (Levy v. Cohen [(1977)] 19 Cal.3d [165,] 172) by 'follow[ing] the rule that the preclusive effect of a prior judgment of a federal court is determined by federal law, at least where the prior judgment was on the basis of federal question jurisdiction.' (Butcher v. Truck Ins. Exchange (2000) 77 Cal.App.4th 1442, 1452, citing Levy v. Cohen, supra, 19 Cal.3d 165.) [¶] The federal rule, applicable to matters decided in bankruptcy (Siegel v. Federal Home Loan Mortg. Corp. (9th Cir. 1998) 143 F.3d 525, 529), 'is that a judgment or order, once rendered, is final for purposes of res judicata until reversed on appeal or modified or set aside in the court of rendition. [Citations.]' (Levy v. Cohen, supra, 19 Cal.3d at p. 172.)" (Nathanson v. Hecker (2002) 99 Cal.App.4th 1158, 1163.)
The Jaureguis contend that their right to greater compensation was not extinguished by the foreclosure sale because "Salvador's rights vested on December 16, 2009, the date possession was taken." The problem with this contention, however, is that it ignores the relinquishment by Norma of the 4861 Firestone property to the trustee of her bankruptcy estate. When Stahl, as the bankruptcy trustee, agreed to "stipulate to judgment in favor of the City in the State Court Action, and to consent to the transfer of the 4861 Firestone property to the City to accomplish the public goals of the State Court Action," neither Norma nor Salvador objected that Stahl was unauthorized to do so.
Any challenge to the determination by Stahl and the bankruptcy court that the Jaureguis had no equity in the 4861 Firestone property should have been raised in federal court. We have been cited no authority that authorizes a state court to invalidate a bankruptcy court order granting relief from the automatic stay or authorizing the foreclosure sale of an asset in which the debtor has no equity. (See Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1107 [bankruptcy court order granting relief from the automatic stay in order to proceed with a foreclosure sale is final for purposes of res judicata].)
The Bank, as Jaureguis' successor in interest, settled this action by agreeing to transfer the 4861 Firestone property to South Gate at an agreed price. It is impossible for the Jaureguis, who have been divested of all interest in the 4861 Firestone property, to undo that agreement based solely on their prior ownership of the property on the effective date of the order for prejudgment possession. The fact that the Jaureguis still owned the property when South Gate was authorized to take possession does not erase the fact that the Jaureguis subsequently lost the property through a trustee's foreclosure sale that the bankruptcy trustee had approved. We conclude that the loss of the 4861 Firestone property by foreclosure divested the Jaureguis of standing in the eminent domain action to challenge the taking and valuation of the property. (Cf. County of San Luis Obispo v. Superior Court (Munari) (2001) 90 Cal.App.4th 288, 292 ["Here a mortgage foreclosure divested Munari of all interest in the property prior to completion of judicial review of the administrative action. This makes it impossible for Munari to receive relief."].)
The Jaureguis argue that because the taking occurred while they still owned the property on December 17, 2009 (the effective date of the prejudgment possession order), they are entitled to collect the condemnation proceeds and pursue their claim for greater compensation. Their argument ignores the fact that Norma had placed the entire property (and not just her interest) in her bankruptcy estate, for which a trustee was appointed prior to the date of the taking. As a result, even though the taking occurred while the Jaureguis still owned the property, the Jaureguis cannot explain why the transfer of the entire property to the bankruptcy estate prior to the taking did not entitle the bankruptcy estate to collect the condemnation proceeds. (See In re Rossi (Bankr. 9th Cir. 1988) 86 B.R. 220 (Rossi).)
In Rossi, a city redevelopment agency (City) commenced an eminent domain action against the condemned property using the quick-take procedure of section 1255.010. The City obtained an order for prejudgment possession that took effect on November 20, 1984. In January 1985, the property owners (the Rossis) filed separate bankruptcy proceedings under Chapter 7, and the condemned property was placed under the control of a single bankruptcy trustee (Trustee). The beneficiary of a second deed of trust obtained relief from the automatic stay to conduct a foreclosure sale of the property. The purchasers of the property (the Tejedas) then sued the Trustee and others, claiming that they were entitled to the condemnation proceeds. The Trustee prevailed on summary judgment on the theory "that, as a matter of law, he was entitled to the entire amount of the condemnation proceeds because the [Rossis] owned the Oxnard Property, including the Condemned Property, on the date of the 'taking' by the City." (Rossi, supra, 86 B.R. at p. 222.) The Tejedas appealed the bankruptcy court's ruling, which the bankruptcy appellate panel affirmed, stating: "The facts in the case at bar closely parallel the facts in [People v. Joerger (1936) 12 Cal.App.2d 665]. Here, the condemnation proceeding was commenced while the Rossis owned the property. The city paid a deposit into the court registry and obtained an order of immediate possession. The city then commenced construction of the transportation center. Subsequently, the property was sold and the Tejedas purchased it. Under Joerger, there was in the instant case a 'taking' while the Rossis still owned the property. As a result, the Rossis, or rather their bankruptcy estate, are entitled to the condemnation proceeds." (Rossi, supra, 86 B.R. at p. 223.) Applying the reasoning of Rossi to this case, we conclude that the bankruptcy trustee is entitled to the condemnation proceeds.
The law is settled that "[i]n bankruptcy a trustee can sell the entire property rather than just the joint-tenant's interest, provided certain conditions are met. 11 U.S.C. § 363(h)." (In re Reed (9th Cir. 1991) 940 F.2d 1317, 1323, fn. omitted.) Even though the foreclosure sale in this case was not conducted by the bankruptcy trustee, the fact remains that the sale could not have occurred without the consent of the bankruptcy trustee and the lifting of the stay. The Jaureguis have cited no authority and offered no basis for diverging from Rossi and Reed, which we find persuasive.
Title 11 of the United States Code section 363 provides in relevant part:
"(h) Notwithstanding subsection (f) of this section, the trustee may sell both the estate's interest, under subsection (b) or (c) of this section, and the interest of any coowner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if
"(1) partition in kind of such property among the estate and such coowners is impracticable;
"(2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such coowners;
"(3) the benefit to the estate of a sale of such property free of the interests of coowners outweighs the detriment, if any, to such coowners; and
"(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.
"(i) Before the consummation of a sale of property to which subsection (g) or (h) of this section applies, or of property of the estate that was community property of the debtor and the debtor's spouse immediately before the commencement of the case, the debtor's spouse, or a coowner of such property, as the case may be, may purchase such property at the price at which such sale is to be consummated.
"(j) After a sale of property to which subsection (g) or (h) of this section applies, the trustee shall distribute to the debtor's spouse or the coowners of such property, as the case may be, and to the estate, the proceeds of such sale, less the costs and expenses, not including any compensation of the trustee, of such sale, according to the interests of such spouse or coowners, and of the estate."
DISPOSITION
The stipulated interlocutory judgment is affirmed. South Gate is awarded its costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
SUZUKAWA, J. We concur:
EPSTEIN, P. J.
WILLHITE, J.