County of Sonoma v. Quail ( 2020 )

Filed 10/28/20 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
COUNTY OF SONOMA,
Plaintiff and Respondent, A155837, A157245
v. (Sonoma County Super. Ct.
JAMES QUAIL, No. SCV256085)
Defendant;
ORDER MODIFYING OPINION
U.S. BANK N.A., as Trustee, etc., [NO CHANGE IN JUDGMENT]
Appellant;
CALIFORNIA RECEIVERSHIP
GROUP, INC.,
Respondent.
BY THE COURT:
It is ordered that the published opinion filed herein on October 8, 2020,
be modified as follows:
The caption of the opinion should be modified to conform with the
caption of this order.
On page 18, after the last paragraph in section B.i and immediately
preceding section B.ii, insert the following language:
At oral argument and in its petition for rehearing, U.S.
Bank emphasized the principle that a receiver “ ‘takes the
property cum onere, in the plight and condition existing at the
time of [the receiver’s] appointment, subject to all liens and
1
equities.’ ” (Wright v. Standard Engineering Corp. (1972) 28
Cal.App.3d 244, 248.) While we agree with this general
proposition, we fail to see how it limits a court’s power to
authorize super-priority borrowing in an appropriate case as
recognized by Title Ins. & Trust. The receivership in this matter
did not arise out of a private dispute between competing
lienholders with purely monetary interests in the property, a fact
U.S. Bank largely ignores. Rather, as noted above, the purpose of
a section 17980.7 receivership “is to protect the health and safety
of residents who might be substantially endangered by unsafe
building conditions.” (Jen, supra, 135 Ca1.App.4th at p. 311.)
The power of a court of equity to issue certificates of indebtedness
on a priority basis has long been recognized at common law
where the receivership addresses matters of public concern. (See,
e.g., Clifford v. West Hartford Creamery Co. (Vt. 1931) [153
A. 205, 209] [explaining that authority for super-priority
borrowing exists in a railroad receivership because “the
maintenance of the roadway and equipment and the continuation
of the business and operation of the road are essential, not only to
the preservation of the mortgage securities, but also to the
welfare and comfort of the general public,” citing Wallace v.
Loomis (1878) 97 U.S. 146, 162]; Union Trust Co. v. Illinois
Midland Ry. Co. (1886) 117 U.S. 434, 455–456 [confirming
authority of railroad receiver to issue certificates with priority
over other lienholders and explaining that because a railroad “is
a matter of public concern,” the court has the power “to make
such repairs as are necessary to keep the road and its structures
in a safe and proper condition to serve the public. Its power to do
this does not depend on consent, nor on prior notice. Consent is
desirable, but is seldom practicable, where the debts exceed the
value of the property.”].)
Finally, we reject U.S. Bank’s suggestion that the priority
of its lien could not be impacted in these proceedings because it is
not a formal party and did not consent to the subordination of its
interests. U.S. Bank was notified that a receivership was being
sought, appeared at the hearing on the receivership petition, did
not object to the appointment of a receiver, and did not appeal
from the appointment order. Thus, even if its consent were
required—a question we need not decide—substantial evidence
supports the conclusion that U.S. Bank acquiesced in the
2
receivership proceedings below. (See Schreiber v. Ditch Road
Investors (1980) 105 Cal.App.3d 675, 679 [“where a receiver is
lawfully appointed at the instance and for the benefit of lien
creditors, all proper charges, expenses, and liabilities incurred as
incident to duly conferred receivership powers and duties are a
charge on the earnings and corpus of the property superior to the
lien creditors, who take part in, or expressly or impliedly consent
to, or acquiesce in, the receivership proceedings” (italics added)].)
On page 26, after the first full paragraph, add a footnote, which will
read:
In its petition for rehearing, U.S. Bank suggests that we
incorrectly rely on the bill author’s May 1990 statement quoted
above to explain the later June 1990 amendment which replaced
the term “judgment lien” with “lien.” That is incorrect. Indeed,
U.S. Bank appears to misapprehend the purpose of our review of
the legislative history in this matter. By expressly granting a
section 17980.7 receiver the broad powers of a Code of Civil
Procedure section 564 receiver and permitting borrowing secured
by an unspecified lien with court approval, section 17980.7 on its
face allows for super-priority borrowing in an appropriate case.
We surveyed the legislative history to determine if it contained a
clear statement of legislative intent contrary to this apparent
meaning. Since the legislative history is, at best, equivocal on
this question, it does not support U.S. Bank’s claim that the
Legislature clearly intended to foreclose super-priority borrowing
under both receivership statutes. In short, U.S. Bank needed a
smoking gun to prevail on its claim. It failed to uncover one.
This modification does not change the judgment.
The petition for rehearing is denied.
Dated: ___________________________
Humes, P. J.
3
Filed 10/8/20 (unmodified opinion)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
COUNTY OF SONOMA,
Plaintiff and Respondent, A155837
v. (Sonoma County Super. Ct.
U.S. BANK N.A., as Trustee, etc., No. SCV256085)
Defendant and Appellant.
CALIFORNIA RECEIVERSHIP
GROUP, INC.,
Defendant and Respondent.
COUNTY OF SONOMA,
Plaintiff, A157245
v. (Sonoma County Super. Ct.
U.S. BANK N.A., as Trustee, etc., No. SCV256085)
Defendant and Appellant.
CALIFORNIA RECEIVERSHIP
GROUP, INC.,
Defendant and Respondent.
After many unsuccessful attempts by the County of Sonoma (County) to
compel James Quail to abate numerous hazardous and substandard
conditions on his real property, the County sought and obtained the
1
appointment of a receiver pursuant to Health and Safety Code1 section
17980.7 and Code of Civil Procedure section 564 to oversee the necessary
abatement work. In these consolidated appeals, U.S. Bank National
Association, as Trustee, Deutsche Alt-A Securities Mortgage Loan Trust,
Series 2007-2 Mortgage Pass Through Certificates Series 2007-2 (U.S. Bank),
challenges the superior court’s order authorizing the receiver to finance its
rehabilitation efforts through a loan secured by a “super-priority” lien on the
property. U.S. Bank also challenges the court’s subsequent order authorizing
sale of the property free and clear of U.S. Bank’s lien.
It has long been recognized that trial courts enjoy broad discretion in
matters subject to a receivership, including the power to issue a receiver’s
certificate with priority over preexisting liens when circumstances warrant
this extraordinary step. We conclude that the trial court did not abuse its
discretion in subordinating U.S. Bank’s lien and confirming the sale of the
property free and clear of all liens so that the receiver could remediate the
nuisance conditions on the property promptly and effectively. However, the
court’s order prioritizing the County’s enforcement fees and costs on equal
footing with the receiver finds no basis in the receivership statutes. We
therefore affirm the judgment in part, reverse in part, and remand for a
determination of the sale distribution consistent with this opinion.
I. FACTUAL AND
PROCEDURAL BACKGROUND
A. Failure to Remediate Hazardous Conditions on Property
Quail was the owner of a 47,480-square-foot lot with two houses, large
garages, and several outbuildings in an unincorporated area of Sonoma
1All statutory references are to the Health and Safety Code unless
otherwise specified.
2
County. The property came to the County’s attention in May 2013 when an
inspection of one of its seven structures revealed hazardous and unpermitted
electrical wiring, hazardous decking and stairs, unpermitted kitchens and
plumbing, broken windows, and lack of power. In December 2013, this
structure was destroyed in a fire and two large outbuildings, unlawfully
being used as residential dwellings, were also damaged. One report
described the conditions on the property as follows:
“The [p]roperty . . . exists as a makeshift, illegal mobile home park and
junkyard. The list of unaddressed violations is extensive, and includes
substandard building conditions, substantial fire damage and risk, and a
massive accumulation of junk and debris throughout the homes and exterior
of the [p]roperty. There are multiple motorhomes, trailers and other vehicles
that are not currently registered and many of these are in very poor shape.
The property consists of six buildings. In total, there are three dwelling-like
units: one fire-damaged barn and two houses, each of these homes with
occupants and multiple illegal and unsanitary living conditions. One of the
buildings is being occupied by one James Quail and is a legal albeit
non-conforming structure with four bedrooms and two bathrooms, that would
require significant work to get it up to code. Another structure is being
unlawfully occupied by a family, including several young children. . . . There
is an additional motorhome and other trailers with occupants inside. The
exterior of the [p]roperty alone has approximately 150 yards of debris, and
the amount of debris inside of the structures (not counting trailers and motor
homes) equates to a similar amount. There is an illegal homeless
encampment across the street in a field that has been problematic to the
[p]roperty, which occupants both relay concern over but simultaneously seem
to involve themselves with.”
3
Multiple attempts by the County to gain access to the property for a full
inspection were unsuccessful. In December 2013, the County issued two
notices and orders for substandard buildings, notifying Quail that the
buildings were not to be occupied and directing him to obtain permits either
to bring the buildings up to code or to remove them. After Quail continued to
deny access to the property, the County filed an ex parte request for an
inspection warrant. In support of its request, the County noted that the
sheriff’s department had responded to 412 “events” concerning the property
from 2008 to 2014, including suspicious persons, warrant attempts, and other
disturbances. The fire department had responded to the property over 30
times on calls for medical aid. An inspection warrant was issued in July
2014. The resulting inspection revealed a litany of code violations and
hazardous conditions.
In September 2014, the County filed a complaint seeking to enjoin the
code violations and abate the public nuisances on the property. The parties
entered a stipulated judgment in December 2014 in which Quail was
permanently enjoined from maintaining violations of the County’s building,
fire, and zoning codes on the property. He was ordered to abate all violations
on the property within 90 days.
Quail failed to abide by the terms of the stipulated judgment.
Following inspections in January and February 2017, the County sent letters
requesting abatement of violations. When the County reinspected the
property in June 2017, not only had the violations set forth in the stipulated
judgment not been abated, but the County found more occupied trailers and
recreational vehicles and more individuals living in uninhabitable structures
that had been ordered vacated. Given these dire circumstances, the County
notified Quail—with copies to U.S. Bank, its loan servicer, and all other
4
lienholders on the property—of its intent to seek a court-appointed receiver to
oversee the necessary abatement work on the property and to “record a lien
against the [p]roperty for the amount of those clean-up efforts” if Quail was
unable to pay them. (Italics and bolding omitted.)
B. Appointment of Receiver and Request for Super-priority Lien
Over the next five months, the County received no response from any of
the noticed parties. The property’s substandard buildings, unlawful and
hazardous constructions, unlawful occupancies, fire hazards, and
accumulation of junk, garbage, and debris had been left unattended. Finding
an “urgent need” to abate the extensive code violations on the property, the
County filed a petition in Sonoma County Superior Court in November 2017
seeking appointment of a receiver under the authority of both section 17980.7
and Code of Civil Procedure section 564. The petition sought authorization
for the receiver to finance the necessary repairs and clean-up with a loan
secured by a lien with priority over all other previously recorded liens on the
property—i.e., a “super-priority lien.” The petition requested permission for a
receiver’s certificate of $30,000 with first priority to cover the initial costs of
securing the property and beginning the remediation process. And it asked
that all receiver and County fees and expenses also be granted super-priority
status, to be paid first out of any proceeds from sale. Copies of the pleadings
and all supporting materials were served on U.S. Bank in early January
2018.
On January 19, 2018, the trial court granted the County’s petition for
appointment of a receiver pursuant to section 17980.7, subdivision (c), and
Code of Civil Procedure section 564. The court found that the property was in
a condition which substantially endangered the health and safety of the
public. The order authorized the receiver to exercise the powers granted to
5
receivers by section 17980.7, subdivision (c)(4), and Code of Civil Procedure
section 568. It authorized the receiver to borrow funds to finance the
necessary remediation on the property and to fund a $30,000 receivership
certificate to cover initial costs. The order further provided that the County
was entitled to recover its attorney fees and costs and that such enforcement
fees would be given the same priority as those of the receiver. The court
denied, however, the County’s request to issue the receiver’s certificate on a
super-priority basis.2 No appeal was taken from the appointment order.
In May 2018, the receiver filed a motion requesting authorization to
obtain a receiver’s certificate in the amount of $115,000, secured by a super-
priority lien, to ameliorate the nuisance conditions on the property.
According to the receiver, he had attempted to negotiate a resolution with the
owners and occupants of the property, as well as with U.S. Bank to foreclose
on the property, to no avail. The receiver came to the conclusion that the
occupants would not vacate and U.S. Bank would not foreclose.3 Moreover,
the receiver was unable to obtain financing to carry out the abatement work
because no lender would fund the $30,000 receiver’s certificate authorized by
the court on a nonpriority basis, given the amount of debt already secured by
the property.
The receiver’s motion laid out three possible options for remediation of
the property. The receiver recommended an intermediate option in which the
junkyard conditions would be removed, the most damaged structure on the
2U.S. Bank had appeared at the hearing and objected only to the court
issuing a super-priority receiver’s certificate. It did not object to the
appointment of a receiver.
3 Notices of default and sale had been issued against the property in
2012, 2013, and 2016, but no lienholder, including U.S. Bank, had exercised
its right of foreclosure.
6
property demolished, the current occupants relocated, and the property sold
as-is to a buyer with the resources to complete the remaining remediation.
The receiver estimated clean-up and demolition costs of approximately
$46,000, and relocation costs and security of an additional $15,000. What
remained would fund the receiver’s fees and other costs. The receiver
informally estimated the market value of the property after partial
remediation to be $249,000, and therefore the property would have sufficient
equity to fund the intermediate option. However, since there were several
existing liens on the property—including U.S. Bank’s recorded lien for
approximately $663,000—no lender would fund the necessary receiver’s
certificate without being granted priority status.
A second option—complete demolition of all structures and sale of the
property as a vacant lot with an estimated value of $250,000—was disfavored
because it would cost more to complete the demolition and would remove
potentially salvageable homes from the housing stock available to
fire-damaged victims in the County.4 A third option allowing for complete
remediation of all substandard conditions would result in an estimated
market value of $450,000, but would substantially increase both demolition
and remediation costs. This option appeared to be economically infeasible
due to low property values in the area and a lack of lenders willing to fund at
this level. The receiver believed the intermediate option would result in the
best outcome for the parties and the community as it would address the
nuisance conditions quickly and enable the property to be put back into use
in an efficient manner.
4 On our own motion, we take judicial notice of the fact that the
Sonoma County wildfires occurred in October 2017. (Evid. Code, §§ 452,
subd. (h), 459, subd. (a).)
7
U.S. Bank opposed the receiver’s motion, arguing that there was no
statutory authority for issuance of a priority certificate and that granting a
super-priority lien would be inequitable. U.S. Bank also asserted that the
motion was premature and argued that a formal appraisal of the property’s
value was needed before a determination could be made about the super-
priority status of the receiver’s lien.
At the June 2018 hearing on the motion, the trial court indicated that
although it had the ability to authorize a super-priority lien, it needed more
information before doing so. The County expressed concern that the property
had remained in such horrible condition for years and emphasized that U.S.
Bank had refused to do anything to help clean it up. U.S. Bank suggested
that any necessary remediation be financed by the County or Quail. The
receiver responded that it had explored other options for funding, but there
were no public funds or nonprofit monies available. After hearing, the court
authorized a receiver certificate in the amount of $115,000, but denied
without prejudice the request to give the certificate priority over existing
lienholders. U.S. Bank was ordered to obtain an appraisal and file it with the
court prior to the next hearing in September 2018.
U.S. Bank did not file the appraisal as ordered. At the September 21,
2018 hearing, the receiver reported that the appraiser had just recently been
to the property. The receiver submitted pictures showing the continuing
nuisance conditions on the site and explained that although he had sent
letters requesting that the occupants vacate the uninhabitable structures, the
receiver had no resources to enforce removal or enable relocation. The
County reiterated its concerns regarding the ongoing health and safety issues
on the property. The trial court stated it was very concerned about conditions
on the property and did not intend “to delay this matter one minute further.”
8
At U.S. Bank’s request, the court allowed a short continuance to October 5,
2018.
C. Order Authorizing a Receiver’s Certificate on a Priority Basis
In advance of the October 2018 hearing, U.S. Bank notified the court
that the property had been appraised at $400,000. It requested permission to
foreclose on the property and either retain possession and repair the property
itself or sell the property as-is to a buyer who would remediate the existing
code violations. At the hearing, the court stated that the condition of the
property was unacceptable and that it “absolutely intend[ed] to move forward
with action necessary to abate this condition.” The County objected to U.S.
Bank’s proposal, fearing that U.S. Bank would not itself remedy the situation
and might do a short sale to a party who would likewise fail to remediate the
nuisance conditions. The receiver continued supporting its proposal as
outlined in its May motion and report. He observed that U.S. Bank had
failed to foreclose despite multiple default and foreclosure notices filed on the
property. U.S. Bank explained that it had not foreclosed previously because
several different bankruptcies had listed the property, requiring it to seek
relief repeatedly from the automatic stay. It claimed it now wanted to
foreclose, evict, bring the property up to code, and sell it. For his part, Quail
maintained that he had control of the property, having lived there for 50
years, and that there were no problems on it.
The court remarked that the matter had not “been moved along in a
reasonable manner” and had reached a stalemate because of “inactions” and
the absence of funds. Although it agreed that the receiver’s request should
not be done lightly, it granted the motion “based on the nature of this
property, based on the nature of the current status, based on the history of
the inability of the proper authorities[, and] based on previous Court rulings
that were made months ago, if not longer.” On October 10, 2018, the court
9
issued an order authorizing the receiver to obtain a receiver’s certificate in
the amount of $115,000, secured by a super-priority lien, to finance the
necessary rehabilitation of the property. U.S. Bank appealed from this order.
The receiver filed its second report in advance of the December 2018
status conference. After a lengthy and complicated process, the receiver
reported that all residents on the property, including Quail, had been
relocated or otherwise removed. In January 2019, the receiver reported that
the demolition work had been completed, all buildings had been secured, and
the property had been placed on the market, receiving several offers above
the list price of $249,000.
D. Order Confirming the Sale of the Property
Prior to the February 2019 status conference, the receiver
recommended that the court authorize sale of the property to a group of
buyers, including a neighbor, for $315,000, the highest and best of five offers.
According to the receiver, no one in the proposed buyer group had a history of
code violations or other issues which might call into question their ability to
finish the necessary remediation of the property, and the neighbor, in fact,
had purchased the adjoining property from Quail 25 years before and
successfully corrected the violations there. The receiver provided the listing
agreement and sales contract to the court and asked it to confirm the sale.
Given the lack of financial resources available from Quail5 or the property,
the receiver saw no other option than to sell the property as-is with the
assurance from the buyer that the remaining nuisance abatement work
would be completed post sale. Since there was no way to pay off all of the
liens on the property (which approached $1 million), the receiver requested
5 The receiver had paid for a series of motels for Quail to assist in his
relocation after his removal from the property. Quail’s whereabouts at the
time of the report were unknown.
10
that all liens be stripped from the property to effectuate the sale and be
attached to the proceeds for later review and distribution by the court. The
court continued the matter so that the receiver’s request to confirm the sale
could be formalized by noticed motion.
After the motion to confirm sale was filed and briefed by the parties,
the court heard argument on April 12, 2019. In rendering its decision, the
court emphasized the long history of the substandard conditions on the
property, concluding that the property had “finally reached a stage, through
the efforts of the Receiver and the County and others, to be in a position
where, finally, it can be marketed for sale and to abate the numerous,
ongoing nuisances and problems with the property.”
The court observed that after initially denying the receiver a priority
lien, it granted the request because of the ongoing substandard conditions
and the inability of the receiver to “move forward in a meaningful manner to
address the problems.” It noted that U.S. Bank was aware throughout the
pendency of the matter of these problems and had opportunities at various
points to act. Given “really what is an infamous history of this property and
historic litigation,” the court found the sale of the property proper. Moreover,
the court found that the receiver had been systematic in the manner in which
he listed and marketed the property, while U.S. Bank had supplied nothing
concrete to contradict the receiver’s efforts.
On April 19, 2019, the court issued its order confirming the sale of the
property as proposed by the receiver, free and clear of all liens and
encumbrances. The order directed that unsatisfied liens on the property
would attach to the sale proceeds. The receiver was authorized “to pay the
outstanding receivership fees and costs, including the County of Sonoma’s
demand for fees and costs” per the terms of the January 2018 order
11
appointing the receiver. All remaining sale proceeds were to be held by the
receiver pending a court determination regarding appropriate distribution.
Potential claimants were directed to submit their claim for funds to the
receiver within 30 days.
We granted U.S. Bank’s petition for a writ of supersedeas, staying the
distribution of all proceeds from the sale of the property pending resolution of
this appeal. The Bank then filed a second appeal from the sale order, and we
consolidated both matters for argument and decision.6 In February 2020, we
granted the request of Bay Area Receivership Group to file an amicus brief in
this matter, supporting the actions of the trial court.
II. DISCUSSION
A. Standards of Review
U.S. Bank raises several issues involving statutory construction, which
we review de novo. (Wells Fargo Financial Leasing, Inc. v. D & M Cabinets
(2009) 177 Cal.App.4th 59, 66 (D & M Cabinets); see City of Desert Hot
Springs v. Valenti (2019) 43 Cal.App.5th 788, 793 [“Our determination of the
proper scope of the trial court’s authority and inquiry under section
17980.7(c) is a matter of statutory construction we review de novo.”].)
However, “[m]ost matters related to receiverships rest in the sound discretion
of the trial court” and will not be disturbed on appeal absent an abuse of that
discretion. (City of Sierra Madre v. SunTrust Mortgage, Inc. (2019)
6 In their initial briefing, the parties disputed whether the trial court’s
order subordinating U.S. Bank’s lien was appealable under the collateral
order doctrine. (See Koshak v. Malek (2011) 200 Cal.App.4th 1540, 1545.) In
light of U.S. Bank’s second appeal from the court’s order confirming sale and
our consolidation of both appeals, there appears to be no dispute that the
entire matter is now properly before us for review. (See Fish v. Fish (1932)
216 Cal. 14, 16 [order to pay a receiver’s fees and sell property constitutes a
collateral, appealable order].)
12
32 Cal.App.5th 648, 657–658, 660 (SunTrust); City of Santa Monica v.
Gonzalez (2008) 43 Cal.4th 905, 931 (Gonzalez) [court ruling on receivership
matters typically “afforded considerable deference on review”].) “Such
deference is the rule, even where the court confirms extraordinary action by
the receiver, such as a sale of real property.” (Gonzalez, at p. 931.)
As summarized by our high court, court orders in receivership
proceedings rest “upon the court’s ‘sound discretion exercised in view of all
the surrounding facts and circumstances and in the interest of fairness,
justice and the rights of the respective parties. [Citation.] The proper
exercise of discretion requires the court to consider all material facts and
evidence and to apply legal principles essential to an informed, intelligent,
and just decision. [Citation.] Our view of the facts must be in the light most
favorable to the order and we must refrain from exercising our judgment
retrospectively.’ [Citations.] Where there is no evidence of fraud, unfairness,
or oppression, the court has wide discretion in approving the receiver’s
proposed actions.” (Gonzalez, supra, 43 Cal.4th at p. 931.)
B. Trial Courts May Issue Receivership Certificates with Priority
Over All Other Liens in Appropriate Circumstances
Section 17980.7 authorizes the judicial appointment of a receiver in
situations where substandard conditions on a property substantially
endanger the health and safety of the public, and the property owner has
been unable or unwilling to remediate those conditions. The law permits the
appointment of a receiver to assume control of the property and abate the
nuisance conditions or to take other appropriate actions as may be authorized
by the court. (§§ 17980.6, 17980.7; Gonzalez, supra, 43 Cal.4th at p. 912.)
U.S. Bank argues that this remedial statute does not authorize the
court to issue a super-priority lien to fund the receiver’s remediation efforts.
According to U.S. Bank, lien priority is a creature of statute and the statutory
13
language of section 17980.7, when read as a whole, supports the conclusion
that the Legislature intended the ordinary rules of lien priority to apply.
(See Civ. Code, § 2897 [“Other things being equal, different liens upon the
same property have priority according to the time of their creation.”) Thus,
U.S. Bank contends, the trial court erred when it granted the receiver’s
request to borrow funds on a super-priority basis, thereby displacing U.S.
Bank as senior lienholder.
U.S. Bank’s arguments miss the mark for two reasons. First,
U.S. Bank ignores that the receiver was appointed here under both section
17980.7 and Code of Civil Procedure section 564, the general receivership
statute. Under well-established principles, trial courts enjoy broad discretion
in matters subject to a receivership, including the power to issue receiver’s
certificates with priority over preexisting liens. Second, as we address in
section B.ii. post, section 17980.7 is consistent with this established authority
and nothing about its statutory language or legislative history suggests that
the Legislature intended to circumscribe the traditional powers of a
receivership recognized under Code of Civil Procedure section 568.
i. Traditional Authority Vested in a Receivership Includes
the Power to Issue Certificates with First Priority
A receiver is an officer and agent of the appointing court and is under
the direct control and supervision of the court. (Gonzalez, supra, 43 Cal.4th
at p. 930; see SunTrust, supra, 32 Cal.App.5th at p. 656 [“a receiver only has
those powers granted to it by statute or an order of the court”].) The receiver
is not an agent of any particular party but rather acts for the benefit of all
parties interested in the property. (City of Chula Vista v. Gutierrez (2012)
207 Cal.App.4th 681, 685; Cal. Rules of Court, rule 3.1179(a).)
“Section 568 of the Code of Civil Procedure—first enacted in 1872—
gives a receiver appointed under section 564 very broad powers.” (SunTrust,
14
supra, 32 Cal.App.5th at p. 659.) Specifically, “[t]he 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.”
(Code Civ. Proc., § 568, italics added.) “Courts also have substantial
discretion to authorize a receiver to borrow money to fund the preservation
and management of property in the receivership estate, particularly where,
as here, the estate does not produce income. In that circumstance, the
receiver may ask the court to authorize the issuance of a receiver’s certificate
to the lender as security for money loaned to the estate.” (SunTrust, at
p. 657.)
For over 100 years, these powers have been interpreted to include a
court’s authority to fund a receivership on a super-priority basis in the
appropriate circumstance. In Title Ins. & Trust Co. v. California
Development Co. (1915) 171 Cal. 227 (Title Ins. & Trust), the Supreme Court
affirmed a trial court’s decision authorizing receiver’s certificates with
priority over existing bonded indebtedness, stating that “there can be no
question of the right of the court to give priority to certificates issued to
enable the receiver to carry out the primary object of [the receiver’s]
appointment, viz., the care and preservation of the property.” (Id. at p. 231;
see SunTrust, supra, 32 Cal.App.5th at p. 657, citing Title Ins. & Trust and
quoting 12 Miller & Starr, Cal. Real Estate (4th ed. 2018) § 41.12, p. 41-33
[“Receivership certificates are then issued as evidence of the indebtedness
and become liens on the subject property when issued under the direction and
control of the court, usually with priority over all other liens, including
preexisting liens.”].) Decisions regarding the issuance and priority of
15
receiver’s certificates are committed to the sound discretion of the trial court.
(Title Ins. & Trust Co., at p. 233; see ibid. [the trial court, “upon a
consideration of all the facts, determined that the certificates should
equitably be given priority over the bonds, and we think its conclusion should
not be interfered with”]; 12 Miller & Starr, Cal. Real Estate, supra, at
pp. 41-33 to 41-34 [“Whether receiver’s certificates should be issued, and
whether those certificates when issued should be given priority over the other
indebtedness already of record against the property, are decisions that rest
largely in the discretion of the court.”].)
U.S. Bank’s attempts to distinguish Title Ins. & Trust are unavailing.
It argues that the case strictly limits the use of receiver’s certificates with
priority over other liens to expenditures required for the “necessary care and
preservation” of receivership property, and that such certificates are
therefore inappropriate in the context of a section 17980.7 receivership,
which by statutory design exists solely to improve property through the
remediation of existing code violations. We have little difficulty concluding,
however, that a receiver’s efforts pursuant to section 17980.7 to ameliorate
property conditions which substantially endanger public health and safety—
the “primary object” of the receiver’s appointment—are taken as part of the
“necessary care and preservation” of the receivership property. Similarly
unpersuasive is U.S. Bank’s claim that Title Ins. & Trust is limited by its
facts to situations where a majority of existing lienholders request the
receivership and agree to subordinate their interests to fund it. Nothing in
the Supreme Court’s analysis makes such facts necessary or controlling. At
most, specifics regarding the creation of the receivership were among “all the
facts” that were considered by the trial court in the exercise of its broad
discretion. (Title Ins. & Trust, supra, 171 Cal. at p. 233.)
16
Indeed, the Second District recently followed Title Ins. & Trust under
facts strikingly similar to the present case. (See SunTrust, supra,
32 Cal.App.5th 648.) Like the instant action, SunTrust involved the
appointment of a receiver pursuant to section 17980.7 and Code of Civil
Procedure section 564 to undertake remediation of a residential property
after the owners refused to abate existing nuisance conditions. (SunTrust, at
pp. 651–652, 658.) As here, the senior lienholder (SunTrust) did not
challenge the appointment of the receiver but objected only when the receiver
proposed to borrow $250,000 on a super-priority basis to fund the
remediation. (Id. at p. 652.) The receiver argued that because there was
insufficient equity in the property, no lender would loan funds to the receiver
unless the indebtedness was given priority over all preexisting liens. (Id. at
pp. 654–655.) The trial court granted the receiver’s request. (Id. at p. 655.)
On appeal, SunTrust argued that no statute allows the issuance of a
super-priority lien, pointing to the absence of any provision in section 17980.7
expressly authorizing such a funding mechanism. (SunTrust, supra,
32 Cal.App.5th at p. 658.) The appellate court concluded, however, that it
was “unnecessary to engage in a lengthy statutory analysis of [section
17980.7] because . . . the receiver was also appointed under Code of Civil
Procedure section 564.” (SunTrust, at p. 659.) Citing Title Ins. & Trust and
the broad language of Code of Civil Procedure section 564, the appellate court
concluded that this authority allowed a receiver to issue a super-priority lien
“in appropriate circumstances.” (SunTrust, at p. 659.)
Although the SunTrust court acknowledged that “the use of super-
priority liens should be infrequent because the disturbance of preexisting
liens may bring harsh consequences” (SunTrust supra, 32 Cal.App.5th at
p. 568), it concluded that the trial court did not abuse its discretion in
17
authorizing super-priority borrowing under the circumstances presented. (Id.
at pp. 660–661.) The court pointed out that after the property owners refused
to abate the nuisance conditions, SunTrust chose not to take any action
against them, despite the fact that the owners were clearly in breach of their
deed of trust. (Id. at p. 660.) Because neither the owners nor SunTrust were
willing to fund the costly remediation and the property did not produce
income, no lender would finance the receiver’s remediation efforts except on a
super-priority basis. (Ibid.) Finally, in rejecting SunTrust’s contention that
its interest in the property was inequitably displaced, the court observed that
SunTrust’s lien was nearly worthless because the costs of remediation
exceeded the value of the unimproved land. It concluded that SunTrust’s
suggestion—that it should remain the senior lienholder and “benefit from the
increased property value provided by the remediation while bearing none of
the cost”—was “simply untenable.” (Id. at p. 661.)
We agree with SunTrust that the trial court may exercise its broad
discretion under Code of Civil Procedure section 568 and Title Ins. & Trust to
authorize the issuance of a receiver’s certificate with priority over all
preexisting liens to fund the preservation and management of property in the
receivership estate. This authority applies equally to receiverships appointed
in parallel with section 17980.7 to remediate property conditions which
substantially endanger the health and safety of the public.
ii. Section 17980.7 Does Not Circumscribe or Displace the
Traditional Powers of a Receivership
U.S. Bank faults the SunTrust court for failing to examine the
statutory language and legislative history of section 17980.7 and the broader
statutory scheme giving local governments many options for addressing
nuisance properties. It contends that the Legislature, by enacting section
17980.7, intended both to prohibit the use of super-priority liens and to
18
occupy the field with respect to these types of health and safety receiverships.
Neither the language nor the legislative history of section 17980.7 supports
this view.7
“The fundamental purpose of statutory construction is to ascertain the
intent of the lawmakers so as to effectuate the purpose of the law. [Citation.]
‘We begin by examining the statutory language, giving the words their usual
and ordinary meaning. [Citation.] If there is no ambiguity, then we presume
the lawmakers meant what they said, and the plain meaning of the language
governs. [Citation.] If, however, the statutory terms are ambiguous, then we
may resort to extrinsic sources, including the ostensible objects to be achieved
and the legislative history. [Citation.] In such circumstances, we “ ‘select the
construction that comports most closely with the apparent intent of the
Legislature, with a view to promoting rather than defeating the general
purpose of the statute, and avoid an interpretation that would lead to absurd
consequences.’ ” ’ ” (City and County of San Francisco v. Jen (2005)
135 Cal.App.4th 305, 310 (Jen).)
Sections 17980.6 and 17980.7 “compose a statutory scheme providing
certain remedies to address substandard residential housing that is unsafe to
occupy. Pursuant to section 17980.6, an enforcement agency may issue a
notice to an owner to repair or abate property conditions that violate state or
local building standards and substantially endanger the health and safety of
7 In April 2019, we granted U.S. Bank’s request that we take judicial
notice of selected portions of the legislative history for section 17980.7. On
our own motion, we take judicial notice of the entire legislative history of
Assembly Bill No. 3492 (1989-1990 Reg. Sess.). (Evid. Code, §§ 452,
subds. (a) & (c), 459; see Alford v. Superior Court (2003) 29 Cal.4th 1033,
1041, fn. 4, disapproved on another ground in Facebook, Inc. v. Superior
Court (Touchstone) (2020) 10 Cal.5th 329, 345, fn. 6.)
19
residents or the public. Section 17980.7 provides that, if the owner fails to
comply with the notice despite having been afforded a reasonable opportunity
to do so, the enforcement agency may seek judicial appointment of a receiver
to assume control over the property and remediate the violations or take
other appropriate action.” (Gonzalez, supra, 43 Cal.4th at p. 912; accord City
of Crescent City v. Reddy (2017) 9 Cal.App.5th 458, 465–466.) “The obvious
and stated purpose of section 17980.6 [and section 17980.7] is to protect the
health and safety of residents who might be substantially endangered by
unsafe building conditions.” (Jen, supra, 135 Cal.App.4th at p. 311.)
Subdivision (c)(4) of section 17980.7 enumerates a set of “powers and
duties” that a receiver must follow in the “order of priority” listed “unless the
court otherwise permits.” The receiver is empowered by statute to “take full
and complete control of the substandard property”; to “manage the
substandard building” and pay its operating expenses, taxes, insurance,
utilities and debt servicing; to “secure cost estimates” and “enter into
contracts” to abate the code violations; to “collect all rents and income” and to
“use all rents and income from the substandard building to pay for the cost of
rehabilitation and repairs”; and to “borrow funds to pay for repairs necessary
to correct the conditions cited in the notice of violation and to borrow funds to
pay for any relocation benefits authorized by paragraph (6) [of the statute].”
(§ 17980.7, subd. (c)(4)(A)-(G).) Moreover, “with court approval,” the receiver
is authorized to “secure that debt and any moneys owed to the receiver for
services performed pursuant to this section with a lien on the real property
upon which the substandard building is located. The lien shall be recorded in
the county recorder’s office in the county within which the building is
located.” (§ 17980.7, subd. (c)(4)(G).)
20
U.S. Bank points out that section 17980.7 makes no mention of
authorizing liens on a super-priority basis, and it notes that the law
prioritizes paying “debt secured by an interest in the real property”
(§ 17980.7, subd. (c)(4)(B)) before borrowing funds and securing the debt with
a lien on the real property (id., subd. (c)(4)(G)). “Far from showing an intent
to allow receivers to extinguish the interests of secured creditors,” U.S. Bank
contends, “the Legislature . . . affirmatively showed its intent to protect
them.” We disagree.
As discussed above, the primary object of a section 17980.7 receivership
is to remediate code violations on a property that “are so extensive and of
such a nature that the health and safety of residents or the public is
substantially endangered” (§ 17980.6; see § 17980.7)—not to ensure that
debt payments are not missed. (Gonzalez, supra, 43 Cal.4th at p. 912; Jen,
supra, 135 Cal.App.4th at p. 311.) While section 17980.7 generally directs
that remediation expenses should first be paid out of the rents and income
derived from the property before funds are borrowed, the statute expressly
allows the receiver to proceed by another manner when “the court otherwise
permits.” (§ 17980.7, subd. (c)(4).) This flexibility is further confirmed by
section 17980.7, subd. (c)(4)(H), which authorizes the receiver “[t]o exercise
the powers granted to receivers under Section 568 of the Code of Civil
Procedure.” By its own terms, section 17980.7 incorporates the traditional
power of receivers “to do such acts respecting the property as the Court may
authorize.” (Code Civ. Proc., § 568.) In sum, we do not read section 17980.7
to preclude the use of a super-priority lien when it is authorized by the trial
court in an appropriate circumstance.
The legislative history of section 17980.7 does not compel a different
result. When first introduced as Assembly Bill No. 3492, the original draft
21
provided an express procedure for super-priority borrowing by receivers.
Specifically, before a receiver could borrow funds, the bill required the
receiver to give existing lienholders the opportunity to increase their debt to
pay for the necessary repairs or to foreclose. (See Assem. Bill No. 3492 (1989-
1990 Reg. Sess.) (Assembly Bill 3492) as introduced Feb. 28, 1990 at pp. 4–5.)
The draft legislation further provided: “If the existing lienholders decide not
to provide the funds for repair and if they choose not to foreclose their
security, the receiver may borrow funds and secure the debt with an
encumbrance on the real property upon which the substandard building is
located which shall constitute a lien on that real property, superior to all
prior liens and encumbrances, except taxes.” (Id. at p. 5.)
This language was later deleted after opposition from the California
Bankers Association. (See Assembly Bill 3492, as amended Apr. 30, 1990 at
pp. 5-6; see also Maurine C. Padden, Cal. Bankers Assn., letter to Chairman
Dan Hauser, Assem. Housing and Community Development Comm., Apr. 11,
1990.) U.S. Bank argues that this sequence of events evidences a legislative
intent to disallow super-priority borrowing by section 17980.7 receivers. U.S.
Bank omits an important part of the story.
When Assembly Bill 3492 was amended to delete reference to super-
priority borrowing, the relevant subsection of the statute was also amended
to provide that receivers could secure debt only with court approval and only
with a lien having “the force, effect, and priority of a judgment lien.”
(Assembly Bill 3492 as amended Apr. 30, 1990, at p. 5.) Because a judgment
lien is generally subject to the first-in-time rule of lien priority (Civ. Code,
§§ 2897, 2898; see Isaac v. City of Los Angeles (1998) 66 Cal.App.4th 586,
600–601), the proposed amendment would not have allowed trial courts to
give receivership liens super-priority status.
22
However, another amendment subsequently deleted the reference to
judgment lien priority and required immediate service of any petition
requesting appointment of a receiver on all persons with a recorded interest
in the subject real property. (Assembly Bill 3492 as amended June 28, 1990
at pp. 3–4.) This left the borrowing provision as it was ultimately enacted.
(§ 17980.7, subd. (c)(4)(G) [authorizing receiver to “borrow funds . . . and,
with court approval, secure that debt and any moneys owed to the receiver for
services performed pursuant to this section with a lien on the real property
upon which the substandard building is located”].) 8 The removal of the
specific authorization for super-priority borrowing from Assembly Bill 3492
was explained by the author as follows: “I have added author’s amendments
. . . to delete a first priority for a lien secured by a receiver. Such blanket
authority may not be appropriate in certain cases, so the bill now specifies
that any financing arrangement by a receiver would be subject to court
approval.” (Assem. Comm. on Ways and Means, Author Hearing Notice for
Assembly Bill 3492, May 6, 1990, at pp. 1–2.)
This legislative history indicates that the Legislature did not foreclose
the use of super-priority liens to fund section 17980.7 receiverships, but
rather intended any financing arrangement to be reviewed and approved by
the court under the particular facts of each case and only after mandatory
notice to all affected lienholders. The Civil Code defines “lien” generally as “a
8 As enacted, Assembly Bill 3492 provided for service of a receivership
petition on all persons with a record interest in the real property at least
three days before the filing of any petition seeking a receivership. (See Stats.
1990, ch. 1334, § 1, p. 5785.) Effective October 8, 2019, this requirement was
amended to allow for notice by first class mail on all persons with a record
interest, posting on the property, and service on the owner. (See § 17980.7,
subd. (c); Stats. 2019, ch. 620, § 4 (Assem. Bill No. 957 (2019-2020 reg. sess.).)
23
charge imposed in some mode other than by a transfer in trust upon specific
property by which it is made security for the performance of an act.” (Civ.
Code, § 2872.) On the other hand, when the Legislature wants to treat a lien
like a judgment lien, it clearly knows how to do so. (See, e.g., Gov. Code,
§§ 25845, subds. (e), (g) [authorizing recordation of an abatement lien with
“the same priority as a judgment lien on real property”], 38773.1, subds. (a),
(c) [authorizing nuisance abatement lien, which “from the date of recording
shall have the force, effect, and priority of a judgment lien”] & 54988,
subds. (a)(1), (c) [same].)
That the Legislature chose to eliminate similar language from
Assembly Bill 3492, keeping the type of lien unspecified, argues in favor of a
construction which leaves lien priority in this context to the discretion of the
trial court. (See Hicks v. E.T. Legg & Assocs. (2001) 89 Cal.App.4th 496, 507
[“ ‘ “It is a well recognized principle of statutory construction that when the
Legislature has carefully employed a term in one place and has excluded it in
another, it should not be implied where excluded.” ’ ”]; see also Campbell v.
Zolin (1995) 33 Cal.App.4th 489, 497 [“Ordinarily, where the Legislature uses
a different word or phrase in one part of a statute than it does in other
sections or in a similar statute concerning a related subject, it must be
presumed that the Legislature intended a different meaning.”].)9
9 U.S. Bank points to a statement in the Republican Analysis of
Assembly Bill 3492 that “ ‘Senate amendments make any lien filed against
the property a standard lien . . . so that it does not have priority over other
loans.’ ” However, the full statement reads as follows: “Senate amendments
make any lien filed against the property a standard lien, instead of a
judgment lien, so that it does not have priority over other loans.” (Assem.
Comm. on Housing and Community Development, Republican Analysis of
Assembly Bill 3492, Aug. 29, 1990.) We disagree with this statement. As
discussed above, the decision to omit how a receivership lien should be
24
Our reading of the legislative history is further bolstered by the fact
that, as enacted, section 17980.7 expressly authorizes section 17980.7
receivers “[t]o exercise the powers granted to receivers under Section 568 of
the Code of Civil Procedure” (§ 17980.7, subd. (c)(4)(H))—a statute that, as
discussed above, has long been interpreted to authorize the funding of a
receivership on a super-priority basis in an appropriate case. (See Title Ins.
& Trust, supra, 171 Cal. at p. 231.) “We do not presume that the Legislature
intends, when it enacts a statute, to overthrow long-established principles of
law unless such intention is clearly expressed or necessarily implied.”
(People v. Superior Court (Zamudio) (2000) 23 Cal.4th 183, 199.) Thus,
nothing in the text or legislative history of section 17980.7 suggests an intent
by the Legislature to circumscribe or displace the traditional powers of a
receiver appointed under Code of Civil Procedure section 564.
On the contrary, legislative committee reports repeatedly acknowledge
that section 17980.7 was intended to reconfirm the trial court’s authority
under Code of Civil Procedure section 564 to appoint receivers to remediate
substandard properties. (See, e.g., Concurrence in Sen. Amends. for
Assembly Bill 3492, as amended Aug. 24, 1990, at p. 1 [“Currently, Section
564 of the Code of Civil Procedure authorizes the superior court to appoint a
receiver for a number[] of causes, including ‘. . . where it is shown that the
property or fund is in danger of being lost, removed, or materially injured.’ ”];
Sen Comm. on Judiciary, Rep. on Assembly Bill 3492, as amended June 28,
1990, at p. 2 (Sen. Comm. on Judiciary Analysis) [same].) Because judges
appeared reluctant to appoint receivers pursuant to the general authority of
Code of Civil Procedure section 564, Assembly Bill 3492 was proposed to
treated signals a legislative intent to allow the trial court to determine in its
discretion the priority status of such a lien.
25
make the authority for appointing a receiver under these circumstances
“more explicit.” (Sen. Comm. on Judiciary Analysis, supra, at p. 2 [“The
purpose of this bill is to give courts explicit authority to appoint a receiver to
oversee repairs of a substandard building where the owner has refused to do
so.”].)10
In sum, both the text and legislative history of section 17980.7 evince a
legislative intent to supplement rather than supplant the traditional powers
of a receiver under Code of Civil Procedure section 568. (§§ 17980.7,
subd. (c)(4)(H) [authorizing receivers “[t]o exercise the powers granted to
receivers under Section 568 of the Code of Civil Procedure]; 17980.7, subd. (g)
[“These remedies shall be in addition to those provided by any other law”];
see City and County of San Francisco v. Daley (1993) 16 Cal.App.4th 734,
742, fn. 6 (Daley) [citing § 17980.7, subd. (g) in concluding that § 17980.7
“does not affect the availability of a receiver under Code of Civil Procedure
section 564”].)
Finally, having concluded that a court’s authority to impair property
rights subject to receivership in an appropriate case has been recognized for
over 100 years, we decline U.S. Bank’s suggestion that a different
interpretation of the relevant statutes is required by the constitutional
10Since Assembly Bill 3492 was enacted to address an unmet need with
respect to the rehabilitation of substandard residential properties, it is
apparent that the existing tools available to local governments in this
arena—such as abatement or eminent domain—were not always sufficient to
ameliorate this significant health and safety issue. (See, e.g., Dept. of
Housing and Community Development, Enrolled Bill Report on Assembly Bill
3492, as amended Aug. 24, 1990, at p. 3 [noting “that many legal service
practitioners in the housing field share the belief that current code
enforcement mechanisms are often ineffective”].) U.S. Bank’s contention that
the existence of these other options somehow argues against the availability
of priority financing thus misses the point of the legislation.
26
avoidance canon. (See People v. Engram (2010) 50 Cal.4th 1131, 1161 [“a
statute must be construed, if reasonably possible, in a manner that avoids a
serious constitutional question”].) U.S. Bank’s relatively undeveloped
assertion that the exercise of such authority by a court supervising a health
and safety receivership constitutes an unconstitutional taking (Cal. Const.,
art. I, § 19(a); U.S. Const., 5th Amend.) and/or an impairment of contract
(Cal. Const., art. I, § 9; U.S. Const., art I, § 10, cl. 1), or “at least raise[s] a
significant constitutional issue,” does not persuade us to part ways with this
longstanding precedent.
C. The Subordination Order Was Not an Abuse of Discretion
Having concluded that the trial court was authorized to secure the
receiver’s borrowing with a super-priority lien under both receivership
statutes, we turn to the question whether the trial court abused its discretion
by giving the receiver’s certificate first priority over all other liens. We
conclude that it did not.
As the record makes clear, the subject property was not capable of
generating income and was underwater, making standard secured borrowing
impossible as a means of financing the remediation of the property. Quail
had no resources to offer and the receiver reported that his efforts to obtain
funding from nonprofits or other sources proved unsuccessful. Adding
urgency to the situation, the property posed a significant hazard to the health
and welfare of the public and its occupants, with several families living in
unsanitary or uninhabitable conditions, a massive accumulation of junk and
debris, fire damaged structures and other attendant fire risks, and frequent
responses to the property by the sheriff’s department and the fire
department. These conditions had persisted for years despite numerous
attempts by the County to enforce the code violations.
27
Against this backdrop, the receiver’s plan to obtain priority financing to
fund a partial remediation of the property and to sell to a buyer willing to
complete the remaining repairs appeared reasonably designed to address the
nuisance conditions quickly and effectively, once and for all. “ ‘ “As a general
proposition the costs of a receivership are primarily a charge upon the
property in the receiver’s possession and are to be paid out of said
property.” ’ ” (SunTrust, supra, 32 Cal.App.5th at p. 657, quoting Baldwin v.
Baldwin (1947) 82 Cal.App.2d 851, 855.) Here, the receiver’s plan allowed
the costs of the receivership to be paid by the property, placing any risk of
loss on those with financial interests in the property, and avoided the use of
public monies to enhance the value of those private financial interests.
U.S. Bank nevertheless argues that the court’s subordination order was
an abuse of discretion because it had offered to foreclose and take care of the
problems itself, which would have avoided the need for the receiver and its
attendant costs. On this record, however, we see no abuse of discretion in the
court’s rejection of U.S. Bank’s belated proposal. U.S. Bank had notice of the
severe health and safety issues on the property since at least June 2017 and
took no action to address the problems prior to the appointment of the
receiver in January 2018, or before the receiver renewed its request for
super-priority financing in May 2018, or even before the court finally granted
that request in October 2018. It was only at the October 2018 hearing that
U.S. Bank finally asked the court for permission to foreclose and either repair
the property itself or sell to a buyer who could remediate the nuisance
conditions.
Prior to the October hearing, the court had ordered U.S. Bank to obtain
an appraisal of the property, which it failed to do in a timely manner despite
being given three months to do so. The County expressed concern that, if left
28
to its own devices, U.S. Bank would not remedy the situation and might sell
to a party who would likewise fail to fix the many hazards on the property.
Given U.S. Bank’s extended history of indifference and inaction, we cannot
fault the trial court for viewing its last-minute offer to foreclose with
skepticism. In contrast, it was only through the efforts of the receiver that
the conditions on the property started to improve. Within three months of
the court’s order authorizing the receiver’s certificate on a priority basis, the
receiver had removed or relocated all of the occupants on the property,
secured all the buildings, completed the demolition work, listed the property,
and was weighing several offers above the asking price. Under the
circumstances, the court acted well within its discretion in concluding that
the process most likely to result in the expeditious and total remediation of
the health and safety issues on the property was the plan put forward by the
receiver.
D. Order Confirming Sale Free and Clear of All Liens Was Not an
Abuse of Discretion
In the second of these consolidated appeals, U.S. Bank attacks the
court’s subsequent order confirming the sale of the property free and clear of
liens. It asserts that the sale confirmation process failed to comply with
statutory requirements. U.S. Bank also contends that the court’s sale order
was not supported by the evidence, making it an abuse of discretion. Both
contentions lack merit.
It is beyond dispute that a court overseeing a health and safety
receivership has the authority to sell receivership property. (See Gonzales,
supra, 43 Cal.4th at p. 930 [holding that section 17980.7 “empowers the
receiver to sell the property or to take any other action respecting the
property as the court may authorize,” citing § 17980.7, subd. (c)(4)(H) & Code
Civ. Proc., §§ 568, 568.5; see also Cal-American Income Property Fund VII v.
29
Brown Development Corp. (2008) 138 Cal.App.3d 268, 273–274 [“Code of Civil
Procedure sections 568 and 568.5 authorize the receiver to perform such acts
respecting the property as the court may authorize, including the sale of real
and personal property upon notice and subject to court confirmation.”].)
According to U.S. Bank, any such sale must occur in accordance with the
Enforcement of Judgments Law (Code Civ. Proc., § 680.010 et seq.) (EJL)
because Code of Civil Procedure section 568.5—the statute authorizing a
receiver to sell property—states that all sales must be “in the manner
prescribed by Article 6 (commencing with Section 701.510) of Chapter 3 of
Division 2 of Title 9,” i.e., the sale provisions of the EJL. U.S. Bank is
mistaken.
What Code of Civil Procedure section 568.5 actually states is that “[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
[the EJL].” (Italics added.) Moreover, Code of Civil Procedure section 568
grants receivers the general power “to do such acts respecting the property as
the Court may authorize.” Read together, these provisions permit a court to
tailor the method of sale of receivership property to the circumstances before
it. Indeed, several courts have recognized “the broad power of a court to
determine the manner in which [receivership] property should be sold.”
(People v. Riverside University (1973) 35 Cal.App.3d 572, 584 (Riverside).)
In Lesser & Son v. Seymour (1950) 35 Cal.2d 494 (Lesser), for example,
the Supreme Court upheld a court’s authority to confirm a sale of
receivership assets in a manner which conflicted with its prior order of sale.
(Id. at p. 499.) In doing so, the high court reasoned: “[T]he main function of
the court is to manage or dispose of the estate in the best manner possible
and for the best interest of the parties concerned. To effectually perform that
30
duty necessarily requires some flexibility and continuity of jurisdiction in
giving instructions to the receiver as to the manner in which the property
should be sold to meet exigencies as they may arise.” (Ibid.) In support of
this conclusion, the court noted that “[t]he receiver is a mere agent and the
property in [the receiver’s] hands is really under the control and continuous
supervision of the court.” (Ibid..)
Thereafter, the appellate court in Riverside, supra, 35 Cal.App.3d 572,
expressly addressed and rejected the argument U.S. Bank advances here.
Relying on Lesser, the court opined: “In the absence of more explicit
language, we cannot read section 568.5 as a restriction upon the inherent
equitable power of the court to prescribe the manner in which a receiver may
sell property. To effectively discharge its responsibility of managing for the
best interest of the parties concerned the assets placed in the hands of a
receiver, the court must, as stated in [Lesser], necessarily maintain a degree
of flexibility with respect to the time and manner in which property should be
sold to meet exigencies as they arise. [Citing Lesser, supra, 35 Cal.2d at
p. 499.]” (Riverside, at p. 585.) Contrary to U.S. Bank’s position, the better
reading of Code of Civil Procedure section 568.5 is that “unless the court
prescribes a different mode of sale, a receiver, when authorized, must sell
property in the manner provided for sales on execution.” (Riverside, at
p. 585.) Given this precedent, we have no difficulty concluding that the trial
court possessed the authority to confirm the sale of the property in this case
despite the receiver’s failure to follow the specific procedure outlined in the
EJL.
D & M Cabinets, supra, 177 Cal.App.4th 59 is distinguishable. In that
case, the receiver was appointed under the EJL itself— pursuant to Code of
Civil Procedure section 708.620—to enforce a money judgment. (See D & M
31
Cabinets, at p. 62.) The court held under those circumstances that certain
homestead requirements set forth in the EJL applied whether the sale was
conducted by a sheriff or an EJL receiver. (D & M Cabinets, at p. 73.)
Indeed, the court distinguished Gonzalez, supra, 43 Cal.4th 905, stating that
Gonzalez “involved a receivership to demolish uninhabitable property due to
building code violations; it had nothing to do with the EJL.” (D & M
Cabinets, at p. 76.)
Nor are we persuaded that, as a general matter, the court’s sale order
amounted to an abuse of discretion. As discussed above, “[a]n order
authorizing the receiver to sell substandard structures that pose a
substantial health and safety risk is reviewed for abuse of discretion and is
afforded considerable deference.” (City of Riverside v. Horspool (2014)
223 Cal.App.4th 670, 683 (Horspool); see Gonzalez, supra, 43 Cal.4th at
p. 931.) U.S. Bank argues that the sale order at issue was an abuse of
discretion because there was insufficient evidence to support the
reasonableness of the sales price or that the proposed sale would benefit the
receivership estate, facts critical to the trial court’s decision. Ample evidence,
however, supports the court’s approval of both the sales price and the sale
process. Certainly, there is no evidence of “fraud, unfairness, or oppression.”
(See Gonzalez, at p. 931.)
The list price of $249,000 was based on a broker’s price opinion of the
market value of the property after the partial remediation was completed.
The only other valuation evidence in the record was U.S. Bank’s appraisal of
$400,000. It is not clear that the appraisal considered the ongoing nuisance
conditions on the property or the need for any buyer to complete the
remaining remediation post sale. Indeed, there is some evidence that the
appraisal did not take these factors into account, as the highest of the five
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offers received after the property was marketed for sale was the $315,000
offer the receiver asked the court to confirm. Moreover, U.S. Bank supplied
no concrete evidence to suggest any irregularity in the receiver’s open market
process. In any event, “other considerations may outweigh the need to
maximize the sales price to the receivership.” (People v. Stark (2005)
131 Cal.App.4th 184, 207.) Here, it was a matter of utmost importance that
any potential purchaser be willing and able to work with the County to
complete the remaining nuisance abatement, and the potential purchasers
appeared to be excellent candidates in this regard. On this record, we see no
abuse of discretion in the court’s confirmation of a $315,000 purchase price.
(Riverside, supra, 35 Cal.App.3d at p. 582 [“ ‘Generally speaking if no good
reason appears for refusing to confirm a receiver’s sale, such as chilling of
bids or other misconduct or gross inadequacy of price, the sale should be
confirmed.’ ”].)
U.S. Bank’s additional argument—that the approved sale process was
improper because it had offered to foreclose and find a buyer willing to
address the nuisance conditions—is largely a rehash of the argument we
rejected above. It is true that “ ‘receivers are often legal luxuries, frequently
representing an extravagant cost to a losing litigant.’ ” (Daley, supra,
16 Cal.App.4th at p. 744.) In this case, however, U.S. Bank did not challenge
the initial appointment of the receiver and proposed foreclosure only when
the primacy of its lien was at risk. As discussed above, the trial court’s
apparent lack of confidence that U.S. Bank would do what it said it would in
a timely and effective manner finds ample support in the record.
Moreover, as the trial court found, the only way to complete the
required rehabilitation was to sell the property to a third party with the
resources to complete the remaining repairs. This, in turn, could only be
33
accomplished by stripping the property of its existing liens, including the lien
held by U.S. Bank. While U.S. Bank argues strenuously that such lien
stripping goes beyond the court’s authority, precedent supports a contrary
view. As our high court confirmed when it upheld a trial court’s decision
under a section 17980.7 receivership to completely demolish a substandard
building, receivership orders in this context may involve “extraordinary
action,” and such orders are afforded substantial deference even when they
are “drastic enough to extinguish an owner’s interest in property.” (Gonzalez,
supra, 43 Cal.4th at p. 931.)
In Horspool, supra, 223 Cal.App.4th 670, the Fourth District addressed
a situation similar to the instant appeal. The city sought appointment of a
section 17980.7 receivership after the property owner refused to abate
nuisance conditions on a residential property. The receiver obtained
permission from the trial court to sell the partially remediated property
“as-is” to a buyer willing to complete the repairs. To effectuate the sale, the
court stripped the property of its existing liens. (Id. at pp. 675–678.) In
affirming the actions of the trial court, the appellate court expressly opined
that “[a] court of equity has the power to order the sale of property free and
clear of liens and encumbrances.” (Id. at p. 684.) And in the SunTrust case
discussed above, the appellate court rejected many of the same arguments
that U.S. Bank advances here, upholding the subordination of SunTrust’s
lien against the lender’s contention it was allowing the lien “ ‘to be essentially
stripped to nothing.’ ” (SunTrust, supra, 32 Cal.App.5th at p. 660.) We thus
conclude that the trial court here had the authority to authorize the sale of
property free and clear of all liens and encumbrances, and its decision to do
so in this extraordinary case cannot be characterized as an abuse of its
discretion.
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E. The Order Prioritizing the County’s Fees and Costs on an Equal
Footing with the Receiver’s Was an Abuse of Discretion
We agree with U.S. Bank in one respect. Although we conclude that
Code of Civil Procedure 568 and section 17980.7 allow for the payment of a
receiver’s remediation fees and costs on a super-priority basis under
appropriate circumstances, we see no such authority for treating the County’s
attorney fees and costs in a similar fashion. As noted above, the receiver is
an officer of the appointing court, in effect an extension of the court itself.
(Gonzalez, supra, 43 Cal.4th at p. 930.) Although the County set in motion
the appointment of the receiver in this matter, it does not occupy the same
role as the receiver. Title Ins. & Trust and SunTrust support the notion that
a receivership created pursuant to Code of Civil Procedure sections 564 and
568 may be funded, in an appropriate case, on a super-priority basis. (See
Title Ins. & Trust, supra, 171 Cal. at p. 231; SunTrust, supra, 32 Cal.App.5th
at p. 657.) These authorities, however, do not address the fees and costs
incurred by an enforcement agency.
Nor does section 17980.7 assist the County. While a receiver appointed
under that statute is given the authority to borrow funds for necessary
repairs and, with court approval, to “secure that debt and any moneys owed to
the receiver for services performed” with a lien on the subject property
(§ 17980.7, subd. (c)(4)(G), italics added), by its terms this authorization does
not extend to payment of governmental costs of enforcement. On the
contrary, the statute provides elsewhere that “[i]f the court finds that a
building is in a condition which substantially endangers the health and
safety of residents pursuant to Section 17980.6, upon the entry of any order
or judgment, the court shall,” among other things, “[o]rder the owner to pay
all reasonable and actual costs of the enforcement agency including, but not
limited to, inspection costs, investigation costs, enforcement costs, attorney
35
fees or costs, and all costs of prosecution.” (Id., subd. (d)(1), italics added; see
also id., subd. (c)(11) [“The prevailing party in an action pursuant to this
section shall be entitled to reasonable attorney’s fees and court costs as may
be fixed by the court.”].)
As the trial court found, the County’s actions with respect to the
property were instrumental in bringing it to the point where its numerous,
ongoing nuisance conditions could finally be abated. Nevertheless, the trial
court erred in equating the County’s enforcement costs with those of the
receiver, allowing them to be paid on a super-priority basis without
consideration of the competing claims of other lienholders. We therefore
reverse the trial court’s sale order to that extent. (See Costco Wholesale Corp.
v. Superior Court (2009) 47 Cal.4th 725, 733 [a trial court abuses its
discretion when it applies the wrong legal standard].) The County is of
course free to raise any argument it sees fit before the trial court on remand
with respect to its entitlement to a share of the remainder of the sale
proceeds.
III. DISPOSITION
We affirm the trial court’s orders authorizing a priority receiver’s
certificate and confirming the sale of the property free and clear of all liens,
and reverse the court’s sale order to the extent it prioritized the County’s
enforcement fees and costs on an equal footing with the receiver. The matter
is remanded to the trial court for further proceedings consistent with this
opinion. Our previously granted stay shall dissolve upon issuance of the
remittitur in this matter. Respondents are entitled to their costs on appeal.
36
_________________________
Sanchez, J.
WE CONCUR:
_________________________
Humes, P. J.
_________________________
Margulies, J.
A155837/A157245 County of Sonoma v. U.S. Bank
37
Trial Court: Sonoma County Superior Court
Trial Judge: Hon. Patrick M. Broderick
Counsel:
Reed Smith, Raffi L. Kassabian, Kasey J. Curtis, Zachary C. Frampton,
Todd S. Kim, for Defendant and Appellant U.S. Bank N.A.
Bruce D. Goldstein, Robert Pittman, County Counsel, Diana E. Gomez,
Holly E. Rickett, Deputy County Counsel, for Plaintiff and Respondent
California Receivership Group, Mark S. Adams, Andrew F. Adams, for
Defendant and Respondent
A155837/A157245 County of Sonoma v. U.S. Bank
38