National Financial Lending v. Super. Ct. ( 2014 )

Filed 1/7/14 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
NATIONAL FINANCIAL LENDING, D064226
LLC,
Petitioner, (Super. Ct. No. 2007-00074230-CU-
BC-CTL)
v.
THE SUPERIOR COURT OF SAN ORDER MODIFYING OPINION
DIEGO COUNTY,
[NO CHANGE IN JUDGMENT]
Respondent;
BREWER CORPORATION et al.,
Real Parties in Interest.
THE COURT
It is ordered that the opinion filed herein on December 18, 2013 be modified as
follows:
1. On pages 21 and 22 replace all instances of the word "Berger" with the
word "Brewer."
This modification does not change the judgment.
BENKE, Acting P. J.
1
Filed 12/18/13 (unmodified version)
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
NATIONAL FINANCIAL LENDING, D064226
LLC,
Petitioner, (Super. Ct. No. 2007-00074230-CU-
BC-CTL)
v.
THE SUPERIOR COURT OF SAN
DIEGO COUNTY,
Respondent;
BREWER CORPORATION et al.,
Real Parties in Interest.
ORIGINAL PROCEEDINGS in mandate. William R. Nevitt, Jr., Judge. Petition
denied.
Dale A. Martin; Law Offices of Jeffrey S. Benice and Jeffrey S. Benice for
Petitioner.
No appearance for Respondent.
Lincoln, Gustafson & Cercos, Theodore R. Cercos; Law Offices of Murray M.
Helm, Jr., Murray M. Helm, Jr.; Marks, Finch, Thornton & Baird, Jon F. Gauthier; Hoyt
Law Firm, Kenneth C. Hoyt; Niddrie, Fish & Addams and David A. Niddrie for Real
Parties in Interest.
In this writ proceeding, we deny a third party debtor's petition in which it
challenges the trial court's order denying the debtor's Code of Civil Procedure1 section
170.6 peremptory challenge.
In the trial court, the plaintiff obtained a $2.8 million judgment against a
defendant, a construction lender that failed to meets its commitment with respect to a
condominium project in San Diego. The plaintiff has unsuccessfully attempted to satisfy
the judgment through a myriad of postjudgment collection proceedings.
The third party debtor is controlled by the sole shareholder of the defendant
construction lender and owes the defendant substantial amounts. The plaintiff alleges it
served the third party with a notice of levy and that, nonetheless, the third party debtor
thereafter paid the defendant more than $2 million in management fees.
The third party's payment to the defendant in part gave rise to the plaintiff's
application to the trial court for appointment of a limited receiver. Following a contested
hearing, the receiver was appointed. However, the defendant did not cooperate with the
receiver, who then applied to the trial court for a clarification of his powers and access to
1 All further statutory references are to the Code of Civil Procedure unless otherwise
indicated.
3
books and records of the defendant and the closely-related third party debtor (among
others). The defendant shortly thereafter filed for bankruptcy.
After the defendant filed its bankruptcy petition, the plaintiff filed a motion under
section 701.020 to make the third party debtor liable for the money it transferred to the
defendant.
Upon being served with the plaintiff's section 701.020 motion, the third party
debtor filed a motion to quash service of the notice of levy of execution and a peremptory
challenge under section 170.6. The trial court denied the challenge, and the third party
debtor filed a timely petition for a writ of mandate. We issued an order to show cause as
well as a stay of all further trial court proceedings.
As we explain, a motion under section 701.020, by which a judgment creditor
seeks to impose liability for failure to honor a notice of levy, although it implicates
substantial interests of third parties and gives rise to a separate adversary factfinding
process, is nonetheless an incident to the underlying action and is not itself a separate
special proceeding that will support a peremptory challenge under section 170.6. (See
Avelar v. Superior Court (1992) 7 Cal. App. 4th 1270, 1275-1276.) The same is true of
NFL's motion to quash. Accordingly, because the trial judge had previously determined
the judgment creditor's liability as a matter of fact, no parties, even those joined
thereafter, had the right to a section 170.6 challenge.
Moreover, even if we considered the motion under section 701.020 as a special
proceeding within the meaning of sections 23 and 170.6, it was based in substantial part
4
on the same set of facts that gave rise to the plaintiff's earlier motion for appointment of a
limited receiver and, as we explain, was therefore a continuation of that postjudgment
proceeding. Because that proceeding included a disputed factual hearing, no party which
thereafter was brought into the proceeding could bring a peremptory challenge under
section 170.6.
In short, the third party debtor's section 170.6 challenge is barred either by the fact
that the trial court resolved the judgment debtor's liability or by its determination to
appoint a receiver.
FACTUAL AND PROCEDURAL BACKGROUND2
A. Brewer et al. v. PCF
This case arises out of the development of a luxury condominium project located
at the north end of Balboa Park in San Diego and known as Mi Arbolito. Plaintiffs and
real parties in interest, Brewer Corporation, Dynalectric Company, Brady Company/San
Diego, Inc., and Division 8, Inc. (collectively the Brewer plaintiffs), are contractors who
provided substantial amounts of material and work on the project. The underlying
dispute arose because construction on the project stopped before the Brewer plaintiffs
were paid in full for their material and work.
2 The parties' August 23, 2013 and September 3, 2013 requests for judicial notice of
matters that took place in separate superior court and later United States Bankruptcy
Court proceedings are denied.
5
The Brewer plaintiffs sued both the developer, Mi Arbolito, LLC, and the
construction lender, Point Center Financial, Inc. (PCF). Although Mi Arbolito, LLC filed
for bankruptcy, the Brewer plaintiffs obtained a $2.7 million judgment against PCF.
B. PCF & NFL
PCF is wholly owned by Dan J. Harkey, who is also its president. According to a
declaration Harkey filed in the trial court, PCF has been in business for more than 30
years. Harkey stated that National Financial Lending, LLC (NFL) is a California limited
liability company that is managed by PCF and that he is NFL's designated agent for
service of process. According to Harkey, NFL is composed of over 1300 members, one
of which is PCF.
C. Notice of Levy
On April 26, 2012, the Brewer plaintiffs served NFL with notices of levy of
execution totaling $2.2 million. The notices of levy were personally served on a person
identified only as Jane Doe at offices PCF and NFL share. The proof of service states
that Jane Doe refused to identify herself.
Some months after the notices of levy were served on NFL, the Brewer plaintiffs
discovered that, notwithstanding the levies, NFL transferred $2.08 million it held to PCF.
D. Receivership
After the Brewer plaintiffs discovered NFL's transfers to PCF, they moved to have
a limited receiver appointed over PCF's assets. PCF contested the appointment of a
6
receiver and, after conducting a factual hearing, the trial court determined a receiver was
necessary.
The receiver had difficulty obtaining PCF records he believed he needed in order
to fulfill his receivership obligations. While the receiver's motion to clarify his duties and
authority was pending in the trial court, PCF filed a petition for bankruptcy. The Brewer
plaintiffs then obtained partial relief from the automatic stay in the PCF bankruptcy that
permitted them to pursue third party debtors of PCF, including NFL, for levy violations.
E. Section 701.020 Motion and Motion to Quash
On June 17, 2013, the Brewer plaintiffs personally served NFL's agent for service
of process, Dan Harkey, with a notice of its section 701.020 motion to impose liability on
NFL for its violation of the April 2012 notices of levy.
On June 28, 2013, NFL responded to the section 701.020 motion by filing a
motion to quash the notices of levy in which it argued that service of the notices on a Jane
Doe at its offices was not valid.
Also on June 28, 2013, NFL filed a peremptory challenge to the trial judge
presiding over the case under section 170.6. The trial judge denied the challenge on the
grounds that neither the Brewer plaintiffs' motion under section 701.020 nor NFL's
motion to quash are actions or special proceedings subject to section 170.6.
As we indicated at the outset, NFL filed a petition for a writ of mandate, and we
issued an order to show cause and stay.
7
DISCUSSION
I
A. Section 170.6
By its terms, section 170.6 applies in any "civil or criminal action or special
proceeding of any kind or character." (§ 170.6, subd. (a)(1), italics added.) Under the
statute any "party to, or an attorney appearing in, an action or proceeding" may file a
motion to disqualify the judge before whom the action is pending if the motion is
supported by an affidavit or statement under oath that simply declares the party or
attorney believes the presiding judge in the action or proceeding is biased against the
party, the attorney, or the interest of the party or the attorney. (§ 170.6, subd. (a)(2).)
Upon presentation of such a motion and affidavit or statement under oath, the action or
proceeding must be assigned to another judge. (§ 170.6, subd. (a)(3).)
In a case such as this, where a trial judge has been assigned for all purposes, a new
party or attorney representing a new party must make the motion within 15 days of
appearing. (§ 170.6, subd. (a)(2).) However, only one motion may be made for each side
in any one action or special proceeding. (§ 170.6, subd. (a)(4).) Moreover, neither side
in a proceeding may make a motion under section 170.6 after trial has commenced or the
trial judge has resolved a disputed issue of fact relating to the merits. (§ 170.6, subd.
(a)(2); Stephens v. Superior Court (2002) 96 Cal. App. 4th 54, 60 (Stephens).)
Importantly, these limitations apply even to third parties who are brought into an action
or special proceeding after a challenge has been made or a factual issue has been
8
determined. (See School Dist. of Okaloosa County v. Superior Court (1997) 58
Cal. App. 4th 1126, 1135 [after challenge made]; Stephens, at p. 61.)
"The right to exercise a peremptory challenge under Code of Civil Procedure
section 170.6 is a substantial right and an important part of California's system of due
process that promotes fair and impartial trials and confidence in the judiciary. [Citation.]
As a remedial statute, section 170.6 is to be liberally construed in favor of allowing a
peremptory challenge, and a challenge should be denied only if the statute absolutely
forbids it. [Citation.]" (Stephens, supra, 96 Cal.App.4th at pp. 61-62.) "At the same
time, section 170.6 is designed to prevent abuse by parties that merely seek to delay a
trial or obtain a more favorable judicial forum." (The Home Ins. Co. v. Superior Court
(2005) 34 Cal. 4th 1025, 1032.) The general aim of the legislation is to "strike a balance
between the needs of litigants and the operating efficiency of the courts. [Citation.] [¶]
To effectuate the Legislature's intent, our courts 'have been vigilant to enforce the
statutory restrictions on the number and timing of motions permitted.' [Citation.] We
have not permitted '"'a device intended for spare and protective use to be converted into a
weapon of offense and thereby to become an obstruction to efficient judicial
administration.'"' [Citations.]" (Id. at pp. 1032-1033, fn. omitted.)
B. Section 701.020
Section 701.020 states: "(a) If a third person is required by this article to deliver
property to the levying officer or to make payments to the levying officer and the third
9
person fails or refuses without good cause to do so, the third person is liable to the
judgment creditor for whichever of the following is the lesser amount:
"(1) The value of the judgment debtor's interest in the property or the amount of
the payments required to be made.
"(2) The amount required to satisfy the judgment pursuant to which the levy is
made.
"(b) The third person's liability continues until the earliest of the following times:
"(1) The time when the property levied upon is delivered to the levying officer or
the payments are made to the levying officer.
"(2) The time when the property levied upon is released pursuant to Section
699.060.
"(3) The time when the judgment is satisfied or discharged.
"(c) If the third person's liability is established, the court that determines the
liability may, in its discretion, require the third person to pay the costs and reasonable
attorney's fees incurred by the judgment creditor in establishing the liability."
According to the Law Revision Commission comment, a judgment creditor may
enforce the liability imposed by section 701.020 either pursuant to examination
proceedings under article 2, chapter 6 of title 9 of the code, section 708.110 et seq. or by
way of a separate creditor's suit under article 3, chapter 6 of the code, section 708.210 et
seq. (16 Cal. Law Revision Com. Rep. (1982) p. 1349.)
10
C. Motion to Quash Notice of Levy
The cases have recognized that a notice of levy may be challenged by a motion to
quash. (See Lauer v. Rose (1976) 60 Cal. App. 3d 493, 496.) In ruling on such a motion,
the trial court is not required to render any statement of decision. (Ibid.)
II
As we noted at the outset, NFL's section 170.6 challenge is barred either by the
fact the Brewer plaintiffs' section 701.020 motion and NFL's own motion to quash are
mere incidents of the underlying action and the trial judge's earlier determination of
PCF's liability bars any further peremptory challenges or, more narrowly, because even if
considered special proceedings, the motions to impose liability and quash are nonetheless
a continuation of the receivership proceeding.
A. Incidents of an Action
We have not been cited to and are not aware of any cases that have directly
considered whether a motion under section 701.020 or a motion to quash a notice of levy
are special proceedings within the meaning of sections 23 and 170.6. We conclude that
neither a section 701.020 motion brought in the same action in which the underlying
judgment was entered nor a motion to quash service of a notice of levy are special
proceedings but rather are only incidents of the underlying action and do not give rise to a
separate right to a peremptory challenge under section 170.6. Our narrow interpretation
of special proceedings is not only consistent with the cases that have considered section
23 and its definition of the term, it is also consistent with the balance the Legislature has
11
attempted to draw between the important right of litigants to challenge trial judges at the
outset of proceedings and the operating efficiency of the trial courts.
Under section 21, judicial remedies are defined as actions and special proceedings.
Section 22 defines actions as: "An action is an ordinary proceeding in a court of justice
by which one party prosecutes another for the declaration, enforcement, or protection of a
right, the redress or prevention of a wrong, or the punishment of a public offense."
Section 23, in turn, states: "Every other remedy is a special proceeding."
"The phrase 'special proceeding' is used in the code practice in contradistinction to
'action.' That phrase has no reference to provisional remedies in actions at law or in
equity. It has reference only to such proceedings as may be commenced independently of
a pending action by petition or motion upon notice in order to obtain special relief." (In
re Sutter-Butte By-Pass Assessment (1923) 190 Cal. 532, 537, italics added.) "The phrase
therefore appears to apply only to a proceeding which is distinct from, and not a mere
part of, any underlying litigation." (Avelar v. Superior Court (1992) 7 Cal. App. 4th 1270,
1275 (Avelar).) "The phrase cannot be defined to include every procedural step or
mechanism employed within the context of pending litigation. By describing a 'special
proceeding' as any remedy not available in an 'action,' the Legislature must have meant to
create and recognize two roughly equivalent levels of independent procedures to be
directed towards the attainment of different, but similarly final remedies." (Id. at p. 1276,
italics added.)
12
In Avelar, a criminal defendant, who had been charged with battery and assault
with a deadly weapon on a police officer, moved for discovery of complaints of excessive
force made against the officer. The request for complaints was governed by Evidence
Code section 1043, which sets forth notice and good cause requirements for such
motions. In response to the defendant's motion, the officer's employer, a local police
department, filed an affidavit under Code of Civil Procedure section 170.6 that sought to
disqualify the trial judge. The trial judge found that the affidavit was effective and
disqualified himself. The defendant filed a petition for a writ of mandate in which he
argued that discovery proceedings under Evidence Code section 1043 are not special
proceedings that give rise to any right under Code of Civil Procedure section 170.6. The
court granted the writ. "[I]t can be argued that where the Legislature prescribes specific
procedures by which the disclosure of information may be compelled—procedures which
are more onerous and complex than those routinely involved in discovery—it should be
assumed that the Legislature has found the information in question deserving of special
protection. We recognize that the statutory scheme with respect to police officer
personnel records does reflect a legislative desire to deter harassing and unjustified
efforts to obtain personally private and confidential information contained in those
records. However, with all due respect to law enforcement personnel, we are unwilling
to conclude that their interests in privacy are necessarily of greater legal significance than
that of other individuals asked to reveal intimate information, or information as to which
a legal privilege may be claimed." (Avelar, supra, 7 Cal.App.4th at p. 1279.)
13
Importantly, the court in Avelar recognized the significance of the fact that the
defendant's discovery motion was part of an ongoing criminal action, rather than an
independent proceeding to which the right to a peremptory challenge would arise.
Although the Penal Code itself identifies a host of procedures as "Special Proceedings of
a Criminal Nature" (Pen. Code, § 1473 et seq.), including motions under Evidence Code
section 1043 (Pen. Code, §§ 1543-1545), the court found that this description of various
criminal procedures does not necessarily mean they become "special proceedings" within
the meaning of Code of Civil Procedure section 23 when they are used as "mere
component parts of a primary action." (Avelar, supra, 7 Cal.App.4th at p. 1276.) The
court noted, "[I]f no criminal action is pending, an owner's motion under Penal Code
sections 1539-1540 for the return of property seized under a warrant would be properly
classed as a 'special proceeding.' [Citation.] However, if a criminal prosecution is
pending, a defendant could not exercise two separate peremptory challenges, one at a
motion to suppress under Penal Code section 1538.5, and another at the trial itself."
(Ibid.) In reaching this conclusion, the court relied on Le Louis v. Superior Court (1989)
209 Cal. App. 3d 669, 676-679, in which the court concluded that a preliminary hearing is
a part of the criminal action, and not a "special proceeding" giving rise to a separate right
under Code of Civil Procedure section 170.6.
In finding that the police department had no separate right to file a peremptory
challenge, the court was also concerned about the practical implications of permitting
nonparty witnesses to file challenges and "the potential for chaos, especially at the actual
14
trial," if such challenges were permitted. (Avelar, supra, 7 Cal.App.4th at p. 1278.) The
court's emphasis in Avelar on whether a proceeding is an incident of a pending action or a
separate independent proceeding is consistent with earlier cases that also turned on this
distinction.
In the earlier case of Murphy v. Davids (1921) 55 Cal. App. 416, the judgment
debtor acquired judgments that had been entered against the judgment creditor and
attempted to use them as an offset against execution of the judgment the judgment debtor
had suffered. The judgment creditor objected to the offset on the grounds the judgments
were more than five years old and had not been extended under Code of Civil Procedure
former section 685 in the action in which they had been entered. In finding that no offset
was permissible, the court found that Code of Civil Procedure former section 685 did not
create a separate special proceeding that permitted relief from the five-year limit on the
validity of judgments in any action other than in the action in which the judgments had
been entered. The court stated: "A procedure under [former] section 685 constitutes
neither an 'action' nor a 'special proceeding of a civil nature' within the meaning of those
terms, nor is it in the nature of either. 'It is a mere subsequent step in an action or special
proceeding already commenced, which is governed entirely, so far as the time within
which the same may be taken is concerned, by the provisions of the statute specially
relating thereto.'" (Murphy v. Davids, supra, 55 Cal.App. at p. 420.)
Because the Brewer plaintiffs' section 701.020 motion and NFL's motion to quash
the notice of levy were filed in the same action in which the judgment was entered, they
15
were both incidents of that action and not special proceedings within the meaning of
sections 23 and 170.6. The cases are clear that special proceedings are remedies that are
independent of a pending action and not, as here, procedures that are "a mere part of[]
any underlying litigation." (Avelar, supra, 7 Cal.App.4th at p. 1275.) This limitation on
the meaning of special proceedings is particularly appropriate here where a litigant is
attempting to classify a particular postjudgment collection procedure as a special
proceeding as a means of employing a peremptory challenge under section 170.6.
As we have noted, although section 170.6 is a remedial statute and, as such, should
be interpreted liberally, the statute also sets forth important procedural limits that are
designed to prevent abuse and promote efficiency in our courts. (See The Home Ins. Co.
v. Superior Court, supra, 34 Cal.4th at pp. 1032-1033; Stephens, supra, 96 Cal.App.4th at
pp. 61-62.) Treating any of the myriad of postjudgment collection proceedings set forth
in our Code of Civil Procedure (see § 695.010 et seq.) as a special proceeding within the
meaning of sections 23 and 170.6 would give both the plaintiff and the defendant
renewed opportunity to file peremptory challenges, free of the time, numerical and merit
resolution limitations that would otherwise limit the challenges. (See § 170.6, subd.
(a)(2), (4).) The opportunity for new peremeptory challenges would materially
complicate and unnecessarily delay judgment collection, especially in cases such as this
where collection proceedings involve multiple entities closely related to the judgment
debtor and a series of closely connected procedures. The efficiency of having one judge
preside over all such proceedings is manifest in this record: here, the trial judge was
16
familiar with the conduct that gave rise to PCF's liability, the Brewer plaintiffs conducted
extensive debtor examinations of PCF and, based on that information, served notices of
levy on, among others, PCF's affiliate, NFL, obtained a receivership and finally made
their motion to impose liability under section 701.020.
Distinguishing the section 701.020 motion on the basis that the financial interests
at stake are substantial and that the trial court is required to resolve disputed issues of fact
is unpersuasive. At the very least, that rationale would require that a receivership, which
greatly intrudes on the interests of a judgment debtor and may require multiple factual
determinations, also be treated as a special proceeding. Thus, in a civil action, it would
be possible that one judge would determine liability, another would judge preside over a
receivership and yet a third judge would determine whether liability arose under section
701.020. The inefficiency and impracticability of such a regime strongly support our
continued recognition of the general rule that special proceedings are only those
proceedings that are independent of any ongoing action.3
3 The only exception to this limitation on the definition of special proceedings we
have been able to identify arises in civil contempt proceedings where imprisonment is a
remedy. (See Bridges v. Superior Court (1939) 14 Cal. 2d 464, 473.) Arguably, there,
the particular liberty interests at stake warrant treating a contempt proceeding as a special
proceeding in which the contemnor has the right to file an affidavit under section 170.6.
However, as we explain in part II of the opinion, even when a contempt proceeding is
taking place, the right to file an affidavit under section 170.6 is subject to the
"continuation of proceedings" rule. (See McClenny v. Superior Court (1964) 60 Cal. 2d
677, 684-685 (McClenny).)
17
It is also important to recognize that the fact NFL was a new party to the
proceeding did not impact application of the limitation imposed by section 170.6,
subdivision (a)(2). (See Stephens, supra, 96 Cal.App.4th at pp. 61-67.)
In sum, because neither the motion to impose liability under section 701.020 nor
the motion to quash are themselves special proceedings, their initiation did not give rise
to any new right to file a peremptory challenge under section 170.6. Because the trial
court had resolved questions of fact in the underlying action against PCF at the time the
postjudgment motions were made, the right to a peremptory challenge under section
170.6 had expired. (§ 170.6, subd. (a)(2).)
III
Even if we treat either or both the section 701.020 motion and the motion to quash
as special proceedings akin to a contempt proceeding,4 rather than as incidental to the
underlying action against PCF, NFL still has no right to file a section 170.6 affidavit.
In Stephens, supra, two trustees and a beneficiary of a trust initially petitioned for
instructions with respect to appointment of a third trustee required under the terms of the
trust and for an amendment to the trust permitting majority rather than unanimous
decisionmaking. One of the beneficiaries filed a separate petition seeking removal of the
trustees and appointment of an independent corporate trustee and, in the alternative,
confirming appointment of a third trustee. The trial court heard the petitions together and
4 See Bridges v. Superior Court, supra, 14 Cal.2d at page 473.
18
denied the motion to amend the trust and directed that, with her consent, one of the
beneficiaries be confirmed as the third trustee.
While the trustees' appeal of the trial court's order was pending, the prospective
trustee filed a separate petition seeking, among other matters, removal of the two
incumbent trustees and appointment of an independent trustee. The trustees objected to
the petition and were joined by two other beneficiaries, one of whom had not previously
appeared in the probate proceeding. The late appearing beneficiary, David, filed a
section 170.6 affidavit, which the trial court disallowed.
We denied David's petition for relief from the trial court's disposition of his
section 170.6 affidavit. In doing so, we recognized that each petition in the probate
matter might itself be considered a separate action or special proceeding, rather than the
incident of an action or proceeding: "[I]n a case of indefinite duration involving multiple
and successive proceedings and causes, a late appearing party may, within 10 days of
appearing, challenge an all purpose, assigned judge under section 170.6 if no trial has
commenced and no contested fact determinations have been made in the proceeding in
which the party appears, and that proceeding is not a continuation of an earlier
proceeding in which the judge determined a contested fact issue or the trial of a cause
commenced." (Stephens, supra, 96 Cal.App.4th at p. 62.)
However, we found that David's challenge was nonetheless barred by the
"continuation of proceedings" doctrine first set forth in Jacobs v. Superior Court (1959)
53 Cal.2d. 187, 190-191 (Jacobs). "'Although [section 170.6] does not expressly so
19
provide, it follows that, since the [peremptory challenge] must be made before the trial
has commenced, it cannot be entertained as to subsequent hearings which are part or a
continuation of the original proceedings.' [¶] The rationale for the rule is that if a
peremptory challenge is allowed in a proceeding that is a continuation of a prior
proceeding in which trial occurred, 'it would mean that the judge who tried the case, and
who is ordinarily in the best position to pass upon the questions involved, could by a
mere general allegation of prejudice, and without any judicial determination of the facts,
be disqualified . . . . Such procedure would make it possible for litigants to gamble on
obtaining a favorable decision from one judge, and then, if confronted with an adverse
judgment, allow them to disqualify him . . . in the hope of securing a different ruling from
another judge in supplementary proceedings involving substantially the same issues.'
[Citation.]" (Stephens, supra, 96 Cal.App.4th at pp. 59-60.) The gravamen of the
doctrine is the principle that "'a proceeding is a continuation of the original action out of
which it arises if it involves "substantially the same issues" as the original action.'
[Citation.]" (Id. at p. 60.)
Because the prospective trustee's petition and the earlier petition were all related to
the issue of whether the two incumbent trustees were guilty of misconduct, we found the
prospective trustee's petition was a continuation of the trial court's previous proceedings.
(Stephens, supra, 96 Cal.App.4th at pp. 63-64.) Because the trial judge had resolved
disputed questions of fact when ruling on the initial petitions, we found that the right to
file a peremptory challenge had lapsed.
20
Importantly, in Stephens, we did not require that there be a precise identity
between the parties in both proceedings but instead required that there be an identity of
interests in both proceedings. (Stephens, supra, 96 Cal.App.4th at pp. 63-64.)
In Stephens, we relied in part on the holding in McClenny, supra. In McClenny,
the trial court in a divorce proceeding had, by separate orders, granted custody of a minor
child to the wife and imposed a receivership. Following its orders, the trial court issued
orders to show cause regarding contempt to the husband because he had failed to return
the child to the mother following a visitation and sold personal property that was subject
to the receivership. The husband responded to the orders to show cause by filing an
affidavit under section 170.6. In holding that the contempt proceedings were a
continuation of the proceedings in which the underlying orders were issued, the court
stated: "Although the issues to be presented in the contempt proceeding may not be
identical in every particular to the issues previously submitted to [the trial judge], the
questions involving the interpretation of the orders allegedly contemned, and indeed, the
issue of whether defendant in fact violated [the trial judge's] orders, are 'matters
necessarily relevant and material to the issues involved in the [original] action.'
[Citation.]" (McClenny, supra, 60 Cal.2d at p. 684.) In rejecting the husband's
contention that the contempt proceedings were separate and independent of the prior
proceedings, the court noted the practical considerations the husband's argument
presented: "Acceptance of defendant's position would permit litigants to obtain, by
repeated cycles of a contemptuous act and a motion based upon section 170.6, a
21
perpetually fresh forum for testing disadvantageous decisions. We cannot ignore in
defendant's position the potentiality for abuse of section 170.6. We cannot permit a
device intended for spare and protective use to be converted into a weapon of offense and
thereby to become an obstruction to efficient judicial administration." (Id. at p. 689.)
Here, as we have noted, the trial judge, on the Berger plaintiffs' motion and after a
contested hearing, imposed a receivership on PCF. As the Berger plaintiffs point out,
their receivership motion was based in large part on PCF's control over NFL and, in
particular, on NFL's apparent violation of the notice of levy the Berger plaintiffs
attempted to serve on NFL. Like the order imposing the receivership, resolution of
NFL's liability with respect to the notice of levy and the validity of that service will
depend on consideration of the relationship between PCF and NFL, Harkey's control over
both entities and NFL's failure to honor the notice of levy. Thus, as in McClenny, the
issues presented in the current motions are "'matters necessarily relevant and material to
the issues involved in the [original] action.'" (See McClenny, supra, 60 Cal.2d at p. 684.)
Moreover, as Harkey's own statements with respect to his control over both PCF and
NFL indicate, there is an identity of interest among the parties in both proceedings.
Given these circumstances, the current motions are a continuation of the receivership
proceedings where factual determinations were made and any right to file a section 170.6
challenge was lost. (§ 170.6, subd. (a)(2).)
The proceedings here are in marked contrast to those considered in NutraGenetics,
LLC v. Superior Court (2009) 179 Cal. App. 4th 243, 254-257 and Pickett v. Superior
22
Court (2012) 203 Cal. App. 4th 887, 894, upon which NFL relies. In both NutraGenetics
and Pickett, section 170.6 challenges were permitted in the second of two separate
independent actions, even though the parties and issues in both actions were the same or
similar. In distinguishing Jacobs and McClenny, the court in NutraGenetics emphasized
that "the continuation rule applies in cases in which the second action arises out of, or is a
later stage of, the original action." (NutraGenetics, at p. 257.) The court in Pickett
adopted this limitation on the continuation doctrine. (Pickett, at pp. 893-894.) Here, of
course, that limitation does not prevent application of the continuation of proceedings
doctrine: the motion to impose liability grows out of the service of the notice of levy,
which in turn gave rise to the contested receivership proceeding.
DISPOSITION
The petition is denied. The Berger plaintiffs to recover their costs. The July 19,
2013 order staying all proceedings in the trial court is vacated.
BENKE, J.
WE CONCUR:
McCONNELL, P. J.
McINTYRE, J.
23