Knott v. JPMorgan Chase Bank CA1/3 ( 2016 )

Filed 2/1/16 Knott v. JPMorgan Chase Bank CA1/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
MICHAEL KNOTT, as Trustee, etc.,
Plaintiff and Appellant,
A141321
v.
JPMORGAN CHASE BANK, N.A., et al., (Sonoma County
Super. Ct. No. SCV-251561)
Defendants and Respondents.
Plaintiff Michael Knott, as trustee, appeals a summary judgment on his claim to
set aside a foreclosure sale that was entered on the mistaken premise that the court in a
prior action had determined the validity of the sale. That premise is entirely without
justification.
Despite the known existence of a temporary restraining order (TRO) prohibiting
the foreclosure, JPMorgan Chase Bank, N.A. (JP Morgan) proceeded with a nonjudicial
foreclosure of plaintiff’s home. The bank successfully moved for summary judgment in
this action to cancel the foreclosure sale, claiming that when the court in the prior action
issued an order extending the injunction but deleted from the proposed order drafted by
counsel a provision vacating the sale, it had thereby adjudicated the validity of the sale.
Because the prior court never purported to determine the validity of the foreclosure, nor
was it ever requested to do so, the judgment must be reversed.
1
Statement of Facts
Walter and Mercedes Taylor owned residential real property on Timberhill Road
in Santa Rosa (property). In 1996, the Taylors created a family trust and, in April 2006,
transferred the property to the trust.1 Walter died in December 2006.
In May 2007, Mercedes refinanced the property. She obtained a $1 million loan
from Washington Mutual Bank (Washington Mutual) secured by the property. At the
time, the property was appraised at $1.5 million. The proceeds of the loan paid the
balance of an outstanding home loan and provided a cash disbursement of $366,867. The
details of the transaction are not fully described by the parties but it appears from deeds
included in the record that Mercedes, as trustee of the Taylor family trust, transferred the
property from the trust to herself as an individual before obtaining the loan, then
transferred the property back to the trust after obtaining the loan.
Mercedes died in June 2008 at age 88. Her sons from a previous marriage,
Michael and John Knott (collectively, the Knotts), became co-trustees of the family trust.
John died in May 2014 while this case was on appeal, so that Michael is now the sole
trustee and appellant. Michael has been living at the property since 1989. The Knotts, as
cotrustees, made mortgage payments on the Santa Rosa property from the time of
Mercedes’s death in June 2008 through September 2008 and assert that Washington
Mutual consented to the trust’s assumption of the loan.2
The Knotts asked Washington Mutual to modify the loan’s balance and interest
rate because the amount owed exceeded the property’s value at the time. They contend
Washington Mutual told them they must default on payments to be qualified for a
modification and, based on that advice, stopped making loan payments after September
2008.
1
The deed states the trust was created in 1991 but the trust agreement was actually
executed in 1996.
2
There appears to be some dispute on this point. The record contains letters between the
Knotts and Washington Mutual stating that the lender would consent subject to certain
conditions but it is not clear if final approval was obtained.
2
Around this time, Washington Mutual went into receivership and JPMorgan
acquired certain assets of the failed bank, including the right to service the loan on the
Santa Rosa property. The Knotts renewed their request for a loan modification after
JPMorgan acquired the loan. In March 2009, defendant California Reconveyance
Company (CRC), as agent for the trustee on the deed of trust, recorded notice of default
and election to sell the property. A trustee’s sale was initially scheduled for July 2009 but
was postponed numerous times over the course of a year while a loan modification
application was being processed.
Knott I
On July 13, 2010, the Knotts’s attorney wrote to JPMorgan and CRC informing
them that the Knotts were filing suit and seeking a TRO to prevent the trustee’s sale
scheduled for July 16. The attorney asserted, “The Knotts cannot continue this tortuous
game being played by [JPMorgan] as they dangle a loan modification in one hand, refuse
to negotiate in good faith, all the while a foreclosure sale hanging over their heads.” The
Knotts filed suit the next day against JPMorgan and CRC, alleging breach of contract and
fraud (SCV-247761, hereafter Knott I), and moved for a preliminary injunction together
with an ex parte application for a TRO preventing sale of the property.
On July 14, 2010, the court issued a TRO that enjoined defendants “from selling
or otherwise encumbering the property until the determination of the request for
preliminary injunction” at a hearing set for August 3, 2010. On July 15, the Knotts’s
attorney faxed the court’s order to JPMorgan and CRC and confirmed with CRC by
telephone that it received the order. Nonetheless, despite the court’s order, CRC
proceeded with the trustee’s sale on July 16, 2010. JPMorgan acquired the property on a
credit bid and on July 26 CRC recorded a trustee’s deed.
Unaware of the trustee’s sale, the court issued a tentative ruling in advance of the
August 3 hearing granting a preliminary injunction enjoining sale of the property.3
3
We grant appellant’s request for judicial notice of the minute order and reporter’s
transcript from Knott I. (Evid. Code, § 452, subd. (d).)
3
JPMorgan and CRC did not advise the court of the sale, did not file a response to the
motion for preliminary injunction, and did not appear at the hearing. Knott’s attorney
appeared at the hearing and informed the court the property had been sold in
contravention of the court’s TRO. Counsel did not know the details. He said JPMorgan’s
attorney left a telephone “message on my machine last night saying that they own the
property now and once this case was adjudicated that we would determine what the status
of the property was.”
The court adopted its tentative ruling enjoining sale of the property and said it
would schedule an early settlement conference “requiring personal appearance of
someone from the bank.” A minute order was recorded on the day of the hearing stating,
“There being no opposition, court adopts its previously published tentative ruling as
follows: Plaintiffs’ motion for preliminary injunction is granted on the condition that
plaintiffs post a bond in the amount of $1,000. The preliminary injunction enjoins the sale
of the property at issue.”
Sometime after the hearing, Knott’s attorney submitted a proposed written order
confirming entry of the preliminary injunction. The court accepted the terms of the
proposed order confirming the injunction but struck additional paragraphs that counsel
had included. In its final form, the court order states that a TRO enjoining sale of the
property was in effect from July 14 to August 3, 2010, and that a preliminary injunction
“is now issued enjoining” sale of the property by defendants and its agents “throughout
the duration of this case.” The order also requires plaintiffs to post a bond of $1,000. The
court crossed out two paragraphs in the proposed order, one directing JPMorgan’s
attorney to appear at a settlement conference and the other, which stated:
“Defendants/Respondents are ordered to invalidate any sale or encumbrance upon the
property that took place in violation of the court’s [TRO] or this preliminary injunction.
Proof of such invalidation must be submitted to the court no later than ______.” The
court issued the order on August 9, 2010.
The record reveals no further action in Knott I until the action was voluntarily
dismissed without prejudice almost two years later, in April 2012. The property was not
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resold after the trustee’s sale. JPMorgan continues to hold title and Michael Knott
remains in residence.
This action.
The Knotts filed this action on the same day they dismissed their earlier action.
The complaint pleads causes of action for quiet title, cancellation of instruments, and
injunctive relief.4 The causes of action are founded on the allegation that the trustee’s sale
is void because it was conducted in violation of the Knott I TRO.
Defendants JPMorgan and CRC filed a motion for summary judgment, contending
that the trustee’s sale was valid and had been “expressly validated” by the court in
Knott I. In its statement of undisputed facts, defendants asserted: “On August 9, 2010, the
court [in Knott I] issued an order enjoining the sale of the property from August 3, 2010
throughout the conclusion of the case. However, the court expressly refused to invalidate
JPMorgan’s trustee sale of the property on July 16, 2010.” By striking that paragraph,
defendants asserted, the court had determined that the foreclosure sale was valid.
Defendants argued the Knott I court declined to order invalidation of the sale at the
preliminary injunction hearing “presumably because after the notice of default had been
served, plaintiffs had a statutory obligation to pay the amount of the delinquency in order
to reinstate the loan to avoid foreclosure – and they did not.” Defendants argued that the
Knotts’s failure to tender the full amount of the debt—at the time of the trustee’s sale and
currently—forecloses all claims for relief.
In opposing the summary judgment motion, the Knotts did not dispute that the
Knott I court struck language from the proposed preliminary injunction order that “would
have acted to retroactively invalidate” the sale but argued that the order did not adjudicate
the ultimate merit of their claim. They argued that the trustee’s sale is void because it
“proceeded in violation of a court order” and that tender is not required to set aside a void
sale.
4
The complaint also pleaded causes of action for declaratory relief and violation of the
one-action rule. The court’s dismissal of these causes of action is not challenged on
appeal.
5
In defendants’ reply brief in support of the summary judgment motion defendants
for the first time explicitly invoked the doctrine of collateral estoppel. Defendants
insisted that the trustee’s sale was valid and that the validity of the sale “has already been
decided in defendants’ favor. When plaintiffs asked the same judge that issued the July
14, 2010 order enjoining the sale of the property to hold that the subsequent trustee sale
on July 16, 2010 violated the July 14, 2010 order, the judge expressly refused to
‘invalidate’ the sale or hold that the sale ‘took place in violation of the court’s [TRO] or
this preliminary injunction.’ Thus, the legal issue as to whether or not the July 16, 2010
trustee sale is ‘invalid,’ as claimed by plaintiffs has already been decided by this court in
the order in the previous action, dated August 9, 2010. . . . Thus, plaintiffs are collaterally
estopped from relitigating this issue in another action.”
The trial court granted summary judgment, explaining that “the key to this lawsuit
and every cause of action seems to be plaintiffs’ claim that the sale was improper in light
of the TRO.” Yet, “[t]he undisputed evidence . . . demonstrates that in the prior action the
court granted a preliminary injunction barring any sale of the property at that point, but
expressly rejected any language invalidating the sale that had already occurred. Further, it
is undisputed that plaintiffs dismissed that prior action without prejudice without
obtaining any relief regarding the sale.” The trial court also stated that, “[i]n any event,
. . . the loan was in default, plaintiffs failed to cure the default, defendants recorded the
proper instruments, and plaintiffs admitted in deposition that they had no money or
income that would allow them to pay the loan payments.”
Judgment for defendants was entered on January 28, 2014, and the Knotts timely
filed notice of appeal.
Discussion
“In reviewing a grant of summary judgment, we independently evaluate the
record, liberally construing the evidence supporting the party opposing the motion, and
resolving any doubts in his or her favor. [Citation.] As the moving party, the defendant
must show that the plaintiff has not established, and reasonably cannot be expected to
6
establish, one or more elements of the cause of action in question.” (Patterson v.
Domino’s Pizza, LLC (2014) 60 Cal.4th 474, 499-500.)
As defendants acknowledge, “The entire basis of the trial court’s order granting
[their] motion rested on the conclusion that [the judge in the prior action] simply refused
to invalidate a completed sale.” The trial court, at defendants’ urging, found that the court
in Knott I adjudicated the sale to be valid and that the prior adjudication is binding in this
action. Defendants defend that finding here, expressly abandoning reliance on collateral
estoppel,5 and now asserting that the trial court’s order is justified on the basis of
“comity.”
Defendants rely upon People v. Quarterman (2012) 202 Cal.App.4th 1280, 1293,
which states: “ ‘[F]or reasons of comity and public policy . . . trial judges should decline
to reverse or modify other trial judges’ rulings unless there is a highly persuasive reason
for doing so.’ ” “Encouraging parties to pursue their appellate remedies, instead of asking
a different judge to rehear a matter that was decided adversely to them the first time,
serves the purpose of preserving the integrity of the judicial system, and promotes respect
for the judicial process.” (Ibid.)
Defendants’ argument founders on the simple fact that the trial court in the prior
action made no determination that the trustee’s sale was valid. In striking portions of the
proposed preliminary injunction order, the judge in Knott I simply struck language that
went beyond the court’s ruling. The extent of the court’s ruling was to grant the
unopposed motion for a preliminary injunction. The court was never asked to rule on the
ultimate merit of the plaintiff’s claim that the defendants were not entitled to foreclose or
that the foreclosure sale was invalid. The court only learned of the sale on the day of the
hearing and the information provided was scant and second-hand. The Knotts did not
request invalidation of the sale at the hearing nor did defendants request the court to
determine the validity of the foreclosure sale. The court did not purport to rule on the
5
Defendants concede they did not raise the issue of collateral estoppel until their
summary judgment reply brief and that such belated arguments are improper.
7
validity of the sale, as reflected in the reporter’s transcript of the hearing and the court’s
minute order. Indeed, that the court did not pass on that question is reflected by the very
terms of the corrected written order that the court did sign; that an affirmative ruling can
be imputed to language struck from an order is a rather preposterous contention for which
defendants understandably cite no authority.
A party prevailing on a motion is required to prepare a proposed order and its
proposal should conform to the trial court’s announced ruling. (Cal. Rules of Court,
rule 3.1312.) It is not unusual, however, for a judge to add, delete, or alter language to a
proposed order to conform to the court’s ruling. The proposed order itself is without
effect, as is any language in a proposed order rejected by the court. It is beyond dispute
that by striking language from the proposed preliminary injunction order, the court did
not adjudicate the merits of plaintiff’s claim.
Defendants present no other basis for holding the trustee’s sale to be valid so as to
entitle them to summary judgment. The sale was conducted when a TRO was in effect
despite notice of the order. At the summary judgment hearing, defendants’ attorney
conceded that the trustee’s sale proceeded despite a TRO. The only explanation offered
for the sale in direct violation of the court order was “one hand at [JPMorgan] did not
know what the other hand was doing, and somehow the property was sold . . . .”
In the prior action the Knotts might have petitioned to hold JPMorgan in contempt
and to set aside the sale. (Bagley v. Ward (1869) 37 Cal. 121, 139.) It is not clear why
they did not pursue those remedies in that action, but their failure to do so does not negate
their right to relief in the present action. A long line of cases holds that a sale of real
property in violation of an injunction, while not void, is voidable. (Ibid.; Powell v. Bank
of Lemoore (1899) 125 Cal. 468, 472; De Albergaria v. American Trust Co. (1932) 126
Cal.App. 59, 60; Warburton v. Kieferle (1955) 135 Cal.App.2d 278, 283.) “In such case,
upon a proper showing by a party entitled to the consideration of a court of equity, relief
may be granted by setting aside such sale.” (Powell, supra, 125 Cal. at p. 472.)
Defendants wrongly argue that the sale cannot be voided absent tender of
payment. It is true that “[a] defaulted borrower who seeks to set aside a trustee’s sale
8
ordinarily is required to tender the full amount of the debt for which the property was
security.” (Greenwald & Bank, Cal. Practice Guide: Real Property Transactions (The
Rutter Group 2015) ¶ 6:535.15b.) “ ‘The rationale behind the rule is that if [the borrower]
could not have redeemed the property had the sale procedures been proper, any
irregularities in the sale did not result in damages to the [borrower].’ ” (Lona v. Citibank,
N.A. (2011) 202 Cal.App.4th 89, 112.) But “a tender may not be required where it would
be inequitable to impose such a condition on the party challenging the sale.” (Id. at
p. 113; accord Fonteno v. Wells Fargo Bank, N.A. (2014) 228 Cal.App.4th 1358, 1373.)
Plaintiff seeks equitable cancellation of a trustee’s deed executed in violation of a
lawfully issued TRO meant to restrain sale pending resolution of unsettled fraud and
contract claims. Assuming plaintiff was financially incapable of tendering the balance
due on the loan, nonetheless it cannot be said that he is undamaged by the trustee’s sale
conducted in violation of the TRO. The outcome of the litigation may have established
that he did not owe the amount demanded by the bank. Moreover, the sale conducted in
violation of the TRO was in effect a sale without notice that the sale would occur. Even a
homeowner who cannot redeem the property or reinstate the loan must be afforded notice
of the time and place of sale to provide an opportunity to attend the sale and ensure that
his or her interests are protected. (Ragland v. U.S. Bank, N.A. (2012) 209 Cal.App.4th
182, 202.) To deny relief for want of tender under the circumstances presented here
would defeat the protections afforded by the court’s injunction.
Disposition
The judgment is reversed. Appellants shall recover costs incurred on appeal upon
timely application in the trial court. (Cal. Rules of Court, rule 8.278(c).)
9
_________________________
Pollak, J.
We concur:
_________________________
McGuiness, P. J.
_________________________
Siggins, J.
10