U.S. Bank v. Super. Ct. CA4/3 ( 2013 )

Filed 3/26/13 U.S. Bank v. Super. Ct. CA4/3
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
U.S. BANK, N.A., as Trustee, etc.,
Petitioner, G046642
v. (Super. Ct. No. 30-2010-00353214)
THE SUPERIOR COURT OF ORANGE OPINION
COUNTY,
Respondent;
BELLA TERRA OFFICE JV, LLC,
Real Party in Interest.
Original proceedings; petition for a writ of mandate to challenge an order of
the Superior Court of Orange County, Luis A. Rodriguez, Judge. Petition denied.
Perkins Coie, J. David Larsen, Gabriel Liao, Vilma Palma-Solana and
James D. DeRoche for Petitioner.
No appearance for Respondent.
Friedman Law Group, J. Bennett Friedman, Stephen F. Biegenzahn and
Michael Sobkowiak for Real Party in Interest.
* * *
INTRODUCTION
Bella Terra Office JV, LLC (Bella Terra), obtained a loan to acquire three
office buildings and two retail buildings in a retail center in Huntington Beach (the
Property). Bella Terra executed a deed of trust in favor of the lender, granting it a
security interest in certain real and personal property. U.S. Bank, N.A., as Trustee for the
Registered Holders of ML-CFC Commercial Mortgage Trust 2007-7, Commercial
Mortgage Pass-Through Certificates Series 2007-7, acting by and through Midland Loan
Services, a division of PNC Bank, N.A., its Special Servicer (U.S. Bank), is the successor
to the lender who made the loan to Bella Terra to acquire the Property. After Bella Terra
defaulted on the loan, a receiver was appointed to oversee the Property.
After the U.S. Bank loan funded, but before Bella Terra defaulted on the
loan, Bella Terra made a separate loan to the owner of a parking structure adjacent to the
Property to pay for improvements to that structure. U.S. Bank claims a security interest
in the promissory note for the loan from Bella Terra. In this proceeding, U.S. Bank
requested the trial court to order Bella Terra to turn over to the receiver the promissory
note for the loan and payments on that note. The court denied the request, and this appeal
followed.
We resolve the serious questions regarding the appealability of the trial
court’s order by exercising our discretion to treat U.S. Bank’s appeal as a petition for a
writ of mandate. Both parties agree we should treat the appeal as such a petition. We
deny writ relief because the promissory note in favor of Bella Terra, evidencing the loan
for improvements to the parking structure, does not fall within the description of the
collateral for the original loan made to Bella Terra to purchase the Property.
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STATEMENT OF FACTS AND PROCEDURAL HISTORY
In May 2007, Bella Terra obtained a $105 million loan from Merrill Lynch
Mortgage Lending, Inc. (the U.S. Bank loan),1 to acquire the Property. The U.S. Bank
loan was memorialized by a written loan agreement and was secured by a deed of trust,
assignment of leases and rents and security agreement (the Deed of Trust). The Deed of
Trust secures an interest in the Property and in “[n]on-exclusive easements,” a term not
defined in any documents contained in the appellate record. Through its ownership of the
Property, Bella Terra acquired a majority voting interest in One Pacific Plaza
Association, a California nonprofit mutual benefit corporation (One Pacific Plaza), which
owns a parking lot and parking structure adjacent to the Property; the parking lot and
parking structure are not owned by Bella Terra and are not a part of the Property.
In 2007, after Bella Terra acquired the Property, the members of One
Pacific Plaza determined capital improvements to the parking structure were necessary.
Bella Terra agreed to lend over $680,000 to One Pacific Plaza (the One Pacific Plaza
loan). One Pacific Plaza executed and delivered to Bella Terra a promissory note
evidencing the One Pacific Plaza loan (the Note).
In November 2009, Bella Terra defaulted on the U.S. Bank loan.
U.S. Bank filed a complaint for specific performance and appointment of a receiver. The
court appointed a receiver to collect rents from the tenants of the Property. U.S. Bank
and Bella Terra stipulated to allow the receiver to manage and sell the Property in partial
satisfaction of the U.S. Bank loan; the trial court approved the stipulation and entered it
as an order in September 2010. The receiver moved for a court order authorizing the sale
of the Property. Ultimately, the trial court granted the receiver’s motion, over the
1
The U.S. Bank loan was entered into by Bella Terra and two affiliates;
Bella Terra eventually assumed all of its affiliates’ obligations under the terms of the loan
agreement and all related loan documents. U.S. Bank succeeded to all of Merrill Lynch
Mortgage Lending’s rights under the loan agreement. We will refer only to Bella Terra
and U.S. Bank through the remainder of this opinion to avoid confusion.
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objection of Bella Terra, and authorized the sale of the Property to GIV Bella Terra
Investor, LLC (GIV).
After the sale was authorized, but before it closed, the receiver became
aware of the existence of the One Pacific Plaza loan. Bella Terra refused to provide the
receiver with the Note or any payments on the One Pacific Plaza loan made to Bella
Terra since the receiver’s appointment. The receiver therefore filed an ex parte
application for an order requiring Bella Terra to turn over the Note and all monies
collected under it. After supplemental briefing and a hearing, the trial court denied the
application (the turnover order). U.S. Bank timely appealed.
The sale of the Property to GIV was completed. GIV entered into a consent
and assumption agreement with U.S. Bank, under which GIV released U.S. Bank and
others from any and all liabilities occurring prior to closing, known or unknown, in
connection with the sale and acquisition of the Property.
DISCUSSION
I.
APPEALABILITY
The order from which U.S. Bank appeals is not a final judgment, and no
judgment has been entered since the turnover order was filed. It is “[t]he substance and
effect of the order, not its label or form, [that] determines whether it is appealable as a
final judgment.” (Joyce v. Black (1990) 217 Cal.App.3d 318, 321.) We consider whether
the order has the earmarks of a final judgment—that is, it leaves nothing for judicial
consideration, it is the only judicial ruling on the issue, and there is no other opportunity
to review the order by appeal. (Estate of Miramontes-Najera (2004) 118 Cal.App.4th
750, 755; Joyce v. Black, supra, at p. 321.)
In this case, the order has some of the earmarks of a final judgment.
Although the order does not dispose of the entire action, it leaves nothing further for
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judicial consideration on the issue whether the Note is collateral of U.S. Bank, and is the
only judicial ruling on that issue. However, nothing would have prevented U.S. Bank
from obtaining review of the order on appeal from a final judgment. We conclude the
trial court’s order is not itself a final judgment.
U.S. Bank argues the turnover order is appealable as a final determination
on a collateral matter. “When a court renders an interlocutory order collateral to the main
issue, dispositive of the rights of the parties in relation to the collateral matter, and
directing payment of money or performance of an act, direct appeal may be taken.”
(In re Marriage of Skelley (1976) 18 Cal.3d 365, 368.) In supplemental briefing filed
pursuant to an order of this court, U.S. Bank and Bella Terra advised this court that the
dismissal of the underlying lawsuit is awaiting the trial court’s approval of the receiver’s
final accounting, which, in turn, is awaiting the resolution of the issues raised by this
appeal. We cannot see how the matter can truly be collateral when the finalization of the
litigation depends on it.
In this case, we exercise our discretion to treat the appeal as a petition for a
writ of mandate, in the interests of justice and judicial economy. (Morehart v. County of
Santa Barbara (1994) 7 Cal.4th 725, 744-747.) The merits of the issues have been fully
briefed, and Bella Terra did not argue the lack of appealability, thereby conceding we
could consider the case on its merits. (Indeed, in its supplemental briefing, Bella Terra
argues that if this court determines the turnover order is not an appealable order, it should
exercise discretion to treat the notice of appeal as a petition for a writ of mandate.)
II.
STANDING AND MOOTNESS
Bella Terra argues U.S. Bank does not have standing to pursue this writ
proceeding because it is not an aggrieved party. (Code Civ. Proc., § 902.) An aggrieved
party is one “whose rights or interests are injuriously affected by the judgment.
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[Citations.] Appellant’s interest ‘“must be immediate, pecuniary, and substantial and not
nominal or a remote consequence of the judgment.”’ [Citation.]” (County of Alameda v.
Carleson (1971) 5 Cal.3d 730, 737.) Bella Terra contends that U.S. Bank suffered no
damage as a result of the denial of the turnover order because it has no liability to GIV
for the failure to include the Note as part of the sale of the Property to GIV. Bella Terra
argues the writ proceeding is moot because U.S. Bank released all personal property
claims against Bella Terra when the sale to GIV was completed.
We conclude U.S. Bank has standing to pursue this writ proceeding, and
the proceeding is not moot, because the denial of the turnover order affects U.S. Bank’s
claimed security interests. When GIV assumed the U.S. Bank loan, U.S. Bank continued
to have a security interest in all secured property transferred by the receiver to GIV. The
consent and assumption agreement specifically provides that U.S. Bank “shall continue to
have a security interest (and is hereby granted a security interest) in all Collateral [(earlier
defined as ‘all fixtures, personal property and other property described in the Loan
Documents’)] whether such Collateral is now owned by [GIV] or is hereafter acquired by
[GIV].” Therefore, if the Note is ultimately transferred to GIV, U.S. Bank might have a
security interest in it. This is a sufficient claimed interest to give U.S. Bank standing to
bring the writ petition, and means the writ proceeding is not moot despite the completion
of the sale of the Property.
III.
STANDARD OF REVIEW
This case involves a single issue of contract interpretation, and there are no
disputed facts; therefore, we review the matter de novo. (Dowling v. Farmers Ins.
Exchange (2012) 208 Cal.App.4th 685, 694; Founding Members of the Newport Beach
Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944,
955-956.)
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IV.
IS THE NOTE WITHIN THE DEED OF TRUST’S DESCRIPTION OF THE
COLLATERAL FOR THE U.S. BANK LOAN?
A. The Deed of Trust
The Deed of Trust gives U.S. Bank a security interest in the following
property of Bella Terra to secure the U.S. Bank loan:
“ . . . [Bella Terra] does hereby irrevocably mortgage, grant, bargain, sell,
pledge, assign, warrant, transfer, convey and grant a security interest to Trustee, its
successors and assigns, for the benefit of [U.S. Bank] and its successors and assigns, the
following property, rights, interests and estates now owned, or hereafter acquired by
[Bella Terra] (collectively, the ‘Property’):
“(a) Co-Tenancy Agreement. . . . [;]
“(b) Land. The real property described in Exhibit A attached hereto and
made a part hereof (the ‘Land’);
“(c) Additional Land. . . . ;
“(d) Improvements. The buildings, structures, fixtures, additions,
enlargements, extensions, modifications, repairs, replacements and improvements now or
hereafter erected or located on the Land (collectively, the ‘Improvements’);
“(e) Easements. . . . ;[2]
“(f) Fixtures and Personal Property. . . . ;
“(g) Leases and Rents. . . . ;
“(h) Insurance Proceeds. . . . ;
“(i) Condemnation Awards. . . . ;
“(j) Tax Certiorari. . . . ;
“(k) Rights. . . . ;
2
There is no argument by U.S. Bank that article 1., section 1.1.(e) of the
Deed of Trust is relevant to our analysis.
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“(l) Agreements. All agreements, contracts, certificates, instruments,
franchises, permits, licenses, plans, specifications and other documents, now or hereafter
entered into, and all rights therein and thereto, respecting or pertaining to the use,
occupation, construction, management or operation of the Land and any part thereof and
any Improvements or any business or activity conducted on the Land and any part thereof
and all right, title and interest of [Bella Terra] therein and thereunder, including, without
limitation, the right, upon the happening of any default hereunder, to receive and collect
any sums payable to [Bella Terra] thereunder;
“(m) Intangibles. . . . ;
“(n) Accounts. . . . ;
“(o) Conversion. . . . ;
“(p) REA. . . . ; and
“(q) Other Rights. Any and all other rights of [Bella Terra] in and to the
items set forth in subsections (a) through (p) above.” (Underscoring omitted.)
B. U.S. Bank’s Argument That the Note Is Included in the Deed of Trust
The parking structure is not part of the land, as defined in the Deed of
Trust. The term “Land” is defined as the real property acquired by Bella Terra, i.e., the
retail and office buildings it purchased with the proceeds of the U.S. Bank loan, and
“[n]on-exclusive easements,” which, as we shall discuss post, are not defined in any of
the documents in the appellate record.
U.S. Bank argues the Note constitutes collateral for the U.S. Bank loan
under section 1.1.(l) of article 1. under the Deed of Trust because it is an after-acquired
instrument “respecting or pertaining to the use, occupation, construction, management or
operation of the Land.” U.S. Bank’s argument is premised on the assumption that the
“[n]on-exclusive easements,” included in the definition of the land in the Deed of Trust,
are easements for ingress and egress of the parking structure adjacent to the Property,
which is used by the Property’s tenants and patrons. There is no support for this
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assumption in the appellate record, however, and U.S. Bank does not cite to any
document so stating. Indeed, all of the documents referencing the Property acquired by
Bella Terra describe the easements as follows: “Non-exclusive easements as more
particularly described and set forth in” other recorded documents; those recorded
documents do not appear in the appellate record. Therefore, we have no evidence of the
scope of the easements, and whether they are, in fact, for ingress and egress of the
parking structure. Nor has U.S. Bank shown that the easements for ingress and egress of
the parking structure are otherwise included in the description of “Land” under the Deed
of Trust. It is the burden of the party challenging an order on appeal to provide an
adequate record to assess error. (Maria P. v. Riles (1987) 43 Cal.3d 1281, 1295;
Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 58.) U.S. Bank has
failed to do so, and we could deny the petition on that ground alone.
Even if we were to examine the merits of U.S. Bank’s arguments based on
the incomplete record before us, we would find no error. The definition of the land in the
Deed of Trust includes certain nonexclusive easements, which, for purposes of this
portion of the opinion, we will assume are easements for ingress and egress of the
parking structure. The question is whether the Note “respect[s] or pertain[s] to the use,
occupation, construction, management or operation of” the nonexclusive easements to
ingress and egress of the parking structure.3
We conclude the Note evidencing the One Pacific Plaza loan to improve the
parking structure is not in respect to and does not pertain to Bella Terra’s use of
easements to enter or exit the parking structure. The Note has no effect on Bella Terra’s
right or ability to use its nonexclusive easements. That the purpose of the One Pacific
3
U.S. Bank cites to Black’s Law Dictionary which defines “pertain” as
“[t]o relate to.” (Black’s Law Dict. (9th ed. 2009) p. 1260, col. 2.) U.S. Bank then
quotes from cases discussing the meaning of “relate[s] to.” However, the Deed of Trust
itself does not use the term “relates to,” and the meaning of that phrase is not relevant to
this opinion.
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Plaza loan was to make improvements to the parking structure does not necessarily mean
the Note is in respect to or pertains to the use of easements to get in or out of the parking
structure. Bella Terra had the right and the ability to use its easements whether or not
improvements to the parking structure were made. Therefore, the Note, which evidences
the One Pacific Plaza loan made to fund improvements to the parking structure, is not in
respect to and does not pertain to the easements. As discussed ante, U.S. Bank’s
argument has no support in the governing documents.
U.S. Bank argues the Note is in respect to or pertains to the Property itself,
excluding the nonexclusive easements, because “[i]n California, where most employees
and customers drive, it is not practical to lease an office or retail building where no
parking is available.” This argument stretches credulity almost to the breaking point.
The Property also requires electricity to operate; U.S. Bank’s argument, taken to its
logical conclusion, would mean U.S. Bank had rights of collateral in any promissory
notes related to property on which easements for power lines exist.4
U.S. Bank also argues the Note is in respect to or pertains to improvements
on the land because the One Pacific Plaza loan was made to fund improvements to the
parking structure. But the Deed of Trust only creates a collateral interest in instruments
respecting or pertaining to the use of improvements; the Deed of Trust defines the
improvements as “[t]he buildings, structures, fixtures, additions, enlargements,
extensions, modifications, repairs, replacements and improvements now or hereafter
erected or located on the Land.” Even assuming that the nonexclusive easements,
referenced in the Deed of Trust as part of the land, include easements to enter and exit the
parking structure, the upgrades to the parking structure are modifications, repairs, or
4
Bella Terra contends this argument fails because “there are hundreds of
parking spaces available for tenants and customers of the shopping center, other than
those in the parking structure.” We cannot find any evidence in the appellate record
supporting this claim. U.S. Bank, however, does not dispute the accuracy of Bella
Terra’s factual statement.
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improvements to the structure itself, not the easements. The easement has not undergone
any changes or modifications, so section 1.1.(d) of article 1. of the Deed of Trust is
inapplicable.
U.S. Bank further argues that Bella Terra is estopped from disputing the
Note is part of the collateral for the U.S. Bank loan because in both the loan agreement
and in Bella Terra’s operating agreement, Bella Terra agreed and covenanted that it
would not engage in any other business activities, acquire assets other than the Property,
or make any loans or advances until the U.S. Bank loan was repaid. U.S. Bank contends
that because the loan documents evidence an intent that Bella Terra not acquire any assets
other than those used as collateral for the U.S. Bank loan, any assets acquired in violation
of the terms of the loan documents must become collateral. We disagree. Any
acquisition of assets or any business activities that violate the terms of the loan
documents may constitute a breach of contract and an act of default. They do not
transmute property that is not otherwise collateral for the U.S. Bank loan.
DISPOSITION
The petition for a writ of mandate is denied. Real party in interest shall
recover costs on appeal.
FYBEL, J.
WE CONCUR:
MOORE, ACTING P. J.
ARONSON, J.
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