Essex v. Diaz CA4/3 ( 2014 )

Filed 10/1/14 Essex v. Diaz CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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
FOURTH APPELLATE DISTRICT
DIVISION THREE
TRISTA ESSEX et al.,
Plaintiffs and Appellants, G050064
v. (Super. Ct. No. RIC483005)
HEIDI DIAZ, OPINION
Defendant and Respondent.
Appeal from an order of the Superior Court of Riverside County, Daniel A.
Ottolia, Judge. Affirmed.
Tiedt & Hurd, John E. Tiedt and Marc S. Hurd for Plaintiffs and
Appellants.
Peabody Law Firm and Timothy P. Peabody for Defendant and
Respondent.
* * *
Plaintiffs brought a class action suit against Heidi Diaz as the operator of
the “Kimkins” Internet Web site for fraud in connection with a membership diet plan.
After a bench trial, the court awarded the plaintiffs’ class approximately $2,300,000 in
damages, including $500,000 in punitive damages. Thereafter, plaintiffs attempted to
force the sale of Diaz’s dwelling. The trial court denied the application, concluding
plaintiffs failed to show the funds used to buy the residence were the fruit of the fraud
that resulted in plaintiffs’ judgment, and failed to show the fair market value of the
property and any equity in the property that could satisfy some part of the judgment. We
affirm.
I
FACTS
Plaintiffs obtained a judgment against Diaz in excess of $2,300,000,
including $500,000 in punitive damages, on December 16, 2010. The court found Diaz
engaged in false and deceptive advertising in connection with her sale of memberships to
a diet Web site. Resolution of the issues presented herein do not require us to detail the
actions of Diaz that gave rise to the judgment.
On July 10, 2012, subsequent to the sheriff levying on Diaz’s interest in the
her dwelling, plaintiffs filed a notice of hearing on their application for an order of sale
for Diaz’s personal dwelling pursuant to Code of Civil Procedure1 sections 704.740—
704.760. The application alleged Diaz’s property may qualify for a $75,000 homestead
exemption.
Plaintiffs alleged Diaz’s dwelling had a $295,000 fair market value. The
$295,000 fair market value was based on an exterior-only inspection residential appraisal
report that included comparable sales. The appraiser expressly stated he was unaware of
1All undesignated statutory references are to the Code of Civil Procedure
unless otherwise stated.
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any needed repairs and assumed there were none that would make the property less
valuable.
Plaintiffs later contended Diaz was not entitled to a homestead exemption.
It appears plaintiffs made this argument based on early appellate court opinions holding a
judgment debtor could not hide behind a homestead exemption when the fruits of a fraud
had been used to purchase the property. In support of this argument, plaintiffs attached a
copy of the underlying judgment, wherein the court found Diaz lied to induce people to
pay membership fees to join her Web site and Diaz collected $1,824,210.39 in
membership fees by October 15, 2007.
Diaz filed declarations in opposition to plaintiffs’ application. She
acknowledged plaintiffs obtained a judgment of $2,324,210.39 against her. She
purchased the dwelling in September 2007. There was evidence she purchased the
dwelling for $444,000 in cash. Diaz filed a homestead exemption claim in October 2007.
Diaz further declared her dwelling needed $40,000 in interior repairs and
provided an appraisal which stated the property had a fair market value of $212,000. The
reasons for Diaz’s substantially lower fair market value, were the use of comparable sales
within six months of August 7, 2012, and Diaz’s dwelling was “in distressed condition,”
requiring “a substantial amount of repairs to restore it to a condition which is salable,”
while the comparable sales were of residences in “turnkey”—i.e., ready to move in—
condition. The appraisal listed a number of issues that required fixing before the property
could be sold, including “ongoing plumbing leaks [that] have created a current mold
hazard which requires mold remediation and restoration,” as well as drainage, electrical,
natural gas, and sprinkler irrigation leaks. It was concluded “[t]he current physical
condition and ongoing issues detract from the overall value and marketability of the
subject property.”
Plaintiffs retained Fidelity National Title Company to conduct a thorough
title search on Diaz’s dwelling. The preliminary report prepared by Fidelity National
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Title Company showed a $30,749.01 judgment lien in favor of The Education Resources
Institutes, Inc., a tax lien in the amount of $168,793.26 in favor of the State of California
Franchise Tax Board, and a lien for nonpayment of delinquent Riverside County property
taxes in the amount of $22,041.42. The liens totaled $221,583.69.
II
DISCUSSION
A. Standard of Review
Plaintiffs contend the superior court denied its request to force the sale of
Diaz’s dwelling because it assumed the fraud exception to the homestead exemption did
not apply. Consequently, plaintiffs maintain our review should be de novo. Had the
court held there is no fraud exception to the homestead exemption, that would present an
issue of law we would review de novo (SBAM Partners, LLC v. Wang (2008) 164
Cal. App. 4th 903, 907), however, contrary to plaintiffs’ contention, it does not appear the
court ultimately concluded there is no fraud exception. Rather, the court based its
decision on a failure of proof on plaintiffs’ part. The court found plaintiffs failed to
provide admissible evidence showing the source of funds for the residence was the fruit
of Diaz’s fraud that resulted in the judgment against her, failed to show the fair market
value of Diaz’s residence, and failed to demonstrate Diaz had equity in the residence to
satisfy the judgment or a portion thereof given the liens against the property.
“When the trier of fact has expressly or implicitly concluded that the party
with the burden of proof failed to carry that burden and that party appeals, it is somewhat
misleading to characterize the failure-of-proof issue as whether substantial evidence
supports the judgment. This is because such a characterization is conceptually one that
allows an attack on (1) the evidence supporting the party who had no burden of proof,
and (2) the trier of fact’s unassailable conclusion that the party with the burden did not
prove one or more elements of the case. [Citations.] Thus, where the issue on appeal
turns on a failure of proof at trial, the question for a reviewing court becomes whether the
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evidence compels a finding in favor of the appellant as a matter of law. [Citations.]
Specifically, the question becomes whether the appellant’s evidence was (1)
‘uncontradicted and unimpeached’ and (2) ‘of such a character and weight as to leave no
room for a judicial determination that it was insufficient to support a finding.’
[Citation.]” (Shaw v. County of Santa Cruz (2008) 170 Cal. App. 4th 229, 279.)
B. The Trial Court did not err in Denying Plaintiffs’ Application.
Plaintiffs are correct section 704.740 permits a judgment creditor to force
the sale of a judgment debtor’s dwelling. However, the California Constitution requires
the Legislature to provide protections “from forced sale a certain portion of the
homestead and other property of all head of families.” (Cal. Const., art. XX, § 1.5.) The
Legislature fulfilled its obligation in enacting the homestead exemption in Article 4 of
Title 9 of the Code of Civil Procedure. (§ 704.710 et seq.) The portion of a judgment
debtor’s “dwelling” (§ 704.710, subd. (a)) protected under a homestead exemption is
either $75,000 (§ 704.730, subd. (a)(1)), $100,000 (§ 704.730, subd. (a)(2)), or $175,000
(§ 704.730, subd. (a)(3)) depending on the status of those living in the homestead. A
homestead declaration does not, however, prevent the forced sale of a homesteaded
dwelling. (§ 704.970; In re Morse (1995) 11 Cal. 4th 184, 201 [“creditor may force the
sale of a home through a levy pursuant to a writ of execution” in compliance with Article
4].)
At the hearing on a judgment creditor’s application for sale through a writ
of execution, the court determines whether the dwelling qualifies as a homestead, the
amount of the homestead exemption, and the fair market value of the property. (Fidelity
National Title Ins. Co. v. Schroeder (2009) 179 Cal. App. 4th 834, 844, citing § 704.780,
subd. (b).) The court will then order the sale of the dwelling, subject to the applicable
homestead amount, “‘unless the court determines the sale of the dwelling would not be
likely to produce a bid sufficient to satisfy any part of the amount due on the judgment
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pursuant to Section 704.800.’ (§ 704.780, subd. (b).)” (Ibid.) To make that
determination, the court considers the fair market value of the dwelling, the amount of
senior liens on the property, and the amount of the homestead exemption. When the
value of the property is equal to, or exceeded by, the sum of the liens on the property and
the judgment debtor’s homestead exemption, the sale of the property would generally be
unlikely to produce any funds to apply toward the judgment. (See Ibid.) A fortiorari,
there is no equity in the property to satisfy any part of the judgment if the liens on the
dwelling exceed the fair market value of the property, even without taking into
consideration the amount of any homestead exemption.
1. The Fair Market Value of the Dwelling
As noted above, the court found plaintiffs failed to establish the fair market
value of Diaz’s dwelling. Plaintiffs’ expert opined the dwelling had a fair market value
of $295,000. That determination was made without the expert having viewed the interior
of the residence. Additionally, the expert stated he was unaware of any needed repairs
and assumed there were none that would make the property less valuable. Diaz,
however, declared the interior of the property needed approximately $40,000 in repairs.
Additionally, her expert concluded Diaz’s dwelling was “in distressed condition . . . and
requires a substantial amount of repairs to restore it to a condition which is salable.”
Diaz’s expert listed the areas that needed to be addressed to make the property salable,
including ongoing plumbing leaks that “created a current mold hazard which requires
mold remediation and restoration.” He concluded the fair market value of Diaz’s
dwelling was $212,000.
When the trial court sits as the trier of fact, it determines the expert’s
qualifications, “‘the degree of his knowledge and the weight his testimony will
carry . . . .’” (McCleery v. City of Bakersfield (1985) 170 Cal. App. 3d 1059, 1077.) The
court apparently did not give the plaintiffs’ expert’s valuation of the property any weight.
“‘Where it appears that the opinion of a valuation witness is based upon considerations
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which are proper as well as those which are not, the testimony may be admitted and the
trier of fact shall determine its weight and credibility.’ [Citation.]” (City of Fremont v.
Fisher (2008) 160 Cal. App. 4th 666, 677.) Given the plaintiffs’ expert was unaware of
and did not consider the condition of the interior of the dwelling in calculating a fair
market value, the court was free to reject the valuation as not being supported by
sufficient facts. We do not reweigh the evidence. (Howard v. Owens Corning (1999) 72
Cal. App. 4th 621, 630-631 [our task is to determine whether “there is any substantial
evidence, contradicted or uncontradicted,” supporting the trial court’s decision].)
2. The Liens on the Dwelling
As noted above, the purpose of the hearing on plaintiffs’ application was to
determine whether the sale of Diaz’s property was likely to result in a high enough bid to
satisfy at least some of the judgment, after payment of the liens on the property and any
applicable homestead exemption. (See § 704.780, subd. (b).) The report of Fidelity
National Title Company showed Diaz’s dwelling had $221,583.69 in liens against it. As
the court impliedly found the fair market value asserted by plaintiffs was not credible,
there was an indication the property had a fair market value of $212,000, and the amount
of the liens exceeded that amount by more than $9,000, the court did not err in
concluding plaintiffs failed to demonstrate there was equity in the property that could be
used to satisfy some part of the judgment.
3. Whether Diaz was Entitled to the Homestead Exemption
Plaintiffs argue Diaz is not entitled to a homestead exemption because the
fruits of the fraudulent conduct that resulted in the judgment were used to purchase the
dwelling. In support of their argument, plaintiffs cite a number of appellate decisions
predating enactment of the Article 4 of Title 9 of the Code of Civil Procedure. (See
Shinn v. MacPherson (1881) 58 Cal. 596; Duhart v. O’Rourke (1950) 99 Cal. App. 2d 277;
Parker v. Russell (1940) 41 Cal. App. 2d 908, 914; Ohio Electric Car Co. v. Duffet (1920)
48 Cal. App. 674, 679.) Even were we to assume for purposes of argument there was
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evidence fraudulently acquired funds were used to purchase the dwelling, there would be
no need to address this issue because even without considering whether Diaz was entitled
to claim a homestead exemption, plaintiffs failed to show there would likely be a bid that
would be more than the amount of the liens against the property.
III
DISPOSITION
The order of the superior court denying plaintiffs’ application for a writ of
execution is affirmed. Diaz shall recover her costs on appeal.
MOORE, ACTING P. J.
WE CONCUR:
FYBEL, J.
IKOLA, J.
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