Shoker v. Superior Court ( 2022 )

Filed 7/15/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
DEVINDER S. SHOKER et al.,
Petitioners,
v. A163711
SUPERIOR COURT OF ALAMEDA
COUNTY,
(Alameda County
Respondent;
JASBIR S. PHANGUREH, Super. Ct. No. RG19036992)
Real Party in Interest.
In this writ proceeding, Devinder S. Shoker and Rajwant K.
Shoker (the Shokers) seek relief from the trial court’s order
expunging their notices of lis pendens. We grant writ relief
because the trial court erred in concluding that the Shokers’
constructive trust claim is not a “ ‘[r]eal property claim’ ” under
Code of Civil Procedure section 405.4.1
BACKGROUND
A.
A lis pendens—also called a notice of pendency of action—is
a document filed with a county recorder that provides
constructive notice of a pending lawsuit affecting the real
property described in the notice. (Kirkeby v. Superior Court
(2004) 33 Cal.4th 642, 647 (Kirkeby); Bishop Creek Lodge v. Scira
Undesignated statutory references are to the Code of Civil
1
Procedure.
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(1996) 46 Cal.App.4th 1721, 1733.) Any party may record a lis
pendens when the lawsuit involves a “real property claim.”
(§ 405.20; Kirkeby, supra, at p. 647.) Section 405.4 defines a
“ ‘[r]eal property claim’ ” to mean “the cause or causes of action in
a pleading which would, if meritorious, affect . . . title to, or the
right to possession of, specific real property.” (Italics added.) A lis
pendens gives notice that the judgment will be binding on
persons later acquiring an interest in that property. (Bishop
Creek Lodge, supra, at p. 1733.)
B.
In their complaint, the Shokers allege that defendant
Sukhjinder Singh Ghuman lured them into investing $1.5 million
in an unidentified technology company. Ghuman did so by
befriending the Shokers, becoming familiar with the real
properties they owned (and rented for income), and then
promising the Shokers returns far exceeding those that they were
receiving on their rental properties. Ghuman told the Shokers
that time was of the essence and that, to take advantage of this
investment opportunity, they needed to immediately advance
substantial funds to him. He advised the Shokers to immediately
invest any liquid assets and to also sell their rental properties so
that they could invest the proceeds from those sales.
Relying on his advice and representations, the Shokers first
provided Ghuman with $1.5 million and then sold 10 of their
rental properties to a purported cash buyer identified by
Ghuman—Jasbir S. Phangureh. Ghuman handled the real estate
negotiations and transactions, acting as the Shokers’ agent.
Based on his representation that they would split returns 50/50,
the Shokers also authorized Ghuman to act as their agent in all
communications with the unidentified technology company and to
hold the Shokers’ investment on their behalf.
At Ghuman’s direction, 10 of the Shokers’ rental properties,
which are specifically identified in their complaint, were sold in
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stages. A few days separated each sale. After the sale of each
property closed, the Shokers followed Ghuman’s instructions and
paid him the proceeds for investment in the technology company.
Ghuman promised that he was investing the Shokers’
money, which totaled over $6 million after the real property sales
were complete, in the technology company. In reality, however,
Ghuman was not investing on the Shokers’ behalf in any
technology company. Instead, Ghuman conspired with
Phangureh to transfer the Shokers’ own money to Phangureh so
that they could obtain the Shokers’ 10 rental properties without
paying for them. Several years later, after Ghuman claimed the
technology investment had not been successful and told the
Shokers that their former rental properties were producing rental
income of over $350,000 per year, the Shokers started to doubt
Ghuman’s honesty. Ghuman offered to sell 50 to 60 percent of
the properties back to them for approximately $5 million.
The Shokers pled eight causes of action against Ghuman,
Phangureh, or both: (1) breach of fiduciary duty; (2) aiding and
abetting the breach of fiduciary duty; (3) intentional
misrepresentation; (4) concealment; (5) conspiracy; (6) acting as a
real estate broker without a license; (7) unjust enrichment ; and
(8) constructive trust.
In their prayer, the Shokers seek damages, “an order
declaring that [Ghuman and Phangureh] hold the [Shokers’
rental properties] in trust for [the Shokers],” and an order
compelling Ghuman and Phangureh to convey the properties
back to the Shokers.
C.
Almost two years after they filed their complaint, the
Shokers recorded a notice of lis pendens for each of the 10 rental
properties. Phangureh moved to expunge the lis pendens,
arguing that the Shokers did not assert a “real property claim” (§
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405.31) and that, even if they alleged such a claim, they could not
prove the claim’s probable validity. (§ 405.32.)
The trial court granted the motion, accepting Phangureh’s
first argument. Although the trial court recognized the Shokers
may be entitled to an interest in the properties if they win on the
merits, the court concluded that none of the four causes of action
asserted against Phangureh were “real property claims.” The
trial court also awarded Phangureh $2,760 in attorney’s fees and
costs, pursuant to section 405.38.
D.
The Shokers filed a petition for writ of mandate (§ 405.39),
which automatically stayed the effectiveness of the trial court’s
expungement order. (§ 405.35). Because writ review is the
exclusive method for reviewing an order expunging a lis pendens
(§ 405.39; Howard S. Wright Construction Co. v. Superior Court
(2003) 106 Cal.App.4th 314, 318) and the Shokers’ petition
suggests a need to clarify this complicated area of the law, we
issued an order to show cause. Phangureh filed a return to the
order to show cause and the Shokers filed a reply.
DISCUSSION
A.
The Shokers argue that the trial court erred by concluding
that their constructive trust claim—which seeks reconveyance of
the Shokers’ 10 rental properties—is not a real property claim.
We agree.
1.
A court shall order a notice of lis pendens expunged if it
determines (1) that the pleading on which the notice is based
does not contain a real property claim (§ 405.31); (2) that the
claimant has not established, by a preponderance of the evidence,
the probable validity of a real property claim (§ 405.32); or (3)
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that adequate relief can be secured by an undertaking.
(§ 405.33.) Although Phangureh raised both of the first two
grounds for expungement in his motion, the trial court addressed
only the first.
Unlike most motions, the party opposing a motion to
expunge bears the burden to show the existence of a real property
claim. (§ 405.30; Kirkeby, supra, 33 Cal.4th at p. 647.) In
considering whether the burden has been met, the court engages
in “a demurrer-like analysis.” (Kirkeby, supra, at pp. 647-648.)
The trial court and the reviewing court both review the complaint
to determine if a real property claim has been properly pled.
(Ibid.)
2.
Here, the operative question is whether the Shokers’ claim
for constructive trust is a real property claim (§ 405.31)—that is,
a cause of action that “would, if meritorious, affect . . . title to, or
the right to possession of, specific real property.” (§ 405.4.)
Some actions present easy questions under the statute. A
buyer’s suit seeking specific performance of a real property
purchase and sale agreement is obviously a real property claim.
On the other hand, an action for money damages alone is not a
real property claim—even if it involves real property in some
way. (BGJ Associates v. Superior Court (1999) 75 Cal.App.4th
952, 967-968 (BGJ Associates).) Despite the statute’s
straightforward language, it has never been entirely clear if a
claim that seeks to impose a constructive trust on real property
affects title to or possession of real property.
A constructive trust is an equitable remedy that compels a
wrongdoer—one who has property or proceeds to which he is not
justly entitled—to transfer same to its rightful owner. (American
Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th
1451, 1485; GHK Associates v. Mayer Group, Inc. (1990) 224
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Cal.App.3d 856, 879.) These cases prove difficult (in part)
because a constructive trust may be an appropriate remedy in a
wide variety of circumstances. (See BGJ Associates, supra, 75
Cal.App.4th at p. 967 [“cause of action is not based on the
establishment of a trust, but consists of the fraud, breach of
fiduciary duty, or other act that entitles the plaintiff to some
relief”], italics added.)
Two early cases (both from the Fourth Appellate District)
held that an action supports a lis pendens if the plaintiff seeks a
constructive trust or an equitable lien on specific real property.
(Okuda v. Superior Court (1983) 144 Cal.App.3d 135, 141;
Coppinger v. Superior Court (1982) 134 Cal.App.3d 883, 886,
890–891.) The plaintiffs in both Okuda and Coppinger sought to
impose constructive trusts against real properties that they had
not previously owned and to which they did not claim title other
than as a means to recover money wrongfully taken. (Okuda,
supra, at pp. 138-141 [buyer of house who never obtained title
and surrendered possession sought equitable lien against house
to recover value of improvements]; Coppinger, supra, at pp. 885-
886, 891-892 [buyer of termite infested home sought constructive
trust against sellers’ new property in order to recover proceeds
from sale].)
Many courts have since limited or rejected Coppinger and
Okuda, concluding that a plaintiff’s request for a constructive
trust should not be considered a real property claim, within the
meaning of section 405.4, when the trust is sought only to secure
payment of a debt. (See Lewis v. Superior Court (1994) 30
Cal.App.4th 1850, 1862, 1865; La Paglia v. Superior Court (1989)
215 Cal.App.3d 1322, 1326–1329; Urez Corp. v. Superior Court
(1987) 190 Cal.App.3d 1141, 1145–1149 (Urez); Deane v. Superior
Court (1985) 164 Cal.App.3d 292, 296–297; Burger v. Superior
Court (1984) 151 Cal.App.3d 1013, 1018–1019.) We read this
later line of cases (which we refer to as the Urez line) as holding
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that “allegations of equitable remedies, even if colorable, will not
support a lis pendens if, ultimately, those allegations act only as
a collateral means to collect money damages.” (Urez, supra, at p.
1149, italics added.)
One particular case from the Urez line of cases—BGJ
Associates, supra, 75 Cal.App.4th 952—is worth discussing in
detail because it extends that reasoning one step further and
supports the trial court’s decision in this case.
In BGJ Associates, supra, 75 Cal.App.4th at pp. 967-970, a
group of partners formed a joint venture to buy real property.
Plaintiff partners sued other partners (and a third party) when
the defendant partners usurped for themselves the partnership’s
opportunity to purchase one particular property. (Id. at p. 955.)
The BGJ Associates court assumed the plaintiffs would be
entitled, if their suit was meritorious, to a constructive trust
remedy that would require the defendants to convey title to the
plaintiffs. Accordingly, the constructive trust claim appeared to
meet the statutory definition of a real property claim: a cause of
action that “would, if meritorious, affect . . . title to, or the right
to possession of, specific real property.” (§ 405.4.) The court also
recognized that plaintiffs, by seeking to be awarded title to
specified real property, presented different circumstances from
those at issue in the other Urez cases. Unlike those cases,
plaintiffs were not seeking a constructive trust remedy solely as
collateral for money damages. (BGJ Associates, supra, at pp. 968,
970-971.)
Nonetheless, citing cases in the Urez line, the court rejected
a literal interpretation of the statute. (BGJ Associates, supra, 75
Cal.App.4th at p. 970.) A narrower approach was necessary, it
reasoned, to avoid the potential for abuse of a lis pendens, which
places a cloud on the property’s title and would give unscrupulous
attorneys undue leverage. (Id. at pp. 969-972.) The court
therefore looked past the plaintiffs’ real property claim to the
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broader “substance” of the dispute. (Ibid.) Because plaintiffs’
complaint also contained nine causes of action (out of a total of
11) that sought compensatory and punitive damages on fraud and
tort theories, the court concluded that the case was essentially a
fraud action seeking money damages, to which constructive trust
allegations were merely appended. (Id. at pp. 971-972.)
The court rejected plaintiffs’ analogy to specific
performance claims, reasoning that the cases plaintiffs cited were
distinguishable because they involved actions solely for specific
performance. (BGJ Associates, supra, 75 Cal.App.4th at p. 971.)
The court concluded that plaintiffs who combine a real property
claim with claims seeking money damages are not entitled to
maintain a lis pendens on real property pending trial. (Id. at pp.
971-972.) “The danger is too great that a lis pendens, which
effectively renders the property unmarketable, will have . . .
coercive effects.” (Id. at p. 972.)
3.
We agree with the Shokers that the BGJ Associates court’s
approach has since been discredited.
Even before BGJ Associates was decided, the Legislature
revised the statutory scheme, in 1992, to curb potential abuse.
(Stats. 1992, ch. 883, § 2; Hunting World, Inc. v. Superior Court
(1994) 22 Cal.App.4th 67, 70, 73 (Hunting World).) It added
section 405.32, which requires a court to expunge a lis pendens if
a plaintiff is unable to establish the “probable validity” of her real
property claim by a preponderance of the evidence. (§ 405.32;
Howard S. Wright Construction Co. v. Superior Court, supra, 106
Cal.App.4th at pp. 317-318.) Section 405.32 replaced an earlier
provision which only required the recording party to show the
action was filed for a proper purpose and in subjective good faith.
(Hunting World, supra, at p. 70.)
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Section 405.33 provides another route to expungement even
if a real property claim has probable validity—so long as the
moving party shows that adequate relief can be secured by a
monetary undertaking.2 (Hunting World, supra, 22 Cal.App.4th
at p. 73.) Section 405.38 changed the law by requiring (as
opposed to merely authorizing) a court to award attorney’s fees
and costs to the party prevailing on a motion to expunge, unless
the other party acted with substantial justification or other
circumstances would make such an award unjust. (Palmer v.
Zaklama (2003) 109 Cal.App.4th 1367, 1378.) The Legislature
intended these revisions to discourage abuse and make it easier
to remove a recorded lis pendens before trial. (Real Estate
Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 479;
Hunting World, supra, at p. 73.)
Although the Legislature did not alter the definition of
“real property claim” in 1992 (Hunting World, supra, 22
Cal.App.4th at p. 70), the legislative history explicitly recognized
the conflicting case law and noted that the “definition of ‘real
property claim’ neither includes nor excludes claims of
constructive trust or equitable lien. Instead, the law in this area
2 Section 405.33 also states: “For purposes only of
determining under this section whether the giving of an
undertaking will secure adequate relief to the claimant, the
presumption of Section 3387 of the Civil Code that real property
is unique shall not apply, except in the case of real property
improved with a single-family dwelling which the claimant
intends to occupy.” (Italics added.) Phangureh did not move to
expunge the lis pendens under section 405.33 and we express no
opinion on the merits of any such motion. (Real Property Law
Section, Cal. State Bar, com. on Assem. Bill No. 3620 (1991-1992
Reg. Sess.), com. 6, 3 Assem. J. (1993-1994 Reg. Sess.) pp. 4284-
4285, reprinted as Code. Com., West’s Ann. Code Civ. Proc. (2022
ed.), foll. § 405.33 [“essence of commercial activity is the earning
of money; loss of a commercial investment opportunity can
normally be offset by a pecuniary award”].)
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is left for judicial development.” (Real Property Law Section, Cal.
State Bar, com. on Assem. Bill No. 3620 (1991-1992 Reg. Sess.),
com. 5, 3 Assem. J. (1993-1994 Reg. Sess.) pp. 4273-4274,
reprinted as Code. Com., West’s Ann. Code Civ. Proc. (2022 ed.),
foll. § 405.4.) The legislative history further indicates that, if
courts continue to allow the use of lis pendens for constructive
trust or equitable lien claims, the potential for abuse should be
mitigated by the new provisions broadening the grounds for
expungement. (Ibid.)
Our Supreme Court, in Kirkeby, supra, 33 Cal.4th 642,
relied on these changes to the statutory scheme to implicitly
discredit the approach employed by BGJ Associates. (Kirkeby,
supra, at pp. 649-651 & fn. 6.)
Kirkeby concerned a fraudulent conveyance claim by which
the plaintiff hoped to regain title to specific real property. The
court noted this claim “[b]y definition . . . will affect title to or
possession of real property.” (Kirkeby, supra, 33 Cal.4th at p.
649.) The fact that the plaintiffs asserted 27 total causes of
action, most of which sought damages, made no difference. (Id.
at pp. 646, 648-651.) The court rejected the notion that, given the
potential for abuse, it should look past the fraudulent conveyance
claim to discern the plaintiffs’ overarching purpose. (Id. at pp.
649-651 & fn. 6.) A motion under section 405.31 limits the court’s
review to the pleadings to determine whether the allegations
state a real property claim as defined by section 405.4. (Kirkeby,
supra, at pp. 650-651.) Kirkeby explained that it could not ignore
the statute’s plain language and that the concern over misuse
was diminished by the 1992 amendments. (Id. at p. 651, citing §§
405.32, 405.33.) If the definition of a real property claim proves
problematic, “it is up to the Legislature—and not this court—to
change the law.” (Kirkeby, supra, at p. 651.)
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4.
Kirkeby is not on all fours with this case, as it involved a
fraudulent conveyance claim (Kirkeby, supra, 33 Cal.4th at p.
646)—a cause of action the Shokers have not alleged. The
Kirkeby court also emphasized that it was not addressing the
question before us—whether a claim that seeks to impose a
constructive trust may support a lis pendens. (Id. at p. 650, fn.
7.) However, we are compelled by our Supreme Court’s reasoning
to conclude that both the trial court and the BGJ Associates court
erred.
The Shokers’ causes of action against Phangureh allege
that he wrongfully acquired their properties via a conspiracy
(with Ghuman) involving fraud and breach of fiduciary duties.
The Shokers further allege that they are entitled to a
constructive trust returning those same real properties to them.
(See Civ. Code, § 2224; Calistoga Civic Club v. City of Calistoga
(1983) 143 Cal.App.3d 111, 116.) As in Kirkeby, the Shokers’
claim falls squarely within the plain language of the statute: it
“would, if meritorious, affect . . . title” to real property. (See Code
Civ. Proc, § 405.4; Kirkeby, supra, 33 Cal.4th at pp. 650-651.)
To the extent that the trial court dismissed the import of
this real property claim by looking beyond it, in apparent reliance
on BGJ Associates, supra, 75 Cal.App.4th at pp. 971-972, the trial
court erred. Kirkeby rejected the argument that a court may
disregard a well-pled real property claim simply because the
plaintiff also seeks money damages. (Kirkeby, supra, 33 Cal.4th
at pp. 649-651.) Moreover, section 405.4 does not restrict a lis
pendens to actions where a real property claimant only seeks title
to, or possession of, specific real property. In fact, it defines a
“ ‘[r]eal property claim’ ” to mean “the cause or causes of action in
a pleading which would, if meritorious, affect . . . title to, or the
right to possession of, specific real property.” (Italics added.)
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Like the Kirkeby court, we decline to narrow the statute
under the guise of judicially supplementing the Legislature’s
remedies for potential abuse of lis pendens. (§§ 405.32, 405.33,
405.38; Kirkeby, supra, 33 Cal.4th at p. 651.) This result serves
the statute’s aim to preserve the status quo during litigation (see
Bishop Creek Lodge v. Scira, supra, 46 Cal.App.4th at p. 1732)
while also recognizing a plaintiff’s right to plead alternative
remedies. (Steele v. Litton Industries, Inc. (1968) 260 Cal.App.2d
157, 172; cf. Urez, supra, 190 Cal.App.3d at p. 1147.) A trial
court has additional ways to ferret out abuse—by reviewing the
evidence supporting the real property claim (§ 405.32) or
requiring an undertaking (§ 405.33)—which would also provide a
more complete record for an appellate court to review.
In reaching this conclusion, we note that we need not
decide the continuing validity of the other cases in the Urez line.
The case law distinguishes between two subtypes of constructive
trust claims. First, there are constructive trust claims that are
akin to fraudulent conveyance claims because they seek a
constructive trust on real property that was itself wrongfully
taken and, if successful on the merits, plaintiffs would regain
title to or possession of the same property. On the other hand,
there are claims seeking a constructive trust or equitable lien on
different property, merely as a means to secure collection of a
debt. (La Paglia v. Superior Court, supra, 215 Cal.App.3d at pp.
1327, 1329; Campbell v. Superior Court (2005) 132 Cal.App.4th
904, 912 , id. at p. 918 ; Burger v. Superior Court, supra, 151
Cal.App.3d at p. 1019.)
Here, we are dealing with the former type of constructive
trust claim—the Shokers claim a present right to title in the
same real properties they claim were wrongfully obtained by
Phangureh. (See Warren v. Merrill (2006) 143 Cal.App.4th 96,
114 [“when legal title has been acquired through fraud any
number of remedies are available and appropriate,” including
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making legal title holder constructive trustee for benefit of
defrauded equitable titleholder].) With the exception of BGJ
Associates, the Urez line of cases deals with the latter use of
constructive trust—where the plaintiff seeks to impose a
constructive trust or equitable lien on real property only as a
means to secure a debt. (See, e.g. Urez, supra, 190 Cal.App.3d at
p. 1149; Lewis v. Superior Court, supra, 30 Cal.App.4th at pp.
1860, 1862-1863.)
Because constructive trusts arise in a wide variety of
factual circumstances, courts should decide these cases on a case-
by-case basis. To the extent any cases within the Urez line can be
read as holding that a constructive trust claim can never
constitute a real property claim under section 405.4, we
respectfully disagree.
5.
Phangureh’s suggestion—that a constructive trust claim
can never be a real property claim because constructive trust is a
remedy and not a cause of action—is also unpersuasive. After all,
no one doubts that an action seeking specific performance
supports a lis pendens. (BGJ Associates, supra, 75 Cal.App.4th
at pp. 967-968, 970-971.) And specific performance is a remedy
for breach of contract. (Golden West Baseball Co. v. City of
Anaheim (1994) 25 Cal.App.4th 11, 49.) Indeed, the statutory
definition of a real property claim is based, in part, on the
remedy—how a successful cause of action would “affect” title or
possession of a property. (§ 405.4.)
The trial court erred by granting Phangureh’s section
405.31 motion to expunge the lis pendens. Because the probable
validity motion (§ 405.32) and any award of fees should be
decided by the trial court in the first instance, we need not
address the Shokers’ additional arguments.
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DISPOSITION
Let a peremptory writ of mandate issue directing the
superior court to vacate its order expunging the notice of lis
pendens and to conduct further proceedings addressing the
pending motion on probable validity of the Shokers’ real property
claim. The Shokers are to recover their costs in this writ
proceeding. (Cal. Rules of Court, rule 8.493(a)(1)(A).)
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______________________
BURNS, J.
We concur:
____________________________
JACKSON, P.J.
____________________________
SIMONS, J.
A163711
15
Alameda County Superior Court No. RG19036992, Hon. Dennis
Hayashi.
Seifert Zuromski LLP and Mark J. Seifert; Katz Appellate Law
PC and Paul J. Katz for Petitioners.
Jahangiri Law Group and Lubna Jahangiri; Hanson Bridgett
LLP and Andrew W. Stroud, Adam W. Hofmann for Real Party in
Interest.
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