Tsasu LLC v. U.S. Bank Trust, N.A. ( 2021 )

Filed 4/1/21
CERTIFIED FOR PARTIAL PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
TSASU LLC, B298589
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC686325)
v.
U.S. BANK TRUST, N.A., as
Trustee, etc.,
Defendant and
Respondent.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Susan Bryant-Deason, Judge. Affirmed.
Garrett & Tully, Ryan C. Squire, Motunrayo D. Akinmurele
and Linda R. Echegaray for Plaintiff and Appellant.
Perkins Coie, David T. Biderman and Ofunne N. Edoziem
for Defendant and Respondent.
******
 Pursuant to California Rules of Court, rules 8.1100 and
8.1110, this opinion is certified for publication with the exception
of part II of the Discussion.
Under California’s Quiet Title Act (Code Civ. Proc.,
§ 760.010 et seq.)1 (the Act), a third party who “act[s] in reliance
on” a quiet title judgment retains its property rights—even if that
quiet title judgment is subsequently invalidated as void—as long
as the third party qualifies as a “purchaser or encumbrancer for
value . . . without knowledge of any defects or irregularities in
[the earlier quiet title] judgment or the proceedings.” (§ 764.060.)
For these purposes, does “knowledge” mean only actual
knowledge or, instead, both actual and constructive knowledge?
We hold that it is the latter, such that the Act insulates a third
party from the effect of a subsequent invalidation of an earlier
quiet title judgment only if the third party has no actual or
constructive knowledge of any defects or irregularities in that
judgment. Because the recorded chain of title in this case
revealed that the earlier quiet title judgment had been
prosecuted and obtained against a party that no longer held
interest in a deed of trust and because the third party whose lien
priority rested on that judgment actually knew of facts
warranting further inquiry into the validity of the judgment, that
third party had constructive knowledge of a defect or irregularity
in the judgment. As a result, the trial court properly granted
summary judgment against the third party in its current quiet
title lawsuit to assert lien priority.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
This action deals with a parcel of property located at 9800
South 5th Avenue in Inglewood, California (the property).
1 All further statutory references are to the Code of Civil
Procedure unless otherwise indicated.
2
A. CIT Group Deed of Trust
1. Creation
In February 2007, Cassandra Celestine (Celestine)
borrowed $448,000 from CIT Group/Consumer Financing (CIT
Group); CIT Group secured its loan with a deed of trust in the
property that was recorded on February 28, 2007 (CIT Deed of
Trust).
Celestine paid the first three monthly payments on the
loan, and then stopped making payments.
2. Subsequent assignments
In early September 2012, CIT Group assigned the CIT
Deed of Trust to U.S. Bank, N.A. as trustee on behalf of SASCO
Mortgage Loan Trust 2007-RNP1 (SASCO).2 The assignment
was recorded on September 26, 2012.
In early June 2014, SASCO assigned the CIT Deed of Trust
to DLJ Mortgage Capital, Inc. (DLJ Mortgage). The assignment
was recorded on June 13, 2014.
3. Initiation of foreclosure proceedings
On July 3, 2014, which was less than a month after the
assignment to DLJ Mortgage, DLJ Mortgage recorded—and
mailed to Celestine—a notice of default setting forth the
outstanding balance Celestine owed to DLJ Mortgage and giving
her 90 days to pay.
4. Celestine’s quiet title action to set aside and
expunge the CIT Deed of Trust
Before the 90-day deadline expired, Celestine on September
11, 2014, filed a lawsuit (the Celestine Action). Proceeding as a
2 Prior to this assignment, a false grant deed was recorded
that purported to convey the CIT Deed of Trust back to Celestine.
Celestine later agreed to set aside the false grant deed.
3
self-represented litigant, Celestine alleged 12 claims, including a
claim under the Act to invalidate the CIT Deed of Trust. She
filed a notice of lis pendens regarding her lawsuit on September
23, 2014.
Although SASCO and DLJ Mortgage had recorded their
assignment of the CIT Deed of Trust and although Celestine had
exchanged letters with the loan servicers reaffirming that
SASCO and then DLJ Mortgage had acquired the CIT Deed of
Trust from CIT Group, Celestine did not name SASCO or DLJ
Mortgage as defendants. Instead, she named only (1) CIT Group,
and (2) “All Persons Known & Unknown Claiming Any Legal Or
Equitable Right, Title, Estate, Lien, or Interest In The Property
Described In The Complaint Adverse To Plaintiff Title Or Any
Cloud On Plaintiff Title Thereto.” What is more, Celestine did
not properly serve CIT Group with the complaint.
As a result, no one with an interest in the property was
ever served with Celestine’s complaint and, consequently, no one
ever appeared.
On October 29, 2014, Celestine obtained a default.
On May 28, 2015, the trial court entered a default
judgment quieting title to the property against CIT Group and
permanently enjoining CIT Group and its “successors in interest”
from “[a]sserting . . . any interest or ownership” in the property,
including through the CIT Deed of Trust (2015 Quiet Title
Judgment). The 2015 Quiet Title Judgment was recorded on July
22, 2016.
On August 4, 2016, the trial court issued an order
expunging the CIT Deed of Trust and declaring it to be
“Reversed, Cancelled, Set Aside and made Null and Void, Ab
4
Initio, for all purposes” (2016 Expungement Order). The 2016
Expungement order was recorded on August 10, 2016.
5. Transfer of loan and assignment of CIT Deed of
Trust to U.S. Bank
On April 14, 2016, DLJ Mortgage had transferred the loan
underlying the CIT Deed of Trust to U.S. Bank Trust, N.A., as
Trustee for LSF9 Master Participation Trust (U.S. Bank).
On August 3, 2016, DLJ Mortgage assigned the CIT Deed
of Trust to U.S. Bank. The assignment was recorded on August
11, 2016.
6. Proceedings to set aside and expunge the 2015
Quiet Title Judgment
On December 20, 2016, Caliber Home Loans, Inc. (Caliber)
specially appeared in the Celestine Action and filed a motion to
set aside the default and the 2015 Quiet Title Judgment against
CIT Group on the ground that CIT Group had never received
notice of the lawsuit. Caliber is the successor in interest to CIT
Group.
On May 8, 2017, the trial court granted Caliber’s motion
and set aside the 2015 Quiet Title Judgment, and on July 10,
2017, Caliber recorded the order setting aside the judgment.
On July 24, 2017, the trial court granted Caliber’s further
motion to expunge the 2015 Quiet Title Judgment and the 2016
Expungement Order from the record of title.
7. Dismissal of Celestine Action
On August 17, 2017, the trial court dismissed the Celestine
Action for lack of prosecution.
B. Tsasu Deed of Trust
On September 2, 2016, Celestine borrowed $285,000 from
Tsasu, LLC (Tsasu); Tsasu secured its loan with a deed of trust
5
against the property that was recorded on September 15, 2016
(Tsasu Deed of Trust).
At the time the Tsasu Deed of Trust was recorded, the
recorded documents in the record of title for the property
included (1) the 2015 Quiet Title Judgment against CIT Group
that invalidated the CIT Deed of Trust, and (2) the 2012 and
2014 assignments of the CIT Deed of Trust reflecting that the
CIT Group had not owned the CIT Deed of Trust since 2012. In
deciding whether to loan Celestine money, Tsasu’s CEO relied
upon a preliminary report prepared by a title insurance company,
and that report was based upon “the results of the title search”
obtained by that company. The title search results accurately
reflected the above described recorded documents—namely, a
“Judgment, Quiet Title” on July 10, 2015 against “The CIT
Group” as well as two “Deed of Trust/Assignment[s]” (one to
SASCO in 2012, and another to DLJ Mortgage in 2014).
Celestine also stopped making payments to Tsasu.
II. Procedural Background
In December 2017, Tsasu sued U.S. Bank.3 In the
operative first amended complaint, Tsasu alleges two claims for
declaratory relief and one for quiet title. Through these claims,
Tsasu seeks (1) a quiet title and declaratory judgment that the
Tsasu Deed of Trust has priority over the CIT Deed of Trust
because the orders setting aside and expunging the 2015 Quiet
3 Tsasu also named Quality Loan Service Corporation
(Quality), which was the foreclosure trustee at the time Celestine
had filed the Celestine Action. However, Quality filed a
declaration of nonmonetary status, agreeing to be bound by any
judgment for nonmonetary relief. Quality is accordingly no
longer an active party in this case.
6
Title Judgment are ineffective as to Tsasu and (2) a declaratory
judgment that (a) Tsasu was denied due process because it was
not given timely notice of, or asked to join in, the proceedings to
set aside and expunge the 2015 Quiet Title Judgment, (b)
enforcing the orders setting aside and expunging the 2015 Quiet
Title Judgment against Tsasu would run afoul of the “equitable
doctrine of unclean hands” and the maxim in Civil Code section
3543 (because Tsasu was less negligent than U.S. Bank).
The parties filed cross-motions for summary judgment or,
in the alternative, summary adjudication.4
Following a hearing in late February 2019, the trial court
in April 2019 issued a 16-page order granting summary judgment
for U.S. Bank, declaring U.S. Bank’s motion for summary
adjudication to be moot, and denying Tsasu’s cross-motion.
Tsasu filed a motion for a new trial after the trial court
entered its judgment of dismissal. The trial court denied the
motion on June 17, 2019.
Tsasu filed this timely appeal.
DISCUSSION
Tsasu argues that the trial court erred in granting
summary judgment for U.S. Bank, and goes on to request the
logically inconsistent remedies of a remand for trial of disputed
factual issues and the entry of summary judgment in its favor.
Tsasu also challenges the trial court’s denial of its new trial
motion, but did not raise this challenge in its opening brief on
4 To preserve its jurisdiction to resolve the lawsuit, the trial
court granted a preliminary injunction prohibiting U.S. Bank
from foreclosing on the CIT Deed of Trust pending suit. The
injunction was dissolved once the trial court entered judgment for
U.S. Bank, and the property was subsequently sold.
7
appeal and devoted only one paragraph to it in its reply brief;
Tsasu’s decision not to present reasoned argument in support of
its challenge to the new trial motion in its opening or reply briefs
on appeal constitutes a waiver of that challenge. (Cahill v. San
Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956
[arguments not supported by “reasoned argument”; waived];
Raceway Ford Cases (2016) 2 Cal.5th 161, 178 [arguments raised
for first time in reply brief; waived].) We will consequently limit
our review to the trial court’s summary judgment ruling.
Summary judgment is appropriate, and the moving party
(here, the defendant) is entitled to judgment as a matter of law,
where (1) the defendant carries its initial burden of showing the
nonexistence of one or more elements of the plaintiff’s claim(s),
and (2) the plaintiff thereafter fails to show the “existence of a
triable issue of material fact” as to those elements. (Aguilar v.
Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850, 853; § 437c,
subds. (a)(1), (c), (o)(1), (p).) We independently review a trial
court’s grant of summary judgment, while “liberally construing
the evidence supporting” the nonmoving party and “resolving any
doubts” against summary judgment. (Patterson v. Domino’s
Pizza, LLC (2014) 60 Cal.4th 474, 499-500.) Our review focuses
on the propriety of the trial court’s ruling, not its rationale.
(Coral Construction, Inc. v. City & County of San Francisco
(2010) 50 Cal.4th 315, 336.)
Whether Tsasu is entitled to the quiet title and declaratory
judgments it seeks in its operative complaint turns entirely on
what effect, if any, the trial court’s orders setting aside and
expunging the 2015 Quiet Title Judgment have on Tsasu’s Deed
of Trust, which was recorded after the 2015 Quiet Title Judgment
was recorded but before it was set aside as void. As a general
8
rule, whichever deed of trust is recorded first in time is entitled
to priority (Civ. Code, § 1214; see Thaler v. Household Finance
Corp. (2000) 80 Cal.App.4th 1093, 1099 [“California follows the
‘first in time, first in right’ system of lien priorities”]), and it is
undisputed that the 2007 CIT Deed of Trust was recorded before
the 2016 Tsasu Deed of Trust. Thus, the viability of Tsasu’s
claims seeking to establish that the later-in-time Tsasu Deed of
Trust has priority turns on whether the general rule that would
confer priority upon the CIT Deed of Trust is superseded by (1)
the Act, or (2) further considerations such as (a) Tsasu’s lack of
notice and involvement in the proceedings to set aside and
expunge the 2015 Quiet Title Judgment, or (b) Caliber’s failure to
move to set aside the 2015 Quiet Title Judgment before Tsasu
purportedly relied upon it in believing its lien would be in first
position. Because these arguments turn on the meaning of the
Act and the application of the law to undisputed facts, our review
is de novo. (Union of Medical Marijuana Patients, Inc. v. City of
San Diego (2019) 7 Cal.5th 1171, 1183 (Union of Medical
Marijuana) [“Statutory interpretation is ‘an issue of law, which
we review de novo.’ [Citation.]”]; Martinez v. Brownco
Construction Co. (2013) 56 Cal.4th 1014, 1018 [where the “issue
involves the application of law to undisputed facts, we review the
matter de novo”].)
I. The Quiet Title Act
Enacted in 1980, the Act creates a special procedural
mechanism for seeking and obtaining in rem judgments resolving
adverse claims to property that would be binding even to
nonparties and hence be “good against all the world.” (Nickell v.
Matlock (2012) 206 Cal.App.4th 934, 944 (Nickell); Deutsche
Bank National Trust Co. v. McGurk (2012) 206 Cal.App.4th 201,
9
215 (McGurk); Harbour Vista, LLC v. HSBC Mortgage Services,
Inc. (2011) 201 Cal.App.4th 1496, 1505-1506 (Harbour Vista); see
generally 760.010 et seq., Stats. 1980, ch. 44, § 15.)
The requirements for obtaining a quiet title judgment
under the Act are more stringent than the requirements for
obtaining judgments resolving adverse claims to property under
other causes of action. (Cf. Deutsche Bank National Trust Co. v.
Pyle (2017) 13 Cal.App.5th 513, 523-524 (Pyle) [claims for
cancellation of instruments subject to different rules than those
under the Act]; Reiner v. Danial (1989) 211 Cal.App.3d 682, 689
[claims to “remove a cloud on title” subject to different rules than
those under the Act].) To obtain such a quiet title judgment
under the Act, a plaintiff must (1) file a verified complaint that
specifically names “as defendants . . . [all] persons having adverse
claims” “to plaintiff’s title” and must include those “known to the
plaintiff or reasonably apparent from an inspection of the
property” itself (§§ 761.020, 762.060, subd. (b); see Ranch at the
Falls LLC v. O’Neal (2019) 38 Cal.App.5th 155, 173 [“[a] quiet
title judgment cannot be entered in the absence of all parties
with an interest in the property at issue”]); (2) file a notice of lis
pendens regarding the quiet title action (§ 761.010, subd. (b));
and (3) establish its entitlement to a quiet title judgment with
“evidence of plaintiff’s title” rather than “by default” (§ 764.010;
Pyle, at p. 524; Nickell, supra, 206 Cal.App.4th at pp. 941-942),
although the courts are divided as to whether this requires an
evidentiary hearing at which a defaulted defendant is entitled to
participate (Harbour Vista, supra, 201 Cal.App.4th at pp. 1503-
1507) or merely an evidentiary hearing (Yeung v. Soos (2004) 119
Cal.App.4th 576, 581).
10
If the plaintiff in the quiet title action satisfies the Act’s
more stringent requirements, the resulting quiet title judgment
is more resilient to subsequent challenges to the interest litigated
in that action. However, the extent of this resilience varies. As
to a person who had a “claim to the property” at the point in time
at which quiet title was determined and who was “a part[y] to the
[quiet title] action,” a quiet title judgment under the Act is
“binding and conclusive.” (§ 764.030, subd. (a); see also
§ 761.020, subd. (d) [quiet title action must articulate “[t]he date
as of which the determination [of title] is sought”].) As to a
person who had a “claim to the property” at the point in time at
which quiet title was determined and who was not a “part[y] to
the action,” a quiet title judgment under the Act is “binding and
conclusive” unless, “at the time the lis pendens was filed or, if
none was filed, at the time the [quiet title] judgment was
recorded,” (1) the nonparty’s claim was “of record” (§§ 764.030,
subd. (b), 764.045, subd. (a)), or (2) the nonparty’s claim “was
actually known to the plaintiff or would have been reasonably
apparent from an inspection of the property” (§ 764.045, subd.
(b)). And as to a person who “reli[ed] on the [quiet title]
judgment” when subsequently acquiring a claim to the property,
a quiet title judgment under the Act remains valid pursuant to
section 764.060—even if that judgment is later invalidated
through “direct[] or collateral[] attack[]”—as long as that person
was a “purchaser or encumbrancer for value . . . without
knowledge of any defects or irregularities in the [quiet title]
judgment or the proceedings.” (§ 764.060.) The Act’s treatment
of persons falling into the last category marks a departure from
prior law, which held that a court order invalidating an earlier
judgment resolving a claim to property also invalidated all
11
subsequent property claims made in reliance on that judgment
unless (1) the judgment was “valid on [its] face” (that is, the
defect with the judgment could not be determined “‘only by a
consideration of the matters constituting part of the judgment
roll’”) (OC Interior Services, LLC v. Nationstar Mortgage, LLC
(2017) 7 Cal.App.5th 1318, 1327-1328 (OC Interior); Johnson v.
Hayes Cal Builders, Inc. (1963) 60 Cal.2d 572, 576), and (2) the
person relying on the judgment was a “bona fide purchaser” (OC
Interior, at pp. 1328-1329; Garrison v. Blanchard (1932) 127
Cal.App. 616, 621-623 (Garrison)).
Because Tsasu acquired its claim to the property during the
interregnum period between the recording of the 2015 Quiet Title
Judgment under the Act and the set aside and expungement of
that judgment in 2017, the priority position of the Tsasu Deed of
Trust under the Act turns on whether Tsasu falls within the
ambit of section 764.060.
A. Interpreting section 764.060
As noted above, section 764.060 insulates the lien priority
of a person who has “act[ed] in reliance” on a quiet title
“judgment” from the effects of a subsequent invalidation of that
judgment if that person was a “purchaser or encumbrancer for
value of the property . . . without knowledge of any defects or
irregularities in the [quiet title] judgment or the [quiet title]
proceedings.” (§ 764.060, italics added.)5
5 In full, the statute provides: “The relief granted in an
action or proceeding directly or collaterally attacking the
judgment in the action, whether based on lack of actual notice to
a party or otherwise, shall not impair the rights of a purchaser or
encumbrancer for value of the property acting in reliance on the
judgment without knowledge of any defects or irregularities in
the judgment or the proceedings.” (§ 764.060.)
12
Section 764.060 does not define what it means by
“knowledge of any defects or irregularities.” Tsasu urges that
knowledge means actual knowledge, that the undisputed facts
show that it did not have actual knowledge of any “defects or
irregularities” in the 2015 Quiet Title Judgment, and that Tsasu
is accordingly entitled to summary judgment because it falls
within section 764.060’s protection. U.S. Bank urges that
knowledge means actual or constructive knowledge, that the
undisputed facts show that Tsasu had constructive knowledge
that the 2015 Quiet Title Judgment was defective because it
constructively knew that Celestine had not named the proper
defendant as required by the Act, and that U.S. Bank is
accordingly entitled to summary judgment because Tsasu falls
outside of section 764.060’s protection.
We are consequently confronted with the question: Does
section 764.060’s requirement of no “knowledge” mean no actual
knowledge or, instead, no actual and no constructive knowledge?
We conclude that section 764.060 requires the absence of both
actual and constructive knowledge, and do so for three reasons.
First, defining “knowledge” in section 764.060 to encompass
both actual and constructive knowledge is the result dictated by
the statute’s plain language. (People v. Maultsby (2012) 53
Cal.4th 296, 299 [“The statute’s plain language controls unless its
words are ambiguous”].) Section 764.060 uses the term
“knowledge,” and “knowledge” encompasses both actual
knowledge and constructive knowledge. (Ham v. Grapeland
Irrigation Dist. (1916) 172 Cal. 611, 617 (Ham); Scheas v.
Robertson (1951) 38 Cal.2d 119, 130 (Scheas).)
Second, defining “knowledge” in section 764.060 to
encompass both actual and constructive knowledge is the result
13
dictated by the statute’s incorporation of the common law concept
of a bona fide purchaser. When a statute borrows concepts or
language from the common law, we presume the statute also
borrows the common law associated with that concept or
language. (Scholes v. Lambirth Trucking Co. (2020) 8 Cal.5th
1094, 1110-1111; Baker v. Baker (1859) 13 Cal. 87, 95-96; Lewis v.
Superior Court (1990) 217 Cal.App.3d 379, 387.) Here, section
764.060 expressly incorporates the common law concept of a bona
fide purchaser: The statute applies to a “purchaser or
encumbrancer for value . . . without knowledge of any defects or
irregularities,” which is indistinguishable from the common law
concept of a “bona fide purchaser” who “purchase[s] the property
in good faith for value” and has “no knowledge or notice of the
asserted rights of another.” (Melendrez v. D & I Investment, Inc.
(2005) 127 Cal.App.4th 1238, 1251 (Melendrez); Pyle, supra, 13
Cal.App.5th at p. 521.) To qualify as a bona fide purchaser at
common law, a person must lack both actual and constructive
knowledge of competing rights; in other words, the term
“knowledge” at common law refers to both actual and
constructive knowledge. (Pyle, at p. 521; 612 South LLC v.
Laconic Limited Partnership (2010) 184 Cal.App.4th 1270, 1278
(612 South LLC); OC Interior, supra, 7 Cal.App.5th at p. 1331;
Vasquez v. LBS Financial Credit Union (2020) 52 Cal.App.5th 97,
107 (Vasquez).) That same definition presumptively applies here,
in the absence of a contrary intent.
For the first time on appeal, plaintiff asks us to infer a
contrary intent from the fact that our Legislature used the
phrase “bona fide purchaser or encumbrancer” in section 764.045
but not in section 764.060 and from the maxim that the “different
language in two statutes enacted at the same time” suggests a
14
“different” meaning. (E.g., Ferra v. Loews Hollywood Hotel, LLC
(2019) 40 Cal.App.5th 1239, 1247, review granted Jan. 22, 2020,
S259172.) To be sure, section 764.045, subdivision (b), provides
that “the rights” of a subsequent “bona fide purchaser or
encumbrancer” are not to be “impair[ed]” simply because the
plaintiff “actually kn[ew]” of a competing claim for the property
“at the time the [quiet title] judgment was entered.” (§ 764.045,
subd. (b).) But the effect of this language is to clarify that the
rights of a subsequent purchaser of the property are governed,
not by section 764.045, but rather by the only other section in the
Act addressing the rights of such subsequent purchasers—
namely, section 764.060. Thus, section 764.045’s use of the
phrase “bona fide purchaser or encumbrancer” is necessarily a
shorthand for the more detailed definition set forth in section
764.060, not a subtle means of telegraphing that the language in
section 764.060 means something different. Thus, our
Legislature’s use of that phrase reinforces rather than
undermines the link between the common law definition of bona
fide purchaser and section 764.060.
Third, defining “knowledge” in section 764.060 to
encompass both actual and constructive knowledge is the result
dictated by public policy. (Union of Medical Marijuana, supra, 7
Cal.5th at p. 1184 [courts may look to “public policy” when
construing statutes].) “Actual” knowledge exists when a person is
subjectively aware of a fact. (E.g., In re A.L. (2019) 38
Cal.App.5th 15, 21.) “Constructive” knowledge exists when a
person is deemed in the eyes of the law to be aware of a fact,
either because (1) the person has “‘knowledge of circumstances
which, upon reasonable inquiry, would lead to that particular fact
. . . [Citations]’” (Melendrez, supra, 127 Cal.App.4th at p. 1252,
15
quoting First Fidelity Thrift & Loan Assn. v. Alliance Bank
(1998) 60 Cal.App.4th 1433, 1443), or (2) the fact is contained in a
document that has been “‘recorded as prescribed by law’” (First
Bank v. East West Bank (2011) 199 Cal.App.4th 1309, 1314 (First
Bank); In re Marriage of Cloney (2001) 91 Cal.App.4th 429, 436-
437; Civ. Code, § 1213 [providing that a recorded document “is
constructive notice of the contents thereof”]).
If, as Tsasu suggests, only a person’s actual knowledge of a
defect or irregularity in an earlier quiet title judgment can render
section 764.060 inapplicable, then a person would still be entitled
to maintain a property claim based upon a later-invalidated quiet
title judgment even if defects or irregularities in that judgment
had appeared in the record of title for that property and even if
the person had been subjectively aware of facts that, upon further
inquiry, would have revealed those defects or irregularities. This
interpretation of section 764.060 creates wholly perverse
incentives because it discourages prospective buyers from
checking the record of title or from heeding “warning signs”
necessitating further inquiry—lest they acquire actual knowledge
of a defect or irregularity with a quiet title judgment that would
strip them of section 764.060’s protection. Such incentives are
inimical to the entire system of real property law in California,
which places upon real estate buyers a duty to inquire into the
validity of their prospective ownership claim (Bishop Creek Lodge
v. Scira (1996) 46 Cal.App.4th 1721, 1735), and to heed—not
ignore—any “‘reasonable warning signs’” (612 South LLC, supra,
184 Cal.App.4th at pp. 1278-1279; Triple A Management Co. v.
Frisone (1999) 69 Cal.App.4th 520, 531 (Triple A Management)).
(Accord, Gerhard v. Stephens (1968) 68 Cal.2d 864, 908 [rejecting
interpretation that would “permit a plaintiff to willfully or
16
negligently close his eyes to the means of knowledge and thus
secure a decree” regarding ownership of real property];
Melendrez, supra, 127 Cal.App.4th at p. 1252 [“‘[t]he recording
laws were not enacted to protect those whose ignorance of the
title is deliberate and intentional . . .’”].) Because the purpose of
section 764.060 is “to enhance the marketability of property as to
which a quiet title decree has been rendered” (Pyle, supra, 13
Cal.App.5th at p. 525 [citing Law Revision Commission
comment]), not to encourage recklessness or willful ignorance, we
decline to adopt Tsasu’s proffered interpretation of section
764.060.
Tsasu offers four further arguments in support of its
position that the only type of disqualifying “knowledge” in section
764.060 is actual knowledge.
First, Tsasu points to the habit of many courts in referring
to constructive knowledge as “constructive notice.” (E.g.,
Vasquez, supra, 52 Cal.App.5th at p. 108.) From this, Tsasu
extrapolates that “notice” is always “constructive” and that
“knowledge” is always “actual.” Tsasu is wrong. Both notice and
knowledge can come in two flavors—actual and constructive.
(Civ. Code, § 18 [“notice” may be “actual” or “constructive”];
Marina Pacifica Homeowners Assn. v. Southern California
Financial Corp. (2014) 232 Cal.App.4th 494, 511 [so holding];
Ham, supra, 172 Cal. at p. 617 [referring to “actual knowledge”];
Scheas, supra, 38 Cal.2d at p. 130 [same].) More to the point, the
terms “notice” and “knowledge” have been used
interchangeably—and have been used to refer to both actual and
constructive notice and knowledge—in cases applying the bona
fide purchaser doctrine. (E.g., 612 South LLC, supra, 184
Cal.App.4th at p. 1278; Garrison, supra, 127 Cal. App. at p. 622.)
17
Second, Tsasu cites a number of cases indicating that the
term “knowledge” is sometimes used to refer solely to actual
knowledge. These cases are unhelpful, however, because they
arise in different contexts and do not involve bona fide
purchasers or encumbrancers of real property. (Merrill v. Pacific
Transfer Co. (1901) 131 Cal. 582, 587, 589 [interpreting a statute
enforcing liability limits of common carriers through contracts
signed with “knowledge of [their] terms”]; Nautilus, Inc. v. Yang
(2017) 11 Cal.App.5th 33, 37, 46 [construing contours of “good
faith defense” to the tort of fraudulent conveyance]; Baxter v.
State Teachers’ Retirement System (2017) 18 Cal.App.5th 340, 355
[deciding whether statute of limitations begins to tick once a
person has “actual or inquiry notice” of an incorrect payment],
italics omitted; Eisenbaum v. Western Energy Resources, Inc.
(1990) 218 Cal.App.3d 314, 325 [same, as to claim for breach of
fiduciary duty].)
Third, Tsasu argues that other provisions of the Act use the
word “notice” or “variants of ‘know,’” such that the Act’s use of
the word “knowledge” in section 764.060 is limited to actual
knowledge. (See Lewis C. Nelson & Sons v. Clovis Unified School
Dist. (2001) 90 Cal.App.4th 64, 71 [the Legislature’s decision to
use and not use a certain word in various provisions shows it
“knows how to use th[at] word”].) Tsasu’s conclusion does not
flow from its premise. While it is true that the Act uses the word
“notice” (§§ 761.010, subd. (b), 765.010, subd. (c)(2),) and a variety
of words with the root word “know” (§§ 762.020, 762.030, 762.060,
763.010), the Act does not use those terms in a consistent manner
that permits us—let alone compels us—to conclude that all of the
Act’s uses of the word “know” refer to actual knowledge.
18
Lastly, Tsasu asserts that the Act’s legislative history
supports its interpretation. The sole citation Tsasu provides does
not support its argument, and, as explained above, we conclude
that Tsasu’s interpretation of section 764.060 would undermine—
not further—the Act’s purposes.
For these reasons, the term “knowledge” in section 764.060
refers to actual and constructive knowledge.
B. Applying section 764.060
In light of our construction of section 764.060, whether the
Tsasu Deed of Trust retains its priority notwithstanding the
invalidation of the 2015 Quiet Title Judgment turns on whether
Tsasu (1) acquired its interest “for value,” (2) “act[ed] in reliance”
on the 2015 Quiet Title Judgment in acquiring its interest, and
(3) lacked actual and constructive “knowledge of any defects or
irregularities in th[at] judgment or the proceedings [leading up to
it].” (§ 764.060.) Although “the issue of whether a buyer is a
[bona fide purchaser for value] is a question of fact” (Melendrez,
supra, 127 Cal.App.4th at p. 1254), where the “relevant facts are
not in dispute, [such] questions of fact may be decided as a
matter of law in a summary judgment proceeding.” (Wang v.
Nibbelink (2016) 4 Cal.App.5th 1, 28.) Here, it is undisputed that
Tsasu acquired its interest in the property for value by loaning
Celestine $248,000. We need not decide whether Tsasu acted in
reliance on the 2015 Quiet Title Judgment because the
undisputed facts establish that Tsasu had constructive
knowledge of “defects and irregularities” with that judgment.
As noted above, a quiet title judgment under the Act must
name as defendants those “known to the plaintiff” to have an
interest in the property (§§ 761.020, 762.060, subd. (b)), but
Celestine knowingly named only a prior owner of the CIT Deed of
19
Trust (that is, CIT Group) rather than its current owner. Tsasu
does not dispute that this constituted a defect or irregularity in
the quiet title judgment or proceeding.
Tsasu had constructive knowledge of this defect or
irregularity in two different ways.
1. Constructive knowledge from the record of title
First, the record of title for the property contained (1) the
recorded 2015 Quiet Title Judgment setting forth that the sole
defendant was CIT Group, and (2) the recorded assignments of
the CIT Deed of Trust in 2012 and June 2014 (to SASCO and
DLJ Mortgage, respectively) setting forth that CIT Group no
longer owned the CIT Deed of Trust when Celestine filed her
quiet title action. Together, these recorded documents set forth a
defect or irregularity in the quiet title judgment. Because these
documents were recorded, Tsasu had constructive knowledge of
the defect or irregularity in the 2015 Quiet Title Judgment.
(First Bank, supra, 199 Cal.App.4th at p. 1314 [constructive
knowledge exists where the fact is contained in a document that
has been “‘recorded as prescribed by law’”].)
Tsasu offers three reasons why the documents in the record
of title did not put it on constructive notice of any defect or
irregularity in the 2015 Quiet Title Judgment.6
6 Tsasu also relies on an expert declaration that was
submitted in support of its new trial motion. Because that
declaration was not submitted as evidence in connection with the
cross-motions for summary judgment, we will not consider it—or
Tsasu’s argument relying on it. (§ 437c, subd. (c) [ruling on
summary judgment motion must be based on “papers submitted”
with the motion]; Szadolci v. Hollywood Park Operating
Co. (1993) 14 Cal.App.4th 16, 19 [“The appellate court must
examine only papers before the trial court when it considered the
20
To begin, Tsasu asserts that courts are “presumed” to have
“regularly performed” their “official duty” (Evid. Code, § 664),
such that persons reviewing the record of title for the property
should be able to assume that, as between a quiet title judgment
and other recorded documents calling the judgment into question,
the quiet title judgment is correct and the other documents,
incorrect. This assertion ignores that the presumption Tsasu
cites is a rebuttable one (id., §§ 660, 601), and that it is rebutted
by the ostensible conflict between the quiet title judgment and
other recorded documents. Tsasu makes the further assertion
that quiet title judgments under the Act are entitled to an even
greater presumption of regularity because, as noted above, they
may not be entered “by default” (§ 764.010). However, the Act’s
requirement that judgments must be grounded in evidence says
nothing about whether the proceedings leading up to that
evidentiary showing were defective or irregular. To accept
Tsasu’s assertions is to say that there can never be constructive
notice on the basis of a conflict in the record of title between a
quiet title judgment and other recorded documents, which goes a
long way toward excising the phrase “without knowledge of any
defects or irregularities in the judgment or the proceedings” from
section 764.060. We cannot rewrite statutes. (J.M. v.
Huntington Beach Union High School Dist. (2017) 2 Cal.5th 648,
657, fn. 7 [“It is not for us to rewrite . . . statute[s]”].)
Next, Tsasu contends that prospective purchasers or
encumbrancers should not be required to “go behind [the] quiet
motion, and not documents filed later”]; see also Albertini v.
Schaefer (1979) 97 Cal.App.3d 822, 829 [on review of validity of
summary judgment, appellate court cannot consider declarations
submitted with new trial motion].)
21
title judgment” and to assess the quantum of evidence supporting
that judgment, but this contention misstates what the use of
“without knowledge” in section 764.060 means. All it means is
that the quiet title judgment and other recorded documents
available or known to the prospective buyer may, as a whole and
on their face, reveal “defects or irregularities” in that judgment;
contrary to what Tsasu suggests, this does not impose a duty of
“going behind the judgment” or reweighing the evidence.
Lastly, Tsasu posits that the validity of a quiet title
judgment cannot be called into question by conflicts with prior
assignments of the pertinent deed of trust because assignments
need not be recorded and are often not timely recorded. No
matter how assignments might be handled in other cases, the
fact remains that the assignments recorded in 2012 and 2014 in
this case highlighted a defect or irregularity in the 2015 Quiet
Title Judgment.
2. Constructive knowledge from the failure to
conduct a reasonable inquiry
Second, Tsasu was aware of circumstances which, upon
reasonable inquiry, would have led to the discovery of that same
defect or irregularity. (Melendrez, supra, 127 Cal.App.4th at p.
1252.) That is because Tsasu (through its CEO) treated its title
insurer as its agent when the CEO relied on the insurer’s
preliminary report and, by extension, the insurer’s title search in
deciding whether to loan Celestine money. Because the title
search also reported the quiet title judgment against CIT Group
and the two earlier assignments of the CIT Deed of Trust to
parties other than CIT Group, and because an agent’s knowledge
is imputed to its principal (see Civ. Code, § 2332 [“As against a
principal, both principal and agent are deemed to have notice of
whatever either has notice of . . .”]; Maron v. Swig (1952) 115
22
Cal.App.2d 87, 90 [knowledge acquired by agent is imputed to
principal whether or not that knowledge was “actually conveyed
to” principal]), Tsasu also had constructive knowledge of the
defect and irregularity in the 2015 Quiet Title Judgment by
virtue of its insurer’s awareness of these circumstances that is
imputed to Tsasu.
Tsasu argues that it was not on “inquiry notice” on the
basis of the information its title insurer learned from the title
search results because a title “insurer’s knowledge is not imputed
to its insured.” (Lewis v. Superior Court (1994) 30 Cal.App.4th
1850, 1869; Estates of Collins & Flowers (2012) 205 Cal.App.4th
1238, 1255.) Although the bare relationship between a title
insurer and its insured is not enough to make the former an
agent of the latter, a title company can sometimes act as an agent
of its insured. (Bellasi v. Shackelford (1962) 201 Cal.App.2d 265,
268; Triple A Management, supra, 69 Cal.App.4th at p. 530;
Vasquez, supra, 52 Cal.App.5th at pp. 108-109.) Here, Tsasu
used its title company as its agent for purposes of acquiring
knowledge about the record of title for the property because
Tsasu’s CEO admitted he looked to the title insurer’s preliminary
report and title search results when evaluating whether to loan
Celestine money. As a result, Tsasu is charged with its title
insurer’s knowledge of the results of the title search. (Accord,
Triple A Management, at p. 530 [“The fact that [an]
encumbrancer searches and evaluates the record through an
escrow or title agent does not in any manner diminish his right to
rely on the state of the record title”].)
* * *
Because Tsasu had constructive knowledge of defects or
irregularities in the 2015 Quiet Title Judgment at the time it
23
acquired its interest in the property, section 764.060 does not
insulate Tsasu from the effect of the subsequent invalidation and
expungement of the 2015 Quiet Title Judgment. As a result, the
CIT Deed of Trust—as the lien recorded first-in-time—has
priority over the Tsasu Deed of Trust.
II. Alternative Grounds for Asserting Lien Priority
Even if the priority of the Tsasu Deed of Trust is not
preserved under the Act, Tsasu argues that it is preserved by
several other doctrines. Tsasu’s arguments fall into two broad
categories.
A. Tsasu’s lack of involvement in the proceedings
to set aside and expunge the 2015 Quiet Title Judgment
Tsasu argues that it should have received notice of
Caliber’s December 2016 motion to set aside the 2015 Quiet Title
Judgment as well as Caliber’s subsequent motion to expunge that
judgment, and should have been invited to participate in those
proceedings. Its absence, Tsasu continues, means that the
resulting orders setting aside and then expunging the 2015 Quiet
Title Judgment are invalid as to Tsasu because they were issued
without the involvement of an indispensable party and in
violation of Tsasu’s rights to due process. Tsasu is wrong on both
counts.
Tsasu was not an indispensable party. A person or entity is
indispensable to litigation if “‘the plaintiff seeks some type of
affirmative relief which, if granted, would injure or affect the
interest of [the person or entity] not joined . . . .’” (Washington
Mutual Bank v. Blechman (2007) 157 Cal.App.4th 662, 667; see
generally § 389, subd. (a) [defining “indispensable party” to
include a person who “claims an interest relating to the subject of
the action and is so situated that the disposition of the action in
[its] absence may . . . as a practical matter impair or impede [its]
24
ability to protect that interest”].) If we focus on the Celestine
Action (of which Caliber’s motion to set aside and expunge were
just a part), Tsasu was not an indispensable party because the
plaintiff in the action—that is, Celestine—was only seeking a
determination of the validity of the CIT Deed of Trust as of
September 11, 2014 (§ 761.020, subd. (d); McGurk, supra, 206
Cal.App.4th at p. 213), and this was an issue on which Tsasu had
no relevant information or involvement. If we instead focus on
Caliber’s motions to set aside and expunge the 2015 Quiet Title
Judgment, Tsasu was also not an indispensable party because
Caliber’s motions turned on the validity of Celestine’s service on
CIT Group in 2014, and this was (again) an issue on which Tsasu
had no relevant information or involvement. (Cf. Washko v.
Stewart (1941) 44 Cal.App.2d 311, 319 [joint tortfeasor
exonerated by bench trial was indispensable in proceedings by
another joint tortfeasor to set aside a default judgment against
him].) Contrary to what Tsasu asserts, at no point in the
Celestine Action generally or in Caliber’s litigation of the motions
to set aside and expunge did the trial court decide the priority of
the CIT Deed of Trust lien vis-à-vis the Tsasu Deed of Trust—
under the Act or otherwise. It was not until Tsasu filed this case
that lien priority became an issue. Although the trial court’s
orders setting aside or expunging the 2015 Quiet Title Judgment
were a necessary prerequisite to this case, Tsasu was not an
indispensable party to that precursor litigation.
Tsasu’s due process rights were also not violated when
Caliber did not invite it to participate in its efforts to set aside
and expunge the 2015 Quiet Title Judgment. Due process
guarantees notice and the opportunity to be heard. (Horn v.
County of Ventura (1979) 24 Cal.3d 605, 612.) Because the
25
priority of Tsasu’s interest in the property was not litigated until
this case, and because Tsasu has certainly had notice and the
opportunity to participate in its own lawsuit, Tsasu’s due process
rights were not violated.
B. U.S. Bank’s alleged failure to act with greater
alacrity in seeking to set aside and expunge the 2015 Quiet
Title Judgment
Tsasu argues that U.S. Bank should be barred, as an
equitable matter, from relying on the orders setting aside and
expunging the 2015 Quiet Title Judgment because it waited more
than nine months after acquiring the CIT Deed of Trust (that is,
from August 2016 until May 2017) before telling Tsasu about the
ongoing efforts to set aside and expunge the 2015 Quiet Title
Judgment. More specifically, Tsasu relies on the equitable
doctrines of (1) estoppel and the balancing of relative negligence
under Civil Code section 3543, and (2) laches. Tsasu’s arguments
lack merit.
As a threshold matter, we harbor significant doubts that
any of these equitable doctrines may be used to alter section
764.060’s rule specifying how a person who relies on a quiet title
judgment issued under the Act is affected by the subsequent
invalidation of that judgment. Section 764.060 reflects our
Legislature’s thoughtful balancing of the rights of the persons
harmed by an invalid quiet title judgment against the rights of
persons who relied on that quiet title judgment before its
invalidation. Where, as here, a statute reflects a “careful
balancing of competing interests to maintain the overall working
of the system” of law in a particular area, courts are reluctant to
use equity to strike a different balance. (I.E. Associates v. Safeco
Title Ins. Co. (1985) 39 Cal.3d 281, 285, 288-289; Wells v.
One2One Learning Foundation (2006) 39 Cal.4th 1164, 1193.) By
26
asking us to come to a different result than that dictated by
section 764.060 on the basis of a variety of equitable doctrines,
Tsasu is asking us to reach a different accommodation of
competing rights than those embodied in section 764.060. We are
not inclined to do so.
Even if we were so inclined, however, Tsasu’s invocation of
these equitable doctrines lacks merit in any event.
1. Estoppel and Civil Code section 3543
Invoking both the equitable doctrine of estoppel and Civil
Code section 3543, Tsasu argues that U.S. Bank was
“inexplicably negligent” by not informing Tsasu of the then-
ongoing efforts to set aside and expunge the 2015 Quiet Title
Judgment. Individually and together, the doctrine of estoppel
and Civil Code section 3543 provide that, as between two
innocent victims, the more negligent of the two should be the one
who suffers the loss. (Civ. Code, § 3543 [“Where one of two
innocent persons must suffer by the act of a third, he, by whose
negligence it happened, must be the sufferer”]; South Beverly
Wilshire Jewelry & Loan v. Superior Court (2004) 121
Cal.App.4th 74, 81 [holding that Civil Code section 3543 is
“‘basically an estoppel theory’”]; Crittenden v. McCloud (1951)
106 Cal.App.2d 42, 50 [doctrine of estoppel premised on
“‘negligence or some other misconduct by the other party’”].)
To benefit from either theory, the party urging application
of that theory must establish that the other party “was, at a
minimum, negligent.” (WFG National Title Ins. Co. v. Wells
Fargo Bank, N.A. (2020) 51 Cal.App.5th 881, 892 (WFG
National).) Of course, a party can be negligent only if it owes a
duty to the party now asserting a breach. (See Merrill v.
Navegar, Inc. (2001) 26 Cal.4th 465, 477 [“To prevail on [a]
27
negligence claim, plaintiffs must show that [the defendant] owed
them a legal duty”]; WFG National, at pp. 892-894 [requiring a
duty before applying estoppel and Civil Code section 3543].)
Tsasu cannot rely on estoppel or Civil Code section 3543
against U.S. Bank because Tsasu cannot establish that U.S.
Bank owed any duty to inform Tsasu about the pending motions
to set aside or expunge the 2015 Quiet Title Judgment. The
motions to set aside and expunge the 2015 Quiet Title Judgment
were filed by Caliber, not U.S. Bank. Although Caliber had at
that time agreed to serve as U.S. Bank’s attorney-in-fact, it was
undisputed that Caliber filed its motions solely in its capacity as
CIT Group’s successor in interest—and not on behalf of U.S.
Bank. As a result, the relevant question regarding duty is this:
Does a nonparty to a case (namely, U.S. Bank) owe a second
nonparty to that case (namely, Tsasu) a duty to notify the second
nonparty about collateral attacks on the judgment brought by a
party in that case just because both of the nonparties might be
affected by the outcome of those collateral attacks? The answer
is “no.” Any other answer would vastly expand the duties of
property owners who just so happen to know about a pending
collateral attack to a quiet title judgment based on defective
service, the result of which could have downstream effects on the
unrelated issue of lien priorities. (E.g., Wiener v. Southcoast
Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1149 [declining to
create a duty that would be “far too broad”].) Tsasu offers no
authority in support of such a duty and we have found none.
Instead, the law leans heavily to the contrary. (WFG National,
supra, 51 Cal.App.5th at p. 893 [property owner has no “ongoing
duty to monitor public records in order to detect, and correct, a
fraudulent or erroneous recording”]; cf. Atha v. Bockius (1952) 39
28
Cal.2d 635, 642 [negligence by owner of vehicle mortgage who
knows the car’s owner left the state and re-registered the vehicle
can, by failing to repossess the car, forfeit right to collect on
mortgage].) Tsasu urges that we should impose a duty upon U.S.
Bank because the 2015 Quiet Title Judgment purported to reach
all “successors in interest” to CIT Group or to the CIT Deed of
Trust, but Tsasu ignores that the 2015 Quiet Title Judgment was
void against CIT Group and hence void against successors in
interest to the CIT Deed of Trust. That void judgment imposed
no ongoing duty upon CIT Group, so it certainly imposed no
ongoing duty upon the successors in interest to the CIT Deed of
Trust.
But even if we assume that U.S. Bank owed some duty and
further assume that U.S. Bank was negligent in not telling Tsasu
about Caliber’s efforts to set aside and expunge the 2015 Quiet
Title Judgment sooner, Tsasu is still not entitled to relief because
Tsasu was in the better position to avoid injury to itself. As
noted above, Tsasu had constructive knowledge of the “warning
signs” in the record of title for the property indicating possible
defects with the 2015 Quiet Title Judgment, and Tsasu
nevertheless decided to loan Celestine money and to obtain title
insurance. Tsasu could have avoided the injury it suffered had it
inquired further into the status of the 2015 Quiet Title
Judgment. Nothing U.S. Bank did, however, could have avoided
Tsasu’s injury. Caliber—not U.S. Bank—was the entity who
sought to set aside and expunge the 2015 Quiet Title Judgment.
Although U.S. Bank could have told Tsasu about Caliber’s efforts
sooner, there is no evidence in the record to suggest that doing so
would have altered the outcome of Caliber’s efforts: Those efforts
turned solely on whether Celestine had sued and served the
29
correct entity, and Tsasu has yet to articulate how it could have
offered any evidence on those issues.
2. Laches
Tsasu next argues that U.S. Bank engaged in delay tactics
by not telling Tsasu about Caliber’s collateral attacks on the 2015
Quiet Title Judgment until May 2017, and that the equitable
doctrine of laches precludes U.S. Bank from relying on the orders
setting aside and expunging that judgment. This argument is
not properly before us because Tsasu did not plead laches in its
operative complaint. Tsasu insists that it did, but the
paragraphs of its complaint it cites say nothing about laches or
about U.S. Bank’s delay in informing Tsasu about Caliber’s
efforts. Because the “pleadings define the issues to be considered
on a motion for summary judgment” (Benedek v. PLC Santa
Monica (2002) 104 Cal.App.4th 1351, 1355), Tsasu’s failure to
plead laches is fatal to its attempt to rely on it to avoid summary
judgment.
* * *
In light of our conclusion that U.S. Bank is entitled to
summary judgment due to the inapplicability of section 764.060
and the inapplicability of the alternative grounds offered by
Tsasu, we have no occasion to reach Tsasu’s challenges to the
trial court’s evidentiary rulings bearing solely on theories that
our analysis has rendered moot.
30
DISPOSITION
The judgment is affirmed. U.S. Bank is entitled to its costs
on appeal.
CERTIFIED FOR PARTIAL PUBLICATION.
______________________, J.
HOFFSTADT
We concur:
_________________________, P. J.
LUI
_________________________, J.
ASHMANN-GERST
31