Spring 2012 • Issue 43, page 18

Recent Unpublished California Court of Appeal Receivership Opinions

By Pasternak, David*

In the experience of at least one receiver (who is the subject of all of these cases), appeals are becoming more common in receivership cases. The California Court of Appeal for the Second Appellate District (which includes Los Angeles County) recently issued three unanimous unpublished opinions concerning three very different receiverships – a marital dissolution receivership; a civil dispute concerning competing factions for control of a religious temple and its assets; and a Health and Safety Code receivership. While an unpublished decision may not be cited or referred to in any court filing or proceeding, the opinions are still instructive for receivers in other cases, and especially valuable if a similar issue is ever presented to one of the Court of Appeal Justices who ruled in one of these prior cases. Copies of these three unpublished opinions are posted on the California Receivers Forum website.

In re the Marriage of Andre Deloje and Andreea Dumitrescu (Division Seven, Sept. 19, 2011)
In this case, a receiver was appointed by the family law court and authorized to sell two of the husband’s real properties to satisfy court orders for temporary spousal support, attorney fees, forensic accounting fees, and the receiver’s fees. On appeal, the husband contended that the family law court had erred in confirming the sale of the real properties because the two real properties were owned by his private individual retirement account and were exempt from execution pursuant to California Code of Civil Procedure § 704.115.

In affirming the family law court’s sale order, Presiding Justice Dennis M. Perluss noted that the exemption on execution of retirement accounts (including IRA accounts) is limited “only to the extent necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when the judgment debtor retires. . . .” CCP § 704.115(e). In this case, the family law court heard evidence from the receiver valuing the two properties to be sold at only approximately 3% of the husband’s real property asset portfolio.

During the appeal of this order, the husband and wife settled all of their disputes at a mediation at the Court of Appeal held in connection with this appeal. In footnote 2 to his opinion, Justice Perluss determined that there was still a justiciable controversy about whether the properties could be sold solely to satisfy the unpaid receiver’s fees and expenses. The Court ultimately held that the real properties could be sold solely for that purpose.

Khmer Buddhist Assn. v. David Pasternak (Division Four, Oct. 24, 2011)
This appeal resulted from contentious litigation between two competing factions for control of a Long Beach Buddhist Temple and other real properties owned by the temple. In a prior opinion, long after the trial court’s appointment of a receiver, the Court of Appeal reversed the order appointing the receiver on the grounds that a prior oral stipulation between the parties was not enforceable under California Code of Civil Procedure § 664.6 because one side did not expressly assent to the agreement. Thus, the subsequent order appointing a receiver to enforce that settlement was a reversible error. However, in that prior opinion, the Court of Appeal also instructed the trial court that had erroneously appointed the receiver to supervise the termination of the receivership (thereby not leaving the receiver in a potentially perilous position).

In this appeal, the disgruntled temple faction asserted that the receiver was not entitled to the compensation awarded to him because his appointment had been improper and impermissible. In reasoning much appreciated by the receiver, Justice Thomas L. Willhite, Jr.’s Court of Appeal opinion affirmed the trial court’s award of compensation to its receiver, stating: “We reversed the order appointing the receiver only because the stipulation to be enforced by the receiver was reversed, not because of the lack of merit of the appointment.”

In the prior appeal, the Court of Appeal added instructions to the trial court to supervise the termination of the receivership only after the receiver filed a motion in the Court of Appeal for rehearing or clarification of its initial opinion. This was because the Court of Appeal’s initial opinion did not so provide, and had left the receiver dangling without any certainty that the trial court had the jurisdiction and authority to terminate its erroneously appointed receiver.

City of La Habra Heights v. McAlister Investments, Inc. (Division One, Jan. 30, 2012)
In this case, a Health and Safety Code receiver had been appointed to abate a nuisance where a hillside property had been unlawfully graded and posed a threat to adjoining residential real properties. During the course of the receivership, and with both actual and constructive knowledge of the receivership, McAlister Investments foreclosed on the receivership real property, and then attempted to stop the receiver from rehabilitating the property. Unfortunately, all of this occurred in 2008, as real property values were sharply declining.

While the receiver was given the authority to rehabilitate the property, as the result of the sudden significant decline in real property values (especially for undeveloped properties such as the one in this case), at the conclusion of the work and following the sale of the receivership real property, there were insufficient funds to pay any of the receiver’s fees and costs as well as significant funds due to third parties for other receivership obligations. Consequently, upon approving the receiver’s final report and account, the trial court ordered McAlister Investments to pay the receiver $221,583.48 for those remaining obligations. McAlister Investments appealed, asserting that the trial court erred for multiple reasons.

Holding that the receivership was a quasi in-rem remedy (i.e., related to the property), and that this foreclosing lender was bound by a stipulation of its predecessor-in-interest that a nuisance existed (which resulted in the appointment of the receiver), Justice Jeffrey W. Johnson’s Court of Appeal opinion held that the foreclosing lender who acquired the real property during the receivership benefited from the receivership even though the receiver sold the property and the foreclosing lender never realized any actual gain from its ownership of the property. The obvious lesson is that a lender forecloses on receivership real property at its peril, and should think carefully before embarking on such a course of action.

*David J. Pasternak is a shareholder of Pasternak, Pasternak & Patton and founding Co-Chair of the Los Angeles/Orange County branch of the California Receivers Forum. Mr. Pasternak has acted as a receiver and counsel for receivers for 30 years, and was an extern for California Court of Appeal Justice Clark Stephens during law school.