RAMIREZ, P. J. —
Stabilis Fund II, LLC (Stabilis), holds a trust deed on an apartment complex in Indio. In 2013, Stabilis sued the owners of the
In 2014, the City of Indio (City) intervened. It alleged that the property was a public nuisance, riddled with hazardous and substandard conditions in violation of state and local law. It moved to modify the receivership by instructing the receiver to remedy these conditions. Stabilis did not argue that the City was not entitled to the requested modification; however, it did argue that the motion was premature, that the receiver already had the necessary powers, and that it should be allowed to proceed with foreclosure. The trial court nevertheless granted the motion.
The City then moved for an award of its attorney fees and expenses.
The trial court granted the motion; it awarded the City $98,190.47, to be paid out of the receivership estate, if there were sufficient funds, and if not, then by Stabilis.
Stabilis appeals. Its central position is that it is only the lender; if anyone is liable for attorney fees and expenses, it should be the owners. More specifically, it argues that none of the three statutes cited by the City authorizes the trial court's award of attorney fees and expenses against it under the circumstances of this case. We agree. Hence, we will reverse.
The following background facts are taken from the pleadings, but they do not appear to be disputed.
As of 2007, Vinod K. Kaura and Veena R. Kaura, as trustees (Kauras), owned a 75-unit apartment complex in Indio (property). In December 2007, they took out a $4,050,000 loan, secured by a deed of trust on the property.
In June 2009, the Kauras conveyed the property to Valley and Mountain, LLC (Valley and Mountain). Veena Kaura controls Valley and Mountain. (We will refer to the Kauras and Valley and Mountain, collectively, as the Kaura parties.) In September 2011, the Kaura parties stopped making payments on the loan.
On April 24, 2013, the Kaura parties filed an action against Stabilis.
On June 7, 2013, Stabilis filed a separate action against the Kaura parties, asserting causes of action for (1) breach of contract, (2) judicial foreclosure, (3) appointment of a receiver to collect rent and to protect the property, and (4) possession of personal property collateral. The two actions were eventually consolidated.
On June 26, 2013, Stabilis filed a motion for the appointment of a receiver. On August 26, 2013, the trial court granted the motion; it appointed Terrence Daly as receiver.
On August 28, 2013, however, Valley and Mountain filed for bankruptcy. As a result of the automatic stay, receiver Daly could not take possession of the property.
On April 8, 2014, the bankruptcy court lifted the automatic stay.
On April 23, 2014, the parties stipulated to substitute Paul Carlson in place of receiver Daly. On September 23, 2014, the trial court confirmed the substitution.
Meanwhile, on May 16, 2014, the City issued a "Legal Notice and Order to Repair or Abate" (some capitalization omitted) (notice). The notice included a finding that "the unlawful conditions ... substantially endanger[] the health, safety, and general welfare of the Subject Property's occupants, the surrounding community, and the public ...."
On December 24, 2014, the City moved for leave to intervene. On January 23, 2015, the trial court granted the motion.
On January 27, 2015, the City filed a complaint in intervention against the Kaura parties and Stabilis. It asserted three causes of action — for a substandard-housing receivership, for public nuisance, and for public nuisance per se.
Also on January 27, 2015, the City filed a motion to modify the receivership.
Stabilis responded that the motion was premature. It argued that the receiver already had most of the powers and duties sought, and it claimed that he had already cured 60 percent of the substandard conditions. The Kaura parties, on the other hand, stipulated that the motion should be granted.
On February 20, 2015, the trial court granted the City's motion to modify the receivership.
On June 3, 2015, the City filed a motion to disqualify receiver Carlson, on the grounds that (1) rather than being neutral, he was under the control of Stabilis; (2) he had entered into a prohibited agreement with Stabilis;
Receiver Carlson did oppose the motion. He denied having any conflict of interest; he explained that Stabilis was funding all repairs because the property did not generate enough income.
On July 9, 2015, the trial court granted the City's disqualification motion. It found that receiver Carlson had entered into a prohibited agreement and had failed to fulfill his duties; however, it did not find that he was under Stabilis's control. It appointed Mark Adams to replace him.
On February 2, 2016, the City filed a "cost recovery motion." (Capitalization omitted.) It sought $87,407.40 in attorney fees, $4,303.51 in litigation costs, and $6,479.56 in enforcement costs, for a total of $98,190.47. It asked that, to the extent that these amounts could not be recovered from the receivership estate, they be awarded against the Kaura parties and Stabilis. The motion cited Health and Safety Code section 17980.7, subdivisions (c)(11) and (d)(1), and Indio Municipal Code section 10.20.
The Kaura parties filed an opposition to the motion. In it, they argued, among other things, that the attorney fees and expenses should be awarded solely against Stabilis.
Stabilis also filed an opposition to the motion. It argued, among other things, that under the relevant statutes, only the owner of a public nuisance can be liable for attorney fees and expenses.
On March 1, 2016, after hearing argument, the trial court granted the City's cost recovery motion, "against Stabilis only." It found that the City was the prevailing party under all three of the statutes on which the City relied.
It further found that: "There is ... no dispute that the dangerous conditions developed while the property was in possession of the first receiver. The first receiver was removed after he admitted that he was acting at the direction of Stabilis. Valley & Mountain was not in possession of the property during this time and, in fact, was precluded from remedying the condition of the property. Effectively, the City's complaint in intervention was directed toward Stabilis because Stabilis was in possession of the property through its control
It therefore awarded the City $98,190.47 against the receivership estate and, to the extent that the receivership estate proved insufficient, against Stabilis.
Stabilis contends that the City was not statutorily authorized to recover its attorney fees and expenses other than from the owner of the property.
"`[A] determination of the legal basis for an attorney fee award is a question of law to be reviewed de novo.' [Citations.]" (Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 751 [220 Cal.Rptr.3d 650, 398 P.3d 556].) Likewise, "[t]he interpretation of a statute, or an ordinance, presents a question of law which we review de novo. [Citations.]" (City of Los Angeles v. Superior Court (2015) 234 Cal.App.4th 275, 281 [183 Cal.Rptr.3d 708].)
The City asserted — and the trial court agreed — that it had a right to attorney fees and expenses under three separate statutory provisions. We will discuss these in turn.
The State Housing Law (Health & Saf. Code, §§ 17910-17998.3) provides for the enforcement of health and safety standards for residential housing.
Section 17980.6 authorizes an "enforcement agency"
Section 17980.7 then states: "If the owner fails to comply within a reasonable time with the terms of the order or notice issued pursuant to Section 17980.6, the following provisions shall apply."
One provision that applies is section 17980.7, subdivision (c). It allows the enforcement agency to obtain the appointment of a receiver to take control of the property and to correct the violations. Specifically, section 17980.7, subdivision (c) provides:
Another provision that applies is section 17980.7, subdivision (d). It provides that, once the trial court "finds that a building is in a condition which substantially endangers the health and safety of residents," it can order the owner to do certain things, including "to pay all reasonable and actual costs of the enforcement agency including, but not limited to, inspection costs, investigation costs, enforcement costs, attorney fees or costs, and all costs of prosecution." (§ 17980.7, subd. (d)(1).)
Stabilis contends that the City was not entitled to attorney fees and expenses under section 17980.7, subdivision (c)(11) because a receiver had already been appointed when the City intervened.
Preliminarily, the City contends that Stabilis is barred from raising this argument because it did not raise it in the trial court. "We have discretion, however, to address a pure question of law raised for the first time on appeal. [Citation.]" (Donorovich-Odonnell v. Harris (2015) 241 Cal.App.4th 1118, 1130 [194 Cal.Rptr.3d 579].) This argument presents just such a question. Moreover, it seems likely that the question will arise again in further fee proceedings in the trial court. We therefore exercise our discretion in favor of considering it.
The City does not explain how its motion to modify the receivership could be deemed a motion to appoint a receiver. But even assuming that, as a matter of pure semantics, it could, that is not what the Legislature intended.
Section 17980.7 contemplates that there is an "owner" presently in control of the property. Thus, it applies only "[i]f the owner fails to comply within a reasonable time with the terms of the order or notice issued pursuant to Section 17980.6." It requires the trial court to "consider whether the owner has been afforded a reasonable opportunity to correct the conditions cited in
Thus, the Legislature enacted Code of Civil Procedure section 568.3 precisely because, in its view, Health and Safety Code section 17980.7, subdivision (c) did not apply if a receiver had already been appointed.
Section 568.3 was enacted in 2001 as part of Assembly Bill 472 (2001-2002 Reg. Sess.). According to the legislative history of the bill, when a rental housing property is already in a receivership, "substandard conditions can continue for months or years because no one can be held accountable for repairs. The owner no longer controls the property or its finances, the lender has not yet taken title to the property, and the receiver cannot be held legally liable." (Sen. Housing & Community Development Com., Analysis of Assem. Bill No. 472 (2001-2002 Reg. Sess.) Jun. 27, 2001, Comments, p. 4.) "According to the author's office, this creates a sort of `legal limbo' in which no one is responsible for ensuring the tenants' health and safety." (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d Reading analysis of Assem. Bill 472 (2001-2002 Reg. Sess.) as amended Sept. 4, 2001, p. 4.)
In other words, the Legislature viewed Code of Civil Procedure section 568.3 as providing a remedy that was not already available under existing law — including Health and Safety Code section 17980.7, subdivision (c). If the Legislature had wanted an enforcement agency to be able to recover attorney fees and expenses when it intervenes in an existing receivership, it would have so provided in Code of Civil Procedure section 568.3. But it did not.
The City argues that it was proceeding under both Health and Safety Code section 17980.7, subdivision (c) and Code of Civil Procedure section 568.3. It points out that its motion to modify the receivership cited both sections. Moreover, in granting the motion, the trial court likewise cited both sections.
Stabilis also contends that the City was not entitled to attorney fees and expenses under section 17980.7, subdivision (d)(1), because that section authorizes such an award only against "the owner," and neither Stabilis nor the receivership estate is an "owner." The City, however, relies on section 17980.7, subdivision (f), which defines "owner" as including "any successor in interest who had actual or constructive knowledge of the notice, order, or prosecution."
Separately and alternatively, Stabilis and the receivership estate were not successors in interest to Valley and Mountain.
"Successor in interest" means "[s]omeone who follows another in ownership or control of property. A successor in interest retains the same rights as
The City understandably cites and relies on Estate of Baldwin (1943) 21 Cal.2d 586 [134 P.2d 259]. There, the Supreme Court held that "successor in interest," as used in Probate Code former section 1010, included a receiver. (Baldwin at pp. 591-592.) However, its reasoning, which turned in part on the "purpose" and "policy" behind Probate Code former section 1010 (Baldwin at p. 592), does not necessarily apply to Health and Safety Code section 17980.7. Indeed, the court acknowledged that "the adjudication of the meaning of the words `successor in interest' ... in distinguishable situations... is not determinative of the scope of that phrase as used by the Legislature relative to litigation in probate proceedings." (Baldwin, at p. 591.)
We therefore conclude that the City was not entitled to attorney fees and expenses under section 17980.7, subdivision (d)(1).
Finally, Stabilis contends that the City was not entitled to attorney fees and expenses under the Indio Municipal Code because it had not yet prevailed on its cause of action to abate a public nuisance.
Indio Municipal Code section 10.20(C) provides: "(C) The prevailing party in any action ... to abate a public nuisance ... may recover its reasonable attorneys' fees.... The non-prevailing parties shall be jointly and severally liable for all costs, expenses, and fees, including attorneys' fees, owed to the prevailing parties."
The key question, then, is whether Stabilis and the receivership estate were "non-prevailing parties" in an "action ... to abate a public nuisance." The City claims that it was the prevailing party because it had "obtained the very relief which it sought — namely the modification, discharge, and appointment of a new health and safety receiver." However, it sought that relief in its first cause of action; its public nuisance causes of action remained pending.
The City asserts that "a party is a `prevailing party' for attorneys' fees purposes if it `succeed[s] on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.' [Citation.]" Under Indio Municipal Code section 10.20(C), however, it had to be not only the prevailing party, but specifically the prevailing party in an "action ... to abate a public nuisance." Obtaining some of the benefit that it sought on a different cause of action did not qualify it.
The order modifying the receivership — which, according to the City, made it the prevailing party — did include a finding that "[t]he Subject Property is substandard, constitutes a public nuisance, and is being maintained in a manner that violates State and local laws." However, that did not make the City a prevailing party in an action to abate a public nuisance, because the nuisance had not yet been abated.
The Indio Municipal Code does not purport to expand nuisance liability any more broadly. It provides that a property owner can be ordered to abate a nuisance. (Indio Mun. Code, §§ 95A.108(A), 95A.113(C).) It also provides that "[u]pon the administrative, civil, or criminal determination that a party or parties is/are responsible for a nuisance condition or violation of this Code (`Responsible Party'), the Responsible Party shall become personally liable for the City's Enforcement Costs incurred in abating that public nuisance or prosecuting that violation." (Indio Mun. Code, § 10.23(B).)
Accordingly, the City's complaint alleged that "[t]he parties" had "caused," "maintain[ed]," and "allowed" the alleged public nuisances. The order modifying the receivership, however, did not adjudicate any particular party's responsibility for the nuisance. That awaited further litigation.
Admittedly, the trial court found that Stabilis should be liable for attorney fees, costs, and expenses supposedly because the substandard conditions developed under "the first receiver" (sic; in context, meaning receiver Carlson, the second receiver) and Stabilis was in "control of the first receiver." Stabilis contends, however, that this finding is not supported by the evidence. That is correct.
In connection with the motion for attorney fees and expenses, there was no evidence as to when the substandard conditions "developed." All the motion showed was that the City discovered the conditions during an inspection in March 2014. At that point, however, due to Valley and Mountain's bankruptcy, receiver Daly had not yet been able to take possession of the property. It was not until April 2014 that the automatic stay was lifted, receiver Carlson replaced receiver Daly, and receiver Carlson was finally able to take possession. We also note that there was no evidence that Stabilis exercised any control over receiver Daly.
Even assuming that control over receiver Carlson was relevant, there was no evidence in connection with the motion for attorney fees and expenses that Stabilis had such control. Moreover, in connection with the earlier motion to disqualify receiver Carlson, the trial court declined to find that Stabilis controlled him; it disqualified him only because he had entered into a prohibited agreement and had failed to make progress.
Our discussion in part III.B., ante, regarding prevailing and non-prevailing parties, adumbrates a broader issue.
The City cites Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553 [21 Cal.Rptr.3d 331, 101 P.3d 140] as holding (in the City's words) that "a favorable final judgment is not necessary." In Graham, however, the trial court had dismissed the case as moot because, while it was pending, the defendant had offered all of the relief sought. (Id. at p. 563.) Thus, there was a final judgment; it simply was not clearly favorable to the plaintiffs.
In this appeal, however, Stabilis has not argued that the City was not a prevailing party at all because there was no final judgment. Rather, it argues only narrowly — and only in connection with Indio Municipal Code section 10.20(C) — that the City was not the prevailing party on the causes of action to abate a public nuisance. The parties have not had an opportunity to brief
The order appealed from is reversed. Stabilis is awarded costs on appeal against the City.
McKinster, J., and Codrington, J., concurred.
We conclude that Neil Kaura is not a party to this appeal. We will disregard his role in the case from here on.