Avalanche Funding v. Swickard

AVALANCHE FUNDING, LLC, Plaintiff and Appellant, v. TIM SWICKARD et al., Defendants and Respondents.

C083954

COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (Lassen)

September 12, 2019

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super. Ct. No. 59930)

This case involves an underlying dispute over grazing rights on rangeland in Lassen County, but the contentions in this appeal arise from an order sanctioning Avalanche Funding, LLC for bad faith and frivolous litigation conduct pursuant to Code of Civil Procedure section 128.5.¹ Avalanche Funding now contends the trial court erred in (1) applying an incorrect legal standard in imposing the sanctions, (2) finding that its claims were completely without merit against defendants Mapes Ranch, Inc. (Mapes Ranch), Five Dot Land and Cattle Co. and Tim Swickard (collectively the Mapes Ranchdefendants), (3) sanctioning it for exercising its right to dismiss the action, (4) imposing sanctions based on alleged discovery abuses, and (5) awarding sanctions without proof that the expenses claimed were incurred as a result of sanctionable conduct.

Finding that Avalanche Funding has not established a clear abuse of discretion, we will affirm the trial court's order. We deny Avalanche Funding's request for judicial notice as the document of which we are asked to judicially notice is not relevant to our review. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2; Huitt v. Southern California Gas Co. (2010) 188 Cal.App.4th 1586, 1605, fn. 10.) We also deny Avalanche Funding's request to strike the respondent's brief and consider certain arguments asserted by the Mapes Ranch defendants where supported by documents in the appellate record. (Cal. Rule of Court, rule 8.204(e)(2)(C); Critzer v. Enos (2010) 187 Cal.App.4th 1242, 1258, fn. 12.) In addition, we deny the Mapes Ranch defendants' summary request for sanctions on appeal. (Okasaki v. City of Elk Grove (2012) 203 Cal.App.4th 1043, 1045, fn. 1.)

BACKGROUND

Mapes Ranch sold certain real property in Lassen County to Norman Rice in 1993. A promissory note was secured by a deed of trust in favor of Mapes Ranch. Paragraph 3.02(c) of the sales contract provided that Rice granted Mapes Ranch the right to use the property for livestock so long as Mapes Ranch held the deed of trust. After the deed of trust was re-conveyed to Rice, Mapes Ranch would have the right of first refusal to continue livestock activities on terms to be agreed upon by Mapes Ranch and Rice, and Rice would have an option to purchase all future grazing rights from Mapes Ranch. Paragraph 5.06 of the sales contract required any amendments to the contract to be in a writing signed by Mapes Ranch and Rice.

The following year, Mapes Ranch granted the same real property to Rice and his wife Gloria. The grant deed reserved to Mapes Ranch the right to use the property for feeding, pasturing, maintenance and production of livestock. Mapes Ranch and Rice alsoagreed to a reservation of grazing rights. It provided that Mapes Ranch reserved the right to use and enjoy the property for livestock, and it gave Rice the exclusive option to purchase all grazing rights reserved by Mapes Ranch. The reservation provided that it superseded all prior related understandings between the parties.

Rice sold the property to Syed Arif in 1996. More than a decade later, in a letter of understanding, Mapes Ranch agreed that Arif succeeded to Rice's rights under the reservation. That same year, Arif and Syeda Begum signed a commercial promissory note agreeing to pay Avalanche Funding a specified amount. Arif and Begum executed a deed of trust in favor of Avalanche Funding. That deed of trust was subject to permitted exceptions, including the unrecorded reservation in favor of Mapes Ranch. Avalanche Funding claims Arif and Begum defaulted on their note.

John O'Brien, counsel for Avalanche Funding, and Timothy Swickard, counsel for Mapes Ranch, exchanged letters and e-mails about Mapes Ranch's interest in the property before Avalanche Funding filed the lawsuit that is the subject of this appeal. In those prelawsuit communications, Mr. O'Brien asserted that, pursuant to the sales contract between Mapes Ranch and Rice, Mapes Ranch no longer had any grazing rights in the property because it no longer held a deed of trust on the property. Mr. O'Brien repeatedly claimed that the deed of trust in favor of Mapes Ranch had been released. He later provided Mapes Ranch with a copy of what he represented was a deed of reconveyance. But that deed was signed by Hansen Cattle Company and not one of the Mapes Ranch defendants. Mr. O'Brien subsequently asserted that the letter of understanding between Arif and Mapes Ranch could not create a reservation in perpetuity and, in any event, did not bind Avalanche Funding.

Avalanche Funding filed a complaint against Arif, Begum, Tim Swickard, Mapes Ranch, Five Dot Cattle Company and others. Among other things, the complaint alleged that the Mapes Ranch defendants might claim an interest in the property pursuant to the reservation and sought a declaration that those defendants had no existing interest in theproperty. It also sought a decree that Avalanche Funding's interest in the property was senior to the defendants' interests.

At one point in the proceedings, the trial court asked the parties to provide evidence that the reservation of grazing rights was in Avalanche Funding's chain of title. Counsel for the Mapes Ranch defendants provided the trial court with a copy of the reservation and a title report and title policy referring to the reservation of grazing rights. The trial court sustained a demurrer to the amended complaint with leave to amend. Eight days later, Avalanche Funding filed a request for dismissal of the complaint without prejudice.

The Mapes Ranch defendants moved for sanctions against Avalanche Funding pursuant to section 128.5. They argued, among other things, that the action by Avalanche Funding against the Mapes Ranch defendants utterly lacked merit and was filed in bad faith because Avalanche Funding and its attorneys filed and prosecuted the action even though they knew Mapes Ranch owned grazing rights that were a permitted exception in the Avalanche Funding deed of trust. The trial court granted the Mapes Ranch defendants' sanctions motion. It ordered Avalanche Funding to pay sanctions in the sum of $27,253.51, which consisted of $25,000 in attorney's fees and $2,253.51 in costs.

STANDARD FOR REVIEW

We review an award of section 128.5 sanctions for abuse of discretion. (Wallis v. PHL Associates, Inc. (2008) 168 Cal.App.4th 882, 893 (Wallis).) " 'Discretion is abused whenever, in its exercise, the [trial] court exceeds the bounds of reason, all of the circumstances before it being considered. . . .' " (Denham v. Superior Court (1970) 2 Cal.3d 557, 566.) We presume the trial court's order is correct. (Id. at p. 564.) We do not independently determine whether the challenged conduct was frivolous or in bad faith, and we may not substitute our judgment for the judgment of the trial court. (Sabek, Inc. v. Engelhard Corp. (1998) 65 Cal.App.4th 992, 1001.) Unless the complaining partyshows a clear case of abuse and that there has been a miscarriage of justice, we will not disturb the trial court's exercise of discretion. (Denham, at p. 566.)

DISCUSSION

I

Avalanche Funding contends the trial court applied an incorrect legal standard in imposing sanctions under section 128.5. We disagree.

The version of section 128.5 that governs this appeal was enacted in 2014. (Stats. 2014, ch. 425, § 1 [effective Jan. 1, 2015, to Aug. 6, 2017].) Former subdivision (a) provided in pertinent part: "A trial court may order a party, the party's attorney, or both to pay the reasonable expenses, including attorney's fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay." (Stats. 2014, ch. 425, § 1.) "Actions or tactics" included the filing and service of a complaint and the making or opposing of motions. (Stats. 2014, ch. 425, § 1 [former § 128.5, subd. (b)(1)].) "Frivolous" meant totally and completely without merit or for the sole purpose of harassing an opposing party. (Stats. 2014, ch. 425, § 1 [former § 128.5, subd. (b)(2)].)

Under the relevant version of the statute, an objective standard applies to determine whether an action or tactic is made in bad faith and is frivolous.² (San Diegans for Open Government v. City of San Diego (2016) 247 Cal.App.4th 1306, 1311, 1318, superseded by statute on another point as stated in Nutrition Distribution, LLC v. Southern SARMs, Inc. (2018) 20 Cal.App.5th 117, 130 (San Diegans for OpenGovernment).) An action is totally and completely without merit and thus frivolous under section 128.5 when no reasonable attorney would have believed there was any merit to the action.³ (San Diegans for Open Government, at p. 1319; Gerbosi v. Gaims, Weil, West & Epstein, LLP (2011) 193 Cal.App.4th 435, 450; Wallis, supra, 168 Cal.App.4th at p. 893; In re Marriage of Drake (1997) 53 Cal.App.4th 1139, 1168.) That determination is made by examining whether the factual allegations of the claim had evidentiary support. (San Diegans for Open Government, at p. 1319.) When an action utterly lacks merit, the trial court may infer that the action was taken in bad faith. (In re Marriage of Drake, at p. 1169.)

A subjective standard applies to whether the sole purpose of an action is to harass an opposing party or an action is solely intended to cause unnecessary delay. (Chitsazzadeh v. Kramer & Kaslow (2011) 199 Cal.App.4th 676, 684.) Subjective motivation can be...