City of Fontana v. U.S. Bank

CITY OF FONTANA, Plaintiff and Respondent, v. U.S. BANK, N.A., as Trustee, etc., Defendant and Appellant;

RICHARDSON C. GRISWOLD, as Receiver, etc., Movant and Respondent.

E075481, E076228

California Court of Appeals, Fourth District, Second Division

April 7, 2022

NOT TO BE PUBLISHED

APPEAL from the Superior Court of San Bernardino County. No CIVDS1708435 Lynn M. Poncin, Judge. Affirmed.

Reed Smith, Kasey J. Curtis, Charles P. Hyun; Holland & Knight and Zachary C. Frampton for Defendant and Appellant.

Silver & Wright, Curtis R. Wright and Rene L. Farjeat for Plaintiff and Respondent.

Griswold Law, Richardson C. Griswold and Neil R. Sheaffer for Movant and Respondent.

Reed Smith, Kasey J. Curtis, Charles P. Hyun; Holland & Knight and Zachary C. Frampton for Bay Area Receivership Group as Amicus Curiae on behalf of Plaintiff and Respondent City of Fontana.

OPINION

MILLER Acting P. J.

The house of Romualdo Rodríguez and Rosa Rodríguez (collectively, the Rodríguezes) was in a state of disrepair. Defendant and appellant U.S. Bank (the Bank) is the trustee for the deed of trust on the Rodríguezes' house (the House). Plaintiff and respondent, the City of Fontana (the City) sent the Rodríguezes and the Bank a notice and order to repair or abate, but they failed to repair the House. On March 5 2018, the trial court appointed a receiver for the House movant and respondent Richardson C. Griswold (Griswold). On June 29, 2018, the trial court authorized the receiver to hire a real estate agent to list the House for sale in as-is condition. The Bank appealed the June 29, 2018, order to this court. We dismissed the appeal because an order authorizing the hiring of a real estate agent is not an appealable order. (City of Fontana v. U.S. Bank (Nov. 19, 2019, E070909) [nonpub. opn.].)

On July 6, 2020, the trial court approved the sale of the House. On August 5, 2020, the Bank appealed that ruling, which is case No. E075481 herein. On November 24, 2020, the trial court ordered the distribution of the sale proceeds in the following order of priority: (1st) the receiver's certificate; (2nd) the receiver's fees and costs; (3rd) the City's attorney fees and costs; and (4th) the Bank's lien. The Bank has also appealed the November 24 ruling, which is case No. E076228 herein. We consolidated the two appellate cases for purposes of briefing, oral argument, and decision.^[1]

On appeal, the Bank contends that the trial court lacked authority to subordinate the Bank's lien. Additionally, the Bank asserts the subordination of its lien is an unconstitutional taking. We affirm the orders.

FACTUAL AND PROCEDURAL HISTORY

The House, which is located in the City, first came to the City's attention in October 2014, due to "neighbor and resident complaints about it including illegal structures at the [House], mechanic work being done on the property without permits or plans, an empty pool with no equipment cockroach issues, and accumulation of a large amount of garbage and other debris." The House had an "unpermitted living unit in the main residence and in the garage. The unpermitted living unit in the main residence also contain[ed] an unpermitted kitchen, bedroom, and bathroom. The garage conversion also ha[d] a bathroom. The [House] ha[d] routinely been rented out and occupied by individuals." Some of the problems at the House included the garage ceiling buckling and being at risk of collapsing; the interior walls needing replacement due to being dilapidated; and exposed electrical wiring.

In October 2014, a notice of the violations was hand delivered to Rosa Rodríguez. Following inspections, more notices of violations were given to the Rodríguezes in November 2014, December 2014, May 2015, January 2016, and August 2016. A preprinted warning at the top of the August 2016 notice read, "Administration costs have now started to accrue and may be assessed as a tax lien if not paid." A handwritten note, toward the bottom of the August 2016 notice reads, "A lien has been placed against the property & an up-to-date bill will be prepared."

On March 2, 2017, the City sent an order to repair or abate to the Rodríguezes and the Bank. The notice reflected that the House was inspected in October 2016 and was found to "pose a substantial danger to the health, safety, and general welfare of the occupants, the surrounding community, and the public." The notice provided an extensive list of the problems at the House, including: (1) an unpermitted subdivision of the main residence; (2) an illegal garage conversion; (3) structural problems in the garage ceiling; (4) dilapidated interior walls; and (5) exposed electrical wiring.

The notice continued, "Therefore, pursuant to H&S section 17980.6, you are hereby ordered to repair or abate all code violations on the Nuisance Property, including, but not limited to, all unlawful conditions identified herein. Work to abate these unlawful conditions must begin within 10 days and must be completed within 30 days ("Compliance Deadline") or you will be subject to further legal action, potentially including receivership."

The repairs were not made. On May 3, 2017, the City filed a nuisance and receivership petition against the Rodríguezes and the Bank. In the petition, the City detailed the problems with the House and the multiple notices of violation that had been given to the Rodríguezes since October 2014. In the petition, the City further alleged that the citations given to the Rodríguezes failed to result in repairs. On May 23, 2017, the Bank's default was entered.^[2]

On December 20, 2017, the City moved for a receiver to be appointed. In the notice of motion, the City asserted that the notice and order of abatement had been recorded, and a "3 Day Notice was provided to all Respondents as required by statute prior to the filing of this Action." In its motion, the City asserted a receiver was necessary because the House "remains a structural and fire hazard, poses significant sanitation issues, and overall, is a public nuisance." The City further requested that the "receiver be authorized to fund the receivership estate with first priority liens used to pay property management and maintenance expenses, rehabilitation costs, the receiver's fees, and the City's costs, expenses, and attorneys' fees."

Despite having defaulted, on January 11, 2018, the Bank filed an opposition to the City's request for the appointment of a receiver. In the opposition, the Bank "object[ed] to [the] City's request to establish a super-priority lien regarding its costs, fees and receivership certificates unless and until the Court determines that any work proposed by [the] City or the (ultimately appointed) receiver is, in fact, necessary to remediate property code violations and that the Receiver has satisfied his fiduciary obligations to the receivership estate."

On January 23, 2018, the Bank moved to set aside its default. In its motion, the Bank explained that it had received the May 2017 petition concerning the alleged code violations. The Bank asserted that its attorney, Preston K. Ascherin (Ascherin), spoke with the City's attorney, Valerie Escalante Troesh (Troesh).^[3] Ascherin understood that the City would not try to "obtain direct relief against [the] Bank." "Ascherin regularly reached out to [Troesh] during the summer and fall of 2017 for updates on the status of the abatement efforts." Troesh informed Ascherin "that little progress had been made." Ascherin understood that to mean "the City would take no action on its Petition" because some attempt to resolve the code violations was being made by the Rodríguezes. Therefore, the Bank did not oppose the petition or previously seek relief from default.

The City filed Troesh's declaration. Troesh declared that Ascherin had been communicating with her via telephone and email since June 2017. Troesh "proposed to [Ascherin] that if [the] Bank was willing to agree to the appointment of a receiver and subordinate its lien on the [House] in favor of the receivership via stipulation and court order, the City would be willing to dismiss it from the action." The Bank asked for the costs of the receivership, which Troesh said the City could not provide because such an estimate would require the receiver to inspect the House. Ascherin continued to "reach out to [Troesh] asking for . . . update[s] on whether [the Rodríguezes] had done repairs."

On February 22, 2018, the trial court granted the Bank relief from default. On March 5, 2018, the trial court found the House constituted a public nuisance and that "[t]he building violations [at the House] are so extensive and of such a nature that the health and safety of the occupants and the public is substantially endangered." Further, the court found that the City gave the Bank a reasonable time to rehabilitate the House, and the Bank failed to comply with the notice and order of abatement.

The court appointed a receiver, Griswold. The court ordered, "Court Receiver may borrow funds as necessary to pay for the rehabilitation of the Nuisance Property and to pay the costs and debts of the receivership estate. All funds borrowed by Court Receiver on behalf of the receivership estate shall be entitled to become first-priority liens against the [House] superseding all other interests subject to this Receivership Order." The order further provided, "Court Receiver shall reimburse the City out of the receivership estate for all the City's reasonable inspection costs, investigation costs, enforcement costs, court costs, administrative fines, and attorney's fees incurred related to this Action."

In May 2018, Griswold recommended the House be sold in as-in condition for approximately $225, 000 because he did not believe he...