People v. Gregori

1

THE PEOPLE, Plaintiff, v. GINA GREGORI et al., Defendants.

BLAKE ALSBROOK, as Receiver, etc., Movant and Respondent; AVALON FUNDING CORPORATION Third Party Claimant and Appellant.

A164081

California Court of Appeals, First District, Fourth Division

February 15, 2024

NOT TO BE PUBLISHED

(San Francisco City & County Super. Ct. No. 17-008012)

GOLDMAN, J.

Avalon Funding Corporation (Avalon) appeals from a trial court order awarding fees to current and former receivers (collectively "Receiver") appointed pursuant to Penal Code section 186.11 (section 186.11) to manage and preserve certain property and assets. The receivership proceedings were pendent to a criminal action against Gina Gregori and her companies for insurance fraud. (§ 186.11, subd (d)(2).) The People charged Gregori with failing to pay millions of dollars in workers' compensation insurance premiums on behalf of the employees of her companies. The court established the receivership to preserve Gregori's assets for possible criminal fines and victim restitution.

One of the real properties in the receivership estate was located on Dolores Street in San Francisco and owned by Gregori's former romantic partner, Richard Bertero, with whom Gregori had commingled funds. Bertero used the Dolores Street property as collateral for a loan from Avalon. Later, Bertero filed for Chapter 11 bankruptcy; the Dolores Street property became part of the bankruptcy estate. The bankruptcy court released the Dolores Street property from the automatic bankruptcy stay to allow foreclosing lenders to sell it. When both Avalon and the Receiver made claims to the surplus proceeds from that sale, the trial court ordered the surplus turned over to it to resolve the priority of their claims. Relying on section 186.11, the court ordered that the bulk of the surplus be used to pay the Receiver's fees and expenses incurred in administering the receivership estate.

On appeal, Avalon argues that the Receiver had no valid claim to the surplus; that the court erred by applying section 186.11 rather than the nonjudicial foreclosure statute, Civil Code section 2924k; that the court lacked jurisdiction over the surplus; and that the court misapplied section 186.11. The Receiver argues that the trial court had jurisdiction over the surplus as part of the receivership estate and that the court properly exercised its discretion by finding that section 186.11 authorized it to pay the Receiver before paying Avalon.

We conclude that the trial court properly applied and interpreted section 186.11 and that Avalon has not otherwise shown that the court's actions were unlawful or an abuse of discretion. We therefore affirm.

BACKGROUND

I. Legal Background

Section 186.11, the "Freeze and Seize" statute, authorizes a trial court to appoint a receiver to preserve the assets of a criminal defendant subject to an "aggravated white collar crime enhancement" because the defendant was "charged with having committed two or more related felonies involving fraud . . ., a pattern of related felony conduct, and the taking of more than $100,000." (§ 186.11, subd. (a)(1), (d)(2), (e)(2); People v. Shah (2023) 96 Cal.App.5th 879, 887 (Shah); People v. Stark (2005) 131 Cal.App.4th 184, 203.) The court's goal in the pendent receivership proceedings is to prevent defendants from "dissipat[ing] or secreting [their] assets or property" while the criminal proceedings are pending, and then to use "those assets to pay restitution to victims if the People secure a conviction." (§ 186.11, subd. (d)(2); Shah, at p. 887.) A receiver may "take possession of, care for, manage, and operate the assets and properties so that the property may be maintained and preserved." (§ 186.11, subd. (e)(2).) "The court may order that a receiver appointed pursuant to [section 186.11] shall be compensated for all reasonable expenditures made or incurred by him or her in connection with the possession, care, management, and operation of any property or assets that are subject to [section 186.11]." (Ibid.) The statute was designed to "mak[e] it more difficult for someone convicted of an aggravated white collar crime to nevertheless benefit from their ill-gotten gains." (Shah, at p. 903.)

II. Factual Background

Gregori was charged with multiple counts of worker's compensation insurance fraud and associated thefts. The complaint alleged the white-collar criminal enhancement pursuant to section 186.11 and named as criminal defendants several of Gregori's companies, including Apex Janitorial Solutions (Apex).

The People moved for appointment of a receiver to manage and preserve Gregori's assets pursuant to section 186.11. The court granted the motion and issued an order appointing the Receiver, identifying the assets subject to the receivership, and specifying the Receiver's powers. Among other things, the Receiver was authorized to take possession of, collect income from, and otherwise operate, manage, preserve, and control Gregori's properties. The order also authorized the Receiver to request court approval and confirmation of all fees and expenses incurred by the receivership in executing its duties. The court "reserve[d] jurisdiction to allocate the receivership costs of administration as between the parties."

Starting in August 2017, the Receiver managed Apex's finances. In so doing, the Receiver learned that Avalon was lending money to Apex-referred to as a "factoring" agreement-to fund its operations. Avalon also was involved in a financial exchange with Bertero and Apex whereby Bertero used the Dolores Street property as collateral to pay Gregori's $500,000 bail while Avalon obtained a lien against the property. The Receiver later moved to dissolve Apex as insolvent, noting that both the Receiver and Avalon were making claims against Apex's assets and there was evidence that Gregori was funneling Apex's business to a newly incorporated entity.

After the People provided evidence that Gregori was commingling her and Apex's funds with Bertero, the court issued a second receivership order, dated March 7, 2018. The second order expanded the property subject to the receivership to include, among other things, the Dolores Street property.

In June 2020, Bertero filed for bankruptcy. The district attorney became aware of the filing in July 2020 through an email from a bankruptcy creditor who planned to foreclose on the Dolores Street property. When the Receiver learned of Bertero's bankruptcy filing, he contacted Bertero's bankruptcy counsel to address the Receiver's obligations pursuant to 11 U.S.C. section 543 to turn the property over to the bankruptcy estate. Creditors in the bankruptcy case then moved for relief from the automatic bankruptcy stay, which the court granted.

The nonjudicial foreclosure sale of the Dolores Street property resulted in surplus proceeds. Having received notice of the surplus from the foreclosure trustee, Avalon responded with a claim to the surplus. The Receiver contacted the foreclosure trustee to discuss the status of the receivership interest in the Dolores Street property and to request turnover of the surplus to the receivership court. Given Avalon's and the Receiver's competing claims to the surplus, the trustee agreed to turn over the surplus upon order of the receivership court. Meanwhile, on May 26, 2021, the bankruptcy case was dismissed.

The Receiver filed an ex parte application in the trial court on June 4, 2021, asking the foreclosure trustee to turn over the surplus to the receivership court. The court granted the Receiver's application, ordered the foreclosure trustee to turn the surplus over immediately, and directed the Receiver to "prepare and file a motion for final determination of ownership of the [surplus]."

III. The Trial Court's Order

With the surplus in the custody of the receivership, the Receiver moved the trial court to determine the priority of its and Avalon's claims to the surplus. The Receiver requested disbursement of roughly $148,000 in fees for his services, relying on section 186.11, subdivision (i) to argue that he was entitled to first priority to the surplus. The trial court rejected the Receiver's argument under subdivision (i), but concluded that it was appropriate to award the Receiver fees pursuant to subdivision (e)(2). The court rejected Avalon's further arguments and objections.

DISCUSSION

I. Standard of Review

We review matters of law, including statutory construction, de novo. (Shah, supra, 96 Cal.App.5th at p. 894.) "However, '[m]ost matters related to receiverships rest in the sound discretion of the trial court' and will not be disturbed on appeal absent an abuse of that discretion." (County of Sonoma v. Quail (2020) 56 Cal.App.5th 657, 671 (Quail), as mod. on den. of rehg., Oct. 28, 2020.)" 'Such deference is the rule, even where the court confirms extraordinary action by the receiver ....'" (Ibid.)

II. Analysis

Avalon advances several arguments on appeal. Primarily, Avalon argues that the court erred by applying section 186.11, rather than Civil Code section 2924k, to distribute the surplus, and that even if section 186.11 properly applies, subdivision (i) did not authorize the court to prioritize the Receiver's claim to the surplus. Relatedly, Avalon challenges the validity of the Receiver's claim to the surplus because the Receiver never operated or managed the Dolores Street property, and instead "lost" it to foreclosure. Avalon also contends for various reasons that the Receiver had no interest in the surplus that survived the bankruptcy case and/or the nonjudicial foreclosure of the Dolores Street property.

A. The Trial Court Was Not Required to Apply the Claim Priorities in Civil Code Section 2924k

Avalon argues that,...