Opinion
A157970
08-12-2021
LAWRENCE S. DORFMAN, as Trustee, etc., Plaintiff and Respondent, v. RICHARD CARTER, Defendant and Appellant.
NOT TO BE PUBLISHED
City and County of San Francisco Super. Ct. No. CGC-18-568286
CHOU, J. [*]
Defendant Richard Carter appeals from an interlocutory judgment ordering the partition of a three-unit residential building located in the City and County of San Francisco by sale rather than in kind. He claims the trial court erroneously determined that the property could not be physically divided because of subdivision laws and bank encumbrances. We conclude the trial court did not abuse its discretion by ordering partition by sale. We affirm.
BACKGROUND
I. The Property
Carter and Lawrence S. Dorfman, the trustee of the Lawrence S. Dorfman Revocable Trust, are tenants in common-each holds title to an undivided one-half interest-in 711-713-715 Castro Street (the Property). Carter lives in 711 Castro Street, the bottom unit of the building.
There are two deeds of trust that encumber the entire Property. JP Morgan Chase Bank, N.A. (Chase Bank) holds a first-priority deed of trust securing repayment of a loan with a face principal value of $326,800.00, for which Dorfman and Carter are liable. That deed of trust warns that Dorfman and Carter “shall be in default if any action or proceeding, whether civil or criminal, is begun that, in [Chase Bank's] judgment, could result in forfeiture of the Property or other material impairment of [Chase Bank's] interest in the Property or rights under this Security Instrument.” The remedy for default is an immediate acceleration of all remaining debt. Chase Bank is also the current beneficiary of a second, junior deed of trust, originally executed in favor of Washington Mutual Bank, FA, securing repayment of a $150,000 equity line of credit.
II. Action for Partition
In 2018, Dorfman filed a complaint to partition the Property, naming Chase Bank and Carter as defendants. The parties stipulated to a conditional judgment with Chase Bank, excusing its further participation in the lawsuit. The stipulation was “contingent upon the Court's entry of a judgment for partition by sale of the Property.”
Dorfman later moved for summary judgment or, in the alternative, summary adjudication for partition by sale. He argued that a physical partition would violate the Subdivision Map Act, the San Francisco Subdivision Code, and the express terms of the deeds of trust by destroying the collateral on which the loans were issued. The trial court agreed, noting that “[g]iven the parties' interest in the property (50% each), the number of units (3), the restrictions placed on transfers by the deeds of trust, and strict rules against condominium conversions, the property cannot be physically divided.” The trial court rejected Carter's request that the Property be divided into three separate tenancies in common, noting that there “is nothing in the statutory scheme, Code of Civil Procedure § 872.010 et seq., that allows the Court to order the parties to enter into a Tenancy in Common (‘TIC') agreement to create three separate TIC interests.” The trial court then granted Dorfman summary adjudication and interlocutory judgment of partition by sale.
DISCUSSION
Carter challenges the interlocutory judgment for partition by sale, rather than in kind, arguing that the trial court's findings were erroneous and not supported by the evidence. After reviewing the undisputed facts, we disagree.
I. General Principles Governing Partition and Standard of Review
A co-owner of real property may file an action for partition, severing unity of possession in that property. (Code Civ. Proc., § 872.210, subd. (a)(1) ; Cummings v. Dessel (2017) 13 Cal.App.5th 589, 596 (Cummings).) Partition allows cotenants to “ ‘avoid the inconvenience and dissension arising from sharing joint possession of land' ” and facilitates transmission of title. (LEG Investments v. Boxler (2010) 183 Cal.App.4th 484, 493.) If the party is entitled to partition, the trial court makes an interlocutory judgment determining the interests of the parties in the property and may order the manner of partition at that time. (§ 872.720, subd. (a).)
All further references are to the Code of Civil Procedure unless otherwise indicated.
As relevant here, partition may be “in kind”-the physical division of property-or, if it would be more equitable, “by sale”-ordering “the property sold and the proceeds divided among the parties.” (Cummings, supra, 13 Cal.App.5th at p. 597.) Partition in kind is favored since it does not “ ‘compel a person to sell his property against his will.' ” (Ibid.) However, “[t]he 1976 revision of the partition statute, ” which changed “the standard for allowing a sale of property... from ‘great prejudice' to ‘more equitable,' ” enabled “sale in cases where it previously was precluded under the predecessor statute.” (Richmond v. Dofflemyer (1980) 105 Cal.App.3d 745, 757.) In doing so, the Legislature recognized that the sale of property is preferable “ ‘[in] many modern transactions... since the value of the divided parcels frequently will not equal the value of the whole parcel before division. Moreover, physical division may be impossible due to zoning restrictions or may be highly impractical....” (Butte Creek Island Ranch v. Crim (1982) 136 Cal.App.3d 360, 365 (Butte Creek).)
Nonetheless, the party seeking partition by sale bears the burden of proving that a sale is more equitable than physically dividing the property. (Butte Creek, supra, 136 Cal.App.3d at p. 366 [1976 revision to partition law expanded the “availability of partition sales, [but] it does not permit a partition sale in the absence of sufficient proof of the equities of such a method of partition”];§ 872.820, subd. (b).) “There are two types of evidence which have been held sufficient to justify a partition sale of property rather than physical division”-evidence that either the property cannot be divided into subparcels of equal value, or economic evidence that dividing the land would substantially diminish each party's interest. (Butte Creek, supra, 136 Cal.App.3d at pp. 366-367.) And proffering either type of evidence is sufficient. (Ibid.)
While this case was being briefed, Carter filed a request for judicial notice of the Law Revision Commission Comments concerning the 1976 addition of the partition statutes for the Code of Civil Procedure, and we deferred a ruling until the merits of the appeal. (See People v. Preslie (1977) 70 Cal.App.3d 486, 493-494.) We now deny the request because, as Carter points out, parties may cite to Law Revision Commission Comments without judicial notice. (Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 571, fn. 9.)
Generally, we review de novo a ruling on a motion for summary adjudication. (Prata v. Superior Court (2001) 91 Cal.App.4th 1128, 1135; see § 437c, subd. (f)(1).) However, “where a trial court is required to exercise its discretion in passing on a Code of Civil Procedure section 437c motion for summary judgment, and grants or denies such a motion on the basis of its equitable determination of a question as to which the exercise of judicial discretion is proper, the standard of review on appeal necessarily is whether the trial court's decision amounted to an abuse of discretion.” (Centennial Ins. Co. v. United States Fire Ins. Co. (2001) 88 Cal.App.4th 105, 111.) Even though an action for partition is statutory in origin, it is a proceeding in which the trial court makes its ruling based on equitable considerations. (Cummings, supra, 13 Cal.App.5th at pp. 596-597.) Thus, we review the interlocutory judgment of partition by sale for an abuse of discretion. (Id. at p. 597.) The trial court abuses its discretion if the application of the law to the facts is arbitrary and capricious, or the decision rests on an error of law. (Ibid.)
II. Analysis
On appeal, Carter does not seriously dispute Dorfman's status as a co-owner or his right to partition the Property. Instead, he primarily contends Dorfman did not meet his burden of demonstrating that partition by sale is more equitable than partition in kind, and he faults the trial court for failing to engage in a factually intensive inquiry before making its determination. Carter also claims there was no evidence that dividing the property “would substantially diminish the value of each party's interest, ” the second type of evidence that supports partition by sale. (Butte Creek, supra, 136 Cal.App.3d at p. 367.)
As explained below, the undisputed evidence showed that physically dividing the Property would be impossible or highly impractical in light of local subdivision ordinances and the deeds of trust. (See Butte Creek, supra, 136 Cal.App.3d at pp. 366-367.)
A. Subdivision Map Act and San Francisco Subdivision Code
Carter contends Dorfman failed to show that physical division of the Property is impossible or highly impractical under the San Francisco Subdivision Code. We disagree.
Any partition in kind must comply with any applicable laws, regulations, or ordinances governing the division of property. (§ 872.040.) The Subdivision Map Act, which governs the subdivision of real property in California, “vests the ‘[r]egulation and control of the design and improvement of subdivisions' in the legislative bodies of local agencies, which must promulgate ordinances on the subject.” (Gardner v. County of Sonoma (2003) 29 Cal.4th 990, 996-997, citing Gov. Code, § 66411, fn. omitted.) Landowners seeking to divide property must obtain city or county approval of the subdivision. (Witt Home Ranch, Inc. v. County of Sonoma (2008) 165 Cal.App.4th 543, 551, citing Gov. Code, §§ 66452.1, 66457, 66463.) A “subdivision” is “the division, by any subdivider, of any unit or units of improved or unimproved land, or any portion thereof, shown on the latest equalized county assessment roll as a unit or as contiguous units, for the purpose of sale, lease, or financing, whether immediate or future.” (Gov. Code, § 66424; S.F. Subd. Code, § 1308, subd. (h).)
The San Francisco Subdivision Code, governing the control and approval of subdivision development within the City and County of San Francisco, limits residential unit “conversion”-meaning a “subdivision which changes the type of ownership of real property to that defined as a Condominium project, Community Apartment project or Stock Cooperative and in which two or more condominiums, community apartments or units in a stock cooperative are newly created wholly or in substantial part within an existing residential structure or structures....” (S.F. Subd. Code, §§ 1308 [definition of conversion]; 1301, subd. (a) [code adopted pursuant to the Subdivision Map Act]; 1302 [purpose].) The Subdivision Code limits the number of eligible residential conversions to 200 units per year, awarded through a lottery system. (Id., § 1396, subd. (b).) However, the Department of Public Works, which processes conversion applications, will not accept any applications or conduct any lottery before January 1, 2024. (Id., § 1396.5, subd. (c); S.F. Ord. No. 117-13, [adding suspension of conversion lottery in June 2013].) Where, as here, Dorfman and Carter cannot submit any application to convert the Property until 2024, “the property is so situated that a division into subparcels of equal value cannot be made.” (See Butte Creek, supra, 136 Cal.App.3d at p. 365.)
Carter does not dispute that physically dividing the Property is a conversion or that these statutes currently restrict conversion of the Property. Instead, he belatedly argues that physical division of the Property is nonetheless possible because the San Francisco Director of Department of Public Works (Director) has discretionary authority to grant relief from these conversion requirements if the property fulfills certain criteria. (S.F. Subd. Code, § 1312, subd. (a) [“Director may authorize exceptions to any of the substantive requirements set forth in this [Subdivision] Code and in the Subdivision Regulations”].)
Carter, however, has forfeited this argument. First, he did not oppose summary adjudication on this ground. (See Arnall v. Superior Court (2010) 190 Cal.App.4th 360, 373-374.) Second, he raises the argument for the first time in his reply brief. (See Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894, fn. 10 [arguments raised for the first time in reply brief generally not considered].)
In any event, Carter does not point to anything in the record that indicates the Property fulfills the criteria necessary to obtain an exception from the Director. (S.F. Subd. Code, § 1312, subd. (a)(1)-(4) [before granting exception, Director must find there are unusual circumstances affecting the property, the exception is necessary for preservation and enjoyment of the property by applicant, exception will not be materially detrimental to the public welfare, and the City Planning Commission has determined after a public hearing, granting the exception is consistent with the Master Plan].) Instead, the record only indicates that Carter submitted a declaration from a real estate agent noting that a multi-unit property can be converted into multiple tenancies in common without going through the conversion process and without severing the tenancy-in-common ownership-an argument the trial court rejected and which Carter does not rehash on appeal. As a result, the trial court did not abuse its discretion in concluding that an order mandating the physical partition of the Property here would inappropriately avoid San Francisco's Subdivision Code and would be unenforceable. (See Pratt v. Adams (1964) 229 Cal.App.2d 602, 604, 606 [court order confirming referee's physical partition plan that bypassed state and local subdivision laws was not enforceable].)
B. Deeds of Trust
We further reject Carter's claim the trial court erroneously concluded that Chase Bank's deeds of trust render a partition by sale more equitable than a partition in kind. As Carter correctly points out, a partition cannot unlawfully interfere with the rights of lienholders. (Cummings v. Cummings (1888) 75 Cal. 434, 439.) He further acknowledges that splitting a lien into two would “limit or change the liability created by” the lien. (Ibid.)Indeed, the first-priority deed of trust states that Dorfman and Carter face default if a civil proceeding could result in a “material impairment” of Chase Bank's interest in the Property or its rights under the deed of trust. Physically dividing the property and splitting Chase Bank's lien and security for the debt thus violates the plain terms of the deed of trust and “would seriously impair if not utterly destroy the respective obligations of the [mortgages].” (Rich v. Smith (1915) 26 Cal.App. 775, 781 (Rich).)
Relying on Rich, a case addressing the physical partition of real property despite mortgage and lien encumbrances, Carter nonetheless claims that physical partition here is possible notwithstanding Chase Bank's deeds of trust. In Rich, the partition referee was directed to consider the scope and effect of outstanding mortgages and contracts of sale when making a physical partition, and make each divided subparcel subject to the same lien. (Rich, supra, 26 Cal.App. at pp. 780-782.) The court noted foreclosure under those circumstances would require a non-defaulting cotenant to pay the full mortgage debt on the entire property. (Id. at p. 782.) The court further explained that if any owner paid the outstanding debt, that owner may institute a subrogation proceeding to obtain those payments. (Ibid.) By failing to consider this option, Carter argues, the trial court failed to fully consider the scope and effect of a physical division on Chase Bank's lien. Rich, a case that predates the 1976 amendments to the Code of Civil Procedure expanding the possibility of partition by sale, however, is distinguishable.
The mortgages at issue in Rich were only “upon certain, separate, designated, and described portions of the common property.” (Rich, supra, 26 Cal.App. at p. 778, italics added.) The parties in Rich also did not dispute “that a partition by a sale of the entire property would result in the insolvency of both parties.” (Id. at p. 782.) By contrast, Chase Bank's deeds of trust cover the entire Property, and neither party claims a partition by sale would render either Carter or Dorfman insolvent. Thus, the trial court did not abuse its discretion by failing to order the physical partition solution adopted in Rich. Indeed, Carter does not explain how allowing each subparcel owner to remain jointly and severally liable for the full amount of the debt fulfills the purpose of partition here-to sever the unity of possession and disentangle the parties' ownership interests. (See 14859 Moorpark Homeowner's Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1404-1405 [partition is “ ‘the procedure for segregating and terminating common interests in the same parcel of property' ”].)
Carter also argues that partition by sale would push him out of his residence and the City and County of San Francisco because he would be unable to rent or purchase another home. This assertion, however, is belied by the record. Carter declared that if the trial court ordered partition by sale, he expected to exercise his statutory right to purchase the Property at the partition sale with a credit for his interest in the Property. Accordingly, the trial court appropriately determined that partition by sale was more equitable than physical partition, and its decision was not an abuse of discretion.
In light of this conclusion, we do not address the parties' policy arguments addressing the issues of partition by sale or by kind-those policy considerations are reflected in the current Code of Civil Procedure. (Butte Creek, supra, 136 Cal.App.3d at pp. 365-366.)
DISPOSITION
The judgment is affirmed.
WE CONCUR. PETROU, ACTING P.J., JACKSON, J.
[*] Judge of the San Mateo Sup. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.