Opinion
B235721
01-10-2012
BRUCE MASSMAN et al., Petitioners, v. SUPERIOR COURT OF THE STATE OF CALIFORNIA, FOR THE COUNTY OF LOS ANGELES Respondent; INTERNATIONAL TECHNICAL COATINGS, INC. Real Party in Interest.
The Byrne Law Office, John P. Byrne and Sherin Hackman, for Petitioners. Meserve, Mumper & Hughes, William E. von Behren, Zachary J. Brown; The Quinlan Law Firm, William J. Quinlan, Robert F. Greenlee, Lisa H. Quinlan and Sarah D. McTurnan, for Real Party in Interest. No appearance for Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC445950)
ORIGINAL PROCEEDINGS in mandate. Theresa Sanchez-Gordon, Judge. Petition denied.
The Byrne Law Office, John P. Byrne and Sherin Hackman, for Petitioners.
Meserve, Mumper & Hughes, William E. von Behren, Zachary J. Brown; The Quinlan Law Firm, William J. Quinlan, Robert F. Greenlee, Lisa H. Quinlan and Sarah D. McTurnan, for Real Party in Interest.
No appearance for Respondent.
Petitioners Bruce and Martin Massman seek a writ directing the trial court to set aside an order overruling their demurrer. We discharge the alternative writ and deny the petition.
FACTUAL AND PROCEDURAL HISTORY
Petitioners leased their commercial property to U.S. Fasteners. U.S. Fasteners owed substantial back rent, and petitioners filed an unlawful detainer action. In May 2010, judgment was entered for petitioners and the lease was declared forfeited. In June, petitioners obtained a writ of possession and instructed the sheriff to evict U.S. Fasteners. The sheriff did so the next month.
Petitioners discovered that U.S. Fasteners had abandoned personal property on the premises, including heavy machinery. They also found there were several recorded creditor liens against the machinery. Two of these liens were held by real party in interest International Technical Coatings (ITC) and defendant WireTech. On July 20, petitioners sent these creditors a "notice of right to reclaim abandoned property," in which they gave ITC and WireTech an opportunity to claim the property by August 7 and pay storage costs, or the property would be sold.
The itemized list of property does not appear in the record. ITC claims the property included a number of "wire stems" owned by ITC that U.S. Fasteners had borrowed. (ITC states a wire stem is a device for properly transporting steel wire.) ITC claims petitioners and WireTech deliberately failed to distinguish these from the other property left by U.S. Fasteners. ITC also claims WireTech did not have a recorded lien on the wire stems.
On July 22, WireTech responded, claiming a priority interest in the machinery of about $110,000. On August 2, ITC responded, confirming that it had a security interest in the property and stating that it intended to take possession before August 7. Petitioners responded to ITC, informing it that WireTech claimed a priority interest and was interested in a collaborative effort to liquidate the property.
ITC advised WireTech of its security interest and inquired as to the value of WireTech's security interest. WireTech did not respond. ITC informed petitioners that it had not received a response from WireTech and requested that petitioners advise it of the status of the property so it could participate in any procedures to transfer or liquidate the collateral.
The August 7 deadline passed without either party having tendered costs or removed the property. On August 9, petitioners advised both parties by letter that the property remained on their premises, but they were agreeable to a collaborative resolution.
During the next month, WireTech rejected ITC's offers to purchase its security interest in the machinery, including an offer of $400,000. On September 3, WireTech noticed a private foreclosure sale of the machinery under section 9610 of the Uniform Commercial Code. ITC responded with a demand to receive its share of the proceeds from any disposition due to its security interest in the collateral of approximately $353,000, and expressed its wish to participate in the sale and to inspect the machinery. WireTech advised ITC it could not inspect the collateral as it was "neither accepting bids nor selling particular items within the collateral." On September 13, WireTech rejected a cashier's check for $235,000 to satisfy U.S. Fasteners's debt.
On September 20, ITC sued petitioners and WireTech, and the court issued a temporary restraining order prohibiting WireTech and petitioners from selling the collateral or moving it outside the court's jurisdiction. At the hearing on the temporary restraining order, ITC learned that WireTech already had foreclosed on the property, including wire stems purportedly owned by ITC, by private sale to Libla Industries (Libla) for $214,268 on September 14, and that Libla had resold the wire stems back to WireTech for $1 each. On September 24, Libla took possession of the machinery and removed it from petitioners' premises where it had been stored since U.S. Fasteners was evicted on June 30.
In the first amended complaint, ITC asserted claims against petitioners for intentional interference with contract, conversion of collateral, conversion of wire stems, violation of Civil Code section 1988, unfair business practices, and civil conspiracy. ITC's theory was that WireTech and petitioners colluded to prevent ITC from recovering the property or any funds from its sale. ITC contended that in exchange for their participation in this arrangement, petitioners accepted inflated storage costs from WireTech and that these funds constituted improper payments to an unsecured creditor. ITC further alleged it was unreasonable for petitioners to believe WireTech owned the property since: (1) U.S. Fasteners had tendered full payment of its debt, thereby extinguishing WireTech's security interest in the machinery; (2) WireTech did not have any claim to the wire stems or intellectual property contained in the machinery; and (3) WireTech had not perfected its security interest in the machinery.
Petitioners demurred on the ground that each cause of action failed to state facts sufficient to state a cause of action. (Code Civ. Proc., § 430.10, subd. (e).)They alleged they were immune from liability because they had provided ITC with notice of the presence of the machinery on the property and its right to claim and remove it, and had released the property to WireTech, whom they believed to be the owner of the property. (§ 1174, subd. (k).)
All further code citations are to the Code of Civil Procedure, unless otherwise indicated.
The court rejected petitioners' claim. It stated that petitioners' compliance with the immunity statute is a factual issue not reachable by demurrer. The court sustained the demurrer with regard to ITC's claims for violations of Civil Code section 1988 and overruled the demurrer for the remaining causes of action.
This petition followed. We granted an alternative writ of mandate, ordering the Superior Court to either vacate its order or to appear and show cause why an order to do so should not be issued.
DISCUSSION
Petitioners argue the trial court erred in overruling their demurrer for two reasons: (1) the complaint pleads the necessary elements to entitle them to immunity under section 1174, subdivision (k); and (2) ITC lacks standing to bring a conversion claim because it lost its rights to the property by failing to tender storage costs.
I
The parties disagree about the applicable immunity statute. There are three statutes that grant landlords immunity from liability when they properly dispose of property abandoned by tenants who have vacated their premises: Civil Code section 1993 et seq. applies to commercial tenancies; Civil Code section 1980 et seq. applies to noncommercial tenancies; and section 1174 applies to all properties following the termination of a tenancy by an unlawful detainer judgment and writ of possession. By its terms, section 1174 does not distinguish between commercial and residential tenancies, however, it cross-references Civil Code section 1980 et seq. only.
Civil Code section 1993 et seq. provides an "optional procedure for the disposition of property that remains on the premises after a tenancy of commercial real property has terminated and the premises have been vacated by the tenant." (Civ. Code, § 1993.02.) Landlords who comply with this procedure are not liable with respect to that property as to any person to whom notice was given. (Civ. Code, § 1993.08.) To be entitled to this immunity the landlord must provide written notice to any person the landlord reasonably believes to be the owner of the property. (Civ. Code, § 1993.03, subd. (a).) The notice must describe the property and advise the party that "reasonable costs of storage may be charged before the property is returned, where the property may be claimed, and the date before which the claim must be made." (Civ. Code, § 1993.03, subd. (b).) The landlord must release the property to a claimant the landlord reasonably believes to be the owner of the property if this person "pays the reasonable cost of storage and takes possession of the property not later than the date specified in the notice for taking possession." (Civ. Code, § 1987, subd. (a).)
Like section 1174, Civil Code section 1993 et seq. also cross-references Civil Code section 1980 et seq.
If the landlord recovers an unlawful detainer judgment that terminates the lease, the landlord may obtain possession of the premises by enforcement of a writ of possession. (§§ 715.010, 1174, subd. (d).) If the landlord discovers the tenant has abandoned personal property there, it must store the property and give notice to any person believed to be its owner. (§ 1174, subds. (f)-(g).) The landlord must release the property to any person reasonably believed by the landlord to be the owner if that person pays the costs of storage and claims the property before the date specified in the notice. (§ 1174, subd. (h).) If the landlord releases the property in accordance with this procedure, the "landlord is not liable with respect to that property to . . . any person to whom notice was given pursuant to subdivision (f)." (§ 1174, subd. (k)(2).)
While the two statutes are nearly identical, there are two differences. First, Civil Code section 1993 requires landlords to release the property to an owner who takes possession of the property within the notice period while section 1174 requires the same when an owner claims the property. (Compare Civ. Code, § 1993.06 [cross-referencing Civ. Code, § 1987] with § 1174, subd. (h).) There is no case law defining the substantive distinction, if any, between these two requirements.
Second, Civil Code section 1993.02 provides that the procedure outlined in the statutory scheme is "optional," while section 1174 does not. In Gray v. Whitmore (1971) 17 Cal.App.3d 1, the court interpreted section 1174 to require the landlord to store the property and to entitle it to reasonable costs of storage incurred in fulfillment of this duty, paid by the party to whom the property is released or out of the proceeds realized upon a public sale of the property. (Gray v. Whitmore, at pp. 15-16.) The court stated, "When the landlord takes possession of the tenant's property he does so, in point of law, on the tenant's behalf in order to safeguard such property. . . . Th[e] objective is to restore the landlord to the rightful possession of his premises and at the same time obviate the possibility of loss or damage to the tenant's property where the tenant is himself unable to remove the property to a safe place." (Id. at p. 23.) Thus, unlike Civil Code section 1993, section 1174 mandates that landlords store the property and follow the prescribed procedure when they take possession after evicting the tenant. Section 1174 applies because U.S. Fasteners was evicted from petitioners premises. We need not decide whether petitioners could have followed the procedure in Civil Code section 1993 since they claim they followed the mandatory procedure in section 1174 rather than the optional one.
While section 1174 cross-references Civil Code section 1980 et seq., the residential tenancies statute, we conclude it does so only because Civil Code section 1993 et seq. was enacted after the most recent amendment to section 1174. (See Civ. Code, § 1993 (added by Stats. 2008, ch. 161, § 2).) Before the enactment of Civil Code section 1993 et seq., section 1980 et seq. applied to both residential and commercial tenancies. (See frmr. Civ. Code, § 1980 et seq.) We do not find the addition of the optional procedure in Civil Code section 1993 et seq. abrogated section 1174 with regard to property left after a commercial tenant has been evicted.
ITC prefers the immunity provision in Civil Code section 1993 et seq. because of its requirement that the landlord release the property to an owner who takes possession of the property within the notice period and petitioners' concession that no party took possession of the property within that time. But the distinction between an owner taking possession of the property and claiming it is not the dispositive issue since no party paid storage costs within the notice period.
II
Petitioners claim the court should have sustained the demurrer because the complaint pleads the necessary facts to entitle them to immunity under section 1174. On review of a court's ruling on demurrer, we accept the facts alleged in the plaintiff's complaint as true for the limited purpose of determining whether the plaintiff has stated a viable cause of action. (Stevenson v. Superior Court (1997) 16 Cal.4th 880, 885.) We review the trial court's decision on that issue de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 801.)
As we have discussed, the legislature has enacted provisions to protect landlords from litigation regarding the disposition of an evicted tenant's abandoned personal property. The landlord must give notice to any person believed to be the owner of the property and provide a time period, not less than 18 days where notice is delivered by mail, within which he or she must claim the property. (§ 1174, subd. (f).) "The landlord shall release the personal property . . . to a person reasonably believed by the landlord to be its owner if the . . . person pays the costs of storage . . . and claims the property not later than . . . the date specified in the notice before which a person other than the tenant must make his or her claim." (§ 1174, subd. (h), italics added.) Where there is no timely claim and tender of storage costs, the landlord must sell the property at public auction. (§ 1174, subd. (i).)
Petitioners concede and the pleading alleges that petitioners did not release the property before the expiration of the notice period. The notice, which is attached to the complaint, told ITC and WireTech to claim the property and pay storage costs not later than August 7, or the property would be sold at public auction. To the complaint, ITC attached an e-mail from petitioners' attorney dated August 9, stating that the personal property was still on petitioners' premises. ITC alleges petitioners did not release the property until September 24, when Libla removed it.
The grant of immunity requires landlords to follow the specific dictates of the statute. ITC pleads petitioners released the property after the notice period and did not follow the requirements of the immunity statute. In fact, under ITC's theory, petitioners and WireTech colluded to prevent a public sale after the expiration of the notice period, which is what the immunity statute requires. (See § 1174, subd. (i) [cross referencing Civ. Code, § 1988].) Thus, under the facts alleged in the pleading, petitioners are not entitled to immunity, and we affirm the trial court's order overruling petitioners' demurrer on this ground.
III
Petitioners demurred to ITC's conversion claims on the grounds that ITC forfeited its possessory interest in the property because it did not claim the machinery and pay the storage costs within the notice period. They argue this negates the element of conversion that requires plaintiff to have a right to possess the property. (See Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119 [elements of a conversion claim are: "(1) the plaintiff's ownership or right to possession of personal property; (2) the defendant's disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages"].) Petitioners similarly argue that they did not owe ITC a duty of care since it did not make a timely claim and payment.
Petitioners contend it was proper for them to release the personal property to WireTech even though WireTech did not tender storage costs within the notice period. They assert that we should interpret section 1174 to permit a landlord to grant reasonable extensions of time within which the owner may claim its property. This argument seems at odds with petitioners' position that ITC lost its possessory interests upon the termination of the notice period since it did not tender storage costs within this time.
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ITC concedes it did not tender storage costs within the notice period. We agree that a party who does not do so loses its procedural right to obtain release from the landlord after the expiration of the notice period. But we do not agree that this extinguishes a party's perfected security interest. For example, if petitioners were required to hold a public auction under section 1174 to dispose of the abandoned property, ITC would have retained a right to claim its share of any surplus from the sale. (See Civ. Code, §§ 1988, subd. (c), 1993.07, subd. (c)(1)-(2) ["any balance of the proceeds of the sale that is not claimed by . . . an owner other than the tenant shall be paid into the treasury of the county . . . . [¶] The . . . owner may claim the balance within one year from the date of payment to the county"]; see also Cal. U. Com. Code, § 9315, subd. (a)(2) ["A security interest attaches to any identifiable proceeds of collateral."].) Unless immunity applies, ITC retained its security interest, including its right to the proceeds from the disposition of the machinery, and can maintain a conversion claim.
Petitioners' demurrer to ITC's remaining tort claims was properly overruled on similar grounds. Petitioners contend they owe no duty to abandoned personal property owners who do not make timely claims to the property. As we have discussed, when there is no timely claim, section 1174, subdivision (i), requires landlords to sell the property at a public auction and deposit the excess proceeds with the county treasury. Had petitioners done so, and the sale been greater than the sum of the storage costs and any senior liens, ITC would have been able to claim its share. Instead, ITC got nothing. We conclude ITC sufficiently pleads that petitioners had a statutory duty to sell the property at a public auction since it was not timely released.
Further, ITC alleges petitioners knowingly released and facilitated the sale of wire stems which ITC alone owned. The question whether petitioners knew WireTech did not own the wire stems but allowed it to take possession, is not for resolution by demurrer. Thus, it was proper for the trial court to overrule petitioners' demurrer to ITC's conversion claims on this ground.
DISPOSITION
The petition is denied, and the alternative writ is discharged. Real party in interest is awarded its costs.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
EPSTEIN, P. J.
We concur:
WILLHITE, J.
SUZUKAWA, J.