Opinion
G044640 Super. Ct. No. 30-2008-00115897
11-28-2011
SHORELINE PROPERTIES, LLC, Plaintiff and Appellant, v. WELLS FARGO BANK, N.A., et al., Defendants and Respondents.
Zfaty Burns, Isaac R. Zfaty and Ryan N. Burns for Plaintiff and Appellant. Fidelity National Law Group, Douglas W. Stern and Jack P. Wang for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
OPINION
Appeal from an order of the Superior Court of Orange County, Sheila Fell, Judge. Affirmed.
Zfaty Burns, Isaac R. Zfaty and Ryan N. Burns for Plaintiff and Appellant.
Fidelity National Law Group, Douglas W. Stern and Jack P. Wang for Defendants and Respondents.
Plaintiff Shoreline Properties, LLC (Shoreline) appeals from an order vacating a stipulated judgment between Shoreline and defendants John Martynec (Martynec) and Samax Capital, LLC (Samax) that quieted title to two properties in Shoreline. The trial court vacated the stipulated judgment on motions by defendants Wells Fargo Bank, N.A. (Wells Fargo) and Coastland Investments, Inc. (Coastland) because the stipulated judgment cut off Wells Fargo's and Coastland's interests in the properties based solely on a stipulation to which Wells Fargo and Coastland were not parties.
Shoreline contends the trial court erred because the relevant statutory scheme makes the quiet title judgment binding on nonparties. (See Code Civ. Proc., §§ 764.030, 764.045; all statutory references are to the Code of Civil Procedure unless otherwise noted.) As explained below, we disagree and affirm the trial court's order.
I
FACTS AND PROCEDURAL HISTORY
Shoreline alleged it is a real estate investment company engaged in the business of purchasing, refurbishing, and selling real property. According to Shoreline, it engaged Martynec as its exclusive agent to identify, purchase, refurbish, and sell properties in Shoreline's name. The underlying action involves a dispute over ownership regarding two properties Martynec purchased in his own name.
In May 2008, Martynec purchased a property located on Brookhurst Street in Huntington Beach, California (Brookhurst Property) and promptly transferred it to Samax, an entity he controlled. In July 2008, Martynec purchased a property located on Crestmont Place in Costa Mesa, California (Crestmont Property) and promptly transferred it to Samax.
In December 2008, Shoreline filed the underlying lawsuit against Martynec and Samax, alleging claims for breach of fiduciary duty and fraudulent conveyance based on Martynec's purchase of the Brookhurst Property and Crestmont Property (collectively, the Properties) in his own name and transferring them to Samax. At the same time, Shoreline recorded a lis pendens against both Properties to give notice of this lawsuit.
The complaint identifies four properties at issue between Shoreline, Martynec, and Samax, but two of the properties are located in Los Angeles County and do not involve Wells Fargo or Coastland. Accordingly, they are irrelevant to this appeal.
In February 2009, Samax sold the Crestmont Property to Hong Jun Chen, who executed a trust deed in Wells Fargo's favor to secure the purchase money loan he received from Wells Fargo. Wells Fargo later foreclosed on the Crestmont Property after Chen defaulted on the loan. In August 2009, Samax sold the Brookhurst Property to Coastland, which then spent over $269,000 on repairs and improvements.
Chen borrowed the purchase money from Wachovia Mortgage, FSB, but Wells Fargo succeeded to Wachovia's interest in the Crestmont Property when it merged with Wachovia.
Coastland received its interest in the Brookhurst property from Brookhurst Street Trust #19352 after Samax transferred its interest in the Brookhurst Property to the trust. Samax served as the trustee for the trust.
In February 2010, Shoreline filed a third amended complaint to add Wells Fargo and Coastland as defendants and, for the first time, allege a quiet title cause of action. The new cause of action sought to quiet title to the Properties against all named defendants and all other persons claiming any interest in the Properties. Wells Fargo and Coastland both filed answers contesting Shoreline's claim to the Properties. Coastland also filed a cross-complaint against Shoreline, seeking a declaratory judgment regarding its right to a setoff based upon the money it invested in the Brookhurst Property.
Two weeks after filing the third amended complaint, Shoreline negotiated a settlement with Martynec and Samax. As part of the settlement, Martynec and Samax agreed to pay Shoreline $150,000 and also signed a stipulated judgment quieting title to the Properties in Shoreline and declaring Martynec and Samax never held any interest in the Properties.
In September 2010, Shoreline orally dismissed Wells Fargo and Coastland from the action because it concluded the stipulated judgment was enforceable against Wells Fargo and Coastland. Shoreline then submitted the stipulated judgment to the trial court, which entered the judgment. After Shoreline dismissed the third amended complaint against Coastland, Coastland dismissed its cross-complaint against Shoreline.
A few weeks later, Wells Fargo and Coastland separately moved to vacate the stipulated judgment. On November 24, 2010, the trial court granted both motions, explaining the stipulated judgment "improperly included matters that affected the rights of parties who did not stipulate to the judgment. Shoreline now appeals from the trial court's ruling.
Both the appellant's appendix Shoreline filed and the joint respondents' appendix Wells Fargo and Coastland filed failed to include the trial court's November 24, 2010, minute order setting forth and explaining the court's ruling on the motions to vacate the stipulated judgment. We obtained a copy of the minute order from the trial court and, on our own motion, judicially notice the minute order. (Evid. Code, §§ 452, subd. (d), 459, subd. (a); Martin v. Inland Empire Utilities Agency (2011) 198 Cal.App.4th 611, 621, fn. 5.)
II
DISCUSSION
A. Standard of Review
"A ruling on a motion to vacate a judgment rests in the sound discretion of the trial court. [Citation] We will not reverse the exercise of such discretion except when there is clear abuse. [Citation .] We view all factual matters in the light most favorable to the prevailing party. [Citation.] [¶] 'Even though contrary findings could have been made, an appellate court should defer to the factual determinations made by the trial court. . . .' [Citation.] Moreover, when substantial evidence supports the trial court's order, there is no abuse of discretion. [Citation.]" (State of Arizona ex rel. Arizona Dept. of Revenue v. Yuen (2009) 179 Cal.App.4th 169, 178.) B. The Trial Court Had Authority to Vacate the Stipulated Judgment
Shoreline argues the trial court lacked authority to vacate the judgment because the parties stipulated to it. Shoreline cites Plaza Hollister Ltd. Partnership v. County of San Benito (1999) 72 Cal.App.4th 1 (Plaza Hollister), but Plaza Hollister merely stated that a trial court could not vacate a stipulated judgment under section 663 because that section, "by its own terms, applies only to a decision of the court based upon facts or to a special verdict of a jury" and therefore "has no logical application to stipulated judgments." (Plaza Hollister, at pp. 14-15.) Plaza Hollister, however, discussed other sources of authority a trial court could use to vacate stipulated judgments. (Id. at pp. 15-22, 36.)
Section 663 provides as follows: "A judgment or decree, when based upon a decision by the court, or the special verdict of a jury, may, upon motion of the party aggrieved, be set aside and vacated by the same court, and another and different judgment entered, for either of the following causes, materially affecting the substantial rights of the party and entitling the party to a different judgment: [¶] 1. Incorrect or erroneous legal basis for the decision, not consistent with or not supported by the facts; and in such case when the judgment is set aside, the statement of decision shall be amended and corrected. [¶] 2. A judgment or decree not consistent with or not supported by the special verdict."
Specifically, the Plaza Hollister court explained a trial court has inherent nonstatutory authority to vacate a void judgment at any time regardless of whether the judgment was entered pursuant to the parties' stipulation or following a trial on the merits. (Plaza Hollister, supra, 72 Cal.App.4th at pp. 12-13, 15, 19.) A judgment may be vacated as void if the trial court that entered it (1) lacked personal jurisdiction over a party; (2) lacked subject matter jurisdiction; or (3) "'grant[ed] relief that the court had no power to grant . . . .' [Citation.]" (Id. at p. 20, original italics.) A void judgment may be vacated on the motion of any person or entity "aggrieved" by the judgment, including nonparties. A nonparty is aggrieved and has standing to vacate a void judgment "'if some right or interest in him would be affected by its enforcement. [Citations.]' [Citation.]" (Id. at p. 16.)
With respect to stipulated judgments, the Plaza Hollister court further explained "a [trial] court 'may reject a stipulation that is contrary to public policy [citation], or one that incorporates an erroneous rule of law [citation].' [Citation.] The trial court has the duty to ensure that the stipulated judgment is just and cannot act as a mere puppet. [Citation.] More importantly, a court cannot validly enter a judgment or order which is void even if the parties agree to it. [Citations.]" (Plaza Hollister, supra, 72 Cal.App.4th at pp. 12-13.)
In Plaza Hollister, a property owner and the county board of supervisors stipulated to a judgment that reduced the value of the owner's property on the tax rolls and awarded the owner a tax refund. (Plaza Hollister, supra, 72 Cal.App.4th at pp. 7-8.) The county tax assessor, a nonparty, moved to vacate the stipulated judgment on the grounds that only the county board of equalization had authority to reduce the value of property listed on the tax rolls and the property owner failed to follow the mandatory procedures for seeking a tax refund. (Id. at pp. 8, 11-12.) Based on a trial court's inherent authority to vacate void judgments, the Court of Appeal found the stipulated judgment was void because the trial court granted relief it had no authority to grant. (Id. at pp. 12, 15, 22, 33, 36.)
Here, Wells Fargo and Coastland moved to vacate the stipulated judgment under section 663 and the trial court's inherent authority to vacate void judgments. Accordingly, as in Plaza Hollister, the trial court had authority to vacate a void stipulated judgment. C. The Trial Court Lacked the Authority to Grant the Relief Specified in the Stipulated Judgment
The stipulated judgment declared that Martynec and Samax never had any interest in the Properties and quieted title in Shoreline. The judgment affected Wells Fargo and Coastland because it cut off the interests they claimed in the Properties. Indeed, Shoreline specifically argues the stipulated judgment's legal effect was to quiet title in Shoreline as against Wells Fargo and Coastland even though they were not parties to the judgment. Moreover, the trial court vacated the stipulated judgment precisely because it divested Wells Fargo and Coastland of their claimed interests in the Properties without their agreement.
A stipulated judgment is a contract and courts interpret it as such. (Chacon v. Litke (2010) 181 Cal.App.4th 1234, 1252; Roden v. AmerisourceBergen Corp. (2007) 155 Cal.App.4th 1548, 1561; Sy First Family Ltd. Partnership v. Cheung (1999) 70 Cal.App.4th 1334, 1341.) "'It goes without saying that a contract cannot bind a nonparty.'" (Berglund v. Arthroscopic & Laser Surgery Center of San Diego, L.P. (2008) 44 Cal.4th 528, 536, quoting EEOC v. Waffle House, Inc. (2002) 534 U.S. 279, 294 [arbitration agreement may not be enforced against a nonparty].) Moreover, a stipulated judgment is "'"is binding only as to the matter consented to by the stipulation" [citation] . . . .'" (Rappenecker v. Sea-Land Service, Inc. (1979) 93 Cal.App.3d 256, 263.)
Wells Fargo and Coastland were not parties to the stipulated judgment and did not consent to its terms. Consequently, by granting relief that cut off Well Fargo's and Coastland's interests in the Properties, the stipulated judgment granted relief the trial court had no authority to grant and therefore the stipulated judgment was void. We find no abuse of discretion in the trial court's decision vacating the stipulated judgment. D. The Quiet Title Statutes Did Not Authorize the Trial Court to Enter a Judgment Cutting Off Wells Fargo's and Coastland's Interests in the Properties
1. Quiet Title Actions
A quiet title action is a statutory cause of action to establish title to or an interest in real property between adverse claimants. (See § 760.020, subd. (a); Western Aggregates, Inc. v. County of Yuba (2002) 101 Cal.App.4th 278, 305 ["'"The object of [a quiet title] action is to finally settle and determine, as between the parties, all conflicting claims to the property in controversy, and to decree to each such interest or estate therein as he may be entitled to"'"].) A quiet title action is one of the few proceedings that requires a plaintiff to record a lis pendens immediately upon filing the action. (§ 761.010(b); Greenwald & Asimow, Cal. Practice Guide: Real Property Transactions (The Rutter Group 2010) ¶ 11:533, p. 11-109.)
"A quiet title judgment has an 'in rem' effect so that all persons, known or unknown, will be bound by the judgment in plaintiffs favor, provided the plaintiff complies with all of the procedural requirements of the statutory framework. [Fn. omitted.]" (12 Miller & Starr, Cal. Real Estate (3d ed. 2011) § 34:111, p. 34-380 (hereafter Miller & Starr).) Specifically, sections 764.030 and 764.045 provide that a quiet title judgment is "binding and conclusive" not only on all parties to the action, but also all nonparties "who have any claim to the property which was not of record at the time the lis pendens was filed" unless "[t]he claim was actually known to the plaintiff . . . at the time the lis pendens was filed . . . ." In other words, a quiet title judgment binds a nonparty who asserts an unrecorded claim to the property unless the plaintiff knew about the claim when he or she recorded the lis pendens and nonetheless failed to name the claimant as a defendant.
Section 764.030 provides as follows: "The judgment in the action is binding and conclusive on all of the following persons, regardless of any legal disability: [¶] (a) All persons known and unknown who were parties to the action and who have any claim to the property, whether present or future, vested or contingent, legal or equitable, several or undivided. [¶] (b) Except as provided in Section 764.045, all persons who were not parties to the action and who have any claim to the property which was not of record at the time the lis pendens was filed or, if none was filed, at the time the judgment was recorded."
Section 764.045 provides as follows: "Except to the extent provided in Section 1908, the judgment does not affect a claim in the property or part thereof of any person who was not a party to the action if any of the following conditions is satisfied: [¶] (a) The claim was of record at the time the lis pendens was filed or, if none was filed, at the time the judgment was recorded. [¶] (b) The claim was actually known to the plaintiff or would have been reasonably apparent from an inspection of the property at the time the lis pendens was filed or, if none was filed, at the time the judgment was entered. Nothing in this subdivision shall be construed to impair the rights of a bona fide purchaser or encumbrancer for value dealing with the plaintiff or the plaintiff's successors in interest."
2. Shoreline Failed to Follow the Statutory Procedures Necessary to Obtain a Quiet Title Judgment Binding on Wells Fargo and Coastland
Based on the foregoing code sections defining a quiet title judgment's binding effect, Shoreline argues the stipulated judgment binds Wells Fargo and Coastland because their claims were not "of record" and were not known to Shoreline when it recorded its lis pendens in December 2008. Indeed, Shoreline contends it could not have known about Wells Fargo's and Coastland's claims when it recorded the lis pendens because they did not acquire their interests in the Properties until February and August 2009.
Sections 764.030 and 764.045, however, do not make the stipulated judgment binding and conclusive on Wells Fargo and Coastland because Shoreline knew about their claims when it asserted its quiet title cause of action. When Shoreline commenced this action and recorded its lis pendens, Shoreline alleged only two causes of action: one for a breach of fiduciary duty against Martynec and a second for fraudulent conveyance against Martynec and Samax. Shoreline did not allege its quiet title cause of action until it filed the third amended complaint in February 2010, which was one year after Wells Fargo acquired its interest in the Crestmont Property and six months after Coastland acquired its interest in the Brookhurst Property.
In determining whether the stipulated judgment binds Wells Fargo and Coastland, the relevant inquiry is whether Shoreline knew about Wells Fargo's and Coastland's claims when it first sought to invoke the statutory procedures to quiet title. Indeed, in defining a quiet title judgment's binding effect, sections 764.030 and 764.045 contemplate a lis pendens on the quiet title cause of action, not a lis pendens recorded 14 months earlier on other claims.
As noted above, a quiet title judgment binds a nonparty only if the plaintiff followed the procedures established by the quiet title statutes. (12 Miller & Starr, supra, Cal. Real Estate, § 34:111, p. 34-380.) These statutory procedures include naming as defendants all "persons having adverse claims that are of record or known to the plaintiff or reasonably apparent from an inspection of the property" (§ 762.060, subd. (b), italics added).
Shoreline knew about Wells Fargo's and Coastland's claims to the Properties when it first alleged its quiet title cause of action because it joined them as defendants and sought a judgment quieting title against their claims in the Properties. Nonetheless, Shoreline never attempted to obtain a judicial determination regarding its right to title against the interests Wells Fargo and Coastland claimed in the Properties. Instead, Shoreline negotiated a settlement with Martynec and Samax, voluntarily dismissed the quiet title cause of action against Wells Fargo and Coastland, stipulated with Martynec and Samax to quiet title to the Properties in Shoreline, and then asserted the stipulated judgment bound Wells Fargo and Coastland.
These manipulative litigation maneuvers do not satisfy the statutory requirements for obtaining a quiet title judgment binding on nonparties. If these maneuvers allowed Shoreline to obtain a quiet title judgment binding on Wells Fargo and Coastland, the requirement that a quiet title plaintiff name all known claimants as defendants would be rendered meaningless because it could be easily circumvented.
A plaintiff's failure to name a person or entity with a known claim as a defendant renders any judgment quieting title in the plaintiff unenforceable as against that unnamed person or entity. (See 12 Miller & Starr, supra, Cal. Real Estate, § 34:111, p. 34-380 ["The judgment also is not effective against a person without a recorded claim who was not made a party to the action if that person's claim was actually known to the plaintiff at any time before the judgment was entered, or where the claim would have been reasonably apparent from an inspection of the property"]; see also Gerhard v. Stephens (1968) 68 Cal.2d 864, 907-908 [quiet title judgment under earlier statutory scheme not binding on nonparties the plaintiff knew about but failed to name as defendants].) We conclude that dismissing a defendant with a known claim before any judicial determination regarding the plaintiff's title likewise renders any judgment quieting title in the plaintiff unenforceable against the dismissed defendant.
Moreover, before a trial court enters judgment quieting title, the statutory scheme requires the court to take evidence and examine the plaintiffs title against all defendants' claims: "The court shall examine into and determine the plaintiff's title against the claims of all the defendants. The court shall not enter judgment by default but shall in all cases require evidence of plaintiff's title and hear such evidence as may be offered respecting the claims of any of the defendants, other than claims the validity of which is admitted by the plaintiff in the complaint. The court shall render judgment in accordance with the evidence and the law." (§ 764.010, italics added.) Even when the defendants to a quiet title action default, the trial court must take evidence of the plaintiff's title before quieting title in the plaintiff. (Yeung v. Soos (2004) 119 Cal.App.4th 576, 581 ["In quiet title actions, judgment may not be entered by the normal default prove-up methods; the court must require evidence of the plaintiff's title"].)
Here, the trial court neither received evidence regarding, nor conducted any examination of, Shoreline's title. Instead, the trial court merely entered judgment pursuant to Shoreline, Martynec, and Samax's stipulation. Although Shoreline, Martynec, and Samax may stipulate to a judgment quieting title in the Properties among themselves, we conclude they may not stipulate to a quiet title judgment that is binding on nonparties, such as Wells Fargo and Coastland, that have known claims to the Properties.
We emphasize the only issue before us is whether the trial court abused its discretion in vacating the stipulated judgment. We express no opinion regarding either the validity or priority of any party's claim to the Properties. Moreover, our decision should not be construed as invalidating Shoreline's lis pendens. We merely hold that Shoreline may not use the lis pendens in conjunction with sections 764.030 and 764.045 to make the stipulated judgment binding and conclusive on Wells Fargo and Coastland. Assuming Shoreline's lis pendens met all statutory requirements, it would provide Wells Fargo and Coastland with constructive notice of the claims alleged in this action at the time they acquired their interests in the Properties. (§ 405.24; Behniwal v. Mix (2007) 147 Cal.App.4th 621, 638.) It is for the trial court to decide what impact that notice has on the merits of the parties' claims to the Properties.
III
DISPOSITION
The order vacating the stipulated judgment is affirmed. Wells Fargo and Coastland shall recover their costs on appeal.
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ARONSON, J.
WE CONCUR:
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RYLAARSDAM, ACTING P. J.
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BEDSWORTH, J.