CLEAR RECON CORP VS ALL CLAIMANTS TO SURPLUS FUNDS OF 2555 ANGELUS AVENUE, ROSEMEAD, CA 91770

Tentative Rulings

Case Number: 19STCP00538    Hearing Date: November 04, 2020    Dept: 25

HEARING DATE: Wed., November 4, 2020 JUDGE /DEPT: Blancarte/25

CASE NAME: Clear Recon Corp. v. All Claimants to Surplus Funds

CASE NUMBER: 19STCP00538 PET. FILED: 02-20-19

PROCEEDINGS: PETITION AND DECLARATION REGARDING UNRESOLVED CLAIMS AND DEPOSIT OF UNDISTRIBUTED SURPLUS PROCEEDS OF TRUSTEE’S SALE

MOVING PARTY: Petitioner Clear Recon Corp.

RESP. PARTY: Claimants Peter Tong and Ricky Poon

HEARING ON DISBURSEMENT OF SURPLUS FUNDS

(CCP §§2924(c)-(d))

TENTATIVE RULING:

Because Claimant Ricky Poon did not fully comply with the requirements of California Rules of Professional Conduct, rule 1.8.1 before acquiring an interest in his former client Claimant Peter Tong’s property, the entirety of the surplus funds of $19,781.13 will be disbursed to Claimant Peter Tong.

SERVICE:

[X] Proof of Service Timely Filed (CRC, rule 3.1300) OK

[X] Correct Address (CCP §§ 1013, 1013a) OK

[X] 16/21 Court Days Lapsed (CCP §§ 12c, 1005(b)) OK

OPPOSITION: None filed as of October 30, 2020 [ ] Late [X] None

REPLY: None filed as of October 30, 2020 [ ] Late [X] None

ANALYSIS:

1. Background

Petitioner Clear Recon Corporation (“Petitioner”) conducted a trustee’s sale on real property located at 2555 Angelus Ave., Rosemead, CA 91770 (the “Subject Property”), which was encumbered by a Deed of Trust executed by Peter Tong (“Mr. Tong”) and Joanne Tong on September 29, 2005. (Pet., ¶¶ 2-4.) The trustee’s sale took place on July 5, 2018 for a total sale price of $501,000, which rendered surplus funds of $58,071.37. (Id. at ¶ 4, 6.) Petitioner received a claim from Ricky Poon (“Mr. Poon”) in the amount of $19,781.13, which was disputed by Mr. Tong. (Id.) Petitioner distributed uncontested surplus funds of $35,030.24 to Joanne Tong and Mr. Tong. (Id. at ¶ 14.)

On February 20, 2019, Petitioner filed this Petition and Declaration Regarding Unresolved Claims and Deposit of Undistributed Surplus Proceeds of Trustee’s Sale (the “Petition”). On March 12, 2019, Joanne Tong and Mr. Tong filed a Response to the Petition. That same day, Mr. Poon filed a Notice of Claim and Claim for Surplus Funds.

The hearing on the Petition was initially held on June 26, 2019, at which time the Court found that Petitioner had not complied with all notice and other procedural requirements of Civil Code section 2924j, subdivisions (c) and (d). (6/26/19 Minute Order.) Thus, the hearing was continued and Petitioner was ordered to file and serve a corrected Notice of Intent to Deposit. (Id.)

Petitioner filed an Amended Notice on July 1, 2019. On July 29, 2019, the Court found that the Amended Notice contained all the information required by Civil Code section 2924j, subdivisions (c) and (d). (7/29/19 Minute Order.) Petitioner was therefore ordered to deposit funds of $19,781.13 with the Court within 10 days of receipt of the Order. (Id.) The Court also set a hearing to determine the disposition of funds for October 1, 2019, ordered each claimant to file a written response within 30 days of the Court’s order, and ordered each claimant to personally appear at the disbursement hearing. (Id.) Petitioner was ordered to give notice of the Court’s Order to all parties, claimants, and interested parties. (Id.) Finally, the Court noted that upon deposit of the funds with the Court and filing the proof of service of notice of the disbursement hearing, Petitioner would be discharged of any further responsibility for the disbursement of sale proceeds. (Id.)

At the hearing on October 1, 2019, the Court found that Mr. Tong and Mr. Poon had filed claims for the deposited funds, but that Petitioner had not deposited surplus funds with the Court. (10/1/19 Minute Order.) Accordingly, the Court continued the hearing to December 3, 2019, and ordered Petitioner to deposit the funds before the next hearing date or risk sanctions. (Id.) On November 14, 2019, the Court found the funds had been deposited. (11/14/19 Minute Order.)

On December 3, 2019, after hearing oral argument from the parties, the Court continued the hearing. (12/3/19 Minute Order.)

A hearing on the distribution of surplus funds took place on September 2, 2020. At that time, Petitioner informed the Court that it had deposited surplus funds and made an oral motion to discharge it from the case, which the Court granted. (9/2/20 Minute Order.) Mr. Tong and Mr. Poon appeared at the hearing. After hearing oral arguments from Mr. Tong and Mr. Poon, the Court took the matter under submission. (Id.) After taking the matter under submission, the Court found it was not persuaded by Mr. Tong’s argument that Mr. Poon was not entitled to any surplus funds because he never received a copy of the Retainer Agreement. (9/14/20 Minute Order.) However, the Court noted that the validity of the Promissory Note secured by a deed of trust filed against Mr. Tong’s real property depended on whether Mr. Poon, as Mr. Tong’s former counsel, complied with the requirements of California Rules of Professional Conduct, rule 1.8.1. (Id.) The Court ordered the parties to file supplemental briefs discussing whether or not the requirements of Rule 1.8.1 were met, as well as the reason the Promissory Note was executed in the amount of $50,000 when none of the invoices provided to Mr. Tong reflected that high balance. (Id.)

1. Legal Standard & Discussion

A. Validity of Promissory Note & Deed of Trust Filed Against the Subject Property

On March 20, 2018, Mr. Tong and Mr. Poon executed a Promissory Note secured by a deed of trust (the “Promissory Note”) in the amount of $50,000. (3/12/19 Notice of Claim & Claim for Surplus Funds, Poon Decl., ¶ 3, Exh. 2.) This note was later recorded against the Subject Property on April 11, 2018. (Id., Exh. 3.)

An attorney who secures payment of fees by acquiring a note secured by a deed of trust in the client’s property acquires an interest adverse to his client’s and thus, the attorney must comply with the requirements of California Rules of Professional Conduct, rule 1.8.1, formerly rules 3-300 and 5-101. (See Hawk v. State Bar (1988) 45 Cal.3d 589, 601.)

Rule 1.8.1 provides: “A lawyer shall not enter into a business transaction with a client, or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client, unless each of the following requirements has been satisfied:

(a) the transaction or acquisition and its terms are fair and reasonable to the client and the terms and the lawyer's role in the transaction or acquisition are fully disclosed and transmitted in writing to the client in a manner that should reasonably have been understood by the client;

(b) the client either is represented in the transaction or acquisition by an independent lawyer of the client's choice or the client is advised in writing to seek the advice of an independent lawyer of the client's choice and is given a reasonable opportunity to seek that advice; and

(c) the client thereafter provides informed written consent to the terms of the transaction or acquisition, and to the lawyer's role in it.” (Italics added.)

In his supplemental papers, Mr. Poon argues subdivision (a) is met because the Promissory Note itself states what the purpose of the note is. (10/9/20 Poon Supp. Brief, p. 3:24-28.) The Promissory Note states, in pertinent part:

“1. For value received, Peter Tong (hereinafter “Client”), promise [sic] to pay to the order of Law Offices of Ricky W. Poon (hereinafter “Law Firm”), the amount of fifty thousand dollars, $50,000.00…with no interest.

2. Whereas, Law firm is unwilling to extend or continue credit to the Client unless it receives a guaranty of the undersigned covering the Liabilities of the Client to Law firm, as hereinafter defined. Now, therefore, in consideration of the premises and of other good and valuable consideration and in order to induce Law firm from time to time, in its discretion, to extend or continue credit, whether now existing or hereinafter incurred, whether created directly or acquired by Law firm by assignment or otherwise, whether matured or unmatured and whether absolute or contingent (all of which are herein collectively referred to as the “Liabilities of the Client”).

3. The Borrower of this Note also agrees that this Note shall be paid in full, less the amount which client has paid, in one (1) month (the “Due Dates”) from the date that the case # BC675150 is either completed, counsel withdraws or any motion for relief as counsel is granted by [the] Court.”

…

5. The undersigned hereby waives (a) notice of acceptance of this Note (b) presentment and demand for payment of any of the Liabilities of the Client (c) protest and notice of dishonor or default to the undersigned or to any other party with respect to any of the Liabilities of the Client; and (d) all other notices to which the undersigned might otherwise be entitled.” (Id.) (Italics added.)

Mr. Poon argues that although attorney’s fees never reached a balance of $50,000.00, the promissory is still valid and fair because the parties agreed to that amount as it was unclear how much attorney’s fees would be incurred. (10/9/20 Poon Supp. Brief, p. 6:6-22.) Mr. Poon further argues that the language of the Promissory Note makes clear Mr. Tong would only be charged the amount outstanding at the conclusion of Mr. Tong’s former case. (Id.)

However, the provisions cited above do not make clear that Mr. Tong would only be liable for attorney’s fees incurred. Rather, it appears that Mr. Tong would be liable for the entire $50,000.00 minus whatever had been paid on that amount when Mr. Tong’s former case concluded. That Mr. Poon now must clarify the terms of the Promissory Note demonstrates these terms are somewhat ambiguous.

Mr. Poon also argues that he specifically advised Mr. Tong to seek the advice of an independent lawyer before signing the Promissory Note. The Promissory Note states, in pertinent part:

“Client acknowledges and agrees that he is entering into this promissory note and deed of trust knowingly and voluntarily. Client has had the opportunity to consult and may seek the advice of an independent lawyer of the client’s choice in connection with the drafting, negotiation, and execution of this promissory note and deed of trust. Client agrees that he has been given a reasonable opportunity to seek that advice.” (10/9/20 Poon Decl., ¶ 3, Exh. B.)

Mr. Tong was not represented by independent counsel in entering this transaction. (10/16/20 Tong Supp. Brief, p. 10:4.) In addition, the provision quoted above does not demonstrate Mr. Poon advised Mr. Tong to seek independent counsel. Rather, Mr. Poon advised Mr. Tong that he could obtain independent counsel, not that he should do so. Furthermore, the Promissory Note was signed on March 20, 2018, the same day Mr. Poon met with Mr. Tong. (10/9/20 Poon Supp. Brief, pp. 4:9-6:2.) Mr. Poon has not submitted any evidence demonstrating that he otherwise advised Mr. Tong in advance that he would be seeking a promissory note secured by a deed of trust against Mr. Tong’s Property prior to presenting him with the Promissory Note at their March 20, 2018 meeting. Mr. Poon argues that Mr. Tong had several weeks to seek independent counsel because he did not have the deed of trust notarized until April 10, 2018. (Id.; Poon Decl., ¶ 5, Exh. D.) However, as Mr. Tong was not explicitly advised to seek independent counsel before entering into this transaction, the Court is not persuaded this satisfies Mr. Poon's duties under Rule 1.8.1, subdivision (b).

Thus, the Court finds Mr. Tong was not specifically advised to obtain independent counsel or given a reasonable opportunity to do so.

As Mr. Poon did not fully comply with the requirements of California Rules of Professional Conduct, rule 1.8.1, the Promissory Note secured by a deed of trust on Mr. Tong’s Property is unenforceable. Accordingly, surplus funds of $19,781.13 will be disbursed in full to Mr. Tong.

1. Conclusion & Order

Because Claimant Ricky Poon did not fully comply with the requirements of California Rules of Professional Conduct, rule 1.8.1 before acquiring an interest in his former client Claimant Peter Tong’s property, the entirety of the surplus funds of $19,781.13 will be disbursed to Claimant Peter Tong.

Claimant Tong is ordered to give notice.

Case Number: 19STCP00538    Hearing Date: September 02, 2020    Dept: 25

HEARING DATE:    Wed., September 2, 2020 JUDGE /DEPT: Blancarte/25

CASE NAME:  Clear Recon Corp. v. All Claimants to Surplus Funds

CASE NUMBER: 19STCP00538 PET. FILED: 02-20-19

PROCEEDINGS:     PETITION AND DECLARATION REGARDING UNRESOLVED CLAIMS AND DEPOSIT OF UNDISTRIBUTED SURPLUS PROCEEDS OF TRUSTEE’S SALE

MOVING PARTY:   Petitioner Clear Recon Corp.

RESP. PARTY: Claimants Peter Tong and Ricky Poon

 HEARING ON DISBURSEMENT OF SURPLUS FUNDS  

(CCP §§2924(c)-(d))

TENTATIVE RULING:

No tentative ruling is issued at this time. However, the Court reserves the right to issue a ruling at the hearing following claimants’ oral argument and presentation of evidence, if any. 

SERVICE: 

[X] Proof of Service Timely Filed (CRC, rule 3.1300) OK

[X] Correct Address (CCP §§ 1013, 1013a) OK

[X] 16/21 Court Days Lapsed (CCP §§ 12c, 1005(b)) OK

OPPOSITION: None filed as of August 31, 2020 [   ] Late [X] None

REPLY: None filed as of August 31, 2020 [   ] Late [X] None

ANALYSIS:

1. Background & Discussion

On February 20, 2019, Petitioner Clear Recon Corporation (“Petitioner”) filed this Petition and Declaration Regarding Unresolved Claims and Deposit of Undistributed Surplus Proceeds of Trustee’s Sale (the “Petition”).

On March 12, 2019, Joanne Tong and Peter Tong filed a Response to the Petition. That same day, Ricky W. Poon filed a Notice of Claim and Claim for Surplus Funds.   

The hearing on the Petition was initially held on June 26, 2019, at which time the Court found that Petitioner had not complied with all notice and other procedural requirements of Civil Code section 2924j, subdivisions (c) and (d). (6/26/19 Minute Order.) Thus, the hearing was continued and Petitioner was ordered to file and serve a corrected Notice of Intent to Deposit. (Id.)

Petitioner filed an Amended Notice on July 1, 2019. On July 29, 2020, the Court found that the Amended Notice contained all the information required by Civil Code section 2924j, subdivisions (c) and (d). (7/29/19 Minute Order.) Petitioner was therefore ordered to deposit funds of $19,781.13 with the Court within 10 days of receipt of the Order. (Id.) The Court also set a hearing to determine the disposition of funds for October 1, 2019, ordered each claimant to file a written response within 30 days of the Court’s order, and ordered each claimant to personally appear at the disbursement hearing. (Id.) Petitioner was ordered to give notice of Court’s Order on all parties, claimants, and interested parties. (Id.) Finally, the Court noted that upon deposit of the funds with the Court and filing the proof of service of notice of the disbursement hearing, Petitioner would be discharged of any further responsibility for the disbursement of sale proceeds. (Id.)

At the hearing on October 1, 2019, the Court found that Peter Tong and Ricky Poon had filed claims for the deposited funds, but that Petitioner had not deposited surplus funds with the Court. (10/1/19 Minute Order.) Accordingly, the Court continued the hearing to December 3, 2019, and ordered Petitioner to deposit the funds before the next hearing date or risk sanctions. (Id.) The Court also set an OSC re: Petitioner’s Failure to Deposit Funds for November 14, 2019. (Id.)

At the November 14, 2019 hearing, the Court found the funds had been deposited. (11/14/19 Minute Order.) Thus, Petitioner has been discharged of further responsibility for the disbursement of sale proceeds.

On December 3, 2019, after hearing oral argument from the parties, the Court continued the hearing to June 4, 2020. (12/3/19 Minute Order.) [

To date, Peter Tong and Ricky Poon are the only parties that have filed a claim pursuant to Civil Code section 2924j, subdivision (d). The claimants are ordered to personally appear at the September 2, 2020 disbursement hearing. However, because disbursement of the surplus funds will depend on what occurs at the hearing on this matter, no tentative ruling is issued at this time. If no appearances are made, the matter will be set for an OSC re: Escheating Funds.

1. Conclusion & Order

No tentative ruling is issued at this time. However, the Court reserves the right to issue a ruling at the hearing following claimants’ oral argument and presentation of evidence, if any. 

Case Number: 19STCP00538    Hearing Date: December 03, 2019    Dept: 94

HEARING ON DISBURSEMENT OF FUNDS

(Civ. Code §§ 2924(c)-(d))

TENTATIVE RULING:

The is no tentative ruling on Claimants Peter Tong and Rick W. Poon’s Claims at this time. Per CCP § 386(e), a bench trial will be held, and the Court will determine whether and what amount of money judgment is appropriate given the Claims.