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This case was last updated from Los Angeles County Superior Courts on 12/27/2020 at 20:22:02 (UTC).

CITY OF DUARTE VS LEVON H. BARDAKJIAN, ET AL

Case Summary

On 12/08/2017 CITY OF DUARTE filed an Other lawsuit against LEVON H BARDAKJIAN. This case was filed in Los Angeles County Superior Courts, Glendale Courthouse located in Los Angeles, California. The Judges overseeing this case are RALPH C. HOFER and FREDERICK ROTENBERG. The case status is Pending - Other Pending.

Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    ****7418

  • Filing Date:

    12/08/2017

  • Case Status:

    Pending - Other Pending

  • Case Type:

    Other

  • Court:

    Los Angeles County Superior Courts

  • Courthouse:

    Glendale Courthouse

  • County, State:

    Los Angeles, California

Judge Details

Presiding Judges

RALPH C. HOFER

FREDERICK ROTENBERG

 

Party Details

Plaintiff

CITY OF DUARTE

Defendants

GRANDPOINT BANK

BARDAKJIAN SYLVIA R.

BARDAKJIAN LEVON H.

JPMORGAN CHASE BANK N.A. DOE 1

Others and Not Classified By Court

ADAMS MARK

ADAMS MARK RECEIVER

JPMORGAN CHASE BANK N.A. SPECIALLY APPEARING FOR RESPONSE TO EX PARTE

BEATTY ERIC RECEIVER

ADAMS MARK S.

MIKEN CONSTRUCTION COMPANY INC.

GLAN INVESTMENTS LLC

SUPER PRIORITY LIENHOLDER GLAN INVESTMENTS LLC

Attorney/Law Firm Details

Plaintiff Attorneys

SILVER & WRIGHT LP

SILVER MATTHEW RAYMOND

FARJEAT RENE L.

Defendant and Not Classified By Court Attorneys

AROUSTAMIAN & ASSOCIATES

AROUSTAMIAN ARA

SORICH JOHN MICHAEL

GERLT-FERRARO MARIEL

ADAMS MARK S.

ASATOURIAN MICHAEL

SHAFRON SHELLY JAY

Other Attorney

CALIFORNIA RECEIVERSHIP GROUP

 

Court Documents

Minute Order - MINUTE ORDER (HEARING ON MOTION - OTHER TO CHALLENGE LIEN PROPERTY DETERMIN...)

10/23/2020: Minute Order - MINUTE ORDER (HEARING ON MOTION - OTHER TO CHALLENGE LIEN PROPERTY DETERMIN...)

Opposition - OPPOSITION DEFENDANTS OPPOSITION TO RECEIVERS MOTION FOR DISCHARGE AND EXONERATION OF SURETY; FIRST RECEIVERS REPORT OF ADMINISTRATION; FINAL ACCOUNT AND REPORT

10/9/2020: Opposition - OPPOSITION DEFENDANTS OPPOSITION TO RECEIVERS MOTION FOR DISCHARGE AND EXONERATION OF SURETY; FIRST RECEIVERS REPORT OF ADMINISTRATION; FINAL ACCOUNT AND REPORT

Motion for Attorney Fees

9/16/2020: Motion for Attorney Fees

Minute Order - MINUTE ORDER (ORDER TO SHOW CAUSE RE: RECEIVER MARK S. ADAMS'S DECLARATION ...)

8/13/2020: Minute Order - MINUTE ORDER (ORDER TO SHOW CAUSE RE: RECEIVER MARK S. ADAMS'S DECLARATION ...)

Notice - NOTICE NOTICE OF ENTRY OF ORDER OF INSTRUCTIONS TO RECEIVER

7/8/2020: Notice - NOTICE NOTICE OF ENTRY OF ORDER OF INSTRUCTIONS TO RECEIVER

Declaration - DECLARATION OF RENE L. FARJEAT

12/2/2019: Declaration - DECLARATION OF RENE L. FARJEAT

Notice - APPENDIX OF EXHIBITS IN SUPPORT OF CITY'S OPPOSITION TO DEFENDANTS' MOTION TO TERMINATE OR LIMIT RECEIVERSHIP

12/2/2019: Notice - APPENDIX OF EXHIBITS IN SUPPORT OF CITY'S OPPOSITION TO DEFENDANTS' MOTION TO TERMINATE OR LIMIT RECEIVERSHIP

Notice - NOTICE NOTICE OF CONTINUANCE AND NOTICE OF ENTRY OF ORDER

9/9/2019: Notice - NOTICE NOTICE OF CONTINUANCE AND NOTICE OF ENTRY OF ORDER

Minute Order - MINUTE ORDER (STATUS CONFERENCE RE INTERIM REPORT FROM RECEIVER)

8/27/2019: Minute Order - MINUTE ORDER (STATUS CONFERENCE RE INTERIM REPORT FROM RECEIVER)

Objection - OBJECTION DEFENDANTS OBJECTION TO THE JANUARY 2019 MONTHLY ACCOUNTING OF RECEIVERSHIP INCOME, EXPENSES AND INTERIM FEES

3/12/2019: Objection - OBJECTION DEFENDANTS OBJECTION TO THE JANUARY 2019 MONTHLY ACCOUNTING OF RECEIVERSHIP INCOME, EXPENSES AND INTERIM FEES

Notice of Case Management Conference

12/8/2017: Notice of Case Management Conference

Legacy Document - LEGACY DOCUMENT TYPE: Request for Dismissal-Partial

12/20/2017: Legacy Document - LEGACY DOCUMENT TYPE: Request for Dismissal-Partial

Minute Order - Minute order entered: 2018-02-21 00:00:00

2/21/2018: Minute Order - Minute order entered: 2018-02-21 00:00:00

Case Management Statement

4/20/2018: Case Management Statement

Undertaking

5/2/2018: Undertaking

Request for Judicial Notice

8/3/2018: Request for Judicial Notice

Minute Order - Minute order entered: 2018-10-05 00:00:00

10/5/2018: Minute Order - Minute order entered: 2018-10-05 00:00:00

Stipulation - No Order -

9/18/2018: Stipulation - No Order -

368 More Documents Available

 

Docket Entries

  • 01/29/2021
  • Hearing01/29/2021 at 09:00 AM in Department D at 600 East Broadway, Glendale, CA 91206; Hearing on Motion - Other to Challenge Lien Priority Determination and to Confirm Senior Priority of its Lien filed on behalf of Defendant JPMorgan Chase Bank

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  • 01/29/2021
  • Hearing01/29/2021 at 09:00 AM in Department D at 600 East Broadway, Glendale, CA 91206; Case Management Conference

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  • 12/24/2020
  • DocketNotice (of Ruling on Motion by Defendant JPMorgan Chase Bank, N.A., to Challenge Lien Priority Determination and to Confirm Senior Priority of its Lien); Filed by JPMorgan Chase Bank, N.A. (Doe 1) (Defendant)

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  • 12/18/2020
  • Docketat 09:00 AM in Department D; Case Management Conference (Global Case Management Order (all related cases)) - Not Held - Continued - Court's Motion

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  • 12/18/2020
  • Docketat 09:00 AM in Department D; Hearing on Motion for Leave (to File A Complaint against Former Receiver Mark Adams and California Receivership Group filed on behalf of Defendants Levon H. Bardakjian, et al.) - Held - Motion Granted

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  • 12/18/2020
  • Docketat 09:00 AM in Department D; Case Management Conference (Global (all related cases)) - Not Held - Vacated by Court

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  • 12/18/2020
  • Docketat 08:30 AM in Department D; Hearing on Motion - Other (to Challenge Lien Priority Determination and to Confirm Senior Priority of its Lien filed on behalf of Defendant JPMorgan Chase Bank) - Held - Continued

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  • 12/18/2020
  • DocketMinute Order ( (Hearing on Motion to Challenge Lien Priority Determination an...)); Filed by Clerk

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  • 12/16/2020
  • DocketProof of Service (not Summons and Complaint); Filed by Eric Beatty, Receiver (Non-Party)

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  • 12/16/2020
  • DocketDeclaration (Declaration of Receiver re Status of Rehabilitation); Filed by Eric Beatty, Receiver (Non-Party)

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514 More Docket Entries
  • 12/08/2017
  • DocketNotice (of Order to Show Cause Re Failure to Comply with Trial Court Delay Reduction Act); Filed by Clerk

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  • 12/08/2017
  • DocketOSC-Failure to File Proof of Serv; Filed by Court

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  • 12/08/2017
  • DocketSummons; Filed by Plaintiff

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  • 12/08/2017
  • DocketComplaint filed-Summons Issued

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  • 12/08/2017
  • DocketNotice of Case Management Conference; Filed by Court

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  • 12/08/2017
  • DocketNotice-Case Management Conference; Filed by Court

    Read MoreRead Less
  • 12/08/2017
  • DocketOSC-Failure to File Proof of Serv; Filed by Court

    Read MoreRead Less
  • 12/08/2017
  • DocketCivil Case Cover Sheet (Civil Case Cover Sheet Addendum and Statement of Location); Filed by Clerk

    Read MoreRead Less
  • 12/08/2017
  • DocketComplaint filed-Summons Issued; Filed by Attorney for Plaintiff

    Read MoreRead Less
  • 12/08/2017
  • DocketSummons Filed; Filed by Attorney for Plaintiff

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Tentative Rulings

Case Number: EC067418    Hearing Date: January 29, 2021    Dept: D

TENTATIVE RULING

Calendar: 18

Date: 1/29/2021

Case No: EC067418 Trial Date: None Set

Case Name: City of Duarte v. Bardakjian, et al.

MOTION TO CHALLENGE LIEN PRIORITY

RELIEF REQUESTED:

Order that any and all receiver certificates authorized in this action, and any other claimed senior interests by the Receiver or plaintiff, be deemed subordinate to the Deed of Trust held by defendant JP Morgan Chase Bank, N.A.

SUMMARY OF FACTS:

Plaintiff City of Duarte brings this action for Nuisance Abatement and Receivership with respect to a parcel of property in Duarte, owned by defendants Levon H. Bardakjian and Sylvia R. Bardakjian, as Trustees of their family trust. The City alleges that the subject property consists of a multi-unit apartment complex with approximately 28 individual residential units that are rented to tenants, with various structures, including two carport structures which have been severely damaged by a recent fire, and are at risk of total collapse. The City alleges that the subject property has been the focus of City code enforcement efforts since at least August of 2014, and contains dangerous and substandard building code and property maintenance violations, such that tenants are living on the property in dangerous and uninhabitable conditions. Plaintiff also alleges that the subject property poses a serious fire hazard and is an attractive nuisance for criminal activity.

The City has issued various notices of violation, conducted inspections, issued red tags and orders to repair, but the subject property continues to pose a threat to the health and safety of any occupants, neighbors and the public. On October 9, 2017, the City issued a Notice and Order to Abate citing 354 violations of law on the subject property, but the compliance deadline passed without compliance, and further inspection confirmed that most violations remained unabated. The City as provided a three day notice of the filing of the complaint.

The complaint was filed on December 8, 2017. On December 15, 2018, the City filed a Stipulation Between City of Duarte and Levon H. Bardakjian and Sylvia R. Bardakjian for Order Appointing a Receiver with Stayed Powers, which was signed by the court on December 15, 2018.

The Order provides for appointment of a Receiver immediately, but the powers of the Receiver are to be stayed while owners attempt to bring the subject property into full compliance in accordance with an express Compliance Schedule. The Order provides:

“This Order shall be stayed as long as the rehabilitation work on the Subject Property is conducted in full compliance with the Compliance Schedule. In the event any provision of the Compliance Schedule is not complied with, as determined by the City, then the stay shall immediately and automatically terminate.”

The file shows that California Receivership Group filed its Oath of Receiver and an undertaking in the sum of $10,000. On May 7, 2018, the court heard an ex parte request of defendants for an order for stay of the receivership order, which was granted and the court’s minute order orders a 60 day stay on the Receivership order, ordering, “However, the Receiver may have access to the subject property to continue his inspection and estimate of work.” The signed order states that the powers of the Receiver shall be stayed for 60 days, “except as to the efforts regarding estimates and budgets.” [Ex. 1].

The parties appear to agree that this stay was extended and ultimately expired on September 17, 2018.

The Receiver has been submitting reports, and the court has made orders approving interim fees and costs, and issuing instructions in with respect to the receivership.

The file shows that on April 17, 2020, the court signed and filed a Joint Stipulation for Order Appointing Beatty as Replacement Receiver, executed by all parties, including defendant JPMorgan Chase Bank, pursuant to which it was ordered that Replacement Receiver Eric Beatty was immediately appointed over the subject property to replace Receiver Adams, subject to the court’s orders concerning the receivership. The stipulation states, “Receiver Adams shall proceed to file his final accounting by noticed motion.”

On April 22, 2020, the Replacement Receiver filed his Oath and an Undertaking in the sum of $10,000.00.

On October 23, 2020, the court heard various motions brought in connection with the receivership, including the current motion to challenge lien priority, and a motion to surcharge the former receiver for unauthorized fees and expenses. The other motions were resolved at that hearing. The Court’s ruling provides, in pertinent part:

“Motion to Challenge Lien Priority Determination and to Confirm Senior Priority of its Lien filed on behalf of Defendant JPMorgan Chase Bank, N.A. is CONTINUED to December 18, 2020, for hearing on a determination concerning the equities with respect to the matter. Defendant Chase is ordered to give notice of the hearing to all interested parties, including all certificate holders or lienholders against which Chase seeks to establish hold interests subordinate to defendant’s interest, no later than October 30, 2020. Defendants Chase and the Receiver may file and serve supplemental briefs and evidence on any issues they would like to submit supplemental briefing on no later than November 6, 2020, and supplemental replies will be due by the current parties no later than November 20, 2020. The lienholders given notice by defendant Chase may serve and file responsive papers no later than November 20, 2020, with replies to be served and filed no later than December 2, 2020. The Court will expect supplemental briefing to clearly address and provide evidence concerning the equities in this matter pertaining to all interested parties.”

The minute order also stated:

“The court will also expect that prior to the hearing, the parties will file evidence concerning the equities as set forth in the legal authorities cited by both sides, including a showing by the Receiver that multiple lenders have been contacted by the Receiver and asked if they would issue certificates in the second position, and have indicated they would not.”

On December 18, 2020, the court again heard this motion, along with a motion for leave to file a complaint against the former receiver. The motion for leave was granted.

With respect to this matter, the court had received supplemental briefing according to the schedule set forth in the minute order, but had not received any showing by the receiver regarding the contacting of lenders until December 16, 2020, two court days prior to the hearing, when a Declaration of Receiver Re Status of Rehabilitation and Efforts to Secure Funding was filed and served.

The court published its tentative ruling on the evening of December 17, 2020, which was to deny the motion, and to decline to award the relief sought in the motion, but to stay the issuance of its ruling to permit the submission of briefs limited to responding to the showing by the Receiver which had been filed on December 16, 2020. The minute order states, in pertinent part:

“The Court will stay the final issuance of its ruling to permit the submission of briefs limited to responding only to the matters raised in the Declaration of Receiver Re Status of Rehabilitation and Efforts to Secure Funding, filed and served December 16, 2020. Briefs are to be filed and served no later than January 15, 2021, with the Receiver to file and serve any reply no later than January 22, 2021. The matter will be continued to January 29, 2021 for further hearing related only to the issues set forth in the above-referred declaration filed belatedly by the Receiver.”

The matter was continued to this date. Supplemental briefing has been filed.

ANALYSIS:

Defendant JP Morgan Chase Bank, N.A. seeks an order that any and all receiver certificates authorized in this action, and any other claimed senior interests by the Receiver or plaintiff, be deemed subordinate to the Deed of Trust held by defendant Chase.

The matter was continued for the limited purpose of permitting the parties to address the Declaration of Receiver Re Status of Rehabilitation and Efforts to Secure Funding, filed and served on December 16, 2020. The Court in its December 18, 2020 minute order has addressed all other issues raised by the parties in connection with this matter, and that order will now become the final order of the Court.

With respect to the supplemental briefing, the Court has considered all supplemental briefing and replies on the limited issue of the matters addressed in the Declaration of Receiver Re Status of Rehabilitation and Efforts to Secure Funding

The Declaration of Receiver indicates that the receiver has contacted each of the lenders from which the current receiver, Eric Beatty, has obtained a Certificate of Indebtedness loan since 2000 in order to determine their willingness to make further loans to the receiver based on a subordinated security interest in the property. [Receiver Decl., para. 9].

The receiver describes contacting seven specified lenders, two of which no longer makes loans to receivers (one because of inability to obtain title insurance), and one of which, Dayco Funding Corporation, will only make a loan secured by a first deed of trust on real property, and was unwilling to make a loan secured by the subject property regardless of priority, given the outstanding Certificates of Indebtedness and the mechanic’s lien foreclosure action filed by Miken. [Receiver Decl., para. 9, A-C]. The remaining five lenders, including Glan, have advised the receiver they are unwilling to make a loan secured by subordinated interest in the property. [Receiver Decl., para. 9 D-G]. One of the listed lenders which is unwilling to make a loan in a subordinated position, Receivership Lending, LLC, has provided a written response which is submitted as Exhibit D, and affirmatively declines to provide any further loans on the subject property, due to perceived cost run ups beyond what it estimated work should have been completed for, the mechanic’s lien, which the lender concludes, “indicates the construction project was not managed correctly,” and the rent rolls showing unhappy tenants. [Ex. D].

The receiver explains the nature of the loans which can be obtained under the circumstances:

“11. I cannot obtain a loan secured by the Property from a national bank or regulated financial institution. This is because a Certificate of Indebtedness loan cannot meet the lending criteria which banks and other financial institutions are required to adopt and follow in making real estate loan. A Certificate of Indebtedness is, by its nature, a loan made to a borrower who holds no ownership interest in the real property which will serve as the lender’s collateral. The lender’s security interest in the collateral is uninsurable. The collateral itself is almost always substandard and always the subject of pending litigation.

12. With one exception, I have never successfully obtained a commitment from a lender to make a loan based upon a Certificate of Indebtedness subordinate to any other private lien except for liens securing other Certificates of Indebtedness held by that same lender.3

13. The most meaningful protection for a lender’s investment when it makes a Certificate of Indebtedness loan is the Court’s order granting it a super-priority security interest in the property which is the subject of the loan. Without that protection, the lender’s investment is at risk of being impaired by foreclosure proceedings initiated by a senior lienholder. At the same time, the lender’s ability to protect its investment through foreclosure proceedings maybe impaired if the amounts of the senior liens make a sale to a third party willing to buy the collateral subject to the senior liens infeasible.

14. Finally, unlike most other lenders, the lender on a Certificate of Indebtedness has no recourse against the borrower; its only recourse in the event of a default is a foreclosure sale. As such, the viability of the lender’s security interest is not simply the most meaningful protection for its investment, it is its only meaningful protection.

[Receiver’s Decl., paras. 11-14].

The Court previously indicated its inclination to consider this declaration, find that the information concerning the nature of available loan options is consistent with the Feldman, Adams and Wallace Declarations, but to consider any requested supplemental briefing before issuing a final ruling.

The Court has now considered that briefing. The Court notes that the former receiver, Mark Adams, has filed a declaration in response to the December 16, 2020 Declaration, which primarily objects that the former receiver was not served with the subject Declaration, and seeks to correct certain representations made in that declaration concerning the status of the rehabilitation efforts. The declaration does not address the statements of the current receiver concerning the availability or unavailability of lending opportunities, and does not contradict any of the statements explaining the options of a receiver in the current circumstances. [Adams Decl., filed 1/14/21]. The Court will order that all papers filed and served in this matter must also be served on the former receiver at the address of record in this matter.

The supplemental papers of the moving party JP Morgan Chase Bank also do not submit any information contradicting the statements of the subject Declaration, but argue that the issue of future financing is not material to resolving the instant motion in deciding whether Chase, which already holds a security interest in the property, was deprived of an opportunity to protect its senior lien interest. The argument appears addressed only to the issue of notice to Chase with respect to the previously issued loan, when this court has already continued this matter more than once to permit Chase the appropriate opportunity to be heard on this issue. As pointed out by the City in its reply, this is beyond the limited issue for which the court permitted supplemental briefing and argument.

Chase suggests that since the Declaration of the receiver implies that there are lenders who in the future will likely consider providing funding to this project so long as such funding is secured by a super-priority lien, this court may now order that such future funding be secured by a super-priority lien, but should order that the pre-existing loan by Glan should not be recognized as having that status.

There is nothing in the argument which challenges the difficulties described in the subject Declaration with respect to obtaining loans for the project. The court accordingly finds unchallenged the evidence offered in the subject Declaration of the actual unavailability of traditional lending options, which provides the court with support for its finding that the equities in this matter weigh heavily in favor of affording the super-priority status to the subject loan.

The reply submitted by the lender Glan Investments, LLC points out that the Chase’s supplemental papers are based on speculation that a new lender, other than Glan, would make a loan to the receiver sufficient to fully fund the remediation, and that Chase has not, for example, submitted evidence showing it has inquired of lenders and found that a lender would commit to the type of loan required on the property under the circumstances described on a super-priority basis, and has not clearly offered to do so itself. The replies also point out that any loss of super-priority status proposed by Chase here, practically speaking, will likely result in the current receiver having to repay or replace that funding with a new super-priority loan, if available.

Based on all of the submitted materials and argument, and in weighing the equities, the court’s previous tentative ruling of December 18, 2020 now becomes the final order of the court. The Court will find that notice and an opportunity to be heard has now been provided to defendant Chase, and that the equities weigh heavily in favor of the Court exercising its discretion to extend super-priority status to the loan obtained by the receiver from Glan Investments, LLC.

RULING:

Motion to Challenge Lien Priority Determination and to Confirm Senior Priority of its Lien filed on behalf of Defendant JPMorgan Chase Bank, N.A.:

The Court notes that notice of the hearing was given to all interested parties, and that moving defendant has been permitted a full opportunity to be heard.

The Court has considered all supplemental briefing, including the materials submitted concerning the equities in this matter pertaining to all interested parties, and the recent legal authority previously only partly addressed due to the timing of its publication, as well as the Declaration of Receiver Re Status of Rehabilitation and Efforts to Secure Funding filed and served on December 16, 2020, and the supplemental briefing filed to address that Declaration.

The Court’s order of December 18, 2020 now becomes the final order of the Court and is incorporated in its entirety by reference.

In sum, the Court declines to award the relief sought in the motion. After notice and further due consideration, the Court finds that it is appropriate under all of the circumstances, and in weighing the equities to designate the loan issued by Glan Investments, LLC as subject to a super-priority lien.

The Court further orders that all papers filed and served in this matter must also be served on the former receiver, Mark Adams/California Receivership Group, at the address of record in this matter.

Evidentiary Objections of Defendant JP Morgan Chase Bank, N.A.: Objections to Declaration of Gerald Feldman, Objection No. 3 is SUSTAINED only as to the matter beginning with “If the Bank had been willing to pay off the Glan loan” through “in its December 20, 2019 order.” Objection is otherwise OVERRULED.

All other objections are OVERRULED.

GIVEN THE CORONAVIRUS CRISIS, AND TO PROMOTE APPROPRIATE SOCIAL DISTANCING, UNTIL FURTHER ORDERED, DEPARTMENT D IS ENCOURAGING AUDIO OR VIDEO APPEARANCES

Please make arrangements in advance if you wish to appear via LACourtConnect by visiting www.lacourt.org, and scheduling a remote appearance. Please note that LACourtConnect offers an audio-only appearance option at a current cost of $15.00 and a video appearance option at a cost of $23.00. Counsel and parties (including self-represented litigants) are encouraged not to personally appear, unless they have obtained advance permission of the Court. Anyone who appears in person for the hearing will be required to comply with strict social distancing measures, including, but not limited to, assigned seating, capacity limitations in the courtroom, designated waiting areas, and strictly enforced spacing in line to communicate with court staff. If no appearance is set up through LACourtConnect, or otherwise, then the Court will assume the parties are submitting on the tentative.

Case Number: EC067418    Hearing Date: December 18, 2020    Dept: D

TENTATIVE RULING

Calendar: 2

Date: 12/18/2020

Case No: EC067418 Trial Date: None Set

Case Name: City of Duarte v. Bardakjian, et al.

MOTION TO CHALLENGE LIEN PRIORITY

MOTION FOR LEAVE TO SUE RECEIVER

RELIEF REQUESTED:

Order that any and all receiver certificates authorized in this action, and any other claimed senior interests by the Receiver or plaintiff, be deemed subordinate to the Deed of Trust held by defendant JP Morgan Chase Bank, N.A.

Order for Leave to file complaint against former receiver

SUMMARY OF FACTS:

Plaintiff City of Duarte brings this action for Nuisance Abatement and Receivership with respect to a parcel of property in Duarte, owned by defendants Levon H. Bardakjian and Sylvia R. Bardakjian, as Trustees of their family trust. The City alleges that the subject property consists of a multi-unit apartment complex with approximately 28 individual residential units that are rented to tenants, with various structures, including two carport structures which have been severely damaged by a recent fire, and are at risk of total collapse. The City alleges that the subject property has been the focus of City code enforcement efforts since at least August of 2014, and contains dangerous and substandard building code and property maintenance violations, such that tenants are living on the property in dangerous and uninhabitable conditions. Plaintiff also alleges that the subject property poses a serious fire hazard and is an attractive nuisance for criminal activity.

The City has issued various notices of violation, conducted inspections, issued red tags and orders to repair, but the subject property continues to pose a threat to the health and safety of any occupants, neighbors and the public. On October 9, 2017, the City issued a Notice and Order to Abate citing 354 violations of law on the subject property, but the compliance deadline passed without compliance, and further inspection confirmed that most violations remained unabated. The City as provided a three day notice of the filing of the complaint.

The complaint was filed on December 8, 2017. On December 15, 2018, the City filed a Stipulation Between City of Duarte and Levon H. Bardakjian and Sylvia R. Bardakjian for Order Appointing a Receiver with Stayed Powers, which was signed by the court on December 15, 2018.

The Order provides for appointment of a Receiver immediately, but the powers of the Receiver are to be stayed while owners attempt to bring the subject property into full compliance in accordance with an express Compliance Schedule. The Order provides:

“This Order shall be stayed as long as the rehabilitation work on the Subject Property is conducted in full compliance with the Compliance Schedule. In the event any provision of the Compliance Schedule is not complied with, as determined by the City, then the stay shall immediately and automatically terminate.”

The file shows that California Receivership Group filed its Oath of Receiver and an undertaking in the sum of $10,000. On May 7, 2018, the court heard an ex parte request of defendants for an order for stay of the receivership order, which was granted and the court’s minute order orders a 60 day stay on the Receivership order, ordering, “However, the Receiver may have access to the subject property to continue his inspection and estimate of work.” The signed order states that the powers of the Receiver shall be stayed for 60 days, “except as to the efforts regarding estimates and budgets.” [Ex. 1].

The parties appear to agree that this stay was extended and ultimately expired on September 17, 2018.

The Receiver has been submitting reports, and the court has made orders approving interim fees and costs, and issuing instructions in with respect to the receivership.

The file shows that on April 17, 2020, the court signed and filed a Joint Stipulation for Order Appointing Beatty as Replacement Receiver, executed by all parties, including defendant JPMorgan Chase Bank, pursuant to which it was ordered that Replacement Receiver Eric Beatty was immediately appointed over the subject property to replace Receiver Adams, subject to the court’s orders concerning the receivership. The stipulation states, “Receiver Adams shall proceed to file his final accounting by noticed motion.”

On April 22, 2020, the Replacement Receiver filed his Oath and an Undertaking in the sum of $10,000.00.

On August 13, 2020, the court heard an ex parte motion brought by the Former Receiver to approve and confirm the retention of Ervin Cohen & Jessup LLP as General Counsel, effective April 24, 2020, which was granted.

On October 23, 2020, the court heard various motions brought in connection with the receivership, including the current motion to challenge lien priority, and a motion to surcharge the former receiver for unauthorized fees and expenses. The other motions were resolved at that hearing. The Court’s ruling provides, in pertinent part:

“Motion to Surcharge Former Receiver for Unauthorized Attorney’s Fees and Any Improper, Excessive and Unaccounted Expenses is DENIED WITHOUT PREJUDICE to defendants seeking such relief in a separate civil action, pursuant to an appropriate request to for leave to sue the Receiver, which the Court would likely grant is argued and DENIED.

Motion to Challenge Lien Priority Determination and to Confirm Senior Priority of its Lien filed on behalf of Defendant JPMorgan Chase Bank, N.A. is CONTINUED to December 18, 2020, for hearing on a determination concerning the equities with respect to the matter. Defendant Chase is ordered to give notice of the hearing to all interested parties, including all certificate holders or lienholders against which Chase seeks to establish hold interests subordinate to defendant’s interest, no later than October 30, 2020. Defendants Chase and the Receiver may file and serve supplemental briefs and evidence on any issues they would like to submit supplemental briefing on no later than November 6, 2020, and supplemental replies will be due by the current parties no later than November 20, 2020. The lienholders given notice by defendant Chase may serve and file responsive papers no later than November 20, 2020, with replies to be served and filed no later than December 2, 2020. The Court will expect supplemental briefing to clearly address and provide evidence concerning the equities in this matter pertaining to all interested parties.”

The matter is also on calendar this date for a motion for leave to file a complaint against the former receiver.

ANALYSIS:

Motion for Leave to File a Complaint Against Former Receiver

This motion is brought by defendants the Bardakjians as trustees, for an order granting them leave to file a complaint against former receiver Mark Adams and his firm California Receivership Group.

CCP section 567 provides, with respect to the oath and undertaking of court-appointed receivers:

“Before entering upon the duties of a receiver:

(a) The receiver must be sworn to perform the duties faithfully.

(b) The receiver shall give an undertaking to the State of California, in such sum as the court or judge may direct, to the effect that the receiver will faithfully discharge the duties of receiver in the action and obey the orders of the court therein. The receiver shall be allowed the costs of the undertaking.”

CCP section 568 sets forth the powers of a receiver:

“The receiver has, under the control of the Court, power to bring and defend actions in his own name, as receiver; to take and keep possession of the property, to receive rents, collect debts, to compound for and compromise the same, to make transfers, and generally to do such acts respecting the property as the Court may authorize.”

Under CCP section 995.850:

“(a) The liability on a bond under his article may be enforced by or for the benefit of, and in the name of, any and all person for whose benefit to bond is given who are damaged by breach of the condition of the bond.

(b) A person described in subdivision (a) may, in addition to any other remedy the person has, enforce the liability on the bond in the person’s own name, without assignment of the bond.”

A receiver may not be sued without leave of court. Ostrowski v. Miller (1964) 226 Cal.App.2d 79, 84-85.

Defendants the Bardakjians seek leave to file a proposed Complaint, in which they allege that Mark Adams made material misrepresentations, breached his fiduciary obligations and negligently performed the duties for which the receiver was appointed.

Defendants seek to surcharge the receiver as a fiduciary and his surety for failure to properly carry out the duties imposed by the order of appointment, as permitted under Stewart v. State of California (1969) 272 Cal.App.2d 345, 351. Defendants also seek to allege that the receiver defendants face personal liability, which defendants argue is permitted where a receiver has engaged in neglect, misconduct, or mismanagement of the receivership estate, in reliance on Aviation Brake System, Ltd. v. Voorhis (1982) 133 Cal.App.3d 230, 235.

Defendants argue that in this matter Adams was tasked with obtaining a global permit to ensure the repairs were done necessary to address the N&O, but not only failed to obtain the permit, but falsely informed defendants that the City had issued the global permit, when the permit issued excluded specific items such as the stairways and railways, and the documentation submitted did not address electrical, roof or plumbing systems, and other systems and omitted critical information, so that a claim for intentional misrepresentation is warranted.

The motion also argues that the receiver breached fiduciary duties by failing to act in the best interest of the Property, and failing to expeditiously remedy violations, putting the property and tenants at risk, expending money on useless plans, billing for unauthorized attorney’s fees and expenses, submitting an erroneous court order to falsely inflate the approved certificate and obtaining a third party loan against the property based on that false amount which resulted in unnecessary fees and expenses.

Defendants further argue that the complaint appropriately alleges that the receiver engaged in negligence, and seeks an accounting based on the fiduciary relationship between the parties, as the only means by which the Bardakjians can evaluate the fees invoiced by the receiver.

The receiver in opposition argues that the motion was not made on sufficient notice, but it appears from the court file and reply that the hearing was advanced on the order of the court, after sufficient notice had been given. It is also clear that the receiver timely filed an opposition addressing the motion on its merits, so has suffered no prejudice and has effectively waived any argument concerning deficiency in notice.

The receiver primarily argues that the arguments made in the moving papers were all necessarily decided and determined by the court’s previous order discharging the receiver, which constituted a ruling that the first receiver’s actions were appropriate, with the discharge ratifying them. The receiver argues that the issue to be resolved in determining whether leave to sue a receiver should be granted is whether the proposed complaint raises non-receivership claims, in effect, actions taken by the receiver that were not receivership activities, and that the actions upon which defendants seek to proceed were all acts taken in connection with carrying out those duties.

This argument does not defeat the motion, because the defendants are entitled, at the very least, as set forth in the statutes above, to pursue an action against the receiver’s surety in this matter in connection with the alleged conduct in the management of the receivership. The opposition takes the position that the court already considered and determined the arguments that are now sought to be made in the separate proceeding at the discharge hearing, and in connection with the motion to surcharge the receiver. However, it is clear from the previous minute order that the court did not choose to determine those issues in this proceeding, but reserved them for a motion to file suit against the receiver, which motion has now been made, and it would appear that a separate proceeding would most fairly address the issues on their merits without delaying the necessary work of the second receiver in this matter. Once the complaint is filed, that matter can be related to this matter, and proceed before the court familiar with this matter.

The opposition concedes that granting a party leave to sue a receiver is entirely a “discretionary” question for the appointing trial court. De Forrest v. Coffey (1908) 154 Cal. 444, 454. The receiver also argues that the request to sue Mark Adams as an individual is improper, as there are limitations with respect to when personal liability can be imposed.

The opposition cites to Ostrowski v. Miller (1964) 226 Cal.App.2d 79, in which the court of appeal affirmed the trial court’s sustaining of a demurrer to a complaint filed against a receiver on the ground the receivership court had denied a motion for leave to file suit against the receiver. The court of appeal reversed the order, however, to the extent the case was dismissed with prejudice, as there remained the possibility that the receivership court could at some point give its permission to file suit.

In discussing the bringing of a suit against a receiver, the court of appeal noted the application of the following practices in such cases:

“A receiver is a court-appointed official who can be sued only by permission of the court appointing him. (2 Witkin, Cal. Proc. Pleading, § 65, p. 1042; 42 Cal.Jur.2d, Receivers, § 92, pp. 386-388.) The rule is established to protect receivers from unnecessary litigation. The law is accurately set forth in 42 California Jurisprudence 2d, Receivers, section 92, page 387, as follows: "The court that appointed a receiver may grant leave to sue him in an independent action, or it may deny leave and require the claimant to intervene in the receivership proceedings to assert his claim. Although in a proper case leave to sue the receiver in another court will not be denied, and under some situations the denial of leave may amount to an abuse of discretion, ordinarily the court has a wide discretion in the matter. It may not properly refuse leave to sue when it cannot afford in intervention the same relief as the applicant is entitled to in an independent action, or when, by virtue of a statute or constitutional provision, a particular kind of action must be brought in a jurisdiction other than that in which the original special proceeding is pending. But permission may be denied where full relief can be granted by intervention in the original proceeding. The more common practice, and the one generally recommended, is to hear and determine all rights of action and demands against a receiver by petition in the cause in which he was appointed."

Ostrowski, at 85.

This case is in a difficult posture, as the previous rulings did not directly address the previous motion for surcharge, deferring those issues for a separate matter, so that the res judicata it is urged would normally apply to a discharge order would be unfairly applied to matters which were not finally adjudicated in the prior proceedings. It appears then that what could address the concerns of the parties with respect to having these matters finally resolved in this case would be to permit the filing of a separate complaint in a new lawsuit. This court has deferred the determination of the merits this matter as to the liability of the Adams’ receivership which has been deferred pending a factual showing on the merits. This court also has deferred a determination on what conduct is appropriately outside the scope of the receivership to warrant personal liability. The reply offers to submit an amended pleading to be filed here, which would evidently more clearly state intentional fraud on the part of Adams to support the claims for personal liability. However, any such complaint would be part of the new lawsuit against the Adams receivership and Adams personally. The court will also hear from the parties concerning the amount of the first receiver’s bond, which the court believes is in the sum of $10,000, and the disposition of this bond under the circumstances, which may have been ordered exonerated, but which exoneration may be stayed pending the resolution of defendant’s action.

The motion accordingly is granted, and defendants are permitted to file their pleading as a complaint in a new lawsuit to be heard before this court which appointed the receiver, if this court deems the cases related. The court will also stay payment of the fees and advances awarded to the former receiver until after the trial is concluded on the separate lawsuit the defendants intend to file against the receivership and the receiver personally.

Motion to Challenge Lien Priority Determination and Confirm Senior Priority of Loan

Defendant JP Morgan Chase Bank, N.A. seeks an order that any and all receiver certificates authorized in this action, and any other claimed senior interests by the Receiver or plaintiff, be deemed subordinate to the Deed of Trust held by defendant Chase.

Defendant argues that it was not provided mandatory notice of this action prior to the entry of the order appointing the Receiver in this matter, so did not have notice of the actions being taken by the Former Receiver, including obtaining approval of super priority liens in the course of pursuing rehabilitation of the subject property.

The matter was continued to permit defendant to be heard on this matter after appropriate notice, and after notice being given to all interested parties. The court’s previous minute order states:

“A review of the authorities cited by all parties in connection with this issue suggests that the court has discretionary equitable authority to approve such liens in a situation such as this one, to allow certificates to be issued to allow a Receiver to go forward, based on a demonstration of the equities applicable to each side. The court intends to conduct a noticed hearing, and will continue this matter to permit defendant Chase the opportunity to be fully heard on the matter, and for the submission of evidence upon which the court can make a determination concerning the equities.

The court notes that a primary argument of defendant Chase is based on a lack of notice, which draws the court’s attention to the situation that a hearing concerning this issue should be conducted after notice of the hearing is provided to all interested parties, including the certificate holders or lienholders against which Chase seeks to establish hold interests subordinate to defendant’s interest. Defendant Chase is accordingly ordered to give notice of the continued hearing to those parties, and be prepared at the hearing to clearly explain which certificates and interests are at issue.

The court will also expect that prior to the hearing, the parties will file evidence concerning the equities as set forth in the legal authorities cited by both sides, including a showing by the Receiver that multiple lenders have been contacted by the Receiver and asked if they would issue certificates in the second position, and have indicated they would not.

The court is also concerned that defendant Chase in the reply relies on case law which was recently published, on October 8, 2020, so was not addressed in the opposition papers. See Sonoma County v. U.S. Bank N.A. as Trustee (2020) 2020 Cal. App. LEXIS 940, 2020 WL 5949655.”

The supplemental briefing by the City indicates that the lien being held by defendant Chase is in the current sum of $2.7 million. The Glan papers indicate that the original Chase loan was for $2,885,000.00, and the lien demand is $2,837,00.00 [Feldman Decl., para. 14].

The loan which was obtained from Glan Investments, LLC, and which the parties stipulated at the time would be afforded super-priority status, is represented by defendant Chase to be in a total sum of $1,310,825.00. The Glan papers indicate that the Glan lien through 12/18/20 is $88,446.00 [Feldman Decl., para. 14]. Evidently $601,217.00 of the loan funds were returned to Glan by the first receiver. [Feldman Decl., para. 9]. Glan indicates it is ready, willing and able to fund the balance of the court approved $2,627,00 to fund the remediation so long as it has a priority consistent with the previous court orders of super lien priority. [Feldman Decl., para. 10].

Defendant Chase indicates it is not identifying the mechanic’s lien by Miken recorded on 6/26/20 in connection with this motion because a mechanic’s lien does not attain priority over a recorded deed of trust under Civil Code section 8442, and will object should the mechanic’s lien claimant seek super-priority status in the future.

The parties previously stipulated that “All funds borrowed by Receiver on behalf of the Receivership estate shall be entitled to become first-priority liens against the Subject Property superseding all other interests subject of this Order.” The court signed such stipulations as orders. [See Ex. C, Stipulated Appointment Order 12/15/17; Ex. D, Enforcement Order 9/17/18]. The court is conducting this hearing to determine anew, after notice to those with superseded or potentially superseded interests, whether it will order that the funds already borrowed by the Receiver, and those to be borrowed in the future with court approval, will be entitled to first-priority status.

The supplemental briefing points out that Chase in its moving papers states that it “recognizes there appears to be equity in the Property when accounting for its lien and the lien recorded in connection with the Receivership…” [Motion, Memorandum 13:8-9]. There is a representation that the owners of the subject property have received offers upwards of $7.2 million for the property in its current state, based on representation by the owners in an ex parte application filed on February 5, 2019. It would appear that there accordingly is little prejudice to defendant Chase if the court were to order the subordination of defendant Chase’s lien and grant super-priority status in favor of the loan to the Receivership to fund rehabilitation efforts which could in fact benefit defendant Chase with respect to preserving the equity securing its interest.

In City of Sierra Madre v. SunTrust Mortgage, Inc. (2019) 32 Cal.App.5th 648, the Second District affirmed a trial court ruling authorizing a super-priority lien sought by a receiver which had been appointed to undertake remediation of residential property to abate a claimed nuisance and substandard building. The mortgage lender, SunTrust, objected to the issuance of a lien securing a remediation work loan because it had priority over SunTrust’s pre-existing lien, just as defendant Chase argues in this case. The Second District found that the receivership proceedings permitted the use of super-priority liens, which have “been approved in California since at least 1915.” City of Sierra Madre, at 652, see also pp. 658-659. The Second District also found that the trial court had appropriately exercised its discretion to approve such a super-priority lien in the case before it.

“Courts also have substantial discretion to authorize a receiver to borrow money to fund the preservation and management of property in the receivership estate, particularly where, as here, the estate does not produce income. In that circumstance, the receiver may ask the court to authorize the issuance of a receiver's certificate to the lender as security for money loaned to the estate. Typically, such a receivership certificate will have priority over all other liens—even preexisting liens. (See, e.g., 12 Miller & Starr, Cal. Real Estate (4th ed. 2018) § 41.12, p. 41-33 [“Receivership certificates are then issued as evidence of the indebtedness and become liens on the subject property when issued under the direction and control of the court, usually with priority over all other liens, including preexisting liens.”].) This too is a matter committed to the sound discretion of the court. (Title Ins. & Trust Co. v. California Development Co.(1915) 171 Cal. 227, 233, 152 P. 564 [“The questions here involved, i.e., whether receiver's certificates should be issued and whether those certificates when issued should be given priority over the other indebtedness of the defendant, rested largely in the discretion of the court below. That court, upon a consideration of all the facts, determined that the certificates should equitably be given priority over the bonds, and we think its conclusion should not be interfered with.”]; 12 Miller & Starr, supra, pp. 41-33 to 41-34 [“Whether receiver's certificates should be issued, and whether those certificates when issued should be given priority over the other indebtedness already of record against the property, are decisions that rest largely in the discretion of the court.”].) But as the receiver points out, use of super-priority liens should be infrequent because the disturbance of preexisting liens may bring harsh consequences. (See 2 Clark on Receivers (3d ed. 1959) § 463, pp. 760–761 [“The authority to disturb existing liens should be exercised with great caution and should be carried no further than actually necessary to attain the desired protection to the res.”].)

City of Sierra Madre, at 657-658

The Second District also observed that a consideration in that matter was the absence of any lender to loan money to the receiver for rehabilitation unless the loan was so secured:

“Because neither the [Owners] nor SunTrust was willing to fund the costly remediation and the property did not produce any income, the receiver had to borrow money in order to proceed with the remediation. And as no lender would loan money to the receiver unless the loan was secured with a super-priority lien on the property, the only way to effect the remediation was to authorize the receiver's request to issue such a receiver's certificate. In short, the court did not abuse its discretion.”

City of Sierra Madre, at 660.

In the recent case law identified in the reply and previously requested to be briefed by the court, County of Sonoma v. U.S. Bank N.A. (2020) 55 Cal. App.5th 696, the court of appeal relied on City of Sierra Madre (referred to in the opinion as “SunTrust”), in affirming the trial court’s order granting super-priority on a remediation loan to a receiver, over the objection of the original mortgage lender. The court of appeal noted that a receiver enjoys powers under statute upon appointment, and that, “For over 100 years, these powers have been interpreted to include a court’s authority to fund a receivership on a super-priority basis in the appropriate circumstances.” County of Sonoma, at 12 (Cal. Rptr. Jump cite). The court of appeal then reviewed the Second District’s analysis in City of Sierra Madre/SunTrust, and noted:

“We agree with SunTrust that the trial court may exercise its broad discretion under Code of Civil Procedure section 568 and Title Ins. & Trust to authorize the issuance of a receiver's certificate with priority over all preexisting liens to fund the preservation and management of property in the receivership estate. This authority applies equally to receiverships appointed in parallel with section 17980.7 to remediate property conditions which substantially endanger the health and safety of the public.”

In County of Sonoma, the court of appeal concluded that the trial court had not abused its discretion under the circumstances of that case, discussing the pertinent factors and concerns in that case as follows:

“As the record makes clear, the subject property was not capable of generating income and was underwater, making standard secured borrowing impossible as a means of financing the remediation of the property. Quail had no resources to offer and the receiver reported that his efforts to obtain funding from nonprofits or other sources proved unsuccessful. Adding urgency to the situation, the property posed a significant hazard to the health and welfare of the public and its occupants, with several families living in unsanitary or uninhabitable conditions, a massive accumulation of junk and debris, fire damaged structures and other attendant fire risks, and frequent responses to the property by the sheriff's department and the fire department. These conditions had persisted for years despite numerous attempts by the County to enforce the code violations.

Against this backdrop, the receiver's plan to obtain priority financing to fund a partial remediation of the property and to sell to a buyer willing to complete the remaining repairs appeared reasonably designed to address the nuisance conditions quickly and effectively, once and for all. “ ‘ “As a general proposition the costs of a receivership are primarily a charge upon the property in the receiver's possession and are to be paid out of said property.” ’ ” (SunTrustsupra, 32 Cal.App.5th at p. 657, quoting Baldwin v. Baldwin .) Here, the receiver's plan allowed the costs of the receivership to be paid by the property, placing any risk of loss on those with financial interests in the property, and avoided the use of public monies to enhance the value of those private financial interests.

U.S. Bank nevertheless argues that the court's subordination order was an abuse of discretion because it had offered to foreclose and take care of the problems itself, which would have avoided the need for the receiver and its attendant costs. On this record, however, we see no abuse of discretion in the court's rejection of U.S. Bank's belated proposal. U.S. Bank had notice of the severe health and safety issues on the property since at least June 2017 and took no action to address the problems prior to the appointment of the receiver in January 2018, or before the receiver renewed its request for super-priority financing in May 2018, or even before the court finally granted that request in October 2018. It was only at the October 2018 hearing that U.S. Bank finally asked the court for permission to foreclose and either repair the property itself or sell to a buyer who could remediate the nuisance conditions.

Prior to the October hearing, the court had ordered U.S. Bank to obtain an appraisal of the property, which it failed to do in a timely manner despite being given three months to do so. The County expressed concern that, if left to its own devices, U.S. Bank would not remedy the situation and might sell to a party who would likewise fail to fix the many hazards on the property. Given U.S. Bank's extended history of indifference and inaction, we cannot fault the trial court for viewing its last-minute offer to foreclose with skepticism. In contrast, it was only through the efforts of the receiver that the conditions on the property started to improve. Within three months of the court's order authorizing the receiver's certificate on a priority basis, the receiver had removed or relocated all of the occupants on the property, secured all the buildings, completed the demolition work, listed the property, and was weighing several offers above the asking price. Under the circumstances, the court acted well within its discretion in concluding that the process most likely to result in the expeditious and total remediation of the health and safety issues on the property was the plan put forward by the receiver.

The equitable concerns here include the overwhelming interest in the health and safety of the tenants and the necessary work of rehabilitating the property to meet these habitability and health and safety standards, as described by the City in the Supplemental Declaration of City Public Safety Manager Larry Breceda, with a most recent inspection occurring in October of 2020. [See Breceda Decl., paras. 1-15, Exs. 1-6]. Such hazards to the public and occupants, and the urgency it can pose was a factor expressly recognized in County of Sonoma, above.

Other factors identified appear to include the ability of the property to generate income, the availability of standard secured borrowing, the resources available to or offered by the owners, the reasonableness of the receiver’s plan to address problematic conditions quickly, effectively and permanently, any offers by the mortgage lender to address the situation, the value of the property, and the effectiveness of the remediation efforts undertaken by the receiver.

Defendant Chase focuses primarily on the notice issue, which the court has addressed by ordering this hearing to be conducted on the equities on full notice and with proper briefing. The Reply and other supplemental papers submitted by defendant Chase also argue that the third party lender, Glan, funded the loans and liens with knowledge of the Chase lien and priority challenge, so undertook whatever risk existed. Defendant Chase also argues that without estimates by the current receiver on the additional remediation needed, it would be premature to make a priority determination that would impair Chase’s priority status. The court has been provided sufficient information concerning the estimates and status at the time the loans were made and proposed, however, and the parties have had the opportunity to address those arguments, and it would appear that a determination on the propriety of permitting super-priority status as to the past and proposed funding is not premature.

The lender Glan has submitted briefing arguing that the equities to be considered here include that defendant Chase has recourse against the City and the Bardakjian defendants if it should suffer any loss, which is unlikely if the Glan loan completes the funding of the remediation of the substandard conditions. Glan also argues that the Bank shares some responsibility for its own position here in failing to make a reasonable investigation of its loan collateral prior to funding, and submits an expert declaration on this issue. Glan argues that in contrast to defendant Chase, Glan took active steps to assure its super-priority position including requiring a court order to confirm that its loan was protected, with a finding that all interested parties were provided with proper notice, and that the receiver issue Certificates of Indebtedness, which was all done, and without which the loan would not have been funded. [Feldman Decl., paras. 3-8, 12; Adams Decl., para. 11, Wallace Decl., para. 17]. Glan argues that if it suffers a loss due to a loss of a super-priority status, it has no protection other than what would likely be meaningless recourse against the receivership. Glan argues that without super-priority status, and with no remediation, its existing secured loan is at risk of being not only junior to the Banks loan, but to awards to others, including CRG and Moldo, attorneys’ fees claimed by Chase, the new receiver’s fees and possibly the City’s inspection and attorney’s fees. [See Feldman Decl., para. 14].

Defendant Chase replies to these arguments by asserting that Glan shares blame in failing to independently verify that notice had been given and the super-priority status protected before approving or funding such a high risk loan, and that Glan retains recourse for the misrepresentations in this regard upon which it indicates it relied.

The City in its supplemental reply points out that in weighing the equities in this matter, it consider the different positions being taken by defendant Chase and Glan here; while Glan has indicated its willingness to fund the rehabilitation of the subject property going forward with a super priority designation and offers a solution and path forward, Chase is doing everything possible to obstruct the receivership and rehabilitation, and has not offered to loan the money required for the rehabilitation of its collateral.

The supplemental briefing submitted according to the court’s briefing schedule does not include the information requested concerning the inquiry of the receiver about the availability of non-super-priority funding.

As set forth above, the court’s October 23, 2020 minute order expressly stated:

“The court will also expect that prior to the hearing, the parties will file evidence concerning the equities as set forth in the legal authorities cited by both sides, including a showing by the Receiver that multiple lenders have been contacted by the Receiver and asked if they would issue certificates in the second position, and have indicated they would not.”

(Emphasis added)

However, the court notes that a declaration of the current Receiver, Eric Beatty, was filed and served on December 16, 2020, only two court days prior to the hearing on the motion.

This declaration provides the showing previously suggested by the court, in effect indicating that the receiver has contacted each of the lenders from which he has obtained a Certificate of Indebtedness loan since 2000 in order to determine their willingness to make further loans to the receiver based on a subordinated security interest in the property. [Receiver Decl., para. 9]. The receiver describes contacting seven specified lenders, two of which no longer makes loans to receivers (one because of inability to obtain title insurance), and one of which, Dayco Funding Corporation, will only make a loan secured by a first deed of trust on real property, and was unwilling to make a loan secured by the subject property regardless of priority, given the outstanding Certificates of Indebtedness and the mechanic’s lien foreclosure action filed by Miken. [Receiver Decl., para. 9, A-C]. The remaining five lenders, including Glan, have advised the receiver they are unwilling to make a loan secured by subordinated interest in the property. [Receiver Decl., para. 9 D-G]. One of the listed lenders which is unwilling to make a loan in a subordinated position, Receivership Lending, LLC, has provided a written response which is submitted as Exhibit D, and affirmatively declines to provide any further loans on the subject property, due to perceived cost run ups beyond what it estimated work should have been completed for, the mechanic’s lien, which the lender concludes, “indicates the construction project was not managed correctly,” and the rent rolls showing unhappy tenants. [Ex. D].

The Receiver explains the nature of the loans which can be obtained under the circumstances:

“11. I cannot obtain a loan secured by the Property from a national bank or regulated financial institution. This is because a Certificate of Indebtedness loan cannot meet the lending criteria which banks and other financial institutions are required to adopt and follow in making real estate loan. A Certificate of Indebtedness is, by its nature, a loan made to a borrower who holds no ownership interest in the real property which will serve as the lender’s collateral. The lender’s security interest in the collateral is uninsurable. The collateral itself is almost always substandard and always the subject of pending litigation.

12. With one exception, I have never successfully obtained a commitment from a lender to make a loan based upon a Certificate of Indebtedness subordinate to any other private lien except for liens securing other Certificates of Indebtedness held by that same lender.3

13. The most meaningful protection for a lender’s investment when it makes a Certificate of Indebtedness loan is the Court’s order granting it a super-priority security interest in the property which is the subject of the loan. Without that protection, the lender’s investment is at risk of being impaired by foreclosure proceedings initiated by a senior lienholder. At the same time, the lender’s ability to protect its investment through foreclosure proceedings maybe impaired if the amounts of the senior liens make a sale to a third party willing to buy the collateral subject to the senior liens infeasible.

14. Finally, unlike most other lenders, the lender on a Certificate of Indebtedness has no recourse against the borrower; its only recourse in the event of a default is a foreclosure sale. As such, the viability of the lender’s security interest is not simply the most meaningful protection for its investment, it is its only meaningful protection.

[Receiver’s Decl., paras. 11-14].

The court is inclined to consider this declaration, and finds the information concerning the nature of available loan options is consistent with the Feldman, Adams and Wallace Declarations. The court will consider any requests for limited supplemental briefing in response to the declaration, if necessary, which will be considered by the court before a final ruling is issued.

Based on all of the submitted materials and argument, and in weighing the equities, the court’s tentative ruling is to find that notice and an opportunity to be heard has now been provided to defendant Chase, and that the court finds that the equities weigh heavily in favor of the court exercising its discretion to extend super-priority status to the loan obtained by the receiver from Glan Investments, LLC.

RULING:

Defendants’ Motion for Leave to File a Complaint Against Former Receiver Mark Adams and California Receivership Group is GRANTED in part. The Court will permit the filing of the Complaint as a new lawsuit with no restriction on the parties plaintiff may name as defendants. The plaintiffs must file this new action with a Notice of Related Case relating the new case to this case within 60 days of today, or no later than February 16, 2021, or the action is waived. The Court’s Orders of October 23, 2020 concerning exoneration of the receiver’s surety, and the motion of former receiver for payment of fees costs and advances is ordered stayed pending resolution of the subject complaint.

Motion to Challenge Lien Priority Determination and to Confirm Senior Priority of its Lien filed on behalf of Defendant JPMorgan Chase Bank, N.A.:

The Court notes that notice of the hearing was given to all interested parties, and that moving defendant has been permitted a full opportunity to be heard.

The Court has considered all supplemental briefing, including the materials submitted concerning the equities in this matter pertaining to all interested parties, and the recent legal authority previously only partly addressed due to the timing of its publication.

The relief declines to award the relief sought in the motion. After notice and further due consideration, the Court finds that it is appropriate under all of the circumstances, and in weighing the equities to designate the loan issued by Glan Investments, LLC as subject to a super-priority lien.

The Court will stay the final issuance of its ruling to permit the submission of briefs limited to responding only to the matters raised in the Declaration of Receiver Re Status of Rehabilitation and Efforts to Secure Funding, filed and served December 16, 2020. Briefs are to be filed and served no later than January 15, 2021, with the Receiver to file and serve any reply no later than January 22, 2021. The matter will be continued to January 29, 2021 for further hearing related only to the issues set forth in the above-referred declaration filed belatedly by the Receiver.

Evidentiary Objections of Defendant JP Morgan Chase Bank, N.A.: Objections to Declaration of Gerald Feldman, Objection No. 3 is SUSTAINED only as to the matter beginning with “If the Bank had been willing to pay off the Glan loan” through “in its December 20, 2019 order.” Objection is otherwise OVERRULED.

All other objections are OVERRULED.

GIVEN THE CORONAVIRUS CRISIS, AND TO PROMOTE APPROPRIATE SOCIAL DISTANCING, UNTIL FURTHER ORDERED, DEPARTMENT D IS ENCOURAGING AUDIO OR VIDEO APPEARANCES

Please make arrangements in advance if you wish to appear via LACourtConnect by visiting www.lacourt.org, and scheduling a remote appearance. Please note that LACourtConnect offers an audio-only appearance option at a current cost of $15.00 and a video appearance option at a cost of $23.00. Counsel and parties (including self-represented litigants) are encouraged not to personally appear, unless they have obtained advance permission of the Court. Anyone who appears in person for the hearing will be required to comply with strict social distancing measures, including, but not limited to, assigned seating, capacity limitations in the courtroom, designated waiting areas, and strictly enforced spacing in line to communicate with court staff. If no appearance is set up through LACourtConnect, or otherwise, then the Court will assume the parties are submitting on the tentative.

Case Number: EC067418    Hearing Date: October 23, 2020    Dept: NCD

TENTATIVE RULING

Calendar: 2

Date: 10/23/2020

Case No: EC 067418 Trial Date: None Set

Case Name: City of Duarte v. Bardakjian, et al.

MOTIONS CONCERNING RECEIVERSHIP (4)

RELIEF REQUESTED:

Motion for Order of Discharge and Exoneration of Surety

Order discharging the first receiver and exonerating the surety.

Motion of Former Receiver for Payment of Fees, Costs and Advances

Order for remaining unpaid fees to be paid to the former receiver in the sum of $366,239.50, with advances of $20,851.39 owed as well.

Motion of Ervin Cohen & Jessup LLP, Attorney for Receiver, to Approve Award of Attorneys’ Fees and Costs

Approve and confirm award of attorneys’ fees in the amount of $57,364.50 and costs in the amount of $1,112.02, subject to adjustment based on actual fees and costs incurred after August 31, 2020, to be paid as an administrative expense of the receivership estate. (Estimated $32,800 in fees and costs of $200).

Motion to Surcharge Former Receiver for Unauthorized Attorney’s Fees and Any Improper, Excessive and Unaccounted Expenses

Order surcharging first receiver with expenses claimed for attorney’s fees for legal work performed before the court authorized the first receiver to retain counsel ($194,932.00), for loss incurred by defendant in loan fees and prepaid interest due to the first receiver’s error in obtaining loan proceeds from Glan Investments in excess of the receiver’s certificate which had to be returned ($77,695.80), for the cost of obtaining an unnecessary insurance policy ($14,084 premium plus interest and late fees), and for cost of accepting a proposal from Miken Construction to prepare plans and engineering in October of 2018 for substantially the same work bid by Miken in June of 2018 ($40,000). (Total to be surcharged, at least $326,712.30).

Motion to Challenge Lien Priority Determination and Confirm Senior Priority of Loan

Order that any and all receiver certificates authorized in this action, and any other claimed senior interests by the Receiver or plaintiff, be deemed subordinate to the Deed of Trust held by defendant JP Morgan Chase Bank, N.A.

SUMMARY OF FACTS:

Plaintiff City of Duarte brings this action for Nuisance Abatement and Receivership with respect to a parcel of property in Duarte, owned by defendants Levon H. Bardakjian and Sylvia R. Bardakjian, as Trustees of their family trust. The City alleges that the subject property consists of a multi-unit apartment complex with approximately 28 individual residential units that are rented to tenants, with various structures, including two carport structures which have been severely damaged by a recent fire, and are at risk of total collapse. The City alleges that the subject property has been the focus of City code enforcement efforts since at least August of 2014, and contains dangerous and substandard building code and property maintenance violations, such that tenants are living on the property in dangerous and uninhabitable conditions. Plaintiff also alleges that the subject property poses a serious fire hazard and is an attractive nuisance for criminal activity.

The City has issued various notices of violation, conducted inspections, issued red tags and orders to repair, but the subject property continues to pose a threat to the health and safety of any occupants, neighbors and the public. On October 9, 2017, the City issued a Notice and Order to Abate citing 354 violations of law on the subject property, but the compliance deadline passed without compliance, and further inspection confirmed that most violations remained unabated. The City as provided a three day notice of the filing of the complaint.

The complaint was filed on December 8, 2017. On December 15, 2018, the City filed a Stipulation Between City of Duarte and Levon H. Bardakjian and Sylvia R. Bardakjian for Order Appointing a Receiver with Stayed Powers, which was signed by the court on December 15, 2018.

The Order provides for appointment of a Receiver immediately, but the powers of the Receiver are to be stayed while owners attempt to bring the subject property into full compliance in accordance with an express Compliance Schedule. The Order provides:

“This Order shall be stayed as long as the rehabilitation work on the Subject Property is conducted in full compliance with the Compliance Schedule. In the event any provision of the Compliance Schedule is not complied with, as determined by the City, then the stay shall immediately and automatically terminate.”

The file shows that California Receivership Group has filed its Oath of Receiver and an undertaking in the sum of $10,000. On May 7, 2018, the court heard an ex parte request of defendants for an order for stay of the receivership order, which was granted and the court’s minute order orders a 60 day stay on the Receivership order, ordering, “However, the Receiver may have access to the subject property to continue his inspection and estimate of work.” The signed order states that the powers of the Receiver shall be stayed for 60 days, “except as to the efforts regarding estimates and budgets.” [Ex. 1].

The parties appear to agree that this stay was extended and ultimately expired on September 17, 2018.

The Receiver has been submitting reports, and the court has made orders approving interim fees and costs, and issuing instructions in with respect to the receivership.

The file shows that on April 17, 2020, the court signed and filed a Joint Stipulation for Order Appointing Beatty as Replacement Receiver, executed by all parties, including defendant JPMorgan Chase Bank, pursuant to which it was ordered that Replacement Receiver Eric Beatty was immediately appointed over the subject property to replace Receiver Adams, subject to the court’s orders concerning the receivership. The stipulation states, “Receiver Adams shall proceed to file his final accounting by noticed motion.”

On April 22, 2020, the Replacement Receiver filed his Oath and an Undertaking in the sum of $10,000.00.

On August 13, 2020, the court heard an ex parte motion brought by the Former Receiver to approve and confirm the retention of Ervin Cohen & Jessup LLP as General Counsel, effective April 24, 2020, which was granted. The order states that, “Subject to this Court’s approval, ECJ shall be compensated in accordance with California Rules of Court, Rules 3.1183 and 3.1184, the provisions of this Court’s December 15, 2017 Stipulated Order for Appointment of Receiver, and any future orders of this Court.”

ANALYSIS:

Motion for Order of Discharge and Exoneration of Surety

The Former Receiver, California Receivership Group, has filed a motion for an order discharging the Receiver and for exoneration of surety.

This proceeding is governed by CRC Rule 3.1184, which provides for the presentation of Receiver's final account and report:

“(a) Motion or stipulation

A receiver must present by noticed motion or stipulation of all parties: (1) A final account and report; (2) A request for the discharge; and (3) A request for exoneration of the receiver's surety.

(b) No memorandum required

No memorandum needs to be submitted in support of the motion or stipulation served and filed under (a) unless the court so orders.

(c) Notice

Notice of the motion or of the stipulation must be given to every person or entity known to the receiver to have a substantial, unsatisfied claim that will be affected by the order or stipulation, whether or not the person or entity is a party to the action or has appeared in it.

(d) Claim for compensation for receiver or attorney

If any allowance of compensation for the receiver or for an attorney employed by the receiver is claimed in an account, it must state in detail what services have been performed by the receiver or the attorney, and whether previous allowances have been made to the receiver or attorney and the amounts.”

The motion appears to be in order, and separate motions to recover the compensation for the receiver and for an attorney employed by the receiver have been filed and will be addressed below.

In light of the April 17, 2020, Joint Stipulation for Order Appointing Beatty as Replacement Receiver, pursuant to which it was ordered that Replacement Receiver Eric Beatty was immediately appointed over the subject property to replace the Former Receiver, and it was ordered that the filing of the final accounting be by noticed motion, which Former Receiver has done, the motion will be granted. The Former Receiver will be discharged and the bond given by the Former Receiver exonerated.

Motion of Former Receiver for Payment of Fees, Costs and Advances

This motion is brought by the Former Receiver, California Receivership Group, to obtain the payment of fees, costs and advances as reflected in the final report. The amount of the previous allowances made to the Former Receiver which have been paid to date is $246,331.25.

The Former Receiver now seeks an additional $366,239.50 in fees and $20,851.39 in advances, for a total of $387,090.89. This would result in a total amount awarded to the Former Receiver of $633,422.14.

Plaintiff the City argues that the sum awarded should be reduced by the following specific amounts:

Amount billed by CRG employees at hourly rates unilaterally increased by former receiver without court approval: $71,821.50

50% reduction in amount billed for time employees spent talking to each other: $16,177.50

50% reduction in amount billed for weekly status meetings: $12,164.88.

[See Farjeat Decl., paras. 5-7, Exs. C, D, E].

This would result in a total reduction in fees of $100,163.88, which the court finds reasonable.

Defendant Chase in its response cites to the following specific entries:

8/13/2020 Mark Adams bill for 3.2 hours for hearing, which lasted only one hour, and billed another 1.5 hours that date between 5 additional entries for review and follow up regarding that hearing

8/20/2020 Andrew Adams billed 4.6 hours to pre for, attend court connect on 1st report ex parte applications, but there was no hearing in this case on that date.

1/29/2020 Mark Adams bill for .7 for email, which email contains only 5 lines in text

7/30/2020 Mark Adams bill for 1.1 for email review and f/u w/ SV, regarding Miken Completed Approved Invoices, which email was rather short, and Adams appeared to advise Miken to proceed with its enforcement action on its mechanic’s lien.

[Ferraro Decl., paras. 5, 6, 7, Exs. B, C].

The court notes that Mark Adams billed at $425 per hour, and Andrew Adams billed at $350 per hour, the court finds it reasonable to deduct 3 hours with respect to the above entries made by Mark Adams, for a total of $1,350.00, and to deduct 4.6 hours billed by Andrew Adams for a total of $1,610.00.

Chase also challenges the inclusion of fees for CRG employees who were not listed in initial terms sheet, Patricia Albiol ($73,651.50), Trevor Axt ($21,720), Karen Xu ($9,075) and David Ballou ($4,242) and ($2,632). The court finds that this challenge, while specific, overlaps significantly the City’s challenge to the increased fees charged, which appears to be a better reasoned and supported analysis. These fees will not be deducted.

Finally, Chase argues that it was unreasonable for the Receiver to charge fees of $32,726 to simply provide receivership files in response to defendant Chase’s business subpoena. The court finds these fees to be excessive, and will reduce them by half, for an additional reduction of $16,363.00. The total deductions supported by the Chase response is accordingly $1,350.00, plus 1,610.00, plus $16,363.00, for a total deduction of $19,323.00.

Defendants’ opposition to the motion does not specifically challenge any line item sought, and does not submit documentation supporting any claimed irregularities. The declaration submitted in support of multiple motions does not sufficiently show the propriety of any challenge to a specific item. That opposition accordingly does not support any further reduction in the fees. While defendants argue they have not had sufficient time to evaluate the Final Account and Report, it would appear that under the authority relied upon, CRC Rule 3.1183, the parties would have been required to serve objections within 10 days of notice of the report, which was served on September 16, 2020, and defendant’s opposition was filed on October 9, 2020, well beyond the ten day objection period.

Accordingly, the court will approve the fees and allowances as follows:

Amount claimed = $387,090.89

Less deductions established by the City of: $100,163.88

Less deductions established by defendant Chase of: $19,323.00

Total award = $267,604.01

Motion of Ervin Cohen & Jessup LLP, Attorney for Receiver, to Approve Award of Attorneys’ Fees and Costs

This motion is brought by the attorney for the Former Receiver, Ervin Cohen and Jessup, to recover attorney’s fees and costs incurred in connection with the Former Receiver’s submission of this final report.

As noted above, the court’s August 13, 2020 order indicated that counsel would be compensated, subject to the court’s approval.

As noted above, under CRC Rule 3.1184, in connection with a receiver’s final account and report, “(d) If any allowance of compensation…for an attorney employed by the receiver is claimed in an account, it must state in detail what services have been performed by …the attorney, and whether previous allowances have been made to the…attorney and the amounts.”

The motion is separately brought by the law firm Ervin Cohen & Jessup (“ECJ”) and seeks an award of attorneys’ fees in the amount of $57,364.50 and costs in the amount of $1,112.02.

The motion indicates that no previous allowances have been made to ECJ and attaches detailed billings. [See Moldo Declaration, para. 9, Ex. A].

The showing is a bit irregular, as the motion submits billings showing fees have been incurred in the amount of $24,564.50 and costs in the amount of $912.02 through August 31, 2020. [Moldo Decl., para. 7, Ex. A].

The showing then consists of a statement that after August 31, counsel will incur fees for various tasks, and that ECJ estimates that during the period after August 31, 2020 and through October 23, 2020, it will incur fees in the amount of $32,800 and costs in the amount of $200. [Moldo Decl., para. 7].

It is not specified by the listed tasks how much time each would take, or at what billing rate they would be billed, and it is not clear why there is not a specific showing by date and time in the declaration what tasks were actually performed and at what billing rate between August 31, 2020 and the date the declaration was signed, September 14, 2020. [See Moldo Decl., paras. 7, 8].

This showing beyond the August 31, 2020 showing appears to fail to sufficiently “state in detail what services have been performed” by the attorney, as required under the statute.

The opposition by defendants and objects on the ground these future fees appear speculative, and are not properly supported.

It would appear that the fees and costs which have been supported are the $24,564.50 in fees and $912 in costs, for a total award of $25,476.50. This sum will be approved and awarded by the court.

In addition, the court notes that the fees do not include the time spent to prepare the attorney’s fees motion, or to appear at the hearing. At the billing rates of $800 per hour for Attorney Moldo, and $235 per hour for Attorney Castelli, the court will estimate that the preparation of the very straightforward motion and reply would take approximately 10 hours at $235 per hour ($2,350), plus 2 hours at $800 per hour ($1,600), and that 1 hour at $800 per hour will be spent attending the hearing on this matter ($800). The court will hear argument with respect to whether this reasonable sum ($4,750) should be awarded (Total fees and costs would then be $30,226.50)

Motion to Surcharge Former Receiver for Unauthorized Attorney’s Fees and Any Improper, Excessive and Unaccounted Expenses

This motion is brought by defendants the Bardakjians as trustees, to surcharge the Former Receiver for fees and expenses which defendants have identified as improperly claimed.

It appears that as a stand-alone motion, the motion is essentially based on arguments that the Former Receiver engaged in breach of fiduciary duty, negligence or fraud, and any such claims should be brought as a separate civil action. The motion will accordingly be denied without prejudice to defendants seeking to pursue these remedies in such an action, pursuant to an appropriate request for leave to sue the Receiver, which the court would likely grant. If leave is granted to sue the Receiver and defendants opt to file a separate civil action, the court will also consider staying the payment of the fees and advances awarded to the Former Receiver this date. The court will not in any case delay the payment of attorney’s fees ordered to be paid to Ervin Cohen & Jessup.

Motion to Challenge Lien Priority Determination and Confirm Senior Priority of Loan

Defendant JP Morgan Chase Bank, N.A. seeks an order that any and all receiver certificates authorized in this action, and any other claimed senior interests by the Receiver or plaintiff, be deemed subordinate to the Deed of Trust held by defendant Chase.

Defendant argues that it was not provided mandatory notice of this action prior to the entry of the order appointing the Receiver in this matter, so did not have notice of the actions being taken by the Former Receiver, including obtaining approval of super priority liens in the course of pursuing rehabilitation of the subject property.

A review of the authorities cited by all parties in connection with this issue suggests that the court has discretionary equitable authority to approve such liens in a situation such as this one, to allow certificates to be issued to allow a Receiver to go forward, based on a demonstration of the equities applicable to each side. The court intends to conduct a noticed hearing, and will continue this matter to permit defendant Chase the opportunity to be fully heard on the matter, and for the submission of evidence upon which the court can make a determination concerning the equities.

The court notes that a primary argument of defendant Chase is based on a lack of notice, which draws the court’s attention to the situation that a hearing concerning this issue should be conducted after notice of the hearing is provided to all interested parties, including the certificate holders or lienholders against which Chase seeks to establish hold interests subordinate to defendant’s interest. Defendant Chase is accordingly ordered to give notice of the continued hearing to those parties, and be prepared at the hearing to clearly explain which certificates and interests are at issue.

The court will also expect that prior to the hearing, the parties will file evidence concerning the equities as set forth in the legal authorities cited by both sides, including a showing by the Receiver that multiple lenders have been contacted by the Receiver and asked if they would issue certificates in the second position, and have indicated they would not.

The court is also concerned that defendant Chase in the reply relies on case law which was recently published, on October 8, 2020, so was not addressed in the opposition papers. See Sonoma County v. U.S. Bank N.A. as Trustee (2020) 2020 Cal. App. LEXIS 940, 2020 WL 5949655.

The matter will accordingly be continued to December 11, 2020 for the court to conduct the hearing. Defendants Chase and the Receiver may file and serve supplemental briefs on any issues they would like to submit supplemental briefing on no later than November 6, 2020. Supplemental replies will be due by the current parties no later than November 20, 2020. Notice to lienholders must be served no later than October 30, 2020, and the lienholders may serve and file responsive papers no later than November 20, 2020, with replies to be served and filed no later than December 2, 2020.

RULING:

Motion for Order of Discharge and Exoneration of Surety is GRANTED. Pursuant to

CRC Rule 3.1184(a), the Court grants the Receiver’s request for discharge of the Receiver and for exoneration of the Receiver’s surety.

Motion of Former Receiver for Payment of Fees, Costs and Advances is GRANTED, as modified. The Court finds pursuant to CRC Rule 3.1184 (d) that the Final Account and Report supports with sufficient detail an allowance of compensation for the Former Receiver and for advances in the sum requested of = $387,090.89, less deductions established by the City of: $100,163.88 and less deductions established by defendant Chase of: $19,323.00, for a total award of $267,604.01.

Motion of Ervin Cohen & Jessup LLP, Attorney for Receiver, to Approve Award of Attorneys’ Fees and Costs is GRANTED in part. The Court finds that the fees and costs appropriately supported by the motion are $24,564.50 in fees and $912 in costs, for a total award of $25,476.50. This sum will be approved and awarded by the Court.

Motion to Surcharge Former Receiver for Unauthorized Attorney’s Fees and Any Improper, Excessive and Unaccounted Expenses is DENIED WITHOUT PREJUDICE to defendants seeking such relief in a separate civil action, pursuant to an appropriate request to for leave to sue the Receiver, which the Court would likely grant. If leave is granted to sue the Receiver and defendants opt to file a separate civil action, the Court will also consider staying the payment of the fees and advances awarded to the Former Receiver this date. The Court will not in any case delay the payment of attorney’s fees ordered to be paid to Ervin Cohen & Jessup.

Motion to Challenge Lien Priority Determination and to Confirm Senior Priority of its Lien filed on behalf of Defendant JPMorgan Chase Bank, N.A. is CONTINUED to December 11, 2020, for hearing on a determination concerning the equities with respect to the matter.

Defendant Chase is ordered to give notice of the hearing to all interested parties, including all certificate holders or lienholders against which Chase seeks to establish hold interests subordinate to defendant’s interest, no later than October 30, 2020.

Defendants Chase and the Receiver may file and serve supplemental briefs and evidence on any issues they would like to submit supplemental briefing on no later than November 6, 2020, and supplemental replies will be due by the current parties no later than November 20, 2020. The lienholders given notice by defendant Chase may serve and file responsive papers no later than November 20, 2020, with replies to be served and filed no later than December 2, 2020. The Court will expect supplemental briefing to clearly address and provide evidence concerning the equities in this matter pertaining to all interested parties.

GIVEN THE CORONAVIRUS CRISIS, AND TO PROMOTE APPROPRIATE SOCIAL DISTANCING, UNTIL FURTHER ORDERED, DEPARTMENT D IS ENCOURAGING AUDIO OR VIDEO APPEARANCES

Please make arrangements in advance if you wish to appear via LACourtConnect by visiting www.lacourt.org, and scheduling a remote appearance. Please note that LACourtConnect offers an audio-only appearance option at a current cost of $15.00 and a video appearance option at a cost of $23.00. Counsel and parties (including self-represented litigants) are encouraged not to personally appear, unless they have obtained advance permission of the Court. Anyone who appears in person for the hearing will be required to comply with strict social distancing measures, including, but not limited to, assigned seating, capacity limitations in the courtroom, designated waiting areas, and strictly enforced spacing in line to communicate with court staff. If no appearance is set up through LACourtConnect, or otherwise, then the Court will assume the parties are submitting on the tentative.

Case Number: EC067418    Hearing Date: December 13, 2019    Dept: NCD

TENTATIVE RULING

Calendar: 13

Date: 12/13/19

Case No: EC 067418 Trial Date: None Set

Case Name: City of Duarte v. Bardakjian, et al.

MOTION FOR INSTRUCTION AND INCREASE IN RECEIVER’s CERTIFICATE

MOTION TO TERMINATE RECEIVERSHIP

Moving Party: Receiver California Receivership Group (Instructions)

Defendants Levon H. Bardakjian and Sylvia R. Bardakjian,

as co-trustees (Terminate)

Responding Party: Defendants Levon H. Bardakjian and Sylvia R. Bardakjian,

as co-trustees Receiver and Plaintiff City of Duarte (Terminate)

RELIEF REQUESTED:

Instructions

Revise and increase scope of work for receiver to include work required to abate nuisance conditions

Order increasing the Receiver’s Certificate by $1,993,000

Terminate

Terminate or Limit Scope of Receivership

SUMMARY OF FACTS:

Plaintiff City of Duarte brings this action for Nuisance Abatement and Receivership with respect to a parcel of property in Duarte, owned by defendants Levon H. Bardakjian and Sylvia R. Bardakjian, as Trustees of their family trust. The City alleges that the subject property consists of a multi-unit apartment complex with approximately 28 individual residential units that are rented to tenants, with various structures, including two carport structures which have been severely damaged by a recent fire, and are at risk of total collapse. The City alleges that the subject property has been the focus of City code enforcement efforts since at least August of 2014 and contains dangerous and substandard building code and property maintenance violations, such that tenants are living on the property in dangerous and uninhabitable conditions. Plaintiff also alleges that the subject property poses a serious fire hazard and is an attractive nuisance for criminal activity.

The City has issued various notices of violation, conducted inspections, issued red tags and orders to repair, but the subject property continues to pose a threat to the health and safety of any occupants, neighbors and the public. On October 9, 2017, the City issued a Notice and Order to Abate citing 354 violations of law on the subject property, but the compliance deadline passed without compliance, and further inspection confirmed that most violations remained unabated. The City as provided a three-day notice of the filing of the complaint.

The complaint was filed on December 8, 2017. On December 15, 2018, the City filed a Stipulation Between City of Duarte and Levon H. Bardakjian and Sylvia R. Bardakjian for Order Appointing a Receiver with Stayed Powers, which was signed by the court on December 15, 2018.

The Order provides for appointment of a Receiver immediately, but the powers of the Receiver are to be stayed while owners attempt to bring the subject property into full compliance in accordance with an express Compliance Schedule. The Order provides:

“This Order shall be stayed as long as the rehabilitation work on the Subject Property is conducted in full compliance with the Compliance Schedule. In the event any provision of the Compliance Schedule is not complied with, as determined by the City, then the stay shall immediately and automatically terminate.”

The file shows that California Receivership Group has filed its Oath of Receiver and an undertaking in the sum of $10,000. On May 7, 2018, the court heard an ex parte request of defendants for an order for stay of the receivership order, which was granted, and the court’s minute order orders a 60 day stay on the Receivership order, ordering, “However, the Receiver may have access to the subject property to continue his inspection and estimate of work.” The signed order states that the powers of the Receiver shall be stayed for 60 days, “except as to the efforts regarding estimates and budgets.” [Ex. 1].

The parties appear to agree that this stay was extended and ultimately expired on September 17, 2018.

The Receiver has been submitting reports, and the court has made orders approving interim fees and costs.

The motion by the Receiver for Instructions was originally heard on September 27, 2019, and the court issued a detailed tentative posing various questions to the parties. The matter was then continued to this date. The motion to terminate the Receivership was filed the day before the previous hearing.

ANALYSIS:

The Receiver argues that it is necessary to increase the current Certificate of $634,000 by $1,993,000 to a total of $2,627,000.00.

The Receiver argues that this is necessary to address not only the original N&O issues, but to address citations and problems arising since the N&O was issued, including asbestos and hot water issues. The Receiver also indicates that defendants are no longer doing any of the work themselves, as originally agreed, and there is evidently a need for an on-site manager, as the current on-site manager, defendant’s daughter, who was evidently absent during a rash of gas leaks, will again be leaving for six to eight weeks.

The Receiver would like instructions on 1) whether to do the full amount of work necessary to abate all nuisance conditions, or to continue on a limited scope of work, 2) whether to vacate the property and remediate or do a two unit by two unit construction, whereby two currently vacant units are rehabilitated first, and current tenants moved to those units while their units are addressed.

The Receiver has filed a Supplemental Report proposing that the Receiver take over rent collections, which will allow the Receiver to reduce the requested increase in funding by $700,000, and also proposing that a new resident manager be chosen. The opposition does not address the rent collection issue, as it was only proposed after opposition was filed.

Plaintiff the City has filed a Response to the Receiver’s motion arguing that the parties’ stipulations, the court’s orders and this case requires all violations of law on the subject property be repaired and the property completely rehabilitated, so urges the court to adopt the Receiver’s recommendations concerning the expanded scope of work at the property.

Defendants have filed an opposition, and an opposition to the City’s response, arguing that this proposal to increase the Certificate by over 300% cannot be appropriately evaluated without defendants knowing what violations beyond the original N&O the City intends to cite or pursue, and what the status is in terms of violations which have been corrected, violations from the original N&O which remain to be addressed, and the purported new issues. Defendants seem to propose that the Receiver then puts these items to a competitive bid, and that once this information is provided to defendants, they can decide whether to continue to fund the Receiver or simply demolish the property. Defendants argue that the Receivership has accomplished very little so far, at great cost, and the City has still failed to issue the necessary permits to allow the property to be rehabilitated. Defendants also argue that the urgency the Receiver now urges for the rehabilitation, such as the need to address asbestos, has long been a known problem, addressed in the original N&O. Defendants further object that having their daughter removed as resident manager will needlessly increase the costs of ongoing management.

Defendants propose that the original work be done as proposed, and further work and expense authorized only after that progress has been made, and that if the Receiver is allowed to proceed, the court set a firm cap on expenses, based on a full and complete estimate to address the remaining items in the N&O. The opposition also requests that if the court is inclined to grant the motion, that the court’s order be stayed for at least 90 days to allow defendants time to consider the financial viability of further remediation expenses, or pursuing other options, including possible demolition.

It would appear that it would make more sense to base a determination to continue on this path on more specific information concerning the scope of work, including a better picture of what has been done, what remains to be done under the original scope of work, what will be subject to further requirement of the City, and how much that would likely cost in a competitive bidding environment. The court will inquire concerning any consequences from a delay while the options are weighed by the parties, particularly if there are any safety issues of immediate concern.

The motion to terminate the receivership argues that now that the contractor, Miken Construction, has the permits and plans, the last phase of the project can be completed without the oversight of the receiver, which is charging fees approaching half of the remaining amended bid to complete the work. Defendants argue that the unnecessary fees, and monthly accountings are wasteful and unnecessary and jeopardizes defendants’ financial ability to complete the necessary repairs. Defendants request that at the very least, an order should be issued limiting the scope of the receivership and capping monthly fees.

The Receiver argues in opposition that its motion should be granted and set the receivership on the right path to addressing the health and safety violations and completing the abatement work, and to terminate the receivership would leave the job undone. That opposition also calls into question the ability of defendants to financially continue to own and operate the property, their good faith in offering to self-fund the receiver’s Certificate, which is evidently still underfunded by $100,000, and argues that no suitable alternative plan has been provided by defendants.

The City argues that the Stipulated Appointment Order governs this matter and provides that “Receiver shall rehabilitate the Subject Property…and shall bring the Subject Property into compliance with all applicable State and local laws.” [Ex. G, p. 4:7-9]. The City argues that defendants should not be continuing to collect hundreds and thousands of dollars in rent, instead of using those funds to rehabilitate the property.

The City relies on Health & Safety Code § 17980.7 (c)(9), which provides, in connection with the appointment of a receiver for a substandard building under that subdivision:

“(9) The receiver shall be discharged when the conditions cited in the notice of violation have been remedied in accordance with the court order or judgment and a complete accounting of all costs and repairs has been delivered to the court. Upon removal of the condition, the owner, the mortgagee, or any lienor of record may apply for the discharge of all moneys not used by the receiver for removal of the condition and all other costs authorized by this section.”

The receiver here was not appointed pursuant to this procedure, however, but by stipulated order, and the court retains some flexibility with respect to the receivership.

This matter continues to be in a posture where no one is providing a straightforward picture of what conditions constitute continuing violations, what they violate, by code or regulation, why the City has not promptly approved permits, and why the receiver and defendants working together have been unable to complete the abatement repairs over the lengthy period of time the receivership has been in place, and with the funds that were approved for accomplishing the task. The City’s opposition includes a declaration of Public Safety Manager Breceda, which focuses on outdated information, but also indicates that an inspection was conducted on November 4, 2019 and describes continuing problems and hazards (without reference to code sections or regulations), and identifies new problems, of which defendants have evidently not been formally notified. [Breceda Decl. ¶¶ 20-30]. Recent photographs are submitted, which suggest the problems may continue to be pervasive or to be increasing in scope to the point where it appears this receivership solution is no longer viable, and the receivership may never accomplish its goals, certainly not in a financially responsible manner. [Ex. F].

This will all be discussed at the hearing.

RULING:

The defendant’s Motion to Terminate the Receivership is DENIED.

The Receiver’s motion to increase the Certificate and for Instruction is GRANTED subject to the instructions set forth below in this court’s ruling.

The court orders the following:

  1. Court grants Receiver’s request to collect rents and become on site manager.
  2. The court grants the Receiver’s request to increase the current Certificate of $634,000.00 by $1,993,000.00 to a total of $2,627,000.00, with the Certificate increased immediately to $676,825.00 for N & O Required Scope with the remainder stayed subject to an OSC as to why building should not be demolished, red tagged or sold by the defendants.
  3. That the court schedules such hearing for February 26, 2020 at 9:00 a.m. and, the issuance of the remainder of the Certificate is stayed until this hearing date.
  4. The court sets an OSC for February 26, 2020 at 9:00 a.m. as to why the building should not be demolished, condemned or sold “as is” to a third party buyer.
  5. The court sets an OSC re the status of the tenants in the event of a demolition, condemning of the building, or a sale of the building.

The court has the following questions:

Were the permits issued in late August?

Is there a listing of new violations noted by the City, other than in the Breceda Declaration; specifically, a list of conditions, what they violate, by code or regulation, and the estimated cost to abate?

Is there any information in the newly filed papers from which the Receiver may obtain competitive bids for necessary work, and the parties permitted a period of time to determine if the Receiver should continue to be funded or if the property should be demolished?

What is defendants’ reaction to the proposal that rent collection be taken over by the Receiver, and rents directed to the proposed rehabilitation?

What are the outstanding safety issues; are tenants in danger, facing health and safety risks; should tenants be relocated?

Should the building be condemned?

Should the building be demolished?

Should the defendant sell the empty building “as is” to a new buyer, and let the new buyer bring the building up to code?

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