Case Law Updates
| Publication year | 2023 |
| Author | Written by Caroline Fowler, Clarisa Sudarma, Ryan Griffith, and Amanda Carnero |
Written by Caroline Fowler, Clarisa Sudarma, Ryan Griffith, and Amanda Carnero
City of Fontana v. U.S. Bank, N.A. (Apr. 7, 2022, E075481, E076228) (nonpub. opn.), 2022 WL 1043647, filed April 7, 2022
In a receivership initiated to abate a public nuisance, the public agency petitioner can strip liens to close escrow on the property and then have their fees paid ahead of other recorded interests, despite the general rule of first in time first in right; also, the subordination of a bank's lien does not constitute a taking.
Since 2014, a residential property in the City of Fontana had been dilapidated, a nuisance, and in violation of numerous municipal code provision. There was a cockroach infestation, substantial debris everywhere, the garage ceiling was buckling and at risk of collapse, electrical wiring was exposed, construction was unpermitted, and portions of the house were not permitted for human habitation. For years, the city's code enforcement department attempted to obtain voluntary compliance from the owner, but failed. And although U.S. Bank had a $465,000 mortgage on the property, it did not own the property.
After three years of unsuccessful efforts to bring the property into compliance, the city sought to appoint a receiver pursuant to California Health and Safety Code sections 17980.6 and 17980.7. In accordance with the pre-petition requirements of a 17980.7 receivership, U.S. Bank was informed of the pending receivership action, but did nothing in response. On May 3, 2017, the city fi led its receivership petition in San Bernardino County Superior Court, which resulted in a default by U.S. Bank. The court appointed a receiver for the property on June 29, 2018.
Under the authority of the court's order, the receiver took possession of the property and determined that an "as-is" sale to a responsible buyer was the best route, as opposed to a receivership monitored rehabilitation. The receiver found a responsible buyer to purchase the property for $290,000. The receiver then sought to close escrow on the property, which was underwater due to U.S. Bank's lien $465,000 and a San Bernardino County Judgment of $74,000.
To close escrow, the receiver sought to strip liens from the property and utilize the receiver's super-priority lien to be paid ahead of U.S. Bank and other recorded interests. The City of Fontana also sought to have its attorney's fees paid ahead of the other recorded interests-which it was entitled to under Health and Safety Code section 17980.7(c)(11)-using the super-priority theory as well. The receiver had accrued $44,000 in fees and the city had accrued $118,000 in fees. Therefore, the $290,000 from the sale of the house would pay taxes, receiver fees, and attorney fees and the remaining funds would go to
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U.S. Bank. However, this would have left U.S. Bank short several hundred thousand dollars.
U.S. Bank had its default removed and then sought to challenge the lien-stripping and super priority argument put forth by the receivership. U.S. Bank argued that the lien stripping constituted an unconstitutional taking. Based on existing authority, the court rejected U.S. Bank's argument that the receiver was not entitled to super-priority. The more difficult issue was whether the city's attorney's fees were entitled to super-priority. In Sonoma County v. Quail (2020) 56 Cal.App.5th 657, 687, the court held that there was no authority on the attorney's fee priority issue, but did not decide one way or the other. However, City of Fontana relied on City of Norco v. Mugar (2020) 59 Cal.App.5th 786, 799-800 in order to determine that the city was entitled to super-priority.
As for U.S. Bank's takings argument, it failed because of well-established state and federal law that a nuisance property cannot be subject to taking. A government's action will be upheld as a valid exercise of police power if it is "reasonably necessary to 'protect the order, safety, health, morals, and general welfare of society.'" (Farmers Ins. Exchange v. State of California (1985) 175 Cal. App.3d 494, 501.) For example, "'[a] municipality in the exercise of its police power may, without compensation, destroy a building or structure that is a menace to the public safety or health.'" (Hawthorne Savings & Loan Assn. v. City of Signal Hill (1993) 19 Cal.App.4th 148, 159.)
In summary, the court did not find the receivership constituted a taking. Furthermore, the receiver and city were entitled to super-priority payments ahead of U.S. Bank's mortgage.
Padilla v. City of San Jose (2022) 78 Cal.App.5th 1073, filed May 19, 2022
Because of plaintiffs' failure to "pay under protest" prior to challenging the special assessments and liens imposed by a city for garbage collection services, plaintiffs' claims were barred.
Residents of the City of San Jose (City) filed a putative class action against the City and the County of Santa Clara (County). Plaintiffs sought to recover millions of dollars in garbage collection charges paid by plaintiffs and a class of similarly situated property owners. They alleged that they owned residential property in the City, received garbage collection services from the City, and were billed for those services, but failed to pay some bills.
The City recorded liens on the plaintiffs' property and delinquent charges were referred to the County as special assessments to be included on the property tax bills. Plaintiffs paid the special assessments and the City released the liens.
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Plaintiffs alleged that although the practice of making delinquent charges a special assessment was authorized by the City's municipal code, it nonetheless violated California law under according a priority of property liens. Plaintiffs thus demanded a refund of the money that was obtained through the lien process, as well as declaratory and injunctive relief.
The City and the County demurred to the complaint on multiple grounds, including that the plaintiffs' claims were barred because they voluntarily paid the amounts without invoking the payment under protest procedure required by California Health and Safety Code section 5472. The trial court sustained the demurrer without leave to amend and entered judgment for the defendants.
The Sixth District Court of Appeal agreed with the trial court in sustaining the demurrer because plaintiffs did not comply with the requirements of Health and Safety Code section 5472 in bringing an action for a refund of municipal garbage collection charges. The appellate court held that the statute relates to community "sanitation and sewerage systems" and provides that anyone who has paid the fees or other charges covered by the statute may bring an action for a refund if the payment was made under protest. Additionally, the appellate court stated that under existing precedent, payment under protest has been found to be a prerequisite to bringing an action for a refund of sewer charges. Furthermore, the appellate court reasoned that it was clear from the statute itself that the Legislature intended to include the garbage collection charges at issue here.
Lastly, the appellate court rejected the plaintiffs' challenge based on an alleged failure of the City to properly fix its sanitation fees pursuant to the Health and...
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