Mcle Self Study Article: the Lis Pendens: Strategies and Pitfalls

• Jurisdiction: California,United States
• Author: Jean-Paul Cart and Jamie Lynn Lanphear
• Publication year: 2015
• Citation: Vol. 33 No. 4

MCLE Self Study Article: The Lis Pendens: Strategies and Pitfalls

Check the end of this article for information on how to access one MCLE self-study credit.

Jean-Paul Cart and Jamie Lynn Lanphear

Jean-Paul Cart

Jean-Paul Cart is a litigation associate at Schiff Hardin LLP. His practice areas include commercial, intellectual property, and real estate litigation and cybersecurity/data privacy regulatory compliance. Jean-Paul received his J.D. from UC Berkeley School of Law in 2009.

Jamie Lynn Lanphear

Jamie Lanphear is a litigation associate at Schiff Hardin LLP. She focuses her practice on product liability, commercial litigation, and real estate. Jamie received her J.D. from UC Berkeley School of Law in 2014.

I. Introduction

Obtaining a preliminary injunction is always an uphill battle, and with good reason. A preliminary injunction can cause serious harm to a defendant long before a decision on the merits, including prohibiting the sale of a specific product or asset, or preventing a company from doing business entirely. In the hands of an unscrupulous plaintiff, a preliminary injunction can be misused to bludgeon a defendant into settlement. In the real property context, the recording of a notice of pending action (commonly referred to as a "lis pendens") can do just as much harm. Few potential buyers will risk purchasing a property subject to a lis pendens. Yet the rules governing the recording of a lis pendens adopt as close to a "shoot first and ask questions later" mentality as one is likely to find in California law.

The purpose of this article is to explain the procedural and substantive requirements for properly recording a lis pendens, and how to fight one that lacks merit. First, we lay out the procedural mechanics and requirements of a lis pendens, which are surprisingly minimal in light of the harm a lis pendens can inflict. Second, we explain the avenues available to seek expungement of a lis pendens. And third, we discuss the practical and strategic implications of three important issues related to the recording of a lis pendens: (1) ensuring maximum recovery of attorneys' fees upon a successful expungement motion; (2) navigating the expungement of a lis pendens in the face of a binding arbitration agreement; and (3) requesting an undertaking as a condition of keeping the lis pendens on record.

II. California Law Regarding the Recording of a Lis Pendens

A. Lis Pendens Basics

Any party to a lawsuit who asserts a "real property claim" (defined in Part II.A.1 below) in an action governed by California law, whether in state or federal court,¹ may record a lis pendens.² At its core, a lis pendens is a very simple thing: a recorded document that provides constructive notice to the world that an action involving title or right to possession of a specific property is pending.³ This constructive notice, particularly to potential buyers, protects the plaintiff's claim to the property during the course of the lawsuit. Typically, where an individual purchases real property without notice of another's claim to that property, the individual takes title to the property free and clear of the other's interest. By recording a lis pendens, however, a plaintiff effectively places all subsequent purchasers on notice of its claim to the property. As a result, if the plaintiff prevails on the "real property claim," a subsequent purchaser could lose its rights in the property. In

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other words, a purchaser of property subject to a lis pendens is bound by any eventual judgment regarding the property, even if the purchase occurred before the judgment was rendered.⁴

As a practical matter, recording a lis pendens renders the property at issue unmarketable. Few buyers will be willing to take on the risk of an adverse judgment affecting their recently acquired interest in the property. And those that are willing to assume this risk—presumably based on their assessment of the strength of the plaintiff's position—will almost certainly require some form of indemnification or guarantee. Additionally, the owner of a property subject to a lis pendens may be unable to refinance the property or pledge it as collateral for a loan. A lis pendens is therefore a powerful weapon that can inflict immediate damage. Despite this, the requirements for recording a lis pendens are surprisingly weak. Essentially, a claimant need only allege a "real property claim" and follow the formulaic recording procedure.

1. What Constitutes A Real Property Claim?

The first requirement of a lis pendens is that it may be recorded only by a "party to an action who asserts a real property claim."⁵ "[R]eal property claim" is defined as a claim "which would, if meritorious, affect: (a) title to, or the right to possession of, specific real property or (b) the use of an easement identified in the pleading, other than an easement obtained pursuant to statute by any regulated public utility."⁶While a claim for specific performance of a contract for the sale of real property is the prototypical case where a lis pendens may be recorded,⁷ decades of litigation have produced a fairly comprehensive list of the types of "real property claims" that may support the recording of a lis pendens. Such claims include fraudulent conveyance actions,⁸ claims to quiet title,⁹ a claim to partition real property,¹⁰ an eminent domain proceeding,¹¹ and mechanic's lien foreclosure actions.¹² On the other hand, claims for money damages¹³ or an equitable lien¹⁴ do not qualify as real property claims and cannot support a lis pendens.

Claims for the imposition of a constructive trust have been a bit harder to classify. This is because, while such claims do tend to involve title or right of possession of specific real property, the claimant's interest in the property is often only to secure money damages.¹⁵ In other words, it is very common in the case of a constructive trust claim that the real property at issue is viewed only as potential collateral for an asserted debt. Because this is inconsistent with the purpose of the lis pendens procedure, courts are reluctant to permit lis pendens filings in constructive trust lawsuits.¹⁶ This is true even where the claimant is not using the property as collateral, but is asserting a legitimate interest in the property itself.¹⁷

Thus, attorneys should think carefully before using a constructive trust claim as the only basis for recording a lis pendens. If other causes of action affecting title to or possession of real property are available, those should be pleaded along with, or in lieu of, the constructive trust claim.

Where alternatives are not available and the constructive trust claim forms the sole basis for the lis pendens, a few basic guidelines should be followed. First, the complaint must adequately plead a claim for a constructive trust. The remedy is intended to compel the transfer of property from one who wrongfully holds property to one entitled thereto.¹⁸ Therefore, the complaint should allege facts sufficient to warrant the transfer of title or possession of the property.¹⁹ Second, the constructive trust should not be sought to secure money damages. For example, the interest in the real property should not be asserted merely because the claimant's money was used to purchase the property. If it is, the court is likely to find that the claimant is claiming the property as collateral for money owed and will not permit the lis pendens. Third, the complaint should not mix claims for a constructive trust with claims for money damages. Even where the constructive trust claim is sought to actually transfer title to or possession of property, it is possible the court will deem the claim insufficient for purposes of maintaining a lis pendens.

2. Requirements for Recording a Lis Pendens

The procedural requirements for recording a lis pendens are set forth in California Code of Civil Procedure sections 405.20 through 405.24,²⁰ which provide specific rules regarding who can file a lis pendens, how to file a lis pendens, and what to include in a lis pendens. The recording requirements are far from onerous despite the potential harm the recording of a lis pendens can inflict on a property owner. California courts have recognized the potential for abuse and are likely to rule against claimants who fail to strictly follow the applicable statutory requirements. From a defendant's perspective, this leaves an opportunity to attack a lis pendens on procedural grounds. And from a plaintiff's perspective, failure to dot every "I" and cross every "T" could have serious consequences, including an adverse award of attorneys' fees, sanctions, and potential malpractice liability.

(a) The Contents of the Lis Pendens

A lis pendens itself is little more than a notice. It should be drafted on pleading paper and must contain the names of all parties to the underlying action, in addition to basic information about the case such as the case number and where the action was filed.²¹ Notably, while a misspelled name is often forgiven in other contexts, that is typically not the

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case with regard to a lis pendens. If the plaintiff spells the defendant's name wrong on the lis pendens, it might not be considered constructive notice to potential buyers.²²

Even more important for constructive notice purposes is the requirement that a lis pendens must contain a description of the property.²³ Standard practice is to include a full legal description, parcel number, and address of the property, if applicable. A street address alone may be insufficient, as official records generally use the parcel number as the primary method of identifying a property. The lis pendens must be signed by either the counsel of record in the underlying case or the claimant, acting in propria persona.²⁴ A claimant acting in propia persona must first obtain judicial approval before recording a lis pendens.²⁵

(b) Service and Recordation of a Lis Pendens

Prior to recording the lis pendens, the claimant must...