Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01236/USCOURTS-caed-2_07-cv-01236-0/pdf.json

Nature of Suit Code: 150
Nature of Suit: Overpayments &amp; Enforcement of Judgments
Cause of Action: 28:1346 Breach of Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

AMERICAN NATIONAL RED CROSS, a

nonprofit organization created

by an Act of Congress,

NO. CIV. 07-01236-WBS-DAD

Plaintiff,

v. MEMORANDUM AND ORDER RE:

MOTION FOR LEAVE TO ESCROW

EXPENSE AND TAX PAYMENTS

UNITED WAY CALIFORNIA CAPITAL

REGION, a California

corporation, and DOES 1-10,

inclusive, 

Defendants.

----oo0oo----

Plaintiff American National Red Cross (“Red Cross”)

brought this action seeking to exercise a contractual option to

buy property contained in a lease held by defendant United Way

California Capital Region (“United Way”). Plaintiff now asks

this court to exercise its equitable powers to permit all future

expense and tax payments due under the lease to be placed in an

interest-bearing escrow account as opposed to being paid to

United Way.

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In 1996, the lease was also amended so that the Chapter 1

no longer rented the entire two-story building, only the first

floor. (Id. Ex. E.) Accordingly, the rent, as well as tax and

expense payments, were reduced to 48.87% of their previous

amounts. (Id.)

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I. Factual and Procedural Background

The Red Cross is a nonprofit organization created by an

act of Congress, 36 U.S.C. §§ 300101 et seq., that does business

in Sacramento County through an affiliated entity known as the

Sacramento-Sierra Chapter of the American Red Cross (the

“Chapter”). (Declaration of Julie Van Dooren ¶¶ 2-3.) Beginning

in 1988, the Chapter leased a 26,099 square foot building (the

“property”), as well as a pro rata share of the property’s common

areas. (Id. Ex. A.) 

In recognition of the Chapter’s contributions to the

community, the lessor agreed to donate the building (as well as

its portion of the common areas) to the Chapter at the end of the

twenty-year lease term. (Id. Ex. B (“Agreement to Donate”).) 

Over the next two decades, the property changed hands several

times, and the lease was subsequently amended so that the

“Agreement to Donate” became an “Option to Buy” (for one dollar

($1.00)), exercisable at the end of the lease. (Id. Exs. C &

D.)1

As a condition of the lease, the Chapter agreed to pay

its proportionate share of real property taxes, cleaning, repairs

and maintenance, utilities, landscaping, security, management

fees, and insurance. (Id. ¶ 15.) Accordingly, for the past

thirteen years, the Chapter has paid the tax and expense amounts

charged by the current owner, United Way. (Id. Ex. E.) However,

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beginning in approximately mid-2006, the Chapter began to

question the veracity of the expenses and taxes charged by United

Way. The Chapter requested documentation to support the charges,

and asserts that the United Way refused to provide any such

documentary support. (Id. ¶ 20, Ex. H.) 

The United Way now intends to sell the property and

contends that it has the unilateral right to sell free of the

Chapter’s option to buy. (Id. ¶ 21.) Accordingly, on June 25,

2007, the Red Cross filed suit based on the United Way’s

purported failure to honor the option to purchase, alleging: 1)

breach of contract--refusal to provide short form memorandum of

Red Cross’s opinion 2) breach of contract--refusal to provide

tentative parcel map for Red Cross’s approval; 3) accounting; and

4) declaratory relief. Separate from the main action, the

Chapter now asks this court to permit all future payments of

taxes and expenses due to United Way under the lease to be paid

into an interest-bearing escrow account.

II. Discussion

A. Legal Standard

The district court has the inherent power “to do equity

and to mould each decree to the necessities of the particular

case.” Porter v. Warner Holding Co., 328 U.S. 395, 398 (1946)

(quoting Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944)). 

Moreover, “the court may go beyond the matters immediately

underlying its equitable jurisdiction and decide whatever other

issues and give whatever other relief may be necessary under the

circumstances.” Id. The “comprehensiveness of this equitable

jurisdiction is not to be denied or limited in the absence of a

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clear and valid legislative command.” Id.

While the inherent equitable powers of this court are

broad, equity would not be served by ordering that the Chapter

make all future payments into an escrow account. Plaintiff

admits that it contracted with defendant to pay its share of

taxes, utilities, and other expenses, and thus remains obligated

to continue to pay those amounts while the litigation is ongoing. Plaintiff merely disputes the amounts of past payments,

which provides the basis for Red Cross’s third claim seeking an

accounting of all amounts paid to United Way pursuant to the

lease. Thus, at the hearing on this motion, Red Cross professed

that the underlying justification for the present motion is a

fear that if they prevail on their accounting claim, they would

be unable to recover any monetary judgment from either United Way

or from a subsequent purchaser of the property.

If there was some suggestion that United Way or a

subsequent purchaser would be unable to respond to a judgment on

plaintiff’s accounting claim, then plaintiff’s fears might be

well founded. However, there is no evidence to support such an

assertion. First, there is no suggestion from Red Cross, nor is

there any evidence to indicate, that United Way would be

insolvent or otherwise unable to pay a monetary judgment

resulting from this action. Indeed, at the hearing on this

motion, counsel for United Way acknowledged that the lease

requires such an accounting upon expiration, and that United Way

has every intention of going forward with such an accounting. 

The disputed amounts in question (several thousand dollars a

month) do not seem so burdensome as to believe they would

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threaten the financial solvency of United Way.

With respect to Red Cross’s ability to recover a

monetary judgment from a subsequent purchaser of the property,

United Way represented at the hearing on this motion that a lis

pendens regarding this litigation has been recorded on the

property. A lis pendens gives notice of this litigation to any

potential buyers and secures Red Cross’s claim, so that a

subsequent sale will not diminish Red Cross’s right to the

disputed amounts should they prevail. See, e.g., Campbell v.

Superior Court, 132 Cal. App. 4th 904, 910 (2005) (explaining the

history and purpose of lis pendens statutes). Thus, the property

cannot be sold without satisfying any judgment that may be

awarded in Red Cross’s favor.

Because the court has every confidence that a judgment

entered for Red Cross would be satisfied, the court can see no

reason to grant Red Cross leave to pay all future tax and expense

payments under the lease into an escrow. See Nankin v. Beverly

Enterprises-Wisconsin, Inc., 774 F. Supp. 540, 541 (E.D. Wis.

1991) (in a dispute between lessor and lessee, district court

ordered lessor to place security deposit in escrow, but ordered

the lessee to continue paying rent to the lessor, noting that “it

would be unfair to deprive the landlord of the steady stream of

income for which they had contracted”). Accordingly, the court

will deny plaintiff’s motion. See Porter, 328 U.S. at 398-99

(noting that a court’s decision to exercise its equitable powers

is left up to its broad discretion).

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IT IS THEREFORE ORDERED that plaintiff’s motion for

leave to escrow expense and tax payments be, and the same hereby

is, DENIED.

DATED: August 22, 2007

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