Filed 3/26/13 U.S. Bank v. Super. Ct. CA4/3

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

U.S. BANK, N.A., as Trustee, etc.,

Petitioner,

v.

THE SUPERIOR COURT OF ORANGE COUNTY, Respondent;

BELLA TERRA OFFICE JV, LLC, Real Party in Interest. G046642

(Super. Ct . No. 30-2010-00353214)

O P I N I O N

Original proceedings; petition for a writ of mandate to challenge an order of the Superior Court of Orange County, Lu is A. Rodriguez, Judge. Petition denied. Perkins Coie, J. David Larsen, Ga briel Liao, Vilma Palma-Solana and

James D. DeRoche for Petitioner. No appearance for Respondent.2 Friedman Law Group, J. Bennett Frie dman, Stephen F. Biegenzahn and Michael Sobkowiak for Real Party in Interest.

* * *

I NTRODUCTION Bella Terra Office JV, LLC (Bella Terra ), obtained a loan to acquire three office buildings and two retail buildings in a retail center in H untington Beach (the Property). Bella Terra executed a deed of trust in favor of the lender, granting it a security interest in certain real and personal property. U.S. Bank, N. A., as Trustee for the Registered Holders of ML -CFC Commercial Mortgage Trust 2007-7, Commercial Mortgage Pass-Through Certificates Series 2007-7, acting by and through Midland Loan Services, a division of PNC Bank, N.A., its Sp ecial Servicer (U.S. Bank), is the successor

to the lender who made the loan to Bella Terra to acquire the Property. After Bella Terra defaulted on the loan, a receiver was appointed to oversee the Property. After the U.S. Bank loan funded, but before Bella Terra defaulted on the loan, Bella Terra made a separate loan to the owner of a park ing structure adjacent to the Property to pay for improvements to that struct ure. U.S. Bank claims a security interest in the promissory note for the loan from Bella Terra. In this proceeding, U.S. Bank requested the trial court to order Bella Terra to turn over to the r eceiver the promissory note for the loan and payments on that note. The court denied the request, and this appeal

followed. We resolve the serious questions rega rding the appealability of the trial court’s order by exercising our discretion to treat U.S. Bank’s appeal as a petition for a writ of mandate. Both parties agree we should treat the appeal as such a petition. We deny writ relief because the prom issory note in favor of Bella Terra, evidencing the loan for improvements to the parking structure, does not fall within the description of the collateral for the original loan made to Bella Terra to purchase the Property.3 S TATEMENT OF F ACTS AND P ROCEDURAL H ISTORY In May 2007, Bella Terra obtained a $1 05 million loan from Merrill Lynch Mortgage Lending, Inc. (the U.S. Bank loan), 1 to acquire the Property. The U.S. Bank loan was memorialized by a written loan agreem ent and was secured by a deed of trust, assignment of leases and rents and security ag reement (the Deed of Trust). The Deed of Trust secures an interest in the Property an d in “[n]on-exclusive easements,” a term not defined in any documents contained in the appe llate record. Through its ownership of the Property, Bella Terra acquired a majority voting interest in One Pacific Plaza Association, a California nonprofit mutual bene fit corporation (One Pacific Plaza), which owns a parking lot and parking structure ad jacent to the Property ; the parking lot and parking structure are not owned by Bella Terra and are not a part of the Property. In 2007, after Bella Terra acquired the Property, the members of One Pacific Plaza determined capital improvements to the parking structure were necessary. Bella Terra agreed to lend ove r $680,000 to One Pacific Pl aza (the One Pacific Plaza loan). One Pacific Plaza executed and de livered to Bella Terra a promissory note evidencing the One Pacific Plaza loan (the Note). In November 2009, Bella Terra defaulted on the U.S. Bank loan. U.S. Bank filed a complaint for specific perfo rmance and appointment of a receiver. The court appointed a receiver to collect rents fro m the tenants of the Property. U.S. Bank and Bella Terra stipulated to allow the receiv er to manage and sell the Property in partial satisfaction of the U.S. Bank loan; the trial court approved the stipulation and entered it as an order in September 2010. The receiver moved for a court order authorizing the sale of the Property. Ultimately, the trial cour t granted the receiver’s motion, over the

1 The U.S. Bank loan was entered in to by Bella Terra and two affiliates; Bella Terra eventually assumed al l of its affiliates’ obligations under the terms of the loan agreement and all related loan documents. U.S. Bank succe eded to all of Merrill Lynch Mortgage Lending’s rights unde r the loan agreement. We will refer only to Bella Terra and U.S. Bank through the remainder of this opinion to avoid confusion.4 objection of Bella Terra, and authorized th e sale of the Property to GIV Bella Terra Investor, LLC (GIV). After the sale was authorized, but be fore it closed, the receiver became

aware of the existence of the One Pacific Plaza loan. Bella Terra refused to provide the receiver with the Note or any payments on the One Pacific Plaza loan made to Bella Terra since the receiver’s appointment. The receiver therefore filed an ex parte application for an order requi ring Bella Terra to turn ove r the Note and all monies collected under it. After supplemental briefi ng and a hearing, the trial court denied the application (the turnover orde r). U.S. Bank timely appealed. The sale of the Property to GIV was co mpleted. GIV entered into a consent and assumption agreement with U.S. Bank, under which GIV released U.S. Bank and others from any and all liabilities occurring pr ior to closing, known or unknown, in

connection with the sale and acquisition of the Property.

D ISCUSSION

I.

A PPEALABILITY The order from which U.S. Bank appeal s is not a final judgment, and no judgment has been entered since the turnover order was filed. It is “[t]he substance and effect of the order, not its label or form, [tha t] determines whether it is appealable as a final judgment.” ( Joyce v. Black (1990) 217 Cal.App.3d 318, 321 .) We consider whether the order has the earmarks of a final judgme nt—that is, it leaves nothing for judicial consideration, it is the only judicial ruling on the issue, and there is no other opportunity to review the order by appeal. ( Estate of Miramontes-Najera (2004) 118 Cal.App.4th 750, 755; Joyce v. Black , supra , at p. 321.) In this case, the order has some of the earmarks of a final judgment. Although the order does not dispose of the entire action, it leaves nothing further for5 judicial consideration on the issue whether the Note is collateral of U.S. Bank, and is the only judicial ruling on that issue. Howeve r, nothing would have prevented U.S. Bank from obtaining review of the order on appeal from a final judgment. We conclude the trial court’s order is not itself a final judgment. U.S. Bank argues the turnover order is appealable as a final determination

on a collateral matter. “When a co urt renders an interlocutory order collateral to the main issue, dispositive of the rights of the partie s in relation to the collateral matter, and directing payment of money or performance of an act, direct appeal may be taken.” ( In re Marriage of Skelley (1976) 18 Cal.3d 365, 368.) In supplemental briefing filed pursuant to an order of this court, U.S. Ba nk and Bella Terra advise d this court that the dismissal of the underlying lawsuit is awaitin g the trial court’s approval of the receiver’s final accounting, which, in turn, is awaiting the resolution of the issues raised by this appeal. We cannot see how the matter can trul y be collateral when the finalization of the litigation depends on it. In this case, we exercise our discretion to treat the appeal as a petition for a writ of mandate, in the interests of justice and judicial economy. ( Morehart v. County of

Santa Barbara (1994) 7 Cal.4th 725, 744-747.) The merits of the issues have been fully briefed, and Bella Terra did not argue the lack of appealability, thereby conceding we could consider the case on its merits. (Indeed , in its supplemental briefing, Bella Terra argues that if this court determines the turnov er order is not an appealable order, it should

exercise discretion to treat the notice of appeal as a petition for a writ of mandate.)

II.

S TANDING AND M OOTNESS Bella Terra argues U.S. Bank does not have standing to pursue this writ proceeding because it is not an aggrieved part y. (Code Civ. Proc., § 902.) An aggrieved party is one “whose rights or interests ar e injuriously affected by the judgment.6 [Citations.] Appellant’s interest ‘“must be i mmediate, pecuniary, a nd substantial and not nominal or a remote consequence of the judgment.”’ [Citation.]” ( County of Alameda v.

Carleson (1971) 5 Cal.3d 730, 737.) Bella Terra contends that U.S. Bank suffered no damage as a result of the denial of the tu rnover order because it has no liability to GIV

for the failure to include the Note as part of the sale of the Property to GIV. Bella Terra argues the writ proceeding is moot because U.S. Bank released all personal property claims against Bella Terra when the sale to GIV was completed. We conclude U.S. Bank has standing to pursue this writ proceeding, and the proceeding is not moot, because the denial of the turnover order affects U.S. Bank’s claimed security interests. When GIV assu med the U.S. Bank loan , U.S. Bank continued to have a security interest in all secured property transferred by the receiver to GIV. The consent and assumption agreement specifically provides that U. S. Bank “shall continue to have a security interest (and is hereby granted a security interest) in all Collateral [(earlier defined as ‘all fixtures, pers onal property and other proper ty described in the Loan Documents’)] whether such Colla teral is now owned by [GIV] or is hereafter acquired by [GIV].” Therefore, if the Note is ultimatel y transferred to GIV, U.S. Bank might have a security interest in it. This is a sufficient claimed intere st to give U.S. Bank standing to bring the writ petition, and means the writ proc eeding is not moot despite the completion of the sale of the Property.

III.

S TANDARD OF R EVIEW This case involves a single issue of c ontract interpretation, and there are no disputed facts; therefore, we review the matter de novo. ( Dowling v. Farmers Ins. Exchange (2012) 208 Cal.App.4th 685, 694; Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal. App.4th 944, 955-956.)7 IV.

I

S THE N OTE W ITHIN THE D EED OF T RUST ’ S D ESCRIPTION OF THE C OLLATERAL FOR THE U.S. B ANK L OAN ?

A. The Deed of Trust The Deed of Trust gives U.S. Bank a security interest in the following property of Bella Terra to se cure the U.S. Bank loan: “ . . . [Bella Terra] does hereby irrevocab ly mortgage, grant, bargain, sell, pledge, assign, warrant, transfer, convey and grant a security interest to Trustee, its successors and assigns, for the benefit of [U.S . Bank] and its successors and assigns, the following property, rights, inte rests and estates now owned, or hereafter acquired by [Bella Terra] (collectively, the ‘Property’): “(a) Co-Tenancy Ag reement. . . . [;] “(b) Land. The real property descri bed in Exhibit A a ttached hereto and made a part hereof (the ‘Land’); “(c) Additional Land. . . . ; “(d) Improvements. The buildings , structures, fixtures, additions, enlargements, extensions, modifications, repa irs, replacements and improvements now or

hereafter erected or located on the Land (collectively, the ‘Improvements’); “(e) Easements. . . . ; [2] “(f) Fixtures and Personal Property. . . . ; “(g) Leases and Rents. . . . ; “(h) Insurance Proceeds. . . . ; “(i) Condemnation Awards. . . . ; “(j) Tax Certiorari. . . . ; “(k) Rights. . . . ;

2 There is no argument by U.S. Bank th at article 1., section 1.1.(e) of the Deed of Trust is relevant to our analysis.8 “(l) Agreements. All agreements, c ontracts, certificates, instruments, franchises, permits, licenses, plans, specifica tions and other document s, now or hereafter entered into, and all rights therein and ther eto, respecting or pertaining to the use, occupation, construction, management or oper ation of the Land and any part thereof and any Improvements or any business or activity conducted on the Land and any part thereof and all right, title and interest of [Bella Te rra] therein and thereund er, including, without limitation, the right, upon the happening of an y default hereunder, to receive and collect any sums payable to [Be lla Terra] thereunder; “(m) Intangibles. . . . ; “(n) Accounts. . . . ; “(o) Conversion. . . . ; “(p) REA. . . . ; and “(q) Other Rights. Any and all other rights of [Bella Terra] in and to the items set forth in subsections (a) thr ough (p) above.” (Underscoring omitted.)

B. U.S. Bank’s Argument That the Note Is Included in the Deed of Trust The parking structure is not part of the land, as defined in the Deed of

Trust. The term “Land” is defined as the re al property acquired by Bella Terra, i.e., the retail and office buildings it purchased with the proceeds of the U.S. Bank loan, and “[n]on-exclusive easements,” wh ich, as we shall discuss post , are not defined in any of the documents in the appellate record. U.S. Bank argues the Note constitutes collateral for the U.S. Bank loan under section 1.1.(l) of article 1. under the Deed of Trust because it is an after-acquired instrument “respecting or pertaining to the us e, occupation, construction, management or operation of the Land.” U.S. Bank’s argumen t is premised on th e assumption that the “[n]on-exclusive easements ,” included in the definition of the land in the Deed of Trust, are easements for ingress and egress of the parking structure adjacent to the Property, which is used by the Property’s tenants an d patrons. There is no support for this9 assumption in the appellate record, however, and U.S. Bank does not cite to any document so stating. Indeed, all of the doc uments referencing the Property acquired by

Bella Terra describe the easements as fo llows: “Non-exclusive easements as more particularly described and se t forth in” other recorded documents; those recorded documents do not appear in the appellate reco rd. Therefore, we have no evidence of the scope of the easements, and whether they ar e, in fact, for ingress and egress of the parking structure. Nor has U.S. Bank shown that the easements for ingress and egress of the parking structure are otherwise included in the description of “Land” under the Deed of Trust. It is the burden of the party ch allenging an order on appeal to provide an adequate record to assess error. ( Maria P. v. Riles (1987) 43 Cal.3d 1281, 1295; Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 58.) U.S. Bank has failed to do so, and we could deny the petition on that ground alone. Even if we were to examine the merits of U.S. Bank’s arguments based on the incomplete record before us, we would find no error. Th e definition of the land in the

Deed of Trust includes certain nonexclusive easements, which, fo r purposes of this portion of the opinion, we will assume are easements fo r ingress and egress of the parking structure. The question is whether the Note “respect[s] or pertain[s] to the use, occupation, construction, mana gement or operation of” the nonexclusive easements to ingress and egress of the parking structure. 3 We conclude the Note evidencing the One Pacific Plaza lo an to improve the parking structure is not in respect to and does not pertain to Bella Terra’s use of

easements to enter or exit the parking structure. The Note has no effect on Bella Terra’s right or ability to use its nonexclusive easeme nts. That the purpose of the One Pacific

3 U.S. Bank cites to Black’s Law Di ctionary which defines “pertain” as “[t]o relate to.” (Black’s Law Dict. (9th ed. 2009) p. 1 260, col. 2.) U.S. Bank then quotes from cases discussing the meaning of “relate[s] to.” However, the Deed of Trust itself does not use the term “relates to,” and th e meaning of that phrase is not relevant to this opinion.10 Plaza loan was to make improvements to the pa rking structure does not necessarily mean the Note is in respect to or pe rtains to the use of easements to get in or out of the parking structure. Bella Terra had the right and th e ability to use its ease ments whether or not improvements to the parking structure were ma de. Therefore, the Note, which evidences

the One Pacific Plaza loan made to fund improvements to the pa rking structure, is not in respect to and does not pertain to the easements. As discussed ante , U.S. Bank’s argument has no support in the governing documents. U.S. Bank argues the Note is in respect to or pertai ns to the Property itself, excluding the nonexclusive easements, becaus e “[i]n California, where most employees and customers drive, it is not practical to lease an office or retail building where no parking is available.” This argument stretc hes credulity almost to the breaking point. The Property also requires el ectricity to operate; U.S. Bank’s argument, taken to its logical conclusion, would mean U.S. Bank ha d rights of collateral in any promissory notes related to property on whic h easements for power lines exist. 4 U.S. Bank also argues the Note is in re spect to or pertains to improvements

on the land because the One Paci fic Plaza loan was made to fund improvements to the parking structure. But the Deed of Trust only creates a collateral in terest in instruments respecting or pertaining to the use of im provements; the Deed of Trust defines the improvements as “[t]he buildings, struct ures, fixtures, additions, enlargements, extensions, modifications, repairs, replac ements and improvements now or hereafter

erected or located on the La nd.” Even assuming that the nonexclusive easements, referenced in the Deed of Trust as part of the land, include easement s to enter and exit the parking structure, the upgrades to the park ing structure are modifications, repairs, or

4 Bella Terra contends this argument fails because “there are hundreds of parking spaces available for tenants and cu stomers of the shopping center, other than those in the parking structure.” We cannot find any evidence in the appellate record supporting this claim. U.S. Bank, however, does not dis pute the accuracy of Bella Terra’s factual statement.11 improvements to the structure itself, not the ea sements. The easement has not undergone any changes or modifications, so section 1.1.(d ) of article 1. of the Deed of Trust is inapplicable. U.S. Bank further argues that Bella Te rra is estopped from disputing the Note is part of the collateral for the U.S. Ba nk loan because in bo th the loan agreement and in Bella Terra’s operating agreement, Be lla Terra agreed and covenanted that it would not engage in any other business activitie s, acquire assets other than the Property, or make any loans or advances until the U.S. Bank loan was repaid. U.S. Bank contends

that because the loan documents evidence an intent that Bella Terra not acquire any assets

other than those used as colla teral for the U.S. Bank loan, any assets acquire d in violation

of the terms of the loan do cuments must become collateral. We disagree. Any acquisition of assets or any business activities that violate the terms of the loan documents may constitute a breac h of contract and an act of default. They do not transmute property that is not otherwise collateral for the U.S. Bank loan.

D ISPOSITION The petition for a writ of mandate is deni ed. Real party in interest shall recover costs on appeal.

FYBEL, J.

WE CONCUR:

MOORE, ACTING P. J.

ARONSON, J.