Opinion ID: 2567465
Heading Depth: 2
Heading Rank: 2

Heading: Order Authorizing Contract for Demolition

Text: Gonzalez contends that, in any event, the trial court's order authorizing the receiver to contract for demolition was not supported by the law and must be reversed. In addressing this contention, it is helpful to review a few basic principles relating to receiverships. It has long been recognized that a receiver is an agent and officer of the appointing court. ( People v. Stark (2005) 131 Cal.App.4th 184, 204, 31 Cal. Rptr.3d 669 ( Stark ); see Lesser & Son v. Seymour (1950) 35 Cal.2d 494, 499, 218 P.2d 536 ( Lesser & Son ).) As an officer of the court, a receiver is not an agent of any particular party to the action, but represents all persons interested in the property. ( Security Pacific National Bank v. Geernaert (1988) 199 Cal.App.3d 1425, 1432, 245 Cal.Rptr. 712.) Property in receivership remains under the court's control and continuous supervision, and the importance of such supervision cannot be understated. ( Stark, supra, 131 Cal. App.4th at p. 204, 31 Cal.Rptr.3d 669.) Generally, the functions and powers of a receiver are controlled by statute, by the order of appointment, and by the court's subsequent orders. ( Cal-American Income Property Fund VII v. Brown Development Corp. (1982) 138 Cal.App.3d 268, 273, 187 Cal.Rptr. 703 ( Cal-American ); see generally 55 Cal.Jur.3d (2004) Receivers, § 55, p: 68, and cases cited.) As relevant here, section 17980.7 provides that, unless the court otherwise permits, the appointed receiver has the power and the duty to take full and complete control of the substandard property ( id., subd. (c)(4)(A)) and to take a number of actions, including managing the substandard building and paying taxes and expenses ( id., subd. (c)(4)(B)), dealing and contracting with a licensed contractor as necessary to correct the conditions cited in a notice of violation ( id., subd. (c)(4)(C), (D)), and collecting and using rents and income, or borrowing funds, to pay for the cost of necessary rehabilitation and repairs ( id., subd. (c)(4)(E), (F) & (G)). Section 17980.7 also empowers the receiver to sell the property or to take any other action respecting the property as the court may authorize. ( Id., subd. (c)(4)(H); Code Civ. Proc, §§ 568, 568.5.) [11] In its order appointing the receiver, the trial court specifically granted these powers, and additionally authorized the receiver to investigate and recommend the alternative of demolition if appropriate. We have found no published California decision articulating a specific standard for reviewing a trial court's approval of a receiver's application to demolish a building. Typically, however, court rulings on receivership matters are afforded considerable deference on review. (E.g., Lesser & Son, supra, 35 Cal.2d at p. 503, 218 P.2d 536 [confirmation of receiver's sale of partnership assets and real property]; Golden State Glass Corp. v. Superior Ct. (1939) 13 Cal.2d 384, 393, 90 P.2d 75 [appointing or refusing to appoint a receiver]; People v. Riverside University (1973) 35 Cal.App.3d 572, 582, 111 Cal.Rptr. 68 [confirmation of receiver's sale of university furniture and equipment].) Such deference is the rule, even where the court confirms extraordinary action by the receiver, such as a sale of real property. (E.g., Lesser & Son, supra, 35 Cal.2d at p. 503, 218 P.2d 536; Stark, supra, 131 Cal. App.4th at pp. 199, 207-208, 31 Cal. Rptr.3d 669 [dealership assets and real estate].) Because the highly deferential standard is appropriate for court decisions that are drastic enough to extinguish an owner's interest in property, we find it equally appropriate for decisions pertaining to the demolition of substandard structures that pose a substantial health and safety risk. We therefore adopt the following standard for reviewing the trial court's decision here. The order authorizing the receiver to contract for demolition rests upon the court's sound discretion exercised in view of all the surrounding facts and circumstances and in the interest of fairness, justice and the rights of the respective parties. [Citation.] The proper exercise of discretion requires the court to consider all material facts and evidence and to apply legal principles essential to an informed, intelligent, and just decision. [Citation.] Our view of the facts must be in the light most favorable to the order and we must refrain from exercising our judgment retrospectively. ( Cal-American, supra, 138 Cal.App.3d at p. 274, 187 Cal.Rptr. 703; see People v. Riverside University, supra, 35 Cal.App.3d at p. 582, 111 Cal.Rptr. 68.) Where there is no evidence of fraud, unfairness, or oppression, the court has wide direction in approving the receiver's proposed actions. (See Lesser & Son, supra, 35 Cal.2d at p. 503, 218 P.2d 536; People v. Riverside University, supra, 35 Cal.App.3d at p. 582, 111 Cal.Rptr. 68.) In the proceedings below, a majority of the Court of Appeal determined that, under the circumstances, the trial court did not abuse its discretion in approving the less expensive and more profitable demolition and sale of the property (which would leave equity of $455,000), over the more expensive and less profitable rehabilitation of the property (which would leave equity of $305,000). The dissenting justice, however, concluded it should be Gonzalez's decision as the owner to forgo the additional equity ($150,000) and to keep the property even though it would be less profitable. Unlike the Court of Appeal, we do not view this case as presenting the question whether a trial court abuses its discretion when it fails to defer to the owner's wishes as between two profitable options for dealing with substandard property. Rather, the issue is whether the trial court abused its discretion in authorizing the receiver to contract for demolition upon finding that the property was uninhabitable and that rehabilitation was not economically feasible. Here, the circumstances surrounding the receivership demonstrated the challenges both the receiver and the trial court faced in addressing the substandard and uninhabitable condition of Gonzalez's property. First, the trial court heard evidence of the property's deteriorating and dilapidated state. A number of serious building, fire, housing, plumbing, and electrical code violations existed on the property, including the accumulation of combustible debris and rubbish; the use of extension cords in place of permanent electrical wiring; the absence of heating and operable windows in the units; the failure to maintain the property in a safe and sanitary condition; and the maintaining of an attractive nuisance. Gonzales was renting out multiple beds on the second floor in violation of permissible occupancy rules. Moreover, the property attracted the criminal element, as exemplified by evidence of 32 calls to police between October 2003 and October 2004 reporting alleged criminal activity there. Second, the receiver presented evidence that he had investigated two alternative solutions for the property: (1) repairing and rehabilitating the existing structure; and (2) demolishing it. The bids the receiver solicited for each alternative reflected that rehabilitation would cost approximately $145,000 and yield a real property worth $450,000 (thus resulting in equity of approximately $305,000), while demolition would cost $54,000 and yield a lot worth $509,000 (resulting in equity of $455,000). Thus, a sale of the property would yield $59,000 more after demolition than after rehabilitation. The receiver indicated, however, that the foregoing figures were not certain. Although the bid for correcting the known code violations amounted to $145,000, the receiver advised that, based on his experience as a receiver in prior similar cases, it was likely that rehabilitation costs would increase significantly as additional problems were discovered during progress of the work, and that consequently the costs of administering the receivership would also likely increase. [12] Based on these considerations, the receiver was not the only one in favor of demolition: Downey Savings, the lender and first priority lienholder, also expressed support for demolition. Third, there was evidence the City had tried unsuccessfully for many, many years to compel Gonzalez to repair or abate the serious building, fire, housing, plumbing, and electrical code violations that existed on his property. Despite a previous civil lawsuit that culminated in the City's demolition of a structure on the property, and despite two criminal prosecutions that resulted in various contempt orders and jailing for over nine months, Gonzalez was persistent in his refusal to rehabilitate the property. Fourth, Gonzalez himself informed the court that he opposed demolition and that it was his fervent wish to be permitted to continue inhabiting the property with his family. As for his financial condition, Gonzalez was on record as representing that, apart from the rents received from the property, he was unemployed and had no other income or assets. When we apply the highly deferential standard of review, and take into account all the surrounding facts and circumstances presented, we cannot conclude the trial court abused its discretion in authorizing the receiver to contract for demolition. The evidence presented to the court amply demonstrated that the nature of the known code violations were extensive and supported its determination that the property was uninhabitable. The circumstances brought to the court's attention also supported its conclusion that rehabilitation was not economically feasible. Although the information provided by the receiver indicated there was enough equity in the property to secure financing for the rehabilitation bid of $145,000, the court could reasonably agree with the receiver that the costs of both rehabilitation and receivership administration would likely increase significantly as additional problems surfaced during the course of the corrective work. Moreover, regardless of the equity available for securing financing, Gonzalez made no showing or contention that he could qualify for a loan to finance the necessary repairs or that he had the ability to repay such a loan were he to retain ownership and regain possession of the property. To the contrary, he represented he was unemployed and had no financial resources apart from the property (and its illegal rental units). Finally, there is nothing to suggest the court approved a fraudulent, unfair, or oppressive course of action. (See Lesser & Son, supra, 35 Cal.2d at p. 503, 218 P.2d 536; People v. Riverside University, supra, 35 Cal.App.3d at p. 582, 111 Cal.Rptr. 68.) On this record, the trial court did not abuse its discretion in authorizing the receiver to contract for demolition of the unsafe and uninhabitable structure on the property. Gonzalez contends owners have a statutory right under section 17980, subdivision (b)(1), to choose whether to repair or to demolish a building that is substandard or a nuisance. That provision does not aid him in this case because it is part of a different, albeit related, statutory scheme that authorizes enforcement agencies to take actions concerning substandard buildings without involvement of a receiver. In any event, in requiring that, a property owner be given the choice of repairing or demolishing, section 17980, subdivision (b)(1), merely prohibits an enforcement agency from ordering an owner to demolish a substandard building without first affording the owner the choice and a reasonable opportunity to repair the building instead. (See, e.g., Hawthorne Savings & Loan Assn. v. City of Signal Hill (1993) 19 Cal.App.4th 148, 158-161, 23 Cal.Rptr.2d 272 [although city had engaged in unsuccessful efforts to get former owners to repair certain substandard buildings, city did not make such efforts with the new owner and simply served it with a notice and order to demolish the buildings within 120 days without allowing an opportunity to choose repair over demolition].) While we do not intend to suggest that section 17980, subdivision (b)(1), applies here, this case does not involve a demolition that was ordered without an opportunity to repair. (E.g., Hawthorne Savings & Loan Assn. v. City of Signal Hill, supra, 19 Cal.App.4th 148, 23 Cal.Rptr.2d 272.) Here, the trial court specifically found, in connection with its order appointing the receiver, that Gonzalez has been afforded a reasonable opportunity to correct the conditions cited in the City's May 21, 2002 Notice. The record fully supports this finding, which undermines any notion that the type of choice guaranteed in section 17980, subdivision (b)(1), was denied here. With regard to Gonzalez's wish to repair the property and to continue living there with his family, we accept this was a legitimate factor for the trial court to consider. Nonetheless, we find this factor did not mandate judicial disapproval of the demolition alternative, especially in view of the economic information presented. Moreover, Gonzalez had a long and undisputed history of demonstrating he was unable or unwilling to maintain his property in a habitable condition, despite the various civil and criminal actions, contempt and probation violation hearings, and resulting jail terms. Thus, even if the property were rehabilitated and returned to Gonzalez's control, the uncontroverted facts presented an overwhelming inference that Gonzalez did not have the economic means and the moral resolve to function as a responsible property owner so as to avoid once again endangering the health and safety of his family, potential tenants, and neighbors. [13] Considering all these circumstances, we hold the court acted well within its broad discretion, and clearly in the interest of fairness, justice and the rights of the respective parties and the public, in authorizing the receiver's pursuit of the demolition alternative. ( Cal-American, supra, 138 Cal.App.3d at p. 274, 187 Cal.Rptr. 703.)