Filed 9/27/19 Donovan v. Hennessey CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

BRADLEY DONOVAN,

Plaintiff and Respondent,

v.

GERALD ALLEN HENNESSEY, as Trustee, etc.,

Defendant and Appellant.

G056387

(Super. Ct. No. 30-2015-00810545)

O P I N I O N

Appeal from a judgment of the Superior Court of Orange County, Sheila Fell, Judge. Affirmed.

Thaler Law and Jesse J. Thaler for Defendant and Appellant.

Buffington Law Firm, Roger J. Buffington, Kaden J. Kennedy, Brooke A. Buchanan and Matthew T. Cox for Plaintiff and Respondent. 

INTRODUCTION

Gerald Allen Hennessey has appealed from a judgment quieting title to a Huntington Beach condominium in respondent Bradley Donovan. Donovan conveyed title to the condo to a trust, of which Hennessey was a trustee, on the understanding that Hennessey could get the lending bank to cancel the mortgage on the property, at which point the condo could be sold without this encumbrance. Donovan and Hennessey would then split the proceeds. Hennessey represented that the condo had to be in a trust, with himself as trustee, and he had to have Donovan’s power of attorney in order to negotiate with the lender.

More than three years later, Hennessey had accomplished nothing toward canceling the mortgage or selling the property. Donovan sued Hennessey to quiet title to the condo in himself, as well as for other causes of action based on Hennessey’s representations and actions. The matter was tried to the court in November 2017; the court quieted title in Donovan, but denied him any further relief against Hennessey. Hennessey has appealed from the quiet title portion of the judgment.

We affirm. Substantial evidence supports the court’s conclusions regarding the controverted issues relating to quiet title, and as a reviewing court we do not reweigh evidence. Hennessey did not perform as he had represented he could, so the reason for putting the condo into the trust failed. Hennessey had a reasonable time to conduct negotiations and get the mortgage removed. If he had not succeeded after three years, it was evident that he could not produce the required results. The court unwound the transaction as far as possible, given the passage of time and subsequent events. We find no flaw in that resolution.

FACTS

As we are required to do on appeal, we recite the facts in the light most favorable to the judgment. (Hoffman v. Superior Ready Mix Concrete, L.P. (2018) 30 Cal.App.5th 474, 478.)

Donovan bought a condominium in Huntington Beach in 2000. In 2008, wanting a larger residence, he bought a house in Murrieta and moved into it. At first he planned to keep the Huntington Beach condo, but as the real estate market crashed, he was unable to keep up the mortgages on both properties. By the end of 2009, he was behind on his mortgage payments and the HOA fees for the condo.

Needing to generate some immediate cash, Donovan put an advertisement on Craigslist in November 2011, asking for $7,000 in exchange for permission to occupy the Huntington Beach property for at least three months. The ad explained that the condo was up for a short sale, but it might take longer than three months to complete the process, in which case the renter could continue to occupy the property rent-free. Hennessey responded to the advertisement, and the parties entered into a one-year lease in December 2011.

At the end of the three months, Hennessey wanted to remain in the condo. He told Donovan that he had experience in negotiating with banks about mortgages, and he could get Donovan’s mortgage declared void because of errors in the note. Hennessey told Donovan that he could get the mortgage lifted either through negotiating with the lender or through a lawsuit. The plan was to sell the property free of the mortgage debt and split whatever was left over equally between Hennessey and Donovan. The best way to do this, Hennessey asserted, was to put the condo in a trust, with himself as trustee.

In March 2012, Donovan and Hennessey entered into a “Private Agreement and Declaration of Trust,” creating the 7461 Shelter Cove Circle Trust (the Trust). Donovan was grantor, and Hennessey was trustee. The beneficiaries were Donovan (49%) and a different trust, of which Chelsea Hennessey was the trustee (51%). Title to the condo was transferred to the Trust by grant deed, recorded March 26, 2012.

The parties entered into a second agreement at about the same time, a “memorandum of intent – private,” which established the 50/50 split of the proceeds from the property sale and the condition that the property would be free of all encumbrances at the time of sale. This agreement was exhibit A to the grant deed, which incorporated it by reference. Donovan testified that Hennessey’s half share of the proceeds was to be his compensation for paying the costs of the trust property – such as the mortgage, HOA dues, upkeep – and for getting the mortgage removed from the property.

Donovan also gave Hennessey his power of attorney. Hennessey represented to Donovan that the power of attorney was needed to allow Hennessey to negotiate directly with the bank.

It is not necessary to go into detail about all of the succeeding events. Only a few are relevant to this appeal. In March 2014, the HOA foreclosed on the condo for nonpayment of dues. The property was sold at a foreclosure sale in October. Hennessey paid the delinquent HOA dues ($19,000) in time to redeem the property after the sale. The HOA was in possession of the condo until it was redeemed.

In May 2014, Donovan filed a Chapter 7 petition in bankruptcy. Among the debts listed on his bankruptcy schedules was a $270,000 unsecured nonpriority claim by Bayview Loan Servicing. Donovan did not list the condo on the bankruptcy schedule for real estate assets.

Eventually Hennessey moved out of the condo and rented it. Donovan did not receive any of this rental income.

In 2015, Donovan lost the house in Murrieta to foreclosure, and he moved back to Huntington Beach. He took up residence in the condo in September 2015. At that point the condo was on the market, but the mortgage had not been removed, and the sale price was lower than the debt. Donovan took it off the market.

In September 2015, Donovan filed suit to quiet title in the Huntington Beach condo, among other causes of action. Because the condo was still in the Trust, lenders would not talk to him personally regarding the loan on the property.

Hennessey moved for summary judgment or summary adjudication in June 2017. Part of the motion was based on the argument that judicial estoppel and collateral estoppel barred Donovan’s causes of action for quiet title and constructive trust. The court denied the motion.

The matter was tried to the court on November 1 and 2, 2017. Donovan requested a statement of decision at the outset, as the trial was anticipated to take fewer than eight hours. Donovan and Hennessey testified.

The court took the matter under submission and issued a tentative ruling on December 21. In essence, the court quieted title in Donovan and denied him any relief on his causes of action for unlawful business practices, fraud, and breach of fiduciary duty. The court found, inter alia, that Donovan properly terminated the “memorandum of intent – private” contract after Hennessey failed to perform within a reasonable time, which the court held to be one year. The court quieted title in Donovan because “[t]he intent of the Trust was not to give [Hennessey] a windfall, i.e., title to the Property without any consideration.” The court did not address Hennessey’s estoppel arguments in the tentative decision. The appendix does not contain any objections by Hennessey to the tentative decision or a motion under Code of Civil Procedure section 657 or under section 663.

Hennessey filed a motion for judgment notwithstanding the verdict (JNOV) under section 629. The motion was denied. The court remarked that “[t]he Court did not find Defendants’ estoppel arguments compelling in ruling on the MSJ/MSA . . . . they are no more persuasive now.” Judgment was entered on April 5, 2018.

Hennessey’s notice of appeal identifies both the judgment after the court trial and the order denying the motion for summary judgment as the orders from which he appeals. As he makes no argument regarding overturning the order denying the motion for summary judgment, we consider this part of the appeal abandoned. (See Mangano v. Verity, Inc. (2009) 179 Cal.App.4th 217, 222, fn. 6.)

DISCUSSION

Four of the six issues Hennessey has identified on appeal center on insufficient evidence: lack of consideration, reasonable time, contract termination, and quiet title. A challenge to a judgment based on insufficient evidence invokes the substantial evidence rule, which defers to the trial court’s findings. “‘[O]ur review begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, to support the findings below.’ [Ctiation.] ‘In assessing whether any substantial evidence exists, we view the record in the light most favorable to respondents, giving them the benefit of every reasonable inference and resolving all conflicts in their favor.’ [Citation.] ‘“[I]t is not our role to reweigh the evidence, redetermine the credibility of the witnesses, or resolve conflicts in the testimony, and we will not disturb the judgment if there is evidence to support it.’” [Citation.] Where multiple inferences can be drawn from the evidence, we defer to the trial court’s findings. [Citation.] ‘If the trial court’s resolution of the factual issue is supported by substantial evidence, it must be affirmed.’ [Citation.]” (Orange Catholic Foundation v. Arvizu (2018) 28 Cal.App.5th 283, 292.)

I. Evidence of Lack of Consideration

The trial court held that “the intent of the Trust was not to give [Hennessey] a windfall, i.e., title to the Property without any consideration.” The trust document itself provided that the property was conveyed to the trust without consideration from the trustee. Hennessey argues that there was consideration for the transfer of title, citing Civil Code sections 1614 and 1615. He also argues that he paid over $20,000 on maintenance, HOA fees, and other expenses.

There was no evidence at trial of any payment made to Donovan by Hennessey in March 2012, when the condo went into the Trust, for the transfer. Hennessey paid the HOA fees to which he alluded much later, in order to rescue the condo after the HOA foreclosed on it. No evidence supports the claim that this amount was consideration for title to the condo, which was listed for sale at somewhere around $500,000 in September 2015.

Furthermore, Hennessey has not explained why consideration matters. The trial court’s decision does not appear to hinge in any way on whether Hennessey paid Donovan for title to the property. The reason the contract was terminated was that Hennessey did not perform within a reasonable time, not that there was no consideration.

II. Evidence of Reasonable Time

The trial court ruled that “[t]he testimony established that [Hennessey], as Trustee, was to oversee the sale of the subject property within a reasonable time. The court can insert one year as a ‘reasonable time’ to have the property sold.” The court also ruled that “[Hennessey] was not able to liquidate the property, under the parties’ agreement, in a reasonable time.”

“If no time is specified for the performance of an act required to be performed, a reasonable time is allowed. . . .” (Civ. Code, § 1657.) What constitutes a reasonable time when no time is specified is a fact question, one that we review for substantial evidence. (Marshall & Co. v. Weisel (1966) 242 Cal.App.2d 191, 195; see Stockton v. Stockton Plaza Corp. (1968) 261 Cal.App.2d 639, 644-646.)

We assume the clock started to run in March 2012, when the Trust was created and title to the property was transferred to the Trust. Hennessey’s representations to Donovan about his expertise in getting banks to cancel mortgages and Donovan’s dire financial condition between 2012 and 2013, a condition known to Hennessey from late 2011, constitute substantial evidence that a year was a reasonable period of time to allow Hennessey to work his magic with the bank.

Hennessey argues that one year was not reasonable because the parties entered into a one-year lease in December 2011 and into the agreement to try to clear the mortgage in March 2012. We see no obstacle here. Hennessey could have been working on getting the mortgage canceled while he was leasing the condo. If he had convinced the bank to cancel the mortgage and found a buyer for the property before the lease expired in December 2012, it would have been in his interest, as well as in Donovan’s, to simply agree to cancel the lease at that point. This evidence does not negate the substantial evidence that supports the trial court’s determination of what constituted a reasonable time.

In point of fact, Hennessey controlled the property through the Trust for over three years – between March 2012 and September 2015 – and he still had not managed to get the mortgage lifted and the property sold. He can hardly complain that he did not have enough time to get the job done.

III. Evidence of Contract Termination

The trial court ruled that the purpose of the contract between Donovan and Hennessey was to oversee the sale of the property. Because Hennessey did not sell the property within a reasonable time, the agreement expired.

“‘“Termination” occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On “termination” all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.’ [Citations.]” (1 Witkin, Summary of Cal. Law (11th ed. 2017) Contracts, § 955, p. 1007.)

When an agreement contains no express term of duration, “the law usually implies that the term of duration shall be at least a reasonable time, and that the obligations under the contract shall be terminable at will by any party upon reasonable notice after such a reasonable time has elapsed.” (Consolidated Theaters, Inc. v. Theatrical Stage Employees Union (1968) 69 Cal.2d 713, 727-728, fn. omitted; see Zimco Restaurants, Inc. v. Bartenders & Culinary Workers Union (1958) 165 Cal.App.2d 235, 240; County of Los Angeles v. Nesvig (1965) 231 Cal.App.2d 603, 619 [“Any contract is subject to termination for unsatisfactory performance.”] .)

Substantial evidence supports the trial court’s conclusion Donovan properly terminated the contract. Over three years had passed since the parties agreed that Hennessey would get the bank to release the mortgage on the condo and sell it, in return for half the sale proceeds. Donovan testified that Hennessey had made no progress whatsoever on either front during that time. In the meantime, Donovan had lost his house in Murrieta to foreclosure, and he needed a place where he and his children could live. Substantial evidence supports the court’s determination that he did not need to wait any longer for Hennessey to perform.

IV. Quiet Title

The court held that the Trust was created to allow Hennessey to try to sell the Huntington Beach property. He could not do so within a reasonable time, and Donovan properly terminated the contract. “The contract having been terminated, the Deed transferring the property to the Trust is void and title is quieted in favor of [Donovan].”

Substantial evidence, from Donovan’s testimony, supports the court’s finding about the reason for the Trust. The Trust was created to allow Hennessey to negotiate with the lender so that the encumbrances could be removed and the property sold, not lost to foreclosure or a short sale. It is undisputed that the mortgage was not canceled or reduced and the property was not sold. We have dealt with the timeliness issue and the termination issue above.

The trial court concluded the rationale for the Trust no longer existed, and title had to be transferred back to Donovan. His testimony provides substantial evidence to support this conclusion.

At trial, Hennessey denied that the “Private Agreement and Declaration of Trust” (Exhibit 11) was valid. According to him, it was only “a proposal” that he sent to Donovan, “designed to provide further detail of the arrangement between the parties,” but it was never “ratified.” According to Hennessey, the Trust never came into being.

Hennessey argues that the basis of the quiet title action was Donovan’s claim that he had been defrauded by a conman. Because the trial court found no wrongdoing on Hennessey’s part, he argues, the court should not have quieted title in Donovan.

Quiet title does not depend on a finding of wrongdoing. All that is necessary for a quiet title action is a claim of title by the plaintiff and an adverse claim by the defendant. (§ 761.020.) It is not necessary that the adverse claim be based on wrongdoing.

Hennessey’s fundamental argument is that although he made extravagant representations about his ability to get the mortgage lifted from the Huntington Beach condo and sell the property but could not follow through within a reasonable time (one year or three years), the Trust should go on indefinitely, and he should still be able to collect half the proceeds whenever the property is sold. The trial court decided that equity demanded another outcome, and we are hard-pressed to disagree.

V. Collateral Estoppel and Judicial Estoppel

Hennessey repeatedly argued in the trial court that both collateral estoppel and judicial estoppel bar Donovan’s quiet title claim. He advanced these arguments in the motion for summary judgment, in closing argument at trial, and in the JNOV motion. In none of these proceedings was he successful. He reiterates the arguments on appeal.

“Collateral estoppel precludes relitigation of issues argued and decided in prior proceedings. [Citation.] Traditionally, we have applied the doctrine only if several threshold requirements are fulfilled. First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. [Citations.] The party asserting collateral estoppel bears the burden of establishing these requirements. [Citation.]” (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341.) We review the trial court’s application of collateral estoppel de novo. (Roos v. Red (2005) 130 Cal.App.4th 870, 878.)

Hennessey’s counsel mentioned collateral estoppel briefly during closing argument; the trial court made no explicit ruling on it in the tentative decision. Collateral estoppel was also a topic of the JNOV motion. In its ruling, the court remarked that the argument for collateral estoppel was no more compelling or persuasive in the JNOV motion than it had been in the motion for summary judgment, but did not elaborate.

“‘A judgment or order of the lower court is presumed correct. All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error.’ [Citation.]” (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.)

The issue Hennessey claims was already litigated occurred in Donovan’s Chapter 7 bankruptcy in 2014. Hennessey argues that Donovan did not list the Huntington Beach property on his real property bankruptcy schedule, but he did list a claim by Bayview Loan Servicing for $270,000 as one of his debts. Hennessey maintains that Donovan is collaterally estopped from claiming any interest in the property now, because the bankruptcy court relied on the real property schedule when it discharged him, which discharge included the Bayview debt, allegedly the mortgage on the Huntington Beach property.

There is no evidence in the record that the issue of Donovan’s interest in the Huntington Beach property was actually litigated in the bankruptcy court or that the court necessarily decided it as part of the bankruptcy proceedings. (See Thompson v. Ioane (2017) 11 Cal.App.5th 1180, 1197.) In fact, Hennessey’s argument strongly implies the opposite – the bankruptcy court could not have dealt with Donovan’s interest in the property because the court knew nothing about it. (Cf. Hernandez v. City of Pomona (2009) 46 Cal.4th 501, 512-513 [issue underlying state court action ‘“precisely the issue resolved”’ in federal court action].) Given this record, Hennessey did not carry his burden to establish collateral estoppel, and he has not affirmatively shown error on a silent record.

Hennessey makes a substantially similar claim for judicial estoppel, based once again on Donovan’s bankruptcy schedules: having failed to list the Huntington Beach condo on his real property schedule, Donovan cannot now claim an interest in it. This argument was also advanced in the motion for summary judgment, in closing argument, and in the JNOV motion.

Judicial estoppel applies when: “(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.” (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 183.)

We review the question of whether judicial estoppel can apply to the facts de novo. The findings of fact upon which judicial estoppel is based are reviewed for substantial evidence. But even if the necessary elements are present, because judicial estoppel is an equitable doctrine, whether it should be applied is up to the trial court’s discretion. We review the exercise of discretion under an abuse of discretion standard. (See Blix Street Records, Inc. v. Cassidy (2010) 191 Cal.App.4th 39, 46-47.)

Because only Donovan’s bankruptcy petition was ever admitted into evidence, there actually is little evidence in the record to support Hennessey’s argument. For example, no evidence of statements purportedly made by the bankruptcy trustee was ever admitted anywhere. Donovan testified that the only property listed on the real estate schedule was the Murrieta house, in which he was living at the time. He also acknowledged that the Bayview debt was listed on one of his schedules. These are the only facts relevant to this issue that were elicited at trial.

Even if we were to consider all of the bankruptcy documents for their truth, Hennessey’s argument would still fail. Donovan testified that he explained the circumstances surrounding the Trust to his counsel, who told him he did not own the Huntington Beach property. It had been stolen from him. If it was error to omit the condo from the bankruptcy schedule – and this was never established at trial – the error was not owing to any deliberate misrepresentation by Donovan. On this (silent) record, we conclude either that Hennessey did not establish the last element of judicial estoppel or that the court exercised its discretion not to apply it. Either way, we must defer to the trial court’s decision.

DISPOSITION

The judgment is affirmed. Respondent is to recover his costs on appeal.

BEDSWORTH, J.

WE CONCUR:

O’LEARY, P. J.

GOETHALS, J.