Filed 1/29/20 Gaines v. Lehman Brothers Holdings CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION EIGHT

MILTON HOWARD GAINES,

Plaintiff and Respondent,

v.

LEHMAN BROTHERS HOLDINGS, INC.,

Defendant and Appellant.

B292497

(Los Angeles County

Super. Ct. No. BC361768)

APPEAL from a judgment of the Superior Court of Los Angeles County. John P. Doyle, Judge. Affirmed as modified and remanded with directions.

Garcia Legal, Steven Ray Garcia and Alexander Levy, for Defendant and Appellant.

Ivie, McNeil & Wyatt, Chandler A. Parker and W. Keith Wyatt for Plaintiff and Respondent.

_____________________________

In 2006, homeowners Fannie Marie and Milton Gaines fell behind on mortgage payments on their duplex and went into foreclosure. They sought help from Countrywide Home Loans, their lender. A Countrywide employee lied to them that Countrywide could not refinance their loan, and then referred them to her fiancé Joshua Tornberg for help. Tornberg and others deceived Fannie and Milton into transferring title to their property to Tornberg in a leaseback scenario Tornberg never intended to honor. Tornberg took out a loan against the property that was eventually held by defendant Lehman Brothers Holdings, Inc.

Milton died, and Fannie filed a lawsuit against those involved in the transaction. After years of procedural wrangling, during which Fannie died and her son Milton Howard Gaines (Gaines) stepped in as plaintiff, Tornberg and the other defendants were dismissed for Gaines’s failure to bring the case to trial within five years. Because Lehman was added to the suit later, it remained the sole defendant. After a bench trial, the trial court quieted title on the property in Gaines’ favor, cancelled the warranty deed from Fannie and Milton to Tornberg, and cancelled Lehman’s deed of trust against the property.

On appeal, Lehman challenges the judgment in several respects, primarily contending the trial court improperly adjudicated Tornberg’s title to the property even though he was no longer a defendant. We find no error on this or the other grounds asserted by Lehman. However, we conclude the court sitting in equity should have required Gaines to pay back benefits Fannie and Milton received from the Tornberg transaction.

We therefore affirm the judgment quieting title for Gaines and canceling the warranty deed and Lehman’s deed of trust, but modify it to add the condition Gaines repay the benefits received by Fannie and Milton between a minimum of $567,955.96, representing the amount used to pay off the delinquent Countrywide loan, and $854,647.93, the full amount of the benefits Fannie and Milton received in the Tornberg transaction. On remand, the trial court must exercise its equitable discretion to determine the amount and make further findings as necessary to order the most equitable structure for that payment. The judgment is further modified to provide if Gaines fails to satisfy the condition of paying the amount ordered by the trial court, the trial court must enter judgment for Lehman.

BACKGROUND

The basic facts are undisputed, so we take them from the prior appellate decisions in this case (Gaines v. Fidelity National Title Ins. Co. (2013) 165 Cal.Rptr.3d 544 (Gaines I) [depublished on grant of review], review granted & aff., Gaines v. Fidelity National Title Ins. Co. (2016) 62 Cal.4th 1081 (Gaines II)), as well as the trial court’s detailed statement of decision.

In 1999, Fannie and Milton bought the duplex at issue located at 1259/1261 South Longwood Avenue in Los Angeles for $350,000. They later obtained a mortgage for $554,000 secured by the property and serviced by Countrywide.

They had $500,000 in equity in their property when they encountered financial difficulties in 2006. They received two Notices of Default from Countrywide for their failure to pay mortgage payments. They turned to Countrywide for assistance, and began to work with Countrywide employee A.J. Roop. That began a series of events leading to Fannie and Milton’s purported transfer of their property to Joshua Tornberg, Roop’s fiancé, which the trial court found “was deeply infected by fraudulent inducements and egregious fraudulent conduct.”

Roop lied to Fannie and Milton that their application for workout assistance from Countrywide had been denied when it had not. She then told them their only alternative was, as the trial court described it, “what turned out to be their entry into some dark corner of what might be charitably characterized as the predatory lending market,” but “by good fortune Ms. Roop just happened to have a referral to make in this regard, journeyman mortgage broker and her then boyfriend, Tornberg.” The court found it “difficult to imagine a more improper scenario than that to which the elderly and not physically well Gaines were steered. It cannot be substantially disputed that neither Mr. Gaines nor Mrs. Gaines stood then on a strong physical or emotional footing, both facing crushing stress as they wrestled with their troubled Countrywide mortgage and the impending loss of their family home which was apparently the only substantial asset of their marital estate.”

Roop, Tornberg, and a third individual Craig Johnson conspired to deceive Fannie and Milton into selling their property to Tornberg in exchange for a leaseback agreement and option to repurchase the property. According to the trial court, Tornberg and Johnson never intended to assist Fannie and Milton in refinancing their property, but intended to extract for themselves as much equity from the property as possible.

Fannie and Milton transferred the property to Tornberg on August 1, 2006, in a warranty deed the trial court found had been improperly altered. The purchase price was $950,000. Tornberg took out a first loan for $855,000, and a second loan for $150,000 secured by the property. Johnson and his company Ray Management took $90,000 out of escrow for repairs to the property he could not and did not perform.

Tornberg’s first loan was held by Greenpoint Mortgage, which recorded a trust deed on October 16, 2006. Lehman was the eventual successor to the Greenpoint mortgage, taking a security interest over four years later on December 27, 2010.

Milton died on August 25, 2006, within a few weeks of the elder Gaines transferring title to Tornberg. Fannie filed this lawsuit on November 13, 2006, alleging a host of claims against Tornberg and the other individuals and entities involved in the transaction. Fannie died on November 29, 2009, and Gaines was substituted as plaintiff. Lehman was added as a defendant on November 15, 2011, a little less than a year after it took over Tornberg’s mortgage on the property.

The case went through years of procedural wrangling, leaving Lehman as the only defendant. All other defendants including Tornberg were dismissed for Gaines’s failure to bring the case to trial within five years as required by Code of Civil Procedure section 583.310 et seq. That decision was upheld by the California Supreme Court. (Gaines II, supra, 62 Cal.4th at p. 1089.)

After the case returned to the trial court, Lehman moved for judgment on the pleadings or judgment of dismissal for the two remaining claims against it for quiet title and cancellation of deed. It argued Tornberg was an indispensable party and, in his absence, Gaines had no interest in the property. The court denied the motion, finding Tornberg was not indispensable, and even if he was, “equity and good conscience weigh in favor of this action proceeding” in his absence.

Sitting in equity, the trial court held a bench trial on the quiet title and cancellation of deed claims against Lehman. In a comprehensive rejection of all of Lehman’s arguments, including those based on Tornberg’s absence from the case, the court exercised its equitable power to cancel the Tornberg warranty deed, cancel Lehman’s deed of trust, and quiet title in Gaines’s favor. Among the many findings in the court’s statement of decision, the court found Fannie and Milton’s sale to Tornberg was void as the result of fraud and Lehman was equitably estopped from asserting a security interest in the property due to Tornberg’s fraud. The court also concluded Tornberg was a necessary party but “in the exercise of its equitable discretion . . . and in the interests of justice” Lehman was the only party required to provide relief to Gaines. In light of the “rampant fraud” in the transaction, the court refused to require Gaines to “tender” the balance owing on the mortgage as a condition of quieting title in his favor. The court entered judgment for Gaines that tracked the findings in the statement of decision. Lehman appealed.

DISCUSSION

Lehman challenges the judgment in four respects: (1) the trial court could not adjudicate Tornberg’s title in his absence; (2) the court failed to require Gaines to prove his title to the property; (3) the court should have held Gaines was estopped from proving his claims; and (4) the court should have required Gaines to pay back the proceeds from his parents’ sale of the property to Tornberg in order to quiet title and cancel the warranty deed in Gaines’s favor. In fashioning relief in this case, the trial court exercised its equitable powers, which we review for abuse of discretion. (Blix Street Records, Inc. v. Cassidy (2010) 191 Cal.App.4th 39, 47.) For our purposes, the facts are undisputed, so we review any legal determinations de novo. (Estate of Young (2008) 160 Cal.App.4th 62, 75.)

In the “Summary of the Evidence” portion of its opening brief, Lehman attacks several of the trial court’s factual findings and evidentiary rulings in the statement of decision. Gaines interprets these arguments as a challenge to the sufficiency of the evidence. For the first time in its reply brief, Lehman argues insufficient evidence supported the judgment. Because Lehman failed to present these arguments in a separate argument heading in its opening brief, we do not address them. (Cal. Rules of Court, rule 8.204(1)(B); Citizens Opposing a Dangerous Environment v. County of Kern (2014) 228 Cal.App.4th 360, 380, fn. 16.) Also, any arguments Lehman has raised for the first time in its reply brief are forfeited and we do not address them. (Aptos Residents Assn. v. County of Santa Cruz (2018) 20 Cal.App.5th 1039, 1046, fn. 9.)

I. The Trial Court Did Not Abuse Its Discretion in Quieting Title for Gaines Without Tornberg as a Party

Lehman challenges the judgment because, in its view, the trial court improperly adjudicated Tornberg’s title to the property even though he was no longer a party to the case. As framed in its opening brief, Lehman’s chief complaint is that the judgment “purporting to adjudicate Tornberg’s interest in the property after he had been dismissed” was void. No so. Lehman’s deed of trust on the property was derived from Tornberg’s title, and if Tornberg’s title was void, then Lehman’s interest in the property was also void. (See Wutzke v. Bill Reid Painting Service, Inc. (1984) 151 Cal.App.3d 36, 44 [“[T]he validity of the title of a subsequent purchaser or encumbrancer depends upon the validity of his grantor’s title.”].) To resolve the competing title claims between Gaines and Lehman, the trial court necessarily had to adjudicate the validity of Tornberg’s title. But the court was not precluded from doing so in order to resolve the dispute between the parties before it, even in Tornberg’s absence.

The failure to join a party does not result in a jurisdictional defect; so long as the court has jurisdiction over the parties before it, the court has the authority to adjudicate the issues between them in the absence of other parties. Whether to do so falls squarely within the trial court’s equitable discretion. (Kraus v. Willow Park Public Golf Course (1977) 73 Cal.App.3d 354, 368 [“Although the court has no jurisdiction of the absent party, and its judgment cannot bind him, the court does have jurisdiction of the existing parties and it has the power to make a judgment affecting their interests. It is for discretionary and equitable reasons, not for any want of jurisdiction, that the court may decline to proceed without the absent party.”]; see County of Imperial v. Superior Court (2007) 152 Cal.App.4th 13, 26 [“A court has the power to proceed with a case even if indispensable parties are not joined.”]; Save Our Bay, Inc. v. San Diego Unified Port District (1996) 42 Cal.App.4th 686, 693.) In exercising this discretion, “[c]ourts must be careful to avoid converting a discretionary power or rule of fairness into an arbitrary and burdensome requirement that may thwart rather than further justice.” (County of Imperial v. Superior Court, supra, 152 Cal.App.4th at p. 26.)

As a non-party, Tornberg could not be bound by the judgment as to the validity of his title, but the court could still make findings as to Tornberg’s title in order to adjudicate the validity of Lehman’s title. (Lake Merced Golf & Country Club v. Ocean Shore R.R. Co. (1962) 206 Cal.App.2d 421, 432 [“It is, of course, well established that in a quiet title action a court may not adjudicate the rights of one who is not a party to the action.”].) This is consistent with the quiet title statute, which directs a plaintiff “shall name as defendants the persons having adverse claims that are of record or known to the plaintiff or reasonably apparent from an inspection of the property.” (Code Civ. Proc., § 762.060, subd. (b).) If the plaintiff fails to name a person with a known adverse claim, the quiet title judgment does not affect their claim. (Id., § 764.030; see Deutsche Bank National Trust Co. v. McGurk (2012) 206 Cal.App.4th 201, 212 (McGurk) [“The quiet title statutes are clear that a quiet title judgment does not bind a nonparty whose interest was of record prior to the filing of the lis pendens (Code Civ. Proc., § 764.045, subd. (a)), nor does it bind a nonparty whose interest was actually known to the plaintiff at the time of the lis pendens (Code Civ. Proc., § 764.045, subd. (b)).”].)

In a detailed analysis in its statement of decision, the trial court recognized its discretion to resolve the parties’ dispute in Tornberg’s absence and opted to do so under the circumstances. The trial court wrote: “While there is no question that Tornberg as a general rule would properly be deemed to be a necessary or indispensable party for all purposes, without whom as a named party-defendant relief could not be provided, the Court finds—under the circumstances here, in the exercise of its equitable discretion in this particular case under the circumstances, based on the evidence admitted at trial and based on the Court’s construction of the governing law, and in the interests of justice—that Lehman can properly be treated at this stage of these proceedings as the only party necessary in order to provide the essential relief that plaintiff Milton Howard Gaines seeks, which is apparently to defeat the only claim now pending as against the Longwood property, the claim of Lehman arising from its First Deed of Trust.”

The court concluded a ruling that Gaines could not proceed “would work at cross-purposes with the interests of justice by unreasonably depriving plaintiff Milton Howard Gaines of an opportunity to seek redress in connection with the fraudulent misconduct that has been established against Tornberg, ostensibly the current legal holder of the title to the Longwood property, and from whom or through whom Lehman’s security interest in the Longwood property is derived. Again, the Court finds that the ‘necessary party rule’—about which of course the Court is not making some kind of grand and sweeping pronouncement for all purposes in all quiet title cases, but rather is making its findings and reaching its conclusions based only on the facts and circumstances of this particular case—need not and cannot in good conscience be invoked and applied as Lehman proposes.”

Of particular note, the trial court understood its decision “might fall short of quieting title to the Longwood property in plaintiff Milton Howard Gaines, for all purposes and in all respects,” but nonetheless the court found it could “properly find that the ‘ultimate’ successor-in-interest to Tornberg, defendant Lehman, suffices as the only party at this stage of these proceedings under the circumstances that is necessary to permit the Court to lawfully determine plaintiff’s essential claims.” Indeed, the court doubted Tornberg would reappear, believing he “surely now possesses no genuine or substantial interest in these proceedings if based only on the deafening silence at trial about his current posture in these matters one way or another, or even about his current whereabouts for that matter.”

The court correctly understood Gaines may be exposed to a future (albeit unlikely) quiet title action by Tornberg because he was not bound by the judgment. (See Washington Mutual Bank v. Blechman (2007) 157 Cal.App.4th 662, 668 [“The consequence of failing to join (or dismissing) an indispensable party is to invite an inconsistent judgment.”].) Gaines also recognized as much in his brief on appeal. Even so, the court reasonably believed Tornberg likely would not assert his interest anytime soon. Tornberg’s absence did not prevent the trial court from proceeding, and the court reasonably exercised its discretion to do so under the circumstances.

Lehman relies on McGurk, which bears some factual similarity, but does not support its argument. In that case, the issue was “the effect of a quiet title judgment on the assignee of the interest of an entity whose interest was not litigated in the quiet title action.” (McGurk, supra, 206 Cal.App.4th at p. 204.) The homeowner had defaulted on her mortgage and was defrauded into deeding her property to a buyer in exchange for a lease-back agreement. The buyer then took out a loan on the property from New Century Mortgage Corporation. (Id. at p. 205.) The homeowner sued the buyer and entities involved in the transaction, including New Century, to quiet title to the property. (Id. at pp. 205–206.) New Century filed for bankruptcy and assigned its note and deed of trust to Deutsche Bank, but did not tell the homeowner about the transfer or record the assignment. (Id. at p. 206.) Because the automatic bankruptcy stay prevented the homeowner from proceeding against New Century, the homeowner elected to pursue her claims against New Century in that forum and dismissed New Century from her case. (Id. at p. 207.) She secured relief against the other defendants, obtaining a stipulation and judgment the initial grant deed to the buyer was void and quieting title in her favor. (Ibid.) In the bankruptcy proceeding, the homeowner settled her claim against New Century, but that settlement did not impair rights of any successor of New Century, i.e., Deutsche Bank. (Id. at p. 208.)

Deutsche Bank then filed a second case for declaratory relief against the homeowner seeking to validate its deed of trust. (McGurk, supra, 206 Cal.App.4th at p. 208.) The trial court held Deutsche Bank was bound by the prior quiet title judgment, having taken its interest after the homeowner recorded a lis pendens. (Id. at p. 209.) The Court of Appeal disagreed because Deutsche Bank’s interest derived from New Century’s interest, and New Century’s interest was not adjudicated in the homeowner’s quiet title action. (Id. at p. 214.)

McGurk stands for the undisputed proposition that a party with a known claim that is named in a quiet title lawsuit but dismissed before judgment is not bound by that judgment. (McGurk, supra, 206 Cal.App.4th at p. 217, fn. omitted [“McGurk [the homeowner] voluntarily dismissed New Century, even though its interest was of record. As a result, . . . the assignee of New Century was not bound by the quiet title judgment (even though it did not obtain title until after the quiet title lis pendens).”].) The case did not address the issue we face, that is, whether the trial court could have properly entered judgment without New Century as a party. If anything, the disposition of the case fairly implied the trial court could do so—the Court of Appeal remanded for the trial court to resolve the validity of New Century’s deed of trust in order to resolve Deutsche Bank’s declaratory relief claim. (Id. at p. 217.)

Lehman raises a host of other arguments (mostly in its reply brief) why the judgment in Tornberg’s absence is problematic. But those points are simply an attempt to reargue the merits. Again, we review for abuse of discretion, and we cannot say under these circumstances the trial court’s decision to proceed without Tornberg “ ‘exceeds “the bounds of reason” [citation], and therefore [the court] could not reasonably have reached that decision under applicable law.’ ” (Dreamweaver Andalusians, LLC v. Prudential Ins. Co. of America (2015) 234 Cal.App.4th 1168, 1174.)

II. Lehman Forfeited Its Argument Gaines Failed to Prove His Interest in the Property

Lehman next complains the trial court failed to require Gaines to prove he had an interest in the property. (See, e.g., Preciado v. Wilde (2006) 139 Cal.App.4th 321, 326 [“ ‘In a quiet title action the plaintiff must prove his title in order to recover.’ [Citation.] Merely presenting evidence challenging the defendant’s title is insufficient.”]; Kunza v. Gaskell (1979) 91 Cal.App.3d 201, 207.) Lehman relies on evidence that Fannie and Milton recorded a series of grant deeds between 1999 and 2003 transferring title between them as joint tenants and Milton as his sole and separate property. The last recorded grant deed in 2003 transferred title from Fannie and Milton together to Milton alone as his separate property, and there is no record Milton transferred an undivided half interest back to Fannie before he died. Since Fannie filed the lawsuit after Milton’s death and her son Gaines now stands in her place as plaintiff, Lehman argues he failed to prove he has equitable title in the property.

Lehman did not raise this factual theory as a ground for judgment in the trial court. Lehman’s only mention of this issue appeared in two footnotes in its post-trial briefing without substantive analysis or citation of authority. In the statement of decision, the trial court listed Lehman’s contentions in detail, noting the issues had been “exhaustively briefed,” and this issue was not mentioned. Lehman also lodged objections to the statement of decision and the resulting judgment, but it did not urge the trial court to rule on this issue. In its reply brief on appeal, Lehman suggests this issue implicated Gaines’s standing, so it could be raised for the first time on appeal. But as Lehman tacitly admitted in its opening brief, this argument does not implicate standing in the fundamental sense of our jurisdiction; it simply challenges an element of Gaines’s quiet title claim. It is also a factual issue, and Lehman’s failure to pursue it below prevented Gaines from presenting responsive evidence. We find the argument forfeited. (See Thompson v. Ioane (2017) 11 Cal.App.5th 1180, 1193 [plaintiff forfeited argument prior court order setting aside quiet title judgment was void by failing to raise issue in trial court].)

III. The Trial Court Did Not Abuse Its Discretion In Refusing to Apply Estoppel to Bar Gaines’s Claims

Lehman contends the trial court erred in not estopping Gaines from disputing the validity of the Lehman Deed of trust based on three facts: (1) Fannie and Milton accepted the benefits of the Tornberg transaction; (2) Fannie and Milton were represented by counsel throughout the transaction; and (3) Fannie paid more than $30,000 on her mortgage after filing the lawsuit on advice of counsel in order to avoid foreclosure.

Preliminarily, Lehman argues the trial court did not resolve this issue in the statement of decision, even after Lehman requested the court resolve it, so we may not infer the court rejected the argument. Under Code of Civil Procedure section 632, the court must issue a statement of decision following a bench trial explaining “the factual and legal basis for its decision as to each of the principal controverted issues.” Code of Civil Procedure section 634 governs appellate review following a statement of decision: “ ‘When a statement of decision does not resolve a controverted issue, or if the statement is ambiguous and the record shows that the omission or ambiguity was brought to the attention of the trial court either prior to entry of judgment or in conjunction with a motion under Section 657 or 663, it shall not be inferred on appeal . . . that the trial court decided in favor of the prevailing party as to those facts or on that issue.’ ” (Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, 513, fn. omitted.) Taken together, these provisions “mean that a statement of decision is adequate if it fairly discloses the determinations as to the ultimate facts and material issues in the case.” (Ibid.)

The statement of decision “fairly discloses” the court resolved estoppel along with all of Lehman’s equitable defenses. First, the statement of decision explained in detail Lehman’s equitable defenses, including estoppel, and Lehman’s claimed “negative equities” in the case: “Defendant Lehmans contends that several equitable principles also preclude the ordering of any relief in favor of plaintiff Milton Howard Gaines as against Lehman in connection with the First Deed of Trust, ratification and estoppel in particular. One essential argument in this regard is that plaintiff—his predecessor-in-interest parents having accepted proceeds of the loan secure by the Deed of Trust in an amount exceeding $860,000, pursuant to their sale of the Longwood property to Tornberg—ratified the disputed transaction and in any event should not be estopped to deny the validity of the subject Lehman Deed of Trust. This proposed estoppel also arises, defendant Lehman contends, from making of an unconditional $30,730.03 payment on the loan. [Citations.] In addition, defendant Lehman asserts that, even if plaintiff had the right to set aside the disputed deed ‘which he does not (have), equity requires that as a condition to setting aside the Deed of Trust, he must tender the benefits his predecessor-in-interest parents received from the secured debt to [Lehman].’ [Citation.]

“Lehman—having acquired its security interest in the Longwood property long after the allegedly unlawful August 1, 2006 transaction involving as purchaser now-dismissed defendant Tornberg—notes that it was in no way involved in the misconduct that plaintiff contends was perpetrated against his parents by Tornberg working in concert with Countrywide’s then employee, A. J. Roop, and Johnson. Defendant Lehman proffers this factor—that it was a predecessor-in-interest, Tornberg, not Lehman itself, by whom the alleged wrongdoing was committed—as another equitable ingredient weighing in favor of a finding that plaintiff Milton Howard Gaines failed at trial to meet his burden of establishing by a preponderance of the evidence both his Cancellation of Warranty Deed cause of action and his Quiet Title cause of action, the Fourth and Sixth Causes of Action, respectively.

“Defendant Lehman essentially contends further that the plaintiff’s claims are diminished or defeated by what [Lehman ] characterizes as plaintiff’s ‘negative equities.’ Defendant notes that plaintiff and his parents, prior to the death of his parents, lived in the Longwood property for more than ten years without making mortgage payments, prior to the time the disputed loan was paid off by Lehman’s assignor. [Citation.] Defendant notes that plaintiff Milton Howard Gaines has acknowledged that he is unable to tender the amount secured by the disputed Deed of Trust. Defendant Lehman also observes that plaintiff ‘received substantial compensation from a settlement with Countrywide . . . that included a $200,000 recovery of plaintiff’s equity in the property.’ [Citation.] Defendant posits in summary in this regard that ‘plaintiff received $1,054,607.93 in total benefits for the property.’ [Citation.] One component of these ‘benefits’ is apparently a $375,000 settlement payment from Countrywide that Fannie Marie Gaines received in August 2009. [Citations.]”

Later in the statement of decision the court expressly rejected Lehman’s argument that the “negative equities” compelled judgment against Gaines: “Regarding what defendant Lehman has dubbed ‘negative equities’, the Court finds and concludes that Tornberg’s fraudulent inducements and his fraudulent misconduct otherwise eclipse all such negative equities even when these negative equities are considered together, and that Tornberg’s fraudulent and predatory misconduct—in the exercise of the Court’s discretion in this particular case under the circumstances, and in the interests of justice—weighs in favor of an exercise of the Court’s equitable discretion by which Lehman is hereby equitably estopped from asserting its claimed security interest in the Longwood property, and is estopped as well from asserting any attenuated status it might otherwise be determined to have pursuant to the law governing bona fide encumbrancers.”

Because the court did in fact exercise its equitable discretion to reject Lehman’s equitable defenses including estoppel, we review that decision to determine “whether the facts as expressly or impliedly found by the trial court furnished a legally sufficient basis for an estoppel.” (City of Hollister v. Monterey Ins. Co. (2008) 165 Cal.App.4th 455, 483.) In doing so, we “accept[] the court’s findings as sound and ask[] whether they are legally sufficient to sustain its ruling, i.e., whether an estoppel can lawfully arise from the facts found by the trial court. This is a question of law subject to independent appellate review.” (Ibid.) If estoppel may apply to the facts found by the trial court, we “ask[] whether it should be imposed in view of competing considerations of fairness and policy. This question is entrusted to the trial court’s discretion, and the court’s resolution must be viewed deferentially on appeal. [Citations.] The trial court’s ruling on this point will not be disturbed unless it constitutes an abuse of discretion, i.e., ‘ “the contrary conclusion is the only one that can reasonably be drawn from the evidence.” ’ ” (Id. at pp. 483–484.) As the party asserting the defense, Lehman bears the burden to prove estoppel. (Gaines II, supra, 62 Cal.4th at p. 1097.)

We will skip to the second step because even if Lehman proved the legal elements of estoppel, we cannot disturb the trial court’s exercise of discretion in declining to apply it against Gaines under these facts. The trial court made clear it viewed the egregiousness of the fraud committed against Fannie and Milton by Lehman’s predecessor-in-interest Tornberg as far outweighing any acts by them that might give rise to estoppel. Elsewhere the court rejected Lehman’s bona fide encumbrancer argument, finding Lehman “had actual or constructive notice and/or at least had been placed on inquiry notice of the deeply troubled Gaines–Tornberg sale transaction on which the security interest rested.” Indeed, the court noted Lehman obtained a security interest in December 2010, over four years after Fannie filed this lawsuit in November 2006. The court thus reasonably imputed Tornberg’s fraudulent transaction to Lehman in refusing to apply estoppel to bar Gaines’s claims.

Looking specifically to the acts identified by Lehman on appeal, none compelled the trial court to apply estoppel against Gaines despite Tornberg, Roop, and Johnson’s egregious fraudulent scheme. The first ground—that Fannie and Milton retained benefits from the transaction—is essentially moot given we conclude below Gaines must pay some or all of those proceeds back as part of the quiet title judgment. The second ground—that Fannie and Milton were represented by counsel during the transaction—carries little weight given the proof of Tornberg’s deception during the transaction itself. The third ground—that Fannie paid $30,000 toward the mortgage after the lawsuit was filed on advice of counsel in order to stop foreclosure—is hardly compelling evidence she was accepting the validity of the debt she was simultaneously challenging in the pending lawsuit. We will not substitute our viewpoint for that of the trial court in declining to apply estoppel against Gaines based on these facts.

IV. The Trial Court Abused Its Discretion In Not Requiring Gaines to Pay Back Benefits from the Tornberg Transaction

Lehman’s final argument challenges the trial court’s refusal to condition the quiet title judgment on Gaines paying back an alleged $1.05 million in benefits his parents received in the Tornberg transaction. Those benefits included (1) $567,955.96 to pay off the delinquent Countrywide loan; (2) $4,221.65 in real estate taxes; (3) $279,930.32 paid to Fannie and Milton in cash; (4) $2,500 in funds advanced Fannie and Milton during escrow; and (5) a $200,000 settlement to Fannie from Countrywide in August 2009 for “loss of equity.” Treating this as a request for “tender,” the trial court declined to direct any payments by Gaines because “the rampant fraud which permeates this case defeats any claim which otherwise might be advanced that tender is required here.”

We find no error with the court’s rejection of repayment for the Countrywide settlement, which occurred long after the initial fraudulent Tornberg transaction and was unrelated to Lehman’s interest. We do, however, conclude the court abused its discretion in not requiring Gaines to pay back a minimum of $567,955.96 and up to the full $854,647.93 in benefits his parents received in the Tornberg transaction.

The trial court tried the case in equity, and it has long been the law in California that “ ‘[o]ne who seeks equity must do equity.’ ” (Dickson, Carlson & Campillo v. Pole (2000) 83 Cal.App.4th 436, 445.) “It is often stated that a court will not grant equitable relief unless the plaintiff acknowledges or provides for the defendant’s equitable rights arising from the same subject matter. [Citation.] A more accurate description of the maxim in operation is that a court can compel a plaintiff seeking equitable relief to accommodate the equities favoring the defendant by conditioning the plaintiff’s relief upon the enforcement of those equities. [Citations.] The plaintiff need not have acted inequitably for the maxim to be given effect, as long as equitable rights favoring the defendant arise from the same matter in controversy.” (Id. at pp. 445–446.)

Before Fannie and Milton ever met Tornberg, they were in default on their existing Countrywide mortgage for $554,000. Had Roop not lied to them, they might have obtained refinancing through Countrywide, but that would have almost certainly placed another mortgage on the property. So if they had not entered the fraudulent transaction with Tornberg, they faced either loss of the property or a new mortgage obligation through refinancing.

The trial court’s judgment quieting title put Gaines in a better position than he would have been if his parents had never been defrauded. Although involving a fraudulent transfer of title, the Tornberg transaction extinguished the defaulted Countrywide mortgage and provided Fannie and Milton a substantial amount of cash. The judgment here had the effect of leaving in place those significant benefits while also giving Gaines unencumbered title to the property. That was more than what his parents had before they purported to transfer title to Tornberg.

The trial court held, and Gaines argues on appeal, Tornberg’s fraud in the transaction excused Gaines from paying back any benefits his parents received. A similar argument was rejected in Shimpones v. Stickney (1934) 219 Cal. 637 (Shimpones). In that quiet title case, the trial court found a trustee’s sale following the plaintiff’s defaulted mortgage was fraudulent, so the court entered judgment quieting title in the plaintiff’s favor without requiring her to pay the outstanding amount on her mortgage. The defendants argued the judgment “would have the effect of giving plaintiff her property clear of the encumbrance she placed upon it as security for her debt.” (Id. at p. 641.) In response, the plaintiff argued she was excused from paying the amount she owned on the defaulted deed of trust because the defendant had come to the court with “soiled hands” from the trustee’s sale. (Id. at p. 649.)

The California Supreme Court rejected the plaintiff’s argument. “Whether as a matter of fact [the defendant’s] hands were soiled and he, as a purchaser, would not have been entitled to have his title quieted had he so requested, inequitable conduct on his part or any other defendant would not have in any way removed the equitable obstacles which stood between the plaintiff and a clear equitable title. The plaintiff in a quiet title suit is not helped by the weakness of his adversary’s title but must stand upon the strength of his or her own. The fatal weakness in plaintiff’s position is that she did not do equity by paying her debt, but refused to pay it. Here plaintiff is appealing as an actor to a court of equity to obtain affirmative equitable relief and she is bound by the well known rule that he who seeks equity must do equity. It is settled in California that a mortgagor cannot quiet his title against the mortgagee without paying the debt secured. [Citation.] It was clearly erroneous to quiet her title under the circumstances of her refusal to do equity.” (Shimpones, supra, 219 Cal. at p. 649.)

Here, Gaines successfully quieted title against Lehman, but the trial court abused its discretion by not also requiring Gaines to “do equity,” that is, repay the benefits his parents received in the Tornberg transaction. A “customary” judgment under the circumstances would quiet title in Gaines conditioned on his repayment of those benefits to Lehman, and if Gaines fails to satisfy that condition, enter judgment for Lehman. (See Vanderkous v. Conley (2010) 188 Cal.App.4th 111, 120.) At a minimum, Gaines must repay the $567,955.96 used to pay off the delinquent Countrywide loan. However, the trial court noted Gaines acknowledged he was unable to tender the amount owing on Lehman’s deed of trust. If that is accurate, then requiring Gaines to repay the additional cash above the Countrywide loan payoff may not be equitable. We will leave it to the trial court on remand to weigh the equities and set the amount of repayment between $567,955.96 and the full $854,647.93. At oral argument, Lehman also requested interest. We leave that and any other issues regarding how to equitably structure Gaines’s repayment to the trial court on remand. Should Gaines fail to meet the condition of repayment, judgment must be entered for Lehman.

DISPOSITION

The judgment is modified to add the condition that respondent Gaines must repay Lehman the benefits his parents received in the Tornberg transaction. On remand, the trial court must exercise its equitable discretion to set the amount of that repayment between $567,955.96 and $854,647.93. Lehman’s entitlement to interest and all other equitable issues regarding the structure for Gaines’s repayment are left to the trial court on remand. The judgment is further modified to provide that if Gaines fails to meet the condition of repayment, judgment must be entered for Lehman. In all other respects, the judgment is affirmed.

The parties shall bear their own costs on appeal.

BIGELOW, P. J.

WE CONCUR:

GRIMES, J.

WILEY, J.