Filed 10/25/19 Stahovich v. Stahovich 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

STEVEN M. STAHOVICH,

Plaintiff and Appellant,

v.

GREGORY STAHOVICH, as Trustee, etc., et al.,

Defendants and Respondents.

G056704

(Super. Ct. No. 30-2016-00866573)

O P I N I O N
Appeal from an order of the Superior Court of Orange County, David L. Belz, Judge. Reversed and remanded with directions.

Blum, Propper & Hardacre and E. Grant Hardacre for Plaintiff and Appellant.

The English Law Corporation and Ryan N. English for Defendant and Respondent Gregory Stahovich, as Trustee.

David Stahovich, in pro. per., for Defendant and Respondent.

* * *

Steven M. Stahovich appeals from the trial court’s final order denying his petition (Prob. Code, § 850, subd. (a)(3)(A)) to recoup from a Stahovich family trust his alleged overpayment of sums due to the trust on certain promissory notes. Steven raises a host of issues on appeal, including that the court failed to issue a statement of decision. The court stated its written tentative ruling would serve as the statement of decision “unless within ten days a party specifies one or more controverted issues . . . not covered in the tentative decision.” However, the court did not respond to Steven’s subsequent written request for a statement of decision, in which he identified controverted issues that the court failed to rule on. Because those issues are central to Steven’s appeal and because we may not resolve them ourselves in the first instance, we reverse and remand solely to allow the trial court to address those issues in a written statement of decision.

FACTUAL AND PROCEDURAL BACKGROUND

Based on our disposition, we set out only a brief history of the facts and procedure to demonstrate why remand is required. The trial court remains the exclusive trier of fact and, therefore, is not bound on remand by anything contained in our truncated recitation.

In November 2007, Steven purchased a 14-unit apartment building in Downey, known as the Lu Lu Apartments, from a revocable living trust (the Trust) established by his father (Arthur). The purchase price was approximately $1.5 million. Steven financed his acquisition of the property with three promissory notes, plus a $165,000 down payment. One of the notes was the Trust’s prior obligation on a promissory note for $1 million, which Steven assumed. The other two promissory notes that Steven gave the Trust were in sums of roughly $115,000 and $300,000, respectively. Each promissory note was secured by a corresponding first, second, or third deed of trust on the Lu Lu Apartments.

The Lu Lu Apartments had been in the extended Stahovich family for some time. Steven’s paternal uncle (Uncle Lou) owned them until his death in 2005. Arthur purchased the apartments from Uncle Lou’s estate in 2006. Steven was the executor of Uncle Lou’s estate at the time of that sale, and he then managed the apartments for Arthur for approximately one year before purchasing them from the Trust.

One of the issues at trial was whether Steven “skimmed” or failed to turn over to Arthur or the Trust $66,000 in rental income from the apartments before purchasing them.

Another issue was whether Steven missed payments to Arthur or the Trust on Arthur’s one-sixth share of the $1 million note. The $1 million note had as its payees several Stahovich family members with partial interests in the note, including Steven, Arthur, Steven’s Aunt Clara, and others. When Aunt Clara died in April 2013, a portion of her interest in the note went to Arthur. Steven was the trustee who managed Aunt Clara’s estate.

Steven allegedly missed some payments on Arthur’s one-sixth share of the note. He also allegedly misappropriated or failed to ensure payment of Aunt Clara’s partial share after she died. He allegedly underpaid the note by continuing to pay Aunt Clara’s estate, for which he was a trustee, rather than the new proper payees of that share, including Arthur or Arthur’s estate. Arthur passed away in September 2013.

In 2014, Steven sought to refinance the Lu Lu Apartments through a third party lender. He requested a payoff figure for the three promissory notes from his mother (Marjorie) as the successor trustee; he then paid off that sum (approximately $990,000) through an escrow opened to complete the refinancing.

In 2016, Steven filed a “Verified Petition to Determine Ownership of Trust Property,” in the trial court in which he contended the trustee’s payoff demand for the three promissory notes was overstated by more than four hundred thousand dollars ($412,997.32). He asserted the proper payoff amount was $577,275.01, not $990,312.33 as demanded by the trustee. Steven filed his petition under Probate Code section 850, subdivision (a)(3)(A), which authorizes requests for an order by an “interested person” to direct a trustee to relinquish real or personal trust property, including sums that are “claimed to belong to another.”

One of Steven’s five brothers, Gregory Stahovich, became the successor trustee when Marjorie, who was in her late seventies, developed dementia and moved to an assisted living facility. Gregory, with the assistance of counsel, opposed Steven’s petition, as did another self-represented brother, David Stahovich (collectively, the Objectors).

A third brother, Thomas Stahovich, testified at trial on several subjects, including that Marjorie had requested him to calculate the payoff amount upon Steven’s request. Thomas had received his doctorate from the Massachusetts Institute of Technology, with a focus in computer science and artificial intelligence; he also had extensive knowledge and training in mathematical computation and related subjects. To calculate the payoff figure, Thomas, Gregory, and David had sought information from Steven, which he failed to provide. Thomas discussed the factors necessary to calculate the payoff amount with Marjorie. She agreed with the figures he used and the total sum due.

The trial court’s tentative decision, which became its statement of decision, reflects that the court scrutinized Steven’s claim that “he was the victim of ‘illegal business compulsion’ when his brothers made a demand that was beyond the scope of the monies owed on the three notes for the Lu Lu Apartments.”

The court rejected the claim: “The facts in this case do not support a finding that Steven was bullied or that there was illegal business compulsion. The facts in this case do not support a finding of duress.” The court concluded that “Steven chose to pay what he believed to be an excessively high payoff demand and then at a later date pursue legal remedies by [p]etitioning the court for repayment of the amounts he believed to be excessive demands.” The court did not appear to fault Steven for this approach, observing simply, “Steven made a business decision. No business decision is without risk.”

The court then made eight further findings. First, the court generally found Thomas’s testimony, as a non-retained expert, and the testimony of the Objectors’ retained accounting expert, Deepak Krishan, “to be credible.” Second, “the Notes secured by the Lu Lu Apartments were in default.” Third, Steven “miscalculated the payments due under the notes resulting in payments less than required.” Fourth, the court found “insufficient evidence to support a finding that [Steven] made a down payment of $165,000 on the Lu Lu Apartments when he purchased them from his father, Arthur Stahovich.” Fifth, “the evidence supported the allegation that rents from the apartments were collected by Petitioner, Steven, and not paid to Art.” Sixth, the court found generally that Thomas’s and Krishan’s testimony supported the “allegations and defense cited in [Gregory’s and David’s] Objections . . . .” The court earlier in its tentative decision noted that David’s defense against Steven’s petition rested in part on David’s claim that “the loans were in default from the first month [Steven had] assumed them,” presumably from underpaying the monthly amount due on the notes, with the default thereby triggering an “increased interest rate.” David also alleged Steven’s payoff calculations were incorrect because Steven missed payments, he miscalculated the payments due, and “the down payment was never made to effectuate the purchase of the Lu Lu Apartments.”

The court further identified in the tentative decision sixteen other defenses raised by the Objectors. These defenses included, waiver, consent, failure of consideration, accord and satisfaction, “Statute of Frauds,” “Lack of Standing,” “Non-Justiceiability [sic],” and “Other Affirmative Defenses as may be Applicable.”

As its seventh finding, the court found “Steven had ‘unclean hands’ in these matters and that he failed to act in good faith.” Eighth, the court found that Thomas, Gregory, and David’s “efforts to obtain information for the payoff demand . . . were not unreasonable.”

The court had earlier found Steven “to be less credible” as a witness and similarly that the testimony of his mortgage broker, Steve Bernal, and his accountant, Jack Levine, was “weak and not supported by the totality of the circumstances in this case.” The court concluded its “Findings and Orders after Hearing” in the tentative decision by stating, “The Petitioner failed to carry his burden of proof.”

The court’s tentative decision did not make an express finding on the issue of whether Thomas properly applied what Steven believed were his monthly payments on the promissory notes. Thomas testified Steven only made a notation on a few of the checks to specify that those particular checks were to be applied to the notes. Thomas applied those payments to the notes as instructed.

Thomas applied payments that were not earmarked for the notes to Steven’s other outstanding obligations to the Trust, from oldest to newest. Thomas testified he applied the payments according to “traditional accounting principles,” in the following order: (1) the $66,000 in rental income from the Lu Lu Apartments that Steven failed to turn over; (2) the $165,000 down payment for the Lu Lu Apartments; and then, once those debts were extinguished, to (3) the $300,000 note because it had the earliest payoff date. Thomas calculated interest on the notes based upon the terms specified in each note—6.5 percent on the second and third notes and 10 percent on the $1 million note because it was in default. Thomas’s interest calculations accounted for the earmarked and other note payments at the time Steven made the payments. When Steven demanded a payoff amount from the Trust, Thomas totaled up the balance and accrued interest due on the second and third notes, and on Arthur’s one-sixth interest in the first note, resulting in the $990,312.33 figure that Marjorie gave to Steven. As noted, Steven paid that amount to close escrow on his new loan to refinance the Lu Lu Apartments.

In its tentative decision, the court denied all relief on Steven’s petition. The court declined to compel “the trustee to refund the sum of $412,997.32” in excess payments on the notes. The court similarly denied Steven’s claims for consequential damages, including increased closing costs on his refinancing loan, reimbursement for a supplemental loan, and a higher interest rate on a higher refinance loan amount to meet the Trust’s payoff demand. The court further denied Steven’s requests for emotional distress damages, to surcharge the trustee the foregoing damages, and for attorney fees.

The court likewise denied the Objectors’ request for any sums beyond the $990,000 payoff amount for “all monies not paid under the Notes and Loans at issue, for the correct interest to be applied, for reimbursement related to any breaches of fiduciary duty by Petitioner, and related relief.” The court explained it denied “this relief” because “‘affirmative relief may not be claimed in the answer.’” The court reserved ruling on the Objectors’ request for attorney fees. The court explained that, pending a final ruling in the case, it “leaves the issue of attorney [fees for the Objectors] open for further briefing and consideration by the court in the future.”

As noted at the outset, the court indicated its ruling would constitute the statement of decision unless one of the parties specified one or more controverted issues or made proposals not covered in the tentative ruling. As we discuss more fully below, Steven subsequently submitted a lengthy request for statement of decision and Gregory submitted a detailed opposition. The court did not respond to either.

The court in its tentative decision ordered “Objector/Trustee Gregory Stahovich to prepare the formal Order after Hearing.” The court specified, “If no formal order is on file within 35 days from the date of this document, then this document shall be deemed the final order.” The trustee did not prepare a final “Order after Hearing.” Accordingly, the court’s tentative decision became its statement of decision and final order denying Steven’s petition. Steven appeals.

DISCUSSION

Steven raises multiple issues on appeal, most of which relate to his claim that Thomas improperly applied Steven’s promissory note payments to other alleged obligations, namely, the $66,000 in rent Steven denied was missing and the $165,000 down payment Steven claimed he paid. Steven argues (1) incorporating claims unrelated to the notes in the Trust’s payoff demand violates public policy and the note holder’s duty to prepare an accurate payoff statement (Civ. Code, § 2943, subd. (a)(5)); (2) implicitly employing trust deed collateral to coerce the promisor’s payment of claims unrelated to a secured note is unlawful; and (3) satisfying unrelated claims with note payments the note holder accepted without objection violates Civil Code section 1479.

Steven argues that even assuming the $66,000 and $165,000 figures constituted outstanding debts, “[m]isconduct in transactions unrelated to the borrower’s performance under the notes is no barrier to relief in this matter.” He similarly asserts, based on established legal remedies for failure to turn over collected rent or to make a down payment, that “[m]isconduct in matters fully covered by statute is also no barrier to relief.” Steven further contends the trial court erred by failing to issue a statement of decision responsive to the issues he raised in his request for a statement of decision.

The parties agree that Civil Code section 1479 governs the application of payments when multiple obligations are due. It provides in a preamble: “Where a debtor, under several obligations to another, does an act, by way of performance, in whole or in part, which is equally applicable to two or more of such obligations, such performance must be applied as follows . . . .” (Ibid.)

The statute then specifies that the debtor’s intention, if “manifested to the creditor,” controls. That is: “If, at the time of performance, the intention or desire of the debtor that such performance should be applied to the extinction of any particular obligation, be manifested to the creditor, it must be so applied.” (Civ. Code, § 1479.) Continuing, the statute further provides that absent such communicated intent regarding payment, the creditor “may apply it toward the extinction of any obligation, performance of which was due to him from the debtor at the time of such performance . . . .” (Ibid.)

Intent is a question of fact. As respondents acknowledge, quoting Petaluma Building Materials, Inc. v. Foremost Properties, Inc. (1960) 180 Cal.App.2d 83, 86, “the question of whether a check is received in payment of a debt is one of fact depending on the intention of the parties.” Although the trial court made numerous factual findings in its tentative decision, it did not address whether Steven manifested the intent to have the checks he sent Arthur or the Trust applied to the promissory notes, rather than to some other obligation.

Steven repeatedly raised this issue when he requested a statement of decision after the court gave its tentative decision. For example, Steven’s post-tentative “Request for Statement of Decision” expressly sought a ruling on “[w]hether Steven expressed to Arthur his intention or desire that his payments on the notes should be applied to the extinction of the amounts due on those notes.” The trial court’s failure to deliver the requested statement of decision constituted legal error. (Whittington v. McKinney (1991) 234 Cal.App.3d 123, 127). We find that legal error was also prejudicial with respect to all parties to this litigation in that the court’s failure to make the requested factual findings impacts the ability of each party to formulate an effective appellate strategy.

Steven restated the request in multiple ways, including by asking: “[w]hether the court considered the application of Civil Code § 1479,” and whether, under section 1479, payments intended by Steven to be applied to the notes were “unilaterally and retroactively recharacterize[d]” without Steven’s consent. Steven raised the same issue by requesting a statement of decision concerning whether the claims for the $66,000 in rental income and $165,000 down payment were “proper items” to include in the Trust’s “payoff demand statement,” whether the payoff demand more properly was “limited” to the notes or the “loan that is the subject of the demand,” and whether these other alleged obligations “were waived or excused by Arthur.”

Gregory, as trustee, responded in detail to each of Steven’s thirty-nine alleged controverted issues. He specifically addressed Steven’s claim that his payments to the Trust had been misapplied to other obligations by observing that there were “multiple debts owed [to the Trust] concurrently by Petitioner and many payments by Petitioner that were unspecified as to which debt it applied.” Gregory explained that no payments were “‘re-characterized’” to apply to other obligations because, apart from five checks “indicat[ing] . . . what debt they were to be applied,” Steven did not communicate an intent to have his payments apply only to the notes. Consequently, Gregory argued the evidence supported a finding that “the down payment and the rental [amount were] not included in the payoff demand” because they earlier had been extinguished by Steven’s payments that were not earmarked for the notes. The trial court, however, did not adopt this finding or any other findings suggested by Gregory’s response.

Gregory also argued that the court’s credibility and unclean hands findings resolved or precluded the necessity of other factual findings on the issues for which Steven sought a statement of decision. But the court did not adopt expressly or impliedly, in whole or in part, these or other factual findings that Gregory proposed in his response to Steven’s request for a statement of decision.

Nor did the court independently respond to Steven’s request by issuing an amended or new statement of decision to supplement or replace its tentative decision. A party contending a statement of decision is incomplete or inadequate must “preserve a record demonstrating the trial court did not resolve” the issue the party presented. (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 60.) Steven met that burden here with his detailed request for a statement of decision.

Failure to issue a statement of decision altogether can be reversible error. (Whittington v. McKinney, supra, 234 Cal.App.3d at p. 127.) That is essentially what occurred here, where the court conditioned any ripening of its tentative decision into a statement of decision on the absence of either party subsequently identifying “one or more controverted issues.” Steven did so, but the court did not respond. The Supreme Court has recently explained that ‘“failing to issue a statement of decision upon a timely request’” is not ‘“reversible per se.’” (F.P. v. Monier (2017) 3 Cal.5th 1099, 1104.) Remand is nevertheless necessary here because the absence of a responsive statement of decision was not harmless.

We may not avoid reversal by viewing the tentative decision as if it impliedly resolved the issue of whether Steven communicated his intent concerning application of his payments. Nor can we say the court implicitly resolved the propriety of the Trust applying those payments to other obligations based on some other factual finding. “When a statement of decision does not resolve a controverted issue, . . . and the record shows that the omission or ambiguity was brought to the attention of the trial court . . . , 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. (Code Civ. Proc., § 634, italics added.)

The findings the trial court did make are not sufficient to preclude remand. The court’s findings that Steven was in “default” on the notes, that he missed payments, and that he miscalculated the requisite payments are insufficient because, even in combination, they do not appear to lead to a $990,000 payoff figure. It appears that by calculating his monthly note payment obligation in his own favor by using a simple interest formula—instead of compound interest—Steven’s payments were sometimes short by as little as $50. But even assuming that triggered an automatic default, applying a 10 percent default interest rate to that shortfall and to scattered missing payments does not by itself appear to yield a payoff figure approaching $990,000. Thus, we cannot determine for certain that the court’s findings regarding default and short or missing payments precluded Steven from receiving a refund of some portion of the $990,000.

Similarly, while the court found that Steven did not turn over the $66,000 in rent to Arthur, and did not make the $165,000 down payment, neither of those findings includes a finding on a critical issue—whether Steven communicated an intent that the payments he did make were earmarked for the promissory notes, rather than other obligations. As noted, we cannot on appeal infer or imply such a finding where the omission has been brought to the court’s attention. (Code Civ. Proc., § 634.)

Likewise, the court’s finding that the evidence supported the Objectors’ “allegations and defense” seems only to reiterate that Steven missed or miscalculated payments and failed to pay the $165,000 down payment. But again this finding does not speak to whether Steven manifested the intent to have his payments applied only to the promissory notes. If he did communicate that intent, Civil Code section 1479 would require the Trust to honor it, rather than to apply his payments to the missing down payment. The court did not respond to Steven’s request for a statement of decision regarding his intent. Under Code of Civil Procedure section 632, just as a party must “specify those controverted issues as to which the party is requesting a statement of decision,” the court must respond to that request.

DISPOSITION

The trial court’s final order denying Steven’s petition is reversed only to allow the court to issue the required statement of decision. We do not anticipate that the court will consider any additional evidence before generating that statement. The court may amend or supplement its tentative decision to constitute a new statement of decision, issue an altogether new statement of decision, adopt in whole or in part Gregory’s response to Steven’s request for a statement of decision, or otherwise proceed in its discretion. We emphasize that we express no opinion on the substantive issues raised by the parties, which are at best premature in light of the necessity of remand. There are no “tea leaves” to read here. We remand solely for the trial court to issue the statement of

 

decision. Because our disposition favors neither party on the merits, the parties shall bear their own costs on appeal.

GOETHALS, J.

WE CONCUR:

FYBEL, ACTING P. J.

THOMPSON, J.

Parties and Attorneys
Stahovich v. Stahovich et al.
Case Number G056704
Party Attorney

Steven M. Stahovich : Plaintiff and Appellant
Edwin Grantley Hardacre
Law Office Blum Propper & Hardacre, Inc.
23586 Calabasas Rd., Ste. 200
Calabasas, CA 91302

Gregory Stahovich : Defendant and Respondent
Ryan N English
The English Law Corporation
1820 E 17th St
Santa Ana, CA 92705

David Stahovich : Defendant and Respondent
639 Atwood Ct.
Riverside, CA 92506 Pro Per