2018-00233738-CU-BC

Manzar Qayyum vs. Janak K. Mehtani

Nature of Proceeding: Motion to Expunge Lis Pendens

Filed By: Scholar, Ronald J.

** If any party requests oral argument, then at the time the request is made, the requesting party shall inform the court and opposing counsel of the specific issue(s) on which oral argument is sought. **

Defendant/Cross-Plaintiff Janak K. Mehtani’s motion to expunge lis pendens is GRANTED; fees and costs GRANTED.

This case arises out of a business dispute relating to commercially developed real property located at 2917-2999 Fulton Avenue in Sacramento, California, and commonly referred to as Town and Country West (the “Fulton Property”). The Fulton Property was owned by Town and Country West G.P. (“Town & Country, G.P.”), a general partnership, for which Defendant/Cross-Plaintiff Mehtani was the Managing Partner. Plaintiff/Cross-Defendant Manzar Qayyum has known Mehtani for several years and has performed engineering and contracting services for Mehtani on different projects in the past. Qayyum is an officer and director of a corporation named Design Build, Inc., aka The Technologist Design Build, Inc. (“Design Build”).

In September of 2015, Town & Country, G.P. and Design Build entered into a Commercial Property Management and Lease Agreement (the “Management Agreement”) relating to the Fulton Property. Under the Management Agreement, Town & Country, G.P., agreed to lease the Fulton Property to Design Build and to retain Design Build as a property manager to rent, lease, operate, and manage said property. Design Build’s duties under the Management Agreement included, among other things, improving the appearance of the building, enhancing the market value of the property, maintaining the property, converting vacancies into occupancies, and collecting and enforcing rents from tenants. (Mehtani Decl., Exh. A.)

In November of 2017, Mehtani, in his personal capacity as owner, and Design Build, as contractor, entered into a separate agreement to make improvements to the Fulton Property, entitled “Agreement-Remodeling/Restoration at 2929 Fulton Avenue” (the “Restoration Agreement”). Under the Restoration Agreement, Design Build agreed to install a “140 kv solar PV system,” as well as make other energy efficiency and safety updates and improvements to the Property. The total cost of the improvements was estimated to be $1,840,921. (Mehtani Decl., Exh. B.)

With regard to compensation, the Restoration Agreement provides that Design Build is responsible for all expenses made while performing the Agreement. The parties apparently contemplated that Design Build would be paid after the work was complete through a release of funds by “Ygrene Works,” a prospective construction lender. The Restoration Agreement includes the following language pertaining to compensation:

It is Hereby Understood and Agreed:

That if Ygrene refused to make payment after the completion of the project, [Mehtani] promised to pay for value received on the project, the principal amount in the sum of max $1840921.00 or the cost completed work at site to the order of [Design Build] without interest payable on the unpaid Principal within 90 days of the completion of the project.

However if [Mehtani] defaults in paying the principal within 90 days after the completion of the project/ partial works, [Mehtani] shall be responsible for the full payment of the Principal sum together with interest thereon at a rate of 10 percent (%) per annum.

[¶]

It is expressly understood by the parties to this agreement, that if Ygrene defaults in remitting the fund for this project and [Mehtani] also default in making the work done payment within 90 days after completion of the project, [Mehtani] agrees that a claim of lien may be filed against this or any of his property by [Design Build] in connection with any work performed by or on behalf of [Mehtani], and that his properties shall be subject to liability under the Mechanical Lien of the State of California. (Mehtani Decl., Exh. B.)

Qayyum alleges that he took actions to secure the construction financing through Ygrene, but his efforts proved unsuccessful. (Qayyum Decl., ¶ 32; see also Second Amended Complaint, ¶ 11.) Shortly after the parties executed the Agreement, Ygrene rejected the application for financing. (Mehtani Decl., ¶ 20; Mehtani Decl., Exh. C.)

Despite the lack of financing, Qayyum alleges that Design Build performed work on the Fulton Property totaling $1,080,000. Qayyum alleges that it has demanded payment from Mehtani for the work performed by Design Build, but that Mehtani has refused to pay. (Second Amended Complaint, ¶ 11; Qayyum Decl., ¶ 42.)

Because Mehtani refused to pay, Qayyum alleges that it took steps to secure the debt, filing a preliminary notice and then a mechanic’s lien claim in the amount of $999,333. (Second Amended Complaint, ¶¶ 13, 21 and Exhs. E & F; see also Qayyum Decl., ¶ 42.)

On May 25, 2018, Qayyum filed this action. Qayyum’s Second Amended Complaint seeks damages based on claims of fraud in the inducement/fraudulent concealment, breach of written contract, breach of oral contract, breach of covenant of good faith and fair dealing, restitution/quantum meruit, and enforcement/foreclosure of mechanic’s lien.

After filing the action, Qayyum filed and recorded a “Notice of Pendency of Action” (lis pendens) against eight properties that Mehtani owns or owned. Those properties are:

(1) the Fulton Property [APN 268-0140-024-0000]; (2) Roseville Road [APN 222-0360-005-0000]; (3) 6232 Gobernadores Lane [APN 283-0570-007-0000]; (4) 2300 California Avenue [APN 283-0570-008-0000]; (5) 4118 East Commerce Way [APN 225-2210-006-0000, 225-2210-005-0000, 225-2210-004-0000, and 225-2210-002-0000]; (6) 7606 Lemon Hill Avenue [APN 038-0141-024-0000]; (7) 1708 Ladino Road [APN 218-0362-011-0000]; and (8) SWC of Elverta Road and Hwy 99 [APN 201-0220-039-0000, 201-01700-053-0000, 201-0170-054-0000, 201-0170-038-0000].) (Scholar Decl., ¶¶ 2-10; Mehtani’s Request for Judicial Notice, Exhs. A-H.)

Mehtani filed this motion to expunge all of the lis pendens except the one that was filed and recorded against the Fulton Property.

After Mehtani filed the motion, Qayyum agreed to withdraw the lis pendens filed

against three properties not owned by Mehtani: 7606 Lemon Hill Avenue, 1708 Ladino Road, and SWC of Elverta Road and Hwy 99. Accordingly, only four of the alleged “Unrelated Properties” remain in dispute: Roseville Road, 6232 Gobernadores Lane, 2300 California Avenue, and 4118 East Commerce Way.

The court must order a lis pendens expunged if the complaint on which it is based does not assert a “real property claim.” (Cal. Civ. Proc. Code § 405.31.) Code of Civil Procedure §405.4 defines “real property claim” to mean a cause or causes of action in a pleading which would, if meritorious, affect (a) title to, or the right to possession of, the “specific real property” described in the lis pendens, or (b) use of an easement identified in the pleading, other than a public utility easement. (Cal. Civ. Proc. Code § 405.4; Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1860; Gale v. Superior Court (2004) 122 Cal.App.4th 1388, 1395.) The term “specific real property” is strictly construed. (See, e.g., Gale, supra, 122 Cal.App.4th at pp.1395-96.)

The question of whether a complaint states a real property claim is tested by a “demurrer-like” analysis that turns on the sufficiency of the pleading. (Ibid.) The claimant has the burden of proving that the pleading on which the lis pendens is based contains a real property claim affecting title to, or the right to possession of, the “specific real property” described in the lis pendens. (Cal. Civ. Proc. Code § 405.30.)

In this case, Qayyum’s Complaint does not assert a “real property claim” against any of the Unrelated Properties. The Complaint does not describe or even refer to any of the Unrelated Properties. The only real property discussed in the Complaint is the Fulton Property, and most of the claims related to the Fulton Property are actions for money damages, which will not support a lis pendens. (See Allied Eastern Financial v. Goheen Enterprises (1968) 265 Cal.App.2d 131, 133-134; BGJ Associates v. Superior Court (1999) 75 Cal.App.4th 952, 967.)

The only real property claim in the Complaint is the cause of action to foreclose the mechanic’s lien recorded against the Fulton Property. (See Second Amended Complaint, ¶¶ 37-39 and Exh. F.) There is no real property claim asserted against any of the other Unrelated Properties.

Qayyum argues that he has “real property claims” against the Unrelated Properties because the Restoration Agreement authorizes Qayyum to “lien” Mehtani’s other properties. However, there are several problems with this argument. First, this was not pled in the Complaint. This, by itself, is grounds to deny the argument.

Second, Qayyum’s argument that he has a right to “lien” all of Mehtani’s property is contrary to the language of the Restoration Agreement. The Restoration Agreement does not create a voluntary security interest in Mehtani’s properties. Rather, it provides that if Mehtani defaults, a “claim of lien” may be filed against any of Mehtani’s property and such property “shall be subject to liability under the Mechanical Lien” laws of California. A “claim of lien” is a term of art used for mechanic’s lien claims. (See Cal. Civ. Code §§ 8412, 8414, 8416.) Thus, to the extent the clause in the Restoration Agreement is even lawful – which is unclear — it merely provides that Mehtani’s property shall be subject to a mechanic’s lien claim, and then only when certain conditions are met, namely that Ygrene and Mehtani “default” in making payment “after completion of the project.”

Here, even if Qayyum could show that the clause in the Restoration Agreement has

been triggered, it is undisputed that Qayyum did not invoke it to record a mechanic’s lien against any of the Mehtani’s other properties. Qayyum recorded a mechanic’s lien only against Mehtani’s Fulton Property and the Complaint seeks to foreclose only that lien. Thus, there is no real property claim to support the lis pendens filed and recorded against Mehtani’s other Unrelated Properties.

Further, even if the Complaint could be construed as asserting a real property claim against the Unrelated Properties, the court would grant the motion because Qayyum cannot establish the probable validity of such claim.

Under Code of Civil Procedure section 405.32, a notice of pendency of action shall be expunged if the court finds that the claimant has not established by a preponderance of the evidence the probable validity of the real property claim. (Cal. Civ. Proc. Code § 405.32.) This requires a judicial evaluation of the merits of the claimant’s case. ( Kirkeby v. Superior Court (2004) 33 Cal.4th 642, 651.) The claimant bears the burden of showing the probable validity of the real property claim. (Cal. Civ. Proc. Code § 405.30.) For the reasons described above, Qayyum cannot meet its burden of showing the probable validity of any real property claim against the Unrelated Properties.

Having concluded there are grounds to expunge the lis pendens recorded against the Unrelated Properties, the court finds it unnecessary to address the other issues raised in the motion, i.e., whether Qayyum failed to comply with the filing and service requirements and whether Qayyum could be afforded adequate relief by the filing of an undertaking.

In reaching this decision, the court has sustained all of Mehtani’s evidentiary objections (nos. 1-25) to the Qayyum Declaration. Mehtani’s motion to strike the opposition is denied. Although Qayyum’s memorandum in opposition to the motion was not timely served, it does not appear Mehtani suffered any prejudice by the brief delay in service. Accordingly, the court has considered it.

Code of Civil Procedure section 405.38 provides that the party prevailing on any motion to expunge a lis pendens “shall” be awarded the reasonable attorney’s fees and costs of making the motion unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney’s fees and costs unjust. (Cal. Civ. Proc. Code § 405.38.) Mehtani requests an award of $9,999.00 in attorney fees and $60 in costs incurred in connection with this motion. The court finds the amount requested to be reasonable and grants the requested award.

Disposition

The motion to expunge the lis pendens recorded against the Unrelated Properties is granted.

The request for an award of fees and costs is granted. Mehtani is awarded $9,999.00 in fees and $60 in costs.

Pursuant to CRC 3.1312, Mehtani shall lodge a formal order for the court’s signature.

2018-00233738-CU-BC

Manzar Qayyum vs. Janak K. Mehtani

Nature of Proceeding: Motion to Release Mechanics Lien and Request for Attorney Fees

Filed By: Enos, Robert J.

** If any party requests oral argument, then at the time the request is made, the requesting party shall inform the court and opposing counsel of the specific issue(s) on which oral argument is sought. **

Defendant Town & Country West, LLC’s motion for an order to release the mechanic’s lien is DENIED; fees and costs DENIED.

The real property that is the subject of this dispute is located at 2917-2999 Fulton Avenue in Sacramento, California (the “Fulton Property”). The Property was owned by Town and Country West G.P. (“Town & Country, G.P.”), a general partnership, for which Defendant/Cross-Plaintiff Janak K. Mehtani was the Managing Partner.

Plaintiff/Cross-Defendant Manzar Qayyum is the responsible officer and director of Design Build, Inc., aka The Technologist Design Build, Inc. (“Design Build”). Under a 2015 Commercial Property Management and Lease Agreement (the “Management Agreement”), Design Build was the property manager for the Fulton Property.

In November of 2017, Mehtani, in his personal capacity, and Design Build, as contractor, entered into an agreement to make improvements to the Fulton Property, entitled “Agreement-Remodeling/Restoration at 2929 Fulton Avenue” (the “Restoration Agreement”). The total cost of the improvements was estimated to be $1,840,921. Qayyum and Design Build (collectively “Qayyum”) allege that the Restoration Agreement contemplated that Design Build would be paid for its work through a third party construction loan financed by Ygrene Energy Fund, but that if Ygrene denied payment, Mehtani would be liable for payment.

Qayyum took actions to secure the construction financing through Ygrene, but Ygrene refused to provide financing. Qayyum alleges that Ygrene denied financing because Mehtani had over-leveraged the collateral (the Fulton Property).

Qayyum alleges that Design Build performed work on the Fulton Property totaling

$1,080,000, and that both Ygrene and Mehtani refused payment. Qayyum alleges that as a result he took steps to enforce a mechanic’s lien against the Fulton Property, by filing a preliminary lien notice, recording a mechanic’s lien, and filing this action to foreclose the mechanic’s lien.

Defendant Waqar Khan is the manager and owner of Defendant Town & Country West, LLC (collectively, “Town & Country LLC”). Town & Country LLC alleges that Mehtani sold the Fulton Property to it on April 23, 2018, and that Qayyum was advised of this fact multiple times, both before and after the sale.

Town & Country LLC has filed a “Lambert” motion for an order releasing the mechanic’s lien against the Fulton Property. (Lambert v Superior Court (1991) 228 Cal.App.3d 383, 387.) Town & Country LLC argues that Qayyum’s lien is not proper because a preliminary notice was not timely provided to the owner of the property.

Town & Country LLC argues that a necessary prerequisite to the validity of a mechanic’s lien claim is compliance with the preliminary notice requirements. (Cal. Civ. Code § 8200(c).) Town & Country LLC argues that under sections 8200 and 8204, Design Build was required to give a preliminary notice to the “owner or reputed owner” within 20 days after the date that it “first furnished work” on the work of improvement. Town & Country LLC argues that Design Build’s work on the Fulton Property commenced on or before November 20, 2017, and was complete by April 6, 2018, but Design Build did not serve a preliminary notice until May 4, 2018.

In addition, Town & Country LLC argues that Design Build served its preliminary notice on the wrong person. Town & Country LLC argues that pursuant to the sale on April 23, 2018, the “owner or reputed owner” of the Property when Design Build served its notice was Town & Country LLC, not Mehtani or Town & Country, G.P., as listed in the preliminary notice. Thus, for both of these reasons, Town & Country LLC contends the court should release the lien on the Property.

Plaintiff Qayyum argues that because Design Build had a “direct contractual relationship” with the “owner or reputed owner” at the time the work was performed, no preliminary notice was required. Qayyum is correct. Section 8200, subdivision (e) provides, “[n]otwithstanding the foregoing subdivisions, . . . (2) [a] claimant with a direct contractual relationship with an owner or reputed owner is required to give preliminary notice only to the construction lender or reputed construction lender, if any.”

Here, Design Build had a “direct contractual relationship” with the Mehtani, the owner or reputed owner at the time the work was performed, and both parties agree there was no construction lender. Thus, Qayyum was not required to give preliminary notice before recording its lien claim.

In reaching this decision, the court has granted the Request for Judicial Notice and Supplemental Request for Judicial Notice filed by Town & Country LLC.

Disposition

Town & Country LLC’s motion to release the mechanic’s lien on the Fulton Property is denied.

The minute order is effective immediately. No formal order pursuant to CRC 3.1312 or further notice is required.