Case Number: EC068581 Hearing Date: November 28, 2018 Dept: A

WVBAGD v Galletly

Objection to bond; motion to increase bond; motion for appointment of independent appraiser

Calendar: 15

Case No: EC068581

(Related/Consolidated with: EC068624)

Hearing Date: 11/28/18

Action Filed: 6/7/18

Trial: Not set

MP:

Plaintiff WVBAGD, LLC

RP:

Defendant AMSS, LLC

Defendants/Cross-Complainants Bradley Barnes and BABBB, LLC

ALLEGATIONS:

Plaintiff WVBAGD, LLC (“WVBAGD”) commenced this action on June 7, 2018 and filed the First Amended Complaint (“FAC”) on August 10, 2018 for: (1) judicial foreclosure, (2) judicial foreclosure; (3) appointment of receiver/specific performance, (4) appointment of receiver/specific performance; and (5) declaratory relief. On September 24, 2018 WVBAGD dismissed the judicial foreclosure cause of action.

In this action, WVBAGD alleges that on March 28, 2008, Dove Street Capital Lenders, LLC (“Dove Street”) loaned Defendants Greg Galletly, Deborah Galletly, DLG Family LP, Bradley E. Barnes, Alison Barnes, and BABBB LLC (“borrower defendants”) the principal sum of $250,000.00 pursuant to a secured promissory note (“Dove Street Note”). The Dove Street Note was signed by the borrower defendants and secured by 2 deeds of trust on the real properties located at 1312 Loreto Drive, Glendale, CA (“Loreto Property”) and 4729 Sandyland Road, Carpinteria, CA (“Sandyland Property”). WVBAGD alleges that Dove Street assigned the loan to WVBAGD, including all rights under the notes. WVBAGD alleges that the borrower defendants have defaulted on the loan, such that all sums on the loan are due in the total amount of $933,514.00 as of the filing of the complaint.

This case is related with AMSS, LLC v. WVBAGD, LLC et al., Case No. EC068624. In the related action, AMSS, LLC (“AMSS”) filed its action on July 9, 2018, alleging causes of action for: (1) declaratory relief; and (2) temporary restraining order, preliminary injunction, permanent injunction and damages. AMSS’s action is with regard to the Sandyland Property only.

RELIEF REQUESTED:

WVBAGD objects to the sufficiency of the preliminary injunction bond amount ordered to be posted by AMSS, Bradley Barnes, and BABBB, LLC (Bradley Barnes and BABBB, LLC collectively referred to as “Barnes Family”).

WVBAGD moves for an order increasing the bond amount to $1,300,000.00 and to appoint an independent appraiser to determine the bond amount.

DISCUSSION:

Preliminary Injunction Hearing

On October 12, 2018, the Court in Department B granted AMSS and the Barnes Family’s motions for preliminary injunction to enjoining the non-judicial foreclosure sales of the Sandyland Property and Loreto Property. The Court granted DLG’s joinder to AMSS’s motion for the same reason.

According to the minute order, after discussion with counsel, the Court ordered AMSS to file a written undertaking in the sum of $10,001.00 and an additional $90,000.00 within 31 days (not later than November 13, 2018) for the Sandyland Property and ordered the Barnes Family to file a written undertaking of $1 for the Loreto Property, as required by CCP §529 for the purposes of indemnifying WVBAGD for damages it may sustain by reason of the preliminary injunction. (Mot. RJN Ex. 12.)

This case was then reassigned to Department A on November 5, 2018.

Applicable Law

Upon granting an injunction, the Court must require an undertaking on part of the applicant to the effect that the applicant will pay to the party enjoined any damages, not exceeding an amount to be specified, the party may sustain by reason of the injunction, if the court finally decides that the applicant was not entitled to the injunction. (CCP §529(a).) “Within five days after the service of the injunction, the person enjoined may object to the undertaking. If the court determines that the applicant’s undertaking is insufficient and a sufficient undertaking is not filed within the time required by statute, the order granting the injunction must be dissolved.” (CCP §529(a).)

CCP §995.950 states:

(a) Unless the parties otherwise agree, the hearing on an objection shall be held not less than two or more than five days after service of the notice of motion.

(b) The hearing shall be conducted in such manner as the court determines is proper. The court may permit witnesses to attend and testify and evidence to be procured and introduced in the same manner as in the trial of a civil case.

(c) If the value of property or an interest in property is a ground for the objection, the court shall estimate its value. The court may appoint one or more disinterested persons to appraise property or an interest in property for the purpose of estimating its value.

(CCP §995.950.)

CCP §995.960 states:

(a) Upon the hearing, the court shall make an order determining the sufficiency or insufficiency of the bond.

(b) If the court determines that the bond is insufficient:

(1) The court shall specify in what respect the bond is insufficient and shall order that a bond with sufficient sureties and in a sufficient amount be given within five days. If a sufficient bond is not given within the time required by the court order, all rights obtained by giving the bond immediately cease and the court shall upon ex parte motion so order.

(2) If a bond is in effect, the bond remains in effect until a bond with sufficient sureties and in a sufficient amount is given in its place, or the time in which to give the bond has expired, whichever first occurs. If the time in which to give a sufficient bond expires, the original bond remains in full force and effect for all liabilities incurred before, and for acts, omissions, or causes existing or which arose before, expiration.

(c) If the court determines that a bond is sufficient, no future objection to the bond may be made except upon a showing of changed circumstances.

(CCP §995.960.)

WVBAGD’s Objection and Motion

WVBAGD moves pursuant to CCP §§995.950 and 995.960 for the requested relief.

Timelines

The parties dispute whether WVBAGD timely filed its objection and motion. WVBAGD relies on CCP §995.930, while AMSS and the Barnes Family rely on CCP §529(a). In opposition, AMSS argues that CCP §529 applies because the Court ordered AMSS and the Barnes Family to file a written undertaking (as opposed to posting a bond CCP §995.910 et seq.).

CCP §995.930(a) states an objection to bonds must be in writing by noticed motion, specify the precise grounds for objection, provide reasons the bond amount is insufficient, and include an estimate of a sufficient bond amount. Such a motion must be made within 10 days after service of a copy of the bond or such other time as required. (CCP §995.930(b).) If no objection is made within the required time period by statute, the beneficiary is deemed to have waived all objections, except upon a showing of good cause for failure to make the objection timely or of changed circumstances. (CCP §995.930(c).)

CCP §529(a) states that within 5 days after service of the injunction, the person enjoined may object to the undertaking.

However, AMSS and the Barnes Family’s argument is a distinction without a difference. CCP §995.210 states that if a statute provides for an undertaking, a bond that otherwise satisfies the requirements for the undertaking may be given in its place with the same effect as if an undertaking were given, and references in the statute to the undertaking shall be deemed to be references to the bond. (CCP §995.210(b).) The same applies in situations if the statute provides for a bond and an undertaking satisfies the bond requirements. (CCP §995.210(a).)

Abba Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1 is instructive. In that case, the trial court granted the application for preliminary injunction and later amended its order to add the requirement of a $1,000 undertaking. The defendant objected ex parte to the bond amount rather than filing a notice motion, arguing that an adequate bond would be $315,000 per year. The Court of Appeal noted that the defendant did not waive the right to object because it substantially complied with the terms of CCP §995.930 and the statute’s objectives (i.e., reducing the likelihood that the trial court will persist in an erroneous failure to comply with its duty of posting sufficient bond; giving the opposing party sufficient time to meaningfully respond; providing the trial court concrete alternatives for a bond amount with suggested estimates; and a short time to ensure prompt objections). The Court of Appeal applied CCP §995.930 for objections to undertakings to be made. (See Abba Rubber, supra, 235 Cal.App.3d at 11.)

Although the issue in Abba Rubber involved the plaintiff’s failure to file a noticed motion—rather than the issue of timeliness here—the Court notes that Abba Rubber applied CCP §995.930 to its analysis when discussing undertakings and bonds.

The Notice of Entry of the Court’s October 12, 2018 order regarding the preliminary injunction was served on October 15, 2018 by mail and e-mail by the Barnes Family on WVBAGD. (Barnes Opp., Ex. 14.) The Notice of Undertaking for Preliminary Injunction was served on October 16, 2018 by mail and e-mail by the Barnes Family on WVBAGD. (Id., Ex. 15.) On November 8, 2018, AMSS filed its Notice of Posting of Undertaking for Preliminary Injunction.

WVBAGD filed this motion on October 26, 2018, which is 10 days, plus 5 days for mailing, from the service of the preliminary injunction order. In their respective oppositions, AMSS and the Barnes Family argue that the latest this motion/objection by WVBAGD could have been filed was October 25, 2018 (i.e., 5 days pursuant to CCP §529(a), plus 5 days for mailing under CCP §1013). However, CCP §529(a) states that “[w]ithin five days after service of the injunction, the person enjoined may object to the undertaking” (emphasis added). This does not make the time to file an objection mandatory within 5 days.

Further, even if the objection and motion were untimely filed, the objectives of CCP §995.930 would be met and thereby good cause shown to hear such WVBAGD’s objection/motion. For example, WVBAGD filed the objection within 11 days of the preliminary injunction order, which is prompt and does not prejudice AMSS or the Barnes Family (nor have they mentioned how a short delay has prejudiced them). WVBAGD has also provided the Court with an estimate of what it believes is a reasonable undertaking/bond amount and the opposing parties have had sufficient time to address the merits of WVBAGD’s objection and motion. This is evidenced by AMSS and the Barnes Family’s respective opposition briefs. Thus, the Court may find that WVBAGD substantially complied with the requirements of CCP §995.930, and even if it had not, there is good cause to hear this motion outside of the required time period.

Finally, WVBAGD states that it attempted to bring this motion on the first available hearing date to comply with CCP §995.950(a), and reserved a date for December 14, 2018. WVBAGD then applied ex parte to advance the hearing date on this matter, which the Court in Department B granted and set for November 21, 2018. The matter was then reassigned to Department A and this Court continued the hearing on the motion to November 28, 2018, as Department A was dark on November 21, 2018. Thus, the fact that the hearing was not heard within 5 days of service of the motion, will not be a basis to find that this motion is untimely.

Thus, WVBAGD’s objection and motion will be considered timely and the Court will consider the merits of the parties’ arguments.

Merits

WVBAGD objects to the current bond amount, arguing that it does not adequately protect its interests because the Court in Department B ordered a $1.00 undertaking to be posted as to the Loreto Property and a $10,001.00 undertaking to be posted as to the Sandyland Property, with an additional $90,000.00 due in 31 days. WVBAGD argues that the debt at issue is approximately $1,102,446.05 and daily interest of $225.75 (a rate of $82,398.75 per year) and that attorney’s fees are continuing to accrue. (O’Neill Decl., ¶¶14, 25.) WVBAGD argues that this bond amount does not sufficiently protect its interests because WVBAGD’s secured liens are in the third position and the senior lienholder can foreclose anytime. Thus, WVBAGD argues that the required bond should be increased to $1,300,000.00.

WVBAGD also argues that at the time the bond was set, the Court took into consideration Defendants’ representations about the current values of the properties, but WVBAGD argues that the values of the properties are subject to change and that should the properties’ values be considered, they should be appraised separately and independently by an appraiser.

With regard to the Sandyland Property, WVBAGD has failed to provide any evidence showing that any senior lienholders have begun foreclosure proceedings such that its interest in the third lien position would be extinguished.

Even if WVBAGD were able to provide such evidence, the purpose of the undertaking or bond is not to compensate WVBAGD wholly for damages in the event it prevails in its action or the preliminary injunction is dissolved. Rather, the undertaking must be sufficient to pay the party enjoined such damages it may sustain by reason of the injunction if the court finally decides that the applicant is not entitled to the injunction. (CCP §529(a).) Thus, it is the trial court’s function to estimate the harmful effect the injunction is likely to have on the restrained party; the sole limit imposed by the statute is that the harm must have been proximately caused by the wrongfully issued injunction (i.e., reasonably foreseeable damages, such as lost profits and sales, etc.). (Abba Rubber, supra, 235 Cal.App.3d at 14.) Thus, even if the senior lienholders foreclosed on the Sandyland Property, the loss of WVBAGD’s liens would not have been a harmful effect caused by the issuance of the injunction.

Here, WVBAGD has not provided an estimate of its harm that may be proximately caused by a wrongfully imposed injunction specific to the Sandyland Property. WVBAGD generally requests that the undertaking/bond amount be increased to $1,300,000.00, but fails to apportion this between the Sandyland and Loreto Properties (and thereby fails to justify any apportioned amounts). As WVBAGD has not upheld its burden in justifying its objection and arguments in the motion, the Court will not disturb the finding made by Department B when it ordered AMSS to file a written undertaking in the total amount of $100,001.00.

As such, the Court will overrule the objection to the sufficiency of the preliminary injunction undertaking/bond amount posted by AMSS and deny the motion to increase the bond amount and to appoint an independent appraiser as to the Sandyland Property.

However, the Court will sustain the objection and grant the motion to increase the bond and appoint an independent appraise with regard to the Loreto Property.

The Barnes Family argues in opposition that the undertaking amount of $1 was proper because they presented at the hearing and Judge Osorio considered the Barnes Family’s financial condition. While indigence may be a valid ground to waive bond (see CCP §995.240 [waiver of bond based on indigence]; Rutter Guide, Cal. Prac. Guide Civ. Pro. Before Trial (June 2018 Update) Ch. 9(II)-A, §9:644.), the Barnes Family fails to provide any evidence or hearing transcript to this Court regarding what Judge Osorio considered at the preliminary injunction hearing, which occurred prior to this action being transferred to Department A.

Next, Mr. Barnes provides his declaration in support of the Barnes Family’s opposition, but this declaration is unhelpful to the Barnes Family’s position. Mr. Barnes declares that he cannot pay more than a nominal bond based on his financial situation following the recession of 2008 and his and his wife’s current employed status. (Barnes Decl., ¶¶12, 14.) However, he also admits that while the Loreto Property used to be in his and his wife, Allison Barnes, names, the interest in the property was ultimately transferred to his 3 children, “who hold title to this day.” (Id., ¶3, Ex. 12 [Dec. 1, 2009 Grant Deed to Brittany, Brooke, and Bridge Barnes].) He admits that he and his wife live in his children’s house and that the costs of the home are paid for by his adult children. (Id., ¶¶11-12.)

Based on Mr. Barnes’ declaration, he and his wife are not the record owners of the Loreto Property nor do they make any house payments—rather, his 3 children are the record owners and make house payments. Hence, Mr. Barnes’ financial situation is not the only relevant inquiry that should have been considered when determining the adequate undertaking amount for the Loreto Property. Instead, the financial conditions of Mr. Barnes’ 3 daughters are also relevant to the inquiry regarding whether the Barnes Family may claim insolvency and thereby waive filing an undertaking (or pay a nominal undertaking amount).

As such, the Court will sustain the objection and grant WVBAGD’s motion with regard to the Loreto Property to determine whether the Barnes Family may claim indigence/insolvency to waive or pay a nominal undertaking amount and to determine the financial condition of the record owners of the Loreto Property (i.e., Mr. Barnes’ adult children). If the record owners of the property are solvent and cannot claim indigence, the undertaking amount should be re-determined to reflect an amount that would adequately compensate WVBAGD for any harm proximately caused by a wrongfully issued injunction.

Lastly, the Court addresses AMSS and the Barnes Family’s argument that WVBAGD’s objection and motion is essentially a disguised attempt at a motion for reconsideration.

This objection and motion will not be deemed an improper motion for reconsideration because CCP §§995.950 and 995.960 provide a means for parties to object to the amount of a bond or undertaking. Such an objection would naturally follow an initial hearing and determination of the bond or undertaking amount. (See Rutter Guide, Cal. Prac. Guide Civ. Pro. Before Trial (June 2018) Ch. 9(II)-A, §9:642.5 [“CCP § 995.930 allows defendant to contest the amount of the bond by noticed motion filed within 10 days after service of a copy of the bond.”] [Italics added]; CCP §529(a) [“Within five days after the service of the injunction, the person enjoined may object to the undertaking.”] [Italics added.].) Thus, the fact that WVBAGD objected and filed a motion after the injunction and undertaking hearing, does not convert this objection to a motion for reconsideration.

Also, the CCP §533 does not apply. CCP §533 states that to modify or dissolve an injunction, WVBAGD must show that there has been a material change in the facts upon which the injunction was granted, the law has changed, or that the ends of justice would be served by the modification or dissolution of the injunction. In its objection, WVBAGD’s requested relief does not rely on this section, nor does WVBAGD seek to modify or dissolve the terms of the injunction by way of this motion.

RULING:

Overrule WVBAGD’s objection to the sufficient of the undertaking/bond amount and deny the motion to increase the bond amount and to appoint an independent appraiser with regard to the Sandyland Property.

Sustain WVBAGD’s objection to the sufficient of the undertaking/bond amount and grant the motion to increase the bond amount and to appoint an independent appraiser with regard to the Loreto Property.