Valley of California, Inc. v. Cotter

Filing 44

Order by Chief Magistrate Judge Joseph C. Spero granting in part 15 Motion for Writ of Attachment. The Court will issue a separate order instructing the Clerk to issue the writ. (jcslc2S, COURT STAFF) (Filed on 5/5/2017)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 VALLEY OF CALIFORNIA, INC., 7 Case No. 16-cv-06720-JCS Plaintiff, 8 v. ORDER GRANTING IN PART MOTION FOR ATTACHMENT 9 MARCUS P. ROGERS, 10 Re: Dkt. No. 15 Defendant. United States District Court Northern District of California 11 12 I. INTRODUCTION Plaintiff Valley of California, Inc. (―Valley‖) moves for a writ of attachment of property 13 14 that belonged to original defendant James Cotter, who is now deceased. Marcus P. Rogers, as 15 administrator of Cotter‘s estate, (the ―Administrator‖) has been substituted as the defendant in this 16 action and opposes Valley‘s motion. The Court held a hearing on May 5, 2017. For the reasons 17 discussed below, Valley‘s motion is GRANTED IN PART.1 At the hearing, the Court requested that Valley submit a proposed order instructing the 18 19 Clerk to issue a writ of attachment. Upon further consideration, the Court will prepare that order, 20 to be filed separately from and immediately following this order. 21 II. BACKGROUND This case is the latest stage of a prolonged flurry of litigation arising from an ill-fated real 22 23 estate deal. Cotter retained Valley‘s predecessor Polley, Polley & Madsen 2 in 1996 to represent 24 him in the sale of five parcels of property that he owned in Sebastopol, California. Green Decl. 25 26 27 28 1 The parties have consented to the jurisdiction of the undersigned magistrate judge for all purposes pursuant to 28 U.S.C. § 636(c). 2 For simplicity, this order treats Polley, Polley & Madsen interchangeably with Valley, and refers to both as ―Valley.‖ The Administrator does not dispute that Valley is the successor to that entity and stands in its shoes for the purpose of this dispute. 1 (dkt. 20) ¶¶ 3, 5 & Ex. A (Owner Agency Agreement). Cotter agreed to pay a commission equal 2 to six percent of the transaction price upon sale of the property or certain other conditions, 3 including in the event that Cotter breached a sales agreement with a buyer. Id. Ex. A § 5. In 1997, 4 Valley procured Schellinger Brothers (―Schellinger‖) as a buyer for the property, and Cotter and 5 Schellinger entered an agreement to sell the property for $2,775,000. Id. ¶¶ 8, 9 & Ex. B (Sale 6 Agreement). While waiting for necessary approvals from the City of Sebastopol, the parties 7 agreed to an addendum in 1999 increasing the purchase price to $2,930,000. Id. ¶ 10 & Ex. B. 8 9 As of 2007, the City of Sebastopol still had not approved a necessary subdivision map application, the sale had not closed, and the parties became embroiled in litigation. See id. ¶ 11. Schellinger sued the city, unsuccessfully seeking a writ of mandate requiring approval of 11 United States District Court Northern District of California 10 Schellinger‘s proposed development project. Schellinger Bros. v. City of Sebastopol (―Schellinger 12 I‖), 179 Cal. App. 4th 1245 (2009) (affirming dismissal). Cotter sued Schellinger for breach of 13 contract, seeking declaratory relief excusing him from performance on the basis that Schellinger 14 had taken an unreasonably long time to obtain approval from the city; the state courts declined to 15 hold that Schellinger had breached the contract but set a deadline for Schellinger to obtain final 16 approval. Cotter v. Schellinger Bros. (―Schellinger II‖), No. A135014, 2013 WL 4007533 (Cal. 17 Ct. App. Aug. 5, 2013). Schellinger thereafter sued Cotter, and the state trial and appellate courts 18 held that Cotter materially breached the sales agreement by hiring a contractor to dig an irrigation 19 trench without obtaining necessary permits and approval. Schellinger Bros. v. Cotter 20 (―Schellinger III‖), 2 Cal. App. 5th 984 (2016). The state courts awarded Schellinger damages of 21 $2,855,431.77. Id. at 1006. Pending a decision on appeal in Schellinger III, Cotter deposited 22 several million dollars with the California Superior Court for Sonoma County. Glaubiger Decl. 23 (dkt. 19) ¶ 9. 24 Valley filed this action in state court in November of 2016, after the California Court of 25 Appeal had affirmed judgment against Cotter in Schellinger III, alleging that Cotter‘s breach of 26 the sales agreement with Schellinger entitled Valley to its commission on the uncompleted sale. 27 See Notice of Removal (dkt. 1) Ex. A (Complaint). Cotter removed to this Court based on 28 diversity jurisdiction. See Notice of Removal ¶ 1. 2 1 After Cotter died in early 2017, see Rule 23(f) Report (dkt. 11), Valley filed its present 2 motion on March 22, 2017, along with an ex parte request for a temporary restraining order, 3 seeking to attach the portion of Cotter‘s deposit with the Superior Court that would be refunded to 4 his estate, as well as other categories of property in California. Mot. (dkts. 15, 16, 17); Ex Parte 5 Application (dkt. 13). At a hearing two days later, the Court denied ex parte relief on the record 6 and set a briefing schedule for the attachment motion. Civil Minute Order (dkt. 24). The Court 7 substituted the Administrator as defendant on April 3, 2017. Order Granting Mot. to Substitute 8 (dkt. 29). 9 Valley argues that it is entitled to attachment of under California law due to the probable validity of its claim for breach of contract, based in part on the collateral effect of Schellinger III, 11 United States District Court Northern District of California 10 for the commission of $175,800 that it contends it should have received. Mot. at 7−9. Valley also 12 seeks attachment of interest totaling $81,307.50, estimated attorneys‘ fees of $85,000, and 13 estimated costs of $15,000, for a total attachment of $357,107.50. Id. at 9−10. The Administrator 14 opposes attachment, arguing that Valley‘s motion is an improper attempt to evade the jurisdiction 15 of the probate court in Texas overseeing Cotter‘s estate, Opp‘n (dkt. 31) at 3−5, that this Court 16 lacks jurisdiction to instruct the California Superior Court how to dispose of funds in its 17 possession, id. at 5, and that attachment is a ―harsh remedy‖ not warranted here, id. at 5−6. The 18 Administrator also contends that Valley has not shown probable validity because the underlying 19 sales contract was unenforceable for violating the Subdivision Map Act, an issue that the 20 Administrator argues is not subject to collateral estoppel, id. at 6−12, that offsetting damages 21 against Valley for professional negligence should negate any right to attachment, id. at 12−13, and 22 that even if Valley is entitled to some attachment, Valley overstates the appropriate measure of 23 interest, costs, and fees, id. at 13−14. Valley disputes those contentions in its reply, and notes that 24 it submitted a claim in the Texas probate proceedings. See generally Reply (dkt. 33); Glaubiger 25 Reply Decl. (dkt. 33-1) ¶ 4 & Ex. D. 26 The Administrator filed a ―Notice of Mootness‖ on April 25, 2017, stating that the 27 California Superior Court for Sonoma County had disbursed to Cotter‘s estate the last of the funds 28 that it was holding, and arguing that the present motion is therefore moot and should be denied. 3 1 Notice of Mootness (dkt. 34). In a response to that notice, Valley argues that the motion is not 2 moot because it seeks to attach other categories of property besides the funds that had been 3 deposited with the Superior Court, and also notes that its claim in the Texas probate proceeding 4 was rejected by the Administrator. Response to Notice of Mootness (dkt. 35). 5 III. ANALYSIS 6 A. 7 Under Rule 64 of the Federal Rules of Civil Procedure, a party may seek remedies to Legal Standard 8 secure satisfaction of a potential judgment as allowed by the law of the state where the court is 9 situated. Fed. R. Civ. P. 64(a). Attachment is among the remedies authorized by Rule 64. Fed. R. 10 United States District Court Northern District of California 11 Civ. P. 64(b). California law allows for attachment ―in an action on a claim or claims for money, each of 12 which is based upon a contract, express or implied, where the total amount of the claim or claims 13 is a fixed or readily ascertainable amount not less than five hundred dollars.‖ Cal. Civ. Proc. Code 14 § 483.010(a). Attachment is not allowed ―on a claim which is secured by any interest in real 15 property,‖ or on a claim against a natural person unless it ―arises out of the conduct by the 16 defendant of a trade, business, or profession.‖ Id. § 483.010(b), (c). A court ―shall issue a right to 17 attach order . . . if it finds all of the following:‖ 18 19 20 21 22 23 (1) The claim upon which the attachment is based is one upon which an attachment may be issued. (2) The plaintiff has established the probable validity of the claim upon which the attachment is based. (3) The attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based. (4) The amount to be secured by the attachment is greater than zero. Id. § 484.090. ―An attachment may be issued . . . whether or not other forms of relief are 24 demanded.‖ Id. § 483.010(d). 25 26 Of those requirements, the parties‘ arguments here focus on whether Valley has established the probable validity of its claims, as well as separate issues including the scope of this Court‘s 27 jurisdiction in light of ongoing Texas probate proceedings. Those issues are discussed below. 28 4 1 The Court finds that the evidence submitted with Valley‘s motion satisfies the first, third, and 2 fourth requirements of section 484.090, which are not meaningfully in dispute. 3 B. 4 The Administrator filed a notice stating its belief that Valley‘s motion is moot because the Mootness 5 Sonoma County Superior Court had since released to the Estate all remaining funds of Cotter‘s 6 deposit. See Notice of Mootness; Macaulay Decl. (dkt. 34-1) ¶ 6. Valley does not dispute that 7 those funds have been released to the Administrator and are now outside of this Court‘s 8 jurisdiction to attach, but argues that its initial application encompassed broad categories of 9 property in California beyond the funds held by the Superior Court, and that the application should be granted with respect to that property. See Response to Notice of Mootness. The Court agrees 11 United States District Court Northern District of California 10 that the Administrator has shown mootness only with respect to the funds formerly held by the 12 Superior Court,3 and not with respect to the motion as a whole. 13 The Administrator argued for the first time at the hearing that Valley should not be 14 permitted to attach property other than the deposit because California law requires a party seeking 15 attachment to identify the property being attached with a greater degree of specificity than stated 16 in Valley‘s application when the owner of the property is an individual. Exhibit A to Valley‘s 17 initial application makes clear that Valley sought to attach fifteen broad categories of property 18 other than the funds deposited with the Superior Court. See dkt. 16 Ex. A. The Administrator 19 could have raised objections to the specificity (or lack thereof) of those categories in his 20 opposition brief, giving Valley an opportunity to address the issue in its reply, but did not do so. 21 The Court declines to consider this argument raised for the first time at oral argument. 22 C. 23 The parties dispute the effect, if any, of probate proceedings in Texas on this Court‘s 24 jurisdiction. Neither party cites authority directly addressing the application of California‘s 25 attachment statute to assets of an estate. As a general rule, the ―probate exception‖ to federal Jurisdiction in Light of Texas Probate Proceedings 26 27 28 3 Because the deposited funds are no longer at issue, this order does not address arguments specific to those funds, such as the Administrator‘s argument that this Court lacks jurisdiction to attach funds held by a state court. See Opp‘n at 5. 5 1 jurisdiction ―precludes federal courts from endeavoring to dispose of property that is in the 2 custody of a state probate court.‖ Marshall v. Marshall, 547 U.S. 293, 311−12 (2006). It is not 3 clear, however, that the property at issue is currently in the custody of any probate court. Valley seeks to attach property owned by Cotter at the time of his death and located in 4 California. See Reply at 8.4 Because probate was opened outside of California, the Administrator 6 must petition a California court for ancillary probate administration before exercising authority 7 over that property. See Hassanati v. Int’l Lease Fin. Corp., 51 F. Supp. 3d 887, 898 (C.D. Cal. 8 2014) (―‗―Ancillary administration‖ may be required . . . when a probate is opened in another 9 jurisdiction, but the out-of-state decedent has left property in California.‘‖ (quoting a California 10 practice guide)). A California appellate court has addressed the foundation and purpose of this 11 United States District Court Northern District of California 5 doctrine as follows: 12 Justice Story of the United States Supreme Court explained the doctrine: ―Every grant of administration is strictly confined in its authority and operation to the limits of the territory of the government which grants it; and does not, de jure, extend to other countries [or states]. It cannot confer, as a matter of right, any authority to collect assets of the deceased, in any other state; and whatever operation is allowed to it beyond the original territory of the grant, is a mere matter of comity, which every nation [or state] is at liberty to yield or to withhold, according to its own policy and pleasure, with reference to its own institutions and the interests of its own citizens.‖ ([Vaughan v. Northup, 40 U.S. 1, 5 (1841).]) 13 14 15 16 17 18 Some states have abandoned the common law rule and permit estate representatives appointed by any sister state to commence litigation in their courts. (E.g., N.Y. Estates, Powers & Trusts Law § 13–3.5 (McKinney 1967).) California is not one of them. California has always followed the common law in holding that ―an executor or administrator, as such, has no power which he can employ extraterritorially.‖ (Lewis v. Adams (1886) 70 Cal. 403, 411, 11 P. 833, italics omitted.) California gives effect to sister state judicial acts in other matters but expressly provides by statute that ―[t]he authority of a guardian, conservator . . . or of a personal representative, does not extend beyond the jurisdiction of the government under which that person was invested with authority, except to the extent expressly authorized by statute.‖ (Code Civ. Proc., § 1913, subd. (b); accord Estate of Rawitzer (1917) 175 Cal. 19 20 21 22 23 24 25 26 27 28 4 Valley does not appear to dispute that this Court lacks authority to attach property located outside of California. See, e.g., Pac. Decision Scis. Corp. v. Superior Court, 121 Cal. App. 4th 1100, 1108 (2004) (―But, of course, a California court lacks jurisdiction to command a sheriff, marshal, or constable in Florida or New Jersey to levy a California writ of attachment on a New Jersey company or a Florida bank.‖). 6 585, 586–587, 166 P. 581.) 1 As a general practice, a foreign representative who wants to sue, collect claims, or otherwise exercise authority over a decedent’s property situated in California petitions a California court for ancillary probate administration. (Prob. Code, § 12500 et seq.; Ross & Grant, Cal. Practice Guide: Probate, supra, ¶ 14:290 et seq.) The California court then appoints a local personal representative (commonly, the same person appointed by the sister state) who is then vested with authority to marshal California assets. (Prob. Code, § 12504, 12513.) The benefit of a local personal representative, from California‘s perspective, is protection of the rights of California creditors who might otherwise lose access to California assets were a foreign representative permitted to remove property from California without California court oversight. It has thus been said that ―[o]ne of the dominant purposes of an ancillary administration is the collection and conservation of a decedent‘s domestic assets for the benefit of local creditors.‖ (Estate of Glassford (1952) 114 Cal. App. 2d 181, 189, 249 P.2d 908.) The rule barring foreign representatives from exercising authority outside their state of appointment protects the rights of domestic creditors. (Canfield v. Scripps (1936) 15 Cal. App. 2d 642, 647–648, 59 P.2d 1040; Rest. 2d Conf. of Laws (1971) § 354, com. a, p. 414.) 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 Smith v. Cimmet, 199 Cal. App. 4th 1381, 1391–92 (2011) (bold emphasis added) (alterations in 13 original except for citation to Vaughan). 14 Cotter‘s property in California falls outside of the territorial jurisdiction of the Texas 15 probate court. There is no evidence or other indication that the Administrator has petitioned for 16 ancillary probate administration in California. The Court therefore finds that the property that 17 Valley seeks to attach is not ―in the custody of a state probate court‖ and there is no jurisdictional 18 bar to attachment. Cf. Marshall, 547 U.S. at 311−12. 19 20 21 D. Valley Has Shown Probable Validity of Its Claim 1. Breach of Contract Valley has submitted evidence showing that it entered an agreement with Cotter entitling 22 23 Valley to a six percent commission on the sale of Cotter‘s property, due upon the first of several possible events, including as is relevant here Cotter‘s breach or repudiation of a sale agreement. 24 Green Decl. ¶¶ 5−6 & Ex. A (Owner Agency Agreement) § 5. The parties engaged in protracted 25 litigation, and in a published opinion issued August 26, 2016, the California Court of Appeal for 26 27 the First District affirmed a trial court‘s judgment after a bench trial that Cotter materially breached the sales agreement. See generally Schellinger III, 2 Cal. App. 5th 984; Pl.‘s Request for 28 7 1 2 Judicial Notice Ex. 2. Based on a plain reading of section 5 of the parties‘ contract, Cotter‘s breach of the sale 3 agreement entitles Valley to its commission and establishes probable validity of its claim. See 4 Green Decl. Ex. A (Owner Agency Agreement) § 5. The Administrator‘s arguments to the 5 contrary are not availing, at least in the context of the present motion. First, the Administrator contends that the sale agreement was illegal and void because the 7 state trial court interpreted it as allowing the buyer to waive recording of a subdivision map, and 8 contracts that allow such waiver violate the Subdivision Map Act. Opp‘n at 10. In Schellinger III, 9 the Court of Appeal held that Cotter waived that argument by failing to raise it before the trial 10 court, and also that ―it does not positively appear that [the trial court] actually ruled . . . on the 11 United States District Court Northern District of California 6 Subdivision Map issue in the way Cotter believes,‖ because its discussion of the buyer‘s right to 12 waive a condition may have referred only to waiving a time limit, not waiving the recording 13 requirement itself. 2 Cal. App. 5th at 995−97. Without addressing the latter alternative holding of 14 Schellinger III, the Administrator cites other California appellate decisions holding that illegality 15 of a contract cannot be waived and parties cannot be estopped from raising the issue. Opp‘n at 16 11−12 (citing, e.g., Downey Venture v. LMI Ins. Co., 66 Cal. App. 4th 478, 511 (1998)). At the 17 very least, there is a split of authority on the issue, because the published opinion of the Court of 18 Appeal in Schellinger III held that Cotter could and did waive the argument. This Court need not 19 conclusively decide the estoppel issue at this juncture. For the purpose of the present motion, 20 Valley needs only to show the probable validity of a breach by Cotter. This Court holds the state 21 trial and appellate courts‘ finding of breach, and in particular the Court of Appeal‘s rejection of 22 the very argument the Administrator raises here, sufficient to establish probable validity. This 23 holding is without prejudice to the administrator disputing the issue—and the estoppel effect of 24 those decisions—at a later stage of this case. 25 Second, the Administrator argues that he is likely to prevail on ―multi-million dollar offset 26 claim‖ for Valley‘s professional negligence that would ―easily eclipse[] any recover that [Valley] 27 might obtain.‖ Opp‘n at 12−13. The Administrator has not presently filed any counterclaim and 28 has not submitted any evidence yet to support an offset defense of negligence. Without prejudice 8 1 to any claim or argument that the Administrator may assert on the merits, the speculative 2 possibility of an offset is not sufficient at this time to defeat Valley‘s showing of the probable 3 validity of its claim. 4 Six percent of the $2,930,000 agreed price stated in the 1999 addendum to the sale 5 agreement is $175,800. See Green Decl. Ex. B (Sale Agreement) Addendum One § 2. Valley is 6 entitled to attach assets sufficient to secure that amount based on the probable validity of its breach 7 of contract claim. 8 9 2. Interest Valley also seeks attachment based on prejudgment interest that it believes it will prevail in recovering. The parties‘ contract called for ―interest at the rate of 15% per annum or the 11 United States District Court Northern District of California 10 maximum amount allowed by law, whichever is less.‖ Green Decl. Ex. A (Owner Agency 12 Agreement) § 10.2. Valley contends that it is entitled to interest at a rate of fifteen percent per 13 year from December 2012, the date that the buyer tendered payment to Cotter under the sale 14 agreement, which Cotter rejected. See Reply at 3−4. The Administrator disputes both the rate to 15 be applied and the date from which interest should be calculated, arguing that the California 16 Constitution‘s usury provision limits interest to ten percent per year, and that interest did not begin 17 to accrue until the state court‘s Schellinger III judgment became final on October 26, 2016. Opp‘n 18 at 13−14. 19 With respect to interest rates, the California Constitution provides that interest accrued on 20 ―any loan or forbearance‖ for commercial purposes cannot exceed the higher of ten percent per 21 year or a formula based on the discount rate of the Federal Reserve Bank of San Francisco. Cal. 22 Const. art. XV § 1(2). Neither party argues that the latter formula would exceed ten percent per 23 year in this case. In response to the Administrator‘s reliance on this provision, Valley asserts 24 vaguely that ―not all transactions are subject to usury laws and questionable [sic] as to whether the 25 interest rate in the commission agreement is subject to usury.‖ Reply at 4 (citing Ghirardo v. 26 Antonioli, 8 Cal. 4th 791, 801−02 (1994)). Valley may well be correct, but the conclusory 27 assertion that it is ―questionable‖ whether the constitutional limitation applies is not sufficient to 28 meet Valley‘s burden of showing probable validity. For the purpose of the present motion, and 9 1 without prejudice to arguments raised on the merits, Valley has shown probable validity of a claim 2 to interest only at a rate of ten percent per year. 3 With respect to the starting date of accrual, the parties‘ agreement called for payment ―upon the occurrence of . . . [Cotter] breach[ing] or repudiat[ing] any Sale Agreement.‖ Green 5 Decl. Ex. A (Owner Agency Agreement) § 5.1. The Court therefore agrees with Valley that the 6 appropriate date is the date of Cotter‘s breach, not the date of a final judgment confirming that 7 breach. The breach identified by the state courts was not, however, Cotter‘s refusal to accept a 8 tender of the purchase price (as Valley now contends, see Reply at 4), but rather Cotter hiring a 9 contractor, David Ruffino, to dig an irrigation trench on the property without a permit and without 10 regard to wetlands preservation laws. See Schellinger III, 2 Cal. App. 5th at 993−94 (quoting the 11 United States District Court Northern District of California 4 trial court‘s decision); id. at 997−1006 (affirming that decision and holding that ―[w]hat Cotter 12 calls the trench issue—and which obviously refers to the work done by contractor Ruffino in 13 2012—is dispositive‖ on the issue of breach). It is not clear from the record when the breach 14 caused by that work on the property was complete. Based on the Court of Appeal‘s 15 characterization of Ruffino‘s work occurring ―in 2012,‖ however, see id. at 999, it is sufficiently 16 clear that the breach occurred by the end of that year at the latest. The Court finds January 1, 2013 17 to be an appropriate starting date for calculation of interest for the limited purpose of attachment, 18 without prejudice to any arguments or evidence that either party might raise on the merits. 19 At an annual rate of ten percent, Valley would be entitled to $17,580 per year on its 20 commission of $175,800. As of the hearing date on this motion, three full years plus 124/365 of 21 the present year have elapsed since the beginning of 2013. Valley may therefore attach an 22 additional $58,712 to account for prejudgment interest. Adding that to the commission, Valley‘s 23 total attachment comes to $234,512. 24 3. Costs and Attorneys’ Fees 25 Neither Valley‘s motion nor its reply brief includes any explanation of how Valley reached 26 its estimates for costs totaling $15,000 and attorneys‘ fees totaling $85,000. See Mot. at 9 (stating 27 only that ―those costs are estimated to be $15,000.00, and attorney fees of $85,000‖). Although 28 California law grants the Court discretion to include ―an estimated amount for costs and allowable 10 1 attorney‘s fees‖ in a writ of attachment, see Cal. Civ. Proc. Code § 482.110(b), based on Valley‘s 2 failure to provide any justification for the amounts that it requests, the Court declines to do so 3 here. 4 IV. 5 CONCLUSION For the reasons discussed above, Valley‘s motion for a writ of attachment is GRANTED 6 IN PART, to attach assets as listed in Exhibit A to Valley‘s motion sufficient to secure an amount 7 $234,512. This Court will issue a separate order instructing the Clerk to issue the writ and setting 8 forth the property to be attached. 9 10 United States District Court Northern District of California 11 12 IT IS SO ORDERED. Dated: May 5, 2017 ______________________________________ JOSEPH C. SPERO Chief Magistrate Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11

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