half of the lots were developed. In May 1987 Great American recorded a notice of default against the property. In June 1987 Great American filed an action in the California Superior Court for specific performance of the rents and profits clause in the deed of trust. Great American also petitioned that court to appoint a receiver, which Bayside did not oppose and which the court granted. At that time 32 condominiums had been completed; sales escrows were pending on nine of those units, and the rest had already been sold. The court-appointed receiver closed the escrows on the nine pending sales. Some of those sales proceeds were paid to Great American under the price-release agreement, and the receiver retained the excess of $ 312,318. The receiver also retained $ 160,000 resulting from the sale of two condominiums which were subject to liens in addition to Great American's deed of trust. The receiver also sold furniture which had been used as models in the display units. Great American later sold the remaining raw land to itself in a non-judicial foreclosure sale.
The receiver was discharged in August 1988. At that time the receiver was ordered to turn over to Great American the $ 312,318 which he held. The $ 160,000 was held by the state court pending claims by other creditors. At that time Bayside still owed Great American over $ 4,500,000. Great American also received $ 1.7 million from the sale of land in the project which had not yet been developed.
Great American moved for summary judgment for the $ 312,318 and the $ 160,000. The Superior Court granted Great American's motion, holding that it was entitled to all of the monies held by the receiver.
The California Court of Appeal reversed, holding that the trial court had made errors of law. Great American First Savings Bank v. Bayside Developers, 232 Cal. App. 3d 1546, 284 Cal. Rptr. 194 (1991).
First, the appellate court held that Great American's complaint had only sought specific performance of the "rents, issues, and profits" clause. Therefore, the receiver was not authorized to sell any of the property, and the trial court did not have authority to allow the receiver to sell anything. Great American, 284 Cal. Rptr. at 199.
Second, the appellate court held that Great American had violated California Code of Civil Procedure § 726, the one-form-of-action statute. Section 726 acts as an election of remedies requirement for creditors. The rule has two requirements that are relevant here: (1) a creditor is limited to one "action" or lawsuit to enforce a debt; and (2) a creditor who does not exhaust the real property security before enforcing the underlying debt forfeits the security. Security Pacific Nat'l Bank v. Wozab, 51 Cal. 3d 991, 275 Cal. Rptr. 201, 204, 800 P.2d 557 (1990). The Court of Appeal held that Great American's application of the sales money, which it had obtained from the receiver, to the debt was analogous to an "offset"--an improper method of obtaining money directly from the debtor before levying on the real property security--causing Great American to forfeit its foreclosure rights. Great American, 284 Cal. Rptr. at 201. The appellate court also held that Great American had improperly appropriated the funds from the sale of the furniture, which was also a violation of the "security first" rule.
The California Court of Appeal's decision was entered on August 6, 1991. Under California Rules of Court No. 24, that appellate decision would have become final 30 days later unless a petition for rehearing were filed.
At that point, this case began its circuitous route to this court and to its present posture.
On August 9, 1991 the Resolution Trust Corporation ("RTC") was appointed the conservator for Great American. On August 19, 1991 RTC reguested a stay from the California Court of Appeal. The Court of Appeal granted a stay of all proceedings from August 19 through October 4, 1991, and extended the time for the filing of a petition for rehearing to October 7, 1991. The Court of Appeal ordered that if a petition for rehearing was not filed by October 7, 1991, its decision would become final on October 21, 1991, pursuant to Rule 24. On October 7, 1991, the RTC and Great American filed a petition for a rehearing. Also on October 7, 1991, RTC removed the case to federal court pursuant to 12 U.S.C. § 1441a(l)(3).
The California Court of Appeal's decision did not become final on October 21 because a petition for a rehearing was timely filed. In addition, it did not become final because the case was removed on October 7, 1991. Title 28 U.S.C. § 1446(d) provides that upon removal of an action and the filing of a copy of the petition for removal with the clerk of the court, the state court is prohibited from any further proceedings "unless and until the case is remanded." Removal effectively deprives the state court of its jurisdiction over the removed case. Maseda v. Honda Motor Co., 861 F.2d 1248, 1254 (11th Cir. 1988).
The case was originally removed to the United States District Court for the District of Columbia. That District Court then denied Bayside's motion to remand the case to state court pursuant to 28 U.S.C. § 1446(d). And it transferred the case to this court.
When the case arrived here, Bayside again moved to remand. This court denied that motion and decided, for the reasons discussed below, that this court has jurisdiction and that it sits as if it were reviewing the decision of the California Court of Appeal. That posture is to say the least unusual, but it is the result which this court believes is compelled by the federal jurisdiction defined by Congress.
This court then addressed the merits of the California Court of Appeal's decision. Both sides submitted an agreed-upon record and briefs. Briefs were also filed by the California Banking Association, the California League of Savings Institutions, and Homefed Bank as amici curiae. The issues were argued and submitted for decision. This court has reviewed the record, the Court of Appeal's decision, the briefs and arguments of counsel and the applicable authorities.
This court respectfully concludes that the California Court of Appeal erred in its application of California law to these facts, and that the decision must be vacated and the decision of the Superior Court reinstated. Again, this court recognizes that it is intruding into state law and procedure, but concludes that it is required to do so.
This unique posture results from the fact that this case came to the federal courts after it was already on appeal in the state courts. That is permitted by the special removal powers given by Congress to the RTC:
The [RTC] may . . . remove any such action, suit, or proceeding from a State court to the United States District Court for the District of Columbia, or if the action, suit, or proceeding arises out of the actions of the [RTC] with respect to an institution for which a conservator or a receiver has been appointed, the United States district court for the district where the institution's principal business is located. The removal of any action, suit, or proceeding shall be instituted--(A) not later than 90 days after the date the [RTC] is substituted as a party. . . (emphasis added).
12 U.S.C. § 1441a(l)(3) (West Supp. 1992). The statute expressly contemplates removal later than is allowed in most cases. Removal is allowed after the RTC is substituted as a party.
See In re Meyerland Co., 960 F.2d 512, 521-22 (5th Cir. 1992) cert. denied 122 L. Ed. 2d 123, 113 S. Ct. 967, 61 U.S.L.W. 3477 (1993), (DeMoss, J., concurring). The statute does not limit removal to cases filed with a certain time period (compare 28 U.S.C. § 1446(b), re no removal based on diversity of citizenship more than one year after commencement of the action), or to cases pending in state trial courts.
Congress may constitutionally authorize removal of cases on appeal. Martin v. Hunter's Lessee, 14 U.S. (1 Wheat) 304, 349, 4 L. Ed. 97 (1816). However, the removal in this case, after the entry of a state appellate decision, is unusual.
Prior federal decisions have allowed the FDIC and FSLIC, under similar removal statutes, to remove cases which were then pending on appeal. In re Meyerland Co., 960 F.2d 512 (5th Cir. 1992), cert. denied 122 L. Ed. 2d 123, 113 S. Ct. 967, 61 U.S.L.W. 3477 (1993); Jackson v. American Sav. Mortgage Corp., 924 F.2d 195 (11th Cir. 1991); FDIC v. Yancey Camp Dev., 889 F.2d 647, 648 (5th Cir. 1989); In re Savers Fed. Sav. & Loan Assoc., 872 F.2d 963, 966 (11th Cir. 1989).
The Meyerland court held that the FDIC removal statute permitted removal at the appellate stage, because it allowed the removal of "any such action, suit, or proceeding from a state court to the appropriate United States district court." Meyerland, 960 F.2d at 516, quoting U.S.C. § 1819(b)(2)(B) (emphasis in original). The RTC removal statute uses essentially the same words. See 12 U.S.C. § 1441a(l)(3). Courts must adhere to the plain language of a statute unless "literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters." Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 73 L. Ed. 2d 973, 102 S. Ct. 3245 (1982). The Meyerland court said:
The statute's plain language is guite plain: Any action in a state court may be removed. This language does not limit removable actions to those that have not yet reached a state trial court judgment, nor does it limit removable actions to those that come to the federal courts from a specific state court (i.e., from state trial, as opposed to appellate, court). Furthermore, the contrast between the broad "a state court" and the specific "United States district court" within the same sentence strongly suggests that the drafters intended the meaning urged by the [RTC].