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RESOLUTION TRUST CORP. v. BAYSIDE DEVELOPERS

February 9, 1993

RESOLUTION TRUST CORPORATION, as Conservator for Great American First Savings Ban, Plaintiff,
v.
BAYSIDE DEVELOPERS, Defendant.



The opinion of the court was delivered by: CHARLES A. LEGGE

 The appointment of the plaintiff Resolution Trust Corporation to be the conservator of former plaintiff Great American First Savings Bank has placed this case in a unique posture. That is, this federal trial court is now sitting in review of a decision of a state court of appeal, on an issue of state real estate law. This opinion will first discuss how the case got to this point. This court will then discuss what it believes must be decided under California law and under this record; that is, it must disagree with the California Court of Appeal on the application of a state statute. Because of the novel procedure, and because this court does disagree with the California court on an issue of state law, it is appropriate to review the facts and the procedure in some detail.

 I.

 In 1984 Great American First Savings Bank loaned defendant Bayside Developers $ 10,600,000 to construct a townhouse development. Bayside gave Great American a promissory note secured by a deed of trust on the property. Under a price-release agreement between the parties, as each lot was sold it was released from the deed of trust and a portion of the sales proceeds was paid to Great American with the balance going to Bayside.

 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.

 II.

 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). *fn1" 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.

 III.

 At that point, this case began its circuitous route to this court and to its present posture.

 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 ...


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