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National Financial Lending, LLC v. Superior Court (Brewer Corporation)

California Court of Appeals, Fourth District, First Division

December 18, 2013


ORIGINAL PROCEEDINGS in mandate Super. Ct. No. 2007-00074230-CU-BC-CTL William R. Nevitt, Jr., Judge.

Dale A. Martin; Law Offices of Jeffrey S. Benice and Jeffrey S. Benice for Petitioner.

No appearance for Respondent.


Lincoln, Gustafson & Cercos, Theodore R. Cercos; Law Offices of Murray M. Helm, Jr., Murray M. Helm, Jr.; Marks, Finch, Thornton & Baird, Jon F. Gauthier; Hoyt Law Firm, Kenneth C. Hoyt; Niddrie, Fish & Addams and David A. Niddrie for Real Parties in Interest.

In this writ proceeding, we deny a third party debtor's petition in which it challenges the trial court's order denying the debtor's Code of Civil Procedure[1] section 170.6 peremptory challenge.

In the trial court, the plaintiff obtained a $2.8 million judgment against a defendant, a construction lender that failed to meets its commitment with respect to a condominium project in San Diego. The plaintiff has unsuccessfully attempted to satisfy the judgment through a myriad of postjudgment collection proceedings.

The third party debtor is controlled by the sole shareholder of the defendant construction lender and owes the defendant substantial amounts. The plaintiff alleges it served the third party with a notice of levy and that, nonetheless, the third party debtor thereafter paid the defendant more than $2 million in management fees.

The third party's payment to the defendant in part gave rise to the plaintiff's application to the trial court for appointment of a limited receiver. Following a contested hearing, the receiver was appointed. However, the defendant did not cooperate with the receiver, who then applied to the trial court for a clarification of his powers and access to books and records of the defendant and the closely-related third party debtor (among others). The defendant shortly thereafter filed for bankruptcy.

After the defendant filed its bankruptcy petition, the plaintiff filed a motion under section 701.020 to make the third party debtor liable for the money it transferred to the defendant.

Upon being served with the plaintiff's section 701.020 motion, the third party debtor filed a motion to quash service of the notice of levy of execution and a peremptory challenge under section 170.6. The trial court denied the challenge, and the third party debtor filed a timely petition for a writ of mandate. We issued an order to show cause as well as a stay of all further trial court proceedings.

As we explain, a motion under section 701.020, by which a judgment creditor seeks to impose liability for failure to honor a notice of levy, although it implicates substantial interests of third parties and gives rise to a separate adversary factfinding process, is nonetheless an incident to the underlying action and is not itself a separate special proceeding that will support a peremptory challenge under section 170.6. (See Avelar v. Superior Court (1992) 7 Cal.App.4th 1270, 1275-1276.) The same is true of NFL's motion to quash. Accordingly, because the trial judge had previously determined the judgment creditor's liability as a matter of fact, no parties, even those joined thereafter, had the right to a section 170.6 challenge.

Moreover, even if we considered the motion under section 701.020 as a special proceeding within the meaning of sections 23 and 170.6, it was based in substantial part on the same set of facts that gave rise to the plaintiff's earlier motion for appointment of a limited receiver and, as we explain, was therefore a continuation of that postjudgment proceeding. Because that proceeding included a disputed factual hearing, no party which thereafter was brought into the proceeding could bring a peremptory challenge under section 170.6.

In short, the third party debtor's section 170.6 challenge is barred either by the fact that the trial court resolved the judgment debtor's liability or by its determination to appoint a receiver.


A. Brewer et al. v. PCF

This case arises out of the development of a luxury condominium project located at the north end of Balboa Park in San Diego and known as Mi Arbolito. Plaintiffs and real parties in interest, Brewer Corporation, Dynalectric Company, Brady Company/San Diego, Inc., and Division 8, Inc. (collectively the Brewer plaintiffs), are contractors who provided substantial amounts of material and work on the project. The underlying dispute arose because construction on the project stopped before the Brewer plaintiffs were paid in full for their material and work.

The Brewer plaintiffs sued both the developer, Mi Arbolito, LLC, and the construction lender, Point Center Financial, Inc. (PCF). Although Mi Arbolito, LLC filed for bankruptcy, the Brewer plaintiffs obtained a $2.7 million judgment against PCF.


PCF is wholly owned by Dan J. Harkey, who is also its president. According to a declaration Harkey filed in the trial court, PCF has been in business for more than 30 years. Harkey stated that National Financial Lending, LLC (NFL) is a California limited liability company that is managed by PCF and that he is NFL's designated agent for service of process. According to Harkey, NFL is composed of over 1300 members, one of which is PCF.

C. Notice of Levy

On April 26, 2012, the Brewer plaintiffs served NFL with notices of levy of execution totaling $2.2 million. The notices of levy were personally served on a person identified only as Jane Doe at offices PCF and NFL share. The proof of service states that Jane Doe refused to identify herself.

Some months after the notices of levy were served on NFL, the Brewer plaintiffs discovered that, notwithstanding the levies, NFL ...

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