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Thoryk v. San Diego Gas & Electric Co.

California Court of Appeals, Fourth District, First Division

April 9, 2014

PAUL THORYK, Plaintiff and Appellant,
v.
SAN DIEGO GAS & ELECTRIC COMPANY et al. Defendants, HIGHLAND VALLEY INVESTORS, LLC, Intervener and Respondent.

APPEAL from a judgment of the Superior Court of San Diego County Nos. 37-2008-00093080- CU-NP-CTL; 37-2009-00098662- CU-NP-CTL, Richard E. L. Strauss, Judge.

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COUNSEL

Chapin Fitzgerald, Douglas J. Brown and Edward D. Chapin for Plaintiff and Appellant.

Freeland McKinley & McKinley, Steven A. McKinley and Karen G. McKinley for Intervener and Respondent.

OPINION

HUFFMAN, Acting P. J.

This intervention action arises out of a former debtor-creditor relationship concerning real property that was damaged by the San Diego County wildfires of 2007. The main action is a master complaint by damaged property owners, including a defaulting borrower, plaintiff, defendant-in-intervention and appellant Paul Thoryk (Appellant), who owned the property at the time of the fires. A year later, plaintiff-in-intervention and respondent Highland Valley Investors, LLC (Highland) nonjudicially foreclosed under the junior trust deed it held and took the real property security, subject to a senior lien held by a party that is no longer involved in this action.[1]

In the main action, Appellant sued the wildfire defendants, San Diego Gas & Electric Company; Cox, Inc.; and Sempra Energy (the third party tortfeasors), for damages for inverse condemnation, negligence, trespass, nuisance, and violation of the Public Utilities Code. Highland also filed its complaint in intervention against those same defendants-in-intervention. (Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 598, fn. 3, 599 [125 Cal.Rptr. 557, 542 P.2d 981] (Cornelison) ; id. at p. 604, fn. 9 ["actions by mortgagees against nonpossessing third parties for tortious impairment of security are not affected by the antideficiency legislation"].) Also, Highland sued Appellant, seeking declaratory relief that it is entitled to a judicially imposed lien under the terms of its deed of trust and related note, and/or under the doctrine of equitable conversion, upon any recovery that Appellant might eventually obtain from the third party tortfeasors.

To evaluate the granting of declaratory relief in favor of Highland, we must interpret the antideficiency body of law in terms of any applicability of well-established exceptions to antideficiency protections and the one action rule. (Code Civ. Proc., §§ 580d, 726; all further statutory references are to

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this code unless noted.) Specifically, Appellant argues the trial court erred in determining that there was no bar in the antideficiency statutes for Highland presently to obtain a lien on Appellant's future property damage recovery under the master complaint, for any damage inflicted on his real property in the nature of inverse condemnation, etc. In its ruling, the trial court set the amount secured by Highland's lien at the unpaid principal amount of Appellant's mortgage debt ($837, 385.29), along with postforeclosure interest and prejudgment interest, plus attorney fees and costs pursuant to the terms of the note.

Case law establishes various exceptions to statutory antideficiency protections for a borrower, such as the "mixed collateral" rule. Where there are liens established upon both personal and real property in the subject transaction, a foreclosing lienholder using the power of sale may continue to pursue remedies against the former property owner/borrower. (Hatch v. Security-First National Bank (1942) 19 Cal.2d 254, 261 [120 P.2d 869] (Hatch) [no violation of § 580a where creditor does not seek a personal judgment for the unpaid balance of a loan, but instead seeks to enforce additional security secondarily liable for the principal loan, such as selling a pledge or other trust deeds given as additional security for the otherwise secured loan]; Mortgage Guarantee Co. v. Sampsell (1942) 51 Cal.App.2d 180, 186 [124 P.2d 353] (Sampsell) [sale of real property under the power of sale in the deed of trust does not wipe out the indebtedness and the creditor may proceed against "any other security"]; see 4 Miller & Starr, Cal. Real Estate (3d ed. 2013) § 10:218, pp. 10-803 to 10-806 (Miller and Starr).)

Highland claims the trial court correctly recognized that the debt represented by Appellant's default on the promissory note, which was secured by the nonjudicially foreclosed trust deed, survived the foreclosure, and that security other than the lost land was expressly or impliedly created in the trust deed and may be pursued (e.g., money related to the real property or substitutes for the land, such as inverse condemnation awards). (See Los Angeles T. & S. Bk. v. Bortenstein (1920) 47 Cal.App. 421, 423-424 [190 P. 850] (Bortenstein) [a mortgagee had the right in a judicial foreclosure action, over objections of the mortgagor, to obtain a lien for an amount representing its security interest, upon an award of eminent domain damages that the mortgagor had recovered from a municipality in another action, for partial destruction of the mortgaged property; equity required allocation and no impermissible deficiency judgment resulted].) The trial court imposed a lien against Appellant's future recovery against the third party tortfeasors, to permit Highland to recover the interest and attorney fees that were provided for in the promissory note, as well as obtaining the unpaid balance on the note.

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We agree with Appellant that Highland, the junior lienholder foreclosing under power of sale, has failed to show the applicable exceptions cover its situation, either under the terms of the note or through the equitable conversion doctrine, to allow it to obtain a lien against Appellant. The lien ruling on the deed of trust was the functional equivalent of a deficiency money judgment. It does not properly account for any ultimate allocation that may become necessary of any recovery from the third party tortfeasors, for property damage for the respective ownership periods, or for Highland's impairment of security. (See Birman v. Loeb (1998) 64 Cal.App.4th 502, 511 [75 Cal.Rptr.2d 294] (Birman).) We reverse the declaratory relief judgment in favor of Highland, with directions to enter a different judgment denying the lien application.

FACTUAL AND PROCEDURAL BACKGROUND

A. Property and Junior Lien: Litigation

From 2001 to 2008, Appellant owned a large parcel of real property that was planted with avocado and other trees, and he built infrastructure improvements toward the development of multiple two-acre homesites. The seller, PFI, held a first trust deed on the property, securing its 2001 loan.[2]

In 2005, Highland loaned Appellant $1.5 million in return for his promissory note, taking a second trust deed on the property as security.

Appellant pursued development efforts until October 2007, when the property was extensively damaged by wildfire. He subsequently defaulted on Highland's loan.

In July 2008, Highland foreclosed on its second trust deed under its power of sale, on a partial credit bid of $1 million, and held the property until 2010. Appellant's remaining indebtedness on the note was $837, 385.29, including preforeclosure interest and attorney fees.

In 2009, Appellant sued the third party tortfeasors for damages on theories including inverse condemnation and negligence, pursuant to a second amended master complaint. Appellant alleged the fires had damaged and destroyed the real property, trees, improvements and personal property, during his ownership.

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Highland's complaint in intervention is modeled on the master complaint against the third party tortfeasors, and alleges that it had acquired an interest in the subject property through nonjudicial foreclosure. Additionally, against Appellant, Highland added a 17th cause of action for declaratory relief that sought to impose a lien on any eventual recovery Appellant might obtain against the third party tortfeasors, for physical damage to the property. Highland asserted that Appellant's note and debt survived the nonjudicial foreclosures and it was entitled to recover damages or a lien up to the remaining indebtedness on the note, $837, 385.29, plus attorney fees and postforeclosure/ prejudgment interest.

B. Status of Senior Trust Deed; Prior Opinion

In June 2010, Highland defaulted on the loan secured by the first trust deed, and the senior lender, PFI, nonjudicially foreclosed and recovered the property by making a full credit bid of $1, 613, 926.42 at the trustee's sale.[3]

PFI also sued the third party tortfeasors in the master litigation, but its complaint in intervention was dismissed after a demurrer was sustained without leave to amend, based upon lack of standing to seek further damages, in light of its possession of the real property. We upheld that ruling in our prior opinion issued in the same trial court case. In our analysis, we noted that Appellant "owned the real property at the time of the fires. It was then that his cause of action against Defendants accrued. PFI acquired title to the property after it had been damaged by the fires. The transfer of title did not include a transfer of Thoryk's cause of action as the property owner. That cause of action remained with Thoryk as his personal property. (Vaughn v. Dame Construction Co. (1990) 223 Cal.App.3d 144, 148-149 [272 Cal.Rptr. 261].) PFI's status as the current owner of the property does not give it standing to sue for damage to the property." (Thoryk v. San Diego Gas & Electric Co., supra, D060399.)

With respect to the status of Appellant's debt to the first lender, PFI, we stated in our prior opinion that its "acquisition of the property by full credit bid extinguished Thoryk's debt, and thus extinguished PFI's security. [Citation.] Furthermore, no exception to the full credit bid rule applied. [Citations.] PFI lacks standing as the holder of a security interest in the property. The court properly sustained ...


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