RIDEC LLC v. OCY HINKLE et al.
B317420
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO
Filed 6/29/23
CERTIFIED FOR PUBLICATION; (Los Angeles County Super. Ct. No. BC560228)
APPEALS from a judgment and order of the Superior Court of Los Angeles County, Barbara Ann Meiers, Judge. Reversed and remanded with directions.
Steyer Lowenthal Boodrookas Alvarez & Smith, Carlos A. Alvarez and Jill K. Cohoe for Defendant, Cross-complainant and Appellant.
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In Tsasu LLC v. U.S. Bank Trust, N.A. (2021) 62 Cal.App.5th 704 (Tsasu), this court construed one section of California‘s Quiet Title Act (the Act) (
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. Ocie Payne Hinkle suffers elder abuse when her acquaintance deeds her property to others
In 2010, Ocie Payne Hinkle (Ocie)2 was an 89-year-old woman who owned several parcels of property in Los Angeles, California. Ocie has an adult son, Ocy.
A few years earlier, Ocie had started a relationship with Roi Wilson (Wilson). In the fall of 2010, Ocie was hospitalized and medicated; while in that state, Wilson prevailed upon Ocie to grant him power of attorney over her affairs.
Wilson then used that power of attorney to deed away much of Ocie‘s real property. As pertinent to this case, while acting as Ocie‘s “attorney-in-fact,” Wilson, on October 22, 2010, signed a grant deed giving Ocie‘s property at 1723 Buckingham Road (the Buckingham property or the property) to Edmound Daire (Daire) (the October 2010 grant deed). Integral to his frauds, Daire is a professional “document preparer.”
In January 2011, after Ocy learned of Wilson‘s conduct against his mother, Ocie was placed in a conservatorship.
On November 10, 2010, Daire signed a grant deed giving the property back to Ocie (the November 2010 grant deed).3 After Ocie passed away in May 2014, Ocy became the administrator of her estate, and, as her sole heir, entitled to title to the Buckingham property.
C. Daire‘s claim to the Buckingham property
1. Daire obtains a quiet title judgment
On October 8, 2014, Daire filed a verified complaint to quiet title to the Buckingham property in his name. As defendants, and as pertinent to this case, he named (1) Ocie, (2) Wilson, and (3) “All Persons Unknown Claiming Any Legal or Equitable Right, Title, Estate, Lien, or Interest in the Property Described in the Complaint Adverse to Plaintiff‘s Title or Any Cloud on Plaintiff‘s Title Thereto.” In his complaint, Daire alleged that he had title pursuant to the October 2010 grant deed and that the subsequent November 2010 grant deed purporting to reverse the transfer was a forgery; thus, he sought to cancel the November 2010 grant deed and quiet title to the Buckingham property in himself. On January 23, 2015, Daire recorded a lis pendens regarding his pending quiet title lawsuit. According to a proof of service later filed with the court, Daire‘s process server personally served Ocie with the complaint on March 28, 2015.
On June 11, 2015, Daire requested—and the court clerk entered—a default against Ocie.
Daire recorded the quiet title judgment in the County Recorder‘s Office a week later, on November 13, 2015.
2. On the basis of the quiet title judgment, Daire obtains two loans using the Buckingham property as collateral
Within a few months of recording the quiet title judgment in his favor, Daire applied for two loans.
a. The Ridec loan
Around December 2015, Daire applied to Ridec LLC (Ridec) for a $650,000 loan and offered up the Buckingham property as collateral. Ridec retained a title insurer. The title insurer ran a title report on the Buckingham property on December 29, 2015; that report reflected the following:
- The October 2010 grant deed;
The November 2010 grant deed; - A February 3, 2011, notice of the conservatorship action over Ocie, which specified that the action “may affect” the Buckingham property; and
- The 2015 judgment quieting title to the Buckingham property in Daire and the order expunging the November 2010 grant deed.
Because the time to appeal the November 6, 2015, quiet title judgment did not expire for 180 days (that is, until early May 2016), Ridec‘s title insurer insisted that Ridec wait for the end of that appeal period to ensure that there were no appellate challenges to that judgment. On May 13, 2016, the title insurer ran a second title report on the Buckingham property, which reflected the following additional information:
- A notice of lis pendens, recorded on February 25, 2016, reflecting the commencement of the probate of Ocie‘s estate, which specified that it “affect[ed] title” to the Buckingham property (the February 2016 lis pendens); and
- A notice of withdrawal of the February 2016 lis pendens, recorded on April 25, 2016 (the April 2016 notice of withdrawal).
In light of the expiration of the time to appeal the quiet title judgment, the withdrawal of the lis pendens filed during that appeal period, and the absence of any other reason to question the validity of Daire‘s title, the title insurer informed Ridec that title to the Buckingham property was vested in Daire; thus, on May 16, 2016, escrow on the loan closed, Ridec recorded a deed of trust on the Buckingham property for $650,000, and Ridec wired $568,711.35 to Daire‘s account at Citibank, N.A. (Citibank).
Daire also borrowed $400,000 from PSG, which was also secured by a deed of trust on the Buckingham property. Daire falsely told PSG that PSG had the “first” deed of trust on the property, as Ridec had recorded its deed of trust against the Buckingham property one day earlier. After recording its deed of trust on June 17, 2016, PSG subsequently transferred it to Fortunato Capital Partners, LLC, who then transferred it to Title Resources Guaranty Company (Title Resources).
3. The trial court subsequently sets aside the quiet title judgment
On May 20, 2016, just days after escrow closed on the Ridec loan, Ridec‘s title insurer sent a letter and small escrow refund check to Daire at the Buckingham property, but Ocy was living there at the time. This alerted Ocy to Daire‘s fraud, and Ocy‘s lawyer immediately sent a letter to the title insurer.
Upon further investigation, Ocy learned that (1) Daire had filed a fraudulent proof of service in conjunction with his quiet title action, which reported that Ocie had been personally served with Daire‘s complaint on March 28, 2015, although she had died nearly a year before (on May 9, 2014); and (2) Daire had filed a fraudulent notice of withdrawal of the February 2016 lis pendens in April 2016, on which he had forged the signature of Ocy‘s lawyer.
For whatever reason, Ocy (acting as administrator of Ocie‘s estate) waited a year, until June 15, 2017, to file a motion to vacate the quiet title judgment on the ground that neither Ocie nor her estate were ever served in the quiet title action.
II. Procedural Background
A. The various complaints
Once Daire‘s deceptions came to light, the litigation frenzy began. On May 31, 2016, Ridec‘s title insurer sued Daire and Citibank, seeking—and obtaining—court orders freezing the disbursed loan funds still in Daire‘s Citibank account. Ridec joined that lawsuit via a cross-complaint against Daire, Ocy, and PSG, in which it sought to establish the validity of its deed of trust. On June 1, 2016, Daire sued Citibank. Ridec also joined that lawsuit via a cross-complaint. Ridec then filed a “complaint in intervention” in Daire‘s underlying quiet title action (which was reactivated when Ocie‘s estate filed the motion to vacate the judgment in that action). The trial court subsequently consolidated these actions.5
B. Litigation
The trial court litigated the consolidated case in two phases relevant to these appeals.6
1. The first phase
The first phase was meant to answer the question: As between Daire and Ocy (in his capacity as administrator of Ocie‘s
2. The second phase
The second phase was meant to answer the question: As between Ridec and PSG (collectively, the lenders) and Ocy (again, in his capacity as administrator of Ocie‘s estate), were the lenders’ deeds of trust valid encumbrances on the Buckingham property?8
The court held a three-day bench trial in April 2021. On the very first day of trial and in closing arguments, the parties brought Tsasu (which was decided on April 1, 2021) to the trial court‘s attention.
a. The tentative rulings
The trial court issued a tentative ruling in June 2021, invited further briefing in which the parties again discussed Tsasu, and then issued a further tentative ruling in August 2021. Together, these 35 pages of tentative rulings conclude that the lenders’ deeds of trust are invalid and do not encumber Ocy‘s title to the Buckingham property.9
But the trial court rejected that proposition. In the trial court‘s view, it was preferable to use the pre-Act, common law rule, which provided that any rights in property deriving from a void judgment were invalid, even if the party acquiring those rights had acted in good faith and without knowledge of any defect in the judgment.10 The trial court cited what boils down to three reasons for favoring the common law rule over the Act.
Second, the court reasoned that applying the Act to quiet title judgments while applying the common law rule to other
Third, the court reasoned that applying the Act violates due process because the Act sometimes enforces rights pursuant to judgments that were themselves obtained in violation of due process.
Applying the common law rule, the court found that the quiet title judgment was void due to the lack of valid service on Ocie or her estate, such that Ridec and PSG‘s deeds of trust—which were derived from that void judgment—were invalid.
b. The final ruling
After Ridec filed a request for a statement of decision enumerating 13 specific issues, the trial court issued a five-page supplemental and final order. In that order, the court reaffirmed its tentative rulings that it would apply the common law rule instead of the Act, and proclaimed that its rulings were not “inconsistent” with Tsasu but offered no explanation for its proclamation. The court also offered a new, alternative rationale for ruling in Ocy‘s favor: Even if the Act applied, Ridec did not qualify as an “encumbrancer without notice” of defects in the quiet title judgment under
C. Judgment and appeals
Ridec timely appealed the judgment and the denial of its posttrial motion to set aside that judgment.11
DISCUSSION
Ridec challenges the trial court‘s ruling declaring its deed of trust invalid.
I. Pertinent Law
Enacted in 1980, the Act creates a special mechanism for obtaining quiet title judgments that operate in rem—and hence are binding not only against the parties to the quiet title proceeding, but also “against all the world.” (Nickell v. Matlock (2012) 206 Cal.App.4th 934, 944 (Nickell); Tsasu, supra, 62 Cal.App.5th at p. 715.) Indeed, our Legislature‘s chief aim in adopting the Act was to empower courts to issue in rem decrees because in rem decrees have greater permanence compared to the in personam decrees that bind only the parties to the lawsuit; in rem decrees accordingly “enhance the marketability of property as to which a[] quiet title decree has been rendered.” (Assem.
Mindful of the need to provide due process protections for those persons who would be bound by the in rem quiet title judgment even though they did not participate in the litigation producing it, the Act‘s “requirements for obtaining a[n in rem] quiet title judgment . . . are more stringent than the requirements for obtaining judgments resolving adverse claims to property under other [in personam] causes of action.” (Tsasu, supra, 62 Cal.App.5th at pp. 715-716.) To obtain a quiet title judgment under the Act, the plaintiff must (1) file a verified complaint that names, as defendants, (a) “[all] persons having adverse claims” to the plaintiff‘s title, and that includes persons whose claims are “of record,” whose claims are “known to the plaintiff,” or whose claims are “reasonably apparent from an inspection of the property,” and (b) “all persons unknown, claiming any legal or equitable right, title, estate, lien, or interest in the property described in the complaint adverse to plaintiff‘s title, or any cloud upon plaintiff‘s title thereto” (
Once the Act‘s more stringent requirements are met, the resulting quiet title judgment is “more resilient to subsequent challenges.” (Tsasu, supra, 62 Cal.App.5th at p. 716.)
As to persons who had “claim[s]” to the property at issue in the quiet title judgment at the time that judgment was rendered, the resilience of that judgment to subsequent attack turns on whether those persons were a party to the quiet title action: If a person seeking to attack the quiet title judgment was a party to the quiet title action, the quiet title judgment is “binding and conclusive” (
II. Analysis
When examining a trial court‘s ruling that rights in property are valid or invalid under the Act in any particular case, our standard of review turns on whether the facts were disputed. To the extent the facts were undisputed, and the trial court merely applied the undisputed facts to the law, our review is de novo. (Tsasu, supra, 62 Cal.App.5th at p. 715; Union of Medical Marijuana Patients, Inc. v. City of San Diego (2019) 7 Cal.5th 1171, 1183; Martinez v. Brownco Construction Co. (2013) 56 Cal.4th 1014, 1018.) To the extent the facts were disputed, we review the trial court‘s factual findings for substantial evidence. (People v. Sledge (2017) 7 Cal.App.5th 1089, 1095-1096; Thorstrom v. Thorstrom (2011) 196 Cal.App.4th 1406, 1417.) And where, as here, the party asserting error on appeal had the burden of proof below, we may reverse only if the record compels a finding in that party‘s favor as a matter of law. (Dreyer‘s Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828, 838.)
We conclude that the trial court erred when it invalidated Ridec‘s deed of trust in the Buckingham property and thereby impaired Ridec‘s rights in that property.
Because Ridec acquired its rights in that property after the quiet title judgment, and did so “in reliance on th[at] judgment,” section
It is undisputed that Ridec was an encumbrancer for value because its deed of trust was in exchange for loaning Daire $650,000.
The record also compels a finding, as a matter of law, that Ridec acted “without knowledge of any defects or irregularities” in the quiet title judgment or the proceedings that produced it. There is no evidence that Ridec (and, necessarily, its officers or employees) had any actual, subjective knowledge regarding the two chief defects with the quiet title judgment or the validity of Daire‘s title at the time of its loan—namely, that (1) despite Daire‘s service of process form purporting to have served Ocie, Ocie was dead at the time Daire filed the quiet title action and, as a result, Ocie‘s estate was neither named nor served; and (2) Ocy‘s lawyer had not signed the 2016 notice of withdrawal. Ridec also had no constructive knowledge of these defects or any invalidity of Daire‘s title. The quiet title judgment appeared to be in compliance with the Act: That proceeding was initiated by a verified complaint that named Ocie, Wilson, and the others with a claim to the property13 as well as “All Persons Unknown Claiming Any Legal or Equitable Right, Title, Estate, Lien, or
Thus, under section
III. The Trial Court‘s Contrary Analysis
The trial court invalidated Ridec‘s claim to the Buckingham property for essentially two categories of reasons. First, the court reasoned that section
Although the trial court, at the outset of the first of its two tentative rulings, readily acknowledged that the Act—and section
Thus, the question we confront is: Was the trial court justified in ignoring the plain text of section
The trial court offered three potential justifications. We examine each.
Second, the trial court reasoned that applying the Act‘s provisions to give effect to rights in property derived from void quiet title judgments—while continuing to apply the contrary common law rule to judgments resting on claims other than quiet title—results in “incompatible and irreconcilable standards” based merely on the label of the claim and which will lead to gameplaying by litigants. As a threshold matter, this reason does little more than impermissibly second-guess the Legislature‘s wisdom of erecting a separate rule for quiet title judgments obtained under the Act. More to the point, the trial court‘s analysis is wrong. To be sure, litigants asking a court to decide their rights in property may do so through a panoply of different causes of action—quiet title, cancellation of instruments, and
Third, the trial court suggested that it was justified in ignoring section
The first “defect” does not render section
The second “defect” also does not render section
Because none of the trial court‘s reasons for disregarding section
As explained above, the record in this case compels a finding as a matter of law that Ridec lacked actual as well as constructive knowledge of any defect with the quiet title judgment and the underlying proceedings that produced it. We now explain why the trial court‘s findings to the contrary are unsupported either by the law or by the record. In so doing, we focus on the “small[er] part” of reasons the court actually articulated rather than the “great deal” of additional nascent reasons to which the court alluded but opted not to articulate.
The court found that Ridec had actual knowledge of defects with the quiet title judgment because Ocy told “picture takers” he found on the Buckingham property in early 2016 that “it‘s all [a] fraud.” Yet there is nothing in the record to support the trial court‘s implicit finding that those photographers were associated with Ridec. Indeed, Ridec‘s owner testified that the company does not ordinarily send any appraisers to the property serving as collateral for the loan. Given the absence of any evidence of association and the undisputed fact that Daire was seeking multiple loans at that time, the association the trial court inferred was speculative. Although we must draw all reasonable inferences in favor of the trial court‘s ruling (Tribeca Companies LLC v. First American Title Ins. Co. (2015) 239 Cal.App.4th 1088, 1102), that deference does not extend to giving effect to speculation.
Combining the reasons the trial court articulated regarding constructive knowledge as well as the reasons the court articulated for why the “judgment roll” in the quiet title action imparted knowledge, the court seemed to find that Ridec had
None of these charge Ridec with constructive knowledge. Applying the definition adopted in Tsasu, Ridec is charged with constructive knowledge of a fact if it had (1) “‘knowledge of circumstances which, upon reasonable inquiry, would lead to that particular fact‘““; or (2) the fact is contained in a properly recorded document. (Tsasu, supra, 62 Cal.App.5th at p. 719.) A party is not otherwise obligated to “go behind” the judgment and independently verify its validity. (Id. at p. 723; Elliott v. Wohlfrom (1880) 55 Cal. 384, 388 [subsequent encumbrancer is “chargeable with what the record [in the chain of title] discloses, and with nothing beyond what it discloses, unless it be shown that he had actual notice of something outside [the record]“].) The April 2016 notice of withdrawal is not a circumstance that called for additional investigation, as such notices are the statutory mechanism by which a lis pendens is removed (
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In light of our disposition, we have no occasion to reach Ridec‘s alternative argument that Ocy‘s claim is barred by laches or that the trial court did not comply with the statutes and rules governing statements of decision.
The judgment is reversed and remanded with directions to enter a judgment finding that Ridec‘s deed of trust is valid. Ridec‘s appeal from the posttrial order denying its motion to set aside the judgment is therefore moot. Ridec is entitled to its costs on appeal.
CERTIFIED FOR PUBLICATION.
HOFFSTADT
J.
We concur:
LUI
P. J.
CHAVEZ
J.