CORONADO BANK v. PRATA

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Court of Appeal, Second District, Division 1, California.

CORONADO BANK, Plaintiff and Appellant, v. Sylvia PRATA, Defendant and Respondent.

No. B032437.

Decided: November 30, 1988

Frandzel & Share, Stephen H. Marcus and Mitchell F. Singer, for plaintiff and appellant. Polston, Schwartz, Hamilton & Fenster and Barry R. Schlom, for defendant and respondent.

Plaintiff Coronado Bank, a Texas corporation, filed a complaint to enforce and foreclose on a judgment lien.   Named as defendants were Sylvia Prata, an individual, Bancamerica Commercial Corporation, a California corporation, and Does.   Defendant Sylvia Prata demurred to the complaint, asserting that it was barred by Probate Code section 730 and by the doctrine of res judicata.   Accompanying the demurrer was a motion to expunge a lis pendens on certain real property which was the subject of the complaint, and a motion for sanctions against plaintiff and plaintiff's then counsel.

The trial court sustained the demurrer without leave to amend, “on the grounds set forth in the moving papers,” granted the motion to expunge the lis pendens, and awarded sanctions to defendant Prata's counsel, payable by plaintiff and its then counsel, in the sum of $3,000.   A judgment of dismissal of the complaint was duly entered, and plaintiff Coronado Bank has filed a timely notice of appeal from the judgment of dismissal.   As we shall explain, we reverse the judgment of dismissal, and remand to the trial court with directions.

FACTUAL AND PROCEDURAL HISTORY

Concepcion M. Steinberg died in El Paso, Texas on February 18, 1982.   On September 21, 1983, plaintiff Coronado Bank secured a judgment in the probate court in Texas for $325,904.34 against certain named individuals, including defendant Sylvia Prata (the decedent's daughter), as the administrators of the estates of Ruben Steinberg and Concepcion Steinberg, and against a Texas corporation, House of Foam and Fabrics.

On November 8, 1983, plaintiff Coronado Bank filed a notice of entry of a sister state judgment in Los Angeles, rendering the Texas judgment a California judgment for the purpose of enforcement.   On December 30, 1983, plaintiff Coronado Bank recorded an abstract of judgment in the official records of the recorder's office, in Los Angeles.

At the time the Texas judgment was entered and recorded in this state, decedent Concepcion Steinberg was the record owner of California real property located at 2905 Markridge Road, La Crescenta, California.   On November 8, 1984, Sylvia Prata petitioned the Los Angeles County Probate Court for letters of administration;  Prata was appointed administrator of the estate of Concepcion Steinberg;  the La Crescenta property was the only asset involved in this ancillary probate proceeding, then valued at $125,000.

On January 8, 1986, Prata filed the report of the administrator, a waiver of accounting, petition for approval of assignment, petition for allowance of statutory attorney fees and petition for final distribution of the La Crescenta property to her.   The hearing on the petition for final distribution was set for February 7, 1986.   Notice of hearing was sent to Coronado Bank through Texas counsel on January 13, 1986.

Coronado Bank had never filed any written documents in the probate proceedings notifying the probate court of its California judgment and claim against the California property in the estate.   It had filed no written opposition to the petition for final distribution to Prata, but did appear at the hearing on the petition for final distribution through California counsel.

The probate court denied as untimely the bank's request for a continuance to submit appropriate written papers, to intervene or interpose objections to the petition for final distribution, expressing the view that the recorded abstract of judgment would protect the bank's claim of prior right to the property, despite its distribution to Prata.   The trial court had discussed this situation on the record with the estate's attorney, who expressed his view that the property subject to distribution would be distributed to Prata subject to the bank's lien.

Coronado Bank appealed the trial court's refusal to allow the bank a continuance to prepare written opposition to this court.   One of the arguments made on behalf of the bank in this court was that the probate court's refusal to allow the bank to participate in the probate proceedings and oppose distribution to Prata was highly prejudicial to the bank because, pursuant to Probate Code section 730, such participation was the only method the bank had for enforcing its judgment and collecting the money due.   On April 30, 1987, this court dismissed the appeal without reaching the merits on the ground that the bank had never become a party of record in the probate proceedings and thus had no standing to prosecute an appeal from orders made in those proceedings.   The bank sought reconsideration by this court, but reconsideration was denied.   The bank then filed a petition for review with the California Supreme Court, but review was denied on May 29, 1987.   On both of these latter occasions, the bank continued to argue that participation in the probate proceedings was its only remedy.

Meanwhile, Prata was attempting to refinance the property and the bank's California counsel was advised, after the California Supreme Court had denied hearing, that these efforts were being hampered by the cloud on title created by the abstract of judgment and a lis pendens the bank had filed against the California property.   After the remittitur issued from this court, the bank responded by filing the complaint to enforce the lien which is before us at present.   After the sanction order was made below (and satisfied), plaintiff bank acquired new California counsel who now represent the bank on this appeal.   The notice of appeal specifies that appeal is taken from the judgment of dismissal, not from those orders made expunging the lis pendens and awarding the sanctions.   Consequently, the only issue before us concerns the legal sufficiency of the complaint itself.

STANDARD OF REVIEW

The standard of review applicable when appeal is taken from a judgment after a demurrer sustained without leave to amend is well established.   Since plaintiff has been precluded before trial from proceeding against the dismissed defendant, plaintiff's claim of error must be regarded in the most favorable light possible.   For the purpose of review in this court, a general demurrer admits the truth of all material factual allegations in the complaint.   (Hoyem v. Manhattan Beach School District (1978) 22 Cal.3d 508, 517, 150 Cal.Rptr. 1, 585 P.2d 851.)   In this matter, there is no dispute between the parties as to the facts, but issues of statutory interpretation are raised, which are questions of law subject to our independent review.

DISCUSSION

I.

Plaintiff's present complaint sought enforcement of a lien against the La Crescenta property pursuant to Probate Code section 716, a statute which has existed in this state under one designation or another, for over one hundred years.   As enacted by Statutes 1931, chapter 281, page 632, section 711, it provided as follows:

“No holder of a claim against an estate shall maintain an action thereon, unless the claim is first filed with the clerk or presented to the executor or administrator, except in the following case:  An action may be brought by the holder of a mortgage or lien to enforce the same against the property of the estate subject thereto, where all recourse against any other property of the estate is expressly waived in the complaint;  but no counsel fees shall be recovered in such action unless the claim was filed or presented as aforesaid.”  (Emphasis added.)

In 1937, the California Supreme Court issued its opinion in Corporation of America v. Marks (1937) 10 Cal.2d 218, 73 P.2d 1215, where a judgment creditor had filed abstracts of judgment in a county in which the debtor owned real property, thereby creating judgment liens;  the debtor then died.   The creditor did not file a claim in the debtor's estate because the creditor had no knowledge of the debtor's death;  after the estate's assets had been distributed and the estate was closed, the creditor brought an action pursuant to Probate Code section 716, to foreclose its judgment liens within five years of their entry.   The defendants were devisees of the decedent debtor's real property.   The court held that the plaintiff creditor had the right as provided by section 716 to pursue this alternative remedy to obtain payment, even though it had not filed its claim during the administration of the decedent debtor's estate.   The court held also that the language of section 716, a remedial statute, was to be liberally interpreted, and that the word “lien” in the statute was subject to broad definition.   The Marks decision has never been overruled, although infrequently cited.   It is noted, in 7 Witkin, Summary of California Law (8th ed. 1973) Wills and Probate, section 418, pages 5869–5870, that in bringing the action to foreclose, the lien holder must expressly waive recourse against other property of the estate, i.e., “he cannot get judgment for deficiency, costs or counsel fees.   [Citations.]”

As amended by Statutes 1980, chapter 124, page 294, section 6, section 716 was substantially unchanged except that it further provided that “The action may be brought whether or not the claim was filed or presented ․ [in the estate of the decedent debtor].”   The statute also now included the provision that “As used in this section, ‘lien’ includes, but is not limited to, a judgment that is a lien”—which appears to reflect legislative recognition of Marks' holding that “lien” should be broadly interpreted.   This section was repealed in 1988, but the parties to this appeal concede that the 1980 version was applicable during the period in which the events occurred giving rise to this litigation.

Effective July 1, 1988, the new section 716 contains substantially the same language as the 1980 version:  subdivision (a) was deleted, and subdivisions (b) and (c) were retained and relettered.

II.

Defendant Prata argues that the bank's action pursuant to section 716 is barred by another Probate Code section, section 730, also applicable during the appropriate time period and which provided, in pertinent part, that “(a) Except as provided in subdivision (c), after the death of the decedent, the following judgments are not enforceable under the Code of Civil Procedure against the estate of any decedent but are payable in the due course of administration․  (3) A judgment rendered against the executor or administrator upon a claim for money against the estate of the decedent․”

Subdivisions (c) and (d) provide as follows:

“(c) If any property of the decedent is levied upon under a writ of execution before the decedent dies, the property levied upon may be sold or collected to satisfy the judgment.   The officer making the sale or collection shall account to the executor or administrator for any surplus.   If the judgment is not so satisfied, the balance of the judgment remaining unsatisfied is payable in the due course of administration.”

“(d) Notwithstanding the death of the decedent, a judgment for the possession of property or a judgment that requires a sale of property may be enforced under the Code of Civil Procedure.   Nothing in this subdivision authorizes enforcement under the Code of Civil Procedure against any property of the estate of the decedent other than the property described in the judgment for possession or sale.   After the death of the decedent, any demand for money against the estate that is not satisfied from the property described in the judgment for possession or sale shall be filed and presented in the same manner as other claims and is payable in the due course of administration.”  (Emphases added.)

This statute was added by Statutes 1980, chapter 124, section 8;  it too was repealed, operative July 1, 1988 by Statutes 1987, chapter 923, section 37.   However, pursuant to Probate Code section 9004, it has application to proceedings commenced before that date.   And provisions for enforcement of judgment and/or attachment liens against the assets of an estate are now contained in Probate Code section 9300 et seq.;  Probate Code section 9302 now has adopted the language of section 730, subdivision (d) by providing, in pertinent part, that “(a) Notwithstanding the death of the decedent, a judgment for possession of property or a judgment for sale of property may be enforced under the Enforcement of Judgments Law.   Nothing in this subdivision authorizes enforcement under the Enforcement of Judgments Law against any property in the estate of the decedent other than the property described in the judgment for possession or sale.”   The statute also provides for satisfaction of a deficiency from the other assets of the estate—during administration.

Defendant Prata quotes extensively from the arguments made by plaintiff bank in seeking reconsideration by the Court of Appeal and review by the California Supreme Court that since the judgment upon which the abstract of judgment was based was entered on September 21, 1983, after the death of the decedent, it was not, pursuant to Probate Code section 730, enforceable except through the probate proceedings.   There is language in Estate of Davis (1985) 171 Cal.App.3d 854, 857, 217 Cal.Rptr. 734, which supports this interpretation;  there it was explained that “Probate Code Section 730 provides that a money judgment rendered against the estate of the intestate is a claim to be paid in the due course of administration;  it does not create any lien on real property, cannot be enforced by execution and does not give the judgment creditor any priority of payment.   A judgment against the estate is only payable in the due course of administration out of the assets of the estate.”  (Citations omitted;  emphasis in original.)   The Law Revision Commission's chapter concerning the 1980 revision of Probate Code section 730 supports the view that a money judgment obtained against the administrator of the estate of a decedent can only be enforced in probate proceedings, and defendant Prata so argues here, contending that the proceedings by which the superior court made the Texas judgment a California judgment and the subsequent recordation of that judgment were “nullities.”

Defendant Prata contends that since the probate proceedings are final, the doctrine of res judicata prevented plaintiff bank from proceeding on the new complaint.

Defendant Prata asserts that even if plaintiff bank could file a complaint pursuant to section 716, the complaint itself was deficient because it did not expressly waive entitlement to payment from other assets of the estate.

Contending that plaintiff bank should not be allowed to pursue one line of legal reasoning (i.e., that Prob. Code, § 730 barred it from pursuing any alternative remedy outside the probate proceeding) and then contend, as it does on this appeal, that section 716 does indeed provide it with an alternative remedy, defendant Prata asks this court to impose sanctions in addition to what was imposed below on plaintiff bank and its counsel for bringing a “frivolous appeal.”

III.

Plaintiff bank relies here on the full discussion in the Marks case, which rejected an argument based on the predecessor statute to Probate Code section 730 that the alternative remedy was barred;  the Marks court declared that Probate Code section 716 provided such a remedy.   Plaintiff points out that Probate Code section 716 has co-existed with Probate Code section 730 since Marks, and when major revision of the Probate Code was undertaken and effective in 1988, Probate Code section 716 was retained by the Legislature.

In Marks, supra, of course, the judgment creditor had obtained judgment and recorded before the death of the debtor;  however, plaintiff argues that there is no language in section 716 which bars section 716 proceedings because the death of the debtor occurred before the judgments were obtained and recorded, and there is no case authority to that effect either.

In addition, plaintiff bank emphasizes that the Steinberg estate was administered primarily in Texas, and that the judgment of the Texas court became a California judgment and was recorded in this state before defendant Prata even commenced ancillary probate proceedings here.   It is contended that the California courts should give “full faith and credit” to judgments of sister states, pursuant to the United States Constitution, article IV, section 1.

Plaintiff bank contends that the doctrine of res judicata is manifestly inapplicable to bar its complaint where the “prior proceeding” did not address the merits of the case before it but dismissed the appeal.

Finally, plaintiff bank denies that this appeal is a “frivolous” appeal by any standard, and suggests that sanctions are inappropriate where previous counsel advanced a line of legal reasoning which merely proved to be wrong rather than indicative of bad faith or malice on the part of plaintiff bank.   It is contended that plaintiff bank has merely attempted to collect money due.

IV.

 We have concluded that Probate Code section 716 does provide an equitable alternative remedy to a mortgage or lien holder in this state, one not dependent on participation in probate proceedings.   As we have indicated, Marks has not been overruled, and the Legislature has seen fit to retain the statute as of 1988.   The proceeding contemplated in section 716 is based upon equity, and seems to us to encompass the right of a foreign judgment creditor who perfected a lien in this state prior to the ancillary probate proceeding to proceed against the property of the estate located in California.   The relief afforded by the statute is not dependent upon the time of death of the debtor.

 We hold that plaintiff bank's complaint was not barred by Probate Code section 730, but was simply based on another statute which provided an alternative remedy.   We note that section 730, subdivision (d) states that an exception to the section 730 provision concerning the exclusivity of the probate proceedings for enforcement of money judgments lies where the judgment creditor obtains “a judgment that requires the sale of the property.”   This would seem to us to include a proceeding to foreclose pursuant to section 716, which permits a cause of action which results in just such a judgment.   Viewed in this way, there is nothing inconsistent about the two statutes.   The trial court, therefore, incorrectly sustained the demurrer without leave to amend.   Upon remand, plaintiff bank should be allowed to amend its complaint to expressly waive recourse to other assets of the estate, if any remain.

 The trial court was also incorrect in sustaining the demurrer on the grounds that the complaint was barred by the doctrine of res judicata.   In 7 Witkin, California Procedure (3d ed. 1985) Judgment, section 188, page 621, it is explained that “The doctrine of res judicata gives certain conclusive effect to a former judgment in subsequent litigation involving the same controversy.   It seeks to curtail multiple litigation causing vexation and expense to the parties and wasted effort and expense in judicial administration.”  (Emphasis original.)  “A final judgment is res judicata only if it was rendered on the merits.   This requirement is derived from the fundamental policy of the doctrine, which gives stability to judgments after the parties have had a fair opportunity to litigate their claims and defenses.”  (7 Witkin, Cal.Procedure, supra, Judgment, § 217, p. 654;  emphasis added.)   Since the probate proceedings, and the appellate review sought thereafter by plaintiff bank, did not result in a determination on the merits of plaintiff bank's claim, the subsequent complaint to foreclose was not barred by the doctrine of res judicata.

We are asked to impose additional sanctions on plaintiff bank and its counsel for bringing a “frivolous” appeal.   As our discussion indicates, the appeal is far from “frivolous,” and thus we do not seriously consider that request.

We are aware that the action of the trial court in imposing sanctions on plaintiff bank and its former counsel is not before this court, but appellate counsel for defendant Prata continues to insist in very vehement terms that plaintiff bank has engaged in some sort of wrongdoing during this litigation, and that it is dishonest and professionally reprehensible for parties, through their lawyers, to pursue one line of argument in particular proceedings and then pursue another inconsistent position at a later time.

 To argue a position that turns out to be wrong is in itself neither a crime nor should it subject parties and lawyers to sanctions or to professional admonishment.   Obviously, if the element of factual misrepresentation is present, a different situation is involved.   Here, however, no one lied to the probate judge or to the trial court;  the arguments made to the Court of Appeal and to the Supreme Court simply turned out, upon scrutiny, to be incorrect.   Legitimate striving to protect oneself from a charge of malpractice does not necessary suggest bad faith either.

The issues presented by the circumstances of this case involved reconciling two provisions of the Probate Code that appeared to be inconsistent with each other.   Law is not a precise science;  circumstances sometimes produce complexity and confusion.   We are not persuaded that plaintiff bank has acted in this litigation with any motive other than an understandable desire to collect monies due.

DISPOSITION

The judgment of dismissal is reversed.   The matter is remanded to the trial court, where plaintiff bank, if it elects to proceed, is to be permitted to amend its complaint.   Plaintiff bank is to recover its costs in this court.

L. THAXTON HANSON, Associate Justice.

SPENCER, P.J., and DEVICH, J., concur.

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