LONG BEACH EQUITIES INC v. Paul D. Menzies et al., Intervenors and Appellants. (1992)

Here we hold that the scope of damages under Code of Civil Procedure section 409.1 includes the amounts proximately and reasonably related to the expungement of a lis pendens and which begin to accrue upon the filing of the lis pendens.¹  We affirm the judgment in favor of respondent Long Beach Equities, Inc. (LBE).

FACTS

Eric Bruckner breached an option contract to purchase undeveloped land from LBE.   After Bruckner refused to cure his breach, LBE terminated the contract and entered into negotiations to sell the land to “Cal Prop.”   Bruckner sued LBE for specific performance and filed a lis pendens on the property.

Cal Prop was prepared to execute a sales agreement and joint venture with LBE until LBE informed Cal Prop about the lis pendens on the property.   Cal Prop refused to complete the sale because of the lis pendens.   LBE entered into other negotiations with Pardee Construction Company which did not result in any agreement.

The trial court denied LBE's motion to expunge the lis pendens on condition that a bond for $500,000 be posted pursuant to section 409.1.   In exchange for $25,000 and other profit sharing arrangements regarding the sale of the property, Paul D. Menzies and Marvin T. Levin advanced Bruckner funds to obtain the bond posted by American Manufacturers Mutual Insurance Company (Ammico).

LBE obtained a directed verdict against Bruckner in the underlying suit for specific performance, and the trial court ordered the lis pendens expunged.   The trial court held that Bruckner's action “was not commenced or maintained for a proper purpose and in good faith․”  We affirmed that ruling in a previous case.

LBE filed notice under section 996.440 that it would move to enforce liability on the bond.   The trial court permitted Menzies and Levin to intervene in this matter.

The trial court determined that “the filing of the lis pendens caused damage to Long Beach Equities, Inc. which is compensable under the bond issued by American.”   The court specifically rejected the argument that damages are limited to those accruing only after the date of the posting of the bond.   The trial court stated that the legislative intent of section 409.1 “was to rectify and attempt to forestall the indiscriminate filing of lis pendens in actions where they were unwarranted․”

Cal Prop abandoned the deal with LBE only because of the filing of the lis pendens.   The court found that if the deal had been completed, LBE would have “ ‘cashed out’ ” of the property and would not have incurred further operating expenses over the ensuing two years.

LBE was not in the business of investing long term;  the filing of the lis pendens caused it to hold the property against its desires.   Shortly before the court expunged the lis pendens, a slow-growth ordinance “seriously impacted upon the value and marketability of the property.”   The trial court found that the value of the property declined from $6.7 million at the inception of Bruckner's suit in November 1985 to $6 million in July 1986 because of the ordinance.

The court held Ammico liable on the bond for damages which occurred “prior to its posting of the bond and after the lis pendens was expunged” pursuant to section 409.1.   The trial court held that the proper measure of damages is “all of the costs sustained or incurred by Long Beach from the date of the filing of the lis pendens onward.”

LBE either paid or has been obligated to pay the sum of $3,423,740.   This amount consists of the diminution in fair market value, carrying costs, legal and engineering fees, real estate taxes and other expenses paid or directly incurred by LBE from the date of the filing of the lis pendens until the court expunged it.

Pursuant to section 996.460, the trial court entered judgment in favor of LBE and against Bruckner for $3,423,740 and costs under section 1033 et seq. and against Ammico for the bond limit of $500,000.²

Ammico, Menzies and Levin appeal from the judgment against Bruckner and Ammico.³

DISCUSSION

Appellants contend that liability and damages should be limited to events occurring only after posting the bond.   Their reliance on Elder v. Carlisle Ins. Co. (1987) 193 Cal.App.3d 1313, 238 Cal.Rptr. 897, Stewart Development Co. v. Superior Court (1980) 108 Cal.App.3d 266, 166 Cal.Rptr. 450, and a recent amendment to section 409.1 is misplaced.

After the Elder court considered the history of section 409.1, as set forth in Malcolm v. Superior Court (1981) 29 Cal.3d 518, 524–525, 174 Cal.Rptr. 694, 629 P.2d 495, it stated that the “only interpretation of section 409.1 which gives meaning to all of the language contained in the statute and avoids unfair results is that an undertaking given as a condition of expungement or nonexpungement of a lis pendens serves to protect only against damages that actually result from the expungement or nonexpungement.”  (Elder v. Carlisle Ins. Co., supra, 193 Cal.App.3d at p. 1319, 238 Cal.Rptr. 897, fn. omitted.)

In Elder, the plaintiff prevailed at trial solely on unjust enrichment, a cause of action which does not support a lis pendens.   The Court of Appeal held that because “a cause of action for unjust enrichment does not support the recordation of a lis pendens, [fn. omitted] the trial court erred in permitting plaintiffs to satisfy the judgment out of the undertaking.”  (Elder v. Carlisle Ins. Co., supra, 193 Cal.App.3d at p. 1320, 238 Cal.Rptr. 897.)

In Stewart, the appellate court considered the availability of specific performance and the adequacy of money damages under section 409.1 for breach of a contract to sell undeveloped commercial property.   The Stewart court stated that the Legislature enacted section 409.2, together with section 409.1, “as part of a statutory scheme to control misuse of the lis pendens procedure․”  (Stewart Development Co. v. Superior Court, supra, 108 Cal.App.3d at p. 273, 166 Cal.Rptr. 450.)

The parcel in Stewart was not fungible and therefore the remedy of specific performance was available for breach of section 409.2.  (Stewart Development Co. v. Superior Court, supra, 108 Cal.App.3d at pp. 273–274, 166 Cal.Rptr. 450;  see also Elder v. Carlisle Ins. Co., supra, 193 Cal.App.3d at p. 1319, fn. 7, 238 Cal.Rptr. 897.)   The court also ruled that money damages should not be limited to those under Civil Code section 3306 for the breach of the sale of real property.  (Stewart, supra, 108 Cal.App.3d at pp. 273–274, 276, 166 Cal.Rptr. 450.)

In dicta, the Stewart court discussed potential remedies and the proper measure of damages under the statutory scheme.  (See Stewart Development Co. v. Superior Court, supra, 108 Cal.App.3d at pp. 276–277, 166 Cal.Rptr. 450.)   The court explained that “damages recoverable ․ are not limited by Civil Code section 3306” because “the statutory language refers to the damages resulting from the expungement of the lis pendens, not the damages flowing from the breach of contract.”  (Id., at p. 276, 166 Cal.Rptr. 450.)   Section 409.2 “would be rendered virtually useless” if damages were limited to the contract remedy.  (Ibid.)

 Damages should not be so broad, however, as to encompass items “entirely too speculative,” such as expected profits where they are uncertain.  (Stewart Development Co. v. Superior Court, supra, 108 Cal.App.3d at pp. 276–277, 166 Cal.Rptr. 450.)

 Accordingly, the Stewart court set forth the general rule that the measure of damages should be “all damages proximately resulting from the expungement of the lis pendens.”  (Stewart Development Co. v. Superior Court, supra, 108 Cal.App.3d at p. 276, 166 Cal.Rptr. 450, emphasis added.)   The court cautioned that “damages will depend upon the facts of the particular case․”  (Id., at p. 277, 166 Cal.Rptr. 450;  see also CMSH Co. v. Antelope Development, Inc. (1990) 223 Cal.App.3d 174, 181, 272 Cal.Rptr. 605.)

In CMSH, the court was also concerned with the scope of the “ ‘all damages' ” language in section 409.1.   It held that inflation should not be considered in fixing such damages.  (CMSH Co. v. Antelope Development, Inc., supra, 223 Cal.App.3d at pp. 176, 180, 272 Cal.Rptr. 605.)

 The appellate courts in Elder, Stewart and CMSH were concerned with the scope of damages under section 409.1.   These courts never considered the “issue” of the date from which such damages should start to accrue.   Rather, these courts held that one may recover the sum of all amounts proximately and reasonably related to the expungement of the lis pendens.

This measure is not so broad as to encompass matters wholly unrelated to the lis pendens, such as unjust enrichment in Elder, speculative unsubstantiated profits in Stewart, or inflation in CMSH, nor is it so narrow as to be limited to contract damages under Civil Code section 3306.  (See CMSH Co. v. Antelope Development, Inc., supra, 223 Cal.App.3d at pp. 180–181, 272 Cal.Rptr. 605.)   The Legislature codified the holdings of these courts in section 3 of Statutes 1991, chapter 112, as a part of legislation amending section 409.1.

Paraphrasing the language from these cases, the pertinent part of section 409.1 now reads, “the undertaking to be to the effect that the prevailing party will indemnify the other party for all damages that proximately result from the expungement or nonexpungement, which he or she may incur․”  (Emphasis added.)

 Holding Ammico and Bruckner liable for damages resulting from Bruckner's improper filing of the lis pendens does not violate the absolute privilege accorded the filing of lis pendens.   Although the recording of a notice of lis pendens is a publication in the course of a judicial proceeding, it does not preclude actions and remedies related thereto.  (See generally Woodcourt II Limited v. McDonald Co. (1981) 119 Cal.App.3d 245, 251, 173 Cal.Rptr. 836;  Askari v. R & R Land Co. (1986) 179 Cal.App.3d 1101, 1109–1110, 225 Cal.Rptr. 285.)

 As we stated in Askari, “[i]f the filing of a notice of lis pendens defeats an award of damages during the period the lis pendens is in effect, a breaching buyer could avoid all consequential damages by filing a notice of lis pendens.   We do not think the seller's consequential damages should be avoided by the buyer so easily.”  (Askari v. R & R Land Co., supra, 179 Cal.App.3d at pp. 1109–1110, 225 Cal.Rptr. 285.)   Unlike many injunctions or other temporary restraining orders, a lis pendens renders real property unmarketable and should trigger the accrual of potential damages to prevent its misuse.  (See Malcolm v. Superior Court, supra, 29 Cal.3d at p. 523, fn. 2, 174 Cal.Rptr. 694, 629 P.2d 495.)

 LBE's ability to timely sell the subject property to a ready, willing and able buyer, Cal Prop, was directly thwarted by Bruckner's filing of a lis pendens without proper purpose and not in good faith.   LBE is entitled to recover all damages proximately caused by his improper filing of the lis pendens.

 The rules of evidence of the value of real property in condemnation cases has been extended “to any action in which the value of real property is to be ascertained.”  (Evid.Code, § 810, subd. (a);  see also 15 Cal.Law Revision Com.Rep. (Mar. 1979) p. 329;  Review of Selected 1980 California Legislation (1980) 12 Pacific L.J. 531, 532.)   In condemnation actions, “[t]he principle sought to be achieved ․ is to reimburse the owner for the property interest taken and to place the owner in as good a position pecuniarily as if the property had not been taken.  [Citations.]  In many instances this principle can be served by ascertaining the fair market value of the property․”  (People ex rel. Dept. of Transportation v. Southern Pac. Transportation Co. (1978) 84 Cal.App.3d 315, 324, 148 Cal.Rptr. 535.)

 In Stewart, supra, the measure of damages was the difference between an agreed contract price for the property and its market value at the time of trial, expected profits excluded.  (Stewart Development Co. v. Superior Court, supra, 108 Cal.App.3d at p. 276, 166 Cal.Rptr. 450.)   In CMSH, the appellate court concluded that because there had been no meeting of the minds sufficient to form a contract, the trial court properly determined damages by comparing the fair market value of the property at the time of the filing of the lis pendens with the fair market value at the time of its termination, with offsets for appreciation minus interest and tax damages.  (CMSH Co. v. Antelope Development, Inc., supra, 223 Cal.App.3d at p. 181, 272 Cal.Rptr. 605.)   Where the measure of damages turns on the value of property, the normal standard is market value.  (Id., at p. 182, 272 Cal.Rptr. 605;  also see Evid.Code, § 815 regarding relevant factors used to determine the value of property.)

Here, Cal Prop and LBE had agreed in principle to form a joint venture which called for Cal Prop to purchase the property for $5,870,000 and for LBE to keep 25 percent of all future profits for managing the development for Cal Prop.   Because of the difficulties and speculative nature of ascertaining the value of future profits, we agree with the trial court that the diminution in fair market value of $700,000 between the filing of the lis pendens and the date of expungement is the proper measure of damages.

Because LBE attempted to resell the property without success after Bruckner filed the lis pendens, LBE is also entitled to consequential damages consisting of the carrying costs, legal and engineering fees, real estate taxes and other expenses paid or directly incurred by LBE as determined by the trial court.  (See Askari v. R & R Land Co., supra, 179 Cal.App.3d at pp. 1107–1111, 225 Cal.Rptr. 285—consequential damages permissible where seller has diligently sought to resell property after breach;  see also Peery v. Superior Court (1981) 29 Cal.3d 837, 845–846, 176 Cal.Rptr. 533, 633 P.2d 198;  Schneider v. Zoeller (1959) 175 Cal.App.2d 354, 361, 346 P.2d 515;  Hein v. Highlands Ins. Co. (1976) 64 Cal.App.3d 627, 631–633, 134 Cal.Rptr. 592.)

The sum of these damages is $3,423,740 and costs.   Ammico is liable on the bond of $500,000.   Payment by Ammico shall reduce the amount payable by Bruckner.

The judgment is affirmed.   Costs to LBE.

FOOTNOTES

1.   All further statutory references are to the Code of Civil Procedure unless otherwise specified.

2.   Section 996.460 states, in pertinent part:“(a) Notwithstanding Section 2845 of the Civil Code, a judgment of liability on a bond shall be in favor of the beneficiary and against the principal and sureties and shall obligate each of them jointly and severally.“(b) The judgment shall be in an amount determined by the court.“․“(d) The judgment may be enforced by the beneficiary directly against the sureties.   Nothing in this section affects any right of subrogation of a surety against the principal or any right of a surety to compel the principal to satisfy the judgment.”The court ordered that any judgment paid by Ammico shall be credited to and reduce the amount of the outstanding judgment against Bruckner.

3.   Eric Bruckner did not appear in this appeal.

STEVEN J. STONE, Presiding Justice.

GILBERT and YEGAN, JJ., concur.