NORTH COAST VILLAGE LTD v. ANDERSON (1984)

OPINION AND ORDER

Petitioner, North Coast Village, Ltd., seeks (1) a peremptory writ of mandate ordering the superior court to reverse its order denying petitioner's motion to vacate a general voluntary reference under Code of Civil Procedure section 638 and a peremptory writ of prohibition directing the court to permanently enjoin anyone from proceeding under the order of reference, and (2) a peremptory writ of mandate ordering the superior court to vacate its order of reference under Code of Civil Procedure section 639, subdivision (c),¹ and restore petitioner's Motion to Expunge Lis Pendens to the court's calendar.   The matters have been consolidated by order of this court.

History

The underlying action was filed in 1979 by Chester Anderson and members of his family individually and as shareholders of Condor Development, a California corporation, on behalf of themselves and all other shareholders of the corporation, and for the benefit of the corporation.   The complaint named as defendants Condor Development, Condor Investments, Inc., Condor Corporation, all California corporations, Robert Ferrante, Nissim Azouz, Amnon Dabach, and Does I through XXX.   The complaint requested an accounting, injunctive relief, imposition of a constructive trust, damages, and appointment of a receiver.   The Andersons contend that they formed a joint venture with Messrs. Ferrante, Azouz and Dabach to purchase apartment buildings, convert them into condominiums, and sell them.   The complaint alleges that Messrs. Ferrante, Azouz, and Dabach owned 75 percent of the stock of Condor Development and were three of the four directors of the corporation.   It further alleges that the three individual defendants formed Condor Investments, Inc. and Condor Corporation, in which they were the sole shareholders, for the purpose of siphoning off corporate opportunities and profits from Condor Development.   The Andersons contend that the initial project, the Balboa Biltmore, was very successful and that the three individual defendants used the profits and credit from that project to purchase and develop, through the other corporations formed for the purpose, the Sandcastle in Redondo Beach, Continental Village in Granada Hills, the Dickens project in Sherman Oaks, and a 50 percent interest in North Coast Village in Oceanside.   The 50 percent interest in North Coast Village was acquired through two corporations, Ferrante NCV and Robert Ferrante Enterprises, Inc., organized for the purpose and owned and controlled by Messrs. Ferrante, Azouz, and Dabach.   North Coast Village, Ltd. is a limited partnership.   The general partners are two corporations, Century Southwest Corporation, owned by others who are not parties to the suit, and Ferrante NCV.   The limited partner is Robert Ferrante Enterprises, Inc.   About 375 units in North Coast Village had been sold to the public, and approximately 175 units remained to be sold.   The market value of all of the units is alleged to exceed $25,000,000.

Petitioner was named and served as a Doe defendant in the underlying action.   A receiver was appointed for Condor Development in 1979, and in 1980 when a motion to extend the scope of the receivership was filed, petitioner appeared and opposed the motion which was denied.   In 1982, petitioner evidently stopped paying its attorneys, whose motion to be relieved as counsel was thereafter granted.   Petitioner was advised that as a limited partnership it could not participate in the action without counsel.

In April 1983 counsel for the Andersons and the named defendants stipulated to the appointment of Delbert Wong, Judge retired, as referee, to “make findings of fact and conclusions of law in accordance with Code of Civil Procedure section 643;  and judgment may be entered thereon in accordance with Code of Civil Procedure section 644.”   The court issued an order based on the stipulation appointing the referee, but no notice was given to petitioner and no authorization was sought or secured from petitioner to the appointment.   No attorney had appeared in the action for petitioner after the withdrawal of its attorneys, and petitioner had not participated in the matter since the withdrawal.

The matter was tried for approximately eight weeks before Judge Wong, who thereafter issued a Notice of Intended Decision on the liability issues which had been bifurcated.   The Notice indicated an intention to rule that the Andersons were entitled to a 25 percent interest in certain of the projects, but as to North Coast Village they would be entitled to limited relief consisting of return of Condor Development funds used in the project, and further hearings would be held to determine the extent of the relief to be granted.   Upon the Andersons' request for reconsideration, Judge Wong indicated he would reopen and reconsider the claims pertaining to North Coast Village.   The Andersons then recorded a lis pendens against the property owned by North Coast Village.   Petitioner immediately filed a motion to set aside the general reference under section 638, and a motion to expunge the lis pendens.   The motion to vacate the order of reference was denied, and the motion to expunge the lis pendens resulted in an order of reference under section 639, subdivision (c) to Judge Wong to hear and determine all questions of fact pertinent to the motion to expunge.

Petitioner's peremptory challenge under Code of Civil Procedure section 170.6 to disqualify Judge Wong was denied, leading to the instant petitions.   We consolidated the petitions and issued an alternative writ.

Issues

1. Is a general order of reference under section 638 valid if made without the agreement of all the parties to the action?

2. Was the order of reference under section 639, subdivision (c), in response to a motion to expunge lis pendens, valid?

3. Was the peremptory challenge under Code of Civil Procedure section 170.6 properly denied?

Discussion

I

The authority of a court to make a reference is defined and limited by sections 638 and 639.  Section 638 provides in pertinent part:

“A reference may be ordered upon the agreement of the parties filed with the clerk, or judge, or entered in the minutes or in the docket ․:

“1. To try any or all of the issues in an action or proceeding, whether of fact or law, and to report a finding and judgment thereon;

“2. To ascertain a fact necessary to enable the court to determine an action or proceeding.”

 The order of reference under section 638 in this matter was obtained pursuant to a stipulation of all of the parties except petitioner.   Although an order had been granted relieving petitioner's attorney of record, petitioner was still a party to the action.   No effort had been made to dismiss as to petitioner or to have its default entered.   The order was made without notice to petitioner and without its consent.   Petitioner did not participate in the reference proceedings.

In construing predecessor sections, determined in Bird v. Superior Court (1980) 112 Cal.App.3d 595, 169 Cal.Rptr. 530, to be substantially identical to section 638, the Supreme Court has held a general reference valid only if made with the consent of all of the parties.  (Holt v. Kelly (1978) 20 Cal.3d 560, 143 Cal.Rptr. 625, 574 P.2d 441;  Hastings v. Cunningham (1868) 35 Cal. 549;  Williams v. Benton (1864) 24 Cal. 424.)   The consent must be given affirmatively and not by implication.  (Smith v. Polack (1852) 2 Cal. 92.)

 The Andersons argue that since petitioner did not have counsel when the order of reference was made and since the general partners of the limited partnership cannot appear without counsel, petitioner was not entitled to notice of the proceedings which resulted in the appointment of Judge Wong under the general reference.   They reach that conclusion by reasoning that the partnership has put itself in a “․ position which is functionally equivalent to a default,” and a party in default is not entitled to notice.   They note that a corporation may not represent itself, Merco Construction Engineers, Inc. v. Municipal Court (1978) 21 Cal.3d 724, 147 Cal.Rptr. 631, 581 P.2d 636, and notice need not be given, other than of amendment of or to pleadings, to any party whose default has been duly entered or who has not appeared in the action.  (Code Civ.Proc., § 1010.)   However, petitioner appeared and was a party to this proceeding, and although the Andersons relegate petitioner to a position which is “․ functionally equivalent to a default,” Code of Civil Procedure section 587 requires notice before entry of default, and petitioner's default had not been entered.   The purpose of Code of Civil Procedure section 587 is to prevent the taking of default against an unwary litigant.   Inherent in the provisions is the requirement that notice be mailed to the party's last known address, and it is the duty of counsel to make a reasonably diligent search to ascertain the mailing address.  (Slusher v. Durrer (1977) 69 Cal.App.3d 747, 138 Cal.Rptr. 265.)   It is no less important that notice be given when the order sought may affect the interests of an adverse party.  (Scott v. City of Indian Wells (1972) 6 Cal.3d 541, 99 Cal.Rptr. 745, 492 P.2d 1137.)   Accordingly, petitioner was entitled to notice of the request for a general reference.

 A general reference under subdivision (1) of section 638 differs from a reference under subdivision (2) of that section.   The findings of the referee in a subdivision (1) reference must stand as the findings of the court and judgment will be entered thereon in the same manner as though the matter had been tried by the court.  (Estate of Johnston (1970) 12 Cal.App.3d 855, 91 Cal.Rptr. 116.)   However, a reference under subdivision (2) of section 638 is a special reference, and the referee's findings are advisory only and may be set aside or disregarded by the court.  (Ibid.)  A section 638, subdivision (1) general reference decision must be attacked in the same manner as one made by the court, and an order vacating the decision and directing a rehearing is properly appealable as an order granting a new trial.  (Ellsworth v. Ellsworth (1954) 42 Cal.2d 719, 269 P.2d 3.)   Prior to the court's adoption of the findings of fact and conclusions of law in the report of the referee under a section 638, subdivision (2) reference, the report may be set aside without the granting of a new trial.  (Ibid.)

 The Andersons contend that the only relief sought against North Coast Village is a judicial decree vindicating their right to a one-fourth share of the interest held by Ferrante, Azouz and Debach, and that such a decree would have no effect on the limited partnership, but would merely adjust the ownership interest so as to include the Andersons.   They therefore contend North Coast Village cannot be harmed by the determinations made under the general order of reference, and the determinations made thereunder should bind the parties who stipulated to the reference.   The Andersons seem to take a contrary position however when they indicate their intent to attempt to convince Judge Wong that they are entitled to a percentage interest in the real property owned by petitioner.   Moreover, their recording of a lis pendens against the property owned by North Coast Village indicates an intent to claim an interest in the property.   If all that the Andersons wish to accomplish is to adjust the ownership interests, the lis pendens is superfluous, and its removal and the dismissal of North Coast Village from the action would put the other parties in a position to proceed with the general order of reference to which they stipulated.   Individual limited partners do not have an interest in the partnership's real property, neither title nor right of possession, that can support the filing of a lis pendens.  (North Coast Business Park v. Superior Court (1984) 158 Cal.App.3d 858, 205 Cal.Rptr. 81.)   If on the other hand the Andersons claim an interest in the real property, petitioner is entitled to participate in the proceedings.

 We conclude that the referee's determinations under the section 638 general reference cannot bind petitioner, who did not consent to the reference, to whom notice was not given, and who did not participate in the proceedings.   Accordingly, petitioner is entitled to a writ of mandate ordering the trial court to vacate the order appointing Judge Wong under section 638, and a writ of prohibition directing that no one shall proceed under that order of reference.

II

The motion to expunge the lis pendens was referred to Judge Wong under section 639, subdivision (c) by nunc pro tunc order “․ to hear and determine all questions of fact pertinent to said motion to expunge, including but not limited to those listed below, and thereafter to report his findings to this court as provided by law ․”

“(a) Whether the plaintiffs' action concerns the real property described in the notice of lis pendens, or affects the title or right of possession of said real property, within the meaning of C.C.P. § 409;

“(b) Whether the facts or circumstances require that the motion to expunge be granted, denied, or granted or denied on condition that either party should post a bond;

“(c) Whether adequate relief can be secured to the interested parties by having the other party post an undertaking;

“(d) If adequate relief can be secured by requiring the posting of an undertaking, who should post it and what the amount of the undertaking should be;

“(e) Whether and to what extent other orders may be appropriate to secure the claims of plaintiffs without unduly burdening North Coast Village, Ltd.;

“(f) Any other fact questions which may arise in connection with the motion to expunge.

“3. All matters concerning the scheduling of hearings, the filing of documents, and other procedural aspects of the motion to expunge shall be determined by Judge Wong.”

Section 639 provides in pertinent part:

“When the parties do not consent, the court may, upon application of any party, or of its own motion, direct a reference in the following cases:  ¶ (c) When a question of fact, other than upon the pleadings, arises upon motion or otherwise, in any stage of the action.”

 Since all of the parties did not consent to the reference and it was made under section 639, subdivision (c) its scope is limited by the provisions of that section.  “The character of the issue which may be referred is particularly described, and, by necessary implication, all issues not answering to that description are excluded from the operation of the section.”  (Williams v. Benton, supra, 24 Cal. 424, 425.)   Only questions of fact, other than upon the pleadings, can be referred under section 639, subdivision (c).  (Bird v. Superior Court, supra, 112 Cal.App.3d 595, 169 Cal.Rptr. 530.)

 The findings of the referee under a section 639 reference are advisory and are a recommendation to the court on the specific issues referred, and become effective only on the court's subsequent approval.  (Holt v. Kelly (1978) 20 Cal.3d 560, 143 Cal.Rptr. 625, 574 P.2d 441.)   The reference under section 639, subdivision (c) in the case at bench was made “․ to hear and determine all questions of fact pertinent to said motion to expunge․”   That language appears to make the referee's disposition determinative rather than advisory as required by the authorities and therefore overly broad.  (Bird v. Superior Court, supra, 112 Cal.App.3d 595, 169 Cal.Rptr. 530.)

 Code of Civil Procedure section 409 provides for the recording of a notice of the pendency of an action “․ concerning real property or affecting the title or the right of possession of real property ․”   The words “concerning real property” have been construed to have the same meaning as “ ‘affecting title or right of possession of real property.’ ”  (Kendall-Brief Company v. Superior Court (1976) 60 Cal.App.3d 462, 466, 131 Cal.Rptr. 515.)  “When the action as expressed by the complaint does not affect the title or right of possession of the land described in the notice, the trial court has the power and duty to expunge the record of the notice, since the notice is supplemental and subject to proceedings in the main action.  [Citations.]”  (Brownlee v. Vang (1962) 206 Cal.App.2d 814, 816, 24 Cal.Rptr. 158.)   The determination whether the action as expressed in the complaint affects title or right of possession of the property described in the notice is a question of law which must be determined by the court.

 As stated in Sheets v. Superior Court (1978) 86 Cal.App.3d 68, 149 Cal.Rptr. 912, a notice of lis pendens is absolutely privileged and cannot be the basis of an action for slander of title.   The procedure is easily invoked with little or no hazard to the party who invoked it and has been subject to criticism.   The burden of proof is on the party opposing expungement.  (Malcolm v. Superior Court (1981) 29 Cal.3d 518, 174 Cal.Rptr. 694, 629 P.2d 495.)   When the complaint fails to set forth a cause of action expressly affecting the specific real property the motion to expunge must be granted.  (Coppinger v. Superior Court (1982) 134 Cal.App.3d 883, 185 Cal.Rptr. 24;  Parker v. Superior Court (1970) 9 Cal.App.3d 397, 88 Cal.Rptr. 352.)

The Andersons contend Brownlee v. Vang, supra, 206 Cal.App.2d 814, 24 Cal.Rptr. 158, does not control the instant situation because the parties who participated in the proceeding before Judge Wong expanded the issues and although there is no mention in the pleadings of the real property on which the lis pendens is recorded, it is affected by the expanded issues.   Even if that argument is valid between the parties who participated in the reference proceedings, it certainly fails as to petitioner who not only did not participate, but had no notice and did not consent to the reference.

 Although there may be occasions when a valid reference under section 639, subdivision (c) could be made on a motion to expunge a lis pendends in a matter where the action as expressed in the complaint affects title or right of possession of real property, where as here the complaint does not refer to the real property on which the lis pendens has been recorded the motion to expunge must be determined by the court as a matter of law.

Accordingly, a writ of mandate shall issue directing the superior court to vacate its order of reference under section 639, subdivision (c) and to restore petitioner's motion to expunge lis pendens to its calendar.

III

 Code of Civil Procedure section 170.6 gives any party the right to peremptorily disqualify any judge, court commissioner or referee by timely filing an affidavit or declaration or making a motion to disqualify.   Petitioner filed its affidavit shortly after the section 639, subdivision (c) reference to Judge Wong was made.   Although Judge Wong had heard several weeks of testimony under the general section 638 reference, petitioner was not a party to and had no notice of that proceeding.   The situation at bench is analogous to an assignment to a judge for all purposes where the attempt to disqualify is required as promptly and expeditiously as possible after notice of the assignment.   Notice was never given to petitioner of the section 638 reference, and petitioner acted within the time prescribed after the reference under section 639, subdivision (c).   We therefore conclude the declaration under Code of Civil Procedure section 170.6 was timely filed.

 Only one motion to disqualify may be made for each side in any action or special proceeding.  (Code Civ.Proc., § 170.6, subd. (3);  Pappa v. Superior Court (1960) 54 Cal.2d 350, 5 Cal.Rptr. 703, 353 P.2d 311.)   The Andersons urge the exercise by Condor Development, a defendant, of a challenge earlier in the action precluded petitioner, another defendant and therefore on the “same side,” from now exercising its challenge.   The Andersons' contention lacks merit.   They brought this action individually and as shareholders of Condor Development on behalf of themselves and all other shareholders of Condor Development, and for the benefit of the corporation.   As pointed out in Thomson v. Mortgage Investment Co. (1929) 99 Cal.App. 205, 278 P. 468, shareholders who bring an action on behalf of the corporation are only nominal parties, and the corporation is the real party in interest.   Condor Development was named as a defendant in order to make it a party to the action, and its interests are the interests of the plaintiffs in the action, not the defendants.   Petitioner, a defendant, is not on the same side of the lawsuit as Condor Development for the purpose of Code of Civil Procedure section 170.6, and is not precluded by the prior challenge made by Condor Development from filing its declaration to disqualify.

Disposition

The alternative writ is discharged.   Let a peremptory writ of mandate issue directing the trial court to vacate the order of general reference under section 638, and a peremptory writ of prohibition issue directing that no one shall proceed under that order of reference.   Let a peremptory writ of mandate also issue directing the trial court to vacate its order of reference under section 639, subdivision (c), and to restore to its calendar petitioner's motion to expunge the lis pendens.   The trial court shall accept the declaration under Code of Civil Procedure section 170.6.

FOOTNOTES

FOOTNOTE.  

1.   Unless otherwise indicated, all references are to Code of Civil Procedure, section 638, or section 639, subdivision (c).

RYBURN, Associate Justice *. FN* Assigned by the Chairperson of the Judicial Council.

THOMPSON, Acting P.J., and JOHNSON, J., concur.