CALIFORNIA COASTAL COMMISSION v. QUANTA INVESTMENT CORPORATION III (1980)

Pursuant to the petition of the California Coastal Commission, and at the direction of the Supreme Court, we issued an alternative writ of mandate which, if made peremptory, would require respondent superior court to vacate an order which granted the motion of real parties in interest to expunge a notice of pendency of action (lis pendens). Having considered the matter on its merits, we now determine that the notice previously filed by the Commission does not affect title to or the right of possession of the real property involved, and that the trial court correctly granted the motion to expunge the notice.

Procedural History

The underlying litigation was commenced by the Commission when it filed a complaint against Quanta Investment Corporation on April 6, 1979. That complaint alleged that Quanta owned described real property (apartments) located in the coastal zone established by the California Coastal Act of 1976 (Pub. Resources Code, s 30000, et seq.) (hereafter referred to as the “Act”). It was further alleged that defendant had applied to the Department of Real Estate to convert the apartments to a stock cooperative and that unless restrained by the court, defendant would do so without seeking or obtaining a coastal development permit from the Commission. The Commission asserted in its complaint that converting an apartment building into a stock cooperative constituted a “development” within the meaning of section 30106 of the Act. The Commission claimed that without an injunction it would be irreparably harmed in its attempt to administer the Act. Pending hearing on a preliminary injunction, a temporary restraining order issued preventing defendant “from receiving, using or acting upon the final public subdivision report applied for” to the Department of Real Estate.

Two intervenors (now real parties in interest) similarly situated came into the case.^[FN1] After hearing, the superior court denied a preliminary injunction. An appeal from that order was immediately taken by the Commission. That appeal is still pending, the record on appeal not yet having been filed. Along with the appeal, the Commission petitioned this court for a writ of supersedeas staying the order denying the preliminary injunction and for a stay as to completing any stock cooperative conversion, pending resolution of that appeal. We denied the petition and request for a stay. The Commission then petitioned the Supreme Court for a hearing, alleging that unless a writ of supersedeas or other appropriate stay was granted, the appeal would “for all practical purposes, be rendered moot even though (the Commission) has a substantial likelihood of prevailing.” The Supreme Court, after first extending the time for granting or denying a hearing, ultimately denied it on September 6, 1979.

On September 26, 1979, after learning that issuance of a public report by the Department of Real Estate was imminent with respect to one of the intervenors, the Commission purporting to act under Code of Civil Procedure section 409, filed a notice of pending action with respect to that intervenor's real property. After other intervenors were allowed into the action, a second such notice was filed with respect to one of them. In each instance, the Commission asserts, “the Notices were filed and recorded to both provide constructive notice of the pending action to would-be purchasers of converted units in order to bind them in an ultimate judgment in this case favorable to the Coastal Commission, and to preserve the Commission's jurisdiction to regulate the conversions, again in the event the Commission prevails in this case.”

Real parties moved the trial court to expunge the notices, pursuant to Code of Civil Procedure section 409.1. After opposition, and hearing, the trial court granted the motion. Pursuant to Code of Civil Procedure, section 409.4, the Commission commenced the instant proceeding with its petition for a writ of mandate and a temporary stay. We denied the petition. Thereafter the Supreme Court granted hearing and, as noted above, directed us to issue an alternative writ of mandate.

Discussion

We must determine whether the action below affects the right of possession of the property described in the two lis pendens notices. A notice of the pendency of an action may be filed in an action “concerning real property or affecting the title or the right of possession of real property.” (Code Civ.Proc., s 409.) Its purpose is to furnish a means of notifying all persons that such an action is pending so that anyone acquiring an interest in the property thereafter will be bound by any judgment which may be secured in the action affecting the property. (Kendall-Brief Co. v. Superior Court (1976) 60 Cal.App.3d 462, 468, 131 Cal.Rptr. 515; Brandolino v. Lindsay (1969) 269 Cal.App.2d 319, 325, 75 Cal.Rptr. 56.)

When such a notice has been recorded, the court shall expunge it on motion of a party to the action, “unless the party filing the notice shows to the satisfaction of the court, by a preponderance of the evidence, that: (a) The action does affect title to or right of possession of the real property described in the notice; and (b) Insofar as the action affects title to or right of possession of the real property described in the notice, the party recording the notice has commenced or prosecuted the action for a proper purpose and in good faith.” (Code Civ.Proc., s 409.1.)

The phrase “concerning real property” which appears in Code of Civil Procedure section 409 is construed as having the same meaning as the words “affecting the title or the right of possession of real property.” (Kendall-Brief Co. v. Superior Court, supra, 60 Cal.App.3d at pp. 466-467, 131 Cal.Rptr. at p. 518.)

In granting the motion to expunge in this case, the respondent court expressly found that the Commission had not sustained its burden to show that the action affected title to or possession of the real property described in the notices. The trial court did not rule expressly on the second matter required to be proven by the Commission that it commenced or prosecuted the action for a proper purpose and in good faith.^[FN2]

In this proceeding, the Commission does not assert that the action filed by it affects title to the real property described in the notices. It confines its claim to an argument that the action does affect the right of possession of that real property. The argument starts with a proposition that real parties in interest do not contest. That is that the interest of a purchaser of a stock cooperative unit is real property within the meaning of Code of Civil Procedure section 409. It points out that in a stock cooperative form of ownership residents own shares in a corporation which owns the apartment project and that the shareholder-owners receive (usually by lease) a right of exclusive occupancy of a portion of the property which right of occupancy is transferable only concurrently with the transfer of the shares of stock held by the person having the right of occupancy. (Bus. & Prof.Code, s 11003.2; see also Rev. & Tax.Code, s 17265, subd. (b).) The Commission then states that the action below involves its attempt to prevent conversions of real property to this form of ownership without a permit from it or one of the regional coastal commissions and that the action is therefore “one which clearly affects the right of possession of that real property.”

To make this point, which is not at all as clear as the Commission asserts and which we reject, the Commission then argues that “the right of possession of a cooperative unit encompasses far more than the right of a unit purchaser to occupy an apartment unit as a mere tenant. It should be sufficient to state that it includes the right to occupy a unit as a shareholder-owner with all its attendant rights and homeowner-type benefits (e. g., property and income tax benefits, appreciation, etc.). (^[FN3] ) Thus, even though a cooperative unit owner may not by physically dispossessed of his or her unit, in the event the conversions are ultimately undone, the rights of possession of that real property will most seriously be affected.”

We are unaware of any decision which extends the definition of “right of possession of the real property” to this extreme. The “homeowner-type benefits” referred to by the Commission (see footnote 3, supra ) truly are collateral to the right to actually occupy or use the physical property itself. Indeed some of them, interest payments on loans, for example, would seem to be deductible whether or not the shareowner himself or herself actually occupied an apartment in the buildings in question. Further, success by the Commission in the underlying action, if that should occur, would not dispossess tenants of the right to occupy the apartments under their respective leases. It is that right the right to occupy or use the physical property, and not some collateral right which is covered by a notice of pendency of action. Thus, in Wilkins v. Oken (1958) 157 Cal.App.2d 603, 606, 321 P.2d 876, we noted that although money awarded for land appropriated to public use under eminent domain “is considered as land with respect to all rights and interests therein” the filing of a notice of lis pendens would not protect parties seeking to rescind the sale of a larger parcel of which the condemned land was a part. While the notice would be adequate protection with respect to the land not condemned, the rescission defendants could still secure the money which stood in the place of the land.

Further support to our conclusion that the action below does not affect the right of possession of real property within the meaning of Code of Civil Procedure sections 409 and 409.1 is found in a consideration of the fact that the action, in essence, seeks merely an adjudication that the Commission may properly assert jurisdiction over stock cooperative conversions which occur within the coastal zone. A judgment favorable to the Commission on this issue would merely validate any further proceedings it might undertake to determine whether or not it should allow a given stock cooperative conversion to proceed. If such proceedings resulted in a conclusion that a particular conversion should not receive a permit then the Commission might assert whatever remedies the law gives to it (and we do not determine what they are) if the conversion nevertheless had proceeded. That this does not elevate the present action below to one affecting the right to possession of real property is seen by contrasting cases which hold that an action to foreclose a lien on real property is included within the ambit of Code of Civil Procedure section 409 (e. g., Page v. W. W. Chase Co. (1904) 145 Cal. 578, 582, 79 P. 278) with Recl. Dist. No. 785 v. Lovdal Bros. Co. (1919) 42 Cal.App. 271, 279, 183 P. 598). In the Reclamation District case, the court stated that an action to determine the validity of an assessment (which, if valid, would become a lien on real property) did not involve the title or the right of possession of real property.

The only case cited to us by the Commission in support of its argument that the action affects the right of possession of real property is Kendall-Brief Co. v. Superior Court, supra, 60 Cal.App.3d 462, 131 Cal.Rptr. 515. That action involved a claim by Kendall-Brief, which owned a tract of land adjacent to a tract with private roads on it that Kendall-Brief had an easement for ingress and egress over one of the private roads. The owners filed an action to enjoin trespass, for quiet title and for other relief, and recorded a notice of pendency of the action. The appellate court refused to expunge the notice, holding that the right of possession of real property referred to in Code of Civil Procedure section 409.1 “encompasses more than mere ownership of a lot in a land-locked subdivision; it includes the right to have access to and to occupy such property.” (60 Cal.App.3d at p. 468, 131 Cal.Rptr. at p. 519.) There clearly is a great difference between that case and this one. In Kendall-Brief “the right of possession of the real property definitely would be affected inasmuch as access to such property would seriously be impaired,” (ibid.) if no easement existed. No interference with the use of the property is involved here.

It is also argued to us that the procedural history of the action below, including the Commission's initial attempt to secure a preliminary injunction, its unsuccessful efforts to secure supersedeas or a stay of the previous order denying an injunction, and statements made by the Commission to this court and the Supreme Court in connection with such efforts, show that the action was commenced or prosecuted for an improper purpose and not in good faith. While procedural developments during the pendency of an action may be looked at to see if it is being prosecuted in good faith under Code of Civil Procedure section 409.1 (California-Hawaii Development, Inc. v. Superior Court, supra, —-Cal.App.3d —-, —-, 162 Cal.Rptr. 365), we do not find it necessary to see if the order appealed from is additionally supported on this basis.

The alternative writ of mandate is discharged and a peremptory writ is denied.

FOOTNOTES

FOOTNOTE.  

1.  Quanta was later dismissed as a defendant when the location of its proposed conversion was moved from the coastal zone and, hence, from the Commission's jurisdiction.

2.  The court did determine that a newly enacted Senate Bill (No. 823, Stats.1979, ch. 1192) which, among other things, expressly made stock cooperatives subject to the Subdivision Map Act, did not affect the stock cooperative conversions at issue here. In connection with an argument that the Commission has no jurisdiction over such conversions, the real parties argue that the action was commenced or prosecuted in bad faith and for improper purposes and support the argument, inter alia, by reference to the legislative history of this bill. The effort is to establish that the Subdivision Map Act did not cover these conversions, the bill did not blanket them in, and hence under its Act, the Commission had no jurisdiction over conversions. (Section 30106 of the Act, upon which the Commission relies for its jurisdictional claim, expressly refers to the Subdivision Map Act, and activities covered by it.) That issue is one to be determined in the pending appeal from the order denying the preliminary injunction. We do not reach it in the instant appeal. (California-Hawaii Development, Inc. v. Superior Court (1980) —-Cal.App.3d —-, 162 Cal.Rptr. 365.)

3.  Purchasers of shares in a stock cooperative may borrow on the purchase price from banks and savings and loan associations (Fin.Code, ss 1236 and 7153.4, respectively) and acquire equity as monthly payments are made and as the property appreciates in value. Also, homeowners exemptions are available to stock cooperative shareowners (Rev. & Tax.Code, s 218) and taxes and interest payments are deductible (id. at ss 17264, 17265). An interest in a stock cooperative may be homesteaded. (Civ.Code, s 1237.)

COLE, Associate Justice.[FN*] FN* Assigned by the Chairperson of the Judicial Council.

LILLIE, Acting P. J., and HANSON, J., concur.