Opinion
B325085
07-30-2024
ROSA COJULUN, Plaintiff and Respondent, v. JAVIER PEREZ, Defendant and Appellant; LIRIA MELENDEZ, Defendant, Cross-complainant, and Respondent.
Markus, Watanabe & Enowitz, David M. Marcus and Daniel J. Enowitz for Defendant and Appellant. Law Offices of Alfred O. Anyia and Alfred O. Anyia for Plaintiff and Respondent Rosa Cojulun. Ivycrest Attorneys and Christian I. Oronsaye for Defendant, Cross-complainant, and Respondent Liria Melendez.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County Super. Ct. No. BC656279, Michelle Williams Court, Judge. Reversed in part and remanded in part with instructions.
Markus, Watanabe & Enowitz, David M. Marcus and Daniel J. Enowitz for Defendant and Appellant.
Law Offices of Alfred O. Anyia and Alfred O. Anyia for Plaintiff and Respondent Rosa Cojulun.
Ivycrest Attorneys and Christian I. Oronsaye for Defendant, Cross-complainant, and Respondent Liria Melendez.
WEINGART, J.
This case concerns a real estate development deal gone wrong. Plaintiff and respondent Rosa Cojulun and her daughter, defendant, cross-complainant, and respondent Liria Melendez (collectively respondents), owned a single-family home on a large lot in Sylmar zoned for horse ranching. In 2005, respondents entered into a joint venture with defendant and appellant Javier Perez, a grading and demolition contractor, and defendant Victor Valle, an unlicensed real estate agent, to have the property rezoned and subdivided and then to build and sell single-family homes on the lots.
Liria held legal title to the property, but she and Rosa contend that she held it in trust for Rosa. We refer to respondents by their first names in order to distinguish between Liria and her sister Luisa, and to follow the practice of the parties themselves in their briefs. We intend no disrespect.
The venture stalled out during the financial crisis of the late 2000s, and the parties never broke ground on the development. Years later, Perez sought to foreclose on the property based on a lien he held against it as compensation for his purported expenses on the preparatory stages of the project. In 2017, Perez purchased the property from a trustee's sale with a credit bid based on the amount he claimed he was owed under the lien. Respondents filed suit for wrongful foreclosure and breach of contract, among other causes of action, alleging that
Perez did not spend the money he claimed to have spent, and that he never seriously intended to complete the project. After a bifurcated trial, a jury awarded Liria $400,000 in compensatory damages, and the trial court, which tried the issue of punitive damages, awarded her $1,000,000 more. The court also voided the foreclosure sale and found that Rosa and Liria were entitled to an accounting of the amount of money Perez spent on the project.
Perez appeals, contending that Liria, who filed for Chapter 7 bankruptcy relief while the case was pending, lacks standing to sue because her causes of action belong to the bankruptcy estate, or, alternatively, that judicial estoppel bars her from recovering. In addition, Perez alleges errors in the jury instructions and special verdict forms, claims that the compensatory and punitive damages awards to Liria were excessive, and that the trial court erred by ordering him to provide an accounting.
We agree that Liria lacks standing based on her bankruptcy filing. This does not necessarily require the dismissal of her cross-complaint, however. Instead, the bankruptcy trustee is entitled to an opportunity either to assert Liria's claims on behalf of the bankruptcy estate or to abandon the claims and allow Liria to resume prosecuting them herself. We therefore stay the appeal of the judgment in Liria's favor and remand for the limited purpose of allowing the bankruptcy trustee to decide how he or she wishes to proceed.
Only one aspect of the court's ruling did not involve Liria- the trial court's decision that Rosa was entitled to an accounting of Perez's expenditures. It does not appear Rosa stated a proper cause of action for accounting, and in any event her appellate briefing states an accounting was already taken from Perez during trial such that no further accounting is required. Accordingly, we reverse that portion of the judgment.
FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
In 2002, Rosa purchased a single-family home in the Sylmar neighborhood of Los Angeles for $455,000 (the property). Although the property was located near a commercial area, it was zoned for agricultural use as a "horsekeeping . . . district" and sat on a lot measuring more than two acres. Because Rosa did not have good enough credit to obtain a mortgage, a friend, Bertha Castro, agreed to "cosign." As Liria acknowledged, "what was known to us as a cosigner was really her buying the property for us" and then transferring title to Rosa later.
Rosa received several proposals to develop the property, and she ultimately decided to pursue a joint venture with Valle, the real estate agent who represented her in purchasing the property, and Perez to subdivide the property into 17 lots. After months of meetings among Rosa, Liria, Valle, and Perez, the parties reached an agreement in June 2005. The parties dispute whether Rosa was a party to the joint venture. Just before the venture began, Rosa transferred title in the property to Liria, who refinanced the mortgage, borrowing $744,500 against the property. As a result, Liria's name appears on the documents memorializing the agreement, and Perez argues that the agreement was with Liria, not Rosa. Liria and Rosa, on the other hand, argue that Liria acted on behalf of Rosa, who remained the true owner and continued to make the mortgage payments on the property. Perez acknowledges that Rosa took part in meetings regarding the venture, and some of his records refer to the project under the name "Rosa." The first proposal from RAMCO, the engineering company the parties contracted with, listed Rosa as one of the parties, but a subsequent draft substituted Liria.
The Los Angeles Department of Building and Safety (LADBS) later required the parties to reduce the scope of the project to 13 homes.
The record contains three documents memorializing the joint venture agreement dated between July and September 2005, all of which misspell Liria's name as "Lidia." Two of the documents contain Liria's signature, including one in which the misspelling is crossed out and the correct spelling is printed below the signature. Liria denied signing any of these documents, but she agreed they accurately describe the terms of the agreement, and she testified that she "probably" would have signed the documents if presented with them.
Liria testified that she signed blank documents at the request of Valle and Perez with the understanding that they would attach the signatures to applications for permits.
Under the terms of the agreement, Liria was responsible for contributing the land, and she agreed to continue paying the mortgage and necessary maintenance costs. Perez, who was licensed as a grading and demolition contractor, was to obtain the necessary permits and zoning changes, pay for the required plans, and do grading and other preparatory work. Once the land was ready for construction and all necessary permits were obtained, Valle was responsible for obtaining the financing to build new homes on the lots and then marketing and selling the homes. Under this arrangement, Liria would receive 50 percent of the profits, and Valle and Perez would receive 25 percent each. To protect Perez, who was responsible for paying the initial expenses, the written versions of the agreement called for Liria to execute a note payable to Perez for the estimated amount of the expenses Perez incurred for his preparatory work, secured by a deed of trust recorded against the property. In her testimony, Liria denied that a lien to protect Perez was ever discussed.
The written contracts provide for Liria to receive the profits, but Liria testified that they would go to Rosa.
In February 2006, Perez received a letter from Robert Singer, who was associated with RAMCO, the engineering firm working on the project. Singer identified several potential problems with the deal from Perez's perspective. In Singer's view, Perez's 25 percent share of the profits was "out of line with his contribution and risk." Singer argued that Liria's contribution was minimal because she had little equity in the property above the balance on her mortgage, and that "Valle's contribution is vague and worth very little: he has no contacts or experience building tract homes and has no broker's license." Singer also expressed skepticism that the municipal government would be willing to rezone the property "over the [n]eighborhood council's objections and the neighbors who are fiercely opposed to any rezoning of horse property in the area." Finally, Singer pointed out that Liria had not signed the draft joint venture agreement he had seen, nor had she signed a deed of trust to give Perez a security interest in the property to secure his expenses, as the joint venture agreement called for. Singer advised Perez to try to amend the agreement to address these issues and to "encumber the property with either a UCC filing or a [t]rust [d]eed."
Perez testified that he did not know how he met Singer, but that Singer came to his office to look over the paperwork associated with the venture.
The record contains a "promissory note secured by deed of trust" for $350,000 "or so much as may actually be advanced by or on behalf of [Perez] in connection with the development and subdivision of the property." The note estimated that Perez would pay approximately $225,000 to RAMCO for its engineering work, and an additional $125,000 to The Best Demolition &Recycling Co., Inc., a demolition company Perez owned. The document lists Liria as borrower, and is signed and notarized with a date of April 20, 2006, two months after Singer's letter. Liria denied that she signed the note but conceded that "it looks like my signature." Both she and Rosa agreed that they were required to reimburse Perez for the amounts he actually spent on the project, and in her cross-complaint, Liria acknowledged that under the joint venture agreement, she was required to execute a promissory note.
Over the course of the following year, RAMCO sought to obtain the permits and zoning changes required for the project, and according to Liria, Perez provided monthly status updates. A demolition permit was issued for the property, and Perez told Liria and Rosa that they would need to leave their home so it could be demolished.
At some point around 2007, work on the project ceased as economic conditions deteriorated. In August 2007, LADBS denied the proposed tract map because a soils report had not been conducted. No grading work was ever completed. Perez demolished a detached garage on the property, but not the home where Liria and Rosa had been living. Liria believed the project was still progressing through 2008. She testified that, in 2009, Perez told her and Rosa that they were still waiting for final approval from the city but that they did not intend to rush the process due to poor financial conditions.
Liria testified that, at some point in 2013 or 2014, she and Rosa began investigating why the project had stalled. Liria met with Alex Palmer, the owner of RAMCO, who told her that Perez had not paid for much of RAMCO's work, and that he believed Perez had bad intentions from the outset. She claimed she also learned for the first time that there was a $350,000 lien against the property, and that although Perez had succeeded in obtaining city approval to rezone the property, the rezoning and permits associated with the project had expired. On September 22, 2014, Palmer wrote Liria an email stating that Perez had stopped paying RAMCO for its services in June 2007, and that he owed the company $37,226.56 for work performed since then. In another letter dated October 2014, RAMCO wrote that Liria owed the company $88,051.42, including interest for late payments.
Palmer also told Liria that Perez had been using the property to dump dirt, and that the city government issued a notice of violation for doing so. In 2009, RAMCO offered to obtain a stockpiling permit for the property on Perez's behalf to allow the project to continue, but Perez did not retain RAMCO for the work. In 2011, an employee of Perez's companies wrote to Palmer, the owner of RAMCO, that Perez wanted to meet to discuss completing the project, but Palmer replied that he was "not interested in spending any more time on this project until [Perez] settles his balance due."
Rosa and Liria made efforts to continue the project, including paying an application fee to renew the zoning and permitting applications. Liria testified that they planned to continue with the joint venture despite their growing concerns regarding Perez. In 2015, Rosa fell behind on the mortgage payments and asked for a modification. Perez resolved the problem by paying $45,000 toward the loan just before it was to be foreclosed on. Rosa testified that she tried to arrange a sale of the property, and was willing to pay Perez a reasonable amount, but Perez demanded she pay $691,000 and refused to negotiate.
In September 2016, Perez filed a notice of default stating that the property would be sold if Liria did not pay $691,261.83. Perez provided an itemized list of charges, which included $428,710.28 in invoices dating from July 2005 to April 2016, plus $260,728.35 in interest, as well as $1,823.20 in collection costs and expenses. In April 2017, Perez acquired the property through a foreclosure sale by bidding the $728,252.16 he asserted he was owed by that point.
At trial, when pressed to support these claimed expenses, Perez testified that he remembered few details of the project and had little documentation of the money he claimed to have spent. For example, Perez produced a check dated November 27, 2007, made payable to Ada Armas for $6,368 with "Rosa, Gladstone"written in the memo field, but he testified that he did not remember writing the check or what it was for. Liria testified that Ada Armas was her aunt and Rosa's sister, but Perez could not explain what she had to do with the project.
The property is located on Gladstone Avenue.
On April 3, 2017, Rosa initiated this case by filing a complaint against Liria, Liria's sister Luisa, Perez, Valle, and Best Alliance and Lien Corp. (Best Alliance), the trustee of the deed of trust. In the operative third amended complaint, she alleged causes of action against Valle and Perez for breach of contract, accounting against Perez, wrongful foreclosure against Perez and Best Alliance, and declaratory relief against all the defendants. The trial court sustained without leave to amend the causes of action for wrongful foreclosure and declaratory relief, a ruling Rosa does not challenge on appeal.
Liria was a defendant only as to the cause of action for declaratory relief, in which Rosa sought a declaration that she is the equitable owner of the property. Thus, during the trial Liria and Rosa were not adverse to one another. Rosa also dismissed Liria's sister Luisa from the complaint without prejudice.
Liria filed a cross-complaint alleging causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing against Valle and Perez, fraud and deceit, and accounting against Perez, and wrongful foreclosure against Perez and Best Alliance.
The court entered a default against Valle, and Best Alliance filed a declaration of nonmonetary status pursuant to Civil Code section 2924l . The court dismissed Best Alliance from the complaint and dismissed Valle without prejudice from the cross-complaint at Liria's request.
The court bifurcated trial proceedings, first holding a jury trial on Rosa's and Liria's causes of action for breach of contract, as well as on Liria's cause of action for fraud. In the second phase, the court held a bench trial on the equitable causes of action for accounting, quiet title, and declaratory relief, as well as for punitive damages based on fraud, malice, or oppression.
The jury issued its verdict through a special verdict form, finding in favor of Perez on the causes of action for breach of contract, breach of the covenant of good faith and fair dealing, and fraud on the ground that Liria failed to file her complaint within the time set by law for those claims. The jury found in favor of Liria on her claim of wrongful foreclosure. The jury awarded Liria $400,000 for wrongful foreclosure and an additional $100,000 for fraud in apparent contradiction to its finding that the complaint had not been filed within the statute of limitations for that claim. In addition, the jury found that Perez "engage[d] in . . . conduct with malice, oppression, or fraud."
Following the second phase of the trial, the trial court entered judgment in favor of Rosa on her causes of action for accounting and declaratory relief, and in favor of Liria on her causes of action for accounting, wrongful foreclosure, quiet title, and declaratory relief. The court explained that Rosa "is a third-party beneficiary to the [joint venture agreement] and [that] a relationship exists between [Rosa] and Perez that requires an accounting." In addition, the court, relying on the jury's finding that Perez acted with malice, oppression, or fraud, awarded Liria $1,000,000 in punitive damages. As to the causes of action for declaratory relief, the trial court found that Liria "is entitled to title and possession of the subject property based on the agreements of the parties," and that "[t]he foreclosure sale of the subject property on April 11, 2017, is void." Finally, in light of the inconsistency in the jury's verdict on fraud, the trial court entered judgment notwithstanding the verdict on that claim in favor of Perez, eliminating the $100,000 award.
DISCUSSION
A. Liria Lacks Standing Because Her Causes of Action Belong to the Bankruptcy Estate
Perez contends that the judgment in favor of Liria must be reversed because, in 2019, while the case was pending, she filed for Chapter 7 bankruptcy. As a result, in Perez's view, Liria's causes of action are the property of the bankruptcy estate, and Liria lacks standing to sue.
Alternatively, Perez argues that even if Liria had standing to sue, she would be judicially estopped from asserting her claim. Under the doctrine of judicial estoppel, a debtor who fails to disclose a cause of action in a bankruptcy filing may be estopped from subsequently suing on the basis of that claim. (See Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1012-1014.) We decline to reach that issue now. "Cases concerning judicial estoppel have generally been decided after a fact-finding or evidence-reviewing proceeding" (id. at p. 1019), and that has not occurred in this case, where Perez presented the issue for the first time on appeal. In any event, it is premature to address the issue of judicial estoppel without knowing what role, if any, the bankruptcy trustee will play in the case.
We agree." 'In the context of bankruptcy proceedings, it is well understood that "a trustee, as the representative of the bankruptcy estate, is the real party in interest, and is the only party with standing to prosecute causes of action belonging to the estate once the bankruptcy petition has been filed." [Citation.] The commencement of Chapter 7 bankruptcy extinguishes a debtor's legal rights and interests in any pending litigation, and transfers those rights to the trustee, acting on behalf of the bankruptcy estate. [(]See 11 U.S.C. § 541(a)(1) [indicating that a bankruptcy estate includes "all legal or equitable interests of the debtor in property"]; id. § 323 [establishing the bankruptcy trustee as the "representative" of the estate with the "capacity to sue and be sued" on its behalf].[)]. Thus, "[g]enerally speaking, a pre-petition cause of action is the property of the Chapter 7 bankruptcy estate, and only the trustee in bankruptcy has standing to pursue it." [Citations.]' [Citation.]" (M &M Foods, Inc. v. Pacific American Fish Co., Inc. (2011) 196 Cal.App.4th 554, 562; accord, Cloud v. Northrop Grumman Corp., supra, 67 Cal.App.4th at p. 1001.) A debtor may prosecute her own cause of action only if the trustee has abandoned it. (Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1081.)
Liria does not deny Perez's assertion that she filed for Chapter 7 bankruptcy protection in 2019, after filing her crosscomplaint in this case. We granted a request for judicial notice of that bankruptcy filing, and it shows she did not list her crosscomplaint as an asset. Nor does Liria allege that the trustee in bankruptcy has abandoned the claim despite her failure to list it. Consequently, she lacks standing to sue. Liria complains that Perez failed to raise this issue before the trial court, but a"' "[p]laintiff's lack of standing to sue on [a] claim is treated as a 'jurisdictional' defect and is not waived by [the] defendant's failure to raise it by demurrer or answer: '[C]ontentions based on a lack of standing involve jurisdictional challenges and may be raised at any time in the proceeding.'" (Weil [&] Brown, Cal. Practice Guide[: Civil Procedure Before Trial (The Rutter Group 2003)] ¶ 2:78, p. 2-21, italics omitted.) "Lack of standing negates existence of a cause of action and is not waived by failure to object; it can even be raised for the first time on appeal." (Id., ¶ 2:81.1, p. 2-22.)' [Citation.]" (Cummings v. Stanley (2009) 177 Cal.App.4th 493, 501.)
In most instances, a lack of standing results in dismissal of the plaintiff's claim. (Cummings v. Stanley, supra, 177 Cal.App.4th at p. 501.) In some cases, however, a cause of action may be saved by amending the complaint: "The California Supreme Court has held that if the facts of the cause of action against the defendant would not be 'wholly different' after amendment, a complaint filed by a party without standing may be amended to substitute in the real party in interest." (Cloud v. Northrop Grumman Corp., supra, 67 Cal.App.4th at p. 1005.) This rule applies to causes belonging to the bankruptcy estate; indeed, "[i]n the case of a trustee in bankruptcy seeking to be substituted in, the trial court lacks discretion not to allow the substitution." (Kaley v. Catalina Yachts (1986) 187 Cal.App.3d 1187, 1195, fn. 7.)
In cases where a claim belongs to the bankruptcy estate, a plaintiff may "request[ ] a stay in the trial court to reopen her bankruptcy case in order either to substitute the trustee as real party in interest or to obtain the trustee's abandonment of her claim." (Cloud v. Northrop Grumman Corp., supra, 67 Cal.App.4th at p. 1008.) In Cloud, the court held that the plaintiff must be permitted an opportunity to correct the defect in standing even though she had received a discharge, and her bankruptcy case was closed. (Id. at pp. 998-999, 1008.) In Bercy v. City of Phoenix (9th Cir. 2024) 103 F.4th 591, in response to the defendant's motion for summary judgment on the ground that the debtor-plaintiff lacked standing, "the bankruptcy trustee successfully moved to reopen the bankruptcy case" and then settled the dispute on behalf of the bankruptcy estate in place of the plaintiff. (Id. at p. 594.)
At oral argument, Perez's attorney objected to the involvement of the bankruptcy trustee, arguing that all of Liria's actions in the case since her bankruptcy filing are void, and the trustee may at most take over the case as it stood in 2019 at the time of the bankruptcy filing. We express no view on this question and cannot proceed further in addressing the judgment in favor of Liria until the bankruptcy trustee has had an opportunity to weigh in. If the trustee elects to abandon Liria's causes of action, Liria will regain standing in this case, and we may then consider Perez's remaining challenges to the judgment. If, on the other hand, the trustee elects to retain possession of Liria's claims on behalf of the bankruptcy estate, new issues will be presented that the parties have not briefed and that the bankruptcy court, the trial court, or some combination of the two must address in the first instance. In addition to the concerns Perez's attorney raised at oral argument regarding the validity of the judgment, it may also be necessary to consider whether Rosa or Luisa has an interest in Liria's causes of action distinct from those belonging to the bankruptcy estate. We express no opinion on the answers to these or any other questions that may arise, nor on which forum (the trial court or the bankruptcy court) should address them.
Rosa and Luisa's potential claims arise from their alleged ownership interests in the property. In Rosa's case, both Rosa and Liria testified that Liria held title to the property in trust to Rosa. As to Luisa, Perez discovered a quitclaim deed dated March 30, 2016, in which Liria "remise[d], release[d,] and quitclaim[ed]" (capitalization omitted) title to the property to herself and Luisa as joint tenants. Liria attested that the transfer was "a bonafide gift" and did not indicate that she held the property in trust for the benefit of Rosa. Perez appears not to have introduced this document as evidence at trial, and the trial court's judgment awarded title to the property and all damages to Liria alone.
B. The Portion of the Judgment Awarding Rosa an Accounting Is Reversed
The only issue in this appeal that does not involve Liria's claims is the trial court's finding in favor of Rosa on her cause of action for an accounting. We agree with Perez that this portion of the judgment must be reversed.
A cause of action for accounting "has two elements: (1) 'that a relationship exists between the plaintiff and [the] defendant that requires an accounting' and (2) 'that some balance is due the plaintiff that can only be ascertained by an accounting.' [Citations.]" (Sass v. Cohen (2020) 10 Cal.5th 861, 869.) The accounting in this case is aimed at determining how much money Perez actually spent on the project, so that the value of Perez's deed of trust can be calculated. It therefore does not appear to state a proper cause of action; the accounting is not intended to ascertain a balance due to Rosa (the plaintiff), but instead to determine how much Rosa owes Perez (the defendant). In any event, as Rosa concedes, "[a]n [a]ccounting [w]as [t]aken [f]rom Perez [d]uring trial and [n]o [f]urther [a]ccounting is [r]equired" (bold and underlining omitted). Perez had every incentive during trial to prove his expenses on the project in order to show he was justified in foreclosing on the property. Indeed, he testified that he brought proof of his expenses on the project to court. Even if Rosa had stated a proper cause of action for accounting, we agree with her that there would be no purpose in conducting another accounting to repeat the same process.
DISPOSITION
The portion of the judgment awarding Rosa an accounting is reversed. The appeal as to all relief awarded to Liria in the judgment on her causes of action is stayed, and we order a limited remand for further proceedings to determine the bankruptcy trustee's role with regard to Liria's claims. Liria shall petition to reopen the bankruptcy case and notify the bankruptcy trustee of these proceedings, her claims, and the monetary award she received within 30 days of the filing date of this opinion. If Liria fails to do so, we will reverse the judgment in her favor for lack of standing.
The parties are to file a notice and update with this court every 45 days thereafter, and within 15 days of the trustee's decision on whether to prosecute or abandon Liria's claims. If the trustee abandons Liria's claims, the parties shall notify this court, and we will lift the stay of the remainder of this appeal. Otherwise, the bankruptcy trustee may move forward with prosecuting the claims and the parties are to continue to update this court every 45 days.
All parties are to bear their own costs on appeal.
We concur: ROTHSCHILD, P. J. BENDIX, J.