Opinion
No. 07-17290.
Argued and Submitted March 12, 2009.
Filed August 7, 2009.
Steven N. Richman, Esq., Epport Richman, LLP, Los Angeles, CA, for Appellant.
James L. Stoelker, Esq., Mount Stoelker Riverpark Tower, San Jose, CA, for Appellee.
Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Brandt, Kurtz, and Smith, Bankruptcy Judges, Presiding. BAP No. NC-06-01256-SKuB.
Before: WALLACE, THOMAS and BYBEE, Circuit Judges.
MEMORANDUM
This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.
First Federal Bank of California ("First Federal") appeals from a decision of the United States Bankruptcy Appellate Panel of the Ninth Circuit ("BAP"), which affirmed in part and reversed in part a judgment of the bankruptcy court. The bankruptcy court and the BAP established the priority of competing interests in proceeds from the sale of the property at 6372 Gondola Way in San Jose, California ("the property"). First Federal argues that the BAP erred by (1) finding that Sentinel Trust's deed of trust had priority over First Federal's judgment lien and (2) concluding that Chevy Chase Bank, F.S.B. ("Chevy Chase") is entitled to equitable subrogation. With regard to equitable subrogation, First Federal specifically argues that the BAP should have concluded (a) that First American Title Insurance Company ("First American") (Chevy Chase's title insurance company) is the real party in interest in this action, (b) that Chevy Chase (through the real party in interest, First American) engaged in inexcusable and culpable neglect, and (c) that injustice would occur by applying equitable subrogation.
The parties are familiar with the facts of this case, and we do not repeat them here. As discussed below, we affirm in part, reverse in part, and remand to the bankruptcy court with instructions to reinstate its original judgment.
We conduct an independent review of the BAP's decision; we review the bankruptcy court's findings of fact for clear error and its legal conclusions de novo. In re Palau Corp., 18 F.3d 746, 749 (9th Cir. 1994).
1. Priority of Sentinel Trust's Interest
At oral argument, both parties conceded that they did not object to the procedures used by the bankruptcy court and that they were not prejudiced by the lack of formal adversary proceedings. See In re Copper King Inn, Inc., 918 F.2d 1404, 1406-07 (9th Cir. 1990). Accordingly, we will analyze the priority of liens without considering any procedural error.
We agree with the bankruptcy court that the attempted transmutation of the property was a fraudulent transfer and that Mark Tiffany received a community property interest on March 15, 2001. Accordingly, First Federal's judgment lien attached to the property on March 15 and has priority over the Sentinel Trust deed of trust.
We reject Chevy Chase's argument that it was a bona fide purchaser of the property and should therefore obtain priority over First Federal's judgment lien. "Every conveyance of real property . . . from the time it is filed with the recorder is constructive notice of the contents thereof to subsequent purchasers and mortgagees. . . ." CAL. CIV. CODE § 1213. First Federal's judgment lien was duly recorded, and Mark's grant deed, conveying his interest in the property to Melodye, was contained in the "grantor" and "grantee" index. This was sufficient to provide constructive notice of the existence of First Federal's lien and that it would attach to Mark's interest in the property.
Because First Federal's judgment lien has priority over Sentinel Trust's deed of trust, we need not decide if Chevy Chase is also equitably subrogated to Sentinel Trust's deed of trust. This determination would have no effect on the priority of interests between the parties before the court.
The bankruptcy court and the BAP correctly concluded that Chevy Chase was entitled to equitable subrogation to the interest of World Savings Bank, F.S.B. ("World Savings").
a. Real Party in Interest
As we previously held in Mort, we will only consider the title insurance company's involvement for purposes of equitable subrogation when "the title insurance company itself [is] seeking equitable subrogation." Mort v. United States, 86 F.3d 890, 895 (9th Cir. 1996). Here, Chevy Chase is the named party seeking equitable subrogation, and our analysis does not change merely because First American is fulfilling its contractual obligation to pay for the defense of its insured.
b. Inexcusable and Culpable Neglect
Chevy Chase did not engage in inexcusable and culpable neglect by failing to uncover the existence of First Federal's judgment lien. As the California courts have noted, "[a]lthough equitable subrogation will be denied to a new lender who has actual knowledge of the junior encumbrance, it has long been the rule in California that the fact the junior encumbrance was recorded will not by itself bar equitable subrogation." Smith v. State Sav. Loan Ass'n, 175 Cal.App.3d 1092, 223 Cal. Rptr. 298, 301 (Cal.Ct.App. 1985).
c. Injustice
Applying equitable subrogation will not result in injustice because all of the lienholders, including First Federal, will remain in the same position that they held prior to the refinancing. Moreover, if the court does not apply equitable subrogation, First Federal will receive a windfall by moving into a better position with respect to the property than it originally had when its judgment lien attached. Essentially, Chevy Chase would be paying more than $500,000 to First Federal to satisfy Mark's debt, even though Chevy Chase paid off a deed of trust that had priority over First Federal's judgment lien, Chevy Chase did not have actual knowledge of First Federal's judgment lien, and Chevy Chase had a legitimate expectation that it would have first priority. "One cannot fail to see this case as an attempt by [First Federal] to require [Chevy Chase] to pay a portion of [Mark's debt]. [First Federal's] claim that equitable subrogation would make it the victim of `injustice' is thoroughly unconvincing." Han v. United States, 944 F.2d 526, 530 n. 3 (9th Cir. 1991).
Accordingly, we conclude that the bankruptcy court correctly disposed of this case. We remand to the bankruptcy court with instructions to reinstate its original judgment. The parties shall bear their own costs on appeal.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
I agree that the bankruptcy court's original judgment should be reinstated. However, I write separately because I believe we can affirm the bankruptcy court's priority determination without addressing whether Mark Tiffany's conveyance of his interest in the property to his wife, Melodye, was a fraudulent transfer.
Under California law, until a judgment lien is satisfied or extinguished, it remains enforceable against the judgment debtor's real property interests regardless of whether the property is transferred to a third party. Dieden v. Schmidt, 104 Cal. App.4th 645, 128 Cal.Rptr.2d 365, 369 (Cal. Ct.App. 2002); see also Cal. Code of Civ. P. § 697.390(a) ("[A] subsequent conveyance of an interest in real property subject to a judgment lien does not affect the lien"). Thus, where a judgment debtor transfers his real property interest, and that interest is subject to an unsatisfied judgment lien, the lien may be enforced against the transferred property in the same manner and to the same extent as if there has been no transfer. Weeks v. Pederson (In re Pederson), 230 B.R. 158, 163 (9th Cir.BAP1999); Cal. Code of Civ. P. § 695.070.
In this case, the bankruptcy court found that Mark acquired an interest in the property as of March 15, 2001, when his community assets were used to purchase the property. This factual finding is not clearly erroneous. In re Marriage of Rives, 130 Cal.App.3d 138, 181 Cal.Rptr. 572, 586 (Cal.App. 1982) (upholding trial court's finding that a residence purchased with community funds was a community asset despite the grant deed to the purchaser's wife as separate property). Therefore, it does not matter whether or not Mark's grant deed to Melodye constituted a fraudulent conveyance. First Federal's judgment lien attached to the property by virtue of Mark's community interest in the property as of March 15, 2001. When Mark subsequently transferred the property to Melodye, First Federal's judgment lien remained enforceable against the property, and retained its priority relative to the subsequently recorded lien of Sentinel.
I would therefore affirm the bankruptcy court's priority determination without reaching the fraudulent transfer issue. In all other respects, I concur in the memorandum disposition.