Opinion
A125249/A125891
01-31-2012
BRUCE PALMBAUM, Plaintiff and Appellant, v. MORGAN, LEWIS & BOCKIUS, LLP, et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(San Francisco County Super. Ct. No. CGC-08-480943)
This is an appeal from the trial court's orders to grant the special motions to strike filed by respondents Morgan, Lewis & Bockius, LLP (Morgan Lewis) and Edward Mevi, respectively, pursuant to Code of Civil Procedure section 425.16, the so-called anti-SLAPP statute (section 425.16). The trial court granted these motions after finding that appellant Bruce Palmbaum had failed to establish a probability of success on the merits of his malicious prosecution lawsuit. Accordingly, the trial court ordered the dismissal of this lawsuit pursuant to the anti-SLAPP statute.
Unless otherwise stated, all statutory citations are to the Code of Civil Procedure.
For reasons set forth below, we affirm the trial court's decision.
FACTUAL AND PROCEDURAL BACKGROUND
Corinthian Homes, a development corporation formed by Palmbaum, submitted the winning (and only) bid at a judicial foreclosure sale of a parcel of real property located in Rancho Murieta (parcel 007). Palmbaum asserts a single cause of action for malicious prosecution against respondents based upon their conduct as attorneys of record in an action to set aside that sale. In setting out the factual and procedural history of the action alleged to have been maliciously prosecuted (set aside action), we quote at length from Amalgamated Bank v. Superior Court (2007) 149 Cal.App.4th 1003 (Amalgamated Bank) , a decision of our colleagues in the Third District in a writ proceeding arising from that action.
Amalgamated Bank, formerly First Interstate Bank, as corporate cotrustee for Pension Trust Fund for Operating Engineers, and Pension Trust Fund for Operating Engineers (collectively, PTF) "held a security interest in the real property (commonly known as parcel 007) owned by Winncrest. Winncrest ceased making payments on the property in 1993. PTF commenced an action against Winncrest for judicial foreclosure of parcel 007 and others. The trial court entered judgment allowing a sale of the property with a right of redemption, specifying the amount of the debt as slightly more than $17 million. Winncrest appealed, and this court affirmed the judgment in 2003. (First Interstate Bank v. Winncrest Homes, Inc. (July 25, 2003, C035434, C036722) [nonpub. opn.].)
"As judgment creditor, PTF requested that the Sacramento County Sheriff issue a writ of sale to execute upon parcel 007 and sell it to the highest bidder. A public auction was scheduled for February 24, 2004, at 10:00 a.m. Palmbaum arrived there with $10 million in available funds. The property was worth approximately $6.5 million, and PTF intended to place an opening bid of $6 million.
"The sheriff commenced the sale around 10:00 a.m. (the exact time is the subject of intense dispute) and Palmbaum submitted an opening bid of $2,000. Palmbaum's bid turned out to be the only bid because PTF's designated bidders [respondent Mevi of Stanton, Kay and Watson, LLP, and its asset manager, David Howard of McMorgan & Company] got stuck in traffic on the morning of February 24 on their way from the Bay Area to Sacramento, arriving at the auction room sometime after 10:00 a.m. After the sheriff's gavel fell confirming a sale to Palmbaum for $2,000, the late-arriving bidders vociferously objected, demanding that the sale be rescinded. The officer replied that bidding was closed and the property had been sold to Palmbaum.
"PTF filed [an] action to set aside the foreclosure sale, cancel the sheriff's deed and restrain Palmbaum from disposing of the property. PTF also recorded a notice of lis pendens, effectively tying up parcel 007 during the pendency of the lawsuit. Although it had a year in which to do so, Winncrest did not exercise its right of redemption. The one-year redemption period expired on February 25, 2005." ( Amalgamated Bank, supra, 149 Cal.App.4th at pp. 1008-1010.) Mevi was an attorney of record in the action to set aside the sale.
"Following extensive discovery, Palmbaum filed a motion for summary judgment. [Citation.] [Footnote omitted.] In granting the motion, [the trial court] found that PTF was barred from setting aside the sale, since (1) section 701.680, subdivision (a) provides that a judicial foreclosure sale pursuant to article 6 'may not be set aside for any reason,' a statute that abolished equitable grounds for rescission; (2) the sheriff conducted the sale according to law and without irregularities; (3) Winncrest did not exercise its right of redemption; (4) an action to set aside a foreclosure sale for irregularities may be commenced by the judgment debtor only if the purchaser was the judgment creditor (neither of which applied here); and (5) the sheriff did not have discretion to postpone the sale absent a joint request from both the judgment debtor and judgment creditor, which did not occur here." ( Amalgamated Bank, supra, 149 Cal.App.4th at p. 1009.)
Mevi filed a notice of appeal from the summary judgment on PTF's behalf. Before any appellate briefing was filed, however, PTF hired respondent Morgan Lewis to replace Mevi and the Stanton firm as attorney of record. Morgan Lewis prepared and filed appellate briefs on PTF's behalf challenging the trial court's grant of summary judgment in Palmbaum's favor.
"Several months after the judgment was entered, Palmbaum made a motion to expunge the lis pendens[, which Morgan Lewis opposed on behalf of PTF]. Judge McMaster issued a tentative ruling granting the motion and directing Palmbaum to prepare a formal order. At that point, [Morgan Lewis] filed the first of two petitions for writ of mandate [on PTF's behalf]. [Citation.] [Footnote omitted.] The stated primary purpose of the petition was to 'preserve this court's jurisdiction' by staying the expungement order. PTF claimed that if the lis pendens were allowed to be expunged, Palmbaum would be able to sell the property to a third party, thus rendering the summary judgment appeal essentially moot." ( Amalgamated Bank, supra, 149 Cal.App.4th at p. 1010.)
After some discussion of the statutory law governing the lis pendens process, the Third District held that the appropriate standard for deciding whether to issue a writ of mandate vacating a postjudgment expungement order was whether the petitioner's real property claim had "probable validity." ( Amalgamated Bank, supra, 149 Cal.App.4th at p. 1017.) Then, in ultimately deciding that PTF's real property claim in the underlying set aside action did not have probable validity, the appellate court made the following observations:
"PTF brought this action to set aside the sale based on certain irregularities and on equitable grounds. However, section 701.680, subdivision (a) provides: 'Except as provided in paragraph (1) of subdivision (c), a sale of property pursuant to this article is absolute and may not be set aside for any reason. ' (Italics added.) Subdivision (c)(1) permits a sale to be set aside for irregularities, but only where the purchaser is the judgment creditor and the motion is made within 90 days by the judgment debtor or his or her successor in interest. [¶] As stated in [the California real property treatise authored by] Miller and Starr, in order to encourage fair bidding and the finality of sales, the Legislature has provided that upon payment of the purchase price, a sheriff's sale to a third party is absolute, subject only to the right of redemption, and may not be set aside. (4 Miller & Starr, supra, § 10:232, p. 765.) [¶] Here, the property was sold to a third party. By statute, only the judgment debtor can set aside the sale for irregularity and only where the purchaser was the judgment creditor. By purchasing the property at the sheriff's auction, Palmbaum became fee owner, subject only to the right of redemption. Because Winncrest did not bring an action to set aside the sale or exercise its right of redemption within the statutory timeframes, Palmbaum's title to the property has been perfected. There is simply no room in the statutory scheme for a judgment creditor (for whose benefit the foreclosure sale was held in the first place) to deprive a third party purchaser at a judicial foreclosure sale of his interest in the property by bringing an action to set aside the sale." ( Amalgamated Bank, supra, 149 Cal.App.4th at p. 1018.)
After the Third District dismissed PTF's petition for writ of mandate and the California Supreme Court denied review, Palmbaum's counsel wrote a letter demanding that PTF dismiss its appeal of the trial court's summary judgment ruling in light of the Court of Appeal's published decision holding that the set aside action lacked probable validity. (Amalgamated Bank v. Superior Court, 2007 Cal. LEXIS 8514 (Cal., Aug. 8, 2007).) Finally, PTF agreed and, on November 14, 2007, an order dismissing the appeal was filed.
The following year, on December 23, 2008, Palmbaum filed the operative complaint in this malicious prosecution action. On March 9, 2009, Morgan Lewis moved to strike this complaint pursuant to section 425.16, contending Palmbaum could not make a prima facie showing with respect to the elements of his malicious prosecution cause of action. (See Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50 [malicious prosecution requires a showing that the underlying action was pursued to a legal termination in the plaintiff's favor, was brought or continued without probable cause, and was brought or continued with malice].) On March 16, 2009, Mevi followed suit, moving to strike Palmbaum's complaint on substantially similar grounds.
In addition to Mevi and Morgan Lewis, the operative complaint named as defendants PTF, Amalgamated Bank, Stanton, Kay & Watson, LLP, James P. Watson, McMorgan & Company LLC, New York Life Insurance Co., and Weinberg, Roger & Rosenfeld (Weinberg). Defendants PTF, Amalgamated Bank, McMorgan & Company LLC, and New York Life Insurance Co. were initially named as respondents in this appeal. However, pursuant to an order of this court dated September 8, 2011, this appeal was dismissed as to all respondents except Mevi and Morgan Lewis. In a related appeal before this court (A126125), defendant Weinberg challenges the trial court's denial of its anti-SLAPP motion. Like Mevi, the Weinberg firm was an attorney of record for PTF in the set aside action.
Palmbaum moved for limited relief from the anti-SLAPP statute's automatic discovery stay (§ 425.16, subd. (g)) and for a continuance of the hearing dates on respondents' anti-SLAPP motions to permit them to be heard together. The trial court granted Palmbaum's motion for limited relief from the discovery stay as to both respondents and continued the hearing of Mevi's motion to strike, but denied a continuance of the hearing on Morgan Lewis's motion.
On April 6, 2009, following a contested hearing, the trial court granted Morgan Lewis's special motion to strike on the ground that Palmbaum had failed to make a prima facie showing of either the lack of probable cause or malice elements of his malicious prosecution cause of action. On June 3, 2009, after another contested hearing, the trial court granted Mevi's motion on the ground that Palmbaum had failed to make a prima facie showing that Mevi lacked probable cause for the set aside action, without reaching the issue of malice.
Palmbaum filed timely notices of appeal from the trial court's orders granting the anti-SLAPP motions of Morgan Lewis and Mevi. This court later consolidated the two appeals for purposes of briefing, oral argument and decision per the parties' stipulation.
An order denying a special motion to strike under section 425.16 is immediately appealable. (§ 425.16, subd. (i); Chabak v. Monroy (2007) 154 Cal.App.4th 1502, 1520.)
DISCUSSION
On appeal, Palmbaum challenges the trial court's grant of respondents' special motions to strike pursuant to section 425.16 on the ground that he successfully demonstrated below a reasonable probability of prevailing on the merits of his malicious prosecution claims. In particular, Palmbaum claims the trial court erred in finding the evidence insufficient to make a prima facie case that the set aside action prosecuted against him by respondents was (1) terminated in his favor, (2) initiated or continued at respondents' direction without probable cause, and (3) initiated by respondents with malice. In addition, Palmbaum claims the trial court erred in refusing his request for a continuance to permit the court to hear both respondents' (Mevi's and Morgan Lewis's) anti-SLAPP motions at a single hearing.
Governing this matter, the anti-SLAPP statute provides in relevant part: "A cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim." (§ 425.16, subd. (b)(1).) As stated above, to successfully oppose respondents' anti-SLAPP challenge, Palmbaum has the burden to make a prima facie showing that the underlying set aside action was (1) commenced by or at the direction of respondents and pursued to a legal termination in his favor, (2) initiated or continued without probable cause, and (3) initiated with malice. ( Padres L.P. v. Henderson (2003) 114 Cal.App.4th 495, 513 (Padres ) ; Zamos v. Stroud (2004) 32 Cal.4th 958, 970 (Zamos). ) Below, the trial court found Palmbaum failed to meet this burden. For reasons set forth below, we agree.
"SLAPP" is an acronym for a strategic lawsuit against public participation. (Navellier v. Sletten (2002) 29 Cal.4th 82, 85, fn. 1, citing Canan & Pring, Strategic Lawsuits Against Public Participation (1988) 35 Soc. Probs. 506.) Courts apply a two-prong test when ruling on a special motion to strike. First, the moving defendant must make a prima facie showing that the acts that are the subject of the plaintiff's claims were performed in furtherance of the defendant's constitutional right of petition or free speech in connection with a public issue. (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67; § 425.16, subd. (b).) If the moving defendant makes this initial showing, the burden then shifts to the plaintiff to establish, based on competent and admissible evidence, a probability of prevailing on the merits of the plaintiff's claims. (Ibid.; College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 718-719.) In this case, there is no dispute that respondents' acts alleged herein to constitute malicious prosecution were performed in furtherance of their constitutional right of petition. (See Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 741.) As such, we address only whether Palmbaum met his burden of proving with competent and admissible evidence a probability of prevailing on the merits of his malicious prosecution claims.
I. Was the set aside action terminated in Palmbaum's favor?
As set forth above, the first prong of the test for proving malicious prosecution is a showing that the plaintiff received a favorable termination on the merits of the underlying action. Here, it appears that, before the trial court, respondents conceded that the underlying action terminated in Palmbaum's favor. Indeed, at the contested hearing on the anti-SLAPP motion, the trial court stated at the outset that "successful termination . . . isn't contested here," a statement that remained unchallenged by the parties, who proceeded to argue only the issues of malice and lack of probable cause. On appeal, Morgan Lewis again declines to challenge Palmbaum's showing with respect to the favorable termination element; Mevi, however, does raise such a challenge.
While we are inclined under these circumstances to find this issue waived, we nonetheless briefly address it for the sake of finality. Simply put, we agree with Palmbaum that favorable termination was established. Contrary to respondent Mevi's suggestion, the set aside action was not merely resolved on the procedural issue of standing. Rather, the trial court issued a detailed order in granting Palmbaum's summary judgment motion that resolved not just the preliminary standing issue, but also all remaining issues regarding the existence of disputed material facts with respect to PTF's causes of action and Palmbaum's affirmative defenses. Specifically, as stated in the trial court's order, Palmbaum moved for summary adjudication of 15 issues, including that the sale was conducted without irregularities, that the sheriff properly accepted the highest bid without postponing the sale, that there was no collusion, and that risk-taking and negligence by PTF's representatives were the sole causes of their failure to bid. Then, after finding "the material facts are undisputed," the trial court granted summary judgment to Palmbaum given that "summary adjudication of each cause of action has been granted."
These facts sufficed to satisfy the first element of the malicious prosecution standard: "[I]t is well established that a favorable termination exists when the decision relied upon 'reflects "the opinion of someone, either the trial court or the prosecuting party, that the action lacked merit or if pursued would result in a decision in favor of the defendant." ' [Citation.] A trial court's determination of the merits of the plaintiff's claims adverse to the plaintiff meets this standard and we conclude that it is sufficient to constitute a favorable termination unless it is later rejected by an appellate court." (Padres, supra, 114 Cal.App.4th 495, 515.) Thus, because the trial court made a substantive determination that PTF's claims in the set aside action were without merit - a determination not reviewed, much less rejected, on appeal - the trial court's determination sufficed to meet the "favorable termination" element of Palmbaum's malicious prosecution claim. We therefore proceed to the related but distinct issue of whether respondents had probable cause to bring or continue the set aside action. (See Crowley v. Katleman (1994) 8 Cal.4th 666, 686 ["Whether a prior action was legally tenable goes to the issue of probable cause, that is, did the defendant have an honest and reasonable belief in the truth of the allegations. [Citation.] Whether a prior action was terminated favorably tends to show the innocence of the defendant in the prior action [citations], and is not affected by the objective tenability of the claim."].)
II. Was there probable cause to pursue the set aside litigation?
For purposes of the anti-SLAPP statute, probable cause to pursue a legal action is established "[i]f any reasonable attorney would have considered the action legally
tenable . . . . ( Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 881 [(Sheldon Appel].)" ( Padres, supra, 114 Cal.App.4th at p. 517.) This "rather lenient standard" reflects the important public policy of avoiding creating a chilling effect on the pursuit of novel or still-evolving legal theories or claims. (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 817 (Wilson), superseded by statute in part as stated in Hutton v. Hafif (2007) 150 Cal.App.4th 527, 547-548; see also, Sheldon Appel, supra, 47 Cal.3d at pp. 885-886.)
Application of the probable cause standard is generally a legal matter reserved for the trial court, and is reviewed by this court on appeal de novo. ( Padres, supra, 114 Cal.App.4th at p. 509.) In applying this standard, the court considers the pleadings and evidence submitted by the parties in a light most favorable to the defendant without weighing the evidence or assessing credibility. (§ 425.16, subd. (b)(2); see also Padres, supra, at p. 509; S ycamore Ridge Apartments LLC v. Naumann (2007) 157 Cal.App.4th 1385, 1402.) More specifically, the court must "consider both the factual circumstances established by the evidence and the legal theory upon which relief is sought. A litigant will lack probable cause for his action either if he relies upon facts which he has no reasonable cause to believe to be true, or if he seeks recovery upon a legal theory which is untenable under the facts known to him." (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 164-165.) "[P]robable cause to bring an action does not depend upon it being meritorious, as such, but upon it being arguably tenable, i.e., not so completely lacking in apparent merit that no reasonable attorney would have thought the claim tenable." (Wilson, supra, 28 Cal.4th at p. 824.)
There is an exception to this rule. " 'When there is a dispute as to the state of the defendant's knowledge and the existence of probable cause turns on resolution of that dispute . . . the jury must resolve the threshold question of the defendant's factual knowledge or belief.' ( Sheldon Appel, supra, 47 Cal.3d at p. 881, citation omitted.)" (Daniels v. Robbins (2010) 182 Cal.App.4th 204, 222.) "It is then for the court to decide whether the state of defendant's knowledge constitutes an absence of probable cause. (Sheldon Appel, supra, at pp. 879-881.)" (Sierra Club Foundation v. Graham (1999) 72 Cal.App.4th 1135, 1154.) '
In this case, Palmbaum contends respondents lacked probable cause to pursue the set aside action both because their legal theories were untenable under the facts known to them and because they relied upon facts known or discovered to be untrue. We address each of these arguments in turn.
A. Were respondents' legal theories tenable?
Borrowing the standard for frivolous appeals, the California Supreme Court has held that a legal claim has probable cause if it: (1) presents a unique issue that is not " 'indisputably' without merit"; (2) involves facts " 'not amenable to easy analysis in terms of existing law' "; or (3) makes a "reasoned 'argument for the extension, modification, or reversal of existing law.' " ( Westphal v. Wal-Mart Stores, Inc. (1998) 68 Cal.App.4th 1071, 1081; Sheldon Appel, supra, 47 Cal.3d at pp. 885-886.) Here, respondents essentially argue they had probable cause to prosecute the set aside action against Palmbaum for each of these reasons - to wit, their cause presented a unique legal issue not indisputably without merit, involved complex facts not amenable to easy analysis under the relevant statutory scheme, and presented a reasoned argument for modifying, or at least clarifying, existing statutory law. Palmbaum, to the contrary, claims respondents pursued legal theories in the earlier action that ignored "fundamental principles on which [the applicable law was] based."
The applicable law to which both parties refer is the statutory scheme governing judicial foreclosure sales with a right of redemption, the type of sale by which the real property at the heart of the underlying dispute was acquired by Palmbaum to respondents' alleged detriment. (See §§ 725a-730.5.) This scheme includes the Enforcement of Judgments Law (Stats. 1982, ch. 1364), title 9 of the Code of Civil Procedure (EJL). (See §§680.010, et seq.; §§ 726, 729.010-729.090.) In particular, section 701.680, subdivision (a) of the EJL provides: "Except as provided in paragraph (1) of subdivision (c), a sale of property pursuant to this article is absolute and may not be set aside for any reason. " (Italics added.) Subdivision (c)(1), in turn, "permits a sale to be set aside for irregularities, but only where the purchaser is the judgment creditor and the motion is made within 90 days by the judgment debtor or his or her successor in interest." (Amalgamated Bank, supra, 149 Cal.App.4th at p. 1018.) According to Palmbaum, given this clear statutory language limiting the right to move to set aside a sale to the judgment debtor or his or her successor in interest, respondents had no basis whatsoever to move to set aside the sale on behalf of PTF, the judgment creditor. Respondents, to the contrary, argue that section 701.680 does not govern their rights with respect to setting aside the sale because the property was sold subject to the right of redemption, a fact rendering the sale non-absolute by definition and thus outside the statute's scope. According to respondents, section 726, subdivision (e), rather than section 701.680, governs their rights.
As set forth above, the trial court in the set aside action agreed with Palmbaum's statutory interpretation of section 701.680 in granting his summary judgment motion, as did our colleagues in the Third Appellate District when upholding the trial court's subsequent order expunging the lis pendens:
"The very statute cited by PTF, section 726, subdivision (e) provides that '[i]f a deficiency judgment is not waived or prohibited, the real property . . . shall be sold subject to the right of redemption as provided in Sections 729.010 to 729.090, inclusive. ' (Italics added.) Section 729.010, subdivision (b) provides, with inapplicable exceptions, that '[i]f the property is to be sold subject to the right of redemption, the sale is governed by Section 716.020 . . . .' (Italics added.) Section 716.020, subdivision (b), provides that, to execute a writ of sale, the levying officer shall, except as ordered otherwise by the court, 'give notice of sale and sell the property described in the writ of sale in the manner prescribed by Article 6 (commencing with section 701.510) of Chapter 3 of Division 2 for giving notice and selling under a writ of execution.' (Italics added.) Found within article 6 is section 701.680, the very statute declaring that foreclosure sales described in article 6 are 'absolute and may not be set aside for any reason.' Words in a statute are to be interpreted by referring each phrase to its appropriate object. (Sargent v. Shumaker (1924) 193 Cal. 122, 127-128 [(Sargent)].) Thus, the self-contained interplay of foreclosure statutes demonstrates that the Legislature intended section 701.680 to apply to judicial foreclosure sales, including those subject to a right of redemption." (Amalgamated Bank, supra,149 Cal.App.4th at pp. 1018-1019.)
According to Palmbaum, this appellate decision, based on the clear language of the relevant statutory scheme, demonstrates the lack of probable cause to set aside the property sale. To determine whether Palmbaum is correct - that "no reasonable attorney" would claim section 701.680 is inapplicable to judicial foreclosure sales, like this one, subject to a right of redemption (see Roberts v. Sentry Life Insurance (1999) 76 Cal.App.4th 375, 382 (Roberts)) - requires a closer look at both the facts and the law.
The record reveals that respondents' statutory interpretation theories derive in significant part from legal analysis performed by or on behalf of PTF prior to publication of the Amalgmated Bank decision by respondents, as well as the outside law firms of Miller Starr & Regalia (Miller Starr) and Horvitz & Levy LLP (Horvitz & Levy). For example, Thomas Peterson, an attorney with respondent Morgan Lewis, prepared a 27-page legal analysis after PTF filed a notice of appeal in the set aside action in which he assigned to PTF a "respectable chance" of success in reversing the summary judgment order. Noting the lack of guiding legal precedent, Peterson provided the following analysis supporting the claim that section 701.680 did not bar PTF from seeking to set aside the property sale:
"Under § 729.010(b), when property is sold subject to the right of redemption, the sale is governed by § 716.020(b). When a sale is governed by § 716.020(b), that section borrows portions of the EJL, i.e., the sale shall be conducted 'in the manner prescribed by Article 6 (commencing with § 701.510) of Chapter 3 of Division 2 for giving notice and selling under a writ of execution.' By its terms, § 701.680 does not relate to the 'manner . . . for giving notice and selling,' but to the legal effect of the sale once completed, viz., the extent to which the sale may be challenged after it has been completed. [¶] Section 716.020(b) does not incorporate all of the EJL for good reason. It makes sales to which it applies 'absolute.' A sale with right of redemption is not absolute: '[A]n "absolute" sale is not merely final, but is also without a right of redemption. With respect to execution sales, "absolute" has the same meaning as it has in the phrase "absolute deed," which is defined as a "document of conveyance without restriction or defeasance . . . ." (Black's Law Dict. (5th ed. 1979) p. 9.) Accordingly, our Supreme Court has equated the repeal of a right of redemption with "an act making a sale absolute instead of conditional . . . ." ' " Yancey v. Fink (1991) 226 Cal.App.3d 1334, 1350 [(Yancey)] (citations partially omitted)."
Mevi asserted a substantially similar argument in opposing Palmbaum's motion for summary judgment in the set aside action.
Peterson further opined that legislative history supported his proposed statutory interpretation of section 701.680, noting that "[w]hen the Legislature contemporaneously enacted yet another new provision, by which non-absolute sales (with right of redemption) borrow from the EJL the 'manner for giving notice and selling,' [16 California Law Revision Comm'n Rep.] at 1555 (Law Revision Commission materials addressing amended § 716.020(b)), the Legislature did not change, but maintained current law, except insofar as specific rights were enacted by §§ 726(e) and 729.010-729.090. In identifying such retained 'prior law,' the Assembly Comment to § 716.020 cites, among other things, Johnson v. Tyrrell (1926) 77 Cal.App. 179, 182, a case where an action to set aside a sale was allowed and succeeded despite the argument that a sheriff's sale was final and unimpeachable. And nothing in § 726(e) or §§ 729.010, et seq. undercuts the right to maintain an action like the one successfully prosecuted in Johnson."
Similarly, Miller Starr, the law firm responsible for a leading California real property treatise, Miller & Starr, California Real Estate (3d ed. 2000), assigned to PTF a "30% to 40%" chance of success in appealing the summary judgment ruling and found "merit" to PTF's argument that "[the statute] cannot, and does not, apply in the instance of a judicial foreclosure sale where the right to recover a deficiency against the debtor has not been waived." Like Peterson at Morgan Lewis, Miller Starr attorneys noted in a 16-page letter the lack of precedent regarding the proper interpretation of section 701.680, and then detailed what they deemed a logical "break" in the "chain of statutes" leading to section 701.680 that was relied upon by the trial court (and later by the Amalgamated Bank court) in concluding that PTF lacked standing:
"[S]ection 716.020 does not say that judicial foreclosure sales subject to the right of redemption are 'governed by' Article 6 of the EJL, but only that the notice of sale and sale procedures are to be conducted by the levying officers 'in the manner prescribed by Article 6.' The sections of that Article prescribing procedures for notice and sale that would logically apply to a sale of real property are thus incorporated, but not those provisions dealing with the effect or consequences of such a sale, which are matters of substantive law and would not be of concern to the levying officer. The portions of Article 6 incorporated by 716.020 do not include section 701.680(a), which deals exclusively with the legal consequences of a typical execution sale under the [EJL]. Here we find the break in the chain that defendants claim does not exist."
In this opinion letter, Miller Starr also anticipated Palmbaum's reliance on the notice of sale itself to prevail on appeal. This notice of sale was prepared and published by the sheriff under the supervision of and with the approval of PTF's attorneys. Before the trial court, as here, Palmbaum relied on the notice of sale to show respondents' alleged knowledge that they lacked standing to prosecute the set aside action, pointing out language on page one that "Prospective bidders should refer to Sections 701.510 to 701.680, inclusive, . . . for provisions governing the terms, conditions, and effect of the sale . . . ." (Italics added.) Acknowledging the trial court's acceptance of this argument in the summary judgment proceedings, Miller Starr proposed the following responses, among others, on appeal:
"In the realm of statutory construction, the specific overrides the general. Section 729.010 states that 'If the decree of foreclosure of a mortgage or deed of trust on real property pursuant to [section] 726 determines that a deficiency judgment may be ordered against the defendant' (§ 729.010(a)), then '[t]he notice of sale of the property shall state that the property will be sold subject to the right of redemption . . . .' (§ 729.010(b)(1).) That specific rule overrides the more general language in section 701.547 [stating that, 'A notice of sale shall contain the substance of the following statement: "Prospective bidders should refer to Sections 701.510 to 701.680, inclusive, of the Code of Civil Procedure for provisions governing the terms, conditions, and effect of the sale and the liability of defaulting bidders" ']. [¶] [Further] [a]s noted in the earlier discussion of section 729.010(b)(2), the Legislature has indicated a specific intent that the exceptions in § 729.010(b), regarding the manner of giving notice to be followed in a judicial foreclosure, are to prevail over any contrary notice provisions contained in Article 6, which apply to ordinary execution sales under money judgments (i.e., 'pursuant to' the EJL)."
Miller Starr also noted that "§ 729.010(b)(1) controls over any construction of § 701.547 which would result in incorporating 701.680(a) into all judicial foreclosure sales, because such an incorporation would make every such foreclosure 'absolute,' i.e., not subject to the right of redemption. The Legislature surely did not intend to say that, 'The notice of sale to be given in the case of a foreclosure sale subject to the right of redemption shall state that the sale is absolute (i.e., not subject to the right of redemption).' "
Finally, as mentioned above, Horvitz & Levy also provided an opinion letter regarding PTF's chances of success on appeal, albeit a letter considerably less optimistic than that offered by Morgan Lewis and Miller Starr. Opining that it was "highly likely" an appellate court would conclude PTF lacked standing to move to set aside the sale, Horvitz & Levy reasoned as follows: "By its terms, section 701.680 occupies the field of setting aside judicial foreclosure sales. Only the judgment debtor or the judgment debtor's successor in interest . . . may seek to set aside the sale. Otherwise, such a sale 'may not be set aside for any reason.' (§ 701.680, subd. (a).)" In doing so, Horvitz & Levy rejected PTF's proposed argument that section 701.680 does not apply to judicial foreclosure sales subject to a right of redemption, noting that "[t]he statutes expressly state that a right of redemption modifies several provisions that govern judicial foreclosure sales, but section 701.680 is not among these. (See, e.g., §729.010, subd. (b)(2) [provision of §701.545 delaying notice of sale does not apply]; §729.010, subd. (b)(3) [provision of §701.540, subd. (h), delaying sale does not apply]; §729.040, subd. (b) [requiring information in addition to that required by §701.670 in notice of sale].) . . . The Legislature's decision that a right of redemption modifies only these provisions necessarily excludes the possibility that it also modifies section 701.680."
In addition, Horvitz & Levy noted that PTF's argument that section 701.680 applies only to "absolute" foreclosure sales and, thus, would not apply to judicial foreclosure sales subject to the right of redemption, like this one, "would lead to the absurd result that as a judgment creditor PTF would have greater rights to set aside the judicial foreclosure sale here than would a judgment debtor subject to section 701.680." (See § 701.680, subd. (c)(1) [permitting the judgment debtor to set aside a foreclosure sale to the judgment creditor but not to a third party].)
Horvitz & Levy added that, even assuming legislative history was relevant given the unambiguous statutory language, it would favor Palmbaum, citing comments from the California Law Revision Commission and the Assembly Committee on Judiciary. (See Assem. Com. On Judiciary, Rep. on Assem. Bills Nos. 707 and 795 (1981-1982 Reg. Sess.), pp. 36-37 ["the elimination of the statutory right to redeem after a sale pursuant to [Article 6] does not affect rights to redeem afforded by other law"]; 18 Cal. Law Revision Com. Rep. (1985) p. 361 [noting the 1985 amendment of § 701.680(c) was intended to clarify "that a successor in interest of the judgment debtor may seek to overturn a sale, or seek to recover damages caused by the impropriety, pursuant to this section. This provision is consistent with Section 729.020 which determines who may redeem from a foreclosure sale." (Italics added)].)
Horvitz & Levy noted that section 701.680 does not, by its terms, foreclose all judgment creditor remedies, just the remedy of setting aside the sale.
While the Horvitz & Levy attorneys ultimately endorsed a different interpretation of section 701.680 than the Morgan Lewis and Miller Starr attorneys - indeed, an interpretation subsequently ratified by the appellate court - we nonetheless conclude both interpretations were, at a minimum, "arguably tenable. " (Wilson, supra, 28 Cal.4th at p. 824.) In particular, the legal arguments presented by Miller Starr and Morgan Lewis and pursued by respondents applied recognized principles of statutory interpretation, including the "well-settled" principle that, "if possible, the codes are to be read together and blended into each other as though there was but a single statute [citations], and that the existence of a particular statute does not negate the effect of a general statute . . . .' [Citation.] . . . 'Where . . . [multiple] codes are to be construed, they "must be regarded as blending into each other and forming a single statute." [Citation.] Accordingly, they "must be read together and so construed as to give effect, when possible, to all the provisions thereof." ' [Citations.]" ( Imperial Merchant Services, Inc. v. Hunt (2009) 47 Cal.4th 381, 389.)
Similarly, with respect to Miller Starr's proposed argument minimizing the significance of the language in the notice of sale referring prospective bidders to section 701.680 "for provisions governing the terms, conditions, and effect of the sale," the firm relied on the equally well-established principle that "a specific provision prevails over a general one relating to the same subject." (Department of Alcoholic Beverage Control v. Alcoholic Beverage Control Appeals Bd. (1999) 71 Cal.App.4th 1518, 1524.) As such, the argument was not wholly unreasonable, even if it ultimately proved unsuccessful. In addition, as respondents point out, while referring bidders to section 701.680, the notice was silent as to how the statute would actually operate for purposes of the sale. And, in any event, where a statute does govern, the statute itself, not language in a notice of sale or the intent of the notice's drafters, is controlling with respect to the relevant parties' rights. (See Yancey, supra, 226 Cal.App.3d at p. 1352 ["the intent of the plaintiff in the foreclosure action is irrelevant to the issue of whether the sale is subject to a right of redemption"].) As such, the governing statute (whether section 701.680 or another), not the language of the notice of sale, was always going to be determinative of PTF's rights with respect to the property sale.
Thus, even though respondents were unsuccessful in pressing their legal argument that section 701.680 is inapplicable to judicial foreclosure sales subject to a right of redemption, we nonetheless conclude their arguments were "not so completely lacking in apparent merit that no reasonable attorney would have thought the claim[s] tenable. (Sheldon Appel, supra, 47 Cal.3d at pp. 885-886.)" (Wilson, supra, 28 Cal.4th at p. 824.) As all attorneys working on the set aside action noted, when the action was filed, no published California decision had held that section 701.680 applied to judicial foreclosure sales subject to a right of redemption, and at least one published California decision arguably suggested otherwise. (See Yancey, supra, 226 Cal.App.3d at pp. 1350-1351 ["an absolute sale is not merely final, but is also without a right of redemption"].) In addition, there were several, albeit older, decisions recognizing the right of a judgment creditor to move to set a side a judicial foreclosure sale on equitable grounds that included sale irregularities and fraud. (See, e.g., Bank of America Etc. Assn. v. Reidy (1940) 15 Cal.2d 243, 245, 248 (Reidy).) While both the trial court and the appellate court in Amalgamated Bank ultimately concluded these past decisions did not survive enactment of the EJL, we decline to hold the underlying action in this case presented no probable cause given the lack of clear legal precedent and the right of litigants to pursue even "novel or debatable legal claims." (Wilson, supra, 28 Cal.4th at p. 817.)
In reaching this conclusion, we accept Palmbaum's point that "a lawyer is not immune from liability for malicious prosecution simply because the general area of law at issue is complex and there is no case law with the same facts that establishes that the underlying claim was untenable." ( Franklin Mint Co. v. Manatt, Phelps & Phillips, LLP (2010) 184 Cal.App.4th 313, 346.) However, it is likewise true that only lawsuits that "all reasonable lawyers agree totally lack merit" - in other words, "the least meritorious of all meritless suits" - present no probable cause. ( Roberts, supra, 76 Cal.App.4th at p. 382, citing In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650.) The set aside action at the heart of this case simply does not fall into this small subset of meritless cases, particularly after "properly[ly] tak[ing] into account the evolutionary potential of legal principles." (Sheldon Appel, supra, 47 Cal.3d at p. 886.) Accordingly, Palmbaum has not shown a probability of succeeding on the merits with respect to his argument that respondents lacked probable cause to pursue the set aside action because their legal theories were untenable.
B. Did respondents rely on facts they knew or discovered were untrue?
Having concluded that respondents had tenable legal theories for demonstrating PTF's standing to pursue the set aside action, the question remains whether there were sufficient factual grounds for the action. As Palmbaum notes, " 'probable cause is lacking "when a prospective plaintiff and counsel do not have evidence sufficient to uphold a favorable judgment or information affording an inference that such evidence can be obtained for trial." ' " (Morrison v. Rudolph (2002) 103 Cal.App.4th 506, 512 (Morrison), disapproved in part on other grounds in Zamos, supra, 32 Cal.4th at p. 973.) Further, an attorney may be held liable for malicious prosecution, not just for initiating a lawsuit without probable cause, but also for continuing to prosecute a lawsuit once facts are revealed that indicate lack of probable cause. (Zamos, at p. 970.) "The reasonableness of counsel's persistence is . . . a question of law to be decided on a case-by-case basis . . . ." (Id. at p. 970, fn. 9.)
Here, Palmbaum contends the following facts, of which respondents had or acquired knowledge during the underlying proceedings, negated any right they may have otherwise had to equitable relief from the property sale: (1) respondent Mevi and Howard were themselves to blame for their tardiness in reaching the courthouse to bid on the property on PTF's behalf because, among other things, Mevi negligently went to the wrong courthouse and Howard, upon arriving at the courthouse, was detained by security for possessing a penknife on a keychain; (2) despite their tardiness in reaching the sale, neither respondent Mevi nor Howard contacted the sheriff to delay the sale or arranged for a local representative to attend on PTF's behalf; (3) Palmbaum acted lawfully in bidding only $2,000 for property worth millions given the absence of any other bidders at the sale, and there was no evidence or information suggesting otherwise.
Denying that these facts, even if true, demonstrate lack of probable cause, respondents contend other facts in the record provided an adequate evidentiary basis for seeking to set aside the property sale on equitable grounds. In doing so, respondents contend that, during the duration of the set aside proceedings, it remained unclear whether, following enactment of the EJL, California courts continued to possess the power to set aside a property sale on equitable grounds where there is evidence the sale was conducted unfairly or fraudulently. (E.g., Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1095 ["The law has long provided that if a nonjudicial foreclosure sale has been unfairly or unlawfully conducted, or is tainted by fraud, the trial court has the power to set it aside"].) Under the traditional rule, where the sale price was so low as to shock the conscience, very little additional evidence of irregularity or unfairness was required to warrant setting aside the sale. (See Sargent, supra, 193 Cal. at p. 129.)
As Palmbaum notes, Lo v. Jensen involved a nonjudicial foreclosure sale rather than, as here, a judicial foreclosure sale. However, the case law pre-dating the EJL's enactment reflects that the same equitable rule applied to both types of foreclosure sales. (See Reidy, supra, 15 Cal.2d at pp. 245, 248 ["it is the general rule that courts have power to vacate a [judicial] foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties"].) As such, we accept for purposes of this analysis respondent's point that, as with the rules governing the right of redemption (pp. 11-12, above), there was very little legal guidance at the time the set aside action was being prosecuted regarding whether the traditional rule authorizing rescission of judicial property sales on equitable grounds survived enactment of section 701.680.
--------
It is upon this traditional equitable rule that respondents rely to justify their factual theories in the set aside action. In doing so, respondents point to the following circumstances at least arguably probative of the sale's unfairness or fraud: (1) Palmbaum paid $2,000 for property valued at least $6.5 million and perhaps as much as $15 to $18 million, an undisputedly gross disparity in price; (2) the sheriff may have commenced the sale before the noticed 10:00 a.m. start time and/or failed to read the entire legal description of the sale property in violation of the sheriff's department's procedures for conducting foreclosure sales; (3) the sheriff refused to exercise his discretion to reopen the sale to permit PTF to bid despite the grossly inadequate sale price and Howard's arrival just seconds after "the hammer fell"; (4) even if Howard had not been detained by security for carrying a penknife, he nonetheless would have missed the sale due to circumstances out of his control, including the sheriff's failure to read the entire legal description of the property, an act that may have delayed the sale long enough for him to arrive and bid; (5) the mere facts that Palmbaum's uncle, Christo Bardis, an officer of Winncrest, the judgment debtor, was present at the sale, was prepared to loan Palmbaum over $10 million to pay for the property, and failed to object to his nephew's grossly inadequate bid was suggestive of collusion.
After reviewing the record, we agree with respondents that at least some of these circumstances were sufficient to raise an inference that evidence could be obtained for trial to prove equitable grounds for setting aside the property sale. (See Morrison, supra, 103 Cal.App.4th at p. 512; Zamos, supra, 32 Cal.4th at p. 970.) For example, the trial court ultimately found no triable issue of material fact regarding the sale's timely commencement. However, there was nonetheless evidence in the record that, on the day of the sale, Howard called upon Bob Cassano, a PTF employee, to visit the courthouse cafeteria where the sale took place to verify the accuracy of the cafeteria's wall clock. After comparing it to the official time provided via his cell phone by the National Institute of Standards and Technology website, Cassano determined the wall clock was two minutes, five seconds fast. Undisputedly, Howard arrived at the sale ready to bid within seconds of its conclusion, giving significance to the accuracy of the clock used to commence the sale. In fact, Howard insisted his watch read 10:01 or 10:02 a.m when he entered the cafeteria.
As Palmbaum notes, the trial court, in finding the evidence insufficient to create a triable issue of material fact on this point, relied on the sheriff's undisputed testimony that he used his own watch rather than the wall clock or any other time piece to start the property sale and Howard's admission that he never looked at the wall clock. However, the sheriff also testified that he conducted the entire sale in five or six minutes, a fact arguably inconsistent with Howard's testimony that he arrived at the sale at about 10:01 or 10:02 a.m. and with sheriff department employee Gladys Northcross's testimony that the sale concluded by 10:04 a.m. Given these apparent inconsistencies, we believe a reasonable attorney could have concluded the evidence relating to the sale's commencement and duration was sufficient to at least survive summary judgment.
As respondents also note, there was evidence the sheriff failed to read the entire legal description of the property that was provided in the notice of sale, an omission contrary to the procedures for conducting foreclosure sales set forth in the sheriff's Department's manual. The property's legal description consumed over a half page of single-space text in the notice and, thus, reading all of it could in fact have taken a few minutes, a potentially significant amount of time given that Howard arrived at the sale just as the "hammer was falling." According to Palmbaum, PTF failed to raise this factual issue before the trial court in opposing his summary judgment motion, thereby waiving the right to raise it for the first time in the court of appeals. While waiver is undoubtedly a real concern with respect to this issue, we nonetheless believe a reasonable attorney could have concluded that this evidence was highly significant and, thus, that effort should be made to introduce it in court, even if belatedly.
In drawing these conclusions, we acknowledge Palmbaum's point that, under the traditional rule, a foreclosure sale could only be set aside on equitable grounds if the plaintiff was not at fault for the sale's alleged unfairness or irregularity. (See Sargent, supra, 193 Cal. at pp. 129-130 [setting aside a property sale on equitable grounds requires a showing that the plaintiff's fault was not a cause of the sale's alleged unfairness or irregularity].) Here, as mentioned above, the trial court summarily adjudicated in Palmbaum's favor the affirmative defenses of unclean hands, assumption of risk, mitigation of damages and comparative fault. In doing so, the trial court specifically found that risk-taking and negligence by PTF's representatives were the sole causes of their failure to bid on the property. However, putting aside the trial court's actual finding, we agree with respondents that, generally, the availability of these defenses depends on fact-based inquiries reserved for the trier of fact. ( Ewing v. Cloverleaf Bowl (1978) 20 Cal.3d 389, 399 ["a person is liable for the reasonably foreseeable injuries caused by his failure to exercise reasonable care. [Citations.] The questions of causality, foreseeability and reasonableness which derive from this rule are factual, and thus constitute questions for the jury. [Citations.] Similarly, the chief affirmative defenses which defendant may raise in response to plaintiffs' claims, contributory negligence [citation] and assumption of risk [citations] are also questions of fact"]; Lindstrom v. Hertz Corp . (2000) 81 Cal.App.4th 644, 652 ["negligence may be determined as a matter of law only if reasonable jurors following the law could draw only one conclusion from the evidence presented"].) As such, we believe a reasonable attorney could in fact have argued, both at the trial court and appellate levels, that the issue of whether the sheriff's acts or omissions in conducting the sale, rather than those of PTF's agents in arriving tardy for the sale without attempting to delay it or arrange for an alternate bidder, led to the sale's inequities.
Indeed, we hasten to add that plaintiffs losing in summary judgment proceedings commonly seek appellate review of a trial court's findings with respect to the existence of triable issues of fact. All courts, including this one, must take care to protect the legitimate rights of litigants seeking such appellate review. As our colleagues in the Third District have aptly explained: " 'The courts of the state are open to every citizen for the redress of his wrongs, and unless he is at liberty to seek such redress without rendering himself liable in damages to the defendant, in case he shall fail to establish his complaint, this right would in many instances be a barren privilege.' [Citation.] Accordingly, litigants have the right to present issues that are arguably correct even if it is extremely unlikely they will win. (In re Marriage of Flaherty, supra, 31 Cal.3d at p. 650 . . . ; [citation].)" ( Leonardini v. Shell Oil Co . (1989) 216 Cal.App.3d 547, 566.) In a similar vein, the California Supreme Court has cautioned: " 'Plaintiffs and their attorneys are not required, on penalty of tort liability, to attempt to predict how a trier of fact will weigh the competing evidence, or to abandon their claim if they think it likely the evidence will ultimately weigh against them. They have the right to bring a claim they think unlikely to succeed, so long as it is arguably meritorious.' " (Wilson, supra, 28 Cal.4th at p. 822.)
Thus, in light of these important legal principles and the totality of the circumstances at hand, we stand by our conclusion that, despite the trial court's summary judgment ruling, a reasonable attorney could nonetheless have found probable cause to seek to set aside the property sale on equitable grounds based on the grossly inadequate sale price coupled with information affording an inference that the sale's unfairness or irregularity could be proven at trial. Simply put, the factual theories asserted in the set aside action were "not so completely lacking in apparent merit that no reasonable attorney would have thought the claim[s] tenable. (Sheldon Appel, supra, 47 Cal.3d at pp. 885-886.)" (Wilson, supra, 28 Cal.4th at p. 824.) Palmbaum's malicious prosecution action was therefore appropriately stricken under the anti-SLAPP statute for failure to make a prima facie showing that the set aside action was initiated or continued without probable cause.
Finally, because the presence of probable cause alone suffices to defeat an action for malicious prosecution (Roberts, supra, 76 Cal.App.4th at p. 386), we need not address Palmbaum's remaining claim that respondents' continued prosecution of the set aside action was malicious. "If the court determines that there was probable cause to institute the prior action, the malicious prosecution action fails, whether or not there is evidence that the prior suit was maliciously motivated." (Sheldon Appel, supra, 47 Cal.3d at p. 875.)
III. Did the trial court err by denying Palmbaum's request to continue the hearing date on Morgan Lewis's motion to strike?
With respect to Palmbaum's remaining argument that the trial court erred in continuing the hearing date on Mevi's motion to strike but refusing to do so the same with respect to Morgan Lewis's motion, we agree with respondents that Palmbaum failed in his opening brief to make the necessary showing of prejudice resulting from the trial court's decisions. The mere fact that Palmbaum was precluded from opposing all respondents' motions to strike jointly on the same day does not demonstrate prejudice. Nor does Palmbaum's vague assertion, without any record support, that the trial court ultimately decided these motions without the benefit of "a complete evidentiary record." Moreover, despite being confronted with his failure to set forth facts demonstrating prejudice, Palmbaum fails to even mention this argument in his reply brief, an omission we interpret as a concession that no such facts exist on this record. As such, we reject his argument without further discussion.
DISPOSITION
The judgment is affirmed. Respondents shall recover costs on appeal.
_______________
Jenkins, J.
We concur:
_______________
McGuiness, P. J.
_______________
Pollak, J.