Opinion
B229175
02-15-2012
TSF 53419, LLC, Plaintiff and Appellant, v. PHYLLIS A. PACELLA et al., Defendants and Respondents.
Hacker Law Group and Jeffrey A. Hacker for Plaintiff and Appellant. Luce, Forward, Hamilton & Scripps, David R. Krause-Leemon and Michelle K. Sugihara for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. PC045484)
MOTION to dismiss appeal. Granted.
Hacker Law Group and Jeffrey A. Hacker for Plaintiff and Appellant.
Luce, Forward, Hamilton & Scripps, David R. Krause-Leemon and Michelle K. Sugihara for Defendants and Respondents.
INTRODUCTION
Plaintiff and appellant TSF 53419, LLC (TSF) asserted one cause of action for judicial foreclosure against defendants and respondents, the owners of units in a condominium complex in Santa Clarita (Homeowners). This cause of action was based on a promissory note (Note) and deed of trust (Deed of Trust) executed by a third-party, Trimark Pacfic-Valle Di Oro, LLC (Trimark). TSF contends Trimark breached its obligations under the Note and that TSF has a right to judicially foreclose on Homeowners' condominium interests pursuant to the Deed of Trust.
Homeowners are Phyllis A. Pacella, Rika E. Wakelin, Edna Villalvazo, Guillermo Villalvazo, Anna S. East, Jeremy M. East, Jason R. Fontes, Breanne A. Schmidt, Debra N. Black, Jason T. Black, Cynthia D. Kloe, Suzanne Zelenak, Gary Sager, Shad G. Sager, Hallie Sager, Brandon M. Golphenee, Ernie R. Golphenee, and Toni T. Golphenee.
The trial court granted Homeowners' motion for summary judgment (MSJ) on the ground the real property described in the Deed of Trust did not include Homeowners' condominium interests, and then entered judgment in favor of Homeowners. TSF appealed the judgment.
Homeowners filed a motion to dismiss the appeal on the ground the appeal is moot. The motion is based on undisputed evidence indicating TSF entered into a settlement agreement with Trimark and affiliated entities (Settlement Agreement), whereby TSF released all claims it had against Trimark based on the Note and Deed of Trust.
We hold the appeal is moot. Even if the trial court erroneously granted the MSJ, as TSF contends on appeal, TSF cannot maintain its sole cause of action for judicial foreclosure against Homeowners because the Note and related Deed of Trust are no longer enforceable under the Settlement Agreement. We therefore grant Homeowners' motion to dismiss and dismiss TSF's appeal.
FACTS
1. The Initial Transaction Documents
On June 21, 2004, TSF sold vacant land in Santa Clarita (TSF Parcel) to Trimark Pacific Homes, L.P. (Trimark L.P.) under a purchase and sale agreement and escrow instructions (Purchase Agreement). The purchase price was $3,800,000. Subsequently, Trimark L.P. assigned all of its rights and obligations under the Purchase Agreement to Trimark.
Trimark L.P. and its affiliate Trimark financed the purchase of the TSF Parcel with a $3.7 million loan from TSF memorialized by the Note. Trimark was the maker of the Note; TSF was the holder. The Note, dated April 15, 2005, provides that Trimark shall pay TSF the principal balance of $3,700,000, plus 10 percent annual interest, within four years.
The Note was secured by the Deed of Trust. The Deed of Trust, dated April 15, 2005 and recorded on April 19, 2005, granted TSF a lien on the TSF Parcel.
In August 2005, TSF recorded a Modification of Deed of Trust, whereby Trimark's debt to TSF was subordinated under a certain subordination agreement between TSF and Bank of the West. The Modification of Deed of Trust did not change the due date or payment obligations under the Note.
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2. The Homeowners' Purchase of Their Condominiums
The TSF Parcel was later combined with another parcel on which Trimark created the Valle Di Oro subdivision. Between June 2008 and September 2008, Homeowners purchased their condominium units in the Valle Di Oro subdivision from Trimark.
3. Procedural History in the Trial Court
On May 21, 2009, TSF commenced this action in the trial court by filing a complaint. In December 2009, TSF filed its first amended complaint (FAC), the operative pleading.
The FAC sets forth four causes of action against Trimark and affiliated entities (Trimark Defendants), including a claim for breach of the Note. It also sets forth a negligence cause of action against Fidelity National Title Company, Fidelity National Title Company of California, and Fidelity National Title Insurance Company (together Fidelity), as well as a cause of action for "alter ego" against West Coast Housing Partners, LLC, Steven Kessler and the Trimark Defendants.
The only cause of action in the FAC against Homeowners is for judicial foreclosure. This cause of action is based on the Deed of Trust and the Trimark Defendants' alleged breach of the Note.
In June 2010, Homeowners filed the MSJ. In their brief supporting the motion, Homeowners argued: "[N]one of the Homeowners' condos are on any land encumbered by TSF's deed of trust. In other words, TSF's deed of trust encumbers Blackacre, but the Homeowners' homes are on Whiteacre. As a result, because TSF has no recorded interest in the land on which the Homeowners' homes are located, there is no basis on which TSF can foreclose."
In August 2010, the trial court issued an order granting the MSJ. Based on that order, the trial court entered judgment in favor of Homeowners. TSF filed a timely appeal of the judgment.
4. The Settlement Agreement
Although the Settlement Agreement was executed at about the same time Homeowners filed their MSJ, Homeowners' attorney David R. Krause-Leemon claims he received the Settlement Agreement after the trial court granted the MSJ. Krausz-Leemon attached the Settlement Agreement to his declaration supporting Homeowners' motion to dismiss. TSF does not dispute the authenticity of the Settlement Agreement.
The Settlement Agreement is between TSF on the one hand, and Trimark, affiliated entities and Steven J. Kessler (Trimark Settling Parties), on the other. It provides, inter alia, (1) the Trimark Settling Parties shall pay TSF $312,000; (2) the Trimark Settling Parties assign all of their causes of action against Fidelity to TSF; (3) the parties to the Settlement Agreement release each other from any claims, debts, liabilities, and causes of action of whatever nature and description, including the causes of action in the FAC; and (4) TSF shall dismiss with prejudice the FAC against the Trimark Settling Parties. Pursuant to the Settlement Agreement, TSF filed a request for dismissal of the FAC with prejudice with respect to the Trimark Setting Parties.
DISCUSSION
1. We Consider the Settlement Agreement Even Though It Was Not in the Trial Court Record
"It is an elementary rule of appellate procedure that, when reviewing the correctness of a trial court's judgment, an appellate court will consider only matters which were part of the record at the time the judgment was entered. [Citation.] This rule preserves an orderly system of appellate procedure by preventing litigants from circumventing the normal sequence of litigation." (Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 813.) The rule, however, is "somewhat flexible[.]" (Ibid.) When the facts are not in dispute, the issue is fully briefed, and our adjudication of the issue will avoid unnecessary or repetitive litigation, we have discretion to consider matters outside of the trial court record. (Ibid. [post-judgment insolvency of primary insurer considered in determining liability of excess insurer].)
This is one of those rare cases when it is appropriate for us to consider evidence outside of the trial court record, namely the Settlement Agreement. There is no dispute about the contents of the Settlement Agreement or that it was duly executed. The only dispute is about the legal ramifications of the Settlement Agreement, which the parties have fully briefed. Moreover, for reasons we shall explain, TSF's execution of the Settlement Agreement effectively rendered the issue on appeal moot. We therefore consider the Settlement Agreement in order to avoid unnecessary and repetitive litigation in this court and the trial court.
2. Because the Deed of Trust Is No Longer Enforceable, There Is No Basis for TSF to Maintain Its Judicial Foreclosure Cause of Action Against Homeowners
"A real property loan generally involves two documents, a promissory note and a security instrument. The security instrument secures the promissory note. This instrument 'entitles the lender to reach some asset of the debtor if the note is not paid. In California, the security instrument is most commonly a deed of trust (with the debtor and creditor known as trustor and beneficiary and a neutral third party known as trustee). The security instrument may also be a mortgage (with mortgagor and mortgagee, as participants). In either case, the creditor is said to have a lien on the property given as security, which is also referred to as collateral.' " (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1235 (Alliance).)
A cause of action for judicial foreclosure on a deed of trust or mortgage is governed by Code of Civil Procedure section 726 et seq. (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 675, p. 99). An essential element of this cause of action is, of course, an enforceable security instrument, i.e., an enforceable deed of trust or mortgage. (Ibid.)
A deed of trust is merely incident to the underlying obligation. Thus, if the underlying obligation (e.g., a promissory note) is satisfied, the deed of trust is no longer enforceable. (Alliance, supra, 10 Cal.4th at p. 1235 ["A security interest cannot exist without an underlying obligation"]; Coon v. Shry (1930) 209 Cal. 612, 615 ["There cannot be a mortgage if there is no debt or other obligation to be secured"]; Fleming v. Kagan (1961) 189 Cal.App.2d 791, 796 ["If the note is unenforceable, the lien of the deed of trust gives it no validity. It is a mere incident of the debt or obligation which it is given to secure."]; 4 Miller & Starr, Cal. Real Estate (3d ed. 2003) § 10:10, p. 41 ["The deed of trust must secure some debt or obligation . . . . Because the security instrument is merely incident to and measured by the performance of the obligation [fn. omitted], there can be no lien of a mortgage or trust deed without an underlying and enforceable debt or obligation"].)
Here, under the Settlement Agreement, TSF broadly released Trimark from all claims, debts and obligations, including those arising from the Note. The Note thus became unenforceable upon the execution of the Settlement Agreement. Because the Deed of Trust is merely incident to the Note, it too is no longer enforceable. Accordingly, there is no basis for TSF to maintain its judicial foreclosure cause of action against Homeowners.
3. TSF's Appeal Is Moot
We render a judgment on the merits of an appeal only when there is an actual controversy, and do not opine on moot questions of law. (Eye Dog Foundation v. State Board of Guide Dogs for the Blind (1967) 67 Cal.2d 536, 541 (Eye Dog Foundation); Ebensteiner Co., Inc. v. Chadmar Group (2006) 143 Cal.App.4th 1174, 1178 (Ebensteiner).) When an event occurs, or is discovered, during the pendency of an appeal, which renders it impossible for this court to grant the appellant "effectual relief," we must dismiss the appeal as moot. (Eye Dog Foundation, at p. 541; Ebensteiner, at pp. 1178-1179.)
In Ebensteiner, the plaintiff filed a second amended complaint (SAC) alleging causes of action for constructive fraud, conspiracy to defraud, and breach of fiduciary duty against the defendant. (Ebensteiner, supra, 143 Cal.App.4th at p. 1176.) The trial court sustained the defendant's demurrer to the SAC and entered an order of dismissal. While the plaintiff's appeal was pending, the parties entered into a settlement agreement, whereby the plaintiff released the defendant of all causes of action and agreed to dismiss the SAC. (Id. at pp. 1176-1177.) The court dismissed the appeal on the ground that the settlement agreement "rendered moot the issue of whether the demurrer dismissal should have been entered." (Id. at p. 1176.)
We reach the same conclusion as the Ebensteiner court. The issue on appeal here is whether the trial court should have granted the MSJ. In order to resolve that issue we must decide whether, as a matter of law, the Deed of Trust described the condominium interests of Homeowners. For the reasons we have explained ante, however, regardless of how we decide the issue on appeal, TSF cannot maintain a judicial foreclosure cause of action against Homeowners. TSF's appeal is thus moot.
TSF argues the appeal should not be dismissed as moot because "the debt obligation underlying the Deed of Trust as it relates to these Condo Owners was not extinguished by virtue of the settlement nor the Dismissal with Prejudice of the Promissory Note Cause of Action, since that was only directed against [Trimark] and its successors and assignees, not the Condo Owners." (Italics added.) The fatal flaw with this argument is that Homeowners did not have a "debt obligation" under the Note, or any other document, to TSF. The only relevant debt obligation was the Note executed by Trimark in TSF's favor, and that obligation was extinguished by the Settlement Agreement.
4. We Decline to Exercise Our Discretion to Address a Moot Issue
" ' "[I]f a pending case poses an issue of broad public interest that is likely to recur, the court may exercise an inherent discretion to resolve that issue even though an event occurring during its pendency would normally render the matter moot." [Citation].' " (Edelstein v. City and County of San Francisco (2002) 29 Cal.4th 164, 172.) TSF argues that even if the appeal were moot, we should adjudicate the merits of TSF's arguments on appeal because it is in the public interest that we do so.
We decline to address the merits of TSF's appeal. The issue on appeal—whether the Deed of Trust describes the condominium interests of Homeowners—depends in large measure on the particular facts in this case. Therefore, this is not one of the rare cases where it is appropriate for this court to address the merits of a moot issue.
DISPOSITION
Homeowners' motion to dismiss is granted and TSF's appeal is dismissed. In the interests of justice, each side shall bear their own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
KITCHING, J. We concur:
KLEIN, P. J.
CROSKEY, J.