Anthony D Houston et al vs Katherine A Walker

Case Number

23CV05451

Case Type

Hearing Date / Time

Fri, 06/21/2024 - 10:00

Nature of Proceedings

Motion to Appoint Receiver

Tentative Ruling

For the reasons set forth herein, the motion upon stipulation of the parties for appointment of a receiver is denied. Counsel are to appear at the hearing of this matter and to be prepared to discuss the matters set forth herein.

Background:

On December 8, 2023, plaintiffs Anthony D. Houston and Beverly J. Houston, as trustees of the Houston Family Trust (collectively, the Houston Trust) and Michael J. Morris, as trustee of the Penelope Lockridge Hartnell Trust (the Hartnell Trust) filed their verified complaint in this action. The complaint is asserted against defendant Katherine A. Walker, individually and as trustee of the Katherine Ann Walker Trust (in either or both capacities, the Walker Trust). Plaintiffs and defendants are collectively referred to herein as the Parties. The complaint alleges:

The Houston Trust, the Hartnell Trust, and the Walker Trust own, as tenants in common, real property commonly known as the Hartnell Ranch (the Property). (Complaint, ¶ 10.) The Property consists of approximately 2,300 acres located in Santa Barbara County. (Ibid.) The Hartnell Trust owns an undivided 50 percent interest; the Houston Trust owns an undivided 25 percent interest; and the Walker Trust owns an undivided 25 percent interest (the Walker Trust Share). (Ibid.)

On August 1, 1938, an oil and gas lease covering approximately 702 acres of the Property was entered into between Wells Fargo Bank & Union Trust Co., as lessor and as trustee for the Parties’ predecessor, and Union Oil Company of California, as lessee (the Royalty Lease). (Complaint, ¶ 11 & exhibit 1.) The current lessee of the Royalty Lease, by way of assignment, is Pacific Coast Energy Company (Lessee). (Complaint, ¶ 12.) The royalties earned from the sale of oil, gas, and other hydrocarbon products, produced under the Royalty Lease is paid 25 percent to the Houston Trust, 50 percent to the Hartnell Trust, and 25 percent to the Walker Trust. (Complaint, ¶ 13.)

The Parties are obligated under the Royalty Lease to pay all taxes and assessments levied by the County of Santa Barbara (County) on the Property before they become delinquent. (Complaint, ¶ 14.) The County sends separate tax bills for the Property to each Party’s respective share of the taxes assessed against the Property. (Complaint, ¶ 15.) All property tax bills received by the Hartnell Trust and the Houston Trust for the property taxes assessed against their shares of the Property have been paid before they become delinquent. (Complaint, ¶ 16.)

The Walker Trust has for a number of years failed to pay the property taxes assessed by the County for the Walker Trust Share of the Property, leading the County to declare the entire Property, not just the Walker Trust Share of the Property, tax defaulted for non-payment of taxes. (Complaint, ¶ 17.)

On September 6, 2022, Walker signed an “Installment Plan of Redemption Agreement,” in which the Walker Trust agreed to make installment payments to the County to pay off the Walker Trust’s then $244,167.74 delinquent property tax obligations. (Complaint, ¶ 18 & exhibit 2.) Walker made a few installment payments but then breached that agreement by failing to make further payments, causing the Walker Trust’s outstanding tax delinquency to increase. (Complaint, ¶ 19.) As of August 1, 2023, the amount of delinquency attributed to taxes assessed on the Walker Trust Share is at least $85,616.67. (Complaint, ¶ 20 & exhibit 3.)

Plaintiffs have made numerous requests to Walker to pay the delinquent taxes, but Walker has refused and has stopped communicating with plaintiffs. (Complaint, ¶ 21.)

The complaint asserts a single cause of action for “appointment of receiver,” citing Code of Civil Procedure section 564, subdivision (b)(1) and (9). (Complaint, p. 4 & ¶¶ 23, 27.)

On December 21, 2023, plaintiffs filed their proof of service showing personal service of the summons and complaint on the Walker Trust, in both capacities, on December 19.

On January 25, 2024, plaintiffs requested, and the court entered, default of the Walker Trust.

On April 10, 2024, plaintiffs filed a “Stipulation Appointing Receiver” (Stipulation). The Stipulation recites facts from the complaint and provides the following stipulation:

“A.       That Paul F. Ready be appointed as receiver for the purpose of:

            “1.       Taking possession of the Walker Trust’s Share (i.e. its twenty-five percent (25%) interest in the Property) to manage, conserve and protect, and to collect any and all rents, issues, profits and income hereafter owed to Walker or the Walker Trust therefrom; and

            “2.       Paying all delinquent taxes, current taxes, insurance and other obligations necessary for the management and conservation of Walker’s and the Walker Trust’s interest in the Property as set forth below.

            “3.       That on a monthly basis Mr. Ready shall distribute all income and royalties collected on behalf of Walker and the Walker Trust (the ‘Walker Trust Income’) as follows:

                        “a.       First, to cover the receiver’s fees and costs incurred up through the end of the previous month to be paid pursuant to the procedure set forth below;

                        “b.       Second, in the event that the Walker Trust Income received in the month prior to the month that income is distributed is less than $25,000.00, Mr.

Ready shall pay to the Walker Trust the sum of $5,000.00 and shall apply the balance thereof to the delinquent taxes, current taxes, insurance and other obligations necessary for the management and conservation of the Walker Trust’s Share and the provisions of the Royalty Lease (the ‘Walker Trust Obligations’);

                        “c.        In the event that the Walker Trust Income received in the month prior to the month that income is distributed exceeds $25,000.00 Mr. Ready shall pay to the Walker Trust the sum of $7,000.00 applying the balance to the

Walker Trust Obligations;

                        “d.       Third, any and all remaining sums shall be used to pay the Walker Trust Obligations, with priority given to paying delinquent taxes.

            “B.       That Mr. Ready may be paid $450 per hour for his services from the rents, royalties, profits and income due to Walker and/or the Walker Trust which arise from or connected to their ownership of the Walker Trust Share; and

            “C.       That Mr. Ready may serve without bond if allowed by the Court.”

The Stipulation is signed by the trustees of the Houston Trust, by the trustee of the Hartnell Trust, and apparently by Katherine A. Walker, individually and as trustee of the Walker Trust. (Stipulation, at p. 4.) The proof of service attached to the Stipulation shows service by mail on Walker on April 3, 2024.

On April 26, 2024, the court set this hearing on the Stipulation.

Analysis:

Notwithstanding the fact that the plaintiffs and defendants have executed the Stipulation, the court has serious difficulty with the Stipulation and its requested remedies.

The cited authority for the appointment of a receiver here is Code of Civil Procedure section 564, which provides in relevant part:

“A receiver may be appointed, in the manner provided in this chapter, by the court in which an action or proceeding is pending in any case in which the court is empowered by law to appoint a receiver.” (Code Civ. Proc., § 564, subd. (a).)

“A receiver may be appointed by the court in which an action or proceeding is pending, or by a judge of that court, in the following cases:

            “(1)      In an action by a vendor to vacate a fraudulent purchase of property, or by a creditor to subject any property or fund to the creditor’s claim, or between partners or others jointly owning or interested in any property or fund, on the application of the plaintiff, or of any party whose right to or interest in the property or fund, or the proceeds of the property or fund, is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured. [¶] … [¶]

            “(9)      In all other cases where necessary to preserve the property or rights of any party.”

The first problem is in the nature of the underlying rights to which a receiver is sought. “The appointment of a receiver is an equitable remedy, and there is no such thing as an action brought for the mere appointment of a receiver. Section 564 of the Code of Civil Procedure prescribes when a receiver may be appointed, but does not purport to create rights where there was no prior right of action but merely provides a remedy for the existing conditions.” (In re Stein (1936) 14 Cal.App.2d 303, 305, italics added.) “Where a complaint fails by its allegations to show that the conditions required by law have been complied with, an order for the appointment of a receiver is void for all purposes.” (Ibid.) “ ‘[T]he “appointment of a receiver in equity is not a substantive right; rather, it is an ancillary remedy which does not affect the ultimate outcome of the action.” [Citations.]’ [Citation.]” (Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8 Cal.App.5th 910, 925.)

“It is a corollary that, where one’s entitlement to a receiver is not otherwise established, a [party] may not by stipulation or consent, however manifested, confer jurisdiction upon the superior court to appoint such a receiver.” (Barclays Bank of California v. Superior Court (1977) 69 Cal.App.3d 593, 600.)

The only cause of action asserted in the complaint is for “appointment of receiver.” Since there is no such cause of action, it is unclear from either the complaint or the stipulation what plaintiffs assert as the underlying cause of action. The obvious candidates are not so obviously asserted. “The rule is that when one tenant in common has paid a debt or obligation for the benefit of the joint property, or has discharged a lien or assessment imposed upon it as a common burden, he is entitled as a matter of right to have his cotenant, who has received the benefit of it, refund to him his proportionate share of the amount paid.” (Conley v. Sharpe (1943) 58 Cal.App.2d 145, 155–156.) However, there are no allegations that plaintiffs paid the delinquent taxes and are seeking contribution for those payments. The allegations that plaintiffs’ interests in the Property are affected by Walker’s nonpayment of taxes suggests that plaintiffs are in the position of joint obligors of a debt, each of whom would have an obligation to pay the debt to the third party and then seek contribution based upon such payment. (See, e.g., Jackson v. Lacy (1940) 37 Cal.App.2d 551, 559 [“It is elementary that a party acquires a right of contribution as soon as he pays more than his share but not until then.”].)

Second, as an equitable remedy, there is no showing that the remedy at law would be inadequate. “[W]hen there is an adequate legal remedy, there is no need for equity to step in and therefore no call for equity jurisdiction. Put another way, if the legal remedy of compensatory damages is adequate to do complete justice between the parties, ‘a proper exercise of equitable jurisdiction will not give equitable relief[.]’ [Citation.]” (ZF Micro Solutions, Inc. v. TAT Capital Partners, Ltd. (2022) 82 Cal.App.5th 992, 1000–1001.) The sole problem presented here arises from the nonpayment of money, a problem which is ordinarily addressed by legal, rather than equitable, remedies.

Third, the receivership sought by stipulation has no end connected to the complaint. “A receivership is designed to be merely a provisional remedy. It preserves the status quo of property while litigation is pending.” (Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership, supra, 8 Cal.App.5th at p. 925.) “It may at once be conceded that a court will not be justified, through the medium of a receiver, in arbitrarily withholding property from the owner’s control and enjoyment for an indefinite and unnecessary period.” (Fairbank v. Superior Court (1917) 34 Cal.App. 66, 73.) “The appointment of a receiver is an ancillary proceeding concerned with the preservation of the property subject to litigation pending its ultimate disposition pursuant to final judgment.” (Maggiora v. Palo Alto Inn, Inc. (1967) 249 Cal.App.2d 706, 711–712.) Thus, as a provisional remedy, the receivership ordinarily would be terminated with rendition of a final adjudication of the rights of the parties. (White v. White (1900) 130 Cal. 597, 599–600.) Since the relief expressly sought is the appointment of a receiver to manage Walker’s Share of the Property, this obligation is seemingly eternal.

Fourth, there is no showing that, even if equitable remedies were appropriate, a receivership is an appropriate remedy. “It is also a well-established rule that a receiver should not be appointed where a remedy less drastic in its nature and scope is available, and which will insure to the litigants adequate protection.” (A.G. Col Co. v. Superior Court (1925) 196 Cal. 604, 613.) “ ‘And a receiver should not be appointed where the desired result can be obtained by less stringent means calculated to protect the rights of all parties. [Citations.] “Where an injunction will protect all the rights to which the applicant for the appointment of a receiver appears to be entitled a receiver will not be appointed.” [Citations.]’ ” (Id. at pp. 613–614, quoting Dabney Oil Co. v. Providence Oil Co. of Arizona (1913) 22 Cal.App. 233, 239.) Moreover, “if the rents, issues and profits are not part of the security for the debt, not having been contractually assigned for that purpose, the court has no power under section 564 to authorize the receiver to take possession of the rents, issues and profits and apply them to the debt.” (Turner v. Superior Court (1977) 72 Cal.App.3d 804, 811–812.)

Fifth, the factual underpinning of the stipulation is essentially that Walker, as trustee of the Walker Trust, is failing in her obligations as trustee to protect the Property. (See Prob. Code, § 16006.) The stipulation is to place the Walker Trust Share of the Property, i.e., the real property interest, in the hands of a receiver. Receivership of trust property has potential implications for the Walker Trust beyond Walker herself. Again, the problem alleged in the complaint ultimately is only the nonpayment of money, a problem which can be adequately resolved by the payment of money separate from dispossession of a real property interest.

“The appointment of a receiver is a drastic remedy, may involve unnecessary expense and hardship and courts carefully weigh the propriety of such appointment in exercising their discretion to appoint a receiver particularly if there is an alternative remedy.” (Hoover v. Galbraith (1972) 7 Cal.3d 519, 528.) “But it must be borne in mind that ‘[t]he power to appoint a receiver is a delicate one which is exercised sparingly and with caution, and only in an extreme case under such circumstances as demand or require summary relief, and never in a doubtful case or where there is no necessity or occasion for the appointment.’ [Citations.]” (Morand v. Superior Court (1974) 38 Cal.App.3d 347, 350.)

For these reasons, the court will not exercise its discretion to appoint a receiver pursuant to the stipulation presented by the parties. It is unclear where this leaves this matter. Counsel will be required to appear and to be prepared to discuss the status of this case.

Also, as a procedural matter, the court is concerned that this matter is not appropriately venued in South County of Santa Barbara County. The real property is apparently located in North County of Santa Barbara County, and Walker is apparently found in Shasta County. The only apparent connection with South County is a contract between Walker and the County Assessor regarding the payment of delinquent taxes, which contract is not directly sought to be enforced in this action. Insofar as the complaint seeks a receiver to manage North County real property, it appears that North County is the appropriate venue for further proceedings. (See Santa Barbara County Superior Court Local Rules, rule 203.) Counsel should be prepared to discuss whether, if this action is to continue, it should not be transferred for further proceedings in North County.