Judge James C. Chalfant, Case Number: 23STCV29651, Date: 2024-04-30 Tentative Ruling

US Bank National Association, v. Javier Marquez, et al., 23STCV29651

Tentative decision on application for appointment of receiver: granted

Petitioner US Bank National Association (“Bank”) moves for the appointment of a receiver for the limited purpose of permitting entry and inspection of the real property located at 3524 Union Pacific Avenue, Los Angeles, CA 90023 (the “Property”) which secures Respondent Javier Marquez’ (“Marquez”) obligations to Bank.

The court has read and considered the moving papers (no opposition was filed) and renders the following tentative decision.

Petitioner Bank commenced this proceeding on December 4, 2023, against Respondent Marquez dba Marquez Denim Care as a Request for Order Appointing Receiver for the limited purpose of permitting entry and inspection of the Property, pursuant to Civil Code section 2929.5. The Petition alleges in pertinent part as follows.

On August 18, 2009, Petitioner Bank provided Respondent Marquez with a Small Business Administration approved loan in the principal amount of $1,912,500 (the “Loan”) which was evidenced by a Note (“Note”) executed on the same day.

Also on August 18, 2009, Marquez executed a Deed of Trust (“DOT”) in favor of Bank to secure his obligations under the Note. The DOT was duly recorded in the Official Records of the County of Los Angeles in the State of California as Instrument No. 20091327049.

By February 28, 2023, Bank notified Marquez by letter that he had defaulted under the terms of the Loan. Bank demanded that Marquez cure the default by March 28, 2023 or Bank would elect to accelerate the indebtedness outstanding under the Note.

As of November 20, 2923, the outstanding indebtedness under the Note was $1,285, 319.75 which is the sum of the $1,210,474 principal, $74,845.75 in interest, and $13,837 in late fees and other charges, excluding attorneys’ fees and costs.

Around November 10, 2023, Petitioners’ counsel entered a telephonic discussion with Respondent’s third-party broker, Edward Canas (“Canas”), in an attempt to resolve the indebtedness. Canas disclosed that certain lenders or potential buyers for the Property had identified possible environmental issues through their own Phase I inspections of the Property.

On multiple occasions, thereafter, including August 25, September 1, September 14, September 20, and November 7, 2023, Bank called Marquez to request access to the Property for the purposes of performing an appraisal and environmental examination, but he has refused to grant Bank or any of its agents access for such purposes.

Petitioner Bank now prays for relief for (1) an entry of an order appointing a Receiver for the limited purpose of authorizing Bank to enter and inspect the Property pursuant to Civil Code of Procedure sections 2929.5 and 564(c), and (2) any further relief the court may deed as just and proper.

According to a proof of service on file, Bank served Marquez by substitute service on January 14, 2024.

On or about August 18, 2009, Marquez executed the DOT securing his obligations under the Note and Loan for the principal amount of $1,912,500. Pet., ¶6. The DOT was then duly recorded in the Official Records of the County of Los Angeles in the State of California on August 28, 2009. Pet., Ex 2.

In pertinent part, the DOT states, under the heading “Compliance With Environmental Laws”, that “Trustor authorizes lender and its agents to enter upon the Property to make such inspections and tests, at Trustor’s expense, as Lender may deem appropriate to determine compliance of the Property with this section of the Deed of Trust . . .” Id., Ex. 1. The DOT further provides, under the heading “Lender’s Right to Enter”, that “Lender and Lender’s agents and representatives may enter upon the Real Property for purposes of Trustor’s compliance with the terms and conditions of this Deed of Trust.” Id. at 2.

Pursuant to express terms of the Loan, an event of default includes, inter alia, a failure to make any payment when due, failure to make tax payments and maintain insurance, and failure to perform or comply with any obligation or covenant contained in the DPT or Loan. Parra Decl., ¶5.

On or around February 28, 2023, Bank notified Marquez that he was in default under the terms and conditions of the Loan for (1) failing to make payments due on the Note, (2) failing to pay property taxes, and (3) failing to provide required reporting information. Parra Decl., ¶6, Ex. 3. Bank demanded that Marquez cure the defaults, advising him of Bank’s election to accelerate the indebtedness outstanding under the Note if he failed to do so by March 28, 2028. Parra Decl., ¶6. Marquez failed to do so and the Loan was thereafter accelerated. Id.

From August through November 2023, Special Loans Relationship Manager and Vice President employed by Bank, Maria de los Angeles Parra (“Parra”), contacted Marquez via telephone to request access to the Property. Parra Decl., ¶¶ 1, 7. Parra called to request such access on at least five occasions, including on August 25, September 1, September 14, September 20, and November 7, 2023. Parra Decl., ¶7. Parra did not receive a response from Marquez. Id.

Bank also contracted with an appraiser to perform an appraisal of the Property and an environmental consultant to perform an environmental examination of the Property, each of whom has attempted contact with Marquez on a number of occasions to schedule interior inspections of the Property. Parra Decl., ¶¶ 8-9. Neither succeeded in scheduling an appointment to access the Property. Id.

On October 3, 2023, Bank’s counsel, Joshua Duffy, Esq., (“Duffy”) called Marquez. Duffy Decl., ¶2. Duffy requested that Bank be given access to the Property to conduct an appraisal as part of the Bank’s practice in monitoring the Loan and contemplating foreclosure. Id. Marquez stated that he would check for dates to schedule access and get back to Duffy. Id. Duffy also followed up the phone call by emailing Marquez’ work email but did not hear back. Id., Ex. 1.

On October 24, 2023, Duffy called Marquez to reiterate Bank’s requests for access. Duffy Decl., ¶3. This time, the answering individual stated he was not Marquez and not aware of this matter. Id. The individual suggested Duffy find a better number. Id.

On November 10, 2023, Duffy called Marquez’ third-party broker, Canas, in an attempt to confirm Marquez’ contact information. Duffy Decl., ¶4. Marquez had previously given Bank written permission to speak with Canas. Id. Canas confirmed Marquez’ phone number and further disclosed that certain lenders or potential buyers for the Property had identified possible environmental issues through their own Phase I inspections and subsequently requested access to the Property to conduct Phase II inspections and testing. Id. Duffy immediately requested access based on these representations and Canas promised to speak with Marquez to obtain available dates for Bank to schedule an inspection. Id.

On November 29, 2023, Canas reported to Duffy in a phone call that Marquez was refusing to provide Bank access to the Property because he did not want to be responsible for any costs associated with Bank’s Phase I or Phase II inspections. Duffy Decl., ¶6. Duffy stated that if Marquez continued to refuse Bank access, Bank would have to take legal action to obtain a court order or receiver to obtain access. Id.

On December 10, 2023, Duffy spoke again with Canas about Bank’s inability to access the Property and Canas stated that Duffy may have the wrong phone number but did not provide an alternative phone number. Duffy Decl., ¶8. On December 22, 2023, Duffy sent a letter to all known addresses for Marquez requesting access to the Property for the purpose of allowing Bank to conduct a necessary environmental inspection. Duffy Decl. ¶8. Duffy never received such a response. Id.

In addition to defaults on Marquez’ obligation for (1) payments due on the Note, (2) payments of property tax, and (3) maintenance of insurance on the Property, he is also in default failure to provide Bank with required reporting information, and failing to grant Bank access to the Property, despite Bank’s security interest in the Property. Parra Dec., ¶10.

As of November 20, 2023, the outstanding indebtedness under the Note totaled to $1,299,157.25 which is comprised of $1,210,474 in principal, $74,845.75 in interest, and $13,837.50 in late fees.

Bank has submitted a declaration from David Stapleton (“Stapleton”) in which he declares himself prepared and available to act as a receiver in the instant case. Stapelton Decl., ¶2. Stapelton is currently serving as a receiver in a variety of similar assignments and is familiar with the process and requirements of environmental testing of real property premises similar to the Property. Id.

CCP section 564(b) provides that the court has authority to appoint a receiver in any of the ascribed circumstances, as well as in all other cases where necessary to preserve the property or rights of any party.

CCP section 564(c) provides that [a] receiver may be appointed... by the superior court in an action brought by secured lender to enforce the rights provided in Section 2929.5 of the Civil Code, to enable the secured lender to enter and inspect the real property security for the purpose of determining the existence, location, nature, and magnitude of any past or present release or threatened release of any hazardous substance into, onto, beneath, or from the real property security. The secured lender shall not abuse the right of entry and inspection or use it to harass the borrower or tenant of the property. Except in case of an emergency, when the borrower or tenant of the property has abandoned the premises, or if it is impracticable to do so, the secured lender shall give the borrower or tenant of the property reasonable notice of the secured lender's intent to enter and shall enter only during the borrower's or tenant's normal business hours. Twenty-four hours' notice shall be presumed to be reasonable notice in the absence of evidence to the contrary.” Cal. Civ. Code § 564(c).

The appointment of a receiver is a drastic remedy to be utilized only in “exceptional cases.” As such, a receiver should not be appointed unless absolutely essential and because no other remedy will serve its purpose. City & County of San Francisco v. Daley, (1993) 16 Cal.App.4th 734, 744. A plaintiff who seeks appointment of a receiver of certain property, under CCP section 564(b)(1), has the burden to establish by a preponderance of the evidence that plaintiff has a joint interest with defendant in the property, that the property is in danger of being lost, removed or materially injured and that plaintiff's right to possession is probable. Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp., (1953) 116 Cal.App.2d 869, 873.

Petitioner Bank moves for the appointment of Stapleton as receiver pursuant to CCP section 564(b)(9) to ensure that its interest in the Property does not suffer irreparable harm via past or present release or threatened release of any hazardous substance. Respondent Marquez has not filed an opposition.

Bank’s grounds for the appointment of a limited purpose receiver are (1) the express terms of the DOT providing for the appointment of a receiver in the event of default, (2) the statutory protections provided to secured lenders pursuant Civil Code section 2929.5 and CCP section 564(c), and (3) principles of equity support the appointment of a receiver in light of the circumstances explained herein. Mot at 2.

Bank argues, based on information and belief, that there exists a past or present release or threatened release of any hazardous substance into, onto, beneath, or from the Property which was not previously disclosed to Petitioner in writing. Mot at 3. Bank has made multiple requests to Marquez for access to enter the Property in order to inspect the Property and perform a Phase I Environmental Report. Id. Marquez has repeatedly refused. Id. Accordingly, Bank has the statutory right to seek the appointment of a receiver to authorize Bank to enter and inspect the Property. Given Marquez’s repeated refusals after reasonable overtures and attempts by Bank, the appointment of a receiver should also be ordered based upon principles of equity. Id.

While Bank has not provided evidence of a past or present release or threatened release of any hazardous substance into, onto, beneath, or from the Property which was not previously disclosed to Petitioner in writing, Marquez’ agent, Canas, has admitted that certain lenders or potential buyers for the Property had identified possible environmental issues through their own Phase I inspections and had requested access to the Property to conduct Phase II inspections and testing. Id. Coupled with Bank’s right to inspect the Property for compliance with environmental laws as referenced in the DOT, This admission is sufficient basis for appointment of a limited receiver.

Bank’s motion for appointment of a limited receiver is granted. Stapleton is appointed as Receiver. A Receivership status conference date will be set at the hearing.