Judge: Loren G. Freestone, Case: 37-2022-00024005-CU-BC-CTL, Date: 2023-08-18 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - August 17, 2023

08/18/2023  10:30:00 AM  C-64 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Loren G. Freestone

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Civil - Unlimited  Breach of Contract/Warranty Motion Hearing (Civil) 37-2022-00024005-CU-BC-CTL WILMINGTON TRUST NATIONAL ASSOCIATION AS TRUSTEE FOR THE BENEFIT OF THE REGISTERED HOLDERS OF GS MORTGAGE SECURITIES TRUST CAUSAL DOCUMENT/DATE FILED:

TENTATIVE RULING Receiver Chris Nielson's motion to approve sale of real property is GRANTED.

Preliminary Matters The Receiver's request for judicial notice of (1) Wilmington's operative complaint, (2) the amended order appointing receiver, (3) the ex parte application to amend order appointing receiver or for order to vacate, (4) the order granting the ex parte application, and (5) the Receiver's January Interim Report is granted.

JAX's request for judicial notice of its cross-complaint and exhibits thereto, on file in People v. JAX Properties LLC (SDSC Case No. 22-38956), is granted.

Wilmington's evidentiary objections to the Declaration of Jack Rafiq (objection nos. 1–4) are overruled.

Wilmington's evidentiary objections to the Declaration of Masuad Ghulam are sustained in part and overruled in part. Objection nos. 5, 6, and 8 are sustained. Objection no. 7 is overruled.

Wilmington's evidentiary objections to JAX's request for judicial notice (objection nos. 9–20) are sustained in part. The court does not take judicial notice of the truth of any facts contained in the court files.

Analysis A receiver may sell real property pursuant to an order of the court. (See Code Civ. Proc., § 568.5.) 'The sale is not final until confirmed by the court.' (Ibid.; see also County of Sonoma v. Quail (2020) 56 Cal.App.5th 657, 684–685 [the sale does not need to comply with the procedure outlined in the Enforcement of Judgments Law in order to be confirmed].) 'The matter of confirmation rests upon the sound discretion of the appointing court to be judicially exercised in view of all the surrounding facts and circumstances and in the interests of fairness, justice and rights of the respective parties. The proper exercise of discretion requires the court to consider all material facts and evidence and to apply legal principles essential to an informed, intelligent, and just decision. . . . Generally speaking if no good reason appears for refusing to confirm a receiver's sale, Calendar No.: Event ID:  TENTATIVE RULINGS

2999380  41 CASE NUMBER: CASE TITLE:  WILMINGTON TRUST NATIONAL ASSOCIATION AS TRUSTEE FOR  37-2022-00024005-CU-BC-CTL such as chilling of bids or other misconduct or gross inadequacy of price, the sale should be confirmed.' (People v. Stark (2005) 131 Cal.App.4th 184, 205–206; see, e.g., County of Sonoma, supra, 56 Cal.App.5th at pp. 685–687; City of Riverside v. Horspool (2014) 223 Cal.App.4th 670, 683–684; People v. Riverside University (1973) 35 Cal.App.3d 572, 586; Lesser & Son v. Seymour (1950) 35 Cal.2d 494, 503.) Here, the property should be sold because: (1) the C Street Inn is in substandard condition and has been declared a public nuisance and fire/safety hazard, (2) JAX failed to bring the property up to Code within a reasonable time, (3) JAX is in default on the entire accelerated loan balance exceeding $7.1 million, and there is no evidence it is financially able to repair the property, (4) the property is not profitable, and between September 2022 and May 2023 operated at a net loss of $437,530.24, (5) the property is currently under city-mandated 24-hour fire watch, and associated costs (e.g., electricity) are mounting and constitute the receiver's largest monthly expense, and (6) the contiguous nature of the three parcels, including a common basement, and the fact all three were encumbered as part of a single loan supports the sale of all three parcels.

The proposed sale should also be approved because: (1) the property was extensively marketed by experienced listing agents, (2) there was a competitive bidding process yielding seven offers, (3) the receiver selected the best offer that did not fall through during due diligence, and (4) allowing the sale price to be paid by the assumption of debt is fair and reasonable under the circumstances and will relieve JAX of its debt to Wilmington in the amount assumed by the buyer, which is more than the buyer was initially willing to pay.

JAX argues that the sale should be denied because the property generated over $247,000 between January and August 2022, yet the Receiver 'intentionally made sure the operation of the property was a losing proposition' by forcing the retail tenants to vacate without good cause. As support, JAX cites to the 'Order Granting Receiver's Ex Parte Application to Amend Order Appointing Receiver and for Notice and Order to Vacate,' which it described as an 'Order to Vacate the 7th Avenue and C Street Property.' JAX appears to misinterpret that order, which only authorized the Receiver 'to evict from 630 & 636 C Street, San Diego, California (the 'Premises'), all residents, tenants, and occupants.' The order did not address the 7th Avenue retail parcels. Moreover, several retail tenants were not paying rent, and the Receiver declares that the 'only retail tenants that were evicted from the Property were those retail tenants that failed to pay rent or otherwise abandoned the Property beyond any applicable notice in cure period in their leases.' JAX also argues that the three parcels are worth significantly more than $7.5 million based on the fact that in 2021 the 7th Ave retail property was appraised for $4.9 million and it received a $7.5 million offer for just the C Street Inn alone. Any such appraisal and offer are outdated and therefore of limited value.

The offer now pending came after aggressive marketing and a competitive bidding process, and it better reflects the present value of the property. (See County of Sonoma, supra, 56 Cal.App.5th at pp.

685–686 [noting it was not clear whether an appraisal considered the ongoing nuisance conditions at the property, and affirming order approving sale for significantly less where the offer accepted was the highest of five bids received in an open market process]; Riverside University, supra, 35 Cal.App.3d at p. 586 ['Even a well founded opinion that property would on resale bring a much higher price has been held to be an insufficient ground for setting aside a judicial sale,' and the 'price received must be so grossly inadequate as to excite the suspicion of the court or the circumstances surrounding the sale be such as would indicate unfairness because of accident, fraud, or other misconduct'].) JAX further argues that 'the Receiver and City Attorney worked together to deprive [it] of [its] Fifth and Fourteenth Amendment rights to due process.' This argument rests on the unverified allegations in its cross-complaint in a separate action between it and the City. There is no evidence of any such collusion or deprivation.

JAX argues that the property should not be sold until after trial in its case with the City. However, the court already determined that the hearing on this motion should be advanced to the current date based Calendar No.: Event ID:  TENTATIVE RULINGS

2999380  41 CASE NUMBER: CASE TITLE:  WILMINGTON TRUST NATIONAL ASSOCIATION AS TRUSTEE FOR  37-2022-00024005-CU-BC-CTL on, among other things, the risk that the deal would fall through if it were delayed any longer and the mounting costs.

JAX argues that the sale is not necessary because the City has made an offer to settle its dispute for $400,000 and therefore Wilmington may be 'more susceptible and willing to renegotiate consolidating [JAX's] loan so [JAX] can keep [the] property.' There is no evidence any such settlement has been accepted, and Wilmington's reply indicates no such willingness.

Finally, JAX argues that the property could be made profitable simply be re-renting the retail spaces, correcting the violations, and getting new tenants back into the units. But even assuming all that occurred, there is no evidence that JAX has the means or resolve to prevent the property from falling into disrepair yet again. (See City of Santa Monica v. Gonzalez (2008) 43 Cal.4th 905, 934.) Conclusion The property should be sold, and the proposed sale should be approved. The motion is therefore granted.

The court has reviewed the proposed order and has the following concerns: (1) Paragraphs 4 and 5 discuss commissions and leave the proposed commissions blank but this issue was never addressed in the motion, (2) Paragraph 9's statement that the property shall be free of any liens/claims/encumbrances/interests is overbroad as to third-parties, (3) Paragraph 10 references a 'notice of sale' and it is unclear what document that is referencing, (4) Paragraph 11 leaves the proposed reserve blank, (5) Paragraph 13 contains a broad injunction barring JAX from taking any action or asserting any demands or claims relating in any way to the loan or property, and (6) Paragraph 14 and 15 purport to limit the appealability of the order and the effect of any reversal on appeal. The Receiver shall be prepared to discuss these various provisions at the hearing.

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