Judge: Mark H. Epstein, Case: 22STCP02558, Date: 2024-03-20 Tentative Ruling
Case Number: 22STCP02558 Hearing Date: March 20, 2024 Dept: I
The court has some questions that it would like to discuss
during oral argument. First, the court
briefly (somewhat) discusses its understanding of some of the salient facts.
As the court understands it, the petition challenges an order from the California Coastal Commission (“CCC”) levying a fine against petitioners in the amount of $6 million for violations of the Coastal Act. In its petition, petitioner raises a series of arguments. Its principal argument is that the entities named in the orders are not plaintiff and plaintiff is not responsible for the prior owner’s alleged misdeeds, such as failing to transfer the property. The CCC argues that petitioner did not exhaust that argument, and that the record disproves petitioners’ contentions.
The court understands the following to be some of the facts but the court invites the parties to correct any error. The original applicant and permittee was Headland Properties Inc. (“HPI”). That was the applicant in 1979 and through most of the 1980’s. In 1989, Headland Properties LP (“HPLP”) took over, but the people involved in HPLP were the same as for HPI and its address was the same as well. In 2010, Headland Properties LLC (“HPLLC”) took over from HPLP. Again, the officers and ownership were identical or similar. The court understands that Miller and Met Life were owners and officers. They used “Headlands Properties Associates” or “Headland Properties” in correspondence.
In 1981, HPI attempted to gift the property to the City and the City voted to accept it. In 1995, HPLP executed a grant deed that transferred the property to the City, which the City accepted. However, the County Recorder rejected the deed for recording because the notary stamp was smudged. Because it was not recorded, the Assessor’s office viewed the property as still being owned by HPLP. The Assessor’s office continued to send tax bills to HPLP. HPLP did nothing to correct the problem or get a better notary stamp nor did the City. At come point, the County defaulted HPLP due to the unpaid taxes. (Of course, had the property been recorded in the City’s name, there would be no property taxes.) It appears that the property was transferred to a private company pursuant to a tax sale in 2010, but the transfer did not go through due to the complications involving the property. Thus, as of 2010, HPLP remained the owner of the property—at least from the County’s perspective. HPLP later recorded a quitclaim deed to HPLLC. Although the 2006 tax sale did not go through, neither HPLP nor HPLLC paid any taxes even though tax bills were still being sent. That led to another auction in 2012-2013. At that auction, Levy bought the property for $350,000. CCC asserts it did not learn of the sale right away. HPLLC made a claim for the excess money (because the sale price far exceeded the amount of taxes owed) and was successful, recovering about $329,000. It never gave that money to the City or (so far as the court is aware) to HPLP. In 2016, CCC claims it became aware of the problem. On March 30, 2018 it sent a notice of an intent to start a hearing. There was a form to allow respondents to tell their side of the story, but it was not completed. The hearing was originally set for 2020 but it was delayed due to the pandemic until May 11, 2021. Prior to the hearing, the CCC’s staff issued a 74 page report with exhibits. Miller appeared at the hearing and contended that the problems the CCC alleged were not his fault or that of any of the cited entities. (The problems included not maintaining the trailhead among other things). Miller stated that he knew nothing about what occurred before 1999, when he took over from Met with regard to managing the property. He was aware of the default in 2000 and 2001, but did not know why the City had not recorded the deed. He asserts that he was unaware of the 2013 default. He states that he was not the developer and did not profit.
Ultimately, the CCC concluded that petitioner and all of the various Headlands entities did not maintain the parking lot and restroom, failed to transfer the property properly, transferred it improperly from HPLP to HPLLC, failed to pay property tax (which led to the tax sale), and profited from the property. The CCC imposed a $6 million fine, although the maximum fine would have been closer to $20 million. Petitioners filed a petition for administrative mandate on July 10, 2022, which is the matter now before the court. CCC has moved for judgment on the pleadings, which include the administrative record.
On an administrative writ petition, the court sits almost like an appellate court. The question before this court is not what this court would have done had it been the administrative tribunal; the question is whether there is substantial evidence for the findings that in fact were made. If so, the court does not exercise independent judgment over the amount of the fine levied, but rather reviews the fine only to determine if it is appropriate. Further, the court’s review is not plenary. The court can only review issues that were properly presented to the administrative tribunal. The court cannot decide matters or issues that were not raised at that time.
Petitioners contend that the CCC did not understand the ownership and wrongly concluded that the various Headland entities (and thus also Cal Coast Companies) were related and essentially one and the same. According to petitioners, the CCC should have found that the 2010 quitclaim deed was invalid because HPLP had no actual interest in this parcel. Petitioners further assert that the sale to Levy was not their fault, and that petitioners got no benefits without the appropriate burdens and that the CCC was in error as to the claim that access to the trailhead was blocked. The CCC argues that only the deed issue was properly raised below and because the other arguments were not raised below petitioners failed to exhaust their administrative remedies and those issues are not before the court. In particular, the CCC contends that the ownership question was not raised below. The CCC also argues that even if the various Headlands entities are different, they are either successors-in-interest or alter egos of one another. The CCC notes that Miller is an officer common to the entities and he is the person who actually applied for permits. He is everywhere and he owns Cal Coast Companies. Petitioners contend that they raised all of the issues below property. They assert that the property was properly conveyed in 2000 and that the City has maintained the property since then. Petitioners also state that there is no common ownership between the prior Headland entities and HPLLC. As to the 2010 deed, they assert it was a “wild deed” and of no legal import. They assert that there were in fact no problems until Levy bought the property at the tax sale. Petitioners contend that although the CCC claims tax bills were sent, there is no actual evidence of that. And when HPLLC learned that there was excess money from the tax sale, it asked for it, but the fact that it asked for it and got it is without significance. In reply, the CCC argues that petitioners’ attempt to go outside the record is not proper. In an administrative mandate case, the court is limited to the administrative record. The CCC notes that when Miller appeared at the hearing, he said he appeared on behalf of HPLLC and that “we” took over from Met Life in 1999 or 2000, which, the CCC maintains, is a binding admission that the entities were all one and the same since at least 1999 and that he held himself out as Headlands at all times. And the CCC notes that it makes no sense for petitioners to maintain that they never got a single tax bill, but the one letter that they did get was the one saying that there was some money to be claimed—at which point they promptly took the money event though they now claim that they had no entitlement to it.
So, the court has some questions. First, There was an apparent attempt to transfer the property to the City in 1995. It was gifted and the City accepted the gift. Whose legal responsibility is it to record the deed—the grantor or the grantee? One would assume the grantee, but if it is the grantor, that could matter. And did the grantee (or anyone else) have a legal duty to tell the grantor that the recordation was not successful? If so, did anyone do that in a way reflected in the record? Second, there was a 2010 quitclaim transfer from HPLP to HPLLC. What is HPLP;s explanation for its purported transfer of the property if it was under the impression that it did not own the property? Third, a quitclaim is an odd way of transferring property in an arms’ length transaction. It is not illegal, but does that not alone suggest that there was more than a passing relationship between HPLP and HPLLC? Fourth, did the City actually maintain the property after 1995 (or so) or did a Headland’s entity maintain it as a practical matter. Fifth, what do the parties contend is the legal effect of the 2010 transfer? Is it like transferring the Brooklyn Bridge? I can give you a quitclaim to it, but it has no effect because I don’t own it; it simply transfers whatever rights I have (which would be none for the Brooklyn Bridge) to you. Would the same be true here such that the 2010 transfer did no more than transfer non-existent rights? Sixth, let’s talk a bit about the formal ownership structure of HPI, HPLP, HPLLC, and Cal Coastal. Who are the formal owners? What role did Miller have in each of the entities. Seventh, with regard to the 2006 tax sale that did not go through, what documentation is there about who was told what with regard to the reasons? And shouldn’t that have put HPLP on notice of this whole issue? Eighth, what notices, if any, did the County or trustee give with regard to the 2013 sale? To whom were they given? Ninth, what is petitioners’ best argument as to why it sought to claim the excess proceeds from the sale if their view is that they did not (and never did) own the parcel? And tenth, how did the $6 million figure get chosen and what is the precise justification for the agency’s decision to double the amount recommended by staff? Tenth, what is the actual, precise, basis for the fine? Is it the failure to transfer the property? Is it the failure to maintain the trailhead, restrooms, or parking? Is it the failure to cooperate with the CCC when the problem was raised? And what is the precise record citation for the specific violations and their duration?
Overall, the court will likely hear argument and schedule a second day of argument after this one—perhaps after further briefing. In the meantime, the parties are STRONGLY encouraged to settle the case. The court is pleased that much of the case has resolved. It could well be that this can, too. To be sure, the ball has moved, and the court’s ability to second guess the administrative record is limited. Petitioners should be aware of the court’s limited power. The court also has some doubts that the tax bills kept getting lost for years. There appears to be no evidence in the record as to whether the Assessor got any returned mail for the tax bills, but the County is pretty good about sending tax notices out. And they are better at giving notices of tax sales. And apparently they were very good at the notice of excess funds because, uniquely, that one got received. Related to the former question, what is petitioners’ best explanation as to how it did get the notice of claim. It is more likely than not (even if only from a statistical standpoint) that money will have to change hands, and that the amount will be significant. That said, it could be that the CCC is willing to take some kind of haircut in return for prompt payment and the avoidance of risk. The court would assume that any settlement would also settle the CCC’s purported cross-complaint.