Motion to Discharge Receiver, Approve Receiver’s Final Report and Accounting, and Exonerate Bond (Judge James C. Chalfant)

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Case Number:?BC575092????Hearing Date:?July 12, 2018????Dept:?85

CSMC 2006-C5 North Azusa Avenue, LLC, and CSMC 2006-C5 North Barranca Street, LLC v. Eastland Tower Partnership, et al., BC 575092

Tentative decision on motion discharging receiver, approving receiver?s final report and accounting, and exonerating bond: granted

Receiver Terri Riker (?Riker?) moves the court for an order discharging the Receiver, approving the Receiver?s Final Report and Accounting, and exonerating the bond.??Defendant Hassen Real Estate Partnership (?Hassen?) opposes.

The court has read and considered the moving papers, opposition, and reply, and renders the following tentative decision.

  1. Statement of the Case

Plaintiffs CSMC 2006-C5 North Azusa Avenue, LLC (?Azusa Avenue?) and CSMC 2006-C5 North Barranca Street, LLC (?Barranca Street?) commenced this proceeding on March 11, 2015 seeking specific performance for appointment of a receiver and injunctive relief.??The Complaint alleges in pertinent part as follows.

On November 21, 2006, Defendant Eastland Tower Partnership (?Eastland?) executed a Promissory Note (?Eastland Note?) payable to Column Financial Inc. (?Column?) in the principal amount of $41 million.??The Eastland Note is secured by,?inter alia, a Deed of Trust executed for the benefit of Column (?Eastland Deed of Trust?) pertaining to real property commonly known as Wells Fargo Bank Tower and located at 100 North Barranca Street, West Covina, CA 91791 (?Wells Fargo Tower?).??Through a series of assignments and allonges, Barranca Street is the beneficiary under the Eastland Deed of Trust and holder of the Eastland Note.

On the same date, Defendant Hassen executed a Promissory Note (?Hassen Note?) payable to Column in the principal amount of $41 million.??The Hassen Note is secured by,?inter alia, a Deed of Trust executed for the benefit of Column (?Hassen Deed of Trust?) pertaining to real property commonly known as West Covina Village Community Shopping Center and located at 301-477 North Azusa Avenue, West Covina, CA 91791 (?WCVC?).??Through a series of assignments and allonges, Azusa Avenue is the beneficiary under the Hassan Deed of Trust and holder of the Hassan Note.

On April 10, 2011 Eastland and Hassen both filed Chapter 11 bankruptcy petitions in district court (?Bankruptcy Cases?).??In the Bankruptcy Cases, the lenders and Defendants agreed to a consensual Chapter 11 plan of reorganization dated January 17, 2013.??On May 21, 2013, pursuant to this plan, the lender and Defendants entered into certain Loan Modification Agreements.

In January 2014, Defendants deposited insufficient funds in the accounts established for the Properties under the controlling loan documents.??Plaintiffs? representative demanded that Defendants cover the shortfall in these payments but Defendants failed to do so.?At the time of the Complaint?s filing, the monthly loan payments owed to Plaintiffs on the Eastland Loan Documents had been delinquent since April 11, 2014 and on the Hassen Loan Documents since July 11, 2014.

On July 28, 2014, Plaintiffs sent Defendants a Notice of Default.??As of January 11, 2014, the total indebtedness due under the Eastland loan is in excess of $62,042,259.60 and under the Hassan loan is $62,733,200.21.

Plaintiffs requested immediate appointment of Receiver Riker so that she could take control and manage the real property collateral to collect and pay to Plaintiffs the rental income generated from such property as well as to protect and preserve the collateral from loss, destruction, or waste.

  1. Governing Law

A receiver holds property as a representative of the court, for the benefit of the property?s owners, their creditors, and others in whose favor claims may arise against the receivership estate.??Chiesur v. Superior Court, (1946) 76 Cal. App. 2d 198, 200-01.??Possession of the property by the receiver is deemed to be possession of the owner with respect to any duties owed to tenants.??Id. at 201.??A receiver is liable in his official capacity to those without an interest in the estate for negligence in the performance of his authorized duties, and any recovery is a charge upon the receivership estate.??Ibid.???Actions against the receiver are in law actions against the receivership, or the funds in the hands of the receiver, and his contracts, misfeasances, negligences and liabilities are official and not personal, and judgments against him as receiver are payable only from the funds in his hands.???Ibid. (citing?McNulta v. Lochridge, (1891) 141 U.S. 327).

Even if he mismanages the receivership, a court-appointed receiver enjoys quasi-judicial immunity for damage claims arising from performance of his/her receivership duties.??McClintock v. West,?(2013) 219 Cal.App.4th 540, 551.??The receiver cannot be liable for negligence as a tortfeasor for an act performed within the scope of the powers granted by the court.??Tapscott v. Lyon, (1894) 103 Cal. 297, 308-09, 312.??See also?Howard v. Drapkin, (1990) 222 Cal.App.3d 843, 853 (persons who act in quasi-judicial capacity are entitled to immunity, including?pro tem?judges and state bar examiners, who are arms of the court).??Therefore, a receiver, acting as agent of the court and properly functioning pursuant to the court?s subject matter jurisdiction by receiving and managing assets, is absolutely immune from suit.??New Alaska Development Corporation v. Guetschow, (?New Alaska?) (9th?Cir. 1989) 869 F.2d 345, 351.

This does not mean that a receiver is entirely immune from responsibility for his acts.??A receiver can be sued for acts outside the court?s subject matter jurisdiction and his judicial immunity, including theft of assets and defamation.??New Alaska,?supra, 869 F.2d at 351 (although receiver was entitled to judicial immunity from suit for mismanagement, receiver was not absolutely immune from claims that he stole assets and slandered plaintiff).???To limit the harassment of receivers as quickly as possible, a plaintiff is required to allege the absence of judicial immunity.??New Alaska,?supra,?869 F.2d at 351.

Additionally, a receiver?s bond is designed to protect the parties from the receiver?s failure to discharge his duties.??As case law has well-established, a receiver may still be surcharged for losses to the receivership estate based upon her misconduct or mismanagement.?Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership,?(?Banyan?) (2017) 8 Cal.App.5th 910, 926 (citingAviation Brake Systems, Ltd. v. Voorhis,?(?Aviation?) (1982) 133 Cal.App.3d 230, 233). Just like any fiduciary, the receiver can be surcharged and his or her bond held liable for a failure to properly carry out the duties imposed by his appointment.??Stewart v. California, (1969) 272 Cal.App.2d 345, 351.??The receiver in his personal capacity[1]?may be surcharged for losses to the receivership estate caused by misconduct or mismanagement.??Aviation,?supra,?133 Cal.App.3d at 235.??This includes, instances where the receiver exceeds her authority, causes injury to others, or acts negligently in operating the estate.??Banyan,?supra, 8 Cal.App.5th at 926.??A party must make such a claim in response to a receiver?s request for final accounting and may not filed an independent action to address the receiver?s liability.??Id.

A receiver can be sued by a third party only with permission of the appointing court.??Ostrowski v. Miller, (?Ostrowski?) (1964) 226 Cal.App.2d 79, 84 (citation omitted).??This rule is established to protect receivers from unnecessary litigation.??Id.??The court ordinarily has wide discretion in granting leave to sue the receiver in an independent action, or in denying leave and requiring the claimant to intervene in the receivership proceedings to assert his claim, equitable or legal.?Id. at 85 (citing?De Forrest v. Coffey, (1908) 154 Cal. 444).??The court may not deny leave to sue where it cannot afford the same relief in intervention as could be obtained in an independent action, or where a statute or constitutional provision requires a particular kind of action to be brought in a different jurisdiction.??Id.??A receivership court does not have discretion to deny a motion to intervene and motion to sue by summarily determining that the movant?s claims lack merit.??Jun v. Myers, (2001) 88 Cal.App.4th 117, 125.

?The rule that claimants must apply to the court before suing a receiver is founded upon notions of judicial economy.??In most cases a claimant can obtain appropriate relief in the receivership action; therefore an independent action will not be necessary.??By refusing permission to sue, the appointing court can require a claimant to intervene in the receivership proceedings to assert his claim, thus protecting the receiver from a proliferation of lawsuits.??But the court may not refuse permission where the effect would be to cut off plaintiffs? rights.??If the court cannot afford plaintiff the same relief in intervention as he is entitled to in an independent action, refusal to permit the lawsuit to proceed will constitute an abuse of discretion.??For example, if plaintiffs claim contemplates a jury trial, the court may not require plaintiff to try the claim before the court sitting in equity in the receivership action.???Vitug v. Griffin, (1989) 214 Cal. App. 3d 488, 493 (citations omitted).

  1. Statement of Facts
  2. Receiver?s Evidence
  3. Overview

On December 14, 2015, the court appointed Riker as Receiver in the instant action (?Appointment Order?) to take possession of Wells Fargo Tower and WCVC (?Property?).??Riker Decl. ?3, Ex. 1.

On December 31, 2015, Riker took possession of the Property and performed her obligations as set forth in the Appointing Order.?Riker Decl. ?5.??She also established bank accounts (?Receivership Accounts?) for the Receivership Estate consisting of rents and profits received from tenants at the Property.??Riker Decl. ?18.

On January 8, 2016, the court modified the Appointing Order pursuant to the parties? joint stipulation.??Riker Decl. ?4, Ex. 2.

On April 19, 2016, Riker receiver a copy of a recorded Trustee?s Deed upon Sale indicating that the Wells Fargo Tower property had been foreclosed and conveyed to Barranca Street.??Riker Decl. ?6, Ex. 3.??Upon receipt of this deed and pursuant to the appointing order, Riker surrendered possession of Wells Fargo Tower to Barranca Street.??Riker Decl. ?7.

On August 4, 2016, the court approved the parties? stipulation regarding disbursement of funds held by Riker.??Riker Decl. ?20, Ex. 6.?Pursuant to the order, Riker disbursed $566,746.66 to Barranca Street.??Riker Decl. ?21.

On February 9, 2018, the court approved the parties? stipulation authorizing Riker to turn over WCVC to Hassen (?WCVC Turnover Order?).??Riker Decl. ?8, Ex. 4.??Pursuant to this order, Riker disbursed $4,630,110 to a lockbox account designated by Plaintiffs (?Lockbox Account?) on February 9, 2018 and an additional $193,501.28 to the Lockbox Account during the period of February 13, 2018 through April 15, 2018.??Riker Decl. ?23.

On February 13, 2018, in accordance with the WCVC Turnover Order, Riker returned possession of WCVC to Hassen.??Riker Decl. ?9.?Riker also turned over to Hassen security deposits in the amount of $78,893.69.??Riker Decl. ?24.

Having turned over all of the Property under the Receivership, Riker no longer performs any management functions or receivership duties.??Riker Decl. ?10.

During Riker?s administration of the Receivership Estate, she served 25 monthly reports on the parties detailing the financial condition of the receivership estate and the income and expenses incurred from December 2015 through December 2018.??Riker Decl. ?28.??No party filed an objection to these monthly reports.??Riker Decl. ?29.

  1. Distribution

As of May 30, 2018, Riker is in possession of Receivership Accounts in the amount of $119,092.42 consisting of the following: (1) $30,299.65 related to Wells Fargo Tower, (2) $88,777.95 related to WCVC, and (3) $14.82 in accrued interest in the security deposit account related to WCVC.??Riker Decl. ?25.??Riker is also in possession of $8,230.96 related to tenant rent collections received after the Final Distribution Date as set forth in the WCVC Turnover Order.??Riker Decl. ?? 25, 27.

(i)?Outstanding Expenses

Receiver?s Fees

Pursuant to the Appointing Order, Riker was authorized to charge an hourly fee of $250 per hour.??Riker Decl. ?33.??The Appointing Order also authorizes Riker to reimburse herself for all actual costs incurred in connection with the receivership.??Riker Decl. ?34.??As of May 30, 2018, $164,325 of Receiver?s fees and $744.60 of her costs have been paid.??Riker Decl. ?36.??There is a remaining balance of $19,550 in fees and will be paid, if approved, as follows: $3,325 from the Wells Fargo Tower Receivership Account and $16,225 from WCVC Receivership Account.??Riker Decl. ?37, Ex. 7.

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Counsel?s Fees

Pursuant to the Appointing Order, Riker was authorized to employ and compensate Jennifer R. Tullius (?Tullius?) as counsel to assist her as needed in this litigation and for general receivership advice.??Riker Decl. ?47.??The total estimated amount of Tullius? fees and costs will be $104,666.90, which includes estimated time to prepare a reply to any objections to the instant motion.??Riker Decl. ?48.?To date, $87,794.55 of Tullius? fees and costs have been paid.??Riker Decl. ?49.??The outstanding balance of $16,872.35 will be paid to Tullius out of the following accounts: $5,185 from the Wells Fargo Tower Receivership Account and $11,687.35 out of the WCVC Receivership Account.??Riker Decl. ?51.

Pursuant to the Appointing Order, Riker was also authorized to employ Allen Matkins Leck Gamble Mallory & Natsis (?Allen Matkins?) as legal counsel to represent Riker for transactional purposes.??Riker Decl. ?55.??The total amount of Allen Matkins? fees incurred during the Receivership is $89,553.16.??Riker Decl. ?45.??To date, $84,548.16 of Allen Matkins? fees and costs have been paid leaving an outstanding balance of $5,005.??Riker Decl. ?58.??This balance will be paid out of the WCVC Receivership Account.??Riker Decl. ?60.

Property Manager Fees

Pursuant to the Appointing Order, Riker was authorized to employ Transwestern as property manager to assist Riker in managing the Property.??Riker Decl. ?61.??All of Transwestern?s fees and costs through February 13, 2018 have been paid.??Riker Decl. ?62.??A balance of $7,293.65 remains due to Transwestern for the period of February 14 through February 28, 2018 and will be paid out of the WCVC Receivership Account.??Riker Decl. ?65.

(ii)?Remaining Balance

Riker expects that once all outstanding invoices have been paid out, the following amounts will remain in the Receivership Estate and should be distributed as follows: $21,789.65 to Barranca Street and $56,812.73 to the Lockbox Account.??Riker Decl. ?? 30, 68, 70.

  1. Bond

Riker posted a $250,000 bond with the court pursuant to the Appointing Order.??Riker Decl. ?45.??Riker seeks exoneration of the bond.?Riker Decl. ?44.

  1. Defendant?s Evidence
  2. Greenfield Steak House

Immediately following Riker?s appointment, Mohammed Tarif Alhassen (?Alhassen?), general partner of Hassen, met with Riker to discuss issues concerning WCVC and its tenants.??Alhassen Decl. ?3.??Alhassen informed Riker that Greenfield Steak House (?Greenfield?) had been a tenant since 1997 but, in the last five years, was often late on rent and had to be pressed to remain current.?Id.??Prior to Riker?s appointment, Greenfield made weekly payments to Hassen to remain current on the rent, and Alhassen would instruct his attorney to send letters to Greenfield threatening eviction whenever Greenfield fell behind on said payments.??Id.; Tuck Decl. ?3.

For over two years prior to the Receivership, Greenfield paid Hassen an average of $20,082.50 per month which covered its monthly base rent and common area maintenance (?CAM?) charges.??Barth Decl. ?3, Ex. H.

At the end of December 2015, immediately prior to Riker?s appointment, Greenfield was only $5,000 behind in rent.??Alhassen Decl. ?3.??Greenfield was behind because it presented Hassan with a check which was was returned for insufficient funds.??Id.??Greenfield made up this shortfall in January 2016.??Id.

During the Receivership, Greenfield paid an average of only $8,126 per month to Riker, including some months where no payments were made.??Barth Decl. ?3.??Greenfield?s payments never equaled its monthly base rent and CAM charges.??Id.

On April 21, 2017, Hassen?s financial consultant, Gerald Barth (?Barth?), sent an email to Riker inquiring about what actions she would take with respect to Greenfield?s outstanding rent and CAM charges.??Barth Decl. ?4, Ex. A.

On April 30, 2017, Greenfield?s lease expired.??Alhassen Decl. ?4.??Yet, Greenfield was not evicted.??Id.

In February 2018, when WCVC was returned to Hassen, Greenfield remained at WCVC and owed $538,270 in back rent and hold-over rent.??Alhassen Decl. ?4; Barth Decl. ?3; Tuck Decl. ?3.??Hassen filed an unlawful detainer action and was awarded a judgment of eviction and damages against Greenfield.??Alhassen Decl. ?4; Tuck Decl. ?3.??Greenfield immediately filed for bankruptcy following entry of the judgment.??Id.

For the past few months, Hassan has been marketing the former Greenfield location and has received three offers to pay full market rent and CAM charges.??Alhassen Decl. ?4; Tuck Decl. ?3.

  1. Suite 409

In late 2015, prior to Riker?s appointment, Jeffrey Tuck (?Tuck?), WCVC?s property manager, negotiated a lease with Christine Wahba (?Wahba?) for rental of Suite 409.??Tuck Decl. ?2.??Wahba intended to open a salon and to take over equipment that the former tenant owned and left in the suite.??Id., Ex. E.??Wahba paid the first month?s rent and a security deposit.??Id.??Under her lease, monthly rent and CAM charges for the suite was $2,049.50.??Id.

When Riker was appointed, she changed the locks on the suite and removed all the equipment.??Tuck Decl. ?2.??As a result, Wahba terminated the lease.??Id.??To date, Suite 409 remains empty and Hassen lost $51,237.50 in rent and CAM charges.??Id.; Barth Decl. ?9.

  1. Amaron Construction

Riker and Transwestern hired Amaron Construction (?Amaron?) to perform demolition work and install electrical service to WCVC?s Suite 437.??Barth Decl. ?5; Tuck Decl. ?4.??Riker paid $34,563 for this work.??Id., Ex. B.

Tuck contacted the City of West Covina and learned Amaron had failed to obtain permits for the demolition and electrical work.??Tuck Decl. ?4.??In Tuck?s experience, work performed without permits may result in the City charging significantly more for a permit or requiring work revisions.??Id.??Barth complained to Plaintiffs about this issue, and Barth?s complaint was forwarded to Riker.??Barth Decl. ?5, Ex. C.

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  1. UEI Colleges

In late 2017, Riker entered into a lease with UEI College (?UEI?) that provided for $1.4 million in tenant improvements.??Barth Decl. ?6.

Tuck inspected the completed work.??Tuck Decl. ?5.??Tuck determined that Riker had hired a non-architect Hoskins + Hoskins, Inc. (?Hoskins?) to draw up plans for improvements of the suite and that these plans failed to account for a Building Code-compliant fire wall separating two sections of the premises.??Id.??Subsequently, UEI had to install an adequate fire wall and employ a licensed architect to inspect Hoskins? plans to determine whether any other deficiencies existed.??Id.??No other deficiencies were spotted.??Id.??Hassen also had to hire an attorney to negotiate an indemnity agreement with UEI covering the legal exposure of a non-architect preparing the plans.??Barth Decl. ?6.??Hassen incurred $4,012.50 in legal costs for this work.??Id.

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  1. Newmark and Grubb

Riker paid a commission of $3,149.50 to a broker Newmark and Grubb (?Newmark?) related to the execution of the Fourth Amendment to an Automated Teller Machine Facility Lease.??Barth Decl. ?7, Ex. D.??The lease, however, expressly states that no brokers were used.??Id.

  1. Cat Caf?

In June 2015, prior to Riker?s appointment, Tuck obtained a tenant for Suite 329 which had been vacant for several years.??Tuck Decl. ?6.??This tenant intended to operate a ?Cat Caf?,? a caf? with adoptable cats roaming free.??Id.??The tenant executed a letter of intent to lease the space, obtained all necessary health permits, and was ready to execute the lease just before Riker was appointed.??Id., Ex. F.?Riker and her broker decided that a Cat Caf? was inappropriate for WCVC and refused to sign the lease.??Id.??To date, the suite remains vacant and Hassan has lost $136,620 in rent and CAM charges.??Tuck Decl. ?6.

  1. Roof Replacement Work

In 2017, Riker notified Hassen that she intended to replace the roofs on Buildings A, C, D, F, and G of WCVC.??Barth Decl. ?8; Tuck Decl. ?7.??The roofs were old and leaky and needed replacement.??Tuck Decl. ?7.

Hassen asked Riker to allow Hassen to replace the roofs with its own contractors, but Riker refused.??Tuck Decl. ?7.??Hassen also asked that Riker delay the roof replacement work because Hassen was negotiating reinstatement of the loan and termination of the Receivership.??Barth Decl. ?8.??Riker did not delay beyond September 15, 2017 and proceeded to contract for roof replacement at a cost of approximately $450,000.??Barth Decl. ?8; Tuck Decl. ?7.??Transwestern received a fee in the amount of $25,152.77 for overseeing this work.??Barth Decl. ?8.

In February 2018, following return of WCVC to Hassen, Tuck inspected the roofs after a substantial rain storm and determined that the roofs were susceptible to significant ponding.??Barth Decl. ?8; Tuck Decl. ?7.??Tuck reviewed the warranty and learned that it does not cover leaks from ponding.??Tuck Decl. ?7, Ex. G.??Tuck was also informed that Riker had elected not to slope the roofs to minimize ponding.??Id.

  1. Reply Evidence

During the Receivership, Riker was able to significantly increase occupancy at WCVC ? the premises became 88% leased ? and increase rental revenue at WCVC by more than $1.3 million per year.??Riker Supp. Decl. ?4.

Throughout the Receivership, Riker served the parties with monthly reports containing a detailed summary of leasing, operations, maintenance, collections and comprehensive property financial statements.??Riker Supp. Decl. ?6, Ex. 1.??Hassen and its agents routinely asked questions about her activities and offered suggestions about how she should operate the Property.??Riker Supp. Decl. ?7, Ex. 2.??Riker always exercised her independent judgment in determining whether to incorporate these suggestions.??Id.??Riker always quickly responded to Hassen?s questions and suggestions, and Hassen never once followed up on any of her responses with a formal objection to a course of action adopted.??Riker Supp. Decl. ?8.??Instead, Hassen appeared to accept Riker?s explanation.??Id.

  1. Greenfield

Riker and her property manager made extensive efforts to collect all amounts due under the Greenfield lease.??Riker Supp. Decl. ?10.??A large portion of the Greenfield receivable ? at least $265,000 ? is attributable to Riker?s decision to bill Greenfield for items which Hassen had not previously billed.??Riker Supp. Decl. ?10.??These items included certain taxes, insurance, late fees, and/or holdover charges.??Id.??A summary comparison of what Hassen would have billed Greenfield as opposed to what Riker billed Greenfield reflects that Riker billed Greenfield for additional charges leading to a total rent increase of $268,120.32.??Id.??Riker made sure to bill Greenfield these amounts to preserve the ability to pursue them in future collection actions.??Riker Supp. Decl. ?11.

In any given month, Transwestern had 15-20 emails or phone calls with Greenfield in an effort to collect the amounts owed.??Riker Supp. Decl. ?11.??Greenfield made it clear that it would vacate the premises if served with a 3-Day Notice.??Id.??Riker exercised her business judgment in determining that (1) collecting some rent for the location was prudent until a suitable replacement tenant could be identified and (2) suing a current tenant possessing a limited prospect of collectability would be detrimental to her ability to collect the outstanding amounts.??Riker Supp. Decl. ?12.??Riker also discerned that creating a vacant building along the major property frontage would be detrimental to WCVC.??Id.

In January 2017 and periodically thereafter, Hassen informed Riker and Tullius that a loan modification was imminent and that she should just preserve the status quo and, thus, not incur additional expenses.??Riker Supp. Decl. ?13.??This information factored into Riker?s decision not to file litigation against Greenfield.??Id.

During the Receivership, Riker?s broker actively marketed the Greenfield space to prospective tenants.??Riker Supp. Decl. ?14.??Riker forwarded two proposals to rent the space to the parties in this lawsuit for their review.??Id., Ex. 3.??These proposals fell through because Riker never received the necessary approvals from the parties.??Id.

Riker addressed the status of Greenfield?s payments and collection activity in every monthly report over the course of the Receivership.??Riker Supp. Decl. ?15.??At no point did Hassen seek court intervention to address what they presently allege as a substantial issue.??Id.

Riker was able to collect a significant amount of other tenants? delinquent balances which were on Hassen?s books when Riker took possession of the premises.??Riker Supp. Decl. ?16.??Following WCVC?s turnover to Hassen, Riker and her agents assisted Hassen free-of-charge in their eviction action against Greenfield.??Riker Supp. Decl. ?17.

  1. Suite 409

Riker believes that Hassen delivered the fully-executed lease of Suite 409 to Wahba after Riker took possession of the Property.??Riker Supp. Decl. ?18.??Hassen had no authority to do so, and Hassen even informed Wahba of this fact when it gave her the keys.??Id.

Consequently, Riker evaluated whether to move forward with the lease.??Id.??Riker ultimately decided that the lease was not in the best interest of the Receivership Estate because (1) the unit was torn apart and left in a deplorable condition, which would??require Riker to undertake substantial renovations to make it ready for Wahba, (2) the abandoned equipment which Wahba claimed to have purchased could not be released to her without resort to statutory procedures for abandoned personal property of a former tenant, and (3) Hassen was directly communicating with Wahba during the pendency of the Receivership and these communications appeared to catalyze her termination of the lease.??Riker Supp. Decl. ?19; Tullius Decl. ?3, Ex. 15.

Upon the lease?s termination, Riker executed a settlement agreement to document the termination in light of the peculiar timing and delivery of the lease and Wahba?s claim to the abandoned property.??Riker Supp. Decl. ?20.

  1. Amaron

Riker concedes that permits for this demolition and electrical work were not obtained during the Receivership.??Riker Supp. Decl. ?21.?She believes that this business decision was reasonable.??Id.??Riker reasons that (1) a permit would likely have triggered ADA and/or Title 24 upgrades increasing the cost of the work significantly, (2) the work performed was cleanup and safety work necessary to market the space and was completed by fully licensed contractors, and (3) a delay in pulling permits for the work would only result in minimal additional fees in the range of $1,000 to $1,500.??Riker Supp. Decl. ?21, Ex. 4.

In Riker?s experience, property owners often delay pulling of permits for similar reasons.??Riker Supp. Decl. ?23.

  1. UEI

The UEI lease expressly requires UEI and its general contractor to ensure compliance with all laws and regulations.??Riker Supp. Decl. ?24, Ex. 5.??Given UEI?s indemnification obligations under the lease, Riker relied on representations by UEI and its general contractor that Hoskins was a licensed architect.??Riker Supp. Decl. ?25.??She also relied on the City?s issuance of permits and the temporary Certificate of Occupancy in determining that UEI had completed its improvements in accordance with all applicable building codes and regulations.??Riker Supp. Decl. ?26.

Riker believes that it would have been inappropriate for her to inspect and approve each element in a tenant buildout where the tenant is responsible for construction; it would be prohibitively expensive to retain experts to double-check the work and would shift the liability risk to the landlord.??Riker Supp. Decl. ?27.

Plaintiffs and Hassen reviewed and approved the UEI lease prior its execution.??Riker Supp. Decl. ?29, Ex. 6.??At no point did Hassen raise an objection to UEI?s use of Hoskins as an architect.??Id.

  1. Newmark and Grubb

The ATM lease renewal appears to contain a drafting omission.??Riker Supp. Decl. ?31.??Newmark should have been listed as the landlord?s broker in the amendment.??Riker Supp. Decl. ?32.??Newmark was actively involved in the negotiation of this lease amendment.??Id., Ex. 7.??Riker sent Newmark?s letter of intent for the renewal to Hassen, and Hassen did not object to payment of a commission to Newmark.??Riker Supp. Decl. ?32, Exs. 7-8.

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  1. Cat Caf?

When Riker took over possession of WCVC, there was a large population of stray cats roaming the Property.??Riker Supp. Decl. ?34.?Tuck was apparently feeding these cats and enabling them to reside on the Property.??Id.??Riker determined that the Cat Caf? was detrimental to the image and cleanliness of the Property in part for this reason.??Id.

Riker?s leasing agents evaluated the proposed lease and advised her that this lease was inconsistent with the strategic marketing plan for the property.??Id.

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  1. Roofing Replacement Work

Upon taking possession of WCVC, the roofs at issue were in dire condition with immediate replacement recommended.??Riker Supp. Decl. ?37.??Riker believed that Hassen had failed to maintain the roofs for many years.??Id.

Prior to beginning the roof replacement work on WCVC, Riker provided numerous notices to the parties and an opportunity to ask questions and/or raise concerns.??Riker Supp. Decl. ?35, Ex. 11.??Riker informed Hassen of the exact scope of the work and the nature of the warranty covering the work.??Id.??Hassen did not object to the scope of the work.??Id.??Based upon multiple contractors? recommendations, Riker determined re-roofing to be appropriate.??Id.

Some ponding on a flat roof after rain is normal and not typically an issue if the roof is properly maintained on a regular basis.??Riker Supp. Decl. ?36.

  1. Interference

Throughout the Receivership, Hassen and its agents repeatedly interfered with Riker?s operation of WCVC and failed to deliver material information and documents about the property despite numerous requests.??Riker Supp. Decl. ?38.??For instance, Hassen required Riker to pay Gerald Barth (Hassen?s CFO) as a consultant before Hassen would hand over court-mandated files.??Id.

Hassen?s unwillingness to fully comply with the court?s orders and otherwise facilitate the smooth operation of the Property caused significant additional costs.??Riker Supp. Decl. ?38.

  1. Additional Fees

Riker spent an additional 15.5 hours on this matter than was contemplated in the moving papers.??Riker Supp. Decl. ?39.??Riker requests additional fees of $3,875.??Id., Ex. 13.

Tullius spent an additional 16.5 hours preparing a reply brief and an additional $91.02 in costs totaling $7.103.52 in additional fees and costs.??Tullius Decl. ?4, Ex. 16.

  1. Analysis

Riker seeks an order discharging her as Receiver, approving her Final Report and Accounting, and exonerating the bond posted for the Receivership.

Hassen seeks a disallowance of Riker?s Receivership fees and a surcharge of her bond on the ground that Riker exceeded her receivership authority and caused injury to Hassen by negligently operating the Receivership Estate.??Opp. at 2.??Hassen alleges seven discrete grounds to substantiate this objection.

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  1. Good Cause

Hassen concedes that it did not object to Riker?s 25 interim monthly reports in accordance with CRC 3.1183(b) (?Unless good cause is shown, objections to a receiver?s interim report and accounting must be made within 10 days of notice of the report and accounting?.?).??Opp. at 1.??Hassen argues that good cause existed to wait to object until the Final Report was filed because Hassen was in default on its loan and Plaintiffs threatened to foreclose on WCVC.??Opp. at 1-2.??Hassen states that this process continued until January 2018 at which time the parties executed a loan modification agreement and WCVC was turned over to Hassen.??Opp. at 2.

Hassen has shown motive but not good cause.??As Riker points out (Reply at 1), Hassen was in the same situation as every defendant borrower in a rents and profits receivership.??The borrower is in default and is looking for a way to avoid foreclosure, including loan modification and reinstatement.??The good cause requirement of CRC 3.1183(b) contemplates more than a loan default and negotiation with the lender to excuse a failure to object.??Hassen?s correspondence with Riker during the Receivership undermines its good cause claim because it was intimately involved.??Riker Supp. Decl. ?7, Ex. 2 (Hassen and its agents routinely asked Riker questions about her activities and offered her suggestions about how to operate WCVC).??Hassen?could have and should have?raised timely objections, and its failure to do so is not good cause.

Accordingly, Hassen?s objections are time-barred barred.

  1. Immunity

Riker contends that she has quasi-judicial immunity and was acting within the scope of her authority as a receiver.??Reply at 2.?According to Riker, she can only be held liable and surcharged if she was acting outside the scope of her receivership authority.??Reply at 3.

Riker is correct to a certain extent.??As a court-appointed receiver, she enjoyed quasi-judicial immunity for damage claims arising from her performance of duties in connection with the judicial process.??McClintock v. West,?(2013) 219 Cal.App.4th 540, 551 (citingHoward v. Drapkin,?(1990) 222 Cal.App.3d 843, 860).??But Riker overextends this privilege.??This immunity does not apply to surcharges.??As case law has well-established, a receiver may still be surcharged for losses to the receivership estate based upon her misconduct or mismanagement.??Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership,?(2017) 8 Cal.App.5th 910, 926 (citing?Aviation Brake Systems, Ltd. v. Voorhis,?(1982) 133 Cal.App.3d 230, 233).??This includes, instances where the receiver exceeds her authority, causes injury to others, or acts negligently in operating the estate.??Id.??A party must make such a claim in response to a receiver?s request for final accounting and may not filed an independent action to address the receiver?s liability.??Id.?Hassen makes claims of negligence against Riker?s bond.

  1. Objections
  2. Greenfield

Hassen asserts that Riker failed to pursue collection or eviction of Greenfield causing damages to Hassen in the amount of $538,270.?Opp. at 5.??According to Hassen, Greenfield paid only $8,126 per month in rent during the Receivership, whereas it had paid an average of $20,082.50 per month in rent prior to the Receivership.??Opp. at 5.??This change allegedly increased the accounts receivable for Greenfield from $5,000 to $538,270.??Hassen also alleges that Riker negligently allowed Greenfield to continue using the premises even after its lease was not renewed.??Opp. at 5-6.

Riker presents a multitude of reasons which reasonably explain her business decisions about Greenfield.??First, approximately half of the increased accounts receivable is attributable to Riker?s decision to bill Greenfield for items which Hassen had not billed.??Riker Supp. Decl. ?10.??Apart from providing an opportunity to generate more rental revenue, these items preserved the Receivership?s ability to pursue these amounts in future collection actions.??Riker Supp. Decl. ?11.??Second, Riker?did?attempt to collect these outstanding sums.??Riker Supp. Decl. ?11.??Transwestern on behalf of Riker had 15-20 emails or phone calls with Greenfield in any given month on this subject.??Id.??Third, Greenfield threatened to vacate the premises if given an eviction notice.??Riker Supp. Decl. ?11.??Riker prudently concluded that collecting some, albeit not all, rent was better than collecting no rent at all while Riker looked for a replacement tenant.??Riker Supp. Decl. ?12.??Riker also observed that a vacant building along the property frontage would not be good for business.??Id.??Fourth, by January 2017 (approximately a year into the Receivership), Hassen told Riker to preserve the status quo because Hassen expected to repossess the Property.??Riker Supp. Decl. ?13.??This factor warranted against an eviction of Greenfield.?Fifth, Riker actively marketed the space to prospective tenants.??Riker Supp. Decl. ?14.??She was simply unsuccessful in procuring one, in part because necessary approvals from the parties fell through.??Id.??Sixth, Riker presents evidence that Hassen is simply cherry-picking.??In other scenarios, Riker collected delinquent tenant balances where Hassen had previously failed.??Riker Supp. Decl. ?16.

Individually and collectively, these reasons show that Riker did not negligently handle Greenfield.

  1. ?Suite 409

????????????Hassen contends that Riker caused Wahba to terminate its lease for Suite 409 and damaged Hassen in the amount of $51,237.50.??Opp. at 6.

????????????Riker persuasively explains why she concluded that the lease with Wahba would not be in the best interest of the Receivership Estate.??Riker Supp. Decl. ?19.??The lease was not economically viable for the Estate because the unit required substantial renovations.?Id.??If she signed the lease with Wahba, Riker would have had to pursue statutory procedures related to abandoned personal property of a former tenant.??Id.??These time and cost expenditures, particularly the renovation cost, are sound justifications for Riker?s decision.

????????????Hassen also disputes the $3,697.50 which Riker paid to her counsel for negotiating a termination of the Wahba lease.??Opp. at 10.??Hassen maintains that instead of receiving regular monthly rent checks, Hassen lost money in this transaction.??Id.

????????????Hassen?s point is not well-taken.??Riker prudently concluded that she should execute a settlement agreement with Wahba to limit legal exposure in this peculiar lease situation which was improperly catalyzed by Hassen during the Receivership.??Riker Supp. Decl. ?? 19-20.

  1. ?Amaron

????????????Hassen contends that Riker negligently hired Amaron to perform demolition and construction work without permits at a cost of $34,563.??Opp. at 6.

????????????Riker acknowledges that this work was unpermitted.??Riker Supp. Decl. ?21.??Riker weighed the risks and costs, and she presents three reasons why she decided not to obtain permits.??Riker Supp. Decl. ?? 21-22.??First, an electrical permit would have triggered costly ADA and/or Title 24 upgrades.??Id.??Second, the work related to cleanup and safety and was contracted to market the space.??Id.??Riker planned to obtain permits and perform additional tenant improvement work when she found a suitable tenant.??Id.?Riker estimated that additional fees for subsequent permits would be minimal ? e.g., in the $1,200 range.??Id., Ex. 4.

Riker?s rational, discretionary business decision is not negligent and not subject to surcharge.

  1. ?UEI

????????????Hassen asserts that Riker approved the use of Hoskins as an architect for the UEI suite improvements even though Hoskins is not a certified and licensed architect.??Opp. at 7.??As a result, Hassen incurred unnecessary legal fees in negotiating with UEI to have a certified architect review the improvements for legal conformity and obtaining additional indemnity from UEI with respect to this work.??Opp. at 8.

????????????This objection is invalid.??As Riker explains, she relied on the lease between WCVC and UEI which (1) mandates that UEI ?will comply with all Legal Requirements? with respect to maintenance, repairs, and alterations at its own cost (Riker Supp. Decl. ?? 24-25, Ex. 5, p.23) and (2)??contains an indemnification clause protecting WCVC from any claims relating to the improvements (Riker Supp. Decl. Ex. 5, p.28).??Riker also points out that it would have been prohibitively expensive for her to hire experts to double-check UEI?s work.??Indeed, doing so might have inadvertently exposed WCVC to legal liability.??Riker Supp. Decl. ?27.??Finally, Hassen reviewed and approved the UEI lease and raised no objections to this arrangement.??Riker Supp. Decl. ?29.

Riker?s acceptance of Hoskins as an architect, given the lease?s allocation of liability and Hassen?s implicit acquiescence, was non-negligent.

  1. ?Newmark

????????????Hassen contends that Riker damaged Hassen by paying broker Newmark a commission in the amount of $3,149.50 even though the instrument at issue states that no broker was used.??Opp. at 8.

????????????Hassen is incorrect.??As Riker explains, this instrument simply contains a drafting error.??Riker Supp. Decl. ?31.??Newmark was actively involved in negotiation of this amendment, and deserved a commission.??Hassen was on adequate notice of Newmark?s broker status for the renewed lease.??Riker Supp. Decl. ?32, Exs. 7-10.

  1. ?Cat Caf?

????????????Hassen complains that Riker damaged the partnership by terminating a letter of intent with Cat Caf? for Suite 329.??Opp. at 8.?Hassen complains that the Appointing Order did not authorize Riker to change the nature of WCVC or its tenants.??Opp. at 9.?According to Hassen, Riker?s failure to sign the lease cost Hassen $136,620 over the course of the Receivership.??Id.

The Appointing Order is broad and provides Riker with power,?inter alia, to ?do all the things, and incur the risks and obligations, ordinarily done or incurred by owners, managers, and operators of businesses.???Riker Decl. Ex. 2, p.4.??A decision not to enter into a lease which a manager finds to be detrimental to the image and cleanliness of the Property as well as inconsistent with the strategic marketing plan is consistent with Riker?s authority.??Riker Supp. Decl. ?34.

  1. ?Roofing Replacement Work

????????????Hassen asserts that Riker damaged Hassen by paying Transwestern $25,152.77 in project management fees for roof replacement work.??Opp. at 9.??According to Hassen, it did not have the opportunity to review the contract or warranty governing such work and it was dismayed to learn that (1) the newly-replaced roofs are susceptible to ?significant ponding? and (2) the roofer?s warranty does not cover this issue.??Opp. at 10.??Hassen asserts that Transwestern breached its supervisory duties by not requiring the roofing contractor to install new roofs which drained properly.??Id.

????????????Hassen?s assertions are dubious.??Hassen failed to maintain the roofs and they were undisputedly old and needed replacement.?Tuck Decl. ?7.??Riker resolved this issue by replacing the roofing.??There is insufficient evidence to indicate that construction of a flat roof susceptible to ponding is negligence by the roofing contractor, the project manager Transwestern, or Riker.??Riker asserts, and Hassen does not dispute, that ponding after rain is normal on a flat roof and is not typically an issue with regular maintenance checks.?Riker Supp. Decl. ?36.??Riker points out that Hassen should have been fully aware of the contemplated roofing work as Riker submitted to Hassen the contract documents showing the scope of work and nature of the warranty.??Riker Supp. Decl. ?35, Ex. 11.??Riker?s need to take action and Hassen?s failure to object to the design or warranty mean that Riker?s discretionary business decision must be upheld.

  1. Conclusion

All of Hassen?s objections and efforts to surcharge Riker?s bond are meritless.??Riker?s Final Report and Accounting, including additional fees and costs incurred for preparation of the reply brief, is approved in its entirety.??After payment of final fees and expenses, Riker is authorized to distribute the balance of the funds to Plaintiffs.??Riker is discharged as Receiver, and the bond that she posted for the Receivership is ordered exonerated.

The court will sign a modified order that includes the additional fees sought in reply.??As the court has no personal knowledge of Receiver?s actions, she is relieved of liability only where misconduct could have been discovered by the final accounting.??See?Aviation,supra,?133 Cal.App.3d at 234-35.??Therefore, the order will be modified to exonerate Receiver and her staff from liability where the misconduct could have been discovered.

[1]?The reference to ?personal capacity? simply means that the bond posted by the receiver is subject to the surcharge.