FEATURE ARTICLE, MARCH 2005

BUYER BEWARE: APPEALS COURT FREES UP SELLERS
California appellate court confirms revised law disfavoring the tying up of commercial property with frivolous claims.
Kurt Osenbaugh

Osenbaugh

The California Court of Appeal has helped rectify this situation, recently holding that a lis pendens lien which is clearly not meritorious should be removed. Previously, a disgruntled purchaser could tie up a property for years, and continue the lis pendens cloud on title during an appeal, even after a lower court ruled in favor of the seller.

The California Court of Appeal has clarified the standard applicable for removing lis pendens on appeal, confirming that a lis pendens can only be maintained in favor of a buyer or other claimants who “will likely succeed” on their asserted real property claims. (Mix v. Superior Court, December 7, 2004). Prior to this decision, a buyer needed to show only that a “substantial issue” existed to keep the lis pendens in place during appeal, even though the claimant had already lost at the trial level. The Mix Court held that, with rare exceptions, the trial court should grant a motion for the removal (called expungement) of lis pendens pending appeal where the claimant has lost at trial.

In an exceptionally well-written opinion, peppered with illustrative analogies (at one point, the court noted the probabilities of success on appeal are considerably less than winning in a Las Vegas casino), the California Court of Appeal has essentially written a primer of the state of the lis pendens law in California.

The Mix case involved condominium sellers’ attempts to expunge a lis pendens placed on their property by prospective purchasers. The sellers successfully contended they were not obliged to sell the property because they had not personally signed the sales agreement, which had been instead signed by their real estate agent. Despite prevailing at the trial court level, the sellers saw the lower court deny their motion to expunge the lis pendens, as it incorrectly held that the law required that the lis pendens remain in place pending the buyer’s appeal. The Mix Court of Appeal reversed the lower court, and clarified that changes the legislature made to the lis pendens law in 1992 almost always required the removal of the lis pendens where the lis pendens claimant was unsuccessful in the lower court.

As the Mix Court explained, before 1992 (under former Code of Civil Procedure Section 409.1) all that was necessary for a claimant to maintain a lis pendens and defeat a motion to expunge the lis pendens was a showing that the claimant had filed an action affecting the right to possession of the real property that was commenced for “a proper purpose and in good faith.” In essence, the parties’ good faith was determinative respecting the maintenance of the lis pendens. Under this low threshold, previously the Courts of Appeal had routinely allowed a lis pendens to continue in place during the pendency of an appeal, even when the claimant filing the lis pendens had lost in the trial court. This allowed claimants to cloud title for years with dubious property claims.

As the court noted, this loose, good faith standard was widely criticized by commentators and property owners. Subsequently, in 1992, the legislature overhauled the lis pendens statutes in response to claimants’ abuse of the loose standard, and replaced Section 409 with C.C.P. Section 405.32, which establishes that a lis pendens should be removed unless the claimant establishes with a preponderance of the evidence the “probable validity” of the real property claim. Prior to Mix, the only appellate court decision dealing with the appropriate standard for the maintenance of a lis pendens on appeal predated the 1992 amendments, and therefore indicated only that a lis pendens may be maintained pending appeal pursuant to the previous loose “substantial issue” standard.

Following the Mix case, it is clear that the “substantial issue” standard has been replaced by the more stringent “probable validity standard,” which requires the appellate court to determine that the claimant is likely to ultimately prevail in order to allow the lis pendens to be maintained. Since the probability of success on appeal as a general matter is low, it would be an extremely rare case, according to the appellate court, for it to be appropriate for the trial court or the Court of Appeal to allow the maintenance of a lis pendens following the claimant’s loss in a lower court: “In terms of what is ‘probable,’ an appellant winning is the old journalistic definition of news: Man bites dog. We therefore conclude that if the claimant has lost at the trial level, [C.C.P.] Section 405.32 mandates that the lis pendens be expunged – mostly.” Only in the rare case, where the trial court concluded that its own decision would be reversed by the Court of Appeal, would it be appropriate for a lis pendens to be kept in place following the claimant’s loss at trial.

The Appellate Court concluded: “To reiterate, the rule is this: If the claimant loses at trial, the lis pendens must be expunged unless the trial court is willing to find that the probabilities are that its own decision will be reversed on appeal. The irony is that the law has gone from a pre-1992 situation when it was almost impossible to get a lis pendens expunged — even after the claimant lost at trial — to a post-1992 situation when it is almost impossible to prevent a lis pendens from being expunged if the claimant loses. But that, as we showed above, is evidently what the legislature wanted.”

Finally, the Mix court noted that an important “safety valve” protecting the claimant’s rights is the claimant’s ability to file a petition for writ of mandate to the court of appeal and simultaneously request an immediate stay of the lower court’s order expunging a lis pendens, to allow the appellate court time to review the lower court’s decision.

What is the net result of this change? If you are a seller of property whose title is clouded by a frivolous lis pendens lien from a failed purchaser, you should have a quick remedy in the court to remove such a claim promptly. Simply filing a frivolous appeal can no longer serve to extend the seller’s misery.

Kurt Osenbaugh is a litigation partner with the California-based law firm of Weston, Benshoof, Rochefort, Rubalcava & MacCuish LLP.

1  C.C.P. Section 45.30 states: “In proceedings under this chapter, the court shall order that the notice be expunged if the court finds that the claimant has not established by a preponderance of the evidence the probable validity of the real property claim. The court shall not order an undertaking to be given as a condition of expunging the notice if the court finds the claimant has not established the probable validity of the real property claim.”

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