Action on guaranty of obligation secured by real property triggers California's 'One Action Rule.'
Cite as
1999 DJDAR 330Published
Mar. 29, 1999Filing Date
Jan. 11, 1999Summary
The U.S.C.A. 9th has held that a state suit against the guarantor of a debtor's secured obligation triggered California's "one action rule" and resulted in a "waiver" of the underlying security interest.
Prestige Limited Partnership-Concord was a bankruptcy debtor. Prior to bankruptcy, East Bay Car Wash filed a state action against Jerry Brassfield upon a guaranty of an obligation owed by Prestige, and secured by Prestige's interest in a ground lease. In that action, East Bay successfully attached Brassfield's unpledged assets. After Prestige filed its bankruptcy case, it filed an adversary proceeding against East Bay to void its security interest in the ground lease on the basis that the attachment triggered the "one action rule" under California Code of Civil Procedure, section 726(a). The bankruptcy court agreed, finding that East Bay's attachment triggered Section 726(a), which provides a single form of action to recover or enforce any right secured by real property. By attaching Brassfield's assets, East Bay "waived" its security interest in the ground lease. The district court affirmed.
The U.S.C.A. 9th affirmed. East Bay argued that it was protected by California Code of Civil Procedure, section 483.012, which provides that in an action to foreclose upon a mortgage or deed of trust on real property, an attachment of unpledged assets does not constitute an "action" for purposes of Section 726(a). This argument was not persuasive. Section 483.012 requires there to be an "action to foreclose upon a mortgage or deed of trust." East Bay's action on the guaranty in state court against Brassfield was not an action to foreclose the deed of trust that secured its interest in the ground lease. As such, Section 483.012 did not apply in this case. Accordingly, East Bay's action on the guaranty violated the "one action rule."
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COUNSEL David B. Draper and Martin D. Dioli, Ropers, Majeski, Kohn & Bentley, San Jose, California, for the defendant-appellant. Peter W. Davis (argued) and Eugene K. Yamamoto, Crosby, Heafey, Roach & May, San Francisco, California, for the plaintiff-appellee.
OPINION PER CURIAM:
Creditor East Bay Car Wash Partners ("East Bay") timely appeals the district court's order affirming the bankruptcy court's order granting partial summary judgment in favor of debtor Prestige Limited Partnership-Concord ("Prestige") in Prestige's adversary proceeding against East Bay. East Bay's primary contention here is that its attachment of Jerry Brassfield's unpledged assets in a separate state court action on the underlying obligation for breach of guaranty was not an "action" within the purview of Cal. Civ. Proc. Code § 726(a).1 The bankruptcy court held East Bay violated California's "one action, security-first" rule by pursuing the state court action and attaching Brassfield's unpledged assets, and thereby waived its security interest in Prestige's ground lease under § 726(a). The district court affirmed. We have jurisdiction pursuant to 28 U.S.C. § 158(d),2 see In re Lyons, 995 F.2d 923, 924 (9th Cir. 1993), and we adopt the statement of facts and reasons set forth in the bankruptcy court's published opinion, In re Prestige Ltd. Partnership-Concord, 205 B.R. 427, 434-36 (Bankr. N.D. Cal. 1997).
We supplement this by rejecting East Bay's argument on appeal that newly-enacted Cal. Civ. Proc. CodeS 483.012,3 inter alia, provides that the attachment of unpledged assets does not violate § 726(a). The plain text of the new statute expressly limits its application to "an action to foreclose a mortgage or deed of trust . . . " Cal. Civ. Proc. Code § 483.012. Indeed, the title of § 483.012 is, "[a]ctions to foreclose mortgages or deeds of trust; pursuit of remedies; effect." Id.; accord Lynch v. Rank, 747 F.2d 528, 532 (9th Cir. 1984), amended on reh'g, 763 F.2d 1098 (9th Cir. 1985) (noting "the title of an Act may be a useful aid in resolving ambiguities in a statute") (citations omitted). As it is undisputed that East Bay's state court guaranty action against Brassfield was not at any time an action to foreclose the deed of trust which secured its interest in Prestige's ground lease,S 483.012 does not apply to East Bay's action. Further, there is nothing in the statute's legislative history to suggest otherwise. East Bay's attempt to employ § 483.012 to restore its waived real property security interest consequently fails.
AFFIRMED.
1 Cal. Civ. Proc. Code § 726 (West Supp. 1994) provides, in relevant part,
(a) There can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property or an estate for years therein, which action shall be in accordance with the provisions of this chapter. In the action the court may, by its judgment, direct the sale of the encumbered real property or estate for years therein (or so much of the real property or estate for years as may be necessary), and the application of the proceeds of the sale to the payment of the costs of court, the expenses of levy and sale, and the amount due plaintiff . . . (emphasis added).2 Title 28 U.S.C. § 158 (1993 & Supp. V 1998) provides, in relevant part,
(a) The district courts of the United States shall have jurisdiction to hear appeals . . . . . . with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title [governing core proceedings]. . . .
(d) The courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees entered under subsections (a) and (b) of this section.3 Cal. Civ. Proc. Code § 483.012 (West Supp. 1998) (eff. Jan. 1, 1998) provides,
Subject to the restrictions of Sections 580b and 580d, in an action to foreclose a mortgage or deed of trust on real property or an estate for years therein, pursuit of any remedy provided by this title shall not constitute an action for the recovery of a debt for purposes of subdivision (a) of Section 726 or a failure to comply with any other statutory or judicial requirement to proceed first against security. (emphasis added)
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