What is Required for Service of a Notice of Pendency of Action (Lis Pendens)?

Recording a notice of pendency of action, commonly known as a lis pendens (Latin for "pending action"), is one of the most effective ways to prevent the sale of real property or a further lien such as a deed of trust in a civil dispute. 

It requires a civil lawsuit alleging a real property claim, and it must be served as required by statute or it is subject to a motion to expunge.

In the recent case of J&A Mash & Barrel v. Superior Court (Tower Theatre Properties as the real party in interest), the appellate court considered the requirements for service of the lis pendens.

Petitioner J&A Mash & Barrel, LLC (J&A), a tenant of real party in interest, Tower Theater Properties, Inc. (TTP), alleged TTP failed to honor its right of first refusal when TTP entered an agreement to sell the property to a third party, Adventure Church.

To protect its rights, J&A initiated legal action in the Fresno County Superior Court and filed a notice of pendency of action to provide notice to interested parties of the litigation.

TTP moved to expunge the lis pendens, which the trial court granted, and J&A filed a petition for a writ of mandate challenging the court’s ruling.

Because the order expunging the lis pendens was flawed in several respects, the appellate court granted the writ and directed the trial court to vacate the order and enter a new order denying the motion to expunge the lis pendens.

J&A, as the prevailing party on the motion to expunge and in the writ proceeding, was entitled to recover its reasonable attorney’s fees and costs pursuant to California Code of Civil Procedure section 405.38. Therefore, the trial court was also directed to hold further proceedings to calculate and award those attorney’s fees and costs.

J&A was the owner of Sequoia Brewing, a restaurant and brewery operating in Fresno and a tenant of TTP.

The brewery is located in a stand-alone commercial building (brewery premises), but the building is one part of a larger parcel of real estate (Tower Theatre parcel).

The brewery premises is located on the Tower Theatre parcel and, therefore, any attempt to sell the Tower Theatre parcel necessarily involves the brewery premises.

J&A purchased Sequoia Brewing from the prior owners, and the lease of the brewery premises was assigned to J&A.

The amended lease contained a right of first refusal allowing J&A to purchase the brewery premises should TTP offer to sell the premises to a third party.

In January 2021, the owners of J&A received a letter from TTP indicating it was planning on concluding the sale of the Tower Theatre parcel in three days and requested J&A waive the right of first refusal contained in the lease. The letter stated J&A had not exercised its right to purchase the brewery premises, and therefore the option to do so had lapsed. Since the owners of J&A had never previously been provided notice of the sale and had never agreed to waive the right, they refused to sign the letter.

Two days later, TTP’s counsel informed J&A of the sale of the property to trigger the 12-calendar-day period described in the lease for J&A to provide notice of its intent to exercise the right of first refusal. The letter did not state a price for the brewery premises, nor did it provide information regarding the sales price of the entire Tower Theatre parcel.

J&A responded to TTP noting TTP initiated the sale of the property without first providing notice as required by the lease agreement, and TTP was required to provide J&A the purchase price from the third party to allow it to determine a matching offer price for the brewery premises as contemplated under the lease.

In response, TTP's counsel represented the sale price of the Tower Theatre parcel was $6.8 million, and TTP was willing to offer to sell the brewery premises for $2.5 million. Believing the prices quoted by TTP were “ludicrously high,” J&A counsel stated his clients would never pay that amount for the property.

TTP then e-mailed J&A a copy of a subordination and consent agreement prepared by the lender for the buyer, Adventure Church, Inc. (Adventure Church), indicating J&A’s lease would be subordinate to the deed of trust and rights of the lender.

J&A responded on the same date with a letter to Adventure Church’s lender stating its position that the sale could not go through, and it intended to imminently file legal action to protect its rights.

J&A filed a complaint against TTP in Fresno County Superior Court, quickly followed by a first amended complaint the next day (the FAC). The FAC alleged claims for: (a) breach of contract/specific performance, (b) declaratory relief, (c) preliminary injunction, (d) fraudulent concealment, and (e) tortious interference with contract.

J&A caused a notice of pendency of action and related proof of service (the lis pendens) to be recorded with the Fresno County Recorder under section Code of Civil Procedure section 405.20.

The lis pendens referred to J&A’s complaint and FAC and stated the pleadings alleged a real property claim against a portion of the Tower Theatre parcel.

The proof of service stated a copy of the lis pendens had been served by certified mail on “Laurence Abbate, Agent for Service,” of TTP at 815 East Olive Avenue, Fresno and “Mandy Flores, Agent for Service” of Adventure Church. The proof of service also stated David Camenson, as attorney for TTP, was served by electronic mail. J&A filed the lis pendens with the trial court.

After a hearing, the trial court ordered the lis pendens be expunged, stating J&A “has not shown by a preponderance of the evidence that it has a probability of prevailing on its claims” and citing section 405.32.

J&A sought relief from the trial court’s denial of the preliminary injunction and expungement of the lis pendens by filing a petition for writ of mandate with the appellate court.

The appellate court issued a temporary stay and ordered the terms of the temporary restraining order to remain in effect pending determination of the petition. After informal briefing, this court issued an alternative writ granting partial relief.

The order directed respondent trial court to either vacate its ruling expunging the lis pendens or show cause why relief should not be granted.

The trial court vacated its ruling and set a briefing schedule and hearing date for TTP’s motion to expunge the lis pendens.

TTP filed its motion to expunge the lis pendens and argued the lis pendens should be expunged on procedural and substantive grounds. Asserting for the first time that Tower Theatre Productions, a California general partnership (TTP-GP), was the owner of record, TTP argued the lis pendens was procedurally defective and void because it was not served on the owner of record before its recordation.

The substantive grounds raised by TTP was that J&A lacked evidence to establish the probable validity of its real property claim and, moreover, J&A had not even pleaded a viable real property claim. 

J&A filed its opposition to the motion to expunge, and its arguments challenged both the procedural (improper service) and the substantive grounds raised in TTP’s motion to expunge.

The trial court issued an order granting the motion to expunge the lis pendens on both procedural and substantive grounds. The court found that TTP-GP was the owner of record of the Tower Theatre parcel and TTP-GP had not been served with a copy of the lis pendens as required by statute.

The court also concluded J&A did not carry its burden of showing its real property claims were probably valid. Finally, the court awarded TTP attorney fees in the amount of $4,589.95 based on its finding that J&A acted without substantial justification.

A party who asserts a claim to real property can record a notice of lis pendens, which serves as notice to prospective purchasers, encumbrancers and transferees that there is litigation pending that affects the property.

A lis pendens acts as a cloud against the property, effectively preventing sale or encumbrance until the litigation is resolved or the lis pendens is expunged.

In 1992, the California Legislature substantially revised the lis pendens law by enacting the current statutory scheme, sections 405 through 405.61.

These statutes create a balance in which the interests of third party litigant claimants, property owners, and prospective purchasers are protected by a somewhat complicated procedural scheme. This balance is an integral part of the policy of the statutory scheme, and when courts interpret its provisions, they must maintain that balance, effectuate the statute’s objectives, and promote justice.

A party to an action who asserts a real property claim may record a notice of pendency of action in which that real property claim is alleged. Such a party is a claimant for purposes of the lis pendens statute. Once recorded, any party with an interest in the property can move to expunge the lis pendens.

There are four bases upon which expungement may be sought: (1) the lis pendens is void and invalid, (2) the action as pleaded does not contain a real property claim, (3) the claimant fails to establish the probable validity of the claim, and (4) monetary relief provides an adequate remedy.

A motion for expungement establishes a lis pendens is void and invalid for purposes of by showing service of the lis pendens did not comply with the requirements.

Also, a motion for expungement may be based on the substantive grounds that the underlying action does not contain a real property claim, or the real property claim lacks probable validity.

Once an order granting or denying expungement has been issued by the trial court, the exclusive means for challenging that order is a petition for writ of mandate.

Although the trial court sustained TTP’s objections to the lease extension agreement, it specifically concluded that the right of first refusal may be too vague to be enforceable based on too many contingencies.

As executed agreements, the exhibits were categorically not hearsay. Hearsay evidence is evidence of a statement that was made other than by a witness while testifying at the hearing and that is offered to prove the truth of the matter stated. (Evid. Code, § 1200, subd. (a).)  

A well-established exception or departure from the hearsay rule applying to cases in which the very fact in controversy is whether certain things were said, and not whether these things were true or false, and in these cases the words are admissible not as hearsay, but as original evidence.

Operative facts draw their significance from having been said or written regardless of whether they are true, and such facts lie outside the hearsay rule.

Accordingly, documents containing operative facts, such as the words forming an agreement, are not hearsay (e.g., sales contract and assignment properly admitted).

A lis pendens remains in effect thereby preventing sale or encumbrance until the litigation is resolved or the lis pendens is expunged.

TTP’s motion to expunge the lis pendens asserted J&A failed to serve the lis pendens on the owner of record prior to recordation as required by statute.

J&A responded to TTP’s arguments about defective service by asserting TTP-GP had notice and actual knowledge of the lis pendens. J&A argued (1) TTP was served with the lis pendens through is agent for service, Laurence Abbate, (2) TTP was a partner in TTP-GP, and (3) notice to a partner constitutes notice to the partnership.

Accordingly, J&A asserted TTP-GP was provided with actual notice and quoted Biddle v. Superior Court for the principle that “slavish adherence to the technical requirements of service would defeat the overall legislative objective.

The order granting the motion to expunge concluded the lis pendens had not been properly served.

The statutes that govern the service of a lis pendens and the consequences of improper service are Code of Civil Procedure sections 405.22 and 405.23.

Section 405.22 provides that, prior to recordation, the claimant must cause a copy of the lis pendens to be mailed, by registered or certified mail, return receipt requested, [1] to all known addresses of the parties to whom the real property claim is adverse and [2] to all owners of record of the real property affected by the real property claim as shown by the latest county assessment roll.

Section 405.23 provides: Any notice of pendency of action shall be void and invalid as to any adverse party or owner of record unless the requirements of Section 405.22 are met for that party or owner and a proof of service in the form and content specified in Section 1013a has been recorded with the notice of pendency of action.

A party contending that a lis pendens is “void and invalid” for purposes of section 405.23 due to defective service may raise this ground in a motion for expungement.

The issue of the mailing address to be used when serving a lis pendens on an owner of record is important.

The statute does not expressly require mailing to the address shown on the assessment roll or expressly require the claimant to make any particular efforts to discover an owner’s address.

TTP argued the proof of service shows the lis pendens was not served on the general partnership that is the owner of record and, therefore, the lis pendens was void and invalid.

In response, J&A argued that TTP is a partner in TTP-GP and, under California law, service on a partner constitutes notice to the partnership. This argument applies with equal force to the possibility that Laurence Abbate, rather than TTP, is a partner in TTP-GP.

California’s statutory scheme governing lis pendens and section 1013a does not provide specific instructions for how to serve a partnership in particular or legal entities in general.

The current mailing requirement still is intended to make sure that all owners of the property, and all adverse parties claiming an interest in the property, are aware of the lis pendens.

Providing notice furthers the interests of property owners and adverse parties with claims by enabling them to pursue a motion to expunge if there are grounds for expungement. Providing notice also allows them to take the existence of the lis pendens into account in any transaction involving the real property.

A partner’s knowledge, notice, or receipt of a notification of a fact relating to the partnership is effective immediately as knowledge by, notice to, or receipt of a notification by the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner. (Corp. Code, § 16102, subd. (f).)

The appellate court concluded that a lis pendens mailed to a partner qualifies as a lis pendens mailed to the partnership for purposes of section 405.22.

Here, based on the evidence presented and the arguments of counsel, TTP or Laurence Abbate was a partner in TTP-GP or, perhaps, both are members of the partnership.

Therefore, to the extent that J&A had the burden of proving that the individual to whom the lis pendens was mailed with either a partner in TTP-GP or the agent for service of a corporation that was a partner in TTP-GP, J&A carried that burden by showing Laurence Abbate, TTP, or both, were partners in TTP-GP.

As an alternative to the conclusion that the lis pendens was mailed to the owner of record in accordance with section 405.22, substantial compliance with section 405.22 is sufficient and was achieved in this case.

Allowing substantial compliance does not undermine the purpose of the mailing requirement—prompt notice to the owner of record—or other purposes of the lis pendens statutes.

In another context, substantial compliance with a service requirement occurs when three conditions are met.

First, there must have been some degree of compliance with the offended statutory requirements. Second, the circumstances of the attempted service must have made it highly probable that it would impart the same notice as strict compliance.  Third, it must in fact have imparted such notice or at least provided sufficient notice to put the notified party on its defense.

A right of first refusal is a contractual right to purchase property in the event the owner decides to sell.

Unlike an option that gives the tenant the right to purchase the property at the election of the tenant, when the lease gives the tenant the right of first refusal to purchase the demised premises, the tenant only has the conditional right to acquire the property. The tenant has a preference to purchase the property over other purchasers if the landlord elects to sell the property.

A right of first refusal, also called a preemptive right is the conditional right to acquire property, depending on the owner’s willingness to sell.

The holder of the right merely has the preference to purchase the property over other purchasers if the owner of the property elects to sell the property.  The right does not become an option to purchase until the owner of the property voluntarily decides to sell the property and receives a bona fide offer to purchase it from a third party.

Normally, the right is enforceable against third persons entering into a contract to buy the property with notice of the holder’s right.

LESSONS:

1.         A party who asserts a claim to real property can record a notice of lis pendens, which serves as notice to prospective purchasers, encumbrancers and transferees that there is litigation pending that affects the property.

2.         A lis pendens acts as a cloud against the property, effectively preventing sale or encumbrance until the litigation is resolved or the lis pendens is expunged.

3.         The appellate court concluded that a lis pendens mailed to a partner qualifies as a lis pendens mailed to the partnership for purposes of section 405.22.

4.         As an alternative to the conclusion that the lis pendens was mailed to the owner of record in accordance with section 405.22, substantial compliance with section 405.22 is sufficient.