In The Formula, Inc. v. Superior Court of Mono County (iStar Financial), (— Cal.Rptr.3d —, Cal.App. 3 Dist., Dec. 10, 2008), a California Court of Appeal considered whether California’s notice of litigation statutes were applicable to litigation brought in courts of other states. The Court of Appeal concluded that California’s notice of litigation statutes do not apply to out of state litigation.
The Formula, Inc. (“The Formula”), a Florida corporation, filed a lawsuit in Florida against Mammoth 8050, LLC (“Mammoth”), a Delaware limited liability corporation, asking a court to compel the construction and sale to it of condominium units on property located in Mono County, California. In October of 2007, The Formula recorded a notice of pending Florida litigation against the property in Mono County.
In January 2008, iStar Financial, Inc. (“iStar”) and SFI Mammoth Holdings, LLC (“SFI”), two parties that helped finance the condominium project, filed a separate action against The Formula in the Mono County Superior Court to quiet title and for declaratory relief. iStar and SFI asked the court to help resolve the property dispute and further asked the court to expunge The Formula’s notice of litigation of the Florida lawsuit recorded against the property in Mono County.
The Mono County Superior Court granted iStar and SFI’s request to expunge The Formula’s notice of litigation because the court found that California’s notice of litigation statutes did not apply to out of state litigation. The Formula appealed.
The central matter of the dispute was whether California notice of litigation statutes apply to out of state litigation. This issue was of paramount importance to The Formula because if Mammoth did not received proper notice of the lawsuit filed in Florida, Mammoth would not have had to argue the matter in court and could avoid the lawsuit all together. The Court of Appeal proceeded to examine the relevant statutory language for notice of litigation in California known as lis pendens statutes.
The Court of Appeal explained that the lis pendens statutes were written to give notice of pending litigation to anyone with interest in the property. Before the statutes were adopted, constructive notice was assumed for any litigation brought in the state and anyone with an interest in the property was expected to apprise themselves of litigation brought in the state in connection with that real property. The lis pendens statutes, among other things, require a filed notice in the county where the real property is located. However, the statute is silent on the issue of notice of out of state litigation.
The Formula’s primary argument was that the Mono County Superior Court did not have the jurisdiction, or authority, to decide whether to expunge the notice of litigation because the lis pendens statutes provide that such a request of the court be made in the court where the action is pending. After carefully considering the language of the California lis pendens statute, and the purpose for which the statutes were adopted, the Court of Appeal decided that the lis pendens statutes were not applicable to out of state litigation.
The Formula also argued that California lis pendens statutes were applicable to claims brought in federal court, and therefore should be applicable to claims brought in sister states. The Court of Appeal disagreed and pointed out that there was not any authority, or precedent, for The Formula’s position. Moreover, the Court of Appeal explained that for practical, logistical purposes, applying California’s lis pendens statutes to out of state litigation was impractical.
The Court of Appeal concluded that The Formula’s notice of litigation should never have been recorded in Mono County. The Court of Appeal noted that The Formula’s reading of the statutes was correct in the sense that the court where the claim was brought must hear a request to expunge the notice. Nevertheless, the Court of Appeal found that the order of expungement was correct, even though the reasons for granting it were wrong.
If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.