Agenda _____ June 28, 2016
CLERK, BOARD OF SUPERVISORS
June 21, 2016
Board of Supervisors
County of Alameda
1221 Oak Street
Oakland CA 94612
Dear Board Members:
SUBJECT: Claims for Excess Proceeds – 2013 Tax Defaulted Property Sales
RECOMMENDATIONS:
Pursuant to the applicable provisions of the Revenue and Taxation Code, it is recommended that
your Board approve the Hearing Officer’s decisions regarding the Excess Proceeds Claims from
tax defaulted property sales of 2013, included in Attachment A and authorize the AuditorController to distribute the excess proceeds to the affected claimants pursuant to the Hearing
Officer’s decision detailed in Attachment B:
Claimants
Parcel No.(s)
A. Franchise Tax Board
B. Alameda County Public Guardian Conservator
C. LLC Investment Group
525-1646-88
525-1646-88
525-1646-88
DISCUSSION/SUMMARY
The Tax Collector conducted sales of tax defaulted properties in 2013. Any excess in the proceeds
of these sales, over and above the amounts collected to satisfy the tax delinquencies, were
deposited by the Tax Collector in a delinquent tax sale trust fund.
The excess proceeds were subject to claims made by parties of interest in accordance with
applicable provisions of the California Revenue and Taxation Code. All claimants were given the
opportunity for a hearing before the Assessment Hearing Officer to establish the priority and extent
of their claims.
The Hearing Officer has rendered his written decisions on these claims, which are now being
submitted to your Board for approval. Approval of the decisions listed in Attachment B will result
in the Auditor-Controller distributing the excess proceeds.
SUSAN S. MURANISHI, County Administrator
ANIKA CAMPBELL-BELTON, Clerk of the Board
1221 Oak Street, Room 536, Oakland, California 94612, (510) 272-3854, Fax: (510) 208-9660
Honorable Board of Supervisors
June 21, 2016
FINANCING:
There is no impact on the General Fund. Excess proceed claims are paid from funds held in trust.
Sincerely,
Anika Campbell-Belton
Clerk, Board of Supervisors
ACB:db
P:\LegalHO\bdltr_6_28_16
Attachments
cc:
Auditor-Controller
File
SUSAN S. MURANISHI, County Administrator
ANIKA CAMPBELL-BELTON, Clerk of the Board
1221 Oak Street, Room 536, Oakland, California 94612, (510) 272-3854, Fax: (510) 208-9660
Honorable Board of Supervisors
June 21, 2016
ATTACHMENT B
Excess Proceeds Distribution From Tax Defaulted Property Sales for March 2013
Claimant
State of California
Attn: Deborah Barrett
Collection Advisory Team, MS
A-240
PO Box 2952
Sacramento, CA 95812-2953
Alameda County Public
Guardian Conservator
Attn: Jessica G. Williams
1221 Oak Street, Suite 450
Oakland, CA 94612
LLC Investment Group
C/O Sarah Summerall
3871 Piedmont Ave., #57
Oakland, CA 94611
Parcel Number
Amount
Wait 30
days before
payment
525-1646-88
$21,593.75
No
525-1646-88
$357,710.41
No
525-1646-88
$42,053.75
No
DECISION OF LEGAL HEARING OFFICER
COUNTY OF ALAMEDA
CLAIMANT:
PARCEL:
FILE NO:
HEARING DATE:
AGENDA NUMBER:
HEARING OFFICER:
STATE OF CALIFORNIA
FRANCHISE TAX BOARD
525-1646-88
EXCESS PROCEEDS 2013-94070
MARCH 9, 2016
SIX
JED SOMIT, Esq.
FACTS:
Several claimants vie for the excess proceeds from the 2013 tax
default sale of this parcel. However, this is the only claim for excess
proceeds filed by a lienholder, and thus an award on this Claim would.have
priority. The other claims share many complex issues not presented by this
Claim, so this Claim will be decided separately.
The State of California, through Deborah Barrett of the Collection
Advisory Team, filed a Claim for Excess Proceeds on behalf of the Franchise
Tax Board on December 27, 2013, based on recorded tax liens against
Douglas Benton. The amount claimed on the face of the Claim is $2,320.43,
as of March 15, 2013.
The Franchise Tax Board also served upon the County a December 23,
2013 Order to Withhold Personal Income Tax in the amount of $19,273.32,
for FTB Account 120-17761-70. The Order claims it attaches to "all personal
HEARING OFFICER DECISION
Page 1
property or other things of value in your control belonging to DOUGLAS
BENTON" pursuant to Revenue & Taxation Code section 18670(a). The
Order to Withhold is accompanied by a Certificate of Tax Due and
Delinquency, which lists many years' taxes, penalties and interest due, and
designates whether that year's tax is covered by a recorded lien. The
Certificate arrives at a total due of $21,593. 75, which is the sum of the
$19,273.32 under the Order to Withhold and the $2,320.43 under the
recorded liens.
The Certificate also references by instrument number and date of
recording three recorded Certificates of Amount of Tax, Penalties and
Interest Due concerning Mr. Benton, each recorded prior to the tax sale.
Farand C. Kan, Deputy County Counsel, submitted a Memorandum for
the Office of the County Counsel dated November 10, 2016. The
Memorandum concludes that this Claim should be granted, and that the
amount due under the Order to Withhold Personal Income Tax should also
be paid.
DECISION:
The Claim for Excess Proceeds is granted in the amount of $2,320.43.
Additionally, $19,273.32 of the excess proceeds should be paid to the
Franchise Tax Board under the Order to Withhold.
The total to be paid is $21,593.75.
HEARING OFFICER DECISION
Page 2
The Order to Withhold demands inter alia that the FTB account number
(120-17761-70) be on the check, and the Order also requires that a
Questionnaire on Part 2 of the Order to Withhold Personal Income Tax be
completed and submitted with the check. The full instructions on Part 1 of
the Order to Withhold should be consulted.
A copy of this Decision shall be sent to the other claimants for the
excess proceeds on this parcel.
RATIONALE:
Separately, in deciding the other Claims for Excess Proceeds for this
parcel, the Hearing Officer determines that Douglas Benton was the owner of
record of the parcel prior to the tax default sale; in the absence of competing
claims, he would be entitled to all of the excess proceeds. That finding cures
the failure of the State's Claim for Excess Proceeds and potentially the Order
to Withhold to supply any information linking the parcel at issue (and thus
the excess proceeds) with the taxpayer under the FTB account.
A. Claim for Excess Proceeds.
Revenue & Taxation Code §4674 directs the application of excess
proceeds from the sale of tax defaulted property as provided by section
4675; if not claimed within one year, the remaining amount shall be
distributed as provided in section 4673.l(b), after deduction of
administrative costs.
HEARING OFFICER DECISION
Page 3
Revenue & Taxation Code §467S(a) provides that any party of interest
in the property may file with the county a claim for the excess proceeds, in
proportion to his or her interest held with others of equal priority in the
property at the time of sale, at any time prior to the expiration of one year
following the recordation of the tax collector's deed to the purchaser.
Section 4675(e)(l) defines the parties of interest who may make a
claim:
[T]he excess proceeds shall be distributed on order of the board of
supervisors to the parties of interest who have claimed the excess
proceeds in the order of priority set forth in subdivisions (a) and (b).
For the purposes of this article, parties of interest and their order of
priority are:
(A) First, lienholders of record prior to the recordation of the tax
deed to the purchaser in the order of their priority.
(B) Second, any person with title of record to all or any portion
of the property prior to the recordation of the tax deed to the
purchaser.
The Claim for Excess Proceeds was timely filed.
The supporting information noted three recorded Certificates of
Amount of Tax due, supplying the recording number and date. The legal
effect of a recorded Certificate is to create a lien against all real property
owned by the named income taxpayer. This showing is sufficient to qualify
the State as a lienholder of record and thus a party of interest of the first
priority. The accounting is sufficient to establish an amount to be paid under
the Claim for Excess Proceeds of $2,320.43.
B. Order to Withhold.
HEARING OFFICER DECISION
Page 4
This is not a Claim for Excess Proceeds, but basically a levy on the
amount which might be paid to the income taxpayer under that taxpayer's
successful Claim for Excess Proceeds. In theory, the Order to Withhold could
be defeated by the taxpayer's nonownership of the parcel, failure to file a
claim for excess proceeds, filing of a defective claim, or exhaustion of the
excess proceeds by other liens even if inferior to the recorded FTB liens.
However, Mr. Benton, the defaulting income taxpayer, did file Claims
for Excess Proceeds, and an award of such proceeds is made to him,
constituting "personal property" of Mr. Benton under the control of the
County.
The statutes are clear as to the duty of the County. Under R&T Code
section 18670(a), once a Notice to Withhold is served upon any
governmental entity having "in their possession, or under their control, any
credits or other personal property or things of value, belonging to a taxpayer
.... [the entity must withhold] and transmit amounts due from a taxpayer" to
the Franchise Tax Board." Subsection (b) imposes liability in the amount of
the amount due by the taxpayer upon the served entity which fails to
transmit the amounts; section 18672 imposes the same liability.
I
I
I
HEARING OFFICER DECISION
Page 5
The Notice was properly served under the statute. The County must
obey. A separate check for the $19,273.32 of the excess proceeds should
be sent to satisfy the Order to Withhold.
Dated:
May 30, 2016
Jed Samit
Legal Hearing Officer
HEARING OFFICER DECISION
Page 6
DECISION OF LEGAL HEARING OFFICER
COUNTY OF ALAMEDA
CLAIMANT:
PARCEL:
FILE NO:
HEARING DATE:
AGENDA NUMBER:
HEARING OFFICER:
LLC INVESTMENT GROUP, INC., DOUGLAS
BENTON, ALAMEDA COUNTY PUBLIC
GUARDIAN/CONSERVATOR
525-1646-88
EXCESS PROCEEDS 2013-94008, -94016, 94073
MARCH 9, 2016
FOUR, FIVE and SEVEN
JED SOMIT, Esq.
Several claimants vie for the excess proceeds from the 2013 tax
default sale of this parcel. The original amount of excess proceeds was
$421,357.91. In a separate opinion, $2,320.43 is awarded on a Claim for
Excess Proceeds filed by the State of California Franchise Tax Board, and an
additional $19,273.32 is awarded from the sums due to Douglas Benton on
an FTB Order to Withhold Personal Income Tax. This opinion deals with the
remaining Claims for Excess Proceeds.
Claims
A. LLC Claim. LLC Investment Group, Inc., through its President, Max
Calvillo, filed a Claim for Excess Proceeds on May 29, 2013, seeking
$441,300, on an assigned claim. This Claim for Excess Proceeds is
supported by an April 12, 2013 letter from LLC Investment Group, by Max
Calvillo, President, to Douglas Benton, stating in relevant part that Mr.
Benton was the sole owner of the parcel "free-and-clear" of loans, but
HEARING OFFICER DECISION
Page 1
encumbered by a Franchise Tax Board lien, a 2002 Judgment (apparently
not renewed) in favor of Norcal Investments, LLC, and a 2001 Notice of Lien
by a homeowners association. An earlier letter refers to representation
concerning "the foreclosure sale of your home"; the letter notes that the
homeowner can recover the funds on his own behalf at no charge.
Also submitted is a Durable Power of Attorney appointing Max Calvillo
as Mr. Benton's attorney-in-fact, giving powers to file documents generally,
and specifically with the County of Alameda, and specifically referring to
"any/all surplus Funds available resulting from the auction/foreclosure of
APN# 525-1646-88 in Alameda County". A Service Contract Agreement
recites a fee of 50°/o of funds received "from the State of California, County
of Alameda, CA and/or the City of Fremont, CA."
Despite a fee of 50°/o, no Grant Deed or other recorded document
evidencing ownership in Mr. Benton was submitted with the Claim (or by LLC
at any time).
Another LLC letter, this one dated June 10, 2015, to John Seyman
(former Deputy County Counsel) and to Alameda County Administrator
Susan Muranishi, which in relevant part (if any part is relevant) complains of
the submission by Martha Horton, and suggests that Ms. Horton "an/or her
accomplices" are being investigated by the District Attorney for stealing from
Mr. Benton. The letter accuses the recipients of bias for Ms. Horton and
against him.
HEARING OFFICER DECISION
Page2
LLC Investment Group, Inc. was an active corporation according to a
February 17, 2016 online search of California Secretary of State records.
B. Benton Claim. Douglas Benton filed a Claim for Excess Proceeds on
July 29, 2013, basing his Claim on ownership and seeking $423,617; this
Claim corrects a somewhat incoherent Claim filed July 8, 2013. An
accompanying letter of July 26, 2013, from Martha Horton, but signed by
Douglas Benton, states she is helping Mr. Benton; the letter says that Mr.
Cavilo [sic] does not represent Mr. Benton. A copy of the Tax Deed
accompanies the Claim. However, no deed with Mr. Benton as grantee or
other evidence of recorded title by Mr. Benton was submitted.
An email of October 8, 2014, from Kelly Brandmeier, Assistant Public
Guardian-Conservator notes the Public Guardian is investigating whether a
conservatorship of the estate is appropriate for Mr. Benton. "Mr. Benton is
vulnerable to financial fraud and undue influence."
A later letter of June 8, 2015, signed by Mr. Benton, states he is "now
free from the duress of Martha Horton". He revokes all statements and
Claims filed by her, and asserts that LLC Investment Group continues to be
his attorney-in-fact on all matters related to the excess proceeds. He asks
for separate checks to be issued to LLC and to him.
C. Public Guardian Request. Alameda County Public Guardian
submitted a letter of April 27, 2015, noting that the Public Guardian was
appointed Temporary Conservator for Mr. Benton on March 12, 2015, with
HEARING OFFICER DECISION
Page3
the hearing for a permanent appointment set for June 4, 2015. The letter
states that Adult Protective Services and the Public Guardian "have serious
concerns that ... Mr. Benton, may have been incompetent at the time of the
sale." The letter requests that processing of the excess proceeds be
delayed. A Proof of Service dated October 15, 2015, refers to an "Excess
Proceeds Claim of Conservatee Mr. Douglas Benton".
County Counsel Memorandum
Farand C. Kan, Deputy County Counsel, submitted a Memorandum for
the Office of the County Counsel dated November 10, 2016. This
Memorandum refers to several documents not in the file provided the
Hearing Officer before the Hearing (but subsequently reviewed):
•
Public Guardian's Memorandum of October 12, 2015, by Jessica G.
Williams, Deputy County Counsel, to which the further documents are
exhibits.
•
Letters of Conservatorship over Douglas Benton, issued August 13,
2015;
•
Capacity Declaration for Douglas Benton, by Brent Hughly, Ph.D.; and,
•
Quitclaim Deed in favor of Douglas Benton, recorded April 21, 1981.
The County Counsel Memorandum cites Civil Code §§ 39(a), and 40,
stating that a contract with a person of unsound mind, made before a
determination of incapacity, is subject to rescission. The Memorandum
discusses several indicia of Mr. Benton's incapacity, including his failure to
HEARING OFFICER DECISION
Page4
make tax payments, homelessness after the sale, and current diagnosis of
advanced senile dementia from Alzheimer's Disease, and concludes the
agreement with LLC should be voided.
If Mr. Benton is deemed to have had capacity, the
M~morandum
continues, then his rescission should be respected. The letter revocation of
the rescission should be ignored in light of his deteriorating mental condition.
The Public Guardian, the Memorandum suggests, may have the authority to
revoke the contract.
The Memorandum also cites Civil Code § 1670.5, allowing a court to
refuse to enforce an unconscionable contract, or to enforce the contract
absent the unconscionable clause, or to limit the application of the
unconscionable clause to avoid an unconscionable result.
The LLC Claim was timely filed, the Memorandum concludes, but did
not present sufficient evidence to establish Mr. Benton as a titleholder. The
Memorandum believes the Quitclaim Deed presented by the Public Guardian
is sufficient to establish Mr. Benton as a party of interest. The Memorandum
notes LLC's direction to Mr. Benton not to discuss the matter with anyone
else as an additional factor, together with the large commission in the
assignment, the rather simple ownership situation, and the failure even to
submit a deed, in noting that the reasonable value of LLC's services seems
to be much less than 50°/o and "could be less than zero."
The Claim filed directly by Mr. Benton was timely according to the
HEARING OFFICER DECISION
Pages
Memorandum, but failed to include any evidence that Mr. Benton was an
owner of record at the time of the recordation of the tax deed, although the
Quitclaim Deed submitted by the Public Guardian may be considered and
would cure that problem.
The Memorandum concludes that the Claim of LLC Investment Group
should be denied, and the Claim of Mr. Benton should be granted but paid to
the Public Guardian.
Additional Materials
1) Public Guardian Memorandum: This 10-page Memorandum states
inter alia that: Mr. Benton was homeless when the Public Guardian first
became involved; he stated he did not pay property taxes "for fear of the
government"; he did not remember signing the DPOA. It notes the Public
Guardian has been the conservator of Mr. Benton's person and estate since
March 12, 2015. The Memorandum reviews Dr. Hughey's Competency
Report. It supports Mr. Benton's receiving the "full amount of available
excess proceeds", while LLC's Claim for excess proceeds should be denied
because Mr. Benton lacked capacity, and the Claim fails to meet the
requirements of R&T Code section 4675. It references the Horton letter of
July 27, 2013, stating LLC has no right to the proceeds, and considers that
letter a revocation of any agreement with LLC. The Memorandum argues
that the letter signed by Mr. Benton dated June 8, 2015, is "void" and should
be disregarded "except for the fact that it shows an attempt by an
HEARING OFFICER DECISION
Page6
unscrupulous individual to influence Mr. Benton."
2) A letter of September 1, 2015, to Jessica William, Deputy County
Counsel (representing the Public Guardian), by Max Calvillo of LLC,
withdraws a prior offer to settle for $150,000, and revises the offer to
$175,000; if that offer is not accepted, LLC demands 50°/o of the excess
proceeds. About 20 pages of additional somewhat hostile correspondence is
attached to the Hearing Officer's copy of that letter, which I have reviewed,
but which need not be summarized.
3) A nineteen page Response to the County Counsel Memoranda, with
about 15 additional pages of exhibits, was submitted by LLC Investment
Group on January 20, 2016, through Sarah Summerall Law, PC. A major
portion of the brief discusses the circumstances in which a contract may be
rescinded by a person of unsound mind under Civil Code §§ 38, 39, 40(b),
1556, 1557, 1575, 1689, and Probate Code§§ 810
et seq.
It also argues
that the 50°/o compensation was not unconscionable, but was reasonable. It
also discusses the law on revocation of contracts.
MARCH 9, 2016 HEARING
Sarah Summerall, Esq., appeared and represented LLC Investment
Group, whose president, Max Calvillo, was also present.
Jessica Williams, Deputy County Counsel, represented the Public
Guardian, which has the legal standing to represent Douglas Benton.
HEARING OFFICER DECISION
Page?
Ms. Williams reported that the Public Guardian has succeeded to
Douglas Benton in his efforts to recover the excess proceeds. The Public
Guardian's position is that the assignment to LLC is void, and/or is now
rescinded; it is not accepted by the Public Guardian. She stated that issues
include whether Mr. Benton was competent to enter into the assignment and
Durable Power of Attorney and whether there was undue influence to enter
into the assignment to LLC.
Ms. Summerall agreed those issues existed.
The Hearing Officer noted that only a quitclaim deed had so far been
presented and that evidence of the underlying deed - showing the quitclaim
granter had some interest in the parcel to grant - would be necessary.
The hearing was suspended for a while for the parties to explore
settlement possibilities, and then resumed.
Jed Byerly Testimony
Mr. Jed Byerly, of Global Discoveries, LLC, testified. He briefly noted
his background in the business of assisting former property owners or heirs
to recover excess proceeds. Mr. Benton didn't have a phone, so Mr. Byerly
made personal visits to him, as did an employee. When he arrived at Mr.
Benton's residence on the first occasion, there was a U-Haul vehicle in front
of the property; the tax sale purchaser was in the process of evicting Mr.
Benton. Mr. Benton did not know or understand that he was being evicted,
but rather thought the purchaser was his friend. Mr. Benton asked to speak
HEARING OFFICER DECISION
Pages
with Mr. Byerly, but within a minute or two Mr. Benton did not remember
speaking with him.
Mr. Byerly learned that Mr. Benton lived in his home with no power or
water. Mr. Benton had been in property tax default for a long time. Mr.
Benton used 6-gallon buckets of water, obtained from a neighbor, to flush his
toilets. The house was dilapidated. Mr. Benton was unclean. However, there
was a brand new driveway, new retaining wall and hardscape. Mr. Byerly
concluded that Mr. Benton had been duped out of money by contractors. Mr.
Byerly felt in his experience, no sane person makes improvements to a home
when living with no power and in tax default.
Mr. Byerly immediately called Adult Protective Services and emailed
them about the situation. "This is not money I would take," he stated. He
waited at the property until police came because he was worried about where
Mr. Benton would spend the night after the eviction. He didn't think Mr.
Benton could find his way down the street.
Mr. Byerly, while there, talked to Mr. Benton's neighbors, including a
retired police sergeant. They thanked Mr. Byerly for contacting APS and the
police and said they had witnessed Mr. Benton deteriorate over several years.
Another man, who said he grew up close by and knew Mr. Benton his entire
life, said Mr. Benton no longer could care for himself, mentioned Alzheimers
as his view of the problem, and said Mr. Benton "could be difficult".
Mr. Byerly described Mr. Benton as in his late 60s, about 6'10" tall; the
HEARING OFFICER DECISION
Page 9
tax sale purchaser was about 5' tall and Asian. Mr. Benton kept referring to
her as his friend. Mr. Byerly informed Mr. Benton that there was money
available to him from excess proceeds, but Mr. Benton was not directly
responsive, and was more engaged with his "friend", the evicting purchaser.
When Mr. Byerly contacted APS, they said they were aware of Mr.
Benton and had been contacted numerous times based upon people taking
advantage of him, including a woman who came into his home stealing
documents, etc.
Mr. Byerly noted that the car in the driveway was non-functional. As
part of the eviction, a boat in the garage had to be removed.
Max Calvillo Testimony
Mr. Calvillo noted he had submitted a Declaration (apparently referring
to his Verification of Factual Information in Response, attached to Ms.
Summerall's Response), and said he had nothing to add. However, he
testified further. He stated that Mr. Benton contacted him, and was very
coherent; Mr. Benton explained his situation. Mr. Benton said he had been
talking to other service providers who had sent letters about the tax sale, and
asked Mr. Calvillo if he would provide the same services. They had a lengthy
discussion about what Mr. Calvillo thought they would encounter, and who
might file claims for the excess proceeds. Mr. Benton suggested about five or
six possibilities; Mr. Benton said his son might catch wind of his losing his
home and money becoming available, and the son might come looking for
HEARING OFFICER DECISION
Page 10
money. Mr. Benton said he didn't want his son to get the money; he wanted
no dealings with his son. Mr. Calvillo testified that Mr. Benton said there was
a Franchise Tax Board lien, and might be other liens, perhaps a Homeowners
Association lien. Based upon that discussion, Mr. Calvillo said he wanted 50°/o
of the recovery. Mr. Benton called him back a few days later and said would
like to go forward. Mr. Calvillo denied pursuing Mr. Benton.
Mr. Calvillo testified that over a two week period after the initial
contact, Mr. Benton took the initiative, and during that process Mr. Benton
understood that he would have to notarize a power of attorney; Mr. Benton
volunteered that his drivers license had expired so he would have to get a
California ID, which he did on his own volition. Upon receipt of the ID, Mr.
Benton called and said, "Let's move forward."
Mr. Calvillo testified about the condition of the home on each visit. It
was in clean condition, the lights were on and the water was running. Mr.
Benton was always coherent; he always recognized Mr. Calvillo. A cleaning
lady was there; a gardener came by; Mr. Benton recognized each of them.
Mr. Calvillo never had doubts about how clearly Mr. Benton was thinking. He
testified that Mr. Benton knew exactly who he was when Mr. Calvillo arrived,
was happy to see him, and in later meetings expressed dismay concerning
the pressure he was getting from County, APS and the Public Guardian to say
he did not recall signing the LLC contract or the power of attorney; Mr.
Benton said these people would say unkind things about Mr. Calvillo. Mr.
HEARING OFFICER DECISION
Page 11
Calvillo testified that Mr. Benton said he was coerced into writing the letter
denying the contract with LLC and the Claim for Excess Proceeds that Mr.
Benton submitted; Mr. Benton said he was pressured for months to do that.
Mr. Calvillo testified that the Claim filed by Mr. Benton has the wrong
APN and Mr. Calvillo feels that the signature on that Claim is not Mr.
Benton's.
On their first contact, Mr. Calvillo asked why Mr. Benton let his home go
to the tax sale; Mr. Benton said it was almost a dare for him. Mr. Benton told
Mr. Calvillo that he had ongoing communication with the Tax Collector, that it
was the rule that the County would withdraw the threat of sale in this type of
circumstance: where there was lots of equity and the County was guaranteed
to get the taxes eventually. Mr. Calvillo testified that Mr. Benton said he
didn't think the County would "pull the trigger" on the tax sale; it was a
gamble he lost. Mr. Benton felt this was because of his antagonistic
conversations with the Tax Collector.
Mr. Calvillo acknowledged that he doesn't pursue many claims for
excess proceeds in his business. He testified he could give countless
examples of when the County withdrew the threat of a tax sale when Mr.
Calvillo contacted the Tax Collector. His primary business is to provide
financing for people to save their homes; occasionally he buys their homes,
because people want the certainty of a sale to avoid the potential that the
property doesn't do well at the tax default auction, as well as to get the
HEARING OFFICER DECISION
Page 12
money earlier.
Mr. Calvillo testified that Mr. Benton clearly understood he could have
borrowed money to pay the past due taxes, that he could have taken out a
hard money loan or simply paid the taxes. Mr. Benton said he made a bad
bet, based on knowledge that the County would typically withdraw the notice
of tax sale.
Elvia Quiroga Testimony
Ms. Quiroga testified she was a Supervisor within the Tax Collector.
She testified that Mr. Benton never contacted that office; he never signed for
any of the notices sent about the default or tax sale. She testified that
because of that, in February, 2013, she personally served the notice of tax
sale with a deputy sheriff. At that time, the house was in disrepair; there
was a strange smell coming through the home that was so remarkable that
the Deputy shone a flashlight through the window thinking there may have
been a deceased person inside.
The Tax Collector sent several notices to Mr. Benton before the sale.
He would also get the property tax notices. A certified letter was sent stating
that the property would be subject to a tax sale. In January, 2013, the Tax
Collector mailed Mr. Benton notice of when the tax auction would occur, and
explaining when his right to redeem the property from the default and avoid
the sale would terminate. Ms. Quiroga testified that had the Tax Collector
been contacted by Mr. Benton, what Mr. Calvillo said is probably correct: the
HEARING OFFICER DECISION
Page 13
property may well have been removed from the auction and the matter
referred to the senior program, and perhaps APS contacted.
Ms. Quiroga testified that whenever anyone calls the Tax Collector, the
contact is entered as a comment into the data system; this entry would
include the caller ID, how the caller identified himself, and a summary of the
conversation. For example, there are notes that Max Calvillo contacted the
office concerning the property.
Further Testimony of Max Calvillo
Mr. Calvillo testified that he did have a direct conversation with Ms.
Quiroga, during which she made statements which completely contradict her
testimony. He also claimed that her testimony embellished the condition of
Mr. Benton's home. There was an old car in the garage, he admitted.
Order at Hearing
In order to allow time for further settlement discussion, upon the
agreement of the parties, the matter was submitted, but with the condition
that no opinion would be drafted until at least 60 days after the hearing.
DECISION
For the reasons explained below, the remaining excess proceeds of
$399,764.16 are awarded as follows:
Mr. Benton, through the Alameda County Public Guardian, the sum of
$357' 710.41.
HEARING OFFICER DECISION
Page 14
LLC Investment Group, Inc.: $42,053. 75.
RATIONALE
The parties failed to reach a settlement notwithstanding efforts over a
period of several months. It appears there is a significant potential that this
Decision will be appealed. In that appeal or subsequent Superior Court
proceedings, some deference may be due this Decision if based upon the
evidence presented and within the applicable law. Therefore, I will explain
my reasoning in more detail than customarily.
No Interpleader
During the hearing, I noted that I might well simply decide who is
entitled to the excess proceeds under the statutory priorities, and then have
County Counsel interplead the proceeds claimed by second priority claimants.
That stance was only partially an attempt to encourage settlement. It
also reflected that the main dispute before the Hearing Officer is not over
whether Douglas Benton is entitled to the second priority excess proceeds,
but over the validity of an assignment he made to LLC of 50°/o of his share.
In turn, that dispute has issues which range far from the usual purview of the
Legal Hearing Officer and encompass the law of assignment (beyond the
specific statutory dictates for assignments of excess proceeds claims),
revocation of assignments, incapacity, undue influence, quantum meruit, etc.
At that time, I felt the parties were entitled to a full Superior Court trial,
HEARING OFFICER DECISION
Page 15
if they were so committed to their positions that they failed to reach
settlement. Each side (for convenience, I'll use "Public Guardian" and "LLC")
could then find witnesses to support that side's contention as to Mr. Benton's
mental state in 2013, and have the full attention of a Superior Court judge
for several days, with the concomitant opportunity to brief each of the issues
at even further length.
Although I realized that such a trial would be a sad waste of time and
money, virtually exhausting the sums to be awarded without benefitting Mr.
Benton, it seemed far preferable to holding extended hearings myself,
knowing the eventual decision would be rejected by at least one side.
However, neither the Public Guardian nor LLC, each represented by
counsel, objected to the submission of the matter (with a delayed decision),
nor demanded more time to present evidence. Thus one portion of the
rationale for interpleader - that the Superior Court is a more appropriate
place for a lengthy trial - disappeared.
Further, I generally order interpleader when, beyond the reasons
discussed above making interpleader theoretically appropriate, it would
release the County from a dispute in which it has no concern about the
outcome. Under our situation, while an interpleader would release the
Assessor and Tax Collector from further involvement, County Counsel and the
Public Guardian would remain involved, and the goal of preventing further
expenditures of County funds would not be achieved.
HEARING OFFICER DECISION
Page 16
The obligation devolves to me to make a decision.
Douglas Benton is a Party of Interest of the Second Priority
Handling the easiest issue first, I determine that Douglas Benton
(ignoring any assignment or conservatorship) is a party of interest and
entitled to the excess proceeds remaining after the awards to the State of
California (strictly speaking, $19,273.32 of the State's award comes from Mr.
Benton's share of the excess proceeds).
Revenue & Taxation Code § 4675(a) provides that any party of interest
in the property may file with the county a claim for the excess proceeds, in
proportion to his or her interest held with others of equal priority in the
property at the time of sale, at any time prior to the expiration of one year
following the recordation of the tax collector's deed to the purchaser.
It matters not which Claim for Excess Proceeds is selected: the Claim
was filed timely.
As to the (irrelevant) dispute over whether the Claim filed July 8, 2013,
is fatally defective, the Hearing Officer generally ignores minor errors (even
an error as to APN is "minor" if there is no confusion about which parcel is
really involved). Further, the Claim filed July 29, 2013, still timely, cures any
error. The Hearing Officer has several exemplars of Mr. Benton's signature,
and after examination, concludes both those Claims were verified by Mr.
Benton (without, for the nonce, reaching the issue of what comprehension
Mr. Benton had of what he was signing).
HEARING OFFICER DECISION
Page 17
Section 4675(e)(l) defines the parties of interest who may make a
claim:
[T]he excess proceeds shall be distributed on order of the board of
supervisors to the parties of interest who have claimed the excess
proceeds in the order of priority set forth in subdivisions (a) and (b).
For the purposes of this article, parties of interest and their order of
priority are:
(A) First, lienholders of record prior to the recordation of the tax
deed to the purchaser in the order of their priority.
(B) Second, any person with title of record to all or any portion
of the property prior to the recordation of the tax deed to the
purchaser.
All remaining Claims are of the second priority, and all arise from a
claim that Douglas Benton had title of record prior to the tax sale. None of
the Claims actually included a recorded deed of any kind, an omission that
County Counsel noted in opining that LLC's services were worth less than
nothing. A recorded Quitclaim Deed granting the parcel to Douglas Benton as
his separate property was eventually provided by the Public Guardian, but
/
both the Public Guardian and LLC ignored the Hearing Officer's command to
produce some underlying deed.
A person with no interest in real property may properly execute a quitclaim deed, and a quitclaim is often requested in order to remove some cloud
on title or assuage a title examiner's worry. A quitclaim deed has no inherent
warranty of title or intimation of prior ownership. Thus, when one person
executes a quitclaim deed to another, it is weak evidence of fee ownership by
the grantee (as distinct from when several grantors quitclaim to grantees
HEARING OFFICER DECISION
Page 18
which include one or more of the granters). Such was the situation here.
A deed recorded prior to the Quitclaim granting the property to David
Crisp (the grantor in the 1981 Quitclaim Deed to Douglas Benton) would
easily have removed the issue, but none was provided. The Hearing Officer
researched the matter in the course of writing this opinion, finding a prior
grant to Mr. Crisp, although not able online to inspect the deed itself.
Proof of status as a person with title of record can be based on
evidence other than a recorded deed, such as a combination of testimony
that a deed was submitted for recording, and evidence showing that the
claimant or a decedent of whom the claimant is an heir, the Assessor and/or
financial institutions or others conducted themselves as if a grant deed had
been recorded. Carloss v. County of Alameda (2015) 242 Cal. App. 4th 116.
Here, Mr. Benton's status as owner is established by the combination of: the
Quitclaim Deed; the prior grant to the granter; his apparently unchallenged
residency at the property for more than 30 years; evidence in the
competency report supplemented by entries in the Recorder's online index
that a mortgage existed and was paid off; the existence of other liens on the
property referring to Mr. Benton; and, the Assessor's designation of Mr.
Benton as the last assessee prior to the sale.
Mr. Benton is thus a party of interest of the second priority. No claims
for excess proceeds were filed based upon any other person's asserted title
interest in the parcel, and the Quitclaim Deed purports to grant the fee
HEARING OFFICER DECISION
Page 19
interest. In the absence of the State's levy, the conservatorship and any
assignment, Mr. Benton would be entitled to all of the remaining excess
proceeds.
Validity of the Assignment to LLC
I now turn to the more contested issues.
LLC contends the assignment of 50°/o of Mr. Benton's excess proceeds
is valid and enforceable. Certainly, LLC is aware (if only from the
communications from the Public Guardian and County Counsel's
Memorandum) of the difficulty presented to any judicial officer in concluding
that virtually half of the assets - in an amount of approximately $200,000 of a demented person should be paid to LLC for services which went little
further than filing a Claim for Excess Proceeds, a Claim unsupported by even
a deed, and badgering the County to set a hearing, within a legal setting
where the applicable statutes evidence hostility to assignments.
The Public Guardian, on its side, points to many asserted defects in the
assignment process, arguing that the assignment is invalid in several ways
and that LLC is due nothing (the Hearing Officer obviously cannot award "less
than nothing"), but fails to consider whether the exacting approach it
recommends would be fair in the majority of cases lacking the equitable
components present here.
The Hearing Officer will proceed dutifully and painstakingly step-bystep, aware of the equitable considerations, but first attempting to reach a
HEARING OFFICER DECISION
Page 20
conclusion strictly by the law. Under that approach, the assignment is first
analyzed to ascertain if it meets the statutory requirements for an
assignment of a right to claim excess proceeds; that analysis is the starting
place.
Analysis Under R&T Code section 4675
R&T Code section 4675(b): "After the property has been sold, a party
of interest in the property at the time of the sale may assign his or her right
to claim the excess proceeds only by a dated, written instrument that
explicitly states that the right to claim the excess proceeds is being assigned,
and only after each party to the proposed assignment has disclosed to each
other party to the proposed assignment all facts of which he or she is aware
relating to the value of the right that is being assigned. Any attempted
assignment that does not comply with these requirements shall have no
effect .... "
The disputed assignment here is the Service Contract Agreement dated
April 2, 2013. It is a written instrument. Prior to the execution of that
instrument, Mr. Calvillo as President of LLC wrote to Mr. Benton, referring to
a "tax foreclosure sale of your home", and that the sale netted about
$420,000 in "surplus funds". The SCA incorporates by reference a Durable
Power of Attorney, whose scope expressly includes "any/all surplus Funds
available resulting from the auction/foreclosure of APN# 525-1646-88 in
Alameda County, commonly known as 42552 Roberts Ave., Fremont, CA
HEARING OFFICER DECISION
Page 21
94538".
Much as the Hearing Officer would like an easy way out, I conclude,
applying the same approach I would in cases not involving a 50°/o assignment
and a conserved former homeowner, that the SCA, with the DPOA, does
"explicitly state the right to claim excess proceeds is being assigned." This is
not a case where a general power of attorney given for unrelated purposes is
being used to contend for excess proceeds without express warning to the
principal; here, the intent and goal of the contract, satisfactorily expressed,
was to claim the excess proceeds, even if the SCA and DPOA go well beyond
in the authority conferred.
The Public Guardian, pointing to the later execution date of the DPOA,
argues the DPOA's mention of the surplus funds from the auction/foreclosure
cannot be deemed included in the SCA, despite the express incorporation of
the DPOA by reference. However, there was no evidence that the DPOA was
not presented to Mr. Benton at the same time as the SCA. The later execution
may be due to a delay in Mr. Benton's obtaining a valid California ID
document, a prerequisite for his acknowledgment of the DPOA before a
notary; Mr. Calvillo's testimony, although not directed to this exact issue, was
to that effect (as are portions of LLC's Response, but the Hearing Officer will
avoid reliance on that document for evidence, as it is not always possible to
distinguish "factual assertions" verified by Mr. Calvillo from argument).
The next issue is whether each party disclosed to the other all facts of
HEARING OFFICER DECISION
Page 22
which he was aware relating to the value of the right being assigned, here, the
amount of excess proceeds to which Mr. Benton might qualify. The letter of
March 26, 2013 notes the auction sales price was "in excess of $420,000." It
warns that the full sales price is not likely to be recovered, as the delinquent
taxes must be deducted, and there may be other creditors.
There is no evidence that LLC had further information (a lapse which
may have to be considered in determining whether the 50°/o fee was
unconscionable or the value of the services rendered), although most other
professional excess proceeds firms by that juncture would have run a title
search, inspected the recorded documents, and have had a good idea of what
other claims could be asserted.
Mr. Calvillo's ignorance at that time of the actual recorded liens, their
amounts and whether the liens remained valid is evidenced: by his testimony
that such potential claims were a factor in his decision to charge 50°/o
(learning the small amount of the tax lien, and discovering that the recorded
judgment was no longer valid, would have removed any concern that the
$400,000 would be substantially reduced); and, by his letter of April 12, 2013,
which reveals that he had still done only a basic title search but had not yet
inspected the underlying documents.
Mr. Calvillo's testimony was that before the CSA was signed, he had a
discussion with Mr. Benton during which Mr. Benton informed him of the
potential for tax liens and other possible claims (although LLC, if a
HEARING OFFICER DECISION
Page 23
professional service company for excess proceeds, should have been aware of
the non-family items); in fact, the existence of the potential claims discussed
was one of the reasons he demanded a 50°/o commission. There is no
contention that Mr. Benton did not, to the best of his ability, impart any
information he had about the value of the right being assigned.
The Hearing Officer often faces a situation in which the statutory
disclosure requirement is heeded only by a rote declaration that each party
has disclosed all relevant information. In contrast, here there is evidence of
what was known and what was disclosed. It appears that (facilitated by LLC's
obliviousness), the statute was obeyed. There is no suggestion that the
statute's purpose - to make sure the assignor is not misled about the value of
what he is assigning - was vitiated here (ignoring for now the issue of Mr.
Benton's capacity).
The Hearing Officer gives no weight to LLC's letter of April 12, 2013, in
determining whether the disclosure requirement was satisfied, as Mr. Benton
signed the CSA before receiving that letter.
Section 4675(c) adds further requirements for an assignment: "Any
person or entity who in any way acts on behalf of, or in place of, any party of
interest with respect to filing a claim for any excess proceeds shall submit
proof with the claim that the amount of excess proceeds has been disclosed to
the party of interest and that the party of interest has been advised of his or
her right to file a claim for the excess proceeds on his or her own behalf
HEARING OFFICER DECISION
Page24
directly with the county at no cost."
This subdivision does not expressly invalidate a noncomplying
assignment. In any event, as discussed, the approximate amount of excess
proceeds was disclosed (for this purpose, the letter of April 12th may be
considered). LLC's letter of March 26, 2013, states that the amount of excess
proceeds is about $420,000, and "you can recover the surplus funds yourself
on your own behalf at no charge." The letter notes that Mr. Benton stated he
"did not want to have dealings with the County".
The Public Guardian's contention that the statute requires a disclosure of
the actual amount of excess proceeds misreads the statute; further, such
disclosure is virtually impossible since the amount available for distribution is
generally not set until well after a claim for excess proceeds may be filed. The
further contention that the disclosure was defective by not using the exact
words "file a claim for excess proceeds" and/or "directly with the county" is
rejected as hypertechnical. The disclosure given is sufficiently clear to any
competent person that he could file a claim himself to get the surplus funds
from the tax default action, by whatever name the funds are referred to, and
the claim should be filed with the County (with which Mr. Benton purportedly
wanted no contact), and that there would be no cost to that self-help
procedure. That is sufficient.
The Service Contract Agreement survives review under R&T Code
section 4675.
HEARING OFFICER DECISION
Page 25
Competency to Enter Into the CSA
The Hearing Officer has thoroughly reviewed both the October 12, 2015
Memorandum by Jessica G. Williams, Deputy County Counsel, for the Public
Guardian, and the January 20, 2016 Response by Ms. Summerall, Esq.,
representing LLC. The Public Guardian's Memorandum argues that the
assignment should be ignored "because Mr. Benton lacked capacity to enter
into the agreement and DPOA". There is no discussion of the applicable law
on this issue. There is extensive discussion in LLC's Response, and I have
reviewed the statutes and many of the cases cited.
I find no sufficient evidence that Mr. Benton was totally without
understanding within Civil Code section 38; none of the witness testimony, nor
the competency report, supports that drastic conclusion. Under Civil Code
section 40(b), nq contract activity by Mr. Benton after the establishment of
the conservatorship is relevant. The CSA was signed, however, before the
conservatorship was established.
The situation must be considered under the law of a person with limited
understanding, governed by Civil Code section 39.
§ 39
(a) A conveyance or other contract of a person of unsound mind, but
not entirely without understanding, made before the incapacity of the
person has been judicially determined, is subject to rescission, as
provided in Chapter 2 (commencing with Section 1688) of Title 5 of Part
2 of Division 3.
(b) A rebuttable presumption affecting the burden of proof that a
person is of unsound mind shall exist for purposes of this section if the
person is substantially unable to manage his or her own financial
HEARING OFFICER DECISION
Page 26
resources or resist fraud or undue influence. Substantial inability may
not be proved solely by isolated incidents of negligence or improvidence.
The Public Guardian was clear that it had rescinded the CSA on behalf of
Mr. Benton. The issue remains whether that rescission is allowed, that is,
whether Mr. Benton was of sufficient "unsound mind".
Unsound Mind
Guidance is given to triers of fact in determining whether a person is of
"unsound mind" sufficient to allow a rescission by Probate Code sections 810812:
§ 810
(a) For purposes of this part, there shall exist a rebuttable
presumption affecting the burden of proof that all persons have the
capacity to make decisions and to be responsible for their acts or
decisions.
(b) A person who has a mental or physical disorder may still be
capable of contracting, conveying, marrying, making medical decisions,
executing wills or trusts, and performing other actions.
©) A judicial determination that a person is totally without
understanding, or is of unsound mind, or suffers from one or more
mental deficits so substantial that, under the circumstances, the person
should be deemed to lack the legal capacity to perform a specific act,
should be based on evidence of a deficit in one or more of the person's
mental functions rather than on a diagnosis of a person's mental or
physical disorder.
§ 811
(a) A determination that a person is of unsound mind or lacks the
capacity to make a decision or do a certain act, including, but not limited
to, the incapacity to contract, to make a conveyance, to marry, to make
medical decisions, to execute wills, or to execute trusts, shall be
supported by evidence of a deficit in at least one of the following mental
functions, subject to subdivision (b), and evidence of a correlation
between the deficit or deficits and the decision or acts in question:
(1) Alertness and attention, including, but not limited to, the
following:
HEARING OFFICER DECISION
Page27
(A) Level of arousal or consciousness.
(B) Orientation to time, place, person, and situation.
©) Ability to attend and concentrate.
(2) Information processing, including, but not limited to, the
following:
(A) Short- and long-term memory, including immediate
recall.
(B) Ability to understand or communicate with others,
either verbally or otherwise.
©) Recognition of familiar objects and familiar persons.
(D) Ability to understand and appreciate quantities.
(E) Ability to reason using abstract concepts.
(F) Ability to plan, organize, and carry out actions in one's
own rational self-interest.
(G) Ability to reason logically.
(3) Thought processes. Deficits in these functions may be
demonstrated by the presen.ce of the following:
(A) Severely disorganized thinking.
(B) Hallucinations.
©) Delusions.
(D) Uncontrollable, repetitive, or intrusive thoughts.
( 4) Ability to modulate mood and affect. Deficits in this ability
may be demonstrated by the presence of a pervasive and persistent or
recurrent state of euphoria, anger, anxiety, fear, panic, depression,
hopelessness or despair, helplessness, apathy or indifference, that is
inappropriate in degree to the individual's circumstances.
(b) A deficit in the mental functions listed above may be considered
only if the deficit, by itself or in combination with one or more other
mental function deficits, significantly impairs the person's ability to
understand and appreciate the consequences of his or her actions with
regard to the type of act or decision in question.
(c) In determining whether a person suffers from a deficit in mental
function so substantial that the person lacks the capacity to do a certain
act, the court may take into consideration the frequency, severity, and
duration of periods of impairment.
(d) The mere diagnosis of a mental or physical disorder shall not be
sufficient in and of itself to support a determination that a person is of
unsound mind or lacks the capacity to do a certain act.
(e) This part applies only to the evidence that is presented to, and the
findings that are made by, a court determining the capacity of a person
to do a certain act or make a decision, including, but not limited to,
making medical decisions. Nothing in this part shall affect the
decisionmaking process set forth in Section 1418.8 of the Health and
HEARING OFFICER DECISION
Page 28
Safety Code, nor increase or decrease the burdens of documentation on,
or potential liability of, health care providers who, outside the judicial
context, determine the capacity of patients to make a medical decision.
§ 812
Except where otherwise provided by law, including, but not limited to,
Section 813 and the statutory and decisional law of testamentary
capacity, a person lacks the capacity to make a decision unless the
person has the ability to communicate verbally, or by any other means,
the decision, and to understand and appreciate, to the extent relevant,
all of the following:
(a) The rights, duties, and responsibilities created by, or affected
by the decision.
(b) The probable consequences for the decisionmaker and, where
appropriate, the persons affected by the decision.
©) The significant risks, benefits, and reasonable alternatives
involved in the decision.
There are two statutory presumptions, not fully consistent. Civil Code
section 39(b) provides a rebuttable presumption of unsound mind (that is,
allowing a rescission) if a person is "substantially unable to manage his or her
own financiaf resources". Probate Code section 810(a) provides a general
presumption in favor of competency. As the more specific presumption, and
one which requires proof before it applies, Section 39 would prevail.
The evidence of Mr. Benton's inability to manage his own financial
resources is overwhelming, and the Section 39 presumption arises and is
deemed unrebutted. (Mr. Calvillo's testimony, if believed, might rebut the
presumption, but the Hearing Officer, as discussed below, believes the other
evidence was more credible.) Paying heed to the Probate Code sections'
admonitions, I will look at specific instances of behavior, and the effect of his
mental condition upon his ability to manage his resources and/or to
HEARING OFFICER DECISION
Page29
understand and appreciate specific portions of the CSA, rather than rely upon
a general diagnosis of Alzheimer's, dementia, rating of highest assessment of
functioning at 34-40°/o, etc.
•
The failure to pay the real property taxes is evidence of an
inability to manage resources. It seems clear from the evidence
of cash and checks in Mr. Benton's pocket at his competency
exam, and the recent improvements at his house, that he had the
financial ability to pay. The Hearing Officer finds that his failure to
pay the property taxes was a result of his mental disability.
Although LLC argues that Mr. Benton was fully aware of the
obligation and potential consequences, and engaged in a game of
dare, this testimony is rejected. It is imbued with knowledge that
Mr. Calvillo, not Mr. Benton, had about the practices of the
Assessor and Tax Collector: that a deferral of the tax sale could
readily be obtained when equity was present. Mr. Calvillo
reported that Mr. Benton stated he had called the Tax Collector
repeatedly, and the tax sale was in part a reaction to his
aggressive attitude. However, Ms. Quiroga testified, with the
support of the Tax Collector's computerized contact data system,
that here had been no contact from Mr. Benton; this, additionally,
is consistent with LLC's letter in April, 2013, noting that Mr.
Benton did not want to have contact with the County, and with the
HEARING OFFICER DECISION
Page 30
necessity of Ms. Quiroga's personal visit to the property.
•
That the failure to pay the real property taxes was a result of a
mental condition, not a dare scenario, is further supported by the
evidence that Mr. Benton failed to pay or fully pay his income
taxes for 1999 and 2005, 2006, 2009, 2010 and 2011 (there is no
evidence he paid taxes for other years). Mr. Benton in his earlier
life had obtained the rate of Chief Petty Officer, a status whose
denizens are generally fastidious about laws and regulations. A
competent military man of the highest non-commissioned officer
rating would not be playing dare with the IRS; something had
gone wrong with this veteran.
•
There was credible evidence from Jed Byerly and Ms. Quiroga that
there was no power or water at the residence; Mr. Calvillo testified
otherwise. The Hearing Officer finds Mr. Byerly's testimony more
credible because of his simultaneous conduct of eschewing an
assignment and commission and instead reporting the matter to
the police and CPS, and also because of the conduct of the Deputy
who accompanied Ms. Quiroga (the occurrence of this visit is
supported by the Notice of Personal Contact attached to LLC's
Claim) of trying to discover the source of a foul smell. Mr. Benton
appeared disheveled at the 2014 competency exam. Overall, Mr.
Benton by all other testimony and evidence was not the person
HEARING OFFICER DECISION
Page 31
Mr. Calvillo described, and his testimony on this aspect is not
credible. The lack of power or water was not a result of lack of
money, as Mr. Benton had a military pension, a Lockheed pension
and perhaps also Social Security. Mr. Benton, however, could not
manage the payment process to continue or secure these
services.
•
Mr. Byerly testified to recent improvements at the property, which
to him suggested that Mr. Benton had been the victim of
unscrupulous contractors. The Hearing Officer agrees, relying
upon significant evidence and several occurrences that Mr. Benton
was easily led to believe people were his friends, and that he
would, for friends, sign virtually whatever was put in front of him;
he also had little hesitation or reluctance about exhibiting his
checks and cash. Mr. Byerly noted that neighbors commented
upon Mr. Benton's decline in functioning over the years.
•
Mr. Benton's inability to distinguish friends from predators is
evidenced by his behavior at his eviction, the improvements
testified to by Mr. Byerly, and by his signing of the CSA, a vague
document giving about $200,000 to a person he hardly knew. Mr.
Calvillo complained about Mr. Benton's signing the later Claims for
Excess Proceeds and the letter revoking the CSA. Later, Mr.
Benton signed a letter obviously written entirely by Mr. Calvillo. It
HEARING OFFICER DECISION
Page 32
is evident that Mr. Benton was easily manipulated by persons
acting in a friendly fashion, and was quite willing to sign whatever
such persons presented to him.
•
The Claim form filled out by Mr. Benton himself showed an
inability even to copy numbers accurately, or to recognize an
improper number ("42,3617.00");
•
The competency examination (there was no evidence of a sudden
diminution of Mr. Benton's functioning, so information from the
examination of June, 2014, is deemed highly relevant to his
condition in March, 2013) noted inter alia: Mr. Benton was
unaware of his deficiencies ("profound lack of self-awareness of
deficits"), and could not explain APS's involvement; his
understanding even of why there was a competency examination
was "marginal at best"; he was pleasant and hearty (consistent
with Mr. Calvillo's testimony); he exhibited basic simple
attentional ability, but performance "dropped significantly" when a
more complex task was attempted; he could not count backwards
successfully from 20, nor name the months in reverse order, nor
perform simple arithmetic tasks which must have been routine
during his military and Lockheed careers; while he could
remember that he lost his house through a tax default (no
mention was made of his daring the County, although he
HEARING OFFICER DECISION
Page 33
acknowledged not paying taxes for ten years), there was
confusion about most time periods, such as when he lost his
house, when his wife died, how long he lived at the house, etc.;
he acknowledged that he let his mail pile up (which by itself may
have made him unable to manage his resources); at the
examination he had a "large wad of cash" and several checks
(probably military pension) aggregating over $5,500; he stated he
did not have a bank although later he mentioned a checking
account but was unable to identify the bank or its location; his
answers about his income were rambling, tangential, and
exhibited pure confusion, although he was aware he had both
military and Lockheed pensions, but was unclear about Social
Security; when asked how he would take care of his finances, his
answer was: "Well they send them here and I keep track of them
right here", which is virtually an unintended confession of inability;
he seemed unsure of what his expenses were, or even how he
managed to buy food; he was unable to perform simple quotidian
tasks, such as setting a time on a clock; short term memory was
"severely impaired" while long term memory was unreliable. It
was noted that he spoke "in a fluent, prosodic manner with
adequate comprehension, repetition, and naming in conversational
speech", that he is "blithely unconcerned and unaware of many of
HEARING OFFICER DECISION
Page 34
his limitations and deficits [and] believes himself fully capable of
managing his own funds, finding a place to live, and living
independently", which presentation may help explain Mr. Calvillo's
solitary belief in his competence (although the Hearing Officer
notes LLC's used a "durable" power of attorney, which would
survive Mr. Benton's incapacity, suggesting Mr. Calvillo had doubts
about Mr. Benton's competency).
•
Given Mr. Benton's inability to distinguish friend from predator (a
conclusion buttressed by his cooperating fully with the competency
examiner whose report might strip him of his ability to govern his
own life or live independently, which he noted was important to
him), habit of carrying and exhibiting large sums of money,
encompassing incomprehension of his income or expenses, or of
arithmetic, banks, time periods or his own deficits, it seems
apparent that he was highly susceptible to suggestion or even
minor influence. Basically, if Mr. Benton perceived a person as
friendly, he would open his wallet to pay and/or sign anything the
"friend" might suggest. Mr. Calvillo recognized this in writing to
Mr. Benton, in his April 12, 2013 letter: "DO NOT TALK TO
ANYONE ABOUT ANYTHING!"
Based upon the foregoing, the Hearing Officer concludes that Mr. Benton
lacked the capacity to understand and appreciate the magnitude of the rights
HEARING OFFICER DECISION
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he was giving LLC, or the size of the commission promised, or the reasonable
alternatives. Specifically, he had no understanding or appreciation of the
meaning of "50°/o", or how to convert that percentage into a specific monetary
figure, or that applied to the expected recovery, 50°/o would amount to
approximately $200,000. Further, he lacked understanding or appreciation of
what $200,000 meant. He could not understand, nor put into motion without
assistance, the alternative of filing a Claim for Excess Proceeds himself. He
was of unsound mind under Civil Code section 39 on these important facets of
the assignment contract.
Consequences of Unsound Mind
Das v. Bank of America (2010) 186 CA4th 727, is relied upon by LLC in
arguing that unsound mind alone, even if it affected Mr. Benton's ability to
understand or appreciate the vital provisions of the CSA, is not sufficient for
rescission, but undue influence by the other party in securing the contract is
also required. That case was an appeal of the trial court's sustaining a
demurrer to the complaint; the complaint did not expressly seek rescission of
the loan, but concentrated on tort remedies and conduct after the loan was
made. It is not clear whether Das' discussion of rescission of a contract on the
basis of unsound mind would have been different if the pleading had expressly
stated that the plaintiff was unable to understand or appreciate the amount of
the loan, the amounts of the required repayments, or how the loan would
affect the plaintiff's financial situation (cf: Probate Code section 812), or if the
HEARING OFFICER DECISION
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situation were one in which restoration of the loan funds to the bank was
possible as part of a rescission.
The Hearing Officer will instead follow the well-established California
approach, as stated in Smalley v. Baker (1968) 262 Cal. App. 2d 824:
In California, as in many states, a party is entitled to rescission of a
contract if, when he entered into the contract, he was not mentally
competent to deal with the subject before him with a full understanding
of his rights, the test being, in each instance, whether he understood
the nature, purpose and effect of what he did. (Civ. Code, § 39, as
interpreted in Pomeroy v. Collins, 198 Cal. 46, 69; Drum v. Bummer, 77
Cal.App.2d 453, 460; Stratton v. Grant, 139 Cal.App.2d 814, 817;
Philbrook v. Howard, 157 Cal.App.2d 210, 214; Peterson v. Ellebrecht,
205 Cal.App.2d 718, 721; Walton v. Bank of California, 218 Cal.App.2d
527, 541; Odorizzi v. Bloomfield School Dist., 246 Cal.App.2d 123, 131;
see generally Weihofen, Mental Incompetency to Contract or Convey
(1966) 39 So.Cal.L.Rev. 211.) The test is aimed at cognitive capacity
and specifically asks the question whether the party understood the
transaction which he seeks to avoid. Some contracts require less
competence than others, so that the test of understanding varies from
one contract to the next. (See Pomeroy v. Collins, supra, at pp. 68-69;
Weihofen, supra, at pp. 217-218.)
If undue influence is independently required under Das, the Hearing
Officer finds on the evidence that Mr. Benton was extremely manipulable,
would sign virtually whatever was put in front of him by friends, and therefore
a friendly approach alone, combined with an onerous agreement, constituted
undue influence in this situation. The CSA, in light of Mr. Benton's condition,
was obtained by LLC through undue influence, notwithstanding the absence of
coercive or pushy conduct which customarily underlies undue influence.
Given that Mr. Benton's specific deficiencies prevented him from
understanding or appreciating the particular provisions of the CSA which are
HEARING OFFICER DECISION
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challenged - the compensation - rescission of the assignment for unsound
mind is available.
LLC suggests that if Mr. Benton was incompetent in 2013, his Claims
also fail since he lacked the capacity to file a Claim for Excess Proceeds. While
there may be logic in that, the Hearing Officer simply will not deny a person
money which legally belongs to him on such a technicality. To paraphrase
Dickens, if the law held that, the law is an idiot.
An allowed rescission does not fully determine the outcome; the
rescission must be properly made, and issues of damages or entitlement to
remuneration may remain:
Civil Code section 1691
Subject to Section 1693, to effect a rescission a party to the contract
must, promptly upon discovering the facts which entitle him to rescind if
he is free from duress, menace, undue influence or disability and is
aware of his right to rescind:
(a) Give notice of rescission to the party as to whom he rescinds;
and
(b) Restore to the other party everything of value which he has
received from him under the contract or offer to restore the same upon
condition that the other party do likewise, unless the latter is unable or
positively refuses to do so.
When notice of rescission has not otherwise been given or an offer to
restore the benefits received under the contract has not otherwise been
made, the service of a pleading in an action or proceeding that seeks
relief based on rescission shall be deemed to be such notice or offer or
both.
Civil Code § 1692.
When a contract has been rescinded in whole or in part, any party to the
contract may seek relief based upon such rescission by (a) bringing an
action to recover any money or thing owing to him by any other party to
the contract as a consequence of such rescission or for any other relief
to which he may be entitled under the circumstances or (b) asserting
HEARING OFFICER DECISION
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such rescission by way of defense or cross-complaint.
If in an action or proceeding a party seeks relief based upon rescission
and the court determines that the contract has not been rescinded, the
court may grant any party to the action any other relief to which he may
be entitled under the circumstances.
A claim for damages is not inconsistent with a claim for relief based
upon rescission. The aggrieved party shall be awarded complete relief,
including restitution of benefits, if any, conferred by him as a result of
the transaction and any consequential damages to which he is entitled;
but such relief shall not include duplicate or inconsistent items of
recovery.
If in an action or proceeding a party seeks relief based upon rescission,
the court may require the party to whom such relief is granted to make
any compensation to the other which justice may require and may
otherwise in its judgment adjust the equities between the parties.
The rescission here is based upon the disability of unsound mind, as
allowed by Civil Code sections 39 and 1691. The Public Guardian was clear
from the outset of its contacts with Mr. Calvillo that it gave no weight or effect
to the CSA, and was explicit at the hearing that it rescinded the assignment.
This is sufficiently timely, as only upon the establishment of the conservatorship could Mr. Benton (through his legal alter ego) "discover" the facts
allowing rescission. Notice was duly given; Mr. Calvillo in fact complained
bitterly of such notice, decrying a conspiracy. Since another Claim for Excess
Proceeds had been filed, and the tax sale purchaser did not accept LLC's offer
on Mr. Benton's behalf to subsidize his move, there seemed nothing to restore
to LLC. The formalities of rescission were satisfied .
There remains the issue of whether any award to LLC is appropriate for
the "benefits conferred" or as compensation which justice may require. I make
one small detour before I handle that issue.
HEARING OFFICER DECISION
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Unconscionability of the CSA
In the event that the above application of the rescission rules is deemed
defective, with the Das opinion's statements felt to be the correct legal
approach interpretation and the evidence of undue influence insufficient, then
the compensation provision is stricken on an independent ground. If no
rescission of the CSA is permitted because of a lack of undue influence by LLC
(notwithstanding Mr. Benton's susceptibility to manipulation and inability to
determine friend from predator, so that little in the way of "pressure" was
required to amount to undue influence), then I find that the 50°/o commission
was unconscionable.
Civil Code section 1670.5.
(a) If the court as a matter of law finds the contract or any clause of
the contract to have been unconscionable at the time it was made the
court may refuse to enforce the contract, or it may enforce the
remainder of the contract without the unconscionable clause, or it may
so limit the application of any unconscionable clause as to avoid any
unconscionable result.
(b) When it is claimed or appears to the court that the contract or any
clause thereof may be unconscionable the parties shall be afforded a
reasonable opportunity to present evidence as to its commercial setting,
purpose, and effect to aid the court in making the determination.
Unconscionability was identified as an issue early in the proceedings,
well before the hearing. The Response addresses this issue. The parties were
given full opportunity to present relevant evidence. Section 1670.S(b) is
satisfied.
I have no hesitation whatsoever in finding the 50°/o commission
unconscionable in light of the services expected and facts known at the time.
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The Hearing Officer has dealt with at least a thousand excess proceeds cases,
and can't recall a 50°/o commission; if it has ever occurred previously, it would
have been in a case with minimal excess proceeds and significant work. Here,
the excess proceeds were known to be in the range of $400,000, reduced by
some FTB income tax liens and a possible HOA lien. HOA liens are not usually
very large; Mr. Calvillo's testimony that the house looked well kept should
have minimized his estimate of that claim to potential missed HOA payments.
Mr. Benton had obviously been retired for some time, so the income tax liens,
even if substantial, would not be estimated to seriously reduce the excess
proceeds to a minimal sum. The son's potential interference was irrelevant, of
course, as no basis for a claim existed.
The situation, compared with many in which professional excess
proceeds service entities are involved, was straightforward. The pre-sale
owner was alive, so there would be no necessity of extensive searches and
cross-country trips to identify and locate heirs, filings of probate cases to
determine succession or preparation of Probate Code section 13000 affidavits.
Yet it is exactly cases of owners deceased for generations, with no probates
filed, many marriages, only some of which were dissolved, wide-spread
children of deceased and even pre-deceased heirs, competing claims as to
wills and recalcitrant minor percentage heirs, for which professional entities
earn higher than a 20-33°/o commission. In those cases, a substantial risk of
no recovery often exists, if, for example, not all heirs can be found to allow
HEARING OFFICER DECISION
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the Section 13000 affidavit. No similar risk or complications were anticipated
here.
An anticipated $200,000 compensation is hugely disproportional to the
expected labor and the absence of risk, especially considering LLC's
inexperience with excess proceeds claims. That commission certainly shocked
my conscience when I encountered it (before reading any of the Public
Guardian's material or even the County Counsel Memorandum on the excess
proceeds).
LLC argues that its CSA covered other work, the potential for which
must be considered in deciding unconscionability. The terms of the CSA are
vague and certainly allow LLC to engage in further work; the best guide to
LLC's expectations at the time of contract are in what it did shortly thereafter.
The Hearing Officer can find mention only of: calls to the Tax Collector; a
letter to the purchaser; the filing of the Claim for Excess Proceeds; and,
letters demanding a hearing. Obviously Mr. Calvillo did expect to appear at
the eventual hearing. While LLC argues that other work is encompassed
under the wording of the contract, there is no evidence that LLC actually
expected to do more in this case.
Given the large amount of the excess proceeds, the relative simplicity of
the case, the virtual assurance of a recovery allowing a commission
handsomely commensurate with the effort expended, and the commercial
customary range of commissions from 10°/o to 33°/o or rarely 40°/o, a
HEARING OFFICER DECISION
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commission here of 50°/o on excess proceeds reasonably believed to approach
$400,000 is unquestionably unconscionable.
Aside from the 50°/o commission, the CSA and DPOA, although
unnecessarily far reaching, are not unconscionable. Only the commission is
removed from the assignment on this analysis.
Appropriate Compensation for LLC
Whether under the rescission determination or the unconscionability
finding, the Hearing Officer must determine an appropriate award to LLC,
whether based on benefits conferred, quantum meruit, or the interests of
justice. The Public Guardian argues strenuously that $0 is appropriate, while
LLC contends, unconvincingly, that the full 50°/o remains correct.
The Public Guardian's position is supported by the fact that Mr. Benton
later himself filed a sketchy, but adequate Claim: adequate to get the case
before the Hearing Officer who, under the circumstances of a non-appearing
or unhelpful claimant, would carry the load in this simple case of finding him
to be a party of interest entitled to whatever remained after first priority
claims were paid. A better written Claim was also filed by Mr. Benton with
assistance.
LLC did not immediately obtain a full title report, and when one was
obtained, did not review the underlying documents, as Mr. Calvillo in his April
letter was vague about the monetary value of known liens. LLC lacked the
expertise of many other service providers for excess proceeds.
HEARING OFFICER DECISION
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No legal case seeking to set aside the sale was filed; no discussions with
first priority claimants were undertaken to increase Mr. Benton's share of the
proceeds. There was no significant effort expended, except for the Response
and hiring an attorney for the hearing; those efforts were virtually exclusively
to contest the objections to the assignment, and were not intended to nor did
they have the effect of providing any benefit to Mr. Benton. Admittedly,
attorney Summerall's brief was helpful to the Hearing Officer in analyzing
issues necessary for a full decision; if the question were whether that work fell
under a provision for attorney fees, the cost of that Response would
undoubtedly be included. It is a different matter when the analysis is what
work was expected (that is, what would be a "conscionable" commission),
what work for Mr. Benton's interests was performed and what benefit was
conferred; the cost of the Response does not qualify.
As noted, LLC never even supplied a deed to establish that Mr. Benton
was a "person with title of record"; any competent professional excess
proceeds service company realizes that reliance upon a client's status as last
assessee does not suffice: there are assessees who are not persons with title
of record. It is simple to obtain the deed to perfect the proof of party of
interest status, but it wasn't done. Even more, no prior deed to show the
Quitclaim Deed was not intended merely to clear title was supplied even after
the Hearing_Officer demanded one; LLC apparently had retreated into
pursuing solely its own interests.
HEARING OFFICER DECISION
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These considerations argue for a zero or small commission.
Unrecognized by the Public Guardian, LLC did confer benefit upon Mr.
Benton: it did file a valid Claim for Excess Proceeds. It is possible that in the
absence of LLC's intervention and efforts, Mr. Benton would have remained in
a mental fog until the period in which to file a claim for excess proceeds
expired. The later filed Claims do not rebut this analysis; those Claims were
filed somewhat expressly to attempt to defeat the assignment to LLC, and
may not have been filed if people were not incensed by the 50°/o commission.
Further, LLC did write a letter to the purchaser trying to benefit Mr. Benton,
and expected to appear at any hearing on his behalf. These considerations
argue for some compensation.
About the smallest commission for a professional excess proceeds
company for a simple case with little risk which the Hearing Officer
remembers is 10°/o (often, if the fund is large, the parties settle on a specific
figure rather than a percentage). The Hearing Officer accepts that amount as
"fair" - at least reflective of the existing commercial setting even if
constituting a handsome reward for little effort - compensation for contacting
the party of interest, meeting with him and occasionally speaking with him to
update the status of the matter, making sure a Claim for Excess Proceeds is
filed, and appearing at the hearing to argue the matter for the assignor.
Somewhat reluctantly, the Hearing Officer awards LLC that amount for those
actual and anticipated services. An additional award of $150 is made for LLC's
HEARING OFFICER DECISION
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efforts with the purchaser. No basis for any further award is found.
The 10°10 is applied to the amount remaining after the FTB tax lien is
paid, rather than the amount remaining after the lien plus the Order to
Withhold are deducted. Again, although the Hearing Officer is reluctant to
reward LLC for its conduct in this case, the commission is normally computed
on the amount awarded the party in interest; absent an amount awarded to
Mr. Benton, the Order to Withhold could recover nothing. Deducting the
amounts paid under the Order to Withhold before computing the commission
is thus improper.
The result: the award to LLC is 10°10 of ($421,357.91 minus $2,320.43)
or $41,903.75, plus $150, for a total of $42,053.75.
Mr. Benton is thus due, although the money is to be paid to the Public
Guardian, the remaining excess proceeds: $421,357. 91 less the $42,053. 75
award to LLC and less the $21,593. 75 awarded to the Franchise Tax Board on
its liens and on the Order to Withhold (taken from Mr. Benton's share), for a
net of $357,710.41
Dated:
May 30, 2016
Jed Samit
Legal Hearing Officer
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