RPLR September 2018

                                        Taxpaying Adverse Possessors   

                                                          Roger Bernhardt

In McLear-Gary v Scott (2018) 25 CA5th 145, Deborah McLear-Gary (Deborah) claimed a right-of-way easement over two adjacent parcels owned by Scott and Brandon (respectively) that apparently separated her parcel from a creek. Deborahfiled her action in 2012, but since Scott had constructed in 2006 a locked gate that had blocked Deborah’s right-of-way since then, he naturally contended that any right-of-way Deborah once might have had was extinguished by the adverse possession arising from his locked gate. Brandon, whose parcel lay between Scott’s and Deborah’s parcels, was brought into the action in 2012 and joined in Scott’s claim that Deborah’s easement had been extinguished by Scott’s gate.

The trial court held that Deborah had lost her easement by adverse possession, a conclusion that the court of appeal held was incorrect. (More facts are contained in the case summary at p 121.)

The problem with Brandon’s claim of adverse possession was that the property taxes on his parcel had not been previously paid when due and had been allowed to be delinquent for the past five years, only being brought current by a lump-sum payment in 2011 of all the past due amounts. Our CCP §325 has required, since 2011, that an adverse possessor must have “timely” paid all local taxes (and proven it by certified records from the county tax collector). Thus, even if Brandon had satisfied all of the other requirements of adverse possession—e.g., open, notorious, continuous, exclusive, hostile—his claim would fail because he had not made timely tax payments for the property he was adversely possessing (by the gate locking Deborah out).

The Virtues of Adverse Possession

McLear-Gary illustrates that this new timely tax requirement is a real one, and lawyers therefore should make sure their clients understand that fact. Few persons, of course, set out to be adverse possessors, or visit a lawyer asking how to do so, but many homeowners—if not most of them—probably are in fact adversely possessing their property, or some of it. When was the last time any of your clients had surveys made to see whether their lot lines had shifted due to earth tremors or settling, or whether their chains of title were really in immaculate condition? In jurisdictions with no tax requirement (about half of the states), surveys and title searches may not matter so much because their doctrines of adverse possession allow purchasers and owners to assume that what they saw was what they got—at least on any house over five years old, or fence there long enough, or deed old enough. But in California, adverse possession is not as likely to furnish the protection it once afforded to these people, especially after the 2011 amendment to CCP §325. The new requirement of timely payment of all property taxes means that owners should not indulge their former habits of thinking they have five years to pay their property taxes; falling into arrears has consequences that may be more than strictly financial.

The policy behind this new timeliness requirement is odd. According to the court, the bill was intended to “address a problem in which would-be adverse possessors scan tax records for parcels of land with outstanding tax obligations, make a lump-sum payment of taxes for the previous five years, and then claim that they have occupied the land for that five-year period.” 25 CA5th at 154. Now, I do not hang around with many wannabe land thieves, but I do not think I would encourage any such types to follow that sort of a strategy, whether there is a tax requirement or not. I think this would be a very dumb way to accomplish land theft. Adverse possession requires 5 years of possession, often including some requirement that the possessor enclose, cultivate, or improve the land. Since it is someone else’s land that the would-be thief is improving or cultivating, the risk is too high that the true owner will simply wait 4 years (or just short of whatever the applicable statute of limitations on ejectment is) to then demand his property back, together with a recovery of trespass damages, making five years too long and dangerous a time to hope for successfully getting away with an illegal occupation of another’s land. I would guess that over 90 percent of persons claiming adverse possession are not land thieves, but rather innocent property owners attempting to correct some difficulties with their paper titles.

It is too bad that our legislature believed that such a “subset of ‘legitimate’ adverse possessors ... would just have to wait until they have made timely payments for a period of five years (provided that all the other requirements were met).” I think these legislators got taken in by the title of the doctrine (adverse possession) and think of it more as a doctrine of land theft than as a simple statute of limitations. As a real estate lawyer, I worried more about keeping titles cured than about representing unsmart land grabbers. I think adverse possession is the best rule around for curing most common and ancient title defects (of which I see far too many in our records) and for peacefully resolving neighbor disputes. It is regrettable that we keep making these beneficent doctrines more difficult. (See my 1995 column, Deeds on the Ground or Words in the Deed:-Bryant v Blevins, 18 CEB RPLR 141 (Apr. 1995), available on RogerBernhardt.com.)

The Nonlogic of a Tax Requirement

Since the logic of adverse possession is simply that of a statute of limitations running on the bringing of an ejectment action (see CC §1007), the inclusion of a tax requirement among the adverse possessor’s burdens is puzzling. If Deborah could have sued Brandon for colluding in locking her out for over five years and failed to bring that action, why should she not be barred by the statute of limitations, regardless of whether Brandon paid his taxes? Requiring the lockout to have been open, notorious, exclusive, hostile, continuous, uninterrupted, and under claim of right seems quite enough in itself. However, we nonlegislators do not get to rewrite the statutes; instead, we need to make sure that our clients know about them.

Ironically, both parties were claiming prescription in this case: plaintiff Deborah an easement by prescription, and defendants Scott and Brandon the extinguishment by prescription of Deborah’s easement. Deborah, however, was not required to pay taxes in order to support her claim, because she was seeking only an easement, which may come under the prescription statute (CC §1007) but not under the adverse possession statutes (CCP §§324–325), whereas defendants were required to satisfy the tax requirement in order to claim that their adverse possession of the servient tenement (the locked gate) constituted their adverse possession of her easement. (But I am somewhat fearful of making this observation lest the legislature decide to impose a similar tax requirement on claims of prescriptive easements for reasons of symmetry!)

 

 

Bid rigging (here, at foreclosure sales) is per se illegal under §1 of the Sherman Act.

U.S. v Joyce (9th Cir 2018) 895 F3d 673

Joyce was charged with restraining trade in violation of the Sherman Act (15 USC §1) by participating in a bid-rigging scheme involving foreclosed real property in Contra Costa County. The indictment alleged that Joyce and his co-conspirators agreed to suppress competition at public foreclosure auctions by

·   Refraining from bidding against each other on selected properties;

·   Agreeing not to compete to buy selected properties;

·   Designating which conspirators would win selected properties;

·   Purchasing selected properties at artificially suppressed prices;

·   Negotiating, making, and receiving payoffs for agreeing not to compete with co-conspirators; and

·   Holding second, private auctions to determine payoff amounts and choose who would be awarded the selected property.

Joyce filed a motion to have the charges adjudicated based on the “rule of reason,” which weighs legitimate justifications for a restraint against any anticompetitive effects. The trial court denied the motion, concluding bid rigging “falls squarely within the per se category” of Sherman Act violations, and refused to admit evidence or arguments regarding the procompetitive benefits of Joyce’s conduct. Joyce was convicted at trial and sentenced to prison for 12 months and 1 day.

As a matter of first impression, the Ninth Circuit affirmed that bid rigging, as a form of horizontal price fixing, is a per se violation of the Sherman Act. Business agreements such as horizontal price fixing, division of markets, group boycotts, tying arrangements, and output limitations are conclusively presumed to be unreasonable restraints of trade because of their pernicious anticompetitive effect and lack of redeeming virtue. The purpose of the per se rule is judicial economy to avoid complicated and prolonged economic investigation into whether a particular restraint of trade has been unreasonable when the conduct falls squarely into a category of economic restraint necessarily prohibited by §1 of the Sherman Act. Because bid rigging is per se illegal, Joyce’s request for a “rule of reason” analysis was properly denied.

THE EDITOR’S TAKE:

A Rule of Reason in Unreasonable Situations?

According to the Ninth Circuit opinion in this case, the defendants violated §1 of the Sherman Act by refraining from bidding against one another, by designating which of them would win an auction, and then deciding on payoffs to the others through second, private auctions among themselves.

According to defendant Joyce’s appellate brief, he wanted to offer evidence that the foreclosing banks suppressed competition at their trustee sales by refusing to offer any relevant evidence regarding the properties being sold, and by setting opening bid prices, which thereby deterred outside bidders on 85 percent of the properties being sold, which thereby allowed the banks themselves to buy these properties at their own opening bid prices, which completely dominated the market, and left just 15 percent of it for defendants to bid on, meaning that their behavior had no real effect on the market. None of those contentions was refuted, but instead, they were held not to matter under the Sherman Act’s per se rules against horizontal price fixing, agreements not to compete, and divisions of markets. 

Had a rule of reason analysis been held to have been applicable here, I would have added that true competitive bidding is impossible at trustee sales because bidders, before making their bids, also generally do not receive preliminary title reports, usually cannot (or do not) conduct physical inspections of properties, must bring and pay all cash when bidding, cannot include contingencies in their bids, and do not have title insurance companies standing behind them at the auctions. With such formidable obstacles, it is little wonder that most rational investors elect not to compete at those auctions, leaving the bidding for the more nonaverse risk preferrers who, unsurprisingly, play by rougher rules. It is doubtful that eliminating one bad feature of these trustee sales (bid rigging) will have much of an effect on the other baleful consequences of such sales. 

P.S. Defendants’ strategy could also get them in trouble under state law. See Lo v Jensen (2001) 88 CA4th 1093 and CC §2924h—Roger Bernhardt

CROSS-REFERENCE: For discussion of Sherman Act per se illegality of price-fixing arrangements, see California Business Litigation §§5.56–5.58 (Cal CEB). On the “rule of reason” analysis under the Sherman Act, see Bus Litigation §5.66.

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Reprinted from 41 Real Property Law Reporter 125 (Cal CEB Sept. 2018), copyright 2018 by the Regents of the University of California. Reproduced with the permission of Continuing Education of the Bar - California (CEB). No other republication or external use is allowed without permission of CEB. All rights reserved. (For information about CEB publications, telephone toll free 1-800-CEB-3444 or visit our website - CEB.com)