National Financial Lending v. Super. Ct.

Filed 1/7/14 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

NATIONAL FINANCIAL LENDING, D064226
LLC,

Petitioner, (Super. Ct. No. 2007-00074230-CU-
BC-CTL)
v.

THE SUPERIOR COURT OF SAN ORDER MODIFYING OPINION
DIEGO COUNTY,
[NO CHANGE IN JUDGMENT]
Respondent;

BREWER CORPORATION et al.,

Real Parties in Interest.

THE COURT

It is ordered that the opinion filed herein on December 18, 2013 be modified as
follows:

1. On pages 21 and 22 replace all instances of the word "Berger" with the
word "Brewer."

This modification does not change the judgment.

BENKE, Acting P. J.

1
Filed 12/18/13 (unmodified version)
CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

NATIONAL FINANCIAL LENDING, D064226
LLC,

Petitioner, (Super. Ct. No. 2007-00074230-CU-
BC-CTL)
v.

THE SUPERIOR COURT OF SAN
DIEGO COUNTY,

Respondent;

BREWER CORPORATION et al.,

Real Parties in Interest.

ORIGINAL PROCEEDINGS in mandate. William R. Nevitt, Jr., Judge. Petition

denied.

Dale A. Martin; Law Offices of Jeffrey S. Benice and Jeffrey S. Benice for

Petitioner.

No appearance for Respondent.
 Lincoln, Gustafson & Cercos, Theodore R. Cercos; Law Offices of Murray M.

Helm, Jr., Murray M. Helm, Jr.; Marks, Finch, Thornton & Baird, Jon F. Gauthier; Hoyt

Law Firm, Kenneth C. Hoyt; Niddrie, Fish & Addams and David A. Niddrie for Real

Parties in Interest.

In this writ proceeding, we deny a third party debtor's petition in which it

challenges the trial court's order denying the debtor's Code of Civil Procedure1 section

170.6 peremptory challenge.

In the trial court, the plaintiff obtained a $2.8 million judgment against a

defendant, a construction lender that failed to meets its commitment with respect to a

condominium project in San Diego. The plaintiff has unsuccessfully attempted to satisfy

the judgment through a myriad of postjudgment collection proceedings.

The third party debtor is controlled by the sole shareholder of the defendant

construction lender and owes the defendant substantial amounts. The plaintiff alleges it

served the third party with a notice of levy and that, nonetheless, the third party debtor

thereafter paid the defendant more than $2 million in management fees.

The third party's payment to the defendant in part gave rise to the plaintiff's

application to the trial court for appointment of a limited receiver. Following a contested

hearing, the receiver was appointed. However, the defendant did not cooperate with the

receiver, who then applied to the trial court for a clarification of his powers and access to

1 All further statutory references are to the Code of Civil Procedure unless otherwise
indicated.
3
books and records of the defendant and the closely-related third party debtor (among

others). The defendant shortly thereafter filed for bankruptcy.

After the defendant filed its bankruptcy petition, the plaintiff filed a motion under

section 701.020 to make the third party debtor liable for the money it transferred to the

defendant.

Upon being served with the plaintiff's section 701.020 motion, the third party

debtor filed a motion to quash service of the notice of levy of execution and a peremptory

challenge under section 170.6. The trial court denied the challenge, and the third party

debtor filed a timely petition for a writ of mandate. We issued an order to show cause as

well as a stay of all further trial court proceedings.

As we explain, a motion under section 701.020, by which a judgment creditor

seeks to impose liability for failure to honor a notice of levy, although it implicates

substantial interests of third parties and gives rise to a separate adversary factfinding

process, is nonetheless an incident to the underlying action and is not itself a separate

special proceeding that will support a peremptory challenge under section 170.6. (See

Avelar v. Superior Court (1992) 7 Cal.App.4th 1270, 1275-1276.) The same is true of

NFL's motion to quash. Accordingly, because the trial judge had previously determined

the judgment creditor's liability as a matter of fact, no parties, even those joined

thereafter, had the right to a section 170.6 challenge.

Moreover, even if we considered the motion under section 701.020 as a special

proceeding within the meaning of sections 23 and 170.6, it was based in substantial part

4
on the same set of facts that gave rise to the plaintiff's earlier motion for appointment of a

limited receiver and, as we explain, was therefore a continuation of that postjudgment

proceeding. Because that proceeding included a disputed factual hearing, no party which

thereafter was brought into the proceeding could bring a peremptory challenge under

section 170.6.

In short, the third party debtor's section 170.6 challenge is barred either by the fact

that the trial court resolved the judgment debtor's liability or by its determination to

appoint a receiver.

FACTUAL AND PROCEDURAL BACKGROUND2

A. Brewer et al. v. PCF

This case arises out of the development of a luxury condominium project located

at the north end of Balboa Park in San Diego and known as Mi Arbolito. Plaintiffs and

real parties in interest, Brewer Corporation, Dynalectric Company, Brady Company/San

Diego, Inc., and Division 8, Inc. (collectively the Brewer plaintiffs), are contractors who

provided substantial amounts of material and work on the project. The underlying

dispute arose because construction on the project stopped before the Brewer plaintiffs

were paid in full for their material and work.

2 The parties' August 23, 2013 and September 3, 2013 requests for judicial notice of
matters that took place in separate superior court and later United States Bankruptcy
Court proceedings are denied.
5
 The Brewer plaintiffs sued both the developer, Mi Arbolito, LLC, and the

construction lender, Point Center Financial, Inc. (PCF). Although Mi Arbolito, LLC filed

for bankruptcy, the Brewer plaintiffs obtained a $2.7 million judgment against PCF.

B. PCF & NFL

PCF is wholly owned by Dan J. Harkey, who is also its president. According to a

declaration Harkey filed in the trial court, PCF has been in business for more than 30

years. Harkey stated that National Financial Lending, LLC (NFL) is a California limited

liability company that is managed by PCF and that he is NFL's designated agent for

service of process. According to Harkey, NFL is composed of over 1300 members, one

of which is PCF.

C. Notice of Levy

On April 26, 2012, the Brewer plaintiffs served NFL with notices of levy of

execution totaling $2.2 million. The notices of levy were personally served on a person

identified only as Jane Doe at offices PCF and NFL share. The proof of service states

that Jane Doe refused to identify herself.

Some months after the notices of levy were served on NFL, the Brewer plaintiffs

discovered that, notwithstanding the levies, NFL transferred $2.08 million it held to PCF.

D. Receivership

After the Brewer plaintiffs discovered NFL's transfers to PCF, they moved to have

a limited receiver appointed over PCF's assets. PCF contested the appointment of a

6
receiver and, after conducting a factual hearing, the trial court determined a receiver was

necessary.

The receiver had difficulty obtaining PCF records he believed he needed in order

to fulfill his receivership obligations. While the receiver's motion to clarify his duties and

authority was pending in the trial court, PCF filed a petition for bankruptcy. The Brewer

plaintiffs then obtained partial relief from the automatic stay in the PCF bankruptcy that

permitted them to pursue third party debtors of PCF, including NFL, for levy violations.

E. Section 701.020 Motion and Motion to Quash

On June 17, 2013, the Brewer plaintiffs personally served NFL's agent for service

of process, Dan Harkey, with a notice of its section 701.020 motion to impose liability on

NFL for its violation of the April 2012 notices of levy.

On June 28, 2013, NFL responded to the section 701.020 motion by filing a

motion to quash the notices of levy in which it argued that service of the notices on a Jane

Doe at its offices was not valid.

Also on June 28, 2013, NFL filed a peremptory challenge to the trial judge

presiding over the case under section 170.6. The trial judge denied the challenge on the

grounds that neither the Brewer plaintiffs' motion under section 701.020 nor NFL's

motion to quash are actions or special proceedings subject to section 170.6.

As we indicated at the outset, NFL filed a petition for a writ of mandate, and we

issued an order to show cause and stay.

7
 DISCUSSION

I

A. Section 170.6

By its terms, section 170.6 applies in any "civil or criminal action or special

proceeding of any kind or character." (§ 170.6, subd. (a)(1), italics added.) Under the

statute any "party to, or an attorney appearing in, an action or proceeding" may file a

motion to disqualify the judge before whom the action is pending if the motion is

supported by an affidavit or statement under oath that simply declares the party or

attorney believes the presiding judge in the action or proceeding is biased against the

party, the attorney, or the interest of the party or the attorney. (§ 170.6, subd. (a)(2).)

Upon presentation of such a motion and affidavit or statement under oath, the action or

proceeding must be assigned to another judge. (§ 170.6, subd. (a)(3).)

In a case such as this, where a trial judge has been assigned for all purposes, a new

party or attorney representing a new party must make the motion within 15 days of

appearing. (§ 170.6, subd. (a)(2).) However, only one motion may be made for each side

in any one action or special proceeding. (§ 170.6, subd. (a)(4).) Moreover, neither side

in a proceeding may make a motion under section 170.6 after trial has commenced or the

trial judge has resolved a disputed issue of fact relating to the merits. (§ 170.6, subd.

(a)(2); Stephens v. Superior Court (2002) 96 Cal.App.4th 54, 60 (Stephens).)

Importantly, these limitations apply even to third parties who are brought into an action

or special proceeding after a challenge has been made or a factual issue has been

8
determined. (See School Dist. of Okaloosa County v. Superior Court (1997) 58

Cal.App.4th 1126, 1135 [after challenge made]; Stephens, at p. 61.)

"The right to exercise a peremptory challenge under Code of Civil Procedure

section 170.6 is a substantial right and an important part of California's system of due

process that promotes fair and impartial trials and confidence in the judiciary. [Citation.]

As a remedial statute, section 170.6 is to be liberally construed in favor of allowing a

peremptory challenge, and a challenge should be denied only if the statute absolutely

forbids it. [Citation.]" (Stephens, supra, 96 Cal.App.4th at pp. 61-62.) "At the same

time, section 170.6 is designed to prevent abuse by parties that merely seek to delay a

trial or obtain a more favorable judicial forum." (The Home Ins. Co. v. Superior Court

(2005) 34 Cal.4th 1025, 1032.) The general aim of the legislation is to "strike a balance

between the needs of litigants and the operating efficiency of the courts. [Citation.] [¶]

To effectuate the Legislature's intent, our courts 'have been vigilant to enforce the

statutory restrictions on the number and timing of motions permitted.' [Citation.] We

have not permitted '"'a device intended for spare and protective use to be converted into a

weapon of offense and thereby to become an obstruction to efficient judicial

administration.'"' [Citations.]" (Id. at pp. 1032-1033, fn. omitted.)

B. Section 701.020

Section 701.020 states: "(a) If a third person is required by this article to deliver

property to the levying officer or to make payments to the levying officer and the third

9
person fails or refuses without good cause to do so, the third person is liable to the

judgment creditor for whichever of the following is the lesser amount:

"(1) The value of the judgment debtor's interest in the property or the amount of

the payments required to be made.

"(2) The amount required to satisfy the judgment pursuant to which the levy is

made.

"(b) The third person's liability continues until the earliest of the following times:

"(1) The time when the property levied upon is delivered to the levying officer or

the payments are made to the levying officer.

"(2) The time when the property levied upon is released pursuant to Section

699.060.

"(3) The time when the judgment is satisfied or discharged.

"(c) If the third person's liability is established, the court that determines the

liability may, in its discretion, require the third person to pay the costs and reasonable

attorney's fees incurred by the judgment creditor in establishing the liability."

According to the Law Revision Commission comment, a judgment creditor may

enforce the liability imposed by section 701.020 either pursuant to examination

proceedings under article 2, chapter 6 of title 9 of the code, section 708.110 et seq. or by

way of a separate creditor's suit under article 3, chapter 6 of the code, section 708.210 et

seq. (16 Cal. Law Revision Com. Rep. (1982) p. 1349.)

10
 C. Motion to Quash Notice of Levy

The cases have recognized that a notice of levy may be challenged by a motion to

quash. (See Lauer v. Rose (1976) 60 Cal.App.3d 493, 496.) In ruling on such a motion,

the trial court is not required to render any statement of decision. (Ibid.)

II

As we noted at the outset, NFL's section 170.6 challenge is barred either by the

fact the Brewer plaintiffs' section 701.020 motion and NFL's own motion to quash are

mere incidents of the underlying action and the trial judge's earlier determination of

PCF's liability bars any further peremptory challenges or, more narrowly, because even if

considered special proceedings, the motions to impose liability and quash are nonetheless

a continuation of the receivership proceeding.

A. Incidents of an Action

We have not been cited to and are not aware of any cases that have directly

considered whether a motion under section 701.020 or a motion to quash a notice of levy

are special proceedings within the meaning of sections 23 and 170.6. We conclude that

neither a section 701.020 motion brought in the same action in which the underlying

judgment was entered nor a motion to quash service of a notice of levy are special

proceedings but rather are only incidents of the underlying action and do not give rise to a

separate right to a peremptory challenge under section 170.6. Our narrow interpretation

of special proceedings is not only consistent with the cases that have considered section

23 and its definition of the term, it is also consistent with the balance the Legislature has

11
attempted to draw between the important right of litigants to challenge trial judges at the

outset of proceedings and the operating efficiency of the trial courts.

Under section 21, judicial remedies are defined as actions and special proceedings.

Section 22 defines actions as: "An action is an ordinary proceeding in a court of justice

by which one party prosecutes another for the declaration, enforcement, or protection of a

right, the redress or prevention of a wrong, or the punishment of a public offense."

Section 23, in turn, states: "Every other remedy is a special proceeding."

"The phrase 'special proceeding' is used in the code practice in contradistinction to

'action.' That phrase has no reference to provisional remedies in actions at law or in

equity. It has reference only to such proceedings as may be commenced independently of

a pending action by petition or motion upon notice in order to obtain special relief." (In

re Sutter-Butte By-Pass Assessment (1923) 190 Cal. 532, 537, italics added.) "The phrase

therefore appears to apply only to a proceeding which is distinct from, and not a mere

part of, any underlying litigation." (Avelar v. Superior Court (1992) 7 Cal.App.4th 1270,

1275 (Avelar).) "The phrase cannot be defined to include every procedural step or

mechanism employed within the context of pending litigation. By describing a 'special

proceeding' as any remedy not available in an 'action,' the Legislature must have meant to

create and recognize two roughly equivalent levels of independent procedures to be

directed towards the attainment of different, but similarly final remedies." (Id. at p. 1276,

italics added.)

12
 In Avelar, a criminal defendant, who had been charged with battery and assault

with a deadly weapon on a police officer, moved for discovery of complaints of excessive

force made against the officer. The request for complaints was governed by Evidence

Code section 1043, which sets forth notice and good cause requirements for such

motions. In response to the defendant's motion, the officer's employer, a local police

department, filed an affidavit under Code of Civil Procedure section 170.6 that sought to

disqualify the trial judge. The trial judge found that the affidavit was effective and

disqualified himself. The defendant filed a petition for a writ of mandate in which he

argued that discovery proceedings under Evidence Code section 1043 are not special

proceedings that give rise to any right under Code of Civil Procedure section 170.6. The

court granted the writ. "[I]t can be argued that where the Legislature prescribes specific

procedures by which the disclosure of information may be compelled—procedures which

are more onerous and complex than those routinely involved in discovery—it should be

assumed that the Legislature has found the information in question deserving of special

protection. We recognize that the statutory scheme with respect to police officer

personnel records does reflect a legislative desire to deter harassing and unjustified

efforts to obtain personally private and confidential information contained in those

records. However, with all due respect to law enforcement personnel, we are unwilling

to conclude that their interests in privacy are necessarily of greater legal significance than

that of other individuals asked to reveal intimate information, or information as to which

a legal privilege may be claimed." (Avelar, supra, 7 Cal.App.4th at p. 1279.)

13
 Importantly, the court in Avelar recognized the significance of the fact that the

defendant's discovery motion was part of an ongoing criminal action, rather than an

independent proceeding to which the right to a peremptory challenge would arise.

Although the Penal Code itself identifies a host of procedures as "Special Proceedings of

a Criminal Nature" (Pen. Code, § 1473 et seq.), including motions under Evidence Code

section 1043 (Pen. Code, §§ 1543-1545), the court found that this description of various

criminal procedures does not necessarily mean they become "special proceedings" within

the meaning of Code of Civil Procedure section 23 when they are used as "mere

component parts of a primary action." (Avelar, supra, 7 Cal.App.4th at p. 1276.) The

court noted, "[I]f no criminal action is pending, an owner's motion under Penal Code

sections 1539-1540 for the return of property seized under a warrant would be properly

classed as a 'special proceeding.' [Citation.] However, if a criminal prosecution is

pending, a defendant could not exercise two separate peremptory challenges, one at a

motion to suppress under Penal Code section 1538.5, and another at the trial itself."

(Ibid.) In reaching this conclusion, the court relied on Le Louis v. Superior Court (1989)

209 Cal.App.3d 669, 676-679, in which the court concluded that a preliminary hearing is

a part of the criminal action, and not a "special proceeding" giving rise to a separate right

under Code of Civil Procedure section 170.6.

In finding that the police department had no separate right to file a peremptory

challenge, the court was also concerned about the practical implications of permitting

nonparty witnesses to file challenges and "the potential for chaos, especially at the actual

14
trial," if such challenges were permitted. (Avelar, supra, 7 Cal.App.4th at p. 1278.) The

court's emphasis in Avelar on whether a proceeding is an incident of a pending action or a

separate independent proceeding is consistent with earlier cases that also turned on this

distinction.

In the earlier case of Murphy v. Davids (1921) 55 Cal.App. 416, the judgment

debtor acquired judgments that had been entered against the judgment creditor and

attempted to use them as an offset against execution of the judgment the judgment debtor

had suffered. The judgment creditor objected to the offset on the grounds the judgments

were more than five years old and had not been extended under Code of Civil Procedure

former section 685 in the action in which they had been entered. In finding that no offset

was permissible, the court found that Code of Civil Procedure former section 685 did not

create a separate special proceeding that permitted relief from the five-year limit on the

validity of judgments in any action other than in the action in which the judgments had

been entered. The court stated: "A procedure under [former] section 685 constitutes

neither an 'action' nor a 'special proceeding of a civil nature' within the meaning of those

terms, nor is it in the nature of either. 'It is a mere subsequent step in an action or special

proceeding already commenced, which is governed entirely, so far as the time within

which the same may be taken is concerned, by the provisions of the statute specially

relating thereto.'" (Murphy v. Davids, supra, 55 Cal.App. at p. 420.)

Because the Brewer plaintiffs' section 701.020 motion and NFL's motion to quash

the notice of levy were filed in the same action in which the judgment was entered, they

15
were both incidents of that action and not special proceedings within the meaning of

sections 23 and 170.6. The cases are clear that special proceedings are remedies that are

independent of a pending action and not, as here, procedures that are "a mere part of[]

any underlying litigation." (Avelar, supra, 7 Cal.App.4th at p. 1275.) This limitation on

the meaning of special proceedings is particularly appropriate here where a litigant is

attempting to classify a particular postjudgment collection procedure as a special

proceeding as a means of employing a peremptory challenge under section 170.6.

As we have noted, although section 170.6 is a remedial statute and, as such, should

be interpreted liberally, the statute also sets forth important procedural limits that are

designed to prevent abuse and promote efficiency in our courts. (See The Home Ins. Co.

v. Superior Court, supra, 34 Cal.4th at pp. 1032-1033; Stephens, supra, 96 Cal.App.4th at

pp. 61-62.) Treating any of the myriad of postjudgment collection proceedings set forth

in our Code of Civil Procedure (see § 695.010 et seq.) as a special proceeding within the

meaning of sections 23 and 170.6 would give both the plaintiff and the defendant

renewed opportunity to file peremptory challenges, free of the time, numerical and merit

resolution limitations that would otherwise limit the challenges. (See § 170.6, subd.

(a)(2), (4).) The opportunity for new peremeptory challenges would materially

complicate and unnecessarily delay judgment collection, especially in cases such as this

where collection proceedings involve multiple entities closely related to the judgment

debtor and a series of closely connected procedures. The efficiency of having one judge

preside over all such proceedings is manifest in this record: here, the trial judge was

16
familiar with the conduct that gave rise to PCF's liability, the Brewer plaintiffs conducted

extensive debtor examinations of PCF and, based on that information, served notices of

levy on, among others, PCF's affiliate, NFL, obtained a receivership and finally made

their motion to impose liability under section 701.020.

Distinguishing the section 701.020 motion on the basis that the financial interests

at stake are substantial and that the trial court is required to resolve disputed issues of fact

is unpersuasive. At the very least, that rationale would require that a receivership, which

greatly intrudes on the interests of a judgment debtor and may require multiple factual

determinations, also be treated as a special proceeding. Thus, in a civil action, it would

be possible that one judge would determine liability, another would judge preside over a

receivership and yet a third judge would determine whether liability arose under section

701.020. The inefficiency and impracticability of such a regime strongly support our

continued recognition of the general rule that special proceedings are only those

proceedings that are independent of any ongoing action.3

3 The only exception to this limitation on the definition of special proceedings we
have been able to identify arises in civil contempt proceedings where imprisonment is a
remedy. (See Bridges v. Superior Court (1939) 14 Cal.2d 464, 473.) Arguably, there,
the particular liberty interests at stake warrant treating a contempt proceeding as a special
proceeding in which the contemnor has the right to file an affidavit under section 170.6.
However, as we explain in part II of the opinion, even when a contempt proceeding is
taking place, the right to file an affidavit under section 170.6 is subject to the
"continuation of proceedings" rule. (See McClenny v. Superior Court (1964) 60 Cal.2d
677, 684-685 (McClenny).)
17
 It is also important to recognize that the fact NFL was a new party to the

proceeding did not impact application of the limitation imposed by section 170.6,

subdivision (a)(2). (See Stephens, supra, 96 Cal.App.4th at pp. 61-67.)

In sum, because neither the motion to impose liability under section 701.020 nor

the motion to quash are themselves special proceedings, their initiation did not give rise

to any new right to file a peremptory challenge under section 170.6. Because the trial

court had resolved questions of fact in the underlying action against PCF at the time the

postjudgment motions were made, the right to a peremptory challenge under section

170.6 had expired. (§ 170.6, subd. (a)(2).)

III

Even if we treat either or both the section 701.020 motion and the motion to quash

as special proceedings akin to a contempt proceeding,4 rather than as incidental to the

underlying action against PCF, NFL still has no right to file a section 170.6 affidavit.

In Stephens, supra, two trustees and a beneficiary of a trust initially petitioned for

instructions with respect to appointment of a third trustee required under the terms of the

trust and for an amendment to the trust permitting majority rather than unanimous

decisionmaking. One of the beneficiaries filed a separate petition seeking removal of the

trustees and appointment of an independent corporate trustee and, in the alternative,

confirming appointment of a third trustee. The trial court heard the petitions together and

4 See Bridges v. Superior Court, supra, 14 Cal.2d at page 473.
18
denied the motion to amend the trust and directed that, with her consent, one of the

beneficiaries be confirmed as the third trustee.

While the trustees' appeal of the trial court's order was pending, the prospective

trustee filed a separate petition seeking, among other matters, removal of the two

incumbent trustees and appointment of an independent trustee. The trustees objected to

the petition and were joined by two other beneficiaries, one of whom had not previously

appeared in the probate proceeding. The late appearing beneficiary, David, filed a

section 170.6 affidavit, which the trial court disallowed.

We denied David's petition for relief from the trial court's disposition of his

section 170.6 affidavit. In doing so, we recognized that each petition in the probate

matter might itself be considered a separate action or special proceeding, rather than the

incident of an action or proceeding: "[I]n a case of indefinite duration involving multiple

and successive proceedings and causes, a late appearing party may, within 10 days of

appearing, challenge an all purpose, assigned judge under section 170.6 if no trial has

commenced and no contested fact determinations have been made in the proceeding in

which the party appears, and that proceeding is not a continuation of an earlier

proceeding in which the judge determined a contested fact issue or the trial of a cause

commenced." (Stephens, supra, 96 Cal.App.4th at p. 62.)

However, we found that David's challenge was nonetheless barred by the

"continuation of proceedings" doctrine first set forth in Jacobs v. Superior Court (1959)

53 Cal.2d. 187, 190-191 (Jacobs). "'Although [section 170.6] does not expressly so

19
provide, it follows that, since the [peremptory challenge] must be made before the trial

has commenced, it cannot be entertained as to subsequent hearings which are part or a

continuation of the original proceedings.' [¶] The rationale for the rule is that if a

peremptory challenge is allowed in a proceeding that is a continuation of a prior

proceeding in which trial occurred, 'it would mean that the judge who tried the case, and

who is ordinarily in the best position to pass upon the questions involved, could by a

mere general allegation of prejudice, and without any judicial determination of the facts,

be disqualified . . . . Such procedure would make it possible for litigants to gamble on

obtaining a favorable decision from one judge, and then, if confronted with an adverse

judgment, allow them to disqualify him . . . in the hope of securing a different ruling from

another judge in supplementary proceedings involving substantially the same issues.'

[Citation.]" (Stephens, supra, 96 Cal.App.4th at pp. 59-60.) The gravamen of the

doctrine is the principle that "'a proceeding is a continuation of the original action out of

which it arises if it involves "substantially the same issues" as the original action.'

[Citation.]" (Id. at p. 60.)

Because the prospective trustee's petition and the earlier petition were all related to

the issue of whether the two incumbent trustees were guilty of misconduct, we found the

prospective trustee's petition was a continuation of the trial court's previous proceedings.

(Stephens, supra, 96 Cal.App.4th at pp. 63-64.) Because the trial judge had resolved

disputed questions of fact when ruling on the initial petitions, we found that the right to

file a peremptory challenge had lapsed.

20
 Importantly, in Stephens, we did not require that there be a precise identity

between the parties in both proceedings but instead required that there be an identity of

interests in both proceedings. (Stephens, supra, 96 Cal.App.4th at pp. 63-64.)

In Stephens, we relied in part on the holding in McClenny, supra. In McClenny,

the trial court in a divorce proceeding had, by separate orders, granted custody of a minor

child to the wife and imposed a receivership. Following its orders, the trial court issued

orders to show cause regarding contempt to the husband because he had failed to return

the child to the mother following a visitation and sold personal property that was subject

to the receivership. The husband responded to the orders to show cause by filing an

affidavit under section 170.6. In holding that the contempt proceedings were a

continuation of the proceedings in which the underlying orders were issued, the court

stated: "Although the issues to be presented in the contempt proceeding may not be

identical in every particular to the issues previously submitted to [the trial judge], the

questions involving the interpretation of the orders allegedly contemned, and indeed, the

issue of whether defendant in fact violated [the trial judge's] orders, are 'matters

necessarily relevant and material to the issues involved in the [original] action.'

[Citation.]" (McClenny, supra, 60 Cal.2d at p. 684.) In rejecting the husband's

contention that the contempt proceedings were separate and independent of the prior

proceedings, the court noted the practical considerations the husband's argument

presented: "Acceptance of defendant's position would permit litigants to obtain, by

repeated cycles of a contemptuous act and a motion based upon section 170.6, a

21
perpetually fresh forum for testing disadvantageous decisions. We cannot ignore in

defendant's position the potentiality for abuse of section 170.6. We cannot permit a

device intended for spare and protective use to be converted into a weapon of offense and

thereby to become an obstruction to efficient judicial administration." (Id. at p. 689.)

Here, as we have noted, the trial judge, on the Berger plaintiffs' motion and after a

contested hearing, imposed a receivership on PCF. As the Berger plaintiffs point out,

their receivership motion was based in large part on PCF's control over NFL and, in

particular, on NFL's apparent violation of the notice of levy the Berger plaintiffs

attempted to serve on NFL. Like the order imposing the receivership, resolution of

NFL's liability with respect to the notice of levy and the validity of that service will

depend on consideration of the relationship between PCF and NFL, Harkey's control over

both entities and NFL's failure to honor the notice of levy. Thus, as in McClenny, the

issues presented in the current motions are "'matters necessarily relevant and material to

the issues involved in the [original] action.'" (See McClenny, supra, 60 Cal.2d at p. 684.)

Moreover, as Harkey's own statements with respect to his control over both PCF and

NFL indicate, there is an identity of interest among the parties in both proceedings.

Given these circumstances, the current motions are a continuation of the receivership

proceedings where factual determinations were made and any right to file a section 170.6

challenge was lost. (§ 170.6, subd. (a)(2).)

The proceedings here are in marked contrast to those considered in NutraGenetics,

LLC v. Superior Court (2009) 179 Cal.App.4th 243, 254-257 and Pickett v. Superior

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Court (2012) 203 Cal.App.4th 887, 894, upon which NFL relies. In both NutraGenetics

and Pickett, section 170.6 challenges were permitted in the second of two separate

independent actions, even though the parties and issues in both actions were the same or

similar. In distinguishing Jacobs and McClenny, the court in NutraGenetics emphasized

that "the continuation rule applies in cases in which the second action arises out of, or is a

later stage of, the original action." (NutraGenetics, at p. 257.) The court in Pickett

adopted this limitation on the continuation doctrine. (Pickett, at pp. 893-894.) Here, of

course, that limitation does not prevent application of the continuation of proceedings

doctrine: the motion to impose liability grows out of the service of the notice of levy,

which in turn gave rise to the contested receivership proceeding.

DISPOSITION

The petition is denied. The Berger plaintiffs to recover their costs. The July 19,

2013 order staying all proceedings in the trial court is vacated.

BENKE, J.

WE CONCUR:

McCONNELL, P. J.

McINTYRE, J.

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