BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 2226 (Hueso)
As Amended March 22, 2012
Hearing Date: June 19, 2012
Fiscal: No
Urgency: No
BCP
SUBJECT
Agency Proceedings: Evidence Presumption
DESCRIPTION
This bill would provide that, in any proceeding before a state
agency, city, county, or city and county, the presumption
relating to beneficial ownership provided in the Evidence Code
shall apply if title to, or ownership of, property is in
question. This presumption provides that the owner of legal
title to property is presumed to be the owner of the full
beneficial title, unless rebutted by clear and convincing
evidence.
BACKGROUND
California law contains numerous evidentiary standards that
guide courts in their determination of a particular matter.
Those standards include Section 662 of the Evidence Code, which
provides that the owner of "legal title"<1> to property is
presumed to be the owner of the full "beneficial title," and
provides that the presumption may only be rebutted by clear and
convincing evidence. As a result, existing law requires a party
attempting to demonstrate that the owner of legal title is not
the owner of beneficial title to meet a heightened evidentiary
burden in court. Regarding the history of Section 662, the
California Supreme Court noted:
---------------------------
<1> "Legal title" is defined by Black's Law Dictionary, Ninth
Edition, as "�a] title that evidences apparent ownership but
does not necessarily signify full and complete title or a
beneficial interest."
(more)
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Section 662 . . . codifies the common law rule that oral
trusts in derogation of title are disfavored and must be
proved by clear and convincing evidence. "Allegations that
deeds absolute are actually mortgages, that conveyances are
subject to a trust, and that legal title does not represent
beneficial ownership have ? been historically disfavored
because society and the courts have a reluctance to tamper
with duly executed instruments and documents of legal
title." (People v. Semaan (2007) 42 Cal.4th 79, 88
(citations omitted).)
This bill seeks to apply Section 662 of the Evidence Code
(which currently applies to court proceedings) to any
proceeding before a state agency, city, county, or city and
county, if the title to, or ownership of, property is in
question.
CHANGES TO EXISTING LAW
Existing law , the Administrative Procedure Act (APA), governs
the conduct of formal and informal proceedings before state
agencies, as specified. (Gov. Code Sec. 11340 et seq.)
Existing law provides that the governing procedure by which an
agency conducts an adjudicative proceeding is determined by the
statutes and regulations applicable to that proceeding. If no
other governing procedure is provided by statute or regulation,
an agency may conduct an adjudicative proceeding under the
administrative adjudication provisions of the APA. (Gov. Code
Sec. 11415.10.)
Existing law provides that a state or federal statute or
regulation applicable to a particular agency or decision
prevails over a conflicting or inconsistent provision of the
APA, as specified. (Gov. Code Sec. 11415.20.)
Existing law provides that, in court proceedings, the owner of
legal title to property is presumed to be the owner of full
beneficial title and provides that the presumption may be
rebutted only by clear and convincing proof. (Evid. Code Sec.
662.)
This bill would require that, in any proceeding before a state
agency, as specified, if the title to, or ownership of, property
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is in question, Evidence Code Section 662 shall control the
determination of ownership.
This bill would provide that, notwithstanding Government Code
Sections 11415.10 and 11415.20, the above provision shall apply
to all state agencies, even if the state agency is otherwise
exempt or if the governing procedure of the agency is determined
by a different statute or regulation.
This bill would additionally provide that, in any proceeding
before a city, county, or city and county, if the title to, or
ownership of, property is in question, Section 662 of the
Evidence Code Section 662 shall control the determination of
ownership.
This bill would make several statements of legislative intent,
including that the need to provide for certainty of title
extends not only to court proceedings, but also to proceedings
before state and local agencies.
COMMENT
1. Stated need for the bill
According to the author:
The purpose of Evidence Code section 662 is to ensure that
title to property is stable and predictable. This is an
essential element of a functioning real estate economy,
which requires certainty that the holder of title will be
recognized uniformly as the owner of the property.
California cannot expect to maintain a stable real estate
economy if buyers cannot be assured they are acquiring all
of the rights that are incident to ownership.
State and local agencies maintain that the presumption of
ownership in the Evidence Code does not apply to them and
that they can decide for themselves who owns a property. As
a result, you now have situations where a state or local
agency could say that you do not own a property in a
circumstance where a court would say you do. This is
occurring because courts and agencies are not playing by the
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same rules when it comes to determining ownership. Without
a presumption of ownership, title becomes subject to debate
and can be decided based on arbitrary factors. One cannot
have a dependable and functional system of real estate
without certainty of title. It is the foundation for
everything that occurs in real estate.
California's strong presumption of ownership embodied in
Evidence Code section 662 should clearly and unequivocally
apply in every proceeding where property ownership is in
question. A landowner should not be afforded less
protection in proceedings before California's state and
local agencies than is afforded in California's courts.
AB 2226 ensures that the standards for deciding ownership
are applied consistently and uniformly throughout
California.
2. Heightened burden resulting in decreased transparency
This bill would require a state agency, city, county, or city
and county, to apply the heightened "clear and convincing"
standard of evidence to any proceeding where title to, or
ownership of, property is in question. As codified in Evidence
Code Section 662, that heightened standard applies in court
actions where parties have the benefits of the adversarial
system, which includes various procedural tools (such as
depositions) that assist litigants to discover evidence
necessary to meet the required burdens. By increasing the
burden of proof for agencies and local governments, this bill
would require those entities to conclude that the owner of legal
title is the owner of beneficial title unless there is
overwhelming evidence otherwise. As a result, even though the
presumption could require agencies to make findings contrary to
the evidence before them, the author asserts that "�c]ertainty
of title requires that everybody plays by the same rules and
that those rules provide for a strong presumption of ownership."
From a policy standpoint, it is unclear why an agency should be
forced to disregard substantial evidence that an individual is a
beneficial owner, especially when that conclusion would make a
difference with respect to land decisions. With respect to the
importance of accurately determining the beneficial owner of a
property, the California Coastal Commission ("Commission"), in
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opposition, contends:
Determining parcel ownership is critical for land use
planning and permitting, because parcel ownership is a
fundamental determinant for development proposals and
liability. Occasionally, applicants will attempt to
maximize development potential and avoid liability by
creating corporate entities that hold separate title to
individual parcels, even though persons not listed as
holding title may own beneficial interest in those
properties. In these situations and others, assuming that
the holder of title to a property is entitled to full
beneficial title can be a crude and superficial method of
establishing underlying ownership patterns.
With respect to the potential for the presumption to be abused,
the Los Angeles County Board of Supervisors, in opposition,
argues that "�i]n effect, by applying this heightened standard
to State and local governments, AB 2226 tips the current balance
in favor of an owner or developer and substantially increases
their odds of prevailing in title or ownership of property
manners." The Commission, in opposition, expresses similar
concern that this bill "would make it demonstrably more
difficult for the Commission and all other state agencies to
pierce the corporate veil or otherwise determine the actual
business realities behind mere record title to land ownership."
Accordingly, the Committee should consider whether the
presumption, by effectively decreasing transparency of property
ownership, could facilitate the use of corporations by
applicants to maximize development potential. That potential
abuse of the presumption could arguably undermine the process by
which state agencies and local governments make decisions
regarding land use.
COULD THE APPLYING A COURT PRESUMPTION TO ADMINISTRATIVE
PROCEEDINGS UNDERMINE THE ABILITY FOR STATE AGENCIES TO MAKE
ACCURATE, WELL INFORMED LAND USE DECISIONS?
3. Practical considerations
Although regulations may vary by agency (or local government),
the evidentiary standard for the Commission set forth in their
regulations is as follows:
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The hearing need not be conducted according to technical
rules relating to evidence and witnesses. Any relevant
evidence shall be considered if it is the sort of evidence
on which responsible persons are accustomed to rely in the
conduct of serious affairs, regardless of the existence of
any common law or statutory rule which might make improper
the admission of such evidence over objection in civil
actions. (14 C.C.R. 13065.)
Any aggrieved person has the right to judicial review of any
decision or action by the Commission by filing a petition for a
writ of mandate. In reviewing those claims, the court generally
applies a "substantial evidence" standard to determine if the
findings are supported by the record. This bill would modify the
above process by, instead, requiring the Commission (and other
state agencies and local governments) to presume that the owner
of legal title is the owner of beneficial title unless there is
"clear and convincing proof" to the contrary.
The Commission, in opposition, asserts that "�i]ncreasing the
burden of proof that state agencies must meet without the
commensurate tools to meet the new, higher standard would have a
chilling effect on the state's ability to effectively carry out
statutory land use planning activities and other regulatory
proceedings, and/or greatly increase the workload on staff
attempting to meet the higher standard." In response, the
author argues that "a state or local agency is not required to
begin processing a permit application until the application is
complete, which an agency can condition on providing entity
ownership information . . . �A] state and local agency may
require production of information, which it can enforce by
refusing to deem an application complete for proceeding if the
information is not provided." Despite that contention, merely
asking for ownership information as part of the application is
fundamentally different than using a deposition or subpoena to
mandate production of evidence.
For example, the Commission notes that applicants currently do
refuse to provide information, but in those circumstances the
applicant can go directly to the Commission for a determination
as to what information is required to complete the file. Thus,
pursuant to this bill, an applicant that refuses to provide
information about the beneficial owner of an LLC could
potentially go to the Commission and argue that the Commission
is required to presume the owner of legal title is the holder of
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beneficial title. As a result, the Committee should consider
whether the ability for individuals to refuse to disclose
information might create a situation where the proposed
presumption is used to obfuscate true ownership of beneficial
title.
COULD APPLICANTS USE THIS PRESUMPTION TO MASK THE ACTUAL OWNER
OF BENEFICIAL TITLE?
It should also be noted that while courts are well equipped to
determine whether a party has met a "clear and convincing
standard," it is unclear how staff of an agency or local
government would determine whether certain facts do, in fact,
meet that burden.
4. Related pending litigation
As noted above, existing law allows an aggrieved party to
challenge an agency decision by filing a petition for writ of
mandate. The Los Angeles Times' August 14, 2011, article
reported:
U2 guitarist the Edge, whose real name is David Evans, and
three other Malibu property owners filed separate lawsuits
Friday seeking to set aside the California Coastal
Commission's denial of their applications to build ridge-top
homes above Malibu.
The plaintiffs, who own four adjacent parcels of land zoned
for residential development in the unincorporated Sweetwater
Mesa area, allege that the coastal panel's June 16 denial
represented an unconstitutional taking of property without
just compensation. (Another owner withdrew an application
for a fifth home at the site just before the panel's vote
and did not file suit.) . . . Among other contentions, the
owners say the commission's staff incorrectly claimed that
the properties were under common ownership and therefore had
to be considered as a single project. The suits assert that
the properties are under separate ownership. Coastal
commissioners stated at the June 16 hearing that the Edge
had initially talked to them about his dreams for a
sustainable, unified development. (Groves, U2 rocker the
Edge sues coastal panel over Malibu project (August 12,
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2011).)
Although not citing Evidence Code Section 662 directly, the
petition for a writ of mandate by Mulryan Properties, LLLP
asserts that:
Under the United States and California Constitutions, the
Commission may not deny Mulryan economically viable use of
the Mulryan Property, without paying Mulryan just
compensation for the taking. The Commission's unprecedented
'unity of ownership' theory is an attempt to evade these
constitutional mandates. Under California law, the owner of
legal title of property holds full beneficial title to that
property, which may be rebutted only by clear and convincing
proof. The Commission's decision is based on sheer
speculation, argument and unsubstantiated opinion which is
not substantial evidence, let alone clear and convincing
evidence. There is no legal merit to the Commission's
theory and no-evidence in the record to support the
Commission's decision. (emphasis added.)
Although this bill would appear to not directly interfere the
court's ability to decide the petition on its merits because it
is arguably prospective, the practical effect of increasing the
burden of proof would be to require the Coastal Commission to
apply that heightened standard to any future applications. It
should be noted that the issue of sufficient evidence will
arguably be addressed by the court as part of the petition, and
that this bill should not interfere with that decision making
process.
It should also be noted that, although this bill applies
generally and does not reference the above dispute, the
Committee has received several letters of opposition expressing
concerns that this bill would allow the above projects to
proceed.
5. Author's amendments to be taken in Senate Committee on
Natural Resources and Water
If approved by this Committee, AB 2226 will be referred to the
Senate Committee on Natural Resources and Water. The author
intends to the take the following amendments to clarify that
nothing in this bill expands or limits a state or local
agency's ability to obtain information regarding ownership of
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an entity that owns property, or, expands or limits a state
agency's ability to determine the boundaries of state land.
Staff notes that it is unclear how this bill (even absent the
proposed amendments) could be construed to limit or expand an
agency's ability to obtain information or determine the
boundaries of state land.
Author's amendments:
1) On page 2, line 14, after 11440.70 insert: (a)
2) On page 2, between lines 22 and 23, insert:
(b) Notwithstanding subdivision (a), this section shall not
be construed to expand or limit a state agency's ability to
do the following:
(1) Obtain information regarding the ownership of an entity
that owns property in connection with carrying out its
functions.
(2) Determine the boundaries of state land.
3) On page 2, in line 25, after "50035" insert: (a)
4) On page 2, below line 28, insert:
(b) Notwithstanding subdivision (a), this section shall not
be construed to expand or limit a local agency's ability to
obtain information regarding the ownership of an entity that
owns property in connection with carrying out its functions.
Support : American Council of Engineering Companies; California
Apartment Association; Building Owners and Managers Association
of California; California Building Industry Association;
California Chamber of Commerce; California Farm Bureau
Federation; California Land Title Association; California
Manufacturers & Technology Association; International Council of
Shopping Centers; NAIOP of California, the Commercial Real
Estate Development Association
Opposition : California Coastal Commission; California Coastal
Protection Network; California State Lands Commission; County of
Los Angeles; Environment California; Las Virgenes Homeowners
Federation, Inc.; League for Coastside Protection; National
Resources Defense Council; Planning and Conservation League; San
Francisco Bay Conservation and Development Commission; Save Open
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Space; Sierra Club California; Surfrider Foundation; one
individual
HISTORY
Source : California Business Properties Association
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote :
Assembly Business, Professions and Consumer Protection Committee
(Ayes 6, Noes 1)
Assembly Floor (Ayes 53, Noes 11)
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