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The Court of Appeal in Manhattan Loft, LLC v. Mercury Liquors, Inc. et al (2009) 2009 DJDAR 6550 recently held that parties to an arbitration proceeding are not authorized to record a lis pendens without first initiating an action in court.
 
California Code of Civil Procedure section 405.20 provides that “a party to an action who asserts a real property claim may record a notice of pendency of action in which that real property claim is asserted.”  Such a lis pendens gives notice of controversy affecting title and may thus impede any transfer of the property until a case is resolved.  CCP section 22 defines an “action” as “an ordinary proceeding in a court of justice”.  That definition, the Manhattan Loft court concluded, does not include an arbitration proceeding.  Because CCP section 1298.5 provides that a party to an action who records a lis pendens does not thereby waive a right to arbitrate or compel arbitration, the proper way to do it, the court explained, is to file a court action supporting the lis pendens, and simultaneously file an application to stay the litigation pending arbitration.
 
The issue arose in a slander of title action brought by an owner of a loft building in downtown Los Angeles.  The action was brought against the owner of an existing lease to part of the building and the two prominent law firms that had represented the lease owner in two arbitration proceedings between the lease owner and the building owner.  The first arbitration had resulted in an award against the building owner of over $10 million in damages and an award of almost $1 million in attorneys’ fees.  In confirming the award, the trial court had corrected it to reduce the total judgment to about $2.2 million, which prompted the lease owner to initiate the second and still pending arbitration proceeding.  Separate notices of pendency of action were recorded referencing each of the arbitration proceedings.  In the slander of title action, the building owner claimed that both notices were unauthorized and that their recording had caused delay in the sale of the condominiums coinciding with a substantial decline in the market for and value of the condominium lofts, for which he claimed damages of $10 million.
 
The building owner’s slander of title complaint was met with an anti-SLAPP motion, a statutory  scheme for striking a complaint based upon activity which is an exercise of first amendment rights. The trial court granted the motion to strike.  The Court of Appeal reversed:  it held that while the recording of a lis pendens was a protected first amendment activity, the lease owner could not establish that it was likely to prevail on the claim because, the trial court should have found, the recording of the notices of pending action was not authorized.  The Court of Appeal also rejected the claim that the actions of the lease owner and its attorneys were protected by the litigation privilege codified in California Civil Code section 47.  The recording of a lis pendens is protected only where it identifies an action previously filed with a court of competent jurisdiction. CC section 47(b)(4).  Here, the recordings did not reference such an action and were not “statements made in the course of a private contractual arbitration” which also would have been privileged.
 
The Court’s holding, though it could be appealed or depublished, appears correct.  As the Court points out, it does not deprive an owner who is bound to arbitrate a dispute of the right to provide notice of the dispute through a lis pendens.  Moreover, one purpose of the recording of a lis pendens is to protect property owners by allowing them to move to expunge the recording.  That can be done only by application “to the court in which the action is pending” (CCP section 405.30), not by an arbitrator. 
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