Calling it a “troubling case,” Alameda County Superior Court Judge Brad Seligman ruled Tuesday that a receiver overseeing code violation repairs at 83-year-old Leonard Powell’s South Berkeley house was within his authority.
Seligman, who last week heard arguments from Powell’s attorneys claiming the receiver, Gerard Keena, had mismanaged his job at the Harmon Street house, ordering far more work than needed, said the receiver’s work was approved by the courts as required and, therefore, allowed.
At trial, Powell’s lawyers, a pro bono team from the San Francisco law firm of Gibson Dunn, said the receiver’s complete renovation of Powell’s house included $664,000 of unauthorized scope creep beyond code issues. They asked the court to credit Powell this amount.
The cost of receivership to Powell so far is around $800,000, according to his lawyers. About $500,000 is for construction, with the rest mainly for receiver fees, including legal representation, escrow fees, relocation during work on the house, storage and site cleanup.
But while Seligman allowed all of the construction costs to stand, he also ruled that Keena isn’t entitled to some of the fees he’s charging — about $163,000.
These charges aren’t backed up by prior court approvals, Seligman said, and therefore don’t hold.
“The court accordingly finds that the expenses of the construction and receiver’s fees were authorized by the court except for $163,053 in receiver fees and legal fees, which are disallowed,” Seligman wrote in his ruling.
Most of this, or $133,800, are personal fees Keena said he would waive in 2019 if Powell agreed to get financing to finish the project, which Powell did. But Keena testified that a second condition for waiving his fees was Powell agreeing to end the receivership. Seligman said court documents didn’t show this second condition was explained to Powell, so the fee waiver stands.
“It was only later, as the case became more contentious, that the receiver withdrew this offer and reversed his accounting to add back in his fees,” Seligman said. “There is no court order approving this reversal of the fee waiver … Powell reasonably relied on the fee waiver, as did the court.”
The additional $17,435 also applies to a receivership fee waiver, which Seligman said Keena made but then reversed in his accounting sheet without court authorization.
Keena has billed but not collected for most, if not all, of these fees, according to court records.
When asked about the judge’s decision, Keena told Berkeleyside: “The ruling confirms that, at no point, did the receiver exceed the authority granted him by the court with respect to the property under his care.”
Powell’s attorneys told Berkeleyside today that they are looking at their options.
Judge didn’t revisit prior court order
Seligman has always said he won’t retry previous court orders in considering receiver mismanagement. This was the same stance as the previous and longest judge on the case, Jeffrey Brand, who retired in December.
Seligman said his purpose in this trial was to see if the receiver ordered any work that the court hadn’t already approved, and he found none.
“As the court explained at the start and end of this hearing, it does not write on a blank slate, but is bound by the prior orders of several judges who have resided over this case over the last seven years,” Seligman wrote in his ruling.
“Prior rulings from this court made clear that prior orders were not open for reconsideration, particularly the orders of the initial judge appointing the receiver and approving his reports and actions, nor, with hindsight, would this court consider whether actions and fees that were submitted to the court and approved were unreasonable,” he said.
In reviewing work done on Powell’s house under receivership, compared with the receiver’s reports and court orders, Seligman found only the two fee waiver reversals unsupported by judge approvals.
In his ruling, Seligman acknowledged the hardship of receivership on Powell, including the receiver’s decision to restore the house to its original state as a duplex, which resulted in the bulk of construction costs.
Powell, who raised six kids in the house, converted it to one unit years ago to accommodate his growing family — work done without permits. He said he didn’t want it reverted into a duplex.
Seligman pointed out that the receiver had explained to the court that reverting the house to a duplex was one way for Powell to qualify for loans to cover construction costs and use rent from the second unit to help pay his mortgage.
Today, Powell lives in one unit and rents the other.
Powell was kept informed during the process as required, Seligman said, and attended some court hearings. He had “notice and an opportunity to be heard,” Seligman wrote.
Before receivership, Powell, who collects social security and a post office pension, had no mortgage on the house. He now shoulders a $600,000 Veterans Affairs loan tapped for the receivership work.
“The property owner, Respondent Mr. Powell, testified that the house as now rehabilitated is not what he wanted, and he is understandably upset at the large lien on his property,” Seligman wrote. “On the other hand, there is no question that the work on the property increased its value, to an amount substantially higher than the loans that now encumber the property.”
Citing receivership court reports, Seligman said the value of Powell’s house today is between $1.2 million and $1.4 million, compared to a $500,000-$700,000 “as-is” value before the receivership’s work.
Another hearing on additional fees lies ahead
Tuesday’s ruling did not address receivership fees charged after 2019, when Powell challenged the receiver’s management. This was a turning point in the case, with the court issuing a partial release of the receiver, paving the way for Powell to move back into his house in 2020.
The charge of mismanagement was scheduled for a future hearing, which took place last week after years of delays, due primarily to the busy court schedule.
Until he is fully released from the receivership, Keena continues to charge for his work, which is primarily now legal fees. These outstanding fees are estimated at close to $300,000 and counting, according to Powell’s lawyers.
The court says it will address the post-2019 phase of the case at another hearing.
Ten years ago, in 2014, Powell, a U.S. Army veteran and U.S. Post Office retiree, received a notice from the city of 33 health and safety code violations at his two-story Harmon Street house, built in 1910. The violations ranged from broken window glass and rotted stair rails to exposed electrical wires and peeling paint.
It was never clear what prompted the city’s inspection. At the time, Berkeleyside heard it was either neighbor complaints or a police visit to the house on an unrelated matter.
Powell’s never argued that the house hadn’t fallen into disrepair. He said he was confused by the code repair process and had taken steps to get the work done.
In 2017, with the house still not meeting code and much back-and-forth between Powell and the city, Berkeley asked for a court-appointed receiver to take over the property to remedy the problems.
Often used by municipalities as a tool of last resort for code-plagued properties, receivers are essentially court officers and fiduciaries charged with managing the process of clearing code violations when owners, for various reasons, can’t or don’t.
In last week’s trial, Powell’s attorneys argued that the receiver’s mandate was simply to remedy code violations, nothing more, which, they said, could have been done for less than $100,000.
Keena, from the Berkeley-based Bay Area Receivership Group, said he performed his responsibilities as allowed, including reporting monthly to the case judge for court approvals. His goal, he said, was to prevent Powell from losing his house. Receivers often sell properties as the least expensive way to solve code problems.
Powell’s attorney, Nathaniel Marston, said in court that serving as a health and safety receiver differs from hiring a contractor to work on your house but involves fiduciary responsibilities for securing and managing funding, insurance and related roles.
Seligman, citing state statute and case law, said court actions backed the receiver in this case. The court has “wide discretion” in approving a receiver’s actions, he said. This included heavy-lift construction on Powell’s house beyond fixing violations, such as replacing the foundation, redoing the wiring and plumbing, and remediating lead and asbestos. After workers got into Powell’s house, they discovered problems beyond the initial code violations.
“As stated earlier, the standard for review of the actions of the receiver in these proceedings is whether they were not authorized by the court,” Seligman wrote.
Powell’s case is over when the receiver is fully released. But all parties need to agree to the release, and Powell hasn’t.
Seligman is the third judge on the case, mainly due to retirement.
Powell, who worked part-time in retirement as a Berkeley school crossing guard, bought his house as a fixer-upper in 1975 with his wife, Mable, who passed away around 20 years ago.
In addition to the VA loan, Powell received donations and help from family to cover his costs, including the GoFundMe money. He also received a $100,000 loan from the city’s Senior and Disabled Home Renovation Program, which doesn’t need to be repaid until he dies or the house is sold, whichever is first.
But in 2022, facing a possible lawsuit on receivership mismanagement, the city settled with Powell, agreeing to give him $95,000, essentially loan forgiveness. As part of the agreement, the city said it will improve its communication with property owners facing receivership. This includes making referrals to free or low-cost legal advice.
Powell, in turn, agreed in the settlement that Berkeley didn’t mismanage his code enforcement case or engage in any misconduct and said he’d drop all charges against the city. Previously, he blamed the city for treating him unfairly.
When word of Powell’s predicament spread in 2015, it drew a strong response in Berkeley and across the country. Many people expressed sympathy for the senior citizen’s plight — an overwhelmed homeowner living in a historically Black neighborhood that has seen a sharp decline in the African American population in recent decades. Friends of Adeline rallied behind their neighbor, and a GoFundMe campaign raised almost $89,000 to help Powell cover costs.
