Sinclair et al v. Fox Hollow, et al

Filing 626

MEMORANDUM DECISION Regarding 478 Motion For Summary Judgment, signed by Judge Oliver W. Wanger on 6/13/2011. (Plaintiffs motion for summary judgment is GRANTED; Plaintiffs shall file a form of order consistent with this memorandum decision within five (5) days of electronic serviceof this decision.)(Gaumnitz, R)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 EASTERN DISTRICT OF CALIFORNIA 6 7 8 RICHARD SINCLAIR, et al. Plaintiffs, 9 10 11 12 FOX HOLLOW OF TURLOCK OWNERS ASSOCIATION, et al. Defendants. 14 I. INTRODUCTION. 15 17 18 19 20 21 22 23 24 25 26 27 MEMORANDUM DECISION REGARDING MOTION FOR SUMMARY JUDGMENT (Doc. 478) v. 13 16 1:03-cv-05439-OWW-DLB This case is a consolidation of three actions: An action commenced Association Sinclair, by Plaintiff ("Fox Gregory Fox Hollow") Mauchley, Hollow against of Turlock Richard Lairtrust, Homeowners' Sinclair, LLC, Brandon Capstone, LLC, Mauctrst, LLC, and Stanley Flake as Trustee of Capstone Trust, Case No. CV-F-03-5439 OWW/DLB ("Fox Hollow Action"); an action commenced by California Equity Management Group, Inc. ("CEMG") against Mauctrst LLC, Gregory Mauchley, Diana Mauchley, Lairtrust LLC, Richard Sinclair, Deborah Sinclair, Sinclair Enterprises, Inc., Capstone, LLC, Brandon Sinclair, Stanley Flake, and Stanley Flake as Trustee of the F. Hanse Trust and of the Julie Insurance Trust Case No. CVF- 03-5774 OWW/DLB ("CEMG Action"); and an action commenced by Lairtrust LLC, Mauctrst LLC, and Capstone LLC against 28 1 1 Fox Hollow, Andrew Katakis, and California Equity Management Group, 2 Inc. in the Stanislaus County Superior Court, Case No. 322675 3 ("Lairtrust Action"), removed to this Court and consolidated with 4 the Fox Hollow and CEMG Actions by Order filed on October 6, 2003 5 ("Consolidated Federal Actions"). 6 On August 10, 2010, Defendants Gregory Mauchley, Richard 7 Sinclair, and Brandon Sinclair ("Inidividual Defendants") filed a 8 cross-complaint against Plaintiffs. 9 Hollow and CEMG ("Plaintiffs") filed a motion to dismiss, or in the 10 alternative, sever and stay Individual Defendants cross-complaint 11 on September 3, 2010. 12 court issued a memorandum decision granting in part Plaintiffs’ 13 motion to stay and terminating Plaintiff’s motion for a more 14 definite statement without prejudice. 15 denied Plaintiffs’ motion to stay claims arising out of “(i) 16 Plaintiffs’ alleged breach of the 2007 settlement agreement, and 17 (ii) Plaintiffs’ alleged conduct during and after trial of the 18 state court action;” the court authorized Plaintiffs to file a 19 separate 20 Defendants’ claims arising out of the purported 2007 agreement have 21 been stayed. motion to (Doc. 425). (Docs. 431, 432). stay regarding Plaintiffs Fox On January 21, 2011, the (Doc. 473 at 6). these claims. The court Individual (Doc. 563). 22 Plaintiffs filed a motion for summary judgment on February 4, 23 2011; Plaintiffs motion seeks judgment on Individual Defendants’ 24 claims arising out of ownership interests in Lot 1 during and after 25 trial of the state court action. (Doc. 478). Individual Defendants 26 filed opposition on March 14, 2011. 27 a reply on March 21, 2011. (Doc. 505). The court heard Plaintiffs’ 28 motion on May 2, 2011. 2 (Doc. 493). Plaintiffs filed II. FACTUAL BACKGROUND. 1 2 This action out thirty-five of unit an alleged town home fraudulent complex in scheme 3 concerning 4 California, known as Fox Hollow of Turlock (“the Property”). 5 Plaintiff Fox Hollow is the home owners’ association (“HOA”) for the 6 Property. 7 within the Property, the successor in interest to lenders who 8 extended loans secured by lots within the Property, and the assignee 9 of the rights of certain tenants who entered into leases for units 10 contained in the Property. Mauctrst, Lairtrust, and Capstone are 11 limited liability companies (“LLC Defendants”)that were allegedly 12 used to convert HOA funds, effect property transfers, obtain loans, 13 prosecute dilatory lawsuits, and to carry out other parts of the 14 alleged schemes that form the basis for Plaintiffs’ claims. 15 Individual 16 Brandon Sinclair are individuals who where principals, directors, 17 or employees of the LLC Defendants during times relevant to the 18 parties’ respective claims. 19 a arises Turlock, Plaintiff CEMG is the record owner of lots contained Defendants Gregory Mauchley, Richard Sinclair, and Individual Defendants’ cross-complaint asserts twenty-seven 20 causes of action against Plaintiffs arising out of various 21 transactions and conduct related to the Property. 22 Defendants unsuccessfully asserted most of their cross-claims in an 23 action filed on April 24, 2003 in the Stanislaus County Superior 24 Court. 25 state 26 appealed. 27 court judgment is currently pending in the California Court of 28 Appeal. Individual Judgment was entered against Individual Defendants in the court action on August 18, 2009; Individual Defendants Resolution of Individual Defendants’ appeal of the state 3 1 On January 21, 2011, the court issued a memorandum decision 2 granting Plaintiffs’ motion to stay as to all claims asserted in the 3 counter-complaint except for claims arising out of “(i) Plaintiffs’ 4 alleged 5 Plaintiffs’ alleged conduct during and after trial of the state 6 court action.” 7 memorandum decision granting Plaintiffs’ motion to stay claims 8 arising out of the purported 2007 settlement agreement. (Doc. 563). 9 Defendants’ only remaining unstayed cross-claims are those arising 10 out of “conduct during and after trial of the state court action;” 11 these claims are the target of Plaintiffs’ instant motion for 12 summary judgment. 13 The breach of the 2007 (Doc. 473). cross-complaint’s settlement agreement, and (ii) On April 29, 2011, the court issued a allegations concerning the unstayed 14 claims are unclear. The only allegations asserted in the cross- 15 complaint that appear to qualify as allegations concerning “conduct 16 during and after trial of the state court action” are contained at 17 pages 12 through 13 of the cross-complaint in paragraphs 33 through 18 36.1 19 Sinclair as a member manager of Lairtrust LLC acquired legal title 20 to Lot 1 [of the Property].” 21 cross-complaint, Individual Defendants allege that Andrew Katakis, 22 acting on behalf of the Fox Hollow HOA: (1) violated certain 23 provisions of the Conditions, Covenants, and Restrictions (“CC&R’s”) Paragraph 34 of the cross-complaint alleges that “Richard In paragraphs 35 through 36 of the 24 1 25 26 27 28 Individual Defendants’ represent that “in addition to the incidents described in [paragraphs 33-36], cross-defendants committed several other wrongful acts during and after the trial as well.” (Doc. at ). Despite Individual Defendants’ representation that they would seek to file an amended cross-complaint to clarify their allegations concerning Plaintiffs conduct during and after the state court trial, they have not done so. (Doc. 443 at 6)(stating “Cross-complaints...will file a motion requesting [leave] to amend their [cross-complaint] to include these allegations.”). 4 1 by failing to make repairs on Lot 1 within the Property and by 2 failing to place Sinclair and/or Lairtrust on the Board of Directors 3 of 4 maintained by the Fox Hollow HOA; (3) “assessed extra assessments 5 on Lot 1 and then proceeded to wrongfully foreclose;” and (4) 6 refused to remove “a judgment lien from Richard C. Sinclair that 7 Richard Sinclair had paid off years earlier despite written requests 8 for Defendant to do so.” the HOA; inadequately accounted for reserve accounts (Doc. 425 at 12-13). III. LEGAL STANDARD. 9 10 (2) Summary judgment/adjudication is appropriate when "the 11 pleadings, the discovery and disclosure materials on file, and any 12 affidavits show that there is no genuine issue as to any material 13 fact and that the movant is entitled to judgment as a matter of 14 law." Fed. R. Civ. P. 56(c). The movant "always bears the initial 15 responsibility of informing the district court of the basis for its 16 motion, 17 depositions, answers to interrogatories, and admissions on file, 18 together with the affidavits, if any, which it believes demonstrate 19 the absence of a genuine issue of material fact." Celotex Corp. v. 20 Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986) 21 (internal quotation marks omitted). and identifying those portions of the pleadings, 22 Where the movant will have the burden of proof on an issue at 23 trial, it must "affirmatively demonstrate that no reasonable trier 24 of fact could find other than for the moving party." 25 Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). 26 respect to an issue as to which the non-moving party will have the 27 burden of proof, the movant "can prevail merely by pointing out that 28 there is an absence of evidence to support the nonmoving party's 5 Soremekun v. With 1 case." Soremekun, 509 F.3d at 984. 2 When a motion for summary judgment is properly made and 3 supported, the non-movant cannot defeat the motion by resting upon 4 the 5 "non-moving party must set forth, by affidavit or as otherwise 6 provided in Rule 56, 'specific facts showing that there is a genuine 7 issue for trial.'" Soremekun, 509 F.3d at 984. (quoting Anderson v. 8 Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 91 L. Ed. 9 2d 202 (1986)). "A non-movant's bald assertions or a mere scintilla 10 of evidence in his favor are both insufficient to withstand summary 11 judgment." FTC v. Stefanchik, 559 F.3d 924, 929 (9th Cir. 2009). 12 "[A] non-movant must show a genuine issue of material fact by 13 presenting affirmative evidence from which a jury could find in his 14 favor." Id. (emphasis in original). "[S]ummary judgment will not lie 15 if [a] dispute about a material fact is 'genuine,' that is, if the 16 evidence is such that a reasonable jury could return a verdict for 17 the nonmoving party." 18 whether a genuine dispute exists, a district court does not make 19 credibility determinations; rather, the "evidence of the non-movant 20 is to be believed, and all justifiable inferences are to be drawn 21 in his favor." Id. at 255. allegations denials of its own pleading, rather the Anderson, 477 U.S. at 248. In determining IV. DISCUSSION. 22 23 or Plaintiffs’ motion for summary judgment asserts that Individual 24 Defendants lack standing to prosecute 25 ownership interest in Lot 1 during or after the state court trial 26 because none of the Individual Defendants owned Lot 1 during the 27 operative time periods. Individual Defendants do not dispute that 28 none of them owned Lot 1 during or after the state court trial. 6 claims arising out of Nor 1 do the Individual Defendants provide any legal authority for the 2 proposition that individual members of a limited liability company 3 (“LLC”) have standing to pursue claims arising out of ownership 4 interests held solely by the LLC. 5 In California, an LLC is a hybrid business entity formed under 6 the Corporations Code consisting of at least two members who own 7 membership interests. 8 has a legal existence separate from its members. 9 Communications Internat. v. Superior Court, 90 Cal. App. 4th 958, 10 963 (Cal. Ct. App. 2001). While members actively participate in the 11 management and control of the company, they have limited liability 12 for the company's debts and obligations to the same extent enjoyed 13 by corporate shareholders. 14 1211, 1214 n.1 (Cal. Ct. App. 2004). “Like corporate shareholders, 15 members of a limited liability company hold no direct ownership 16 interest in the company's assets.” 17 See Cal. Corp. Code § 1700 et seq. An LLC E.g., Paclink Denevi v. LGCC, LLC, 121 Cal. App. 4th Id. Members of an LLC do not have an ownership interest in property 18 to which the LLC holds title. E.g., Kwok v. Transnation Title Ins. 19 Co., 170 Cal. App. 4th 1562, 1570-71 (Cal. Ct. App. 2009). 20 the gravamen of a complaint is injury to an LLC’s property, the 21 right of action lies with the LLC, not individual members of the 22 LLC. 23 411, 426 (Cal. Ct. App. 2003) (discussing application of Paclink in 24 partnership context). 25 to prosecute claims for injury to the LLC’s property. 26 Paclink, 90 Cal. App. 4th at 962, 965-66. Where See Everest Investors 8 v. McNeil Partners, 114 Cal. App. 4th Members of an LLC lack individual standing E.g., 27 It is undisputed that none of the Individual Defendants were 28 owners of Lot 1 during the time period relevant to the remaining 7 1 unstayed claims asserted in the cross-complaint. As Individual 2 Defendants lack standing to sue for claims arising out of any LLC’s 3 ownership interest in Lot 1 during and after trial of the state 4 court action, Plaintiffs are entitled to summary judgment on such 5 claims. Plaintiffs’ motion is GRANTED. ORDER 6 7 For the reasons stated, IT IS ORDERED: 8 1) Plaintiffs motion for summary judgment is GRANTED; and 9 2) Plaintiffs shall file a form of order consistent with this 10 memorandum decision within five (5) days of electronic service 11 of this decision. 12 IT IS SO ORDERED. 13 Dated: hkh80h June 13, 2011 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8

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