Natomas Gardens Investment Group LLC et al v. Sinadinos et al

Filing 348

ORDER signed by Judge Lawrence K. Karlton on 9/16/11 ORDERING that Defendant Deane's 270 Motion to Dismiss as well as his alternate motions for an order requiring Natomas's counsel to dismiss this action or to disqualify Natomas's counsel are DENIED. (Kastilahn, A)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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NATOMAS GARDENS INVESTMENT
GROUP LLC, a California
limited liability company,
ORCHARD PARK DEVELOPMENT
LLC, a California limited
liability company,

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NO. CIV. S-08-2308 LKK/EFB
Plaintiffs,

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v.
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O R D E R
JOHN G. SINADINOS, et al.,

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Defendants.
/

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Defendant Deane moves to compel a “voluntary” dismissal of

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this lawsuit pursuant to Fed. R. Civ. P. 41(a)(2), or in the

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alternative, for an order requiring Natomas’s counsel to dismiss

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the action, and/or disqualifying Natomas’s counsel.

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reasons set forth below, the motions are DENIED.

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For the

BACKGROUND1

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At the time this lawsuit was filed, Larry Deane and Eric

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Solorio were the controlling members of Natomas Gardens Investment

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Group, LLC (“Natomas”), a California Limited Liability Company

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formed to develop real estate.2

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22, 2010) (Damrell, J.).

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pursuant to the company’s Operating Agreement.3

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2 (Order April 19, 2010) (Damrell, J.)

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Dkt. No. 247 at 2-3 (Order April

Eric Solorio was Natomas’s “Manager”

Solorio and Deane had a falling-out.

Dkt. No. 246 at

On September 29, 2008,

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Natomas – managed by Solorio – filed this federal civil RICO

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lawsuit against Deane and others.

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2008, Deane filed a lawsuit in California Superior Court seeking

Dkt. No. 1.

On October 30,

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The court takes judicial notice of the following judicially
filed documents, attached to Deane’s September 10, 2010 Request for
Judicial Notice (Dkt. No. 271): (i) First Amended Complaint,
Deane’s October 30, 2008 First Amended Complaint in Sacramento
Superior Court, seeking dissolution of Natomas, and the December
27, 2003 Natomas Operating Agreement (attached to the Complaint as
Exhibit 1); (ii) the Superior Court’s December 19, 2008 Minute
Order granting Deane’s request for the appointment of a Receiver;
(iii) the March 12, 2009 Superior Court Order granting Deane’s
request for the appointment of a Receiver; and (iv) Solorio’s June
23, 2010 Chapter 7 Bankruptcy Petition.
The court also takes
judicial notice of the following public documents, attached to the
December 21, 2010 Solorio Declaration (Dkt. No. 309): (i) the
November 24, 2010 “Discharge of Debtor” for Solorio (Bankr. E.D.
Cal.); and (ii) the August 18, 2003 Natomas Articles of
Organization, filed with the California Secretary of State. See
Fed. R. Evid. 201 and 201; U.S. v. Camp, 723 F.2d 741, 744 (9th
Cir. 1984) (taking judicial notice of a public record, “verifiable
with certainty”).
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A California Limited Liability Company (“LLC”) has “members”
rather than shareholders or partners. See Cal. Corp. Code § 17001.

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The Operating Agreement prescribes how the LLC conducts its
business See Cal. Corp. Code § 17001(ab).
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the dissolution of Natomas pursuant to Cal. Corp. Code 17351(a)2)

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and (4).

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personal bankruptcy.

Dkt. No. 271 Exh. B.

On June 23, 2010, Solorio filed for

Dkt. No. 271 Exh. E.

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The sole basis for Deane’s Rule 41(a)(2) motion is his claim

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that he is now the Manager of Natomas, and therefore possessed of

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the authority to dismiss this case voluntarily. The sole basis for

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this claim of authority is that the Operating Agreement divested

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Solorio

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bankruptcy, and simultaneously installed Deane as the Manager.

of

basis

for

position

Solorio’s

when

turn,

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Solorio

opposition

filed

is

his

for
In

interpretation of the Operating Agreement.

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sole

management

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the

his

own

The court therefore turns its attention to the Operating
Agreement itself.4
Standard for Interpreting the Operating Agreement

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The Operating Agreement is a contract governed by California

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law.

See Dkt. No. 271 Exh. B(1) at ¶ 11.4.

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guided by California law governing the interpretation of contracts.

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“A contract must be so interpreted as to give effect to the mutual

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intention of the parties as it existed at the time of contracting,

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so far as the same is ascertainable and lawful.” Cal. Civ. Code

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§

1636.

“The

language

of

a

The court is therefore

contract

is

to

govern

its

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Neither party argues that any extrinsic evidence is needed
to interpret the Operating Agreement properly. See Pacific Gas &
Elec. Co. v. G. W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 38
(1968) (addressing contract interpretation when extrinsic evidence
is offered to explain the meaning of contract terms); Trident
Center v. Connecticut General Life Ins. Co., 847 F.2d 564, 569 (9th
Cir. 1988) (same).
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interpretation, if the language is clear and explicit, and does not

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involve an absurdity.”

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contract is to be taken together, so as to give effect to every

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part, if reasonably practicable, each clause helping to interpret

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the other.”

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view the language in light of the instrument as a whole and not use

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a ‘disjointed, single-paragraph, strict construction approach,’”

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and it should avoid an interpretation “which renders part of the

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instrument to be surplusage.” Ticor Title Ins. Co. v. Rancho Santa

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Fe Assn., 177 Cal. App.3d 726, 730 (4th Dist. 1986) (citations

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omitted).

Cal. Civ. Code § 1641.

“The whole of a

In general, the court “must

THE OPERATING AGREEMENT

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Cal. Civ. Code § 1638.

A.

Article 5 - Management

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The Operating Agreement expressly, and by name, makes “Eric

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K. Solorio” the “Manager” of Natomas, and vests complete and

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exclusive management authority in him.5 Article 5 of the Agreement

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provides:

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(i) “The Company shall be managed by a Manager who need not
be a Member;”
(ii) “The initial Company Manager shall be Eric K. Solorio.
...;” and
(iii) “... the Manager shall have full, exclusive, and
complete discretion, power, and authority, to the exclusion of

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The Operating Agreement even defines the term “manager” to
mean “Eric K. Solorio or any other Person or Persons who may
succeed him as Manager, as provided in this Agreement.”
Dkt.
No. 271 at 15 (Operating Agreement).
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the Members ... to manage, control, administer, and operate the

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day-to-day business and affairs of the Company ....”

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Id. at ¶¶ 5.1, 5.1.1 & 5.1.2.6

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Deane argues that Solorio has been automatically removed as

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Manager pursuant to the Operating Agreement, but he fails to

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identify any language in Article 5 of the Operating Agreement to

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explain how this removal supposedly occurred.7

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5 specifically provides for the end of the Manger’s term:

In fact, Article

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If Solorio resigns, dies, is physically or mentally

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incapacitated ... or otherwise unwilling to serve as

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Manager, Deane shall automatically become [Manager]

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without the need for the approval of the Members.

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Id. at ¶ 5.1.1.

Deane argues that Solorio was automatically

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removed from his position because he filed for bankruptcy, but

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bankruptcy is not one of the events that triggers the removal of

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the Manager pursuant to ¶ 5.1.1.

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B.

Article 6 - Involuntary Withdrawal

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Deane instead turns to Article 6 of the Operating Agreement,

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which addresses “Transfer of Interests and Withdrawals of Members.”

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Article 6, however, contains no reference to the Manager at all,

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much less to removal of the Manager.

What Article 6 does contain,

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Nothing in the Agreement vests any management authority to
anyone other than Solorio.
Article 5 does, however, require
Solorio to obtain Deane’s consent for specified actions.

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The omission is glaring, since Article 5 contains the only
provision in the Agreement that addresses the removal of the
Manager, ¶ 5.1.1. Deane does refer to ¶ 5.1.1, but only to claim
that he would become the Manager if Solorio were no longer serving.
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is a description of the consequences for members who “involuntarily

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withdraw” from Natomas:

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After an Involuntary Withdrawal, the withdrawn Member or

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the

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thereafter be treated as merely holding the Economic

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Interest of such Member, without the right to Vote or

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participate in the management of the Company.

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Dkt. No. 271 at 32 ¶ 6.2.3 (underlining in the original

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submitted for judicial notice).

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successor

Deane

asserts

in

that

interest

Solorio’s

to

such

Member

bankruptcy

shall

caused

him

to

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“involuntarily withdraw” from Natomas.8 Since Solorio is no longer

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a

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management of the Company,”9 and therefore he is no longer the

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Manager.

member,

Deane

argues,

Solorio

cannot

“participate

in

the

This argument – that “Manager” status is contingent upon

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Pursuant to the Operating Agreement, a member “involuntarily
withdraws” if “the Member is bankrupt.” Dkt. No. 271 Exh. B(1) ¶
6.2.2(b). Solorio and Deane argue over whether it is the filing
of the bankruptcy petition or the issuance of an “order of relief”
by the bankruptcy court that triggers the “involuntary withdrawal.”
See Cal. Corp. Code § 17001(c) (a “bankrupt” is a person who is
subject to an order of relief under the federal bankruptcy code).
It makes no difference for purposes of these motions, because
(i) Solorio has now received his order of relief (Dkt. No. 309 Exh.
A); and (ii) neither event divests Solorio of his position as
Manager.
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The court notes that the same Operating Agreement provides
for the automatic, involuntary withdrawal of any member who “files
an action seeking a decree of judicial dissolution pursuant to
Section 17351" of the California Limited Liability Company Act,
Cal. Corp. Code §§ 17000, et seq. Deane admits that he filed such
an action, but argues that the provision which divests him of his
membership interest – unlike the provision which divests Solorio
of his membership interest – is “unconscionable.”
It is not
necessary to decide the issue in this motion.
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membership in Natomas – is facially invalid, since the Operating

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Agreement expressly states: “The Company shall be managed by a

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Manager who need not be a Member.”

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(emphasis added).

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Nor

does

Solorio’s

position

Dkt. No. 271 at 25 ¶ 5.14

as

Manager

derive

from

his

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membership in Natomas. Solorio’s position as Manager, as discussed

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above, derives directly – and solely – from his appointment as

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Manager in the Operating Agreement itself.

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at 25 ¶ 5.1.1 (appointing Solorio as manager).

Dkt. No. 271 Exh. B(1)
To the contrary,

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no management authority or “participation” derives from membership

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in Natomas – not for Solorio, not for Deane, and not for any member

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of Natomas – notwithstanding the Agreement’s rote recitation of the

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statutory term “participation in management.”

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The governing statute provides that a limited liability

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company shall be managed by its members unless its articles of

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incorporation vest management of the company “in a manager or

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managers,” as is the case here. Natomas’s Articles of Organization

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state that it will be managed by “one manager.”

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B.

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manager” of Natomas is Solorio.

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management rights to the members, the Operating Agreement quite

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forcefully makes clear that they have none.

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the Operating Agreement vests all management authority in Solorio

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“to the exclusion of the members.”

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Dkt. No. 309 Exh.

Finally, Natomas’s Operating Agreement specifies that the “one

Deane’s

argument

Not only does nothing grant any

confuses

the

management” with the term “Manager.”
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term

As described above,

“participation

in

But reading the Operating

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Agreement as a whole, as required by the canons of contract

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interpretation, it is clear that the two terms are completely

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separate: the management authority of the Manager comes from the

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Operating Agreement, Article 5; whereas the members’ illusory right

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to management “participation” comes from their status as members.

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When Solorio supposedly withdrew from Natomas as a member, what he

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lost was the non-existent “right” to participate in management that

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derived from his membership – in other words, nothing.

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C.

Article 7 - Dissolution

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However, a provision in Article 7 of the Operating Agreement

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does explicitly address the possibility of Solorio’s bankruptcy

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filing:

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The death, incapacity, bankruptcy or dissolution of any

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Member

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Company.

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other than a successor to Deane and/or Solorio, shall

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automatically

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Interest in the Company but shall have no right to Vote

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or participate in the management of the Company."

shall

not

result

in

the

dissolution

of

the

The successor in interest to any such Member,

be

deemed

the

holder

of

an

Economic

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Dkt. No. 271 at 33 ¶ 7.1.4 (italics added; underlining in the

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original).

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This provision ensures that the “successor in interest” to a

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bankrupt

member

will

have

no

ability

to

participate

in

the

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management of the company. But it explicitly excludes Solorio (and

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Deane) from its terms.

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Agreement that contemplates the possible bankruptcy of Solorio by

It appears to be the only clause in the

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name.

Far from divesting Solorio of his management authority in

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the event of his bankruptcy, it apparently permits his “successor

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in

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authority derives from his membership interest.11

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this provision prevents all members other than Solorio (and Deane)

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from

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bankruptcy.

interest”

voting

to

and

vote,10

exercising

to

any

exercise

management

whatever

management

In other words,

authority

after

a

CONCLUSION

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and

Deane’s

Rule

41(a)(2)

dismissal

motion,

as

well

as

his

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alternate motions for an order requiring Natomas’s counsel to

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dismiss

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principally based on the premise that Deane has taken Solorio’s

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place as the Manager of Natomas and therefore is in control of the

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plaintiff (Natomas) in this lawsuit.

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the court establish that Solorio – not Deane – is the Manager, the

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motions are DENIED.12

this

action

or

to

disqualify

Natomas’s

counsel,

are

Because the documents before

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Deane complains that it would “defy common sense and
violate basic contract interpretation” to allow Solorio, or the
bankruptcy trustee, a complete stranger to Natomas, to continue as
Manager after his bankruptcy. Dkt. No. 288 at 9 of 13. To the
contrary, the only provision of the Agreement to address the issue
makes it quite clear that Solorio’s successor in interest retains
Solorio’s right to vote. It does not indicate here, or in Article
5, that Solorio’s position of Manager would cease upon bankruptcy.
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As noted above, however, no management authority actually
derives from membership in Natomas.

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Separately, Deane engages in a bit of “heads I win, tails
you lose” argument. He argues that if Solorio is paying Natomas’s
counsel out of his own pocket, as ordered by the Superior Court,
then Natomas’s counsel thereby suffers from an irreconcilable
conflict. But Deane simultaneously argues that if Solorio is not
paying Natomas’s counsel out of his own pocket, then Solorio is in
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IT IS SO ORDERED.

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DATED:

September 16, 2011.

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violation of the Superior Court’s order, and Natomas’s counsel is
being paid out of forbidden funds. This court decides only actual
cases and controversies, not theoretical questions predicated upon
hypothetical fact patterns. Deane’s motion to disqualify, to the
degree it is predicated upon his proffered hypotheticals, is
disregarded. Deane also asks the court to disqualify Natomas’s
counsel based upon his new Reply Brief arguments that he does not
approve of how Natomas’s counsel has litigated this motion and
counsel’s conduct of settlement and release negotiations.
See
Dkt. 288 (Deane’s Reply to Natomas’s Opposition to Dismissal
Motion).
Deane’s motion to disqualify, to the degree it is
predicated upon these arguments, is denied.
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