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Natomas Gardens Investment Group, LLC v. Sinadinos

April 22, 2010

NATOMAS GARDENS INVESTMENT GROUP, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, ORCHARD PARK DEVELOPMENT, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, PLAINTIFFS,
v.
JOHN G. SINADINOS, STANLEY J. FOONDOS, STEPHEN FOONDOS, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge

MEMORANDUM AND ORDER

This matter is before the court on defendants' various motions to dismiss and motions for a more definite statement with regards to plaintiffs Natomas Garden Investment Group, LLC and Orchard Park Development, LLC's (collectively, "plaintiffs") second amended complaint ("SAC"). (Docket #s 128, 134, 139.) Plaintiffs oppose the motions. For the reasons set forth below, defendants' motions are GRANTED in part and DENIED in part.*fn1

BACKGROUND*fn2

This case arose out of a failed business venture between Eric Solorio ("Solorio") and defendants John Sinadinos ("Sinadinos"), Larry Deane ("Deane"), and their various alleged co-conspirators. Beginning in 2003, Solorio negotiated to obtain rights to purchase undeveloped real property from several property owners in the Sacramento area. (SAC ¶ 44.) Solorio endeavored to subsequently develop and sell this land, for which he formed a limited liability company, plaintiff Natomas Gardens Investment Group, LLC ("Natomas"). (Id. at ¶¶ 44-45.) In seeking financing for his potential project, Solorio met defendants Deane and Sinadinos. (Id. at ¶ 46.) Sinadinos, an attorney who had some involvement in land development in the Sacramento region, immediately showed interest in the project and agreed to partner with Solorio. (Id. at ¶¶ 46-47.) Sinadinos recommended that Stanley Foondos ("Foondos"), a certified public accountant, support Solorio's proposed development project through performance of all accounting and tax reporting responsibilities. (Id. at ¶ 52.)

By the end of 2003, Solorio, acting on behalf of Natomas, assembled purchase rights to a number of contiguous parcels in the Sacramento area, upon which Sinadinos made the necessary deposits in escrow. (Id. at ¶ 53.) By mid-2004, Natomas obtained rights to purchase and develop fourteen parcels of land in Sacramento County comprising approximately 109 acres. (Id. at ¶ 54.) This development project was designated Florin Vineyards, and Sinadinos formed a limited liability company, Village Capital Group, LLC ("Village"), as the development company associated with the project. (Id. at ¶¶ 54-55.) Natomas was given a 45 percent stake in Village, while the other 55 percent was held by Chi-Sac Village Capital Group Investors, LLC ("Village Investors, LLC"), a company managed and controlled by Sinadinos and Foondos. (Id. at ¶¶ 12, 20.)

By October 2004, Natomas obtained rights to purchase and develop seventeen additional parcels of land comprising approximately 85 acres. (Id. at ¶ 56.) This development project was designated Vintage Creek, and Sinadinos formed another limited liability company, Vintage Creek, LLC ("Vintage"), as the development company associated with the project. (Id. at ¶¶ 56-57.) Similar to the respective interests in Village, Natomas was given a 45 percent stake in Vintage, while the other 55 percent was held by Chi-Sac Vintage Creek Investors, LLC ("Vintage Investors, LLC"), a company managed and controlled by Sinadinos and Foondos. (Id. at ¶¶ 12, 21.)

Additionally, during April-May 2005, Solorio assembled property acquisition rights for a development project located in Madera County, California. (Id. at ¶ 61.) Solorio, acting through his own limited liability company, plaintiff Orchard Park Development, LLC ("Orchard Park"), negotiated and executed five option agreements to purchase contiguous parcels of real property comprising approximately 265 acres. (Id.) Acting upon Sinadinos' representations as to his substantial development experience, Solorio agreed to include Sinadinos as a shareholder of Madera Avenue 12 Capital Group, LLC ("Madera"), a limited liability company formed for the development of the Madera properties. (Id. at ¶ 62.)

Sinadinos represented to Solorio that he would invest $4,000,000 in each project for acquisition and development costs. (Id. at ¶ 58.) Upon expressing concern with Sinadinos' prior development project experience and ability to finance the various projects, Sinadinos provided Solorio with meeting minutes between Sinadinos and various individuals in Chicago who Sinadinos had brought on as investors in Village and Vintage. (Id. at ¶ 59.)

In mid-2004, Solorio, on behalf of Natomas, insisted that operating agreements for Village and Vintage be drafted before homebuilders sought to purchase interests in the projects. (Id. at ¶ 89.) Sinadinos, however, delayed drafting the operating agreements until homebuilders were on the verge of purchasing interests in the projects. (Id. at ¶¶ 89-94.) Although Solorio had numerous objections to the proposed operating agreements, he was pressured into signing the agreements by the immediacy of the homeowners' investments and thereby made substantial concessions to Sinadinos and his alleged co-conspirators. (Id.) Notably, Solorio transferred Natomas' property acquisition rights in Vintage to Sinadinos and his co-conspirators. (Id. at ¶ 91.) Sinadinos also pressured Solorio to execute an amendment to Vintage's operating agreement that provided Sinadinos with an additional $400,000 concession. (Id.)

During approximately May 2004, Sinadinos and Foondos began commingling funds between Village and Vintage. (Id. at ¶¶ 67-71.) Although Solorio requested on numerous occasions that Sinadinos and Foondos provide Natomas with a comprehensive financial report, Sinadinos and Foondos either ignored Solorio's requests or failed to disclose the details of the companies' various financial dealings. (Id. at ¶ 70.)

In November 2004, KB Homes entered into a purchase agreement with Village and made an initial deposit of over $2 million, after which Sinadinos and his co-conspirators began to fraudulently inflate their capital accounts in Village. (Id. at ¶¶ 72-73.) At this time, Glenn Sorenson, Jr. ("Sorenson") and his company, Stockton & 65th, LP, invested approximately $3 million in Village in the form of a 1031 tax exchange. (Id. at ¶ 73.) Sinadinos promised Sorenson an annual 25 percent rate of return on his investment and planned to use the funds to purchase a parcel owned by Baljit Johl, who had granted Natomas an option to purchase the parcel at any time during the next several years. (Id. at ¶ 74.) Although Solorio objected to Sorenson's rate of return and Sinadinos' proposed use of investment funds, Sinadinos convinced Solorio to agree to Sorenson's investment on the promise that Sorenson would option the Johl parcel back to Village. (Id. at ¶¶ 74-77.) Through a series of fraudulent transactions set forth in greater detail infra, Sinadinos obtained an approximate profit of $800,000 through the transfer of the Johl parcel, transferred these funds to Village, and claimed that the transferred funds were additional capital invested by Sinadinos and his co-conspirators. (Id. at ¶¶ 83- 84.) Additionally, Sinadinos used the remainder of Sorenson's investment that was not applied toward the Johl parcel to acquire another parcel in Village, the Von Behren parcel. (Id. at ¶ 85.) Contrary to Sinadinos' and Sorenson's promises to Solorio, however, Sinadinos did not obtain an option agreement from Sorenson to option the Johl and Von Behren parcels back to Village. (Id. at ¶ 86.) As a result, Natomas was defrauded of its purchase rights in the Johl and Von Behren parcels, as Village lacked contractually defined rights to repurchase the parcels on the favorable terms promised by Sinadinos and his co-conspirators. (Id.)

Further, between June 2004 and December 2007, Sinadinos and his co-conspirators loaned approximately $2,155,000 from Vintage to Village, only $825,000 of which was reimbursed to Vintage. (Id. at ¶ 95.) Sinadinos and his co-conspirators used the remaining $1,330,000 to inflate their capital accounts in Vintage, thereby allegedly engaging in conversion and money laundering. (Id.) Moreover, beginning in November 2004, Sinadinos and his co-conspirators transferred substantial funds from Village and Vintage directly to themselves. (Id. at ¶ 97.) To accomplish such transfers, Sinadinos and his co-conspirators engaged in loan transactions that were never repaid, or received double repayment of funds actually loaned to Village and Vintage. (Id. at ¶¶ 98-120, 136-145.) Sinadinos also held himself out as the attorney for Village, Vintage, Madera, and their various investors, and paid himself and his law office approximately $354,000 for undocumented legal services between June 21, 2004 and October 15, 2007. (Id. at ¶¶ 171-179.) Likewise, Sinadinos used funds from Madera to pay his law firm staff and secretarial expenses, and "repaid" himself for fictional loans made to Madera. (Id. at ¶¶ 146-151, 176-179.)

Additionally, Sinadinos unlawfully transferred an equity interest in a Vintage parcel in exchange for a settlement and release of claims by Surjit Johl, Baljit Johl, and Harinder Johl. (Id. at ¶¶ 180-183.) Although Solorio informed Baljit and Harinder Johl that the transfer of the equity interest in the parcel could not occur without Natomas' consent, the Johls nonetheless proceeded to execute the release with Sinadinos. (Id. at ¶ 185.)

Sinadinos and his co-conspirators also engaged in fraud to lure new investors to contribute capital to Village and Vintage. (Id. at ¶¶ 123-135.) Although Sinadinos and his co-conspirators were aware that Village and Vintage were doomed to financial failure due to the conspirators' self-serving financial dealings, they informed potential investors that Village and Vintage were financially viable projects. (Id.) The first such defrauded investor was Margarida Leavitt ("Leavitt"), who was referred to Sinadinos by Foondos, Leavitt's attorney. (Id. at ¶¶ 123-125.) Sinadinos and his co-conspirators used part of Leavitt's $1.2 million investment to purchase an equity interest in a parcel associated with Vintage, and the remaining amount to reimburse their prior investments without reducing their stated capital accounts. (Id. at ¶ 127.) Sinadinos and his co-conspirators engaged in a similar fraud to acquire investment proceeds from the Vathis family. (Id. at ¶¶ 128-135.)

Sinadinos then confided in Solorio, admitting that he had defrauded Leavitt and asking Solorio to assist in preserving the false appearance that Vintage was a successful development project. (Id. at ¶ 152.) After learning of Sinadinos' fraudulent activity, Solorio repeatedly requested to look at the financial books and records of Village, Vintage, and Madera. (Id. at ¶¶ 153-154.) Sinadinos repeatedly denied Solorio access to the books and records, and Solorio subsequently retained the services of an attorney, Thomas Barth, and a forensic accounting firm, Ueltzen & Company ("Ueltzen"), to aid in inspecting all requested financial documents. (Id. at ¶¶ 153-156.) Following persistent requests from Thomas Barth, Sinadinos agreed to allow an employee of Ueltzen to inspect all records, yet the copies provided by Sinadinos for inspection were not complete. (Id. at ¶¶ 157-159.) Plaintiffs allege that Sinadinos refused to allow Solorio, Natomas, and Orchard Park access to company records and documents, which by law should have been made available to them. (Id. at ¶ 163.) Additionally, plaintiffs allege that, in response to Solorio's request for all financial documents, Sinadinos and Foondos provided Solorio with false tax returns, and that for a number of years Sinadinos and Foondos have been reporting fraudulent tax returns for Village, Vintage, and Madera to the Internal Revenue Service. (Id. at ¶¶ 165-170.)

Around April 2008, Deane, through counsel Don Wanland ("Wanland"), demanded that Solorio abandon all claims against Sinadinos. (Id. at ¶ 192.) Wanland represented that Deane had seen the financial records for Village and Vintage and was convinced that there was no factual or legal basis that Sinadinos had engaged in any wrongdoing. (Id.) Despite entreaties from Deane, however, Solorio refused to abandon his claims against Sinadinos. (Id. at ¶¶ 193-194.) Due to the dispute between Deane and Solorio as to the legitimacy of Solorio's legal claims, Deane filed suit in Sacramento County Superior Court to dissolve Natomas, as set forth in greater detail infra. (Id. at ¶¶ 193-195.) Plaintiffs allege that Deane, with full awareness of Sinadinos' fraudulent and unlawful conduct, has conspired with Sinadinos to prevent Solorio from investigating and pursuing claims against Sinadinos and his co-conspirators. (Id.)

Plaintiffs allege claims against defendants for individual violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq. ("RICO"), RICO conspiracy, fraud, breach of fiduciary duty, professional legal malpractice, professional accounting malpractice, and conversion. (Id. at ¶¶ 197-256.) On May 12, 2009, this court entered an order granting in part and denying in part various defendants', including Deane's, motions to dismiss plaintiffs' first amended complaint. (Docket # 123). On August 3, 2009, the Superior Court entered an order staying the state action pending the outcome of this federal action. (Pls.' RJN in Opp'n to Deane's MTD, filed March 9, 2010 [Docket No. 211], Ex. C.)

STANDARDS

I. Motion to Dismiss for Failure to State a Claim

On a motion to dismiss, the allegations of the complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give the plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). Thus, the plaintiff need not necessarily plead a particular fact if that fact is a reasonable inference from facts properly alleged. See id.

Nevertheless, it is inappropriate to assume that the plaintiff "can prove facts which it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). Moreover, the court "need not assume the truth of legal conclusions cast in the form of factual allegations." United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986).

Ultimately, the court may not dismiss a complaint in which the plaintiff has alleged "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1974 (2007). Only where a plaintiff has not "nudged [his or her] claims across the line from conceivable to plausible," is the complaint properly dismissed. Id. "[A] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002) (quoting Hudson v. King & Spalding, 467 U.S. 69, 73 (1984)).

In ruling upon a motion to dismiss, the court may consider only the complaint, any exhibits thereto, and matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. See Mir v. Little Co. Of Mary Hospital, 844 F.2d 646, 649 (9th Cir. 1988); Isuzu Motors Ltd. v. Consumers Union of United States, Inc., 12 F. Supp. 2d 1035, 1042 (C.D. Cal. 1998).

II. Motion for a More Definite Statement

A motion for a more definite statement should not be granted unless a pleading is "so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading." Fed. R. Civ. P. 12(e). This liberal standard is consistent with Rule 8(a)(2), which only requires pleadings that contain a "short and plain statement of the claim." The Federal Rules of Civil Procedure anticipate that the parties will familiarize themselves with the claims and ultimate facts through the discovery process. See Famolare, Inc. v. Edison Brothers Stores, Inc., 525 F. Supp. 940, 949 (E.D. Cal. ...


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