The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
PLAINTIFFS' MOTIONS TO SEVER MEMORANDUM DECISION REGARDING AND STAY (Docs. 477, 480)
This case is a consolidation of three actions: An action commenced by Plaintiff Fox Hollow of Turlock Homeowners' Association ("Fox Hollow") against Richard Sinclair, Brandon Sinclair, Gregory Mauchley, Lairtrust, LLC, 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 Fox Hollow, Andrew Katakis, and California Equity Management Group, Inc. in the Stanislaus County Superior Court, Case No. 322675 ("Lairtrust Action"), removed to this Court and consolidated with the Fox Hollow and CEMG Actions by Order filed on October 6, 2003 ("Consolidated Federal Actions").
On August 10, 2010, Defendants Gregory Mauchley, Richard Sinclair, and Brandon Sinclair ("Individual Defendants") filed a "cross-complaint" against Plaintiffs.*fn1 (Doc. 425). Plaintiffs Fox Hollow and CEMG ("Plaintiffs") filed a motion to dismiss, or in the alternative, sever and stay Individual Defendants' cross-complaint on September 3, 2010. (Docs. 431, 432).
On January 19, 2011, Defendant Lairtrust LLC filed a counterclaim against Plaintiffs asserting generally the same types of claims advanced by Individual Defendants. (Doc. 471).
On January 21, 2011, the court issued a memorandum decision granting Plaintiffs' motion to stay as to all claims asserted in Individual Defendants cross-complaint except for claims arising out of "(i) Plaintiffs' alleged breach of the 2007 settlement agreement, and (ii) Plaintiffs' alleged conduct during and after trial of the state court action." (Doc. 473). The court denied Plaintiffs' motion to stay claims arising out of "(i) Plaintiffs' alleged breach of the 2007 settlement agreement, and (ii) Plaintiffs' alleged conduct during and after trial of the state court action;" the court authorized Plaintiffs to file separate motions regarding these claims. (Doc. 473).
Claims arising out of Plaintiffs' alleged breach of the purported 2007 settlement agreement are the focus of Plaintiffs' motions to stay and sever Individual Defendants' cross-complaint (Doc. 477) and Lairtrusts' counterclaim (Doc 480).
This action arises out of an alleged fraudulent scheme concerning a thirty-five unit town home residential development in Turlock, California, known as Fox Hollow of Turlock ("the Property"). Plaintiff Fox Hollow is the home owners' association ("HOA") for the Property. Plaintiff CEMG is the record owner of lots contained within the Property, the successor in interest to lenders who extended loans secured by lots within the Property, and is the assignee of the rights of certain tenants who entered into leases for units contained in the Property. Mauctrst, Lairtrust, and Capstone are limited liability companies ("LLC Defendants")that were allegedly used to convert HOA funds, effect property transfers, obtain loans, prosecute dilatory lawsuits, and to carry out other parts of the alleged schemes that form the basis for Plaintiffs' claims. Individual Defendants Gregory Mauchley, Richard Sinclair, and Brandon Sinclair are individuals who were principals, directors, or employees of the LLC Defendants during times relevant to the parties' respective claims.
Individual Defendants' cross-complaint asserts twenty-seven causes of action against Plaintiffs arising out of various transactions and conduct related to the Property. Individual Defendants unsuccessfully asserted most of these claims in an action filed on April 24, 2003 in the Stanislaus County Superior Court. Judgment was entered against Individual Defendants in the state court action on August 18, 2009; Individual Defendants appealed. Resolution of Individual Defendants' appeal of the state court judgment is currently pending in the California Court of Appeal.
Plaintiffs contend that a stay of Defendants' claims arising out of the purported 2007 settlement agreement is appropriate under Landis v. North American Co., 299 U.S. 248, 254, (1936). When considering a motion to stay, the court weighs a series of competing interests: (1) the possible damage which may result from the granting of the stay, (2) the hardship or inequity which a party may suffer in being required to go forward, and (3) the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay. CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962).
When there is an independent proceeding related to a matter before the trial court, the Ninth Circuit has held that a trial court may "find it efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which may bear upon the case." Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1465 (9th Cir. 1983). For a stay to be appropriate it is not required that the issues of such proceedings are necessarily controlling of the action before the court. Id. However, a stay may be improper where the independent proceeding is "unlikely to decide, or ...