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Pnc Equipment Finance, LLC, A Delaware Limited Liability Company, As Successor To v. California Fairs Financing Authority

September 5, 2012

PNC EQUIPMENT FINANCE, LLC, A DELAWARE LIMITED LIABILITY COMPANY, AS SUCCESSOR TO NATIONAL CITY COMMERCIAL CAPITAL CORPORATION,
PLAINTIFF,
v.
CALIFORNIA FAIRS FINANCING AUTHORITY, A CALIFORNIA JOINT POWERS AUTHORITY;
15TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA;
18TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA;
21ST DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA;
26TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA;
27TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA;
30TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA;
EL DORADO COUNTY FAIR ASSOCIATION, INC., A CALIFORNIA CORPORATION; AND MADERA COUNTY LIVESTOCK ASSOCIATION, A CALIFORNIA CORPORATION,
DEFENDANTS.
EL DORADO COUNTY FAIR ASSOCIATION, INC., A CALIFORNIA CORPORATION, CROSS-COMPLAINANT,
v.
CALIFORNIA FAIRS FINANCING AUTHORITY, A CALIFORNIA JOINT POWERS AUTHORITY,
CROSS-DEFENDANT.



The opinion of the court was delivered by: Garland E. Burrell, Jr. Senior United States District Judge

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS EL DORADO CALIFORNIAFAIRS FINANCING AUTHORITY'S COUNTY FAIR ASSOCIATION, INC.'S FIRST AMENDED CROSS-COMPLAINT

Cross-Defendant California Fairs Financing Authority ("CFFA") moves under Federal Rule of Civil Procedure ("Rule") 12(b)(1) for dismissal of each cross-claim in El Dorado County Fair Association, Inc.'s ("El Dorado") First Amended Cross-Complaint ("FACC"). CFFA argues the court lacks subject matter jurisdiction over each claim, since El Dorado failed to comply with the California Government Claims Act ("Government Claims Act"). CFFA also argues El Dorado's rescission and declaratory relief cross-claims are not ripe. CFFA also moves under Rule 12(b)(6) for dismissal of each cross-claim in El Dorado's FACC, arguing El Dorado fails to state viable claims. El Dorado filed an opposition brief.

I. LEGAL STANDARDS

A. Rule 12(b)(1)

"The ripeness doctrine prevents courts, through avoidance of premature adjudication, from entangl[e]ment in theoretical or abstract disagreements that do not yet have a concrete impact on the parties." 18 Unnamed John Smith Prisoners v. Meese, 871 F.2d 881, 883 (9th Cir. 1989) (citation omitted). Therefore, "the appropriate standard for determining ripeness of [a] private party contract dispute[] is . . . whether 'there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 671 (9th Cir. 2005) (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)).

B. Rule 12(b)(6)

Decision on CFFA's Rule 12(b)(6) dismissal motion requires determination of "whether the complaint's factual allegations, together with all reasonable inferences, state a plausible claim for relief." Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1054 (9th Cir. 2011) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

When determining the sufficiency of a claim, "[w]e accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the non-moving party[; however, this tenet does not apply to] . . . legal conclusions . . . cast in the form of factual allegations." Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (citation and internal quotation marks omitted). "Therefore, conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss." Id. (citation and internal quotation marks omitted); see also Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555) (stating "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do'").

II. BACKGROUND

This case concerns several related agreements concerning the lease of solar equipment between a finance company, PNC Equipment Finance, LLC ("PNC"); a joint powers authority formed by California counties and agricultural district associations, California Fairs Financing Authority ("CFFA"); and several California agricultural, livestock, and county fair associations ("Individual Fairs"), including El Dorado. El Dorado's FACC also concerns the "Second Amended and Restated Joint Exercise of Powers Agreement" ("JPA"), which created CFFA. El Dorado "incorporates [into its FACC] as though set forth in full . . . the allegations of [PNC's First Amended Complaint ('PNC's FAC')] . . . solely for the purpose of illustrating the nature of [the claims] in this matter[.]" (El Dorado's FACC ¶ 4.) Relevant allegations from PNC's FAC provide context for decision on the motion.

A. Master Lease and Use Agreements

In June 2006, PNC's predecessor in interest, National City Commercial Capital Corporation ("National City"), and CFFA entered into an agreement ("Master Lease"), in which National City agreed to lease solar equipment to CFFA for use by the Individual Fairs; and CFFA agreed to "pay National City periodic installments of principal and interest[.]" (PNC's FAC ¶¶ 13-14.) "[T]o secure [CFFA's] obligations to National City under the [Master] Lease, [CFFA] granted National City a first priority security interest in, among other things, the Use Agreements and User Fees [from the Individual Fairs.]" Id. ¶ 14.

"'Use Agreements' refer to agreements between [CFFA] and [Individual Fairs], . . . pursuant to which [CFFA] granted the right to use a designated portion of the [e]quipment to each [Individual Fair] in return for periodic payments of principal and interest ('User Fees')." Id. "The [s]econd full paragraph of [each] Use Agreement expressly incorporates the [Master Lease] by reference." (El Dorado's FACC ¶ 11.) "Section 1(b) of the Use Agreement states that the Use Agreement and [each Individual Fair's] 'rights [t]hereunder shall at all times be subject and subordinate to the [Master Lease], without the need for any further act or agreement by [an Individual Fair].'" Id.

B. El Dorado's Use Agreement

"In or about January 2005, [El Dorado] began having discussions with Tom Baker, an Executive Officer of [CFFA] . . . , regarding the possibility of installing [solar] equipment at the [El Dorado County F]airgrounds[.]" Id. ¶ 6. "On several occasions between January 2005 and August 9, 2006, Tom Baker represented to [El Dorado] that contracts concerning [the installation of solar equipment at the El Dorado County Fairgrounds] would require [El Dorado] to enter into a lease-purchase agreement whereby [El Dorado] would lease the equipment for a contract term of 10 years, and . . . would own the . . . equipment" at the end of the contract term. Id. ¶ 7.

"On or about July 3, 2006, [CFFA] sent [El Dorado] a cover letter enclosing both the [Master Lease] and the [Use Agreement] between [CFFA] and [El Dorado]." Id. ¶ 9. "In that letter, [CFFA] confirm[ed] prior verbal representations . . . that [El Dorado] would own the [solar] equipment after the contract term." Id. El Dorado alleges it executed two identical Use Agreements in July and August 2006 (collectively, "Use Agreement"), "based on [CFFA's] verbal and written representations that [El Dorado] would own the equipment after the contract term, effectively purchasing the equipment over ten years[.]" Id. ¶¶ 10-11.

C. PNC's FAC

PNC alleges CFFA breached the Master Lease beginning in March 2011 "by . . . failing and refusing to make" the required payments. (PNC's FAC ¶ 50.) PNC further alleges that under "Section 20 of the [Master] Lease, upon an event of default, [PNC] has the right to . .. exercise its rights and remedies under the Use Agreements with respect to [the Individual Fairs], including . . . the right . . . to collect the User Fees owing from . . . El Dorado . . . to [CFFA]." Id. ¶ 51.

PNC alleges it notified El Dorado in a May 2011 writing that CFFA defaulted under the Master Lease and that under the terms of the Use Agreement and the Master Lease, El Dorado is required to make payments directly to PNC in the event of CFFA's default. Id. ¶ 108. PNC alleges "El Dorado has failed and refused, and continues to fail and refuse, to pay the User Fees to [PNC]." Id. PNC alleges a breach of contract claim against El Dorado, in which PNC seeks damages in an amount representing unpaid User Fees since March 2011. Id. ¶¶ 188-97. PNC also alleges specific performance and declaratory relief claims, in which it seeks an order directing El Dorado to pay future User Fees directly to PNC. Id. ¶¶ 106-14. PNC alleges similar claims against the other Individual Fairs and CFFA.

D. El Dorado's FACC

El Dorado alleges in its FACC that "[a]t all relevant times until mid-November 2011, [El Dorado] understood it would own the [solar] equipment, which was permanently installed in the roof at its fairgrounds, at the end of the Use Agreement term." (El Dorado's FACC ¶ 17.) El Dorado alleges that "[c]ontrary to the multiple [verbal and written] representations by [CFFA] . . . that [El Dorado] would own the equipment after the 10 year contract term, both the [Master Lease] and the Use Agreement state otherwise." Id. ¶ 12. El Dorado further alleges "[it] would ...


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