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Donald W. Irving, et al v. Lennar Corporation

March 30, 2013



Defendants Lennar Corporation ("Lennar"), Lennar Renaissance, Inc., Lennar Sales Corporation., and Universal American Mortgage Company of California ("UAM") (collectively "defendants") have filed motions to dismiss and to change venue. Plaintiffs have opposed the motions. After considering the parties' arguments, the court hereby DENIES the motion to change venue and GRANTS in part and DENIES in part the motion to dismiss.


On February 27, 2012, plaintiffs Donald Irving, Fammie Holmes-Irving, Chandresh Bhakta, Tina Khakta, John Carreras, Isidro Escareno, Dennis Frantom, Dan Lewerenz, Rui Lopes, Rose Lopes, Alfredo Lorica, Eugenia Lorica, Dan Masciovecchio, Greg Peterson, Olga Peterson, E. Scott Coelho, Valerie Salazar, Themis Sakellarious, Jimmy Turner, Sharon Turner, Greg Weasel, Virginia Weitzel, Christopher White, Monique White, Thomas Williams and Makeiba Scott (collectively "plaintiffs") filed a First Amended Complaint ("FAC"), alleging seven causes of action stemming from defendants' alleged acts and omissions in connection with the Estonia Estates and Legends in Rio Del Or communities, in the Plumas Lake Subdivision in Yuba County: (1) violation of the Interstate Land Sales Act ("ILSA") by means of untrue statements in the sale of subdivided lots, 15 U.S.C. § 1703; (2) unfair competition and business practices ("UCL"), CAL. BUS. & PROF. § 17200; (3) false and misleading advertising or statements in the sale of real property, CAL. BUS. & PROF. § 17500; (4) rescission based on fraud or mistake, CAL. CIV. CODE § 1689; (5) RICO violation, 18 U.S.C. §§ 1961, et seq., (6) Sherman Act and California anti-trust violations, 15 U.S.C. § 1 and CAL. BUS. & PROF. CODE § 16700, et seq.; (7) violation of the Covenants, Conditions and Restrictions ("CC&RS").

Plaintiffs allege that the Lennar defendants are in the business of developing, constructing and selling new homes; that they have expanded their business to include sales, lending, appraisals and insurance through related companies, all of which gave potential buyers easy access to financing, not otherwise available in the marketplace, in order to purchase defendants' homes. FAC ¶¶ 17, 19-20. Lennar set up Lennar Renaissance, Lennar Sales and other subsidiaries to develop, construct, advertise and sell the houses and UAM to finance the purchases, but these entities are separate in name only, as they are under Lennar's control. FAC ¶¶ 21-23, 27. Because Lennar controlled every aspect of the project, it was able to, and did, sell to people without determining whether they were qualified and indeed sold to unqualified buyers who posed an abnormally high risk of foreclosure. FAC ¶¶ 26, 27-28.

According to plaintiffs, beginning in 2004, Lennar directed the Lennar subsidiaries to increase the number of homes sold and profits per sale. FAC ¶ 25. By making money available to plaintiffs, the defendants induced plaintiffs and others to buy houses in the "artificially inflated, localized, relatively isolated, and therefore readily controlled marketplace in reliance on both the expressly made and implied representations that the appreciated home values would continue to rise or--at a minimum--would remain stable, and would outperform competing markets elsewhere in the region . . . ." FAC ¶ 26. Plaintiffs paid "artificially inflated asking prices" for the houses, after a "Lennar-friendly" appraisal. FAC ¶¶ 26-27. In addition, many of the plaintiffs acceded to Lennar's "express or implied condition" that they use UAM to finance the purchases. FAC ¶ 27. By these means, Lennar perpetrated a scheme designed to entice home buyers even though it knew that the market values were the result of its manipulation. FAC ¶ 28.

Lennar sold houses to investors, knowing that the investors would not occupy the houses but instead would rent them, undermining the stable neighborhood the sales representatives had promised. FAC ¶ 30. As part of this scheme, defendants required early buyers to make a high down payment, suggested that subsequent buyers would have to meet the same requirement, and represented that they would sell only to people who intended to live in the houses for at least one year. FAC ¶¶ 32, 34. Lennar subsequently sold houses to unqualified buyers and investors, which resulted in a number of foreclosures and short-sales, which has depressed the price of plaintiffs' houses and destroyed their equity. FAC ¶ 33. Defendants were aware that many buyers were unqualified because defendants required all buyers to apply to UAM for financing, which gave them access to the financial status of each buyer, but even so they continued to represent that the houses they were selling were good investments. FAC ¶¶ 36-37, 42. The foreclosures and short sales stemming from the sales to unqualified buyers have had a negative impact on plaintiffs' creditworthiness and on the value of plaintiffs' property. FAC ¶¶ 33, 46. In fact, many houses are vacant, yards are unfinished, multiple families are living in single-family homes, renters live in other homes, and crime has increased. FAC ¶ 47. Plaintiffs are informed and believe the extent of Lennar's subprime financing in these developments resulted in a "saturation" of subprime buyers, a material fact that should have been disclosed. FAC ¶ 50. Lennar's failure to disclose misled plaintiffs into purchasing houses they would not have bought had there been adequate disclosure. FAC ¶¶ 50-51.

In addition to the representations about the wisdom of the investment, Lennar promised plaintiffs that the subdivisions would be served adequately by public, private, commercial and retail facilities. FAC ¶ 54. As the developments were in wholly undeveloped areas unsupported by adequate services, this promise to build a fully developed community was designed to entice plaintiffs into purchasing defendants' houses. FAC ¶¶ 55-57. Defendants also promised expressly or implicitly to build all the houses planned and to build a park, among other things. FAC ¶ 60. Defendants used misleading and false sales brochures, subdivision maps, newspaper advertisements, sales contract terms, title documents, CC&RS and other such techniques. FAC ¶ 58.


Defendants contend that this case should be transferred to the Central District of California because a similar case, Stephens v. Lennar Corporation, No. EDCV 09-1668 VAP (DTBx), a putative class action, is pending before the Honorable Virginia A. Phillips and, as the complaint in the instant case borrows many claims directly from the Stephens litigation, transferring this case to the Central District will conserve judicial resources by ensuring that it is assigned to a judge intimately familiar with the issues.

Plaintiffs argue that venue is appropriate in this district because they all live here and the claims arose here.

Defendants have asked the court to take judicial notice of the Second Amended Complaint in the Stephens case, an order issued by Judge Phillips on March 31, 2010, and an order dismissing eight consolidated cases, including Stephens, issued March 26, 2012. Defendants' Request for Judicial Notice, ECF No. 22, Exs. 50 (Stephens complaint), 51 (order of March 31, 2010), and 52 (order dismissing consolidated cases, dated March 26, 2012). As these documents have some relevance to the pending motion, the court will take judicial notice of them. United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007) (stating that a court may judicially notice proceedings in other courts if those proceedings have a direct relation to the matters at issue).

A court considering a motion to transfer venue must determine whether venue is proper in this district; whether plaintiff could have brought the action in the transferee district; and whether the transfer will promote convenience and fairness. Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988); Hoffman v. Bilaski, 363 U.S. 335, 343--44 (1960); Costco Wholesale Corp. v. Liberty Mutual Ins. Co., 472 F. Supp. 2d 1183, 1189--90 (S.D.Cal. 2007).

"Section 1404(a) is intended to place discretion in the district court to adjudicate motions for transfer according to an 'individualized, case-by-case consideration of convenience and fairness.'" Stewart Org., Inc. v. Ricoh Corp., 487 U.S. at 29 (quoting Van Dusen v. Barrack, 376 U.S. 612, 622 (1964)). "[A] motion to transfer venue for convenience pursuant to 28 U.S.C. § 1404(a) does not concern the issue 'whether and where' an action may be properly litigated. It relates solely to the question where, among two or more proper forums, the matter should be litigated to best serve the interests of judicial economy and convenience to the parties." Injen Tech. Co. v. Advanced Engine Mgmt., 270 F. Supp. 2d 1189, 1193 (S.D. Cal. 2003) (citations omitted).

In determining whether transfer is proper, the court must "balance the preference accorded plaintiff's choice of forum with the burden of litigating in an inconvenient forum." Decker Coal, 805 F.2d at 843 (citations omitted). According to the Ninth Circuit, relevant factors determining whether transfer is appropriate include: (1) the location where the relevant agreements were negotiated and executed, (2) the state that is most familiar with the governing law, (3) the plaintiff's choice of forum, (4) the respective parties' contacts with the forum, (5) the contacts relating to the plaintiff's cause of action in the chosen forum, (6) the differences in the costs of litigation in the two forums, (7) the availability of compulsory process to compel attendance of unwilling non-party witnesses, and (8) the ease of access to sources of proof. Jones v. GNC Franchising, Inc., 211 F.3d 495, 498-99 (9th Cir. 2000) (citing Stewart Org. Inc., 487 U.S. at 29). In addition the court must weigh the interests of justice, based on considerations of the relative degree of court congestion and the conservation of judicial resources. It is a defendant's burden to show that transfer is appropriate. Decker Coal Co., 805 F.2d at 843; Commodity Futures Trading Comm'n v. Savage, 611 F.2d 270, 279 (9th Cir.1980); Safarian v. Maserati N. Am., Inc., 559 F. Supp. 2d 1068, 1071 (N.D. Cal. 2008) ("Once the court determines that venue is proper, the movant must present strong grounds for transferring the action . . . .").

A. Venue in the Transferee and Transferor Courts

For cases based on federal question jurisdiction, venue is governed by 28 U.S.C. §1391(b), which provides that such an action may be brought in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought. When the state has more than one judicial district, a corporation resides in "any judicial district in that State within which its contacts would be sufficient to subject it to personal jurisdiction if that district were a separate State." 28 U.S.C. § 1391(d); see Salu, Inc. v. Original Skin Store, No. CIV. S-08-1035 FCD/KJM, 2008 WL 3863434, at *8 (E.D. Cal. Aug. 13, 2008).

Neither party disputes that venue is proper here, because the property is located and the events at the center of the case occurred in this district. Defendants concede for purposes of this motion that they are subject to personal jurisdiction in California and plaintiffs do not contest that therefore venue would be proper in the Central District.

B. Convenience Factors

i. Location of Relevant Agreements

The deeds of trust and purchase agreements in this case concern land in Yuba County, in this district. In addition, plaintiffs allege violations of the CC&RS for both developments, documents recorded in Yuba County. FAC ¶¶ 108-111; ECF No. 22, Exs. 53 & 54. This factor favors venue in this district.

ii. Governing Law

As both the Central and Eastern Districts are familiar with California law, this factor is neutral.

iii. Plaintiffs' Choice of Forum

The court attaches a "strong presumption in favor of plaintiff's choice of forum," Piper Aircraft v. Reyno, 454 U.S. 235, 255 (1981), "particularly where the 'operative facts' of a case have a 'material connection with the chosen forum.'" Mussetter Distrib., Inc. v. DBI Beverage Inc., NO. CIV. 09-1442WBS EFB, 2009 WL 1992356, at *6 (E.D. Cal. Jul. 8, 2009) (quoting DeFazio v. Hollister Emp. Share Ownership Trust, 406 F. Supp. 2d. 1085, 1089 (E.D. Cal. 2005)). Relying on Wireless Consumers Alliance v. T-Mobile USA, Inc., No. C 03-3711 MHP, 2003 WL 22387598 (N.D. Cal. 2003), defendants argue that this presumption evaporates because plaintiffs have engaged in forum shopping, hoping to avoid the same result as the Stephens plaintiffs experienced.

In Wireless Consumers, the court observed that the plaintiff's choice of forum is entitled to less weight when the plaintiff is acting in a representative capacity, as in that case. It did consider forum shopping in considering the interests of justice, noting that "the transfer statute has a built-in mechanism to remedy the evils of forum shopping by giving little or no weight to the plaintiff's choice of forum away from home and without ties to the controversy." Id., at *5. The complaint in this case is not brought on behalf of a class, and raises claims that arose in this district, which is also plaintiffs' home district. As defendants have not shown plaintiffs have engaged in forum shopping, plaintiffs' choice of forum here counsels against transfer.

iv. Parties' Contacts with the Forum

Plaintiffs all own houses in Plumas Lake, a town in Yuba County, in this district. FAC ¶ 1. Defendant Lennar Corporation is incorporated in Delaware, while defendants Lennar Renaissance, Lennar Sales and UAM are incorporated in California; all the defendants have their principal place of business in Florida. FAC ¶¶ 4-7. Although the First Amended Complaint suggests that defendants have severed their ties with this district, defendants have presented no evidence concerning their business or lack thereof in the forum. As plaintiffs have substantial contacts with the forum and defendants have not shown that their contacts with the Central District are any greater than with this district, the court finds that this factor does not favor transfer. v. Contacts With the Forum Relating to Plaintiffs' Claims

As plaintiffs suggest, it was defendants' decision to develop, build, market, sell and finance houses in this district that gave rise to this litigation. As plaintiffs' claims have their genesis in actions defendants undertook in this district, this factor also does not favor transfer.

vi. Convenience of the Witnesses; Availability of Compulsory Process To demonstrate inconvenience to witnesses, the moving party should produce information regarding the identity and location of the witnesses, the content of their testimony, and why such testimony is relevant to the action. Steelcase, Inc. v. Haworth, 41 U.S.P.Q.2d 1468, 1470 (C.D. Cal. 1996); Florens Container v. Cho Yang Shipping, 245 F. Supp. 2d 1086, 1092-93 (N.D. Cal. 2002). Defendants have not presented any evidence, but argue that because third-party witnesses may have to travel for this case and the Stephens litigation, a transfer would ensure they would not have to travel to two districts to provide the same testimony. With the dismissal of Stephens, however, defendants' reliance on this factor has evaporated. If there are out-of-state third party witnesses, they will have to travel to California; defendants have not shown it will be easier for them to travel to Los Angeles than to Sacramento. See In re Ferrero Litig., 768 F. Supp. 2d 1074, 1080 (S.D. Cal. 2011) (rejecting conclusory claims about location and difficulties of third party witnesses).

Under Rule 45(b)(2) of the Federal Rules of Civil Procedure, a subpoena is valid only if it is issued to someone within the court's subpoena power, which extends throughout the district and to locations within one hundred miles of the place of trial. As noted, defendants have not identified potential witnesses and so have not suggested the difficulties, if any with compulsory process. Plaintiffs assert, on the other hand, that all the witnesses, including defendants, are in Yuba County.

Defendants have not borne their burden of showing that this factor favors transfer. vii. Costs of Litigation

Although defendants have presented no evidence on this subject, it is reasonable to infer that the costs of litigation for corporations doing business in Florida may be roughly the same in either the Central or Eastern Districts. The costs of litigation for plaintiffs, who live in this district and who have hired counsel based in this ...

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