United States District Court, E.D. California
FOX HOLLOW OF TURLOCK OWNER'S ASSOCIATION, a California Nonprofit Mutual Benefit Corporation, , Plaintiffs,
MAUCTRST, LLC, , Defendants.
ORDER (Docs. 901, 905, 911, 921, 932, 943, 973, 993, and 1002)
ANTHONY W. ISHII, Senior District Judge.
This dispute arises out of a housing development known as Fox Hollow of Turlock ("Property"). Plaintiff Fox Hollow of Turlock Homeowners' Association ("Fox Hollow HOA") is the homeowner's association. Plaintiff California Equity Management Group, Inc. ("CEMG") is the record owner of lots contained within the Property. Fox Hollow HOA, CEMG, and Andrew Katakis (collectively "Plaintiffs") are represented by the same counsel, and form one side of the litigation. Defendants Lairtrust, LLC ("Lairtrust"), Capstone, LLC ("Capstone"), Mauctrst, LLC ("Mauctrst") (collectively "LLC Defendants") are limited liability companies that were allegedly used to convert homeowners' association funds, effect property transfers, and commit other acts. Defendants Richard Sinclair, Brandon Sinclair, and Gregory Mauchley (collectively "Individual Defendants") were principals, directors, or employees of the LLC Defendants (collectively "Defendants").
In 1988, Richard Sinclair and his wife purchased the Property and obtained approval from the City of Turlock to construct a 35 unit town house complex. They obtained a loan secured by a deed of trust on the Property. They built an apartment complex on the Property. In 1992, Richard Sinclair and his wife defaulted on the loan. They obtained approval to subdivide the Property into 19 lots. On June 8, 1994, Richard Sinclair filed for bankruptcy. In 1995, Stanley Flake as Trustee of the Julie Insurance Trust purchased the Property. In 1997 or 1998, Gregory Mauchley and Mauctrst acquired the Property. Gregory Mauchley and Mauctrst obtained loans secured by the individual lots on the Property from various third parties. They fell into default on those loans. Fox Hollow HOA was established in December 2000. Plaintiffs allege the Individual and LLC Defendants collected homeowners' association dues on lots already sold to help pay the cost of foreclosure litigation. Through various legal processes and foreclosure, CEMG became the owner of 8 lots on the Property. Defendants challenge CEMG's ownership based on allegations of wrongful foreclosure and interference with contract.
This case is a consolidation of three related cases: an action commenced by Fox Hollow HOA against the Individual Defendants, LLC Defendants, and Stanley Flake as Trustee of Capstone Trust, Case No. CV-F-03-5439 ("Fox Hollow Action"); an action commenced by CEMG against the Individual Defendants, LLC Defendants, Diana Mauchley, Deborah Sinclair, Sinclair Enterprises, Inc., Stanley Flake, and Stanley Flake as Trustee of the F. Hanse Trust and of the Julie Insurance Trust Case No. CVF-03-5774 ("CEMG Action"); and an action commenced by the LLC Defendants against Plaintiffs in the Stanislaus County Superior Court, Case No. 322675 ("Lairtrust Action"). These actions were removed to this court and consolidated with the Fox Hollow Action and CEMG Action on October 6, 2003. The main operative complaint ("Consolidated Federal Action") traces back to the CEMG Action and Fox Hollow Action. Doc. 410. Running concurrently is the operative complaint in the Lairtrust Action. Doc. 80. The Individual Defendants filed a document termed a cross-complaint ("Cross-Complaint) against Plaintiffs. Doc. 425. Lairtrust filed a counterclaim ("Counterclaim") against Plaintiffs. Doc. 471.
This federal case is also related to another state court case (Stanislaus County Superior Court, Case No. 332233, originally filed on April 24, 2003) in which the Individual Defendants and LLC Defendants filed suit against Plaintiffs ("State Court Action"). Plaintiffs also filed a cross-complaint against Richard Sinclair, Gregory Mauchley, and Mauctrst for abuse of process. The State Court Action dealt with the substance of the dispute between the parties (the foreclosure process, ownership of the individual lots on the Property). The parties filed a notice of settlement on July 16, 2007 ("2007 Settlement"). Doc. 303. Though the 2007 Settlement was meant to resolve all issues, that turned out not to be the case. In the State Court Action, it was determined that the 2007 Settlement was unenforceable. A 36 day bench trial was held, starting on December 9, 2008. On August 18, 2009, the Superior Court issued its judgment ("Trial Decision"), finding in favor of the defending parties on all claims; that court found in favor of Plaintiffs on the main complaint and Defendants on the cross-complaint. Doc. 433, Part 8. The parties appealed. On January 23, 2013, the Fifth District Court of Appeal issued an opinion ("Appellate Decision") affirming the Trial Decision, largely on grounds of unclean hands. Doc. 923-22; Sinclair v. Katakis, 2013 Cal.App. Unpub. LEXIS 509 (Cal.App. 5th Dist. Jan. 23, 2013). On April 10, 2013, the California Supreme Court denied the petition for review. Sinclair v. Katakis, 2013 Cal. LEXIS 3119 (Cal. Apr. 10, 2013).
After the end of the State Court Action, the parties entered into negotiations. Plaintiffs were able to settle with Gregory Mauchley and Mauctrst; their affirmative claims in the Lairtrust Action are dismissed and an entry of default against them has been entered on the Consolidated Federal Action. See Doc. 1013. Unfortunately, Plaintiffs, Richard Sinclair, Brandon Sinclair, Lairtrust, and Capstone were unable to resolve their disputes.
This case was originally assigned to District Court Judge Oliver Wanger and Magistrate Judge Dennis Beck. This federal case has proceeded in parallel to the State Court Action. However, the heart of dispute is contained in the State Court Action. Judge Wanger determined that several of the issues in Counterclaim and Cross-Complaint had to be stayed pending resolution of the State Court Action as the cases deal with the same subject matter. Judge Wanger retired at the end of September 2011. The case was reassigned to the undersigned. Doc. 804. Multiple judges have sanctioned Defendants (Richard Sinclair in particular) for failure to follow rules and court orders.
Plaintiffs have now made several additional motions for sanctions. Docs. 901, 905, 973, 993, and 1002. Plaintiffs also seek to take the final judgment in the State Court Action and apply them to the Lairtrust Action, Counterclaim, and Cross-Complaint as res judicata. Doc. 921. Defendants seek to take the final judgment in the State Court Action and apply them to the Consolidated Federal Action as res judicata. Doc. 943. Defendants seek leave to amend the Counterclaim. Doc. 911. Defendants also seek to reopen discovery. Doc. 932. All motions are opposed.
II. Failure to Pay Sanctions (Doc. 973)
Plaintiffs seek additional monetary sanctions for Richard Sinclair's failure to pay past sanctions. Doc. 973. This court ordered Richard Sinclair to pay Plaintiffs $4, 600 in attorneys fees as a sanction for failing to comply with earlier court orders. Doc. 891, April 5, 2013 Order, 8:16-20. Richard Sinclair has not paid and states "Richard Sinclair is in the process of retiring. He has turned 65 and is unable to continue to practice law. He has applied for Social Security. The combination of 4 major skeletal surgeries over the recent three years has also disabled his ability to actively practice law. Mr. Sinclair filed with all Courts the Notices of Disability that were issued for more than 3 years. Mr. Katakis' attorneys have chosen to ignore them and continue to flood this office with motions and file for sanctions. I answered what I could and have paid what I could. I am disabled and out of money." Doc. 982, Richard Sinclair Opposition, 1:11-17.
"The ability of a party to pay is one factor a court should consider when imposing sanctions. Circuits that have addressed this issue have held the sanctioned party has the burden to produce evidence of inability to pay. Simple logic compels this result: the sanctioned party knows best his or her financial situation." Gaskell v. Weir , 10 F.3d 626, 629 (9th Cir. 1993), citations omitted. The relevant explanation provided is that "Mr. Sinclair has had extensive disability which Mr. Katakis and his counsel are aware of and also has suffered a legal separation over the last several years and has turned 65. Prior to that, he had already distributed his assets due to the Estate Tax Laws and kept his Receivables." Doc. 982, Richard Sinclair Opposition, 2:11-15. No further detail is provided to show the inability to pay the $4, 600 sanction. In Gaskell, the Ninth Circuit said, "Canatella filed a declaration in which he stated, My law practice checking usually has only enough funds to pay current obligations. The equitable interest in all real or personal property in my name is held by the family trust.' This statement is the closest Canatella came to producing any evidence of his asserted inability to pay. This is not sufficient." Gaskell v. Weir , 10 F.3d 626, 629 (9th Cir. 1993); see NLRB v. Trans Ocean Export Packing, Inc. , 473 F.2d 612, 616 (9th Cir. 1973) (as defense for civil contempt, "To satisfy this burden the respondent must show categorically and in detail' why he is unable to comply"). Richard Sinclair's statement is roughly equivalent to that in Gaskell; the bare declaration with minimal detail is not enough to justify elimination or reduction of the sanctions award.
Richard Sinclair states, "Mr. Katakis is able to perfect those sanctions and record them and protect whatever interest that does for him.... Sinclair is suing on his receivables and is happy to pay once he collects." Doc. 982, Richard Sinclair Opposition, 1:8 and 2:15-16. These appear to be the means by which Plaintiffs can recover the money from Richard Sinclair. The court will not add to the amount already assessed for sanctions; Plaintiffs' motion for additional monetary sanctions is denied.
However, Richard Sinclair further openly admits that "additional sanctions will not enforce compliance." Doc. 982, Richard Sinclair Opposition, 2:20. This appears to be true for the other Defendants as well given how Richard Sinclair appears to have spoken on their behalf throughout this litigation. This situation is untenable. Thus, the court is forced to switch from monetary to litigation sanctions from this point forward.
III. Lairtrust's Counterclaim (Docs. 901, 911, 993, and 1002)
Plaintiffs have made a motion to strike or dismiss Lairtrust's Third Amended Counterclaim (Doc. 895) for failure to comply with earlier court orders limiting the scope of the counterclaim. Doc. 901. Lairtrust then filed a belated motion to amend the Third Amended Counterclaim. Doc. 911. In striking the Second Amended Counterclaim, the court specifically noted that
The Second Amended Complaint ignores the prior court rulings, including the September 28, 2012 Order. First, it names Lairtrust, Capstone, Las Palmas, and Richard Sinclair as plaintiffs. The prior order made clear that Lairturst (and Lairtrust alone) is granted leave to amend.' Doc. 860, 6:8-9. Richard Sinclair argues that [he], as member manager of Lairtrust, LLC was injured by Plaintiff in his ownership of Capstone, LLC and in his ownership of Las Palmas of Turlock, LLC. That makes their Counterclaim compulsory. Counterclaimant seeks the approval of the Court as the Counterclaim is written.' Doc. 872, 2:23-3:1. Though Richard Sinclair claims to be seeking court approval for amending the counterclaim, he did not in fact do so. Richard Sinclair did not file a motion for leave to amend. He filed the Second Amended Counterclaim directly and asked for no permission. If this were the only violation of the court's prior orders, it may be excusable, but Richard Sinclair did more.
The second willful violation is his continuing claims for relief based upon the 2007 Settlement. In the Second Amended Counterclaim, Richard Sinclair bases several causes of action on the 2007 Settlement, including but not limited to the following: [Declaratory relief] A determination that Defendant has interfered with Plaintiffs' ownership of said property including the Lots provided to Plaintiffs in the Settlement Agreement.... [Breach of Contract] Defendants also breached the Global Settlement Agreement of July 2007 between all parties. Defendant specifically sought out to void the contract he expressly agreed to by claiming that FHOTOA and CEMG did not sign/agree as parties to the matter, when Katakis himself was under full control of both of those institutions and the Board approved the Settlement Agreement. Defendant then in fact failed to perform according to the terms of the Global Settlement Agreement. Defendants claims were wrongful and in breach of the Global Settlement Agreement.' Doc. 863, 12:10-12 and 17:9-17. As explained above, claims related to the 2007 Settlement were stayed. Lairtrust was to file a Second Amended Counterclaim that clearly segregated the stayed claims from the non-stayed claims. Instead, the claims based on the 2007 Settlement are intermingled throughout. The problems identified in the First Amended Counterclaim (inability to separate out stayed and non-stayed matters) continues in the Second Amended Counterclaim.
Lairtrust is granted leave to amend; it is being given another chance to fix its pleading. However, Lairtrust is specifically warned that continued failure to comply with court orders may result in dismissal of the Counterclaim with prejudice as a sanction.
Lairtrust (and Lairtrust alone) may file an amended pleading within thirty (30) days. Should additional parties wish to join as plaintiffs to the counterclaim, they must seek leave to amend in a separate motion after a proper Third Amended Counterclaim has been filed.
Doc. 891, April 5, 2013 Order, 5:9-6:10 and 8:24-26.
The court specifically ordered that Lairtrust (and Lairtrust alone) file an amended pleading and that Lairtrust segregate the stayed and non-stayed claims. The Third Amended Counterclaim has not corrected these problems. The caption of Third Amended Counterclaim lists Lairtrust and Richard Sinclair as plaintiffs and states "PLAINTIFFS, LAIRTRUST, LLC, and RICHARD C. SINCLAIR, Member Manager, herein file their Third Amended Counterclaim." Doc. 895, Third Amended Counterclaim, 1 and 2:8-9.
As for intermingling of stayed and non-stayed claims Judge Wanger initially found that "It is unclear from the face of the counterclaim which of the twelve causes of action are based on conduct that is outside the scope of the issues that have already been stayed. For example, inter alia, Lairtrust's fraud cause of action does not reference specific conduct but rather makes general allegations that may or may not concern conduct and issues that are subject to the order staying portions of Lairtrust's counterclaim. Because the complaint is unclear as to what alleged actions and omissions by Plaintiffs are the basis for each cause of action, and because the majority of Lairtrust's counterclaim has been stayed, a more definite statement is required to permit Plaintiffs to frame a response." Doc. 644, June 28, 2011 Order, 4:15-27. The court has given Lairtrust three additional opportunities to fix this problem. Yet Lairtrust continues to insistently interweave causes of action based on the 2007 Settlement such that disentangling them is impossible: "Defendant also committed fraud and misrepresentation when he signed and agreed to the Global Settlement Agreement of July 2007 between all parties, yet thereafter sought out to void the contract he expressly agreed to by claiming that FHOTOA and CEMG did not sign/agree as parties to the matter, when Katakis himself was under full control of both of those institutions.... Plaintiff seeks to quiet title as of July 05, 2007.... Katakis also failed to abide by the terms of the Global Settlement Agreement of 2007, which settled all disputes between the parties, as more fully described above. Plaintiff seeks a determination by this Court that Katakis specifically perform pursuant to the terms of the contract." Doc. 895, Third Amended Counterclaim, 19:16-21, 28:22, and 30:7-11.
Though the State Court Action has come to an end, Lairtrust's continual violation of court orders can not be excused. Lairtrust was warned that filing an amended pleading which did not respect the bounds set by the court could result in dismissal with prejudice. Given the history of this case and Richard Sinclair's flouting of rules despite monetary sanction, this court is forced to conclude that dismissal is warranted. Lairtrust's Counterclaim is dismissed with prejudice.
Richard Sinclair's request to amend is denied as moot. Plaintiffs' motions for Fed. Rule Civ. Proc. 11 sanctions based on Richard Sinclair's filings associated with the request to amend are also denied as moot; monetary sanctions can not compel compliance in this case and a litigation sanction has been applied.
IV. Motion on the Pleadings (Doc. 921)
Plaintiffs have made a motion on the pleadings, asking for res judicata to apply to three pleadings, the Lairtrust Action (Doc. 80), the Cross-Complaint (Doc. 425), and the Third Amended Counterclaim (Doc. 895). Doc. 922. As Lairtrust's Counterclaim is being dismissed for repeated failure to follow court orders, the application of res judicata to the Third Amended Counterclaim need not be considered. Richard Sinclair opposes the motion as "Attorney for Defendant/Cross-Claimants." Doc. 935. However, Brandon Sinclair has not filed any opposition. The court deems Brandon Sinclair to acquiesce to Plaintiffs' motion.
"After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." Fed. R. Civ. Pro. 12(c). Because the motions are functionally identical, the same standard of review applicable to a Fed. Rule Civ. Proc. 12(b)(6) motion applies to a Fed. Rule Civ. Proc. 12(c) motion. Dworkin v. Hustler Magazine, Inc. , 867 F.2d 1188, 1192 (9th Cir. 1989). Judgment on the pleadings is appropriate when, taking all the allegations in the non-moving party's pleadings as true, the moving party is entitled to judgment as a matter of law. Ventress v. Japan Airlines , 486 F.3d 1111, 1114 (9th Cir. 2007); Honey v. Distelrath , 195 F.3d 531, 532 (9th Cir. 1999). The allegations of the nonmoving party must be accepted as true, while any allegations made by the moving party that have been denied or contradicted are assumed to be false. MacDonald v. Grace Church Seattle , 457 F.3d 1079, 1081 (9th Cir. 2006); Hal Roach Studios v. Richard Feiner & Co., Inc. , 896 F.2d 1542, 1550 (9th Cir. 1989). The facts are viewed in the light most favorable to the non-moving party and all reasonable inferences are drawn in favor of that party. Living Designs, Inc. v. E.I. DuPont de Nemours & Co. , 431 F.3d 353, 360 (9th Cir. 2005); Turner v. Cook , 362 F.3d 1219, 1225 (9th Cir. 2004).
"[A] federal court must give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered." Migra v. Warren City School Dist. Bd. of Education , 465 U.S. 75, 81 (1984). Under California law, "a party will be collaterally estopped from relitigating an issue only if (1) the issue decided in a prior adjudication is identical with that presented in the action in question; and (2) there was a final judgment on the merits; and (3) the party against whom the plea is asserted was a party or in privity with a party to the prior adjudication." Clemmer v. Hartford Ins. Co. , 22 Cal.3d 865, 874 (Cal. 1978) (citations omitted). "The party asserting collateral estoppel bears the burden of establishing these requirements." Lucido v. Superior Court , 51 Cal.3d 335, 341 (Cal. 1990).
The California Supreme Court declined to hear the appeal of the Appellate Decision; that constitutes the final judgment on the merits. The State Court Action has the same cast of parties as the present case. All Defendants were plaintiffs in the State Court Action; privity is established. Regarding the issues decided, the Appellate Decision upheld the Trial Decision, finding that Defendants could not prevail on the bulk of their legal claims due to the doctrine of unclean hands. See Doc. 923-22, Ex. V, Appellate Decision, 28-39. The Appellate Decision and findings of the Trial Decision that were specifically upheld by the Appellate Decision constitute the issues for which res judicata applies. See Church of Scientology v. Linberg , 529 F.Supp. 945, 966 (C.D. Cal. 1981) ("The appellate decision has a critical bearing on the continued force of a final judgment as res judicata or collateral estoppel. Once an appeal is resolved, the alternative grounds raised on appeal but not decided upon by the appellate court are not essential to the judgment because appellate review of the grounds omitted from the appellate court decision has not been available to the litigant (or his privy) against whom the omitted ground is asserted"), citations ...