United States District Court, E.D. California
WILLIAM BARKETT, MONTEREY FINANCIAL ADVISORS LLC; PARKER DAM DEVELOPMENT; WASCO INVESTMENTS LLC; BARUSA LLC, Plaintiffs,
SENTOSA PROPERTIES LLC; ARNOLD HUANG; ELIZABETH HUANG; EUGENE WONG; WF CAPITAL, INC.; DOES 1 TO 25, Defendants.
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS, GRANTING MOTION TO RECONSIDER MOTION TO QUASH RE PERSONAL JURISDICTION, AND DISMISSING AS MOOT THE REQUESTS FOR RECONSIDERATION RE VENUE. (DOCS. 1, 9, 19, 24, 44)
LAWRENCE J. O'NEILL, District Judge.
Before the Court in the above-styled and numbered cause of action are Defendant Sentosa Properties LLC's ("Sentosa") Motion to Dismiss, filed November 5, 2014 (Doc. 9), Defendant WF Capital, Inc.'s ("WF Capital") Motion to Dismiss, and its accompanying Request for Judicial Notice, filed December 1, 2014 (Docs. 19, 19-3), Sentosa's "Request for Reconsideration by the District Court of the Magistrate Judge's Order Denying Sentosa's Motion for a Change of Venue, " filed December 18, 2014 (Doc. 24), and Defendants Eugene Wong, Arnold Huang, and Elizabeth Huang's "Request for Reconsideration by the District Court of Magistrate Judge's Amended Order Denying Motion to Quash, " filed January 20, 2015 (Doc. 44). The Court concludes that the matters are appropriate for determination without oral argument. See Local Rule 230(g). The Court, having considered the record in this case, the parties' briefing, and the relevant law, will grant Defendants' motions to dismiss Plaintiff's Complaint as well as the reconsideration request related to jurisdiction, but will dismiss as moot the reconsideration request related to venue.
A. Allegations in the Operative Complaint
Plaintiff William Barkett ("Barkett") is an individual residing in San Diego County, California. See Complaint ("Compl."), Doc. 1 ¶ 1. Plaintiffs Monterey Financial Advisors LLC ("Monterey") and Barusa LLC ("Barusa") are California limited liability companies with their respective principal places of business in San Diego County, California. Compl. ¶¶ 2, 5. Parker Dam Development ("Parker Dam") and Wasco Investments LLC ("Wasco") are California limited liability companies with their respective principal places of business in Kern County, California. Id. ¶¶ 3, 4.
Defendant Sentosa is a Washington State limited liability company, with its principal place of business in Washington State. Id. ¶ 6. Sentosa purports to be the successor in interest to the rights of Defendant WF Capital. Id. ¶ 7. WF Capital is a Washington corporation, with its principal place of business in Washington State. Id. ¶ 6. Individual Defendants Arnold Huang ("Huang") and Elizabeth Huang (together, "the Huangs") are residents of the State of Washington and principals of Sentosa. Id. ¶¶ 8, 9. Defendant Eugene Wong ("Wong"), an individual and resident of the State of Washington, is an attorney and acted as the agent for Defendants Sentosa and the Huangs. Id. ¶ 10.
Plaintiffs' claims arise out of various loans by Defendant WF Capital to Plaintiffs Parker Dam, Wasco, and Barusa in order to purchase and develop real property ["the Property"] near the City of Wasco ("the City"). See, generally, Compl. Plaintiffs contend that they are "owners of certain real property located in the County of Kern near Wasco." Id. ¶ 12. There are three loans involved. To purchase and develop the Property, Plaintiff Wasco sought and obtained two separate loans from Defendant WF Capital, both of which were secured by the Property and personally guaranteed by Barkett and his wife, Lisa Barkett (together, "the Barketts"). Id. ¶ 12-14. In addition, Parker Dam sought and obtained from WF Capital a separate loan, likewise secured with the Property and personally guaranteed by the Barketts. Id. ¶ 15.
Sometime in 2009, Plaintiff Wasco Investment agreed to sell a lot in the development to Wal-Mart. Id. ¶ 16. As part of this transaction, Plaintiffs paid "approximately $3 million" to WF Capital, Inc. in exchange for a release of any security interests in the portion of the property sold to WalMart." Id. Despite accepting the $3 million, Plaintiff contends that WF Capital "never released the... deed of trust as agreed." Id.
By September 2009, Plaintiffs had defaulted on all Loans, but instead of foreclosing on the Property after default, WF Capital entered into a forbearance agreement (the "First Forbearance Agreement" or "FFA") with the Plaintiffs. Id. ¶ 19. According to Plaintiff, the First Forbearance Agreement related to "the obligations contended by WF Capital to be owed on the Subject Property." Id. ¶ 18. And, in reliance upon the FFA, Plaintiffs "continued their efforts to obtain entitlements and zoning... and to move forward with development of the Subject Property." Id. ¶¶ 18-19. Further, Plaintiffs contend that they "agreed to forgo the opportunity to file a bankruptcy petition to seek reorganization of the debt on the Subject Property and to protect their investment." Id. ¶ 19.
In 2010, despite the existing FFA, "WF Capital filed suit in Washington State against the Barketts seeking a judgment on the guarantees." Id. ¶ 20. The court entered judgment against the Barketts, "and the judgment was filed in California." Id. Despite the adverse judgment, WF Capital "entered into a Second Forbearance Agreement, " with Plaintiffs on June 26, 2011. Id. ¶ 21.
At some point soon after June 26, 2011, WF Capital assigned its beneficial interests in the loans to Sentosa. Id. ¶¶ 17, 21, 28. In June 2011, Plaintiffs allege the same parties, now also including Sentosa, "entered into an Amendment to the Second Forbearance Agreement" ("the Amendment"). Id. Plaintiffs contend that "[t]he parties agreed [in the Amendment] to specific reduced amounts that were due under the terms of the various loan documents and judgments, " and Plaintiffs again "agreed to refrain from seeking relief from the bankruptcy courts." Id. Plaintiffs assert that the Defendants "agree[d] to forebear from any action to foreclose on the Subject Property or attempt to enforce the judgments." Id. ¶ 25.
Plaintiffs did not meet the Amendment's payment deadlines. Id. ¶ 22. Even so, "Defendant Sentosa took no action to enforce its judgments or to otherwise exercise any of its claimed rights under the loan documents or the judgments... because... the parties continued to work together toward the development of the Subject Property." Id. Plaintiffs argue that as a result and with "Defendants knowledge, " they spent significant sums on "consultants and engineers over the time period of 2007 to the present, " and "were successful in getting approval of a tentative map and of selling one parcel to Wal-Mart." Id. ¶ 24.
In April 2014, Plaintiffs were negotiating with the City for an Improvement and a Tax Sharing Agreement (the "Tax Sharing Agreement") related to the Property, under which "Plaintiffs would receive a credit of $750, 000 and the remaining amount of the site improvement costs would be borne by the City initially and allocated via assessment on the Subject Property." Id. ¶ 26. During negotiations, however, the City "became concerned that there were liens of record against the Subject Property that either needed to be removed or that needed to agree to subordinate rights of the City of Wasco as developed under the Improvement Agreement." Id. ¶ 28. Plaintiffs contend that Defendants Sentosa and Arnold Huang were aware of the negotiations with the City and "participated at all times in the negotiations and agreed to, and did, execute Subordination Agreements and Petitions and Waivers relating to the Assessment District that was created thereby." Id. ¶ 26.
Plaintiffs emphasize that subsequent to the City having expressed its concerns about the liens and subordination, see id. ¶ 28, Defendants Sentosa and Arnold Huang verbally agreed to, although did not execute in writing, a third forbearance agreement ("the Oral Third Forbearance Agreement") precluding the conduct about which Plaintiffs complain Id. Specifically, Plaintiffs allege that:
Since Defendant Sentosa, by assignment from WF Capital, held the beneficial interest in at least three of the senior liens, Plaintiffs, acting through [Barkett], and Defendant Sentosa, acting through its principals, Defendants Huang and its other principals Does 1 to 5 and Defendant's legal counsel Eugene Wong, entered into an agreement that Sentosa would conduct a non-judicial foreclosure of the lien in the second position in order to eliminate any of the liens of record junior to that lien. In exchange for that non-judicial foreclosure, Defendants would grant to Plaintiffs or their assignee an Option to re-acquire [the Property] for a specified price and agree to permit Plaintiffs, at Plaintiffs' expense, to continue to process the development. No foreclosure would take place until the Option was in place.
Id. ¶ 28.
Plaintiffs further contend that, "at their request":
On or about April 24, 2014, the parties had reached a final version of [the Oral Third Forbearance Agreement] that included the Option to Purchase granted to Plaintiff[s] Monterey Financial Advisors, LLC.... All of the terms were agreed to and Plaintiffs were prepared to execute the agreement and indicated to Defendants that they would do so. At the very last minute, Defendants attempted to change the terms of the initial Option payment and demanded that Plaintiffs agree to this new term. The new term was not part of [the proposed Third Forbearance Agreement].
Id. ¶ 33.
Despite the alleged existence of favorable option terms in the Oral Third Forbearance Agreement, Plaintiffs allege that, "Defendants proceeded to complete a nonjudicial foreclosure sale of the Subject Property without any warning to Plaintiffs." Id. ¶ 34.
B. Procedural History
Plaintiffs Barkett, Monterey Financial, Parker Dam, Wasco, and Barusa (collectively, "Plaintiffs") commenced this action on August 20, 2014, by filing a Complaint in the California Superior Court for the County of Kern against Defendants Sentosa, WF Capital, Wong, and the Huangs (collectively "Defendants"). See generally, Compl., Doc. 1. Plaintiffs assert that Defendants are liable for fraud and breach of contract, and seek declaratory relief, asking for a determination "that there is no longer any amounts owed on the loans or the judgments, " ( id. ¶¶ 23-28), and that "Plaintiffs hold an option to purchase the Subject Property." Id. at 28.
On October 10, 2014, Specially Appearing Defendants Eugene Wong, Arnold Huang, and Elizabeth Huang (collectively, "the Individual Defendants") filed a Motion to Quash Service of Summons and Complaint for Lack of Personal Jurisdiction in California Superior Court for the County of Kern (Doc. 1-4, p. 38).
On October 29, 2014, Defendant Sentosa removed to this Court pursuant to the provisions of 28 U.S.C. Sections 1332(a) and 1441(b), asserting that the parties are diverse and the matter in controversy exceeds the sum of $75, 000. See Docs. 1-2. On October 30, 2014, Sentosa next filed a motion for change of venue on the basis of previous litigation related to enforcing the judgment against the Plaintiffs in the Southern District of California, making that district the proper venue for adjudication of Plaintiffs' claims (Doc. 3).
On November 25, 2014, the U.S. Magistrate Judge rendered an Order denying the Individual Defendants' Motion to Quash Service of Summons and Complaint for Lack of Jurisdiction (Doc. 16). On December 5, 2014, the Magistrate Judge rendered an Order denying Defendant Sentosa's Motion for a Change of Venue (Doc. 21).
On December 9, 2014, Defendants Eugene Wong, Arnold Huang, and Elizabeth Huang filed their Request for Reconsideration by the District Court of Magistrate Judge's Order Denying Motion to Quash Service of Summons and Complaint for Lack of Jurisdiction (Doc. 22), arguing legal and factual defects. On December 18, 2014, Defendant Sentosa requested reconsideration of an Order from the Magistrate Judge as to change of venue (Doc. 24). Plaintiffs filed multiple responses to the requests for reconsideration (Docs. 25, 29, 31).
On January 6, 2015, the Magistrate Judge rendered an Amended Order, again denying Defendants' motions to quash service and complaint for lack of jurisdiction (Doc. 33). On January 20, 2015, Defendants Eugene Wong, Arnold Huang, and Elizabeth Huang again filed a Request for Reconsideration by the District Court of Magistrate Judge's Amended Order Denying Motion to Quash Service of Summons and Complaint for Lack of Jurisdiction (Doc. 44). Plaintiffs filed their reply on January 30, 2015 (Doc. 50).
Sentosa moved to dismiss the Complaint on November 5, 2014 (Doc. 9), and WF Capital followed on December 1, 2014 (Doc. 19). On January 8, 2015, Plaintiffs filed their Oppositions to the motions (Doc. 35 & 38), in which they principally objected to Defendants' contention that Plaintiffs' claims are not well pleaded. Defendant Sentosa filed its reply on January 15, 2015 (Doc. 41), as did WF Capital (Doc. 42). All matters are ripe for review.
II. LEGAL STANDARD
The party seeking to invoke the federal court's jurisdiction bears the burden of demonstrating personal jurisdiction. Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006); Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1285 (9th Cir. 1977). When resolving a motion to dismiss under Rule 12(b)(2) on written materials, the court accepts uncontroverted facts in the complaint as true and resolves conflicts in affidavits in plaintiff's favor. Mavrix Photo, Inc. v. Brand Technologies, Inc., 647 F.3d 1218, 1223 (9th Cir. 2011). It is "well established that where the district court relies solely on affidavits and discovery materials, the plaintiff need only establish a prima facie case of jurisdiction." Rano v. Sipa Press, Inc., 987 F.2d 580, 587 n. 3 (9th Cir. 1993). Similarly, "when reviewing motions to dismiss" for lack of personal jurisdiction, the court "must accept all factual allegations [in] the complaint as true and draw all reasonable inferences in favor of the nonmoving party.'" See Western Center for Journalism v. Cederquist, 235 F.3d 1153, 1154 (9th Cir. 2000) (quoting TwoRivers v. Lewis, 174 F.3d 987, 991 (9th Cir. 1999)).
While the court reviews motions to dismiss for lack of personal jurisdiction in the light most favorable to the non-moving party, "when there is a conflict between the complaint and an affidavit, plaintiff cannot rely solely on the complaint to establish jurisdictional facts." North American Lubricants Co. v. Terry, 2012 WL 1108918, at *4 (E.D.Cal. Apr. 2, 2012) (citing Data Disc, Inc., 557 F.2d at 1284). In addition, the court need not consider merely conclusory claims, or legal conclusions in the complaint as establishing jurisdiction. NuCal Foods, Inc. v. Quality Egg LLC, 887 F.Supp.2d 977, 988 (E.D. Cal. 2012) (citing Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995)); see also China Technology Global Corp. v. Fuller, Tubb, Pomeroy & Stokes, 2005 WL 1513153, at *3 (N.D.Cal. June 27, 2005). If the court considers only written materials, plaintiff must show facts, which if true, would establish personal jurisdiction over defendants. Mattel, Inc. v. Greiner and Hausser GmbH, 354 F.3d 857, 862 (9th Cir. 2003).
Questions of personal jurisdiction ultimately turn on concepts of due process.
[D]ue process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.
Int'l Shoe Co. v. State of Wash., Office of Unemployment, 326 U.S. 310, 315 (1945) (internal quotations omitted). When no federal statute authorizes personal jurisdiction, this Court must apply California law. As California's long arm statute is coextensive with federal due process requirements, the jurisdictional analysis is the same. Mavrix Photo Inc., 647 F.3d at 1223; Cal.Civ.Proc.Code § 410.10.
A motion to dismiss brought under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the plaintiff's claims. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). When determining whether a claim has been stated, the Court accepts as true all well-pleaded factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, a court need not accept as true allegations contradicted by judicially noticeable facts, Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000), and the "[C]ourt may look beyond the plaintiff's complaint to matters of public record" without converting the Rule 12(b)(6) motion into one for summary judgment, Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 1995). Nor is a court required to "assume the truth of legal conclusions merely because they are cast in the form of factual allegations.'" Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (per curiam) (quoting W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)). Mere "conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss." Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004). While a complaint need not contain detailed factual allegations, it "must contain sufficient factual ...