United States District Court, N.D. California
ORDER GRANTING MOTION TO STAY AND DENYING
GOVERNMENT'S MOTION TO DISMISS WITHOUT PREJUDICE RE: DKT.
NOS. 23, 27, 32
ILLSTON UNITED STATES DISTRICT JUDGE.
August 5, 2016, the Court held a hearing on
petitioners’ motion to stay. For the reasons set forth
below, the Court GRANTS petitioners’ motion for a stay
and DENIES the government’s motion to dismiss without
prejudice to renewal once the stay is lifted.
March 18, 2014, the government filed a twenty-nine count
indictment against David Lonich, Brian Melland, and Sean
Cutting. United States v. Lonich et al.,
Case No. CR-14-139 SI. Melland, Cutting and Lonich are
charged with, inter alia, conspiracy to commit wire
and bank fraud in violation of 18 U.S.C § 1349 (Count
One), bank fraud in violation of 18 U.S.C. § 1344 (Count
Two), wire fraud in violation of 18 U.S.C. § 1343
(Counts Three through Eight), conspiracy to make false
statements to a bank in violation of 18 U.S.C. § 371
(Count Nine), conspiracy to commit money laundering in
violation of 18 U.S.C. §1956(h) (Count Ten), and money
laundering in violation of 18 U.S.C. § 1957 (Counts
Eleven through Twenty-Two). Madjlessi was a real estate
developer, Lonich was Madjlessi’s attorney, Cutting was
President and CEO of Sonoma Valley Bank until it failed in
August 2010, and Melland was the Senior Vice President and
Chief Loan Officer of Sonoma Valley Bank until March 2010.
The indictment also sought forfeiture pursuant to 18 U.S.C.
§§ 982(a)(1), 982(a)(2)(A), and 982(b).
20, 2014, defendant James House was charged by information
with five counts of violations of 18 U.S.C. § 1349
(Conspiracy to Commit Bank/Wire Fraud); 18 U.S.C § 1343
(Wire Fraud); 18 U.S.C. § 1344 (Bank Fraud); 18 U.S.C.
§ 371 (Conspiracy to Make False Statement to Bank); and
18 U.S.C. § 1956(h) (Conspiracy to Commit Money
Laundering). The information also sought criminal forfeiture
pursuant to 18 U.S.C. §§ 982(a)(1) and
982(a)(2)(A), 18 U.S.C. § 982(b), and 28 U.S.C. §
2461(c). In an order filed July 9, 2014, the Court found the
Lonich and House cases related.
following facts are alleged in the Lonich
indictment. From approximately March 2009 until
approximately September 2012, Madjlessi, Melland, Cutting,
Lonich and House defrauded Sonoma Valley Bank and others by
means of materially false and fraudulent pretenses,
representations, and promises and by omission and concealment
of material facts. Specifically, the government alleges that
on or around April 2008, Madjlessi defaulted on an IndyMac
Bank loan of more than $30, 000, 000 that he had personally
guaranteed and that had been used to fund construction of a
condominium project called the Park Lane Villas
(“PLV”) East. According to the government,
Madjlessi, Melland, Cutting, Lonich and House conspired to
have Madjlessi bid on and obtain this defaulted loan contrary
to FDIC regulations and through House as a straw borrower.
The government alleges that in March 2009, Lonich created an
entity called 101 Houseco, and installed House as its nominal
owner. The government charges that House was a straw buyer
who exercised no meaningful control of 101 Houseco and that
instead, Madjlessi and Lonich exerted control over the
the bid for the defaulted IndyMac loan, Madjlessi approached
Sonoma Valley Bank executives Melland and Cutting seeking a
loan for 101 Houseco. Melland and Cutting knew that 101
Houseco was a straw purchaser, and they took steps to
authorize that loan, which was initially disbursed to 101
Houseco in March 2009. Sonoma Valley Bank loaned a total of
almost $9, 500, 000 to 101 Houseco. Of the final balance,
more than $4, 000, 000 was used to purchase Madjlessi's
defaulted IndyMac loan and more than $4, 500, 000 went to
Masma Construction, a company controlled by Madjlessi. In or
about January 2010, Madjlessi and Lonich, utilizing House,
caused 101 Houseco to settle a pending civil suit relating to
Madjlessi’s defaulted loan, foreclose on PLV East, and
obtain title to the project.
19, 2014, the government recorded in the Lonich case
a notice of lis pendens as to the real property and
improvements located at 3751 Sebastopol Road, Santa Rosa,
California. Dkt. No. 40 in CR 14-139 SI. This is the PLV
18, 2014, House pled guilty to counts one through five of the
information. Dkt. No. 7. In his plea agreement, House
admitted that he conspired with Madjlessi and Lonich in a
scheme to defraud Sonoma Valley Bank with the ultimate goal
of allowing Madjlessi and Lonich to gain control of PLV East.
House admitted that in furtherance of the scheme he acted as
the owner of 101 Houseco in order to obtain the loan for
Madjlessi from Sonoma Valley Bank. House also admitted that
he knew that 101 Houseco was actually controlled by Madjlessi
and Lonich but falsely represented to Sonoma Valley Bank that
he was the owner of 101 Houseco. House also agreed to
forfeit, to the United States “any property
constituting, or derived from, proceeds obtained directly or
indirectly, resulting from the violations alleged in Counts
One through Three of the Information”; and “any
property, real or personal, involved in the in the violation
alleged in Count Five of the Information and property
traceable thereto, including but not limited to a sum of
money equal to the amount of property involved in said
violation.” Id. ¶ 14.
April 8, 2016, the United States applied in the
House case for a preliminary order of forfeiture of
3751 Sebastopol Road, Santa Rosa, California. On April 11,
2016, Court entered the preliminary order of forfeiture.
17, 2016, a petition opposing the preliminary order of
forfeiture was filed by Lonich in his capacity as the
attorney for 114 Park Lane Santa Rosa, LLC. Dkt. No. 18. The
petition states that House “does not now, nor did he
ever, own the real property and improvements thereon
described in the Preliminary Order of Forfeiture.”
Id. ¶ 1. The petition also states the property
is owned by 101 Houseco, and that “despite
House’s contrary allegations in his guilty plea, that
101 Houseco, LLC obtained the subject property lawfully, and
not through any fraud or any other criminal conduct.
Accordingly, upon hearing, petitioner intends to prove that
the subject property is not subject to forfeiture.”
Id. ¶ 2. The petition also states that since
September 6, 2012, 114 Park Lane Santa Rosa, LLC has been the
sole member of 101 Houseco LLC, and that “[t]he issue
of petitioner's sole membership, however, is the subject
of a lawsuit now pending in the Sonoma Superior Court and
designated by Case No. SCV-255142.” Id. ¶
10, 2016, 101 Houseco, LLC filed a petition opposing the
preliminary order of forfeiture. Dkt. No. 21. That petition
was also filed by Lonich in his capacity as attorney for 101
Houseco, LLC. As with the petition filed by 114 Park Lane
Santa Rosa, LLC, the petition claims that House never owned
the subject property and that 101 Houseco, LLC is the lawful
owner and that the property is not subject to forfeiture.
Id. ¶¶ 1-2.
15, 2016, the government filed a motion to dismiss the
petition of 114 Park Lane Santa Rosa, LLC, for lack of
standing. Dkt. No. 23. On June 30, 2016, 114 Park
Lane Santa Rosa, LLC and 101 Houseco, LLC moved to stay the
forfeiture proceedings until the conclusion of the
Lonich case. Dkt. No. 32. The government opposes ...