Katakis
Filed 1/23/13 Sinclair v. Katakis CA5
NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS
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Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
RICHARD C. SINCLAIR et al.,
Plaintiffs and
Appellants,
v.
ANDREW KATAKIS et al.,
Defendants and
Appellants.
F058822
(Super.
Ct. No. 332233)
APPEAL
from a judgment of the Superior Court
of
County. Roger M.
Beauchesne, Judge.
Richard C.
Sinclair, in pro. per., and for Plaintiffs and Appellants Lairtrust, LLC,
Brandon Sinclair, Capstone, LLC, and Gregory Mauchley.
Downey
Brand, Janlynn R. Fleener, Ramaah Sadasivam and Katie Konz for Plaintiff
and Appellant Stanley Flake and
Capstone Trust.
McCormick, Barstow,
Sheppard, Wayte & Carruth, D. Greg Durbin, Todd W. Baxter,
John M. Dunn and Scott M. Reddie for Defendants and Appellants.
-ooOoo-
This case
includes three appeals from the judgment and the
over the ownership of eight lots in the Fox Hollow subdivision in Turlock,
California.
The
plaintiffs are Richard C. Sinclair, who serves as counsel for some of the
plaintiffs on appeal; his company Lairtrust, LLC;
Brandon’s company, Capstone, LLC; Stanley Flake, as an individual and as
trustee of Capstone Trust; and Gregory Mauchley (collectively, plaintiffs).
in the Fox Hollow property.
The
defendants are Andrew Katakis, his company California Equity Management Group,
Inc. (CEMG), and the Fox Hollow of Turlock Owners Association (FHOA)
(collectively, defendants).
Katakis and
CEMG acquired the properties that plaintiffs lost through foreclosures. The FHOA foreclosed on two of plaintiffs’
properties for delinquent dues and special assessments.
At trial,
plaintiffs claimed they were deprived of their property by wrongful
foreclosures and defendants’ tortious acts.
Defendants denied the allegations and asserted that plaintiffs’ unclean
hands precluded recovery. Defendants
also cross-complained for abuse of process.
The trial court found against plaintiffs on their complaint and
concluded plaintiffs’ unclean hands barred their recovery as well. The trial court found against defendants on
their cross-complaint.
In this
appeal: (1) plaintiffs challenge
essentially all of the trial court’s rulings against them, (2) Stanley Flake,
as an individual and as trustee of Capstone Trust, challenges the unclean hands
findings and the denial of a motion to enforce a settlement agreement, and (3)
defendants cross-appeal and challenge the trial court’s ruling that some of
plaintiffs’ claims were not barred by the doctrine of res judicata. We will address each appeal and the related
motions in turn.
PLAINTIFFS’ APPEAL
Factual Summary
Sinclair Develops Fox Hollow, 1988—1994
Sinclair is
an attorney whose practice includes business, tax, real estate, and corporate
matters. In the 1980’s, he became
involved in real estate syndication and constructed and owned apartment
complexes and office buildings. In 1988,
he and his wife purchased land at 152 20th Century Boulevard in Turlock,
California, and built a 35-unit townhome
apartment complex known as Fox Hollow.
In July 1992, Sinclair defaulted on the Fox Hollow construction loan
with Stockton Savings and Loan Association.
Several months later, despite the pending default, he transferred Fox
Hollow to Sinclair Enterprises, Inc. (also referred to as SE), which he and his
wife owned.
In February
1993, Sinclair applied to the City of Turlock to subdivide Fox Hollow into 19
lots and a common area and to convert it into a planned unit development (PUD)
to enhance its value. The resulting 19
lots could be sold or financed individually.
Sinclair signed the application as the owner despite the property’s
transfer to Sinclair Enterprises, Inc.
The City of
Turlock Planning Commission approved the application subject to conditions that
had to be met before the final subdivision map was recorded. The conditions included separate utility
service for each unit, erection of firewalls between the units and, upon subdivision
of the site, formation of a homeowners association to maintain the common
areas.
In January
1994, Sinclair, through Sinclair Enterprises, Inc., asked to modify the
condition requiring all building code revisions to be completed before the
final map could be recorded. The City of
Turlock denied the request a month later.
Sinclair wrote the City, stating “‘[t]here are sufficient funds within
the homeowners association’†to perform some of the modifications. At the time, however, there was no homeowners
association.
Meanwhile,
in August 1993, Stockton Savings and Loan Association recorded a notice of
default stating $154,615.50 was due on the Fox Hollow loan and no loan payments
had been made since July 1992. Stockton
Savings and Loan Association recorded a notice of sale and scheduled a
non-judicial foreclosure sale. One week
before the sale, Sinclair Enterprises, Inc., transferred Fox Hollow back to
Sinclair and his wife. About an hour
after the deed was recorded, Sinclair and his wife filed a chapter 11
bankruptcy proceeding. Eventually, the
bankruptcy court granted Stockton Savings and Loan Association relief from the
automatic stay, and the bank foreclosed on Fox Hollow.
Flake’s Ownership, October 1995—February 1997
Flake
operated a car dealership before he retired, and Sinclair’s family had
purchased cars from that dealership over the years. Sinclair had known Flake since at least 1985
from the car dealership and because they attended the same church. As of the early 1990’s, Flake had invested in
at least one of Sinclair’s real estate syndications.
In 1993, as
part of Sinclair’s “Benbright†bankruptcy, Flake signed a letter of intent to
exchange properties his car dealership owned with properties Sinclair’s
corporation owned. Sinclair used the
letter in an unsuccessful attempt to convince lenders to allow Flake to assume
the Sinclair corporation loans and properties.
Subsequently, the court dismissed the bankruptcy after concluding
Sinclair had filed it in “bad faith.â€
Sinclair’s “egregious conduct in making the unauthorized postpetition
transfers of the properties out of the Benbright estate to his individual
bankruptcy after the meritorious motions for relief from stay were filed has
caused further delay, harassment, and increased costs to the secured
creditors.†Flake filed objections to
the court’s order as did Sinclair and Sinclair’s wife. The objections are essentially identically
worded, but Sinclair could not recall if he prepared Flake’s objections. Flake was not questioned about the Benbright
bankruptcy.
Flake did
not recall how he learned of Fox Hollow but he knew a number of real estate
brokers who might have brought the property to his attention. He did not recall Sinclair’s connection to
the property when he purchased it. Sinclair, on the other hand, testified he
“spoke to†Flake, and Flake arranged to buy Fox Hollow.
In October
1995, Flake, as trustee of the Julie Insurance Trust, purchased Fox Hollow from
Stockton Savings and Loan Association for approximately $1,266,000. Flake did not recall subdividing Fox Hollow
while he owned it. Documentary evidence,
however, disclosed that within 10 days of purchasing the property, Flake signed
a subdivision map—which was prepared by the same engineer Sinclair had
used—that subdivided a portion of Fox Hollow and created lots 1, 11, 18, and 19
and a designated remainder. Flake also
worked with architect Vernon Fergel, who had begun the PUD conversion with
Sinclair. Flake paid an invoice for work
Fergel had done for Sinclair while Sinclair owned Fox Hollow. During the 16 months Flake owned Fox Hollow,
Sinclair helped Flake process the subdivision application and obtain the first
partial subdivision map that was recorded in 1996. Sinclair also filed unlawful detainer actions
against Fox Hollow tenants, listing Flake, as trustee, and himself as owners of
the property.
Flake
signed CC&R’s (covenants, conditions, and restrictions) for Fox Hollow,
which were recorded in September 1996.
The CC&R’s defined the “Declarant†as “SE, a California
corporation,†Sinclair’s corporation. In
addition, the CC&R’s state that, when recorded, they were to be mailed to
“Mauctrst†at Sinclair’s address, not to Flake.
Flake did not recall who prepared the CC&R’s or why. The Fox Hollow property did not change
physically in any significant way during the months Flake owned it.
Mauchley’s Ownership, February 1997—July 1998
Mauchley
owned a sheet metal fabrication shop and a Utah cattle ranch. He was a friend and client of Sinclair’s, and
he wanted to buy property to offset his taxes.
Sinclair knew Flake wanted to sell Fox Hollow, so Sinclair arranged the
sale to Mauchley. Mauchley did no due
diligence before purchasing the property; he relied on Sinclair for that.
In February
1997, Flake’s Julie Insurance Trust sold Fox Hollow to Mauchley through
separate grant deeds, one each for lots 1, 11, 18, and 19, and a fifth deed for
the remainder of the property that had not been subdivided. At the time of the sale, Flake anticipated it
would take 12 months to complete the subdivision work and record a final
map. Mauchley agreed to pay Flake
approximately $1.9 million for Fox Hollow in the form of cash plus a note and
deed of trust for $444,888. The sale
Sinclair arranged yielded Flake a sizeable profit. The beneficiary under the $444,888 deed of
trust was Flake, as trustee of Capstone Trust, which Flake formed for the
purpose of holding the Mauchley note and deed of trust.
Mauchley
obtained five loans from GMAC Mortgage Corporation (GMAC) to purchase Fox
Hollow. Sinclair assisted Mauchley to
obtain the financing but, at trial, did not recall what assistance he
provided. Mauchley borrowed $119,000 for
four lots for a total of $476,000. Each
loan was secured by a deed of trust on the specified lot. Mauchley borrowed an additional $1 million,
secured by a deed of trust, against the remainder of Fox Hollow, which was to
be subdivided into 15 additional lots.
Flake retained a security interest in the garages not attached to
specific units, the “garage lots.â€
While
Mauchley owned Fox Hollow, he was not involved in the day-to-day
operations. Sinclair managed the
property by collecting rents, paying the lenders, and maintaining the
property. Sinclair also was responsible
for completing the work needed to subdivide the remaining lots. Mauchley was aware the required modifications
were not completed while he owned the property.
Final Subdivision Map
Nevertheless,
on February 20, 1998, Sinclair filed a “Notice of Completion†of the
subdivision project. The notice states
that Sinclair is the “developer of said work†and the owner of the
subdivision. A week later, Mauchley
signed the “Fox Hollow NO. 2†subdivision map as owner of the property. The map, which created lots 2, 3, 4, 5, 6, 7,
8, 9, 10, 12, 13, 14, 15, 16 and 17, and a common area, was recorded on
July 21, 1998. Sinclair did not
recall whether he disclosed to City of Turlock employees that the conditions
imposed for approval of the subdivision had not been completed. He testified it was common to complete the
requirements after the map was recorded.
Refinancing of the New Lots
Several
days after the final subdivision map was recorded, Sinclair, with Mauchley’s
authorization, obtained financing on the 15 newly created lots. Sinclair testified Mauchley set up his own
financing. But Mauchley testified he did
not communicate with the refinance lenders, Sinclair did. Documentary evidence supported Mauchley’s
testimony. Mauchley borrowed
approximately $1.8 million from four lenders secured by deeds of trust on each
of the 15 lots. Fifteen escrows were
opened and a portion of the proceeds of each was used to pay off the $1 million
GMAC loan. In addition, a portion of the
proceeds was used to pay Flake the principal and interest on his $444,888 note.
Granite Bay
Funding, which made loans on lots 3, 7, 9 and 14, was not aware the subdivision
work had not been completed. Had it been
aware, it would not have made the loans until the work was complete. The trial court concluded the July 1998 loans
were obtained “on a false premise.â€
Mauctrst’s Ownership, July 1998—Foreclosures
In 1995,
Sinclair formed Mauctrst for Mauchley as part of a tax plan. Mauchley was the owner and member
manager. Sinclair was comanager. Sinclair was not able to produce a signed
operating agreement for Mauctrst.
Once the
loans on the 15 newly created lots were funded in July 1998, Mauchley
transferred Fox Hollow to Mauctrst.
Mauctrst agreed to pay Sinclair a monthly salary of $10,600 for managing
Fox Hollow.
Mauchley
did not recall if the lenders were told of the transfer. He did not ask the lenders for consent to
transfer the property, as required by the terms of the notes and deeds of
trust. The owner of Granite Bay Funding
testified the loans had an acceleration clause, and he was not aware Mauchley
planned to transfer Fox Hollow to Mauctrst.
In July
1998, Mauctrst executed a note for $271,000 secured by a deed of trust with
assignment of rents on all 19 lots to Flake’s Capstone Trust. The record is not clear regarding the purpose
of that transaction.
In March
1999, Mauctrst recorded another deed of trust for $300,000 secured by the Fox
Hollow property. In addition, at some
point, Mauchley provided Mauctrst $300,000 to meet an operating deficit.
Mauctrst
made only a few payments on the 15 July 1998 loans, and the lenders began
recording notices of default in April 1999.
Mauctrst’s Bankruptcy
Sinclair
filed a chapter 11 bankruptcy petition for Mauctrst on July 1, 1999. The court appointed a chapter 11 trustee,
whose status reports are critical of Sinclair’s management of Mauctrst. Sinclair failed to timely file the required
bankruptcy disclosure statements; he had not provided Mauctrst with an
accounting of his services and compensation for over a year; and, since January
1998, he had been paid $150,000, including $20,000 in the 90 days before
Mauctrst filed the bankruptcy petition.
In addition, Sinclair failed to account for the proceeds of two fire
insurance claims, and over 50 cancelled checks and two bank statements were
missing. Finally, he failed to account
to the trustee for $135,000 he had received from Mauctrst between August 1998
and June 1999.
In January
2000, the bankruptcy court granted the trustee’s motion to abandon the Fox
Hollow property back to Mauctrst because it was “severely over encumbered [
The bankruptcy eventually was converted to a chapter 7 and closed by
final decree in September 2002.
Sinclair’s Further Involvement
After Fox
Hollow reverted to Mauctrst in January 2000, Sinclair attempted to purchase the
notes from the foreclosing lenders for his “clients.†At trial, he could not remember which
clients. He offered a reduced price
because many of the units securing the notes could not be resold individually
since the subdivision work was not complete.
For example, in January 2000, just 18 months after Mauchley borrowed
$130,000 against lot 3, Sinclair offered to pay the lender $80,000 for the note
because the lot was not individually saleable.
Tactics to Delay Foreclosure
Lots 3, 7, 9, and 14
Granite Bay
Funding held the notes on lots 3, 7, 9, and 14 for about two weeks before
assigning them to Allied American Funding, Inc.
At least one of the assignments was not recorded. Eventually, the notes and deeds on the four
lots were transferred to ContiMortgage Corporation (ContiMortgage). Sinclair had not disputed the validity of the
ContiMortgage security interests in the Mauctrst bankruptcy proceeding. After the bankruptcy trustee abandoned the
property, however, Sinclair refused to make payments for Mauctrst to
ContiMortgage, claiming he was dissatisfied with ContiMortgage’s documentation
establishing that it held the notes and deeds of trust.
After the
property reverted to Mauctrst, the lenders again pursued foreclosures. Sinclair, on behalf of Mauchley and Mauctrst,
filed 15 actions against the lenders to delay foreclosure. In an action against ContiMortgage and
Lonestar Mortgagee Services, LLC (Lonestar), Stanislaus Superior Court, No. 254996,
Mauchley and Mauctrst sought a restraining order and preliminary injunction
barring foreclosures on lots 9 and 14.
The pleading Sinclair prepared pertained to lots 9 and 14 only. The order Sinclair prepared for the judge’s
signature after the hearing, however, states that defendants were enjoined from
conducting a foreclosure sale on lots 9 and 14 “or any Lots in the Fox Hollow
subdivision ….†At trial, Mauctrst
and Sinclair contended the preliminary injunction also applied to lots 3 and 7.
The
preliminary injunction ordered Mauchley and Mauctrst to make regular monthly
payments on the promissory notes. From
June 2000 through June 2003, when the injunction was dissolved and the case
dismissed, Mauctrst had possession of the lots and collected rents but made no
mortgage payments. Despite the court
order to make monthly payments, Sinclair refused to pay on the ground he did
not believe ContiMortgage owned the notes and deeds of trust.
Lots 1, 11, 18, and 19
In a suit
against GMAC, Sinclair sought a temporary
restraining order barring foreclosure sales set for lots 1, 11, 18, and
19. While Sinclair successfully obtained
a temporary restraining order, two months later the trial court denied a
preliminary injunction and dissolved the earlier order because Mauchley and
Mauctrst did not comply with its terms to make regular payments on the
notes. GMAC completed the foreclosures
on September 29, 2000. The GMAC
foreclosures eliminated the property securing Flake’s $271,000 note.
Homeowners Association
Despite the
City of Turlock’s subdivision approval condition in 1996 that required the
formation of a homeowners association and similar language in the CC&R’s,
Sinclair testified that the FHOA had to be formed only upon the sale of the
first lot to a second owner. Therefore,
when the first foreclosure by a lender was imminent, Sinclair held the first
meeting of the FHOA on June 1, 2000, and prepared the minutes. The minutes state that Sinclair, Brandon, and
Mauchley were present, and each was elected to the board of directors. In one area the minutes state the directors
elected Brandon president, Mauchley treasurer, and Sinclair secretary, but the
last page states Brandon was elected president and Sinclair elected
secretary-treasurer.
The
directors agreed to waive Sinclair’s conflict of interest as a manager of
Mauctrst and employed him as the association’s legal counsel at $225 per hour
or approximately $50,000 for his services that year to assist with the FHOA
formation. At
the second FHOA meeting on August 1, 2000, the board approved a motion to
begin collecting dues of $150 per unit or $300 per duplex lot for the next six
months, commencing that day, and authorized payments to Sinclair for his legal
work. The minutes state Mauchley was
present at both meetings but Mauchley testified he never attended an FHOA board
meeting.
Court Appoints a Receiver
In February
2001, Ocwen Federal Bank, F.S.B. (Ocwen), a lender on four of the foreclosed
lots, applied to have a receiver appointed for the FHOA because of
deterioration of the buildings and common area.
The court-appointed investigator reported that Fox Hollow was in very
poor condition. The property was
littered with garbage, discarded furniture, disabled vehicles, and abandoned
shopping carts. The landscaping and pool
were not maintained, and the pool had a strong sewage odor. In addition, the FHOA had shoddy bookkeeping
practices and had grossly misused its funds.
That misuse included paying Sinclair $15,266 for attorney fees while
spending only $9,419 on property-related matters. Over Sinclair’s opposition, the court
appointed a receiver. The receiver was
discharged in September 2002.
GMAC Settlement Agreement
After GMAC
foreclosed on lots 1, 11, 18, and 19, the Mauchley/Mauctrst lawsuit against
GMAC for damages remained. In May 2001,
GMAC, Mauchley, Mauctrst, and Flake for Capstone Trust entered into a
settlement agreement. GMAC agreed to
sell lots 1, 11, 18, and 19 to Flake, as trustee of Capstone Trust, for
$114,000 per lot. Capstone Trust
participated in the agreement because Flake hoped to get his $271,000 note paid
off by purchasing the lots and then immediately reselling them at a profit to
Sinclair.
Sinclair
set up double escrows for the purchase of lots 1 and 19. He testified that Mauchley and Mauctrst owed
him substantial attorney fees and wanted those fees to be paid. As payment for those fees, Sinclair agreed to
take the lots and give one lot to his son Brandon because he had worked “on the
project.†Accordingly, Flake would resell
the lots to Sinclair and Brandon for $190,000 each, crediting Sinclair’s fees
and reducing the amount owed on the $271,000 note by about $15,000. Sinclair testified that GMAC was aware of the
double escrows and it did not matter to them.
GMAC’s attorney, who had approved the settlement agreement for GMAC,
testified she never would have agreed to the double escrows had she been aware
of them. Her goal for GMAC was “to get
rid of the Sinclair, Mauchley, et cetera, people for all time.†Further, she believed double escrows “[are]
akin to fraud†and lead to litigation.
Escrow
closed on lot 1 on August 1, 2001, and on lot 19 in December 2001. On the same days that the GMAC-Capstone Trust
escrows closed, Flake, as trustee, conveyed lot 1 to Brandon and lot 19 to
Sinclair. In February 2002, Sinclair
transferred lot 19 to his company, Lairtrust, LLC, and Brandon transferred lot
1 to his company, Capstone, LLC (no relation to Flake’s Capstone Trust).
The GMAC
settlement agreement, dated May 14, 2001, in its title, recites that
escrow would close on the four lots within 60 days of execution of the
agreement. In July 2001, GMAC became
concerned and impatient with Sinclair’s repeated assurances that the
transactions were progressing followed by failure to follow through, including
not placing the funds in escrow to purchase the lots. Sinclair repeatedly assured GMAC the escrows
would close soon and then failed to meet every projected date of completion. On August 7, 2001, GMAC’s attorney wrote
Sinclair, “The agreement is canceled.â€
Sinclair did not respond to the letter or dispute that the agreement was
cancelled.
The
settlement agreement had provided that GMAC would deliver possession of the
lots to Capstone Trust at the close of escrow.
Because the escrows on lots 11 and 18 did not close before GMAC
cancelled the settlement agreement, GMAC continued to own lots 11 and 18. Despite this, Brandon entered into at least
four written leases for the units on those lots and collected rents. Brandon testified he did so for
Sinclair. He could not explain why he
leased property he did not own. GMAC was
unaware that Brandon leased the units and did not give Brandon permission to
lease the units or collect rents.
Katakis’s Ownership, May 2002
Katakis is
a real estate broker. He owns and is
president of CEMG, a real estate investment company. He learned of Fox Hollow when a real estate
agent brought the property to his attention.
He had experience renovating rundown properties. In May 2002, he acquired lots 2, 4, 5, 13,
and 15, which were then owned by the lender Ocwen.
On
June 25, 2002, CEMG acquired lots 11 and 18 from GMAC. When Sinclair learned of this, he faxed
Katakis a copy of the GMAC-Capstone Trust settlement agreement and accused him
of interfering with the agreement. At
trial, Sinclair testified he notified Katakis of the settlement agreement
before CEMG acquired the lots, and he presented an undated fax to substantiate
his testimony. Katakis produced the
actual fax he received, however, which had a date stamp of July 17, 2002,
weeks after CEMG acquired the lots.
When CEMG
purchased its first lots, the receiver was operating the FHOA. On September 30, 2002, the receiver
notified the Fox Hollow property owners that he was discharged and they must elect
a board of directors immediately to continue operating the association. The receiver’s letter included a notice of
special meeting set for October 15, 2002, at 6:00 p.m., and a three-page
agenda of business to be transacted. The
meeting notice was signed by Katakis, as owner of 5 percent of the total voting
power of the FHOA.
On
October 4, 2002, Sinclair wrote Katakis asking to have the meeting
rescheduled because he would be in trial in Fresno. He stated he represented Mauctrst, himself,
Brandon, Mauchley, Capstone, LLC, Lairtrust, LLC, and Flake collectively, who
owned more than 5 percent of Fox Hollow.
He did not assert that he, Brandon, and Mauchley were the current board
of directors. And, three months earlier
in July 2002, Sinclair wrote in a statement filed with the court that the FHOA
board members had resigned when the receiver was appointed, and it was logical
to hold elections for a board of directors to carry out the work of the FHOA.
The FHOA
meeting was held as scheduled. The minutes
of the meeting reflect that those in attendance elected Katakis president, Gary
Alldrin vice president and Dave Konecny secretary-treasurer. Among other things, the new board discussed
the need for a reserve study, hiring an accountant and a property manager, and
hiring a project manager to address deferred maintenance issues. The next meeting was set for noon on
October 24, 2002.
Sinclair
notified the board of directors he would be out of town and unable to attend
the October 24 meeting. He objected
to the board’s actions, which he claimed were outside the scope of board
authority under the CC&R’s and bylaws.
At the
October 24 meeting, the board hired a management company for Fox Hollow
and agreed to request that Sinclair deed the common area to the FHOA. Sinclair returned a deed to the common area
but, according to Katakis, the deed did not contain a proper legal description
and was not valid.
On
December 16, 2002, Sinclair sent a letter to Katakis and the FHOA claiming
that the former board—himself, Mauchley and Brandon—had not resigned, and he
had not been given credit for attorney fees that the FHOA owed to him while the
receiver was in place.
Despite
Sinclair’s protests, the FHOA board of directors began to repair Fox Hollow and
to complete the work the City of Turlock required to convert Fox Hollow to a
PUD. The work required to meet Turlock’s
building code was completed in 2004 at a cost of approximately $312,000 to the
FHOA and $1,007,000 to CEMG.
Sinclair
believed that Katakis and the FHOA were treating him and his lot unfairly. His lot was not included in the improvements
and his reports of a leaking roof were ignored.
The chief executive officer of the management company for the FHOA
testified that the amended CC&R’s permitted the association to decline to
maintain or repair items for lots that were delinquent in paying dues or
special assessments. For those units,
the owner was obligated to maintain and repair the unit. Sinclair admitted he received a letter from
the attorney for the association notifying him that because he had not paid
dues, the association would not repair his units.
FHOA Dues and Special Assessments Accounting
In January
2003, the board of directors, through Katakis, hired an accounting firm to
prepare an accurate set of books for the FHOA.
As president of the association, Katakis gathered documents for the
accountants and met with them regarding the reports. The accountants did not believe that Katakis
was withholding information or was requesting special accounting for the lots
he owned. Katakis, however, sent an
e-mail that was misinterpreted, resulting in an accounting error.
The
accountant prepared a report that tracked dues and special assessment payments
made in relation to each lot from August 1, 2000, through
December 31, 2002. In March 2003,
Katakis sent the accountant an e-mail regarding the lots owned by Mauchley,
Sinclair, and their companies stating, “please make the assumption that
payments have not been make [sic] to
April 1, 200[3].… This will give
the attorney final numbers to start the lien process with.†Katakis intended the accountant to update the
reports to show the Sinclair entities had made no payments in January,
February, and March 2003. The
accountant, however, struck all payments made on behalf of those lots, which
resulted in an overstatement of the delinquencies. Although the accountant knew the revised
calculations were not consistent with source documents Katakis had provided, he
did not recall why he had interpreted the e-mail as he had.
In April
2003, FHOA’s attorney notified Capstone, LLC, Brandon’s company, the owner of
lot 1, and Lairtrust, LLC, Sinclair’s company, the owner of lot 19, that the
association would institute collection procedures if the outstanding dues and special
assessments were not paid within 30 days.
Sinclair responded that the delinquency figures cited were incorrect but
did not provide the amount he opined was correct nor did he offer to pay
anything.
FHOA Foreclosures on Lots 1 and 19
In June
2003, the FHOA recorded a notice of delinquent assessment with respect to both
lots. At trial, Sinclair continued to
dispute the amount owed, but acknowledged that neither Brandon nor he had paid
any dues or special assessments to the FHOA from May 2002 through March
2004. Sinclair contended he had a credit
for legal fees the FHOA owed him, and the special assessments had been
improperly enacted and imposed. He also
stopped paying dues because Katakis had told him that Katakis would own his
lots no matter what he did. In March
2004, the FHOA foreclosed on lots 1 and 19.
Subsequently,
CEMG purchased the note and deed of trust on lot 19, foreclosed, and became
record title owner in 2008.
PROCEDURAL summary
In April
2003, Mauctrst;
title="">[3] Lairtrust, LLC; Capstone Trust; Flake, as
trustee; Sinclair, Mauchley, and Brandon filed this action. The fifth amended complaint is the operative
pleading and alleges 12 causes of action against Katakis, CEMG, and the FHOA.
name="_ftnref5" title="">[5] Flake authorized Sinclair to file the lawsuit
on behalf of himself and as trustee of Capstone Trust as a way to recover the
amount he was owed on the $271,000 note that had been secured by the Fox Hollow
property. At the time of trial in
December 2008, Katakis’s CEMG owned 18 of the lots and Sinclair’s Lairtrust,
LLC owned one lot. Eight of Fox Hollow’s
19 residential lots are at issue in the lawsuit: lots 1, 3, 7, 9, 11, 14, 18, and 19.
Regarding
lots 1 and 19, plaintiffs claimed Katakis, through the FHOA, instituted
wrongful foreclosure proceedings using overstated dues and assessment amounts
and defective notices. In addition,
Katakis improperly reconstructed the FHOA board of directors to oust Sinclair
and Brandon and to foreclose wrongfully on the lots. Defendants claimed plaintiffs’ unclean hands in
relation to the lots was sufficient to deny their claims for wrongful
foreclosure. Further, that plaintiffs
had failed to meet their burden of proof to show a loss of net equity and/or
any loss of net rental income.
Regarding
lots 3, 7, 9, and 14, plaintiffs asserted:
(1) the lots were foreclosed upon in violation of the automatic stay in
the Mauctrst bankruptcy; (2) the foreclosure of lot 3 violated the preliminary
injunction issued by the Stanislaus Superior Court; (3) CEMG never acquired the
notes and deeds of trust and therefore never had the right to foreclose; (4)
the notices of foreclosure contained numerous defects rendering the
foreclosures wrongful; and (5) Lonestar had no authority to conduct the
foreclosure sales because “Loanstar†executed the trustee’s deed for lots 9 and
14. Plaintiffs sought to set aside the
foreclosures and asked for monetary damages for lost gross rental income. Defendants countered that plaintiffs’ failure
“to do equity†precluded relief. In
addition, plaintiffs had failed to establish they were not in default, failed
to show any procedural irregularities were prejudicial, failed to prove CEMG
did not hold title, and failed to show any lost net rental income, the proper
measure of damages.
Regarding
lots 11 and 18, plaintiffs contended that Katakis and CEMG intentionally or
negligently interfered with contract or economic advantage by interfering with
the settlement agreement between GMAC, Mauchley, and Flake whereby GMAC was to
sell the lots to plaintiffs. Plaintiffs
sought monetary damages. Defendants
claimed plaintiffs failed to show the agreement had not been cancelled long
before Katakis and CEMG purchased the lots.
Brandon
claimed Katakis violated his right to privacy and the Fair Credit Reporting Act
(15 U.S.C. 1681 et seq.) by obtaining Brandon’s loan application and
threatening to disclose its contents to third parties. Defendants claimed plaintiffs introduced no
evidence that Katakis or CEMG violated any credit statute or that Brandon
suffered any damage.
Defendants
Katakis and CEMG cross-complained for abuse of process against Sinclair,
Mauchley, and Mauctrst, who generally denied the allegations.
After a
36-day court trial and posttrial briefing, the trial court issued a detailed
statement of decision and entered judgment for defendants on the fifth amended
complaint and judgment for cross-defendants on the cross-complaint.
Sinclair,
on behalf of “Plaintiffs,†filed a timely notice of appeal. Defendants filed a timely cross-appeal. Flake filed a separate appeal, which
defendants moved to dismiss as untimely.
Defendants also requested sanctions against Flake for pursuing a
frivolous and dilatory appeal. We will
address each appeal in turn.
DISCUSSION
Preliminary Matters
Plaintiffs’
briefing disregards (1) which party bore the burden of proof at trial to prove
a specific claim or affirmative defense, (2) which party bears the burden on
appeal to show trial court error, and (3) the applicable standard of review
under which this court must analyze an appellant’s claims. We set forth those standards and will refer
to them where appropriate throughout the opinion as we consider the various
claims.
Burden of Proof at Trial
At trial, a
party has the burden of proof as to each fact that is essential to the claim
for relief or the defense being asserted.
(Evid. Code, § 500.)
Plaintiffs bore the burden of proving the elements of each cause of
action for which they sought relief.
They bore the burden of persuading the trial court of the truth of the
facts they asserted to support each cause of action. (Simpson
Strong-Tie Co., Inc. v. Gore
(2010) 49 Cal.4th 12, 24.) Defendants
bore no burden with respect to plaintiffs’ causes of action. Defendants, however, bore the burden of proof
and persuasion on their unclean hands affirmative defense, which they alleged
to defeat plaintiffs’ claims. (
817, 820.)
Burden to Demonstrate Error on Appeal
On appeal,
the reviewing court presumes the trial court’s judgment is correct and the
record contains evidence to support the trial court’s findings. An appellant bears the burden to overcome
that presumption and must provide an adequate appellate record demonstrating
the alleged error. (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th
600, 610.) Equally important, especially
when the record is voluminous as it is in this case, an appellant must provide
page citations to the record to support the arguments. (Cal. Rules of Court, rule 8.204(a)(1)(C);
(1999) 72 Cal.App.4th 849, 856.) The
appellate court is not required to search the record to determine whether it
supports the appellant’s claim of error.
(Green v. City of Los Angeles
(1974) 40 Cal.App.3d 819, 835.) If a
party fails to support an argument with the necessary citations to the record,
that portion of the brief may be stricken and the argument deemed to have been
waived. (Duarte v. Chino Community Hospital, supra, at p. 856.)
Burden When Challenging Trial Court Findings
When the
trial court makes findings against the plaintiffs because they failed to meet
their burden of persuasion, either because of a lack of evidence or a lack of
credible evidence, arguing on appeal that the trial court erred because it did
not credit the plaintiffs’ evidence is pointless. Whether the plaintiffs proved their claims is
a question to be determined by the trial court.
The appellate court does not decide the question anew, but only examines
the record to determine whether there is any substantial evidence to sustain
the trial court’s conclusion. (
other words, where the issue on appeal turns on a failure of proof at trial,
the question for a reviewing court is whether the evidence compels a finding in
favor of the appellant as a matter of law.
That is, whether the appellant’s evidence was “‘uncontradicted and
unimpeached’†and “‘of such a character and weight as to leave no room for a
judicial determination that it was insufficient to support a finding.’†(In re
I.W. (2009) 180 Cal.App.4th 1517, 1528.)
Procedural Defects in Plaintiffs’ Briefs
Defendants
contend that substantial procedural defects in plaintiffs’ opening brief should
result in a waiver of all arguments made.
Specifically, plaintiffs failed (1) to cite adequately to the appellate
record and (2) to identify the applicable standards of review.
Plaintiffs
filed a 141-page opening brief with few record citations. Of the citations provided, many could not be
correlated with the record plaintiffs had provided. The court ordered plaintiffs to correct the
opening brief and provide proper citations to the record. Plaintiffs provided a 152-page corrected
opening brief that contains additional citations to the record. Some of the added citations fail to comply
with the rule that a party’s brief must support any reference to a matter in
the record by a specific page citation to the record (Cal. Rules of Court, rule
8.204 (a)(1)(c)). For example, after the
statement “Within 23 months, Katakis owned all the lots committing numerous
torts against Plaintiffs to get there,†plaintiffs provided the following
record citation: “(App V. 7 BS 1958-1964) (RT V. 15 P. 3704 L. 15-24), (RT V. 4 P. 927 L.
19-22; RT V. 4 P. 932 L. 20-27; RT V. 4 P. 929 L. 20-22; RT V. 4 P. 933 L.
20-24; RT V. 4 P. 934 L. 14-28; RT V. 4 P. 930 L. 1-4 and RT V. 4 P. 932 L.
1-18), (RT V. 13 P. 3277 L. 17-23), (RT V. 15 P. 3695 L. 18-25) (RT V. 15 P.
3720 L. 7-10), RT V. 6 P. 1517 L. 11-15) RT V. 6 P. 1513-1518), (App V. 8 BS
2294-2295), … [151 additional citations to the record].†Plaintiffs inserted the same 66-line sequence
of citations on page 1 and page 66 of the corrected brief.
To the
extent plaintiffs have provided useable citations when discussing an issue,
defendants’ argument is moot. To the
extent plaintiffs failed to cite to the record or provided citations that do
not comply with the rules of court when discussing an issue, the court will
deem the issue waived.
Regarding
the failure to cite to the applicable standard of review, plaintiffs raised a
number of substantial evidence issues but cited only evidence favorable to
them. Defendants urge this court to
presume the record contains evidence to sustain every finding of fact and to
consider all the arguments waived.
A party who
challenges the sufficiency of the evidence to support a finding must summarize
the evidence on that point, favorable and unfavorable, and show how and why it
is insufficient. (Schmidlin v. City of Palo Alto (2007) 157 Cal.App.4th 728,
738.) With several issues, plaintiffs
have failed to do so. Their opening
brief sets forth only their version of the evidence and omits the conflicting
evidence presented by defendants. Where
the plaintiffs present only facts and inferences favorable to their position,
the court may deem their substantial evidence challenges waived. (Doe v.
Roman Catholic Archbishop of Cashel & Emly (2009) 177 Cal.App.4th 209,
218.) Accordingly, where this court
finds that plaintiffs have failed to meet their obligations concerning the
discussion and analysis of a substantial evidence issue, we will deem the issue
waived.
I. Motion to Enforce
Settlement Agreement
Plaintiffs
contend the trial court erred by denying their motion to enforce the 2007
settlement agreement. Defendants claim
the trial court’s order denying the motion is supported by substantial evidence
and should be affirmed. We find no error
and affirm the order.
Procedural Summary
In July
2007, at the onset of trial, the parties discussed settlement and entered into
a “Preliminary Settlement†agreement.
The agreement provided the terms were “skeletal, with the final details
to be provided by the parties through mutual constructive engagement.†Over the next five months, however, the parties
were unable to complete a formal settlement agreement because they disagreed
about the interpretation of certain terms of the agreement. In December 2007, plaintiffs filed an
application to enforce five specified terms of the agreement. Defendants opposed the application, arguing
that plaintiffs had not performed as required by the agreement, they were
attempting to enforce only certain terms of the agreement, and they were asking
the trial court to order defendants to perform acts beyond the terms of the
agreement. The trial court heard and
denied the motion without prejudice, for the reasons “articulated by the
opposition.â€
In January
2008, plaintiffs filed a motion to enforce the settlement agreement pursuant to
Code of Civil Procedure section 664.6.
the material terms and, to the extent there were disagreements regarding the
terms, the agreement provided a procedure for the trial court to resolve the
disputes. Further, all parties had
executed the agreement, the parties had acknowledged the suit was settled in a
related action in federal court, and there had been partial performance. Defendants, with new counsel, again opposed
the motion. They asserted the agreement
was not enforceable because it was not signed by all the parties, and the
parties had failed to agree on several material terms.
At the
hearing on the motion, the trial court acknowledged it “fell down on the jobâ€
when it accepted the settlement agreement as drafted. It should “have ensured that there was more
detail that was presented to the Court.â€
Further, despite the statement in the agreement that the trial court
would reserve jurisdiction and resolve disputes regarding the agreement, if the
parties had reached a settlement, there would be no reason to have the judge
further settle issues because, “either you have a settlement agreement or you
don’t.†The trial court concluded,
contrary to its statement in the tentative ruling, which it vacated,
pursuant to section 664.6 because there was no meeting of the minds for the
reasons set forth in the opposition to the motion.
Analysis
A. Standard of Review
The court
of appeal reviews the trial court’s determination whether to enforce the
settlement agreement under the substantial evidence standard. (In re
Marriage of Assemi (1994) 7 Cal.4th 896, 911.)
B. Procedural Flaws
In briefing
the issue on appeal, Sinclair sets forth specific actions plaintiffs took to
perform under the agreement, but only refers generally to Katakis’s lack of
cooperation. As such, plaintiffs failed
to include the evidence favorable to the prevailing parties as they must to
raise a substantial evidence challenge to the trial court’s ruling.
As a
reviewing court, we presume the record contains evidence to support the trial
court’s findings. The burden is on the
appellant to overcome that presumption and to show reversible error. (State
Farm Fire & Casualty Co. v. Pietak, supra,
90 Cal.App.4th at p. 610.) A party who
challenges the sufficiency of the evidence to support a finding must summarize
the evidence on that point, favorable and unfavorable, and show how and why it
is insufficient. (Schmidlin v. City of Palo Alto, supra,
157 Cal.App.4th at p. 738.) Where the
appellant presents only facts and inferences favorable to its position, the
court may deem the substantial evidence challenges waived. (Doe v.
Roman Catholic Archbishop of Cashel & Emly, supra, 177 Cal.App.4th at p. 218.)
Under these fundamental principles of appellate procedure, we presume
the trial court’s order denying the motion to enforce the settlement agreement
was supported by the evidence and deem plaintiffs’ arguments to the contrary to
be waived.
C. Merits
Ignoring
the brief’s procedural failings, plaintiffs contend the trial court abused its
discretion in denying the motion because (1) the settlement agreement
authorized the trial court to resolve all disputes about the terms of the
settlement; (2) the parties had reported in state and federal courts, pursuant
to California Rules of Court, rule 3.1385, that the matter had settled; (3) all
necessary parties signed the agreement and Katakis is estopped to deny that he
signed the agreement for the FHOA, of which he was the sole officer and member
of the board of directors; (4) the record does not support the finding there
was mutual mistake and, because the parties were all real estate experts, that
argument is unavailing; and (5) as a matter of law, the settlement agreement
was enforceable under section 664.6.
In ruling
on a section 664.6 motion for entry of judgment enforcing a settlement
agreement—and in determining whether the parties entered into a binding
settlement of the case—a trial court considers whether (1) the material terms
of the settlement were explicitly defined, (2) the supervising judicial officer
questioned the parties regarding their understanding of those terms, and (3)
the parties expressly acknowledged their understanding of and agreement to be
bound by those terms. (
A
settlement agreement is a contract, therefore the legal principles that apply
to contracts generally apply to settlement agreements. (Weddington
Productions, Inc. v. Flick (1998)
60 Cal.App.4th 793, 810.) An enforceable
settlement agreement must be sufficiently definite that the promised
performance is reasonably certain. (
clearly expressed. (Id. at p. 817.) And the
parties’ outward manifestations must show that they agreed on the same
thing. (Id. at p. 811.) In contrast,
when material details are left to future agreement, the contract is uncertain
and unenforceable. (Id. at p. 817.) We apply
those principles to plaintiffs’ claims.
First, the
agreement was not enforceable simply because it provided: “Any disagreement in the meaning, effect,
purpose, terms or execution of this Settlement Agreement shall be decided
before the [trial judge].†Section 664.6
does not authorize a judge to create the material terms of an agreement. (Weddington
Productions, Inc. v. Flick,
conformity with the agreement the parties have reached. (Jones
v. World Life Research Institute (1976) 60 Cal.App.3d 836, 840.) If the parties disagree on the material terms
of the agreement, there is no meeting of the minds and no settlement agreement
to enforce. (Terry v. Conlan (2005) 131 Cal.App.4th 1445, 1459.) As the trial court acknowledged, it could not
“settle issues†the parties had failed to agree upon.
Second, the
parties’ reporting in state and federal courts pursuant to California Rules of
Court, rule 3.1385 that the matter had settled did not preclude a finding
months later that the settlement agreement was unenforceable. Nothing in the language of the rule of court,
which obligates the parties to notify the court promptly when a case settles,
supports plaintiffs’ claim.
Third,
plaintiffs also argue judicial estoppel requires a reversal. This argument fails on procedural
grounds. Plaintiffs did not raise the
issue in the trial court and first addressed the issue in their reply
brief. The court need not consider
issues raised for the first time in the reply brief (Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 766), and will not
consider points not raised in the trial court (Hepner v. Franchise Tax Bd. (1997) 52 Cal.App.4th 1475, 1486).
Finally, we
reject plaintiffs’ claim that the agreement was enforceable as a matter of law
because substantial evidence supports the trial court’s finding that there was
no meeting of the minds. The parties
agreed to the goals of the settlement, but failed to agree on all the specific
means that were material to the settlement.
As a result, several of the material terms were too uncertain to
constitute an enforceable contract.
The
agreement begins, “Preliminary Settlement Terms …. [¶] These terms are skeletal, with the
final details to be provided by the parties through mutual constructive
engagement.†And the parties never
agreed on those “final details.†The
record contains pages and pages of e-mails between Sinclair and Katakis and
their counsel that illustrate disagreements regarding the meaning of the terms
of the settlement.
For
example, the second paragraph of the settlement agreement provides, “This
Agreement intends to allow the parties to liquidate their holdings as set forth
herein, and intends to ensure that the parties to this settlement agreement
need not conduct any business with each other, with regard to Fox Hollow.†The agreement did not specify how this was to
occur, and Sinclair and Katakis both believed the other had agreed to sell his
Fox Hollow properties. Katakis believed
the agreement called for Sinclair to sell his units; Sinclair believed the
agreement required Katakis to liquidate his Fox Hollow lots.
Further,
when the parties agreed to settle, Katakis believed Sinclair had the ability to
pay cash for the Fox Hollow property that Sinclair agreed to purchase. Subsequently, it became clear that Sinclair
intended to finance his purchases and had to enter and improve the units, which
then belonged to defendants, before he could get a loan to complete the
purchases. Defendants did not intend to
permit Sinclair to take possession of the property until he paid for it and
title had transferred.
Thus, the
record demonstrates there was no meeting of the minds on several material
terms, most notably whether either party would maintain an interest in Fox
Hollow and the plaintiffs’ rights and obligations regarding lot 1. The trial court properly found no enforceable
agreement existed and correctly denied the motion to enforce the settlement
agreement.
We need not
consider plaintiffs’ additional contentions.
Regardless of whether all necessary parties signed the agreement and
whether the parties were experts, they failed to set forth all the material
terms of the agreement with sufficient certainty to make it enforceable under
section 664.6.
II. Motion to Disqualify
Defense Counsel
Plaintiffs
contend the trial court abused its discretion by (1) denying their motion to
disqualify defendants’ former counsel, Timothy Ryan, in March 2005, and (2)
denying their request to reconsider several posttrial rulings because
defendants’ trial counsel had a disqualifying conflict of interest. Defendants reply that plaintiffs fail to cite
to the record in briefing this issue and, in any event, any potential conflict
was waived. We affirm the trial court’s
rulings.
Procedural Summary
In 2005,
the trial court denied without prejudice plaintiffs’ motion to disqualify
defendants’ former attorney of record, Timothy Ryan. The trial court concluded that plaintiffs’
moving papers did not establish that Mr. Ryan had a disqualifying conflict
of interest or that he had represented plaintiffs in the past, as either
current or former members of the FHOA.
Further, even if Mr. Ryan was a potential witness, the law did not
require that he be disqualified summarily.
Finally, plaintiffs had been aware of Mr. Ryan’s purportedly
“conflicting†representation for years and had not taken steps to end it prior
to this motion. As such, it may be too
late to challenge Mr. Ryan’s representation.
Plaintiffs
also contend the trial court abused its discretion when it permitted defendants’
trial counsel, John M. Dunn, D. Greg Durbin and the McCormick Barstow
law firm, to remain on the case.
Plaintiffs assert they are clients of McCormick Barstow as members of
the FHOA. Therefore, the trial court
must “dismiss McCormick Barstow and reconsider all evidence excluding that
evidence submitted by McCormick Barstow and Mr. Ryan or reverse its
decision.†Defendants reply that
plaintiffs never moved to disqualify their counsel and, had they done so,
defendants would have rebutted plaintiffs’ “baseless claims,†including by
establishing that McCormick Barstow obtained appropriate consents to its
representation.
Analysis
Plaintiffs
have shown no abuse of discretion regarding the denial of their motion to
disqualify Mr. Ryan. Plaintiffs did
not include the pleadings for the motion in the appellate record. There is a reporter’s transcript of the trial
court’s brief oral ruling, and defendants provided a copy of the corresponding
minute order denying the motion. The
rulings demonstrate the trial court denied plaintiffs’ motion without
prejudice, finding their showing inadequate to establish that Mr. Ryan had
a disqualifying conflict of interest.
Because the pleadings are not before us, we must presume plaintiffs’
showing was inadequate, as the trial court found, and affirm the order. (State
Farm Fire & Casualty Co. v. Pietak, supra,
90 Cal.App.4th at p. 610.)
Plaintiffs’
claim is untimely as well as inadequately supported by the record. Plaintiffs did not object when McCormick
Barstow substituted into the case on behalf of defendants in February 2008,
months before trial. Rather, plaintiffs
first raised the issue in their motion for reconsideration of the trial court’s
rulings on posttrial motions for costs, attorney fees, and to add a judgment
debtor. They claimed McCormick Barstow
had a conflict of interest in representing the homeowners association because
plaintiffs, as owners of property at Fox Hollow, have been members of the
homeowners association and, therefore, clients of McCormick Barstow.
Plaintiffs
have not referred this court to the pleadings,
transcript of the hearing on the motion for reconsideration where this issue
was raised. Plaintiffs, as the party
challenging the ruling, have the burden of providing an adequate record for
this court to assess their claims of error.
(Ketchum v. Moses (2001) 24
Cal.4th 1122, 1140-1141.) Because there
is nothing in the record for us to review, this claim is forfeited. (Maria
P. v. Riles (1987) 43 Cal.3d 1281, 1296.)
III. Unclean Hands Defense
Plaintiffs
contend the trial court abused its discretion in applying the unclean hands
doctrine as a defense against all of their claims. We conclude there was no abuse of discretion
because the findings are supported by substantial evidence.
Procedural Summary
The trial
court found against plaintiffs on their causes of action but also found their
unclean hands in relation to Fox Hollow barred recovery on every claim. The trial court found 28 wrongful acts
constituting a pattern of misconduct and deception on the part of all
plaintiffs regarding Fox Hollow.
“1. In April 1994, Mr. Sinclair wrote to the
City of Turlock to advise them that there were sufficient funds in the
HOA. [Citations.] Mr. Sinclair testified that he never
told the City that there was an HOA before 1998 [citation] and that there was
no HOA before 2000. [Citations.] Mr. Sinclair’s 1994 letter to the City
of Turlock that there was an HOA was false.
“2. From November 1995 through February 1997,
Mr. Sinclair and Mr. Flake worked closely together to develop Fox
Hollow. [Citations.] Yet, Mr. Flake testified he had no
involvement with Mr. Sinclair during this time. Clearly, this was not true.
“3. In March 1996, Plaintiffs subdivided Fox
Hollow by recording Map No. 1.
[Citation.] The City required as
a condition that a homeowner’s association be formed. [Citation.]
In September 1996, Plaintiffs recorded the CC&Rs. [Citation.]
The CC&Rs required formation of an HOA. The Plaintiffs did not do this.
“4. In February 1997, Mr. Flake sold Fox
Hollow to Mr. Mauchley by selling four separate lots through four separate
deeds. [Citations.] Although the CC&Rs required him to convey
the common area to the HOA before doing this, he did not do it.
“5. In 1998, Mr. Sinclair worked to secure
financing at Fox Hollow.
Mr. Mauchley testified that Mr. Sinclair handled this work and
that he, Mr. Mauchley, ‘didn’t talk to any lenders.’ Mr. Sinclair testified that
Mr. Mauchley was ‘arranging for the most part the financing.’
“6. On or about July 21, 1998, Plaintiffs
caused Subdivision Map No. 2 to be recorded creating an additional 15
lots. [Citation.] Plaintiffs knew that they had failed to
complete the conditions imposed by the City for recording such a map. [Citations.]
Plaintiffs also knew that the City had previously rejected their request
to complete the required work after the map was recorded. [Citations.]
“7. In July 1998, immediately upon recording Map
No. 2, Plaintiffs caused 15 loans to be placed against the 15 new
lots. Mr. Mauchley signed fifteen
deeds of trust [citations] that contained Planned Unit Development riders
representing that there was a HOA. Yet,
‘there was no intention to start it then.’
[Citation.]
“8. In July 1998, Plaintiffs obtained these 15
new loans based on values that were ‘subject to final completion of subdivision
firewalls and underground relocation of utilities to accommodate individual
ownership ….’ [Citations.] This material information was not disclosed
to the lenders. Plaintiffs’ [
premise.
“9. In late 1998 and early 1999, Plaintiffs began
defaulting on the loans and were further encumbering the property with a
$300,000 loan. [Citation.] Mr. Mauchley testified he knew that
Plaintiffs were late on a more than a couple of payments, but Mr. Sinclair
insisted that he had made wire transfers or other sorts of direct payments, but
later recanted this testimony.
“10. In April, May and June of 1999, lenders began
to record notices of default on the July 1998 loans. [Citations.]
On July 1, 1999, Mauctrst LLC filed bankruptcy. Plaintiffs claimed that the bankruptcy filing
had nothing to do with the pending non-judicial foreclosures and ‘that wasn’t
the consideration at all.’ [Citations.]
“11. In July 1999, Mr. Sinclair filed
bankruptcy for Mauctrst LLC representing that it was owned 50% by
Mr. Mauchley and 50% by Mrs. Mauchley. Mr. Mauchley testified at trial these
statements were false. Richard Sinclair
| Description | This case includes three appeals from the judgment and the postjudgment orders following litigation over the ownership of eight lots in the Fox Hollow subdivision in Turlock, California. The plaintiffs are Richard C. Sinclair, who serves as counsel for some of the plaintiffs on appeal; his company Lairtrust, LLC;[1] Sinclair’s son, Brandon Sinclair (Brandon); Brandon’s company, Capstone, LLC; Stanley Flake, as an individual and as trustee of Capstone Trust; and Gregory Mauchley (collectively, plaintiffs).[2] Each plaintiff has had an ownership interest in the Fox Hollow property. |
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