Judge Stephen P. Pfahler, Case PC057766 2022-07-27 Tentative Ruling

Defendant Diana Vigil owns certain real property located at 11582 North Longacre Ave, Granada Hills. On February 23, 2015, Defendant and Harvard Investment Group, LP executed a Vacant Land Purchase Agreement. Harvard Investment Group, LP subsequently assigned the agreement to Plaintiff Longacre Estates, LP.

According to Plaintiff, Defendant represented that the lot was approved by the City of Los Angeles for subdivision into five separate parcels suitable for the construction of five separate residences. Defendant would keep one of the lots for development of a home, while Plaintiff would have development rights for the remaining four lots. Plaintiff alleges that Defendant either misrepresented or failed to disclose the “true slope” of the property as a 2:1 gradient ration, when the property was in fact a 1:1 gradient ratio, and misrepresented the boundary lines of the property.

Plaintiff additionally alleges that Defendant knowingly made said representations on the property line at the time she was involved in litigation with an adjoining property owner over a boundary line involving a carport building encroaching on the neighbor’s property. Following the discovery of the boundary dispute, and slope gradient omission/misrepresentation, Plaintiff was forced to obtain a new tract map and grading plans.

In April 2017, Defendant sought to terminate the agreement. Plaintiff still wished to proceed with the project after advancing through the entitlement and permit process with the City of Los Angeles. Said permits and entitlements were all received with varying expiration dates.

On May 22, 2017 and September 18, 2017, Plaintiff filed its complaint and first amended complaint for breach of contract – specific performance, declaratory relief, breach of contract – damages, breach of duty to disclose, and breach of duty to be honest and truthful. The parties submitted the action to arbitration.

On October 2, 2020, the court granted the unopposed motion of Defendant to correct the arbitration award. On August 2, 2021, the court denied the motion to confirm the arbitration award. The court also stayed the action and placed it on the civil inactive list pending arbitration. On December 30, 2021, the court granted the motion of James Felton, counsel for Plaintiff, to be relieved as counsel of record. The court also lifted the stay and returned the case to the civil active list.

On January 19, 2022, Diana Vigil filed a cross-complaint against Longacre Estates, LP for declaratory relief.[1] The clerk entered a default on the cross-complaint on February 25, 2022. On May 3, 2022, the court entered default judgment.

The court takes judicial notice of the pleadings for purposes of acknowledging the filing of the documents, but not the content of any said court filed documents for the truth of the matter asserted.

Laura Reckmeyer moves to set aside the default judgment on the Vigil cross-complaint for declaratory relief against Longacare Estates on grounds of mistake, inadvertence, and/or excusable neglect. Reckmeyer additionally moves for leave to file a complaint in intervention.

Diana Vigil in opposition challenges the necessity and basis of leave to intervene. The default judgment in favor of Vigil establishes that Longacre no longer holds any right to purchase the land for subdivision and sale. Vigil maintains that nothing in the proposed action in any way constitutes an action for the benefit of Longacre, and instead constitutes a dispute against Longacre managing partner, Matthew Skinner. Vigil denies any interest in the property by Reckmeyer simply based on investor status. Without an actual legal interest in the land, Reckmeyer lacks a basis for enforcing any agreement with Vigil on behalf of Longacre. Nothing in the proposed action seeks to compel the subdivision, sale and/or development of the housing lots. The proposed action only seeks to seek redress for potential loss of the $150,000 investment.

Vigil next challenges the timing and impact of the motion. The proposed complaint in intervention presents 12 new cause of action and 14 new defendants. The motion comes over five years after the initial complaint for specific performance was filed, four years after the initial arbitration award, and three years after the first efforts to either enforce the agreement and arbitration award, or seek a default.

Continuation and expansion of the action after entry of the default judgment would significantly prejudice Vigil in that Longacare already caused damage to the property thereby requiring Vigil to borrow money in order to maintain the property and litigation expenses. The proposed complaint in intervention will only further tie up the property and not lead to any further development. The tentative tract map approval is scheduled to expire in August 2023. If nothing occurs, all prior entitlement work will be lost.

Reckmeyer in reply emphasizes the mandatory basis for intervention, due to the lack of protections for the investment into Longacre Estates, LP. Reckmeyer contends both individual and derivative standing to intervene.

The subject action involves the interests of a non-party investor with a business entity that entered into a contractual agreement for the purchase and development of certain real property for later sale and ideally a profitable return on investment to the individual participants. The entity was represented and/or managed by an individual Matthew Skinner, who apparently allowed the cross-complaint to proceed to default judgment by unilateral decision, agreement with other non-party investors, and/or inaction. The motion initially presents a question of standing to both vacate a default by a non-party to the action, and post-judgment leave to intervene.

Such circumstances allow for the interested party to both move to vacate the default judgment and file a motion for leave to intervene. The purpose of intervention is to eliminate a potential, less efficient second action. (Johnson v. Hayes Cal Builders, Inc., supra, 60 Cal.2d at pp. 575–576; Linder v. Vogue Investments, Inc. (1966) 239 Cal.App.2d 338, 343-346.) The right for leave to intervene generally ceases upon the entry of judgment. A default constitutes the equivalent of a trial for purposes of cutting off a motion for leave to amend. (Johnson v. Hayes Cal Builders, Inc., supra, 60 Cal.2d at p. 575.) The court therefore considers the motion to vacate first. (Linder v. Vogue Investments, Inc., supra, 239 Cal.App.2d at pp. 343-346.)

Reckmeyer represents holding a $150,000 investment interest in Longacre Estates, LP, which the default judgment threatens to significantly devalue or eliminate based on the cancellation of the right to consummate the sale and proceed with subdivision of the lots and sales to individual purchasers. As a non-party to the action, Reckmeyer was not aware of the default or pending default judgment.

“The court may, upon any terms as may be just, relieve a party or his or her legal representative from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect. Application for this relief shall be accompanied by a copy of the answer or other pleading proposed to be filed therein, otherwise the application shall not be granted, and shall be made within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken.”

“The six-month time limit for granting statutory relief is jurisdictional and the court may not consider a motion for relief made after that period has elapsed. (Citation.) The six-month period runs from entry of default, not entry of judgment.” (Manson, Iver & York v. Black (2009) 176 Cal.App.4th 36, 42.) The default was entered on February 25, 2022, and the instant motion filed on May 12, 2022, which is less than 180 days of the default entry dates. The motion to set aside the default is timely. The court therefore considers the motion to set aside.

Reckmeyer moves to vacate the default on grounds that as a non-party to the action, Reckmeyer was not privy to any notice of action on the case and only became aware of the default judgment on May 4, 2022. [Declaration of Laura Reckmeyer.]

“[A] trial court is obligated to set aside a default, default judgment, or dismissal if the motion for mandatory relief (1) is filed within six months of the entry of judgment, (2) ‘is in proper form,’ (3) is accompanied by the attorney affidavit of fault, and (4) demonstrates that the default or dismissal was in fact caused by the attorney's mistake, inadvertence, surprise, or neglect.’” (Martin Potts & Associates, Inc. v. Corsair, LLC (2016) 244 Cal.App.4th 432, 443.) The motion lacks an attorney affidavit, thereby barring automatic relief. (See Hu v. Fang (2002) 104 Cal.App.4th 61, 64.)

The Reckmeyer declaration establishes a position as an investor in the corporate or limited partnership entity controlled by Skinner, which is now subject to a default judgment and therefore a threat to some or all of the investment. The court finds the declaration sufficiently establishes a basis for the failure to intervene prior to the entry of default, due to the lack of notice, and therefore, the necessity of moving to vacate the judgment in order to seek leave to intervene. The court also accepts the motivation for seeking to vacate the default judgment in order to intervene as a potential means of protecting the investment, mitigating losses, or obtaining restitution. The court, in its discretion, finds the motion to vacate the default judgment proper in basis, but requires consideration of the basis for intervention before disturbing the judgment.

Reckmeyer moves for leave to file a complaint in intervention against Longacre Estates, LP, along with numerous other entities and individuals for Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, Breach of Fiduciary Duty, Constructive Trust, Fraud/Deceit, Negligent Misrepresentation, Conversion, Violation of California Penal Code section 496, Money Had and Received, Unjust Enrichment, and Declaratory Relief (11^th and 12^th causes of action).

(d)(1) The court shall, upon timely application, permit a nonparty to intervene in the action or proceeding if either of the following conditions is satisfied:

(B) The person seeking intervention claims an interest relating to the property or transaction that is the subject of the action and that person is so situated that the disposition of the action may impair or impede that person's ability to protect that interest, unless that person's interest is adequately represented by one or more of the existing parties.

(2) The court may, upon timely application, permit a nonparty to intervene in the action or proceeding if the person has an interest in the matter in litigation, or in the success of either of the parties, or an interest against both.

“The right to intervention may be permissive or unconditional. It is permissive when a person has an interest in the matter in litigation, or in the success of either of the parties, or an interest against both of the parties. (Code Civ. Proc., § 387, subd. (a).) It is unconditional when the person seeking intervention claims an interest relating to the property or transaction that is the subject of the action, the disposition of the action may impair or impede the person's ability to protect that interest, and the interest is not being adequately represented by existing parties. (Code Civ. Proc., § 387, subd. (b).)

“The trial court has discretion to permit a nonparty to intervene where: (1) the proper procedures have been followed, (2) the nonparty has a direct and immediate interest in the action, (3) the intervention will not enlarge the issues in the litigation, and (4) the reasons for the intervention outweigh any opposition by the parties presently in the action.” (Chavez v. Netflix (2008) 162 Cal.App.4th 43, 51; Hinton v. Beck (2009) 176 Cal.App.4th 1378, 1382 [“Intervention pursuant to section 387, subdivision (a) is not a matter of right, but is discretionary with the trial court”].) “[I]t is the general rule that a right to intervene should be asserted within a reasonable time and that the intervener must not be guilty of an unreasonable delay after knowledge of the suit. (Allen v. California Water & Tel. Co. (1947) 31 Cal.2d 104, 108; City and County of San Francisco v. State of California (2005) 128 Cal.App.4th 1030, 1036 [“Because the decision whether to allow intervention is best determined based on the particular facts in each case, it is generally left to the sound discretion of the trial court”].)

Reckmeyer seeks leave on grounds of compulsory leave. (Code Civ. Proc., § 387, subd. (d)(1)(B).) “[T]o establish mandatory intervention, a proposed intervener must show (1) ‘“an interest relating to the property [or] transaction which is the subject of the action”’; (2) the party is ‘“so situated that the disposition of the action may as a practical matter impair or impede that person's ability to protect that interest”’; and (3) the party is not adequately represented by existing parties.” (Edwards v. Heartland Payment Systems, Inc. (2018) 29 Cal.App.5th 725, 732.) In order for a third party to avail themselves of the right to intervene “the applicant must have either an interest in the matter in litigation, or in the success of one of the parties to the action, or an interest against both of them. The interest here referred to must be direct and not consequential, and it must be an interest which is proper to be determined in the action in which the intervention is sought. … The third person must have an interest in claiming what is sought by the complaint, or in resisting the claim of the plaintiff, or must demand something which is involved in the litigation adversely to both of the parties.” (Isaacs v. Jones (1898) 121 Cal. 257, 261–262.) “A person has a direct interest justifying intervention in litigation where the judgment in the action of itself adds to or detracts from his legal rights without reference to rights and duties not involved in the litigation.” (Continental Vinyl Products Corp. v. Mead Corp. (1972) 27 Cal.App.3d 543, 549; Olson v. Hopkins (1969) 269 Cal.App.2d 638, 643–644.)

The court finds the threat to a significant if not entire portion of the $150,000 investment, constitutes a basis to seek mandatory leave. The motion is supported by the default judgment on the cross-complaint; the Securities and Exchange Commission complaint and United States Attorney General prosecution [Req. Jud. Not., Ex. 7, 11]; and, lack of apparent meaningful participation in the action by the limited partnership managing partner.[2] Nevertheless, a showing of mandatory leave still requires a finding that the investment interest in fact constitutes a means for protecting an actual real property and/or ability to compel performance of the underlying contract for the purchase of the property.

Eleven of the 12 causes of action in the proposed complaint in intervention are against the “Longacre Defendants” only. The proposed complaint in intervention alleges the $150,000 investment with the “Longacre Defendants,” for the development of the project, but funds were improperly diverted by defendants to complete the acquisition and/or comply with the requirements of the agreement with Vigil. [Proposed Complaint in Intervention, ¶¶ 33, 35, 41.] The first cause of action for breach of contract alleges the existence of a “contract,” which is described as a “subscription Agreement and Power of Attorney,” with the Longacre Defendants. [Proposed Complaint in Intervention, ¶¶ 53.]

A review of the “Private Placement Memorandum” describes the formation of the “The Company” for purposes of purchasing and developing the project, with the intent of distributing a projected return on investment to all participants. [Reckmeyer Decl., Ex. 2.] The Longacre investment agreement reflects the rights and duties involving the $150,000 investment, but nothing in the proposed complaint vests Reckmeyer in any way with a right to participate in the sale agreement entered into between Vigil and the Longacre entity for the purchase of the property. Furthermore, the second through eleventh causes of action derive from the agreement and alleged wrongful conduct of the Longacre Defendants in diverting funds away from the project. Thus, the vast majority of the relief sought involves wrongful conduct of the managing partner, perhaps in conjunction with the other defendants, with the consequence of said conduct leading to the collapse of the contractual agreement. Said claims demonstrate an indirect interest in the underlying litigation regarding the purchase and development of the subdivision.

Diana Vigil is only named in the twelfth cause of action for declaratory relief, whereby Reckmeyer contends an investment of $150,000 occurred for the acquisition of the Longacre property, thereby constituting an “ownership interest” in the property. Prior to the subject cause of action, the only references to Vigil constitute an allegation of “Newman” making a $175,000 loan to Diana Vigil, as reflected in a deed of trust on the property, and the transfer of the property into a trust. [Proposed Complaint in Intervention, ¶¶ 39, 43,]

Again, the “Private Placement Memorandum” only forms an investment entity for purposes of purchasing and developing the project. [Reckmeyer Decl., Ex. 2.] Lacking in the agreement is any grant of a vested interest in the property itself or establishment of privity of contract. Nothing in the motion establishes that a share in the partnership constitutes a direct share in the real estate itself, if the deal were completed, rather than a simple share in “The Company” with an entitlement to distribution of any profits. Thus, Reckmeyer presents no basis to compel specific performance of the contract with Vigil via the agreement. Consistent with the findings on the first 11 causes of action, the court therefore again reaffirms its finding of only an indirect interest in the property. As defined above, an indirect interest will not establish a basis for compulsory intervention.[3]

The threat to the $150,000 investment due to the alleged wrongful conduct of the Longacre Defendants constitutes a valid basis for bringing an action against said defendants. Nevertheless, with the exception of a minimally pled and facially unsupported twelfth cause of action for declaratory relief, nothing in the proposed complaint in any way seeks to actually enforce the rights of Longacre, or even the ability, to complete the transaction with Vigil. Thus, no direct means of enforcement is presented, and the vast majority of the proposed complaint actually seeks relief well outside the scope of the present action.

The motion for leave to intervene is therefore denied. “An order denying intervention is reviewed under the deferential abuse-of-discretion standard.” (Noya v. A.W. Coulter Trucking (2006) 143 Cal.App.4th 838, 842.)

[1]The court docket shows no leave from the court to file the cross-complaint. Nothing in the court record shows any removal of any and all disputes from arbitration as well, especially following the December 7, 2021 court order.

[2]The court finds the standard for discretionary leave not applicable. “Pursuant to section 387 the trial court has discretion to permit a nonparty to intervene where the following factors are met: (1) the proper procedures have been followed; (2) the nonparty has a direct and immediate interest in the action; (3) the intervention will not enlarge the issues in the litigation; and (4) the reasons for the intervention outweigh any opposition by the parties presently in the action.” (Reliance Ins. Co. v. Superior Court (2000) 84 Cal.App.4th 383, 386.) The proposed 12 cause of action complaint will drastically enlarge the scope of the litigation. The court in its discretion therefore declines to consider this basis for leave.

[3]The court also notes an argument for derivative standing in the reply without any legally supporting argument. The court therefore declines to consider the argument.