Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-05219/USCOURTS-cand-5_05-cv-05219-4/pdf.json

Nature of Suit Code: 380
Nature of Suit: Other Personal Property Damage
Cause of Action: 28:1441 Petition for Removal- Property Damage

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United States District Court

For the Northern District of California

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*E-FILED 6/21/06*

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

DONALD LOMBARDI, JR., 

Plaintiff,

 v.

PLEASURE COVE RESORT ASSET 

MANAGEMENT GROUP, et al,

Defendants. /

NO. C 05-05219 RS

ORDER RE MOTION TO REFER

PROCEEDING TO

BANKRUPTCY, MOTION TO

SEVER AND REMAND, AND

MOTIONS FOR SUMMARY

JUDGMENT OR DISMISSAL

INTRODUCTION

On May 30, 2006 the Court heard four motions in this action seeking various forms of

procedural and substantive relief. Based on the arguments of counsel, the record herein, and for the

reasons set forth below, the motion of the cross-defendant United States Department of Reclamation

(“Reclamation”) for summary judgment on grounds that Cross-complainant Steven Petty lacks

standing to assert the claims pleaded in the cross complaint will be granted. As a result, the Court

need not reach the issues presented by Reclamation’s other motion for summary judgment or

dismissal. Similarly, the portion of plaintiff’s motion seeking to sever the complaint from the crosscomplaint presents no remaining issues to be decided; the balance of that motion, seeking remand to

state court, will be granted. Finally, the effect of these rulings will be to deny the motion to refer

this action to the bankruptcy court. 

BACKGROUND

The genesis of the action lies in efforts by Steven Petty to acquire and operate Pleasure Cove

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Resort at Lake Berryessa, California. In furtherance of those efforts, Petty formed and holds a

majority interest in Pleasure Cove Resort Asset Management Group, L.L.C. (“the LLC”). The LLC

entered into a concession contract with Reclamation under which the LLC was to operate the resort,

and which required the LLC to post a $750,000 bond to ensure the removal of certain improvements

at the end of the contract term.

Plaintiff Donald Lombardi, a friend of Petty, agreed to loan the sum of $150,000 in

connection with this venture. There appears to be no dispute that everyone involved in the loan

understood that the proceeds were intended to fund the construction of docks at the resort. The

record is less clear as to whether there was an understanding that the loan would be secured by the

docks, but it is uncontroverted that no security interest was ever perfected.

Lombardi contends that he made the loan to a general partnership consisting of Petty, Gary

Freitas, Michael Bonanno, and Jeffery Morgan. His complaint names as defendants those

individuals as well as “Pleasure Cove Resort Asset Management Group, a General Partnership”

(“the General Partnership”). Petty, Freitas, Bonanno, Morgan and the LLC all contend that the

General Partnership does not exist and never has existed. They contend that Lombardi made the

loan to the LLC, and that the LLC alone is liable for repaying Lombardi.

Reclamation has declared the LLC’s concession agreement terminated and the resort is now

under the operation of another entity. The LLC has filed bankruptcy and those proceedings are

ongoing.

Lombardi initiated this action in Santa Clara Superior Court. Petty, in his individual

capacity, cross-complained against Reclamation, alleging that its termination of the LLC’s

concession agreement was wrongful. Reclamation, as a federal government defendant, exercised its

right to remove the action to this court.

DISCUSSION

A. Reclamation’s Motions For Summary Judgment

On March 22, 2006, Reclamation filed a motion challenging Petty’s cross-complaint on a

variety of grounds seeking relief under Rule 12 (b) (1), Rule 12 (b) (6), Rule 56, or some

combination thereof. On April 28, 2006, Reclamation filed a motion for summary judgment “on

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additional grounds” raising the threshold issue of whether Petty has standing to pursue the claims

alleged in the cross-complaint.

Although Petty filed written opposition to Reclamation’s first motion, he did not respond to

the second motion. At the hearing, Petty’s counsel offered an explanation as to why he had filed no

written opposition, indicated that he did not require a further opportunity for briefing, and submitted

the matter based on the oral argument.

“In every federal case, the party bringing the suit must establish standing to prosecute the

action. ‘In essence the question of standing is whether the litigant is entitled to have the court decide

the merits of the dispute or of particular issues.’” Elk Grove Unified School Dist. v. Newdow, 542

U.S. 1, 14 (2004) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)) Although standing doctrine

encompasses a variety of sometimes complicated issues, one relatively straightforward component is

“the general prohibition on a litigant’s raising another person’s legal rights.” Id. 

Here, Petty’s cross-complaint asserts a variety of legal theories, but all arise from the basic

claim that Reclamation acted wrongfully with respect to the LLC’s rights under the concession

contract or with the LLC’s rights to improvements or other property at the resort. Under California

law that governs the LLC, Petty’s status as member of the LLC does not give him any legal interest

in the property of the LLC. Cal. Corp Code § 17300. Petty therefore lacks standing to raise the

claims pleaded in the cross-complaint. See Paclink Communications International v. Superior

Court, 90 Cal.App.4th 958, 965 (“Because members of the LLC hold no direct ownership interest in

the company’s assets (Corp. Code, § 17300), the members cannot be directly injured when the

company is improperly deprived of those assets.”)

Petty does not challenge the notion that the claims plead in the cross-complaint belong to the

LLC and that ordinarily he would have no standing to bring those claims. Rather, Petty suggests, he

should be permitted to pursue those claims as an alternative defense to the claims made by

Lombardi. Thus, while Petty denies that there ever existed a general partnership such that he would

have individual liability (as a partner), he contends that if Lombardi were to prove that the loan was

made to the General Partnership, then he (Petty) should be allowed to seek recovery from the parties

that allegedly seized the docks constructed with the loan proceeds. It does not follow, however, that

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 Indeed, the LLC is already pursuing the same claims as part of the bankruptcy proceedings.

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if Lombardi succeeds in proving that he was doing business with a general partnership that

Reclamation was therefore also doing business with a general partnership. To the contrary, there is

no dispute that the concession agreement was between Reclamation and LLC. If Lombardi proves

that he loaned money to the General Partnership, not the LLC, that will not somehow change the

nature of the legal relationship between Reclamation and the LLC, nor will the claims and property

that belong to the LLC somehow then belong to Petty individually.

In short, the undisputed facts establish that all of the claims pleaded in the cross-complaint

belong to the LLC, and Petty has no standing to pursue those claims.1

 Reclamation’s motion filed

April 28, 2006 will therefore be GRANTED. Reclamation’s motion filed March 22, 2006 is MOOT.

B. Severance, Remand, and Referral to Bankruptcy

Plaintiff’s motion to sever the complaint from the cross-complaint, and then to remand the

complaint to Santa Clara Superior Court, was intended to avoid the complications posed by the

relationship of the matters alleged in the cross-complaint to the pending bankruptcy proceedings of

the LLC. Given the ruling that Petty lacks standing to pursue those claims, however, severance is

moot. The remaining question, then, is whether Lombardi’s complaint, standing alone, should be

referred to the bankruptcy court or remanded to state court.

As noted above, Lombardi has not sued the LLC, and he has made it very clear in these

proceedings that it his intent to attempt to prove he made his loan to the General Partnership, and

that it is that General Partnership, not the LLC, that must repay him. The LLC has appeared in this

action under the assumption that it is the entity that Lombardi intended to sue, and that it should

respond, as parties typically do where there is an error in the complaint in describing the nature of

the party or its precise name. Lombardi, however, has expressly and unequivocally disclaimed any

interest in pursing the LLC in this action.

Petty, Freitas, Bonanno, and Morgan all contend that Lombardi is wrong, that no General

Partnership ever existed. That contention, however, is only a potential defense on the merits. If,

when this action is adjudicated, the conclusion is that Lombardi did loan money to a general

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 Some parties have suggested that any remand should be to a different superior court, based

on venue considerations. The venue questions must be presented, if at all, to the superior court after

remand.

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partnership, any judgment will be against that general partnership and its individual partners, not

against the LLC. Conversely, if Lombardi fails to prove his claims in this action, because a

determination is made that there was no general partnership (or for any other reason) then judgment

will be entered against him and this action will terminate. In neither situation would there be any

basis for the LLC to participate as a party, nor any reason that the issues presented in this case must

or should be decided in the bankruptcy proceedings.

It is true that Lombardi has filed a proof of claim in the bankruptcy action. Given that the

LLC is taking the position that Lombardi is a creditor, it is not unreasonable for Lombardi to attempt

to preserve the possibility of collecting in the bankruptcy as an alternative to the claims he has

asserted here. It would, presumably, be inconsistent and constitute double recovery were Lombardi

to recover both in the bankruptcy case and in this action. Accordingly, there may come a time that

Lombardi will be forced to abandon his claims in one of the proceedings to continue pursuit of the

other. Nevertheless, there does not appear to be any significant risk of inconsistent findings or

duplicative litigation that would require this action to be adjudicated in the bankruptcy court. If

Lombardi were to recover in either forum, defendants will presumably be able to raise that fact as a

bar to recovery in the other forum.

Accordingly, because there is no basis to refer this action to the bankruptcy court, and no

remaining basis for federal jurisdiction in light the dismissal of the claims against Reclamation, the

motion for reference to bankruptcy court will be DENIED, and the motion for remand to Santa Clara

Superior Court will be GRANTED.2

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 CONCLUSION

Reclamation’s motion filed April 28, 2006 is GRANTED. In light of that ruling, the Court

declines to decide Reclamation’s motion filed March 22, 2006. The motion to refer this action to

bankruptcy court is DENIED. This action is hereby remanded to Santa Clara Superior Court.

 

IT IS SO ORDERED.

Dated: June 21, 2006 

RICHARD SEEBORG

United States Magistrate Judge

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For the Northern District of California

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THIS IS TO CERTIFY THAT NOTICE OF THIS ORDER HAS BEEN GIVEN TO:

Thomas W. Barth tbarth@kmtg.com, spereda@kmtg.com

Joseph E Dworak jed@berliner.com

Steven H. Herman shhlaw@aol.com

Claire Lencioni Imelli claire.imelli@berliner.com

Lawrence James Less madgm@aol.com,

Charles M. O'Connor charles.o' connor@usdoj.gov

Gerald Charles Vanoli gvanoli@yahoo.com, lavanoli@yahoo.com

Craig Kenneth Welch WELCH@WELCHOLRICH.COM

Counsel are responsible for distributing copies of this document to co-counsel who have not

registered for e-filing under the Court's CM/ECF program. 

Dated: 6/21/06 Chambers of Judge Richard Seeborg

By: /s/ BAK 

Case 5:05-cv-05219-RS Document 72 Filed 06/21/06 Page 7 of 7