Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-02373/USCOURTS-caed-2_05-cv-02373-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1330 Breach of Contract

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

DANA DICKEY and RICHARD

SCHIELD,

2:05-CV-2373-MCE-GGH

Plaintiffs,

v. MEMORANDUM AND ORDER

DOUGLAS AUER, an Individual,

LINDA CARR, Individually and

as Trustee of the 1995 Linda

Carr Revocable Trust, RIO DE

LAS PLUMAS DEVELOPMENT GROUP,

INC., a California

Corporation, RIO DE LAS

PLUMAS, LLC, a California

Limited Liability Company,

RIDGE OF PORTOLA HEIGHTS, LLC,

a California Limited Liability

Company, SIERRA RIDGE, LLC, a

California Limited Liability

Company, and DOES 1-50,

Defendants.

______________________________

DOUGLAS AUER, Individually and

as Trustee of the 1995 Linda

Carr Revocable Trust, LINDA

CARR, Individually and as

Trustee of the 1995 Linda Carr

Revocable Trust, 

Counter Claimants, 

Case 2:05-cv-02373-MCE -GGH Document 57 Filed 05/19/06 Page 1 of 13
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Named in the Complaint are the following entities: Rio De 1

Las Plumas Development Group, Inc. (“Plumas Group Inc.”), Rio De

Las Plumas, LLC (“Plumas LLC”), Ridge of Portola Heights, LLC

(“Portola Heights”), and Sierra Ridge, LLC (“Sierra Ridge”). 

These named defendants have varying roles in the controversy at

issue and shall be referred to only when relevant.

2

v.

DANA DICKEY, an Individual,

and RICHARD SCHIELD, an

Individual,

Counter Defendants.

______________________________

DOUGLAS AUER, an Individual,

and LINDA CARR, Individually

and as Trustee of the 1995

Linda Carr Revocable Trust,

Third Party 

Plaintiffs,

v.

ROBERT E. DICKEY, JR., 

Individually and as Co-Trustee

of the D&B Family Trust Dated

1/9/91,

Third Party 

Defendant. 

----oo0oo----

Through the present action, Plaintiffs Dana Dickey and

Richard Schield (“Plaintiffs”) allege that defendants Douglas 1

Auer (“Auer”) and Linda Carr (“Carr”), individually and through

the 1995 Linda Carr Revocable Trust (“Trust”) (collectively

“Defendants”), are in breach of contract on certain real property

transactions and have engaged in negligent misrepresentation,

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Because oral argument will not be of material assistance, 2

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h). 

To maximize judicial economy and given the similarity of 3

the factual basis upon which Defendants’ Motions have been

brought, the Court elects to dispose of both Defendants’ Motions

in the present Order.

3

fraud, deceit, trespass and breach of fiduciary duty. Plaintiffs

are seeking an order that Carr, individually and as Trustee of

the Trust, convey certain real property known as the Portola

Heights Property (“Portola Property”) to the Portola Heights LLC;

an order that Auer and Carr, individually and as Trustees of the

Trust, convey certain real property known as Sierra Ridge Phase I

(“Sierra Property”) to the Sierra Ridge LLC; and damages in

excess of $3,750,000.00. Subsequent to filing the Complaint in 2

this matter, Plaintiffs recorded a Notice of Pendency of Action

against the Portola Property. Defendants are now moving this

Court to expunge the lis pendens and issue a preliminary

injunction. For the reasons set forth below, Defendants’ Motion 3

for Preliminary Injunction is denied. Further, Defendants’ Motion

to Expunge Lis Pendens is denied. 

BACKGROUND

Defendants Auer and Carr are real estate developers active

in the Portola Valley region. Carr and Auer are married and Carr

is a licensed real estate broker. Plaintiff Dana Dickey and

Third Party Defendant Robert Dickey (“Dickey”)(collectively

“Dickeys”) are investors and became acquainted with Auer when

they engaged him to perform granite work on their vacation home.

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4

Through that alliance, Dickey and Auer began to discuss real

estate development projects in which Auer and Carr were involved.

In August or September 2003, Auer sought investment capital

from the Dickeys. In particular, Auer sought a loan of

$300,000.00 (“Loan”) from the Dickeys that was to be used to

develop the Sierra Property. Auer and Carr agreed to pledge the

Portola Property as security for the Loan. Carr prepared a

letter of instruction to a title company, a promissory note and

deed of trust. Dickey alleges he intended to charge two points

as a loan origination fee for the Loan. However, based on Carr’s

status as a licensed real estate broker, the loan origination fee

was waived. Carr contends that no such reliance was placed on

her status as a broker but, instead, that Dickey simply elected

to waive the fee.

In any event, a second deed of trust was recorded against

the Portola Property in the amount of $200,000.00. Carr, as

trustee for the Trust, signed the promissory note, executed the

second deed of trust and received the $300,000.00 from escrow. 

The loan bore interest at twelve percent per annum and was timely

paid through October 2005, when it was called due.

In the interim, the Parties elected to engage in several

additional real estate development projects. In particular,

shortly after the Loan closed escrow, Auer approached Dickey

regarding an investment opportunity consisting of eight acres on

Ellen Avenue in Portola. Generally, Auer agreed to develop the

property if Dickey would acquire the land. Profits from the sale

of the developed land were to be divided equally.

///

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5

Similar arrangements were struck with respect to additional

property in the Portola Heights development as well as the Sierra

Ridge development. Carr and Auer owned scattered parcels in both

Portola Heights as well as Sierra Ridge. The Parties agreed that

the value of the development would be greatly enhanced if the

Dickeys and Plaintiff Richard Schield (“Schield”) purchased

strategically placed lots to decrease the Defendants’ fragmented

ownership. In essence, the Dickeys and Schield were to bear the

full expense of purchasing particular lots while Auer and Carr

were to bear the expense of developing the projects.

At this juncture, there were three development projects

underway: Portola Heights, Sierra Ridge and Ellen Avenue. The

Parties concluded that three separate limited liability companies

should be formed to manage the three development projects. On

February 23, 2004, Carr caused the Articles of Organization to be

filed with the California Secretary of State’s office for The

Ridge at Portola Heights, LLC; Sierra Ridge LLC; and The Pines at

Ellen Avenue LLC. In late December 2004, and early January 2005,

Statements of Information for Sierra Ridge LLC and The Ridge at

Portola Heights LLC were filed with the California Secretary of

State. While a draft operating agreement was advanced to Auer

and Carr by Dickey, neither Plaintiffs nor Dickey ever executed

operating agreements on the newly formed LLCs. Subsequent to the

filing of the documents for the LLCs , the relationship between

Plaintiffs, Dickey, Auer and Carr irreparably deteriorated. Each

alleges wrongdoing on the part of the other including specific

allegations that Auer and Carr failed to develop the property or

even respond to messages left by Plaintiffs or Dickey.

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6

The Loan matured on September 26, 2004, however, at that

point Dickey elected to extend the term of the Loan. The Loan

called for interest only payments at twelve percent per annum in

the amount of $3,000 per month. Carr timely paid all payments

due on the note including her last payment tendered on October

26, 2005. While Carr had been timely in tendering all payments

due, Dicky concluded that the projects were not proceeding as

planned and elected to call the note due without notice to Carr

or Auer. Consequently, Dickey recorded a Notice of Default and

Election to Sell under Deed of Trust.

Having no actual notice of Dickey’s decision to call the

note due, Carr tendered her November payment. Dickey did not

cash her check as the Notice of Default had been earlier

recorded. No further payments have been tendered by Carr. As of

November 21, 2005, Dickey contends the amount due is $304,997.01. 

That amount represents the $300,000.00 principal plus $2,663.01

interest for the period of October 26, 2005, through November 21,

2005, and $2,314.00 for foreclosure fees. 

STANDARD

Preliminary Injunction

A preliminary injunction is an extraordinary remedy, and the

moving party has the burden of proving the propriety of such a

remedy by clear and convincing evidence. See Granny Goose Foods,

Inc. v. Teamsters, 415 U.S. 423, 442 (1974).

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In order to warrant issuance of a preliminary injunction, a party

must demonstrate either: 1) a combination of probable success on

the merits and the possibility of irreparable injury; or 2) that

serious questions are raised and the balance of hardships tips

sharply in favor of granting the requested injunction. Stuhlbarg

Int’l Sales Co., Inc. v. John D. Brush & Co., Inc., 240 F.3d 832,

839-40 (9th Cir. 2001). These two alternatives represent two

points on a sliding scale, pursuant to which the required degree

of irreparable harm increases or decreases in inverse correlation

to the probability of success on the merits. Roe v. Anderson,

134 F.3d 1400, 1402 (9th Cir. 1998); U.S. v. Nutri-cology, Inc.,

982 F.2d 1374, 1376 (9th Cir. 1985). Under either formulation of

the test for granting a preliminary injunction, however, the

moving party must demonstrate a significant threat of irreparable

injury. Oakland Tribune, Inc. v. Chronicle Publ'g. Co., 762 F.2d

1374 (9th Cir. 1985).

Motion to Expunge Lis Pendens

A lis pendens is a recorded document giving constructive

notice that an action has been filed affecting title to or right

to possession of the real property described in the notice. A

lis pendens may be filed by any party in an action who asserts a

“real property claim.” Cal. Civ. Proc. Code § 405.20 (2006). 

Section 405.4 defines a “real property claim” as the cause or

causes of action in a pleading which would, if meritorious,

affect title to, or the right to possession of, specific real

property.

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8

Cal. Civ. Proc. Code § 405.30 (2006) allows the property

owner to remove an improperly recorded lis pendens by bringing a

motion to expunge. There are several statutory bases for

expungement of a lis pendens, including a claim where the

pleadings, on which the lis pendens is based, do not contain a

real property claim. Cal. Civ. Proc. Code § 405.31 (2006). 

Unlike most other motions, when a motion to expunge is brought,

the burden is on the party opposing the motion to show the

existence of a real property claim. Cal. Civ. Proc. Code §

405.30 (2006).

Section 405.32 requires a “judicial evaluation of the

merits” of a claimant’s case. Id. Pursuant to that section, the

court is required to expunge a lis pendens if the court finds,

after evaluating the merits, that the claimant has not

established by a preponderance of the evidence the probable

validity of the real property claim. 

ANALYSIS

1. Preliminary Injunction

Carr argues that Plaintiffs should be enjoined from the nonjudicial foreclosure of the Portola Property because the Loan was

usurious rendering the Notice of Default materially inaccurate

and therefore invalid. In opposition, Plaintiffs allege that the

Loan is exempt from the usury laws because it was arranged by a

licensed real estate broker.

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In support of their position, Plaintiffs point to California

Civil Code section 1916.1 which exempts from the usury laws those

loans “made or arranged” by a licensed real estate broker.

In fact, California Civil Code section 1916.1 provides in

pertinent part:

The restrictions upon rates of interest contained in

Section 1 of Article XV of the California Constitution

shall not apply to any loan or forbearance made or

arranged by any person licensed as a real estate broker

by the State of California, and secured, directly or

collaterally, in whole or in part by liens on real

property.

The term “arrange,” as set forth in the statute, is construed

according to its common and ordinary meaning. Del Mar v. Caspe,

222 Cal. App. 3d 1316, 1328 (1990). A licensed real estate

broker arranges a loan if he or she 1) acts for another and 2)

receives or expects to receive compensation for so acting. 

Stickel v. Harris, 196 Cal. App. 3d 575, 583 (1987); Green v.

Future Two, 179 Cal. App. 3d 738, 742-743 (1986).

Defendants vigorously argue that Carr neither acted on

behalf of another nor received any compensation. Rather, they

contend, Carr had no role in securing the Loan other than as the

borrower herself rendering the exemption set forth in section

1916.1 inapplicable. See Winnett v. Roberts, 179 Cal.App.3d 909,

915 (1986). On the contrary, Plaintiffs argue that Carr acted on

behalf of both the Trust and the yet to be formed LLCs. In

addition, they aver Carr expected compensation in the form of

profits from the joint ventures.

///

///

///

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10

It is undisputed that Carr signed the Loan documents on

behalf of the 1995 Linda Carr Revocable Trust. It is commonly

accepted that a trust is a separate legal entity distinct from

its trustees. See Restatement (Second) of Trusts §§ 2, 8; see

also Lee v. Cal. Butchers' Pension Trust Fund, 154 F.3d 1075,

1078 (9th Cir. 1998). Upon signing the Loan note as trustee for

the Trust, the Court finds that Carr was acting on behalf of and

as an agent for the Trust rather than solely as the borrower.

The more difficult inquiry is whether Carr received

compensation or expected to do so in acting on behalf of the

Trust. There is a factual dispute as to whether the points

typically charged in conjunction with real estate loans were

waived on the basis of Carr’s status as a real estate broker. 

Certainly, were a trier of fact to conclude in the affirmative,

compensation would have not only been expected by Carr but would

have actually been received satisfying the compensation

requirement. Further, there is undisputed evidence in the record

that Carr began the process of forming the joint venture LLCs

which, if found to have been contemplated at the time of the

Loan’s making, could also satisfy the compensation requirement

and, ultimately, triggering the 1916.1 exception. Stickel, 196

Cal. App. 3d at 585.

While resolution of these factual questions would be

dispositive regarding the claim of usury itself, such a

determination is unnecessary for the disposition of the present

Motion for Preliminary Injunction.

///

///

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11

Injunctive relief is an extraordinary remedy and Defendants have

the burden of proving the propriety of such a remedy by clear and

convincing evidence. Injunctive relief would only be proper if

Defendants could prove by a preponderance of the evidence that

the Loan was, in fact, usurious. Defendants have failed to carry

that burden. Consequently, their Motion for Preliminary

Injunction is denied. 

2. Motion to Expunge

Cal. Civ. Proc. Code § 405.31 provides: “In proceedings

under this chapter, the court shall order the notice expunged if

the court finds that the pleading on which the notice is based

does not contain a real property claim.” In making this

determination, the court must engage in a demurrer-like analysis. 

Kirkeby v. Super. Ct., 33 Cal. 4th 642 (Cal. 2004). Rather than

analyzing whether the pleading states any claim at all, as on a

general demurrer, the court must undertake the more limited

analysis of whether the pleading states a real property claim. 

Id. Review involves only an examination of the adequacy of the

pleading and normally should not involve evidence from either

side, other than possibly that which may be judicially noticed as

on a demurrer. Id. Once that inquiry is concluded in the

affirmative, the Court must evaluate the merits of the real

property claim and, if more probably than not valid, deny the

Motion to Expunge.

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12

Plaintiffs first and second causes of action seek specific

performance of an oral agreement to convey certain real property

to jointly owned and managed LLCs. Defendants contend that

Plaintiffs have not stated a real property claim because the

statute of frauds bars enforcement of the oral agreement alleged

to have been entered into regarding transfer of the properties.

On the face of their Complaint, Plaintiffs are seeking an

order to compel Defendants to convey the Portola Property and the

Sierra Property to the Portola Heights LLC and the Sierra Ridge

LLC respectively. If meritorious, those claims would

unquestionably constitute a real property claim because they

would affect title to, and possession of, certain real property. 

Having established the existence of a real property claim, the

Court may only grant Defendants’ Motion to Expunge if the

Plaintiffs’ real property claims are more likely than not

invalid.

As noted above, Defendants contend that the statute of

frauds bars the enforcement of the oral agreements regarding

transfer of the properties. In opposition, Plaintiffs correctly

point to clear case law holding precisely otherwise. California

case law excepts from the statute of frauds, oral agreements to

transfer property in the context of a development relationship. 

See Gross v. Raeburn, 219 Cal.App.2d 792, 796, 799 (1963). In

light of this express exception to the statute of frauds for

agreements made in the course of joint development ventures, the

Court finds that it would be imprudent to expunge the lis pendens

at this juncture in the litigation. Consequently, the Court

denies Defendants’ Motion to Expunge Lis Pendens.

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CONCLUSION

For the reasons set forth fully above, the Court denies

Defendants’ Motion for Preliminary Injunction and Motion to

Expunge Lis Pendens.

IT IS SO ORDERED.

DATED: May 18, 2006

_____________________________

MORRISON C. ENGLAND, JR

UNITED STATES DISTRICT JUDGE

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