Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_12-cv-01328/USCOURTS-casd-3_12-cv-01328-5/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1332 Diversity-Other Contract

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ASHURST LAND & CATTLE, LLC;

et al.,

Plaintiffs,

CASE NO. 12-CV-1328 BEN (BLM)

ORDER:

(1) GRANTING DEFENDANTS’

MOTION TO DISMISS

(2) GRANTING DEFENDANTS’

MOTION TO EXPUNGE LIS

PENDENS

[Docket Nos. 53, 54]

vs.

RANCHO MOUNTAIN

PROPERTIES, INC.; et al.,

Defendants.

Presently before the Court are: (1) Defendants’ Motion to Dismiss (Docket No.

54); and (2) Defendants’ Motion to Expunge Lis Pendens (Docket No. 53). For the

reasons stated below, both Motions are GRANTED.

BACKGROUND

I. UNDERLYING BANKRUPTCY ACTION

On December 16, 2008, Pfau, Pfau & Pfau, LLC (“Pfau”), whose manager was

then Plaintiff Ray Gray, filed a voluntary petition in the United States Bankruptcy

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Court for the Southern District of California. At that time, Pfau owned real properties

commonly known as “Ashurst Ranch” and “University Heights” (“Properties”). These

CMR, to whom Ray Gray assigned a controlling interest in Pfau, removed Ray 1

Gray as manager of Pfau on August 24, 2010. (RJN [Docket No. 54], Exh. C ¶ 4.) Ray

Gray did not disclose to Defendants or the BankruptcyCourt that he had been removed

as Pfau’s manager until over a year later, on September 2, 2011. (See id.)

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Propertiessecured a debt owed by Pfau to DefendantRancho Mountain Properties, Inc.

(“Rancho”)’s predecessor-in-interest, DefendantING USA Annuityand Life Insurance

Company (“ING USA”), in the original principal amount of $19,500,000. (RJN

[Docket No. 54], Exh. A, at 2.)2

On May 29, 2009, ING USA filed a motion for relief from the automatic stay,

after Pfau failed to find a viable cash purchaser of the Properties. After a five-month

protracted negotiation, Pfau, ING USA, and CMR (a junior lien holder, and later the

main equity holder of Pfau) stipulated to lift the automatic stay. On October 22, 2009,

the Bankruptcy Court entered an order lifting the automatic stay pursuant to the terms

of the stipulation (“Relief Stay Order”). (Id., Exh. B.) The Relief Stay Order expressly

forbid Pfau from “seek[ing] an injunction” to delay foreclosure. (Id. at 14.) 

II. RAY GRAY CONTESTS THE FORECLOSURE OF THE PROPERTIES

For the past four years, Ray Gray has engaged in litigation against Defendants,

contesting the foreclosure of the Properties. For instance, Ray Gray obtained ex parte

temporary restraining ordersin both the San Diego County and FresnoCounty Superior

Courts to enjoin the foreclosure sales on the Properties, in violation of the Relief Stay

Order. (Id., Exh. A, at 2.) Ray Gray perjured himself to both courts by filing a series

of verified complaints under oath on “Pfau’s behalf” after he had been removed as

Pfau’s manager. (Id.) Ray Gray also recorded multiple lis pendens on the Properties

in connection with the suits, and refused to withdraw them, even after the cases were

dismissed. (Id., Exh. D.) The temporary restraining orders were eventually dissolved

and the lis pendens removed from title. Rancho foreclosed on University Heights on

November 2, 2010, and on Ashurst Ranch on January 3, 2011. (RJN [Docket No. 53],

Exh. B.)

On January 20, 2011, after the foreclosures of the Properties took place, a

Defendants’ Requests for Judicial Notice (Docket Nos. 53, 54, 58) are 2

GRANTED. See FED. R. EVID. 201(b); Papai v. Harbor Tug & Barge Co., 67 F.3d

203, 207 n.5 (9thCir. 1995), rev’d on other grounds, 520 U.S. 548 (1997); Headwaters

Inc. v. U.S. Forest Serv., 399 F.3d 1047, 1051 n.3 (9th Cir. 2005).

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chapter 11 trustee was appointed in the Pfau bankruptcy case, with Ray Gray’s consent. 

(RJN [Docket No. 54], Exh. E.) A few weeks later, Ray Gray, despite no longer being

a manager of Pfau, filed a third adversary case on “Pfau’s behalf” against Rancho based

on the alleged wrongful foreclosure. (Id., Exh. F.) The Bankruptcy Court granted

Rancho’s motion to dismiss that action on April 13, 2011. (Id., Exh. G.)

III. SETTLEMENT OF CLAIMS FOR WRONGFUL FORECLOSURE

On April 27, 2012, the Bankruptcy Court approved a Settlement Agreement and

Mutual Release of All Claims on behalf of the estate of Pfau, with ING USA,

Defendant ING Investment Management, LLC, Lion II CustomInvestments, LLC, and

Rancho. (Id., Exh. I.) Pursuant to the settlement agreement, Pfau’s bankruptcy trustee

fully released: 

any and all claims related . . . to the Properties, as well as any and all

claims related to foreclosures of such Properties and the rights of the

[Defendants] to ownership and peaceful possession of such Properties,

and any and all claims related to the Loan Agreement dated as of August

28, 2006, entered into by and between Pfau and ING’s assignor and all

loan documents related thereto, including but not limited to a certain

promissory note, and certain deeds of trust, as amended or modified, for

which the Properties were collateral (collectively,the “Loan”), including

but not limited to any claims for lender liability or equitable

subordination and any actionstaken by [Defendants] in connection with

or enforcement of the Loan.

(Id. § 3.)

IV. THE PRESENT ACTION

On June 23, 2011, Plaintiffs Ashurst Land and Cattle, LLC, Ray Gray, and Linda

Gray filed the present action in the Northern District of California. This case was

transferred to the Southern District on June 4, 2012. Plaintiffs filed a Second Amended

Complaint on June 18, 2102. The Second Amended Complaint alleged: (1) abuse of 3

Plaintiffs filed the Second Amended Complaint without leave from the Court

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or consent from Defendants, in violation of the Federal Rules of Civil Procedure. “In

general, if an amendment that cannot be made as of right is served without obtaining

the court’s leave or the opposing party’s consent, it is without legal effect and any new

matter it contains will not be considered unless the amendment is resubmitted for the

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process; (2) breach of implied covenant of good faith and fair dealing; (3) elder abuse

under California Welfare & Institutions Code § 15610.30; (4) intentional infliction of

emotional distress; (5) negligent infliction of emotional distress; (6) intentional

interference with prospective economic advantage; (7) negligence; (8) negligent

interference with prospective economic advantage; (9) tortious interference with

contract; (10) unjust enrichment; (11) damages under California Civil Code § 3333;

(12) conversion; (13) unfair business practices; and (14) assault.

Presently before the Court are: (1) Defendants’ Motion to Dismiss Claims 1

through 13; and (2) Defendants’ Motion to Expunge Lis Pendens.

DISCUSSION

I. MOTION TO DISMISS

Under Federal Rule of Civil Procedure 12(b)(6), dismissal is appropriate if,

taking all factual allegations as true, the complaint fails to state a plausible claim for

relief on its face. FED. R. CIV. P. 12(b)(6); Bell Atl. Corp. v. Twombly, 550 U.S. 544,

556-57 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (requiring plaintiff

to plead factual content that provides “more than a sheer possibility that a defendant

has acted unlawfully”). Under this standard, dismissal is appropriate if the complaint

fails to state enough facts to raise a reasonable expectation that discovery will reveal

evidence of the matter complained of, or if the complaint lacks a cognizable legal

theory under which relief may be granted. Twombly, 550 U.S. at 556.

All of a debtor’s legal and equitable interests in property at the commencement

of a bankruptcy case are automatically included in the bankruptcy estate. 11 U.S.C.

§ 541(a)(1); see also Smith v. Arthur Andersen LLP, 421 F.3d 989, 1002 (9th Cir.

2005). “If the debtor suffered an injury, the trustee has standing to pursue a claim

court’s approval.” See United States ex rel. Mathews v. HealthSouth Corp., 332 F.3d

293, 295 (5th Cir. 2003) (internal quotation marks omitted). Here, the First Amended

Complaint and Second Amended Complaint assert the same claims. Accordingly,

Plaintiffs lacked standing to bring Claims 1 through 13, as discussed below, regardless

of whether the First or Second Amended Complaint is the operative complaint.

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seeking to rectify such injury.” Arthur Andersen, 421 F.3d at 1002. “[T]he bankruptcy

code endows the bankruptcy trustee with the exclusive right to sue on behalf of the

estate.” Estate of Spirtos v. Superior Court, 443 F.3d 1172, 1176 (9th Cir. 2006). 

In regards to wrongful foreclosure claims, such claims belong to the bankruptcy

trustee regardless of whether the foreclosure occurred before or after the petition is

filed. See, e.g., In re Greenhaw Energy, Inc., 359 B.R. 636, 641-42 (Bankr. S.D. Tex.

2007); Jefferson v. Miss. Gulf Coast YMCA, Inc., 73 B.R. 179, 181-82 (S.D. Miss.

1986). Similarly, the trustee has the exclusive right to pursue relief for contracts to

which the debtor is a signatory. See In re Cannonsburg Envtl. Assocs., Ltd., 72 F.3d

1260, 1265 (6th Cir. 1996).

Claims 1 through 13 are premised on the allegations that: (1) Rancho

“unlawfully foreclosed” on the Properties; and (2) Rancho “interfered” with Plaintiffs’

escrow agreements for the sale of the real properties to a company called Gerova

Financial Group. Specifically, Claim 1, abuse of process, alleges that Defendants

abused “civil legal process” with “tortious and unlawful foreclosure and Trustee’s

Sales processes.” (FAC ¶¶ 37, 38; SAC ¶¶ 37, 38.) 

Claim 2, breach of implied covenant of good faith and fair dealing, alleges that

Defendants “devis[ed] and implement[ed] an unlawful scheme to acquire all of the

Plaintiffs’ Assets [i.e., the Properties].” (FAC ¶ 43; SAC ¶ 43.) 

Claim 3, elder abuse, alleges that Defendants “wrongfully and unlawfully

obtaine[d] and retain[ed] Plaintiff Ray Gray’s personal and real property.” (FAC ¶ 47;

SAC ¶ 47.) 

Claim 4, intentional infliction of emotional distress, alleges that “Defendants

intentionally interfered with Plaintiffs’ contracts in escrow.” (FAC ¶ 54; SAC ¶ 54.) 

Claim 5, negligent infliction of emotional distress, alleges that Defendants

“conspir[ed] in bad faith to thwart Plaintiffs’ contracts in escrow.” (FAC ¶ 60; SAC

¶ 61.) 

Claim 6, intentional interference with prospective economic advantage, alleges

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that “Defendants interfered with said deals in escrow in order to be able to foreclose

[on the Properties] and initiate [an] unlawful Trustee’s Sales scheme.” (FAC ¶ 66;

SAC ¶ 67.) 

Claim 7, negligence, alleges that Defendants breached a “duty by conducting

Trustee’s Sales in an unreasonable fashion that deprived Plaintiffs of the reasonable

value of their properties.” (FAC ¶ 71; SAC ¶ 72.) 

Claim 8, negligent interference with prospective economic advantage, alleges

that “Defendants interfered with . . . deals in escrow in order to be able to foreclose [on

the Properties] and initiate the unlawful Trustee’s Sales scheme.” (FAC ¶ 76; SAC

¶ 77.) 

Claim 9, tortious interference with contract, alleges that “Defendants

unreasonably, unnecessarily, and interfered with . . . deals in escrow by taking

affirmative action to block, delay, or thwart said deals in order to be able to foreclose

and initiate the unlawful Trustee’s Sales scheme.” (FAC ¶ 83; SAC ¶ 84.) 

Claim 10, unjust enrichment, alleges that “Defendants greatly and unjustly

enriched themselves with over $200 million in real property assets.” (FAC ¶ 89; SAC

¶ 90.) 

Claim 11, damages under California Civil Code § 3333, alleges that Defendants

“failed to offer the Ashurst Ranch parcels for sale individually” and “failed to sell the

University Heights property by parcel” and did not “preserve [Ray Gray’s] and other

Plaintiffs’ equity.” (FAC ¶¶ 98, 99; SAC ¶¶ 99, 100.) 

Claim12, conversion, alleges that Defendants “[m]aliciously schem[ed] to obtain

all of Plaintiffs’ Assets in unlawful proceedings [and] improperly and unlawfully

dispossess[ed] Plaintiffs of their real and personal property.” (FAC ¶ 104; SAC ¶ 105.) 

Claim 13, unfair business practices, alleges that Defendants “consummat[ed] an

unlawful, unfair, and fraudulent business practice, designed to deprive Plaintiffs of the

reasonable value of their Assets [i.e., the Properties].” (FAC ¶ 108; SAC ¶ 109.)

Because the Properties were owned by Pfau, Pfau’s bankruptcy estate had

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exclusive standing to sue for any wrongful foreclosure. Any unlawful foreclosure

claims, however, were settled and released by Pfau’s bankruptcy estate. In addition,

Plaintiffs were not parties to the escrow agreements entered into by Pfau and Gerova,

and these escrow agreements were not approved by the Bankruptcy Court. 

Plaintiffs argue that they have standing to pursue Claims 1 through 13 because

they are the “aggrieved parties pursuant to common law and statutory causes of action.”

(Opp., at 12.) This argument misses the point. Plaintiffs do not deny that the unlawful

foreclosure claims were owned, settled, and released by Pfau’s bankruptcy estate. In

addition, Plaintiffs do not argue that they were partiesto the escrow agreements or that

the escrow agreements were approved by the Bankruptcy Court. Accordingly,

Plaintiffs do not have standing to bring Claims 1 through 13. As this issue is

dispositive, the parties’ remaining arguments will not be addressed.

II. MOTION TO EXPUNGE LIS PENDENS

“A party who asserts a claim to real property can record a notice of lis pendens,

which serves as notice to prospective purchasers, encumbrancers and transferees that

there is litigation pending that affects the property.” Amalgamated Bank v. Superior

Court, 149 Cal. App. 4th 1003, 1011 (3d Dist. 2007). “A lis pendens acts as a cloud

against the property, effectively preventing sale or encumbrance until the litigation is

resolved or the lis pendens is expunged.” Id. 

A party may move to expunge a lis pendens. CAL. CODE CIV. PROC. § 405.30. 

According to California Code of Civil Procedure § 405.32, “the court shall order that

the notice [of pendency of action] be expunged if the court finds that the claimant has

not established by a preponderance of the evidence the probable validity of the real

property claim.” A “real property claim” is defined as “the cause or causes of action

in a pleading which would, if meritorious, affect (a) title to, or the right to possession

of, specific real property.” CAL. CODE CIV. PROC. § 405.4. “Probable validity” is

defined as “more likely than not that the claimant will obtain a judgment against the

defendant on the [real property] claim.” CAL.CODECIV. PROC. § 405.3. The claimant

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has the burden of showing the probable validity of the claim. CAL. CODE CIV. PROC.

§ 405.32; Ziello v. Superior Court, 36 Cal. App. 4th 321, 332 (2d Dist. 1995). 

Here, Plaintiffs cannot establish any valid cause of action that could affect title

to the Properties because Plaintiffs have no legal right to seek to undo Rancho’s

foreclosure or otherwise affect or impact title to the Properties. As explained above,

any claims for wrongful foreclosure belonged to Pfau’s bankruptcy trustee, who settled

and released such claims. Indeed, Plaintiffs concede that “given the current status of

Plaintiffs’ Complaint, Defendants’ Motion to Expunge Lis Pendens is well taken.”

(Opp. at 1.) 

In addition, a lis pendens must be supported by admissible evidence such as a

verified complaint or verified declaration to establish the probability of the plaintiff’s

claims. Burger v. Superior Court, 151 Cal. App. 3d 1013, 1019 (1st Dist. 1984). 

Unsupported statements of counsel are insufficient. Id. Here, the Opposition is not

supported by any evidence or declaration, and the Complaint has not been verified. 

Plaintiffs’ allegations of “possessory surface rights” does not meet the “probable

validity” standard.

First, Plaintiffs argue that they “have recently become aware of certain

possessory surface rights by virtue of lease or its equivalent on what they strongly

believe to be unlawfully and wrongfully foreclosed-upon properties.” (Opp. at 3.) 

Plaintiffs, however, do not assert any details about these “possessory surface rights”

in either the Opposition or the Second Amended Complaint. In order to assert a lis

pendens against the Properties, Plaintiffs have the burden to show the “probable

validity” of any claims that would affect Rancho’s title or possessory interests in the

real property. See CAL. CODE CIV. PROC. § 405.32. Plaintiffs have failed to meet that

burden here.

Second, Plaintiffs argue that in January 2011, ING North American Insurance

Corporation entered a 1099-C filing that effectively cancelled a debt that was

guaranteed by Pfau for $11.7 million. (Opp. at 2; Notice of Errata at 1-2.) According

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to Plaintiff, this calls into question “which entity had the right to foreclose on the

properties at issue in the Lis Pendens” and “whether Rancho Mountain Propertiesisthe

proper party to request judicial relief to expunge the Lis Pendens.” (Opp. at 2-3.) The

1099-C, however, does not confer any standing on Plaintiffs to bring a wrongful

foreclosure action.

CONCLUSION

For the reasons stated above, Defendants’ Motion to Dismiss is GRANTED. 

Claims 1 through 13 are DISMISSED WITH PREJUDICE.

In addition, Defendants’ Motion to Expunge Lis Pendens is GRANTED.

IT IS SO ORDERED.

DATED: June 10, 2013

Hon. Roger T. Benitez

United States District Judge

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