Source: https://www.scribd.com/document/59368926/Adversary-Complaint
Timestamp: 2016-07-24 07:14:24
Document Index: 407868160

Matched Legal Cases: ['§ 542', '§ 547', '§ 548', '§ 363', '§ 727', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 78', '§ 1409', '§ 157', 'art001']

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Case 10-13160-LA11
Filed 10/05/10
Pg. 1 of 33
ADVERSARY PROCEEDING COVER SHEET (Instructions on Reverse)
PLAINTIFFS Encinitas Office, LP
ADVERSARY PROCEEDING NUMBER
DEFENDANTS See attached list
ATTORNEYS (Firm Name, Address, and Telephone No.) Alan Vanderhoff, Cal. Bar No. 138032 Sara Pfrommer, Cal Bar No. 84452 750 B Street, Suite 1620 San Diego, CA 92101 (619) 299-2050 PARTY (Check One Box Only)
Debtor Creditor Trustee U.S. Trustee/Bankruptcy Admin Other
PARTY (Check One Box Only)
CAUSE OF ACTION (WRITE A BRIEF STATEMENT OF CAUSE OF ACTION, INCLUDING ALL U.S. STATUTES INVOLVED) Breach of contract, fraud, breach of fiduciary duty, negligence, declaratory relief, equitable subordination and usury arising out of a construction loan agreement.
(Number up to five (5) boxes starting with lead cause of action as 1, first alternative cause as 2, second alternative cause as 3, etc.) FRBP 7001(1) – Recovery of Money/Property 11 - Recovery of money/property - § 542 turnover of property 12 - Recovery of money/property - § 547 preference 13 - Recovery of money/property - § 548 fraudulent transfer 14 - Recovery of money/property - other FRBP 7001(2) – Validity, Priority or Extent of Lien 21 - Validity, priority or extent of lien or other interest in property FRBP 7001(3) – Approval of Sale of Property 31 - Approval of sale of property of estate and of co-owner - § 363(h) FRBP 7001(4) – Objection/Revocation of Discharge 41 - Objection / revocation of discharge - § 727(c),(d),(e) FRBP 7001(5) – Revocation of Confirmation 51 - Revocation of confirmation FRBP 7001(6) – Dischargeability 66 - Dischargeability - § 523(a)(1),(14),(14A) priority tax claims 62 - Dischargeability - § 523(a)(2), false pretenses, false representation, actual fraud 67 - Dischargeability - § 523(a)(4), fraud as fiduciary, embezzlement, larceny (continued next column) Check if this case involves a substantive issue of state law Check if a jury trial is demanded in complaint Other Relief Sought FRBP 7001(6) – Dischargeability (continued) 61 - Dischargeability - § 523(a)(5), domestic support 68 - Dischargeability - § 523(a)(6), willful and malicious injury 63 - Dischargeability - § 523(a)(8), student loan 64 - Dischargeability - § 523(a)(15), divorce or separation obligation (other than domestic support) 65 - Dischargeability - other FRBP 7001(7) – Injunctive Relief 71 - Injunctive relief - reinstatement of stay 72 - Injunctive relief - other FRBP 7001(8) Subordination of Claim or Interest 81 - Subordination of claim or interest FRBP 7001(9) Declaratory Judgment 91 - Declaratory judgment FRBP 7001(10) Determination of Removed Action 01 - Determination of removed claim or cause Other SS-SIPA Case – 15 U.S.C. §§ 78aaa et.seq. 02 - Other (e.g. other actions that would have been brought in state court if unrelated to bankruptcy case) Check if this is asserted to be a class action under FRCP 23 Demand $
B 104 (Page 2) [08/07]
Pg. 2 of 33
BANKRUPTCY CASE IN WHICH THIS ADVERSARY PROCEEDING ARISES NAME OF DEBTOR BANKRUPTCY CASE NO.
Encinitas Office, LP
DISTRICT IN WHICH CASE IS PENDING DIVISIONAL OFFICE
10-13160-LA11
RELATED ADVERSARY PROCEEDING (IF ANY)
ADVERSARY PROCEEDING NO.
DISTRICT IN WHICH ADVERSARY IS PENDING
SIGNATURE OF ATTORNEY (OR PLAINTIFF)
/s/ Alan Vanerhoff
DATE PRINT NAME OF ATTORNEY (OR PLAINTIFF)
The filing of a bankruptcy case creates an “estate” under the jurisdiction of the bankruptcy court which consists of all of the property of the debtor, wherever that property is located. Because the bankruptcy estate is so extensive and the jurisdiction of the court so broad, there may be lawsuits over the property or property rights of the estate. There also may be lawsuits concerning the debtor’s discharge. If such a lawsuit is filed in a bankruptcy court, it is called an adversary proceeding. A party filing an adversary proceeding must also complete and file Form 104, the Adversary Proceeding Cover Sheet, unless the party files the adversary proceeding electronically through the court’s Case Management/Electronic Case Filing system (CM/ECF). In some courts, the cover sheet is not required when the adversary proceeding is filed electronically through the court’s Case Management/Electronic Case Files (CM/ECF) system. (CM/ECF captures the information on Form 104 as part of the filing process.) When completed, the cover sheet summarizes basic information on the adversary proceeding. The clerk of court needs the information to process the adversary proceeding and prepare required statistical reports on court activity. The cover sheet and the information contained on it do not replace or supplement the filing and service of pleadings or other papers as required by law, the Bankruptcy Rules, or the local rules of court. The cover sheet, which is largely self-explanatory, must be completed by the plaintiff’s attorney (or by the plaintiff if the plaintiff is not represented by an attorney). A separate cover sheet must be submitted to the clerk for each complaint filed. Plaintiffs and Defendants. Give the names of the plaintiffs and the defendants exactly as they appear on the complaint. Attorneys. Give the names and addresses of the attorneys, if known. Party. Check the most appropriate box in the first column for the plaintiffs and in the second column for the defendants. Demand. Enter the dollar amount being demanded in the complaint. Signature. This cover sheet must be signed by the attorney of record in the box on the second page of the form. If the plaintiff is represented by a law firm, a member of the firm must sign. If the plaintiff is pro se, that is, not represented by an attorney, the plaintiff must sign.
Pg. 3 of 33
ENCINITAS 338, LLC, a Nevada limited liability company; DIAMOND BAY INVESTMENTS, INC., a Nevada corporation; OASIS LOAN ADVISORS, LLC, a Nevada limited liability company; JORDAN WIRSZ; DOUGLAS ESTEVES; DENNIS R. BLITZ; RICHARD RIVERA; MARIA TRINIDAD RIVERA; DONALD ROLAND ENRICO; BONNY KAY ENRICO; MALDEN VENTURES, LTD.; DEFINED BENEFIT TRUST; PROVIDENT GROUP; ROBERT B. CALDWELL; ESTHER GOMEZ; FIRST SAVINGS BANK FBO JOAN M. ALIPRAND, IRA; EDWARD B. ALLEN; CAROL ALLEN; DBI-SECURED INCOME PARTNERS, LLC; ROBERT ALLEN DEMBINSKI; DIANE M. DEMBINSKI; GREGORY D. ERECKSON REVOCABLE TRUST DATED AUGUST 1, 2003; FIFTY-FIVE LLC; DAVID ROY FOSSATI; JOHN P. HILT; DAVID J. HOUSTON; CAROL B. HOUSTON; NEIL E. HOUSTON; DONNA K. HOUSTON; THE LITTRELL FAMILY TRUST DATED NOVEMBER 30, 2005; SCOTT R. LLOYD; CAROLLYN S. LLOYD; THE MAGIC TRUST DATED DECEMBER 20, 2005; THE MIELA FAMILY TRUST DATED JUNE 24, 1994; ESTHER G. MILES; DARRON L. MILES; LAWRENCE EARL NOBLIN; STEPHANIE GRACE NOBLIN; ARTHUR POLACHECK; GLORIANNE M. POLACHECK; PRESWICK CORP.; QUANTUM RESOURCES, LP; THE SURVIVORS TRUST OF THE ROBBINS FAMILY TRUST DATED JULY 31, 1989; MARK ROBINSON; MARSHA ROBINSON; THE BERNARD F. RUBIN AND HELEN RUBIN LIVING TRUST A, DATED MAY 23, 1986; RICHARD B. SAMUELS; THE SIROTA-END LIVING TRUST DATED OCTOBER 15, 1998; GAIL JEAN TAGART; THE WIGHTMAN FAMILY TRUST DATED FEBRUARY 8, 2008; and THE WILLIAMS FAMILY TRUST DATED NOVEMBER 2, 1992
Debtor. v. Cal. NEGLIGENCE.Case 10-13160-LA11
Pg. 4 of 33
VANDERHOFF LAW GROUP Alan Vanderhoff. IRA. Plaintiffs. L. Bar No. Bar No. RICHARD RIVERA. LLC. a Nevada corporation. ESTHER GOMEZ. EDWARD B. 10-13160-LA11 Adv. CAROL ALLEN. Case No.P. L. BLITZ. 138011 750 B Street. California 92101 Telephone: (619) 299-2050 Sara Pfrommer. No. DONALD ROLAND ENRICO. PROVIDENT GROUP. UT 84060 Telephone: (435) 658-2453 Attorneys for Encinitas Office. Suite 1620 San Diego.P. BONNY KAY ENRICO. a California limited partnership. ENCINITAS 338. a California limited partnership.. COMPLAINT FOR BREACH OF CONTRACT. Debtor-in-Possession UNITED STATES BANKRUPTCY COURT
10 SOUTHERN DISTRICT OF CALIFORNIA 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ENCINITAS OFFICE. BREACH OF FIDUCIARY DUTY. a Nevada limited liability company. L. 138032 Jeanne C. DECLARATORY RELIEF. DIAMOND BAY INVESTMENTS. Cal. Bar No. LLC. EQUITABLE SUBORDINATION and USURY
. DBISECURED INCOME PARTNERS. ALLEN.. Cal. LLC. INC.P.. DEFINED BENEFIT TRUST. In re: ENCINITAS OFFICE. DOUGLAS ESTEVES. Vanderhoff. OASIS LOAN ADVISORS. JORDAN WIRSZ. ALIPRAND. ROBERT B. MALDEN VENTURES. a Nevada limited liability company. MARIA TRINIDAD RIVERA.. LTD. FIRST SAVINGS BANK FBO JOAN M.. 84452 2663 Little Kate Road PO Box 3912 Park City. DENNIS R. FRAUD. CALDWELL.
GLORIANNE M. PRESWICK CORP. THE LITTRELL FAMILY TRUST DATED NOVEMBER 30. NEIL E. HOUSTON. THE WIGHTMAN FAMILY TRUST DATED FEBRUARY 8. FIFTY-FIVE LLC. HOUSTON. Defendants. HILT. 1998. and 1334. QUANTUM RESOURCES. GAIL JEAN TAGART.C. JOHN P.P. 1992. LP.. (O). 1986.S. 2. THE SURVIVORS TRUST OF THE ROBBINS FAMILY TRUST DATED JULY 31. 1989.Case 10-13160-LA11
Pg. DARRON L. 2005.C. SCOTT R.C. ERECKSON REVOCABLE TRUST DATED AUGUST 1. CAROL B. GREGORY D. ESTHER G. THE BERNARD F. and THE WILLIAMS FAMILY TRUST DATED NOVEMBER 2. DEMBINSKI. debtor-in-possession (“Plaintiff”) alleges as follows: JURISDICTION AND VENUE This Court has exclusive jurisdiction over this proceeding pursuant to 28
157(b)(2)(A). LLOYD. This matter constitutes a core proceeding pursuant to and 28 U. HOUSTON. 2005.
. THE MAGIC TRUST DATED DECEMBER 20. HOUSTON. DAVID J. 2008. §§ ENCINITAS OFFICE. LLOYD.. MILES. THE SIROTA-END LIVING TRUST DATED OCTOBER 15. CAROLLYN S. 2003. L. POLACHECK. MILES. U. SAMUELS. 1994.S. DAVID ROY FOSSATI. MARK ROBINSON. DATED MAY 23. THE MIELA FAMILY TRUST DATED JUNE 24. DIANE M.
17 18 19 20 21 22 23 24 25 26 27 28 2 1. STEPHANIE GRACE NOBLIN.S. 3. RICHARD B. ARTHUR POLACHECK. MARSHA ROBINSON. § 1409(a). LAWRENCE EARL NOBLIN. RUBIN AND HELEN RUBIN LIVING TRUST A. Venue is proper in this district pursuant to 28 U. 5 of 33
ROBERT ALLEN DEMBINSKI. §§ 157 and 1334. DONNA K.
STEPHANIE GRACE NOBLIN. (“Diamond Bay”) is a Nevada corporation with its principal place of business in Las Vegas. L. MARIA TRINIDAD RIVERA. ARTHUR POLACHECK. JOHN P. CAROL ALLEN. LLOYD. HILT. HOUSTON. SCOTT R. LTD. GREGORY D. LP. THE SURVIVORS 3
. 6. DARRON L. HOUSTON. DEFINED BENEFIT TRUST. DONALD ROLAND ENRICO. QUANTUM RESOURCES. MALDEN VENTURES. 6 of 33
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4. CAROLLYN S. ALLEN. to be bound by the terms thereof: DIAMOND BAY. 2003. Nevada. DAVID J. EDWARD B. each of whom agreed.P. DBI-SECURED INCOME PARTNERS. DONNA K. by acquiring an interest in and under the Construction Loan. ROBERT B.. PRESWICK CORP. HOUSTON. LLC. Plaintiff is informed and believes and thereon alleges that the Construction
Loan Agreement at issue in this Complaint (the “Construction Loan”) was made by the following defendants (collectively. HOUSTON. MILES.
THE PARTIES Plaintiff Encinitas Office. Nevada. LAWRENCE EARL NOBLIN. BONNY KAY ENRICO. DENNIS R. POLACHECK. THE LITTRELL FAMILY TRUST DATED NOVEMBER 30. THE MAGIC TRUST DATED DECEMBER 20. RICHARD RIVERA. 5. Plaintiff is informed and believe and thereon alleges that defendant
ENCINITAS 338. INC. LLC (“Encinitas 338”) is a Nevada limited liability company with its principal place of business in Las Vegas. FIFTY-FIVE LLC. 1994. 2010. ALIPRAND. ROBERT ALLEN DEMBINSKI. Plaintiff filed a petition under Chapter 11 of the United States Bankruptcy Code on July 29. CALDWELL. LLOYD. DAVID ROY FOSSATI.Case 10-13160-LA11
Pg. THE MIELA FAMILY TRUST DATED JUNE 24. BLITZ. ERECKSON REVOCABLE TRUST DATED AUGUST 1. 7. FIRST SAVINGS BANK FBO JOAN M. 2005. IRA. PROVIDENT GROUP. GLORIANNE M. MILES. ESTHER G. DEMBINSKI. CAROL B. is a California limited partnership with its
principal place of business in California. 2005.. DIANE M. ESTHER GOMEZ. NEIL E. Plaintiff is informed and believes and thereon alleges that defendant
DIAMOND BAY INVESTMENTS.. the “Construction Lenders”).
Plaintiff is informed and believes and thereon alleges that defendant JORDAN
WIRSZ is an individual who at all times relevant to the matters alleged herein was a resident of Las Vegas. At all times relevant to this Complaint. 1989. LLC is a Nevada limited liability corporation with its principal place of business in Las Vegas. 8. THE SIROTAEND LIVING TRUST DATED OCTOBER 15. 13. SAMUELS. 12. 10. at all times relevant to this Complaint. He is a real estate broker and holds California Real Estate Broker’s License No. RICHARD B. 7 of 33
TRUST OF THE ROBBINS FAMILY TRUST DATED JULY 31. that in its capacity as loan servicer. 1998. Plaintiff is informed and believes and thereon alleges that until late 2009. Plaintiff is informed and believes. THE WIGHTMAN FAMILY TRUST DATED FEBRUARY 8. Plaintiff is informed and believes and thereon alleges that Defendant OASIS
LOAN ADVISORS. 9. at which time Oasis became the loan servicer. Nevada. Nevada. MARK ROBINSON. and thereon alleges. Oasis is the agent for all purposes of the Construction Lenders. 1986. MARSHA ROBINSON.Case 10-13160-LA11
Pg. 2008. Plaintiff is informed and believes and thereon alleges that at some point in
2009 after Diamond Bay defaulted on the Construction Loan.
Diamond Bay was agent for various individuals and entities who purchased interests in the construction loan that is at issue in this action. He was also.
. Diamond Bay’s position was acquired by defendant Oasis. GAIL JEAN TAGART. an officer and employee of Diamond Bay. THE BERNARD F. and THE WILLIAMS FAMILY TRUST DATED NOVEMBER 2. 1992. DATED MAY 23. 11. Plaintiff is informed and believes and thereon alleges that defendant
DOUGLAS ANTONIO ESTEVES is an individual residing in Arizona. RUBIN AND HELEN RUBIN LIVING TRUST A. 00922927. defendants WIRSZ and ESTEVES
were agents and alter egos of DIAMOND BAY.
Plaintiff acquired the raw land on which the Project is constructed in 2007. Of this amount.000 of equity to fund the development costs. site development.
GENERAL ALLEGATIONS General Allegations Relating To The Project. A. California. representatives of Plaintiff met with defendant Douglas Antonio Esteves. 15. In May of 2008. During the spring of 2008.000. The Construction Loan Agreement And The Breach Of That Contract Plaintiff’s sole asset is a partially constructed office condominium known as
the Quail Garden Corporate Center (“the Project”). The Project. is located on the north side of Encinitas Boulevard near the intersection of Quail Gardens Drive at 662 Encinitas Boulevard and is the first private Leadership in Energy and Environmental Design (LEED) – certified building in the city of Encinitas. Plaintiff wished to refinance the existing loan and obtain
additional financing to complete and construct the Project. 17. he never informed the California Department of Real Estate that he was affiliated with Diamond Bay.000. Plaintiff’s total equity investment in the Project is $2. Although
Esteves purports to hold a valid California real estate broker’s license. 16. The limited partners of Plaintiff invested an additional $650. obtaining the necessary permits and the like. The due diligence for Diamond Bay was conducted by Esteves. the limited partners of Plaintiff provided half.085. 8 of 33
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14. The Project is designed to consist of one single-story commercial office and/or medical condominium complex totaling approximately 33.000 square feet. designed by architects Hanna Gabriel Wells.150. Plaintiff paid a fee of $7. for
an amount in excess of $3. divided into twenty-one units with an average size of approximately 1. including architectural plans.500 to Diamond Bay to cover the cost of “due diligence” with respect to the making of the proposed construction loan.575 square feet. with the rest in the form of loan from First Bank of Beverly Hills.Case 10-13160-LA11
Pg. or that he intended to use his broker’s license to enable Diamond Bay to place commercial real estate loans in California. 5
. who represented himself as a principal of Diamond Bay.
as borrower. 21.” The Construction Loan Agreement is. as of April 2008 at the latest.P. and the Construction Lenders. Accordingly. real estate mortgage loan broker.. by its terms.000 (the “Construction Loan”). The Construction Loan Agreement and related documents are hereinafter referred to collectively as the “Construction Loan Agreement. Plaintiff is informed and believes that Diamond Bay’s methodology for
soliciting investments in Arizona was essentially identical to the methodology for soliciting investments in other jurisdictions.560. however. Diamond Bay consented to that result. This amount was sufficient to complete the construction of the building as designed. Plaintiff is informed and believes and thereon alleges that at the time this representation was made. Diamond Bay had been advised by the State of
Arizona that the marketing of investments for the purpose of pooling them into a real estate loan was a violation of Arizona’s state securities laws. 2008 between Encinitas Office. as lender. On May 15.
. Esteves told Plaintiff that Diamond Bay was ready. 23. or real estate securities seller. Plaintiff is informed and believes that Esteves knew of the Arizona cease and
desist order when it was entered in April of 2008. but rather was intending to raise a significant portion of the funding through both present and future sales of interests in the Construction Loan to various investors. In April of 2008. L. willing and able to make a
construction loan in the amount of $10. 20. 19. governed by California law. Diamond Bay knew that its fund-raising activities could be considered illegal securities offerings by other jurisdictions.000 to advance to Plaintiff. 9 of 33
18. 2008. Diamond Bay did not have $10. Neither Esteves nor any other representative of Diamond Bay ever informed plaintiff of this information.560.
Diamond Bay has never obtained any kind of license or certification from the
State of California to act as a finance lender. Plaintiff entered into a Construction Loan Agreement dated
as of May 15. 22. as well as Arizona. and had been ordered to cease and desist from that activity in the State of Arizona.Case 10-13160-LA11
500. 10 of 33
24. the maximum outstanding balance of the loan. Plaintiff is informed and believes. Collection of loan fees for funds that have not yet been advanced under a loan
agreement is illegal in the State of California. 25.000 (the “Promissory Note”). the
Construction Lenders were obligated. 28. 26. Diamond Bay was required to be licensed by the State of California in order to
act as loan servicer for the Construction Loan. to disburse loan proceeds in the Construction Loan Agreement. but never sought or obtained any licensure from the State of California. the Construction Lenders recorded a deed of trust against
the property (the “Diamond Bay Deed of Trust”) on behalf of themselves and a number of of additional “beneficiaries. At the time of the execution of the Construction Loan Agreement.500.000.000 of the committed amount was funded at that time. the number of points required by the Construction Lenders multiplied by $10. even though only $3. 2009. On May 15. and thereon alleges.000.” The Diamond Bay Deed of Trust purported to secure a repayment of $10. the Construction Lenders also
required that Plaintiff pay a loan fee of 5.5% and had a maturity date of September 1.560.1 of the Construction Loan Agreement.000.
In conjunction with the Construction Loan Agreement. Pursuant to the Construction Loan Agreement. that Diamond Bay and the various beneficiaries entered into one or more Loan Servicing Agreements that set forth Diamond Bay’s obligations with respect to the servicing of the loan. so long as the borrower was not in default. 27. Plaintiff also executed
a promissory note in the amount of $10. Pursuant to paragraph 3. 29.5% of the total loan commitment. even though the Construction Lenders initially funded only $3. 2008.Case 10-13160-LA11
Pg. Diamond Bay agreed to service the Construction Loan Agreement on behalf
of the Construction Lenders.000. Plaintiff paid $580. 30.560. The Promissory Note provided for an interest rate of 12.
32.560. neither Diamond Bay. violated Business & Professions Code Section 10238(f) and 10238(h)(i) by virtue of. The sale of interests in the Construction Loan did not fit within the
exemptions. 35. Each Beneficiary was a “Lender” under the Construction Loan documents.Case 10-13160-LA11
Pg.000 with which to fund the
obligations under the Construction Loan Agreement. or the offerer of the security must comply with the securities laws and regulations of the California Corporations Code. and in particular (but without limitation). Diamond Bay. and Diamond Bay caused a partial assignment of the Diamond Bay Deed of Trust to be recorded with the County Recorder for San Diego County for each of the Beneficiaries. 11 of 33
31.000 and on the Construction Lenders’ contractual obligation to disburse the loan proceeds in that amount. Between May 15. entitled to the benefits thereof and subject to the burdens and obligations thereunder. as required to complete construction of the Project.560. Diamond Bay did not disclose this fact to Plaintiff. Each of the Beneficiaries took an assignment of an interest in the Construction Loan. The sale of interests in the Construction Loan constitutes a “real property
security” under the provisions of Sections 10237-10239 of the California Business & Professions Code. Wirsz nor Esteves was
.” 34. Under California law. Diamond Bay sold interests in
the Construction Loan to fifty-four different beneficiaries (the “Beneficiaries”). did not have $10. however.
Plaintiff relied on Diamond Bay’s representations that it was ready. Accordingly. 2008 and February of 2009. 33. the sale of a real property security must either fit within the exemption described in the Business & Professions Code. but was rather anticipating that it would sell interests in the Construction Loan and fund its obligations through the proceeds of those sales. among other things: a) being sold to more than ten individuals and b) constituting the sale of fractionalized interests in a construction loan that was not fully funded. The Beneficiaries and Diamond Bay are collectively referred to herein as the “Construction Lenders. willing
and able to fund a construction loan in the amount of $10.
pursuant to Section 16. . Plaintiff needed $750.000 in November. The initial disbursement of $3. 36. Construction on the project commenced on or about June 18. the Construction Lenders only funded $200. 40. The unpaid invoices were mounting and the subcontractors had begun filing mechanics’ liens. A second disbursement of $600. The construction of Plaintiff’s Project required an initial disbursement of $3. The Construction Lenders agreed to loan Plaintiff $10. Plaintiff’s attorney sent a formal Notice of Lender
Default to the Construction Lenders. .
With the disbursements being late. 38. On February 26.000 that month. Plaintiff was in serious trouble as a result of the Construction
Lenders’ defaults.000. By January. 2009. 39. The Construction Lenders said that the reason for not making the loan disbursements was that they did not have the money. Serious defaults by the Construction Lenders began in October of 2008. Plaintiff is informed and believes. 37. The
Construction Lenders failed to make the October 1st disbursement of $500.000 was made on May 31. No loan funds at all were disbursed in December.000 per month in the later months. 12 of 33
entitled to rely on the real property securities exemption contained in the California Business & Professions Code. 2008. Plaintiff was told that “fund raising is a little slow right now. 2008. that Diamond Bay also
never registered the sale of interests as a security with the State of California or otherwise complied with the securities laws and regulations of the State. 41. .12 of the Construction Loan 9
.Case 10-13160-LA11
Pg. The Construction Lenders failed to make the November 1st disbursement. 2008. thereafter the Construction Lenders ceased making the required disbursements and further disbursements became irregular.000 was made a month later on June 30. and may take us a little longer than usual .500. 2008. The Construction Loan Agreement was entered into by Plaintiff and the
Construction Lenders on or about May 15. However.” The October 1st disbursement was nearly a month late.5
million followed by monthly disbursements of $500.000. Matters quickly got worse.560. 42. However. and thereon alleges.000 per month in the early months and $750.
At the time the Construction Lenders ceased performing under the
Construction Loan Agreement. both for the sale of medical office condominiums. The Construction Lenders did not comply with this demand. and against the principals of the general partner. curb.00 and the other was for a unit of 1259 square feet.Case 10-13160-LA11
Pg. 46. plus the installation of storm drains. One was for a unit of 1556 square feet.333 of loan disbursement requests. sidewalk.105 (a sales price of approximately $595/square foot). 43. Plaintiff demanded that the Construction Lenders forthwith advance the funds they had agreed to provide under the Construction Loan Agreement. Wiegand Neglia. These claims are a direct result of the breach of the Construction Loan Agreement by the Construction Lenders. 44. Plaintiff had entered into two purchase
contracts. At the time the construction was stopped. personally. and remain. all underground utilities and a fully landscaped median. As a 10
.820. in default of the Construction Loan Agreement. with a sales price of $749. The Construction Lenders were. the Project was approximately 50%
completed. 45. gutter. including major infrastructure improvements to Encinitas Boulevard.000 in amount against Plaintiff. The unpaid contractors who were unpaid as a result of the Construction
Lenders’ breach of the Construction Loan Agreement have asserted claims exceeding $800. Bruce Wiegand and Bart Neglia. 47. 13 of 33
Agreement. Plaintiff was in full compliance with all of its obligations under the Construction Loan Agreement and was entitled to demand and require full and complete performance of the Construction Loan Agreement by the Construction Lenders. on account of the Construction Lender’s failure to fund over $870. Plaintiff was forced to shut down the Project on February 26. street widening and paving. Prior to cessation of construction. 48. Various contractors had provided goods and services to Plaintiff with respect
to the construction of the Property in reliance upon the Construction Lenders’ agreement to fund the Construction Loan. Inc. its general partner. 2009 due to lack
of construction loan funds. with a sales price of $925.
49.000 equity investment in the Project. Finally. 50. Plaintiff faces the risk of loss of its entire $2. Additionally. weed abatement and the like. One of the parties to these sales contracts have asserted claims against Plaintiff in an amount that may exceed $50. Plaintiff has been required to expend
money to protect and preserve the half-completed construction site.000.” Plaintiff is informed and believes that there is an agreement between Oasis and the Construction Lenders with respect to the servicing of the Construction Loan. These costs and expenses exceed $200.000. LLC. 14 of 33
consequence of the breach of the Construction Loan Agreement and Plaintiff’s subsequent inability to complete construction of the Project. The half-completed state of the Project. Plaintiff has suffered actual. out-of-pocket damages caused by the breach of
the Construction Loan Agreement in excess of $2. Plaintiff alleges that. a Nevada limited liability company (“Oasis”) took over Diamond Bay’s position as “loan servicer. it would have made a profit in an amount in excess of $3.000. defendant
Oasis Loan Advisors.Case 10-13160-LA11
Pg.000 upon the sell-out of the Project and that the loss of this profit is attributable to the Construction Lenders’ breach of the Construction Loan Agreement.500. 52. Following the default under the Construction Loan Agreement. Oasis has also refused to disclose to Plaintiff the terms and conditions under which it acquired Diamond Bay’s interest in and to the Construction Loan Agreement and the servicing rights. the fact that 54 different beneficial interests had been recorded against the Project and the fact that Diamond 11
. General Allegations Relating To Oasis Loan Advisors LLC And Its Breach Of Contract And Covenant Of Good Faith And Fair Dealing 51. both contracts have been cancelled. From February 2009 to the present. Plaintiff has sought a new source of
financing to complete the Project. including reinforcement to the semi-completed structure. but Oasis has refused to disclose the terms of that agreement to Plaintiff.000. From February 2009 to the present. had it been able to complete the Project on time and as scheduled. security guards.150. B.
2009. In the e-mail.000.000.000 remaining to be disbursed under the Construction Loan Agreement represents additional fees for the new loan. Pacific Horizon was. Mr. On November 12. Notwithstanding these difficulties. 2009. Amnon extensive information about the Project including (1) a project brochure. 56. On August 19.5% under the Construction Loan Agreement). (3) sources and uses of existing construction funds as of that date. Mr. 12
. Pacific Horizon Mortgage Investors II. LLC. (5) a sales comparison summary. LLC. (2) an executive summary. Tucker represented that the Oasis Proposal was acceptable to the beneficiaries of the deed of trust and was contingent only on finding acceptable financing to complete the Project. 57. 54.000 difference between this amount and the $4. had ceased to fulfill their obligations as servicers of the Construction Loan. Cohen acknowledged receipt of the information and suggested further discussions. LLC. unwilling to make the loan unless it could be assured that it would be in a first priority position with respect to the repayment of the loan.000.000. On September 1. at that
time. Plaintiff received an e-mail from Mr. The
approximately $1. Cohen stated that his group had “officially taken over” as of September 1st. and administrative and legal costs occasioned by the breach of the Construction Loan Agreement. Plaintiff sent an e-mail to Amnon Cohen who. made it difficult to find any new source of financing.Case 10-13160-LA11
Pg. (6) the status of buyer escrows. Plaintiff received an e-mail from Rodney Tucker of
Oasis Loan Advisors. Mr. 15 of 33
Bay and its principal. 2009. was doing business under the name of Chelsea Loan Servicing and Workouts. 53. Attached to the e-mail was a formal offer from the Construction Lenders regarding a global resolution of the disputes between the Construction Lenders and Plaintiff (the “Oasis Proposal”). Plaintiff identified a source of new
financing. Jordan Wirsz. Cohen under the
name of Oasis Loan Advisors. The contemplated loan from Pacific Horizon is for $5. Plaintiff provided Mr. 55. a higher interest rate (14% as compared to 12. and (8) buyer prospects. (4) a pro forma financial analysis. however.
Plaintiff is informed and believes. Plaintiff accepted the Oasis Proposal and returned a
signed copy to the Construction Lenders on that date thereby entering into a settlement contract with the Construction Lenders (the “Oasis Agreement”). but rather to stall and delay in the hope that Plaintiff would ultimately be in sufficiently dire economic straits that it would have to capitulate to Oasis’s demands with respect to the Project. and thereon alleges. Plaintiff would receive 25% of the sale proceeds and the Construction Lenders would receive 75%. that (1) the Construction
Lenders would subordinate their deed of trust to new construction loan in an amount not to exceed $5 million. Oasis has failed and refused to
effectuate the subordination. 60. and (2) the sale proceeds from the Project would be disbursed (i) first to pay off the priming lender. As a result of Oasis’s breach of contract. 62.Case 10-13160-LA11
Pg. and (iii) after $15 million. 63. On December 1. Plaintiff would receive 75% of the sale proceeds and the Construction Lenders would receive 25%. 16 of 33
58. 61. of the first $15 million. Notwithstanding its agreement. Plaintiff would receive 100% of the sale proceeds over the equivalent of $450 per square foot of rentable space.
The Oasis Proposal provided. and breach of the covenant of good
faith and fair dealing embodied in that contract. Oasis never intended to perform under the Oasis Agreement. 2009. which has required Plaintiff to file for bankruptcy and seek a priming lien for the construction financing. In addition. Plaintiff has incurred the cost and expense of filing for bankruptcy in order to protect its interests. among other things. that although Oasis has
repeatedly assured Plaintiff of its good faith and intent to honor the Oasis Agreement. 59. and will continue to incur costs and
. (ii) after the priming lender was paid and through $15 million of proceeds. to assure that the new construction lender will be guaranteed first priority of repayment for sums advanced to complete the construction of the Project. Oasis has also refused to honor its agreement with respect to the sharing of the
sales proceeds as evidenced by the Oasis Agreement. however.
California law also requires Encinitas 338 and Oasis to be licensed a real
estate brokers in California to represent the interests of the Beneficiaries as members of Encinitas 338. The Construction Loan Agreement is. registered his license as affiliated with Diamond Bay. Moreover. who also negotiated the loan terms with Plaintiff acting as a principal of Diamond Bay. all of which are the direct and proximate result of Oasis’s failure to abide by the terms of the Oasis Agreement. as is required by the regulations of the State of California. marketed to more than ten
fractional interest holders. governed by
California law. Accordingly. 65. was licensed as a real estate broker but had not.Case 10-13160-LA11
Pg. d) Oasis is not licensed as a real estate broker with the State of California. and a number of the individual investors who acquired interests in the Construction Loan are located in California. 66. General Allegations Relating To Non-Compliance With California Statutes And Regulations 64. and on that basis alleges: a) Diamond Bay
never obtained any license to make loans in California and thus acted as the arranger and the loan servicing agent on the subject loan without proper authority. C. the principal of Diamond Bay. b) Jordan Wirsz. 17 of 33
expenses in conjunction with the administration of the bankruptcy. at its inception. c) Douglas Esteves. the loan contract was. so that Diamond Bay could rely upon it and. in violation of applicable California statutes and regulations providing for exemption from the securities laws for certain real property securities 14
. according to its terms. Plaintiff is a California limited partnership. the California statutory and regulatory scheme applicable to loan servicing agents required Diamond Bay to be licensed as a real estate broker in California in order to act as the arranger of and servicing agent for the Beneficiaries with respect to the subject loan negotiated and entered into in California and secured by California real estate and required Diamond Bay to comply with the California statutes and regulations governing mortgage loan brokers and the sale of real property securities. was not licensed as a broker. Plaintiff is informed and believes. the property is located in California. 67.
70. 72. General Allegations Relating To Usury The Construction Lenders. Encinitas 338. under the Construction Loan Agreement. 18 of 33
transactions. are subject to the same defenses that Plaintiff has against the Construction Lenders. D. 68. The sale of real property securities by Diamond Bay is therefore illegal. In addition. or otherwise exempt from the anti-usury provisions of the California Constitution. illegal and unenforceable. Section 1 of the California Constitution. illegal and unenforceable. as successor-in-interest to Diamond Bay’s loan servicing rights
and the rights of the Construction Lenders under the Construction Loan Agreement.Case 10-13160-LA11
Pg. a broker licensed in California. including the defense that the Construction Loan Agreement was. Diamond Bay was not a licensed real estate broker. from its inception. nor had it registered any licensed real estate broker with the State of California to act on its corporate behalf. because Diamond Bay was a corporation. 15
. it was itself required to be licensed as a broker under California law in order to avail itself of the real estate broker exemption to the usury law. charged
Plaintiff interest on the construction loan in excess of the amount permitted by Article 15. 71. from
inception. which provides for an interest ceiling not to exceed the higher of (a) 10% per annum or (b) 5% per annum over the discount rate set by the Federal Reserve Bank of San Francisco operative on the 25th day immediately preceding the date of origination of the loan. neither Diamond Bay nor Encinitas 338 is licensed otherwise in
California to make loans. 69. Plaintiffs are informed and believe and thereon allege that Encinitas 338
contends that it is entitled to collect interest in excess of the permissible legal rate. even if those sales are or were conducted or arranged by a licensed broker. Accordingly. 73. Plaintiff further alleges that the Construction Loan Agreement was. the Construction Loan was not made or arranged by a licensed California real estate broker within the meaning of the exemption. Although the Construction Loan was purported to be made and arranged by
Oasis. 2008 through February. enforcing or exercising any rights under the Construction Loan Agreement. Plaintiff is informed and believes and thereon alleges that Diamond Bay at
one time registered with the State of California. Diamond Bay. from May 15. including without limitation. neither Oasis nor Encinitas 338 is authorized to do business in the State of California. and Encinitas 338 all conducted. Plaintiff is informed and believes and thereon alleges that neither Oasis nor
Encinitas 338 have ever registered to do business in California.826. Moreover. when it was soliciting and selling interests in the Construction Loan in California and to California residents. or are conducting.
. At a minimum. Plaintiff paid interest to
the Construction Lenders in the amount of $604. 2009. 79. E. General Allegations Relating To Defendant’s Failure To Register To Do Business In California 75. Defendants are prohibited from collecting any interest whatsoever and must return all interest and other charges already paid.
substantial business in California. 77. 19 of 33
74. Diamond Bay.
As a result. Oasis.22. 78. as required by California law. the loans are illegal and unenforceable. As a result of their activities in California. 76. and Encinitas
338 and each of them were and are obligated to register to do business in California and to remain in good standing as a foreign corporation in the State of California in order to do business and enforce rights within the State. but that it was not in good standing at the time the Construction Loan Agreement was executed or at any point in time thereafter. Diamond Bay was not entitled to enter into contracts in California
and the Construction Loan Agreement and related documents are void ab initio. Plaintiff is entitled to treble damages. As a result.Case 10-13160-LA11
Diamond Bay knew that the loan it was originating and selling fractionalized
interest in were secured by real property located in California and that it consistently sought to access the California market by placing advertisements. and are
. Neither Encinitas 338. or interest in. 20 of 33
Pursuant to the pertinent California statutory and regulatory scheme regarding
securities offerings. The Construction Loan Agreement required the unauthorized and illegal sale of fractionalized interests to the Beneficiaries/Construction Lenders in order for Diamond Bay to fulfill the funding obligations thereunder and is therefore itself illegal and unenforceable. Diamond Bay never obtained a securities permit in the state of California. 84.Case 10-13160-LA11
Pg. Oasis nor any of the Beneficiaries have any greater
rights under. 85. conducting direct mailings and maintaining websites that were accessible to investors from the State of California. 81. all of the loan servicing agreements Diamond Bay entered into
with the Beneficiaries/Construction Lenders.
General Allegations Relating To Illegality Of Contract Under Securities Laws
80. Accordingly. are illegal and unenforceable. the Construction Loan Agreement than Diamond Bay had. Diamond Bay as sponsor/issuer was required to have a current securities permit from the California Department of Corporations in order to be able to offer fractionalized interests in the promissory note for the subject loan to more than ten Beneficiaries. Diamond Bay in fact sold fractionalized interests in the Construction Loan to a number of investors in the State of California. 83. notwithstanding the fact that it was not licensed or otherwise authorized to make such sales. A contract which has for its purpose the violation of law or the public policy
implementing the law is void or voidable. nor
did Oasis or Encinitas 338. as well as the documents pursuant to which Diamond Bay sold fractionalized interests to the Beneficiaries/Construction Lenders. 82.
Entering into an obligation to fund the Construction Loan without Demanding the payment of a maturity date fee in excess of maximum
having adequate funds to fulfill the funding obligation under the Construction Loan Agreement.Case 10-13160-LA11
Pg. and (g) Failure to obtain a permit for partial funding. the Construction Lenders breached the Construction Loan Agreement in the following manner:
. (c) (d) Failing to register as a broker-dealer. causing litigation Without disclosure to the borrower. (f) Plaintiff at risk. Among other things. 21 of 33
therefore precluded from enforcing the Construction Loan Agreement. Diamond Bay has breached the Construction Loan
Agreement as more particularly described in the General Allegations. (e) Entering into a loan obligation. Plaintiff incorporates by reference the allegations in paragraphs 1 through 85. and continuing thereafter to the present. in the following manner: (a) Assessing and collecting servicing fees. the only source of funding for which
was the sale of real property securities in violation of California law. default interest and
prepayment penalties that are neither earned nor assessable without a real estate broker’s license. including without limitation. 88. late fees. Among other things. putting
exposure to Plaintiff from the Defendants. (b) set by applicable law. use of partial funding. the Construction Lenders have breached the Construction
Loan Agreement as more particularly described in the General Allegations. and continuing thereafter to the present. exercising any purported right to foreclose on the Project. FIRST CAUSE OF ACTION (Breach of Contract Against Diamond Bay. 87. Encinitas 338 and the Construction Lenders) 86.
90. As such. 92.
Their interests subject to all of the claims and defenses that Plaintiff has under the Construction Loan Agreement. The Construction Lenders are parties to the Construction Loan Agreement. default interest and
prepayment penalties that are neither earned nor assessable without a real estate broker’s license. and accordingly 19
. (c) Demanding the payment of a maturity date fee in excess of maximum
set by applicable law.Case 10-13160-LA11
Pg. No lawful excuse applies to protect the Construction Lenders from their full
and timely performance of its obligations under the Construction Loan Agreement. Plaintiff is informed and believes and thereon alleges that during the fall of
2009 and the spring of 2010. Likewise. Encinitas 338 is subject to Plaintiff’s claims and defenses with respect to the Construction Loan Agreement and is entitled to no greater rights under the Construction Loan Agreement than the Construction Lenders could have claimed. 22 of 33
Failing to fully fund the Construction Loan pursuant to its obligation
to do so as set forth in the Construction Loan Agreement. Oasis induced the Construction Lenders to assign their interests in the Construction Loan to a newly formed Nevada limited liability company. Encinitas 338 is the successor-in-interest to the Construction Lenders under
the Construction Loan Agreement and acquired its interest will full knowledge of all of the facts and circumstances of the Project. Encinitas 338. late fees. including the Construction Lenders’ default under the Loan and the partially completed status of the Project. 91. (b) Assessing and collecting servicing fees. Plaintiff is informed and believes that Oasis is the managing member of Encinitas 338 and that Encinitas 338 acts by and through Oasis. and (d) Entering into an obligation to fund the Construction Loan without
having adequate funds to fulfill the funding obligation under the Construction Loan Agreement. 89. LLC. Encinitas 338’s interest in the Project consists solely of the assignment of beneficial interests by the Construction Lenders.
Plaintiff has fully performed all of its obligations under the Construction Loan
Agreement. including without limitation Encinitas 338. 94. b) actual out-of-pocket costs to protect and preserve the partially constructed Project following the Construction Lenders’ default. 23 of 33
Encinitas 338 is also subject to all of the claims and defenses to the enforcement of the Construction Loan Agreement that Plaintiff has under the Construction Loan Agreement. including without limitation. the Construction Loan Agreement. e) damages suffered by Plaintiff from claims asserted by parties who had contracted to buy units in the Project.000. 93. but are not limited to: a) a refund of the illegal advance fees. Plaintiff is entitled to set off and recoupment of the damages it has incurred as
a result of the breaches of the Construction Loan Agreement against any amounts that it owes under thereunder to any Construction Lender. Plaintiff asserts that the damages it has suffered from breach of the Construction Loan Agreement exceed $5.000. Plaintiff is entitled to damages that include. and f) lost economic opportunities resulting from the delay in the completion of the Project and the resulting inability of Plaintiff to sell units in the Project and realize the profits therefrom. and/or such obligations have been waived by Defendants or excused by reason of Defendants’ actions. d) damages suffered by Plaintiff from claims asserted against Plaintiff by unpaid contractors. inactions.Case 10-13160-LA11
Pg. which contracts Plaintiff was unable to perform due to Defendants’ breaches. the additional loan fees. or seeking to enforce rights under. or the illegality of the transaction. Plaintiff has sustained and will sustain damages in an amount which is
unknown and difficult to calculate.
. c) the actual additional costs incurred from having to obtain replacement financing. 95. material breaches of the agreement. higher interest payments and costs of administering this bankruptcy case. or any other entity or individual claiming its rights through. At a minimum.
Oasis never intended to perform under the Oasis Agreement. Plaintiff would receive 25% of the sale proceeds and the Construction Lenders would receive 75%. and breach of the covenant of good
faith and fair dealing embodied in that contract. Oasis. and (iii) after $15 million. of the first $15 million. Plaintiff would receive 75% of the sale proceeds and the Construction Lenders would receive 25%. 24 of 33
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 96. Notwithstanding its agreement. LLC) Plaintiff incorporates by reference the allegations in paragraphs 1 through 95. 99. however. which has required Plaintiff to file for bankruptcy and seek a priming lien for the construction financing. Oasis has failed and refused to
effectuate the subordination. but rather to stall and delay in the hope that Plaintiff would ultimately be in sufficiently dire economic straits that it would have to capitulate to Oasis’s demands with respect to the Project. Oasis has also refused to honor its agreement with respect to the sharing of the
sales proceeds as evidenced by the Oasis Agreement. and thereon alleges. and (2) the sale proceeds from the Project would be disbursed (i) first to pay off the priming lender. As a result of Oasis’s breach of contract. Plaintiff has incurred the cost and expense of 21
. to assure that the new construction lender will be guaranteed first priority of repayment for sums advanced to complete the construction of the Project. Plaintiff is informed and believes. Against Oasis Loan Advisors. that although Oasis has
repeatedly assured Plaintiff of its good faith and intent to honor the Oasis Agreement. In addition. 98. 97. 101. 100.
SECOND CAUSE OF ACTION (Breach of Contract and Covenant of Good Faith and Fair Dealing. Plaintiff would receive 100% of the sale proceeds over the equivalent of $450 per square foot of rentable space.Case 10-13160-LA11
Pg. (ii) after the priming lender was paid and through $15 million of proceeds. as representative of the Construction Lenders entered into the Oasis
Agreement pursuant to which the Construction Lenders and Plaintiff agreed that (1) the Construction Lenders would subordinate their deed of trust to new construction loan in an amount not to exceed $5 million.
Raskov.Case 10-13160-LA11
Pg. all of which are the direct and proximate result of Oasis’s failure to abide by the terms of the Oasis Agreement. Id. THIRD CAUSE OF ACTION (Breach of Fiduciary Duty Against Diamond Bay and Esteves) 102. 103. b) that Diamond Bay was not able to fund the Construction Loan in full at the time it was entered into.” Barry v. 232 Cal.3d 447. 22
. The broker owes this duty to the lenderinvestor as well as to the borrower. 455 (1991). and will continue to incur costs and expenses in conjunction with the administration of the bankruptcy. the duty to inform Plaintiff that a) Diamond Bay had been held in violation of the Arizona securities laws for their solicitation of investors. Diamond Bay also owed fiduciary obligations to Plaintiff with respect to the
Construction Loan. Esteves owed the highest fiduciary duty of care
to Plaintiffs with respect to the Construction Loan. Esteves did not inform Plaintiff of any of this information.App. The fiduciary duty of the broker is non-delegable and exists in order to assure
that all real estate loan transactions in California that are performed through the efforts of a licensed real estate broker are conducted in good faith and in strict compliance with the laws and regulations of the State of California. in a manner similar to the solicitations that had been precluded by the State of Arizona. 107. As agent/broker for Plaintiff. and c) that Diamond Bay intending to further solicit new investors. in order to obtain the necessary funds. without limitation. 101. including. In the State of California. 104. 106. a mortgage loan broker owes a fiduciary duty of the Plaintiff incorporates by reference the allegations in paragraphs 1 through
“highest good faith toward his principal” and “is charged with the duty of fullest disclosure of all material facts concerning the transaction that might affect the principal’s decision. 25 of 33
filing for bankruptcy in order to protect its interests. Defendant Esteves was acting as agent of both Plaintiff and Diamond Bay in
connection with the Construction Loan. 105.
in order to obtain the necessary funds. to be further established at the time of trial. Esteves was the proximate cause of the damages suffered by Plaintiff. Plaintiff incorporates by reference the allegations in paragraphs 1 through
Both Esteves and Diamond Bay breached their fiduciary obligations to
Plaintiff. 111. b) that Diamond Bay was not able to fund the Construction Loan in full at the time it was entered into. causing Plaintiff damages in excess of $3. b) Diamond Bay did not have sufficient money to fund the Construction Loan in full at the time it was entered into.000.000. c) Diamond Bay intended to further solicit new investors. 108.000. Esteves and Wirsz had a duty to disclose to
Plaintiff that: a) Diamond Bay had been held in violation of the Arizona securities laws for their solicitation of investors. 23
. in order to obtain the money necessary to fund the Construction Loan in full. in a manner similar to the solicitations that had been precluded by the State of Arizona. Plaintiff incorporates by reference the allegations in paragraphs 1 through
115.Case 10-13160-LA11
Defendants Diamond Bay. and d) Diamond Bay was not licensed as a finance lender in the State of California. to be further established at the time of trial. FIFTH CAUSE OF ACTION (Against Diamond Bay. Esteves and Wirsz for Deceit) 114.
Esteves owed a duty of care to Plaintiff. in a manner similar to the solicitations that had been precluded by the State of Arizona. 112. and c) that Diamond Bay intending to further solicit new investors. 26 of 33
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 113. FOURTH CAUSE OF ACTION (Negligence against Esteves) 109.
108.000. Esteves breached his duty of care to Plaintiff by negligently failing to inform
Plaintiff that a) Diamond Bay had been held in violation of the Arizona securities laws for their solicitation of investors. Plaintiff was damaged by Esteves’ breach of his duty of care in an amount in
excess of $3.
if any. 24
. and thus cannot be enforced. priority and extent of the respective claims asserted against the Project. licensing laws and regulations or other laws or regulations. 27 of 33
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 118. Plaintiffs incorporate by reference the allegations in paragraphs 1 through
120. to be further established at the time of trial.
The declaration of the rights and duties of Plaintiff and Defendants with
respect to the Project is a proper matter for declaratory relief. 122.
116. and (3) the rights of specific performance. A further controversy exists between Plaintiff and Defendants with respect to the enforceability of any of the loan documents. Plaintiff further seeks an order from the Court that the loan documents are illegal and unenforceable and/or that Plaintiffs may rescind the loan based on the facts set forth herein.000. 117. 118. (2) the validity. (b) Whether California law was circumvented and/or violated by the
manner in which Diamond Bay negotiated and procured Plaintiff’s acquiescence to the Construction Loan Agreement. SIXTH CAUSE OF ACTION (Declaratory Relief Against all Defendants) 119. 121.Case 10-13160-LA11
Neither Diamond Bay. An actual controversy has arisen and now exists between Plaintiff and
Defendants with respect to the various parties’ interests in the Project and the rights of Defendants to foreclose on the Project. Plaintiff was damaged by Defendants’ deceit in an amount in excess of
$3.000. Plaintiff would not have entered into the Construction Loan with Diamond
Bay had it known any of the facts set forth in paragraph 115 of this Complaint. Esteves nor Wirsz disclosed any of these facts to
Plaintiff before entering into the Construction Loan. Plaintiffs desire a judicial determination of (1) the parties’ rights and duties
with respect to the Project. together with a determination of the following specific issues: (a) Whether the contracts between the parties are unlawful and violate any
Esteves and/or Wirsz deceived Plaintiff by Whether Diamond Bay. 25
. (d) Whether Diamond Bay was required to register as a broker-dealer
and/or licensed real estate broker. (k) (l) Whether the use of partial funding is a violation of the securities laws.Case 10-13160-LA11
Pg. (i) Whether the collection of advance fees in respect of unperformed
obligations of the lender under the Loan Construction Agreement renders the Loan Construction Agreement illegal and unenforceable. (m) Whether Plaintiff is entitled to offset its damages against any amounts
owed under the Construction Loan Agreement. (g) duty to Plaintiff. (j) loan or other fees. is subject to the claims and defenses of Plaintiff to payment of the Construction Loan. prior to entering into it. (h) Whether Diamond Bay. (e) Whether Diamond Bay may avoid its obligation to obtain the requisite
licenses by using the services of a California licensed real estate broker who did not register his affiliation with Diamond Bay with the State of California. Esteves and/or Wirsz breached a fiduciary
failing to disclose material relevant information regarding Diamond Bay’s ability to fully fund the Construction Loan. (f) Whether the failure to register as a broker-dealer and lack of any
broker’s or other required licenses precludes the enforceability of the contracts or the collection of any amounts thereunder. or to obtain any other license required by the State of California to engage in the loan transaction with Plaintiff. as successor-in-interest to the lender under the Whether Diamond Bay is required to disgorge any illegally collected
Construction Loan Agreement. Whether Encinitas 338. 28 of 33
Whether California law was circumvented and/or violated by the
manner in which Diamond Bay assigned fractionalized beneficial interests in the Construction Loan.
124. Oasis and Encinitas 338 were
required to register to do business in California as a condition to defending the claims herein or in entering into the loan agreement or act as representatives of the Beneficiaries under the Loan Documents. can foreclose on the loans. 123. the unpaid
contractors should be entitled to payment in full before Encinitas 338 receives any payment with respect to the Construction Loan. 29 of 33
Whether Defendants. (q) Whether Esteves was acting as Diamond Bay’s agent with respect to
negotiating and arranging the Construction Loan. reform or refinance or otherwise replace the indebtedness against the Project. and whether Encinitas 338 is entitled to foreclose on the Project pursuant to the facts and circumstances of this case. Plaintiff is informed and believes that Defendants dispute each of Plaintiff’s
contentions with respect to the Construction Loan Agreements as set forth herein. (r) Whether usurious interest and fees have been collected and what
interest if any can be charged.
. or any of them.Case 10-13160-LA11
Pg. (p) Whether Douglas Esteves exceeded the scope of authority permitted
under the California laws and regulations governing licensed real estate brokers with respect to his role in negotiating and arranging the Construction Loan. and (s) Whether. and also to determine if foreclosure by Defendants can be permitted and if so by which Defendants and under what terms or conditions. A judicial declaration is necessary and appropriate at this time under the
circumstances in order that Plaintiff and Defendants may ascertain their respective rights and duties with respect to the loan documents and the Project. Whether Defendants Diamond Bay. under the facts and circumstances of this case. and the rights of Plaintiff to rescind.
EIGHTH CAUSE OF ACTION (Usury) Plaintiffs incorporate by reference the allegations in paragraphs 1 through
California law limits the amount of interest that may be charged on the loan. the Court may. subordinate for the purposes of distribution all or part of an allowed claim to all or part of another allowed claim. 124. 128.Case 10-13160-LA11
Pg. 126. all of the contractors would have been paid in full. 125. over the Construction Lenders or any other successor-in-interest seeking to enforce the Construction Lenders’ rights under the Construction Loan Agreement. 30 of 33
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 127. Had the Construction Lenders performed as they had agreed and wer obligated to do under the Construction Loan Agreements. Plaintiff requests that the Bankruptcy Court exercise its equitable powers under Section 510 of the Bankruptcy Code and determine that the claims of all contractors providing goods and services for the benefit of the Project should be allowed a priority in distribution of any proceeds resulting from the sale of the Project. under
principles of equitable subordination. Plaintiff alleges that it would be unfair and inequitable. for the Construction Lenders or any person or entity claiming rights or interests under the Construction Loan Agreement to be repaid prior to the contractors’ claims being paid in full. 127. 129. Plaintiff was unable to fully pay the contractors who provided their goods and services to construct the Project. Under Section 510(c)(2) of the Bankruptcy Code. Accordingly.
. under the facts and circumstances of this case.
SEVENTH CAUSE OF ACTION (Equitable Subordination of the Construction Loan to Unpaid Contractor Claims) Plaintiffs incorporate by reference the allegations in paragraphs 1 through
When the Construction Lenders defaulted on their obligation to fund the
for damages caused the Construction Lenders’ breach of the Construction Loan Agreement. WHEREFORE. On the First Cause of Action. which losses are estimated to be not less than the amount of $1. On the Second Cause of Action. Moreover. 31 of 33
LLC. As a proximate result of the usurious interest rates and charges by the
Construction Lenders. for a judgment against Diamond Bay. for breach of the Oasis Agreement and breach of the covenant of good faith and fair dealing embodied therein. directly and by way of setoff and recoupment. and the Construction Lenders. in an amount to be proven at trial. for a judgment against Oasis Loan Advisors. As a result. and is entitled to offset its claim for such amount against any amount otherwise owed by Plaintiff to the Construction Lenders or their assigns under the Construction Loan Agreement.
Without any lawful defense thereto. 131.P. prays as follows: 1. 28
. Plaintiff is entitled to damages equal to three times the interest already collected by the Construction Lenders. and Plaintiff may offset its claim for such disgorgement against amounts otherwise owed by Plaintiff to the Construction Lenders or their assigns.000. which is the greater of (i) 10% per annum. 132. The collection of usurious interest by the Construction Lenders was knowing
and intentional and undertaken in complete disregard of the rights of Plaintiff and applicable law. the Construction Lenders are obligated to return all interest paid herein and may not collect any additional interest as a result of the usurious charges made in violation of applicable law. 2. Plaintiff Encinitas Office L.000 which shall be determined according to proof at trial. Encinitas
338. or (ii) 5 percentage points over the San Francisco Federal Reserve Bank's discount rate operative on the 25th day of the month immediately preceding the origination of the loans. the Construction Lenders charged interest
on the loan in excess of the statutory maximum interest rate. for damages in an amount to be proven at trial. Plaintiff has been damaged as herein alleged and have suffered and will continue to suffer general damages and special damages including the potential loss of the Project or the inability to develop it.Case 10-13160-LA11
of all parties with respect to the Construction Loan Agreement including.
On the Third Cause of Action. On the Seventh Cause of Action. notwithstanding the assignment of the Construction Lenders’ interests under the under the Construction Loan Agreement and related documents. or successor-in-interest to. in an amount to be proven at trial. 5. without limitation. against all defendants claiming rights as assignee of. for a judgment against Diamond Bay. (5) the security interest(s) are unenforceable. for a judgment against the Construction
Lenders and any other person or entity claiming rights as assignee of. On the Eighth Cause of Action. and (6) no foreclosure can proceed. and Jordan Wirsz for damages for breach of their fiduciary duties to Plaintiffs. by way of setoff and recoupment. for (1) a declaration that the loans do not bear interest. 6. for damages in an amount to be proven at trial. On the Fifth Cause of Action. (2) an offset equal
. for a judgment against Diamond Bay. 7. 8. Diamond Bay under the Construction Loan Agreement. if any. for a judgment against Douglas Antonio
Esteves for damages in an amount to be proven at trial. that (1) Plaintiff is not in default under the Construction Loan Agreement and related documents. (4) Plaintiff is entitled to setoff and recoupment of its breach of contract and tort claims against any amounts owing under the Construction Loan Agreement and related documents. (3) the breach of the Construction Loan Agreement and related documents excused Plaintiff’s performance under the Construction Loan Agreement and related documents. or successor-in-interest to.Case 10-13160-LA11
Pg. Douglas
Antonion Esteves. if any. 32 of 33
3. (2) the Construction Lenders are in default under the Construction Loan Agreement and related documents. and Jordan Wirsz and. Diamond Bay. for a judgment against all Defendants
equitably subordinating the lien of the Diamond Bay Deed of Trust to the claims of unpaid contractors who provided goods or services for the benefit of the Project. On the Sixth Cause of Action. for a judgment against all Defendants. On the Fourth Cause of Action. Douglas
Antonio Esteves. 4. for a
judicial declaration of the respective rights and duties.
and For such other relief as the Court may deem just and proper.000. and (3) three times the interest and fees that Plaintiffs have paid. general and special damages in excess of
the unlimited jurisdictional amount of this court and estimated to be not less than the amount of $5. On all Causes of Action: (a) For compensatory damages. 9.
October 5. (b) (c) For punitive and/or exemplary damages according to law. 33 of 33
to all interest and other fees paid since the inception of the loan.Case 10-13160-LA11
Pg. For costs incurred. For prejudgment interest on compensatory damages at the maximum
legal rate of interest according to proof and law. (d) (e) (f) For attorneys’ fees according to proof and law. 2010
/s/ Sara Pfrommer ________________________ Sara Pfrommer Attorneys for ENCINITAS OFFICE. as the same shall be determined according to proof at trial.000 at this time. LP
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Adversary Complaint by Salmon Law442 viewsEmbedDownloadRead on Scribd mobile: iPhone, iPad and Android.Copyright: Attribution Non-Commercial (BY-NC)List price: $0.00Download as PDF, TXT or read online from ScribdFlag for inappropriate contentMore informationShow less
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