Case Number: VC063068 Hearing Date: April 15, 2014 Dept: SEC

BANEGAS v. THE CUDAHY ECONOMIC DEVELOP. CO.
CASE NO.: VC063068
HEARING: 04/15/14

#2
TENTATIVE ORDER

Defendant/cross-complainant THE CUDAHY ECONOMIC DEVELOPMENT CO.’s motion to expunge lis pendens is GRANTED. C.C.P. § 405.32.

Defendant is awarded its attorney’s fees in the amount of $10,903.50. C.C.P. § 405.38.

Defendant/cross-complainant “EDC” seeks an order expunging the lis pendens recorded in March or April 2013 by plaintiffs ALVARO BANEGAS and PARAMOUNT VILLAS, LLC and pertaining to three parcels of real property located in the City of Cudahy. Defendant also seeks attorney’s fees in the amount of $10,903.50 incurred in bringing this motion. Id.

Defendant argues that (1) plaintiffs’ complaint does not contain a real property claim as defined in section 405.4, and (2) due to plaintiffs’ involvement in corruption, they cannot establish a probable validity of their equitable claims. Plaintiffs argue they have a meritorious action which supports the recordation. The Court notes that plaintiffs bear the statutory burden of showing, by a preponderance of the evidence, that they have a probability of prevailing on their real property claims. C.C.P. § 405.32. In determining whether that burden has been satisfied, the Court has the task of weighing the evidence to determine the probable outcome of the litigation. Howard S. Wright Construct. Co. v. Superior Court (2003) 106 Cal.App.4th 314.

Plaintiffs entered into three development agreements with the City of Cudahy to develop parcels of real property. Motion, Exh. 1 through 3. The City then became aware of corruption charges against certain City Council/EDC Board members (who subsequently entered into plea agreements on the federal bribery charges). Motion, Exh. 8, 9. One of the properties was deeded to plaintiffs and thereafter, the City rescinded the agreements and plaintiff filed the subject complaint for specific performance of the contracts and recorded a lis pendens on the properties.

Presence of a real property claim
A “real property claim” is one which, if meritorious, would “affect [] title to, or the right to possession of, specific real property.” C.C.P. § 405.4. Defendant argues that plaintiffs’ complaint does not state a real property claim. C.C.P. § 405.31.

As described by plaintiffs, they seek to compel the City to perform the contracts, and have alleged causes of action for specific performance. Even though they seek damages as an alternative remedy, they contend the lis pendens is proper. Walton v. Walton (1995) 31 Cal.App.4th 277; Stewart Development Co. v. Superior Court (1980) 108 Cal.App.3d 266.

Defendant, on the other hand, argues that the purpose of the contracts appears to be an investment for plaintiffs, and not transfer of title of the property. Plaintiffs’ interest lies with the development of the projects for monetary compensation, and not conveyance of the real property for their independent use. See Trapasso v. Superior Court (1977) 73 Cal.App.3d 561.

The Court has reviewed the cited authority and finds that plaintiffs have established that their specific performance causes of action constitute real property claims. See Stewart, supra. The motion to expunge on that ground is denied. C.C.P. § 405.31.

Unclean hands
A party seeking equity must come with clean hands. Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970. Under the unclean hands doctrine, a party is barred from relief if he has engaged in “unconscientious conduct” directly related to the transaction sough to be litigated. DeRosa v. Transamerica Title Ins. Co. (1989) 213 Cal.App.3d 1390, 1395.

Defendant argues that plaintiff engaged in bribery—paying City officials cash consideration in exchange for his obtaining the development contracts for the subject real property. At the very least, the agreements required plaintiffs to disclose those payments to the City officials responsible for approving the contracts. Motion, Exh. 1 through 3, at 1-29, 2-29, and 3-39.

Plaintiffs argue that their claims are unrelated to the wrongful conduct, as the councilmembers pled guilty to bribery charges in connection with a medical marijuana project, which had nothing to do with the subject real estate development contracts.

In June 2012, Councilmember Osvaldo Conde, Mayor David Silva and Board Member Angel Perales were arrested. Those parties were involved in obtaining the contract with plaintiffs on EDC’s behalf. Decl. of Hector Rodriguez. They declined to issue a request for proposals for the subject developments and instead proceeded with plaintiffs’ bid. Id. at ¶¶ 8, 9.

According to EDC’s Executive Director, the affidavits in support of the arrests contained references to developer “Al,” and that plaintiff was the only developer with that moniker. Decl. of Oliver Mujica, ¶9. Significantly, the EDC was served with a subpoena to produce all documents which related to [plaintiff] “Alvaro Banegas, or any company with which he is affiliated.” Id.; Exh. 11.

Discussions during the plea negotiations revealed that there was a real estate developer with the initials “A.B.” who gave cash to those individuals during the relevant time frame. See Decl. of Saul Bolivar; Exh. 8, p. 6-7. Mr. Bolivar (the City’s Director of Community Development) and Mr. Mujica attest that plaintiff later admitted to him that he was the “A.B.” referenced in the plea agreements and that he admitted to paying Conde and Silva. Bolivar decl., ¶13; Mujica decl., ¶12. Their testimony regards plaintiff’s alleged admissions and thus does not constitute inadmissible hearsay.

Plaintiffs contend those declarations are fabricated and denies the claims. His denial, however, is not sufficient to defeat the motion in light of the substantial evidence to the contrary.

Defendants submitted the declarations of three separate individuals (Mujica, Bolivar and Rodriguez) who state that plaintiff Banegas admitted to making cash payments to Conde, Silva and Perales in an attempt to obtain the subject contracts. Two of those individuals were successfully prosecuted on bribery charges (though the plea agreements). Defendants’ evidence is more persuasive and has negated plaintiffs’ attempts to show a likelihood of prevailing.

The Court’s finding serves to support defendants’ request to expunge the lis pendens on the properties. It is not conclusive, and does not impact plaintiffs’ right to pursue their claims. Amalgamated Bank v. Superior Court (2007) 149 Cal.App.4th 1003.

Probability of prevailing
Defendant has proffered evidence supporting its right to rescind the contracts, the consent to which was procured by fraud. See C.C. § 1689; Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115.

As noted above, plaintiffs materially breached the agreements by making false and/or misleading representations. They are thus in default, which permits defendant to terminate the agreements. Ninety Nine Invs., Ltd. v. Overseas Courier Serv. (Singapore) Private, Ltd. (2003) 113 Cal.App.4th 1118.

Defendants also note that plaintiffs failed to proffer sufficient evidence to establish a prima facie case for specific performance. See Blackburn v. Charnley (2004) 117 Cal.App.4th 758, 766 (setting forth the elements). Specifically, plaintiffs failed to produce evidence that they are ready, willing and able to perform on the agreements. The contracts require plaintiffs to obtain separate financing (Live Oak Agreement) and to submit financial analyses and obtain construction loans. Motion, Exh. 1, 2. Plaintiff Banegas’s statement (and that of his daughter and director of development Erika Morales) that they are “ready, willing and able to proceed” do not address the ability to retain financing and take the other contractual steps to develop the projects. Decl., ¶27, 17 (respectively).

For the reasons set forth above, the Court finds plaintiffs have not met their burden of establishing a probability of succeeding on the merits. Accordingly, the motion to expunge the lis pendens is granted.

Attorney’s fees
A party prevailing on a motion to expunge lis pendens is entitled to recover its attorney’s fees and costs incurred in connection with the motion. C.C.P. § 405.38. Defendant seeks $10,903.50 in attorney’s fees and costs, which is supported by the declaration of William Pallares. Plaintiffs did not contest the amount sought.

Evidentiary objections
Defendant submitted a proposed order of its objections for the Court’s signature, a copy of which will be made available at the hearing.

Plaintiffs’ evidentiary objections are OVERRULED. The documents pertaining to the underlying criminal investigation are relevant to the overall corruption enterprise. There is no issue of prejudice under Evidence Code section 352, as these matters are not being placed before a jury (and the Court’s consideration of those facts here is not relevant to their admissibility at trial).