2013-00156423-CU-FR

Aurora Capital LLC vs. J. Michael Guttridge

Nature of Proceeding: Motion to Expunge Lis Pendens

Filed By: Peterson, Glenn W.

Defendant Guttridge’s Motion to Expunge Lis Pendens is GRANTED.

Procedural Posture

On August 10, 2012, a separate action for a judicial dissolution of the two member
Aurora Capital, LLC (the “LLC”) was filed and is currently pending before this Court as
case no. 2012-129930. In that action, Guttridge’s Verified Complaint alleges that he is
the managing member of defendant Aurora Capital, LLC and also holds a majority
voting and financial interest (51%) in the LLC. Chun Mei Dodge is alleged to be the
other minority member of Aurora Capital, LLC holding a 49% interest.

The LLC owns approximately 887 acres of land in the city of Galt (the “subject
property”). The LLC was originally formed to develop the subject property. Over time,
Guttridge and Dodge had numerous disagreements as to the direction for the LLC and
development of subject property. As a result of this internal dissension, Guttridge filed
the judicial dissolution action. Dodge filed and submitted a lis pendens to the Sacramento County Recorder for the
LLC on May 30, 2013. After Dodge made an unsuccessful motion for injunctive relief in
the dissolution action on Nov. 5, 2013, she filed the instant action on December 20,
2013.

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In this action, Plaintiff Chun Mei Dodge alleges five causes of action: the 1 for fraud
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and misrepresentation, 2 for breach of contract, 3 for breach of fiduciary duty, 4 for
interference with economic advantage and the 5th for negligence.

Guttridge asserts that Dodge’s lis pendens is invalid and must be expunged as no real
property claim is alleged in Dodge’s complaint. Further, Dodge has no actual interest
in the subject property, and Dodge cannot prevail on any real property claim if one had
actually been alleged. The subject property is owned by the LLC, as Dodge as a
minority member lacks standing to act for the LLC in filing the lis pendens.

Real Property Claim

A “lis pendens” provides notice of the pendency of an action in which a real property
claim is alleged. Code of Civil Procedure §405.2. The lis pendens is a recorded
document giving constructive notice that an action has been filed affecting title or right
to possession of the real property described in the notice. Code of Civil Procedure §
405.20; La Jolla Group II v. Bruce (2012) 211 Cal.App.4th 461.

The purpose of a lis pendens is merely to furnish a means of notifying all persons of
the pendency of an action, and thereby to bind any person who may acquire an
interest in property, subsequent to the institution of the action, by any judgment
which may be secured in the action affecting the property. Code of Civil Procedure §
764.030.

At any time after a notice has been recorded, any party, or nonparty with an interest in
the real property affected, may apply to the court in which the action is pending to
expunge the notice. C.C.P., sec. 405.30. A motion to expunge a lis pendens may be
brought on the grounds that: (1) service was invalid (§§ 405.22, 405.23); (2) the lis
pendens claimant could not establish the probable validity of a real property claim. (§
405.32); (3) the complaint fails to plead a real property claim (§ 405.31); or (4)
“adequate relief can be secured to the claimant by the giving of an undertaking” (§
405.33). Castro v. Superior Court (2004) 116 Cal. App. 4th 1010, 1014, fn.2.

A “real property claim” under Code of Civil Procedure §405.4, “means 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 or (b) the use of an easement identified in the
pleading, other than an easement obtained pursuant to statute by any regulated public
utility. Code of Civil Procedure §405.4. No matter how meritorious a party’s claim might
be, a lis pendens is improper if a real property claim is not pleaded. Urez Corp.
Superior Court (1987) 190 Cal. App. 3d 1141, 1149.

A review of the complaint here reflects that no real property claim has been alleged.
Plaintiffs’ prayer also reflects that the remedies requested include compensatory,
consequential, and punitive damages. No prayer seeks relief directed to title or
possession of the subject real property.
Although the document title and the prayer for relief hint at claims of declaratory and
injunctive relief, plaintiff Dodge has already been denied injunctive relief in the
dissolution action.

Under California law, it is quite clear that a membership interest in a limited liability
company is personal property and is not a direct interest in the real property owned by
the company. In re Kuiken (9th Cir. BAP 2013); 484 B.R. 766, 770, see also
Corporations Code, sec. 17705.01. Based upon this legal proposition alone, the claims
alleged by Plaintiff cannot be considered real property claims.

Neither Plaintiff Dodge nor Defendant Guttridge have any actual interest in the subject
property, thus neither have the power to personally record a valid lis pendens based
upon their interest in the LLC alone. Moseley v. Superior Court (1986) 177 Cal. App.
3d 672, 676.

Plaintiff Dodge’s opposition fails to address the lack of a real property claim in this
action. Both the complaint and the opposition concede that the real property belongs to
the LLC. (Compl., para. 53, Oppo. 4:9-10.)

Although plaintiff Dodge asserts a constructive trust could support a lis pendens, no
constructive trust has been alleged in the complaint. Further, the constructive trust is
addressed to the parties’ interests in the LLC, not to the real property.

Similarly, plaintiff’s equitable contentions affect the parties’ rights to the LLC, not the
real property.

Probable Validity of the Claim

C.C.P., sec. 405.32 provides, in pertinent part: “In proceedings under this chapter, the
court shall order that the notice 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.” C.C.P., sec. 405.3 provides: “’Probable validity’, with respect to a real
property claim, means that it is more likely than not that the claimant will obtain a
judgment against the defendant on the claim.”

As Dodge has only a minority interest in the LLC which owns the real property, she
has only a only a personal property interest in the LLC which owns the real property,
but no direct interest in the real property.

The complaint on its face identifies the LLC as a named plaintiff. In her opposition,
plaintiff Dodge purports to represent the “investors” in the LLC as plaintiffs in this
action.

Dodge has no authority to represent the LLC as she is only a minority member. The
LLC itself has not alleged any claims in the Complaint. Under section 7.09 of the LLC’s
Operating Agreement (“Operating Agreement”) Dodge is prohibited from acting on
behalf of the LLC. (Guttridge Decl., para. 2)

As defendant Guttridge is the majority member, he has exclusive control over the
management of the business and affairs of the LLC. (Guttridge Decl., para. 2)
Defendant Guttridge has the right under the Operating Agreement to dissolve the LLC
and has already filed a verified action for dissolution. (Guttridge Decl., para. 2) Seeking dissolution under the agreement and applicable law is a matter of right, and Plaintiff
Dodge cannot seek to encumber the subject property to prevent that effort.

Plaintiff Dodge has a statutory right to avoid the dissolution of the LLC, by purchasing
for cash, at fair market value, the membership interests of the members initiating the
dissolution proceeding. Corp. Code §17707.03(c) (1-5).

Plaintiff Dodge has failed to provide evidence sufficient to carry her burden that she is
more likely than not to prevail on any real property claim in this action (as none has
been alleged).

The motion to expunge is granted.

Attorney’s Fees

C.C.P., sec. 405.38 provides, in pertinent part: “The court shall direct that the party
prevailing on any motion under this chapter be awarded the reasonable attorney’s fees
and costs of making or opposing the motion unless the court finds that the other party
acted with substantial justification or that other circumstances make the imposition of
attorney’s fees and costs unjust.”

As plaintiff Dodge has failed to show a real property claim in the complaint or that she
has standing to allege one, nor that she can prevail on such a real property claim, the
Court awards attorneys’ fees to moving party. The Court has discretion to award
attorneys’ fees based on a determination of which party prevailed on the motion and
whether the lis pendens claimant acted with substantial justification, or whether, in light
of all of the circumstances, the imposition of fees would otherwise be unjust . Castro
v. Superior Court (2004) 116 Cal. App. 4th 1010, 1022-1023. Trial courts are instructed
to adopt a “practical approach” [Id.] to determine a prevailing party.

Plaintiff Dodge shall pay the sum of $2,120 representing reasonable attorneys’ fees of
$2,200 (7.5 hours at $365/$200 hour) together with the filing fee of $60 to counsel for
defendant not later than Monday, April 28, 2014.

The prevailing party shall prepare a formal order for the Court’s signature pursuant to
C.R.C. 3.1312.