2013-00152367-CU-BC

Willow Family Housing vs. Department of Housing

Nature of Proceeding: Motion for Preliminary Injunction

Filed By: Kelly Sr., W. Patrick

Plaintiff Willow Family Housing, LP’s (“WFH”) motion for preliminary injunction is
denied.

WFH’s request for judicial notice is granted.

In this action, WFH seeks to obtain specific performance of contractual agreements
between itself and the Department of Housing and Community Development (“HCD”).
Plaintiff has since amended its complaint to add causes of action for slander of title
and quiet title.

WFH alleges that Central Valley Coalition for Affordable Housing, Inc. (“CVACH”) is its
managing general partner, and which provides low income housing. Plaintiff alleges
that it obtained a loan from HCD in 2006 through the Joe Serna Jr. Farmworker
Housing Grant Program, which program required that housing units within a project be
made available to farm and agricultural industry workers. Plaintiff asserts that HCD
refuses to comply with its obligations under the original loan documents or a
December 2011 amendment by insisting that the agreements require that a minimum
of 37 farmworkers reside in the project at all times. HCD has since recorded a notice
of default.

“To obtain a preliminary injunction, a plaintiff ordinarily is required to present evidence
of the irreparable injury or interim harm that it will suffer if an injunction is not issued
pending an adjudication of the merits. Past California decisions further establish that,
as a general matter, the question whether a preliminary injunction should be granted
involves two interrelated factors: (1) the likelihood that the plaintiff will prevail on the
merits, and (2) the relative balance of harms that is likely to result from the granting or
denial of interim injunctive relief.” ( White v. Davis (2003) 30 Cal.4th 528, 554.) The
greater the showing on one factor, the lesser the showing must be on the other. (Butt
th
v. State of California (1992) 4 Cal.4 668, 678.)

Likelihood of Success

Plaintiff argues that it is likely to succeed in this action given that HCD is proceeding
with a notice of default under the loan agreements based on its incorrect interpretation
that the agreement requires that 37 units of the development be occupied by
farmworker households.

As seen from HCD’s opposition, the requested relief cannot be granted because the
party that has brought this lawsuit is not in fact WFH, the limited partnership, but rather
US Fund and Investment Consultants, LP, a limited partner of WPH. (FAC ¶¶ 17, 18.)
Further, as seen from HCD’s opposition, WPH’s general partner CVCAH is the sole
entity authorized to take action with respect to WPH. (Rubin Decl. Exhs. G and H.)
CVCAH wrote to its limited partner and indicated that only CVCAH had the authority to
take action and demanded that the instant lawsuit be dismissed. (Id. Exh. N.) The
Corporations Code makes clear that a “limited partner does not have the right or power
as a limited partner to act for or bind the limited partnership.” (Corp. Code §
15903.02.) Plaintiff argues that the action has been pled as a derivative action
pursuant to Corporations Code § 15910.02 which authorizes a partner to bring a
derivative action to enforce a right of the limited partnership if the “(1) the partner first
makes a demand on the general partners, requesting that they cause the limited
partnership to bring an action to enforce the right, and the general partners do not
bring the action within a reasonable time; or (2) a demand would be futile.” The
amended complaint makes such allegations at ¶ 18. “The purpose of a limited
partner’s derivative action is to enforce a claim which the limited partnership
possesses against others…but which the partnership refuses to enforce. [citations
omitted] Like a shareholder’s derivative action, a limited partner’s derivative suit is
filed in the name of a limited partner, and the partnership is named as a
defendant. Although a limited partner is named as the plaintiff, it is the limited
partnership which derives the benefits of the action.” (Wallner v. Parry Professional
th
Bldg. (1994) 22 Cal.App.4 1446, 1449-1450.)

Here, while US Fund attempted to file a derivative action to enforce WFH’s rights, it is
not named as a plaintiff and has not named WFH as a defendant. Instead, it listed
WFH as the plaintiff, though as seen above, WFH clearly is not the plaintiff and US
Fund as a limited partner has no authority to act for WFH. While plaintiff argues in
reply that the Court could simply condition relief upon US Fund being named as a
party plaintiff, that would not solve the problem. Specifically, given that it is clear that
US Fund is a limited partner seeking to bring a derivative action to enforce a right of
WFH, WFH must be named as a defendant in this action. Indeed, WFH has to be
served with the summons and derivative action complaint and there are remedies
available to WFH, for example, a motion to require US Fund to furnish a bond pursuant
to Corporations Code Section 15910.06 based on a contention that the derivative
action would not benefit the limited partnership (indeed given the general partner’s
demand that the instant lawsuit be dismissed it appears this is a remedy WFH might
pursue), which cannot be pursued until WFH is properly brought into the action as a
named defendant.

As a result, Plaintiff has failed to show a likelihood of success as HCD has shown that
this action is really brought by WFH’s limited partner US Fund which has no power to
bring the action and has in any event failed to meet the requirements for bringing a
derivative action..

The motion is therefore denied on this basis alone. The Court need not and does not
reach the merits of the claim that the loan documents do not require that 37 units of
the development be occupied by farmworkers.

This minute order is effective immediately. No formal order pursuant to CRC rule
3.1312 or other notice is required.