03AS00193

Civic Partners Stockton, LLC vs. The City of Stockton

Nature of Proceeding: Motion for Summary Judgment and/or Adjudication

Filed By: Higgins, Michael J.

Defendants Cyrus Youssefi, Hotel Stockton Investors (“HIS”), and CFY Development,
Inc.’s (collectively the “Defendants”) motion for summary judgment, or in the
alternative, summary adjudication, is granted.

Defendants’ unopposed request for judicial notice is granted.

This action was originally filed in 2003, by Plaintiff Civic Partners Stockton, LLC
(“Civic”) in which Civic asserted numerous claims against the City of Stockton and the
Redevelopment Agency for the City of Stockton (“Agency”) and Defendants in
connection with a project to redevelop the Hotel Stockton. The City and Agency
eventually were dismissed after a demurrer to the fourth amended complaint was
sustained with leave to amend. Defendants’ motion for summary adjudication as to
Civic’s second and third cause of action was granted as was their motion for judgment
on the pleadings as to the first cause of action for conversion. The Third District Court
of Appeal reversed the grant of judgment on the pleadings finding that the Federal
Copyright Act did not preempt the first cause of action but affirmed the grant of
summary adjudication.

Defendants now seek summary judgment on the sole remaining cause of action in the
fourth amended complaint for conversion in which Civic alleges that Defendants
converted its architectural plans in preparing a tax credit application to the California
Tax Credit Allocation Committee (“CTCAC”).

Defendants’ separate statement includes the following. In early January 2002, the Agency informed Cyrus Youssefi that the Agency wanted his companies to proceed
with a project to develop the Hotel Stockton into commercial use on the ground floor
and affordable-apartment use on the second through sixth floors. On January 12,
2002, Cyrus Youssefi signed a contract with Applied Architecture, Inc. for the provision
of architectural services. Applied agreed to provide architectural services and was to
provide “sketches, drawings and notes required to assist with tax credit package
preparation.” Michael Malinowski has been Applied’s principal architect since 1985
and had assisted developers at least six times in preparing CTCAC applications.

Defendants intended to apply to CTCAC for financing. CTCAC required that each
application include architectural drawings of the proposed project. Defendants
requested that Applied prepare the preliminary drawings to use in their application to
CTCAC. Applied received documents with drawings of the Hotel Stockton from the
City of Stockton and the Agency in January 2012, including a document entitled “The
Hotel Stockton Architectural & Structural Assessment, July 1991. Applied also
received copies of the original 1908 architectural drawings for the Hotel Stockton. The
July 1991 Assessment contained drawings of the elevation views and floor plans of the
Hotel Stockton. Applied used these documents to create preliminary drawings for
Defendants’ CTCAC application. Applied completed 14 preliminary drawings and
dated each one February 8, 2002. The completed drawings included the design for a
parking lot on the basement level of the Hotel Stockton, residential/commercial uses
on the ground level, affordable housing on four floors, and residential amenities on
other floors. Defendants incorporated the drawings into their application to CTCAC.

On February 19, 2002, Agency entered into an agreement with Civic regarding a
specific copy of architectural plans related to the Hotel Stockton in Civic’s possession
(the “2/19/02 Plans”). The agreement described the 2/19/02 Plans as a “reproducible
set of hotel plans…approximately a 90% construction set.” Civic transferred the plans
to the Agency. Neither Defendants nor Applied were parties to the agreement
between Civic and the Agency, nor did they know any agreement existed. Sometime
after February 19, 2002, Applied received the 2/19/02 Plans from the Agency.
Thereafter, Malinowski contacted Milford Wayne Donaldson, Inc., (“MWD”) the
architect whose name appeared on the 2/19/02 Plans intending to discuss cooperation
with MWD on the Hotel Stockton project. Malinowski learned that MWD had not been
paid for its work and was not interested in cooperating. Malinowski then received a
letter from MWD’s attorney regarding rights claimed by MWD to the 2/19/02 Plans.
Malinowski immediately returned the 2/19/02 Plans to the City of Stockton’s City
Manager’s Office which acknowledged receipt of said plans on March 12, 2002.
Neither Malinowski, nor Applied, nor Defendants used the 2/19/02 Plans in connection
with any CTCAC application.

Civic claims Defendants’ architects used the 2/19/02 Plans Civic delivered to the
Agency to prepare their CTCAC application and seeks restitution for the “value of
Civic’s hotel plans” and for the “profits of [Defendants’] made possible by the wrongful
use of Civic’s plans.” Civic alleges that the “tax credit application committee required
Mr. Youssefi to provide the committee an accurate set of plans for the hotel…No set of
plans for Youssefi’s tax credit application was attainable without the use of Civic’s
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plans.” (4 AC 4:21-22, 4:25-26.) Civic alleges that Defendants, through their
architects, used the 2/19/02 Plans to create plans for the CTCAC thereby committing
conversion.

Defendants move for summary judgment on the basis that there is no causation
because it never used the 2/19/02 Plans in connection with its CTAC application and
alternatively because they did not substantially interfere with Civic’s possessory rights
to the 2/19/02 Plans.

Causation

“Conversion is the wrongful exercise of dominion over the property of another.” (
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Avidor v. Sutter’s Place, Inc . (2013) 212 Cal.App.4 1439, 1452 [citations omitted].)
“Proof of conversion requires a showing of ownership or right to possession of the
property at the time of the conversion, the defendant’s conversion by a wrongful act or
disposition of property rights, and resulting damages.” (Id. [emphasis added])

Civic alleges that “the original [hotel] plans from the early 1900s were long missing,”
and that “[n]o set of plans for Youssefi’s tax credit application was attainable without
the use of Civic’s plans.” Civic alleges it transferred the 2/19/02 Plans to the Agency
on February 19, 2002 and that the Agency delivered those plans to Defendants’
architects that same day. Civic further alleges that Defendants’ architects used the
2/19/02 Plans to prepare Defendants’ CTCAC application. The only source of harm
identified in the complaint is the alleged use of the 2/19/02 Plans in preparing
Defendants’ CTCAC application.

Defendants’ evidence shows that its architects finished the drawings for the CTCAC
application on February 8, 2012, prior to receiving the 2/19/02 Plans from the Agency.
(UMF 15-23.) Indeed, Defendants architects wrote “February 8, 2002,” on each of the
fourteen drawing used in the CTCAC application as that was the date they finished
drawing the plans. (UMF 16, Malinowski Decl., exh. D.) Defendants’ architects used a
different set of plans to prepare the CTCAC application. (UMF 8-16.) The Agency did
not transfer the2/19/02 Plans to Defendants’ architects until February 19. The Plans
were not used and were instead returned to the Agency as soon as Defendants’
Architects became aware of a potential dispute between Civic and MWD regarding the
plans. (UMF 29-31.) Defendants’ evidence shows that there is no causal link between
Defendants’ architects’ possession of the 2/19/02 Plans and their preparation of the
plans for their CTCAC application. Thus, the evidence shows that Defendants did not
cause any harm to Civic. Defendants’ evidence is sufficient to shift to Civic the burden
of establishing the existence of a triable issue of material fact.

Civic failed to meet its burden, as it failed to present any evidence which would allow a
reasonable trier of fact to conclude that Defendants utilized the 2/19/02 Plans in
connection with any application to the CTCAC, its entire theory underlying its
conversion cause of action. Indeed, Civic does not legitimately dispute Defendants’
facts that neither Defendants nor their architects used the 2/19/02 Plans. (Civic’s
Resp. to Defs’ UMF 9-21, 23-24, 34-35.) These undisputed facts show that Civic
cannot establish the critical causal link between the 2/19/02 Plans and Defendants’
preparation on the CTCAC application. While Civic attempts to raise a triable issue,
despite failing to dispute these critical facts, as explained below, it failed to do so.

Civic asserts in its responsive separate statement that the 2/19/02 Plans were the only
“accurate and sufficient plans in existence with which HIS could make an application
for tax credits to the CTCAC, receive an allocation of credits, and reconstruct the hotel
for senior housing.” (Civic’s Resp. to Defs’ UMF 31.) Apparently, Civic believes that
this assertion, if supported by the evidence, would allow for an inference that
Defendants used the 2/19/12 Plans to prepare its CTCAC application. Under CCP §437c(c), the Court is required to consider all inferences reasonably deducible from
the evidence. At the same time, such inferences must be reasonable, and may not be
derived from speculation, conjecture, imagination, or guesswork. (Annod Corp. v.
Hamilton & Samuels (2002) 100 Cal. App. 4th 1286, 1298-1299.) Here, the assertion
by Civic is not supported in any manner by the cited evidence. Indeed, Civic cites to
the deposition testimony of David Marshall, the president of MWD, specifically, pp. 33-
36 and 40-44. While Civic failed to highlight the specific testimony by Marshall which
purports to show that its plans were the only “accurate and sufficient plans in existence
with which HIS could make an application for tax credits to the CTCAC, receive an
allocation of credits, and reconstruct the hotel for senior housing” the Court reviewed
the entirety of Mr. Marshall’s deposition testimony. Mr. Marshall never once testified
that the 2/19/02 plans were the only plans that Defendants, or any other person for
that matter, could have used to prepare the CTCAC application. Rather Mr. Marshall
appears to offer testimony simply describing the work done on the project. (Marshall
Depo. pp. 33-36, 40-44.)

Civic also attempts to create a triable issue of fact by pointing to an indemnity
provision in the redevelopment contract between defendant HIS and the Agency as
evidence that Defendants converted the 2/19/02 Plans. (Civic’s Exh. I, p. 47 § 11.8.)
The indemnity provision provides that the Agency would indemnify defendant CYF
Development, Inc., defined as a general partner of HIS “against all claims made
against them which arise out of or in connection with the use of architectural plans for
the Property prepared by the architects for another developer for the Property.” (Id.)
Civic argues that the inclusion of the indemnity provision is an admission that
Defendants converted the 2/19/02 Plans. The Court disagrees. The mere existence
of an indemnity provision providing Defendant indemnification from the Agency
regarding claims that against them arising out of connection of plans prepared by
previous architects is not evidence from which a reasonable trier of fact could infer that
Defendants used the 2/19/02 Plans in connection with their CTCAC applications.
Indeed, as seen in the moving papers, Defendants only wanted the indemnity
provision in their agreement with the Agency based upon its awareness that Civic’s
prior architect raised objections about use of the 2/19/02 Plans provided to the Agency
and its desire to avoid involvement in any such dispute. (UMF 83-85) At most, the
indemnity provision is evidence that Defendants desired protection in the event that
Civic’s former architect raised any claims against them. Moreover, as seen above, the
undisputed evidence here is that Defendants never used the subject plans. The
indemnity provision provides no inference of anything in Civic’s favor with respect to
the issue of causation.

Civic also argues in its opposition that Defendants converted the 2/19/02 Plans
because they “represented to the CTCAC that they owned the [allegedly converted
plans] and claimed $1,313,000 credit in the financing application to the CTCAC, which
included $713,500 that Civic had paid for the plans. They represented that they were
entitled to take that credit because Civic’s architectural contract with [MWD] had been
‘terminated by mutual consent.” (Civic’s Resp. to Defendants’ UMF 31.) This theory
relies upon a single page in the CTCAC application in which Civic argues that
Defendants claimed it owned the work performed by Civic’s architect on the Hotel
Stockton project. Civic’s reliance on this theory fails for two reasons. First,
Defendants’ are correct that such theory was not alleged in the operative complaint,
but the theory lacks merits and is insufficient to demonstrate the existence of a triable
issue of material fact on the issue of causation. (Hutton v. Fidelity Nat’l Title Co.
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(2013) 213 Cal.App.4 486, 493 [“the burden of a defendant moving for summary judgment only requires that he or she negate plaintiff’s theories of liability as alleged in
the complaint; that is, a moving party need not refute liability on some theoretical
possibility not included in the pleadings.”] [emphasis in original].)

Second, the theory lacks merit. There is no assertion in the one page document cited
to by CTCAC, titled “Explanation of Architectural Contracts” in which Defendants
assert that they owned the 2/19/02 Plans. That document states: “Attached are two
contracts and an amendment for architectural services. The original contract between
Civic Partners and Donaldson, AIA, in the amount of $1,017,726 was terminated by
mutual agreement after expending some $713,500. Thereafter, Stockton Hotel
Investors (Cyrus Youssefi, Principal) entered into a DDA with the City of Stockton
Redevelopment Agency to acquire and rehabilitate the Hotel into a 1414-unit senior’s
project with retail space on the ground floor. Applied Architecture, Inc. was retained by
the Partnership at a contract price of $599,000 to redesign significant portions of the
plans and to assure compliance with the historical rehab and restoration requirements
of the U.S. Department of the Interior for purposes of securing historical tax credits on
the project. As indicated in the Sources and Uses, total architectural services are now
estimated to total $1,313,000.” As seen from the plain language of this document, it
summarizes the work to be done in the future pursuant to Defendants’ agreement with
Applied. Civic asserts that the inclusion of fees associated with its contract with MWD
in the estimate of total costs somehow shows that Defendants admitted that they
converted the plans The Court fails to see how this is so. Indeed, that plain language
of the document which Civic fails to discuss in any coherent detail simply appears to
describe a sequence of events and the architectural contracts associated with the
Hotel Stockton Project. In sum, while the one page document references Civic’s prior
architect’s work, there is no reference in the document regarding Defendants’ owning
or claiming to own the 2/19/02 Plans, which as the undisputed evidence shows, were
not used by Defendants in preparing the CTCAC application.

As a result, given that Civic failed to demonstrate the existence of a triable issue of
material fact with respect to the issue of causation, Defendants’ motion is granted.

Substantial Interference

In addition, Defendants are entitled to summary judgment on the alternate basis that
they did not substantially interfere with Civic’s possessory rights in the plans. An
element of conversion is the defendant’s exercise of wrongful dominion over the
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subject property. (Alvidor , supra, 212 Cal.App.4 at 1452.) “[I]t is incumbent upon the
plaintiff to show an intention or purpose to convert the goods and to exercise
ownership over them, or to prevent the owner from taking possession of his
property.” (Zaslow v. Kroenert (1946) 29 Cal.2d 541, 550.) Civic must show a
“serious interference” or “substantial interference with possession of the right
thereto.” (Id. at 550, 551.) Here Defendants’ evidence shows that while Defendants’
architects possessed the allegedly converted plans for a short time, they did not use
them for the CTCAC application, they believed they had been properly sent to them
from the Agency, and immediately returned the plans to the Agency when they learned
the plans were the subject of a dispute between Civic and MWD. (UMF 23-30, 48-52,
55-58.) This evidence shows that Defendants did nothing to exercise ownership or
wrongful dominion over the plans. Indeed, Defendants had no notice of any dispute
regarding the plans when they were sent to them by the Agency. (Cf. Software Design
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& Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4 472, 485 [“A bailee
who receives bailed property from a thief, without notice of the true owner’s claim and
returns the property to the bailor according to the terms of the bailment, is not liable for
conversion.”].) Defendants’ evidence is sufficient to show that Defendants did not
substantially interfere with whatever right Civic had to the plans and is sufficient to shift
to Civic the burden of demonstrating the existence of a triable issue of material fact.

Civic failed to demonstrate the existence of a triable issue of fact. Indeed, to the
extent Civic addresses this portion of Defendants’ motion, Civic simply appears to
raise the same arguments and cite the same evidence that was insufficient with
respect to the causation portion. As a result, Defendants’ motion for summary
judgment is granted on the alternate basis that Civic cannot establish that they
substantially interfered with Civic’s possessory rights to the plans.

Punitive Damages

Finally, though it was unnecessary for the Court to address the portion of the motion
directed to Civic’s punitive damages claim, given that summary judgment was granted
on the only cause of action remaining in the complaint, the Court finds that Defendants
have shown they are entitled to summary adjudication on Civic’s claim for punitive
damages.

In analyzing a motion for summary adjudication directed to a punitive damages claim,
the Court “must view the evidence presented through the prism of the substantive
[clear and convincing] evidentiary burden” applicable to such claims. (American
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Airlines, Inc. v. Shepard, Mullin, Richter & Hampton (2002) 96 Cal.App.4 1017, 1049.)
In support of its punitive damages claim, Civic alleges that defendant Youssefi told
Civic he needed Civic’s consent to transfer Civic’s hotel contract with the Agency and
in return, the Agency was prepared to repay Civic’s investment. (Fourth AC ¶ 9.) Civic
also alleges that Youssefi knew when he used Civic’s plans to make the CTCAC
application that the Agency had not honored its commitments. (Id. ¶ 23.) Civic also
alleges that it seeks punitive damages based upon the “nature of [Defendants’]
conduct disclosed in this case and in the indemnity agreement with the city and
agency, which discloses their intent to join with the city and agency in converting
Civic’s property to their own profit.” (Id.) At the outset, none of these vague
allegations appear to describe any conduct which could constitute the requisite
oppression, fraud or malice required for punitive damages under Civil Code § 3294. In
any event, Defendants’ evidence shows that Youssefi never made any commitments
to Civic, was not aware of any agreement between Civic and the Agency, and that the
indemnity agreement was simply the result of Defendants becoming aware that the
Agency may have mistakenly delivered the plans to Defendant’ architects and was
requested by Youssefi as a matter or protection in the event the architect made a claim
against Defendants. (UMF 62-88) Further as set forth above, the evidence shows that
Defendants never used the 2/19/02 Plans which form the basis of Civic’s conversion
claim. The evidence is sufficient to shift to Civic the burden of demonstrating the
existence of a triable issue of material fact.

Civic failed to meet its burden to demonstrate “through the prism of the substantive
[clear and convincing] evidentiary burden” a triable issue of material fact as to whether
any conduct by Defendants was oppressive, fraudulent, or malicious. Indeed, in
opposition, Civic simply argues that Defendants admitted their conversion as
evidenced by the indemnity provision in the contract with the Agency and as a result of
the representation in the CTCAC application. The Court has already rejected this
evidence as insufficient in connection with the underlying conversion cause of action and it is therefore insufficient to show a triable issue of fact with respect to punitive
damages.

Defendants’ evidentiary objections are ruled upon as follows: Objections 1, 2, 4, 5, 6
(Civic’s attorney’s declaration fails to comply with CCP § 2015.5(b) as it was executed
under “penalty of perjury” in Coral Gables, Florida), 7, 9, 11, 12, 13, are sustained.
The remaining objections are overruled. The Court notes that even if it considered all
of the evidence to which Defendants’ objections were sustained, the result of the
instant motion would not change.

Defendants’ counsel shall prepare for the Court’s signature order pursuant to CCP §
437c(g) and CRC Rule 3.1312 and a judgment of dismissal.