Kennedy Funding, Inc. v. Chapman et al, No. 3:2009cv01957 - Document 149 (N.D. Cal. 2011)
Court Description: ORDER DENYING MOTION TO DISMISS, DENYING REQUEST FOR ALTERNATIVE RELIEF, AND SETTING CASE MANAGEMENT CONFERENCE. Case Management Conference set for 4/21/2011 10:00 AM in Courtroom 3, 17th Floor, San Francisco. Signed by Judge Richard Seeborg on 3/8/11. (cl, COURT STAFF) (Filed on 3/8/2011)
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Kennedy Funding, Inc. v. Chapman et al Doc. 149 1 *E-Filed 3/8/11* 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 SAN FRANCISCO DIVISION 9 For the Northern District of California United States District Court 10 KENNEDY FUNDING, INC., a New Jersey Corporation, Case No. C 09-01957 RS 11 Plaintiff, 12 v. 13 14 15 16 17 18 19 20 NICOLAS CHAPMAN, an individual; JIREH EDUCATIONAL MINISTRIES, a California non-profit corporation; NEWPORT AVALON INVESTORS, LLC, a California limited liability company; BRIAN D. EVANS, an individual; MANCEBO CORPORATION, a California Corporation; ARNE WAGNER, an individual; LAWRENCE S. THAL, an individual; REDGE MARTIN, an individual; VANGUARD FINANCIAL LTD.; and DOES 1 through 50, Inclusive, ORDER DENYING MOTION TO DISMISS, DENYING REQUEST FOR ALTERNATIVE RELIEF, AND SETTING CASE MANAGEMENT CONFERENCE Defendants. ____________________________________/ 21 22 NEWPORT AVALON INVESTORS, LLC, a California limited liability company 23 Counter-Claimant, 24 25 v. KENNEDY FUNDING, INC., a New Jersey corporation, 26 27 Counterclaim-Defendant. ____________________________________/ 28 NO. C 09-01957 RS ORDER DENYING MOTION TO DISMISS Dockets.Justia.com 1 I. INTRODUCTION 2 Plaintiff Kennedy Funding, Inc. (Kennedy) filed suit against Nicholas Chapman, Jirah contract and related claims arising out of a settlement agreement reached after Newport defaulted on 5 a loan obtained for a real estate development project.1 Separately, Kennedy has been sued in New 6 Jersey state court by a third-party to this suit that was involved in funding the loan extended by 7 Kennedy. The plaintiff in the New Jersey action obtained a preliminary injunction enjoining 8 Kennedy from entering into any settlement with Newport affecting title to the property under 9 For the Northern District of California Educational Ministries, Newport Avalon Investors (collectively “Newport”) alleging breach of 4 United States District Court 3 development. Based on this restriction, Newport presently moves for dismissal or a stay of this 10 action or, alternatively, for an Order requiring the parties to participate in settlement negotiations. 11 Pursuant to Civil Local Rule 7-1(b), the matter is suitable for disposition without oral argument. 12 For the reasons stated below, Newport’s motion to dismiss or for alternative relief is denied. II. BACKGROUND 13 This suit arises out of a $5,000,000 loan that Newport obtained from Kennedy to purchase 14 15 and develop property in Pleasanton, California.2 After Newport entered bankruptcy, the parties 16 reached a settlement agreement approved by the bankruptcy court. Based on the alleged breach of 17 that agreement, Kennedy filed suit in Alameda Superior Court and the case was removed to this 18 Court in May 2009. During the fall of 2009, the parties engaged in settlement negotiations and, 19 according to Newport, reached a tentative agreement in October 2009. That agreement provided, in 20 part, that Kennedy would receive a deed in lieu of foreclosure to six of the nine lots comprising the 21 Pleasanton property. Over the next few months, the parties exchanged drafts of the agreement and 22 junior lien holders joined the discussion. On March 8, 2010, however, Kennedy rejected the offer. 23 Meanwhile, on January 22, 2010, KSI Funding, Inc. (KSI) sued Kennedy and eight 24 additional parties in the Superior Court of New Jersey. KSI and the other defendants helped fund 25 1 26 27 28 In its second amended complaint, Kennedy added additional defendants representing junior lien holders. These defendants, as well as Newport, have alleged counterclaims against Kennedy. 2 Prior Orders have set out relevant portions of the alleged factual background in this action. See Kennedy Funding, Inc. v. Chapman, No. C 09-01957 RS, 2010 U.S. Dist. LEXIS 116038, at *35 (N.D. Cal. Nov. 1, 2010); Kennedy Funding, Inc. v. Chapman, No. C 09-01957 RS, 2010 U.S. Dist. LEXIS 60475, at *4-8 (N.D. Cal. June 18, 2010). Only the background material to this motion is recited above. NO. C 09-01957 RS ORDER DENYING MOTION TO DISMISS 2 co-lender agreement into which it entered with Kennedy and these other investors. In its complaint, 3 KSI contends that Kennedy is “attempting to sell off some of the [Pleasanton] lots” to Newport and 4 objects that this action will reduce the value of the development project as a whole. On March 18, 5 2010, KSI obtained a preliminary injunction enjoining Kennedy from “transferring, selling, 6 exchanging, affecting title, encumbering, deeding, accepting deeds of any kind, or taking any other 7 action impacting the marketability of title” of the Pleasanton property. On September 7, 2010, the 8 New Jersey court entered a modification of the preliminary injunction order to clarify that the 9 For the Northern District of California the $5,000,000 loan extended to Newport. Through its suit, KSI seeks to enforce rights under the 2 United States District Court 1 prohibition against activity “affecting title” did not preclude Kennedy from “pursuing all judicial 10 actions and non-judicial remedies” in connection with Newport’s default of the loan. Any 11 settlement into which Kennedy enters is subject to the terms of the preliminary injunction. In its March 18, 2010 order, the New Jersey court mandated that counsel for Kennedy serve 12 13 a copy on “all participants in the Newport Avalon Trust.” Newport, however, contends that it was 14 not notified by Kennedy of the New Jersey litigation or of the preliminary injunction. On April 1, 15 2010, Kennedy participated in filing a Joint Case Management Statement with this Court that did 16 not include any reference to the New Jersey litigation. According to Newport, it discovered the 17 existence of the New Jersey suit through its own Internet search and in July 2010 it sent a letter to 18 Kennedy requesting it agree to dismiss or to stay the action until it is able to participate in settlement 19 negotiations. Newport allegedly received no response. In a purported attempt “to continue with settlement discussion,” on December 3, 2010, 20 21 Newport sent a draft settlement agreement to Kennedy involving transfer of six of the Pleasanton 22 lots. Kennedy responded, “Notwithstanding the nature of the unsolicited proposal received from 23 Newport, based upon our reading of the Injunction obtained by Neilan3 in the courts of the state of 24 New Jersey and [Kennedy’s] discussion with Neilan’s counsel, Kennedy is enjoined from 25 considering same.” 26 27 28 3 According to KSI’s New Jersey complaint, Neilan Holdings is the name of the entity that funded the Newport loan. Kennedy entered into the co-lenders agreement as the agent for Neilan. NO. C 09-01957 RS ORDER DENYING MOTION TO DISMISS 3 Based on the foregoing, Newport claims that Kennedy violated Civil Local Rule 3-13 by not 1 2 disclosing the existence of the New Jersey suit. It further contends that the New Jersey court order 3 interferes with resolution of this case and the jurisdiction of this Court, as it “causes violation” of 4 Civil Local Rules 16-3 and 16-8(b) and impedes the “general duty” of counsel to engage in 5 settlement discussions in good faith. Thus, Newport seeks an order from the Court requiring that 6 Kennedy participate in a settlement conference “with the requisite authority” to settle or, 7 alternatively, moves to dismiss or stay this suit until resolution of the New Jersey action. III. DISCUSSION 8 A defendant may move to dismiss an action based on the plaintiff’s failure to prosecute, to For the Northern District of California United States District Court 9 10 comply with the Federal Rules of Civil Procedure, or to follow a court order. See Fed. R. Civ. P. 11 41(b). While the Court retains inherent authority to impose sanctions for failure to comply with its 12 orders, dismissal is a “harsh penalty,” which is therefore appropriate only in “extreme 13 circumstances.” Ferdik v. Bonzelet, 963 F.2d 1258, 1260 (9th Cir. 1992) (citing Thompson v. 14 Housing Auth., 782 F.2d 829, 831 (9th Cir. 1986)). In considering dismissal of an action for 15 violation of a court order, the court weighs five factors: “(1) the public’s interest in expeditious 16 resolution of litigation; (2) the court’s need to manage its docket; (3) the risk of prejudice to the 17 defendants; (4) the public policy favoring disposition of cases on their merits; and (5) the 18 availability of less drastic alternatives.” Id. at 1260-61 (internal quotation marks and citations 19 omitted). In this case, Newport contends that Kennedy has violated the Rules of this Court by failing 20 21 to file notice of the New Jersey action and serving it on all defendants in this suit. Civil Local Rule 22 3-13 requires that such notice be provided where a party learns that a case in this Court involves “all 23 or a material part of the same subject matter and all or substantially all of the same parties as another 24 action” pending in federal or state court. Kennedy disputes that “all or substantially all of the same 25 parties” are involved in the New Jersey action as are present here. In fact, Kennedy is the sole party 26 which overlaps both suits.4 27 4 28 The additional defendants in the New Jersey action are: M.L. Beer Investments, Inc.,; MMR Funding, L.P.; Lexis Funding, Inc.,; G&C Investments, Inc.; G&C Investments, Inc. MPP; JWJ Financial, Inc. MPP; Carol Wolfer, IRA; and J.K.G. Financing, Inc., DBP. NO. C 09-01957 RS ORDER DENYING MOTION TO DISMISS 4 1 Additionally, Newport argues that the New Jersey injunction impedes Kennedy’s ability to conferring and planning that is mandated by FRCivP 26(f) and by ADR Local Rule 3-5 must be 4 done by lead trial counsel for each party.” Local Rule 16-8 describes the Alternative Dispute 5 Resolution (ADR) programs created by the Northern District and states that it is the policy of this 6 District to assist parties in the just, timely, and cost-effective resolution of civil litigation. The 7 Court, on its own or at the request of one or more parties, may refer the parties to one of the 8 District’s ADR program or a judicially hosted settlement conference. See Civil L.R. 16-8(a). 9 For the Northern District of California abide by Civil Local Rules 16-3 and 16-8. Rule 16-3 provides that “[u]nless otherwise ordered, the 3 United States District Court 2 While Newport does not explicitly describe how Kennedy has violated these rules, its 10 apparent complaint is that Kennedy, bound by the New Jersey injunction, lacks the authority to 11 negotiate a settlement in good faith. Kennedy, for its part, admits that the preliminary injunction 12 “currently bars settlement,” but argues that it does not affect its Rule 26 obligations or interfere with 13 litigation of the case. According to Kennedy, it must consider the co-investors of the loan made to 14 Newport and, ultimately, neither the Federal Rules nor Rules of this Court require it to enter into 15 any settlement. 16 As Newport has not indentified an act by Kennedy taken in violation of an Order of this 17 Court, involuntary dismissal pursuant to Rule 41(b) is not warranted. As an alternative, Newport 18 seeks an Order from the Court requiring the parties to participate in a settlement conference in good 19 faith. Kennedy states that it is willing to participate in ADR, but believes that it would be more 20 appropriate at a later time. Although it believes that a settlement already can be reached with the 21 co-lenders’ approval, Kennedy states that it will endeavor to have the preliminary injunction 22 modified to allow expressly for that possibility. Pleadings recently closed in December 2010 after 23 Kennedy filed its answer to Newport’s first amended counterclaims. Thus, prior to any Court 24 directed ADR efforts, the parties shall next appear at a Case Management Conference. 25 26 27 IV. CONCLUSION Newport’s motion to dismiss is denied and its request that the Court order the parties to participate in a settlement conference at this time is also denied. The parties shall appear at a Case 28 NO. C 09-01957 RS ORDER DENYING MOTION TO DISMISS 5 1 Management Conference on April 21, 2011 at 10:00 a.m. and must submit a Joint Case 2 Management Statement no later than one week prior to that conference. 3 4 IT IS SO ORDERED. 5 6 7 Dated: 3/7/11 RICHARD SEEBORG UNITED STATES DISTRICT JUDGE 8 For the Northern District of California United States District Court 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NO. C 09-01957 RS ORDER DENYING MOTION TO DISMISS 6
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