Selene Finance, LP v. County of Sacramento ( 2023 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 SELENE FINANCE LP, No. 2:23-cv-01124-DJC-CKD 12 Plaintiff, 13 v. ORDER DENYING MOTION TO DISMISS 14 COUNTY OF SACRAMENTO; JIM 15 COOPER, solely in his official capacity as the SHERIFF OF SACRAMENTO 16 COUNTY; MALCOLM & CISNEROS, a California law corporation; and Does 17 1–25, 18 Defendants. 19 20 21 Plaintiff Selene Finance LP (“Selene”) brings a section 1983 claim against the 22 County of Sacramento, Jim Cooper in his official capacity as the Sheriff of Sacramento 23 County (“the Sheriff’s Office”), and Selene’s former counsel, Malcolm & Cisneros (“the 24 Firm”), as well as 25 Doe Defendants. Selene alleges that Sacramento County and the 25 Sheriff’s Office (together, “County Defendants”) violated Selene’s cognizable property 26 interests under the Fourteenth Amendment’s Due Process Clause following an 27 allegedly defective judicial foreclosure sale, and that the Firm committed legal 28 malpractice during its representation of Selene throughout the judicial foreclosure 1 sale. The Firm now moves to dismiss all of Selene’s claims against it as untimely under 2 the applicable statute of limitations for legal malpractice claims. For the reasons set 3 forth below, the Court DENIES Malcolm & Cisneros’s Motion to Dismiss (ECF No. 11). 4 BACKGROUND 5 I. Factual Background 6 This case revolves around the judicial foreclosure sale of residential property 7 located at 7507 Chula Vista Drive, in Citrus Heights, California (“the Property”). (See 8 Not. of Removal Ex. 2 (ECF No. 1 at 34–67), ¶¶ 24–27 [hereinafter First Amended 9 Complaint or FAC].) On January 11, 2018, the Sacramento Superior County Court 10 entered a default judgment in favor of Selene that the Firm obtained (“the Underlying 11 Action”). (See The Firm’s Not. of Mot. and Rule 12(b)(6) Mot. to Dismiss (ECF No. 11) 12 6–7 [hereinafter Motion or MTD].) 13 According to the Parties, “Plaintiff was permitted to instruct the Sheriff to 14 conduct a Sheriff’s auction of the [P]roperty.” (MTD 7 (citing FAC ¶ 19).) According to 15 the Order, “Plaintiff may become a purchaser at the Sheriff’s sale of the Property, and 16 may credit bid up to the full amount of the indebtedness at the sale, including the 17 entire amount awarded by this Judgment plus post-judgment interest, fees, charges, 18 advances, and costs incurred in preserving the Property and effectuating the sale.” 19 (FAC Ex. A (ECF No. 1 at 54–60), at 4 (providing a copy of the 1/11/2918 Order).) 20 Following the judicial foreclosure sale, the Sheriff’s Office was authorized to execute 21 and deliver a deed of sale to the purchaser, record a duplicate of the deed of sale, 22 and transfer documents to Sacramento County or the city, with the purchaser to 23 become the exclusive owner of the Property upon delivery of the deed. (See id.) 24 Before this, around 2018, Selene retained the Firm to represent Selene “with 25 regard to the judicial foreclosure sale of the [Property].” (FAC ¶ 22; MTD 7.) The 26 foreclosure sale of the Property was scheduled for November 20, 2018. (See MTD 7; 27 FAC Ex. B (ECF No. 1 at 61–62) (providing a copy of the 11/19/2019 letter from the 28 Firm to the Sheriff’s Office revealing that the sale was scheduled for 11/20/2018).) The 1 day before, on November 19th, the Firm wrote a letter to the Sheriff’s Office to 2 provide bidding instructions (the “Instruction Letter”). (See FAC Ex. B.) The Instruction 3 Letter stated: “Per the client, please set the opening bid amount at $205,800.00.” (Id.) 4 According to the First Amended Complaint, the Firm “responded to [the Sheriff’s 5 Office’s concern regarding the high initial bid price] and re-confirmed, consistent with 6 the November 19, 2019 letter instructions, that Selene was bidding $205,800.00, so if 7 there were no higher bids, then the property will be sold to Selene at that amount.” 8 (FAC ¶ 21.) 9 Despite Selene’s Instruction Letter and the Firm’s confirmation of Plaintiff’s 10 intent to bid $205,800, County Defendants sold the Property for $0.01 on November 11 20, 2019 to First Group Investments (“FGI”). (See FAC ¶ 25; also id. ¶¶ 3, 11, 17, 25, 12 27.) In a conversation the next day, on November 21st, the Sheriff’s Office informed 13 the Firm that, although it did receive the Instruction Letter and the signed opening 14 bid, “it is not codified that we have to follow such instructions, [and] [the] opening bid 15 was not announced at the sale[.]” (Id. ¶ 26; see MTD 7.) 16 The Sheriff’s deed from the foreclosure sale of the Property was recorded on 17 January 29, 2020. (See MTD 7; FAC ¶ 27 (citing FAC Ex. C (ECF No. 1 at 63–67) 18 (providing a copy of the Sheriff’s Deed)).) As alleged in the First Amended Complaint, 19 the recording of the deed after the sale of the Property for $0.01 deprived Selene of 20 its property interests, creating damages. (See MTD 7-8 (quoting FAC ¶ 28).) 21 On May 6, 2020, Selene moved to set aside the foreclosure sale. (See MTD 8; 22 Selene’s Req. for Jud. Not. in Supp. of Selene’s Opp’n Ex. 4 (ECF No. 14-1 at 61–73), at 23 6 [hereinafter Selene’s Exhibit 4 or Selene’s RJN Ex. 4] (providing a copy of the court 24 docket in the Underlying Action)1.) At the same time, Attorney Ian A. Rambarran and 25 others with Klinedinst PC filed a notice of association of counsel with the Firm. (See 26 Not. of Ass’n of Counsel (ECF No. 14-1 at 4–5) [hereinafter Selene’s RJN Ex. 1].) 27 1 As explained below, see infra Part II, the Court judicially noticed six exhibits from the Firm and 28 incorporated another by reference, and judicially noticed all of Selene’s requested exhibits. 1 The Sacramento County Superior Court denied Selene’s motion to set aside the 2 foreclosure sale on July 22, 2020. (See MTD 7 (citing The Firm’s RJN Ex. D (ECF No. 3 11-1 at 67–72) (providing a copy of the minute order).) The court finally entered 4 judgment in favor of FGI on October 20, 2020. (See id. (citing The Firm’s RJN Ex. E 5 (ECF No. 11-1 at 73–82) (providing a copy of the order).) 6 Selene filed a notice of appeal in the Underlying Action on August 20, 2020. 7 (See Pl.’s Opp’n to the Firm’s MTD (ECF No. 14) 8 [hereinafter Opposition or Opp’n]; 8 Selene’s RJN Ex. 4, at 1.) The decision was affirmed on November 9, 2022. (See The 9 Firm’s RJN Ex. B (ECF No. 11-1 at 45–55), at 1 (providing a copy of the 11/9/2022 10 appeals decision).) Following denial of Selene’s petition for review by the California 11 Supreme Court, a remittitur was issued and the judgment was finalized on March 3, 12 2023. (See Opp’n 8; Selene’s RJN Ex. 4, at 1.) 13 II. Procedural Background 14 On November 18, 2020, Selene filed a Verified Complaint for Damages that 15 alleged the same facts and causes of actions as those brought in the First Amended 16 Complaint against County Defendants, FGI, and 25 Doe Defendants. (See MTD 8. 17 Compare The Firm’s RJN Ex. G (ECF No. 11-1 at 86–114) (providing a copy of the 18 Verified Complaint) with FAC.) The Firm was not named in the Verified Complaint. 19 (See MTD 9 (citing The Firm’s RJN Ex. G, ¶¶ 19–23).) 20 Selene filed the First Amended Complaint on April 24, 2023 that added the 21 Firm as a party in three causes of action and named the successor to the Sheriff’s 22 Office, Jim Cooper. (See MTD 9; FAC.) County Defendants removed the matter to 23 federal court on June 12, 2023. (See MTD 9; Not. of Removal (ECF No. 1) 3.) County 24 Defendants filed answers jointly on June 26, 2023. (See ECF No. 4.) The Firm filed the 25 instant Motion on July 14, 2023, which also sought judicial notice of eight exhibits. 26 (See MTD; The Firm’s RJN (ECF No. 11-1).) Selene filed its Opposition on July 28th 27 and similarly sought judicial notice of four exhibits. (See Opp’n; Selene’s RJN (ECF 28 No. 14-1).) The Firm filed its Reply on August 11, 2023. (See The Firm’s Reply (ECF 1 No. 20).) The Court heard arguments on the Motion on September 14, 2023, where 2 Attorney Millicent Meroney appeared for the Firm, and Attorneys Michael David 3 Croddy and Marie C. Avery appeared for Selene. At the September 14th hearing, the 4 Court judicially noticed all of Selene’s exhibits and judicially noticed all but two of the 5 Firm’s, with one being irrelevant and the other being incorporated by reference. (See 6 ECF No. 22.) The matter is now fully briefed. 7 MOTION TO DISMISS 8 I. Standard 9 A party may move to dismiss for “failure to state a claim upon which relief can 10 be granted.” Fed. R. Civ. P. 12(b)(6). The motion may be granted if the complaint 11 lacks a “cognizable legal theory” or if its factual allegations do not support a 12 cognizable legal theory. Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th 13 Cir. 2019) (quoting Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988)). 14 The court assumes all factual allegations are true and construes “them in the light 15 most favorable to the nonmoving party.” Steinle v. City & Cnty. of San Francisco, 919 16 F.3d 1154, 1160 (9th Cir. 2019) (quoting Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 17 1480, 1484 (9th Cir. 1995)). If the complaint’s allegations do not “plausibly give rise to 18 an entitlement to relief,” the motion must be granted. Ashcroft v. Iqbal, 556 U.S. 662, 19 679 (2009). 20 A complaint need contain only a “short and plain statement of the claim 21 showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), not “detailed 22 factual allegations,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). But this rule 23 demands more than unadorned accusations; “sufficient factual matter” must make the 24 claim at least plausible. Iqbal, 556 U.S. at 678. In the same vein, conclusory or 25 formulaic recitations of elements do not alone suffice. Id. (citing Twombly, 550 U.S. at 26 555). This evaluation of plausibility is a context-specific task drawing on “judicial 27 experience and common sense.” Id. at 679. 28 //// 1 II. Analysis 2 A federal court sitting in diversity jurisdiction applies the forum state’s choice of 3 law rules. See Bridge Fund Cap. Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 4 1002 (9th Cir. 2010) (citing Hoffman v. Citibank (S. Dakota), N.A., 546 F.3d 1078, 1082 5 (9th Cir. 2008))). Because this Court sits in California, it must apply California’s choice 6 of law rules. See id. 7 California has two different analyses for selecting which law to apply in a case. 8 See Washington Mut. Bank, FA v. Superior Ct., 24 Cal. 4th 906, 914–15 (2001). First, if 9 there is choice-of-law provision that was negotiated at arm’s-length, California courts 10 apply the principles set forth in the Second Restatement on the Conflict of Laws 11 section 187, “which reflect a strong policy favoring enforcement of such provisions[,]” 12 especially where the provision was negotiated between sophisticated parties. 13 Nedlloyd Lines B.V. v. Superior Ct., 3 Cal. 4th 459, 464–65 (1992); see Washington 14 Mutual Bank, FA, 24 Cal. 4th at 915–16. Second, where a choice-of-law provision in a 15 contract does not control, California courts will apply the so-called “governmental 16 interest analysis” that asks the court to “’search to find the proper law to apply based 17 upon the interests of the litigants and the involved states.” Offshore Rental Co. v. 18 Cont’l Oil Co., 22 Cal. 3d 157, 161 (1978) (quoting Reich v. Purcell, 67 Cal. 2d 551, 553 19 (1967)); see Washington Mutual Bank, FA, 24 Cal. 4th at 919–21. 20 Here, Nedlloyd supplies the relevant standard because of the presence of the 21 choice-of-law provision in Selene’s Legal Services Agreement with the Firm that states 22 that the “Agreement shall be deemed to be made in accordance with, and in all 23 respects shall be interpreted, construed, and governed by, the laws of the State of 24 New York.” (The Firm’s RJN Ex. H (ECF No. 11-1 at 115–44), at 19.) Under the 25 Restatement’s approach to choice-of-law provisions as announced by California 26 courts, there are three steps. See Nedlloyd Lines B.V., 3 Cal. 4th at 465–66. First, the 27 court must determine whether the chosen state has a substantial relationship to the 28 parties or their transaction, or whether there is any other reasonable basis for the 1 parties’ choice of law. See Bridge Fund Capital Corp., 622 F.3d at 1002 (quoting 2 Nedlloyd Lines B.V., 3 Cal. 4th 459). If either of these tests is met, then the court must 3 determine whether the chosen state’s law is contrary to a fundamental policy of 4 California. See id. If the court finds that such a conflict exists, then the Court must 5 determine “whether California has a ‘materially greater interest than the chosen state 6 in the determination of the particular issue.’” Id. (citing Nedlloyd Lines B.V., 3 Cal. 4th 7 459 (quoting Restatement (Second) of Conflict of Laws § 187(2) (1971))). If, after 8 conducting this analysis, California possesses the materially greater interest, then 9 California law must apply despite the choice-of-law provision. See id. at 1003. 10 For the first requirement regarding the reasonableness of the parties’ choice-of- 11 law selection, the Court finds that, as multistate entities licensed to do business in 12 multiple states, including New York, the Firm and Selene could reasonably choose 13 New York as a neutral, foreign state that has a well-known and developed body of 14 commercial law. See Restatement (Second) of Conflict of Laws § 187 comment f 15 (1971). That neither Selene nor the Firm are domiciled or reside in New York and that 16 the contract was not substantially performed in New York are irrelevant. (See Reply 7.) 17 The next question for the Court is whether the chosen state’s law is contrary to a 18 fundamental policy of California. See Nedlloyd Lines B.V., 3 Cal. 4th at 466. Courts 19 generally look to the Constitution, laws, and judicial decisions of that state, as well as 20 the applicable principles of the common law, to determine the public policy of the 21 state. See First Intercont’l Bank v. Ahn, 798 F.3d 1149, 1156 (9th Cir. 2015) (quoting 22 Twin City Pipe Line Co. v. Harding Glass Co., 283 U.S. 353, 357 (1931)). Courts will 23 also consider the underlying policies of the rules to see if there is a true conflict. See, 24 e.g., Gen. Signal Corp. v. MCI Telecmmc’ns Corp., 66 F.3d 1500, 1506 (9th Cir. 1995) 25 (finding no conflict between New York’s statute that required clear and convincing 26 evidence for fraud claims, and California’s statute, that only required a preponderance 27 of evidence); ABF Cap. Corp., a Delaware Corp. v. Osley, 414 F.3d 1061, 1066 (9th Cir. 28 2005) (finding that there was no true conflict when applying New York’s longer statute 1 of limitations that had no exception, rather than California’s shorter statute of 2 limitations with exceptions, because applying New York law would make the claims 3 untimely and thus protect the California defendant from a stale claim). 4 Here, the relevant fundamental policies of New York and California are 5 reflected in the specific and particularized statutes that both have created regarding 6 legal malpractice claims. See, e.g., Theranos, Inc. v. Fuisz Pharma LLC, 876 F. Supp. 7 2d 1123, 1132 (N.D. Cal. 2012) (citing Jordache Enterprises, Inc. v. Brobeck, Phleger 8 & Harrison, 18 Cal. 4th 739, 756 (1998)). These statutes potentially conflict to the 9 extent one permits liability and the other does not, as California’s statute of limitations 10 is one year, but New York’s is three (ignoring exceptions for both). See ABF Capital 11 Corp., a Delaware Corp., 414 F.3d at 1066 (quoting Nedlloyd Lines B.V., 3 Cal. 4th 12 459). (See also Opp’n 13–14 (providing the potentially relevant statutes of limitations 13 of New York and California).) At oral argument, counsel for the Firm, Attorney 14 Millicent Meroney, conceded that the claims would be timely under New York’s 15 statute of limitations but time-barred under California’s. That would suggest that 16 California’s statute of limitations should apply, but the Nedlloyd analysis focuses on 17 actual conflicts, thus requiring further analysis into how the statutes would apply in 18 practice. General Signal Corp., 66 F.3d at 1506 (citing Sarlot-Kantarjian v. First 19 Pennsylvania Mortg. Tr., 599 F.2d 915, 918 (9th Cir. 1979); Gamer v. duPont Forgan, 20 Inc., 65 Cal. App. 3d 280, 289 (1976)). 21 Here, Selene’s claims are timely under both California and New York law, thus 22 presenting a case where there is no actual conflict. California’s statute of limitations 23 for legal malpractice (and other professional negligence claims) contains an exception 24 that will toll the one-year limitations period so long as the attorney that negligently 25 represented the client continues to represent the client regarding the same specific 26 subject matter that gave rise to the potential malpractice claim, the so-called 27 continuous representation exception. See Cal. Civ. Proc. Code § 340.6(a)(2) 28 (West 2020). Selene argues that it falls within the exception. (See Opp’n 22.) 1 The continuous representation exception to toll California’s statute of 2 limitations for legal malpractice claims applies even if the client is aware of the 3 attorney’s negligence. See, e.g., Gonzalez v. Kalu, 140 Cal. App. 4th 21, 28 (2006) 4 (citations omitted). Moreover, California courts have settled on an objective standard 5 from the client’s perspective to determine whether the client knew or should have 6 known that the representation has ended. See, e.g., id. at 30 (framing the question as 7 “when the client actually has or reasonably should have no expectation that the 8 attorney will provide further legal services[ ]”); Hensley v. Caietti, 13 Cal. App. 4th 9 1165, 1170 (1993). Although California courts have disputed which factors are 10 relevant to making this determination, see Gonzalez, 140 Cal. App. 4th at 31 (rejecting 11 dicta in two cases suggesting that the standard looked at whether there was an 12 ongoing mutual relationship and activities in furtherance of the relationship as in New 13 York), all agree that the client’s perspective controls, and that this is a factual issue, 14 see, e.g., id. at 32–33; O’Neill v. Tichy, 19 Cal. App. 4th 114, 120–21 (1993). Therefore, 15 California courts will generally find that the statute is tolled for purposes of a motion to 16 dismiss because, “’so long as there are unsettled matters tangential to a case, and the 17 attorney assists the client with these matters, he is acting as his representative,’ and 18 the statute of limitations is tolled.” O’Neill, 19 Cal. App. 4th at 121 (quoting Gurkewitz 19 v. Haberman, 137 Cal. App. 3d 328, 333 (1982)). 20 Here, there is evidence that the Firm continued to represent Selene throughout 21 the appeal of the Underlying Action, based on evidence that the Court judicially 22 noticed. Selene first points to the notice of association (as opposed to a substitution), 23 indicating that the Firm was associating with Klinedinst PC, Selene’s current counsel, in 24 the Underlying Action starting May 6, 2020. (See Selene’s RJN Ex. 1 (ECF No. 14-1 at 25 4–5).) Selene then points to the Firm’s inclusion on the certificate of service on the 26 appellate brief for the Underlying Action, which lists the Firm as “Attorneys for SELENE 27 FINANCE” under the section showing which other interested parties were served true 28 copies of the brief. (See Selene’s RJN Ex. 3 (ECF No. 14-1 at 11–60), at 48–49.) The 1 | brief was filed on June 17, 2021. (See id. at 50.) Finally, Selene points to the docket in 2 | the Underlying Action, which shows that the matter was not closed and finalized until 3 | March 3, 2023, after the remittitur was issued. (See Selene’s RJN Ex. 4 (ECF No. 14-1 4 | at 61-73), at 1.) That is more than enough factual material to support Selene’s 5 | allegation in the First Amended Complaint that the Firm was hired and continues to 6 | represent Selene “with regard to the judicial foreclosure sale of the [Property,]” and 7 | that to “date the Firm has remained counsel for Selene.” (FAC § 22, 24.) Therefore, 8 | under California’s statute of limitations, Selene’s claims are timely, at least for 9 | purposes of this Motion. 10 Because Selene’s claims are timely when applying California’s statute of 11 | limitations under the continuous representation exception and when applying New 12 | York's statute of limitations there is no actual conflict between the two statutes of 13 | limitations. Because there is no actual conflict, then, the choice-of-law provision 14 | applied to the statute of limitations question at issue in this Motion is enforceable. See 15 | ABF Capital Corp., a Delaware Corp., 414 F.3d at 1066. Because Selene’s claims are 16 | timely under either statute at this stage, the Firm’s Motion must be denied. 17 CONCLUSION 18 For the reasons set forth above, the Court DENIES Malcolm & Cisneros’s Motion 19 | to Dismiss (ECF No. 11). Selene Finance LP is GRANTED leave to amend if it chooses. 20 21 59 IT IS SO ORDERED. 03 | Dated: _October 6, 2023 _ Beek | bbeatie Hon. Daniel labretta 24 UNITED STATES DISTRICT JUDGE 25 26 27 | DJC3 -Selene.23cv1124.MTD 28 Af\