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Sandpiper Resorts Development Corp. v. Global Realty Investments, LLC

United States District Court, D. Arizona

October 16, 2012

SANDPIPER RESORTS DEVELOPMENT CORPORATION, et al., Plaintiffs,
v.
GLOBAL REALTY INVESTMENTS, LLC, et al., Defendants.

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[Copyrighted Material Omitted]

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Michael J. O'Connor, Michael Richard Palumbo, Paul G. Johnson, Jennings

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Strouss & Salmon PLC, Phoenix, AZ, for Plaintiffs.

Caroline Hartman-Altenbernd, Phoenix, AZ, pro se.

Kelly Altenbernd, Phoenix, AZ, pro se.

Don Carl Fletcher, Joel Eric Sannes, Sheryl Lynn Andrew, Lake & Cobb PLC, Tempe, AZ, for Defendants.

ORDER AND OPINION

JOHN W. SEDWICK, District Judge.

I. MOTION PRESENTED

At docket 292, plaintiffs Sandpiper Resorts Development Corporation (" Sandpiper" ) and Dourian Foster Investments (" Dourian Foster" : collectively " plaintiffs" ) move pursuant to Federal Rule of Civil Procedure 55(b)(2) for default judgment against defendants Global Realty Investments, LLC (" Global" ); Caroline Hartman-Altenbernd (" Hartman" ) and her husband Kelly Altenbernd; and Toscana Developers, LLC (" Toscana Developers" ). Defendant Estes Development Corporation (" Estes Development" ) opposes at docket 296, and plaintiffs reply at docket 300. Oral argument was not requested.

II. BACKGROUND

A. Jurisdiction and Governing Law

The court has jurisdiction over the lawsuit by virtue of the parties' diverse citizenship and the amount in controversy.[1] The claims pled are all state law claims which arise from events that took place in Arizona. The case was filed in Arizona. Arizona law provides the substantive law to be applied.

B. Events Giving Rise to Lawsuit

Sandpiper owned Toscana Villas— a partially completed townhouse development in La Paz County, Arizona. The property was encumbered by two deeds of trust in favor of Point Center Financial (" Point Center" ). Dourian Foster owned Toscana Estates, a 25-acre parcel adjacent to Toscana Villas. Toscana Estates was encumbered by deeds of trust in favor of Ronald Gayman. Damin Paige Dourian (" Dourian" ) was President and CEO of Sandpiper and the principal of Dourian Foster.

In January of 2007, Sandpiper filed a Chapter 11 bankruptcy case. Under Sandpiper's bankruptcy plan, Toscana Villas was slated for sale at auction. Representatives of Sandpiper met with Hartman, the managing member of Global, to discuss Global's purchase of Toscana Villas and Toscana Estates two months prior to the sale. Global retained the law firm Mohr Hackett to assist with the acquisition.

On August 24, 2007, Sandpiper and Global entered into a contract under which Global agreed to purchase Toscana Villas for $6,950,000. In a separate contract, Global agreed to purchase Toscana Estates from Dourian Foster for $13,320,000. Toscana Developers, LLC (" Toscana Developers" ) was to be the assignee of Global's rights under each contract. At least at one point, Estes Development was the managing member of Toscana Developers, and plaintiffs allege that Estes Development was the primary source of funding for the purchases.

The sale of Toscana villas was approved by the bankruptcy court in an order confirming Sandpiper's plan of reorganization.[2] According to Estes Development that order allocated a sale price of $6,950,000 as follows: $6,034,426.87 to pay

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off Point Center; $625,500 to pay the sales commission, $75,319.12 to pay miscellaneous secured claims, with the balance of $750,000 to be set aside to pay property association owner claims. These figures are reflected in a table set out in Estes Development's response. [3] However, plaintiffs dispute the accuracy of these numbers. This dispute is discussed below.

The sales were ultimately set to close on October 8, 2007, the same day that Hartman received an appraisal of Toscana Villas indicating a value of only $5,600,000. The next day Global advised Sandpiper it would not go through with the transaction. On October 12, 2007, Point Center foreclosed one of its deeds of trust on Toscana Villas, and foreclosed the second on April 4, 2008. Meantime, Global continued to negotiate with Point Center regarding the purchase of Toscana Villas and continued to negotiate with Dourian Foster regarding the purchase of the Toscana Estates. Eventually, the Toscana Estates were also sold at a foreclosure sale.

The amounts paid at the various foreclosure sales are not disclosed in the motion papers. At the time Point Center filed its claims in bankruptcy court, the amount owed to Point Center, which was secured by the Toscana Villas, was $5,272,165.52 consisting of one loan on which it was owed $4,620,914.52 and another on which it was owed $651,251.00.[4]

C. Procedural History

Plaintiffs commenced this action on July 25, 2008, naming Global, Hartman, Kelly Altenbernd, and Toscana Developers as defendants. The complaint set out seven claims denominated as " counts." [5] Count One is Dourian Foster's breach of contract claim against Global and Toscana Developers. Count Two is Dourian Foster's specific performance claim against Global and Toscana Developers. Count Three is Sandpiper's breach-of-contract claim against Global and Toscana Developers. Count Four is Sandpiper's fraud claim against Global, Toscana Developers, and Hartman. Count Five is a negligent misrepresentation claim by Dourian Foster and Sandpiper against Global, Toscana Developers, and Hartman. In Count Six, Dourian Foster and Sandpiper ask the court to disregard the corporate forms of Global and Toscana Developers and hold Hartman personally liable as their principal. Count Seven is a claim by Sandpiper against Global, Toscana Developers, and Hartman for violation of 11 U.S.C. ยง 363(n).

Toscana Developers was served on September 3, 2008, but did not appear. The Clerk entered the default of Toscana Developers on December 8, 2008.[6] Global was not served until November 26, 2008. Like Toscana Developers, it failed to appear, and Global's default was entered by the Clerk on May 28, 2009.

Hartman and husband Kelly Altenbernd were finally served on June 5, 2009. They obtained counsel and filed a motion to dismiss on the grounds that service of process was insufficient.[7] However, their lawyer withdrew. Judge Murguia, to whom this case was then assigned, denied the motion to dismiss and permitted plaintiffs to serve Hartman and her husband by

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publication. [8] Following service by publication, they failed to appear, and their default was entered on March 1, 2010.[9]

In the meantime, on October 8, 2009, plaintiffs filed an amended complaint which added Estes Development and its principal, Cynthia Estes, as defendants. [10] The amended complaint set out the same seven claims denominated as Counts One through Seven as the original complaint and added Count Eight through Twelve against defendants Estes Development and Cynthia Estes. These defendants were also defaulted, but Judge Murguia granted their motion to set aside their default.[11] On July 19, 2011, the Estes Defendants filed a third-party complaint naming Mohr Hackett. This court granted Mohr Hackett's motion for summary judgment on the third-party complaint.[12] This court also granted the motion by Estes Development and Cynthia Estes for summary judgment on all the claims against them, except the claim to pierce the corporate veil of Toscana Developers and hold Estes Development liable for the actions of Toscana Developers which is included in Count Ten.[13]

In an order at docket 287, this court invited plaintiffs to file a motion for entry of a default judgment as to the defaulted defendants. The order recognized that Estes Development should be heard on that topic, because the veil-piercing claim might leave Estes Development responsible for any judgment entered against Toscana Developers.

III. DISCUSSION

Jurisdiction in this case is based upon diversity of citizenship. All of the events giving rise to the litigation took place in Arizona. The substantive law which applies to the ...


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