Class Plaintiff's Response to Automatic Stay - equitatus

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Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 16 of 34 definitive rule in California to this day. 6 35. Jones was a class action in which the minority stockholders sued the corporation’s majority shareholders for actions that diminished the value of their stock. The California Supreme Court held that the minority shareholders’ claims were direct. Key to this determination was the fact that the plaintiff did not “seek to recover for the corporation for injury to the corporation by defendants’ actions.” 81 Cal. Rptr. at 598. 7 36. Jones makes it clear that a class of individuals who were all harmed in the same manner by the defendants’ wrongful conduct may assert individual claims: “The individual wrong necessary to support a suit by a shareholder need not be unique to that plaintiff. The same injury may affect a substantial number of shareholders. If the injury is not incidental to an injury to the corporation, an individual cause of action exists." 81 Cal. Rptr. at 599. 8 37. Class Plaintiffs’ claims against Greenberg are direct under Jones. Class Plaintiffs allege seven causes of action against Greenberg based on wrongful conduct that breached duties owed to the RE Loans members, not to RE Loans itself. The claims are: First Cause: Aiding and abetting the RE Loans Managers’ breach of fiduciary duties owed to those Class Plaintiffs who were members of RE Loans (CC 193 - 204); Second Cause: Secondary liability for securities fraud perpetrated against those Class Plaintiffs who invested in RE Loans and exchanged their equity ownership interests for promissory notes in the Exchange Transaction (CC 205 - 213); Third Cause: Fraud by misrepresentation in connection with the Exchange Transaction (CC 215-224); 6 See Jara v. Suprema Meats, Inc., 121 Cal. App. 4th 1238, 1253 (2004) (“Jones … offers an authoritative analysis for distinguishing claims that must be asserted in a derivative action and those that may be asserted in an individual action”); Smith v. Tele-Communications, Inc., 134 Cal. App.3d 338 (1982) (following Jones, concluding that minority shareholder had individual claims for fraud and breach of fiduciary duty against majority shareholders); In re Bangerter, 106 B.R. 649, 651-53 (Bankr. C.D. Cal. 1989) (concluding under Jones that minority shareholder had standing to bring individual fraud-based claim against majority shareholder); Crain v. Elec. Memories & Magnetics Corp., 50 Cal. App. 3d 509, 520- 23 (1975) (following Jones, concluding that class action plaintiffs had direct claims against majority shareholders for breach of fiduciary duty and constructive fraud). 7 Cf. Educators, 25 F.3d at 1284 (“Conversely, if the cause of action does not explicitly or implicitly allege harm to the debtor, then the cause of action could not have been asserted by the debtor as of the commencement of the case, and thus is not property of the estate.”). 8 See also Seven Seas Petro. Inc., 522 F.3d 575, 588 (5th. Cir. 2008) (“We also wish to dispel any notion that a claim belongs to the estate or is otherwise only assertable by the trustee merely because it could be brought by a number of creditors, instead of just one.”). 10
Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 17 of 34 Fourth Cause: Fraud by concealment and suppression of facts in connection with the exchange transaction (CC 226 - 241); Fifth Cause: Aiding and abetting fraud by the RE Loans Managers in connection with the exchange transaction (CC 243 - 249); Sixth Cause: Violation of California’s Unfair Competition Law as to Class Plaintiffs who invested in RE Loans and exchanged their equity ownership interests for promissory notes in the exchange transaction (CC 250 - 255); Seventh Cause: Negligent misrepresentation of past and existing facts in connection with the exchange transaction (CC 257 - 262); and Eighth – Fourteenth Causes: Claims alleging wrongdoing by Greenberg in connection with MF08. 1. Class Plaintiffs Do Not Allege Legal Malpractice 38. Greenberg mischaracterizes California Class Plaintiffs’ claims as alleging legal malpractice perpetrated on an unwitting RE Loans. 9 The Consolidated Complaint provides no support for Greenberg’s assertion. There are no allegations that Greenberg helped the Managers breach any duties they owed to RE Loans. Nor are there any allegations stating or suggesting that Greenberg breached any duties that it owed to RE Loans. All of Greenberg's alleged actions either helped the Managers breach duties that the Managers owed to the RE Loans members, or breached duties that Greenberg itself owed the members. The claims based on these actions are personal and belong to California Class Plaintiffs under California law. Jones, 81 Cal. Rptr. at 598. 39. For instance, the aiding and abetting claims allege that, by helping the Managers hide the past securities violations, Greenberg assisted them in breaching the duty of truthful disclosure that they owed to the members. By helping the Managers consummate the Wells Fargo line of credit loan and carry out the exchange agreement transaction, Greenberg helped them breach the duties of truthful disclosure, the duty of loyalty and the duty to deal fairly – duties the Managers owed to the members. Greenberg's conduct with the exchange agreement helped the Managers commit securities and common law fraud against the members. The common theme with the aiding and abetting claims is that Greenberg acted in concert with the Managers to engage in conduct that was directed against – and directly harmed – the members. CC 8, 11, 13, 61, 62, 73, 77, 79-90. The Consolidated 9 Brief in Support of Amended Motion Pursuant to §§ 362 and 105(a) of the Bankruptcy Code and Rule 7065 of the Federal Rules of Bankruptcy Procedure For an Order Extending the Automatic Stay, or, in the Alternative, For the Issuance of a Preliminary Injunction (“GT Memo.”) at 12, 13. 11
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Class Plaintiff's Response to Automatic Stay - equitatus

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