Sacramento Suncreek Apartments, LLC, v. Cambridge Advantaged Properties II, L.P.

• Decision Date: 30 July 2010
• Docket Number: Certified for Partial Publication. ,No. C060886.,C060886.
• Court: California Court of Appeals Court of Appeals
• Parties: SACRAMENTO SUNCREEK APARTMENTS, LLC, et al., Plaintiffs and Appellants, v. CAMBRIDGE ADVANTAGED PROPERTIES II, L.P., et al., Defendants and Respondents.

187 Cal.App.4th 1

113 Cal.Rptr.3d 661

SACRAMENTO SUNCREEK APARTMENTS, LLC, et al., Plaintiffs and Appellants,

v.CAMBRIDGE ADVANTAGED PROPERTIES II, L.P., et al., Defendants and Respondents.

No. C060886.

Certified for Partial Publication.^*

Court of Appeal, Third District, California.

July 30, 2010.

Flynn/Williams LLP, Scott Williams and Stephen M. Flynn, San Rafael, for Plaintiffs and Appellants.

Low, Ball & Lynch, Guy W. Stilson and Christine B. Reed, San Francisco, for Defendants and Respondents.

HULL, J.

California's long-arm statute permits the exercise of personal jurisdiction "on any basis not inconsistent with the Constitution of this state or of the United States." (Code Civ. Proc., § 410.10.) Under the Due Process Clause of the United States Constitution, a nonresident may be subject to personal jurisdiction in the forum state if he has maintained sufficient purposeful contacts with the state, the claims asserted against him arise from those contacts, and the exercise of jurisdiction comports with fair play and substantial justice. ( Pavlovich v. Superior Court (2002) 29 Cal.4th 262, 268-269, 127 Cal.Rptr.2d 329, 58 P.3d 2.)

In this matter, plaintiffs assert claims against two nonresident limited partners of an Oregon limited partnership that owned and operated an apartment complex in this state for many years. The claims arise from mold discovered at the apartment complex after it was sold to plaintiffs. However, prior to the assertion of claims against them, the nonresident limited partners, who were themselves limited partnerships, liquidated their interests in the Oregon limited partnership and dissolved.

Despite their dissolutions, the nonresident limited partners specially appeared in this action and moved to quash service and to dismiss. The trial court concluded it lacks personal jurisdiction over the limited partners and granted the motion. Plaintiffs appeal.

We agree there is no personal jurisdiction under the circumstances presented. The only contact between the nonresident limited partners and this state was their investment in a partnership that operated in this state, and plaintiffs' claims do not arise from that investment but from the partnership's business. We therefore affirm the order granting the motion to quash and to dismiss.

Facts and Proceedings

Defendant Cambridge Advantaged Properties II (CAP II) was a limited partnership formed on June 25, 1985, under the laws of the State of Delaware. It had approximately 3,000 limited partners who contributed over $35 million in assets. Defendant Related and Cambridge Associates Limited Partnership (RCALP) was also a Delaware limited partnership that served as the general partner for CAP II. (CAP II and RCALP are hereafter referred to collectively as defendants.)

Defendants invested as limited partners in other limited partnerships (project partnerships) that purchased or leased and operated apartment complexes for low and moderate income tenants. One such project partnership was Suncreek-268, an Oregon limited partnership, which owned and operated Sacramento Suncreek Apartments (Suncreek Apartments), an apartment complex located in Sacramento. Defendants invested as limited partners in Suncreek-268 on or about December 20, 1985. At the time, all construction on the apartment complex had been completedand it was operating and producing income.

Except for their ownership interest in Suncreek-268, defendants owned no property in California. Their offices and personnel were located in New York, New York, and they conducted no other business in California.

On June 29, 2001, Suncreek-268 sold Suncreek Apartments to plaintiff Sacramento Suncreek Apartments, LLC (Sacramento Suncreek).

By 2001, most of the limited partnership interests held by defendants in the various project partnerships, including Suncreek-268, had been liquidated, and defendants began winding up their affairs.

In 2002, mold was discovered at Suncreek Apartments and tenants began filing suit against Sacramento Suncreek and Suncreek-268. The apartments were vacated in 2003, and the lawsuits were settled in 2004 and 2005. Sacramento Suncreek and its administrative member, plaintiff Commercial Ventures, Inc. (Commercial Ventures), suffered losses as a result. (Sacramento Suncreek and Commercial Ventures are hereafter referred to collectively as plaintiffs.)

On June 17, 2005, plaintiffs initiated this action against Suncreek-268 and others alleging, among other things, negligent construction of the Suncreek Apartments, breach of contract, and fraud. Plaintiffs later added defendants as Doe defendants on their claims for negligent construction, breach of implied warranty, breach of contract, and equitable indemnity.

On September 23, 2005, CAP II filed a Certificate of Cancellation in Delaware, the final step in winding up its affairs. RCALP filed a Certificate of Cancellation on May 23, 2007. At the time of such filings, neither defendant was aware of plaintiffs' lawsuit or the alleged mold problems.

On September 25, 2008, defendants specially appeared and moved to quash service and to dismiss the complaint as to them. They argued they can no longer be sued as legal entities and the trial court lacks personal jurisdiction over them.

Plaintiffs opposed the motion, arguing defendants had sufficient minimum contacts to support personal jurisdiction. Plaintiffs further argued that, despite dissolution of defendants, plaintiffs may recover from defendants' partners, at least to the extent of distributions they received upon dissolution. Plaintiffs also requested leave to amend the complaint.

The trial court granted the motion to quash and to dismiss. The court concluded plaintiffs must first proceed against defendants in the Delaware Court of Chancery to set aside the dissolutions. The court also concluded defendants lacked sufficient minimum contacts to allow the exercise of personal jurisdiction over them. Finally, the court denied plaintiffs' request for leave to amend.

Discussion

I-II ^**

IIIPersonal Jurisdiction

Plaintiffs contend the trial court erred in concluding it lacks personal jurisdiction over defendants. They argue defendants had sufficient contacts with the State of California to warrant the exercise of jurisdiction by virtue of their investment in a limited partnership whose sole business was to own and operate an apartment complex in this state. According to plaintiffs,defendants chose to invest in this state, became 99 percent owners of a California-based entity, financed their purchase using California public bonds, maintained their investment in the state for 15 years, enjoyed depreciation deductions on the California property, and received income from the operation and sale of the California real estate.

California courts may exercise personal jurisdiction "on any basis not inconsistent with the Constitution of this state or of the United States." (Code Civ. Proc., § 410.10.) "The Due Process Clause [of the United States Constitution] protects an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful 'contacts, ties, or relations.' ( International Shoe Co. v. Washington [ (1945) 326 U.S. 310, 319, 66 S.Ct. 154, 90 L.Ed. 95, 104 ( Internat. Shoe ) ].) By requiring that individuals have 'fair warning that a particular activity may subject [them] to the jurisdiction of a foreign sovereign,' Shaffer v. Heitner, 433 U.S. 186, 218 [97 S.Ct. 2569, 53 L.Ed.2d 683] (1977) (STEVENS, J., concurring in judgment), the Due Process Clause 'gives a degree of predictability to the legal system that allows potential defendants to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit [citation].' " ( Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 471-472, 105 S.Ct. 2174, 85 L.Ed.2d 528, 540 ( Burger King ).)

The exercise of personal jurisdiction over a nonresident defendant comports with constitutional limitations " 'if the defendant has such minimum contacts with the state that the assertion of jurisdiction does not violate " 'traditional notions of fair play and substantial justice.' " ' ( Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, 58 Cal.Rptr.2d 899, 926 P.2d 1085 ( Vons ), quoting Internat. Shoe[ , supra, 326 U.S. at p. 316, 66 S.Ct. 154, 90 L.Ed. at p. 102].)

"Under the minimum contacts test, 'an essential criterion in all cases is whether the "quality and nature" of the defendant's activity is such that it is "reasonable" and "fair" to require him to conduct his defense in that State.' ( Kulko v. California Superior Court (1978) 436 U.S. 84, 92 [98 S.Ct. 1690, 56 L.Ed.2d 132], quoting Internat. Shoe, supra, 326 U.S. at pp. 316-317, 319 .) '[T]he "minimum contacts" test ... is not susceptible of mechanical application; rather, the facts of each case must be weighed to determine whether the requisite "affiliating circumstances" are present.' ( Kulko, at p. 92 , quoting Hanson v. Denckla (1958) 357 U.S. 235, 246 [78 S.Ct. 1228, 2 L.Ed.2d 1283] ( Hanson ).) '[T]his determination is one in which few answers will be written "in black and white. The greys are dominant and even among them the shades are innumerable." ' ( Kulko, at p. 92 , quoting Estin v. Estin (1948) 334 U.S. 541, 545 [68 S.Ct. 1213, 92 L.Ed. 1561].)" ( Pavlovich v. Superior Court, supra, 29 Cal.4th at pp. 268-269, 127 Cal.Rptr.2d 329, 58 P.3d 2.)

"Personal jurisdiction may be either general or specific." ( Vons, supra, 14 Cal.4th at p. 445, 58 Cal.Rptr.2d 899, 926 P.2d 1085.) "General jurisdiction exists when a defendant is domiciled in the forum state or his activities there are substantial, continuous, and systematic." ( F. Hoffman-La Roche, Ltd. v. Superior Court (2005) 130 Cal.App.4th 782, 796, 30 Cal.Rptr.3d 407.) In the absence of general jurisdiction, a court may exercise specific jurisdiction over a nonresident defendant where "(1) 't...