MARGARET M. MORROW, District Judge.
On June 29, 2010, Randy Ackerman, Jeffrey Dickerson, James Fritcher, Sara Gordon, John Greer, Daniel Haug, Jefferson Hill, Claire Janssen, Don Little, Jr., Paul
Plaintiffs are former employees of Opus West, a real estate development corporation headquartered in Phoenix, Arizona.
Plaintiffs' claims concern a series of multimillion dollar cash and asset transfers that Opus West made to its parent corporation, Opus Corporation ("Opus Corp."). Plaintiffs contend that Opus West began transferring funds to Opus Corp. on December 21, 2006, and that the transfers continued over the next several years.
Plaintiffs assert that the transfers continued until July 6, 2009, when Opus West filed a Chapter 11 bankruptcy petition.
From 2005 through March 31, 2009, plaintiffs had written incentive compensation agreements with Opus West, which they allege were drafted and approved by defendants.
In 2004, defendants selected KMPG, LLC as Opus West's auditor.
In 2008, KMPG notified defendants that some of Opus West's quarterly financial statements were also erroneous. It advised that defendants had recorded the sale of the Shoppes at Chino Hills, a retail project located in Chino Hills, California, incorrectly.
Defendants requested and obtained an extension of their loan covenants in 2006, but "intentionally forgot" to tell Opus West's lenders and creditors that the company's financial statements were inaccurate.
Plaintiffs assert that if Opus West's financial statements had been properly recorded in accordance with GAAP and Financial Accounting Standards Board ("FASB") standards, it would have been out of compliance with the loan covenants in each of years 2005 through 2008.
Plaintiffs allege that defendants knew that their conduct was "wrong, unethical and plainly illegal" at all times, and that it could result in "substantial" civil and criminal penalties.
Plaintiffs contend, on information and belief, that on April 7, 2010, defendants' counsel admitted to a Wall Street Journal reporter that from 2005 until the time of the bankruptcy filing, Opus West transferred $150 million to Opus Corp.; the attorney purportedly said that of this amount, $120 million was distributed to the Grandchildren Trust and the Children Trust.
The complaint alleges seven causes of action: (1) intentional interference with contract; (2) inducing breach of contract; (3) violation of California Business & Professions Code § 17200 et seq. (Unfair Competition Law or "UCL"); (4) RICO violations under 18 U.S.C. § 1962(c)-(d) based on predicate acts of bank fraud, mail and wire fraud, and embezzlement; (5) unjust enrichment; (6) violation of ERISA, 29 U.S.C. § 1132 et. seq.; and (7) declaratory relief.
A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. A Rule 12(b)(6) dismissal is proper only where there is either a "lack of a cognizable legal theory," or "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.1988). The court must accept all factual allegations pleaded in the complaint as true, and construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir.1995).
The court need not, however, accept as true unreasonable inferences or legal conclusions cast in the form of factual allegations. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 553-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ("While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the `grounds' of his `entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do"). Thus, a plaintiff's complaint must "contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.' ... A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft
With their motions to dismiss, defendants filed requests asking that the court take judicial notice of documents related to plaintiffs' claims, namely, the deferred compensation plans referenced in the complaint.
The documents defendants seek to have the court consider are deferred compensation plans for Opus West employees. These plans are specifically referenced in the complaint and form the basis of plaintiffs' claims.
"Congress enacted ERISA to `protect... the interests of participants in employee benefit plans and their beneficiaries' by setting out substantive regulatory requirements for employee benefit plans and to `provid[e] for appropriate remedies, sanctions, and ready access to the Federal courts.'" Aetna Health Inc. v. Davila, 542 U.S. 200, 208, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) (quoting 29 U.S.C. § 1001(b)). "There are two strands of ERISA preemption: (1) `express' preemption under ERISA § 514(a), 29 U.S.C. § 1144(a); and (2) preemption due to a `conflict' with ERISA's exclusive remedial scheme set forth in 29 U.S.C. § 1132(a), notwithstanding the lack of express preemption." Paulsen v. CNF Inc., 559 F.3d 1061, 1081 (9th Cir.2009).
ERISA's express preemption provisions "are intended to ensure that employee benefit plan regulation [is] `exclusively a federal concern.'" Davila, 542 U.S. at 208, 124 S.Ct. 2488 (quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981), and citing ERISA § 514, 29 U.S.C. § 1144). Except for state laws regulating insurance, banking, or securities, ERISA "supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). "State laws" include "all laws, decisions, rules, regulations, or other State action having the effect of law...." Id., § 1144(c)(1).
ERISA conflict preemption is based on Section 502(a) of ERISA, codified at 29 U.S.C. § 1132(a). That statute prescribes "a comprehensive civil enforcement scheme that represents a careful balancing of the need for prompt and fair claims settlement procedures against the public interest in encouraging the formation of employee benefit plans." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987). "A state cause of action that would fall within the scope of
Plaintiffs' deferred compensation plans are allegedly "top hat" plans subject to ERISA.
Plaintiffs plead five state law causes of action: (1) intentional interference with contract; (2) inducing breach of contract; (3) violations of California's UCL; (4) unjust enrichment; and (5) declaratory relief. Defendants assert that both strands of ERISA preemption apply to these claims "to the extent ... [plaintiffs] seek to recover benefits allegedly due under the top hat plans...." They concede that the claims are not preempted by ERISA to the extent they seek compensation under the benefit programs.
Plaintiffs first argue that since Rule 12(b)(6) tests the legal sufficiency of "claims," a motion that seeks to dismiss only part of a claim is defective. Other courts confronted with claims that are only partially preempted have dismissed the claims to the extent they seek compensation under ERISA-covered plans, but permitted them to proceed as to non-ERISA plans. See In re SmithKline Beecham Clinical Laboratories, Inc. Laboratory Test Billing Practices Litig., 108 F.Supp.2d 84, 111 n. 64 (D.Conn.1999) (having dismissed portions of claims as preempted by ERISA, the court stated:
The lone authority plaintiffs cite in support of their procedural argument is Thompson v. Paul, 657 F.Supp.2d 1113 (D.Ariz.2009). Thompson, however, is clearly inapposite. The court there stated that a Rule 12(b)(6) motion to dismiss could not "be used to strike certain allegations in support of a claim, where the underlying claim itself is not challenged." Id. at 1129. It was reviewing a case that had been remanded after the Ninth Circuit had reversed the dismissal of a claim and directed that plaintiffs be given leave to amend. Id. Plaintiffs included two additional factual allegations in their first amended complaint; defendants challenged these under Rule 12(b)(6). Id. The district court found that Rule 12(b)(6) was not an appropriate vehicle to employ in seeking to have the allegations struck, and construed defendants' motion as a motion to strike under Rule 12(f). Id.
Here, defendants challenge the legal sufficiency of plaintiffs' allegations to the extent they are based on ERISA-covered compensation plans; they do not suggest that any of the allegations are "redundant, immaterial, impertinent, or scandalous matter." FED.R.CIV.PROC. 12(f). As plaintiffs' argument is not supported by case law and is contrary to district court decisions examining the issue, the court concludes that plaintiffs' state law claims seeking compensation under ERISA-covered plans are separable from their claims seeking compensation under non-covered plans.
Plaintiffs further argue that their unjust enrichment and unfair competition claims withstand ERISA preemption because they are based on a "trust fund" theory, which "views corporate assets as held in trust for the benefit of the corporation's creditors."
Plaintiffs' assertion that their unjust enrichment claim arises under federal law is equally unpersuasive. In Lea v. Republic Airlines, Inc., 903 F.2d 624 (9th Cir.1990), the Ninth Circuit considered an argument that it had permitted "state-law claims [to be] recharacterized as federal claims if federal law `provides both a superseding remedy replacing the state law cause of action and preempts that state law cause of action,'" that the Supreme Court had "authorize[d] the federal courts to develop a `federal common law of rights and obligations under ERISA-regulated plans,'" and that therefore, the Supreme Court had "intended to authorize a `federal common law for ERISA' by permitting ordinary common law claims." Id. at 632. In a later case, the court explained that "the Supreme Court's approval of the development of a federal common law under ERISA does not authorize the creation of federal common law causes of action." Pacificare Inc. v. Martin, 34 F.3d 834, 836 (9th Cir.1994). Because a claim for unjust enrichment does not invoke one of the "specific remedies" that ERISA provides, it is not cognizable under federal common law. Id. ("Since Pacificare's federal common law cause of action for reimbursement, based on [unjust enrichment under] Provident Life [and Accident Ins. Co. v. Waller, 906 F.2d 985 (4th Cir.), cert. denied, 498 U.S. 982, 111 S.Ct. 512, 112 L.Ed.2d 524 (1990),] does not invoke one of the specific remedies listed in section 1132, Pacificare has failed to state a cause of action permissible under ERISA"); Board of Trustees for the Laborers Health and Welfare Trust Fund for Northern California v. Hill, No. C 07-05849 CW, 2008 WL
Plaintiffs, moreover, fail to identify the source of the court's power to fashion the federal common law cause of action they posit, instead citing two Illinois district court cases that concern a federal court's equitable power to impose a constructive trust under ERISA, and the fact that a fraudulent conveyance claim is not preempted by ERISA. See Central States, Southeast and Southwest Areas Pension Fund v. LaCasse, 254 F.Supp.2d 1069, 1072 (N.D.Ill.2003) ("Whether it is viewed as a state or a federal common law claim, then, the plaintiffs' fraudulent conveyance claim is not preempted by ERISA"); Central States, Southeast and Southwest Areas Pension Fund v. Minneapolis Van & Warehouse Co., 764 F.Supp. 1289, 1295-96 (N.D.Ill.1991) ("This Court accordingly exercises its equitable powers under ERISA to impose a constructive trust on the distributed assets (or on the sale price of any assets distributed and then sold) for the benefit of Pension Fund" (citations omitted)). As the LaCasse court noted, the reason that state law fraudulent conveyance claims are not preempted is that "ERISA provides no mechanism for the enforcement of judgments, [and thus] `state-law methods for collecting money judgments must, as a general matter, remain undisturbed by ERISA.'" LaCasse, 254 F.Supp.2d at 1071 (quoting Mackey v. Lanier Collection Agency, & Service, Inc., 486 U.S. 825, 843, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988)). Plaintiffs' unfair competition claim alleges that the transfers were wrongful. They must first prove this before they can pursue any collection mechanism, be it an action alleging fraudulent conveyance or imposition of a constructive trust. Additionally, the transfer itself is the unfair or unlawful act on which the claim is premised; contrary to plaintiffs' assertion, the claim is not premised on a theory that the monies that were transferred are being held in trust for creditors of the corporation. As respects Minneapolis Van & Warehouse Co., the corporate entity that owed withdrawal liability to an ERISA fund in that case had been dissolved and its assets distributed to the shareholders. See Minneapolis Van & Warehouse Co., 764 F.Supp. at 1294. Here, the entity that allegedly owes compensation under the plans to plaintiffs, although in bankruptcy proceedings, remains in existence. Consequently, the court concludes that the decisions are not apposite, and provide no support for the proposition that either plaintiffs' state law unfair competition or unjust enrichment claim arises, even in part, under federal common law. Consequently, plaintiffs' effort to avoid ERISA preemption fails. See Board of Trustees, Sheet Metal Workers' Nat. Pension Fund v. Illinois Range, Inc., 71 F.Supp.2d 864, 869 (N.D.Ill.1999) (rejecting a claim that plaintiff could pursue a federal common law unjust enrichment claim to recover assets transferred by an employer to its sole shareholder, which in turn transferred the monies to its individual owners, where the transfers rendered the employer unable to pay its withdrawal liability to the pension fund, because such a claim was not necessary to fill a gap in ERISA). See generally Pacificare Inc. v. Martin, 34 F.3d 834 (9th Cir.1994) ("In Lea v. Republic Airlines, Inc., 903 F.2d 624, 632 (9th Cir.1990), we rejected the argument that `the Supreme Court intended to authorize a federal common law for ERISA by permitting ordinary common
The court thus turns to the merits of defendants' claim that ERISA preempts plaintiffs' state law causes of action. As noted, any state law claim that "would fall within the scope of [ERISA's] scheme of remedies is preempted as conflicting with the intended exclusivity of the ERISA remedial scheme." Paulsen, 559 F.3d at 1084. ERISA's exclusive enforcement provision "outlines a participant's possible claims, which include' (1) an action to recover benefits due under the plan, ERISA § 502(a)(1)(B); (2) an action for breach of fiduciary duties, ERISA § 502(a)(2); and (3) a suit to enjoin violations of ERISA or the Plan, or to obtain other equitable relief.'" Id. (quoting Bast v. Prudential Ins. Co. of Am., 150 F.3d 1003, 1008 (9th Cir.1998)). As the Supreme Court has explained,
See also Davila, 542 U.S. at 209, 124 S.Ct. 2488 ("[A]ny state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted"). Consequently, if an employee's claim can be characterized as a claim "to recover benefits due ... under the terms of the plan" as allowed by ERISA § 502(a)(t)(B)), "the claim [is] likely... conflict preempted because ERISA would provide both a cause of action and an enforcement remedy." Paulsen, 559 F.3d at 1084; Cleghorn, 408 F.3d at 1226 (holding that claims were preempted where "the factual basis of the complaint... was the denial of reimbursement of plan benefits"); see also id. at 1225 (characterizing ERISA's preemptive force as "powerful").
ERISA's preemptive scope extends to all of plaintiffs' state law claims, since all unequivocally seek the return of benefits plaintiffs claim are due under the plans. Plaintiffs' UCL claim, for example, seeks "the return of the deferred compensation and pension funds that were fraudulently transferred from Opus West to Defendant Opus and to Defendant Grandchildren
A closer examination of plaintiffs' intentional interference with contract and inducing breach of contract claims (Counts I and II) further supports this analysis. Although they did not raise this argument in their briefs, plaintiffs asserted at oral argument that while the recovery they seek on these claims is coterminous with the benefits they are due under the plans, in actuality they seek damages stemming from defendants' interference with and inducement of the breach of the ERISA benefits contracts.
While plaintiffs' argument is not without merit, it is ultimately unpersuasive. Plaintiffs cite Paulsen as support for their position. There, the Ninth Circuit considered a negligence action against an actuarial service provider that, in connection with the spin-off of a portion of a corporation and defined benefit plan to a new company, valued the benefits liabilities being transferred and the assets being transferred to cover the liabilities. 559 F.3d at 1065. In holding that this claim survived conflict preemption, the Ninth Circuit observed that the negligence claim "did not seek damages based on a breach of fiduciary duty and [did] not seek to enjoin [defendant] in any way...." It continued: "[T]he Employees are not suing for benefits based on plan language — they are suing for state law negligence damages." Id.
Here, plaintiffs arguably allege claims similar to those in Paulsen in that they contend defendants violated general state law duties not to interfere with, or induce the breach of, valid enforceable contracts. The relief they seek on the claims, however, is couched almost entirely in terms of recovering benefits allegedly owed under the benefit plans. The complaint requests that any funds transfers from Opus West to defendants "be set aside and declared void as to the Plaintiffs herein to the extent necessary to satisfy Plaintiffs' claims" under the benefit plans. Additionally, it seeks, inter alia, attachment of the property in which plaintiffs allegedly have an interest, a restraining order preventing defendants from transferring, selling, or otherwise disposing of the property, an order "declaring that [defendants] hold the property... in trust for Plaintiffs," and an accounting of all profits and proceeds earned from the property.
Consequently, all of plaintiffs' state law causes of action are preempted to the extent they seek to recover compensation owed under the top hat plans. See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 375, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002) (recognizing that ERISA's preemption regime is driven by the "overpowering federal policy" in favor of federal regulation).
Defendants also move to dismiss plaintiffs' RICO claims, which are brought under 18 U.S.C. § 1962(c)-(d). § 1962(c) states that
§ 1962(d) punishes a party's conspiracy to violate any of other subsections of the statute, including § 1962(c). See United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981) ("In order to [prevail] under RICO, [a party] must prove both the existence of an `enterprise' and the connected `pattern of racketeering activity.' The enterprise is an entity.... The pattern of racketeering activity is, on the other hand, a series of criminal acts as defined by the statute"); Forsyth v. Humana, Inc., 114 F.3d 1467, 1481 (9th Cir.1997) (plaintiff must allege "(1) the conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering activity"). Racketeering activity is any act indictable under the provisions of 18 U.S.C. § 1961. Forsyth, 114 F.3d at 1481. Section 1961(1) contains an exhaustive list of violations that can be used as "predicate acts" forming the basis for a RICO violation under § 1962. A "pattern" requires the commission of at least two acts of "racketeering activity" within a ten-year period. 18 U.S.C. § 1961(5). An "enterprise" includes "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4).
In addition to these elements, a plaintiff must plead that defendants' violation was both the "but for" and proximate cause of a concrete financial injury. Resolution Trust Corp. v. Keating, 186 F.3d 1110, 1117 (9th Cir.1999); Forsyth, 114 F.3d at 1481 (citing Imagineering, Inc. v. Kiewit Pacific Co., 976 F.2d 1303, 1311 (9th Cir.1992), cert. denied, 507 U.S. 1004, 113 S.Ct. 1644, 123 L.Ed.2d 266 (1993)).
The complaint alleges that defendants violated RICO through "bank fraud, mail and wire fraud and embezzlement."
Rule 9(b) requires that a plaintiff allege the time, place, and manner of each predicate act, the nature of the scheme involved, and the role of each defendant in the scheme. Lancaster Community Hospital,
Rule 9(b) requires that the facts constituting the fraud be pled with specificity. Conclusory allegations are insufficient. FED.R.CIV.PROC. 9(b); Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir.1989) ("A pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can prepare an adequate answer to the allegations. While statements of the time, place and nature of the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud are insufficient"). See also Walling v. Beverly Enters., 476 F.2d 393, 397 (9th Cir.1973) (concluding that allegations stating the time, place, and nature of allegedly fraudulent activities meet Rule 9(b)'s particularity requirement).
Rule 9(b) "does not require nor make legitimate the pleading of detailed evidentiary matter," however. All that is necessary is "identification of the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations." Walling, 476 F.2d at 397 (alleging in conclusory fashion that defendant's conduct was fraudulent was not sufficient under Rule 9(b)). See also Miscellaneous Serv. Workers Local # 427 v. Philco-Ford Corp., 661 F.2d 776, 782 (9th Cir.1981) (holding that Rule 9(b) requires a pleader to set forth the "time, place and specific content of the false representations as well as the identities of the parties to the misrepresentation").
Defendants contend that plaintiffs lack standing to sue under RICO because (1) they did not suffer a concrete financial loss to their business or property, and (2) because they cannot establish that defendants' alleged misconduct proximately caused their injuries.
"Financial losses, in and of themselves, are insufficient to confer standing under RICO." Living Designs, Inc. v. E.I. Dupont de Nemours and Co., 431 F.3d 353, 364 (9th Cir.2005). "RICO does not provide a cause of action for all types of injury to property interests, but only for injuries resulting in `concrete financial loss.'" Diaz v. Gates, 420 F.3d 897, 898 (9th Cir. 2005) (en banc) (quoting Oscar v. University Students Co-operative Ass'n, 965 F.2d 783, 785 (9th Cir.1992) (en banc)). "Without a harm to a specific business or property interest — a categorical inquiry typically determined by reference to state law — there is no injury to business or property within the meaning of RICO." Diaz, 420 F.3d at 900.
Defendants contend that because the benefit plans in question were unfunded, plaintiffs' interest in them "was a mere expectancy interest, not a guaranteed, concrete sum."
Examining whether plaintiffs suffered "concrete financial injury" begins with the principle enunciated in Diaz that RICO standing must be based on "a harm to a specific business or property interest." 420 F.3d at 900. By agreeing to receive deferred compensation through Opus West's top hat plans, plaintiffs made their right to receive the compensation dependent on the company's ongoing success. The parties agree that the top hat plans provide only for the payment of deferred compensation only from the company's
As a consequence, courts in other contexts have held that such an interest is insufficient to confer standing. Cf. United States v. Reckmeyer, 836 F.2d 200, 205 (4th Cir.1987) (stating in a forfeiture action, that "[u]nlike secured creditors, general creditors cannot point to any one specific asset and claim that they are entitled to payment of the value of that specific asset. General creditors instead enjoy a legal interest in the entire estate of the debtor," and concluding as a result that the creditors lacked standing to challenge the forfeiture of a defendant's assets); United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 772 F.Supp.2d 191, 199 (D.D.C.2011) ("While a variety of types of property interests in defendant assets thus may confer standing upon a claimant, `[t]he federal courts have consistently held that unsecured creditors do not have standing to challenge the civil forfeiture of their debtors' property,'" quoting United States v. One-Sixth Share, 326 F.3d 36, 41 (1st Cir.2003) (citing in turn United States v. $20,193.39, 16 F.3d 344, 346 (9th Cir.1994))); United States v. Jaynes, No. 5:06-CR-54-BR, 2009 WL 129969, *3 (W.D.N.C. Jan. 20, 2009) ("An unsecured creditor normally can only show that its interest lies in the debtor's estate, rather than in the specific property covered by the forfeiture order"); United States v. BCCI Holdings (Luxembourg), S.A., No. CRIM. 91-0655(JHG), 1994 WL 914459, *3 (D.D.C. Oct. 28, 1994) (noting, in discussing standing under the penalty provisions of the criminal RICO statute, 18 U.S.C. §§ 1963(1)-(2), that "[a]s recognized
This conclusion is reinforced when one considers that if an unsecured, inchoate interest in the "entire estate" of a debtor conferred RICO standing, the court would be placed in the position of determining what property of the debtor plaintiffs are entitled to recover. In their Prayer for Relief, plaintiffs seek "all monies converted by the Defendants with interest thereon," as well as an injunction preventing defendants from transferring, conveying, or otherwise disposing of "any of the property embezzled."
In Chaset, the Ninth Circuit held that a "mere expectancy interest" was insufficient to confer RICO standing. 300 F.3d at 1087. Chaset addressed whether purchasers of trading cards had suffered a RICO injury because they allegedly purchased packs of trading cards with the hope that the packs would contain more valuable "insert" cards in addition to the "base" cards that typically were included in each pack. Id. at 1085-86. The trading card packs usually stated the odds that a particular insert card would be included in the pack, and also typically contained disclaimers that insert cards were not guaranteed with each pack. Id. The Ninth Circuit followed the Fifth Circuit and a New York district court in holding that plaintiffs had failed to state a RICO injury. It said:
Although plaintiffs' claim is different, there is one striking parallel between this case and Chaset. There, the outcome was driven by the fact that, in purchasing a set of trading cards, plaintiffs gambled that when they opened their pack, it would contain the cards they desired. The fact that the pack might not include such a card, and that they would be disappointed, was a feature of the bargain they struck.
To show that they have standing, plaintiffs cite their allegation that their deferred compensation has variously been categorized as "vested" or "unvested," as well as their allegation that defendants took "money, funds and credits" owed to plaintiffs in violation of ERISA.
Plaintiffs also cite Mendoza for the proposition that "employment-related claims may be the basis for a RICO claim."
For all of the reasons stated, the court concludes that plaintiffs have failed to allege the existence of an injury to their "business or property" sufficient to confer RICO standing.
Defendants also contend that plaintiffs have not adequately alleged the causation element of RICO injury. The Supreme Court has held that a showing of mere but-for causation will not support recovery under § 1964(c); a plaintiff must demonstrate proximate causation as well. Mendoza, 301 F.3d at 1168 ("The key task is to determine whether this injury was `by reason of the growers' alleged violations, a requirement the Supreme Court has interpreted to encompass proximate as well as factual causation"); see Holmes, 503 U.S. at 265-66, 112 S.Ct. 1311 (the RICO statute "can, of course, be read to mean that a plaintiff is injured `by reason of a RICO violation, and therefore may recover, simply on showing that the defendant violated § 1962, the plaintiff was injured, and the defendant's violation was a `but for' cause of plaintiff's injury. This construction is hardly compelled, however, and the very unlikelihood that Congress meant to allow all factually injured plaintiffs to recover persuades us that RICO should not get such an expansive reading" (citation and footnotes omitted)). See also Imagineering, Inc. v. Kiewit Pacific Co., 976 F.2d 1303, 1311 (9th Cir.1992) ("In order to maintain a cause of action under RICO then, the plaintiff must show not only that the defendant's violation was a `but for' cause of his injury, but that it was the proximate cause as well" (citation omitted)), cert. denied, 507 U.S. 1004, 113 S.Ct. 1644, 123 L.Ed.2d 266 (1993); accord Chaset, 300 F.3d at 1086-87; Oki Semiconductor Co. v. Wells Fargo Bank, Nat'l Ass'n, 298 F.3d 768, 773 (9th Cir.2002); Resolution Trust Corp. v. Keating, 186 F.3d 1110, 1117 (9th Cir.1999).
A proximate cause of injury is "`a substantial factor in the sequence of responsible
In deciding whether a plaintiff has adequately alleged proximate causation, the court focuses on "three nonexhaustive factors ... [which determine] whether the injury is `too remote' to allow recovery: (1) whether there are more direct victims of the alleged wrongful conduct who can be counted on to vindicate the law as private attorneys general; (2) whether it will be difficult to ascertain the amount of the plaintiffs' damages attributable to defendant's wrongful conduct; and (3) whether the courts will have to adopt complicated rules apportioning damages to obviate the risk of multiple recoveries." Mendoza, 301 F.3d at 1169 (citing Ass'n. of Wash. Pub. Hosp. Dists. v. Philip Morris Inc., 241 F.3d 696, 701 (9th Cir.2001)).
Analyzing these factors, the Supreme Court has held that a plaintiff cannot recover under RICO for injuries caused to a third party. See Holmes, 503 U.S. at 268-69, 112 S.Ct. 1311 ("[A] plaintiff who complained of harm flowing merely from the misfortunes visited upon a third person by the defendant's acts was generally said to stand at too remote a distance to recover" (citations omitted)). The Ninth Circuit has applied this principle in several cases. See, e.g., Oki Semiconductor, 298 F.3d at 774 (holding that theft victims were not directly injured by a money launderer's subsequent activities because "[o]nly after the theft occurred and the semiconductors
Consequently, to state a RICO claim, plaintiffs must plead a direct causal connection between their alleged injuries and defendants' racketeering conduct. Plaintiffs here base their RICO claim on three predicate acts: (1) bank fraud; (2) mail/ wire fraud; and (3) embezzlement. The proximate cause analysis for the bank fraud allegations differs from that for the mail/wire fraud and embezzlement allegations.
Defendants first contend that plaintiffs lack standing to assert a RICO claim based on the bank fraud statutes, 18 U.S.C. §§ 1014 and 1344.
This does not end the inquiry, however. Here, there are more direct victims than plaintiffs who can "be counted on to vindicate the law as private attorneys general." Mendoza, 301 F.3d at 1169; see also id. at 1169-70 ("[P]otential plaintiffs who have suffered `passed-on' injury — that is, injury derived from a third party's direct injury — lack statutory standing"). Those more direct victims would be the banks who were the targets of the alleged fraud, and who have a substantial stake in recovering any financial losses they incurred, especially if plaintiffs' allegation that defendants' conduct "[left] the Banks holding millions in unpaid loans" is true.
Plaintiffs' bank fraud allegations also fail adequately to plead causation due to the uncertainty inherent in determining damages attributable to the wrongful conduct. Mendoza, 301 F.3d at 1169. Plaintiffs contend that defendants' alleged bank fraud permitted Opus West to appear to be complying with its loan covenants, and thus to
These allegations do not plead a direct chain of causation between the allegedly illegal conduct (deceiving banks) and plaintiffs' alleged injury (the deprivation of their benefits). To conclude that the injury was proximately caused by the bank fraud, the court would have to pile inference on inference. Beyond general allegations that the banks would have forced Opus Corp. to inject capital into Opus West, the complaint does not state what actions the financial institutions would have taken had they known of the fraud, or how those actions would have prevented Opus West from experiencing the financial difficulties that led to its bankruptcy. Because of these gaps, the complaint does not adequately plead that plaintiffs' purported injury was proximately caused by defendants' alleged bank fraud. Consequently, as two substantial factors in the Holmes/Mendoza analysis weigh against a finding that causation is properly pled, the court concludes that plaintiffs lack statutory standing to assert RICO claims based on defendants' alleged bank fraud.
While plaintiffs' allegations regarding the causal link between their injury and defendants' mail/wire fraud and embezzlement are more plausible, they too suffer from a fatal ambiguity. As noted above, the individuals best situated to assert a RICO claim are "the immediate victims of an alleged RICO violation" who "can be expected to vindicate the laws by pursuing their own claims." Anza, 547 U.S. at 460, 126 S.Ct. 1991; Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969, 981 (9th Cir.2008) ("Where the violation is not itself the immediate cause of the plaintiff's injury, proximate cause may be lacking"). Plaintiffs' causation allegations would be significantly strengthened if they could assert that defendants fraudulently transferred money to which they had a specific right. As their compensation was unfunded and was to be paid from Opus West's general assets, however, they cannot
Without allegations that specific funds to which they had a right were transferred, what remains are allegations that defendants' conduct contributed to Opus West's collapse, which in turn resulted in the deprivation of plaintiffs' benefits.
As a result, their injuries are necessarily predicated on injury to the corporation, which is the more direct victim of the defendants' conduct. As defendants correctly note, Opus West's estate has assumed responsibility for pursuing the claims of unsecured creditors, meaning that a vehicle already exists to vindicate plaintiffs' rights. See Hamid v. Price Waterhouse, 51 F.3d 1411, 1420 (9th Cir.1995) ("When a creditor suffers injury that is `independent of the firm's fate,' his injury is direct and he may pursue his own remedy; otherwise the injury is derivative and the creditor must take his `place in line' as a creditor in the bankruptcy action"); see also In re Sunrise Sec. Litig., 916 F.2d 874, 887 (3d Cir.1990) ("[P]ermitting depositors to bring individual actions for such injuries [ ] would invariably impair the rights of other general creditors and claimants with superior interests"); Dana Molded Products, Inc. v. Brodner, 58 B.R. 576, 580 (N.D.Ill.1986) ("The court's holding accords with many cases holding at common law that creditors may not maintain an action against corporate fiduciaries where the creditor is harmed only indirectly, and has sustained an injury in common with other creditor's").
In addition, as with the bank fraud allegations, ascertaining the amount of damages attributable to defendants' conduct would be difficult. Plaintiffs assert that "the second element is satisfied, because the amount of [their] damages are ascertainable," citing allegations that describe the amounts they were owed under various plans prior to the company's insolvency.
Consequently, applying the Mendoza/Holmes factors, the court concludes that plaintiffs have failed to allege that their injuries were proximately cause by defendants' wrongful conduct.
As a further basis supporting dismissal of plaintiffs' RICO claims, the court notes that their pleading of defendants' "conduct" and "participation" is defective. As defendants correctly observe, plaintiffs use collective pleading to allege RICO "conduct" or "participation," making repeated references to an unspecified "defendant" or "defendants" who committed the various acts in question. This is particularly true of their mail/wire fraud and embezzlement allegations. (See, e.g., FAC, ¶ 95 ("Defendant persons managed, operated and manipulated the enterprise ..."); ¶ 97(1) ("Defendants made a ... loan at 33% interest so OWC could pay its dividends"); ¶ 97(2) ("Defendants have committed Mail and Wire Fraud on at least the six different occasions when they manipulated the books ..."); ¶ 97(3) ("Defendants transferred the funds out of Opus West ...") (emphases added).
Rule 9(b) demands a much greater level of specificity, requiring that plaintiffs plead the "time, place, and manner of each predicate act, the nature of the scheme involved, and the role of each defendant in the scheme." Lancaster Community Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 405 (9th Cir.1991) ("Federal Rule of Civil Procedure 9(b) requires a pleader of fraud to detail with particularity the time, place, and manner of each act of fraud, plus the role of each defendant in each scheme"); Kennedy v. Full Tilt Poker, No. CV 09-07964 MMM (AGRx), 2010 WL 1710006, *4 (C.D.Cal. Apr. 26, 2010) (same). Plaintiffs' vague and unspecified references to "defendants" are not sufficient to place each defendant on notice of the specific allegations being made against them, and does not satisfy Rule 8, much less Rule 9(b). See Kennedy, 2010 WL 1710006 at *4 ("Beyond pleading the legal conclusion that each defendant participates in and controls Full Tilt, plaintiffs offer no factual allegations that suggest direct involvement by any defendant in the alleged enterprise."); Eclectic Properties East, LLC v. Marcus & Millichap Co., 2010 WL 384736, *3 (N.D.Cal. Jan. 29, 2010) ("The complaint does not adequately allege facts showing that each defendant conducted the enterprise through a pattern of racketeering activity, in particular lacking facts for the individual broker defendants who are alleged to have been involved in only one transaction, or a couple of transactions within a relatively short amount of time").
Plaintiffs' only response to defendants' argument on this point is the citation of decades-old Seventh Circuit authority. At least pre-Iqbal/Twombly, that circuit "set forth a liberal interpretation of Rule 9(b)" that may have permitted the type of pleading plaintiffs offer here. Swanson v. Wabash, Inc., 577 F.Supp. 1308, 1321 (N.D.Ill. 1983). Given the contrary authority discussed above, and the strength of Rule 9(b)'s requirements, the court finds plaintiffs' authorities unpersuasive. Consequently, plaintiffs' RICO allegations fail on this basis as well.
As plaintiffs have failed to allege an underlying RICO violation, their conspiracy claim under 18 U.S.C. § 1962(d) fails. Because plaintiffs have not adequately pled a substantive violation under § 1962(c), they cannot allege a conspiracy to violate RICO. See Sanford v. Member-Works, Inc., 625 F.3d 550, 559 (9th Cir. 2010) (holding that plaintiffs "cannot claim that a conspiracy to violate RICO existed if they do not adequately plead a substantive violation of RICO"); Howard v. America Online Inc., 208 F.3d 741, 751 (9th Cir.2000) ("To establish a violation of section 1962(d), Plaintiffs must allege either an agreement that is a substantive violation of RICO or that the defendants agreed to commit, or participated in, a violation of two predicate offenses"); Edmonds, 2009 WL 2949757 at *7 ("Even more fundamentally, however, where a plaintiff fails to establish a claim for a substantive RICO violation ... any claim for conspiracy to commit that violation must necessarily fail as well"). Consequently, that claim too must be dismissed.
Ordinarily a court should grant leave to amend unless it finds that amendment of the claim would be futile. See, e.g., Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051 (9th Cir.2008) ("Dismissal without leave to amend is proper if it is clear that the complaint could not be saved by amendment"); California ex rel. California Department of Toxic Substances Control v. Neville Chemical Co., 358 F.3d 661, 673 (9th Cir.2004) ("[D]enial of leave to amend is appropriate if the amendment would be futile," citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)). See Klamath-Lake Pharmaceutical Ass'n v. Klamath Med. Service Bureau, 701 F.2d 1276, 1293 (9th Cir.1983) ("[F]utile amendments should not be permitted").
The court's general practice is to grant leave to amend liberally, so long as it appears there is a chance that plaintiffs can successfully state a claim upon which relief can be granted. Leave to amend plaintiffs' state law claims is likely to be futile given the court's reasoning and conclusion regarding the comprehensive nature of ERISA preemption. Plaintiffs' RICO allegations are similarly defective in their pleading of injury and causation, and are not likely to be cured by amendment. Futility of amendment can, "by itself, justify the denial of a motion for leave to amend." Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir.1995), cert. denied, 516 U.S. 1051, 116 S.Ct. 718, 133 L.Ed.2d 671 (1996). See also Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir.2003) ("Dismissal with prejudice and without leave to amend is not appropriate unless it is clear ... that the complaint could not be saved by amendment").
Even were the court to conclude that plaintiffs might be able to amend the claims being dismissed, however, other considerations warrant a departure from the liberal policy favoring amendment. This litigation is in its last stages. Discovery is now complete. Defendants have filed a motion for summary judgment, which is on calendar for hearing on November 14, 2011.
Further, "[t]he district court's discretion to deny leave to amend is particularly broad where plaintiff has previously amended the complaint." Cafasso, U.S. ex rel. v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1060 (9th Cir.2011). Plaintiffs sought leave to amend their complaint long after the deadline for the amendment of pleadings had passed to cure earlier defects in their pleadings.
Consequently, the court dismisses plaintiffs' claims with prejudice. See Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1161 (9th Cir.1989) ("Leave need not be granted where the amendment of the complaint would cause the opposing party undue prejudice, is sought in bad faith, constitutes an exercise in futility, or creates undue delay."); Irise v. Axure Software Solutions, Inc., No. CV 08-03601 SJO (JWJx), 2009 WL 3615973, *7 (C.D.Cal. July 30, 2009) ("Allowing Axure the opportunity to inject new claims and defenses into this litigation just two months before trial, would unfairly prejudice iRise, who would be forced at this late hour to consider new lines of legal argument and seek new discovery"); Veliz v. Cintas Corp., No. C 03-1180 RS, 2009 WL 1110414, *1 (N.D.Cal. Apr. 23, 2009) ("The Ninth Circuit has `often affirmed the denial of leave to amend when the motion was made after the cutoff date for such motions, or when discovery had closed or was about to close,'" quoting Amerisource Bergen Corp. v. Dialysist W., Inc., 465 F.3d 946, 957 (9th Cir.2006)).
For the reasons stated, defendants' motion to dismiss plaintiffs' state law claims is granted to the extent they seek to recover benefits owed under the ERISA-covered deferred compensation plans. Defendants' motion to dismiss plaintiffs' RICO claims is also granted. All claims described above are dismissed with prejudice.
While defendants proffered copies of five plans they contend are covered by ERISA — namely, the SAR Plan, the Opus 80/20 Plan for Officers, the Opus Deferred Compensation Plan for Operating Subsidiaries, the Opus West Corporation Incentive Compensation Plan, and the Opus West Corporation Incentive Compensation Plan for John W. Greer — see RJN, Exhs. A-E, neither party submitted copies of benefits plans not covered by ERISA.
Defendants contend the non-ERISA plans are unfunded and that plaintiffs have a mere expectancy interest in them. (Reply at 7-8.) Plaintiffs respond that "the FAC makes clear that [unspecified] plaintiffs are currently owed compensation in addition to `deferred compensation,'" see Opp. at 12 (citing paragraph 34 of the complaint (emphasis added)). That paragraph, however, does not clearly allege such a fact; it merely states the legal conclusion that plaintiffs are "owed" certain monies, lists various amounts due various plaintiffs under different plans, which the complaint acknowledges may be misnamed. (FAC, ¶¶ 34.117.)
At oral argument, counsel for both parties conceded that all benefits owed under the plans, whether or not overed by ERISA, are unfunded plans. The court relies on this concession in conducting its analysis.
The court acknowledges that the Ninth Circuit has previously held a creditor lacked standing to raise RICO claims because she had "not sought an abandonment of the estate's RICO claims, either below or on appeal." Estate of Spirtos v. One San Bernardino County Superior Court Case Numbered SPR 02211, 443 F.3d 1172, 1176 (9th Cir.2006); see also id. ("[A] creditor of the estate who did not receive authorization to sue from the trustee, lacks standing to assert a RICO claim on behalf of the estate."). This holding, however, does not support the converse, i.e., that when a bankruptcy estate disavows its interest in pursuing a RICO claim, an unsecured creditor necessarily has standing to sue under the statute.
