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Burger v. Kuimelis

June 28, 2004


The opinion of the court was delivered by: Walker, District Judge.



The basic facts of this case are simple, although disputed. Counterdefendants were involved in purchasing insurance and insurance brokerage services from counterclaimants on behalf of a number of projects. Counterdefendants claim that they were secretly overcharged. Counterclaimants have a different story, namely that counterdefendants agreed to the extra charges and that counterdefendants used the extra charges to defraud HUD and the project owners.

As noted on a number of occasions, from these simple facts has grown a briar patch of litigation. Recently, the court considered a number of motions related to the fifth amended complaint. In this order, the court considers the motions filed by counterdefendants against the fifth amended counterclaim ("FACC"). FACC (Doc # 229, Exh 1).

Counterclaimants plead the following twelve causes of action in the FACC:

1. Violation of section 1962(c) of the Racketeer Influenced and Corrupt Organizations ("RICO") Act against all counterdefendants.

2. Violation of RICO § 1962(d) for conspiracy to violate RICO § 1962(c) against all counterdefendants.

3. Violation of RICO § 1962(d) for conspiracy to violate RICO § 1962(a) against all counterdefendants.

4. Breach of contract against Eugene Burger Management Corporation, California; Eugene Burger Management Corporation, Nevada; and Eugene Burger Management Corporation, Texas (collectively, "EBMC"), as well as Eugene Burger.

5. Fraud against Burger and EBMC.

6. Unfair trade practices under Cal Bus & Prof Code § 17000 against Burger and EBMC.

7. Unfair competition under Cal Bus & Prof Code § 17200 against Burger and EBMC.

8. Negligence against Burger and EBMC.

9. Declaratory relief and equitable indemnity against all counterdefendants.

10. Implied contractual indemnity against Burger and EBMC.

11. Money had and received against Burger and EBMC.

12. Accounting against all counterdefendants.

Counterdefendants filed three separate motions against the FACC. The first motion is directed to claims one through three and five, the second motion is directed to claims four and six through twelve and the third motion is directed to the FACC as a whole. See Doc.238, 239 & 244. As noted by Kuimelis, counterdefendants' strategy of dividing its arguments in three motions appears to be an attempt to evade the Civil Local Rules.

Under Civ LR 7-2(b), motions are to consist of "one filed document not to exceed 25 pages in length." Counterdefendants filed three separate "motions" within one day of each other instead of "one filed document" as required by the Civil Local Rules. Although none of the documents exceeds twenty-five pages individually, counterdefendants' three motions added together total fifty-eight pages, a sum more than double the allowed page limit. Indeed, counterdefendants grouped their arguments against the first through third and fifth claims in one motion and their arguments against the fourth and sixth through twelfth claims in another motion. This odd grouping suggests the intent to evade the Civil Local Rules.

This type of rule-bending motion practice is unacceptable. The court regularly grants parties' requests to file an over-sized memorandum under Civ LR 7-4 and 7-10. But parties are not permitted unilaterally to impose on the nonmoving parties and the court the burden of sifting through excessively long moving papers. The page limit forces moving parties to focus their discussion on the most important issues. In this case, counterdefendants could have substantially focused their arguments; indeed, counterdefendants were required to withdraw arguments in their reply because counterdefendants had not sufficiently researched the law underlying their arguments before filing their motions.

The court declines, at this time, to refuse to consider counterdefendants' motions or otherwise impose sanctions, but counterdefendants are cautioned not to engage in these types of practices again.




The court first considers counterdefendants' motions directed to the FACC as a whole.

Counterdefendants move the court to dismiss the FACC pursuant to the court's authority under FRCP 11 to dismiss a pleading as " `false and sham.' " See Bradley v. Chiron Corp., 136 F.3d 1317, 1324 (Fed.Cir.1998) (quoting Ellingson v. Burlington Northern, Inc., 653 F.2d 1327, 1329 (9th Cir.1981)); Counterdefendants Mot (Doc # 244). Rule 11 prohibits, inter alia, allegations that are not "likely to have evidentiary support." Examples of cases in which pleadings were dismissed as false and sham include Ellingson and Bradley. In Ellingson, the Ninth Circuit affirmed the dismissal of a pleading because the "[e]ssential allegations of the complaint were false." 653 F.2d at 1329-30. In Bradley, the Federal Circuit affirmed the dismissal of an amended pleading that so contradicted the original pleading it was "a transparent attempt to conform the facts to the requirements of the cause of action." Id. at 1324.

Both parties request judicial notice of a number of documents related to the motion to dismiss a pleading as a sham. See Doc.243, 260. The court may examine evidence outside the pleadings in considering a motion to dismiss a pleading as a sham. Ellingson, 653 F.2d at 1329-30. Accordingly, it appears unnecessary to take judicial notice of the documents; rather, the court may consider the documents as it considers evidence submitted in support of a motion for summary judgment.


Counterdefendants argue that the allegations in the FACC so contradict previous allegations and statements made by Kuimelis that the FACC should be dismissed in its entirety. Counterdefendants cite allegations related to (1) the repayment of a debt and (2) the location at which oral contracts were made.


In the FACC, counterclaimants allege that the parties entered into a service fee agreement beginning in 1991. FACC (Doc # 229, Exh 1) at ¶ 51. The service fees included payment for work performed by Kuimelis "beyond the transacting of insurance," as well as payments on a debt owed by counterdefendants to counterclaimants. Id. In early 1995, having lost track of the amount due under the debt, the parties discontinued service fees as payment on the debt but continued the service fees as payment for extra, non-transactional work. Id at ¶ 59.

On a number of occasions while describing the basis for the alleged service fees, Kuimelis failed to mention that the service fees were used to make payments on a debt. Such occasions include prior complaints and prior testimony in Burger's criminal trial. See, e.g., Cross-complaint (Doc # 240, Exh 1) at ¶ 12; Kuimelis Testimony, Feb 15, 2001, United States v. Burger, CR 99-0439 SI (Doc # 248, Exh 8) at 23:13-22. Additionally, during an interview with the FBI, Kuimelis stated that, in 1994, Kuimelis "agreed to release him [Burger] from the debt because the Burger account was a large account for him." FBI 302 Interview, Michael Kuimelis, Feb 22, 2000 (Doc # 248, Exh 9) at 2.

Counterdefendants contend that Kuimelis' statement to the FBI directly contradicts the allegations in the FACC. The court, however, sees no material difference between the facts alleged in the complaint and the statement made to the FBI. In the FACC, counterclaimants allege:

In or about early 1995, EBMC, by and through Eugene Burger, proposed that rather than resolving the specific question of how much principal and interest remained due on the $322,309 debt owed by EBMC to MBK, the parties agree [sic] that MBK would continue to charge service fees, in addition to insurance premiums, and that a percentage of the service fees would be held by MBK for the benefit of Burger and dispersed to EBMC at Burger's direction.

FACC (Doc # 229, Exh 1) at ¶ 59.

The general statements in the FACC describing the discontinuance of service fees as debt repayments are nearly identical to the general reference in the FBI statement to a "release" from the debt. Nor is the difference between "early 1995" as stated in the FACC and "1994" as stated in the FBI statement material.

Counterdefendants contend, in the alternative, that Kuimelis suggested by negative implication that the service fees included only non-transactional services. In Bradley, the plaintiff alleged in the original complaint that he had not talked with his attorney about an agreement. After the complaint was dismissed without prejudice, the plaintiff alleged that he relied on his attorney's advice in relation to the agreement. The Bradley court, therefore, relied on a direct contradiction between the pleadings in dismissing the complaint as a sham.

In this case, counterdefendants ask the court to conclude, as a matter of law, that Kuimelis implied that the service fees were limited to fees for services beyond the transacting of insurance. The weak inference counterdefendants advance, however, is simply not enough to dismiss a pleading as a sham under FRCP 11.


The court now turns to counterdefendants' second argument in support of the motion to dismiss the FACC as a sham pleading. In the FACC, counterclaimants allege that the oral contracts underlying the service fee arrangement were made in Mill Valley and San Francisco. FACC (Doc # 229, Exh 1) at ¶ 104. In some prior versions of the counterclaim, counterclaimants alleged that the oral contracts were made in Santa Rosa. See, e.g., Cross-Complaint (Doc # 240, Exh 1) at ¶ 37. Counterdefendants argue that these locations are so different in the FACC from previous versions of the counterclaim that the FACC should be dismissed in its entirety.

Counterclaimants concede that the allegations regarding the locations of the oral contracts have been inaccurate. Indeed, counterclaimants request leave to amend to correct the allegations in the FACC. Counterclaimants explain that they mistakenly pled MBK's principal place of business as Santa Rosa at all relevant times. Prior to 1998, however, MBK's principal place of business was Mill Valley. Accordingly, counterclaimants request leave to amend the counterclaim to allege that the oral contracts occurred in Mill Valley and Santa Rosa, the principal places of business of MBK during the relevant time period.

Counterdefendants' contention that this minor difference in location condemns the entire counterclaim as a sham pleading is baseless. This type of pleading error should be avoided, if possible. But it does not demonstrate the absence of evidentiary support necessary to sustain a dismissal under FRCP 11.


Accordingly, counterdefendants' motion to dismiss the FACC as a false and sham pleading (Doc # 244) is DENIED.


Counterdefendants move to dismiss MBK as a counterclaimant because Kuimelis and MBK are not legally separate entities. Counterdefendants Mot (Doc # 239) at 1-2.

Under FRCP 17(b), the capacity of MBK to sue or be sued is determined with reference to California law. In California, a sole proprietorship is not legally separate from its owner. See Providence Washington Ins. Co. v. Valley Forge Ins. Co., 42 Cal.App.4th 1194, 1199-1200, 50 Cal.Rptr.2d 192 (1996); see also Pinkerton's, Inc. v. Superior Ct., 49 Cal.App.4th 1342, 1348, 57 Cal.Rptr.2d 356 (1996) ("Use of a fictitious business name does not create a separate legal entity."). MBK, therefore, lacks the capacity to sue separately from Kuimelis.

Accordingly, the court DISMISSES MBK as a separate counterclaimant in the FACC. This leaves Kuimelis as the sole remaining counterclaimant. If he so chooses, Kuimelis may amend the FACC to indicate in the caption of the complaint that he does business as MBK: "MICHAEL KUIMELIS dba MBK INSURANCE SERVICES."

Kuimelis contends that if the court concludes that Kuimelis and MBK are not legally separate entities, the court should also dismiss MBK as a defendant in the complaint. At this time, the court declines to dismiss MBK as a separate defendant because the legal status of MBK as a defendant is not before the court on the current motions to dismiss the FACC. But the court agrees that the same analysis would apply.


In the FACC, Kuimelis inconsistently identifies this entity by two names, "Friandes Group, Inc" and "Friandes Corporation." See, e.g., FACC (Doc # 229, Exh 1) at ¶¶ 1, 58 & 64 (identified by proper name); id at caption & ¶¶ 10, 27, 31, 120 & 122 (identified by incorrect name). Counterdefendants move for dismissal of any claims brought against "Friandes Corporation, Inc" because the proper business name of this entity is "Friandes Group, Inc." Counterdefendants Mot (Doc # 239) at 2.

Kuimelis requests leave to amend the FACC to plead correctly the name of this entity. Counterdefendants argue that "Kuimelis has now had six opportunities to file a pleading naming Friandes Group, Inc. by its correct name, and this Court is under no obligation to give him a seventh. All claims as to Friandes Group, Inc. should be dismissed." Doc # 279 at 3. The court rejects this overreaching argument. This type of error does not suffice to dismiss all claims against a particular counterdefendant.

Accordingly, the court GRANTS Kuimelis leave to amend to plead the correct name of the Friandes Group.


The court now turns to the motions to dismiss filed against ...

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