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C.B. & D.M. Entertainment, Inc. v. Galardi

November 28, 2007

C.B. & D.M. ENTERTAINMENT, INC.; AND CONVOY, INC., PLAINTIFFS,
v.
MICHAEL GALARDI; MDG, INC., A NEVADA CORPORATION, DBA CHEETAH CLUB; AND DOES 1-100, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge

ORDER GRANTING PREJUDICE DEFENDANTS' MOTION TO DISMISS IN PART WITHOUT

Presently before the Court are Defendants' Motion to Dismiss Plaintiffs' Second Amended Complaint [Doc. No. 50], Plaintiffs' Opposition [Doc. No. 54], and Defendants' Reply [Doc. No. 57.]

For the following reasons this Court DISMISSES without prejudicePlaintiffs' first claim in its entirety and second claim, in part.

BACKGROUND

Plaintiffs and Defendants are both engaged in the night club business. [Pls.' Second Amended Complaint ("SAC") ¶ 13.] Their night clubs offer adult-oriented entertainment, including exotic dance entertainers that perform on and off stage. [Id.] On November 30, 2000, the City of San Diego passed an ordinance prohibiting adult entertainers to touch, or be touched by, patrons ("touching ban"). [Id. ¶ 25.] Plaintiffs allege that Defendants did not follow this touching ban in its clubs and that they bribed policemen to obtain advance information of police inspections.*fn1 [Id. ¶ 31.] Consequently, Plaintiffs contend that Defendants did not suffer the decrease in patronage and lost revenue suffered by Plaintiffs as a result of the touching ban. [Id. ¶ 46.] Therefore, in seeking relief, in part, for lost revenue and lost "economic advantages," Plaintiffs assert claims under the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et. seq., and the California's Unfair Competition Law (California Business & Professions Code § 17200 or "UCL").*fn2 [Id. at 1, ¶¶ 29, 84.] Defendants are now moving to dismiss Plaintiffs' second amended complaint.

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) provides the vehicle by which a defendant may attack a complaint that fails to allege facts sufficient to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). In a Rule 12(b)(6) motion to dismiss, a plaintiff's allegations of material fact are accepted as true and are construed in the light most favorable to plaintiff. Barron v. Reich, 13 F.3d 1370, 1374 (9th Cir. 1994). However, the court need not accept as true allegations that contradict facts which may be judicially noticed by the court. Mullis v. United States Bank. Ct., 828 F.2d 1385 (9th Cir. 1987).

"Dismissal [for failure to state a claim] can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).Although the allegations of a complaint must be taken as true for purposes of a decision on the pleadings, dismissal is proper if the complaint is vague, conclusory, and fails to set forth any material facts in support of the allegation. North Star Int'l v. Arizona Corp. Comm'n, 720 F.2d 578, 583 (9th Cir. 1983). Finally, "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 . . . " Bell Atl. Corp. v. Twombly, __U.S.__, 127 S.Ct. 1955, 1964-65 (2007) (internal citations and quotations omitted).

ANALYSIS

A. Plaintiffs' RICO Claim

The RICO Act prohibits certain conduct involving a "pattern of racketeering activity," and makes a private right of action available to "[a]ny person injured in his business or property by reason of a violation" of RICO's substantive restrictions, provided that the alleged violation was the proximate cause of the injury. Holmes v. Securities Investor Protection Corporation, 503 U.S. 258, 268 (1992).*fn3

Plaintiffs allege that Defendants' bribes, in conjunction with their use of the mail, telephone, and interstate travel, constituted a pattern of racketeering activity under RICO that caused them harm.*fn4 [Pls.' Opp. at 6.] Defendants argue that Plaintiffs' claims should be dismissed due to an absence of causation and this Court agrees. [Defs.' Motion at 1-5.]

1. Background Law

In a related case, Anza v. Ideal Steel Supply Corp., __ U.S. __, 126 S.Ct. 1991 (2006), a corporate plaintiff brought an action against a business competitor for engaging in an unlawful racketeering scheme aimed at gaining sales and market share at its expense. The plaintiff alleged that the defendant's racketeering activity included: (1) failing to charge customers New York sales taxes, and (2) fraudulently concealing that practice from the state by mailing and electronically sending false tax returns. Id. at 1994. The plaintiff asserted that this practice allowed defendant to reduce its prices and attract more customers without affecting its profit margin. Id. The plaintiff stated that this led to its loss of "significant business ...


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