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Yen v. Buchholz

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION


February 7, 2009

YU-SZE YEN, ET AL., PLAINTIFFS,
v.
RONALD BUCHHOLZ, ET AL., DEFENDANTS.

The opinion of the court was delivered by: Ronald M. Whyte United States District Court For the Northern District of California

ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND

[Re Docket Nos. 39, 46, 55, 64 and 65]

Plaintiffs are a group of investors in an allegedly unlawful real estate scheme promoted and 19 sold by Ronald Buchholz ("Buchholz"), Charice Fischer ("Fischer"), and a group of other individuals and corporate entities. Currently before the court are two motions to dismiss; one on behalf of Ronald Buchholz' father William E. Buchholz ("Pastor Buchholz") and Family Community Church (collectively the "Church defendants"), and a second on behalf of defendants Jonathan Vento, Grace Capital, LLC, Donald Zeleznak, Zeleznak Property Management, Z-Loft, LLC, Vento Investments, LLC, and Vento Family Trust (collectively, the "Grace defendants"). For the reasons stated below, the court grants both defendants' motions to dismiss with thirty days leave to amend except as to any punitive damages allegations against the Church defendants. Plaintiffs represented that they are not seeking punitive damages against the Church defendants based upon their complaint.

I. BACKGROUND

Plaintiffs are alleged to have purchased security interests in, or made loans to, various real estate entities owned or controlled by defendants. Plaintiffs claim that misrepresentations were made to them or that material facts were concealed from them.

II. ANALYSIS

A. Church Defendants' Motion to Dismiss

1. Punitive Damages

The Church defendants move to dismiss the punitive damage claims against them because the complaint fails to satisfy the requirements in California Civil Procedure Code § 425.14 for seeking punitive damages from a religious organization. Plaintiffs state in their opposition that they are not seeking punitive damages against the Church defendants. Therefore, any claim for punitive damages against the Church defendants is dismissed as against them.

2. Motion to Dismiss for Failure to State a Claim for Relief

The Church defendants also move to dismiss any claims brought against them for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). The court finds that no claim for relief has been successfully stated and therefore grants the motion. Plaintiffs are given thirty days leave to amend.

B. Grace Defendants' Motion to Dismiss

1. Personal Jurisdiction

The Grace defendants contend that the court does not have personal jurisdiction over them such that the causes of action against them must be dismissed under Rule 12(b)(2). Plaintiffs, in response, contend that the court has jurisdiction over defendants by virtue of nationwide service provisions for both the alleged federal securities fraud and RICO violations. In the alternative, plaintiffs assert that the court has both specific and general jurisdiction over the Grace defendants. Because the court finds that plaintiffs have not adequately alleged a claim upon which relief can be granted, the Securities Exchange Act of 1934 and the RICO statute cannot serve as a basis for jurisdiction. The court also finds that facts alleged are insufficient to establish specific or general jurisdiction over the Grace defendants. However, if plaintiffs can successfully amend, defendants may well be subject to jurisdiction. Nationwide service is available for federal securities violations and under RICO.

2. Failure to State a Claim for Relief

Plaintiffs assert a multitude of federal and state claims against the Grace defendants. However, before reaching the question of whether plaintiffs' complaint is sufficient to state a claim under each of these theories, the court has to understand what it is that plaintiffs claim the Grace defendants did wrong. At oral argument on the motion the plaintiffs referred to the paragraphs in the chart below as showing wrongdoing by the Grace defendants. However, the court finds such allegations deficient, particularly plaintiffs' theories that rely on fraud. See Fed. R. Civ. P. 9(b). The following chart highlights some of the basic deficiencies in plaintiffs' complaint as against the Grace defendants.

Paragraph Cited What Paragraph Alleges Reason Insufficient Against Grace Defendants 1(p) and 1(q) Vento is statutory agent for No allegations as to scope of Gilbert Road Office Investors, agency, what participation LLC and pro forma statements Vento had with respect to pro stated land costs at forma statements, when $1,090,045.00 when they were statements were made, actually $783,470.00. whether Vento knew they were false and who relied on them. Zeleznak received a No allegations showing why $1,000,000 commission on the Zeleznak's receipt of large sale of land to Solomon commission was wrongful and Towers, LLC how Zeleznak participated in any scheme to defraud plaintiffs.

Vento is the statutory agent No allegations as to scope of and a manager for various agency and what Vento and entities in which Buchholz has Zeleznak did that was some interest. In particular wrongful. plaintiffs referred to paragraph (q)(iii) where Zeleznak is a statutory agent and a manager of The Spirit at Spectrum, LLC. 142 Vento was a statutory agent No allegations as to scope of and Zeleznak a manager of agency and what Vento and The Spirit at Spectrum, LLC. Zeleznak did that was wrongful. Phoenix Valley Development, No allegations as to what LLC for which Buchholz was Vento and Zeleznak did that a managing member purchased was knowingly wrongful land from Zeleznak and Vento (selling property for an for $2,202,492 in March 2005, obscene profit is not in itself land for which Zeleznak and unlawful). No specific Vento paid $900,000 in March allegation that Zeleznak or 2004 "the profits and funds Vento diverted funds or profits being diverted by defendants and why funds were "ill gotten to themselves as ill gotten gains." gains." 15(a) Solomon Capital on a private No allegations as to scope of placement memorandum stated duties as managers or what that Zeleznak and Vento Zeleznak or Vento did that would be managers of was wrongful. projects referred to as 44 Monroe and Osborn Commons.

Buchholz purchased land from No allegations as to what Deer Valley, LLC of which Vento and Zeleznak did that Zeleznak and Vento were the was wrongful. only members 105 & 106 No specific allegations No allegations as what regarding Grace defendants--- participation any Grace defendants raised funds defendant had in raising funds through Luxury Development or diverting funds. Fund, LLC for certain projects but funds diverted for use in projects involving OC Investors, LLC 143 OC Investors solicited funds No allegations as to what for Crystal Lake project "of solicitation representations which VENTO were made, who made them, INVESTMENTS, LLC, was why they were false, and who manager and which in turn relied on them. was managed by VENTO."

Because plaintiff's complaint as it now stands fails to state a claim on which relief can be granted against the Grace defendants, the motion to dismiss is granted with thirty days leave to amend.

C. Supplemental Opposition

Rule 7-3(d) permits filing, before the noticed hearing date, of a relevant judicial opinion published after the date the opposition was filed. The rule permits no argument to accompany the filed opinion without prior court approval. The cases plaintiffs offer were published before their opposition was due, and nothing in the reply necessitates a supplemental opposition. The motion to file a supplemental opposition is denied.

III. ORDER

For the foregoing reasons, the court:

1. Grants William Buchholz and Family Community Church's motion to dismiss with thirty days leave to amend except as to punitive damage allegations;

2. Grants the Grace defendants motion to dismiss with thirty days leave to amend;

3. Denies plaintiffs motion to file a supplementary opposition;and

4. Encourages plaintiffs to plead any allegations based upon fraud with particularity and to recognize that particularity does not necessarily require length. For example, the allegations could read:

1. On _____________ date (name of particular Grace defendant) stated (or concealed) that (representation or information concealed);

2. (The representation was false in that _______________) (The information concealed was _______________);

3. The (representation) (information concealed) was material);

4. Plaintiff _______________(justifiably relied on the representation in deciding to invest) (if plaintiff _______________ had known the concealed information, he or she would not have invested); and

5. As a consequence plaintiff suffered damages consisting of _______________.

20090207

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