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Flores v. Emerich & Fike

March 31, 2009

JOE FLORES, AN INDIVIDUAL, AND CONNIE FLORES, AN INDIVIDUAL, PLAINTIFFS,
v.
EMERICH & FIKE, A PROFESSIONAL CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Anthony W. Ishii Chief United States District Judge

ORDER GRANTING MOTION TO DISMISS AND DISMISSING THIRD AMENDED COMPLAINT WITHOUT LEAVE TO AMEND AND WITH PREJUDICE (Documents #370 & #384)

BACKGROUND

On July 21, 2008, Plaintiff Joe Flores and Plaintiff Connie Flores ("Plaintiffs") filed a third amended complaint ("complaint") in this action. The complaint contains five causes of action: (1) Civil violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO") in violation of 18 U.S.C. § 1962(c) based on Defendants' alleged mail fraud and wire fraud concerning amounts owed to Plaintiffs; (2) Civil RICO in violation of 18 U.S.C. § 1962(a) & (b) based on Defendants' capital infusion into Defendant Yosemite technologies, Inc. ("Yosemite"); (3) Laundering of Monetary Instruments in violation of 18 U.S.C. § 1957; (4) Negligence -Breach of Duty to Preserve DDJ, Inc. and DDJ LLC ("DDJ Entities")'s Funds; and (5) Constructive Trust.

On August 7, 2008, Defendants Dennis Hagobian, Victoria Hagobian, Dennis Hagobian Residence Trust, Victoria Hagobian Residence Trust, Rod Christensen, and Yosemite Technologies Inc. ("Hagobian Defendants") filed a motion to dismiss the complaint. Defendant Rod Christensen specially appeared in the motion to dismiss. On August 8, 2008, Defendant Russell Davidson joined the motion to dismiss filed by Hagobian Defendants. On August 13, 2009, Defendants Sandy L. Vartan, Judith Yeramian, the Judith Mary Yeramian Family Trust, and the Lee Yeramian Exempt QTIP Trust ("Yeramian Defendants") joined the motion to dismiss. Defendants contend that Plaintiffs' have not alleged a pattern of racketeering activity sufficient to support a claim under 18 U.S.C. § 1962(c). Defendants contend that Plaintiffs have not alleged a sufficient pattern of criminal activity or the necessary investment of control to support their claim for a violation of 18 U.S.C. §§ 1962(a) & (b). Defendants contend Plaintiffs' negligence theory fails because they had no duty to safeguard DDJ Entities's assets for Plaintiffs' benefit. Hagobian Defendants contend that Plaintiffs' request for a trust pursuant to the Perishable Agricultural Commodities Act (PACA) should be dismissed because this issue has been addressed numerous times.

On September 19, 2008, Plaintiff Joe Flores filed an opposition to the motion to dismiss. On September 19, 2008, Plaintiff Connie Flores joined in the opposition of Plaintiff Joe Flores. Plaintiffs contend that they have alleged sufficient facts concerning the mail and wire frauds about the amounts Plaintiffs were allegedly due to show a pattern of racketeering activity. Plaintiffs contend that the fraudulent communications between Dennis Hagobian and Rod Christiansen, which resulted in the capital infusion of over one million dollars from DDJ Entities' proceeds, are sufficient to state a pattern of racketeering activity through collection of an unlawful debt for the purpose of investing in Defendant Yosemite. Finally, Plaintiffs admit that this court has previously found no PACA trust is available.

On September 19, 2008, Hagobian Defendants filed a reply brief.

LEGAL STANDARD

A complaint may be dismissed under Rule 12(b)(6) of the Federal Rules of Civil Procedure for "failure to state a claim upon which relief can be granted". Fed.R.Civ.Pro. 12(b)(6). A Rule 12(b)(6) dismissal can be based on the failure to allege a cognizable legal theory or the failure to allege sufficient facts under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir.1984). In considering a motion to dismiss, the court must accept as true the allegations of the complaint in question, construe the pleading in the light most favorable to the party opposing the motion, and resolve all doubts in the pleader's favor. Hospital Bldg. Co. v. Rex Hospital Trustees, 425 U.S. 738, 740 (1976); Jenkins v. McKeithen, 395 U.S. 411, 421 (1969); Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. 2003).

For a complaint to avoid dismissal pursuant to Rule 12(b)(6) the complaint need not contain detailed factual allegations; rather, it must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1974 (2007); Weber v. Department of Veterans Affairs, 512 F.3d 1178, 1181 (9th Cir. 2008). However, the complaint's factual allegations "must be enough to raise a right to relief above the speculative level." Twombly, 127 S.Ct. at 1964-65. Federal Rule of Civil Procedure 8(a)(2) requires a "showing" that the plaintiff is entitled to relief, "rather than a blanket assertion" of entitlement to relief. Id. at 1965 n. 3. Thus, a Rule 12(b)(6) motion to dismiss should be granted when a plaintiff fails to nudge his or her claims "across the line from conceivable to plausible." Id. at 1974.

ALLEGED FACTS

The complaint alleges that Plaintiffs owned and operated an apple farm. Plaintiffs sued DDJ Entities in a case entitled Flores v. DDJ, Inc., et al., 1:99-CV-5878 AWI DLB ("Flores I"). On July 25, 2003, the jury returned a special verdict in Plaintiffs' favor for over $750,000.00.

The complaint alleges that Defendants Dennis Hagobian, Victoria Hagobian, Dennis Vartan, Judith Yeramian, Russell Davidson, William Davidson, Michael Hedberg, and W.D. Farming, LLC are the owners, shareholders, directors, and members of DDJ Entities. The complaint alleges that Defendant Rod Christensen is the co-founder and chief technology officer of Defendant Yosemite. The complaint alleges that these Defendants conspired with Defendant Rod Christiansen to actively participate in the pattern of unlawful activities alleged in the complaint. The complaint alleges that Defendant Dennis Hagobian and Dennis Vartan, shortly after the sale of all assets and property belonging to DDJ entities, were fired by DDJ Entities as consultants to find investments for DDJ Entities. The complaint alleges that Defendant Dennis Hagobian and Dennis Vartan, with the blessing of the remaining shareholders and members, found it worthy to invest a capital infusion into Defendant Yosemite by converting proceeds that rightfully belonged to Plaintiffs and other creditors. The complaint alleges that shortly after the conversion of proceeds that belonged to Plaintiffs into Defendant Yosemite, Defendant Dennis Hagobian became the president, chief executive officer, and chief operating officer of Defendant Yosemite.

The complaint alleges that after the judgment was filed in Flores I on March 10, 2004, Plaintiffs made attempts to collect said judgment to no avail. The complaint alleges that shortly after, Plaintiffs learned that DDJ Entities had transferred some of its assets as a capital infusion into Defendant Yosemite, which ultimately dictated Defendant Dennis Hagobian's position as president and chief financial officer of Defendant Yosemite.

The complaint alleges that Defendants participated in a racketeering enterprise as defined in 18 U.S.C. § 1961 by forming a group of individuals associated in fact to create schemes to defraud the public, specifically Plaintiffs.

The complaint alleges that the racketeering enterprise advanced Defendants' wrongful acts and unlawful activities by transferring DDJ Entities' property and using said property for a capital infusion into Defendant Yosemite. The complaint alleges that this transferred property was income that had been derived directly or indirectly from a closed end pattern of criminal acts.

DISCUSSION

A. RICO Violation of 18 U.S.C. § 1962(c)

The first cause of action alleges a civil RICO in violation of 18 U.S.C. § 1962(c) based on Defendants' alleged mail fraud and wire fraud concerning amounts owed to Plaintiffs. Defendants contend that the complaint does not contain sufficient facts to state a claim for a RICO violation. RICO, 18 U.S.C. §§ 1961-1968, creates a civil cause of action for "'[a]ny person injured in his business or property by reason of a violation of section 1962.'" Beck v. Prupis, 529 U.S. 494, 495 (2000) (quoting section 1964(c)). Title 18 U.S.C. § 1962(c) provides:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

18 U.S.C. § 1962(c). To state a claim under 18 U.S.C. § 1962(c) a plaintiff must allege "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985); Odom v. Microsoft Corp., 486 F.3d 541, 547 (9th Cir. 2007) (en banc), cert. denied, -- U.S. --, 128 S.Ct. 464 (2007).

Defendants contend that the complaint fails to allege the predicate acts that are needed to create a pattern of racketeering activity. RICO violations under § 1962(c) require a "pattern of racketeering activity." 28 U.S.C. § 1962(c). Title 18 U.S.C. § 1961(1) defines what acts will be considered acts of "racketeering activity." Defendants contend the complaint fails to allege mail and wire fraud as required by Rule 9 of the Federal Rules of Civil Procedure.

A review of the complaint indicates that Defendants' alleged racketeering acts for the first cause of action are mail fraud and wire fraud. A mail fraud in violation of 18 U.S.C. § 1341 can serve as a predicate act. See 18 U.S.C. § 1961(1). Section 1341 provides:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing . . . .

18 U.S.C. § 1341. Wire fraud may also serve as a predicate act. See 18 U.S.C. § 1961(1). Title 18 U.S.C. § 1343 reads, in part:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, . . . .

"[A] wire fraud violation consists of (1) the formation of a scheme or artifice to defraud; (2) use of the United States wires or causing a use of the United States wires in furtherance of the scheme; and (3) specific intent to deceive or defraud." Odom v. Microsoft Corp., 486 F.3d 541, 554 (9th Cir. 2007); Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1400 (9th Cir.1986). A mail fraud violation requires the plaintiff to show that "(1) the defendants formed a scheme or artifice to defraud; (2) the defendants used the United States mails or caused a use of the United States mails in furtherance of the scheme; and (3) the defendants did so with the specific intent to deceive or defraud." Miller v. Yokohama Tire Corp., 358 F.3d 616, 620 (9th Cir. 2004); Schreiber, 806 F.2d at 1400.

The complaint alleges that Defendants used the United States mail to distribute inaccurate accounting information to Plaintiffs and other members of the public and the contents of this accounting information did not contain information required by law. The complaint alleges Defendants would prepare fraudulent accounting information that was mailed or faxed between September 1995 and when discovery closed in Flores I action on June 1, 2003. If Plaintiffs questioned these documents, Defendants would use the telephone to again perpetrate the fraud. The complaint alleges that Defendants also used the United States Mail, fax and telephones as part of their scheme to defraud Plaintiffs during discovery and the trial in Flores I. The inaccurate accounting records included: (1) altered pack-out reports; (2) insufficient documents to support downward price adjustments; (3) altered billing invoices; (4) altered bills of lading; (5) altered growers history reports; (6) omitted material facts regarding money collected and due; (7) false information ...


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