The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
MEMORANDUM DECISION REGARDING DEFENDANTS' MOTION TO DISMISS
This case is a consolidation of three actions: An action commenced by Plaintiff Fox Hollow of Turlock Homeowners' Association ("Fox Hollow") against Richard Sinclair, Brandon Sinclair, Gregory Mauchley, Lairtrust, LLC, Capstone, LLC, Mauctrst, LLC, and Stanley Flake as Trustee of Capstone Trust, Case No. CV-F-03-5439 OWW/DLB ("Fox Hollow Action"); an action commenced by California Equity Management Group, Inc. ("CEMG") against Mauctrst LLC, Gregory Mauchley, Diana Mauchley, Lairtrust LLC, Richard Sinclair, Deborah Sinclair, Sinclair Enterprises, Inc., Capstone, LLC, Brandon Sinclair, Stanley Flake, and Stanley Flake as Trustee of the F. Hanse Trust and of the Julie Insurance Trust Case No. CVF- 03-5774 OWW/DLB ("CEMG Action"); and an action commenced by Lairtrust LLC, Mauctrst LLC, and Capstone LLC against Fox Hollow, Andrew Katakis, and California Equity Management Group, Inc. in the Stanislaus County Superior Court, Case No. 322675 ("Lairtrust Action"), removed to this Court and consolidated with the Fox Hollow and CEMG Actions by Order filed on October 6, 2003 ("Consolidated Federal Actions").
Fox Hollow filed its original complaint in this action on April 4, 2003. Fox Hollow filed a first amended complaint ("Fox Hollow's FAC") on July 15, 2003. On June 5, 2003, CEMG filed its initial complaint in this action. CEMG filed a third amended complaint ("CEMG TAC") on June 22, 2007. (Doc. 300).
On July 21, 2010, Fox Hollow and CEMG were granted leave to file a consolidated amended complaint. (Doc. 409). Fox Hollow and CEMG ("Plaintiffs") filed the operative consolidated complaint ("Consolidated Complaint") on July 21, 2010. (Doc. 410).
Defendants Capstone LLC ("Capstone"), Lairtrust LLC ("Lairtrust"), and Mauctrst LLC ("Mauctrst") (collectively, "Defendants") filed a motion to dismiss the Consolidated Complaint on August 10, 2010. (Doc. 422). Plaintiffs filed opposition to the motion to dismiss on October 8, 2010. (Doc. 437). Defendants filed a reply to Plaintiffs' opposition on October 18, 2010. (Doc. 439). On November 8, 2010, the court conducted a hearing on Defendants motion to dismiss.*fn1
This action arises out of an alleged fraudulent scheme concerning a thirty-five unit town home complex in Turlock, California, known as Fox Hollow of Turlock ("the Property"). Plaintiff Fox Hollow is the home owners' association ("HOA") for the Property. Plaintiff CEMG is the record owner of lots contained within the Property, the successor in interest to lenders who extended loans secured by lots within the Property, and the assignee of the rights of certain tenants who entered into leases for units contained in the Property. Mauctrst, Lairtrust, and Capstone are limited liability companies that were allegedly used to convert HOA funds, effect property transfers, obtain loans, prosecute dilatory lawsuits, and to carry out other parts of the alleged schemes that form the basis for the Racketeer Influenced and Corrupt Organizations Act ("RICO")*fn2 claims advanced in the Consolidated Complaint.
Fox Hollow filed its FAC on July 15, 2003. (Motion to Dismiss, Ex. A). Fox Hollow's FAC named Richard Sinclair, Brandon Sinclair, Gregory Mauchley, Mauctrst LLC, Capstone Trust, Stanley Flake, Lairtrust LLC, Capstone LLC, and Does 1 through 10 as Defendants. Fox Hollow's FAC contained the general allegation that: at all times material hereto, each defendant named in this complaint was the agent, employee, or servant of the other defendants, and was at all times material hereto acting within the course and scope of said agency, employment, or servitude with the permission and consent of the other defendants (Fox Hollow's FAC at 3).*fn3
According to Fox Hollow's FAC, in 1993, Defendant Richard Sinclair represented to the Turlock City Counsel that he was the owner of the Property and applied to convert the Property from an apartment complex into a subdivision comprised of air and space condominiums. (Fox Hollow FAC at 4). The City of Turlock approved the proposed subdivision, subject to requirements imposed by the City's Department of Building and Safety. (Fox Hollow FAC at 4). Richard Sinclair failed to obtain the permits necessary to effect the proposed subdivision. (Fox Hollow FAC at 4).
Gregory Mauchley and Mauctrst, LLC acquired the Property in 1998 as a multifamily housing project. (Fox Hollow FAC at 4). Neither Mauchley, Mauctrst, nor any other owner of the property had obtained the permits necessary to effect the proposed subdivision at the time Fox Hollow filed the FAC. (Fox Hollow FAC at 4). Although the proposed subdivision was never completed, Gregory Mauchley, Mauctrst LLC, Richard Sinclair, and other Defendants conspired to borrow funds secured by individual lots within the Property from lenders such as GMAC Mortgage, Bank One, Advanta Mortgage, ContiMortgage, and HFC. (Fox Hollow FAC at 5). Mauchley, Mauctrst LLC, and other Defendants collectively obtained nineteen separate loans secured by nineteen individual lots containing multiple units. (Fox Hollow FAC at 5). Gregory Mauchley and Mauctrst encountered difficulty in making payments on loans secured by the Property, and in or about August 2000, financial instructions began to initiate foreclosures on the real property collateral. (Fox Hollow FAC at 5).
After an unsuccessful attempt at reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code in the year 2000, Mauctrst sought to transfer the Property to Gregory Mauchley. (Fox Hollow FAC at 5). Additionally, Richard Sinclair, as attorney for Mauctrst LLC and Gregory Mauchley, filed numerous lawsuits against lenders in order to delay or reverse foreclosure sales in June, July, and August of 2000. (Fox Hollow FAC at 5-6).
In or about July 2000, purporting to act as the Board of Directors for the Fox Hollow HOA, Richard Sinclair, Brandon Sinclair, and Gregory Mauchley entered into a contract appointing Richard Sinclair as the attorney for the HOA. (Fox Hollow FAC at 6). In fact, the HOA was not established until December 6, 2000, the date on which Articles of Incorporation were filed with the California Secretary of State. (Fox Hollow FAC at 8). Further, no common area was ever deeded to the HOA as required by the Declaration of Covenants, Conditions, and Restrictions ("CC&R's") applicable to the Property; instead, the common area was deeded from Stanley Flake to Gregory Mauchley and then to Mauctrst LLC. (Fox Hollow FAC at 6).
Although the HOA was not established until December 2000, in October of 2000, Richard Sinclair began attempting to collect HOA dues of $300.00 per month per parcel. (Fox Hollow FAC at 6). Richard Sinclair used monies received as HOA dues to fund Mauchley and Macustrst's foreclosure litigation, to pay himself legal fees, to pay management fees to himself and to his son Brandon Sinclair, and to purchase insurance for Mauctrst. (Fox Hollow FAC at 7).
Richard Sinclair did not use the HOA dues collected for the maintenance and care of the Property. (FAC at 7). Richard Sinclair did not attempt to collect any monthly dues for units owned by Mauchley or Mauctrst. (Fox Hollow FAC at 7).
On February 1, 2001, Bank One National Association, an owner of units at the Property through foreclosure, sued the Fox Hollow HOA alleging, inter alia, failure to maintain the Property and breach of fiduciary duty. (Fox Hollow FAC at 8). The Fox Hollow HOA was subsequently placed in receivership from March 2001 through October 2002. (Fox Hollow FAC at 9). Neither Mauchley, Mauctrst, nor Richard Sinclair paid HOA dues for the units they owned despite the receiver's collection attempts. (Fox Hollow FAC at 9). On October 1, 2002, the Fox Hollow HOA held an election and elected new members of the Board of Directors. (Fox Hollow FAC at 9).
Fox Hollow's FAC asserted a RICO claim against Richard Sinclair and "Does 1 through 10." (Fox Hollow FAC at 9). Specifically, the FAC averred that Richard Sinclair operated the Fox Hollow HOA as an enterprise engaged in a pattern of extortion and mail fraud, and breach of his fiduciary position to obtain secret profits. (Fox Hollow FAC at 9-11). The gravamen of the RICO claim asserted in Fox Hollow's FAC was that the HOA collected dues to which it was not entitled and used monies collected as dues for improper purposes such as paying Richard Sinclair legal fees and diverting funds to Brandon Sinclair, Gregory Mauchley, and Mauctrst. (Fox Hollow FAC at 9-11). Fox Hollow's FAC ...