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Frank Meram, et al v. Citizens Title and Trust

January 3, 2011


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


Defendant Citizens Title & Trust, Inc. ("Citizens Title") moves to dismiss this action or, in the alternative, to transfer venue. The motion has been fully briefed and is considered on the papers submitted and without oral argument pursuant to Civil Local Rule 7.1(d)(1).

A. Background

In their complaint, plaintiffs allege that two non-parties to this action, Bradley Holcom and Jose Pinedo ("Holcom and Pinedo" or "nonparties"), were the "masterminds behind a Ponzi scheme that allowed them to bilk victims out of tens of millions of dollars." (Compl. at 2.) According to plaintiffs, these two scallywags would not have been successful but for the role defendant Citizens Title, an Arizona escrow company, played in the scheme.*fn1

Holcom and Pinedo allegedly told plaintiffs that they were able to provide a 10-14% per year rate of return on investments. The individual plaintiffs made monetary investments that would permit Holcom and Pinedo to purchase real property in Arizona for which the investor would take an interest in the promissory note and deed of trust as security for the principal investment. Plaintiffs contend that Holcom and Pinedo purchased properties with plaintiffs' moneys but rather than providing the investors with security interests in the properties, plaintiffs received an investment contract entitled "Collateral Assignment of Beneficial Interest" ("CABI") which plaintiffs contend is a security within the meaning of 15 U.S.C. § 78c.

Plaintiffs brought an action against Holcom and Pinedo and others in the Superior Court for the State of California, County of San Diego in an effort to recoup their money. Default judgment was entered against Holcom and Pinedo, with a finding of fraud, in the amount of $6,495,402.00. According to plaintiffs, Holcom and Pinedo have absconded with all of plaintiffs' investment moneys.

In the present complaint, plaintiffs assert that defendant was involved in Holcom and Pinedo's Ponzi scheme by opening escrow accounts and acting as escrow holder: "With knowledge of the structure of the transaction, Defendant[] would receive Plaintiffs' investments and process the sham transaction to give the appearance that a legitimate transfer of real property had taken place." (Compl. at 30, ¶ 38(f).) Plaintiffs also allege that defendant "would then execute and deliver promissory notes and deeds of trust naming themselves as trustee, and nonparty entities as beneficiaries . . . [but] said note and deed of trust represented Plaintiffs' Principal Investments." (Compl. at 30, ¶ 38(h).)

The real property, which had been purchased with plaintiffs' principal investments but owned by the nonparties or their entities, subsequently would be sold to innocent third parties. Defendant would open escrow and provide typical escrow company services. (Compl. at ¶ 39.) At the close of escrow, defendant would remit the pay off for the loans to the nonparties "with the knowledge that said funds were actually derived from Plaintiffs." (Compl. at 30, ¶ 39(c).) Plaintiffs contend defendant knew Holcom and Pinedo intended to defraud plaintiffs and that it actively participated in the entirety of the fraudulent scheme.

Plaintiffs allege causes of action against Citizen Title for violation of Section 10(b) of the Securities Exchange Act; Section 20(a) of the Securities Exchange Act; Aiding and Abetting Fraud; Fraud/Deceit; Negligent Misrepresentation; Conspiracy to Commit Fraud; Neligence; and Elder Abuse under California's Welfare and Inst. Code § 15657.5.

Defendant moves for dismissal of plaintiffs' securities fraud claims under Section 10(b) and 20(a), and the aiding and abetting fraud claim, and for the Court to decline to exercise supplement jurisdiction over plaintiffs' state law claims. Alternatively, defendant seeks to have this action transferred to the United States District Court for the District of Arizona under 28 U.S.C. § 1404(a).

B. Motion to Dismiss

1. General Legal Standard

A complaint cannot survive a motion to dismiss unless it provides "sufficient factual matter, . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal 129 S. Ct 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 556). A complaint must contain "more than labels of conclusions" or "a formulaic recitation of the elements of a cause of action ...

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