The opinion of the court was delivered by: Andrew J. Guilford United States District Judge
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS OF DEFENDANTS LOURDES NAVARRO AND UNIVERSAL PLACEMENT INTERNATIONAL, INC.
Enticed by promises of lucrative and exciting employment through a work program, a foreign worker speaks with recruiters about working in the United States. The recruiters explain the terms and costs of the work program, and the worker gets a large loan and voluntarily uses it to join the program.
After the worker joins the program and begins employment, the worker becomes unhappy. But if the worker quits, awaiting is a trip home with a massive amount of debt that will be impossible to repay. Working in the program is the only way to repay the loan. Is this forced labor? Fraud? No. It is a bargained-for exchange. Despite the worker's unhappiness, the terms and costs of the program were known, and the worker voluntarily obtained the loan to join the program. The worker's eventual discontent does not transform the valid contract with the recruiters into something illegal.
But what if after the worker made the payment, the recruiters alter the program terms and costs? The recruiters demand an additional payment of double what the worker has already paid. They threaten to kick the worker out of the program if additional payments aren't made, and they keep the initial payment even if the worker decides to leave to program. The worker is therefore faced with a choice of forfeiting the first payment, knowing that repayment of the debt may be impossible, or paying the additional money the recruiters now demand. Knowing that working in this program is the only way to repay the initial debt, the worker pays the additional sum and continues working in the program.
Once the worker begins employment, complaints about the payments and working conditions are met with continued threats of termination and deportation. Knowing that this job is the only way to repay the debt, the worker remains silent and continues working. Is this forced labor? Fraud?
These are the questions now before this Court. This putative class action involves allegations of fraud, human trafficking, and racketeering. Defendants Lourdes Navarro ("Navarro") and Universal Placement International, Inc. ("UPI") (collectively, "Defendants") now bring a Motion to Dismiss ("Motion") multiple claims filed by Plaintiffs Mairi NunagTanedo, et al. ("Plaintiffs") for failure to state a claim. The Court GRANTS the Motion as to the predicate acts of mail and wire fraud under Plaintiffs' Racketeer Influenced and Corruption Organization Act ("RICO") claims and DENIES the Motion as to Plaintiffs' remaining claims.
The following factual allegations are taken from Plaintiffs' First Amended Complaint ("FAC"), and as it must for this Motion, the Court assumes them to be true.
Plaintiffs are teachers and Filipino nationals who came from the Philippines to work in the United States. Plaintiffs were holders of H-1B visas that permit foreign nationals with special skills to work in the United States for a specified employer for up to six years.
Defendant UPI recruits teachers from the Philippines for employment in the United States. Defendant Navarro is the owner and President of UPI. Defendants worked closely with another company, PARS International Placement Agency ("PARS"), and PARS's Official Representative, Emilio Villarba ("Villarba") (Defendants, PARS, and Villarba collectively, the "Recruiter Defendants") during recruiting operations. Navarro and UPI were under investigation by the U.S. embassy in Manila when recruiting operations were taking place, and Navarro was previously convicted for defrauding the government and money laundering.
Beginning in 2006, Recruiter Defendants advertised their teacher recruiting services to school districts throughout the United States. These services included the "recruitment of highly qualified teachers from the Philippines, and placement of these teachers within school districts in the United States." Plaintiffs learned of the opportunity to teach in the United States through Recruiter Defendants' advertisements in Philippine newspapers and through word of mouth.
After interviewing Plaintiffs for possible teaching positions, Recruiter Defendants informed Plaintiffs that they had been selected to teach in the United States. Recruiter Defendants then told Plaintiffs about some, but not all, of the next steps in the recruitment process. Specifically, Recruiter Defendants disclosed that Plaintiffs would need to collect and submit certain documents to support their H1-B visa application and that Plaintiffs would have to pay a recruitment fee of approximately $5,000 (the "First Recruitment Fee"). But Recruiter Defendants did not disclose that Plaintiffs would be required to pay a second, much larger recruitment fee before Plaintiffs would be permitted to leave for the United States. Recruiter Defendants also did not inform Plaintiffs that various other expenses paid by Plaintiffs were actually the responsibility of other parties, Plaintiffs' future employers.
Plaintiffs paid the non-refundable First Recruitment Fee and received job offers to teach in the United States. Plaintiffs then interviewed at a U.S. Embassy to obtain their H-1B visas. Recruiter Defendants required Plaintiffs to instruct the U.S. Embassy to have Plaintiffs' passports delivered directly to Recruiter Defendants' office following the Embassy interviews, and Plaintiffs' passports and visas were both sent to Recruiter Defendants' office in the Philippines.
After Recruiter Defendants had the visas and passports, Recruiter Defendants told Plaintiffs for the first time that Plaintiffs would have to pay a second, larger recruitment fee (the "Second Recruitment Fee") as well as the cost of their airfare to the United States. Recruiter Defendants explained that a second payment was required before Recruiter Defendants would return Plaintiffs' visas and passports and before Plaintiffs would be permitted to depart for the United States. Recruiter Defendants told Plaintiffs that if they did not pay the additional fees, Plaintiffs would forfeit fees already paid, would not be permitted to travel to the United States, and would not be given their visas. Plaintiffs felt that they had to comply with Recruiter Defendants' demands since they needed to work in the United States to repay their debts.
Plaintiffs complied with Recruiter Defendants' demands and began working in Louisiana. But the situation did not improve. Defendant Navarro "threatened abuse of legal process in an effort to intimidate and control Plaintiffs and other Class Members by, inter alia, threatening that she could have teachers deported." For example, when certain teachers stated that they planned to change their housing arrangements due to high costs, Navarro became upset, told the teachers that they could not move, and threatened to deport them. Navarro also threatened to deport a teacher for "complaining to a reporter at a Baton Rouge television station about abuses she suffered at the hands of Recruiter Defendants."
Plaintiffs allege that Defendant Navarro also threatened Plaintiffs who voiced criticisms about Recruiter Defendants' alleged trafficking scheme. For example, Defendants filed a lawsuit against certain Baton Rouge teachers believed to have authored a blog, and Defendant Navarro "threatened that if [other teachers] started speaking out against her, they would be 'punished' like the teachers in Baton Rogue . . . ." Finally, Recruiter Defendants made additional threats to sue, allow visas to expire, and terminate teachers if the teachers did not pay additional fees demanded by Defendants.
Based on these factual allegations and others, Plaintiffs bring claims against multiple defendants in this matter, numbered as follows: (1) violations of the Victims of Trafficking and Violence Protection Act of 2000 ("TVPA") as to a plaintiff subclass against Recruiter Defendants and other defendants; (2) RICO violations; (3) violations of California's Employment Agency, Employment Counseling, and Job Listing Services Act, under California Civil Code § 1812.508; (4) Unfair Business Practices in violation of California Business and Professions Code §§ 17200 et seq. ("Section 17200"); (5) fraud; (6) declaratory relief concerning the validity of certain contracts due to undue influence; (7) declaratory relief concerning the validity of certain contracts due to illegality; (8) declaratory relief concerning the legality of fees collected; (9) breach of fiduciary duty; (10) legal malpractice; (11) violations of the TVPA as to a separate plaintiff subclass against separate defendants; and (12) negligent hiring. Defendants move to dismiss claims 1, 2, 3, and 5. Plaintiffs bring additional claims against Defendants that Defendants do not move to dismiss.
A court should dismiss a complaint when its allegations fail to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). A complaint need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "'[D]etailed factual allegations' are not required." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1940 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555 (2007) (stating that "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations")). The Court must accept as true all factual allegations in the complaint and must draw all reasonable inferences from those allegations, construing the complaint in the light most favorable to the plaintiff. Pollard v. Geo Group, Inc., 607 F.3d 583, 585 n.3 (9th Cir. 2010); Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir. 1993).
But the complaint must allege "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct at 1940 (citing Twombly, 550 U.S. at 556). A court should not accept "threadbare recitals of a cause of action's elements, supported by mere conclusory statements," id., or "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences," Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The Ninth Circuit recently stated that a complaint must be (1) "sufficiently detailed to give fair notice to the opposing party of the nature of the claim so that the party may effectively defend against it," and (2) "sufficiently plausible that it is not unfair to require the opposing party to be subjected to the expense of discovery." Starr v. Baca, 633 F.3d 1191, 1204 (9th Cir. 2011). Dismissal without leave to amend is appropriate only when the Court is satisfied that the deficiencies of the complaint could not possibly be cured by amendment. Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. 2003).
Fraud claims must include "a false representation, knowledge of its falsity, intent to defraud, justifiable reliance, and damages." Moore v. Brewster, 96 F.3d 1240, 1245 (9th Cir. 1996) (superceded by statute on other grounds). These claims must meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which requires enough specificity to give a defendant notice of the particular misconduct to be able to defend against the charge. BlyMagee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (citation omitted). To satisfy this specificity requirement, "the who, what, when, where, and how" of the misconduct must be alleged. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997) (quotations omitted). And when a defendant is a business entity and not a person, Plaintiffs must allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. See Pentalpha Macau Commercial Offshore Ltd. v. Reddy, Case No. 03-5914, 2004 WL 2624001, at *2 (N.D. Cal. Jul. 8, 2004). Thus, factual allegations must include "the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007).
Rule 9(b) serves many purposes. One is to "furnish the defendant with certain definite charges which can be intelligently met." Kincade v. Trojan Express, LLC, Case No. SACV 08-1362 AG (ANx), 2009 WL 799390, at *2 (C.D. Cal. Mar. 23, 2009). Other purposes include "to deter the filing of complaints as a pretext for the discovery of unknown wrongs, to protect [defendants] from the harm that comes from being subject to fraud charges, and to prohibit plaintiffs from unilaterally imposing upon the court, the parties, and society enormous social and economic costs absent some factual basis." In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1405 (9th Cir. 1996) (quotations omitted); see Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985).
As noted, Defendants move to dismiss Plaintiffs' claims numbered as follows: (1) violations of the TVPA; (2) RICO violations; (3) violations of California's Employment Agency, Employment Counseling, and Job Listing Services Act under California Civil Code § 1812.508; and (5) fraud. For clarity, the Court first reviews Defendants' Motion as to Plaintiffs' fraud claim and then reviews the remaining claims in order.
1. PLAINTIFFS' FIFTH CLAIM, FOR FRAUD, UNDER CALIFORNIA CIVIL CODE § 1709
"One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers." Cal. Civil Code § 1709. A deceit, within the meaning of § 1709 includes "[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact . . . ." § 1710(3). Defendants argue that Plaintiffs have not met Rule 9(b) pleading standards for their fraud claim brought under § 1709. The Court disagrees.
Plaintiffs allege that the Recruiter Defendants told Plaintiffs and other Class Members about some, but not all, of the  steps in the recruitment process. In particular, Recruiter Defendants only disclosed that Class Members would need to collect and submit certain documents in support of their H-1B visa application, and that Class Members would have to pay [the First Recruitment Fee]. (FAC ¶ 105.) And Plaintiffs further allege that [a]t this stage in the trafficking process, Recruiter Defendants fraudulently did not disclose to Plaintiffs and other Class Members that they would be required to pay a second and much larger recruitment fee before they would be permitted to leave for the United States . . . . (Id. ¶ 111.)
Plaintiffs support these general allegations with specific statements detailing fraud by Defendants that include dates, locations, representations, and omissions. For example, Plaintiffs state [o]n or about March 28, 2008, at the Waterfront Hotel in Cebu City,Philippines, Defendant Lourdes Navarro informed Plaintiff NunagTanedo that she would need to collect various supporting documents [and pay various fees including the First Recruitment Fee] to obtain her job offer and to complete the H1-B visa process. However, Lourdes Navarro willfully, maliciously, and fraudulently failed to inform Nunag-Tanedo that before she would be permitted to leave the Philippines, she would need to pay an Undisclosed Second Recruitment Fee of two months of her expected salary in the United States, as well as the cost of airfare to the United States, with a third month's fee due after she was in the United States for one year. Nunag-Tanedo relied on this fraudulent omission and paid the First Recruitment Fee. (Id. ¶189.)
With these specific fraud allegations, along with additional specific allegations implicating Navarro, UPI, PARS, and PARS's agents (e.g., id. ¶¶ 190--94), Plaintiffs have sufficiently alleged all the necessary fraud elements. As noted, Plaintiffs have alleged the nondisclosure of the additional fees and requirements to work in the teaching program, and they have done so with sufficient particularity. (E.g., id. ¶ 189.) Plaintiffs have also alleged that Defendants knew of and committed omissions with intent to defraud Plaintiffs and induce reliance (E.g, id. ¶¶ 190--94, 331--332.) Further, Plaintiffs have sufficiently alleged that they justifiably relied on Defendants' representation and omissions, stating, for example, that "Plaintiffs and other Class Members were unaware of the falsity of Recruiter Defendants' representations. In reliance on these representations, Plaintiffs and other Class Members paid the First Recruitment Fee." (Id. ¶ 332.) Finally, Plaintiffs sufficiently allege resulting damages. This includes monetary damages from paying the First Recruitment Fee and additional fees, which Plaintiffs allege they would not have paid had they known the actual program terms and costs. (Id. ¶¶ 332--34.)
Defendants attack the fraud claim by arguing the failure to allege that Defendants had a duty to disclose the requirement to pay additional fees. (Motion at 9:20--21.) This argument fails.
As noted, a deceit, within the meaning of § 1709 includes "[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact . . . ." § 1710 (emphasis added). In fraud claims grounded on omissions, a duty to disclose "may exist when one party to a transaction has sole knowledge or access to material facts and knows that such facts are not known to or reasonably discoverable by the other party." Goodman v. Kennedy, 18 Cal. 3d 335, 347 (1976) (a duty to disclose omissions may also exist where there are allegations that any representation was likely to mislead for want of disclosures, or where defendants actively concealed undisclosed matters).
Here, Plaintiffs have sufficiently alleged that Defendants had a duty to disclose all material program terms and costs. Plaintiffs state that Defendants actively recruited Plaintiffs and that the parties worked together directly when Plaintiffs were considering joining the program. (E.g., FAC ¶ 189.) Plaintiffs further state that Defendants explained to Plaintiffs various program terms and costs during the recruiting process. (E.g., id. ¶¶ 111,189, 332.) Plaintiffs' statements that Defendants took such an active role in the recruiting process are sufficient to allege that Defendants had duty to disclose all material costs to Plaintiffs, not simply the non-refundable First Recruitment Fee. In fact, Defendants' argument that they need not disclose $10,000 in additional fees during the recruiting process is somewhat perplexing. A ruling supporting this argument would clearly have undesirable consequences on the efficacy of practically any contract.
Defendants alternatively argue that Plaintiffs' fraud claims fail because "nothing forced the five Plaintiffs to pay the additional fees; they could have backed out . . . ." (Motion at 10:6--7.) Defendants name another individual that apparently did back out of the program after learning of the additional fees. (Id.) Even if, for this Motion, the Court could properly consider the example of this individual that Defendants cite, Defendants' argument fails.
If Plaintiffs could have walked away with a full refund, their fraud claim may very well fail. After all, individuals who could have gotten a refund after learning of additional fees would have serious difficulty proving any damages. But Plaintiffs allege that backing out with a full refund was not an option here, clearly stating that the First Recruitment Fee was non-refundable. (FAC ¶¶ 124, 126.) Thus, Plaintiffs allege that they had the choice of either walking away and losing $5,000 or paying $10,000 more to join the program. Neither option would allow them to avoid a massive loss.
In sum, Plaintiffs sufficiently state their fraud claim. Plaintiffs have alleged essentially a bait-and-switch scheme where they had to either forfeit their initial $5,000 payment or unexpectedly pay another $10,000 to continue with the program. And given Plaintiffs' detailed factual allegations ...