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William Villa; Villa Realty, Inc. Dba v. Gretchen Heller; William Hellar; Diane Hellar

June 7, 2011


The opinion of the court was delivered by: Hon. Anthony J. BattagliaU.S. District Judge





[Doc. Nos. 15, 31.]

Plaintiffs William Villa; Villa Realty, Inc. dba Accion Mortgage; Patricia Villa; and Acclaim Financial Services, Inc. ("AFSI") filed a complaint against Defendants Gretchen Heller; William Hellar; Diane Hellar, Hellar Charitable Remainder Trust; Stephanie Ruiz; Michael Lusby;*fn1 Collin Cook; and American Contractors Indemnity Company ("ACIC") and Does 1-7. Does 1-7 are identified as Defendants Lanak & Hanna, P.C.; Peter Carman; Adam Pessin; Randy Rinicella; William Whamond; Jeannie Kim; and Rajat Bhasin. (Compl. ¶¶ 11, 13.) On October 14, 2010, Defendants ACIC, Peter Carman, Adam Pessin, Randy Rinicella, William Whamond, Jeannie Kim, Rajat Bhasin, Cook, and Lanak & Hanna ("moving Defendants") filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). On December 3, 2010, the moving Defendants filed a motion for sanctions under Federal Rule of Civil Procedure 11. On December 6, 2010, Plaintiffs filed a opposition to the motion to dismiss the complaint and the motion for sanctions. On December 13, 2010, moving Defendants filed a reply. On December 8, 2010, Plaintiffs filed an amended motion for default judgment against Defendant Michael Lusby.*fn2 Lusby has not filed an opposition.

On March 14, 2011, the case was transferred to the undersigned judge. On April 29, 2011, the Court held a status conference regarding the representation of Plaintiff parties. At the hearing, Plaintiff agreed to submit a status report on representation issues. At the motion hearing on June 3, 2011, Daniel Marshall, Esq. filed a request for substitution of attorney for all the Plaintiffs which the Court signed. (Dkt. Nos. 46, 47, 48, & 49.)

On June 3, 2011, the Court held a hearing on the parties' motions. John Adams, Esq. appeared on behalf of William Hellar and Hellar Charitable Remainder Trust. Mark Ortell appeared on behalf of the moving Defendants. Daniel Marshall appeared on behalf of Plaintiffs. Pursuant to the Court's request, on June 6, 2011, moving Defendants filed a a supplemental submission attaching a copy of the state court's dismissal filed by William R. and Gretchen Hellar Charitable Remainder Trust.

After a thorough review of the motions and supporting documentation and hearing oral argument, the Court GRANTS moving Defendants' motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim; SUA SPONTE DISMISSES certain claims against Defendants Michael Lusby, William Heller, Gretchen Hellar and Diane Hellar, Hellar Charitable Remainder Trust for lack of subject matter jurisdiction; DENIES moving Defendants' motion for sanctions; and GRANTING moving Defendant's request for judicial notice.

Factual Background

Plaintiffs allege a Racketeer Influenced and Corrupt Organizations Act*fn3 ("RICO") claim against numerous Defendants including the moving Defendants. Plaintiffs allege that nonmoving Defendants Gretchen Heller, William Hellar, Diane Hellar, Hellar Charitable Remainder Trust (collectively, "the Hellars") engaged in a scheme to illegally invest money into Plaintiffs' licensed mortgage firm and act as unlicensed mortgage brokers and lenders. (Compl. ¶¶ 5, 6.) In addition, in their attempts to act as unlicensed mortgage brokers and lenders, non-moving Defendants attempted to gain a controlling interest in AFSI and achieved control when Defendant Hellar received money on October 13, 2009 without Plaintiffs' consent. (Id. ¶¶ 5-7.) Plaintiffs claim that there were RICO violations when William and Gretchen Hellar also allegedly made false claims with the San Diego District Attorney and the San Diego Sheriff alleging elder abuse and made false claims to mortgage regulators at the California Department of Corporations and filed a case in state court without personally serving Plaintiffs. (Id. ¶ 5.) As such, Plaintiffs claims their mortgage business has been harmed because of AFSI's ability to attract and retain clients because of the false allegations made by Plaintiffs. (Id. ¶ 15.)

Plaintiffs allege that moving Defendants American Contractors Indemnity Company ("ACIC"), Cook, Lanak & Hanna, Carman, Pessin, Rinicella, Whamond, Kim and Bhasin conspired and committed fraud. (Compl. ¶ 13.) Plaintiffs claim that Defendants are engaged in a pattern of fraud that creates fictitious financial losses in violation of the terms of the bonds and pass along the fictitious losses to the principals of the bonds. (Id.) Specifically, Plaintiffs argue that ACIC improperly paid out the terms of the bonds posted by AFSI to the Hellars. (Id.) Plaintiffs complain that the bonds can only be attached under very specific circumstances which is by the State of California or by persons who made the loan application at AFSI. (Id. ¶ 14) To carry out their scheme, the moving Defendants allegedly utilized the United States Postal Service to mail the funds to the Hellars. (Id.) Plaintiffs also claim that, in essence, ACIC's mailing the settlement funds to Cook made ACIC an unlicensed mortgage lender. (Id.) Therefore, moving Defendants have violated 18 U.S.C. § 1962(c), a provision under RICO.

Moving Defendants Cook and Lanak & Hanna were legal counsel to ACIC. (Compl. ¶ 12a.) Plaintiffs claim that Cook knew or should have known that AFSI's bond was not attachable from reading the face of the bond and should not have sent the funds to the Hellars. (Id.) They allege that Cook was a willing participant in mailing or wiring the funds to the Hellars. (Id. ¶ 14.) Cook violated § 1962(c) when it illegally mailed funds to the Hellars since those funds were illegally obtained through a pattern of unfair business practices, deceit and fraud. (Id. ¶ 12.) Plaintiffs also allege that Cook unlawfully filed liens and levies against Plaintiff constituting an ongoing pattern of unfair business practices, deceit and fraud in violation of 18 U.S.C. § 1962(d). (Id.) Cook and ACIC conspired with each other to overbill and ignore the requirements under the bond. (Id.) In addition, Plaintiffs allege that Cook and Lanak & Hanna overstated billable hours which in turn overcharged Plaintiffs for services*fn4 they never received or ever contracted for. (Id. ¶ 12d.) In 2008, Plaintiffs assert that AFSI was unable to operate due to the actions of Defendants which affected their ability to earn income. (Id. ¶ 15b).

Plaintiffs bring allegations against Lusby, who was the attorney for the Hellars, for filing a lawsuit against Plaintiffs in state court on October 1, 2008. (Id. ¶ 10.) He allegedly violated § 1962(d) for filing a state court case without serving a summons and complaint and when he received funds mailed to him by Defendants Cook and Lanak & Hanna which, in turn, he wired or mailed to his client, the Hellars. (Id.)


I. Legal Standard Pursuant to Federal Rule of Civil Procedure 12(b)(1)

Federal Rule of Civil Procedure 12(b)(1) allows a dismissal for "lack of subject matter jurisdiction." Fed. R. Civ. P. 12(b)(1). A plaintiff has the burden to establish that subject matter jurisdiction is proper. Kokkonen v. Guardian Life Ins., Co., 511 U.S. 375, 377 (1994).

Under Rule 12(b)(1), a jurisdictional attack may either be "facial" or "factual." White v. Lee, 227 F.3d 1213, 1242 (9th Cir. 2000). When a defendant challenges jurisdiction "facially," all material allegations in the complaint are assumed true, and the question for the court is whether the lack of federal jurisdiction appears from the face of the pleading itself. Thornhill Publishing Co. v. General Telephone Electronics, 594 F.2d 730, 733 (9th Cir. 1979); Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977). In a factual attack, the "defendant disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In a factual attack, the "court may look beyond the complaint to matters of public record without having to convert the motion into one for summary judgment." White, 227 F.3d at 1242. The court "need not presume the truthfulness of the plaintiff's allegations." Id. Once the moving party has converted the motion to dismiss into a factual motion by presenting affidavits or other evidence properly brought before the court, the party opposing the motion must furnish affidavits or other evidence necessary to satisfy its burden of establishing subject matter jurisdiction." Safe Air for Everyone, 373 F.3d at 1039 (quotation omitted). A challenge for lack of subject matter jurisdiction may be raised at any time by either party or sua sponte by the court. Fleming v. Gordon & Wong Law Group, P.C., 723 F. Supp. 2d 1219, 1222 (N.D. Cal. 2010) (citing Olson Farms, Inc. v. Barbosa, 134 F.3d 933, 937 (9th Cir. 1998)). Moving Defendants bring a factual challenge to subject matter jurisdiction.

A. Rooker-Feldman Doctrine

Moving Defendants argue that the Rooker-Feldman doctrine bars Plaintiffs' allegations against them. Without providing any argument, Plaintiffs state that recent cases have updated the doctrine.

The Rooker-Feldman*fn5 doctrine prevents the lower federal courts from exercising subject matter jurisdiction over cases "brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments." Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005). Rooker-Feldman is a narrow doctrine and only applies in "limited circumstances." Lance v. Dennis, 546 U.S. 459, 464, 466 (2006) (citing Exxon Mobil, 544 U.S. at 291); Skinner v. Switzer, 131 S. Ct. 1290, 1297 (March 7, 2011). District courts are courts of original, not appellate jurisdiction and Congress empowered only the United States Supreme Court to exercise appellate authority to modify or reverse a state court judgment. Rooker, 263 U.S. at 416.

The Ninth Circuit has held that Rooker-Feldman may be applicable when the parties do not directly contest the merits of a state court decision and the claims are a de facto appeal. Reusser v. Wachovia Bank, N.A., 525 F.3d 855, 859 (9th Cir. 2008). A de facto appeal occurs when "claims raised in the federal court action are 'inextricably intertwined' with the state court's decision such that the adjudication of the federal claims would undercut the state ruling or require the district court to ...

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