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Chi Pham and Frank Nguyen, On v. Capital Holdings

August 9, 2011


The opinion of the court was delivered by: Honorablelarryalanburns United States District Judge


This case arises out of a land investment scam allegedly perpetrated by Capital Holdings, Inc. against Plaintiffs and other Asian immigrants. Plaintiffs' complaint, at 60 pages and 190 paragraphs in length, does not allow for a simple summary, although this is due in part to their attempt to allege not only basic fraud but also violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961--1968. Now before the Court is Capital Holdings' motion to dismiss. Capital Holdings argues that Plaintiffs fail to state a claim under RICO and fail to allege fraud with adequate specificity. In the alternative, Capital Holdings asks the Court to stay this action under the Colorado River doctrine. The Court's analysis starts and ends with the RICO claims, which it finds are unsupported by Plaintiffs' factual allegations - and without which the Court lacks jurisdiction over this case.

I. Factual Background

Capital Holdings is a real estate company, and, according to Plaintiffs, a villainous one that sold raw land it did not own, collected interest on loans it did not make, and charged buyers property taxes above those that were actually due. (Compl. ¶¶ 3, 50--60.)

First, the land sales. Capital Holdings sold land in San Bernardino county to Plaintiffs pursuant to a contract titled "Agreement for Sale and Purchase of Real Estate." (Compl. ¶¶ 53, 91.) That contract represented that Capital Holdings was the seller of the land, which, Plaintiffs argue, implied Capital Holdings owned the land and would transfer ownership to Plaintiffs. Not so. The land was actually owned by Defendant Season's Land, a related corporation, the contract was never recorded as a land sale, and Plaintiffs received no deed or other paperwork establishing their interest in the property.*fn1 (Compl. ¶¶ 53, 96.)

Second, the loans. To accomplish the land sales, Capital Holdings purported to loan Plaintiffs the difference between the down payment and the purchase price, collecting interest, of course, on the unpaid balance. (Compl. ¶ 56.) For example, Plaintiffs put down $5,500.00 for a $55,000 piece of property, financing $49,500 and incurring expected financing charges of $40,871.15. (Compl. ¶ 91.) But according to Plaintiffs, there was no loan. (Compl. ¶ 56.) "The purported borrowers never signed nor were they provided any loan, mortgage, deed of trust or other similar documents."*fn2 (Compl. ¶ 57.)

Third, the property taxes. Plaintiffs allege they paid property taxes to Capital Holdings on the land they purchased that were in excess of the actual property taxes. (Compl. ¶ 58.) Capital Holding charged Plaintiffs $687.50 in property taxes for each of the years 2007, 2008, and 2009 when in fact the taxes due in those years were $180.92, $184.49, and $67.59, respectively. (Compl. ¶¶ 93--94.)*fn3 Not only that, Capital Holdings represented that any tax amount paid in excess of the actual county taxes would be applied to reduce Plaintiffs' loan amount (Compl. ¶ 86), and this did not happen. (Compl. ¶ 97.)

The core of Plaintiffs' complaint is that all of the above amounts to a kind of fraud comprised of false statements and the omission of material facts, and that to the extent Capital Holdings advertised its investment scam over the internet and communicated with buyers like Plaintiffs through the United States mail, it committed extensive and repeated wire and mail fraud that exposes it to liability under RICO. (See Compl. ¶¶ 65, 73, 81--82.) Plaintiffs also allege that Capital Holdings laundered money, engaged in monetary transactions in property derived from unlawful activity, and transferred money taken by fraud, all of which also expose it to RICO liability. See 18 U.S.C. § 1961 (listing predicate racketeering acts).

The actual resulting damage Plaintiffs allege appears to be minimal. There is no accusation, for example, that Plaintiffs were prevented from occupying the property they purchased, or that they were wrongfully deprived of their equity in it. There is a suggestion that Capital Holdings sold property for far more than it was really worth (Compl. ¶ 4), but there is no accusation that Capital Holdings made material misrepresentations about any property in order to receive the purchase price it did.*fn4 But Capital Holdings does not contest Plaintiffs' allegations of mail and wire fraud at this time; instead, it simply argues that Plaintiffs have failed to plead the elements of a cause of action under RICO.

II. Legal Standard

A rule 12(b)(6) motion to dismiss for failure to state a claim challenges the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In considering such a motion, the Court accepts all allegations of material fact as true and construes them in the light most favorable to Plaintiffs. Cedars-Sinai Med. Ctr. v. Nat'l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). To defeat a 12(b)(6) motion, a complaint's factual allegations needn't be detailed, but they must simply be sufficient to "raise a right to relief above the speculative level . . . ." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, "some threshold of plausibility must be crossed at the outset" before a case can go forward. Id. at 558 (internal quotations omitted). A claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. -, 129 S.Ct. 1937, 1949 (2009). "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." Id.

While the Court must draw all reasonable inferences in Plaintiffs' favor, it need not "necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (internal quotations omitted). In fact, the Court does not need to accept any legal conclusions as true. Iqbal, 129 S.Ct. at 1949. A complaint does not suffice "if it tenders naked assertions devoid of further factual enhancement" (id. (internal quotations omitted)), nor if it contains a merely formulaic recitation of the elements of a cause of action. Bell Atl. Corp., 550 U.S. at 555.

III. RICO Claims

There are four prohibited activities under RICO, see 18 U.S.C. §§ 1962(a)-(d), and Plaintiffs accuse Defendants of engaging in each of them. (Compl. ¶ 73.) Capital Holdings argues that Plaintiffs fail to plead adequate facts to ...

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