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Gerald Hoffarth, An Individual, et al v. Diversified Lending Group

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA


August 30, 2011

GERALD HOFFARTH, AN INDIVIDUAL, ET AL., PLAINTIFFS,
v.
DIVERSIFIED LENDING GROUP, INC., A CALIFORNIA CORPORATION, ET AL., DEFENDANTS.

The opinion of the court was delivered by: Hon. Manuel L. RealJudge, United States District Court

JS-6

ORDER DISMISSING PLAINTIFFS' FIRST AMENDED COMPLAINT Date: August 15, 2011 Time: 10:00 a.m. Dept. 8 Judge: Hon. Manuel L. Real Trial Date: None Set & AW

On Monday, August 22, 2011, at 10:00 a.m., the Motion of Defendant Jackson National Life Insurance Company ("Jackson") to Dismiss Plaintiffs' First Amended Complaint (the "Motion") came regularly for hearing in the above-entitled Court. The Motion requested dismissal of all of the claims asserted against Jackson in Plaintiffs' First Amended Complaint (the "Complaint"), including the following causes of action: fraud (Claim 1); negligent misrepresentation, and aiding and abetting negligent misrepresentation(Claim 2); negligence (Claim 3); aiding and abetting fraud (Claim 4); breach of fiduciary duty, and aiding and abetting breach of fiduciary duty (Claim 5); breach of the insurance guarantee contract (Claim 6); violation of Cal. Corp. Code § 25110 (Claim 7); violation of Cal. Corp. Code § 25401 (Claim 8); holder's action (Claim 9); aiding and abetting violation of Cal. Bus. & Prof. Code § 17200 et seq. (Claim 10); aiding and abetting conversion (Claim 11); financial elder abuse(Claim 12); violation of Cal. Corp. Code § 25503 (Claim 14); violations of RICO, 18 U.S.C. § 1962(c) (Claim 13); and unjust enrichment (Claim 15).

Having considered the papers in support of and in opposition to the Motion and all other matters presented to the Court, the Court concludes that the Motion should be granted in part for the following reasons:

1. The Complaint fails to state a RICO claim because the allegations are insufficient to show or permit a reasonable inference of an "association in fact enterprise." See Boyle v. U.S., 129 S. Ct. 2237 (2009); U.S. v. Turkette, 452 U.S. 576 (1981); Odom v. Microsoft Corp., 486 F.3d 541 (9th Cir. 2007). Among other things, the facts alleged fail to show or permit a reasonable inference that there was a common purpose between any entity or individual other than between Diversified Lending Group ("DLG") and Bruce Friedman ("Friedman"). Indeed, the facts alleged in the Complaint show that DLG and Friedman did not share a common purpose with Jackson, and that DLG had the purpose of defrauding investors, whereas Jackson had the purpose of selling insurance and annuities and simply had the misfortune of having this innocent purpose and business co-opted by a Ponzi schemer. Accordingly, the RICO claim is dismissed as to Jackson and all other defendants, except for DLG and Friedman, for failure to plead an "associated-in-fact enterprise."

2. Because actions against DLG and Friedman are stayed pursuant to this Court's March 10, 2009 Order in Securities Exchange Commission v. Diversified Lending Group, Inc., et al., CV-09-1533-R (C.D. Cal.), Plaintiffs are barred from pursuing any claims against DLG and Friedman during the pendency of the receivership established in that case. Accordingly, Plaintiffs may not maintain any of their claims against DLG and Friedman. The RICO claim is therefore dismissed in its entirety.

3. Plaintiffs assert jurisdiction in this case based on federal question jurisdiction arising out of the RICO claim and supplemental jurisdiction as to their other claims. As a result of the dismissal of the RICO claim, this Court has discretion to retain jurisdiction over the remaining state law claims or to dismiss the claims without prejudice. See Carlsbad Technology, Inc. v. H.I.F. Bio, Inc., 129 Sup. Ct. 1862 (2009). It is generally preferable for a district court to not exercise supplemental jurisdiction over pendent state law claims once federal claims have been dismissed. See Harrell v. 29th Century Insurance Company, 934 Fed.2d 203 (9th Cir. 1991). Pursuant to its discretion, this Court declines to exercise jurisdiction over the remaining state law claims and dismisses those claims without prejudice.

IT IS HEREBY ORDERED THAT Jackson's Motion is GRANTED in part; IT IS HEREBY FURTHER ORDERED THAT the RICO claim (Claim 13) is dismissed with prejudice as to Jackson and all other defendants except DLG and Friedman, and dismissed as to DLG and Friedman without prejudice but barred pursuant to the Court's March 10, 2009 Order in Securities Exchange Commission v. Diversified Lending Group, Inc., et al., CV-09-1533-R (C.D. Cal.);

IT IS HEREBY FURTHER ORDERED THAT all remaining claims under state law are dismissed without prejudice based on the Court's decision not to exercise jurisdiction over these claims, including specifically the following: fraud (Claim 1); negligent misrepresentation, and aiding and abetting negligent misrepresentation(Claim 2); negligence (Claim 3); aiding and abetting fraud (Claim 4); breach of fiduciary duty, and aiding and abetting breach of fiduciary duty (Claim 5); breach of the insurance guarantee contract (Claim 6); violation of Cal. Corp. Code § 25110 (Claim 7); violation of Cal. Corp. Code § 25401 (Claim 8); holder's action (Claim 9); aiding and abetting violation of Cal. Bus. & Prof. Code § 17200 et seq. (Claim 10); aiding and abetting conversion (Claim 11); financial elder abuse(Claim 12); violation of Cal. Corp. Code § 25503 (Claim 14); and unjust enrichment (Claim 15).

IT IS SO ORDERED.

20110830

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