MEMORANDUM AND ORDER RE: MOTION TO DISMISS
Plaintiff homeowners brought this action against defendants Florsheim Development, Florsheim Properties, Rose Petals, LLC, and Rose Park, LLC, arising from defendants' allegedly wrongful conduct related to the development and sale of homes within a housing subdivision. Currently before the court is defendants' motion to dismiss the Complaint in its entirety for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) and, in the alternative, for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6).*fn1
Plaintiffs are the original purchasers of homes in the Valley Blossom Subdivision ("Subdivision") located in San Joaquin, California. (Compl. ¶ 2 (Docket No. 1).) Defendants are the developer, builder, and sellers of the homes. (Id. ¶¶ 3-6.) Plaintiffs allege that defendants worked with "captive" mortgage, appraisal, and financing companies to manipulate the market value of the homes in the Subdivision to attract buyers and bolster sales. (Id. ¶¶ 18-21.)
Plaintiffs bring claims for: (1) violation of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1703; (2) violation of the California Unfair Competition Act, Cal. Bus. & Prof. Code § 17200; (3) violation of the California False Advertising Law, Cal. Bus. & Prof. Code § 17500; (4) rescission under California Civil Code section 1689; (5) violation of the Sherman Antitrust Act, 15 U.S.C. § 1, and the Cartwright Act, Cal. Bus. & Prof. Code § 16720; and (6) violation of the Subdivision's CC&R's. In their Complaint, plaintiffs allege that the court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331 (federal question) and 28 U.S.C. § 1367 (supplemental jurisdiction). (Compl. ¶ 9.)
Under Federal Rule of Civil Procedure 12(b)(1), a complaint must be dismissed once it is determined that a court lacks subject matter jurisdiction to adjudicate the claims. Fed. R. Civ. P. 12(b)(1). The court presumes a lack of jurisdiction until the party asserting jurisdiction proves otherwise, and, once subject matter jurisdiction has been challenged, the burden of proof is placed on the party asserting that jurisdiction exists. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 376 (1994); Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986) (holding that "the party seeking to invoke the court's jurisdiction bears the burden of establishing that jurisdiction exists").
A violation of the Sherman Act ("Act") can only occur when the defendant's business activities are "in restraint of trade or commerce among the several States." 15 U.S.C. § 1. "This requisite relationship to interstate trade or commerce is not only an element of the alleged antitrust offense, but also a necessary jurisdictional requirement." United States v. ORS, Inc., 997 F.2d 628, 629 (9th Cir. 1993). A federal court will therefore not have jurisdiction on the basis of the Act "unless the relevant aspect of interstate commerce is identified; it is not sufficient merely to rely on identification of a relevant local activity and to presume an interrelationship with some unspecified aspect of interstate commerce." McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232, 242 (1980).
To meet the required showing of interstate commerce, "a plaintiff must show that the activities in question, although conducted within a state, have a 'substantial effect on interstate commerce.'" Freeman v. San Diego Ass'n of Realtors, 322 F.3d 1133, 1143-44 (9th Cir. 2003) (quoting McLain, 444 U.S. at 242). A plaintiff need not demonstrate that the defendant's activities that are alleged to be unlawful had an effect on commerce. Id. at 1143. Rather, a plaintiff need only plead "a substantial effect on interstate commerce generated by respondents' ['infected'] activity." Id. (quoting McLain, 444 U.S. at 242-43).
Nowhere in their Complaint do plaintiffs allege that defendants' activities had any effect on interstate commerce. All the defendant companies are located in California and all the allegations in the Complaint focus on a scheme related to the sale of homes within one subdivision, located in California. Plaintiffs do not allege that the sales had any effect on any housing market outside of California; indeed, defendants are only alleged to have "manipulate[d] the housing market within the . . . Subdivision." (Id. ¶ 24.) Nor do plaintiffs allege any other effect on interstate commerce, such as the sale of homes in the Subdivision turned on interstate financing. Cf. Freeman, 322 F.3d at 1143 (finding that the effect of defendant's mediation of home sales on approximately $10 billion in interstate home- mortgage financing sufficed to show a substantial effect on commerce).
The cases cited by plaintiffs are inapposite. In Allied-Bruce Terminix Cos. v. Dobson, the Supreme Court interpreted the word "involving" in the phrase "a contract evidencing a transaction involving commerce" in the Federal Arbitration Act ("FAA") to be the "functional equivalent of 'affecting'" and stated that the reach of the FAA extends to the full breadth of Congress's power under the Commerce Clause. 513 U.S. 265, 274 (1995). Courts have found the jurisdictional reach of the Sherman Act to be similarly broad. See, e.g., Musick v. Burke, 913 F.2d 1390, 1395 (9th Cir. 1990) ("Congress intended the Sherman Act to be 'as inclusive as the constitutional limits of Congress' power to regulate commerce.'" (quoting Report of the Attorney General's National Committee to Study the Antitrust Laws 62 (1955))). Here, however, there is no dispute over the breadth of the Sherman Act or that defendants' "infected activities" as a whole must substantially affect interstate commerce to be within the Act's reach. Instead, as defendants point out, the problem is that plaintiffs have failed to specifically allege any connection to interstate commerce whatsoever.
In Basura v. U.S. Home Corp., 98 Cal. App. 4th 1205 (2d Dist. 2002), the court considered whether the FAA governed arbitration clauses in sales agreements for residential homes. To show that the contracts at issue involved interstate commerce, the defendant-developer produced declarations stating that construction of the development project involved building material and equipment manufactured and produced in several states, that out-of-state contractors and other professionals were hired for the project, that the defendant communicated by interstate mail and telephone with out-of-state persons concerning the project, and that defendant used interstate media for marketing and advertising activities throughout the country. Id. at 1214. The court found this evidence more than sufficient to meet the requirement that the agreements "involved interstate commerce."*fn2 Id. The question here is whether plaintiffs have sufficiently alleged the requisite "substantial effect on interstate commerce." Even if the Sherman Act and the FAA's interstate commerce requirements can be met by the same allegations, plaintiffs allegations are insufficient because the Complaint is devoid of any allegations that defendants' activities affect interstate commerce. Accordingly, the court will grant defendants' motion to dismiss plaintiff's claim.
B. Interstate Land Sales Full Disclosure Act
The purpose of the Interstate Land Sales Full Disclosure Act ("ILSFDA") is to ensure that buyers of property have the "facts which would enable a reasonably prudent individual to make an informed decision" about the purchase. Gibbes v. Rose Hill Plantation Dev. Co., 794 F. Supp. 1327, 1332-33 (D.S.C. 1992). The ILSFDA provides that "[i]t shall be unlawful for any developer or agent, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce, or of the mails" to engage in specified prohibited acts. 15 U.S.C. § 1703(a). "Thus, the fulcrum of the Act rests on the use of instrumentalities of transportation of communication in interstate commerce, or of the mails." Gaudet v. Woodlake Dev. Co., 399 F. Supp. 1005, 1006 (E.D. La. 1975). To invoke the court's subject matter jurisdiction over a claim, therefore, plaintiffs must allege "the required 'interstate nexus.'" Smith v. Myrtle Owner, LLC, Civ. No. 09-1655 KAM VVP, 2010 WL 2539693, at *4 (E.D.N.Y. June 16, 2010); see also Paramo v. IMICO Brickell, LLC, Civ. No. 08-20458, 2008 WL 4360609, at *4 (S.D. Fla. Sept. 24, 2008) (finding that allegations of the developer's "use of any means or instruments of transportation or communication in interstate commerce, or of the mails" was required for the Court to exercise jurisdiction under ILSFDA (quoting 15 U.S.C. § 1703(a))).
In Gaudet, the defendant-developer moved to dismiss the plaintiff-purchasers' ILSFDA claims. The court, however, denied the request because a deposition of the defendant revealed that it used both the mails and telephone to promote the development. Id. at 1007. Likewise, the plaintiff-purchasers in Smith pled the required interstate nexus when they alleged that the ...