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Connie Cherrone, Ricardo Dominguez, Denise v. Florsheim Development

December 4, 2012

CONNIE CHERRONE, RICARDO DOMINGUEZ, DENISE ELLIS, THOMAS HOOVER, HAZEL SARMIENTO, THELMA KNIGHTON,
HENRY KNIGHTON, VICENT MACIAS,
SHAHANNY MACIAS, TRAVIS MARTIN, KATIE MARTIN, DUC TAN NGUYEN, STEPHEN ORTEGA, DALE RISENHOOVER, KRISTA REGO, AND JARED STERRITT, PLAINTIFFS,
v.
FLORSHEIM DEVELOPMENT, A CALIFORNIA CORPORATION; FLORSHEIM PROPERTIES, A CALIFORNIA CORPORATION; ROSE PETALS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY; ROSE PARK, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY; AND DOES 1-300 INCLUSIVE, DEFENDANTS.



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 First Amended Complaint ("FAC") in its entirety under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.

I. Factual and Procedural Background Plaintiffs are the original purchasers of homes in the Valley Blossom Subdivision ("Subdivision") located in San Joaquin, California. (First Am. Compl. ¶ 2 ("FAC") (Docket No. 1).) Defendants are the developer, builder, and sellers of the homes. (Id. ¶¶ 3-6.) Plaintiffs allege that defendants conspired 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 further allege that defendants "tied" the sale of homes to financing with the captive lenders, (id. ¶¶ 23-24, 30, 42), and that defendants misrepresented the value of homes to buyers as well as the stability of the market in the neighborhood, (id. ¶¶ 36-41).

Defendants brought a motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction and, in the alternative, failure to state a claim under Rule 12(b)(6). (Docket No. 9.) The court granted defendants' motion, dismissing the federal claims in the Complaint for lack of subject matter jurisdiction and declining to exercise supplemental jurisdiction on the remaining state law claims. (Docket No. 12.) Plaintiffs filed the FAC on October 17, 2012. (Docket No. 13.)

In the FAC, 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.

Defendants now move to dismiss all claims under Rule 12(b)(6) for failure to state a claim upon which relief can be granted.

II. Discussion

To survive a motion to dismiss, a plaintiff must plead

"only enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and "[w]here a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557). In deciding whether a plaintiff has stated a claim, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972).

A. Dismissal Due to Arbitration Defendants first argue that all claims are subject to an arbitration clause contained in the homeowners' purchase agreements. In support of their motion, defendants submit ten exhibits for the court's consideration. (See Florsheim Decl. Exs. A-J (Docket No. 14).) Each exhibit includes two documents:

(1) a Purchase Agreement signed by the respective plaintiffs that contains an dispute resolution clause; and (2) the 2-10 Home Buyers Warranty Booklet ("Warranty Booklet"), which defendants represent is a copy of the arbitration provisions incorporated by reference in the dispute resolution clause of the Purchase Agreements. (Id. ¶¶ 2-11.)

While a court generally may look only to the complaint and any attached exhibits on a Rule 12(b)(6) motion to dismiss, the court "may also consider unattached evidence on which the complaint 'necessarily relies' if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the document." United States v. Corinthian Colleges, 655 F.3d 984, 999 (9th Cir. 2011) (citing Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006); Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)).

Plaintiffs vigorously dispute the authenticity of the attached Warranty Booklet and indicate that the terms of the attached Warranty Booklet are unconscionable under California law. Factual development would be needed to determine what arbitration or dispute resolution process, if any, plaintiffs consented to in the Purchase Agreements and whether that process is enforceable. Thus, the court cannot find that plaintiffs entered into a valid arbitration agreement on the basis of the submitted documents. See id. (noting that the court could consider the existence of disputed reports referenced in the complaint, but could not "draw inferences or take notice of facts that might reasonably be disputed" when there "are open questions requiring further factual development").

Although the FAC alleges that plaintiffs entered into arbitration agreements, (see FAC ¶ 15(e)), it does not disclose the scope of the claims subject to arbitration. See Kilgore v. KeyBank, Nat. Ass'n, 673 F.3d 947, 955 (9th Cir. 2012) ("'The court's role under the Act is . . . limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.'" (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)). Thus, the court will not dismiss plaintiffs' claims as arbitrable or stay the action pending arbitration at this time.*fn1

B. Interstate Land Sales Full Disclosure Act In their first claim for relief, plaintiffs allege a violation of the Interstate Land Sales Full Disclosure Act ("ILSFDA"). The ILSFDA is "designed to prevent false and deceptive practices in the sale of unimproved tracts of land by requiring developers to disclose information needed by potential buyers." Flint Ridge Dev. Co. v. Scenic Rivers Ass'n of Okla., 426 U.S. 776, 778 (1976). The ILSFDA's anti-fraud provision makes it unlawful for any developer or an ...


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