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Connie Cherrone, Ricardodominguez, Denise v. Florsheim Development

February 27, 2013



Plaintiff homeowners brought this action against defendants Florsheim Development, Florsheim Properties, Rose Petals, LLC, and Rose Park, LLC, arising from defendants' allegedly wrongful conduct relating to the development and sale of homes within a housing subdivision. Plaintiffs' general allegations have been previously set out in the court's December 5, 2012 Order, (Docket No. 21), and will not be repeated here. In that Order, the court dismissed plaintiffs' federal claims in the First Amended Complaint ("FAC") with leave to amend and declined to exercise supplemental jurisdiction over plaintiffs' remaining state law claims. (Dec. 5, 2012 Order at 6-13.) Plaintiffs filed their Second Amended Complaint ("SAC") on December 21, 2012, bringing the same claims as brought in the FAC. (Docket No. 22.) Currently before the court is defendants' motion to dismiss the SAC under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.

I. Discussion

A. Interstate Land Sales Full Disclosure Act ("ILSFDA")

As explained in the December 5, 2012 Order, plaintiffs' claim alleging violations of the ILSFDA, 15 U.S.C. § 1703(a)(2), sounds in fraud and must be pled with particularity under Federal Rule of Civil Procedure 9(b). See Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-04 (9th Cir. 2003); Degirmenci v. Sapphire-Fort Lauderdale, LLLP, 693 F. Supp. 2d 1325, 1341-43 (S.D. Fla. 2010). In that Order, the court dismissed plaintiffs' claim because "plaintiffs failed to identify which defendant made the allegedly false statements, the time and place of the statements, and the specifics of the statements." (Dec. 5, 2012 Order at 8.)

Plaintiffs now allege that defendants, from 2008 to 2010 as "An Anniversary Gift to You," made false promises to refund the difference in price between a home at purchase and at the year's end. (SAC ¶ 35.) Defendants allegedly made this promise through unidentified "website, brochure, press release, radio and television," and by banners hanging across the entrance to the subdivisions. (Id.) Defendants also allegedly failed to disclose that prices of the homes were artificially increased, failed to disclose the sales agents' "dual agency relationships," and misrepresented aspects of the development of the neighborhood, such as the building of a park, through undisclosed "map layouts," "Subdivision maps," "brochure and signage," "the public record," and "verbal representation from the Florsheim Homes sales representatives." (Id. ¶¶ 30, 41, 42, 47, 52, 54.) Plaintiffs further allege a fraudulent "scheme" to artificially bolster home prices through the use of "captive" lenders and appraisers. (Id. ¶¶ 24, 29, 31, 51(b).) Sales agents Mattie Zedlitz and Tiffany Leon, along with the alleged president of Florsheim Homes, Joseph Anfuso, are alleged to have "fully participat[ed] in all activities" related to the fraud. (Id. ¶ 5.)

Plaintiffs again fail to plead fraud with sufficient particularity. Plaintiffs do not identify a specific statement or omission, let alone the person or marketing material making the misrepresentation. They refer to a broad array of advertising material without identifying a specific brochure or advertisement, nor do they explain how each of the plaintiffs encountered the alleged misrepresentations.*fn1 Furthermore, to the extent plaintiffs rely upon a generalized fraudulent scheme to raise housing prices by false appraisals, plaintiffs fail to adequately allege any specifics of the scheme, including the offending appraisers and each participant's role in the scheme.

At the hearing on defendants' motion, counsel for plaintiffs argued that the SAC adequately alleges misrepresentations by Mattie Zedlitz and Tiffany Leon, defendants' sales agents, when the sales agents distributed brochures which falsely promised to refund the difference between the home price at sale and at the year's end. The SAC, however, does not include any such allegation. Rather, the SAC only alleges that the sales agents distributed lists of preferred lenders at model home showings between 2006 and 2011. (SAC ¶¶ 25-26.) Nowhere does the SAC allege that these brochures included promises to refund the difference in the home's price at the year end.

Overall, as in the FAC, plaintiffs' allegations are not "'specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong.'" Kearns, 567 F.3d at 1124 (quoting Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)). Plaintiffs' ILSFDA claim will therefore be dismissed.

B. Sherman Act

In the December 5, 2012 Order, the court dismissed plaintiffs' claim under § 1 of the Sherman Act, 15 U.S.C. § 1, because plaintiffs failed to sufficiently plead that defendants tied home sales to financing under the first prong of a per se tying violation. (Dec. 5, 2012 Order at 12.) To state a claim for a per se tying violation, the plaintiff must allege: "'(1) that the defendant tied together the sale of two distinct products or services; (2) that the defendant possesses enough economic power in the tying product market to coerce its customers into purchasing the tied product, and (3) that the tying arrangement affects a not insubstantial volume of commerce in the tied product market.'" Rick-Mik Enters., Inc. v. Equilon Enters. LLC, 532 F.3d 963, 971 (9th Cir. 2008) (quoting Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 912 (9th Cir. 2008)) (internal quotation marks omitted).

"The essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms." Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984), overruled on other grounds by Illinois Tool Works Inc. v. Indep. Ink, 547 U.S. 28 (2006). If a defendant lacks market power in the relevant tying product market, there can be no cognizable tying claim because the defendant "has no power to force, exploit, or coerce" the plaintiff to purchase a tied product or to affect competition in the tied-product market. Rick-Mik, 532 F.3d at 972. "A failure to allege power in the relevant market is a sufficient ground to dismiss an antitrust complaint." Id.

In Rick-Mik, the Ninth Circuit reviewed a district court's dismissal of a Sherman Act tying claim for failure to state a claim upon which relief can be granted. See id. at 970. The plaintiff alleged that Equilon, which does business as Shell Oil Products, required the plaintiff to use its credit-card processing services (the tied product) when the plaintiff obtained a retail gasoline franchise (the tying product). Id. at 972. While the plaintiff alleged specific facts as to Equilon's power in the retail gasoline market, the plaintiff failed to adequately allege market power in the relevant market for the tying product---the retail gasoline franchise market---because the complaint failed to include relevant factual allegations such as "what percentage of gasoline franchises are Equilon's (Shell/Texaco) as compared to other franchises[,] . . . the percentage of gasoline retail sales that are made through non-franchise outlets[,] . . . the amount of power or control that Equilon has over prospective franchisees[,] . . . [or] the relative difficulty of a franchisee to switch franchise brands." Id.

Even assuming, without deciding, that plaintiffs' amended allegations can be read to indicate a tying arrangement, plaintiffs here, like the plaintiff in Rick-Mik, fail to allege defendants' market power in the relevant market. While the plaintiffs allege that Florsheim Homes built "literally thousands" of homes between 2006 and 2011, (SAC ¶ 33), the SAC lacks any factual allegations as to the percentage of homes in the relevant market built by Florsheim compared to other builders, the percentage of home sales by non-Florsheim developers in the relevant market, or the relative difficulty of obtaining a comparable home in the relevant market. See Rick-Mik, 532 F.3d at 972.*fn2

Plaintiffs rely on Northern Pacific Railway Company v. United States, 356 U.S. 1 (1958). There, the Court found an illegal tying arrangement based on the extensive landholdings of the defendant railroad. See N. Pac. Ry. Co., 356 U.S. at 7 (noting that the railroad "possessed substantial economic power by virtue of its extensive landholdings"). Here, however, plaintiffs fail to adequately allege the extent of defendants' holdings or power in the relevant market. To the extent plaintiffs wish the court to apply any kind of presumption of market power due to the unique nature of property or homes, the Supreme Court, in overruling its case law holding that a patent on the tying product creates a presumption of market power, has explicitly held that "in all cases involving a tying ...

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