United States District Court, S.D. California
JORGE ANTHONY CARRASCO aka TONY CARRASCO MOTORS; and NANCY JEAN CARRASCO, an individual, Plaintiff,
STANLEY IVAN HORWITZ, an individual; ANITA HORWITZ, an individual; THE SPRING STAR TRUST, a Trust; KENNETH G. ADAMS REVOCABLE TRUST dtd 05/14/93; and ALAN G. HORWITZ, individually and as trustee of the Star Spring Trust and Kenneth G. Adams Revocable Trust; and DOES 1 through 50, Defendant.
WILLIAM Q. HAYES, District Judge.
The matters before the Court are the Motion to Dismiss Plaintiffs' Second Amended Complaint filed by Defendants Alan G. Horwitz, Kenneth G. Adams Revocable Trust, and The Star Spring Trust (ECF No. 8) and the Motion to Dismiss Plaintiffs' Second Amended Complaint filed by Defendants Stanley Horwitz and Anita Horwitz (ECF No. 9).
On January 29, 2013, Plaintiffs Jorge Anthony Carrasco and Nancy Jean Carrasco commenced this action by filing a complaint in San Diego County Superior Court. (ECF No. 1 at 2). On June 14, 2014, Plaintiffs filed a second amended complaint, which is the operative pleading (hereinafter "Complaint"). Id. On July 11, 2014, Defendants Alan Horwitz, The Star Spring Trust, and the Kenneth G. Adams Revocable Trust removed to this Court pursuant to 28 U.S.C. § 1441(a) on the basis of federal question jurisdiction. (ECF No. 1). The notice of removal states that the removing Defendants have obtained the consent of Defendants Stanley Ivan Horwitz and Anita Horwitz. (ECF No. 1-3 at 2).
On July 22, 2014, Defendants Alan Horwitz, Kenneth G. Adams Revocable Trust, and The Star Spring Trust (collectively "the Trust Defendants") filed the Motion to Dismiss Plaintiffs' Second Amended Complaint. (ECF No. 8). On July 25, 2014, Defendants Stanley Horwitz and Anita Horwitz filed the Motion to Dismiss Plaintiffs' Second Amended Complaint. (ECF No. 9). On August 25, 2014, Plaintiffs filed oppositions to the motions to dismiss. (ECF Nos. 15-16). On August 29, 2014, Defendants filed replies in support of their respective motions to dismiss. (ECF Nos. 18-19).
II. Allegations of the Complaint
Plaintiffs owned a used car business known as Tony Carrasco Motors, "which was located at 9020 Campo Road, Spring Valley, California since approximately 1997." (ECF No. 1-2 at 5). "Beginning in approximately 1997, Plaintiff, Jorge Anthony Carrasco entered into a oral partnership agreement with Defendant Stanley Ivan Horwitz (Stan Horwitz') and his wife Anita Horwitz under which Anita Horwitz represented she would initially invest $400, 000.00 in the Company and Stan Horwitz would become the financial manager of the Company, not as an employee, but a partner who would share in the profits with his wife, Anita Horwitz." Id. "It was verbally agreed that Stan Horwitz would be in charge of all financial aspects of the business including, but not limited to, dealing with Plaintiffs' tax returns, accounts payable, accounts receivable, cash and check deposits, bookkeeping, and bank deposits. At no time did Defendants disclose their criminal, bankrupt and insolvency history to Plaintiffs." Id. "Defendants further did not invest $400, 000 on November 1, 1997 as stated, but provided funds for car purchases for resale over a lengthy period beginning in or about October of 1997." Id.
"This arrangement was similar to a flooring' or re-sale car financing agreement with Defendants claiming to invest original funds for purchase of the cars for resale. In fact, starting in October of 1997, Defendant Anita Horwitz invested money for the purchase of cars in Tony Carrasco Motors while she owed more than $10, 000, 000 in civil judgments to the banks who were criminally defrauded in 1989 to 1992 and continuing to the present." Id.
Between 1997 and 2011, Defendant Stan Horwitz was responsible for collecting payments made to Tony Carrasco Motors and depositing them into the Company's bank account. "Tony Carrasco was not involved in the financial aspects of the business handled by Stan Horwitz.... Tony Carrasco had put his full and complete trust, faith and confidence in Stan Horwitz and, in fact, relied upon him to carry out the financial duties that Tony Carrasco was not sophisticated enough to handle in part due to the onset of Parkinson's disease later in the partnership and enterprise Defendants created." Id. at 6.
In May of 1992, Defendant Stanley Horwitz was convicted of felony fraud arising from his operation of several car dealerships "out east" and he "declared bankruptcy" in 1990, which was "converted to a Chapter 7 on June 22, 1992." Id. at 6-7. Defendants Stanley and Anita Horwitz have had numerous civil judgments entered against them arising from their operation of prior automobile dealerships. None of these facts were known to the Plaintiffs.
"On August 26, 1999, Plaintiffs, as one half owners, and Anita Horwitz as the other half owner, purchased the location at 9020 Campo Road, Spring Valley, California where Tony Carrasco Motors was located." Id. at 7. After receiving a "recorded judgment on or about November 14, 2001, Defendant Anita Horwitz, through the help and assistance of Defendant Star Springs Trust [sic], Alan Horwitz Trustee, transferred her one half interest in the property at 9020 Campo Road to Star Spring Trust, Alan Horwitz, Trustee' on April 9, 2003. This transfer aided and assisted in keeping Defendants' illegal and fraudulent enterprise concealed from Plaintiffs and the governing authorities for motor vehicle sales in California. The transfer of this one half interest worked as a fraud on the federally insured creditor who levied the $5, 507, 195.47 judgment through recording of the abstract of judgment against Anita Horwitz." Id. at 7-8. This transfer, recorded in San Diego on April 9, 2003, and done "through U.S. Mails" constituted "mail fraud." Id. at 24.
"Had Plaintiff Jorge Carrasco known of the felony fraud conviction, the bankruptcy arising from the operation of automobile dealerships and/or the civil judgments against Anita Horwitz arising from the operation of those automobile dealerships, Plaintiff would not have gone into business with defendants." Id. at 8. "Plaintiff Jorge Carrasco, due to the total failure to disclose any of these material facts, became an unwitting participant in Defendants' unlawful enterprise which allow Defendants Anita Horwitz and Stanley Horwitz to profit from an automobile dealership in California without any disclosure or licensure of their participation in the Tony Carrasco Motors car dealership." Id. Such disclosure is required under California law. "Defendants used the mails to further their unlawful enterprise by mailing the Grant Deed for the real property transferred to" the Star Spring Trust to Alan Horwitz. Id. at 8.
Beginning in 1999, Plaintiffs considered incorporating Tony Carrasco Motors, but "Defendant Stanley Horwitz advised Plaintiffs that the use of the corporate entity would be too extensive." Id. This advise was a "ruse to prevent Plaintiffs from changing the structure of the business, " which would have required disclosures to the California Department of Motor Vehicles. Id. at 9.
In 2003, Defendant Stanley Horwitz began signing checks on the Tony Carrasco Motors account to pay personal expenses. "Defendants failed to and continued to fail to inform Plaintiffs of the prior felony fraud conviction, the automobile dealership bankruptcy and the civil judgments arising from the operation of dealerships." Id. "The Tony Carrasco Motors enterprise sold vehicles in Mexico and received trade-ins from various states which required title transfers between states and affected interstate commerce." Id.
"In approximately the summer of 2011, Tony Carrasco became concerned that cash flow of the Company had reached a point where an additional investment was required in order to keep business going." Id. "Plaintiff Tony Carrasco asked his wife, Nancy Jean Carrasco, to start coming into the office in order to find the source of their cash flow difficulties." Id. at 10. "Through a detailed comparison of... receipts, with each bank deposit made for the period of 2005 through 2011, it was discovered that approximately $1, 678, 000.00 or more was missing from the business." Id. "After tracking missing cash funds which Stanley Ivan Horwitz was to deposit, Plaintiffs discovered that Defendants had embezzled the cash and would occasionally launder the cash stolen from Tony Carrasco Motors through various accounts." Id. On many occasions, "a check in the amount of the missing cash funds was written to Tony Carrasco Motors' from Stanley Ivan Horwitz with the designation of loan' on the check." Id. "Plaintiffs are informed and believe that Defendants also laundered more than $100, 000 of embezzled funds through Barona Casino and into their own accounts." Id.
Defendant Stan Horwitz was not depositing all of the cash he received from the business. Instead of depositing it, "he would keep the money for himself, his wife Anita, and to maintain the real property at 2133 Corte Dorado Espuela, Alpine, California." Id. at 11. "The title to the property is held in the Kenneth G. Adams Family Trust name, " and Defendant Alan G. Horwitz is trustee. Id.
As a result of the theft, "Tony Carrasco Motors was forced to periodically borrow large sums of money from Nick Romeo so that it would have sufficient cash flow to run its business." Id.
The Complaint asserts two Racketeer Influenced and Corrupt Organization Act ("RICO") claims, for violations of 18 U.S.C. sections 1962(a) and ...