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Stereoscope, LLC v. U.S. Bank National Association

United States District Court, C.D. California

February 11, 2015

STEREOSCOPE, LLC, a California limited liability company; CRONKITE & KISSELL, LLC, a California limited liability company; CLINT CRONKITE; DAVID KISSELL, Plaintiffs,
v.
U.S. BANK NATIONAL ASSOCIATION, a national banking association; KIM GALBRAITH, an individual; PAULA OSWALD, an individual; OLALEYE FADAHUNSI, an individual, Defendants.

ORDER DENYING PLAINTIFFS' MOTION TO REMAND AND GRANTING DEFENDANTS' MOTION TO DISMISS [Dkt. Nos. 10, 11]

DEAN D. PREGERSON, District Judge.

Presently before the Court are Plaintiffs' Motion to Remand ("Mot. to Remand, " Dkt. No. 11) and Defendants' Motion to Dismiss ("Mot. to Dismiss, " Dkt. No. 10). Having considered the parties' submissions, the Court DENIES Plaintiffs' Motion to Remand and GRANTS Defendants' Motion to Dismiss.

I. BACKGROUND

Plaintiffs Clint Cronkite and David Kissell are the owners and principals of Cronkite & Kissell, LLC ("Cronkite & Kissell"), a California financial advisory and private investments company. (Complaint ("Compl."), Dkt. No. 1, ¶ 1.) Cronkite & Kissell is a majority owner of Stereoscope, LLC ("Stereoscope"), a California production services company that specializes in 3D technology and film services. (Id.)

On July 11, 2011, Plaintiff Stereoscope entered into a Joint Venture Agreement (the "Agreement") to produce motion pictures with Cutting Edge Pictures ("CEP"), a wholly owned subsidiary of The Reserve Entertainment Group ("TREG"). (Id. ¶ 2) The Agreement required Stereoscope to obtain four percent of the film financing. (Id. ¶ 4.) TREG and Stereoscope also formed Cutting Edge/Stereoscope Motion Pictures, LLC ("CESMP") pursuant to the Agreement. (Id.)

Stereoscope raised $708, 000 from investors to satisfy its four percent of the film financing. (Id. ¶ 5.) TREG formed Liberty City Movie, LLC ("LCM") to begin work on the Joint Venture's first project, and designated TREG as managing member and CESMP as a member. (Id. ¶ 6.) In or around March 2012, LCM opened an escrow account at U.S. Bank National Association ("U.S. Bank"), with LCM as borrower, EB Capital as lender, and U.S. Bank as the escrow agent. (Id.) The escrow agreement indicated that Allen Bates, a principal at TREG, was the authorized representative for LCM and that Joshua Estes was the authorized representative for EB Capital. (Exhibit A to Compl.) The $708, 000 Stereoscope had raised was placed into this LCM escrow account. (Compl. ¶ 6)

Defendants are U.S. Bank National Association, which was the escrow agent for LCM's funds, as well as three employees of U.S. Bank who were involved in various ways with the administration of the LCM escrow account. Defendant Kim Galbraith was the LCM account manager, Defendant Olaleye Fadahunsi was the investment manager, and Defendant Paula Oswald was a Vice President at U.S. Bank. (Id. ¶¶ 6, 25-27.) Of all Defendants, only Paula Oswald is a citizen of California. (Id. ¶¶ 24-27.)

In or around May 2012, the relationship between TREG and Stereoscope began to deteriorate. (Id. ¶ 7.) On May 30, 2012, Stereoscope sent a "Notice of Claims" letter to U.S. Bank informing Galbraith of a dispute over the funds in the account and requesting that U.S. Bank freeze the funds pending resolution of the dispute. (Id.) On November 19, 2012, Stereoscope served TREG, CEP, and LCM with a demand for arbitration. (Id.) On November 21, 2012, U.S. Bank released $705, 892 from the LCM escrow account to TREG. (Id.)

On February 14, 2013, Judge Diane Wayne, who arbitrated the dispute, issued a preliminary injunction finding wrongdoing on the parts of TREG, CEP, and LCM. (Id. ¶ 8.) After Judge Wayne issued further subpoenas, Plaintiffs eventually learned that U.S. Bank had released the majority of the funds from the LCM escrow account and that TREG had formed another company, Checkmate Film Funding, LLC ("Checkmate"), which had put $500, 000 of the withdrawn funds into a new escrow account with U.S. Bank. (Id. ¶ 9.) On October 31, 2013, Judge Wayne issued a final arbitration award in favor of Stereoscope. (Id. ¶ 10.)

Plaintiffs claim that to date they have not recovered any of the funds stolen from the U.S. Bank escrow accounts. (Id. ¶ 11.) Defendants contend that U.S. Bank properly interpleaded the $500, 000 in the Checkmate escrow account in a state court action, enabling Plaintiffs to recover that entire $500, 000 amount less attorney's fees. (Mot. to Dismiss, Dkt. No. 10-1, at 2.)

Plaintiffs allege that U.S. Bank wrongfully refused to freeze the funds in the original LCM escrow account and refused to obey any instructions from Stereoscope after receipt of the "Notice of Claims." Plaintiffs further allege that Defendants subsequently aided LCM and TREG's fraud in moving the LCM escrow funds and concealing the fact that the funds had been moved.

On May 28, 2014, Plaintiffs filed a Complaint against Defendants in Los Angeles Superior Court. (Dkt. No. 1.) The Complaint alleged seven causes of action: (1) intentional interference with contractual relations; (2) fraud and deceit; (3) fraudulent concealment; (4) intentional interference with prospective business relations; (5) gross negligence; (6) intentional infliction of emotional distress; and (7) punitive damages.

Defendants removed the case to federal court, arguing that Plaintiffs included Defendant Paula Oswald as a sham defendant to destroy diversity. (Dkt. No. 1.) Defendants subsequently filed a Motion to Dismiss for Failure to State a Claim. ...


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