United States District Court, N.D. California
ORDER GRANTING DEFENDANT PAUL BARSKY'S MOTION TO DISMISS WITHOUT LEAVE TO AMEND Re: Dkt. No. 6
KANDIS A. WESTMORE, Magistrate Judge.
On February 11, 2015, Defendant Paul Barsky filed a motion to dismiss Plaintiffs Lodgepole Investments, LLC and Lodgepole Fund No. I, LLC's complaint alleging fraud, conversion, conspiracy, and unjust enrichment.
On March 19, 2015, the Court held a hearing, and after careful consideration of the parties arguments and the applicable legal authority, for the reasons set forth below, the Court GRANTS Defendant's motion to dismiss without leave to amend.
Edward Gennady Barsky ("Gennady"), Defendant Paul Barsky's brother, was one of two managers of Plaintiffs Lodgepole Investments, LLC ("Lodgepole Investments") and Lodgepole Fund No. I, LLC ("Lodgepole Fund")(collectively "Lodgepole Entities"), both Nevada limited liability companies. (Compl., Dkt. No. 1, Ex. A ¶¶ 1-2, 8.) The Lodgepole Entities are real estate investment companies, whose business includes funding private money loans through a strenuous underwriting process that required the approval of Gennady and the other manager, Margaret Taylor. (Compl. ¶¶ 12-13, 15-16.) They do not make personal, unsecured loans. (Compl. ¶ 14.)
As a manager, Gennady had responsibility for day-to-day managerial tasks of the Lodgepole Entities, including dispersing funds to borrowers from the Lodgepole Entities bank accounts and making payments on behalf of the Lodgepole Entities. (Compl. ¶ 10.) Gennady did not have an ownership interest in the Lodgepole Entities, and was compensated through his management fees and occasional profit sharing when excess profits were generated. (Compl. ¶ 11.) At some point in time, but continuing through November 2012, Gennady began making payments, using Lodgepole Entities' funds, on credit cards in Defendant's name. (Compl. ¶ 17.) These were not made in the course or scope of Gennady's employment and were not authorized by Taylor or Plaintiffs. Id. Plaintiffs allege that the amount of payments made totaled $527, 957.29. (Compl. ¶ 18.) Gennady did not obtain any of the documentation from Defendant that the Lodgepole Entities required of qualified borrowers nor did he otherwise secure the loan. (Compl. ¶ 19.)
Due to other discovered improprieties, Gennady resigned as a managing member on October 31, 2012. Compl. ¶ 39, Lodgepole Investments, LLC v. Edward Gennady Barsky, et al., Case No. 13-00446-NC (N.D. Cal. Jan. 31, 2013)("2013 Action"), ECF No. 1. The Lodgepole Entities discovered the improper taking of the funds for credit card payments in mid-November 2012. (Compl. ¶ 23.)
On or about January 28, 2013, Gennady filed for Chapter 11 Bankruptcy relief. (Compl. ¶ 24.)
On January 31, 2013, Lodgepole Investments filed a lawsuit in federal court against Gennady and his two companies, St. Tropez Capital, LLC and Monaco Development, LLC alleging that he had misappropriated "at least 11.9 million from the Lodgepole Entities, " including using the Lodgepole Entities' funds for the "payment of charges to credit cards held in the name of Barsky's parents, Rozaliya and Vladimir Kats, and his brother, Paul I. Barsky." Compl. ¶¶ 2, 2013 Action. Lodgepole Fund was not a plaintiff in that litigation, because it "assigned its claims against Barsky, St. Tropez Capital, and Monaco Development to Lodgepole Investments, which [ ] pursu[ed] those claims as the real party in interest." Compl. ¶ 43, 2013 Action.
On December 19, 2013, Lodgepole Investments dismissed the case with prejudice pursuant to a settlement agreement. Not. of Dismissal, 2013 Action (Dec. 19, 2013), ECF No. 26; Pls.' Opp'n at 3.
On October 31, 2014, Plaintiffs Lodgepole Investments and Lodgepole Fund filed the instant action against Defendant Paul Barsky in Contra Costa County Superior Court, alleging fraud, conversion, conspiracy, and unjust enrichment in connection with the same payments Gennady allegedly made on credit cards held in Defendant's name, which were alleged in the prior action, and specifically alleged that Defendant was a co-conspirator. On February 4, 2015, Defendant removed the case to federal court.
On February 11, 2015, Defendant filed a motion to dismiss on the grounds that the lawsuit was barred by res judicata. (Def.'s Mot., Dkt. No. 6.) On February 25, 2015, Plaintiffs filed their opposition. (Pls.' Opp'n, Dkt. No. 14.) On March 4, 2015, Defendant filed his reply. (Def.'s Reply, Dkt. No. 19.)
On March 19, 2015, the Court held at hearing on Defendant's motion to dismiss.
II. LEGAL STANDARD
A. Motion to Dismiss under Federal Rule of Civil ...