Carlin v. Dairy America, Inc.

          ORDER ON MOTION OF DAIRY AMERICA AND CALIFORNIA DAIRIES FOR RECONSIDERATION OF COURT'S ORDER OF MAY 2, 2016 DOC. #'S 306 AND 308

         Currently before the court are motions by both Defendant parties, DairyAmerica, Inc. ("DairyAmerica") and California Dairies, Inc. ("California Dairies") for reconsideration of the court's order of May 2, 2016, granting in part and denying in part motions by both parties to dismiss the Third Amended Complaint ("TAC") of plaintiffs Gerald Carlin, et al. ("Plaintiffs"). DairyAmerica's motion for reconsideration is located at Docket Number 306 and California Dairies' motion is located at Docket number 308. The court will consider the requests in numerical order.

         LEGAL STANDARD

         Motions to reconsider are committed to the discretion of the trial court. Rodgers v. Watt, 722 F.2d 456, 460 (9th Cir. 1983) (en banc); Combs v. Nick Garin Trucking, 825 F.2d 437, 441 (D.C.Cir. 1987). To succeed, a party must set forth facts or law of a strongly convincing nature to induce the court to reverse its prior decision. See, e.g., Kern-Tulare Water Dist. v. City of Bakersfield, 634 F.Supp. 656, 665 (E.D.Cal. 1986), aff'd in part and rev'd in part on other grounds, 828 F.2d 514 (9th Cir. 1987). When filing a motion for reconsideration, Local Rule 78-230(k) requires a party to show the "new or different facts or circumstances claimed to exist which did not exist or were not shown upon such prior motion, or what other grounds exist for the motion."

         DISCUSSION

         1. DairyAmerica's Request for Reconsideration

         The court's order of May 2, 2016, (hereinafter, the "May 2 Order") Doc. # 303, granted DairyAmerica's motion to dismiss Plaintiffs' RICO claims on the ground that RICO violation cannot be alleged against the enterprise through which the unlawful scheme is realized; the violation can only be alleged against the individuals or entities who were employed by or associated with the enterprise. See May 2 Order at pages 4-6. The court noted in the May 2 Order that DairyAmerica had asserted other grounds for dismissal, including failure to allege DairyAmerica profited from the alleged fraudulent conduct and that the allegation of fraud failed to meet the enhanced pleading standard set forth in F.R.C.P. 9(b). Because the court found that DairyAmerica's contention that it could not be charged with a RICO violation because it was the enterprise was dispositive, the court declined to address DairyAmerica's remaining grounds. Id.

         In its motion for reconsideration, DairyAmerica clarifies that, although their contentions with regard to the adequacy of Plaintiffs' fraud claims were set forth in subsections of their motion to dismiss that were labeled as pertaining to Defendants' motion for dismissal of the RICO claims (claims numbered 4 and 6), DairyAmerica had intended that the same arguments should constitute a challenge to Plaintiffs' claim for intentional misrepresentation, Claim Number 2. In particular, DairyAmerica points out that it asserted two theories in support of the dismissal of the fraud component of Plaintiffs' RICO claims that apply equally to Plaintiffs' claim against DairyAmerica for intentional misrepresentation. First, DairyAmerica asserts the claim of intentional misrepresentation is inadequately pled because DairyAmerica "could not realize financial gain from the fraud alleged." Doc. # 306 at 3:14. Second, DairyAmerica asserts Plaintiffs' claim for intentional misrepresentation is inadequately pled because it does not meet the pleading standard of F.R.C.P. 9(b). The court will consider each contention in turn.

         A. Plaintiffs Alleged Facts Sufficient to Show Intent to Defraud Against Dairy America

         DairyAmerica references pages 13-14 of its motion to dismiss (Doc. # 268), which advances its argument that demonstration of intent to defraud requires a showing that the perpetrator stood to gain financially from the fraud. See Doc. # 268 at 20:7-10 (citing Gypsum Co. v. Lloyds Int'l. Corp., 753 F.Supp. 505, 514 (S.D.N.Y. 1990)). As Plaintiffs point out, the court has previously addressed this argument in the context of the Defendants' collective challenge to Plaintiffs' motion to file what became their TAC. In its order of January 20, 2016, granting Plaintiffs' "Renewed Motion for Leave to File a Second Amended Complaint, " (hereinafter, the "January 20 Order") the court noted that an intent to defraud requires the showing of an "intent to deceive or cheat for the purpose of either causing financial loss to another or bringing about financial gain to oneself." Doc. # 240 at 11:16-18 (quoting United States v. Cloud, 872 F.2d 846, 852, n.6 (9th Cir. 1989)). While the court agrees that an intent to defraud must reflect an intent to realize financial advantage; there is no requirement that the financial advantage intended be in the form of a profit. DairyAmerica's contention that Plaintiffs could not show that DairyAmerica could realize a "financial gain" misconstrues the meaning of the term. Logically, the outcome of a monetary transaction, fraudulent or otherwise, spans a spectrum from "loss" to "break even" to "profit." Properly understood, "financial gain" does not necessarily mean "profit;" it means any relative improvement along the spectrum from loss to profit. Thus, it is sufficient for purposes of demonstrating an intent to defraud that evidence be adduced to show that DairyAmerica acted with an intent to shift the risk of rising spot prices for raw milk from the handlers to the producers by unlawfully including forward contract prices in their weekly reports. By alleging DairyAmerica acted with this intent, they allege that DairyAmerica gained financially by avoiding greater loss and Plaintiffs correspondingly suffered reductions in profit. The court previously held this was sufficient for purposes of alleging fraudulent intent and continues to do so now. See Doc. # 240 at 11:16-13:7.

         To the extent DairyAmerica argues that had no intention to defraud because it had no financial interest in the profits or losses from the sale of Nonfat Dry Milk ("NFDM") because it merely passed through profit or loss to its constituent members, the court finds this argument unpersuasive for two reasons. First, DairyAmerica is constituted for the specific purpose of marketing NFDM and, as such, shares the profit motive with its constituent handler cooperatives whether or not it actually retains a portion of the profit. Second, DairyAmerica's existence, to the extent it has separate employees and a separate payroll, is predicated on its ability to make a profit greater than the constitutent handler cooperatives could realize operating on their own. Thus, the court rejects DairyAmerica's contention it did not or could not financially gain by shifting the risk of loss onto the milk producers by unlawfully reporting forward sales data on weekly reports.

         B. Pleading Standard of Rule 9(b) Met

         As the court noted in prior orders, "‘the elements for an intentional-misrepresentation, or actual-fraud, claim are (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.' UMG Recording, Inc. v. Bertelsmann AG, 479 F.3d 1078, 1096 (9th Cir.2007)." Doc. # 190 at 4:19-22. To satisfy Rule 9(b), a plaintiff must allege the "who, what, where, when, and how" of the charged misconduct. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997).

         DairyAmerica refers to the portion of their motion to dismiss set forth from pages 21 through 30 of Document Number 268. Strictly speaking, DairyAmerica's arguments do not go to the specificity of Plaintiffs' pleading; they challenge the sufficiency of the facts alleged to show fraudulent intent. Dairy America's general contention in this section of their motion to dismiss is that Plaintiffs' TAC alleges only "neutral facts." The case DairyAmerica relies primarily upon is Eclectic Properties E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 995-97 (9th Cir. 2014). Although the title of the portion of the opinion DairyAmerica cites is labeled as pertaining to both Rule 8 and Rule 9(b), the text of the appellate court's analysis dealt only with the sufficiency of the allegations under Rule 8. See Id. at 995-997 (analyzing pleading standard under Rule 8 post Twombly and Iqbal.) Thus, the court deems DairyAmerica's request for reconsideration to be based on their challenge to the sufficiency of factual allegations under F.R.C.P. 8.

         DairyAmerica's primary argument relies on the "possible/probable" distinction that was emphasized in the appellate court's decision in Eclectic ...