United States District Court, E.D. California
GERALD CARLIN, JOHN RAHM, PAUL ROZWADOWSKI AND BRIAN WOLFE, individually and on behalf of themselves and all others similarly situated, Plaintiffs,
DAIRY AMERICA, INC. and CAIFORNIA DAIRIES, INC., Defendants.
ORDER ON MOTION OF DAIRY AMERICA AND CALIFORNIA
DAIRIES FOR RECONSIDERATION OF COURT'S ORDER OF MAY 2,
2016 DOC. #'S 306 AND 308
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.
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."
DairyAmerica's Request for Reconsideration
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.
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.
Plaintiffs Alleged Facts Sufficient to Show Intent to Defraud
Against Dairy America
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
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.
Pleading Standard of Rule 9(b) Met
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).
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.
primary argument relies on the "possible/probable"
distinction that was emphasized in the appellate court's
decision in Eclectic ...