United States District Court, S.D. California
ALBERT CALDERON, an individual on behalf of himself and all others similarly situated, etal., Plaintiffs,
TOTAL WEALTH MANAGEMENT, INC. et. al, Defendants.
ORDER GRANTING MOTIONS TO DISMISS [DOCKET NOS. 63,
ROGER T. BENITEZ JUDGE
are two separate motions to dismiss Plaintiffs' Third
Amended Complaint (“TAC”) before the Court.
(Docket Nos. 63, 65.) The motions are fully briefed. The
Court finds the motions suitable for determination on the
papers without oral argument, pursuant to Civil Local Rule
7.1 .d. 1. For the reasons set forth below, each motion is
GRANTED with prejudice.
allege that investors were solicited to invest in Total
Wealth Management (“TWM”) and its affiliated
companies, Altus Capital Opportunity Fund, LLC
(“ACOF”) and Altus Capital Portfolio Series
(“ACPS”), primarily through a weekly radio
program, financial awareness seminars, and community
engagement. Investors were allegedly misled into believing
their funds were being safely invested based on investment
portfolio risk when in fact, investments were being channeled
primarily to Private Placement Capital Notes LLC II
(“PPCN”), LJL Secured High Yield Income Fund I,
LLC (“LJL”), and Aegis Retail Group LLC
(“AEGIS”) in exchange for fees paid by the
entities, without disclosure to investors. TWM was allegedly
under the control or direction of the following defendants by
virtue of their ownership or positions as officers: Jacob
Cooper (“Cooper”), co-founder and majority owner
of TWM; Nathan McNamee (“McNamee”), TWM's
president and chief compliance officer for relevant periods;
and David Shoemaker (“Shoemaker”), co-founder and
former chief compliance officer.
filed their initial Complaint in the Superior Court of
California, County of San Diego, Central Division, Case
Number 37-2014-00015682-CU-SL-CTL. On July 22, 2015, former
Defendant First Trust Company of Onaga, renamed Mainstar
Trust (“Mainstar”), removed the action to the
United States District Court for the Southern District of
California based on jurisdiction under the Class Action
Fairness Act (“CAFA”). (Docket No. 1.) On October
15, 2015, the Court denied Plaintiffs' motion to remand
the case back to state court due to a lack of evidence
establishing the applicability of either the “local
controversy” or “home-state controversy”
exceptions to CAFA jurisdiction. (Docket No. 42.)
March 9, 2016, the Court granted three separate motions to
dismiss Plaintiffs' Second Amended Complaint. (Docket No.
50.) On March 16, 2016, Receiver Kristen A. Janulewicz
(“Receiver”) filed a Notice of Pending
Receivership regarding her appointment as a permanent
Receiver for Total Wealth Management Inc., and its
subsidiaries and affiliates, in Securities and Exchange
Commission v. Total Wealth Management, Case No.
15-CV-226-BAS (DHB) (the “Receivership Case”).
(Docket No. 51.) Receiver's Notice included a copy of
District Judge Cynthia Bashant's preliminary injunction,
issued on February 12, 2015, which provides that:
[E]xcept by leave of this Court, during the pendency of this
receivership, all clients, investors, trust beneficiaries,
note holders, creditors, claimants, lessors and all other
persons or entities seeking relief of any kind, in law or in
equity, from Defendant Total Wealth Management, Inc., or its
subsidiaries or affiliates ... are hereby restrained and
enjoined from, directly or indirectly, with respect to these
persons and entities . .. commencing, prosecuting, continuing
or enforcing any suit or proceeding (other than the present
action by the SEC or any other action by the government)
against any of them
(Id. Ex. B.)
filed their TAC on April 18, 2016. (Docket No. 54.) On May 2,
2016, Mainstar filed a motion to dismiss the TAC. (Docket No.
60.) On May 5, 2016, Defendants Andesite Finance Company,
LLC, Secured High Yield Income Fund I, LLC, and Andesite
Mortgage Pool, LLC and Susan Lakosil (collectively,
“Andesite Defendants”) filed a motion to dismiss
the TAC. (Docket No. 63.) On May 19, 2016, Defendants Mark
Dionne and SoCal Accounting, Inc. (collectively,
“Dionne”) filed a motion to dismiss the TAC.
(Docket No. 65.)
November 29, 2016, the Court granted Mainstar's Motion to
Dismiss. (Docket No. 75.) On December 2, 2016, the Court
issued an order requesting supplemental briefing on: (1)
whether the dismissal of Mainstar divested the Court of
subject matter jurisdiction over Plaintiffs' claims, and
(2) the effect, if any, of Judge Bashant's receivership
order on Plaintiffs TAC. (Docket No. 76.) Plaintiffs and
Dionne filed supplemental briefs. (Docket Nos. 77, 80.)
Andesite Defendants filed a joinder to Dionne's brief.
(Docket No. 79.) Receiver did not file a supplemental brief.
The Court's Request for Supplemental Briefing
Subject Matter Jurisdiction
“at any time” the Court lacks subject matter
jurisdiction, “the case shall be remanded.” 28
U.S.C. § 1447(c). As mentioned above, this case was
removed by Mainstar based on jurisdiction under CAFA. (Docket
No. 1.) “CAFA gives federal courts jurisdiction over
certain class actions, defined in § 1332(d)(1), if the
class has more than 100 members, the parties are minimally
diverse, and the amount in controversy exceeds $ 5
million.” Dart Cherokee Basin Operating Co., LLC v.
Owens, 135 S.Ct. 547, 552 (2014) (citing 28 U.S.C.
§ 1332(d)(2), (5)(B) and Standard Fire Ins. Co. v.
Knowles, 133 S.Ct. 1345, 1348 (2013)).
the parties argue that any of these requirements are not met,
or that Mainstar's dismissal divested the Court of its
subject matter jurisdiction. Instead, Plaintiffs re-assert
their contention that the “local controversy”
exception to CAFA jurisdiction applies and requires remand.
(Docket No. 80.) All responding Defendants oppose remand.
(Docket Nos. 77, 79.)
the requirements of the local controversy exception are met,
a district court is required to remand the class action back
to the originating state court. Serrano v. 180 Connect,
Inc., 478 F.3d 1018, 1022-1023 (9th Cir. 2007). The
local controversy exception requires that more than
two-thirds of the proposed class are citizens of the state in
which the action was originally filed. §§
1332(d)(4)(A)(i)(I). In addition, “there must
ordinarily be at least some facts in evidence from which the
district court may make findings regarding class members'
citizenship for purposes of CAFA's local controversy
exception.” Mondragon v. Capital One Auto
Finance, 736 F.3d 880, 884 (9th Cir. 2013). “A
district court makes factual findings regarding jurisdiction
under a preponderance of the evidence standard.”
Id. (citing Valdez v. All State Ins. Co.,
372 F.3d 1115, 1117 (9th Cir. 2004)).
prior motion for remand was denied for a complete lack of
evidence as to the citizenship of the class. (Docket No. 42
at 4-5.) As “the party seeking remand, ”
Plaintiffs “bear the burden to prove an exception to
CAFA's jurisdiction.” Serrano, supra, 478
F.3d at 1022 (discussing local controversy exception, §
1332(d)(4)(A); see also Benko v. Quality Loan Serv.
Corp., 789 F.3d 1111, 1116 (9th Cir. 2015)
(“plaintiff bears burden of showing that this
provision, known as the ‘local controversy exception,
' applies to the facts of a given case.”).
Plaintiffs were granted leave to conduct jurisdictional
discovery and file a renewed motion for remand by January 6,
2016. (Docket No. 42 at 7.) The deadline to file a renewed
motion for remand elapsed without the filing of a renewed
motion for remand, and Plaintiffs admit in their supplemental
briefing that “jurisdictional discovery was not
taken.” (Docket No. 80 at 2.)
alleged in the TAC, the proposed class is “TWM's
investment advisory clients whose funds were placed in or
passed through TWM, ACOF or the series of unregistered fund
of funds referred to as the ‘Altus Portfolio
Series' who suffered damages.” (TAC f 149.) To
establish the requisite citizenship of the class, Plaintiffs
rely on the SEC Initial Decision and factual findings in the
SEC case against TWM et al., and copies of emails from
Mainstar's counsel. (Docket No. 80 at 3, Exs. 3, 5.)
Plaintiffs cite to the SEC findings that “Cooper and
Shoemaker identified potential investors by hosting workshops
and dinner seminars in ... San Diego, California” and
that Cooper “obtained clients form hosting a radio show
in San Diego” as evidence that TWM “marketed only
to investors in San Diego.” (Docket 80 at 3, Ex. 3 at
3.) Plaintiffs also represent that a number of emails from
Mainstar's counsel “demonstrate that the majority
of investors were from California.” (Docket No. 80 at
3.) Finally, Plaintiffs reiterate that all named plaintiffs
are alleged to be “residents of San Diego
findings of fact should be based on more than
guesswork.” Mondragon, 736 F.3d at 884.
Plaintiffs have not cured their failure to provide any
evidence as to the citizenship of the proposed
class. The evidence submitted suggests at most that some of
the potential class members were contacted in California or
are “from” California, but does not identify the
citizenship of any of the class members.
Mainstar's Notice of Removal provides evidence that
Defendants had between 400 and 800 clients when they were
engaging in this scheme. (Docket No. 1.) Although the TAC
alleges the 27 named plaintiffs are “residents
of the State of California, County of San Diego, ” it
is silent as to each of their citizenships. While
the Court may make reasonable inferences from facts in
evidence when evaluating the applicability of the local
controversy exception, concluding that more than two-thirds
of a class of hundreds are California citizens based
on allegations that: (1) plaintiffs were contacted by some of
the defendants in California, (2) plaintiffs are
“from” California, and (3) the 27 named
plaintiffs are residents of the State of California,
is not a reasonable inference. Therefore, the Court finds
Plaintiffs have failed to meet their burden to demonstrate
that the local controversy exception applies and
DENIES their request for remand.
Judge Bashant's Receivership Order
the responding parties agree that the moving Defendants are
not subject to the receivership order and are not subject to
Judge Bashant's preliminary injunction. (Docket Nos. 77
at 5-6, 79 at 2, 80 at 4.) Receiver did not file a
supplemental brief. Additionally, the Declaration that
Receiver filed with her Notice of Pending Receivership omits
any identification of Dionne or Andesite Defendants as
affiliates of Total Wealth Management. (Docket No 51-2,
Exhibit 1.) The Court concludes that the prosecution of this
action as to Dionne and the Andesite Defendants does not
violate the injunction issued by the Honorable Cynthia
Bashant in Case No. 15-cv-226-BAS (DHB).
The Motions to Dismiss
complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 677-78
(2009). “A claim is facially plausible ‘when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.'" ZixiangLi v.
Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting
Iqbal, 556 U.S. at 678).
considering a Rule 12(b)(6) motion the court must
“accept as true facts alleged and draw inferences from
them in the light most favorable to the plaintiff.”
Stacy v. Rederite Otto Danielsen, 609 F.3d 1033,
1035 (9th Cir. 2010) (citing Barker v. Riverside Cnty.
Office of Educ, 584 F.3d 821, 824 (9th Cir. 2009)). On
the other hand, bare, conclusory allegations, including legal
allegations couched as factual, are not entitled to be
assumed to be true. Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 (2007). “[T]he tenet that a court
must accept as true all of the allegations contained in a
complaint is inapplicable to legal conclusions.”
Iqbal, 556 U.S. at 678. “While legal
conclusions can provide the framework of a complaint, they
must be supported by factual allegations.” Mat664.
of fraud must be stated with particularity. Fed.R.Civ.P.
9(b). “In order to plead fraud with particularity, the
complaint must allege the time, place, and content of the
fraudulent representation; conclusory allegations, do not
suffice.” Shroyer v. New Cingular Wireless Serv.,
Inc., 622 F.3d 1035, 1042 (9th Cir. 2010) (citing
Moore v. Kayport Package Express, Inc., 885 F.2d
531, 540 (9th Cir. 1989)); Kearns v. Ford Motor Co.,
567 F.3d 1120, 1124 (9th Cir. 2009) (requiring plaintiffs
plead who, what, when, where, and how). “Rule 9(b) does
not allow a complaint to merely lump multiple defendants
together, but ‘requires plaintiffs to differentiate
their allegations when suing more than one defendant... and
to inform each defendant separately of the allegations
surrounding his alleged participation in the fraud.”
Swartz v. KPMG LLP, 476 F.3d 759, 765 (9th Cir.
2007) (quoting Haskin v. R.J. Reynolds Tobacco Co.,
995 F.Supp. 1437, 1439 (M.D. Fla. 1998)). “[G]eneral
allegations that the ‘defendants' engaged in
fraudulent conduct” with only specific allegations as
to some, “patently fail[s] to comply with Rule
9(b).” Mat 765.
pointed out by Dionne, Plaintiffs failed to provide a copy of
the TAC that shows “through redlining, underlining,
strikeouts, or other similarly effective typographic
methods” how the TAC differs from the Second Amended
Complaint (“SAC”) as required by CivLR 15.1(c).
Although the Court has discretion to dismiss the TAC on this
basis, in the interests of judicial economy, the Court has
reviewed Plaintiffs' TAC and makes its findings after careful
consideration of the parties' briefings.
Court finds the TAC fails to remedy the deficiencies the
Court identified in the SAC as to the moving
defendants. Plaintiffs' TAC provides more
legal conclusions and general allegations that the moving
“defendants” knew about or were involved in a
fraudulent scheme involving more than 30 named defendants,
but did not plead specific factual allegations as to what
Plaintiffs allege the moving defendants actually did to
engage in the alleged wrongful conduct.
Mark Dionne and SoCal Accounting
alleges that “Cooper hired Dionne in and around May
2009 to work as the accountant and financial
administrator” for TWM. (TAC 1179.) Mr. Dionne is also
alleged to have acted as the financial administrator and
accountant for, ACOF, ACPS, and other entities associated
with Defendants Cooper, Shoemaker, and McNamcc -Financial
Council Inc. (Shoemaker), Capita Advisors Inc. (McNamee), and
Pinnacle Wealth Group Inc. (Cooper).
again, Plaintiffs allege Mr. Dionne was an insider, but do
not allege he was an officer, director, or shareholder of TWM
or any specific facts from which the Court can infer he
controlled any of these entities. Instead, the TAC
alleges Cooper “explained [to Mr. Dionne] that TWM
would be inducing investors to transfer their rands to
TWM's control and how the scheme, described above,
worked.” (TAC f 180.) Mr. Dionne allegedly had
“control over TWM's financial books and
records” and “managed the financial records for
the spoke entities that too [sic] investor money and used it
to pay for the unlawful revenue sharing, bogus fees and
receive the kickbacks.” (TAC
¶¶ 180, 181.) Further, Mr. Dionne