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Koussa v. Yeung

United States District Court, N.D. California

April 3, 2017

PAMELA KOUSSA, Plaintiff,
v.
MING YEUNG, et al., Defendants.

          ORDER RE: MOTIONS TO DISMISS COUNTERCLAIM AND REQUEST FOR LEAVE TO AMEND COUNTERCLAIM RE: DKT. NOS. 39, 42, 47

          JACQUELINE SCOTT CORLEY United States Magistrate Judge

         Plaintiff Pamela Koussa brings this action for alleged violations of the Americans with Disabilities Act (“ADA”) and California Unruh Civil Rights Act against Defendants Ming Yeung, Jia Yeung, and the Ming Yeung & Jia Yeung Trust. (Dkt. No. 1.[1]) Ming Yeung has since filed a counterclaim seeking injunctive relief against Koussa for (1) unlawful business practices under California Business & Professions Code § 17200-the Unfair Competition Law (“UCL”)-for operating an architecture business without a license and (2) violating the False Claims Act, 31 U.S.C. § 3730, by failing to report income earned through disability access cases to the IRS.[2](Dkt. No. 32.) Ming Yeung named the Internal Revenue Service (“IRS”) as a defendant and indispensable party to the cross-complaint. (Id. at 1 & ¶ 3.) Both Koussa and the United States- on the IRS's behalf-filed motions to dismiss Ming Yeung's counterclaims, which are now pending before the Court. (Dkt. No. 39, 42.) In response to those motions, Ming Yeung concedes that his qui tam FCA claim must be dismissed, but he has also filed a motion for leave to amend the cross-complaint with respect to that claim only. (Dkt. No. 43, 47.) Having considered the party's submissions, and having heard oral argument on March 30, 2017, the Court GRANTS the motions to dismiss and DENIES Ming Yeung's motion for leave to amend the counterclaim.

         I. Motions to Dismiss

         A. First Cause of Action: UCL Claim

         In the UCL claim, Ming Yeung alleges that Koussa is unlawfully engaging in the “practice of architecture” without a business license. (See Dkt. No. 32 ¶¶ 6-13.) Specifically, Ming Yeung alleges that Koussa operates a business in which she “locates businesses which violate” the ADA and Unruh Act. (id. ¶ 6.) As part of that business, she “physically visits such businesses and inspects them for compliance with architectural and accessibility requirements for persons with disabilities, directly inspects such facilities to assure their compliance with ADA requirements, and earns an income for conducting these inspections and assisting business owners in complying with ADA accessibility requirements.” (Id.)

         Ming Yeung alleges that this business activity is unlawful because Koussa is offering “professional services which require the skills of an architect[, ]” including “[i]nvestigation, evaluation, consultation, and advice” and “[c]ompliance with generally applicable codes and regulations” and such conduct qualifies as the “practice of architecture, ” which requires a business license under California Business and Professional Code § 5500.1. (Id. ¶¶ 7-8.) Ming Yeung further alleges that Koussa's operation of a business without a license violates City of Richmond Municipal Code § 7.040.010, which requires a business to hold a license and pay annual licensing fees, and constitutes a misdemeanor under state law. (Id. ¶¶ 9-11.) As a result of this unlawful business practice, Ming Yeung seeks to enjoin Koussa's continued unlicensed business activities and asks the Court to order retroactive payment of licensing fees to the state and City of Richmond and Ming Yeung's attorneys' fees and costs. (Id. at 4; see also Dkt. No. 44 at 3 (stating that Ming Yeung seeks “injunctive relief requiring [Plaintiff] to obtain licensing required by State and Local laws and ordinances.”).)

         “An unlawful business practice or act within the meaning of the UCL is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law.” Pinel v. Aurora Loan Servs., LLC, 814 F.Supp.2d 930, 937 (N.D. Cal. 2011) (internal quotation marks and citation omitted). The UCL's “unlawful” prong covers a wide range of conduct; among them, it makes violations of other laws independently actionable. See CRST Van Expedited, Inc. v. Werner Enters, Inc., 479 F.3d 1099, 1107 (9th Cir. 2007) (internal quotation marks and citations omitted). Here, Defendants' “unlawful” claim is predicated on violation of the state criminal code and City of Richmond Municipal Code for engaging in unlicensed business practices.

         Koussa does not address whether violation of these rules and regulations might constitute unlawful business practices to state a cognizable UCL claim. Instead, she advances three arguments for dismissal: (1) the litigation privilege precludes the claim; (2) the business licensing scheme Ming Yeung alleges does not apply to Koussa's activity of filing disability access civil rights cases in federal court and prosecuting such claims is not the “practice of architecture” for which licensing is required; and (3) Ming Yeung lacks standing to bring a UCL claim. (Dkt. No. 39 at 5-7.) The Court will address standing first, as without standing the Court has no jurisdiction to assess whether the complaint states a claim-that is, whether the underlying conduct qualifies as business practices and requires a license.

         The UCL restricts standing “to persons who have suffered injury in fact and have lost money or property as a result of the unfair competition.” Hinojos v. Kohl's Corp., 718 F.3d 1098, 1104 (9th Cir. 2013) (citing Cal. Bus. & Prof. Code § 17204). To plausibly allege injury in fact, a plaintiff must allege facts sufficient to plausibly “(1) establish a loss or deprivation of money sufficient to qualify as an injury in fact, i.e., economic injury, and (2) show that the economic injury was the result of, i.e., caused by, the unfair business practice . . . that is the gravamen of the claim.” Kwikset Corp. v. Super. Ct., 51 Cal.4th 310, 337 (2011).

         Ming Yeung has not done so in his counterclaim. There are no allegations as to how he has lost money or property as a result of Koussa's alleged unlawful business activity of failing to pay for a business license. The counterclaim alleges that the state or City of Richmond has lost potential licensing fees and taxes for business activities (see Dkt. No. 32 at 4), but this does not show how Ming Yeung has personally suffered an economic injury. Indeed, Ming Yeung failed to respond to Koussa's standing argument in his opposition, thereby conceding that he lacks standing to bring the claim. See Ardente v. Shanley, No. 07-4479 MHP, 2010 WL 546485, at *6 (N.D. Cal. Feb. 9, 2010) (“Plaintiff fails to respond to this argument and therefore concedes it through silence.”). Thus, Ming Yeung fails to allege injury in fact necessary for standing to assert a UCL claim. The dismissal will be without leave to amend as at oral argument Ming Yeung was unable to articulate any theory of standing.[3]

         B. Second Cause of Action: False Claims Act Violation

         The second cause of action is an FCA claim based on lost income tax revenue. In their motion to dismiss Koussa's complaint, Defendants sought dismissal, leave to file a cross-complaint, or an order to show cause on the grounds that Koussa's revenue from disability access cases has caused her to engage in tax evasion. (See Dkt. No. 17.) Addressing the request in its order denying the motion to dismiss, the Court noted that the request for leave to file a counterclaim was procedurally improper and that “as to substance, Defendants' proposed counterclaim is a non-starter” because “the False Claims Act specifically excludes from its purview claims alleging injury to the government in the form of lost income tax revenue.” 31 U.S.C. § 2739(d) (noting that the FCA does not apply to “claims, record, or statements made under the Internal Revenue Code of 1986”).

         Despite that admonition, Ming Yeung brings an FCA claim based on lost income tax revenue in his cross-complaint. Both Koussa and the government move to dismiss the claim on the grounds that, as the Court previously acknowledged, there is no FCA claim for lost income tax revenue. (Dkt. No. 39 at 8; Dkt. No. 42 at 4-5.) The government cites cases that have concluded that district courts lack jurisdiction over qui tam plaintiff's FCA claims based on violations of the tax code. (Dkt. No. 42 at 5 (citations omitted).) See, e.g., U.S. ex rel. Lissack v. Sakura Global Capital Mkts., Inc., 377 F.3d 145, 152-53 (2d Cir. 2004) (affirming district court's dismissal for lack of subject matter jurisdiction of FCA claim based on failure to pay taxes).

         In his opposition to Koussa's motion, Ming Yeung clarifies that he is withdrawing his FCA claim. (Dkt. No. 44 at 2.) In response to the IRS's motion, Ming Yeung expressly concedes the FCA does not apply to claims, records, or statements made under the Internal Revenue Code of 1986 and acknowledges that, to the extent an FCA claim lies, he failed to comply with the FCA's mandate that qui tam actions be filed under seal to permit the government time to investigate the allegations and elect whether to intervene. (See Dkt. No. 43 at 2 (citing 31 U.S.C. ยงยง 3730(b)(1), (2)).) Accordingly, the Court will dismiss Ming Yeung's FCA claim based ...


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