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C and H LLC v. Allen, Haight and Monaghan LLP

United States District Court, C.D. California

July 24, 2019

C AND H LLC, ET AL
v.
ALLEN, HAIGHT AND MONAGHAN LLP, ET AL

          PRESENT: THE HONORABLE DAVID O. CARTER, JUDGE

          CIVIL MINUTES - GENERAL

         PROCEEDINGS (IN CHAMBERS): ORDER REMANDING ACTION TOSUPERIOR COURT, DENYING AS MOOT DEFENDANTS' MOTION TO DISMISS [18], AND DENYING AS MOOT DEFENDANTS' MOTION TO STRIKE [19]

         Before the Court is Defendants Allen, Haight & Monaghan LLP (“AHM”) and Thomas Monaghan's (“Monaghan”) (collectively “AHM & Monaghan”) Motion to Dismiss Case (“MTD”) (Dkt. 18) and Motion to Strike Portions of Plaintiff's Complaint (“MTS”) (Dkt. 19). The Court finds this matter appropriate for resolution without oral argument. Fed.R.Civ.P. 78; L.R. 7-15. Having reviewed the moving papers and considered the parties' arguments, the Court REMANDS the action the Superior Court of the State of California for the County of Orange, DENIES AS MOOT Defendants' Motion to Dismiss, and DENIES AS MOOT Defendants' Motion to Strike.

         I. Background

         A. Facts

         The following allegations are taken from Plaintiffs C&H Family LLC (“C&H”), Integra Capital Group, Inc. doing business as Century Business Solutions (“Century”), Calvin Lim (“Lim”), and Helen Chu's (“Chu”) Complaint (“Compl.”) (Dkt. 1-1) against Defendants AHM, Monaghan, Jeffrey M. Verdon (“Verdon”), Jeffrey M. Verdon Law Group, LLP (“Verdon Law Group”), Lindzey M. Cain (“Cain”), Michael L. Meyer (“Meyer”), and Indiana Endowment Fund, Inc. Plaintiff Century is an S Corporation providing credit card processing services, and software for credit card processing. Compl. ¶ 2. Plaintiffs Lim and Chu (collectively “Individual Plaintiffs”) are “shareholder[s], officer[s] and employee[s]” of Plaintiff Century. Id. ¶¶ 3-4.

         In February 3, 2016, Plaintiffs Century, Lim, and Chu met with Defendant Jeffrey M. Verdon (“Verdon”) to discuss “comprehensive business planning and legal services.” Id. ¶ 18. Verdon recommended that Plaintiffs use Defendant Allen, Haight & Monaghan's services for tax planning and preparation. Id. The next day, Plaintiffs entered into an agreement to receive legal and business services from Defendant Verdon Law Group, paying an initial retainer of $25, 000. Id. ¶ 19. On February 19, 2016, Plaintiffs took Verdon's advice, and signed an agreement with Defendant AHM for both Verdon and AHM to conduct a review of Plaintiffs' tax and accounting records. Id. ¶ 21.

         In December 2016, Defendants Verdon, Lindzey M. Cain (“Cain”), and Thomas Monaghan (“Monaghan”) met to discuss year-end tax and business planning. Id. ¶ 22. Verdon, Cain, and Monaghan recommended that Plaintiffs use the tax services of Defendant Michael L. Meyer (“Meyer”). Id. A few days later, Meyer gave a presentation regarding his charitable tax plan (“Meyer Tax Plan” or “Tax Plan”). Id. ¶ 23. Meyer, Verdon, and Monaghan assured Plaintiffs that Meyer's plan was consistent with tax regulations and Generally Accepted Accounting Principles. Id.

         Plaintiffs agreed to Meyer's plan. Id. ¶ 25. Pursuant to the plan, Plaintiffs transferred five promissory notes to an Indiana LLC which Meyer had previously created. Id. The notes were read and approved by Defendant Monaghan. Id. Meyer renamed the LLC to C&H Family LLC, adding Plaintiffs Lim and Chu as members. Id. ¶¶ 24, 27. Meyer then caused Plaintiffs to donate an interest in C&H to the Indiana Endowment Fund (“IEF”), a Donor-Advised Fund which he controlled. Id. ¶¶ 24, 27. Finally, Meyer issued Plaintiffs a Form 8283, which allowed Plaintiffs to deduct the non-cash contribution of their LLC interest from their taxes. Id. ¶ 24. The value of the contribution was appraised by IEF. Id.

         On May 25, 2018, C&H received a third-party subpoena from the Tax Division of the Department of Justice. Id. ¶ 29. Through this subpoena, Plaintiffs learned that Meyer was the defendant in a civil case against Meyer filed by the federal government. Id. Plaintiffs learned that Meyer had been engaged in a tax evasion scheme. Id. ¶ 27. Pursuant to this scheme, Meyer would create an LLC, and then advise participants to transfer assets to the LLC. Id. Meyer would then cause scheme participants to transfer an interest in the LLC to a sham 501(c)(3) non-profit organization. Id. Meyer falsely “appraised” the transferred interests in a manner inconsistent with their legally ascertainable value. Id. Finally, Meyer would issue scheme participants a Form 8283, allowing them to deduct the appraised value of the transferred interest from their taxes. Id. Plaintiffs state they had no way of knowing that Meyer's plan was illegal before learning about the federal case against him. Id. ¶ 30.

         Plaintiffs allege that Meyer recruited participants in the scheme through the use of Certified Public Accounts like Defendant Monaghan, and local attorneys like Defendant Verdon, who vouch for the legitimacy of the Meyer Tax Plan. Id. Accordingly, Plaintiffs brought the instant suit against Defendants for breach of contract, professional malpractice, negligent misrepresentation, breach of fiduciary duty, constructive fraud, and unfair competition. Id. ¶¶ 31-83.

         B. Procedural History

         Plaintiff filed the Complaint in the instant action before the Superior Court of the State of California, County of Orange on May 24, 2019. Compl. at 1. On July 11, 2019, Defendant Meyer removed the case to this Court, arguing that the Court has federal question jurisdiction under 28 U.S.C. § 1331. Notice of Removal (Dkt. 1) at 5-9.

         On July 18, 2019, Defendants Monaghan and AHM filed a Motion to Dismiss Case (“MTD”) (Dkt. 18), as well as a Motion to Strike Portions of ...


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