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Williams & Cochrane, LLP v. Quechan Tribe of the Fort Yuma Indian Reservation

United States District Court, S.D. California

September 10, 2019

WILLIAMS & COCHRANE, LLP; and FRANCISCO AGUILAR, MILO BARLEY, GLORIA COSTA, GEORGE DECROSE, SALLY DECORSE, et al., on behalf of themselves and all others similarly situated, Plaintiff,
v.
QUECHAN TRIBE OF THE FORT YUMA INDIAN RESERVATION; ROBERT ROSETTE; ROSETTE & ASSOCIATES, PC; ROSETTE, LLP; RICHARD ARMSTRONG; KEENY ESCALANTI, SR.; MARK WILLIAM WHITE II, a/k/a WILLIE WHITE; and DOES 1 THROUGH 100, Defendant.

          ORDER: (1) GRANTING ROSETTE DEFENDANTS' MOTION TO DISMISS PLAINTIFFS' FOURTH AND FIFTH CLAIMS; (2) GRANTING ROSETTE DEFENDANTS' MOTION TO STRIKE [ECF NO. 185]

          Hon. Gonzalo P. Curiel United States District Judge

         This case involves a dispute between Williams & Cochrane, LLP (W&C) and the Quechan Tribe of the Fort Yuma Indian Reservation (Quechan”), a former W&C client, over attorney fees that W&C claims it is owed for their work renegotiating a gambling compact between Quechan and the State of California. This part of the litigation is straightforward and, although contentious, manageable. The case is made acrimonious by the disdain that exists between W&C and Richard Rosette, an attorney who formerly employed the attorneys who comprise W&C and succeeded W&C as attorney for Quechan in the renegotiation of the compact. Both W&C and Mr. Rosette operate in a niche market involving the representation of Indian tribes. The competition between the respective firms is fierce and cutthroat. Mr. Rosette is accused of, among other things, falsely taking credit for the work of W&C, engaging in professional misconduct and making false and scandalous statements about W&C. The claims raised in this action are based on contract, the Lanham Act and RICO. This litigation has produced five complaints and two orders which have upheld the contract and Lanham Act claims and dismissed the RICO claims on a number of grounds.

         Beyond the contract, Lanham Act and RICO allegations, the complaints have been filled with allegations that amount to, at best, other bad act evidence, relating to Mr. Rosette's improper conduct in his representation of other Indian tribes. These allegations suggest that Rosette has been involved in kickback schemes, improper billing practices and advising other tribes to default on their contractual obligations. The Court has stricken some of these allegations only to have them reappear in successive complaints. The Court has rejected RICO predicate acts only to find them return in the next complaint. Here, Defendants Richard Armstrong, Robert Rosette, Rosette & Associates, and Rosette, LLP (collectively, the “Rosette Defendants”) have moved to dismiss and strike the Fourth and the Fifth Causes of Action in Williams & Cochrane's Third Amended Complaint (“TAC”), which are both RICO conspiracy claims. ECF No. 185. The ultimate question is whether the RICO allegations plausibly describe a racketeering enterprise that engaged in fraud and that caused concrete financial loss, and not mere injury to an intangible property interest. The answer is no.[1]

         For the reasons stated below, the Court GRANTS the Rosette Defendants' Motion to Dismiss Plaintiffs' Fourth and Fifth Causes of Action with prejudice.

         BACKGROUND

         I. Procedural History

         Plaintiff initiated this action on July 17, 2017, by filing its original complaint. ECF No. 1. Plaintiff sought leave to seal its entire complaint because the complaint contained confidential information. ECF No. 2. The Court denied Plaintiff leave to file the entire complaint under seal because Plaintiff had not offered a compelling reason why sealing the complaint-as opposed to redacting it-was appropriate. ECF No. 3. The Court ordered the Clerk of Court to “unseal the case, strike the complaint from the record, and file the motion to seal on the public docket.” Id. at 5. On September 19, 2017, W&C filed an Amended Complaint, ECF No. 5, and on March 2, 2018, Plaintiffs filed their First Amended Complaint (“FAC”). The FAC advanced breach of contract and breach of the implied covenant of good faith and fair dealing claims against Quechan. Id. at 97-102. The good faith and fair dealing claims allege that Quechan breached the covenant by terminating W&C just three days before the completion of compact negotiations, refusing to pay any contingency fee, demanding that W&C turn over the latest draft compact, and having Mr. Rosette come in as the attorney of record for the signed compact. Id. at 101. Plaintiffs also brought a RICO claim against the Rosette Defendants and a RICO conspiracy claim against all Defendants. Id. at 109. Finally, the FAC advanced a negligence/breach of fiduciary duty claim against the Rosette Defendants for their allegedly deficient representation of Quechan during the compact negotiations. Id. at 118.

         In an order entered on June 7, 2018, the Court DENIED the motion to dismiss as to part of the breach of contract claim and good faith and dealing claim filed against Quechan, and a Lanham Act claim against Rosette. Order, ECF No. 90. The Court dismissed without prejudice both the FAC's substantive RICO and RICO conspiracy claims, finding that the FAC failed to allege a sufficient pattern of racketeering and failed to allege that Defendants agreed to violate the substantive provisions of RICO or agreed to commit or participate in a violation of two predicate acts. Id. at 29, 32.

         On July 20, 2018, Plaintiffs filed their SAC, reasserting claims for breach of contract, breach of the covenant of good faith and fair dealing, a Lanham Act violation, a RICO violation, RICO conspiracy, and professional negligence. ECF No. 100. The Rosette Defendants moved to dismiss the SAC's substantive RICO claim, the RICO conspiracy claim, and the professional negligence claim pursuant to Federal Rule of Civil Procedure 12(b)(6). ECF No. 110. The Quechan Defendants also moved to dismiss the RICO conspiracy claim and good faith and fair dealing claim.

         On November 18, 2018, the Court entered an order that dismissed part of the SAC. Order, ECF No. 171. In its order, the Court once again rejected - in large part - W&C's substantive RICO claim in Count Four of the SAC, which alleged that the Rosette Defendants “sought to fraudulently interfere with William & Cochrane's contracts (often to commit fraud against the firm's tribal clients).” SAC at 71. The Court found that Plaintiffs had sufficiently alleged three related predicate acts that might suggest an injury and a pattern of racketeering activity through mail or wire fraud: (1) the posting on Rosette's website of Mr. Rosette's claimed success in litigating the Pauma case; (2) the email terminating W&C's representation; and (3) the email demanding a copy of the draft compact from W&C. Id. at 19. However, the Court found that Plaintiffs failed to articulate how the predicate acts directly caused the alleged injuries. In addition, the Court dismissed without prejudice W&C's fifth cause of action - for RICO conspiracy against the Rosette Defendants and Quechan individuals - on the basis that the claim was pled without specificity or the use of wires and mails in furtherance of a fraudulent scheme. ECF No. 171. In the Order, the Court permitted Plaintiffs one final attempt to amend their Complaint to address the identified portions of the two RICO claims that had not been dismissed with prejudice. Id.

         Afterwards, Plaintiffs filed their Third Amended Complaint (“TAC”), reasserting claims for breach of contract, breach of the covenant of good faith and fair dealing, a Lanham Act violation, and two RICO conspiracy claims. In the fourth cause of action, W&C presents a RICO conspiracy claim against Mr. Rosette, Mr. Armstrong, and Rosette & Associates. On the fifth cause of action, W&C on behalf of the named Quechan General Councilmembers against Mr. Rosette, Mr. Armstrong, Rosette & Associates, and Does 1 through 100.

         The Rosette Defendants have moved to dismiss or strike the TAC's RICO conspiracy claims pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 12(f). The Quechan Defendants have separately moved to dismiss a “reply claim” based on tortious breach of contract filed by Williams & Cochrane in response to the Defendants' counterclaim and answer to the TAC. ECF No. 179. The motion to dismiss the “reply claim” is addressed by separate order.

         II. Factual Background

         The facts in this matter, now on its third amended complaint, are familiar to this Court and the following facts are alleged in Plaintiffs' TAC.

         1. The Parties

         Plaintiff W&C is a California legal services partnership formed in 2010 by Cheryl Williams and Kevin Cochrane. ECF No. 178 at 7. All other Plaintiffs in this case are enrolled members of Defendant Quechan, which is a federally recognized Native American tribe. Id. ¶¶ 11, 12.

         The “Rosette Defendants” consist of Robert Rosette, Rosette & Associations, PC, Rosette, LLP, and Richard Armstrong. Mr. Rosette is a tribal law attorney and the President and Director of Rosette & Associates, PC, which is in turn a general partner of a parent entity named Rosette, LLP. Id. ¶ 13. Armstrong is an attorney who serves as senior of counsel with Rosette LLP. Id. ¶ 16. The “Quechan Defendants” consist of the individuals associated with the Quechan Tribe that allegedly took part in the fraud. Id. ¶ 17. Although they are not named Defendants in this case, Plaintiff has also filed a “reply claim” against Keeny Escalanti Sr., and Mark William White II. Escalanti is the Tribal Chairman of Quechan. White is a Tribal Councilmember of Quechan.

         2. Representation of Pauma, a Former Client of Rosette & Associates

         In 1999, California entered into a compact with over sixty Indian tribes, permitting the tribes to operate a base number of slot machines and allowing the tribes to increase the number of machines through a licensing system. ECF No. 178 at 7-8. The Pauma Band of Mission Indians (“Pauma”) was one such tribal signatory to this compact. Id. In 2004, the compact was amended (“2004 Amendment”), which resulted in Pauma paying approximately twenty-four times as much revenue sharing in order to operate machines that should have been available under its original compact. Id. at 8.

         In September 2009, Pauma filed suit in the Southern District of California, requesting rescission of the 2004 Amendment and restitution of the heightened fees paid under that amendment. Id. Rosette & Associates represented Pauma in that lawsuit. But according to the TAC, the two attorneys that were solely responsible for doing all of the litigation work for Pauma were Cheryl Williams and Kevin Cochrane. Id. Pauma quickly obtained a preliminary injunction to reduce the revenue sharing fees of the 2004 Amendment to the prior rates of the 1999 Compact. Id. at 8-10.

         On May 15, 2010, about one month after the injunction order was issued, Williams and Cochrane left Rosette & Associates and started their own law firm, W&C. Id. W&C then convinced the Ninth Circuit to vacate its stay order, reinstate the preliminary injunction, and later dispose of the appeal in November 2010. Id. at 9-10.

         On July 26, 2011, Armstrong sent an email to Jacob Appelsmith, the Office of the Governor's compact negotiator, explaining that the Pauma Tribal Council “requests a meeting with the Governor's office . . . to discuss compact related matters.” Id. at 50. Armstrong later emailed Appelsmith stating that the tribe wanted to meet without their attorneys present. Id. at 50-51. Minutes later, Mr. Rosette emailed Appelsmith to explain that his firm was not engaged as legal counsel to the litigation. Id.

         With the case back in district court, W&C filed an amended complaint in September 2011, raising new claims for relief. Id. The district court granted summary judgment to Pauma, rescinding the 2004 Amendment and ordering the State to pay $36.3 million to Pauma. Id.

         Though W&C secured the victory for Pauma, Mr. Rosette took credit for the outcome in the case. He advertises on his website and other promotional materials that he successfully litigated the case. Id. at 55-56.

         3. Williams & Cochrane's Departure from Rosette & Associates

         Just fourteen or so months after they both joined the firm, Williams & Cochrane sought to leave. Id. ¶ 122. On April 28, 2010, prior to their departure, W&C offered a proposition that they remain affiliated with Rosette & Associates via a separate litigation-oriented “of counsel” entity that would be removed from other aspects of the firm. Id. Mr. Rosette quickly rejected this proposal. Id.

         W&C's departure quickly became contentious. When Williams proposed to Mr. Rosette that they send out a joint email to alert impacted clients about her impending departure, Mr. Rosette and Armstrong proceeded to make calls and sent emails to the affected clients and told them damaging falsehoods about W&C. Mr. Rosette and Armstrong articulated that W&C had been terminated because of their incompetence and that Mr. Rosette had done all of their work. In addition, Mr. Rosette alleged that Mr. Cochrane, in particular, was a “deviant homosexual” with whom the clients would be crazy to associate. Id. at ¶ 123, 124. On or about May 15, 2010, Mr. Rosette and Armstrong exchanged phone calls and emails in which they discussed interfering with future contracts secured by W&C. Id.

         4. W&C's Merger Talks with La Pena Break Down after Mr. Rosette's Involvement

         In July 2010, Cochrane met with another tribal law attorney, Michelle La Pena. The two discussed whether their firms could work together on a compact dispute involving a tribe that La Pena represented. Id. at 47-48. Soon thereafter, W&C entered into an of counsel relationship with La Pena Law and was tasked with preparing litigation memorandums and supporting materials for a presentation. On August 11, 2010, La Pena met with Cochrane and expressed that she was impressed with the quality of their work. After she asked Cochrane to prepare a number of last-minute documents for the following morning, La Pena told Cochrane that she wanted to either absorb or merge with W&C. Id. Such an event would have been lucrative for W&C.

         However, La Pena also informed Cochrane that Mr. Rosette had recently sent her an email suggesting that he was responsible for litigating the Pauma case. Id. ¶ 147. At some point between August 12, 2010 and August 15, 2010, La Pena spoke with Mr. Rosette over the phone to vet W&C. Id. ¶ 147-49. During the phone call, Mr. Rosette falsely stated that attorneys should be conflicted out of the ongoing litigation matters because they represented a nearby tribe and also could not be trusted to keep attorney-client confidentiality. Id.

         Just days later on August 15, 2010, La Pena told Cochrane that she was ending any arrangement between the two. Id. at 149-50. Though she mentioned that the quality of W&C's work was stellar, La Pena attributed the end of the relationship to the firm's need to staff internal attorneys instead of using outside counsel. Id; see ECF No. 174-23 at 2-4. La Pena specifically cited general confidentiality and conflicts issues with W&C. Id. La Pena also noted that since she had been meeting with other local litigators and interviewing attorneys, she had found two separate attorneys to join her firm full-time to handle litigation matters. ECF No. 178 ¶¶ 148-50. This email was the last communication between La Pena and W&C. Id.

         5. Quechan Hires W&C to Renegotiate Its Compact

         After Pauma's victory in court garnered public attention, Mike Jackson, President of Quechan, contacted Williams to see if W&C could represent Quechan in a similar compact dispute. ECF No. 178 at 13-16. Quechan had amended its compact in 2007 (“2007 Amendment”), which allowed Quechan to operate up to 1, 100 slot machines in exchange for a 10% revenue sharing fee for the first $50 million of Quechan's net profit each year. Id. In September 2016, W&C met with several Quechan leaders to discuss the 2007 Amendment. Id.

         The Quechan Tribal Council explained that it had stopped making monthly revenue sharing payments to the State and was looking for a way to get out of the amendment. Id. The 2007 Amendment provides that if Quechan does not pay its revenue sharing on time for more than two occasions, the State can shut down Quechan's gaming floor until 30 days after full payment of the outstanding balance. Id. Basically, Quechan could lose $3 million revenue if the State took action. The Quechan Tribal Council also wanted to recoup the heightened revenue sharing payments it paid to the State under the 2007 Amendment, which totaled almost $40 million. Id.

         But first, W&C wanted to make sure it was getting paid if it took on Quechan as a client. The parties worked out a fee agreement that has given rise to some of the claims in this litigation. ECF No. 178 at 18-19. The Attorney-Client Agreement contains a monthly flat fee of $50, 000 for W&C's services. Id. The agreement also included a contingency fee, which is the focus of much of this litigation. The contingency fee is a percentage of Quechan's “net recovery, ” which is “any credit, offset, or other reduction in future compact payments to the State in a success of compact (whether new or amended) as a result of the excess payments made under Client's tribal/State compact amended in 2006 in lieu of or in addition to a monetary ‘net recovery.'” ECF No. 100-2 at 2. The contingency fee rate is 15% “[i]f the matter is resolved before the filing of a lawsuit or within 12 months thereof.” Id. at 3. “[T]he matter is resolved at the point in time that the Client signs a successor compact (whether new or amended), which subsequently obtains the requisite State and federal approvals and takes effect under the Indian Gaming Regulatory Act.” Id. The 15% rate is “higher than the formative rates for resolving the case through court action . . . based upon the Client's express request after consultation and stated need to resolve the situation in as effective and expeditious a manner as possible.” Id.

         The agreement provides that the “Client may discharge Firm at any time.” Id. at 4. If Quechan discharges W&C “before Client otherwise becomes entitled to any other monetary constituting the ‘net recovery, '” W&C “will be entitled to be paid by Client a reasonable fee for the legal services provided in lieu of the contingency fee set forth.” Id. at 5. The amount of such an alternate fee is based on ten factors set forth in the agreement. Id. “In the event of Firm's discharge after . . . Client otherwise becomes entitled to any other monetary amount constituting the ‘net recovery,' . . . the Client will pay the contingency fee . . . upon receipt of the ‘net recovery' amount.” Id.

         6. Quechan Fires W&C and Hires Rosette to Complete the Negotiations

         Turning back to Quechan's legal issues with the State, on October 12, 2016, W&C reached out to the governor's office to try to get negotiations going for a replacement compact to Quechan's 2007 Amendment. ECF No. 178 ¶ 67. Within a month, the parties held a negotiation session. Id. ¶ 69. On December 7, 2016, the State sent an initial draft compact to Quechan. Id. ¶ 70. This draft included the following material terms: (1) a twenty-five year term with a possible three-year extension; (2) removing the 10% baseline revenue sharing fee, which would save Quechan about $4 million a year; and (3) allowing Quechan to operate two, rather than one, gaming facilities of 1, 100 slot machines. Id.

         This draft compact was well received amongst the Quechan Tribal Council, and the Council told W&C that it wanted to move quickly and finalize a compact. Id. at 73. W&C set up a meeting with the governor's office to be held on January 31, 2017, to see if W&C could get more concessions from the State. Id. W&C persuaded the State to increase Quechan's slot limit to 1, 200 and include a provision in the compact that would allow Quechan to trigger negotiations if it desired additional gaming rights. Id. ¶ 77.

         On April 13, 2017, W&C sent the governor's office a new draft compact that incorporated the State's concessions during the January meeting. Id. ¶ 83. W&C then sent another draft compact that contained all the other provisions Quechan wanted to discuss during the remaining weeks of negotiation. Id. ¶ 85. The State set up another negotiation session for June 14, 2017. Id. Before that meeting, the Quechan General Council (the entire voting membership) directed the Tribal Council to execute “whatever compact” W&C negotiated with the State in June. Id. ¶ 86. The Tribal Council intended to meet with W&C immediately after negotiations finished in the coming weeks to execute the final agreement.

         During the June 14 meeting, Cochrane obtained a litany of concessions favorable to Quechan. Id. ¶ 87. The governor's office acknowledged “that time was of the essence” and asked W&C to memorialize the agreed-upon terms. Id. ¶ 88. The parties agreed that they would finalize the compact so it would be ready for signature by the end of June. Id. On June 15, 2017, Quechan Vice President Virgil Smith told Williams that the Tribal Council was prepared to meet the following week to sign the compact W&C had negotiated. Id. ¶ 89. Williams sent a draft compact to the State on June 21, 2017. Id. ¶ 90.

         On June 16, 2017, Mr. Rosette inserted himself into the picture when he learned that W&C represented Quechan in its compact negotiations with the State of California. Id. ¶¶ 169, 170. Just two weeks before the California compact negotiations were set to conclude and after W&C had already received sign-off to execute their proposed agreement, Mark William “Willie” White, a tribal member running for a Councilmember seat, set up a discreet meeting with Quechan Chairman Keeny Escalanti in order to discuss the negotiations. Id. ¶ 170. On information and belief, W&C alleges that it was standard practice for Mr. Rosette to distribute the firm's promotional brochures that claim he successfully litigated the Pauma case. Id. ¶¶ 171, 172. Though Mr. Rosette was unfamiliar with the details of Quechan's compact negotiations, Mr. Rosette emailed copies of these marketing brochures to Escalanti and White in the days before the June 6, 2017 meeting. Id. ¶ 172. Though he was unfamiliar with Quechan's legal issues, Mr. Rosette told White and Escalanti at the meeting that he would take over representing Quechan in their compact negotiations and could help enable Quechan to dodge its obligations under its existing Attorney-Client Fee Agreement with W&C. Id. ¶ 173. Mr. Rosette also told White and Escalanti that since the attorneys were simply memorializing the ultimate terms after the final compact negotiation session, Rosette & Associates would prepare a letter for Escalanti to send to W&C right before the anticipated execution date of the compact to terminate the firm, obtain the end work product, and commit a total repudiation of the Attorney-Client Fee Agreement. Id. ¶ 201.

         On June 27, 2017, the State's attorney informed Williams that the State received a letter indicating W&C had been terminated from negotiations and replaced by Mr. Rosette. Id. ¶ 91. That same day, Williams received an e-mail from Quechan Executive Secretary Linda Cruz, but signed by Escalanti, entitled “Termination of Attorney-Client Relationship.” Id. ¶ 95. The letter stated that Quechan is terminating the services of W&C effective immediately. Id. Furthermore, the letter explained that Quechan would pay a prorated portion of the monthly flat fee for W&C's services for June, but that the Tribe would not pay any contingency fee or reasonable fee for the legal services provided in lieu thereof. Id. ¶ 93. The letter also explained that W&C should direct all communications to Mr. Rosette and provide him with a copy of Quechan's case file. Id. ¶ 96. W&C believes that this letter, as well as the termination letter, was drafted by Mr. Rosette or one of his attorneys and transmitted via email. Id. ¶ 97.

         On June 27, 2017, an attorney from Rosette LLP emailed Williams, informing her that Rosette LLP had been retained to represent Quechan in their compact negotiations and demanding that she immediately turn over a copy of the “last compact, with any redlines, that was transmitted to the State during your negotiations.” Id. ¶ 160. W&C sent Rosette LLP and Quechan a copy of the June 21, 2017 draft compact. Id. ¶ 105.

         Quechan ended up signing a compact with the State with Rosette as counsel. Id. ¶ 106. The executed agreement, which was announced on September 5, 2017, was not as favorable to Quechan as W&C's final draft compact. Id. ¶ 108. The State required Quechan to pay back $2 million, which is half of what it owed under the 2007 Amendment. Id. ¶ 110.

         7. Rosette Further Interferes with W&C after Quechan Negotiations

         In the second half of March 2018, Mr. Rosette engaged in a series of electronic and telephonic communications with the Office of the Governor. During these communications, Mr. Rosette falsely told the State's Senior Advisor for Tribal Negotiations Joginder Dhillon that the attorneys of W&C had made a number of vicious personal attacks against his character. As a result of these conversations, Mr. Dhillon filed a “partial” declaration in the instant suit that testified to some of the events in Quechan's negotiations.

         Mr. Rosette also began emailing the sealed versions of W&C's filings in this instant case to a Pauma tribal member. Id. ¶ 181, 182. Mr. Rosette misrepresented the contents and effects of the filings in by telling the Pauma tribal members to falsely spread that multiple Pauma tribal members were named as defendants in the case and would soon also be sued as part of the RICO claims in this case. Id. In addition, Mr. Rosette emailed versions of the Defendants' answer in this case to Pauma tribal members to spread that W&C had committed the unethical conduct detailed within. Id. The Pauma Tribe ultimately held a special meeting to discuss the employment status of W&C and ultimately decided to significantly diminish the role of the firm. Id. ¶ 183.

         On November 1, 2018, Mr. Rosette issued a press release to announce the merger of Rosette & Associates with Ms. LaPena's law firm, the LaPena Law Corporation. Id. ¶ 185. As a result, Ms. LaPena was brought on to Rosette, LLP as a shareholder. Id. Although Ms. LaPena had retired from the practice of law in recent years, W&C alleges that Ms. LaPena and Mr. Rosette engaged in extensive email and telephonic communications between October 13, 2018 and November 1, 2018, to facilitate an arrangement for Ms. LePena to join his firm and destroy any damaging files from her prior firm that were relevant to this case. Id. ¶ 185-87.

         8. Quechan's ...


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