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Wonderful Real Estate Development LLC v. Laborers International Union of North America Local 220

United States District Court, E.D. California

January 7, 2020

WONDERFUL REAL ESTATE DEVELOPMENT LLC, Plaintiff,
v.
LABORERS INTERNATIONAL UNION OF NORTH AMERICA LOCAL 220; SOUTHERN CALIFORNIA DISTRICT COUNCIL OF LABORERS; ALEXANDER B. CVITAN; JON P. PRECIADO; ERNESTO J. ORDONEZ; SERGIO RASCON, Defendants.

          ORDER GRANTING DEFENDANT LOCAL 220'S MOTION TO DISMISS IN PART AND GRANTING LEAVE TO AMEND (ECF NOS. 25, 27, 29)

          LAWRENCE J. O'NEILL, UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Plaintiff Wonderful Real Estate Development LLC (“Wonderful” or “Plaintiff”) brings this action under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962, and also brings state law claims for violation of California's Unfair Competition law, Cal. Bus. & Prof. Code § 17200, and attempted extortion. Wonderful sues the Laborers International Union of North America Local 220 (“Local 220”); Southern California District Council of Laborers (“So. Cal. District Council”); Jon P. Preciado; Ernesto J. Ordonez; Sergio Rascon; and Alexander B. Cvitan (“Individual Defendants”) (collectively “Defendants”).

         On July 8, 2019, Plaintiff filed a first amended complaint (“FAC”) in response to Defendants' motions to dismiss. ECF No. 21. Subject matter jurisdiction is alleged pursuant to 28 U.S.C. §§ 1331, 1337 and 1367. Local 220, So. Cal. District Council, and the Individual Defendants each filed separate motions to dismiss pursuant to the Federal Rules of Civil Procedure raising different arguments for dismissal of the five causes of action contained in the FAC. ECF Nos. 25, 27, 29. Plaintiff opposed, ECF Nos. 33, 34, 35, and Defendants replied. ECF Nos. 38, 39, 40. The matter was taken under submission on the papers pursuant to Local Rule 230(g). After the motions to dismiss were taken off calendar, Defendants filed a special motion to strike the two state law claims pursuant to California's anti-SLAPP statute, Cal. Code Civ. Proc. § 425.16, and Federal Rule of Civil Procedure 12(f). ECF Nos. 44-45. Plaintiff opposed, ECF No. 47, and Defendants replied. ECF No. 49. For reasons set forth below, Defendant Local 220's motion to dismiss, ECF No. 25, is granted in part and the other motions are denied.

         II. FACTUAL BACKGROUND[1]

         Wonderful is a real estate development company that develops a variety of industrial properties. FAC ¶ 14. Defendant So. Cal. District Council is one of forty-four chartered district councils of the Laborers' International Union of North America (“LIUNA”). So. Cal. District Council has 14 affiliated local chapters, including Local 220. Id. ¶ 15. “The objective of the [So. Cal.] District Council is to ‘unify all of the economic and other forces of the affiliated Local Unions in its area, as a central representative body of such Local Unions[, ]'” and the Council has the authority to negotiate for and enter into agreements with employers on behalf of its affiliated local unions. Id. (quoting LIUNA District Council's constitution). Id. Local 220 is an affiliated local union of the So. Cal. District Council with its principal place of business in Bakersfield, California. Id. ¶ 16. Defendant Jon Preciado is the Business Manager for So. Cal. District Council. Id. ¶ 18. Defendant Ernesto Ordonez is So Cal. District Council's Secretary-Treasurer. Id.¶ 19. Defendant Sergio Rascon is the Business Manager of Local 300, President of So. Cal. District Council, and Vice President of LIUNA. Id. ¶ 20. Defendant Alexander Cvitan serves as General Counsel for LIUNA. Id. ¶ 17

         Wonderful alleges that Local 220, So. Cal. District Council, together with the Individual Defendants, are part of an association-in-fact enterprise that, along with the So. Cal. District Council's other affiliated local unions, comprise the “Union Enterprise.” Id. ¶ 2. The Union Enterprise is alleged to be engaged in a continuing pattern and practice of filing sham litigation and administrative challenges against real estate developers under the California Environmental Quality Act (“CEQA”), Cal. Pub. Res. Code § 21000, et seq. It is alleged that the sole purpose of the CEQA challenges is extorting developers for Project Labor Agreements (“PLAs”) to force them to use exclusively Union Enterprise labor for development projects. Id. at ¶2. The So. Cal. District Council and its local chapters, which are operating under its direction and control, are filing sham CEQA actions against real estate developers for the purpose of extracting PLAs for the financial gain of its union and union members rather than for environmental reasons. Id. ¶ 2. According to Wonderful:

The Union Enterprise's practice of challenging construction projects under the guise of CEQA is rampant and has become the status quo in Southern California on projects that are of substantial enough scale to attract union attention. In fact, this fraudulent, extortionist, and anti-competitive conduct is so prevalent that the industry has developed its own codeword to describe it: “greenmail.” There is even a website (www.phonyuniontreehuggers.com) dedicated to tracking union opposition to countless public and private sector projects throughout California “on environmental grounds .... with the ulterior motive of extracting something of economic value from the public or private owner.”

Id. ¶ 3. Most developers buckle under the pressure and settle with the Union Enterprise to avoid the delays and costs associated with sham CEQA litigation. Id. ¶ 4. As a condition of settlement of the CEQA action, developers sign PLAs committing to the exclusive use of Union Enterprise labor. Id. This extortionist business model serves to exclude nonunion contractors and labor from a would-be competitive bidding process. Id. ¶ 5.

         Wonderful has the development rights for an industrial park in the City of Shafter. Id. ¶ 1. The park has 8 million square feet of buildings, consisting predominantly of distribution facilities but also including 16 large retailers. Id. To date the industrial park has created approximately 5, 000 jobs in the City of Shafter. Id. There are future plans for further development. Id. In October 2018, Wonderful Nut Orchard LLC sold a parcel of land in Shafter, Lot 29A, to Wal-Mart Stores East, L.P. so Wal-Mart could build a cold storage facility. Id.¶ 26. The City of Shafter issued a project approval and a notice of exemption for Lot 29A in October 2018. Id. ¶¶ 27-28. Also in October 2018, the City of Shafter issued a project approval and a notice of exemption to Wonderful for Wonderful's development of a one million square foot distribution warehouse located at 4500 Express Avenue in Shafter, California (“Lot 16 Distribution Facility”). Id. ¶¶29-30.

         In November 2018, following the City of Shafter's project approvals for Lot 29A and the Lot 16 Distribution Facility, the Union Enterprise filed a CEQA challenge to both development projects in the Superior Court for the County of Kern. Id. ¶ 8. The CEQA petition asserts that the City of Shafter violated CEQA by treating the project approvals as ministerial acts and issuing notices of exemption without subjecting them to environmental reviews. Id. ¶ 9-10. The Union Enterprise abandoned its CEQA claim against Wal-Mart in January 2019 by filing a request for dismissal allegedly after learning that Wal-Mart had already hired a contractor for Lot 29A thus preventing Local 220 from extracting a PLA from Wal-Mart for Lot 29A. Id. “As to Wonderful, the Union Enterprise is seeking to hold the Lot 16 Distribution Facility hostage unless and until Wonderful agrees to enter into a PLA with [the Union] for all of Wonderful's future Shafter developments for the next ten years. At no point has LIUNA requested any environmental review or expressed any environmental concerns in conjunction with its demanded ransom. For the Lot 16 Distribution Facility alone, Wonderful would have incurred over $2 million in additional costs if it were forced to use LIUNA labor.” Id. ¶ 10 (emphasis in original). The CEQA case concerning the Lot 16 Distribution Facility has not yet been adjudicated. Id. ¶ 11.

         Wonderful alleges that upon information and belief, the Union Enterprise is engaged in an ongoing pattern and practice of filing sham CEQA oppositions without regard to the merits of the action with the sole purpose of coercing, intimidating, extorting, and pressuring developers to award them labor agreements. Id. ¶ 35. The Union Enterprise allegedly filed a CEQA action in Los Angeles Superior Court challenging the Icon Panorama Project in Panorama City after attempting to induce relevant governmental agencies to deny approval for the Project for not complying with CEQA. Id. ¶ 37-39.[2]This Icon CEQA Action also allegedly was brought without regard for the merits or environmental concerns but for the alternate goal of forcing Icon to use exclusively union labor for the project. Id.

         The FAC alleges other examples of the Union Enterprise's “extortionate conduct” including a CEQA challenge to a 2.89 million square foot development park, Laborers International Union of North America, Local 1184 v. City of Beaumont et al., Riverside Sup. Ct. No. RIC1616400, which was allegedly dismissed within months of filing after obtaining a labor agreement from the developer. Id. ¶¶ 11, 41. In July 2018, the Union Enterprise filed a CEQA action seeking to block construction of “Merge 56, ” a 72-acre mixed use project in San Diego County, LIUNA Local Union 89 v. City of San Diego, No. 37-2018-00035233-CU-WM-NC (San Diego Super. Ct. filed July 13, 2018). Id. ¶42. The Merge 56 developers reported that the Union Enterprise requested a PLA in exchange for dismissal of its CEQA lawsuit and called for the state legislature to prohibit disingenuous use of environmental laws. Id. ¶43 (citing https://www.delmartimes.net/news/sd-cm-nc-merge-56-htmlstory.html). In October 2018, the Union Enterprise filed a CEQA petition seeking to block Palo Verde Center LLC's development of a 2.5 million square foot cannabis cultivation center in the City of Blythe, Light, et al. v. City of Blythe, et al., No. RIC1821829 (Riverside Super. Ct. filed Oct. 17, 2018), and the developer's CEO reported that LIUNA requested a PLA as a condition to settle its environmental lawsuit. Id. ¶¶ 44-45 (citing https://www.pvvt.com/blythenews/labor-ceqa-suit-filed-vs-cannabis-project-palo-verde-center/article2cb2f48e-fda6-11e8-8bcc-dfd2613659cb.html). Lastly, in November 2018, the Union Enterprise filed a CEQA action in Los Angeles Superior Court to block construction of “520 Mateo, ” a mixed use development in Downtown Los Angeles, LIUNA, Local 300 v. City of Los Angeles, et al., No. 18STCP03003 (Los Angeles Super. Ct. filed Nov. 30, 2018). Id. ¶ 46. The 520 San Mateo CEQA action was for the sole purpose of extracting a PLA for its union members but was dismissed in January 2019 without obtaining any concession related to environmental review. Id. ¶¶ 47-48. No. PLA was disclosed as part of the dismissal. Id. ¶ 48. Wonderful alleges that these examples are “merely the tip of the iceberg when it comes to the Union Enterprise's ubiquitous attempts to use the CEQA process for its own self-dealing.” Id. ¶ 49. In sum, Wonderful alleges six CEQA actions, including the City of Shafter CEQA challenge, that were filed by the Union Enterprise for an allegedly extortionary purpose.

         By engaging in the extortionist activities described, Local 220, So. Cal. District Council and the Individual Defendants are alleged to have violated RICO, the California unfair competition laws, and have engaged in attempted extortion. Id. ¶ 13 As to the individual Defendants, the FAC alleges that they had some level of involvement with the filings of CEQA challenges to extort PLAs. See Id. ¶¶ 17-20. Defendant Cvitan, LIUNA's General Counsel, formed a non-profit organization, Support Alliance for Environmental Responsibility (“SAFER”), in January 2019 to challenge development projects under CEQA in order to secure PLAs for LIUNA. Id. ¶17. SAFER shares the same address and suite number as the So. Cal. District Council. Id. Defendant Cvitan communicated with Wal-Mart and Wonderful regarding the Shafter CEQA challenges and offered to dismiss the litigation in exchange for long term PLAs between Wonderful and LIUNA. Id. Defendant Preciado also was involved in forming SAFER for the purpose of challenging development projects under CEQA in order to secure PLAs for LIUNA. Id. ¶ 18. Defendant Ordonez and Defendant Rascon are “aware of, participate[] in, and ratif[y] the Union Enterprise's use of meritless CEQA challenges to development projects and negotiation of PLAs in settlement of such challenges.” Id. ¶¶ 19-20. “The number of times that [Ordonez and Rascon] ha[ve] been involved in the Union Enterprise to extort labor agreements from developers is unknown, but far exceeds two times.” Id.

         Wonderful's FAC states five causes of action for: 1) violation of the RICO, 18 U.S.C. § 1962(c); 2) violation of RICO, 18 U.S.C. § 1962(d), by conspiring to violate 18 U.S.C. § 1962(c); 3) violation of RICO, 18 U.S.C. § 1962(d), by conspiring to violate 18 U.S.C. § 1962(b); 4) violation of California's Unfair Competition law (“UCL”), Cal. Bus. & Prof. Code §17200; and 5) attempted extortion.

         III. LEGAL STANDARD

         A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) is a challenge to the sufficiency of the allegations set forth in the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A 12(b)(6) dismissal is proper where there is either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). In determining whether a complaint states a claim upon which relief may be granted, the Court accepts as true the allegations in the complaint, construes the pleading in the light most favorable to the party opposing the motion, and resolves all doubts in the pleader's favor. Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008).

         Under Rule 8(a), a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” in order to “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A plaintiff is required to allege “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556).

         While Rule 8(a) does not require detailed factual allegations, “it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A pleading is insufficient if it offers mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”). Moreover, it is inappropriate to assume that the plaintiff “can prove facts that it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged[.]” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). In practice, “a complaint . . . must contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory.” Twombly, 550 U.S. at 562. In other words, the complaint must describe the alleged misconduct in enough detail to lay the foundation for an identified legal claim.

         “Dismissal without leave to amend is proper if it is clear that the complaint could not be saved by amendment.” Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051 (9th Cir. 2008). To the extent that the pleadings can be cured by the allegation of additional facts, the Court will afford the plaintiff leave to amend. Cook, Perkiss and Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990) (citations omitted).

         IV. DISCUSSION

         The Defendants in this case have brought three separate motions to dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6), [3] and a special motion to strike under California's anti-SLAPP statute, Cal. Code Civ. Proc. § 425.16(e)(1), (2), and (4). Specifically, Local 220, So. Cal. District Council, and the Individual Defendants each brought a motion to dismiss positing different arguments in each motion but joining in the others as well. See ECF No. 25, 27, 29. After the motions to dismiss became ripe, the Defendants then filed a special motion to strike the two state law claims under California's UCL and for attempted extortion. ECF Nos. 44-45. Local 220 submits that only if the Court determines that Plaintiff has overcome the defenses in Local 220's motion to dismiss should it turn to the substance of the Plaintiff's causes of action on their merits which are addressed in the two other motions to dismiss. ECF No. 25-1 at 12.[4] The special motion to ...


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