United States v. Stephen C. Ronca ( 2019 )

O 1 2 3 4 5 6 7 United States District Court 8 Central District of California 9 10 11 UNITED STATES OF AMERICA, Case No. 2:17-cv-08044-ODW (FFMx) 12 Plaintiff, 13 v. ORDER DENYING DEFENDANT’S 14 STEPHEN C. RONCA, CYNTHIA MOTION TO DISMISS [35] 15 RONCA, and JOSEPH RONCA, 16 Defendants. 17 18 I. INTRODUCTION 19 The United States of America (the “Government”) brings two claims against 20 Defendants Stephen Ronca (“Stephen”), Cynthia Ronca (“Cynthia”), and Joseph 21 Ronca (“Joseph”) (collectively, “Defendants”) under the Federal Debt Collection 22 Procedures Act, 28 U.S.C. § 3001, et seq. The Government files this civil action to 23 recover proceeds from the sale of real property on October 26, 2017 to satisfy a 24 restitution debt. (Compl. ¶ 1.) 25 Defendant Cynthia moves to dismiss on the grounds that the Government failed 26 to: (1) serve Cynthia in a timely manner; (2) state a claim; and (3) join the escrow 27 28 1 company under Rule 19. (See generally Mot. to Dismiss Compl. (“Mot.”), ECF 2 No. 35.)1 3 For the reasons that follow, the Court DENIES Defendant’s Motion to Dismiss. 4 II. BACKGROUND 5 This is an action to recover proceeds of a real property sale to satisfy restitution 6 owed by Stephen Ronca for embezzling money. (Compl. ¶ 9.) Stephen, Cynthia, and 7 Joseph are siblings. (Compl. ¶¶ 5–7.) Stephen is a licensed attorney. (Compl. ¶ 9.) 8 On May 30, 2017, the Government filed an indictment against Stephen for embezzling 9 money from his client.2 (Compl. ¶ 9.) 10 The real property in issue is located at 625 Al-Hil Drive, San Luis Obispo, CA 11 93405 (“Al-Hil Property”). (Compl. ¶ 10.) In February 2008, Stephen became the 12 sole owner of the Al-Hil Property through two grant deeds. (Compl. ¶ 11.) In the first 13 grant deed, John Ronca, father of the Defendants, transferred half of the interest to 14 Stephen and half to his revocable trust. (Compl. Ex. A, ECF No. 1-1.) Three weeks 15 later, John Ronca transferred the half interest in his trust to Stephen through a second 16 deed. (Compl. Ex. B, ECF No. 1-1.) 17 On October 26, 2017, Stephen sold the Al-Hil Property to “Trustees of the 18 Shotts Living Trust dated August 22, 2000” for a net proceed of $394,560.97, which 19 was deposited in Cynthia’s account. (Compl. ¶¶ 12–14.) The following day, Cynthia 20 withdrew three cashier’s checks in the amount of $100,000, $111,500, and $150,700. 21 (Compl. ¶ 15.) Cynthia deposited the checks in the amount of $100,000 and $111,500 22 in two separate bank accounts under her name. (Compl. ¶ 16.) She then immediately 23 withdrew $100,000 from the account in which she had deposited the $100,000 check. 24 (Compl. ¶ 16.) Cynthia gave Joseph the third check in the amount of $150,700. 25 26 1 Having carefully considered the papers filed in connection to the instant Motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. 27 2 When the Government filed the Complaint, the related criminal matter was not resolved. Since 28 then, Stephen was sentenced and ordered to pay restitution of $483,411 pursuant to the Mandatory Victims Restitution Act. (Opp’n to Mot. (“Opp’n”) 3, ECF No. 46.) 1 (Compl. ¶ 17.) 2 On November 3, 2017, the Government brought suit against Defendants 3 alleging fraudulent transfers of funds pursuant to 28 U.S.C. §§ 3304(b)(1)(A) & 4 (b)(1)(B). (See Compl.) From December 13, 2017 to January 16, 2019, this civil 5 action was stayed pending resolution of the criminal matter. (See Order Regarding 6 Deposit of Funds into the Ct.’s Registry, ECF No. 12; Order Lifting Stay, ECF 7 No. 21.) On May 7, 2019, Defendant Cynthia filed a motion to dismiss. (See Mot.) 8 III. LEGAL STANDARD 9 A. 12(b)(5) 10 Under Federal Rule of Civil Procedure (“Rule”) 12(b)(5), a party may seek 11 dismissal of a complaint for insufficient service of process. Fed. R. Civ. P. 12(b)(5). 12 “Once service is challenged, [the] plaintiff[] bear[s] the burden of establishing that 13 service was valid under Rule 4.” Brockmeyer v. May, 383 F.3d 798, 801 (9th Cir. 14 2004). 15 B. 12(b)(6) 16 A court may dismiss a complaint under Rule 12(b)(6) for lack of a cognizable 17 legal theory or insufficient facts pleaded to support an otherwise cognizable legal 18 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). To 19 survive a dismissal motion, a complaint need only satisfy the minimal notice pleading 20 requirements of Rule 8(a)(2)—a short and plain statement of the claim. Porter v. 21 Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual “allegations must be enough to 22 raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 23 U.S. 544, 555 (2007). That is, the complaint must “contain sufficient factual matter, 24 accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. 25 Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). 26 The determination of whether a complaint satisfies the plausibility standard is a 27 “context-specific task that requires the reviewing court to draw on its judicial 28 experience and common sense.” Id. at 679. A court is generally limited to the 1 pleadings and must construe all “factual allegations set forth in the complaint . . . as 2 true and . . . in the light most favorable” to the plaintiff. Lee v. City of Los Angeles, 3 250 F.3d 668, 679 (9th Cir. 2001). But a court need not blindly accept conclusory 4 allegations, unwarranted deductions of fact, and unreasonable inferences. Sprewell v. 5 Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 6 Plaintiffs pleading fraud must do so with heightened particularity. See Fed. R. 7 Civ. P. 9(b). Rule 9(b) establishes that an allegation of “fraud or mistake must state 8 with particularity the circumstances constituting fraud.” The “circumstances” 9 required by Rule 9(b) are the “who, what, when, when, where, and how” of the 10 fraudulent activity. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th 11 Cir. 2011). In addition, the allegation “must set forth what is false or misleading 12 about a statement, and why it is false.” Id. This heightened pleading standard ensures 13 that “allegations of fraud are specific enough to give defendants notice of the 14 particular misconduct which is alleged to constitute the fraud charged so that they can 15 defend against the charge and not just deny that they have done anything wrong.” 16 Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). 17 When a district court grants a motion to dismiss, it should provide leave to 18 amend unless it is clear that the complaint could not be saved by any amendment. 19 Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 20 Leave to amend, however, “is properly denied . . . if amendment would be futile.” 21 Carrico v. City & Cty. of San Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011). 22 C. 12(b)(7) 23 Under Rule 12(b)(7), a party may seek dismissal of a complaint for failure to 24 join an indispensable party under Rule 19. Fed. R. Civ. P. 12(b)(7). Rule 19 states 25 “[a] person who is subject to service of process and whose joinder will not deprive the 26 court of subject-matter jurisdiction must be joined” if “in that person’s absence, the 27 court cannot accord complete relief among existing parties.” Fed. R. Civ. P. 19. If 28 joinder is not feasible, “the court must determine whether, in equity and good 1 conscience, the action should proceed among the existing parties or should be 2 dismissed.” Id. 3 IV. DISCUSSION 4 A. Timely Service of Process 5 Defendant Cynthia alleges that the Government failed to timely serve process 6 and therefore, moves to dismiss the claim against her. (Mot. 3.) Rule 4 states: If a defendant is not served within 90 days after the complaint is filed, the 7 court--on motion or on its own after notice to the plaintiff--must dismiss 8 the action without prejudice against that defendant or order that service 9 be made within a specified time. But if the plaintiff shows good cause for the failure, the court must extend the time for service for an appropriate 10 period. 11 Fed. R. Civ. P. 4(m) (emphasis added). A showing of good cause under Rule 4(m) 12 means, “[a]t a minimum ... ‘excusable neglect,’” and may also require a showing of 13 the following three factors: “(a) the party to be served personally received actual 14 notice of the lawsuit; (b) the defendant would suffer no prejudice; and (c) plaintiff 15 would be severely prejudiced if his complaint were dismissed.” Almont Ambulatory 16 Surgery Ctr., LLC v. UnitedHealth Grp., Inc., 99 F. Supp. 3d 1110, 1186 (C.D. Cal. 17 2015) (citing Boudette v. Barnette, 923 F.2d 754, 756 (9th Cir.1991)). 18 Excluding the stay, the Government served Cynthia 131 days after it filed the 19 Complaint. (Mot. 4.) The Government states that it diligently attempted to serve 20 process at various locations between November 8, 2017 and December 1, 2017 and 21 also after the stay was lifted. (Opp’n 3, 4.) The Government attempted to serve 22 process at three separate addresses on six different dates without success. (Decl. of 23 Indira J. Cameron-Banks, ECF No. 46-1.) On April 18, 2019, the Government finally 24 served process on Cynthia, while she attended a family court hearing. (Decl. of Indira 25 J. Cameron-Banks.) As Cynthia seems to have personal notice of the case and the 26 Government has made diligent efforts to serve process, the Government shows good 27 cause for the failure to serve within 90 days. See Hendry v. Schneider, 116 F3d 446, 28 449 (10th Cir. 1997) (finding defendant’s evasion of service constituted “good cause” 1 for delay in effecting service). Thus, the Court must extend the time for service per 2 Rule 4(m). 3 Accordingly, Cynthia was properly served on April 18, 2019 and the Court 4 DENIES Cynthia’s Motion on this basis. 5 B. Federal Debt Collection Procedures Act 6 The Federal Debt Collection Procedures Act (“FDCPA”) forbids fraudulent 7 transfers to avoid satisfaction of a debt to the United States “whether such debt arises 8 before or after the transfer is made.” 28 U.S.C. § 3304(b)(1). Under section 9 (b)(1)(A), a transfer is fraudulent, “if the debtor makes the transfer . . . with actual 10 intent to hinder, delay, or defraud a creditor.” Id. Alternatively, a transfer is 11 fraudulent under section (b)(1)(B) “if the debtor makes the transfer . . . without 12 receiving a reasonably equivalent value in exchange for the transfer” and either was 13 engaged in “a transaction for which the remaining assets of the debtor were 14 unreasonably small in relation to the business or transaction” or intended to incur 15 “debts beyond his ability to pay as they became due.” Id. In determining actual 16 intent, the Court may consider whether: 17 (A) the transfer or obligation was to an insider; (B) the debtor retained possession or control of the property transferred 18 after the transfer; 19 (C) the transfer or obligation was disclosed or concealed; 20 (D) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; 21 (E) the transfer was of substantially all the debtor's assets; 22 (F) the debtor absconded; (G) the debtor removed or concealed assets; 23 (H) the value of the consideration received by the debtor was reasonably 24 equivalent to the value of the asset transferred or the amount of the 25 obligation incurred; (I) the debtor was insolvent or became insolvent shortly after the transfer 26 was made or the obligation was incurred; 27 (J) the transfer occurred shortly before or shortly after a substantial debt was incurred; and 28 (K) the debtor transferred the essential assets of the business to a lienor 1 who transferred the assets to an insider of the debtor. 2 3 28 U.S.C. § 3304(b)(2). The government claims a violation of both subsection 4 (b)(1)(A) and (b)(1)(B). 5 Cynthia’s primary argument is that Defendants are mere recipients of the funds 6 and that the Government fails to provide facts to allow the Court to infer that the 7 Defendants were involved in a fraudulent transfer. (Mot. 5.) However, the 8 Government in its Complaint established a string of transactions that could plausibly 9 establish a violation of the FDCPA. For example, the Government alleges that 10 Cynthia received $394,560.97 in her account, withdrew three cashier’s checks in the 11 amount of $100,000, $111,500, and $150,700, and deposited the checks in the amount 12 of $100,000 and $111,500 in two of her bank accounts, but immediately withdrew 13 $100,000 from the account in which she had deposited the $100,000 check. (Compl. 14 ¶¶ 12–17.) Cynthia then gave Joseph the third check in the amount of $150,700. 15 (Compl. ¶ 17.) The scenario is not as Cynthia alleges—that Defendants received cash 16 from the escrow company and were not involved in any transfer of funds. (Mot. 5.) 17 Thus, the Court finds that Cynthia plausibly made the transfers “with actual intent to 18 hinder, delay, or defraud a creditor.” See United States v. LeBeau, No. 17CV1046- 19 GPC(WVG), 2017 WL 6270474, at *6 (S.D. Cal. Dec. 8, 2017) (finding the plaintiff 20 alleged sufficient facts when it alleged two spouses transferred the property back and 21 forth to each other without adequate consideration); United States v. Crisp, 190 F.R.D. 22 546, 548–555 (E.D. Cal. 1999) (finding the government alleged facts sufficient to 23 satisfy elements of 28 U.S.C. § 3304(b) by pleading that defendants’ transfer of real 24 property from two individuals to a limited partnership was fraudulent). 25 Accordingly, the Court DENIES the Motion as to this claim. 26 C. Indispensable Party 27 Cynthia argues that by failing to join the escrow company that disbursed the 28 funds into her account, the Government failed to join an indispensable party. 1 (Mot. 6.) Under Rule 19 section (a), the Court must first determine if the escrow 2 company, the non-party or absentee, is a person required to be joined. E.E.O.C. v. 3 Peabody W. Coal Co., 610 F.3d 1070, 1078 (9th Cir. 2010). Only if the Court 4 determines the absentee is required must the Court consider whether joinder is 5 feasible. Id. An absentee is necessary either if the Court “cannot accord complete 6 relief among the existing parties” or if the absentee “claims an interest relating to the 7 subject of the action.” Fed. R. Civ. P. 19(a)(1)(A) & (a)(1)(B). 8 Here, Cynthia and her siblings are in complete possession of the net proceeds 9 that the Government seeks. Thus, despite Defendants’ frustration that the escrow 10 company was not joined, the Court can accord complete relief among the existing 11 parties. See Eldredge v. Carpenters 46 N. Cal. Ctys. Joint Apprenticeship & Training 12 Comm., 662 F.2d 534, 537 (9th Cir.1981) (applying “complete relief” only to “persons 13 already parties, not as between a party and the absent person whose joinder is 14 sought”); Hoang v. Vinh Phat Supermarket, Inc., No. 2:13-cv-00724 WBS, 2013 WL 15 4095042, at *16 (E.D. Cal. Aug. 13, 2013) (finding that the court could accord 16 complete relief between the named parties despite the individual defendants’ 17 frustration that other fellow shareholders were not joined in the suit). 18 Furthermore, since the escrow company relinquished the funds in question upon 19 completion of the real property sale, the escrow company has no interest relating to 20 the subject of the action. Moreover, the escrow company has not asserted any interest 21 in the funds at issue. See Soto v. Los Angeles Cty. Flood Control Dist., No.15-cv-787 22 FFM, 2016 WL 11265023, at *3 (C.D. Cal. May 24, 2016) (finding that where a party 23 does not assert an interest relating to the subject of the action the subsection does not 24 apply). Therefore, the escrow company is not a necessary party.3 25 Accordingly, the Court DENIES Defendant’s Motion to Dismiss for failure to 26 join an indispensable party. 27 28 3 Since the Court does not find that the escrow company is a necessary party, the Court does not address whether joinder would be feasible. 1 IV. CONCLUSION 2 For the reasons provided above, the Court DENIES Defendant’s Motion. 3] Within fourteen days from this Order, Defendant must file an answer to the 4} Complaint. 5 6 IT IS SO ORDERED. 7 8 October 25, 2019 Ks 9 ae iz Gullit OTIS D. WR IGHT, Il UNITED STATES DISTRICT JUDGE 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28