Hodgson v. Roper ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 ERIC HODGSON, No. 2:20-cv-00650-KJM-DB 11 Plaintiff, 12 v. ORDER 13 RANDLE ROPER, et al., 14 Defendants. 15 16 In this dispute over plaintiff’s involvement in a joint business venture with the 17 individual defendants, defendants move to dismiss all claims based on lack of jurisdiction and 18 failure to state a claim or, in the alternative, move to transfer venue to the District of Delaware. 19 For the foregoing reasons, the court GRANTS the motion to dismiss in part, DENIES it in part, 20 and DENIES the motion to transfer venue. 21 I. BACKGROUND 22 The First Amended Complaint alleges that in February 2018, defendant Randle 23 Roper asked plaintiff to participate in a new business venture, Vacaya LLC (“Vacaya”), which 24 was to produce and sell LGBT cruises and resort vacations. First Am. Compl. (“FAC”) ¶¶ 13, 20, 25 ECF No. 14. Defendants Patrick Gunn, John Finen and Tracy Terrill were also equity partners in 26 the venture. Id. ¶ 19. In April 2018, and over the course of several months, plaintiff alleges 27 defendants made several false promises and assurances to him that induced him to invest in the 28 1 company on the belief that he would later be made an equity partner in exchange for his efforts. 2 See id. ¶¶ 20, 22, 28, 51. For example, plaintiff alleges that, in an April 2018 email, defendants 3 Roper and Finen misrepresented their industry expertise and provided plaintiff with an investment 4 prospectus that artificially inflated the projected revenue of the company. See id. ¶¶ 22–23. 5 Plaintiff alleges defendants also sent this same prospectus to a third party, Mr. McGanal, and 6 thereby induced him to invest $100,000 in Vacaya. Id. ¶ 24. Further, plaintiff alleges Finen sent 7 him emails on June 18 and December 30, 2018, and two separate emails on February 25, 2019, 8 making repeated statements that plaintiff’s contributions to the company would be compensated 9 by making him an equity partner with interests proportional to those contributions. See id. ¶¶ 26, 10 34, 36. 11 Beginning in the summer of 2018, plaintiff invested substantial time and expense 12 in support of promotional advertising for Vacaya, acting as the company’s Director of Sales. Id. 13 ¶ 30. In May 2019, the individual defendants voted to make plaintiff a partner in Vacaya, but 14 with only ten percent equity vesting over the course of four years, and with various contingencies, 15 which plaintiff alleges fell short of the “equal equity partnership” he was promised. Id. ¶ 39. 16 In August 2018, Atlantis, a provider of LGBT cruises and travel and defendant 17 Roper’s former employer, sued defendants Roper, Gunn and Vacaya in Los Angeles County 18 Superior Court, Case No. BC716072, and obtained a preliminary injunction against defendants’ 19 continued use of “confidential information and trade secrets belonging to Atlantis” for the benefit 20 of Vacaya. Id. ¶ 43. Plaintiff alleges defendant Roper denied liability in the Atlantis lawsuit and 21 that defendants Terrill and Finen agreed to indemnify plaintiff and Vacaya against costs 22 associated with the Atlantis lawsuit in an effort to induce plaintiff to continue investing in 23 Vacaya. See id. ¶¶ 44, 46. Plaintiff alleges these assurances later proved to be false. Id. 24 In November 2019, defendants suspended plaintiff from the company, citing 25 recent allegations of harassment that arose from plaintiff’s personal trip to South Africa with a 26 third party. Id. ¶¶ 53–54. Plaintiff alleges defendants suspended plaintiff from the company 27 under false pretenses “to prevent [him] from demanding his rights to a meeting of Vacaya as of 28 January 1, 2020, at which time amendments of the operating agreement could be determined by a 1 simple majority vote, rather than the supermajority required through the end of December 2019.” 2 Id. ¶ 57. 3 On March 26, 2020, plaintiff brought the instant suit against individual defendants 4 Roper, Gunn, Finen and Terrill in his capacity as trustee of the Terrill Living Trust, as well as 5 Vacaya LLC. ECF No. 1. On May 7, 2020, plaintiff filed the operative first amended complaint 6 alleging (1) racketeering in violation of 18 U.S.C. § 1962(c) against all defendants; (2) conspiracy 7 to racketeer in violation of 18 U.S.C. § 1962(d) against all defendants; (3) intentional 8 misrepresentation against all defendants; (4) negligent misrepresentation against all defendants; 9 (5) promissory fraud against all defendants; (6) breach of fiduciary duties against all defendants; 10 (7) constructive fraud against the individual defendants; (8) breach of contract against all 11 defendants; and (9) unlawful business practices against all defendants. See generally FAC. 12 On May 21, 2020, defendants moved to dismiss pursuant to Rule 9(b) and Rule 13 12(b)(1), (2), (3) and (6) or, in the alternative, to transfer venue to the District of Delaware based 14 on 28 U.S.C. § 1404(a), arguing: (1) the court lacks subject matter jurisdiction over plaintiff’s 15 non-federal causes of action; (2) the court lacks personal jurisdiction over defendant Vacaya, 16 LLC and defendants Finen, Roper and Terrill; and (3) venue is improper such that the case should 17 be dismissed or transferred to the District of Delaware. Mot., ECF No. 15, at 2. Plaintiff 18 opposes the motion, Opp’n, ECF No. 18, and defendants have filed a reply, Reply, ECF No. 19. 19 On June 26, 2020, the court heard oral argument on the motion via videoconference. Counsel 20 Thomas Barth appeared for plaintiff; counsel Todd Brooks and Aaron Nichols appeared for 21 defendants. ECF No. 20. The court submitted the motion and resolves it here. 22 II. MOTION TO DISMISS 23 A. Legal Standard 24 Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to 25 dismiss a complaint for “failure to state a claim upon which relief can be granted.” A court may 26 dismiss “based on the lack of a cognizable legal theory or the absence of sufficient facts alleged 27 under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 28 1990) (citation omitted). 1 Although a complaint need contain only “a short and plain statement of the claim 2 showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), in order to survive a motion 3 to dismiss this short and plain statement “must contain sufficient factual matter . . . to ‘state a 4 claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 5 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something 6 more than “an unadorned, the-defendant-unlawfully-harmed-me accusation” or “labels and 7 conclusions’ or ‘a formulaic recitation of the elements of a cause of action.” Id. (quoting 8 Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss 9 for failure to state a claim is a “context-specific task that requires the reviewing court to draw on 10 its judicial experience and common sense.” Id. at 679. Ultimately, the inquiry focuses on the 11 interplay between the factual allegations of the complaint and the dispositive issues of law in the 12 action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). 13 In making this context-specific evaluation, this court must construe the complaint 14 in the light most favorable to the plaintiff and accept as true the factual allegations of the 15 complaint. Erickson v. Pardus, 551 U.S. 89, 93–94 (2007). This rule does not apply to “‘a legal 16 conclusion couched as a factual allegation,’” Papasan v. Allain, 478 U.S. 265, 286 (1986) quoted 17 in Twombly, 550 U.S. at 555, nor to “allegations that contradict matters properly subject to 18 judicial notice” or to material attached to or incorporated by reference into the complaint. 19 Sprewell v. Golden State Warriors, 266 F.3d 979, 988-89 (9th Cir. 2001), as amended on denial 20 of rehearing at 275 F.3d 1187 (9th Cir. 2001). A court’s consideration of documents attached to 21 a complaint or incorporated by reference or matter of judicial notice will not convert a motion to 22 dismiss into a motion for summary judgment. United States v. Ritchie, 342 F.3d 903, 907-08 23 (9th Cir. 2003); Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); compare 24 Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002) (noting that even 25 though court may look beyond pleadings on motion to dismiss, generally court is limited to face 26 of the complaint on 12(b)(6) motion). 27 ///// 28 ///// 1 B. Discussion 2 1. Jurisdictional Arguments 3 a. Personal Jurisdiction 4 Defendant argues the court lacks personal jurisdiction over defendants Vacaya, 5 Roper, Terrill and Finen,1 who all reside or have their principal place of business outside of 6 California. Mot. at 18; see also FAC ¶¶ 4–8. Plaintiff counters these defendants are subject to 7 specific jurisdiction based on their communications with plaintiff in California. Opp’n at 19. 8 A court may exercise specific personal jurisdiction over a non-resident defendant 9 whose “minimum contacts” with the forum state are “sufficient” in that they relate to the claims 10 made in a case. Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990). The minimum contacts 11 inquiry focuses “on the relationship among the defendant, the forum, and the litigation.” Walden 12 v. Fiore, 571 U.S. 277, 284 (2014) (citation and quotation marks omitted). The Ninth Circuit has 13 established a three-prong test for determining whether the plaintiff has alleged sufficient 14 “minimum contacts”: 15 (1) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; 16 or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the 17 benefits and protections of its laws; 18 (2) the claim must be one which arises out of or relates to the defendant’s forum-related activities; and 19 (3) the exercise of jurisdiction must comport with fair play and 20 substantial justice, i.e., it must be reasonable. 21 Picot v. Weston, 780 F.3d 1206, 1211 (9th Cir. 2015) (citing Schwarzenegger v. Fred Martin 22 Motor Co., 374 F.3d 797, 802 (9th Cir. 2004)). “The plaintiff has the burden of proving the first 23 two prongs of the test.” Id. If the plaintiff succeeds in doing so, the burden shifts to the 24 defendant to “set forth a ‘compelling case’ that the exercise of jurisdiction would not be 25 26 27 1 The remaining defendant, Patrick Gunn, resides in California, and defendants do not dispute the court’s personal jurisdiction over him in their motion to dismiss. Mot. at 25 (citing 28 FAC ¶ 5). 1 reasonable.” CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1076 (9th Cir. 2011) 2 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476–78 (1985)). 3 Where, as here, the court makes the jurisdictional determination without an 4 evidentiary hearing, plaintiff “need only demonstrate facts that if true would support jurisdiction 5 over the defendant.” Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995). In particular, the 6 plaintiff must convince the court the defendants’ “conduct and connection with the forum State” 7 is such that the defendants “should reasonably anticipate being haled into court there.” Sher, 911 8 F.2d at 1361 (citing World–Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)). In 9 ruling on defendants’ motion, uncontroverted allegations in the plaintiff’s complaint must be 10 taken as true. Ochoa v. J.B. Martin & Sons Farms, Inc., 287 F.3d 1182, 1187 (9th Cir. 2002). 11 When a plaintiff seeks to invoke specific personal jurisdiction, she must establish 12 jurisdiction for “each claim asserted against a defendant.” Picot, 780 F.3d at 1211 13 (quoting Action Embroidery Corp. v. Atl. Embroidery, Inc., 368 F.3d 1174, 1180 (9th Cir. 14 2004)). If personal jurisdiction exists over one claim, but not others, the district court may 15 exercise pendent personal jurisdiction over any remaining claims that arise out of the same 16 “common nucleus of operative facts” as the claim for which jurisdiction exists. Id. 17 i. Defendants Roper, Terrill and Finen 18 Plaintiff’s fraud claims are primarily based on alleged communications by the 19 individual defendants to plaintiff. First, plaintiff alleges that, in April 2018, defendants Roper 20 and Finen emailed him an investment prospectus containing false statements and intended to 21 induce plaintiff to invest in Vacaya. See FAC ¶¶ 22–23 (describing Roper and Finen providing 22 investment packet “to plaintiff by email from outside of California” that included alleged false 23 statements). 24 Plaintiff next alleges that in May 2018, defendants Roper, Terrill and Finen 25 “communicated [with him] by telephone, text, email, and internal electronic communications” to 26 offer him an independent contractor agreement to compensate him for services on a monthly 27 basis; an offer plaintiff signed. Id. ¶ 25. 28 ///// 1 Finally, plaintiff alleges defendants Roper, Terrill and Finen communicated with 2 him by various means and made allegedly fraudulent promises regarding the future equity he 3 would receive in the company in exchange for his investments. See, e.g., id. ¶ 20 (alleging Roper, 4 in multiple telephone conversations with plaintiff, who was in California, promised plaintiff he 5 would be made a member with equity ownership in Vacaya); id. ¶ 26 (“[D]efendants Roper, 6 Terrill and Finen communicated with plaintiff by electronic means in approximately June 2018, 7 promising plaintiff that if he continued performing sales services for Vacaya without monthly 8 compensation, then the individual defendants would make plaintiff a member of Vacaya with 9 equity interest in the company . . . .”); id. ¶ 28 (regarding communications by defendants Terrill 10 and Finen); id. ¶ 38 (same). 11 Plaintiff submits a declaration stating that “[n]early all of the commitments made 12 by defendants to me, regarding recognition of the value of my investments of services, materials, 13 and substantial funds in Vacaya, were communicated, transmitted, or otherwise directed to me 14 while I was in California at my residence and company, located in Sacramento County.” 15 Hodgson Decl. ¶ 6, ECF No. 18-1; see also FAC ¶ 3 (“Plaintiff is, and at all times relevant hereto 16 was, an individual residing in the County of Sacramento[.]”). The court considers the 17 communications described above to be aimed at California. Ballard, 65 F.3d at 1498 (where 18 court does not hold evidentiary hearing, plaintiff need only make a “prima facie” case of 19 jurisdiction by “demonstrat[ing] facts that if true would support jurisdiction”).2 20 These contacts are sufficient to establish specific personal jurisdiction over the 21 individual defendants with respect to plaintiff’s fraud claims, based on defendants’ expressly 22 aiming their communications at California by contracting with and inducing the investment of a 23 California resident. See Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1112 (9th Cir. 2002) 24 (finding “express aiming” where defendants alleged to have communicated directly with plaintiff 25 company’s managers in forum state to induce them to enter into offending contractual 26 arrangement “with the specific intent to cause injury to [the company] by means of those very 27 2 To further clarify this jurisdictional question, plaintiff may add the relevant facts from 28 his declaration to any amended complaint. 1 communications”); Trinchitella v. Am. Realty Partners, LLC, No. 2:15-CV-02365-KJM-EFB, 2 2016 WL 4041319, at *6 (E.D. Cal. July 27, 2016) (finding purposeful availment where 3 defendants engaged in “stream of correspondence” intended to solicit plaintiff’s investments 4 “through mail, email and phone calls” into forum state); Felland v. Clifton, 682 F.3d 665, 675 5 (7th Cir. 2012) (finding conduct “expressly aimed” at forum state where defendant’s “myriad . . . 6 communications” to plaintiff were part of an “ongoing scheme to perpetuate [the] initial fraud” 7 that occurred elsewhere). 8 ii. Vacaya 9 Taken together, the allegations in the complaint provide that Roper, Terrill and 10 Finen were agents of their business, Vacaya, when they made the communications described 11 above. Accordingly, for the same reasons, Vacaya is subject to specific personal jurisdiction in 12 California based on plaintiff’s fraud claims. MCSi, Inc. v. Woods, No. C-02-02865 JF(RS), 2002 13 WL 32059741, at *2 (N.D. Cal. Oct. 7, 2002) (citing Wells Fargo Co. V. Wells Fargo Express 14 Co., 556 F.2d 406, 419 (9th Cir. 1977)). Furthermore, according to plaintiff’s declaration, 15 defendant Vacaya sent the independent contractor agreement described above to plaintiff in 16 Sacramento, California, where he signed it. See Hodgson Decl. ¶ 4. 17 iii. Conclusion 18 For the foregoing reasons, the court finds defendant company Vacaya and 19 individual defendants Roper, Terrill and Finen expressly aimed activities at California through 20 their communications and contracting with plaintiff. 21 Furthermore, the claims arise out of these actions, because plaintiff alleges he 22 would not have invested in Vacaya but for the correspondence and alleged misrepresentations. 23 See, e.g., FAC ¶ 23 (“[P]laintiff reasonably relied on the statements and financial data contained 24 in the Vacaya investment prospectus to decide to invest in Vacaya in various ways.”); id. ¶ 25 25 (“Based on defendants’ statements, which plaintiff did not know to be false, and on which 26 plaintiff reasonably relied, plaintiff signed an independent contractor agreement in May 2018[.]”); 27 id. ¶ 27 (“[P]laintiff reasonably relied on the false statements to decide to continue providing 28 valuable services to defendants and Vacaya without monthly compensation and entirely based on 1 defendants' promises that the value of plaintiff's services would become part of his equity 2 ownership of the company, equal to other members.”); see also Trinchitella, 2016 WL 4041319 at 3 *6. The first two prongs of the specific jurisdiction test are met. Because defendant has not 4 presented a “compelling case that the presence of some other considerations would render 5 jurisdiction unreasonable,” Ballard, 65 F.3d at 1500 (quoting Burger King Corp. 471 U.S. at 6 477), the court finds it has specific jurisdiction over defendants for the purposes of adjudicating 7 plaintiff’s fraud claims. See Burger King, 471 U.S at 473 (“[I]t is presumptively not 8 unreasonable to require him to submit to the burdens of litigation in that forum as well.”). 9 Finally, all of the claims in plaintiff’s complaint arise out of the same “common 10 nucleus of operative facts,” Picot, 780 F.3d at 1211, namely that the individual defendants 11 defrauded plaintiff when they represented to plaintiff he would receive certain benefits, including 12 an equity partnership in Vacaya, in exchange for his investment in the company. See, e.g., FAC 13 ¶ 51. To the extent necessary, the court therefore exercises pendent personal jurisdiction over the 14 remaining claims. 15 Accordingly, defendants’ motion to dismiss based on lack of personal jurisdiction 16 is DENIED. 17 b. Whether Venue is Proper 18 If venue is improper, a district court may dismiss, or if it is in the interest of 19 justice, transfer a case “to any district or division in which it could have been brought[.]” 20 28 U.S.C. § 1406(a). If venue is challenged, plaintiff has the burden of showing the venue is 21 proper in the district where he has brought suit. Piedmont Label Co. v. Sun Garden Packing Co., 22 598 F.2d 491, 496 (1979). When jurisdiction is not based on diversity, as here, 28 U.S.C. 23 § 1391(b)(2) provides that venue is proper in “a judicial district in which a substantial part of the 24 events or omissions giving rise to the claim occurred, or a substantial part of property that is the 25 subject of the action is situated[.]” 28 U.S.C. § 1391(b)(2). 26 Defendants argue a “substantial part of the events or omissions giving rise to the 27 claim” did not occur in California because the dispute is primarily “over the affairs of a Delaware 28 limited liability company and Plaintiff’s former membership interest in that Company.” Mot. at 1 26. However, all of plaintiff’s claims primarily arise out of allegedly fraudulent communications 2 made by individual defendants from outside of California to defendant, while he was residing in 3 Sacramento, California. See, e.g., FAC ¶¶ 22–23. Accordingly, venue is proper in the Eastern 4 District of California because it is “a judicial district in which a substantial part of the events or 5 omissions giving rise to the claim[s] occurred,” 28 U.S.C. § 1391(b)(2). See Masterson v. Swan 6 Range Log Homes, LLC, No. 06-CV-163-S-EJL, 2007 WL 625387, at *3 (D. Idaho Feb. 23, 7 2007) (“[C]ourts have considered letters, faxes, emails, and telephone calls transmitted from or 8 received in a district during negotiation and execution of a contract to be substantial events for 9 venue purposes.” (citation omitted)); Halcyon Biomedical, Inc. v. Glatt Air Techniques, Inc., No. 10 CV H-19-690, 2019 WL 2420232, at *8 (S.D. Tex. June 10, 2019) (“The Southern District of 11 Texas, where Halcyon received the emails and phone calls containing the alleged 12 misrepresentations, is a proper venue for the fraud claims.”). 13 Having found venue is proper here under the general venue statute, the court need 14 not address whether venue is proper under the RICO Act’s supplementary special venue 15 provision, 18 U.S.C. § 1965(a). See Reddy v. MedQuist, Inc., No. CIV09CV1325-L(BLM), 2010 16 WL 816154, at *5 (S.D. Cal. Mar. 5, 2010) (“As the RICO venue provision supplements the 17 general venue provision of section 1391(b), venue in this district is proper if it is proper under any 18 option provided in either statute.”). 19 2. Federal Claims 20 Defendants challenge plaintiff’s RICO claims, brought under 18 U.S.C. 21 § 1962(c) (d), arguing that plaintiff (1) lacks standing, and (2) fails to adequately plead the 22 requisite elements under RICO. See Mot. at 14–16. The court analyzes the two arguments in 23 turn. 24 a. RICO Claims Generally 25 Under 18 U.S.C. § 1962(c), it is unlawful “for any person employed by or 26 associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct 27 of such enterprise’s affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). 28 “Racketeering activity” is defined as any number of “generically specified criminal acts as well as 1 the commission of one of a number of listed predicate offenses.” Sosa v. Directv, Inc., 437 F.3d 2 923, 939 (9th Cir. 2006). Although § 1962 pertains to criminal behavior, a plaintiff may 3 nonetheless seek civil remedies for RICO violations if he has been “injured in his business or 4 property by reason of a violation of section 1962 . . . .” 18 U.S.C. § 1964(c). 5 The elements of a RICO claim are “(1) conduct; (2) of an enterprise; (3) through a 6 pattern (4) of racketeering activity (known as ‘predicate acts’); (5) causing injury to the plaintiff's 7 ‘business or property.’” Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir. 1996). A “pattern of 8 racketeering activity” requires at least two predicate acts. 18 U.S.C. § 1961(1), (5), (6). The fifth 9 element has two subparts: the plaintiff must show that the injury was proximately caused by the 10 conduct and that he has suffered a concrete financial loss. Chaset v. Fleer/Skybox Intern., LP, 11 300 F.3d 1083, 1086 (9th Cir. 2002). 12 In addition, under §§ 1962(d) and 1964(c), a person may be civilly liable if he 13 conspired to violate any of the subsections of § 1962. Beck v. Prupis, 529 U.S. 494, 500 (2000). 14 A RICO conspiracy presupposes the existence of a substantive violation of RICO, but a 15 conspirator may be liable even if he does not commit or agree to commit “the two or more 16 predicate acts requisite to the underlying offense.” Salinas v. United States, 522 U.S. 52, 65–66 17 (1997). 18 b. Plaintiff’s Standing to Bring RICO Claims 19 Defendants argue plaintiff lacks standing to bring RICO claims because his alleged 20 injuries, his suspension and termination from the company, were a result of his own conduct, not 21 any fraudulent representations by defendant. Mot. at 14 (citing Elec. Props. E., LLC v. Marcus & 22 Millichap Co., 751 F.3d 990, 997 (9th Cir. 2014) (explaining RICO violation must be “proximate 23 cause of harm to the victim”)). This argument misstates plaintiff’s theory of the case. Put 24 simply, plaintiff alleges he was injured when defendants failed to deliver on their promise of 25 making him an equity partner in Vacaya after inducing him to invest time and money into the 26 business. Further, whether plaintiff’s suspension from the company was the result of his own 27 actions or the result of a nefarious scheme by defendants is a factual question not readily 28 discerned on the face of the complaint. Defendants’ argument regarding injury is unavailing. 1 c. Failure to State RICO Claims 2 Defendants argue plaintiff’s RICO claims must be dismissed for failure to plead 3 four essential elements. 4 First, defendants argue plaintiff fails to plead actionable fraud because he alleges 5 only “statements of future intent.” Mot. at 14. The court addresses this argument in the section 6 on plaintiff’s state law fraud claims, below. 7 Second, defendants argue plaintiff fails to state a RICO claim because he was the 8 only victim of the alleged wire fraud, and RICO claims require more than a scheme to defraud 9 one individual. Id. at 16 (citing Malhotra v. Copa de Ora Realty, LLC, 676 F. App’x 666, 668 10 (9th Cir. 2017) (explaining plaintiffs lack viable RICO claim based on allegations defendants 11 participated in “scheme [that] had the singular purpose of fraudulently inducing [the plaintiff] to 12 transfer funds to,” a company, “all predicate acts occur[ed] in a short time frame” and “had no 13 victims other than [the plaintiffs]”). This argument lacks merit because plaintiff does allege one 14 other victim of similar fraudulent statements by defendants: Mr. McGanal. FAC ¶¶ 34–35. 15 Third, defendants argue plaintiff fails to allege a “pattern of racketeering” that 16 requires “defendants committed at least two . . . predicate acts.” Mot. at 14–15 (citing Comm. to 17 Protect our Agric. Water v. Occidental Oil & Gas Corp., 235 F. Supp. 3d 1132, 1177 (E.D. Cal. 18 2017)). Plaintiff contends he has alleged repeated predicate acts occurring May 2018 through the 19 summer of 2019, which consist of “the transmittal of false financial data concerning the company, 20 false statements about defendant Roper’s expertise, false commitments of full equity ownership 21 commensurate with plaintiff’s investments, false promises of enforcing indemnity obligations 22 against defendants Roper and Gunn, among other acts.” Opp’n at 18. 23 Defendants challenge whether the communications are “related” such that they can 24 be considered together in the continuity analysis. See Mot. at 15 (“The alleged ‘fraud’ concerning 25 Plaintiff’s membership in the Company has nothing to do with the alleged ‘fraud’ concerning the 26 Company’s purported ‘theft of trade secrets’ from Atlantis.”). “Relatedness” requires the acts 27 have the “same or similar purposes [and] results.” Religious Tech. Ctr. v. Wollersheim, 971 F.2d 28 364, 366 (9th Cir. 1992) (citation omitted). Defendants are correct that the alleged predicate act 1 of “theft of trade secrets” does not meet this relatedness requirement. With the exception of the 2 communications described below, plaintiff does not allege any of the acts related to the Atlantis 3 lawsuit were for the purpose, or had the result, of inducing plaintiff to invest in Vacaya, which 4 was the alleged purpose and result of the other predicate acts. See, e.g., FAC ¶ 25. 5 Any alleged communications related to the Atlantis lawsuit that have the “common 6 purpose” of inducing plaintiff to invest in Vacaya and are therefore “related” to the other 7 predicate acts are undated in the complaint. See, e.g., id. ¶ 46 (“[D]efendants made the false 8 promises to compel indemnity by Roper and Gunn for the purpose of inducing plaintiff to 9 continue investing his time and the resources of his company, Phenix, for their benefit and the 10 benefit of the Vacaya enterprise. Plaintiff reasonably relied on defendants’ promises . . . .”). 11 Therefore, these communications cannot establish continuity for the purpose of saving plaintiff’s 12 RICO claim. 13 Given this conclusion, the court further finds plaintiff’s allegations do not meet the 14 minimum requirements for “continuity.” Although he alleges “at least two acts of racketeering 15 activity” within a 10–year period, 18 U.S.C. § 1961(5), plaintiff fails to allege a pattern of 16 predicate acts that went on for at least one year, see Wollersheim, 971 F.2d at 366–67 (“We have 17 found no case in which a court has held the requirement to be satisfied by a pattern of activity 18 lasting less than a year.”) (collecting cases). The alleged wire fraud, consisting of defendants’ 19 false statements or promises intended to induce plaintiff’s investment, occurred between April 20 2018, FAC ¶ 22 (Roper and Finen send fraudulent investment packet) and roughly August 2018, 21 id. ¶¶ 43 (Atlantis initiates lawsuit), 45–46 (defendants’ false promises to enforce indemnity 22 obligations, occurring after Atlantis lawsuit commenced). This period is insufficient to show a 23 pattern of racketeering required to plead a RICO claim. H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 24 229, 242 (1989) (“A party alleging a RICO violation may demonstrate continuity over a closed 25 period by proving a series of related predicates extending over a substantial period of time. 26 Predicate acts extending over a few weeks or months and threatening no future criminal conduct 27 do not satisfy this requirement.”). 28 ///// 1 Defendants also argue the court should dismiss plaintiff’s RICO claims against 2 Vacaya because it is not a proper defendant for RICO violations, as it cannot be culpable as both 3 an enterprise and a participant. Mot. at 16 n.3. Plaintiff concedes defendant Vacaya is not a 4 proper defendant for RICO violations. Opp’n at 19 n.1. 5 Accordingly, plaintiff’s first two claims are DISMISSED. Despite the fact 6 plaintiff has amended his complaint once already, the court GRANTS leave to amend claims one 7 and two as to the individual defendants, given the representations of plaintiff’s counsel at hearing 8 and this Circuit’s liberal standard with respect to leave to amend on an initial motion to dismiss. 9 See Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). Claims one 10 and two against Vacaya only are DISMISSED without leave to amend.3 11 d. Unlawful Business Practices (Claim Nine) 12 Defendants also challenge plaintiff’s claim for unlawful business practices, based 13 on the following allegations: 14 The policies and provisions of the limited liability agreement and non-disclosure agreement, on which defendants based their adverse 15 action against plaintiff, are unfair labor practices in violation of [the National Labor Relations Act], Title 29, United States Code 16 158(a)(1), as they reasonably tend to chill, interfere with, restrain, or coerce employees in the exercise of rights guaranteed in Title 29, 17 United States Code Section 157. 18 FAC ¶ 111. Plaintiff also brings a derivative claim under California Business and Professions 19 Code section 17200. Id. ¶ 112 (“As a violation of Title 29, United States Code Section 158(a)(1), 20 the policies and provisions of the limited liability agreement and non-disclosure agreement, . . . 21 are an unlawful business practice, under the provisions of California Business and Professions 22 Code Section 17200.”). 23 Defendants argue the provisions of the National Labor Relations Act “have no 24 import whatsoever” on plaintiff’s factual allegations. Mot. at 16–17. Defendants are correct that 25 plaintiff does not sufficiently plead a right guaranteed by 29 U.S.C. § 157 with which the policies 26 27 3 Given this conclusion, the court need not reach defendants’ argument that defendants Roper and Gunn, specifically, should be dismissed, because they “did not ‘promise’ Plaintiff 28 anything more than he received.” Mot. at 17 n.3 (citing FAC ¶ 36). 1 and provisions of the limited liability agreement and non-disclosure agreement interfered, 2 requiring defendants to guess at the factual underpinning of plaintiff’s claim. See FAC ¶¶ 109– 3 113 (Ninth Claim for Relief). Accordingly, defendant’s ninth claim for unlawful business 4 practices is DISMISSED with leave to amend. See Morongo Band of Mission Indians, 893 F.2d 5 at 1079. 6 3. STATE-LAW CLAIMS 7 a. California Law Applies 8 Assuming plaintiff is able to successfully plead a federal claim in his amended 9 complaint, the court may exercise supplemental jurisdiction over the pendent state law claims and 10 in doing so would apply substantive law of the forum state, including the state’s choice-of-law 11 rules. See Chin v. Chrysler LLC, 538 F.3d 272, 278 (3d Cir. 2008) (citing Klaxon Co. v. Stentor 12 Elec. Mfg. Co., 313 U.S. 487, 496 (1941), superseded by statute on other grounds). Defendants 13 argue Delaware law, not California law, should apply to all of plaintiff’s state law claims because: 14 (1) “Delaware has the most significant relationship to both the occurrences and the parties,” and 15 (2) “[t]he laws of the State of Delaware govern the . . . construction and interpretation” of the 16 Operating Agreement, pursuant to the agreement’s choice-of-law provision. Mot. at 17 n.4 17 (emphasis in original) (citing FAC, Ex. A (Operating Agreement) § 11.84). 18 As the court concludes below, in its discussion of defendants’ motion to transfer 19 venue, Delaware does not necessarily have the most significant relationship to the factual 20 allegations supporting this case, because plaintiff received a substantial portion of the alleged 21 fraudulent communications in California. 22 As to whether the Operating Agreement’s choice-of-law provision applies to 23 plaintiff’s state law claims, under California law, the scope of a contract’s choice-of-law clause is 24 determined by the body of law identified in the agreement, unless the agreement specifies a 25 4 “The laws of the State of Delaware shall govern the validity of this Agreement, the 26 construction and interpretation of its terms, and organization and internal affairs of the Company 27 and the limited liability of the Members.” Defendants do not argue that the claims fall under the “organization and internal affairs of the Company” such that Delaware law should apply, so the 28 court does not consider that question. See Mot. at 17 n.4. 1 different scope. Washington Mutual Bank, FA v. Superior Court, 24 Cal. 4th 906, 916 & n.3 2 (2001). California courts broadly construe a contractual choice-of-law provision, particularly 3 when two sophisticated commercial parties agree to such a clause. Id. As a general rule, the 4 parties’ choice will apply to all claims arising from or related to the contract, including tortious 5 breaches of duties emanating from the agreement or the legal relationships it creates. Nedlloyd 6 Lines B.V. v. Superior Court, 3 Cal. 4th 459, 470 (1992). 7 Plaintiff does not argue California law applies to his breach of contract claim, 8 which clearly arises out of the Operating Agreement and is accordingly governed by Delaware 9 law. However, the remaining claims do not appear to have anything to do with the “construction 10 and interpretation” of the operating agreement, nor do they arise out of it. In fact, as plaintiff 11 points out, many of the alleged fraudulent communications occurred prior to the parties’ 12 executing the Operating Agreement. See Opp’n at 22. Plaintiff’s fiduciary duty claim based on a 13 joint venture relationship may arise out of the Operating Agreement, but the court need not decide 14 this issue, as discussed below. See FAC ¶ 96 (describing joint venture). 15 Accordingly, for the purposes of this motion, the court applies California law to 16 plaintiff’s state claims, with the exception of the breach of contract claim and breach of fiduciary 17 duty claim. 18 b. Intentional and Negligent Misrepresentation (Claims Three and 19 Four) 20 Defendants argue plaintiff’s intentional and negligent misrepresentation claims fail 21 because plaintiff relies on defendants’ statements promising future conduct. Mot. at 20–21. “The 22 elements of a cause of action for intentional misrepresentation are (1) a misrepresentation, 23 (2) with knowledge of its falsity, (3) with the intent to induce another's reliance on the 24 misrepresentation, (4) actual and justifiable reliance, and (5) resulting damage. Daniels v. Select 25 Portfolio Servicing, Inc., 246 Cal. App. 4th 1150, 1166 (2016) (citation omitted). “The elements 26 of a claim for negligent misrepresentation are nearly identical” except defendant need not have 27 knowledge of the statement’s falsity, only “the absence of reasonable grounds for believing the 28 misrepresentation to be true instead.” Id. (citations omitted). 1 As the basis for plaintiff’s intentional and negligent misrepresentation claims, 2 plaintiff points to defendant Roper’s misrepresentation that he had expertise in maritime laws. 3 Opp’n at 22–23. Defendants argue this statement is nonactionable “puffery.” Mot at 22. “[T]he 4 difference between a statement of fact and mere puffery rests in the specificity or generality of the 5 claim.” Newcal Indus., Inc. v. IKON Office Solutions, 513 F.3d 1038, 1053 (9th Cir. 2008) 6 (citation omitted); Stickrath v. Globalstar, Inc., 527 F. Supp. 2d 992, 998–99 (N.D. Cal. Sept. 25, 7 2007) (claim that product used brand-name components was not puffery because it was factual 8 representation that could be proved or disproved during discovery). To constitute an affirmative 9 misrepresentation, a statement must make a “specific and measurable claim, capable of being 10 proved false or of being reasonably interpreted as a statement of objective fact.” Coastal Abstract 11 Serv. v. First Am. Title Ins. Co., 173 F.3d 725, 731 (9th Cir. 1999). As defendants argue, claims 12 about expertise are generally considered nonactionable “puffery.” See, e.g., Highlands Ins. Co. v. 13 PRG Brokerage, Inc., No. 01 CIV. 2272 (GBD), 2004 WL 35439, at *3 (S.D.N.Y. Jan. 6, 2004) 14 (“[T]o the extent that defendants made statements that they had expertise in the field of livery car 15 insurance, this again is nothing more than puffery, and is not actionable.”). To the extent 16 plaintiff’s fraud claims rely on defendant Roper’s representation of expertise in maritime law, the 17 claims are DISMISSED, but with leave to amend. 18 A representation generally is not actionable unless it is about “past or existing 19 facts.” Stockton Mortg., Inc. v. Tope, 233 Cal. App. 4th 437, 458 (2014). However, a “false 20 promise to perform” can support an intentional misrepresentation claim. Starbuzz Tobacco, Inc. 21 v. Gold Star Tobacco, Inc., No. SACV1900408JVSDFMX, 2019 WL 6888044, at *6 (C.D. Cal. 22 July 29, 2019) (explaining distinction in California law between intentional and negligent 23 misrepresentation). Defendants’ arguments regarding plaintiff’s intentional misrepresentation 24 premised on defendants’ false promises are therefore unsuccessful. However, as explained in the 25 subsequent discussion on plaintiff’s promissory fraud claims, plaintiff has not pled sufficient 26 information to show defendants’ promises were false. See Smith v. Allstate Ins. Co., 160 F. Supp. 27 2d 1150, 1152 (S.D. Cal. 2001) (under Rule 9(b) “plaintiff must plead facts explaining why the 28 ///// 1 statement was false when it was made” (citing In re GlenFed, Inc., Sec. Lit., 42 F.3d 1541, 1547– 2 48 (9th Cir.1994))). As such, plaintiff’s third claim must be DISMISSED. 3 Plaintiff’s negligent misrepresentation claim, by contrast, must be based on “the 4 misrepresentation of a past or existing material fact, not promises regarding future events.” 5 Ventimiglia v. Wells Fargo Bank, N.A., No. CIV. 2:13-00953 WBS, 2013 WL 3367330, at *4 6 (E.D. Cal. July 5, 2013) (internal quotation marks and citations omitted). Plaintiff has not pled 7 that defendants’ misrepresented a past or existing fact. For example, plaintiff has not sufficiently 8 shown the omission of operating costs in the financial projections defendants sent plaintiff, 9 rendered false a past or existing fact. As such, plaintiff’s claim for negligent misrepresentation is 10 DISMISSED. 11 c. Promissory and Constructive Fraud (Claims Five and Seven) 12 In a similar vein, and as signaled above, defendants primarily argue plaintiff’s 13 promissory and constructive fraud claims do not state a cognizable claim, because plaintiff has 14 not pleaded “particularized facts that allow the Court to infer that, at the time the promise was 15 made, the speaker had no intention of keeping it.” Mot. at 23 (quoting Dunn v. FastMed Urgent 16 Care, P.C., No. 2018-0934, 2019 WL 4131010, at *8 (Del. Ch. Aug. 30, 2019)). 17 “Promissory fraud is a subspecies of fraud. A plaintiff asserting a promissory 18 fraud claim must plead and prove that the defendant made a promise to him that it had no 19 intention of performing,” and “nonperformance alone” is insufficient. UMG Recordings, Inc. v. 20 Glob. Eagle Entm’t, Inc., 117 F. Supp. 3d 1092, 1109 (C.D. Cal. 2015) (citations omitted). 21 Plaintiff “must plead facts explaining why the statement was false when it was made.” Smith v. 22 Allstate Ins. Co., 160 F. Supp. 2d 1150, 1152–53 (S.D. Cal. 2001). A plaintiff can do so, for 23 example, “by pointing to inconsistent contemporaneous statements or information which was 24 made by or available to the defendant; [or] later statements made by the defendant along the lines 25 of ‘I knew it all along.’” Id. Plaintiff fails to do so here, alleging only “plaintiff is informed and 26 believes,” that defendants knew their statements were false, FAC ¶ 25, and “[a]t the time 27 defendants made the promises and assurances to plaintiff, defendants had no intention of 28 ///// 1 performing them,” id. ¶ 90; see also id. ¶¶ 38, 39. Accordingly, plaintiff’s promissory fraud 2 claim is DISMISSED with leave to amend. 3 However, the same argument is not applicable to plaintiff’s constructive fraud 4 claim, which only requires plaintiff to plead: “(1) the existence of a fiduciary or confidential 5 relationship; (2) nondisclosure; (3) reliance; (4) and resulting injury.” Hardisty v. Moore, 6 6 F. Supp. 3d 1044, 1062 (S.D. Cal. 2014). Defendants fail to explain why plaintiff’s allegations 7 regarding defendants’ failure to disclose the operating costs in the investment prospectus are 8 insufficient to state a constructive fraud claim. See Mot. at 23–24 (arguing constructive fraud 9 cannot be based upon allegations of “future conduct”) (citing Rosenbaum v. White, 692 F.3d 593, 10 606 (7th Cir. 2012) (affirming dismissal of constructive fraud claim for failure to demonstrate 11 existence of attorney-client relationship); Nelson v. Publishers Circulation Fulfillment, Inc., No. 12 11 Civ. 1182(TPG), 2012 WL 760335, at *8 (S.D.N.Y. Mar. 7, 2012) (analyzing constructive 13 fraud claim under New York law)). Accordingly, the motion to dismiss claim six is DENIED. 14 d. Breach of Fiduciary Duty (Claim Six) 15 Defendants argue plaintiff’s breach of fiduciary duty claim fails because 16 (1) California law does not apply, (2) defendants are exculpated from liability for terminating 17 plaintiff because defendant violated the Operating Agreement, and (3) plaintiff’s allegations are 18 conclusory. Mot. at 6. 19 The court need not decide whether California law applies to this claim, nor 20 whether plaintiff violated the Operating Agreement, because the claim is not adequately pled to 21 put defendants on notice of the claim’s bases. Plaintiff states only that “[b]y the actions of 22 defendants previously alleged herein, defendants breached their duty of care . . . .” See FAC ¶ 97. 23 Accordingly, this claim is DISMISSED with leave to amend. 24 e. Breach of Contract (Claim Eight) 25 Finally, defendants argue plaintiff’s claim for breach of contract should be 26 dismissed because it is conclusory and plaintiff cannot state a plausible claim for relief because 27 plaintiff has conceded multiple “significant infractions that purportedly resulted in his removal 28 from the Company.” Mot. at 25. At the least, defendants argue in a footnote the court should 1 dismiss this claim as to the individual defendants because plaintiff does not allege they had any 2 contract with plaintiff. Id. at 25 n.11. 3 Plaintiff bases his contract claim on defendants’ suspending him from the 4 company in violation of the parties’ “limited liability agreement” (the “Operating Agreement”) 5 and “non-disclosure agreement.” See FAC ¶¶105–07. Plaintiff does allege he and all defendants 6 entered into the two relevant contracts, id. ¶ 105, and his failure to allege which provision of the 7 agreement defendants breached is not sufficient to dismiss the claim, see Otani v. State Farm Fire 8 & Cas. Co., 117 F.3d 1425 (9th Cir. 1997) (reversing dismissal of contract claim based on 9 complaint’s failure to identify specific contract provision). Plaintiff also discusses the actions 10 that allegedly constitute a breach of those contracts. See FAC ¶¶105–07. Accordingly, 11 defendants’ arguments regarding plaintiff’s breach of contract claim are unavailing and the 12 motion to dismiss the contract claim is DENIED. 13 III. MOTION TO TRANSFER 14 A. Legal Standard 15 “For the convenience of parties and witnesses, in the interest of justice, a district 16 court may transfer any civil action to any other district or division where it might have been 17 brought[.]” 28 U.S.C. § 1404(a). “Section 1404(a) is intended to place discretion in the district 18 court to adjudicate motions for transfer according to an ‘individualized, case-by-case 19 consideration of convenience and fairness.’” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 20 (1988) (quoting Van Dusen v. Barrack, 376 U.S. 612, 622 (1964), superseded by statute on other 21 grounds). In evaluating a motion to transfer venue, the court will often consider the following 22 public and private factors: “(1) plaintiff’s choice of forum; (2) the convenience of the parties; 23 (3) the convenience of the witnesses; (4) the location of books and records; (5) which forum’s law 24 applies; (6) the interests of justice; and (7) administrative considerations.” Rubio v. Monsanto 25 Co., 181 F. Supp. 3d 746, 759 (C.D. Cal. 2016) (citing 15 Charles A. Wright, Arthur R. Miller, 26 Federal Practice and Procedure, §§ 3841–55 (2007)). In the Ninth Circuit, courts will also 27 consider the following factors: 28 ///// 1 (1) the location where the relevant agreements were negotiated and executed, (2) the state that is most familiar with the governing law, 2 (3) the plaintiff’s choice of forum, (4) the respective parties’ contacts with the forum, (5) the contacts relating to the plaintiff’s cause of 3 action in the chosen forum, (6) the differences in the costs of litigation in the two forums, (7) the availability of compulsory 4 process to compel attendance of unwilling non-party witnesses, and (8) the ease of access to sources of proof. 5 6 Jones v. GNC Franchising, Inc., 211 F.3d 495, 498–99 (9th Cir. 2000). The moving party bears 7 the burden of showing transfer is appropriate. Commodity Futures Trading Comm’n v. Savage, 8 611 F.2d 270, 279 (9th Cir. 1979)), opinion modified, 828 F.2d 1445 (9th Cir. 1987). In 9 considering whether to transfer venue, the court may consider facts outside the pleadings, 10 including declarations. Cadenasso v. Metro. Life Ins. Co., No. 13-CV-05491-JST, 2014 WL 11 1510853, at *2 n.2 (N.D. Cal. Apr. 15, 2014). 12 B. Discussion 13 Defendant argues, in the alternative, the court should transfer venue to the District 14 of Delaware under 28 U.S.C. § 1404(a). 15 Defendants do not meet their burden of showing transfer is appropriate here. 16 “Great weight is generally accorded plaintiff's choice of forum,” and defendants do not show how 17 the District of Delaware is more convenient to the parties or to any potential witnesses, who all 18 appear to reside elsewhere, see FAC ¶¶ 3–8, other than stating the individual defendants consent 19 to personal jurisdiction there, Brooks Decl., Exs. 1–3 (declarations of defendants Finen, Roper 20 and Terrill), ECF Nos. 15-3–15-5. Even Vacaya, which provides the sole tie in this case to the 21 District of Delaware as it is incorporated there, has its principal place of business in Brooklyn, 22 New York. FAC ¶ 8. All things considered, the interests of justice also do not appear to favor 23 transfer. 24 Accordingly, the court DENIES the motion for transfer of venue. 25 ///// 26 ///// 27 ///// 28 ///// 1 IV. CONCLUSION 2 The motion is GRANTED in part, as follows: 3 1. Plaintiff’s RICO claims (claims one and two) are DISMISSED; 4 2. Plaintiff’s intentional and negligent misrepresentation claims (claims three 5 and four) are DISMISSED; 6 3. Plaintiff’s promissory fraud claim (claim five) is DISMISSED; 7 4. Plaintiff’s breach of fiduciary duties claim (claim six) is DISMISSED; 8 5. Plaintiff’s unlawful business practices claim (claim nine) is DISMISSED; 9 6. Leave to amend is GRANTED as to all claims except claims one and two 10 against defendant Vacaya; 11 7. The motion to transfer venue in the alternative is DENIED; and 12 8. Any second amended complaint consistent with this order shall be filed 13 within twenty-one days of the date this order is filed. 14 This order resolves ECF No. 15. 15 IT IS SO ORDERED. 16 DATED: August 25, 2020. 17 18 19 20 21 22 23 24 25 26 27 28