Leaser v. Prime Ascot, L.P. ( 2024 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 NICHA LEASER, et al., individually, No. 2:20-CV-02502-DJC-AC and on behalf of others similarly 12 situated, 13 Plaintiffs, ORDER 14 v. 15 PRIME ASCOT, L.P., et al., 16 Defendants 17 18 Before the Court is Defendants’ Motion to Dismiss Plaintiffs’ Second Amended 19 Complaint (“SAC”) on the basis that Plaintiffs have failed to join parties required under 20 Rule 19. As discussed below, these parties are not required both because the 21 Plaintiffs will be able to receive complete relief among the named parties, and 22 because the absent parties’ interest in the litigation is merely hypothetical at this point 23 in the litigation. Defendants also move for dismissal of Plaintiffs’ alter ego and 24 conspiracy allegations. For the reasons discussed, the Court finds that Plaintiffs have 25 adequately alleged the alter ego claim, but have failed to plead the conspiracy claim 26 with sufficient factual detail. Accordingly, the Court GRANTS IN PART and DENIES IN 27 PART Defendants’ Motion. 28 //// 1 I. Background 2 Plaintiffs bring the present action against Defendants Prime Ascot, L.P., Prime 3 Ascot Acquisition, LLC, Prime/Park LaBrea Titleholder, LLC, and Prime Administration, 4 LLC, the owners and property manager of apartment buildings rented by the Plaintiffs. 5 (SAC (ECF No. 37) ¶¶ 1–3, 10–17.) Plaintiffs allege that Prime Administration is the 6 manager of all of the apartment complexes rented by Plaintiffs, and that each of the 7 other Defendants are alter egos of Prime Administration which ultimately controls and 8 operates each of the properties it manages. (Id. ¶¶ 18–21.) Plaintiffs allege that 9 Defendants conspired to, and engaged in, unlawful and unfair practices which 10 violated Plaintiffs’ rights under California law, and breached various implied 11 warranties. (Id. ¶¶ 4–9.) These practices and policies are allegedly common and 12 shared among all the properties operated and managed by Prime Administration. (Id. 13 ¶ 25.) 14 Plaintiffs Nicha Leaser, Atchara Wongsaroj, and Katina Magee specifically allege 15 that while they resided at Blue Rock Village under a lease agreement with Defendant 16 Prime Ascot, L.P., their apartments were infested with mice. (Id. ¶¶ 32–34, 52, 54.) 17 They allege that Defendants were aware of and failed to disclose or address the 18 infestation despite Plaintiffs’ repeated complaints to Defendants. (Id. ¶¶ 35–36, 52, 19 56–60.) The alleged infestation interfered with Plaintiffs Leaser and Wongsaroj’s 20 enjoyment of the leased property, caused property damaged, and caused physical 21 and emotional illness. (Id. ¶¶ 39–45, 54, 57.) Plaintiff Magee eventually began to 22 withhold rent on the basis that her apartment was not habitable, and Defendants 23 ultimately evicted her. (Id. ¶¶ 58, 61.) Plaintiffs believe the entire building was 24 similarly infested, and that all Blue Rock Village residents suffered similar harm. (Id. 25 ¶¶ 35, 42.) 26 Plaintiffs Leaser and Wongsaroj also allege that during their tenancy, they were 27 charged late fees for not paying sewer, water, and garbage charges on time. (Id. 28 ¶¶ 46–47.) However, they allege that those charges were routinely posted after their 1 due date, providing Plaintiffs no opportunity to pay them on time and thus avoid the 2 late penalty. (Id.) Plaintiff Magee was also assessed late fees for late rent payments 3 after she began withholding rent due to the alleged inhabitability of her apartment. 4 (Id. ¶¶ 58–59.) Plaintiff Joyce Eisman, who rented an apartment at Park LaBrea under 5 a lease agreement with Defendant Prime/Park LaBrea Titleholder, LLC, alleges that 6 Defendants charged her late fees for late payment of rent as well. (Id. ¶¶ 63, 68.) 7 Plaintiffs allege that these late fees were all exorbitant, unreasonable, and unjustified. 8 (Id. ¶¶ 47, 62, 68.) In addition, Plaintiffs allege that Prime Administration engaged in 9 a practice of applying rent payment first to the late fees, resulting in unpaid rent and 10 additional late fees, which Plaintiffs call a “pyramiding” scheme. (Id. ¶ 142.) 11 Each Plaintiff also alleges that when they moved out of their respective 12 apartments, they were improperly charged fees to unnecessarily repaint their 13 apartments. (Id. ¶¶ 49–51, 61–62, 65–67.) Defendants then failed to provide a full 14 refund of their security deposits, wrongfully withheld funds, and failed to provide an 15 accurate itemized accounting of the charges withheld. (Id.) 16 A. Procedural Background 17 Plaintiffs brought the present suit as a putative class action against Defendants 18 on behalf of three classes of plaintiffs: (1) persons who experienced a mice infestation 19 at Blue Rock Village; (2) persons who were charged excessive fees or subject to the 20 alleged pyramiding scheme; and (3) persons who had their security deposits 21 wrongfully withheld or not reimbursed in time, and/or were not provided proper 22 accounting of the charges. (Id. ¶ 69.) This suit was originally filed in California 23 Superior Court, Solano County, and was removed to this Court on December 17, 24 2020. (Not. of Removal (ECF No. 1).) 25 Defendants moved to dismiss the First Amended Complaint, which the Court 26 initially denied. (Order (ECF No. 26).) However, on reconsideration, the Court 27 determined that Plaintiffs did not have standing to sue the owners/landlords of 28 properties managed by Prime Administration, which no Named Plaintiff had resided 1 in, because those entities did not cause them injury. Specifically, the Court found that 2 Plaintiffs had not adequately alleged that those owners/landlords had aided and 3 abetted either Prime Administration or the owners/landlords of the properties 4 Plaintiffs had resided in. (Order (ECF No. 34) at 9–10.) The Court accordingly 5 dismissed those Defendants, (id. at 11), and Plaintiffs filed the operative SAC which 6 did not name them. (ECF No. 37.) 7 Defendants brought a Rule 12(f) Motion to Strike the allegations in the SAC 8 related to the owners/landlords the Court previously dismissed (referred to as the 9 “Absent Landlords”) arguing that they were required parties under Rule 19. In 10 denying that motion, the Court advised that a challenge seeking to dismiss claims 11 under Rule 19 is properly brought under Rule 12(b)(7). Defendants now renew their 12 request, bringing the present Motion to Dismiss claims seven and eight pursuant to 13 Rule 12(b)(7). They also move to dismiss Plaintiffs’ alter ego and conspiracy claims 14 under Rule 12(b)(6). 15 II. Legal Standard 16 A. 12(b)(6) 17 A party may move to dismiss for “failure to state a claim upon which relief can 18 be granted.” Fed. R. Civ. P. 12(b)(6). The motion may be granted if the complaint 19 lacks a “cognizable legal theory” or if its factual allegations do not support a 20 cognizable legal theory. Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th 21 Cir. 2019) (quoting Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988)). 22 The Court assumes all factual allegations are true and construes “them in the light 23 most favorable to the nonmoving party.” Steinle v. City and Cnty. of San Francisco, 24 919 F.3d 1154, 1160 (9th Cir. 2019) (quoting Parks Sch. of Bus., Inc. v. Symington, 51 25 F.3d 1480, 1484 (9th Cir. 1995)). A complaint need contain only a “short and plain 26 statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P. 27 8(a)(2), not “detailed factual allegations,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 28 (2007). But this rule demands more than unadorned accusations; “sufficient factual 1 matter” must make the claim at least plausible. Iqbal, 556 U.S. at 678. If the 2 complaint’s allegations do not “plausibly give rise to an entitlement to relief,” the 3 motion must be granted. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). 4 B. 12(b)(7) 5 Rule 12(b)(7) provides that a party may seek to dismiss a complaint for failure to 6 join a party under Rule 19. Such motions require a three step inquiry. E.E.O.C. v. 7 Peabody W. Coal Co., 400 F.3d 774, 779 (9th Cir. 2005). First, the court must 8 determine whether the absent is “necessary” under Rule 19(a). Fed. R. Civ. P. 19(a). If 9 the absent party is necessary, the court must join the party if feasible.1 However, if it is 10 not feasible to join the party, the court proceeds to determining whether the party is 11 “indispensable,” or whether the action may, in “in equity and good conscience” 12 proceed without the absent party. Id. at 779–80; Fed. R. Civ. P. 19(b). If the absent 13 party is indispensable — meaning the action cannot proceed without the party — the 14 action must be dismissed. Salt River Project Agr. Imp. & Power Dist. v. Lee, 672 F.3d 15 1176, 1179 (9th Cir. 2012). 16 III. Discussion 17 A. Rule 12(b)(6) Motion 18 i. Late filed motion under 12(g) 19 Although Plaintiffs are correct that Defendants’ Rule 12(b)(6) Motion on this 20 issue would ordinarily be waived under Rule 12(g) due to the failure to consolidate 21 with Defendants’ previous Rule 12 Motions,2 the Court will nonetheless entertain the 22 1 This Court has already ruled that the absent landlords cannot be joined because the Plaintiffs lack 23 standing to sue them, i.e., it is not feasible to join them. (ECF No. 34 at 9–10; Order (ECF 50) at 9.) Accordingly, the Court will only assess whether the Absent Landlords are necessary, and, if so, whether 24 the action may proceed without them. 2 Under Rule 12(g), a party must bring all arguments under Rule 12 in a consolidated motion or else 25 waive their remaining Rule 12 arguments. “[A] party that makes a motion under [Rule 12] must not make another motion under this rule raising a defense or objection that was available to the party but 26 omitted from its earlier motion.” Fed. R. Civ. Pro. § 12(g)(2); see Williams & Cochrane, LLP v. Quechan Tribe of Fort Yuma Indian Rsrv., 329 F.R.D. 247, 254 (S.D. Cal. 2018). A party cannot, for example, “first 27 [attempt] to attack the opposing party's pleading under Rule 12(e) or Rule 12(f) and then . . . follow with a Rule 12(b) motion when these defenses and objections might have been presented together.” 28 Quechan Tribe, 329 F.R.D. at 255 (quoting 5C Charles Alan Wright & Arthur R. Miller, Federal Practice 1 Motion because it will expedite resolution of the case, and because Defendants have 2 asserted this defense consistently and at each opportunity from the inception of the 3 case, such that the Motion was not brought for “any strategically abusive purpose” 4 such as delay. See In re Apple iPhone Antitrust Litig., 846 F.3d 313, 320 (9th Cir. 5 2017), aff'd sub nom. Apple Inc. v. Pepper, 139 S. Ct. 1514 (2019). 6 Defendants initially brought a Motion to Dismiss and Strike the FAC, seeking 7 only to strike Plaintiffs’ secondary liability allegations. (See ECF No. 6.) In its Order on 8 that Motion, the Court found that Plaintiffs had sufficiently alleged its secondary 9 liability theories. (ECF No. 26.) Defendants then sought reconsideration of the Court’s 10 order only as to whether the Plaintiffs had sufficiently plead their “aiding and abetting” 11 theory, and therefore whether they had standing under Article III to sue the Absent 12 Landlords, not as to the sufficiency of the alter ego or conspiracy claims. (ECF No. 27.) 13 The Court granted the Motion for Reconsideration and invited the Defendants to 14 bring a new motion as to the alter ego claims. (EFC No. 34.) Once Plaintiffs filed the 15 SAC, Defendants brought a second Motion to strike the alter ego and conspiracy 16 allegations. A Rule 12(f) motion to strike is considered under a different legal 17 standard than a Rule 12(b)(6) motion, and this Court found that those allegations were 18 not “redundant, immaterial, impertinent, or scandalous” to warrant striking. 19 Under Rule 12(g), while Defendants would ordinarily be precluded from 20 bringing a second Rule 12 motion on an issue that could have been raised in the first, 21 Defendants would still be able to file an Answer, and then a Rule 12(c) motion 22 asserting the same arguments, which would be assessed under a similar standard. In 23 In re Apple iPhone Antitrust Litigation, the Ninth Circuit stated that in such a 24 circumstance, the District Court may rule on the merits of a late-filed 12(b)(6) motion in 25 and Procedure § 1388 (3d ed. 2018)). The only exceptions to Rule 12(g) are motions brought under 26 rule 12(c), trial motions, and other pleadings under Rule 7(a). As Plaintiffs made the same factual allegations in their First Amended Complaint, Defendants should have brought a Motion challenging 27 the sufficiency of the claim at that time. “[T]he right to file a motion to dismiss for failure to state a claim is not revived when the claim is pled again in an amended complaint.” City of Las Cruces v. Lofts at 28 Alameda, LLC, 591 F. Supp. 3d 1038, 1050 (D.N.M. 2022). 1 order to expedite resolution of the issue. 846 F.3d at 318–20. The Court also 2 recognizes that Defendants intended to challenge the sufficiency of the secondary 3 liability claims, and that this motion is a renewal of the prior motion intended to cure 4 procedural defect, not for delay. Accordingly, the Court exercises its discretion to rule 5 on the 12(b)(6) Motion. 6 ii. Sufficiency of the alter ego claim 7 A parent of a subsidiary company ordinarily cannot be held liable for the acts of 8 the subsidiary merely because of the parent-subsidiary relationship. See United States 9 v. Bestfoods, 524 U.S. 51, 61–62 (1998). However, liability may be imputed “where the 10 subsidiary is the parent’s alter ego, or where the subsidiary acts as the general agent 11 of the parent,” or where it “participates in the wrongdoing.” Cattie v. Wal-Mart Stores, 12 Inc., 504 F. Supp. 2d 939, 945 (S.D. Cal. 2007) (quoting Harris Rutsky and Co. Ins. 13 Servs., Inc. v. Bell and Clements Ltd., 328 F.3d 1122, 1134 (9th Cir. 2003) and citing 14 Bestfoods, 524 U.S. at 64–65). “With increasing frequency, courts have demonstrated 15 a readiness to disregard the corporate entity when a wholly owned subsidiary is 16 merely a conduit for, or is financially dependent on, a parent corporation.” Inst. Of 17 Veterinary Pathology, Inc. v. California Health Lab’ys, Inc., 116 Cal. App. 3d 111, 119 18 (1981) (quoting 1A Ballantine & Sterling, California Corporation Laws (4th ed. 1980) § 19 296.02, at 14-32.1–14-33). The elements of alter ego liability are “(1) that the parent 20 exercised so much control over the subsidiary so as to have effectively assumed the 21 subsidiary’s day-to-day operations in carrying out the policy, and (2) that an 22 inequitable result would obtain in the absence of the Court applying this standard.” 23 Kundanmal v. Safeco, No. 2:17-CV-06339-SVW, 2017 WL 6942758, at *2 (C.D. Cal. 24 Dec. 13, 2017); see also Ruiz v. Gen. Ins. Co. of Am., No. 1:20-CV-00218-AWI-EPG, 25 2020 WL 4018274, at *4 (E.D. Cal. July 15, 2020) (restating the first element as “the 26 parent must control ‘the subsidiary to such a degree as to render the latter the mere 27 instrumentality of the former’” (quoting Calvert v. Huckins, 875 F. Supp. 674, 678 (E.D. 28 Cal. 1995))); Inst. Of Veterinary Pathology, 116 Cal. App. 3d at 119. 1 “In order to withstand a motion to dismiss, the plaintiff must, at a minimum, 2 ‘se[t] forth some examples of alleged domination[.]” Lovesy v. Armed Forces Ben. 3 Ass’n, No. C-07-2745 SBA, 2008 WL 696991, at *4 (N.D. Cal. Mar. 13, 2008) (quoting 4 In re Sunbeam Corp., 284 B.R. 355, 366 (S.D. N.Y. 2002)). “Factors relevant to a 5 determination of alter ego include (1) commingling of funds and other assets of the 6 two entities, (2) the holding out by one entity that it is liable for the debts of the other, 7 (3) identical equitable ownership in the two entities, (4) use of the same offices and 8 employees, (5) use of one as a mere shell or conduit for the affairs of the other, (6) 9 inadequate capitalization, (7) disregard of corporate formalities, (8) lack of 10 segregation of corporate records, and (9) appointment of identical directors and 11 officers.” KEMA, Inc. v. Koperwhats, No. C-09-1587 MMC, 2010 WL 3464737, at *8 12 (N.D. Cal. Sept. 1, 2010) (citing Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 13 4th 523, 538–39 (2000)). “No one characteristic governs”; rather, “courts must look at 14 all the circumstances to determine whether the doctrine should be applied.” Sonora, 15 83 Cal. App. at 539. 16 Here, Plaintiffs have alleged sufficient facts at the motion to dismiss stage 17 demonstrating plausibility that the owners of the properties Prime Administration 18 manages are the “mere shell or conduit” of Prime Administration. Essentially, Plaintiffs 19 allege that each of the owners are shell companies set up for the sole purpose of 20 being the legal titleholder to the properties that Prime Administration effectively owns 21 and controls. (SAC ¶¶ 18–22.) Plaintiffs allege that Prime Administration fully owns 22 each entity that itself owns each of the individual properties managed by Prime 23 Administration, and that Prime Administration “ultimately control[s] and operate[s]” 24 each of the properties. (Id. ¶ 20.) On a shared, common website, the entities refer to 25 themselves collectively as the “Prime Group” and each titleholder’s corporate name 26 contains “Prime” alongside the name of the street or the name of the building. (Id. 27 ¶¶ 21, 22.) Plaintiffs also allege that all of the property owners share management 28 personnel with Prime Administration and are governed by the same policies and 1 practices. (Id. ¶¶ 21, 25.) All of the properties allegedly utilize the same or similar 2 lease agreement which has Prime Administration’s d/b/a name “Prime Residential” 3 stamped on the top of each page and “identif[ies] the ‘company’ on the lease as 4 ‘Prime Administration LLC dba Prime Group.’” (Id. ¶ 23–24.) These allegations taken 5 together are sufficient to infer that Prime Administration has “assumed the 6 subsidiar[ies’] day-to-day operations” based on the same shared personnel, form, and 7 common practices, and that the subsidiaries are a mere instrumentality of Prime 8 Administration as mere nominal titleholders of the properties. While the SAC is silent 9 as to some of the factors the Court is required to consider, at this early stage of the 10 proceedings Plaintiffs state sufficient information to plead an alter ego theory of 11 liability. 12 Plaintiffs’ allegations are unlike those in Ranza v. Nike, Inc., where the plaintiffs 13 merely pleaded that Nike engaged in “micromanagement” of the subsidiary, not that 14 it directed the corporations “day-to-day operations.” 793 F.3d 1059, 1074–75 (9th Cir. 15 2015). Despite the parent company’s substantial involvement in decisions, the 16 subsidiary “sets its own prices for its licensed Nike products, takes and fulfills orders 17 for its licensed products using its own inventory, negotiates its own contracts and 18 licenses, makes routine purchasing decisions without Nike's consultation and has its 19 own human resources division that handles day-to-day employment issues, including 20 hiring and firing decisions.” The subsidiary also has its own board of directors, “leases 21 its own facilities, maintains its own accounting books and records, enters into 22 contracts on its own and pays its own taxes.” Id. at 1074. In contrast, here, Plaintiffs 23 allege that the landlords are merely legal titleholders and that Prime Administration 24 controls every aspect of the day-to-day operation of the titleholding entities. 25 As to the second element of alter ego liability, taking the facts in the light most 26 favorable to Plaintiffs, the Court can infer that an inequitable result would occur if the 27 court were to recognize the titleholders as separate entities. To the extent the 28 Plaintiffs are able to prove their claims, it would be inequitable for Prime 1 Administration to hide assets behind its alleged corporate shells or to avoid injunctive 2 relief as to those entities. Accordingly, the Court finds that, at this early stage, Plaintiffs 3 have plausibly alleged that Prime Administration is the alter ego of the titleholding 4 subsidiaries. 5 iii. Sufficiency of the conspiracy claim 6 Defendants next move to dismiss the conspiracy allegations. Plaintiffs allege, in 7 the alternative, that if the property owners are not alter egos of Prime Administration, 8 then Prime Administration and the property owners conspired to carry out the alleged 9 illegal conduct. Defendants argue that because Prime Administration was acting as 10 the agent of the property owners the agent’s immunity rule precludes a conspiracy 11 theory. They also assert that Plaintiffs have failed to adequately plead a conspiracy 12 theory.3 13 The agent-immunity rule provides that where an agent is acting within the 14 scope of its authority on behalf of a corporation, the agent is “one and the same” as 15 the corporation. Everest Invs. 8 v. Whitehall Real Est. Ltd. P'ship XI, 100 Cal. App. 4th 16 1102, 1109 (2002). Because a corporation cannot conspire with itself, an agent and a 17 corporation cannot form a conspiracy. Verrecchia v. Aviss, No. EDCV-17-317-DMG-SP, 18 2017 WL 9486151, at *11 (C.D. Cal. Nov. 8, 2017). However, “when the agent's 19 conduct is undertaken in pursuit of a personal interest or advantage and not solely on 20 behalf of the principal” the agent-immunity rule does not apply. Villains, Inc. v. Am. 21 Econ. Ins. Co., 870 F. Supp. 2d 792, 796 (N.D. Cal. 2012). “[M]erely receiving 22 monetary compensation for [the agent’s] services to the principal is not enough” to 23 establish the exception. Id. at 796–97 (quoting Mintz v. Blue Cross of Cal., 172 Cal. 24 App. 4th 1594, 1606 (2009)). Rather, the personal financial gain must be derived from 25 an external source. For example, where an attorney merely charges for services 26 27 3 Defendants also assert that Plaintiffs cannot be accorded complete relief because the co-conspirators are absent from the litigation. As this issue pertains to the rule 19 analysis and not failure to state a 28 claim, the Court discusses it below in Section III.B.i.a. 1 performed, even if excessively, the exception does not apply; but where an attorney 2 has taken assignment of the client’s interests in a property, the attorney has a personal 3 stake in the conspiracy to regain ownership of the property. Id. (citing Mintz, 172 Cal. 4 App. 4th at 1606 and Doctors' Co. v. Superior Court, 49 Cal. 3d 39, 47 (1989)). 5 Here, while Plaintiffs generally allege that Prime Administration acted as the 6 agent of titleholder and vice-versa, raising the possible application of the agent- 7 immunity rule, the exception applies. Plaintiffs argue in their Opposition, based on 8 the Declaration of Selena Kerr, Executive Vice President of Property Management for 9 Prime Administration, LLC, that Prime Administration receives a percentage cut of the 10 monthly gross revenue of the profits received, including a percentage for each late 11 fee it charges. (Decl. of S. Kerr (ECF No. 51-2) ¶ 3; Opp’n at 2.) Therefore, Prime 12 Administration has a personal interest in charging additional late fees or wrongfully 13 retaining deposits because doing so would allow Prime Administration to receive 14 additional financial gain that is separate and apart from the landlords’ own gain. See, 15 Sanchez v. Aviva Life & Annuity Co., No. CIV-S09-1454-FCD-DAD, 2010 WL 2606670, 16 at *8 (E.D. Cal. June 28, 2010) (holding that the agency rule was inapplicable where 17 the agents were “motivated by the prospect of personal gain as much as they were 18 motivated by the profit potential for [the] corporate principal” in carrying out a Ponzi 19 scheme); Villains, 870 F. Supp. 2d at 797 (suggesting that the exception would be met 20 if the agent had received a cut of the withheld money). Accordingly, the agency- 21 immunity rule does not apply to Plaintiffs’ conspiracy allegations. 22 However, Plaintiffs have failed to sufficiently plead a conspiracy between Prime 23 Ascot and the Landlords. A conspiracy claim consists of “(1) the formation and 24 operation of a conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) 25 the damage resulting from such act or acts.” Gen. Am. Life Ins. Co. v. Rana, 769 F. 26 Supp. 1121, 1125 (N.D. Cal. 1991). To establish the formation and operation of a 27 conspiracy, a plaintiff must allege specific facts showing that the conspirators 28 “directed themselves towards this wrongful goal by virtue of a mutual understanding 1 or agreement.” Alfus v. Pyramid Tech. Corp., 745 F. Supp. 1511, 1521 (N.D. Cal. 2 1990). Allegations of an explicit agreement are not required, but the complaint must 3 contain more than the bare assertion that the conspirators agreed to the conduct. Id.; 4 Love v. The Mail on Sunday, No. CV-05-7798-ABC-PJW, 2006 WL 4046180, at *15 5 (C.D. Cal. Aug. 15, 2006). Further, “[i]n civil conspiracy actions, courts insist upon a 6 higher level of specificity than is usually demanded of other pleadings.” 7 Plaintiffs’ SAC fails to plead sufficient facts establishing the formation and 8 operation of a conspiracy. Plaintiffs alleges that “important management decisions 9 and policies . . . are common and shared among all Prime Properties,” and that “all 10 Prime Properties are primarily operated and managed through the same Defendant, 11 Prime Administration, LLC.” (SAC ¶ 19, 25.) However, the mere allegation that Prime 12 Administration made common management decisions does not establish any 13 agreement among the parties to carry out the management decisions. “The 14 complaint [also] fails, for example, to allege how the conspiracy operated, or to 15 differentiate among the various different defendants and their alleged roles.” Love, 16 2006 WL 4046180 at *15; accord Nelson v. Levy, No. 16-CV-03797-MMC, 2016 WL 17 6892713, at *3 (N.D. Cal. Nov. 23, 2016). Because there are no facts establishing the 18 formation of a conspiracy, Plaintiff’s conspiracy allegations fail. 19 The Court accordingly DENIES Defendant’s 12(b)(6) motion as to Plaintiff’s alter 20 ego claims, and GRANTS the motion with respect to the conspiracy claims, with leave 21 to amend. 22 B. Failure to Join Under Rule 19 23 i. Whether the Absent Landlords are necessary parties 24 A party is considered necessary under Rule 19(a) if one of the following applies: 25 First, if in the party’s absence, “the court cannot accord complete relief among existing 26 parties;” second, “if [the party] has an interest in the action and resolving the action in 27 [the party’s] absence may as a practical matter impair or impede [the party’s] ability to 28 protect that interest;” or, third, “if [the party] has an interest in the action and resolving 1 the action in [the party’s] absence may leave an existing party subject to inconsistent 2 obligations because of that interest.” Salt River Project, 672 F.3d at 1179. Defendants 3 argue that the absent landlords are necessary parties in all three instances.4 4 a. Complete relief among the parties 5 Defendants assert that Plaintiffs cannot seek complete relief under the UCL — 6 which allows for only restitution and injunctive relief — from the Named Defendants 7 alone. First, they argue that any class plaintiff who was a tenant of the Absent 8 Landlords cannot receive restitution from Prime Administration because the funds 9 were not retained by Prime Administration but rather paid to the Absent Landlords. 10 Second, Defendants argue that Plaintiffs cannot obtain complete relief by enjoining 11 only the actions of Prime Administration because the individual Absent Landlords 12 would be free to engage in the same practices. 13 Rule 19 is concerned with whether the Court can accord complete relief 14 among the existing parties. Fed. R. Civ. P. 19(a)(1) (requiring joinder if “in that 15 person's absence, the court cannot accord complete relief among existing parties”); 16 Zeff v. Greystar Real Est. Partners, LLC, No. 20-CV-07122-EMC, 2021 WL 632614, at *4 17 (N.D. Cal. Feb. 18, 2021) (“[N]onjoinder precludes the court from effecting relief not in 18 some overall sense, but between extant parties. In other words, joinder is required 19 only when the absentee's nonjoinder precludes the court from rendering complete 20 justice among those already joined . . . .” (quoting Moore's Fed. Prac. – Civ. 21 § 19.03[2][b][ii]) (emphasis in original)). Currently, the only parties to the suit are the 22 Named Plaintiffs, their former landlords, and the property manager, Prime 23 Administration. Because the landlord of each Plaintiff is named in the suit, as it stands 24 the Court would be able to both enjoin each Plaintiff’s landlord and order restitution 25 26 4 Although the Court has determined that Plaintiffs have sufficiently alleged their alter ego claims, the court reviews whether the Absent Landlords are required without regard to the alter ego theory. 27 Wilson v. Metals USA, Inc., No. CIV. S-12-0568 LKK, 2012 WL 5932990, at *5 (E.D. Cal. Nov. 27, 2012) (holding that the absent party was required despite an alter ego theory because a court cannot 28 disregard the corporate structure until there is a finding of fact that the entities are alter egos). 1 from those landlords. Defendants’ arguments about whether complete relief might 2 be accorded as to a hypothetical class of plaintiffs is in this sense premature. 3 In any event, as described below, Plaintiffs would be able to receive complete 4 relief from Prime Administration alone for Prime Administration’s management 5 practices even if the landlords were not named. 6 Restitution 7 Defendants assert that restitution can only be granted where the funds are paid 8 directly to a defendant and the defendant is in actual possession of those funds. 9 However, California courts tend to hold that restitution may be sought against the 10 perpetrator of the unfair business practice, regardless of whether they received a 11 direct benefit, where the defendant’s wrongful conduct caused the plaintiff to pay the 12 funds for which they are seeking restitution. Violators cannot “escape restitution by 13 structuring their schemes to avoid receiving direct payment from their victims.” 14 People ex rel. Harris v. Sarpas, 225 Cal. App. 4th 1539, 1562 (2014); see, e.g., Troyk v. 15 Farmers Group, Inc. 171 Cal. App. 4th 1305, 1314–1315 (2009); Shersher v. Superior 16 Court, 154 Cal. App. 4th 1491, 1494–1495 (2007); see also Matoff v. Brinker Rest. 17 Corp., 439 F. Supp. 2d 1035, 1038 (C.D. Cal. 2006) (finding that an employer may be 18 liable for misappropriation of tips despite the fact that the tips were given to and 19 retained by different employees); Cabebe v. Nissan of N. Am., Inc., No. 18-CV-00144- 20 WHO, 2018 WL 5617732, at *5–6 (N.D. Cal. Oct. 26, 2018) (finding that a car 21 manufacturer could be held liable in restitution for false advertising despite the fact 22 that it received no funds directly from the plaintiff). 23 The cases cited by Defendant in support of its position do not support a strict 24 requirement that a defendant must be in active possession of the funds, but rather 25 these cases simply affirm the distinction between restitution and ordinary damages. In 26 EchoStar Satellite Corp. v. NDS Group PLC, the plaintiff could not show that the 27 defendant took money or property from the plaintiff; rather the plaintiff’s argument 28 was one of damages resulting in the lost value of its secure system. No. SA-CV-03- 1 0950-DOC-JTL, 2008 WL 4596644, *8 (C.D. Cal. Oct. 15, 2008). Similarly, in Zeppeiro 2 v. Green Tree Servicing, LLC, the plaintiff alleged that he incurred “higher arrearages, 3 late fees, foreclosure fees, and interest charges” as a result of the defendant denying 4 his loan modification, but did not allege that he actually paid any of those charges. 5 No. CV-14-01336-MMM-JC, 2015 WL 12660398, at *11 (C.D. Cal. Apr. 15, 2015). And 6 in Colgan v. Leatherman Tool Grp., Inc., the court found that trial court erred by not 7 looking to the amount required to restore the purchasers to the status quo. 135 Cal. 8 App. 4th 663, 700 (2006), as modified on denial of reh'g (Jan. 31, 2006). 9 The purpose of restitution under the UCL is not to provide ordinary damages, 10 but to “compel a UCL defendant to return money obtained through an unfair business 11 practice to those persons in interest from whom the property was taken.” Korea 12 Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1149 (2003) (quoting Kraus v. 13 Trinity Mgmt. Servs., Inc., 23 Cal. 4th 116, 126–27 (2000)). “These awards are for 14 ‘money that once had been in the possession of the person to whom it [is] to be 15 restored.’” Colgan, 135 Cal. App. 4th at 697 (quoting Cortez v. Purolator Air Filtration 16 Prod. Co., 23 Cal. 4th 163, 177 (2000)). “Moreover, in contrast to contract restitution, 17 statutory restitution [(like that under the UCL)] is not solely ‘intended to benefit the 18 [victims] by the return of money, but instead is [also] designed to penalize a defendant 19 for past unlawful conduct and thereby deter future violations.’” People ex rel. Kennedy 20 v. Beaumont Inv., Ltd., 111 Cal. App. 4th 102, 134 (2003), as modified on denial of 21 reh'g (Sept. 9, 2003) (quoting People v. Toomey, 157 Cal. App. 3d 1, 25–26 (1984)). 22 Because of this broad interest in both providing relief to the victim and also 23 penalizing the wrongdoer, California courts have repeatedly authorized suit against a 24 party which has committed the wrongful act, but which is not in direct possession of 25 the funds. In Troyk v. Farmers Group, Inc., the court allowed the plaintiff to seek 26 restitution from both the insurance company and the company’s attorney for unlawful 27 service charges engineered by those defendants despite the fact that a third-party 28 billing company was the direct recipient of the funds. 171 Cal. App. 4th at 1314–1315. 1 The court held that a plaintiff may “seek UCL restitution from a defendant whose 2 unlawful business practice caused the plaintiff to pay that money.” Id. 3 Similarly, in Shersher v. Superior Court, the court held that a plaintiff who 4 purchased a product from a retailer could sue the product’s maker for restitution 5 under the UCL despite the plaintiff not having paid funds to that company. 154 Cal. 6 App. 4th at 1494–1495. The court held that “[n]othing in [California Supreme Court’s 7 caselaw] conditions the recovery of restitution on the plaintiff having made direct 8 payments to a defendant who is alleged to have engaged in false advertising or 9 unlawful practices under the UCL.” Id. 10 And, most applicable to this case, in People ex rel. Harris v. Sarpas, the court 11 held that the owners of a company who orchestrated a fraudulent scheme could be 12 liable in restitution under the UCL despite the company being in retention of the 13 funds. 225 Cal. App. 4th at 1562. In that case, the plaintiffs alleged that the 14 defendants had fraudulently induced the plaintiffs to make payments to the company 15 which was owned by the defendants. Id. Despite the fact that no funds were paid 16 directly to or held by the defendants, the court ordered that the defendants, as 17 perpetrators of the fraudulent scheme, restore the funds to the plaintiffs. Id. The court 18 also held that the restitution was not limited to the profits that the defendants had 19 received from the business, but that defendants were instead liable for the full amount 20 of money paid by the plaintiffs, emphasizing that the UCL is focused on restoring the 21 status quo of the victim and is not concerned with the position of the perpetrator. Id. 22 The present case is similar to these foregoing cases in that the Plaintiffs are 23 alleging that Defendant Prime Administration is the entity that orchestrated and 24 engaged in the alleged excessive fee and security deposit schemes at issue. Plaintiff 25 alleges that it was Prime Administration’s business practices which caused the tenants 26 to pay the unlawful charges. Therefore, Prime Administration may be held liable in 27 restitution for the harm caused by those business practices, even if the practices 28 ultimately primarily benefitted the individual landlords. Such an outcome would serve 1 the dual purposes of restitution under the UCL: to penalize the alleged wrongdoer, 2 and return the Plaintiffs to the status quo. Whether Prime Administration then has a 3 right to indemnification from the individual landlords who ultimately received the 4 funds has no bearing on whether Plaintiffs can obtain relief against Prime 5 Administration. See Coldani v. Hamm, No. 2:07-CV-0660-JAM-EFB, 2008 WL 6 4104292, at *2 (E.D. Cal. Sept. 3, 2008); cf. Regehr v. Greystar Mgmt. Servs., L.P., No. 7 A-15-CA-00501-SS, 2016 WL 3963220, at *1, *6 (W.D. Tex. July 21, 2016) (holding that 8 property owners were not necessary parties where the plaintiff alleged that he paid 9 the unlawful charge to the property manager). 10 Injunctive Relief 11 Defendants further argue that Plaintiffs cannot obtain complete relief by only 12 enjoining the actions of Defendant Prime Administration because the individual 13 Absent Landlords would be free to engage in the same practices. “This factor is 14 concerned with consummate rather than partial or hollow relief as to those already 15 parties, and with precluding multiple lawsuits on the same cause of action.” Disabled 16 Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 879 (9th Cir. 2004) 17 (quoting Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1043 (9th Cir. 18 1983)). “In making its determination, the court asks whether the ‘absence of the party 19 would preclude the district court from fashioning meaningful relief as between the 20 parties.’” Wright v. Incline Vill. Gen. Imp. Dist., 597 F. Supp. 2d 1191, 1205 (D. Nev. 21 2009) (quoting Eldredge v. Carpenters 46 N. California Ctys. Joint Apprenticeship & 22 Training Comm., 662 F.2d 534, 537 (9th Cir. 1981)). A plaintiff “need not name every 23 possible defendant” to be accorded complete relief. Zeff, 2021 WL 632614, at *4; 24 Coldani, 2008 WL 4104292, at *2. 25 “[T]hat the absentee might later frustrate the outcome of the litigation does not 26 itself make the absentee necessary for complete relief. The ‘complete relief’ clause 27 does not contemplate other potential defendants, or other possible remedies.” Zeff, 28 2021 WL 632614, at *3–*4 (quoting Moore’s Fed. Prac. – Civ. § 19.03[2][b][ii]). In 1 Eldredge v. Carpenters 46 N. California Ctys. Joint Apprenticeship & Training Comm., 2 the Ninth Circuit concluded that the possibility that a third party would subvert an 3 injunction against the defendant did not mean that complete relief could not be 4 accorded among the existing parties. 662 F.2d at 537. A defendant “may not avoid 5 its own liability for [illegal practices] by relying on [a third party’s] possible future 6 conduct that might frustrate the remedial purposes of any court-ordered 7 changes . . . .” Id.; accord Zeff, 2021 WL 632614, at *4. 8 Defendants argue that complete relief may not be accorded where there is an 9 absent contracting party, relying on Dawavendewa v. Salt River Project Agr. Imp. & 10 Power District. There, the plaintiff sought to enjoin the power district from enforcing a 11 specific hiring preference policy in the lease they held with the Navajo nation which 12 owned and leased the land. 276 F.3d 1150, 1155 (9th Cir. 2002). The Ninth Circuit 13 concluded that because it had no authority to also enjoin the actions of the Navajo 14 nation, the Navajo nation would maintain the right to seek enforcement of the 15 provision regardless of the court’s injunction against the power district. Id. Therefore, 16 even if the plaintiff was successful in securing an injunction, the relief would not be 17 meaningful because it would not actually prevent enforcement of the provision at 18 issue. 19 The Dawavendewa case is inapposite because, in contrast, Plaintiffs here seek 20 to enjoin Prime Administration from carrying out allegedly illegal or unfair practices 21 that operate independently of the terms of the lease. These practices, such as the 22 pyramiding scheme, or withholding security deposits for repainting, are not 23 themselves part of or required by the lease agreement, but rather practices that Prime 24 Administration has allegedly developed to enforce the late fee and security deposit 25 provisions of the agreements. According to Plaintiffs, Prime Administration 26 developed and is the main driver of these practices. Enjoining Prime Administration’s 27 actions will affect complete relief from the specific practices at issue, even if the lease 28 provisions, which do not require those practice, remain intact. The possibility that the 1 Absent Landlords may choose to later engage in the same unlawful practices does not 2 mean that they are necessary to afford complete relief as to the unlawful conduct 3 currently perpetrated by Prime Administration. 4 In a case involving similar claims that the property management company 5 engaged in wrongful conduct, the Northern District of California found that the 6 plaintiffs could obtain complete relief against the property manager only. There, the 7 property manager’s practices also “operate[d] independently of the Lease Contract” 8 between the plaintiff and the owner/landlord because they were not prescribed by 9 the lease itself. Therefore, an injunction against the property manager preventing 10 “further collection of illegal fees and retention of security deposits” would accord 11 complete relief to the Plaintiffs without the need to enjoin the conduct of the 12 owner/landlord. Zeff, 2021 WL 632614, at *4. 13 The only contract provision which Plaintiffs challenge, discussed more fully 14 below, is the amount of the late fee which is expressly outlined in the lease 15 agreements. Plaintiffs would not be able to seek meaningful relief from the amount of 16 the fee without enjoining the landlord as well because the landlord would, like the 17 other contracting party in Dawavendewa, remain entitled to enforce that provision. 18 Zeff contained a similar provision which outlined the amount of the late fee as well, 19 but there the court determined that “the challenged fee, in the context of the entire 20 contract, [wa]s relatively minor” and did not make the absent party a necessary party. 21 2021 WL 632614, at *4. Regardless, the landlords of the current Named Plaintiffs are 22 part of the action and would be subject to injunction by this Court, obviating the issue 23 in Dawavendewa. 24 b. The Absent Landlords’ interest in the action 25 A party is also necessary to an action “if [the party] has an interest in the action 26 and” either (1) “resolving the action in [the party’s] absence may as a practical matter 27 impair or impede [the party’s] ability to protect that interest” or, (2) the party’s absence 28 “may leave an existing party subject to inconsistent obligations because of that 1 interest.” Salt River Project, 672 F.3d at 1179. Defendants assert that the Absent 2 Landlords have an interest in the action because the Seventh and Eighth Causes of 3 Action implicate provisions of the Absent Landlords’ lease contracts with tenants. 4 They assert that adjudication of the claims will impair the Absent Landlords’ ability to 5 exercise their contract rights or will leave their tenants subject to inconsistent 6 obligations. 7 As discussed above, Rule 19 is concerned only with existing parties. Id. 8 Currently, all parties who have an interest in the disputed contracts are named in this 9 suit. No tenant or former tenant of the Absent Landlords are named as plaintiffs, and 10 none of the Named Plaintiffs had a contract with the Absent Landlords. The Absent 11 Landlords have no interest in the contracts between the Named Plaintiffs and the 12 Named Defendants because they are not party to those contracts. Therefore, the 13 Absent Landlords’ contract interests are not implicated. 14 However, if in the future the Excessive Fee class is certified, and those class 15 plaintiffs who have or had a contract with Absent Landlords are joined, then the 16 Absent Landlords’ interest in the challenged contract provisions would be implicated 17 by the Eighth Cause of Action. See Hanney v. Epic Aircraft LLC, No. 6:21-CV-01199- 18 MK, 2022 WL 960652, at *3 (D. Or. Mar. 15, 2022), report and recommendation 19 adopted, No. 6:21-CV-1199-MK, 2022 WL 959223 (D. Or. Mar. 30, 2022) (deferring 20 ruling on the motion to dismiss under Rule 19 because the necessity of the absent 21 party depended on whether the class was ultimately certified); Bartle on Behalf of 22 Herself v. TD Ameritrade Holdings Corp., No. 20-CV-00166-SRB, 2020 WL 9211182, at 23 *3 (W.D. Mo. Aug. 7, 2020) (same). In the Eighth Cause of Action, Plaintiffs allege that 24 late fee amounts, which are set by contract, are “excessive” and violate California law 25 and the UCL. (SAC ¶¶ 140–141.) Plaintiffs bring this claim on behalf of the “Excessive 26 Fees Class” which encompasses “[a]ll persons who leased an apartment at one of the 27 Prime Properties in California” who were charged the allegedly excessive fees. In 28 contrast, Plaintiffs’ Sixth Cause of Action, explicitly claiming breach of contract based 1 on the imposition of those fees is specifically limited to “members of the Excessive 2 Fees Class and Security Deposit Class that had leases for the rental of an apartment at 3 Blue Rock Village or Park LaBrea,” i.e., leases with the Named Defendants. (SAC 4 ¶ 118.) The Eighth Cause of Action contains no such limitation. Based on the sample 5 lease agreement provided by the Defendants, the fee for late payment is specifically 6 outlined in the lease agreements. (Mot., Ex. B at 2.) Because the late fee amounts are 7 set by the leases, the claim is a direct challenge to those contract provisions. 8 Accordingly, if the Excessive Fee Class were certified, and current or former tenants of 9 the Absent Landlords who entered into lease agreements with them became parties 10 to this suit, this claim would implicate the contracts of the Absent Landlords, and the 11 Absent Landlords would have an interest in litigating the lawfulness of the late fee 12 amounts. 13 The Seventh Cause of Action, however, does not implicate any lease provisions 14 and the Absent Landlords would therefore have no interest in that claim even if a class 15 containing their current or former tenants were certified. The Seventh Cause of Action 16 does not challenge any lease provision, but rather only challenges Prime 17 Administration’s conduct and policies. Plaintiffs allege that Prime Administration 18 violated California law by deducting security deposits for painting charges based on 19 an improper determination about the useful life of the paint, not timely reimbursing 20 the Plaintiffs’ security deposits, and not providing an itemization of the withheld 21 deposits as required by California Civil Code 1950.5. The lease does not state that 22 charges will be made for painting, or when the deposit will be returned. Instead, 23 according to the sample lease agreement provided by Defendants, the standard 24 provision on security deposits merely states that the landlords will, upon “termination 25 of the tenancy, comply with all applicable state laws in the refund of the security 26 deposit” and may “use the security deposit, or portions thereof, to cover any charges 27 related to Lessee's defaults in the performance of the Agreement, including, but not 28 limited to, unpaid rent, late fees and returned check fees.” (Mot., Ex. B at 2.) Plaintiffs 1 | allege that it is Prime Administration which “sets and effectuates policies related to 2 | charges to and deductions from security deposits for every unit at every one of the 3 | Prime Properties in California.” (SAC 9.129.) Thus, it is Prime Administration’s 4 | policies, not the leases, which Plaintiffs challenge in the Seventh Cause of Action. If 5 || the Court were to find that Prime Administration illegally withholds security deposits 6 | or fails to otherwise comply with the law, this would not impair the Absent Landlords’ 7 | ability to exercise their contractual rights to comply with California law or otherwise 8 | lawfully use the security deposits for the outlined purposes. 9 Accordingly, while the Absent Landlords may theoretically have an interest in 10 || this action if the Excessive Fee Class is certified and included tenants which resided in 11 | the properties owned by the Absent Landlords, as the matter stands, the Absent 12 | Landlords do not have a current interest in the case. Therefore, the Absent Landlords 13 | are not “necessary” under Rule 19. The Court accordingly denies Defendants’ Motion 14 | without prejudice to its refiling if the Excessive Fee Class is certified. 15 IV. Conclusion 16 For the above reasons, IT |S HEREBY ORDERED that Defendants’ Motion to 17 | Dismiss, ECF No. 51, is GRANTED IN PART with respect to Plaintiff's conspiracy claims 18 | with leave to amend. Within 30 days, Defendant is ordered to file an Amended 19 | Complaint consistent with this Order or inform the Court of its election to stand on the 20 | Second Amended Complaint. Defendant's Motion is otherwise DENIED without 21 | prejudice to refiling under Rule 19 after class certification. 22 53 IT 1S SO ORDERED. 24 | Dated: _June 11, 2024 Donel J Cob tto— Hon. Daniel alabretta 25 UNITED STATES DISTRICT JUDGE 26 27 | DJC2 —Leaser20CV02502.mtd 28 22