Allred v. Chicago Title Company ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 BLAKE E. ALLRED, et al. Case No.: 19cv2129-LAB (AHG) 12 Plaintiffs, ORDER DISMISSING CLAIMS 13 v. AGAINST DEFENDANT CRIS TORRES; 14 CHICAGO TITLE COMPANY, et al. 15 ORDER GRANTING IN PART Defendants. MOTIONS TO DISMISS; AND 16 17 ORDER GRANTING IN PART MOTION TO STAY 18 19 [DOCKET NUMBERS 34, 35, 37, 73.] 20 21 22 Defendant Chicago Title filed a motion to dismiss, or in the alternative to stay 23 this action, as did Defendant Betty Elixman. (Docket nos. 34 and 37.) Defendant 24 Adelle DuCharme filed a motion to stay. (Docket no. 35.) These motions are fully 25 briefed and ready for adjudication. Plaintiffs also filed a motion, styled as a joint 26 motion, to dismiss claims against Defendant Cris Torres. (Docket no. 73.) The 27 Court set a briefing schedule for the latter motion, and Chicago Title has opposed 28 it. That motion is also fully briefed and ready for adjudication. 1 Dismissal of Claims Against Defendant Torres 2 A plaintiff may dismiss some or all defendants under Fed. R. Civ. P. 41(a). 3 Wilson v. City of San Jose, 111 F.3d 688, 692 (9th Cir. 1997). If the defendant to 4 be dismissed has neither answered nor filed a motion for summary judgment, the 5 plaintiff may dismiss unilaterally under Rule 41(a)(1)(A)(i). Though Defendant 6 Torres has appeared, he has not filed either an answer or a motion for summary 7 judgment. Under this Circuit’s controlling precedent, a plaintiff may unilaterally 8 dismiss such a defendant. See Pedrina v. Chun, 987 F.2d 608, 609 (9th Cir. 1993). 9 When this happens, dismissal is effective immediately upon filing. See Atain 10 Specialty Ins. Co. v. Marquez, 2020 WL 4676478, slip op. at *2 (E.D. Cal., Aug. 11 12, 2020) (citing Concha v. London, 62 F.3d 1493, 1506 (9th Cir. 1995)). 12 This is a putative class action, but no class has been certified, nor is 13 certification being proposed for purposes of settlement. See Fed. R. Civ. P. 23(e). 14 Although the motion seeks dismissal of all claims with prejudice, the Court 15 construes this as a request to dismiss Plaintiffs’ own claims with prejudice, and 16 putative class claims without prejudice. So construed, the motion to dismiss claims 17 against Torres is GRANTED. Chicago Title has expressed concern that dismissal 18 will prevent it from learning why Plaintiffs decided to dismiss claims against Torres. 19 Nothing in this order forbids it from seeking discovery as authorized under any 20 other provision of law. 21 DuCharme’s Motion to Stay 22 DuCharme seeks stay of this case for 90 days, because she was the target 23 of the government’s criminal investigation. But events after she filed her motion 24 have likely mooted her request. First, developments in this and related cases 25 slowed adjudication of the motions, which bought her some respite. Second, 26 Defendants Cris Torres and Gina Champion-Cain have pled guilty in cases 27 20cr2114 and 20cr2115, respectively. This has likely brought clarity to some areas 28 / / / 1 of concern to DuCharme. Elixman raised similar concerns in her motion, although 2 she made other arguments as well. 3 As discussed below, the Court grants a temporary stay, albeit for other 4 reasons. 5 Motion to Dismiss or Stay 6 Both Elixman and Chicago Title argue that the action should be dismissed, 7 or in the alternative stayed, for failure to join a necessary party. Elixman argues 8 that Kim Peterson, Kim Funding, and ANI Development, LLC are necessary 9 parties. Chicago Title argues that ANI Development, LLC and American National 10 Investments, Inc. (collectively, “ANI”) are necessary parties. Both also seek 11 dismissal for failure to state a claim. 12 Failure to Join a Necessary Party 13 Under Fed. R. Civ. P. 19(a)(1), a party must be joined when either of two 14 conditions is met. Under Rule 19(a)(1)(A), a person is a necessary party if, “in that 15 person's absence, the court cannot accord complete relief among existing parties 16 . . . .” Under Rule 19(a)(1)(B), a person is a necessary party if he claims an interest 17 relating to the action and if adjudicating the action in that person’s absence may 18 lead to either of two scenarios: either adjudication may as a practical matter impair 19 the absent person’s ability to protect his interest, or the person’s absence may 20 result in an existing party’s incurring multiple or inconsistent obligations. If a 21 necessary party has not been joined as required, the Court must order that that 22 person be made a party. Rule 19(a)(2). But if joinder is not feasible, the Court 23 must determine whether the action should proceed among the existing parties or 24 be dismissed. See Washington v. Daley, 173 F.3d 1158, 1169 (9th Cir. 1999); 25 Rule 19(b). 26 Motions to dismiss for failure to join a necessary party are bought under Fed. 27 R. Civ. P. 12(b)(7). The moving party bears the burden of persuasion. Makah 28 Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir.1990). The movant must first 1 show that the party is necessary. If so, the Court must determine whether the 2 absent person is indispensable, such that in “equity and good conscience” the suit 3 should be dismissed. Id. “The inquiry is a practical one and fact specific . . . .” Id. 4 In ruling on the motion, the Court accepts as true the allegations in the complaint, 5 drawing all reasonable inferences in Plaintiffs’ favor. See Paiute-Shoshone Indians 6 of Bishop Community of Bishop Colony, Cal. v. City of Los Angeles, 637 F.3d 993, 7 996 n.1 (9th Cir. 2011). 8 Developments in the related SEC action, 19cv1628, SEC v. Champion-Cain, 9 have affected the Court’s analysis of this issue. In its motion, Chicago Title 10 suggests that the receiver in the SEC action might pursue claims against Chicago 11 Title. After the motions were filed, the receiver in the SEC action sought Court 12 approval to bring claims against Chicago Title. The Court held a hearing but has 13 not yet authorized the receiver to bring that action. The proposed action may 14 involve the receiver asserting claims on behalf of ANI. If that were to happen, and 15 if both actions were to go forward at once, Chicago Title would be at risk of 16 conflicting judgments. 17 Elixman also argues that Kim Peterson and Kim Funding are necessary 18 parties but cannot be joined because both are in bankruptcy. It is less clear why 19 they are necessary parties. Elixman argues that she cannot effectively investigate 20 them, and also argues that both would be bound by a judgment in this case even 21 if they did not participate. While both allegedly played a role in the wrongdoing, it 22 is not clear how significant that role was. The complaint suggests that Kim 23 Peterson, an investor, was duped by Champion-Cain. (See Compl., ¶ 80.) Kim 24 Peterson and Kim Funding are mentioned in only three paragraphs of the 25 complaint. Based on those allegations it appears their involvement was not great. 26 Elixman cites the complaint in the related case, 19cv2031, Ovation Finance 27 Holdings 2 LLC v. Chicago Title as showing that Kim Funding’s involvement was 28 greater than the complaint in this case alleges. Most of the allegations in the 1 Ovation complaint, however, describe Kim Funding’s financial and other business 2 arrangements with Ovation and Banc of California in facilitating their investment in 3 the lending platform, rather than their involvement with the scheme more generally. 4 The complaint does not treat either Kim Peterson or Kim Funding as deeply 5 involved either in the scheme or in arrangements with other investors. 6 As to Kim Peterson and Kim Funding, the Court finds Elixman has not met 7 her burden of showing they are necessary parties. It appears, however, that ANI 8 will be a necessary party if the receiver’s motion for authorization to proceed 9 against Chicago Title is granted. As discussed at the hearing on the receiver’s 10 motion, the Court was considering staying actions against Chicago Title, in order 11 to facilitate an orderly disposition of the receiver’s actions. Bearing in mind that this 12 case is still in the pleading stage, and that the Court has yet to rule on the receiver’s 13 motion, the Court finds it unnecessary to stay the case at this time. But after 14 Plaintiffs file an amended complaint — assuming they do — the case will be stayed 15 at least until the Court rules on the receiver’s motion. After that, the Court may 16 revisit the request for a long-term stay. 17 Failure to State a Claim 18 A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. 19 Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “Factual allegations must be 20 enough to raise a right to relief above the speculative level . . . .” Bell Atlantic Corp. 21 v. Twombly, 550 U.S. 544, 555 (2007). “[S]ome threshold of plausibility must be 22 crossed at the outset” before a case is permitted to proceed. Id. at 558 (citation 23 omitted). The well-pleaded facts must do more than permit the Court to infer “the 24 mere possibility of misconduct”; they must show that the pleader is entitled to relief. 25 Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). 26 When determining whether a complaint states a claim, the Court accepts all 27 allegations of material fact in the complaint as true and construes them in the light 28 most favorable to the non-moving party. Cedars-Sinai Medical Center v. National 1 League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007) (citation 2 omitted). The Court does not weigh evidence or make credibility determinations. 3 Acosta v. City of Costa Mesa, 718 F.3d 800, 828 (9th Cir. 2013). The Court, 4 however, is “not required to accept as true conclusory allegations which are 5 contradicted by documents referred to in the complaint,” and does “not . . . 6 necessarily assume the truth of legal conclusions merely because they are cast in 7 the form of factual allegations.” Warren v. Fox Family Worldwide, Inc., 328 F.3d 8 1136, 1139 (9th Cir. 2003) (citations and quotation marks omitted). 9 To meet the ordinary pleading standard and avoid dismissal, a complaint 10 must plead “enough facts to state a claim to relief that is plausible on its face.” 11 Twombly, 550 U.S. at 570. But claims that sound in fraud, including those arising 12 under state law, must be pled with particularity. Fed. R. Civ. P. 9(b); Vess v. Ciba- 13 Geigy Corp. USA, 317 F.3d 1097, 1102 (9th Cir. 2003). This includes alleging who 14 made various misrepresentations, how the misrepresentations were conveyed to 15 the plaintiff, and under what circumstances. See Cooper v. Pickett, 137 F.3d 616, 16 627 (9th Cir. 1998). It also requires a plaintiff to explain why statements were 17 misleading or false. Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1161 (9th Cir. 18 2009). 19 New allegations in opposition to a Rule 12(b)(6) motion to dismiss may be 20 considered when deciding whether to grant leave to amend, but are not considered 21 when ruling on the motion itself. See Schneider v. Cal. Dep't of Corr. & Rehab., 22 151 F.3d 1194, 1197 n.1 (9th Cir. 1998). 23 RICO Claims 24 Plaintiffs bring two Racketeer Influenced and Corrupt Organizations Act 25 (RICO) claims under 18 U.S.C. § 1962(c) and (d), respectively. In 1995, Congress 26 enacted the Private Securities Litigation Reform Act (PSLRA), which amended the 27 RICO statute to provide that securities fraud cannot serve as a predicate act for a 28 RICO claim. See 18 U.S.C. § 1964(c) (“[N]o person may rely upon any conduct 1 that would have been actionable as fraud in the purchase or sale of securities to 2 establish a violation of section 1962.”) Congress’ focus was on eliminating treble 3 damages for securities fraud claims, which it reasoned existing securities laws 4 already provided an adequate remedy for. See Bald Eagle Area Sch. Dist. v. 5 Keystone Fin’l Inc., 189 F.3d 321, 327 (3d Cir. 1999); MJK Partners, LLC v. 6 Husman, 877 F. Supp. 2d 596, 603 (N.D. Ill. 2012). The PSLRA bar proscribes the 7 use as a RICO predicate of any conduct that would have been actionable as 8 securities fraud, even if pled as some other claim, such as wire fraud or mail fraud. 9 See Swartz v. KPMG, LLC, 401 F. Supp. 2d 1146, 1151 (W.D. Wash. 2004), aff’d 10 in relevant part, 476 F.3d 756, 761 (9th Cir. 2007). See also Bald Eagle, 189 F3.d 11 327. A plaintiff cannot avoid the PSLRA bar by relying on only some parts of an 12 overall scheme as RICO predicate acts, and avoiding those parts connected with 13 the sale or purchase of securities. See id., 189 F.3d at 330. 14 The parties agree that if securities or securities transactions are at issue, the 15 PSLRA bars the claim. Their principal dispute here focuses on whether the lending 16 platform alleged in the Complaint was an investment for purposes of the PSLRA 17 securities fraud bar. Plaintiffs take the position that their investments amounted to 18 private short-term commercial loans. 19 In general, when determining what amounts to a security for purposes of 20 federal securities laws, “form should be disregarded for substance and the 21 emphasis should be on [the] economic reality . . . .” United Housing Found. v. 22 Forman, 421 U.S. 837, 849 (1975). The Supreme Court has made clear, however, 23 that federal securities laws are intended to be read liberally, recognizing the 24 “virtually limitless scope of human ingenuity” devised by those who seek the 25 investment of third parties. SEC v. Rubera, 350 F.3d 1084, 1089 (9th Cir. 2003) 26 (quoting Reves v. Ernst & Young, 494 U.S. 56, 60–61 (1990)). The definition of 27 “security” is not restrictive, but “encompass[es] virtually any instrument that might 28 be sold as an investment.” Id. at 1090 (citing Reves, 494 U.S. at 61). Securities 1 include, among other things, investment contracts, which are defined as any 2 “contract, transaction or scheme whereby a person invests his money in a common 3 enterprise and is led to expect profits solely from the efforts of the promoter or third 4 party.” Id. (quoting SEC v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946)). 5 The complaint alleges that from 2012 to 2019, Defendants defrauded 6 Plaintiffs and other investors by means of a lending program or platform, which 7 they refer to as the Lending Platform. (Compl., ¶ 1.) Supposedly, Plaintiffs’ 8 investment funds would be deposited in escrow accounts with Chicago Title, and 9 lent out to borrowers to purchase liquor licenses. (Id., ¶¶ 1, 2.) See Cal. Bus. & 10 Prof. Code § 24074 (escrow provisions). Borrowers would pay fees for the short- 11 term use of the funds, bringing in returns of 18% or higher. (Id., ¶ 4.) Investors 12 could elect to cash out or reinvest their money. (Id.) If a borrower’s license 13 application was denied, investors would earn nothing, though they were also told 14 they would lose nothing. (Id.) The investment was touted as risk-free, because the 15 money would never leave Chicago Title escrow accounts. (Id., ¶¶ 4, 5.) In fact, the 16 complaint alleges, none of this actually happened. Instead, Gina Champion-Cain 17 funneled the money off for her own personal use. This was done, Plaintiffs allege, 18 through ANI and with the assistance of the other Defendants. (Id., ¶ 7.) 19 The Lending Platform forms the overarching structure of the investment. 20 According to the Complaint, liquor license applicants in California must place in 21 escrow an amount equal to the license purchase price while their application is 22 pending. (Id., ¶ 38.) Licensee-applicants were supposedly vetted (Id., ¶ 42) and 23 for those deemed eligible for loans, individual escrow accounts were supposed to 24 be created, to be funded from investors’ pooled funds. Although investor funds 25 were supposed to be held in a single account, investors could choose which 26 license applications they wished to fund. (Id. ¶ 43.) If a license application was 27 eventually approved, the licensee-applicant would replace the escrowed Lending 28 Platform funds with his or her own funds, and would pay a fee. The Complaint 1 includes a chart that investors were provided showing how the Lending Platform 2 was supposed to work. (Id., ¶ 41.) It also quotes from a 2017 private placement 3 offering memorandum for the California Opportunity License Fund, LLC. (Id., ¶ 42.) 4 According to the memorandum, the LLC itself was the lender and described the 5 process as protecting the LLC’s investment. 6 The Complaint’s allegations describe the Lending Platform (as it was 7 supposed to have functioned)1 as a common enterprise. Investors handed their 8 money over to Defendants, who would do all the work, including finding and vetting 9 licensee-applicants, conducting other necessary transactions and business, and 10 eventually either returning investors’ money to them or reinvesting it, whichever 11 they chose. The only part of the process investors were involved in was selecting 12 particular licensee-applicants’ accounts to fund, from a list compiled by 13 Defendants. Other than that, their role was passive. 14 Although the investment was promoted as risk-free, the rate of return was 15 variable and would depend on how good a job the Lending Platform’s agents did. 16 If they failed to find, reach agreements with, or vet enough licensee-applicants, 17 investors would earn little or nothing. If they improperly vetted licensee-applicants 18 such that many applicants were eventually denied licenses, investors would earn 19 less or might end up depositing their money indefinitely and never earning a return. 20 Even if the Lending Platform had functioned as Defendants represented it 21 would, it would be more accurate to describe it as low-risk rather than truly risk- 22 free. Promotional materials hedged on this point, saying “we believe that any risks 23 24 25 1 That the Lending Platform was nonexistent does not change the analysis. Whether fraud amounts to securities fraud depends on what a defendant purports 26 to be promoting or selling when it induces its victims to invest. See SEC v. Lauer, 27 52 F.3d 667, 670 (7th Cir. 1995) (“[I]t is the representations made by the promoters, not their actual conduct, that determine whether an interest is an investment 28 1 associated with these activities are exclusively borne by Chicago Title . . . .” 2 (Compl., ¶ 2.) Putting property into escrow is one way to assure a seller that a 3 buyer has the means to pay, as well as a way for the buyer to control the timing of 4 the transfer. See Grover Escrow Corp. v. Gole, 71 Cal. Rptr. 646, 650 (Cal. App. 5 4 Dist. 1968) (describing the purpose of an escrow account under Cal. Bus. & Prof. 6 Code § 24074). In this sense, the escrowed funds serve as a kind of surety against 7 the happening of some event (e.g., the buyer being obligated to go through with 8 the purchase, but not having enough money). But if that event — however unlikely 9 it might seem — happens, the escrowed property would be at risk. If it were 10 otherwise, there would be no point in putting funds into escrow. For example, if a 11 borrower’s license application was approved, the borrower was supposed to 12 replace group funds with the borrower’s own funds. (Compl., ¶ 39.) If the borrower 13 was unable or unwilling to do so, the escrowed funds would potentially be at risk. 14 In other words, the amount of return (or possible loss) depended on 15 Defendants’ managerial skill and efforts. If Defendants did a poor job such that the 16 Lending Platform had turned no profit, or even if it had lost money, Plaintiffs would 17 have had no real recourse. By investing their money in the Lending Platform, 18 Plaintiffs were placing substantial trust in Defendants to do the necessary work to 19 minimize any risk and to turn as large a profit as possible. In United States v. 20 Carman, 577 F.2d 556 (9th Cir. 1978), the defendant argued that investors in notes 21 to be paid at a fixed rate of interest had not purchased a security. The Ninth Circuit 22 rejected the argument, reasoning that investors were “in a totally passive role with 23 respect to collecting on the notes,” and also faced some potential risk, which they 24 relied on the defendant’s “sound management and continued solvency” to 25 eliminate. Id. at 563. That Chicago Title emphasized its agents’ skill and 26 experience, and its own reputation as a secure institution and experienced 27 fiduciary (Compl., ¶¶ 1, 2, 5, 8), while not decisive by itself, nevertheless 28 underscores this point. The Complaint also emphasizes the crucial role Champion- 1 Cain and ANI would have played in the such an enterprise, and investors’ passive 2 role: 3 Champion-Cain and ANI Development’s efforts in identifying liquor license escrow participants who were appropriate for investment, 4 executing the loans to those entities, and collecting the purported 5 interest payments from those participants, were critical to the enterprise’s success, as investors were not allowed to play an active 6 role in managing ANI Development’s investment decisions under the 7 Lending Platform. 8 9 (Compl., ¶ 62.) 10 It is also significant that many investors were invited to take part in the 11 Lending Platform, which required no particular sophistication or any effort on their 12 part; their role, essentially, was to front the money, for which they would reap a 13 variable return. See Farris, 614 F.2d at 641 (distinguishing the case from Amfac 14 Mortg. Corp. v. Ariz. Mall of Tempe, Inc., 583 F.2d 426 (9th Cir. 1978) in part on 15 the fact that in Amfac the promissory note was offered to one sophisticated investor 16 only). This brings the Lending Platform within the definition of a security. See 17 Farris, 614 F.2d at 641 (citing definitions of securities). Because Plaintiffs’ two 18 RICO claims are premised on transactions that are actionable as securities fraud, 19 the PSLRA bars them. 20 Although Plaintiffs are not necessarily estopped by the Court’s decisions in 21 related cases, it bears mention that case 19cv1628 represents the SEC’s efforts 22 to bring securities fraud claims against Gina Champion-Cain and others in 23 connection with these same transactions. Torres has pled guilty in case 20cr2114 24 to conspiracy to commit securities fraud, and Champion-Cain has pled guilty in 25 case 20cr2115 to (among other things) securities fraud and conspiracy to commit 26 securities fraud. To treat the Lending Platform investments as something other 27 than securities would be anomalous. 28 Failure to Plead Fraud with Particularity 1 Plaintiffs’ third and fourth cause of action sound in fraud, and therefore must 2 be pled with particularity. See Rubke 551 F.3d at 1161. Although the third cause 3 of action is brought under California’s Unfair Competition Law, its only allegedly 4 unlawful or unfair acts amount to fraud. (Compl., ¶ 132.) 5 Chicago Title points out that the Complaint treats both Chicago Title entities 6 as a single unit, without either differentiating between them or alleging facts to 7 show that the separate existence of each one should be disregarded. This Order 8 also refers to Chicago Title as a single entity, as the Complaint does. But in fact, it 9 is two entities: Chicago Title Company, a California corporation, and Chicago Title 10 Insurance Company, a Florida corporation. (Compl., ¶¶ 21–23.) Plaintiffs 11 summarily allege that the two are “agents, alter egos, and instrumentalities of one 12 another,” based on their common ownership, sharing of the same officers, use of 13 the same or interconnected websites, and coordinated operation. (Id., ¶ 23.) 14 Plaintiffs also generally allege that all Defendants are the “agents, employees, joint 15 venturers, partners, alter egos, or successors in interest of the other Defendants . 16 . . .” (Id., ¶ 30.) The facts to support DuCharme’s and Elixman’s agency for Chicago 17 Title are pled. (Id., ¶ 9.) But Defendants Torres, Rachael Bond, and Joelle Hanson, 18 are alleged to have been employees of ANI. (Id., ¶¶ 27–29.) How they came to 19 act as Chicago Title’s agents, or Chicago Title as their agent, is not well explained. 20 Generalized and conclusory allegations of agency or joint venture unsupported by 21 facts are insufficient. See Williams v. Yamaha Motor Co. Ltd., 851 F.3d 1015, 1025 22 n.5 (9th Cir. 2017) (citing Iqbal, 556 U.S. at 678) (rejecting as insufficient plaintiff’s 23 conclusory allegations that defendants were each other’s agents and were 24 responsible for each other’s acts). 25 Chicago Title also argues that while Plaintiffs allege misrepresentations to 26 other investors, they do not specifically identify any misrepresentations 27 to them. The Court has reviewed the Complaint and finds that at least some 28 / / / 1 misrepresentations are alleged with particularity, even if the entity making the 2 representation is not properly identified. 3 Plaintiffs allege that Chicago Title described the accounts as escrow 4 accounts, knowing that they were not. (Compl., ¶¶ 12, 70–73.) Because Elixman 5 and DuCharme are alleged to have been acting as Chicago Title’s employees at 6 the time, their knowledge — including knowledge of what Champion-Cain was 7 doing — can plausibly be imputed to Chicago Title. (See id., ¶¶ 77–80.) The 8 Complaint plausibly alleges that they were not acting adversely to Chicago Title, 9 but rather that Chicago Title was complicit because it was earning fees. (Id., ¶¶ 10 14–15, 96.) Although the Complaint does not allege specific occasions when 11 Chicago Title, through its employees, described the accounts as escrow accounts, 12 it is clear this was done repeatedly and over time, including October 18, 2018, 13 when Plaintiffs invested their money in the Lending Platform. (Id., ¶¶ 20.) 14 Plaintiffs allege that Champion-Cain made certain misrepresentations to 15 “investors,” which may include them, though it does not identify when or where she 16 communicated with them. (Id., ¶ 43.) They also allege that Defendants Hanson, 17 Torres, and Bond made other representations, without alleging what was said to 18 them, when, or where. (See, e.g., id., ¶ 47.) While some dates are given, they 19 pertain to statements made to others, not Plaintiffs. 20 Some other acts in furtherance of the fraud are pled with particularity, 21 especially DuCharme’s signing of falsified Form Escrow Agreements in San Diego 22 on February 1, 2017 (id., ¶ 81) and DuCharme’s and Elixman’s acceptance of 23 bribes (id., 118 (RICO predicate acts)), though many of these occurred well before 24 Plaintiffs invested and are thus not likely to have amounted to a fraud on Plaintiffs. 25 In sum, the only misrepresentation pled with nearly enough particularity is 26 Chicago Title’s representation to Plaintiffs that their money would go into an 27 escrow account made around October 18, 2018. Which entity “Chicago Title” refers 28 to is not adequately pled, though because most events occurred in California it 1 appears Chicago Title Company is the referenced entity. Still, it is Plaintiffs’ 2 obligation to allege sufficient facts to satisfy the pleading standard. 3 Other Claims 4 Chicago Title argues that Plaintiffs cannot state a claim for breach of fiduciary 5 duty or negligence because it owed no duty to them. Chicago Title also maintains 6 that the negligence claim is merely a restatement of the breach of fiduciary duty 7 claim. The case it cites, Jafari v. F.D.I.C., 2 F. Supp. 3d 1125, 1129–33 (S.D. Cal., 8 2014), held that because the FDIC was not a party to the escrow agreement, the 9 escrow company owed it no fiduciary duty. Only parties who submit instructions to 10 escrow are considered parties to it. Id. at 1133. 11 The Complaint can fairly be construed as alleging that Plaintiffs gave their 12 money to Chicago Title with the understanding that it would be put into an escrow 13 account. Although no escrow agreement was provided, or quoted, some of the 14 terms were summarized. (See, e.g., Compl., ¶ 64.) After each individual 15 transaction was completed, Plaintiffs should have had the option to either withdraw 16 or reinvest the money, which would have required them to give instructions to 17 Chicago Title either directly or through an intermediary. Other than that, the money 18 was to remain in the account. Plaintiffs also allege that they were listed as third- 19 party beneficiaries of the escrow. (Id.) 20 The Court finds that the Complaint includes enough factual allegations that 21 it is at least plausible that Chicago Title owed Plaintiffs a fiduciary duty in 22 connection with the escrow agreement. 23 To the extent the negligence claim relies on the breach of fiduciary duty 24 claim, it too survives. That being said, the Complaint alleges numerous other acts 25 by all Defendants that could be actionable as breach of the ordinary duty of care. 26 For example, it alleges Chicago Title allowed Champion-Cain to take investors’ 27 funds held on account with Chicago Title — including Plaintiffs’ own money — for 28 her own use, even though it knew she had no right to do so. (Id., ¶¶ 73, 87.) 1 Plaintiffs also appear to rely on negligence as an alternative theory if their fraud 2 claim against Chicago Title does not succeed. Even if Chicago Title did not actually 3 know its employees were accepting bribes and helping Champion-Cain defraud 4 Plaintiffs and other investors, it had a duty to take reasonable steps to detect and 5 correct such misbehavior. (Id., ¶¶ 91–93.) 6 Continuing Jurisdiction 7 The complaint relies on federal question jurisdiction, based on the two RICO 8 claims, and supplemental jurisdiction as to the state law claims. The parties are 9 not completely diverse. Although this is a putative class action, it does not rely on 10 jurisdiction under the Class Action Fairness Act (CAFA), and it is questionable 11 whether the requirements for CAFA jurisdiction are present here. 12 With the dismissal of the two federal claims, however, that jurisdictional basis 13 disappears. While the Court’s continued exercise of supplemental jurisdiction over 14 state law claims is discretionary under 28 U.S.C. § 1367(c), the Supreme Court 15 has made clear that when federal claims are dismissed before trial, supplemental 16 state law claims should ordinarily be dismissed as well. Carnegie-Mellon Univ. v. 17 Cohill, 484 U.S. 343, 350 n.7 (1988) (describing this as the rule to be followed in 18 the usual case, even though it is not mandatory). 19 Conclusion and Order 20 The motion to dismiss claims against Torres is GRANTED. Plaintiffs’ 21 individual claims are DISMISSED WITH PREJUDICE, and putative class claims 22 are DISMISSED WITHOUT PREJUDICE. Plaintiffs and Torres shall each bear 23 their own costs and attorney’s fees. 24 The motions to dismiss are GRANTED IN PART. The RICO claims (first and 25 second causes of action) are DISMISSED WITHOUT LEAVE TO AMEND. The 26 fraud claims (third and fourth causes of action) are DISMISSED WITHOUT 27 PREJUDICE. As to the claims for breach of fiduciary duty and negligence (fifth 28 and sixth causes of action, respectively). 1 Although ANI is a necessary party, dismissal is not required. Rather, this 2 ||issue can be addressed by means of a temporary stay while the case is still in the 3 pleading stage. The requests to dismiss for failure to join a necessary party are 4 || DENIED. 5 DuCharme’s motion to stay is DENIED AS MOOT. 6 In light of this order, and in light of developments in case 19cv1628 and other 7 ||related cases, Plaintiffs are at a crossroads. They may wish to amend their 8 || complaint in this case, which would entail either adding allegations to salvage their 9 ||fraud claims or abandoning those claims. If they were to amend, this case would 10 be temporarily stayed. After the Court rules on the receiver’s motion for 11 |/authorization to bring claims against Chicago Title, it would then decide whether 12 ||to extend the stay. On the other hand, Plaintiffs might prefer not to amend at this 13 || time, but instead to agree to a short-term stay until the Court rules on the □□□□□□□□□□ 14 motion. Finally, Plaintiffs may wish to dismiss their complaint. 15 Within 21 calendar days of the date this order is issued, Plaintiffs shall 16 || either file an amended complaint correcting the defects this order has identified, or 17 file a notice stating that they will wait to amend until after the stay is over. After 18 || they file either of these, the case will be temporarily stayed. Alternatively, they may 19 either an ex parte or joint motion for dismissal. 20 21 IT IS SO ORDERED. 22 ||Dated: September 23, 2020 23 ( iM { 4. JB wy 24 Honorable Larry Alan Burns 5 Chief United States District Judge 26 27 28