Allred v. Chi. Title Co.

BLAKE E. ALLRED, et al. Plaintiffs, v. CHICAGO TITLE COMPANY, et al. Defendants.

Case No.: 19cv2129-LAB (AHG)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

September 23, 2020

ORDER DISMISSING CLAIMS AGAINST DEFENDANT CRIS TORRES;

ORDER GRANTING IN PART MOTIONS TO DISMISS; AND

ORDER GRANTING IN PART MOTION TO STAY

[DOCKET NUMBERS 34, 35, 37, 73.]

Defendant Chicago Title filed a motion to dismiss, or in the alternative to stay this action, as did Defendant Betty Elixman. (Docket nos. 34 and 37.) Defendant Adelle DuCharme filed a motion to stay. (Docket no. 35.) These motions are fully briefed and ready for adjudication. Plaintiffs also filed a motion, styled as a joint motion, to dismiss claims against Defendant Cris Torres. (Docket no. 73.) The Court set a briefing schedule for the latter motion, and Chicago Title has opposed it. That motion is also fully briefed and ready for adjudication.

Dismissal of Claims Against Defendant Torres

A plaintiff may dismiss some or all defendants under Fed. R. Civ. P. 41(a). Wilson v. City of San Jose, 111 F.3d 688, 692 (9th Cir. 1997). If the defendant to be dismissed has neither answered nor filed a motion for summary judgment, the plaintiff may dismiss unilaterally under Rule 41(a)(1)(A)(i). Though Defendant Torres has appeared, he has not filed either an answer or a motion for summary judgment. Under this Circuit's controlling precedent, a plaintiff may unilaterally dismiss such a defendant. See Pedrina v. Chun, 987 F.2d 608, 609 (9th Cir. 1993). When this happens, dismissal is effective immediately upon filing. See Atain Specialty Ins. Co. v. Marquez, 2020 WL 4676478, slip op. at *2 (E.D. Cal., Aug. 12, 2020) (citing Concha v. London, 62 F.3d 1493, 1506 (9^th Cir. 1995)).

This is a putative class action, but no class has been certified, nor is certification being proposed for purposes of settlement. See Fed. R. Civ. P. 23(e). Although the motion seeks dismissal of all claims with prejudice, the Court construes this as a request to dismiss Plaintiffs' own claims with prejudice, and putative class claims without prejudice. So construed, the motion to dismiss claims against Torres is GRANTED. Chicago Title has expressed concern that dismissal will prevent it from learning why Plaintiffs decided to dismiss claims against Torres. Nothing in this order forbids it from seeking discovery as authorized under any other provision of law.

DuCharme's Motion to Stay

DuCharme seeks stay of this case for 90 days, because she was the target of the government's criminal investigation. But events after she filed her motion have likely mooted her request. First, developments in this and related cases slowed adjudication of the motions, which bought her some respite. Second, Defendants Cris Torres and Gina Champion-Cain have pled guilty in cases 20cr2114 and 20cr2115, respectively. This has likely brought clarity to some areas

/ / /of concern to DuCharme. Elixman raised similar concerns in her motion, although she made other arguments as well.

As discussed below, the Court grants a temporary stay, albeit for other reasons.

Motion to Dismiss or Stay

Both Elixman and Chicago Title argue that the action should be dismissed, or in the alternative stayed, for failure to join a necessary party. Elixman argues that Kim Peterson, Kim Funding, and ANI Development, LLC are necessary parties. Chicago Title argues that ANI Development, LLC and American National Investments, Inc. (collectively, "ANI") are necessary parties. Both also seek dismissal for failure to state a claim.

Failure to Join a Necessary Party

Under Fed. R. Civ. P. 19(a)(1), a party must be joined when either of two conditions is met. Under Rule 19(a)(1)(A), a person is a necessary party if, "in that person's absence, the court cannot accord complete relief among existing parties . . . ." Under Rule 19(a)(1)(B), a person is a necessary party if he claims an interest relating to the action and if adjudicating the action in that person's absence may lead to either of two scenarios: either adjudication may as a practical matter impair the absent person's ability to protect his interest, or the person's absence may result in an existing party's incurring multiple or inconsistent obligations. If a necessary party has not been joined as required, the Court must order that that person be made a party. Rule 19(a)(2). But if joinder is not feasible, the Court must determine whether the action should proceed among the existing parties or be dismissed. See Washington v. Daley, 173 F.3d 1158, 1169 (9th Cir. 1999); Rule 19(b).

Motions to dismiss for failure to join a necessary party are bought under Fed. R. Civ. P. 12(b)(7). The moving party bears the burden of persuasion. Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir.1990). The movant must firstshow that the party is necessary. If so, the Court must determine whether the absent person is indispensable, such that in "equity and good conscience" the suit should be dismissed. Id. "The inquiry is a practical one and fact specific . . . ." Id. In ruling on the motion, the Court accepts as true the allegations in the complaint, drawing all reasonable inferences in Plaintiffs' favor. See Paiute-Shoshone Indians of Bishop Community of Bishop Colony, Cal. v. City of Los Angeles, 637 F.3d 993, 996 n.1 (9th Cir. 2011).

Developments in the related SEC action, 19cv1628, SEC v. Champion-Cain, have affected the Court's analysis of this issue. In its motion, Chicago Title suggests that the receiver in the SEC action might pursue claims against Chicago Title. After the motions were filed, the receiver in the SEC action sought Court approval to bring claims against Chicago Title. The Court held a hearing but has not yet authorized the receiver to bring that action. The proposed action may involve the receiver asserting claims on behalf of ANI. If that were to happen, and if both actions were to go forward at once, Chicago Title would be at risk of conflicting judgments.

Elixman also argues that Kim Peterson and Kim Funding are necessary parties but cannot be joined because both are in bankruptcy. It is less clear why they are necessary parties. Elixman argues that she cannot effectively investigate them, and also argues that both would be bound by a judgment in this case even if they did not participate. While both allegedly played a role in the wrongdoing, it is not clear how significant that role was. The complaint suggests that Kim Peterson, an investor, was duped by Champion-Cain. (See Compl., ¶ 80.) Kim Peterson and Kim Funding are mentioned in only three paragraphs of the complaint. Based on those allegations it appears their involvement was not great. Elixman cites the complaint in the related case, 19cv2031, Ovation Finance Holdings 2 LLC v. Chicago Title as showing that Kim Funding's involvement was greater than the complaint in this case alleges. Most of the allegations in theOvation complaint, however, describe Kim Funding's financial and other business arrangements with Ovation and Banc of California in facilitating their investment in the lending platform, rather than their involvement with the scheme more generally. The complaint does not treat either Kim Peterson or Kim Funding as deeply involved either in the scheme or in arrangements with other investors.

As to Kim Peterson and Kim Funding, the Court finds Elixman has not met her burden of showing they are necessary parties. It appears, however, that ANI will be a necessary party if the receiver's motion for authorization to proceed against Chicago Title is granted. As discussed at the hearing on the receiver's motion, the Court was considering staying actions against Chicago Title, in order to facilitate an orderly disposition of the receiver's actions. Bearing in mind that this case is still in the pleading stage, and that the Court has yet to rule on the receiver's motion, the Court finds it unnecessary to stay the case at this time. But after Plaintiffs file an amended complaint — assuming they do — the case will be stayed at least until the Court rules on the receiver's motion. After that, the Court may revisit the request for a long-term stay.

Failure to State a Claim

A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "Factual allegations must be enough to raise a right to relief above the speculative level . . . ." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). "[S]ome threshold of plausibility must be crossed at the outset" before a case is permitted to proceed. Id. at 558 (citation omitted). The well-pleaded facts must do more than permit the Court to infer "the mere possibility of misconduct"; they must show that the pleader is entitled to relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

When determining whether a complaint states a claim, the Court accepts all allegations of material fact in the complaint as true and construes them in the light most favorable to the non-moving party. Cedars-Sinai Medical Center v. NationalLeague of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007) (citation omitted). The Court does not weigh evidence or make credibility determinations. Acosta v. City of Costa Mesa, 718 F.3d 800, 828 (9th Cir. 2013). The Court, however, is "not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint," and does "not . . . necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (citations and quotation marks omitted).

To meet the ordinary pleading standard and avoid dismissal, a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. But claims that sound in fraud, including those arising under state law, must be pled with particularity. Fed. R. Civ. P. 9(b...