Beaver v. Omni Hotels Mgmt. Corp.

DEAN BEAVER and LAURIE BEAVER, Plaintiffs, v. OMNI HOTELS MANAGEMENT CORPORATION, a Delaware Corporation;LC BROKERAGE CORP., a Delaware Corporation; LC INVESTMENT 2010, LLC,a Delaware Limited Liability Company; KELLY GINSBERG, an individual;WILLIAM IMS, an individual; BRETT ALEXANDER COMBS, an individual;and DOES 1 through 50, inclusive, Defendants.

Case No.: 20-cv-00191-AJB-KSC

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

March 29, 2021

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS.

(Doc. Nos. 19, 20)

Before the Court are two motions to dismiss—one filed by Defendants Kelly Ginsberg ("Ginsberg), William Ims ("Ims"), and Alexander Combs ("Combs") (collectively, "Broker Defendants"); and another filed by Defendants Omni Hotels Management Corporation ("Omni), LC Brokerage Corp. ("LC Brokerage"), and LC Investment 2010, LLC ("LC Investment"). (Doc. Nos 19, 20.) Plaintiffs Dean Beaver and Laurie Beaver filed an opposition to the motions to dismiss, to which Defendants replied. (Doc. Nos. 24, 26.) For the reasons set forth, the Court GRANTS IN PART and DENIES IN PART the motions.

I. BACKGROUND¹

Plaintiffs are husband and wife, who jointly own a villa located in the Omni La Costa Resort and Spa ("Resort"), which is owned by LC Investment. Like approximately 98% of villa owners at the Resort, Plaintiffs rent their villa pursuant to the terms of a Rental Management Agreement ("RMA") with LC Brokerage, a California-licensed real estate brokerage company. LC Brokerage is an affiliate of Omni, the manager of the Resort.

The core of Plaintiffs' claims concern Omni's alleged years-long scheme to self-deal through tortious and fraudulent interference with and management of the villa rental program under the RMA. According to Plaintiffs, although LC Brokerage is ostensibly charged with operating the rental program, it has quietly abdicated its responsibilities to Omni, which has used and abused its power under the RMA to intentionally steer guests into its own hotel rooms rather than the villas—causing Plaintiffs and other villa owners to lose millions of dollars.

In addition, all villas are governed by the Unit Maintenance and Operations Agreement ("UMA"), which entitles LC Investment (another Omni affiliate) to $100 per night or 20% of a villa owner's nightly rental revenue, if the owner opts not to use LC Brokerage as its managing agent. Plaintiffs state that this high cost of leaving the rental program forces villa owners into Omni's program, because it is too expensive to rent outside of Omni's control. Plaintiffs claim that Omni, LC Brokerage, LC Investment, and the individual brokers-of-record for LC Brokerage (Ginsberg, Ims, and Combs), have perpetrated this RICO scheme to defraud by using LC Brokerage as an enterprise. Plaintiffs bring the instant putative class action complaint against Defendants on behalf of themselves and all others similarly situated ("Class").

II. LEGAL STANDARD

A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a complaint, i.e. whether the complaint lacks either a cognizable legal theory or facts sufficient to support such a theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001) (citations omitted). For a complaint to survive a Rule 12(b)(6) motion to dismiss, it must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). In reviewing the motion, the court "must accept as true all of the allegations contained in a complaint," but it need not accept legal conclusions. Id. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Twombly, 550 U.S. at 555).

III. DISCUSSION

Plaintiffs' complaint alleges the following causes of action: Breach of Contract, Intentional Interference with Contract, Breach of Fiduciary Duty, Aiding and Abetting Breach of Fiduciary Duty, Violations of Bus. & Prof. Code § 17200 et seq., Violations of 18 U.S.C. § 1962(c), Violations of 18 U.S.C. § 1962(d), Declaratory Relief, Unjust Enrichment, and Accounting. Defendants raise various challenges to these claims. In addition, Plaintiffs argue that Omni and LC Brokerage are precluded from raising certain arguments they raised in a prior litigation in San Diego Superior Court against a different villa owner ("Erskine lawsuit").² These issues are discussed in turn.

1) Issue Preclusion

Offensive nonmutual issue preclusion is appropriate only if (1) there was a full and fair opportunity to litigate the identical issue in the prior action; (2) the issue was actually litigated in the prior action; (3) the issue was decided in a final judgment; and (4) the party against whom issue preclusion is asserted was a party or in privity with a party to the prior action. Syverson v. Int'l Bus. Machines Corp., 472 F.3d 1072, 1078 (9th Cir. 2007). "The party asserting preclusion bears the burden of showing with clarity and certainty what was determined by the prior judgment." Offshore Sportswear, Inc. v. Vuarnet Int'l, B.V., 114 F.3d 848, 850 (9th Cir. 1997).

Plaintiffs contend that issue preclusion applies to bar Omni and LC Brokerage from arguing that the RMA permitted LC Brokerage to prioritize rental of hotel rooms over the villas, that Omni could not be sued directly under the RMA, and that the RMA disclaimed any fiduciary duties of LC Brokerage or Omni connected to their management of the rental program. According to Plaintiffs, after a full trial on the merits in the Erskine lawsuit, the state court judge found that Omni and LC Brokerage breached their obligations under the RMA by, amongst other things, failing to adequately price the villas and steering customers into the hotel. The state court documents, however, do not fully support Plaintiffs' position because they do not clearly show "with clarity and certainty what was determined by the prior judgment." Offshore Sportswear, Inc., 114 F.3d at 850.

While the state court's "Final Statement and Decision" and "Amended Judgment" state that both the villa owner and LC Brokerage and Omni "breached their obligations," the documents do not contain any express finding on whether the RMA permitted LC Brokerage to prioritize hotel rooms over the villas, whether Omni could be sued under the RMA, and whether the RMA disclaimed any fiduciary duties. (Doc. Nos. 25-9 at 5; 26-2 at 6.)³ The state court documents also do not identify which provision of the RMA was found to have been breached.

Moreover, unlike here, the Erskine judge was tasked with deciding whether either side's actions were excused on the basis of an anticipatory breach by the other side. (See Doc. Nos. 25-9 at 5 ("Both sides had competing burdens of proof and the Court cannot say that it was persuaded that either's case was more likely than not true than the others."); 26-2 at 6 ("[N]either side was able to prove an anticipatory breach").) Indeed, because the judge found that "both parties breached their obligations, with no side clearly breaching first," neither was entitled to damages and neither was a prevailing party. (Doc. Nos. 25-9 at 5, 6; 26-2 at 6, 7.) Thus, without sufficient clarity and certainty on what was specifically determined by a prior judgment—especially where that judgment resulted from a factually distinct case—the Court does not find that Plaintiffs have met their burden of showing that issue preclusion is appropriate in this case. As such, the Court proceeds to analyze the sufficiency of Plaintiffs' causes of action against Defendants' challenges.

2) Breach of Contract

Plaintiffs alleges that LC Brokerage and Omni are liable for a breach of contract because under the RMA, LC Brokerage was appointed as the "sole" and "exclusive" rental agent to act on behalf of villa owners. Plaintiffs' claims that LC Brokerage abdicated its responsibilities under the RMA to Omni, which used its control over the rental program to price the villas for its own advantage, rather than to maximize the revenues of villa owners. Defendants move to dismiss Plaintiffs' breach of contract claim because (1) Omni is not a signatory to the RMA and (2) the express terms of the RMA reveal that LC Brokerage's conduct does not amount to a breach.

As to the first argument, the face of the complaint makes clear that Omni is not a signatory to the RMA. Consequently, Omni is not a party to the contract and therefore cannot be liable for a breach under the RMA. See Clemens v. Am. Warranty Corp., 193 Cal.App.3d 444, 452 (1987) ("Under California law, only a signatory to a contract may be liable for any breach."); Tri-Continent Internat. Corp. v. Paris Sav. & Loan Assn., 12 Cal.App.4th 1354, 1359 (1993) ("[Plaintiff] cannot assert a claim for breach of contract against one who is not a party to the contract."). Plaintiffs maintain that the breach ofcontract against Omni should be sustained because they have alleged that Omni and LC Brokerage are alter-egos. However, apart from listing that one of the common questions among the class members is "[w]hether Omni is an alter-ego of LC Brokerage," the complaint contains no other allegations to invoke the alter ego doctrine. (Doc. No. 1 at 23.) Plaintiffs must plead more. Indeed, there is no allegation that Omni is LC Brokerage's alter ego, nor are there facts to support the alter ego elements of (1) unity of interest and ownership and (2) inequitable result if the doctrine is not applied. See Wehlage v. EmpRes Healthcare, Inc., 791 F. Supp. 2d 774, 782 (N.D. Cal. 2011). Because Omni is not a signatory to the contract and Plaintiffs have not adequately pled the alter ego doctrine, the Court finds that Plaintiffs have not sufficiently stated a breach of contract claim against Omni. Accordingly, Plaintiffs' breach of contract claim against Omni will be DISMISSED WITH LEAVE TO AMEND. Inclusion of additional...