Ovation Fin. Holdings 2 LLC v. Chi. Title Co.

OVATION FINANCE HOLDINGS 2 LLC, et al. Plaintiffs, v. CHICAGO TITLE COMPANY, et al. Defendants.

Case No.: 19cv2031-LAB (AHG)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

September 23, 2020

ORDER GRANTING IN PART MOTION TO DISMISS; AND

ORDER GRANTING LEAVE TO AMEND PENDING MOTION FOR LEAVE TO FILE AMENDED COMPLAINT

[DOCKET NUMBER 24.]

Plaintiffs were numerous investors in a lending enterprise which the Complaint calls the ANI Loan Program. This case is related to 19cv1628, SEC v. Champion-Cain, and to 19cv2129, Allred v. Chicago Title. All three cases concern the same lending enterprise. Cris Torres and Gina Champion-Cain have pled guilty in the criminal cases 20cr2114 and 20cr2115, respectively.

Defendant Chicago Title filed a motion to dismiss, or in the alternative to stay this action. (Docket no. 24.) Chicago Title argues that Plaintiffs have failed to join necessary parties, that Plaintiffs' RICO claims are barred under the Private Securities Litigation Reform Act (PSLRA), and that the Complaint does not state a claim against Defendant Chicago Title Insurance Company. This motion is fully briefed and ready for adjudication. Plaintiffs also filed a motion (Docket no. 33) seeking leave to add two new claims, but that motion does not affect the motion to dismiss. The hearing date on that motion is November 23, so briefing on that motion is not due soon.

Although the Court is deciding similar motions in Allred, the two complaints are different, and the Court is treating each case separately. In particular, the Complaint in this case is much more robust, and supported by substantial exhibits. The motions to dismiss are different as well. For example, Defendants in Allred moved to dismiss fraud claims for failure to plead them with particularity, but the motion to dismiss in this case does not raise such an argument. The fact that the Court has made a particular ruling in a related case does not necessarily mean the same ruling will be made in all cases.

Dismissal for 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. See 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).

/ / / "It has long been the rule that it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit." Temple v. Synthes Corp., 498 U.S. 5, 7 (1990) (per curiam); see also Fed. R. Civ. P. 19 advisory committee's note to 1966 amend. (explaining that "a tortfeasor with the usual 'joint-and-several' liability is merely a permissive party to an action against another with like liability").

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 first show 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).

Chicago Title argues that Champion-Cain as well as ANI Development, LLC and American National Investments, Inc. (collectively, "ANI") are necessary parties who cannot be joined because of the litigation bar in the SEC action, 19cv1628, SEC v. Champion-Cain. Developments in that action have affected the Court's analysis of this issue. After the motion to dismiss was filed, the receiver in the SEC action sought Court approval to bring claims against Chicago Title. The Court has 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.

Chicago Title also argues that Kim Peterson and Kim Funding are necessary parties, but cannot be joined because both are in bankruptcy. It argues that Kim Peterson and Kim Funding are necessary because they participated substantiallyin inducing Plaintiffs to invest. Champion-Cain is an alleged tortfeasor along with Chicago Title. Whether Kim Peterson and Kim Funding are at fault is not clearly alleged, though the Complaint does make clear they were substantially involved in dealing with investors and drafting agreements. The Complaint suggests in passing that Kim Peterson, an investor, was duped by Champion-Cain. (See Compl., ¶¶ 96-97.)

Most of the Complaint's allegations 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 and knowingly involved in any deception.

As to Kim Peterson and Kim Funding, the Court finds Chicago Title has not met its burden of showing they are necessary parties. While Champion-Cain is a joint tortfeasor, it does not appear her involvement in this action is necessary either. 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.

It is likely the Court will rule on the receiver's motion in case 19cv1628 well before ruling on Plaintiffs' pending motion for leave to amend. Once that happens, the appropriateness of a stay for failure to join ANI will be clearer. Because this case is still in the pleading stage and is likely to remain so for some time, a stay is unnecessary at this time.

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Dismissal for 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. National League 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.

New allegations in opposition to a Rule 12(b)(6) motion to dismiss may be considered when deciding whether to grant leave to amend, but are not considered when ruling on the motion itself. See Schneider v. Cal. Dep't of Corr. & Rehab., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998).

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Dismissal of RICO Claims

Plaintiffs bring two Racketeer Influenced and Corrupt Organizations Act (RICO) claims under 18 U.S.C. § 1962(c) and (d), respectively. In 1995, Congress enacted the Private Securities Litigation Reform Act (PSLRA), which amended the RICO statute to provide that securities fraud cannot serve as a predicate act for a RICO claim. See 18 U.S.C. § 1964(c) ("[N]o person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.") Congress' focus was on eliminating treble damages for securities fraud claims, which it reasoned existing securities laws already provided an adequate remedy for. See Bald Eagle Area Sch. Dist. v. Keystone Fin'l Inc., 189 F.3d 321, 327 (3d Cir. 1999); MJK Partners, LLC v. Husman, 877 F. Supp. 2d 596, 603 (N.D. Ill. 2012). In other...