1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 PETER ALBERS, 8 Case No. 5:19-cv-05896-EJD Plaintiff, 9 ORDER GRANTING DEFENDANTS’ v. MOTION TO DISMISS; GRANTING 10 PLAINTIFF’S MOTION FOR LEAVE YARBROUGH WORLD SOLUTIONS, TO AMEND 11 LLC, et al., Re: Dkt. Nos. 29, 30 12 Defendants.
13 This is Plaintiff Peter Albers’ second attempt to plead facts to support his claim that 14 Defendants violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The First 15 Amended Complaint again names Defendants Yarbrough World Solutions, LLC (“YWS”) and 16 Dally E. Yarbrough alleging violations of RICO and of California labor laws. First Amended 17 Complaint (“FAC”), Dkt. No. 25. Plaintiff also seeks leave to file a Second Amended Complaint 18 to bring suit against YWS on behalf of a putative class of YWS employees. Plaintiff’s Notice of 19 Motion and Motion for Leave to Amend the Complaint (“Mot. to Amend”), Dkt. No. 30. 20 Defendants contend that this Court must dismiss Plaintiff’s RICO claim and also the wrongful 21 termination claims asserted against Defendant Yarbrough. Defendants also oppose Plaintiff’s 22 motion for leave to amend the complaint. 23 The Court took these motions under submission without oral argument pursuant to Civil 24 Local Rule 7-1(b). For the reasons stated below, the Court GRANTS Defendants’ motion to 25 dismiss and GRANTS Plaintiff’s motion for leave to amend the complaint. 26 27 Case No.: 5:19-cv-05896-EJD 1 I. BACKGROUND 2 A. Factual Background 3 The Court’s first dismissal order sets forth the factual background of Plaintiff’s claims. 4 Order Granting in Part and Denying in Part Defendants’ Motion to Dismiss (“Dismissal Order”), 5 Dkt. No. 22. The Court reviews allegations relevant to the instant motion to dismiss. 6 According to the allegations in the FAC, Plaintiff is a construction worker in California— 7 he is not personally licensed by the California Contractors State License Board to perform 8 construction services in the state of California. FAC ¶ 22. Defendants operate a “staffing 9 solutions” company, which helps contractors find construction workers for large-scale commercial 10 and government projects in California and across the United States. Id. ¶¶ 13, 14. Defendants 11 provide contractors with a site representative and handle the compensation, benefits, and taxes for 12 the construction workers “without the [contractor] having the additional overhead.” Id. ¶ 14; see 13 also id. ¶ 15. Plaintiff worked for Defendants from approximately 2006 until August 6, 2019. Id. 14 ¶ 22. 15 Plaintiff alleges YWS represented to its contractor-clients that construction workers are 16 YWS employees whose tax withholding and conferment of benefits are handled by YWS. Id. ¶ 17 20. Despite representing to its clients that YWS workers are employees, YWS allegedly forces its 18 employees to sign “independent contractor/exclusion” waivers of the right to benefits, workers 19 compensation, and employee status. Id. Moreover, Plaintiff alleges YWS did not provide its 20 employees with any benefits or insurance, did not pay YWS’s employer’s share of state or federal 21 taxes, and did not withhold any state or federal taxes from YWS employees. Id. ¶ 21. Defendants 22 withheld these facts from their contractor clients. Id. 23 On March 15, 2017, Plaintiff was assigned by YWS to an Army Corps of Engineers 24 construction project at the United States Army Garrison Facility, Presidio of Monterey in 25 Monterey, California (“the Monterey Presidio Project”). Id. ¶ 31. CTE Cal, Inc., the 26 subcontractor on the project, used YWS’s services to find Plaintiff and entered into a service 27 Case No.: 5:19-cv-05896-EJD 1 agreement with YWS. Id. ¶¶ 31-32. Plaintiff alleges that CTE Cal relied on YWS’s 2 representations that it was a “staffing solutions” company that handled all compensation, benefits, 3 and taxes to its employees, and thereby relieved CTE Cal from the burden of bringing on a new 4 employee and having to administer the attendant compensation and benefits due to employees. Id. 5 ¶ 34. Further, Plaintiff contends Defendant Yarbrough successfully endeavored to secure the 6 confidence of its contractor clients, like YWS, who were the recipients of representations 7 regarding the treatment and status of YWS employees. Id. ¶ 36. 8 On April 20, 2017, federal litigation ensued regarding various alleged construction defects 9 and nonpayment claims arising from the Monterey Presidio Project. Id. ¶ 45. The litigation was 10 between Halbert Construction Company, Inc. (the general contractor on the project), CTE Cal and 11 McCullough Plumbing, Inc. (another subcontractor). Id. ¶ 46. McCullough sued Halbert and 12 Halbert filed a third-party complaint against CTE Cal for breach of contract related to alleged 13 construction deficiencies. CTE Cal counterclaimed for nonpayment. Id. 14 CTE Cal identified Plaintiff as a possible witness. Id. ¶ 47. In March 2019, Plaintiff sat 15 for a deposition and as the case neared trial, Plaintiff was advised that CTE Cal intended to 16 subpoena him to testify at trial. Id. On May 16, 2019, Plaintiff prepared and executed a 17 declaration, which CTE Cal used for pre-trial motions, that set forth details concerning the nature 18 of Plaintiff’s employment at YWS. Id. ¶ 48. Plaintiff was subpoenaed by CTE Cal to testify at 19 trial; CTE Cal arranged and paid for Plaintiff’s travel accommodations to San Diego. Id. ¶ 49. 20 Before the trial, on or around July 12, 2019, Defendant Yarbrough contacted Plaintiff by telephone 21 and advised him that he was prohibited from testifying at the trial and that if he testified, his 22 employment with YWS would be terminated. Id. ¶ 50. On July 13, 2019, Defendant Yarbrough 23 contacted CTE Cal demanding both payment by CTE Cal for Plaintiff’s testimony, as well as full 24 indemnification of YWS and Defendant Yarbrough individually by CTE Cal for any action arising 25 in any manner from the testimony of Plaintiff. Id. ¶ 52. Plaintiff still flew to San Diego to testify, 26 but ultimately was not called to testify. Id. ¶ 55. 27 Case No.: 5:19-cv-05896-EJD 1 On or around August 6, 2019, Defendant Yarbrough demanded reimbursement from 2 Plaintiff for any fees Plaintiff had received from CTE Cal for testifying in the litigation. Id. ¶ 56. 3 Plaintiff told Defendant Yarbrough that he had not received any fees or compensation. Id. 4 Defendant Yarbrough then informed Plaintiff by telephone that he was terminated from his 5 employment with YWS. Id. At the time, Plaintiff was assigned to a construction project at a 6 naval base in Monterey, California. Id. Following his termination, he was no longer allowed to 7 access the project. Id. Plaintiff alleges that he provided services through YWS for years under 8 threat of termination and compulsion of a one-year noncompete agreement imposed by the 9 independent contractor agreement. Id. ¶ 61. 10 B. Procedural History 11 On June 26, 2020, Plaintiff filed his FAC alleging that Defendants violated RICO, 18 12 U.S.C. § 1962(c) and committed (1) unlawful business practices in violation of California 13 Business & Professions Code § 17200, (2) unfair business practices in violation of California 14 Business & Professions Code § 17200, (3) wrongful termination in violation of public policy, and 15 (4) wrongful termination in breach of the covenant of good faith and fair dealing. See generally 16 FAC. On July 16, 2020, Defendants filed a motion to dismiss Plaintiff’s FAC on the grounds that 17 Plaintiff still failed to state a claim under RICO, that Plaintiff failed to state a claim against 18 Defendant Yarbrough, and that the Court lacked personal jurisdiction over Defendant Yarbrough. 19 Defendants’ Motion to Dismiss Pursuant to Rule 12(b) (“Mtd.”), Dkt. No. 29. On July 31, 2020, 20 Plaintiff filed an opposition. Memorandum of Points and Authorities in Opposition to 21 Defendants’ Motion to Dismiss (“Opp.”), Dkt. No. 28. Defendants filed their reply on August 6, 22 2020. Defendants Reply to Plaintiff’s Opposition Motion to Dismiss the First Amended 23 Complaint (“Reply”), Dkt. No. 31. 24 Separately, On August 6, 2020, Plaintiff sought leave to amend his California Business and 25 Professions Code § 17200 claims in order to bring such claims on behalf of himself and all YWS 26 employees similarly situated. See generally Mot. to Amend. Plaintiff contends, that through the 27 Case No.: 5:19-cv-05896-EJD 1 independent investigation conducted by Plaintiff’s counsel since the filing of the original 2 complaint, it has been discovered that YWS has misclassified some or all of its employees as 3 independent contractors. Id. 1-2. On August 13, 2020, Defendants filed an opposition. 4 Defendants’ Opposition to Plaintiff’s Motion for Further Leave to Amend His Complaint (“Opp. 5 Amend”), Dkt. No. 32. Plaintiff filed a reply on August 27, 2020. Reply Memorandum of Point 6 and Authorities in Support of Plaintiff’s Motion for Leave to Amend Complaint (“Reply 7 Amend”), Dkt. No. 33. 8 II. LEGAL STANDARD 9 A. Motion to Dismiss under Fed. R. Civ. P. 12(b)(6) 10 To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient factual 11 matter, accepted as true, to “state a claim for relief that is plausible on its face.” Ashcroft v. Iqbal, 12 556 U.S. 662, 678 (2009) (discussing Federal Rule of Civil Procedure 8(a)(2)). A claim has facial 13 plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable 14 inference that the defendant is liable for the misconduct alleged. Id. The requirement that the 15 court “accept as true” all allegations in the complaint is “inapplicable to legal conclusions.” Id. It 16 is improper for the court to assume “the [plaintiff] can prove facts that it has not alleged” or that 17 the defendant has violated laws “in ways that have not been alleged.” Associated Gen. 18 Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 19 (1983). 20 If there are two alternative explanations, one advanced by the defendant and the other 21 advanced by the plaintiff, both of which are plausible, the “plaintiff’s complaint survives a motion 22 to dismiss under Rule 12(b)(6).” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). Dismissal 23 can be based on “the lack of a cognizable legal theory or the absence of sufficient facts alleged 24 under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 25 1990). Hence, when a claim or portion of a claim is precluded as a matter of law, that claim may 26 be dismissed pursuant to Rule 12(b). See Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 975 27 Case No.: 5:19-cv-05896-EJD 1 (9th Cir. 2010) (discussing Rule 12(f) and noting that 12(b)(6), unlike Rule 12(f), provides 2 defendants a mechanism to challenge the legal sufficiency of complaints). However, a complaint 3 should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts 4 in support of the claim that would entitle the plaintiff to relief. No. 84 Employer-Teamster Joint 5 Council Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 931 (9th Cir. 2003). 6 B. Motion to Dismiss under Fed. R. Civ. P. 12(b)(2) 7 When a defendant moves to dismiss for lack of personal jurisdiction under Rule 12(b)(2), 8 the plaintiff bears the burden of demonstrating jurisdiction exists. Love v. Associated Newspapers, 9 Ltd., 611 F.3d 601, 608 (9th Cir. 2010). Where, as here, the motion is based on written materials 10 rather than an evidentiary hearing, a court’s only question is whether the plaintiff’s pleadings and 11 affidavits make a prima facie showing of personal jurisdiction. Boschetto v. Hansing, 539 F.3d 12 1011, 1015 (9th Cir. 2008). A plaintiff cannot “simply rest on the bare allegations of its 13 complaint,” but undisputed allegations in the complaint must be taken as true. Schwarzenegger v. 14 Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004). 15 District courts have the power to exercise personal jurisdiction to the extent of the law of 16 the state in which they sit. Fed. R. Civ. P. 4(k)(1)( A); Panavision Int’l, L.P. v. Toeppen, 141 F.3d 17 1316, 1320 (9th Cir. 1988). California’s long-arm jurisdictional statute is coextensive with federal 18 due-process requirements, so the jurisdictional analysis for a nonresident defendant under state 19 law and federal due process is the same. See Cal. Civ. Proc. Code § 410.10; Roth v. Garcia 20 Marquez, 942 F.2d 617, 620 (9th Cir. 1991). 21 For a court to exercise personal jurisdiction over a nonresident defendant, that defendant 22 must have sufficient “minimum contacts” with the forum state so that the exercise of jurisdiction 23 “does not offend traditional notions of fair play and substantial justice.” Int’l Shoe Co. v. 24 Washington, 326 U.S. 310, 316 (1945). Under the “minimum contacts” analysis, a court may 25 obtain either general jurisdiction or specific jurisdiction over a nonresident defendant. Doe v. 26 Unocal Corp., 248 F.3d 915, 923 (9th Cir. 2001). If the defendant’s activities are insufficient to 27 Case No.: 5:19-cv-05896-EJD 1 subject him to general jurisdiction, then the court looks to the nature and quality of the defendant’s 2 contacts in relation to the cause of action to determine specific jurisdiction. Data Disc, Inc. v. Sys. 3 Tech. Assocs., Inc., 557 F.2d 1280, 1287 (9th Cir. 1977). 4 C. Motion to Amend under Fed. R. Civ. P. 15(a) 5 Under Federal Rule of Civil Procedure 15(a), a party may amend its pleading once as a 6 matter of course within 21 days of service of the pleading. Fed. R. Civ. P. 15(a)(1). After that 7 period, amendment is permitted only with the opposing party’s written consent or leave of the 8 court. Id. at 15(a)(2). Rule 15 instructs that “[t]he court should freely give leave when justice so 9 requires.” Id. This rule is applied with “extreme liberality.” Eminence Capital, LLC v. Aspeon, 10 Inc., 316 F.3d 1048, 1051 (9th Cir. 2003). Courts commonly consider four factors when 11 determining whether to grant leave to amend: (1) bad faith on the part of the movant; (2) undue 12 delay; (3) prejudice to the opposing party; and (4) futility of the proposed amendment. Foman v. 13 Davis, 371 U.S. 178, 182 (1962); Lockheed Martin Corp. v. Network Sols., Inc., 194 F.3d 980, 986 14 (9th Cir. 1999). “[I]t is the consideration of prejudice to the opposing party that carries the 15 greatest weight.” Eminence Capital, LLC, 316 F.3d at 1052. “Absent prejudice, or a strong 16 showing of any of the remaining Foman factors, there exists a presumption under Rule 15(a) in 17 favor of granting leave to amend.” Id. (emphasis in original). “The party opposing amendment 18 bears the burden of showing prejudice.” DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th 19 Cir. 1987). 20 III. DISCUSSION 21 A. Motion to Dismiss 22 Defendants first argue that Plaintiff’s RICO claim still fails to adequately allege fraud and 23 a pattern of racketeering activity. See Mtd. 3-6. Defendants next argue that Plaintiff fails to state 24 a claim against Defendant Yarbrough for any state law claims and that the Court lacks personal 25 jurisdiction over Defendant Yarbrough. The Court addresses each in turn. 26 i. RICO Claim 27 Case No.: 5:19-cv-05896-EJD 1 RICO prohibits “any person employed by or associated with any enterprise engaged in, or 2 the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or 3 indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or 4 the collection of unlawful debt.” 18 U.S.C. § 1962(c). A violation of § 1962(c), the section on 5 which Plaintiff relies, requires (1) conduct (2) of an enterprise (3) through a pattern (4) of 6 racketeering activity. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). 7 “To support the mail and wire fraud allegations, the plaintiffs must plausibly allege ‘the 8 existence of a scheme or artifice to defraud or obtain money or property by false pretenses, 9 representations or promises,’ and that [defendants] communicated, or caused communications to 10 occur, through the U.S. mail or interstate wires to execute that fraudulent scheme.” Keates v. 11 Koile, 883 F.3d 1228, 1254 (9th Cir. 2018). Because Federal Rule of Civil Procedure 9(b) 12 requires a plaintiff to plead mail and wire fraud with particularity, the plaintiff must set forth, with 13 detail, the time, place, and contents of the alleged false representation. Id. Plaintiff alleges that 14 Defendants engaged in the predicate acts of mail fraud (18 U.S.C. § 1341) and wire fraud (18 15 U.S.C. § 1343). FAC ¶¶ 80-81. 16 Misrepresentation of Law 17 In dismissing Plaintiff’s original RICO claim, this Court held Plaintiff’s allegation that 18 Defendants misrepresented his and other YWS construction workers’ employment status was a 19 misrepresentation of law and could thus not form the basis of Plaintiff’s predicate fraud acts. 20 Dismissal Order at 10. “‘[A]s a general rule, . . . fraud cannot be predicated upon 21 misrepresentations as to matters of law.’” Miller v. Yokohama Tire Corp., 358 F.3d 616, 620 (9th 22 Cir.2004) (citing Am.Jur.2d of Fraud and Deceit § 97 (2001)). Further, the court in Miller noted 23 that there are four general exceptions to this rule:
24 [w]here the party making the misrepresentation 1) purports to have special knowledge; 2) stands in a fiduciary or similar relation of trust 25 and confidence to the recipient; 3) has successfully endeavored to secure the confidence of the recipient; 4) or has some other special 26 reason to expect that the recipient will rely on his opinion[.] 27 Case No.: 5:19-cv-05896-EJD 1 Id. Plaintiff does not contest the notion that misstatements of law are not actionable. Instead, 2 Plaintiff relies on the Ninth Circuit’s decision in Miller, 358 F.3d at 618-21,supra, to advance two 3 general arguments for why he has properly alleged mail and wire fraud. 4 First, Plaintiff cites Miller for the proposition that YWS’s misstatements implicated fact 5 and are therefore actionable as fraud. Miller involved a former employee who brought an action 6 sounding in fraud against his managers for the alleged misrepresentation that he was not entitled to 7 overtime pay because he was an exempt salaried employee. Id. at 618. Plaintiff is correct that in 8 Miller the Ninth Circuit recognized misstatements involving both fact and law can be actionable if 9 it is the fraudulent statement of fact upon which plaintiffs detrimentally relied. Id. at 621. 10 However, the Ninth Circuit unambiguously found that the managers’ statements that the former 11 employee was not entitled to overtime pay “did not include express or implied misrepresentations 12 of fact.” Id. That the employee was an exempt salaried employee not entitled to overtime pay 13 certainly relied on factual assumptions. Yet, the Ninth Circuit focused on the core legal 14 proposition at the center of the managers’ representations and not any factual assumptions on 15 which they based their opinions. The same result is appropriate here. The FAC alleges that 16 Defendants guarded against exposure of their false representations and scheme through illicit 17 agreements with their employees, thus making this a litigation involving a complex scheme by 18 Defendants to induce clients to retain their services while silencing their employee’s disclosure of 19 the scheme. FAC ¶ 50-57. However, the central issue remains whether Defendants 20 misrepresented the classification of Plaintiff and its other construction workers status as 21 independent contractors. Any factual assumptions underlying the legal opinion do not transform 22 the claim from one of law to fact. 23 Second, Plaintiff contends that the exceptions in Miller apply here. Plaintiff alleges that 24 YWS and Defendant Yarbrough “had special knowledge of the terms of employment upon which 25 YWS employed construction workers throughout California and the United States.” FAC ¶ 6. 26 However, as Defendants point out, Plaintiff’s mail and wire fraud allegations sound in an alleged 27 Case No.: 5:19-cv-05896-EJD 1 misrepresentation of law Defendants made to YWS’s clients concerning the employment status of 2 YWS subcontractors. Mtd. at 4; see also FAC ¶¶ 32-36. The Court cannot see how YWS and 3 Defendant Yarbrough would have some special knowledge of employment law in this context 4 where YWS’s clients are construction business entities performing “large scale commercial and 5 government projects in California and throughout the United States.” FAC ¶ 13. 6 Plaintiff’s allegations, similarly, do not demonstrate Defendants “endeavor [] to secure the 7 confidence” of contractors to induce them to enter into valuable contracts with YWS. Id. ¶ 61. In 8 regard to that exception, Miller stated that the comments to the Restatement (Second) of Torts § 9 542 (1977), explained that the securing confidence rule is “usually applicable to situations where 10 ‘the maker gains the other’s confidence by stressing their common membership in a religious 11 denomination, fraternal order, or social group or the fact that they were born in the same 12 locality.’” Miller, 358 F.3d at 622 (quoting Restatement (Second) of Torts § 542(c), cmt. h). The 13 Ninth Circuit remarked that the only illustration given in the Restatement is a situation where after 14 years of giving an elderly widow good investment advice, a “friend” advises her to buy worthless 15 stock from him. Id. Here, as in Miller, the facts presented by Plaintiff are not like the illustration 16 nor has Plaintiff alleged any facts indicating that YWS and Defendant Yarbrough specially 17 endeavored to secure the confidences of its clients. YWS offered its services to customers like 18 CTE Cal, and Plaintiff does not cite to any case that applied this exception to a business 19 relationship like the one pleaded here. 20 Finally, no other special reason supports an allegation that YWS and Defendant Yarbrough 21 would have expected their clients to rely on their opinion. Plaintiff alleges Defendants have a 22 “specific and special reason, in particular the inclusion and enforcement of noncompete and no 23 solicitation clauses in YWS contracts, to expect that contractors would rely on the representations 24 made with respect to the status of YWS employees.” FAC ¶ 66. However, Miller noted that this 25 exception is typically applied to cases “in which the maker of the representation knows of some 26 special characteristic of the recipient, such as lack of intelligence . . . which gives the maker 27 Case No.: 5:19-cv-05896-EJD 1 special reason to expect the opinion to be relied on.” Miller, 358 F.3d at 622 (quoting 2 Restatement (Second) of Torts § 542(c), cmt. I). Like in Miller, there is no claim that YWS’s 3 clients particularly lack intelligence or are particularly gullible, nor is there any allegation that 4 YWS and Defendant Yarbrough prayed on any such traits. See id. (finding “special reason” 5 exception did not apply because employees falsely told by managers that they were not entitled to 6 overtime pay did not have some special characteristic which gave the managers special reason to 7 expect the opinion would be relied on). Therefore, this exception is not applicable to Plaintiff’s 8 claim. 9 Witness Tampering and Retaliation 10 In the alternative, Plaintiff argues that even without the predicate acts of mail and wire 11 fraud, the RICO claim can be sustained on the predicate acts of witness tampering and witness 12 retaliation. Opp. at 12-13. Defendants argue that Plaintiff has still failed to establish a pattern of 13 racketeering sufficient to state a RICO claim. To amount to a “pattern” of racketeering activity, 14 there must have been “at least two [predicate] acts of racketeering activity” within ten years of 15 each other. 18 U.S.C. § 1961(5). But although two predicate acts are necessary for a pattern, they 16 are not sufficient alone. See H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 237–38 (1989). 17 The Ninth Circuit addressed the RICO pattern requirement in detail in Sever v. Alaska Pulp 18 Corporation, noting that identifying such a pattern has “proven a challenging task for courts.” 978 19 F.2d 1529, 1535 (9th Cir. 1992). In that case, the Circuit identified two factors that led it to 20 conclude that no “pattern” existed in the case before it. First, “although [Plaintiff] alleges a 21 number of ‘acts,’ [Defendants’] collective conduct is in a sense a single episode having the 22 singular purpose of impoverishing [Plaintiff], rather than a series of separate, related acts,” and 23 second “there is no suggestion that these defendants would have continued [their criminal acts], or 24 that they ever intended anyone but [Plaintiff] any harm.” Id. 25 The same two factors are present in this case. Plaintiff’s FAC makes it clear that any 26 fraudulent acts perpetuated by Defendants were in service of a single goal—preventing Plaintiff 27 Case No.: 5:19-cv-05896-EJD 1 from giving testimony in a federal trial—rather than a series of separate but related criminal aims. 2 As in Sever, this conclusion is reinforced by the fact that there is but a single victim of the alleged 3 “pattern.” The alleged RICO scheme here, was a “cover up” of Defendants’ alleged fraud by 4 threatening to terminate Plaintiff’s employment if he testified and then retaliating against Plaintiff 5 by firing him when efforts to keep him from testifying failed. FAC ¶¶ 73-96. Other circuits have 6 reached the same conclusion on similar facts to those here. See, e.g., Jackson v. BellSouth 7 Telecommunications, 372 F.3d 1250, 1267 (11th Cir. 2004) (“[W]here the RICO allegations 8 concern only a single scheme with a discrete goal, the courts have refused to find a closed-ended 9 pattern of racketeering even when the scheme took place over longer [than ninth months].”); 10 Edmondson & Gallagher v. Alban Towers Tenants Ass’n, 48 F.3d 1260, 1265 (D.C. Cir. 1995) 11 (noting that it is “virtually impossible” to show a pattern of racketeering activity for a “single 12 scheme” with a “single injury” and “few victims”); SIL-FLO, Inc. v. SFHC, Inc., 917 F.2d 1507, 13 1516 (10th Cir. 1990) (holding that multiple predicate acts failed to show a pattern where the acts 14 “constituted a single scheme to accomplish ‘one discrete goal,’ directed at one individual with no 15 potential to extend to other persons”). Accordingly, Plaintiff’s RICO claim still fails to establish a 16 pattern of racketeering activity. 17 For these reasons, the Court holds that Plaintiff has not amended his complaint to allege 18 predicate acts that establish a pattern of racketeering activity. Thus, the Court GRANTS 19 Defendants’ motion to dismiss Plaintiff’s RICO claim. Because further amendment would be 20 futile, the Court declines to afford Plaintiff another opportunity to amend his complaint. See 21 Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990) (“It is not an abuse of discretion to 22 deny leave to amend when any proposed amendment would be futile.”). 23 ii. Wrongful Termination Claims Against Defendant Yarbrough 24 Defendants contend that Plaintiff’s state law claims for wrongful termination in violation 25 of public policy and breach of the covenant of good faith and fair dealing asserted against 26 Defendant Yarbrough must be dismissed for failure to state a claim because he is protected by 27 Case No.: 5:19-cv-05896-EJD 1 YWS’s liability shield. Mtd. at 6. Defendants argue further that the Court lacks personal 2 jurisdiction over Defendant Yarbrough because Plaintiff has not plead that Defendant Yarbrough 3 has sufficient contacts with California to support a finding of general or specific jurisdiction. Id. 4 at 7. 5 Failure to State a Claim 6 Under California law, the alter ego liability of members or managers of a foreign limited 7 liability company are governed by the law of the state of the LLC’s formation. Cal. Corp. Code § 8 17708.01(a). Because YWS is a Arizona limited liability company, the Court looks to the Arizona 9 Liability Company Act which provides that a member of an LLC is not liable, solely by reasons of 10 being a member, for the debts, obligations and liabilities of the LLC whether arising in contract or 11 tort, under a judgement, decree or order of a court or otherwise. Ariz. Rev. Stat. § 29-651. 12 Here, Plaintiff has not plead any allegations that would suggest Defendant Yarbrough “so 13 dominates and controls” YWS such that its ‘distinct corporate existence’ should be overlooked. 14 See Gatecliff v. Great Republic Life Ins. Co., 170 Ariz. 34, 37 (1991) (citing Walker v. Sw Mines 15 Dev. Co., 52 Ariz. 403, 414-15 (1938). As such, Plaintiff has not pleaded why Defendant 16 Yarbrough was not entitled to YWS’s liability shield under Arizona’s Liability Company Act. 17 Nonetheless, Plaintiff argues Defendant Yarbrough is independently liable because his 18 conduct as manager was “deliberate, cold, callous, malicious, oppressive, and intentional” and 19 taken “in order to injure Plaintiff.” Opp. at 14; see also FAC ¶ 116. However, while Plaintiff may 20 state a claim for wrongful termination in violation of public policy as to the employer, it is well 21 established under California law that he may not assert such a claim against an individual 22 supervisor or manager such as Defendant Yarbrough. See Khajavi v. Feather River Anesthesia 23 Med. Group, 84 Cal. App. 4th 32, 53 (2000) (“As a matter of law, only an employer can be liable 24 for the tort of wrongful termination in violation of public policy.”); Phillips v. Gemini Moving 25 Specialists, 63 Cal. App. 4th 563, 576–77 (1998) (reviewing relevant cases and concluding that 26 plaintiff may not sue his employer’s paymaster for wrongful discharge, because the tort of 27 Case No.: 5:19-cv-05896-EJD 1 wrongful discharge “has its basis in the employer-employee relationship and [the paymaster] was 2 not plaintiff’s employer). Moreover, Plaintiff cannot state a claim for breach of the covenant of 3 good faith and fair dealing against Defendant Yarbrough. Individuals who were not parties to a 4 contract cannot be held liable for breaches related to those contracts. See Shoemaker v. Myers, 52 5 Cal. 3d 1, 24 (1990); see also Kim v. Regents of Univ. of Cal., 80 Cal. App. 4th 160, 164 (2000). 6 Thus, the Court GRANTS Defendants’ motion to dismiss the wrongful termination in 7 violation of public policy and breach of the covenant of good faith and fair dealing claims asserted 8 against Defendant Yarbrough. 9 Lack of Personal Jurisdiction Over Defendant Yarbrough 10 Defendants also contend this Court does not have personal jurisdiction over Defendant 11 Yarbrough.1 Plaintiff argues that Defendant Yarbrough is subject to personal jurisdiction because 12 he “systematically and continuously conducts business in California, intentionally avails himself 13 of the laws of California by transacting a substantial amount of business throughout the Northern 14 District of California including . . . promotion, marketing, advertising, and provision of 15 professional construction services for hire throughout California . . . . FAC ¶ 11. Because the 16 Court finds that Defendant Yarbrough’s actions are properly attributable to YWS and not to him 17 individually, the Court GRANTS the motion to dismiss for lack of personal jurisdiction. 18 A court has general jurisdiction when the defendants engage in “continuous and systematic 19 general business contacts . . . that approximate physical presence in the forum state.” 20 Schwarzenegger, 374 F.3d at 801 (internal quotations marks omitted). Plaintiff does not argue 21 that Defendant Yarbrough’s contacts with California are so pervasive as to justify the exercise of 22 general jurisdiction. And the FAC reveals that Defendant Yarbrough is a resident of Arizona and 23 does not hold any California professional or business licenses or an ownership interest or position 24 in a California business. See FAC ¶ 9. Accordingly, the Court need only determine whether 25
26 1 Because the Court held that Plaintiff’s federal RICO claim must be dismissed, the Court only 27 retains diversity jurisdiction over Plaintiff’s state law claims. See FAC. ¶ 9 Case No.: 5:19-cv-05896-EJD 1 Defendant Yarbrough has sufficiently established that the Court may exercise specific jurisdiction 2 over him. 3 A court may assert specific jurisdiction over a claim for relief that arises out of a 4 defendant’s forum-related activities. Rano v. Sipa Press Inc., 987 F.2d 580, 588 (9th Cir. 1993). 5 The analysis for specific jurisdiction is as follows:
6 (1) the nonresident defendant must purposefully direct his activities or consummate some transaction with the forum or residents thereof; 7 or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the 8 benefits and protections of its laws; (2) the claim must be one which arises out of or relates to the defendant’s forum-related activities; and 9 (3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable. 10 11 Lake v. Lake, 817 F.2d 1416, 1421 (9th Cir. 1987). Additionally, where Plaintiff has sued both a 12 corporation and its officers, the fiduciary-shield doctrine generally applies. Under that doctrine, 13 “[t]he mere fact that a corporation is subject to local jurisdiction does not necessarily mean its 14 nonresident officers, directors, agents, and employees are suable locally as well.” Colt Studio, Inc. 15 v. Badpuppy Enter., 75 F. Supp. 2d 1104, 1111 (C.D. Cal. 1999) (citing Calder v. Jones, 465 U.S. 16 783, 790 (1984) and Davis v. Metro Prods., Inc., 885 F.2d 515, 521 (9th Cir. 1989)). Indeed, 17 “[f]or jurisdictional purposes, the acts of corporate officers and directors in their official capacities 18 are the acts of the corporation exclusively and are thus not material for purposes of establishing 19 minimum contacts as to the individuals.” Id. But the corporate form may be ignored (1) where 20 the corporation is the agent or alter ego of the individual defendant, Flynt Distrib Co. v. Harvey, 21 734 F.2d 1389, 1393 (9th Cir. 1984), or (2) where a corporate officer or director authorizes, 22 directs, or participates in tortious conduct, Transgo, Inc. v. Ajac Transmission Parts Corp., 768 23 F.2d 1001, 1021 (9th Cir. 1985). 24 Here Plaintiff’s assertion that Defendant Yarbrough is subject to personal jurisdiction in 25 California is based exclusively on his status as a principal of YWS. Plaintiff has failed to allege 26 that Defendant Yarbrough has undertaken any personal contacts with California. Furthermore, 27 Case No.: 5:19-cv-05896-EJD 1 Plaintiff has not alleged any facts suggesting that the Court should ignore the corporate form or 2 that YWS is the alter ego of Defendant Yarbrough. Additionally, Plaintiff does not demonstrate 3 that Defendant Yarbrough was a primary participant in the alleged wrongful activities—separate 4 and apart from his role within YWS—sufficient to support a finding that Defendant Yarbrough 5 should be subject to suit in his personal capacity. Because Plaintiff has not alleged sufficient facts 6 to demonstrate such personal participation, the Court finds that it lacks personal jurisdiction over 7 Defendant Yarbrough. 8 B. Motion to Amend 9 Next, Plaintiff argues that he should be granted leave to file a Second Amended Complaint 10 because an investigation by Plaintiff’s counsel has discovered that a class of individuals employed 11 by YWS suffered the same injury as Plaintiff with regard to being wrongfully misclassified as 12 independent contractors rather than employees. Declaration of Catherine Coughlin (“Coughlin 13 Decl.”) ¶¶ 5-6. Defendants oppose Plaintiff’s motion for leave to amend on the four Foman 14 factors. The Court will address each argument in turn. In addition, the Court will discuss 15 Defendants’ argument that Plaintiff cannot seek leave to amend because of repeated failures to 16 cure deficiencies by previous amendments. See Foman, 371 U.S. at 182. 17 i. Undue Delay and Failure to Cure Deficiencies 18 The Court first considers undue delay and failure to cure complaint deficiencies together 19 since Defendants make the same argument for both. Defendants argue that Plaintiff unduly 20 delayed in seeking amendment when a dispositive motion was pending and because Plaintiff’s 21 proposed Second Amended Complaint fails to cure deficiencies raised in the Court’s Dismissal 22 Order. Opp. Amend at 3-5. However, Defendants misconstrue the Court’s Dismissal Order. The 23 Court denied Defendants’ motion to dismiss Plaintiff’s § 17200 claims, which are the focus of the 24 proposed amendment. Thus, the deficiencies that Defendants reference in their opposition are not 25 of concern to Plaintiff’s motion for leave to amend. Furthermore, Plaintiff correctly highlights 26 that his motion will be determined on the same day as Defendants’ pending motion to dismiss. 27 Case No.: 5:19-cv-05896-EJD 1 Accordingly, the Court finds that Plaintiff has not failed to cure deficiencies or unduly delayed in 2 seeking amendment. 3 ii. Prejudice to the Opposing Party 4 The Court next considers whether granting Plaintiff leave to amend would prejudice 5 Defendants, as prejudice to the opposing party carries the “greatest weight” in the leave to amend 6 inquiry. Eminence Capital, LLC, 316 F.3d at 1052. Prejudice has been found where the “parties 7 have engaged in voluminous and protracted discovery” prior to amendment, or where “[e]xpense, 8 delay, and wear and tear on individuals and companies” is shown. Kaplan v. Rose, 49 F.3d 1363, 9 1370 (9th Cir. 1994); see also Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387–88 (9th Cir. 1990) 10 (prejudice exists where permitting plaintiff to file an amended complaint will lead to “the 11 nullification of prior discovery,” increase ‘the burden of necessary future discovery,” and the 12 “relitigation of a [previously-decided] suit”). 13 Here, Defendants argue that a proposed complaint amendment would be prejudicial when 14 Defendants have already incurred substantial litigation costs in moving to dismiss earlier iterations 15 of the complaint, and would be subjected to further expenditure of time and expense associated 16 with continued litigation to challenge another complaint iteration. Opp. Amend at 3. The record 17 in this case does not indicate that permitting amendment would prejudice Defendants. At the time 18 Plaintiff filed the motion for leave to amend, this case was and still is in the pleading stage, and no 19 discovery has yet occurred. Therefore, this is not a case where the “parties have engaged in 20 voluminous and protracted discovery” prior to amendment. Kaplan, 49 F.3d at 1370. Counsel for 21 Plaintiff also advised Defendants early on in the litigation of the suitability of Plaintiff’s claims 22 under § 17200 for class treatment, and the likelihood that Plaintiff might seek by way of 23 amendment to represent such a class. Coughlin Decl. ¶¶ 6-8. Furthermore, Defendants failed to 24 put forth any argument suggesting that they were surprised by Plaintiff seeking to add a class 25 claim. Cf. Howard Rice Nemerovski Canady Falk & Rabkin v. Total Tech., Inc., No. C 06–0426 26 CW, 2006 WL 2850047, at *4 (N.D. Cal. Oct. 5, 2006) (court may deny motion to amend on 27 Case No.: 5:19-cv-05896-EJD 1 grounds of prejudice where “the party opposing the motion to amend has shown it is surprised by 2 new allegations in the amended pleading that will require more discovery or otherwise delay 3 resolution of the case”) (citing DCD Programs, Ltd., 833 F.2d at 186). For these reasons, the 4 Court finds that granting Plaintiff leave to amend would not prejudice Defendants. 5 iii. Bad Faith 6 In deciding whether to grant a party leave to amend, the district court also considers 7 whether the moving party acted in “bad faith.” Foman, 371 U.S. at 182. Bad faith exists where, 8 inter alia, the proposed amendment “will not save the complaint or the plaintiff merely is seeking 9 to prolong the litigation by adding new but baseless legal theories.” Griggs v. Pace Am. Grp., 10 Inc., 170 F.3d 877, 881 (9th Cir. 1999); DCD Programs, Ltd., 833 F.2d at 187 (bad faith exists 11 where party sought leave to amend “to destroy diversity and to destroy the jurisdiction of this 12 court”) (internal quotation marks omitted). Bad faith may also exist when a party repeatedly 13 represents to the court that the party will not move to amend its complaint, and subsequently 14 moves to amend once “the proverbial writing was on the wall” that the party will suffer an adverse 15 judgment. Trans Video Elec., Ltd. v. Sony Elecs., Inc., 278 F.R.D. 505, 510 (N.D. Cal. 2011) 16 (finding bad faith when plaintiff “expressly reaffirmed to this Court on two separate occasions” 17 that it was bringing one claim in patent infringement case, and only moved to amend to add 18 additional claims when briefing on a motion for summary judgment was complete). 19 Here, Defendants argue that Plaintiff has failed to cooperate toward cost-effective litigation 20 and motion practice because the motion for leave to amend was filed after having already lost a 21 motion to dismiss, after filing an amended complaint, and in an attempt to circumvent Defendants’ 22 pending motion to dismiss. Opp. Amend at 1-2. As discussed above, Plaintiff’s proposed 23 amendment is concerned exclusively with state law claims for alleged violations of § 17200 that 24 the Dismissal Order did not dismiss. In contrast, Defendants’ pending motion to dismiss focuses 25 primarily on Plaintiff’s federal RICO claim and wrongful termination claims against Defendant 26 Yarbrough. The lack of overlap between the two motions does not suggest an attempt by Plaintiff 27 Case No.: 5:19-cv-05896-EJD 1 to circumvent Defendants’ motion to dismiss or an attempt to cure any deficiency presented by 2 Defendants. 3 The case Defendants cites in support of its argument that Plaintiff acted in bad faith is also 4 distinguishable. In Shlacter-Jones v. General Tel. of Cal., the court found bad faith where the 5 plaintiff sought leave to amend after the completion of discovery and while a summary judgement 6 motion was pending. 936 F.2d 435, 444 (9th Cir. 1991). On appeal the Ninth Circuit affirmed, 7 observing that the motivation for amendment appeared to be an attempt to circumvent the pending 8 summary judgment motion. Id. Here, in contrast, Plaintiff sought leave to amend prior to any 9 discovery being conducted and without there being any possibility of the proposed amendment 10 affecting Defendants’ motion to dismiss. Accordingly, the Court finds that the record in this case 11 does not support a strong showing that Plaintiff sought leave to amend in bad faith. 12 iv. Futility of Amendment 13 Finally, a district court may deny a motion for leave to amend where amendment would be 14 futile. Foman, 371 U.S. at 182. “[A] proposed amendment is futile only if no set of facts can be 15 proved under the amendment to the pleadings that would constitute a valid and sufficient claim or 16 defense.” Miller v. Rykoff–Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). The Ninth Circuit has 17 alternatively stated that the test of whether amendment would be futile is “identical to the one used 18 when considering the sufficiency of a pleading challenged under Rule 12(b)(6).” Id. (citing 3 J. 19 Moore, Moore's Federal Practice ¶ 15.08[4] (2d ed. 1974)). 20 Here, Defendants wrongly argue that Plaintiff’s proposed Second Amended Complaint 21 would be futile because Plaintiff is attempting to bring his RICO claim and state law claims for 22 wrongful discharge on behalf of the proposed class without having corrected deficiencies in his 23 previous complaint. Opp. Amend at 3-4. The only claims that Plaintiff proposed for class 24 treatment are his § 17200 claims which were not dismissed by the Court’s Dismissal Order. As 25 such, Defendants have failed to make any viable argument for why Plaintiff’s proposed 26 amendment would be futile. 27 Case No.: 5:19-cv-05896-EJD 1 Furthermore, Plaintiff highlights that the Ninth Circuit has noted the “unremarkable 2 || proposition that often the pleadings alone will not resolve the question of class certification.” 3 Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 942 (9th Cir. 2009). As a corollary, 4 || courts have found it premature for a defendant to challenge class certification through an 5 opposition to a motion for leave to amend. See, e.g., Walintukan v. SBE Entm’t Grp., LLC, Case 6 No. 16-cv-01311-JST, 2017 WL 635278, at *3 (N.D. Cal. Feb. 15, 2017). Defendants have 7 || proffered no reason for the Court to depart from that standard course. The Court declines to do so. 8 For the reasons discussed above, the Court GRANTS Plaintiffs motion for leave to 9 amend. 10 IV. CONCLUSION 11 For the above reasons, The Court GRANTS Defendants’ motion to dismiss for failure to 12 || state a claim and for lack of personal jurisdiction. Plaintiff may file an amended complaint as to g 13 his wrongful termination claims against Defendant Yarbrough. 14 The Court also GRANTS Plaintiff’s motion for leave to amend the complaint. Plaintiff 3 15 may file his proposed Second Amended Complaint in order to bring § 17200 claims on behalf of a 16 || himself and all similarly situated YWS employees.
17 Plaintiff shall file his amended complaint by November 4, 2020. Plaintiff may not add 18 new claims or parties without leave of the Court or stipulation by the Parties pursuant to Federal 19 || Rule of Civil Procedure 15. 20 IT IS SO ORDERED. 21 Dated: October 14, 2020 22 EDWARD J. DAVILA 23 United States District Judge 24 25 26 Case No.: 5:19-cv-05896-EJD 28 || ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS; GRANTING PLAINTIFF’S MOTION FOR LEAVE TO AMEND _