Aliff v. Vervent, Inc.

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 HEATHER TURREY, et al., Case No.: 20-cv-00697-DMS-AHG

12 Plaintiffs, ORDER (1) DENYING PLAINTIFFS’ 13 v. MOTION TO AMEND THE SECOND AMENDED COMPLAINT; (2) 14 VERVENT, INC., et al., GRANTING DEFENDANTS’ 15 Defendants. MOTION FOR JUDGMENT ON THE PLEADINGS; AND (3) DISMISSING 16 PLAINTIFFS’ UCL CLAIM 17 18 Presently before the Court, following a two week class action jury trial, is Plaintiffs’ 19 request for equitable relief under California’s Unfair Competition Law, Cal. Bus. & Prof. 20 Code § 17200, et seq. (“UCL”). Because the UCL provides for equitable relief only, 21 Plaintiffs were not entitled to trial by jury on that claim and the parties agreed the claim 22 would be tried to the Court following the jury trial. The parties also agreed that no 23 additional evidence would be necessary on the UCL claim and the Court could rule on the 24 claim based upon the same evidence that was presented at the jury trial. Accordingly, the 25 UCL claim was scheduled for bench trial following the jury trial, and the parties submitted 26 additional briefing on the claim in light of the evidence presented to the jury. Plaintiffs 27 also moved to amend their Second Amended Complaint (“SAC”) under Fed. R. Civ. P. 28 15(b)(2) to allege restitution under the UCL in the amount of $51,509,051 on behalf of a 1 nationwide class. Defendants move for judgment on the pleadings under Fed. R. Civ. P. 2 12(c) and seek dismissal of the UCL claim principally on grounds that Plaintiffs had an 3 adequate remedy at law on the claims tried to the jury, thus divesting this Court of equitable 4 jurisdiction over the UCL claim. These matters have been fully briefed and argued. For 5 the reasons stated below, the Court denies leave to amend, grants Defendants’ judgment 6 on the pleadings, and dismisses without prejudice Plaintiffs’ UCL claim for lack of 7 equitable jurisdiction. 8 I. 9 BACKGROUND AND FACTS 10 The full factual background of this case is summarized in prior orders, (see ECF 11 Nos. 128, 140, 151), and need not be repeated. It is necessary, though, to detail the 12 procedural history. 13 Plaintiffs filed this class action lawsuit on April 10, 2020. (See ECF No. 1.) In 14 January 2023, the Court certified five claims for class treatment: Racketeer Influenced and 15 Corrupt Organizations Act (“RICO”), Fair Debt Collection Practices Act (“FDCPA”), 16 Rosenthal Fair Debt Collection Practices Act (“RFDCPA”), UCL, and negligent 17 misrepresentation. (ECF No. 151.) Numerous motions have been filed over the course of 18 the litigation, including among others, motions to dismiss, for class certification (and 19 decertification) and summary judgment, and for judgment as a matter of law following trial 20 by jury. Throughout the litigation, the parties and the Court agreed the equitable UCL 21 claim would be tried to the Court after the jury trial concluded. (See, e.g., Pretrial Order, 22 ECF No. 230 at 15.) 23 The jury heard evidence and argument on the RICO, FDCPA, RFDCPA, and 24 negligent misrepresentation claims. Before submitting the case to the jury, the Court 25 decertified the FDCPA, RFDCPA, and negligent misrepresentation claims. Thus, only the 26 RICO claim went to the jury. On June 22, 2023, the jury returned a verdict in favor of 27 Plaintiffs and against Defendants Vervent, Inc., Activate Financial LLC, and David 28 Johnson, and awarded compensatory damages in the amount of $4 million dollars, which 1 was trebled under RICO for a total recovery of $12 million dollars. (ECF No. 300.) The 2 jury returned a defense verdict in favor of Defendant Laurence Chiavaro only. (Id.) On 3 July 17, 2023, Plaintiffs filed a motion to alter the judgment pursuant to Fed. R. Civ. P. 4 59(e), (ECF No. 313),1 and Defendants subsequently filed an ex parte motion to strike 5 Plaintiffs’ motion to alter the judgment. (ECF No. 319.) The Court denied Defendants’ 6 ex parte motion to strike. The next day, on July 25, 2023, Plaintiffs filed the subject motion 7 to amend the SAC pursuant to Rule 15(b)(2). (ECF No. 322.) In light of these motions, 8 the parties agreed the Court should first address Plaintiffs’ motion to amend. 9 Defendants now move for judgment on the pleadings and dismissal of the UCL claim 10 pursuant to Rules 12(c), 12(h)(2), and 50(a) principally on grounds that the Court lacks 11 equitable jurisdiction because Plaintiffs had (and actually received) an adequate legal 12 remedy under RICO. The Court elects to address Plaintiffs’ motion to amend in tandem 13 with Defendants’ motion under Rule 12(c), and agrees with Defendants that the equitable 14 UCL claim is barred and therefore any amendment to the SAC would be futile. 15 II. 16 LEGAL STANDARD 17 A. Leave to Amend 18 A party may move, at any time, to amend the pleadings to conform to the evidence 19 and to raise an unpleaded issue. Fed. R. Civ. P. 15(b)(2). “When an issue not raised by 20 the pleadings is tried by the parties’ express or implied consent, it must be treated in all 21 respects as if raised in the pleadings.” Id. “[T]he purpose of pleading amendments under 22 . . . Federal Rule 15(b) is to align the pleadings to conform to issues actually tried.” Consol. 23 Data Terminals v. Applied Digital Data Sys., Inc., 708 F.2d 385, 396 (9th Cir. 1983) 24 (internal quotation marks omitted). But “[w]here evidence alleged to have shown implied 25 consent was also relevant to the other issues at trial, it cannot be used to imply consent to 26 27 28 1 try the unpleaded issue.” In re Acequia, Inc., 34 F.3d 800, 814 (9th Cir. 1994) (citations 2 and quotations omitted). 3 When determining whether to grant leave to amend, courts generally consider 4 “undue delay, bad faith or dilatory motive on the part of the movant,” undue prejudice to 5 the non-moving party, “futility of amendment,” and “repeated failure to cure deficiencies 6 by amendments previously allowed.” Foman v. Davis, 371 U.S. 178, 182 (1962). See also 7 Madeja v. Olympic Packers, LLC, 310 F.3d 628, 636 (9th Cir. 2002) (applying Foman 8 factors in review of district court denial for leave to amend under Rule 15(b)(2)). 9 B. Judgment on the Pleadings 10 A party may file a motion for judgment on the pleadings after that party files an 11 answer. Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings pursuant to Rule 12 12(c) is functionally identical to a Rule 12(b)(6) motion and “the same standard of review 13 applies to motions brought under either rule.” Gregg v. Haw. Dep't of Pub. Safety, 870 14 F.3d 883, 887 (9th Cir. 2017) (quotation omitted). “Judgment on the pleadings is proper 15 when the moving party clearly establishes on the face of the pleadings that no material 16 issue of fact remains to be resolved and that it is entitled to judgment as a matter of law.” 17 Hal Roach Studios v. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir. 1989). 18 III. 19 DISCUSSION 20 As noted, Plaintiffs move to amend their UCL claim to allege restitution in the 21 amount of $51,509,051 on behalf of a nationwide class. “A motion to amend pursuant to 22 Rule 15(b)(2) may properly be denied, however, when amendment would be futile.” 23 Sparta Com. Servs., Inc. v. DZ Bank, 680 F. App’x 17, 19 (2d Cir. 2017); see also DeSoto 24 v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (stating “[a] district court 25 does not err in denying leave to amend where the amendment would be futile.”) A 26 proposed amendment is futile “if no set of facts can be proved under the amendment to the 27 pleadings that would constitute a valid and sufficient claim or defense.” Miller v. Rykoff- 28 Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988), implied overruling on other grounds rec'd 1 by Ashcroft v. Iqbal, 556 U.S. 662 (2009) (holding proposed amended complaint futile if it 2 would be immediately subject to dismissal). 3 Although “[e]quitable jurisdiction is distinct from subject matter jurisdiction … both 4 are required for a federal court to hear the merits of an equitable claim.” Guzman v. Polaris 5 Industries, Inc., 49 F.4th 1308, 1314 (9th Cir. 2022). “Where monetary damages provide 6 an adequate remedy, a federal court may not consider the merits of equitable claims for 7 restitution, disgorgement, or injunctive relief.” Hall v. Marriott Int'l, Inc., --- F.R.D. ---, 8 No. 19CV1715-JO-AHG, 2023 WL 4417265, at *5 (S.D. Cal. Mar. 30, 2023) (citing 9 Sonner v. Premier Nutruition Corp., 971 F.3d 834, 842 (9th Cir. 2020)). Because the “UCL 10 provides only for equitable remedies,” Guzman, 49 F.4th at 1313, these remedies are not 11 available when a plaintiff has an adequate legal remedy. Id. at 1312 (stating “[w]e held 12 that under this federal inadequate-remedy-at-law principle, if the plaintiffs had an adequate 13 legal remedy under the CLRA, they could not also maintain equitable claims under the 14 UCL and CLRA in federal court.”) (citing Sonner, 971 F.3d at 844). Thus, “Plaintiffs bear 15 the burden to establish they lack an adequate damages remedy before they can obtain 16 equitable relief.” Hall, 2023 WL 4417265, at *5. 17 Here, Plaintiffs’ desire to amend the SAC is doomed by Ninth Circuit law. In 18 Sonner, the Ninth Circuit held that “federal courts must apply equitable principles derived 19 from federal common law to claims for equitable restitution under California’s [UCL] and 20 Consumer Legal Remedies Act (“CLRA”)[, Cal. Civ. Code § 17500, et seq.],” including 21 “the principle precluding courts from awarding equitable relief when an adequate legal 22 remedy exists.” 971 F.3d at 837, 842. The plaintiff in Sonner brought claims for equitable 23 relief under the UCL and CLRA and for damages under the CLRA, but later strategically 24 dismissed her CLRA damages claim to avoid a jury trial. Id. at 837–38. The trial court 25 thereafter granted defendant’s motion to dismiss the remaining equitable claims on grounds 26 that the plaintiff had an adequate legal remedy which precluded equitable restitution. Id. 27 The Ninth Circuit agreed, and affirmed the district court’s dismissal of the plaintiff’s 28 equitable UCL and CLRA claims. Id. at 845 (holding that since the plaintiff had an 1 adequate legal remedy under the CLRA, she could not also maintain equitable claims under 2 the UCL and CLRA in federal court). 3 Similarly, in Guzman, the Ninth Circuit affirmed dismissal of an equitable UCL 4 claim because the plaintiff had an adequate legal remedy under the CLRA, even though the 5 “CLRA claim for damages had been dismissed as time-barred.” 49 F.4th at 1311. The 6 trial court explained that “a plaintiff’s failure to timely comply with the requirements to 7 obtain a remedy at law does not make the remedy inadequate, so as to require the district 8 court to exercise its equitable jurisdiction.” Id. (citing United States v. Elias, 721 F.2d 870, 9 874–75 (9th Cir. 1990)). Guzman stated definitively: 10 Reading Sonner and Elias together, we conclude that [the plaintiff] had an adequate remedy at law through his CLRA claim for damages, even though 11 he could no longer pursue it, and that the district court was therefore required 12 to dismiss his equitable UCL claim. 13 Id. at 1312. So it is here. 14 Notably silent from Plaintiffs’ briefing is any appreciable discussion of Sonner and 15 Guzman. Read together, Sonner and Guzman foreclose Plaintiffs’ right to recover under 16 the UCL because Plaintiffs had an adequate legal remedy (damages) under RICO.2 17 Plaintiffs ignore that they had a legal remedy under RICO, i.e., the potential to recovery 18 more than $51 million in damages, and instead argue that the amount awarded by the jury 19 rendered the remedy inadequate. Specifically, Plaintiffs argue the damages they received 20 are inadequate because the jury effectively awarded only disgorgement of Defendants’ 21 22 23 2 Plaintiffs also had adequate legal remedies (damages) under their FDCPA, RFDCPA and negligent misrepresentation claims. Though those claims were decertified by the Court for class treatment and 24 Plaintiffs subsequently dismissed their individual damages claims under those statutes and that common 25 law theory, Plaintiffs are precluded from pursuing equitable relief under the UCL because they had available adequate legal remedies even though they elected to dismiss them at trial. See Sonner, 971 F.3d 26 at 845 (affirming dismissal of the plaintiff’s equitable claims under the UCL and CLRA after she voluntarily dismissed her CLRA damages claim on the eve of trial). See also Guzman, 49 F.4th at 1312 27 (stating “if the plaintiffs had an adequate legal remedy … they could not also maintain equitable claims under the UCL … in federal court[,]” even where the legal remedy was time-barred and could not be 28 1 profits, which “does not return them to the status quo.” (Pls. Add. UCL Mem. at 8, ECF 2 No. 334.) They argue that “[t]he amount of money earned by Defendant as profits from 3 the conspiracy—which disgorgement compensates—and the amount of money paid by 4 Class members to the conspiracy—which restitution under the UCL compensates—are 5 distinct factually and legally.” (Pls. Resp. UCL Mem. at 6, ECF No. 336.) (See also id. 6 (stating “[t]he jury awarded the Class an amount reflecting disgorgement of Defendants’ 7 profits ($4 million), instead of the stipulated sum of PEAKS loan payments lost by the 8 Class ($51.5 million).”) 9 Following Plaintiffs’ theory to its logical end would emasculate the holdings of 10 Sonner and Guzman. “It would be anomalous for Sonner’s rule to be avoidable merely 11 because of the reality that claims for restitution and damages often will result in different 12 recoveries.” Ketayi v. Health Enrollment Grp., No. 20-cv-1198-GPC-KSC, 2021 WL 13 2864481, at *10 (S.D. Cal. July 8, 2021). Thus, an adequate legal remedy is not rendered 14 inadequate simply because it might provide relief different from an alternative equitable 15 remedy. See id. To be sure, disgorgement, restitution, and damages are distinct forms of 16 recovery, but that distinction is irrelevant for purposes of determining equitable 17 jurisdiction.3 The existence of an adequate legal remedy is what deprives a federal court 18 of jurisdiction to address an alternative equitable claim. 19 Here, Plaintiffs seek the same amount of recovery, $51,509,051, based on the same 20 facts and harm under two distinct theories: damages under RICO, and restitution under the 21 UCL. (See Pls. Proposed Third Amended Complaint ¶ 193, ECF No. 322-2.) The same 22 was true in Sonner, where the plaintiff sought “the same sum in equitable restitution as a 23 full refund of the purchase price … as she requested in damages to compensate her for the 24

25 26 3 Plaintiffs’ characterization of the jury’s award as “disgorgement,” which is an equitable remedy, is also inaccurate as Plaintiffs sought damages under RICO and the jury was so instructed. (ECF No. 304; Jury 27 Inst. No. 20 (stating “[t]he relevant period of time for you to consider any RICO damages is from April 10, 2016 to September 2020. The parties have stipulated that the class members paid Defendants 28 1 same past harm.” 971 F.3d at 844. As discussed, the Ninth Circuit determined that because 2 the plaintiff failed to explain how the ability to pursue “the same amount of money for the 3 same exact harm is inadequate or incomplete,” she failed to establish that she lacked an 4 adequate remedy at law. Id. Thus, while Plaintiffs desire to recoup “restitution” through 5 the UCL what the jury did not award under RICO in damages, the Court lacks jurisdiction 6 to hear the merits of the UCL claim because Plainitffs had an adequate legal remedy under 7 RICO. 8 To avoid this result, Plaintiffs argue judicial estoppel should prevent Defendants 9 from challenging the Court’s equitable jurisdiction. (See Pls. Add. Mem. at 11–12, ECF 10 No. 334.) “Judicial estoppel is an equitable doctrine that precludes a party from gaining 11 an advantage by asserting one position, and then later seeking an advantage by taking a 12 clearly inconsistent position.” Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 13 (9th Cir. 2001) (emphasis omitted). A court may invoke “judicial estoppel not only to 14 prevent a party from gaining an advantage by taking inconsistent positions, but also 15 because of ‘general consideration[s] of the orderly administration of justice and regard for 16 the dignity of judicial proceedings,’ and to ‘protect against a litigant playing fast and loose 17 with the courts.’” Id. (quoting Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990)). 18 Plaintiffs argue that by objecting to the Court’s equitable jurisdiction, Defendants 19 are taking a “clearly inconsistent” position from earlier in the litigation. Plaintiffs note that 20 Defendants could have challenged Plaintiffs UCL claim early on through a Rule 12(b)(6) 21 motion, but they did not, and that Defendants also “agreed” that the Court would address 22 the UCL claim after the jury trial. Plaintiffs argue that even if this Court does not invoke 23 judicial estoppel, Defendants waived any objection to the Court’s equitable jurisdiction. 24 Defendants argue that they did not waive any of their rights with respect to the UCL claim, 25 and that they were simply responding to what Plaintiffs set in place through their own 26 pleadings. Specifically, Defendants point out that Plaintiffs alleged in their SAC that “only 27 in the event RICO damages are not granted [], the California members of the RICO Class 28 are entitled to restitution in the amount of their portion of the $[51] million in loan 1 payments made by the RICO Class, pursuant to the UCL.” (SAC ¶ 193 (emphasis added).) 2 Defendants contend that once Plaintiffs were awarded damages by the jury under RICO, 3 they objected to equitable jurisdiction. 4 While Defendants could have challenged the UCL claim early on through a motion 5 to dismiss under Rule 12(b)(6), the Court declines to fault them for not doing so in light of 6 Plaintiffs’ pleadings in which they expressly conditioned UCL relief on their RICO claim. 7 Defendants are not asserting an inconsistent position, but rather asserting a viable 8 jurisdictional defense now that Plaintiffs are attempting to pursue a claim they alleged they 9 would not pursue under the present circumstances. Accordingly, an “unfair detriment” to 10 Plaintiffs has not occurred. Therefore, the Court declines Plaintiffs’ invitation to invoke 11 judicial estoppel and preclude Defendants from objecting to equitable jurisdiction. 12 Plaintiffs also argue that Defendants expressly consented to the Court trying the 13 UCL claim following the jury trial, and thus implicitly waived any objection to equitable 14 jurisdiction. Plaintiffs contend Defendants participated in the jury trial and then submitted 15 merits briefing on the bench trial of the UCL claim, which indicates acquiescence to 16 equitable jurisdiction. The Court finds Defendants did not explicitly or implicitly consent 17 to equitable jurisdiction, particularly because Plaintiffs pled the UCL claim as an 18 alternative form of relief. 19 While Defendants certainly could have raised this objection sooner, their failure to 20 do so does not constitute waiver. Equitable jurisdiction may be waived when a defendant 21 “expressly consented to action by the court or has failed to object seasonably.” Pusey & 22 Jones Co. v. Hanssen, 261 U.S. 491, 500–01 (1923). An objection to equitable jurisdiction, 23 “need not always be raised by some pleading, but may be presented on the hearing even in 24 the appellate court.” Southern Pac. R. Co. v. U.S., 200 U.S. 341, 349 (1906). 25 Plaintiffs argue this case has progressed well beyond those cited by Defendants, 26 where courts found no waiver. See Sonner, 971 F.3d at 830 (objection to equitable 27 jurisdiction not waived though case was on the eve of trial and well after motion practice 28 and discovery closed); Clevenger v. Welch Foods, Inc., No. SACV 20-01859, 2022 WL 1 || 18228288, at *7 (C.D. Cal. Dec. 14, 2022) (declining to find waiver where case “recently 2 ||moved past the class certification stage”); Utne, 2022 WL 1443339, at *4 (finding no 3 || waiver when objection to equitable jurisdiction was raised at summary judgment). 4 || However, unlike those cases, Plaintiffs plead in the alternative and requested equitable 5 relief “only in the event RICO damages are not granted[.]’4 (SAC 4 193.) Similar to 6 || Sonner, Defendants here raised their objection to equitable jurisdiction on the eve of the 7 UCL trial. Defendants belated objection under the circumstances is not a waiver of the 8 ||jurisdictional argument. The Court therefore finds Defendants “seasonably” objected to 9 || the Court’s equitable jurisdiction. 10 With no equitable jurisdiction, Defendants have established that on the face of the 11 ||SAC, there is no issue of material fact as to the UCL claim and Defendants are entitled to 12 ||judgment as a matter of law. IT IS HEREBY ORDERED that Plaintiff's UCL claim is 13 dismissed without prejudice. See Guzman, 49 F.4th at 1314 (stating “a jurisdictional 14 || dismissal is necessarily without prejudice because the court does not reach the merits of 15 claims.”). IT IS FURTHER ORDERED that this matter be set for a telephonic status 16 ||conference on Friday, October 13, 2023, at 1:30 p.m. 17 IT IS SO ORDERED. 18 Dated: September 28, 2023 , rn YY. 19 Hon. Dana M. Sabraw, Chief Judge 0 United States District Court 21 22 23 24

26 || 4 Plaintiffs filed their Complaint in April 2020, weeks before Sonner was decided in June 2020. The SAC was filed the day after Guzman was decided. While Defendants could have challenged the UCL claim 27 || based on Plaintiffs’ iterations of their Complaint, the Court declines to fault them for failing do so in light 3g the developing case law, and Plaintiffs’ SAC which expressly conditioned equitable relief under the UCL on absence of a damages award under RICO. 11