1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 KIMBLY ARNOLD and BYRON No. 1:20-cv-00189-NONE-EPG ARNOLD, 12 FINDINGS AND RECOMMENDATIONS, Plaintiffs, RECOMMENDING THAT DEFENDANT’S 13 MOTION TO DISMISS BE GRANTED AND v. RECOMMENDING THAT UNSERVED 14 DEFENDANTS BE DISMISSED SUA LOANCARE, LLC, et al., SPONTE 15 Defendants. (ECF No. 18) 16 ORDER DENYING PLAINTIFF’S MOTION 17 TO DISQUALIFY COUNSEL 18 (ECF No. 29) 19 Plaintiffs Kimbly Arnold and Byron Arnold (“Plaintiffs”) filed a complaint against 20 Defendant Loancare, LLC a/k/a Lakeview Loan Service, LLC (“Loancare”) and two Doe 21 Defendants in the Superior Court of California, County of Stanislaus on December 31, 2019. 22 (ECF No. 1-2 at 2). The complaint alleges that Defendants, who were Plaintiffs’ creditors, 23 misstated the amount remaining on Plaintiffs’ loans. Loancare removed the action to this Court on 24 February 6, 2020 for federal question and diversity jurisdiction. (ECF No. 1). 25 Loancare initially filed a motion to dismiss on February 12, 2020. (ECF No. 3). The 26 District Judge granted the motion and granted leave to amend on April 7, 2020. (ECF No. 13). In 27 doing so, the Court noted that “If plaintiffs are unsuccessful in curing the defects identified above 28 1 in any amended complaint they elect to file, the court may well conclude that the granting of 2 further leave to amend would be futile.” (ECF No. 13 at p. 6). 3 On April 27, 2020, Plaintiffs filed a first amended complaint (“FAC”) against Defendants 4 Loancare; Does 1-2; Sterns Lending; Loancare employees Carin White and Tere Childers; and 5 Law Firm Malcom * Cisneros. According to the docket, only Loancare has been served. 6 On June 4, 2020, Loancare filed a second motion to dismiss the FAC. (ECF No. 18). 7 Plaintiffs filed an opposition on June 22, 2020, (ECF No. 21), and Loancare filed a reply on July 8 2, 2020, (ECF No. 22). On November 6, 2020, Plaintiffs filed a motion to disqualify Loancare’s 9 counsel and several filings in support of their motion. (ECF Nos. 28-31). No opposition to the 10 motion to disqualify has been filed. On December 4, 2020, District Judge Drozd referred the 11 motion to dismiss and motion to disqualify to the undersigned “for the preparation of findings and 12 recommendations and/or other appropriate action,” (ECF No. 32). 13 For the reasons that follow, the Court recommends granting Loancare’s motion to dismiss 14 and dismissing the FAC without leave to amend. The Court further recommends dismissing the 15 unserved Defendants in this case sua sponte. Finally, the Court denies Plaintiffs’ motion to 16 disqualify. 17 I. SUMMARY OF ALLEGATIONS 18 The FAC alleges as follows: 19 Plaintiffs received a federally funded mortgage from Defendant Stearns Lending in 20 October 2015. Plaintiffs were to pay $1,388.87 per month on the loan, which had a principal 21 amount of $195,126.56. Plaintiffs fell six months behind on their payments and on May 10 or 16, 22 2016, Loancare sent Plaintiffs a statement indicating that they now serviced Plaintiffs’ loan. That 23 statement demanded $9,964.29. In addition, Loancare indicated that Plaintiff had a surplus in 24 escrow of $1,521.17, which Loancare retained due to Plaintiffs’ delinquency. 25 On or about June 16, 2016, Plaintiffs contacted Andrew Moher, a bankruptcy attorney, in 26 connection with Loancare’s statement that Plaintiffs “owed $10,469.18 including the defendant 27 attorney fee $427.50 and $480.00 $12,277.66 including deficiency of $17.00 ‘Attorney Assessed 28 Fees’. In which the defendant owed the plaintiff a surplus amount of $960.58 at this time.” (ECF 1 No. 17 at 3). The FAC cites to Exhibit C, which is not relevant. (See id. at 21). Exhibit B appears 2 to be a document from Plaintiffs’ bankruptcy case and shows several costs and fees for attorneys. 3 (Id. at 19). 4 Plaintiffs next allege that Loancare owed them $2,164.10. “On or around June, Loancare 5 added the plaintiff Attorney Andrew Moher onto the Plaintiff Monthly Statement, Deeds and as 6 Second lien hold while relying on the defendant Loancare not to mislead, conspire to commit 7 fraud against the plaintiff in any form.” (Id. at 3). Plaintiff cites to Exhibit E, which appears to be 8 the Chapter 13 Standing Trustee’s Final Report and Account from Plaintiffs’ bankruptcy case in 9 this district, case number 16-90571. The exhibit, dated January 3, 2018, shows a list of Plaintiffs’ 10 creditors. Loancare is listed, and it appears to show Plaintiffs owed Loancare $9,793.18 at the 11 time. It also showed that Loancare asserted a claim against Plaintiffs for $18,055.31, which the 12 trustee allowed and had been paid in full. It does not list Moher as a creditor. (Id. at 27). 13 “On or about June, the defendant LoanCare first submitted False and Misleading claims to 14 the United States Court claiming (1) Loancare was owed $18,0555.31 [sic]” for an ongoing 15 mortgage payment and $9,793.18 in arrearage after retaining an escrow surplus amount from 16 Plaintiffs. 17 Plaintiffs allege that they made a number of payments before and during their bankruptcy 18 proceedings and during the pendency of their bankruptcy proceeding. Beginning with the 19 dismissal of Plaintiffs’ bankruptcy in August 2017, Plaintiffs began making monthly payments to 20 “the defendant,” “keeping the loan current and up-to date.” (ECF No. 17 at 4-5). But on January 21 16, 2018, Loancare sent a statement to Plaintiffs, demanding a payment of “$16,825.98 on unpaid 22 principal balance of $190[,]875.21 after receiv[ing] a total amount of $36,430.16 in payments 23 from May 2016 to December 2017[.]” Plaintiffs allege that this statement was false and 24 misleading. 25 Plaintiffs filed a complaint with the Department of Business Oversight “and there was no 26 money due to the defendant to initiating foreclosure proceed in written correspondence from 27 defendant Tere Chiders ‘was $9,793.18’.” Plaintiff cites to Exhibit J of the FAC, which is 28 correspondence from Loancare employees, Defendants Tere Childers and Carin White. 1 The attached correspondence from Chiders and White indicates that Loancare began its 2 foreclosure proceedings before Plaintiffs filed for bankruptcy. When they filed for bankruptcy, 3 the past-due balance on their mortgage “was $9,793.18.” (Id. at 40). After their bankruptcy case 4 was dismissed, Plaintiffs were subject to the initial due date of their loan, rendering Plaintiffs in 5 default. Foreclosure proceedings resumed. (ECF No. 17 at 40-42). 6 Plaintiff also attaches a letter dated January 3, 2018 from Loancare, offering Plaintiffs an 7 opportunity to enter a Trial Payment Plan (TPP) for a mortgage modification. 8 Counts I-IV of the FAC allege violations of the False Claims Act. 9 Claim V alleges violations of the “Homeowner Bill of Rights & HAMP, SB 1137: 10 Negligent Misrepresentation and Breach of Duty of Care[] for inaccurately crediting the 11 borrower’s mortgage payments and for inaccurately providing reinstatement amount both to the 12 plaintiff and the Government for reimbursement.” (Id. at 10). 13 Count VI alleges “Violation of Homeowner Bill of Rights Fraud and Unfair Claim,” and 14 that Loancare “sent misleading monthly statement and payment amounts to FHA” which violated 15 “the truth and lending regulation . . . and/or . . . Homeowner Bill of Rights act,” and violated 16 Plaintiffs’ Fourteenth Amendment rights. (Id. at 11). 17 II. PREVIOUS MOTION TO DISMISS 18 This is the second motion to dismiss in this case. Loancare filed the first motion to dismiss 19 on February 12, 2020. (ECF No. 3). Loancare argued that the original complaint violated Federal 20 Rule of Civil Procedure 8, that certain claims failed to state a claim, and that Plaintiffs violated 21 Federal Rule of Civil Procedure 9 by failing to allege fraud with particularity. (Id.). 22 The Court granted Loancare’s motion to dismiss on April 7, 2020. (ECF No. 13). The 23 Court found that Plaintiffs failed to plead fraud with particularity under Rule 9. (Id.). In addition, 24 the Court noted that Plaintiffs “allege that defendant ‘defrauded [the] Federal Housing 25 Administration’ and submitted false claim to the Federal Housing Administration, (Doc. No. 1, 26 Ex. B at ¶¶ 13, 15), a claim plaintiffs do not appear to have standing to bring. See Spokeo, Inc. v. 27 Robins, 136 S. Ct. 1540, 1548 (2016) (holding that Article III of the Constitution requires the 28 plaintiff to allege a ‘particularized’ injury that affected him ‘in a personal and individual way’).” 1 (Id. at 4-5). 2 The Court granted leave to amend as it was Plaintiffs’ first complaint. (Id. at 6). However, 3 the Court cautioned Plaintiffs that “[i]f plaintiffs are unsuccessful in curing the defects identified 4 above in any amended complaint they elect to file, the court may well conclude that the granting 5 of further leave to amend would be futile.” (Id. at 6 n.2). 6 III. SUMMARY OF ARGUMENTS 7 Loancare moves to dismiss this action on three bases. First, Loancare argues that the FAC 8 does not meet the requirement in Federal Rule of Civil Procedure 8 for a short and plain 9 statement. (ECF No. 18 at 5). Second, Loancare argues that Plaintiffs lack standing under the 10 False Claims Act because they did not file the suit as relators, and, as such, lack standing to bring 11 their first four claims. (Id.). Finally, Loancare argues that Plaintiffs did not plead fraud with 12 particularity under Rule 9(b) for the fifth and sixth claims. 13 Plaintiffs argue that the FAC puts Loancare on notice for the allegations against it. They 14 argue their False Claims Act claims may proceed under the basic principles of fundamental 15 fairness under the Fifth Amendment. Finally, Plaintiffs argue that Rule 9(b) does not apply to 16 their fifth and sixth claims because they are not pleading fraud. 17 IV. LEGAL STANDARDS 18 In considering a motion to dismiss, the Court must accept all allegations of material fact in 19 the complaint as true. Erickson v. Pardus, 551 U.S. 89, 93–94 (2007); Hosp. Bldg. Co. v. Rex 20 Hosp. Trustees, 425 U.S. 738, 740 (1976). The Court must also construe the alleged facts in the 21 light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), abrogated on 22 other grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982); Barnett v. Centoni, 31 F.3d 813, 23 816 (9th Cir.1994) (per curiam). All ambiguities or doubts must also be resolved in the plaintiff’s 24 favor. See Jenkins v. McKeithen, 395 U.S. 411, 421 (1969). In addition, pro se pleadings “must 25 be held to less stringent standards than formal pleadings drafted by lawyers.” Hebbe v. Pliler, 26 627 F.3d 338, 342 (9th Cir. 2010) (holding that pro se complaints should continue to be liberally 27 construed after Ashcroft v. Iqbal, 556 U.S. 662 (2009)). 28 A motion to dismiss pursuant to Rule 12(b)(6) operates to test the sufficiency of the 1 complaint. See Iqbal, 556 U.S. at 679. “Federal Rule of Civil Procedure 8(a)(2) requires only ‘a 2 short and plain statement of the claim showing that the pleader is entitled to relief,’ in order to 3 ‘give the defendant fair notice of what the ... claim is and the grounds upon which it rests.’” Bell 4 Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (quoting Conley v. 5 Gibson, 355 U.S. 41, 47 (1957)). “The issue is not whether a plaintiff will ultimately prevail but 6 whether the claimant is entitled to offer evidence to support the claims.” Scheuer, 416 U.S. at 7 236 (1974). 8 The first step in testing the sufficiency of the complaint is to identify any conclusory 9 allegations. Iqbal, 556 U.S. at 679. “Threadbare recitals of the elements of a cause of action, 10 supported by mere conclusory statements, do not suffice.” Id. at 678 (citing Twombly, 550 U.S. 11 at 555). “[A] plaintiff’s obligation to provide the grounds of his entitlement to relief requires 12 more than labels and conclusions, and a formulaic recitation of the elements of a cause of action 13 will not do.” Twombly, 550 U.S. at 555 (citations and quotation marks omitted). 14 After assuming the veracity of all well-pleaded factual allegations, the second step is for 15 the court to determine whether the complaint pleads “a claim to relief that is plausible on its 16 face.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556) (rejecting the traditional 12(b)(6) 17 standard set forth in Conley, 355 U.S. at 45-46). A claim is facially plausible when the plaintiff 18 “pleads factual content that allows the court to draw the reasonable inference that the defendant is 19 liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). The standard 20 for plausibility is not akin to a “probability requirement,” but it requires “more than a sheer 21 possibility that a defendant has acted unlawfully.” Id. 22 V. DISCUSSION 23 A. Motion to Dismiss 24 1. Federal Rule of Civil Procedure 8 25 Rule 8(a) of the Federal Rules of Civil Procedure requires a complaint to contain “a short 26 and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 27 8(a)(2). “Each allegation must be simple, concise, and direct.” Id. 8(d)(1). The rule “applies to 28 good claims as well as bad, and is a basis for dismissal independent of Rule 12(b)(6). McHenry v. 1 Renne, 84 F.3d 1172, 1179 (9th Cir. 1996). 2 Although a complaint is not required to include detailed factual allegations, it must set 3 forth “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its 4 face.’” Iqbal, 556 U.S. at 678. 5 “While ‘the proper length and level of clarity for a pleading cannot be defined with any 6 great precision’ Rule 8(a) has ‘been held to be violated by a pleading that was needlessly long, or 7 a complaint that was highly repetitious, or confused, or consisted of incomprehensible 8 rambling.’” Cafasso, United States ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1059 9 (9th Cir. 2011) (quoting 5 Charles A. Wright & Arthur R. Miller, Federal Practice & 10 Procedure § 1217 (3d ed. 2010)). 11 Defendant argues that the FAC fails to comply with Federal Rule of Civil Procedure 8 12 because “the facts are absent and the claims incomprehensible.” (ECF No. 18 at 5). 13 The Court agrees. The allegations are very difficult to understand and do not set forth a 14 short and plain statement of the claim showing that the pleader is entitled to relief. Plaintiffs 15 allege they were current on their federally insured mortgage after their bankruptcy case was 16 dismissed. Then they were sent a statement on January 16, 2018 that indicated they needed to pay 17 $16,825.98. (ECF No. 17 at 5). After setting forth those allegations, the FAC becomes 18 particularly unclear. Although Plaintiffs attach some correspondence and various financial bills 19 and statements, it is difficult to know how the attachments relate to their claims. Beginning 20 halfway through paragraph 22 on page 5 of the FAC, the allegations become a jumble of dollar 21 amounts and dates. The last date discussed in the FAC is February 1, 2018. 22 With respect to the False Claims Act (“FCA”) claims—Claims I-IV—Plaintiffs contend 23 that their loans were federally insured, that Defendants misstated the amount Plaintiffs owed, and 24 that Defendants submitted false claims to the government. However, the allegations do not 25 amount to a short and plain statement. Some are conclusory. (See, e.g., ECF No. 17 at 3, 5). 26 Others are difficult to comprehend. The following three consecutive paragraphs are illustrative:
27 24. The defendant Carin White concluded that the misleading claim for 28 $16,991.98 will be figured into the February 1, 2018 approved modification plan 1 forcing the plaintiff and the government to pay on the false claim.
2 25. The Plaintiff alleges as homeowner the defendant LoanCare, Lakeview, Sterns and two employee (1) Tere Childers and Carin Whit y is liable to the Government 3 under the False Claim Act (“FCA”) 31 U.S.C §§3729 for submitting false claims; 4 material documents to the Government in a written agreement for payment $17,373.00; the plaintiff claim was not owed to the defendant on the behalf of the 5 plaintiff.
6 26. The plaintiff claims the defendant attorney or law firm Malcolm * Cisneros 7 personally is also liable for acts under 31 U.S.C. § 3729(A)(l)(D),(E) (G) knowingly received money by the Government by authorizing documents to 8 intending to defraud the Government without completely knowing the information on the written document is true or knowingly caused false record or 9 statement material to obligate the Government to pay the money .
10 (Id. at 5-6) (as in original). 11 That is not a short and plain statement for Claims I-IV. The FAC is difficult to follow the 12 amounts and dates alleged. There are few details beyond conclusory accusations that any claims 13 were submitted to the government. The role of the law firm is not spelled out. These failures 14 violate Rule 8. 15 Claims V and VI are similarly incomprehensible. The latest date listed in the body of the 16 FAC is February 1, 2018. (Id. at 5) (alleging that Defendant White “concluded that the misleading 17 claim for $16,991.98 will be figured into the February 1, 2018 approved modification plan 18 forcing the plaintiff and the government to pay on the false claim”). However, under the heading 19 Claim V, Plaintiffs provide later dates (May 10, 2018 and “12/20219 [sic]”) and a different dollar 20 amount ($18,055.31). (Id. at 10). 21 Claim VI suffers from related problems. Under the heading “Violation of Homeowner Bill 22 of Rights Fraud and Unfair Claim,” it states: 23
24 By doing the acts described above in Paragraph 11 to 48 the defendant(s) Lakeview and LoanCare sent misleading monthly statement and payment 25 amounts to FHA including misappropriating escrow funds violating the truth and lending regulation causing the defendants and their attorney to be unjustly 26 enriched by the federal insured fund attach to the mortgage loan caused and/or violate Homeowner Bill of Rights act and or permitted the violation of Plaintiff’s 27 rights not to deprive the plaintiff from their property with due process of the 28 Fourteenth Amendment, thereby entitling Plaintiff to recover damages pursuant to 1 42 U.S.C. § 1983.
2 (ECF No. 17 at 10-11). Because “the acts described above in Paragraph 11 to 48” are largely 3 incomprehensible, Plaintiffs’ Claim VI also violates Rule 8. 4 Therefore, the Court will recommend granting Loancare’s motion to dismiss for 5 noncompliance with Rule 8. 6 Although this basis for dismissal is sufficient to dismiss the entire complaint, the Court 7 will examine the other bases for dismissal as well. 8 2. Claims I-IV: Standing Under False Claims Act 9 Broadly, the FCA is a statute that permits civil actions against those who defraud the 10 government. See, generally, Winter ex rel. United States v. Gardens Reg’l Hosp. & Med. Ctr., 11 Inc., 953 F.3d 1108, 1114 (9th Cir. 2020) (quoting and describing 31 U.S.C. §§ 3729(a)(1) and 12 3730(b)). Such suits may be brought by the government, 31 U.S.C. § 3730(a), or by an individual, 13 known as a relator, id. § 3730(b); Stoner v. Santa Clara Cty. Office of Educ., 502 F.3d 1116, 1126 14 (9th Cir. 2007) (“The FCA authorizes a private person, known as a relator, to bring a qui tam civil 15 action ‘for a violation of section 3729 for the person and for the United States Government … in 16 the name of the Government.’” (quoting 31 U.S.C. § 3730(b)(1) (alteration in original)). Relators 17 must also follow certain notice requirements before serving the complaint on the defendants. See 18 31 U.S.C. § 3730(b)(2)-(5). 19 Loancare argues that the FCA claims fail for lack of standing because such claims must be 20 brought by the government or, in certain situations, by a relator, and Plaintiffs are not claiming to 21 be either. 22 Standing is a constitutional requirement: “Article III, section 2 of the Constitution limits 23 the judicial power of the United States to the resolution of cases and controversies. The doctrine 24 of standing is used to determine whether a conflict qualifies as a case or controversy and is 25 therefore capable of judicial resolution.” United States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 26 747 (9th Cir. 1993) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). There are 27 three constitutional components: 28 1 First, the plaintiff must have suffered an “injury in fact.” . . . Second, there must be a causal connection between the injury and the conduct serving as the basis of 2 the lawsuit. . . . Third, it must be likely that the injury will be redressed by a favorable decision. 3 Id. 4 Generally, a plaintiff lacks standing to pursue a third party’s rights. Kowalski v. Tesmer, 5 543 U.S. 125, 129 (2004) (“We have adhered to the rule that a party generally must assert his own 6 legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third 7 parties.”). In most FCA cases, a plaintiff is suing to vindicate the United States government’s 8 rights. However, this is constitutionally permissible because the government is the real party in 9 interest, and the relator sues in the government’s name: 10
11 the FCA effectively assigns the government's claims to qui tam plaintiffs . . . who then may sue based upon an injury to the federal treasury. Under this theory of 12 standing, the FCA's qui tam provisions operate as an enforceable unilateral contract. The terms and conditions of the contract are accepted by the relator upon 13 filing suit. If the government declines to prosecute the alleged wrongdoer, the qui 14 tam plaintiff effectively stands in the shoes of the government. Because the government clearly is capable of establishing injury-in-fact, causation, and 15 redressability, qui tam plaintiffs satisfy these Article III requirements as well.
16 Kelly, 9 F.3d at 748. 17 Hence, in an FCA case, “[t]o establish standing, [Plaintiffs] must plead facts in [their] 18 complaint that demonstrate that [they] satisfies the FCA’s qui tam requirements. If [they] cannot 19 meet those requirements, then [they do] not have standing and the federal courts do not have 20 subject matter jurisdiction over [their] FCA claim.” United States ex rel. Antoon v. Cleveland 21 Clinic Found., 788 F.3d 605, 614 (6th Cir. 2015); cf. United States ex rel. Gerbert v. Transport 22 Administrative Services, 260 F.3d 909 (8th Cir. 2001) (failure to maintain interest in partial 23 assignment to relator defeats standing, even if originally granted). 24 Plaintiffs have not followed the qui tam requirements: they have sued in their own names 25 rather than as relators. They have not pled compliance with FCA’s qui tam requirements. Thus, 26 the Court lacks standing over their four FCA claims. Accordingly, the Court recommends 27 dismissing Claims I-IV. 28 1 3. Rule 9(b) 2 Next, Loancare argues that Claims V and VI sound in fraud but were not pleaded with 3 particularity as required under Rule 9(b). Plaintiffs counter that they were not bringing forth 4 claims for fraud. (ECF No. 21 at 7). 5 Rule 9(b) of the Federal Rules of Civil Procedure requires that when fraud is alleged, “a 6 party must state with particularity the circumstances constituting fraud . . . .” Fed. R. Civ. P. 9(b). 7 “Rule 9(b) demands that the circumstances constituting the alleged fraud be ‘specific enough to 8 give defendants notice of the particular misconduct . . . so that they can defend against the charge 9 and not just deny that they have done anything wrong.’ ” Bly–Magee v. California, 236 F.3d 10 1014, 1019 (9th Cir.2001) (quoting Neubronner v. Milken, 6 F.3d 666, 671 (9th Cir. 1993)). 11 “Averments of fraud must be accompanied by ‘the who, what, when, where, and how’ of the 12 misconduct charged.” Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) 13 (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997) ). A party alleging fraud must “set 14 forth more than the neutral facts necessary to identify the transaction.” Vess, 317 F.3d at 1106 15 (quoting Decker v. GlenFed, Inc., 42 F.3d 1541, 1548 (9th Cir.1994), superseded by statute on 16 other grounds)). 17 The Court explained these requirements to Plaintiffs in its order dismissing their original 18 complaint. (ECF No. 13 at 4) (“Under Rule 9 of the Federal Rules of Civil Procedure, a 19 ‘complaint must specify such facts as the times, dates, places, benefits received, and other details 20 of the alleged fraudulent activity.’” (quoting McMaster v. United States, 731 F.3d 881, 897 (9th 21 Cir. 2013))). 22 Rule 9(b) applies to claims of fraud and claims that sound in fraud:
23 Rule 9(b) requires that, when fraud is alleged, “a party must state with 24 particularity the circumstances constituting fraud....” Fed.R.Civ.P. 9(b). Where fraud is not an essential element of a claim, only those allegations of a complaint 25 which aver fraud are subject to Rule 9(b)’s heightened pleading standard. Any averments which do not meet that standard should be disregarded, or stripped 26 from the claim for failure to satisfy Rule 9(b). To the extent a party does not aver fraud, the party’s allegations need only satisfy the requirements of Rule 27 8(a)(2). Fraud can be averred by specifically alleging fraud, or by alleging facts 28 that necessarily constitute fraud (even if the word ‘fraud’ is not used). 1 2 Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (emphasis added, certain internal 3 quotation marks and citations omitted). 4 Claims V and VI bring statutory claims under the Homeowner Bill of Rights, the Home 5 Affordable Modification Program, California Civil Code section 2923.5,1 the Unfair Competition 6 Law, and 42 U.S.C. § 1983. Plaintiff also brings claims for “Negligent Misrepresentation and 7 Breach of Duty of Care[.]” (ECF No. 17 at 10-11). 8 The claims under the Unfair Competition Law and for negligent misrepresentation sound 9 in fraud, and the heightened pleading requirement applies to them. See Kearns, 567 F.3d at 1125 10 (UCL claims must be pleaded with particularity); Atl. Richfield Co. v. Ramirez, 176 F.3d 481 (9th 11 Cir. 1999) (table, unpublished) (“The district court also properly dismissed Ramirez’ first and 12 second counterclaims, for fraud and negligent misrepresentation respectively, because they did 13 not comply with Federal Rule of Civil Procedure 9(b)’s particularity requirement.”). However, it 14 is not clear that the remaining causes of action must be pleaded with particularity—in part 15 because it is unclear what causes of action Plaintiff is attempting to bring. 16 Claims V and VI, to the extent they sound in fraud, do not plead fraud with particularity 17 for the same reasons they do not meet the Rule 8 pleading standards. The underlying factual 18 allegations are difficult to follow. While some individual allegations might state a fraud claim, 19 those allegations are intermingled with incomprehensible ones to the point that they cannot be 20 read as being pleaded with particularity. Accordingly, the Court recommends dismissing Claims 21 V and VI for failure to comply with Rule 9(b). 22 4. Leave to Amend 23 Defendants ask the Court to deny leave to amend without further discussion. (See ECF 24 No. 18 at 6). Plaintiffs do not make any argument concerning leave to amend. 25 “A pro se litigant must be given leave to amend his or her complaint, and some notice of 26 its deficiencies, unless it is absolutely clear that the deficiencies of the complaint could not be
27 1 “Plaintiff[s] actually cite[] California Senate Bill 1137 as the basis for this cause of action. This bill was codified in relevant part as California Civil Code section 2923.5.” Alvarez v. GMAC Mortg. LLC, 2011 WL 13225030, at *3 28 (C.D. Cal. Nov. 21, 2011). 1 cured by amendment.” Cato v. United States, 70 F.3d 1103, 1106 (9th Cir. 1995). 2 The instant motion to dismiss is Defendants’ second. The Court previously granted the 3 first motion to dismiss, notified Plaintiff of their deficiencies—including their lack of standing to 4 bring claims for fraud against the government and the standards for pleading fraud with 5 specificity—and granted leave to amend. (ECF No. 13). The Court warned Plaintiffs that “[i]f 6 plaintiffs are unsuccessful in curing the defects identified above in any amended complaint they 7 elect to file, the court may well conclude that the granting of further leave to amend would be 8 futile.” (Id. at 6 n.2). 9 Plaintiffs have not successfully cured their defects. Rather, the FAC suffers from some of 10 the same deficiencies as the initial complaint. They still have not pleaded fraud with specificity, 11 and they still lack standing to bring claims against Defendants for allegedly defrauding the 12 government. Thus, the Court concludes that further amendments will be futile and recommends 13 denying leave to amend. 14 5. Unserved Defendants 15 A court may, sua sponte, dismiss defendants who have yet to appear when they are in a 16 similar position as the defendants who have appeared:
17 As a legal matter, we have upheld dismissal with prejudice in favor of a party 18 which had not appeared, on the basis of facts presented by other defendants which had appeared. Columbia Steel Fabricators, Inc. v. Ahlstrom Recovery, 44 F.3d 19 800, 802 (9th Cir.1995); Silverton v. Dep't of Treasury, 644 F.2d 1341, 1345 (9th Cir.1981) (“A [d]istrict [c]ourt may properly on its own motion dismiss an action 20 as to defendants who have not moved to dismiss where such defendants are in a position similar to that of moving defendants.”). 21
22 Abagninin v. AMVAC Chem. Corp., 545 F.3d 733, 742–43 (9th Cir. 2008); accord Ukiru v. Fed. 23 Home Loan Mortg. Corp., 602 F. App'x 395, 397 (9th Cir. 2015), as corrected (May 15, 2015) 24 (unreported) (“The district court did not err in dismissing non-appearing defendants Titanium 25 Solutions and Cal–Western Reconveyance Corporation as they were in a similar position to that 26 of moving defendants and therefore were properly dismissed based on the facts and law 27 presented.”). 28 1 Here, only Loancare has been served and has appeared. It has moved to dismiss the FAC 2 under Rule 8, for lack of standing, and for failure to plead fraud with specificity. The Court 3 recommends granting the motion on each ground. Each ground applies equally to the claims 4 against the unserved defendants. Therefore, the Court recommends dismissal for all Defendants. 5 B. Motion to Disqualify Counsel 6 On November 6, 2020, Plaintiffs filed a motion to disqualify Defendants’ counsel Charles 7 W. Nunley and the law firm Malcolm & Cisneros, a Law Corporation2 (hereinafter, together, 8 “Counsel”). (ECF No. 29). Plaintiffs argue that Counsel are defendants in this action and 9 represented Loancare in Plaintiffs’ previous Chapter 13 bankruptcy. The crux of Plaintiffs’ 10 argument appears to be that Counsel were paid from Plaintiffs’ escrow account in connection 11 with their services to Loancare in Plaintiffs’ Chapter 13 bankruptcy, (id. at 4-5),3 and, according 12 to Plaintiffs, thereby have “an inexcusable conflict of interest as well as self-dealing,” (id. at 3), 13 and violate the California Rules of Professional Conduct, thus warranting disqualification, (id. at 14 6-8). Plaintiffs also filed various exhibits to support their motion. (ECF No. 31). 15 Counsel did not file any opposition to the motion. 16 In Lennar Mare Island, LLC v. Seadfast Insurance Co., Judge Mueller provided the 17 relevant standards for disqualifying counsel:
18 This District has adopted the Rules of Professional Conduct of the State Bar of 19 California, and any applicable state court decisions, as its own standards of professional conduct. E.D. Cal. L.R. 180(e). The District’s local rules require both 20 familiarity and compliance with California’s Rules. Id. . . . 21 If an attorney or firm takes on a representation in violation of these rules, a client may move for disqualification. See E.D. Cal. L.R. 110 (“Failure of counsel ... to 22 comply with these Rules ... may be grounds for imposition ... of any and all 23 sanctions authorized by statute or Rule or within the inherent power of the
24 2 Stylized as MALCOLM ♦ CISNEROS, A LAW CORPORATION. 25 3 While it is not clear from the text of Plaintiffs’ motion to disqualify, records in Plaintiffs’ bankruptcy case in this district, case number 16-90571, indicate that Counsel represented one of Plaintiffs’ creditors, not Plaintiffs therein. See In re Arnold, Case No. 16-90571 (Bankr. E.D. Cal.), doc. filed Sept. 28, 2017 (filing for LakeView Loan 26 Servicing, LLC signed by an attorney for Malcolm & Cisneros, A Law Corporation, and attaching documents on with Loancare’s letterhead); Fed. R. Evid. 201; United States v. Wilson, 631 F.2d 118, 119 (9th Cir. 1980) (“a court may 27 take judicial notice of its own records in other cases”); Gerritsen v. Warner Bros. Entm’t Inc., 112 F. Supp. 3d 1011, 1034 (C.D. Cal. 2015) (taking “judicial notice of defendants’ motion to dismiss and the fact that the same law firm— 28 O’Melveny & Myers, LLP—represents Katja, New Line, and WB”). 1 Court.”); Visa U.S.A., Inc. v. First Data Corp., 241 F.Supp.2d 1100, 1103 (N.D.Cal.2003) (“The right to disqualify counsel is within the discretion of the 2 trial court as an exercise of its inherent powers.”) (citing United States v. Wunsch, 84 F.3d 1110, 1114 (9th Cir.1996)). . . . 3
4 Disqualification is a blunt tool meant to encourage wide berth of ethical grey areas, its ruthlessness warranted only after a clear showing of conflict. On the one 5 hand, “[b]ecause disqualification is a drastic measure, it is generally disfavored and should only be imposed when absolutely necessary.” Concat LP v. Unilever, 6 PLC, 350 F.Supp.2d 796, 814 (N.D.Cal.2004). See also Gregori v. Bank of Am., 7 207 Cal.App.3d 291, 300–01, 254 Cal.Rptr. 853 (1989) (“[M]otions to disqualify counsel often pose the very threat to the integrity of the judicial process that they 8 purport to prevent.”); Visa, 241 F.Supp.2d at 1104 (“[S]uch requests ‘should be subjected to particularly strict judicial scrutiny.’ ” (quoting Optyl Eyewear 9 Fashion Int’l Corp. v. Style Cos., 760 F.2d 1045, 1050 (9th Cir.1985))).
10 105 F. Supp. 3d 1100, 1007-08 (E.D. Cal. 2015) (alterations within parentheticals in original). 11 Plaintiffs argue that “the vicaious disqualification of the defendant law who was actually 12 involved in representing in the same or similar case that firm is automatically disqualified should 13 be granted.” (ECF No. 29 at 8) (as in original). Plaintiffs cite California Rules of Professional 14 Conduct 1.9 and 1.10 as the basis in California’s Rules for disqualification. Rule 1.9 deals with 15 duties for former clients. Counsel’s former client was LakeView Loan Servicing, LLC. See In re 16 Arnold, Case No. 16-90571 (Bankr. E.D. Cal.), doc. filed Sept. 28, 2017 (filing for creditor 17 LakeView Loan Servicing, LLC signed by an attorney from Malcolm & Cisneros and attaching 18 various documents on Loancare letterhead). The FAC’s list of parties includes “LoanCare LLC 19 and Lakeview LLC” and “Lakeview aka LoanCare,” which Plaintiffs list as having the same 20 address: 3637 Sentara Way, Virginia Beach, VA 23452. (ECF No. 17 at 2). This indicates that 21 LoanCare and Lakeview are related and may be affiliates. That does not indicate there is a 22 conflict of interest between Counsel’s current and former clients. Thus, Rule 1.9 does not appear 23 to apply. 24 Rule 1.10 limits a law firm’s ability to represent a client if one of the lawyers in the firm 25 would be unable to do so. However, Plaintiffs have not made a cogent argument for why any 26 attorney at Malcolm & Cisernos is disqualified. 27 28 ee nnn nn on nn nn nn nn NEO IS IIT EOD EEE
1 Therefore, the Court denies Plaintiffs’ motion.* 2} VI. CONCLUSION 3 IT IS HEREBY ORDERED that Plaintiffs’ motion to disqualify (ECF No. 29) is 4 | DENIED. 5 Additionally, based on the foregoing, IT IS HEREBY RECOMMENDED THAT 6 1. Defendant’s motion to dismiss (ECF No. 18) be GRANTED; 7 2. Plaintiffs’ First Amended Complaint be dismissed, without leave to amend; 8 3. All Defendants, including those who have not yet been served, be dismissed; and 9 4. The Clerk of Court be directed to close this case. 10 These findings and recommendations will be submitted to the United States district judge 11 | assigned to the case, pursuant to the provisions of Title 28 U.S.C. § 636(b)(1). Within twenty-one 12 | (21) days after being served with these findings and recommendations, any party may file written 13 | objections with the Court. The document should be captioned “Objections to Magistrate Judge’s 14 | Findings and Recommendations.” 15 The parties are advised that failure to file objections within the specified time may result 16 | in the waiver of rights on appeal. Wilkerson v. Wheeler, 772 F.3d 834, 838-39 (9th Cir. 2014) 17 | (citing Baxter v. Sullivan, 923 F.2d 1391, 1394 (9th Cir. 1991)). 18 19 IT IS SO ORDERED. 20 Dated: _ February 1, 2021 [sf ey 1 UNITED STATES MAGISTRATE JUDGE 22 23 24 25 26 | +The undersigned has the authority to deny Plaintiffs’ motion directly without findings and recommendations. See Kalinauskas v. Yin Wong, 108 F.3d 338, 1997 WL 67691 at *1 & n.1 (9th Cir. 1997) (table, unpublished) (finding 27 | magistrate judge’s order denying motion to disqualify counsel was not an abuse of discretion); Quatama Park Townhomes Owners Ass'n v. RBC Real Estate Fin., Inc., 365 F. Supp. 3d 1129, 1133 (D. Or. 2019) (finding 28 | magistrate’s order denying motion to disqualify is a non-dispositive matter). 1G