Borrego Community Health Foundation v. Inland Valley Investments, LLC

• Court: District Court, S.D. California
• Decided: March 21, 2024
• Docket: 3:21-cv-01417
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 BORREGO COMMUNITY HEALTH Case No.: 21-cv-01417-BEN-SBC FOUNDATION, a California Nonprofit 12 Public Benefit Corporation, ORDER: 13 Plaintiff, (1) GRANTING DEFENDANTS’ 14 MOTION TO DISMISS; 15 v. (2) DENYING AS MOOT 16 INLAND VALLEY INVESTMENTS, PLAINTIFF’S MOTION TO 17 LLC, a California limited liability CONSOLIDATE company; et al., 18

19 Defendants. [ECF Nos. 52, 53] 20 Before the Court are two motions—a motion to consolidate this case with a related 21 action1 filed by Plaintiff Borrego Community Health Foundation (“Plaintiff” or “BCHF”) 22 and a motion to dismiss the Fourth Amended Complaint (“FAC”) filed by Defendants DRP 23 Holdings, LLC, Inland Valley Investments, LLC, and Promenade Square, LLC 24 (collectively “Defendants”). ECF Nos. 52, 53. Both motions have been fully briefed and 25 submitted on the papers without oral argument pursuant to Civil Local Rule 7.1(d)(1) and 26 27 1 See Borrego Community Health Foundation vs. Hebets et al., filed under case number 28 1 Rule 78(b) of the Federal Rules of Civil Procedure. See ECF Nos. 60, 62. For the reasons 2 set forth below, the Court GRANTS Defendants’ motion to dismiss with prejudice and 3 DENIES-AS-MOOT Plaintiff’s motion to consolidate. 4 I. BACKGROUND 5 Factual Background. The factual background applicable to Defendants in this 6 action was accurately set forth in the prior Order dismissing Plaintiff’s Third Amended 7 Complaint (“TAC”) and will not be extensively duplicated here. See ECF No. 47, “Prior 8 Order” at 2-3. Briefly, Plaintiff BCHF is a California non-profit corporation and 9 federally qualified health center which provides healthcare services to individuals in 10 underserved communities. ECF No. 51, “FAC” ¶ 1. The FAC alleges Defendants leased 11 three commercial properties to Plaintiff at well above market-rate rents and under 12 unconscionable terms. Id. ¶¶ 190-208. This was achieved by “Borrego Insiders” (certain 13 employees and Board members at BCHF) entering and concealing these leases from the 14 full Board of Trustees. Id. Dubbed the “Priest Leases Scheme”, this was one of many 15 alleged schemes conducted by the Borrego Insiders, the balance of which are being 16 litigated in the MSL. Id. ¶ 2. 17 Procedural History. BCHF initiated this action in San Diego Superior Court 18 asserting several state-law claims in June 2021. ECF No. 1. The case was subsequently 19 removed to this Court under federal question jurisdiction after Plaintiff amended its 20 complaint and added claims for violation of the Racketeering Influenced and Corrupt 21 Organizations Act (“RICO”), 18 U.S.C. §§ 1962(c) & (d). Id. In August 2021, 22 Defendants moved to dismiss the complaint. ECF No. 6. District Judge Lorenz granted 23 the motion, finding that Plaintiff’s RICO claim as alleged was time-barred and not well 24 pled, but allowed leave to amend. ECF No. 15. Plaintiff then filed a TAC, which 25 Defendants again moved to dismiss. ECF Nos. 16, 19. 26 Order Dismissing TAC. Reviewing the TAC, District Judge Battaglia found 27 Plaintiff had adequately alleged that its RICO claim was not time-barred. Prior Order at 28 6. However, Judge Battaglia also found Plaintiff had once again failed to adequately 1 plead its RICO claim. Id. at 8-9. The Order noted several deficiencies in the claim, 2 including: (1) Plaintiff failed to adequately allege facts supporting alter ego liability; (2) 3 the TAC failed to allege specific facts regarding individual Defendants, instead 4 impermissibly lumping them together; and (3) Plaintiff did not sufficiently plead the 5 “conduct” element, a deficiency also noted in Judge Lorenz’ Order. Id. at 6-9. Judge 6 Battaglia granted Plaintiff “one, final opportunity to cure the deficiencies in its RICO 7 claims.” Id. at 10. 8 Additional Allegations in FAC. The FAC adds sixty-three pages of factual 9 allegations. See FAC pp. 6-51, 59-85. Many of these are new to this action and are 10 pulled directly from the complaint in the MSL. Id. Plaintiff argues this information 11 provides necessary context because the Priest Leases Scheme is part of a larger pattern of 12 conduct by the Borrego Insiders to defraud BCHF. ECF No. 56, Opposition to Motion to 13 Dismiss (“Oppo.”) at 9. While the Court is cognizant of the bigger picture Plaintiff seeks 14 to paint, the FAC ultimately includes fewer factual allegations supporting Plaintiff’s 15 claims against those Defendants named in this case. Compare ECF No. 17 at 8-19 and 16 ECF No. 51 at 52-59. Thus, far from curing the deficiencies in Plaintiff’s RICO claims, 17 the FAC unfortunately deepens them. 18 II. LEGAL STANDARDS 19 Rule 12(b)(6) permits dismissal for “failure to state a claim upon which relief can 20 be granted.” Fed. R. Civ. P. 12(b)(6). A complaint may survive a motion to dismiss only 21 if, taking all well pled factual allegations as true, it contains enough facts to “state a claim 22 to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A 23 claim has facial plausibility when the plaintiff pleads factual content that allows the court 24 to draw the reasonable inference that the defendant is liable for the misconduct 25 alleged.” Id. “The bare recitals of the elements of a cause of action, supported by mere 26 conclusory statements, do not suffice.” Id. “In sum, for a complaint to survive 27 a motion to dismiss, the non-conclusory factual content, and reasonable inferences from 28 that content, must be plausibly suggestive of a claim entitling the plaintiff to 1 relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). Where 2 a motion to dismiss is granted, leave to amend should be liberally allowed “unless the 3 court determines that the allegation of other facts consistent with the challenged pleading 4 could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture 5 Co., 806 F.2d 1393, 1401 (9th Cir. 1986). 6 III. DISCUSSION 7 Defendants argue Plaintiff has failed to successfully plead its RICO claim for the 8 third time, warranting dismissal with prejudice. ECF No. 53-1, Motion to Dismiss 9 (“Mot.”). Defendants make several attacks on Plaintiff’s RICO claim, including: (1) the 10 claim is time-barred; (2) the allegations in the FAC still impermissibly lump multiple 11 Defendants together; and (3) Plaintiff yet again fails to adequately plead the “conduct” 12 element. Mot. at 1-2. However, as explained below, the Court finds Defendants’ third 13 argument sufficient for disposition. 2 14 “The elements of a civil RICO claim are as follows: (1) conduct (2) of an 15 enterprise (3) through a pattern (4) of racketeering activity (known as predicate acts) (5) 16 causing injury to plaintiff’s business or property.” Living Designs, Inc. v. E.I. Dupont de 17 Nemours and Co., 431 F.3d 353, 361 (9th Cir. 2005) (citing Grimmett v. Brown, 75 F.3d 18 506, 510 (9th Cir. 1996)). 19 In Reves v. Ernst & Young, the U.S. Supreme Court clarified what constitutes 20 “conduct” for purposes of a RICO claim. 507 U.S. 170 (1993). The Court held, “to 21 participate, directly or indirectly, in the conduct of such enterprise’s affairs, one must 22 have some part in directing those affairs.” Id. at 179 (internal quotations omitted). As 23 the Ninth Circuit explained, “In so doing, [the Supreme Court] rejected Reves’s position 24 that conduct should be read as ‘carry on’ so that almost any involvement would do.” 25

26 2 Even assuming Plaintiff has sufficiently pled alter ego as to the Priest LLC Defendants 27 and assuming that Travis Lyon and Daryl Priest can be considered agents of the Priest LLCs, this still does not save Plaintiff’s RICO claim. 28 1 Walter v. Drayson, 538 F.3d 1244, 1247 (9th Cir. 2008). “While it is not necessary to be 2 upper management to be liable[,]” it is also “not enough that [defendant] failed to stop 3 illegal activity, for Reves requires ‘some degree of direction.’” Walter, 538 F.3d at 1247- 4 48 (quoting Reves, 507 U.S. at 179). “Simply performing services for the enterprise does 5 not rise to the level of direction, whether one is inside or outside.” Id. at 1249. 6 The prior Order noted, “[t]hat Defendants ‘worked with Hebets to devise 7 management and operations decisions at BCHF’ is not enough. Plaintiff must plead more 8 with respect to, for example, when, where, how each defendant allegedly took over 9 BCHF’s management and operations.” Id. at 9. Despite this clear direction, Plaintiff did 10 not cure this deficiency. Reviewing the factual allegations relevant to the Priest Leases 11 Scheme, the associated paragraphs contain the exact same conclusory language 12 previously rejected by the Court. See FAC ¶ 193 (“The Priest LLCs, Daryl Priest [], 13 Travis Lyon and the Borrego Insiders worked together to devise a scheme…The Priest 14 LLCs, Daryl Priest, Travis Lyons [sic] and the Borrego Insiders worked together to make 15 management and operational decisions at Borrego Health[.]”) 16 Plaintiff argues that it has pled sufficient facts showing these Defendants “both 17 gave directions to and took directions from” the Borrego Insiders and occupied a position 18 in the chain of command, pointing the Court to various allegations in the FAC. See FAC 19 ¶¶ 30, 76, 80, 83-86, 105, 126, 191-200, 414-419. However, except for paragraphs 80 20 and 191-200, those cited by Plaintiff do not contain allegations relating to the Priest 21 LLCs, or actions taken relating at all to the Priest Leases Scheme. Instead, these 22 paragraphs largely cite allegations related Premier, Travis Lyon and two other schemes. 23 See, e.g., FAC ¶ 105 (Travis Lyon instructing BCHF employees), ¶ 126 (Premier 24 employees, including Travis Lyon, providing training for contract dental program).3 25

26 3 Expanding review beyond the cited paragraphs, the same pattern prevails. See, e.g., 27 FAC ¶ 79 (“hostile takeover” of contract dental spearheaded by Travis Lyon), ¶ 160 (instructing BCHF program integrity team). 28 1 The FAC simply lacks non-conclusory allegations that the any of the Defendants 2 took part in managing or conducting the affairs of BCHF that related in any way to the 3 Priest Leases Scheme, even when (improperly) viewed interchangeably with each other. 4 Finally, even assuming Travis Lyon’s actions related to Premier are sufficient to show he 5 occupied a position of management or control within BCHF, the FAC does not allege a 6 single action taken by Travis Lyon or Daryl Priest relating to the Priest Leases Scheme. 7 Accordingly, the Court finds Plaintiff has failed to plead the conduct element of its 8 RICO claim for the third and final time. 9 IV. CONCLUSION 10 For the above reasons, the Court GRANTS Defendants’ motion to dismiss 11 Plaintiff’s RICO claims.4 Two prior orders identified the deficiency with the “conduct” 12 element specifically, which Plaintiff has failed to remedy. At this point the Court is 13 confident amendment is futile. See Schreiber Distrib. Co., 806 F.2d at 1401. 14 Regarding Plaintiff’s motion to consolidate, even with Plaintiff’s attempted de- 15 facto consolidation by adding allegations from the MSL complaint into the FAC, this 16 does not cure the deficiency in the RICO claim. Absent the RICO claim, Plaintiff’s 17 remaining state law claims are distinct from the MSL fraud schemes and relate narrowly 18 to the disputed leases. Having dismissed the claims over which it has original 19 jurisdiction, the Court declines to exercise supplemental jurisdiction over the remaining 20 state law claims. Sanford v. MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010). As 21 such, the Court DENIES as moot Plaintiff’s motion to consolidate. 22 The Court hereby ORDERS as follows: 23 1. Defendants’ motion to dismiss Plaintiff’s RICO claims is hereby GRANTED 24 with prejudice. 25 2. Plaintiff’s motion to consolidate is hereby DENIED as moot. 26

27 4 If a plaintiff fails to adequately plead a substantive violation of RICO, it cannot allege a conspiracy to violate RICO. See Howard v. Am. Online Inc., 208 F.3d 741, 751 (9th Cir. 28 1 3. Plaintiff's remaining state law claims are hereby REMANDED to the Superior 2 || Court for the County of San Diego. 3 IT ISSO ORDERED. 4 | . 5 || Date: March 21, 2024. 6 Hf udge Roger T. Benit United States District Judge 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28