Castillo v. Johnson

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Tisha Castillo, et al., No. CV-17-04688-PHX-DLR

10 Plaintiffs, ORDER

11 v.

12 George Harry Johnson, et al.,

13 Defendants. 14 15 16 Before the Court is Plaintiffs’ motion for leave to file second amended complaint, 17 which is fully briefed. (Docs. 178, 189, 190, 191, 197.) For the following reasons, the 18 Court will grant Plaintiffs’ motion in part. 19 Leave to amend shall be freely granted “when justice so requires.” Lopez v. 20 Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (en banc) (quoting Fed. R. Civ. P. 15(a)). 21 “[T]his policy is to be applied with extreme liberality.” Morongo Band of Mission Indians 22 v. Rose, 893 F.2d 1074, 1079 (9th Cir.1990); see also Griggs v. Pace Am. Group, Inc., 170 23 F.3d 877, 880 (9th Cir.1999) (noting that inferences should be drawn “in favor of granting 24 the motion”). In determining whether leave to amend is appropriate, the Court considers 25 “the presence of any of four factors: bad faith, undue delay, prejudice to the opposing party, 26 and/or futility.” Griggs, 170 F.3d at 880. Defendants ask the Court to deny Plaintiffs’ 27 motion, arguing that the proposed amendment is futile for four reasons. While Defendants 28 are correct that Plaintiffs’ addition of count four is futile, the remainder of the amendment 1 is granted, as explained below. 2 Defendants correctly assert that Plaintiffs’ addition of count four—bringing a claim 3 pursuant to RICO 18 U.S.C. § 1962(c) against George Johnson, Johnson Utilities LLC, 4 Johnson International Incorporated, and James Norton for civil conspiracy to violate the 5 Arizona conflicts of interest and emoluments statutes, A.R.S. §§ 38-503(B), 38-504(C), 6 and 38-505(A)—is futile. In Arizona, there is no civil action for conspiracy. However, 7 there is an action for damages caused by acts committed pursuant to a 8 conspiracy. Estate of Hernandez v. Flavio, 930 P.2d 1309, 1313 (Ariz.1997). Yet, such 9 actions cannot survive a motion to dismiss if the plaintiff fails to plead a cognizable 10 underlying tort. Placencia v. I-Flow Corp., No.CV-10-2520-PHX-DGC-2011 WL 11 1361562, at * 3-4 (D. Ariz. Apr. 11, 2011). Because the violation of A.R.S. §§ 38-503(B), 12 38-504(C), and 38-505(A) is not a cognizable tort that provides Plaintiffs a justiciable 13 remedy, conspiracy to violate these statutes cannot be a RICO predicate offense. 14 Therefore, Plaintiffs’ inclusion of count four is futile. 15 Second, Defendants argue that Plaintiffs’ added allegation of willful concealment 16 in violation of A.R.S. § 13-2311 under RICO is futile because willful concealment is not a 17 violation of state law defined as racketeering activity under 18 U.S.C. § 1961(1)(A). (Doc. 18 189 at 3.) The Court construes RICO liberally in accordance with Congress’ intent. Pub.L. 19 91–452, Title IX, Section 904(a), 84 Stat. 941 (1970), reprinted in 1970 U.S. Code Cong. 20 & Admin. News 4007. Section 1961(1)(A) defines racketeering activity in violation of state 21 law as “any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, 22 extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical 23 . . . which is chargeable under state law and punishable by imprisonment for more than a 24 year.” 25 In the absence of Ninth Circuit case law on point, the Court will not attempt to define 26 the scope of what may properly be considered an offense “involving bribery.” For present 27 purposes, and construing RICO liberally, the Court concludes that the violation of A.R.S. 28 § 13-2311 alleged in the proposed second amended complaint constitutes an act involving 1 bribery under 18 U.S.C. § 1961(1)(A). The Court is persuaded by the Southern District of 2 New York’s rationale in Beth Israel, which explained, “a state-law offense in which bribery 3 is alleged to have played a major role, and which is punishable by more than a year’s 4 imprisonment, is an ‘act . . . involving . . . bribery’ which may serve as a predicate RICO 5 offense.” Beth Israel Med. Center v. Smith, 576 F. Supp. 1061, 1067 (S.D.N.Y. 1983). 6 Here, Plaintiffs claim that Defendants’ actions violate A.R.S. § 13-2311, are punishable by 7 more than a year’s imprisonment, and wholly stemmed from their bribery scheme. (Doc. 8 197 at 6.) Thus, not only did bribery play a “major role,” but also it was the concealing 9 conduct’s catalyst. In other words, but for the bribery scheme, no concealment scheme 10 would have developed; that which Defendants sought to conceal was the bribery. 11 Third, Defendants assert that Plaintiffs’ fraudulent transfer claim against fourteen 12 newly added transfer defendants is futile because Plaintiffs fail to state a claim of relief 13 against them. (Doc. 189 at 7-10.) The Court previously considered and rejected this 14 argument as applied to the previously added transfer defendants on a motion to dismiss. 15 (Doc. 77 at 1; Doc. 120 at 11-14.) The Court will not reconsider its prior ruling, which 16 was based on identical allegations. 17 Fourth, Defendants contend that Plaintiffs’ second amended complaint is futile 18 because Plaintiffs have failed to name an indispensable party, EPCOR. The Court declines 19 to consider this issue currently because Johnson Utilities is presently contesting the 20 propriety of the imposition of EPCOR as its interim manager before the Arizona Supreme 21 Court. If Johnson Utilities’ challenge is successful and EPCOR is removed as interim 22 manager, this issue will be mooted. If Johnson Utilities’ challenge is unsuccessful, the 23 Court will consider whether EPCOR is a necessary party once the parties notify it of the 24 Arizona Supreme Court’s decision and file the appropriate motions. Accordingly, 25 // 26 // 27 // 28 // 1 IT IS ORDERED that Plaintiffs’ motion for leave to file second amended 2|| complaint (Doc. 178) is GRANTED IN PART. Plaintiffs shall file their second amended || complaint, excluding its proposed fourth count, within 7 days of the date of this order. 4 Dated this 1st day of May, 2020. 5 6 (Loe tha 9 Usited States Dictricl Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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