1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 GOVERNMENT APP SOLUTIONS, No. 2:21-cv-00696-DAD-KJN INC., 12 Plaintiff, 13 ORDER GRANTING, IN PART, MOTIONS v. TO DISMISS BY DEFENDANTS 14 GARCETTI, JOHNSON, WEST, HARP, CITY OF NEW HAVEN, et al., JONES, SCOTT, TUBBS, LOPEZ, AND 15 STANTON, AND DENYING DEFENDANT Defendants. LUND’S MOTION TO DISMISS AS 16 HAVING BEEN RENDERED MOOT 17 (Doc. Nos. 136, 137, 142, 146, 147, 148, 149, 150, 161) 18
19 20 This matter is before the court on nine pending motions to dismiss filed on behalf of 21 defendants Kevin M. Johnson, Nicole West, Toni Harp, Daryl Jones, Michael Tubbs, Daniel 22 Lopez, Eric Garcetti, Gregory J. Stanton, and Casey Lund. (Doc. Nos. 136, 137, 142, 146, 147, 23 148, 149, 150, 161.) On October 11, 2022, defendants’ motions were taken under submission on 24 the papers.1 (Doc. No. 151.) For the reasons explained below, the court will grant motions to 25 dismiss brought on behalf of defendants Garcetti, Johnson, West, Harp, Jones, Scott, Tubbs, 26 ///// 27
28 1 On August 25, 2022, this case was reassigned to the undersigned. (Doc. No. 126.) 1 Lopez, and Stanton, in part, and deny the motion to dismiss brought on behalf of defendant Lund 2 as having been rendered moot. 3 BACKGROUND 4 In its second amended complaint (“SAC”), plaintiff alleges as follows.2 Plaintiff is a 5 corporation that “provid[es] a crowdsourcing platform with software and technical support to 6 municipalities throughout the United States in order to increase road safety, to reduce distracted 7 driving incidents, to issue and collect parking citations, and to generally improve community 8 living conditions.” (Doc. No. 1 at ¶¶ 1, 18.) In January 2018, plaintiff entered into an oral 9 agreement with Derek Bluford whereby Bluford would communicate and contract with 10 municipalities to use plaintiff’s platform for various municipal functions. (Id. at ¶ 19.) In return, 11 plaintiff would compensate Bluford for his services depending on the size of the contract Bluford 12 obtained for plaintiff. (Id.) 13 On July 1, 2018, Bluford entered into a written consulting agreement (the “Consulting 14 Agreement”) with defendant Johnson, the then-mayor of Sacramento. (Id. at ¶ 20.) Pursuant to 15 that agreement, defendant Johnson agreed to market plaintiff’s services to the cities of Los 16 Angeles, California; Phoenix, Arizona; and New Haven, Connecticut in exchange for a 17 percentage of the revenue plaintiff would generate from any contracts entered into with those 18 municipalities. (Id.) Unbeknownst to plaintiff, defendant Johnson intended to bribe the then- 19 mayors of Los Angeles, Phoenix, and New Haven—defendants Garcetti, Stanton, and Harp, 20 respectively—in order to secure such contracts. (Id.) 21 Also without plaintiff’s knowledge, in January 2018, Bluford was indicted for wire fraud 22 and engaging in a monetary transaction involving criminally derived funds. (Id. at ¶ 21.) In 23 October 2018, Bluford began cooperating with the United States Attorney’s Office in connection 24 with an investigation of public corruption. (Id. at ¶ 22.) As part of this cooperation, Bluford was
25 2 The court emphasizes that the factual background described herein is derived solely from plaintiff’s SAC. For the purposes of ruling on the pending motions to dismiss pursuant to Rule 26 12(b)(6), the court “accept[s] all factual allegations in the complaint as true and construe[s] the 27 pleadings in the light most favorable to the nonmoving party.” Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). Of course, the court takes no opinion as to the veracity of plaintiff’s 28 allegations. 1 instructed to assist with sting operations conducted by the Federal Bureau of Investigation 2 (“FBI”). (Id.) The FBI directed Bluford to “offer and deliver bribes to mayors and municipal 3 employees in return for securing contracts for [p]laintiff’s services.” (Id.) In addition, in 4 December 2019, defendant Lund, an independent contractor for the FBI, falsely represented to 5 plaintiff that the state of California was interested in purchasing or licensing plaintiff’s software. 6 (Id. at ¶¶ 99, 101.) According to plaintiff, defendant Lund did so because the FBI “wanted a copy 7 of [p]laintiff’s software to use in other sting operations involving bribery and public corruption.” 8 (Id. at ¶ 103.) The FBI and United States Attorney’s Office did not tell plaintiff about these sting 9 operations or obtain plaintiff’s consent to be used in the sting operations. (Id. at ¶ 22.) 10 Pursuant to Bluford’s and defendant Johnson’s Consulting Agreement, defendant Johnson 11 arranged for Bluford to send cash bribes to certain city officials, with such bribes to be disguised 12 as contributions to the city officials’ re-election campaigns. (Id. at ¶ 25.) Bluford delivered cash 13 bribes or arranged for online payments to defendants Harp and Stanton. (Id.) In addition, 14 defendant Tubbs (the then-mayor of Stockton, California) agreed to receive a bribe, but Bluford’s 15 cooperation role with the FBI terminated before the bribe could be delivered to defendant Tubbs. 16 (Id.) With respect to defendant Garcetti (the then-mayor of Los Angeles), plaintiff alleges that 17 defendant Garcetti agreed to receive a bribe in exchange for helping secure a contract between 18 plaintiff and the Los Angeles Department of Transpiration. (Id. at ¶ 57.) Thus, in total, plaintiff 19 alleges that the then-mayors of these four cities received bribes or agreed to receive bribes, which 20 comprised four different association-in-fact enterprises. (Id. at ¶ 26.) According to plaintiff, 21 Bluford, defendant Johnson, and defendant West—who plaintiff describes as defendant Johnson’s 22 “assistant in conducting the bribery schemes”—were members of all four alleged association-in- 23 fact enterprises, while the other members of these enterprises were unique to each of the four 24 cities of New Haven, Phoenix, Los Angeles, and Stockton. (Id. at ¶¶ 22, 26.) Plaintiff alleges 25 that other members of these enterprises included defendant Jones, who served as Controller for 26 the City of New Haven; defendant Scott, who served as Executive Assistant to defendant Harp; 27 and defendant Lopez, who served as senior advisor to defendant Tubbs. (Id. at ¶¶ 8, 9, 11.) 28 ///// 1 Around February of 2020, the FBI informed plaintiff that plaintiff’s contract with the City 2 of New Haven had not been obtained “in good faith,” but did not explain further or inform 3 plaintiff of its sting operations. (Id. at ¶ 24.) Rather, plaintiff learned of the alleged bribery 4 schemes and sting operations only after Bluford published a book in October 2020 titled The 5 Mighty Have Fallen. (Id. at ¶ 20.) Plaintiff asserts that it has lost all value as a viable company 6 due to the alleged bribery schemes and sting operations because “no municipality in the United 7 States will now do business with a company that was involved in FBI sting operations offering 8 bribes to public officials to secure city contracts.” (Id. at ¶¶ 39, 51, 63, 75.) 9 On April 18, 2021, plaintiff initiated this action. (Doc. No. 1.) On April 29, 2021, 10 plaintiff filed its first amended complaint. (Doc. No. 6.) On August 10, 2022, this court granted 11 defendants’ motion to dismiss, with leave to amend. (Doc. No. 125.) Plaintiff filed the operative 12 SAC on September 12, 2022, which asserts the following nine causes of action3: (1) four claims 13 asserting violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act 14 §§ 1962(c)–(d) against defendants Johnson, West, Harp, Scott, Jones, Stanton, Garcetti, Tubbs, 15 and Lopez (the “RICO defendants”); (2) two state law negligence claims against defendants 16 Johnson, West, Harp, Scott, Jones, Stanton, Garcetti, Tubbs, and Lopez; (3) one state law breach 17 of contract claim against defendant Johnson, (4) one state law fraud claim against defendant 18 Lund; and (5) one state law theft claim against defendant Lund. (Doc. No. 129 at 11, 17, 22, 27, 19 33, 35, 39, 41–42.) 20 Defendants Garcetti and Johnson filed motions to dismiss on September 30, 2022 (Doc. 21 Nos. 136, 137); defendant Scott filed a motion to dismiss on October 3, 2022 (Doc. No. 142); 22 defendants Harp, Lopez, Tubbs, and Stanton filed motions to dismiss on October 10, 2022 (Doc. 23 Nos. 146, 147, 148); defendants Jones and Lund filed motions to dismiss on October 11, 2022 24 (Doc. Nos. 149, 150); and defendant West filed a motion to dismiss on October 24, 2022 (Doc. 25 No. 161.) Plaintiff filed oppositions to the nine pending motions to dismiss on October 14, 2022 26
27 3 Plaintiff’s SAC initially asserted ten causes of action. (See Doc. No. 129 at 39, 42.) One of these causes of action, however, was asserted against only the City of New Haven, which has 28 since been dismissed as a defendant in this action. (See id. at 39; Doc. No. 144.) 1 (Doc. Nos. 152, 156); October 17, 2022 (Doc. No. 158); October 24, 2022 (Doc. Nos. 163, 165, 2 167); October 25, 2022 (Doc. Nos. 169, 171); and November 7, 2022 (Doc. No. 178). 3 Defendants Garcetti, Johnson, Scott, Harp, Lopez, Tubbs, and Jones filed replies thereto on 4 October 24, 2022 (Doc. Nos. 160, 162); October 27, 2022 (Doc. No. 173); November 3, 2022 5 (Doc. Nos. 174, 175); and November 4, 2022 (Doc. No. 176), respectively.4 6 LEGAL STANDARD 7 A. Motion to Dismiss for Failure to State a Claim Pursuant to Rule 12(b)(6) 8 The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal 9 sufficiency of the complaint. N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 10 1983). “Dismissal can be based on the lack of a cognizable legal theory or the absence of 11 sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 12 F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege “enough facts to state a claim to 13 relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A 14 claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw 15 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. 16 Iqbal, 556 U.S. 662, 678 (2009). 17 In determining whether a complaint states a claim on which relief may be granted, the 18 court accepts as true the allegations in the complaint and construes the allegations in the light 19 most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Love v. 20 United States, 915 F.2d 1242, 1245 (9th Cir. 1989), abrogated on other grounds by DaVinci 21 Aircraft, Inc. v. United States, 926 F.3d 1117 (9th Cir. 2019). However, the court need not 22 assume the truth of legal conclusions cast in the form of factual allegations. U.S. ex rel. Chunie v. 23 Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not require detailed 24 factual allegations, “it demands more than an unadorned, the-defendant-unlawfully-harmed-me 25 accusation.” Iqbal, 556 U.S. at 678. A pleading is insufficient if it offers mere “labels and 26
27 4 Defendants West, Lund, and Stanton did not file replies in support of their pending motions to dismiss. Pursuant to Local Rule 230(d), a moving party “may” file a reply to any opposition filed 28 by a responding party but is not required to do so. 1 conclusions” or “a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. 2 at 555; see also Iqbal, 556 U.S. at 676 (“Threadbare recitals of the elements of a cause of action, 3 supported by mere conclusory statements, do not suffice.”). Moreover, it is inappropriate to 4 assume that the plaintiff “can prove facts that it has not alleged or that the defendants have 5 violated the . . . laws in ways that have not been alleged.” Associated Gen. Contractors of Cal., 6 Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). 7 In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the court is permitted 8 to consider material that is properly submitted as part of the complaint, documents that are not 9 physically attached to the complaint if their authenticity is not contested and the plaintiffs’ 10 complaint necessarily relies on them, and matters of public record. Lee v. City of Los Angeles, 11 250 F.3d 668, 688–89 (9th Cir. 2001). 12 ANALYSIS 13 In their motions to dismiss, defendants argue that plaintiff lacks standing to assert RICO 14 claims, plaintiff’s RICO and state law claims fail to state a claim upon which relief may be 15 granted, and upon the dismissal of plaintiffs RICO claims, the court should decline to exercise 16 supplemental jurisdiction over plaintiff’s state law claims. (Doc. Nos. 136 at 8–9, 25; 137 at 7–8; 17 142 at 10–11, 31; 146-1 at 7–8, 29; 147 at 8–9, 26; 148 at 6; 149-1 at 5–6, 19–20; 150-1 at 2, 5; 18 161 at 3.) The court first considers whether plaintiff has standing to assert civil RICO claims 19 against the RICO defendants. 20 A. Plaintiff Lacks Standing to Assert RICO Claims 21 The civil RICO statutes authorize suits and the award of treble damages against 22 individuals or entities who, through a “pattern of racketeering activity,” acquire an interest in, or 23 conduct the business of, an enterprise engaged in interstate or foreign commerce. 18 U.S.C. 24 §§ 1962(b), 1962(c), 1964(d). In particular, §§ 1962(c) and 1962(d), the provisions under which 25 plaintiff asserts its RICO claims here, prohibit conducting the affairs of an enterprise engaged in 26 interstate or foreign commerce through a pattern of racketeering activities or conspiring to do so. 27 To maintain an action in federal court, plaintiffs must allege facts showing that they have 28 Article III standing. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). Plaintiffs bringing 1 claims under the federal RICO statute must also meet additional standing requirements.5 See 2 Canyon Cnty. v. Syngenta Seeds, Inc., 519 F.3d 969, 972 (9th Cir. 2008). Under RICO’s civil 3 enforcement mechanism, “[a]ny person injured in his business or property by reason of a 4 violation of [18 U.S.C. § 1962] may sue therefor in any appropriate United States district court.” 5 18 U.S.C. § 1964(c). To have standing under § 1964(c), a plaintiff must allege: (1) “that his 6 alleged harm qualifies as injury to his business or property;” and (2) “that his harm was ‘by 7 reason of’ the RICO violation, which requires the plaintiff to establish proximate causation.” 8 Canyon Cnty., 519 F.3d at 972 (citing Holmes v. Sec. Inv. Prot. Corp., 503 U.S. 258, 268 (1992); 9 Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)). 10 In connection with the first requirement, the necessary injury to business or property 11 requires tangible and concrete financial loss, rather than speculative or uncertain harm. Guerrero 12 v. Gates, 442 F.3d 697, 707 (9th Cir. 2006); Steele v. Hosp. Corp. of Am., 36 F.3d 69, 71 (9th Cir. 13 1994). With respect to causation, “[t]he civil RICO statute requires plaintiffs ‘to show that 14 a RICO predicate offense not only was a ‘but for’ cause of [their] injury, but was the proximate 15 cause as well.’” In re Volkswagen “Clean Diesel” Mktg., Sales Pracs., & Prod. Liab. Litig., 349 16 F. Supp. 3d 881, 905 (N.D. Cal. 2018) (quoting Hemi Grp., LLC v. City of New York, 559 U.S. 1, 17 9 (2010)), aff’d, 842 F. App’x 112 (9th Cir. 2021). Reliance “on an ‘attenuated chain of 18 conjecture’” is insufficient to support proximate causation under § 1964(c). Salmon Spawning & 19 Recovery All. v. Gutierrez, 545 F.3d 1220, 1228 (9th Cir. 2008) (citation omitted). The “central 20 question” a court must ask when evaluating proximate causation with respect to RICO claims is 21 “whether the alleged violation led directly to the plaintiff’s injuries.” Anza v. Ideal Steel Supply 22 Corp., 547 U.S. 451, 461 (2006). 23 Plaintiff appears to assert that it has suffered two distinct injuries in connection with the 24 bribery schemes alleged in its SAC. First, plaintiff contends that it was injured “months before 25
5 While challenges to a plaintiff’s Article III standing are appropriate for resolution under Federal 26 Rule of Civil Procedure 12(b)(1), “the question of statutory [RICO] standing is to be resolved 27 under Rule 12(b)(6).” Canyon Cnty. v. Syngenta Seeds, Inc., 519 F.3d 969, 974 n.7 (9th Cir. 2008). Here, defendants do not challenge plaintiff’s Article III standing, and the court thus 28 conducts its standing analysis pursuant to Rule 12(b)(6). 1 the publication of the book [by Bluford]” when the City of New Haven canceled its contract with 2 plaintiff “and refused to pay [p]laintiff for goods and services [p]laintiff had already provided to 3 the City of New Haven under the contract,” despite plaintiff having already expended “many 4 hundreds of thousands of dollars” in furtherance of that agreement. (Doc. Nos. 152 at 13; 156 at 5 13; 158 at 14; 163 at 14; 165 at 14–15; 167 at 14–15; 169 at 14–15; 178 at 13.) Second, as 6 alleged in the SAC, plaintiff asserts that it was injured by damage to its reputation caused by the 7 alleged bribery schemes, noting that “[b]efore the bribery scheme[s] became public knowledge, 8 [p]laintiff was valued at $15 Million Dollars,” but after Bluford’s book was published, “the value 9 of [p]laintiff has plummeted to zero,” and “no municipality in the United States will now do 10 business with a company that was involved in FBI sting operations offering bribes to public 11 officials to secure city contracts.” (Doc. No. 129 at ¶ 63; see also, e.g., Doc. No. 156 at 15.) 12 The parties do not dispute that plaintiff has sufficiently alleged that it suffered an injury to 13 its business or property for the purposes of a RICO standing analysis; rather, the parties dispute 14 whether plaintiff has sufficiently alleged that the alleged bribery schemes were the proximate 15 cause of these injuries. (See, e.g., Doc. Nos. 137 at 14–15; 152 at 12–13.) The court will 16 consider in turn whether plaintiff has adequately alleged that the alleged RICO violations were 17 the proximate cause of its two alleged injuries, which is required in order for plaintiff to have 18 standing to assert its RICO claims. See Canyon Cnty., 519 F.3d at 972. 19 Plaintiff attempts to connect its first alleged injury to the alleged bribery schemes by 20 arguing that the City of New Haven canceled its contract with plaintiff because “the FBI informed 21 the City of New Haven in February of 2020 that its contract with [p]laintiff had not been obtained 22 ‘in good faith.’” (See, e.g., Doc. No. 156 at 13.) However, this allegation alone does not indicate 23 that the alleged bribery schemes are what “led directly” to the alleged harm to plaintiff stemming 24 from the City of New Haven’s decision to cancel its contract with plaintiff. See Anza, 547 U.S. at 25 461. To the contrary, this alleged injury describes a monetary loss stemming from a contracting 26 party’s non-performance of that contract. Indeed, plaintiff even argues in its oppositions to the 27 pending motions that it has “voluntarily dismissed the City of New Haven from this action in 28 order to bring its breach of contract action against the City of New Haven in the appropriate 1 federal district court.” (See, e.g., Doc. No. 156 at 12) (emphasis added). Thus, as alleged by 2 plaintiff, the City of New Haven’s alleged nonperformance, rather than the RICO defendants’ 3 alleged bribery schemes, was the proximate cause of plaintiff’s injury in this regard. Although 4 plaintiff contends that the FBI “intervened to prevent the City of New Haven from compensating 5 plaintiff,” in theory, the City of New Haven could have refused to accept any alleged bribe 6 payments while still proceeding to pay plaintiff for the services plaintiff rendered, in which case, 7 plaintiff would not have sustained the claimed injury. (Doc. No. 156 at 13.) In other words, as 8 alleged, the City of New Haven’s alleged nonperformance, rather than the alleged bribery 9 schemes themselves, led directly to plaintiff’s first claimed injury. Accordingly, plaintiff has 10 failed to establish that the alleged RICO violations were the proximate cause of plaintiff’s first 11 alleged injury. See Guerrero v. Gates, 110 F. Supp. 2d 1287, 1292 (C.D. Cal. 2000) (“A plaintiff 12 only has [RICO] standing if, and can only recover to the extent that, he has been injured in his 13 business or property by the conduct constituting the violation.”). 14 With respect to plaintiff’s second alleged injury of loss of business value due to 15 reputational harm stemming from the alleged bribery schemes, the RICO defendants argue that 16 the municipalities at the center of the schemes alleged by plaintiff—New Haven, Stockton, 17 Phoenix, and Los Angeles—were the direct victims of the alleged RICO violations, and any 18 injury resulting to plaintiff was indirect. (See Doc. Nos. 136 at 17; 137 at 13–14; 142 at 19–20; 19 146-1 at 16; 147 at 15; 148 at 7–8; 149-1 at 17; 161 at 3.) Because proximate causation in the 20 RICO standing context requires “some direct relation between the injury asserted and the 21 injurious conduct alleged,” the RICO defendants argue that plaintiff has failed to establish 22 proximate causation and thus lacks standing to assert its RICO claims. Anza, 547 U.S. at 457 23 (citing Holmes, 503 U.S. at 259) (emphasis added); (see Doc. Nos. 136 at 16; 137 at 15; 142 at 24 21; 146-1 at 17; 147 at 15; 148 at 7; 149-1 at 17; 161 at 3.) In opposition, plaintiff counters that 25 while “[t]he municipalities may have been the intended victim of the bribery schemes by the 26 RICO defendants, . . . the only actual victim was [p]laintiff.” (Doc. No. 156 at 19) (emphasis in 27 original). Specifically, plaintiff argues that it was the direct victim of the alleged bribery 28 schemes, not the municipalities, because the FBI protected the municipalities from suffering any 1 harm from the alleged sting operations6 and/or would have stopped the municipalities from 2 paying plaintiff for its services. (Doc. Nos. 152 at 12; 156 at 12–13; 158 at 13; 163 at 13; 165 at 3 13–14; 167 at 13–14; 169 at 14; 178 at 12.) 4 Although plaintiff argues that the FBI would have prevented the municipalities from 5 paying plaintiff, plaintiff cites no authority in support of the proposition that a municipality is 6 only a victim of its public officials’ illegal behavior if the municipality actually pays for a 7 contract obtained in bad faith.7 (See, e.g., Doc. No. 152 at 12–13.) Even assuming, without 8 deciding, that plaintiff is correct in this regard, it does not follow that if the municipalities in 9 question are not technically eligible to have been direct legal victims of the RICO defendants’ 10 behavior, then plaintiff must necessarily have been a direct victim of the alleged bribery schemes. 11 Rather, “the central question . . . is whether the alleged [RICO] violation led directly to the 12 plaintiff’s injuries.” Anza, 547 U.S. at 461. 13 In this case, plaintiff has not alleged facts that, if proven, would establish that the alleged 14 RICO violation led directly to his second alleged injury. To the contrary, plaintiff’s allegations 15 suggest that it was the public discovery of the alleged RICO violations that led directly to this 16 injury: plaintiff alleges that “[b]efore the bribery scheme[s] became public knowledge, [p]laintiff 17 was valued at $15 Million Dollars,” but “[a]fter the bribery scheme[s] became public knowledge, 18 the value of [p]laintiff has plummeted to zero.” (Doc. No. 129 at ¶ 39.) Thus, the court agrees 19 6 Notably, as pointed out by defendant Garcetti, it is unclear from the face of plaintiff’s SAC how 20 the FBI would have protected the municipalities from suffering any harm from the alleged schemes, because, according to the SAC, at least some of the alleged bribes occurred before the 21 FBI allegedly involved itself by initiating sting operations. (Compare Doc. No. 129 at ¶ 57 (alleging that defendant Garcetti agreed to a bribery scheme in May 2018) with id. at ¶ 22 22 (describing the incipience of the FBI’s sting operations in October 2018)); (see also Doc. No. 160 23 at 8.)
24 7 Similarly, as noted by defendant Garcetti, despite plaintiff’s argument that “involving [p]laintiff as an unknowing and unsuspecting participant in criminal activity is . . . a direct and substantial 25 harm to plaintiff all by itself” (Doc. No. 156 at 15), plaintiff “does not cite a single case holding that merely involving a plaintiff in criminal activity gives that plaintiff standing to assert a RICO 26 claim” pursuant to § 1964(c). (Doc. No. 160 at 9.) Plaintiff’s lack of support for this argument is 27 particularly noteworthy given that the district judge previously assigned to this case rejected this same argument in the order dismissing plaintiff’s first amended complaint “because [p]laintiff 28 provide[d] no authority for this assertion.” (Doc. No. 125 at 11 n.7.) 1 with the RICO defendants that plaintiff “pleads injury suffered from the public exposure of the 2 [alleged bribery] scheme[s],” rather than pleading injury caused by the alleged bribery schemes 3 themselves. (See Doc. Nos. 136 at 17; 137 at 7–8; 142 at 21–22; 146-1 at 12; 147 at 15–16; 148 4 at 7; 149-1 at 17.) Here, the alleged RICO violations were allegedly intended to benefit plaintiff 5 by helping it obtain city contracts, such that “the commission of the RICO violations was not 6 what injured [plaintiff],” but rather “the exposure of those acts.” 8 In re Am. Exp. Co. S’holder 7 Litig., 39 F.3d 395, 400 (2d Cir. 1994). An injury caused by the public exposure of a RICO 8 violation does not satisfy the proximate cause requirement with respect to a plaintiff’s standing to 9 assert a RICO claim. See id.; In re Volkswagen “Clean Diesel” Mktg., Sales Pracs., & Prod. 10 Liab. Litig., No. 3:16-cv-02086-CR, 2019 WL 6749534, at *4 (N.D. Cal. Dec. 6, 2019) (finding 11 that the “chain of causation between the challenged conduct and the [plaintiffs’] damages is . . . 12 lacking” where it was the “fraud’s discovery, not the fraud itself, that caused the [plaintiffs’] 13 buyback-related losses”), aff’d, 842 F. App’x 112 (9th Cir. 2021); Meng v. Schwartz, 116 F. 14 Supp. 2d 92, 97 (D.D.C. 2000) (finding that proximate causation for RICO purposes is not 15 established where an injury arises “as a result of the scandal, not the scheme itself”), aff’d, 48 F. 16 App’x 1 (D.C. Cir. 2002); see also Hemi Grp., 559 U.S. at 11 (declining to extend RICO liability 17 “to situations where the defendant’s fraud on the third party (the State) has made it easier for a 18 fourth party . . . to cause harm to the plaintiff”); In re Brocade Commc’ns Sys., Inc. Derivative 19 8 Plaintiff also alleges that plaintiff itself only became aware of the alleged bribery schemes 20 when the public did, upon the publication of Bluford’s book entitled The Mighty Have Fallen in October 2020. (Doc. No. 129 at ¶ 22.) In its oppositions to the pending motions, plaintiff 21 reiterates its previously unsuccessful argument that the publication of Bluford’s book was not the proximate cause of plaintiff’s injuries because “[p]ublic policy dictates that the publishing of a 22 book is [a] constitutionally protected activity and as a matter of law cannot be found to be the 23 proximate cause of [p]laintiff’s damages.” (See, e.g., Doc. No. 156 at 16.) In this regard, plaintiff appears to assume that it must somehow have standing to bring this action, opine that one 24 potential proximate cause of its injuries would not confer standing, and from there, conclude that the proximate cause of its injuries must necessarily instead be defendants’ alleged bribery 25 schemes. Plaintiff is simply incorrect and its ipse dixit reasoning unpersuasive. Plaintiff may not pick and choose the proximate cause of its injuries simply based upon what would increase its 26 chances of success in this action. In any event, and as the court explained in rejecting this 27 identical contention in the prior order dismissing plaintiff’s first amended complaint, “[t]he [c]ourt does not find this argument persuasive because [p]laintiff provides no authority for this 28 assertion.” (Doc. No. 125 at 11 n.7.) 1 Litig., 615 F. Supp. 2d 1018, 1043 (N.D. Cal. 2009) (“Where conduct was not intended to injure 2 the plaintiff, a RICO claim may not survive, even if the plaintiff eventually suffered harm”). 3 Accordingly, plaintiff has failed to allege facts that, if proven, would establish that the alleged 4 RICO violations were the proximate cause of plaintiff’s second alleged injury. 5 Because plaintiff has failed to sufficiently allege that it suffered injury by reason of the 6 alleged RICO violations, the court finds that plaintiff lacks standing to assert its RICO claims. In 7 reaching this conclusion, the court agrees with the RICO defendants that plaintiff has not pled 8 sufficient facts in its SAC to alter the court’s prior conclusion, which was set forth in the order 9 dismissing plaintiff’s first amended complaint, that plaintiff did not have standing to assert its 10 RICO claims because plaintiff was “directly harmed by the public exposure of the bribery 11 schemes and therefore only indirectly from the bribery schemes themselves.” (Doc. No. 125 at 12 11; see also Doc. Nos. 136 at 21; 137 at 8; 142 at 10; 146-1 at 7; 147 at 8–9; 148 at 6.) Because 13 plaintiff has previously been granted leave to amend and failed to cure the pleading deficiencies 14 identified by the court, the court finds that the granting of further leave to amend here would be 15 futile. See Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010) (“A district court 16 may deny a plaintiff leave to amend . . . if the plaintiff had several opportunities to amend its 17 complaint and repeatedly failed to cure deficiencies.”); Boyack v. Regis Corp., 812 F. App’x 428, 18 431 (9th Cir. 2020)9 (affirming dismissal without leave to amend due to a plaintiff’s failure to 19 cure pleading deficiencies); see also Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051 (9th Cir. 20 2008) (“Dismissal without leave to amend is proper if it is clear that the complaint could not be 21 saved by amendment.”); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) 22 (noting that “[l]eave need not be granted where the amendment of the complaint . . . constitutes 23 an exercise in futility”). Therefore, the court will grant the RICO defendants’ motions to dismiss 24 plaintiff’s RICO claims without leave to amend.10
25 9 Citation to this unpublished Ninth Circuit opinion is appropriate pursuant to Ninth Circuit Rule 36-3(b). 26
27 10 Because the court grants the RICO defendants’ motions to dismiss plaintiff’s RICO claims due to plaintiff’s lack of standing, the court need not address the remainder of the RICO defendants’ 28 Rule 12(b)(6) arguments with respect to these claims. 1 B. Plaintiff’s Remaining State Law Claims 2 Plaintiff brings this action in this court on the basis of federal question jurisdiction 3 pursuant to 28 U.S.C. § 1331. (Doc. No. 129 at ¶ 1.) Because the court is dismissing plaintiff’s 4 RICO claims, only plaintiff’s state law causes of action remain. Defendants Johnson, Scott, Harp, 5 Lopez, Tubbs, Stanton, Jones, and West contend that the court should decline to exercise 6 supplemental jurisdiction over those state law claims because plaintiff’s federal claims are subject 7 to dismissal.11 (Doc. Nos. 137 at 26–27; 142 at 31; 146-1 at 26; 147 at 26; 148 at 13; 149-1 at 19; 8 161 at 3.) Plaintiff addresses the issue of this court’s jurisdiction over its state law claims only in 9 its opposition to defendant Lund’s pending motion to dismiss. (Doc. No. 171 at 3–4.) Therein, 10 plaintiff argues that defendant Lund’s motion to dismiss in this regard identifies only a 11 “hypothetical situation” in which plaintiff’s RICO claims are dismissed and asserts that it is 12 “totally improper and frivolous for [d]efendant Lund to file a motion to dismiss based on a 13 hypothetical circumstance which does not exist, and which may never exist.” (Id. at 3.) 14 Unfortunately for plaintiff, that “hypothetical situation” does, in fact, now exist. 15 “The elimination of federal claims does not automatically deprive district courts 16 of subject matter jurisdiction over state law claims.” Salinas v. Foucault-Grgich, No. 21-cv- 17 04920-DMR, 2022 WL 3998503, at *3 (N.D. Cal. Aug. 31, 2022). Once all federal claims have 18 been dismissed from a case, whether to retain jurisdiction over any remaining state law claims is 19 left to the discretion of the district court. See 28 U.S.C. § 1367(c)(3); Acri v. Varian Assocs., Inc., 20 114 F.3d 999, 1000 (9th Cir. 1997). Generally, if federal claims are dismissed prior to trial, state 21 law claims should be remanded to state court “both as a matter of comity and to promote justice 22 between the parties, by procuring for them a surer-footed reading of applicable law.” United 23 Mine Workers v. Gibbs of Am., 383 U.S. 715, 726 (1966); see also Carnegie-Mellon Univ. v. 24 Cohill, 484 U.S. 343, 350 n.7 (1988) (noting that “in the usual case in which all federal-law 25
11 Defendant Lund raises a similar, but slightly different, argument in his pending motion. He 26 argues that plaintiff’s state law claims should be dismissed for lack of subject matter jurisdiction 27 if the motions to dismiss plaintiff’s RICO claims are granted, and, to that end, requests that the court first consider the RICO defendants’ pending motions to dismiss before ruling upon his 28 motion to dismiss. (Doc. No. 150-1 at 2, 5–6.) 1 claims are eliminated before trial, the balance of factors to be considered . . . will point toward 2 declining to exercise jurisdiction over the remaining state-law claims.”). If the court declines to 3 exercise supplemental jurisdiction over the state-law claims in a case initially filed in federal 4 court, the court must dismiss those claims without prejudice. See Carnegie-Mellon Univ., 484 5 U.S. at 350–51 (concluding that “[w]hen the balance of these factors indicates that a case properly 6 belongs in state court, . . . the federal court should decline the exercise of jurisdiction by 7 dismissing the case without prejudice” because “remand [is] not an option”). The factors to be 8 weighed are “the values of judicial economy, convenience, fairness, and comity.” Id. at 350. 9 The court concludes that the exercise of supplemental jurisdiction over plaintiff’s state 10 law claims is not warranted in this case. The parties have raised multiple arguments related to the 11 application of California law to plaintiff’s state law claims for negligence, breach of contract, 12 fraud, and theft. (See Doc. Nos. 136 at 28–29; 137 at 22–24; 142 at 32–34; 146-1 at 27–28; 147 13 at 20–25; 148 at 13; 152 at 25–28; 156 at 24; 158 at 29; 160 at 17–18; 161 at 3; 162 at 11–13; 163 14 at 29–30; 165 at 27–29; 167 at 28–29; 169 at 29; 178 at 25; 173 at 10–11; 174 at 9; 175 at 13–14; 15 176 at 5–6.) These disputes are best resolved by state courts, since the role of the federal courts 16 in addressing state law claims is to attempt to divine how the California Supreme Court would 17 determine any particular issue. See Vernon v. City of Los Angeles, 27 F.3d 1385, 1391 (9th Cir. 18 1994). This is a task for which the state courts are better suited and declining to exercise 19 supplemental jurisdiction under such circumstances is appropriately respectful of the dual 20 sovereignty of the federal government and the state of California. Moreover, since this is only the 21 second order ruling on motions to dismiss filed in this case, judicial economy does not compel the 22 exercise of supplemental jurisdiction over plaintiff’s remaining state law claims. See Aguaristi v. 23 Cnty. of Merced, No. 1:18-cv-01053-DAD-EPG, 2022 WL 2392621, at *18 (E.D. Cal. July 1, 24 2022) (finding that judicial economy did not compel the exercise of supplemental jurisdiction 25 over plaintiff’s remaining state law claims where the pending motion for summary judgment was 26 “only the second motion filed in this case on which the court has ruled”). In sum, the court 27 concludes that the interests of comity and justice are best served by this court declining the 28 ///// 1 exercise of supplemental jurisdiction over plaintiff’s remaining state law claims.12 Plaintiff’s 2 state law claims will therefore be dismissed without prejudice to the refiling of those claims in 3 state court.13 4 CONCLUSION 5 For the reasons set forth above, 6 1. The motions to dismiss filed on behalf of defendants Garcetti, Johnson, West, 7 Harp, Jones, Scott, Tubbs, Lopez, and Stanton (Doc. Nos. 136, 137, 142, 146, 147, 8 148, 149, 161) are granted, in part, as follows: 9 a. Defendants Garcetti’s, Johnson’s, West’s, Harp’s, Jones’s, Scott’s, 10 Tubbs’s, Lopez’s, and Stanton’s motions to dismiss plaintiff’s RICO 11 claims for lack of standing (Doc. Nos. 136, 137, 142, 146, 147, 148, 149, 12 161) are granted, without leave to amend; and 13 b. The remainder of defendants Garcetti’s, Johnson’s, West’s, Harp’s, 14 Jones’s, Scott’s, Tubbs’s, Lopez’s, and Stanton’s motion to dismiss (Doc. 15 Nos. 136, 137, 142, 146, 147, 148, 149, 161) are denied as having been 16 rendered moot by this order; 17 2. The court declines to exercise supplemental jurisdiction over plaintiff’s remaining 18 state law claims, and those claims are dismissed without prejudice to their filing in 19 state court; 20 12 The court also notes that any applicable statute of limitations under state law has been tolled 21 during the pendency of this action. See 28 U.S.C. § 1367(d) (tolling the limitation period for any claim asserted in a federal action by way of supplemental jurisdiction both while the claim is 22 pending “and for a period of 30 days after it is dismissed unless State law provides for a longer 23 tolling period”); Artis v. District of Columbia, ___ U.S. ___, 138 S. Ct. 594, 598 (2018) (“We hold that § 1367(d)’s instruction to ‘toll’ a state limitations period means to hold it in abeyance, 24 i.e., to stop the clock.”).
25 13 As described above, defendant Lund’s motion to dismiss is based only upon the court’s lack of subject matter jurisdiction over this action following the dismissal of plaintiff’s federal claims. 26 (See Doc. No. 150-1 at 2.) Because the court is dismissing plaintiff’s federal claims in this action 27 and declines to exercise supplemental jurisdiction over plaintiff’s remaining state law claims, the court will deny defendant Lund’s motion to dismiss (Doc. No. 150) as having been rendered moot 28 by this order. 1 3. Defendant Lund’s motion to dismiss (Doc. No. 150) is denied as having been 2 rendered moot by this order; and 3 4. The Clerk of the Court is directed to close this case. 4 IT IS SO ORDERED. > | Dated: _ April 13, 2023 Dal A. 2, el 6 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 16