Husted v. First Capital Real Estate Investments LLC

• Court: District Court, E.D. California
• Decided: March 27, 2020
• Docket: 2:19-cv-01854
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 KIMBERLY HUSTED, CHAPTER 7 No. 2:19-cv-01854-JAM-AC BANKRUPTCY TRUSTEE OF THE 12 BANKRUPTCY ESTATE OF FIRST CAPITAL RETAIL LLC, 13 ORDER GRANTING DEFENDANTS’ Plaintiff, MOTION TO DISMISS 14 v. 15 FIRST CAPITAL REAL ESTATE 16 INVESTMENTS LLC, a California Limited Liability Company; 17 SUNEET SINGAL; FIRST CAPITAL MANAGEMENT LLC, a Nevada 18 Limited Liability Company, 19 Defendants. 20 21 This matter is before the Court on Defendants Suneet Singal 22 (“Singal”), First Capital Real Estate Investments LLC (“FCREI”), 23 and First Capital Management LLC’s (“First Capital Management”) 24 (collectively, “Defendants”) Motion to Dismiss for failure to 25 state a claim upon which relief can be granted. Mot., ECF No. 26 19. Kimberly Husted (“Plaintiff”) filed an opposition to 27 Defendants’ motion, Opp’n, ECF No. 21, to which Defendants 28 replied, Reply, ECF No. 27. After consideration of the parties’ 1 briefing on the motion and relevant legal authority, the Court 2 GRANTS Defendants’ Motion to Dismiss.1 3 4 I. BACKGROUND 5 On September 13, 2019, Plaintiff, the Chapter 7 Bankruptcy 6 Trustee of the Bankruptcy Estate of First Capital Retail LLC 7 (“FCR”), filed suit against Defendants. See Compl., ECF No. 1. 8 Plaintiff alleged Defendants violated the Federal Racketeer 9 Influenced and Corrupt Organizations Act (“RICO”), U.S.C. § 10 1962, engaged in conversion under California law, and committed 11 federal criminal bank fraud, 18 U.S.C. § 1344. Id. The parties 12 have since stipulated that the claim of bank fraud be dismissed 13 with prejudice. See Stipulation to Dismiss Count III, ECF No. 14 25. The remaining allegations stem from a series of factoring 15 agreements and loans that closely followed the sale of Singal’s 16 business, First Capital Retail (“FCR”), to Rameshwar Prasad 17 (“Prasad”) on February 23, 2017. Compl. ¶ 20. 18 Prior to the sale, FCREI wholly owned FCR, a California 19 limited liability company. Id. at ¶¶ 5, 19. Singal served as 20 FCREI’s sole owner and member. Id. at ¶¶ 6, 19. Upon entering 21 into a Membership Interest Purchase Agreement, Prasad acquired 22 FCREI’s one-hundred percent ownership interest in FCR. Id. at 23 ¶ 20. After the sale, and without the knowledge or consent of 24 FCR, Singal allegedly entered into six different loan agreements 25 on behalf of FCR or FCREI, to be repaid from FCR’s future 26

27 1 This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled 28 for February 25, 2020. 1 proceeds. Id. at ¶ 21. Singal did so by representing that he 2 was still the manager of FCR. Id. The agreements provided for 3 repayment of the loans by taking a percentage of FCR’s retail 4 sale proceeds from its regular bank deposits. Id. 5 Singal entered into the first of the agreements on April 4, 6 2017, approximately a month and a half after Prasad acquired 7 FCR. Id. at ¶ 23. Singal signed a Payment Rights Purchase and 8 Sale Agreement with ESBF California, LLC (“ESBF”), wherein ESBF 9 agreed to pay FCR $200,000 in return for the right to recover 10 $248,000 from FCR. Id. Shortly thereafter, on April 18, 2017, 11 Singal entered into a Revenue Based Factoring Agreement with 12 World Global Financing, Inc. (“WGF”), wherein WGF agreed to pay 13 $150,000 for the right to recover twenty-five percent of FCR’s 14 future receipts up to $210,000. Id. at ¶ 28. The next day, 15 Singal entered into an agreement with Happy Rock Merchant 16 Solutions (“Happy Rock”), wherein Happy Rock paid $294,946 in 17 exchange for the right to receive $512,000 from FCR’s future 18 receivables. Id. at ¶ 45. 19 The following month, on May 4, 2017, Singal entered into a 20 Merchant Agreement with Global Merchant Cash, Inc. (“GMC”), 21 wherein GMC paid $100,000 for the right to receive ten percent 22 of FCREI’s future receipts up to $149,900. Id. at ¶ 31. 23 Although this agreement was entered into on behalf of FCREI, 24 Singal allegedly pledged FCR’s assets as additional collateral 25 in the Security Agreement and Guaranty that accompanied it. Id. 26 Then, on May 16, 2017, Singal entered into a Secured Merchant 27 Agreement with Yellowstone Capital West LLC (“YCW”), wherein YCW 28 paid $100,000 for the right to receive fifteen percent of FCR 1 and FCREI’s proceeds up to $149,900. Id. at ¶ 35. The next 2 day, Singal entered into a second Merchant Agreement with GMC, 3 wherein GMC paid $50,000 in exchange for the right to receive 4 ten percent of FCR’s proceeds until GMC recovered $74,950. Id. 5 at ¶ 39. 6 Singal entered into the last of the agreements on June 9, 7 2017. Id. at ¶ 42. Singal signed a Loan Agreement with YCW, 8 wherein YCW paid $250,000 in exchange for the right to recover 9 $5,999 each business day from FCR’s Merchant Account up to 10 $374,750. Id. at ¶ 42. Over the course of the next few months, 11 judgments were entered against FCR for default of payment on 12 these agreements and merchant payments to FCR were withheld. 13 Id. at ¶¶ 48–53. In the end, the lenders’ collection of these 14 sums crippled FCR financially and it filed for Chapter 11 15 bankruptcy on September 14, 2017. Id. at ¶ 58. FCR later 16 converted its bankruptcy to Chapter 7 liquidation and the 17 business was sold for $1.2 million. Id. at ¶ 60. 18 19 II. OPINION 20 A. Requests for Judicial Notice 21 Plaintiff request that the Court take judicial notice of 22 the complaint in S.E.C. v. Singal, et al., Case No. 1:19-cv- 23 11452 (S.D.N.Y. 2019). Request for Judicial Notice (“RJN”), ECF 24 No. 22. But Plaintiff failed to attach a copy of the referenced 25 complaint. See Ex. A to RJN. Instead, Plaintiff attached a 26 copy of the complaint in Heartland Bank v. First Capital 27 Victoria, LLC, et al., Case No. 4:17-cv-549 (E.D. Ark. 2017). 28 Plaintiff request for judicial notice is, therefore, denied. 1 B. Legal Standard 2 A Rule 12(b)(6) motion attacks the complaint as not 3 alleging sufficient facts to state a claim for relief. “To 4 survive a motion to dismiss [under 12(b)(6)], a complaint must 5 contain sufficient factual matter, accepted as true, to state a 6 claim to relied that is plausible on its face.” Ashcroft v. 7 Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and 8 citation omitted). While “detailed factual allegations” are 9 unnecessary, the complaint must allege more than “[t]hreadbare 10 recitals of the elements of a cause of action, supported by mere 11 conclusory statements.” Id. at 678. “In sum, for a complaint 12 to survive a motion to dismiss, the non-conclusory ‘factual 13 content,’ and reasonable inferences from that content, must be 14 plausibly suggestive of a claim entitling the plaintiff to 15 relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 16 2009). 17 C. Analysis 18 1. Count I: RICO 19 Plaintiff brings her first claim against Defendants 20 under RICO, U.S.C. § 1962(c). Compl. ¶¶ 61–79. Under Section 21 1962(c), “[i]t shall be unlawful for any person employed by or 22 associated with any enterprise . . . to conduct or participate, 23 directly or indirectly, in the conduct of such enterprise’s 24 affairs through a pattern of racketeering activity.” 18 U.S.C. 25 § 1962(c). To state a civil claim for a RICO violation, a 26 plaintiff must show: (1) conduct (2) of an enterprise 27 (3) through a pattern (4) of racketeering activity (known as 28 “predicate acts”) (5) causing injury to the plaintiff’s business 1 or property. Grimmett v. Brown, 75 F.3d 506 (9th Cir. 1996) 2 (internal quotation marks and citations omitted). Defendants 3 move to dismiss this claim for two reasons, arguing: 4 (1) Plaintiff failed to adequately plead an enterprise; and 5 (2) Plaintiff does not adequately allege a pattern of predicate 6 acts. Mot. at 3–12. 7 a. Enterprise 8 Section 1962(c) requires Plaintiff to allege two distinct 9 entities: a “person” and an “enterprise.” Cedric Kushner 10 Promotions, Ltd. v. King, 533 U.S. 158, 161, 166 (2001). 11 Liability “depends on showing that the defendants conducted or 12 participated in the conduct of the enterprise’s affairs, not 13 just their own affairs.” Id. at 163 (internal quotation marks 14 and citation omitted). An enterprise that is not a legal 15 entity, such as a corporation, is commonly known as an 16 “association-in-fact” enterprise. Ellis v. J.P. Morgan Chase & 17 Co., No. 12-cv-038979-YRG, WL 78190, at *3 (N.D. Cal 2015) 18 (citation omitted). An association-in-fact enterprise is “any 19 union or group of individuals” “associated together for a common 20 purpose of engaging in a course of conduct.” United States v. 21 Turkette, 452 U.S. 576, 580, 583 (1981). To show an 22 association-in-fact enterprise, Plaintiff must allege facts 23 establishing three elements: (1) a common purpose of engaging in 24 a course of conduct; (2) an ongoing organization, either formal 25 or informal; and (3) facts that provide sufficient evidence the 26 associates function as a continuing unit. Odom v. Microsoft 27 Corp., 486 F.3d 541, 553 (9th Cir. 2007) (citing Turkette, 452 28 U.S. at 583). 1 Plaintiff alleges Defendants were involved in an 2 association-in-fact enterprise. See Compl. ¶¶ 65–66. But 3 Defendants argue “Plaintiff fails to allege any facts that would 4 show the existence of an enterprise as opposed to simply a 5 person alleged to have committed fraud.” Mot. at 7. The Court 6 agrees. Singal is the only individual alleged to have 7 participated in the conduct. See Compl. ¶¶ 21–46. As far as 8 FCREI is concerned, Singal is alleged to have pledged FCREI’s 9 receivables to a lender along with FCR’s on two occasions. Id. 10 at ¶¶ 31, 35. And FCREI is alleged to have received some of the 11 funds from the pledge made by Singal of FCR’s and FCREI’s 12 receivables. Id. at ¶ 45. However, Singal was FCREI’s sole 13 owner and member. Id. at ¶¶ 6, 19. No facts suggest FCREI 14 acted in a capacity separate and distinct from Singal. 15 Singal’s relationship to FCREI is distinguishable from the 16 defendant’s relationship to the corporation in Cedric Kushner 17 Promotions, 533 U.S. 158. There, defendant was the president 18 and sole shareholder of a closely held corporation that promoted 19 boxing matches, Don King Productions. Id. at 160; Cedric 20 Kushner Promotions, Ltd. v. King, Case No. 98-cv-6859, WL 771366 21 (S.D.N.Y 1999). The Supreme Court accepted the above-described 22 “distinctness” principle, but, nonetheless, held defendant was 23 sufficiently distinct from the corporation such that the 24 § 1962(c) requirement was met. Cedric Kushner Promotions, 533 25 U.S. at 163. Defendant was a “natural person” and the 26 corporation, Don King Productions, was “a legally different 27 entity with different rights and responsibilities due to its 28 different legal status.” Id. The distinction turns on the fact 1 that Don King Productions was a separate corporation in the 2 business of promoting boxing matches. Id. at 160. By contrast, 3 FCREI is a limited liability company and Singal is its sole 4 member. Compl. at ¶ 5–6. Unlike the defendant in Cedric 5 Kushner Promotions and Don King Productions, Singal and FCREI 6 are one and the same. There are no other members of FCREI and 7 FCREI has no interests or affairs separate and apart from 8 Singal’s. As such, § 1962(c) distinctness requirement is not 9 met here. 10 No substantive allegations are also asserted against First 11 Capital Management. First Capital Management is merely 12 mentioned as one of the entities controlled by Singal. Compl. 13 at ¶ 66. Thus, the complaint alleges no facts of a formal or 14 informal organization in which individuals function as a 15 continuous unit. As stated above, Plaintiff must allege two 16 distinct entities—a person and an enterprise. Cedric Kushner 17 Promotions, 533 U.S. at 166. Singal is the person, but there is 18 no enterprise distinct from him. Singal was the sole member of 19 FCREI. The few actions taken by FCREI were, in effect, taken by 20 Singal. And there are no facts alleging First Capital 21 Management was substantively involved in any way. Singal, and 22 Singal alone, entered into the agreements on behalf of FCR. 23 Thus, Defendants did not act on behalf of an enterprise. 24 Instead, Singal “conducted . . . [his] own affairs.” Id. at 25 163(internal quotation marks and citation omitted). 26 Notwithstanding the fact that Federal Rule of Civil 27 Procedure 9(b)’s particularity requirement applies, see Edwards 28 v. Marin Park, Inc., 356 F.3d 1058, 1065–66 (9th Cir. 2004), the 1 Court finds that Plaintiff has failed to offer sufficient 2 factual allegations in support of her contention that Defendants 3 associated together to form an association-in-fact enterprise 4 under the pleading standard of Federal Rule of Civil Procedure 5 8. Plaintiff has offered no factual allegations to render 6 plausible her claim that anyone beyond Singal was involved. In 7 alleging an enterprise, Plaintiff only offers the Court a series 8 of conclusory allegations. See Compl. ¶ 65–66. 9 Thus, having construed Plaintiff’s allegations in the light 10 most favorable to her, the Court finds that Plaintiff fails to 11 sufficiently allege the existence of an association-in-fact 12 enterprise. 13 b. Pattern of Predicate Acts 14 Because the Court finds that Plaintiff has failed to allege 15 an association-in-fact enterprise, it follows that Plaintiff has 16 also failed to allege a pattern of predicate acts. Without an 17 association-in-fact enterprise, Plaintiff cannot, as a logical 18 matter, be found to have alleged a pattern of racketeering 19 activity. One cannot stand without the other. See Ellis v. 20 J.P.Morgan Chase & Co., Case No. 12-cv-03897-YGR, WL 78190 (N.D. 21 Cal. 2015) (where the court found plaintiffs failed to allege a 22 common purpose, and, thus, no association-in-fact enterprise, 23 plaintiff could not be found to have alleged distinct enterprise 24 conduct). 25 Accordingly, the Court dismisses Plaintiff’s RICO claim. 26 2. Count II: Conversion 27 Plaintiff’s second claim alleges Defendants committed acts 28 of conversion under California law. Compl. ¶¶ 80–85. Under 28 1 U.S.C. § 1367(c)(3), the Court may “decline to exercise 2 supplemental jurisdiction over state law claims if it has 3 dismissed all federal claims.” Amistad Christian Church v. Life 4 is Beautiful, LLC, 692 Fed. Appx. 922, 923. “[I]n the usual 5 case in which all federal-law claims are eliminated before 6 trial, the balance of factors . . . will point toward declining 7 to exercise jurisdiction over the remaining state-law claims. 8 Acri v. Varian Assocs., Inc., 114 F.3d 999, 1001 (9th Cir.), 9 supplemented, 121 F.3d 714 (9th Cir. 1997), as amended (Oct. 1, 10 1997) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 11 350 n.7 (1988)). 12 With the RICO claim dismissed, only Plaintiff’s conversion 13 claim remains. Considering the values of “economy, convenience, 14 fairness, and comity,” the Court deems it appropriate to decline 15 jurisdiction over Plaintiff’s state law claim. See id. at 1001. 16 The Court has dismissed all claims over which it had original 17 jurisdiction, so Plaintiff’s claim may be more appropriately 18 addressed in state court. 28 U.S.C. § 1367(c)(3). 19 D. Leave to Amend 20 The Court need not grant leave to amend where amendment 21 would be futile. Deveraturda v. Globe Aviation Sec. Servs., 454 22 F.3d 1043, 1049 (9th Cir. 2006). As explained above, an 23 association-in-fact enterprise does not exist here. Thus, no 24 amendment could salvage the RICO claim and the Court declines to 25 /// 26 /// 27 /// 28 /// 1 exercise supplemental jurisdiction over the conversion claim. 2 | Accordingly, dismissal with prejudice is appropriate. 3 4 IIl. ORDER 5 For the reasons set forth above, the Court GRANTS 6 | Defendants’ Motion to Dismiss with prejudice. The Clerk of the 7 Court is directed to close the case. 8 IT IS SO ORDERED. 9 Dated: March 26, 2020 10 kA Geren aaa pebrsacr 00k 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11