Kan-Di-Ki, LLC v. John Sorenson

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 13, 2018
• Docket: 16-56139
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION FEB 13 2018 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

KAN-DI-KI, LLC, a California limited No. 16-56139 liability company doing business as Diagnostic Laboratories, D.C. No. 8:15-cv-01372-JLS-E Plaintiff-Appellant,

v. MEMORANDUM*

JOHN LESLIE SORENSON and TIMOTHY JAMES PAULSON,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California Josephine L. Staton, District Judge, Presiding

Argued and Submitted February 6, 2018 San Francisco, California

Before: THOMAS, Chief Judge, and D.W. NELSON and CHRISTEN, Circuit Judges.

Kan-Di-Ki, LLC, d/b/a Diagnostic Laboratories (“DL”), appeals the district

court’s order dismissing its federal claims with prejudice and declining to exercise

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. supplemental jurisdiction over its state law claims. We affirm. Because the parties

are familiar with the history of the case, we need not recount it here.

I

To state a claim under the Racketeer Influenced and Corrupt Organizations

Act (“RICO”), 18 U.S.C. § 1962(c), a plaintiff must allege “(1) conduct (2) of an

enterprise (3) through a pattern (4) of racketeering activity.” Odom v. Microsoft

Corp., 486 F.3d 541, 547 (9th Cir. 2007) (en banc) (citation omitted). To allege a

“pattern of racketeering activity,” a plaintiff must plead that “the racketeering

predicates are related, and that they amount to or pose a threat of continued

criminal activity.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989)

(emphasis in original). To adequately allege the continuity prong, a plaintiff must

allege either “a closed period of repeated conduct” that persisted over a

“substantial period of time” (“closed-ended” continuity) or “past conduct that by

its nature projects into the future with a threat of repetition” (“open-ended”

continuity). Id. at 241-42.

A

The district court properly concluded that the amended complaint does not

adequately plead closed-ended continuity. DL alleges that John Sorensen and

Timothy Paulsen perpetrated a fraud scheme that lasted ten months, from January

2 2012 to October 2012. Even accepting the factual allegations as true and

construing them in the light most favorable to DL, the alleged scheme was limited

in scope. DL has not adequately alleged that Sorensen and Paulsen perpetrated

multiple schemes or that they defrauded any vendors aside from the three x-ray and

laboratory vendors named in the amended complaint. We have declined to adopt a

bright-line rule for how long an alleged scheme must last to establish closed-ended

continuity. Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1528 (9th Cir. 1995). However,

under the circumstances present here, which involved a limited number of

participants and a limited number of alleged actual victims, the alleged scheme was

too limited and short in duration to sufficiently establish closed-ended continuity.

B

The district court properly concluded that the amended complaint does not

adequately plead open-ended continuity. DL argues that Sorensen and Paulsen’s

conduct during 2012 was part of a regular way of doing business, and thus that

their conduct stretches into the future with a threat of repetition. However, the

three vendors targeted provided the same types of services (x-ray and laboratory

services), and all three were targeted in the same time period. The fact that DL

does not identify any other vendors targeted during 2012 suggests that this was a

3 one-time scheme that was aimed at cutting costs in those service categories

(whether fraudulently or legitimately).

DL cites a spreadsheet prepared for Sorensen and Paulsen that lists the total

amount of credits received from the three vendors with the words “Total so far”

inscribed next to the amounts. The spreadsheet only listed credits received from x-

ray and laboratory vendors, and it does not permit the inference that Sorensen and

Paulsen were going to begin targeting new categories of vendors. They may

merely have intended to seek further credits from the x-ray and laboratory vendors

listed on the spreadsheet, whom they had already targeted. Thus, the allegations in

the amended complaint are not sufficient to establish open-ended continuity.

C

The district court properly concluded that the amended complaint does not

adequately plead post-2012 conduct that would bolster its arguments for closed-

ended and open-ended continuity.

DL argues that three internal emails sent in 2013 are evidence that fraudulent

conduct continued beyond 2012. As the district court observed, these emails may

simply reflect that Sorensen and Paulsen were lawfully working to negotiate with

vendors. DL does not plausibly allege that these emails are more likely to reflect

4 an intent to defraud than an intent to reduce costs through legal means. Nor has

DL plausibly alleged that these emails were “incident” to a post-2012 fraud

scheme, because there are no well-pled allegations that there was any scheme to

defraud vendors after 2012. The amended complaint contains no specific facts

about any fraudulent conduct toward any identifiable third parties after 2012.

Thus, the post-2012 fraud allegations do not bolster DL’s arguments for closed-

ended or open-ended continuity.

DL alleges that Sorensen and Paulsen engaged in conduct after 2012 that

was designed to protect and maintain the 2012 scheme, including extortion,

obstruction of justice, and witness tampering. The post-2012 non-fraud allegations

are not adequately pled, and on that ground alone cannot extend the 2012 fraud

scheme. Even if they were adequately pled, actions that merely shield defendants

from liability for a past fraudulent scheme do not extend that scheme unless other

circumstances suggest that the scheme is not yet complete. Cf. Sun Sav. and Loan

Ass’n v. Dierdorff, 825 F.2d 187, 194 (9th Cir. 1987) (actions taken to conceal

kickbacks posed a threat of continuity because they “in no way completed the

criminal scheme”). Thus, the post-2012 non-fraud allegations do not bolster DL’s

arguments for closed-ended or open-ended continuity.

5 II

The district court’s jurisdiction over this case was premised on the existence

of federal law claims. See 28 U.S.C. § 1367(c)(3). The district court properly

dismissed DL’s federal law claims with prejudice. Thus, the court acted within its

discretion when it declined to exercise supplemental jurisdiction over the state law

claims and dismissed those claims without prejudice. We need not, and do not,

determine any other issue urged by the parties.

All pending motions are denied as moot.

AFFIRMED.