Villarroel v. Recology Inc.

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 WILLIAM VILLARROEL, et al., Case No. 24-cv-03266-HSG

8 Plaintiffs, ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS 9 v. Re: Dkt. No. 31 10 RECOLOGY INC., et al., 11 Defendants.

12 13 Pending before the Court is Defendants Recology, Inc., Recology San Francisco, Sunset 14 Scavenger Company, and Golden Gate Disposal & Recycling Company’s (collectively, 15 “Defendants”) motion to dismiss Plaintiffs’ fourth amended complaint. Dkt. No. 31 (“Mot.”). 16 The Court finds the matters appropriate for disposition without oral argument and takes the 17 matters under submission. See Civil L.R. 7-1(b). For the following reasons, the Court GRANTS 18 Defendants’ motion to dismiss. 19 I. BACKGROUND 20 The Court previously dismissed Plaintiffs’ third amended complaint, which accused 21 Defendants of (1) violating California’s Unfair Competition Law (“UCL”), (2) fraud, (3) breach of 22 contract, (4) violating the Consumer Legal Remedies Act (“CLRA”), (5) negligence, and (6) 23 violating the Racketeering Influenced and Corrupt Organization (“RICO”) Act. Dkt. No. 26 24 (“Order”) at 6–21.1 The Court’s Order directed Plaintiffs to file any amended complaint by April 25 18, 2025. Id. at 21. Plaintiffs filed a fourth amended complaint (“4AC”) on April 21, 2025. Dkt. 26 No. 30 (“4AC”). 27 1 Plaintiffs’ 4AC once again brings claims for (1) violating the UCL, (2) fraud, (3) violating 2 the CLRA, (4) negligence, and (5) violating the RICO Act. Plaintiffs do not reassert a claim for 3 breach of contract. A more comprehensive factual background is set forth in the Court’s prior 4 order. See Order at 1–3. 5 II. LEGAL STANDARD 6 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain 7 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A 8 defendant may move to dismiss a complaint for failing to state a claim upon which relief can be 9 granted under Rule 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the 10 complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” 11 Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 12 12(b)(6) motion, a plaintiff need only plead “enough facts to state a claim to relief that is plausible 13 on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible 14 when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that 15 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 16 Rule 9(b) imposes a heightened pleading standard where fraud is an essential element of a 17 claim. See Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party must state with particularity 18 the circumstances constituting fraud or mistake.”); see also Vess v. Ciba–Geigy Corp. USA, 317 19 F.3d 1097, 1107 (9th Cir. 2003). A plaintiff must identify “the who, what, when, where, and how” 20 of the alleged conduct, so as to provide defendants with sufficient information to defend against 21 the charge. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997). However, “[m]alice, intent, 22 knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 23 Rule 9(b). 24 In reviewing the plausibility of a complaint, courts “accept factual allegations in the 25 complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” 26 Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nevertheless, 27 courts do not “accept as true allegations that are merely conclusory, unwarranted deductions of 1 2008) (quoting Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001)). 2 Even if the court concludes that a 12(b)(6) motion should be granted, the “court should 3 grant leave to amend even if no request to amend the pleading was made, unless it determines that 4 the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 5 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quotation omitted). 6 III. DISCUSSION 7 Defendants argue that Plaintiffs’ 4AC “fails to address the deficiencies identified in 8 Plaintiffs’ prior pleading[,]” and therefore “fails to state any claims against Recology.” Mot. at 8. 9 First, with respect to Plaintiffs’ UCL, CLRA, and fraud claims, Defendants argue that Plaintiffs 10 have once again failed to adequately plead actual reliance. Id. Next, Defendants argue that 11 Plaintiffs’ negligence claim fails, because “Plaintiffs have not adequately alleged that Recology 12 breached any legally cognizable duty to Plaintiffs.” Id. at 9. Finally, Defendants argue that 13 “Plaintiffs have not cured the shortcomings . . . in their RICO claim . . . .” Id. The Court first 14 addresses Plaintiffs’ RICO claim. 15 A. Civil RICO Claim (Count VI) 16 To state a claim for a RICO violation under 18 U.S.C. § 1962(c), Plaintiffs must plead that 17 Defendants “participate[d] in (1) the conduct of (2) an enterprise that affects interstate commerce 18 (3) through a pattern (4) of racketeering activity or collection of unlawful debt.” Eclectic Props. 19 E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 997 (9th Cir. 2014). “In addition, the conduct 20 must be (5) the proximate cause of harm to the victim.” Id. “To show the existence of an 21 enterprise under the second element, [P]laintiffs must plead that the enterprise has (A) a common 22 purpose, (B) a structure or organization, and (C) longevity necessary to accomplish the purpose.” 23 Id. “Racketeering activity, the fourth element, requires predicate acts . . . .” Id. The Ninth Circuit 24 has “applied the particularity requirements of [R]ule 9(b) to RICO claims.” Moore v. Kayport 25 Package Exp., Inc., 885 F.2d 531, 541 (9th Cir. 1989). “Rule 9(b) requires that the pleader state 26 the time, place, and specific content of the false representations as well as the identities of the 27 parties to the misrepresentation.” Id. 1 but failed to allege a pattern of racketeering activity and an effect on interstate commerce. Id. at 2 15–21. Plaintiffs’ 4AC once again alleges that Defendants engaged in predicate acts of bribery 3 under 18 U.S.C. § 666, concealment money laundering under 18 U.S.C. § 1956, and honest 4 services wire fraud under 18 U.S.C. §§ 1343. 4AC ¶¶ 333–426. Defendants challenge the 5 adequacy of Plaintiffs’ allegations regarding the predicate acts and effect on interstate commerce. 6 i. Pattern of Racketeering Activity 7 Plaintiffs allege that Defendants engaged in racketeering activity by committing predicate 8 acts of (1) bribery, (2) money laundering, and (3) wire fraud. 4AC ¶¶ 329–426. 9 a. Bribery 10 The 4AC accuses Defendants of bribery in violation of 18 U.S.C. § 666(a)(2), but 11 § 666(a)(2) is not a predicate act listed in § 1961. Plaintiffs acknowledge that “Section 666 12 bribery is not listed as a RICO predicate act under Section 1961” but argue that “the same facts 13 support a RICO predicate racketeering act under California law.” Dkt. No. 32 (“Opp.”) at 12. 14 Plaintiffs ask the Court to “simply deem the 4AC amended since . . . Plaintiffs have already pled 15 all facts necessary to support a bribery count pursuant to 18 U.S.C.S. § 1961(1).” The Court 16 declines to do so. Plaintiffs are responsible for ensuring the adequacy and accuracy of their 17 pleadings and have already had four opportunities to amend their complaint. 18 b. Wire Fraud Under 18 U.S.C. § 1343 19 To state a predicate act of wire fraud in violation of § 1343, a plaintiff must allege “(a) the 20 formation of a scheme to defraud, (b) the use of interstate wires in furtherance of that scheme, and 21 (c) the specific intent to defraud.” Edwards v. Leaders in Cmty. Alternatives, Inc., No. C 18- 22 04609 WHA, 2018 WL 6591449, at *7 (N.D. Cal. Dec. 14, 2018), aff’d, 850 F. App’x 503 (9th 23 Cir. 2021). The Court previously determined that Plaintiffs’ TAC did not “set forth any facts 24 showing that Defendants ‘used interstate wires’ in furtherance of a scheme to defraud.” Order at 25 18. The Court once again finds that “[a]lthough the [4]AC alleges that Defendants wired money 26 to other members of the purported enterprise, Plaintiffs do not allege facts suggesting that the 27 wires were ‘interstate wires.’” Order at 18. Accordingly, the Court finds Plaintiffs have not pled a c. Money Laundering Under 18 U.S.C. § 1956 1 To state a predicate act of money laundering in violation of § 1956, a plaintiff must allege 2 that “(1) the defendant conducted or attempted to conduct a financial transaction; (2) the 3 transaction involved the proceeds of unlawful activity; (3) the defendant knew that the proceeds 4 were from unlawful activity; and (4) the defendant knew ‘that the transaction [was] designed in 5 whole or in part—(i) to conceal or disguise the nature, the location, the source, the ownership, or 6 the control of the proceeds of specified unlawful activity.’” United States v. Wilkes, 662 F.3d 524, 7 545 (9th Cir. 2011) (citation omitted). “[T]ransactions that created the criminally-derived 8 proceeds must be distinct from the money-laundering transaction.” Id. (citation omitted). 9 Defendants argue that Plaintiffs “fail to plead that any of the Recology entities conducted a 10 transaction involving the proceeds of unlawful activity.” Mot. at 26. Defendants specifically 11 argue that “[i]f the funds transferred were lawful proceeds of Recology’s business that were 12 simply ‘intended for Nuru,’ they were not yet the ‘proceeds of unlawful activity’ and cannot 13 support this claim.” Id. at 26–27 (emphasis in original). Plaintiffs counter that “[o]nce Recology 14 made the money available to Giusti for bribery, [the money] became the ‘proceeds’ of bribery and 15 the act of providing the money to Non-Profit A was money laundering.” Opp. at 10. In so 16 arguing, Plaintiffs rely on United States v. Grasso, 724 F.3d 1077 (9th Cir. 2013), and United 17 States v. Wilkes, 662 F.3d 524 (9th Cir. 2011), to suggest that Mr. Giusti’s act of sending money to 18 Non-Profit A is an act “separately punishable under § 1956(a)(1)(B)(i).” Id. at 11. 19 Plaintiffs allege that Mr. Giusti, “acting for Recology in his role as an officer of Recology, 20 laundered the proceeds of unlawful activity, specifically bribe money intended for Nuru, by 21 transferring it on numerous occasions to various non-profit agencies in San Francisco who then 22 provided the money to Nuru or spent it at Nuru’s direction.” 4AC ¶ 385. Plaintiffs also allege that 23 Mr. Giusti, “[a]cting for Recology, [] transferred the proceeds of unlawful activity to non-profit 24 agencies instead of disbursing it directly to Nuru with the express intention of concealing the 25 nature (bribe money) and source (from Recology) and control (by Recology) of Recology’s gifts 26 to Nuru by making the proceeds appear to be proper, ethical and legal donations to such agencies.” 27 Id. ¶ 387. The 4AC makes specific factual allegations regarding (1) Recology’s “increased [] 1 contribution to the [San Francisco Department of Public Works] holiday party” (id. ¶ 394), (2) 35 2 payments Recology made between February 2013 and November 2019 totaling over a million 3 dollars “to Non-Profit A as Giant Sweep donations” (id. ¶ 395), (3) “text messages from Nuru to 4 Non-Profit A’s director instruct[ing] him to forward payments Recology had made to Non-Profit 5 A to Non-Profit B” (id. ¶ 399), and (4) the use of funds in the “Special Projects” account 6 belonging to Non-Profit B (id. ¶ 400–401). 7 It is not entirely clear to the Court whether Plaintiffs’ allegations adequately plead a 8 predicate act of money laundering in violation of § 1956 under the cases they cite. But even 9 assuming they could, Plaintiffs still fail to “identify . . . the role of each defendant in each 10 scheme.” Moore, 885 F.2d at 541. As the Court previously explained, “[w]here RICO is asserted 11 against multiple defendants, a plaintiff must allege at least two predicate acts by each defendant.” 12 Vaughan v. Wardhaugh, No. 23-CV-02879-RFL, 2024 WL 2853972, at *2 (N.D. Cal. May 10, 13 2024). Here, Plaintiffs bring their RICO claim against all Defendants—Recology Inc., Recology 14 San Francisco, Sunset Scavenger Company and Golden Gate Disposal & Recycling Company— 15 but do not specify which predicate acts were committed by which defendant. Once again, 16 Plaintiffs’ RICO claim “‘lump[s] Defendants together without identifying which Defendants are 17 alleged to have committed which crimes on what occasions’ and fail[s] to provide Defendants 18 ‘adequate notice to respond individually as to the alleged predicate acts.’” Order at 19 (quoting 19 Vaughan, 2024 WL 2853972, at *2); see also Moore, 885 F.2d at 541 (“Allegations of fraud under 20 section 1962(c) ‘must identify the time, place, and manner of each fraud plus the role of each 21 defendant in each scheme.’”). Accordingly, the Court finds Plaintiffs have failed to plead a 22 pattern of racketeering activity. 23 ii. Effect on Interstate Commerce 24 As stated in the Court’s prior order, the RICO Act “requires that the activity of the 25 [e]nterprise . . . have an effect on interstate commerce.” United States v. Rone, 598 F.2d 564, 573 26 (9th Cir. 1979). A plaintiff must therefore “demonstrate that the enterprise which is involved in or 27 benefits from the racketeering activity is one engaged in, or having an effect on, interstate 1 least a ‘minimal’ connection with interstate commerce, and must show more than the fact that an 2 alleged RICO enterprise has purchased goods and supplies from out of state.” Belczak v. Shute, 3 No. SACV090305AGANX, 2009 WL 10674167, at *1 (C.D. Cal. June 29, 2009) (citation 4 omitted). 5 The 4AC alleges that the enterprise affected interstate commerce in several ways. First, 6 Plaintiffs allege that “Recology was [] enabled to invest the inflated and wrongfully-earned excess 7 revenues” in (1) physical plants (e.g., recycling facilities), (2) “Recology’s affiliates in 8 Washington and Oregon,” and (3) increased salaries, advertising, executive bonuses and/or other 9 areas wherein such investment accrued to the benefit of the entire organization and its owners, 10 including in its facilities and operations in states other than California.” 4AC ¶ 431; see also id. 11 ¶¶ 432–41. These are the same type of conclusory allegations the Court previously found 12 insufficient to plead an effect on interstate commerce. See Order at 20 (“That Defendants provide 13 waste collection services in Oregon, Washington, and California does not suggest that any 14 illegally obtained profits would necessarily have ‘flowed across state lines.’ And Plaintiffs do not 15 provide any authority suggesting otherwise.”). 16 Next, Plaintiffs allege that “the increased revenue from waste collection stemming from 17 rate increases” allowed Recology to upgrade its recycling centers, which led to an “increase in 18 recycling pickups” and “a similar increase in Recology’s sale of recycling materials in interstate 19 and foreign commerce.” Id. ¶ 435–37. Plaintiffs specifically allege that Recology used its 20 “excessive profits” to “open a new 85,000 square foot material recycling facility in Santa Rosa, 21 California, part of a $60 million dollar funding expenditure to increase Recology’s recycling 22 volume.” Id. ¶ 435. These allegations fail to plausibly allege any effect on interstate commerce. 23 “[I]t is the enterprise’s activities which must ultimately affect interstate commerce . . . .” United 24 States v. Juv. Male, 118 F.3d 1344, 1349 (9th Cir. 1997); see also LaComba v. Eagle Home Loans 25 & Inv., LLC, No. 2:23-CV-00370-KJM-DB, 2024 WL 418646, at *3 (E.D. Cal. Feb. 5, 2024) 26 (“From the complaint, it is unclear how two California entities engaged in lending activities within 27 California are engaged in or affect interstate commerce.”). The actions that Recology undertook, 1 interstate commerce. 2 Next, Plaintiffs allege that “during the pertinent period[,] Recology cultivated its 3 relationships with foreign and interstate mills in order to sell larger amounts of recycled materials 4 in foreign and interstate commerce.” Id. ¶ 438; see also id. ¶¶ 439–41. These allegations, too, are 5 completely untethered to any impact the actions of the enterprise had on interstate commerce. 6 Moreover, these allegations are entirely conclusory and devoid of any factual support. The Court 7 need not “accept as true allegations that are merely conclusory, unwarranted deductions of fact, or 8 unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.), 9 opinion amended on denial of reh’g, 275 F.3d 1187 (9th Cir. 2001); see also LaComba, 2024 WL 10 418646, at *3 (“Here, plaintiffs’ conclusion defendants are engaged in interstate commerce or 11 otherwise engaged in activities affecting interstate commerce is not supported by any factual 12 allegations.”). 13 Finally, Plaintiffs allege that the enterprise “wrongfully depriv[ed] Plaintiffs and the class 14 of $120 million or more, some significant percentage of which would have otherwise been spent 15 in interstate commerce.” Id. ¶ 443; see also id. ¶¶ 444–453. The Court previously found these 16 allegations insufficient to plead an effect on interstate commerce. See Order at 20 (“Plaintiffs’ 17 allegation that ‘some significant percentage’ of the $120 million ‘would [] have been spent in 18 interstate commerce’ is nothing more than bald speculation.”); see also Belczak, 2009 WL 19 10674167, at *2 (“But the [c]ourt finds that these potential effects on interstate commerce 20 constitute ‘exactly that sort of incidental effect on interstate commerce which does not warrant 21 federal jurisdiction.’”) (citation omitted). That Plaintiffs’ 4AC adds more detail regarding the 22 percentage of individuals engaged in online transactions does not change the Court’s analysis. 23 The Court reiterates its prior conclusion that Plaintiffs have failed to allege an effect on 24 interstate commerce. Order at 19–21. “Plaintiffs’ RICO claim is based entirely on conduct that 25 occurred in California[,]” and Plaintiffs have not plausibly alleged how the alleged enterprise 26 affected interstate commerce. Order at 20–21; see also See Dhoat v. Walia, No. 24-CV-03716- 27 JSC, 2024 WL 4804980, at *7 (N.D. Cal. Nov. 15, 2024) (“The complaint otherwise includes no 1 these words parroted from the language of the statute.”). 2 The Court therefore again finds that Plaintiffs have failed on two independent bases to 3 plausibly allege a RICO claim. Defendants ask the Court to dismiss Plaintiffs’ RICO claim with 4 prejudice. Mot. at 25. “A district court [ ] may in its discretion deny leave to amend due to undue 5 delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies 6 by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance 7 of the amendment, [and] futility of amendment.” Zucco Partners, LLC v. Digimarc Corp., 552 8 F.3d 981, 1007 (9th Cir. 2009), as amended (Feb. 10, 2009) (quotations and citations omitted). 9 Moreover, “where the plaintiff has previously been granted leave to amend and has subsequently 10 failed to add the requisite particularity to its claims, ‘[t]he district court's discretion to deny leave 11 to amend is particularly broad.’” Id. (citation omitted). Here, Plaintiffs have once again failed to 12 plead either a pattern of racketeering activity or an effect on interstate commerce. The fact that 13 Plaintiffs failed to correct these deficiencies in their 4AC is “a strong indication that the plaintiffs 14 have no additional facts to plead.” Id. (citation omitted). Accordingly, the Court, in its discretion, 15 denies Plaintiffs leave to amend their RICO claim. Plaintiffs’ RICO claim is DISMISSED WITH 16 PREJUDICE. 17 B. Supplemental Jurisdiction 18 Plaintiffs’ remaining claims are state law claims for fraud, negligence, and violations of the 19 UCL and CLRA. “A district court may, in its discretion, decline to exercise supplemental 20 jurisdiction over a state law claim where . . . the district court has dismissed all claims over which 21 it has original jurisdiction . . . .” Doe v. Google LLC, No. 20-CV-07502-BLF, 2021 WL 4864418, 22 at *7 (N.D. Cal. Oct. 19, 2021), aff’d, No. 21-16934, 2022 WL 17077497 (9th Cir. Nov. 18, 2022) 23 (quoting 28 U.S.C. § 1367(c)). “Where subject matter jurisdiction is based on federal question 24 jurisdiction, the Ninth Circuit has held that ‘[i]n the usual case in which all federal-law claims are 25 eliminated before trial, the balance of factors to be considered under the pendent jurisdiction 26 doctrine – judicial economy, convenience, fairness, and comity – will point toward declining to 27 exercise jurisdiction over the remaining state-law claims.’” Id. (quoting Sanford v. MemberWorks, 1 the Court, in its discretion, declines to exercise supplemental jurisdiction over Plaintiffs’ state law 2 || claims. Accordingly, Plaintiffs’ state law claims are DISMISSED WITHOUT PREJUDICE. 3 || IV. CONCLUSION 4 The Court GRANTS Defendants’ motion to dismiss. Dkt. No. 31. Plaintiffs’ RICO claim 5 is DISMISSED WITH PREJUDICE. The Court declines to exercise supplemental jurisdiction 6 || over Plaintiffs’ remaining state law claims, and those claims are DISMISSED WITHOUT 7 PREJUDICE to refiling in state court. The Clerk is directed to close the case. 8 IT IS SO ORDERED. 9 Dated: 8/8/2025

HAYWOOD S. GILLIAM, JR. United States District Judge 12

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