Gelow, et al v. Central Pacific Mortgage, et al, No. 2:2007cv01988 - Document 70 (E.D. Cal. 2009)
Court Description: ORDER granting in part and denying in part 64 Motion for Summary Judgment signed by Senior Judge Lawrence K. Karlton on 8/28/09. (Kaminski, H)
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Gelow, et al v. Central Pacific Mortgage, et al Doc. 70 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 MARK GELOW, et al., NO. CIV. S-07-1988 LKK/KJM 12 13 14 Plaintiffs, v. O R D E R CENTRAL PACIFIC MORTGAGE CORPORATION, et al., 15 Defendants. 16 / 17 Plaintiff Mark Gelow and ten other individuals have brought 18 suit against their former employer, Central Pacific Mortgage 19 Company1 20 (“Ivanhoe”); and former executive officers of the two companies, 21 John Courson, John Cassell, and Ed Fuchs. Plaintiffs allege that 22 defendants breached their fiduciary duty under ERISA, 29 U.S.C. § (“CPM”); its subsidiary, Ivanhoe Financial, Inc. 23 24 25 26 1 As the court observed in its February 14, 2008 order, although the plaintiffs named “Central Pacific Mortgage Corporation” as the defendant, the entity is actually named Central Pacific Mortgage Company. Plaintiffs apparently do not dispute this. See Pls.’ Statement of Disputed and Undisputed Facts ¶ 1. 1 Dockets.Justia.com 1 1132, violated the Racketeering Influenced and Corrupt 2 Organizations Act (RICO), 18 U.S.C. § 1962, and are liable for 3 fraud, conversion, and breach of fiduciary duties under state law. 4 In the instant motion, defendants Courson, Cassell, and Fuchs move 5 for summary judgment on all causes of action. For the reasons 6 stated below, the court now grants in part and denies in part the 7 motion. I. FACTS2 8 9 CPM was a California corporation that performed residential 10 mortgage lending through its branch offices in California and 11 elsewhere. 12 Executive Officer from 1990 to 2007, when CPM closed. Beginning 13 in 2000, he was also its sole owner and shareholder. Defendant 14 Cassell was Senior Vice President and Chief Financial Officer from 15 1994 to 2001, at which time he became Executive Vice President of 16 Operations and Administration. Defendant Fuchs was Vice President 17 of Accounting of CPM beginning in 1995 and became Senior Vice 18 President of Finance in 2002 and then Executive Vice President of 19 Finance in 2005. 20 CPM Defendant had Courson branches that was CPM’s originated President mortgage and loans Chief with 21 borrowers, which it bundled and sold to investors, and other 22 branches that purchased mortgage loans from third-party brokers. 23 2 24 25 26 All facts are undisputed unless otherwise noted. Each party has objected to several items of the other’s evidence. Many of these relate to evidence not relied on by the court in ruling on the instant motion. To the extent that the evidence is relied on, the objections are OVERRULED, except as to defendants’ objection to the Declaration of Mark Gelow, discussed infra in note 9. 2 1 Revenues from the bundled and resold loans were used to repay the 2 amount CPM had borrowed to fund the loans, with the surplus used 3 to 4 credited to the branch originating the loan that was funded and 5 tracked in CPM’s general ledger accounting system. pay CPM’s expenses, including salaries. This surplus was 6 Each of the plaintiffs are former CPM branch managers. The 7 branch managers were employees of CPM and, accordingly, all of the 8 plaintiffs signed a Branch Manager Employment Agreement upon 9 attaining that position. Defendants have tendered the employment 10 agreements for some of the plaintiffs, which provide that the 11 agreement as written constitutes the entire employment agreement 12 between the plaintiff and CPM. See Decl. of Kristina Launey In 13 Support of Defs.’ Mot. to Compel Arbitration, Ex. A-G. They also 14 provided that the agreement could only be modified by a signed 15 writing. 16 compensation. According to the agreements, the branch manager could 17 draw a salary based on the net profit of his or her branch.3 It is 18 undisputed that the branch managers had unfettered access to the 19 branch’s net profits and could receive his or her compensation at 20 intervals and in amounts that he or she wished, although they were 21 required to draw a salary of at least $1,100 per pay period.4 Each The agreements set forth the branch manager’s 22 3 23 24 It is also undisputed that CPM offered its employees group health benefits and a 401(k) retirement plan administered by Merrill Lynch. 4 25 26 Plaintiffs state that they dispute this fact, but have tendered no evidence in support of that contention. See Pls.’ Response to Defs. Statement of Undisputed Fact ¶ 89. Elsewhere, plaintiffs’ evidence supports this fact. See Gelow Delc. ¶ 5 3 1 manager received a monthly statement setting forth the branch’s 2 account balance. 3 A. The Branch Accounts 4 The central dispute between the parties concerns the proper 5 characterization of these funds. There is no dispute that the 6 amount of these funds would naturally fluctuate based on the 7 branch’s revenues and expenses at any given time. Defendants 8 contend that the funds were never kept in segregated accounts, but 9 simply represented the maximum amount that the branch managers 10 could draw down. Decl. of John Courson In Support of Defs.’ Mot. 11 for Summ. J. (“Courson Decl.”) ¶ 8; Decl. of Ed Fuchs In Support 12 of Defs.’ Mot. for Summ. J. (“Fuchs Decl.”) ¶ 6. Plaintiffs do not 13 dispute that this was the defendants’ policy, see Pls.’ Response 14 to Defs.’ Undisputed Material Facts ¶¶ 50, 52, but contend that the 15 branch net profits were represented to be the branch managers’ 16 property and could only be used by the branch manager.5 Decl. of 17 Mark Gelow In Support of Pls.’ Opp’n to Defs.’ Mot. for Summ. J. 18 19 20 21 22 23 24 (“Defendants Courson, Cassell and Fuchs each told me on more than one occasion that provided sufficient amounts were present to cover minimum branch expenses, the account could be used by the branch manager owner of the account for any purpose whatsoever . . . .”); Pls.’ Response to Defs.’ Statement of Undisputed Material Facts ¶¶ 182, 184. The accumulated profits for Gelow’s branch appear to have been treated slightly differently than the others, as they were used for his salary as well as the operating expenses of another branch. Plaintiffs do not dispute that Gelow was aware of this. Pls.’ Response to Defs. Statement of Undisputed Fact ¶ 101. 5 25 26 In his deposition, Gelow testified that he could not recall who said this or when. Decl. of Mark Van Brussel In Support of Defs.’ Mot. for Summ. J. (“Van Brussel Decl.”) Ex. E (Gelow Depo. at 65:18-66:3). 4 1 (“Gelow Decl.”) ¶¶ 4, 6; Decl. of Bruce Trout In Support of Pls.’ 2 Opp’n to Defs.’ Mot. for Summ. J. (“Trout Decl.”) ¶ 4; Decl. of 3 Erik Fridley In Support of Pls.’ Opp’n to Defs.’ Mot. for Summ. J. 4 (“Fridley Decl.”) ¶ 4; Decl. of Vici Gordon In Support of Pls.’ 5 Opp’n to Defs.’ Mot. for Summ. J. (“Gordon Decl.”) ¶ 4; Decl. of 6 Stephen Herndon In Support of Pls.’ Opp’n to Defs.’ Mot. for Summ. 7 J. (“Herndon Decl.”) ¶ 4; Decl. of Jeff Just In Support of Pls.’ 8 Opp’n to Defs.’ Mot. for Summ. J. (“Just Decl.”) ¶ 4; Decl. of 9 Jenny Mann In Support of Pls.’ Opp’n to Defs.’ Mot. for Summ. J. 10 (“Mann Decl.”) ¶ 4; Decl. of Stephen Meier In Support of Pls.’ 11 Opp’n to Defs.’ Mot. for Summ. J. (“Meier Decl.”) ¶ 4; Decl. of Art 12 Sierra In Support of Pls.’ Opp’n to Defs.’ Mot. for Summ. J. 13 (“Sierra Decl.”) ¶4; Decl. of Jase Stefanski In Support of Pls.’ 14 Opp’n to Defs.’ Mot. for Summ. J. (“Stefanski Decl.”) ¶ 4; Decl. 15 of Gayle Pederson In Support of Pls.’ Opp’n to Defs.’ Mot. for 16 Summ. J. (“Pederson Decl.”) ¶ 4; Decl. of Mark Van Brussel In 17 Support of Defs.’ Mot. for Summ. J. (“Van Brussel Decl.”) Ex. J 18 (Herndon Depo. at 39:18-40:11). Plaintiffs also contend that CPM’s 19 written policies suggested that each branch’s net profits were held 20 in a separate account. Gelow Decl. ¶ 17, Ex. 3. 21 It is undisputed that the branch managers’ salaries were 22 subject to normal state and federal tax withholdings and deductions 23 and that the branch managers only reported as salary those amounts 24 that they actually drew down from the branch’s net profits. When 25 the funds were reported as salary, they would be subject to income 26 tax and thus the managers preferred not to draw down more than they 5 1 needed. At the end of the year, any net profits the branch retained 2 that had not been drawn as the branch manager’s salary would be 3 rolled over to the next year. Defendants have tendered evidence 4 that none of the CPM staff ever said anything to induce the branch 5 managers to leave large balances in the branch accounts. Van 6 Brussel Decl. Ex. E (Gelow Depo. at 51:21-24, 54:11-14, 59:25- 7 60:3), Ex. I (Trout Depo. at 36:5-8). Plaintiffs do not materially 8 dispute this. See Pls.’ Response to Defs.’ Undisputed Material 9 Facts ¶ 91. It is further undisputed that more than once CPM staff 10 encouraged Gelow to drawn from the account, taking the funds as 11 bonuses. Van Brussel Decl. Ex. E (Gelow Depo. at 42:15-25, 54:4-8, 12 101:22-25), Ex. F (Courson Depo. at 20:19-25, 26:3-27:3), Ex. G 13 (Cassell Depo. at 26:21-27:3); Pls.’ Response to Defs.’ Statement 14 of Undisputed Facts ¶ 92. 15 Defendants have tendered evidence that Courson, Cassell, and 16 Fuchs did not manage, maintain, or keep segregated branch manager 17 accounts or made representations to this effect to the branch 18 managers, except that Fuchs monitored the branch account balances 19 to the extent that they showed as liabilities on CPM’s general 20 ledger. Courson Decl. ¶¶ 6, 8, 10; Fuchs Decl. ¶¶ 4-7; Cassell 21 Decl. ¶¶ 4-7; Van Brussel Decl Ex. H (Fuchs Depo. at 40:17-24, 22 58:9-12); Gelow Depo. at 62:19-63:3-18. Although plaintiffs state 23 that they dispute this, the only evidence they have tendered is 24 Gelow’s declaration that these defendants made representations to 25 him about the financial health of CPM and instructed him that the 26 branch manager accounts were to be used by the branch manager for 6 1 any purpose. See Pls.’ Response to Defs.’ Statement of Undisputed 2 Material Facts ¶¶ 111-113, 125 (citing Gelow Decl. ¶¶ 4-6, 14). 3 There is no dispute that none of the individual defendants ever 4 told the plaintiffs that their branch accounts were employee 5 benefits 6 Undisputed Material Facts ¶ 117; Gelow Depo. 90:16-91:6; Herndon 7 Depo. 80:25-81:12; see also Pls.’ Response to Defs.’ Statement of 8 Undisputed Material Facts ¶ 193 (undisputed that plaintiff Herndon 9 never understood the branch account to be a retirement vehicle); 10 Van Brussel Decl. Ex. I (testimony of plaintiff Trout that none of 11 the individual defendants ever told him that the branch profits 12 could be used for his retirement). Although Gelow testified that 13 Courson’s predecessor told him that the account could be used “for 14 a rainy day,” Courson never made a similar statement to him. See 15 Pls.’ Response to Defs.’ Statement of Undisputed Material Facts ¶¶ 16 154-55. Moreover, it is undisputed that none of the individual 17 defendants told the branch managers that they would have access to 18 the funds after the termination of their employment. plans or retirement plans. See Defs.’ Statement of 19 It is undisputed that CPM staff never told plaintiffs Herndon 20 or Trout that the money in the branch accounts was unreachable by 21 CPM’s 22 Undisputed Material Facts ¶¶ 188, 249; see also Declaration of 23 Stephen Herndon in Support of Pls.’ Opp’n to Defs.’ Mot. for Summ. 24 J. (“Herndon Decl.”) ¶ 5. creditors. See Pls.’ Response to Defs.’ Statement of 25 B. CPM’s Closure 26 CPM began experiencing financial difficulties in mid-2006. 7 1 Later that year, they began negotiations to sell CPM to another 2 company, which was communicated to all CPM employees including 3 through conference calls with and written communications to branch 4 managers by defendant Courson. In January or February 2007,6 5 Courson sent a letter to all branch managers advising that CPM had 6 reached its limit of credit for mortgage loans but that it was 7 endeavoring “to return to business as usual.” Defs.’ Statement of 8 Undisputed Material Fact ¶ 70. Plaintiffs have declared that 9 Courson repeatedly represented during this time that CPM was in 10 good financial health and did not need to be purchased by another 11 company in order to remain open.7 See, e.g, Gelow Decl. ¶¶ 11, 15; 12 Herndon Decl. ¶¶ 12-14. Plaintiffs Mann and Sierra have declared 13 that defendant Cassell also made similar statements. Mann Decl. ¶ 14 11; Sierra Decl. ¶ 12. At the end of February 2007, however, the 15 potential buyer backed out of the purchase. Defendants contend that 16 this 17 recently been recruited away by other companies. Id. ¶¶ 73-74. On 18 February 26, 2007, CPM closed. 19 occurred because some of CPMS’s wholesale branches had When it closed CPM owed its lenders and defaulted on these 20 6 21 The parties dispute the exact date. 7 22 23 24 25 26 It is undisputed that defendant Fuchs did not make statements to the plaintiffs concerning the financial health of CPM. Gelow Decl. ¶ 15; Trout Decl. ¶ 12; Fridley Decl. ¶ 12; Gordon Decl. ¶ 12; Herndon Decl. ¶ 12; Just Decl. ¶ 10; Mann Decl. ¶ 11; Meier Decl. ¶ 11; Sierra Decl. ¶ 12; Stefanski Decl. ¶ 12; Pederson Decl. ¶ 14; see also Pls.’ Response to Defs.’ Statement of Undisputed Material Facts ¶¶ 210, 218. It is also undisputed that no branch manager ever asked Cassell if the money in the branch accounts was safe or whether CPM was having financial problems. See Pls.’ Response to Defs.’ Statement of Undisputed Material Facts ¶ 208. 8 1 loans. It used the assets it had to pay certain bills, taxes, and 2 401(k) obligations. According to CPM’s accountants, based on the 3 assets it held, at no time prior to CPM’s closure did it appear 4 that CPM would not be able to meet its financial obligations.8 Id. 5 ¶¶ 82-83. CPM’s accountant and auditor, Robert Boliard, testified 6 that it only became apparent approximately a week before CPM closed 7 that it did not have sufficient assets to cover its obligations. 8 Van Brussel Decl. Ex. L (Boliard Depo. at 55:23-56:24); see also 9 Pls’ Response to Defs.’ Statement of Undisputed Material Facts ¶ 10 209 (plaintiffs do not materially dispute that prior to CPM’s 11 closure, defendant Cassell did not believe the company was in 12 danger of closing). According to Boliard, the primary reason for 13 CPM’s financial trouble was buy-back demands from investors to whom 14 CPM had sold the loans and it became clear that “something was 15 going wrong for CPM” when the potential buyer backed out of its 16 “commitment to buy Central Pacific.” Id. at 52:6-20, 56:13-24.9 17 There is evidence that Fuchs had a conversation with plaintiff 18 Pederson, who called him to express concern about CPM’s financial 19 health and her branch’s account balance in January 2007. He told 20 her that the company was having financial difficulties but would 21 22 23 8 Plaintiffs dispute this, but have tendered no evidence in support of their assertion. 9 24 25 26 Plaintiffs dispute this only with the declaration of Mark Gelow, in which he stated that Cassell and Fuchs knew the company was not in good financial health beginning in 2006, but has provided no foundation for this conclusory assertion. See Gelow Decl. ¶ 15. Accordingly the court sustains defendants’ objection to this portion of the declaration. 9 1 survive and that if she was concerned about her branch’s balance 2 she could draw down the funds from it. Fuchs Depo. at 37:1:17; 3 Pederson Decl. ¶¶ 6-9. According to Fuchs, this was the only 4 conversation 5 financial health of CPM during its last year. Fuchs Depo. at 36:8- 6 22, 60:11-18. Plaintiff Gelow has declared that Fuchs told him on 7 more than one occasion that the branch account funds were his to 8 use as he liked. Gelow Decl. ¶ 5. he had with any of the plaintiffs about their 9 Plaintiffs Gelow, Herndon, and Trout, in their deposition 10 testified that they had no knowledge of defendants Cassell or 11 Courson having taken any money from Gelow’s branch account for his 12 personal use. Defs.’ Statement of Undisputed Material Facts ¶¶ 107, 13 158, 203, 204, 241. Although plaintiffs now state that they dispute 14 this, they have tendered no material evidence in support of that. 15 See Pls.’ Response to Defs.’ Statement of Undisputed Material Facts 16 ¶¶ 107, 158, 203, 204, 241. II. SUMMARY JUDGMENT STANDARDS UNDER FEDERAL RULE OF 17 CIVIL PROCEDURE 56 18 19 Summary judgment is appropriate when it is demonstrated that 20 there exists no genuine issue as to any material fact, and that the 21 moving party is entitled to judgment as a matter of law. 22 Civ. P. 56(c); see also Adickes v. S.H. Kress & Co., 398 U.S. 144, 23 157 (1970); Secor Ltd. v. Cetus Corp., 51 F.3d 848, 853 (9th Cir. 24 1995). 25 //// 26 //// 10 Fed. R. 1 2 3 4 Under summary judgment practice, the moving party [A]lways bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact. 5 6 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[W]here the 7 nonmoving party will bear the burden of proof at trial on a 8 dispositive issue, a summary judgment motion may properly be made 9 in reliance solely on the ‘pleadings, depositions, answers to 10 interrogatories, and admissions on file.’” Id. Indeed, summary 11 judgment should be entered, after adequate time for discovery and 12 upon motion, against a party who fails to make a showing sufficient 13 to establish the existence of an element essential to that party’s 14 case, and on which that party will bear the burden of proof at 15 trial. See id. at 322. “[A] complete failure of proof concerning 16 an essential element of the nonmoving party’s case necessarily 17 renders all other facts immaterial.” Id. 18 summary judgment should be granted, “so long as whatever is before 19 the district court demonstrates that the standard for entry of 20 summary judgment, as set forth in Rule 56(c), is satisfied.” Id. 21 at 323. In such a circumstance, 22 If the moving party meets its initial responsibility, the 23 burden then shifts to the opposing party to establish that a 24 genuine 25 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 26 586 (1986); see also First Nat'l Bank of Ariz. v. Cities Serv. Co., issue as to any material 11 fact actually does exist. 1 391 U.S. 253, 288-89 (1968); Secor Ltd., 51 F.3d at 853. 2 In attempting to establish the existence of this factual 3 dispute, the opposing party may not rely upon the denials of its 4 pleadings, but is required to tender evidence of specific facts in 5 the form of affidavits, and/or admissible discovery material, in 6 support of its contention that the dispute exists. Fed. R. Civ. P. 7 56(e); Matsushita, 475 U.S. at 586 n.11; see also First Nat'l Bank, 8 391 U.S. at 289; Rand v. Rowland, 154 F.3d 952, 954 (9th Cir. 9 1998). The opposing party must demonstrate that the fact in 10 contention is material, i.e., a fact that might affect the outcome 11 of the suit under the governing law, Anderson v. Liberty Lobby, 12 Inc., 477 U.S. 242, 248 (1986); Owens v. Local No. 169, Ass’n of 13 Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th Cir. 1992) 14 (quoting T.W. Elec. Serv., Inc. v. Pacific Elec.Contractors Ass’n, 15 809 F.2d 626, 630 (9th Cir. 1987)), and that the dispute is 16 genuine, i.e., the evidence is such that a reasonable jury could 17 return a verdict for the nonmoving party, Anderson, 477 U.S. 248- 18 49; see also Cline v. Indus. Maint. Eng’g & Contracting Co., 200 19 F.3d 1223, 1228 (9th Cir. 1999). 20 In resolving the summary judgment motion, the court examines 21 the pleadings, depositions, answers 22 admissions on file, together with the affidavits, if any. Rule 23 56(c); see also In re Citric Acid Litigation, 191 F.3d 1090, 1093 24 (9th Cir. 1999). The evidence of the opposing party is to be 25 believed, see Anderson, 477 U.S. at 255, and all reasonable 26 inferences that may be drawn from the facts placed before the court 12 to interrogatories, and 1 must be drawn in favor of the opposing party, see Matsushita, 475 2 U.S. at 587 (citing United States v. Diebold, Inc., 369 U.S. 654, 3 655 (1962) (per curiam)); see also Headwaters Forest Def. v. County 4 of Humboldt, 211 F.3d 1121, 1132 (9th Cir. 2000). Nevertheless, 5 inferences are not drawn out of the air, and it is the opposing 6 party’s obligation to produce a factual predicate from which the 7 inference may be drawn. See Richards v. Nielsen Freight Lines, 602 8 F. Supp. 1224, 1244-45 (E.D. Cal. 1985), aff’d, 810 F.2d 898, 902 9 (9th Cir. 1987). III. ANALYSIS 10 11 Defendants Courson, Cassell and Fuchs move for summary 12 judgment on all of plaintiffs’ causes of action: claim for benefits 13 and breach of fiduciary duty under ERISA, violation of RICO, fraud, 14 conversion, and breach of fiduciary duties. The court considers 15 each in turn. 16 A. Claim For Benefits and Breach of Fiduciary Duty Under ERISA 17 In their first cause of action, plaintiffs allege that the 18 branch accounts were segregated accounts that constituted employee 19 benefit plans under ERISA that could be used for sickness and 20 disability pay and retirement payments. They allege that defendants 21 improperly diverted and embezzled funds from these accounts, 22 breaching their fiduciary duties to plaintiffs. 23 ERISA defines “employee welfare benefit plan” as any benefits 24 plan established for one of many purposes, including surgical, 25 medical, hospital, accident and sickness benefits; vacation pay; 26 and death, unemployment, or long-term disability benefits. 29 13 1 U.S.C. § 1002(1). ERISA further defines “employee pension benefit 2 plan” as any plan providing retirement benefits or termination pay. 3 29 U.S.C. § 1002(2)(A)(i), (ii). Whether an ERISA plan exists is 4 a question of fact, decided from the view of the reasonable person 5 in consideration of all of the facts and circumstances. See Kanne 6 v. Conn. Gen. Life Ins. Co., 867 F.2d 489, 492 (9th Cir. 1988). 7 As the court explained in its order resolving defendants’ 8 motion to dismiss, ERISA’s preemptive provision is deliberately 9 broad as a means to bring exclusively within federal control the 10 regulation of pension and welfare plans. Pilot Life Ins. Co. v. 11 Dedeaux, 481 U.S. 41, 45-46 (1987). To qualify as an employee 12 benefits plan, the accounts at issue must demonstrate an ongoing 13 administrative structure and allow reasonable persons to identify 14 and 15 funding source, and the procedures beneficiaries utilize to receive 16 benefits. Winterrowd v. Am. Gen. Annuity Ins. Co., 321 F.3d 933, 17 938-39 (9th Cir. 2003). distinguish the plan’s beneficiaries, intended benefits, 18 While this is typically not a difficult standard to meet, 19 there must be a plan, not simply an extension of benefits to the 20 employee; and the plan must have terms from which a reasonable 21 person could discern the basic elements of the benefits plan. Id. 22 at 939. As the Supreme Court has explained, a mere provision of one 23 of the benefits listed in the ERISA statute does not, by itself, 24 bring that provision under ERISA. Fort Halifax Packing Co., Inc. 25 v. Coyne, 482 U.S. 1, 7-8 (1987). Instead, there must be a plan. 26 Id. at 8 (“Nothing in our case law . . . supports appellant’s 14 1 position that the word ‘plan’ should be read out of the statute. 2 . . . Given the basic difference between a ‘benefit’ and a ‘plan,’ 3 Congress’s choice of language is significant in its pre-emption of 4 only the latter.”). 5 Moreover, ERISA does not regulate wage compensation and courts 6 may not extend ERISA’s protections to employees’ salaries, as doing 7 so would disrupt other federal and state statutory schemes. Cal. 8 Hosp. Ass’n v. Henning, 770 F.2d 856, 861 (9th Cir. 1985). 9 Similarly, the sections of ERISA governing pension plans are 10 limited to retirement income only, not current income. Murphy v. 11 Inexco Oil Co., 611 F.2d 570, 575 (5th Cir. 1980). 12 Here, the undisputed facts demonstrate that a factfinder could 13 not reasonably conclude that the accounts of the CPM branches’ net 14 profits are “employee welfare benefit plans” or “employee pension 15 benefit plans.” According to plaintiffs, there was no plan, even 16 impliedly, that the profits represented in these accounts were 17 disbursed to managers for the particular purpose of providing 18 health, disability, or vacation payments or retirement funds. The 19 funds were undisputedly used for salaries and the only evidence 20 tendered regarding defendants’ statements for use of the funds 21 establishes that defendants encouraged plaintiffs to use the 22 surplus for bonuses. See Van Brussel Decl. Ex. E (Gelow Depo. at 23 42:15-25, 54:4-8, 101:22-25), Ex. F (Courson Depo. at 20:19-25, 24 26:3-27:3), Ex. G (Cassell Depo. at 26:21-27:3); Pls.’ Response to 25 Defs.’ Statement of Undisputed Facts ¶ 92. Moreover, there are no 26 terms for these accounts, from which a the structure of a plan 15 1 could be discerned by a reasonable person. Instead, the funds could 2 be drawn at any time for any purpose. The mere fact that the funds 3 may 4 plaintiffs contend, does not alone indicate that those funds 5 existed as part of an employee benefit plan. have been segregated for plaintiffs’ exclusive use, as 6 Simply put, ERISA regulates employee benefit plans and, in 7 order to prove that ERISA governs their claims, plaintiffs must 8 make at least a minimal showing that a plan existed. Fort Halifax 9 Packing Co., Inc., 482 U.S. at 7-8; Winterrowd, 321 F.3d at 938-39. 10 Here, that showing has not been made. Defendants’ motion is granted 11 on plaintiffs’ first cause of action. 12 B. 13 Fraud Plaintiffs allege that defendants made false representations 14 to them on which plaintiffs 15 defendants’ 16 statements that the branch accounts were segregated for plaintiffs’ 17 benefit and statements regarding the financial health of CPM. motion, relied. plaintiffs In specify their that opposition these to included 18 In order to succeed on a claim for fraud, the plaintiff must 19 show “(a) misrepresentation (false representation, concealment or 20 nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) 21 intent to defraud, i.e., to induce reliance; (d) justifiable 22 reliance; and (e) resulting damages.” Agosta v. Astor, 120 Cal. 23 App. 4th 596, 603 (2004). 24 1. 25 Regarding 26 Allegations Regarding the Nature of the Branch Accounts the allegations that defendants fraudulently misrepresented that the branch accounts were segregated and secured 16 1 for the branch managers’ exclusive benefits, plaintiffs Herndon, 2 Gordon, Just, and Sierra have tendered evidence sufficient to 3 defeat defendants’ motion on the first element of this cause of 4 action. 5 represented to him that the money in the branch manager’s account 6 was his alone and no one would touch the money in the account 7 without his permission.10 Herndon Decl. ¶ 5. Plaintiff Gordon 8 declared that defendants Cassell, Courson, and Fuchs made the same 9 representations to her at a meeting in January 2006. Gordon Decl. 10 ¶ 5. Plaintiff Just has declared that defendants Fuchs, Courson, 11 and Cassell made similar statements to him in the years before CPM 12 closed. Just Decl. ¶¶ 4, 12. Plaintiff Sierra declared that Courson 13 and Cassell similarly told him that the money in the branch manager 14 account was “safe and would be kept available for” him. Sierra 15 Decl. ¶ 6. Plaintiff Herndon declared that defendant Courson 16 As to the remaining plaintiffs, however, there is no evidence 17 that any of the individual defendants made statements to any of the 18 plaintiffs that the accounts of the branches’ net profits belonged 19 to the branch managers, were segregated from other CPM funds, or 20 could not be reached by CPM creditors. Instead, most of the 21 plaintiffs’ declarations do not identify who made these statements 22 to them or identify persons other than the individual defendants 23 24 25 26 10 Despite defendants’ argument otherwise, Herndon did not contradict this in his deposition testimony. See Herndon Depo. at 78:2-79:11. 17 1 as being the person who made these representations.11 Trout Decl. 2 ¶ 4; Stefanski Decl. ¶¶ 4-5; Pederson Decl. ¶¶ 4-5; Mann Decl. ¶¶ 3 4, 10; Herndon Decl. ¶¶ 4; Friedly Decl. ¶¶ 4-5; Meier Decl. ¶ 4. 4 The 5 defendants to these plaintiffs about the nature of these accounts 6 was that they could be used by the branch managers for any purpose. 7 Gelow Decl. ¶ 5; Pederson Decl. ¶ 5. 8 only evidence Plaintiffs of representations purport to rely on made the by CPM the individual Finance and 9 Administration Manual for their argument that defendants made these 10 representations, but the document does not support them. See Gelow 11 Decl. ¶ 17, Ex. 3. Instead, the relevant portion, cited in part by 12 plaintiffs, provides that all checks received by a branch “will be 13 deposited into the Company’s general bank account and credited to 14 your branch’s income account. . . .” Id. at 2.1. This refutes, 15 rather than supports, plaintiffs’ contention that the defendants 16 even indirectly represented to them that the net profits generated 17 at each branch were held in separate accounts for the branch 18 managers. Although plaintiffs may have inferred from this that “the 19 money in the branch manager accounts was real money and belonged 20 to the branch managers,” Pederson Decl. ¶ 16, they have not 21 tendered evidence that this was ever represented to them by 22 Courson, Cassell, or Fuchs. 23 Therefore, as to the alleged representations made regarding 24 25 26 11 Plaintiffs have not tendered any evidence that third parties, making such declarations, were the agents of Courson, Cassell, or Fuchs. 18 1 whether the branch manager accounts were segregated for the branch 2 manager’s exclusive use, only plaintiffs Herndon, Gordon, Just, and 3 Sierra have tendered evidence that if credited would permit a 4 factfinder to find that they had established the first element of 5 the fraud claim. 6 Turning to the second element of the cause of action, 7 knowledge of falsity, and the third element, intent, these may be 8 inferred by the circumstances. See Las Palmas Assoc. v. Las Ctr. 9 Assoc., 235 Cal. App. 3d 1220, 1239 (1991); Continental Airlines, 10 Inc. v. McDonnel Douglas Corp., 216 Cal. App. 3d 388, 428 (1989). 11 Here, plaintiffs have presented circumstantial evidence that, if 12 credited, would establish defendants’ knowledge of the falsity of 13 their statements and their intent. The individual defendants were 14 the senior management of CPM and one could reasonably infer knew 15 and understood the nature of branch accounts, including whether the 16 funds therein were under the exclusive control of branch managers. 17 Further, given CPM’s negotiations for a buyer in 2006, a factfinder 18 could reasonably infer that the defendants did not desire that the 19 branch managers 20 that 21 negotiation. From this, a factfinder could conclude that the 22 individual defendants knowingly and intentionally misrepresented 23 to plaintiffs Herndon, Gordon, Just, and Sierra that the funds in 24 the branch accounts were secure and under their exclusive control. 25 Next, defendants must show that no reasonable factfinder could 26 CPM conclude would that draw out all of the funds from these accounts, so appear the to have plaintiffs 19 greater assets justifiably in relied the on sales these 1 representations. Defendants first contest that plaintiffs Herndon, 2 Gordon, 3 concerning the segregated nature of the accounts. It is undisputed 4 that the branch managers did not pay taxes on the amounts in the 5 accounts until they drew them as salaries. See Pls.’ Response to 6 Defs.’ Statement of Undisputed Facts ¶¶ 29-32. For this reason, 7 defendants argue, plaintiffs did not actually treat the money as 8 their own but as CPM’s until funds were drawn down. Nevertheless, 9 a factfinder could reasonably conclude that the plaintiffs chose 10 not to draw down the funds as salary, thus incurring tax liability, 11 precisely because they believed the funds in the branch account 12 would always be available to them. Just, or Sierra actually relied on statements made 13 Defendants further argue that plaintiffs’ reliance was not 14 justifiable. The reasonableness of a plaintiff’s reliance on false 15 statements made by the defendant is typically a question of fact, 16 informed by the plaintiff’s knowledge, education, and experience. 17 Guido v. Koopmans, 1 Cal. App. 4th 837, 843-44 (1991). Here, 18 defendants 19 experience could have justifiably believed that the branch accounts 20 were 21 management or creditors. They have tendered evidence that plaintiff 22 Herndon had a college degree, a real estate license and management 23 experience. Defs.’ Statement of Undisputed Facts ¶¶ 17, 168-74. 24 They have not tendered any evidence, however, that Herndon had 25 prior experience with the branch account arrangement employed by 26 CPM or that it was otherwise typical in the industry. Nor have argue separated, that no protected one with accounts, 20 plaintiffs’ beyond the education reach of and CPM 1 defendants directed the court to any evidence of plaintiffs’ 2 Gordon, Just, and Sierra’s experience or education. Accordingly, 3 the court cannot conclude that no reasonable factfinder could find 4 that Herndon, Gordon, Just, and Sierra were not justified in 5 relying 6 accounts. on defendants’ statements characterizing the branch 7 Finally, plaintiffs have tendered sufficient evidence to 8 defeat defendants’ motion on the final element of the fraud claim, 9 that they suffered damages. Each has declared that there was a 10 certain sum in his or her branch account and he or she chose not 11 to draw it as salary prior to CPM’s closure because of the belief 12 that the funds were secure. Herndon Decl. ¶¶ 8, 11; Gordon Decl. 13 ¶¶ 8, 11; Just Decl. ¶¶ 6, 9; Sierra Decl. ¶¶ 8, 11. This suffices 14 to defeat defendants’ motion as to this cause of action. 15 2. Allegations Regarding the Financial Health of CPM 16 With regards to the allegations that the individual defendants 17 made misrepresentations about the financial health of CPM, none of 18 the plaintiffs have tendered any evidence from which a factfinder 19 could find that they had established the first or second elements 20 of a fraud cause of action. 21 There is evidence that each of the individual defendants made 22 statements that CPM was in good financial health and would not 23 close. See, e.g., Just Decl. ¶ 10 (statements of Courson); Sierra 24 Decl. ¶ 12 (statements of Courson and Cassell); Pederson Decl. ¶ 25 6 (statements of Fuchs). However, plaintiffs have tendered no 26 evidence that these statements were false or, if they were, that 21 1 defendants knew of their falsity. The only evidence plaintiffs have 2 tendered is the opinion of plaintiff Gelow that “[b]y the nature 3 of their positions and inside information, Cassell and Fuchs were 4 fundamentally aware of the 5 [professing the financial health of CPM] . . . .” Gelow Decl. ¶ 15. 6 Plaintiff’s unfounded opinion that the defendants knew of the 7 falsity of the statements, of course, does not suffice as evidence 8 of a genuine dispute. See Richards, 602 F. Supp. at 1244-45. falsity of [Courson’s] statements 9 In contrast, the evidence of defendants is that it was not 10 until a week before CPM’s closure that its accountant believed it 11 would close. See Van Brussel Decl. Ex. L (Boliard Depo. at 55:23- 12 56:24). Plaintiffs, in their response to defendants’ statement of 13 undisputed facts, argue that defendants’ 2004 and 2006 balance 14 sheets 15 obligations. See Pls.’ Response to Defs.’ Separate Statement of 16 Undisputed Facts ¶ 84. This interpretation is hardly self-evident 17 in the 2006 balance sheet.12 See Declaration of Shane Reich In 18 Support of Defs.’ Mot. for Summ. J. Ex. 5. More importantly, there 19 is no evidence that the individual defendants had reason to 20 disbelieve their accountant’s depiction of the financial health of 21 CPM, derived either from the balance sheets or otherwise. 22 put, there appears to be no evidence from which a jury could 23 reasonably conclude that plaintiffs established the first or second 24 elements of their cause of action for fraud based on statements the demonstrate that CPM could not meet 25 26 12 A 2004 balance sheet has not been tendered. 22 its financial Simply 1 individual defendants made concerning the financial health of CPM. 2 Accordingly, defendants’ motion is denied as to plaintiffs 3 Herndon, Gordon, Just, and Sierra’s third cause of action, to the 4 extent that it is based on allegations regarding statements the 5 individual defendants made describing the security and exclusive 6 use 7 plaintiffs and on all other grounds for this cause of action. 8 C. of the branch accounts. It is granted as to the other Conversion 9 In their fourth cause of action, plaintiffs allege that 10 defendants committed the tort of conversion by appropriating the 11 funds in the branch accounts. They allege that all or some of the 12 defendants received this converted property. 13 Conversion is the “wrongful exercise of dominion over the 14 property of another.” Spates v. Dameron Hosp. Ass’n, 144 Cal. App. 15 4th 208, 221 (2003) (internal citations omitted). In order to 16 prevail on a claim for conversion, a plaintiff must prove that (1) 17 the plaintiff had ownership or a right to possession of property 18 at the time of the conversion, (2) the defendant converted this 19 property through its wrongful act or disposition of the property 20 rights, and (3) that plaintiff suffered damages. Id. 21 Here, defendants move for summary judgment on the grounds that 22 there was no fixed sum of money that was allegedly converted, that 23 defendants committed no wrongful act, and that this cause of action 24 is preempted by the remedies of the California Labor Code. The 25 court considers each in turn. 26 //// 23 1 1. Whether There Was A Specific, Identifiable Sum 2 A generalized claim for money is not actionable as conversion. 3 Vu v. Cal. Commerce Club, 58 Cal. App. 4th 229, 235 (1997); see 4 also Farmers Ins. Exch. v. Zerin, 53 Cal. App. 4th 445, 452 (1997) 5 (“a mere contractual right of payment, without more, will not 6 suffice”); accord In re Bailey, 197 F.3d 997, 1000 (9th Cir. 1999). 7 If, however, “there is a specific, identifiable sum involved, such 8 as where an agent accepts a sum of money to be paid to another and 9 fails to make the payment,” a cause of action for conversion 10 exists. McKell v. Wash. Mut., Inc., 142 Cal. App. 4th 1457, 1491 11 (2006); see also Fischer v. Machado, 50 Cal. App. 4th 1069, 1072-73 12 (1996). In other words, “money can only be treated as specific 13 property subject to being converted when it is ‘identified as a 14 specific thing.’” PCO, Inc. v. Christensen, Miller, Fink, Jacobs, 15 Glaser, Weil, & Shapiro, LLP, 150 Cal. App. 4th 384, 395 (2007) 16 (quoting Baxter v. King, 81 Cal. App. 192, 194 (1927)). That said, 17 it is not necessary that “each coin or bill be earmarked.” Haigler 18 v. Donnelly, 18 Cal. 2d 674, 681 (1941). 19 Here, defendants argue that there was no specific sum because 20 there was no literal setting aside of funds for the branch 21 managers. According to defendants, each branch did not have a 22 separate 23 represented credits to each branch, while the actual funds were 24 kept in a CPM general account. Plaintiffs don’t dispute this 25 contention. Defendants further argue that these sums were not 26 certain but would fluctuate over time, which plaintiffs do not account but rather the 24 “branch accounts” simply 1 materially dispute. 2 Defendants’ position is not consistent with the California 3 courts’ holdings on this issue. The facts here are similar to those 4 of Fischer, 50 Cal. App. 4th 1069. In Fisher, plaintiffs were 5 farmers and defendant was their sales agent. 50 Cal. App. 4th at 6 1071. Defendant sold plaintiffs’ products for them and placed the 7 proceeds in its general operating account, using it to pay salaries 8 and other business expenses. Id. Thereafter, the defendant went 9 bankrupt and never paid plaintiffs the proceeds from the crop sale. 10 11 Id. The court held that this gave rise to an action for 12 conversion, rejecting defendant’s argument that plaintiffs “were 13 not entitled to exercise dominion and control over any specific 14 funds.” Id. at 1702. The dispositive fact was not whether the funds 15 were actually segregated, but whether there was an identifiable 16 amount to which plaintiffs were legally entitled. Id. at 1073-74; 17 see also Weiss v. Marcus, 51 Cal. App. 3d 590, 599 (1975); 18 McCafferty v. Gilbank, 249 Cal. App. 2d 569, 571 (1967). As this 19 court has explained elsewhere, “[i]t is immaterial whether the 20 funds at issue were in fact segregated; otherwise, defendants could 21 shield themselves from liability by simply commingling funds.” Gulf 22 Ins. v. First Bank, No. S-08-209-LKK/JFM, 2008 WL 2383927 at *3 n.4 23 (E.D. Cal. June 4, 2008). 24 Defendants argument that the amount in the branch accounts was 25 not certain because it fluctuated is similarly unavailing. It is 26 undisputed that the branch accounts contained the net profits from 25 1 loans originating in that branch. Although the dollar amounts of 2 the accounts would fluctuate as profits were added and expenses, 3 including 4 ascertainable. In that sense, it seems that the branch accounts 5 fluctuated in the same manner that, for example, an interest- 6 bearing savings account fluctuates: although the dollar amount 7 contained 8 compounded, the sum is always ascertainable. See, e.g., PCO, 150 9 Cal. App. 4th at 396 (collecting cases and observing that “[i]n 10 each of these cases [where an action for conversion was upheld], 11 the amount of money converted was readily ascertainable”). salaries, in the were account withdrawn, may change the sums daily as were always interest is 12 It appears that plaintiffs’ claim fails, however, on the 13 second element, that defendants converted the property through a 14 wrongful act. In order to establish this element, the plaintiff 15 must show “an assumption of control or ownership over the property, 16 or that the alleged converter has applied the property for his own 17 use.” Shopoff & Cavallo LLP v. Hyon, 167 Cal. App. 4th 1489, 1507 18 (2008). 19 Here, plaintiffs have not materially disputed that they have 20 no knowledge or evidence that the Cassell, Courson, or Fuchs took 21 any of the funds in the branch accounts.13 See Pls.’ Response to 22 23 24 25 26 13 Plaintiffs have tendered evidence in the form of Gelow’s declaration purporting to dispute this, but the cited evidence does not indicate that any of the individual defendants took funds from the branch accounts. See Pls.’ Response to Defs.’ Separate Statement of Undisputed Facts ¶¶ 158-160 (citing Gelow Decl. ¶¶ 46, 10, 11, 14, 15), ¶¶ 203-204 (citing Herndon Depo. at 75:1277:22); ¶ 241 (citing Trout Decl. ¶¶ 12-14). 26 1 Defs.’ Separate Statement of Undisputed Facts ¶¶ 107, 158-160, 203- 2 204, 214, 240-241. It is also undisputed that the individual 3 defendants only received their salaries from CPM and that they 4 received their last paychecks in the first half of February 2007, 5 prior to CPM’s closure. See Pls.’ Response to Defs.’ Separate 6 Statement of Undisputed Facts ¶¶ 81, 129, 131-134, 252. Although 7 plaintiffs argue in their opposition to defendants’ motion that the 8 individual defendants used the funds in the branch accounts for 9 their own salaries prior to CPM’s closure, they have tendered no 10 evidence of this at all. Plaintiffs have simply tendered no 11 evidence that the individual defendants, rather than CPM (who is 12 also named as a defendant), appropriated funds from the branch 13 accounts. For this reason, defendants’ motion is granted as to this 14 cause of action.14 15 D. 16 Breach of Fiduciary Duty In their fifth cause of action, plaintiffs allege that 17 defendants “undertook fiduciary duties to plaintiffs due to their 18 positions within Ivanhoe and Central Pacific and due to their 19 20 21 22 23 24 25 26 14 The court is not persuaded, however, that plaintiffs’ claim is barred because an exclusive remedy exists in the Labor Code. Although a plaintiff cannot bring an action for conversion on an alleged violation of the Labor Code, Grodensky v. Artichoke Joe’s Casino, 91 Cal. Rptr. 3d 732, 775 (2008), review granted No. S172237, 2009 WL 2176348 (June 24, 2009), here plaintiffs’ conversion claim is not premised on the Labor Code either expressly or necessarily. Although defendants contend that plaintiffs’ claim seeks unpaid wages, it is undisputed that the branch accounts were not only to be used as wages, but “for any purpose whatsoever.” Gelow Decl. ¶ 5. It is therefore not apparent that the funds would fall under the provisions of the Labor Code governing wages, Cal. Labor Code § 204, or any other section of the code. 27 1 representations as alleged. . . .” First Amended Compl. ¶ 49. 2 According to plaintiffs, defendants breached this duty for their 3 own benefit. In their opposition to plaintiffs’ motion, they 4 clarify that defendants assumed fiduciary duties by maintaining the 5 branch accounts for plaintiffs and breached that duty by misleading 6 plaintiffs “as to the branch accounts.” Pls.’ Opp’n to Defs.’ Mot. 7 for Summ. J. at 10. 8 Whether a fiduciary relationship exists is a question of law. 9 David Welch Co. v. Erskine & Tulley, 203 Cal. App. 3d 884, 890 10 (1988). The burden lies with the plaintiff to show that a fiduciary 11 relationship existed. LaMonte v. Sanwa Bank Cal., 45 Cal. App. 4th 12 509, 517 (1996). In LaMonte, the court found that plaintiff had not 13 met this burden in its claim that defendant was a fiduciary because 14 it was a custodian of an account, because “[t]here was no evidence 15 . . . that [defendant] had either expressly or by implication 16 agreed to supervise or monitor the finances and accounts of 17 [plaintiff].” Id. at 517-18. Moreover, in cases where defendant is 18 alleged to be a custodian of plaintiff’s account, the defendants’ 19 fiduciary duties only extend to the scope of its agency, as defined 20 by the agency agreement between the parties. Id. at 517 (citing Van 21 de Kamp v. Bank of America, 204 Cal. App. 3d 819, 860 (1988)). 22 Here, plaintiffs have tendered no evidence from which it could 23 be concluded that a fiduciary 24 plaintiffs and the individual defendants regarding the branch 25 manager accounts. Plaintiffs’ own evidence establishes that it was 26 CPM, not the individual defendants, that maintained the accounts 28 relationship existed between 1 and provided accounting services for them. Gelow Decl. Ex. 3. There 2 is no evidence that the individual defendants managed the accounts 3 or otherwise assumed any fiduciary responsibilities to plaintiffs 4 for their maintenance. Because the scope of a fiduciary’s duties 5 is strictly defined, see Van de Kamp, 204 Cal. App. 3d at 860, the 6 statements defendants may have made concerning the nature of the 7 accounts and advice to plaintiffs to draw funds from them did not 8 generate a fiduciary relationship between the parties as to the 9 general management and accounting of the accounts, if at all. 10 Because plaintiffs have failed to meet their burden to 11 demonstrate the existence of a fiduciary relationship between the 12 parties, defendants’ motion is granted on this cause of action. 13 E. Violation of RICO 14 In their second cause of action, plaintiffs allege that 15 defendants violated the RICO statute, 18 U.S.C. § 1962, so as to 16 give rise to civil liability. Plaintiffs allege that defendants 17 engaged in a scheme to defraud plaintiffs and embezzle funds from 18 the branch accounts. 19 18 U.S.C. § 1962 provides the basis for civil liability under 20 RICO.15 Turner v. Cook, 362 F.3d 1219, 1228 (9th Cir 2004). 21 Section 1962(a) imposes liability for the use or investment in 22 foreign or interstate commerce of income derived from a pattern of 23 24 25 26 15 Plaintiffs do not specifically allege what sections of 1962 Defendants violated. However, § 1962(b) pertains to the “collection of unlawful debt” and appears inapplicable to facts alleged in the complaint. 18 U.S.C. § 1962(b). In their opposition to defendants’ motion, plaintiffs make no reference to § 1962(b). 29 1 racketeering activity. 18 U.S.C. § 1962(a). An essential element 2 of a cause of action under this subsection is that defendant used 3 or invested the funds derived from racketeering activities, not 4 simply that defendant obtained funds from plaintiff through those 5 activities. Nugget Hydroelectric, L.P. v. Pacific Gas & Elec. Co., 6 981 F.2d 429, 437 (9th Cir. 1992). Defendants have moved for 7 summary judgment on the grounds that, to the extent that plaintiffs 8 allege that defendants violated this subsection, there is no 9 evidence that the individual defendants invested or used any of the 10 funds they are alleged to have wrongfully obtained. Plaintiffs have 11 offered no opposition to this, see Pls.’ Opp’n to Defs.’ Mot. for 12 Summ. J. at 10-11, and therefore defendants’ motion is granted on 13 this ground. 14 Section 1962(c) imposes liability on a person employed by or 15 associated with an enterprise that affects foreign or interstate 16 commerce for conducting or participating in the affairs of the 17 enterprise through a pattern of racketeering activity. 18 U.S.C. 18 § 1962(c). 19 Here, plaintiffs constituted argue the that fraud, predicate for and 20 embezzlement 21 liability under RICO. However, they have tendered no evidence of 22 embezzlement and, as discussed above, insufficient evidence of 23 conversion. Therefore, the RICO cause of action may only lie based 24 upon the evidence of fraud, described above. There is some evidence 25 that the assertedly fraudulent communications occurred over the 26 telephone, implicating wire fraud, which is one of predicate acts 30 acts conversion, defendants’ 1 for which a RICO violation may be found.16 18 U.S.C. § 1961(1)(B); 2 18 U.S.C. § 1343; see Herndon Decl. ¶ 5 (Courson made statements 3 over the telephone). 4 The Ninth Circuit has held that an “enterprise” under § 5 1962(c) may be an innocent enterprise or it may be a group of 6 individuals who have combined for an illegal purpose. United Energy 7 Owners Comm., Inc. v. U.S. Energy Mgmt. Sys., Inc., 837 F.2d 356, 8 362 (9th Cir. 1988); see also United States v. Turkette, 452 U.S. 9 576, 580 (1981) (“On its face, the definition [of enterprise] 10 appears to include both legitimate and illegitimate enterprises 11 within its scope. . . .”). The infiltrated enterprise may contain 12 some of the plaintiffs. United Energy Owners Comm., Inc., 837 F.2d 13 at 362-63. 14 Defendants have not directed the court to any authority, let 15 alone any in 16 individual defendants employed by a corporation are treated as the 17 corporation’s acts for RICO purposes and, therefore, there can be 18 no 19 “enterprise” would be a single entity. See Defs.’ Mot. for Summ. 20 J. at 31. This interpretation contradicts the plain language of the 21 section, which provides that a person “employed by” an enterprise 22 may 23 enterprise. 18 U.S.C. § 1962(c). It is also contrary to the liability be this under liable for circuit, § for 1962(c) its because racketeering acts assertion the that “person” committed acts and through of the the 24 16 25 26 In their motion, defendants presently do not challenge that there is evidence that they engaged in a scheme to defraud, as required under 18 U.S.C. § 1343. See Defs.’ Mot. for Summ. J. at 29-30. 31 1 longstanding interpretation 2 misconduct 3 enterprise. See Turkette, 452 U.S. at 591; United Energy Owners 4 Comm., Inc., 837 F.2d at 362-63. by persons who of the have section as “infiltrated” applying an to innocent 5 Defendants do not move for summary judgment on this cause of 6 action on any other grounds and therefore the court makes no 7 findings as to the additional elements of the cause of action. 8 Because defendants have failed to show that there is no genuine 9 dispute of material fact as to whether they could reasonably be 10 found to have committed fraud and whether they were distinct from 11 the enterprise at issue, the defendants’ motion is denied on this 12 cause of action to the extent that it is based on allegations of 13 wire fraud. 14 F. Availability of Punitive Damages 15 Finally, defendants move for summary judgment on the basis 16 that plaintiffs have no evidence that would warrant an award of 17 punitive damages. Under California law, a plaintiff may be awarded 18 punitive damages upon proving by clear and convincing evidence that 19 defendant acted with oppression, fraud, or malice in committing a 20 tort. Cal. Civ. Code § 3294. There is no bar to awarding punitive 21 damages for fraud when the underlying tort is fraud. Miller v. 22 Nat’l Amer. Life Ins., 54 Cal. App. 3d 331, 336 (1976); Block v. 23 Tobin, 45 Cal. App. 3d 214, 220 (1975); see also Alliance Mortgage 24 Co. v. Rothwell, 10 Cal. 4th 1226, 1241 (1995); Wyatt v. Union 25 Mortgage Co., 24 Cal. 3d 773, 790 (1979). Therefore, to the extent 26 that plaintiffs Herndon, Gordon, Just, and Sierra have tendered 32 1 adequate evidence to permit a jury to find in their favor on their 2 fraud claim, a jury could also award punitive damages based on 3 defendants’ fraudulent conduct under § 3294. IV. CONCLUSION 4 5 For the reasons stated herein, defendants Courson, Cassell, 6 and Fuchs’ motion for summary judgment is GRANTED IN PART. It is 7 DENIED as to plaintiffs’ second and third causes of action and 8 prayer for punitive damages, to the extent provided herein. 9 10 IT IS SO ORDERED. DATED: August 28, 2009. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 33
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