Amory et al v. Giarla et al, No. 3:2020cv05253 - Document 32 (N.D. Cal. 2021)
Court Description: ORDER GRANTING 25 DEFENDANT'S MOTION TO DISMISS Signed by Judge William Alsup. (whalc4, COURT STAFF) (Filed on 1/26/2021)
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Amory et al v. Giarla et al Doc. 32 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 1 of 18 1 2 3 4 5 UNITED STATES DISTRICT COURT 6 7 NORTHERN DISTRICT OF CALIFORNIA 8 9 10 United States District Court Northern District of California 11 12 13 14 15 BRETT AMORY, JONATHAN DARBY, ALYSSA DENNIS, ALICIA DUBNYCKYJ, SEONNA HONG, VINCENT HORVAT, FALK LEHMANN, SCOTT LISTFIELD, DAVID MARCHAND, HYLAND MATHER, AARON NAGEL-WERD, ADRIAN PALENGAT, JASMINE SIDDIQUI, EUGENE VOSKOBOYNIKOV, and TYRONE WRIGHT, No. C 20-05253 WHA ORDER GRANTING DEFENDANT’S MOTION TO DISMISS Plaintiffs, 16 v. 17 18 JUSTIN GIARLA, Defendant. 19 20 INTRODUCTION 21 Plaintiffs are a group of artists and art buyers who either consigned their artwork or 22 purchased artwork from defendant, a former gallerist, allegedly renowned, with various 23 galleries in San Francisco. They allege that he misappropriated the proceeds from the sale or 24 purchase of artwork entrusted to him for his own personal gain, abruptly closed all of his 25 galleries after exhausting a Ponzi scheme to defraud them, and fled to Oregon with their 26 property, which he held in trust, as a fiduciary. Plaintiffs allege breach of fiduciary duty and 27 28 Dockets.Justia.com Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 2 of 18 1 violations of RICO. Defendant now moves to dismiss. To the following extent, defendant’s 2 motion is GRANTED. 3 United States District Court Northern District of California 4 STATEMENT The complaint alleges that plaintiffs are professional artists, their agents and/or 5 managers, or art buyers living in various states, Europe, and Australia (id. at ¶¶ 7–21). 6 According to their complaint, “[d]efendant Justin Giarla is a former art gallery owner who rose 7 to prominence within the art world and then used his renown and influence to carry out a 8 deliberate, systemic, years-long campaign to defraud and steal” money and artwork from 9 plaintiffs (id. at ¶ 1). 10 By the early 2000s, defendant had become one of the “best-known gallerist on the West 11 Coast.” Two of his San Francisco art galleries — Shooting Gallery and White Walls Gallery 12 — had helped “bring street art, pop art, and lowbrow art to high art prominence, offering 13 entrée to artists long ignored by fine art galleries.” Defendant’s galleries hosted some of the 14 most established artists in the field, and defendant gained a reputation as a “kingmaker.” His 15 exhibition of upcoming artists’ artwork at his galleries led to extreme success, sometimes 16 selling all of the exhibited art in one showing, which generated hundreds of thousands of 17 dollars. Indeed, his success stories helped turn San Francisco into “a mecca for aspiring artists, 18 with many emerging artists moving to the Bay Area for a chance to exhibit with [him].” Even 19 artists from around the world sought to exhibit their art at defendant’s galleries. In 2010, 20 defendant further cemented his reputation as one of the most prominent art dealers in the West 21 Coast and as a catalyst to the success of emerging artists by opening his third gallery: 941 22 Geary (id. at ¶¶ 27–31). 23 In 2011, defendant and his then-wife co-purchased a building located at 866 Geary Street 24 in San Francisco, which apparently housed all three of his galleries. The complaint alleges that 25 defendant devised a Ponzi scheme in order to pay for the building, defrauding and 26 misappropriating funds and artwork from artist and art buyers alike. Defendant’s alleged plan 27 was to hold the building long enough for it to appreciate in value, sell it for a profit, and then 28 “use the proceeds to escape liability and accountability” (id. at ¶¶ 32, 39). The complaint 2 United States District Court Northern District of California Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 3 of 18 1 alleges that defendant did just that, that is, he misappropriated hundreds of thousands of dollars 2 from the sale of plaintiffs’ artworks, sold the building in 2016 for $3.3 million, abruptly closed 3 all three of his galleries without notifying artists or creditors, and absconded to Oregon with 4 plaintiffs’ monies and artworks (id. at ¶¶ 22, 45). 5 In order to effectuate his scheme, defendant used his charisma and status as a renowned 6 art dealer with the power to derail an artist’s career, and “employed various tactics to prevent 7 or delay discovery of his illegal acts.” For instance, defendant would: (1) ignore the calls and 8 emails of artists to whom he owned money to; (2) state that he was experiencing financial 9 hardship or going through a divorce and would pay them as soon as he was able; (3) “bounce 10 checks or simply lie and tell artists that he had mailed them a check or initiated a wire transfer 11 when in fact he had not”; and/or (4) make a partial payment. In some instances (id. at ¶ 39): 12 Defendant coupled the partial payment tactic with a variation on a Ponzi scheme in which he used the proceeds from newer sales to pay older debts. Thus, instead of holding sales proceeds in trust for the benefit of individual artists as he was required to do under the law, Defendant would misappropriate those funds for his personal use, including to fund his purchase of 886 Geary. Then, when an artist complained about his failure to pay, Defendant would divert funds from a recent sale of work by a second, unrelated artist to make a partial payment to the first artist. This allowed Defendant to temporarily appease the first artist, and when it came time for the second artist to complain about non-payment, Defendant would repeat the scheme with a third artist, and so on. 13 14 15 16 17 18 The complaint alleges that defendant employed partial-payment tactics in situations 19 20 21 22 where an artist would persist in her collection efforts or where defendant “thought they might take legal action against him or publicize his failure to pay” (id. at ¶ 38). The complaint alleges that defendant’s intentions in making partial payments were threefold: (1) to buy him more time to further his scheme; (2) reduce the likelihood that a creditor would publicly 23 24 expose him; and (3) conceal “the fact that Defendant never intended to pay the artist in full” (ibid.). 25 All of the artist plaintiffs who consigned artwork to defendant did so pursuant to 26 agreements where defendant would receive a fifty percent commission from the sale of their 27 paintings. The complaint alleges that the earliest any of the plaintiffs learned of their injury 28 3 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 4 of 18 1 was on or about July 31, 2016, when a viral Facebook post alerted them to the fact that 2 defendant had abruptly and surreptitiously closed his galleries while still in possession of their 3 paintings, money, or both (id. at ¶¶ 49, 59, 67, 112, 129, 135, 143, 153); (see also Hashimoto 4 Decl. ¶ 5, Exh. A). Here follow the individual allegations pertaining to each plaintiff. When not stated, the 5 6 aforementioned Facebook post was the first plaintiffs learned that defendant had closed his 7 galleries, and when they first allege to have realized that defendant had no intention of paying 8 them, in full, for their sold paintings and/or returning their unsold paintings to their possession. 9 1. Horvat is an art collector based in Australia. In January 2016, Horvat paid defendant 10 United States District Court Northern District of California VINCENT HORVAT. 11 $4,500 for a painting by artist William Chad Willsie. In May 2016, Horvat learned that 12 defendant was planning to close his galleries, so he inquired about the delivery of the painting 13 he had purchased. In an email, defendant told Horvat that the cost of shipping had increased. 14 Horvat informed defendant that he would personally pick up the purchased painting during his 15 next visit to San Francisco. After defendant closed his galleries, Horvat found out that 16 defendant had returned the already-purchased painting to Willsie, the artist, in or about June 17 2016, telling Willsie that his painting had not sold. The complaint alleges that Horvat first 18 realized that defendant had no intention of giving him the painting he had paid for on or about 19 July 31, 2016, and that he is owed the $4,500 purchase price (id. at ¶¶ 102–107). 20 2. 21 Marchand is an art collector based in Los Angeles. In 2011, Marchand paid defendant a DAVID MARCHAND. 22 total of $8,400 for three paintings. The complaint alleges that Marchand “agreed that 23 [d]efendant could temporarily keep” the three paintings “in his possession and store them for 24 the benefit of Mr. Marchand.” Subsequently, in February 2017, Marchand learned that, 25 unbeknownst to him, defendant had resold one of the paintings, as it had been spotted at a hotel 26 restaurant in Las Vegas. The complaint alleges that Marchand is owed $8,400 (id. at ¶¶ 114– 27 117). 28 4 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 5 of 18 1 3. BRETT AMORY. Amory is an artist based in Oakland. In 2011, he delivered two original paintings to 2 3 defendant for exhibition and sale on a consignment basis. Defendant exhibited Amory’s two paintings at his 941 Geary Gallery for three weeks in April 2011. After the exhibition, 4 5 defendant did not return Amory’s artworks, nor did he inform Amory that his artworks were sold. Subsequently, however, Amory learned that defendant had in fact sold one of his 6 paintings for seven thousand dollars during the exhibition (id. at ¶¶ 54–58). The complaint 7 alleges that Amory is owed $3,500 for the sold painting and thirteen thousand dollars for the 8 unsold painting, representing its fair market value (id. at ¶ 60). 9 10 4. JONATHAN DARBY. Darby is an artist based in the United Kingdom. In 2012, he delivered seven original 11 United States District Court Northern District of California paintings to defendant for exhibition and sale on a consignment basis. Defendant exhibited 12 13 14 Darby’s seven paintings at his White Walls Gallery from November 2012 to December 2012. Defendant sold four of Darby’s paintings during the exhibition for a total of $19,300. In January 2013, Darby sent defendant multiple emails inquiring about the payments for his sold 15 work, as well as the return of his unsold work. In December 2013, defendant paid Darby a 16 partial payment of $2,700 (id. at ¶¶ 61–66). The complaint alleges that Darby is owed $6,950 17 for the sold paintings and $8,650 for the unsold paintings, representing their fair market value 18 (id. at ¶ 68). 19 20 5. ALYSSA DENNIS. Dennis is an artist based in New York. In 2015, Dennis delivered several original 21 paintings to defendant for exhibition and sale on a consignment basis. Defendant exhibited 22 23 24 Dennis’ paintings at his White Walls Gallery from April 2015 to May 2015. Defendant sold one of Dennis’ paintings during the exhibition for two thousand dollars. Subsequently, Dennis sent defendant multiple emails inquiring about payment for her sold painting. Eventually, 25 defendant offered to pay Dennis in five monthly installment payments of two hundred dollars. 26 After Dennis emailed defendant about his default on the second monthly installment payment, 27 28 defendant emailed Dennis back on December 9, 2015, stating that: “check is in the mail.” 5 United States District Court Northern District of California Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 6 of 18 1 Dennis, however, never received a check in the mail, so she emailed defendant again in 2 January 2016. Defendant responded on January 5, 2016, stating: “yeah working on it. . . I 3 haven’t sold anything in weeks so I don’t wanna [sic] send a bad check. . . hopefully this 4 week” (id. at ¶¶ 69–77) (ellipsis in original). 5 Moreover, under the terms of their agreement, defendant had agreed to pay for the 6 shipping cost of returning the unsold artwork to Dennis. But defendant refused to do so. 7 Dennis thus spent $1,371 to collect and ship back her unsold artwork. The complaint alleges 8 that Dennis is owed eight hundred dollars for the sale of her painting and the $1,371 she spent 9 to ship back her unsold artwork (id. at ¶¶ 78–79). 10 6. 11 Dubnyckyj is an artist based in the United Kingdom. In 2014, she delivered an original ALICIA DUBNYCKYJ. 12 painting to defendant for exhibition and sale on a consignment basis. Defendant exhibited 13 Dubnyckyj’s painting at his White Walls Gallery from May 2014 through July 2014. 14 Defendant never informed Dubnyckyj whether or not her painting had been sold, nor did he 15 ever return it. The complaint alleges that it was not until November 2016 that “Dubnyckyj 16 learned that [d]efendant had closed the Galleries and sold the building where they were 17 located. It was at that time that [she] first realized that [d]efendant had no intention of 18 returning” her artwork to her possession. The complaint alleges that Dubnyckyj is owed 19 $6,250, representing the fair market value of her painting (id. at ¶¶ 80–85). 20 7. 21 Siddiqui and Lehmann are artists based in Germany. They work together under the JASMINE SIDDIQUI & FALK LEHMANN. 22 pseudonym “Herakut.” In 2013, they delivered seventeen original paintings to defendant for 23 exhibition and sale on a consignment basis. Defendant exhibited the Herakut paintings at his 24 White Walls Gallery from November 2013 through December 2013. Defendant sold various 25 of the Herakut paintings for a total of approximately $123,040 (id. at ¶¶ 86–89). 26 In March 2014, defendant paid Siddiqui and Lehmann $3,500 each. Thereafter, they 27 repeatedly tried to collect the remaining amounts owed to them from the sale of the Herakut 28 paintings. Each time, defendant would tell them that he was experiencing financial difficulty 6 United States District Court Northern District of California Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 7 of 18 1 “related to his divorce proceedings and that he would pay” them “when he was able to.” Then, 2 in August 2016, Siddiqui and Lehmann learned that defendant had closed his galleries. 3 Concerned that defendant did not intend to pay them the remaining proceeds, they again 4 contacted defendant. In September 2016, defendant paid each of them an additional two 5 thousand dollars. The complaint alleges that Siddiqui and Lehmann are owed $50,550, 6 representing the fair market value of the Herakut paintings (id. at ¶¶ 91–95). 7 8. 8 Hong is an artist based out of Los Angeles. In 2014, she delivered a painting to 9 defendant for exhibition and sale on a consignment basis. Defendant exhibited her painting 10 from May 2014 through July 2014 at his White Walls Gallery. Thereafter, defendant never 11 informed Hong whether or not her painting had been sold, nor did he ever return it. The 12 complaint alleges that it was not until November 2016 that “Hong learned that [d]efendant had 13 closed the Galleries and sold the building where they were located. It was at that time that 14 [she] first realized that [d]efendant had no intention of returning” her artwork to her 15 possession. The complaint alleges that Hong is owed $2,800, representing the fair market 16 value of her painting (id. at ¶¶ 96–101). SEONNA HONG 17 9. 18 Listfield is an artist based in Massachusetts. In December 2015, Listfield delivered two SCOTT LISTFIELD. 19 original paintings to defendant for exhibition and sale on a consignment basis. Defendant sold 20 both of Listfield’s paintings for a total of $5,400. In May 2016, Listfield attempted to contact 21 defendant about obtaining payment but received no response. The complaint alleges that he is 22 owed $2,700 (id. at ¶¶ 108–113). 23 10. 24 Mather is the agent and manager of artist Amanda Marie Ploegsma who has “assigned all HYLAND MATHER. 25 ownership, title, and rights to her claims asserted herein to Mr. Mather.” In January 2014, 26 Ploegsma delivered 36 original paintings to defendant for exhibition and sale on a consignment 27 basis. During the exhibition, defendant sold sixteen of Ploegsma’s paintings for an 28 approximate total of $27,400. In February 2014, defendant made a two-thousand-dollar partial 7 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 8 of 18 1 payment to Ploegsma. For months thereafter, Mather tried to collect the remainder of the 2 proceeds owed to Ploegsma, but to no avail. In January 2015, defendant agreed to monthly 3 installment payments of one thousand dollars and repeatedly assured Mather that the first 4 installment payment was forthcoming (id. at ¶¶ 118–126). 5 Then, on February 12, 2015 (id. at ¶ 127): 6 Defendant told Mr. Mather via email that he had initiated a wire transfer to Ms. Ploegsma on February 10, 2015. Specifically, he wrote, “I sent it Tuesday, should be there by tomorrow I would imagine. did you get the email from my bank that I sent it?” In fact, when he wrote this email, Defendant had not yet initiated the wire transfer and did not do so until February 16, 2015. 7 8 9 On March 13, 2015 (id. at ¶ 128): 10 Mather sent an email to Defendant to inquire about the timing of the next installment payment. In response, Defendant wrote, “hey Hyland, hopefully in the next couple weeks... I have a couple openings tomorrow so I might have a better idea after this weekend...” United States District Court Northern District of California 11 12 13 The complaint alleges that he is owed $10,700 (id. at ¶¶ 129–130). 14 15 11. AARON NAGEL. Nagel is an artist based in Oakland. In 2011 and 2013, he delivered various original 16 paintings to defendant for exhibition and sale on a consignment basis. Defendant sold five of 17 18 Nagel’s paintings for an approximate total of $19,800. Nagel began inquiring about receiving payment for his sold paintings in August 2013, but received no responses. The complaint 19 alleges that he is owed $9,900 (id. at ¶¶ 131–136). 20 21 22 23 12. ADRIAN PALENGAT. Palengat “is an agent and manager of artist Pakpoom Silaphan” who “has assigned all ownership, title, and rights to his claims asserted herein to Mr. Palengat.” In September 2014, Silaphan delivered various original paintings to defendant for exhibition and sale on a 24 consignment basis. During the exhibition at White Walls Gallery, defendant sold one of 25 26 27 Silaphan’s paintings for sixteen thousand dollars. In November 2014, Palengat contacted defendant regarding payment for the sold painting. The next day, defendant “responded via 28 8 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 9 of 18 1 email that ‘the last 2 months have been devastating to the gallery financially” (id. at ¶¶ 137– 2 142). United States District Court Northern District of California 3 The complaint alleges that Palengat is owed eight thousand dollars from the sale of the 4 one painting and sixteen thousand dollars for the fair market value of the unsold paintings, 5 which defendant never returned (id. at ¶¶ 143–144). 6 13. 7 Voskoboynikov “is an agent of artist Georgi Tchkhaidze” who “has assigned all 8 ownership, title, and rights to his claims asserted herein to Mr. Voskoboynikov.” In August 9 2010, Tchkhaidze delivered several original paintings to defendant for exhibition and sale on a 10 consignment basis. During the August 2010 exhibition at White Walls Gallery, defendant sold 11 two of Tchkhaidze’s paintings for an approximate total of $9,450 (id. at ¶¶ 145–149). 12 EUGENE VOSKOBOYNIKOV. In September 2014, Tchkhaidze emailed defendant regarding payment for the sold 13 paintings and the return of his unsold paintings. They arranged for Voskoboynikov to 14 personally pick up Tchkhaidze’s unsold paintings and to collect the payment for the sold 15 paintings on September 17, 2014 (id. at ¶¶ 145–151). When Tchkhaidze arrived on that day 16 (id. at ¶¶ 151–152): 17 18 19 20 21 22 23 24 25 26 Defendant showed him a check made out to Mr. Tchkhaidze but said that instead of giving the check to Mr. Voskoboynikov, Defendant would mail the check to Mr. Tchkhaidze together with the unsold Tchkhaidze Works. When Mr. Tchkhaidze received the unsold Tchkhaidze Works, there was no check included. On October 2, 2014, Mr. Voskoboynikov again contacted Defendant to inquire about collecting the check in person. On October 8, 2014, Defendant responded via email, stating that he would “cancel the first check I sent and send another check in the mail today.” When Mr. Voskoboynikov insisted that he wished to collect the check in person, Defendant responded that he had “already dropped it in the mail 10 minutes ago.” Neither Mr. Tchkhaidze nor Mr. Voskoboynikov ever received a check from Defendant. The complaint alleges that Voskoboynikov is owed $4,725 from the sale of Tchkhaidze’s two paintings (id. at ¶¶ 153–154). 27 28 9 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 10 of 18 1 14. TYRONE WRIGHT. Wright is an artist based in Australia. In 2012, he delivered several original paintings to 2 defendant for exhibition and sale on a consignment basis. During the exhibition, defendant 3 4 sold eighteen of Wright’s paintings for an approximate total of $75,320. In September 2012, Wright sent defendant an invoice for the sold paintings. 5 In April 2014, defendant paid Wright a partial payment of five hundred dollars and 6 agreed to bi-weekly installments of the same (id. at ¶¶ 155–159). On September 7, 2016 (id. at 7 ¶ 160): 8 9 10 11 [A]fter selling the Galleries, Defendant wrote in an email to Mr. Wright that he “just got some money” and that he could send Mr. Wright an initial payment and then subsequently “get on a monthly payment plan.” Defendant wired $2,000 to Mr. Wright and then failed to make any additional payments. United States District Court Northern District of California The complaint alleges that defendant owes Wright $29,160 from the sale of his paintings. 12 * * * 13 Based on the foregoing allegations, on July 30, 2020, plaintiffs instituted this action 14 against defendant alleging: (1) breach of fiduciary duty under California law, Cal. Civ. Code § 15 1738 et seq.; and (2) violations of the civil section of the Racketeer Influenced and Corrupt 16 17 Organizations Act, 18 U.S.C. § 1962(c). Plaintiffs base their civil RICO claim on defendant’s alleged various acts of mail and wire fraud relating to plaintiffs Dennis, Mather, and 18 Voskoboynikov. 19 Defendant now moves to dismiss for lack of subject-matter jurisdiction. In support, he 20 21 argues that plaintiffs’ civil RICO claim is both time-barred and inadequately pled and there is thus no federal-question jurisdiction. Accordingly, he opposes supplemental jurisdiction over 22 23 plaintiffs’ state-law claim for breach of fiduciary duty, which, in any event, defendant argues is also time-barred. For the reasons stated herein, this order finds that plaintiffs Dennis, Mather, 24 25 26 and Voskoboynikov’s claims are time barred, at least as currently pled. Accordingly, to the following extent, defendant’s motion is hereby GRANTED. 27 28 10 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 11 of 18 United States District Court Northern District of California 1 ANALYSIS 2 1. 3 The elements of a civil RICO claim are as follows: “(1) conduct; (2) of an enterprise; (3) 4 through a pattern (4) of racketeering activity (known as ‘predicate acts’); (5) causing injury to 5 plaintiff's ‘business or property.’ ” Living Designs, Inc. v. E.I. Dupont de Nemours and Co., 6 431 F.3d 353, 361 (9th Cir. 2005) (citation omitted). To plead a ‘pattern’ of ‘racketeering 7 activity,’ plaintiffs must show that defendant committed at least two predicate offenses within 8 ten years of each other. Turner v. Cook, 362 F.3d 1219, 1229 (9th Cir. 2004). CIVIL RICO CLAIM. 9 As a threshold matter, defendant contends that every single plaintiff’s claim is time 10 barred. The linchpin of the RICO claim centers on defendant’s alleged acts of mail and/or wire 11 fraud relating to plaintiffs Dennis, Mather, and Voskoboynikov. If these three plaintiffs’ 12 claims are time barred, therefore, there is no civil RICO claim and thereby no federal-question 13 jurisdiction. For the following reasons, this order finds that Dennis, Mather, and 14 Voskoboynikov’s claims, as pled, are time barred. The absence of their claims being fatal to 15 plaintiffs’ RICO claim, this order does not reach the timeliness of the remaining plaintiffs’ 16 claims, but notes that many of them also appear to be time barred. While some of the 17 remaining plaintiffs might well be able to allege facts that would establish tolling, Dennis, 18 Mather, and Voskoboynikov — the only plaintiffs that have supplied the predicate acts for 19 RICO — have not. 20 The statute of limitations for a civil RICO claim is four years. See Rotella v. Wood, 528 21 U.S. 549, 552 (2000). In Rotella, the Supreme Court held that the accrual clock for a civil 22 RICO claim begins when a plaintiff knew or should have known of her injury. 23 Notwithstanding that “a pattern of predicate acts may well be complex, concealed, or 24 fraudulent,” it is the “discovery of the injury, not discovery of the other elements of a claim” 25 that starts the clock. Id. at 553–56. Even so, a civil RICO claim is subject to equitable 26 principles of tolling. Id. at 560. 27 This action was filed on July 30, 2020. Defendant contends that plaintiffs’ civil RICO 28 claim is time barred because every plaintiff’s “alleged injury, i.e., loss of artwork or money, 11 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 12 of 18 1 occurred more than four years before the filing of this action” and that plaintiffs knew or 2 should have known of their injuries more than four years before the filing of this action (Dkt. 3 No. 25 at 8). United States District Court Northern District of California 4 Plaintiffs respond that the consignment of their artwork created a legal trust whereby 5 defendant’s galleries held those artworks — and the proceeds from the sale of those artworks 6 — in trust for their benefit. They argue that their claims are not time barred because they “did 7 not know of their injuries, nor should they have known of their injuries, until July 31, 2016, at 8 the earliest, when they first learned via a viral Facebook post that [d]efendant had closed the 9 [g]alleries, unilaterally and improperly terminated his consignment relationship with [them,] 10 and fled California with their funds and/or artwork” (Dkt. No. 27 at 11–12) (citing Dkt. No. 1 11 at ¶¶ 59, 67, 84, 93, 100, 106, 116, 129, 135, 143, 153). According to them, their injuries lie 12 “in the permanent loss of money and/or artwork owed to them by [d]efendant,” which did not 13 occur until defendant severed the consignment trusts by closing the galleries and fleeing to 14 Oregon with their property. They argue that they “had no reason to suspect that anything was 15 amiss until at least” July 31, 2016 (id. at 12). “Until then, while the [g]alleries were still open, 16 plaintiffs’ property was still held in trust with defendant” and there was no injury, they argue. 17 Prior to July 31, 2016, plaintiffs contend that they had no reason to suspect that defendant 18 intended not to pay them and/or return their artwork. In support, they point to (1) defendant’s 19 success and reputation as one of the best-known gallerist on the West Coast with notoriety 20 among artists throughout the world; (2) to the regularity of receiving late payments from 21 defendant; (3) the commonality of late payments in the industry in general; and (4) to the 22 balance of power and dynamics between artists and galleries: “artists seldom expect prompt 23 payment from gallery sales and generally do not push the issue for fear of straining 24 relationships with gallerists on whom their livelihoods rely” (Dkt. No. 27 at 13). They thus 25 argue that they did not have actual or constructive knowledge of defendant’s alleged fraud 26 before July 31, 2016, when the viral Facebook post spurred discussions revealing not only 27 defendant’s systemic fraud, but also his abrupt closure of the galleries. For these reasons, 28 plaintiffs contend that the proper accrual date is July 31, 2016, at the earliest. Alternatively, 12 United States District Court Northern District of California Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 13 of 18 1 they argue that their RICO claim should be equitably tolled given defendant’s alleged 2 fraudulent concealment. This order disagrees with both of plaintiffs’ arguments. 3 As a preliminary matter, this order notes that though plaintiffs have joined together to 4 share the expense of suit, this is not a class action. It is a joinder of individual plaintiffs in a 5 single suit against a single defendant. Each individual plaintiff’s allegations must stand on its 6 own as to both accrual and tolling, if any. Plaintiffs’ brief lumps all plaintiffs together and 7 makes no specific arguments as to any individual plaintiff. Instead, plaintiffs generally rely on 8 the viral July 2016 Facebook post and their consignment trust theory to carry the day for all of 9 them. This approach, however, ignores the considerable factual differences between the 10 plaintiffs, even taking the complaint as pled. As discussed in detail below, plaintiffs Dennis, 11 Mather, and Voskoboynikov’s allegations belie their assertion that they had “no reason to 12 doubt defendant’s intentions to pay them or return their artwork before” the Facebook post in 13 July 2016. 14 Furthermore, plaintiffs’ claimed timing of their injury is intellectually dishonest. 15 According to counsel, if defendant sold their consigned paintings and told plaintiffs so in 2010, 16 they could file a suit to collect the money from the sale of the paintings in 2010, so long as the 17 galleries remained open, notwithstanding their unsuccessful collection efforts all along. 18 Tellingly, plaintiffs cite to no authority supporting this purported view concerning the timing 19 of their injury. 20 21 A. DENNIS’ CLAIM IS TIME BARRED. Dennis alleges that she consigned several paintings to defendant for sale in 2015, one of 22 which defendant sold during exhibition from April through May 2015, and the remainder of 23 which were returned to her possession. She alleges that she sent defendant multiple emails 24 about receiving payment for the sold painting thereafter, which culminated in defendant’s offer 25 to pay her in five monthly installment payments of two hundred dollars. Apparently, defendant 26 made the first payment, but falsely represented in an email that he’d mailed her a check for the 27 second payment, which she never received. This prompted her to follow up with defendant in 28 January 2016, to which defendant allegedly responded on January 5, 2016, saying: “yeah 13 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 14 of 18 1 working on it . . . I haven’t sold anything in weeks so I don’t wanna [sic] send a bad check . . . 2 hopefully this week” (id. at ¶¶ 69–77) (ellipsis in original). It appears that defendant never 3 made any more payments to Dennis thereafter, nor did any further communication between 4 them take place. United States District Court Northern District of California 5 Based on the foregoing facts, Dennis knew about the defendant’s slow pay or no pay, and 6 even his wire fraud at least as of January 2016. This is because she never received the check 7 defendant claimed he mailed her, and because, as Dennis herself alleges, defendant’s 8 subsequent email constituted an admission that he had not in fact mailed her a check. It did not 9 take the July 2016 Facebook post to remove the scales from her eyes (in fact, unlike many of 10 the other plaintiffs, Dennis has not even alleged that the viral July 2016 Facebook post was 11 when she first learned of defendant’s fraud). Accordingly, this order disagrees with Dennis’ 12 argument that the proper accrual date for her claim should be July 31, 2016. Dennis knew or 13 should have known of her injury since at least January 2016. This order finds that her claim is 14 time barred because her complaint was filed on July 30, 2020, more than four years later. 15 16 B. MATHER’S CLAIM IS TIME BARRED. Similarly, Mather’s artist client consigned 36 paintings to defendant in January 2014, 17 sixteen of which defendant sold during exhibition from January through February 2014. 18 Mather alleges that defendant made a partial payment of two thousand dollars in February 19 2014. Thereafter, Mather attempted to contact defendant about the remaining payment, each 20 time to no avail. Eventually, in September 2014, defendant emailed Mather, stating that he 21 was contemplating closing his galleries at the end of that year, claiming that doing so would 22 reduce his overhead cost such that he would be able to pay his debts. Defendant further stated 23 that: “I would appreciate your discretion on this as I have not told my staff or anyone else yet 24 and I don’t need any more rumors flying around right now.” 25 Then, in January 2015, defendant agreed to make monthly installment payments and 26 “repeatedly assured” Mather that the first installment payment would be forthcoming. 27 Subsequently, on February 12, 2015 (id. at ¶ 127): 28 Defendant told Mr. Mather via email that he had initiated a wire 14 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 15 of 18 transfer to Ms. Ploegsma on February 10, 2015. Specifically, he wrote, “I sent it Tuesday, should be there by tomorrow I would imagine. did you get the email from my bank that I sent it?” In fact, when he wrote this email, Defendant had not yet initiated the wire transfer and did not do so until February 16, 2015. 1 2 3 On March 13, 2015 (id. at ¶ 128): 4 Mather sent an email to Defendant to inquire about the timing of the next installment payment. In response, Defendant wrote, “hey Hyland, hopefully in the next couple weeks... I have a couple openings tomorrow so I might have a better idea after this weekend...” 5 6 7 Incredibly, Mather alleges that it was not until the viral Facebook post on July 31, 2016 8 9 10 — fifteen months after defendant’s March 13 email — that he first learned that defendant had no intention of paying him. But Mather’s own allegations tell another story. This order finds that Mather had constructive knowledge of his injury dating back to at least March 2015 when 11 United States District Court Northern District of California defendant stopped making the agreed upon monthly installment payments, especially because 12 the default came more than a year after Mather already knew that defendant had sold the 13 14 15 paintings at issue. Indeed, it appears that Mather gained knowledge of defendant’s alleged scheme in and around February 2015. For these reasons, Mather’s claim began to accrue more than four years before the filing of his complaint and his claim is thus time barred. 16 17 18 19 C. VOSKOBOYNIKOV CLAIM IS TIME BARRED. Again similarly, Vosokoboynikov’s claim is also time barred, at least as currently pled. According to the complaint, Vosokoboyniko’s artist client consigned several paintings to defendant in 2010, two of which defendant sold during the 2010 exhibition period that 20 21 22 23 Vosokoboynikov knew had sold. Though defendant returned Vosokoboynikov’s unsold paintings in 2014, he never paid Vosokoboynikov for the sold paintings. Vosokoboynikov’s claim — as well as the civil RICO claim generally — is predicated on the allegation that, in October 2014, defendant falsely represented that he placed a check in the mail when in fact he 24 had not. 25 26 Despite the two paintings being sold in 2010 and defendant’s allegedly false representation that he placed a check in the mail in 2014, Vosokoboynikov alleges that July 27 2016 Facebook post is when he first learned of the no pay/slow pay scheme. But 28 15 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 16 of 18 1 Vosokoboynikov should have known of his injury by, at the very least, November 2014. 2 Indeed, by that point, he had learned of the falsity of the very statement that he now complains 3 of as being an act of wire fraud. Thus, to claim that he had no reason to have known anything 4 was amiss prior to July 2016 strains credulity and belies the import of his own allegations. 5 6 Accordingly, Vosokoboynikov’s claim is also time barred because accrual began more than four years before the filing of his complaint. * United States District Court Northern District of California 7 * * 8 Plaintiffs rely heavily upon Living Designs, Inc. v. E.I. Dupont de Nemours and Co., 431 9 F.3d 353 (9th Cir. 2005), contending its facts are directly analogous to our facts. They are not. 10 Here, unlike in Living Designs, plaintiffs Dennis, Mather, and Voskoboynikov circumstances 11 demonstrate that they had constructive notice — if not actual knowledge — of defendant’s 12 alleged fraud and their individual injuries more than four years before the filing of this action. 13 To the extent that they argue that accrual should begin when they learned — via the Facebook 14 post — that defendant had allegedly defrauded all of them (i.e., of his pattern of racketeering 15 activity), that argument runs head long into Rotella’s holding that it is the “discovery of the 16 injury, not discovery of the other elements of a claim” that starts the clock. 528 U.S at 553. 17 In short, as discussed above, Dennis, Mather, and Voskoboynikov had inquiry notice of 18 their individual injuries — as they were not getting paid despite their collection efforts — and 19 knew or should have known that defendant was stiffing them more than four years before they 20 filed this action. Dennis’ lack of knowledge of defendant’s other alleged acts of wire fraud 21 relating to Mather and Voskoboynikov is not relevant to when she learned of her own injury, 22 and vice versa. At best, those details constituted the discovery of “other elements” — i.e., the 23 pattern of racketeering activity — of their RICO claim, the discovery of which does not bear 24 upon accrual. 25 D. EQUITABLE TOLLING. 26 Alternatively, plaintiffs argue their RICO claim should be equitably tolled due to 27 defendant’s fraudulent concealment (Dkt. No. 27 at 17–18) (citing Dkt. No. 1 ¶¶ 35–38). To 28 the following extent, this order disagrees. 16 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 17 of 18 1 2 defendant actively misled [them], and that [they] had neither actual nor constructive 3 knowledge of the facts constituting [their] RICO claim despite [their] due diligence in trying to 4 uncover those facts.” Evans v. Arizona Cardinals Football Club, LLC, 761 F.App’x 701, 704 5 (9th Cir. 2019) (citing Grimmett v. Brown, 75 F.3d 506 (9th Cir. 1996)). 6 United States District Court Northern District of California “To establish equitable tolling, . . . plaintiff[s] must plead with particularity that the The allegations plaintiffs point to as being sufficient for equitable tolling are general 7 allegations, not specific and particularized (see Dkt. No. 1 ¶¶ 35–38). They describe 8 defendant’s alleged conduct in general terms, but they do not describe how any individual 9 plaintiff, let alone how Dennis, Mather, and Voskoboynikov, in particular, were actively 10 misled by defendant. Moreover, as already discussed, Dennis, Mather, and Voskoboynikov 11 had at least constructive knowledge of defendant’s alleged predicate acts of wire fraud more 12 than four years before the filing of this action. Accordingly, plaintiffs have not pled facts 13 sufficient to justify equitable tolling. In the absence of any tolling, Dennis, Mather, and 14 Voskoboynikov’s claims are all time barred. 15 To be clear, this order makes no finding concerning the timeliness of the other remaining 16 plaintiffs’ claims. Though some of their claims appear to be untimely, perhaps they can allege 17 facts establishing tolling. But Dennis, Mather, and Voskoboynikov, who are the only plaintiffs 18 that have supplied predicate acts supporting a RICO claim have not. 19 CONCLUSION 20 To the foregoing extent, defendant’s motion is GRANTED. There being no federal- 21 question jurisdiction, at least as currently pled, this order will not extend supplemental 22 jurisdiction to reach plaintiffs’ state-law breach of fiduciary duty claim and defendant’s 23 arguments raised thereto. Conceivably, there are a set of facts that plaintiffs could plead to 24 remedy the deficiencies identified herein. Accordingly, plaintiffs are invited to move for leave 25 to amend their complaint by FEBRUARY 11, 2021, AT NOON. Plaintiffs must plead their best 26 case. Their motion must affirmatively demonstrate how the proposed amended complaint 27 corrects the deficiencies identified in this order, as well as any other deficiencies raised in 28 17 Case 3:20-cv-05253-WHA Document 32 Filed 01/26/21 Page 18 of 18 1 defendant’s motion, if at all, but not addressed herein. The motion should be accompanied by 2 a redlined copy of the amended complaint. 3 4 IT IS SO ORDERED. Dated: January 26, 2021. 5 6 WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18
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