Eclectic Props. E., LLC v. Marcus & Millichap Co.
| Decision Date | 07 May 2014 |
| Docket Number | No. 12–16526.,12–16526. |
| Citation | 751 F.3d 990 |
| Parties | ECLECTIC PROPERTIES EAST, LLC, a California limited liability company; Risola Family LP II, a Florida limited partnership; CECA 3000, LP, a Nevada limited partnership; Cheatham Properties, LLC, a California limited liability company, successor in interest of John and Mary Cheatham; VAS Enterprises I LLC, a California limited liability company; Amnon Danus; Rivka Danus; Linda Farrell; Joseph W. Amirkhas; Joseph W. Amirkhas, as Trustee under the Amirkhas Trust, dated January 14, 2000; Justus L. Ahrend; Susan W. Ahrend, Trustees of the Justus and Susan Ahrend Trust, dated December 6, 1990; Kevork Belikian; Sylvia S. Belikian, Trustees under the Kevork Belikian and Sylvia S. Belikian Living Trust, dated July 10, 2000; Mani Etemad; Susan Khoshnood, Trustee of the Mani Etemad and Susan Khoshnood 2001 Revocable Trust; Eugenia Gagnon, Trustee of the Genie Debs Revocable Trust, dated October 10, 1995; Thomas H. Linden; Sylvia E. Linden, Trustees of the Thomas H. Linden and Sylvia E. Linden Family Trust, dated September 19, 2000; Johannes Moderbacher; Eileen Starr Moderbacher, as Trustees of the Moderbacher Family Trust, established by Declaration of Trust, dated February 1, 2006; Richard W. Siebert; Debra M. SIEBERT, Trustees of the Siebert Family Trust U/DT, dated January 13, 2003; Allen Ernest Hom, Trustee for the Allen Ernest Hom Trust, dated August 19, 1992; Linda J. Call, Trustee for the Linda Jeanne Call Family Trust, dated September 12, 2002, Plaintiffs–Appellants, v. The MARCUS & MILLICHAP COMPANY, a California corporation; Marcus & Millichap Real Estate Investment Services Inc., a California corporation; Marcus & Millichap Real Estate Investment Brokerage Company, a California corporation; Sovereign Investment Company, a California corporation; Sovereign Scranton LLC, a Delaware limited liability company; Sovereign CC, LLC, a Delaware limited liability company; Sovereign JF, LLC, a California limited liability company; Paul A. Morabito, individually and as the alter-ego of Eureka Petroleum Inc., a New York corporation, Tibarom Inc., a Delaware corporation, Tibarom N.Y. LLC, a Nevada limited liability company, Tibarom PA LLC, a Nevada limited liability company, Scranton Lube, LLC a Delaware limited liability company; Eureka Petroleum, a New York corporation; Tibarom Inc., a Delaware corporation; Tibarom N.Y. LLC, a Nevada limited liability company; Tibarom PA LLC, a Nevada limited liability company; Scranton Lube, LLC, a Delaware limited liability company; NY Seven Lube, LLC, a Delaware limited liability company; New York Lube Number 3, LLC, a Delaware limited liability company; Rochester Lube, LLC, a Delaware limited liability company; Baruk Management, Inc., a California corporation; Jack Waelti, individually and as the alter-ego of the QSR Group One, LLC, a Florida limited liability company, The QSR Group, LLC, a Florida limited liability company, and the QSR Group II, LLC, a Florida limited liability company AKA The QSR Group Two, LLC; The QSR Group One, LLC, a Florida limited liability company; The QSR Group, LLC, a Florida limited liability company; THE QSR Group II, LLC, a Florida limited liability company, AKA The QSR Group Two, LLC; PGP Valuation, Inc., an Oregon corporation; Glen D. Kunofsky; Marcus Muirhead; Alexander Mickle; Sean Perkin; Donald Emas; Andrew Lesher; Stewart Weston; Brice Head; Daizy Gomez; Bret King, Defendants–Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
OPINION TEXT STARTS HERE
Susan Alexander (argued), Sanford Svetcov, and Andrew S. Love, Robbins Geller Rudman & Dowd LLP, San Francisco, CA; David J. George and Bailie L. Heikkinen, Robbins Geller Rudman & Dowd LLP, Boca Raton, FL; and Bonny E. Sweeney and Phong L. Tran, Robbins Geller Rudman & Dowd LLP, San Diego, CA, for Plaintiffs–Appellants.
Daniel Purcell (argued), John W. Keker, and Dan Jackson, Keker & Van Nest LLP, San Francisco, CA, for Defendants–Appellees The Marcus & Millichap Company, Sovereign Investment Company, Sovereign Scranton LLC, Sovereign CC, LLC, and Sovereign JF, LLC.
David C. Scheper, Julio V. Vergara, and Katherine B. Farkas, Scheper Kim & Harris LLP, Los Angeles, CA, for Defendants–Appellees Marcus & Millichap Real Estate Investment Services, Inc., Marcus & Millichap Real Estate Investment Brokerage Company, Marcus Muirhead, Sean Perkin, Donald Emas, Andrew Lesher, Stewart Weston, Brice Head, and Bret King.
Dennis C. Vacco and Brendan H. Little, Lippes Mathias Wexler Friedman LLP, Buffalo, NY, Barry L. Breslow, Frank C. Gilmore, Robison, Belaustegui, Sharp & Low, Reno, NV, for Defendants–Appellees Paul A. Morabito and Baruk Management, Inc.
Timothy A. Horton, McKenna Long & Aldridge LLP, San Diego, CA, for Defendants–Appellees Tibarom NY, LLC and Tibarom PA, LLC.
Scott Wm. Davenport, Manning & Kass, Ellrod, Ramirez, Trester LLP, Irvine, CA, for Defendant–Appelle PGP Valuation, Inc.
Eugene Ashley, Hopkins & Carley, ALC, San Jose, CA, for Defendants–Appellees Glen Kunofsky and Daizy Gomez.
Appeal from the United States District Court for the Northern District of California, Ronald M. Whyte, Senior District Judge, Presiding. D.C. No. 5:09–cv–00511–RMW.
Before: J. CLIFFORD WALLACE and RONALD M. GOULD, Circuit Judges, and PAUL C. HUCK, Senior District Judge.*
We consider whether Plaintiffs–Appellants have pleaded facts sufficient under Federal Rules of Civil Procedure 8(a) and 9(b) to support a plausible theory of Racketeering Influenced and Corrupt Organizations Act (“RICO”) and RICO conspiracy violations against Defendants–Appellees. We have jurisdiction under 28 U.S.C. § 1291, and we hold that Plaintiffs' complaint does not meet the pleading standards required by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); Starr v. Baca, 652 F.3d 1202 (9th Cir.2011); and In re Century Aluminum Co. Securities Litigation, 729 F.3d 1104 (9th Cir.2013). The complaint does not contain adequate factual allegations to plausibly infer that Defendants specifically intended to defraud, and therefore does not show a plausible entitlement to relief.1 The district court did not err in dismissing Plaintiffs' complaint on the pleadings.
The scheme alleged by Plaintiffs began when defendants Paul Morabito and Jack Waelti purchased 22 commercial real estate properties in bulk for a total of about $20.3 million. Morabito, Waelti, and their related companies then added a commercial lease for a franchise on each property. Morabito and his related entities placed Jiffy Lube franchises on the properties he owned, while Waelti and his related entities placed Church's Chicken franchises on theirs. 2 The Morabito and Waelti entities executed sale-leaseback transactions with Sovereign Investment Company or a related entity,3 becoming tenants on the real estate that they had purchased. According to Plaintiffs, the fair market value of the 22 commercial real estate properties was not $20.3 million, but $11.1 million.
Plaintiffs allege that the Morabito, Waelti, and Sovereign entities conspired to pay inflated rent payments so that the properties would appear far more valuable to third parties. Sovereign Investments then marketed the properties for sale to the public through the Marcus & Millichap Company (“M & M”). 4 Plaintiffs allege that the brokers used sham appraisals performed by defendant PGP Valuation, Inc., to support the inflated property values. Plaintiffs purchased all of the properties in a series of independent transactions for a combined $30.3 million in 2004, 2005, and 2006. The Morabito and Waelti entities at first performed on their leases, some for up to four years, making a total of about $8.1 million in rent payments to Plaintiffs. The franchisees began having problems making their rent payments in 2006 and 2007, and eventually each breached its lease, leaving more than $59 million in future rent payments unpaid. Plaintiffs tried to mitigate their losses, but could not find tenants at comparable rents.
Plaintiffs filed suit alleging that each of the defendants had violated RICO, 18 U.S.C. § 1962(c), and that Defendants had collectively violated 18 U.S.C. § 1962(d)'s prohibition on RICO conspiracies, along with related state common law and statutory claims. The district court dismissed the case under Federal Rule of Civil Procedure 12(b)(6), concluding that Plaintiffs had not met their burden under Rules 8(a) and 9(b) to plausibly allege that Defendants specifically intended to defraud Plaintiffs. Because the district court dismissed the individual RICO claims, it also dismissed the RICO conspiracy claim against all Defendants. Finally, after dismissing all of the federal claims, the district court declined to exercise supplemental jurisdiction over Plaintiffs' state law claims. Plaintiffs filed a timely notice of appeal.
We review de novo the district court's judgment granting a motion to dismiss for failure to state a claim under Rule 12(b)(6). Odom v. Microsoft Corp., 486 F.3d 541, 545 (9th Cir.2007). In reviewing an appeal from a motion to dismiss, all facts are taken from the complaint and construed in the light most favorable to the non-moving party. Id.
Rule 8 requires a complaint to include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). To meet this requirement, the Supreme Court has held that an “entitlement to relief” requires Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Although “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof is improbable,” id. at 556, 127 S.Ct. 1955, plaintiffs must include sufficient “factual enhancement” to cross “the line between possibility...
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