Erhart v. Bofi Holding, Inc.

• Decision Date: 30 April 2019
• Docket Number: Case No. 15-cv-02287-BAS-NLS consolidated with 15-cv-02353-BAS-NLS
• Citation: 387 F.Supp.3d 1046
• Court: U.S. District Court — Southern District of California
• Parties: Charles Matthew ERHART, Plaintiff, v. BOFI HOLDING, INC., Defendant. and Consolidated Case

387 F.Supp.3d 1046

Charles Matthew ERHART, Plaintiff,

v. BOFI HOLDING, INC., Defendant.and Consolidated Case

Case No. 15-cv-02287-BAS-NLS consolidated with 15-cv-02353-BAS-NLS

United States District Court, S.D. California.

Signed April 30, 2019

Carol Gillam, Sara Heum, The Gillam Law Firm, Los Angeles, CA, for Plaintiff.

Heather Lynn Plocky, Martin David Katz, Polly Towill, Andre J. Cronthall, Sheppard Mullin Richter & Hampton, Los Angeles, CA, for Defendant.

ORDER:

(1) GRANTING IN PART AND DENYING IN PART BOFI HOLDING, INC.'S MOTION FOR JUDGMENT ON THE PLEADINGS (ECF No. 78); AND

(2) DENYING CHARLES MATTHEW ERHART'S MOTION FOR JUDGMENT ON THE PLEADINGS (ECF No. 96)

Hon. Cynthia Bashant, United States District Judge

Presently before the Court are the parties' cross-motions for judgment on the pleadings. (ECF Nos. 78, 96.) The Court finds these motions suitable for determination on the papers submitted and without oral argument. See Fed. R. Civ. P. 78(b) ; Civ. L.R. 7.1(d)(1). For the following reasons, the Court GRANTS IN PART and DENIES IN PART BofI Holding, Inc.'s motion (ECF No. 78) and DENIES Charles Matthew Erhart's motion (ECF No. 96).

BACKGROUND

The Court and the parties are well versed in the competing allegations that form the basis of these consolidated actions. Consequently, the Court provides only a synopsis of the parties' allegations here.

BofI Holding, Inc. is the publicly-traded holding company for BofI Federal Bank, a federally-chartered savings and loan association that operates several brands of banks including Bank of Internet.¹ (See Erhart's First Amended Complaint ("FAC") ¶ 4, ECF No. 32; BofI's FAC ¶ 10, ECF No. 12 in Case No. 15-cv-2353.) BofI hired Charles Matthew Erhart as a Staff Internal Auditor in its headquarters in San Diego, California. (Erhart's FAC ¶ 3; BofI's FAC ¶ 7.)

The pleadings paint two different pictures of Erhart's time at BofI. In his First Amended Complaint, Erhart presents a captivating account of his tenure as an auditor in a turbulent corporate environment. (Erhart's FAC ¶¶ 3–75.) Erhart recounts how, time and again, he battled against pressure from senior management as he discovered conduct he believed to be wrongful. (Id. ) For example, Erhart claims he unearthed evidence that BofI failed to turn over information that was responsive to a subpoena from the Securities and Exchange Commission. (Id. ¶¶ 26–31.) Erhart also allegedly discovered that BofI's Chief Executive Officer was "depositing third-party checks for structured settlement annuity payments into a personal account, including nearly $ 100,000 in checks made payable to third parties." (Id. ¶ 44.)

When BofI learned Erhart was potentially reporting these activities to the Bank's principal regulator, Erhart claims BofI engaged in a pattern of retaliatory conduct against him. (See Erhart's FAC ¶¶ 53–74.) This alleged conduct included BofI (i) repeatedly contacting Erhart while he was out sick from work, (ii) demanding the return of his company-issued laptop, (iii) making false statements about his medical leave and alleged whistleblowing activities, and (iv) ultimately terminating him. (Id. ) Based on these allegations, Erhart brings seven claims against BofI, including whistleblower retaliation in violation of the Sarbanes–Oxley Act and the Dodd–Frank Wall Street Reform and Consumer Protection Act.² (Id. ¶¶ 76–163.)

In contrast, BofI's countersuit portrays Erhart as an entry-level internal auditor who conducted improper "rogue investigations." (BofI's FAC ¶¶ 7, 23–28.) BofI claims Erhart "abused his power" as an auditor by "initiating and conducting his own unplanned and unapproved investigations into matters that were outside the scope of the" Bank's internal audit plans. (Id. ¶ 24.) In doing so, Erhart allegedly "misrepresented to other BofI employees that he was conducting authorized investigations as part of his job." (Id. ¶ 26.) The Bank also contends that Erhart accessed confidential information for personal gain, disseminated confidential information to "a website that allows comments on the stocks of publicly traded companies," and abandoned his job. (Id. ¶¶ 27, 31, 40–41.) In light of these allegations, BofI brings its own catalog of eight claims against Erhart, including breach of contract, breach of the duty of loyalty, and violation of the Computer Fraud and Abuse Act. (Id. ¶¶ 47–98.)

The Court consolidated these actions but did not direct the parties to file consolidated pleadings. (ECF No. 31.) The parties now bring cross-motions for judgment on the pleadings.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(c), "[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." "Judgment on the pleadings is properly granted when, accepting all factual allegations in the complaint as true, there is no issue of material fact in dispute, and the moving party is entitled to judgment as a matter of law." Chavez v. United States , 683 F.3d 1102, 1108 (9th Cir. 2012) (brackets omitted). "When a party invokes Rule 12(c) to raise the defense of failure to state a claim, the motion faces the same test as a motion under Rule 12(b)(6)." Landmark Am. Ins. Co. v. Navigators Ins. Co. , 354 F. Supp. 3d 1078, 1081 (N.D. Cal. 2018).

A motion to dismiss under Rule 12(b)(6) "tests the legal sufficiency" of the claims asserted in the complaint. Navarro v. Block , 250 F.3d 729, 732 (9th Cir. 2001). The court must accept all factual allegations pleaded in the complaint as true and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mut. Ins. Co. , 80 F.3d 336, 337–38 (9th Cir. 1996). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations; rather, it must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ).

ANALYSIS

I. Erhart's Motion

Erhart moves for judgment on the pleadings as to seven of BofI's claims. At the outset, the Court underscores that, with few exceptions, it is limited under Rule 12(c) to considering the factual allegations contained in the pleadings. See Fed R. Civ. P 12(b)–(c) ; see also United States v. Real Prop. Located at 9832 Richeon Ave., Downey, Cal. , 234 F. Supp. 2d 1136, 1137 (C.D. Cal. 2002). As explained in the Court's prior order regarding Erhart's affirmative defenses, BofI cannot impose tort liability on Erhart for conduct that is protected activity under state or federal whistleblower statutes. (See ECF No. 40 at 32:18–33:14.) But a pleadings motion is not the proper venue to resolve the parties' competing factual contentions regarding what transpired during Erhart's tenure at the Bank.³ With this point in mind, the Court addresses each of Erhart's seven challenges to BofI's claims.

A. Fraud

Erhart first challenges BofI's claim that he committed fraud, arguing that BofI fails to plead this claim with the required specificity. (Erhart's Mot. 5:3–6:13.) Under California law, the elements of a cause of action for fraud are: "(1) misrepresentation (false representation, concealment, or nondisclosure), (2) knowledge of falsity (or ‘scienter’), (3) intent to defraud (i.e., to induce reliance), (4) justifiable reliance, and (5) resulting damage." Lazar v. Superior Court , 12 Cal. 4th 631, 632, 49 Cal.Rptr.2d 377, 909 P.2d 981 (1996). Rule 9(b) in turn requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud ... shall be stated with particularity." Fed. R. Civ. P. 9(b) ; see also Kearns v. Ford Motor Co. , 567 F.3d 1120, 1125 (9th Cir. 2009) (providing Rule 9(b) applies to state law fraud claims). "To comply with Rule 9(b), allegations of fraud must be ‘specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong.’ " Bly-Magee v. California , 236 F.3d 1014, 1019 (9th Cir. 2001) (quoting Neubronner v. Milken , 6 F.3d 666, 672 (9th Cir. 1993) ). Hence, allegations of fraud "must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged." Kearns , 567 F.3d at 1124 (quoting Vess v. Ciba-Geigy Corp. USA , 317 F.3d 1097, 1106 (9th Cir. 2003) ).

BofI's fraud claim is predicated on Erhart purportedly conducting rogue investigations at the Bank. (BofI's FAC ¶¶ 72–79.) BofI alleges Erhart's "primary job duty was to prepare audits of various aspects of BofI's operations as specifically assigned to him, ... within the parameters of the Internal Audit Plan approved by [BofI's] independent Audit Committee." (Id. ¶ 10.) One of Erhart's supposed rogue audits, an unapproved payroll investigation, "was not part of the 2014 Audit Plan." (Id. ¶ 27(a).) BofI alleges that Erhart nonetheless "knowingly made false statements to BofI employees that he was conducting authorized official investigations and audits as part of his job as a Staff Internal Auditor," including in several emails to employees in December 2014 "to request information for his unapproved payroll audit." (Id. ¶¶ 73–74.)

Even if BofI's fraud claim is not compelling, Rule 12(c) tests the sufficiency of the pleadings, and BofI's claim provides Erhart with "notice of the particular misconduct which is alleged" to allow him to "defend against the charge." See Bly-Magee , 236 F.3d at 1019. BofI's pleading provides the requisite who (Erhart), what (making false statements that he was conducting authorized official investigations and audits as part of his job to obtain...