InjuryLoans.com, LLC v. Buenrostro

• Decision Date: 25 March 2021
• Docket Number: Case No.: 2:18-cv-01926-GMN-VCF
• Citation: 529 F.Supp.3d 1178
• Parties: INJURYLOANS.COM, LLC; Adam Stokes, Plaintiffs, v. Sergio BUENROSTRO, et al., Defendants.
• Court: U.S. District Court — District of Nevada

529 F.Supp.3d 1178

INJURYLOANS.COM, LLC; Adam Stokes, Plaintiffs,

v.Sergio BUENROSTRO, et al., Defendants.

Case No.: 2:18-cv-01926-GMN-VCF

United States District Court, D. Nevada.

Signed March 25, 2021

Filed March 26, 2021

Karl J. Andersen, Law Office of Karl Andersen, PC, Kathleen H. Gallagher, Gallagher Law, Prof. Corp., Las Vegas, NV, for Plaintiffs.

Jeffrey L. Hulet, Kenneth E. Hogan, Hogan Hulet PLLC, Las Vegas, NV, for Defendants Sergio Buenrostro, S&S Marketing Consulting, LLC.

Ariel E. Stern, Donna M. Wittig, Akerman LLP, Holly E. Walker, Jackson Lewis P.C., Las Vegas, NV, for Defendant Citibank, N.A.

Kenneth E. Hogan, Hogan Hulet PLLC, Las Vegas, NV, for Defendant Sandra Martinez.

ORDER

Gloria M. Navarro, District Judge

Pending before the Court is the Motion to Dismiss, (ECF No. 97), filed by Plaintiffs/Counter-Defendants Injury Loans, LLC ("Injury Loans") and Adam Stokes ("Stokes") (collectively, "Plaintiffs"), regarding Defendant/Counterclaimant Sergio Buenrostro's ("Buenrostro's") Amended Counterclaim, (ECF No. 96). Buenrostro filed a Response, (ECF No. 111), and Plaintiffs filed a Reply, (ECF No. 116).

Also pending before the Court is the Motion to Dismiss, (ECF No. 127), filed by Defendant Citibank, N.A. ("Citi"). Plaintiffs filed a Response, (ECF No. 132), and Citi filed a Reply, (ECF No. 139).

For the reasons discussed below, the Court GRANTS Plaintiffs' Motion to Dismiss and GRANTS in part and DENIES in part Citi's Motion to Dismiss.

I. BACKGROUND

This case arises from allegations that Buenrostro misappropriated proceeds of Plaintiffs' business. (See generally First Am. Compl. ("FAC"), ECF No. 110). Stokes is the owner of Injury Loans, a limited liability company that finances personal injury lawsuits in exchange for loan reimbursement and an interest in subsequent recovery. (Id. ¶¶ 14–16). Plaintiffs employed Buenrostro as an administrator for Injury Loans. (Id. ¶ 17).

The events giving rise to this action began in 2017 after Stokes sustained a traumatic brain injury

that incapacitated him for several months. (Id. ¶ 18). Plaintiffs allege that Buenrostro was not authorized to handle funds for Injury Loans within the scope of his employment. (Id. ¶¶ 46–47). However, Plaintiffs contend that, "[w]hile Stokes was [ ] incapacitated, Buenrostro ‘sold’ loans belonging to Injury Loans to third parties, intercepted checks from Plaintiffs['] mail box [sic], deposited these checks with Defendant Citigroup and collected proceeds to which he was not entitled, but which belonged to Injury Loans and/or Stokes." (Id. ¶ 21). Buenrostro allegedly misrepresented his authority to third parties to sell loans and collect loan proceeds. (Id. ¶¶ 21–23).

Plaintiffs allege that Buenrostro facilitated his scheme in a number of ways. First, Buenrostro allegedly drafted a sham profit-sharing contract between himself and Stokes and forged Stokes's signature thereon. (Id. ¶ 24(a)). Second, Buenrostro allegedly forged Stokes's endorsement on checks made out to Injury Loans. (Id. ¶ 24(b)). Third, Buenrostro allegedly formed a sham LLC, S&S Marketing Consulting ("S&S"), which he registered under the fictitious firm name "Injury Loans." (Id. ¶ 24(c)). Buenrostro allegedly opened a bank account for S&S at Citi where he would deposit checks made out to Injury Loans. (Id. ¶ 24(d)). Buenrostro allegedly represented to others that he shared the bank account with Stokes and/or "opened it with Stokes'[s] authorization by using Citibank documents purporting to bear Stokes'[s] signature." (Id. ¶ 24(f)).

II. LEGAL STANDARD

A. 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action that fails to state a claim upon which relief can be granted. See N. Star Int'l v. Ariz. Corp. Comm'n , 720 F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint does not give the defendant fair notice of a legally cognizable claim and the grounds on which it rests. See Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In considering whether the complaint is sufficient to state a claim, the Court will take all material allegations as true and construe them in the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan , 792 F.2d 896, 898 (9th Cir. 1986).

The Court, however, is not required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden State Warriors , 266 F.3d 979, 988 (9th Cir. 2001). A formulaic recitation of a cause of action with conclusory allegations is not sufficient; a plaintiff must plead facts showing that a violation is plausible, not just possible. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).

"Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion ... However, material which is properly submitted as part of the complaint may be considered on a motion to dismiss." Hal Roach Studios, Inc. v. Richard Feiner & Co. , 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (citations omitted). Similarly, "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss" without converting the motion to dismiss into a motion for summary judgement. Branch v. Tunnell , 14 F.3d 449, 454 (9th Cir. 1994). Under Federal Rule of Evidence 201, a court may take judicial notice of "matters of public record." Mack v. S. Bay Beer Distrib. , 798 F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if the district court considers materials outside of the pleadings, the motion to dismiss is converted into a motion for summary judgement. See Arpin v. Santa Clara Valley Transp. Agency , 261 F.3d 912, 925 (9th Cir. 2001).

If the court grants a motion to dismiss for failure to state a claim, leave to amend should be granted unless it is clear that the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Sys., Inc. , 957 F.2d 655, 658 (9th Cir. 1992). Pursuant to Rule 15(a), the court should "freely" give leave to amend "when justice so requires," and in the absence of a reason such as "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of the amendment, etc." Foman v. Davis , 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).

B. Motion to Strike

Pursuant to Rule 12(f), a "court may strike from a pleading ... any redundant, immaterial, impertinent, or scandalous matter." The district court may alternatively strike pleadings under its "inherent power over the administration of its business. It has inherent authority to regulate the conduct of attorneys who appear before it [and] to promulgate and enforce rules for the management of litigation ...." Spurlock v. F.B.I. , 69 F.3d 1010, 1016 (9th Cir. 1995) (citations omitted) (emphasis added).

III. DISCUSSION

The Court first addresses Citi's Motion to Dismiss the Complaint before turning to Plaintiffs' Motion to Dismiss Buenrostro's Amended Counterclaim.

A. Motion to Dismiss the First Amended Complaint, (ECF No. 127)

Plaintiffs argue that Citi bears liability for depositing Plaintiffs' checks into Buenrostro's account for S&S. The First Amended Complaint asserts claims against Citi for: (1) Negligence/Negligence Per Se; (2) Injunctive Relief; (3) Declaratory Relief; (4) Conversion; (5) Violations of the UCC; and (6) Monies Had and Received. (FAC ¶¶ 66–94, 159–196, ECF No. 110). Citi moves to dismiss the First Amended Complaint for its failure to state a claim upon which relief can be granted. (See Citi's Mot. Dismiss ("MTD"), ECF No. 127). Citi also argues that Plaintiffs' claim for money had and received should be stricken. (Id. 17:2–8). The Court addresses each claim below.

1. Negligence/Negligence Per Se/UCC Violations ¹

Plaintiffs attempt to assert several negligence theories, which differ only in the alleged source of duty Citi owed to Plaintiffs.² (See FAC ¶¶ 66–94). Plaintiffs contend that Citi owed them a duty of care arising in common law. (Id. ¶ 88). Plaintiffs also argue that Citi engaged in negligence per se by failing to comply with the terms of the Patriot Act, the Bank Secrecy Act, and associated federal Know Your Customer and Customer Due Diligence regulations. (Id. ¶¶ 67, 72–79, 86–87). Finally, Plaintiffs contend that Citi engaged in negligence per se by failing to comply with several provisions of UCC Article 3 as adopted by the Nevada Legislature, specifically NRS 104.3110, 104.3202, 104.3305, and 104.3306. (Id. ¶¶ 67, 90, 187). The Court dismisses each theory of negligence with prejudice.

Citi owes no common law duty of care to Plaintiffs. Generally, a bank's duty of care arises by contract and is therefore limited to its customers. See Mut. Serv. Cas. Ins. Co. v. Elizabeth State Bank , 265 F.3d 601, 616 (7th Cir. 2001) ("But the duty of care is one implied into the agreement between bank and depositor; it is a duty, in other words, that depends upon the existence of a contract."). To the extent Citi could owe a common law duty of care to Plaintiffs, the duty is supplanted by the UCC.³ The UCC preempts causes of action "displaced by provisions of this code." See NRS 104.1103(2). There are two UCC provisions that create causes of action by an employer against a depositary bank to recover instruments fraudulently endorsed by an employee. NRS 104.3405 creates a cause of action in negligence against a depositary bank wherein an employee entrusted with responsibility over the instrument fraudulently endorses the instrument. See NRS 104.3405(2) and cmt. 1....