Stereoscope, LLC et al v. U.S. Bank National Association et al

Filing 18

ORDER DENYING PLAINTIFFS MOTION TO REMAND 11 AND GRANTING DEFENDANTS MOTION TO DISMISS 10 by Judge Dean D. Pregerson. ( MD JS-6. Case Terminated ). (lc). Modified on 2/11/2015 (lc).

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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STEREOSCOPE, LLC, a
California limited liability
company; CRONKITE & KISSELL,
LLC, a California limited
liability company; CLINT
CRONKITE; DAVID KISSELL,

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Plaintiffs,
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v.
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U.S. BANK NATIONAL
ASSOCIATION, a national
banking association; KIM
GALBRAITH, an individual;
PAULA OSWALD, an individual;
OLALEYE FADAHUNSI, an
individual,

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Defendants.
___________________________

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Case No. CV 14-05593 DDP (SSx)
ORDER DENYING PLAINTIFFS’ MOTION
TO REMAND AND GRANTING
DEFENDANTS’ MOTION TO DISMISS

[Dkt. Nos. 10, 11]

Presently before the Court are Plaintiffs’ Motion to Remand

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(“Mot. to Remand,” Dkt. No. 11) and Defendants’ Motion to Dismiss

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(“Mot. to Dismiss,” Dkt. No. 10).

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submissions, the Court DENIES Plaintiffs’ Motion to Remand and

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GRANTS Defendants’ Motion to Dismiss.

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///

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///

Having considered the parties’

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I.

BACKGROUND
Plaintiffs Clint Cronkite and David Kissell are the owners and

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principals of Cronkite & Kissell, LLC (“Cronkite & Kissell”), a

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California financial advisory and private investments company.

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(Complaint (“Compl.”), Dkt. No. 1, ¶ 1.)

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majority owner of Stereoscope, LLC (“Stereoscope”), a California

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production services company that specializes in 3D technology and

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film services.

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Cronkite & Kissell is a

(Id.)

On July 11, 2011, Plaintiff Stereoscope entered into a Joint

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Venture Agreement (the “Agreement”) to produce motion pictures with

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Cutting Edge Pictures (“CEP”), a wholly owned subsidiary of The

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Reserve Entertainment Group (“TREG”).

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required Stereoscope to obtain four percent of the film financing.

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(Id. ¶ 4.)

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Edge/Stereoscope Motion Pictures, LLC (“CESMP”) pursuant to the

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Agreement.

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(Id. ¶ 2)

The Agreement

TREG and Stereoscope also formed Cutting

(Id.)

Stereoscope raised $708,000 from investors to satisfy its four

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percent of the film financing.

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City Movie, LLC (“LCM”) to begin work on the Joint Venture’s first

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project, and designated TREG as managing member and CESMP as a

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member.

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account at U.S. Bank National Association (“U.S. Bank”), with LCM

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as borrower, EB Capital as lender, and U.S. Bank as the escrow

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agent.

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principal at TREG, was the authorized representative for LCM and

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that Joshua Estes was the authorized representative for EB Capital.

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(Exhibit A to Compl.)

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placed into this LCM escrow account.

(Id. ¶ 6.)

(Id.)

(Id. ¶ 5.)

TREG formed Liberty

In or around March 2012, LCM opened an escrow

The escrow agreement indicated that Allen Bates, a

The $708,000 Stereoscope had raised was

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(Compl. ¶ 6)

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Defendants are U.S. Bank National Association, which was the

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escrow agent for LCM’s funds, as well as three employees of U.S.

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Bank who were involved in various ways with the administration of

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the LCM escrow account.

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account manager, Defendant Olaleye Fadahunsi was the investment

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manager, and Defendant Paula Oswald was a Vice President at U.S.

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Bank.

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a citizen of California.

Defendant Kim Galbraith was the LCM

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(Id. ¶¶ 6, 25-27.)

Of all Defendants, only Paula Oswald is
(Id. ¶¶ 24-27.)

In or around May 2012, the relationship between TREG and

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Stereoscope began to deteriorate.

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Stereoscope sent a “Notice of Claims” letter to U.S. Bank informing

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Galbraith of a dispute over the funds in the account and requesting

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that U.S. Bank freeze the funds pending resolution of the dispute.

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(Id.)

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with a demand for arbitration.

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Bank released $705,892 from the LCM escrow account to TREG.

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(Id. ¶ 7.)

On May 30, 2012,

On November 19, 2012, Stereoscope served TREG, CEP, and LCM
(Id.)

On November 21, 2012, U.S.
(Id.)

On February 14, 2013, Judge Diane Wayne, who arbitrated the

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dispute, issued a preliminary injunction finding wrongdoing on the

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parts of TREG, CEP, and LCM.

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further subpoenas, Plaintiffs eventually learned that U.S. Bank had

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released the majority of the funds from the LCM escrow account and

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that TREG had formed another company, Checkmate Film Funding, LLC

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(“Checkmate”), which had put $500,000 of the withdrawn funds into a

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new escrow account with U.S. Bank.

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2013, Judge Wayne issued a final arbitration award in favor of

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Stereoscope.

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(Id. ¶ 8.)

After Judge Wayne issued

(Id. ¶ 9.)

On October 31,

(Id. ¶ 10.)

Plaintiffs claim that to date they have not recovered any of
the funds stolen from the U.S. Bank escrow accounts.
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(Id. ¶ 11.)

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Defendants contend that U.S. Bank properly interpleaded the

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$500,000 in the Checkmate escrow account in a state court action,

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enabling Plaintiffs to recover that entire $500,000 amount less

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attorney’s fees.

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(Mot. to Dismiss, Dkt. No. 10-1, at 2.)

Plaintiffs allege that U.S. Bank wrongfully refused to freeze

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the funds in the original LCM escrow account and refused to obey

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any instructions from Stereoscope after receipt of the “Notice of

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Claims.”

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aided LCM and TREG’s fraud in moving the LCM escrow funds and

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Plaintiffs further allege that Defendants subsequently

concealing the fact that the funds had been moved.

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On May 28, 2014, Plaintiffs filed a Complaint against

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Defendants in Los Angeles Superior Court.

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Complaint alleged seven causes of action: (1) intentional

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interference with contractual relations; (2) fraud and deceit; (3)

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fraudulent concealment; (4) intentional interference with

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prospective business relations; (5) gross negligence; (6)

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intentional infliction of emotional distress; and (7) punitive

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damages.

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(Dkt. No. 1.)

The

Defendants removed the case to federal court, arguing that

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Plaintiffs included Defendant Paula Oswald as a sham defendant to

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destroy diversity.

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Motion to Dismiss for Failure to State a Claim.

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Plaintiffs filed a Motion to Remand.

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II.

(Dkt. No. 1.)

Defendants subsequently filed a
(Dkt. No. 10.)

(Dkt. No. 11.)

LEGAL STANDARD

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A.

Motion to Remand

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Diversity jurisdiction under 28 U.S.C. § 1332 requires

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complete diversity of the parties; however, removal is proper

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despite the presence of a non-diverse defendant when that defendant
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was fraudulently joined.

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courts use to describe a non-diverse defendant who has been joined

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to an action for the sole purpose of defeating diversity.

McCabe

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v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987).

A court

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will disregard such a “sham” defendant for the purposes of

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determining diversity if it is “obvious according to the settled

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rules of the state” that the plaintiff has failed to state any

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cause of action against the defendant in question.

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Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir.2001).

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Fraudulent joinder is a “term of art”

Morris v.

The “strong presumption against removal jurisdiction” means

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that the party asserting the fraudulent joinder bears the burden of

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proof.

Emrich v. Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir.

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1988).

The court should remand the case unless the moving party

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can show fraudulent joinder by clear and convincing evidence.

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Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206

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(9th Cir. 2007).

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plaintiff can state a claim against the non-diverse defendant, then

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the court must remand the case.

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Ins. Co., 220 F. Supp. 2d 1116, 1118 (N.D. Cal. 2002).

If there is a “non-fanciful possibility” that the

Macey v. Allstate Prop. & Cas.

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B.

Motion to Dismiss

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A 12(b)(6) motion to dismiss requires the court to determine

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the sufficiency of the plaintiff's complaint and whether or not it

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contains a “short and plain statement of the claim showing that the

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pleader is entitled to relief.”

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Rule 12(b)(6), a court must (1) construe the complaint in the light

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most favorable to the plaintiff, and (2) accept all well-pleaded

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factual allegations as true, as well as all reasonable inferences

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to be drawn from them.

Fed. R. Civ. P. 8(a)(2).

Under

See Sprewell v. Golden State Warriors, 266
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F.3d 979, 988 (9th Cir. 2001), amended on denial of reh’g, 275 F.3d

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1187 (9th Cir. 2001); Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th

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Cir. 1998).

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In order to survive a 12(b)(6) motion to dismiss, the

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complaint must “contain sufficient factual matter, accepted as

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true, to ‘state a claim to relief that is plausible on its face.’”

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Ashcroft v. Iqbal, 556U.S. 662, 663 (2009) (quoting Bell Atl. Corp.

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v. Twombly, 550 U.S. 544, 570 (2007)).

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recitals of the elements of a cause of action, supported by mere

However, “[t]hreadbare

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conclusory statements, do not suffice.”

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Dismissal is proper if the complaint “lacks a cognizable legal

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theory or sufficient facts to support a cognizable legal theory.”

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Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th

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Cir. 2008); see also Twombly, 550 U.S. at 561-63 (dismissal for

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failure to state a claim does not require the appearance, beyond a

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doubt, that the plaintiff can prove “no set of facts” in support of

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its claim that would entitle it to relief).

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suffice “if it tenders ‘naked assertion[s]’ devoid of ‘further

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factual enhancement.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550

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U.S. at 556).

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pleads factual content that allows the court to draw the reasonable

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inference that the defendant is liable for the misconduct alleged.”

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Id.

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because they are cast in the form of factual allegations.”

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v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003).

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III.

Iqbal, 556 U.S. at 678.

A complaint does not

“A claim has facial plausibility when the plaintiff

The Court need not accept as true “legal conclusions merely
Warren

DISCUSSION

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A.

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Plaintiffs move to remand this case back to state court,

Motion to Remand

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arguing that Defendant Paula Oswald was not fraudulently joined.

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Defendants do not dispute that Oswald, like Plaintiffs, is a

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citizen of California; rather, Defendants argue that Oswald is a

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sham defendant.

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diverse defendant named in the Complaint.

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Both parties agree that Oswald is the only non-

Based on the allegations in the Complaint, the Court finds

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that Plaintiffs have not stated any possible cause of action

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against Oswald.

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with prospective economic relations, gross negligence, and

Plaintiffs assert fraud, intentional interference

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intentional infliction of emotional distress claims against Oswald.

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As Defendants point out, the only factual allegation made

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specifically against Oswald is that she advised LCM it could file

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an incumbency certificate listing an additional principal of LCM as

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an authorized representative for the LCM escrow account.

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The elements of a fraud claim under California law are: “(1)

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misrepresentation of a material fact (consisting of false

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representation, concealment or nondisclosure); (2) knowledge of

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falsity (scienter); (3) intent to deceive and induce reliance; (4)

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justifiable reliance on the misrepresentation; and (5) resulting

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damage.”

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445, 481 (1998).

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misrepresented a material fact to Plaintiffs.

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that the incumbency certificate fraudulently listed TREG and its

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principals as “the only authorized representatives for LCM.”

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(Compl. ¶ 65.)

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certificate was fraudulent, as it merely added an additional

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authorized representative to the account and was signed by LCM’s

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existing authorized representative; furthermore, Plaintiffs have

City of Atascadero v. Merrill Lynch, 68 Cal. App. 4th
Plaintiffs do not allege that Oswald herself
Plaintiffs allege

However, it is unclear that the incumbency

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not shown how this certificate induced their reliance in any way.
To prove fraudulent concealment under California law,

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Plaintiff must show that: (1) the defendant concealed or suppressed

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a material fact; (2) the defendant had a duty to disclose that fact

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to the plaintiff; (3) the defendant intentionally concealed or

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suppressed that fact with the intention of defrauding the

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plaintiff; (4) the plaintiff was unaware of that fact and would not

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have acted in the manner he did if he knew of the concealed or

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suppressed fact at the time; and (5) the plaintiff sustained

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resulting damage.

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(2007).

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the requisite elements of a fraudulent concealment claim in the

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Complaint.

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certificate does not by consequence indicate that she concealed or

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suppressed a material fact.

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party to the escrow agreement or the authorized representative for

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LCM, Plaintiffs have not shown that Oswald or any other defendant

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had a duty to Stereoscope.

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See Hahn v. Mirda, 147 Cal. App. 4th 740, 748

Again, Plaintiffs have failed to plead facts supporting

Alleging that Oswald aided LCM in filing an incumbency

Furthermore, as Stereoscope was not a

The claim of gross negligence similarly fails; Stereoscope has
not pleaded facts that show Oswald owed them any kind of duty.
The intentional interference claim against Oswald fails

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because Oswald was acting in her capacity as an employee of U.S.

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Bank when she gave LCM information about filing the incumbency

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certificate.

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and the other employees were acting “within their official capacity

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and with the authorization and ratification of U.S. Bank.”

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¶ 94.)

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California law states that they are protected by privilege.

In fact, Plaintiffs allege specifically that Oswald

(Compl.

When employees act in the scope of their employment,

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McCabe, 811 F.2d at 1339.

Thus, the Court finds that the

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intentional interference against Oswald fails as a matter of

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California law.

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Finally, the intentional infliction of emotional distress

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claim has no support in the facts as pleaded in the Complaint.

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Plaintiffs have not shown that Oswald engaged in any action that

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was outrageous; rather, the Complaint only alleges that Oswald

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advised LCM to file an incumbency certificate, a standard form for

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escrow accounts.

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The Court finds that it is “obvious according to the settled

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rules of the state” that Plaintiffs have stated no claims against

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Oswald.

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case, and moves on to addressing the question of whether Plaintiffs

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have stated a claim against any of the Defendants.

Thus, the Court concludes that removal was proper in this

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B.

Intentional Interference Claims

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To prove a claim for intentional interference with contractual

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relations, Plaintiffs must show: “(1) a valid contract between

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plaintiff and a third party; (2) defendant's knowledge of this

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contract; (3) defendant's intentional acts designed to induce a

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bread or disruption of the contractual relationship; (4) actual

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breach or disruption and (5) resulting damage.”

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Inc.v. Stewart Title Guaranty Co., 19 Cal.4th 26, 55 (1998).

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prove a claim for intentional interference with prospective

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economic advantage, “(1) an economic relationship between the

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plaintiff and some third party, with the probability of future

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economic benefit to the plaintiff; (2) the defendant's knowledge of

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the relationship; (3) intentional acts on the part of the defendant

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designed to disrupt the relationship; (4) actual disruption of the
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Quelimane Co.,
To

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relationship; and (5) economic harm to the plaintiff proximately

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caused by the acts of the defendant.”

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Martin Corp., 29 Cal.4th 1134, 1153 (2003).

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Korea Supply Co. v. Lockheed

The Court finds that Plaintiffs have not stated a claim for

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intentional interference, since Defendants’ actions were not a “but

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for” cause of the breach.

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4th 1177, 1196 (2011) (stating that a plaintiff must allege that

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the contract would otherwise have been performed.)

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state in their Complaint that the relationship with TREG had begun

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to deteriorate before they attempted to take back the escrow money

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from the U.S. Bank account.

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after this deterioration, Plaintiffs’ goal was to have TREG return

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the investors’ money to Plaintiffs, ending the Joint Venture

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Agreement.

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finds that Plaintiffs have failed to state a claim for intentional

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interference, either with contractual relations or with prospective

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business advantage, because Defendants were not a cause of the

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disruption of the relationship between Plaintiffs and TREG.

See Hahn v. Diaz-Barba, 194 Cal. App.

Plaintiffs

It appears from the Complaint that

Based on the allegations in the Complaint, the Court

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C.

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As stated above, claims of fraud or fraudulent concealment

Fraud Claims

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require the showing of a misrepresentation or concealment of a

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material fact.

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any material fact that was misrepresented to Plaintiffs.

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Plaintiffs allege that Defendants fraudulently concealed the

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whereabouts of the funds that were formerly in the LCM escrow

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account, Plaintiffs have not shown that Defendants owed them any

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duty to inform them of the status of the funds under California

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law.

The Court finds that Plaintiffs have not alleged
Though

See Summit Fin. Holdings, Ltd. v. Cont’l Lawyers Title Co.,
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27 Cal. 4th 705, 711 (2002) (stating that an escrow holder has “no

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general duty to police the affairs of its depositers” and its

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duties are “limited to faithful compliance” with the depositers’

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instructions).

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Furthermore, Plaintiffs have not pleaded facts that show

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reliance on any alleged material facts that were misrepresented or

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concealed.

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Plaintiffs took in reliance on any statements or lack thereof by

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U.S. Bank or its employees.

The Complaint does not allege any actions that

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D.

Gross Negligence Claim

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A negligence claim first requires the pleading of the

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existence of a duty.

Though Stereoscope may have had an interest

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in the LCM escrow account, it was not an actual party to the

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account and was not an authorized representative of LCM.

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California law holds that not only are escrow agents limited to

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“faithful compliance” with depositers’ instructions, but also mere

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knowledge of a third party’s interest in an escrow does not give

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rise to a duty of care to that third party.

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711;

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1125, 1133 (S.D. Cal. Mar. 5, 2014).

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Plaintiffs have not pleaded a claim for gross negligence.

Summit, 27 Cal. 4th at

Jafari v. F.D.I.C., No. 12-CV-2982-LAB RBB, 2 F. Supp. 3d
The Court finds that

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E.

Intentional Infliction of Emotional Distress Claims

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Under California law, the elements of intentional infliction

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of emotional distress are: “(1) extreme and outrageous conduct by

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the defendant with the intention of causing, or reckless disregard

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of the probability of causing, emotional distress; (2) the

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plaintiff’s suffering severe or extreme emotional distress; and (3)

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actual and proximate causation of the emotional distress by the
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defendant’s outrageous conduct.”

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Cal. 3d 868, 903 (1991) (internal quotations omitted).

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outrageous conduct “must be so extreme as to exceed all bounds of

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that usually tolerated in a civilized community.”

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Christensen v. Superior Court, 54
The

Id.

The Court finds that Plaintiffs have not pleaded facts that

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support their claim of intentional infliction of emotional

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distress.

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the named party on the escrow account, to withdraw funds.

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conduct by Defendants, even assuming that they knew of Plaintiffs’

Defendants simply carried out the instructions of LCM,
The

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interest in the LCM escrow account, was not “so extreme as to

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exceed all bounds of that usually tolerated in a civilized

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community.”

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F.

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Although the caption of the Complaint states a claim for

Punitive Damages Claim

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punitive damages, the text of the Complaint does not do so.

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the Court finds that Plaintiffs have not pleaded a claim for

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punitive damages.

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IV.

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Thus,

CONCLUSION
For the foregoing reasons, Plaintiffs’ Motion to Remand is

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DENIED.

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is dismissed with prejudice.

Defendants’ Motion to Dismiss is GRANTED.

The Complaint

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IT IS SO ORDERED.
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Dated: February 11, 2015
DEAN D. PREGERSON
United States District Judge

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