Frank Dufour v. Robert Allen et al

Filing 160

MINUTES (IN CHAMBERS): ORDER DEFENDANT PROSPER, INCS MOTION FOR VOLUNTARY DISMISSAL WITHOUT PREJUDICE OF CROSS COMPLAINT (Dkt. No. 151, filed February 17, 2015) by Judge Christina A. Snyder: In accordance with the foregoing, the Court GRANTS Prospers motion to voluntarily dismiss the Cross-Complaint without prejudice, and without conditions. 151 (pj)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
'o'

CIVIL MINUTES - GENERAL
Case No.

2:14-cv-05616-CAS-SS

Title

FRANK DUFOUR v. ROBERT ALLEN, ET AL.

Present: The Honorable

Date

March 19, 2015

CHRISTINA A. SNYDER

Pat Gomez
Deputy Clerk

Not Present
Court Reporter / Recorder

N/A
Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

N/A

N/A

Proceedings:

(IN CHAMBERS): DEFENDANT PROSPER, INC’S MOTION
FOR VOLUNTARY DISMISSAL WITHOUT PREJUDICE OF
CROSS COMPLAINT (Dkt. No. 151, filed February 17, 2015)

The Court finds this motion appropriate for decision without oral argument. See
Fed. R. Civ. P. 78; Local Rule 7-15. Accordingly, the hearing date of March 23, 2015, is
vacated, and the matter is hereby taken under submission.
I.

INTRODUCTION

This lawsuit was commenced on February 8, 2012, when plaintiff Frank DuFour
(“DuFour”) filed a complaint in the Los Angeles County Superior Court (“Superior
Court”). DuFour filed his most recent Fourth Amended Complaint (“FAC”) on
December 27, 2013, also in the Superior Court. See Dkt. No. 1-2. The FAC names as
defendants Robert Allen (“Allen”), Enlightened Wealth Institute International, L.C.,
Enlightened Wealth Institute, L.C., Prosper Inc. (“Prosper”), Green Planet Services,
Opteum Financial Services, Midland Mortgage Company, Aurora Loan Services, Sherson
Lehman, Millennium Home Loans, Charlie Payne, and Does 1 through 100. Id. In brief,
the FAC alleges that defendants schemed to induce plaintiff to enroll in a fraudulent real
estate investment course offered by Prosper, and to buy fraudulently marketed properties,
from which defendants profited through undisclosed relationships with management and
financing companies. See generally FAC. This case was removed to federal court on
July 19, 2014, after the Federal Deposit Insurance Corporation was appointed as receiver
of defendant Millennium Bank, N.A.1 Id.
1

Any civil suit in which the Federal Deposit Insurance Corporation is a party is
“deemed to arise under the laws of the United States.” 12 U.S.C. § 1819(b)(2)(A).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:14-cv-05616-CAS-SS

Date

Title

March 19, 2015

FRANK DUFOUR v. ROBERT ALLEN, ET AL.

On December 23, 2013—just prior to the filing of DuFour’s FAC—Prosper filed a
cross complaint for breach of contract against DuFour. Dkt. No. 153 Ex. 1. The CrossComplaint alleges that on or about January 16, 2006, DuFour executed a written
Enrollment Agreement with Prosper regarding the aforementioned real estate investment
education program. Cross-Complaint ¶ 10. The Cross-Complaint alleges that DuFour
electronically signed the Enrollment Agreement and paid the associated enrollment fee,
and that Prosper substantially performed its duties under that agreement. Id. ¶¶ 15, 19.
Prosper alleges that DuFour breached the Enrollment Agreement by (1) filing this lawsuit
instead of submitting his claim to mediation and binding arbitration, (2) refusing to spend
the “specified number of hours per week in furtherance of his objectives relating to the
educational program,” (3) failing to “learn and apply the principles taught in the program
and to complete homework assignments,” (4) not consulting “his own legal, accounting
and tax advisors before making financial decisions related to . . . the real estate
education” program, and (5) refusing to indemnify and hold Prosper harmless. Id. ¶ 21.
DuFour filed a demurrer to the Cross-Complaint in the Superior Court, which was
overruled. DuFour subsequently filed a “Cross-Cross-Complaint,” which this Court
dismissed on September 15, 2014, on the ground that it impermissibly duplicated claims
already raised in the FAC. DuFour has appealed the order dismissing the Cross-CrossComplaint to the Court of Appeals for the Ninth Circuit. See Opp’n at 1–2; Dkt. No. 46.
In May 2014, before this case was removed to federal court, the Superior Court
granted summary judgment on the FAC in favor of defendants including Prosper. See
Dkt. No. 90. On November 21, 2014, the Court entered judgment in favor of these
defendants. Id. DuFour has appealed this judgment to the Ninth Circuit as well. Dkt.
No. 110. On January 26, 2015, the Court denied without prejudice Prosper’s motion for
attorneys’ fees based on the FAC, finding that the best course of action was to defer
ruling on that motion until the resolution of DuFour’s appeal. Dkt. No. 140.
On February 17, 2015, Prosper filed a motion for voluntary dismissal without
prejudice of the Cross-Complaint. Dkt. No. 141. DuFour filed an opposition on March
2, 2015, and Prosper replied on March 9, 2015. Dkt. Nos. 155, 158. After considering
the parties’ arguments, the Court finds and concludes as follows.
II.

LEGAL STANDARD

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FRANK DUFOUR v. ROBERT ALLEN, ET AL.

“Federal Rule of Civil Procedure 41(a)(2) allows a plaintiff, pursuant to an order of
the court, and subject to any terms and conditions the court deems proper, to dismiss an
action without prejudice at any time.” Westlands Water Dist. v. United States, 100 F.3d
94, 96 (9th Cir. 1996). “The purpose of the rule is to permit a plaintiff to dismiss an
action without prejudice so long as the defendant will not be prejudiced . . . or unfairly
affected by dismissal.” Stevedoring Servs. of Am. v. Armilla Int’l, B.V., 889 F.2d 919,
921 (9th Cir. 1989) (citations omitted).
“When ruling on a motion to dismiss without prejudice, the district court must
determine whether the defendant will suffer some plain legal prejudice as a result of the
dismissal.” Westlands Water Dist., 100 F.3d at 96. Legal prejudice is “prejudice to some
legal interest, some legal claim, [or] some legal argument,” and focuses on “the rights and
defenses available to a defendant in future litigation.” Id. at 97. For example, legal
prejudice may result when a dismissal without prejudice “would result in the loss of a
federal forum, or the right to a jury trial, or a statute-of limitations defense,” or “when the
dismissal of a party would have rendered the remaining parties unable to conduct
sufficient discovery to untangle complex fraud claims.” Id. A defendant may also suffer
plain legal prejudice if dismissal without prejudice prevents it from bringing a motion for
attorneys’ fees as a prevailing party, because “dismissal without prejudice precludes
prevailing party status.” United States v. Ito, 472 F. App’x 841, 842 (9th Cir. 2012). A
district court may also consider such factors as the stage of litigation and the moving
party’s delay in requesting voluntary dismissal, as well as indications of forum shopping.
See Cent. Mont. Rail v. BNSF Ry. Co., 422 F. App’x 636, 638 (9th Cir. 2011).
Legal prejudice is not, however, established “because a dispute remains
unresolved” or by the mere “threat of future litigation.” Westlands Water Dist., 100 F.3d
at 96–97; see also Hyde & Drath v. Baker, 24 F.3d 1162, 1169 (9th Cir. 1994) (“The
inconvenience of defending another lawsuit or the fact that the defendant has already
begun trial preparations does not constitute prejudice.”). Neither is legal prejudice
present just because the plaintiff “gains some tactical advantage.” Hamilton v. Firestone
Tire & Rubber Co, Inc., 679 F.2d 143, 145 (9th Cir. 1982).
Nor does “the expense incurred in defending against a lawsuit . . . amount to legal
prejudice,” especially because dismissal without prejudice may be conditioned “upon the
payment of appropriate costs and attorney fees.” Westlands Water Dist., 100 F.3d at 97.
Still, “[i]mposition of costs and fees as a condition for dismissing without prejudice is not
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:14-cv-05616-CAS-SS

Date

Title

March 19, 2015

FRANK DUFOUR v. ROBERT ALLEN, ET AL.

mandatory.” Id.; see Stevedoring Servs. of Am., 889 F.2d at 921 (holding a district court
had not abused its discretion by refusing to require payment of costs and attorneys’ fees).
By order, a district court may dismiss an action with prejudice on a motion for
voluntary dismissal under Rule 41(a)(2). Smith v. Lenches, 263 F.3d 972, 976 (9th Cir.
2001); see Fed. R. Civ. P. 41(a)(2) (“Unless the order states otherwise, a dismissal under
this paragraph (2) is without prejudice.”). “Attorneys’ fees and costs will not be imposed
as a condition for voluntary dismissal with prejudice because there is no risk of future
litigation.” Larsen v. King Arthur Flour Co., No. C 11-05495 CRB, 2012 WL 2590386,
at *1 (N.D. Cal. July 3, 2012) (citing Burnette v. Godshall, 828 F. Supp. 1439, 1443
(N.D. Cal. 1993)); see also Gonzalez, 2008 WL 612746, at *3 (“An award of costs and
attorneys’ fees should generally be denied if the voluntary dismissal is granted with
prejudice.”). Therefore, a “plaintiff faced with the imposition of attorneys’ fees and costs
as a condition of voluntary dismissal may request that the action be dismissed with
prejudice to avoid payment.” Gonzalez, 2008 WL 612746, at *3.
A district court’s resolution of a Rule 41(a)(2) motion is reviewed for abuse of
discretion. Westlands Water Dist., 100 F.3d at 96; Hyde & Drath, 24 F.3d at 1169.
III.

ANALYSIS
A.

Dismissal Without Prejudice

Prosper represents that it filed the Cross-Complaint “in an effort to preserve
various affirmative claims arising out of” the purported Enrollment Agreement. Mot. at
4. It maintains that it wishes to dismiss the Cross-Complaint without prejudice because:
(i) it is a prevailing party on summary judgment herein, which may be
ripe for appeal, (ii) it does not wish to delay any such appeal, (iii)
good faith efforts to informally settle the matter have been
unsuccessful, (iv) the relief requested appears to now be duplicative
and unnecessary, (v) the continued pursuit thereof may be a
procedural impediment to such relief (i.e., pursuant to a motion for
[attorneys’] fees), and (vi) for purposes of efficiency and judicial
economy, [Prosper] no longer desires to pursue its Cross Complaint.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:14-cv-05616-CAS-SS

Date

Title

March 19, 2015

FRANK DUFOUR v. ROBERT ALLEN, ET AL.

Id. at 2. Prosper states that it wants the dismissal to be without prejudice so that Prosper
can pursue its claims for affirmative relief in the event that the Ninth Circuit overturns the
summary judgment granted in its favor. Id. at 2 n.1. Prosper argues that DuFour will
suffer no legal prejudice because he already attempted to seek affirmative relief in
response to the Cross-Complaint through his Cross-Cross-Complaint, which this Court
dismissed on September 15, 2014.2 Prosper also argues that because DuFour has already
filed an answer and affirmative defenses to the Cross-Complaint, and has appealed the
dismissal of the Cross-Cross-Complaint, he will not lose any legal rights through
dismissal without prejudice of the Cross-Complaint.
DuFour opposes the motion, and argues that Prosper should only be allowed to
dismiss the Cross-Complaint with conditions, or with prejudice. DuFour argues that he
would be prejudiced by a dismissal without conditions because Prosper would thereby be
able to request attorneys’ fees on the FAC “immediately despite [the Court’s] tentative
ruling that this argument is premature.” Opp’n at 2. But the Court’s final ruling on
Prosper’s motion for attorneys’ fees was to “defer ruling . . . until the resolution of
DuFour’s appeal” to the Ninth Circuit, and allow Prosper to renew its motion “within 14
days of” that court’s mandate on the pending appeal. Dkt. No. 140 at 4 (emphasis
added). And as reiterated below, DuFour’s reliance on portions of a tentative ruling that
were not included in the subsequently issued final order is improper and unavailing.
DuFour also argues that dismissal without prejudice would be unfair because it
would allow Prosper to reassert the Cross-Complaint in the event the Ninth Circuit
reverses this Court’s rulings in favor of Prosper on the FAC. But as stated above, “the
threat of future litigation which causes uncertainty is insufficient to establish plain legal
prejudice.” Westlands Water Dist., 100 F.3d at 96; see also Hyde & Drath, 24 F.3d at
1169 (“The inconvenience of defending another lawsuit . . . does not constitute
prejudice.”). For these reasons, the Court finds that DuFour has identified no “plain legal
prejudice” that would justify a refusal to dismiss the Cross-Complaint without prejudice.
B.

Conditions on Dismissal

2

Prosper “[a]lternatively . . . acknowledges a willingness to consider dismissal with
prejudice, but only if a good faith basis for the imposition of fees/costs or other
conditions can be proven and [] determined by the Court.” Mot. at 6 n.2.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:14-cv-05616-CAS-SS

Date

Title

March 19, 2015

FRANK DUFOUR v. ROBERT ALLEN, ET AL.

Notwithstanding the foregoing, DuFour requests that any dismissal without
prejudice be premised on three conditions: (1) Prosper’s payment of costs and attorneys’
fees relating to litigation of the Cross-Complaint and the alleged Enrollment Agreement
on which it is based; (2) a requirement that Prosper answer certain interrogatories; and (3)
that the Court “preserve” certain aspect of a tentative order it issued to the parties in
advance of oral argument on Prosper’s previous motion for attorneys’ fees. Prosper
opposes each of these conditions, which the Court addresses in turn.3
1.

Payment of Costs and Fees

In determining whether to award fees and costs as a condition of voluntary
dismissal without prejudice:
Courts in this circuit consider a variety of factors . . . including any
“excessive and duplicative expense” of a second litigation, the effort
and expense incurred by defendant preparing for trial, the extent to
which the litigation has progressed, the plaintiff’s diligence in moving
to dismiss, whether awarding costs would discourage plaintiffs from
seeking early dismissal of their actions and instead encourage them to
take their chances at trial, and whether the imposition of attorneys’
fees would produce an “anomalous result” where defendants could not
recover fees if they prevailed at trial.

3

Alternatively, DuFour indicates that he does not oppose the Court’s dismissing the
Cross-Complaint with prejudice, and states that if the Court does so, he will file a motion
for attorneys’ fees as the prevailing party on the Enrollment Agreement. Opp’n at 8–9.
In reply, Prosper states that “if the Court is inclined to condition a dismissal, Prosper
would consider stipulating to the dismissal of the matter with prejudice.” Reply at 7.
Prosper also points out that California Civil Code Section 1717(b)(2), which governs
attorneys’ fees in an action on a contract, provides that “[w]here an action has been
voluntarily dismissed . . . there shall be no prevailing party for purposes of this section.”
Because the Court determines that unconditioned dismissal without prejudice is
appropriate, it need not address these issues.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:14-cv-05616-CAS-SS

Date

Title

March 19, 2015

FRANK DUFOUR v. ROBERT ALLEN, ET AL.

Gonzalez v. Proctor & Gamble Co., No. 06-cv-869 WQH (WMc), 2008 WL 612746, at
*3 (S.D. Cal. Mar. 4, 2008) (citations omitted). “[I]f the district court decides it should
condition dismissal on the payment of costs and attorney fees, the defendants should only
be awarded attorney fees for work which cannot be used in any future litigation of these
claims.” Westlands Water Dist., 100 F.3d at 97.
Requesting that the Court condition any dismissal without prejudice on Prosper’s
payment of costs and attorneys’ fees, DuFour points to protracted litigation over the
“enforceability of the e-signed Enrollment Agreement allegedly entered into” by DuFour.
DuFour asserts that this litigation began when Prosper filed a petition to compel
arbitration in 2012, which was denied, and continued with the filing of second petition to
compel arbitration, which Prosper then voluntarily withdrew. DuFour asserts that he
incurred expenses for “extensive attorney time . . . preceding the filing of Prosper’s crosscomplaint [that] formed the basis of his twenty-four affirmative defenses” set forth in his
answer to the Cross-Complaint, and that these efforts “can be directly linked” not only to
the Cross-Complaint, but also to the petitions to compel arbitration and summary
judgment motions filed by Prosper in the Superior Court. DuFour concludes that it is
“only fair and equitable” that he be awarded attorneys’ fees “incurred for the unnecessary
expense caused by the litigation regarding the e-signed Enrollment Agreement which
culminated in the filing of” the Cross-Complaint. Opp’n at 4–5.
The Court concludes that it is not appropriate to condition dismissal without
prejudice on payment of costs and fees in this action. “Only those costs incurred for the
preparation of work product rendered useless by the dismissal should be awarded as a
condition of the voluntary dismissal.” Koch v. Hankins, 8 F.3d 650, 652 (9th Cir. 1993).
Because DuFour admits that much of the work product for which he seeks fees predates
the filing of the Cross-Complaint and was directed at the litigation of DuFour’s
complaints, it cannot be said that this work product will be “rendered useless by the
dismissal”. Moreover, DuFour has not identified “work which cannot be used in any
future litigation of these claims” should Prosper reassert them, which is the only work for
which attorneys’ fees are properly awarded in this circuit as a condition of voluntary
dismissal. Westlands Water Dist., 100 F.3d at 97. The Court also notes that proceedings
on the Cross-Complaint itself appear to be limited to a single demurrer denied in
Prosper’s favor. Accordingly, the Court denies DuFour’s request to condition dismissal
on the payment of attorneys’ fees and costs.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:14-cv-05616-CAS-SS

Title

FRANK DUFOUR v. ROBERT ALLEN, ET AL.
B.

Date

March 19, 2015

Interrogatory Responses

DuFour also requests that the Court condition dismissal without prejudice on
compliance with any order on a motion he intends to file to compel Prosper to respond to
two interrogatories regarding “other former students who had similar complaints as”
DuFour, to which Prosper has objected. DuFour reasons that Prosper’s motion to
voluntarily dismiss the Cross-Complaint is partially motivated by a desire to deprive him
“of easy access to information that will aid his case against remaining defendants in the
case, including Prosper’s cohorts.” He contends that an unconditional dismissal would
require him “to undertake expensive third-party discovery proceedings” in order to obtain
this information. Opp’n at 5–7.
Prosper responds that DuFour’s requested condition is unsupported by precedent,
and objects that the discovery requests themselves are “irrelevant, outside the scope of
the pleadings, and intended by DuFour to obtain evidence to support a distinct and
threatened class action lawsuit against Prosper.” Prosper argues that because the CrossComplaint raises only a single claim for breach of contract, it should not be used as a
vehicle to “revive” DuFour’s dismissed claims or obtain information to support an
independent class action lawsuit.4
The Court agrees that DuFour’s request to condition discovery on compelling
Prosper to respond to certain interrogatories is unsupported by precedent. In support of
this condition, DuFour cites two district court cases. In the first, one of two plaintiffs
moved for voluntary dismissal with prejudice pursuant to a settlement, and the other
plaintiff opposed that dismissal on the ground that, because the two plaintiffs were
formerly represented by the same counsel, the remaining plaintiff’s attorney—who had
appeared late in the action and taken a passive role—lacked copies of various discoveryrelated documents. Hudson Eng’g Co. v. Bingham Pump Co., 298 F. Supp. 387, 389

4

Prosper represents that the interrogatories seek the name and contact information
of any student referred by Prosper to Staggs Financial Group, LLC, an entity that DuFour
alleged in the FAC had participated in a fraudulent referral scheme with Prosper. Prosper
argues that information about Prosper’s relationship with Staggs Financial Group is
immaterial to the Cross-Complaint’s “simple cause of action for breach of contract . . .
alleging DuFour failed to honor the terms of his Enrollment Agreement.” Reply at 6–7.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:14-cv-05616-CAS-SS

Date

Title

March 19, 2015

FRANK DUFOUR v. ROBERT ALLEN, ET AL.

(S.D.N.Y. 1969). The court approved, as a condition of dismissal, a protective order “not
seriously objected to” by any party that required the dismissing plaintiff to furnish, at the
remaining plaintiff’s expense, the existing records and other reasonably requested
documents, and also required the defendant to give to the remaining plaintiff documents
previously produced in connection with the suit. Id. In the second cited case, the court
conditioned dismissal without prejudice on a stipulation “that defendants may use, for
any purpose permitted by the court in which a second action may be brought, the
discovery conducted in this action.” Bready v. Geist, 85 F.R.D. 36, 38 (E.D. Pa. 1979).
Neither case supports conditioning a voluntary dismissal on a dismissing party’s
production of discovery to which it objects, let alone in a situation where the discovery is
not directly related to the claims of the complaint being dismissed. Accordingly, the
Court declines to condition dismissal on requiring responses to any interrogatories.
C.

Tentative Rulings

Finally, DuFour argues that any dismissal without prejudice should be conditioned
on an order making “binding” a tentative order distributed before oral argument on
Prosper’s motion for attorneys’ fees. Opp’n at 7. But the portions of that tentative order
that DuFour wishes to enforce were not included in the Court’s final order; moreover,
even in the tentative order, the Court based its denial without prejudice of that motion on
the pendency of the Cross-Complaint, not the dicta DuFour wishes to make binding.
DuFour has no basis for requesting that the Court condition dismissal on any language in
a tentative ruling, and is admonished to only cite in any future proceedings minute orders
that were actually issued and made a part of the record in this case.
IV.

CONCLUSION

In accordance with the foregoing, the Court GRANTS Prosper’s motion to
voluntarily dismiss the Cross-Complaint without prejudice, and without conditions.
IT IS SO ORDERED
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