Gerald Hoffarth et al v. Diversified Lending Group Inc et al

Filing 136

ORDER DISMISSING PLAINTIFFS FIRST AMENDED COMPLAINT by Judge Manuel L. Real. SEE ORDER. Case Terminated. Made JS-6. (im)

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JS-6

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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GERALD HOFFARTH, an individual,
et al.,
Plaintiffs,
v.
DIVERSIFIED LENDING GROUP,
INC., a California corporation, et al.,
Defendants.

Case No. SACV11-00336-R(RZX)
ORDER DISMISSING
PLAINTIFFS’ FIRST AMENDED
COMPLAINT
Date:
August 15, 2011
Time:
10:00 a.m.
Dept.
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Judge:
Hon. Manuel L. Real
Trial Date: None Set

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D RINKER B IDDLE &
R EATH LLP
ATTORNEYS AT LAW
SAN FRANCISCO

[PROPOSED] ORDER DISMISSING PLAINTIFFS’ FIRST
AMENDED COMPLAINT

CASE NO. SACV11-00336-R-RZX

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On Monday, August 22, 2011, at 10:00 a.m., the Motion of Defendant

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Jackson National Life Insurance Company (“Jackson”) to Dismiss Plaintiffs’ First

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Amended Complaint (the “Motion”) came regularly for hearing in the above-

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entitled Court. The Motion requested dismissal of all of the claims asserted against

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Jackson in Plaintiffs’ First Amended Complaint (the “Complaint”), including the

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following causes of action: fraud (Claim 1); negligent misrepresentation, and aiding

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and abetting negligent misrepresentation(Claim 2); negligence (Claim 3); aiding

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and abetting fraud (Claim 4); breach of fiduciary duty, and aiding and abetting

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breach of fiduciary duty (Claim 5); breach of the insurance guarantee contract

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(Claim 6); violation of Cal. Corp. Code § 25110 (Claim 7); violation of Cal. Corp.

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Code § 25401 (Claim 8); holder’s action (Claim 9); aiding and abetting violation of

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Cal. Bus. & Prof. Code § 17200 et seq. (Claim 10); aiding and abetting conversion

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(Claim 11); financial elder abuse(Claim 12); violation of Cal. Corp. Code § 25503

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(Claim 14); violations of RICO, 18 U.S.C. § 1962(c) (Claim 13); and unjust

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enrichment (Claim 15).

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Having considered the papers in support of and in opposition to the Motion

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and all other matters presented to the Court, the Court concludes that the Motion

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should be granted in part for the following reasons:

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1.

The Complaint fails to state a RICO claim because the allegations are

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insufficient to show or permit a reasonable inference of an “association in fact

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enterprise.” See Boyle v. U.S., 129 S. Ct. 2237 (2009); U.S. v. Turkette, 452 U.S.

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576 (1981); Odom v. Microsoft Corp., 486 F.3d 541 (9th Cir. 2007). Among other

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things, the facts alleged fail to show or permit a reasonable inference that there was

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a common purpose between any entity or individual other than between Diversified

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Lending Group (“DLG”) and Bruce Friedman (“Friedman”). Indeed, the facts

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alleged in the Complaint show that DLG and Friedman did not share a common

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purpose with Jackson, and that DLG had the purpose of defrauding investors,

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whereas Jackson had the purpose of selling insurance and annuities and simply had

D RINKER B IDDLE &
R EATH LLP
ATTORNEYS AT LAW
SAN FRANCISCO

[PROPOSED] ORDER DISMISSING PLAINTIFFS’ FIRST
AMENDED COMPLAINT

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CASE NO. SACV11-00336-R-RZX

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the misfortune of having this innocent purpose and business co-opted by a Ponzi

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schemer. Accordingly, the RICO claim is dismissed as to Jackson and all other

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defendants, except for DLG and Friedman, for failure to plead an “associated-in-

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fact enterprise.”

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2.

Because actions against DLG and Friedman are stayed pursuant to this

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Court’s March 10, 2009 Order in Securities Exchange Commission v. Diversified

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Lending Group, Inc., et al., CV-09-1533-R (C.D. Cal.), Plaintiffs are barred from

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pursuing any claims against DLG and Friedman during the pendency of the

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receivership established in that case. Accordingly, Plaintiffs may not maintain any

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of their claims against DLG and Friedman. The RICO claim is therefore dismissed

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in its entirety.

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3.

Plaintiffs assert jurisdiction in this case based on federal question

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jurisdiction arising out of the RICO claim and supplemental jurisdiction as to their

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other claims. As a result of the dismissal of the RICO claim, this Court has

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discretion to retain jurisdiction over the remaining state law claims or to dismiss the

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claims without prejudice. See Carlsbad Technology, Inc. v. H.I.F. Bio, Inc., 129

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Sup. Ct. 1862 (2009). It is generally preferable for a district court to not exercise

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supplemental jurisdiction over pendent state law claims once federal claims have

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been dismissed. See Harrell v. 29th Century Insurance Company, 934 Fed.2d 203

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(9th Cir. 1991). Pursuant to its discretion, this Court declines to exercise

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jurisdiction over the remaining state law claims and dismisses those claims without

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prejudice.

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IT IS HEREBY ORDERED THAT Jackson’s Motion is GRANTED in part;

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IT IS HEREBY FURTHER ORDERED THAT the RICO claim (Claim 13)

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is dismissed with prejudice as to Jackson and all other defendants except DLG and

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Friedman, and dismissed as to DLG and Friedman without prejudice but barred

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pursuant to the Court’s March 10, 2009 Order in Securities Exchange Commission

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v. Diversified Lending Group, Inc., et al., CV-09-1533-R (C.D. Cal.);

D RINKER B IDDLE &
R EATH LLP
ATTORNEYS AT LAW
SAN FRANCISCO

[PROPOSED] ORDER DISMISSING PLAINTIFFS’ FIRST
AMENDED COMPLAINT

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CASE NO. SACV11-00336-R-RZX

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IT IS HEREBY FURTHER ORDERED THAT all remaining claims under

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state law are dismissed without prejudice based on the Court’s decision not to

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exercise jurisdiction over these claims, including specifically the following: fraud

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(Claim 1); negligent misrepresentation, and aiding and abetting negligent

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misrepresentation(Claim 2); negligence (Claim 3); aiding and abetting fraud (Claim

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4); breach of fiduciary duty, and aiding and abetting breach of fiduciary duty

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(Claim 5); breach of the insurance guarantee contract (Claim 6); violation of Cal.

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Corp. Code § 25110 (Claim 7); violation of Cal. Corp. Code § 25401 (Claim 8);

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holder’s action (Claim 9); aiding and abetting violation of Cal. Bus. & Prof. Code §

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17200 et seq. (Claim 10); aiding and abetting conversion (Claim 11); financial elder

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abuse(Claim 12); violation of Cal. Corp. Code § 25503 (Claim 14); and unjust

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enrichment (Claim 15).

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IT IS SO ORDERED.
_____________________________
Hon. Manuel L. Real
Judge, United States District Court

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Dated: August 30, 2011

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D RINKER B IDDLE &
R EATH LLP
ATTORNEYS AT LAW
SAN FRANCISCO

[PROPOSED] ORDER DISMISSING PLAINTIFFS’ FIRST
AMENDED COMPLAINT

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CASE NO. SACV11-00336-R-RZX