Cherrone, et al v. Florsheim Development, et al

Filing 12

MEMORANDUM AND ORDER signed by Judge William B. Shubb on 10/11/12 ORDERING that defendants' motion to dismiss be, and the same hereby is, GRANTED. Plaintiffs have twenty days from the date of this Order to file an amended complaint, if they can do so consistent with this Order. (Becknal, R)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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CONNIE CHERRONE, RICARDO
DOMINGUEZ, DENISE ELLIS,
THOMAS HOOVER, HAZEL
SARMIENTO, THELMA KNIGHTON,
HENRY KNIGHTON, VICENT MACIAS,
SHAHANNY MACIAS, TRAVIS
MARTIN, KATIE MARTIN, DUC TAN
NGUYEN, STEPHEN ORTEGA, DALE
RISENHOOVER, KRISTA REGO, and
JARED STERRITT,

NO. CIV. 2:12-02069 WBS CKD
MEMORANDUM AND ORDER RE:
MOTION TO DISMISS

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Plaintiffs,
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v.
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FLORSHEIM DEVELOPMENT, a
California Corporation;
FLORSHEIM PROPERTIES, a
California Corporation; ROSE
PETALS, LLC, a California
Limited Liability Company;
ROSE PARK, LLC, a California
Limited Liability Company; and
DOES 1-300 inclusive,

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Defendants.
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Plaintiff homeowners brought this action against

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defendants Florsheim Development, Florsheim Properties, Rose

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Petals, LLC, and Rose Park, LLC, arising from defendants’

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allegedly wrongful conduct related to the development and sale of

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homes within a housing subdivision.

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is defendants’ motion to dismiss the Complaint in its entirety

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for lack of subject matter jurisdiction pursuant to Federal Rule

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of Civil Procedure 12(b)(1) and, in the alternative, for failure

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to state a claim upon which relief can be granted pursuant to

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Currently before the court

Rule 12(b)(6).1

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Plaintiffs are the original purchasers of homes in the

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Valley Blossom Subdivision (“Subdivision”) located in San

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Joaquin, California.

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are the developer, builder, and sellers of the homes.

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6.)

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mortgage, appraisal, and financing companies to manipulate the

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market value of the homes in the Subdivision to attract buyers

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and bolster sales.

(Compl. ¶ 2 (Docket No. 1).)

Defendants
(Id. ¶¶ 3-

Plaintiffs allege that defendants worked with “captive”

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(Id. ¶¶ 18-21.)

Plaintiffs bring claims for: (1) violation of the

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Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1703; (2)

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violation of the California Unfair Competition Act, Cal. Bus. &

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Prof. Code § 17200; (3) violation of the California False

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Advertising Law, Cal. Bus. & Prof. Code § 17500; (4) rescission

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under California Civil Code section 1689; (5) violation of the

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Sherman Antitrust Act, 15 U.S.C. § 1, and the Cartwright Act,

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Because oral argument will not be of material
assistance, the court orders this matter submitted on the briefs.
E.D. Cal. L.R. 230(g).
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Cal. Bus. & Prof. Code § 16720; and (6) violation of the

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Subdivision’s CC&R’s.

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the court has jurisdiction over this matter pursuant to 28 U.S.C.

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§ 1331 (federal question) and 28 U.S.C. § 1367 (supplemental

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jurisdiction).

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I.

In their Complaint, plaintiffs allege that

(Compl. ¶ 9.)

Discussion

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Under Federal Rule of Civil Procedure 12(b)(1), a

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complaint must be dismissed once it is determined that a court

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lacks subject matter jurisdiction to adjudicate the claims.

Fed.

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R. Civ. P. 12(b)(1).

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until the party asserting jurisdiction proves otherwise, and,

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once subject matter jurisdiction has been challenged, the burden

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of proof is placed on the party asserting that jurisdiction

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exists.

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376 (1994);

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(holding that “the party seeking to invoke the court’s

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jurisdiction bears the burden of establishing that jurisdiction

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exists”).

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A.

The court presumes a lack of jurisdiction

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375,
Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986)

Sherman Act
A violation of the Sherman Act (“Act”) can only occur

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when the defendant’s business activities are “in restraint of

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trade or commerce among the several States.”

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“This requisite relationship to interstate trade or commerce is

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not only an element of the alleged antitrust offense, but also a

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necessary jurisdictional requirement.”

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Inc., 997 F.2d 628, 629 (9th Cir. 1993).

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therefore not have jurisdiction on the basis of the Act “unless

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the relevant aspect of interstate commerce is identified; it is
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15 U.S.C. § 1.

United States v. ORS,
A federal court will

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not sufficient merely to rely on identification of a relevant

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local activity and to presume an interrelationship with some

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unspecified aspect of interstate commerce.”

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Estate Bd. of New Orleans, Inc., 444 U.S. 232, 242 (1980).

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McLain v. Real

To meet the required showing of interstate commerce, “a

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plaintiff must show that the activities in question, although

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conducted within a state, have a ‘substantial effect on

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interstate commerce.’”

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322 F.3d 1133, 1143-44 (9th Cir. 2003) (quoting McLain, 444 U.S.

Freeman v. San Diego Ass’n of Realtors,

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at 242).

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activities that are alleged to be unlawful had an effect on

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commerce.

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substantial effect on interstate commerce generated by

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respondents’ [‘infected’] activity.”

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U.S. at 242-43).

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A plaintiff need not demonstrate that the defendant’s

Id. at 1143.

Rather, a plaintiff need only plead “a

Id. (quoting McLain, 444

Nowhere in their Complaint do plaintiffs allege that

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defendants’ activities had any effect on interstate commerce.

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All the defendant companies are located in California and all the

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allegations in the Complaint focus on a scheme related to the

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sale of homes within one subdivision, located in California.

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Plaintiffs do not allege that the sales had any effect on any

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housing market outside of California; indeed, defendants are only

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alleged to have “manipulate[d] the housing market within the . .

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. Subdivision.”

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effect on interstate commerce, such as the sale of homes in the

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Subdivision turned on interstate financing.

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F.3d at 1143 (finding that the effect of defendant’s mediation of

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home sales on approximately $10 billion in interstate home-

(Id. ¶ 24.)

Nor do plaintiffs allege any other

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Cf. Freeman, 322

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mortgage financing sufficed to show a substantial effect on

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commerce).

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The cases cited by plaintiffs are inapposite.

In

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Allied-Bruce Terminix Cos. v. Dobson, the Supreme Court

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interpreted the word “involving” in the phrase “a contract

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evidencing a transaction involving commerce” in the Federal

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Arbitration Act (“FAA”) to be the “functional equivalent of

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‘affecting’” and stated that the reach of the FAA extends to the

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full breadth of Congress’s power under the Commerce Clause.

513

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U.S. 265, 274 (1995).

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of the Sherman Act to be similarly broad.

See, e.g., Musick v.

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Burke, 913 F.2d 1390, 1395 (9th Cir. 1990)

(“Congress intended

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the Sherman Act to be ‘as inclusive as the constitutional limits

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of Congress’ power to regulate commerce.’” (quoting Report of the

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Attorney General’s National Committee to Study the Antitrust Laws

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62 (1955))).

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of the Sherman Act or that defendants’ “infected activities” as a

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whole must substantially affect interstate commerce to be within

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the Act’s reach.

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is that plaintiffs have failed to specifically allege any

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connection to interstate commerce whatsoever.

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Courts have found the jurisdictional reach

Here, however, there is no dispute over the breadth

Instead, as defendants point out, the problem

In Basura v. U.S. Home Corp., 98 Cal. App. 4th 1205 (2d

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Dist. 2002), the court considered whether the FAA governed

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arbitration clauses in sales agreements for residential homes.

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To show that the contracts at issue involved interstate commerce,

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the defendant-developer produced declarations stating that

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construction of the development project involved building

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material and equipment manufactured and produced in several
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states, that out-of-state contractors and other professionals

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were hired for the project, that the defendant communicated by

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interstate mail and telephone with out-of-state persons

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concerning the project, and that defendant used interstate media

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for marketing and advertising activities throughout the country.

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Id. at 1214.

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to meet the requirement that the agreements “involved interstate

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commerce.”2

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sufficiently alleged the requisite “substantial effect on

The court found this evidence more than sufficient

Id.

The question here is whether plaintiffs have

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interstate commerce.”

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interstate commerce requirements can be met by the same

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allegations, plaintiffs allegations are insufficient because the

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Complaint is devoid of any allegations that defendants’

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activities affect interstate commerce.

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will grant defendants’ motion to dismiss plaintiff’s claim.

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B.

Even if the Sherman Act and the FAA’s

Accordingly, the court

Interstate Land Sales Full Disclosure Act

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Shepard v. Edward Mackay Enterprises, Inc., 148 Cal.
App. 4th 1092 (3d. Dist. 2007), is cited by plaintiff for the
proposition that “claims arising out of the land development,
home construction, sales, and marketing is, de facto and by legal
definition, interstate commerce.” (Pls.’ Opp’n to Defs.’ Mot. to
Dismiss at 2:11-13.) In Shepard, the court evaluated defendant’s
proffered evidence to determine that “the construction of
plaintiff’s house involved the receipt and use of building
materials that were manufactured and/or produced outside
California” and that “the number of building materials shown by
defendants to have come from interstate commerce indicates this
case is not one involving a merely ‘trivial’ impact on interstate
commerce, which would be outside the limits of Congress’ power.”
Id. at 1101. The Shepard court did not hold that the kind of
home construction activities conducted by the defendants always
implicate interstate commerce. Rather, as in Basura, the court
evaluated evidence presented by the defendant that specifically
detailed the role of interstate commerce in the transaction. The
procedural posture of this case is such that plaintiffs need only
allege a substantial effect on interstate commerce. Such
allegations must of course be plausible, but plaintiffs have made
none.
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The purpose of the Interstate Land Sales Full

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Disclosure Act (“ILSFDA”) is to ensure that buyers of property

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have the “facts which would enable a reasonably prudent

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individual to make an informed decision” about the purchase.

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Gibbes v. Rose Hill Plantation Dev. Co., 794 F. Supp. 1327,

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1332-33 (D.S.C. 1992).

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unlawful for any developer or agent, directly or indirectly, to

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make use of any means or instruments of transportation or

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communication in interstate commerce, or of the mails” to engage

The ILSFDA provides that “[i]t shall be

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in specified prohibited acts.

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fulcrum of the Act rests on the use of instrumentalities of

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transportation of communication in interstate commerce, or of the

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mails.”

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(E.D. La. 1975).

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jurisdiction over a claim, therefore, plaintiffs must allege “the

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required ‘interstate nexus.’”

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No. 09-1655 KAM VVP, 2010 WL 2539693, at *4

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2010); see also Paramo v. IMICO Brickell, LLC, Civ. No. 08-20458,

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2008 WL 4360609, at *4 (S.D. Fla. Sept. 24, 2008) (finding that

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allegations of the developer’s “use of any means or instruments

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of transportation or communication in interstate commerce, or of

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the mails” was required for the Court to exercise jurisdiction

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under ILSFDA (quoting 15 U.S.C. § 1703(a))).

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15 U.S.C. § 1703(a).

“Thus, the

Gaudet v. Woodlake Dev. Co., 399 F. Supp. 1005, 1006
To invoke the court’s subject matter

Smith v. Myrtle Owner, LLC, Civ.
(E.D.N.Y. June 16,

In Gaudet, the defendant-developer moved to dismiss the

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plaintiff-purchasers’ ILSFDA claims.

The court, however, denied

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the request because a deposition of the defendant revealed that

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it used both the mails and telephone to promote the development.

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Id. at 1007.

Likewise, the plaintiff-purchasers in Smith pled
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the required interstate nexus when they alleged that the

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defendants “used means or instruments of interstate commerce and

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the mails.”

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2010 WL 2539693, at *4.

In contrast, in Paramo, the court granted defendant’s

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motion to dismiss plaintiffs’ ILSFDA claims when plaintiffs

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failed to offer “a single factual allegation with respect to the

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required interstate nexus,” such as “the defendants sent

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Plaintiffs any solicitation through the mail, faxed or emailed

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any documents, traveled across state lines, called on the phone,

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or wired any funds with respect to the sale or lease of the”

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properties at issue.

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have similarly not offered any factual allegations to support an

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interstate nexus between the sale of the properties in the

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Subdivision and interstate commerce.

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Belvidere, Inc., 416 F. Supp. 27, 30 (N.D. Ill. 1976) (allowing

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plaintiffs to replead claims where they failed to allege “the use

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of any means or instruments of interstate commerce or the mails”

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in connection with a sale of real property).

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plaintiffs in Paramo, they “were direct participants in the

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transactions at issue” and are therefore “well positioned to know

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how Defendants communicated with them and what, if any,

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instrumentalities of interstate commerce may have been used

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between the parties.”

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Accordingly, the court will grant defendants’ motion to dismiss

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this claim.

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C.

2008 WL 4360609 at *6.

Plaintiffs here

See also Bongratz v. WL

And, just like the

Paramo, 2008 WL 4360609 at *6.

Remaining State-Law Claims

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Under 28 U.S.C. § 1367(c)(3), a district court may

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decline to exercise supplemental jurisdiction over state law
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claims if “the district court has dismissed all claims over which

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it has original jurisdiction.”

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Acri v. Varian Assocs., Inc., 114 F.3d 999, 1000 (9th Cir. 1997)

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(“[A] federal district court with power to hear state law claims

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has discretion to keep, or decline to keep, them under the

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conditions set out in § 1367(c).”).

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deciding whether to dismiss supplemental state claims include

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judicial economy, convenience, fairness, and comity.

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Imagineering, Inc. v. Kiewit Pac. Co., 976 F.2d 1303, 1309 (9th

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Cir. 1992), abrogated by Diaz v. Gates, 420 F.3d 897, 900 (9th

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Cir. 2005).

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eliminated before trial, the balance of factors . . . will point

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toward declining to exercise jurisdiction over the remaining

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state law claims.”

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1171 (9th Cir. 1996), overruled on other grounds by Acri, 114

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F.3d at 1000.

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28 U.S.C. § 1367(c)(3); see also

Factors courts consider in

“[I]n the usual case in which federal law claims are

Reynolds v. Cnty. of San Diego, 84 F.3d 1162,

Plaintiffs’ case has been pending for just over two

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months, the court has yet to issue a Status (Pretrial Scheduling)

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Order, and the pending motion is the first that has been filed in

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the case.

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unusual circumstances suggesting that the court should retain

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jurisdiction over plaintiffs’ state law claims in the absence of

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any federal claims, the court will decline to exercise

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supplemental jurisdiction under § 1367(c)(3) over plaintiffs’

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state law claims and will accordingly grant defendants’ motion to

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dismiss those claims.

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As none of the parties raise any extraordinary or

IT IS THEREFORE ORDERED that defendants’ motion to
dismiss be, and the same hereby is, GRANTED.
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Plaintiffs have twenty days from the date of this Order

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to file an amended complaint, if they can do so consistent with

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this Order.

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DATED:

October 11, 2012

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