Arden et al v. Oliver

Filing 14

FINDINGS and RECOMMENDATIONS signed by Magistrate Judge Dale A. Drozd on 04/16/15 RECOMMENDING that the 7 Motion to Dismiss be granted; that the first cause of action be dismissed without prejudice; that the court decline to exercise supplemental jurisdiction over the complaint's state law claims; and that the action be closed. Referred to Judge Troy L. Nunley; Objections to F&R due within 14 days. (Benson, A)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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JOHN ARDEN; CYNTHIA SHERIDAN,

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No. 2:14-cv-1777 TLN DAD PS

Plaintiffs,
v.

FINDINGS AND RECOMMENDATIONS

MICHAEL OLIVER,
Defendant.

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Plaintiffs John Arden and Cynthia Sheridan are proceeding pro se and, therefore, this

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matter was referred to the undersigned in accordance with Local Rule 302(c)(21) and 28 U.S.C. §

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636(b)(1). The matter came before the court on November 7, 2014, for hearing of defendant‟s

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motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim. Attorney

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Peter Cuttitta appeared telephonically on behalf of the defendant. John Arden appeared in person

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on his own behalf and Cynthia Sheridan appeared in person on her own behalf.

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For the reasons set forth below, the undersigned will recommend that defendant‟s motion
to dismiss be granted.
PROCEDURAL BACKGROUND
Plaintiff commenced this action on July 28, 2014, by filing a complaint and paying the

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required filing fee. (Dkt. No. 1.) On September 24, 2014, defendant Michael Oliver filed a

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motion to dismiss but noticed the motion for hearing before the assigned District Judge. (Dkt.
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No. 7.) On September 25, 2014, the assigned District Judge referred this matter to the

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undersigned pursuant to Local Rule 302(c)(21). (Dkt. No. 8.) That same day, defendant re-

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noticed the motion to dismiss for hearing before the undersigned. (Dkt. No. 9.)

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On October 9, 2014, defendant continued the hearing of the motion to dismiss to

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November 7, 2014. (Dkt. No. 10.) Plaintiffs filed opposition to the motion to dismiss on October

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24, 2014. (Dkt. No. 11.) Defendant filed a reply on October 29, 2014. (Dkt. No. 12.)

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FACTUAL ALLEGATIONS
Plaintiffs‟ complaint alleges, in part, as follows. In 2004, plaintiffs leased the property
located at 9980 North Lake Boulevard, Kings Beach, California, and 2 North Lake Highway,

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Crystal Bay, Nevada, (“Property”), from Lowell Thomas and Sybil Thomas. (Compl. (Dkt. No.

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1) at 4-5.) The property is unusual, in that is it “comprised of two contiguous parcels, one lying

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in California and the other in Nevada.” (Id. at 5.) Plaintiffs, however, became involved in “[a]

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long and acrimonious series of legal disputes” with Lowell and Sybil Thomas and eventually

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were “forced to seek bankruptcy court relief.” (Id.) At some, defendant Oliver approached

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plaintiff Arden and expressed “his love” of the property and an “interest in acquiring it.” (Id. at

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6.) Oliver wished to remodel the property but plaintiff Arden “told Oliver that his proposed

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tenant improvements and the rent proposed were too low in view of Plaintiffs‟ investment in

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developing” the property. (Id.) “Oliver was upset Plaintiff Arden rejected his offer, disregarded

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Arden‟s rejection,” and “deliberately sought Thomas, the lien-holder, to explore alternative ways

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he might circumvent Plaintiffs and acquire the property.” (Id. at 7.) As a result of Oliver‟s

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efforts he “knew or had reason to believe Thomas, et al.,” were using “illegal self-help means to

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frustrate Plaintiffs‟ reorganization” and Oliver “agreed to assist in Plaintiff‟s undoing, if it led to

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Oliver acquiring the property.” (Id.) In October of 2010, Thomas contracted to sell to Oliver

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“the Note and Deeds of Trust on Plaintiffs‟ property.” (Id.)

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In February of 2011, Oliver and Thomas signed an “Addendum to Purchase Contract for

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First Deed of Trust,” which provided that Oliver had “the right to pay off any taxes and liens” on

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the property and deduct those costs from the “principal balance and balloon payments.” (Id. at 8.)

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In March of 2011, “Oliver and Thomas met” and “agreed Oliver would be the negotiator,” in
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settlement talks with the plaintiffs and that “Thomas would pay Oliver up to $25,000 to stop all

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grievances between [plaintiffs] and the Thomases.” (Id.) In April of 2011, Oliver and Arden met

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to discuss “a proposal to acquire Plaintiffs‟ property . . . .” (Id.) Oliver acknowledged that

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plaintiffs‟ were receiving “no income from the unopened business, mounting debts and the

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particular concern that Plaintiffs‟ home was in foreclosure.” (Id. at 9.) Arden stated that that any

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sale or settlement “would require assistance of the bankruptcy court to adjudicate existing issues

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and resolve debts and liens.” (Id.)

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After further discussion, Oliver and Arden agreed that “Plaintiffs would be absolutely

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absolved, indemnified, and held harmless of any financial claims,” that the property would be

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transferred “AS-IS,” without a liability against plaintiffs and that Plaintiffs would receive

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$40,000, which would be placed in an escrow account. (Id. at 10.) To record the agreements,

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plaintiffs and Oliver executed an “ADDENDUM No. 1 ESSENTIAL CONDITIONS” document.

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(Id. at 11.) After all involved signed the document, Oliver typed the information into a

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Commercial Property Purchase Agreement and Joint Escrow Instructions. (Id. at 12.)
On August 29, 2011, after a series of disagreements, “Plaintiff Arden was emailed by

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Rhonda Evans of Fidelity Title” who forwarded from Oliver a “CANCELLATION OF

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CONTRACT, RELEASE OF DEPOSIT AND JOINT ESCROW INSTRUCTIONS,” instructing

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Fidelity to cancel the parties‟ transaction. (Id. at 16.) Plaintiffs demanded the $40,000 from the

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escrow account and Rhonda Evans replied that “Oliver never made the deposit.” (Id.)

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Pursuant to these allegations, the complaint alleges causes of action for violation of 11

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U.S.C. ' 362, intentional interference with prospective economic advantage, intentional

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interference with contractual relations, fraudulent concealment, fraudulent misrepresentation,

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fraud in the inducement, breach of contract, breach of the implied covenant of good faith and fair

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dealing, violation of California Business and Professions Code ' 10176 and ' 10177, and the

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intentional infliction of emotional distress.

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STANDARDS
I.

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Legal Standards Applicable to Motions to Dismiss Pursuant to Rule 12(b)(1)
Federal Rule of Civil Procedure 12(b)(1) allows a defendant to raise the defense, by

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motion, that the court lacks jurisdiction over the subject matter of an entire action or of specific

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claims alleged in the action.1 “A motion to dismiss for lack of subject matter jurisdiction may

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either attack the allegations of the complaint or may be made as a „speaking motion‟ attacking the

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existence of subject matter jurisdiction in fact.” Thornhill Publ‟g Co. v. Gen. Tel. & Elecs. Corp.,

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594 F.2d 730, 733 (9th Cir. 1979).

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When a party brings a facial attack to subject matter jurisdiction, that party contends that

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the allegations of jurisdiction contained in the complaint are insufficient on their face to

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demonstrate the existence of jurisdiction. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039

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(9th Cir. 2004). In a Rule 12(b)(1) motion of this type, the plaintiff is entitled to safeguards

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similar to those applicable when a Rule 12(b)(6) motion is made. See Sea Vessel Inc. v. Reyes,

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23 F.3d 345, 347 (11th Cir. 1994); Osborn v. United States, 918 F.2d 724, 729 n. 6 (8th Cir.

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1990). The factual allegations of the complaint are presumed to be true, and the motion is granted

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only if the plaintiff fails to allege an element necessary for subject matter jurisdiction. Savage v.

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Glendale Union High Sch. Dist. No. 205, 343 F.3d 1036, 1039 n. 1 (9th Cir. 2003); Miranda v.

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Reno, 238 F.3d 1156, 1157 n. 1 (9th Cir. 2001). Nonetheless, district courts “may review

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evidence beyond the complaint without converting the motion to dismiss into a motion for

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summary judgment” when resolving a facial attack. Safe Air for Everyone, 373 F.3d at 1039.

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When a Rule 12(b)(1) motion attacks the existence of subject matter jurisdiction, no

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presumption of truthfulness attaches to the plaintiff‟s allegations. Thornhill Publ‟g Co., 594 F.2d

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at 733. “[T]he district court is not restricted to the face of the pleadings, but may review any

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evidence, such as affidavits and testimony, to resolve factual disputes concerning the existence of

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jurisdiction.” McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988). When a Rule

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A federal court also “ha[s] an independent obligation to address sua sponte whether [it] has
subject-matter jurisdiction.” Dittman v. California, 191 F.3d 1020, 1025 (9th Cir. 1999).
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12(b)(1) motion attacks the existence of subject matter jurisdiction in fact, plaintiff has the burden

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of establishing that such jurisdiction does in fact exist. Thornhill Publ‟g Co., 594 F.2d at 733.

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II.

Legal Standards Applicable to Motions to Dismiss Pursuant to Rule 12(b)(6)

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The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal

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sufficiency of the complaint. N. Star Int‟l v. Ariz. Corp. Comm‟n, 720 F.2d 578, 581 (9th Cir.

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1983). “Dismissal can be based on the lack of a cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep‟t, 901

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F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege “enough facts to state a claim to

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relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A

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claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw

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the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v.

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Iqbal, 556 U.S. 662, 678 (2009).

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In determining whether a complaint states a claim on which relief may be granted, the

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court accepts as true the allegations in the complaint and construes the allegations in the light

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most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Love v.

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United States, 915 F.2d 1242, 1245 (9th Cir. 1989). In general, pro se complaints are held to less

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stringent standards than formal pleadings drafted by lawyers. Haines v. Kerner, 404 U.S. 519,

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520-21 (1972). However, the court need not assume the truth of legal conclusions cast in the

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form of factual allegations. United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th

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Cir. 1986). While Rule 8(a) does not require detailed factual allegations, “it demands more than

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an unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A

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pleading is insufficient if it offers mere “labels and conclusions” or “a formulaic recitation of the

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elements of a cause of action.” Twombly, 550 U.S. at 555. See also Iqbal, 556 U.S. at 676

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(“Threadbare recitals of the elements of a cause of action, supported by mere conclusory

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statements, do not suffice.”). Moreover, it is inappropriate to assume that the plaintiff “can prove

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facts which it has not alleged or that the defendants have violated the . . . laws in ways that have

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not been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters,

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459 U.S. 519, 526 (1983).
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In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the court is permitted

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to consider material which is properly submitted as part of the complaint, documents that are not

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physically attached to the complaint if their authenticity is not contested and the plaintiff‟s

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complaint necessarily relies on them, and matters of public record. Lee v. City of Los Angeles,

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250 F.3d 668, 688-89 (9th Cir. 2001).

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ANALYSIS

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Plaintiffs‟ complaint asserts that the court has “original jurisdiction” over this action

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pursuant to 28 U.S.C. ' 1334, because the complaint‟s first cause of action alleges a violation of

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11 U.S.C. ' 362(a), the automatic stay provision of the Bankruptcy Code.2 (Compl. (Dkt. No. 1)

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at 3.) Title 28 U.S.C. ' 1334(a) provides, in part, that “the district courts shall have original and

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exclusive jurisdiction of all cases under title 11.”
However, bankruptcy courts have jurisdiction over “all civil proceedings arising under

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title 11, or arising in or related to cases under title 11.” In re Davis, 177 B.R. 907, 912 (9th Cir.

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BAP 1995). See also Eastern Equipment and Services Corp. v. Factory Point Nat. Bank,

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Bennington, 236 F.3d 117, 121 (2nd Cir. 2001) (“Courts that have examined this issue have held

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that the federal Bankruptcy Code preempts any state law claims for a violation of the automatic

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stay, and precludes jurisdiction in the district courts. Any relief for a violation of the stay must be

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sought in the Bankruptcy Court.”); MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 916

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(9th Cir. 1996) (“We hold that MSR‟s malicious prosecution action against the Producers is

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completely preempted by the structure and purpose of the Bankruptcy Code. Therefore, MSR‟s

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purported action must, in fact, be a federal claim. That claim, however, should have been brought

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in the bankruptcy court itself, and not as a separate action in the district court. Thus, the district

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court properly determined that it lacked jurisdiction to hear the matter.”). But see Justice

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Cometh, Ltd. v. Lambert, 426 F.3d 1342, 1343 (11th Cir. 2005) (“the explicit § 1334 grant of

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original jurisdiction over Title 11 cases clearly forecloses a conclusion that the district court

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lacked subject matter jurisdiction over this case”).

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The remaining causes of action of plaintiffs‟ complaint are all based on the alleged violation of
state law.
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Moreover, as explained by another judge of this court:
Pursuant to 28 U.S.C. § 157(a), each district court may provide that
any or all cases under title 11 and any or all proceedings arising
under title 11 or arising in or related to a case under title 11 shall be
referred to the bankruptcy judges for the district. Furthermore, the
Eastern District of California‟s Local General Order 1824 states:
this Court hereby refers to the bankruptcy judges of this district all
cases under title 11, and all proceedings arising under title 11 or
rising in or related to cases under title 11. An action alleging a
willful violation of the automatic stay is created by § 362(h) of title
11 of the United States Code, and therefore arises under title 11 for
purposes of 28 U.S.C. § 157(a) and Local General Order 182.
Thus, the bankruptcy court has subject matter jurisdiction over all
claims alleging willful violation of the automatic stay[.]
Wordtech Systems, Inc. v. Integrated Network Solutions, Inc., No. 2:04-cv-1971-MCE-EFB,

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2012 WL 5464218, at *1-2 (E.D. Cal. Nov. 7, 2012) (dismissing a defendant‟s motion seeking

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sanctions for violation of 11 U.S.C. ' 362(a)(1) due to lack of subject matter jurisdiction)

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(alterations, citations and quotations omitted).

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The undersigned concludes that the complaint‟s first cause of action for violation of 11

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U.S.C. ' 362 should be dismissed for a lack of subject matter jurisdiction. See Swartz v.

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Nationstar Mortg., LLC, et al., No. CV 14-08649 BRO (JCx), 2015 WL 846789 at *9 (C.D. Cal.

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Feb. 26, 2015) (dismissing claims alleging violations of 11 U.S.C. ' 362 in light of the court‟s

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Local Rule referring all proceedings arising under Title 11 to bankruptcy judges); Zimmerman v.

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Bellows, 988 F.Supp.2d 1026, 1034 (D. Minn. 2013) (“Count V alleges that Defendants violated

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the automatic stay, for which Zimmerman seeks relief under 11 U.S.C. § 362(k). Though no

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party has raised the issue, the Court determines that it lacks jurisdiction to consider this claim.”);

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Wordtech Systems, Inc., 2012 WL 5464218, at *2 (“Because Defendant Khatemi‟s claim alleging

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that Plaintiff and Plaintiff‟s attorneys willfully violated the bankruptcy court‟s automatic stay

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arises under title 11, the bankruptcy court has subject matter jurisdiction over Defendant

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Khatemi‟s claim.”); Guancione v. Wachovia Mortg. Corp., No. 5:10-CV-3166 JF (HRL), 2010

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WL 2991728, at *3 (N.D. Cal. July 28, 2010) (“to the extent that Plaintiff could establish a

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violation of the automatic stay, their remedy lies within the jurisdiction of the bankruptcy court”);

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Radke v. Holbrook, No. CV 09-1355 GAF (VBK), 2010 WL 9010982, at *7 (C.D. Cal. May 11,

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2010) (“Plaintiff‟s allegations concerning the violation of the automatic stay in a bankruptcy
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proceeding must be raised in the Bankruptcy Court, or in the California Court of Appeal in a

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direct appeal. A Federal District Court does not have original jurisdiction over bankruptcy

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matters.”); Heghmann v. Town of Rye, 326 F.Supp.2d 227, 232-33 (D. N.H. 2004) (“Defendants

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argue that this court lacks subject matter jurisdiction over plaintiff‟s claims arising under 11

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U.S.C. § 362(h) for willful violation of the automatic stay because all such claims must be

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brought in the bankruptcy court. The weight of the authority supports the defendants‟

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argument.”).

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LEAVE TO AMEND
For the reasons stated above, the undersigned has found that the complaint‟s claim that

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provides the purported basis for the court‟s subject matter jurisdiction over this action should be

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dismiss for lack of subject matter jurisdiction. The undersigned has carefully considered whether

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plaintiffs could amend the complaint to state a claim over which this court would have subject

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matter jurisdiction. “Valid reasons for denying leave to amend include undue delay, bad faith,

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prejudice, and futility.” California Architectural Bldg. Prod. v. Franciscan Ceramics, 818 F.2d

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1466, 1472 (9th Cir. 1988). See also Klamath-Lake Pharm. Ass‟n v. Klamath Med. Serv. Bureau,

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701 F.2d 1276, 1293 (9th Cir. 1983) (holding that while leave to amend shall be freely given, the

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court does not have to allow futile amendments). In light of the apparent lack of subject matter

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jurisdiction over plaintiff‟s claim and the nature of the allegations found in the complaint, the

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undersigned finds that granting leave to amend would be futile.

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SUPPLEMENTAL JURISDICTION
As noted above, in addition to the federal cause of action addressed above, plaintiffs‟

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complaint asserts a number of state law causes of action. A district court may decline to exercise

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supplemental jurisdiction over state law claims if the district court has dismissed all claims over

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which it has original jurisdiction. 28 U.S.C. § 1367(c)(3). The court‟s discretion to decline

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jurisdiction over state law claims is informed by the values of judicial economy, fairness,

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convenience, and comity. Acri v. Varian Associates, Inc., 114 F.3d 999, 1001 (9th Cir. 1997) (en

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banc). In addition, “[t]he Supreme Court has stated, and [the Ninth Circuit] ha[s] often repeated,

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that „in the usual case in which all federal-law claims are eliminated before trial, the balance of
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factors . . . will point toward declining to exercise jurisdiction over the remaining state-law

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claims.‟” Acri, 114 F.3d at 1001 (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.

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7 (1988)). See also Satey v. JP Morgan Chase & Co., 521 F.3d 1087, 1091 (9th Cir. 2008)

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(recognizing this principle but noting that dismissal of the remaining state law claims is not

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mandatory).
Of course, “primary responsibility for developing and applying state law rests with the

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state courts.” Curiel v. Barclays Capital Real Estate Inc., Civ. No. S-09-3074 FCD KJM, 2010

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WL 729499, at *1 (E.D. Cal. Mar. 2, 2010). Here, consideration of judicial economy, fairness,

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convenience, and comity all point toward declining to exercise supplemental jurisdiction.

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Therefore, the undersigned will also recommend that the assigned District Judge decline to

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exercise supplemental jurisdiction over the complaint‟s state law claims.

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CONCLUSION

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Accordingly, IT IS HEREBY RECOMMENDED that:

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1. Defendant‟s September 24, 2014 motion to dismiss (Dkt. No. 7), re-noticed for
hearing before the undersigned on October 9, 2014, (Dkt. No. 10), be granted;
2. The complaint‟s first cause of action be dismissed without prejudice for a lack

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of subject matter jurisdiction;
3. The court decline to exercise supplemental jurisdiction over the complaint‟s

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state law claims; and

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4. This action be closed.

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These findings and recommendations are submitted to the United States District Judge

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assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within fourteen days

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after being served with these findings and recommendations, any party may file written

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objections with the court and serve a copy on all parties. Such a document should be captioned

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“Objections to Magistrate Judge‟s Findings and Recommendations.” Any reply to the objections

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shall be served and filed within seven days after service of the objections. The parties are advised

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that failure to file objections within the specified time may waive the right to appeal the District

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Court‟s order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).

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Dated: April 16, 2015

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DAD:6
Ddad1\orders.pro se\arden1777.mtd.f&rs.docx

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