Paskenta Band of Nomlaki Indians et al v. Crosby et al

Filing 101

ORDER signed by Judge Garland E. Burrell, Jr on 8/13/15 ORDERING that MOTIONS to DISMISS the First Amended Complaint 44 , 46 , 50 , 51 , 53 and 54 are GRANTED in PART and DENIED in part. Plaintiff is granted (21) days leave from the date on which this order is filed to file a Second Amended Complaint addressing the deficiencies in any dismissed claim that was not dismissed without leave to amend. (Mena-Sanchez, L)

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5

UNITED STATES DISTRICT COURT

6

EASTERN DISTRICT OF CALIFORNIA

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PASKENTA BAND OF NOMLAKI
INDIANS; and PASKENTA
ENTERPRISES CORPORATION,

10

Plaintiffs,

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20

v.
INES CROSBY; JOHN CROSBY;
LESLIE LOHSE; LARRY LOHSE;
TED PATA; JUAN PATA; CHRIS
PATA; SHERRY MYERS; FRANK
JAMES; UMPQUA BANK; UMPQUA
HOLDINGS CORPORATION;
CORNERSTONE COMMUNITY BANK;
CORNERSTONE COMMUNITY
BANCORP; JEFFERY FINCK; GARTH
MOORE; GARTH MOORE INSURANCE
AND FINANCIAL SERVICES, INC.;
ASSOCIATED PENSION
CONSULTANTS, INC.; HANESS &
ASSOCIATES, LLC; ROBERT M.
HANESS; THE PATRIOT GOLD &
SILVER EXCHANGE, INC. and
NORMAN R. RYAN,

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CRP 111 WEST 141ST LLC;
CASTELLAN MANAGING MEMBER
LLC; CRP WEST 168TH STREET
LLC; and CRP SHERMAN AVENUE
LLC,
Nominal
Defendants1.

26

28

ORDER GRANTING IN PART AND
DENYING IN PART MOTIONS TO
DISMISS THE FIRST AMENDED
COMPLAINT

Defendants,

25

27

No. 2:15-cv-00538-GEB-CMK

1

Former Defendant Quicken Loans, Inc. (“Quicken”) filed a dismissal
motion. However, Plaintiffs voluntarily dismissed their claims against
Quicken, which renders the motion moot and it is therefore denied.

1

1

The following Defendants seek dismissal of claims in

2

Plaintiffs’ First Amended Complaint (“FAC”): Ines Crosby, John

3

Crosby, Leslie Lohse, Larry Lohse (collectively, the “Employee

4

Defendants”), Juan Pata, Chris Pata, Sherry Myers, Frank James,

5

The Patriot Gold & Silver Exchange, Norman R. Ryan (collectively,

6

with the Employee Defendants, “Pata Defendants”), Umpqua Bank,

7

Umpqua Holdings Corporation (collectively, “Umpqua Defendants”),

8

Cornerstone

9

Jeffery

Community

Finck
Garth

Bank,

Cornerstone

(collectively,

“Cornerstone

Moore

Insurance

Bancorp,

Defendants”),

10

Moore,

11

(collectively,

12

Consultants,

13

Inc.

Financial

Defendants”),

(“APC”),

Robert

M.

Services,

Garth

Associates, LLC (collectively, “Haness Defendants”).

“Moore

and

Community

Associated
Haness,

and

Inc.

Pension
Haness

&

14

The Pata Defendants and Moore Defendants seek dismissal

15

under Federal Rule of Civil Procedure (“Rule”) 12(b)(1) for lack

16

of subject matter jurisdiction. Umpqua Defendants, Cornerstone

17

Defendants, Moore Defendants, APC, and Haness Defendants seek

18

dismissal under Rule 12(b)(6) for failure to state a claim.

19

I.

FACTUAL ALLEGATIONS

20

The following factual allegations in the FAC relate to

21

the motions. Plaintiff Paskenta Band of Nomlaki Indians (“the

22

Tribe”) employed the Employee Defendants in executive roles for

23

more than a decade. Plaintiffs allege the Employee Defendants

24

used their positions to embezzle millions of dollars from the

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Tribe and its principal business entity, the Paskenta Enterprises

26

Corporation (“PEC”). Plaintiffs allege the Employee Defendants

27

stole this money from Plaintiffs’ bank accounts at Umpqua Bank

28

and Cornerstone Bank by withdrawing large sums for their personal
2

1

use, and that the Employee Defendants caused the Tribe to invest

2

in two unauthorized retirement plans for their personal benefit:

3

a

4

(“Tribal

5

Plaintiffs allege the Employee Defendants kept their activities

6

hidden

7

intimidation, and cyber-attacks on the Tribe’s computers.

defined

8
9

benefit

plan

from

Pension

(collectively

401(k)”)

(“Tribal

“Tribal

Plaintiffs

Plaintiffs

through

further

Plan”)

the

a

Retirement

inter

allege

and

alia,

401(k)

Plans”).

harassment,

remaining

Defendants

knowingly assisted the Employee Defendants in aspects of their

10

scheme.

Plaintiffs

11

Cornerstone

12

maintained accounts and, despite knowing the Employee Defendants

13

were withdrawing money from these accounts for their personal

14

benefit, permitted the Employee Defendants to make withdrawals

15

and

16

actions.

17

Plaintiffs’

18

administrator

19

Employee

20

unauthorized

21

Defendants as actuaries for the Tribal Pension Plan, assisted the

22

Employee Defendants in setting up and administering that Plan.

failed

allege

Defendants

to

notify

Plaintiffs

Tribal

23

controlled

also

Tribal
in

Defendants

banks

of

allege

advisors,

the

Defendants

Umpqua

Plaintiffs

financial
for

the

the

the

and

APC,

Retirement

up
Plans,

Employee

Moore

Retirement

setting

where

as

the

Defendants’

that

as

third-party
assisted

administering

and

the

Plaintiffs

Defendants,

Plans,

and

and

the

the
the

Haness

II. DISCUSSION

24

A.

Subject Matter Jurisdiction

25

Pata Defendants and Moore Defendants each argue this

26

lawsuit should be dismissed since the allegations in Plaintiffs’

27

FAC

28

jurisdiction over the lawsuit because Plaintiffs’ claims “are

demonstrate

the

federal

court

3

lacks

subject

matter

1

inextricably

2

Tribal

3

Paskenta Tribal law.” (Tribal Defs. Not. Mot. & Mot. Dismiss

4

(“Pata Mot.”) 3:9-10, ECF No. 52; see also Defs. Garth Moore and

5

Garth Moore Ins. & Fin. Servs., Inc.’s Not. Mot. & Mot. Dismiss

6

(“Moore Mot.”) 4:24-26, ECF No. 52.)

intertwined

governance

and

with

the

internal

[issues

interpretation

and

of]

Paskenta

application

7

Plaintiffs respond:

8

of

This Court has
. . .
subject matter
jurisdiction . . . based on several statutory
provisions: First, . . . the Court has
federal question jurisdiction under 28 U.S.C.
§ 1331, as [Plaintiffs] ha[ve] stated claims
under RICO, 18 U.S.C. §§ 1961 et seq. and
under the [Computer Fraud and Abuse Act], 18
U.S.C. § 1030 . . . . Second [the court has
subject
matter
jurisdiction
since]
the
Tribe’s
governing
body
is
federally
recognized, [and]. . .
28 U.S.C. § 1362
[states]:

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10
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14

“The district courts shall have original
jurisdiction of all civil actions, brought by
any Indian tribe . . . with a governing body
duly recognized by the Secretary of the
Interior, wherein the matter in controversy
arises under the Constitution, laws, or
treaties of the United States.” . . .

15
16
17
18

Third, based on the . . . RICO claim,
specifically, the Court has subject matter
jurisdiction [under] . . . 18 U.S.C. §
1964(a),(c). And fourth, the Court has
ancillary jurisdiction over the . . . pendent
California state law claims under 28 U.S.C. §
1367.

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20
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22
23

(Pls.’ Opp’n Mot. Dismiss (“Opp’n”) 13:3-17, ECF No. 73.)

24

The Pata Defendants and the Moore Defendants make what

25

is considered a facial challenge to the federal court’s subject

26

matter jurisdiction. “In a facial [challenge], the challenger

27

asserts

28

insufficient on their face to invoke federal jurisdiction.” Safe

that

the

allegations

contained

4

in

the

complaint

are

1

Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004).

2

When deciding a facial challenge, Plaintiffs are afforded the

3

same

4

dismiss for failure to state a claim under Rule 12(b)(6); namely,

5

the court “assume[s] [plaintiffs’] allegations to be true and

6

draw[s] all reasonable inferences in [their] favor.” Wolfe v.

7

Strankman, 392 F.3d 358, 362 (9th Cir. 2004).

procedural

8
9

protections

as

when

faced

with

Pata Defendants and Moore Defendants
that

whatever

they

have

referenced

as

a

motion

to

have not shown

“internal

[issues

of]

10

Paskenta Tribal governance and the interpretation and application

11

of Paskenta Tribal Law,” deprives the federal court of subject

12

matter jurisdiction over Plaintiffs’ claims. (Pata Mot. 3:9-10.)

13
14
15

Therefore each motion challenging the federal court’s
subject matter jurisdiction is denied.
B. Failure to State a Claim

16

1.

Legal Standard

17

“To

survive

a

motion

to

dismiss,

a

complaint

must

18

contain sufficient factual matter, accepted as true, to state a

19

claim to relief that is plausible on its face.”

20

Horizon Cmty. Learning Ctr., Inc., 590 F.3d 806, 812 (9th Cir.

21

2010) (citing Ashcroft v. Iqbal, 556 U.S. 662 (2009)). “A claim

22

has facial plausibility when the plaintiff pleads factual content

23

that allows the court to draw the reasonable inference that the

24

defendant is liable for the misconduct alleged.” Iqbal, 556 U.S.

25

at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556

26

(2007)).

27

claim for relief . . . [is] a context-specific task that requires

28

the . . . court to draw on its judicial experience and common

“Determining

whether

a

5

complaint

states

Caviness v.

a

plausible

1

sense.” Id. at 679.

2

accept all well-pleaded allegations of material fact as true and

3

construe

them

4

party.”

Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777,

5

783 (9th Cir. 2012).

in

the

“For purposes of a motion to dismiss, we

light

most

favorable

to

the

nonmoving

6

2.

7

Umpqua Defendants, APC, and Haness Defendants each seek

8

dismissal of Plaintiffs’ claims in which Plaintiffs allege they

9

aided and abetted the Employee Defendants’ conversion of Tribal

10

assets and the Employee Defendants’ breach of their fiduciary

11

duty owed to Plaintiffs, contending the FAC fails to plausibly

12

allege

13

Employee Defendants’ wrongdoing.2 Umpqua Defendants and Haness

14

Defendants seek dismissal with prejudice.

15

the

Actual Knowledge

referenced

Defendants

had

actual

knowledge

of

the

20

“Liability may . . . be imposed on one who
aids
and
abets
the
commission
of
an
intentional tort if the person (a) knows the
other’s conduct constitutes a breach of duty
and
gives
substantial
assistance
or
encouragement to the other to so act or (b)
gives substantial assistance to the other in
accomplishing a tortious result and the
person’s own conduct, separately considered,
constitutes a breach of duty to the third
person.”

21

Casey v. U.S. Bank Nat’l Ass’n, 127 Cal. App. 4th 1138, 1144

22

(2005) (alterations in original) (citing Saunders v. Superior

23

Court, 27 Cal. App. 4th 832, 846 (1994)). “[A]iding and abetting

24

2

16
17
18
19

25
26
27
28

Moore Defendants also seek dismissal of what they refer to as
Plaintiffs’ claim against them for aiding and abetting the Employee
Defendants’ RICO violations, arguing the claim is not legally cognizable.
However, Plaintiffs’ only aiding and abetting claims against the Moore
Defendants allege they aided and abetted the Employee Defendants in converting
Tribal assets and aided and abetted the Employee Defendants in breaching the
fiduciary duty the Employee Defendants owed Plaintiffs under state law.
Therefore, the motion is denied because it has not been shown to concern an
actual controversy.

6

1

liability

2

state

3

“requires more than a vague suspicion of wrongdoing.” In re First

4

Alliance Mortg. Co., 471 F.3d 977, 993, n.4 (9th Cir. 2006).

5

“[T]o

6

allege], the defendant . . . [had] ‘actual knowledge of

7

Employee Defendant’s conversion or breach of fiduciary duty owed

8

to Plaintiffs.]” Id. at 993 (citation omitted).

under

courts,

satisfy

9

California

requires

the

a.

a

law,

as

finding

knowledge

applied

of

prong

by

actual

the

California

knowledge,”

[Plaintiffs

must

which

plausibly
[an

Umpqua Defendants

10

Plaintiffs allege in the FAC the Umpqua Defendants had

11

actual knowledge of the Employee Defendants’ conversion of Tribal

12

assets and of their breach of the fiduciary duty the Employee

13

Defendants owed to Plaintiffs, since “[Employee Defendant Ines]

14

Crosby would frequently go to Umpqua’s Orland, California branch

15

and present checks from the Tribe’s checking account made payable

16

to ‘Cash’ . . . for large sums” and the tellers would give her

17

the money. (FAC ¶ 283.) Plaintiffs allege the Orland branch “is

18

small with approximately four tellers” working at a time and “as

19

members of the Orland community [the Umpqua tellers] were aware

20

of

21

enjoyed by . . . Ines Crosby.” (FAC ¶ 590.) Plaintiffs allege

22

Ines Crosby’s withdrawals from Umpqua Bank “were remarkably large

23

relative to other withdrawal[s] from the branch;” and were often

24

large

25

Transaction Report (“CTR”) with the Internal Revenue Service.”

26

(FAC ¶¶ 591-92.) Plaintiffs also allege the Umpqua Defendants

27

permitted Ines Crosby to pay her credit card bills through the

28

Tribe’s account despite receiving “specific training” that this

the

extraordinarily

enough

to

extravagant

“require[]

Umpqua

7

and

.

.

luxurious

.

to file

life

a

style

Currency

1

could be “a means to disguise . . . illegal transactions” and

2

that the Umpqua tellers continued to serve Ines Crosby “after it

3

was widely reported in the local press that [she] . . . had been

4

. . . suspected of misappropriating millions of dollars.” (FAC ¶¶

5

599, 594.)

6

Plaintiffs’

allegations

are

insufficient

to

plead

7

plausible claims that the Umpqua Defendants had actual knowledge

8

of the Employee Defendants’ alleged conversion of Tribal assets

9

or of the Employee Defendants’ alleged breach of their fiduciary

10

duty owed to Plaintiffs. Therefore, these claims are dismissed.

11

However,

12

futile.

Umpqua

13

Defendants

b.

14

Plaintiffs

have

not

shown

amendment

would

be

APC
allege

the

manner

in

which

the

Employee

15

Defendants instructed APC to administer the Tribal Retirement

16

Plans indicated to APC that the Employee Defendants intended to

17

use these plans as a short-term vehicle to steal from the Tribe,

18

and

19

APC’s retirement plan administration experience, are sufficient

20

to support drawing a reasonable inference that APC had actual

21

knowledge

22

intentions.

23

that

the

of

Employee

the

Defendants’

Employee

Specifically,

instructions,

Defendants’

Plaintiffs

allege

coupled

alleged

APC

“set

with

thievery

up

and

24

administered” the Tribal Retirement Plans “as though the Tribe

25

was . . .[a] wholly owned small business” with few eligible

26

participants rather than a Tribal nation; assisted the Employee

27

Defendants in making choices that were not compliant with ERISA;

28

developed Tribal Retirement Plans designed for short-term funding
8

1

that could be cashed-out in five years; and allowed Defendant

2

John Crosby to sign documents authorizing early-withdrawals from

3

his 401(k), even after his employment with the Tribe had been

4

terminated. (FAC ¶¶ 220-225.)

5

These allegations are insufficient to plead a plausible

6

claim that APC had actual knowledge of the Employee Defendants’

7

alleged theft of Plaintiffs’ money, since they do not plausibly

8

allege that APC knew the irregularity in the Tribal Retirement

9

Plans

10

was

the

result

of

the

Employee

Defendants’

intent

to

convert Plaintiffs’ funds. Therefore, the claim is dismissed.

11

c. Haness Defendants

12

Plaintiffs allege that because the Haness Defendants

13

are “retirement professionals,” the manner in which the Employee

14

Defendants structured the Tribal Pension Plan indicated to the

15

Haness Defendants that the Employee Defendants’ intended “to use

16

the Tribal Pension Plan as a short-term investment to divert

17

Tribal funds.” (FAC ¶ 223.) Plaintiffs allege in the FAC that the

18

Tribal Pension plan was set up “with an actuarial formula in

19

which the target retirement benefit was . . . approximately 4

20

times higher than the industry standard,” (FAC ¶ 223(a)), and the

21

“retirement

22

employee with five years of service who had attained the age of

23

65] . . . caused the Tribe to make . . . , extraordinarily high

24

contributions for Ines Crosby.” (FAC ¶ 223(b).) Plaintiffs also

25

allege

26

pension

27

Employee Defendants ultimately did, is evidence that the plan

28

from the outset was not a bona fide retirement program. (FAC ¶

the
plan

benefit

Haness
just

qualification

Defendants
a

few

were

years

9

criteria

aware

after

its

that

[qualifying

an

terminating

inception,

as

a

the

1

223(c).)

2

However,

the

FAC

does

not

contain

allegations

that

3

support drawing a reasonable inference that the Haness Defendants

4

had actual knowledge the alleged reason for the Tribal Pension

5

Plan’s

6

assets.

7

Defendants have not shown amendment would be futile.

irregular

structure

Therefore

this

was

claim

an
is

intent

to

dismissed.

convert

Tribal

However,

Haness

8

3.

Duty

9

Umpqua Defendants, Cornerstone Defendants, and Haness

10

Defendants

each

11

negligence claim arguing the FAC fails to plausibly allege they

12

owed

13

negligence

14

Plaintiffs’ breach of contract claim for the same reason. Umpqua

15

Defendants and Haness Defendants seek dismissal with prejudice.

Plaintiffs’

16

seek

a

claim.

a.

dismissal

duty

of

Umpqua

care,

of

Plaintiffs’

which

Defendants

is

also

an

seek

common

element

law

of

dismissal

a
of

The Banking Defendants

17

Banks “ha[ve] a duty to act with reasonable care in

18

[their] transactions with depositors;” this duty “is an implied

19

term in the contract between the bank and its depositor.” Chazen

20

v. Centennial Bank, 61 Cal. App. 4th 532, 543 (1998). However,

21

“[t]his contractual relationship does not involve any implied

22

duty

23

purpose

24

California law “require[s] banking transactions to be processed

25

quickly and automatically,” and “[u]nder this system favoring

26

expedited handling of funds transfers, a bank cannot be expected

27

to track transactions in fiduciary accounts or to intervene in

28

suspicious activities.” Id. at 539. A “bank is not liable for the

to

supervise
for

which

account
the

activity,

funds

are

10

or

being

to

inquire

used.”

Id.

into

the

at

537.

1

misappropriation

2

signatories], . . . unless the bank has knowledge, actual or

3

constructive,

4

Cal.3d 548, 556 (1970)(emphasis added).

[of

of

a

such

5
Plaintiffs

funds

misappropriation.”

i.

6

customer’s]

by

[its

Blackmon

authorized

v.

Hale,

1

Umpqua Defendants

allege

Umpqua’s

tellers

“receive

training

7

concerning . . . federal and internal reporting requirements”

8

regarding

9

Defendants

the

large

made

at

cash

transactions

Umpqua

Bank,

and

that
that

the

these

Employee
reporting

10

requirements put the Umpqua Defendants on inquiry notice of the

11

Employee Defendants’ unlawful conduct and created a duty on the

12

part

13

investigat[e]” these transactions. (FAC ¶¶ 591-93.)

of

14

the

Umpqua

Plaintiffs

Defendants

allege

the

to

“inquir[e

Employee

into]

Defendants

or

were

15

authorized by the Tribe to access Plaintiffs accounts, but do not

16

plausibly allege the Umpqua Defendants had actual or constructive

17

knowledge of the Employee Defendants’ alleged misappropriation

18

since it has not been plausibly pled that transactions triggering

19

“federal

20

misappropriation. Therefore, Plaintiffs negligence and breach of

21

contract claims are dismissed. However, Umpqua Defendants have

22

not shown amendment would be futile.

and

internal

23

ii.

24

Plaintiffs
against

requirements”

indicate

Cornerstone Defendants

argue

they

negligence

Jeffrey Finck, Cornerstone’s CEO, “alerted a Tribal employee that

27

the

28

[Employee

Defendants]

at
had

the

suspicious

conducted
11

with

since

a

26

look

Defendants

allege

claim

should

Cornerstone

plausibly

25

Tribe

the

reporting

they

activity
the

allege

that

Tribe’s

the

money

1

deposited in Cornerstone Bank.” (Opp’n 52:27-53:7; FAC ¶ 644.)

2

However, the allegation that Finck alerted a Tribal

3

employee to “suspicious activity” does not plausibly allege he or

4

any of other Cornerstone Defendants had actual or constructive

5

knowledge of the Employee Defendants’ conversion and breach of

6

the

7

Cornerstone Defendants’ motion is granted.

fiduciary

8

duty

b.

they

owed

to

Plaintiffs.

Therefore,

the

Haness Defendants

9

Plaintiffs argue the Haness Defendants owed them a duty

10

of care since Plaintiffs were third party beneficiaries of the

11

Tribal Pension Plan, they sponsored the plan, and the Haness

12

Defendants set up of the Tribal Pension Plan.

13

The

Haness

Defendants

reply

that

(Opp’n 71:14-16.)
“[t]o

qualify

as

14

[being owed a duty of care] as a third party beneficiary of a

15

contract, the third party must show that the contract was made

16

expressly for his [or her] benefit” and the FAC does not allege

17

the Tribal Pension Plan was made for Plaintiffs’ benefit. (Reply

18

of Defs. Robert M. Haness & Haness & Assoc., LLC ISO Mot. Dismiss

19

FAC (“Haness Reply”) 5:21-22; 6:3-6, ECF No. 84.)

20
21
22
23
24
25

California law generally states that the duty
of ordinary care owed by a supplier of
information [like an actuary] . . . does not
run to non-clients. However, California law
recognizes an exception to the general rule,
that such a supplier of information does owe
a duty to intended third party beneficiaries.
Paulsen v. CNF Inc., 559 F.3d 1061, 1080-81 (9th Cir. 2009).
Plaintiffs do not plausibly allege they are third-party

26

beneficiaries

of

the

Tribal

Retirement

27

claim is dismissed. However, the Haness Defendants have not shown

28

amendment would be futile.
12

Plan.

Therefore,

this

1

4.

2

Umpqua

Restitution
Defendants,

APC,

and

Haness

Defendants

seek

3

dismissal of Plaintiffs’ restitution claims arguing no such claim

4

exists

5

Defendants’ motion, but oppose the motion concerning their claims

6

against

7

restitution claim.

8
9

under

APC

California

and

law.

Haness,

Restitution

“is

Plaintiffs

arguing

do

not

California

synonymous

with”

oppose

law

unjust

Umpqua

permits

a

enrichment.

Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 1370 (2010).

10

“California

11

enrichment

12

under

13

Litig., No. C-10-5625-SI, 2011 WL 4345435, at *3(N.D. Cal. Sept.

14

15, 2011) (citing cases). However, the Ninth Circuit has stated:

15

courts
[and

are

split

restitution]

California

law.”

In

on

the

[are]

re

question

viable

TFT-LCD

whether

cause[s]

(Flat

unjust

of

Panel)

action

Antitrust

[I]n California, there is not a standalone
cause of action for “unjust enrichment,”
which
is
synonymous
with
“restitution.”
However, unjust enrichment and restitution
are not irrelevant in California law. Rather,
they describe the theory underlying a claim
that a defendant has been unjustly conferred
a benefit “through mistake, fraud, coercion,
or request.” The return of that benefit is
the remedy “typically sought in a quasicontract cause of action.” When a plaintiff
alleges
unjust enrichment, a court may
“construe the cause of action as a quasicontract claim seeking restitution.”

16
17
18
19
20
21
22
23

Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762 (9th Cir.

24

2015)(citations omitted). “While the California courts have not

25

conclusively decided this question, . . . the court is bound by

26

the Ninth Circuit’s interpretations of state law.” Brown v. Gen.

27

Steel

28

2128057, at *5 (C.D. Cal. May 19, 2008). Therefore, Plaintiffs

Domestic

Sales,

LLC,

No.

13

CV08-00779-MMM-(SHX),

2008

WL

1

restitution claim could be construed as a quasi-contract claim,

2

and since the movants have not shown the FAC fails to allege such

3

a quasi-contract claim, each dismissal motion is denied.

4

5.

5

Cornerstone Defendants, APC and Haness Defendants each
dismissal

Fiduciary Duty

6

seek

7

arguing they owed Plaintiff no such duty. APC and the Haness

8

Defendants seek dismissal with prejudice.

9

of

Plaintiffs’

breach

of

fiduciary

duty

claim

A fiduciary relationship is any relation
existing between parties to a transaction
wherein one of the parties is duty bound to
act with the utmost good faith for the
benefit of the other party. Such a relation
ordinarily arises only where a confidence is
reposed by one person in the integrity of
another.

10
11
12
13
14

Wolf

15

(quotation marks omitted). “The essence of a fiduciary . . .

16

relationship is that the parties do not deal on equal terms,

17

because the person in whom trust and confidence is reposed . . .

18

is in a position to exert unique influence over the dependent

19

party.” Richelle L. v. Roman Catholic Archbishop, 106 Cal. App.

20

4th 257, 271 (2003). “[B]efore a person can be charged with a

21

fiduciary

22

knowingly undertake to act on behalf and for the benefit of

23

another, or must enter into a relationship which imposes that

24

undertaking as a matter of law.” Comm. On Children’s Television,

25

Inc. v. General Foods Corp., 35 Cal. 3d 197, 221 (1983).

26
27
28

v.

Superior

Court,

obligation

a.
Plaintiffs

[to

107

Cal.

another],

App.

he

4th

[or

25,

she]

29

must

(2003)

either

Cornerstone Defendants
argue

Cornerstone

Defendants

owed

them

a

fiduciary duty since “[t]he Tribe is a shareholder of Cornerstone
14

1

Bank and is accordingly owed” a fiduciary duty even if such a

2

duty is not present in an exclusively “strictly . . . bank-

3

depositor relationship.” (Opp’n 52:17-19.)

4

Cornerstone

Defendants

reply

that

Plaintiffs

5

“conflate[] the duties owed to the Tribe as a shareholder with

6

those owed to the Plaintiffs as depositors,” since Plaintiffs’

7

breach

8

accounts with Cornerstone Bank. (Cornerstone Defendants’ Reply

9

ISO Mot. Dismiss (“Cornerstone Reply”) 12:2-3; 12:20-13:1, ECF

10

No. 85.) The Cornerstone Defendants further argue: “Nowhere does

11

the FAC allege that PEC was a shareholder” and therefore “the

12

Cornerstone

13

under any theory.” (Cornerstone Reply 12 n.3.)

14

of

fiduciary

Defendants

duty

claim

clearly

stems

owed

no

from

Plaintiffs’

fiduciary

duty

bank

to

PEC

Plaintiffs allege in the FAC that the Tribe and PEC

15

were

account

16

circumstances the relationship between a bank and its depositor

17

is that of a debtor-creditor, and is not a fiduciary one,” and

18

therefore this relationship does not establish the Cornerstone

19

Defendants owed Plaintiffs a fiduciary duty. Lawrence v. Bank of

20

Am., 163 Cal. App. 3d 431, 437 (1985 However, the Tribe also

21

alleges it was a minority shareholder in Cornerstone Bank and in

22

this capacity, the Cornerstone Defendants owed it a fiduciary

23

duty of loyalty, which the Cornerstone Defendants breached by

24

remaining silent while Employee Defendant John Crosby used the

25

Tribe’s accounts at Cornerstone bank for his personal benefit.

26

Plaintiffs have not plausibly alleged that any fiduciary duty of

27

loyalty

28

minority shareholder extended to matters involving the Tribe’s

that

holders

the

at

Cornerstone

Cornerstone

Bank.

Defendants

15

“[U]nder

owed

the

ordinary

Tribe

as

a

1

bank

2

dismissed.

account

3

at

Cornerstone

b.

Therefore,

the

i.

is

APC

APC argues it owed Plaintiffs no fiduciary duty since

6

the

7

pension

8

fiduciary relationship” between APC and Plaintiffs.

9

Def.

10

claim

Tribal Retirement Plan Defendants

4
5

bank.

FAC

“simply
plans”

state[s]

and

Associated

this

Pension

that

APC

assertion

administered
which

Consultants,

“does

Inc.

the
not

Tribe’s
create

a

(Not. & Mot.

Dismiss

FAC

(“APC

Mot.”) 6:17-18, ECF No. 53.)

11

Plaintiffs respond they sufficiently allege a fiduciary

12

relationship since “[b]y setting up and administering the Tribe’s

13

pension plans and 401(k), APC performed discretionary acts on

14

behalf of the Tribe,” and the Tribe “‘relied on APC to ensure

15

[the retirement plans] were ERISA compliant.’” (Opp’n 58:17-21.)

16

Plaintiffs

allege

in

the

FAC

that

the

Employee

17

Defendants “received advice and direction from . . . APC in

18

setting up and administering the Tribal Retirement Plans,” and

19

APC “substantially assisted [the Employee Defendants] in making

20

investment choices with the funds invested in the plans.” (FAC ¶¶

21

218,

22

ensuring that the plans remained ERISA compliant” and “repeatedly

23

assisted the [Employee Defendants] in establishing, modifying and

24

funding

25

Defendants and Sherry Myers were the only beneficiaries of the

26

Tribal Retirement Plans. (FAC ¶¶ 222, 225.)

225.)

the

Plaintiffs

Tribal

also

allege

Retirement

APC

Plans,”

“was

and

responsible

that

for

Employee

27

These allegations are insufficient to plausibly allege

28

APC owed a fiduciary duty to Plaintiffs. Therefore, the claims
16

1

are dismissed.

2

ii.

Haness Defendants

3

The Haness Defendants argue as actuaries for the Tribal

4

Pension Plan, they had no fiduciary relationship with Plaintiffs,

5

since Plaintiffs are not beneficiaries of the Plan.

6

Plaintiffs respond the Haness Defendants owed them a

7

fiduciary duty because Plaintiffs allege the Haness Defendants

8

knew

9

Plaintiffs

the

Tribe
were

sponsored
the

the

plan’s

Tribal

sponsor,

Pension
they

Plan

were

and

“the

since

intended

10

beneficiar[ies]” of the plan, and were owed a fiduciary duty.

11

(Opp’n 68:6-9; 68:11-12.)

12

Plaintiffs allege the Employee Defendants and Sherry

13

Myers were the only beneficiaries of the Tribal Pension Plan.

14

Plaintiffs’

15

relationship between Haness Defendants and Plaintiffs. Therefore,

16

Plaintiffs’ claims are dismissed. However, Haness Defendants have

17

not demonstrated amendment would be futile.

allegations

do

not

plausibly

allege

a

fiduciary

18

6.

19

Umpqua Defendants and Cornerstone Defendants each seek

20

dismissal of Plaintiffs’ statutory negligence claim. Umpqua seeks

21

dismissal with prejudice. Plaintiffs do not oppose the motions,

22

but argue Umpqua Defendants have not shown leave to amend would

23

be futile. Therefore, the claims are dismissed with leave to

24

amend.

25
26
27
28

7.

Statutory Negligence

Individual Claims
a.

Cornerstone

Cornerstone

Defendants

seek

dismissal

of

each

claim

alleged against them arguing “the Tribe released said defendants
17

1

from all such claims [in an agreement] executed in May of 2014.”

2

(Not. Mot. & Mot. of Cornerstone Defs.’ (Cornerstone Mot.”) 1:20,

3

ECF No. 50.) Cornerstone Defendants attach the agreement, titled

4

“Amended and Restated Defense and Indemnity Agreement,” on which

5

an execution date of May 19, 2014 is set forth, as Exhibit A to

6

their motion (“May 19 Agreement”). Cornerstone Defendants argue

7

the May 19 Agreement should be incorporated by reference into the

8

FAC

9

(Cornerstone Mot. 5:4-6.)

since

Plaintiffs

“repeatedly

refer

to

[it]

in

the

FAC.”

10

Plaintiffs disagree that the FAC references the May 19

11

Agreement, arguing the agreement referenced in the FAC is a prior

12

agreement the parties entered on April 22, and state that the

13

later

14

Declaration

15

Indemnity Agreement” (“the April 22 Agreement”).

referenced

16

of

agreement
Ambrosia

is

attached

Rico,

and

is

as

Exhibit

titled

1

to

the

“Defense

and

Plaintiffs allege in the FAC that after the Employee

17

Defendants

employment

18

Cornerstone Defendants “refus[ed] to provide the Tribe access to

19

the Tribe’s money on deposit at Cornerstone Bank, unless and

20

until the Tribe released Cornerstone Bank . . . [from] claims

21

arising out of [its] wrongful conduct,” and therefore the release

22

agreement

23

[through] intentional and/or negligent misrepresentations and/or

24

fraudulent omissions,” and economic duress. (FAC ¶¶ 645-647.)

is

“null

and

with

the

void”

Tribe

since

it

was

was

terminated,

“procured

.

the

.

.

25

Neither party disputes the authenticity of the April 22

26

Agreement or the May 19 Agreement and although the FAC references

27

a release agreement, it is unclear what agreement is referenced.

28

Since the Cornerstone Defendants have not shown that the May 19
18

1

Agreement is incorporated by reference into the FAC, its motion

2

is denied.

3

b.

APC

4

APC seeks dismissal of the claims alleged against it

5

arguing the claims are barred by the statute of limitations,

6

Plaintiffs

7

injuries,

8

conduct

9

alternative, moves to strike, Plaintiffs’ punitive damages claim.

fail
and

to

the

toward

plausibly

FAC

PEC.

10

lacks

APC

i.

allege
any

also

APC

caused

allegations

seeks

Plaintiffs’

concerning

dismissal

of,

or

APC’s

in

the

Statute of Limitations

11

APC argues each of Plaintiffs’ claims is governed by a

12

four-year statute of limitations period and Plaintiffs “complaint

13

was filed more than four years after Plaintiffs were allegedly

14

wronged and suffered injury.” (APC Mot. 13:8-10.)

15

complaint was filed March 10, 2015.

16

The initial

Plaintiffs respond that “[t]he FAC demonstrates that

17

they

did

not

discover—nor

could

18

reasonable

19

Defendants’ wrongful conduct until April 2014, when the [Employee

20

Defendants]

21

55:23-25.)

investigation—the

were

removed

they

have

existence

from

control

discovered

of

of

their

the

through

injury

Tribe.”

or

(Opp’n

22

“In ordinary tort and contract actions, the statute of

23

limitations . . . begins to run upon the occurrence of the last

24

element

25

ignorance

26

wrongdoer, does not toll the statute.” Neel v. Magana, Olney,

27

Levy, Cathcart & Gelfand, 6 Cal.3d 176, 187 (1971).

28

essential
of

To

the

align

to

the

cause

the

of

cause

of

action,

action.
or

the

actual application
19

The

plaintiff’s

identity

of

the

of

the

1

limitations defense more closely with the
policy goals animating it, the [California]
courts and the [California] Legislature have
over time developed a handful of equitable
exceptions to and modifications of the usual
rules governing limitations periods. . . . .
The “most important” of these doctrines, the
discovery rule, where applicable, “postpones
accrual of a cause of action until the
plaintiff
discovers,
or
has
reason
to
discover, the cause of action.”

2
3
4
5
6
7
8
9
10
11
12
13

Aryeh v. Canon Bus. Solutions, Inc., 55 Cal.4th 1185, 1192 (2013)
(quoting

16
17
18
19
20
21
22
23
24
25
26
27

v.

Upjohn

Co.,

21

Cal.4th

383

(1999)).

“A

plaintiff has reason to discover a cause of action when he or she
‘has

reason

at

least

to

suspect

a

factual

basis

for

its

elements.’” Fox v. Ethicon Endo-Surgery, Inc., 35 Cal.4th 797,
807

(2005)

(quoting

Norgart

v.

Upjohn

Co.,

21

Cal.4th

383

(1999)).

14
15

Norgart

Plaintiffs allege they could not have discovered the
Employee Defendants alleged wrongdoing until April 2014 since the
Employee

Defendants

“took

extraordinary

action

to

hide

their

scheme from discovery” by “refusing to provide any information to
other Tribal members, including members of the Tribal Council,
concerning the Tribe’s financial activities,” by “purposefully
prevent[ing]

any

type

of

standard

auditing

or

reporting,”

by

“manipulat[ing] the electoral process by which the Tribal Council
was chosen,” by “purchas[ing] the silence of persons who were in
a position to disclose their wrongful conduct,” and by “ma[king]
repeated false claims that they were entitled to take all of the
benefit they stole from the Tribe.” (FAC ¶¶ 422-426.) APC has not
shown that these allegations are insufficient to have postponed
the date on which Plaintiffs’ causes of action accrued under the

28
20

1

applicable

2

denied.

statute

3

of

ii.

limitations.

Therefore

its

motion

is

Injury

4

APC argues each claim against it should be dismissed

5

since “[t]he FAC establishes that no act or omission by APC could

6

be

7

Defendants “engaged in numerous [criminal] acts which create a

8

superseding cause.” (APC Mot. 4:15-16; 5:15-16.)

the

9

cause”

of

Plaintiffs’

Plaintiffs

respond

injuries

that

a

since

the

superseding

Employee

cause

only

10

prevents liability where it “breach[es] the chain of causation”

11

making the injury unforeseeable, and Plaintiffs’ economic injury

12

was

13

administering the Tribal Retirement Plans. (Opp’n 63:4-5; 63:7-

14

9.)

15
16
17
18
19
20
21
22
23
24
25
26

the

foreseeable

result

of

APC

work

setting

up

and

The general test of whether an independent
intervening act, which operates to produce an
injury, breaks the chain of causation is the
foreseeability of the act. An act is not
forseeable and thus is a superseding cause of
the injury if the independent intervening act
is highly unusual or extraordinary, not
reasonably likely to happen.
Schrimsher v. Bryson, 58 Cal. App. 3d 660, 664 (1976).
Criminal conduct which causes injury will
ordinarily be deemed the proximate cause of
an injury, superseding any prior negligence
which
might
otherwise
be
deemed
a
contributing
cause.
However
“if
the
likelihood that a third person may act in a
particular manner is the hazard or one of the
hazards which makes the actor negligent, such
an
act
whether
innocent,
negligent,
intentionally tortious or criminal does not
prevent the actor from being liability for
the harm caused thereby.”

27

Koepke v. Loo, 18 Cal. App. 4th 1444, 1449 (1993) (quoting Vesely

28

v. Sager, 5 Ca.3d 153, 164 (1971) abrogated on other grounds by
21

1

Cal. Civ. Code § 1714).

2

Plaintiffs

allege

the

Employee

Defendants

“received

3

advice and direction from” APC and “routinely consulted” with APC

4

regarding the Tribal Retirement Plans. (FAC ¶ 218.) Plaintiffs

5

allege “[s]everal factors are indicative of the fraudulent nature

6

of

7

administering

8

never have been done for a financially accountable or healthy

9

business,”

APC

10

Plaintiffs

allege

11

prescribe retirement plans “must be created and administered with

12

the intention of creating a permanent mechanism for retirement

13

savings that benefits an employer’s current and future employees

14

generally,” yet the Tribal Retirement Plans were set up to only

15

benefit the Employee Defendants and Sherry Myers, and “excluded

16

participation of any [other] employees of the Tribe.” (FAC ¶¶

17

220-221.) Plaintiffs further allege APC was aware that “[t]he

18

establishment and . . . modification” of the Tribal Retirement

19

Plan “required authorization from the Tribal Council,” yet APC

20

set

21

receiving authorization. (FAC ¶ 222.) Plaintiffs further allege

22

the IRS requires a retirement plan to be set up “with the intent

23

to be a permanent, not temporary program,” yet APC:

24
25
26
27
28

the

up

Tribal

and

Retirement

the

Tribal

caused

Plans”

Retirement

harm

ERISA

administered

and

the

to

the

and

Plans

Tribe.

Treasury

Tribal

by

“setting

in

ways

(FAC

Retirement

that

¶¶

Department

up

and
would

219-220.)

regulations

Plans

structured
and
administered
the
Tribal
Pension Plan as a short-term . . . mechanism
to divert a huge amount of Tribal money . . .
quickly [by using]
. . . an actuarial
formula in which the target retirement
benefit was . . . four times higher than the
industry standard, [and allowing an employee
to cash out after five years and as a
result,] . . . . the Tribal Pension Plan was
22

without

1
2
3
4
5

shut down after only give years of existence
because it was too generous.
(FAC ¶ 223.) Plaintiffs allege APC allowed Employee Defendant
John Crosby to sign documents authorizing early-withdrawals from
his

401(k),

8
9

16
17

20
21
22
23
24

iii.
APC
“because

argues

the

FAC

Tribe

had

PEC

each

is

claim

devoid

PEC

of

alleges

any

against

allegations

it

fails

against

APC

involving PEC.” (APC Mot. 3:27-28.)
PEC does not respond to this argument. APC also filed a
reply brief in which it states PEC’s silence evinces that this
portion of APC’s dismissal motion should be granted without leave
to amend.
None

of

the

allegations

in

the

FAC

state

a

claim

against APC on behalf of PEC. Therefore, PEC’s claims against APC
are dismissed. Further, since PEC has not responded to APC’s
dismissal argument, this failure to respond is construed as an
admission

that

granting

leave

to

amend

would

be

futile.

Therefore, this portion of APC’s motion is granted without leave
to amend.

25

iv.

26
27

the

denied.

18
19

with

superseding cause of Plaintiffs’ harm. Therefore, APC’s motion is

14
15

employment

not shown the Employee Defendants’ alleged criminal conduct was a

11

13

his

Considering Plaintiffs’ allegations in the FAC, APC has

10

12

after

terminated. (FAC ¶ 224.)

6
7

even

Punitive Damages

APC argues the Tribe’s punitive damages prayer against
it

should

be

dismissed

or

in

the

28
23

alternative

stricken

since

1

“Plaintiffs’ defective charging allegations are . . . unsupported

2

by

3

oppression or fraud.” (APC Mot. 17:25-26.)

facts

4

that

The

establish

Tribe

the

responds

requisite

it

elements

sufficiently

of

pled

malice,

that

APC

5

committed fraud in the FAC, since it alleges that “[r]ather than

6

making the . . . disclosures [to the Tribe that APC was required

7

to

8

Tribe],

9

Plaintiffs’ rights and interests.” (Opp’n 64:4-7.)

make

10

as
APC

The

a

result

of

fraudulently

Tribe’s

its

fiduciary

concealed

punitive

relationship

several

damages

facts

prayer

with

material

against

APC

the
to

is

11

predicated on fraud stemming from APC’s breach of its fiduciary

12

duty to the Tribe; however, based on a ruling supra, the FAC

13

fails to plausibly allege APC owed the Tribe a fiduciary duty.

14

Therefore, APC’s dismissal motion is granted.

15

III. Conclusion

16

For

the

stated

reasons,

the

dismissal

motions

are

17

GRANTED in part and DENIED in part. Plaintiff is granted (21)

18

days leave from the date on which this order is filed to file a

19

Second

20

dismissed claim that was not dismissed without leave to amend.

21

Dated:

Amended

Complaint

addressing

August 13, 2015

22
23
24
25
26
27
28
24

the

deficiencies

in

any