Shurnas et al v. Owen et al

Filing 34

MEMORANDUM and ORDER signed by District Judge Morrison C. England, Jr on 11/10/16 GRANTING 29 Motion to Dismiss. Because it has become apparent that further leave to amend would be futile, the dismissal is with prejudice. The Clerk of Court is directed to close the file. CASE CLOSED(Washington, S)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

EASTERN DISTRICT OF CALIFORNIA

10
11
12

JASON P. SHURNAS; HORIZON
COMPANIES, LLC; and HORIZON
FINANCIAL, LLC,

13

Plaintiffs,

14
15
16
17
18

No. 2:15-cv-00908-MCE-DB

MEMORANDUM AND ORDER

v.
JAN LYNN OWEN, in her official
capacity as Commissioner of the
CALIFORNIA DEPARTMENT OF
BUSINESS OVERSIGHT (formerly
STATE OF CALIFORNIA
DEPARTMENT OF CORPORATIONS)
and THE STATE OF CALIFORNIA,

19

Defendants.

20
Plaintiffs Jason P. Shurnas; Horizon Companies, LLC; and Horizon Financial, LLC

21
22

allege that Defendants Jan Lynn Owen and the State of California violated Plaintiffs’

23

rights under the United States Constitution and California Constitution. Pending before

24

the Court is Defendants’ Motion to Dismiss the First Amended Complaint (“FAC”). ECF

25

No. 29. For the reasons set forth below, Defendants’ Motion to Dismiss is GRANTED

26

with prejudice.

27

///

28

///
1

BACKGROUND1

1
2
3

The California Corporations Commissioner issued a “Desist and Refrain Order” to

4

Plaintiffs on December 30, 2008. The Order alleged that Plaintiffs had violated

5

California Corporations Code §§ 25100 and 25401 and California Financial Code

6

§ 22100. According to the Order, Plaintiffs advertised on the Sacramento-area Craigslist

7

website that an unnamed “private company” was soliciting investors with at least

8

$100,000 available in liquid funds to form a “secret investor syndicate.” That syndicate

9

purportedly offered membership interests in a Las Vegas casino and real estate venture.

10

The Order states that Plaintiff Shurnas placed a telephone call to a California resident

11

who responded to the Craigslist posting. In the course of their conversation, Plaintiff

12

discussed details regarding how the resident’s contribution would be invested.

13

Based on these factual findings, the Commissioner determined that the

14

membership interests that Plaintiffs had offered were securities subject to qualification

15

under the California Corporate Securities Law of 1968, that those securities were offered

16

without qualification, and thus Plaintiffs were in violation of § 25110 of that statute.

17

Finally, according to the Commissioner, Plaintiffs engaged in business as a finance

18

lender or broker without first obtaining a license in violation of California Financial Code

19

§ 22100.

20

In their FAC, Plaintiffs allege that they were not properly served with the

21

Commissioner’s Order. They also contend that the documents Defendants intended to

22

serve failed to include any language regarding how to file a request for hearing or the

23

timeline for doing so. According to Plaintiffs, the State of California does not provide

24

such information online. Plaintiffs further allege that there is no provision within the

25

California Corporations Code or Financial Code which mandates what information must

26

///

27
1

28

Unless otherwise noted, the allegations in this section are drawn directly, and in some cases
verbatim, from the allegations of Plaintiffs’ FAC.

2

1

accompany a Desist and Refrain Order so that an individual would know how to respond

2

or the consequences for failing to do so.

3

Plaintiffs’ original Complaint, ECF No. 1, included four causes of action: a facial

4

due process claim under § 1983, as well as three claims based on the specific Order

5

issued against Plaintiffs. Defendants brought a Motion to Dismiss the claims under

6

Rule 12(b)(6), ECF No. 6, which was granted. This Court held that the three claims

7

based on the Order itself were time-barred, and thus were dismissed without leave to

8

amend. See Mem. & Order, ECF No. 26. On the other hand, the Court held the facial

9

due process claim was not time-barred, but nonetheless, Plaintiff failed to state a claim.

10

See id. at 7. Plaintiff was given leave to amend, and that Amended Complaint is now

11

before the Court.

12
13

STANDARD

14
15

On a motion to dismiss for failure to state a claim under Federal Rule of Civil

16

Procedure 12(b)(6), all allegations of material fact must be accepted as true and

17

construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins.

18

Co., 80 F.3d 336, 337–38 (9th Cir. 1996). Rule 8(a)(2) “requires only 'a short and plain

19

statement of the claim showing that the pleader is entitled to relief' in order to 'give the

20

defendant fair notice of what the . . . claim is and the grounds upon which it rests.’” Bell

21

Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41,

22

47 (1957)). A complaint attacked by a Rule 12(b)(6) motion to dismiss does not require

23

detailed factual allegations. However, “a plaintiff's obligation to provide the grounds of

24

his entitlement to relief requires more than labels and conclusions, and a formulaic

25

recitation of the elements of a cause of action will not do.” Id. (citation omitted). A court

26

is not required to accept as true a “legal conclusion couched as a factual allegation.”

27

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555).

28

“Factual allegations must be enough to raise a right to relief above the speculative level.”
3

1

Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright & Arthur R. Miller, Federal

2

Practice and Procedure § 1216 (3d ed. 2004) (stating that the pleading must contain

3

something more than “a statement of facts that merely creates a suspicion [of] a legally

4

cognizable right of action”)).

5

Furthermore, “Rule 8(a)(2) . . . requires a showing, rather than a blanket

6

assertion, of entitlement to relief.” Id. at 555 n.3 (citation omitted). Thus, “[w]ithout some

7

factual allegation in the complaint, it is hard to see how a claimant could satisfy the

8

requirements of providing not only 'fair notice' of the nature of the claim, but also

9

'grounds' on which the claim rests.” Id. (citing Wright & Miller, supra, at 94–95). A

10

pleading must contain “only enough facts to state a claim to relief that is plausible on its

11

face.” Id. at 570. If the “plaintiffs . . . have not nudged their claims across the line from

12

conceivable to plausible, their complaint must be dismissed.” Id. However, “[a] well-

13

pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those

14

facts is improbable, and 'that a recovery is very remote and unlikely.’” Id. at 556 (quoting

15

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

16

A court granting a motion to dismiss a complaint must then decide whether to

17

grant leave to amend. Leave to amend should be “freely given” where there is no

18

“undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice

19

to the opposing party by virtue of allowance of the amendment, [or] futility of the

20

amendment.” Foman v. Davis, 371 U.S. 178, 182 (1962); Eminence Capital, LLC v.

21

Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to

22

be considered when deciding whether to grant leave to amend). Not all of these factors

23

merit equal weight. Rather, “the consideration of prejudice to the opposing

24

party . . . carries the greatest weight.” Id. (citing DCD Programs, Ltd. v. Leighton,

25

833 F.2d 183, 185 (9th Cir. 1987)). Dismissal without leave to amend is proper only if it

26

is clear that “the complaint could not be saved by any amendment.” Intri-Plex Techs. v.

27

Crest Group, Inc., 499 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc.,

28

411 F.3d 1006, 1013 (9th Cir. 2005); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149,
4

1

1160 (9th Cir. 1989) (“Leave need not be granted where the amendment of the

2

complaint . . . constitutes an exercise in futility . . . .”)).

3
4

ANALYSIS

5
6

“[A] generally applicable statute is not facially invalid unless the statute ‘can never

7

be applied in a constitutional manner.’” United States v. Kaczynski, 551 F.3d 1120,

8

1125 (9th Cir. 2009). Defendants argue that Plaintiffs have not alleged sufficient facts to

9

make plausible their claim that California Corporations Code § 25532 is unconstitutional

10

under all circumstances. Specifically, Defendants argue that the California

11

Administrative Procedures Act (“California APA”) applies to § 25532, making Plaintiffs’

12

claim effectively “an attack of California’s administrative review procedures as a whole.”

13

Defs.’ Mem. of P & A in Supp. of Mot. to Dismiss (“Defs.’ MTD”), ECF No. 29-1, at 8

14

(quoting Baffert v. Cal. Horse Racing Bd., 332 F.3d 613, 619 (9th Cir. 2003)). Because

15

“the Ninth Circuit has held that California law offers an adequate opportunity for judicial

16

review of administrative order,” Defendants continue, Plaintiffs’ facial challenge cannot

17

succeed. Id. (citing Baffert, 332 F.3d at 619–20).

18

Conversely, Plaintiffs argue that the three-part balancing test of Mathews v.

19

Eldridge, 424 U.S. 319 (1976), supports their claim that § 25532 is facially

20

unconstitutional. That balancing test weighs the interests of the individual and the value

21

of additional procedures against the costs of implementing additional procedures. See

22

id. at 335. Specifically, Plaintiffs argue that orders issued under § 25532 act as a

23

“lifetime sentence” that are unreviewable by any court. Pls.’ Opp’n to MTD at 5.

24

Furthermore, Plaintiffs argue that additional notice requirements and access to judicial

25

review of the facts underlying a § 25532 order would be of minimal cost to the

26

government, but of enormous value to an individual subject to a § 25532 order. Id. at

27

13–14.

28

///
5

1

Contrary to Plaintiffs’ assertions, § 25532 orders are subject to review, both in

2

administrative hearings and in judicial proceedings. Section 25532 provides that after an

3

order has been issued by the Commissioner, “the order shall be deemed a final order of

4

the commissioner” unless the subject of the order “file[s] a written request for hearing

5

within 30 days from the date of service of the order.” Cal. Corp. Code § 25532(f). That

6

hearing is to “be held in accordance with provisions of the [California] Administrative

7

Procedure Act,” id., which also provides opportunity for judicial review of that hearing in

8

California courts, see Cal. Gov. Code § 11523. Furthermore, if no hearing is held within

9

15 days of the filing of a request for a hearing, “the order is rescinded.” Id. Accordingly,

10

Plaintiffs are incorrect in asserting that there is no mechanism to have an order

11

reviewed. And because Plaintiffs ignore the fact that an order issued under § 25532 is

12

reviewable under the California APA, they fail to allege any deficiency in the California

13

APA’s procedures that would render them unconstitutional under all circumstances.

14

Plaintiffs are also incorrect in asserting that a § 25532 functions as a “lifetime

15

sentence” with “no mechanism whatsoever for having an uncontested Order reviewed.”

16

See Pls.’ Opp’n to MTD at 8 (emphasis removed). Orders issued under § 25532 operate

17

only until the unqualified securities that prompted the order are qualified under California

18

law or until the person acting in an unlicensed capacity is “appropriately licensed.” Cal.

19

Corp. Code. § 25532(a)–(b). Thus, even when an order issued under § 25532 becomes

20

final, procedures are available to rescind the order.

21

Plaintiffs’ FAC does little more than reiterate the same arguments the Court

22

already rejected when dismissing the original Complaint. The gravamen of Plaintiffs’

23

allegations is that because they were not properly served with the Commissioner’s

24

Order, they were unable to challenge the Order in an administrative or judicial hearing.

25

This amounts to an as-applied challenge, which this Court already ruled is time-barred

26

due to Plaintiffs waiting over two years from when they received actual notice of the

27

Order to file their Complaint. Mem. & Order at 6–7. Plaintiffs have alleged no facts that

28

would support a claim that § 25532 “can never be applied in a constitutional manner,”
6

1

Kaczynski, 551 F.3d at 1125 (9th Cir. 2009), and have therefore failed to state a claim.

2

Furthermore, because Plaintiffs have already been given leave to amend, and

3

allegations in their FAC are substantially the same as those in their original Complaint, it

4

has become apparent that further leave to amend would be futile.

5
6

CONCLUSION

7
8

For the reasons provided above, Defendants’ Motion to Dismiss is GRANTED.2

9

ECF No. 29. Because it has become apparent that further leave to amend would be

10

futile, the dismissal is with prejudice. The Clerk of Court is directed to close the file.

11

IT IS SO ORDERED.

12

Dated: November 10, 2016

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
2

28

Because oral argument would not have been of material assistance, the Court ordered this
matter submitted on the briefs in accordance with Local Rule 230(g).

7