Ally Bank et al v. Wells Fargo Bank, N.A.

Filing 114

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS PLAINTIFFS' COMPLAINT (Illston, Susan) (Filed on 12/8/2011)

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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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FIDELITY NATIONAL TITLE INSURANCE
COMPANY, et al.,

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United States District Court
For the Northern District of California

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No. C 11-00896 SI
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTION TO DISMISS PLAINTIFFS’
COMPLAINT

Plaintiffs,
v.
JAMES CASTLE, et al.,

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Defendants.

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Before the Court is defendants’ October 25, 2011 motion to dismiss plaintiffs’ complaint. The

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motion is scheduled for a hearing on December 9, 2011. Pursuant to local civil rule 7-1(b), the Court

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determines that the matter is appropriate for resolution without oral argument, and VACATES the

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hearing. For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART

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defendants’ motion to dismiss, and GRANTS plaintiffs leave to amend the complaint. If plaintiffs wish

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to amend the complaint, the amended complaint must be filed by December 22, 2011.

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BACKGROUND

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On August 31, 2011, plaintiffs1 filed a First Amended Complaint ("FAC") alleging twelve causes

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of action against defendants.2 Plaintiffs allege federal causes of action under the Racketeer Influenced

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Plaintiffs include Fidelity National Title Insurance Company, Ally Bank, Wesley W. Halihan,
Gina L. Halihan, Li-Ling Sung, Tiee-Shan Tsai, Tatyana Madina, Commonwealth Land Title Insurance
Company, Dawn R. Carifi, Karrie L. Hanna, Brian Phuong, Crichton Friedly, and Janet N. Friedly.
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Defendants include James Castle, Lara Karakasevic, Christopher Piscatelli, Brian Keith Liberia,
John Sanders, Alicia Sanders, Shined-te-east-a, Walks With Spirit, Corporation Sole, John-Michael Di
Chara, Golden Hills Trust, Remus Kirkpatrick, Sarah Contessa, Carolyn Hilbert, Laura Pezzi, Carl

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and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962, for racketeering and conspiracy. They also

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allege several state law causes of action against defendants claiming, in short, that they were defrauded

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by defendants out of at least $1.7 million dollars in nine real estate transactions. Plaintiffs seek

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compensatory damages, punitive damages, declaratory and injunctive relief, constructive trusts, and

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attorneys’ fees and costs.

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The gravamen of the complaint is that defendants executed fraudulent reconveyances of

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mortgage lenders’ deeds of trusts on homes, thereby allowing defendants to represent to various

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homebuying-plaintiffs that the homes were free and clear of liens when, in fact, they were burdened by

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legitimate liens.

After plaintiffs purchased the homes, the lenders discovered the fraudulent

United States District Court
For the Northern District of California

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reconveyances, cancelled them, and proceeded to foreclose on plaintiffs’ properties. Plaintiffs allege

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variations on this scheme committed by defendants, some involving phantom loans and phony short

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sales that allowed plaintiffs’ purchase moneys to flow into defendants’ coffers, instead of back to the

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legitimate lender. FAC ¶¶ 88-93.3

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For example, in one iteration of the scheme known as the “Loch Dane Scheme,” defendant Laura

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Pezzi allegedly borrowed $396,000 from SCME Mortgage Bankers, Inc. in 2006; the loan was later

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assigned to Aurora Loan Services. FAC ¶114. The loan was secured by a deed of trust ("Aurora DOT")

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against defendant Pezzi's property, located at 4137 Loch Dane Court, Antelope, California. FAC ¶¶28,

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114. In April 2010, defendant Pezzi signed and recorded a $374,000 deed of trust ("Oreplex DOT") in

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favor of defendant Oreplex International LLC, which plaintiffs allege is controlled by defendant Castle.

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FAC ¶115. Plaintiffs allege that this was a sham lien in that no money was ever actually loaned to

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Wallace, Oreplex International LLC, Real Estate Star LLC, Henrik Jensen, Todd J. Smith, Daniel R.
Young, Kelly E. Young, Brianna Hanson, Alatus Equity LLC, Kevin Keith, Christy Keith, Jennifer
Pezzi, Brenda Henderson, Financial Recovery Group, David Thompson, Melissa Thompson, Carl
Wallace, CCTT Group, Tisha Tribes, Terry Petty, Faced Ewers, Nadia Ewers, John Winter, Jolee Lange,
Ryan Styles, Bug Real Estate, Inc, Randall Crawford, Jason Young, Steve Danger, Donald Porto,
Patricia Porto, Tien Huynh-Danger, CF Escrow, Inc., Michelle Dornon, Tisha Tribes Realty, CJT
Financial Group, GJZ Group, Golden Hills Group, AFOG Group, CPC Mission Trust, and DOES 1
through 100.

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Without admitting to the allegations, in their briefing papers defendant Castle characterizes
defendants’ activities as part of an “administrative default procedure,” a purported assistance program
for homeowners burdened by liens that became invalid after their original lender securitized and sold
the loan. See Def.’s Opposition to Pl’s Mot. for Preliminary Injunction, Doc. 70, at 2:20-24.
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defendants. FAC ¶115. Defendants thereafter executed a reconveyance purportedly reconveying the

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Aurora DOT back to defendant Pezzi. FAC ¶116. The reconveyance is signed by Carl Wallace as an

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"authorized representative" of GMAC Mortgage. FAC Ex. 27. In May 2010, Nobuco Financials

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purchased the property from defendant Pezzi. FAC ¶118. Nobuco Financials then "flipped" the

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property to Real Estate Star LLC. Id. In August 2010, Real Estate Star sold the property to plaintiff

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Madina. FAC ¶119. However, because of the previous fraudulent reconveyance of the Aurora DOT

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back to Pezzi, none of the sale proceeds went to pay off the actual lien against the property through the

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Aurora DOT. FAC ¶120. After the sale closed, Aurora discovered and cancelled the fraudulent

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reconveyance. FAC ¶121. Aurora has since foreclosed on the Aurora DOT and has commenced

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For the Northern District of California

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unlawful detainer proceedings to remove Madina from her residence. FAC ¶121.

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Plaintiffs also allege ongoing and currently uncompleted fraudulent schemes similar to those

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already completed that involve several other properties where defendants have borrowed a significant

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amount of money from a financial institution secured by a deed of trust against a defendant's property.

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See, FAC ¶¶189-194. Defendants then signed and recorded a deed of trust in favor of a defendant entity

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in exchange for a loan. Plaintiffs allege that these too are sham transactions because no money is being

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exchanged between the defendants and the defendant entity. See, e.g., FAC ¶190. Plaintiffs allege that

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defendants are now attempting to sell these properties in a similar manner as the previously completed

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transactions. See, e.g., FAC ¶194.

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Along with filing the FAC, plaintiffs filed an ex parte motion for a temporary restraining order

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to freeze the assets of each defendant, which the Court granted on September 6, 2011. The temporary

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restraining order was dissolved on September 13, 2011 against all defendants except James C. Castle

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and related entities owned, managed, or controlled by him: defendants CCTT Group, CJT Financial

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Group, OREPLEX LLC, and JTF Consulting LLC. Plaintiffs then moved for a preliminary injunction

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to continue the asset freeze, which the Court granted on December 5, 2011.

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Defendant Castle and his wife Lara Karakasevic, as well as three companies “related to them,”

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Oreplex International (“Oreplex”), CCTT Group (“CCTT”), and CJT Financial Group (“CJT”)

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(collectively, the “moving defendants”), moved to dismiss the FAC on October 25, 2011. Plaintiffs filed

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an opposition on November 8, 2011, and defendants replied on November 23, 2011.
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LEGAL STANDARD

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Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it

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fails to state a claim upon which relief can be granted. The question presented by a motion to dismiss

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is not whether the plaintiff will prevail in the action, but whether the plaintiff is entitled to offer

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evidence in support of the claim. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other

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grounds by Davis v. Scherer, 468 U.S. 183 (1984).
In answering this question, the Court must assume that the plaintiff’s allegations are true and

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must draw all reasonable inferences in the plaintiff’s favor. See Usher v. City of Los Angeles, 828 F.2d

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556, 561 (9th Cir. 1987). However, the Court is not required to accept as true “allegations that are

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United States District Court
For the Northern District of California

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merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” St. Clare v. Gilead

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Scis., Inc. (In re Gilead Scis. Sec. Litig.), 536 F.3d 1049, 1055 (9th Cir. 2008). To survive a Rule

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12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief that is

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plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1974 (2007). While

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courts do not require “heightened fact pleading of specifics,” a plaintiff must provide “more than labels

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and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 1965.

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Plaintiff must allege facts sufficient to “raise a right to relief above the speculative level.” Id.

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If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The

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Ninth Circuit has “repeatedly held that a district court should grant leave to amend even if no request

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to amend the pleading was made, unless it determines that the pleading could not possibly be cured by

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the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (citations and internal

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quotation marks omitted).

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DISCUSSION

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Defendants argue as a general matter that plaintiffs have failed to allege a short and plain

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statement of their claims. They also argue that plaintiffs have failed to state a claim for fraud (first cause

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of action), conspiracy (second), RICO violations (third), RICO conspiracy (fourth), breach of contract

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(fifth), breach of implied covenant to convey merchantable title (sixth), equitable indemnity (ninth),

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constructive trust (tenth), and respondeat superior (twelfth). Defendants do not move specifically to
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dismiss the claims for negligence (seventh), notary liability (eighth), or negligent supervision

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(eleventh). Defendants arguments will be discussed in turn.

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I.

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Federal Rule of Civil Procedure 8(a) requires a plaintiff to present his or her case in a pleading

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that contains a “short and plain statement” showing that the pleader is entitled to relief. FRCP 8(a).

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Defendants argue that the plaintiffs have failed to do so, having instead filed an FAC that is 44 pages

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long, with approximately 565 pages of exhibits, 13 plaintiffs and 52 defendants. MTD at 2. Defendants

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point out that the complaint is broken into “disconnected parts,” one identifying the “schemes” of which

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For the Northern District of California

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each defendant is alleged to have been part (see FAC ¶¶ 14-81), another describing the general nature

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of the schemes (¶¶ 87-93), another describing the specific allegations of conduct (¶¶ 93-221), and finally

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the causes of action themselves (¶¶ 222-287). Citing Nevijel v. North Coast Life Ins. Co., 651 F.2d 671,

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673 (9th Cir. 1981) and McHenry v. Renne, 84 F.3d 1172, 1178 (9th Cir. 1996), the defendants argue

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that such a complaint must be dismissed for failure to comply with Rule 8(a), especially since plaintiffs

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“regularly refer to ‘defendants’ without specifying exactly which defendant or defendants is liable for

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the alleged acts.” MTD at 1.

“Short and Plain” Statement Requirement

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The Court disagrees that plaintiffs have failed to comply with Rule 8(a). In FAC ¶¶ 87-93, the

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plaintiffs provide an overview of the alleged schemes which concisely describes plaintiffs’ allegations.

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Moreover, the Court finds no fault with the length and complexity of the complaint, as that is a

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necessary consequence of the number and complexity of the schemes alleged. Nevijel and McHenry are

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inapposite. In Nevijel, the Ninth Circuit upheld the dismissal of a complaint where its 48 pages and 14

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pages of addenda were “verbose, confusing and almost entirely conclusory.” 651 F.2d 671 at 674. In

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McHenry, the Ninth Circuit upheld the dismissal of a complaint that was “argumentative, prolix, replete

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with redundancy, and largely irrelevant.” 84 F.3d 1172 at 1177. Here, plaintiffs’ complaint is

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descriptive, relevant, and, by and large, clear. Each of the 92 exhibits is referenced and used to support

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a claim or factual allegation in the complaint. While the defendants find fault with the structure of the

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complaint, that structure allows for ease of understanding the rather complex allegations contained

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therein. By referencing the “Defendant Parties” section in ¶¶ 14-81, for example, one is put on notice
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as to which defendants are alleged to have been involved in the “Fraudulent Transactions” described

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in ¶¶ 93-221. Therefore, the Court rejects defendants’ argument that plaintiffs have failed to comply

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with Rule 8(a) generally. Number of pages alone does not evidence failure to comply with the short and

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plain statement rule.

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II.

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In their first cause of action, plaintiffs allege fraud against 34 of the defendants, including the

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moving defendants. Under California law, the essential elements of fraud are (1) a misrepresentation;

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(2) knowledge of falsity; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage.

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For the Northern District of California

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City of Industry v. City of Fillmore, 198 Cal. App. 4th 191, 211 (2011). In addition to the short and

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plain statement requirement of Rule 8(a), allegations of fraud must be pled with particularity as to the

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circumstances constituting fraud or mistake; however, malice, intent, knowledge, and other conditions

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of a person’s mind may be alleged generally. Fed. R. Civ. P. 9(b). The Ninth Circuit has held that

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averments of fraud must be “specific enough to give defendants notice of the particular misconduct ...

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so that they can defend against the charge and not just deny that they have done anything wrong.” Vess

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v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003). The allegations must contain the “who,

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what, when, where, and how” of the misconduct charged, and must set forth not only neutral facts that

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identify the transaction, but “what is false or misleading about a statement, and why it is false.” Id.

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(citing Decker v. GlenFed, Inc., 42 F.3d 1541, 1548 (9th Cir. 1994)).

First Cause of Action - Fraud

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The moving defendants are implicated in at least five of the alleged schemes: the Brown Street,

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Loch Dane, Northcrest, Skyline, and Whetstone schemes. See FAC ¶¶ 93-221. In the Brown Street

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scheme, for example, plaintiffs allege that defendants Karakasevic and her husband Castle owned the

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Brown Street property located at 601 Brown Street, Santa Rosa California. In May of 2005,

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Karakasevic obtained a $495,000 loan from World Savings Bank (now Wells Fargo Bank) that was

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secured by a deed of trust (the “WFB DOT”) against Brown Street. Four years later, in October 2009,

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the “defendants fraudulently executed a Revised Full Reconveyance purportedly reconveying the WFB

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DOT to defendant Karakasevic. The Brown Street Reconveyance states that it is signed by defendant

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Piscatelli as ‘Authorized Agent/Trustee for Wachovia Mortgage, FSB.’” FAC ¶ 95. Karakasevic and
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Castle then quitclaimed the property to “J. Christopher Castle Irrevocable Trust.” Id. ¶ 97. Castle then

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offered to sell Brown Street to plaintiffs Wesley and Gina Halihan. During the sale discussions, “Castle

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informed Mr. Halihan that he wanted to sell Brown Street to the Halihans because they were a nice

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family and that he wanted to sell the house quickly. Castle also represented that he owned Brown Street

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free and clear of liens, and he showed Mr. Halihan the Brown Street Reconveyance to ‘prove it.’” FAC

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¶ 98. The Halihans proceeded to purchase the home for $264,000. The plaintiffs allege that “none of

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the sale proceeds went to Wells Fargo to pay the WFB DOT. Instead, the proceeds went directly to

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defendants or to the IRS to satisfy defendants’ tax obligations.” FAC ¶ 99. Finally, when Wells Fargo

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discovered the fraudulent Brown Street Reconveyance, Wells Fargo rescinded it and foreclosed on

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For the Northern District of California

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plaintiffs. FAC ¶ 101.

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Moving defendants level a number of attacks on the sufficiency of plaintiffs’ allegations. They

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argue that plaintiffs have not alleged a single misrepresentation or omission; that plaintiffs have not

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alleged defendants had a duty to pay the original lenders; that Castle knew his statement that the title

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was free and clear was false; that the Halihans relied on that statement; nor that it is clear, at least in the

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cause of action section, who committed the fraud. MTD at 6-7. Plaintiffs argue that the elements of

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fraud are satisfied: (1) the FAC alleges the Castle falsely represented to plaintiffs that Brown Street was

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free and clear of liens, citing ¶ 98; (2) that Castle knew his statement was false because he knew there

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was an existing deed of trust against the Property, ¶¶ 88, 93-95; (3) that he made the misrepresentations

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with the intent to defraud Plaintiffs, ¶ 224; and (4) that the FAC alleges that plaintiffs would not have

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purchased the subject property had they known it had an existing lien on it that would not be paid

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through escrow. FAC ¶ 225.

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The Court agrees with plaintiffs that they have sufficiently pled a claim of fraud against moving

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defendants. The “who, what, when, where, and why” are sufficiently described in the complaint, and

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are supported by the numerous exhibits attached thereto. In the Brown Street scheme, for example,

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plaintiffs allege that Castle “represented that he owned Brown Street free and clear of liens, and he

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showed Mr. Halihan the Brown Street Reconveyance to ‘prove it.’” FAC ¶ 95. The Reconveyance is

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alleged to be fraudulent, FAC ¶ 94, and is attached as an exhibit. FAC, Ex. 11. The signatory on the

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Reconveyance, defendant Piscatelli, is elsewhere alleged to have executed and recorded multiple
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fraudulent reconveyances. FAC ¶ 230. The misrepresentation is therefore adequately pled.
Defendants argue that plaintiffs fail to allege that Castle had knowledge of the falsity, the second

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element of fraud. It is true that plaintiffs nowhere state explicitly that Castle “knew” his statement was

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that the home was free and clear of liens was false. Yet the only possible inference from the complaint

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is that Castle (and other defendants) knew the falsity of their statement. The entire crux of the scheme

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as alleged was to induce home purchasers to purchase homes believing that the original lenders’ deed

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had been reconveyed. Indeed, this is why plaintiffs allege that Castle showed the Halihans the

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Reconveyance to “prove it.” FAC ¶ 98. Knowledge, therefore, is present in the interstices of the

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complaint. Allegations of fraud “must be specific enough to give defendants notice of the particular

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For the Northern District of California

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misconduct which is alleged to constitute the fraud (or mistake) ... so that they can defend against the

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charge and not just deny that they have done anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731

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(9th Cir.1985). Even under 9(b), plaintiffs need not mechanically recite each element of fraud to put

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the defendants on notice. See Odom v. Microsoft Corp., 486 F.3d 541, 554 (9th Cir. 2007) (“While the

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factual circumstances of the fraud itself must be alleged with particularity, the state of mind – or scienter

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– of the defendants may be alleged generally.”) The Court finds sufficient allegations of knowledge of

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falsity.

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Defendants also argue that plaintiffs have failed to properly allege the third and fourth elements

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of fraud: intent to induce reliance and justifiable reliance. In the “First Cause of Action -Fraud” section

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of their complaint, plaintiffs allege that

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Defendants committed or conspired with the other defendants to commit the
aforementioned fraudulent acts and make the aforementioned
misrepresentations and omissions with the intent to defraud plaintiffs. As to
defendant’s misrepresentations, they were material because they contained
information upon which plaintiffs relied or would have relied to decide
whether to purchase the subject properties. Plaintiffs justifiably relied on the
misrepresentations and omissions.

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FAC, ¶ 224-25. Defendants argue that these are “mere conclusory allegations of fraud and are

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insufficient to state a claim for fraud.” Def.’s Reply at 4.

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The Court disagrees. The plaintiffs reallege and incorporate by reference all of the preceding

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paragraphs in their fraud claim, and those earlier paragraphs specifically describe the fraudulent

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behavior. FAC ¶ 222. It is common practice to incorporate by reference earlier factual allegations in
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later claims for relief. See Destifino v. Kennedy, 2009 WL 63566, *4 (E.D. Cal. Jan. 8, 2009).

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“Properly used, such incorporation promotes simple, concise pleadings.” Id. (citing Fontana v. Haskin,

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262 F.3d 871, 877 (9th Cir. 2001). Such is the case here. Plaintiffs describe each party’s involvement

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in each scheme. When plaintiffs state that “plaintiffs justifiably relied on the misrepresentations,” in

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¶ 224, for example, with respect to the Brown Street scheme they are clearly referencing the Halihans’

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reliance on Castle’s statement that the home was free and clear of liens. FAC ¶ 98. The complaint need

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not restate each element of fraud with respect to each plaintiff and each defendant; indeed, the

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defendants argue the complaint is overlong and thus not a short and plain statement. The Court finds

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that the elements of fraud are sufficiently pled.

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For the Northern District of California

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Finally, moving defendants argue that plaintiffs have failed to state a claim of fraud against

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Oreplex and CCTT. The complaint alleges that “In April 2010, Laura Pezzi signed and caused to be

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recorded a $375,000 a [sic] deed of trust (the ‘Oreplex DOT’) in favor of defendant Oreplex

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International LLC, which is controlled by defendant Castle. On information and belief, the transaction

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was a sham in that no sums were ever lent by Oreplex to Laura Pezzi.” FAC ¶ 115. Elsewhere plaintiffs

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allege that Castle controls Oreplex and “both Oreplex and he were involved in the fraudulent schemes

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alleged herein including the Loch Dane Scheme.” FAC ¶ 30. With respect to CCTT, plaintiffs allege

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in the “Northcrest Scheme” that “the Thompsons [also defendants] signed and caused to be recorded

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a $575,000 deed of trust in favor of defendant CCTT group. On information and belief, the loan was

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a sham transaction in that no sums were ever lent by CCTT to the Thompsons .” FAC ¶ 148. The

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Thompsons later sold the house; plaintiffs allege that “the sale was an alleged short sale in that even

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though CCTT purportedly was wired $530,000, it sent escrow a payment demand for $265,000 . . . On

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information and belief, $269,365.12 of the sale proceeds went to CCTT . . .” FAC ¶ 156. For each of

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these allegations, plaintiffs attach the relevant document as an exhibit. FAC, Ex. 26, 47, 54.

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Defendants argue that mere allegations that Oreplex and CCTT did not actually provide the loans

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signed for in the deeds of trust to the defendant-homeowners are insufficient, citing the rule that

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allegations of fraud based on information and belief do not satisfy Rule 9(b). Def.’s Reply at 7. They

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recognize that this rule may be relaxed with respect to matters within the opposing party’s knowledge,

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but note that a plaintiff who makes allegations on information and belief must still state the factual basis
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for the belief. Id. (citing Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993)). Defendants contend

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plaintiffs provide no such factual basis.
The Court disagrees. Plaintiffs have alleged that a number of entities related to defendants

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accepted “short sales” far below the loan amounts provided by those entities a short time earlier. See,

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e.g., FAC ¶ 111 (in Dunlay Drive scheme, Golden Hills purportedly lent $567,000 to homeowners; four

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months later, Golden Hills accepted a short sale of $170,000). Plaintiffs provide, in Exhibit 26, a deed

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of trust signed in favor of Oreplex (with James Castle listed as addressee) for $375,000. Following the

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execution of the deed of trust, the house was quickly transferred twice in two months and sold to

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plaintiffs for $210,000. FAC, Ex. 28-30. It is readily apparent from the complaint what the factual basis

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For the Northern District of California

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for the allegation of “sham loans” is -- that the entities were accepting deep short sales simply because

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they never lent money in the first place.4 Defendants’ reliance on Neubronner is inapposite. In

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Neubronner, the Ninth Circuit found that the plaintiff “essentially admits in his fifth amended complaint

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that he has alleged no more than ‘suspicious circumstances’; those circumstances – i.e., that Milken was

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an investment banker for Gibralter and that Gibralter eventually sank into financial trouble – do not

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constitute a sufficient factual basis for allegations of insider trading.” 6 F.3d at 672. Here, plaintiffs

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have alleged much more than “suspicious circumstances.”

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In sum, Rule 9(b) requires that “allegations of fraud are specific enough to give defendants

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notice of the particular misconduct which is alleged to constitute the fraud charged so that they can

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defend against the charge and not just deny that they have done anything wrong.” Neubronner, 6. F.3d

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at 672. Plaintiffs have sufficiently done so here. Defendants’ motion to dismiss plaintiff’s first cause

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of action for fraud is DENIED.

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III.

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Under California law, to state a cause of action for conspiracy the complaint must allege (1) the

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formation and operation of the conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3)

Second Cause of Action - Conspiracy to Defraud

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Moreover, taking the allegations as true, one can readily infer that part of the scheme was to
show potential buyers the “sham” deed of trust on the house describing the far higher amount than the
sale price, and opining what a “deal” the short sale was.
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the damage resulting. Unruh v. Truck Ins. Exch., 7 Cal. 3d 616, 631 (1972). Where a plaintiff alleges

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a conspiracy to commit fraud, Rule 9(b) requires more than conclusory allegations of conspiracy.

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Southern Union Co. v. Southwest Gas Corp., 165 F. Supp. 2d 1010 (D. Ariz. 2001). To satisfy this

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requirement, a “plaintiff must allege with sufficient factual particularity that defendants reached some

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explicit or tacit understanding or agreement.” Alfus v. Pyramid Technology Corp., 745 F. Supp. 1511,

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1521 (N.D.Cal. 1990). A plaintiff must show more than a common goal, unless there is a factually

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specific allegation that they directed themselves towards the wrongful goal by virtue of a mutual

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understanding or agreement. Id.
The plaintiffs concede that they have not explicitly alleged an agreement to conspire. Pl.’s Mot.

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For the Northern District of California

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at 4. They argue, however, that “it can be reasonably inferred from the conduct of the defendants, as

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alleged in the FAC, that an agreement and conspiracy was formed and existed between the defendants.”

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Id. In support, they argue that the complaint sets forth that:

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Castle sold the Brown Street property to Plaintiffs and at the same time
controlled CCTT Group, Oreplex International LLC and CJT Financial Group
who provided phantom loans to defendants Thompson and Pezzi relating to the
Loch Dane and Northcrest properties and then recorded deeds of trust against
these properties. FAC, ¶¶ 30, 99, 115, 148; Motion, p.1:15-18. Defendant
Pezzi sold the Loch Dane property to Plaintiffs, received a phantom loan from
defendant Oreplex International LLC, notarized the fraudulent Substitution of
Trustee and Deed of Reconveyance relating to the Shannon Bay property,
executed a notice of rescission of notice of default as an “authorized
representative” of California Reconveyance Company and notarized an
assignment of a deed of trust from defendant Crawford to defendant Shined-teeast-a relating to the Almondwood property. FAC, ¶¶ 114, 120, 128, 130, and
171. Defendant Wallace, all within the span of a few short months, executed
three separate Substitution of Trustee and Deeds of reconveyance as an
“authorized representative” on behalf of three separate banks, Aurora Bank,
Wells Fargo Bank and Bank of America, relating to the Loch Dane and
Northcrest properties. FAC ¶¶ 116, 150, and 152. Defendant Kirkpatrick
provided a phantom loan to defendants Young relating to the Shannon Bay
property and was the principal of Golden Hills Trust who provided phantom
loans to defendants Sanders, Keiths, Ewers, Crawfords, and Portos relating to
the Dunlay Drive, Valley West, Almondwood and Green Garden properties.
FAC, ¶¶ 23, 103, 126, 162, 170 and 181.
Pl.’s Opp. at. 5. According to plaintiffs, while these are only a few examples, they “clearly show that
it can be reasonably inferred from the conduct of the defendants, as alleged in the FAC, that an
agreement and conspiracy was formed and existed between the defendants.” Id.
Defendants argue that plaintiffs fail to explain what the conspiracy was, “i.e., what was the
11

1

object of the conspiracy?”; that plaintiffs fail to allege the specific acts of each specific defendant

2

involved in the conspiracy; and that plaintiffs do not allege an overall agreement to accomplish a

3

wrongful goal. Def.’s Reply at 9.
The Court disagrees. Paragraph 230 of the FAC explains each defendants’ role in the

5

conspiracy. (“Castle [and] Karakasevic . . . participate in the conspiracy by, among other things, selling

6

or causing to be sold the properties under the guise that they were free of encumbrances and recording

7

fraudulent documents . . . Oreplex [and] CCTT Group participated in the conspiracy by causing

8

fraudulent liens to attach to the properties, accepting funds for phantom obligations, luring victims into

9

the scheme through a conjured short sale program and by otherwise planning the scheme.”) If the

10
United States District Court
For the Northern District of California

4

complaint is unclear as to some of the defendants roles in the conspiracy, it is not unclear with respect

11

to the moving defendants. Moreover, plaintiffs throughout the complaint describe “what the conspiracy

12

was”: they provide a number of exhibits revealing plaintiffs’ funds funneled to moving defendants

13

instead of original lenders. See, e.g., FAC Ex. 14. Finally, the Court can reasonably infer from

14

defendant’s alleged conduct an agreement to conspire, particularly with respect to the moving

15

defendants, who appear to be “key players” in the alleged conspiracy. See In re: 3Com Securities

16

Litigation, 761 F.Supp. 1411, 1418 (N.D.Cal. 1990).

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18

Therefore, defendants’ motion to dismiss plaintiffs’ second cause of action for conspiracy to
defraud is DENIED.

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IV.

21

Plaintiffs’ third cause of action is brought under 18 U.S.C. § 1962(c) of the Racketeering

22

Influenced and Corrupt Organizations Act (“RICO”). It is brought against 40 defendants, including all

23

of the moving defendants. See FAC ¶¶ 234 - 244. Plaintiffs allege that defendants have engaged in the

24

conduct of an enterprise through a pattern of racketeering activity. FAC ¶ 235.

Third Cause of Action - RICO

25

The elements of a civil RICO claim are “(1) conduct (2) of an enterprise (3) through a pattern

26

(4) of racketeering activity (known as ‘predicate acts’) (5) causing injury to plaintiff's business or

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property.” Living Designs, 431 F.3d at 361 (internal quotation marks omitted); see also 18 U.S.C. §§

28

1962(c), 1964(c). The Supreme Court has held that “RICO is to be read broadly. This is the lesson not
12

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only of Congress’ self-consciously expansive language and overall approach, but also of its express

2

admonition that RICO is to be liberally construed to effectuate its remedial purposes.” Sedima, S.P.R.L.

3

v. Imrex Co., 473 U.S. 479 (1985).

4

Defendants argue that plaintiffs have failed to establish standing to bring the civil RICO claim;

5

that they have not alleged the requisite predicate acts; that they have not alleged a RICO enterprise; and

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that they have failed to allege participation in the enterprise. Their arguments will be addressed in turn.

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8

a. Plaintiffs’ RICO Standing
In order to establish standing under RICO, a plaintiff must be “injured in his business or property

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United States District Court
For the Northern District of California

9

by reason of a violation of Section 1962.” 18 U.S.C. § 1964(c). RICO standing has a “directness”

11

requirement, where “a plaintiff who complains of harm flowing merely from the misfortunes visited

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upon a third person by the defendant’s acts, generally stands at too remote a distance to recover.”

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Holmes v. Security Investor Protection Corp., 503 U.S. 258, 268-269 (1992). Furthermore, the

14

plaintiff’s injury must result from defendant’s commission of a predicate act, not from some other

15

conduct of the defendant.

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Defendants argue that plaintiffs have failed to establish standing because the plaintiffs were not

17

the targets of the alleged racketeering activity; instead, the targets were “likely” the banks. MTD at 14;

18

Def.’s Reply at 11. At best, defendants argue, plaintiffs were “peripheral victims.” Def.’s Reply, n. 7.

19

The Court disagrees. It was the plaintiffs’ money that was wired to defendants, instead of to the

20

allegedly legitimate lienholders. See, e.g., FAC Ex. 14 (settlement statement showing sale proceeds

21

went to defendants or to IRS to satisfy defendants’ tax obligations). Moreover, because of the alleged

22

mail, bank, and wire fraud (including the fraudulent reconveyances), plaintiffs’ homes are worth far less

23

than the purchase money provided. Indeed, because of the continued existence of the legitimate liens,

24

some of plaintiffs’ homes have been foreclosed upon and unlawful detainer proceedings have begun.

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See, e.g., FAC ¶ 101 (Brown Street); ¶ 122 (Loch Dane). The Court therefore finds that plaintiffs have

26

standing to bring a civil RICO action against moving defendants.

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6
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b. The Predicate Acts
Plaintiffs allege violations of RICO within the meaning of 18 U.S.C. § 1961(1)(B) for bank
fraud, wire fraud, and mail fraud. According to the complaint,
Defendants committed bank fraud by executing the fraudulent reconveyances and
diverting and converting sale proceeds from fraudulent sales and short sales.
Defendants committed mail fraud by sending documents and causing to be sent
documents through the U.S. mail in furtherance of the fraud. Defendants committed
wire fraud by causing plaintiffs and their banks to wire transfer funds in interstate
commerce that were diverted and converted by defendants. Moreover, information
concerning these fraudulent transactions was sent by electronic transmission through
interstate commerce.

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United States District Court
For the Northern District of California

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FAC ¶¶ 242-43. Plaintiffs also provide a series of exhibits describing transfers, mailings of documents,
and demands for escrow payments from plaintiffs’ bank accounts to defendants’ bank accounts. See,
e.g., FAC Exs. 22, 30, 14, 22, 19, 20, 59 and 66. Defendant argue that plaintiffs have failed to make out
any of the predicate acts for a RICO claim.

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1. Wire Fraud
For the offense of wire fraud, 18 U.S.C. § 1343 prohibits the use of “interstate wire, radio or
television communications” to perpetuate “any scheme or artifice to defraud.” Plaintiffs point to
exhibits demonstrating that defendants caused plaintiffs and their banks to wire transfer funds to
defendants or their creditors. Pl.’s opp. at 7. Plaintiffs cite to Exhibit 30 in particular, a settlement
statement that plaintiffs allege shows “payment from Halihan to pay Castle [sic] IRS lien.” Id. Such
exhibits demonstrate, according to plaintiffs, the use of wire transfer.
Defendants argue that these are not sufficient allegations of the use of “wires.” They claim that
plaintiffs provide only “meager allegations” of causing certain bank to wire transfer to defendants or
their creditors. Moreover, according to defendants, plaintiffs only allege that the recordings were
“electronic” in their opposition, not in the FAC, and thus fail to establish wire fraud.
The Court disagrees. The Ninth Circuit has held that “the only aspects of wire fraud that require
particularized allegations are the factual circumstances of the fraud itself.” Odom v. Microsoft Corp.,
486 F.3d 541, 554 (9th Cir. 2007) (allegations of the use of a credit card sufficient to constitute wire
fraud). Here, plaintiffs have alleged nine different schemes, each involving a multitude of money
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transfers. The FAC explicitly alleges the use of wires to transfer funds in interstate commerce. FAC

2

¶ 242. Moreover, plaintiffs have provided exhibits of public documents, settlement statements, and title

3

transfers from which one can infer the use of wires.

4
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2. Mail Fraud
For substantially the same reasons, the Court finds that plaintiffs have adequately alleged the

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predicate act of mail fraud. Plaintiffs allege that defendant committed mail fraud through the use of the

8

mails. FAC ¶ 242. Moreover, a number of the allegedly forged reconveyances and other related

9

documents provided by plaintiffs state that after being recorded they should be mailed to defendants.

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United States District Court
For the Northern District of California

6

See, e.g., FAC Exs. 13, 19, 20, and 44. Defendants argue that plaintiffs cannot simply rely on an

11

inference that documents were mailed. Def.’s Reply at 13. But plaintiffs do not; plaintiffs explicitly

12

state that “defendants committed mail fraud by sending documents and causing to be sent documents

13

through the U.S. mail in furtherance of the fraud.” FAC ¶ 242. This is sufficient. See Schreiber

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Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1400 (9th Cir. 1986) (finding mail fraud

15

sufficiently pled where the complaint stated that “[T]he Defendants ... have engaged ... on two or more

16

occasions the use of the United States mail and/or use of interstate telephone calls for the purpose of

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executing or attempting to execute the aforesaid fraudulent scheme”).

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3. Bank Fraud

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Plaintiffs allege that “defendants committed bank fraud by executing the fraudulent

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reconveyances and diverting and converting sale proceeds from fraudulent sales and short sales.” FAC

22

¶ 242. Defendants argue that plaintiffs have failed to state a claim for bank fraud, because “the essence

23

of financial institution fraud under § 1344 is a scheme to swindle the bank or financial institution in

24

order to obtain money or property from it, which plaintiffs have simply not alleged.” Def.’s Reply at

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14. Moreover, defendants argue, a standing problem exists because the “targets of the § 1344 claim”

26

are not parties to this action. Id.

27

Defendants appear to assume that the bank fraud allegations are brought because of fraud

28

committed against the original lending banks. However, plaintiffs are alleging bank fraud against
15

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plaintiffs’ banks, from whom defendants demanded and received the proceeds of the home sales. With

2

respect to those banks, plaintiffs’ allegations and exhibits sufficiently plead bank fraud.

3
4

c. RICO Enterprise
Section 1962(c) requires the existence of an “enterprise.” Congress intended for the term

6

“enterprise” within the meaning of RICO to be read broadly. U.S. v. Turkette, 452 U.S. 576, 593 (1981).

7

The “enterprise” must be separate and apart from the alleged racketeering activity, but need not have

8

a structure beyond that necessary to carry out its pattern of illegal racketeering activities. Odom, 486

9

F.3d at 551. An “associated in fact” enterprise is “a group of persons associated together for a common

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United States District Court
For the Northern District of California

5

purpose of engaging in a course of conduct.” Turkette, 452 U.S. at 583. In order to establish the

11

existence of such an enterprise, a plaintiff must provide allegations of an ongoing organization, whether

12

formal or informal, and evidence that the various associates function as a continuing unit. Odom, 486

13

F.3d at 551.

14

Plaintiffs allege an association in fact enterprise of defendants as follows:

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Defendants were part of an association-in-fact that engaged in the business of
real estate sales, real estate leasing, mortgage loans, notarizing real property
documents, performing escrow services, performing real estate brokerage
services and other activities affecting interstate commerce. Although the
association-in-fact conducted some legitimate activities such as rental activity,
the primary purpose of the association was to defraud plaintiffs through a series
of phantom loans, fraudulent reconveyances, phony short sales and subsequent
re-sales to plaintiffs. Defendants worked together as members of the
association-in-fact to achieve the association’s purpose of defrauding plaintiffs.
Examples of such cooperation include falsifying loan transactions, executing
fraudulent reconveyances, concealing liens, wire transferring funds for
phantom obligations, notarizing fictitious reconveyances signed by individuals
without authority and performing escrow services for sham short sales.
...
Each defendant managed or participated in the conduct of the enterprise. For
example, defendants Castle, Karakasevic, Laura Pezzi, Jon Sanders, Alicia
Sanders, Daniel Young and Kelly Young participated and managed the
enterprise by, among other things, selling or causing to be sold the properties
under the guise that they were free of encumbrances and recording fraudulent
documents. Defendants Piscatelli, Contessa, Wallace, Hanson, Smith, Tribes,
Jennifer Pezzi, Winter and Lange and Daniel Young and Jason Young
participated in the enterprise by, among other things, executing and recording
fraudulent reconveyances . . . Defendants [Oreplex, CCTT Group, and CJT
Financial Group] participated and managed the enterprise by causing
16

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3

fraudulent liens to attach to the properties, accepting funds for phantom
obligations, luring victims into the scheme through a conjured short sale
program and by otherwise planning the schemes.
FAC ¶¶ 237, 239.
Defendants contend that these allegations do not plead facts establishing an enterprise distinct

5

from the alleged pattern of racketeering. Def.’s Reply at 15. In support, they cite Simon v. Value

6

Behavioral Health, Inc., et al., 208 F.3d 1073, 1080-84 (9th Cir. 2000). In Simon, the Ninth Circuit

7

affirmed the dismissal of RICO claims for failure to identify a distinct enterprise where plaintiff alleged

8

a “mass conspiracy” among six mental health providers to withhold benefits fraudulently and to restrain

9

trade. The court found that plaintiff merely alleged a collaboration, without any structure or system of

10
United States District Court
For the Northern District of California

4

authority. Id. at 1083. Here, plaintiffs have alleged a detailed system distinct from the alleged

11

racketeering activities, with repeat players and distinct roles, a system of command (with moving

12

defendants high in that chain) that evolved over time and, in fact, continues to operate. FAC ¶ 238. The

13

Court finds that plaintiffs have sufficiently alleged an association in fact enterprise.

14
15

d.

Participation in the Enterprise

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Section 1962(c) makes it unlawful for any person associated with the enterprise “to conduct or

17

participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of

18

racketeering activity.” To “participate, directly or indirectly, in the conduct of such enterprise's affairs

19

one must have some part in directing those affairs.” Walter v. Drayson, 538 F.3d 1244, 1248 (9th Cir.

20

2008) (citing Reves v. Ernst & Young, 507 U.S. 170, 177 (1993)).

21

Defendants argue that plaintiffs have failed to establish defendants’ participation in the

22

enterprise. They argue that the “generalized examples” in FAC ¶ 239 are mere conclusory allegations

23

of participation and do not specify “exactly what was done by whom.” MTD at 21. However, as noted

24

above, the cause of action incorporates and realleges the preceding paragraphs of the complaint. It is

25

in the detailed “schemes” that the plaintiffs describe the particular activities of each defendant.

26

Defendants also contend that “merely acting as a lender, notary or real estate agent in a sales

27

transaction” is not sufficient to establish “participation.” They cite Reves, in which the Supreme Court

28

held that an accounting firm that reviewed a series of transactions and incorrectly certified records of
17

1

the enterprise could not be held liable for participation in that enterprise. 507 U.S. at 177. According

2

to defendants, “the notaries and real estate agents in this case are no different from the accounting firm

3

in Reves.” Def.’s Reply at 15. However, none of the moving defendants are notaries or real estate

4

agents; they are all alleged to be in authoritative positions in the enterprise. See, e.g., FAC ¶¶ 237, 239

5

(Castle and Karakasevic “managed the enterprise by . . . selling or causing to be sold the properties

6

under the guise that they were free of encumbrances.”) The Court therefore finds that plaintiffs have

7

sufficiently pled participation.

8

Because plaintiffs have sufficiently pled that defendants engaged in conduct of an enterprise

9

through a pattern of racketeering activity that caused injury to plaintiffs' business or property,

United States District Court
For the Northern District of California

10

defendants’ motion to dismiss the third cause of action for violations of RICO is DENIED.

11
12

V.

13

Section 1962(d) makes it unlawful for a person “to conspire to violate any of the provisions of

14

subsections (a), (b), or (c) of [section 1961].” Plaintiffs allege that defendants violated § 1962(d)

15

because “they have agreed to manage, conduct or participate in the affairs of an enterprise through a

16

pattern of racketeering activity, or agreed to assist or profit from such conduct or participation. In

17

addition, the defendants knew their conduct or the conduct of their co-conspirators constituted a pattern

18

of racketeering activity.” FAC ¶ 247.

Fourth Cause of Action - RICO Conspiracy

19

Defendants argue that because plaintiffs failed to make out a claim under § 1962(c), their

20

derivative RICO conspiracy claim fails as matter of law. However, the Court has found that plaintiff

21

has pled a viable RICO claim, see Sec. IV, and, therefore, a conspiracy claim may be viable as well.

22

Defendants also argue that plaintiffs have failed to sufficiently allege conspiracy because they

23

have not alleged that any of the individual defendants “specifically agreed with others to conduct or

24

participate in the affairs of a RICO enterprise, or to commit predicate acts of racketeering.” MTD at

25

22. However, in the RICO conspiracy claim, plaintiffs allege an “agreement” to manage, conduct or

26

participate in the affairs of an enterprise. FAC ¶ 247. Moreover, as the Court found supra, Sec. III,

27

an agreement can be inferred from the facts as alleged.

28

The Court therefore DENIES defendant’s motion to dismiss plaintiff’s fourth cause of action for
18

1

RICO conspiracy.

2
3

VI.

4

In their fifth cause of action, plaintiffs allege moving defendants Castle and Karakasevic (among

5

others) “breached the respective purchase agreements by, among other things, failing to tender to

6

plaintiffs merchantable title to the properties, failing to disclose the ongoing encumbrances against the

7

properties suffered by defendants and failing to tender the properties free of such encumbrances. As a

8

result of defendants’ breach, plaintiffs have been damaged.” FAC ¶ 252-53.

Fifth Cause of Action - Breach of Contract

In order to establish a cause of action for breach of contract, a plaintiff must allege (1) a contract,

10
United States District Court
For the Northern District of California

9

(2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to the

11

plaintiff. Walsh v. West Valley Mission Community College Dist., 66 Cal. App. 4th 1532, 1545 (1998).

12

Defendants argue that plaintiffs have failed to allege a contract at all; instead, they “simply refer to 249

13

paragraphs of the complaint and refer to ‘respective purchase agreements.’” MTD at 24. Moreover,

14

they argue, there is no allegation setting forth the terms of the contract. Id. Defendants argue that

15

“because plaintiffs failed to provide the Court with a copy of the alleged contract or set out verbatim

16

what provisions of it were breached, they have not satisfied the elements of their breach of contract

17

claim.” Id. (citing Johnston v. Ally Fin., Inc. 2011 U.S. Dist. LEXIS 83298, at 6 (S.D. Cal. 2011)).

18

In their opposition, plaintiffs argue that the contract referred to is the Halihans’ agreement to

19

purchase Brown Street “provided that Karavesevic and Castle were tendering to plaintiff Halihan

20

merchantable title to the property and that the property was free and clear of any encumbrances.” Pl.’s

21

Opp. at 11. However, plaintiffs do not allege the existence of an agreement between the Halihans and

22

defendants in the FAC, nor do they allege the specific provisions of the purported contract that

23

defendants’ breached. Plaintiffs’ citation to the attached grant deed does not save their claim, because

24

the grant deed does not mention any agreement that the property was free and clear of liens. "If the

25

action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body

26

of the complaint or a copy of the written instrument must be attached and incorporated by reference."

27

Otworth v. S. Pac. Transp. Co., 166 Cal. App. 3d 452, 459 (1985). The plaintiffs have failed to do so

28

here.
19

1
2

Therefore, defendants’ motion to dismiss plaintiffs’ fifth cause of action for breach of contract
is GRANTED. Plaintiffs are GRANTED leave to amend.

3
VII.

5

A seller of real property has the duty to convey good and marketable title, and “the right of the

6

vendee to receive such marketable title is not dependent upon the terms of the contract but is given by

7

the law itself.” King v. Stanley, 32 Cal. 2d 584 (1948), overruled on other grounds. Plaintiffs contend

8

that defendants breached the “respective purchase agreements by, among other things, failing to tender

9

to plaintiffs merchantable title to the properties, failing to disclose the ongoing encumbrances against

10
United States District Court
For the Northern District of California

4

the properties suffered by defendants and failing to tender the properties free of such encumbrances.”

11

FAC ¶ 252.

Sixth Cause of Action - Breach of Implied Covenant to Convey Merchantable Title

12

Defendants argue that plaintiffs fail to properly allege this claim because “(1) having

13

incorporated all of the preceding 293 paragraphs of the FAC into the cause of action for breach of the

14

implied covenant to convey marketable title there is no ‘short and plain’ statement of the claim against

15

defendants Karaksevic and Castle and (2) the FAC also makes clear that the owner of the property sold

16

to the Halihans was the J. Christopher Castle Irrevocable Trust.” Def.’s Reply at 19 (citing FAC ¶ 97,

17

Exs. 12, 13.) Plaintiffs contend that the FAC “clearly alleges that plaintiffs Wesley and Gina Halihan

18

purchased the Brown Street property from defendant Karakasevic and Castle,” and, therefore, it would

19

be clear which implied covenants were referred to.

20

The Court agrees with defendants. Unlike the previous claims, it would be difficult to extract

21

from the complaint exactly what implied covenants were made in which transactions, particularly with

22

respect to defendant Castle, whose name and related entities appear in multiple schemes. The plaintiffs

23

do provide the quitclaim deed from Castle and Karakasevic to the “J. Christopher Castle Irrevocable

24

Trust,” Ex. 12, followed by the grant deed from that trust to the Halihans, with J. Christopher Castle

25

listed as the trustee. Ex. 13. Nonetheless, as defendants arguments have sufficient merit that the claim

26

as pled does not put defendants on notice as to the wrong alleged, the Court GRANTS defendants’

27

motion to dismiss the sixth cause of action for breach of implied covenant, with leave to amend.

28
20

1

VIII. Ninth Cause of Action - Equitable Indemnity

2

Defendants argue that plaintiffs’ claim for equitable indemnity is misplaced, because the doctrine

3

applies only among defendants who are jointly and severally liable to plaintiffs. MTD at 25. Plaintiffs

4

offer no response to defendants’ argument. The Court therefore GRANTS defendants’ motion to

5

dismiss the ninth cause of action for equitable indemnity, with leave to amend.

6
IX.

8

In order to state a claim for a constructive trust, a plaintiff must make out the existence of a res

9

(property or some interest in the property); the plaintiff’s right to the res; and the defendant’s acquisition

10
United States District Court
For the Northern District of California

7

of the res by some wrongful act. Calistoga Civiv Club v. City of Calistoga, 143 Cal. App. 3d 111, 116

11

(1983). In the FAC section regarding the tenth cause of action, plaintiffs make no claim as to the

12

existence of a res, or their right to that res. See FAC ¶¶ 274-278. While in their opposition plaintiffs

13

argue that “the trust res consists of Plaintiffs’ purchase monies and the properties they purchased from

14

the defendant homeowners” and that “plaintiffs have a right to their purchase monies because their

15

money was diverted by defendants through their fraudulent conduct,” such allegations are nowhere to

16

be found in the FAC. Defendants’ motion to dismiss plaintiffs tenth cause of action for Constructive

17

Trust is therefore GRANTED with leave to amend.

Tenth Cause of Action - Constructive Trust

18
19

X.

20

Plaintiffs’ twelfth cause of action for “respondeat superior” is DISMISSED without leave to

21

amend. Respondeat superior is not an independent cause of action; rather, it is a theory of liability. See

22

Mason v. Ambrose Recreation and Park Dist., 2010 WL 3076263 at *2 (N.D.Cal. Aug. 5, 2010).

Twelfth Cause of Action - Respondeat Superior

23
24

CONCLUSION

25

Defendants’ motion to dismiss is GRANTED IN PART and DENIED IN PART. It is

26

GRANTED with respect to the fifth, sixth, ninth, tenth, and twelfth causes of action for breach of

27

contract, breach of implied covenants, equitable indemnity, constructive trust, and respondeat superior,

28

respectively. It is DENIED with respect to the rest of the claims. Plaintiffs are GRANTED leave to
21

1

amend. They must file an amended complaint by December 22, 2011.

2
3
4

IT IS SO ORDERED.
Dated: December 8, 2011

5
SUSAN ILLSTON
United States District Judge

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United States District Court
For the Northern District of California

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