Wehlage v. EmpRes Healthcare Inc et al

Filing 79


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1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 7 PHYLLIS WEHLAGE, on her behalf and on behalf of others similarly situated, 8 9 Plaintiff, v. United States District Court For the Northern District of California 10 EMPRES HEALTHCARE INC., et al., 11 Defendants. / 12 13 14 15 16 17 18 No. 10-05839 CW ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS OR STRIKE NEW PLAINTIFFS AND DEFENDANTS (Doc. No. 55), GRANTING EMPRES ENTITIES’ MOTION ON ALTER EGO LIABILITY (Doc. No. 56), GRANTING IN PART EVERGREEN LAKEPORT’S MOTION TO DISMISS (Doc. No. 57) AND DENYING AS MOOT EMPRES ENTITIES’ MOTION TO DISMISS BASED ON PERSONAL JURISDICTION (Doc. No. 54) Pursuant to the Court’s May 25, 2011 Order (Docket No. 46), 19 Plaintiff has filed a First Amended Complaint (1AC) re-alleging her 20 original three claims based on violation of California Health and 21 Safety Code section 1430(b); violation of California’s Unfair 22 Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq.; and 23 violation of the California Consumers Legal Remedies Act (CLRA), 24 Cal. Civ. Code § 1750, et seq. 25 to remedy the deficiencies noted in the May 25, 2011 Order, 26 Plaintiff has added two new Defendants and ten individuals as named 27 Plaintiffs who reside at the individual skilled nursing facilities 28 In addition to adding allegations 1 defined in the May 25, 2011 Order as the Evergreen Entities. 2 May 25, 2011 Order at 1-2. 3 See Defendants1 file three separate motions to dismiss under 4 Federal Rule of Civil Procedure 12(b)(6) for failure to state a 5 claim upon which relief can be granted. 6 (Docket No. 55), the EmpRes and Evergreen Entities move to dismiss 7 or strike all claims asserted against the Evergreen Entities and 8 all references to the Evergreen Entities as parties in the action, 9 all claims asserted by the newly added plaintiffs and all In the first motion United States District Court For the Northern District of California 10 references to the two new “Facility Defendants” on the ground that 11 such allegations were not authorized by the Court’s May 25, 2011 12 Order. 13 In the second motion (Docket No. 56), the EmpRes Entities move 14 to dismiss based on Plaintiff’s failure to allege alter ego 15 liability. 16 moves to dismiss the three claims asserted against it and the 17 EmpRes Entities join in this motion. 18 filed a motion to dismiss under Rule 12(b)(2) for lack of personal 19 jurisdiction (Docket No. 54). 20 Court grants the EmpRes Entities’ motion to dismiss under Rule 21 12(b)(6) for failure to allege alter ego liability. In the third motion (Docket No. 57), Evergreen Lakeport The EmpRes Entities have also This motion will be moot if the See KEMA, inc. 22 1 23 24 25 26 27 28 Moving Defendants are EmpRes Healthcare, Inc.; EHC Management, LLC; EHC Financial Services, LLC; and Evergreen California Healthcare, LLC (collectively, EmpRes Entities) and Evergreen Lakeport. The claims against Defendants Evergreen at Arvin, LLC; Evergreen at Bakersfield, LLC; Evergreen at Heartwood Avenue, LLC, erroneously sued as Evergreen at Heartwood, LLC; Evergreen at Springs Road, LLC; Evergreen at Tracy, LLC; Evergreen at Oroville, LLC; Evergreen at Petaluma, LLC; and Evergreen at Gridley (SNF), LLC (collectively, Evergreen Entities) were dismissed without leave to amend in the May 25, 2011 Order. 2 1 v. Koperwhats, 2010 WL 3464708, *8 (N.D. Cal.) (declining to 2 address Rule 12(b)(2) motion because all claims were dismissed 3 under Rule 12(b)(6)).2 4 Plaintiff has filed a consolidated opposition and Defendants 5 have filed a consolidated reply. 6 submission and decided on the papers. 7 papers filed by the parties, the Court grants the first and second 8 motions to dismiss, and grants in part and denies in part the third 9 motion to dismiss. United States District Court For the Northern District of California 10 The motions were taken under Having considered all the The fourth motion to dismiss based on lack of personal jurisdiction is denied without prejudice as moot. 11 BACKGROUND 12 The factual background is provided in the May 25, 2011 Order. 13 In that order, the Court dismissed the section 1430(b) and the UCL 14 claims against the EmpRes and Evergreen Entities on the ground that 15 Plaintiff failed to plead a factual basis for her assertion that 16 Evergreen Lakeport, the licensee of the skilled nursing facility 17 (SNF) in which she resides, is the agent for the EmpRes or 18 Evergreen Entities, nor did her allegations support invocation of 19 the alter ego doctrine. 20 EmpRes Entities with leave to amend for Plaintiff to add alter ego 21 allegations and dismissed the claims against the Evergreen Entities 22 without leave to amend because Plaintiff did not have standing to 23 sue any entity except Evergreen Lakeport, where she resided. The Court dismissed the claims against the 24 25 2 27 In the May 25, 2011 Order, the Court denied without prejudice the EmpRes Entities’ Rule 12(b)(2) motion because the claims against them were dismissed with leave to amend. The Court allowed the EmpRes Entities to renew their Rule 12(b)(2) motion, if Plaintiff brought claims against them in an amended pleading. 28 3 26 1 The Court dismissed the CLRA claim against the EmpRes and 2 Evergreen Entities because Plaintiff had not alleged that they had 3 deceived her in the sale of services to her or that she suffered 4 damages as a result. 5 dismissed with leave to amend, and against the Evergreen Entities 6 was dismissed with prejudice. 7 This claim against the EmpRes Entities was In regard to the claims against Evergreen Lakeport, the Court 8 ruled that equitable abstention was not warranted and that the 9 primary jurisdiction doctrine did not apply. The Court ruled that United States District Court For the Northern District of California 10 Plaintiff had stated claims under section 1430(b) and the UCL for 11 unlawful business acts, but that she had failed to identify, with 12 the required specificity, the basis of her CLRA claim. 13 was granted leave to amend the CLRA claim only. 14 Plaintiff DISCUSSION 15 I. Motion to Dismiss or Strike New Plaintiffs and Defendants 16 Federal Rule of Civil Procedure 15(a)(1) provides: 17 A party may amend its pleading once as a matter of course within: 18 (A) 21 days after serving it, or 19 21 (B) if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier. 22 In the May 25, 2011 Order, the Court granted Plaintiff leave 20 23 to amend her complaint and specified how she could do so. 24 Plaintiff was not granted leave to add new parties to her action. 25 Therefore, Plaintiff is attempting to amend her complaint without 26 leave of the Court. 27 28 Under Rule 15(a)(1), a party may amend its pleading once as a 4 matter of course. 2 twenty-one days after service of the complaint or service of a 3 motion to dismiss under Rule 12(b). 4 in 2010, and more than twenty-one days has passed since she served 5 it on Defendants. 6 on February 18, 2011, giving Plaintiff until March 11, 2011 to file 7 an amended complaint as a matter of course. 8 filed on June 8, 2011, outside of this time period. 9 time for Plaintiff to amend her complaint as a matter of course has 10 United States District Court For the Northern District of California 1 elapsed, if she wishes to amend her complaint, she must obtain the 11 opposing parties’ written consent or leave of the Court. 12 Civ. Pro. 15(a)(2). 13 strike the claims by and against the new parties is granted. 14 Furthermore, any claims re-stated against the Evergreen Entities 15 are dismissed. 16 Entities that support Plaintiff’s claims against the remaining 17 Defendants are not stricken. 18 additional amendments to her 1AC, she must move for leave to amend. 19 II. EmpRes Entities’ Motion Regarding Alter Ego Liability 20 However, the time for doing so is limited to Plaintiff filed her complaint Defendants filed their first motions to dismiss Plaintiff’s 1AC was Because the Fed. R. Therefore, Defendants’ motion to dismiss or However, the allegations referring to the Evergreen If Plaintiff wishes to make In paragraphs 37(a)-(h), 38(a)-(g), 39(a)-(q), and 41-44 of 21 her 1AC, Plaintiff has added allegations addressing how the EmpRes 22 Entities are subject to liability through the doctrine of alter ego 23 liability. 24 that all Defendants share the same officers and directors and that 25 the equitable member of each of the Evergreen Entities is Evergreen 26 California Healthcare; the allegations in paragraph 38 claim that 27 the Evergreen Entities are undercapitalized and rely on the assets 28 For instance, the allegations in paragraph 37 specify 5 1 and capital of the EmpRes Entities; and the allegations in 2 paragraph 39 specify how the EmpRes Entities exert substantial 3 control over the day-to-day operations of the Evergreen Entities, 4 including but not limited to decisions which directly affect each 5 entity’s hours of direct nursing care per patient per day (NHPPD), 6 which is the subject of this action. 7 The EmpRes Entities argue that Washington alter ego law 8 applies to this case, but that under the alter ego law of either 9 Washington or California, Plaintiff’s allegations are insufficient United States District Court For the Northern District of California 10 to establish alter ego liability.3 11 California alter ego law applies, but that under either State’s 12 law, she has sufficiently alleged alter ego liability. 13 A. Choice-of-law 14 15 Plaintiff responds that 1. Contract Choice-of-Law Provision Plaintiff argues that California law applies because the 16 Admission Agreement between Plaintiff and Evergreen Lakeport 17 contains a choice-of-law provision stating: "This Agreement is 18 governed by and in accordance with the laws of the United States of 19 America and the state where this Facility is located."4 20 Lakeport is located in California. 21 Agreement are the individual resident, or that resident’s Evergreen The parties to the Admission 22 23 24 25 3 In the May 25, 2011 Order, the Court acknowledged that Defendants are organized under Washington law, but because they did not take the position that Washington law controls this case, the Court applied California’s alter ego law. 4 27 Plaintiff requests that the Court take judicial notice of the Admission Agreement because she refers to it in ¶ 58 of her 1AC and it forms the basis of her claims under the UCL and CLRA. The Court grants the request. 28 6 26 1 authorized representative, and Evergreen Lakeport.5 2 parties’ mutual responsibilities during the resident’s stay at 3 Evergreen Lakeport, such as Evergreen Lakeport’s monthly fee, the 4 resident’s financial responsibilities to pay the fee, financial and 5 insurance arrangements, the resident’s consent for treatment, and 6 the resident’s termination, transfer or discharge. 7 It governs the The parties agree the Court exercises diversity jurisdiction 8 over this action. 9 state law claims, the conflicts laws of the forum state are used to "When a federal court sitting in diversity hears United States District Court For the Northern District of California 10 determine which state's substantive law applies." 11 Street Partners v. Arnold, 179 F.3d 656, 661 (9th Cir. 1999). 12 California law thus determines the effect of the contractual 13 choice-of-law provision. 14 policy favoring enforcement of [choice-of-law] provisions." 15 Nedlloyd Lines B.V. v. Sup. Ct., 3 Cal. 4th 459, 464-65 (1992). 16 determine whether a choice-of-law provision is enforceable, 17 California courts follow the Restatement (Second) of Conflict of 18 Laws § 187, which provides that a choice-of-law provision will be 19 enforced unless either, 20 21 22 23 389 Orange Under California law, there is a "strong To (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under 24 25 5 27 Plaintiff states that the Admission Agreement is the same for all Evergreen Entities’ facilities in California. However, because the claims against the Evergreen Entities have been dismissed, the only relevant agreement is the one between Plaintiff and Evergreen Lakeport. 28 7 26 1 2 3 4 the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties. Restatement (Second) of Conflict of Laws § 187(2). However, the contract containing the choice-of-law provision 5 must govern the claim that is alleged to arise from it. 6 3 Cal. 4th at 469; Schlumberger Logelco Inc. v. Morgan Equipment 7 Co., 1996 WL 251951, *2 (N.D. Cal.). 8 9 Nedlloyd, Defendants argue that, under Schlumberger, the choice-of-law provision in the Admission Agreement does not apply. In United States District Court For the Northern District of California 10 Schlumberger, the defendants contended that a choice-of-law 11 provision in a contract for work on an oil drilling project 12 determined the law on alter ego liability. 13 found that the alter ego theory was not controlled by the choice- 14 of-law provision in the oil drilling contract because the alter ego 15 claim did not arise from or relate to the contract. 16 (citing Dassault Falcon Jet Corp. v. Oberflex, Inc., 909 F. Supp 17 345, 348-49 (M.D.N.C. 1995) (choice-of-law provision in contract 18 not applied to determine alter ego liability because that issue was 19 collateral to and not part of parties' negotiations or expectations 20 with respect to the contract); United Trade Assocs. Ltd. v Dickens 21 & Matson (USA) Ltd., Inc., 848 F. Supp. 751, 759 (E.D. Mich. 1994) 22 (same)). Id. at *1-2. The court Id. at *3 23 Plaintiff responds that Washington Mutual Bank v. Sup. Ct., 24 24 Cal. 4th 906, 917 (2001), which held that contractual choice-of-law 25 provisions should be applied broadly, is controlling, and that 26 Schlumberger is not applicable because it preceded Washington 27 Mutual. 28 In Washington Mutual, the California Supreme Court 8 1 explained that the advocate of a choice-of-law clause bears the 2 burden of establishing that its alleged claims fall within its 3 scope. 4 2231790, *4 (N.D. Cal.) (Washington Mutual requires a court to 5 conduct a choice-of-law analysis for each claim or issue). 6 Estrella, the court found that a choice-of-law clause in a consumer 7 contract for debt relief applied to all of the asserted claims, 8 including claims under the CLRA and UCL. 9 2231790, at *5. United States District Court For the Northern District of California 10 Id. at 916; Estrella v. Freedom Fin. Network, LLC, 2010 WL In Estrella, 2010 WL Neither Washington Mutual nor Estrella addressed an alter ego 11 issue; they both determined whether the plaintiff's substantive 12 claims were governed by the contract in question. 13 no disagreement that Plaintiff’s three substantive claims against 14 Evergreen Lakeport are governed by the Admission Agreement. 15 bring the EmpRes Entities under the auspices of the Admission 16 Agreement and its choice-of-law provision, Plaintiff argues that 17 "because all Defendants are closely related to the Facilities who 18 signed the agreement, the parties' choice-of-law provision applies 19 to all Defendants." 20 the alter ego issue is collateral to the Admission Agreement. 21 22 23 24 Opp. at 5. Here, there is This reasoning illustrates that Therefore, the Court holds that the choice-of-law provision in the Admission Agreement does not apply to the alter ego analysis. 2. Statutory Choice-of-Law Analysis Where a statute dictates the choice-of-law, the court need 25 not apply a common law choice-of-law analysis. 26 Bank Ltd. v. Levy, 743 F.2d 722, 725 (9th Cir. 1984). 27 28 To Barclays Discount Defendants argue that California Corporations Code 9 1 section 17450(a) dictates that Washington alter ego law applies 2 to the three EmpRes Entities that are limited liability companies 3 (LLCs): EHC Management, LLC; EHC Financial Services, LLC; and 4 Evergreen California Healthcare, LLC. 5 6 Section 17450(a) provides: the laws of the state or foreign country under which a foreign limited liability company is organized shall govern its organization and internal affairs and the liability and authority of its managers and members. 7 Plaintiff argues that section 17450(a) codified only the 8 "internal affairs doctrine" for LLCs. Plaintiff cites Butler v. 9 Adoption Media, LLC, which held that section 17450(a) did not United States District Court For the Northern District of California 10 apply to a choice-of-law issue regarding LLCs because it merely 11 codified the internal affairs doctrine, which governs matters 12 concerning the relationships among or between the LLC and its 13 officers, directors and shareholders and does not govern disputes 14 involving people or entities that are not part of the LLC. 2005 15 WL 2077484, *1 and n.1 (N.D. Cal.) (citing Edgar v. MITE Corp., 16 457 U.S. 624, 645 (1982) (internal affairs doctrine recognizes 17 that only one state should have authority to regulate matters 18 peculiar to relationships among or between corporation and its 19 officers, directors, and shareholders; otherwise corporation 20 could be faced with conflicting demands)). Plaintiff also cites 21 Milliken & Co. v. Haima Gp. Corp., 2010 U.S. Dist. LEXIS 44835, 22 *9-12 (S.D. Fla.), report and recommendation adopted, 2010 U.S. 23 Dist. LEXIS 44775 (S.D. Fla.), in which the court held that a 24 statute similar to section 17450(a) was inapplicable to a choice25 of-law issue because the substantive question was external to the 26 corporate entity. 27 28 10 1 To support the proposition that alter ego liability is a 2 matter of a LLC’s internal affairs, Defendants cite Rubbermaid, 3 Inc. v. Robert Bosch Tool Gp., Corp., 2010 U.S. Dist. LEXIS 4 100650, *15 (C.D. Ill.), which applied a law similar to section 5 17450(a) to hold that the alter ego law of the state of 6 incorporation applied to determine the liability of a Delaware 7 LLC to claims brought by a third party. 8 Kalb, Voorhis & Co. v. American Fin. Corp., 8 F.3d 130, 132 (2nd 9 Cir. 1993), which applied the alter ego law of the state of Defendants also cite United States District Court For the Northern District of California 10 incorporation to determine the liability of shareholders to a 11 third party. 12 creature of state law whose primary purpose is to insulate 13 shareholders from legal liability, the state of incorporation has 14 the greater interest in determining when and if that insulation 15 is to be stripped away." 16 The court stated, "Because a corporation is a Id. There is no definitive authority on this issue. Defendants' 17 authority is more persuasive. 18 that the state of incorporation governs the liability and 19 authority of the LLC's managers and members, points to the 20 application of Washington's alter ego liability law to the LLCs 21 constituting the EmpRes Entities. 22 liability involves law suits brought by third parties, it 23 determines, based on the structure of the corporation, whether 24 the shareholders are liable in lieu of the LLC, which is an 25 internal affair. 26 alter ego liability of the LLCs constituting the EmpRes Entities. First, the statutory language, Therefore, Washington’s law determines the 27 28 Second, even though alter ego 11 1 3. Government Interest Test 2 Because no statute governs the choice of law for the alter 3 ego liability of corporations and because there is no effective 4 choice-of-law contractual provision, California’s governmental 5 interests test determines which State’s law applies to the alter 6 ego liability of EmpRes Healthcare, Inc. 7 Smith Barney, Inc., 39 Cal. 4th 95, 100 (2006); Washington 8 Mutual, 24 Cal. 4th at 919-20. 9 Supreme Court described the governmental interest test as United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 Kearney v. Salomon In Kearney, the California follows: First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question is the same or different. Second, if there is a difference, the court examines each jurisdiction's interest in the application of its own law under the circumstances of the particular case to determine whether a true conflict exists. Third, if the court finds that there is a true conflict, it carefully evaluates and compares the nature and strength of the interest of each jurisdiction in the application of its own law to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state. 18 39 Cal. 4th at 107-08. 19 The parties agree, and the Court finds, that the alter ego 20 liability laws of Washington and California are different. 21 Thus, the first prong of the governmental interest test is 22 satisfied. 23 Defendants argue that a true conflict does not exist because 24 Washington has an interest in applying its alter ego law to 25 business entities formed under its laws, whereas California has 26 no interest in controlling the corporate governance, organization 27 28 12 and liability of foreign business entities. 2 Ct., 11 Cal. 3d 574, 580 (1974) (“When one of two states related 3 to a case has a legitimate interest in the application of its law 4 and policy and the other has none, there is no real problem; 5 clearly the law of the interested state should be applied.”). 6 For support, Defendants cite CTS Corp. v. Dynamics Corp. of 7 Amer., 481 U.S. 69, 91 (1987), which stated that it is “an 8 accepted part of the business landscape in this country for 9 States to create corporations, to prescribe their powers, and to 10 United States District Court For the Northern District of California 1 define the rights that are acquired by purchasing their shares. 11 A state has an interest in promoting stable relationships among 12 parties involved in the corporations it charters . . .” 13 Defendants also argue that California Corporations Code section 14 17450(a) shows that California has expressly disclaimed an 15 interest in applying California alter ego law to foreign limited 16 liability companies and the same should apply to corporations. 17 See Hurtado v. Sup. Plaintiff, citing McCann v. Foster Wheeler LLC, 48 Cal. 4th 18 68, 95 (2010), argues that California has an interest in 19 affording its residents a remedy for an injury. 20 whether a California or Oklahoma statute would govern a 21 California plaintiff’s suit for injury from contracting 22 mesothelioma while working in an oil refinery in Oklahoma. 23 at 74. 24 statute of limitations whereas, in California, the suit was 25 timely. 26 by Plaintiff, “California has a legitimate interest in having a 27 statutory provision that affords a remedy for or a benefit to an 28 13 McCann addressed Id. The plaintiff’s action was barred in Oklahoma by its Id. In this context, the court made the statement cited 1 injured person or business applied when, as here, the injured 2 person or business is a California resident or business.” 3 95. 4 Id. at The law in question here is the alter ego doctrine, not 5 whether Plaintiff has a substantive cause of action against a 6 proper defendant. 7 challenging the application of California law to any of 8 Plaintiff’s causes of actions. 9 in affording its resident a remedy for an injury is not directly United States District Court For the Northern District of California 10 As Defendants point out, they are not Therefore, California’s interest at issue. 11 Plaintiff also argues that California has an interest in 12 applying its alter ego law in this situation because it has a 13 long tradition of affording alter ego recovery to injured 14 consumers and has specifically included this remedy in California 15 Corporations Code section 17101, which states, in part, “A member 16 of a limited liability company shall be subject to liability 17 under the common law governing alter ego liability.” 18 the issue is not whether California has an alter ego liability 19 law applicable to its own LLCs. 20 an interest in applying its law to business entities that are 21 formed in states other than California. 22 does not indicate that it applies to a “foreign limited liability 23 company,” which is defined in California Corporations Code 24 section 17001(q) as “(1) an entity formed under the limited 25 liability company laws of any state other than this state, 26 . . .” 27 entities from escaping liability with an unwarranted corporate 28 However, The question is whether it has Notably, section 17101 California does have an interest in preventing corporate 14 1 shield; however, the application of Washington’s alter ego 2 liability law would mitigate this concern. 3 In sum, Washington has a strong interest in controlling the 4 liability of business entities formed under its laws, and 5 California has an interest in preventing companies from escaping 6 liability through an unwarranted corporate shield. 7 California’s interest is mitigated through the application of 8 Washington’s alter ego law. 9 is no real conflict and Washington’s alter ego law must be United States District Court For the Northern District of California 10 However, Thus, the Court concludes that there applied. 11 B. Application of Washington Alter Ego Law 12 Washington’s alter ego law consists of the following two- 13 part test: 14 to violate or evade a duty; second, disregard must be necessary 15 and required to prevent unjustified loss to the injured party." 16 Meisel v. M & N Modern Hydraulic Press Co., 97 Wash. 2d 403, 410 17 (1982). 18 that typically involves fraud, misrepresentation, or some form of 19 manipulation of the corporation to the stockholder's benefit and 20 creditor's detriment. 21 expansion of the fraudulent conveyance law to circumstances in 22 which that doctrine does not apply. 23 requires that wrongful corporate activities must actually harm 24 the party seeking relief; intentional misconduct must be the 25 cause of the harm that is avoided by disregard of the corporate 26 form. 27 is insufficient to establish an abuse of the corporate form. 28 "First, the corporate form must be intentionally used The first prong requires abuse of the corporate form Id. Id. This can be seen as a judicial Id. The second prong Deliberate undercapitalization of a corporate entity 15 1 Norhawk Investments, Inc. v. Subway Sandwich Shops, Inc., 61 2 Wash. App. 395, 399-400 (1991). 3 Citing five paragraphs in her 1AC, Plaintiff argues that her 4 allegations satisfy Washington’s alter ego test. 5 42, Plaintiff alleges that the EmpRes Entities “deliberately set 6 up empty shells and agents so that [they] could deceive the 7 public and residents . . .” 8 that “Defendants have created a maze of multiple undercapitalized 9 entities--which in reality operate as a single entity--in order In paragraph In paragraph 43, Plaintiff alleges United States District Court For the Northern District of California 10 to avoid liability.” 11 for-profit nursing home corporations such as EmpRes divide into 12 many separate shell companies “in order to avoid being held 13 accountable to both the public regulatory system and residents.” 14 Plaintiff alleges that the EmpRes Entities fund, obtain licenses 15 for and guarantee the debt of Evergreen Lakeport and the other 16 Evergreen Entities. 17 control all the factors that impact Evergreen Lakeport’s and the 18 other Evergreen Entities’ staffing levels, which is at issue in 19 this case. 20 In paragraph 40, Plaintiff alleges that She also alleges that the EmpRes Entities The analysis in Norhawk is instructive for the determination 21 of whether Plaintiff states alter ego liability under Washington 22 law. 23 obtained a judgment against it. 24 98. 25 franchisee, it sued the franchiser under the theory of alter ego 26 liability. 27 the franchiser’s corporate structure because, at all times, the 28 In Norhawk, a franchisee abandoned its lease and the lessor Norhawk, 61 Wash. App. at 397- After the lessor failed to obtain payment from the Id. at 398. The lessor argued that it was harmed by 16 1 2 3 4 franchiser would be judgment proof. Id. The court stated, Although Norhawk may have been harmed, harm alone does not create corporate misconduct. “The absence of an adequate remedy alone does not establish corporate misconduct.” . . . It is also well established that “the purpose of a corporation is to limit liability.” 5 Id. at 400 (citations omitted). 6 corporate form must be honored unless there is such “a 7 commingling of rights and interests as to render it apparent that 8 the entities are intended to function as one, and further, that 9 to regard them as separate would aid the consummation of a fraud United States District Court For the Northern District of California 10 or wrong upon others.” The court explained that the Id. at 401 (citations omitted). 11 Plaintiff’s allegations that the EmpRes Entities have 12 financial and operational authority over Evergreen Lakeport and 13 the other Evergreen Entities are not sufficient to satisfy 14 Washington’s alter ego test. 15 statements, Plaintiff fails to allege that the EmpRes Entities 16 intentionally abused the corporate form in order to engage in 17 fraud or misrepresentation. 18 first prong of the test, she fails to allege that the EmpRes 19 Entities intentionally harmed her by abusing the corporate form. 20 Plaintiff may bring her three claims against Evergreen Lakeport, 21 the residence where she lives and where she suffered the alleged 22 injury caused by its inadequate staffing. 23 alleges that Evergreen Lakeport is undercapitalized, she does not 24 allege that it was so created with the intention to harm her 25 through inadequate staffing or of avoiding paying her damages 26 caused by the inadequate staffing. 27 28 First, except for conclusory And, even if her allegations met the Although Plaintiff Because Plaintiff has failed sufficiently to allege alter 17 1 ego liability, the EmpRes Entities’ motion to dismiss the claims 2 against them is granted. 3 moving to add the Empress Entities, even after judgment, if 4 Evergreen Lakeport evades its responsibility to provide relief. 5 If Plaintiff brings such a motion, she may submit it with 6 evidence in support of her alter ego claim. 7 III. Evergreen Lakeport’s Motion to Dismiss 8 9 Dismissal is without prejudice to Evergreen Lakeport argues that Plaintiff’s CLRA claim and UCL claim based on fraud should be dismissed for lack of United States District Court For the Northern District of California 10 specificity under Rule 9 of the Federal Rules of Civil Procedure. 11 Evergreen Lakeport also argues that the Court should revisit its 12 decision regarding Plaintiff’s claim under Health and Safety Code 13 section 1430(b), which provides a right of action for violations 14 of the minimum staffing requirements set forth in Health and 15 Safety Code section 1265.5(a), and the doctrines of equitable 16 abstention and primary jurisdiction. 17 A. CLRA Claim 18 As stated in the May 25, 2011 Order, the CLRA prohibits 19 “deceptive acts or practices undertaken by any person in a 20 transaction intended to result or which results in the sale or 21 lease of goods or services to any consumer.” 22 § 1770(a). 23 the heightened pleading requirements of Federal Rule of Civil 24 Procedure 9(b). 25 (9th Cir. 2009). 26 give defendants notice of the particular misconduct which is 27 alleged to constitute the fraud charged so that they can defend 28 Cal. Civ. Code Because the claim sounds in fraud, it is subject to Kearns v. Ford Motor Co., 567 F.3d 1120, 1125-26 The allegations must be “specific enough to 18 1 against the charge and not just deny that they have done anything 2 wrong.” 3 Statements of the time, place and nature of the alleged 4 fraudulent activities are sufficient, id. at 735, provided the 5 plaintiff sets forth “what is false or misleading about a 6 statement, and why it is false.” 7 Litig., 42 F.3d 1541, 1548 (9th Cir. 1994). 8 based on information and belief usually do not satisfy the 9 particularity requirements of Rule 9(b); however, as to matters Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). In re GlenFed, Inc., Secs. Allegations of fraud United States District Court For the Northern District of California 10 peculiarly within the opposing party’s knowledge, allegations 11 based on information and belief may satisfy Rule 9(b) if they 12 also state the facts upon which the belief is founded. 13 Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987). 14 Wool v. Evergreen Lakeport asserts that Plaintiff fails to plead the 15 substance and nature of the alleged misrepresentations made to 16 her with the required specificity. 17 ¶¶ 93, and 95 through 103, of the 1AC, she adequately pleads 18 Evergreen Lakeport’s failure to disclose the material fact that 19 it was understaffed. 20 Supp. 2d 1088, 1095 (N.D. Cal. 2007), Plaintiff also argues that, 21 when a CLRA claim is based on non-disclosure or active 22 concealment of a material fact, there is no need to plead 23 specific misrepresentations. 24 CLRA claim based on failure to disclose is cognizable where: 25 (1) the defendant had exclusive knowledge of material facts not 26 known to the plaintiff and (2) the defendant actively concealed a 27 material fact from the plaintiff. 28 19 Plaintiff responds that, in Citing Falk v. General Motors Corp., 496 F. In Falk, the court stated that a Id. To show that the non- 1 disclosed information is material, a plaintiff must show that 2 “had the omitted information been disclosed, a reasonable 3 consumer would have been aware of it and behaved differently.” 4 Id. 5 In her 1AC, Plaintiff alleges that Defendants “did not 6 disclose and actively concealed that the [Evergreen Entities] 7 have failed to comply with California’s minimum and adequate 8 nurse staffing requirements as alleged herein, and continue to do 9 so”, 1AC at ¶ 93, and that Defendants knew they had inadequate United States District Court For the Northern District of California 10 staffing and Plaintiff did not know it, 1AC at ¶¶ 96-97. 11 Paragraph 98 is the heart of the claim, alleging Defendants’ 12 fraudulent conduct as: (1) representing to state regulators that 13 they were complying with the nursing staff requirements; 14 (2) representing to the consuming public, including Plaintiff, 15 that the Evergreen Entities were in compliance with the required 16 staffing levels; (3) failing to disclose to residents or 17 prospective residents that the Evergreen Entities fell below the 18 nurse staffing requirement; (4) responding to the regulators’ 19 deficiency notices by promising to improve staffing, but failing 20 to do so; (5) responding to regulators’ deficiency notices by 21 posting projected, as opposed to actual, staffing ratios; and 22 (6) responding to residents’ complaints with misleading 23 assertions that staffing shortfalls were isolated incidents or 24 that they would be addressed. 25 Plaintiff is correct that she does not have to plead 26 specific misrepresentations when the issue is concealment or non- 27 disclosure. 28 However, five of the six allegations in ¶ 98 are 20 1 that Defendants made misrepresentations. 2 failure to disclose a material fact and this allegation is 3 sufficient to state a claim. 4 ¶ 98 are deficient under Rule 9(b) because they do not state who 5 made the statement, the time and place of the statement and how 6 the statement was made to Plaintiff. 7 Only ¶ 98(3) alleges The other allegations in Evergreen Lakeport next argues that the allegations are insufficient because they do not indicate that Plaintiff had or 9 could have had any exposure to any representation, or that there 10 United States District Court For the Northern District of California 8 were any circumstances in which Evergreen Lakeport should have or 11 could have provided other information to her, or that she relied 12 on these misrepresentations or non-disclosures to her detriment. 13 However, in ¶ 100, Plaintiff alleges reliance by stating that the 14 non-disclosed fact was material and, had she known it, she would 15 not have agreed to reside at Evergreen Lakeport. 16 Plaintiff alleges that she could not reasonably have been 17 expected to learn or discover by herself the non-disclosed facts 18 regarding staffing violations. 19 reliance for the non-disclosure allegation. Also, in ¶ 101, This is sufficient to state 20 Citing Swartz v. KPMG LLP, 476 F.3d 756, 764-64 (9th Cir. 21 2007), Evergreen Lakeport also argues that the allegations are 22 insufficient because they refer to Defendants, in general, 23 without specifying the part each Defendant played in the 24 concealment or non-disclosures. 25 “Rule 9(b) does not allow a complaint to merely lump multiple 26 defendants together but ‘requires plaintiffs to differentiate 27 their allegations when suing more than one defendant . . . and 28 In Swartz, the court stated: 21 1 inform each defendant separately of the allegations surrounding 2 his alleged participation in the fraudulent scheme.’ . . . In the 3 context of a fraud suit involving multiple defendants, a 4 plaintiff must, at a minimum, ‘identify the role of each 5 defendant in the alleged fraudulent scheme.’” 6 Moore v. Kayport Package Express, Inc., 885 F.2d 531, 541 (9th 7 Cir. 1989)). 8 9 Id. at 765 (citing None of Plaintiff’s allegations discloses the role of any specific Defendant in the misrepresentations or intentional non- United States District Court For the Northern District of California 10 disclosure or concealment of the nursing staff violations. 11 Plaintiff may amend to allege, if she truthfully can do so, that 12 Evergreen Lakeport made the misrepresentations to Plaintiff, or 13 failed to disclose material facts. 14 The CLRA claim is dismissed with leave to amend only to 15 remedy the deficiencies noted above. 16 B. UCL Claim Based On Fraud 17 Evergreen Lakeport moves to dismiss the fraud-based 18 allegations in the UCL claim on the ground that they too fail to 19 meet Rule 9(b)’s requirement for specificity. 20 The UCL prohibits “any unlawful, unfair or fraudulent 21 business act or practice and unfair, deceptive, untrue or 22 misleading advertising.” 23 practice is one in which members of the public are likely to be 24 deceived.” 25 4th 1235, 1254 (2009). 26 Rule 9(b). 27 28 Under the UCL, “a fraudulent business Morgan v. AT&T Wireless Servs., Inc., 177 Cal. App. UCL claims grounded in fraud must satisfy Kearns, 567 F.3d at 1125. Paragraph 86 of the 1AC alleges: “Defendants, and each of 22 1 them, have also engaged in fraudulent business practices by 2 virtue of their failure to disclose and active concealment of the 3 actual levels of nurse staffing at their California skilled 4 nursing facilities.” 5 general public (including . . . persons admitted to and/or 6 residing in the Facilities during the Class Period . . .) have 7 been and are likely to be deceived by the statements, 8 representations, omissions, and other conduct by Defendants as 9 alleged herein.” United States District Court For the Northern District of California 10 Paragraph 87 alleges: “Members of the These allegations are sufficient to state that Plaintiff, as 11 a person admitted to one of the Facilities, was not told the 12 material facts about nurse staffing violations and that she and 13 members of the public were likely to be deceived by the 14 concealment. 15 deficiency noted above in that they do not specify the role that 16 Evergreen Lakeport played in the misrepresentations or 17 concealment. 18 she truthfully can do so, who made the misrepresentations to 19 Plaintiff, and failed to disclose material facts. 20 dismissed with leave to amend only to remedy the deficiencies 21 noted above. 22 However, these allegations suffer from the same As stated above, Plaintiff may amend to allege, if This claim is C. Renewed Arguments Regarding § 1430(b) Claim, Abstention and Primary Jurisdiction 23 In the May 25, 2011 Order, the Court denied Evergreen 24 Lakeport’s motion to dismiss Plaintiff’s UCL claim for unlawful 25 business acts, based on equitable abstention, denied the motion 26 to stay the case pursuant to the doctrine of primary 27 28 23 1 jurisdiction, and denied the motion to dismiss the California 2 Health and Safety Code section 1430(b) claim on the merits. 3 regard to the doctrine of equitable abstention, the Court stated 4 that dismissal was without prejudice to renewal if circumstances 5 changed. 6 Evergreen Lakeport seeks to renew all the arguments presented in 7 its first motion to dismiss. 8 9 See May 25, 2011 Order at 16. In Based on this statement, Evergreen Lakeport’s attempts to re-litigate the primary jurisdiction doctrine and the merits of the § 1430(b) claim are, United States District Court For the Northern District of California 10 in effect, motions for reconsideration, which are not properly 11 before the Court. 12 dismiss based on these arguments is denied. See Civil L.R. 7-9. Therefore, its motion to 13 Evergreen Lakeport argues that re-visiting equitable 14 abstention is warranted because, since the Court issued the May 15 25, 2011 Order, two other courts have applied this doctrine to 16 dismiss claims identical to those asserted by Plaintiff. 17 cases are Walsh v. Kindred Healthcare, __ F. Supp. 2d __, 2011 WL 18 2415739 (N.D. Cal. June 15, 2011) (J. White) and Shuts v. 19 Covenant Holdco, LLC, Case No. RG10551807 (Alameda County Sup. 20 Ct. May 4, 2011).6 21 The two Neither Walsh nor Shuts is binding authority and neither 22 persuades the Court that it should reconsider its decision. 23 Therefore, Evergreen Lakeport’s renewed motion to dismiss the UCL 24 claim for unlawful business acts, based on equitable abstention, 25 is denied. 26 6 27 28 The Shuts case was decided before the Court issued the May 25, 2011 Order. 24 1 2 CONCLUSION For the foregoing reasons, the Court: (1) grants Defendants’ 3 motion to dismiss or strike the claims brought by or against new 4 parties in the 1AC; (2) grants the EmpRes Entities’ motion to 5 dismiss based on lack of alter ego liability; (3) grants in part 6 and denies in part Evergreen Lakeport’s motion to dismiss as 7 follows: (a) the CLRA claim is dismissed with leave to amend; 8 (b) the UCL fraud claim is dismissed with leave to amend; (c) the 9 motion is otherwise denied; and (4) denies without prejudice the United States District Court For the Northern District of California 10 EmpRes Entities’ motion to dismiss for lack of personal 11 jurisdiction as moot, with leave to refile if the alter ego issue 12 is revisited at a later date. 13 jurisdictional discovery (Docket No. 69) is denied without 14 prejudice to refiling if the Empres Entities refile their 15 jurisdictional motion. 16 time for briefing on the jurisdictional motion is also denied 17 (Docket No. 73). 18 Plaintiff’s motion to compel Plaintiff’s motion for an extension of If Plaintiff wishes to amend her complaint to add parties 19 and claims, she must file a motion seeking leave to amend within 20 seven days from the date of this order. 21 shall include in her proposed amended complaint the amendments 22 allowed in this order. 23 she must file an amended complaint as allowed by this order 24 within seven days. 25 motion to dismiss the amended complaint and opposition to the 26 motion for leave to amend, of no more than twenty-five pages, 27 within fourteen days from the date the motion and/or the amended 28 25 If she does so, she If she does not move for leave to amend, Defendants may file an answer, or a combined 1 complaint are filed. 2 file a combined reply of no more than fifteen pages. 3 will be taken under submission. 4 Plaintiff will have to serve personally the two new Defendants, 5 if she has not yet done so. 6 management conference after issuing its order. Within seven days thereafter, Plaintiff may The motions If leave to amend is granted, The Court will schedule a case 7 8 IT IS SO ORDERED. 9 United States District Court For the Northern District of California 10 Dated: 10/31/2011 CLAUDIA WILKEN United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 26

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