Strudley et al v. Santa Cruz County Bank et al

Filing 67

ORDER GRANTING 18 DEFENDANTS' MOTION TO STRIKE. Signed by Judge Edward J. Davila on 9/29/2017. The Clerk shall close this file. (ejdlc2S, COURT STAFF) (Filed on 9/29/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
Northern District of California

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RAF STRUDLEY, et al.,

Case No. 5:15-cv-05106-EJD

Plaintiffs,
ORDER GRANTING DEFENDANT’S
MOTION TO STRIKE

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v.
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SANTA CRUZ COUNTY BANK, et al.,

Re: Dkt. Nos. 18

Defendants.
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Defendant Santa Cruz County Bank (“the Bank”) moves to strike Plaintiffs’ complaint for

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lack of subject-matter jurisdiction. The Bank’s motion will be granted.
I.

BACKGROUND
In a separate criminal action, Defendants John Geringer, Christopher Luck, and Keith

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Rode pleaded guilty to federal criminal charges arising from a securities fraud scheme. Plaintiffs

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now bring claims against those three Defendants as well as the Bank, alleging causes of action for

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conspiracy to commit fraud, breach of fiduciary duty, aiding and abetting fraud, aiding and

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abetting breach of fiduciary duty, and negligent misrepresentation. Compl., Dkt. No. 1. In their

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amended complaint, Plaintiffs added causes of action under federal securities laws. First. Am.

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Compl. (“FAC”), Dkt. No. 16.

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Case No.: 5:15-cv-05106-EJD
ORDER GRANTING DEFENDANTS’ MOTION TO STRIKE
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The Bank now moves to strike under Fed. R. Civ. P. 12(f) for lack of subject-matter

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jurisdiction. Def.’s Mot. to Strike (“Mot.”), Dkt. No. 18.
II.

LEGAL STANDARD

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Rule 12(f) permits a court to “strike from a pleading an insufficient defense or any

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redundant, immaterial, impertinent, or scandalous matter.” A motion to strike will generally not be

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granted unless it is clear the matter to be stricken could not have any possible bearing on the

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subject matter of the litigation. See RDF Media Ltd. v. Fox Broad. Co., 372 F. Supp. 2d 556, 566

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(C.D. Cal. 2005). When the court considers a motion to strike, it “must view the pleading in a light

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most favorable to the pleading party.” In re 2TheMart.com, Inc. Sec. Litig., 114 F. Supp. 2d 955,
965 (C.D. Cal. 2000). A motion to strike should be denied if there is any doubt whether the

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United States District Court
Northern District of California

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allegations in the pleadings might be relevant in the action. Id.

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III.

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DISCUSSION
The Bank argues that this case must be dismissed because Plaintiffs’ initial complaint did

not establish a basis for federal subject-matter jurisdiction. Mot. 7–11.
“Subject matter jurisdiction must exist as of the time the action is commenced.” Morongo

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Band of Mission Indians v. California State Bd. of Equalization, 858 F.2d 1376, 1380 (9th Cir.

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1988) (citing Mollan v. Torrance, 22 U.S. 536, 538 (1824)). “If jurisdiction is lacking at the outset,

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the district court has ‘no power to do anything with the case except dismiss.’ ” Id. (quoting 15 C.

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Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3844, at 332 (1986)).

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Subsequent amendments to the complaint generally cannot cure the initial complaint’s lack of

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subject-matter jurisdiction. Id. at 1381.

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Here, Plaintiffs’ initial complaint asserted five state-law causes of action. Dkt. No. 1. It did

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not assert any causes of action arising under federal law, nor did it claim diversity of citizenship of

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the parties. As such, the initial complaint did not establish a basis for subject-matter jurisdiction.

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See Peralta v. Hispanic Bus., Inc., 419 F.3d 1064, 1068 (9th Cir. 2005) (“In civil cases, subject

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matter jurisdiction is generally conferred upon federal district courts either through diversity

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jurisdiction, 28 U.S.C. § 1332, or federal question jurisdiction, 28 U.S.C. § 1331.”). The Bank

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Case No.: 5:15-cv-05106-EJD
ORDER GRANTING DEFENDANTS’ MOTION TO STRIKE
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moved to dismiss the initial complaint on that basis. Dkt. No. 10. Rather than oppose the motion,

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Plaintiffs filed an amended complaint under Rule 15(a)(1)(B) that added federal securities fraud

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claims under Section 10(b) of the Securities Exchange Act of 1934 and the accompanying SEC

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Rule 10b-5. FAC.

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However, this amendment failed to cure the jurisdictional defect. See Morongo, 858 F.2d
at 1380 (“Subject matter jurisdiction must exist as of the time the action is commenced.”)

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(emphasis added); see also Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 831 (1989)

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(noting that a plaintiff may not “amend a complaint so as to produce jurisdiction where none

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actually existed before”). The Ninth Circuit recently addressed a similar scenario in Northstar Fin.

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Advisors Inc. v. Schwab Invs, 779 F.3d 1036 (9th Cir. 2015). In that case, the plaintiff filed a class

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United States District Court
Northern District of California

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action complaint on behalf of investors in a mutual fund. Id. at 1043. The plaintiff brought the

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action in its own name, but because it owned no shares of the fund and did not obtain an

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assignment of claims from investors, it lacked standing when it filed the initial complaint. Id. The

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district court dismissed the complaint for lack of subject-matter jurisdiction, but it invited the

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plaintiff to amend its complaint. Id. The plaintiff subsequently obtained an assignment of claims

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and filed an amended complaint. Id. The case was then reassigned. The new district judge

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construed the earlier order as granting leave to amend under Rule 15(d) “instead of an amended

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complaint pursuant to Rule 15(a).” Northstar Fin. Advisors, Inc. v. Schwab Invs., 781 F. Supp. 2d

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926, 932–33 (N.D. Cal. 2011). On that basis, the court declined to dismiss the complaint for lack

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of standing, finding that courts may allow a supplemental pleading filed under Rule 15(d) to

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correct a jurisdictional defect. Id. at 933. The Ninth Circuit affirmed on the basis that “the rule as

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stated in Morongo”—that subject-matter jurisdiction must exist when the action is commenced—

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“does not extend to supplemental pleadings filed pursuant to Fed. R. Civ. P. 15(d).” Northstar, 779

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F.3d at 1046.

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This case is distinct from the scenario in Northstar. Here, Plaintiffs filed their amended

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complaint as a matter of course under Rule 15(a)(1)(B)—not under Rule 15(d), as was the case in

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Northstar. Rule 15(d) states that courts “may permit supplementation even though the original

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Case No.: 5:15-cv-05106-EJD
ORDER GRANTING DEFENDANTS’ MOTION TO STRIKE
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pleading is defective in stating a claim or defense.” No similar grant of authority appears in Rule

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15(a). The Court interprets Rule 15(a), in light of Morongo, to mean that supplemental pleadings

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under Rule 15(a)(1)(B) cannot create subject-matter jurisdiction when it was missing in the initial

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complaint. The Ninth Circuit held in Northstar that the Morongo rule “is more nuanced than the

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inflexibility suggested by its language,” but it limited its expansion of Morongo to supplemental

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pleadings under Rule 15(d). Northstar, 779 F.3d at 1046. As such, the Court finds that Morongo

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controls, and Plaintiffs’ complaint must be dismissed without prejudice.

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Plaintiffs argue that their federal causes of action were “implied” in the initial complaint,
and that their “technical amendment to the Original Complaint merely formalized the well-pled

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allegations of the Original Complaint regarding Santa Cruz County Bank’s misrepresentations,

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United States District Court
Northern District of California

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untrue statements, and omissions of material facts, as well as the Bank’s use of manipulative and

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deceptive devices and contrivances.” Pls.’ Opp’n to Def.’s Mot. to Strike (“Opp’n”) 10, Dkt. No.

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25. This argument is unpersuasive. Plaintiffs’ federal securities claims are distinct and independent

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from the state-law claims alleged in the original complaint, even if the underlying facts are the

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same. See Box Tree South, Ltd. v. Bitterman, 873 F. Supp. 833, 837 (S.D.N.Y. 1995) (holding

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that the well-pleaded complaint rule prevents “a court from inferring from a state law complaint a

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basis for federal jurisdiction even though the facts pleaded are sufficient to sustain a federal claim

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that was not pleaded”).

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Plaintiffs also argue that a Rule 12(f) motion is not the proper vehicle to challenge subject-

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matter jurisdiction. Opp’n 3–5. But “in a significant number of cases, federal courts have

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permitted a defending party to raise a lack of subject tmatter jurisdiction on a Rule 12(c) motion

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for judgment on the pleadings or on a Rule 12(f) motion to strike.” 5B C. Wright & A. Miller,

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Federal Practice and Procedure § 1350, at 114–15 (3d ed. 2004) (emphasis added); see also

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Norman v. Levy, 756 F. Supp. 1060, 1062 (N.D. Ill. 1990) (holding that a Rule 12(f) motion to

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strike for lack of subject-matter jurisdiction is the “functional equivalent” of a Rule 12(b)(1)

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motion to dismiss for lack of subject-matter jurisdiction); U.S. v. Portrait of Wally, A Painting By

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Egon Schiele, No. 99 Civ. 9940(MBM), 2002 WL 553532, at *4 n.3 (S.D.N.Y. Apr. 12, 2002)

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Case No.: 5:15-cv-05106-EJD
ORDER GRANTING DEFENDANTS’ MOTION TO STRIKE
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(“the standard is the same under Rule 12(f) and 12(b)(6), and courts have used both to reach the

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same result”).

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IV.

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CONCLUSION
Defendant Santa Cruz County Bank’s motion to strike (Dkt. No. 18) is GRANTED.

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Plaintiffs’ First Amended Complaint (Dkt. No. 16) is dismissed without leave to amend and

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without prejudice. The Clerk shall close this file.

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United States District Court
Northern District of California

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IT IS SO ORDERED.
Dated: September 29, 2017
______________________________________
EDWARD J. DAVILA
United States District Judge

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Case No.: 5:15-cv-05106-EJD
ORDER GRANTING DEFENDANTS’ MOTION TO STRIKE
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