Kenner et al v. Kelly et al

Filing 68

ORDER Granting 61 , 62 Defendants' Motions to Dismiss. The United States' motion to dismiss is granted with leave to amend, and the Dunn Defendants' motion to dismiss is granted with prejudice. Plaintiffs are granted leave to file a Second Amended Complaint("SAC") against the United States that cures the pleading deficiencies identified in this Order. Plaintiffs are cautioned that if the SAC does not cure these pleading deficiencies, their claims will be dismissed wit h prejudice and without further leave to amend. The SAC may not add any other new causes of action or parties not addressed by the Court in this Order. The SAC shall be filed on or before April 24, 2018. Signed by Judge Dana M. Sabraw on 4/10/2018. (aef)

Download PDF
1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 Case No. 11-cv-1538 DMS (WVG) BRIAN KENNER and KATHLEEN KENNER, Plaintiffs, 13 14 ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS v. ERIN KELLY et al., 15 Defendants. 16 17 18 Pending before the Court are Defendants United States of America, Barbara 19 Dunn, and Lacey, Dunn & Do, APC’s motions to dismiss Plaintiffs Brian and 20 Kathleen Kenner’s First Amended Complaint (“FAC”) pursuant to Federal Rule of 21 Civil Procedure 12(b)(1) & (6). Plaintiffs filed oppositions, and Defendants filed 22 replies. For the following reasons, the Court grants Defendants’ motions to dismiss. 23 I. 24 BACKGROUND 25 A. Procedural History 26 On October 8, 2010, Plaintiffs filed their first lawsuit against individual 27 Internal Revenue Service Employees (“IRS Defendants”), as well as Barbara Dunn 28 and Lacey, Dunn & Do (“Dunn Defendants”). (See Kenner v. Kelly, 10-cv-2105 –1– 11-cv-1538 DMS (WVG) 1 AJB (WVG).) Barbara Dunn is an attorney who formerly represented several 2 defendants in another prior lawsuit where Plaintiffs sued their tax professionals, and 3 Lacey, Dunn & Do is the law firm where Dunn is employed. The underlying facts 4 of this case arose out of collection activities undertaken by the IRS to satisfy unpaid 5 federal taxes. The Complaint alleged Defendants engaged in four distinct “criminal 6 episodes” encompassing six different predicate acts under the Racketeer Influenced 7 and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq. Specifically, 8 Plaintiffs alleged the IRS Defendants engaged in unauthorized collection actions, 9 and the Dunn Defendants conspired with the IRS Defendants, in violation of RICO. 10 On May 27, 2011, Judge Anthony J. Battaglia granted Defendants’ motions to 11 dismiss with prejudice. On June 21, 2011, Plaintiffs filed a notice of appeal, 12 challenging the order granting the motions to dismiss. 13 On July 12, 2011, Plaintiffs filed the present action against the same IRS 14 Defendants and the Dunn Defendants, alleging essentially identical claims for 15 relief.1 The underlying facts of this case arose from the same events as the first 16 action. 17 episodes” encompassing 59 different predicate acts under RICO. Because the claims 18 in this action were nearly identical to those in the first action, Judge Battaglia stayed 19 the case pending resolution of appeal in the first action.2 The Complaint alleged Defendants engaged in four distinct “criminal 20 On October 14, 2011, while the appeal was pending in the first action, 21 Plaintiffs filed a third action in the San Diego County Superior Court against the 22 same IRS Defendants, Capital One, Judge Battaglia, and Judge Barry Ted 23 Moskowitz. (See Kenner v. Kelly, 11-cv-2520 BEN (BGS).) In the Complaint, 24 Plaintiffs alleged the judicial Defendants “acted with [other] defendant parties as 25 26 27 28 1 The Complaint also alleged a conspiracy to commit RICO claim against Fireman’s Fund Insurance Company. 2 On October 11, 2012, Judge Battaglia recused from this case, which was then transferred to this Court. –2– 11-cv-1538 DMS (WVG) 1 conspirators to defeat the RICO lawsuits. [They] have used threats, intimidation, 2 and coercion to force [Plaintiffs] to abandon their rights.” (Id., ECF. No. 1.) The 3 United States and the IRS Defendants removed the action on October 31, 2011. On 4 January 13, 2012, Judge Roger T. Benitez granted the United States’ motion to 5 substitute party, dismissing the IRS Defendants and substituting the United States as 6 a proper party defendant. Subsequently, Judge Benitez granted Defendants’ motions 7 to dismiss for lack of subject matter jurisdiction and failure to state a claim. Plaintiff 8 filed a notice of appeal on July 20, 2012. 9 On April 25, 2012, Plaintiffs filed a fourth lawsuit against the United States, 10 Eric Holder, and Tim Geithner. (See Kenner v. Holder, 12-cv-1011 MMA (WVG).) 11 The underlying facts of this case also arose from the same events as the other 12 lawsuits. The Complaint alleged “Defendants’ agents engaged in a ‘pattern of 13 racketeering’ (RICO) to confiscate our property during an ‘offer in compromise’ 14 negotiation with the IRS.” (Id., ECF No. 1.) On December 19, 2012, Judge Michael 15 M. Anello granted Defendants’ motion to dismiss for lack of subject matter 16 jurisdiction. Plaintiffs subsequently filed a notice of appeal on December 28, 2012. 17 On October 17, 2013, the Ninth Circuit affirmed the dismissal of the first 18 action. This Court then issued an order further staying this action pending appeal in 19 the third and fourth actions. The Ninth Circuit subsequently affirmed the dismissals 20 on June 16, 2017 and June 16, 2015, respectively. Because the appeal proceedings 21 that gave rise to the stay of the instant action have concluded, the Court vacated the 22 stay. On February 14, 2018, Plaintiffs filed a FAC substituting the United States as 23 a defendant in lieu of the IRS Defendants and removing Fireman’s Fund Insurance 24 Company as a defendant. The FAC alleges the following causes of action: (1) failure 25 to release lien, in violation of 26 U.S.C. § 7432, against the United States, (2) 26 unauthorized collection action, in violation of 26 U.S.C. § 7433, against the United 27 States, (3) conversion and misappropriation of funds against the Dunn Defendants, 28 (4) actual fraud against the United States, (5) negligence against the Dunn –3– 11-cv-1538 DMS (WVG) 1 Defendants, and (6) declaratory relief. Defendants filed the present motions to 2 dismiss the FAC for lack of subject matter jurisdiction and failure to state a claim. 3 B. Factual Background 4 On July 8, 2009, the IRS filed a Notice of Tax Lien against Plaintiffs. (FAC, 5 Ex. N.) The allegations in the FAC arise from the IRS’s collection efforts regarding 6 Plaintiffs’ federal tax liabilities. According to the FAC, Defendants engaged in four 7 “Due Process Denying Episodes.” (Id. ¶ 1.) In the first episode, IRS Defendants 8 allegedly unlawfully obtained the settlement funds from Plaintiffs’ prior lawsuit 9 while an Offer in Compromise (“OIC”) was pending. (Id. ¶ 7.) Plaintiffs claim they 10 settled a lawsuit with their prior tax professionals sometime in July 2009, and 11 expected to receive settlement funds of approximately $250,000. (Id. ¶ 19.) The 12 Dunn Defendants allegedly conspired with the IRS Defendants and “made the check 13 payable directly to the United States Department of Treasury, and intentionally and 14 knowingly failed to include the names of Plaintiffs on the check[.]” (Id. ¶ 20.) In 15 the second episode, Plaintiffs assert the IRS Defendants fraudulently returned the 16 OIC in order to gain access to the settlement funds. (Id. ¶ 50.) In the third episode, 17 Plaintiffs allege the IRS Defendants made a “second attempt to fraudulently return 18 [Plaintiffs’] OIC and thus gain access to … settlement funds and eliminate [their] 19 rights.” (Id. ¶ 65.) Lastly, Plaintiffs complain they filed two Freedom of Information 20 Act requests in December 2009 and the summer of 2010. (Id. ¶ 76.) Prior to 21 receiving a response to their second request, Plaintiffs filed an administrative 22 complaint against the IRS. (Id.) Plaintiffs allege IRS Defendants used the content 23 of the administrative complaint and altered the computer program “ICS-HISTORY 24 to conceal their dishonest activities.” (Id.) 25 II. 26 LEGAL STANDARD 27 Pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, a party may 28 move to dismiss based on the court’s lack of subject matter jurisdiction. See Fed. R. –4– 11-cv-1538 DMS (WVG) 1 Civ. P. 12(b)(1). 2 jurisdiction is proper. Kokkonen v. Guardian Life Ins., Co., 511 U.S. 375, 377 3 (1994). Under Rule 12(b)(1), a jurisdictional attack may either be “facial” or 4 “factual.” White v. Lee, 227 F.3d 1213, 1242 (9th Cir. 2000). When a defendant 5 challenges jurisdiction “facially,” as they do here, all material allegations in the 6 complaint are assumed to be true, and the question for the court is whether the lack 7 of federal jurisdiction appears from the face of the pleading itself. Thornhill Publ’g 8 Co. v. Gen. Tel. Elec., 594 F.2d 730, 733 (9th Cir. 1979); Mortensen v. First Fed. 9 Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977). In a factual attack, the 10 “defendant disputes the truth of the allegations that, by themselves, would otherwise 11 invoke federal jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 12 (9th Cir. 2004). A challenge for lack of subject matter jurisdiction may be raised at 13 any time by either party or sua sponte by the court. Fleming v. Gordon & Wong Law 14 Group, P.C., 723 F. Supp. 2d 1219, 1222 (N.D. Cal. 2010) (citing Olson Farms, Inc. 15 v. Barbosa, 134 F.3d 933, 937 (9th Cir. 1998)). A plaintiff has the burden to establish that subject matter 16 A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil 17 Procedure tests the legal sufficiency of the claims asserted in the complaint. See 18 Fed. R. Civ. P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). In 19 deciding a motion to dismiss, all material factual allegations of the complaint are 20 accepted as true, as well as all reasonable inferences to be drawn from them. Cahill 21 v. Liberty Mut. Ins. Co., 80 F.3d 336, 338 (9th Cir. 1996). A court, however, need 22 not accept all conclusory allegations as true. Rather, it must “examine whether 23 conclusory allegations follow from the description of facts as alleged by the 24 plaintiff.” Holden v. Hagopian, 978 F.2d 1115, 1121 (9th Cir. 1992) (citation 25 omitted); see Benson v. Ariz. State Bd. of Dental Exam’rs, 673 F.2d 272, 275–76 26 (9th Cir. 1982) (court need not accept conclusory legal assertions). A motion to 27 dismiss should be granted if a plaintiff’s complaint fails to contain “enough facts to 28 state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 –5– 11-cv-1538 DMS (WVG) 1 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads 2 factual content that allows the court to draw the reasonable inference that the 3 defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 4 (2009) (citing Twombly, 550 U.S. at 556). 5 III. 6 DISCUSSION 7 A. United States’ Motion to Dismiss 8 i. 9 The United States moves to dismiss Plaintiffs’ § 7432 claim for failure to state 10 a claim, arguing Plaintiffs have not alleged the IRS found their liabilities satisfied or 11 unenforceable, nor have they alleged they furnished a bond. Pursuant to § 7432, a 12 taxpayer may recover damages from the United States when an IRS employee 13 knowingly or negligently fails to release a lien under 26 U.S.C. § 6325 on property 14 of the taxpayer. 26 U.S.C. § 7432(a). Under § 6325, there are three conditions that 15 require the IRS to release a lien: (1) when the Secretary finds the liability for the 16 amount assessed has been fully satisfied, (2) when the Secretary finds the liability 17 for the amount assessed has become legally unenforceable, or (3) when the Secretary 18 has accepted a bond. 26 U.S.C. § 6325(a)(1) & (2). Plaintiffs have not alleged any 19 of these conditions occurred to warrant the IRS to release a lien. Instead, Plaintiffs 20 appear to allege their liability was fully satisfied or legally unenforceable because 21 they submitted a valid OIC, and therefore, “the lien should have been removed, 22 pending the acceptance of the OIC.” (FAC ¶ 88.) However, the mere submission 23 of a potentially valid OIC does not amount to a finding by the IRS that the lien is 24 fully satisfied or legally unenforceable. The FAC therefore fails to state a claim 25 under § 7432. Accordingly, the United States’ motion to dismiss this claim is 26 granted with leave to amend. § 7432 Claim 27 ii. 28 Next, the United States initially contends Plaintiffs’ § 7433 claim should be § 7433 Claim –6– 11-cv-1538 DMS (WVG) 1 dismissed for lack of subject matter jurisdiction because it is time-barred and does 2 not relate back to the date of the original Complaint. A taxpayer may bring suit 3 against the United States for civil damages in relation to collection efforts of federal 4 tax liabilities. 26 U.S.C. § 7433(a). A civil action for damages arising from the 5 IRS’s wrongful collection activities “may be brought only within 2 years after the 6 date of the right of action accrues.” 26 U.S.C. § 7433(d)(3). A cause of action 7 accrues “when the taxpayer has had a reasonable opportunity to discover all essential 8 elements of a possible cause of action.” 26 C.F.R. § 301.7433–1(g)(2). The parties 9 do not dispute that (a) the original Complaint was filed within the two year statute 10 of limitations, and (b) the FAC, which names the United States as a defendant and 11 alleges the § 7433 claim, was filed outside the statute of limitations. 12 Plaintiffs initially contend their claim is not time-barred because the statute of 13 limitations was equitably tolled. The doctrine of equitable tolling applies to § 7433 14 claims against the federal government. See United States v. Marsh, 89 F. Supp. 2d 15 1171, 1177 (D. Haw. 2000) (citing Irwin v. Dep’t of Veterans Affairs, 498 U.S. 89, 16 95–96 (1990)); see also Ramos v. United States, No. C 01–21148–RS, 2002 WL 17 31466751, at * 3 (N.D. Cal. Nov. 1, 2002) (section 7433 permits equitable tolling). 18 However, “tolling is an extraordinary remedy which should be extended only 19 sparingly.” Justice v. United States, 6 F.3d 1474, 1479 (11th Cir. 1993) (citing Irwin, 20 498 U.S. at 96). Courts may equitably toll the statute of limitations if the plaintiff 21 filed “a defective pleading during the statutory period,” or “was induced by IRS 22 misconduct into allowing the deadline to pass.” Anderson v. United States, 220 F. 23 App’x 479, 481 (9th Cir. 2007) (citing Irwin, 498 U.S. at 95–96). Plaintiffs have 24 not alleged either of those circumstances applies here. Accordingly, equitable 25 tolling is not warranted. Plaintiffs’ §7433 claim is therefore time-barred unless it 26 relates back to the claims raised in the original Complaint. 27 “Relation back” refers to a doctrine that allows an amendment of a pleading 28 to “relate back” to the date of the original pleading, thus evading any statute of –7– 11-cv-1538 DMS (WVG) 1 limitations that might affect the amendment. Baldwin Cty. Welcome Ctr. v. Brown, 2 466 U.S. 147, 149 n.3 (1984). Pursuant to Federal Rule of Civil Procedure 15(c), 3 “an amendment asserting a new or changed claim relates back to the date of the 4 original pleading if the amendment ‘arose out of the conduct, transaction, or 5 occurrence set out ... in the original pleading.’” ASARCO, LLC v. Union Pac. R. 6 Co., 765 F.3d 999, 1004 (9th Cir. 2014) (quoting Fed. R. Civ. P. 15(c)(1)(B)). An 7 amended claim arises out of the same conduct, transaction, or occurrence if it “will 8 likely be proved by the ‘same kind of evidence’ offered in support of the original 9 pleading.” Percy v. S.F. Gen. Hosp., 841 F.2d 975, 978 (9th Cir. 1988) (quoting 10 Rural Fire Prot. Co. v. Hepp, 366 F.2d 355, 362 (9th Cir. 1966)). To relate back, 11 “the original and amended pleadings [must] share a common core of operative facts 12 so that the adverse party has fair notice of the transaction, occurrence, or conduct 13 called into question.” Martell v. Trilogy Ltd., 872 F.2d 322, 325 (9th Cir. 1989). 14 The relation back doctrine of Rule 15(c) is “liberally applied.” Clipper Exxpress v. 15 Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240, 1259 n.29 (9th Cir. 16 1982). 17 The United States argues the FAC does not relate back to the Complaint 18 because Plaintiffs have failed to show “how the initial and amended complaints share 19 a common core of operative facts as to the 26 U.S.C. § 7433 claim, as required under 20 Fed. R. Civ. P. 15(c).” (Mem. of P. & A. in Supp. of Mot. at 16.) Contrary to the 21 United States’ argument, the FAC asserts a claim that arises out of the same conduct, 22 transaction, or occurrence alleged in their Complaint. A comparison of the original 23 Complaint with the FAC reveals Plaintiffs set forth essentially identical factual 24 allegations in both pleadings. The United States further argues the FAC should not 25 relate back because Plaintiff previously made a strategic decision not to pursue this 26 claim in their Complaint. The Ninth Circuit, however, expressly held an amended 27 pleading can relate back even if “it includes allegations that were expressly 28 disclaimed in the original pleading[,]” and in such a case, “the test continues to be –8– 11-cv-1538 DMS (WVG) 1 the Rule 15(c)(1)(B) standard itself—whether the amended claim arises out of the 2 same conduct, transaction, or occurrence as that set forth in the original complaint.” 3 ASARCO, 765 F.3d at 1005. 4 Nevertheless, the Court agrees with the United States that the § 7433 claim 5 should be dismissed for failure to state a claim because Plaintiffs have failed to plead 6 the IRS violated a statute or regulation as required under § 7433. “Section 7433 7 creates a private right of action only for tax collection activity that violates some 8 provision of the Revenue Code or the regulations promulgated thereunder.” Shwarz 9 v. United States, 234 F.3d 428, 433–34 (9th Cir. 2000) (citing 26 U.S.C. § 7433(a)). 10 Accordingly, to state a claim under § 7433, “a plaintiff must allege that the IRS 11 violated an Internal Revenue Code provision or a Treasury Regulations.” 12 Scharringhausen v. United States, 686 F. Supp. 2d 1069, 1073 (S.D. Cal. 2009) 13 (citing Shwarz, 234 F.3d at 433–34). Here, Plaintiffs have not identified a specific 14 tax statute or regulation the IRS employees allegedly violated. 15 Moreover, the United States argues Plaintiffs have failed to allege in plain 16 terms how they are entitled to relief, as required by Federal Rule of Civil Procedure 17 8. Rule 8 requires a pleader to put forth “a short and plain statement of the claim 18 showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The FAC is 19 unnecessarily lengthy, verbose, and confusing. It lacks simple, concise, and direct 20 allegations. “Prolix, confusing complaints such as the ones [P]laintiffs filed in this 21 case impose unfair burdens on litigants and judges.” McHenry v. Renne, 84 F.3d 22 1172, 1179 (9th Cir. 1996). Plaintiffs have failed to comply with Rule 8(a). 23 Accordingly, the United States’ motion to dismiss this claim is granted with leave to 24 amend. 25 iii. 26 The United States argues Plaintiffs’ claim for actual fraud should be dismissed 27 based on lack of subject matter jurisdiction. The Court initially notes the FAC fails 28 to allege any facts pertaining to the United States under this claim. Rather, Plaintiffs Actual Fraud –9– 11-cv-1538 DMS (WVG) 1 allege facts solely pertaining to the Dunn Defendants. This reason alone warrants 2 dismissal of the claim. 3 In their opposition, Plaintiffs argue the fraud claim is premised on a 4 conspiracy between the IRS Defendants and Dunn Defendants “to prevent Plaintiffs 5 from seeking an Offer in Compromise of their tax liability with the IRS.” (Mem. of 6 P. & A. in Opp’n to Mot. at 12.) To the extent Plaintiffs seek to allege a claim for 7 fraud against the United States based on its tax assessment and collection efforts, the 8 Court is without subject matter jurisdiction over this claim. While the Federal Tort 9 Claims Act (“FTCA”) waives the United States’ sovereign immunity for tort claims 10 against the federal government in cases where a private individual would have been 11 liable under “the law of the place where the act or omission occurred[,]” 28 U.S.C. 12 § 1346(b)(1), § 2680 “provides for several exceptions that ‘severely limit[ ]’ the 13 FTCA’s waiver of sovereign immunity.” Snyder & Assocs. Acquisitions LLC v. 14 United States, 859 F.3d 1152, 1157 (9th Cir. 2017) (quoting Morris v. United States, 15 521 F.2d 872, 874 (9th Cir. 1975)). “If a plaintiff’s tort claim falls within one of the 16 exceptions, the district court lacks subject matter jurisdiction.” Morris, 521 F.2d at 17 874. Among § 2680’s several exceptions is § 2680(c), which prevents lawsuits 18 against the federal government for “[a]ny claim arising in respect of the assessment 19 or collection of any tax.” Id. 20 In any event, even if Plaintiffs’ fraud claim does not fall within any of the 21 exceptions under § 2680, subject matter jurisdiction still would be lacking. The 22 FTCA requires claimants to exhaust administrative remedies before filing suit 23 against the United States. 28 U.S.C. § 2675(a). Exhaustion of administrative 24 remedies is a jurisdictional prerequisite to bringing a claim under the FTCA. 28 25 U.S.C. § 2675. The party invoking the Court’s jurisdiction has the burden of proof. 26 Thornhill Pub. Co., Inc. v. Gen. Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 27 1979). The FAC does not allege Plaintiffs have exhausted their administrative 28 remedies with respect to this claim. Indeed, Plaintiffs do not dispute this fact in their – 10 – 11-cv-1538 DMS (WVG) 1 opposition. Accordingly, the United States’ motion to dismiss this claim is granted 2 without leave to amend, i.e. with prejudice. 3 iv. 4 Lastly, the United States moves to dismiss the claim for declaratory relief 5 because it is barred by the Declaratory Judgment Act. Plaintiffs do not oppose. The 6 Declaratory Judgment Act excludes claims for declaratory relief “with respect to 7 Federal taxes.” 28 U.S.C. § 2201(a). “[U]nder the specific terms of § 2201 the 8 courts have no jurisdiction to enter declaratory judgments with respect to Federal 9 taxes.” Mitchell v. Riddell, 402 F.2d 842, 846 (9th Cir. 1968). Plaintiffs seek a 10 judgment from this Court declaring the following: (1) “Plaintiffs submitted a valid 11 [OIC] to the [IRS] in 2009,” (2) “the funds received by the [IRS] … were accepted 12 as payment for the [OIC,]” and (3) “all funds received by the IRS, through its 13 collection efforts after receipt of the OIC must be returned.” (FAC ¶¶ 138–40.) 14 Plaintiffs’ request for a declaration falls squarely within the prohibition under § 15 2201, and thus, the Court lacks subject matter jurisdiction. Accordingly, United 16 States’ motion to dismiss this claim is granted with prejudice.3 17 B. Declaratory Relief Dunn Defendants’ Motion to Dismiss 18 Initially, the Dunn Defendants move to dismiss the FAC on the ground that 19 Plaintiffs’ claims are barred by res judicata. Res judicata, also known as claim 20 preclusion, “precludes the parties from relitigating issues that were or could have 21 22 23 24 25 26 27 28 3 The United States also argues the Court should dismiss Plaintiffs’ requests for injunctive relief and punitive damages. The Court construes this as a motion to strike under Federal Rule of Civil Procedure 12(f). The motion is unopposed. Accordingly, the Court therefore grants the United States’ motion. See Jenkins v. Cnty. of Riverside, 398 F.3d 1093, 1095 n.4 (9th Cir. 2005) (dismissing causes of action as abandoned where plaintiff did not oppose dismissal in her opposition); Shull v. Ocwen Loan Servicing, LLC, No. 13-CV-299 BEN (WVG), 2014 WL 1404877, at *2 (S.D. Cal. Apr. 10, 2014) (“Where a party fails to address arguments against a claim raised in a motion to dismiss, the claims are abandoned and dismissal is appropriate.”). – 11 – 11-cv-1538 DMS (WVG) 1 been raised in [a prior] action,” Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 2 398 (1981), and can serve as the basis for granting a motion to dismiss. See Stewart 3 v. U.S. Bancorp, 297 F.3d 953, 956 (9th Cir. 2002). “Res judicata is applicable 4 whenever there is (1) an identity of claims, (2) a final judgment on the merits, and 5 (3) privity between parties.” United States v. Liquidators of Eur. Fed. Credit Bank, 6 630 F.3d 1139, 1150 (9th Cir. 2011) (internal quotation marks omitted). A defendant 7 may raise the affirmative defense of res judicata by way of a motion to dismiss under 8 Rule 12(b)(6) where, as here, there are no disputed issues of fact. See Scott v. 9 Kuhlmann, 746 F.2d 1377, 1378 (9th Cir. 1984). The parties do not dispute the third 10 element of res judicata is met. 11 Identity of claims exists “when two suits arise from ‘the same transactional 12 nucleus of facts.’” Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Plan. Agency, 13 322 F.3d 1064, 1078 (9th Cir. 2003) (quoting Stratosphere Litig. L.L.C. v. Grand 14 Casinos, Inc., 298 F.3d 1137, 114 n.3 (9th Cir. 2002)). Even “[n]ewly articulated 15 claims based on the same nucleus of facts may still be subject to a res judicata finding 16 if the claims could have been brought in the earlier action.” Id. If claims are related 17 to the same set of facts and could be conveniently tried together, then there is identity 18 of claims. See Int’l Union of Operating Eng’rs-Emp’rs Const. Indus. Pension, 19 Welfare & Training Tr. Funds v. Karr, 994 F.2d 1426, 1429 (9th Cir. 1993); see also 20 Herrera v. Countrywide KB Home Loans, No. 11-cv-03591 LHK, 2012 WL 901340, 21 at *4 (N.D. Cal. Mar. 15, 2012) (finding that if plaintiff could have amended the 22 prior complaint to allege the successive claims, then identity of claims exists). 23 Plaintiffs’ claims in this case arise from the same transactional nucleus of facts as 24 the first action, specifically, their encounter with the IRS in the collection action. 25 Moreover, all conduct alleged in the FAC stems from the same traditional nucleus 26 of facts that occurred prior to Plaintiffs’ filing of the first action, and therefore, could 27 have been brought in the earlier suit. Indeed, Plaintiffs acknowledge the first and 28 present lawsuits were based on the same nucleus of facts, and Plaintiff chose to – 12 – 11-cv-1538 DMS (WVG) 1 allege solely the RICO claims. (See Mem. of P. & A. in Opp’n to Mot. at 7) (“Both 2 the Kenner I and Kenner II lawsuits were based on RICO claims that Plaintiffs chose 3 as their sole form of relief.”) In their opposition, Plaintiffs claim “[t]he RICO claims 4 were all-encompassing and left no room or reason to set forth common law tort 5 claims. However, the RICO allegations included sufficient facts and allegations to 6 support the new common law tort claims for conversion, misrepresentation[,] and 7 negligence against the DUNN Defendants.” (Id.) Plaintiffs, however, “cannot avoid 8 the bar of res judicata merely by alleging conduct by the defendant not alleged in his 9 prior action or by pleading a new legal theory.” McClain v. Apodaca, 793 F.2d 1031, 10 1034 (9th Cir. 1986). Accordingly, the Court finds an identity of claims, satisfying 11 the first element for res judicata. 12 The remaining element of res judicata is also met. A motion to dismiss for 13 failure to state a claim is a final judgment for purposes of res judicata. See Stewart, 14 297 F.3d at 957 (“[A] dismissal for failure to state a claim under Rule 12(b)(6) is a 15 judgment on the merits to which res judicata applies.”). “Such dismissals, unless the 16 court provides otherwise, will preclude future assertion of claims ‘aris[ing] out of 17 the same transactional nucleus of facts.’” Hampton v. Pac. Inv. Mgmt. Co. LLC, 869 18 F.3d 844, 846 (9th Cir. 2017) (quoting Garity v. APWU Nat’l Labor Org., 828 F.3d 19 848, 855 (9th Cir. 2016)). In the first action, Judge Battaglia granted the Dunn 20 Defendant’s motion to dismiss with prejudice for failure to state a claim, reasoning 21 “Plaintiffs’ RICO conspiracy claim [against the Dunn Defendants] relies on the 22 underlying RICO claim. Since the Court has determined that Plaintiffs have failed 23 to allege a RICO cause of action [against the IRS Defendants], the RICO conspiracy 24 claim necessarily fails.”4 (Kenner v. Kelly, 10-cv-2105 AJB(WVG), ECF No. 64.) 25 26 27 28 4 The Court notes Judge Battaglia initially granted the IRS Defendant’s motion to dismiss for lack of subject matter jurisdiction based on sovereignty. Judge Battaglia, however, also examined whether Plaintiffs have stated a RICO claim against the IRS Defendants in order to determine whether Plaintiffs have stated a RICO conspiracy – 13 – 11-cv-1538 DMS (WVG) 1 The Ninth Circuit affirmed the dismissal. 2 adjudication on the merits in the first action, satisfying the second element for res 3 judicata. Because all the elements for res judicata are met, the Court finds Plaintiffs’ 4 claims against the Dunn Defendants are barred by the doctrine of res judicata. Thus, 5 the Dunn Defendants’ motion to dismiss is granted with prejudice. Accordingly, there was a final 6 III. 7 CONCLUSION 8 For the foregoing reasons, the United States’ motion to dismiss is granted with 9 leave to amend, and the Dunn Defendants’ motion to dismiss is granted with 10 prejudice. 5 Plaintiffs are granted leave to file a Second Amended Complaint 11 (“SAC”) against the United States that cures the pleading deficiencies identified in 12 this Order. Plaintiffs are cautioned that if the SAC does not cure these pleading 13 deficiencies, their claims will be dismissed with prejudice and without further leave 14 to amend. The SAC may not add any other new causes of action or parties not 15 addressed by the Court in this Order. The SAC shall be filed on or before April 24, 16 2018. 17 18 IT IS SO ORDERED. Dated: April 10, 2018 19 20 21 22 23 24 25 26 27 28 claim against the Dunn Defendants. 5 The parties’ request that the Court take judicial notice of orders filed in related cases by other judges is granted. See United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007) (noting that a court “may take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue”); Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (“[Courts] may take judicial notice of court filings and other matters of public record.”). The Court declines to take judicial notice of the remaining documents because they are not necessary to the resolution of the present motions. – 14 – 11-cv-1538 DMS (WVG)

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?