The opinion
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8 UNITED STATES DISTRICT COURT
9 EASTERN DISTRICT OF CALIFORNIA
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11 KIMBERLY HUSTED, CHAPTER 7 No. 2:19-cv-01854-JAM-AC
BANKRUPTCY TRUSTEE OF THE
12 BANKRUPTCY ESTATE OF FIRST
CAPITAL RETAIL LLC,
13 ORDER GRANTING DEFENDANTS’
Plaintiff, MOTION TO DISMISS
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v.
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FIRST CAPITAL REAL ESTATE
16 INVESTMENTS LLC, a California
Limited Liability Company;
17 SUNEET SINGAL; FIRST CAPITAL
MANAGEMENT LLC, a Nevada
18 Limited Liability Company,
19 Defendants.
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21 This matter is before the Court on Defendants Suneet Singal
22 (“Singal”), First Capital Real Estate Investments LLC (“FCREI”),
23 and First Capital Management LLC’s (“First Capital Management”)
24 (collectively, “Defendants”) Motion to Dismiss for failure to
25 state a claim upon which relief can be granted. Mot., ECF No.
26 19. Kimberly Husted (“Plaintiff”) filed an opposition to
27 Defendants’ motion, Opp’n, ECF No. 21, to which Defendants
28 replied, Reply, ECF No. 27. After consideration of the parties’
1 briefing on the motion and relevant legal authority, the Court
2 GRANTS Defendants’ Motion to Dismiss.1
3
4 I. BACKGROUND
5 On September 13, 2019, Plaintiff, the Chapter 7 Bankruptcy
6 Trustee of the Bankruptcy Estate of First Capital Retail LLC
7 (“FCR”), filed suit against Defendants. See Compl., ECF No. 1.
8 Plaintiff alleged Defendants violated the Federal Racketeer
9 Influenced and Corrupt Organizations Act (“RICO”), U.S.C. §
10 1962, engaged in conversion under California law, and committed
11 federal criminal bank fraud, 18 U.S.C. § 1344. Id. The parties
12 have since stipulated that the claim of bank fraud be dismissed
13 with prejudice. See Stipulation to Dismiss Count III, ECF No.
14 25. The remaining allegations stem from a series of factoring
15 agreements and loans that closely followed the sale of Singal’s
16 business, First Capital Retail (“FCR”), to Rameshwar Prasad
17 (“Prasad”) on February 23, 2017. Compl. ¶ 20.
18 Prior to the sale, FCREI wholly owned FCR, a California
19 limited liability company. Id. at ¶¶ 5, 19. Singal served as
20 FCREI’s sole owner and member. Id. at ¶¶ 6, 19. Upon entering
21 into a Membership Interest Purchase Agreement, Prasad acquired
22 FCREI’s one-hundred percent ownership interest in FCR. Id. at
23 ¶ 20. After the sale, and without the knowledge or consent of
24 FCR, Singal allegedly entered into six different loan agreements
25 on behalf of FCR or FCREI, to be repaid from FCR’s future
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27 1 This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled
28 for February 25, 2020.
1 proceeds. Id. at ¶ 21. Singal did so by representing that he
2 was still the manager of FCR. Id. The agreements provided for
3 repayment of the loans by taking a percentage of FCR’s retail
4 sale proceeds from its regular bank deposits. Id.
5 Singal entered into the first of the agreements on April 4,
6 2017, approximately a month and a half after Prasad acquired
7 FCR. Id. at ¶ 23. Singal signed a Payment Rights Purchase and
8 Sale Agreement with ESBF California, LLC (“ESBF”), wherein ESBF
9 agreed to pay FCR $200,000 in return for the right to recover
10 $248,000 from FCR. Id. Shortly thereafter, on April 18, 2017,
11 Singal entered into a Revenue Based Factoring Agreement with
12 World Global Financing, Inc. (“WGF”), wherein WGF agreed to pay
13 $150,000 for the right to recover twenty-five percent of FCR’s
14 future receipts up to $210,000. Id. at ¶ 28. The next day,
15 Singal entered into an agreement with Happy Rock Merchant
16 Solutions (“Happy Rock”), wherein Happy Rock paid $294,946 in
17 exchange for the right to receive $512,000 from FCR’s future
18 receivables. Id. at ¶ 45.
19 The following month, on May 4, 2017, Singal entered into a
20 Merchant Agreement with Global Merchant Cash, Inc. (“GMC”),
21 wherein GMC paid $100,000 for the right to receive ten percent
22 of FCREI’s future receipts up to $149,900. Id. at ¶ 31.
23 Although this agreement was entered into on behalf of FCREI,
24 Singal allegedly pledged FCR’s assets as additional collateral
25 in the Security Agreement and Guaranty that accompanied it. Id.
26 Then, on May 16, 2017, Singal entered into a Secured Merchant
27 Agreement with Yellowstone Capital West LLC (“YCW”), wherein YCW
28 paid $100,000 for the right to receive fifteen percent of FCR
1 and FCREI’s proceeds up to $149,900. Id. at ¶ 35. The next
2 day, Singal entered into a second Merchant Agreement with GMC,
3 wherein GMC paid $50,000 in exchange for the right to receive
4 ten percent of FCR’s proceeds until GMC recovered $74,950. Id.
5 at ¶ 39.
6 Singal entered into the last of the agreements on June 9,
7 2017. Id. at ¶ 42. Singal signed a Loan Agreement with YCW,
8 wherein YCW paid $250,000 in exchange for the right to recover
9 $5,999 each business day from FCR’s Merchant Account up to
10 $374,750. Id. at ¶ 42. Over the course of the next few months,
11 judgments were entered against FCR for default of payment on
12 these agreements and merchant payments to FCR were withheld.
13 Id. at ¶¶ 48–53. In the end, the lenders’ collection of these
14 sums crippled FCR financially and it filed for Chapter 11
15 bankruptcy on September 14, 2017. Id. at ¶ 58. FCR later
16 converted its bankruptcy to Chapter 7 liquidation and the
17 business was sold for $1.2 million. Id. at ¶ 60.
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19 II. OPINION
20 A. Requests for Judicial Notice
21 Plaintiff request that the Court take judicial notice of
22 the complaint in S.E.C. v. Singal, et al., Case No. 1:19-cv-
23 11452 (S.D.N.Y. 2019). Request for Judicial Notice (“RJN”), ECF
24 No. 22. But Plaintiff failed to attach a copy of the referenced
25 complaint. See Ex. A to RJN. Instead, Plaintiff attached a
26 copy of the complaint in Heartland Bank v. First Capital
27 Victoria, LLC, et al., Case No. 4:17-cv-549 (E.D. Ark. 2017).
28 Plaintiff request for judicial notice is, therefore, denied.
1 B. Legal Standard
2 A Rule 12(b)(6) motion attacks the complaint as not
3 alleging sufficient facts to state a claim for relief. “To
4 survive a motion to dismiss [under 12(b)(6)], a complaint must
5 contain sufficient factual matter, accepted as true, to state a
6 claim to relied that is plausible on its face.” Ashcroft v.
7 Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and
8 citation omitted). While “detailed factual allegations” are
9 unnecessary, the complaint must allege more than “[t]hreadbare
10 recitals of the elements of a cause of action, supported by mere
11 conclusory statements.” Id. at 678. “In sum, for a complaint
12 to survive a motion to dismiss, the non-conclusory ‘factual
13 content,’ and reasonable inferences from that content, must be
14 plausibly suggestive of a claim entitling the plaintiff to
15 relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.
16 2009).
17 C. Analysis
18 1. Count I: RICO
19 Plaintiff brings her first claim against Defendants
20 under RICO, U.S.C. § 1962(c). Compl. ¶¶ 61–79. Under Section
21 1962(c), “[i]t shall be unlawful for any person employed by or
22 associated with any enterprise . . . to conduct or participate,
23 directly or indirectly, in the conduct of such enterprise’s
24 affairs through a pattern of racketeering activity.” 18 U.S.C.
25 § 1962(c). To state a civil claim for a RICO violation, a
26 plaintiff must show: (1) conduct (2) of an enterprise
27 (3) through a pattern (4) of racketeering activity (known as
28 “predicate acts”) (5) causing injury to the plaintiff’s business
1 or property. Grimmett v. Brown, 75 F.3d 506 (9th Cir. 1996)
2 (internal quotation marks and citations omitted). Defendants
3 move to dismiss this claim for two reasons, arguing:
4 (1) Plaintiff failed to adequately plead an enterprise; and
5 (2) Plaintiff does not adequately allege a pattern of predicate
6 acts. Mot. at 3–12.
7 a. Enterprise
8 Section 1962(c) requires Plaintiff to allege two distinct
9 entities: a “person” and an “enterprise.” Cedric Kushner
10 Promotions, Ltd. v. King, 533 U.S. 158, 161, 166 (2001).
11 Liability “depends on showing that the defendants conducted or
12 participated in the conduct of the enterprise’s affairs, not
13 just their own affairs.” Id. at 163 (internal quotation marks
14 and citation omitted). An enterprise that is not a legal
15 entity, such as a corporation, is commonly known as an
16 “association-in-fact” enterprise. Ellis v. J.P. Morgan Chase &
17 Co., No. 12-cv-038979-YRG, WL 78190, at *3 (N.D. Cal 2015)
18 (citation omitted). An association-in-fact enterprise is “any
19 union or group of individuals” “associated together for a common
20 purpose of engaging in a course of conduct.” United States v.
21 Turkette, 452 U.S. 576, 580, 583 (1981). To show an
22 association-in-fact enterprise, Plaintiff must allege facts
23 establishing three elements: (1) a common purpose of engaging in
24 a course of conduct; (2) an ongoing organization, either formal
25 or informal; and (3) facts that provide sufficient evidence the
26 associates function as a continuing unit. Odom v. Microsoft
27 Corp., 486 F.3d 541, 553 (9th Cir. 2007) (citing Turkette, 452
28 U.S. at 583).
1 Plaintiff alleges Defendants were involved in an
2 association-in-fact enterprise. See Compl. ¶¶ 65–66. But
3 Defendants argue “Plaintiff fails to allege any facts that would
4 show the existence of an enterprise as opposed to simply a
5 person alleged to have committed fraud.” Mot. at 7. The Court
6 agrees. Singal is the only individual alleged to have
7 participated in the conduct. See Compl. ¶¶ 21–46. As far as
8 FCREI is concerned, Singal is alleged to have pledged FCREI’s
9 receivables to a lender along with FCR’s on two occasions. Id.
10 at ¶¶ 31, 35. And FCREI is alleged to have received some of the
11 funds from the pledge made by Singal of FCR’s and FCREI’s
12 receivables. Id. at ¶ 45. However, Singal was FCREI’s sole
13 owner and member. Id. at ¶¶ 6, 19. No facts suggest FCREI
14 acted in a capacity separate and distinct from Singal.
15 Singal’s relationship to FCREI is distinguishable from the
16 defendant’s relationship to the corporation in Cedric Kushner
17 Promotions, 533 U.S. 158. There, defendant was the president
18 and sole shareholder of a closely held corporation that promoted
19 boxing matches, Don King Productions. Id. at 160; Cedric
20 Kushner Promotions, Ltd. v. King, Case No. 98-cv-6859, WL 771366
21 (S.D.N.Y 1999). The Supreme Court accepted the above-described
22 “distinctness” principle, but, nonetheless, held defendant was
23 sufficiently distinct from the corporation such that the
24 § 1962(c) requirement was met. Cedric Kushner Promotions, 533
25 U.S. at 163. Defendant was a “natural person” and the
26 corporation, Don King Productions, was “a legally different
27 entity with different rights and responsibilities due to its
28 different legal status.” Id. The distinction turns on the fact
1 that Don King Productions was a separate corporation in the
2 business of promoting boxing matches. Id. at 160. By contrast,
3 FCREI is a limited liability company and Singal is its sole
4 member. Compl. at ¶ 5–6. Unlike the defendant in Cedric
5 Kushner Promotions and Don King Productions, Singal and FCREI
6 are one and the same. There are no other members of FCREI and
7 FCREI has no interests or affairs separate and apart from
8 Singal’s. As such, § 1962(c) distinctness requirement is not
9 met here.
10 No substantive allegations are also asserted against First
11 Capital Management. First Capital Management is merely
12 mentioned as one of the entities controlled by Singal. Compl.
13 at ¶ 66. Thus, the complaint alleges no facts of a formal or
14 informal organization in which individuals function as a
15 continuous unit. As stated above, Plaintiff must allege two
16 distinct entities—a person and an enterprise. Cedric Kushner
17 Promotions, 533 U.S. at 166. Singal is the person, but there is
18 no enterprise distinct from him. Singal was the sole member of
19 FCREI. The few actions taken by FCREI were, in effect, taken by
20 Singal. And there are no facts alleging First Capital
21 Management was substantively involved in any way. Singal, and
22 Singal alone, entered into the agreements on behalf of FCR.
23 Thus, Defendants did not act on behalf of an enterprise.
24 Instead, Singal “conducted . . . [his] own affairs.” Id. at
25 163(internal quotation marks and citation omitted).
26 Notwithstanding the fact that Federal Rule of Civil
27 Procedure 9(b)’s particularity requirement applies, see Edwards
28 v. Marin Park, Inc., 356 F.3d 1058, 1065–66 (9th Cir. 2004), the
1 Court finds that Plaintiff has failed to offer sufficient
2 factual allegations in support of her contention that Defendants
3 associated together to form an association-in-fact enterprise
4 under the pleading standard of Federal Rule of Civil Procedure
5 8. Plaintiff has offered no factual allegations to render
6 plausible her claim that anyone beyond Singal was involved. In
7 alleging an enterprise, Plaintiff only offers the Court a series
8 of conclusory allegations. See Compl. ¶ 65–66.
9 Thus, having construed Plaintiff’s allegations in the light
10 most favorable to her, the Court finds that Plaintiff fails to
11 sufficiently allege the existence of an association-in-fact
12 enterprise.
13 b. Pattern of Predicate Acts
14 Because the Court finds that Plaintiff has failed to allege
15 an association-in-fact enterprise, it follows that Plaintiff has
16 also failed to allege a pattern of predicate acts. Without an
17 association-in-fact enterprise, Plaintiff cannot, as a logical
18 matter, be found to have alleged a pattern of racketeering
19 activity. One cannot stand without the other. See Ellis v.
20 J.P.Morgan Chase & Co., Case No. 12-cv-03897-YGR, WL 78190 (N.D.
21 Cal. 2015) (where the court found plaintiffs failed to allege a
22 common purpose, and, thus, no association-in-fact enterprise,
23 plaintiff could not be found to have alleged distinct enterprise
24 conduct).
25 Accordingly, the Court dismisses Plaintiff’s RICO claim.
26 2. Count II: Conversion
27 Plaintiff’s second claim alleges Defendants committed acts
28 of conversion under California law. Compl. ¶¶ 80–85. Under 28
1 U.S.C. § 1367(c)(3), the Court may “decline to exercise
2 supplemental jurisdiction over state law claims if it has
3 dismissed all federal claims.” Amistad Christian Church v. Life
4 is Beautiful, LLC, 692 Fed. Appx. 922, 923. “[I]n the usual
5 case in which all federal-law claims are eliminated before
6 trial, the balance of factors . . . will point toward declining
7 to exercise jurisdiction over the remaining state-law claims.
8 Acri v. Varian Assocs., Inc., 114 F.3d 999, 1001 (9th Cir.),
9 supplemented, 121 F.3d 714 (9th Cir. 1997), as amended (Oct. 1,
10 1997) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343,
11 350 n.7 (1988)).
12 With the RICO claim dismissed, only Plaintiff’s conversion
13 claim remains. Considering the values of “economy, convenience,
14 fairness, and comity,” the Court deems it appropriate to decline
15 jurisdiction over Plaintiff’s state law claim. See id. at 1001.
16 The Court has dismissed all claims over which it had original
17 jurisdiction, so Plaintiff’s claim may be more appropriately
18 addressed in state court. 28 U.S.C. § 1367(c)(3).
19 D. Leave to Amend
20 The Court need not grant leave to amend where amendment
21 would be futile. Deveraturda v. Globe Aviation Sec. Servs., 454
22 F.3d 1043, 1049 (9th Cir. 2006). As explained above, an
23 association-in-fact enterprise does not exist here. Thus, no
24 amendment could salvage the RICO claim and the Court declines to
25 ///
26 ///
27 ///
28 ///
1 exercise supplemental jurisdiction over the conversion claim.
2 | Accordingly, dismissal with prejudice is appropriate.
3
4 IIl. ORDER
5 For the reasons set forth above, the Court GRANTS
6 | Defendants’ Motion to Dismiss with prejudice. The Clerk of the
7 Court is directed to close the case.
8 IT IS SO ORDERED.
9 Dated: March 26, 2020
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