The opinion
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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
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11 BORREGO COMMUNITY HEALTH Case No.: 21-cv-01417-BEN-SBC
FOUNDATION, a California Nonprofit
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Public Benefit Corporation, ORDER:
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Plaintiff, (1) GRANTING DEFENDANTS’
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MOTION TO DISMISS;
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(2) DENYING AS MOOT
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INLAND VALLEY INVESTMENTS, PLAINTIFF’S MOTION TO
17 LLC, a California limited liability CONSOLIDATE
company; et al.,
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19 Defendants.
[ECF Nos. 52, 53]
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Before the Court are two motions—a motion to consolidate this case with a related
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action1 filed by Plaintiff Borrego Community Health Foundation (“Plaintiff” or “BCHF”)
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and a motion to dismiss the Fourth Amended Complaint (“FAC”) filed by Defendants DRP
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Holdings, LLC, Inland Valley Investments, LLC, and Promenade Square, LLC
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(collectively “Defendants”). ECF Nos. 52, 53. Both motions have been fully briefed and
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submitted on the papers without oral argument pursuant to Civil Local Rule 7.1(d)(1) and
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1 See Borrego Community Health Foundation vs. Hebets et al., filed under case number
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1 Rule 78(b) of the Federal Rules of Civil Procedure. See ECF Nos. 60, 62. For the reasons
2 set forth below, the Court GRANTS Defendants’ motion to dismiss with prejudice and
3 DENIES-AS-MOOT Plaintiff’s motion to consolidate.
4 I. BACKGROUND
5 Factual Background. The factual background applicable to Defendants in this
6 action was accurately set forth in the prior Order dismissing Plaintiff’s Third Amended
7 Complaint (“TAC”) and will not be extensively duplicated here. See ECF No. 47, “Prior
8 Order” at 2-3. Briefly, Plaintiff BCHF is a California non-profit corporation and
9 federally qualified health center which provides healthcare services to individuals in
10 underserved communities. ECF No. 51, “FAC” ¶ 1. The FAC alleges Defendants leased
11 three commercial properties to Plaintiff at well above market-rate rents and under
12 unconscionable terms. Id. ¶¶ 190-208. This was achieved by “Borrego Insiders” (certain
13 employees and Board members at BCHF) entering and concealing these leases from the
14 full Board of Trustees. Id. Dubbed the “Priest Leases Scheme”, this was one of many
15 alleged schemes conducted by the Borrego Insiders, the balance of which are being
16 litigated in the MSL. Id. ¶ 2.
17 Procedural History. BCHF initiated this action in San Diego Superior Court
18 asserting several state-law claims in June 2021. ECF No. 1. The case was subsequently
19 removed to this Court under federal question jurisdiction after Plaintiff amended its
20 complaint and added claims for violation of the Racketeering Influenced and Corrupt
21 Organizations Act (“RICO”), 18 U.S.C. §§ 1962(c) & (d). Id. In August 2021,
22 Defendants moved to dismiss the complaint. ECF No. 6. District Judge Lorenz granted
23 the motion, finding that Plaintiff’s RICO claim as alleged was time-barred and not well
24 pled, but allowed leave to amend. ECF No. 15. Plaintiff then filed a TAC, which
25 Defendants again moved to dismiss. ECF Nos. 16, 19.
26 Order Dismissing TAC. Reviewing the TAC, District Judge Battaglia found
27 Plaintiff had adequately alleged that its RICO claim was not time-barred. Prior Order at
28 6. However, Judge Battaglia also found Plaintiff had once again failed to adequately
1 plead its RICO claim. Id. at 8-9. The Order noted several deficiencies in the claim,
2 including: (1) Plaintiff failed to adequately allege facts supporting alter ego liability; (2)
3 the TAC failed to allege specific facts regarding individual Defendants, instead
4 impermissibly lumping them together; and (3) Plaintiff did not sufficiently plead the
5 “conduct” element, a deficiency also noted in Judge Lorenz’ Order. Id. at 6-9. Judge
6 Battaglia granted Plaintiff “one, final opportunity to cure the deficiencies in its RICO
7 claims.” Id. at 10.
8 Additional Allegations in FAC. The FAC adds sixty-three pages of factual
9 allegations. See FAC pp. 6-51, 59-85. Many of these are new to this action and are
10 pulled directly from the complaint in the MSL. Id. Plaintiff argues this information
11 provides necessary context because the Priest Leases Scheme is part of a larger pattern of
12 conduct by the Borrego Insiders to defraud BCHF. ECF No. 56, Opposition to Motion to
13 Dismiss (“Oppo.”) at 9. While the Court is cognizant of the bigger picture Plaintiff seeks
14 to paint, the FAC ultimately includes fewer factual allegations supporting Plaintiff’s
15 claims against those Defendants named in this case. Compare ECF No. 17 at 8-19 and
16 ECF No. 51 at 52-59. Thus, far from curing the deficiencies in Plaintiff’s RICO claims,
17 the FAC unfortunately deepens them.
18 II. LEGAL STANDARDS
19 Rule 12(b)(6) permits dismissal for “failure to state a claim upon which relief can
20 be granted.” Fed. R. Civ. P. 12(b)(6). A complaint may survive a motion to dismiss only
21 if, taking all well pled factual allegations as true, it contains enough facts to “state a claim
22 to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A
23 claim has facial plausibility when the plaintiff pleads factual content that allows the court
24 to draw the reasonable inference that the defendant is liable for the misconduct
25 alleged.” Id. “The bare recitals of the elements of a cause of action, supported by mere
26 conclusory statements, do not suffice.” Id. “In sum, for a complaint to survive
27 a motion to dismiss, the non-conclusory factual content, and reasonable inferences from
28 that content, must be plausibly suggestive of a claim entitling the plaintiff to
1 relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). Where
2 a motion to dismiss is granted, leave to amend should be liberally allowed “unless the
3 court determines that the allegation of other facts consistent with the challenged pleading
4 could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture
5 Co., 806 F.2d 1393, 1401 (9th Cir. 1986).
6 III. DISCUSSION
7 Defendants argue Plaintiff has failed to successfully plead its RICO claim for the
8 third time, warranting dismissal with prejudice. ECF No. 53-1, Motion to Dismiss
9 (“Mot.”). Defendants make several attacks on Plaintiff’s RICO claim, including: (1) the
10 claim is time-barred; (2) the allegations in the FAC still impermissibly lump multiple
11 Defendants together; and (3) Plaintiff yet again fails to adequately plead the “conduct”
12 element. Mot. at 1-2. However, as explained below, the Court finds Defendants’ third
13 argument sufficient for disposition. 2
14 “The elements of a civil RICO claim are as follows: (1) conduct (2) of an
15 enterprise (3) through a pattern (4) of racketeering activity (known as predicate acts) (5)
16 causing injury to plaintiff’s business or property.” Living Designs, Inc. v. E.I. Dupont de
17 Nemours and Co., 431 F.3d 353, 361 (9th Cir. 2005) (citing Grimmett v. Brown, 75 F.3d
18 506, 510 (9th Cir. 1996)).
19 In Reves v. Ernst & Young, the U.S. Supreme Court clarified what constitutes
20 “conduct” for purposes of a RICO claim. 507 U.S. 170 (1993). The Court held, “to
21 participate, directly or indirectly, in the conduct of such enterprise’s affairs, one must
22 have some part in directing those affairs.” Id. at 179 (internal quotations omitted). As
23 the Ninth Circuit explained, “In so doing, [the Supreme Court] rejected Reves’s position
24 that conduct should be read as ‘carry on’ so that almost any involvement would do.”
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2 Even assuming Plaintiff has sufficiently pled alter ego as to the Priest LLC Defendants
27 and assuming that Travis Lyon and Daryl Priest can be considered agents of the Priest
LLCs, this still does not save Plaintiff’s RICO claim.
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1 Walter v. Drayson, 538 F.3d 1244, 1247 (9th Cir. 2008). “While it is not necessary to be
2 upper management to be liable[,]” it is also “not enough that [defendant] failed to stop
3 illegal activity, for Reves requires ‘some degree of direction.’” Walter, 538 F.3d at 1247-
4 48 (quoting Reves, 507 U.S. at 179). “Simply performing services for the enterprise does
5 not rise to the level of direction, whether one is inside or outside.” Id. at 1249.
6 The prior Order noted, “[t]hat Defendants ‘worked with Hebets to devise
7 management and operations decisions at BCHF’ is not enough. Plaintiff must plead more
8 with respect to, for example, when, where, how each defendant allegedly took over
9 BCHF’s management and operations.” Id. at 9. Despite this clear direction, Plaintiff did
10 not cure this deficiency. Reviewing the factual allegations relevant to the Priest Leases
11 Scheme, the associated paragraphs contain the exact same conclusory language
12 previously rejected by the Court. See FAC ¶ 193 (“The Priest LLCs, Daryl Priest [],
13 Travis Lyon and the Borrego Insiders worked together to devise a scheme…The Priest
14 LLCs, Daryl Priest, Travis Lyons [sic] and the Borrego Insiders worked together to make
15 management and operational decisions at Borrego Health[.]”)
16 Plaintiff argues that it has pled sufficient facts showing these Defendants “both
17 gave directions to and took directions from” the Borrego Insiders and occupied a position
18 in the chain of command, pointing the Court to various allegations in the FAC. See FAC
19 ¶¶ 30, 76, 80, 83-86, 105, 126, 191-200, 414-419. However, except for paragraphs 80
20 and 191-200, those cited by Plaintiff do not contain allegations relating to the Priest
21 LLCs, or actions taken relating at all to the Priest Leases Scheme. Instead, these
22 paragraphs largely cite allegations related Premier, Travis Lyon and two other schemes.
23 See, e.g., FAC ¶ 105 (Travis Lyon instructing BCHF employees), ¶ 126 (Premier
24 employees, including Travis Lyon, providing training for contract dental program).3
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3 Expanding review beyond the cited paragraphs, the same pattern prevails. See, e.g.,
27 FAC ¶ 79 (“hostile takeover” of contract dental spearheaded by Travis Lyon), ¶ 160
(instructing BCHF program integrity team).
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1 The FAC simply lacks non-conclusory allegations that the any of the Defendants
2 took part in managing or conducting the affairs of BCHF that related in any way to the
3 Priest Leases Scheme, even when (improperly) viewed interchangeably with each other.
4 Finally, even assuming Travis Lyon’s actions related to Premier are sufficient to show he
5 occupied a position of management or control within BCHF, the FAC does not allege a
6 single action taken by Travis Lyon or Daryl Priest relating to the Priest Leases Scheme.
7 Accordingly, the Court finds Plaintiff has failed to plead the conduct element of its
8 RICO claim for the third and final time.
9 IV. CONCLUSION
10 For the above reasons, the Court GRANTS Defendants’ motion to dismiss
11 Plaintiff’s RICO claims.4 Two prior orders identified the deficiency with the “conduct”
12 element specifically, which Plaintiff has failed to remedy. At this point the Court is
13 confident amendment is futile. See Schreiber Distrib. Co., 806 F.2d at 1401.
14 Regarding Plaintiff’s motion to consolidate, even with Plaintiff’s attempted de-
15 facto consolidation by adding allegations from the MSL complaint into the FAC, this
16 does not cure the deficiency in the RICO claim. Absent the RICO claim, Plaintiff’s
17 remaining state law claims are distinct from the MSL fraud schemes and relate narrowly
18 to the disputed leases. Having dismissed the claims over which it has original
19 jurisdiction, the Court declines to exercise supplemental jurisdiction over the remaining
20 state law claims. Sanford v. MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010). As
21 such, the Court DENIES as moot Plaintiff’s motion to consolidate.
22 The Court hereby ORDERS as follows:
23 1. Defendants’ motion to dismiss Plaintiff’s RICO claims is hereby GRANTED
24 with prejudice.
25 2. Plaintiff’s motion to consolidate is hereby DENIED as moot.
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27 4 If a plaintiff fails to adequately plead a substantive violation of RICO, it cannot allege a
conspiracy to violate RICO. See Howard v. Am. Online Inc., 208 F.3d 741, 751 (9th Cir.
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1 3. Plaintiff's remaining state law claims are hereby REMANDED to the Superior
2 || Court for the County of San Diego.
3 IT ISSO ORDERED.
4 | .
5 || Date: March 21, 2024.
6 Hf udge Roger T. Benit
United States District Judge
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