Opinion
Case No. 2:21-cv-00360-JAD-DJA
2022-02-09
MST MANAGEMENT, LLC, et al., Plaintiffs v. CHICAGO DOUGHNUT FRANCHISE COMPANY, LLC, et al., Defendants
Rory T. Kay, McDonald Carano Wilson LLP, Tara U. Teegarden, c/o Lewis Brisbois Bisgaard & Smith, Las Vegas, NV, Zach Mayer, Pro Hac Vice, Jason C. McKenney, Pro Hac Vice, Mavish Bana, Pro Hac Vice, Mayer LLP, Dallas, TX, Kimberly Adrian Kerns, Pro Hac Vice, Mayer LLP, Dallas, CO, Laura R. Jacobsen, Ormat, Reno, NV, for Plaintiffs MST Mangagement LLC, Skyelee, LLC. Zach Mayer, Pro Hac Vice, Jason C. McKenney, Pro Hac Vice, Mavish Bana, Pro Hac Vice, Mayer LLP, Dallas, TX, Kimberly Adrian Kerns, Pro Hac Vice, Mayer LLP, Dallas, CO, Laura R. Jacobsen, Ormat, Reno, NV, Rory T. Kay, McDonald Carano Wilson LLP, Las Vegas, NV, for Plaintiff Lyon & Greybear Lending, LLC. Cabrach John Connor, Pro Hac Vice, Connor Kudlac Lee PLLC, Austin, TX, for Defendant Chicago Doughnut Franchise Company, LLC. Gregory A. Miles, Royal & Miles LLP, Henderson, NV, Gregory L. Wilde, Wilde & Associates, LLC, Las Vegas, NV, Jennifer Tatum Lee, Pro Hac Vice, Cabrach John Connor, Pro Hac Vice, John Shumaker, Pro Hac Vice, Connor Kudlac Lee PLLC, Austin, TX, for Defendant Diversified Franchise Group, Inc. Gregory A. Miles, Royal & Miles LLP, Henderson, NV, Jennifer Tatum Lee, Pro Hac Vice, Cabrach John Connor, Pro Hac Vice, John Shumaker, Pro Hac Vice, Connor Kudlac Lee PLLC, Austin, TX, L. Joe Coppedge, Michael R. Mushkin, Mushkin & Coppedge, Las Vegas, NV, for Defendants Brian Pappas, Jeffrey Pappas, Jacqueline Ball. Gregory A. Miles, Royal & Miles LLP, Henderson, NV, Jennifer Tatum Lee, Pro Hac Vice, Cabrach John Connor, Pro Hac Vice, John Shumaker, Pro Hac Vice, Connor Kudlac Lee PLLC, Austin, TX, for Defendants Mark Publicover, Montiedell Maple, Bryan Morelle, Marc Freeman, Ric McKown, Steven Moulton. Montiedell Maple, Henderson, NV, Pro Se. Bryan Morelle, Las Vegas, NV, Pro Se. Marc Freeman, Fairfield, IA, Pro Se. Ric McKown, Colorado Springs, CO, Pro Se.
Rory T. Kay, McDonald Carano Wilson LLP, Tara U. Teegarden, c/o Lewis Brisbois Bisgaard & Smith, Las Vegas, NV, Zach Mayer, Pro Hac Vice, Jason C. McKenney, Pro Hac Vice, Mavish Bana, Pro Hac Vice, Mayer LLP, Dallas, TX, Kimberly Adrian Kerns, Pro Hac Vice, Mayer LLP, Dallas, CO, Laura R. Jacobsen, Ormat, Reno, NV, for Plaintiffs MST Mangagement LLC, Skyelee, LLC.
Zach Mayer, Pro Hac Vice, Jason C. McKenney, Pro Hac Vice, Mavish Bana, Pro Hac Vice, Mayer LLP, Dallas, TX, Kimberly Adrian Kerns, Pro Hac Vice, Mayer LLP, Dallas, CO, Laura R. Jacobsen, Ormat, Reno, NV, Rory T. Kay, McDonald Carano Wilson LLP, Las Vegas, NV, for Plaintiff Lyon & Greybear Lending, LLC.
Cabrach John Connor, Pro Hac Vice, Connor Kudlac Lee PLLC, Austin, TX, for Defendant Chicago Doughnut Franchise Company, LLC.
Gregory A. Miles, Royal & Miles LLP, Henderson, NV, Gregory L. Wilde, Wilde & Associates, LLC, Las Vegas, NV, Jennifer Tatum Lee, Pro Hac Vice, Cabrach John Connor, Pro Hac Vice, John Shumaker, Pro Hac Vice, Connor Kudlac Lee PLLC, Austin, TX, for Defendant Diversified Franchise Group, Inc.
Gregory A. Miles, Royal & Miles LLP, Henderson, NV, Jennifer Tatum Lee, Pro Hac Vice, Cabrach John Connor, Pro Hac Vice, John Shumaker, Pro Hac Vice, Connor Kudlac Lee PLLC, Austin, TX, L. Joe Coppedge, Michael R. Mushkin, Mushkin & Coppedge, Las Vegas, NV, for Defendants Brian Pappas, Jeffrey Pappas, Jacqueline Ball.
Gregory A. Miles, Royal & Miles LLP, Henderson, NV, Jennifer Tatum Lee, Pro Hac Vice, Cabrach John Connor, Pro Hac Vice, John Shumaker, Pro Hac Vice, Connor Kudlac Lee PLLC, Austin, TX, for Defendants Mark Publicover, Montiedell Maple, Bryan Morelle, Marc Freeman, Ric McKown, Steven Moulton.
Montiedell Maple, Henderson, NV, Pro Se.
Bryan Morelle, Las Vegas, NV, Pro Se.
Marc Freeman, Fairfield, IA, Pro Se.
Ric McKown, Colorado Springs, CO, Pro Se.
Order Granting in Part and Denying in Part Motion to Dismiss; Denying Motion for Judgment on the Pleadings; Denying Joinder to Motion to Dismiss
[ECF Nos. 29, 34, 40]
Jennifer A. Dorsey, United States District Judge A group of mini-doughnut-shop franchisees brings this proposed class action alleging that they were victims of a fraud and racketeering scheme that misled dozens of working-class and small-business owners to invest in a failed business. Six defendants, joined by others, move to dismiss the claims against them, contending that none rises to the level of a plausible claim for relief. Because I find that the franchisee-plaintiffs have stated some plausible claims against some defendants, but others are half-baked or just fall flat, I grant in part the motion to dismiss and deny both joinders.
Although I find some of plaintiffs’ claims plausible at this early stage of proceedings, this order in no way prejudges the outcome of any yet-filed motion for class certification.
The four named plaintiffs—The Dapper Doughnut franchisees from Garden City, Idaho (TDD Garden City); Dallas, Texas (TDD Dallas); San Antonio, Texas (TDD San Antonio); and Reno, Nevada (TDD Reno) —sue nine individuals and two companies under the federal Racketeer Influenced Corrupt Organizations (RICO) Act, the Sherman Antitrust Act, the Nevada Deceptive Trade Practices Act (DTPA), and state common law. They theorize that the defendants used false promises and misleading financial information to induce them into The Dapper Doughnut franchises and continued to defraud them in order to keep their investments. Six of the individual defendants—Mark Publicover, Montiedell Maple, Bryan Morelle, Marc Freeman, Ric McKown, and Steven Moulton—move to dismiss all claims against them. They contend that plaintiffs have not alleged fraud with particularity under Federal Rule of Civil Procedure (FRCP) 9(b) ; that the only Nevada-resident plaintiff, TDD Reno, released all its claims against them; and that the out-of-state plaintiffs cannot bring state-law claims against out-of-state defendants. I find that the plaintiffs have met their pleading burden for their RICO and DTPA claims but that TDD Reno released its claims and the DTPA cannot apply to out-of-state defendants’ alleged out-of-state wrongdoings against out-of-state plaintiffs. I thus grant in part and deny in part the motion to dismiss.
ECF No. 1 at ¶¶ 14–17.
ECF No. 1.
ECF No. 29.
See generally id.
The three other individual defendants—Brian Pappas, Jeffrey Pappas, and Jaqueline Ball—filed a joinder (Pappas-Ball joinder) to that motion to dismiss. But because these defendants answered the complaint prior to their attempted joinder, I treat their filing as a motion for judgment on the pleadings. Their briefing offers no substantive argument for such relief, so I deny it. Company-defendant Diversified Franchise Group, LLC (DFG) separately filed a joinder. But DFG has since filed for Chapter 11 bankruptcy protection. The automatic-stay provision of the bankruptcy code prohibits the "commencement or continuation" of a judicial proceeding against the bankrupt. Under Ninth Circuit precedent, a dismissal—even one in favor of the bankrupt—is an impermissible continuation in violation of the stay if it "requires the court to consider other issues presented by or related to the underlying case. In other words, thinking about the issues violates the stay." Because evaluating the merits of DFG's joinder to the six individual defendants’ motion to dismiss would require me to consider the plaintiffs’ allegations against DFG and whether they state a plausible claim for relief, I deny the joinder without prejudice.
ECF No. 40.
ECF No. 39.
See Aldabe v. Aldabe , 616 F.2d 1089, 1093 (9th Cir. 1980).
ECF No. 34.
ECF No. 66.
Dean v. Trans World Airlines, Inc. , 72 F.3d 754, 756 (9th Cir. 1995).
I. The six individual defendants’ motion to dismiss
Defendants Publicover, Maple, Morelle, Freeman, McKown, and Moulton move to dismiss all claims against them. Federal pleading standards require plaintiffs to plead enough factual detail to "state a claim to relief that is plausible on its face." This demands that the complaint be filled with "more than an unadorned, the-defendant-unlawfully-harmed-me accusation"; plaintiffs must make direct or inferential factual allegations about "all the material elements necessary to sustain recovery under some viable legal theory." The court must accept as true all well-pled factual allegations in the complaint, recognizing that legal conclusions are not entitled to the assumption of truth, and resolve all factual disputes in the plaintiff's favor. A complaint that fails to meet this standard must be dismissed. A. TDD Reno's release of claims
Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
Twombly , 550 U.S. at 562, 127 S.Ct. 1955 (quoting Car Carriers, Inc. v. Ford Motor Co. , 745 F.2d 1101, 1106 (7th Cir. 1984) ).
Iqbal , 556 U.S. at 678–79, 129 S.Ct. 1937.
Twombly , 550 U.S. at 570, 127 S.Ct. 1955.
The six individual defendants seek to dismiss TDD Reno's claims because it signed a release—which the moving defendants attach as an exhibit to their motion to dismiss —of all claims relating to its franchise. The plaintiffs mention the release in their complaint, but they discount it as "illegal and inoperative" because it was in furtherance of defendants’ allegedly illegal and fraudulent acts. This circular reasoning is unavailing. As the individual defendants note in their motion, the text of the release is comprehensive: TDD Reno promised to forgo "any and all claims, ... of any kind whatsoever, whether ... foreseen or unforeseen, ... which [TDD Reno] ever had, now has[,] or may have in the future, against [the defendants] for, on or by reason of any matter ...." The plaintiffs offer no response, and nothing in the record contradicts the release's text or shows that it was procured in any improper manner. So I enforce the release and dismiss TDD Reno's claims with prejudice.
In the Ninth Circuit, courts may consider documents outside the "pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice" when plaintiffs refer to the external document in their complaint, rely on it, and its "authenticity is not in dispute." Swartz v. KPMG LLP , 476 F.3d 756, 763 (9th Cir. 2007) (citations omitted).
ECF No. 29 at 20; ECF No. 60 at 4; see ECF No. 29-1 at ¶ 4.
ECF No. 1 at ¶ 156.
ECF No. 29-1 at ¶ 4.
ECF No. 48.
B. Federal RICO claim
The Supreme Court has held that the RICO Act "is to be read broadly." To allege a viable claim under the statute, plaintiffs must establish that the defendants participated directly or indirectly in (1) an enterprise's (2) conduct (3) that amounts to a pattern of (4) racketeering activity, (5) resulting in injury. "Racketeering activity is any [predicate] act indictable under several provisions of Title 18 of the United States Code." As relevant to this case, racketeering activity includes the predicate acts of mail fraud and wire fraud. A pattern of racketeering activity requires at least two predicate acts and "continuity plus relationship" between them.
Sedima, S.P.R.L. v. Imrex Co. , 473 U.S. 479, 497, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985).
Sun Sav. & Loan Ass'n v. Dierdorff , 825 F.2d 187, 191 (9th Cir. 1987) (citation omitted); see Grimmett v. Brown , 75 F.3d 506, 510 (9th Cir. 1996).
Dierdorff , 825 F.2d at 191 (cleaned up).
18 U.S.C. §§ 1341, 1343.
Sedima , 473 U.S. at 496 n.14, 105 S.Ct. 3275 ; Dierdorff , 825 F.2d at 193 (holding that "if a defendant commits two or more predicate acts that are not isolated events, are separate in time, and are in furtherance of a single criminal scheme, then RICO's pattern requirement is satisfied").
A mail-fraud violation requires plaintiffs to show that the defendant (1) "devised a scheme or artifice to defraud"; (2) "used the mails in furtherance of the scheme"; and (3) "did so with the specific intent to deceive or defraud." Similarly, a wire-fraud violation requires a showing of (1) "the formation of a scheme or artifice to defraud"; (2) "use of the United States wires or causing a use of the United States wires in furtherance of the scheme"; and (3) "specific intent to deceive or defraud." "Mail and wire fraud can be premised on either a non-disclosure or an affirmative misrepresentation." But "[a]bsent an independent duty, such as a fiduciary duty or an explicit statutory duty, failure to disclose cannot be the basis of a RICO fraudulent scheme." To be "in furtherance" of a fraudulent scheme, the use of the mails or wires need not be "an essential part of the scheme" or "occur concurrently with the fraudulent acts." They need only be "made for the purpose of executing the scheme," so the furtherance element is satisfied if the scheme is "in some way dependent upon" the mailings or wires.
Dierdorff , 825 F.2d at 195 (citation omitted).
Odom v. Microsoft Corp. , 486 F.3d 541, 554 (9th Cir. 2007) (cleaned up).
Eller v. EquiTrust Life Ins. Co. , 778 F.3d 1089, 1092 (9th Cir. 2015) (citation omitted).
Id. (emphasis added) (cleaned up).
Dierdorff , 825 F.2d at 196 (citation omitted).
Id. (cleaned up).
A RICO claim predicated on fraud must meet the heightened pleading standard of FRCP 9(b), which "requires that, when fraud is alleged, ‘a party must state with particularity the circumstances constituting fraud.’ " Those circumstances must include the " ‘who, what, when where, and how’ of the misconduct charged." But "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Although "allegations of fraud based on information and belief usually do not satisfy" FRCP 9(b) ’s particularity requirement, "the rule may be relaxed as to matters within the opposing party's knowledge." This is especially pertinent in cases of "corporate fraud, [in which] plaintiffs will not have personal knowledge of all of the underlying facts" and may not be able to "attribute particular fraudulent conduct to each defendant." This relaxed standard thus only requires plaintiffs alleging corporate fraud to plead the "facts on which the belief is founded" and "include the misrepresentations themselves with particularity and, where possible , the roles of the individual defendants in the misrepresentations."
Kearns v. Ford Motor Co. , 567 F.3d 1120, 1124 (9th Cir. 2009) (quoting Fed. R. Civ. P. 9(b) ).
Id. (quoting Vess v. Ciba-Geigy Corp. USA , 317 F.3d 1097, 1106 (9th Cir. 2003) ).
Moore v. Kayport Package Exp., Inc. , 885 F.2d 531, 540 (9th Cir. 1989) (citing Wool v. Tandem Computers Inc. , 818 F.2d 1433, 1439 (9th Cir. 1987), overruled on other grounds by Hollinger v. Titan Capital Corp. , 914 F.2d 1564, 1575 (9th Cir. 1990) (en banc)). Defendants argue that the relaxed Rule 9(b) standard pioneered by the Ninth Circuit in Wool has been overruled. ECF No. 60 at 6–7. But the Ninth Circuit has never sat en banc to revisit that portion of Wool , and the cases defendants cite from district courts and other circuits do not persuade me otherwise. Indeed, the Ninth Circuit reaffirmed the basis of Wool —that plaintiffs needn't plead with particularity facts within the defendants’ knowledge—as recently as 2019. See Nayab v. Cap. One Bank (USA), N.A. , 942 F.3d 480, 494 (9th Cir. 2019) (noting that Wool has been overruled on other grounds).
Moore , 885 F.2d at 540 (citing Wool , 818 F.2d at 1439–40 ).
Id. (citing Wool , 818 F.2d at 1440 ).
Under this relaxed standard, plaintiffs’ RICO claim is sufficiently plausible to survive dismissal. Plaintiffs allege that DFG, Chicago Doughnut Franchise Company, LLC (CDFC), and their officers and principals constitute an enterprise that routinely uses the wires and mails to enrich themselves by fraudulently inducing individuals into franchising, resulting in significant economic injury to plaintiffs and similarly situated people. The complaint's predicate-act allegations of mail and wire fraud center around defendants’ omissions from financial-disclosure documents, misleading financial projections, unkept promises of 24/7 marketing support, collection of franchise fees, and procurement of liability releases. Any claims based on the omissions from the financial disclosures required by the Federal Trade Commission's "Franchise Rule" cannot amount to predicate acts because an agency's rules and regulations cannot create the necessary statutory duty to disclose. And plaintiffs’ general allegations about impropriety in the procurement of the later-signed liability releases are too vague to meet the requisite standard of particularity.
See, e.g. , ECF No. 1 at ¶¶ 1–8, 213–16.
See id. at ¶¶ 171–99.
See, e.g. , ECF No. 1 at ¶¶ 54–55, 88–89, 94; see also Eller , 778 F.3d at 1092 (citation omitted).
ECF No. 1 at ¶ 156.
Plaintiffs’ other allegations, however, suffice to state a RICO claim. The complaint lays out that defendants established The Dapper Doughnut as a fraudulent scheme disguised as a valuable franchising opportunity and that each defendant had the specific intent to defraud when, by mail and/or wire, they presented potential franchisees financial projections either based on an entirely different and long-established company's franchise data or without any basis in fact; presented to existing franchisees a false sense of financial and operational strength of the company when it was actually in dire straits; offered to potential and existing franchisees 24/7 marketing and other operational supports to procure and maintain franchises while having the intent to ice franchisees out; and collected or attempted to collect unearned royalty fees. Into these mail-fraud and wire-fraud allegations plaintiffs sprinkle details about each individual moving defendant: Morelle provided the false projections; Morelle, Maple, Freeman, Moulton, and McKown—at the "behest" of Publicover—provided false impressions of the business's finances; Morelle and Maple offered consistent 24/7 support to potential franchisees, knowing it was impracticable, and Freeman, Morelle, and Publicover made similar commitments on the franchisor's website; and Maple, Publicover, Morelle, Moulton, and McKown either directed the collection, collected, or attempted to collect false royalty fees.
Id. at ¶¶ 171–99.
Id.
The fraudulent franchising scheme that plaintiffs allege depended "in some way" on these acts—it could not have functioned, and defendants could not have enriched themselves, without them. All the acts occurred in relative temporal proximity to one another, and every next act built on those that preceded it. The elements of these predicate acts having been met, I find that plaintiffs have stated a plausible claim for a RICO violation, so I deny defendants’ motion to dismiss it.
C. Nevada DTPA claims
Defendants Moulton, Freeman, Publicover, and McKown are residents of Missouri, Iowa, California, and Michigan, respectively. They move to dismiss plaintiffs’ DTPA claims under the principle against the extraterritorial application of state law because none of the remaining named plaintiffs is a Nevada resident, and all the alleged material misrepresentations or omissions were made outside Nevada. The principle against extraterritoriality prohibits out-of-state plaintiffs bringing forum-state-law claims against out-of-state defendants for injuries that occurred outside the forum state. The Nevada Supreme Court has never ruled on the reach of its DTPA, so I must predict how that court would rule if this case came before it. Because there is no indication in the statute's text that it could be applied extraterritorially, and given that there is a general presumption against extraterritorial application, I find that the DTPA does not apply extraterritorially and cannot impose liability on out-of-state defendants whose alleged wrongdoings against out-of-state plaintiffs took place outside of Nevada. So I dismiss all DTPA claims against these four non-forum defendants with prejudice.
Plaintiffs allege that McKown resides in Michigan, but the six individual defendants state in their motion to dismiss that he has relocated to Colorado. ECF No. 1 at ¶ 31; ECF No. 29 at 21–22. Construing this factual dispute in the plaintiffs’ favor, and absent evidence to the contrary, this order considers McKown a resident of Michigan. In any event, McKown is not a resident of Nevada, so the analysis in this section applies either way.
ECF No. 29 at 21–22.
Ferdie Sievers & Lake Tahoe Land Co. v. Diversified Mortg. Invs. , 95 Nev. 811, 603 P.2d 270, 273 (1979) (noting that "[a]bsent legislative direction" there is "no evidence to suggest" a state statute was "intended to have extra-territorial effect," impacting the rights of parties "beyond the state's jurisdiction, having little or no relation to anything done ... within Nevada").
Ins. Co. of State of Pennsylvania v. Associated Int'l Ins. Co. , 922 F.2d 516, 520 (9th Cir. 1990).
Another judge in this district recently came to the same conclusion regarding the scope of the DTPA. Rimini St., Inc. v. Oracle Int'l Corp. , 473 F. Supp. 3d 1158, 1225 (D. Nev. 2020).
The DTPA claims against Nevada-resident defendants Morelle and Maple are a different story, however—one both savory and sweet. These defendants move to dismiss the first three of the eight DTPA claims (counts III, IV, and V in the complaint) because their factual omissions are not actionable as a deceptive trade practice under Nevada law. The Nevada Supreme Court held in Nelson v. Heer that "the suppression or omission of a material fact [that] a party is bound in good faith to disclose is equivalent to a false representation, since it constitutes an indirect representation that such fact does not exist," and it recognized that a good-faith obligation to not make material omissions can arise out of a contractual duty to disclose. Plaintiffs make no argument that the DTPA, other state law, or the contracts between the parties create such a duty here, however, so I dismiss any portion of the first three DTPA claims against Morelle and Maple that relies on these alleged omissions. But because the counts are also based on alleged affirmative misrepresentations made by Morelle and Maple, they survive to that extent.
ECF No. 1 at ¶ 11.
ECF No. 29 at 21.
Nelson v. Heer , 123 Nev. 217, 163 P.3d 420, 426 (2007).
Id. at 426–27.
ECF No. 1 at ¶¶ 213–28.
The remaining DTPA claims against Morelle (counts VI, VII, and IX) and Maple (counts VIII and X) also survive dismissal. They argue only that these claims fail to meet FRCP 9(b) ’s particularity requirement for fraud claims. But this argument fails for the same reason it failed against plaintiffs’ RICO claim. Under Ninth Circuit precedent, a more relaxed pleading standard applies to fraud claims that rely on information within the defendants’ particular control, such as which corporate officer or principal put together the company's allegedly false materials. In such circumstances, the plaintiffs need only plead the misrepresentations themselves with particularity and the factual bases for them. Plaintiffs’ extensive allegations of false or misleading cost-profit projections, violations of the disclosure requirements in the FTC's Franchise Rule, and the company's financial health—all of which name specific defendants—are enough to sustain these DTPA claims at this nascent stage of the proceedings.
ECF No. 29 at 20–21.
See supra note 37.
Id.
Unlike under the RICO Act, the violation of a federal regulation amounts to an actionable deceptive trade practice under the DTPA. See Nev. Rev. Stat. § 598.0923(1)(c).
D. Antitrust and common-law claims
Defendants Publicover and Moulton appear to believe that they're in the box of defendants that plaintiffs target with their Sherman Act claim. But the plaintiffs are the masters of their complaint and, according to them, CDFC is the "sole defendant" for the antitrust claim. So only it may challenge that claim. Because CDFC has filed for bankruptcy protection, triggering the automatic bankruptcy stay, and has not moved to dismiss, I do not consider any Sherman Act arguments in this order as any such ruling would violate that stay. And because plaintiffs’ common-law claim to pierce DFG and CDFC's corporate veils similarly would run afoul of the stay, I decline to dismiss that claim at this time without reaching its merits.
ECF No. 29 at 23–24.
ECF No. 48 at 2 n.1.
ECF No. 45.
See Dean , 72 F.3d at 756.
E. Leave to amend
FRCP 15(a) advises that "leave [to amend] shall be freely given when justice so requires," but the Supreme Court has recognized that "undue prejudice to the opposing party by virtue of allowance of the amendment [and] futility of amendment" are reason enough to deny such leave. I grant plaintiffs leave to amend their first three DTPA claims against Morelle and Maple only. I dismissed a portion of those claims because they did not identify contractual provisions or Nevada law that would allow Morelle and Maple to be held liable under the DTPA for material factual omissions, as opposed to affirmative misrepresentations. Should the plaintiffs be able to identify such provisions or statutes, they may amend their complaint to fill those holes in their claims. Plaintiffs do not have leave to amend for any other purpose; any other dismissed claims should not be re-pled in an amended complaint.
Foman v. Davis , 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).
See supra § I(C).
II. The Pappas-Ball motion for judgment on the pleadings
A judgment on the pleadings under FRCP 12(c) is appropriate "when, taking all the allegations in the non-moving party's pleadings as true, the moving party is entitled to judgment as a matter of law." Any allegations made by the moving party that have been denied or contradicted are assumed to be false, and the moving party bears the burden of establishing that, "on the face of the pleadings[,]" no material issue of fact remains to be resolved and that it is entitled to judgment as a matter of law." A fact is material if it could affect the outcome of the case. An FRCP 12(c) motion is the functional equivalent of an FRCP 12(b)(6) motion. As with an FRCP 12(b)(6) motion, when ruling on an FRCP 12(c) motion, courts "may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice."
United States v. Teng Jiao Zhou , 815 F.3d 639, 642 (9th Cir. 2016) (quoting Fajardo v. Cnty. of L.A. , 179 F.3d 698, 699 (9th Cir. 1999) ) (internal quotation marks omitted).
Elvig v. Calvin Presbyterian Church , 375 F.3d 951, 955 (9th Cir. 2004) (citing Hoeft v. Tucson Unified Sch. Dist. , 967 F.2d 1298, 1301 n.2 (9th Cir. 1992) ).
Hal Roach Studios, Inc. v. Richard Feiner and Co., Inc. , 896 F.2d 1542, 1550 (9th Cir. 1989).
Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
See Harris v. Orange Cnty. , 682 F.3d 1126, 1131 (9th Cir. 2012).
Swartz v. KPMG LLP , 476 F.3d 756, 763 (9th Cir. 2007).
While their answer lists more than 28 affirmative defenses, the Pappas-Ball defendants’ joinder to the six individual defendants’ motion to dismiss—which I construe as a motion for judgment on the pleadings because of its timing—curiously offers no substantive argument at all. Stranger yet, the motion they attempt to join appears to malign them, noting that "[n]early all of the allegations [in the complaint] concern the Pappas brothers, not the [six individual moving defendants]." Because the Pappas-Ball defendants advance no argument of their own and glaze over the points against them, I deny their motion.
ECF No. 39; ECF No. 40. In its entirety, the motion reads: "Defendants adopt the legal arguments and legal authority set forth in the [six individual defendants’ motion to dismiss] as though fully set forth herein. Defendants requests [sic] that all of Plaintiffs’ claims for relief be dismissed with prejudice for failure to state a claim and for failing to plead fraud with particularity." ECF No. 40.
ECF No. 29 at 3.
Conclusion
IT IS THEREFORE ORDERED that defendants Mark Publicover, Montiedell Maple, Bryan Morelle, Marc Freeman, Ric McKown, and Steven Moulton's motion to dismiss [ECF No. 29] is GRANTED in part and DENIED in part :
• Plaintiff Dendary's Donuts, LLC's claims are DISMISSED with prejudice and the Clerk of the Court is directed to TERMINATE Dendary's Donuts, LLC as a party in this matter;
• Plaintiffs’ Racketeer Influenced Corrupt Organizations Act claim is DISMISSED in part—as to any allegations regarding the Federal Trade Commission's Franchise Rule or the parties’ later-signed liability releases—with prejudice ;
• Plaintiffs’ claims arising under the Nevada Deceptive Trade Practices Act (DTPA) against Publicover, Freeman, McKown, and Moulton are DISMISSED with prejudice ;
• Plaintiffs’ first three DTPA claims against Morelle and Maple (counts III, IV, and V in the complaint) are DISMISSED in part—as to any allegations regarding material factual omissions—without prejudice but with leave to amend by February 19, 2022 .
IT IS FURTHER ORDERED that defendants Brian Pappas, Jeffrey Pappas, and Jaqueline Ball's joinder, which I construe as a motion for judgment on the pleadings, [ECF No. 40] is DENIED .
IT IS FURTHER ORDERED that defendant Diversified Franchise Group, LLC's joinder to the motion to dismiss [ECF No. 34] is DENIED without prejudice under 11 U.S.C. § 362(a)(1) ’s automatic-stay provision.