Vivian Grijalva v. Kevin Mason, P.A.
8:18-cv-02010
C.D. Cal.Dec 30, 2019Background
- Plaintiff Vivian Grijalva alleges a multi-entity scheme that telemarketed a bogus “student loan debt resolution program” through shell companies and attorneys, inducing consumers to make monthly payments.
- Defendants include Resolvly, NLSS, individual attorneys and law firms (Florida-based), and Reliant Account Management, LLC (RAM), a California payment processor.
- Grijalva alleges RAM was the sole and exclusive payment processor that accepted monthly ACH payments and remitted them to the other defendants for a fee.
- Claims in the Second Amended Complaint: RICO (18 U.S.C. § 1962(c)), TCFAPA/Telemarketing Sales Rule violations, fraud, legal malpractice, and breach of the covenant of good faith and fair dealing.
- RAM moved to dismiss under Rule 12(b)(6) arguing it only provided payment-processing services and did not direct, manage, or substantially assist the alleged unlawful scheme.
- The court granted RAM’s motion, dismissing claims against RAM without prejudice and granting leave to amend limited to the deficiencies identified, to be filed within 21 days.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RAM can be liable under RICO § 1962(c) for participating in an enterprise through a pattern of racketeering | RAM was the conduit for all unlawful payments and thus is directly responsible; it agreed with operators/managers to conduct the enterprise | RAM only provided payment-processing services and did not direct, operate, or manage the enterprise | Dismissed — plaintiff failed to allege RAM participated in operation, direction, or management as required by Reves and Ninth Circuit precedent |
| Whether RAM provided "substantial assistance" to telemarketing violations under the TSRs/TCFAPA | RAM knowingly or consciously avoided knowing that TSRs were being violated and materially assisted by processing advance payments | RAM’s role was incidental: accepting payments and remitting fees, which are not substantial assistance | Dismissed — mere payment processing is not enough; no factual allegations of substantial assistance or knowing facilitation |
| Whether RAM breached the covenant of good faith and fair dealing based on the ACH agreement | The ACH agreement is sufficient to base a claim that RAM willfully aided the illegal scheme and deprived plaintiff of contract benefits | The ACH is a routine commercial contract; RAM did not fail to perform and there is no special/fiduciary relationship | Dismissed — no special relationship or factual showing that RAM deprived plaintiff of benefits under the ACH agreement |
| Whether amendment should be allowed | Plaintiff seeks to cure pleading defects | RAM argues amendment may be futile | Court granted leave to amend limited to identified deficiencies; dismissal was without prejudice and amendment must comply with Rule 11 and be filed within 21 days |
Key Cases Cited
- Reves v. Ernst & Young, 507 U.S. 170 (1993) (RICO §1962(c) reaches those who participate in the operation or management of an enterprise, not mere service providers)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleading)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (courts need not accept legal conclusions as true)
- Walter v. Drayson, 538 F.3d 1244 (9th Cir. 2008) (to incur RICO liability a defendant must have some part in directing enterprise affairs; providing services alone is insufficient)
- Baumer v. Pachl, 8 F.3d 1341 (9th Cir. 1993) (professional services to an enterprise do not automatically create RICO liability)
- F.T.C. v. Chapman, 714 F.3d 1211 (10th Cir. 2013) (substantial-assistance standard under TSR excludes casual or incidental help)
- Pension Tr. Fund for Operating Engineers v. Fed. Ins. Co., 307 F.3d 944 (9th Cir. 2002) (requirements for tortious breach of implied covenant; special relationship needed for tort remedy)
- Freeman & Mills, Inc. v. Belcher Oil Co., 44 Cal. Rptr. 2d 420 (Cal. Ct. App. 1995) (California recognizes implied covenant of good faith and fair dealing)
- Mitsui Mfrs. Bank v. Superior Court, 212 Cal. App. 3d 726 (Cal. Ct. App. 1989) (implied covenant tort unavailable for ordinary arm's-length commercial transactions)