MOCHA MILL, INC., et al., Plaintiffs, v. PORT OF MOKHA, INC., et al., Defendants.
Case No. 18-cv-02539-HSG
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
March 5, 2019
HAYWOOD S. GILLIAM, JR., United States District Judge
ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS THE FIRST AMENDED COMPLAINT; Re: Dkt. Nos. 39, 41, 43
Now pending before the Court are three motions to dismiss the FAC, all filed on July 27, 2018. Defendants Metra and T&H filed one motion. Dkt. No. 39 (“Metra Mot.“). Defendants POM, Mokha Foundation, Alkhanshali, and Ahmad filed another. Dkt. No. 41 (“POM Mot.“). Defendant Blue Bottle filed the third. Dkt. No. 43 (“Blue Bottle Mot.“). Briefing on these motions is complete. Dkt. Nos. 44 (“Metra Opp.“), 45 (“POM Opp.“), 47 (“Blue Bottle Opp.“), 49 (“Metra Reply“), 50 (“POM Reply“), 51 (“Blue Bottle Reply“). The Court held oral argument on the motions on October 11, 2018. Dkt. No. 64. After carefully considering the parties’
I. BACKGROUND
As alleged in the operative complaint, Plaintiff Alaeli and Defendant Alkhanshali agreed to start a business sometime in 2013, with the hopes of “start[ing] a coffee import/export company cultivating, processing, and distributing specialty coffee sourced from Yemen.” FAC ¶¶ 61-66. This union led to Mocha Mill, the goal for which “was to be the first company to market and sell premium Yemeni coffee.” Id. ¶ 67. After adding Plaintiffs Khanshali and Awnallah as investors, the four made great strides in establishing the Mocha Mill business, from Alkhanshali travelling to Yemen to build distribution and supply chain relationships, to attending coffee conferences. See, e.g., id. ¶¶ 69-81. But as often happens in business relationships, the group splintered. And Alkhanshali ultimately founded a different company: Port of Mokha. The details of this transition gave rise to the present action, as Plaintiffs allege that Alkhanshali orchestrated a conspiracy to usurp Mocha Mill as the first company to emerge as the provider of premium Yemeni coffee. See, e.g., id. ¶ 7.
II. LEGAL STANDARD
In reviewing the plausibility of a complaint, courts “accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party.”
If the court concludes that a
III. DISCUSSION
Plaintiffs bring two federal causes of action—under RICO Sections
A. Plaintiff Monk of Mocha and the Individual Plaintiffs Lack Standing
Defendants argue that Monk of Mocha lacks standing because it is merely Mocha Mill‘s predecessor company, whose claims—if any—passed to Mocha Mill. Blue Bottle Mot. at 7 (citing
Defendants also argue that the individual Plaintiffs lack standing because their claims, based on the operative complaint, are derivative of the harm suffered by Mocha Mill. See Blue Bottle Mot. at 6-7. Plaintiffs respond that Defendants “miss the point that the individual Plaintiffs entered into a partnership and joint venture with Mokhtar and it is the partnership and joint
The Court finds the individual Plaintiffs do not have standing to assert the claims alleged in the operative complaint. Well-established Ninth Circuit law holds that a plaintiff lacks standing under RICO if the alleged injury is derivative of harm to another legal entity, such as a corporation. See Sparling v. Hoffman Const. Co., 864 F.2d 635, 640-41 (9th Cir. 1988). For that reason, shareholders and limited partners cannot assert RICO claims when their harm “is also derivative of the harm” to their corporation or partnership. See id. To avoid the general bar against shareholder standing in RICO actions, a plaintiff must plead either “an injury distinct from that to other shareholders or a special duty between [the defendant] and [plaintiff].” Id. The FAC pleads neither for the individual Plaintiffs in this action. Rather, the FAC only alleges injury to Mocha Mill.2
Even in opposition to the pending dismissal motions, Plaintiffs failed to identify a single non-derivative harm to the individual Plaintiffs. See Blue Bottle Opp. at 25. Instead, Plaintiffs argue that individual Plaintiffs and Defendant Alkhanshali “entered into a partnership and joint venture,” which “owns Mocha Mill.” Id. Thus, according to Plaintiffs, “the individual Plaintiffs have standing as [Alkhanshali‘s] defrauded partners.” Id. But even if there were a partnership exception to the Sparling principle—a proposition for which Plaintiffs provide no support—
At the hearing on the pending motions, Plaintiffs relied exclusively on the Supreme Court‘s opinion in Franchise Tax Board of California v. Alcan Aluminium Ltd., 493 U.S. 331 (1990) (Alcan Aluminium), to justify the individual Plaintiffs’ standing. See Dkt. No. 64, at 5:24-14:1. Although Plaintiffs nowhere cited Alcan Aluminium in any briefing leading up to the hearing, Plaintiffs represented to the Court several times that Alcan Aluminum resolved this issue in Plaintiffs’ favor. See, e.g., id. at 6:14-19 (“That is a claim that‘s independent of Mocha Mill‘s claims, Your Honor, and under Alcan Aluminum [sic], that claim should persist.“), 11:4-5 (“So this is exactly what Alcan Aluminum [sic] refers to, Your Honor.“). Plaintiffs stressed the following Alcan Aluminium language: “There is, however, an exception to [the shareholder standing] rule allowing a shareholder with a direct, personal interest in a cause of action to bring suit even if the corporation‘s rights are also implicated.” Alcan Aluminium, 493 U.S. at 336; see also Dkt. No. 64, at 9:10-15.
The Court finds Plaintiffs’ reliance on Alcan Aluminium unavailing. To start, Plaintiffs’ favored excerpt in no way differs from the Ninth Circuit‘s law requiring proof of non-derivative harms. A derivative harm is not a “direct” harm, to use Alcan Aluminium‘s language. See 493 U.S. at 336. More important, Alcan Aluminium expressly declined to make any finding as to standing, deciding the case on other grounds. See id. at 338 (“We need not decide this dispute about respondents’ stockholder standing, for assuming that respondents do have such standing . . . their federal actions are nevertheless barred under the Tax Injunction Act.“).
Because the operative complaint does not allege non-derivative harms to the individual Plaintiffs, the Court DISMISSES all claims brought by Plaintiffs Alaeli, Khanshali, and Awnallah.
B. The Court Lacks Jurisdiction Over Mokha Foundation
The operative complaint asserts that “Mokha Foundation is an entity headquartered in the Northern District of California, which Plaintiffs are informed and believe, and on that basis allege,
Plaintiffs misunderstand the burden of proof on this jurisdictional dispute. The burden under
Turning to the present dispute, the capacity to sue or be sued is determined “by the law of the state where the court is located.”
The Court also finds unavailing Plaintiffs’ alternative argument that jurisdiction might exist over Mokha Foundation as an unincorporated entity. POM Opp. at 7. An unincorporated association, “whether organized for profit or not, may sue and be sued in the name it has assumed or by which it is known.”
Accordingly, Plaintiffs’ complaint as to defendant Mokha Foundation is DISMISSED.
C. The Court Lacks Jurisdiction Over Metra
Defendant Metra asks the Court to dismiss all claims against it for lack of personal jurisdiction and improper service of process. Metra Mot. at 17-25. Because the Court finds
i. Rule 12(b)(2) Standard
“Federal courts ordinarily follow state law in determining the bounds of their jurisdiction over persons.” Daimler AG v. Bauman, 571 U.S. 117, 125 (2014). Where “there is no applicable federal statute governing personal jurisdiction, the law of the state in which the district court sits applies.” Harris Rutsky & Co. Ins. Servs. v. Bell & Clements Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003).
Where a state, like California, “authorize[s] its courts to exercise jurisdiction over persons ‘on any basis not inconsistent with . . . the Constitution of the United States,‘” federal courts ask whether the exercise of jurisdiction over a defendant “comports with the limits imposed by federal due process.” Walden v. Fiore, 571 U.S. 277, 283 (2014) (citing Daimler, 571 U.S. at 125);
A plaintiff can invoke two categories of personal jurisdiction: general and specific. Ranza v. Nike, Inc., 793 F.3d 1059, 1068 (9th Cir. 2015). “[C]ourts have general jurisdiction over a foreign corporation only if the corporation‘s connections to the forum state are so continuous and systematic as to render [it] essentially at home in the forum State.” Williams v. Yamaha Motor Co. Ltd., 851 F.3d 1015 (9th Cir. 2017) (quotations omitted). In that case, the foreign defendant is subject to suit “whether or not the conduct at issue has any connection to the forum.” Ranza, 793 F.3d at 1068. This is in contrast to “[s]pecific or case-linked jurisdiction [which] depends on an
“When a defendant moves to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of demonstrating that the court has jurisdiction over the defendant.” Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006). Although the Court “may not assume the truth of allegations in a pleading which are contradicted by affidavit,” the Court must resolve conflicts between the facts contained in the parties’ affidavits in plaintiff‘s favor. CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1073 (9th Cir. 2011) (internal quotation marks omitted); see also Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004). Absent an evidentiary hearing, a plaintiff need only make out “a prima facie showing of jurisdictional facts to withstand the motion to dismiss.” Pebble Beach Co., 453 F.3d at 1154 (quotation omitted).
On a dismissal motion, courts in the Ninth Circuit analyze specific jurisdiction under a three-prong test:
(1) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws; (2) the claim must be one which arises out of or relates to the defendant‘s forum-related activities; and (3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable.
Schwarzenegger, 374 F.3d at 802. The plaintiff bears the burden of satisfying the first two specific jurisdiction prongs. Id. (citing Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990)). If the plaintiff does so, the burden then shifts to the defendant to “present a compelling case” that the exercise of jurisdiction would not be reasonable. Id. (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476-78 (1985)).
ii. The Court Lacks Specific Jurisdiction Over Metra
Plaintiffs argue that the operative complaint adequately alleges facts to support specific jurisdiction over Metra. Metra Opp. at 18-24. Alternatively, Plaintiffs argue that personal jurisdiction is proper under either the federal nationwide jurisdiction statute or RICO‘s nationwide
The Court finds the operative complaint does not adequately plead facts to support personal jurisdiction over Metra. To start, the operative complaint does not allege any specific misconduct on the part of Metra; rather, it broadly states that “Metra does substantial business within, and sends is[sic] products into the stream of commerce into, the State of California and the Northern District of California by and through its wholly-owned subsidiary and American-based agent, T&H Computers, Inc., which Plaintiffs are informed and believe, and on that basis allege, does substantial business, for the benefit of its parent company, within the State of California and within the Northern District of California.” FAC ¶ 19.
Even if these contacts showed Metra purposefully availed itself of the privilege of conducting activities in California—which the Court does not decide here—Plaintiffs have not shown that their claims against Metra arise out of these contacts. Plaintiffs offer no explanation for how Metra‘s mere status as a parent relate to the conspiracy allegations. When asked at the hearing on the pending motions where in the operative complaint Plaintiffs adequately pleaded jurisdictional facts over Metra, Plaintiffs directed the Court to “paragraphs 177 through 183.” Dkt. No. 64, at 14:23-24. But like the rest of the operative complaint, nothing in these seven paragraphs demonstrates Metra‘s involvement aside from bare assertions that Metra must have been involved. See, e.g., FAC ¶ 177 (“[Alkhanshali] and Ahmad created the fictional ‘T&H Imports,’ in conspiracy with Defendants T&H Computers and Metra Computer Group, both of which are companies run by Ahmad‘s extended family.“), ¶ 178 (“T&H and Metra knew of the Enterprise‘s objective and . . . agreed to help execute the fraud scheme.“) ¶ 183 (“Enterprise members conspired with T&H and Metra . . . .“).
Accordingly, the Court finds that the operative complaint has not adequately alleged forum-related activities that relate to the claims in this action. See Schwarzenegger, 374 F.3d at 802.
iii. The Court Finds No Alternative Basis for Jurisdiction
Plaintiffs alternatively argue the Court has personal jurisdiction over Metra under either
Plaintiffs’ invocation of RICO‘s nationwide-service provision is similarly unavailing because it in no way eliminates Plaintiffs’ burden to plead facts demonstrating the minimum contacts necessary to establish personal jurisdiction. See Doe v. Unocal Corp., 27 F. Supp. 2d 1174, 1182 (C.D. Cal. 1998) (“Where a defendant is properly served in the United States under RICO‘s nationwide service provision, that defendant‘s national contacts, rather than its minimum contacts with the forum state, determine whether the district court has personal jurisdiction over the defendant.“); Go-Video, Inc. v. Akai Elec. Co., 885 F.2d 1406, 1416 (9th Cir. 1989) (explaining that “when a statute authorizes nationwide service of process, national contacts analysis is appropriate . . . . before a court can assert personal jurisdiction“). With respect to foreign defendants,
iv. Jurisdictional Discovery is Not Warranted
Plaintiffs finally argue that, even if this Court finds jurisdiction lacking, it should permit Plaintiffs jurisdictional discovery “to develop the factual record regarding Metra‘s conduct in the United States.” Metra Opp. at 24 n.7.
The court may order jurisdictional discovery where “pertinent facts bearing on the question of jurisdiction are controverted or where a more satisfactory showing of the facts is necessary.” Data Disc, Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 1280, 1285 n.1 (9th Cir. 1977). Jurisdictional discovery “should be granted when . . . the jurisdictional facts are contested or more facts are needed.” Laub v. U.S. Dept. of Interior, 342 F.3d 1080, 1093 (9th Cir. 2003). “[W]here a plaintiff‘s claim of personal jurisdiction appears to be both attenuated and based on bare allegations in the face of specific denials made by the defendants, the Court need not permit even limited discovery . . . .” Pebble Beach Co., 453 F.3d at 1160 (citing Terracom v. Valley Nat‘l Bank, 49 F.3d 555, 562 (9th Cir.1995)). For that reason, courts need not allow jurisdictional discovery requests that “amount[] merely to a ‘fishing expedition.‘” Barantsevich v. VTB Bank, 954 F. Supp. 2d 972, 996 (C.D. Cal. 2013).
The heart of Plaintiffs’ claims against Metra is that, as the parent company of T&H, Metra must have known or participated in wrongdoing. That is not enough for this court to permit jurisdictional discovery. Rather, Plaintiffs needed to provide the Court with “specific facts, transactions, or conduct that would give rise to personal jurisdiction.” See Getz v. Boeing Co., 654 F.3d 852, 860 (9th Cir. 2011). Plaintiffs did not do so.
In sum, the Court finds it lacks personal jurisdiction over, and thus DISMISSES all claims against, Defendant Metra. In addition, the Court DENIES Plaintiffs’ request for jurisdictional discovery.
D. The Arbitration Agreement Between Mocha Mill and Alkhanshali Does Not Encompass This Dispute
Defendant Alkhanshali argues that Plaintiffs’ claims against him must be dismissed under
In opposition, Plaintiffs primarily contest dismissal by arguing that the agreement “is void and unenforceable because it resulted from extortion and was signed under duress,” and because “Plaintiffs’ claims . . . are based on the original oral partnership and joint venture agreement . . . which contemplated no arbitration or venue in Yemen, and which, by the partners’ non-compete agreement, prohibited the extortion that resulted in [sic] agreement POM relies on.” POM Opp. 4-7. At the hearing on this motion, however, Plaintiffs argued for the first time that they also believe it is improper for Alkhanshali to seek dismissal under
Whatever basis Alkhanshali may have had for seeking to dismiss claims against him based on the partnership agreement is ultimately inconsequential, because the Court finds that no fair reading of the arbitration and forum-selection clause would encompass the present action. The only certified translation before the Court—offered by Alkhanshali—is not nearly as broad as he argues.3 The provision, according to Alkhanshali‘s uncontested translation, covers “disputes . . .
Because the arbitration provision does not encompass the dispute at issue here, the Court DENIES Defendant Alkhanshali‘s request to dismiss all claims against him pursuant to the arbitration and forum selection clauses.
E. Plaintiffs Fail to State Federal Claims Upon Which Relief Can Be Granted
Defendants contend that the operative complaint fails to state a federal cause of action upon which relief can be granted under
To state a claim under Section
i. Conduct of an Enterprise
Section
It is not enough, however, for a plaintiff simply to call a defendant‘s corporation the enterprise. Because Section
Plaintiffs allege two stages of enterprises in the operative complaint. First, Plaintiffs allege that Alkhanshali was the sole member of a RICO enterprise when Mocha Mill was the RICO enterprise, starting around April 2014. See, e.g., FAC ¶ 212. Second, Plaintiffs allege that Alkhanshali “expanded” the enterprise in the Summer of 2015 “to form a larger association-in-fact enterprise” including other Defendants. See, e.g., id. ¶ 213. Defendants do not dispute that—and more important, the Court need not now consider whether—Plaintiffs have adequately alleged conduct of an enterprise as to the expanded association-in-fact enterprise.
As to the pre-Summer of 2015 conduct, the Court finds that Plaintiffs have failed to adequately plead conduct of an enterprise. Plaintiffs allege that Alkhanshali was the sole “person” of an enterprise and that Plaintiff Mocha Mill itself was that enterprise. FAC ¶ 212. But Plaintiffs allege that the conduct of this enterprise that Alkhanshali purportedly directed consisted of Alkhanshali embezzling funds from and extorting Mocha Mill. See, e.g., id. ¶¶ 5, 212. It defies all logic to suggest that a person stealing money from the enterprise constitutes conducting the affairs of the enterprise; rather, this is the very definition of a person conducting or participating in “their own affairs.” See Reves, 507 U.S. at 185. Plaintiffs essentially ask this Court to find that the enterprise‘s affairs were to defraud the enterprise. The Court found no case—binding or not—to support this untenable position.
The Court thus finds that Plaintiffs have not adequately pleaded Section
ii. Pattern
To establish a “pattern” under RICO, courts consider the relatedness of the predicate acts and continuity. Medallion Television Enters., Inc. v. SelecTV of Cal., Inc., 833 F.2d 1360, 1363 (9th Cir. 1987) (Medallion). Predicate acts are related if they have “the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 240 (1989). A plaintiff can establish that predicate acts were continuous by pleading either open-ended or closed-ended continuity. Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1526 (9th Cir. 1995). Open-ended continuity refers to “past conduct that by its nature projects into the future with a threat of repetition.” H.J., Inc., 492 U.S. at 241. Closed-ended continuity refers to “a series of related predicates extending over a substantial period of time.” Id. at 242. The continuity requirement reflects Congress “concern[] in RICO with long-term criminal conduct.” Id. at 242. Plaintiffs argue that the operative complaint adequately alleges both open-ended and closed-ended continuity.
a. Open-Ended Continuity
Plaintiffs argue there is open-ended continuity because Defendants are engaged in ongoing money laundering, simply by virtue of having previously committed fraud. FAC ¶ 223; POM Opp. at 21. Plaintiffs first allege that by committing fraud in the past, Defendants acquired criminal proceeds. See POM Opp. at 21. Plaintiffs then claim that Defendants’ large business “necessarily involves numerous transactions over $10,000.” Id. And because every transaction is infected by the past fraud, each such transaction constitutes money laundering. Id. As a result, in Plaintiffs’ view, POM—by virtue of its continued existence—commits continuous and never-ending acts of money laundering.
b. Closed-Ended Continuity
Plaintiffs also argue that there is closed-ended continuity because the operative complaint alleges conspiratorial conduct over several years—from April 2014 to at least June 2016. See, e.g., FAC ¶ 5. But for reasons explained above, the Court finds that Plaintiffs have failed to adequately plead conspiratorial conduct before the Summer of 2015. The operative complaint thus, at best, describes a conspiratorial scheme that existed for about one year, from the Summer of 2015 to June 2016, with a singular goal of stealing Mocha Mill‘s business. See, e.g. FAC ¶ 5 (“Defendants . . . sought to usurp Mocha Mill‘s entire business . . . through an extensive RICO conspiracy . . . .“), ¶ 6 (“In short, using racketeering activity and other fraudulent means, [Defendants] stole the Mocha Mill business . . . .“), ¶ 7 (describing the “scheme“), ¶ 25 (“Mocha Mill‘s business was stolen by the Port of Mokha RICO enterprise through a pattern of racketeering activity.“), ¶ 55 (alleging an enterprise “designed to steal . . . the business assets, relationships, and opportunities that Mocha Mill had spent significant time and money developing“), ¶ 213 (“The Enterprise sought to steal for the benefit of Port of Mokha the business Mocha Mill had spent years developing.“). But the Ninth Circuit has explained that activity spanning only a matter of months, involving a single victim, with a singular goal, cannot sustain a RICO claim. See Medallion, 833 F.2d at 1362-65 (holding that “alleged acts of mail fraud, wire fraud, and interstate transportation of stolen property” did not show a “pattern of racketeering activity” because they were all “parts of [defendants‘] single effort to induce Medallion to form the joint venture” and there was only a “single victim of the alleged fraud“); Sever v. Alaska Pulp Corp., 978 F.2d 1529, 1535 (9th Cir. 1992) (holding that a former employee failed to state a RICO claim where multiple criminal predicate acts were “in a sense a single episode having the singular
Because Plaintiffs fail to plead closed-ended continuity, the Court finds that Plaintiffs have failed to adequately plead RICO‘s “pattern” requirement. Accordingly, the Court DISMISSES Plaintiffs’ Section
F. The Court Declines to Exercise Supplemental Jurisdiction
A district court may decline to exercise supplemental jurisdiction if it has dismissed all claims over which it has original jurisdiction. Sanford v. MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010) (citing
IV. CONCLUSION
The Court GRANTS each Defendants’ motion to dismiss the first amended complaint, and as to all claims. Dismissal is with leave to amend, except as otherwise stated above. Any amended complaint must be filed within 28 days of the date of this order.
IT IS SO ORDERED.
Dated: 3/5/2019
HAYWOOD S. GILLIAM, JR.
United States District Judge