Opinion
CV 01-1260-BR.
February 13, 2002
RICHARD S. YUGLER, P.C., Landye Bennett Blumstein, Portland, Oregon, Attorneys for Plaintiff/Counterclaim-Defendant/Third-Party Defendant Altamont Summit Apartments, LLC (Altamont LLC) and Third-Party Defendants Downs, Sloan, and Webb (referred to collectively as the Altamont Principals)
RICHARD J. STONE, Ball Janik LLP, Portland, Oregon, Attorneys for Defendant/Counterclaimant/Third-Party Plaintiff Wolff Properties LLC (Wolff LLC) and Third-Party Plaintiffs Alvin J. Wolff, Inc.; Alvin J. Wolff Management Company; Alvin J. Wolff, Jr.; Eugenia E. Wolff; Fritz H. Wolff; Jesse Wolff, II; Sara D. Wolf; Robert A. Brett; and Cathleen M. Brett (referred to collectively as the Individual Wolff Parties)
JOEL WILSON, TODD M. PECK, Bullivant Houser Bailey PC, Portland, Oregon, Attorneys for Third-Party Defendant Pinnacle Realty Management Company (Pinnacle).
OPINION AND ORDER
This matter comes before the Court on the Motions to Dismiss or to Make More Definite and Certain and for Attorneys' Fees (#10) filed by Pinnacle and the Motions to Dismiss and Motion for Attorneys' Fees (#14) filed by Altamont LLC and the Altamont Principals.
For the reasons that follow, the Court GRANTS in part and DENIES in part the Motions to Dismiss (#10) filed by Pinnacle. The Court also GRANTS in part and DENIES in part the Motions to Dismiss (#14) filed by Altamont LLC and the Altamont Principals. The Court DISMISSES without prejudice the Second, Sixth, and Seventh Claims in the Amended Answer, Affirmative Defenses, Counterclaims, and Third-Party Claims (Amended Answer) of Wolff LLC and the Individual Wolff Parties and grants them leave to amend those claims. The Court also DISMISSES without prejudice the Fifth Claim in the Amended Answer of Wolff LLC and the Individual Wolff Parties based on common law fraud to the extent it is based on misrepresentations other than those contained in Exhibit I to the purchase and sale agreement (Agreement) and grants them leave to amend this claim with particularity consistent with this Opinion and Order. The Motions for Attorneys' Fees are DENIED.
FACTUAL ALLEGATIONS
The following factual allegations are taken from the Amended Answer filed by Wolff LLC and the Individual Wolff Parties in addition to the Agreement between Wolff LLC and Altamont LLC referred to in the Amended Answer and attached to the Complaint.
Wolff LLC, Alvin J. Wolff, Inc., and Alvin J. Wolff Management Company apparently are family-run businesses that own and operate apartment complexes in the Pacific Northwest. These companies, in conjunction with the remaining Individual Wolff Parties, typically purchase apartment complexes as investment property through a combination of a syndicate of investors and outside financing.
In December 2000, Wolff LLC and the Individual Wolff Parties were interested in purchasing a piece of property in Southeast Portland. Altamont LLC, an Oregon limited liability company owned and operated by the Altamont Principals, was the owner of the property. At the time, Altamont LLC was in the process of constructing a seventeen-building apartment complex containing 440 rental units on the property. In December 2000, the first phase of the Altamont Summit Apartments was complete, and the second phase of construction was scheduled to be completed in June 2001. Pinnacle managed Altamont Summit Apartments on behalf of Altamont LLC and also acted as the agent for Altamont LLC. In addition, Pinnacle served as the real estate broker on the project for Wolff LLC and the Individual Wolff Parties. Pinnacle had a previous working relationship with the Individual Wolff Parties and was familiar with the financing structure they used to acquire new investment properties.
Representatives of Wolff LLC and the Individual Wolff Parties visited the property in January 2001. Someone told the Wolff representatives that the first phase of the project had rented at an impressive rental rate or "velocity" of forty-five units per month. The representatives also were told there were no units for them to inspect at that time because there were no vacancies in the complex.
The Individual Wolff Parties allege they contracted with Altamont LLC to purchase the property through Wolff LLC. Wolff LLC and Altamont LLC executed the Agreement on February 14, 2001. Attached to the Agreement as Exhibit I was a document titled "Altamont Summit Unit Pricing Schedule and Rent Roll." Exhibit I reflected the Altamont Summit Apartments had a "rent-up" of 238 units; i.e., 238 units had been rented as of the date of the Agreement. Exhibit I also contained specific information regarding the minimum rent amounts charged by Altamont LLC. Exhibit I allegedly was prepared by Pinnacle in its role as Altamont LLC's property manager and agent.
In the Agreement, Altamont LLC represented and warranted all documentation provided to Wolff LLC was "true, correct, and complete in all material respects." Altamont LLC also represented all documents and other information provided by Altamont LLC to Wolff LLC or attached to the Agreement were "complete and accurate in material details." The Agreement specifically provided these representations were material representations that Wolff LLC relied on when it decided to enter into the Agreement. In addition, Altamont LLC agreed to rent the property for no less than the minimum rents set out in Exhibit I until the transaction closed in June 2001.
From February 14, 2001, until the scheduled closing date, Altamont LLC and the Altamont Principals continued to furnish to Wolff LLC and the Individual Wolff Parties updated information regarding the occupancy and rental rates at the Altamont Summit Apartments. Altamont LLC and the Altamont Principals also provided Wolff LLC and the Individual Wolff Parties with documentation that showed the apartments were rented at substantially full price with an average rental velocity of about forty-five units per month and a low turnover rate between February and June 2001. Wolff LLC and the Individual Wolff Parties received this information via multiple media, including six separate facsimile transmissions, thirteen electronic mail transmissions, and four letters.
During this time, Altamont LLC, the Altamont Principals, and Pinnacle allegedly became aware of the Individual Wolff Parties' participation in the transaction and the specific method of investment Wolff LLC and the Individual Wolff Parties intended to use to finance the purchase of the Altamont Summit Apartments. Alvin J. Wolff, Jr., and Fritz H. Wolff each told "one of the third-party defendants" that the capital for the transaction would be raised through a combination of a syndicate of investors and third-party financing. In addition, Alvin J. Wolff, Jr., sent the Altamont Principals a letter that informed them of the progress Wolff LLC and the Individual Wolff Parties were making in structuring the investment and negotiating financing.
At some point before closing, the Altamont Principals apparently considered becoming equity partners in the purchase of the property. In order to facilitate such an arrangement, Wolff LLC and the Individual Wolff Parties gave the Altamont Principals a complete prospectus regarding the transaction. The prospectus allegedly disclosed every aspect of the transaction, including the Individual Wolff Parties' roles in the financing.
Wolff LLC relied on the representations of Altamont LLC, the Altamont Principals, and Pinnacle regarding the rent-up and the monthly rental values of the Altamont Summit Apartments when Wolff LLC executed five amendments to the Agreement between February and June 2001. Wolff LLC and the Individual Wolff Parties also negotiated financing terms and paid the loan costs, loan application fees, and loan commitment fees for a real estate loan with First Union Securities in reliance on these representations.
On June 1, 2001, Wolff LLC entered into a loan commitment agreement with First Union. In order to qualify for the loan, Alvin J. Wolff, Jr., agreed to sign and to certify as true a rent roll and an operating statement for the Altamont Summit Apartments. The rent roll had to reflect at least 302 units were occupied at that time and the operating statement had to show monthly rental revenues of at least $268,622 in order for the loan to be funded.
On June 18, 2001, a pre-closing audit by First Union was conducted at the expense of Wolff LLC and the Individual Wolff Parties. The audit revealed for the first time that the true number of units rented at the Altamont Summit Apartments was approximately twenty percent less than the number of units previously reported by Altamont LLC, the Altamont Principals, and Pinnacle. After deducting the previously-concealed high rate of turnover also revealed in the audit, the true rental velocity showed almost no net gain in occupancy. In addition, many of the units that Altamont LLC, the Altamont Principals, and Pinnacle represented as rented at full price were, in fact, rented at substantially-reduced rates, and the true monthly rental income for the property was far less than the $268,622 required for financing. As a result of the information revealed in the audit, Wolff LLC did not purchase the Altamont Summit Apartments.
Wolff LLC and the Individual Wolff Parties allege the purchase of the property became economically unworkable because of the misrepresentations of Altamont LLC, the Altamont Principals, and Pinnacle. Wolff LLC and the Individual Wolff Parties further assert they suffered substantial damages as a result of the misrepresentations, including costs and fees associated with the financing agreement and lost profits.
PROCEDURAL BACKGROUND
On August 14, 2001, Altamont LLC filed a declaratory judgment action in Multnomah County Circuit Court. Altamont LLC sought a decree that it had not breached the Agreement with Wolff LLC and that it was entitled to the earnest money deposited by Wolff LLC in an escrow account pursuant to the Agreement. Wolff LLC removed the matter to this Court on August 22, 2001, on the basis of diversity of citizenship.
Wolff LLC and the Individual Wolff Parties filed their Answer, Affirmative Defenses, and Counterclaims on August 22, 2001. Before any party filed a responsive pleading, Wolff LLC filed its Amended Answer on October 4, 2001. In its Amended Answer, Wolff LLC denied the allegations in Altamont LLC's Complaint and asserted certain counterclaims against Altamont LLC. Wolff LLC joined the Individual Wolff Parties, and collectively they alleged several third-party claims against the Altamont Principals and Pinnacle. The newly-added Individual Wolff Parties also asserted third-party claims against Altamont LLC.
Pursuant to Fed.R.Civ.P. 12, Pinnacle filed Motions to Dismiss or Make More Definite and Certain the following claims filed by Wolff LLC and the Individual Wolff Parties in their Amended Answer: the Fifth Claim based on fraud; the Sixth Claim based on violations of the Racketeering Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq.; and the Seventh Claim based on violations of the Oregon Racketeer Influenced and Corrupt Organizations Act (ORICO), Or. Rev. Stat. §§ 166.715, et seq. In addition, Pinnacle moved this Court for an award of certain attorneys' fees incurred in defense of the ORICO claim pursuant to Or. Rev. Stat. § 166.725(14) and ORCP 68.
Altamont LLC and the Altamont Principals also filed Motions to Dismiss or Make More Definite and Certain in which they joined in Pinnacle's Motions and separately moved to dismiss the following claims: the Individual Wolff Parties' Second Claim for Relief for Third-Party Beneficiary Claims against Altamont LLC; the Sixth Claim for Relief for RICO violations against the Altamont Principals; and the Seventh Claim for Relief for ORICO violations against the Altamont Principals. Altamont LLC and the Altamont Principals also seek an award of attorneys' fees.
MOTIONS TO DISMISS Standards
Dismissal under Fed.R.Civ.P. 12(b)(6) "for failure to state a claim is proper 'only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Cervantes v. City of San Diego, 5 F.3d 1273, 1274 (9th Cir. 1993) (quoting Hishon v. King Spalding, 467 U.S. 69, 73 (1984)). The Court's review is limited to the operative pleading, and all allegations of material fact are taken as true and viewed in the light most favorable to the non-moving party. Meek v. County of Riverside, 183 F.3d 962, 965 (9th Cir.), cert. denied, 528 U.S. 1005 (1999). A court should not dismiss a complaint, thus depriving the plaintiff of an opportunity to establish his or her claims at trial, "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
Fed.R.Civ.P. 8(a) generally provides a pleading that sets forth a claim must contain "a short and plain statement of the claim showing the pleader is entitled to relief." A claimant need only provide in the initial pleading sufficient factual allegations to give the opposing party "fair notice" of the claim against the opposing party and the grounds on which that claim is based. Conley, 355 U.S. at 47.
Fed.R.Civ.P. 9(b), however, requires all allegations of fraud to be stated "with particularity." The heightened pleading standard of Rule 9(b) also applies to RICO and ORICO claims that include allegations of fraudulent activities as predicate acts of racketeering. Moore v. Kayport Package Express, Inc., 885 F.2d 531, 541 (9th Cir. 1989). See also State v. Blossom, 88 Or. App. 75, 78-79 (1987) (ORICO is interpreted consistently with federal law on RICO claims unless the two statutes clearly differ).
In order to satisfy the additional burdens imposed by Rule 9(b), the claimant must allege, at a minimum, "the time, place and nature of the alleged fraudulent activities." Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987), overruled on other grounds by Howard v. Everex Systems, Inc., 228 F.3d 1057 (9th Cir. 2001). Under most circumstances, the claimant also must attribute specific conduct to individual defendants. Moore, 885 F.2d at 541. This level of particularity, however, may be relaxed in cases of corporate fraud when the factual information is peculiarly within the corporation's knowledge or control and inaccessible to the claimant until discovery has been completed. Shapiro v. UJB Financial Corp., 964 F.2d 272, 285 (3d Cir.), cert. denied, 506 U.S. 934 (1992) (internal citation omitted).
If a claim is dismissed pursuant to either Rule 9(b) or 12(b)(6), leave to amend should be granted unless the court determines the allegation of other facts consistent with the operative pleading could not possibly cure the deficiency. Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986). See also Reddy v. Litton Indus., 912 F.2d 291 (9th Cir. 1990), cert. denied, 502 U.S. 921 (1991).
Discussion
I. Motion to Dismiss Second Claim of Individual Wolff Parties as Third-Party Beneficiaries for Breach of Contract
Altamont LLC seeks dismissal of the Individual Wolff Parties' Second Claim on the basis that the Individual Wolff Parties fail to allege sufficient facts to show they are entitled as third-party beneficiaries to enforce or to recover damages for a breach of Altamont LLC's promises under the Agreement.
A. Rights of Third-Party Beneficiaries
Under Oregon law, which controls the substantive claims in this action based on diversity jurisdiction, a person or entity may have rights under a contract as a third-party beneficiary even if the person or entity is not a party to the contract. A third party's right to enforce a contractual promise depends on the intent of the parties to the contract. Sisters of St. Joseph of Peace, Health, and Hospital Servs. v. Russell, 318 Or. 370, 374 (1994). There are three categories of third-party beneficiaries: donee beneficiaries, creditor beneficiaries, and incidental beneficiaries. Id. Incidental beneficiaries are not intended third-party beneficiaries. Only donee beneficiaries and creditor beneficiaries may enforce contractual promises intended for their benefit. Id.
A third party is a donee beneficiary if the promisee's intent in obtaining the promisor's promise to perform was to make a gift to the third-party or to confer on the third party a right to performance that was not due or claimed to be due by the promisee to the third party. Id.
A third party is a creditor beneficiary if the performance of a promise in a contract will benefit the third party and
no purpose to make a gift appears from the terms of the promise in view of the accompanying circumstances and performance of the promise will satisfy an actual or supposed or asserted duty of the promisee to the beneficiary.Johnston v. Oregon Bank, 285 Or. 423, 429 (1979) (citing Restatement of the Law of Contracts § 133, at 151-52). The performance of the promise by the promisor must "in fact discharge the promisee's obligation to the third person; if it will not do this, the third person may be a creditor of the promisee but he is not a creditor beneficiary of the contract." Id. at 431-32 (internal quotation and citation omitted).
Essentially, the third-party beneficiary must allege sufficient facts to show the promisor actually intended to assume and to take over an obligation owed by the promisee to the third-party beneficiary, and the promisor and promisee thus intended to confer on the third-party beneficiary a contractual right to hold the promisor to that promise. Huang v. Claussen, 147 Or. App. 330, 333 (1997). See also Lord v. Parisi, 172 Or. App. 271, 278-79 (2001).
B. Analysis
1. No Facts Show a Beneficial Interest in the Agreement
In their Second Claim, the Individual Wolff Parties generally allege Alvin J. Wolff, Inc.; Alvin J. Wolff Management Company; Alvin J. Wolff, Jr.; Fritz H. Wolff; and Robert A. Brett were third-party beneficiaries of the Agreement between Wolff LLC and Altamont LLC. The Individual Wolff Parties do not specifically allege Eugenia E. Wolff, Jesse Wolf II, Sara D. Wolff, or Cathleen M. Brett were third-party beneficiaries of the Agreement even though the caption of the Second Claim for Relief in the Amended Answer indicates all of the Individual Wolff Parties assert third-party beneficiary claims. In their Response to the Motions to Dismiss, counsel for the Individual Wolff Parties acknowledges this oversight and requests leave to amend the Second Claim to include specifically the other Individual Wolff Parties in this claim. The Court, however, finds the Individual Wolff Parties have not provided a short, plain statement of facts sufficient to show that any of the Individual Wolff Parties will benefit from Altamont LLC's performance under the Agreement.
Moreover, the Individual Wolff Parties in the Amended Answer do not identify the type of third-party beneficiaries they claim to be nor do they allege facts sufficient to support their contention that they are third-party beneficiaries under any theory. The Amended Answer contains only general allegations regarding the Individual Wolff Parties' business dealings in investment property, but it does not identify the Individual Wolff Parties' interests in the subject of the Agreement, the Altamont Summit Apartments. The relationship between Wolff LLC, the promisee under the Agreement, and the Individual Wolff Parties and their obligations and duties to one another also are not defined in the Amended Answer.
In their Response to the Motions to Dismiss, Alvin J. Wolff, Jr., Eugenia E. Wolff, Fritz H. Wolff, Jesse Wolff II, Sara D. Wolff, Robert A. Brett, and Cathleen M. Brett assert for the first time that they contributed funds to Wolff LLC to enable Wolff LLC to purchase the Altamont Summit Apartments. Alvin J. Wolff, Inc., alleges it provided the staff to locate the Altamont Summit Apartments and to evaluate the transaction. Alvin J. Wolff Management Company asserts it would have managed the apartment complex after Wolff LLC completed the purchase. In addition, all of the Individual Wolff Parties assert their relationships with Wolff LLC entitle them to creditor beneficiary status and the right to enforce Altamont LLC's promises under the Agreement. The Individual Wolff Parties' failure to include any of this information in their Amended Answer linking them to Wolff LLC for purposes of this transaction is, nevertheless, fatal to their third-party beneficiary claim.
2. Altamont LLC's Performance Will Not Discharge Duty to Third-Parties
The Court offers no opinion at this time as to whether the allegations in the Response are sufficient to show any or all of the Individual Wolff Parties would benefit from Altamont LLC's performance under the Agreement.
The Individual Wolff Parties assert in their Response to the Motions to Dismiss that they are creditor beneficiaries of the Agreement. As explained above, creditor beneficiaries must show not only that performance of a promise in a contract will benefit them, but also that the performance of that promise will, in fact, satisfy and discharge a duty of the promissee to the creditor beneficiary. Johnston, 285 Or. at 429. Based on the Individual Wolff Parties' allegations in the Amended Answer, however, it is impossible for the Court to determine whether Altamont LLC's performance of its obligations in the Agreement would "in fact discharge" any of Wolff LLC's obligations to the Individual Wolff Parties. In fact, the Individual Wolff Parties do not allege Wolff LLC was obligated to them either individually or as a group. The Court notes, however, it is unlikely the performance of Altamont LLC's duties to Wolff LLC under the Agreement would "in fact discharge" the obligations of Wolff LLC to its investors and sister companies if, indeed, those are the only relationships between the Individual Wolff Parties and Wolff LLC.
In Johnston, the plaintiff was the principal owner of stock in a corporation, which was a corporate partner in a lumber company. The plaintiff personally guaranteed a loan to the lumber company by the defendant bank. 285 Or. at 425. The loan agreement gave the defendant bank a security interest in certain property of the lumber company. Id. The loan agreement also contained a promise by the defendant bank to dispose of the property in a commercially reasonable manner in the event of the lumber company's default. Id. The plaintiff guarantor was not a party to the loan agreement in his personal capacity. Id. The plaintiff guarantor, nonetheless, personally brought a breach of contract claim against the defendant bank based on the bank's promise to the lumber company. Id. at 426. The court held the plaintiff guarantor was not a third-party beneficiary of the defendant bank's promise to dispose of the assets in a proper manner because that promise in no way would discharge the lumber company's obligation to the plaintiff guarantor to repay the loan. Id. at 430-32. The plaintiff guarantor could not enforce the promise because the defendant bank did not assume any obligation of the lumber company to the guarantor and did not discharge any obligation of the lumber company when it disposed of the lumber company's assets. Id.
Although the Johnston court did not examine whether the plaintiff guarantor's position as a partner in the lumber company might give rise to a third-party beneficiary relationship with the bank, the court's reasoning applies to that type of claim with equal force. A third party that contracts with a corporate entity to sell property does not assume the corporate entity's obligations to its individual investors. The third party also generally will not discharge a corporate entity's duties and obligations to protect its investors' capital. Thus, although the investors may be creditors of the purchaser, the investors generally are not creditor beneficiaries of the purchase and sale contract and cannot enforce the seller's promises in that contract.
3. No Proof of Intent to Benefit Third Parties
The Individual Wolff Parties also fail to allege any facts that establish the promisee and promisor intended the Agreement to benefit the Individual Wolff Parties. The Individual Wolff Parties allege Altamont LLC "knew or had reason to know" of their "beneficial interest" in the contract through various communications between the Individual Wolff Parties (or, more precisely, between Alvin J. Wolff, Jr., and Fritz Wolff) and the Altamont Principals. Although the Individual Wolff Parties do not explicitly allege Wolff LLC and Altamont LLC intended to benefit them by entering into the Agreement, they appear to contend the Court can infer an intent to benefit the Individual Wolff Parties from Altamont LLC's knowledge or constructive knowledge of the Individual Wolff Parties' various relationships to the transaction.
The Agreement between Wolff LLC and Altamont LLC actually provides that it will "inure to the benefit of Seller and Purchaser, and their respective successors and assigns." The Individual Wolff Parties do not allege they are the successors or assigns of Wolff LLC, the Purchaser. The express terms of the contract, therefore, do not give rise to an inference that Wolff LLC and Altamont LLC intended to benefit the Individual Wolff Parties when they entered into the Agreement.
Based on the foregoing, the Court finds the Individual Wolff Parties have failed to allege sufficient facts to state a claim as third-party beneficiaries for breach of the Agreement between Wolff LLC and Altamont LLC.
It is unlikely the Individual Wolff Parties can successfully cure the deficiencies in their pleadings by alleging sufficient additional facts consistent with the Amended Answer to establish they are entitled to relief as third-party beneficiaries to the Agreement. The Court, however, concludes it is not "beyond doubt" that the Individual Wolff Parties cannot cure those deficiencies.
Although the Individual Wolff Parties have already amended their claims once, that amendment did not result from an order of this Court. To date, neither Altamont LLC nor any other party has responded to the counterclaims and third-party claims asserted by the Individual Wolff Parties. The Court, therefore, dismisses without prejudice the Individual Wolff Parties' Second Claim and grants them with leave to amend their Second Claim consistent with the principles set forth above.
II. Motions to Dismiss Fifth Claim of Wolff LLC and the Individual Wolff Parties for Fraud
Altamont, the Altamont Principals, and Pinnacle seek dismissal of the Fifth Claim for Relief based on fraud asserted by Wolff LLC and the Individual Wolff Parties in the Amended Answer. Altamont, the Altamont Principals, and Pinnacle contend the Fifth Claim should be dismissed for failure to state a claim and for failure to plead the allegations of fraud with the particularity required by Rule 9(b).
Wolff LLC and the Individual Wolff Parties generally allege Altamont LLC, the Altamont Principals, and Pinnacle made false and misleading statements. In their Fifth Claim, Wolff LLC and the Individual Wolff Parties incorporate the "General Allegations" of the Amended Answer; however, they do not incorporate the allegations relating to specific, fraudulent facsimile transmissions, electronic mail transmissions, and correspondence that are asserted for the first time in the Sixth Claim for Relief of the Amended Answer based on RICO violations. Thus, the only allegations of fraudulent activity incorporated into the Fifth Claim for fraud are:
1. Someone told the "Wolff representatives" all of the 220 units in Phase 1 were rented when the "Wolff representatives" visited the site in December 2000;
2. Pinnacle, as the agent of Altamont LLC and the Altamont Principals, represented in Exhibit I to the Agreement that 238 units were rented at that time;
3. Altamont, the Altamont Principals, and Pinnacle "continued to furnish [the Wolff Parties] with information about the purported rent-up at the Altamont Summit Apartments."
In addition, Wolff LLC and the Individual Wolff Parties allege the Altamont Principals were "the owners and operators of Altamont LLC." The claimants also assert the Altamont Principals exercised direct supervision and control over Pinnacle and entered into a side agreement with a Pinnacle employee, Jorgan Shaw, to induce him to achieve a sufficient rent-up to close the deal with Wolff LLC.
The first and third allegations of misrepresentations clearly are insufficient to establish a claim for fraud under the heightened pleading standard of Rule 9(b) because Wolff LLC and the Individual Wolff Parties fail to identify who made the alleged statements and to whom the misrepresentations were made. Contrary to the contentions of Wolff LLC and the Individual Wolff Parties, this information is not uniquely within the control of Altamont LLC or Pinnacle because representatives of Wolff LLC and the Individual Wolff Parties allegedly heard the statements. Wolff LLC and the Individual Wolff Parties or their representatives, therefore, should know the identity of the representatives, the identity of the persons who made the misrepresentations, and the substance of the misrepresentations.
The second allegation of misrepresentation, however, is sufficiently specific to state a claim against Altamont LLC, the Altamont Principals, and Pinnacle pursuant to Rule 9(b). Wolff LLC and the Individual Wolff Parties adequately support this allegation with details as to the speaker of the misrepresentation (Pinnacle), the hearers (representatives of Wolff LLC and the Individual Wolff Parties), the nature of the misrepresentation (the number of units rented), and the time and place of the misrepresentation (February 14, 2001, when the Agreement was signed). Wolff LLC and the Individual Wolff Parties allege Pinnacle made the misrepresentations as the agent for and on behalf of Altamont LLC and the Altamont Principals, thereby linking both Altamont LLC and the Altamont Principals to the alleged misrepresentations.
Wolff LLC and the Individual Wolff Parties also contend the Altamont Principals exerted control over and entered into side agreements with Pinnacle employees regarding the purported rent-up. Although the Amended Answer of Wolff LLC and the Individual Wolff Parties is not a model of clarity, the Fifth Claim alleges sufficient facts to support a fraud claim against Altamont, the Altamont Principals, and Pinnacle based on the misrepresentations in Exhibit I when read in conjunction with the general allegations incorporated by reference therein. To the extent the fraud claims of Wolff LLC and the Individual Wolff Parties are based on other misrepresentations not specifically alleged in their Fifth Claim, including the twenty-three communications set out only in their Sixth Claim, those claims fail and are dismissed without prejudice and with leave to replead.
III. Motions to Dismiss Sixth Claim of Wolff LLC and the Individual Wolff Parties for RICO Violations
Pinnacle and the Altamont Principals move this Court to dismiss the Sixth Claim for Relief of the Amended Answer filed by Wolff LLC and the Individual Wolff Parties for RICO violations. Pinnacle and the Altamont Principals contend Wolff LLC and the Individual Wolff Parties failed to state a claim and failed to plead the underlying predicate acts of fraudulent activity with the particularity required by Rule 9(b).
18 U.S.C. § 1962 contains four separate subsections that each criminalize certain types of activities. Although Wolff LLC and the Individual Wolff Parties do not identify in the Amended Answer the subsection on which their claims are based, they allege in their Response to the Motions to Dismiss their claims are based on subsection (c) and the allegations in the Amended Answer are consistent with a claim for a violation of that section. The Court, therefore, addresses the sufficiency of the RICO allegations in light of the elements of 18 U.S.C. § 1962(c) only.
Pinnacle and the Altamont Principals argue the failure to identify the particular RICO subsection in the Amended Answer requires dismissal of the Sixth Claim. They do not cite, however, any authority to support this argument, and the Court has found none. Although it may be advisable for a claimant to identify the specific RICO provision that forms the basis of the claim, it is not required. To the extent the Motions to Dismiss are based on this failure, the Court denies those Motions.
Subsection (c) provides it is unlawful for a person
employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.18 U.S.C. § 1962(c). "Racketeering activity" encompasses violations of several federal laws, including 18 U.S.C. § 1341 relating to mail fraud and 18 U.S.C. § 1343 relating to wire fraud. 18 U.S.C. § 1961(1)(B). A pattern of racketeering activity requires the commission of at least two predicate acts of racketeering. 18 U.S.C. § 1961(5). In order to recover for a violation of § 1962, a person must allege injury to "his business or property by reason of" the violation. 18 U.S.C. § 1964(c). A person so injured may recover treble damages, costs, and attorneys' fees. Id.
A. Sufficiency of Allegations of Fraudulent Racketeering Activity
In their Sixth Claim, Wolff LLC and the Individual Wolff Parties allege the Altamont Principals and Pinnacle used the enterprise of Altamont LLC to engage in a pattern of fraudulent communications across interstate telecommunications lines and through the United States mail. In addition to the allegations of fraud found in the General Allegations portion of the Amended Answer and the Fifth Claim, Wolff LLC and the Individual Wolff Parties assert Pinnacle and the Altamont Principals participated in twenty-three additional facsimile, electronic mail, and written communications in furtherance of their scheme to defraud Wolff LLC and the Individual Wolff Parties. Wolff LLC and the Individual Wolff Parties list the individuals who sent and received each communication and the transmittal date of each communication.
The allegations of the predicate acts of mail fraud and wire fraud, however, do not meet the heightened pleading standard of Rule 9(b). Although Wolff LLC and the Individual Wolff Parties allege Pinnacle and the Altamont Principals provided false information regarding the rent-up at the Altamont Summit Apartments, they do not identify each false representation. The facsimiles, electronic mail messages, and correspondence listed in the Sixth Claim contain numerous representations. It is unclear whether Wolff LLC and the Individual Wolff Parties challenge all of them. Pursuant to Rule 9(b) Wolff LLC and the Individual Wolff Parties are required to specify the portion of each communication that they claim is false.
In addition, the Wolff LLC and the Individual Wolff Parties must attribute specific conduct to each potentially liable party that establishes the party's connection to and liability for each alleged misrepresentation pursuant to Rule 9(b). See Moore, 885 F.2d at 541. In any event, the general notice pleading requirement of Rule 8(a) requires the pleader to provide each defendant, at a minimum, with "fair notice" of the claims against it. Wolff LLC and the Individual Wolff Parties generally allege the Altamont Principals owned and operated a racketeering enterprise, Altamont LLC. They also assert Pinnacle participated in that enterprise by acting as Altamont LLC's agent. In addition, Wolff LLC and the Individual Wolff Parties allege the Altamont Principals controlled and supervised at least one of Pinnacle's employees, Jorgan Shaw.
Pursuant to § 1962(c), a party violates RICO by conducting or participating in the conduct of the enterprise's affairs. In other words, the party "must participate in the operation or management of the enterprise itself." Reves v. Ernst Young, 507 U.S. 170, 185 (1993). Liability under § 1962(c) is not limited to upper management, but also extends to lower rung participants in the enterprise who are under the direction of upper management or even outsiders "associated with" the enterprise who exert control over it. Id. at 184.
Here most of the misrepresentations alleged by Wolff LLC and the Individual Wolff Parties were made by individuals whose connection to either Pinnacle or the Altamont Principals was not established in even a general manner. The allegations of Wolff LLC and the Individual Wolff Parties may be sufficient to link Pinnacle and the Altamont Principals to some of the alleged misrepresentations, in particular the fraudulent communications sent by Jorgan Shaw and the Altamont Principals themselves. After reviewing the Amended Answer as a whole, however, the Court cannot discern any basis for holding either Pinnacle or the Altamont Principals liable for alleged fraudulent representations by persons not connected factually to either Pinnacle or the Altamont Principals. To the extent, therefore, the Sixth Claim is based on representations by persons other than Jorgan Shaw or the individual Altamont Principals, that claim fails and is dismissed without prejudice and with leave to amend.
B. Sufficiency of Allegations of Pattern of Racketeering Activity
To prevail on a RICO claim, a claimant must establish a "pattern of racketeering activity." 18 U.S.C. § 1962. At a minimum, a pattern of racketeering activity requires at least two predicate acts that are related and continuous. Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1527 (9th Cir. 1995). Continuity can be either open- or closed-ended. A claimant may establish closed-ended continuity by showing the related predicate acts occurred over a "substantial period of time." Id. (quoting H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 242 (1989)). Although racketeering activities "extending over a few weeks or months" do not satisfy the "substantial period of time" requirement, there is no "bright line rule" regarding the amount of time required to show closed-ended continuity. Id. at 1528. Even though the alleged criminal activities do not span a substantial period, a plaintiff may establish open-ended continuity by showing "either that the predicate acts include a specific threat of repetition extending indefinitely into the future or that the predicate acts were part of an ongoing entity's regular way of doing business". Id. at 1527 (internal quotations and citation omitted). Predicate acts "that specifically threaten repetition or that become a 'regular way of doing business' satisfy the open-ended continuity requirement." Id. at 1528 (quoting H.J. Inc., 492 U.S. at 243). The "fortuitous interruption of criminal acts does not preclude a finding of open-ended continuity." Allwaste, 65 F.3d at 1529 (citing United States v. Busacca, 936 F.2d 232, 238 (6th Cir.), cert. denied, 502 U.S. 985 (1991)).
Wolff LLC and the Individual Wolff Parties allege Pinnacle and the Altamont Principals engaged in twenty-three predicate acts over a period of five or six months. Although there are ten Counterclaimants and Third-Party Plaintiffs that assert RICO violations, all of the acts allegedly were aimed at a single goal or scheme: to defraud Wolff LLC and the Individual Wolff Parties in order to induce Wolff LLC to purchase the Altamont Summit Apartments. Thus, the losses of the Individual Wolff Parties, if any, actually are derived from Wolff LLC's injuries.
Wolff LLC and the Individual Wolff Parties do not allege Pinnacle and Altamont LLC similarly defrauded any other parties or participated in any other schemes. Thus, Wolff LLC and the Individual Wolff Parties do not allege in the Amended Answer that the fraudulent activities are Altamont LLC's "regular way of doing business." The allegations, nonetheless, are sufficient to establish open-ended continuity because a threat of continuing activity can be inferred. Wolff LLC and the Individual Wolff Parties allege Wolff LLC did not purchase the Altamont Summit Apartments after it discovered Pinnacle and the Altamont Principals repeatedly made false representations to induce Wolff LLC to buy the property. There is no reason to assume that Pinnacle and the Altamont Principals would have stopped making representations regarding the rent-up at the apartments if their alleged misconduct had not been discovered. For example, the financing agreement required Alvin J. Wolff, Jr., to certify a rent roll and an operating statement one day before the loan was funded in order to close the deal. Pinnacle, Altamont LLC, and the Altamont Principals obviously would have provided those figures. The allegations of Wolff LLC and the Individual Wolff Parties give rise to an inference that Altamont LLC, Pinnacle, and the Altamont Principals would have continued to misrepresent to Alfred J. Wolff, Jr. the rent roll and operating statement figures.
In Sun Savings and Loan Ass'n v. Dierdorff, the Ninth Circuit held allegations of four predicate acts over a two-month period posed a threat of continuing activity "because they covered up a whole series of alleged kickbacks and receipts of favors, occurred over several months, and in no way completed the criminal scheme." 825 F.2d 187, 194 (9th Cir. 1987). Similarly, in Ikuno v. Yip, the Ninth Circuit held the filing of two false annual reports by the lawyer-defendant established open-ended continuity because "there is no evidence that he would have stopped doing so if [the company] had not ceased to do business." 912 F.2d 306, 309 (9th Cir. 1990).
Pinnacle and the Altamont Principals, however, rely on cases such as Medallion Television Enterprises, Inc. v. SelecTV of California, Inc., 833 F.2d 1360, 1363-64 (9th Cir. 1987) to support their argument that there is no threat of continuity in this case. In Medallion, the court held there was no threat of continuity because the plaintiff, in reliance on the defendant's misrepresentations, completed the purchase and the alleged fraud was complete. The facts of this case are more analogous, however, to the facts of Sun Savings and Ikuno than the cases cited by Pinnacle and the Altamont Principals. The record here shows the alleged fraud was not complete: Wolff LLC did not purchase the Altamont Summit Apartments because it discovered the claimed fraud before the closing date.
Based on the foregoing, the Court finds Wolff LLC and the
Individual Wolff Parties have alleged sufficient facts to show a threat of continuing racketeering activity and to satisfy the requirement of open-ended continuity. Accordingly, the Court denies the Motions to Dismiss of Pinnacle and the Altamont Principals to the extent they challenge the allegations of a pattern of racketeering activity in the Sixth Claim of the Amended Answer of Wolff LLC and the Individual Wolff Parties. C. Sufficiency of Allegations of the Individual Wolff Parties' Standing to Sue and Proximate Cause18 U.S.C. § 1964(c) provides:
Because the Court finds Wolff LLC and the Individual Wolff Parties have alleged sufficient facts to establish open-ended continuity, the Court need not address whether five or six months constitutes a "substantial period of time" for purposes of establishing closed-ended continuity.
Any person injured in his business or property by reason of a violation of section 1962 of this chapter [the RICO statute] may sue therefor.
In order to state a claim for a RICO violation, a plaintiff must plead facts that show the defendant's violation of § 1962 was the proximate cause of the plaintiff's injury. Hamid v. Price Waterhouse, 51 F.3d 1411, 1419 (9th Cir. 1995), cert. denied, 516 U.S. 1047 (1996) (citing Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992), and Pillsbury, Madison Sutro v. Lerner, 31 F.3d 924, 928 (9th Cir. 1994)). A plaintiff may not sue directly if his injury is derived wholly from an injury to a third party. See Holmes, 503 U.S. 268-69. Thus, shareholders may not sue for the harm to the class of shareholders as a whole unless the plaintiffs can show either: 1) an injury distinct from that of the other shareholders or 2) a special duty owed by the defendant to the plaintiffs that is different from the duties owed by the defendant to the corporate entity. Sparling v. Hoffman Constr. Co., Inc., 864 F.2d 635, 640 (9th Cir. 1988).
As explained above, investors in a corporation or a limited liability company involved in the purchase of property generally are creditors of the purchaser, but it seems unlikely that those investors can show they are creditor-beneficiaries of the purchase and sale contract. Such investors' claims against the seller usually are derived wholly from the purchaser's claims against the seller and, therefore, do not give rise to independent claims under RICO without proof of some direct relationship between the investor and the seller. See Sparling, 864 F.2d at 640.
The Individual Wolff Parties contend they have alleged facts that show their injuries were proximately caused by Pinnacle and the Altamont Principals because the Individual Wolff Parties had a "direct stake" in the property transaction. The Individual Wolff Parties, however, admit they were not parties to the Agreement. Instead, the Individual Wolff Parties argue Altamont LLC owed them a special duty as intended third-party beneficiaries to the Agreement. As explained above, however, the Agreement between Wolff LLC and Altamont LLC specifically provides the Agreement benefits only Wolff LLC and Altamont LLC, and the Individual Wolff Parties are not named.
Based on the foregoing, the Court concludes the Individual Wolff Parties fail to allege sufficient facts to show they have suffered a direct injury or even a derivative injury as intended third-party beneficiaries to the Agreement between Wolff LLC and Altamont LLC. Thus, the Court dismisses without prejudice and with leave to amend the Individual Wolff Parties' Sixth Claim for RICO violations.
D. Sufficiency of Allegations of Enterprise that Affects Interstate Commerce
To prevail on a RICO claim, a plaintiff must show the alleged enterprise either engaged in interstate commerce or the activities of the enterprise affected interstate commerce. 18 U.S.C. § 1962(c). "[T]he RICO statute . . . regulates activities which, in the aggregate, have a substantial effect on interstate commerce." United States v. Juvenile Male, 118 F.3d 1344, 1348 (9th Cir. 1997). Thus, "all that is required to establish federal jurisdiction in a RICO [case] is a showing that the individual predicate racketeering acts have a de minimis impact on interstate commerce." Id. A de minimis impact can be shown not only by proof of an actual impact on interstate commerce, but also by proof of a "probable or potential impact" on interstate commerce. Id. at 1349.
Altamont LLC and the Altamont Principals contend Wolff LLC and the Individual Wolff Parties fail to allege any facts to establish this jurisdictional requirement. Wolff LLC and the Individual Wolff Parties, however, specifically allege Altamont LLC, an Oregon limited liability company with Oregon residents as principals, contracted to sell a piece of Oregon real estate to a Washington limited liability company. The Court finds these allegations support a conclusion that Altamont LLC, the racketeering enterprise, engaged in commercial activities that potentially would have had at least a de minimis impact on interstate commerce. These allegations, therefore, are sufficient to meet the RICO jurisdictional requirements. The Court, therefore, denies the Motions to Dismiss of Altamont LLC and Pinnacle to the extent they challenge the allegations in the Sixth Claim of the Amended Answer of Wolff LLC and the Individual Wolff Parties regarding the enterprise's effect on interstate commerce.
E. Sufficiency of Allegations Supporting Claim for Lost Profits
18 U.S.C. § 1964(c) provides "[a]ny person injured in his business or property" as a result of a violation of the RICO statute may recover treble damages for those injuries. Only concrete financial losses, however, are injuries compensable under this section. Oscar v. Univ. Students Co-operative Ass'n, 965 F.2d 783, 785 (9th Cir.), cert. denied, 506 U.S. 1020 (1992). Injuries to intangible property interests are not compensable. Id.
Pinnacle and the Altamont Principals argue lost profits are not the type of concrete financial losses that are recoverable under RICO pursuant to the Ninth Circuit's holding in Imagineering Inc. v. Kieweit Pacific Co., 976 F.2d 1303 (9th Cir. 1992), cert. denied, 507 U.S. 1004 (1993). The Ninth Circuit held the plaintiffs in that matter failed to allege specific facts to show their entitlement to the lost profits damages. Id. at 1311. The court, however, did not hold lost profits are unrecoverable on a RICO claim under any circumstances. Id. Thus, a claimant must support a claim for lost profits, like any other claim for RICO damages, with factual allegations that show the injury is not speculative. Id.
After reviewing the Amended Answer, the Court finds it impossible to determine whether Wolff LLC and the Individual Wolff Parties are claiming merely a general loss of opportunity to realize profits on the property transaction or the loss of specific, identifiable profits. In any event, Wolff LLC and the Individual Wolff Parties do not identify the source of their calculations of alleged lost profits and, therefore, fail to establish a "concrete" loss of profits. Accordingly, the Court dismisses without prejudice and with leave to amend the Seventh Claim of Wolff LLC and the Individual Wolff Parties for lost profits under RICO.
IV. Motions to Dismiss Seventh Claim of Wolff LLC and Individual Wolff Parties Based on ORICO Violations
Pinnacle and the Altamont Principals move this Court to dismiss the Seventh Claim for Relief in the Amended Answer of Wolff LLC and the Individual Wolff Parties based on ORICO violations. Pinnacle and Altamont argue Wolff LLC and the Individual Wolff Parties failed to state a claim and failed to plead the underlying predicate acts of fraudulent activity with the particularity required by Rule 9(b).
It is unlawful pursuant to ORICO for any person
employed by, or associated with, any enterprise to conduct or participate, directly or indirectly, in such enterprise through a pattern of racketeering activity or the collection of an unlawful debt.
Racketeering activity includes the crime of fraudulently obtaining the signature of another under Or. Rev. Stat. § 165.042. See Or. Rev. Stat. § 166.715(6)(a)(P). A pattern of racketeering is at least two incidents of racketeering activity that are interrelated and are not isolated incidents. Or. Rev. Stat. § 166.715(4). Any person who is injured "by reason of" a violation of ORICO may recover for the person's "actual damages." Or. Rev. Stat. § 166.725(7)(a)(B). As with RICO, treble damages may be awarded. Id.
ORICO is patterned after RICO, and federal cases that interpret the federal statute are, therefore, persuasive in interpreting the state statute. Blossom, 88 Or. App. at 78-79.
A. Sufficiency of Allegations of a Pattern of Racketeering Activity
ORICO provides a pattern of racketeering
means engaging in at least two incidents of racketeering activity that have the same or similar intents, results, accomplices, victims or methods of commission or otherwise are interrelated by distinguishing characteristics, including a nexus to the same enterprise, and are not isolated incidents.
Unlike the federal RICO statute, ORICO does not require continuity. Computer Concepts, Inc. v. Brandt, 310 Or. 706, 721 (1990). Racketeering activities form a pattern of racketeering and are not isolated from each other if they are related to one another and to the enterprise itself in one of the manners described in § 166.715(4). Id.
ORICO requires a party who asserts an ORICO claim to allege specifically the following:
1) a statement of the acts constituting each incident of racketeering activity in ordinary and concise language;
2) a statement identifying the date of each incident of racketeering activity or alleging the conduct was committed during a designated period of time;
3) a statement designating the distinguishing characteristic or characteristics that show the relationship between the incidents of racketeering activity; and
4) a statement that the alleged incidents were not isolated. Or. Rev. Stat. § 166.725(6). These requirements supplement the heightened pleading requirements for allegations of fraud found in Rule 9(b).
Wolff LLC and the Individual Wolff Parties allege Pinnacle and the Altamont Principals engaged in a pattern of racketeering activities "by fraudulently obtaining signatures from [Wolff LLC and the Individual Wolff Parties] on the purchase and sale agreements, the five amendments to that agreement, and the First Union loan agreement by knowingly misrepresenting facts or omitting material facts with an intent to injure or defraud" Wolff LLC and the Individual Wolff Parties. Wolff LLC and the Individual Wolff Parties do not incorporate by reference the specific mail and wire fraud communications listed in their RICO claim, but rely instead on the same allegations of fraudulent activity referred to in their Fifth Claim based on common law fraud.
As explained above with respect to those fraud claims, Wolff LLC and the Individual Wolff Parties allege sufficient facts to support a fraud claim against Pinnacle and the Altamont Principals based on the alleged misrepresentations in Exhibit I. To the extent Wolff LLC and the Individual Wolff Parties intend to state a fraud claim based on any other misrepresentations, their allegations fail pursuant to Rules 9(b) and 12(b)(6). The allegations of additional predicate acts of fraudulent activity offered in support of the ORICO claim are also insufficient.
The Seventh Claim, therefore, fails to state sufficient facts to establish a pattern of racketeering activity because only one racketeering activity is pled with sufficient particularity pursuant to the requirements of Rule 9(b) and Or. Rev. Stat. § 166.720(6). Accordingly, the Court dismisses without prejudice and with leave to amend the Seventh Claim of Wolff LLC and the Individual Wolff Parties based on ORICO violations.
B. Sufficiency of Allegations of Individual Wolff Parties' Actual Personal Damages
A plaintiff may recover "actual damages suffered by reason of" an ORICO violation. Or. Rev. Stat. § 166.725(7)(a). A plaintiff must allege facts that show the actual damages are personal to the plaintiff; i.e., the plaintiff must establish his relationship to the alleged racketeering activity and how the activity resulted in losses personal to the plaintiff. Riddle v. Eugene Lodge No. 357 of the Benevolent and Protective Order of Elks of the United States, 95 Or. App. 206, 216-17 (1989).
Notably, the Individual Wolff Parties allege Pinnacle and the Altamont Principals injured them by fraudulently obtaining signatures from Wolff LLC and the Individual Wolff Parties. The record shows, however, this allegation is false because no one signed the Agreement or any amendments to that Agreement in a personal capacity. Only one of the Individual Wolff Parties signed the Agreement and its amendments, and he only signed the documents in his capacity as the managing member of Wolff LLC.
As explained above, the Individual Wolff Parties have failed to allege sufficient facts to show they were intended third-party beneficiaries of the Agreement at issue. There are no allegations in the Amended Answer that show any personal harm to the Individual Wolff Parties caused by Wolff LLC's managing member entering into the Agreement or the subsequent amendments to that Agreement in reliance on fraudulent statements. Thus, the Court dismisses without prejudice and with leave to amend the Seventh Claim of the Individual Wolff Parties for ORICO violations.
C. Sufficiency of Allegations Supporting Claim for Lost Profits
A party may recover only actual damages under ORICO; speculative damages are not recoverable. As explained above, Wolff LLC and the Individual Wolff Parties have failed to allege sufficient facts to establish a concrete, factually supportable claim for lost profits. The Court, therefore, concludes the claim of Wolff LLC and the Individual Wolff Parties for lost profits under ORICO are too speculative under the facts currently alleged. Accordingly, the Court dismisses the Seventh Claim for lost profits and grants Wolff LLC and the Individual Wolff Parties leave to amend the Amended Answer.
MOTIONS FOR ATTORNEYS' FEES
Pinnacle and the Altamont Principals contend they are entitled to an award of attorneys' fees if the Court dismisses any of the ORICO claims alleged by Wolff LLC or the Individual Wolff Parties.
Or. Rev. Stat. § 166.725(14) provides "the court may award reasonable attorney fees to the prevailing party" on an ORICO claim. Or. Rev. Stat. § 20.077 provides general guidance on the award of attorneys' fees under Oregon law. Section 20.077(1) provides the court shall determine the prevailing party on each claim in cases in which more than one claim is made. A prevailing party is a "party who receives a favorable final judgment, decree or arbitration award on the claim."
Dismissal without prejudice and with leave to amend is not a final judgment on the claim. WMX Technologies, Inc. v. Miller, 104 F.3d 1133, 1135-36 (9th Cir. 1997) (a dismissal without prejudice and with leave to amend is not a final judgment subject to appellate review). See also Santoro v. CTC Foreclosures Servs. Corp., 193 F.3d 1106, 1107 (9th Cir. 1999). In this Opinion and Order, the Court dismisses the ORICO claims of Wolff LLC and the Individual Wolff Parties without prejudice and with leave to amend. Pinnacle and the Altamont Principals, therefore, are not entitled to an award of attorneys' fees under § 166.725(14) as the prevailing parties because such dismissal is not a final judgment for which attorneys' fees are available. If, however, Wolff LLC or any of the Individual Wolff Parties decide not to amend their ORICO claims, however, they are directed to inform the Court in writing immediately. The Court will then enter a final order with respect to the ORICO claims and determine whether to exercise its discretion to award Pinnacle and the Altamont Principals the attorneys' fees incurred in filing the Motions to Dismiss the ORICO claims.
CONCLUSION
Based on the foregoing, the Court GRANTS in part and DENIES in part the Motions to Dismiss (#10) filed by Pinnacle. The Court also GRANTS in part and DENIES in part the Motions to Dismiss (#14) filed by Altamont LLC and the Altamont Principals.
The Court DISMISSES without prejudice the Second Claim and grants the Individual Wolff Parties leave to amend the Second Claim to allege sufficient facts that establish their status as intended third-party creditor beneficiaries of the Agreement between Wolff LLC and Altamont LLC. The Court also DISMISSES without prejudice the Fifth Claim to the extent it is based on misrepresentations other than those contained in Exhibit I to the Agreement and grants Wolff LLC and the Individual Wolff Parties leave to amend the Fifth Claim to allege with particularity the allegations of fraud. The Motions to Dismiss the Fifth Claim are DENIED to the extent they are based on the alleged misrepresentations in Exhibit I to the Agreement. The Court DISMISSES without prejudice the Sixth Claim for RICO violations and grants Wolff LLC and the Individual Wolff Parties leave to amend the Sixth Claim to allege with particularity the allegations of fraud; to allege sufficient facts to show the Individual Wolff Parties have suffered a direct injury that was proximately caused by the racketeering activities; and to allege sufficient facts to support a concrete claim for lost profits. The Motions to Dismiss are DENIED to the extent they are based on the sufficiency of the allegations of an enterprise affecting interstate commerce and the allegations of a pattern of racketeering activity. The Court also DISMISSES without prejudice the Seventh Claim for ORICO violations and grants Wolff LLC and the Individual Wolff Parties leave to amend that claim to allege with particularity the predicate acts of racketeering activity; to allege a pattern of racketeering activity; to allege sufficient facts to establish the Individual Wolff Parties suffered actual damages that were proximately caused by the racketeering activity; and to allege sufficient allegations to support a concrete claim for lost profits. The Motions for Attorneys' Fees are DENIED.
IT IS SO ORDERED.