Opinion
3:20-cv-01194-AR
09-05-2023
DIANE ANDERSON, trustee of the Diane L. Anderson Revocable Trust, BONNIE BUCKLEY, trustee of the Bonnie K. Buckley IRA, CARL and KIRBY DYESS, trustees of the Dyess Family Trust, PETER KOUBECK, an individual and trustee of Peter L. Koubeck IRA, MICHAEL PETERSON, trustee of the Michael T. Peterson IRA, ED WILSON, an individual, Plaintiffs, v. DAVIS WRIGHT TREMAINE LLP, a Washington limited liability partnership, ROSS MILES, an individual, MAUREEN WILE, an individual, PACIFIC PREMIER BANK, a California chartered bank, RIVERVIEW COMMUNITY BANK, a Washington chartered bank, Defendants.
FINDINGS AND RECOMMENDATION ON MOTIONS TO DISMISS
FILED UNDER PROTECTIVE ORDER
JEFF ARMISTEAD, United States Magistrate Judge.
Plaintiffs, on behalf of themselves and as trustees, seek to represent a class of investors who purchased private real estate securities sold by American Equities Inc. (AEI), American Eagle Mortgage Management LLC (AEMM), defendant Ross Miles, and defendant Maureen Wile (collectively, American Equities). Plaintiffs allege that American Equities sold the securities by means of untrue statements and material omissions of material fact. For example, American Equities represented that its securities consisted of “pooled” real estate receivables (the Funds or AEM Funds) that were secured by the underlying real property and that the Funds were responsibly managed. Plaintiffs assert that, instead, the investment money was commingled and misused to hide earlier losses, to pay loans from defendants Riverview Community Bank (Riverview) and Pacific Premier Bank (Pacific Premier) (collectively, the Banks), to pay interest and principal owed to earlier investors, and to pay Miles, Wile, and their family members. Plaintiffs also allege that American Equities improperly transferred the real estate collateral that they were told secured their investments to the Banks to secure American Equities' loans and lines of credit. Eventually, the Funds collapsed and AEI and AEMM were placed into court-appointed receivership.
In this action, plaintiffs assert two claims for primary securities liability against Miles and Wile for selling securities by means of untrue statements or omissions of material fact, ORS § 59.115(1)(b) (Claim 1), and for selling securities using fraud or deceit, ORS § 59.135 (Claim 3). Plaintiffs also bring two claims for secondary securities liability against nonseller-defendants Davis Wright Tremaine LLP (DWT), Riverview, and Pacific Premier for participating and materially aiding the sales under ORS § 59.115(3) (Claims 2 & 4). Plaintiffs allege that defendant DWT participated and materially aided the securities sales to plaintiffs and putative class members by drafting the Private Placement Disclosure Documents (PPMs), the offering materials, and the documents necessary for American Equities to complete the securities sales. They also allege that the Banks materially aided the sales by providing loans and lines of credit to Miles, Wile, and American Equities that kept the “Ponzi” scheme afloat for years. Plaintiffs seek damages of $25.3 million.
The Banks - Riverview and Pacific Premier - now move to dismiss all claims against them in the Second Amended Complaint (SAC) for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), for failing to state a claim under Rule 12(b)(6), and alternatively, for a more definite statement under Rule 12(e). (ECF Nos. 65, 72.) As explained below, the court recommends that the motions be denied.
FACTUAL BACKGROUND
A. The Parties and Their Domiciles
Miles, a real estate developer and investment manager, is the founder and sole owner of AEI. Wile was a principal at AEI and, together with Miles, managed AEI, AEMM, and their affiliate entities. Miles and Wile are domiciled in Washington State. AEI is a Washington corporation with its principal place of business in Vancouver, Washington. AEMM is a Washington limited liability company with its principal place of business in Vancouver, Washington. The AEM Funds are Washington limited liability companies. (Decl. J. Matthew Donohue Supp. Pac. Premier Mot. Dismiss (Donohue Decl.), Ex. 1 at ¶¶ 4-5, Ex. 3 at 7, ECF Nos. 67-1, 67-3; SAC ¶¶ 2-3, 10, 13, 22-23, ECF No. 60.)
Riverview is a Washington chartered bank with its principal place of business in Vancouver, Washington. Riverview has 17 branch offices; 13 are in Washington and four are in Oregon. Miles opened deposit accounts and established a lending relationship in Vancouver, Washington in his personal capacity and on behalf of AEI. The Riverview Vancouver branch issued and managed the lines of credit issued to Miles and AEI from 2001 through 2009. (Decl. Dan Cox ¶¶ 3, 5-8, ECF No. 74.)
Pacific Premier is a California chartered bank with its principal place of business in Irvine, California. In 2018, Pacific Premier acquired Grandpoint Bank and Regents Bank by merger. Regents Bank operated in Vancouver, Washington from 2005 until 2013, when it was acquired by Grandpoint Bank. Miles opened deposit accounts and established a lending relationship with Regents Bank in Vancouver in his personal capacity, and on behalf of AEI and AEMM. The Regents Bank in Vancouver issued and managed the lines of credit to Miles, AEI, and AEMM. All personal interactions between Miles and Pacific Premier or Regents Bank occurred in Vancouver, Washington. In June 2020, Pacific Premier merged with Opus Bank, which had a single location in Portland, Oregon. Prior to the 2020 merger, Pacific Premier did not have any branch locations in Oregon. (Decl. Tami Nesburg ¶¶ 2-7, ECF No. 66.)
DWT, a Washington law firm, has a large office in Portland, Oregon. DWT attorneys working in its Portland office prepared the PPMs and other documents necessary to sell the securities, including: subscription agreements, management agreements, limited liability operating agreements, receivables purchase agreements, promissory notes, and underwriting criteria. DWT attorneys also served as general counsel to American Equities and directed potential investors to American Equities to invest in the AEM Funds. (SAC ¶¶ 11, 12, ECF No. 60.) DWT does not move to dismiss and does not challenge personal jurisdiction.
B. American Equities Securities
Miles founded AEI in 1979 and Wile joined the operation in 1984. In the 1980s and 1990s, Miles purchased individual real estate mortgages on properties in Oregon and Washington for resale in the Portland-Vancouver area. Many of the real estate deals that AEI offered were backed by real estate contracts secured by Miles' own real estate developments, including projects in Oregon. This model was described as “one-to-one” ratio investments, where AEI purchased an individual real estate receivable and packaged it for sale to one individual. (Id. ¶¶ 10, 22, 24.)
By 2003, many of AEI's one-to-one investments were generating insufficient returns to satisfy investors. In early 2003, AEI introduced a new investment product called “diversified mortgage funds” or “pools.” The pools were organized as limited liability companies (AEM Funds) that purchased first-position real estate-backed notes from other AEI real estate developments and other real estate contracts, which were grouped into a portfolio specific to each Fund. The AEM Funds sold shares to investors that consisted of long-term note obligations (Notes) issued by each Fund. The Notes had varying maturity terms (one-, seven-, ten-, and 15-year maturities), and the interest rate varied depending on the term, generally from seven to ten percent. Interest was to be paid monthly, and investors had the option to reinvest the monthly interest payment into the principal balance. (Id. ¶¶ 24-26.)
Investors were informed that their money would be held in escrow until a minimum amount was reached, also known as a “part-or-none” offering. The Funds were created as nominally separate entities that were ordered sequentially, and DWT created all offering materials for the Funds. The first DWT PPM for AEM 100 is dated January 15, 2003, and the last DWT PPM for AEM 600 is dated November 5, 2009. Additionally, AEI and DWT created a separate series of Funds designated as concentrating in Mexican Properties (AEM Mexico 100 through AEM Mexico 500), which were available to non-accredited investors. The last date any new investor money was deposited into AEM 600 was December 14, 2017, and investors continued to reinvest their interest in the various AEM Funds into 2019. (Id. ¶¶ 27-29.)
Investors were told that the sums raised by each Fund would be used exclusively to purchase secured real estate “receivables” in the form of land sale contracts, trust deeds, real estate mortgages, and promissory notes secured by the underlying real property. Investors were told that they were the sole owners of the receivables, that they held first-position liens, and that the receivables would be held until maturity. AEI formed the first AEM Fund in 2003 (American Eagle Mortgage 100), and formed the last AEM Fund in 2009 (American Eagle Mortgage 600). (Id. ¶¶ 28, 30-32.) In theory, AEI acted as a loan servicer by collecting mortgage payments from the underlying borrowers and using the payments for the Fund's fees, expenses, and returns promised to the investors. The revenue from each Fund's secured receivables was to be segregated from the revenue of other Funds and from AEI. Investors also were told that their investments were secured by each Fund's right to foreclose on the trust deeds that it held in the underlying real property. (Id. ¶¶ 30.a.v.-vi., 30.b.xi., 30.b.viii., 32.)
In reality, American Equities, Miles, and Wile commingled revenue among the Funds, themselves, and the Banks. American Equities routinely transferred revenue among the pool accounts to make interest payments to other investors. Investors were not told that the trust deeds and promissory notes were used as collateral to secure financing that American Equities needed from Riverview and Pacific Premier or that financing was needed to stay afloat. (Id. ¶¶ 17, 32.)
To sell the securities, Miles and Wile targeted Oregon investors and American Equities by using a Portland phone number and Vancouver phone number in its promotional materials. The pooled real estate interests included real property in Oregon. From 2001 to 2009, when Riverview provided a guidance line of credit to American Equities, at least 14 receivables were secured by Oregon real property. From 2008 to 2015, when AEI had a guidance line of credit with Regents Bank (Pacific Premier's predecessor), at least 20 receivables were secured by Oregon real property. In September 2019, when the Receiver stepped in, AEM Funds had real estate receivables located in 14 states. Of those various states, Oregon real property had the largest percentage of book value (19.9 percent, with real property valued at over $1.5 million), and the second largest number of properties with 26. (Rake Decl. Ex. 5 at 1, ECF No. 86; Decl. Hannah Schmidt ¶¶ 7-9, ECF No. 87.)
Arizona has the largest number of properties with 42, valued at $1.3 million.
C. Riverview's Relationship with American Equities
Beginning in 2001, Riverview lent money to American Equities on what would become a $3 to $4 million line of credit. Riverview knew that American Equities was using the line of credit financing to purchase “first position real estate contracts and first position notes with deeds of trusts” that American Equities then pooled and sold to investors. Plaintiffs allege that, beginning in 2005 and every year after, American Equities was insolvent and that Riverview knew that American Equities needed new investors in order to repay the line of credit. They further allege that Riverview knew that during the economic slowdown in 2007 to 2008, American Equities was having difficulty attracting new investors. Riverview also held the Funds' deposit accounts, and therefore knew how much investors were paying for AEM Funds securities and knew that American Equities was using investor deposits to make payments on Riverview's line of credit. From September 2007 to April 2008, Riverview received $7,369,000 in payments on American Equities' line of credit directly from AEM Funds. Plaintiffs allege that Riverview participated in the proceeds of the sales of securities to investors because Riverview understood that its line of credit was being repaid by new securities sales. Plaintiffs also allege that by providing its guidance line of credit and by making a “quiet exit,” Riverview allowed American Equities to maintain a false “illusion of solvency” and to continue selling securities. (SAC ¶¶ 14-16, 43.)
Riverview had a decades long relationship with Miles through its loan officer, Mike Roberts. (Rake Decl. Ex. 11 at 5, Ex. 13.) Riverview was aware of Miles' various investment entities, business, and real estate developments, including a large development in St. Helens, Oregon. (Rake Decl. Ex. 11 at 9.)
Riverview provided a “guidance” line of credit, which meant that each new real estate receivable that would be pooled into the Funds required Riverview's approval. (Rake Decl. Ex. 6 at 2.) American Equities provided Riverview with documentation of a receivable that AEI was interested in purchasing, including the city and state where the underlying real estate was located. (Rake Decl. Ex. 8 (attaching cover sheets).) Additionally, Riverview insisted that American Equities assign the trust deed in the receivable to Riverview and that its first-position security lien be recorded in the county where each property was located. (Rake Decl. Ex. 9.) Over the course of seven years, Riverview approved American Equities' purchase of at least 14 receivables in Oregon. (Schmidt Decl. ¶ 7.) The line of credit was profitable for Riverview, producing a return on equity of at least 33.71 percent based on the loan amount. (SAC ¶ 42; Rake Decl. Ex. 11 at 2.)
Riverview expected that it would be repaid when the real estate receivable was sold as part of the “pool.” (Rake Decl. Ex. 6 at 2, Ex. 10 at 2.) However, when the recession hit in 2008, the number of investors decreased, making it challenging to sell the pooled receivables. (SAC ¶ 14; Rake Decl. Ex. 10 at 2.) In a letter to Riverview's management, Miles discussed growing the AEM Funds to $100 million under management, and that “with the bank's continued support, we'll be there in less than four years.” (Rake Decl. Ex. 12 at 4.) Riverview also loaned money to Miles personally. (SAC ¶ 17.)
Despite American Equities insolvency, Riverview renewed the line of credit annually until Fall 2009, when it converted the guidance line of credit to a term loan with a balance of more than $3 million. (Rake Decl. Ex. 10 at 2.) American Equities was to repay its Riverview loan with investor funds, the Funds' collateral, and loan proceeds from Regents Bank. (SAC ¶¶ 14-17.) Riverview allowed AEI to slowly wind down the term line of credit until early 2013. (SAC ¶¶ 42-43; Rake Decl. Ex. 10 at 8 (describing that AEI has obligations to investors and to Regents bank, and that “investors are comfortable with unsecured loans”).) Riverview's quiet and prolonged exit from its financial relationship with AEI allowed Riverview to be repaid and permitted American Equities to continue selling securities to investors. (SAC ¶ 43.)
D. Pacific Premier's Relationship with American Equities
In June 2008, Pacific Premier, through its predecessor Regents Bank, provided a guidance line of credit to AEI, a credit line to Miles personally, and loans to American Equities affilitates. (SAC ¶ 18.) Pacific Premier's guidance line of credit also required its pre-approval for new real estate receivables purchases, assignment of a trust deed, and that a first-position security interest be recorded in the corresponding county where the property was located. (SAC ¶ 46; Rake Decl. Ex. 14.) Pacific Premier knew that the funds American Equities used to purchase real estate receivables would be included in various investment pools, and that ownership interests in the pools sold were to individual investors. (Rake Decl. Ex. 14 at 1.) In 2009, Pacific Premier's guidance line of credit was renewed, and in 2010, shifted to AEMM. (Rake Decl. Ex. 14 at 1, Ex. 15 at 1, Ex. 16 at 2.) Pacific Premier also imposed additional requirements, such as more documentation about the contracts and real property, valuation support, and title insurance. (Rake Decl. Ex. 16 at 2-3. 17.) From 2008 to 2015, Pacific Premier approved financing for at least 20 Oregon properties. (Schmidt Decl. Ex. 8; Rake Decl. Ex. 17 (attaching the recorded trust deeds in Oregon counties).)
E. Other Litigation
On May 10, 2019, the Funds were placed into court-appointed receivership, In re: American Eagle Mortgage 100, LLC, Case No. 19-2-01458-06 (Clark County Superior Court) (the Receivership Action). (Rake Decl. Ex. 4.) On February 19, 2020, Receiver brought a damages action (the Fund Litigation) against Miles, Wile, AEI and AEMM, in Clark County, Washington, alleging claims for breach of contract, conversion, violation of fiduciary duties, and that Miles and Wile aided and abetted those violations by commingling assets, misusing investor money, engaging in self-dealing, and operating the Funds as a Ponzi scheme, Hamstreet & Assocs. v. Am. Equities, Inc., Case No. 20-2-005-7-06 (Sup. Ct. Clark Cnty.). (SAC ¶¶ 25-33; Donohue Decl. Ex. 1.) The Receiver added Pacific Premier and Riverview as defendants to the Fund Litigation on similar theories in August 2020 and January 12, 2022, respectively. (Id. Exs. 5-6.) The parties have exchanged thousands of documents and hundreds of interrogatory responses in the Fund Litigation, which remains ongoing. (Donohue Decl. ¶ 2.) After the Receiver was appointed, plaintiffs (and most putative class members) filed claims with the Receiver to recover their investment losses. (Donohue Decl. Ex. 8 at 4.) Thus far, the Receiver has distributed $3 million to pay investor claims, including more than $700,000 to plaintiffs and putative class members. (Id. Ex. 9 at 3.)
On April 27, 2022, the Securities and Exchange Commission (SEC) initiated an action against Miles, Wile, and AEI - SEC v. American Equities, Inc., 3:22-cv-00621-SB (D. Or.). Another group of investor plaintiffs filed an action against defendants DWT, Miles, Wile, Pacific Premier, and Riverview, in Multnomah County Circuit Court - Beattie v. Davis Wright Tremaine, LLP, Case No. 20CV09419) (the Beattie Litigation). The Beattie plaintiffs are investors whose domicile prevents them from joining this putative class action. Pacific Premier and Riverview moved to dismiss that action against them, arguing that the Beattie plaintiffs had not established specific personal jurisdiction. In a January 19, 2023 Opinion and Order, Multnomah County Circuit Court Judge Leslie G. Bottomly denied the motions to dismiss. Judge Bottomly concluded that the Beattie plaintiffs adequately pleaded that the securities sales were directed to and received in Oregon, that Pacific Premier and Riverview purposefully directed their activities to Oregon, that there was a sufficient nexus between their activities and the claims, and that the exercise of personal jurisdiction comported with fair play and substantial justice. On February 17, 2023, Pacific Premier petitioned the Oregon Supreme Court to issue an alternative writ of mandamus directing Judge Bottomly to vacate her January 2023 Opinion and Order. On May 4, 2023, the Oregon Supreme Court denied the petition. (Notice of Supp. Authority at 7-11, ECF No. 105; Notice of Supp. Authority Ex. C, ECF No. 109.)
LEGAL STANDARDS
In a motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2), the plaintiff bears the burden of demonstrating that the court's exercise of jurisdiction is proper. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004). When the defendant's motion is based on written materials, rather than after an evidentiary hearing, the court need “only inquire into whether the plaintiff's pleadings and affidavits make a prima facie showing of personal jurisdiction.” Id. (internal quotation and citation omitted); AMA Mulitmedia,LLC v. Wanat, 970 F.3d 1201, 1207 (9th Cir. 2020). “Uncontroverted allegations in the complaint must be taken as true, and conflict between the parties over statements contained in affidavits must be resolved in the plaintiff's favor.” Will Co., Ltd. v. Lee, 47 F.4th 917, 921 (9th Cir. 2022); LNS Enters. LLC v. Cont'l Motors, Inc., 22 F.4th 852, 858 (9th Cir. 2022).
Under Rule 12(b)(6), a party may move to dismiss a complaint for “failure to state a claim upon which relief can be granted.” FED. R. CIV. P. 12(b)(6). A court may dismiss “on the lack of cognizable legal theory or the absence of sufficient facts alleged” under a cognizable legal theory. UMG Recordings, Inc. v. Shelter Cap. Partners LLC, 718 F.3d 1006, 1014 (9th Cir. 2013) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990)). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also CallerID4u, Inc. v. MCI Commc'ns Servs. Inc., 880 F.3d 1048, 1061 (9th Cir. 2018). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Teixeira v. Cnty. of Alameda, 873 F.3d 670, 678 (9th Cir. 2017). The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully. Twombly, 550 U.S. at 556; Mashiri v. Epsten Grinnell & Howell, 845 F.3d 984, 988 (9th Cir. 2017).
The court must accept as true the allegations in the complaint and construe them in favor of the plaintiff. Teixeira, 873 F.3d at 678; see also Iqbal, 556 U.S. at 679; Kwan v. San Medica Int'l, 854 F.3d 1088, 1096 (9th Cir. 2017). “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do.” Iqbal, 556 U.S. at 678 (internal citations omitted); Kwan, 854 F.3d at 1096. To be entitled to a presumption of truth, allegations in a complaint “may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
C. Rule 12(e)
Rule 12(e) permits a defendant to move against a complaint where it is “so vague or ambiguous that the party cannot reasonably prepare a response.” FED. R. CIV. P. 12(e); Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). “Relief under Rule 12(e) is warranted where the complaint is so indefinite that the defendants cannot ascertain the nature of the claims being asserted and literally cannot frame a responsive pleading.” Prychyna v. Barrett Bus. Servs., Inc., No. CV-11-122-HZ, 2011 WL 4498843, at *3 (D. Or. Sept. 27, 2011) (simplified). Motions under Rule 12(e) are “generally viewed with disfavor and are rarely granted.” Inman v. Anderson, 294 F.Supp.3d 907, 914 (N.D. Cal. 2018) (simplified).
DISCUSSION
A. Riverview's and Pacific Premier's Rule 12(b)(2) Motions Should Be Denied
The Banks argue that plaintiffs cannot establish any of the requirements for specific personal jurisdiction. Specifically, the Banks argue that they have not purposefully directed any action toward Oregon, that plaintiffs' claims do not arise out of their Oregon-related activities, and that it would be unfair and unreasonable to exercise jurisdiction over them because plaintiffs have received distributions from the Receiver and because they are defending duplicative litigation in Washington. Plaintiffs respond that they have made a prima facie showing of specific personal jurisdiction and that the Banks have not made a compelling case that exercising jurisdiction offends the notions of fair play and substantial justice.
1. Legal Standards Personal Jurisdiction
An exercise of personal jurisdiction in federal court must comport with both the applicable state's long-arm statute and the federal due process clause. Burri Law PA v. Skurla, 35 F.4th 1207, 1212 (9th Cir. 2022). Oregon Rule of Civil Procedure (ORCP) 4J(2) extends personal jurisdiction to “[a]ny person, a resident or nonresident of this state, who has engaged in conduct prohibited or made actionable under the Oregon Securities Law.” Oregon's long-arm statute, ORCP 4L, is co-extensive with federal due process standards. Ranza v. Nike, Inc., 793 F.3d 1059, 1063 (9th Cir. 2015) (citing OR. R. CIV. P. 4(L)). Thus, the court need only determine whether its exercise of personal jurisdiction over the Banks would offend constitutional due process requirements. See Ranza, 793 F.3d at 1068.
“Federal due process permits a court to exercise personal jurisdiction over a nonresident defendant if that defendant has ‘at least minimum contacts with the relevant forum such that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice.'” Glob. Commodities Trading Grp., Inc., v. Beneficio de Arroz Choloma, S.A., 972 F.3d 1101, 1106 (quoting Schwarzenegger, 374 F.3d at 801) (simplified); Ford Motor Co. v. Mont. Eighth Judicial Dist. Ct., 141 S.Ct. 1017, 1024 (2021) (providing nonresident defendant must have “‘contacts' with the forum State that ‘the maintenance of the suit'” is ‘reasonable, in the context of our federal system of government,' and ‘does not offend traditional notions of fair play and substantial justice'”) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
Plaintiffs do not assert general jurisdiction over the Banks, and the court confines its analysis to specific personal jurisdiction. The Ninth Circuit applies a three-prong test to analyze specific jurisdiction. LNS Enters., 22 F.4th at 859; Glob. Commodities, 972 F.3d at 1107.
(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 (simplified); Freestream Aircraft (Bermuda) Ltd. v. Aero Law Grp., 905 F.3d 597, 603 (9th Cir. 2018). Plaintiffs bear the burden of satisfying the first two prongs. If they do so, then the Banks bear the burden of presenting a “compelling case” that “the exercise of jurisdiction would not be reasonable.” Glob. Commodities, 972 F.3d at 1107 (quoting Schwarzenegger, 374 F.3d at 802); Ayla, LLC v. Alya Skin Pty., Ltd., 11 F.4th 972, 979 (9th Cir. 2021). The specific jurisdiction inquiry focuses on “the relationship among the defendant, the forum, and the litigation.” Walden v. Fiore, 571 U.S. 277, 284 (2014) (simplified).
2. Analysis - Specific Personal Jurisdiction
a. purposeful direction
The first prong requires plaintiffs to show that the Banks either “purposefully directed” their activities toward Oregon, or “purposefully availed” themselves of the privilege of conducting business in Oregon. Axiom Foods, Inc. v. Acerchem Int'l, Inc., 874 F.3d 1064, 1068 (9th Cir. 2017). Purposeful availment is often used to analyze suits sounding in contract, and purposeful direction is often used for actions sounding in tort. Axiom, 874 F.3d at 1069; Ayla, 11 F.4th at 980 (stating “[t]rademark infringement is treated as tort-like for personal jurisdiction purposes” and applying purposeful direction). Whether the court applies purposeful direction or purposeful availment “turns on the nature of the underlying claims.” San Diego Cnty. CreditUnion v. Citizens Equity First Credit Union, 65 F.4th 1012, 1035 (9th Cir. 2023). In analyzing specific personal jurisdiction in a similar securities case alleging nonseller liability under ORS § 59.115(3), this district applied purposeful direction. Ciuffitelli v. Deloitte & Touche LLP, Case No. 3:16-cv-00580-AC, 2018 WL 4568737, at *17 (D. Or. Aug. 1, 2018), adopted 2018 WL 4568586 (Sept. 21, 2018) (Ciuffitelli II) (discussing that securities cases have analyzed minimum contacts using both tests; applying purposeful direction). The parties focus on purposeful direction in their briefing and Judge Bottomly applied purposeful direction to conclude that personal jurisdiction exists over Pacific Premier and Riverview in the Beattie Litigation. The court agrees that purposeful direction supplies the appropriate analysis.
Magistrate Judge John V. Acosta issued three Findings and Recommendations in an action seeking to impose nonseller liability for participating and materially aiding securities sales under ORS § 59.115(3), Ciuffitelli v. Deloitte & Touche LLP, Case No. 3:16-cv-00580-AC. Because the court refers to all three of Judge Acosta's decisions in its Findings and Recommendations to resolve the pending motions to dismiss and motion for partial settlement, the court identifies his 2017 decision as Ciuffitelli I, his 2018 decision as Ciuffitelli II, and his 2019 decision as Ciuffitelli III.
The evidence required to establish purposeful direction usually centers on a nonresident defendant's actions outside the forum state that are directed at the forum state “such that personal jurisdiction could be exercised even without physical contacts with the forum.” Lazar v. Kroncke, 862 F.3d 1186, 1202 (9th Cir. 2017); Schwarzenegger, 374 F.3d at 803. Purposeful direction, also known as the “effects test,” is satisfied when a defendant: (1) commits an intentional act; (2) expressly aimed at the forum state; (3) which causes harm that the defendant knew was likely to be suffered in the forum state. Axiom, 874 F.3d at 1069 (citing Calder v. Jones, 465 U.S. 783, 788 (1984)).
i. intentional act
The “intentional act” requirement refers to an intent to perform an actual, physical act, instead of an intention to accomplish that act. Schwarzennegger, 374 F.3d at 806. Plaintiffs allege that from 2001 to 2009, Riverview provided a guidance line of credit that American Equities used to purchase real estate receivables, including at least 14 Oregon properties. Plaintiffs likewise allege that from 2008 to 2018, Pacific Premier provided a guidance line of credit that American Equities used to purchase real estate receivables, including at least 20 Oregon properties. Plaintiffs allege that the Banks required their express preapproval for each purchase of Oregon property and that the Banks' approval was conditioned on American Equities recording an assignment of a trust deed to the Banks in the Oregon county where each property was located, thus securing the Banks' first-position interest. Given those allegations, the court concludes that the Banks committed intentional acts when they approved the Oregon real estate purchases and required that their security interests be recorded in Oregon counties at least 24 times. See Ciuffitelli II, 2018 WL 4568737, at *18 (finding financial services company committed intentional acts when it provided valuations for portfolio companies at least three times); see also Axiom, 874 F.3d at 1069 (finding intentional act where unauthorized use of logos included in newsletter sent to mailing list recipients). The first part of the purposeful direction test is satisfied.
ii. expressly aimed
To satisfy the second part of the purposeful direction test, the court examines whether the Banks' intentional conduct was “expressly aimed” at the forum state. Axiom, 874 F.3d at 1069. The personal jurisdiction analysis focuses on the Banks' contacts with Oregon, “not the defendant's contacts with persons who reside there.” Picot v. Weston, 780 F.3d 1206, 1214 (9th Cir. 2015). To determine whether the defendant's conduct is expressly aimed at the forum state, “[t]he proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant's conduct connects him to the forum in a meaningful way.” Walden, 571 U.S. at 290. The court's analysis depends upon the type of claims alleged. Picot, 780 F.3d at 1214. Here, plaintiffs allege that the Banks materially aided and participated in the fraudulent or misleading sale of securities. Thus, court considers if the Banks expressly aimed their alleged material aid and participation in the sale of securities at Oregon.
The Banks contend that their conduct - lending money - occurred only in Washington, involved only Washington borrowers, and that none of their conduct was directly aimed at Oregon or its residents. Relying on out-of-district cases, the Banks contend that that the simple fact that Oregon property served as collateral is insufficient to show express aiming. See GD Deal Holdings, LLC v. Lotus Bus. Grp. LLC, No. 08-112, 2009 WL 2971795, at *5 (W.D. Tenn. Sept. 10, 2009), and Compass Financial Partners, LLC v. Unlimited Holdings, Inc. No. CV 07-1964-PHX-MHM, 2008 WL 2945585, at *6 (D. Ariz. July 28, 2008).
In GD Deal Holdings, a Tennessee court determined that it lacked personal jurisdiction over Community Bank & Trust (CB&T), a Wisconsin chartered bank, alleged to have aided and abetted nonresident defendant Sharma, to conceal and transfer assets located in multiple states. GD Deal Holdings, 2009 WL 2971795, at *1. CB&T held deeds of trust on two parcels of real property in Tennessee that were owned by companies affiliated with Sharma. After Sharma's affiliate companies defaulted, CB&T took title to one property and sold it to a party unrelated to the litigation; CB&T took title to the second property by foreclosure in Iowa, and later sold that property to another unrelated party. Id. at *3. In concluding that personal jurisdiction was improper, the court determined that “holding a mortgage on Tennessee property” by itself was not enough to establish that CB&T expressly aimed its conduct at Tennessee. Id. at *6. That is, the court reasoned that the claims against CB&T did not arise from the liens themselves “but from its agreement with a non-Tennessee resident to conceal assets from his creditors.” The court also noted that the loans from which the liens arose were not negotiated in Tennessee and the loan payments were not paid by Tennessee residents. Id.
In Compass Financial, a court in the District of Arizona likewise concluded that it did not have specific personal jurisdiction over a nonresident defendant corporation. There, the plaintiff was a Delaware limited liability company of investors that made a loan to a borrower to purchase four parcels of real property in Arizona. 2008 WL 2945585, at *1. In conjunction with that loan, the defendant-a Nevada corporation-executed a guaranty for all amounts owed by the borrower. After the borrower defaulted, the plaintiff-investors brought an action against the defendant to recover the guaranty when the borrower failed to repay the loan. Id. The defendant moved to dismiss, arguing that the District of Arizona lacked specific personal jurisdiction over it for that action. The court agreed. It noted that the plaintiff-investors were from Delaware, and that the defendant, borrower, and lender were all Nevada companies, and that the underlying loan agreement contained a forum selection clause providing that all litigation would be brought in Clark County, Nevada. Id. at *2, 5. The court further found that the defendant had not purposefully directed any activities or consummated any transaction in Arizona, and that the plaintiff's claims did not arise out of or related to any Arizona activities. Id. at *5. Thus, the court concluded that the loan, for which the Arizona land was collateral, and the loan's execution did not create sufficient minimal contacts to exercise specific jurisdiction. Id.
The Banks' reliance on GD Deal Holdings and Compass Financial is misplaced because their involvement here is much more extensive than that of the defendants in those cases. Taking the uncontroverted allegations in the complaint as true, plaintiffs have established that the Banks participated and materially aided American Equities' fraudulent securities sales by providing guidance lines of credit that enabled American Equities to purchase additional real estate in Oregon and continue its “illusion of solvency, safety, and prosperity.” (SAC ¶ 65.); Will Co.,Ltd., 47 F.4th at 921 (taking uncontroverted allegations as true on a 12(b)(2) motion). Moreover, Riverview knew by 2008, and Pacific Premier by 2009, that American Equities was insolvent. (SAC ¶¶ 16-18.) If the Banks had not extended credit, American Equities could not have continued to operate by purchasing new real estate receivables, could not have pooled those real estate receivables, and could not have marketed those assets via false or misleading materials to Oregon investors like plaintiffs. (SAC ¶¶ 18-19.) Finally, plaintiffs' allegations establish that the Banks knew that repayment of their lines of credit relied on American Equities' ability to attract new investors and continued securities sales, and that the Banks were compensated generously for participating in this scheme. Indeed, Riverview is alleged to have earned over 33 percent on its equity investments. In sum, those allegations detail a level of participation, knowledge, and material aid that is notably more extensive than that of the GD Deal Holdings and Compass Financial defendants.
Although the Banks did not have Oregon branches at the relevant time and the loans to American Equities were not negotiated in Oregon, “physical entry is not a prerequisite to jurisdiction.” Walden, 571 U.S. at 285 (noting that contact with the forum state through “goods, mail, or some other means, is a relevant contact”). Unlike GD Deal Holdings and Compass Financial, Oregon property served as collateral multiple times- and each occasion required the Banks' advance approval, assignment of a trust deed, and the Banks' requirement that their first-position security interests be recorded in the Oregon counties where the underlying real property was located. The fact that Wile or another American Equities staff person ensured that Pacific Premier's security interest was properly recorded does not alter this analysis. See Easter v. Am. W. Fin., 381 F.3d 948, 961 (9th Cir. 2004) (reversing district court's conclusion that it lacked specific personal jurisdiction because the “deeds of trust convey a property interest in Washington realty, which interest the Trust Defendants expect Washington law to protect” under purposeful availment theory). Plaintiffs have alleged conduct by the Banks that meaningfully connect it to Oregon, not simply the Oregon plaintiffs or the Oregon real estate held as collateral.
Moreover, unlike the limited security interests at issue in GD Deal Holdings and Compass Financial, the Banks' extension of financing to American Equities here was extensive and of its own making. From 2007 to 2012, Riverview approved at least 14 Oregon real estate purchases, and from 2008 to 2019, Pacific Premier approved at least 20 Oregon real estate acquisitions. Plaintiffs assert that the Banks were aware that AEM Funds' marketing materials contained the Oregon contact information for American Equities, that they knew their financing fueled the growth of AEI's securities sales, that they knew that American Equities was insolvent, and that they knew that their financing was being used to purchase real estate in Oregon. The Banks' alleged financing relationship facilitated the purchase of multiple Oregon properties over many years and ensured that they would be repaid before investors to their own financial benefit. Plaintiffs contend that the Banks renewed their guidance lines of credit annually, despite knowing that AEI was insolvent. Plaintiffs further assert that the Banks knew American Equities commingled its assets among the various AEM Funds, used their loans to cover operational costs, and quietly wound down their guidance lines of credit to help facilitate repayment to themselves before investors. In short, the Banks' contacts with Oregon were not random, fortuitous, or attenuated. The Banks' contact with Oregon includes the allegedly misleading conduct that gives rise to plaintiffs' claims, and this is sufficient to connect the Banks to Oregon in a meaningful way. Walden, 571 U.S. at 290.
The Banks also rely on Daoud v. Societe Generale De Banque Au Liban, S.A.L., Case No. SACV 21-00335-CJC (KESx), 2021 WL 3579359 (C.D. Cal. July 6, 2021), to argue that their lending was not expressly aimed at Oregon. There, the plaintiffs alleged that a Banque Au Liban was a key player in a Lebanese bank Ponzi scheme and that it solicited them to deposit $2.5 million in exchange for a 10 percent return. Id. at *1. When the plaintiffs later sought to withdraw their money, they were not permitted to do so, and the plaintiffs sued in California. Id. at *1. On Banque Au Liban's motion to dismiss, the Daoud court determined that the plaintiffs failed to establish specific personal jurisdiction over the foreign bank because there was no evidence that it expressly aimed its activities toward the California market. Id. at *3. Instead, the evidence showed that the plaintiffs were specifically targeted because they were Lebanese and had a prior history of banking in Lebanon, and thus concluded that their residence in California was incidental to their cause of action. Id. Daoud is readily distinguishable. Unlike Daoud, plaintiffs here allege that each of the Banks specifically approved financing real estate purchases in Oregon at least two dozen times, that the Banks knew the real estate acquisitions would be packaged into “pools,” and that those pools would be sold to investors. And the largest portion of real estate assets by value held by AEM Funds were in Oregon. Plaintiffs also allege that the Banks conditioned their financing on the assignment of the promissory notes and deeds of trust and required that their security interests be recorded in various Oregon counties, which shows that the Banks intended to use Oregon courts to enforce their rights, if necessary. Unlike Daoud, plaintiffs' residence in Oregon is not the only connection to Oregon.
Plaintiffs argue that Pacific Premier has filed lawsuits in Oregon to foreclose on interests secured by Oregon collateral and a lawsuit against Miles in Tillamook County Circuit Court. (Pls' Opp'n at 42.) It is unclear to the court, however, what connection those two actions have to this litigation.
For all those reasons, the court concludes that plaintiffs have sufficiently alleged that Riverview's and Pacific Premier's actions were “expressly aimed” at Oregon to satisfy the second part of the purposeful direction test. Walden, 571 U.S. at 284 (“For a State to exercise jurisdiction consistent with due process, the defendant's suit-related conduct must create a substantial connection with the forum State.”).
iii. harm likely to be felt in the forum state
Under the third part of the purposeful direction test, the Banks' actions must cause harm that they know is “likely to be suffered” in Oregon. Axiom, 874 F.3d at 1069; Mavrix Photo, Inc.,v. Brand Techs., Inc., 647 F.3d 1218, 1228 (9th Cir. 2011). This element is satisfied if a “jurisdictionally sufficient amount of harm is suffered in the forum state.” Yahoo! Inc. v. LaLigue Contre Le Racisme Et L'Antisemitisme, 433 F.3d 1199, 1207 (9th Cir. 2006). “The ‘brunt' of the harm need not be suffered in the forum state,” and this element may be established even if “the bulk of the harm” occurs outside the forum. Id.
Plaintiffs argue that the Banks reasonably knew that their continued funding of real estate receivables that facilitated American Equites' securities sales was likely to cause harm in Oregon. In plaintiff's view, it was “not only foreseeable, but also entirely predictable that many Oregonians would be enveloped and injured” by the Bank's decision to prop up the insolvent American Equities. (Pls.' Comb. Opp'n. at 32.) Plaintiffs allege that the Banks were aware that American Equities needed to grow its investors to continue paying off creditors, including the Banks. They allege that the Banks' actions in taking security interests in Oregon collateral left the AEM pools under-secured, which enabled the scheme to continue and momentarily avoid greater harm by exposing the scheme. (Id.) Notably, Oregon real estate made up the largest proportion of American Equities real estate assets by value.
The Banks argue that plaintiffs have not demonstrated that they knew that their actions were likely to cause harm in Oregon or that by taking security interests in Oregon collateral, they left the pools under-secured. The court disagrees.
Plaintiffs have adequately demonstrated that the Banks knew that economic harm was likely to be suffered in Oregon. Plaintiffs allege that the Banks preapproved purchases of Oregon real estate to an insolvent company selling securities. Plaintiffs also allege that, despite knowing that American Equities' business model was to purchase first-position real estate contracts with the financing provided by the Banks' lines of credit, the Banks required American Equities to assign them the same first-position security interests promised to investors. And they allege that the Banks knew that American Equities needed new securities sales to repay the Banks. Finally, plaintiffs highlight that without the Banks quietly exiting from their lending relationships, the securities sales could not have continued.
Plaintiffs submit evidence showing that when Riverview approved a guidance line of credit in 2001, it knew that AEI was 100 percent owned by Miles, and was “essentially operated as a sole-proprietorship by Miles.” (Rake Decl. Ex. 6 at 4, 13.) And Riverview knew that Miles developed a subdivision in St. Helens, Oregon and significant rental properties in Boardman, Oregon. (Rake Decl. Ex. 7 at 5, Ex. 10 at 11.)
The court is not convinced by the Banks' contention that their knowledge that the collateral for its loans would be real property in Oregon fails to create a nexus to Oregon. The Banks' involvement is alleged to be more substantial than simply providing financing for Oregon collateral. The Banks conditioned financing on preapproval of each Oregon purchase, required that they be assigned a first-priority lien, and required that their security interest be recorded in the correct Oregon county two dozen times. Because those are interests that defendants themselves have created with Oregon, the Banks have ties to the forum in a meaningful way. Walden, 571 U.S. at 284, 286, 290.
Next, the Banks argue that their security interests in the Oregon receivables are not the basis for the alleged securities fraud claims and thus are not relevant to minimum contacts consideration. (Def. Pacific Premier Reply at 8, ECF No. 92.) The court disagrees. Plaintiffs allege that one of the material misrepresentations and untrue statements made by American Equities in the selling the securities was that AEM Funds purchases or lends “first position real estate receivables,” and that when American Equities assigned those security interests to the Banks, they left plaintiffs' investments under secured. (SAC ¶ 30.c.ii.) Thus, plaintiffs' allegations against the Banks are an integral part of their participation and material aid in the securities sales. For example, Pacific Premier loaned American Equities $600,00 to pay off a distressed loan in LaPine, Oregon. (Pls.' Combined Opp'n at 22). In exchange, Pacific Premier took security interests in four different AEM Fund properties in Oregon, thereby diminishing the equity in those Funds and leaving the investors under secured. (Id.) Loan Memoranda submitted by plaintiffs show that the Banks relied on new securities sales as the primary source of repayment, with liquidation of the security interests as their secondary source. (Rake Decl. Ex. 15 at 1-2 (stating that primary repayment would be derived from sale of the real estate contract into a pool, and secondary source of repayment would be derived from liquidation of the collateral for case, and tertiary source would be from liquidating Miles' assets).)
The court is not persuaded by the Banks' reliance on Vernon Johnson Family Limited Partnership v. Bank One Texas, N.A., 80 F.Supp.2d 1127 (W.D. Wash. 2000). In that case, Washington plaintiffs purchased notes from a Florida company, First Lenders Indemnity Corporation (FLIC), that were to be secured by auto loans. FLIC sold the notes under trust indentures in offerings administered by two banks, SunTrust, a Florida bank, and Bank One, a Texas bank. Id. at 1129-30. FLIC soon defaulted on the trust indentures and filed for bankruptcy, and the plaintiffs sought to bring a class action against the banks in Washington for violations of the Trust Indenture Act, breach of contract, and breach of fiduciary duty. Id. at 1130. The Vernon Johnson court concluded that it lacked specific personal jurisdiction over either bank. Applying the purposeful availment test, the court determined that the plaintiffs failed to allege that either bank directed any activity or consummated any transaction with Washington residents. There, the court found that simply using the banks' names in FLIC sales materials was insufficient to show that the banks directed their activities toward the forum state. Id. at 1133. Additionally, the court found that, even if the banks were aware that FLIC offered notes for sale in Washington, an “awareness that the stream of commerce may or will sweep the product into the forum State does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum State.” Id. at 1134 (quoting Asahi Metal Indus. Co. v. Super. Ct. of Cal., Solano Cnty., 480 U.S. 102, 112 (1987)).
Unlike Vernon Johnson, plaintiffs allege conduct by the Banks that far exceeds simply being “aware” that American Equities was placing securities into the stream of commerce that might be purchased by Oregonians. Here, the Banks conditioned financing on their preapproval and recording of security interests in Oregon at least two dozen times. More importantly, as noted above, the Banks' actions are integral to their participation and material aid in the securities sales.
Finally, plaintiffs allege that the financing provided by the Banks was essential to keeping the investment scheme afloat, and that through their quiet winding down of their lines of credit and loans, they participated and materially aided the fraudulent securities scheme. Here, plaintiffs contend that the Banks' decisions to extend American Equities loan maturity dates, as opposed to foreclosing on their security interests, permitted the illusion of prosperity to continue. The Banks also are alleged to have participated and materially aided the investment scheme by permitting American Equities to mingle and misuse investor proceeds, including using loans from the Bank and new investment money to pay out interest and principal payments due on older investments.
For all those reasons, plaintiffs have shown that the Banks purposefully directed their activities to Oregon.
b. arises out of or relates to forum-related conduct
The second prong of specific personal jurisdiction requires that “a plaintiff's claims must ‘arise out of or relate to the defendant's contacts with the forum.'” Ayla, 11 F.4th at 983 (quoting Ford Motor, 141 S.Ct. at 1026). Although plaintiffs need not establish but-for causation, “there must be an affiliation between the forum and the underlying controversy, principally, an activity or an occurrence that takes place in the forum State and is therefore subject to the State's regulation.” Bristol-Myers Squibb Co. v. Super. Ct. of Cal., 582 U.S. 255, 262 (2017) (simplified). Here, the Banks' agreed to extend credit to purchase new properties, including many in Oregon, and knew that those properties would be pooled and sold to new investors. The Banks expressly conditioned their approval of American Equities' new real estate purchases on being assigned the first-position lien holder and that their security interests be recorded in the appropriate Oregon county on 24 occasions. Thus, the Banks' relationship with Oregon arises out of contacts that they created. See Walden, 571 U.S. at 284 (emphasizing that the relationship between the defendant and the forum “must arise out of contacts that the ‘defendant himself' creates with the forum State” (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (emphasis in Walden)). Meanwhile, AEM Funds' offering documents and marketing materials falsely claimed that those same properties (including two dozen Oregon properties) were unencumbered, omitted that the Banks held security interests in the properties, and omitted that American Equities owed millions to the Banks. Finally, plaintiffs identify loan memoranda showing that the Banks were counting on new securities sales as the primary source of repayment of the lines of credit and loans, and that their security interests were the secondary source of repayment. (Rake Decl. Ex. 15.) Plaintiffs have demonstrated an affiliation between the Banks' conduct in Oregon and the underlying claims. Thus, plaintiffs' claims arise out of or relate to the Banks' forum-related activities. Ayla, 11 F.4th at 983-84 (determining trademark infringement claims arose out of alleged infringer's contacts with forum).
Accordingly, taking the uncontroverted allegations in the SAC as true and viewing the evidence submitted in plaintiffs favor, plaintiffs have made a prima facie showing of specific personal jurisdiction over Riverview and Pacific Premier.
c. exercise of jurisdiction is reasonable
Turning to the third prong of specific personal jurisdiction, the burden shifts to the Banks to “present a ‘compelling case' that the exercise of personal jurisdiction would not be reasonable.” Schwarzenegger, 374 F.3d at 802 (quoting Burger King, 471 U.S. at 476-78). The court examines seven factors to assess whether the exercise of jurisdiction is reasonable: “(1) the extent of the defendants' purposeful injection into the forum state's affairs, (2) the burden on the defendant of defending in the forum, (3) the extent of the conflict with sovereignty of the defendant's state; (4) the forum state's interest in adjudicating the dispute; (5) the most efficient judicial resolution of the controversy; (6) the importance of the forum to the plaintiff's interests in convenient and effective relief; and (7) the existence of an alternative forum.” Sound Found.,v. SCI Fund II, LLC, Case No. 3:20-cv-01190-HZ, 2022 WL 225089, at *8 (D. Or. Jan. 25, 2022) (citing Sher v. Johnson, 911 F.2d 1357, 1364 (9th Cir. 1990)). “No one factor is dispositive; a court must balance all seven.” Panavision Int'l, L.P v. Toeppen, 141 F.3d 1316, 1323 (9th Cir. 1998).
Even if the court has determined that defendants have purposefully directed their activities to Oregon, the court must weigh the degree of interjection in assessing the overall reasonableness of jurisdiction. Id. (citing Core-Vent Corp. v. Nobel Indus. AB, 11 F.3d 1482, 1488 (9th Cir. 1993)). The court is unpersuaded by the Banks' argument that their recorded security interests in Oregon property are too minimal and too remote to support exercising jurisdiction. As discussed above, the Banks' financing of Oregon real estate purchases, recording security interests in Oregon, and receiving proceeds from security sales to repay their financing allowed the securities sales to continue for years. See Ciuffitelli II, 2018 WL 4568737, at *21 (finding that purposeful direction factors favored exercising jurisdiction). The first factor therefore weighs in favor of exercising jurisdiction.
Concerning the second factor, the Banks argue that they will be burdened significantly if they are required to defend this action in Oregon, and that the Fund Litigation brought by the Receiver is duplicative. Riverview also asserts that it will be burdened by having to defend this action because plaintiffs did not name AEI or AEMM as defendants, and that it will be forced to later seek contribution. (Riverview Mot. Dismiss at 22-23, ECF No. 72.) “A defendant's burden in litigating in the forum is a factor in the assessment of reasonableness, but unless the inconvenience is so great as to constitute a deprivation of due process, it will not overcome clear justifications for the exercise of jurisdiction.” Panavision, 141 F.3d at 1323 (simplified). The court observes that the Banks are defending two other actions in Oregon already, the Beattie Litigation and the SEC Action, and they have not shown that defending this action poses any additional burden. And contrary to the Banks' contention, this action is not duplicative of the Receiver's Fund Litigation. This action seeks to impose joint and several liability under ORS § 59.115(3), unlike the Receiver's tort claims based on Washington law. Finally, Riverview has not explained how it is prevented from later seeking contribution from AEI or AEMM should a verdict against it be entered. Thus, the second factor also weighs heavily in favor of exercising jurisdiction.
The third factor concerns the extent of any risk that the court's exercise of jurisdiction in Oregon might conflict with the sovereignty of Washington - where the Banks contend that the relevant conduct occurred. The Banks argue that RCW 21.20.430(3) conflicts with ORS § 59.115(3), and that the underlying securities sold to plaintiffs provide that Washington law will govern. (Pac. Premier's Mot. Dismiss at 23.) The Banks do not adequately explain how this court's application of Oregon securities law to potentially hold nonsellers accountable would impinge on Washington's sovereignty. And plaintiffs' claims against the Banks are premised on statutory violations, not breach of contract, making the choice of law provision irrelevant. See Munson v. Valley Energy Inv. Fund U.S., LP, 264 Or.App. 679, 702 n.17 (2014) (stating that forum selection clause was immaterial to discussion of personal jurisdiction). Thus, the third factor weighs in favor of exercising jurisdiction.
The fourth factor examines the state's interest in adjudicating its own laws. Panavision, 141 F.3d at 1323. “The Ninth Circuit assumes that a forum state maintains a strong interest in providing an effective means of redress for its residents tortiously injured.” Ciuffitelli II, 2018 WL 4568737, at *22 (simplified). Pacific Premier argues that Oregon's interest is minimal here because the alleged conduct occurred in Washington. The court disagrees. Oregon has a substantial interest in ensuring its securities laws are properly adjudicated, and as noted above, Oregon real estate comprised a large portion of American Equities' portfolio. Id. Accordingly, the fourth factor favors jurisdiction.
The fifth factor focuses on the location of the evidence and witnesses. Panavision, 141 F.3d at 1324. In the Banks' view, Washington is the most efficient forum because the alleged conduct is alleged to have occurred in Vancouver. The parties agree that some witnesses and evidence are in Vancouver and some witnesses and evidence are in Portland. The Banks highlight that there are two ongoing actions in Clark County, Washington; one overseeing the receivership of the Funds, and another by the Receiver (the Fund Litigation) against Miles, Wile, American Equities, Riverview, and Pacific Premier seeking damages that is scheduled for trial in June 2023. (Riverview Mot. Dismiss at 26.) The Banks, however, fail to note that they are defending two actions in Portland; the Beattie Litigation and SEC Action in Portland. “With the advances in transportation and telecommunications and the increasing interstate practice of law, any burden of litigation in a forum other than one's residence is substantially less than in days past.” CollegeSource, Inc. v. Academyone, Inc., 653 F.3d 1066, 1080 (9th Cir. 2011). In any event, Vancouver and Clark County, Washington are not far from this district. Thus, the court finds the fifth factor is, at best, neutral.
The court is not persuaded by the Banks' argument that this action is duplicative of the ongoing Fund Litigation brought by the Reciever. Although the actions involve many of the same facts, plaintiffs claims of nonseller liability are distinct, and the damages available under ORS § 59.115 are different. (Pls.' Comb. Resp. at 43-44.) Additionally, any amounts recovered by plaintiffs from the Banks requires the Receiver to adjust the amount of their claims. (Id. at 44.)
The sixth factor considers plaintiffs' interest in convenient and effective relief. As the parties acknowledge, however, the Ninth Circuit does not give much weight to this factor. CollegeSource, 653 F.3d at 1080. Thus, the sixth factor is neutral.
The seventh factor looks at the existence of an alternative forum. This factor is relevant only “when the [original] forum state is shown to be unreasonable.” Id. Because the Banks have not shown that Oregon is an unreasonable forum, the seventh factor is also neutral.
Considering those seven factors, numbers one through four weigh in favor of exercising personal jurisdiction in this District, and numbers five through seven are neutral. Therefore, the Banks have failed to present a “compelling case” that the exercising personal jurisdiction would be unreasonable. Accordingly, the court has specific personal jurisdiction over Riverview and Pacific Premier and their motions to dismiss under Rule 12(b)(2) should be denied.
B. Riverview's and Pacific Premier's Rule 12(b)(6) Motions Should Be Denied
The Banks move to dismiss the secondary liability claims against them under ORS § 59.115(3), for three reasons. First, the Banks argue that plaintiffs have failed to allege plausible and sufficiently specific claims of primary liability against Miles and Wile as sellers under Rule 9(b). Second, the Banks contend that, because plaintiffs' secondary liability claims against them sound in fraud, these claims also must be pleaded with specificity under Rule 9(b). And third, the Banks argue that plaintiffs fail to state plausible claims of secondary liability because they did not participate or aid in the actual sale of securities. (Riverview Mot. Dismiss at 27-35; Pac. Premier Mot. Dismiss at 27-35.)
Plaintiffs respond that their allegations of primary violations against Miles and Wile are sufficiently specific and satisfy Rule 9(b). Plaintiffs contend that Rule 8 pleading standards apply to secondary liability claims under ORS § 59.115(3). Lastly, plaintiffs argue that, as a matter of law, they have plausibly pleaded that the Banks' continued lending amounts to participation and material aid in the sale of securities.
1. Plaintiffs' Primary Liability Allegations Comport with Rule 9(b)
Rule 9(b) provides that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” FED. R. CIV. P. 9(b); Davidson v. Kimberly-Clark Corp., 889 F.3d 956, 964 (9th Cir. 2018); Cafasso, United States ex rel. v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1055 (9th Cir. 2011). To satisfy Rule 9(b), a pleading must identify “the who, what, when, where, and how of the misconduct charged.” Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010) (simplified); United States v. United Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th Cir. 2016) (quoting Ebeid, 616 F.3d at 998). In a claim based on fraudulent conduct and non-fraudulent conduct, Rule 9(b) applies only to the allegations of fraudulent conduct. Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1104-05 (9th Cir. 2003).
In Claim 1, plaintiffs allege that Miles and Wile (along with American Equities) sold securities to plaintiffs and putative class members “by means of untrue statements of material facts or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, violating ORS § 59.115(1)(b).” (SAC ¶¶ 68-72.) In Claim 3, plaintiffs allege that Miles and Wile (along with American Equities) “in connection with the purchase or sale of any security” made “untrue statement[s] of material” fact or “omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading” and “engaged in acts, practices, or courses of business which operated as a fraud or deceit upon any person,” violating ORS §§ 59.135(2)-(3). (SAC ¶¶ 81-85.) Because plaintiffs' primary violations under ORS §§ 59.115(1)(b) and 59.135 allege that Miles, Wile, and American Equities engaged in a pattern of making untrue statements and misleading omissions intended to conceal their insolvency and sound in fraud, the specificity requirements of Rule 9(b) apply. Ciuffitelli v. Deloitte & Touche LLP, Case No. 3:16-cv-580-AC, 2017 WL 2927481, at *11 (D. Or. Apr. 10, 2017), adopted by 2017 WL 2927150 (July 5, 2017) (Ciuffitelli I) (applying Rule 9(b) pleading standards to primary securities violations alleging “a broad scheme to conceal the financial infirmities of the Aequitas enterprise” under ORS §§ 59.115(1)(b) and 59.135). Plaintiffs agree that Rule 9(b) applies. The parties disagree, however, about whether plaintiffs have satisfied this standard.
The Banks argue that, under Rule 9(b), plaintiffs must identify the specific entity that made each misrepresentation, the entity that sold the security, and the specific security sale affected by that misrepresentation. In the Banks' view, plaintiffs' allegations that “American Equities” made untrue statements of material facts and omissions is not specific enough because plaintiffs have used that term to refer to AEI, AEMM, Miles, Wile, and their principals and affiliates, which includes 14 separate Funds that issued securities to plaintiffs. The Banks contend that the SAC “lumps together at least 18 separate entities” and is insufficient, relying on Ciuffitelli I, 2017 WL 2927481, at *13-14. In Ciuffitelli I, Judge Acosta determined that the plaintiffs' first amended complaint impermissibly referred to “Aequitas” instead of a specific Aequitas entity when alleging misrepresentations and omissions when pleading primary liability under ORS §§ 59.115(1)(b) and 59.135, and dismissed the claims with leave to replead. Id.
Plaintiffs respond that they have pleaded violations of ORS §§ 59.115(1)(b) and 59.135 with enough specificity under Rule 9(b), relying on Ciuffitelli II, 2018 WL 4568767, at *9. In Ciuffitelli II, after the plaintiffs filed a second amended complaint, Judge Acosta was faced with a second round of motions to dismiss filed by numerous defendants. Judge Acosta summarized that “to properly plead their claims under ORS § 59.115(1)(b) in this case, Plaintiffs must plead facts sufficient to show (1) which Aequitas entity made a misrepresentation or material omission, when and where the statement was made, and what was misleading about the statement when made, and (2) the allegedly misleading communication preceded their purchases from particular Aequitas entities.” Id. Judge Acosta examined the revised complaint and determined that the plaintiffs pleaded plausible claims of primary liability because they “identified various PPMs and investment documentation” that were alleged to contain untrue statements or omissions of material fact, because each plaintiff identified a specific Aequitas security they purchased, and because the dates of the sales and investment documentation preceded their purchases. Id. at *9-10.
Plaintiffs here argue that they have sufficiently alleged primary liability consistent with Ciuffitelli II. The court agrees. As in Ciuffitelli II, plaintiffs identify each of the 14 AEM Funds and the date of each PPM. (SAC ¶ 28.) Plaintiffs also allege that, at all times, Miles and Wile controlled AEI, AEMM, and the AEM Funds. (SAC ¶10.) Throughout the SAC, plaintiffs refer to Miles, Wile, AEI, and AEMM as American Equities, and assert that the entities operated as a unitary enterprise, moving cash assets and investors from one pool to another, disregarding the legal separation of the pools and corporate formalities. (SAC ¶¶ 32-33.) Additionally, plaintiffs assert that each of PPMs were drafted by DWT and that “each Fund PPM” made the same untrue statements or material omissions, including: (1) that the monies raised for each Fund would be used exclusively to purchase real estate receivables (i.e., trust deeds, mortgages, promissory notes) for that specific Fund, and that each receivable embodied an obligation secured by real property; (2) that each Fund's portfolio of receivables had a Manager and that the Manager had a fiduciary duty to act in each Fund's best interest; (3) that the Manager would determine the purchase price for each Receivable using minimum underwriting criteria for accuracy and that the Manager would act in good faith when purchasing Receivables; (4) that the Manager would manage and service the Fund's Receivables, and report “any important developments” to the investors; (5) that the investors' Notes would be repaid from amounts collected on that Fund's portfolio of Receivables; and (6) that due to AEI's potential conflicts of interest with its affiliates and other Funds, AEI would operate each Fund separately from AEI and segregate each Fund's assets. (SAC ¶¶ 30.a.i-vi.)
Plaintiffs also allege that each Fund's offering materials included a PPM, Limited Liability Company Agreement, Minimum Underwriting Criteria, and a Management Agreement. (Id.) They assert that American Equities, Miles, and Wile repeated these false and misleading messages in sales and marketing materials. (SAC ¶¶ 30.a-30.c.) And they generally allege that American Equities, Miles, and Wile were involved in a fraudulent scheme that created and maintained a false illusion of credibility, prosperity, solvency, success, and security for investors in AEM Funds. (SAC ¶¶ 31.)
Examining those allegations, the court concludes that plaintiffs have alleged with sufficient specificity which American Equities entity made the alleged misrepresentations or omissions and when it was made. Ciuffitelli II, 2018 WL 4568737, *9. Plaintiffs also allege with sufficient specificity that American Equities made affirmative untrue statements that were false when included in each PPM or investment materials or omitted material information that was necessary to make these statements not misleading. Ciuffitelli II, 2018 WL 4568737 at *9.
The Banks argue that plaintiffs are required to allege the specific date of each security sale at issue because it is necessary to know how each misrepresentation related to that sale or how the Banks could have materially aided each sale. Plaintiffs respond that the level of detail advocated by the Banks is unnecessary because it attempts to insert a “reliance” element into ORS § 59.115(1)(b) claims. Plaintiffs are correct.
Judge Acosta rejected similar arguments advanced by the defendants in Ciuffitelli II. There, the defendants argued that the plaintiffs were required to connect a PPM with a “particular sales transaction” and connect “a specific PPM to [p]laintiffs' specific purchases.” Id.Judge Acosta concluded that “a primary violation under ORS § 59.115(1)(b) does not require reliance on a misrepresentation or omission” and that interpreting the statute to require additional detail linking a specific PPM to the plaintiffs' purchases “would improperly insert a reliance element into the scheme.” 2018 WL 4568737, at *8. Judge Acosta determined that ORS § 59.115(1)(b) does require that there be some “some nexus between the untrue statement of material fact or omission and the subsequent sale.” Id. at *9. Thus, Judge Acosta concluded that to properly allege this connection, plaintiffs must plead that “the allegedly misleading communication preceded their particular purchases from particular entities.” Id.
Plaintiffs here allege the dates of all AEM Funds, the dates of the first sales from each PPM, and have identified from which specific AEM Fund they purchased their security (and their account balance.) (SAC ¶¶ 28, 39, & Sched. I.) These allegations satisfy plaintiffs' obligation to show that the allegedly misleading communications in the PPMs preceded their purchases of AEM Funds sufficient to survive under Rule 9(b) at the pleading stage.
2. Plaintiffs' Secondary Liability Allegations Comport with Rule 8
The Banks argue that plaintiffs' allegations of secondary liability fail because they have not been pleaded with particularity as required by Rule 9(b). The Banks contend that, because the claims against them allege that they participated or materially aided in the sale of securities procured by fraud, plaintiffs must likewise plead claims of secondary liability under Rule 9(b), and that plaintiffs' current allegations fall short. Plaintiffs respond that their claims against the Banks under ORS § 59.115(3) are derivative of American Equities' primary liability and are not subject to heightened pleading standards. Plaintiffs are correct.
Allegations of fraud against sellers (primary liability) under ORS §§ 59.115(1)(b) and 59.135 do not necessarily trigger heightened pleading against nonsellers for secondary liability under ORS § 59.115(3). “Rule 9(b) does not apply categorically” to an entire complaint. Ciuffitelli I, 2017 WL 2927481, at *9. Where plaintiffs allege “some fraudulent and some non-fraudulent conduct . . . only the allegations of fraud are subject to Rule 9(b)'s heightened pleading requirements.” See Vess, 317 F.3d at 1104; Ciuffitelli I, 2017 WL 2927481, at *10.
In the SAC, plaintiffs assert that American Equities, through the actions of Miles, Wile, AEI, and AEMM, engaged in a series of fraudulent securities violations. Plaintiffs allege that Riverview participated or materially aided American Equities by extending credit and deferring loan repayments, which in turn allowed American Equities to continue selling securities. (SAC ¶¶ 42-43.) Plaintiffs similarly allege that Pacific Premier extended credit to American Equities and Miles and renewed loans to Miles that allowed American Equities to continue selling securities. (SAC ¶¶ 44-65.) Plaintiffs seek to impose secondary liability through the Banks' participation and material aid under ORS § 59.115(3), “which does not require any participation in fraudulent conduct, only a sufficient nexus with unlawful sales.” See Ciuffitelli I, 2017 WL 2927481, at *12; Anderson v. Carden, 146 Or.App. 675, 683 (1997) (“The nonseller participant becomes liable under ORS § 59.115(3) because it has participated or materially aided in the sale, not because it has violated any law.”) (quotation omitted). Thus, the allegations concerning the Banks' conduct need only comport with Rule 8 here. Id. The Banks do not argue or suggest that plaintiffs' allegations do not satisfy Rule 8. Accordingly, the court recommends that the Banks' motion to dismiss the secondary liability claims on this basis be denied.
3. Plaintiffs plausibly have alleged secondary liability against the Banks
The Banks argue that plaintiffs' secondary liability claims are not legally plausible because: (1) there is no direct causal relationship between them, as lenders to Managers of the Funds, and the securities sales; and (2) they never loaned money to the Funds. The Banks argue that plaintiffs have not alleged a causal nexus between their relationship with American Equities and Miles and the securities sales to plaintiffs and, therefore, the secondary liability claims against them must be dismissed. Riverview contends that it maintained only a depository account with the AEM Funds and did not extend credit to the AEM Funds, and that secondary liability has not been extended to cover such situations.
Plaintiffs argue that, at this stage, they have plausibly alleged the Banks' participation or material aid under ORS § 59.115(3). Plaintiffs counter that numerous cases have found plausible allegations of secondary liability against institutions that loaned money or provided funding to sellers of securities in similar situations.
ORS § 59.115(3) provides that nonsellers who participate or materially aid an unlawful sale of a security are jointly and severally liable with the seller. As noted above, “the liability of a nonseller participant under ORS § 59.115(3) is predicated on the violation of the seller.” Anderson, 146 Or.App. at 683. And proof of direct, unlawful activity by a seller is “is not essential to establish its liability as a participant.” Mann v. St. Laurent, 229 F.Supp.2d 1133, 1138 (D. Or. 2002) (internal citation omitted). Thus, if plaintiffs sufficiently plead primary liability, they need only allege sufficient facts to establish that nonseller defendants participated or materially aided in the sale or controlled the seller. Alcantar v. MML Investor Servs., Inc., Case No. 08-cv-00041-MO, 2008 WL 2570938, at *5 (D. Or. June 25, 2008).
Participation and material aid are two different concepts and are “not synonyms.” Prince v. Brydon, 307 Or. 146, 149 (1988). “Generally, participation addresses direct involvement in the sale, while material aid involves indirect support for the seller in making the sale.” Ciuffitelli I, 2017 WL 2927481, at *9. Other Oregon decisions use the terms “participate or materially aid” without distinction. See, e.g., Fakhrdai v. Mason, 72 Or.App. 681, 684 (1985) (holding that person who prepared contract for sale of stock alleged plausible claim for participation and material aid under ORS § 59.115(3); Ainslie v. First Interstate Bank of Or., N.A., 148 Or.App. 162, 184-85 (1997) (Ainslie II) (upholding jury verdict against bank for participating and materially aiding sales when it released second escrow funds to prevent foreclosure).
“A non-seller's liability depends on the importance of their conduct - whether participation or aid - to the sale.” Ciuffitelli 1, 2017 WL 2927481, at *25. “[T]he non-seller's interactions with the seller must have a causal relationship with the transaction” and “must reflect some knowledge, judgment or other specialized skills particular to the non-seller.” Id.(simplified). Oregon courts have recognized that “interactions enabling a seller to continue its securities business constitutes material aid for any subsequent enabled transactions.” Id. And, Oregon courts have found participation and material aid where a bank's funding help the seller cover up insolvency, credit risks, and default risks. Cox v. Holcomb Fam. Ltd. P'ship, Case No. 1308-12201, Op. & Order at 7 (Mult. Cnty. Cir. Ct. Dec. 15, 2015) (attached to Rake Decl. Ex. 1 at 6, ECF No. 86.)
Contrary to the Banks' contention, Oregon courts have found nonseller liability on “conduct more attenuated from the transaction.” Id. In Ainslie v. Spolyar, the seller issued an offering memorandum for investors to purchase cutting rights on a tree farm. Ainslie I, 144 Or.App. 133, 138-39 (1996) (Ainslie I). The offering was contingent upon receiving enough investors to purchase subscriptions and, before receiving sufficient subscriptions, the tree farm was near foreclosure. The seller's attorney and First Interstate Bank manipulated transactions to release funds from an escrow established for the purchase to avert foreclosure. Eighteen months later, the tree farm was foreclosed upon, and the investors sued the attorney and the bank under ORS 59.115(3). In Ainslie I, the Oregon Court of Appeals affirmed the trial court's award of summary judgment, finding the attorney “materially aided the sales” in part by “prevent[ing a] foreclosure that would at the least have seriously impeded the offering” and later completed the offering. Ainslie I, 144 Or.App. at 145. In Ainslie II, the court also found that First Interstate Bank “participated in or materially aided” the sales because it was involved in averting foreclosure, was involved in the “use and misuse of investor funds,” and it “establish[ed] and handl[ed]” the second escrow that permitted the sales to move forward. Ainslie II, 148 Or.App. at 185.
Here, plaintiffs allege that the Banks had long-standing financial relationships with American Equities and Miles. The Banks evaluated the financial position of American Equities and Miles at least annually and repeatedly advanced funds to acquire specific real estate contracts and to cover operational expenses, including interest and principal payments owed to investors. Plaintiffs allege that the Banks' guidance lines of credit enabled American Equities to continue to sell securities. Additionally, plaintiffs allege that, by continuing to provide funding for new real estate purchases, the Banks shared in the proceeds of the continued securities offerings because their lines of credit were repaid before investors. Plaintiffs' allegations also plausibly assert that the Banks' used their professional knowledge and judgment to provide material aid, and that their actions went beyond essential but ministerial tasks. See Prince, 307 Or. at 149 (distinguishing between ministerial acts and those like drafting documents requiring knowledge and judgment); Ciuffitelli I, 2017 2927481, at *26-27 (citing Cox v. Holcomb Family, stating that banks who provided loans to seller that gave seller the illusion of credibility and financial strength).
Construed in the light most favorable to plaintiffs, those factual allegations support a plausible inference that the Banks' extension of credit and provision of loans to American Equities and Miles had a material, causal relationship with any resulting purchases of AEM Funds. Ciuffitelli I, 2017 WL 2927481, at *32 (determining allegations that Ameritrade acted as custodian for some Aequitas securities and referred investors to financial advisors to purchase them sufficiently alleged plausible connection to securities sales and denying motion to dismiss). Riverview's and Pacific Premier's motions to dismiss under Rule 12(b)(6) should be denied.
C. Riverview's and Pacific Premier's Rule 12(e) Motions Should Be Denied
“A Rule 12(e) motion is proper only where the complaint is so indefinite that the defendant cannot ascertain the nature of the claim being asserted.” Motameni v. Adams, Case No. 3:21-cv-01184-HZ, 2022 WL 3682940, at *11 (D. Or. Aug. 25, 2022) (quotation and citation omitted). “[T]he motion fails where the complaint is specific enough to apprise the defendant of the substance of the claim being asserted.” Id. The court also may deny a Rule 12(e) motion where the detail sought is obtainable through the discovery process. Id.
The Banks move to dismiss plaintiffs' secondary liability claims against it under Rule 12(e). They allege that plaintiffs should be required to plead their allegations of secondary liability with more specificity so that they can adequately defend their claims. The court disagrees with the Banks.
As addressed above, plaintiffs assert plausible secondary liability claims against Riverview and Pacific Premier under ORS § 59.115(3). Not only is the level of detail that the Banks seek unnecessary under Rule 8, plaintiffs' claims as alleged in the SAC are specific enough to apprise them of the substance of the claims, and are not “unintelligible.” See Aviles v. City of Long Beach, No. 22109684MEMFADS, 2022 WL 2965396, at *5 (C.D. Cal. Mar. 9, 2022) (“A motion for more definite statement is generally disfavored and is reserved for the situation [when] a pleading is unintelligible, rather than lacking in detail.”). Thus, the court concludes that the SAC contains sufficient detail to inform the Banks about the nature of the secondary liability claims and the factual allegations underlying them. The Rule 12(e) motions should be denied.
CONCLUSION
For the above reasons, Pacific Premier's Motion to Dismiss (ECF No. 65) should be DENIED, and Riverview's Motion to Dismiss (ECF No. 72) should be DENIED.
SCHEDULING ORDER
The Findings and Recommendation will be referred to District Judge Marco A. Hernandez. Objections, if any, are due within fourteen days. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due within fourteen days. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.