Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_05-cv-01021/USCOURTS-casd-3_05-cv-01021-3/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1962 Racketeering (RICO) Act

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 1 - 05-CV-1021

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

FRANK WHITTY and TAZU

WHITTY,

Plaintiffs,

CASE NO. 05-CV-1021 H

(BLM)

ORDER GRANTING

DEFENDANTS’ MOTION TO

DISMISS, GRANTING IN

PART AND DENYING IN

PART DEFENDANTS’

MOTION TO STRIKE, AND

DENYING PLAINTIFFS’

MOTION TO AMEND

[Doc. Nos. 46, 48, 55, 56]

vs.

FIRST NATIONWIDE MORTGAGE

CORPORATION, CITIMORTGAGE

INC., CITIGROUP INC., CHASE

MANHATTAN BANK, N.Y.,

WILLIAM WHEELER, SALLIE

KRAWCHECK, and DOES 1

THROUGH 80,

Defendants.

On May 11, 2005, pro se Plaintiffs Frank and Tazu Whitty (“Plaintiffs”) brought

this suit alleging twenty-five causes of action arising from the foreclosure of their real

property located at 13992 Putney Road in Poway, California (“the property”), the

adverse judgment in state court case Whitty v. First Nationwide Mortgage Corp., et al.,

San Diego Superior Court Case Number GIC789369 (“the state suit”), and numerous

bankruptcy proceedings. (Doc. No. 1.) Plaintiff Frank Whitty is a law school graduate

and candidate for admission to the State Bar of California. (Pls’ Opp’n Defs.’ Mot.

Dismiss, at 15; Defs.’ Mem. P. & A. Supp. Mot. Dismiss, at 1.) 

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 1 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 2 - 05-CV-1021

On August 22, 2006, Plaintiffs filed a Second Amended Complaint (“SAC”)

alleging fifteen causes of action against defendants Chase Manhattan Bank N.Y.

(“Chase”), First Nationwide Mortgage Corporation (“FNMC”), CitiMortgage Inc.

(“CMI”), CitiGroup Inc. (“CGI”), Sallie Krawcheck, William Wheeler, and Does 1-80.

(Doc. No. 24.) Plaintiffs pleaded that this Court has jurisdiction over this suit based on

diversity jurisdiction. (Id. at 2.) On November 27, 2006, defendants FNMC, CMI, CGI,

Sallie Krawcheck, and William Wheeler (collectively “Defendants”) filed a motion to

strike certain claims and allegations from the SAC pursuant to section 425.16 of

California’s Code of Civil Procedure, commonly known as an anti-Strategic Litigation

Against Public Participation (“SLAPP”) motion. (Doc. Nos. 45-46.) On November 30,

2006, Defendants filed a motion to dismiss Plaintiffs’ SAC. (Doc. No. 48.) On

December 8, 2006, and again on December 18, 2006, Defendants filed a supplemental

notice of lodgement adding exhibits 22 and 23. (Doc. Nos. 51, 54.) On December 26,

2006, Plaintiffs filed oppositions to Defendants’ motion to strike and motion to dismiss,

in which Plaintiffs requested leave of the court to amend their complaint. (Doc. Nos. 55,

56.) Defendants filed replies to Plaintiffs’ oppositions on January 3, 2007. (Doc. Nos.

57, 58.) On February 23, 2007, Defendants filed a supplemental document adding

exhibit 25, the California Supreme Court’s denial of Plaintiffs’ appeal in the state suit.

(Doc. No. 70.)

The Court exercises its discretion to decide these matters on the papers pursuant

to Local Civil Rule 7.1(d)(1). For the following reasons, the Court GRANTS WITH

PREJUDICE Defendants’ motion to dismiss Plaintiffs’ claims for intentional

interference with prospective economic advantage (claim one), fraud (claim two),

negligence (claim three), wire fraud (claim four), mail fraud (claim five), interference

with contract (claim six), breach of contract (claim seven), conversion (claim eight),

unfair business practices (claim nine), breach of the covenant of good faith and fair

dealing (claim ten), fraud on the court (claim eleven), contempt of federal bankruptcy

orders (claim twelve), interference with a court trial (claim thirteen), fixing the outcome

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 2 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 3 - 05-CV-1021

of a trial (claim fourteen), and wrongful prevention (claim fifteen). Accordingly,

Defendants FNMC, CMI, CGI, Krawcheck and Wheeler are dismissed from this case.

The Court GRANTS WITHOUT PREJUDICE Defendants’ motion to dismiss the Doe

defendants for untimely service. The Court GRANTS IN PART AND DENIES IN

PART Defendants anti-SLAPP motion. The Court DENIES Plaintiffs request to file

an amended complaint to add RICO claims. 

Background

In 1992, Plaintiffs obtained a $385,000 loan from Beverly Hills Financial, secured

by the property. (SAC ¶¶ 9-10.) Beverly Hills Financial was purchased by Texas

Commerce Bank in 1993, and thereafter Plaintiffs’ loan was serviced by Lomas

Mortgage Corporation (“Lomas”) from 1993 to 1996. (Id. ¶ 10.) Lomas initiated

foreclosure proceedings against the property in February 1994, alleging that Plaintiffs

were in default. (Id. ¶¶ 11-12.) Plaintiffs filed bankruptcy on June 10, 1994, in order

to prevent the foreclosure. (Id. ¶¶ 15-16.) In early 1996, Plaintiffs were informed that

FNMC had taken over servicing Plaintiffs’ loan for Chase, the new loan owner. (Id.

¶ 20.) 

On September 27, 1997, Plaintiffs converted their chapter 11 bankruptcy suit to

a chapter 13 suit. (Id. ¶ 23.) On July 8, 1998, the bankruptcy court, case number 96-

10478, issued an order limiting the arrearage to $47,602.23 as of September 1997. (Id.

¶¶ 24-25; Defs.’ Req. Take Judicial Notice, Ex. 6. (“Defs.’ RJN”).) 

On May 26, 2000, the bankruptcy court granted FNMC’s motion for relief from

the bankruptcy stay on foreclosing on the property due to Plaintiffs’ failure to pay their

postbankruptcy mortgage payments. (Defs.’ RJN, Ex. 9.) On July 19, 2000, the

bankruptcy court entered an order preventing FNMC from conducting a foreclosure sale

of the property if Plaintiffs made certain payments to FNMC, and allowing FNMC to file

a motion for the bankruptcy court to reconsider its order limiting the arrears to

$47,602.23 as of September 1997. (Id., Ex. 7.) In December 2000, Plaintiffs and FNMC

agreed to meet and attempt to reach an agreement on the arrearage amount, to allow

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 3 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 4 - 05-CV-1021

either party to request an arbitration if an agreement could not be reached, and that no

foreclosure sale would be conducted until 90 days after the date of the award by the

arbitrator. (SAC ¶¶ 34-35; Defs.’ RJN, Ex. 21.) On April 7, 2001, Plaintiffs and FNMC

met to discuss the arrearage. (SAC ¶ 37.) On April 17, 2001, however, Plaintiffs

voluntarily dismissed their bankruptcy case. (SAC ¶ 41; Defs’ RJN, Exs. 10, 11.) On

June 19, 2001, FNMC filed another foreclosure against the property. (SAC ¶ 42.) The

property was sold at foreclosure to a third party on June 3, 2002 for $516,285.49. (Id.

¶¶ 45-47.) 

 On July 3, 2003, Plaintiffs filed a sixth amended complaint against FNMC in the

state suit, alleging wrongful foreclosure, conversion, and other claims. (Defs.’ RJN, Ex.

1.) On June 8, 2004, the jury in the state suit found against Plaintiffs on their claims of

wrongful foreclosure and conversion. (Id., Ex. 4.) On August 26, 2004, the court in the

state suit denied Plaintiffs’ motion for judgment notwithstanding the verdict. (Id., Ex.

3.) On August 30, 2004, the court in the state suit denied Plaintiffs’ motion for a new

trial, and granted FNMC’s motion for attorney fees. (Id., Ex. 2, at 5-8.) 

On July 31, 2006, Plaintiffs filed a fourth amended complaint against their

attorney in the state suit, Kenneth Stone, in San Diego Superior Court, case number

GIC847102, alleging negligence, fraud, and other claims arising out of Stone’s

representation of Plaintiffs in the state suit. (Id., Ex. 20.) On December 11, 2006, the

California Court of Appeal dismissed Plaintiffs’ appeal from the judgment in the state

suit because the appeal was untimely, and affirmed on the merits the trial court’s denial

of Plaintiffs’ motion for judgment notwithstanding the verdict. (Defs.’ Supplemental

Req. Take Judicial Notice Supp. Mot. Dismiss, Ex. 23.) On February 21, 2007, the

California Supreme Court denied Plaintiffs’ petition for review of the California

Appellate Court’s decision. See Whitty v. FNMC, No. S149628, slip op. at 1 (Cal.

Sup. Ct. Feb. 21, 2007). 

Plaintiffs allege in the instant suit claims for intentional interference with

prospective economic advantage (claim one), fraud based on alleged misrepresentations

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 4 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 5 - 05-CV-1021

to lenders and a prospective buyer of the property (claim two), negligence (claim three),

wire fraud (claim four), mail fraud (claim five), interference with contract based on

contracts between Plaintiffs and potential lenders, and between Plaintiffs and a potential

purchaser of the property(claim six), breach of contract (claim seven), conversion (claim

eight), unfair business practices (claim nine), breach of the covenant of good faith and

fair dealing (claim ten), and wrongful prevention (claim fifteen). Plaintiffs also allege

that some or all of the Defendants induced, forced, or coerced Plaintiffs’ trial attorney

in the state suit to breach his fiduciary duties toward Plaintiffs, (see, e.g., id. ¶¶ 66, 236,

240,) that FNMC made a series of false declarations to the bankruptcy court, (see, e.g.,

id. ¶¶ 29-33, 224-25,) that Defendants did not comply with orders of the bankruptcy

court, (see, e.g., id. ¶¶ 231-32,) and that FNMC presented false evidence in the state suit.

(See, e.g., id. ¶¶ 105, 111, 227-28.) These latter allegations form the basis for Plaintiffs

claims for fraud based on alleged misrepresentations made in the bankruptcy court

(claim two), interference with contract based on a contract between Plaintiffs and their

attorney in the state suit (claim six), fraud on the court (claim eleven), contempt of

federal bankruptcy orders (claim twelve), interference with a court trial (claim thirteen),

and fixing the outcome of a trial (claim fourteen). 

Discussion

A. Request For Judicial Notice

Attached to their motion to dismiss, Defendants submitted a request that the Court

take judicial notice of copies of the sixth amended complaint, numerous orders, and the

judgment from Whitty v. First Nationwide Mortgage Corp., San Diego Superior Court

Case Number GIC789369, (Defs.’ RJN, Exs. 1-4); the docket from the appeal of the

state suit, (id., Ex. 5); numerous pleadings, minutes, and orders from In re Frank Whitty

and Tazu Whitty, United States Bankruptcy Court, Southern District of California, Case

Number 96-10478, (id., Exs. 6-11, 21); the docket and dismissal from Whitty v. First

Nationwide Mortgage Corp., United States Bankruptcy Court, Southern District of

California, Case Number 00-90132 (id., Exs. 18-19); the docket and complaint from

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 5 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 6 - 05-CV-1021

Whitty v. First Nationwide Mortgage Corp., United States Bankruptcy Court, Southern

District of California, Case Number 01-90514 (id., Exs. 12-13); the docket from In re

Tazu Whitty, United States Bankruptcy Court, Southern District of California, Case

Number 01-10501 (id., Exh. 14); the docket and a stipulated judgment from In re Frank

Joseph Whitty, United States Bankruptcy Court, Southern District of California, Case

Number 02-2321 (id., Exs. 15-16); the docket from In re Frank Joseph Whitty, United

States Bankruptcy Court, Southern District of California, Case Number 02-6764, (id.,

Exh. 17); and the fourth amended complaint by plaintiffs Frank and Tazu Whitty against

their attorney in the state suit, Kenneth Stone, from Whitty v. Stone, San Diego Superior

Court Case Number GIC847102, (id., Ex. 20). Defendants also filed requests that the

Court take judicial notice of the complaint from Whitty v. First Nationwide Mortgage

Corp., United States Bankruptcy Court, Southern District of California, Case Number

00-90132, (Doc. No. 51, Ex. 22,) and the decision from the California Appellate Court,

Case Number D045303, denying Plaintiffs’ appeal from the state suit. (Doc. No. 54, Ex.

23.) 

Federal courts may take judicial notice of other courts’ proceedings, within the

federal judiciary and without, if the proceedings directly relate to the matters before the

court. See U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d

244, 248 (9th Cir. 1992). Accordingly, the Court takes judicial notice of the requested

documents. Furthermore, a matter that is properly the subject of judicial notice may be

considered along with the complaint when deciding a motion to dismiss. See MGIC

Indem. Corp. v. Weisman 803 F.2d 500, 504 (9th Cir. 1986). 

B. Motion To Dismiss

Defendants have moved to dismiss Plaintiffs’ entire suit against them under Rule

12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which

relief can be granted. Rule 12(b)(6) permits dismissal of a claim either where that claim

lacks a cognizable legal theory, or where insufficient facts are alleged to support

plaintiff's theory. See Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 6 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 7 - 05-CV-1021

1990). In considering the sufficiency of a complaint under Rule 12(b)(6), courts cannot

grant a motion to dismiss “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.” Id. (citing Conley

v. Gibson, 355 U.S. 41, 45-46 (1957)). In resolving a Rule 12(b)(6) motion, the court

must: (1) construe the complaint in the light most favorable to the plaintiff; (2) accept

all well-pleaded factual allegations as true; and (3) determine whether plaintiff can prove

any set of facts to support a claim that would merit relief. See Cahill v. Liberty Mut. Ins.

Co., 80 F.3d 336, 337–38 (9th Cir. 1996). 

Dismissal is proper, however, if a complaint is vague, conclusory, and fails to set

forth any material facts in support of the allegation. See North Star Intern. v. Arizona

Corp. Com’n, 720 F.2d 578, 583 (9th Cir. 1983). Furthermore, a court may not “supply

essential elements of the claim that were not initially pled.” Ivey v. Bd. of Regents of

the Univ. of Alaska, 673 F.2d 266, 268 (9th Cir. 1982). If a complaint is found to fail

to state a claim, the court should grant leave to amend unless it determines that the

pleading could not possibly be cured by the allegation of other facts. See Doe v. United

States, 58 F.3d 494, 497 (9th Cir.1995).

 1. Claim Preclusion

Defendants argue that Plaintiffs claims for intentional interference with

prospective economic advantage, fraud, negligence, wire fraud, mail fraud, interference

with contract, breach of contract, conversion, unfair business practices, breach of the

covenant of good faith and fair dealing, and wrongful prevention should be barred by

claim preclusion because all of the claims should have been brought as compulsory

claims in the state suit. Claim preclusion may appropriately be argued on a motion to

dismiss. See Scott v. Kuhlmann, 746 F.2d 1377, 1378 (9th Cir. 1984) (holding that

claim preclusion is appropriately raised on a motion to dismiss if the defendant does not

raise issues of disputed facts); see also 18 Charles Alan Wright, Arthur R. Miller &

Edward H. Cooper, Federal Practice and Procedure § 4405, p. 105 (2d ed. 2002) (raising

preclusion defenses on motion to dismiss most appropriate when defense appears on face

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 7 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 8 - 05-CV-1021

of complaint); Schwarzer, et al., California Practice Guide: Federal Civil Procedure

Before Trial (The Rutter Group 2006) ¶ 9:212.16, p. 9-63 (defense of res judicata can

be raised by 12(b)(6) motion when based on records of which court takes judicial

notice). Plaintiffs have alleged in detail the facts of the state suit in their complaint.

(See, e.g., compl. ¶¶ 66-165.) Additionally, the Court has taken judicial notice of the

court records from the state suit. Accordingly, Defendants’ claim preclusion argument

is validly raised in its 12(b)(6) motion. 

A federal court deciding whether a claim is precluded by a prior state court claim

must use the claim preclusion law from the state from which the prior judgment was

taken. See Noel v. Hall, 341 F.3d 1148, 1166 (9th Cir. 2003); see also Costantini v.

Trans World Airlines, 681 F.2d 1199, 1201 (9th Cir.1982) (holding that a federal court

sitting in diversity must apply the claim preclusion law of the state in which it sits). In

California, claim preclusion prevents relitigation of the same cause of action in a second

suit between the same parties or parties in privity with them. See Mycogen Corp. v.

Monsanto Co., 28 Cal. 4th 888, 896 (2002). Claim preclusion applies when: (1) the

claim raised in the prior adjudication is identical to the claim presented in the later

action; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the

party against whom the doctrine is being asserted was a party or in privity with a party

to the prior adjudication. See In re Anthony H., 129 Cal. App. 4th 495, 503 (2005). A

judgment for the defendant in a prior suit serves as a bar to further litigation of the same

cause of action in subsequent suits. See id. Under the claim preclusion doctrine, all

claims based on the same cause of action must be decided in a single suit; if not brought

initially, they may not be raised at a later date. See id. at 897.

In order for claims to be barred by the doctrine of claim preclusion, however, a

federal court must determine, based on state law, whether the judgment is final and

therefore conclusive in the federal court. See Turnbow v. Pacific Mut. Life Ins. Co., 934

F.2d 1100, 1103 (1991). In California, an action is deemed to be pending from the time

of its commencement until its final determination upon appeal, or until the time for

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 8 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 9 - 05-CV-1021

appeal has passed, unless the judgment is sooner satisfied. See Cal. Civ. Proc. Code

§ 1049; see also Franklin & Franklin v. 7-Eleven Owners for Fair Franchising, 85 Cal.

App. 4th 1168, 1174 (2000). Once the California Supreme Court denies review, the state

suit is final for claim preclusion purposes. See Macedo v. Bosio, 86 Cal. App. 4th 1044,

1051 n.5 (2001). On February 21, 2007, the California Supreme Court denied Plaintiffs’

petition for review of the California Appellate Court’s order affirming the jury verdict

in the state suit against Plaintiffs on their claims for wrongful foreclosure and

conversion. See Whitty v. FNMC, No. S149628, slip op. at 1 (Cal. Sup. Ct. Feb. 21,

2007). Accordingly, the state suit is final for purposes of its claim preclusive effect.

Whether two suits are based on the same cause of action under California law is

based on the primary right theory. See id. at 904. The primary right theory provides that

a cause of action is comprised of a primary right of the plaintiff, a corresponding primary

duty of the defendant, and a wrongful act by the defendant constituting a breach of that

duty. See id. Even where there are multiple legal theories upon which recovery might

be predicated, a defendant in a second suit may prevent a plaintiff who lost on the merits

in a previous suit from bringing the second suit based on the same primary right under

the principles of claim preclusion. See id. 

The primary rights litigated in the state suit were the rights of Plaintiffs to not

have their property wrongfully foreclosed by FNMC, and the rights of Plaintiffs to

receive the appropriate credit for payments made to FNMC when calculating the amount

of money Plaintiffs owed on their mortgage. See Whitty v. FNMC, Case No.

GIC789369, Judgement on Jury Verdict and By Court (Cal. Super. Ct. June 8, 2004)

(Defs.’ RJN, Ex. 4); see also Whitty v. FNMC, Case No. D045303, slip op., at 9-12 (Cal.

Ct. App. Dec. 11, 2006) (Defs.’ Supplemental Req. Take Judicial Notice Supp. Mot.

Dismiss, Ex. 23). 

These are the same primary rights that Plaintiffs are attempting to litigate in their

claims for intentional interference with prospective economic advantage, fraud based on

alleged misrepresentations to lenders and a prospective buyer of the property,

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 9 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 10 - 05-CV-1021

negligence, wire fraud, mail fraud, interference with contract based on contracts between

Plaintiffs and potential lenders, and between Plaintiffs and a potential purchaser of the

property, breach of contract, conversion, unfair business practices, breach of the

covenant of good faith and fair dealing, and wrongful prevention, in the case before this

Court. Therefore, the doctrine of claim preclusion serves as a bar to Plaintiffs bringing

these claims against FNMC, since these claims represent an attempt to relitigate the same

causes of action between Plaintiffs and FNMC from the state suit from which Plaintiffs

received an adverse judgment on the merits.

Accordingly, the Court grants Defendants motion to dismiss Plaintiffs’ claims for

intentional interference with prospective economic advantage, fraud based on alleged

misrepresentations to lenders and a prospective buyer of the property, negligence, wire

fraud, mail fraud, interference with contract based on contracts between Plaintiffs and

potential lenders, and between Plaintiffs and a potential purchaser of the property, breach

of contract, conversion, unfair business practices, breach of the covenant of good faith

and fair dealing, and wrongful prevention against FNMC. Moreover, dismissal with

prejudice is proper since the defect appears to not be curable by amendment. See Vess

v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1108 (9th Cir. 2003). 

Additionally, Plaintiffs are barred from bringing these claims against parties in

privity with FNMC. See Mycogen Corp., 28 Cal. 4th at 896; In re Anthony H., 129 Cal.

App. 4th at 503. “Privity ,” for purposes of claim preclusion, involves a person so

identified in interest with another that he represents the same legal right. See

Rynsburger v. Dairymen's Fertilizer Co-op., Inc., 266 Cal. App. 2d 269, 277 (1968).

Plaintiffs are suing CMI on the relevant claims based on the fact that FNMC merged into

CMI. (SAC ¶ 5.) They are suing CGI on the relevant claims based on the fact that CGI

owns a controlling interest in FNMC. (SAC ¶¶ 2, 4.) Plaintiffs are suing Wheeler on

the relevant claims based on the fact that he was a vice-president in the bankruptcy

division of FNMC. (Id. ¶ 5.) Plaintiffs are suing Krawcheck on the relevant claims

based on the fact that she was the chief financial officer of CGI. (Id. ¶ 7.) Therefore,

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 10 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 11 - 05-CV-1021

CMI, CGI, Wheeler and Krawcheck are in privity with FNMC for purposes of Plaintiffs

claims for intentional interference with prospective economic advantage, fraud based on

alleged misrepresentations to lenders and a prospective buyer of the property,

negligence, wire fraud, mail fraud, interference with contract based on contracts between

Plaintiffs and potential lenders, and between Plaintiffs and a potential purchaser of the

property, breach of contract, conversion, unfair business practices, breach of the

covenant of good faith and fair dealing, and wrongful prevention. Thus, Plaintiffs are

also barred from bringing these claims against CMI, CGI, Wheeler and Krawcheck

under the doctrine of claim preclusion. Accordingly, the Court grants Defendants

motion to dismiss these claims against CMI, CGI, Wheeler and Krawcheck. Moreover,

dismissal with prejudice is proper since the defect appears to not be curable by

amendment. See Vess, 317 F.3d at 1108. 

2. Rooker-Feldman Doctrine

Defendants argue that Plaintiffs claims for intentional interference with

prospective economic advantage, fraud, negligence, interference with contract, breach

of contract, conversion, unfair business practices, breach of the covenant of good faith

and fair dealing, contempt of federal bankruptcy orders, and wrongful prevention should

be barred by the Rooker-Feldman Doctrine. The Rooker-Feldman Doctrine prevents a

federal district court from hearing a direct appeal from the final judgment of a state

court. See Noel, 341 F.3d at 1154. The Supreme Court has recently held, however, that

the Rooker-Feldman Doctrine applies only when the unsuccessful party in state court

files suit in federal district court seeking redress for an injury allegedly caused by the

state court’s decision itself, rather than when the unsuccessful party from state court

attempts to relitigate the same claims. See Exxon Mobil Corp. v. Saudi Basic Industries

Corp., 544 U.S. 280, 284 (2005); see also Henrichs v. Valley View Development, 474

F.3d 609, 614 (9th Cir. 2007) (“Preclusion, not Rooker-Feldman, applies when ‘a federal

plaintiff complains of an injury that was not caused by the state court, but which the state

court has previously failed to rectify.’”). Based on the allegations in the complaint as

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 11 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 12 - 05-CV-1021

currently construed, the Rooker-Feldman doctrine does not apply. Accordingly, the

Court denies Defendants motion to dismiss Plaintiffs’ claims for intentional interference

with prospective economic advantage, fraud, negligence, interference with contract,

breach of contract, conversion, unfair business practices, breach of the covenant of good

faith and fair dealing, contempt of federal bankruptcy orders, and wrongful prevention

based on the Rooker-Feldman Doctrine.

3. Sufficiency Of Alleged Facts Of All Claims Against CitiGroup, Inc.

Plaintiffs only allege specific actions by CGI in their claims for conversion (claim

eight) and breach of covenant of good faith and fair dealings (claim ten). On their

claims for intentional interference with prospective economic advantage (claim one),

fraud (claim two), negligence (claim three), wire fraud (claim four), mail fraud (claim

five), interference with contract (claim six), breach of contract (claim seven), unfair

business practices (claim nine), fraud on the court (claim eleven), contempt of federal

bankruptcy orders (claim twelve), interference with a court trial (claim thirteen), fixing

the outcome of a trial (claim fourteen), and wrongful prevention (claim fifteen),

Plaintiffs rely on the fact that CGI owns FNMC and CMI to attempt to hold CGI liable.

(SAC ¶¶ 2-4.) 

In diversity actions, federal courts look to state law to determine the requirements

for “piercing the corporate veil.” See Hambleton Bros. Lumber Co. v. Balkin

Enterprises, Inc., 397 F.3d 1217, 1227 (9th Cir. 2005). Under California law, two

general requirements must be met to pierce the corporate veil to reach a parent

corporation: (1) there is such a unity of interest and ownership between the two

corporations that their separate personalities no longer exist, and (2) the acts in question

are such that if treated as those of the corporation alone, an inequitable result will follow.

See Laird v. Capital Cities/ABC Inc., 68 Cal. App. 4th 727, 741 (1998) (rejecting a claim

of alter ego for failure to show unity of interest); see also Institute of Veterinary

Pathology, Inc. v. California Health Laboratories, Inc., 116 Cal. App.3d 111, 119-20

(1981) (“[T]he plaintiff must show ‘specific manipulative conduct’ by the parent toward

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 12 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 13 - 05-CV-1021

the subsidiary which ‘relegate[s] the latter to the status of merely an instrumentality,

agency, conduit or adjunct of the former . . . .’”). 

Plaintiffs fail to allege any facts to support an argument that there is such a unity

of interest between CGI and FNMC and/or CMI that their separate personalities no

longer exist, or that an inequitable result will result by the failure to pierce the corporate

veil. Therefore, Plaintiffs have failed to allege sufficient facts to hold CGI liable for the

actions of FNMC or CMI. Accordingly, the Court grants Defendants motion to dismiss

the claims of intentional interference with prospective economic advantage, fraud,

negligence, wire fraud, mail fraud, interference with contract, breach of contract , unfair

business practices, fraud on the court, contempt of federal bankruptcy orders,

interference with a court trial, fixing the outcome of a trial, and wrongful prevention

against CGI.

Furthermore, the only actions that Plaintiffs allege that CGI engaged in with

regards to the conversion claim is the failure of its CFO, Sallie Krawcheck, to act after

being told by Plaintiffs about FNMC’s actions that allegedly constituted conversion.

(SAC ¶¶ 213-14.) This allegation is insufficient to support a direct claim of conversion

against CGI, or to justify piercing the corporate veil to reach CGI for FNMC’s actions.

Accordingly, the Court grants Defendants motion to dismiss the conversion claim

against CGI.

Additionally, Plaintiffs allege in their claim for breach of covenant of good faith

and fair dealing that CGI has been fined and disciplined by certain state and federal

agencies for past conduct, including activities related to the Enron case. (SAC ¶ 221.)

This allegation is insufficient to support a direct claim of breach of covenant of good

faith and fair dealing against CGI, or to justify piercing the corporate veil. Accordingly,

the Court grants Defendants motion to dismiss the breach of covenant of good faith and

fair dealing claim against CGI.

4. Sufficiency Of Alleged Facts Of All Claims Against Sallie Krawcheck

Defendants argue that Plaintiffs have failed to allege sufficient facts to support

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 13 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 14 - 05-CV-1021

any of Plaintiffs’ claims against Krawcheck. Plaintiffs allege that during her

involvement with the instant case, Krawcheck was the chief financial officer of CGI.

(SAC ¶ 7.) Plaintiffs also allege in their conversion claim that Krawcheck made a public

statement regarding CGI’s intention to do “what is right” regarding the Enron scandal

and other previous wrongdoings, and that Krawcheck failed to take any action after she

was informed of FNMC’s alleged actions constituting conversion of Plaintiffs’ money.

(SAC ¶¶ 213, 214.) Combined, these allegations are insufficient to support any of

Plaintiffs’ claims against Krawcheck. Accordingly, the Court grants Defendants motion

to dismiss all of Plaintiffs’ claims against Krawcheck.

5. Sufficiency Of Alleged Facts Of All Claims Against William Wheeler

Defendants argue that Plaintiffs have failed to allege sufficient facts to support

any of Plaintiffs’ claims against Wheeler, because all of Plaintiffs allegations involving

Wheeler are absolutely privileged under section 47(b)(2) of the California Civil Code.

Plaintiffs allege that Wheeler has been a vice-president in the bankruptcy division of

FNMC during all of the relevant periods of his claims. (SAC ¶ 5.) Plaintiffs also allege

that Wheeler falsely testified during the state suit regarding FNMC’s accounting of the

amount of money owed by Plaintiffs. (SAC ¶¶ 68-69.) Plaintiffs also allege in their

fraud on the court claim that Wheeler presented false testimony to the bankruptcy court

and the superior court. (SAC ¶ 228.) 

In civil actions for which state law provides the rule of decision, a federal court

looks to state law for privilege rules. See Fed. R. Evid. 501. Section 47(b)(2) of the

California Civil Code states that “[a] privileged publication or broadcast is one made [i]n

any judicial proceeding.” This “litigation privilege” applies to any communication: (1)

made in judicial or quasi-judicial proceedings; (2) by litigants or other participants

authorized by law; (3) to achieve the objects of the litigation; and (4) that have some

connection or logical relation to the action. See Wentland v. Wass, 126 Cal. App. 4th

1484, 1490 (2005). “[T]he purpose of the litigation privilege is to ensure free access to

the courts, promote complete and truthful testimony, encourage zealous advocacy, give

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 14 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 15 - 05-CV-1021

finality to judgments, and avoid unending litigation.” Id. at 1492. Although the

statutory privilege accorded to statements made in judicial proceedings appears in the

chapter of the California civil code on defamation, it applies to virtually all other causes

of action in tort, with the exception of an action for malicious prosecution. See Ribas

v. Clark, 38 Cal.3d 355, 364 (1985). Whether the litigation privilege applies to an action

for breach of contract turns on whether its application furthers the policies underlying

the privilege. See Wentland, 126 Cal. App. 4th at 1492. 

 Wheelers’ testimony in the state suit, and to the bankruptcy court, were made

in judicial proceedings by a participant authorized by law to achieve the objects of the

litigation, and had a connection to the action. Therefore, these statements are absolutely

privileged regarding any tort claims brought by Plaintiffs. Additionally, the application

of the privilege to Plaintiffs’ breach of contract claim would further the policies

underlying the privilege. Therefore, the statements made by Wheeler during the state

suit, and to the bankruptcy court, are absolutely privileged regarding all of Plaintiffs’

claims against Wheeler.

Moreover, the statement that Wheeler was a vice-president in the bankruptcy

division of FNMC during all of the relevant periods of Plaintiffs’ claims is not sufficient

to support any of Plaintiffs claims against Wheeler. Accordingly, the Court grants

Defendants motion to dismiss all of Plaintiffs’ claims against Wheeler.

6. Sufficiency of Alleged Facts Regarding Claims For Fraud and Fraud

On Court

Defendants also argue that the claims against FNMC and CMI should be

dismissed based on the litigation privilege. The only claims against FNMC and CMI

that are solely based on alleged statements made during judicial proceedings are

Plaintiffs’ claims for fraud based on alleged misrepresentations made in the bankruptcy

court (claim two), and fraud on the court (claim eleven). As to these claims, Plaintiffs

allege that Defendants made many false statements on many occasions to the Bankruptcy

Court in the Southern District of California and to the San Diego County Superior Court.

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 15 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 16 - 05-CV-1021

These allegations fail to meet the particularity requirement of rule 9(b) of the Federal

Rules of Civil Procedure. Additionally, these statements were all made in judicial

proceedings by participants authorized by law to achieve the objects of the litigation, and

had a connection to the action. Therefore, these statements are privileged regarding

Plaintiffs’ claims for fraud based on alleged misrepresentations made in the bankruptcy

court and fraud on the court. Accordingly, the Court grants Defendants motion to

dismiss Plaintiffs’ claims for fraud based on alleged misrepresentations made in the

bankruptcy court and fraud on the court. Moreover, it appears this defect is not curable

by amendment. Accordingly, the Court grants Defendants’ motion to dismiss these

claims with prejudice.

7. Availability of Private Right Of Action For Fraud on The Court

Plaintiffs’ eleventh claim alleges Defendants committed a fraud on both the

bankruptcy court and the superior court in San Diego County. (SAC ¶¶ 223-29.) While

such a claim may be the basis of a post-judgment motion or an appeal of the judgments

in those courts, or the grounds for an equitable suit in state court to be relieved from the

previous judgment, see Olivera v. Grace, 19 Cal. 2d 570, 575 (1942), Plaintiffs have not

cited any authority for a federal cause of action. In California, there is no civil remedy

in damages against a witness who commits perjury when testifying. See Cedars-Sinai

Medical Center v. Superior Court, 18 Cal. 4th 1, 9 (1998). The Cedars-Sinai Medical

Center court explained that “‘it would be productive of endless litigation’ to permit the

victim of a judgment allegedly based on false testimony to bring an action for damages.”

See id. at 9-10. Even if considered under a motion for relief from judgment under rule

60(b) of the Federal Rules of Civil Procedure, which allows a court to entertain an

independent action by a party to set aside or modify a prior judgment, see Snell v.

Cleveland, Inc., 316 F.3d 822, 826 (9th Cir. 2002), Plaintiffs’ have not brought a 60(b)

motion to the bankruptcy court that adjudicated this matter. Therefore, Plaintiffs’ claim

must be dismissed. First, a 60(b) motion is not available to relieve Plaintiffs from a state

court judgment. Second, Plaintiffs are not requesting that a judgment be set aside, but

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 16 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 17 - 05-CV-1021

are requesting damages, which are not available under rule 60(b). Third, this Court is

the wrong court for such a motion to be made. Moreover, it appears this defect is not

curable by amendment. Accordingly, the Court grants Defendants’ motion to dismiss

the eleventh claim against them with prejudice.

8. Availability of Private Right Of Action For Interference With Court

Trial, And Fixing The Outcome Of Trial Court 

Plaintiffs’ thirteenth claim for interference with a court trial and fourteenth claim

for fixing the outcome of a trial allege Defendants corrupted Plaintiffs’ attorney and

perpetrated a fraud on the court in the state suit. (SAC ¶¶ 235-42.) Neither of these

claims is a recognized common law or statutory claim that may appropriately be brought

in this Court. Indeed, Plaintiffs have not cited any case or statutory authority to support

these claims. Moreover, it appears these defects are not curable by amendment.

Accordingly, the Court grants Defendants’ motion to dismiss the thirteenth, and

fourteenth claims against them with prejudice.

9. Availability of Private Right Of Action For Contempt Of Federal

Bankruptcy Court Orders

Plaintiffs’ twelfth claim alleges that FNMC and other defendants defied and acted

in contempt of the bankruptcy court. (SAC ¶¶ 230-34.) This claim is not a recognized

common law or statutory claim that may appropriately be brought in this Court. Indeed,

Plaintiffs have not cited any case or statutory authority to support this claim. The Court

also notes that remedies and sanctions for improper behavior and filings in bankruptcy

court are matters on which the Bankruptcy Code is far from silent. See In re Miles, 430

F.3d 1083, 1092 (2005). Moreover, it appears this defect is not curable by amendment.

Accordingly, the Court grants Defendants’ motion to dismiss the twelfth claim against

them with prejudice.

/ / /

/ / /

/ / /

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 17 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 18 - 05-CV-1021

10. Sufficiency Of Alleged Facts Regarding Claim For Intentional

Interference With Contract Regarding Contract Between Plaintiffs

and Plaintiffs Attorney

Plaintiffs allege in their sixth claim that Defendants intentionally interfered with

contracts between Plaintiffs and several potential lenders, a potential purchaser of the

property, and Plaintiffs’ attorney in the state suit. (SAC ¶ 196.) The elements of an

interference with contracts claim are:

(1) the existence of a valid contract between the plaintiff and a third party;

(2) the defendant’s knowledge of that contract; 

(3) the defendant’s intentional acts designed to induce a breach or

disruption of the contractual relationship; 

(4) actual breach or disruption of the contractual relationship; and 

(5) resulting damage.

See Reeves v. Hanlon, 33 Cal. 4th 1140, 1148 (2004). The Court has already dismissed

with prejudice the claim for interference with contract based on contracts between

Plaintiffs and several potential lenders, and a potential purchaser of the property, based

on claim preclusion. See supra, part B.1. Additionally, Plaintiffs have failed to allege

sufficient facts to support their allegation of Defendants’ interference with the contract

between Plaintiffs and Plaintiffs’ attorney in the state suit, and dismissal of this claim

with prejudice is proper because the defect appears to not be curable by amendment. See

Vess, 317 F.3d at 1108. 

11. Defendants Other Grounds For Motion To Dismiss

To the extent that Defendants raise additional grounds to dismiss Plaintiffs’ claims

against Defendants that have already been dismissed by the Court, the Court declines to

address those grounds as they are moot.

C. Claims Against Doe Defendants

Defendants argue that the Court should dismiss the eighty Doe defendants named

by Plaintiffs for failure to timely serve the Doe defendants under rule 4(m) of the Federal

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 18 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 19 - 05-CV-1021

Rules of Civil Procedure. Rule 4(m) states: 

If service of the summons and complaint is not made upon a defendant

within 120 days after the filing of the complaint, the court, upon motion or

on its own initiative after notice to the plaintiff, shall dismiss the action

without prejudice as to that defendant or direct that service be effected

within a specified time; provided that if the plaintiff shows good cause for

the failure, the court shall extend the time for service for an appropriate

period. This subdivision does not apply to service in a foreign country

pursuant to subdivision (f) or (j)(1).

Plaintiffs filed their SAC on August 22, 2006, more than 120 days ago, and have not

shown good cause why the Court should grant them more time. The Court notes that

Plaintiffs filed their original complaint more than one and one-half years ago, and has

been pursuing similar claims against at least some of the defendants for over three and

one-half years. Accordingly, the Court grants Defendants motion to dismiss the Doe

defendants without prejudice.

D. Anti-SLAPP Motion

Defendants argue that Plaintiffs’ claims for fraud on the court (claim eleven),

interference with a court trial (claim thirteen), and fixing the outcome of a trial (claim

fourteen), along with a number of allegations made in Plaintiffs’ other claims, violate

section 425.16 of California’s Code of Civil Procedure, the anti-SLAPP statute.

California’s anti-SLAPP law is substantive in nature, and therefore a federal court

exercising diversity jurisdiction follows California’s law. See U.S. ex rel. Newsham v.

Lockheed Missiles & Space Co., Inc., 190 F.3d 963, 972 (9th Cir. 1999). 

Section 425.16(b)(1) states that: 

A cause of action against a person arising from any act of that person in

furtherance of the person’s right of petition or free speech under the United

States or California Constitution in connection with a public issue shall be

subject to a special motion to strike, unless the court determines that the

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 19 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 20 - 05-CV-1021

plaintiff has established that there is a probability that the plaintiff will

prevail on the claim.

Section 425.16(e)(1) defines an “act in furtherance of a person’s right of petition or free

speech under the United States or California Constitution in connection with a public

issue” to include “any written or oral statement or writing made before a legislative,

executive, or judicial proceeding, or any other official proceeding authorized by law.”

The anti-SLAPP statute protects all speech activity before a governmental body whether

or not the statements involve a public issue; all that matters is that the First Amendment

activity take place in an official proceeding or be made in connection with an issue being

reviewed by an official proceeding. See Briggs v. Eden Council for Hope &

Opportunity, 19 Cal. 4th 1106, 1118 (1999).

 Any ‘person’ (defendant) sued for acts in furtherance of free speech or petition

activities is protected by the anti-SLAPP statute. See Cal. Civ. Proc. Code § 425.16(b).

‘Person’ as used in section 425.16 includes corporations, see Mattel, Inc. v. Luce,

Forward, Hamilton & Scripps, 99 Cal. App. 4th 1179, 1188 (2002), and attorneys who

have been made defendants in a lawsuit. See Jespersen v. Zubiate-Beauchamp, 114 Cal.

App. 4th 624, 629 (2003); see also Vess, 317 F.3d at 1109 (holding that nothing in the

anti-SLAPP statute categorically excludes any particular type of action from its

operation, and defendants may move to strike under the anti-SLAPP statute despite the

fact that they are neither small nor championing individual interests). Therefore,

Defendants have standing to bring this anti-SLAPP motion.

A court considering a motion to strike under the anti-SLAPP statute must engage

in a two-part inquiry: (1) it must determine if a defendant demonstrates an initial prima

facie showing that the plaintiff’s suit arises from an act in furtherance of the defendant’s

rights of petition or free speech; and (2) once the defendant has made a prima facie

showing, the burden shifts to the plaintiff to demonstrate a probability of prevailing on

the challenged claims. See id. at 1110. “If ‘the court determines that the plaintiff has

established that there is a probability that the plaintiff will prevail on the claim,’ the

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 20 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 21 - 05-CV-1021

motion to strike must be denied.” Id. The defendant need not show, however, that the

plaintiff’s suit was brought with the intention to chill the defendant’s speech or that any

speech was actually chilled. See id.

In deciding whether the initial “arising from” requirement is met, a court considers

the pleadings, and supporting and opposing affidavits stating the facts upon which the

liability is based. See Navellier v. Sletten, 29 Cal. 4th 82, 89 (2002) (citing Cal. Civ.

Proc. Code § 425.16(b)). Under the plain terms of the statute it is the context or setting

itself that makes the issue a public issue. See Briggs , 19 Cal. 4th at 1116. 

1. Fraud on the Court Claim

Defendants argue that Plaintiffs’ claim for fraud on the court, which is based on

alleged false statements made in the San Diego County Superior Court and the

Bankruptcy Court in the Southern District of California, constitute written or oral

statements or writings made before a judicial proceeding, and therefore arise from an act

in furtherance of Defendants’ rights of free speech. A cause of action arising from a

defendant’s litigation activity is appropriately the subject of an anti-SLAPP motion. See

Rusheen v. Cohen, 37 Cal.4th 1048, 1056 (2006); see also Briggs, 19 Cal. 4th at 1115

(holding that statements protected under the litigation privilege are equally entitled to

benefit under the anti-SLAPP statute); Healy v. Tuscany Hills Landscape & Recreation

Corp., 137 Cal. App. 4th 1, 5 (2006) (holding that both California’s litigation privilege

and the anti-SLAPP statute protect litigants’ right of access to the courts without fear of

being harassed subsequently by derivative tort actions); supra Part B.5-.6. Therefore,

Defendants have made a prima facie showing that Plaintiffs’ claim for fraud on the court

arises from acts in furtherance of Defendants’ free speech rights.

Since Defendants have made a prima facie showing that Plaintiffs fraud on the

court claim arises from acts in furtherance of Plaintiffs’ rights of free speech, the burden

shifts to Plaintiffs to demonstrate a probability of prevailing on the challenged claim.

Plaintiffs must demonstrate that their fraud on the court claim is both legally sufficient

and supported by a sufficient prima facie showing of facts to sustain a favorable

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 21 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 22 - 05-CV-1021

judgment. See Premier Med. Mgt. Systems, Inc. v. California Ins. Guar. Ass'n, 136 Cal.

App. 4th 464, 472 (2006). The Court has previously concluded that Plaintiffs claim for

fraud on the court is legally insufficient. See supra, Part B.6-.7. Accordingly, the Court

grants Defendants motion to strike Plaintiffs’ fraud on the court claim pursuant to

California’s anti-SLAPP statute.

2. Interference with a Court Trial and Fixing the Outcome of a Trial

Claims

Defendants also argue that Plaintiffs’ claims for interference with a court trial, and

fixing the outcome of a trial, relate specifically to litigation activity, and therefore arise

from acts in furtherance of Defendants’ rights of free speech or petition. Plaintiffs’

interference with a court trial and fixing the outcome of a trial claims are based mainly

on Plaintiffs allegations that Defendants “corrupted” Plaintiffs’ attorney during the state

suit. It is true that Plaintiffs also reassert in both of the claims that Defendants

knowingly presented false evidence during the state suit. Whether the anti-SLAPP

statute applies to a claim, however, is determined by the ‘principal thrust or gravamen’

of a plaintiff’s claim. See Martinez v. Metabolife Int’l, Inc., 113 Cal. App. 4th 181, 187

(2003). It cannot be invoked where allegations of protected activity are only incidental

to a cause of action based on nonprotected activity. See id. The allegation that

Defendants presented false evidence is incidental to the principle thrust of Plaintiffs’

claims for interference with a court trial and fixing the outcome of a trial, which is that

Defendants allegedly corrupted Plaintiffs’ attorney in the state suit. An allegation of

corrupting an opponents attorney is not an act in furtherance of Defendants’ rights of

free speech or petition. Accordingly, the Court denies Defendants’ motion to strike

Plaintiffs’ interference with a court trial and fixing the outcome of a trial claims.

3. Allegations from Other Claims

Defendants argue that a number of allegations made in Plaintiffs other claims

should be stricken based on California’s anti-SLAPP statute or, alternatively, pursuant

to rule 12(f) of the Federal Rules of Civil Procedure. An anti-SLAPP motion lies against

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 22 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 23 - 05-CV-1021

a “cause of action” or “claim” or “complaint” arising from protected speech or

petitioning activity, not against incidental allegations made in a claim whose principle

thrust does not involve protected First Amendment activity. See Cal. Civ. Proc. Code

§ 425.16(b)(1),(3) & (f); Martinez, 113 Cal. App. 4th at 187. Therefore, the Court

denies Defendants motion to strike individual allegations from Plaintiffs other claims

based on the anti-SLAPP statute. Additionally, since the Court has already dismissed

the claims that contain allegations that Defendants move to strike under rule 12(f), the

Court declines this motion as moot. But cf. White v. Lieberman, 103 Cal. App. 4th 210,

220 (2002) (holding that it is error for a district court to rule that a defendant’s antiSLAPP motion was moot because the court had sustained the defendant’s demurrer).

4. Attorney Fees

California’s anti-SLAPP statute states that:

[A] prevailing defendant on a special motion to strike shall be entitled to

recover his or her attorney’s fees and costs. If the court finds that a special

motion to strike is frivolous or is solely intended to cause unnecessary

delay, the court shall award costs and reasonable attorney’s fees to a

plaintiff prevailing on the motion.

Cal. Civ. Proc. Code § 425.16(c). The fee award is mandatory regarding a defendant

who brings a successful motion to strike. See Ketchum v. Moses, 24 Cal. 4th 1122,

1131 (2001). Defendants that are only partially successful in their anti-SLAPP motion

are considered prevailing parties. See ComputerXpress, Inc. v. Jackson, 93 Cal. App.

4th 993, 1020 (2001). However, such defendants are not entitled to fees and costs based

on unsuccessful claims that are legally or factually unrelated to the successful claims.

See id. Accordingly, Defendants are only entitled to fees and costs based on their

motion to strike Plaintiffs’ claim for fraud on the court. Furthermore, Defendants bear

the burden of providing documentation regarding the appropriate hours expended on

their successful claim and their hourly rates in order to collect fees and costs. See id.

The court may reduce any requested compensation on account of a failure to produce

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 23 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 24 - 05-CV-1021

appropriate time records. See id. Plaintiffs are not entitled to any fees or costs as the

Court concludes that Defendants’ unsuccessful anti-SLAPP claims were neither

frivolous nor solely intended to cause unnecessary delay.

E. Plaintiffs’ Request to Amend Complaint

Plaintiffs request permission to amend their complaint to add a claim under the

Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq.

(Pls.’ Opp. Defs.’ Mot. Dismiss, at 2-3; Pls.’ Opp. Defs.’ Mot. Strike California’s AntiSLAPP Statute, at 1-2.) Rule 15(a) of the Federal Rules of Civil Procedure provides

that, after a responsive pleading has been served, “a party may amend [its] pleading only

by leave of the court or by written consent of the adverse party . . . .” Fed. R. Civ. P.

15(a). A district court has discretion in granting or denying a motion for leave to amend.

See Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387 (9th Cir. 1990). 

In deciding whether to grant a leave to amend, factors to be considered include:

the presence or absence of undue delay, bad faith, dilatory motive, repeated failure to

cure deficiencies by previous amendments, undue prejudice to the opposing party, and

futility of the proposed amendment. See Moore v. Kayport Package Exp., Inc., 885 F.2d

531, 538 (9th Cir. 1989) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). A trial

court’s discretion to deny a motion for leave to amend is particularly broad where the

moving party previously has been granted leave to amend. See Chodos v. West Pub.

Co., Inc., 292 F.3d 992, 1003 (9th Cir. 2002). 

Plaintiffs initial complaint, filed in May 2005, included claims for civil RICO and

conspiracy to commit or entice others to commit RICO violations. (Compl. ¶¶ 63-66

(Doc. No. 1).) On August 29, 2005, with leave of Court, Plaintiffs filed a first amended

complaint (“FAC”) that did not allege any RICO claims. (FAC ¶¶ 1-292 (Doc. No. 8).)

Accompanying the FAC was an affidavit by Frank Whitty stating that after researching

the matter, Plaintiffs decided that their claim did not qualify as a RICO case. (Sworn

Aff. Verif. Am. Pls.’ Original Compl., at 2 (Doc. No. 9).) On August 7, 2006, Plaintiffs

filed a motion requesting the Court’s permission to file another amended complaint.

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 24 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 25 - 05-CV-1021

(Pls.’ Req. Mot. Ct. Permission Immediately File Serve FAC (Doc. No. 16).) The

motion was granted by the Court. (Doc. No. 15.) 

Given the undue delay of over a year and a half since Plaintiffs initially filed their

complaint in this case, the sworn representation by plaintiff Frank Whitty, J. D., that the

issues involved in this case do not qualify as RICO claims, the fact that the Court has

previously granted Plaintiffs leave to amend their complaint two times, the prejudice that

Defendants would suffer if the Court allowed Plaintiffs to file an amended complaint

regarding events that have been lumbering along for over a decade, and the futility of

Plaintiffs bringing RICO claims regarding causes of action subject to claim preclusion

because of the state suit, see Feminist Women's Health Center v. Codispoti, 63 F.3d 863,

868 (1995), or regarding privileged testimony from a judicial proceeding, see Blevins

v. Ford, 572 F.2d 1336, 1338 (1978), the Court denies Plaintiffs request to file an

amended complaint to add RICO claims. 

Conclusion

For the reasons discussed, the Court GRANTSWITH PREJUDICE Defendants’

motion to dismiss Plaintiffs’ claims for intentional interference with prospective

economic advantage (claim one), fraud (claim two), negligence (claim three), wire fraud

(claim four), mail fraud (claim five), interference with contract (claim six), breach of

contract (claim seven), conversion (claim eight), unfair business practices (claim nine),

breach of the covenant of good faith and fair dealing (claim ten), fraud on the court

(claim eleven), contempt of federal bankruptcy orders (claim twelve), interference with

a court trial (claim thirteen), fixing the outcome of a trial (claim fourteen), and wrongful

prevention (claim fifteen). Accordingly, Defendants FNMC, CMI, CGI, Krawcheck and

Wheeler are dismissed from this case. The Court GRANTS WITHOUT PREJUDICE

Defendants’ motion to dismiss the Doe defendants for untimely service. The Court

GRANTS IN PART AND DENIES IN PART

/ / /

/ / /

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 25 of 26
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 26 - 05-CV-1021

Defendants anti-SLAPP motion. The Court DENIES Plaintiffs request to file an

amended complaint to add RICO claims. 

IT IS SO ORDERED.

DATED: February 25, 2007

MARILYN L. HUFF, District Judge

UNITED STATES DISTRICT COURT

COPIES TO:

Frank Whitty 

Tazu Whitty

12721 Coachman Court 

Poway, CA 92064

Martin T McGuinn 

Kirby & McGuinn 

600 B Street 

Suite 1950 

San Diego, CA 92101-4515 

Jana Logan 

Miles Wright Finlay and Zak 

350 West Ash Street 

Suite 670 

San Diego, CA 92101 

 Sung-Min Christopher Yoo 

Alvarado Smith and Sanchez 

4 Park Plaza 

Suite 1200 

Irvine, CA 92614 

Case 3:05-cv-01021-H-BLM Document 72 Filed 02/26/07 Page 26 of 26