Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_09-cv-01014/USCOURTS-cand-4_09-cv-01014-0/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 42:1983 Civil Rights Act

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SUZIE ZUPAN and PAUL ZUPAN,

Plaintiffs,

 v.

CALIFORNIA DEPT. OF CORPORATIONS,

PRESTON DEFAUCHARD, JOHN DREWS, MARC

VALLE, JAMES WALL, HOWARD GORE,

LEONARD RIFKIND, POSIE CONKLIN and

MARK MOSLEY, 

Defendants. /

No. C 09-01014 CW

ORDER GRANTING

DEFENDANTS’ MOTIONS

TO DISMISS AND

ADMINISTRATIVELY

CLOSING CASE

On March 9, 2009, Plaintiffs Suzie and Paul Zupan (husband and

wife) filed this civil rights action which arises from two

underlying state proceedings: (1) an investigation and disciplinary

proceeding of the California Department of Corporations (CDOC)

regarding allegations that Plaintiffs were improperly managing the

Latitude Capital Management High Income Fund, LLC and the Latitude

Capital Management Strategic Income Fund (together, LCM),

investment funds licensed by CDOC and (2) Plaintiffs’ action in

state superior court against Defendants James Wall and Howard Gore

stating ten counts of tortious conduct. Defendants, in four

separate motions, seek dismissal of Plaintiffs’ complaint for

failure to state a claim under Federal Rule of Civil Procedure

12(b)(6). Defendant Wall also moves to dismiss the complaint for

lack of subject matter jurisdiction under Federal Rule of Civil

Procedure 12(b)(1). Plaintiffs have filed an opposition to all of

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1In their opposition, Plaintiffs concede that CDOC is not a

proper defendant in this action. Therefore, all claims against

CDOC are dismissed for this reason.

2Defendants identify Drews as CDOC's Corporate Counsel. 

3

Defendants identify Valle as an examiner for CDOC.

4Defendants identify Wall and Gore as investors in companies

managed by Plaintiffs.

2

the motions. The motions were heard on August 27, 2009. Having

considered all of the papers filed by the parties and oral argument

on the motions, the Court grants Defendants’ motions to dismiss.

BACKGROUND

The allegations in Plaintiffs’ complaint are as follows. 

Plaintiff Suzie Zupan is president of LCM and Plaintiff Paul Zupan

is an employee of LCM. Both hold certificates as Investment

Advisor Representatives from the CDOC. Defendant CDOC is a state

regulatory body that licenses and disciplines Registered Investment

Advisors and Representatives.1

 Defendant Preston DeFauchard, sued

in his official capacity, is the Commissioner of CDOC. Defendant

John Drews, sued in his personal and official capacities, is an

employee of CDOC.2 Defendant Marc Valle, sued in his personal and

official capacities, is an employee of CDOC.3 These Defendants

will be referred to collectively as state Defendants or CDOC

Defendants. Defendants James Wall and Howard Gore are being sued

in their personal and official capacities.4 Defendant Leonard

Rifkind is an attorney who represented Wall and Gore in the state

court action and is being sued in his personal and official

capacities. Defendant Posie Conklin was appointed as a temporary

receiver for a company previously managed by LCM and is being sued

in her personal and official capacities. Defendant Mark Mosley is

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Defendant Gore does not move to dismiss. A district court

may, on it own motion, dismiss an action as to a defendant who has

not moved to dismiss where that defendant is in a position similar

to that of the moving defendants or where claims against such

defendants are integrally related. Silverton v. Dep’t of Treasury

of the United States, 644 F. 2d 1341, 1345 (9th Cir. 1981). As

discussed below, the claims against the non-state Defendants are

dismissed. Because Gore is in a position similar to the non-state

Defendants, the claims against him also are dismissed.

3

an attorney who represented Conklin and is being sued in his

personal capacity. These Defendants will be referred to

collectively as non-state Defendants.5

In early 2008, Plaintiffs filed a state civil action against

Defendants Wall and Gore. Comp. at ¶ 18. Wall, Gore and their

attorney Rifkind responded by initiating allegedly “false

complaints to the DOC, the California Department of Real Estate,

the California State Attorney General, the Marin and Sonoma County

District Attorney’s office, the Federal Bureau of Investigation and

the Central Intelligence Agency.” Subsequently, Conklin and Mosley

joined “in the effort and did make such false claims and improperly

communicate with Defendants Drews and Valle and did file false

statements with several local police agencies.” Comp. at ¶ 19. 

Beginning in early 2008 and continuing to the present, CDOC, Drews

and Valle initiated, conducted and directly oversaw a disciplinary

process and an investigation into allegations made by Wall, Gore,

Rifkind, Conklin and Mosley that Plaintiffs were fraudulently

taking money belonging to the LCM High Income Fund, improperly and

illegally managing that company and improperly and illegally

claiming management control of it. Comp. at ¶ 20. During CDOC’s

investigation and disciplinary process, no evidence of such

improper and illegal activity was found. However, CDOC, Drews and

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Valle constructed claims and allegations in order to support a

disciplinary action and wrongfully prosecuted that disciplinary

action to appease the complaining non-state Defendants. Comp. at 

¶ 21.

Wall and Gore filed many false and misleading complaints with

CDOC against Plaintiffs which included allegations of fraud and

theft when Wall and Gore had no credible foundation for making such

complaints. Comp. at ¶ 26. Rifkind, Conklin and Mosley also filed

false and misleading complaints against Plaintiffs and their

companies and had many improper communications with CDOC Defendants

concerning CDOC’s disciplinary actions against Plaintiffs. Such

communications included allegations of fraud and theft when these

Defendants had no credible foundation for making such statements. 

Comp. at ¶ 27. Drews and Valle worked with the non-state

Defendants wrongfully to discipline Plaintiffs based, not on the

complaints filed by the non-state Defendants, but on allegations

constructed to support disciplinary action to appease the non-state

Defendants. Comp. at ¶ 28. The foregoing improper complaints and

communications with CDOC Defendants were taken to defend against

Plaintiffs’ lawsuit against Wall and Gore. Comp. at ¶ 29. 

All non-state Defendants had knowledge of the

misrepresentations being made to CDOC and its employees, thus

creating “conflicts of interest.” Comp. at ¶¶ 31-47. Non-state

Defendants delivered confidential records and information

concerning Plaintiffs to each other and to CDOC and its employees. 

Drews and Valle repeated unproven allegations about Plaintiffs to

non-state Defendants. Comp. at ¶¶ 48-52. Drews and Valle

unlawfully prosecuted a disciplinary action against Plaintiffs for

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the purpose of improperly assisting Wall and Gore. Comp. at ¶ 53. 

Conklin and Mosley have retaliated against Plaintiffs by pursuing

the prosecution of the disciplinary action by CDOC against

Plaintiffs. Comp. at ¶ 54.

Based on these allegations, Plaintiffs attempt to state four

causes of action under 42 U.S.C. § 1983 against all Defendants: 

(1) violation of Plaintiffs’ due process and equal protection

rights under the Fourteenth Amendment by abusing the complaint and

disciplinary process; (2) violation of Plaintiffs’ due process

rights under the Fourteenth Amendment by impairing Plaintiffs’

reputation, property interests in licensing and economic well-being

and by causing CDOC to mishandle the investigation, prosecution and

discipline of Plaintiffs due to “conflicts of interest;” 

(3) violation of Plaintiffs’ equal protection rights under the

Fourteenth Amendment by breaching their privacy and impairing their

liberty interests in reputation, property interests in licensing

and economic well-being; and (4) violation of Plaintiffs’ due

process rights under the Fourteenth Amendment and free speech

rights under the First Amendment through the unlawful prosecution

of a disciplinary action and retaliation against Plaintiffs. 

Plaintiffs seek declaratory and injunctive relief, compensatory

damages in the amount of $1 million and punitive damages in the

amount of $1 million.

JUDICIAL NOTICE

CDOC Defendants request judicial notice of the May 9, 2008

Accusation Package that Drews mailed to Plaintiffs, the December

12, 2008 CDOC Decision, Matter of Paul Zupan; Suzie Zupan; Latitude

Capital Management, Inc.; LCM High Income Fund, LLC; and LCM

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Strategic Income Fund, LLC, OAH No. 2008050496; and the March 2,

2009 petition for writ of mandamus Plaintiffs filed in state

superior court, Zupan v. California Department of Corporations,

Preston Dufauchard, Commissioner, No. Civ. 09-0939. Plaintiffs do

not oppose this request.

The Court takes judicial notice of these documents as matters

of public record, capable of accurate and ready determination. 

Plaintiffs refer to these documents in their complaint and do not

question their authenticity.

The following facts are disclosed in these documents. On May

9, 2008, CDOC initiated actions against Plaintiffs by filing and

serving them with an Accusation and Statement in Support, which set

out the allegations in support of revoking Plaintiffs’ licenses and

barring them from practice. The core allegations are Plaintiffs’

failure to disclose to investors or to CDOC Paul Zupan’s background

as a convicted felon and disbarred attorney and falsely listing his

position with the investment companies as clerk when his true role

was that of chief operating officer and manager. On July 1 and 2,

2008, at Plaintiffs’ request, a hearing on the charges was held

before an administrative law judge (ALJ). Drews filed the

Accusation and prosecuted the case before the ALJ and Valle gave

evidence at the hearing. On September 2, 2008, a twenty-seven page

proposed decision was issued by the ALJ and, on December 12, 2008,

the decision was adopted by CDOC in its entirety. In the decision,

the ALJ carefully documented Plaintiffs’ actions, cited law that

these actions violated, revoked the business licenses for the High

Income Fund and the Strategic Income Fund, revoked Plaintiffs’

individual certifications and barred them from holding any position

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of employment, management or control of any finance lender, broker,

investment adviser, broker-dealer or commodity adviser. On March

2, 2009, Plaintiffs filed in the state superior court a petition

for a writ of mandamus setting aside the December 12, 2008 CDOC

decision. In their petition, Plaintiffs alleged that the CDOC “did

not [accuse Plaintiffs] of wrongdoing until pressured by a few

investors in early 2008; the majority of the Respondents’ [CDOC and

Commissioner DeFauchard] witnesses at the hearing had an ulterior

motive in testifying at such hearing; such witnesses had no

foundation for [their] statements; and such witnesses were coached

by Respondents’ representatives.” 

LEGAL STANDARD

I. Failure to State a Claim Under Rule 12(b)(6)

A complaint must contain a "short and plain statement of the

claim showing that the pleader is entitled to relief." Fed. R.

Civ. P. 8(a). When considering a motion to dismiss under Rule

12(b)(6) for failure to state a claim, dismissal is appropriate

only when the complaint does not give the defendant fair notice of

a legally cognizable claim and the grounds on which it rests. Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing Fed. R.

Civ. P. 8(a)(2)). 

 In considering whether the complaint is sufficient to state a

claim, the court will take all material allegations as true and

construe them in the light most favorable to the plaintiff. NL

Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 

However, this principle is inapplicable to legal conclusions;

“threadbare recitals of the elements of a cause of action,

supported by mere conclusory statements,” are not taken as true. 

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Ashkcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949-50 (2009)

(citing Twombly, 550 U.S. at 555). 

The analysis under Rule 12(b)(6) is two-pronged. First, the

court identifies allegations that, because they are merely

conclusions, are not entitled to the presumption of truth. Id. at

1950. Second, the court determines whether any factual

allegations, when taken as true, plausibly give rise to an

entitlement to relief. Id

 When granting a motion to dismiss, the court is generally

required to grant the plaintiff leave to amend, even if no request

to amend the pleading was made, unless amendment would be futile. 

Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

F.2d 242, 246-47 (9th Cir. 1990). In determining whether amendment

would be futile, the court examines whether the complaint could be

amended to cure the defect requiring dismissal "without

contradicting any of the allegations of [the] original complaint." 

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990). 

Leave to amend should be liberally granted, but an amended

complaint cannot allege facts inconsistent with the challenged

pleading. Id. at 296-97.

II. Lack of Subject Matter Jurisdiction Under Rule 12(b)(1)

Dismissal is appropriate under Rule 12(b)(1) when the district

court lacks subject matter jurisdiction over the claim. Fed. R.

Civ. P. 12(b)(1). Federal subject matter jurisdiction must exist

at the time the action is commenced. Morongo Band of Mission

Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 1380 (9th

Cir. 1988), cert. denied, 488 U.S. 1006 (1989). A Rule 12(b)(1)

motion may either attack the sufficiency of the pleadings to

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establish federal jurisdiction, or allege an actual lack of

jurisdiction which exists despite the formal sufficiency of the

complaint. Thornhill Publ’g Co. v. Gen. Tel. & Elecs. Corp., 594

F.2d 730, 733 (9th Cir. 1979); Roberts v. Corrothers, 812 F.2d

1173, 1177 (9th Cir. 1987).

Subject matter jurisdiction is a threshold issue which goes to

the power of the court to hear the case. Therefore, a Rule

12(b)(1) challenge should be decided before other grounds for

dismissal, because they will become moot if dismissal is granted. 

Alvares v. Erickson, 514 F.2d 156, 160 (9th Cir.), cert. denied,

423 U.S. 874 (1975). 

A federal court is presumed to lack subject matter

jurisdiction until the contrary affirmatively appears. Stock West,

Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989). 

An action should not be dismissed for lack of subject matter

jurisdiction without giving the plaintiff an opportunity to amend

unless it is clear that the jurisdictional deficiency cannot be

cured by amendment. May Dep’t Store v. Graphic Process Co., 637

F.2d 1211, 1216 (9th Cir. 1980). 

DISCUSSION

Defendants offer several arguments for dismissal: Plaintiffs’

conclusory allegations do not state cognizable § 1983 claims;

Eleventh Amendment immunity bars claims against state Defendants

sued in their official capacities; absolute prosecutorial immunity

bars claims against Commissioner DeFauchard and Corporate Counsel

Drews; the Rooker-Feldman doctrine bars the Court from reviewing

CDOC’s decision; and the Court should abstain under Younger v.

Harris, 401 U.S. 37 (1971). Non-state Defendants add the following

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arguments for dismissal: they have not acted under color of state

law as is required for claims under § 1983; they have not deprived

Plaintiffs of a constitutional right; and they are entitled to

immunity under the Noerr-Pennington doctrine.

I. Rooker-Feldman Doctrine

Defendants argue that the Rooker-Feldman doctrine bars

Plaintiffs’ claims because they attack the CDOC decision. 

Plaintiffs respond that their complaint addresses violations of

their civil rights and has nothing to do with the CDOC decision. 

United States District Courts generally do not have

jurisdiction over challenges to state court decisions, even if

those challenges raise federal constitutional issues. Rooker v.

Fidelity Trust Co., 263 U.S. 413, 415-16 (1923); District of

Columbia Court of Appeals v. Feldman, 460 U.S. 462, 476, 482-83

(1983). “If [the state] court erroneously determines a federal

question, recourse does not lie to the United States District Court

or to the United States Court of Appeals. Jurisdiction to review

the judgments of state courts lies exclusively in the United States

Supreme Court.” Exxon Shipping Co. v. Airport Depot Diner, Inc.,

120 F.3d 166, 169 (9th Cir. 1997). However, the Rooker-Feldman

doctrine does not apply to decisions of state administrative

agencies. Verizon Maryland, Inc. v. Public Serv. Comm’n, 535 U.S.

635, 644 n.3 (2002); Southern Cal. Edison Co. v. Lynch, 307 F.3d

794, 805 (9th Cir. 2002). 

Because the CDOC is a state agency, the Rooker-Feldman

doctrine does not apply to its decision. Defendants’ cases are

inapplicable because they address judgments of state courts, not

state agencies. See, e.g., Mothershed v. Justices of the Supreme

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Court, 410 F.3d 602, 606 (9th Cir. 2005) (under Rooker-Feldman,

district court lacked jurisdiction over challenges to judgments of

state courts upholding state bar disciplinary orders); Atlantic

Coast Line Railroad Co. v. Brotherhood of Locomotive Engineers, 398

U.S. 281, 296 (1970) (Rooker-Feldman applied to state court

injunction). For this reason, Defendants’ argument that

Plaintiffs’ claims are barred by the Rooker-Feldman doctrine fails.

The Rooker-Feldman doctrine may apply once the state court issues

its decision in the mandamus action.

II. Younger Abstention

Defendants argue that, under Younger, the Court should abstain

from adjudicating this case because there is an ongoing state

judicial proceeding that implicates an important state interest and

that provides a full and fair opportunity for Plaintiffs to

litigate their claims. Plaintiffs respond that Younger does not

apply because their state petition for writ of mandamus requests

review of the CDOC administrative decision, whereas this action

arises from Defendants’ violations of Plaintiffs’ civil rights.

As the Ninth Circuit has explained, “Younger is an exception

to the usual rule that federal courts should exercise the

jurisdiction conferred on them by statute.” Gartrell Constr. Inc.

v. Aubry, 940 F.2d 437, 441 (9th Cir. 1991). In Younger, the

Supreme Court held that a federal court should not enjoin a pending

state criminal proceeding except in the very unusual situation that

an injunction is necessary to prevent great and immediate

irreparable injury. The Younger doctrine has been extended to

require abstention from adjudicating federal lawsuits, including

those for damages under 42 U.S.C. § 1983, that would interfere with

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state civil cases and administrative proceedings. Ohio Civil

Rights Comm’n v. Dayton Christian Sch., Inc., 477 U.S. 619, 627

(1986); Middlesex County Ethics Committee v. Garden State Bar

Ass'n, 457 U.S. 423, 432 (1982); Gilbertson v. Albright, 381 F.3d

965, 968 (9th Cir. 2004) (en banc).

Under Younger, a federal court should abstain if “(1) a state

initiated proceeding is ongoing; (2) the proceeding implicates

important state interests; (3) the federal plaintiff is not barred

from litigating federal constitutional issues in the state

proceeding; and (4) the federal court action would enjoin the

proceeding or have the practical effect of doing so, i.e., would

interfere with the state proceeding in a way that Younger

disapproves.” San Jose Silicon Valley Chamber of Commerce

Political Action Committee v. City of San Jose, 546 F.3d 1087, 1092

(9th Cir. 2008). 

To determine whether there is a pending state judicial

proceeding within the meaning of Younger, the critical question is

“whether the state proceedings were underway before the initiation

of the federal proceedings.” Weiner v. County of San Diego, 23

F.3d 263, 266 (9th Cir. 1994). Here, the state petition for

mandamus was pending when this action was filed. Plaintiffs assert

that the complaint filed in this Court is independent of the

pending state proceeding. It is not. Both the state and federal

actions concern CDOC’s investigation of Plaintiffs and their

investment businesses, CDOC’s decision to revoke Plaintiffs’

individual certifications and business licenses and the procedural

details of the CDOC’s action. The state and federal proceedings

are concurrent and intertwined and thus the first Younger

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requirement is satisfied.

The second requirement under Younger, that the state

proceeding “implicates important state interests,” Gilbertson, 381

F.3d at 978, is also satisfied. “The importance of the interest is

measured by considering its significance broadly, rather than by

focusing on the state’s interest in the resolution of an

individual’s case.” Baffert v. Cal. Horse Racing Bd., 332 F.3d

613, 618 (9th Cir. 2003). The state of California has an important

interest in the enforcement of its securities laws and in the

protection of its citizens from individuals who violate those laws. 

It is clear that the state proceeding implicates an important state

interest. 

Third, in order for Younger abstention to apply, Plaintiffs

must have an opportunity to litigate their federal constitutional

challenges in the state proceeding. Gilbertson, 381 F.3d at 978. 

Plaintiffs bear the burden of showing that they are barred from

raising their federal claims in the state court action. Lebbos v.

Judges of Superior Court, 883 F.2d 810, 815 (9th Cir. 1989). 

Plaintiffs do not address this issue. Citing Dowden v. City of

Sacramento, 40 F. Supp. 2d 1146, 1149, n.1 (E.D. Cal. 1999),

Defendants argue that Plaintiffs could bring their civil rights

claims in the petition for writ of mandamus. 

In Dowden, the court addressed whether the plaintiff had an

adequate opportunity to litigate a First Amendment claim in a

proceeding before the state Civil Service Board in which he was

challenging disciplinary action taken against him by the police

department. The court explained that the opportunity to raise

constitutional claims in state judicial proceedings reviewing an

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6California Code of Civil Procedure § 1094.5 provides for

judicial review by petition for writ of mandamus of administrative

orders or decisions.

14

administrative decision is sufficient to support Younger

abstention. Id. (“Because the state court is ‘required to exercise

its independent judgment’ in reviewing a civil service board’s

disciplinary ruling, Dowden may be able to assert his First

Amendment defense in any judicial appeal even were he unable to

assert it before the Board.”) (citations omitted); see also, Mobil

Oil Corp. v. Superior Court, 59 Cal. App. 3d 293, 307 (1976) (“A

challenge of the constitutionality of the act as it is applied to

an individual under the facts of a particular case by an

administrative board is essentially a review of the validity of the

administrative action and as such is properly brought under the

provisions of § 1094.5 . . .”)6

Similarly, Plaintiffs have the opportunity to litigate their

constitutional claims in the state court proceeding. Therefore,

this requirement of the Younger doctrine is satisfied.

The final Younger requirement is also satisfied because the

federal suit would “enjoin or have the practical effect of

enjoining the [state] proceeding.” San Jose Silicon Valley Chamber

of Commerce, 546 F.3d at 1095. The relief Plaintiffs seek in

federal court would, in effect, invalidate the CDOC decision and

preempt the state appellate court proceeding. The relief sought,

therefore, would “enjoin . . . or otherwise involve the federal

court in terminating or truncating” the administrative proceeding. 

Id. at 1096. Thus, the four Younger requirements have been

satisfied.

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Citing Gilbertson, Plaintiffs argue that, even if Younger

applies, their claims for damages should be stayed rather than

dismissed. Defendants do not reply to this argument. In

Gilbertson, the court held that, although a federal court should

refrain from exercising jurisdiction in actions for declaratory and

injunctive relief when Younger applies, “an abstention-based stay

order, rather than a dismissal, is appropriate when damages are at

issue.” Gilbertson, 381 F.3d at 975. Therefore, under Younger,

the Court dismisses Plaintiffs’ claims for injunctive and

declaratory relief, but stays the claims for damages.

III. Sovereign, Prosecutorial and Qualified Immunity

A. Sovereign Immunity

The state Defendants argue that they are protected by Eleventh

Amendment sovereign immunity from Plaintiffs’ damages claims

against them in their official capacity. Plaintiffs concede that

sovereign immunity bars them from suing state employees, in their

official capacity, for damages, but correctly argue that, under Ex

parte Young, 209 U.S. 123 (1908), they may sue state officials for

prospective injunctive relief. However, this argument fails

because, as discussed above, under Younger, the Court abstains from

taking jurisdiction over Plaintiffs’ claims for injunctive and

declaratory relief. Plaintiffs correctly argue that the Eleventh

Amendment does not bar claims for damages against Drews and Valle,

in their personal capacities.

B. Prosecutorial Immunity

State Defendants Drews and Valle argue that they are entitled

to absolute prosecutorial immunity for their actions in bringing

the revocation proceedings against Plaintiffs. Plaintiffs respond

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that they not are suing Drews and Valle for their prosecutorial

activities but for improperly colluding with investors, meeting

with investors and assisting in the investors' litigation against

Plaintiffs. 

Absolute prosecutorial immunity applies only where alleged

conduct is “intimately associated with the judicial phase.” Imbler

v. Pachtman, 424 U.S. 409, 430 (1976). Investigatory or

administrative functions warrant only qualified immunity. Van de

Kamp v. Goldstein, __ U.S. __, 129 S. Ct. 855, 861 (2009); Morley

v. Walker, 175 F.3d 756, 759 (9th Cir. 1999). "An official seeking

absolute immunity bears the burden of showing that such immunity is

justified for the function in question." Genzler v. Longanbach,

410 F.3d 630, 636 (9th Cir. 2005) (quoting Burns v. Reed, 500 U.S.

478, 486 (1991)). The presumption is that qualified, rather than

absolute, immunity is sufficient to protect government employees in

the performance of their official duties. Milstein v. Cooley, 257

F.3d 1004, 1008 (9th Cir. 2001) (citing Burns, 500 U.S. at 486-87).

In considering immunity, the court examines the nature of the

function performed, not the identity of the actor who performed it. 

Kalina v. Fletcher, 522 U.S. 118, 127 (1997). 

Plaintiff's allegations specifying Drews and Valle's improper

conduct are sparse. However, some of the acts of which Plaintiffs

complain were allegedly done by Drews and Valle outside the scope

of their prosecutorial function. Therefore, absolute immunity does

not apply to those acts at this stage of the proceedings where

Plaintiffs' factual allegations must be taken as true.

C. Qualified Immunity

In the alternative, Drews and Valle argue that they are

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protected from liability by qualified immunity. The defense of

qualified immunity protects "government officials . . . from

liability for civil damages insofar as their conduct does not

violate clearly established statutory or constitutional rights of

which a reasonable person would have known." Harlow v. Fitzgerald,

457 U.S. 800, 818 (1982). “If no constitutional right would have

been violated were the allegations established, there is no

necessity for further inquiries concerning qualified immunity.” 

Saucier v. Katz, 533 U.S. 194, 201 (2001). On the other hand, if a

violation could be made out on the allegations, the next step is to

ask whether the constitutional right in issue was clearly

established. Id. 

As discussed below, Plaintiffs' general allegations that

Defendants' actions violated Plaintiffs' civil and due process

rights fail to include the required elements of any constitutional

claim. Absent a constitutional violation, Drews and Valle have no

liability nor any need for qualified immunity. As discussed below,

Plaintiffs may move to amend their complaint after the completion

of the state mandamus proceedings. If Plaintiffs are allowed to

amend their complaint, Drews and Valle may again move to dismiss

based on qualified immunity. 

III. Noerr-Pennington Immunity

The non-state Defendants argue that they are shielded from

liability by the Noerr-Pennington doctrine, which provides that a

defendant is immune from liability from claims based on its

exercise of its First Amendment right to petition the government

for redress of grievances. United Mine Workers of America v.

Pennington, 381 U.S. 657, 669 (1965); Eastern Railroad Presidents

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Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); Sosa

v. DIRECTV, Inc., 437 F.3d 923, 929 (9th Cir. 2006). Plaintiffs

respond that Defendants are not shielded due to the

misrepresentation exception to Noerr-Pennington, which provides

that immunity can be lost if the efforts to petition the government

“are a mere sham, undertaken solely to interfere with free

competition and without the legitimate expectation that such

efforts will in fact induce lawful government action.” Omni Res.

Dev. Corp. v. Conoco, Inc., 739 F.2d 1412, 1413 (9th Cir. 1984). 

The scope of the exception varies according to the

governmental entity the defendant is petitioning. Kottle v.

Northwest Kidney Ctrs., 146 F.3d 1056, 1060 (9th Cir. 1998). When

the governmental entity is a court of law, there are three

circumstances warranting exception. Id. Plaintiffs rely on the

third: If the defendant makes intentional misrepresentations to the

court, the litigation is a sham if the defendant’s intentional

misrepresentations deprived the litigation of its legitimacy. Id.

Matters before an administrative agency are treated like judicial

proceedings to the extent the agency’s actions “are guided by

enforceable standards subject to review.” Id. at 1062-63. 

Plaintiffs argue that non-state Defendants’ complaints to

CDOC–-that Plaintiffs were illegally taking money belonging to the

LCM High Income Fund and improperly and illegally managing and

controlling the company--were false and misleading. Plaintiffs

claim that, on this motion to dismiss, these allegations must be

taken as true. 

Defendants point out that Plaintiffs’ allegations do not meet

Kottle’s requirement that the misrepresentations made to the agency

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must be such that would deprive the agency’s action of its

legitimacy. Plaintiffs allege that CDOC investigated the

purportedly false complaints that Defendants made and found no

evidence to support them, but brought a disciplinary action against

Plaintiffs based on “other wrongful allegations.” Thus, non-state

Defendants argue, their allegedly false complaints did not deprive

CDOC’s disciplinary action of its legitimacy because CDOC did not

rely on those statements to discipline Plaintiffs. This argument

is well-taken. 

Non-state Defendants are entitled to Noerr-Pennington immunity

from Plaintiffs’ four claims for relief against them, all of which

are based on their complaints to CDOC.

IV. Sufficiency of Allegations to State a Claim

As stated above, in Iqbal, the Supreme Court explained that

“the tenet that a court must accept as true all factual allegations

contained in a complaint is inapplicable to legal conclusions.” 

Iqbal, 129 S. Ct. at 1949. The Court suggested that, in

considering a motion to dismiss, the district court should first

identify pleadings that are merely conclusions, which are not

entitled to the presumption of truth. Id. at 1950. Next, the

district court should determine whether the non-conclusory

allegations state a plausible claim for relief. Id. “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.” Id. at 1949. A claim has facial plausibility

when the factual content allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged. 

Id. 

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Most of Plaintiffs' allegations are conclusory and, therefore,

are not taken as true. The remaining factual allegations are

insufficient to state plausible claims for relief. 

The following are the elements of the constitutional claims

that Plaintiffs purport to allege under 42 U.S.C. § 1983. Section

1983 "provides a cause of action for the 'deprivation of any

rights, privileges, or immunities secured by the Constitution and

laws' of the United States." Wilder v. Virginia Hosp. Ass'n, 496

U.S. 498, 508 (1990) (quoting 42 U.S.C. § 1983). Section 1983 is

not itself a source of substantive rights, but merely provides a

method for vindicating federal rights elsewhere conferred. Graham

v. Connor, 490 U.S. 386, 393-94 (1989). To state a claim under 

§ 1983, a plaintiff must allege two essential elements: (1) that a

right secured by the Constitution or laws of the United States was

violated and (2) that the alleged violation was committed by a

person acting under the color of state law. West v. Atkins, 487

U.S. 42, 48 (1988); Ketchum v. Alameda County, 811 F.2d 1243, 1245

(9th Cir. 1987). Liability may be imposed on an individual

defendant under 42 U.S.C. § 1983 if the plaintiff can show that the

defendant proximately caused the deprivation of a federally

protected right. Leer v. Murphy, 844 F.2d 628, 634 (9th Cir.

1988); Harris v. City of Roseburg, 664 F.2d 1121, 1125 (9th Cir.

1981). The inquiry into causation must be individualized and focus

on the duties and responsibilities of each individual defendant

whose acts or omissions are alleged to have caused a constitutional

deprivation. Leer, 844 F.2d at 633.

To state an equal protection claim under 42 U.S.C. § 1983, 

plaintiffs must allege that they are members of a protected class

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and that the defendants intentionally discriminated against them

based upon membership in that protected class. Serrano v. Francis,

345 F.3d 1071, 1081-82 (9th Cir. 2003); Monteiro v. Tempe Union

High School Dist., 158 F.3d 1022, 1026 (9th Cir. 1998). The due

process clause of the Fourteenth Amendment protects individuals

against governmental deprivations of "life, liberty or property"

without due process of law. Board of Regents v. Roth, 408 U.S.

564, 570-71 (1972); Mullins v. Oregon, 57 F.3d 789, 795 (9th Cir.

1995). A procedural due process violation has two elements. 

First, plaintiffs must show that the government has deprived them

of life, liberty or property. Mathews v. Eldridge, 424 U.S. 319,

332-33 (1976). Second, plaintiffs must show that the government

deprived them of these constitutionally-protected interests without

due process of law. Id. To state a First Amendment free speech

claim, plaintiffs must plead that a government official sought to

chill protected speech. Soranno's Gasco, Inc. v. Morgan, 874 F.2d

1310, 1314 (9th Cir. 1989).

The gravamen of Plaintiffs’ complaint is that non-state

Defendants made misrepresentations about Plaintiffs to CDOC and, as

a result, two CDOC employees subjected Plaintiffs to some form of

malicious prosecution. Plaintiffs’ first cause of action is a

violation of due process and equal protection based on Defendants’

“abuse of the disciplinary process.” Their second cause of action

is a due process violation based upon unspecified "conflicts of

interest" between Defendants. The third cause of action is an

equal protection claim based on breach of privacy and the final

cause of action is for violations of Plaintiffs' due process and

free speech rights.

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Plaintiffs' causes of action fail to state a claim for many

reasons. Their equal protection claims fail because they do not

allege membership in a protected class and intentional

discrimination by Defendants based upon membership in that

protected class. In regard to the due process claims, assuming

that Plaintiffs have alleged a property interest in their business

licenses, they have failed to allege what process was due to them

that they did not receive. In regard to their free speech claim,

Plaintiffs have failed to allege any protected speech that was

chilled and any action on the part of Defendants that might have

chilled it. The non-state Defendants also correctly point out that

their actions were not taken under color of state law.

For all these reasons, Plaintiffs' allegations fail to state

claims. 

In summary, under the Younger doctrine, the Court abstains

from taking jurisdiction over Plaintiffs' claims for injunctive

relief and stays hearing the claims for damages against Drews and

Valle. Under the Noerr-Pennington doctrine, non-state Defendants

are immune from liability. Because the only remaining claims are

stayed, this case will be administratively closed. Within thirty

days after the state court issues its judgment in the mandamus

action, Plaintiffs may file a motion to reopen the case, lift the

stay and amend their complaint. If Plaintiffs are permitted to

file an amended complaint, they may only add allegations remedying

the deficiencies in their remaining claims against Drews and Valle.

CONCLUSION

For all the foregoing reasons, the Court grants Defendants'

motions to dismiss with prejudice all the claims in Plaintiffs'

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complaint, with the exception of the claims for damages against

Drews and Valle, which are dismissed with leave to amend once the

Younger stay is lifted. (Docket ## 10, 13, 19 and 21). The clerk

shall administratively close this case.

IT IS SO ORDERED.

Dated: February 8, 2010 

CLAUDIA WILKEN

United States District Judge

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UNITED STATES DISTRICT COURT

FOR THE 

NORTHERN DISTRICT OF CALIFORNIA

SUZIE ZUPAN et al,

Plaintiff,

 v.

CALIFORNIA DEPT OF CORPORATIONS et al,

Defendant. /

Case Number: CV09-01014 CW 

CERTIFICATE OF SERVICE

I, the undersigned, hereby certify that I am an employee in the Office of the Clerk, U.S. District Court,

Northern District of California.

That on February 8, 2010, I SERVED a true and correct copy(ies) of the attached, by placing said

copy(ies) in a postage paid envelope addressed to the person(s) hereinafter listed, by depositing said

envelope in the U.S. Mail, or by placing said copy(ies) into an inter-office delivery receptacle located

in the Clerk's office.

James Wall

530 Alameda Del Prado

#194

Novato, CA 94949

Paul Zupan

P.O. Box 1028

Sausalito, CA 94966

Suzie Zupan

P.O. Box 1028

Sausalito, CA 94966

Dated: February 8, 2010

Richard W. Wieking, Clerk

By: Ronnie Hersler, Deputy Clerk

Case 4:09-cv-01014-CW Document 49 Filed 02/08/10 Page 24 of 24