Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01243/USCOURTS-caed-2_07-cv-01243-2/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:77 Securities Fraud

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28 This matter was determined to be suitable for decision without *

oral argument. L.R. 78-230(h).

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

REUBEN & KATHARINE TOLENTINO; ) 2:07-CV-1243-GEB-DAD

KB PROPERTIES, LLC; JAMES & BRENDA )

HALL; HARPAUL & AMRITPAL NAGRA; )

WEST MULLEN IOWA, LLC; M & B REAL )

PROPERTIES, LLC; RIVER WIND, LLC, )

)

Plaintiffs, )

)

v. ) ORDER*

)

JEFFREY A. MOSSMAN; SCOTT G. )

MUELLER; DENNIS DUDLEY; INVESTORS )

ADVANTAGE CAPITAL FUND I, LLC; )

CASH FLOW FINANCIAL GROUP, LLC; )

GREATER CEDAR VALLEY FINANCIAL )

GROUP, LLC; GREATER CEDAR VALLEY )

FINANCIAL GROUP II, LLC; EAGLES )

NEST REAL ESTATE, LLC; BRO PROPERTY)

AND APPRAISALS, LLC; McRAE )

APPRAISALS, INC.; VALUATION )

SERVICES, INC.; MICHAEL FELTNER; )

and GARY DECLARK, )

)

Defendants. )

)

Defendants move to dismiss Plaintiffs’ Complaint for lack of

subject matter jurisdiction, lack of personal jurisdiction, failure to

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state a claim upon which relief may be granted, and improper venue. 

In the alternative, Defendants move to transfer venue to Iowa for the

convenience of the parties. 

THE PARTIES

Plaintiffs allege in their Complaint that Defendants engaged

in various types of fraud by conspiring to sell Plaintiffs investment

properties in Iowa. Plaintiffs Reuben and Katherine Tolentino, James

and Brenda Hall, and Harpaul and Amritpal Nagra, are California

residents. Plaintiffs KB Properties LLC, West Mullen Iowa LLC, M & B

Properties LLC, are Iowa limited liability companies whose members

include Dean and Kara Baker, who are California residents. Plaintiff

River Wind LLC is a Delaware limited liability company whose sole

member is Sarah Crawford, who is a Hawaii resident.

Defendants Investors Advantage Capital Fund I LLC

(“Investors Advantage”), Cash Flow Financial Group LLC (“Cash Flow”),

Greater Cedar Valley Financial Group I LLC (“Cedar Valley I”) Greater

Cedar Valley Financial Group II LLC (“Cedar Valley II”), and Eagles

Nest Real Estate LLC (“Eagles Nest”) are Iowa limited liability

companies. Defendants Jeffrey Mossman (“Mossman”), Scott Mueller

(“Mueller”), and Dennis Dudley (“Dudley”) are Iowa residents. Mossman

and Mueller are the owners, principals, agents and managers of

Investors Advantage, Cash Flow, Cedar Valley I, Cedar Valley II, and

Eagles Nest. (Compl. ¶¶ 13-15.) Dudley is an advisor who worked with

and for Mossman and Mueller. (Id. ¶ 16.) (Collectively, these

Defendants will be referred to as the “Promoter Defendants.”)

Defendants Bro Property and Appraisals LLC, an Iowa limited

liability company; McRae Appraisals, Inc., an Iowa corporation;

Valuation Services, Inc., an Iowa corporation; Michael Feltner, an

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Plaintiffs allege that Nest Egg Management was an Iowa 1

corporation formed in 2002 and dissolved on Aug. 1, 2006. (Id. ¶ 15.)

Plaintiffs allege that Mossman and Mueller were principals and officers

of Nest Egg Management. (Id.)

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Iowa resident; and Gary DeClark, an Iowa resident, will be referred to

collectively as the “Defendant Appraisers.” (“Defendants” will refer

to all Defendants collectively.)

PLAINTIFFS’ FACTUAL ALLEGATIONS

In December 2004, Mossman and Mueller promoted Iowa

residential real estate investment “packages” (hereinafter, “real

estate packages”) to attendees at a seminar in Hawaii. (Compl. ¶ 27.) 

Plaintiffs Dean Baker, Kara Baker, Sarah Crawford, Reuben Tolentino,

and James Hall were present at the seminar. (Id.) Mossman and

Mueller stated that the properties were “turn key,” with tenants and

management already in place. (Id.) They stated that the properties

had generated profits for the past several years. (Id. ¶ 28.) 

Mossman and Mueller also offered management services “for a fee” after

the properties were purchased, through their own management company,

Nest Egg Management (“Nest Egg”). (Id. ¶ 29.) 1

Mossman and Mueller presented written materials at the

seminar that made representations about the properties, including: (1)

“no hidden costs - we’ll place tenants, collect rents, do evictions,

order repairs, and pay bills - this investment cash flows from day

one”; (2) “sleep well knowing that your investment is maintained by

Management Systems, not people”; (3) “distributed risk over multiple

properties”; (4) “no hassle management”; (5) “automatic monthly

payments deposited in your bank account.” (Id. ¶ 30.) 

Mossman and Mueller also made oral representations to

Plaintiffs regarding the real estate packages, including: (1) Mossman

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While Plaintiffs do not state specifically that each Plaintiff 2

hired Nest Egg to manage the newly purchased real estate package, it is

reasonably inferred from the rest of the allegations. (See Compl. ¶¶

36, 38.) 

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and Mueller had owned the properties for one or two years as their own

investment; (2) Mossman and Mueller had personally rehabilitated all

of the properties, so each was livable and safe; and (3) the

properties were rented to qualified tenants and would produce positive

cash flow. (Id. ¶ 31.) The Promoter Defendants each “had full

knowledge of, and took part in and substantially assisted in,

promoting the investment packages and in making the representations

and providing the financial projections to Plaintiffs.” (Id. ¶ 35.) 

As a result of representations and “promotional activities”

by the Promoter Defendants, Plaintiffs purchased a number of

properties as part of the real estate packages. (Id. ¶ 33.) For

example, the Plaintiffs Reuben and Katharine Tolentino purchased

package number four, consisting of seven Iowa residential properties,

for $544,000. (Id.) Each Plaintiff purchased a different real estate

package, with some packages containing up to 25 properties. (Id.) 

Plaintiffs allege that “[u]nder the management of Nest Egg

Management,” the properties did not perform as well as the Promoter 2

Defendants had promised. (Id. ¶ 36.) Plaintiffs learned by monthly

reports that the properties were in need of substantial repairs, some

were uninhabitable or beyond repair, and several properties (that the

Promoter Defendants had represented were occupied) were actually

vacant. (Id.) Nevertheless, the Promoter Defendants continued to

assure Plaintiffs that the projected returns were certain and that

Plaintiffs should not become “over-involved” in management of the

properties. (Id. ¶ 37.) 

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These transactions were first uncovered by another investor, 3

Bobby Edwards, who had also attended the 2004 Hawaii seminar and bought

package number 1. (Compl. ¶ 39) Plaintiffs subsequently investigated

the public records for their own real estate packages and discovered the

pattern of transfers. (Id. ¶ 40.)

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Plaintiffs allege that the Promoter Defendants, acting

through Nest Egg, embezzled funds belonging to Plaintiffs by failing

to deposit rents, turn over tenant lease deposits, or provide receipts

for expenses said to be paid on the properties. (Id. ¶ 38.) 

Plaintiffs further allege that prior to selling the real

estate packages to Plaintiffs, Defendants engaged in conduct that

artificially made the properties appear more valuable. (Id. ¶¶ 39-

41.)

First, Mossman, Mueller and Dudley periodically transferred

the properties among themselves and their business entities, including

Investors Advantage, Cash Flow, Cedar Valley I, Cedar Valley II and

Eagles Nest, each time raising the price. (Id. ¶ 39.) The intended 3

effect was to artificially inflate the appearance of value of the

properties in order to mislead buyers. (Id. ¶¶ 39-40)

Second, Plaintiffs allege that the Defendant Appraisers

conducted “fraudulent appraisals” in conspiracy with the Promoter

Defendants in order to appraise the properties at more than their

value. (Id. ¶ 41.) Plaintiffs allege that the Defendant Appraisers

conducted a variety of fraudulent appraisals, including (1) obtaining

values of the properties directly from the Promoter Defendants; (2)

performing “drive-by” appraisals; (3) relying on previous appraisals

of properties at artificially inflated prices; (4) using other of

Defendants’ over-valued properties as “comparables”; (5) intentionally

manipulating the appraisals to match the Promoter Defendants’ quoted

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All subsequent references to “Rules” are to the Federal Rules 4

of Civil Procedure.

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sales price. (Id.) Plaintiffs relied on these appraisals when

deciding to invest in the real estate packages. (Id.)

Plaintiffs assert two federal claims as the basis for

federal question jurisdiction (Id. ¶ 24.): securities fraud against

the Promoter Defendants under 15 U.S.C. § 78j(b) (Count 1), and

conspiracy to defraud against all Defendants under 15 U.S.C. § 77q(a)

(Count 2). Plaintiffs also assert securities fraud claims under

California and Hawaii law (Counts 9, 10, 11, 14, and 15), as well as

claims for breach of fiduciary duty and conspiracy to breach fiduciary

duty (Count 3), aiding and abetting breach of fiduciary duty (Count

4), negligent misrepresentation (Count 5), fraud and conspiracy to

commit fraud (Count 6), aiding and abetting fraud (Count 7),

constructive fraud (Count 8), and violations of California Business

and Professions Code sections 17200 and 17500 (Counts 12 and 13).

DISCUSSION

I. Motion to Dismiss for Lack of Subject Matter Jurisdiction

Defendants argue that there is no federal question subject

matter jurisdiction because Plaintiffs’ federal securities law claims

are not viable, since the transactions between Plaintiffs and

Defendants did not involve “securities” within the meaning of the

federal statutes under which jurisdiction is asserted. (Mossman, et

al., Not. of Mot. and Mot. to Dismiss (“Mossman Mot.”) at 19; 9:3-

13:26.) When, as here, the dismissal motion seeks decision on the

merits of whether a federal claim has been alleged, the dismissal

issue reached is whether the alleged claim survives the dismissal

motion under Federal Rule of Civil Procedure 12(b)(6). See Smith v. 4

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Gross, 604 F.2d 639, 641 (9th Cir. 1979) (per curiam) (holding that

“the dismissal of an action for failure to show that a ‘security’ is

involved is addressed to the merits” of the claim and, thus, the

dismissal was for “failure to state a claim rather than [for] lack of

subject matter jurisdiction”).

II. Motion to Dismiss for Lack of Personal Jurisdiction

Defendants seek dismissal of Plaintiffs’ Complaint for lack

of personal jurisdiction, arguing that Defendants do not have

sufficient contacts with California. (Mossman Mot. at 19:12-24:15.) 

However, “so long as a defendant has minimum contacts with the United

States, [15 U.S.C. § 77aa] confers personal jurisdiction over the

defendant in any federal district court” since Plaintiffs allege

federal securities fraud claims. Sec. Investor Prot. Corp. v. Vigman,

764 F.2d 1309, 1316 (9th Cir. 1985). Defendants argue that there is

no personal jurisdiction under § 77aa because Plaintiffs’ federal

securities fraud claims are not viable. (Mossman Mot. at 19:15-18.) 

However, § 78aa provides personal jurisdiction over Defendants even if

Plaintiffs’ federal securities fraud claims are dismissed without

prejudice under Rule 12(b)(6). See Poindexter v. Wedbush, Noble,

Cooke, Inc., 1983 WL 1279, at *3 (D. Or. Jan. 24, 1983) (holding that

dismissal of federal securities law claims under Rule 12(b)(6) “does

not alter the fact that the court has personal jurisdiction over

defendant [under § 78aa]”). Accordingly, Defendants’ motion to

dismiss for lack of personal jurisdiction is denied.

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The Rule 12(b)(6) dismissal standard is well-known and need 5

not be repeated here.

The parties do not address horizontal commonality in their 6

briefs and Plaintiffs do not allege it to exist in the Complaint.

Horizontal commonality exists where a group of investors pool their

interests, “mak[ing] their collective fortunes dependant on the success

of a single common enterprise.” Hocking, 885 F.2d at 1459.

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III. Motion to Dismiss for Failure to State a Claim5

A. Plaintiffs’ Federal Securities Fraud Claims

Defendants argue Plaintiffs’ federal claims should be

dismissed under Rule 12(b)(6) because the facts in the Complaint do

not demonstrate that the real estate packages Plaintiffs bought from

Defendants were securities. (Mossman Mot. at 9:3-13:26.) 

To state a federal claim under either 15 U.S.C. § 78j(b) or

15 U.S.C. § 77q(a), Plaintiffs must allege a transaction involving the

purchase or sale of a “security.” See De Luz Ranchos Inv., Ltd. v.

Coldwell Banker & Co., 608 F.2d 1297, 1301 (9th Cir. 1979). The

definition of “security” “embodies a flexible rather than a static

principle,” and may include “investment contracts.” SEC v. W.J. Howey

Co., 328 U.S. 293, 298-99 (1946).

Defendants argue that the real estate packages that

Plaintiffs purchased from the Promoter Defendants were not securities

because the real estate packages do not meet the three-prong Howey

test for investment contracts: “(1) an investment of money, (2) in a

common enterprise, (3) with an expectation of profits produced by the

efforts of others.” Hocking v. Dubois, 885 F.2d 1449, 1455 (9th Cir.

1989), citing Howey, 328 U.S. 293. A common enterprise requires the

presence of either vertical or horizontal commonality. SEC v. R.G. 6

Reynolds Enters., Inc., 952 F.2d 1125, 1130 (9th Cir. 1991). Vertical

commonality exists where “the fortunes of the investors are linked

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The service contracts between Nest Egg and each Plaintiff are 7

attached to Defendants’ reply brief. (See Decl. Jeffrey Mossman in

Supp. of Defs.’ Mot. to Dismiss, Exs. B-8, B-9, B-10, C-6, D-3, & E-3.)

However, in ruling on Rule 12(b)(6) motion, only “documents attached to

the complaint, documents incorporated by reference in the complaint, or

matters of judicial notice” may be considered. United States v.

Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Therefore, the contents of

these documents is not considered.

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with those of the promoters.” See SEC v. Goldfield Deep Mines Co. of

Nevada, 758 F.2d 459, 463 (9th Cir. 1985). Defendants argue that the

facts alleged in the Complaint do not demonstrate vertical commonality

between Plaintiffs and the Promoter Defendants, since “there is no

allegation that any [] Defendant stood to realize any post-sale

economic benefit from the success of the enterprise . . . .” (Mossman

Mot. at 11:9-10.) 

Plaintiffs counter that the Promoter Defendants, through

Nest Egg Management’s post-sale management of the properties, “had a

substantial financial interest in the post-sale success or failure of

the venture.” (Pls.’ Opp’n to Defs. Mossman, et al. Mot. to Dismiss

(“Pls.’ Opp’n to Mossman Mot.”) at 9:22-23.) However, Plaintiffs

admit that “[t]he Complaint does not specify the manner in which Nest

Egg’s fee is to be calculated.” (Id. at 10 n.5.) Since Plaintiffs’ 7

allegations do not demonstrate that Defendants’ profits were dependent

on the future success of the real estate packages, the allegations are

insufficient to demonstrate vertical commonality. See Brodt v. Bache

& Co., 595 F.2d 459, 461 (9th Cir. 1978) (finding no vertical

commonality existed because the success or failure of the promoter did

not “correlate with individual investor profit or loss,” but rather

the promoter “could reap large commissions for itself and be

characterized as successful, while the individual [investments] could

be wiped out”); cf. Reynolds, 952 F.2d at 1131 (finding vertical

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commonality existed because the promoter earned a management fee based

on a percentage of the investors’ profits, “thus making his own profit

contingent on the profit of his investors”).

Plaintiffs argue in their opposition to Defendants’ motion

that “Nest Egg’s fee for the provision of such management services was

calculated as a percentage of the rental income generated by the

properties.” (Pls.’ Opp’n to Mossman Mot. at 10:3-4.) But “new

allegations contained in [an] opposition [to a] motion [] are

irrelevant for Rule 12(b)(6) purposes.” Schneider v. Cal. Dep’t of

Corrs., 151 F.3d 1194, 1197 (9th Cir. 1998).

 Since Plaintiffs’ allegations are insufficient to allege

securities under federal law, Defendants’ motion to dismiss

Plaintiffs’ federal claims under Rule 12(b)(6) is granted.

B. Plaintiffs’ State Law Securities Claims

Plaintiffs’ California securities law claims also

require the presence of a security as defined by the Howey test. See

People v. Coster, 151 Cal. App. 3d 1188, 1193 (1984) (“For the purpose

of both the federal and the California securities law, an investment

contract means a contract or transaction whereby a person invests

money in a common enterprise with the expectation of deriving a profit

solely from the efforts of a promoter or a third person.” (citing

Howey, 328 U.S. at 298-99)); Moreland v. Dep’t of Corps., 194 Cal.

App. 3d 506, 513, 518-19 (1987) (holding that investment was not

security under California law by applying the Howey test). Since

Plaintiffs’ allegations do not demonstrate the existence of a

security, Counts 9, 10, and 11 are dismissed. 

Since River Wind’s claims will be dismissed, infra, for

improper venue, the issue whether or not River Wind’s security claims

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alleged under Hawaii should be dismissed under Rule 12(b)(6) need not

be reached.

C. Plaintiffs’ State Law Fraud Claims

Defendants seek dismissal of Plaintiffs’ state law fraud

claims under Rule 12(b)(6), arguing that Plaintiffs fail to plead

these claims with the particularity required by Rule 9(b). (Mossman

Mot. at 15:14-16:6.) “Rule 9(b) requires the identification of the

circumstances constituting fraud so that the defendant can prepare an

adequate answer . . . [and that] [t]he pleader . . . state the time,

place, and specific content of the false representations as well as

the identities of the parties to the misrepresentation.” Odom v.

Microsoft Corp., 486 F.3d 541, 553-54 (9th Cir. 2007) (internal

citations and quotations omitted).

Plaintiffs’ fraud claims against Mossman and Mueller are

pled with sufficient particularity, since Plaintiffs identify specific

statements that Mossman and Mueller made to Plaintiffs in December

2004 at the Hawaii real estate seminar. (See Compl. ¶¶ 27-31.)

However, Plaintiffs’ allegations in the Complaint do not

specify any fraudulent statements made by Dudley, Investors Advantage,

Cash Flow, Cedar Valley I, Cedar Valley II, Eagles Nest, or any

individual Defendant Appraiser. Plaintiffs allege that following the

December 2004 real estate seminar, Dudley “assist[ed]” Mossman and

Mueller as they “continued to promote their real estate investment

packages.” (Compl. ¶ 32.) Plaintiffs also allege that “Plaintiffs

investigated the public records for their own properties and

discovered [a] pattern of fraud, which Plaintiffs are informed and

believe was done by Defendants.” (Id. ¶ 40.) Plaintiffs allege that

the Defendant Appraisers “were aware of the scheme of [the Promoter

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Although Defendants also argue Plaintiffs’ negligent 8

misrepresentation claim fails to comply with Rule 9(b), that claim is

not subject to that particularity pleading requirement. See Premium

Capital Funding, LLC v. AR Home Loans, Inc., 2007 WL 2904017, at *2

(E.D. Cal. Oct. 2, 2007).

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Defendants] to defraud Plaintiffs . . . [and] provided substantial

assistance” by performing a list of acts, including intentionally

manipulating appraisals of the properties in the real estate packages

to make them appear more valuable. (Id. ¶ 41.) However, Plaintiffs

do not specify when Dudley, Investors Advantage, Cash Flow, Cedar

Valley I, Cedar Valley II, Eagles Nest, or the Defendant Appraisers

made any fraudulent statements or what those statements were. Fraud

allegations are not stated with particularity if the allegations

“indiscriminately group[] all of the individual defendants into one

wrongdoing monolith. . . . Fraud allegations may not rely on blanket

references to conduct of ‘defendants and each of them,’ but must

instead inform each defendant of the conduct which constitutes the

alleged violation.” Lubin v. Sybedon Corp., 688 F. Supp. 1425, 1443

(S.D. Cal. 1988). Accordingly, Defendants’ motion to dismiss

Plaintiffs’ state fraud claims (Counts 6, 7 and 8) against Dudley,

Investors Advantage, Cash Flow, Cedar Valley I, Cedar Valley II,

Eagles Nest, and the Defendant Appraisers is granted.8

D. Plaintiffs’ Negligent Misrepresentation Claim

Defendant Appraisers seek dismissal of Plaintiffs’ negligent

misrepresentation claim, arguing that Plaintiffs do not allege facts

showing reliance on a misrepresentation made by Defendant Appraisers. 

(Bro, et. al’s Mot. to Dismiss at 13.) See B.L.M. v. Sabo & Deitsch,

55 Cal. App. 4th 823, 834 (1997) (“The elements of negligent

misrepresentation . . . include justifiable reliance on the

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representation . . .”). However, Plaintiffs allege that the Defendant

Appraisers conducted “fraudulent” appraisals of the properties in the

real estate packages, and that Plaintiffs “relied on these appraisals

to invest in the investment packages with Defendants.” (Compl. ¶ 41.) 

These allegations are sufficient. Therefore, this portion of the

motion is denied.

IV. Venue

A. Motion to Dismiss for Improper Venue

Defendants seek dismissal of Plaintiffs’ Complaint under 28

U.S.C. § 1406(a), arguing that venue is improper in the Eastern

District of California. (Mossman Mot. at 25:20-27:9.) Plaintiffs

counter that venue is proper under 15 U.S.C. § 78aa, which provides

venue is proper, inter alia, “in the district wherein any act or

transaction constituting the [federal securities fraud] violation

occurred.” Sec. Investor Prot. Corp. v. Vigman, 764 F.2d 1309, 1316

(9th Cir. 1985) (rev’d on other grounds, 503 U.S. 258 (1992)). 

Plaintiff James Hall avers that Mossman made several communications to

him promoting the real estate packages while Hall was in the Eastern

District of California. (See Declaration of James Hall in Opp’n to

Def.’s Mot. to Dismiss at ¶¶ 2, 4-5, 8-9.) Mossman’s communications

to Hall constitute an “act or transaction” in the Eastern District of

California. See Bourassa v. Desrochers, 938 F.2d 1056, 1057 (9th Cir.

1991) (holding that a defendant’s single phone call was an “act or

transaction” sufficient to provide for venue under § 78aa). Under the

“co-conspirator venue theory,” Mossman’s “act or transaction” in the

Eastern District of California makes this venue proper for all

Defendants since Plaintiffs allege that Defendants engaged in a

conspiracy to commit securities fraud. See Vigman, 764 F.2d at 1317

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(holding that one defendant’s act in venue made venue proper for all

defendants since plaintiffs alleged a conspiracy to commit securities

fraud). Accordingly, Defendants motion on this ground is denied.

Defendants further argue that venue is only proper in the

District of Iowa because of forum selection clauses in the management

services contracts between each Plaintiff and Nest Egg Management. 

(Id. at 24:20-25:17.) Each forum selection clause in these contracts

states: “The parties hereto stipulate to venue in a court of competent

jurisdiction in Black Hawk County, Iowa except for issues that require

action where the property is located.” (Mossman Decl., Exhs. A-4, B8, B-9, B-10, C-6, D-1, D-2, and E-3.) 

Plaintiffs disagree, arguing that notwithstanding use of the

word “stipulate,” the venue clauses are “permissive and do[] not limit

the venues in which a party may bring an action.” (Pls.’ Opp’n to

Mossman Mot. at 23:8-9.) Thus, at issue here is to what the parties

stipulated in the management services contract. But it is unclear

whether by stipulating to venue in Iowa the parties “clearly agreed”

to forgo any other venue. See Bentley v. Mutual Benefits Corp., 237

F. Supp. 2d 699, 702-03 (S.D. Miss. 2002) (holding that parties who

“stipulated” to certain venue “merely . . . agreed to . . . [that]

venue, without excluding all other venues”). Since Defendants have

not shown that the clauses at issue clearly require exclusive

jurisdiction in Iowa, their motion is denied.

Defendants also argue that River Wind’s claims should be

dismissed for improper venue because the forum selection clause in the

real estate purchase contract between River Wind and Cedar Valley I

states: “The parties to this Purchase Agreement consent to the

exclusive venue in a court of competent jurisdiction in Waterloo,

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Although § 1406(a) permits transfer or dismissal, River Wind’s 9

claims are dismissed because the forum selection clause provides River

Wind the option of re-filing the action in Iowa, in either state or

(continued...)

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Black Hawk County, Iowa.” (Mossman Decl., Exh. E-1A.) This clause is

not permissive. See Pullen Seeds and Soil v. Monsanto Co., 2007 WL

2071752, at *1 (D. Del. July 18, 2007) (holding that forum selection

clause stating “[t]he parties consent to the sole and exclusive

jurisdiction and venue” required dismissal of action). Defendants

argue that this forum selection clause governs River Wind’s action

against all Defendants, even though only River Wind and Cedar Valley I

were parties to the contract. (Mossman Mot. at 13:14-23.) A forum

selection clause governs actions against non-parties to the contract

if “[t]he alleged conduct of the non-parties is so closely related to

the contractual relationship that the forum-selection clause applies

to all defendants.” Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d

509, 514, fn. 5 (9th Cir. 1988). Plaintiffs allege that Defendants

“entered into an agreement among themselves to work together, to

perform various functions and services . . . [and] committed the overt

acts [alleged] in furtherance of the conspiracy to induce Plaintiffs

to invest in the [real estate packages].” (Compl. ¶¶ 54-55.) 

Therefore, Defendants have shown that the conduct of all Defendants as

alleged in the Complaint was “closely related” to the conduct of Cedar

Valley I. See Laurel Village Bakery, LLC v. Global Payments Direct,

Inc., 2006 WL 2792431, at *6 (N.D. Cal. Sept. 25, 2006) (holding that

forum selection clause was enforceable by non-party to contract where

plaintiff alleged that non-party acted in concert with party to

contract in order to defraud plaintiff). Accordingly, River Wind’s

claims against Defendants are dismissed under 28 U.S.C. § 1406(a).9

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(...continued) 9

federal court, and leaves the filing decision to River Wind. See

Dealers Ass’n v. Envtl. Sys. Testing, Inc., 211 F.R.D. 71, 86 (E.D.N.Y.

2002) (dismissing plaintiffs’ claims under § 1406(a), rather than

transferring the action, because the forum selection clauses at issue

left “plaintiffs with the choice of filing in either the state or

Federal courts” in the venue required by the clauses, and therefore

“dismissal of the claims properly preserve[d] [this decision for

plaintiffs]”).

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B. Motion to Transfer Venue For Convenience of the Parties

Defendants move to transfer this action to the District of

Iowa under 28 U.S.C. § 1404(a), arguing that Iowa is a more convenient

forum. (Mossman Mot. at 28:1-16.)

Section 1404(a) provides that “[f]or the convenience of

parties and witnesses, in the interest of justice, a district court

may transfer any civil action to any other district or division where

it might have been brought.” 28 U.S.C. § 1404(a).

Plaintiffs argue that since venue is proper in the Eastern

District of California under 15 U.S.C. § 77aa, transfer under 28

U.S.C. § 1404(a) is not permissible. (Pls.’ Opp’n to Mossman Mot. at

28:1-11.) However, “Section 78aa clearly does not ‘prohibit the

transferring of [an action] to another jurisdiction which is clearly a

more convenient jurisdiction for litigating the dispute.’” Job Haines

Home for the Aged v. Young, 936 F. Supp. 223, 229 (D.N.J. 1996)

(quoting Harris v. Am. Inv. Co., 333 F. Supp. 325, 327 (E.D. Pa.

1971)). 

Generally, a plaintiff’s choice of forum “should rarely be

disturbed.” Vigman, 764 F.2d at 1317. Further, a “[p]laintiff’s

choice of forum is to be given ‘substantial deference’ where the

plaintiff has chosen his home forum.” Bratton v. Schering-Plough

Corp., 2007 WL 2023482, *4 (D. Ariz. July 12, 2007). Defendants argue

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Harpaul Nagra, Amritpal Nagra, James Hall, and Brenda Hall 10

reside in the Eastern District of California. (Compl. ¶¶ 3-4.) Reuben

Tolentino, Katherine Tolentino, Dean Baker, and Kara Baker live

elsewhere in California. (Id. ¶¶ 1-2.) Only Sarah Crawford, the sole

member of River Wind, resides outside of California, and River Wind’s

claims have been dismissed for improper venue. (Id. ¶ 7.) 

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that Plaintiffs’ choice of forum is not entitled to deference since

only some Plaintiffs reside in the forum. (Mossman Reply at 20:10-

28.) However, all Plaintiffs reside in the Eastern District of

California or elsewhere in California. (Compl. ¶¶ 1-4.) Defendants 10

also argue that Plaintiffs’ choice of forum is not entitled to

deference because no events significant to Plaintiffs’ claims took

place in the forum. (Mossman Reply at 21:13-20.) However, Plaintiffs

declare that certain acts forming the basis of their federal

securities fraud claims took place in the Eastern District of

California. (See Declaration of James Hall in Opp’n to Def.’s Mot. to

Dismiss at ¶¶ 2, 4-5, 8-9.)

The convenience of the witnesses “is often the most

important factor [in the § 1404(a) analysis].” A.J. Indus., Inc. v.

U.S. Dist. Ct., 503 F.2d 384, 389 (9th Cir. 1974). Defendants argue

that “the vast majority of witness[es], including tenants, banks,

insurance companies, [and] appraisers” are located in Iowa. (Mossman

Mot. at 28:14-16.) However, Defendants failed to state “who the

witnesses are, where they are located, what their testimony will be

and why such testimony is relevant or necessary.” A.J. Indus., 503

F.2d at 389; see also Heller Fin., Inc. v. Midwhey Powder Co., 883

F.2d 1286, 1294-95 (7th Cir. 1989) (affirming denial of motion to

transfer because moving party’s assertion that “key witnesses” were in

another forum was a “vague generalization” and moving party did not

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“establish who (specifically) it planned to call or the materiality of

that testimony”).

Defendants argue that transfer of venue is warranted since

the properties that Plaintiffs purchased are located in Iowa and “most

likely a court would require dozens of site inspections by the trier

of fact.” (Mossman Mot. at 22:8-14.) But Plaintiffs counter that

“[t]his is not a construction defect action. Rather, the issue is

whether [D]efendants misrepresented the condition of the properties at

the time [P]laintiffs invested in the enterprise.” (Pls.’ Opp’n to

Mossman Mot. at 29 n.16.) 

Defendants have not met their burden of making “a strong

showing of inconvenience to warrant upsetting [Plaintiffs’] choice of

forum.” Decker Coal Co. v. Commonwealth Edison Co., 805 F.2d 834, 843

(9th Cir. 1986). Therefore, Defendants’ motion to transfer venue is

denied.

CONCLUSION

Plaintiffs’ two federal claims are dismissed without

prejudice under Rule 12(b)(6). Counts 6, 7 and 8 against Dudley,

Investors Advantage, Cash Flow, Cedar Valley I, Cedar Valley II,

Eagles Nest, and the Defendant Appraisers are dismissed without

prejudice under Rule 12(b)(6). River Wind’s claims are dismissed

under 28 U.S.C. § 1406(a) for improper venue. Plaintiffs are granted

///

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///

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10 days leave from the date on which this order is filed to file an

amended complaint in which the dismissed claims are amended.

IT IS SO ORDERED.

Dated: December 13, 2007

 

GARLAND E. BURRELL, JR.

United States District Judge

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