Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_19-cv-01062/USCOURTS-cand-4_19-cv-01062-0/pdf.json

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

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

CRAIG MASON,

Plaintiff,

v.

ASHBRITT, INC., et al.,

Defendants.

Case No. 19-cv-01062-DMR 

ORDER ON DEFENDANTS’ MOTIONS 

TO DISMISS

Re: Dkt. Nos. 41, 42

This case relates to property damage caused by the Northern California wildfires of October 

2017 and subsequent remediation efforts. Defendants AshBritt, Inc. (“AshBritt”) and Tetra Tech, 

Inc. (“Tetra Tech”) contracted with the United States government to provide disaster relief services 

following the fires. Plaintiff Craig Mason, a property owner in Sonoma County, filed this putative 

class action on February 26, 2019, alleging that Defendants caused property damage and engaged 

in fraudulent conduct during their remediation efforts. [Docket No. 1.] Mason brings claims for 

relief under the Racketeering Influenced and Corrupt Organizations Act (“RICO”), as well as state 

law claims for trespass, conversion, trespass to chattels, and violations of California’s Unfair 

Competition Law (“UCL”), California Business and Professions Code §§ 17200 et seq. [Docket 

No. 35 (“SAC”).]

Defendants now move to dismiss Mason’s RICO claims pursuant to Federal Rules of Civil 

Procedure 9(b) and 12(b)(6). [Docket Nos. 41 (“Tetra Mot.”), 42 (“AshBritt Mot.”), 53 (“Tetra 

Reply”), 54 (“AshBritt Reply”).] Plaintiffs timely opposed. [Docket Nos. 47 (“Opp. to Tetra”), 48 

(“Opp. to AshBritt”).] Having taken oral argument and after considering the parties’ submissions, 

the motions are granted for the reasons stated below.

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I. BACKGROUND

The following facts are alleged in the operative complaint. 

A. October 2017 Wildfires

Mason, a California resident, owned real property in Sonoma County during the class period, 

which is defined as October 2017 to the present. SAC ¶¶ 8, 11. In October 2017, a series of wildfires 

caused extensive damage throughout the Northern California counties of Sonoma, Napa, 

Mendocino, and Lake, among others. Id. ¶ 19. The fires burned over 245,000 acres of land and 

destroyed over 14,700 homes. Id. On October 10, 2017, President Trump ordered federal aid to 

assist the recovery efforts in areas affected by the fires. Id. ¶ 20. The Federal Emergency 

Management Agency (“FEMA”) coordinated those efforts. Id. The Army Corps of Engineers 

(“ACE”), working under FEMA, “oversaw and coordinated contractors’ clean up and debris 

removal work as part of the recovery efforts” (the “Project”). Id. ¶ 21. ACE contracted with

AshBritt, a Florida corporation, to manage the Project. Id. ¶ 22. 

B. Scope of the Project

Under AshBritt’s contract with ACE, AshBritt was required to perform various services, 

including:

Obtain, analyze and evaluate background soil samples to establish cleanup 

goals for the project, including asbestos testing. Asbestos testing will not 

be required if the Contractor is assuming that all ash is toxic and disposing 

of it at the proper landfill location. If this assumption is not made, tests will

be required at a rate of one test per 5000 [cubic yards] of ash.

Collect, consolidate, and remove ash and debris for disposal. This material 

typically requires special handling and disposal as “designated” or “special” 

waste at a lined landfill.

Remove three to six inches of soil for reuse or disposal pending waste 

characterization. If soil is clean, a landfill may accept it as daily cover.

Upon removing all the debris and three to six inches of soil, sample and 

analyze the remaining soil surface for the same constituents identified as 

clean-up goals.

If results are higher than the threshold for clean-up goals . . . , the Contractor 

will remove another layer of soil (from 1/2[] inch to 3 inches) for disposal 

and conduct re-sampling of the soil. The removal and re-sampling shall be 

repeated until the remaining soil meets objectives.

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If results are less than the threshold clean-up goals, observe and verify the 

site preparation for final erosion control and certification.

SAC ¶ 23. In October 2017, AshBritt subcontracted with Tetra Tech to collect and test soil, among 

other services, on all properties where AshBritt and its debris removal subcontractors performed 

work. Id. ¶ 24; Tetra Mot. at 3. As the Project progressed, Defendants were awarded additional 

contracts to continue performing work, and each additional contract “included the same terms and 

requirements” as those listed above. SAC ¶ 25.

C. Allegations of Excessive Excavation and Removal

Mason claims that the ACE contract required Defendants to perform incremental soil 

removal by removing small layers of soil and re-sampling the soil for additional contamination 

before removing more. SAC ¶ 26. He alleges that Defendants “routinely removed excessive 

amounts of soil, up to six feet in depth at a time far more than was necessary to dispose of 

contaminants without performing sampling to determine whether the soil was contaminated.” Id. ¶ 

27. He contends that Defendants “instructed or knowingly permitted” subcontractors to perform 

excessive excavation, and that Tetra Tech on-site supervisors “monitored the workers and approved 

the removal of excessive amounts of soil without performing sampling to determine whether the 

soil was contaminated.” Id. ¶ 28.

Mason lists several examples of the conduct described above:

In one instance, workers for Ashbritt and its subcontractors took topsoil 

from surrounding properties and used it to loosely fill an excavated hole to 

create the appearance that the land had not been overexcavated. The 

property owner was forced to pay for the cost to compact and backfill the 

land.

In another instance, a property owner working to rebuild his house in Santa 

Rosa discovered that workers for a subcontractor contracted and supervised 

by Ashbritt had overexcavated the land, removed pieces of the foundation, 

and loosely poured soil to cover it up. As a result, the owner was forced to 

pay $55,000 for remediation.

In another instance, where 30 truckloads of overexcavated soil were 

removed from a single individual’s land, a supervisor on-site admitted to 

the property owner that the Army Corps of Engineers had made a mistake 

by paying the contractors by the ton.

SAC ¶¶ 28-30. Mason does not name the property owners who allegedly suffered these harms or 

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provide dates and locations for when and where the conduct occurred.

Mason alleges that ACE paid AshBritt between $200 and $300 per ton of removed debris. 

SAC ¶ 32. Mason claims that AshBritt over-excavated land, “with no consideration for 

contamination levels or the need to remove material and debris,” in order to increase its profits. Id. 

According to Mason, Defendants also routinely removed trees that did not meet the criteria for 

removal under the ACE contract and left contaminated soil on the properties. Id. ¶¶ 32, 36.

On August 22, 2018, the Director of the California Governor’s Office of Emergency Services 

(“OES”) sent a letter to ACE, informing them that OES had “discovered ‘unacceptable’ work 

performed as part of the cleanup effort, including over-excavation destruction of private property, 

and false reports of uncontaminated soil.” SAC ¶ 31. This report issued “[a]fter extensive on-site 

inspections,” and found that ACE’s contractors “caused substantial damage to many survivors’ 

properties resulting in revictimization of the affected wildfire survivors.” Id. The letter speculated 

that it was “probable this over-excavation was an intentional effort to capitalize on this tragedy by 

defrauding the government,” since the subcontractors were paid by the weight of the soil they 

removed. Id.

D. The Alleged Enterprise

Both AshBritt and Tetra Tech personnel were “personally involved in overseeing work 

performed on each property involved in the [Project].” SAC ¶ 33. According to Mason, these 

personnel “instructed subcontractors to over-excavate properties where proper testing had not been 

conducted.” Id. Allegedly, Defendants told state and federal agencies that properties were 

uncontaminated when either the contamination results were falsified or had not been done at all. Id. 

¶ 34. Mason claims that Defendants “directed or knowingly permitted subcontractors’ overexcavation in furtherance of the common purpose of increasing profits at the expense of the United 

States government and to the detriment of Plaintiffs.” Id. ¶ 33.

Mason alleges that this conduct was part of a “cleanup enterprise” between AshBritt and 

Tetra Tech. SAC ¶ 37. According to Mason, this enterprise has existed for at least four years and 

involved at least six other joint projects. Id. ¶ 38. Similar to the Northern California wildfire project, 

AshBritt engaged subcontractors for these other projects while Tetra Tech monitored the debris 

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removal. Id. ¶ 39. Mason claims that “[t]he fundamental goal of the enterprise was to maximize 

the profits of AshBritt and Tetra Tech by over-excavating on subject properties and unnecessarily 

removing non-debris material without testing for contamination.” Id. ¶ 40. 

E. Allegations of Fraud

In furtherance of the joint enterprise, Defendants allegedly “submitted false attestations and 

statements to [ACE] certifying that they had removed necessary amounts of debris and soil from 

subject properties only after proper contamination testing.” SAC ¶ 40. Mason avers that Defendants 

“communicated with each other via daily mail and e-mail correspondence in furtherance of their 

scheme” to defraud the U.S. government. Id. ¶ 43. He alleges that Defendants generated and 

submitted false reports to government agencies daily between October 2017 and the present. Id. ¶ 

45. According to Mason, Defendants represented to the U.S. government that they had only 

removed contaminated soil and debris from each property when in fact they (1) removed excess soil 

that was not contaminated; (2) removed trees that did not fit the ACE criteria for removal; and (3) 

failed to remove contaminated soil. Id. ¶¶ 40-42, 45, 47. These false reports were allegedly 

submitted through mail, e-mail, and the online load ticket system.

F. Claims and Damages

Mason brings claims on behalf of the class, alleging that Defendants violated RICO by 

unlawfully maintaining an enterprise for the purpose of defrauding the U.S. government. SAC ¶¶ 

51-57. He also asserts numerous state law tort claims, including trespass, conversion, trespass to 

chattels, and violations of the UCL. Id. ¶¶ 71-107. He seeks a judgment awarding class benefits 

for actual, compensatory, and liquidated damages; injunctive relief prohibiting further unlawful 

conduct; restitution and disgorgement; civil and statutory penalties; interest; and attorneys’ fees and 

costs. Id. at 21.

Defendants move to dismiss Mason’s RICO claims under Rule 12(b)(6).

II. LEGAL STANDARD FOR RULE 12(B)(6) MOTIONS

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged in 

the complaint. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). When 

reviewing a motion to dismiss for failure to state a claim, the court must “accept as true all of the 

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factual allegations contained in the complaint,” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per 

curiam) (citation omitted), and may dismiss a claim “only where there is no cognizable legal theory” 

or there is an absence of “sufficient factual matter to state a facially plausible claim to relief.” 

Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010) (citing Ashcroft 

v. Iqbal, 556 U.S. 662, 677-78 (2009); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)) 

(quotation marks omitted). A claim has facial plausibility when a plaintiff “pleads factual content 

that allows the court to draw the reasonable inference that the defendant is liable for the misconduct 

alleged.” Iqbal, 556 U.S. at 678 (citation omitted). In other words, the facts alleged must 

demonstrate “more than labels and conclusions, and a formulaic recitation of the elements of a cause 

of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555 (2007) (citing Papasan v. 

Allain, 478 U.S. 265, 286 (1986)).

As a general rule, a court may not consider “any material beyond the pleadings” when ruling 

on a Rule 12(b)(6) motion. Lee, 250 F.3d at 688 (citation and quotation marks omitted). However, 

“a court may take judicial notice of ‘matters of public record,’” id. at 689 (citing Mack v. S. Bay 

Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986)), and may also consider “documents whose 

contents are alleged in a complaint and whose authenticity no party questions, but which are not 

physically attached to the pleading,” without converting a motion to dismiss under Rule 12(b)(6) 

into a motion for summary judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled 

on other grounds by Galbraith, 307 F.3d at 1125-26. The court need not accept as true allegations 

that contradict facts that may be judicially noticed. See Mullis v. U.S. Bankr. Court, 828 F.2d 1385, 

1388 (9th Cir. 1987).

III. MASON’S REQUEST FOR JUDICIAL NOTICE

“The court may judicially notice a fact that is not subject to reasonable dispute because it: 

(1) is generally known within the trial court’s territorial jurisdiction; or (2) can be accurately and 

readily determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 

201. Mason requests that the court take judicial notice of the ACE contract. [Docket No. 46 

(“RJN”).] Under the incorporation by reference doctrine, a court may “take into account documents 

whose contents are alleged in a complaint and whose authenticity no party questions, but which are 

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not physically attached [to] the [plaintiff's] pleading.” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th 

Cir. 2005) (quoting In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999)) 

(further citations omitted). “The Court may consider the entire document, even if only portions 

were quoted or referenced in the Complaint.” Shenwick v. Twitter, Inc., 282 F. Supp. 3d 1115, 1122 

(N.D. Cal. 2017) (citing Twombly, 550 U.S. at 569 n. 13). 

In this case, Mason alleges the contents of the ACE contract in the complaint, but the 

document is not physically attached to his pleading. No party raised a question of authenticity as to 

the document. Accordingly, the incorporation by reference doctrine applies and judicial notice is 

not required for the court to consider the ACE contract. Mason’s request for judicial notice is denied 

as moot.

IV. DISCUSSION

Mason brings claims under sections 1962(c) and (d) of RICO. RICO imposes liability on 

persons “engaged in . . . a pattern of racketeering activity,” 18 U.S.C. 1962(c), and defines 

“racketeering activity as “any act . . . indictable under” certain enumerated federal criminal statutes. 

18 U.S.C. § 1961(1). The elements of a civil RICO claim are “(1) conduct (2) of an enterprise (3) 

through a pattern (4) of racketeering activity (known as ‘predicate acts’) (5) causing injury to 

plaintiff’s ‘business or property.’” Living Designs, Inc. v. E.I. Dupont de Nemours & Co., 431 F.3d 

353, 361 (9th Cir. 2005) (quotation omitted). Section 1962(d) of RICO extends liability to

individuals who conspire to violate RICO.

Mason’s claims are predicated on mail and wire fraud under 18 U.S.C. § 1343. SAC ¶ 63. 

Specifically, he asserts that Defendants violated RICO by submitting false reports to the government 

about the work they were performing on the putative class members’ properties. Defendants move 

to dismiss Mason’s RICO’s claims on four grounds. First, they argue that the alleged acts of mail 

and wire fraud were not the proximate cause of Mason’s claimed injuries and therefore cannot serve 

as predicate acts for a RICO violation. Second, they assert that Mason failed to sufficiently allege 

the existence of a RICO “enterprise.” Third, they claim that Mason has failed to plead the elements 

of a RICO claim under the heightened pleading standard of Rule 9(b). Fourth, they argue that, since 

Mason’s substantive claim under section 1952(c) fails, he cannot allege a conspiracy RICO claim 

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under section 1952(d).

For the reasons stated below, the court holds that Mason has not pleaded the requisite 

causation to substantiate a RICO claim, and therefore does not reach the question of whether Mason 

has adequately pleaded the other elements of his RICO claim. The court further holds that Mason’s 

conspiracy claim fails as he has not pleaded an underlying RICO violation.

A. Proximate Cause

To have standing to bring a civil RICO claim, a plaintiff must be injured “by reason of” a 

violation of section 1962. 18 U.S.C. § 1964(c). This requires the plaintiff to show “that the 

racketeering activity was both a but-for cause and a proximate cause of his injury.” Rezner v. 

Bayerische Hypo-Und Vereinsbank AG, 630 F.3d 866, 873 (9th Cir. 2010) (citing Holmes v. Sec. 

Inv’r Prot. Corp., 503 U.S. 258, 268 (1992)). Defendants argue that Mason has not shown that the 

alleged RICO violations were the proximate cause1of his injuries.

“RICO was intended to combat organized crime, not to provide a federal cause of action 

and treble damages to every tort plaintiff.” Oscar v. University Students Co-operative Ass’n, 965 

F.2d 783, 786 (9th Cir. 1992). The case law demonstrates that the proximate cause inquiry operates 

as a policy limit on which tort victims can make use of the RICO statute and its enhanced damages. 

In the RICO context, proximate cause is not guided by the rote application of a single test. Holmes, 

503 U.S. at 274 n. 20 (“[T]he infinite variety of claims that may arise [under RICO] make it virtually 

impossible to announce a black-letter rule that will dictate the result in every case.”) (quoting 

Associated Gen. Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 

 

1 Tetra Tech also asserts that the predicate acts of wire and mail fraud could not be the but-for cause 

of the harm Mason suffered because the alleged wire fraud occurred subsequent to the alleged 

damage. Tetra Mot. at 6. According to Tetra Tech, the alleged RICO violations were the 

transmission of the reports that fraudulently reported that the Project requirements were met—

reports that were submitted after the damage to the properties had already occurred. Id. at 7. 

Logically, it argues, Mason’s injuries cannot precede the cause. Mason responds that the harm need 

not flow directly from the individual acts of mailing and wiring, but rather from the “formation of 

the scheme” itself. Opp. to Tetra at 18. He argues that the subject properties would not have been 

over-excavated but for the formation of Defendants’ scheme to defraud the government, and 

therefore the harm suffered came directly from the alleged RICO violation. Id. 

Each of the cases cited by the parties examine proximate rather than but-for causation. The court 

need not decide the but-for issue here because Mason has failed to allege proximate cause.

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519, 536 (1983)); see also Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 654 (2008)

(emphasizing that proximate cause is a “flexible concept”). Instead, “we use ‘proximate cause’ to 

label generically the judicial tools used to limit a person’s responsibility for the consequences of 

that person’s own acts.” Id. at 268. Central to the RICO proximate cause inquiry is the requirement 

that there is “some direct relation between the injury asserted and the injurious conduct alleged.” 

Id. at 268. Holmes set forward three considerations relevant to the court’s analysis:

First, the less direct an injury is, the more difficult it becomes to ascertain 

the amount of a plaintiff’s damages attributable to the violation, as distinct 

from other, independent, factors. Second, quite apart from problems of 

proving factual causation, recognizing claims of the indirectly injured 

would force courts to adopt complicated rules apportioning damages among 

plaintiffs removed at different levels of injury from the violative acts, to 

obviate the risk of multiple recoveries. And, finally, the need to grapple with 

these problems is simply unjustified by the general interest in deterring 

injurious conduct, since directly injured victims can generally be counted 

on to vindicate the law as private attorneys general, without any of the 

problems attendant upon suits by plaintiffs injured more remotely.

Id. at 268-70. The Holmes considerations are illustrative of the policies addressed by the “direct 

relation” requirement rather than strict factors that dictate mechanical results. See id. at 274 (stating 

that proximate cause in the RICO context is based on “considerations of history and policy”); see 

also Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1147 (9th Cir. 2008) (describing the 

Holmes considerations as “non-exhaustive”); Laborers Local 17 Health & Benefit Fund v. Philip 

Morris, Inc., 191 F.3d 229, 239 (2d Cir. 1999), as amended (Aug. 18, 1999) (“[T]he outer limits of 

the direct injury test are described more by [Holmes’s policy] concerns than by any bright-line, 

verbal definition.”).

Because there is no bright-line test for proximate cause in RICO cases, it is necessary to 

examine how the Supreme Court has applied the policy considerations described above. In Holmes, 

the Securities Investor Protection Corporation (“SIPC”) sued a number of defendants who allegedly 

had manipulated stock prices. 503 U.S. at 262. SIPC was obligated to reimburse the customers of 

certain registered broker-dealers if the broker-dealers became unable to meet their financial 

obligations. Id. SIPC alleged that stock prices plummeted when the defendants’ fraud was detected 

and the decline in stock prices forced two registered broker-dealers into liquidation. Id. at 263. As 

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a result, SIPC had to advance $13 million to cover the claims of the broker-dealers’ customers. Id. 

One of the defendants, Holmes, had allegedly participated in the conspiracy to manipulate stock 

prices by making false statements about the prospects of certain stocks. Id. The Court held that 

SIPC could not maintain its RICO claims against Holmes. It examined the legislative history of 

section 1962(c) and concluded that Congress did not intend to “allow all factually injured plaintiffs 

to recover.” Id. at 266. The Court found that SIPC’s alleged harm was “purely contingent on the 

harm suffered by the broker-dealers” and was therefore “too remote” from the conduct alleged. Id. 

at 271.

RICO’s proximate cause requirement came before the Supreme Court again in Anza v. Ideal 

Steel Supply Corp., 547 U.S. 451 (2006). There, the plaintiff steel supply company sued a 

competitor and its owners, alleging that the competitor did not charge sales tax to its customers and 

that defendants filed false tax returns with the state in order to conceal the conduct. Id. The plaintiff 

asserted that the defendants’ unlawful conduct allowed the competitor to undercut the plaintiff’s 

prices, which in turn harmed the plaintiff’s market share. Id. at 458. Following Holmes, the Court 

noted that the direct victim of the defendants’ conduct was the state rather than the plaintiff, because 

it was the state that had been defrauded and lost tax revenue. Id. The Court found that the causation 

element was too attenuated because the action of offering lower prices was “entirely distinct” from 

the alleged RICO violation of defrauding the state through filing false tax returns. Id. at 458-59. 

The Court accordingly held that the RICO plaintiff failed to establish the element of proximate 

cause. Id. at 458. 

In contrast to Holmes and Anza, the Court found that RICO plaintiffs met the proximate 

cause requirement in Bridge. That case involved parties who were regular bidders in county taxlien auctions. 553 U.S. at 642. Since the auction participants often tied for a winning bid, the county 

allocated parcels on a rotational basis. Id. It also prohibited bidders from using multiple agents to 

increase their chances of receiving a parcel. Id. at 643. When registering for an auction, each bidder 

was required to submit an affidavit that it was participating as a single bidder. Id. The plaintiff 

participants brought a RICO claim against other bidders who they alleged had violated the singlebidder rule by using multiple agents in the auctions. Id. The defendants argued that section 1964(c) 

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requires a RICO plaintiff to show that it relied on the defendants’ fraudulent misrepresentations. Id. 

at 648. They contended that the single bidder affidavits were submitted to the county, not the 

plaintiffs, which meant that the plaintiffs could not have relied on any fraudulent misrepresentations 

contained in the affidavits. Id. at 649. The Supreme Court rejected the defendants’ argument and 

observed that the “foreseeable and natural consequences of petitioners’ scheme to obtain more liens 

for themselves [was] that other bidders would obtain fewer liens.” Id. at 649. It held that firstperson reliance is not an element of a RICO claim because “a person can be injured by reason of a 

pattern of mail fraud even if he has not relied on any misrepresentations.” Id. at 649. 

Mason relies on Bridge, arguing that it stands for the proposition that proximate cause can 

be established if the plaintiff’s “alleged injury . . . [is] a foreseeable and natural consequence of [the] 

[defendants’] scheme.”

2

See Bridge, 553 U.S. at 658. Mason’s argument is not persuasive. First, 

Bridge focused on the question of first-party reliance, which is not an issue in this case. To the 

extent the Court addressed the issue of proximate cause at all, it was to show that first-party reliance 

is not necessary to establish that element. Accordingly, Mason relies on statements that are taken 

out of context for an issue that Bridge did not examine and are at most dicta. Second, the Supreme 

Court has subsequently rejected the argument that “RICO’s proximate cause requirement turn[s] on 

foreseeability.” Hemi Grp., LLC v. City of New York, N.Y., 559 U.S. 1, 12 (2010) (“[I]n the RICO 

context, the focus is on the directness of the relationship and the harm . . . Anza and Holmes never 

even mention the concept of foreseeability”). Therefore, even if Bridge stood for the proposition 

asserted by Mason, that holding would not likely survive Hemi. Third, while the defendants in 

Bridge made their fraudulent representations to the government rather than the plaintiffs, it was the 

plaintiffs who suffered damage as a result, and not the government. The Bridge defendants’ 

fraudulent statements to the government operated as a tool to gain an advantage over the plaintiffs, 

which resulted in injury to them. In this case, by contrast, Defendants allegedly schemed to increase 

their own profits by submitting fraudulent documents to the government in order to justify payment 

for removing large amounts of debris that should not have been removed, all at the expense of the 

 

2 The parties’ arguments regarding the timing of the predicate acts in relation to the alleged harm 

are not addressed here for the reasons stated in footnote 1: the timing issue goes to the question of 

but-for causation, which the court need not reach in this case.

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government; in other words, the government was the target of the scheme and not just a means to 

harm someone else. See SAC ¶ 33. For these reasons, Bridge does not control in this case.

Holmes is also distinguishable. There, the SIPC’s damages were not directly caused by the 

alleged RICO violation, but instead were derivative of the injury to the broker-dealers’ businesses

that was then passed through to the SIPC. 503 U.S. at 271. The Court noted the difficulties in 

proving what portion of the alleged damages arose from the RICO violation as opposed to other 

factors, such as the broker-dealers’ “poor business practices or . . . failure to anticipate developments 

in the financial market.” Id. at 273. In this case, Mason is alleging that the harm to his property 

arose from Defendants’ own conduct; unlike Holmes, this case does not involve damages in the 

form of indemnification for an injury suffered by an intervening third party. Therefore, the 

derivative injury analysis in Holmes does not apply here.

Anza is more similar to the present case than Holmes because the plaintiffs’ injuries in that 

case were not derivative of the harm suffered by the government. See Anza, 547 U.S. at 458 (“The 

attenuation between the plaintiff’s harms and the claimed RICO violation arises from a different 

source in this case than in Holmes, where the alleged violations were linked to the asserted harms 

only through the broker-dealers’ inability to meet their financial obligations.”) The Court instead 

found no proximate cause because the alleged RICO violation was directed at the government rather 

than the plaintiffs. See id. (“The direct victim of this conduct was the State of New York, not [the 

plaintiff].”). However, Anza is not directly on point here because the harm alleged in this case did 

not arise in the context of economic competition where market forces make determinations of 

causation murky. Id. at 460 (stating that the proximate cause analysis has “particular resonance 

when applied to claims brought by economic competitors”). 

The Ninth Circuit’s opinion in Rezner is a closer fit. There, the plaintiff Rezner purchased 

a tax shelter from the defendant. Rezner, 630 F.3d at 868. The IRS subsequently determined that 

the tax shelter was unlawful, and as a result, Rezner owed significant back taxes. Id. at 869. Rezner

brought a RICO claim against the defendant, alleging that it “engaged in a scheme to defraud the 

United States of tax revenue through fraudulent tax shelters that caused injury to purchasers of such 

shelters.” Id. at 868. The district court entered summary judgment for Rezner on his RICO claim. 

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The Ninth Circuit reversed, noting that Rezner’s alleged loss resulted from the defendant’s 

“misrepresentations to the United States regarding the tax treatment” of the financial transaction. 

Id. at 872. It held that the United States was the direct victim because it lost tax revenue as the 

“direct result of [the defendant’s] fraud,” while Rezner’s “asserted injury only indirectly resulted 

from [the] fraudulent activity against the United States.” Id. at 873. The court determined that the 

government was a better suited plaintiff to recover for the fraud against it and reversed the district 

court’s entry of summary judgment. Id. at 873-74.

Rezner found that there was no proximate cause because the alleged unlawful conduct was 

directed at the government and not at Rezner himself. Likewise, in this case, Mason has alleged 

that Defendants made misrepresentations to the U.S. government in order to increase their profits 

by making the government pay Defendants for removal of debris that should not have been removed 

per the government contract. Similar to Rezner, Defendants’ alleged fraud was directed at the 

government and Mason’s injuries were a biproduct of that fraud. See SAC ¶ 33 (alleging that 

Defendants “directed or knowingly permitted subcontractors’ over-excavation in furtherance of the 

common purpose of increasing profits at the expense of the United States government and to the 

detriment of Plaintiffs”). Taking Mason’s allegations as true, the government is the direct victim of 

Defendants’ alleged fraud. See C&M Cafe v. Kinetic Farm, Inc., No. 16-cv-04342-WHO, 2016 WL 

6822071, at *7 (N.D. Cal. Nov. 18, 2016) (holding that the plaintiffs were a direct victim because 

they were “specifically targeted” by the defendant). The controlling caselaw indicates that RICO is 

not intended to cover claims by injured bystanders, even if their injuries are a natural result of the 

alleged scheme. See Holmes, 503 U.S. at 266 (“[T]he very unlikelihood that Congress meant to 

allow all factually injured plaintiffs to recover persuades us that RICO should not get such an 

expansive reading.”). In fact, the Supreme Court has rejected claims by less direct victims even if 

their injuries are an intended consequence of the unlawful conduct. See Hemi, 559 U.S. at 12. 

Therefore, the government is the most direct victim of the alleged scheme to defraud and the best 

situated to recover under RICO.3

 

3 Notably, whether the direct victim actually sues “is not dispositive.” Pillsbury, Madison & Sutro 

v. Lerner, 31 F.3d 924, 931 (9th Cir. 1994).

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This analysis comports with two recent Ninth Circuit decisions regarding RICO proximate 

cause. See Painters & Allied Trades Dist. Council 82 Health Care Fund v. Takeda Pharm. Co. Ltd., 

943 F.3d 1243 (9th Cir. 2019); Harmoni Int’l Spice, Inc. v. Hume, 914 F.3d 648 (9th Cir. 2019). In 

Painters, the defendants were pharmaceutical companies who developed and marketed a drug 

intended to treat type 2 diabetes. 943 F.3d at 1246. A class of consumers sued under RICO, alleging 

that the defendants intentionally misled them to believe that the drug did not increase their risk of 

developing bladder cancer, despite having access to studies that showed otherwise, and that the 

consumers would not have purchased the drug had they known of that risk. Id. The district court 

dismissed the RICO claims on the basis that the plaintiffs failed to establish proximate cause. The 

Ninth Circuit reversed. It found that the plaintiffs were the “immediate victims” of the alleged 

scheme because the fraudulent misrepresentations were directed at the consumers who purchased 

and used the drug. See id. at 1251-52. The court held that this consideration was sufficient to satisfy 

the “direct relation” requirement, and correspondingly, that the plaintiffs were the best situated to 

sue for the fraud perpetrated against them. Id. at 1251. In this case, Defendants’ alleged scheme 

was directed at the government, not at Mason or the putative class. The government is therefore the 

“immediate victim[]” of the alleged fraud and a more suitable RICO plaintiff.

The court’s decision here also aligns with Harmoni. There, the plaintiff company Harmoni 

had a competitive advantage in importing Chinese garlic because it was not subject to the same 

duties imposed on other importers of that good. 914 F.3d at 650. Harmoni’s competitors, the 

defendants in the case, allegedly filed sham requests with the Department of Commerce so that it 

would audit Harmoni, with the intent of forcing Harmoni “to incur significant expenses defending 

itself during the course of the administrative review process.” Id. at 650. The defendants argued 

that the plaintiffs had not met RICO’s proximate cause requirement because the Department of 

Commerce was the direct victim of the alleged scheme. Id. at 652. The Ninth Circuit rejected this 

argument on the basis that the sham-filing scheme was aimed at Harmoni and “no more direct victim 

of the defendants’ sham-filing is better position to sue.” Id. at 652. In other words, as in Holmes, 

the defendants used the government as a tool to inflict harm on the plaintiff, which was the intended 

direct victim. The fact that the Department of Commerce was also a victim that suffered damage in 

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the form of costs incurred in conducting the sham administrative review did not change the outcome.

By contrast, Defendants’ alleged scheme in this case is aimed at the government, who is the best 

situated for the fraud perpetrated against it.

In sum, in view of the considerations expressed in Holmes and interpreted by subsequent 

caselaw, Mason and the putative class are not the appropriate plaintiffs to bring a RICO claim based 

on Defendants’ alleged fraud against the U.S. government. 

B. Conspiracy RICO Claim

As Mason has failed to show that he has standing to pursue a RICO claim under section 

1962(c), his conspiracy claim under section 1962(d) also fails. See Howard v. Am. Online Inc., 208 

F.3d 741, 751 (9th Cir. 2000) (“Plaintiffs cannot claim that a conspiracy to violate RICO existed if 

they do not adequately plead a substantive violation of RICO.”); Sanford v. MemberWorks, Inc., 

625 F.3d 550, 559 (9th Cir. 2010) (“Because we conclude that the section 1962(c) claim cannot be 

saved by amendment, it follows that the section 1962(d) claim also cannot be saved.”). 

Accordingly, Defendants’ motion to dismiss Mason’s RICO claims is granted.

V. LEAVE TO AMEND

If the court dismisses one or more causes of action under Rule 12(b)(6), it “should grant 

leave to amend even if no request to amend the pleading was made, unless it determines that the 

pleadings could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 

1122, 1127 (9th Cir. 2000). In this case, although it seems unlikely, the court cannot say with 

certainty that amendment of the pleadings would be futile.

Therefore, Mason is granted leave to amend his complaint with respect to the RICO claims.

VI. CONCLUSION

For the foregoing reasons, Defendants’ motion to dismiss Mason’s RICO claims is granted. 

Mason must file an amended complaint by no later than January 24, 2020.

IT IS SO ORDERED.

Dated: January10, 2019

______________________________________

Donna M. Ryu

United States Magistrate Judge

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORN

I

A

IT IS SO ORDERED

Judge Donna M. Ryu

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