Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_10-cv-01630/USCOURTS-casd-3_10-cv-01630-1/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1961 Racketeering (RICO) Act

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1 10cv1630 BTM (BGS)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ARKAN HAMANA,

Plaintiff,

Case No. 10cv1630 BTM (BGS)

ORDER RE MOTIONS TO DISMISS

v. AND AMEND

SAM KHOLI, et al.,

Defendants.

Pending before the court are Plaintiff’s motion to voluntarily dismiss certain claims

[dock # 18], Defendants Kholi’s and Hallak’s motions to dismiss certain claims [dock # 6, 9],

and Kholi’s motion to strike [dock. # 6]. For the reasons that follow, Plaintiff’s motion to

dismiss certain claims is GRANTED, Defendants motions to dismiss are GRANTED in part

and DENIED in part, and Defendant Kholi’s motion to strike is GRANTED. 

I. PLAINTIFF’S MOTION TO DISMISS

Plaintiff moves to voluntarily dismiss ten of the seventeen claims brought in his First

Amended Complaint (“FAC”). [Doc. # 18] Defendants oppose this motion on the ground

that Plaintiff allegedly is seeking to avoid a dismissal with prejudice, as these ten claims are

subject to Defendants’ motion to dismiss. [Doc. # 24] Plaintiff, in reply, states that this

motion is in line with his litigation strategy that focuses the case on core loan-sharking claims

and agrees to dismiss with prejudice six of the ten claims that are “arguably duplicative” or

“offer no additional remedy.” [Doc. #26] Accordingly, causes of action numbers 4, 6, 9,

10, 11, and 16 are dismissed without prejudice. 

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 ( See Hallak Mem. at 11 (arguing that the intentional interference with contractual 1

relations claim fails because the FAC “reveals no specific facts regarding any valid contracts

alleged to have been interfered with.”); id. at 13 (arguing that intentional interference with

prospective economic advantage claim fails because “Plaintiff does not allege that Mr. Hallak

violated any law or other determinable legal standard”); id. at 15 (arguing that defamation

claim fails because allegedly defamatory statements “do not contain any verifiable facts.”);

Kholi Mem. at 17 (arguing that the seventeenth cause of action fails because “nothing

alleged in the FAC constitutes a breach of any fiduciary duty by Kholi.”))

2 10cv1630 BTM (BGS)

Plaintiff may voluntarily dismiss without prejudice the remaining claims at issue.

Defendants cite no case law to support their proposition that Plaintiff should be disallowed

from voluntarily dismissing certain claims without prejudice while motions to dismiss are

pending. Instead, Defendants assert that dismissal here would be inconsistent with Rule

15's “‘underlying purpose of allowing amendments to facilitate a decision on the merits.’”

[Doc. #24 (quoting 3 Moore’s Fed. Prac. § 15.14[1] (3d ed. 2010))]

The Court disagrees. Defendants’ position is premised on an assumption that if their

motion to dismiss is successful, the claims at issue would be dismissed with prejudice. Only

then would denying Plaintiff’s motion result in final resolution of these claims. However, to

the contrary, “[D]ismissal under Rule 12(b)(6) generally is not immediately final or on the

merits because the district court normally will give the plaintiff leave to file an amended

complaint to see if the shortcomings of the original document can be corrected.” 5B Wright

& Miller, Fed. Prac. & Proc. Civ. § 1357 (3d ed.) (citing numerous cases); see also Gompper

v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002); (“Dismissal without leave to amend is

improper unless it is clear . . . that the complaint could not be saved by any amendment.”)

Defendants make no showing that the causes of action that Plaintiff seeks to be dismissed

without prejudice are fatally flawed, but rather argue that these causes of action are

improperly pled. Plaintiff, on the other hand, correctly argues that judicial economy would 1

be improved by dismissing his business torts claims and duplicative loan sharking claims.

Therefore, Plaintiff’s motion to dismiss certain claims is GRANTED. Causes of action

numbers 13, 14, 15, and 17 are dismissed without prejudice. 

II. DEFENDANTS’ MOTIONS TO DISMISS

Following the voluntary dismissal of these claims, the only claims that remain subject

Case 3:10-cv-01630-CAB-BGS Document 30 Filed 03/15/11 Page 2 of 7
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 Because the Court grants Defendants’ motion to dismiss the second cause of action,

2

the Court need not address Defendants’ remaining arguments as to why the RICO cause

of action is insufficiently pled. However, the Court will address Defendants’ arguments that,

if correct, could render leave to amend futile.

3 10cv1630 BTM (BGS)

to Defendants’ motions to dismiss are the second cause of action for RICO violations and

the eighth cause of action brought under Bus. & Prof. Code § 17200, et seq. Defendants

do not challenge causes of action numbers 1, 3, 5, 7, and 12.

A. Second Cause of Action (RICO Violations)

Plaintiff alleges the following predicate acts to support his claim that Defendants

violated § 1962(a), (b), (c), and (d): (1) mail and wire fraud in violation of 18 U.S.C. §§ 1341

and 1343; (2) engaging in monetary transactions derived from unlawful activity in violation

of 18 U.S.C. § 1957; (3) violation of 18 U.S.C. § 1952; and (4) “[e]ngaging in loan sharking,

the charging of interest rates in excess of what is permitted by California law.” (FAC ¶¶ 40,

43, 49) 

None of these predicate acts are properly pled. The predicate act of mail or wire

fraud must be pled with particularity pursuant to Fed. R. Civ. P. 9(b). Sanford v.

MemberWorks, Inc., 625 F.3d 550, 558 (9th Cir. 2010); Lancaster Community Hosp. v.

Antelope Valley Hosp. Dist., 940 F.2d 397, 405 (9th Cir. 1991). Plaintiff has failed to provide

sufficient detail regarding the use of mail or wires to perpetrate fraud and thus has not

alleged violations of sections 1341 and 1343 sufficient to constitute “racketeering activity”

under § 1961(a). See Sanford, 625 F.3d at 558; Lancaster Community Hosp., 940 F.2d at

405. Plaintiff’s § 1957(a) allegation merely parrots the text of the statute and is therefore

insufficiently pled. See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009); c.f. United States

v. Dupre, 117 F.3d 810, 821 (5th Cir. 1997). Plaintiff’s § 1952 reference is nothing more

than a pro forma statutory citation; Plaintiff provides no supporting facts whatsoever. Finally,

an allegation of charging interestrates in excess of what is permitted under state law, without

more, does not constitute a RICO predicate. Thus, because the alleged predicate acts of

“racketeering activity” asserted in the complaint fail, Plaintiff’s second cause of action is

DISMISSED without prejudice.2

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 The record is unclear as to whether a foreclosure sale has taken place. On August 3

19, 2010, the Court denied Plaintiff’s request for a temporary restraining order to enjoin

foreclosure proceedings on his property, [dock. # 5], and on September 3, the Court granted

the parties’ joint motion to vacate Plaintiff’s hearing for a preliminary injunction [dock. # 11].

 Plaintiff is cautioned that solely alleging present monetary damage is not, in of itself, 4

sufficient to confer standing under § 1964(c). See generally Fogie v. THORN Ams., Inc., 190

F.3d 889, 895 (8th Cir. 1999).

4 10cv1630 BTM (BGS)

Defendants raise several arguments as to why dismissal should be with prejudice.

None are persuasive at this time.

First, Defendants assert that the FAC negates the existence of damages to support

RICO standing under 18 U.S.C. § 1964(c) because the amount of allegedly wrongful interest

paid by Plaintiff ($480,800) is less than the amount of principal ($1,000,000) he received in

loans from Defendant Kholi. (Kholi Mem. at 5-6; Hallak Mem. at 4-5) The parties do not cite

– and independent research did not uncover – any case law directly addressing whether a

civil RICO plaintiff can show cognizable injury under 18 U.S.C. § 1964(c) where he has

obtained more money in principal than he has paid in unlawful interest at twice the usury

rate. 

However, if Plaintiff amends his complaint and reasserts RICO claims, the Court will

not necessarily have to reach this issue. Plaintiff’s complaint alleges that the loans at issue

were secured by deeds of trust on Plaintiff’s home and business and that on May 18, 2010,

Defendant Kholi initiated foreclosure proceedings against these properties. (FAC ¶¶ 18, 20)

If these properties are collectively valued at more than $520,000 and there has been a

foreclosure sale, then Plaintiff would indisputably have present monetary damage. 3 4

Second, Defendants take issue with Plaintiff’s method for calculating interest rates

for the three loans at issue, in order to assert that Plaintiff cannot prove the existence of

“unlawful debt” within the meaning of § 1961(6). (Kholi Reply at 5-7) In his sur-reply,

Plaintiff offers an alternative method for calculating this interest rate to show that each of the

three loans charged interest rates at twice the enforceable rate under California law. (Surreply at 3-4)

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5 10cv1630 BTM (BGS)

Although Plaintiff has not asserted collection of unlawful debt as a predicate offense

to support violation of subsections of § 1962 in his complaint, the Court finds that Plaintiff

may be able to allege facts to show that Defendants collected interest at twice the

enforceable rates under California law. (See FAC ¶¶ 11-16) Because Plaintiff’s RICO

allegations potentially can be repled to assert “collection of an unlawful debt” as the

predicate offense, leave to amend would not be futile. If Defendants believe that the method

Plaintiff used in its sur-reply to calculate interest rates is flawed, they may so argue at a later

time.

Finally, Defendant Hallak argues that the FAC fails to state a claim against Mr. Hallak

under § 1962(c) and that “there is no way Hamana could cure this deficiency without

contradicting the allegations of the FAC.” (Hallak Reply at 2) Defendant is correct that

Plaintiff’s § 1962(c) claim fails as to Mr. Hallak because the FAC contains no allegations that

Mr. Hallak “participate[d] in the operation or management of the enterprise.” Reves v. Ernst

& Young, 507 U.S. 170, 185 (1993). However, the Court disagrees with Mr. Hallak’s position

that Plaintiff’s allegation that Mr. Hallak “acted as a strawman to hide [Defendant Kholi’s]

assets” (FAC ¶ 5) is inherently inconsistent with an argument that Mr. Hallak falls within the

Supreme Court’s “operation or management” test. The Court will provide Plaintiff an

opportunity to correct this pleading. 

B. Eighth Cause of Action (Violations of Bus. & Prof. Code § 17200, et seq.)

Defendants assert that Plaintiff lacks standing to bring claims under California

Business and Professions Code sections 17200 et seq because Plaintiff has received more

money in principal than he has paid in allegedly unlawful interest. Section 17200 claims may

only be brought by “a person who has suffered injury in fact and has lost money or property

as a result of the unfair competition.” Cal. Bus. & Prof. Code § 17204. The Court focuses

its inquiry on the latter requirement because “[i]f a party has alleged or proven a personal,

individualized loss of money or property in any nontrivial amount, he or she has also alleged

or proven injury in fact.” Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 325 (2011).

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6 10cv1630 BTM (BGS)

The California Supreme Court in Kwikset recently explained that showing loss of

money or property requires a plaintiff to demonstrate “some form of economic injury” and

that there are “innumerable ways in which economic injury from unfair competition may be

shown.” Id. at 323. For example, a plaintiff who has been “deprived of money or property

to which he or she has a cognizable claim” demonstrates economic injury. Id. 

Plaintiff’s section 17200 claims meet this broad standard. Plaintiff has alleged the

payment of interest on loans at usurious rates, and Defendants do not seek dismissal of

Plaintiff’s usury claims. California law allows under certain circumstances treble recovery

of such interest payments without reference to whether the interest payments made

exceeded principal received. See Cal.Civ.Code § 1916-3. Accordingly, Plaintiff’s usury

cause of action contains facts that show a deprivation of money to which Plaintiff has a

cognizable claim, independent of the fact that Plaintiff may have retained more money in

principal than he paid in wrongful interest. Thus, Plaintiff has standing under § 17204, and

Defendants’ motions to dismiss the eighth cause of action are DENIED. 

III. MOTION TO STRIKE

Defendant Kholi moves to strike from the FAC the sentence on page 2, paragraph 3

of the FAC to page 3, line 1 that begins with “Plaintiff believes that.” (Kholi Mem. at 18-19)

Plaintiff does not oppose this motion. The Court GRANTS Defendant Kholi’s motion to

strike.

IV. CONCLUSION

Plaintiff’s motion to dismiss certain claims is GRANTED. Defendants motions to

dismiss are GRANTED as to Plaintiff’s RICO cause of action and DENIED as to Plaintiff’s

section 17200 claims. Defendant Kholi’s motion to strike is GRANTED, and the sentence

beginning on page 2, paragraph 3 of the FAC that begins with “Plaintiff believes that” is

struck (FAC 2:28 – 3:1). 

//

//

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7 10cv1630 BTM (BGS)

Causes of action 2, 4, 6, 9, 10, 11, 13-17 are DISMISSED WITHOUT PREJUDICE.

Causes of action numbers 1, 3, 5, 7, 8, and 12 remain operative. Plaintiff has leave

to amend the complaint to cure the deficiencies, discussed above, in his second cause of

action. This amended complaint must be filed within twenty days of the entry of this order.

DATED: March 15, 2011

Honorable Barry Ted Moskowitz

United States District Judge

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