Opinion
No. 2:15-cv-00908-MCE-KJN
02-16-2016
JASON P. SHURNAS, HORIZON COMPANIES, LLC, and HORIZON FINANCIAL, LLC, Plaintiffs, v. JAN LYNN OWEN, in her official capacity as Commissioner of the CALIFORNIA DEPARTMENT OF BUSINESS OVERSIGHT (formerly STATE OF CALIFORNIA DEPARTMENT OF CORPORATIONS) and THE STATE OF CALIFORNIA, Defendants.
MEMORANDUM AND ORDER
Plaintiffs Jason P. Shurnas, Horizon Companies, LLC, and Horizon Financial, LLC (collectively, "Plaintiffs") allege that Defendants Jan Lynn Owen and the State of California (collectively, "Defendants") violated Plaintiffs' rights under the United States Constitution, California Constitution, and California's Public Records Act. Pending before the Court is Defendants' Motion to Dismiss. ECF No. 6. Plaintiffs filed an Opposition (ECF No. 20), and Defendants filed a Reply (ECF No. 21). For the reasons that follow, Defendants' Motion to Dismiss is GRANTED. ///
BACKGROUND
The California Corporations Commissioner ("Commissioner") issued a "Desist and Refrain Order" ("the Order") to Plaintiffs on December 30, 2008. The Order alleged that Plaintiffs had violated California Corporations Code sections 25100 and 25401 and Financial Code section 22100. According to the Order, Plaintiffs advertised on a Sacramento-area Craigslist website that an unnamed "private company" was soliciting investors with at least $100,000 available in liquid funds to form a "secret investor syndicate." That syndicate purportedly offered membership interests in a Las Vegas casino and real estate venture. The Order states that Plaintiff Shurnas placed a telephone call to a California resident who responded to the aforementioned Craigslist posting; in the course of their conversation, Plaintiff discussed details regarding how the resident's contribution would be invested.
Based on the above factual findings, the Commissioner determined that the membership interests that Plaintiffs had offered were securities subject to qualification under the California Corporate Securities Law of 1968 and were being offered without being qualified, in violation of section 25110 of the Corporate Securities Law of 1968. The Commissioner further found that those securities included untrue statements of material fact or omitted to state material facts necessary in order to make the statements made not misleading, in violation of section 25401 of the Corporate Securities Law of 1968. Finally, according to the Commissioner, Plaintiffs engaged in business as a finance lender or broker without first obtaining a license in violation of California Financial Code section 22100.
In their Complaint, Plaintiffs allege that they were not properly served with the Commissioner's Order. They also contend that the documents Defendants intended to serve failed to include any language regarding how to file a request for hearing or the timeline for doing so. According to Plaintiffs, the State of California does not provide such information on-line. Plaintiffs further allege that there is no provision within the California Corporations Code or Financial Code which mandates what information must accompany a Desist and Refrain Order so that an individual would know how to respond or the consequences for failing to do so.
Plaintiffs' Complaint includes four causes of action: (1) violation of procedural due process (U.S. Const. amend. XIV, § 1); (2) violation of free speech (U.S. Const. amend. I § 1); (3) violation of procedural due process under the California Constitution (Cal. Const. art. I, § 7(a)); and (4) violation of the Public Records Act of California (Cal. Gov't Code §§ 6250-6276.48). Plaintiffs seek declaratory, injunctive, and monetary relief.
In the pending Motion to Dismiss, Defendants argue that Plaintiffs' first three causes of action are untimely under the applicable statutes of limitation. Defendants further argue that the Court should decline to exercise its supplemental jurisdiction over Plaintiffs' remaining claim based on the California Public Records Act.
STANDARD
On a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) "requires only 'a short and plain statement of the claim showing that the pleader is entitled to relief' in order to 'give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint attacked by a Rule 12(b)(6) motion to dismiss does not require detailed factual allegations. However, "a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. (internal citations and quotations omitted). A court is not required to accept as true a "legal conclusion couched as a factual allegation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). "Factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1216 (3d ed. 2004) (stating that the pleading must contain something more than "a statement of facts that merely creates a suspicion [of] a legally cognizable right of action")).
Furthermore, "Rule 8(a)(2) . . . requires a showing, rather than a blanket assertion, of entitlement to relief." Id. at 555 n.3 (internal citations and quotations omitted). Thus, "[w]ithout some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only 'fair notice' of the nature of the claim, but also 'grounds' on which the claim rests." Id. (citing Wright & Miller, supra, at 94, 95). A pleading must contain "only enough facts to state a claim to relief that is plausible on its face." Id. at 570. If the "plaintiffs . . . have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Id. However, "[a] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and 'that a recovery is very remote and unlikely.'" Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
A court granting a motion to dismiss a complaint must then decide whether to grant leave to amend. Leave to amend should be "freely given" where there is no "undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of the amendment . . . ." Foman v. Davis, 371 U.S. 178, 182 (1962); Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to be considered when deciding whether to grant leave to amend). Not all of these factors merit equal weight. Rather, "the consideration of prejudice to the opposing party . . . carries the greatest weight." Id. (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 185 (9th Cir. 1987)). Dismissal without leave to amend is proper only if it is clear that "the complaint could not be saved by any amendment." Intri-Plex Techs., Inc. v. Crest Group, Inc., 499 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc., 411 F.3d 1006, 1013 (9th Cir. 2005); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) ("Leave need not be granted where the amendment of the complaint . . . constitutes an exercise in futility. . . .")).
ANALYSIS
A. DOCUMENTS BEYOND THE PLEADINGS
Defendants support their Motion with a request that the Court take judicial notice of Exhibits 1 and 2 to the Declaration of Miranda LeKander, Senior Counsel in the Enforcement Division at the California Department of Business Oversight. Req. for Judicial Notice ("RJN"), ECF No. 6-2. Exhibit 1 is an email from Plaintiff Shurnas to LeKander, and Exhibit 2 is a response to that email signed and sent by LeKander to Plaintiff Shurnas. Defendants argue that the Court may take judicial notice of those documents under Federal Rule of Evidence 201 because the fact that Shurnas sent the August 14, 2012 email cannot reasonably be questioned, and because the contents of these exhibits are contained in the certified records of the California Department of Business Oversight.
"The court may judicially notice a fact that is not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b). Evidence that "a purported public record or statement is from the office where items of this kind are kept" is sufficient to authenticate a public record. Fed. R. Evid. 901(b)(7)(B). "A copy of an official record [is self-authenticating] . . . if the copy is certified as correct by the custodian or another person authorized to make the certification." Fed. R. Evid. 902(4)(A). Exhibits 1 and 2 meet the above-listed requirements, as they are incorporated into the public record. Therefore, the Court takes judicial notice of Defendants' Exhibits 1 and 2. ///
B. Plaintiffs' 42 U.S.C. § 1983 Claims
Plaintiffs allege that the Order violates their First Amendment and Procedural Due Process rights as guaranteed by the United States Constitution. Plaintiffs further allege that California Corporations Code section 2500 and Financial Code section 2200 et seq. fail to provide adequate post-deprivation remedies in accordance with the requirements of the Procedural Due Process clause. Plaintiffs consequently seek injunctive relief through 42 U.S.C. § 1983.
1. Statute of Limitations
Defendants argue that Plaintiffs' § 1983 claims must be dismissed as untimely. "The applicable statute of limitations for actions brought pursuant to 42 U.S.C. § 1983 is the forum state's statute of limitations for personal injury actions." Carpinteria Valley Farms, Ltd. v. Cty. of Santa Barbara, 344 F.3d 822, 828 (9th Cir. 2003) (citing Knox v. Davis, 260 F.3d 1009, 1012 (9th Cir. 2001)). The relevant statute of limitations is therefore two years. See Maldonado v. Harris, 370 F.3d 945, 955 (9th Cir. 2004) (citing Cal. Civ. Proc. Code § 335.1); see also Jones v. Blanas 393 F.3d 918, 927 (9th Cir. 2004) ("[A] § 1983 action filed in California today would clearly be governed by California's new two-year statute of limitations for personal injury actions . . ."). Furthermore, "[a]lthough California law determines the length of the limitations period, federal law determines when a civil rights claim accrues." Lukovsky v. City & Cty. of S.F., 535 F.3d 1044, 1048 (9th Cir. 2008). "Under federal law, a claim accrues 'when the plaintiff knows or has reason to know of the injury which is the basis of the action.'" Id. (quoting TwoRivers v. Lewis, 174 F.3d 987, 991 (9th Cir. 1999)).
Defendants contend that Plaintiff Shurnas "admitted knowledge of the Order in an email to the [Department] dated August 14, 2012, showing that he knew of the Order and the injury it purportedly caused him." Defs.' Mot., ECF No. 6, at 6-7; Defs.' RJN, ECF No. 6-2, Ex. 1. Therefore, Plaintiffs' § 1983 claims accrued no later than August 14, 2012. Because Plaintiff did not file his Complaint until April 27, 2015—more than eight /// months after the expiration of the two-year limitations period—his § 1983 claims are untimely.
Accordingly, the statute of limitations bars Plaintiffs' First Amendment and Due Process challenges to the Order itself. Plaintiffs' as-applied constitutional challenges to the Order brought under § 1983 are consequently DISMISSED without leave to amend.
2. Facial Procedural Due Process Challenges
Defendants recognize that "in dicta, the Ninth Circuit has expressed doubts regarding the application of the statute of limitations to facial challenges to a statute." Pls.' Reply, ECF No. 21, at 4 (citing Maldonado, 370 F.3d at 955). Defendants argue the Court must nevertheless dismiss Plaintiffs' due process challenge to California Corporations Code section 2553(f) and California Financial Code section 22712 because the post-deprivation remedies available under California law to challenge a desist and refrain order issued under those statutes satisfy the demands of due process under both state and federal law.
Because both California Corporations Code section 2553(f) and California Financial Code section 22712 invoke the California Administrative Procedure Act, Plaintiffs' challenge to the adequacy of these post-deprivation remedies "amounts to an attack of California's administrative review procedures as a whole." Baffert v. Cal. Horse Racing Bd., 332 F.3d 613, 619 (9th Cir. 2003). However, the Ninth Circuit has held that California law offers an adequate opportunity for judicial review of administrative orders. Id. at 619-20. Therefore, Plaintiffs' conclusory allegations fail to state a plausible facial procedural due process claim. See Kenneally v. Lungren, 967 F.2d 329, 332-33 (9th Cir. 1992) (holding that California offers an adequate opportunity for judicial review of administrative orders). However, Defendants have not demonstrated that amendment would necessarily be futile. Accordingly, Plaintiffs are granted leave to amend their claims challenging the facial constitutionality of California Corporations Code section 2553(f) and California Financial Code section 22712. ///
C. Plaintiffs' Claims Under the California Constitution
Plaintiffs also argue that Defendants violated Plaintiffs' freedom of speech and due process rights under the California Constitution.
The same two-year limitations period applicable to federal claims under § 1983 applies to Plaintiffs' claims under the California Constitution. Acuna v. Regents of Univ. of Cal., 56 Cal. App. 4th 639, 646 (1997). As stated above Plaintiffs' as-applied free speech and due process challenges are time barred under the applicable two-year limitations period. Because Plaintiffs did not file their Complaint until after the expiration of that two-year limitations period, Plaintiffs' challenges to the Order under the California Constitution's Free Speech and Due Process provisions are DISMISSED without leave to amend.
D. Plaintiffs' Claims Under The California Public Records Act
Plaintiffs allege that Defendants' failure to make requested documents available for inspection violates Plaintiffs' rights under the California Public Records Request Act, Cal. Gov't Code §§ 6250-6276.48. See Compl., ECF No. 1, at 23-24. Plaintiffs seek a declaration that "[t]he Department of Business Oversight violated the California Public Records Act . . . by providing blanket objections, and/or not following timelines to produce documents, and/or failing to produce relevant and unprotected documents." Id. at 25.
"[A] federal suit against state officials on the basis of state law contravenes the Eleventh Amendment . . . ." Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 117 (1984). "A claim that state officials violated state law in carrying out their official responsibilities is a claim against the State and is protected by the Eleventh Amendment . . . this principle applies as well to state-law claims brought into federal court under pendent jurisdiction." Id. at 121. Although 28 U.S.C. § 1367(a) provides for supplemental jurisdiction over state-law claims, "§ 1367(a)'s grant of jurisdiction does not extend to claims against nonconsenting state defendants." Raygor v. Regents of Univ. of Minn., 534 U.S. 533, 542 (2002).
Plaintiffs seek a declaration that Defendants violated the California Public Records Act and names the State of California as the party against whom relief is sought. If granted, this Court would be directing a state agency to comply with state law—a result that violates the Eleventh Amendment. See Pennhurst State, 465 U.S. at 117. Thus, Plaintiffs' Public Records Act claim is DISMISSED, without leave to amend, for lack of subject matter jurisdiction.
CONCLUSION
Defendants' Motion to Dismiss (ECF No. 6) is GRANTED as follows:
1. Plaintiffs' § 1983 claims based upon the Order, claims under the California Constitution, and claims under the Public Records Act are DISMISSED without leave to amend.
2. Plaintiffs' facial due process claim under § 1983 claim is DISMISSED with leave to amend.
Plaintiffs are granted fourteen (14) days from the date this Order is electronically filed to file an amended complaint addressing the deficiencies in the single claim for which Plaintiffs have been granted leave to amend. Plaintiffs are warned that this action may be dismissed with prejudice under Federal Rule of Civil Procedure 41(b) if they fail to file an amended complaint within the prescribed time period.
IT IS SO ORDERED. Dated: February 16, 2016
/s/_________
MORRISON C. ENGLAND, JR., CHIEF JUDGE
UNITED STATES DISTRICT COURT