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L.J. Gibson, Beau Blixseth; Amy Koenig v. Credit Suisse

March 31, 2011


The opinion of the court was delivered by: U. S. District Judge Honorable Edward J. Lodge


On February 17, 2011, United States Magistrate Judge Ronald E. Bush issued a Report and Recommendation ("Report"), recommending that Defendants' Motions to Dismiss be granted in part and denied in part.*fn1 Any party may challenge a magistrate judge's proposed recommendation by filing written objections within ten days after being served with a copy of the Report and Recommendation. 28 U.S.C. § 636(b)(1)(C). The district court must then "make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." Id. The district court may accept, reject, or modify in whole or in part, the findings and recommendations made by the magistrate judge. Id.; see also Fed. R. Civ. P. 72(b).

Plaintiffs filed objections challenging the Report's recommendation that their RICO Claim should be dismissed. (Dkt. No. 108). Defendants, Credit Suisse and Cushman & Wakefield, each also filed objections generally disputing the Report's conclusions regarding Plaintiffs' Article III standing, proximate cause, and the viability of Plaintiffs' claims for breach of fiduciary duty, negligence, and conspiracy.*fn2 (Dkt. Nos. 109, 110.) The parties have filed their responsive briefs and the matter is now ripe for the Court's review. (Dkt. Nos. 113-116.) Having considered the parties' contentions and conducted a de novo review of the record, the Court finds as follows.


I. Plaintiffs' Objections: RICO Claim

In his Report, Magistrate Judge Bush provides a comprehensive discussion of the requirements of the RICO Claim; in particular, its causation and standing requirements. The parties do not disagree with the Report's recitation of the law. See e.g. (Dkt. No. 108, p. 5) ("The Report and Recommendation thoroughly and accurately analyzes the relevant Supreme Court precedent."); see also (Dkt. Nos. 113, 114.) Plaintiffs' objections take issue with the Report's "application" of the precedent. (Dkt. No. 108, p. 5.) The sum and substance of the Plaintiffs' objections center on the Report's conclusion that their Second Amended Complaint ("SAC") fails to plead facts satisfying the causation requirement for their RICO Claim. Defendants have responded to Plaintiffs' objections arguing the Report properly analyzed the RICO Claim and its recommendation to dismiss the claim is correct. (Dkt. Nos. 113, 114.)

As to the RICO Claim, the Report concludes:

[T]he cause of Plaintiffs' asserted harm is a set of action (the developers' failure to build out the bargained-for amenities at these resorts) that are too removed from the alleged RICO violation (targeting predatory, non-recourse loan scheme to high-end real estate developments by means of mail and wire fraud) to establish the sort of proximate cause needed to state a RICO claim. (Dkt. No. 106, pp. 21-22.) Further, the Report determined the "asserted RICO violations vis a vis Plaintiffs' claimed injuries are...too attenuated" in that the Plaintiffs' injuries were caused by the developers inability to satisfy their obligations, not by the Defendants' "Loan to Own Scheme." (Dkt. No. 106, pp. 25-26.) Plaintiffs' object to this conclusion arguing it strains the case law by suggesting that "RICO proximate cause exists only for the most directly injured victim of a RICO enterprise." (Dkt. No. 108, p. 5.) Instead, Plaintiffs urge this Court to find RICO proximate cause to exist "so long as there is 'some direct relation between the injury asserted and the injurious conduct alleged.'" (Dkt. No. 108, p. 6) (quoting Holmes v. Securities Investor Prot. Corp., 503 U.S. 258, 268 (1992)).

The Court declines Plaintiffs' invitation and, instead, agrees with the Magistrate Judge's conclusion that the Plaintiffs' alleged injuries are too far removed from the alleged RICO violations to establish proximate cause as required by the case law. The triad of United States Supreme Court cases setting forth the causation requirement for a RICO Claim demand that both "but for" and proximate cause exist. See Holmes v. Securities Investor Prot. Corp., 503 U.S. 258, 268 (1992); Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 453 (2006); and Hemi Group, LLC v. City of New York, New York, 130 S.Ct. 983 (2010). As laid out in the Report, these cases require a sufficiently direct relationship between the fraud alleged and the harm incurred. (Dkt. No. 106, pp. 20-21) (discussing Hemi, 130 S.Ct. at 991, recognizing the focus is on "the relationship between the conduct and the harm."). Plaintiffs here have not satisfied this proximate cause requirement.

The SAC alleges the Defendants "targeted and aggressively marketed its unlawful scheme to high-end real estate developers by means of mail and wire fraud, along with intentional, material misrepresentations and/or omissions." (Dkt. No. 18, ¶ 191.) It goes on to claim the Defendants would artificially inflate the value of a resort project in order to sell it to the developers, collect huge up-front fees, and eventually saddle the resorts with large debts which forced eventual foreclosure of the resorts at a cost significantly below market value. (Dkt. No. 18, ¶ 192.) The Plaintiffs are current or former owners of real property at and/or interests in the listed resorts. The SAC alleges they were promised the resorts would be completed with high-quality amenities which were never provided.

(Dkt. No. 18, ¶ 202.) Plaintiffs' injuries, as alleged in the SAC, were caused by the inability of the developers to complete the resorts and/or provide the promised amenities which has resulted in the demise of the resort properties and collapse in the resorts' value. (Dkt. No. 18, ¶ 202.) For the reasons articulated in the Report, this Court agrees that the Plaintiffs have failed to show proximate cause sufficient to support their RICO Claim.

In their objections, Plaintiffs maintain proximate cause has been shown in this case because the Defendants' loan scheme was fraudulent from the moment the unsustainable loans were originated. Plaintiffs rely heavily upon the opinions issued by Judge Kirscher to support their position.*fn3 (Dkt. No. 108, pp. 3, 7.) The Adversary Bankruptcy Proceeding before Judge Kirscher involved loans offered by Credit Suisse to finance the development of the Yellowstone Club, one of the four developments listed in this action.*fn4 (Dkt. No. 91, Ex. 1, p. 4, n. 3.) In his Orders, Judge Kirscher opined about other failed entities who had received loans from Credit Suisse, including Tamarack Resort, Promontory, Lake Las Vegas, Turtle Bay, and Ginn Sur Mer, stating: "If the foregoing developments were anything like this case, they were doomed to failure once they received their loans from Credit Suisse." (Dkt. No. 91, Ex. 1, p. 16.) The Plaintiffs' reliance on this language does not save their RICO Claim.

Regardless of whether or not the developments were "doomed to failure" in the context of a bankruptcy proceeding, as Judge Kirscher was faced with, the claim at issue here is for RICO violations stemming from the Defendants' alleged predatory loan scheme. For the reasons stated in the Report, this Court concludes the Plaintiffs have not shown a sufficiently direct relationship between the fraud alleged and their damages to sustain their RICO Claim. As such, the Court will adopt the Report and grant the Motion dismissing the Plaintiffs' RICO Claim.

II. Defendants' Objections: Standing

Both Defendants have lodged objections to the Report's determination that Plaintiffs have established Article III standing. (Dkt. Nos. 109, 110.) Plaintiffs have responded to the objections arguing the Report properly decided the standing issue. (Dkt. Nos. 115, 116.) Article III of the Constitution gives federal courts jurisdiction over "cases and controversies." U.S. Const. Art. III, § 2, cl. 2; see also Warth v. Seldin, 422 U.S. 490, 498 (1975) ("In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues."). To have standing, a plaintiff has the burden of demonstrating: (1) he has suffered an "injury in fact"-an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical; (2) the existence of a causal connection between the injury and the conduct complained of-that is, the injury is "fairly traceable" to the challenged action of the defendant, and not the result of the independent action of some third party not before the court; and (3) it is "likely," as opposed to merely "speculative," that the injury will be redressed by a favorable judicial decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-561 (1992) (footnote, citations, and quotation marks omitted). Both of the Defendants' objections are substantially similar in that they argue the Plaintiffs have failed to show either an injury in fact or causation. (Dkt. No. 109, pp. 4-7), (Dkt. No. 110, pp. 5-13.)

A. Injury In Fact

To satisfy the "injury in fact" requirement, "[t]he plaintiff must show that he has sustained or is immediately in danger of sustaining some direct injury as a result of the [defendant's] conduct and the injury or threat of injury must be both real and immediate, not conjectural or hypothetical." City of Los Angeles v. Lyons, 461 U.S. 95, 101-02 (1983) (citations omitted); Lujan, 504 U.S. at 560 ("[By injury in fact we mean] an invasion of a legally protected interest which is (a) concrete and particularized, ... and (b) actual or imminent, not 'conjectural' or 'hypothetical'.").

Generally, as noted in the Report, losses in value to property are too conjectural and unascertainable to satisfy the injury in fact requirement. (Dkt. No. 106, p. 7.) The value and cause of such claimed losses simply cannot be determined unless and until the property is sold. See Dodaro v. Standard Pacific Corp., 2010 WL 1330889, at *4-5, (C.D. Cal. April 1, 2010) (citing cases involving homeowners suing for loss in potential market value of their homes due to excessive foreclosures on other houses in their neighborhoods). Such alleged injuries have been found to be "conjectural and speculative, not actual or imminent" where they "fluctuate with changes in the economy." Id. at *7. The Report found, however, that the Plaintiffs' damages are not only diminution in value- type injuries but also included "the complete elimination of all of the features of the development that were promised to the homeowners, including vested property and contractual rights running with the Plaintiffs' land and paid for by the Plaintiffs." (Dkt. No. 106, p. 8.) Such damages, the Report concludes, are "identifiable, realized, and plausibly separate from any fluctuations in the market for high-end resort developments, specifically, or the overall economy, generally." (Dkt. No. 106, p. 9.)

Credit Suisse maintains Plaintiffs' only alleged injury is the "unrealized loss of market value" of their properties due to the developers failure to construct or maintain the resorts' amenities. (Dkt. No. 109, p. 4.) Credit Suisse objects to the Reports reliance on Plaintiffs' claims that they seek damages other than loss of property values, arguing such claims are vague and ambiguous and fail to allege a "concrete injury" not tied to their "core claim" of unrealized loss in property values. (Dkt. No. 109, p. 5.) Cushman & Wakefield agree that the Plaintiffs have not shown an injury in fact. (Dkt. No. 110, p. 6.) In response, Plaintiffs maintain the Report "accurately explained that Plaintiffs' claims for loss of market value are distinct from the damages" alleged as to the vested property and contractual rights made to the homeowners. (Dkt. No. 116, p. 2.)

In addressing the injury in fact element, the Report generally agrees with the Defendants' arguments that "'diminution in value' injuries are likely too generic and unknown to confer standing." (Dkt. No. 106, p. 7.) The Report goes on to state the Plaintiffs' alleged damages, however, are not limited to diminution in value-type injuries but include damages resulting from the loss of "vested property and contractual rights" running with and paid for by the Plaintiffs. (Dkt. No. 106, p. 8) quoting (Dkt. No. 91, pp. 4-5.) Such losses, the Report notes allegedly occurred as a result of the Defendants' actions which "ultimately prevented developers...from constructing and/or maintaining promised amenities." (Dkt. No. 106, p. 8) quoting (Dkt. No. 18, ¶¶ 78, 82-84.) The losses of the promised amenities, the Report concludes, are "identifiable, realized, and plausibly separate from any fluctuations in the market for high-end resort developments, specifically, or the overall economy generally" and "the damages identified thus far are distinct and, as alleged, occurred independent of a volatile economy for Article III standing purposes." (Dkt. No. 106, p. 9.)

This Court agrees with the Report's analysis and finding that Plaintiffs have alleged an injury in fact that is distinct from mere diminution in property value. The allegations in the SAC include damages resulting from broken promises to the homeowners which includes vested property and contractual rights. (Dkt. No. 18, ¶¶ 78, 82-84.)*fn5 As such, the Court adopts the Report's recommendation in this regard.

B. Causation

The causation element of standing requires the Plaintiffs to show an injury that is "fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court." Lujan, 504 U.S. at 560. "The line of causation between the [alleged] illegal conduct and injury" must not be "too attenuated." Allen v. Wright, 468 U.S. 737, 752 (1984).

Credit Suisse asserts the alleged damages here require speculation and conjecture in order to "determine which of the multiple potential causes brought about Plaintiffs' alleged injury." (Dkt. No. 109, p. 4.) Credit Suisse takes issue with the Report's conclusion that the Plaintiffs' damages are not "reflective only of a sour economy," and argue the Report's analysis of the lack of causation on the RICO Claim is inconsistent with the Article III standing discussion. (Dkt. No. 109, p. 6) quoting (Dkt. No. 106, p. 9.) Instead, Credit Suisse maintains the Report's conclusion that Plaintiffs' failed to demonstrate causation in their RICO Claim should similarly be applied to their other claims. (Dkt. No. 109, pp. 6-7.)

Cushman & Wakefield's objection to the Report's analysis of Article III standing focuses on the causation requirement arguing there is no causal connection between the Plaintiffs' alleged damages and the appraisals of the resort projects done by Cushman & Wakefield. (Dkt. No. 110, pp. 6-9.) Cushman & Wakefield states they provided Credit Suisse with appraisals of the entire resort projects where Plaintiffs' properties are located in connection with Credit Suisse's loans issued to the master developers of those resorts. (Dkt. No. 110, p. 1, 3), see also (Dkt. No. 18, ΒΆΒΆ 57.) Cushman & Wakefield maintains they did not appraise Plaintiffs' individual properties nor do Plaintiffs allege to have spoken with nor relied upon their appraisals. (Dkt. No. 110, p. 1.) As such, Cushman & Wakefield argues, Plaintiffs' damages are too speculative and attenuated to establish standing as there is no nexus between its conduct and Plaintiffs' claimed damages. (Dkt. No. 110, pp. 1-2, 4.) The thrust of Cushman & Wakefield's argument is ...

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