United States District Court, W.D. Washington, Seattle
JOHN C. COUGHENOUR, District Judge.
This matter comes before the Court on the motion to dismiss filed by Defendant Jared Sherer and joined by Defendants Donald and Michelle Sherer (Dkt. Nos. 388) and Plaintiff's opposition thereto (Dkt. Nos. 412). Upon review, the Court concludes that Plaintiff's RICO claim is barred under section 107 of the Private Securities Litigation Reform Act and DISMISSES that claim with prejudice. In light of the dismissal of Plaintiff's sole federal claim, the Court declines to exercise its supplemental jurisdiction over this matter and dismisses the remaining claims without prejudice. The Court also rules on the parties' sanctions motions (Dkt. No. 485, 487, 499) and motion to seal (Dkt. No. 526) as explained herein.
A. The Dressel Ponzi Scheme
The instant matter "sounds in allegations of international financial fraud." (Dkt. No. 169 at 2.) Plaintiff Perkumpulan Investor Crisis Center Dressel - WBG ("Perkumpulan") represents Indonesian investors whom Defendants allegedly defrauded of hundreds of millions of dollars. Defendants were the operators of Dressel Investment Limited, which Plaintiff describes as a "classic Ponzi scheme" that began its fraudulent efforts in 2001 and ultimately collapsed in 2007. According to Plaintiff's complaint, Defendants represented to thousands of Indonesian individuals that the Dressel principals were qualified investment professionals capable of delivering annual returns between twenty-four and twenty-eight percent. In reliance upon these representations, Plaintiff alleges, Indonesian individuals invested tens of thousands of dollars each in Dressel's fraudulent scheme. Rather than investing the money as promised, Defendants allegedly operated a Ponzi scheme on the basis of "lies and deception, " whereby they used newer investors' funds to repay earlier investors and stole large amounts of the money for personal use. (Dkt. No. 381 at ¶¶ 4.7-4.8.)
Plaintiff includes as "RICO" or "Ponzi Scheme" defendants Donald and Michelle Sherer, Kenneth McCabe, Danny Wong, Joseph Yau, Dwight Williams, Luis Garza, Kelly and David Thacker, and former-defendant Frank Ho. ( Id. at ¶ 4.2.) These individuals together operated the investment scheme through Dressel BVI and an Indonesian corporation, PT Wahana Bersama Globalindo ("WBG"), which served as "the marketing agent and principal representative of Dressel BVI." ( Id. at ¶ 4.3.) Dressel, with WBG as its sales agent, allegedly solicited Indonesian individuals to invest in two separate funds: (1) the Strategic Portfolio Management Scheme Fund ("SPORTSMANS Fund"), which promised a dividend yield of twenty-four percent per annum for a minimum investment of $5, 000; and (2) the Global Markets Portfolio Fund ("GMP Fund"), which promised a divided yield of twenty-eight percent per annum for a minimum investment of $10, 000. ( Id. at ¶ 4.4.) Defendants solicited Indonesian investors at presentations given by the Ponzi Scheme Defendants in Indonesia; through brochures distributed to potential investors; through the Dressel website; and through WBG marketing personnel, who allegedly worked at the Ponzi Scheme Defendants' direction. ( Id. at ¶¶ 4.5, 4.12-4.31; see Dkt. No. 169 at 3-6.)
Perkumpulan's complaint alleges in detail the role of each Ponzi Scheme Defendant. Donald and Michelle Sherer allegedly served as the "Director in Charge" and "Office Manager" of Dressel from 2001 to 2005, respectively. Plaintiff alleges that the Sherers played a crucial role in operating the Dressel Ponzi Scheme. Both individuals traveled to Indonesia to solicit Indonesian investors in person and signed investment certificates after receiving investors' funds. In 2005, the Sherers purported to resign from Dressel, but Plaintiff alleges that they continued to spend investors' stolen funds and even demanded "hush" payments from other members of the scheme. ( See id. at ¶¶ 3.11-3.12.) Additionally, the Sherers allegedly engaged in sham litigation intended to conceal their role in the scheme. ( Id. )
Defendants Danny Wong, Joseph Yau, Luis Garza, and former-defendant Frank Ho, are individuals who allegedly played major roles in the Dressel scheme. Perkumpulan alleges that Danny Wong became a Director of Dressel in 2001 and largely masterminded the Ponzi Scheme while living in Asia. Joseph Yau and Frank Ho allegedly worked as associates of Mr. Wong in carrying out Dressel's activities in Asia. According to Perkumpulan, both Danny Wong and Joseph Yau traveled to Indonesia to solicit investors in person and had repeated communications with investors to assuage their concerns about the fraudulent investments. ( Id. at ¶¶ 3.5-3.7.) Mr. Garza allegedly worked as WBG's Surabaya branch manager and, at the direction of Danny Wong, Joseph Yau, and other Ponzi Scheme Defendants, directed and/or sent wire transfers of stolen funds so as to enrich himself and others. ( Id. at ¶¶ 3.28, 4.2, 4.12, 4.44-4.47.) Mr. Garza also oversaw the Mexican operations of the Dressel Scheme and allegedly engaged in sham litigation intended to keep the fraud from being disclosed after the fact. ( Id. ) Additionally, Defendant Dwight Williams is a Utah lawyer who allegedly served as legal counsel to Danny Wong and Dressel BVI, and represented himself to others as Dressel's General Counsel. Mr. Williams, like other Ponzi Scheme Defendants, traveled to Indonesia to solicit investors for the Dressel scheme. Perkumpulan further alleges that Mr. Williams drafted correspondence to potential investors commending Danny Wong's "business character" so as to lend legitimacy to the Dressel Ponzi Scheme and its directors. ( Id. at ¶ 3.8.)
Finally, Plaintiff names as RICO Defendants Kelly and David Thacker, and Kenneth McCabe. The Thackers were "owners and directors" of Dressel who misrepresented themselves as experts to Indonesian investors, when in reality they were unqualified and planned to steal investors' funds. Perkumpulan alleges that the Thackers met with Indonesian investors in person, met with Dressel's marketing agents in Seattle, and met with WBG representatives in Indonesia in "an ongoing effort to solicit investors in the Dressel Ponzi Scheme and to fleece Indonesian investors." ( Id. at ¶¶ 3.9-3.10.) Defendant Kenneth McCabe was also a director of Dressel and "later became a 50% shareholder." As explained in more detail below, Mr. McCabe held himself out to prospective investors as "an international expert on finance and economics" at numerous in-person presentations and signed investor certificates for Dressel BVI. ( Id. at ¶ 3.13.) Together, these defendants operated the Dressel Ponzi Scheme, allegedly defrauding Indonesian investors of hundreds of millions of dollars.
Plaintiff's complaint lists in detail the alleged misrepresentations made to investors. In May 2001 at a presentation in Jakarta, Indonesia, for example, Defendants Donald Sherer and Joseph Yau misrepresented their qualifications to prospective investors. Mr. Sherer allegedly told potential investors that he was an investment professional when he was in fact a disbarred attorney who worked as a bus driver. Mr. Yau similarly portrayed himself as a former investment banker who joined Dressel because "he wanted to do something on his own, " when in reality he had been censured by Hong Kong financial authorities. Neither Sherer nor Yau mentioned this public censure. ( Id. at ¶ 4.13.) Later in 2001, Donald Sherer represented to prospective investors that Dressel had a "fiduciary and moral obligation to be as safe as we can" in investing funds entrusted with Dressel's operators; that he had years of experience in the foreign exchange industry; and that he had taught financial management for years. ( Id. at ¶ 4.14.) Plaintiff alleges that these statements, too, were false. ( Id. )
And so the alleged misrepresentations continued. In 2004, Donald and Michelle Sherer, along with Danny Wong and Dwight Williams, solicited new Indonesian investors at another presentation. There, they represented that "the Indonesian investors would be the partners' of Dressel BVI; that the investment performance of Dressel BVI was better than Merrill Lynch; and that Dressel had profits averaging 40 percent per annum, " which enabled Dressel to pay investors twenty-four to twenty-eight percent returns. ( Id. at ¶¶ 4.14-4.21.) Beyond the in-person presentations and WBG marketing efforts, Plaintiff alleges, Defendants espoused many of the same misrepresentations in brochures provided to investors and on its website, which was hosted from the United States. ( See id. at ¶¶ 4.22-4.31.) For example, Dressel's website described Dressel as a legitimate investment opportunity and misrepresented the qualifications of Donald and Michelle Sherer, Kenneth McCabe, and David Thacker. ( Id. at ¶¶ 4.26-4.31; see also id. at ¶¶ 4.22-4.25 (detailing misrepresentations in brochures.)) Plaintiffs allege that such representations were intended to deceive the Indonesian investors and conceal the fact that the defendants were in reality operating a Ponzi Scheme to steal investors' money. ( Id. at ¶ 4.21.)
When investors relied on Defendants' misrepresentations and invested in Dressel's funds, the investor signed a "Portfolio Management Agreement" that named Dressel as Portfolio Manager. ( Id. at ¶ 4.6.) For some time, investors received the promised returns. But by September 2006, Dressel stopped making payments to investors and the alleged Ponzi scheme began to unravel. Danny Wong attempted to assuage investors' concerns, writing letters and assuring investors in person that Dressel was fully functioning and intended to honor its contractual obligations. But the assurances rang hollow. Plaintiff alleges that ultimately, Dressel proved unable to meet its commitments and that Indonesian investors lost the funds they had contributed to Dressel. ( Id. at ¶¶ 4.51-4.58.)
As early as 2005, and more prominently in the wake of Dressel's collapse, Defendants allegedly sought to conceal their wrongdoing and protect themselves from legal liability. Among other things, Plaintiff alleges that the defendants engaged in extensive money laundering throughout the course of the scheme to conceal the stolen nature of the funds. ( Id. at ¶¶ 4.8, 4.24, 4.49, 4.54.) Additionally, the Sherer Defendants left Dressel in 2005, leaving it in the hands of Defendants David and Kelly Thacker. Thereafter, the Thackers, Danny Wong, and Dwight Williams formed the Asset Recovery Trust with the purported goal of recovering Dressel assets from the Sherer Defendants. Since its formulation, the Trust has been engaged in extensive litigation, filing a lawsuit against the Sherers in Utah in 2005, and having been named as defendants in at least three lawsuits by Donald and Michelle Sherer. Purportedly, each of the lawsuits have been filed to protect the investors' interests. Plaintiff believes otherwise. Its complaint alleges that "[a]ll of these pre-existing lawsuits are tainted by the pre-existing associations of those involved[, ]" and concludes that "[t]here has been an ongoing effort to deceive the Dressel investors into believing that their rights were being legitimately advocated in the United States. None of these existing suits represents a good-faith effort to recover the stolen assets." ( Id. at 4.70.)
B. The Instant Lawsuit
Plaintiff filed the above-captioned lawsuit in 2009. Its complaint initially raised the following claims: (1) a Racketeer Influenced and Corrupt Organizations Act ("RICO") claim, see 18 U.S.C. § 1964(c), against the "Ponzi Scheme Defendants"; (2) a RICO claim against the "Regal Financial Bank Defendants"; (3-4) state-law fraud claims against the Ponzi Scheme and Regal Financial Bank Defendants; (5-6) state-law breach of fiduciary duty claims against the Ponzi Scheme and Regal Financial Bank Defendants; (7) a common law conspiracy claim against all Defendants; (8-9) negligence claims against the Regal Financial Bank Defendants; (10) an unjust enrichment claim against the Ponzi Scheme Defendants; and (11-12) negligence and negligent misrepresentations claims against Tanner LC. (Dkt. No. 1 at ¶¶ 6.1-17.8.)
In 2013, the Court granted Plaintiff leave to file an amended complaint. In that pleading, most of Plaintiff's allegations and claims remained the same-it merely added defendants and claims it believed necessary as a result of discovery obtained during the pendency of this lawsuit. Specifically, Plaintiff supplemented its allegations regarding the scheme's use of Tanner LC's accounting services and added Randy Sellars-a Tanner LC accountant who worked on the Dressel account-and Professional Business Advisors, LLC, as defendants to this matter. (Dkt. No. 350 at 2-3.) Plaintiff also named as additional defendants individuals who hold title to certain assets in Alaska, which according to Plaintiff, constitute assets obtained with proceeds of the fraudulent scheme. ( Id. at 3.) Those individuals include Jared Sherer, Robert Jinks, the Asset Recovery Trust, Zarahemla Trusts One and Two, Intrepid Trust, Elite Portfolio, LLC, PADRM Gold Mine LLC, Rafael Benita Garza, and Global Consulting Services A.S. de C.V. (Dkt. No. 375 at 3.) As explained by Plaintiff, "the purpose of [the] amendment is for the defrauded investors to be able to seize whatever remains of their funds invested in Dressel" if they succeed on their other claims. (Dkt. No. 350-2 at 106.)
In the course of the lawsuit, the Court dismissed Plaintiff's claims against Ponzi Scheme Defendant Frank Ho. The Ninth Circuit affirmed that dismissal in late 2013. (Dkt. No. 534.) Additionally, the parties have resolved by private settlement Plaintiff's claims against the "Regal Financial Bank Defendants" and Defendants Tanner LC, Randy Sellers, and Professional Business Advisors. (Dkt. No. 214, 540.) Finally, Ponzi Scheme Defendants Danny Wong and Joseph Yau have failed to appear or otherwise defend against this lawsuit. The other Ponzi Scheme Defendants have proceeded both with and without representation.
In an already long-running dispute, the filing of Plaintiff's amended complaint brought forth a barrage of motions by all parties in a manner that the undersigned has not witnessed in more than thirty-two years on the bench. Now pending before this Court are multiple motions to dismiss (Dkt. Nos. 377, 388, 404, 430, 432, 441, 546), as well as summary judgment motions (Dkt. Nos. 509, 516), discovery and other ancillary motions (Dkt. Nos. 426, 427, 440, 457, 477, 485, 506, 526, 538, 544), and motions for sanctions filed by multiple parties (Dkt. Nos. 426, 487, 499). The Court has reviewed every pending motion, but upon due consideration and after undertaking its own research, concludes that Plaintiff's RICO claim is barred under section 107 of the Private Securities Litigation Reform Act. Because Plaintiff's sole federal claim is insufficient as a matter of law, the Court declines to rule on the remainder of the parties' dispositive and discovery motions, dismisses Plaintiff's RICO claim with prejudice, and declines to exercise its supplemental jurisdiction over the remaining state law claims. The Court addresses the parties' motions for sanctions below.
A. Legal Standard
A party may move to dismiss a complaint that fails to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009). A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 678. A claim that fails to present a "cognizable legal theory" or sufficient facts to support a cognizable claim will be dismissed under Rule 12(b)(6). Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008). ...