Ogdon v. Grand Canyon University Incorporated

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 Katie Ogdon, No. CV-22-00477-PHX-DLR 10 Plaintiff, ORDER 11 v. 12 Grand Canyon University Incorporated, et al., [13] Defendants. [15] 16 In her First Amended Complaint (“FAC”), Plaintiff Katie Ogdon accuses 17 Defendants Grand Canyon University Incorporated (“GCU”), Grand Canyon Education 18 Incorporated (“GCE”), and three of GCE’s corporate officers, Brian Mueller, Dan Bachus, 19 and Stan Meyer, of engaging in a racketeering scheme to defraud students by advertising 20 programs in professions traditionally subject to state regulation as being suitable for 21 employment even though those programs do not meet the licensure standards in the states 22 where students would seek employment. (Doc. 18.) The Court previously granted in part 23 Defendants’ motion to dismiss. (Doc. 92.) At issue is Ogdon’s motion for reconsideration 24 of the portion of the Court’s order dismissing her claims under the federal Racketeer 25 Influenced and Corrupt Organizations (“RICO”) act and part of her claim under 26 California’s Unfair Competition Law (“UCL”) (Doc. 71), which is fully briefed (Doc. 101). 27 The parties are familiar with the facts, which are detailed in the Court’s prior order and will [28] 1 not be repeated here except as necessary to explain the Court ruling. As explained below, 2 the Court grants Ogdon’s motion. 3 I. Legal Standard 4 Motions for reconsideration should be granted sparingly. Defenders of Wildlife v. 5 Browner, 909 F. Supp. 1342, 1351 (D. Ariz. 1995). Mere disagreement with a previous 6 order is an insufficient basis for reconsideration. See Leong v. Hilton Hotels Corp., 689 F. 7 Supp. 1572, 1573 (D. Haw. 1988). Ordinarily, a motion for reconsideration will be denied 8 “absent a showing of manifest error or a showing of new facts or legal authority that could 9 not have been brought to its attention earlier with reasonable diligence.” LRCiv 7.2(g). But 10 “as long as a district court has jurisdiction over the case, then it possesses the inherent 11 procedural power to reconsider, rescind, or modify an interlocutory order for cause seen 12 by it to be sufficient.” City of Los Angeles, Harbor Div. v. Santa Monica Baykeeper, 254 13 F.3d 882, 889 (9th Cir. 2001) (quoting Melancon v. Texaco, Inc., 659 F.2d 551, 553 (5th 14 Cir. 1981)). 15 II. Analysis 16 Ogdon’s motion for reconsideration is not based on new facts and, although she 17 cites additional legal authority, none of it is new in the sense that it was unavailable at the 18 time the Court ruled on Defendants’ motion to dismiss. The Court nonetheless is persuaded 19 that it should not have dismissed Ogdon’s RICO claims and therefore finds sufficient cause 20 to grant her motion for reconsideration. 21 The FAC alleges RICO claims under 18 U.S.C. § 1962 (c) and (d).1 To state a 22 plausible § 1962(c) claim, Ogdon must allege that Defendants “participate[d] in (1) the 23 conduct of (2) an enterprise that affects interstate commerce (3) through a pattern (4) of 24 racketeering activity[.]” Eclectic Properties East, LLC v. Marcus & Millichap Co., 751 25 F.3d 990 , 997 (9th Cir. 2014). Section 1962(d), which makes it unlawful to conspire to 26 violate RICO’s other provisions, requires allegations plausibly establishing the existence 27 of an agreement to commit such violations. 28 1 She also brought a claim under § 1962(a), but voluntarily withdrew that claim in response to Defendants’ motion to dismiss. (Doc. 67 at 20 n.14.) 1 In their motion to dismiss, Defendants argued that Ogdon failed to adequately 2 allege: (1) a pattern of racketeering activity; (2) the existence of a RICO enterprise; (3) that 3 Defendants conducted the enterprise’s affairs, rather than their own; (4) that Ogdon’s 4 injuries were caused by the alleged RICO violations; and (5) that Defendants agreed to 5 violate RICO. (Doc. 61-1 at 16-20.) In dismissing Ogdon’s RICO claims, the Court 6 accepted two of these arguments—that Ogdon failed to plausibly allege that Defendants 7 conducted the affairs of the alleged enterprise, rather than their own affairs, or that 8 Defendants each engaged in at least two predicate acts of racketeering activity—and found 9 it unnecessary to reach the others. (Doc. 92 at 8-9.) On reconsideration, the Court is 10 persuaded that these conclusions were erroneous. 11 A. Conduct of an Enterprise 12 On the first issue, the Court concluded: 13 the FAC plausibly alleges that Defendants fraudulently induced Ogdon into enrolling and maintaining her enrollment 14 at the University. But the FAC does not plausibly allege that Defendants’ conduct were anything other than their ordinary 15 business affairs. Indeed, Ogdon alleges that the “common purpose” underpinning the alleged enterprise was to enrich 16 GCE, its officers, and its shareholders. (Doc. 18 ¶¶ 51-55.) But profit maximization is a normal purpose of a for profit 17 corporation like GCE. Although Defendants are not entitled to conduct their business affairs in a fraudulent manner, doing so 18 does not transform those affairs into the conduct of an association-in-fact enterprise that is separate and distinct from 19 the business itself. 20 (Doc. 92 at 8.) The Court failed to fully appreciate that “[i]t will often be the case that the 21 interests of the enterprise are congruent with those of its members; such congruence 22 presumably provides the incentive for members to participate in the enterprise.” In re 23 Insurance Brokerage Antitrust Litigation, 618 F.3d 300, 378 (3d. Cir. 2010). “As such, the 24 fact that conduct may be consistent with each participant’s own interests does not 25 necessarily mean that the conduct cannot also plausibly reflect the affairs of an enterprise.” 26 Advanced Reimbursement Solutions LLC v. Aetna Life Ins. Co., No. CV-19-05395-PHX27 DLR, 2022 WL 889058 , at *8 (D. Ariz. Mar. 25, 2022). Instead, “if defendants band 28 together to commit [violations] they cannot accomplish alone . . . then they cumulatively 1 are conducting the association-in-fact enterprise’s affairs, and not [simply] their own 2 affairs.” In re Insurance Brokerage Antitrust Litigation, 618 F.3d at 378 (internal quotation 3 and citation omitted; alterations in original). Such is the case here, where Ogdon alleges 4 that the enterprise’s common purpose was to enrich its members via a scheme to defraud 5 graduate students by misrepresenting the nature of the University’s academic offerings. 6 B. Pattern of Racketeering Activity 7 On the second issue, the Court concluded that the “FAC does not allege each 8 Defendant committed at least two acts of racketeering activity.” (Doc. 92 at 8.) The Court 9 is persuaded that Ogdon “need not allege that each RICO defendant . . . personally 10 committed at least two acts of mail or wire fraud to establish a pattern of racketeering.” 11 Munderloh v. Biegler GmbH, No. CV-21-08004-PCT-GMS, 2022 WL 901408 , at *10 (D. 12 Ariz. Mar. 28, 2022) (quoting In re JUUL Labs, Inc., Mktg., Sales Pracs., & Prod. Liab. 13 Litig., 533 F. Supp. 3d 858, 871 (N.D. Cal. 2021)). Instead, she only needs to plead facts 14 plausibly indicating that each Defendant “was (1) a knowing participate in a scheme to 15 defraud, (2) that [they each] participate[d] in the scheme with the intent to defraud, and (3) 16 that a co-schemer’s acts of mail and wire fraud occurred during [their] participation in the 17 scheme and were within the scope of the scheme.” 2 Id. (quoting In re Volkswagen “Clean 18 Diesel” Mktg., Sales Pracs., & Prod. Liab. Litig., No. MDL 2672 CRB (JSC), 2017 WL 19 4890594, at *13 (N.D. Cal. Oct. 30, 2017)). Ogdon has done so here. 20 “The elements of mail fraud and wire fraud are ‘(1) a scheme to defraud, (2) the use 21 of the mails or wires to further that scheme, and (3) the specific intent to defraud.’” 22 Munderloh, 2022 WL 901408 , at *10 (quoting In re JUUL Labs, 497 F. Supp. 3d at 595). 23 Mail or wire communications that themselves contain no false information may 24 nonetheless supply the “use of the mails or wires” element so long as those mailings or 25 wire communications are made in furtherance of the scheme to defraud. See In re [26] 2 This conclusion is not inconsistent with this Court’s decision in Aetna. There, the 27 Court dismissed the plaintiff’s RICO claims because the complaint failed to allege at least two predicate acts of mail or wire fraud per enterprise. Aetna, 2022 WL 889058 , at *9. The 28 Court did not impose a requirement that the plaintiff plead at least two predicate acts of mail or wire fraud per participant in the enterprise. 1 WellPoint, Inc. Out-of-Network UCR Rates Litigation, 903 F.Supp.2d 880, 913 (C.D. Cal. 2 2012). 3 Ogdon’s FAC plausibly alleges the existence of a scheme to defraud prospective 4 students by misrepresenting the nature of the University’s academic offerings. Ogdon 5 alleges that Defendants knew that their recruiters were misleading prospective students 6 about whether the University’s professional degree programs qualified for licensure in the 7 states in which those students intended to work, but encouraged them to do so in order to 8 increase enrollment numbers. Because Federal Rule of Civil Procedure 9(b) allows intent 9 and knowledge to be pled generally, these allegations are sufficient to make Defendants’ 10 intent to defraud plausible. See Munderloh, 2022 WL 901408 , at *11. And Ogdon alleges 11 numerous uses of interstate wires by a GCE recruiter, Mr. Granitz, that furthered this 12 fraudulent scheme and occurred during the scope GCU’s, Mueller’s, Bachus’, and Meyer’s 13 alleged participation in the scheme.3 14 For these reasons, the Court was wrong to dismiss Ogdon’s RICO claims for the 15 reasons previously given. The Court must now address the alternative arguments for 16 dismissal that Defendants raised in their motion to dismiss, and which the Court did not 17 reach in its prior order. 18 C. Existence of RICO Enterprise 19 Defendants argue the FAC fails to plausibly allege the existence of an association20 in-fact enterprise (Doc. 61-1 at 18.) The Court disagrees. “[A]n association-in-fact 21 enterprise must have at least three structural features: a purpose, relationships among those 22 associated with the enterprise, and longevity sufficient to permit these associates to pursue 23 3 In their reply in support of their motion to dismiss, Defendants argue that, because Mr. Granitz’s communications with Ogdon occurred during the summer or fall of 2017, 24 they are not sufficiently continuous to establish a pattern of racketeering activity. (Doc. 71 at 11 n.8.) For support, Defendants rely on Howard v. America Online, Inc., 208 F.3d 741 25 (9th Cir. 2000). But in Howard, the Ninth Circuit drew a distinction between closed-ended continuity, meaning “a series of related predicates extending over a substantial period of 26 time,” and open-ended continuity, meaning “past conduct that by its nature projects into the future with a threat of repetition.” Id. at 750 (citations omitted). The Court understands 27 Ogdon’s complaint to allege that she was one of many victims of an open-ended fraudulent scheme. Her allegations are sufficient to plausibly show that Defendants’ recruiting 28 practices reflect their “regular way of doing business” and will continue. Id. (citations omitted). 1 the enterprise’s purpose.” Boyle v. U.S., 556 U.S. 938, 946 (2009). The FAC alleges that 2 the purpose of the association-in-fact enterprise is to enrich its members by inducing 3 students to enroll in the University’s graduate programs based on fraudulent or misleading 4 recruitment tactics involving interstate use of the mails and wires. The FAC also alleges 5 the relationships among the Defendants associated with the enterprise, and Defendants do 6 not argue that the FAC fails to allege longevity sufficient to permit Defendants to pursue 7 the enterprise’s purpose. 8 D. Causation 9 Defendants argue that the FAC does not plausibly allege Ogdon’s injuries were 10 proximately caused by their alleged racketeering activity. (Doc. 61-1 at 19-20.) This 11 argument comes in two flavors. 12 First, Defendants argue that, to the extent Ogdon’s RICO claims are based on an 13 alleged fraudulent scheme involving affirmative misrepresentations about the accreditation 14 of the University’s graduate degree programs, those misrepresentations could not plausibly 15 have caused her injuries because Ogdon could have researched accreditation and licensing 16 requirements herself. (Doc. 61-1 at 20.) At bottom, this is an argument that Ogdon’s 17 reliance on Mr. Granitz’s representations was not reasonable because complete and 18 accurate information was accessible elsewhere. The Court previously rejected Defendants’ 19 reliance arguments, explaining that “reasonable reliance generally is a fact question 20 inappropriate for resolution at the motion to dismiss stage.” (Doc. 92 at 7.) The Court sees 21 no reason to rule otherwise when these arguments are reframed in terms of RICO causation. 22 The FAC plausibly alleges that Ogdon’s injuries were proximately caused by Defendants’ 23 fraudulent scheme. 24 Second, Defendants argue that, to the extent Ogdon’s RICO claims are based on 25 omissions, they fail because she has not alleged any Defendant owed her a duty of 26 disclosure. “As to whether a duty to disclose must be alleged concerning the alleged 27 omissions, Defendants are correct that a RICO wire fraud claim based on an omission 28 requires the existence of an independent duty to disclose.” MedImpact Healthcare Systems, 1 Inc. v. IQVIA Inc., No.: 19cv1865-GPC(LL), 2020 WL 5064253 , at *23 (S.D. Cal. Aug. 2 27, 2020). Ogdon argues that 34 C.F.R. § 668.403 imposes on Defendants a duty to disclose 3 information about students’ employment prospects in their field. (Doc. 67 at 19.) 4 Defendants correctly observe, however, that nothing in § 668.403 speaks to disclosures by 5 universities to current or prospective students. Nor does Ogdon explain in her response 6 brief or her FAC how she believes this rule operates to support her duty to disclose theory. 7 Accordingly, the Court agrees with Defendants that, to the extent Ogdon’s RICO wire/mail 8 fraud claims are based on omissions, they are inadequately pled because the FAC does not 9 explain the basis for Defendants’ alleged duty to disclose. Nothing in this order, however, 10 precludes Ogdon from moving for leave to amend her FAC if she believes she can allege 11 a duty to disclose to support her fraud-by-omission theory. 12 E. Conspiracy 13 Lastly, Defendants argue that the FAC fails to allege a RICO conspiracy claim 14 because Ogdon does not plausibly allege the existence of an agreement to violate RICO. 15 (Doc. 61-1 at 17.) The Court disagrees. “The illegal agreement need not be express as long 16 as its existence can be inferred from the words, actions, or interdependence of activities 17 and persons involved.” Oki Semiconductor Co. v. Wells Fargo Bank, Nat. Ass’n, 298 F.3d 18 768, 775 (9th Cir. 2002). Here, Ogdon repeatedly alleges that Defendants agreed to engage 19 in the fraudulent scheme, and “the same allegations that demonstrate [their] participation 20 in the enterprise support [Ogdon’s] conspiracy claim.” In re Volkswagen, 2017 WL 21 4890594, at *17. The FAC’s allegations are sufficient to “put each defendant on notice as 22 to how [they] allegedly joined the conspiracy.” Lui Ciro, Inc. v. Ciro, Inc., 895 F.Supp. 23 1365, 1384 (D. Hawai’i 1995) (citation omitted). 24 F. UCL Claim 25 Finally, Ogdon argues that “to the extent the Court reinstates [her] RICO claim, the 26 Court should reinstate the UCL unlawful prong that is predicated on the RICO violation.” 27 (Doc. 99 at 6 n.2.) Having found Ogdon’s RICO claims were erroneously dismissed, the [28] Court agrees that her UCL claim predicated on the RICO violation should also be reinstated. 3 IT IS ORDERED that Ogdon’s motion for reconsideration (Doc. 99) is 4|| GRANTED as explained herein. 5 Dated this 29th day of March, 2024. [7] : Ayes le 10 Upited States Dictric Judge [28] -8-