Snopes Media Group, Inc. v. Mikkelson

[9] 10 UNITED STATES DISTRICT COURT 11 SOUTHERN DISTRICT OF CALIFORNIA [12] 13 SNOPES MEDIA GROUP, INC., Case No. 21-cv-1730-BAS-DEB 14 Plaintiff, ORDER DENYING DEFENDANT’S 15 v. MOTION TO DISMISS (ECF No. 4) 16 BARBARA MIKKELSON, 17 Defendant. [19] 20 Plaintiff Snopes Media Group (“Snopes Media”) filed a First Amended Complaint 21 (“FAC”) against Barbara Mikkelson, alleging two causes of action for: (1) violation of 22 California Penal Code § 496 (receipt of stolen funds), and (2) unjust enrichment. 23 (ECF No. 3.) Plaintiff alleges that Ms. Mikkelson received stolen funds embezzled by 24 Proper Media, and that Ms. Mikkelson extorted funds from Proper Media that rightfully 25 belonged to Snopes Media. Plaintiff also alleges that Ms. Mikkelson is unjustly enriched 26 by retention of those funds. Before the Court is Ms. Mikkelson’s motion to dismiss 27 Plaintiff’s action for failure to state a claim. (ECF No. 4.) Plaintiff responded (ECF No. 5) 28 and Defendant replied (ECF No. 6). 1 The Court finds this motion suitable for determination on the papers submitted and 2 without oral argument. See Fed. R. Civ. P. 78(b); Civ. L.R. 7.1(d)(1). For the reasons 3 stated below, the Court DENIES Defendant Barbara Mikkelson’s motion to dismiss.1 4 I. BACKGROUND 5 Plaintiff Snopes Media is the owner of the Snopes.com website, founded in 2003 by 6 then husband and wife, David Mikkelson and Barbara Mikkelson. (FAC ⁋ 9.) Proper 7 Media is an internet media company founded in 2015 by Drew Schoentrup, Christopher 8 Richmond, Tyler Dunn, Vincent Green, and Ryan Miller. (Id. ⁋ 10.) On August 11, 2015, 9 Snopes Media entered into a written one-year contract with Proper Media entitled the 10 General Service Agreement (“GSA”). (Id. ⁋ 11.) Under this agreement, Proper Media 11 agreed to procure, place, and manage advertising on Snopes.com and to compensate 12 Snopes Media based on advertising invoicing on a monthly basis. (Id. ⁋⁋ 13–14.) In April 13 2016, Mr. Mikkelson told Proper Media to pause the disbursement of funds into Snopes 14 Media’s bank account because there were alleged unauthorized withdrawals by Ms. 15 Mikkelson. (Id. ⁋ 22.) 16 Around the same time, after the divorce of Ms. Mikkelson and her husband resulted 17 in a 50/50 split of Snopes Media shares, the principals of Proper Media offered to buy Ms. 18 Mikkelson’s 50% interest in Snopes Media. (Id. ⁋⁋ 16–17.) Those parties entered into a 19 written Stock Purchase Agreement (“SPA”) giving the principals of Proper Media shares 20 in Snopes Media in their individual capacities. (Id. ⁋⁋ 18–21.) A portion of the purchase 21 price was due at closing, and the rest was due in monthly installments pursuant to a 22 promissory note attached to the SPA. (Id. ⁋ 21.) After Ms. Mikkelson sold her 50% 23 interest, Schoentrup took over as the bookkeeper for Snopes Media in July 2016. (Id. ⁋ 24 24.) Once Schoentrup became bookkeeper, Proper Media did not return the advertising [26] 1 In light of the First Amended Complaint, the initial complaint is no longer operative. See Lacey 27 v. Maricopa Cnty., 693 F.3d 896, 927 (9th Cir. 2012) (en banc) (“[T]he general rule is that an amended complaint supercedes the original complaint and renders it without legal effect[.]”). Accordingly, the [28] 1 revenues withheld from Snopes Media since April 2016. (Id. ⁋⁋ 25–29.) Instead, Proper 2 Media used the advertising revenues due to Snopes Media to pay interest to Ms. Mikkelson 3 while the principals tried to get a loan for the down payment to purchase her ownership 4 interest. (Id. ⁋ 27.) Schoentrup, Richmond, and Dunn used Snopes Media’s advertising 5 revenues to pay Ms. Mikkelson under the Promissory Note through 2017. (Id. ⁋ 30.) 6 Proper Media withheld Snopes Media’s advertising revenues for months at a time and 7 concealed from Snopes Media the use of the advertising revenues to pay Ms. Mikkelson. 8 (Id. ⁋⁋ 31–32.) 9 In September 2016, Ms. Mikkelson approached Schoentrup and demanded 10 additional sums that she claimed were outstanding to her. (Id. ⁋ 35.) She demanded these 11 funds via written threats to disseminate false and defamatory information about her ex12 husband Mr. Mikkelson. (Id. ⁋ 36.) She claimed this information would affect the Snopes 13 Media brand and website – and therefore the stock price. (Id. ⁋⁋ 35–36.) To resolve these 14 threats, Ms. Mikkelson and Schoentrup entered into the “Settlement Agreement.” (Id. ⁋ 15 37.) When Snopes Media attempted to end the GSA with Proper Media in March 2017, 16 Proper Media wrongly held itself out to be a 50% owner of Snopes Media. (Id. ⁋⁋ 38–42.) 17 On October 4, 2017, Proper Media, Schoentrup, Richmond, Dunn, and Ms. 18 Mikkelson entered into three secret agreements for the early settlement of the Promissory 19 Note and Settlement Agreement. (Id. ⁋ 46.) The Promissory Note was to be purchased 20 and assigned to Schoentrup and Richmond at a discount. (Id. ⁋ 47.) The third agreement 21 included an undisclosed release, releasing the parties from their payment obligations under 22 the Settlement Agreement in exchange for an early payment to Ms. Mikkelson of 23 $159,008.60. (Id. ⁋ 49.) Plaintiff alleges that not only were these transactions concealed 24 from Snopes Media, but also the money paid to Ms. Mikkelson was sourced from Snopes 25 Media’s advertising revenues that had been withheld from Snopes since April 2016. (Id. 26 ⁋⁋ 52–53.) 27 Defendant knew the funds she received were misappropriated or embezzled, due to 28 the related litigation between Snopes Media and Proper Media that had been extensively 1 reported in the press. (Id. ⁋ 56.) In addition, Defendant continues to withhold advertising 2 revenues despite Snopes Media informing her that the revenues were stolen by Proper 3 Media. (Id. ⁋ 57.) 4 II. LEGAL STANDARD 5 A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil 6 Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. 7 P. 12 (b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). The court must accept 8 all factual allegations pleaded in the complaint as true and must construe them and draw 9 all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty 10 Mutual Ins. Co., 80 F.3d 336 , 337–38 (9th Cir. 1996). To avoid a Rule 12(b)(6) dismissal, 11 a complaint need not contain detailed factual allegations, rather, it must plead “enough 12 facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 13 U.S. 544 , 570 (2007). A claim has “facial plausibility when the plaintiff pleads factual 14 content that allows the court to draw the reasonable inference that the defendant is liable 15 for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 16 550 U.S. at 556). “Where a complaint pleads facts that are ‘merely consistent with’ a 17 defendant’s liability, it stops short of the line between possibility and plausibility of 18 ‘entitlement to relief.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). 19 “[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ 20 requires more than labels and conclusions, and a formulaic recitation of the elements of a 21 cause of action will not do.” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 22 U.S. 265, 286 (1986) (alteration in original)). A court need not accept “legal conclusions” 23 as true. Iqbal, 556 U.S. at 678 . Despite the deference the court must pay to the plaintiff’s 24 allegations, it is not proper for the court to assume that “the [plaintiff] can prove facts that 25 [he or she] has not alleged or that defendant[] ha[s] violated the . . . laws in ways that have 26 not been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of 27 Carpenters, 459 U.S. 519, 526 (1983). [28] 1 III. ANALYSIS 2 A. Count One – Receipt of Stolen Property 3 California Penal Code § 496(c) authorizes persons injured by the receipt of stolen 4 property to bring a civil action for three times the amount of actual damages, as well as 5 attorneys’ fees and costs. “A criminal conviction is not a prerequisite to recovery of treble 6 damages.” Switzer v. Wood, 35 Cal. App. 5th 116, 126 (2019). Rather, “[a] violation may 7 be found to have occurred if the person engaged in the conduct described in the statute.” [8] Id. To state a violation of the statute, a plaintiff must plead three elements: “(a) the property 9 was stolen, and (b) the defendant was in possession of it, (c) knowing it was stolen.” 10 Verdugo-Gonzalez v. Holder, 581 F.3d 1059, 1061 (9th Cir. 2009) (citing People v. 11 Anderson, 210 Cal. App. 3d 414, 420 (1989)). In addition, “assuming a defendant’s 12 knowledge that the property at issue is stolen, section 496, subdivision (a) may be violated 13 in either of two ways: (1) by buying or receiving any property that has been stolen or (2) 14 by conceal[ing], sell[ing], [or] withhold[ing] . . . any property from the owner.” People v. 15 Brown, 32 Cal. App. 5th 726, 732 (2019) (alterations in original). Defendant challenges 16 whether Plaintiff has sufficiently stated that the property received was “stolen.” 17 In Hueso v. Select Portfolio Servicing, Inc., 527 F. Supp. 3d 1210 (S.D. Cal. 2021), 18 this Court held that for property to be “stolen” under § 496(a), the property must already 19 have been stolen when it comes into a defendant’s possession. See Grouse River Outfitters 20 Ltd. v. NetSuite, Inc., No. 16-CV-02954-LB, 2016 WL 5930273 , at *14 (N.D. Cal. Oct. 12, 21 2016) (finding plaintiff’s money “was not ‘stolen’ when [defendant] allegedly defrauded 22 [plaintiff] of it”); cf. Lacagnina v. Comprehend Sys., Inc., 25 Cal. App. 5th 955, 971 (2018) 23 (holding that plaintiff’s labor was not “stolen” at the time [defendant] allegedly defrauded 24 him out of the . . . compensation). The Northern District in Grouse found that the tense of 25 the statutory language supported this view. 2016 WL 5930273 , at *14 (noting that the first 26 sentence of § 496(a) refers to “property that has been stolen or that has been obtained in 27 any manner constituting theft”). [28] 1 Here, Defendant relies almost exclusively on Siry Investments LP v. Farkhondepour 2 to argue that Plaintiff did not plead receipt of stolen property. 45 Cal. App. 5th 1098 , 3 1133–37 (2020), review granted, 468 P.3d 701 (2020).2 In Siry, the California Court of 4 Appeal limited the scope of § 496 to exclude its application to any traditional tort claims. 5 Id. at 1137. Siry involved improper diversion of rental income away from the limited 6 partnership to which it was due, and to another entity controlled by the defendants, 7 resulting in the plaintiff being underpaid. Id.at 1110. There, the wrongdoers who were 8 diverting the funds were the same wrongdoers who were receiving the funds. Id. The court 9 held that applying § 496 to cases involving any type of conduct qualifying as “theft”— 10 including the traditional breach of fiduciary duty and fraud at issue—would cause 11 significant changes by expanding the traditional tort remedy from actual damages to treble 12 damages and “effectively repeal[ing]” the punitive damages statute by allowing plaintiffs 13 to recover treble damages by a preponderance of the evidence. Id. at 1134–36 (citing Cal. 14 Civ. Code § 3294(a) (requiring plaintiffs to show “by clear and convincing evidence that 15 the defendant has been guilty of oppression, fraud, or malice” to obtain punitive damages)). 16 Instead, the court held that § 496 does not “provide the remedy of treble damages for torts 17 not involving stolen property.” Id. at 1137. 18 Defendant’s reliance on Siry is misplaced. The main principle in Siry is that in 19 “cases where the plaintiff merely alleges and proves conduct involving fraud, 20 misrepresentation, conversion, or some other type of theft [by the defendant] that does not 21 involve “stolen” property,” the plaintiff is not entitled to treble damages. 45 Cal. App. 5th 22 at 1134. Here, Plaintiff alleges far more than simple diversion of business funds and does 23 in fact allege receipt of property that had the character of being stolen when it was received. 24 See Grouse River, 2016 WL 5930273 , at *14. Plaintiff alleges two distinct alternatives, [26] 2 The California Supreme Court granted a petition for review in Siry on July 8, 2020. An issue 27 presented on review is whether a trial court may award treble damages and attorney fees under § 496(c) in a case involving fraud. See Siry, 468 P.3d 701 (2020). The appeal is pending and scheduled for [28] 1 which are not controlled by the reasoning in Siry. Specifically, Plaintiff claims: (1) Proper 2 Media embezzled, misappropriated, and stole advertising revenue from Snopes Media and 3 subsequently Ms. Mikkelson received the revenue and then concealed or withheld it, and 4 (2) Ms. Mikkelson engaged in extortion, thereby violating § 496(a) by receiving funds 5 directly obtained through extortion. 6 1. Embezzlement and Misappropriation Claims 7 Under California law, embezzlement is “the fraudulent appropriation of property by 8 a person to whom it has been [e]ntrusted.” Cal. Penal Code § 503 . Embezzlement occurs 9 when an owner entrusts property to an individual, and then the individual fraudulently 10 converts the property for her benefit intending to deprive the owner of that property. See 11 People v. Selivanov, 5 Cal. App. 5th 726, 764 (2016) (citing People v. Fenderson, 188 Cal. 12 App. 4th 625, 636–37 (2010)). Embezzlement has long been recognized as a type of theft 13 for the purposes of § 496(a). See People v. Kunkin, 9 Cal. 3d 245, 251 (1973). 14 In the complaint, Plaintiff alleges Snopes Media entrusted revenues to Proper Media 15 through the GSA where Proper Media contracted to invoice, collect, and disperse revenues 16 to Snopes Media. (FAC ⁋⁋ 11, 13, 15.) Funds were withheld from Snopes Media starting 17 in April 2016 while Ms. Mikkelson was the Snopes Media bookkeeper. (Id. ⁋ 23.) The 18 funds due to Snopes Media under the GSA continued to be withheld from Snopes Media 19 when Schoentrup took over as bookkeeper. (Id. ⁋⁋ 25, 30–31.) Schoentrup failed to 20 provide advertising invoices to Snopes Media for the entirety of his time as bookkeeper. 21 (Id. ⁋ 34.) Proper Media withheld advertising revenues from April to May 2016 and then 22 diverted those revenues due to Snopes Media under the GSA to purchase Ms. Mikkelson’s 23 50% interest in Snopes. (Id. ⁋⁋ 25–29.) Proper Media continued to withhold and embezzle 24 the advertising revenues due to Snopes Media in order to pay Ms. Mikkelson under the 25 Stock Purchase Agreement’s promissory note through 2017. (Id. ⁋ 30.) 26 Following the alleged extortion by Ms. Mikkelson, Proper Media entered into a 27 series of agreements to settle the claims made by Ms. Mikkelson and to settle the 28 Promissory Note by assigning it to Schoentrup and Richmond. (Id. ⁋⁋ 46–47.) Not only 1 were the funds for this assignment paid using unlawfully withheld advertising revenues 2 from Snopes Media, but also the third agreement between the parties released them from 3 their payment obligations in exchange for a payment for $159,008.60. (Id. ⁋⁋ 48–49.) This 4 money was paid using withheld advertising revenues. (Id. ⁋ 52.) Lastly, when Proper 5 Media eventually provided invoices for the withheld advertising revenues, there was a 6 $159,008.60 withholding for “Barbara Mikkelson Settlement Payment.” (Id. ⁋ 55.) 7 Taking these facts as true, the Court finds Defendant’s Siry argument to be 8 unpersuasive. Plaintiff alleges that Proper Media embezzled the money, and when Ms. 9 Mikkelson received the money, it already had the character of being stolen. Therefore, 10 Plaintiff is not alleging that Defendant herself defrauded Plaintiff or misappropriated or 11 embezzled funds. See Grouse, 2016 WL 5930273 , at *14; see also Allure Labs, Inc. v. 12 Markushevska, 606 B.R. 51 , 59 (N.D. Cal. 2019). Hence, this case is distinguishable from 13 Siry and Hueso. 14 In addition, Plaintiff claims that after receiving the money from Proper Media, Ms. 15 Mikkelson subsequently concealed or withheld those funds, knowing that they were stolen, 16 a separate violation of the statute. See Brown, 32 Cal. App. 5th at 732 . “Receiving stolen 17 property and concealing stolen property are separate offenses.” Id. (alteration omitted) 18 (quoting Williams v. Superior Ct., 81 Cal. App. 3d 330, 343 (1978)). “Concealment of 19 stolen property consists of the act of ‘intentionally secreting stolen property . . . [and 20 failing] to disclose its whereabouts’ to its rightful owner.” Allure Labs, 606 B.R. at 60 21 (quoting People v. Allen, 21 Cal. 4th 846 , 861 n.14 (1999)). Plaintiff states that Ms. 22 Mikkelson was notified that she was in receipt of stolen funds, and she continued to 23 withhold those funds. (FAC ⁋ 57.) In addition, Plaintiff states that Ms. Mikkelson 24 concealed the funds and the relationship with Proper Media despite Ms. Mikkelson 25 knowing that the funds were unlawfully withheld advertising revenues due to Snopes 26 Media. (Id. ⁋⁋ 32, 53.) [28] 1 2. Extortion Claim 2 California Penal Code § 496(a) includes a violation for receiving property that “has 3 been obtained in any manner constituting . . . extortion.” Under California law, extortion 4 is defined as “the obtaining of property or other consideration from another, with his or her 5 consent . . . induced by a wrongful use of force or fear.” Cal. Penal Code § 518 . Fear 6 sufficient to constitute extortion under California Penal Code § 519 includes threatening 7 “[t]o do an unlawful injury to the person or property of the individual threatened or of a 8 third person” or “[t]o expose a secret affecting him, her, or them.” 9 Defendant argues that the extortion action alleged here does not amount to receipt 10 of stolen property. Instead, Defendant argues the extortion claim is akin to a breach of 11 contract claim because Proper Media violated the GSA in paying Ms. Mikkelson instead 12 of paying funds owed to Snopes Media. Similarly, Defendant claims that Ms. Mikkelson 13 simply engaged in the passive “receipt of funds owed to her,” and thus there is not a 14 sufficient claim for receipt of stolen funds by extortion. (Mot. to Dismiss 4:17, ECF No. 4.) 15 Defendant overlooks the facts alleged in the complaint. After Ms. Mikkelson and Proper 16 Media had entered into the SPA, Ms. Mikkelson approached Schoentrup and demanded 17 additional money on top of that already owed to her under the SPA. (FAC ⁋ 35.) She 18 claimed these additional funds were outstanding income owed to her. She followed up this 19 demand with express written threats to “disseminate false and defamatory information” 20 about her ex-husband to the news media. (Id. ⁋ 36.) She threatened that the information 21 she would disseminate would hurt Snopes Media and her ex-husband, resulting in a 22 reduction in Snopes’s share value. (Id.) Following these threats, Ms. Mikkelson and 23 Schoentrup entered into the confidential “Settlement Agreement” despite Ms. Mikkelson 24 knowing Schoentrup had no authority to enter into agreements on behalf of Snopes Media. 25 (Id. 37.) These facts sufficiently allege that Ms. Mikkelson received property that has been 26 obtained through extortion. 27 Thus, the Court denies Defendant’s motion to dismiss as to the claim for receipt of 28 stolen funds. 1 B. Count Two – Unjust Enrichment 2 Defendant argues that Plaintiff does not adequately state a claim for unjust 3 enrichment because under California law, there is no standalone claim for unjust 4 enrichment. The Court is not persuaded by Defendant’s argument and denies the motion 5 to dismiss as to this claim. 6 California courts disagree on whether there is a standalone cause of action for unjust 7 enrichment. Compare Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 8 1105, 1132 (2014) (allowing plaintiffs to state a cause of action for unjust enrichment), 9 with Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 1370 (2010) (“[T]here is no 10 cause of action in California for unjust enrichment.”). However, the Ninth Circuit 11 considered this issue and reasoned that an unjust enrichment claim can proceed as either 12 “a claim for relief as an independent cause of action or as a quasi-contract claim for 13 restitution.” ESG Cap. Partners, LP v. Stratos, 828 F.3d 1023, 1038 (9th Cir. 2016). In 14 ESG Capital Partners, LP, defendants were paying themselves funds out of a client trust 15 account, despite promising the clients that the funds were refundable. 828 F.3d at 1039 . 16 The court allowed the claim for unjust enrichment to proceed as an independent cause of 17 action or, in the alternative, as a claim based on quasi-contract. Id. Therefore, unjust 18 enrichment claims can proceed outside of quasi-contract. Id. 19 Moreover, the Court finds Plaintiff states a plausible unjust enrichment claim. “To 20 allege unjust enrichment as an independent cause of action, a plaintiff must show that the 21 defendant received and unjustly retained a benefit at the plaintiff’s expense.” Id. at 1038 . 22 Here, Plaintiff alleges that Ms. Mikkelson received funds from Proper Media she knew 23 were obtained through embezzlement by Proper Media or obtained from Proper Media by 24 her own extortion. (FAC ⁋⁋ 36–37, 49–50, 56–57, 63.) When Proper Media bought Ms. 25 Mikkelson’s 50% interest, the funds used were unlawfully withheld advertising revenues 26 due to Snopes Media, as evidenced by the lack of payment to Snopes and the lack of any 27 invoices during this time period. (Id. ⁋⁋ 30, 34.) Ms. Mikkelson was made aware that the 28 money used to pay her was embezzled due to the ongoing litigation between Snopes Media 1 |}and Proper Media in which she was mentioned, and for which she produced 1,480 2 ||documents. (/d. |PP 54, 56.) In the alternative, Ms. Mikkelson had knowledge that she was 3 receipt of stolen funds because she herself extorted the funds. (d. [PIP 35-37.) Ms. 4 || Mikkelson concealed her agreements with Proper Media from Snopes Media. (/d. P 53.) 5 || Plaintiff also alleges that Ms. Mikkelson still retains money owed to Snopes Media despite 6 || the fact that it informed her that the money was stolen. (/d. P57.) Snopes Media continues 7 be harmed by the retention of the advertising revenues by Ms. Mikkelson. (d. 668 Thus, Plaintiff states a plausible claim. See ESG Cap. Partners, 828 F.3d at 1038 . 9 Finally, Defendant argues that this claim cannot proceed under quasi-contract 10 || because Plaintiff and Defendant are not in privity, without citing any authority. The Court 11 || similarly finds this last argument unpersuasive. 12 In sum, the Court denies Defendant’s motion to dismiss the claim for unjust 13 |} enrichment. 14 CONCLUSION 15 For the foregoing reasons, the Court DENIES Defendant’s motion to dismiss 16 (ECF No. 4) Plaintiff's claims for (1) violation of California Penal Code § 496 (receipt of 17 stolen funds) and (2) unjust enrichment. 18 IT IS SO ORDERED. 19 /\ yf 20 || DATED: May 2, 2022 ( itl A (Hiphan 21 United States District Judge [28] 41.