Free Order on Motion to Dismiss Case - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 Michael Alaniz, et al., 13 Defendants. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Pending before the Court is the McLaughlin Defendants' Motion to Dismiss Counts 1-8 of the First Amended Complaint because those counts fail to state a claim (Fed.R.Civ.Pro. 12(b)(6)). Motion at 1. The Receiver responded as if it is responding to a motion to dismiss for lack of subject matter jurisdiction (Fed.R.Civ.Pro 12(b)(1)), but then articulates the legal test for a 12(b)(6) motion. Response at 2. Thus, both sides appear to agree that the appropriate legal standard is failure to state a claim under 12(b)(6). However, both side rely exclusively on cases that deal with standing and what kinds of claims receivers have standing to bring. See e.g. Motion at 4, Response at 6. Generally, standing is usually adjudicated based on subject matter jurisdiction or justiciability. See Peoples Gas , Light & Coke Co. v. U.S. Postal Serv., 658 F.2d 1182, 1188-89 n.3 (7th Cir.1981) (subject matter jurisdiction); O'Hair v. White, 675 F.2d 680, 684 n. 5 (5th Cir. 1982) (justiciability). In essence, the Movants' position is that the Receiver cannot seek to recover tort damages that would be solely for the benefit of third-parties (rather than the entity in
Case 2:03-cv-02390-JAT Document 389 Filed 09/15/2005 Page 1 of 3

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Lawrence J. Warfield, Receiver, Plaintiff, vs.

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No. CV 03-2390-PHX-JAT ORDER

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receivership). Without directly addressing this argument, the Receiver argues that he has standing to recover any and all assets that would have been part of the receivership estate but-for the various torts alleged, which allegedly wrongfully diverted the money to another entity or person. Generally, the Court would agree that the Receiver has not only the standing, but the duty, to recover all assets that should have belonged to the entity in receivership but-for some alleged action by the Movants that tortiously diverted the funds. However, the Court cannot tell on this 12(b)(6) motion, wherein the Court is limited to the pleadings, whether the torts stated in Counts 1 through 8 seek general or compensatory damages beyond the funds that allegedly should have belonged to the entity in receivership.1 Moreover, Movants cite cases which stand for the proposition that the Receiver cannot selectively prosecute claims to recover damages for third-party victims. However, neither party addresses whether the Receiver can prosecute claims to recover funds for the receivership estate as a whole, even when the funds were diverted from third-party victims (or whether this scenario is the factual predicate of this claim). Therefore, because the Court will be required to go beyond the scope of the pleadings to more fully understand exactly what damages the Receiver is seeking (and exactly the source from which those damages arise) to determine whether the Receiver is acting beyond its standing to act, the Court will deny the Motion without prejudice to re-file after the close of discovery. Through the course of discovery, Movants should undertake to determine the exact extent to which the Receiver argues they are exposed to liability, so that if, on summary judgment, they choose to re-file any portion of this motion based on the Receiver's standing,

For example, one of the remedies the Receiver seeks (in Count Three) is a constructive trust over funds the Receiver claims were wrongfully diverted in breach of a fiduciary duty. It would seem that such a remedy would be limited to the actual funds diverted that should have belonged to the entity in receivership. However, Movants argue that Count Three must be dismissed because the Receiver references "victims," which Movants argue shows that the Receiver is seeking funds belonging to a third-party. On this state of the record, the Court cannot determine the breadth of the recovery the Receiver is seeking. -2Case 2:03-cv-02390-JAT Document 389 Filed 09/15/2005 Page 2 of 3

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they can, on a claim by claim basis, attempt to show how each remedy and damages sought by the Receiver is beyond the Receiver's standing. In response, the Receiver will then be able to articulate whether the remedy sought is a broad or narrow as the Movants' allege. Accordingly, IT IS ORDERED that the Motion to Dismiss Counts 1 through 8 (Doc. #213) is denied without prejudice to re-file as a motion for summary judgment based on standing after the close of discovery; IT IS FURTHER ORDERED that the discovery deadline of November 18, 2005, and the dispositive motion deadline of December 30, 2005 are both confirmed. DATED this 14th day of September, 2005.

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