Cheryl A. Williams (Cal. Bar No. 193532) WILLIAMS ... · Case No.: 16-CV-01713 BAS JMA PAUMA’S OPP’N TO STATE DEFS.’ MOT. TO DISMISS SECOND AM. COMPL. Cheryl A. Williams (Cal

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28Case No.: 16-CV-01713 BAS JMA

PAUMA’S OPP’N TO STATE DEFS.’ MOT. TO DISMISS SECOND AM. COMPL.

Cheryl A. Williams (Cal. Bar No. 193532)Kevin M. Cochrane (Cal. Bar No. 255266)[email protected]@williamscochrane.comWILLIAMS & COCHRANE, LLP28581 Old Town Front StreetTemecula, CA 92590Telephone: (619) 793-4809

Attorneys for PlaintiffPAUMA BAND OF MISSION INDIANS

IN THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF CALIFORNIA

PAUMA BAND OF LUISENOMISSION INDIANS OF THE PAUMA& YUIMA RESERVATION, a/k/aPAUMA BAND OF MISSION INDIANS,a federally-recognized Indian Tribe,

Plaintiff,

v.

STATE OF CALIFORNIA; EDMUNDG. BROWN, JR., as Governor of theState of California; DOES 1 THROUGH10;

Defendants.

Case No.: 16-CV-01713 BAS JMA

PAUMA’S OPPOSITION TOSTATE DEFENDANTS’ MOTIONTO DISMISS AND STRIKEPLAINTIFF’S SECONDAMENDED COMPLAINT

Date: TBDTime: TBDDept: 4BJudge: The Honorable Cynthia

Bashant

NO ORAL ARGUMENT UNLESSREQUESTED BY THE COURT

Case 3:16-cv-01713-BAS-JMA Document 32 Filed 07/17/17 PageID.1856 Page 1 of 25

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28i Case No.: 16-CV-01713 BAS JMA


TABLE OF CONTENTS

INTRODUCTION………………………………………………………………………… 1

LEGAL STANDARDS …………………………………………………………………….2

ARGUMENT …………………………………………………………………………….4

I. OPPOSING COUNSEL’S ORIGINAL IMPRESSION AND THE COURT’SPRIOR ORDERS IN OTHER CASES INDICATE THAT LEAVE TOAMEND WAS NOT LIMITED TO ONLY “ADD[ING] ALLEGATIONSDEMONSTRATING THAT THE ACTIONS OF THE [COMMISSION] ANDTHE [DOJ] HAVE IN SOME WAY BREACHED AN OBLIGATIONUNDER THE PAUMA COMPACT” …………………………………………..4

II. THE AMENDMENTS TO THE COMPLAINT RELATED TO THE DIS-COVERY RULE SHOW THAT PAUMA HAD ABSOLUTELY NOWAY OF UNCOVERING THE STATE’S ACTUAL USES OF SPECIALDISTRIBUTION FUND MONIES ON ITS OWN VOLITION …………………….9

III. THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING IM-POSES ADDITIONAL DUTIES THAT ARE “FAIRLY INFERABLE” FROMTHE EXPRESS TERMS OF THE 1999 COMPACT AND IS THUS NOT CO-EXTENSIVE WITH A BREACH OF CONTRACT CLAIM AS THE STATECONTENDS ……………………………………………………………… 13

CONCLUSION ………………………………………………………………………….17


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28ii Case No.: 16-CV-01713 BAS JMA


TABLE OF AUTHORITIES

CASES

Allen v. County of L.A. Sheriff’s Dep’t,2009 U.S. Dist. LEXIS 133613 (C.D. Cal. 2009) ………………………………. 3

April Enter., Inc. v. KTTV,147 Cal. App. 3d 805 (2d Cir. 1983) ……………………………………….4, 10

Ashcroft v. Iqbal,556 U.S. 662 (2009) ………………………………………………………… 2, 3

Barker v. Avila,2010 U.S. Dist. LEXIS 91161 (E.D. Cal. 2010) ………………………………... 7

Bell Atl. Corp. v. Twombly,550 U.S. 544 (2007) …………………………………………………………… 2

Beraha v. Baxter Health Care Corp.,956 F.2d 1436 (7th Cir. 1992) ………………………………………………...14

Cachil Dehe Band of Wintun Indians of Colusa Indian Cmty. v. California,547 F.3d 962 (9th Cir. 2008) ………………………………………………….12

Campos v. Failla,2016 U.S. Dist. LEXIS 42745 (S.D. Cal. 2016) ………………………………6, 7

Carrero-Ojeda v. Autoridad de Energia Electrica,755 F.3d 711 (1st Cir. 2014) …………………………………………………... 2

Centex Corp. v. United States,395 F.3d 1283 (Fed. Cir. 2005) ………………………………………………. 13

Chapman v. Bluffs of Fox Run Homeowners Ass’n,2016 U.S. Dist. LEXIS 171537 (S.D. Cal. 2016) ………………………………..7

Clement v. Am. Greetings Corp.,636 F. Supp. 1326 (S.D. Cal. 1986) …………………………………………… 3

///


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28iii Case No.: 16-CV-01713 BAS JMA


Crafty Prods. v. Fuqing Sanxing Crafts Co.,2016 U.S. Dist. LEXIS 136219 (S.D. Cal. 2016) ………………………………..7

Diaz v. Fed. Express Corp.,373 F. Supp. 2d 1034 (C.D. Cal. 2005) ……………………………………….16

El Pollo Loco, Inc v. Hashim,316 F.3d 1032 (9th Cir. 2003) ………………………………………………...10

Emerson Radio Corp. v. Orion Dales, Inc.,253 F.3d 159 (3d Cir. 2001) ………………………………………………….. 14

Eminence Capital, LLC v. Aspeon, Inc.,316 F.3d 1048 (9th Cir. 2003) ………………………………………………….9

Erickson v. Pardus,551 U.S. 89 (2007) …………………………………………………………...... 2

ESG Capital Partners, LP v. Stratos,828 F.3d 1023 (9th Cir. 2016) ………………………………………………….2

Fasolino Foods Co. v. Banca Nazionale del Lavoro,961 F.2d 1052 (2d Cir. 1992) …………………………………………….. 13, 14

H.B. Filmes, LTDA v. CBS, Inc.,98 F. App’x 596 (9th Cir. 2004) ………………………………………………10

Heldt v. Guardian Life Ins. Co. of Am.,2017 U.S. Dist. LEXIS 86070 (S.D. Cal. 2017) ………………………………7, 8

Heldt v. Guardian Life Ins. Co. of Am.,2017 U.S. Dist. LEXIS 36490 (S.D. Cal. 2017) …………………………………8

In re Sunnyslope Hous. Ltd. P’ship,2012 Bank. LEXIS 687 (B.A.P. 9th Cir. 2012) ………………………………….3

James v. Agnew,2016 U.S. Dist. LEXIS 137061 (S.D. Cal. 2016) ………………………………..4

Johnson v. Regents of Univ. of Cal.,2010 U.S. Dist. LEXIS 63963 (N.D. Cal. 2010) ……………………………….16


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28iv Case No.: 16-CV-01713 BAS JMA


Jolly v. Eli Lilly & Co.,44 Cal. 3d 1103 (1988) ………………………………………………………..10

JP Morgan Chase Bank, N.A. v. IDW Group, LLC,2009 U.S. Dist. LEXIS 9207 (S.D.N.Y. 2009) ………………………………... 13

King v. M.R. Brown,911 F. Supp. 161 (E.D. Pa. 1995) ………………………………………………4

Kopple v. Schick Farms, Ltd.,447 F. Supp. 2d 965 (N.D. Iowa 2006) ………………………………………. 14

Little v. Gore,188 F. Supp. 3d 1005 (S.D. Cal. 2016) ………………………………………... 6

Little v. Gore,148 F. Supp. 3d 936 (S.D. Cal. 2015) …………………………………………. 6

Love v. Fire Ins. Exch.,221 Cal. App. 3d 1136 (4th Dist. 1990) ……………………………………… 14

Manzano v. MetLife Bank N.A.,2011 U.S. Dist. LEXIS 56316 (E.D. Cal. 2011) ……………………………... 3, 4

Md. Staffing Servs. v. Manpower, Inc.,936 F. Supp. 1494 (E.D. Wis. 1996) ………………………………………. 3, 16

Mendoza Manimbao v. Ashcroft,329 F.3d 655 (9th Cir. 2002) …………………………………………………...3

Norgart v. Upjohn Co.,21 Cal. 4th 383 (1999) ………………………………………………………...10

Obesity Research Inst., LLC v. Fiber Research Int’l, LLC,2016 U.S. Dist. LEXIS 24025 (S.D. Cal. 2016) …………………………………4

O’Brien v. Welty,818 F.3d 920 (9th Cir. 2016) …………………………………………………...2

O’Connor v. Boeing N. Am.,331 F.3d 1139 (9th Cir. 2002) ………………………………………………...10


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28v Case No.: 16-CV-01713 BAS JMA


Pauma Band of Luiseno Mission Indians v. California,813 F.3d 1155 (9th Cir. 2015) ………………………………………………...13

Quick Korner Mkt. v. U.S. Dep’t of Agriculture,180 F. Supp. 3d 683 (S.D. Cal. 2016) …………………………………………. 7

Rael v. N.Y. & Co.,2016 U.S. Dist. LEXIS 180633 (S.D. Cal. 2016) ………………………………..7

Salas v. San Diego Jail Med. Staff,2016 U.S. Dist. LEXIS 101275 (S.D. Cal. 2016) ………………………………..7

Sapiro v. Encompass Ins.,221 F.R.D. 513 (N.D. Cal. 2004) ……………………………………………… 3

Schatz v. Republican State Leadership Comm.,669 F.3d 50 (1st Cir. 2012) ……………………………………………………. 3

Shamis v. Ambassador Factors Corp.,2000 U.S. Dist. LEXIS 13581 (S.D.N.Y. 2000) ………………………………. 14

Stanbury Law Firm, P.A. v. IRS,221 F.3d 1059 (8th Cir. 2000) ………………………………………………….3

Starr v. Baca,652 F.3d 1202 (9th Cir. 2011) ………………………………………………….2

Talbot v. Robert Matthews Dist. Co.,961 F.2d 654 (7th Cir. 1992) …………………………………………………...4

Turner v. Anand,2015 U.S. Dist. LEXIS 94984 (S.D. Cal. 2015) …………………………………7

Williams v. Wells Fargo Bank, N.A.,2017 U.S. Dist. LEXIS 58519 (N.D. Cal. 2017) ……………………………….14

///////////////


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28vi Case No.: 16-CV-01713 BAS JMA


DOCKET CITES

Pauma Band of Luiseno Mission Indians of Pauma & Yuima Reservationv. California,No. 09-01955 (S.D. Cal. 2016)

[Dkt. No. 182] …………………………………………………………. 16[Dkt. No. 188] …………………………………………………………... 8

STATUTES

Employee Retirement and Income Security Act of 1974 (29 U.S.C. § 1001 et seq.)generally ……………………………………………………………………….. 8

Indian Gaming Regulatory Act (25 U.S.C. § 2701 et seq.)generally ………………………………………………………………11, 13, 15§ 2710(d)(8)(A) ………………………………………………………………. 12§ 2710(d)(8)(B) ………………………………………………………………. 12§ 2710(d)(8)(C) ………………………………………………………………. 12§ 2710(d)(8)(D) ………………………………………………………………. 12

Miscellaneous25 U.S.C. § 81(b) ……………………………………………………………...11

RULES AND REGULATIONS

Federal Rules of Civil Procedure8(a)(2) ………………………………………………………………………….. 212(f) …………………………………………………………………………. 3, 715 ………………………………………………………………………………. 9

RESTATEMENT (SECOND) OF CONTRACTS (1981)§ 205 ………………………………………………………………………….. 13§ 205 cmt. a …………………………………………………………………... 14

SECONDARY SOURCES

Wright & Miller, FEDERAL PRACTICE AND PROCEDURE (3d ed. 2000)5 § 1380 ………………………………………………………………………... 3

James Wm. Moore, MOORE’S FEDERAL PRACTICE (3d ed. 2000)§ 12.37[1] ……………………………………………………………………… 3


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28vii Case No.: 16-CV-01713 BAS JMA


WEBSTER’S THIRD INTERNATIONAL DICTIONARY (1976)p. 1736 …………………………………………………………………………. 3

Richard A. Lord, WILLISON ON CONTRACTS (4th ed. 1999)13 § 38:15 ……………………………………………………………………..14


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281 Case No.: 16-CV-01713 BAS JMA


INTRODUCTIONOn June 2, 2017, the State of California and Governor Edmund G. Brown, Jr. (col-

lectively, “State”) filed a motion to dismiss and strike the Second Amended Complaint

filed by the Pauma Band of Mission Indians (“Pauma”) that largely seeks to obtain such

remedies on account of the revisions to the operative pleading allegedly exceeding the

scope of leave to amend conferred by the district court. See Dkt. No. 30-1. However,

what this second motion to dismiss does not say is that counsel for the parties actually

spoke in advance of the filing of the Second Amended Complaint and Deputy Attorney

General Timothy Muscat indicated that he thought leave to amend was not limited in the

fashion that he is now claiming. See Argument § I, infra. Counsel for Pauma was of like

mindset during this phone call because it had already conducted a thorough review of the

district court’s orders on motions to dismiss in other cases and noticed that the court

would be very specific when it wanted to restrict leave to amend in some fashion. See id.

Through this conversation, counsel for Pauma agreed to eliminate the State agen-

cies from the proceeding for administrative reasons – at Mr. Muscat’s request – and then

spent the remaining three business days ahead of the filing deadline revising the com-

plaint so it was focused on the State of California more generally. Now, in a complete

reversal of position, the State seeks to strike all the new material in the Second Amended

Complaint because it does not reference the agencies Mr. Muscat asked counsel for Pa-

uma to eliminate from the proceeding for nonsubstantive reasons. Simply put, the new al-

legations and claim in the operative complaint should stand, and, if not, Pauma is willing

to file a Third Amended Complaint in which the Twenty-First and Twenty-Second

Claims for Relief are also directed at the State agencies that were dropped from the case

(i.e., the California Gambling Control Commission and the California Department of

Justice) on the now-seemingly mistaken assumption that counsel for the State would not

contest any new allegations from being raised against the State itself.

On a final note, the State’s second motion to dismiss once again reverts to arguing

California contract law to contend that the implied covenant of good faith and fair dealing


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is nothing more than a fallback and superfluous way of arguing that another party has

failed to comply with the express terms of an agreement. As Section III of the Argument

will explain, infra, the implied covenant under federal contract law is actually much more

nuanced than that and imposes duties that are “fairly inferable” from the express terms of

the agreement to protect the reasonable expectations of the contracting parties. These

protections are of utmost importance in situations like the current one where a party has

the discretionary authority to conduct some action under a contract, which it resultantly

does in a clandestine manner. Given this, the district court should allow the Twenty-

Second Claim for Relief in the Second Amended Complaint to go forward so the court

can address – either at summary judgment or trial – whether the procedural and/or

substantive administration of the Special Distribution Fund (“SDF”) under the 1999

Compacts failed to accord with the duties imposed by the implied covenant of good faith

and fair dealing.

LEGAL STANDARDSFederal Rule of Civil Procedure 8(a)(2) incorporates a minimal notice pleading

standard that simply requires the plaintiff to provide a short and plain statement showing

an entitlement to relief in order to survive a motion to dismiss. See ESG Capital Partners,

LP v. Stratos, 828 F.3d 1023, 1032 (9th Cir. 2016). “Specific facts are not necessary; the

statement need only ‘give the defendants fair notice of what the… claim is and the

grounds upon which it rests.’” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Bell

Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). The general allegations comprising those

grounds must only “contain sufficient factual matter accepted as true, to state a claim to

relief that is plausible on its face (see O’Brien v. Welty, 818 F.3d 920, 933 (9th Cir. 2016)

(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009))), “such that it is not unfair to

require the opposing party to be subjected to the expense of discovery and continued

litigation.” See Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). The term “plausible”

usually means something more than just “conceivable” or “possible” (see Carrero-Ojeda

v. Autoridad de Energia Electrica, 755 F.3d 711, 718 (1st Cir. 2014)), typically looking


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at whether the alleged matter at issue is “superficially worthy of belief” or “credible.” See

Mendoza Manimbao v. Ashcroft, 329 F.3d 655, 664 (9th Cir. 2002) (Trott, J., dissenting)

(citing WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 1736 (1976)); accord In re

Sunnyslope Hous. Ltd. P’ship, 2012 Bank. LEXIS 687, *11 (B.A.P. 9th Cir. 2012).

Ultimately, whether or not certain matter in a complaint satisfies the plausibility standard

is a “context-specific” inquiry that requires a judge to “draw on” its “judicial experience

and common sense.” Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st

Cir. 2012) (citing Iqbal, 556 U.S. at 679)).

A motion to strike that comes in the guise of a motion to dismiss faces an even

more stringent standard for being granted. “[S]triking a party’s pleadings is an extreme

measure,” and thus such motions “are viewed with disfavor and are infrequently gran-

ted.” Stanbury Law Firm, P.A. v. IRS, 221 F.3d 1059, 1063 (8th Cir. 2000) (citing, e.g., 5

Wright & Miller, FEDERAL PRACTICE AND PROCEDURE: CIVIL § 1380 at 783 (1969); 2

James Wm. Moore et al., MOORE’S FEDERAL PRACTICE § 12.37[1] (3d ed. 2000)); see,

e.g., Clement v. Am. Greetings Corp., 636 F. Supp. 1326, 1332 (S.D. Cal. 1986) (“[A]

12(f) motion [to strike]… is neither an authorized nor a proper way to obtain dismissal of

a complaint or portions of a complaint. It is generally viewed with disfavor and not

frequently granted.”). This means that “[e]xceeding the scope of a court’s leave to amend

is not necessarily sufficient grounds for striking a pleading or portions thereof.” Allen v.

County of L.A. Sheriff’s Dep’t, 2009 U.S. Dist. LEXIS 133613, *5 (C.D. Cal. 2009)

(citing, e.g., Sapiro v. Encompass Ins., 221 F.R.D. 513, 518 (N.D. Cal. 2004) (Patel,

C.J.)). Similarly, it also means that normally “the mere presence of redundant material in

a pleading does not warrant granting a motion to strike.” Md. Staffing Servs. v.

Manpower, Inc., 936 F. Supp. 1494, 1509 (E.D. Wis. 1996). These sorts of requests to

strike material that is allegedly either redundant or included in an ultra vires manner

almost certainly fail when the court would have granted leave to amend, if it had been

sought, in the interests of judicial economy or for some other reason. See, e.g., Manzano

v. MetLife Bank N.A., 2011 U.S. Dist. LEXIS 56316, *8 (E.D. Cal. 2011) (collecting


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cases). With that said, the standard rule for evaluating a motion to strike is that such a

motion “should be granted only when the material at issue bears no possible relation to

the controversy or may cause prejudice to the party opposing the motion.” King v. M.R.

Brown, 911 F. Supp. 161, 169 (E.D. Pa. 1995) (citing Talbot v. Robert Matthews Dist.

Co., 961 F.2d 654 (7th Cir. 1992)). Any doubts about the prejudicial or extraneous nature

of the pleaded material under attack should lead “the court… [to] deny the motion.”

Obesity Research Inst., LLC v. Fiber Research Int’l, LLC, 2016 U.S. Dist. LEXIS 24025,

*8 (S.D. Cal. 2016) (Bashant, J.). This principle accords with the basic approach for

handling the motion to dismiss process in which “a court should view the pleading under

attack in the light most favorable to the nonmoving party” when ruling on the Rule 12

motion. See, e.g., James v. Agnew, 2016 U.S. Dist. LEXIS 137061, *6 (S.D. Cal. 2016).

ARGUMENTI. OPPOSING COUNSEL’S ORIGINAL IMPRESSION AND THE COURT’S PRIOR ORDERS

IN OTHER CASES INDICATE THAT LEAVE TO AMEND WAS NOT LIMITED TO ONLY“ADD[ING] ALLEGATIONS DEMONSTRATING THAT THE ACTIONS OF THE [COM-MISSION] AND THE [DOJ] HAVE IN SOME WAY BREACHED AN OBLIGATION UN-DER THE PAUMA COMPACT”The main thrust of the second motion to dismiss filed by the State is that Pauma

“exceed[ed] the limited leave to amend granted by the Court” and engaged in an “unauth-

orized self-help remedy” by adding new allegations to the complaint instead of simply

asking the court to reconsider its opinion on some frozen-in-time claim or allegation as

those things were originally pled. See Dkt. No. 30-1, 8:3-24. What is rather remarkable

about this argument is that it is the antithesis of what opposing counsel told counsel for

Pauma in advance of the filing of the Second Amended Complaint when discussing the

future course of the case. As to that, the attached declaration of Cheryl A. Williams ex-

plains that Ms. Williams spoke with Mr. Muscat on Friday, April 14, 2017 about whether

the parties could reach an agreement to expedite the case and thus obviate the need for a

second motion to dismiss process. See Williams Decl., ¶ 2. It was during this phone call

that Mr. Muscat first hinted that the State may agree to such a request if Pauma would


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consider removing the subordinate State agencies (i.e., the California Department of

Justice (“DOJ”) and the California Gambling Control Commission (“CGCC”)) from the

case altogether. Id. According to Mr. Muscat, having these entities involved in the suit

created a number of practical, real-life difficulties for him and his office, and eliminating

them from the proceeding would make the case much easier for him from a procedural

standpoint. Id. The basic gist of this discussion is even included in a footnote to the

Twenty-Second Claim for Relief in the Second Amended Complaint, which states in rele-

vant part that:

The message conveyed during these conversations with opposing counselwas that removing these two agencies from the case could convince the Stateto expedite the case by foregoing another motion to dismiss and agreeing ona schedule for the future disposition of the proceeding. With that in mind,Pauma will limit the scope of this claim at present with the aim of movingthis case forward.

See Dkt. No. 27 at p. 86, n.22.

Not interested in having another’s procedural problems affect her client’s sub-

stantive rights in the case, Ms. Williams then pointedly asked Mr. Muscat whether he in-

terpreted the grant of leave to amend in the district court’s March 29, 2017 order on the

State’s first motion to dismiss as only allowing Pauma to include new allegations and/or

claims against the DOJ and the CGCC. See Williams Decl., ¶ 2. After pondering that

question for a few seconds, Mr. Muscat indicated that he did not think that was the case

at all, responding with a, “Well if that’s what she [(i.e., Judge Bashant)] intended, she

certainly could’ve been much clearer.” Id. With that, the counsel for the parties seemed to

have an understanding that the conferred leave to amend was more broad than simply

adding new allegations against those two State agencies, and each went on their way to

take care of their resultant work – with Ms. Williams spending much of the remaining

three business days before the filing deadline revising the complaint so the entire onus of

the action was on the State itself, and Mr. Muscat reviewing and revising an initial draft

of the joint motion from counsel for Pauma that would largely control the disposition of


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the proceeding. See id. at ¶ 3.

It is worth pointing out that counsel for Pauma did not construe the scope of leave

to amend based on Mr. Muscat’s impressions alone. Rather, a significant amount of

research occurred in advance of the first phone call between the parties in which counsel

for Pauma noticed a pattern in the way the district court would deal with the scope of

leave to amend when issuing orders on motions to dismiss. Occasionally, the court would

give a party precise affirmative instructions about how to amend. For instance, the district

court did this in connection with a § 1983 suit alleging excessive force by a police depart-

ment by identifying the insufficiencies in the allegations in the complaint when granting

leave to amend, such as the plaintiff having not alleged that he was “demonstrably in-

jured by the handcuffs” being put on too tight or “how long he was subjected to the cold

temperatures of the police vehicle.” Little v. Gore, 148 F. Supp. 3d 936, 950-51 (S.D.

Cal. 2015). Even then, the solution for resultant noncompliance with the provided in-

structions was not the drastic remedy of striking the new material, but simply denying the

plaintiff any further leave to amend. See Little v. Gore, 188 F. Supp. 3d 1005, 1016 (S.D.

Cal. 2016).

These sorts of guiding directions regarding the specifics of amendment were absent

from the order on the State’s first motion to dismiss, as were any sort of warnings that

leave to amend was only permitted as to those certain things and that any amendments

that exceeded the scope would be stricken sua sponte by the court. In reality, the number

of orders issued by the district court like the above with affirmative instructions on how

to use the conferred leave to amend appears to pale in comparison to those containing

negative restrictions and cautionary language mentioning harsh repercussions for a plain-

tiff that chooses to act imprudently. An example of this is in the order on the defendants’

motions to dismiss in Campos v. Failla, 2016 U.S. Dist. LEXIS 42745 (S.D. Cal. 2016), in

which the court went to painstaking detail to explain the scope of amendment and what

would happen if the plaintiff exceeded it:

The scope of leave to file an amended complaint is limited to amending only


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the civil RICO claim to allege additional facts that cure the defects identifiedin this order. Plaintiffs may not plead additional claims, add additionalparties, or add allegations that are not intended to cure the specific defectsthe Court has noted. Should any amended complaint exceed the scope ofleave to amend granted by this order, the court will strike the offendingportions under Rule 12(f). See Fed. R. Civ. P. 12(f) (“The court may [act onits own to] strike from a pleading an insufficient defense or any redundant,immaterial, impertinent, or scandalous matter.”); see also Barker v. Avila,No. 2:09-cv-00001-GEB-JFM, 2010 U.S. Dist. LEXIS 91161, 2010 WL3171067, at *1-2 (E.D. Cal. Aug. 11, 2010) (striking an amendment tofederal-law claim where the court had granted leave to amend only state-lawclaims).

Id. at *25.

The use of limiting instructions and threats of corrective action is anything but u-

nique to the Campos case, as the district court included nearly indistinguishable language

in at least six other motion-to-dismiss orders over the past two years. See Chapman v.

Bluffs of Fox Run Homeowners Ass’n, 2016 U.S. Dist. LEXIS 171537, *10 (S.D. Cal.

2016); Crafty Prods. v. Fuqing Sanxing Crafts Co., 2016 U.S. Dist. LEXIS 136219, *22-

*23 (S.D. Cal. 2016); Rael v. N.Y. & Co., 2016 U.S. Dist. LEXIS 180633, *21-*22 (S.D.

Cal. 2016); Salas v. San Diego Jail Med. Staff, 2016 U.S. Dist. LEXIS 101275, *9 (S.D.

Cal. 2016); Turner v. Anand, 2015 U.S. Dist. LEXIS 94984, *34 (S.D. Cal. 2015); see also

Quick Korner Mkt. v. U.S. Dep’t of Agriculture, 180 F. Supp. 3d 683, 697 (S.D. Cal.

2016) (explaining the plaintiff could “only amend this portion of the Complaint to the

extent they can allege facts in good faith” to establish a certain argument). And again, the

order in this case is entirely lacking any similar language that says Pauma can “only” a-

mend certain parts of the operative complaint against a backdrop of sua sponte striking.

If anything, the present situation is most comparable to one this district court dealt

with earlier this year in the case of Heldt v. Guardian Life Insurance Company of

America, No. 16-00885 BAS NLS (S.D. Cal. filed 2016). In that case, the plaintiff filed a

breach-of-contract-based suit alleging that the insurance company defendant violated his

rights by disclosing confidential medical information. See, e.g., Heldt v. Guardian Life


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Ins. Co. of Am., 2017 U.S. Dist. LEXIS 86070, *1 (S.D. Cal. 2017). After Guardian moved

to dismiss the complaint, the district court issued an order explaining that the plaintiff’s

breach of contract claim was preempted by the Employee Retirement and Income Secur-

ity Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. Though it “had dismissed Plaintiff’s

one claim that provide[d] a basis for federal jurisdiction,” the district court nevertheless

granted the plaintiff leave to amend the claim to provide him with a chance to show that

the case should stay in federal court. See Heldt v. Guardian Life Ins. Co. of Am., 2017

U.S. Dist. LEXIS 36490 (S.D. Cal. 2017). Though the order was framed in terms of giving

the plaintiff the opportunity to amend that one claim, what happened next was that the

plaintiff made a number of changes to the complaint, including eliminating the breach of

contract claim altogether. Based on the State’s new perception of leave to amend in this

case, one would think that the new revisions drew the ire of the district court, but instead

the court simply noted that the plaintiff did not amend its breach of contract claim as the

order allowed or “plead a [new] claim under ERISA” that would have provided another

ground for federal question jurisdiction. See Heldt, 2017 U.S. Dist. LEXIS 86070 at *2.

Thus, the court had in mind that the granted leave to amend simply opened the door to

changes that could address any noted deficiencies in the case, before it went on to analyze

on its own accord whether an entirely different ground for federal court jurisdiction ex-

isted. See id. at *5-*6. Thus, a reasonable interpretation of the scope of leave to amend is

that the district court was allowing Pauma to bolster its SDF-based claims against the

State, which were only raised for the first time in the First Amended Complaint and thus

had not received any fine-tuning or refinement as a result of prior pleading practice. See

Pauma Band of Luiseno Mission Indians of Pauma & Yuima Reservation v. California,

No. 09-01955, Dkt. No. 188 (S.D. Cal. June 20, 2012) (order denying motion to strike

pleading amendments allegedly done in excess of the granted leave to amend because,

amongst other reasons, the revisions were Pauma’s first amendment to the claims at is-

sue).

Before ending the discussion of the amendment issue, counsel for Pauma must re-


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spectfully disagree with the notion that it engaged in “unauthorized self-help” and should

have instead sought “reconsideration of the scope of the Court’s permitted leave to

amend.” See Dkt. No. 30-1, 8:15-20. As previously indicated, counsel for both of the

parties were on the same page in advance of the amendment, believing that Pauma could

add further allegations to bolster its case aside from those directly targeted at the DOJ

and the CGCC. Moreover, the post hoc change in position by Mr. Muscat would have

required counsel for Pauma to construe the language conferring leave to amend in the

most narrow way possible, which conflicts with the United States Court of Appeals for

the Ninth Circuit’s perception that the “leave [to amend] shall be freely given” language

of Rule 15 should be applied with “extreme liberality.” Eminence Capital, LLC v.

Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003). Moreover, ultimately satisfying this

proposed request would have required counsel for Pauma to engage in the bizarre

undertaking of meeting and conferring with opposing counsel regarding something that

neither perceived to be an issue in order to file a procedural request for clarification that

does not really exist under the Federal Rules of Civil Procedure in lieu of the substantive

pleading that was due just a few days later. All told, counsel for Pauma believes that it

interpreted the district court’s leave to amend in the most reasonable manner, taking an

approach that was not only consistent with the prior orders of the district court but also

one that sought to promote judicial economy by continuing to move the case forward

rather than belabor it with unnecessary motion practice.

II. THE AMENDMENTS TO THE COMPLAINT RELATED TO THE DISCOVERY RULESHOW THAT PAUMA HAD ABSOLUTELY NO WAY OF UNCOVERING THE STATE’SACTUAL USES OF SPECIAL DISTRIBUTION FUND MONIES ON ITS OWN VOLITION

The next argument by the State suggests that the new allegations in the Second

Amended Complaint related to the statute of limitations issue are futile because Pauma

has still “failed to show that it engaged in the kind of due diligence necessary to assert

delayed discovery.” See Dkt. No. 30-1, 9:8-10. However, what the State overlooks is that

the due diligence requirement only expects a party to search if it can, and then only im-


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putes what it finds as a result. In essence, the discovery rule is an equitable doctrine that

tries to alleviate a hard and fast application of the statute of limitations when a defendant

is being less than forthright about an injury that it has caused to another party. Typically

this rule applies in the contract context in three scenarios that involve an imbalance of

information between the plaintiff and defendant: “1) the injury or the act causing the

injury, or both, have been difficult for the plaintiff to detect… 2) the defendant has been

in a far superior position to comprehend the act and the injury… or 3) the defendant has

reason to believe that the plaintiff remained ignorant [that] he had been wronged.” El

Pollo Loco, Inc v. Hashim, 316 F.3d 1032, 1039 (9th Cir. 2003) (citing April Enter., Inc.

v. KTTV, 147 Cal. App. 3d 805, 831 (2d Cir. 1983)). In these types of situations, the

discovery rule will postpone the start of the statute of limitations until at least the point in

time that the plaintiff “could have discovered injury and cause through the exercise of

reasonable diligence.” H.B. Filmes, LTDA v. CBS, Inc., 98 F. App’x 596, 598 (9th Cir.

2004) (citing April Ent., 147 Cal. App. 3d at 826). The “could have” language in this

standard is important because the discovery rule only requires a plaintiff to “go find [the

facts necessary to bring his cause of action] if he can and file suit it he does.” Norgart v.

Upjohn Co., 21 Cal. 4th 383, 398 (1999) (citing Jolly v. Eli Lilly & Co., 44 Cal. 3d 1103,

1111 (1988)). Thus, put somewhat differently, the discovery rule explains that a plaintiff

is only held to the “knowledge that could reasonably be discovered through investigation

of sources open to [him or] her.” O’Connor v. Boeing N. Am., 331 F.3d 1139, 1147 (9th

Cir. 2002) (citing Jolly, 44 Cal. 3d at 1109).

The original set of allegations about the perceived misuse of SDF monies in the

First Amended Complaint said nothing about the background on the issue, simply that

Pauma discovered the potential misuse of these funds when the State responded to an

inquest by the federal government (not three other tribes). See Dkt. No. 12 at ¶¶ 186-87.

However, the new allegations in the Second Amended Complaint flesh out the situation

in considerably more depth. Therein, Pauma details how the administrator of the SDF

(i.e., the CGCC) discloses very little information on the fund, typically just annual reports


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showing the total amount of money directed in general to the regulatory agencies that

benefit from the fund. See Dkt. No. 27-7, ¶¶ 191-92. However, what the CGCC does not

do is release detailed information on the specific uses of these funds, and a compact tribe

interested in finding out such information has basically no means to directly discover it

since the Commission is almost entirely exempt from the California Public Records Act

under the Gambling Control Act. See Dkt. No. 27-7, ¶ 192. The best case scenario for a

sleuthing tribe is that it works its way backward by filing a public record request with the

regulatory agencies who actually receive the SDF funding. But even then, the DOJ is also

exempt from the State’s Public Records Act, which means a tribe really has no legal way

of discovering whether SDF monies earmarked for regulatory purposes are actually being

devoted to such ends. Discovering such information is a search for a needle in a haystack,

and one in which a tribe would likely have to bring suit in federal court and ask the judge

to find the needle so the tribe could figure out whether it’s dangerous or not.

What is different in this situation is there was a voluntary disclosure by the State to

the federal government. One thing the district court was mistaken about in its March 29,

2017 order on the State’s motion to dismiss is how the disclosure of the perceived SDF

misuses came about. In relevant part, the March 29th order states that “Pauma only took

action after other signatory tribes had inquired about the use of SDF funds, which promp-

ted a disclosure by the State.” See Dkt. No. 26, 13:14-16. However, the inquiry did not

come from any other tribes, but from the federal government when it was conducting its

statutorily-mandated review of the pending compacts under the Indian Gaming Regula-

tory Act (“IGRA”), 25 U.S.C. § 2701 et seq. To explain, the federal government has a

trust responsibility over Indian tribes that has historically required the Bureau of Indian

Affairs to review contracts to ensure another party is not taking advantage of an Indian

tribe. See, e.g., 25 U.S.C. § 81(b) (explaining “[n]o contract… that encumbers Indian

lands for a period of 7 or more years shall be valid unless” approved by the Secretary of

the Interior). Congress carried over this contract-approval requirement in IGRA, inserting

a provision in the statute that requires the Secretary to approve or reject any “Tribal-State


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compact entered into between an Indian tribe and a State governing gaming on Indian

lands of such Indian tribe.” See 25 U.S.C. § 2710(d)(8)(A)-(D). For unbeknownst rea-

sons, the Bureau of Indian Affairs decided in the fall of 2015 that it needed more detailed

accounting information on the administration of the SDF in order to carry out its trust

responsibilities to the two tribes whose compacts were pending, and it was in response to

this request from the federal government that the State disclosed it was using some of the

SDF monies “to represent [itself] in compact negotiations and in lawsuits brought by

tribes alleging that the State negotiated in bad faith or committed undutiful, unreasonable,

or ultra vires conduct under the compacts.” See Dkt. No. 12 at ¶ 187. It is worth remem-

bering that all the State would do in response to this request from the federal government

was to narratively describe some of the actual functions the regulatory agencies perform

using SDF monies; it would not objectively detail all of the actual functions performed by

these agencies and the costs incurred for each.

Thus, the federal government was able to obtain a small part of what a signatory

tribe simply could not. If any doubt exists about this point, the State dispels that in the

ensuing section of its argument when it explains that Pauma has failed to cite to any

“contractual obligation… requiring State Defendants to disclose or specify the use of

SDF funding to Pauma” since it supposedly never paid into the account. See Dkt. No. 30-

1, 11:13-17. This is a pretty incriminating admission for a party that spent the better part

of a decade administering the compact unilaterally and then raising procedural barriers

against tribes that filed suit in the hopes of finding out whether such administration was

appropriate. See, e.g., Cachil Dehe Band of Wintun Indians of Colusa Indian Cmty. v.

California, 547 F.3d 962 (9th Cir. 2008) (reviving a tribal suit filed in 2004 to determine

whether the State had correctly calculated the total number of gaming device licenses

under the 1999 Compacts). Remember, the question at this point is simply whether it is

“plausible” that Pauma could not have discovered the misuse of SDF funding (which has

still not been documented) through sources “open to it” in advance of the federal govern-

ment receiving a sliver of the truth shortly before the inception of this case. Yet, given the


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broad exemptions for the gambling regulatory agencies in the California Public Records

Act and the State’s history of refusing to disclose information related to the administra-

tion of the compacts, the answer to this question is not just “yes, it is plausible,” but “yes,

it is an absolute certainty.”

III. THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING IMPOSES ADDI-TIONAL DUTIES THAT ARE “FAIRLY INFERABLE” FROM THE EXPRESS TERMS OFTHE 1999 COMPACT AND IS THUS NOT COEXTENSIVE WITH A BREACH OF CON-TRACT CLAIM AS THE STATE CONTENDS

The tail end of the State’s opposition raises two related arguments concerning the

implied covenant of good faith and fair dealing that suggest the covenant “cannot impose

substantive duties or limits on the contracting parties beyond those incorporated in the

specific terms of their agreement” (see Dkt. No. 30-1, 10:19-11-2), and as such Pauma’s

“new claim for relief for breach of the implied covenant should be dismissed because it is

duplicative of… [the existing one] for breach of contract.” See Dkt. No. 30-1, 11:25-26.

Yet, this perception of the implied covenant of good faith and fair dealing by the State

would essentially read the doctrine out of existence since it would be part and parcel with

a breach of contract claim. While the State claims that this is the case under California

law, the federal contract law that actually applies to this action is quite different. See

Pauma Band of Luiseno Mission Indians of Pauma & Yuima Reservation v. California,

813 F.3d 1155 (9th Cir. 2015) (holding that “[g]eneral principles of federal contract law

govern the Compacts, which were entered pursuant to IGRA”).

Under federal contract law, the implied covenant of good faith and fair dealing im-

poses inherent obligations on the contracting parties in order to protect their reasonable or

justified expectations about the fruits or the purposes of the contract. See, e.g., RESTATE-

MENT (SECOND) OF CONTRACTS § 205 (1981); Centex Corp. v. United States, 395 F.3d

1283, 1304 (Fed. Cir. 2005). The way the implied covenant does this is by imposing ad-

ditional duties on the contract parties that are “fairly inferable” from the express terms of

the agreement. See, e.g., JP Morgan Chase Bank, N.A. v. IDW Group, LLC, 2009 U.S.

Dist. LEXIS 9207, *12 (S.D.N.Y. 2009) (citing, e.g., Fasolino Foods Co. v. Banca


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Nazionale del Lavoro, 961 F.2d 1052, 1056 (2d Cir. 1992)); Shamis v. Ambassador

Factors Corp., 2000 U.S. Dist. LEXIS 13581, *53-*54 (S.D.N.Y. 2000). What is “fairly

inferable” is a context-specific question, so “the nature and extent of the duties owed

under the implied covenant are… variable and will depend on the contractual purposes.”

Williams v. Wells Fargo Bank, N.A., 2017 U.S. Dist. LEXIS 58519, *20 (N.D. Cal. 2017)

(citing Love v. Fire Ins. Exch., 221 Cal. App. 3d 1136, 1147 (4th Dist. 1990)). Never-

theless, when it comes to discretionary powers under a contract, the implied covenant

plays an important abuse-checking role and “requires a party vested with discretion…

[to] exercise that discretion reasonably, with proper motive and in a manner consistent

with the reasonable expectations of the parties.” Emerson Radio Corp. v. Orion Dales,

Inc., 253 F.3d 159, 170 (3d Cir. 2001) (citing Beraha v. Baxter Health Care Corp., 956

F.2d 1436, 1444 (7th Cir. 1992)); Kopple v. Schick Farms, Ltd., 447 F. Supp. 2d 965,

981-82 (N.D. Iowa 2006) (citing, e.g., RESTATEMENT (SECOND) OF CONTRACTS § 205

cmt. a (1981); 13 Richard A. Lord, WILLISTON ON CONTRACTS § 38:15 (4th ed. 1999)).

Thus, the import of the implied covenant of good faith and fair dealing in the in-

stant situation comes from its purpose to try and reign in any overreaching on the part of

the State during its singlehanded administration of the SDF. As explained in the past two

complaints, the 1999 Compact created a system whereby established gaming tribes would

pay a variable percentage of their revenues into the SDF. See Dkt. No. 27-1, p. 16. Any

paid revenue sharing fees were supposed to go towards purposes that are specifically

delineated in the 1999 Compact, like providing “support of… local government agencies

impacted by tribal government gaming” and “compensation for [the] regulatory costs

incurred by the State Gaming Agency and the… Department of Justice in connection

with the implementation and administration of the Compact.” See id. With that said, the

1999 Compact is silent about a number of other particulars about the SDF. For instance,

the administrator of the account is not identified in the terms of the agreement, but the

CGCC ultimately assumed that position on the claimed basis that it needed to oversee

both of the interconnected revenue sharing accounts under the 1999 Compacts. See Dkt.


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No. 27 at ¶ 189. Further, the compact-based instructions for administrating the SDF are

rather spartan, as the pertinent section simply specifies the entities that are eligible to

receive funds under the program. Thus, the express terms of the 1999 Compact would

seemingly allow the CGCC to do whatever it wants in administering the SDF so long as

the monies ended up in some or all of the appropriate hands. However, the implied

covenant of good faith and fair dealing demands much more from an administrator with

nearly unbridled discretion who is operating in a clandestine manner.

So, the State is correct in saying that a breach of the implied covenant and good

faith and fair dealing occurs if one party fails to comply with the express terms of the

agreement. But, the doctrine will reach even further and hold an administrator liable for

doing procedural things or taking substantive acts that are unreasonable in light of the

purposes of the contract. For example, the CGCC could decide to appropriate all the

money under the SDF program to a single cause, like improving the State’s gambling

addiction program. Or it could devote a disproportionate amount of funds it distributes to

the State regulatory agencies to covering their general overhead costs rather than the

actual and reasonable expenses associated with administering the 1999 Compacts. While

these sorts of acts may (with emphasis on may) not be outright proscribed under the terms

of the 1999 Compacts, they should be violative of the implied covenant of good faith and

fair dealing. After all, imbalanced appropriations or misdirected revenues would cause

consequent problems for the signatory tribes under the 1999 Compact, as the regulatory

agencies may demand additional funding (which they did) or the local communities may

expect tribes to execute subordinate contracts that circumvent the IGRA approval process

and yet require the payment of additional and rather significant revenue sharing (which

they also did). See Dkt. No. 27 at ¶¶ 206-07. Thus, the implied covenant is in place to

ensure that a concealed discretionary function, such as the one in this case, is carried out

it in a substantively reasonable manner as well as a procedurally reasonable one – like by

providing the signatory tribes with notice if a certain appropriation may be questionable

if not downright prohibited under the 1999 Compact.


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Thus, in contrast to the position taken by the State in its second motion to dismiss,

the implied covenant of good faith and fair dealing does exist and it imposes a myriad of

duties upon a party exercising discretionary authority under a contract aside from

ensuring compliance with the black-and-white terms of the agreement. Thus, this is

simply not a case where the breach of the implied covenant claim is coextensive with the

breach of contract claim. See, e.g., Manpower, Inc., 936 F. Supp. at 1508-09 (refusing to

strike an allegedly redundant implied covenant of good faith and fair dealing claim that

dealt with the failure to disclose misappropriations under a contract). If the district court

needs an extra reason to refrain from striking the claim, the procedural posture of the case

weighs heavily against taking this sort of action, which is “generally addressed at the

summary judgment stage of the case rather than on a 12(b)(6) motion.” Johnson v.

Regents of Univ. of Cal., 2010 U.S. Dist. LEXIS 63963, *20-*21 (N.D. Cal. 2010) (citing

Diaz v. Fed. Express Corp., 373 F. Supp. 2d 1034, 1066 (C.D. Cal. 2005)). In fact, this

sort of approach was taken by Judge Bencivengo during the prior compact litigation

between the parties. In that case, Pauma amended its complaint to include contract claims

under both federal and California law after the State simply refused to acknowledge the

applicability of federal contract law, which in turn led the State to make a sua sponte mo-

tion at the hearing on its ensuing second motion to dismiss to strike “the first four claims

in the First Amended Complaint,” which were supposedly subsumed under the “13th and

14th claims.” See Pauma, No. 09-01955, Dkt. No. 182, 15:24-16:21 (S.D. Cal. May 23,

2012). In response to this, Judge Bencivengo clarified that she was going to resolve the

case using federal contract law, but that she was not going to entertain the motion to

strike certain state or federal law claims at that point, as “[Pauma] can have them…

they’re in there.” Thus, the twenty-first and twenty-second claims for relief in the Second

Amended Complaint are not redundant, “they’re in there,” and Pauma should be able to

“have them” so it can present its case on summary judgment after the first round of such

briefing on the bad faith negotiation claims concludes.

///


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CONCLUSIONFor the foregoing reasons, Pauma respectfully requests that the Court deny the

State’s second motion to dismiss in full.

RESPECTFULLY SUBMITTED this 17th day of July, 2017

PAUMA BAND OF MISSION INDIANS

By: /s/ Kevin M. CochraneCheryl A. WilliamsKevin M. [email protected]@williamscochrane.comWILLIAMS & COCHRANE, LLP28581 Old Town Front StreetTemecula, CA 92590Telephone: (619) 793-4809


Documents

Cheryl A. Williams (Cal. Bar No. 193532) WILLIAMS ... · Case No.: 16-CV-01713 BAS JMA PAUMA’S OPP’N TO STATE DEFS.’ MOT. TO DISMISS SECOND AM. COMPL. Cheryl A. Williams (Cal