NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS AUG 15 2022

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

DUAL DIAGNOSIS TREATMENT No. 21-55962 CENTER, INC., a California corporation; et al., D.C. No. 2:20-cv-04112-SB-PVC Plaintiffs-Appellants,

v. MEMORANDUM*

CENTENE CORPORATION, a Delaware corporation; et al.,

Defendants-Appellees,

and

LIANN GOHARI; et al.,

Defendants.

and

LAST CHANCE FUNDING INC.;

FLORENTINE HOLDING COMPANY V,

LLC,

Claimants,

Appeal from the United States District Court for the Central District of California Stanley Blumenfeld, Jr., District Judge, Presiding

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Argued and Submitted August 2, 2022 Pasadena, California

Before: CALLAHAN and H. THOMAS, Circuit Judges, and HUMETEWA,** District Judge.

Plaintiffs appeal the dismissal of their Third Amended Complaint (TAC)

with prejudice. We have jurisdiction under 28 U.S.C. § 1291. We affirm in part,

reverse in part, and remand for further proceedings.

Plaintiffs are mental health and substance abuse treatment providers that

allege that Defendants, insurance companies and their leadership, conspired to

harm Plaintiffs’ businesses. The TAC asserted claims under the Racketeer

Influenced and Corrupt Organizations Act (RICO), alleging, in part, that

Defendants conspired to initiate criminal proceedings against Plaintiffs by

providing law enforcement and other insurance companies with false accusations

of illegal activity. This information, Plaintiffs claim, served as the basis for search

warrants that were executed simultaneously at several of Plaintiffs’ facilities. As a

result of Defendants’ actions, Plaintiffs claim economic damage, such as being

forced to close their bank accounts and ultimately being forced to close their

businesses entirely.

** The Honorable Diane J. Humetewa, United States District Judge for the District of Arizona, sitting by designation.

2 We review the dismissal de novo, accepting the complaint’s allegations as

true and drawing inferences in the pleading party’s favor. Eclectic Props. E., LLC

v. Marcus & Millichap Co., 751 F.3d 990, 995 (9th Cir. 2014). To survive a

motion to dismiss, the complaint must show the pleader is entitled to relief. Fed. R.

Civ. P. 8(a)(2). Allegations of fraud must be made with particularity. Fed. R. Civ.

P. 9(b). A claim need not seem probable, but it must be plausible. Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009).

A RICO claim requires showing “(1) conduct (2) of an enterprise (3)

through a pattern (4) of racketeering activity (known as ‘predicate acts’) (5)

causing injury to plaintiff’s ‘business or property.’” Living Designs, Inc. v. E.I.

Dupont de Nemours & Co., 431 F.3d 353, 361 (9th Cir. 2005) (quoting Grimmett

v. Brown, 75 F.3d 506, 510 (9th Cir. 1996)). A RICO conspiracy claim requires an

additional showing that the defendants entered into an agreement to violate RICO.

United States v. Fernandez, 388 F.3d 1199, 1230 (9th Cir. 2004). The district court

dismissed the TAC after concluding that it failed to adequately allege

(1) Defendants’ actions caused Plaintiffs’ injury, (2) viable predicate acts, and (3)

how some Defendants specifically engaged in a pattern of racketeering activity.1

1 We reject Plaintiffs’ argument that the district court failed to address these first two issues in its order dismissing the TAC. The district court clearly cited to the analysis made in its prior order, which elaborated on these issues.

3 1. We conclude that the TAC provides a plausible theory of causation.

For a RICO claim, the defendant’s actions must be the “but for” cause and the

proximate cause leading “directly to the plaintiff’s injuries.” Anza v. Ideal Steel

Supply Corp., 547 U.S. 451, 457–61 (2006). We consider three non-exhaustive

factors when evaluating RICO causation: (1) whether there are more direct victims

of the wrongful conduct, (2) whether it will be difficult to ascertain damages

attributable to the defendant, and (3) whether complex rules will be needed to

avoid multiple recoveries. Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1169 (9th

Cir. 2002). Nothing in the TAC suggests a more direct victim than Plaintiffs;

Plaintiffs have plausibly alleged the fact of damage; and there is no indication that

complex rules will be required.

In dismissing the TAC, the district court relied upon Galen v. County of Los

Angeles, 477 F.3d 652 (9th Cir. 2007), to support its conclusion that law

enforcement’s application for a search warrant and a magistrate judge’s finding of

probable cause are intervening acts that break the causal chain. But Galen does not

foreclose the TAC’s allegations of RICO causation as a matter of law. In Galen, in

ruling on a motion for summary judgment, the court contemplated the possibility

that a valid chain of causation could exist upon a showing of facts that a judicial

official was prevented from exercising independent judgment. 477 F.3d at 663–64.

Here, at the motion to dismiss phase, Plaintiffs’ plausible allegations that

4 Defendants provided false information that successfully deceived law enforcement

and the magistrate judge are sufficient to plead RICO causation.

2. We conclude that Defendants’ alleged misrepresentations to law

enforcement and others constitute plausible predicate acts.2 Defendants argue that

findings by a state court in a separate case show that Plaintiffs’ claims of

misrepresentations are implausible.3 Specifically, they argue the district court

properly took judicial notice, under Federal Rule of Evidence 201, of a state court

order finding that Plaintiffs had violated California law. But “taking judicial notice

of findings of fact from another case exceeds the limits of Rule 201.” Wyatt v.

Terhune, 315 F.3d 1108, 1114 (9th Cir. 2003), overruled on other grounds by

Albino v. Baca, 747 F.3d 1162 (9th Cir. 2014) (en banc). Although Defendants

may litigate the effect of the state court’s order at a later phase, we conclude, at the

pleading stage, that the TAC adequately alleges plausible predicate acts.

Defendants also argue that communications with law enforcement cannot

serve as predicate acts under the Noerr-Pennington doctrine and that California

2 We agree with the district court that the TAC does not adequately allege predicate acts with respect to alleged misrepresentations Defendants made directly to Plaintiffs. 3 The Court notes Plaintiffs’ objection to Defendants’ filing (Doc. 49) under Federal Rule of Appellate Procedure 28(j) as an improper citation to authorities and irrelevant to this matter. (Doc. 50). The objection is well taken. Though we permit Defendants’ filing, we do not consider it for purposes of our decision.

5 law required Defendants to report the suspected fraud. Because the district court

did not address these issues, we decline to do so in the first instance. See Singleton

v. Wulff, 428 U.S. 106, 120 (1976). For the same reason, we decline to reach

Defendants’ argument that the RICO claim is barred by the statute of limitations.

3. Finally, we affirm the district court’s conclusion that the TAC fails to

make specific allegations showing that Defendants Centene Corp., Managed

Health Network, Inc., and Michael Neidroff engaged in a pattern of racketeering

activity. We agree with the district court’s analysis noting the pleading’s defect

with respect to these Defendants. The TAC seldom mentions them, and it fails to

state their involvement with Rule 9(b) specificity. We therefore affirm the district

court’s dismissal of the RICO claims as to Defendants Centene Corp., Managed

Health Network, Inc., and Michael Neidroff. Contrary to the district court,

however, we conclude that the TAC adequately pleads a RICO claim as to

Defendants Health Net Life Insurance Company and Optum Services, Inc.

In sum, we reverse the district court’s dismissal of the RICO claims against

all defendants except Centene Corp., Managed Health Network, Inc., and Michael

Neidroff. Because the district court, having dismissed the federal claims, declined

to exercise supplemental jurisdiction over the state law claims, we also vacate that

ruling and remand for reconsideration in accordance with this Order.

Each party shall bear its own costs.

6 AFFIRMED in part, REVERSED in part, and REMANDED.

7