Report and Recommendation, American Steel, Inc. v. Vensure Employer Services, Inc., No. 2:25-cv-03087 (D. Ariz.), Doc. 41 (Mar. 6, 2026)
Summary
A Report and Recommendation, Document 41, filed March 6, 2026 in American Steel Incorporated v. Vensure Employer Services Incorporated, et al., No. CV-25-03087-PHX-DJH, in the U.S. District Court for the District of Arizona, addressed to Hon. Diane J. Humetewa. It addresses Defendants' Motion to Dismiss the Class Action Complaint (Doc. 22), Avitus, Inc.'s Motion to Intervene (Doc. 19) and Avitus's Motion for Protective Order (Doc. 20). It recounts that the plaintiff filed a putative class action on August 25, 2025 alleging that defendants did not remit to clients interest the IRS paid on Employee Retention Credits under the CARES Act, with counts for unjust enrichment, conversion and violation of the Arizona Consumer Fraud Act. The report gives a 14-day period for objections and ends with an order granting Avitus's Motion for Protective Order, dated March 6, 2026.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Cite this document
“Report and Recommendation, American Steel, Inc. v. Vensure Employer Services, Inc., No. 2:25-cv-03087 (D. Ariz.), Doc. 41 (Mar. 6, 2026).”
Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/report-and-recommendation-american-steel-inc-v-vensure-employer-servic-543455e672/
, SHA-256 bd29aba44a6e620691e7e8b2d479ab9b9c9908ce526274470f8609d0a2c4282b.Full text
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 1 of 24
1
2
3
4
5
6 IN THE UNITED STATES DISTRICT COURT
7 FOR THE DISTRICT OF ARIZONA
8
9 American Steel Incorporated, No. CV-25-03087-PHX-DJH
10 Plaintiff, REPORT AND RECOMMENDATION
11 v.
12 Vensure Employer Services Incorporated, et
al.,
13
Defendants.
14
15 TO HON. DIANE J. HUMETEWA, UNITED STATES DISTRICT JUDGE:
16 Before the Court and ripe for disposition are (1) Defendants’ Motion to Dismiss
17 Class Action Complaint (Doc. 22); (2) Avitus, Inc.’s Motion to Intervene (Doc. 19); and
18 (3) Avitus, Inc.’s Motion for Protective Order (Doc. 20). The Court referred this case to
19 undersigned “for all pretrial proceedings” (Doc. 23 at 8), but the first two instant motions
20 are ultimately within the province of the District Judge. Specifically, motions to dismiss
21 fall within 28 U.S.C. § 636(b)(1), and (at minimum), permissive intervention under Rule
22 24(b) of the Federal Rules of Civil Procedure is “subject to the discretion of the district
23 judge.” Montgomery v. Rumsfeld, 572 F.2d 250, 255 (9th Cir. 1978) (citations omitted).
24 Accordingly, undersigned submits this Report and Recommendation on the first two
25 motions and enters an Order as to the third. In addition, because undersigned is able to
26 make a recommendation based on the papers, the request for oral argument will be denied.
27 I. PROCEDURAL HISTORY
28 On August 25, 2025, Plaintiff, American Steel Inc. (“Plaintiff”), filed its putative
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 2 of 24
1 Class Action Complaint against Defendants Vensure Employer Services, Inc., d/b/a
2 Vensure Employer Solutions, and VensureHR, Inc. (collectively, “Defendants”). (Doc. 1.)
3 Plaintiff alleges it is a Montana corporation that hired Avitus, Incorporated (“Avitus”) in
4 2009 to “provide employee administration, payroll administration, and payroll tax services
5 on” Plaintiff’s behalf. (Id. at ¶¶ 1, 22.) Plaintiff further alleges that “around 2020,”
6 Defendants, both Arizona corporations, “gained control over Avitus.” (Id. at ¶¶ 2-3, 23.)
7 Plaintiff alleges Defendants perform those payroll-related services on Plaintiff’s behalf.
8 (Id. at ¶¶ 1-4.) Plaintiffs further allege Defendants failed to remit to Plaintiffs interest paid
9 by the Internal Revenue Service (“IRS”) on accrued Employee Retention Credits (“ERCs”)
10 under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. (Id. at ¶¶ 14-
11 19.) Plaintiffs claim Defendants “kept the interest the IRS paid out on the ERC refunds for
12 its own use and benefit at its clients’ expense.” (Id. at ¶ 19.)
13 Plaintiff brings suit on behalf of itself and the following putative Class: “For the
14 period of January 1, 2020, to present, all current and former individuals and entities that
15 have used Defendants to file for and/or claim ERC benefits and received at least one ERC
16 benefit refund check but were not remitted the interest paid by the IRS thereon.” (Doc. 1
17 at ¶ 36.) Plaintiff’s claims are as follows: Count One – Unjust Enrichment, Count Two –
18 Conversion, and Count Three – Violation of the Arizona Consumer Fraud Act, A.R.S. §
19 44-1521 et seq. (Id. at ¶¶ 48-78.) As relief, Plaintiff seeks damages, injunctive relief, pre-
20 and post-judgment interest, and attorney’s fees and costs. (Id. at 16.)
21 After Defendants were served, Avitus filed the instant Motion to Intervene (Doc.
22 19) and Defendants filed their Motion to Dismiss (Doc. 22). Meanwhile, the District Judge
23 entered the Rule 16 Scheduling Order, in which the referral to undersigned for pretrial
24 proceedings was made. (Doc. 23.) The instant Motions were fully briefed, and the District
25 Judge temporarily stayed discovery until resolution of the Motion to Dismiss. (Doc. 37.)
26 Undersigned notes that the instant motions are sufficiently briefed and may be addressed
27 on the papers; thus, undersigned recommends oral argument be denied.
28 ///
-2-
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 3 of 24
1 II. MOTION TO DISMISS
2 Defendants move to dismiss under Rule 12(b)(6) under the Federal Rules of Civil
3 Procedure, arguing that Plaintiff has improperly grouped Defendants together, Plaintiff’s
4 claims are insufficiently pled, and the putative Class should be stricken under Rule 23 of
5 the Federal Rules of Civil Procedure. (See Docs. 22, 38.) Plaintiff opposes the Motion.
6 (Doc. 29.)
7 A. Legal Standard
8 Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss a
9 complaint for “failure to state a claim upon which relief can be granted.” To survive a Rule
10 12(b)(6) motion, a complaint must meet the requirements of Federal Rule of Civil
11 Procedure 8(a)(2). Rule 8(a)(2) requires “a short and plain statement of the claim showing
12 that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). This means that “a party must
13 allege sufficient factual matter, accepted as true, to state a claim to relief that is plausible
14 on its face.” In re Fitness Holdings Int’l, Inc., 714 F.3d 1141, 1144 (9th Cir. 2013)
15 (citations and quotations omitted). In addition, when “a unified course of fraudulent
16 conduct” is alleged and plaintiff relies “entirely on that course of conduct as the basis of”
17 a claim, “the claim is said to be ‘grounded in fraud’ or to ‘sound in fraud,’ and the pleading
18 . . . as a whole must satisfy the particularity requirement of Rule 9(b).” Kearns v. Ford
19 Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (quoting Vess v. Ciba-Geigy Corp. USA,
20 317 F.3d 1097, 1103-04 (9th Cir. 2003) (internal quotation marks and ellipsis in original))
21 (applying 9(b) heightened pleading standard to entire complaint where only state consumer
22 protection claims pled).
23 “A claim has facial plausibility when the plaintiff pleads factual content that allows
24 the court to draw the reasonable inference that the defendant is liable for the misconduct
25 alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v.
26 Twombly, 550 U.S. 544, 556 (2007)). “Threadbare recitals of the elements of a cause of
27 action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550
28 U.S. at 555). A motion to dismiss may also be granted “where there is . . . a lack of a
-3-
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 4 of 24
1 cognizable legal theory.” Mollett v. Netflix, Inc., 795 F.3d 1062, 1065 (9th Cir. 2015)
2 (citations omitted). When considering a 12(b)(6) motion, “all allegations of material fact
3 are taken as true and construed in the light most favorable to the nonmoving party.” Cousins
4 v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009) (quoting Silvas v. E*Trade Mortgage
5 Corp., 514 F.3d 1001, 1003 (9th Cir. 2008)).
6 In deciding a motion to dismiss, the Court generally should confine itself to the
7 pleadings. If the Court “considers evidence outside the pleadings, it must normally convert
8 the 12(b)(6) motion into a Rule 56 motion for summary judgment, and it must give the
9 nonmoving party an opportunity to respond.” United States v. Ritchie, 342 F.3d 903, 907
10 (9th Cir. 2003) (citations omitted). However, “documents attached to the complaint,
11 documents incorporated by reference in the complaint, or matters of judicial notice”
12 pursuant to Fed. R. Evid. 201(b) may be considered without converting a 12(b)(6) motion
13 to a summary judgment motion. Id. at 908-09 (citations omitted). In addition, “[e]ven if a
14 document is not attached to a complaint, it may be incorporated by reference into a
15 complaint if the plaintiff refers extensively to the document or the document forms the
16 basis of the plaintiff’s claim.” Id. at 908 (citations omitted).
17 B. Analysis
18 Undersigned will consider each of Defendants’ attacks on the Complaint in turn.
19 1. Collective Pleading
20 First, Defendants argue the Complaint should be dismissed because Plaintiff
21 impermissibly lumps both Defendants together. (See Doc. 22 at 6-7.) Defendants further
22 contend Plaintiff’s collective pleading disregards the corporate form, in violation of
23 Arizona law. (See id. at 6.)
24 “A collectively pleaded complaint may fail to provide fair notice to a defendant,
25 where there are multiple defendants and claims, and the complaint fails to differentiate
26 among them.” Briskin v. Shopify, Inc., 135 F.4th 739, 762 (9th Cir. 2025). “On the other
27 hand, a complaint need not distinguish between defendants that had the exact same role in
28 a fraud.” United States ex. rel Silingo v. WellPoint, Inc., 904 F.3d 667, 677 (9th Cir. 2018).
-4-
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 5 of 24
1 “A good claim against one defendant did not become inadequate simply because a
2 codefendant was alleged to have committed the same wrongful acts.” Id. Indeed, if “one
3 course of conduct jointly pursued by … closely related corporate defendants” is alleged,
4 collectively pleading of those defendants is permissible so long as the complaint “provides
5 sufficient notice of the claims against them.” See Briskin, 135 F.4th at 762.
6 In Briskin, the Ninth Circuit found that a complaint that collectively pled three
7 corporate defendants engaged in the same scheme passed 12(b)(6) muster. 135 F.4th at
8 762. Importantly, the Circuit observed that the complaint “generally describe[d] each
9 company’s role in the alleged” scheme. Id. Similarly, in Blake v. Dierdorff, the Ninth
10 Circuit allowed collective pleading in the corporate fraud context when the “complaint
11 provid[ed], in nineteen separate paragraphs, the date of each of these publications, specific
12 descriptions of the representations made, the reasons for their falsity, and, where possible,
13 the role of the individual defendants in preparation and dissemination.” 856 F.2d 1365,
14 1369 (9th Cir. 1988).
15 Thus, where possible, individual defendants’ actions should be identified in the
16 complaint. See Briskin, 135 F.4th at 762; see Blake, 856 F.2d at 1369; see also Solar
17 Optimum, Inc. v. Elevation Solar LLC, No. CV-23-00135-PHX-SMB, 2024 WL 1961858,
18 at *5 (D. Ariz. May 3, 2024) (finding collective pleading permitted where each individual
19 defendant’s participation was described before collectively grouping); see also Avrahami
20 v. Clark, No. CV-19-04631-PHX-SPL, 2020 WL 2319922, at *2 (D. Ariz. May 8, 2020)
21 (finding same where the role(s) and actions of each group of defendants was pled).
22 Although the requirement “may be relaxed as to matters within the opposing party’s
23 knowledge” in the corporate fraud context, “[t]o overcome such difficulties in cases of
24 corporate fraud, the allegations should include the misrepresentations themselves with
25 particularity and, where possible, the roles of the individual defendants in the
26 misrepresentations.” Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir.
27 1989) (citation omitted).
28 In the case at bar, Plaintiff argues its Complaint “permissibly alleges the closely-
-5-
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 6 of 24
1 related corporate Defendants collectively engaged in the same conduct at issue.” (Doc. 29
2 at 11.) Plaintiff further urges that pleading standards be relaxed because “Defendants have
3 exclusive information, including about their inner workings, corporate relationship, and
4 roles in the alleged misconduct.” (Id.) Plaintiff maintains “there is no real way for Plaintiff
5 to distinguish between Defendants absent discovery.” (Id. at 12.) In making these
6 arguments, Plaintiff points to various cases in which dismissal was denied where there was
7 a parent-subsidiary relationship between defendants, defendants shared a corporate brand
8 name and website, and the like. (See id. at 11-12.) In support of its position, Plaintiff
9 further directs the Court to various exhibits, including a printout of a website of one of the
10 named Defendants; Defendants’ respective information on file with the Arizona
11 Corporation Commission that show that the same address/common officers for both
12 Defendants; and a corporate disclosure statement filed in a different case in a different
13 district court indicating “Vensure HR, Inc. is a wholly-owned subsidiary of Vensure
14 Employer Services, Inc.” (See Doc. 30-1.) Plaintiff asks the Court to take judicial notice
15 of same. (Doc. 29 at 12, n.3.) Defendants counter, inter alia, that the cases Plaintiff cites
16 are distinguishable and Plaintiff cannot rest on a blanket statement regarding both
17 Defendants in its Complaint and merely note they are affiliated to overcome their pleading
18 deficiencies. (See Doc. 38 at 2-5.) Defendants also argue that judicially noticing a website
19 for a private company is improper and cannot be considered for its truth if noticed, and
20 they contend the website of one of them is “irrelevant” to the Motion because it does not
21 establish alter-ego liability. (See Doc. 38 at 5-6.)
22 a. Judicial notice
23 At the outset, undersigned makes clear that the Motion to Dismiss will not be
24 converted to a motion for summary judgment. Undersigned will consider only “documents
25 attached to the complaint, documents incorporated by reference in the complaint, or matters
26 of judicial notice” pursuant to Fed. R. Evid. 201(b). See Ritchie, 342 F.3d at 908-09.
27 Judicial notice under Rule 201 permits a court to notice an adjudicative fact if it is
28 “not subject to reasonable dispute.” Fed. R. Evid. 201(b). A fact is “not subject to
-6-
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 7 of 24
1 reasonable dispute” if it is “generally known,” or “can be accurately and readily determined
2 from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b)(1)-
3 (2). And “[j]ust because the document itself is susceptible to judicial notice does not mean
4 that every assertion of fact within that document is judicially noticeable for its truth.”
5 Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018). In other words,
6 if a document is subject to varying interpretations and there is a reasonable dispute as to
7 what the document establishes, judicial notice is not permitted. See id. (citing Reina-
8 Rodriguez v. United States, 655 F.3d 1182, 1193 (9th Cir. 2011).
9 Plaintiff asks the Court to take “judicial notice of the Vensure.com website, the cited
10 court filing, and the corporate headquarters addresses listed in secretary of state filings as
11 matters not subject to reasonable dispute.” (Doc. 29 at 12, n.3.) Plaintiff cites two cases,
12 both of which concern public court documents or public agency’s websites. (See id. (citing
13 Poll v. Stryker Sustainability Sols., Inc., No. CV 13-440-TUC-CKJ, 2014 WL 199150, at
14 *2 (D. Ariz. Jan. 17, 2014) (taking judicial notice of a document filed in another court and
15 documents found on a federal government website) and Reyn’s v. Pasta Bella, LLC v. Visa
16 USA, Inc., 442 F.3d 941, 746 n.6 (9th Cir. 2006) (judicially noticing documents filed in
17 another federal lawsuit).)
18 In light of the case law above, the Court agrees that it may take judicial notice of
19 documents filed in other cases and government websites. Accordingly, it takes judicial
20 notice of Exhibits E through G to the Declaration in support of Plaintiff’s Response to the
21 Motion to Dismiss, which are a corporate disclosure statement filed in a different lawsuit
22 and the “Entity Information” regarding each Defendant on the Arizona Corporation
23 Commission’s website, respectively. (See Doc. 30-1 at 29-39.)
24 The Court will not, however, take judicial notice of Exhibits A through D, which
25 are printouts of webpages associated with the site vensure.com. (See Doc. 30-1 at 1-28.)
26 “Prior decisions from this district have held judicial notice is not appropriate for private
27 websites.” U-Haul Int’l Inc. v. Public Storage Operating Co., No CV-24-03610-PHX-
28 MTL, 2025 WL 2419950, at *1 (D. Ariz. Aug. 12, 2025) (citing ThermoLife Int’l LLC v.
-7-
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 8 of 24
1 Neogenis Labs Inc., CV-18-02980-PHX-DWL, 2021 WL 1400818, at *2 (D. Ariz. Apr.
2 14, 2021)). This is because “[p]rivate websites are often ‘marketing tool[s]...full of
3 imprecise puffery that no one should take at face value.’” Id. (quoting Victaulic Co. v.
4 Tieman, 499 F.3d 227, 236-37 (3rd Cir. 2007) (alterations in original)). While some
5 apparent aspects of the website (e.g., a web address (vensure.com) being used for
6 VensureHR) may not pose a risk of “puffery” per se, the “ownership” or “use” of the
7 website by a specific entity or entities is subject to varying interpretations and there is a
8 reasonable dispute as to what the website establishes. Thus, judicial notice will not be
9 taken of Exhibits A through D.
10 b. Recommendation as to collective pleading
11 First, the Court observes that the Complaint is extremely limited as to its description
12 of the roles of, or even the relationship between, Defendants. The first sentence of the
13 Complaint states: “Plaintiff American Steel, Inc., individually and on behalf of all others
14 similarly situated, brings this class action complaint against Defendants Vensure Employer
15 Services Inc. d/b/a Vensure Employer Solutions, and VensureHR, Inc. (collectively,
16 ‘Vensure’).” (Doc. 1 at 1.) From that point forward, Plaintiff makes no attempt to
17 distinguish between Defendants in any way, save for the recitation of the parties in Section
18 I of the Complaint. (See Doc. 1.) Rather, the Complaint consistently describes Defendants
19 as a singular organization (e.g., “Vensure is a professional employer organization . . . that
20 provides business administration services . . . ” (id. at ¶ 8)) and Defendants’ actions as
21 singularly-taken (e.g., “Vensure determines the federal and state employment taxes
22 believed to be owed . . . ”; “Vensure was responsible for determining and/or verifying the
23 amount of the ERC benefits for its clients”; “Vensure failed to remit the interest paid out
24 by the IRS that accrued on the ERC benefits to its clients”; “Vensure has sent numerous
25 standardized communications that similarly provided information regarding the ERC and
26 solicited the filing of ERC claims through Vensure to clients) (id. at ¶¶ 10, 18-19, 24). In
27 addition, Plaintiff alleges that it originally contracted with Avitus in 2009, and “Vensure
28 gained control over Avitus” in approximately 2020. (Id. at ¶¶ 22-23.)
-8-
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 9 of 24
1 Moving to the enumerated counts of the Complaint, Plaintiff similarly makes no
2 attempt to distinguish between Defendants in their actions or roles. (See id. at ¶¶ 48-78.)
3 Indeed, nowhere in the Complaint does Plaintiff even allege that one Defendant is the
4 parent and the other is a subsidiary. (See Doc. 1.) It is only when the Court looks to the
5 judicially-noticed corporate disclosure statement that was filed in another case that their
6 relationship becomes apparent. (See Doc. 30-1 at 31) (“VensureHR Inc. is a wholly-owned
7 subsidiary of Vensure Employer Service, Inc.”).
8 Plaintiff’s pleading therefore is distinguished from the cases Plaintiff cites in its
9 Response. Plaintiff cites to Briskin (Doc. 29 at 10-11), but as this Court noted supra, the
10 complaint in Briskin “generally describe[d] each company’s role in the alleged” scheme
11 and provided further detail. See Briskin, 135 F.4th at 762. No such delineation regarding
12 Defendants’ roles is found in the Complaint at bar. (See Doc. 1.) The same distinction
13 holds for other cases cited by Plaintiff. See Tivoli LLC v. Sankey, 2015 WL 12683801, at
14 *4 (C.D. Cal. Feb. 3, 2015) (finding complaint’s factual allegations “explain[ed] in
15 sufficient detail each entity’s allegedly culpable conduct to put Defendants on notice of the
16 claims); see Keskinen v. Lush Handmade Cosms. LLC, 770 F. Supp. 3d 1234, 1244 (C.D.
17 Cal. 2025) (finding the complaint identified each role played by each defendant-entity and
18 alleged that defendants had “acted in concert”, and where complaint particularly described
19 the relationship between the defendants and their own collective reference on the company
20 website).
21 Plaintiff further cites Silingo, in which the Circuit reiterated that “a complaint need
22 not distinguish between defendants that had the exact same role in a fraud.” (See Doc. 29
23 at 11); Silingo, 904 F.3d at 678. But the Complaint in this case does not plead that
24 Defendants played the same role; rather, it simply collectively refers to Defendants in the
25 first line of the Complaint and proceeds from there. In essence, the Complaint seems to
26 assume that because of Defendants’ relationship as parent-subsidiary (which again, is not
27 pled), Defendants are interchangeable and acted in the same way, even though none of that
28 is alleged, much less described. (See Doc. 1.) A “parent-subsidiary relationship . . . does
-9-
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 10 of 24
1 not automatically create liability for” the parent company. iGolf, Inc. v. Bushnell Holdings,
2 Inc., 2025 WL 875913, at *2 (S.D. Cal. Mar. 4, 2025). This is because a parent corporation
3 is not generally liable for its subsidiary’s acts. Id. (citing United States v. Bestfoods, 524
4 U.S. 51, 61 (1998)). Therefore, while pleading standards may indeed be relaxed in a
5 corporate fraud context, there must be more than collective, bare, or conclusory assertions
6 in the Complaint to pass 12(b)(6) muster.
7 Plaintiff further cites other cases to support the proposition that because Plaintiff
8 lacks sufficient information to distinguish between Defendants at this early stage,
9 collectively pleading is permitted. (See Doc. 29 at 12-13.) Again, though, this effort
10 suffers the same, basic flaw as described above. In the cases Plaintiff cites, the plaintiffs
11 made some attempt in their complaints to distinguish between the defendants. Plaintiff
12 made no such effort in this case. First, Plaintiff cites to Merritt v. Yavone, LLC, No. 6:15-
13 CV-0269-TC, 2015 WL 9256682 (D. Or. Nov. 5, 2015). (Doc. 29 at 13.) In Merritt, the
14 complaint spent “an entire section identifying the roles – as plaintiff notes to the best of
15 plaintiff’s knowledge at this early stage of litigation – that each defendant plays in the
16 alleged fraud.” 2015 WL 9256682, at *2. Plaintiff also cites to MST Mgmt., LLC v.
17 Chicago Doughnut Franchise Co., LLC, 584 F. Supp. 3d 923, 931 (D. Nev. 2022). (Doc.
18 29 at 13.) But in MST Mgmt., the plaintiffs alleged the entity-defendants “and their officers
19 and principals” engaged in a fraud and included “details about each individual” defendant
20 in the complaint. 584 F. Supp. 3d at 932. Certainly, including every detail about each
21 defendant and their separate role(s) is not required at the pleading stage. But collective
22 pleading without an attempt in any regard to distinguish between Defendants or their roles
23 is not supported by the case law.
24 Because Plaintiff has not sufficiently distinguished between Defendants in this case,
25 undersigned will recommend the Complaint be dismissed on that basis alone. However, to
26 provide the District Judge with a more thorough analysis, the additional bases for the
27 dismissal motion will be considered. Undersigned will also discuss leave to amend.
28 Similarly, undersigned will consider the Motion to Intervene as well.
- 10 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 11 of 24
1 2. Sufficiency of Count One (Unjust Enrichment)
2 Defendants further contend Count One fails to state a claim for unjust enrichment.
3 (See Doc. 22 at 9-12.)
4 “To recover under a theory of unjust enrichment, a plaintiff must demonstrate five
5 elements: (1) an enrichment, (2) an impoverishment, (3) a connection between the
6 enrichment and impoverishment, (4) the absence of justification for the enrichment and
7 impoverishment, and (5) the absence of a remedy provided by law.” Freeman v. Sorchych,
8 245 P.3d 927, 936 (Ariz. Ct. App. 2011) (citations omitted).1 “[U]njust enrichment is a
9 form of restitutionary relief available upon either implied in fact contract or quasi-
10 contractual grounds.” USLife Title Co. of Ariz. v. Gutkin, 732 P.2d 579, 584 (Ariz. Ct. App.
11 1986) (quotations and citations omitted). But Arizona law specifies that the defendant’s
12 receipt of a benefit is not enough to prove unjust enrichment; the plaintiff must show that
13 they conferred a benefit. Freeman, 245 P.3d at 936-37. “[A] plaintiff must show that it was
14 not intended or expected that the services be rendered or the benefit conferred gratuitously,
15 and that the benefit was not conferred officiously.” Id. (quotations and citations omitted).
16 Moreover, unjust enrichment is a “flexible equitable remedy which is available whenever
17 the court finds that the defendant . . . is obliged by the ties of natural justice and equity to
18 make compensation for the benefits received.” Hannibal-Fisher, 523 F. Supp. 3d at 1097
19 (quotations and citations omitted).
20 Defendants claim Plaintiff has failed to sufficiently plead an enrichment and an
21 absence of justification for the enrichment and impoverishment, and Defendants further
22 argue Plaintiff has an adequate remedy at law. (Doc. 22 at 9-12.) Plaintiff counters that
23 the Complaint alleges Defendants improperly held interest on the ERC benefits for the third
24 quarter 2021 and Defendants kept that interest despite having no legal right to do so, and
25 Plaintiff emphasizes that the contract between it and Avitus is silent as to ERC benefits.
26
1
Undersigned notes that for purposes of analysis at this stage, Arizona law is applied.
27 No party has argued that another state’s law controls, but all parties have acknowledged
Montana law governs the contract between Plaintiff and non-party Avitus. (See Doc. 22 at
28 5 n.1 and Doc. 29 at 14 n.5.) The parties all apply Arizona law at this stage (see id.), and
the Court will do the same.
- 11 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 12 of 24
1 (Doc. 29 at 15-17.) In reply, Defendants essentially abandon their first challenge to this
2 claim, due to the clarification by Plaintiff regarding which quarter of benefits this claim is
3 based. (See Doc. 38 at 8.) Defendants, though, continue by arguing that because Plaintiff
4 never intended to pay for ERC services, Plaintiff has not alleged a lack of justification for
5 the enrichment or impoverishment, and Defendants further the contract with Avitus
6 provides an adequate remedy. (See id. at 8-10.)
7 Taking Plaintiff’s allegations as true, as it must, the Court finds Plaintiff has
8 sufficiently pled the unjust enrichment claim. First, Plaintiff alleges in the Complaint that
9 it is the true owner of ERC benefits paid by the IRS under 26 U.S.C. §§ 6621(a)(1) and
10 6611 because Plaintiff is the taxpayer. Because Plaintiff is the taxpayer, it follows that
11 Plaintiff, rather than Defendants, would be entitled to the ERC benefits. Accordingly,
12 absence of justification would be present. Second, “[t]he mere existence of a contract
13 governing the dispute does not automatically invalidate” an unjust enrichment claim. See
14 Arnold & Assocs., Inc. v. Misys Healthcare Sys., 275 F. Supp. 2d 1024, 1030 (D. Ariz.
15 2003). In addition, the contract between Plaintiff and Avitus did not specifically include
16 ERC benefits because those benefits did not exist at the time the contract was entered; thus,
17 it is plausible Plaintiff could be left without a theory of recovery under contract.
18 Alternatively pleading the theory of unjust enrichment is permitted. See id. at 1029. Thus,
19 undersigned would recommend the Motion be denied as to the unjust enrichment claim if
20 the Court were to elect not to grant the Motion on collective pleading grounds.
21 3. Sufficiency of Count Two (Conversion)
22 Defendants also argue Plaintiff has insufficiently pled conversion in Count Two.
23 (See Doc. 22 at 12-15.)
24 Under Arizona law, conversion is defined as “an act of wrongful dominion or
25 control over personal property in denial of or inconsistent with the rights of another.” Case
26 Corp. v. Gehrke, 91 P.3d 362, 365 (Ariz. Ct. App. 2004) (quoting Sears Consumer Fin.
27 Corp. v. Thunderbird Prods., 802 P.2d 1032, 1034 (Ariz. Ct. App. 1990)). “To maintain
28 an action for conversion, a plaintiff must have had the right to immediate possession of the
- 12 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 13 of 24
1 personal property at the time of the alleged conversion.” Id. (citations omitted). “A
2 conversion claim cannot be maintained to collect on a debt that could be satisfied by money
3 generally, but money can be the subject of a conversion claim if the money can be
4 described, identified or segregated, and an obligation to treat it in a specific manner is
5 established.” Hannibal-Fisher v. Grand Canyon Univ., 523 F. Supp. 3d 1087, 1098 (D.
6 Ariz. 2021) (internal quotations and citations omitted).
7 Here, Defendants argue first that Plaintiff failed to allege sufficient facts that it had
8 a right to possess the interest for the third quarter’s ERC credits. (Doc. 22 at 13.)
9 Undersigned disagrees. Taking Plaintiff’s allegations at true, as it must at this stage, the
10 Complaint states Defendants2 received an interest payment to which Plaintiff was entitled
11 and refused to return it upon Plaintiff’s request. (Doc. 1 at ¶¶ 12-13, 17-19, 25-29.) Thus,
12 this basis for relief in the Motion is not persuasive.
13 Defendants next argue that “Plaintiff has failed to plausibly allege a conversion
14 claim . . . because its alleged injury is premised solely on a purported debt that could be
15 paid by money generally.” (Doc. 22 at 14.) Plaintiff counters that it has specifically
16 identified the funds to be returned to it, as they were described by Defendants “on a
17 Schedule R attached to an aggregated 941 filing.” (Doc. 29 at 19.) Plaintiff further argues
18 that the interest on the amount can be readily identified pursuant to 26 U.S.C. § 6621(a)(1).
19 (Id.) Finally, Plaintiff contends the amount owed here is not a debt, because Defendants
20 never had a right to control the interest owed in the first place; therefore, Plaintiff argues,
21 the money cannot be characterized as a debt owed. (Id. at 20.)
22 As this Court has previously observed, “many limitations on conversion actions for
23 money are intended to prevent a contract dispute between a debtor and a creditor from
24 turning into a tort action.” Mountains of Spices LLC v. Lafrenz, 653 F. Supp. 3d 665, 678
25 (D. Ariz. 2023), vacated in part on other grounds by Mountains of Spices LLC v. Lafrenz,
26 No. CV-21-01497-PHX-JAT, 2023 WL 3230989 (D. Ariz. May 3, 2023). “Where funds
27 2
As discussed supra, the failure to attempt to delineate between roles of Defendants
is grounds for dismissal alone. However, for purposes of continuing the analysis of
28 individual claims, undersigned will assume arguendo that collective pleading is properly
accomplished in the Complaint.
- 13 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 14 of 24
1 are fraudulently obtained, however, the recipient never obtains a right to exercise dominion
2 or control over the money, and the money continues to belong to its owner just as it would
3 where it has been stolen by a thief.” Id. (internal punctuation and citations omitted). In
4 that case, the Court concluded that because the complaint alleged the funds in question
5 were supposed to be treated “in a specific manner” and they “were obtained fraudulently,”
6 with “the money rightfully belong[ing] to Plaintiff at all times,” the prohibition on
7 conversion claims “between debtors and creditors do not apply.” Id. Here, the Complaint
8 alleges (and it must be taken as true) that Defendants were not entitled to receive the interest
9 that they withheld from Plaintiffs.3 Thus, the fact that money may be used to satisfy the
10 action is not fatal to the conversion claim. Undersigned would recommend the Motion be
11 denied as to the conversion claim if collective pleading were not already a basis for
12 dismissal.
13 4. Sufficiency of Count Three (Arizona Consumer Fraud Act)
14 Additionally, Defendants argue Count Three fails to sufficiently plead a claim under
15 Arizona’s Consumer Fraud Act. (See Doc. 22 at 8-9.) Specifically, Defendants argue the
16 collective pleading by Plaintiff is not permitted under heightened pleading standards
17 associated with this statute and fraud more generally. (See id.) Plaintiff counters with the
18 same arguments discussed supra. (See Doc. 29 at 13-14.) For the reasons described earlier
19 in this Report and Recommendation, undersigned agrees with Defendants that the
20 collective pleading employed by Plaintiff in its Complaint is impermissible. Thus,
21 undersigned continues to recommend dismissal on this claim for that reason.
22 5. Sufficiency of Class Action Allegations
23 Finally, Defendants contend the class allegations should be dismissed because
24 Plaintiffs cannot satisfy the predominance requirement of Rule 23(b)(3). (Doc. 22 at 15-
25 17.) Specifically, Defendants argue that because the putative Class includes entities going
26 back to 2020, statute of limitations questions would have to be resolved as to the individual
27
3
Undersigned is aware that Defendants (and Avitus) have alleged Plaintiff was not entitled
28 under federal law to receive the refunds or interest. However, undersigned does not convert
the Motion to Dismiss into one for summary judgment.
- 14 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 15 of 24
1 Class members. (Id. at 16.) They further argue individualized inquiries into facts related
2 to each potential Class member would have to be resolved under the Arizona Consumer
3 Fraud Act, and that various Class members entered into different agreements for services
4 with different subsidiaries, with individualized analysis for each member vis-à-vis their
5 specific ERC claims being required. (Id. at 16-17.) Plaintiff objects to the Motion, arguing
6 it is procedurally improper because it is a Rule 12(f) motion in Rule 12(b)(6)’s clothing, it
7 is premature, and it is meritless. (See Doc. 29 at 20-24.) Because undersigned believes
8 Plaintiff’s argument regarding propriety of this Motion at this stage carries the day, the
9 analysis will focus on same.
10 This Court has addressed this very issue in Canady v. Bridgecrest Acceptance Corp.,
11 No. CV-19-04738-PHX-DWL, 2022 WL 279576 (D. Ariz. Jan. 31, 2022). Although the
12 motion to strike was made later in Canady than at the responsive pleading stage, the
13 reasoning applies to the case at bar. It is important to distinguish that the instant motion to
14 strike, which is couched within a 12(b)(6) motion, is not a motion to deny class certification
15 under Rule 23. Instead, it is a motion to strike the class allegations in the Complaint. As
16 the Canady court summarized: “Not only are Rule 12(f) motions to strike ‘viewed with
17 disfavor’ and ‘not frequently granted,’ but the text of Rule 12(f) provides that a motion to
18 strike may only be directed at ‘an insufficient defense or any redundant, immaterial,
19 impertinent, or scandalous matter.’” 2022 WL 279576, at *3 (quoting Operating Eng’rs
20 Local 324 Health Care Plan v. G & W Constr. Co., 783 F.3d 1045, 1050 (6th Cir. 2015)
21 and Fed. R. Civ. P. 12(f)). “These limited categories do not map neatly onto a class
22 allegation” because “[s]uch an allegation is not a defense, is not redundant, is not
23 impertinent, … is not scandalous[,]” and it “is something of a stretch” to argue a facially
24 deficient class allegation is immaterial. Id. Furthermore, motions to strike before
25 discovery are disfavored and motions for class certification are a better vehicle to consider
26 sufficiency of a class allegation. See id. (citations omitted). “Thus, courts have held that
27 resort to Rule 12(f) is improper where the issues raised in the motion to strike are the same
28 ones that would be decided in connection with determining the appropriateness of class
- 15 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 16 of 24
1 certification under Rules 23(a) and 23(b).” Id. (internal quotation marks and citation
2 omitted). Because undersigned agrees that the motion to strike is premature, undersigned
3 would recommend the motion be denied on that basis, if the dismissal motion were not
4 granted on impermissible collective pleading grounds.
5 6. Leave to Amend
6 Plaintiff requests that, should the Court determine Plaintiff’s Complaint is
7 insufficient, it be given the opportunity to amend its Complaint. (Doc. 29 at 24.) The
8 request for leave to amend is governed by Rule 15(a) of the Federal Rules of Civil
9 Procedure, which “advises the court that ‘leave [to amend] shall be freely given when
10 justice so requires.’” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir.
11 2003) (“This policy is to be applied with extreme liberality.”) (internal quotations and
12 citations omitted); Fed. R. Civ. P. 15(a).
13 Generally, a plaintiff’s amendment request should be granted unless the amendment
14 “(1) prejudices the opposing party; (2) is sought in bad faith; (3) produces an undue delay
15 in litigation; or (4) is futile.” AmerisourceBergen Corp. v. Dialysist W., Inc., 465 F.3d 946,
16 951 (9th Cir. 2006). Prejudice to the opposing party “carries the most weight” of these
17 factors. Eminence Capital, 316 F.3d at 1052 (citations omitted). The party opposing the
18 amendment bears the burden of showing they would be prejudiced by the court granting
19 leave to amend. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186-187 (9th Cir. 1987)
20 (citing Beeck v. Aqua-slide ‘N’ Dive Corp., 562 F.2d 537, 540 (8th Cir. 1977)). “Absent
21 prejudice, or a strong showing of any of the remaining . . . factors, there exists a
22 presumption under Rule 15(a) in favor of granting leave to amend.” Eminence Capital,
23 316 F.3d at 1052 (citation omitted).
24 Defendants argue that the Complaint should be dismissed with prejudice “because
25 Plaintiff refused to make any amendments to try and cure” the Complaint during the
26 parties’ conferral. (Doc. 22 at 17, Doc. 38 at 11.) In support of that argument, Defendants
27 cite AZG Enter. Inc. v. Honeywell Int’l Inc., No. CV-25-01657-PHX-JJT, 2025 WL
28 2480943, at *6 (D. Ariz. Aug. 28, 2025). (Doc. 38 at 11 n.6.) While it is true that this
- 16 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 17 of 24
1 District denied leave to amend in AZG Enter., failure to make changes following conferral
2 was not the only reason the Court arrived at that conclusion. 2025 WL 2480943, at *6.
3 Rather, the Court found that amendment would be futile, and the Court further observed
4 that Plaintiff had identified no “other information that is known to Plaintiff that might
5 justify amendment.” Id. Here, undersigned cannot conclude amendment would be futile,
6 and Defendants do not argue futility. (See Docs. 22, 38.) Also, it appears Plaintiff may
7 have additional information (e.g., relationship between Defendants) not originally pled.
8 Thus, AZG Enter. is distinguished from this case. Moreover, nowhere do Defendants assert
9 they would suffer any prejudice, undue delay in litigation, bad faith, or futility in allowing
10 Plaintiff the opportunity to amend. (See Docs. 22, 38.)
11 Because leave to amend shall be “freely given” and the party opposing the
12 amendment bears the burden of showing prejudice, undersigned will recommend that the
13 District Judge afford Plaintiff the opportunity to amend its Complaint to allege sufficient
14 facts to assert a plausible claim. See Fed. R. Civ. P. 15(a); Leighton, 833 F.2d at 186-187
15 (citing Beeck, 562 F.2d at 540).
16 7. Conclusion on Motion to Dismiss
17 As discussed, undersigned will recommend that the Motion to Dismiss be granted
18 and the Complaint be dismissed with leave to amend. In the alternative, if the District
19 Judge were to conclude Plaintiff’s collective pleading in the Complaint did not warrant
20 dismissal, undersigned would recommend the Motion be granted in part and denied in part
21 as described above.
22 III. MOTION TO INTERVENE
23 In addition to Defendants’ Motion to Dismiss, non-party Avitus seeks to intervene
24 in this case. (Doc. 19.) Because undersigned recommends the Complaint be dismissed,
25 this Motion could be denied as moot. However, to provide a more complete Report and
26 Recommendation for the District Judge, the Motion to Intervene will be analyzed.
27 Intervention is governed by Rule 24 of the Federal Rules of Civil Procedure. Rule
28 24 is construed “broadly in favor of proposed intervenors.” United States v. City of Los
- 17 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 18 of 24
1 Angeles, Cal., 288 F.3d 391, 397 (9th Cir. 2002) (quoting United States ex rel. McGough
2 v. Covington Techs. Co., 967 F.2d 1391, 1394 (9th Cir. 1992)). Intervention may be as of
3 right or permissive. Fed. R. Civ. P. 24(a)-(b).
4 Avitus moves to both intervene as a matter of right under Rule 24(a) and
5 permissively under Rule 24(b). (Doc. 19.) Plaintiff opposes intervention under either
6 theory. (Doc. 31.) In addition, Plaintiff argues the Motion should be denied because Avitus
7 did not comply with Rule 24(c).
8 A. Rule 24(c) Compliance
9 As a threshold matter, the Court rejects Plaintiff’s argument that the Motion should
10 be denied for failure to comply with Rule 24(c). While it is true that Rule 24(c) states a
11 motion to intervene must “be accompanied by a pleading that sets out the claim or defense
12 for which intervention is brought,” and it is also true that Avitus’s Motion has no such
13 accompanying pleading (see Doc. 39), Ninth Circuit precedent defeats Plaintiff’s
14 argument. “[T]he failure to comply with the Rule 24(c) requirement for a pleading is a
15 ‘purely technical’ defect which does not result in the ‘disregard of any substantial right.’”
16 Westchester Fire Ins. Co. v. Mendez, 585 F.3d 1183, 1188 (9th Cir. 2009) (quoting Shores
17 v. Hendy Realization Co., 133 F.2d 738, 742 (9th Cir. 1943)). “Courts, including this one,
18 have approved intervention motions without a pleading where the court was otherwise
19 apprised of the grounds for the motion.” Id. (quoting Beckman Indus., Inc. v. International
20 Ins. Co., 966 F.2d 470, 474 (9th Cir. 1992)). Therefore, so long as the motion to intervene
21 adequately informs the Court of the grounds for the Motion, the absence of the pleading is
22 not fatal to the Motion. See id. Here, undersigned concludes Avitus’ Motion sufficiently
23 details the grounds on which intervention is sought; likewise, defenses it would assert are
24 evident from the Motion. (See Doc. 19.) Consequently, undersigned will not recommend
25 the Motion be denied for failure to comply with Rule 24(c).
26 B. Intervention as of Right
27 Avitus seeks to intervene as of right pursuant to Rule 24(a)(2). To intervene as a
28 matter of right, an applicant must meet four requirements: “(1) it has a significant
- 18 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 19 of 24
1 protectable interest relating to the property or transaction that is the subject of the action;
2 (2) the disposition of the action may, as a practical matter, impair or impede the applicant’s
3 ability to protect its interest; (3) the application is timely; and (4) the existing parties may
4 not adequately represent the applicant’s interest.” City of Los Angeles, 288 F.3d at 397
5 (quoting Donnelly v. Glickman, 159 F.3d 405, 409 (9th Cir. 1998) (internal quotation marks
6 omitted in original)).
7 Here, Plaintiff challenges intervention as of right on three of the four above bases.
8 (See Doc. 31 at 12-19.) Plaintiff makes no argument about lack of timeliness (see id.), and
9 the Court finds the intervention request was indeed timely at this early stage of the
10 litigation. Thus, undersigned focuses on the remaining three requirements in turn.
11 1. Significant Protectable Interest
12 “Whether an applicant for intervention as of right demonstrates sufficient interest
13 in an action is a ‘practical, threshold inquiry,’ and ‘[n]o specific legal or equitable interest
14 need be established.’” Citizens for Balanced Use v. Mont. Wilderness Ass’n, 647 F.3d 893,
15 897 (9th Cir. 2011) (quoting Nw. Forest Res. Council v. Glickman, 82 F.3d 825, 837 (9th
16 Cir. 1996) (internal citation omitted) (brackets in original)). “To demonstrate a significant
17 protectable interest, an applicant must establish that the interest is protectable under some
18 law and that there is a relationship between the legally protected interest and the claims at
19 issue.” Id. (citing Nw. Forest Res. Council, 82 F.3d at 837). “The relationship requirement
20 is met ‘if the resolution of the plaintiff’s claims actually will affect the applicant.’” S.
21 California Edison Co. v. Lynch, 307 F.3d 794, 803 (9th Cir. 2002) (quoting Donnelly, 159
22 F.3d at 410)).
23 Plaintiff argues Avitus has no sufficient interest in this case because Avitus’s
24 contractual rights do not extend, and are unrelated, to this litigation’s subject matter. (See
25 Doc. 31 at 13-14.) Of course, Avitus’s contract with Plaintiff could not have contemplated
26 COVID because it was executed years prior. However, the Complaint alleges “the ERC
27 uses payroll tax credits or deferrals to provide benefits to small businesses” and that
28 Plaintiff contracted with Avitus “to provide employee administration, payroll
- 19 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 20 of 24
1 administration, and payroll tax services on its behalf.” (Doc. 1 at ¶¶ 15, 22.) The scope,
2 obligations, and duties under that relationship between Avitus, which is owned by Vensure,
3 will be at issue in this matter. Avitus has had a relevant, contractual relationship with
4 Plaintiff and there is a relationship between Avitus’s legally protected interest and the
5 claims at issue.
6 2. Practical Impairment
7 Next, the Court looks at whether the disposition of this action may, as a practical
8 matter, impair or impede Avitus’s ability to protect its interest. Citizens for Balanced Use,
9 647 F.3d at 898. “If an absentee would be substantially affected in a practical sense by the
10 determination made in an action, he should, as a general rule, be entitled to intervene.”
11 Fed. R. Civ. P. 24, 1966 advisory committee note.
12 Although Plaintiff argues that “determinations from this case will not bind Avitus
13 in future actions” and will not affect Avitus’s contractual rights (see Doc. 31 at 14-15),
14 undersigned disagrees at least as to the latter. As Avitus points out, its ability to assert
15 counterclaims such as unjust enrichment may be frustrated if certain determinations about
16 the nature of the agreement(s) between the parties (and potentially nonparties) are made by
17 the Court in this action. (See Doc. 39 at 7-8.) Undersigned finds this requirement is met.
18 3. Adequate Representation
19 Finally, the Court considers whether Avitus’s interests are adequately represented
20 by the current defendants in this action. “The burden on proposed intervenors in showing
21 inadequate representation is minimal, and would be satisfied if they could demonstrate that
22 representation of their interests ‘may be’ inadequate.” Arakaki v. Cayetano, 324 F.3d 1078,
23 1086 (9th Cir. 2003) (quoting Trbovich v. United Mine Workers, 404 U.S. 528, 538 n.10
24 (1972)). Courts “consider[] three factors in determining the adequacy of representation:
25 (1) whether the interest of a present party is such that it will undoubtedly make all of a
26 proposed intervenor’s arguments; (2) whether the present party is capable and willing to
27 make such arguments; and (3) whether a proposed intervenor would offer any necessary
28 elements to the proceeding that other parties would neglect.” Id. (citing California v. Tahoe
- 20 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 21 of 24
1 Reg’l Planning Agency, 792 F.2d 775, 778 (9th Cir. 1986)).
2 Plaintiff argues Avitus’s interests are adequately represented by Defendants. (Doc.
3 31 at 16-19.) Plaintiff emphasizes that Avitus is wholly owned by Defendants and
4 therefore Avitus and Defendants are a single entity with completed unity of interest. (Id.
5 at 17.) Plaintiff further points out that it “is not attempting to hold Vensure liable for
6 Avitus’s conduct” and its claims are based on Defendants’ actions alone. (Id. at 18.)
7 Plaintiff thus argues that Defendants can make any argument that Avitus could and because
8 Avitus’s rights are adequately represented, there is no right to intervene. (Id. at 19.)
9 Avitus counters with various arguments. Most persuasive to undersigned is that
10 Avitus, and Avitus alone, would be the proper party to assert a counterclaim such as unjust
11 enrichment because such a claim requires the claimant conferred a benefit on the other
12 party. (See Doc. 39 at 9-10.) The claimant, in this instance, would be Avitus, not
13 Defendants. Thus, while undersigned would typically agree that the parent-subsidiary
14 relationship would create a unity of interest, the facts of this case (including the temporal
15 aspect of the various entities’ relationships with Plaintiff) undermine such a conclusion
16 here. Avitus’s argument is particularly strong when considering the first and third factors
17 identified above, because Defendants would not (and could not) make all of Avitus’s
18 arguments. Undersigned concludes Avitus has made a “minimal” showing of
19 demonstrating Defendants’ representation of its “interests ‘may be’ inadequate.” Arakaki,
20 324 F.3d at 1086 (9th Cir. 2003).
21 4. Conclusion as to Intervention as of Right
22 Because Avitus has demonstrated the four requirements for intervention as of right,
23 undersigned would recommend the Motion be granted if this action were to continue. The
24 District Judge would therefore not have to reach permissive intervention. However, to
25 provide a more complete Report and Recommendation, undersigned will analyze
26 intervention under Rule 24(b).
27 C. Permissive Intervention
28 “[A] court may grant permissive intervention where the applicant for intervention
- 21 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 22 of 24
1 shows (1) independent grounds for jurisdiction; (2) the motion is timely; and (3) the
2 applicant’s claim or defense, and the main action, have a question of law or a question of
3 fact in common.” City of Los Angeles, 288 F.3d at 403 (quoting Nw. Forest Res. Council,
4 82 F.3d at 839). “Even if an applicant satisfies those threshold requirements, the district
5 court has discretion to deny permissive intervention.” Donnelly, 159 F.3d at 412.
6 First, Plaintiff argues there is no independent jurisdictional basis for Avitus’s
7 intervention. (Doc. 31 at 19.) In support, Plaintiff cites Blake v. Pallan, 554 F.2d 847, 956
8 (9th Cir. 1977). (Id.) The Blake court, however, quoted 3B Moore’s Federal Practice
9 P24.18(1), 24-753, which stated in pertinent part: “Intervention in an in personam action
10 under a discretionary right must be supported by independent grounds of jurisdiction
11 except when the action is a class action.” Blake, 554 F.2d at 956. This is a putative class
12 action; thus, this is not necessarily required.
13 Second, Plaintiff does not challenge timeliness (see Doc. 31 at 19-21), and the Court
14 has already found the intervention motion to be timely.
15 Third, a common question of law or fact is not challenged by Plaintiff, (see Doc. 31
16 at 19-20), and undersigned finds they are present.
17 Finally, Plaintiff urges the Court to exercise its discretion and deny permissive
18 intervention. (Doc. 31 at 20-21.) Plaintiff again argues that Avitus’s interests are
19 adequately represented. (Id. at 21.) As undersigned discussed supra, however,
20 undersigned disagrees with that notion. Undersigned further disagrees that adding Avitus
21 would complicate the case, as Plaintiff contends (see id.), as Avitus’ participation would
22 permit a more complete record regarding the relationships between entities, as they have
23 evolved over time, and therefore promote judicial efficiency. Undersigned also notes there
24 is nothing on the record to indicate including Avitus’s participation will delay this matter.
25 Thus, undersigned would recommend permissive intervention be permitted, in the
26 event the District Judge were to permit the case to proceed and determine intervention as
27 of right is not warranted.
28 ///
- 22 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 23 of 24
1 D. Conclusion on Motion to Intervene
2 As discussed supra, the District Judge may deny the Motion to Intervene as moot,
3 in the event the Complaint were dismissed. Thus, that would be undersigned’s
4 recommendation. However, if the District Judge were to deny the Motion to Dismiss,
5 undersigned would recommend the Motion to Intervene be granted for the reasons
6 described above.
7 IV. MOTION FOR PROTECTIVE ORDER
8 The final motion pending before the Court is Avitus’s Motion for Protective Order.
9 (Doc. 20.) There is no opposition to the Motion, which seeks to enter a protective order
10 “authorizing Avitus’s redaction of . . . information detailed in the Form 941s attached to
11 Avitus’s motion to intervene as Exhibits B, C, and D.” (Id. at 4.) Further, the Motion
12 appears to well-taken, as the protective order is sought “to protect sensitive and confidential
13 financial and tax information of Avitus and other nonparties.” (Id. at 3.) Finally, the Court
14 observes that information has been redacted from the exhibits referenced in the Motion.
15 (See Doc. 19-1.) Good cause appearing to grant the unopposed Motion, it will be granted.
16 As a practical matter, because the exhibits have been redacted, no further action is required
17 other than entering the Order granting.
18 V. CONCLUSION
19 For the foregoing reasons,
20 RECOMMENDATION
21 IT IS THEREFORE RECOMMENDED:
22 1. That Defendants’ Motion to Dismiss Class Action Complaint (Doc. 22) be
23 granted, and that the Complaint be dismissed with leave to amend within 14 days
24 of the Court’s Order adopting the recommendation;
25 2. That Avitus, Inc.’s Motion to Intervene (Doc. 19) be denied as moot; and
26 3. That the temporary stay (Doc. 37) be lifted.
27 This recommendation is not an order that is immediately appealable to the Ninth
28 Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules of
- 23 -
Case 2:25-cv-03087-DJH Document 41 Filed 03/06/26 Page 24 of 24
1 Appellate Procedure, should not be filed until entry of the district court’s judgment. The
2 parties shall have 14 days from the date of service of a copy of this recommendation within
3 which to file specific written objections with the Court. See 28 U.S.C. § 636(b)(1); Fed.
4 R. Civ. P. 6(a), 6(b) and 72. Thereafter, the parties have 14 days within which to file a
5 response to the objections.
6 Failure to timely file objections to the Magistrate Judge’s Report and
7 Recommendation may result in the acceptance of the Report and Recommendation by the
8 district court without further review. See United States v. Reyna-Tapia, 328 F.3d 1114,
9 1121 (9th Cir. 2003). Failure to timely file objections to any factual determinations of the
10 Magistrate Judge will be considered a waiver of a party’s right to appellate review of the
11 findings of fact in an order of judgment entered pursuant to the Magistrate Judge’s
12 recommendation. See Fed. R. Civ. P. 72.
13 ORDER
14 IT IS ORDERED granting Avitus, Inc’s Motion for Protective Order (Doc. 20).
15 Dated this 6th day of March, 2026.
16
17
18
19
20
21
22
23
24
25
26
27
28
- 24 -
File and source
- File
- gov.uscourts.azd.1455375.41.0.pdf
- Size
- 315,905 bytes
- SHA-256
- bd29aba44a6e620691e7e8b2d479ab9b9c9908ce526274470f8609d0a2c4282b
- Original
- storage.courtlistener.com