Cheteni v. Vella

Background

Freedom Cheteni filed a first amended complaint against Malia Vella and Carrie Lopes. The complaint alleged that the defendants discriminated against Cheteni and The VR School, which he operates, in distributing funds through the federal Emergency Assistance for Non-Public Schools program. The complaint alleged that the California Department of Education reimbursed him for virtual-reality headsets and authorized reimbursement for additional educational services, but later imposed stricter documentation requirements, suspended his services for allegedly inadequate financial documentation, and terminated The VR School’s services after he filed a formal complaint.

The first amended complaint asserted six causes of action: racial discrimination in making and enforcing contracts under 42 U.S.C. § 1981; procedural due process; retaliation for exercising First Amendment rights; an unconstitutional taking without just compensation; equal protection; and discrimination under Title VI of the Civil Rights Act of 1964. Cheteni sought declaratory and injunctive relief and damages. He was proceeding without a lawyer.

The defendants moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The court applied the same standard used for a motion to dismiss for failure to state a claim: accepting well-pleaded factual allegations as true and asking whether they plausibly entitled Cheteni to a legal remedy.

Standing and Real Party in Interest

The defendants argued that the alleged injuries belonged to The VR School rather than Cheteni. The court explained that a shareholder or company officer generally cannot sue individually for an injury to the company, but may proceed when he alleges an injury directly and independently suffered by him.

The court found that Cheteni’s allegations of damage to his professional reputation, emotional distress, and a chilling effect on his constitutional rights were sufficient to establish his individual standing for most of his constitutional claims. But the court held that the Supreme Court’s decision in Domino’s Pizza, Inc. v. McDonald barred Cheteni, as the contracting agent for The VR School, from asserting the contract-discrimination claim individually under § 1981. The court therefore dismissed the first cause of action for lack of standing.

The court rejected the defendants’ argument that the other constitutional claims also had to be dismissed for lack of standing. Because Cheteni had standing to pursue those claims, the court also declined to dismiss them on the ground that he was not the proper party to bring them. The court recognized that The VR School might otherwise be required to join the lawsuit, but concluded that joining it was not feasible because it had previously been dismissed after failing to obtain legal representation. The case could therefore proceed among the existing parties, and a later judgment might prevent The VR School from relitigating the same matters.

Unconstitutional-Taking Claim

The court dismissed the fourth cause of action, which alleged an unconstitutional taking of property without just compensation. The court relied on the Coronavirus Response and Relief Supplemental Appropriations Act of 2020, which provides that control of the funds and title to materials, equipment, and property purchased with EANS funds remain with a public agency.

Because the statute established that the equipment and property at issue were never privately owned, the court held that Cheteni could not maintain an unconstitutional-taking claim based on that property. The court dismissed this cause of action with prejudice. It separately stated that the statute did not preclude Cheteni’s due process claim.

Title VI Claim

The defendants argued that Title VI does not permit damages claims against individual defendants. Cheteni conceded that point for defendants sued in their personal capacities but argued that he could seek future injunctive relief against them in their official capacities.

The court treated the case as involving both individual- and official-capacity claims because Cheteni sought damages and injunctive relief. It dismissed the Title VI damages claims against Vella and Lopes in their individual capacities. However, it declined to dismiss the claim seeking prospective injunctive relief against them in their official capacities. The court concluded that, at the pleadings stage, it could not resolve the factual dispute over whether payment agents might still owe amounts for services already provided under the EANS program. The court therefore allowed Cheteni’s claim for future relief against alleged unlawful discrimination to proceed.

Disposition

Judge Susan Illston granted in part and denied in part the defendants’ motion for judgment on the pleadings. The first and fourth causes of action were dismissed in full with prejudice. The Title VI claims for damages against the defendants in their individual capacities were also dismissed with prejudice. The court did not dismiss the second, third, or fifth causes of action—Cheteni’s claims for due process violations, First Amendment retaliation, and equal protection violations under 42 U.S.C. § 1983. The court also allowed the Title VI claim for prospective relief against the defendants in their official capacities to continue.

The court ordered the parties to appear for a case-management conference on April 18, 2025, and to meet and submit a proposed joint case schedule by April 11, 2025.