Jain v. Unilodgers, Inc.

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 SHIPRA JAIN, Case No. 21-cv-09747-TSH 8 Plaintiff, ORDER RE: DEFENDANTS’ MOTION 9 v. TO DISMISS FIRST AMENDED COMPLAINT 10 UNILODGERS, INC., et al., Re: Dkt. No. 26 11 Defendants. [12] 13 I. INTRODUCTION 14 Pending before the Court is a Motion to Dismiss First Amended Complaint, filed by 15 Defendants Unilodgers, Inc. and Vaibhav Verma (collectively “Defendants”). ECF No. 26. On 16 April 26, 2022, Plaintiff Shipra Jain filed an Opposition. ECF No. 29. On May 3, 2022, 17 Defendants filed a Reply. ECF No. 30. The Court finds this matter suitable for disposition 18 without oral argument and VACATES the June 9, 2022 hearing. See Civ. L.R. 7-1(b). For the 19 reasons stated below, the Court GRANTS IN PART and DENIES IN PART Defendants’ 20 Motion to Dismiss with leave to amend.1 21 II. BACKGROUND 22 In September 2018, Defendant Unilodgers, Inc. was incorporated under the laws of 23 Delaware with a principal place of business in Mill Valley, California. FAC ¶ 19, ECF No. 22. 24 Plaintiff was appointed Chief Operating Officer and Chief Financial Officer of Unilodgers, and 25 Defendant Verma was appointed Chief Executive Officer and Secretary. Id. ¶ 20. 26 In 2019, Unilodgers entered into a Stock Agreement and a Vesting Agreement with [27] 1 Plaintiff. Id. ¶ 23. Under the Stock Agreement, Plaintiff and Defendant Verma each had 2 2,253,472 shares of Unilodgers’s common stock. Id. ¶ 24. The remaining stocks were allocated to 3 investors, a stock option pool, and the company’s Chief Technology Officer Prashanth Susarla. 4 Id. The Vesting Agreement confirmed stock allocation and contained a Repurchase Option. Id. ¶ 5 25; ECF No. 22-1, Exh. A (Vesting Agreement). The Repurchase Option governs the ability of 6 Unilodgers to repurchase Plaintiff’s stock in the event of Plaintiff’s termination from Unilodgers. 7 Vesting Agreement, ¶ 2.1. According to the Repurchase Option, “if [Plaintiff’s] status as an 8 employee, director, consultant or any other positions providing service to the Company . . . is 9 terminated for any reason . . . [Unilodgers] shall have the right and option for ninety (90) days 10 from such date to purchase . . . all of the Stockholder’s Unvested Shares as of the date of such 11 termination.” Id. Moreover, in the event of repurchase, Unilodgers “may designate and assign 12 one or more employees, officers, directors or stockholders of the Company or other persons or 13 organizations to exercise all or a part of the Company’s Repurchase Option under this Agreement 14 and purchase all or a part of such Unvested Shares.” Id. ¶ 2.3. 15 After signing the Stock Agreement and Vesting Agreement, Plaintiff alleges “Defendants 16 and others” began to push her out of Unilodgers by, among others, excluding Plaintiff from 17 meetings, obstructing information, and suggesting Plaintiff resign. FAC ¶ 28. In July 2021, 18 Plaintiff was informed that she had been removed from the Board of Directors. Id. ¶ 31. On 19 August 17, 2021, Plaintiff received an email informing her that Unilodgers had repurchased 20 Susarla’s shares, giving Verma and another investor majority control and allowing them to remove 21 Plaintiff from the Board by written consent. Id. ¶ 31. The email stated “Unilodgers repurchased 22 100% of [Plaintiff’s] shares effective February 2020 pursuant to the notice originally provided to 23 her. Therefore, [Plaintiff] is not a stockholder of Unilodgers.” Id. ¶ 32. 24 On December 17, 2021, Plaintiff filed the instant action against Defendants Unilodgers and 25 Verma. ECF No. 1. On March 29, 2022, Plaintiff filed a First Amended Complaint, alleging the 26 following causes of action: 1) Breach of Contract (against Unilodgers), 2) Tortious Interference 27 with Contractual Relations (against Verma), 3) Breach of Fiduciary Duty (Against all Defendants), 1 On April 12, 2022, Defendants filed a Motion to Dismiss the First Amended Complaint, 2 alleging Plaintiff failed to sufficiently plead her second, third, fourth, and fifth causes of action 3 under Federal Rule of Civil Procedure 12(b)(6). ECF No. 26. On April 26, 2019, Plaintiff filed an 4 Opposition. ECF No. 29. On May 3, 2022, Defendants filed a Reply. ECF No. 30. 5 III. LEGAL STANDARD 6 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “tests the legal 7 sufficiency of a claim.” Cook v. Brewer, 637 F.3d 1002, 1004 (9th Cir. 2011) (citation and 8 quotation marks omitted). Rule 8 provides that a complaint must contain a “short and plain 9 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). 10 Thus, a complaint must plead “enough facts to state a claim to relief that is plausible on its face.” 11 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Plausibility does not mean probability, but 12 it requires “more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, [13] 556 U.S. 662, 687 (2009). A complaint must therefore provide a defendant with “fair notice” of 14 the claims against it and the grounds for relief. Twombly, 550 U.S. at 555 (quotations and citation 15 omitted). 16 In considering a motion to dismiss, the Court accepts factual allegations in the complaint 17 as true and construes the pleadings in the light most favorable to the nonmoving party. Manzarek 18 v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008); Erickson v. Pardus, 551 19 U.S. 89, 93-94 (2007). However, “the tenet that a court must accept a complaint’s allegations as 20 true is inapplicable to threadbare recitals of a cause of action’s elements, supported by mere 21 conclusory statements.” Iqbal, 556 U.S. at 678 . Therefore, the Court is not required to “accept as 22 true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable 23 inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). 24 If a Rule 12(b)(6) motion is granted, the “court should grant leave to amend even if no 25 request to amend the pleading was made, unless it determines that the pleading could not possibly 26 be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) 27 (citations and quotations omitted). 1 IV. DISCUSSION 2 Defendants argue the FAC fails to adequately allege its: A) Second Cause of Action for 3 Tortious Interference Against Defendant Verma, B) Third Cause of Action for Breach of Fiduciary 4 Duty Against Defendant Verma, C) Third Cause of Action for Breach of Fiduciary Duty Against 5 Unilodgers, D) Fourth Cause of Action for Conversion, and E) Fifth Cause of Action for 6 Declaratory Relief.2 7 A. Tortious Interference Against Defendant Verma 8 Defendants argue the FAC fails to sufficiently plead Defendant Verma was “motivated by 9 some malicious or other bad faith purpose” and acted “without justification. ECF No. 26 at 7. 10 Plaintiff argues the FAC sufficiently pleads Defendant Verma’s conduct was “self-interested and 11 exceeds the scope of his agency authority as a corporate director or officer.” ECF No. 29 at 7-8. 12 Generally, “[u]nder Delaware law, the elements of a claim for tortious interference with a 13 contract are: (1) a contract, (2) about which defendant knew, and (3) an intentional act that is a 14 significant factor in causing the breach of such contract, (4) without justification, (5) which causes 15 injury.” Bhole, Inc. v. Shore Inv. Inc., 67 A.3d 444, 453 (Del. 2013). “[A] party to a contract 16 cannot be held liable for breaching the contract and for tortiously interfering with that contract.” 17 Kuroda v. SPJS Holdings, LLC, 971 A.2d 872, 884 (Del. Ch. 2009). The affiliate exception 18 “requires that the defendant be a stranger to both the contract and the business relationship giving 19 rise to and underpinning the contract.” Am Gen. Holdings LLC v. Renco Group, Inc., C.A. No. 20 7639-VCN, 2013 WL 5863010 , at *12 (Del. Ch. 2013). “[B]ecause the affiliate exception is 21 based upon the shared economic interests of affiliated entities, a plaintiff may allege facts to 22 demonstrate that an interference by an affiliated entity was ‘motivated by some malicious or other 23 bad faith purpose.’” Id. “Such an allegation must meet a ‘stringent bad faith standard’ and state 24 that the ‘interfering party was not pursuing in good faith the legitimate profit seeking activities of 25 the affiliated enterprises.’” Id. 26 The Court finds the FAC fails to “demonstrate that an interference by an affiliated entity [27] 1 was motivated by some malicious or other bad faith purpose.” Skye Mineral Investors, LLC v. 2 DXS Capital (U.S.) Limited, C.A. No. 2018-0059-JRS, 2020 WL 881544 , at *33 (Del. Ch. 2020). 3 Here, the FAC alleges “Verma personally authorized Unilodgers to take away Plaintiff’s shares . . 4 . and personally signed corporate documents to facilitate this violation . . . [giving] Verma a larger 5 ownership interest and more control in Unilodgers.” FAC at ¶ 46. These allegations are 6 conclusory. There are no pleaded facts demonstrating how Verma personally authorized the 7 repurchase of Plaintiff’s shares or an authorization or signing of a corporate document motivated 8 by a malicious or bad faith purpose. See Huff Energy Fund, L.P. v. Gershen, C.A. No. 111169 VCS, 2016 WL 5462958 , at * 7 (Del. Ch. 2016) (dismissing tortious interference claim because 10 plaintiff’s allegation of defendant’s “animosity” towards plaintiff “identifie[d] no facts that would 11 allow a reasonable inference that any Director Defendant intentionally caused Longview to breach 12 the Shareholders Agreement or that any conduct by any Director Defendant was without 13 justification.”); compare with NACCO Industries, Inc. v. Applica Inc., 997 A.2d 1, 34 (Del. Ch. 14 2009) (tortious interference sufficiently plead because plaintiff provided “detailed allegations of 15 fraudulent statements” and defendant acquired “a nearly 40% stock position, facilitated at least in 16 part through false disclosures”). Accordingly, the Court GRANTS Defendants’ Motion to 17 Dismiss the FAC’s second cause of action for tortious interference against Defendant Verma. 18 B. Breach of Fiduciary Duty Against Defendant Verma 19 Defendants argue Plaintiff’s breach of fiduciary claim against Verma arises from the same 20 facts as Plaintiff’s breach of contract claim. ECF No. 26 at 8-9. Plaintiff argues her breach of 21 fiduciary claim is independent of her breach of contract claim. ECF No. 29 at 9. 22 “Conduct by an entity that occupies a fiduciary position . . . may form the basis of both a 23 contract and a breach of fiduciary duty claim.” RJ Assocs., Inc. v. Health Payors’ Org. Ltd. 24 P'ship, HPA, Inc., No. 16873, 1999 WL 550350 , at 10 (Del. Ch. July 16, 1999). “[W]here a 25 dispute arises from obligations that are expressly addressed by contract, that dispute will be treated 26 as a breach of contract claim” and “any fiduciary claims arising out of the same facts that underlie 27 the contract obligations would be foreclosed as superfluous.” Nemec v. Shrader, 991 A.2d 1120 , 1 nucleus of operative facts’ with the underlying contractual claims, if the fiduciary duty claims 2 ‘depend on additional facts as well, are broader in scope, and involve different considerations in 3 terms of a potential remedy . . . a plaintiff must properly plead ‘distinct harms caused by the 4 defendants that fell outside the scope of their contractual relationship.’” Renco, 2013 WL 5 5863010 at *10 (internal quotations omitted). 6 The Court finds the FAC fails to sufficiently plead breach of fiduciary duty against Verma. 7 The FAC alleges Verma “breached his fiduciary duty to Plaintiff by personally authorizing 8 Unilodgers to take away Plaintiff’s shares in violation of the Vesting Agreement and/or personally 9 signed corporate documents to facilitate this violation.” FAC at ¶ 51. However, given that the 10 Vesting Agreement, which also forms the basis of Plaintiff’s Breach of Contract claim,3 11 specifically addresses Unilodgers’ ability and authority to repurchase Plaintiff’s shares, the FAC’s 12 breach of contract and breach of fiduciary duty claims involve the same set of facts and are 13 duplicative. See Stewart v. BF Bolthouse Holdco, LLC, C.A. No. 8119–VCP, 2013 WL 5210220 , 14 at *13 (Del. Ch. 2013) (dismissing fiduciary claim as duplicative because the claim “arises from a 15 dispute relating to the exercise of a contractual right—Bolthouse’s right to exercise its Repurchase [17] 3 Plaintiff’s cause of action for breach of contract alleges: [18] Unilodgers breached the Vesting Agreement by claiming that it has repurchased all of Plaintiff’s shares in Unilodgers in February 2020 [19] despite the fact that: (i) it did not terminate Plaintiff’s status as a Service Provider to Unilodgers in 2020; and (ii) even if it did, [20] Unilodgers did not provide Plaintiff with the required notice of intention to exercise the Repurchase Option and payment for the [21] repurchased shares within 90 days of such termination, and therefore Unilodgers’ Repurchase Option has been extinguished. [22] Even if the Repurchase Option was not extinguished in 2020, [23] Unilodgers’ purported termination of Plaintiff’s position as a Board member on August 17, 2021 cannot be the basis for any valid exercise [24] of the Repurchase Option because, inter alia: (i) the termination was a sham; and (ii) even if the termination was valid, Unilodgers did not [25] provide Plaintiff with the required notice of intention to exercise the Repurchase Option and payment for the repurchased shares within 90 [26] days of such termination (by October 29, 2021), and therefore Unilodgers’ Repurchase Option has now been extinguished. [27] 1 Option under the Purchase Agreement after Plaintiffs terminated their employment with Bolthouse 2 Farms.”); Solow v. Aspect Resources, LLC, No. Civ.A. 20397, 2004 WL 2694916 , at *5 (Del. Ch. 3 2004) (“Because a specific contractual provision allegedly addresses this conduct, the conduct 4 should be analyzed under contract law.”). Accordingly, the Court GRANTS Defendants’ Motion 5 to Dismiss the FAC’s third cause of action for breach of fiduciary duty against Verma. 6 C. Breach of Fiduciary Duty Against Unilodgers 7 Defendants argue the FAC fails to sufficiently plead a breach of fiduciary duty against 8 Unilodgers under an aiding and abetting theory because the FAC lacks specific factual allegations 9 establishing a breach. ECF 26 at 10. 10 “The elements of a claim for aiding and abetting a breach of fiduciary duty are (1) the 11 existence of a fiduciary relationship, (2) the fiduciary breached its duty, (3) a defendant, who is 12 not a fiduciary, knowingly participated in [the] breach, and (4) damages to the plaintiff resulted 13 from the concerted action of the fiduciary and the non-fiduciary.” Gotham P’rs, L.P. v. Hallwood 14 Realty P'rs, L.P., 817 A.2d 160, 172 (Del. 2002) (internal citation and quotations omitted). 15 The Court finds the FAC fails to sufficiently plead breach of fiduciary against Unilodgers. 16 As discussed above, the Court finds the FAC fails to sufficiently plead a breach of fiduciary duty 17 against Defendant Verma. “Without a well-pleaded allegation in the complaint for a breach of 18 fiduciary duty, there can be no claim for aiding and abetting such a breach.” Malone v. Brincat, [19] 722 A.2d 5, 15 (Del. 1998); see also Blue Chip Capital Fund II Ltd. Partnership v. Tubergen, 906 20 A.2d 827, 833 (Del. Ch. 2006) (“Here, the complaint asserts contractual and fiduciary claims that 21 arise from the same alleged facts and underlying conduct . . . if the dispute relates to rights and 22 obligations expressly provided by contract, the fiduciary duty claims would be “superfluous.”) 23 Accordingly, the Court GRANTS Defendants’ Motion to Dismiss the FAC’s third cause of action 24 for breach of fiduciary duty against Unilodgers. 25 D. Conversion 26 Defendants argue the FAC fails to show how Plaintiff’s right to Unilodgers shares is 27 independent of the Stock Agreement and Vesting Agreement. ECF No. 26 at 10-11. 1 denial of his right, or inconsistent with it.” Drug, Inc. v. Hunt, 187 A. 87 , 93 (Del. 1933). “Under 2 Delaware law, ‘where an action is based entirely on a breach of the terms of a contract between 3 the parties, and not on a violation of an independent duty imposed by law, a plaintiff must sue in 4 contract and not in tort.’” AQSR India Private, Ltd v. Bureau Veritas Holdings, Inc., C.A. No. 5 4021-VCS, 2009 WL 1707910 , at *12 (D. Del. 2001) (internal citations omitted). “Thus, in order 6 to assert a tort claim along with a contract claim, the plaintiff must generally allege that the 7 defendant violated an independent legal duty, apart from the duty imposed by contract.” Kuroda, [8] 971 A.2d at 889 . 9 The Court finds the FAC fails to sufficiently plead a cause of action for conversion. 10 Plaintiff’s conversion claim is based on Verma personally authorizing the taking of Plaintiff’s 11 Unilodgers shares and Unilodgers retaining counsel to “come up with frivolous arguments” and 12 “cover its tracks.” FAC ¶ 57. According to the FAC, these acts violated “a fiduciary duty owed to 13 Plaintiff” and “the common law duty to not misappropriate the property of another.” FAC ¶ 58. 14 However, as previously discussed, Defendants’ ability and authority to repurchase Plaintiff’s 15 shares are covered by the Vesting Agreement, which is the basis of Plaintiff’s breach of contract 16 claims. The FAC fails to allege how Defendants violated a duty in tort rather than a duty 17 established by contract. Compare Malca v. Rappi, Inc., No. CV 2020-0152-MTZ, 2021 WL 18 2044268, at *2, 5 (Del. Ch. May 20, 2021) (allowing conversion claim to proceed where 19 Investment Agreement requiring money transfer for shares may not cover company’s 20 consolidation with another company) with Khushaim v. Tullow Inc., C.A. No. N15C–11–212– 21 PRW, 2016 WL 3594752 , at *8 (Del. Super .Ct. 2016) (dismissing conversion claim because 22 “Khushaim's right to repossess the software from Tullow derives wholly and only from the PDC” 23 and “[s]imply citing Tullow's contract-based duty to return property does not satisfy the duty 24 requirement for the tort of conversion.”). “Merely alleging that defendants violated their duty 25 against conversion of property is circular, and the Court is not required to accept such a 26 conclusory allegation as true.” Kuroda, 971 A.2d at 890 . Accordingly, the Court GRANTS 27 Defendants’ Motion to Dismiss Plaintiff’s fourth cause of action for conversion. 1 E. Declaratory Relief 2 Defendants argue the FAC’s request for declaratory relief seeks is identical to the relief 3 sought by Plaintiff’s breach of contract claims. ECF No. 26 at 11-13. Plaintiff argues declaratory 4 relief would serve useful purposes of preventing future litigation and determining the parties’ 5 obligations. ECF No. 29 at 14-15. 6 In considering whether to hear a claim for declaratory relief, courts consider (1) whether 7 the judgment “will serve a useful purpose in clarifying and settling the legal relations in issue” and 8 (2) if “it will terminate and afford relief from the uncertainty, insecurity, and controversy giving 9 rise to the proceeding.” McGraw–Edison Co. v. Preformed Line Products Co., 362 F.2d 339 , 342 10 (9th Cir. 1966); see also CIBC Bank USA v. JH Portfolio Debt Equities, LLC, C.A. No. N18C-0711 130 EMD CCLD, 2021 WL 2230976 , at *15 (Del. Super. Ct. 2021) (“The mere availability of 12 another adequate remedy does not in and of itself weigh against the giving of declaratory relief. 13 The real test is whether the declaratory judgment action would serve a useful purpose.”) (internal 14 quotations and citations omitted). 15 The Court finds the FAC sufficiently pleads a cause of action for declaratory relief. 16 Plaintiff’s breach of contract claim alleges that Defendants did not validly exercise the Repurchase 17 Option or the Repurchase Option extinguished. See FAC ¶ 38-39. The Vesting Agreement has a 18 section, separate from the Repurchase Option, that governs released shares. See Vesting 19 Agreement § 3 (Release of Shares from Repurchase Option); Id. § 3.1 (Expiration); § 3.2 20 (Delivery of Released Shares). There is a possibility that the Court could resolve Plaintiff’s 21 breach of contract claim without reaching the issue of the ownership of the shares. “Courts 22 decline to dismiss declaratory judgment claims ‘where a breach of contract claim will not settle all 23 of the contractual issues concerning which plaintiff seeks declaratory relief.’” Jeong v. Neto 24 Financial LLC, Case No. 21-cv-2393-BLF, 2022 WL 174236 , at *21 (N.D. Cal. Jan. 19, 2022) 25 (citing Teague v. Biotelemetry, Inc., Case No. 16-cv-06527-TSH, 2018 WL 5310793 , at *13 (N.D. 26 Cal. Oct. 25, 2018)). Therefore, the FAC’s request “to determine Plaintiff’s rights and the 27 obligations Unilodgers owes to Plaintiff under the Vesting Agreement” and for declaratory 1 Agreement to repurchase all of Plaintiff's shares in Unilodgers” and (2) “the Repurchase Option 2 || has been extinguished due to Unilodgers’ failure to comply with the requirements of Section 2 of 3 || the Vesting Agreement” sufficiently pleads a cause of action for declaratory judgment. FAC □□□ 4 67, 4 68; cf. Alta Devices, Inc. v. LG Electronics, Inc., 343 F.Supp.3d 868, 890 (N.D. Cal. 2018) 5 (denying motion to dismiss declaratory judgment claim because “[a]lthough Alta’s DTSA, 6 || CUTSA, and UCL claims seek retrospective relief (damages) for the past harm that Alta suffered, 7 the declaratory relief claim seeks a declaration of the parties’ prospective rights and duties under 8 the NDA, as well as injunction going forward.”) 9 The Court DENIES Defendants’ Motion to Dismiss the FAC’s fifth cause of action for 10 || declaratory relief. 11 Vv. CONCLUSION 12 For the reasons stated above, the Court GRANTS IN PART and DENIES IN PART 13 Defendants’ Motion to Dismiss with leave to amend. Plaintiff shall file a second amended 14 || complaint by June 22, 2022. IT IS SO ORDERED. 2 16 = 17 Dated: June 8, 2022 18 LAAN. LJ THOMAS S. HIXSON 19 United States Magistrate Judge