United States District Court, N.D. California, San Jose Division
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For Saeid Mohebbi, Plaintiff: Aria Vatankhah, LEAD ATTORNEY, Aria Law Group PLC, Palo Alto, CA.
For Mahnaz Khazen, Michael Shadman, Violet Parvarandeh, Pirooz Parvarandeh, Conti Stacey, U.S. Immigration Investment Center LLC, a Delaware Limited Liability Partnership, Defendants: Edward Gartenberg, LEAD ATTORNEY, Gartenberg Gelfand Hayton & Selden LLP, Los Angeles, CA.
For USIIC LLP, a Delaware Limited Liability Partnership, USIIC I LP, a Delaware Limited Partnership, Defendants: Ray Edwin Gallo, LEAD ATTORNEY, Dominic R Valerian, Gallo LLP, San Rafael, CA.
ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS; (2) GRANTING PLAINTIFF'S MOTION TO FILE A SECOND AMENDED COMPLAINT
BETH LABSON FREEMAN, United States District Judge.
Plaintiff Saeid Mohebbi (" Plaintiff" or " Mohebbi" ) brings this First Amended Complaint (" FAC" ) against Defendants Mahnaz Khazen, Michael Shadman, Violet Parvarandeh, Pirooz Parvarandah, and Stacey Conti (collectively, " Individual Defendants" ), as well as U.S. Immigration Investment Center LLC (" USIIC" ), USIIC LLP, and USIIC 1 LP (collectively, " USIIC Defendants" ), for twenty-three causes of action, including claimed violations of federal and state securities laws, fraud, false advertising, conversion, unjust enrichment, and common law torts. These claims arise out of a contractual investment relationship entered into between the parties. Plaintiff alleges that, in exchange for Defendants' assistance in applying for a federal EB-5 immigration visa, he invested over $1 million in a partnership. Plaintiff alleges that Defendants fraudulently induced this investment and failed to comply with their obligations pursuant to the contract, and seeks rescission of the agreement, damages, including punitive damages, and attorneys' fees.
Defendants move to dismiss the FAC on two grounds: (1) that the claims alleged in the Complaint are subject to an arbitration agreement, and thus not appropriately adjudicated by the district court, and (2) that each of Plaintiff's causes of action fails to state a claim for relief pursuant to Federal Rule of Civil Procedure 12(b)(6). In response, Plaintiff both opposes the Motion to Dismiss and seeks leave of Court to file a Second Amended Complaint (" SAC" ). In Plaintiff's motion, he requests leave of court to withdraw five causes of action from his FAC, allege four new causes of action, and allege new facts regarding the causes of action that remain. (ECF 50) Defendants opposed this request. (ECF 53) Pursuant to Civil Local Rule 7-1, the Court finds the Motion to Amend to be appropriate for determination without oral argument. Civil L-R 7-1(b).
Having reviewed the briefing and oral argument of the parties, as well as the relevant case law, the Court GRANTS IN PART AND DENIES IN PART Defendant's Motion to Dismiss. The Court GRANTS Plaintiff's Motion for Leave to Amend the Pleadings, pursuant to the terms of this Order.
A. Procedural History
Plaintiff filed its Complaint on July 2, 2013. (ECF 1) Defendants filed a Motion to Dismiss on August 7, 2013. (ECF 19) Plaintiff elected to file a First Amended Complaint on August 28, 2013, naming the same Defendants. (ECF 29) Defendants filed a second Motion to Dismiss (" Motion" ) on September 11, 2013. (ECF 34) Plaintiff filed an Opposition on September 25, 2013 (ECF 37) Defendants replied on October 2, 2013. (ECF 39)
Plaintiff further filed a Motion to Amend/Correct the Pleadings, seeking to file a Second Amended Complaint, on April 23, 2014. (ECF 50) Defendants responded on May 7, 2014. (ECF 53) That same day, Plaintiff filed a Motion to Shorten Time in which to hear the Motion for Leave to Amend. (ECF 54) After briefing, the Court denied this Motion. (ECF 61) Plaintiff filed his Reply to Defendants' Opposition on May 14, 2014. (ECF 62)
B. Factual Allegations in the FAC
Plaintiff is a Farsi-speaking Iranian citizen who resides in California. (FAC, ECF 29 ¶ 8) Defendants Khazen, Shadman, Violet Parvarandeh, and Pirooz Parvarandah are individuals who reside in California. ( Id. ¶ ¶ 12-15) Defendant Conti is an individual who resides in Montana. ( Id. ¶ 16) Defendant USIIC LLC is a Delaware corporation with its principal place of business in California. ( Id. ¶ 9) Defendants USIIC LLP and USIIC 1 LP are partnerships organized under Delaware law with principal places of business in California. ( Id. ¶ ¶ 10-11)
Plaintiff's FAC arises out of a series of interactions with the Individual Defendants, and two contractual agreements entered into with USIIC LLC. Plaintiff alleges that Defendants, through fraud and misrepresentations, induced Plaintiff into making investments worth over $1 million in two partnership entities, in exchange for Defendants' assistance in navigating federal visa procedures in order to obtain permanent residency and citizenship in the United States. (FAC, ECF 29 ¶ ¶ 19-22). In order to best understand the Plaintiff's Complaint, a chronological description of his interactions with the Defendants is most illustrative.
In 2012, Plaintiff, who was interested in seeking permanent residency in the United States, learned about the EB-5 Immigrant Investor Visa Program via Farsi language satellite advertisements. ( Id. ¶ 27) This program is designed for foreign citizen investors, and permits a foreign national to qualify for a green card, provided that individual invests a certain amount of money (either $500,000 or $1,000,000, depending
on certain factors) in the United States. Plaintiff was thereafter shown a video produced by Defendant USIIC, in which it described the ways in which USIIC could assist foreign nationals in applying for the EB-5 program and investing in the United States. ( Id. ) Plaintiff contacted USIIC in March 2012, ( id. ), and met in person with the CEO of USIIC, Defendant Khazen, during a trip to the United States in April 2012. ( Id. ¶ ¶ 28-29) During this meeting, Plaintiff was given USIIC promotional materials and was told about various " low-risk" investment opportunities, ( id. ¶ 29), and alleges that Defendant Khazen informed him that USIIC was a United States Customs and Immigration Services (" USCIS" ) approved " EB-5 Regional Center." ( Id. ¶ 29) It was during this meeting that Plaintiff initially expressed interest in investing with USIIC so as to qualify for an EB-5 Visa. ( Id. ) In June of 2012, Plaintiff received correspondence from Khazen that encouraged him to transfer funds to USIIC. ( Id. ¶ 30) Then, in July of 2012, Plaintiff met with Khazen and Shadman in Dubai, a meeting in which Plaintiff alleges he was presented with information again stating that USIIC was an approved EB-5 regional center " with its foundation in banking." ( Id. ¶ 32)
On July 22, 2012, Plaintiff was presented with an " Engagement Agreement," (ECF 29-3 at 13-18) (hereinafter " July 22 Agreement" ), which outlined the terms of the relationship between Defendants and Plaintiff, including, among other things, that Defendants would seek out investment opportunities for Plaintiff that were compliant with the requirements of the EB-5 Visa Program. (FAC, ECF 29 ¶ 32) Plaintiff acknowledges that he signed this agreement, ( id. ), despite it being in English and Plaintiff being a native Farsi speaker who understood and spoke little English himself. ( Id. ¶ 36) Plaintiff alleges that he asked Defendant Khazen to explain the contents of the document, which Khazen did in " five minutes in Farsi." ( Id. ) Plaintiff further alleges that Khazen did not inform Plaintiff that the contract contained an arbitration provision. ( Id. )
In August 2012, Plaintiff was sent an email, in Farsi, from Defendant Shadman, stating that Plaintiff needed to transfer $1,000,000 to USIIC in order to be eligible for the EB-5 Visa program. (ECF 29 ¶ 34) Plaintiff states that Shadman's email claimed an August 15 deadline for the transfer of funds so that Plaintiff could be processed in the " first group" of green card applicants. ( Id. ¶ 34) Plaintiff, acting on the information provided in Shadman's email, transferred $600,000 to Defendants on August 16, 2012. ( Id. )
On August 27, 2012, Plaintiff received an email from Khazen, written in English, which stated that USIIC's Regional Center status was " pending." ( Id. ¶ 36) Plaintiff received a second version of this email, which was translated into Farsi by a USIIC employee, Maryam Karimaneh. ( Id. ) That same day, Plaintiff received an email, also in Farsi, from Khazen, which stated that Plaintiff could not be provided with information about the pending Regional Center approval or the bank in which his money had been invested. ( Id. ) Plaintiff's concerns about these facts caused him to travel to the United States on a six-month tourist visa beginning in September 2012. ( Id. ¶ 37) During this visit, Plaintiff met with Defendants Violet and Pirooz Parvarandah, who he alleges personally reassured Plaintiff that his funds had been properly invested. ( Id. ) After this meeting, on September 24, 2012, Plaintiff transferred an additional $480,000 to USIIC's escrow account, bringing his total investment to $1.08 million. (FAC, ECF 29 ¶ 37)
On September 27 2012, Plaintiff, along with Khazen and Karimaneh, met with attorneys at Fragomen, Del Ray, Bernsen & Loewy, LLP (" Fragomen" ), an immigration law firm, to discuss his EB-5 application. ( Id. ) After that meeting, Plaintiff again spoke with Violet Parvarandah, who informed Plaintiff that an investment contract was being drafted, and that, were to Plaintiff sign that contract, " he would receive a 50% stake in the banks that USIIC had invested in." ( Id. ¶ 39)
On October 3, 2012, Plaintiff signed a second agreement, an " Investment Questionnaire and Subscription Agreement," which granted him a " 50% stake in USIIC's regional center." (ECF 29 ¶ 40; ECF 29-4 Exh. 17) (hereinafter " October 3 Agreement" ). Plaintiff alleges that he believed, at the time of signing the October 3 Agreement, that he was being given a fifty percent interest in every bank in which USIIC had invested, such that the investment would qualify him for the EB-5 Visa. (ECF 29 ¶ 40) Plaintiff alleges that Khazen and others told him this was the case, in Farsi, despite the contract, in English, saying otherwise, ( id. ¶ ¶ 40, 42), and that he " felt pressured" to sign the document, though he could not read it, as it was written in English. ( Id. ¶ 40) Plaintiff alleges he was not provided a translated version of the document. ( Id. ¶ 42)
In December 2012, Plaintiff alleges that he was concerned about his application status for an EB-5 Visa, and that his inquiries with USIIC were going unanswered. ( Id. ¶ 45) At this time, and for the first time since he began interactions with Defendants, Plaintiff employed his own bilingual translator, in order to speak directly with his immigration attorney at Fragomen. ( Id. ) Plaintiff alleges that it was only after this conversation that he for the first time realized that USIIC was not an approved EB-5 Regional Center, and instead only had a pending application for such a designation, that he had not directly invested in regional banks as required under the EB-5 program, and that his application for a visa had not yet been submitted to USCIS. ( Id. ) At this time, he instructed his attorney to cease his application for an EB-5 visa, ( id. ) and soon thereafter commenced the instant action.
Based on the facts above, Plaintiff asserts twenty-two causes of action  related to various alleged violations of federal and state securities laws, fraud, civil RICO, conversion, unfair business practices, and civil tort claims. In Plaintiff's Motion for Leave to Amend, he states that he will " voluntarily withdraw" five of the claims brought in the First Amended Complaint if provided the opportunity to amend. (ECF 50)
Plaintiff seeks relief in the form of damages, including punitive damages, an injunction pursuant to California Business & Professions Code § 17200, pre-judgment interest, and attorneys' fees. (FAC, ECF 29 at 42-43)
II. LEGAL STANDARDS
A. Rule 12(b)(6)
1. General Requirements
A motion to dismiss under Rule 12(b)(6) concerns what facts a plaintiff must plead on the face of his complaint. Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must include " a short and plain statement of the claim showing that the pleader is entitled to relief." Any complaint that does not meet this requirement
can be dismissed pursuant to Rule 12(b)(6). In interpreting Rule 8(a)'s " short and plain statement" requirement, the Supreme Court has held that a plaintiff must plead " enough facts to state a claim to relief that is plausible on its face," Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), which requires that " the plaintiff plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). This standard does not ask the Plaintiff to plead facts that suggest he will probably prevail, but rather " it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (internal quotation marks omitted). The Court must " accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party." Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). The Court is not, however, forced to " assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Kane v. Chobani, Inc., 973 F.Supp.2d 1120 (N.D. Cal. 2014) (citing Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011)).
2. Fraud Pleadings Under Rule 9(b)
When a party pleads a cause of action for fraud or mistake, he is subject to the heightened pleading requirements of Rule 9(b). " In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b) (" Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." ). Rule 9(b) demands that the circumstances constituting any alleged fraud be plead " specific[ally] enough to give defendants notice of the particular misconduct. . . so that they can defend against the charge and not just deny that they have done anything wrong." Kearns v. Ford Motor Co., 567 F.3d 1120 (9th Cir. 2009) (citing Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)) (emphasis added). Claims of fraud must be " accompanied by the who, what, when, where, and how of the misconduct alleged." Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997).
3. Pleading Violations of § 10b of the Securities Exchange Act
Any claim brought under Section 10b of the Securities Exchange Act of 1934 must, in addition to the general heightened pleading requirements for fraud, also meet the pleading requirements of the Private Securities Litigation Reform Act (" PLSRA" ). To survive a Rule 12(b)(6) motion to dismiss, a claim under Section 10b must " plead with particularity both falsity and scienter. " Ronconi v. Larkin, 253 F.3d 423, 429 (9th Cir. 2001) (emphasis added). Plaintiff must " specify each statement alleged to have been misleading, the reasons why the statement is misleading, and, if an allegation regarding the statement is made on information and belief, . . . state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). Such facts must give rise to a " strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2).
In Tellabs v. Makor Issues & Rights, the Supreme Court defined " strong inference" to mean that " a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged." Tellabs, 551 U.S. 308, 324, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). This requires the district court to " consider the complaint in its entirety," in addition to engaging in an allegation-by-allegation
analysis. Id. at 323-24. The court may " only allow the complaint to survive a motion to dismiss if the malicious inference is at least as compelling as any opposing innocent inference. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir 2009).
B. Leave to Amend
Pursuant to Federal Rule of Civil Procedure 15(a), a court should grant leave to amend a complaint " when justice so requires," because " the purpose of Rule 15 . . . [is] to facilitate decision on the merits, rather than on the pleadings or technicalities." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (emphasis in original). The Court may deny leave to amend, however, for a number of reasons, including " undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of amendment." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (2003) (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)).
Defendants bring this Motion to Dismiss on two grounds: (1) that the claims in the FAC are subject to a binding arbitration agreement, and must be dismissed because this Court lacks jurisdiction to hear said claims, and (2) failure to state a claim for which relief can be granted under Federal Rule of Civil Procedure 12(b)(6).
For the reasons outlined below, the Court DENIES without prejudice the Motion to Dismiss the FAC on the grounds that the claims are subject to an arbitration agreement, because the validity of the arbitration clause cannot be determined without an evidentiary hearing as required by the Federal Arbitration Act, 9 U.S.C. § 4. Defendants may file a motion to compel arbitration in order to determine the validity of the arbitration clause. The Court further GRANTS IN PART AND DENIES IN PART Defendants' Motion to Dismiss pursuant to Rule 12(b)(6).
A. Motion to Dismiss Due to the Arbitration Clause in the July 22 Agreement
Defendants ask the Court to dismiss the FAC because Plaintiff's claims are subject to an arbitration clause. (Mot. to Dismiss, ECF 34 at 5-8) Defendants allege that the arbitration clause governs any of Plaintiff's allegations concerning " disputes [that] relate to any purported obligation concerning the EB-5 process," but not Plaintiff's claims regarding " his investment." (Mot. at 7) Defendants, however, make no attempt to disaggregate which claims fall within each of these two baskets, instead arguing that all claims should be dismissed because Plaintiff has failed to identify exactly which of his claims arise out of the July 22 Agreement and which of his claims arise from his investments. (Mot. at 5:22-23) Defendants state that they could not bring a motion to compel arbitration under the FAA because Plaintiff chose to intertwine all of his claims arising out of the July 22 Agreement with his other claims. Defendants do not explain why it would be Plaintiff's obligation to separate his claims.
Plaintiff argues in his opposition papers and alleges in his FAC that the Court should find the arbitration agreement invalid because Plaintiff's consent to submit claims to arbitration was procured by fraud and misrepresentation. ( See, e.g., ECF 29 at 40-41) Plaintiff alleges that the contract was written in English and he only reads and speaks Farsi. He further alleges that Defendant Khazen undertook to translate the July 22 Agreement immediately
prior to Plaintiff signing the Agreement but during the five-minute summary of the terms of the Agreement, Defendant Khazen omitted any reference to the arbitration clause and denied him the opportunity to review the contract. (FAC ¶ ¶ 33, 222-225)
Based on these arguments, it is incumbent upon this court to determine whether the matter can be resolved by a motion to dismiss. Enforceability of the arbitration clause and determination of the scope of that clause is governed by the terms of the Federal Arbitration Act (" FAA" ), 9 U.S.C. § § 1-14. Under the FAA arbitration agreements are " a matter of contract," and " shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. A party seeking to invoke an arbitration agreement, pursuant to the FAA, must " petition any United States district court which, save for such agreement, would have jurisdiction [to hear the matter], for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4. Once a party does so, the district court engages in an inquiry only to determine whether the arbitration agreement is valid, and whether the agreement encompasses the claims at issue. See, e.g., Mitsubishi Motors Co. v. Soler Chrysler-Plymouth, 473 U.S. 614, 627-28, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (" [T]he first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute." ) The FAA provides for a summary proceeding, including trial by jury, to resolve factual disputes. 9 U.S.C. § 4.
Here, although Defendants urge this court to decide the issue of enforceability of the arbitration clause through this motion to dismiss, they have not cited any authority for bypassing an evidentiary hearing to resolve disputed issues of fact regarding the validity of the arbitration clause.
Defendants cite Thinket Info. Resources v. Sun Microsystems 368 F.3d 1053, 1060 (9th Cir. 2004) for the proposition that claims subject to arbitration can be appropriately dismissed pursuant to a Rule 12(b)(6) motion to dismiss, in lieu of a motion to compel arbitration under the FAA. Although generally, that proposition is true, none of the cases cited by Defendants establish that the court may resolve a factual dispute regarding the validity of an arbitration clause absent an evidentiary hearing as provided for in the FAA.
The Court therefore DENIES Defendants' Motion to Dismiss due to the existence of an arbitration agreement. Defendant must comply with the FAA's procedure for petitioning the court for such relief. See 9 U.S.C. § 4. Defendants may, if they so choose, bring a motion to compel arbitration, which delineates which claims they believe are subject to arbitration and which claims fall outside the scope of the arbitration agreement.
B. Motion to Dismiss Pursuant to Rule 12(b)(6)
The Court now considers, in turn, Defendants' Motion to Dismiss each cause of action pursuant to Rule 12(b)(6).
1. Claims Voluntarily Dismissed by Plaintiff Through the Motion for Leave to Amend (2nd, 4th, 9th, 10th, and 11th Causes of Action)
Plaintiff has agreed, pursuant to the Motion for Leave to Amend, to withdraw the following claims: " violation of section 17(a) of the Securities Act" (second cause of action); " violation of the broker-dealer
registration provisions" (fourth cause of action); " violation of section 15(a) of the Exchange Act" (also the fourth cause of action); " civil conspiracy" (ninth and tenth causes of action); and " aiding and abetting" (eleventh cause of action). The Motion for Leave to Amend is discussed, and granted, in Part III.C, infra.
For purposes of ruling on the operative complaint, the FAC, the Court hereby DISMISSES the above five claims pursuant to the decision of Plaintiff voluntarily to withdraw the claims from the litigation. The second, fourth, ninth, ...