United States District Court, N.D. California, San Jose Division
ORDER RE: FURTHER BRIEFING ON DERIVATIVE VERSUS DIRECT CLAIMS AND SETTING FURTHER PRETRIAL CONFERECE
HOWARD LLOYD, District Judge.
This consolidated action is brought by Aram Vardanyan, a shareholder and former member of the board of directors of Viasphere International, Inc. ("Viasphere"). He sues Viasphere, Anthony Moroyan (a Viasphere shareholder and current board member), and Alpha Ventures ("Alpha"), a company apparently solely owned by Moroyan. In his affirmative case, Vardanyan brings 12 claims, and in related case 12-cv-01536 Vardanyan brings 4 counterclaims. The court consolidated these claims and counterclaims for trial.
On March 21, 2014 the court ordered briefing addressing whether Vardanyan's claims were proper direct claims against defendants or if they should have been brought as derivative claims. Dkt. No. 82. Vardanyan and Moroyan both responded, Dkt. Nos. 86, 87, and Vardanyan also requested additional time to respond, Dkt. No. 83. The court granted Vardanyan's motion for additional time, Dkt. No. 89, and received another set of briefs addressing the direct versus derivative issue. See Dkt. Nos. 90, 92, and 96.
Having reviewed the parties' submissions, the court finds that Vardanyan can only maintain his stock dilution claims in a direct action, and denies leave to amend his complaint to convert the remaining claims into derivative claims.
I. VARDANYAN'S ALLEGATIONS
Vardanyan alleges that Moroyan and other, unnamed, board members:
Misappropriated Viasphere funds for personal use, including taking unnecessary trips and constructing a personal residence;
Mismanaged Viasphere funds;
Failed to provide Vardanyan with accurate financial statements and tax documents relating to Viasphere;
Made fraudulent proxy disclosures relating to Viasphere stock options;
Entered into illegal or fraudulent contracts with Alpha that provided no material benefit to Viasphere; and
Diluted plaintiff's share of Viasphere stock, which resulted in the loss of his position on the Viasphere Board of Directors.
In his affirmative case, Vardanyan brings twelve claims for: (1) conversion of Viasphere funds; (2) constructive fraud for failure to disclose Viasphere financial information; (3) fraud relating to the consulting contract; (4) breach of fiduciary duty by Moroyan for dilution, misuse of funds, and false proxy statements; (5) intentional misrepresentation by Moroyan; (6) negligence and negligent misrepresentation for diverting funds from Viasphere to Alpha Ventures; (7) concealment for using Viasphere funds for personal use; (8) unjust enrichment against Alpha relating to the consulting contract; (9) declaratory relief that the dilution was improper and to restore Vardanyan's ownership interest; (10) injunctive relief to stop Moroyan's misuse of Viasphere funds; (11) imposition of construction trust against Alpha for the benefit of Viasphere; and (12) violation of California Business and Professions Code § 17200, unlawful business practices through the misuse of Viasphere funds. In Case No. 12-1536, Vardanyan brings four counterclaims against Viasphere for (1) breach of fiduciary duty related to dilution and misuse of funds; (2) aiding and abetting the breach of fiduciary duty; (3) conversion of Viasphere funds for personal use; and (4) negligence and constructive fraud for failing to disclose financial information.
Vardanyan seeks $4, 000, 000 in compensatory damages, economic damages, a declaration restoring his ownership percentage of Viasphere stock, ...