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Siegal v. Gamble

United States District Court, N.D. California

July 7, 2016

STEVEN SIEGAL, et al., Plaintiffs,
G. THOMAS GAMBLE, et al., Defendants.


          RICHARD SEEBORG United States District Judge


         Plaintiff David Groblebe claims defendants Dr. Alfred Lopez and Behrooz Sarafraz duped him into investing in the Tri-Valley Corporation's ("TVC") Opus I Drilling Program, LP ("Opus"). According to Groblebe, these investments were not as good as advertised: the project was undercapitalized, TVC managed the product poorly, and the broker-dealers hired to entice people like Groblebe to invest in the program were unlicensed and paid exorbitant commissions. In other words, the investment opportunity was "all shine, and no substance."[1] Lopez and Sarafraz were among these unlicensed brokers who facilitated investment in Opus or in aggregators-LLCs designed to pool investments to permit multiple investors to invest in Opus. Groblebe insists he would never have invested in Opus or an aggregator had he known certain information about the program and how TVC was managing it. He now accuses Lopez and Sarafraz of violating numerous provisions of the California Corporations Code, violating their trust, and negligently misrepresenting the financial health of Opus.

         This is not Groblebe's first attempt to plead claims against Lopez and Sarafraz; it is their third. Once again, he has failed to include the who, what, where, when, and how that establish Lopez and Sarafraz engaged in fraudulent conduct. That Groblebe has not met his pleading burden under Federal Rule of Civil Procedure 9(b) after receiving three opportunities to do so suggests he cannot. The third amended class complaint ("TACC") must therefore be dismissed without leave to amend.


         TVC is an oil and gas development company that, in 2002, created Opus, a limited liability partnership. Opus's intended purpose was to acquire oil and gas leases for TVC's exploration and management. TVC assumed the role of Opus's general managing partner, and from 2002 to 2010, orchestrated Opus's sale of approximately $97 million in securities to nearly a thousand individual investors.

         The crux of plaintiffs' claims is that defendants misrepresented the state of Opus's financial health and duped them into investing in a failing corporation. Lopez, Sarafraz, and Opus's other agents sent potential investors private placement memoranda, emails, mailings, and oral communications. According to the TACC, these communications omitted critical facts about Opus's financial health and business operations. Opus did not disclose, for example, that TVC was insolvent, that Opus employed unregistered broker-dealers, that finders received 18% commissions, or that the SEC had investigated Sarafraz. Ignorant of these facts, plaintiffs purchased Opus units directly from Opus or indirectly from Opus aggregators.

         Aggregators were limited liability corporations created with the sole purpose "to pool investor funds to purchase" Opus units, which required a minimum $1 million investment. TACC ¶ 1. When an investor could not make this large payment, Opus agents referred the investors to the aggregators-a process that was "facilitated by, and effectuated through unlicensed brokers, " including Lopez and Sarafraz. Id. Aggregators and those who managed them used the same promotional materials Opus used to entice direct investments. TACC ¶ 51. Opus's indirect investors therefore purchased interests in these limited liability corporations, which held Opus securities.

         In July 2008, Sarafraz sold to Groblebe a direct investment. In an email to Groblebe, Sarafraz wrote:

I have now already made the changes to your Opus-1 Master-List account, to reflect that you will have exactly $450, 000 directly invested in TIV. In addition, I have request [sic] TIV to issue to you a certificate for 10, 000 shares, which will become Free-trading in 180-days after TIV receives your check on July 22. I have made an official note that this Agreement is Dated: Saturday, July 19.[2]

TACC ¶ 42b. In addition, Sarafraz instructed "Groblebe to write checks for $142, 000 and $60, 000." Id. At the close of the email and instructions, Sarafraz congratulated Groblebe on "successfully enhancing [his] holding at this highly beneficial point in our growing Opus and TIV projects!" Id.

         Lopez was the manager of the aggregator Opus Capital Management, LLC, which opened its doors in 2002 and operated "throughout the period that indirect interests were being offered" (from 2002 to 2010). TACC ¶ 42c. Opus Capital Management disseminated brochures advertising a "big, bold, risk mitigated, high upside, tax advantaged opportunity" "mostly in California's ‘oily' south San Joaquin Valley."[3] Id. Tempted by this offer, in September 2007, Groblebe made a $136, 500 investment in the program and paid those funds to Opus Capital Management.

         Plaintiffs suggest Lopez and Sarafraz worked in concert to bring investors to Opus and to Opus Capital Management. Throughout 2008, they told investors that the two were good friends. Sarafraz allegedly touted Lopez's skill by telling investors that Lopez had helped people make investments that were "HUGE WINNERS." Id. Moreover, Lopez allegedly "allowed Sarafraz to tell investors" in emails and letters that Lopez's "wealthy friend with expertise in oil and gas investing" had investigated and conducted due diligence in the Opus oil fields in California. Id. Sarafraz told investors this friend had estimated conservatively that there were 42 million barrels of oil on site. Groblebe claims Lopez and Sarafraz were in communication with Opus's management, and therefore knew these representations were false.

         Lopez and Sarafraz previously moved successfully to dismiss the plaintiffs' First Amended Class Action Complaint ("FACC"). Plaintiffs were granted leave to amend, which they elected to do. In 2014, the O&D defendants settled with plaintiffs who sought preliminary approval of the class settlement in this court. Because a similar motion was pending in the Bankruptcy Court for the District of Delaware, the motion was denied without prejudice.

         Lopez and Sarafraz[4] renewed their efforts to dismiss the claims against them. K&L Gates ("KLG"), the law firm that represented Opus and TVC during the bankruptcy proceedings, filed a special motion to strike the remaining claim against it. Both motions were successful. Only Groblebe was granted leave to amend his complaint and to attempt to cure the defects in his claims against Lopez and Sarafraz. He elected to file the TACC. After resolution of the motion to dismiss and special motion to strike, plaintiffs renewed their motion for preliminary approval of the class settlement with the officer and director defendants ("O&D defendants"). Before the preliminary approval hearing, plaintiffs and KLG reached a settlement with respect to the attorney's fees KLG would receive as a result of its successful special motion to strike. Thus, Groblebe's only remaining claims are those against Lopez and Sarafraz.


         "A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief . . . ." Fed.R.Civ.P. 8(a)(2). "[D]etailed factual allegations are not required, " but a complaint must provide sufficient factual averments "to ‘state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. v. Twombly, 550 U.S. 544, 570 (2007)). In addition, "in allegations of fraud or mistake, a party must state with particularity the circumstances constituting fraud and mistake." Fed.R.Civ.P. 9(b). To satisfy this requirement, a plaintiff must plead "the who, what, when, where, and how that would suggest fraud." Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997) (internal quotation marks omitted). "A plaintiff must set forth more than the neutral facts necessary to identify the transaction. The plaintiff must set ...

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