United States District Court, N.D. California
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS THE
THIRD AMENDED CORRECTED COMPLAINT
RICHARD SEEBORG United States District Judge
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." 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.
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.
FACTS AND PROCEDURAL HISTORY
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.
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.
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.
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
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!"
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." 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.
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.
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.
and Sarafraz 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.
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 ...