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Vahora v. Masood

United States District Court, E.D. California

April 3, 2017





         Judges in the Eastern District of California carry the heaviest caseloads in the nation, and this Court is unable to devote inordinate time and resources to individual cases and matters. Given the shortage of district judges and staff, this Court addresses only the arguments, evidence, and matters necessary to reach the decision in this order. The parties and counsel are encouraged to contact the offices of United States Senators Feinstein and Harris to address this Court's inability to accommodate the parties and this action. The parties are required to reconsider consent to conduct all further proceedings before a Magistrate Judge, whose schedules are far more realistic and accommodating to parties than that of U.S. Chief District Judge Lawrence J. O'Neill, who must prioritize criminal and older civil cases.

         Civil trials set before Chief Judge O'Neill trail until he becomes available and are subject to suspension mid-trial to accommodate criminal matters. Civil trials are no longer reset to a later date if Chief Judge O'Neill is unavailable on the original date set for trial. Moreover, this Court's Fresno Division randomly and without advance notice reassigns civil actions to U.S. District Judges throughout the nation to serve as visiting judges. In the absence of Magistrate Judge consent, this action is subject to reassignment to a U.S. District Judge from inside or outside the Eastern District of California.


         Plaintiff Gulamnabi Vahora (“Dr. Vahora”), brings this action against Defendants Shiekh M. Masood (“Dr. Masood”), Naeem Mujtaba Qarni (“Naeem”), Najam Ul Mujtaba Qarni (“Najam”), and Valley Diagnostics Laboratory, Inc. (“VDL”), for their alleged “breach of oral contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, promissory estoppel, violation of California's Unfair Competition Law (“UCL”), civil conspiracy to commit fraudulent deceit, intentional misrepresentation, [and] conversion.” Complaint (“Compl.”), Doc. 1 at 1. These causes of action arise from an alleged oral agreement between Dr. Vahora and Naeem to partner for the purposes of purchasing and operating a medical diagnostic testing company, VDL.

         Defendants Dr. Masood, Naeem, and VDL (collectively, “Defendants”) move to dismiss Dr. Vahora's Complaint under Federal Rule of Civil Procedure 12(b)(6).[1] The Court took the matter under submission on the papers pursuant to Local Rule 230(g). Doc. 3-1. For the following reasons, the Court DENIES and GRANTS IN PART Defendants' motion to dismiss.


         Dr. Vahora is an individual residing in Wayne, Pennsylvania. See Compl. ¶ 1. He has owned and operated multiple businesses engaged in medical diagnostic testing and claims to be the majority-owner of VDL. Id. ¶¶ 21, 60.

         VDL is a corporation organized under the laws of the state of California with its principal place of business in Madera, California. Id. ¶ 2. VDL also operates from a second office located in Fresno, California. Id. ¶ 3. VDL is engaged in medical diagnostic testing. Id. ¶ 31.

         Naeem is an individual residing in Clovis, California. Id. ¶ 4-5. He is the agent for service of process for VDL, and is VDL's President and part-owner. Id. ¶ 6-7.

         Najam is an individual residing in Ontario, Canada. Id. ¶ 8-9. He is Naeem's brother and Dr. Vahora's former employee. Id. ¶¶ 22-24.

         Dr. Masood is an individual residing in Madera, California. Id. ¶ 10-11. Dr. Masood and Naeem are related by marriage: Dr. Masood's son is married to Naeem's daughter. Id. ¶ 29.

         Dr. Vahora brings this case under the Court's diversity jurisdiction. Id. ¶ 12 (citing 28 U.S.C. § 1332(a)).

         Prior to March 2012, Naeem resided in Pakistan. Id. ¶ 25. He wanted to move to the United States under the E-2 Investor visa program, which required him “to invest a substantial amount of capital in the purchase and ownership of a United States business.” Id. ¶ 25-26.

         To facilitate Naeem's visa, Dr. Masood and Najam decided that Naeem should purchase a medical business because “that is the field of Dr. Masood's expertise.” Id. ¶ 29. Dr. Masood identified VDL as a potential investment. Id. ¶ 31. VDL's then-owner and non-party Dr. Muhammad Saeed (“Dr. Saeed”) sought a sale price of $400, 000 for the business. Id. ¶¶ 32-33.

         In March 2012, Najam contacted Dr. Vahora and informed him of Naeem's situation. Id. ¶¶ 22, 25, 26. Najam, Dr. Masood, and Naeem sought Dr. Vahora's assistance in the analysis and purchase of VDL “because of Dr. Vahora's extensive experience in the operation and valuation of such medical laboratory businesses.” Id. ¶¶ 30, 34.

         Dr. Vahora agreed to help and “engaged in a systematic analysis of VDL's value, and modeled the number of laboratory samples required to achieve profitability.” Id. ¶ 35. As part of his analysis, Dr. Vahora visited the Madera location of VDL several times at his own expense. Id. ¶ 36. He met with Dr. Saeed and Dr. Masood, and reviewed “copious information about VDL.” Id. ¶¶ 36, 39. “Upon completion of his analysis . . . Dr. Vahora determined that VDL was worth no more than $200, 000.” Id. ¶ 41.

         Throughout the valuation process, Najam and Dr. Masood suggested to Dr. Vahora that he should partner with Naeem in the purchase of VDL. Id. ¶¶ 37-38. Once Dr. Vahora's valuation of VDL was complete, the men “both increased their campaign to convince Dr. Vahora to invest in VDL in partnership with Naeem.” Id. ¶ 42. Najam represented that Naeem “would serve as a competent lab manager and a worthy partner in ownership of the lab, ” id. ¶ 43, and Dr. Masood represented that “partnering with Naeem to purchase the lab[] was an excellent investment.” Id. ¶ 44. However, at that time, “Naeem worked in the finance industry . . . in his native Pakistan, and had no relevant experience operating a medical diagnostic laboratory.” Id. ¶ 45.

         Thereafter, “Naeem formally asked Dr. Vahora to be his partner in VDL.” Id. ¶ 46.

         Dr. Masood, on behalf of Naeem, negotiated the terms of the partnership with Dr. Vahora. Id. ¶ 47. The terms of the agreement were as follows:

• Dr. Vahora and Naeem would j ointly purchase VDL for $200, 000;
• Dr. Vahora and Naeem would each contribute $100, 000 to the purchase of VDL;
• Dr. Vahora and Naeem would be equal partners in VDL, with the potential of Dr. Saeed and Dr. Masood having small ownership interests therein by subsequent mutual agreement;
• Naeem would apply for legal immigrant status in the United States pursuant to the E-2 Treaty Investor program;
• Dr. Vahora would teach Naeem how

Id. ¶ 48.

         On April 17, 2012, Naeem e-mailed Dr. Vahora to confirm the terms of the partnership agreement reached by Dr. Vahora and Dr. Masood on behalf of Naeem. Id. ¶ 49.

         In July 2012, Dr. Vahora and Naeem purchased VDL for $200, 000. Id. ¶ 55. Although the sales agreement for VDL identified Naeem as the sole purchaser, Dr. Vahora claims VDL was acquired pursuant to Dr. Vahora's and Naeem's oral agreement to “form an equal partnership for the purchase, ownership and management of VDL.” Id. ¶ 54. Further, Naeem contributed only $80, 000 towards the purchase price, whereas Dr. Vahora contributed $120, 000. Id. ¶¶ 58-59.

         As a result of the changed contribution amounts, Dr. Vahora contends the partnership became “a de facto 60/40 partnership, with Dr. Vahora owning a 60 percent interest in VDL and Naeem owning a 40 percent interest in VDL.” Id. ¶ 60. Dr. Vahora believes that Naeem subsequently “diluted his 40 percent ownership in VDL by selling and/or sharing a portion of his interest in VDL with Dr. Saeed and/or Dr. Mahmood and/or Najam and/or third parties without the consent of Dr. Vahora.” Id. ¶ 70.

         Sometime around October 2012, “Dr. Vahora began to teach Naeem how to operate a medical diagnostic laboratory.” Id. ¶ 72. Dr. Saeed stayed on at VDL as a technical advisor because “Naeem was unable to run the laboratory on a daily basis as he had promised.” Id. ¶¶ 74-75.

         VDL could not pay its own expenses. Id. ¶ 73. “Naeem represented to Dr. Vahora that he was without sufficient assets to contribute to VDL's operating and overhead expenses.” Id. ¶ 75. As a result, Dr. Vahora was left responsible for funding VDL's operations. Id. ¶¶ 73, 75. He “provided large amounts of supplies to VDL, and infused VDL with enormous amount[s] of operating capital, ” Id. ¶ 73, and paid Dr. Saaed's salary. Id. ¶ 75. “In total, Dr. Vahora spent in excess of $380, 000 on VDL's operating expenses, payroll, rent and other daily expenses.” Id. ¶ 101.

         At the same time, Naeem wanted a salary and a loan from VDL. Id. ¶ 77. In October 2012, Dr. Vahora and Naeem reached an agreement over the telephone for Naeem's salary and loan. Id. ¶ 78. The terms of the agreement were as follows:

• Naeem would take responsibility for ordering VDL marketing supplies from Pakistan, so that Dr. Vahora no longer was compelled to provide them;
• VDL would hire a new laboratory technician, whom Dr. Saeed would supervise;
• VDL would offer and advertise and [sic] increased array of services, including in-home and nursing home blood draws;
• Naeem's loan from VDL would be “paid off through my profit income over a period of time”; and
• Naeem's monthly salary would initially be $3, 000, with a raise to $5, 000 based on his attainment of certain criteria.

Id. ¶ 79. Naeem subsequently sent Dr. Vahora an email confirming the terms of the agreement. Id.

         “However, even after several months on the job and with Dr. Saeed and the existing staff on the premises, Naeem exhibited great difficulty running VDL.” Id. ¶ 80. Under Naeem's management, VDL was processing only twenty specimens per day. Id. ¶ 84. Naeem was unable to grow the business and “depended entirely upon Dr. Vahora's continual infusion of funds beyond the initial $120, 000 investments in order to keep VDL afloat.” Id. ¶¶ 85-86. Naeem “improperly raised his own salary from $3, 000 to $5, 000, ” id. ¶ 87, even though VDL “could not afford to pay Naeem the sum of $5, 000 per month, in light of its unprofitable status.” Id. ¶ 88. In addition, Naeem he used VDL funds for his own personal expenses. Id. ¶ 89.

         By the end of 2012, “VDL was in a state of managerial disarray and fiscal crisis.” Id. ¶ 90. It became “evident to Dr. Vahora that Naeem's value to VDL was significantly lower than Najam and Dr. Masood had represented to Dr. Vahora prior to his entering the partnership with Naeem.” Id. ¶ 83. Therefore, in December 2012, Dr. Vahora took on a more proactive role in VDL's daily management and Naeem's role was limited to maintaining VDL's finances and executing Dr. Vahora's instructions. Id. ¶¶ 92-93.

         Dr. Vahora hired Alfonso Flores (“Flores”) as VDL's full-time Vice President of Sales. Id. ¶ 94. Under Dr. Vahora's and Flores's direct management, VDL's productivity “immediately and dramatically” increased. Id. ¶ 103. “[I]n the first eight days of January 2013, VDL made 290 requisitions, as compared with 20 requisitions per month when the lab was under Naeem's sole daily control.” Id. ¶ 104.

         From December 2012 through early 2013, Naeem regularly sought funds from Dr. Vahora, “purportedly to support VDL's operations, ” despite VDL's increases in productivity. Id. ¶¶ 112-32. As a result, by January 30, 2013, Dr. Vahora required Naeem to submit detailed expense reports because his confidence in Naeem's ability to manage VDL and its finances was “completely eroded.” Id. ¶ 119.

         “By June 2013, VDL's financial situation under Naeem's daily mismanagement was dire.” Id. ¶ 131. Dr. Vahora realized Naeem was not fit for his position and began seeking a replacement, while “continu[ing] to function as VDL's at-large manager and decision-maker regarding laboratory operations.” Id. ¶¶ 135-36.

         Naeem, acting on behalf of VDL and without Dr. Vahora's consent or knowledge, violated Flores's employment contract by “terminat[ing] Flores's employment at VDL, effective July 1, 2013.” Id. ¶¶ 139, 141, 143. On July 3, 2013, Naeem informed Flores via email “that Dr. Vahora was no longer involved with VDL.” Id. ¶ 138. Flores subsequently forwarded the email to Dr. Vahora. Id. ¶ 140.

         At some point prior to July 10, 2013, “Naeem informed Dr. Vahora that he no longer wished to partner with Dr. Vahora in the ownership or management of VDL.” Id. ¶ 142. On July 10, 2013, Dr. Vahora sent Naeem an email expressing his disagreement with Naeem's decision to terminate Flores's employment. Id. ¶ 143. In the email, Dr. Vahora stated that they should honor Flores's employment contract. Id., Ex. 37 at 1. Naeem did not respond to Dr. Vahora's email. Id. ¶ 145. Dr. Vahora sent Naeem four additional emails regarding Flores on July 12, 16, 18, and 21, 2013, all of which Naeem ignored. Compl. ¶¶ 144-45. “In desperation, Dr. Vahora reached out to Defendant Najam in search of a way to reach Naeem, to wind down the partnership, and to address management and ownership of VDL, to no avail.” Id.

         Dr. Vahora wrote Naeem a sixth email on July 27, 2013. Id. ¶ 147. In the email, Dr. Vahora stated that he had “not received any proposal in writing for resolving any issue in partnership.” Id. ¶ 147. He explained that “[i]f by the first of August 2013 . . . [he] did not receive any written document from [Naeem], then . . . [he] w[ould] come to Madera and legally take over the lab.” Id. Dr. Vahora also noted that Naeem, “[a]fter seeing this future, ” was “trying to conspire against [him] and throw [him] out, ” because he “want[ed] to get all the benefits and share it with [his] co-conspirator.” Id., Ex. 39 at 3.

         “In a subsequent telephone conversation, Naeem agreed to submit a written proposal to Dr. Vahora to liquidate their partnership, but he never did so [despite] numerous ...

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