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Parkridge Ltd. v. Indyzen, Inc.

United States District Court, N.D. California

April 18, 2017

INDYZEN, INC., et al., Defendants.


          KANDIS A. WESTMORE United States Magistrate Judge.

         On March 8, 2017, Defendants Indyzen, Inc. and Praveen Narra Kumar filed concurrent motions pursuant to the arbitration provisions contained in the parties' Software Development and License Agreement: a motion to compel arbitration and a motion to stay the case and compel arbitration. (Def.'s Mot., Dkt. Nos. 12 & 13.[1])

         Upon review of the moving papers, the Court finds this matter suitable for resolution without oral argument pursuant to Civil Local Rule 7-1(b), and, for the reasons set forth below, finds that the issue of arbitrability is delegated to the arbitrator and GRANTS Defendants' motion to compel arbitration, and STAYS the action pending the conclusion of arbitration.

         I. BACKGROUND

         On December 29, 2016, Plaintiffs Parkridge Limited and Mabel Mak filed suit against Defendants Indyzen, Inc., and Praveen Narra, alleging breach of fiduciary duty, aiding and abetting, breach of contract, unjust enrichment, fraudulent misrepresentations, and fraudulent concealment in connection with the development of the Morfit App. (Compl., Dkt. No. 1.)

         Around 2013, Randy Dobson began working on developing an online personal training platform that would connect personal trainers with clients by utilizing a personality matching system, which was later known as Morfit (the “Morfit App”). (Compl. ¶ 7.) Dobson spoke with a group on business individuals, including Defendant Narra, about the idea, and communicated that he had no technical expertise. (Compl. ¶¶ 8-10.) Narra pitched his application and software development expertise to assist with the technical side of the Morfit App, and stated that he owned and was the Chief Executive Officer (“CEO”) of a software development company known as Indyzen. (Compl. ¶ 11.)

         Parkridge was formed on August 23, 2013, with Dobson as CEO and Chairman, and Narra as Chief Technology Officer (“CTO”). (Compl. ¶¶ 12, 14, 16.) Dobson told Narra that they would be relying on Narra's expertise in all technical matters. (Compl. ¶ 19.) Dobson asked Narra to vet a real-time software computing company known as The Information Bus Company Software Inc. (“TIBCO”) to determine if it was qualified to build the Morfit App. (Compl. ¶ 20.) Dobson and Narra communicated to TIBCO that the Morfit App is meant to be primarily a mobile platform, and, based on Narra's recommendation, Parkridge hired TIBCO to develop the Morfit App on November 13, 2013. (Compl. ¶¶ 21-22.) Plaintiffs allege that Narra knew at the time that TIBCO did not have mobile expertise. (Compl. ¶ 23.) During the following year, Narra was in charge of managing and overseeing TIBCO's progress with the Morfit App, but he failed to monitor TIBCO's progress with the Morfit App. (Compl. ¶¶ 24-25.) Ultimately, TIBCO delivered only a desktop platform and failed to deliver the mobile platform, which was the type of platform requested. (Compl. ¶¶ 26-27.) Due to TIBCO's failure to deliver a mobile platform, Parkridge stopped paying TIBCO. (Compl. ¶ 28.)

         Subsequently, Narra recommended that his own software company, Indyzen, develop the Morfit App. (Compl. ¶ 29.) Narra and Indyzen promised an extensive set of characteristics for the Morfit App, including, but not limited to: personality matching, open API, social media, geolocation, augmented reality, and facial recognition aspects. (Compl. ¶ 30.) As a result of these discussions, all working relationships between Parkridge and TIBCO were terminated. (Compl. ¶ 31.)

         On January 1, 2015, Parkridge's Shareholders Agreement was executed, and Defendant Narra's father, Parasurama Naidu Narra (“Naidu Narra”), and Plaintiff Mabel Mak were designated as the company's shareholders. (Compl. ¶ 13; Shareholders Agreement, Compl., Ex. A.) The Shareholders Agreement gave Mak 7000 shares, equivalent to 70% of the total shares, in exchange for her industry expertise in the business, professional support, a promise to register all of Parkridge's intellectual property, and initial funding of Parkridge up to a maximum amount of $1, 000, 000 in the form of a loan. (Compl. ¶ 13; Shareholders Agreement §§ 3.3, 7(a), Schedule 3.) The Shareholders Agreement gave Naidu Narra 3000 shares, equivalent to 30% of the total shares, in exchange for his promises to have his son, Defendant Narra, provide software development industry expertise to develop, operate, and maintain the Morfit app, have Narra serve as Chief Technology Officer (“CTO”) of Parkridge, have Narra lead development of the Morfit App to successfully achieve Beta Version, and have Indyzen offer a $300, 000 discount to develop the Morfit App. (Compl. ¶ 14; Shareholders Agreement § 3.3, Schedule 4.) The Shareholders Agreement called for a three-person board of directors, and Plaintiff Mak appointed CEO Dobson and Mark Charles Oakley, and Naidu Narra appointed his son Defendant Narra. (Compl. ¶¶ 15-17; Shareholders Agreement § 5.3.)

         On January 5, 2015, Plaintiff Parkridge Limited (“Customer”) entered into the Software License and Development Agreement (“Morfit Agreement”) with Defendant Indyzen, Inc. (“Company”), which included an arbitration provision, which provided that:

Except for any dispute arising out of payments due to Company, any dispute or disagreement arising between the Company and the Customer which is not resolved to the mutual satisfaction of the Company and the Customer within fifteen (15) Business Days (or such longer period as may be mutually agreed upon) from the date that either Party gives written notice that such dispute or disagreement exists, shall be referred to arbitration in San Jose, CA before one arbitrator in accordance with the Commercial Arbitration Rules (the “Arbitration Rules”) of the America Arbitration Association (the “AAA”), in effect on the date that such written notice is given. Customer waives any and all rights it may have to a jury trial in connection with any proceedings concerning this agreement.

(Compl. ¶ 31; Morfit Agreement, Dkt. No. 1-2 § 11.) Randy Dobson, Parkridge CEO, signed the agreement on behalf of Parkridge, and Praveen Narra, Indyzen CEO and Parkridge CTO, signed on behalf of Indyzen. (Morfit Agreement at 15.)

         In April 2015, Indyzen delivered a version of the Morfit App (“Indyzen's App”) to Parkridge, which Plaintiffs allege was grossly inferior to comparable apps in the industry, as it had only very basic functionality, a bad user interface, and was not ready to be marketed to the public. (Compl. ¶ 32.) Parkridge and Indyzen entered into discussion to resolve the technical issues with, and complete the development of, the Morfit App, but, utlimately, the app was never launched. (See Compl. ¶¶ 34-37.) Around December 2015, Dobson appointed another Chief Technology Officer to a sister company, Martin Papy, and gave him power to oversee all technological matters for the related group of companies. (Compl. ¶ 38.) Papy quickly identified several issues with Indyzen's App, and requested Indyzen's documentation for the development of the Morfit App. (Compl. ¶ 39.) Indyzen and Defendant Narra refused to provide any documentation relating to the project, and, instead, demanded payment-in-full from Parkridge and that 30% of the shares in Parkridge be transferred to Narra's father, Parasurama Naidu Narra, prior to allowing Parkridge to see any documents. (Compl. ¶ 40.) In a good faith effort to resolve the dispute, and without having received a functional app, Parkridge paid Indyzen the amount it requested. (Compl. ¶ 41.) Neither Narra nor Indyzen delivered the requested documents or a functioning Morfit App after having receiving payment. (Compl. ¶ 42.)

         On December 29, 2016, Plaintiffs filed suit in federal court. On March 8, 2017, Defendants filed a motion to stay the case and compel arbitration. (Defs.' Mot., Dkt. No. 12.) On March 22, 2017, Plaintiffs filed an opposition. (Pls.' Opp'n, Dkt. No. ...

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