United States District Court, S.D. California
William Q. Hayes United States District Judge.
matter before the Court is the Motion to Dismiss Pursuant to
Fed.R.Civ.P. 12(b)(6) filed by Defendants Vista Capital
Investments, LLC, and David Clark. (ECF No. 9).
3, 2019, Plaintiff Natural Shrimp, Inc. (“Natural
Shrimp”), initiated this action by filing a Complaint
against Defendants Vista Capital Investments, LLC
(“Vista”), and David Clark. (ECF No. 1). On
September 6, 2019, Defendants filed a Motion to Dismiss. (ECF
No. 9). Defendants move to dismiss Natural Shrimp's
Complaint on the grounds that Natural Shrimp fails to state a
claim upon which relief can be granted pursuant to Federal
Rule of Civil Procedure 12(b)(6). In the alternative,
Defendants move the Court to consolidate this case with the
breach of contract action filed by Vista against Natural
Shrimp, currently pending before this Court,  and to designate
Vista as the plaintiff in the consolidated action.
September 30, 2019, Natural Shrimp filed a Response in
opposition to Defendants' Motion to Dismiss. (ECF No.
13). On October 7, 2019, Defendants filed a Reply. (ECF No.
Allegations in the Complaint
about January 23, 2017, Vista and Natural Shrimp entered into
a Securities Purchase Agreement. The Securities Purchase
Agreement provides that Natural Shrimp shall sell, and Vista
shall purchase, 1) a promissory Note; and 2) a Warrant to
purchase shares of Natural Shrimp's common stock. The
Note is in the principal amount of $250, 000. The Warrant
allows Vista “to purchase 350, 000 shares of [Natural
Shrimp's] Common Stock.” The Securities Purchase
Agreement provides that “[t]he Warrants shall vest such
that [Vista] shall receive 1.4 warrants for every dollar
funded to [Natural Shrimp] under the Note.” The
Securities Purchase Agreement provides that Vista
“shall pay the purchase price of $50, 000.”
“Upon the closing of [the Securities Purchase
Agreement] and initial funding of $50, 000 . . . [Vista]
shall receive a Warrant to purchase 70, 000 shares of common
stock.” (ECF No. 1, Exhibit A at 28).
is the “principal and sole representative” of
Vista, a sole proprietorship. (Id. ¶¶ 1,
12). On “multiple occasions in the days prior to
execution” of the Securities Purchase Agreement, Note,
and Warrant, Clark made oral representations to Natural
Shrimp's CEO, Bill Williams, and CFO, William Delgado.
(Id. ¶¶ 22-23). Clark represented that 1)
the Warrant was not an “exploding warrant;” 2)
there was a floor on the price of any future share purchase
by Vista; 3) there was a cap on the number of shares
available for purchase by Vista; 4) Vista would purchase 350,
000 Warrants from Natural Shrimp for $250, 000; and 5) the
$250, 000 would be delivered in $50, 000 increments over five
months-after the initial $50, 000 payment, every thirty days,
beginning thirty days after execution of the Securities
Purchase Agreement, Note, and Warrant. (Id.
¶¶ 22, 36). Clark represented that the 70, 000
shares of Common Stock that Vista could purchase after the
initial $50, 000 payment would remain at an exercise price of
$0.60 per share, for a total aggregate exercise price of $42,
000. Clark “presented” the Warrant to Williams
and Delgado as “a standard form document unworthy of
close review.” (Id. ¶ 29). Clark made
these representations “to induce Natural Shrimp to
enter” the agreements. (Id. ¶ 22).
representations were false. After making the initial $50, 000
payment under the Securities Purchase Agreement, Vista
“failed and refused to provide the additional funds
that it promised.” (Id. ¶ 60). Natural
Shrimp relied on Clark's representations and would not
have executed the Securities Purchase Agreement, Note, or
Warrant if it knew that Clark “lied about Vista's
delivery of additional financing” and only intended to
deliver one-fifth of the financing promised. (Id.
addition, the Warrant contained “price-adjustment and
cashless exercise provisions” designed to benefit the
drafting party, Vista, and mislead Natural Shrimp.
(Id. ¶¶ 32, 39). The price-adjustment
provision made it so “the number of shares Vista was
able to acquire was on a sliding scale . . . . If the
Exercise Price decreased, the number of shares issuable
pursuant to the Warrant increased.” (Id.
¶ 43). The cashless exercise provision “permitted
Vista to purchase shares without ever having to pay for them
in cash” by providing Vista with “the option to
forego a portion of the shares to which it was entitled in
order to utilize those shares to pay for other shares at a
reduced price.” (Id. ¶¶ 47-48). The
price-adjustment and cashless exercise provisions, drafted by
Defendants, are inconsistent with Clark's representations
regarding the exploding warrant, price floor, and purchase
February 22, 2019, Vista sent Natural Shrimp a Notice of
Exercise of Warrant seeking to acquire 16, 052, 090 shares of
Natural Shrimp's common stock at a price of $0.0026 per
share. Instead of paying Natural Shrimp $42, 000 to acquire
the shares, Vista sought to utilize the cashless exercise
provision to acquire the shares without expending additional
funds. The shares had an aggregate market value of $7.135,
154. Natural Shrimp would never have agreed to the inclusion
of the exploding warrant, but Clark concealed the existence
of the exploding warrant to induce Natural Shrimp to enter
into the Securities Purchase Agreement, Note, or Warrant.
Shrimp brings claims against Vista for 1) rescission; 2)
fraudulent inducement; 3) breach of the covenant of good
faith and fair dealing; 4) unjust enrichment; and 5)
promissory estoppel. Natural Shrimp brings a claim against
Clark for fraudulent inducement. Natural Shrimp seeks 1)
rescission of the Securities Purchase Agreement, Note, and
Warrant; 2) general, special, exemplary, and punitive damages
on all claims except the rescission claim; 3) injunctive
relief; 4) interest, attorneys' fees, and costs; and 5)
“such other and further relief as the Court may deem
proper.” (Id. at 24-25).