United States District Court, E.D. California
FINDINGS AND RECOMMENDATION THAT DEFENDANT'S
MOTION TO DISMISS BE GRANTED WITHOUT LEAVE TO AMEND (DOC.
K. OBERTO, UNITED STATES MAGISTRATE JUDGE.
23, 2019, Defendant Valley Diagnostics Laboratory, Inc.
(“VDL”) filed a motion to dismiss pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Doc.
11.) On October 2, 2019, Plaintiff filed an
opposition. (Doc. 18.) On October 22, 2019, the motion
was referred to the undersigned for findings and
recommendation pursuant to 28 U.S.C. § 636(b). The
undersigned reviewed the briefs and supporting material and
found the matter suitable for decision without oral argument
pursuant to Local Rule 230(g). The hearing previously set for
November 5, 2019, which the assigned district judge vacated,
was therefore not re-set. (See Docs. 20, 22.)
reasons set forth below, the Court RECOMMENDS that VDL's
motion to dismiss be GRANTED without leave to amend.
2012, Plaintiff and non-party Naeem Mujtaba Qarni
(“Qarni”) purchased VDL as partners for $200,
000. (Doc. 1 ¶ 12.) Plaintiff “infused enormous
amounts of money, time and expertise into VDL” but,
eventually, Qarni “forced [Plaintiff] out of his role
in VDL.” (Id. ¶¶ 13-14.) On October
26, 2016, Plaintiff filed an action in this court against VDL
and Qarni, Vahora v. Valley Diagnostics Laboratory, Inc.
et al., No. 1:16-cv-01624-SKO (“Vahora
I”), and the operative Second Amended Complaint
(“SAC”) alleged claims for breach of contract
against Qarni and VDL based on Qarni's
“forc[ing]” Plaintiff out of the VDL partnership.
(See Id. ¶¶ 15, 18, 20, 23, 25.)
trial in Vahora I began May 14, 2019, and the jury
returned a verdict on May 17, 2019. (Id.
¶¶ 16-17.) The jury found in favor of Plaintiff on
all claims. (Id. ¶¶ 18, 20, 23, 25.)
Specifically, the jury found that (1) Qarni breached a
contract between Plaintiff and Qarni related to
Plaintiff's purchasing an interest in VDL, causing
Plaintiff $100, 000 in damages; (2) VDL breached a contract
between Plaintiff and VDL with respect to loans Plaintiff
made to VDL, causing Plaintiff $158, 175 in damages; (3)
Qarni breached a contract between Plaintiff and Qarni related
to loans Plaintiff made to Qarni for the benefit of VDL,
causing Plaintiff $65, 232 in damages; and (4) Qarni breached
a contract between Plaintiff and Qarni related to loans
Plaintiff made to Qarni for Qarni's personal benefit,
causing Plaintiff $75, 000 in damages. (See id.)
discovery in Vahora I, Qarni and VDL produced
VDL's tax returns from 2012-2017. (Id. ¶
27.) The tax returns showed that Qarni reported owning one
hundred percent of VDL's stock each year from 2012-2017.
(Id.) The tax returns also showed that VDL reported
net losses of $251, 016, $42, 245, $21, 860, $26, 513, and
$10, 961 in 2013, 2014, 2015, 2016 and 2017, respectively.
trial, Plaintiff and Qarni both testified that Plaintiff paid
$120, 000 to purchase an ownership interest in VDL, and
emails between Plaintiff and Qarni reflected an agreement of
a 50-50 partnership in VDL. (Id. ¶¶ 29,
33.) Qarni also testified at trial that he
“discretionarily applied” $72, 000 of
Plaintiff's $120, 000 payment to Plaintiff's
ownership interests in VDL and that he applied the remainder
of Plaintiff's $120, 000 payment to VDL's
“capital needs.” (Id. ¶¶ 34,
36.) Qarni's testimony regarding Plaintiff's
ownership interest in VDL allegedly “conflicts with the
jury's determination that [Plaintiff] owns 50% of
VDL” and contradicts the tax returns from 2012- 2017 in
which Qarni represented he owned one hundred percent of VDL.
(Id. ¶¶ 36, 38.) Qarni also testified at
trial that VDL was profitable in 2018 and that VDL has
“opened multiple new locations, ” but did not
provide VDL's tax returns for 2018 and “did not
appear to account for revenues from these locations.”
(Id. ¶¶ 39-41.)
2, 2019, Plaintiff filed the complaint in this case,
Vahora v. Valley Diagnostics Laboratory, Inc., No.
1:19-cv-00912-DAD-SKO (“Vahora II”),
requesting appointment of a receiver and alleging claims for
an accounting, breach of fiduciary duty, and breach of
partnership duties. (Id. ¶¶ 43-94.)
Plaintiff voluntarily dismissed the request for appointment
of a receiver on August 27, 2019. (See Docs. 16,
Vahora II complaint alleges Plaintiff is entitled to
an accounting based on the contractual and fiduciary
partnership relationship between Plaintiff, Qarni and VDL,
and an accounting is necessary because the allegedly false
tax returns produced by Qarni during discovery in Vahora
I render “the assets and liabilities of VDL . . .
unknowable.” (See Doc. 1 ¶¶ 72-74.)
third claim for breach of fiduciary duties is based on
VDL's allegedly “grossly negligent and/or reckless
conduct with respect to the knowingly false and fraudulent
declaration of 100% ownership interest [in] VDL, since 2012,
” as evidenced by Qarni's trial testimony in
Vahora I, and VDL's failure to produce Schedule
K-1 tax forms to Plaintiff for each year since 2012, both of
which allegedly contravened the duties VDL owed to Plaintiff
as a partner. (See Id. ¶ 79.) The fourth claim
for breach of partnership duties alleges that VDL “has
failed and refused to provide any information to [Plaintiff]
. . . concerning the partnership's business and affairs
reasonably required for the proper exercise of the
partner's rights and duties[.]” (Id.
¶ 93.) Plaintiff seeks relief in the form of an order
requiring an accounting of VDL's books and records and
requiring VDL to comply with its partnership duties, as well
as attorney's fees and costs. (Id. at 15.)
MOTION TO DISMISS STANDARD
motion to dismiss brought pursuant to Rule 12(b)(6) tests the
legal sufficiency of a claim, and dismissal is proper if
there is a lack of a cognizable legal theory or the absence
of sufficient facts alleged under a cognizable legal theory.
Conservation Force v. Salazar, 646 F.3d 1240,
1241-42 (9th Cir. 2011) (quotation marks and citations
omitted). In resolving a 12(b)(6) motion, a court's
review is generally limited to the operative pleading.
Daniels-Hall v. National Educ. Ass'n, 629 F.3d
992, 998 (9th Cir. 2010); Sanders v. Brown, 504 F.3d
903, 910 (9th Cir. 2007); Huynh v. Chase Manhattan
Bank, 465 F.3d 992, 1003-04 (9th Cir. 2006);
Schneider v. California Dept. of Corr., 151 F.3d
1194, 1197 n.1 (9th Cir. 1998). Courts may not supply
essential elements not initially pleaded, Litmon v.
Harris, 768 F.3d 1237, 1241 (9th Cir. 2014), and
“‘conclusory allegations of law and unwarranted
inferences are insufficient to defeat a motion to dismiss for
failure to state a claim, '” Caviness v.
Horizon Cmty. Learning Ctr., Inc., 590 F.3d 806, 812
(9th Cir. 2010) (quoting Epstein v. Wash. Energy
Co., 83 F.3d 1136, 1140 (9th Cir. 1996)).
survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim
that is plausible on its face. Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007)) (quotation marks
omitted); Conservation Force, 646 F.3d at 1242;
Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th
Cir. 2009). The Court must accept the well-pleaded factual
allegations as true and draw all reasonable inferences in
favor of the non-moving party. Daniels-Hall, 629
F.3d at 998; Sanders, 504 F.3d at 910;
Huynh, 465 F.3d at 996-97; Morales v. City of
Los Angeles, 214 F.3d 1151, 1153 (9th Cir. 2000).
If there are two alternative explanations, one advanced by
defendant and the other advanced by plaintiff, both of which
are plausible, plaintiff's complaint survives a motion to
dismiss under Rule 12(b)(6). Plaintiff's complaint may be
dismissed only when defendant's plausible alternative
explanation is so convincing that plaintiff's explanation
is implausible. The standard at this stage of the
litigation is not that plaintiff's explanation must be
true or even probable. The factual allegations of the
complaint need only “plausibly suggest an entitlement
to relief.” . . . Rule 8(a) “does not impose
a probability requirement at the pleading stage; it
simply calls for enough fact to raise a reasonable
expectation that discovery will reveal evidence” to
support the allegations.
Starr v. Baca, 652 F.3d 1202, 1216-17 (9th Cir.
2011) (internal citations omitted) (emphases in original).
practice, “a complaint . . . must contain either direct
or inferential allegations respecting all the material
elements necessary to sustain recovery under some viable
legal theory.” Twombly, 550 U.S. at 562. To
the extent that the pleadings can be cured by the allegation
of additional facts, the plaintiff should be afforded leave
to amend. Cook, Perkiss and Liehe, Inc. v. Northern
California Collection Serv. Inc., 911 F.2d 242, 247
(9th Cir. 1990) (citations omitted).
contends the claims in the Vahora II complaint are
barred by res judicata based on the litigation of Vahora
I. (Doc. 11-1 at 9-12, 15.) The Court agrees with VDL
that Plaintiff's complaint is barred by res
The Parties' Requests ...