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Vahora v. Valley Diagnostic Laboratory Inc.

United States District Court, E.D. California

January 2, 2020

GULAMNABI VAHORA, Plaintiff,
v.
VALLEY DIAGNOSTICS LABORATORY, INC., Defendant.

          FINDINGS AND RECOMMENDATION THAT DEFENDANT'S MOTION TO DISMISS BE GRANTED WITHOUT LEAVE TO AMEND (DOC. 11)

          SHEILA K. OBERTO, UNITED STATES MAGISTRATE JUDGE.

         I. INTRODUCTION

         On July 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.[1] (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.)

         For the reasons set forth below, the Court RECOMMENDS that VDL's motion to dismiss be GRANTED without leave to amend.

         II. BACKGROUND[2]

         In 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.)

         A jury 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.)

         During 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. (See id.)

         At 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.)

         On July 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, 17.)

         The 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.)

         The 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.)

         III. MOTION TO DISMISS STANDARD

         A 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)).

         To 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). Further,

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).

         In 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).

         IV. DISCUSSION

         VDL 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 judicata.[3]

         A. The Parties' Requests ...


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