Arif Akhtar v. Compound Labs Inc. ( 2024 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 ARIF AKHTAR, Case No.: CV 23-7440-CBM-ASx 12 Plaintiff, ORDER RE: DEFENDANT v. 13 COMPOUND LABS, INC’S COMPOUND LABS, INC., MOTION TO DISMISS 14 COMPOUNDDEFI, INC., AND PLAINTIFF’S FIRST AMENDED DOES 1-9, 15 COMPLAINT FOR FAILURE TO Defendants. STATE A CLAIM [26] [JS-6] 16 17 18 The matter before the Court is Defendant Compound Labs, Inc.’s 19 (“Defendant’s”) Motion to Dismiss Plaintiff’s First Amended Complaint for 20 Failure to State a Claim. (Dkt. No. 26 (the “Motion”).) The matter is fully 21 briefed. (Dkt. Nos. 29, 48.) 22 I. BACKGROUND 23 On September 28, 2022, pro se Plaintiff Arif Akhtar filed a complaint in 24 Ventura Superior Court against Defendants Compound Labs, Inc. and 25 Compounddefi, Inc. asserting six causes of action: (1) breach of contract; (2) 26 breach of the covenant of good faith and fair dealing; (3) unjust enrichment; (4) 27 fraud; (5) conversion; and (6) promissory estoppel. (Dkt. No. 1.) Plaintiff’s 28 claims arise from his alleged investment in cryptocurrency. On September 8, 1 2023, Defendant Compound Labs, Inc. removed the action to this district court.1 2 On November 6, 2023, the Court granted Defendant’s Motion to Dismiss 3 the Complaint for failure to state a claim with leave to amend as to Plaintiff’s first 4 cause of action for breach of contract, second cause of action for breach of the 5 implied covenant of good faith and fair dealing, third cause of action for fraud, 6 and sixth cause of action for promissory estoppel, and denied the Motion to 7 Dismiss as to Plaintiff’s third cause of action for unjust enrichment and fifth cause 8 of action for conversion. (Dkt. No. 23.) 9 On November 25, 2023, Plaintiff filed the First Amended Complaint 10 (“FAC”) asserting the following causes of action: (1) breach of contract; (2) 11 breach of the covenant of good faith and fair dealing; (3) unjust enrichment; (4) 12 fraud; (5) conversion; and (6) promissory estoppel. (Dkt. No. 24.) Defendant 13 now moves to dismiss the first, second, fourth and sixth causes of action asserted 14 in the FAC. (Dkt. No. 26.) 15 II. STATEMENT OF THE LAW 16 The court may dismiss a complaint for “failure to state a claim upon which 17 relief can be granted” pursuant to Federal Rule of Civil Procedure 12(b)(6). 18 Dismissal of a complaint can be based on either a lack of a cognizable legal theory 19 or the absence of sufficient facts alleged under a cognizable legal theory. 20 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). On a 21 motion to dismiss for failure to state a claim, courts accept as true all well-pleaded 22 allegations of material fact and construes them in a light most favorable to the 23 non-moving party. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 24 1 The basis for removal of this action was federal question jurisdiction pursuant to 25 28 U.S.C. § 1331 because the Complaint alleged in support of Plaintiff’s fourth cause of action for fraud that “Defendants violated the Securities Act(s) which 26 grants Plaintiff a right of action for damages against them and the Defendants for their violations of this provision,” and “Sec. 15 of the Securities Act of 1933 27 provides for joint and several liability for ‘controlling persons’ who had sufficient power or influence over a person or entity that violated federal securities laws.” 28 (Compl. at 7-8.) 1 1031-32 (9th Cir. 2008). To survive a motion to dismiss, the complaint “must 2 contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is 3 plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 663, (2009) (quoting Bell 4 Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A formulaic recitation of 5 the elements of a cause of action will not suffice. Twombly, 550 U.S. at 555. 6 Labels and conclusions are insufficient to meet the Plaintiff’s obligation to 7 provide the grounds of his or her entitlement to relief. Id. “Factual allegations 8 must be enough to raise a right to relief above the speculative level.” Id. If a 9 complaint cannot be cured by additional factual allegations, dismissal without 10 leave to amend is proper. Id. A court may consider the allegations contained in 11 the pleadings, exhibits attached to or referenced in the complaint, and matters 12 properly subject to judicial notice in ruling on a motion to dismiss. Tellabs, Inc. v. 13 Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). Materials whose contents 14 are alleged in the complaint may also be considered by the Court for purposes of a 15 motion to dismiss. See Thomas v. Walt Disney Co., 337 Fed. App’x. 694, 694-95 16 (9th Cir. 2009); see also In re Stac Elec. Sec. Litig., 89 F.3d 1399, 1405 n.4 (9th 17 Cir. 1996); U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). 18 III. DISCUSSION 19 A. Fraud 20 Plaintiff’s fourth cause of action for fraud asserts Defendant violated federal 21 securities laws. (FAC at 13-14.) 22 Federal Rule of Civil Procedure 9(b) provides: “In alleging fraud or 23 mistake, a party must state with particularity the circumstances constituting fraud 24 or mistake.” Fed. R. Civ. Pro. 9(b). “To comply with Rule 9(b), allegations of 25 fraud must be specific enough to give defendants notice of the particular 26 misconduct which is alleged to constitute the fraud charged so that they can 27 defend against the charge and not just deny that they have done anything wrong.” 28 Bly–Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (citation omitted). 1 Allegations sounding in fraud must include the “who, what, when, where, and 2 how” of the misconduct charged. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 3 1997). Federal Rule of Civil Procedure 9(b)’s pleading requirements apply to 4 securities fraud claims. See Oregon Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 5 774 F.3d 598, 605 (9th Cir. 2014). 6 The Court previously dismissed Plaintiff’s fraud claim asserted in the 7 Complaint with leave to amend for failure to plead fraud with sufficient 8 particularity as required under Federal Rule of Civil Procedure 9(b). (Dkt. No. 9 23.) The FAC does not allege new facts regarding the who, what, where, when, 10 and how of any alleged fraud by Defendant. Therefore, the FAC fails to plead 11 fraud with sufficient particularity as required under Federal Rule of Civil 12 Procedure 9(b). Because the Court gave Plaintiff leave to amend his fraud claim 13 with sufficient particularity but the FAC fails to plead additional facts to satisfy 14 the requirements of Federal Rule of Civil Procedure 9(b), the Court finds further 15 leave to amend the fraud claim would be futile. Accordingly, the Court dismisses 16 Plaintiff’s fraud claim without further leave to amend. See Novak v. United States, 17 795 F.3d 1012, 1020 (9th Cir. 2015) (“Futility alone can justify a court’s refusal to 18 grant leave to amend.”) (citation omitted). 19 B. Supplemental Jurisdiction over State Law Claims 20 The basis for removal of this action was federal question jurisdiction based 21 on Plaintiff’s fraud claim which asserted violation of federal securities laws. (See 22 Dkt. No. 1.) The FAC asserts a single federal claim for fraud based on violation 23 of the Securities Act of 1933 and Securities Exchange Act of 1934. (Dkt. No. 26.) 24 The remaining causes of action asserted in the FAC are state law claims for breach 25 of contract, breach of the covenant of good faith and fair dealing, unjust 26 enrichment, conversion, and promissory estoppel. 27 Having dismissed the fraud claim without further leave to amend, the Court 28 has dismissed all claims over which it has original jurisdiction in this matter. 1 | Therefore, the Court declines to exercise supplemental jurisdiction over Plaintiff’ s 2 | remaining state law claims. See 28 U.S.C. § 1367(c) (“The district courts may 3 | decline to exercise supplemental jurisdiction over a claim... if... the district 4 | court has dismissed all claims over which it has original jurisdiction.). 5 IV. CONCLUSION 6 Accordingly, the Court GRANTS Defendant’s Motion to Dismiss 7 | Plaintiff's fraud claim without further leave to amend. The Court declines to 8 | exercise supplemental jurisdiction over Plaintiff's remaining state law claims and 9 | remands the state claims to state court. See 28 U.S.C. § 1367. 10 11 IT IS SO ORDERED. 12 13 | DATED: April 13, 2024. a a eee 14 UNITED STATES DISTRICT JUDGE 15 16 17 18 19 20 21 22 23 24 25 26 27 28