Vahora v. Valley Diagnostic Laboratory Inc. ( 2020 )

1 2 3 UNITED STATES DISTRICT COURT 4 EASTERN DISTRICT OF CALIFORNIA 5 6 GULAMNABI VAHORA, Case No. 1:19-cv-00912-DAD-SKO 7 Plaintiff, FINDINGS AND RECOMMENDATION THAT DEFENDANT’S MOTION TO 8 v. DISMISS BE GRANTED WITHOUT LEAVE TO AMEND 9 VALLEY DIAGNOSTICS LABORATORY, (Doc. 11) 10 INC., OBJECTIONS DUE: 21 DAYS 11 Defendant. 12 _________________________________ _ / 13 14 I. INTRODUCTION 15 On July 23, 2019, Defendant Valley Diagnostics Laboratory, Inc. (“VDL”) filed a motion to 16 dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Doc. 11.) On October 17 2, 2019, Plaintiff filed an opposition.1 (Doc. 18.) On October 22, 2019, the motion was referred 18 to the undersigned for findings and recommendation pursuant to 28 U.S.C. § 636(b). The 19 undersigned reviewed the briefs and supporting material and found the matter suitable for decision 20 without oral argument pursuant to Local Rule 230(g). The hearing previously set for November 21 22 5, 2019, which the assigned district judge vacated, was therefore not re-set. (See Docs. 20, 22.) 23 For the reasons set forth below, the Court RECOMMENDS that VDL’s motion to dismiss 24 be GRANTED without leave to amend. 25 26 27 28 1 2 In 2012, Plaintiff and non-party Naeem Mujtaba Qarni (“Qarni”) purchased VDL as partners 3 for $200,000. (Doc. 1 ¶ 12.) Plaintiff “infused enormous amounts of money, time and expertise 4 into VDL” but, eventually, Qarni “forced [Plaintiff] out of his role in VDL.” (Id. ¶¶ 13–14.) On 5 October 26, 2016, Plaintiff filed an action in this court against VDL and Qarni, Vahora v. Valley 6 Diagnostics Laboratory, Inc. et al., No. 1:16-cv-01624-SKO (“Vahora I”), and the operative 7 Second Amended Complaint (“SAC”) alleged claims for breach of contract against Qarni and VDL 8 based on Qarni’s “forc[ing]” Plaintiff out of the VDL partnership. (See id. ¶¶ 15, 18, 20, 23, 25.) 9 10 A jury trial in Vahora I began May 14, 2019, and the jury returned a verdict on May 17, 11 2019. (Id. ¶¶ 16–17.) The jury found in favor of Plaintiff on all claims. (Id. ¶¶ 18, 20, 23, 25.) 12 Specifically, the jury found that (1) Qarni breached a contract between Plaintiff and Qarni related 13 to Plaintiff’s purchasing an interest in VDL, causing Plaintiff $100,000 in damages; (2) VDL 14 breached a contract between Plaintiff and VDL with respect to loans Plaintiff made to VDL, 15 causing Plaintiff $158,175 in damages; (3) Qarni breached a contract between Plaintiff and Qarni 16 related to loans Plaintiff made to Qarni for the benefit of VDL, causing Plaintiff $65,232 in 17 18 damages; and (4) Qarni breached a contract between Plaintiff and Qarni related to loans Plaintiff 19 made to Qarni for Qarni’s personal benefit, causing Plaintiff $75,000 in damages. (See id.) 20 During discovery in Vahora I, Qarni and VDL produced VDL’s tax returns from 2012–2017. 21 (Id. ¶ 27.) The tax returns showed that Qarni reported owning one hundred percent of VDL’s stock 22 each year from 2012–2017. (Id.) The tax returns also showed that VDL reported net losses of 23 $251,016, $42,245, $21,860, $26,513, and $10,961 in 2013, 2014, 2015, 2016 and 2017, 24 25 respectively. (See id.) 26 At trial, Plaintiff and Qarni both testified that Plaintiff paid $120,000 to purchase an 27 28 2 The following facts are drawn from Plaintiff’s complaint and are assumed to be true for purposes of VDL’s motion 1 2 50 partnership in VDL. (Id. ¶¶ 29, 33.) Qarni also testified at trial that he “discretionarily applied” 3 $72,000 of Plaintiff’s $120,000 payment to Plaintiff’s ownership interests in VDL and that he 4 applied the remainder of Plaintiff’s $120,000 payment to VDL’s “capital needs.” (Id. ¶¶ 34, 36.) 5 Qarni’s testimony regarding Plaintiff’s ownership interest in VDL allegedly “conflicts with the 6 jury’s determination that [Plaintiff] owns 50% of VDL” and contradicts the tax returns from 2012– 7 2017 in which Qarni represented he owned one hundred percent of VDL. (Id. ¶¶ 36, 38.) Qarni 8 also testified at trial that VDL was profitable in 2018 and that VDL has “opened multiple new 9 10 locations,” but did not provide VDL’s tax returns for 2018 and “did not appear to account for 11 revenues from these locations.” (Id. ¶¶ 39–41.) 12 On July 2, 2019, Plaintiff filed the complaint in this case, Vahora v. Valley Diagnostics 13 Laboratory, Inc., No. 1:19-cv-00912-DAD-SKO (“Vahora II”), requesting appointment of a 14 receiver and alleging claims for an accounting, breach of fiduciary duty, and breach of partnership 15 duties. (Id. ¶¶ 43–94.) Plaintiff voluntarily dismissed the request for appointment of a receiver on 16 August 27, 2019. (See Docs. 16, 17.) 17 18 The Vahora II complaint alleges Plaintiff is entitled to an accounting based on the 19 contractual and fiduciary partnership relationship between Plaintiff, Qarni and VDL, and an 20 accounting is necessary because the allegedly false tax returns produced by Qarni during discovery 21 in Vahora I render “the assets and liabilities of VDL . . . unknowable.” (See Doc. 1 ¶¶ 72–74.) 22 The third claim for breach of fiduciary duties is based on VDL’s allegedly “grossly negligent 23 and/or reckless conduct with respect to the knowingly false and fraudulent declaration of 100% 24 25 ownership interest [in] VDL, since 2012,” as evidenced by Qarni’s trial testimony in Vahora I, 26 and VDL’s failure to produce Schedule K-1 tax forms to Plaintiff for each year since 2012, both 27 of which allegedly contravened the duties VDL owed to Plaintiff as a partner. (See id. ¶ 79.) The 28 1 2 required for the proper exercise of the partner’s rights and duties[.]” (Id. ¶ 93.) Plaintiff seeks 3 relief in the form of an order requiring an accounting of VDL’s books and records and requiring 4 VDL to comply with its partnership duties, as well as attorney’s fees and costs. (Id. at 15.) 5 III. MOTION TO DISMISS STANDARD 6 A motion to dismiss brought pursuant to Rule 12(b)(6) tests the legal sufficiency of a claim, 7 and dismissal is proper if there is a lack of a cognizable legal theory or the absence of sufficient 8 facts alleged under a cognizable legal theory. Conservation Force v. Salazar, 646 F.3d 1240, 9 10 1241-42 (9th Cir. 2011) (quotation marks and citations omitted). In resolving a 12(b)(6) motion, 11 a court’s review is generally limited to the operative pleading. Daniels-Hall v. National Educ. 12 Ass’n, 629 F.3d 992, 998 (9th Cir. 2010); Sanders v. Brown, 504 F.3d 903, 910 (9th Cir. 2007); 13 Huynh v. Chase Manhattan Bank, 465 F.3d 992, 1003-04 (9th Cir. 2006); Schneider v. California 14 Dept. of Corr., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998). Courts may not supply essential elements 15 not initially pleaded, Litmon v. Harris, 768 F.3d 1237, 1241 (9th Cir. 2014), and “‘conclusory 16 allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for 17 18 failure to state a claim,’” Caviness v. Horizon Cmty. Learning Ctr., Inc., 590 F.3d 806, 812 (9th 19 Cir. 2010) (quoting Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996)). 20 To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted 21 as true, to state a claim that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 22 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)) (quotation marks omitted); 23 Conservation Force, 646 F.3d at 1242; Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 24 25 2009). The Court must accept the well-pleaded factual allegations as true and draw all reasonable 26 inferences in favor of the non-moving party. Daniels-Hall, 629 F.3d at 998; Sanders, 504 F.3d at 27 910; Huynh, 465 F.3d at 996-97; Morales v. City of Los Angeles, 214 F.3d 1151, 1153 (9th Cir. 28 1 advanced by plaintiff, both of which are plausible, plaintiff’s complaint survives a 2 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 3 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 4 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 5 fact to raise a reasonable expectation that discovery will reveal evidence” to support 6 the allegations. 7 Starr v. Baca, 652 F.3d 1202, 1216-17 (9th Cir. 2011) (internal citations omitted) (emphases in 8 original). 9 In practice, “a complaint . . . must contain either direct or inferential allegations respecting 10 all the material elements necessary to sustain recovery under some viable legal theory.” Twombly, 11 550 U.S. at 562. To the extent that the pleadings can be cured by the allegation of additional facts, 12 the plaintiff should be afforded leave to amend. Cook, Perkiss and Liehe, Inc. v. Northern 13 14 California Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990) (citations omitted). 15 IV. DISCUSSION 16 VDL contends the claims in the Vahora II complaint are barred by res judicata based on the 17 litigation of Vahora I. (Doc. 11-1 at 9–12, 15.) The Court agrees with VDL that Plaintiff’s 18 complaint is barred by res judicata.3 19 A. The Parties’ Requests for Judicial Notice 20 21 As an initial matter, both parties request the Court take judicial notice of certain documents. 22 (See Doc. 11-2; Doc. 18-1.) In general, “a district court may not consider any material beyond the 23 pleadings, in ruling on a Rule 12(b)(6) motion.” Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 24 25 3 Because the Court concludes Plaintiff’s complaint is barred by res judicata, the Court need not reach the remaining 26 contentions raised in VDL’s motion to dismiss, see Page v. Mayberg, No. 2:08-cv-02231-SRT, 2011 WL 3418385, at *2 n.3 (E.D. Cal. Aug. 3, 2011), which, in any event, appear to mostly repeat VDL’s res judicata contentions. (See, 27 e.g., Doc. 11-1 at 14 (“Vahora could have and should have sought an accounting in the 2016 Action, but he failed to do so”), 15 (“Under no legal theory is Vahora entitled to recover his investment in the business and still claim the 28 interest the investment was intended to purchase . . . these are issues that were raised in the 2016 Action or which 1 2 documents incorporated by reference in the complaint, or matters of judicial notice—without 3 converting the motion to dismiss into a motion for summary judgment.” United States v. Ritchie, 4 342 F.3d 903, 908 (9th Cir. 2003). 5 “A document is incorporated by reference if it is ‘a document the authenticity of which is 6 not contested, and upon which the plaintiff’s complaint necessarily relies.” Thompson v. Wells 7 Fargo Bank, N.A., No. 1:17-CV-1200 AWI SKO, 2018 WL 1453212, at *2 (E.D. Cal. Mar. 23, 8 2018) (quoting Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1988)). Under Rule 201 of the 9 10 Federal Rules of Evidence, a court “may judicially notice a fact that is not subject to reasonable 11 dispute because it: (1) is generally known within the trial court’s territorial jurisdiction; or (2) can 12 be accurately and readily determined from sources whose accuracy cannot reasonably be 13 questioned.” Fed. R. Evid. 201(b). The Court may take judicial notice of its own records and the 14 records of other courts. See United States v. Howard, 381 F.3d 873, 876 n.1 (9th Cir. 2004); United 15 States v. Wilson, 631 F.2d 118, 119 (9th Cir. 1980); see also Fed R. Evid. 201. 16 VDL requests the Court take judicial notice of certain filings from Vahora I, including the 17 18 complaint, first amended complaint, orders on motions to dismiss, and a motion for judgment as a 19 matter of law. (See Doc. 11-2.) Plaintiff requests the Court take judicial notice of documents 20 attached to its opposition: the second amended complaint and excerpts from the trial transcript in 21 Vahora I. (See Doc. 18-1.) 22 Plaintiff attaches to the complaint the docket and verdict form from Vahora I, as well as 23 VDL’s tax returns produced in discovery, and incorporates facts and documents from Vahora I by 24 25 reference in the body of the complaint. (See Doc. 1 ¶¶ 12–41; Doc. 1-1.) The documents and 26 filings from Vahora I are central to the allegations in the complaint, as the Vahora II complaint 27 necessarily relies on them in alleging its claims against VDL. (See Doc. 1.) The documents from 28 1 2 subject to reasonable dispute. See Thompson, 2018 WL 1453212, at *2. 3 Accordingly, the parties’ requests for judicial notice are granted and the Court takes judicial 4 notice of the record in Vahora I pursuant to Rule 201 of the Federal Rules of Evidence, including 5 the documents attached to the complaint, motion to dismiss, and opposition in Vahora II. See id. 6 (considering the documents and filings from prior litigation in ruling on the defendant’s Rule 7 12(b)(6) motion to dismiss subsequent litigation on res judicata grounds). 8 Because no disputed issues of fact appear, res judicata is properly raised in VDL’s motion 9 10 to dismiss based upon the Court taking judicial notice of the record in Vahora I. See Silva v. 11 Yosemite Community College District, 1:19-cv-00795-LJO-EPG, 2019 WL 6878237, at *5 (E.D. 12 Cal. Dec. 17, 2019) (“Res judicata may properly be raised in a Rule 12(b)(6) motion to dismiss 13 based upon the court taking judicial notice of the record in the prior case where no disputed issues 14 of fact appear”) (citing Scott v. Kuhlmann, 746 F.2d 1377, 1378 (9th Cir. 1984)); Stokes v. City of 15 Visalia, No. 1:17-cv-01350-SAB, 2018 WL 2979765, at *5 (E.D. Cal. June 8, 2018) (Although res 16 judicata is an affirmative defense, a court may properly dismiss an action as barred by res judicata 17 18 “based upon the facts alleged in the complaint and any facts that are properly subject to judicial 19 notice.”) (citation omitted). 20 B. Plaintiff’s Claims Are Barred by Res Judicata. 21 1. Legal Standard 22 When sitting in diversity jurisdiction, “a federal court must apply state res judicata law.” 23 Gramm v. Lincoln, 257 F.2d 250, 255 n.6 (9th Cir. 1958). Thus, California res judicata law 24 25 determines what preclusive effect the judgment in Vahora I is to be afforded. See Constantini v. 26 Trans World Airlines, 681 F.2d 1199, 1201 (9th Cir. 1982). California state courts, however, 27 determine “the res judicata effect of a prior federal court judgment by applying federal standards.” 28 1 2 2018 WL 1453212, at *2 (“[A] federal court in California sitting in diversity considers the res 3 judicata effect of a prior federal ruling under federal res judicata standards.”). 4 The doctrine of res judicata bars the re-litigation of claims previously decided on the merits. 5 Headwaters, Inc. v. U.S. Forest Serv., 399 F.3d 1047, 1051 (9th Cir. 2005); see also Bell v. United 6 States, No. CV F 02-5077 AWI DLB, 2002 WL 1987395, at *4 (E.D. Cal. June 28, 2002) (“The 7 doctrine of res judicata is meant to protect parties against being harassed by repetitive actions.”); 8 Clements v. Airport Auth., 69 F.3d 321, 330 (9th Cir. 1995) (“Preclusion doctrine encompasses 9 10 vindication of both public and private interests. The private values protected include shielding 11 litigants from the burden of re-litigating identical issues with the same party, and vindicating 12 private parties’ interest in repose. The public interests served include avoiding inconsistent results 13 and preserving judicial economy.”). 14 Under federal law, “[t]he elements necessary to establish res judicata are: ‘(1) an identity of 15 claims, (2) a final judgment on the merits, and (3) privity between parties.’” Headwaters, Inc., 16 399 F.3d at 1052 (quoting Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 322 17 18 F.2d 1064, 1077 (9th Cir. 2003)). 19 2. Analysis 20 a. Final Judgment on the Merits and Privity Between the Parties 21 The Court begins by discussing the second and third elements of res judicata because the 22 parties do not dispute these elements. The element of a “final judgment” in the prior litigation, see 23 Headwaters, Inc., 399 F.3d at 1052, is met because there was clearly a final judgment on the merits 24 25 in Vahora I.4 (See Doc. 1-1 at 23–28.) 26 The third element of res judicata, privity between the parties, is also met because the parties 27 28 4 On December 10, 2019, VDL filed a notice of appeal of the judgment in Vahora I and posted a supersedeas bond 1 2 and VDL and Qarni share a common interest in the claims at issue in Vahora II and Vahora I. See 3 In re Schimmels, 127 F.3d 875, 881 (9th Cir. 1997) (citations omitted); In re Gottheiner, 703 F.2d 4 1136, 1140 (9th Cir. 1983) (citation omitted); see also Shaw v. Hahn, 56 F.3d 1128, 1131–32 (9th 5 Cir. 1995) (finding privity where the interests of the party in the subsequent case were shared with 6 and adequately represented by the party in the previous case). 7 b. Identity of Claims 8 The parties dispute the element of “identity of claims,” specifically, whether the claims 9 10 brought in Vahora II could have been brought in Vahora I. (Doc. 11-1 at 9–13; Doc. 18 at 10– 11 14); see Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 322 F.3d 12 1064, 1077–78 (9th Cir. 2003). 13 A party cannot avoid the bar of res judicata merely because the subsequent action alleges 14 conduct by the defendant not alleged in the prior action, nor because it pleads a new legal theory. 15 Constantini, 681 F.2d at 1201. “Rather, the crucial question is whether [the party] has stated in 16 the instant suit a cause of action different from those raised in his first suit.” Id. However, “[t]he 17 18 fact that res judicata depends on an ‘identity of claims’ does not mean that an imaginative attorney 19 may avoid preclusion by attaching a different legal label to an issue that has, or could have, been 20 litigated.” Tahoe-Sierra, 322 F.3d at 1077–78 (emphasis added). Instead, “[i]dentity of claims 21 exists when two suits arise from ‘the same transactional nucleus of facts.’” Id. at 1078 (quoting 22 Stratosphere Litig. L.L.C. v. Grand Casinos, Inc., 298 F.3d 1137, 1143 n.3 (9th Cir. 2002)). 23 Accordingly, “[n]ewly articulated claims based on the same nucleus of facts may still be subject 24 25 to a res judicata finding if the claims could have been brought in the earlier action.” Id. 26 “It is immaterial whether the claims asserted subsequent to the judgment were actually 27 pursued in the action that led to the judgment; rather, the relevant inquiry is whether they could 28 1 2 In determining “identity of claims,” courts consider four factors: (1) whether rights or 3 interests established in the prior judgment would be destroyed or impaired by prosecution of the 4 second action; (2) whether substantially the same evidence is presented in the two actions; (3) 5 whether the two suits involve infringement of the same right; and (4) whether the two suits arise 6 out of the same transactional nucleus of facts. Constantini v. Trans World Airlines, 681 F.2d 1199, 7 1201–02 (9th Cir. 1982) (citation omitted). The fourth factor is the most important. Id. at 1202 8 (“The last of these criteria is the most important”); see also Turtle Island Restoration Network v. 9 10 U.S. Dep’t of State, 673 F.3d 914, 917–18 (9th Cir. 2012). The Court therefore turns to the fourth 11 factor first. See Rocha v. California Dep’t of Corrections and Rehabilitation, No. 1:14-cv-00842- 12 BAM, 2014 WL 6685010, at *8 (E.D. Cal. Nov. 25, 2014). 13 i. Vahora I and Vahora II Arise from the Same Transactional 14 Nucleus of Facts. 15 “The central criterion in determining whether there is an identity of claims between the first 16 and second adjudications is ‘whether the two suits arise out of the same transactional nucleus of 17 facts.’” Frank v. United Airlines, Inc., 216 F.3d 845, 851 (9th Cir. 2000) (citation omitted). Two 18 cases arise from the same transaction or series of transactions where the cases “share a factual 19 foundation such that they could have been tried together.” Rocha, 2014 WL 6685010, at *8 (citing 20 21 W. Systems, Inc. v. Ulloa, 958 F.2d 864, 871 (9th Cir. 1992)); see also U.S. v. Liquidators of 22 European Fed. Credit Bank, 630 F.3d 1139, 1151 (9th Cir. 2011) (“[T]he inquiry into the ‘same 23 transactional nucleus of facts’ is essentially the same as whether the claim could have been brought 24 in the first action.”). 25 Here, Vahora I and Vahora II share a common transactional nucleus of facts pertaining to 26 Plaintiff and Qarni’s partnership in VDL and the alleged violation of the terms of the partnership 27 agreement by Qarni and VDL. (Compare Doc. 1 with Doc. 18-1 at 4–31.) The complaint in 28 1 2 that the complaint in Vahora II alleges the contents of the SAC and the events of the jury trial in 3 Vahora I. (See Doc. 1 ¶¶ 15–41.) Further, as Plaintiff concedes, the tax returns that form the basis 4 for Plaintiff’s claims in Vahora II were produced in discovery in Vahora I. (See Doc. 18 at 12 n.5) 5 (“The Complaint details the tax returns produced by VDL and Mr. Qarni as constituting evidence 6 of VDL’s profitability and ownership prior to trial in the Civil Action.”). 7 Plaintiff does not dispute that Vahora I and Vahora II involve the same transactional nucleus 8 of facts, but contends that the claims in Vahora II are not barred by res judicata “because they are 9 10 based upon evidence that was unavailable to Plaintiff until the third day of trial in [Vahora I],” 11 namely, Qarni’s testimony at trial that Plaintiff “owned at least 36% of VDL.” (Doc. 18 at 11.) 12 Plaintiff contends that prior to Qarni’s testimony, Plaintiff “never had a basis . . . to make out a 13 case for breach of the duties owed to a partner” and “had no reason to seek an accounting” prior 14 to Qarni’s ostensible “admission” of Plaintiff’s ownership interest.5 (See id. at 11, 13.) 15 The Court is not persuaded. Newly discovered evidence typically does not prevent the 16 application of res judicata. See Constantini, 681 F.2d at 1202–03; Eichman v. Fotomat Corp., 880 17 18 F.2d 149, 156 (9th Cir. 1989); Guerrero v. Katzen, 774 F.2d 506, 508 (D.C. Cir. 1985); Dreyfus 19 v. First National Bank of Chicago, 424 F.2d 1171, 1175 (7th Cir. 1970), cert. denied, 400 U.S. 20 832 (1970). The exception to this rule is when evidence was “fraudulently concealed” by the 21 opposing party and the plaintiff “diligently attempted to uncover the information that he says was 22 concealed.” Constantini, 681 F.2d at 1202–03; see also L-Tec Electronics Corp. v. Cougar 23 Electronic Organization, Inc., 198 F.3d 85, 88 (“Res judicata applies even where new claims are 24 25 5 Although not raised in his opposition to the motion to dismiss, Plaintiff’s complaint in Vahora II is also premised in 26 part on the assertion that the jury in Vahora I made a finding “that Dr. Vahora owns 50% of VDL.” (See, e.g., Doc. 1 ¶¶ 36, 84.) However, the jury in Vahora I did not find that Plaintiff owned any percentage of VDL, nor did Plaintiff 27 request such a finding in Vahora I by way of a declaratory judgment or otherwise. Rather, the jury simply determined that Qarni and VDL breached contracts with Plaintiff and Plaintiff incurred damages as a result. (See Doc. 1-1 at 23– 28 28.) Plaintiff clearly could have requested such a finding, however, and could have used evidence adduced at trial, 1 2 could not have been discovered with due diligence.’”). 3 Plaintiff’s contention that res judicata does not apply because of the discovery of new 4 evidence fails for two reasons.6 First, Plaintiff has not shown that newly discovered evidence was 5 fraudulently concealed in Vahora I or that Plaintiff could not have discovered the evidence with 6 reasonable diligence.7 For example, Plaintiff does not allege that he ever asked Qarni whether he 7 believed that Plaintiff owned a percentage of VDL during discovery in Vahora I. See Constantini, 8 681 F.2d at 1203 (affirming dismissal of complaint based on res judicata where the plaintiff 9 10 “insist[ed] that he did resort to discovery procedures in his 1975 suit and indeed made ‘ceaseless 11 efforts to discover the truth.’ 1980 Complaint, P 34. But he gives no details of those efforts and 12 never explains what discovery requests he made in the 1975 lawsuit [.]”). 13 Second, and more significantly, even if this “new evidence”—Qarni’s testimony that 14 Plaintiff owned some portion of VDL—was “concealed,” the concealment of that evidence did not 15 prevent Plaintiff from bringing viable causes of action in Vahora I for breach of the duties owed 16 to a partner or for an accounting.8 See Constantini, 681 F.2d at 1203 n.12 (fraudulent concealment 17 18 exception applies only “where defendant’s misconduct prevented plaintiff from knowing, at the 19 time of the first suit, either that he had a certain claim or else the extent of his injury.”). As an 20 initial matter, Plaintiff mischaracterizes Qarni’s testimony, which was equivocal at best as to 21 Plaintiff’s ownership interest in VDL. (See Doc. 18-1 at 35–38.) The excerpts of the trial transcript 22 23 6 Plaintiff also contends that the claims for breach of fiduciary duty and breach of partnership duties are not barred by res judicata because “they were not litigated” in Vahora I. (Doc. 18 at 12.) This contention fails because the question 24 is whether the claims could have been litigated, not whether they actually were litigated. See United States ex rel. Barajas, 147 F.3d at 909. 25 7 The Ninth Circuit has held that fraudulent concealment of evidence and diligent efforts to uncover the evidence, in the context of res judicata, must be pleaded with particularity in the complaint. Constantini, 681 F.2d at 1202–03. 26 8 The complaint also alleges that Qarni testified that VDL was profitable in 2018, and that without an accounting, “Dr. Vahora has no way of knowing whether VDL is profitable.” (Doc. 1 ¶¶ 39, 72.) However, Plaintiff could have brought 27 a cause of action for accounting in Vahora I but declined to do so. Thus, Plaintiff’s accounting cause of action is barred by res judicata notwithstanding that VDL may have become profitable after the filing of the SAC in Vahora I. 28 See Rocha, 2014 WL 6685010, at *10 (The Ninth Circuit has “rejected the argument that ‘events subsequent’ are 1 2 demonstrate that Qarni did not testify that Plaintiff “owned at least 36% of VDL” as Plaintiff 3 contends, (Doc. 18 at 11), but instead simply replied affirmatively, after some prompting, in 4 response to Plaintiff’s counsel asking him if “Dr. Vahora owned a percentage interest in the 5 partnership[.]” (See Doc. 18-1 at 35.) Qarni then proceeded to deny that his representations in 6 VDL’s tax returns that Qarni owned one hundred percent of VDL were false and continued to 7 equivocate about whether Plaintiff owned a partnership interest in VDL and the extent of his 8 ownership interest. (See id. at 35–38.) 9 10 The entire basis of Plaintiff’s claims in Vahora I was the existence of a partnership between 11 Plaintiff and Qarni in VDL, and Plaintiff made numerous specific allegations of the existence of 12 the partnership and that Plaintiff had an ownership interest in VDL. (See, e.g., Doc. 18-1 at 9 13 (“[Qarni] e-mailed Dr. Vahora to evidence the terms of the partnership achieved”), 10 (“Under the 14 original partnership agreement, [Qarni] and Dr. Vahora were to each contribute $100,000 toward 15 the purchase of VDL, and each was to own a 50 percent interest in VDL”), 11 (“As a result, the 16 original 50/50 partnership in VDL by and between Dr. Vahora and [Qarni] became a de facto 60/40 17 18 partnership, with Dr. Vahora owning a 60 percent interest in VDL and [Qarni] owning a 40 percent 19 interest in VDL.”)). Plaintiff also had plenty of evidence that he had an ownership interest in VDL, 20 which he alleged in the complaint and presented at trial in Vahora I. (See, e.g., Doc. 18-1 at 9, 21 13–14 (referencing and reciting contents of separate emails between Qarni and Plaintiff evidencing 22 the terms of the partnership and Plaintiff’s ownership interest)). 23 Thus, Plaintiff clearly could have alleged claims for breach of the duties owed to a partner 24 25 and an accounting based upon the facts available to Plaintiff at the time of the filing of the SAC in 26 Vahora I and Plaintiff’s factual allegations that he owned a partnership interest in VDL. Qarni’s 27 equivocal responses to a line of questioning by Plaintiff’s counsel during trial in Vahora I did not 28 1 2 alleged in the SAC in Vahora I that Qarni “has denied the existence of his 40/60 partnership with 3 Dr. Vahora in VDL.” (Doc. 18-1 at 25.) This denial did not prevent Plaintiff from alleging in 4 Vahora I the existence of the partnership or that Plaintiff owned a partnership interest in VDL, 5 thus it “did not prevent [Plaintiff] from realizing what cause of action he had against [Qarni]” and 6 Plaintiff could have brought in Vahora I the claims he brings now in Vahora II. See Constantini, 7 681 F.2d at 1203 n.12. Thus, Vahora I and Vahora II share a common transactional nucleus of 8 facts. See id. 9 10 ii. The Remaining Constantini Factors Are Met. 11 The remaining factors set forth in Constantini are also met. First, substantially the same 12 evidence would be presented in Vahora II as was presented in Vahora I, including the tax returns 13 produced by VDL and testimony from Plaintiff and Qarni as to the terms of the alleged partnership 14 and the ownership interests of VDL. Further, while some additional evidence may be presented 15 in Vahora II, including any tax documentation filed by VDL for 2018, some “additional evidence 16 is not enough to establish the claim arises from a different transactional nucleus of facts.” See 17 18 Rocha, 2014 WL 6685010, at *10; Int’l Union of Operating Eng’rs—Employers Constr. Indus. 19 Pension, Welfare & Training Trust Funds v. Karr, 994 F.2d 1426, 1430 (9th Cir. 1993) (“The fact 20 that some different evidence may be presented in this action . . . does not defeat the bar of res 21 judicata.”). 22 23 24 9 Plaintiff’s counsel contends in Plaintiff’s opposition brief that Plaintiff “never had a basis . . . to make out a case for breach of the duties owed to a partner” before Qarni’s tacit admission on the third day of trial in Vahora I. (Doc. 18 25 at 13.) If that is true, Plaintiff’s counsel’s filings in Vahora I, including the SAC, would appear to be in contravention of Rule 11 of the Federal Rules of Civil Procedure, which states that by presenting to the Court a pleading, counsel 26 certifies that “the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery.” Fed. R. Civ. P. 11(b)(3). 27 Specifically, the SAC in Vahora I, filed on July 26, 2017, is replete with factual contentions that Plaintiff owned a partnership interest in VDL, (see, e.g., Doc. 18-1 at 9–14), whereas Plaintiff’s counsel is now effectively contending 28 that Plaintiff had no factual basis to allege that he owned a partnership interest in VDL until Qarni’s testimony on 1 2 to the partnership between Plaintiff and Qarni in VDL—and the rights and interests established in 3 Vahora I may be impaired or altered by this action due to the risk of inconsistent judgments.10 See, 4 e.g., Clements, 69 F.3d at 330; Page, 2011 WL 3418385, at *2 (“Though the most important 5 criterion is satisfied [same transactional nucleus of facts], the Court also notes that the remaining 6 . . . factors support finding an identity of claims[.]”). Accordingly, the Court finds that Plaintiff’s 7 claims are barred by res judicata. 8 Because the Court finds that Plaintiff’s claims are barred by res judicata, any amendment 9 10 would be futile, and leave to amend is inappropriate. See id.; Janis v. United States, No. 1:04-cv- 11 05812, 2011 WL 1258521, at *5 (E.D. Cal. Mar. 30, 2011). 12 V. RECOMMENDATION 13 Accordingly, the Court respectfully RECOMMENDS that Defendant’s motion to dismiss, 14 (Doc. 11), be GRANTED without leave to amend. 15 These findings and recommendations are submitted to the district judge assigned to this 16 action, pursuant to 28 U.S.C. § 636(b)(1)(B) and this Court’s Local Rule 304. Within twenty-one 17 18 (21) days of service of this recommendation, any party may file written objections to these findings 19 and recommendations with the Court and serve a copy on all parties. Such a document should be 20 captioned “Objections to Magistrate Judge’s Findings and Recommendations.” The district judge 21 will review the magistrate judge’s findings and recommendations pursuant to 28 U.S.C. 22 § 636(b)(1)(C). The parties are advised that failure to file objections within the specified time may 23 waive the right to appeal the district judge's order. Wilkerson v. Wheeler, 772 F.3d 834, 839 (9th 24 25 Cir. 2014). 26 27 28 10 The Court notes that the litigation of Vahora II may also affect the rights and interests at issue in a bankruptcy action 1 Sheila K. Oberto 2 Dated: January 2, 2020 /s/ . UNITED STATES MAGISTRATE JUDGE 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28