Stemedica Cell Technologies, Inc. v. Mohammed ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 STEMEDICA CELL Case No.: 3:19-cv-01214-WQH-BLM TECHNOLOGIES, INC., a 12 Nevada corporation, ORDER 13 Plaintiff, 14 v. 15 ABDULAZIZ BIN MOHAMMED, a natural person; 16 JOSEPH ZIA, a natural person; 17 and DOES 2-10, 18 Defendants. 19 HAYES, Judge: 20 The matter pending before the Court is the Motion to Dismiss filed by Defendant 21 Joseph Zia. (ECF No. 15). 22 I. PROCEDURAL BACKGROUND 23 On June 28, 2019, Plaintiff Stemedica Cell Technologies, Inc. initiated this action 24 by filing a Complaint against Defendants Abdulaziz Bin Mohammed and DOES 1-10. 25 (ECF No. 1). 26 On January 22, 2020, Plaintiff filed an Amended Complaint against Defendants 27 Abdulaziz Bin Mohammed, Joseph Zia, and DOES 2-10. (ECF No. 7). Plaintiff alleges 28 1 that Defendant Mohammed and his agent Defendant Zia violated a Common Stock 2 Purchase Agreement (the “CSPA”) by failing to purchase 27,000,000 shares of Plaintiff’s 3 common stock. See id. at 3-6. Plaintiff brings the following nine causes of action: (1) 4 breach of written contact against Defendant Mohammed; (2) breach of implied contact 5 against Defendant Mohammed; (3) breach of implied covenant of good faith and fair 6 dealing against Defendant Mohammed; (4) intentional misrepresentation against 7 Defendants Mohammed and Zia; (5) promissory fraud against Defendants Mohammed and 8 Zia; (6) promissory estoppel against Defendants Mohammed and Zia; (7) negligent 9 misrepresentation against Defendants Mohammed and Zia; (8) fraud in the purchase of 10 securities pursuant to 17 C.F.R. §240.10b-5 against Defendants Mohammed and Zia; and 11 (9) right to attach order and a writ of attachment against Defendant Mohammed. See id. at 12 6-12. Plaintiff seeks general, special, and exemplary damages; interest; attorneys’ fees and 13 costs; “a right to attach order and writ of attachment in the amount of $270,000,000.00, 14 plus interest at the rate of ten percent (10%) per annum until paid …”; and “other and 15 further relief as this Court may deem just and proper.” Id. at 12-13. 16 On April 17, 2020, Defendant Zia filed a Motion to Dismiss Plaintiff’s fourth, fifth, 17 sixth, seventh, and eighth causes of action for failure to state a claim upon which relief can 18 be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF No. 15).1 On May 19 12, 2020, Plaintiff filed a Response in opposition. (ECF No. 16).2 On May 19, 2020 20 Defendant Zia filed a Reply (ECF No. 17) and an Objection (ECF No. 18).3 21 II. ALLEGATIONS OF THE AMENDED COMPLAINT 22 On March 12, 2015, Plaintiff and Defendant Mohammed entered into a CSPA. See 23 ECF No. 7 at 3. The CSPA provided, in relevant part, 24 25 1 Defendant Zia requests the Court to take judicial notice of Exhibits 1, 2, and 3 to the Declaration of 26 Defendant Zia. See ECF No. 15-2. The Court has not considered these exhibits in resolving this Order. 2 Plaintiff requests the Court to take judicial notice of Exhibits 1 and 2 to Plaintiff’s Response in 27 opposition. See ECF No. 16-1. The Court has not considered these exhibits in resolving this Order. 3 Defendant Zia objects to Plaintiff’s request for judicial notice (ECF No. 16-1). See ECF No. 18. The 28 1 (a) for [Plaintiff] to sell to [Defendant Mohammed] and [Defendant Mohammed] to buy from [Plaintiff] 27,000,000 shares of common stock in 2 [Plaintiff] at a purchase price of ten dollars ($10.00) per share; and (b) for a 3 closing to take place at [Plaintiff]’s offices in San Diego. 4 Id. at 3-4. 5 The CSPA contained representations and warranties on behalf of each party. 6 For his part, [Defendant Mohammed] represented and warranted that he had substantial experience in evaluating and investing in private placement 7 transactions of securities in companies similar to [Plaintiff], was capable of 8 evaluating the merits and risks of his investment in [Plaintiff], understood and acknowledged that his investment was highly speculative and involved 9 substantial risks, could bear the economic risk of his investment, was able 10 without impairing his financial condition to suffer a complete loss of his investment, had had all access to all data he thought necessary in order to 11 commit to the investment memorialized in the CSPA and was satisfied with 12 it, and was an “accredited investor” within the meaning of Regulation D, Rule 501(a) promulgated by the U.S. Securities and Exchange Commission. 13 14 Id. at 4. 15 “The CSPA supplied as the rule of decision in any after-arising dispute the 16 substantive law of the State of California, without regard to conflicts of law principles, and 17 provided that this Court would have exclusive jurisdiction of any dispute arising out of or 18 related to the CSPA.” Id. “The CSPA also included a clause stating that delay in exercising 19 any remedies for breach or default could not be construed as an impairment of the right to 20 pursue those remedies at a later time.” Id. “The CSPA forbade any amendments to its 21 terms except via a mutually-signed writing, and expressly prohibited an effort to ‘go 22 outside’ the CSPA by positing any purported amendment (whether oral, emailed, or 23 otherwise) that did not satisfy that clause.” Id. 24 Contemporaneously with the execution of the CSPA, [Defendant Mohammed] signed a document entitled “letter of confirmation & 25 authorization,” which appended wire instructions for the transfer of the first 26 installment of the cash owing from [Defendant Mohammed], in the amount of $180 million, from [Defendant Mohammed] to [Plaintiff]. This document 27 identified [Defendant] Zia as [Defendant Mohammed]’s agent for purposes of 28 the transfer. The attached wire transfer instructions listed as the originating 1 bank a Bank of America branch on Mia Sorrento Place. [Defendants] Zia and [Mohammed] both signed this document. 2 3 On [Defendant Mohammed]’s behalf, [Defendant] Zia delivered a letter to [Plaintiff] promising the wiring of the cash, on July 2, 2015. In this letter, 4 [Defendant] Zia acknowledged the establishment of a limited liability 5 company for the purpose of holding [Defendant Mohammed]’s $270,000,000.00 for release to [Plaintiff] pending satisfaction of certain 6 “contingencies.” The “contingencies” listed in [Defendant] Zia’s letter, 7 however, were and are parol evidence and an invalid effort to renegotiate the terms of the CSPA (whose § 6.9 embodies the parties’ agreement that the 8 CSPA constituted the “full and entire understanding and agreement between 9 the parties”). 10 Afterward, [Defendant Mohammed] did not perform. He proffered excuses 11 for not doing so. These included health problems (a pair of heart attacks) and family issues (the illness and death of his father). The heart attacks, he said, 12 required his hospitalization and put him out of commission for a period of 13 months. Another excuse was delay [Defendant Mohammed] was experiencing in receiving an inheritance from his father’s estate. 14 15 In multiple telephone conversations with members of [Plaintiff]’s board of directors and management, however, [Defendant Mohammed] repeatedly 16 affirmed his intent to honor the CSPA. [Defendant] Zia, his agent, did the 17 same. In the meanwhile, on information and belief, [Defendant Mohammed] brought cash into the U.S. by transferring it to a Citibank account in Beverly 18 Hills from a Barclays Bank account in London. Although he could have used 19 some or all of this cash in order to honor his commitment under the CSPA, he did not do so. 20 21 Minutes of [Plaintiff]’s directors’ meetings reflect [Plaintiff]’s contemporaneous reliance on [Defendant Mohammed]’s commitment to 22 [Plaintiff] as memorialized in the CSPA. [Defendant Mohammed] also 23 participated via telephone in at least two board meetings, in which he swore to Allah that he would honor the CSPA within days afterward. The minutes 24 of the board meeting held August 25, 2016, reflect [Defendant Mohammed]’s 25 re-affirmation of his commitment to invest the promised cash. 26 As late as April 11, 2016, August 25, 2016, and February 2, 2017, among 27 other times, [Defendant Mohammed] reaffirmed to [Plaintiff] his commitment to honor the CSPA, in statements which [Plaintiff] duly recorded in the 28 1 minutes of meetings of its directors duly held in San Diego on or about those dates. 2 3 Id. at 4-6. 4 “In the end, neither [Defendant Mohammed] nor [Defendant] Zia ever performed 5 the transfer of any of the monies ….” Id. at 6. “Nor did either ever disclaim [Defendant 6 Mohammed]’s duties under the CSPA or say that [Defendant Mohammed] would not be 7 performing as promised.” Id. 8 “[Plaintiff], however, relied on [Defendants Mohammed]’s and Zia’s promises at 9 face value, and made them known to others (including persons who invested in [Plaintiff] 10 in justifiable reliance on [Defendant Mohammed]’s doing the same).” Id. “At all times, 11 [Plaintiff] remained ready and able to perform on its own part, consistent with California 12 law.” Id. 13 III. STANDARD OF REVIEW 14 Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state a 15 claim upon which relief can be granted ….” Fed. R. Civ. P. 12(b)(6). Federal Rule of Civil 16 Procedure 8(a) provides that “[a] pleading that states a claim for relief must contain … a 17 short and plain statement of the claim showing that the pleader is entitled to relief ….” 18 Fed. R. Civ. P. 8(a)(2). “A district court’s dismissal for failure to state a claim under 19 Federal Rule of Civil Procedure 12(b)(6) is proper if there is a lack of a cognizable legal 20 theory or the absence of sufficient facts alleged under a cognizable legal theory.” 21 Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (internal quotation 22 marks and citation omitted). “All allegations of material fact are taken as true and 23 construed in the light most favorable to the nonmoving party.” Thompson v. Davis, 295 24 F.3d 890, 895 (9th Cir. 2002) (citation omitted). 25 “[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ 26 requires more than labels and conclusions, and a formulaic recitation of the elements of a 27 cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting 28 Fed. R. Civ. P. 8(a)) (alteration in original). When considering a motion to dismiss, a court 1 must accept as true all “well-pleaded factual allegations ….” Ashcroft v. Iqbal, 556 U.S. 2 662, 679 (2009). However, a court is not “required to accept as true allegations that are 3 merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Sprewell 4 v. Golden St. Warriors, 266 F.3d 979, 988 (9th Cir. 2001) (citation omitted). “In sum, for 5 a complaint to survive a motion to dismiss, the non-conclusory factual content, and 6 reasonable inferences from that content, must be plausibly suggestive of a claim entitling 7 the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (internal 8 quotation marks omitted). 9 IV. DISCUSSION 10 Defendant Zia contends that Plaintiff’s fourth, fifth, sixth, seventh, and eighth claims 11 are barred by statutes of limitations. Defendant Zia contends that the statute of limitations 12 for intentional misrepresentation (fourth claim), promissory fraud (fifth claim), promissory 13 estoppel (sixth claim), and negligent misrepresentation (seventh claim) is three years. 14 Defendant Zia contends that the statute of limitations for fraud in the purchase of securities 15 pursuant to 17 C.F.R. §240.10b-5 (eighth claim) is two years after the discovery of facts 16 constituting the violation or five years after the violation. Defendant Zia contends that 17 Plaintiff’s claims accrued in March 2015, July 2015, or August 2016. 18 Plaintiff contends that intentional misrepresentation (fourth claim), promissory fraud 19 (fifth claim), and negligent misrepresentation (seventh claim) are subject to a three-year 20 statute of limitations. Plaintiff contends that promissory estoppel (sixth claim) and fraud in 21 the purchase of securities pursuant to 17 C.F.R. §240.10b-5 (eighth claim) are subject to a 22 two-year statute of limitations. Plaintiff contends that its claims against Defendant Zia are 23 not time-barred because of the discovery rule, fraudulent concealment, continuous accrual, 24 continuing violation, and conspiracy. Plaintiff concedes that it cannot carry its burden of 25 proving belated discovery on the face of the Amended Complaint because the Amended 26 Complaint fails to allege when Plaintiff discovered Defendant Zia’s deception. Plaintiff 27 contends that it could remedy the omission through amendment if granted leave by the 28 Court. Plaintiff contends that the accrual of its claims should be delayed until 2019 because 1 Defendant Zia fraudulently concealed Defendant Mohammed’s intent to defraud. Plaintiff 2 contends that its claims accrued continuously until 2019 because Defendant Zia’s deception 3 is ongoing. Plaintiff contends that the continuing violation doctrine applies because 4 Plaintiff attempted to resolve the dispute before commencing litigation. Plaintiff contends 5 that the limitations period begins to run once the last overt actual pursuant to the civil 6 conspiracy has been completed. Plaintiff contends that the earliest accrual date for its claims 7 against Defendant Zia is February 2017 when Defendant Zia made his final false promise 8 to Plaintiff concerning Defendant Mohammed’s intent to perform. 9 “If the running of the statute is apparent on the face of the complaint, the defense may 10 be raised by a motion to dismiss.” Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th 11 Cir. 1980) (citations omitted). This is true even though expiration of the limitations period 12 is an affirmative defense, because Federal Rule of Civil Procedure 9(f) “makes averments 13 of time and place material for the purposes of testing the sufficiency of a complaint.” 14 Suckow Borax Mines Consol. v. Borax Consol., 185 F.2d 196, 204 (9th Cir. 1951). “When 15 a motion to dismiss is based on the running of the statute of limitations, it can be granted 16 only if the assertions of the complaint, read with the required liberality, would not permit 17 the plaintiff to prove that the statute was tolled.” Jablon, 614 F.2d at 682 (citation omitted). 18 In contrast, where the statute of limitations question turns on factual issues that may be 19 disputed, the question is more appropriately addressed at a later stage of the proceeding. 20 See id. “A defendant raising the statute of limitations as an affirmative defense has the 21 burden of proving the action is time barred.” Cal. Sansome Co. v. U.S. Gypsum, 55 F.3d 22 1402, 1406 (9th Cir. 1995) (citations omitted). “A federal court sitting in diversity applies 23 the substantive law of the state, including the state’s statute of limitations.” Albano v. Shea 24 Homes Ltd. P’ship, 634 F.3d 524, 530 (9th Cir. 2011) (citation omitted). 25 “To determine the statute of limitations which applies to a cause of action it is 26 necessary to identify the nature of the cause of action, i.e., the gravamen of the cause of 27 action.” Hensler v. City of Glendale, 8 Cal. 4th 1, 22 (1994) (internal quotation marks and 28 citations omitted). In other words, “the nature of the right sued upon and not the form of 1 action nor the relief demanded determines the applicability of the statute of limitations under 2 our code.” Maguire v. Hibernia Sav. & Loan Soc., 23 Cal. 2d 719, 733 (1944) (citations 3 omitted). 4 The California Code of Civil Procedure states that “[a]n action for relief on the 5 ground of fraud or mistake” is subject to a three-year statute of limitations. Cal. Civ. Proc. 6 Code § 338(d). Section 338(d) “is comprehensive and applies if fraud or mistake is the 7 basis of the legal injury (the ground of the action) ... regardless of whether the complaint 8 seeks legal or equitable relief or pleads a cause of action in tort or contract.” Hatch v. 9 Collins, 225 Cal. App. 3d 1104, 1110 (Ct. App. 1990) (alteration in original) (internal 10 quotation marks and citations omitted). Plaintiff’s intentional misrepresentation, 11 promissory fraud, promissory estoppel, and negligent misrepresentation claims are subject 12 to a three-year statute of limitations. See e.g., R Power Biofuels, LLC v. Chemex LLC, No. 13 16-CV-00716-LHK, 2016 WL 6663002, at *12 (N.D. Cal. Nov. 11, 2016) (“In California 14 the statute of limitations for intentional misrepresentation is three years…. [W]here the 15 essence of the negligent misrepresentation cause of action is ‘deceit,’ a three-year statute of 16 limitations applies…. Accordingly, the three-year statute of limitations applies to the 17 negligent and intentional misrepresentation claims.”); Wright v. Old Gringo Inc., No. 17- 18 cv-1996-BAS-MSB, 2018 WL 6568199, at *8, 10 (S.D. Cal. Dec. 13, 2018) (“Promissory 19 fraud is a species of fraud for which the misrepresentation element is premised on the 20 defendant’s alleged making of a promise while also lacking an intent to perform…. [C]ourts 21 apply the three-year statute of limitations to negligent misrepresentation claims and 22 contract-related claims, including specific performance, unjust enrichment, and promissory 23 estoppel, when the gravamen of the claims is a defendant’s alleged fraud.”). The California 24 Code of Civil Procedure further states that “[t]he cause of action in that case is not deemed 25 to have accrued until the discovery, by the aggrieved party, of the facts constituting the 26 fraud or mistake.” Cal. Civ. Proc. Code § 338(d). 27 17 C.F.R. § 240.10b-5 states that 28 1 It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any 2 facility of any national securities exchange, 3 (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state 4 a material fact necessary in order to make the statements made, in the 5 light of the circumstances under which they were made, not misleading, or 6 (c) To engage in any act, practice, or course of business which operates 7 or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 8 9 17 C.F.R. § 240.10b-5. 28 U.S.C. § 1658(b) states that 10 (b) Notwithstanding subsection (a), a private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a 11 regulatory requirement concerning the securities laws, as defined in section 12 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), may be brought not later than the earlier of-- 13 (1) 2 years after the discovery of the facts constituting the violation; or 14 (2) 5 years after such violation. 15 28 U.S.C. § 1658(b). The Supreme Court has “conclude[d] that the limitations period in § 16 1658(b)(1) begins to run once the plaintiff did discover or a reasonably diligent plaintiff 17 would have discover[ed] the facts constituting the violation—whichever comes first.” 18 Merck & Co. v. Reynolds, 559 U.S. 633, 653 (2010) (second alteration in original) (internal 19 quotation marks omitted). 20 The Amended Complaint alleges that Defendant Mohammed and Plaintiff “entered 21 into” the CSPA on March 12, 2015. (ECF No. 7 at 3). The Amended Complaint alleges 22 that “[c]ontemporaneously with the execution of the CSPA, [Defendant Mohammed] 23 signed a document entitled ‘letter of confirmation & authorization,’ which appended wire 24 instructions for the transfer of the first installment of the cash owing from [Defendant 25 Mohammed], in the amount of $180 million, from [Defendant Mohammed] to [Plaintiff].” 26 Id. at 4. The Amended Complaint alleges that “[t]his document identified [Defendant] Zia 27 as [Defendant Mohammed]’s agent for purposes of the transfer.” Id. at 4-5. The Amended 28 1 Complaint alleges that Defendants “Zia and [Mohammed] both signed this document.” Id. 2 at 5. 3 The Amended Complaint alleges that, “[o]n [Defendant Mohammed]’s behalf, 4 [Defendant] Zia delivered a letter to [Plaintiff] promising the wiring of the cash, on July 2, 5 2015.” Id. The Amended Complaint alleges that “[i]n this letter, [Defendant] Zia 6 acknowledged the establishment of a limited liability company for the purpose of holding 7 [Defendant Mohammed]’s $270,000,000.00 for release to [Plaintiff] pending satisfaction 8 of certain ‘contingencies.’” Id. 9 On June 28, 2019, Plaintiff filed the original Complaint against Defendants 10 Mohammed and DOES 1-10. See ECF No. 1. On January 22, 2020, Plaintiff filed the 11 Amended Complaint against Defendants Mohammed, Zia, and DOES 2-10. See ECF No. 12 7. The Court finds that Plaintiff’s intentional misrepresentation (fourth claim), promissory 13 fraud (fifth claim), promissory estoppel (sixth claim), negligent misrepresentation (seventh 14 claim), and fraud in the purchase of securities claim (eighth claim) claims against Defendant 15 Zia are untimely because the events of March 12, 2015 and July 2, 2015 as alleged in the 16 Complaint are more than four years prior to the filing of action against Defendant Zia. 17 “In alleging fraud or mistake, a party must state with particularity the circumstances 18 constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Rule 9(b) “requires ... an account of 19 the time, place, and specific content of the false representations as well as the identities of 20 the parties to the misrepresentations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 21 2007) (internal quotation marks and citation omitted). “To comply with Rule 9(b), 22 allegations of fraud must be specific enough to give defendants notice of the particular 23 misconduct which is alleged to constitute the fraud charged so that they can defend against 24 the charge and not just deny that they have done anything wrong.” Bly-Magee v. California, 25 236 F.3d 1014, 1019 (9th Cir. 2001) (citation and internal quotations omitted). 26 Averments of fraud must be accompanied by the who, what, when, where, and how of the misconduct charged…. [A] plaintiff must set forth more than the 27 neutral facts necessary to identify the transaction. The plaintiff must set forth 28 what is false or misleading about a statement, and why it is false. 1 Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (alteration in original) 2 (emphasis, internal quotation marks, and citations omitted). 3 In this case, the Amended Complaint alleges that 4 In multiple telephone conversations with members of [Plaintiff]’s board of 5 directors and management, however, [Defendant Mohammed] repeatedly 6 affirmed his intent to honor the CSPA. [Defendant] Zia, his agent, did the same. 7 8 As late as April 11, 2016, August 25, 2016, and February 2, 2017, among other times, [Defendant Mohammed] reaffirmed to [Plaintiff] his commitment 9 to honor the CSPA, in statements which [Plaintiff] duly recorded in the 10 minutes of meetings of its directors duly held in San Diego on or about those dates. 11 12 (ECF No. 7 at 5-6). 13 The Amended Complaint fails to allege facts to support a fraud claim within the 14 statute of limitations. The Court finds that Plaintiff’s allegations regarding Defendant Zia’s 15 conduct after July 2, 2015 fail to “state with particularity the circumstances constituting 16 fraud or mistake.” Fed. R. Civ. P. 9(b). The Court further finds that Plaintiff’s contentions 17 fail to allege facts that would support the application of the discovery rule, fraudulent 18 concealment, continuous accrual, continuing violation, and conspiracy fail to “state with 19 particularity the circumstances constituting fraud or mistake.” Id. 20 The Court concludes that Plaintiff’s fourth, fifth, sixth, seventh, and eighth claims 21 against Defendant Zia fail to state claims upon which relief can be granted pursuant to 22 Federal Rule of Civil Procedure 12(b)(6). Plaintiff’s fourth, fifth, sixth, seventh, and eighth 23 claims are dismissed without prejudice.4 24 25 26 27 4 The Court does not rule on whether Plaintiff’s claims against Defendant Zia are barred by the economic loss rule or otherwise fail to state claims upon which relief can be granted pursuant to Federal Rule of 28 1 || V. CONCLUSION 2 IT IS HEREBY ORDERED that the Motion to Dismiss filed by Defendant Joseph 3 || Zia (ECF No. 15) is GRANTED. Plaintiff’s Amended Complaint is DISMISSED without 4 || prejudice. Any motion for leave to file an amended pleading must be filed within 30 days 5 || of this Order. 6 || Dated: June 25, 2020 BME: Me Z. A a 7 Hon. William Q. Hayes g United States District Court 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28