Xian v. Sengupta CA1/1

Filed 8/23/22 Xian v. Sengupta CA1/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or
ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
BENNY XIAN,
Plaintiff and Appellant,
A162175
v.
ARIJIT SENGUPTA, (San Mateo County
Super. Ct. No. 19-CIV-05937)
Defendant and Respondent.
Plaintiff Benny Xian was a cofounder and an early investor of
BeyondCore, Inc. (BeyondCore). After his employment was terminated, he
recovered investments he had made in the company as cash payments with
5 percent interest rather than obtaining shares of BeyondCore stock under
convertible promissory notes and a warrant. Several years later, BeyondCore
was purchased by Salesforce, Inc. (Salesforce). Plaintiff filed a class action
lawsuit against Arijit Sengupta, the founder of BeyondCore, and other
defendants, alleging various causes of action related to the Salesforce
acquisition, including a fraud claim alleging that Sengupta misrepresented
and concealed material facts about the early capitalization of the company.
Xian alleges that had he known those facts, he would have accepted shares in
BeyondCore rather than a cash payout, and would have realized more than
$7 million in profits after the Salesforce acquisition.
Xian now appeals from the judgment entered after the trial court
sustained a demurrer to his third amended complaint without leave to
amend. The trial court ruled that the three-year statute of limitations barred
his fraud claim, because the allegations of his third amended complaint
contradicted earlier allegations in his pleadings and Xian failed to sufficiently
plead delayed discovery to postpone accrual of his claim to 2019. We conclude
Xian sufficiently alleged delayed discovery of his fraud claim, and accordingly
reverse the judgment.
I.
BACKGROUND1
A. Factual Background
Sengupta started BeyondCore in 2004, while he was earning his master
of business administration degree from Harvard University. At all relevant
times, Sengupta was BeyondCore’s majority and controlling shareholder and
chief executive officer (CEO). Sengupta made no monetary investment in the
company, but his wife provided a convertible loan of $30,000 in 2004. Two
years later, Sengupta moved BeyondCore’s location to California.
Xian was a cofounder, employee, and early investor in BeyondCore.
Xian invested $100,000 in BeyondCore in 2007 and received a convertible
promissory note (2007 Note), allowing him to convert the note to BeyondCore
shares beginning in 2012.2 As part of that transaction, Xian also received a
The facts are taken primarily from the allegations of the third
1
amended complaint.
2At the time he invested, BeyondCore was out of money and might
have gone out of business were it not for Xian’s investment.
2
warrant as a companion instrument to the 2007 Note (Warrant). The
Warrant entitled Xian to purchase 1,111 BeyondCore shares at the
conversion price of the 2007 Note ($36 per share). In 2008, Xian invested a
further $50,000 and received a convertible note (2008 Note), which also
allowed Xian to convert his investment to shares in BeyondCore.
In May 2010, Sengupta terminated Xian’s employment with
BeyondCore via e-mail without notice. By that time, BeyondCore had raised
$605,000 in total capital investment since its inception in 2004, $405,000 of
which had been obtained or personally invested by Xian.
Over two years later, on August 9, 2012, Jeffrey Harrell, counsel for
BeyondCore, e-mailed Xian to notify him that his 2007 Note was scheduled to
be “paid out” on October 26, 2012. Harrell outlined two options: (1) Xian
could do nothing and receive a $125,000 payment, representing his $100,000
investment plus five years of 5 percent simple interest; or (2) he could convert
the principal and accrued interest to BeyondCore shares based on the terms
of the 2007 Note. If he accepted option (1), the Warrant would expire, and if
he accepted option (2), he would retain the benefit of the Warrant for another
year. Harrell ended the e-mail by asking Xian to “[p]lease let me know how
you would like to proceed.”
Four days later, counsel for Xian, Paul Tauber, e-mailed Harrell, noting
Xian had forwarded Harrell’s e-mail “regarding the promissory note that will
mature shortly.” Tauber wrote: “In order to decide how to proceed, is there
any update regarding the company, fundraising efforts, etc. that can be
provided?” Harrell responded that he would “reach out to the company for an
update.” The following week, Harrell wrote another e-mail stating: “I’ve
confirmed with the company that BeyondCore plans to send out an overall
status update to all investors by the end of the month or early next month.
3
BeyondCore has been having certain acquisition and fundraising related
conversations but the details of those conversations are currently
confidential.”
Two weeks later, on September 3, 2012, Sengupta e-mailed Xian,
copying both Harrell and Tauber. Sengupta wrote: “I wanted to give you a
quick update on BeyondCore.” After noting BeyondCore had been selected “a
Gartner Cool Vendor in Business Process Services” and describing a new
product, Sengupta wrote: “We are considering raising some money this fall
and have had some initial discussions with venture capitalists. Please feel
free to ask me any questions. I will of course keep you updated on any major
progress on the funding front.” By the end of the week, Tauber responded to
Harrell that Xian would “go ahead and require payment on the due date.”
On October 16, 2012, Harrell sent an e-mail to Xian and Tauber with
the subject line: “BeyondCore Update.” Harrell wrote: “In connection with
the note you hold, BeyondCore wants to provide you with certain additional
information.” Harrell explained that (1) BeyondCore’s new product “had
additional revenue traction in the form of paid POCs but nothing very
significant yet”; (2) BeyondCore was “having ongoing conversations with
venture capital investors and potential acquirers though BeyondCore has not
received any term sheets yet”; (3) “BeyondCore’s CEO fully believes in the
future of BeyondCore as evidenced by the fact that the wife of BeyondCore’s
CEO has invested more than $50,000 in the company in the last few months
and that BeyondCore’s CEO continues to not draw any salary from the
company”; and (4) BeyondCore had offered to extend the expiration date of
the 2007 Note by a year, allowing Xian “an additional year to consider [his]
options and avoid the cancellation of [the Warrant],” but noting that “[b]y
asking for payment, [Xian was] specifically rejecting this offer.” Harrell
4
concluded by confirming the note would be repaid if BeyondCore did not hear
back from Xian by October 19, 2012.
Xian decided not to convert the promissory note or exercise his rights
under the Warrant. Based on his “past experience” at BeyondCore,
“including the inability of the company to pay [Xian] his unpaid wages until
he signed a release” and the lack of news from BeyondCore, Xian concluded
the company “was still chronically low on funds” and that “he would be
fortunate just to get his invested capital returned with 5% interest.”
Xian alleges that unbeknownst to him, between September 2010 and
August 2012, BeyondCore had raised $775,000 in investment capital from
multiple investors. BeyondCore also concealed that within three days of the
maturity date of the 2007 Note, BeyondCore raised an additional $150,000,
bringing the latest fundraising efforts to $925,000. He asserts this
information was material, both “in an absolute sense and relative to what
took place prior to September 2010,” and represented “[a]ctual and more
material financial developments” than Sengupta’s wife’s $50,000 investment
and Sengupta’s salary deferral as reported by Harrell in his October 2012 e-
mail. (Underscoring omitted.) At the time of these communications, Xian
alleges he had no suitable alternative channel for information on
BeyondCore’s finances.
The following year, Xian was evaluating whether to redeem or convert
the 2008 Note. Despite Sengupta’s promise in his September 3, 2012 e-mail
that he would “of course keep [Xian] updated on any major progress on the
funding front,” Xian received no further updates after Harrell’s October 2012
e-mail. Having received no further updates, Xian and his attorney “assumed
there were no material events” at BeyondCore. Xian’s attorney advised him
5
“that he believed [BeyondCore] was out of money and he should get back his
invested capital while he still had the chance.”
Xian alleges that Sengupta again concealed material financial
information prior to the maturity date of the 2008 Note, including the fact
that BeyondCore had raised $1 million after Xian left the company, $950,000
of which was not disclosed to him. In addition, Sengupta concealed that
BeyondCore was in serious discussions and/or due diligence with Menlo
Ventures, a Silicon Valley venture capital firm, which culminated in series A
financing in BeyondCore by Menlo Ventures of $9 million in February 2014.
Xian alleges that investment was significant in terms of the amount invested,
the prestige of the venture capital firm, and the significant increase in
BeyondCore’s valuation as a result of the series A financing.3
In September 2016, BeyondCore was acquired by Salesforce. Shares in
BeyondCore were converted to shares in Salesforce at a conversion rate of
0.04059, or about 24.64 shares of BeyondCore for each share of Salesforce.
BeyondCore shareholders were also provided with the opportunity for their
newly converted shares to be sold. Xian alleges that had he exercised his
rights under the 2007 Note, the 2008 Note, and the Warrant, he would have
acquired 25,617 Salesforce shares as of September 2016. He further alleges
he was economically damaged in the amount of $7,204,781 by Sengupta’s
fraudulent concealment of material information, the difference between the
cost of acquiring the shares and their market value upon conversion to
Salesforce stock.
3A search run by Xian on the web service, Dealroom.co, in
August 2019, revealed that BeyondCore’s valuation estimate as of
February 2014 was “$36m-$54m,” a value Xian alleges was “50-100x” the
value Xian was led to believe was accurate when he evaluated the 2008 Note.
6
B. Procedural History
Xian filed a class action4 complaint on October 8, 2019, followed by a
first amended complaint. After the trial court sustained demurrers to the
first amended complaint with leave to amend, Xian filed a second amended
complaint (SAC). In his SAC, Xian included allegations specifically
addressing his discovery of fraud after the Salesforce acquisition.
Sengupta demurred to the SAC, arguing among other things, that
Xian’s fraud claim was barred by the three-year statute of limitations under
Code of Civil Procedure5 section 338. The trial court sustained the demurrer,
finding that most of Xian’s claims were barred by the settlement agreement
he entered with BeyondCore in September 2010 and the statute of
limitations. However, the court allowed Xian leave to amend his causes of
action for fraud and breach of fiduciary duty to address “alleged fraudulent
omissions that occurred after September 3, 2010 regarding the sale of the
note and the warrant, and only as alleged in Paragraphs 218, 219, and 220 of
the Second Amended Complaint.” The trial court specifically directed Xian to
“plead with specificity delayed discovery and justifiable reliance” as to those
two causes of action.
Xian filed a third amended complaint (TAC), alleging only two causes of
action for fraud and breach of fiduciary duty. With respect to delayed
discovery of his claims, the TAC alleged that “[i]n early September 2016,”
Xian received e-mails from several friends regarding the Salesforce
acquisition of BeyondCore. He searched and found online a press release
4Xian initially filed suit against a number of defendants, including
BeyondCore and Salesforce, alleging 10 causes of action. Because the only
claim at issue in this appeal is Xian’s fraud claim against Sengupta, we
summarize only the procedural facts relevant to that claim.
5 All further statutory references are to the Code of Civil Procedure.
7
about the prospective transaction. “On September 8, 2016,” Xian “contacted
and engaged an attorney (not current counsel) to aid him in evaluating his
situation vis a vis [BeyondCore] and [Salesforce]. The attorney advised
[Xian] to compile relevant documents he had from his [BeyondCore] tenure
and to send them to him for review.”
Xian alleged he and his wife moved from Silicon Valley to Pasadena in
September 2016, and he was not able to access his BeyondCore
documentation for several weeks, but that “[a]fter getting moved into his
Pasadena residence,” he started compiling BeyondCore documents he had
stored and forwarded them to his attorney “in November and December
2016.” Xian’s attorney spent “two months on-and-off” assisting Xian with
potential claims, but Xian alleged that the “documents compiled by [Xian]
from his own sources were insufficient to uncover anything about
[BeyondCore’s] financial situation” after Xian left BeyondCore in 2010 and he
“was not yet aware of the substantial investments made in BeyondCore from
September 2010 onward.” Xian “was also unable to determine financial
details about [BeyondCore] other than what was disclosed in publicly filed
documents concerning the [Salesforce] Acquisition.”
Xian alleged he was advised by new counsel in November 2017 to
obtain Delaware corporate filings for BeyondCore, which led to a discovery
that Sengupta had improperly issued himself shares of BeyondCore.
“Throughout 2018 and through August 2019, [Xian] sought additional
documents on [BeyondCore].” Xian alleged that “[w]hile researching online
during at [sic] dealroom.co circa August 26, 2019 [Xian] discovered a listing
in a schedule referring to a Series A investment of $9,000,000 in
February 2014 from Menlo Ventures, venture capital firm.”
8
He further alleged that in July 2019, he “met with a prior investor” in
BeyondCore. Xian had “attempted to meet with the investor a year earlier,
but was unsuccessful because the investor was reluctant to discuss
[BeyondCore] or provide any disclosure about [BeyondCore] until their own
dealings were concluded with [BeyondCore].” The investor provided Xian
with BeyondCore’s “capitalization table listing all investments made in
[BeyondCore] through December 2012.” Xian attached the capitalization
table to the TAC, and alleged “[t]his was the first time [Xian] was able to
discover the existence and extent of investments” made in BeyondCore after
he left.
Finally, Xian alleged he “was unable to discover the occurrence and
nature of the causes of action alleged herein until the period of November
2017–August 2019 due to the non-public nature of the 2012 Cap Table and
the Menlo Ventures Series A investment. The statute of limitations period
for the fraud-based causes of action alleged herein did not start until [Xian’s]
discoveries in July–August 2019 that tipped him off to the fraudulent
concealment and misrepresentations” by Sengupta and BeyondCore.
Sengupta demurred to the TAC. Sengupta argued that Xian had failed
to allege delayed discovery of his fraud claim because the allegations of the
TAC did not show reasonable diligence. In particular, Sengupta focused on
the fact that the TAC omitted allegations contained in the verified SAC
regarding “anomalies in the press release” that Xian had noticed when
reading in September 2016 about the Salesforce acquisition of BeyondCore.6
6In the verified SAC, Xian alleged that he noticed “some anomalies in
the press release about the personnel involved at BeyondCore; the press
release listed as co-founders Rahul Pathak and Griffin Chronis” but omitted
Xian. “[Xian] thought this unusual, as well as insulting, because [Xian] never
met either one during his three-year tenure at BeyondCore . . . . The press
9
(Boldface and italics omitted.) Sengupta argued that “[b]ased upon these
alleged misgivings, Xian immediately contact[ed] and engage[d] an attorney
on September 8, 2016 (over three years before filing the complaint),” but then
moved and proceeded to wait a year before accessing public documents from
BeyondCore’s corporate filings, then waited two more years to file suit.
(Boldface, italics, and underscoring omitted.) Because “Xian was on inquiry
notice as of September 2016” and “had publicly available documents
accessible to him the entire time,” Sengupta argued he failed to demonstrate
reasonable diligence and his claims should be dismissed. Xian opposed the
demurrer, arguing he had adequately alleged delayed discovery and the fact
that he had publicly available documents was irrelevant because the basis of
the fraud cause of action was discovered only once he received the nonpublic
capitalization table in July 2019.
Following briefing and a hearing, the trial court sustained the
demurrer without leave to amend. The court concluded Xian had “not
sufficiently pled delayed discovery to postpone accrual of the fraud and
breach of fiduciary duty causes of action to 2019 when he obtained a copy of
the BeyondCore 2012 Year-End Capitalization Table.” Observing that
delayed discovery “does not postpone accrual of a cause of actual [sic]
discovery of all facts, but earlier to when ‘[a] plaintiff has reason to discover a
cause of action when he or she has reason at least to suspect a factual basis
for its elements,’ ” the trial court concluded Xian had not sufficiently pled
delayed discovery because his allegations in the TAC “contradict[ed]” his
release was also at odds with the Teknos valuation report dated
February 2010 that only showed [Xian] and [Sengupta] as co-founders.
Further, [Sengupta] made no mention of Pathak or Chronis to prospective
investors while [Xian] was at BeyondCore.”
10
allegations in the SAC, and he had not sufficiently pled around the prior
allegations.
Specifically, the trial court focused on the allegations that Xian “read
the press release regarding the Salesforce acquisition in September 2016 and
noticed the identification of two co-founders, Pathak and Chronis, whom he
had never met and were never mentioned as prospective investors during his
three-year tenure at BeyondCore.” The court observed that “[g]iven the
allegations of the [SAC] the Court finds that [Xian] would have had ‘reason to
at least suspect that a type of wrongdoing has injured him’ in
September 2016 when he read the press release that identified Pathak and
Chronis as co-founders who had not been mentioned as potential investors
and as evidenced by his retention of counsel that same month.”
The trial court further noted that Xian omitted from his TAC
allegations contained in the SAC that he and his counsel had communicated
his misgivings to Sengupta in early 2017.7 The court observed that Xian did
not “allege the substance or result of any of those communications.”
“Instead,” the trial court wrote, Xian’s TAC now alleged that his counsel
“spent two months on-and-off until providing [Xian] with assistance
concerning potential claims” against BeyondCore and Salesforce; that the
documents compiled by Xian from his own sources were insufficient to
uncover anything about BeyondCore’s financial situation after he left; that
Xian “was not yet aware of the substantial investments made in
[BeyondCore] from September 2010 onward”; and that he was unable to
determine “financial details” about BeyondCore other than “what was
7 Xian alleged that “[d]uring January to April 2017 [Xian] or his then-
counsel exchanged several letters with [Sengupta and Salesforce] attempting
to resolve potential legal issues brewing between them and [Xian] related to
the [Salesforce] Acquisition.”
11
disclosed in publicly filed documents” concerning the Salesforce acquisition.8
The court found these allegations “contradict[ed] his knowledge and actions
as pled” in the SAC. Concluding Xian had failed to allege delayed discovery
and consequently that his claims were barred by the three-year statute of
limitations, the trial court sustained the demurer without leave to amend.
This appeal followed.
II.
DISCUSSION
A. Standard of Review
“On appeal from a judgment dismissing an action after sustaining a
demurrer without leave to amend, the standard of review is well settled. The
reviewing court gives the complaint a reasonable interpretation, and treats
the demurrer as admitting all material facts properly pleaded. [Citations.]
The court does not, however, assume the truth of contentions, deductions or
conclusions of law. [Citation.] . . . ‘ . . . [I]t is error for a trial court to sustain
a demurrer when the plaintiff has stated a cause of action under any possible
legal theory.’ ” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966–
967; Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 810 (Fox).) We
review the legal sufficiency of a complaint de novo. (Kahan v. City of
Richmond (2019) 35 Cal.App.5th 721, 730.)
8 We note substantially similar allegations were pled in the SAC, which
stated: “[Xian’s] then-counsel spent two months on-and-off until providing
[Xian] with assistance concerning potential claims against BeyondCore and
[Salesforce]. The documents compiled by [Xian] from his own sources were
insufficient to uncover or conclude about BeyondCore’s financials and
investors since [Xian] left BeyondCore in 2010 and many material
transactions occurred thereafter. [Xian] was not yet aware of the existence of
substantial investments made in BeyondCore from 2011 onward. [Xian] was
also unable to determine financial details of the [Salesforce] Acquisition other
than what was disclosed in publicly filed documents.”
12
B. Delayed Discovery
Xian contends the trial court erred in determining his fraud claim is
barred by the three-year statute of limitations under section 338,
subdivision (d). Sengupta disagrees, and asserts Xian’s cause of action
accrued at the latest in September 2016, when Xian learned of the Salesforce
acquisition and hired a lawyer to explore his claims vis-à-vis BeyondCore and
Sengupta.
The statute of limitations for a fraud claim is three years. (§ 338,
subd. (d).) Under the delayed discovery rule, accrual of a cause of action for
fraud is postponed until the plaintiff discovers, or has reason to discover, the
cause of the action. (E-Fab, Inc. v. Accountants, Inc. Services (2007)
153 Cal.App.4th 1308, 1318 (E-Fab).) The rule is expressly incorporated in
the statute. (§ 338, subd. (d) [“The cause of action in that case is not deemed
to have accrued until the discovery, by the aggrieved party, of the facts
constituting the fraud or mistake.”].)
“[U]nder the delayed discovery rule, a cause of action accrues and the
statute of limitations begins to run when the plaintiff has reason to suspect
an injury and some wrongful cause, unless the plaintiff pleads and proves
that a reasonable investigation at that time would not have revealed a factual
basis for that particular cause of action. In that case, the statute of
limitations for that cause of action will be tolled until such time as a
reasonable investigation would have revealed its factual basis.” (Fox, supra,
35 Cal.4th at p. 803, italics added.)
“In order to rely on the discovery rule for delayed accrual of a cause of
action, ‘[a] plaintiff whose complaint shows on its face that his claim would be
barred without the benefit of the discovery rule must specifically plead facts
to show (1) the time and manner of discovery and (2) the inability to have
13
made earlier discovery despite reasonable diligence.’ ” (Fox, supra,35 Cal.4th at p. 808.) “In assessing the sufficiency of the allegations of
delayed discovery, the court places the burden on the plaintiff to ‘show
diligence’; ‘conclusory allegations will not withstand demurrer.’ ” (Ibid.)
“ ‘Resolution of a statute of limitations issue is normally a question of
fact.’ [Citation.] More specifically, as to accrual, ‘once properly pleaded,
belated discovery is a question of fact.’ [Citation.] As our state’s high court
has observed: ‘There are no hard and fast rules for determining what facts or
circumstances will compel inquiry by the injured party and render him
chargeable with knowledge. [Citation.] It is a question for the trier of fact.’
[Citation.] ‘However, whenever reasonable minds can draw only one
conclusion from the evidence, the question becomes one of law.’ [Citation.]
Thus, when an appeal is taken from a judgment of dismissal following the
sustention of a demurrer, ‘the issue is whether the trial court could determine
as a matter of law that failure to discover was due to failure to investigate or
to act without diligence.’ ” (E-Fab, supra, 153 Cal.App.4th at p. 1320, italics
added.)
This is not a case where reasonable minds could draw only one
conclusion from the allegations of the TAC and the facts subject to judicial
notice. As stated earlier, to successfully plead delayed discovery, Xian “ ‘must
specifically plead facts to show (1) the time and manner of discovery and
(2) the inability to have made earlier discovery despite reasonable diligence.’ ”
(Fox, supra, 35 Cal.4th at p. 808.) We are satisfied that standard is met here.
Xian alleges that he first became aware that Sengupta concealed material
facts about substantial investments in the company between 2010 and 2013
when he received a copy of BeyondCore’s capitalization table in July 2019.
He also alleges that the following month (August 2019) he learned that Menlo
14
Ventures had invested $9 million in 2014. These allegations successfully
plead specific facts regarding the time and manner of discovery of the
misrepresentations and omissions on which his fraud claims are based. (See,
e.g., E-Fab, supra, 153 Cal.App.4th at p. 1325 [plaintiff sufficiently pled time
and manner of discovery where allegations showed plaintiff learned
something it did not know before].)
As far as the inability to have made earlier discovery despite
reasonable diligence, Xian pleads that he first learned that Salesforce had
acquired BeyondCore in September 2016, and began investigating potential
claims he might have. He hired a lawyer and began gathering documents
from his time at BeyondCore, which he sent to his lawyer in November and
December 2016. But the documents he compiled were insufficient to uncover
anything about BeyondCore’s financial situation after he left, and he was
unable to “determine financial details about [BeyondCore] other than what
was disclosed in publicly filed documents” concerning the Salesforce
acquisition. Xian continued to work with his lawyer and seek legal advice,
and “throughout 2018 and through August 2019” sought additional
documents on BeyondCore, finally obtaining the capitalization table in
July 2019 and information about the series A financing the following month.
Xian pleads he was unable to discover his fraud claim earlier “due to the non-
public nature of the 2012 Cap Table and the Menlo Ventures Series A
investment.” These are not mere conclusory allegations that he was
reasonably diligent, but plead specific facts about the steps Xian took to
discover his claims, and that he was unable to discover the facts supporting
his fraud claim because of the nonpublic nature of the information. We must
accept these allegations as true at this stage of the litigation; whether he will
15
be able to prove them must be resolved another day. (Fox, supra, 35 Cal.4th
at p. 811.)
Sengupta asks us to conclude, as did the trial court, that Xian was on
inquiry notice because he learned of the Salesforce acquisition in
September 2016 and had knowledge of an injury and probable wrongdoing as
of that time. But our Supreme Court has instructed that injury and
suspicion of wrongdoing triggers the statute of limitation, “unless the plaintiff
pleads and proves that a reasonable investigation at that time would not
have revealed a factual basis for that particular cause of action.” (Fox, supra,35 Cal.4th at p. 803, italics added.) Here, that is what Xian has done. As
explained above, whether those allegations are true or whether a reasonable
investigation would have earlier revealed a factual basis for his fraud claim
are questions we cannot determine at the pleading stage.
Nor do the allegations of the TAC “contradict” the allegations of the
SAC so as to bar Xian’s claim. Sengupta contends Xian “alleged other facts
that put him on inquiry notice, such as the identification [in the SAC] of two
investors he supposedly did not know and other ‘anomalies.’ ” (Italics added.)
But the TAC did not allege the 2016 press release named two investors; it
identified two individuals as cofounders.9 The alleged “anomalies” were
“about the personnel involved at BeyondCore.” Sengupta does not explain
9 As noted above, the SAC alleges that Xian “noticed some anomalies in
the press release about the personnel involved at BeyondCore; the press
release listed as co-founders Rahul Pathak and Griffin Chronis but omitted
listing [Xian]. [Xian] thought this was unusual, as well as insulting, because
[Xian] never met either one during his three-year tenure at BeyondCore . . . .
The press release was also at odds with the Teknos valuation report dated
February 2010 that only showed [Xian] and [Sengupta] as co-founders.
Further, [Sengupta] made no mention of Pathak or Chronis to prospective
investors while [Xian] was at BeyondCore.” (Italics added.)
16
how the listing of two unknown individuals as cofounders in the 2016 press
release suggests Xian should have been on notice regarding monetary
investments made in the company between 2010 and 2013. The TAC does
not allege Pathak and Chronis were also investors or potential investors, nor
are they listed among the investors on the capitalization table. These
allegations do not compel a conclusion that Xian had a factual basis for his
fraud claim. As our Supreme Court has explained, “It would be contrary to
public policy to require plaintiffs to file a lawsuit ‘at a time when the evidence
available to them failed to indicate a cause of action.’ [Citations.] . . . Indeed,
it would be difficult to describe a cause of action filed by a plaintiff, before
that plaintiff reasonably suspects that the cause of action is a meritorious
one, as anything but frivolous. At best, the plaintiff’s cause of action would
be subject to demurrer for failure to specify supporting facts [citation].” (Fox,
supra, 35 Cal.4th at p. 815.)
In addition, as Xian argues, the mere fact that he hired a lawyer is not
dispositive. Although Sengupta contends the fact that Xian engaged an
attorney to advise him about his rights immediately after the Salesforce
acquisition “reinforces the conclusion that Xian suspected something was
wrong in September 2016,” the act of hiring counsel alone does not show Xian
knew or suspected a factual basis for a fraud claim, particularly when Xian
subsequently filed a class action against multiple defendants alleging 10
causes of action. (See, e.g., E-Fab, supra, 153 Cal.App.4th at p. 1323 [claims
based on independent legal theories can accrue at different times]; Snow v.
A.H. Robins Co. (1985) 165 Cal.App.3d 120, 131, 134–135 [patient’s
awareness her contraceptive device failed her barred her personal injury
claim but not her fraud claim, which accrued when she learned of the
17
defendant’s misrepresentations].) As pleaded, the allegations indicate Xian
first learned of facts to support his fraud claim in July 2019.
Finally, Sengupta’s attack on Xian’s delayed discovery allegations do
not persuade us they are insufficient as a matter of law. Sengupta
summarizes Xian’s “excuses for why he dragged his feet” and notes “none [of
them] are particularly illuminating,” but the question of whether his
investigation was diligent and reasonable may be decided as a matter of law
only where one inference is possible. The allegations that Xian learned
Salesforce had acquired BeyondCore, read a press release mentioning two
cofounders he had never heard of, and hired a lawyer in September 2016 do
not, standing alone, establish as a matter of law that he should have
suspected fraud occurred in 2012 and 2013 with respect to investments he
alleges he first learned about in 2019. (Geneva Towers Ltd. Partnership v.
City and County of San Francisco (2003) 29 Cal.4th 769, 781 [“ ‘In order for
the bar of the statute of limitations to be raised by demurrer, the defect must
clearly and affirmatively appear on the face of the complaint; it is not enough
that the complaint shows that the action may be barred.’ ”].)
C. Other Bases for Demurrer
In the demurrer to the TAC, Sengupta raised several additional
arguments regarding Xian’s inability to state a claim upon which relief could
be granted, none of which the trial court addressed, and none of which
Sengupta reasserts on appeal. Because we review the trial court’s ruling de
novo, however, we will briefly address them.10
Sengupta argued in the trial court that he owed no duty to disclose the
allegedly concealed financial information to Xian because he owed him no
fiduciary duty. But a duty of disclosure can arise in transactional
10 Xian addressed the arguments in his opening brief on appeal.
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relationships even where there is no fiduciary or confidential relationship
between the parties. (See, e.g., Nissan Motor Acceptance Cases (2021)
63 Cal.App.5th 793, 826 [cause of action for nondisclosure of material facts
may arise where the defendant makes representations but fails to disclose
facts which materially qualify those disclosed, the facts are known or
accessible only to the defendant and defendant knows they are not known or
discoverable by the plaintiff, or the defendant actively conceals discovery
from the plaintiff]; Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992)
6 Cal.App.4th 603, 613 [if one undertakes to speak despite not having duty to
do so, one is bound to make a full and fair disclosure].) Here, regardless of
whether Sengupta owed Xian a fiduciary duty, Xian alleges that Sengupta
made misrepresentations and concealed material information about
BeyondCore’s fundraising efforts, failed to respond fully and truthfully to his
inquiries despite a promise to “keep [him] updated on any major progress on
the funding front,” and was in possession of information not discoverable by
Xian due to the nonpublic nature of the capitalization table and series A
financing information.
Sengupta also asserted in his demurrer that Xian had not adequately
pled concealment because the e-mail sent by Xian’s lawyer asking for an
update on “ ‘fundraising efforts, etc.’ ” was a clearly a request regarding
current efforts to raise future funds as opposed to past fundraising results,
and Sengupta’s response fully answered the questions that were asked. But
we do not think the meaning of the question is so clear. Nor can we say
Sengupta’s response that “We are considering raising some money this fall
and have had some initial discussions with venture capitalists,” together with
an invitation to “Please feel free to ask me any questions,” forecloses a cause
of action for fraudulent concealment. Simply put, this argument raises
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questions of fact not amenable to resolution on demurrer. (See, e.g.,
TracFone Wireless, Inc. v. County of Los Angeles (2008) 163 Cal.App.4th 1359,
1368 [“Questions of fact may be resolved on demurrer only when there is only
one legitimate inference to be drawn from the allegations of the complaint.”].)
Finally, Sengupta argued that the TAC did not adequately allege
justifiable reliance because (1) Sengupta and Xian were in an adversarial
position in 2012, when the alleged concealment took place; (2) Xian could not
have relied on Sengupta’s statements because he asked for his investment
back in cash soon after receiving Sengupta’s e-mail; and (3) Xian’s counsel
wrote in an e-mail rejecting the conversion option that Xian had “ ‘other
projects that he is much closer to and he’d like to allocate those funds to those
projects.’ ” (Boldface and underscoring omitted.) While all of these
arguments suggest inferences that can be drawn from the allegations of the
complaint, and while further discovery may reveal additional support for
them, we cannot determine as a matter of law that Xian’s reliance was
unreasonable at this stage of the litigation. (Alliance Mortgage Co. v.
Rothwell (1995) 10 Cal.4th 1226, 1239 [“ ‘Except in the rare case where the
undisputed facts leave no room for a reasonable difference of opinion, the
question of whether a plaintiff’s reliance is reasonable is a question of
fact.’ ”].)
In sum, we conclude Xian has adequately pled delayed discovery so as
to survive demurrer. Because we cannot determine as a matter of law that
Xian’s claim is barred by the statute of limitations, and none of Sengupta’s
other arguments raised in the trial court defeat Xian’s fraud cause of action,
the demurrer should have been overruled.
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III.
DISPOSITION
The judgment is reversed and the action is remanded to the trial court
for further proceedings consistent with this opinion. Xian is to recover costs
on appeal.
MARGULIES, J.
WE CONCUR:
HUMES, P. J.
WISS, J.
A162175
Xian v. Sengupta
 Judge of the San Francisco Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
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