Judge Randolph M. Hammock, Case 22STCV15317 2022-12-07 Tentative Ruling

Judge: Randolph M. Hammock, Case: 22STCV15317, Date: 2022-12-07 Tentative Ruling

Plaintiff DailyGobble, Inc., brings this Complaint against Defendants Amit Jain, Alliance Group Ventures, LLC, Chirag Patil. Plaintiff alleges Defendant Jain is the CEO of Bridg, Inc., and Plaintiff DailyGobble held a sizeable number of shares in Bridg. Defendant Jain approached Plaintiff about a potential sale of its shares, and falsely represented that the shares were worth no more than $0.75 each. At the same time, Defendant was negotiating a sale of Bridg in a transaction that would represent a substantial premium from the valuation Jain disclosed to DailyGobble. In reliance on Jain’s representations, Plaintiff DailyGobble sold 851,601 shares of Bridg stock to Alliance Group Ventures, purportedly operated by and for Defendant Patil, at a price of $0.725 per share. Plaintiff alleges that Defendants Alliance Group and Patil are fronts for Defendant Jain. Months after Plaintiff sold its shares, Cardlytics, Inc. acquired all of Bridg’s outstanding stock at $9 per share, a 1200% increase in the price Plaintiff received for its shares. Plaintiff now brings causes of action for (1) intentional misrepresentation, (2) negligent misrepresentation, (3) fraud in the inducement, (4) conversion, (5) breach of fiduciary duty, and (6) Penal Code section 496.

Defendant Amit Jain now demurs to each cause of action in the First Amended Complaint. Defendants Alliance Group Ventures, LLC and Chirag Patil filed a Notice of Joinder on October 3, 2022. For the reasons discussed herein, that “joinder” was ineffective. Plaintiff opposed the demurrer.

Defendants Alliance Group Ventures, LLC and Chirag Patil’s “Notice of Joinder” is DENIED for the reasons stated herein. However, they may file a responsive pleading to the future Second Amended Complaint (“SAC”), within 30 days from service thereof.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Proc., §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 (internal citations omitted).)

As a preliminary issue, the parties disagree whether California or Delaware law governs this dispute. The Stock Transfer Agreement entered into by Dailygobble and Alliance, referenced and relied upon in the FAC, contains a choice of law provision. Invoking this provision, Defendant argues it requires the application of Delaware law. It provides:

Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.

Choice of law provisions in agreements are enforceable, unless grounds exist for not enforcing them. [Citation.] (Gramercy Inv. Tr. v. Lakemont Homes Nevada, Inc. (2011) 198 Cal. App. 4th 903, 908–09.) California recognizes a “strong policy favoring enforcement of such provisions,” and courts must first determine (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law. (Id.) If neither of these tests is met, the court need not enforce the choice of law provision. However, if either is met, the court must then determine “whether the chosen state’s law is contrary to a fundamental policy of California.” (Id.) “If the proponent of the choice of law clause demonstrates that the chosen state has a substantial relationship to the parties or their transaction, or that a reasonable basis otherwise exists for the choice of law, the parties' choice will generally be enforced unless the other side can establish both that the chosen law is contrary to a fundamental policy of California and that California has a materially greater interest in the determination of the particular issue.” (Id.)

Here, the parties to the Stock Transfer Agreement (Dailygobble, Alliance, and Bridg) are each Delaware entities. (Dem. 12: 13-14.) Thus, the choice of law provision calling for Delaware law has a substantial relationship to the transaction, and there exists a reasonable basis for selecting Delaware law.

Accordingly, Plaintiff must show that both that the Delaware law “is contrary to a fundamental policy of California and that California has a materially greater interest in the determination of the particular issue.” (Gramercy Inv. Tr., supra, 198 Cal. App. 4th at 908–09.) Plaintiff argues that if the claims do not survive Delaware law, “then that law is set aside in favor of California’s interest in deterring fraud.” (Opp. 7: 16-17.) Plaintiff contends that “California does not allow fraudsters to hide behind fraudulently induced contracts,” and that under “California’s strong interest in deterring and punishing fraud, the Court should reject the choice-of-law provision.” (Opp. 7: 27-28.) Plaintiff urges this court not to set aside these principles “in favor of Delaware’s contract fetish.” (Opp. 12: 22-23.) Be that as it may, Plaintiff presents no authority in which a court set aside a choice of law provision when the proposed state’s law would merely preclude a fraud claim.

Absent more, Plaintiff has failed to demonstrate that Delaware law “is contrary to a fundamental policy of California” for these claims. (Gramercy Inv. Tr., supra, 198 Cal. App. 4th at 908–09.) Plaintiff’s argument states, in essence, that California law should override a proposed forum’s when California provides more protections. Were this the law, it would be easy enough for Courts to say so. But Plaintiff presents no authority suggesting that California’s interest in deterring fraud trumps its “strong policy favoring enforcement” of choice of law provisions. “[W]here two sophisticated, commercial entities agree to a choice of law clause ... the most reasonable interpretation of their actions is that they intended for the clause to apply to all causes of action arising from or related to their contract.” (Nedlloyd Lines B.V. v. Super. Ct. (1992) 3 Cal.4th 459, 469.)

Transferor represents and warrants to the Company and Transferee that…Transferor (i) is sophisticated with respect to investments in securities of private growth stage companies, (ii) has adequate information concerning the business and financial condition of the Company to reach an informed and knowledgeable decision to consummate the transactions contemplated by this Agreement and (iii) has independently, without reliance upon the other parties or their representatives and based on such information as Transferor deemed appropriate, made Transferor’s own analysis and decision to consummate the transactions contemplated by this Agreement.

In recognizing the validity of “anti-reliance” provisions such as the one here, Delaware courts have reasoned that “a party cannot promise, in a clear integration clause of a negotiated agreement, that it will not rely on promises and representations outside of the agreement and then shirk its own bargain in favor of a ‘but we did rely on those other representations’ fraudulent inducement claim.” (Abry Partners V, L.P. v. F&W Acquisition LLC (Del. Ch. 2006) 891 A.2d 1032, 1057.)

Here, this court agrees with Defendants that the anti-reliance provision “add[s] up to a clear anti-reliance clause by which the plaintiff has contractually promised that it did not rely upon statements outside the contract's four corners in deciding to sign the contract.” (Id. at 1059.)

In attempting to distinguish this case from Abry Partners, Plaintiff’s opposition argues that it relied on statements not just “outside of the agreement,” but also on misrepresentations in the contract itself. Specifically, in Paragraph 3(b), Alliance Group (“transferee”) warranted to Plaintiff that:

Transferee is acquiring the Shares for investment for Transferee’s own account only and not with a view to, or for resale in connection with, any “distribution” of the Shares within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and Transferee has no contract, undertaking, or arrangement to sell or transfer the Shares to another person.

Notably, Defendant Jain apparently does not contest that misrepresentations occurring within the contract itself could support the claims. (See Abry, supra, 891 A.2d at 1057 [referring to “promises and representations outside of the agreement”].) However, he argues that such allegations are absent from the FAC. This court agrees.

The FAC alleges that “at Defendant Jain’s instruction, the majority of the shares were ultimately transferred to Defendant Jain’s sister, Jain’s brother-in-law, and the rest going to Defendant Jain’s business associates, including employees and officers of Bridg customers, as well as board member(s) of Cardlytics, the company that ultimately acquired Bridg.” (FAC ¶ 38.) Plaintiff alleges that “[h]ad Mr. Chen known…that the shares were to be transferred to Defendant Jain’s sister, friends, and other business associates, Plaintiff would not have sold the shares at the price recommended by Defendant Jain, or at the very least would have understood that Defendant Jain had a serious conflict of interest that may affect the accuracy of his valuation.” (Id. ¶ 42.)

The FAC, however, does not allege that Plaintiff is basing its claims on any misrepresentation contained in any particular provision(s) of the Stock Transfer Agreement. Plaintiff makes this allegation for the first time in its opposition. Indeed, if under Delaware law, the basis for the claims can only arise from that agreement itself—and not from any extra-contractual misrepresentations—it is important to plead as much. Moreover, like California, Delaware requires that fraud claims be pled with particularity, including “(1) the time, place, and contents of the false representation; (2) the identity of the person making the representation; and (3) what the person intended to gain by making the representations.” (Abry Partners V, L.P., supra, 891 A.2d at 1050.)

Accordingly, to the extent Plaintiff’s claims are based on alleged misrepresentations occurring outside of the contract, those attempts are barred by the anti-reliance provision in which Plaintiff agreed it would “not rely on promises and representations outside of the agreement.” (Abry Partners V, L.P., supra, 891 A.2d at 1057.) However, to the extent the claims may be based on alleged misrepresentations expressly made within the four-corners of the Stock Transfer Agreement—namely, those in paragraphs 3(b) and 3(e)—Defendants have not shown that those claims are barred by the anti-reliance provision. Be that as it may, the FAC does not allege that the causes of action are based on any provisions of the Agreement itself. For that reason, the demurrer is SUSTAINED in its entirety.

Plaintiff’s other arguments asserting that the anti-reliance provision cannot apply are based on a selective misreading of the Stock Transfer Agreement, or an attempt to impart ambiguity where none exists. Plaintiff argues that “Jain is not a party to the ‘anti-reliance’ provision,” and therefore cannot rely on it. (Opp. 8: 4-5.) He invokes a partial reading of paragraph 7, but in doing so, omits the last sentence. That paragraph provides, in full:

7. Company Consent. The Company fully consents to the transfer of the Shares under this Agreement and the assignment of all rights of Transferor with respect to the Shares and the Company hereby waives the restrictions on transfer and rights of first refusal it may have with respect to the transfer and sale of the Shares pursuant to this Agreement. The Company is a party to this Agreement solely for purposes of Section 7 and makes no representation or warranty hereunder; provided, that nothing in this Section 7 shall in any way limit the Company’s right to claim any benefits inuring to it under any other sections of this Agreement.

In context, this paragraph provides that Bridg is a party to the agreement only for purposes of consenting to it, but also that Bridg may “claim any benefits inuring to it under any other sections of this Agreement.” (Id.) It seems that one such “benefit” is the right to invoke the “anti-reliance” provision.

(f) Transferor has received all the information Transferor considers necessary or appropriate for deciding whether to enter into this Agreement and perform the obligations set forth herein. Transferor has had an opportunity to ask questions and receive answers regarding the business, properties, prospects and financial condition of the Company. Transferor hereby acknowledges that any future sale or purchase of shares of the Company’s capital stock could be at a premium or a discount relative to the Purchase Price. Transferor acknowledges and agrees that (i) the Purchase Price represents fair consideration and at least reasonably equivalent value for the Shares; (ii) the Purchase Price is speculative and the value of the Shares may significantly appreciate or depreciate over time; and (iii) Transferor is foregoing the right to sell the Shares at a possibly higher price in the future and to receive the benefit of any future appreciation, if any, in the value of the Shares.

Again, Plaintiff selectively recognizes that it “had an opportunity to ask questions and receive answers”—answers which it says were unsatisfactory or misleading. But it ignores that it also “acknowledge[d] that any future sale or purchase of shares of the Company’s capital stock could be at a premium or a discount relative to the Purchase Price,” “that (i) the Purchase Price represents fair consideration and at least reasonably equivalent value for the Shares,” that “the Purchase Price is speculative,” and that it was “foregoing the right to sell the Shares at a possibly higher price in the future…” (Id.)

To summarize, this court finds that (1) Delaware law governs this dispute; (2) that the anti-reliance provision bars claims based on alleged misrepresentations outside of the four corners of the Stock Transfer Agreement; and (3) that the FAC fails to plead with particularity any misrepresentations or otherwise actionable conduct based on express provisions of the Stock Transfer Agreement itself.

Accordingly, Defendant Amit Jain’s Demurrer to the Complaint is SUSTAINED in full. Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) Plaintiff has demonstrated this possibility at the hearing in its opposition. However, leave is granted as consistent with this ruling, to wit, that Plaintiff is limited to any causes of action to the extent the claims may be based on alleged misrepresentations expressly made within the four-corners of the Stock Transfer Agreement.

in the hopes that that party can simply “piggyback” on the initial moving party’s pleadings. Of course, filing a notice of joinder is certainly allowed. However, the applicable law still requires that any party attempting to join a pending motion still must file a memorandum of points and authorities, with an appropriate analysis as to the reasons why the same relief should be granted to the joining party.

It is well settled that a notice of joinder must be filed pursuant to the same deadlines as the papers for which the joinder was made. (See, e.g., Lerma v. County of Orange (2004) 120 Cal.App.4th 709, 719; see also Grieves v. Superior Court (1982) 157 Cal.App.3d 159, 163 n.3 [noting that “the trial court treated [defendant’s] notice of joinder as a motion”].) (See also, Cal. Rules of Ct., rules 3.1113 (a) and (b))

A party can join another party's motion by filing a notice of joinder. To be effective, the joinder generally must (1) be timely, (2) establish the necessary factual foundation to support the motion, and (3) request affirmative relief on behalf of the joining party. (See, e.g., Barak v. Quisenberry Law Firm (2006) 135 Cal.App.4th 654, 661; Decker v. U.D. Registry, Inc. (2003) 105 Cal. App. 4th 1382, 1391 [joinder is insufficient where it "is not in the form of a motion and does not present any evidence or argument"].)

Although the notice of joinder was timely filed by Defendants Alliance Group Ventures, LLC and Chirag Patil, these “joining” parties have not included their own separate and required memorandum of points and authorities, containing an analysis from their respective standpoints. As such, there is no legal basis on which the Court is to conclude that it is similarly situated to the demurring party with respect to the issues raised in that demurrer. Accordingly, the joinder is DENIED.

Judge of the Superior Court

FN 1 - The Agreement defines Dailygobble, Inc. as “Transferor”, Alliance Group Ventures, LLC as “Transferee,” and Bridg, Inc. as the “Company”.

FN 2 - Plaintiff erroneously refers to this section as paragraph “3(f).” Paragraph “3(f)” provides only that “Transferee is an accredited investor as defined in Rule 501(a) of Regulation D of the Securities Act.”

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.