Case Name: Sethi v. Kohli, et al.
Case No.: 1-01-CV-801293
According to the allegations of the second amended complaint (“SAC”), plaintiff Ravinder S. Sethi (“Plaintiff”) and defendants Ujjal Kohli (“Kohli”) and Nicholas Mitsakos (“Mitsakos”) agreed to form joint enterprise by jointly using their knowledge, contacts and resources to identify, evaluate and ultimately invest in emerging technology companies. (See SAC, ¶ 13.) On February 10, 1998, the parties formed MKS Ventures, LLC (“MKS Ventures”), and each of them were managing members of the company with a 33⅓ % interest in the company. (See SAC, ¶¶ 14, 33.) At Plaintiff’s suggestion, MKS Ventures invested in an emerging company, Maverick Networks, Inc. (See SAC, ¶ 15.) However, thereafter, Kohli and Mitsakos exerted undue pressure on Plaintiff to temporarily withdraw from MKS Ventures, claiming that Plaintiff’s execution of a Noncompetition Agreement as an employee of FORE Systems, Inc. presented the appearance of a potential conflict with Plaintiff’s investment in Maverick through his ownership interest in MKS Ventures, despite the fact that Plaintiff’s ownership interest in MKS Ventures and its investment in Maverick Networks did not violate the terms of the FORE Systems Noncompetition Agreement, and Plaintiff’s affiliation with FORE Systems and MKS Ventures did not create an actual conflict of interest that required Plaintiff’s withdrawal from MKS Ventures. (See SAC, ¶¶ 16-17.) Kohli and Mitsakos promised that if Plaintiff would agree to temporarily withdraw, Plaintiff would be permitted to rejoin MKS Ventures in 6-12 months after the appearance of the potential conflict waned, and that Plaintiff would share equally in the benefits and proceeds of the Maverick investment as well as in all future investments. (See SAC, ¶¶ 16, 34.)
Shortly after Plaintiff agreed to withdraw from MKS Ventures, Maverick announced that it was being purchased by Broadcom Corporation, and MKS Ventures eventually received 104,000 shares in Broadcom. (See SAC, ¶¶ 18-19, 37.) Kohli and Mitsakos, however, refused to honor their oral agreement to have Plaintiff return to MKS Ventures, and refused to provide Plaintiff with his share in the Broadcom Corporation stock. (See SAC, ¶¶ 19, 43.) Kohli and Mitsakos additionally represented that Plaintiff was entitled to an 80 percent ownership interest in MKS Ventures I-B, LLC (“MKS I-B”) and a tax indemnity for the delay in providing him with his share in the Broadcom stock, representing that such interest would provide him with a $6 million interest. (See SAC, ¶ 37.) However, the MKS I-B investments were never worth that much and Defendants refused to honor the agreement or fully compensate Plaintiff. (See SAC, ¶¶ 42-43.)
On September 29, 2016, Plaintiff filed the SAC, asserting the following causes of action against Kohli and Mitsakos:
1) Breach of oral contract;
2) Breach of written contract;
3) Breach of implied covenant of good faith and fair dealing;
4) Breach of fiduciary duty;
5) Fraud;
6) Accounting;
7) Constructive trust; and,
8) Conversion.
Defendant Kohli demurs to each cause of action of the SAC on the ground that they fail to state facts sufficient to constitute a cause of action.
Despite the Court’s multiple admonitions and orders to Plaintiff’s counsel to timely file any papers, on the late afternoon of December 12, 2016—a mere six court days prior to the hearing—Plaintiff’s counsel filed an opposition to the demurrer in violation of Code of Civil Procedure section 1005, subdivision (b). As a result, the Court disregards Plaintiff’s opposition, but considers this demurrer based solely on the moving papers and the allegations of the SAC.
First cause of action for breach of contract
Kohli demurs to the first cause of action, asserting that it fails to allege that Defendants received any consideration for Sethi’s withdrawal from MKS Ventures or MKS Ventures I-B, and that Sethi has a contractual right to Kohli’s advisory stock. However, “a general demurrer admits the truth of all material factual allegations in the complaint…the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court….” (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496.) The first cause of action alleges that Plaintiff was not obliged to withdraw from MKS Ventures—even temporarily—but, in consideration for the agreement to do so, Plaintiff was promised the sharing of all proceeds and assets received through the Maverick investment, as well as future investments by the company and the ability to rejoin MKS Ventures within 6-12 months. (See SAC, ¶ 34.) Kohli contends that “the SAC alleges that Sethi would violate his Noncompetition Agreement as an employee of FORE Systems if Sethi invested in Maverick.” (See Def.’s memorandum of points and authorities in support of demurrer to SAC, pp. 5:25-28, 6:1-22.) However, it is clear that this interpretation is contradictory to the explicit allegations of the SAC “that Plaintiff’s ownership interest in MKS Ventures and its investment in Maverick Networks did not violate the terms of the FORE Systems Noncompetition Agreement, and Plaintiff’s affiliation with FORE Systems and MKS Ventures did not create an actual conflict of interest that required Plaintiff’s withdrawal from MKS Ventures.” (SAC, ¶ 17.) Kohli’s argument that the first cause of action fails to state facts sufficient to constitute a cause of action for breach of oral contract for lack of consideration is without merit.
As to Kohli’s argument that the SAC fails to allege that Sethi has a contractual right to Kohli’s advisory stock, the argument is inconsequential. Regardless as to whether Plaintiff has a right to certain shares of Athene, Mirapoint or Nanya stock, the first cause of action alleges that he is entitled to a one-third interest in the total amount of Broadcom stock issued as a result of the Maverick Networks investment. “[A] demurrer cannot rightfully be sustained to part of a cause of action.” (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047.) Accordingly, the demurrer to the first cause of action is OVERRULED in its entirety.
Fifth cause of action for fraud
Kohli demurs to the fifth cause of action for fraud on the ground that it fails to allege facts with sufficient particularity, and fails to allege that Kohli made any false representation or believed that any representation was false, or that Plaintiff justifiably relied on the misrepresentation. The elements of a cause of action for fraud are: (1) a misrepresentation, which includes a concealment or nondisclosure; (2) knowledge of the falsity of the misrepresentation, i.e., scienter; (3) intent to induce reliance on the misrepresentation; (4) justifiable reliance; and (5) resulting damages. (Lazar v. Super. Ct. (Rykoff-Sexton, Inc.) (1996) 12 Cal. 4th 631, 638.) “Fraud actions are subject to strict requirements of particularity in pleading.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) The specificity requirement has two purposes: to apprise the defendant of certain definite accusations against him so that he can intelligently respond to them, and also to weed out nonmeritorious actions on the basis of the pleadings. (Id. at 216-17.) Minimally, a fraud cause of action must “allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Lazar, supra, 12 Cal.4th at 645.) “Less specificity is required when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy.” (Committee on Children’s Television, Inc., supra, 35 Cal.3d at 217.) If discovery would clear any confusion as to who made the representations and by what means, if the allegations of fraud are otherwise sufficiently detailed, defendant cannot persuasively complain that it misunderstands the fraud claim. (Charpentier v. Los Angeles Rams Football Co. (1999) 75 Cal.App.4th 301, 312.)
As to particularity of the allegations, Kohli contends that the SAC does not allege how, who, what and where the purported allegations were made. However, the SAC alleges that the representations were made orally, by both Kohli and Mitsakos, in August of 1998. The SAC alleges the substance of the misrepresentation. The SAC does not allege where the purported misrepresentations were made, but it is fairly clear that the parties are familiar with the purported facts supporting the allegations such that defendants cannot persuasively complain that it misunderstands the claim. The demurrer cannot be sustained on this ground.
Further, the SAC specifically alleges that Kohli’s representation was “false and misleading at the time they were made, and… that defendants did not intend to pursue a common enterprise for the equal benefit of the parties, but instead intended to usurp the benefits and advantages arising from the parties’ joint effort for themselves to the exclusion and detriment of Plaintiff… [and] that defendants did not intend to share equally in the proceeds and assets arising from the Maverick investment, or the other investments of MKS Ventures, L.L.C.” (SAC, ¶ 69.) The SAC also alleges that “Plaintiff was unaware of the falsity of defendants’ representations at the time they were made, and reasonably relied to his detriment on defendants representations….” (SAC, ¶ 70.) Kohli’s argument that the SAC does not allege such elements is without merit. The demurrer to the fifth cause of action for fraud is OVERRULED in its entirety.
Remaining causes of action
Kohli demurs to the remaining causes of action, asserting that he cannot possibly have had any role in the purported MKS I-B claims since the MKS I-B Operating Agreement states that a “Majority in Interest” requires an affirmative vote of members in which the majority of those voting constitute such a majority in interest. (See Def.’s memo, p.13:1-27.)
As an initial matter, the third, fourth, and seventh through ninth causes of action allege facts other than those pertaining to the MKS I-B agreement, and as “a demurrer cannot rightfully be sustained to part of a cause of action,” the demurrer cannot be sustained as to those causes of action.
As to the remaining causes of action, “[i]f the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 (also stating that “[w]e are not limited to plaintiffs’ theory of recovery in testing the sufficiency of their complaint against a demurrer, but instead must determine if the factual allegations of the complaint are adequate to state a cause of action under any legal theory”).) Here, the remaining causes of action allege a scheme or conspiracy to deprive Plaintiff of certain monies and is sufficient to constitute a cause of action such that Plaintiff is entitled to relief. Accordingly, the demurrer to the second cause of action is OVERRULED as to the second through fourth and sixth through ninth causes of action.
The Court will prepare the order.