Viasphere International , Inc v. Vardaryan
Filing
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ORDER by Magistrate Judge Howard R. Lloyd denying 19 defendant's Motion to Dismiss the First Amended Complaint. 9/11/2012 motion hearing is vacated. (hrllc2, COURT STAFF) (Filed on 8/30/2012)
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*E-FILED: August 30, 2012*
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NOT FOR CITATION
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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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For the Northern District of California
United States District Court
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VIASPHERE INTERNATIONAL, INC.,
Plaintiff,
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No. C12-01536 HRL
ORDER DENYING DEFENDANT’S
MOTION TO DISMISS THE FIRST
AMENDED COMPLAINT
v.
ARAM VARDANYAN, an individual,
[Re: Docket No. 19]
Defendant.
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Before the court is defendant Aram Vardanyan’s Fed. R. Civ. P. 12(b)(6)1 motion to
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dismiss the First Amended Complaint (FAC). Plaintiff Viasphere International, Inc.
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(Viasphere) opposes the motion. All parties have expressly consented that all proceedings in
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this matter may be heard and finally adjudicated by the undersigned. 28 U.S.C. § 636(c); FED.
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R. CIV. P. 73. The matter is deemed suitable for determination without oral argument, and the
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September 11, 2012 hearing is vacated. CIV. L.R. 7-1(b). Upon consideration of the moving
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and responding papers, the court denies the motion.
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Although defendant did not reference Fed. R. Civ. P. 12(b)(6) in his motion,
he essentially challenges the First Amended Complaint on the ground that plaintiff has failed
to plead sufficient facts showing that it is entitled to relief.
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BACKGROUND
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The following background facts are drawn from the FAC’s allegations:
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Viasphere is a California corporation with its principal place of business in Santa Clara
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County. Viasphere’s wholly-owned subsidiary, Viasphere Technopark CJSC (Technopark), is a
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real estate development located in Yerevan, Armenia. Defendant Vardanyan is an Armenian
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citizen domiciled in Yerevan. He was the General Director of the Technopark and a member of
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Viasphere’s Board of Directors.
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Viasphere and Vardanyan entered into two written agreements—i.e., “2001 Stock
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Option PLAN, Stock Option Agreements-Early Exercise”—for the purchase of Viasphere
common stock. The first, entered on or about April 14, 2001, provided for the purchase of one
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For the Northern District of California
United States District Court
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million shares of Viasphere common stock at $0.001 per share for a purchase price of $1,000.
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The second, entered on or about November 2, 2002, concerned the purchase of 713,000 shares
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of plaintiff’s common stock at $0.001 per share for a total purchase price of $713. (FAC ¶¶ 7-
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8). Viasphere says that, under the terms of those agreements, the percentage amount of shares
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and the purchase price were based on Vardanyan’s agreement to commit to full-time
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employment with the company. Specifically, plaintiff says that Paragraph 1 of both agreements
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provides, in pertinent part:
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Vesting Schedule
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This Option will be exercisable immediately, in whole or in part,
conditioned upon Optionee entering into employment of the
Company as a full time employee . . ..
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(Id. ¶ 10). The FAC further alleges that Vardanyan was made General Director of the
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Technopark (a full-time position) and subsequently was appointed to Viasphere’s Board of
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Directors based on his express representations and promises that he would commit full time to
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Viasphere and would not have any competing interests or outside activities that would interfere
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with his duties to the company. (Id. ¶¶ 11-13).
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According to plaintiff, beginning in 2002 and continuing through February 2011,
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Vardanyan made several trips to Santa Clara County to meet with other Viasphere directors.
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During those trips, Vardanyan reportedly told the company that he was working full time for the
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Technopark and had no competing businesses or interests that would interfere or conflict with
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his duties and obligations to Viasphere; that certain spaces in the Technopark had not been
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leased and were not generating income; that he was not engaged in self-dealing and had no
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personal interest in the negotiations pertaining to the sale of retail space; and that he was
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negotiating with a third party for the renovation of certain of the Technopark’s retail space (in
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sum, the third party would acquire certain space, use its own resources to renovate it, and then
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return a portion of the space to Viasphere). (Id. ¶ 17).
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Viasphere says it later learned that, contrary to his representations, Vardanyan had not
also lied about certain matters pertaining to the Technopark. To sum the allegations of the
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For the Northern District of California
only been engaged in a number of acts of self-dealing at the company’s expense, but that he
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United States District Court
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complaint, plaintiff says that (among other things) Vardanyan (1) worked full time for his
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personal business, Barva, Ltd., rather than for Viasphere; (2) used Viasphere employees,
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materials, and resources for his own business purposes, without Viasphere’s knowledge or
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consent; (3) used Viasphere’s employees, materials, and resources to build his personal
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residence in Armenia; (4) personally occupied commercial lease space in the Technopark for his
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own use and that of his companies; (5) allowed his family members to occupy commercial
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space in the Technopark, without paying fair market rent; and (6) leased certain spaces in the
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Technopark to entities in which he had a personal interest, kept the cash rental income for
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himself, and did not report it to the Technopark or to Viasphere. As for the third-party
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negotiations for the renovation of certain retail space in the Technopark, plaintiff says that it
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discovered that there actually was no such third party, and that Technopark employees
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performed the renovation work on the retail spaces—all while on Viasphere’s payroll and under
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Vardanyan’s supervision—without the company’s knowledge or consent. (Id. ¶ 18).
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Given Vardanyan’s professed commitment to Viasphere, the company says it was
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induced to, among other things, enter into the 2001 and 2002 stock purchase agreements;
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appoint Vardanyan General Director of the Technopark; appoint him to the Board of Directors;
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agree to transfer 75% of the Technopark’s retail spaces to Vardanyan; grant additional shares of
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common stock, as well as Series A Preferred Stock; and to grant monies that were actually used
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to further Vardanyan’s personal interests and those of his family. (Id. ¶ 19).
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Viasphere filed this action in state court, asserting the following eight claims for relief:
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(1) intentional misrepresentation; (2) negligent misrepresentation; (3) conversion; (4) breach of
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fiduciary duty; (5) breach of the implied covenant of good faith and fair dealing; (6) imposition
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of a constructive trust; (7) breach of contract; and (8) rescission based on fraud. Viasphere
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seeks at least $1 million in damages. Vardanyan removed the matter here, asserting diversity
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jurisdiction, 28 U.S.C. § 1332.
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Defendant’s motion to dismiss the complaint was granted in part and denied in part.
The court concluded that plaintiff’s substantive allegations were sufficiently pled. But, insofar
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United States District Court
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as Viasphere’s claims appeared to be based on events stretching back about a decade, the court
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found that Viasphere needed to plead more specific facts to plausibly support any delayed
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accrual of its claims.
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Vardanyan now moves to dismiss the FAC, arguing that plaintiff has not pled sufficient
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facts to support the tolling of the applicable statute of limitations. For the reasons stated below,
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the motion is denied.
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LEGAL STANDARD
A motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) tests
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the legal sufficiency of the claims in the complaint. “Dismissal can be based on the lack of a
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cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal
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theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). In such a
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motion, all material allegations in the complaint must be taken as true and construed in the light
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most favorable to the claimant. See id. However, “[t]hreadbare recitals of the elements of a
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cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal,
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129 S. Ct. 1937, 1949 (2009). Moreover, “the court is not required to accept legal conclusions
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cast in the form of factual allegations if those conclusions cannot reasonably be drawn from the
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facts alleged.” Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994).
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Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the
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claim showing that the pleader is entitled to relief.” This means that the “[f]actual allegations
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must be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v.
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Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted)
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However, only plausible claims for relief will survive a motion to dismiss. Iqbal, 129 S.Ct. at
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1950. A claim is plausible if its factual content permits the court to draw a reasonable inference
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that the defendant is liable for the alleged misconduct. Id. A plaintiff does not have to provide
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detailed facts, but the pleading must include “more than an unadorned, the-defendant-
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unlawfully-harmed-me accusation.” Id. at 1949.
Generally, the court may not consider any material outside the pleadings.2 However,
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For the Northern District of California
United States District Court
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documents appended to the complaint or which properly are the subject of judicial notice may
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be considered along with the complaint when deciding a Fed. R. Civ. P. 12(b)(6) motion. See
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Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir.
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1990); MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986).
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While leave to amend generally is granted liberally, the court has discretion to dismiss a
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claim without leave to amend if amendment would be futile. Rivera v. BAC Home Loans
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Servicing, L.P., 756 F. Supp.2d 1193, 1997 (N.D. Cal. 2010) (citing Dumas v. Kipp, 90 F.3d
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386, 393 (9th Cir. 1996)).
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DISCUSSION
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The “discovery rule” is an exception to the general rule of accrual of a claim for relief
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and “assumes that all conditions of accrual of the action—including harm—exist, but
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nevertheless postpones commencement of the limitation period until the plaintiff discovers or
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should have discovered all facts essential to his cause of action.” Camsi IV v. Hunter Tech.
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Corp., 230 Cal.App.3d 1525, 1536, 282 Cal.Rptr. 80 (1991) (quotations and citations omitted).
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That is, the applicable limitations period does not begin to run until “plaintiff either (1) actually
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discovered his injury and its negligent cause or (2) could have discovered injury and cause
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Defense counsel has submitted a declaration addressing matters that are either
irrelevant or unnecessary to the disposition of the instant motion. That declaration will not
be considered here.
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through the exercise of reasonable diligence.” Id.; see also California Sansome Co. v. U.S.
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Gypsum, 55 F.3d 1402, 1406 (9th Cir.1995) (the “discovery rule” tolls the limitations period
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“until the plaintiff is on inquiry notice of its injury (and its wrongful cause).”). “Subjective
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suspicion is not required.” Mortkowitz v. Texaco, Inc., 842 F. Supp. 1232, 1238 (N.D. Cal.
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1994) (citing Mangini v. Aerojet-General Corp., 230 Cal. App.3d 1125, 1150, 281 Cal. Rptr.
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827 (1991)). “If a person becomes aware of facts which would make a reasonably prudent
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person suspicious, he or she has a duty to investigate further and is charged with knowledge of
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matters which would have been revealed by such an investigation.” Id. “Thus, the rule protects
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the plaintiff who is ‘blamelessly ignorant’ of his cause of action.” Id.
To invoke the discovery rule, a plaintiff must plead facts showing (1) the time and
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manner of discovery and (2) the inability to have made earlier discovery despite reasonable
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diligence. Camsi IV, 230 Cal.App.3d at 1536, 282 Cal.Rptr. 80 (1991). Mere conclusory
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assertions that delayed discovery was reasonable are insufficient. Id. at 1536-37.
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The FAC alleges that Viasphere did not become aware of defendant’s
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misrepresentations until late 2010 and early 2011 because Vardanyan took steps to actively
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conceal his misdeeds, including:
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Instructing Technopark employees not to disclose to Viasphere representatives
who visited or contacted the Technopark, that Technopark employees were
working on defendant’s personal residence—and threatening the employees with
termination or financial repercussions if they did;
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Instructing Technopark employees not to disclose to Viasphere representatives
who visited or contacted the Technopark that Technopark employees, and not
third parties, were performing 100% of the renovations to the Technopark’s
retail shops;
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Instructing Technopark employees who answered Vardanyan’s phone to mislead
Viasphere’s representatives as to defendant’s whereabouts and activities;
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Maintaining two separate sets of records for the Technopark, and presenting only
one record (containing false financial statements and reports and other
misleading information) to Viasphere;
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Attending shareholders’ meetings and meetings of Viasphere’s Board of
Directors and failing to disclose (or affirmatively misrepresenting) the true
nature of his activities at the Technopark;
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Lying to Viasphere’s representatives, during their visits to the Technopark, about
his activities and hiding evidence of his allegedly improper activities;
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Insisting that Viasphere’s representatives notify him of their visits to the
Technopark well in advance and to visit only when he personally was present;
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Keeping Viasphere’s representatives busy with tasks unrelated to the
Technopark in order to minimize the time those representatives spent at the
Technopark during visits.
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(FAC ¶ 20). According to the FAC, plaintiff discovered the alleged fraud when, in late 2010,
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Viasphere asked Vardanyan to produce complete financial statements for an upcoming February
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5, 2011 shareholders’ meeting. Defendant was also asked to make a presentation about the
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present and future activities of the Technopark. Upon review of the documents Vardanyan
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provided, Viasphere claims that its Chief Financial Officer found inconsistencies between the
documents and Vardanyan’s prior representations to the company. The FAC further alleges that
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when Vardanyan was unable to satisfactorily explain the inconsistencies, Viasphere sent two of
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its officers to the Technopark, at which time plaintiff says it discovered that all of Vardanyan’s
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prior representations were false. This led to the termination of Vardanyan’s employment in late
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February 2011. (FAC ¶¶ 21-27).
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For pleading purposes, the FAC alleges sufficiently specific facts showing the time and
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manner of Viasphere’s discovery of the alleged fraud, as well as plaintiff’s inability to have
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made earlier discovery despite reasonable diligence. Defendant argues that the FAC is deficient
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because it does not plead facts establishing that plaintiff actually exercised due diligence. Here,
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he says that Viasphere knew or should have known about the alleged fraud and therefore had a
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duty to investigate much sooner than it did. And, because it did nothing about the alleged
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misrepresentations until 2011, Vardanyan contends that, for purposes of tolling the limitations
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period, Viasphere could not have justifiably relied on his alleged misrepresentations.
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Defendant, however, points to no allegations in the FAC suggesting that Viasphere had notice
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of the alleged fraud earlier than plaintiff says it did.
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Vardanyan complains that plaintiff has not produced evidence supporting its allegations.
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He also argues that he will be prejudiced by having to defend against what, he maintains, are
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stale claims. Here, he hypothesizes that evidence may have been lost over the years and that he
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will therefore be hampered in preparing a proper defense.
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of the statute of limitations where it would be manifestly unjust to deprive a plaintiff of a cause
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of action before he is aware he has been injured.” Mortkowitz, 842 F. Supp. at 1150 (quotations
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and citation omitted). Suffice to say that the court is not now deciding whether Viasphere’s
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claims are tolled. And, this is not the time for the presentation of evidence.3 The only question
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before the court on the instant motion is whether the FAC alleges sufficient facts which, if
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proven, would entitle plaintiff to relief. For present purposes, all material allegations in the
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FAC are deemed true. And, construing the allegations in a light most favorable to plaintiff, the
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FAC on its face indicates that, because of defendant’s efforts to conceal his conduct, Viasphere
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had no reason to suspect that anything was wrong until the alleged events that unfolded in late
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“The ‘discovery rule’ is meant to ameliorate the harshness of the traditional application
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United States District Court
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2010 and early 2011. Whether plaintiff will actually succeed in establishing a claim for relief
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remains to be seen. On the record presented, however, the court finds that plaintiff has
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succeeded in pleading sufficient facts to avoid dismissal, at least for now.
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Based on the foregoing, defendant’s motion to dismiss is denied.
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SO ORDERED.
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Dated: August 30, 2012
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HOWARD R. LLOYD
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UNITED STATES MAGISTRATE JUDGE
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If defendant has evidence that he believes will show that tolling is not
warranted and that he is entitled to judgment, he certainly may present that evidence at an
appropriate time and on an appropriate motion later.
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5:12-cv-01536-HRL Notice has been electronically mailed to:
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Ara Aroustamian
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Helene Anastasia Simvoulakis
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Stephen Donald Pahl
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Counsel are responsible for distributing copies of this document to co-counsel who have not
registered for e-filing under the court’s CM/ECF program.
ara@lawaa.com
hsimvoulakis@pahl-mccay.com
spahl@pahl-mccay.com, tmeek@pahl-mccay.com
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