Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_12-cv-01536/USCOURTS-cand-5_12-cv-01536-15/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 28:1332 Diversity-Stockholders Suits

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

VIASPHERE INTERNATIONAL , INC,

Plaintiff,

v.

ARAM VARDANYAN,

Defendant.

Case No. 12-cv-01536-HRL

MEMORANDUM OF DECISION ON 

EQUITABLE CLAIMS FOR RELIEF

Re: Dkt. Nos. 226, 227

Following a jury verdict in favor of plaintiff on its claims for intentional misrepresentation, 

negligent misrepresentation, conversion, breach of fiduciary duty, breach of the implied covenant 

of good faith and fair dealing, and breach of contract, plaintiff now moves the court to find in its 

favor on its two equitable claims of rescission and constructive trust. Dkt. No. 226 (Motion). 

Defendant opposes. Dkt. No. 227 (Opp’n). For the reasons explained below, the court finds in 

plaintiff’s favor on the rescission claim and in defendant’s favor on the constructive trust remedy.

I. BACKGROUND

Plaintiff Viasphere International, Inc. (“Viasphere”) sued its former employee, director, 

and shareholder, defendant Aram Vardanyan (“Vardanyan”) alleging eight claims. The basis for

Viasphere’s complaint was that Vardanyan did not work full time for Viasphere as he had 

promised, and misappropriated company funds and resources for his own use. See Dkt. No. 15 

(First Amended Complaint). 

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Specifically, Viasphere entered into two Stock Option Agreements with Vardanyan, and 

Vardanyan agreed to purchase 1,713,000 shares of Viasphere common stock at a price of $0.001 

per share, for a total of $1,713.00. FAC at ¶¶ 7-8. The Stock Option Agreements were contingent 

on Vardanyan being a “full time employee,” and Vardanyan was appointed General Director of 

the Viasphere Technopark, a commercial development located in Armenia. Id. at ¶¶ 10-11. 

While employed by Viasphere, Vardanyan allegedly worked on his own company, Barva, 

Ltd., which conflicted with his duties towards Viasphere, used Viasphere “employees, materials, 

and resources” to build a personal residence, engaged in self-dealing with family members, and 

various other transgressions. FAC at ¶ 18. 

After a two-week trial, a jury returned a verdict in favor of Viasphere on all six counts, 

including finding that the statute of limitations on Viasphere’s claims had not run. The jury 

awarded compensatory damages of $72,500 and punitive damages of $1,001,713. 

Viasphere now seeks entry of judgment on its two remaining equitable claims, rescission 

and constructive trust. 

II. CLAIM FOR RESCISSION

Plaintiff seeks to rescind the Stock Option Agreements in exchange for returning the 

purchase price of $1,713 to defendant. Defendant’s argument in opposition to granting judgment 

on the claim for rescission is that it conflicts with the jury’s verdict on the breach of contract 

claim. 

When one party has been injured by a breach of contract and she 

either lacks the ability or the desire to keep the contract alive, she 

can choose between two different remedies. She can treat the 

contract as rescinded and recover damages resulting from the 

rescission. Or she can treat the contract as repudiated by the other 

party and recover damages to which she would have been entitled 

had the other party not breached the contract or prevented her 

performance. An action for rescission is based on the disaffirmance 

of the contract and an action for damages for breach of contract is 

based on its affirmance. An action for rescission and an action for 

breach of contract are alternative remedies. The election of one bars 

recovery under the other.

Akin v. Certain Underwriters At Lloyd’s London, 140 Cal. App. 4th 291, 296 (2006) (internal 

citations omitted). 

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Although defendant is correct that plaintiff cannot recover both breach of contract damages 

and rescind the contract, plaintiff is entitled to elect his remedy at any time prior to judgment. See 

May v. Watt, 822 F.2d 896, 900-01 (9th Cir. 1987) (“[Plaintiff] has not waived his right to seek 

quantum meruit recovery by electing to submit a contract damage theory to the jury . . . he was not 

required to make an election between the relevant contract theories he advocated (breach of 

contract and rescission) prior to a jury verdict.” (citing North Am. Graphite Corp. v. Allan, 184 

F.2d 387, 389 (D.C. Cir. 1950)); see also Dopp v. HTP Corp., 947 F.2d 506, 515 (1st Cir. 1991) 

(“Generally, an election between inconsistent remedies is made after a verdict is entered but prior 

to the entry of judgment.” (internal quotation and citation omitted)).

As the Restatement (Second) of Contracts notes, if defendant can show a material reliance 

on plaintiff’s supposed election for breach of contract, plaintiff may be estopped from electing 

rescission. § 378 (Election Among Remedies) (“If a party has more than one remedy under the 

rules stated in this Chapter, his manifestation of a choice of one of them by bringing suit or 

otherwise is not a bar to another remedy unless the remedies are inconsistent and the other party 

materially changes his position in reliance on the manifestation.”). Here, however, no showing of 

detrimental reliance was made or proferred by Vardanyan.

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Accordingly, the court finds in plaintiff’s favor on the rescission claim. 

III.CLAIM FOR IMPOSITION OF CONSTRUCTIVE TRUST

Plaintiff also seeks an order “requiring Vardanyan to hold the fruits of all monies 

wrongfully converted, in trust for Viasphere.” Mot. at 2. Defendant opposes primarily on the basis 

that money damages are an adequate remedy, such that the court should not grant equitable relief. 

Preliminarily, the court notes that a constructive trust is not a cause of action but rather an 

equitable remedy. Stansfield v. Starkey, 220 Cal. App. 3d 59, 76 (1990); 13 Witkin, Cal. 

Procedure, Trusts, § 319 (2005). “A constructive trust is an involuntary equitable trust created by 

 1 The court also agrees with plaintiff that the rescission claim is not time barred, as shown by the 

jury’s verdict on the legal claims, which found that Vardanyan’s wrongful conduct occurred 

before February 2008 but that Viasphere could not have reasonably discovered the harm prior to 

February 2008. Mot. at 7-8; Verdict at 4.

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operation of law as a remedy to compel the transfer of property from the person wrongfully 

holding it to the rightful owner.” Burlesci v. Peterson, 68 Cal.App.4th 1062, 1069 (1998). 

Accordingly, the court cannot grant “judgment” in favor of Viasphere on the claim for 

constructive trust, but may order that a constructive trust be imposed as a form of equitable relief. 

Id. (constructive trust may be a remedy for conversion). 

Second, the court notes that the “adequate remedy at law” doctrine does not typically apply 

to claims for constructive trust. See Heckmann v. Ahmanson, 168 Cal. App. 3d 119, 214 (1985) 

(“In California, as in most jurisdictions, an action in equity to establish a constructive trust does 

not depend on the absence of an adequate legal remedy.”). Thus, defendant’s primary argument 

against awarding equitable relief is not persuasive. 

Defendant’s second argument is that plaintiff has failed to identify the property that would 

be subject to the trust. In order to establish a constructive trust, the plaintiff must show (1) a res, 

property or some interest in property, (2) the plaintiff’s right to that res, and (3) the defendant’s 

acquisition of the res by some wrongful act. See Calistoga Civic Club v. City of Calistoga, 143 

Cal. App. 3d 111, 116 (1983). Here, the court agrees that it is not clear what the res of the trust 

would be. 

A constructive trust requires “money or property identified as belonging in good 

conscience to the plaintiff [which can] clearly be traced to particular funds or property in the 

defendant’s possession.” Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1150 

(2003) (quoting Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213 (2002)). A 

constructive trust is available where the specific res or funds can be identified and attached, “but 

not where the plaintiff seeks to impose general personal liability as a remedy for the defendant’s 

monetary obligations.” Honolulu Joint Apprenticeship and Training Committee of United Ass’n 

Local Union No. 675 v. Foster, 332 F.3d 1234, 1238 (9th Cir. 2003). 

Plaintiff requests that Vardanyan hold in trust “the revenue from the Zenith System, the 

rents collected and personnel and resources commandeered.” Mot. at 10. Plaintiff also appears to 

propose that the trust res could be Vardanyan’s shares of Viasphere stock. Pl. Reply at 2. If the res 

were the stock, it is not clear how Vardanyan derived “the revenue from the Zenith System, the 

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rents collected and personnel and resources” from merely holding the Viasphere stock. To the 

extent that the res is simply the amount of the verdict, courts generally do not simply order a 

constructive trust over the amount of the verdict. Honolulu, 332 F.3d at 1238. Viasphere does not 

propose any specific amount, funds, accounts, or other property that would form the body of the 

trust. Viasphere thus fails to meet the first requirement for imposition of a constructive trust, a res 

or property that could form the body of the trust. Calistoga Civic Club, 143 Cal. App. 3d at 116. 

Accordingly, the court declines to order a constructive trust over the amount of the jury 

verdict or over the Viasphere stock. The import of declining to impose a constructive trust remedy 

is minimal, as Viasphere may undo the issuance of the shares to Vardanyan by electing to recover 

under the rescission claim. 

IV.ORDER

For the reasons explained above, the court finds in plaintiff’s favor on the rescission claim 

and in defendant’s favor on the constructive trust remedy. Plaintiff shall file a proposed judgment 

within 14 days of this Order, indicating whether it wishes to recover damages or rescind the Stock 

Option Agreements. If plaintiff elects to rescind the Stock Option Agreements, plaintiff shall also 

file proposed findings of fact and conclusions of law related to the rescission claim. Defendant 

may file objections to the proposed judgment and, if applicable, findings of fact and conclusions 

of law, within 7 days of plaintiff’s filing, not to exceed 5 pages. 

IT IS SO ORDERED.

Dated: February 4, 2015

______________________________________

HOWARD R. LLOYD

United States Magistrate Judge

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5:12-cv-01536-HRL Notice has been electronically mailed to:

Ara Aroustamian ara@lawaa.com

Armen Shaghzo as@shaghzolaw.com

Fenn C. Horton , III fhorton@pahl-mccay.com, drinnert@pahl-mccay.com

Helene Anastasia Simvoulakis hsimvoulakis@pahl-mccay.com, drinnert@pahl-mccay.com

Sonia Sanjit Shah sshah@pahl-mccay.com

Stephen Donald Pahl spahl@pahl-mccay.com, drinnert@pahl-mccay.com, fhorton@pahlmccay.com, sshah@pahl-mccay.com, tmeek@pahl-mccay.com

Varand Vartanian Varand@lawaa.com

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