Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_18-cv-00781/USCOURTS-casd-3_18-cv-00781-0/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1332fr Diversity-Fraud

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

AJAY ATUL DOSHI,

Plaintiff,

v.

ECOMMISSION SOLUTIONS, LLC; 

PAUL G. HOFFMANN; and DOES 1 

through 10, inclusive,

Defendants.

Case No.: 18-CV-781 JLS (BLM)

ORDER DENYING DEFENDANTS’ 

MOTION TO DISMISS 

PLAINTIFF’S FIRST AMENDED 

COMPLAINT

(ECF No. 7)

Presently before the Court is Defendants eCommission Solutions, LLC and Paul G. 

Hoffmann’s Motion to Dismiss Plaintiff’s Complaint (“Motion to Dismiss” or “MTD,” 

ECF No. 7). Also before the Court is Plaintiff Ajay Atul Doshi’s Response in Opposition 

(“Opp’n,” ECF No. 8) and Defendant’s Reply in Support of the Motion to Dismiss

(“Reply,” ECF No. 10.) The Court vacated oral argument and took the matter under 

submission without oral argument. ECF No. 9. Having considered the Parties’ arguments 

and the law, the Court rules as follows.

/ / /

/ / /

/ / /

/ / /

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BACKGROUND

Defendant eCommission Solutions, LLC (“ECS” or the “Company”) is a data 

management technology company that serves companies throughout the travel industry. 

ECF No. 6 (“FAC”) ¶ 8.1

 It is a limited liability company organized under the laws of New 

York. Id. ¶ 3. Defendant Paul G. Hoffman serves as the managing member of ECS, as 

well as its President and Chief Executive Officer. Id. ¶ 2.

Plaintiff Ajay Atul Doshi began working full-time for ECS in March 2015 to 

perform product engineering services as an independent contractor. Id. ¶¶ 9, 10. Mr. Doshi 

resided in San Diego County. Id. ¶ 9.

By letter dated August 11, 2015, and transmitted by e-mail, Mr. Hoffman offered 

Mr. Doshi the position of Vice President, Product Engineering at ECS. Id. ¶ 11; see also 

id. Ex. A (“Employment Agreement”). Attached to the email was an “Employment Offer” 

purporting to “set[] forth the material terms of the offer.” See generally FAC Ex. A. The 

offer included Mr. Doshi’s “Duties & Responsibilities” (which Mr. Doshi already had been 

performing since the inception of his employment with ECS as an independent contractor 

in March 2015), “Start Date,” and “Base Salary.” Id. ¶ 12; see also Employment 

Agreement. It also noted that Mr. Doshi’s “employment with ECS will be ‘at will[,’] 

meaning that either you or ECS may terminate the relationship at any time, though ECS 

will only do so for cause or in the event the Company’s financial condition requires it.” 

Employment Agreement. Pursuant to the terms of the offer, Mr. Doshi was also “eligible 

to earn an annual bonus,” which “will be determined using a number of weighted factors 

including . . . [t]he overall financial performance of the Company” and “[t]he discretion of 

the Executive Leadership Team and/or the Board of Directors.” Id.

/ / /

 

1 For purposes of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court “must 

accept ‘all factual allegations in the complaint as true and construe the pleadings in the light most favorable 

to the nonmoving party.’” Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1159 (9th Cir. 2012) (quoting 

Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1029–30 (9th Cir. 2009)).

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Finally, and most importantly for purposes of this motion, the offer purported to 

grant Mr. Doshi certain “Stock Options”:

Stock Options: You will be granted one hundred fifty thousand 

(150,000) stock options pursuant to this Agreement. The terms 

and conditions of the grant will be in accordance with the 

Company’s stock option plan and consistent with all other 

employees participating in the plan.

• The strike price will be determined once the Company’s 

new corporate and capital structures are put in place.

• The grant will be subject to the following vesting 

schedule:

o Twenty-five percent (25%) upon joining the 

Company;

o Twenty-five percent (25%) at the end of your first 

year of employment;

o Twenty-five percent (25%) at the end of your 

second year of employment; and

o Twenty-five percent (25%) at the end of your third 

year of employment.

 All non-vested options shall vest if there is a 

liquidity event before the vesting date(s).

 Any non-vested options shall be forfeited 

upon termination or resignation.

You will be eligible to earn additional grants over the duration of 

your employment. The option grant and associated vesting 

schedule are dependent on your continued employment with the 

Company.

Id.; see also FAC ¶ 13. In reliance on ECS’s promise of stock options, FAC ¶ 14, Mr. Doshi 

“AGREED AND ACCEPTED” the Agreement on August 21, 2015. See Employment 

Agreement.

Unbeknownst to Mr. Doshi, however, ECS did not have a stock option plan in place 

at the time it made the employment offer to Mr. Doshi. FAC ¶ 15. In fact, ECS never 

implemented any stock option plan for the benefit of Mr. Doshi or any of ECS’s other 

employees. Id. Mr. Hoffman was aware when he made the employment offer to Mr. Doshi 

that ECS did not have an employee stock option plan, but nevertheless presented the 

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employment offer to Mr. Doshi with the intent of inducing Mr. Doshi to accept the position 

of Vice President, Product Engineering at ECS. Id. Had Mr. Doshi been aware that there 

was no stock option plan and that he would not be receiving stock options or any other 

form of equity in ECS, he would not have accepted the position. Id.

Mr. Doshi first learned that ECS had no employee stock option plan in November 

2016. Id. ¶ 16. At that time, Mr. Doshi had been discussing with Mr. Hoffman the possible 

sale of ECS to Onyx CenterSource (“Onyx”). Id. Despite the fact that no employee stock 

option plan was in place, Mr. Hoffman promised Mr. Doshi that he would be “taken care 

of” following the putative sale of ECS by receiving a percentage of the sale proceeds. Id. 

When Mr. Doshi asked for an estimate, Mr. Hoffman implored Mr. Doshi to “trust him.” 

Id. Around January 19, 2017, as negotiations regarding the sale of ECS to Onyx moved 

forward, Mr. Hoffman again told Mr. Doshi that he would be taken care of financially 

following the closing of the sale. Id. ¶ 17.

In late January or early February 2017, however, Mr. Hoffman informed 

Mr. Doshi—contrary to his prior representations—that Mr. Doshi might not receive any 

compensation in connection with the sale of ECS to Onyx. Id. ¶ 18. Mr. Hoffman 

explained that although he was “trying to do right,” he was also “looking out for his 

retirement and his family.” Id. Nonetheless, Mr. Hoffman said that he would speak with 

Mr. Doshi following the closing of the sale to see whether something could be worked out. 

Id.

Shortly thereafter, Mr. Doshi informed Mr. Hoffmann that he was prepared to quit 

if ECS did not honor its agreement with him. Id. ¶ 19. Approximately one week later, 

Mr. Doshi received a letter stating he would receive some payment based on the amount of 

shares he had been promised in the Employment Agreement. Id.

The sale closed on May 4, 2017. Id. ¶ 20. At that time, Mr. Doshi continued to work 

for ECS—performing the exact same duties and responsibilities he had been performing 

since March 2015—but was reclassified as an independent contractor. Id. As a result, 

Mr. Doshi was forced to pay certain self-employment taxes. Id.

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After learning that the sale had closed, Mr. Doshi asked Mr. Hoffmann about the 

compensation he had been promised. Id. ¶ 21. Mr. Hoffmann informed Mr. Doshi that 

Mr. Doshi was not legally entitled to any compensation as a result of the sale, id.; 

nonetheless, Mr. Hoffman provided certain information purporting to reflect ECS’s 

expenses incurred as a result of the sale. Id. Mr. Doshi believes that Mr. Hoffman

substantially overstated the amount of expenses incurred by ECS. Id.

On July 31, 2017, ECS and Mr. Hoffmann offered to pay Mr. Doshi a “discretionary 

bonus” of $13,600, on the condition that Mr. Doshi accept the offer within seven business 

days and release any and all claims against ECS. Id. ¶ 22.

Mr. Doshi filed a complaint in the Superior Court of California, County of San Diego 

on November 21, 2017, asserting causes of action for: (1) fraud by intentional 

misrepresentation, (2) negligent misrepresentation, (3) violation of California Corporations 

Code section 25401, (4) breach of contract, (5) breach of covenant of good faith and fair 

dealing, (6) breach of fiduciary duty, (7) violation of California Labor Code section 226(a), 

and (8) an accounting. See generally ECF No. 1-3. Defendants removed to this Court on 

April 23, 2018, see generally ECF No. 1, and Plaintiff filed the operative First Amended 

Complaint (“FAC”) alleging the same eight causes of action as his original complaint on 

April 26, 2018. See generally ECF No. 6. Defendants filed the instant MTD on May 10, 

2018. See generally ECF No. 7.

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the 

defense that the complaint “fail[s] to state a claim upon which relief can be granted,” 

generally referred to as a motion to dismiss. The Court evaluates whether a complaint 

states a cognizable legal theory and sufficient facts in light of Federal Rule of Civil 

Procedure 8(a), which requires a “short and plain statement of the claim showing that the 

pleader is entitled to relief.” Although Rule 8 “does not require ‘detailed factual 

allegations,’ . . . it [does] demand more than an unadorned, the-defendant-unlawfullyharmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 

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Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, “a plaintiff’s obligation to 

provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and 

conclusions, and a formulaic recitation of the elements of a cause of action will not do.” 

Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). A 

complaint will not suffice “if it tenders ‘naked assertion[s]’ devoid of ‘further factual 

enhancement.’ ” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 557).

To survive a motion to dismiss, “a complaint must contain sufficient factual matter, 

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting 

Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible 

when the facts pled “allow the court to draw the reasonable inference that the defendant is 

liable for the misconduct alleged.” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 

556). That is not to say that the claim must be probable, but there must be “more than a 

sheer possibility that a defendant has acted unlawfully.” Id. Facts “‘merely consistent 

with’ a defendant’s liability” fall short of a plausible entitlement to relief. Id. (quoting 

Twombly, 550 U.S. at 557). Further, the Court need not accept as true “legal conclusions” 

contained in the complaint. Id. This review requires context-specific analysis involving 

the Court’s “judicial experience and common sense.” Id. at 678 (citation omitted). 

“[W]here the well-pleaded facts do not permit the court to infer more than the mere 

possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the 

pleader is entitled to relief.’” Id.

Additionally, claims that allege fraud must meet the heightened pleading standard 

of Federal Rule of Civil Procedure 9(b), which requires that “[i]n alleging fraud or mistake, 

a party must state with particularity the circumstances constituting fraud or 

mistake.” Fed. R. Civ. P. 9(b). Allegations of fraud must be “specific enough to give 

defendants notice of the particular misconduct which is alleged to constitute the fraud 

charged so that they can defend against the charge and not just deny that they have done 

anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985); see also Cooper 

v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997) (noting that particularity requires plaintiff to 

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allege the “who, what, when, where, and how” of the alleged fraudulent conduct).

ANALYSIS

Defendants move for dismissal, with prejudice, of Plaintiff’s first, second, third, 

fourth, fifth, sixth, and eighth causes of action. The Court addresses each of these causes

of action in turn below.

I. First Cause of Action: Fraud by Intentional Misrepresentation

The parties agree that, under California law, the elements of fraud are: 

“(a) misrepresentation (false representation, concealment, or nondisclosure); 

(b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; 

(d) justifiable reliance; and (e) resulting damage.” Lazar v. Super. Ct., 12 Cal. 4th 631, 

638 (1996) (quoting 5 Witkin, Summary of Cal. Law, Torts, § 676 (9th ed. 1988)). Such 

a claim “must be pled with particularity as required by Rule 9(b).” UCAR Tech. (USA) 

Inc. v. Yan Li, No. 5:17-CV-01704-EJD, 2017 WL 6405620, at *9 (N.D. Cal. Dec. 15, 

2017), reconsideration granted on other grounds, 2018 WL 2555429 (N.D. Cal. June 4, 

2018). Defendants argue that Plaintiff’s fraud claim fails because Plaintiff fails to allege a 

misrepresentation of a past or existing fact or that Defendants never intended to perform 

and because Plaintiff did not plead reasonable or justifiable reliance. MTD at 4–8. 

A. Misrepresentation

Defendants claim that the alleged misrepresentation—i.e., that Plaintiff would 

receive 150,000 stock options—“is a statement of future action, not a representation about 

a past or existing fact.” Id. at 5. In so arguing, Defendants rely heavily on the contractual 

provision providing that “[t]he strike price will be determined once the Company’s new 

corporate and capital structures are in place,” contending that the grant of stock options 

was clearly conditional on a change in ECS’s corporate structure. Reply at 2–3 (quoting 

Employment Agreement). Plaintiff counters that he was to be granted the stock options 

“pursuant to this Agreement” and “in accordance with the Company’s stock option plan,” 

and that 25% of the stock options were to vest “upon joining the Company.” Opp’n at 10–

11 (quoting Employment Agreement). Consequently, Plaintiff argues, the Employment 

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Agreement represented the existence of an employee stock option plan at the time of the 

employment offer. Id.

Viewing the facts in the light most favorable to Plaintiff, as the Court must at this 

stage in the proceedings, the Court concludes that Plaintiff adequately has alleged a 

misrepresentation here. Notwithstanding the fact that the strike price was to be set 

following a corporate reorganization, the Court concludes that Plaintiff adequately has 

alleged that the Stock Options provision of the Employment Agreement misrepresented 

that Plaintiff would in fact receive 150,000 shares of stock if he accepted employment with 

ECS and met the vesting requirements. See, e.g., Kelly v. Intelligenetics, Inc., No. C 95-

20063 RMW, 1995 WL 232387, at *2 (N.D. Cal. Apr. 10, 1995) (allowing fraud claim 

premised on alleged misrepresentation that plaintiff “would be granted an option to 

purchase 500,000 to 600,000 shares of [employing company] after close of escrow for 

[purchasing company]’s purchase of stock of [employing company]” because “plaintiff 

was assured that such a decision had been made and, in fact, was informed of specific 

aspects of his future compensation”); see also Spears v. Amazon.com.KYDC LLC, No. 

CIV.A. 10-325-GFVT, 2013 WL 556392, at *6 (E.D. Ky. Feb. 12, 2013) (“[I]t is certainly 

plausible that the conditional stock grant could be read as a representation that [Plaintiff] 

would likely receive [the represented number of] shares of [Defendant company’s] stock 

if he came to work at [Defendant company] and met the vesting requirement.”). 

Further, Plaintiff adequately has alleged that Defendants never intended to perform

under the Stock Options provision of the Employment Agreement. Here, Mr. Doshi signed 

the Employment Agreement in August 2015. FAC ¶ 14; see also Employment Agreement. 

In November 2016—over a year later—Mr. Hoffmann first discussed with Mr. Doshi the 

potential sale of ECS to Onyx and Mr. Doshi first learned that ECS never established an 

employee stock option plan. FAC ¶ 16. In fact, between August 11, 2015, when 

Defendants offered the position of Vice President, Production Engineering to Plaintiff, and 

May 4, 2017, when ECS agreed to sell its assets to Onyx, Defendants “never implemented 

any stock option plan for the benefit of Mr. Doshi or any of its employees.” Id. ¶¶ 11, 14–

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15, 20. Consequently, Plaintiff alleges that in over a year-and-a-half, Defendants took no 

steps toward the formulation of an employee stock option plan. The Court therefore 

concludes that Plaintiff has adequately alleged that Defendants had no intention of 

performing under the Stock Options provision of the Employment Agreement as of August 

11, 2015. See, e.g., Locke v. Warner Bros., 57 Cal. App. 4th 354, 368 (1997) (“Fraudulent 

intent must often be established by circumstantial evidence, and may be ‘inferred from 

such circumstances as defendant’s . . . failure even to attempt performance.’”) (quoting 

Tenzer v. Superscope, Inc., 39 Cal. 3d 18, 30 (1985)).

B. Justifiable Reliance

Defendants also argue that Plaintiff has not pled justifiable reliance because 

“Plaintiff knew ECS was a limited liability company” and “therefore knew that ECS had 

no ability to issue stock options.” MTD at 7–8. 

This argument is unavailing. As Plaintiff notes, “ECS hired him as its Vice President 

of Product Engineering (FAC ¶ 11), not as an expert in corporate governance of the 

intricacies of [employee stock option plans].” Opp’n at 16 (emphasis in original). 

Although Plaintiff could have asked for a copy of the stock option plan referenced in the 

employment offer, see, e.g., Butvin v. DoubleClick, Inc., No. 99 CIV. 4727 (JFK), 2000 

WL 827673, at *10 (S.D.N.Y. June 26, 2000), aff’d, 22 F. App’x 57 (2d Cir. 2001), the 

Court is unprepared to conclude at this early stage in the proceedings that Plaintiff’s 

reliance was not reasonable. See, e.g., OCM Principal Opportunities Fund v. CIBC World 

Markets Corp., 157 Cal. App. 4th 835, 864 (2007) (“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.”). 

The Court therefore DENIES Defendants’ Motion to Dismiss with respect to 

Plaintiff’s first cause of action for fraud by intentional misrepresentation.

II. Second Cause of Action: Negligent Misrepresentation

Defendants claim that Plaintiff’s negligent misrepresentation cause of action must 

be dismissed because it is predicated upon the same, deficient alleged misrepresentations 

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as his fraud cause of action. MTD at 8–9. Because the Court concludes that Plaintiff 

adequately has alleged a cause of action for fraud by intentional misrepresentation, see 

supra Section I, the Court DENIES Defendants’ Motion to Dismiss as to Plaintiff’s 

negligent misrepresentation cause of action.

III. Third Cause of Action: Violation of California Corporations Code § 25401

“[T]o have a valid cause of action under California Corporations Code § 25401

[(“Section 25401”), the plaintiff] must allege that there was a sale or purchase of stock in 

California by fraudulent untrue statements or by omitting material facts that would by 

omission make the statements misleading.” MTC Elec. Techs. Co. v. Leung, 876 F. Supp. 

1143, 1147 (C.D. Cal. 1995). 

Defendants urge the Court to dismiss Plaintiff’s cause of action under Section 25401 

on the grounds that Plaintiff has failed to allege a material misrepresentation or intent. 

MTD at 9–12. For the reasons discussed above, see supra Section I, the Court concludes 

that Plaintiff has adequately alleged a misrepresentation and intent.2

 

The Court also finds that Plaintiff adequately has alleged that the purported grant of 

stock options was material. The parties agree that a misrepresentation is material if there 

is “a substantial likelihood” that a “reasonable shareholder would consider it important.” 

Compare MTD at 11 (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 

(1976)), with Opp’n at 20 (quoting Ins. Underwriters Clearing House, Inc. v. Natomas Co., 

184 Cal. App. 3d 1520, 1526 (1986)). Here, of course, we are speaking of a prospective 

employee rather than a shareholder, so the relevant inquiry is whether a reasonable 

prospective employee would consider the alleged misrepresentation important in deciding 

whether to accept the employment offer.

 

2 The Court agrees with Plaintiff that Defendants cannot rely on California Corporations Code section 

25501 (“Section 25501”), an affirmative defense, for dismissal here. As an affirmative defense, dismissal 

based on Section 25501 would be warranted only if it were clear from the face of the complaint that 

Defendants exercised reasonable care in making the alleged misrepresentations. See Rivera v. Peri & 

Sons Farms, Inc., 735 F.3d 892, 902 (9th Cir. 2013). The Court concludes that such a determination 

would be improper at this stage of the proceedings.

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The Court concludes that the alleged misstatements concerning the Stock Options 

were material. As Plaintiff notes, there is some indication that Defendants themselves 

considered the term material, as they presented the Employment Offer—including the 

Stock Options provision—as constituting the “material terms of the offer.” See Opp’n at 

20; see also Employment Agreement. And naturally, the compensation and benefits 

offered to a prospective employee by a prospective employer would be “important” to a 

prospective employee’s employment decision. See, e.g., Dubin v. E.F. Hutton Grp. Inc., 

695 F. Supp. 138, 146–47 (S.D.N.Y. 1988) (“[W]here the defendant offered a stock option 

to the plaintiff prior to the existence of an employer-employee relationship, ‘the option was 

a quid pro quo offered to induce plaintiff to enter into the employ of [defendant].’”) (second

alteration in original) (quoting Collins v. Rukin, 342 F. Supp. 1282, 1289 (D. Mass. 1972)). 

The Court therefore DENIES Defendants’ Motion to Dismiss with respect to Plaintiff’s 

third cause of action for violation of Section 25401.

IV. Fourth Cause of Action: Breach of Contract

In California, a contract is formed when (1) parties capable of contracting (2) consent 

(3) to a lawful object (4) for sufficient consideration. Cal. Civ. Code § 1550. Plaintiff 

alleges two distinct breaches in his First Amended Complaint: (1) “Defendant ECS 

breached the Employment Agreement by failing to recognize the 150,000 ‘stock options’ 

promised to Plaintiff Doshi,” id. ¶ 51; and (2) after unilaterally electing to treat Mr. Doshi 

as an independent contractor, ECS failed to pay an invoice for $5,000 for the pay period of 

December 16 through 31, 2017, which “Mr. Doshi was required to submit . . . as a condition 

of payment for his services to ECS.” Id. ¶ 54. Defendants claim that Plaintiff fails to allege 

the existence of a contract in either case.

A. Failure to Recognize Stock Options

With regard to Plaintiff’s first theory, Defendants argue that there was no contract 

granting stock options to Plaintiff because the Employment Agreement omitted a material 

term—the strike price—and was therefore illusory. MTD at 12–14. Plaintiff responds that 

/ / /

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“the absence of a definitive strike price does not render the Employment Agreement 

illusory.” Opp’n at 21.

It is true that “[w]here a contract has but a single object, and such object is . . . so 

vaguely expressed as to be wholly unascertainable, the entire contract is void.” Cal. Civ. 

Code § 1598. “However, [t]he law does not favor, but leans against, the destruction of 

contracts because of uncertainty; and it will, if feasible, so construe agreements as to carry 

into effect the reasonable intentions of the parties if that can be ascertained.” Cal. Lettuce 

Growers v. Union Sugar Co., 45 Cal. 2d 474, 481 (1955) (collecting cases) (internal 

quotation marks omitted) (quoting McIllmoil v. Frawley Motor Co., 190 Cal. 546, 549

(1923)); see also Krantz v. BT Visual Images, L.L.C., 89 Cal. App. 4th 164, 175, as 

modified (May 22, 2001) (“It is clear from case law on the issue of indefiniteness and 

contractual enforceability that courts have a pronounced preference for enforcing

agreements, if that is reasonably possible.”) (collecting cases). California law is clear that 

“the complete absence of any mention of the price is not necessarily fatal: The contract 

may be interpreted to mean the market price or a reasonable price.” 1 Witkin, Summary

of Cal. Law, Contracts § 142 (11th ed. 2018).

Such is the case here. The Court agrees with Plaintiff that Sugerman v. MCY Music

World, Inc., 158 F. Supp. 2d 316 (S.D.N.Y. 2001) is unavailing. Not only is Sugerman not 

binding on this Court, but it is clearly distinguishable from the facts alleged by Plaintiff. 

In Sugerman, the relevant agreement provided that:

[I]n the event [prospective investor] will do a substantial 

injection [of capital into the defendant company], the company 

would like to put [the plaintiff] on the company stock option 

plan, which is in development at this point in time. As soon as 

the plan is properly in place, [defendant company] would be 

happy to address the relevant documents to [plaintiff] 

immediately.

Id. at 324 n.6. In Sugerman, it is clear that the stock option plan was in development. Not 

only was there no strike price, but it is unclear how many shares the plaintiff would be 

entitled to purchase or when they would vest. Indeed, the letter in Sugerman indicates only 

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that the defendant company “would like to put [the plaintiff] on the company stock option 

plan” and “in the event” of an infusion of capital. Id.

Here, by contrast, Defendants “granted one hundred fifty thousand (150,000) stock 

options” to Plaintiff. See Employment Agreement. The Employment Agreement specified 

that “[t]he terms and conditions of the grant will be in accordance with the Company’s 

stock option plan,” see id., with no mention that the stock option plan had not yet been 

formulated. Indeed, the Employment Agreement indicated that “[t]he terms and conditions 

of the grant will be in accordance . . . with all other employees participating in the plan,” 

see id., which could be read to imply that the plan was already in effect. The Employment 

Agreement also provided a specific vesting schedule, with 25 percent of the stock options 

vesting upon Plaintiff’s joining ECS, and an additional 25 percent vesting at the end of 

each subsequent year. Id.

The parties have not identified, and the Court has been unable to find, any cases 

entirely analogous to this fact pattern. Nonetheless, the Court finds Krantz v. BT Visual 

Images, LLC, 89 Cal. App. 4th 164 (2001), instructive. In Krantz, the plaintiff entered into 

an agreement with the defendants to prepare and submit a joint proposal for a video 

conferencing system and, in the event the bid was accepted, to negotiate the resulting 

contract jointly. Id. at 169. As part of the agreement, the defendants assured the plaintiff 

that he “would earn increased profit margins on all components manufactured by 

defendants and on all future business resulting from work on the initial . . . bid.” Id. After 

the bid was won, however, the defendants prevented the plaintiff from participating in the 

contract and failed to pay him. Id. The plaintiff therefore sued for, among other things, 

breach of contract. Id.

The California Court of Appeal reversed the trial court’s order summarily 

adjudicating the breach of contract claim on grounds that the contract was too indefinite to 

be enforced, id. at 175, reasoning that “it is clear from both the text of the agreement and 

the context of its execution and performance, as alleged in the amended complaint, that the 

/ / /

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essential contract terms were not so indefinite as to preclude enforcement.” Id. at 176. The

court noted that, 

[w]hile [it] might agree the unstated future margins 

and price terms are indefinite, they were necessarily so: it 

remained to be seen whether the joint proposal would be 

accepted. Moreover, they are not essential elements of 

the agreement to jointly prepare and submit a bid . . . , dependent 

as they were on the scope of [prospective client]’s purchases, if 

any.

Id.

Here, as in Krantz, the indefiniteness of the price term is not fatal to the 

enforceability of the agreement. Defendants here granted Plaintiff stock options as part of 

the Employment Agreement. See generally Employment Agreement. Pursuant to the 

Stock Options provision, Plaintiff has the right—but not the obligation—to purchase stock 

as a price to “be determined once the Company’s new corporate and capital structures are 

put in place.” See id. As in Krantz, this provision is “necessarily” indefinite. See 89 Cal. 

App. 4th at 176. Further, although Plaintiff alleges that the term was material to his 

acceptance of the employment offer, the term is not necessarily an “essential element” of 

the Employment Agreement: The parties here were contracting for Plaintiff’s employment, 

and the strike price of the stock options was but one detail of one element of Plaintiff’s 

compensation. Consequently, at this time, the Court declines to find as a matter of law that 

the absence of a strike price renders the Employment Agreement so indefinite as to be void. 

See McGonagle v. Somerset Gas Transm. Co., No. 11AP-156, 2011 WL 5353089, at *6 

(Ct. App. Ohio Nov. 8, 2011) (reversing summary adjudication to find “letter does 

constitute an enforceable agreement regarding appellant’s stock option” despite fact that 

“[t]he exercise price per share . . . shall be equal to the price per share for . . . equity 

financing” anticipated to be procured in the future).

B. Failure to Pay Invoices

Defendants also contend that there was no contract obligating ECS to pay Plaintiff’s 

invoices. MTD at 14. The Court disagrees.

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Plaintiff alleges that he entered into an Employment Agreement with Defendants, 

which entitled him to a base salary of $150,000 per year. See generally Employment 

Agreement. Mr. Doshi contends that he was converted to an independent contractor 

following the asset sale to Onyx but that, under the Employment Agreement, ECS “fail[ed] 

to pay Mr. Doshi’s wages for the pay period of December 16, 2017 to December 31, 2017.” 

See FAC ¶ 54. Construing the facts most favorably to Mr. Doshi, the Court may infer that 

the Employment Agreement still governed the parties’ relationship following Mr. Doshi’s

conversion to an independent contractor, thus obligating Defendants to pay Mr. Doshi’s 

salary. Mr. Doshi therefore sufficiently alleges the existence of a contract entitling him to 

compensation for his services. 

Consequently, the Court DENIES Defendants’ Motion to Dismiss with respect to 

Mr. Doshi’s fourth cause of action for breach of contract. 

V. Fifth Cause of Action: Breach of Covenant of Good Faith and Fair Dealing

Every contract contains an implied covenant of good faith and fair dealing. Cates 

Constr., Inc. v. Talbot Partners, 21 Cal. 4th 28, 43 (1999). Performance in good faith 

requires the parties to be “faithful[] to an agreed common purpose” and to perform 

“consistent[ly] with the justified expectations of the other party.” Neal v. Farmers Ins. 

Exch., 21 Cal. 3d 910, 921 n.5 (1978). The covenant requires “that neither party do 

anything that will injure the right of the other to receive the benefits of the contract.” 

Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga, 175 Cal. App. 4th 1306, 

1332 (2009). California courts determine what conduct meets those criteria on a “case by 

case basis” depending on the “contractual purposes and reasonably justified expectations 

of the parties.” Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395 

(1990).

Here, Plaintiff alleges that Defendants breach the implied covenant by “unfairly 

interfer[ing] with Plaintiff Doshi’s right to receive the benefits of the [Employment 

A]greement[] by intentionally misclassifying Mr. Doshi on various occasions as an 

independent contractor.” FAC ¶ 62. Defendants assert that Plaintiff’s implied covenant 

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cause of action must be dismissed because it contradicts the express terms of the 

Employment Agreement and purports to add terms to a subject completely covered by the 

Employment Agreement. MTD at 14–16. Specifically, Defendants argue, because the 

Employment “Agreement provides that Plaintiff was an at will employee[,] . . . an implied 

covenant that ECS could not terminate Plaintiff’s employment contradicts the express 

terms of the Agreement and is therefore improper.” MTD at 15 (citing Foley v. Interactive 

Corp., 47 Cal. 3d 654, 698 n.39 (1988)). Further, “[b]ecause . . . the conditions under 

which ECS could terminate Plaintiff’s employment . . . is completely covered in the 

Agreement, there can be no implied covenant claim on the same subject matter.” Id. at 16 

(citing Berger v. Home Depot U.S.A., Inc., 476 F. Supp. 2d 1174. 1177 (C.D. Cal. 2007); 

Pasadena Life v. City of Pasadena, 114 Cal. App. 4th 1089, 1094 (2004); Racine & 

Laramie, Ltd. v. Dep’t of Parks & Rec., 11 Cap. App. 4th 1026, 1032 (1992)). 

Plaintiff counters that the “express terms of the Employment Agreement do not 

address whether Mr. Doshi was to be treated as an employee or independent contractor,” 

and he “alleges Defendant ECS breached the implied covenant by intentionally 

misclassifying Mr. Doshi as an independent contractor at times during which his role and 

responsibilities at ECS remained unchanged from those outlined in the Employment 

Agreement.” Opp’n at 23. Accordingly, “the implied covenant operated to preclude ECS 

from acting arbitrarily and contrary to California law so as to frustrate Mr. Doshi’s right to 

receive the benefits of the Employment Agreement.” Id. (citing Racine & Laramie, Ltd., 

11 Cap. App. 4th at 1031).

It is true that Plaintiff was an at-will employee; however, Defendants conveniently 

omit that, pursuant to the Employment Agreement, ECS promised “only to [terminate 

Plaintiff] for cause or in the event the Company’s financial condition requires it.” See 

Employment Agreement. This contractual provision serves to distinguish this action from 

the line of cases descended from Foley, in which the California Supreme Court recognized 

that, generally, “breach of the implied covenant cannot logically be based on a claim that 

[the] discharge [of an at-will employee] was made without good cause.” 47 Cal. 3d at 698 

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n.39. The Court therefore concludes that Plaintiff’s implied covenant cause of action is 

neither contradicted by nor preempted by the terms of the Employment Agreement.

The parties do not identify, nor has the Court found, any case directly on point. In 

dicta, however, the California Supreme Court has intimated that “the covenant might be 

violated if termination of an at-will employee was a mere pretext to cheat the worker out 

of another contract benefit to which the employee was clearly entitled, such as 

compensation already earned.” Guz v. Bechtel Nat. Inc., 24 Cal. 4th 317, 353 n.18 (2000). 

Such is the case here, where Plaintiff alleges that ECS “intentionally misclassif[ied] Mr. 

Doshi on various occasions as an independent contractor,” thereby “unfairly interfer[ing] 

with Plaintiff Doshi’s right to receive the benefits of the [Employment A]greement[].” 

FAC ¶ 62. The Court therefore DENIES Defendants’ Motion to Dismiss Plaintiff’s fifth 

cause of action for breach of the implied covenant of good faith and fair dealing.

VI. Sixth Cause of Action: Breach of Fiduciary Duty

Under New York law,3 “to establish a breach of fiduciary duty, a plaintiff must prove 

the existence of a fiduciary relationship, misconduct by the defendant, and damages that 

were directly caused by the defendant’s misconduct.” Kurtzman v. Bergstol, 835 N.Y.S.2d 

644, 646 (App. Div. 2007). 

Defendants claim that Plaintiff has failed to allege the existence of a fiduciary 

relationship here because Plaintiff has not adequately alleged that he was a member of the 

LLC. MTD at 16–18. Plaintiff counters that the “Employment Agreement [is] sufficient 

to establish Defendants’ consent to convey an equity interest to Mr. Doshi at the time of 

the Agreement’s execution, whether through stock options in an affiliated entity or a 

minority membership in the LLC itself.”4

 Opp’n at 25.

 

3 The parties appear to agree that Plaintiff’s sixth and eighth causes of action are governed by New York, 

rather than California, law because ECS was organized as a limited liability company in New York and 

pursuant to New York law. See Opp’n at 25 n.12; see also MTD at 17; Reply at 9–10.

4 Alternatively, Plaintiff argues that, “under New York law an otherwise arm’s length business transaction 

can give rise to a fiduciary relationship where the defendant ‘had superior expertise or knowledge about 

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It is clear that, under New York law, “employment relationships do not create 

fiduciary relationships.” Rather v. CBS Corp., 886 N.Y.S.2d 121, 125 (App. Div. 2009). 

Plaintiff therefore alleges that he is owed fiduciary duties as a minority member of ECS: 

“Mr. Doshi obtained a non-managing membership interest in ECS upon the vesting of the 

first 25 percent interest in his stock options, which occurred upon his joining ECS, per the 

Employment Agreement.” FAC ¶ 65. Both parties point to Section 602(b)(1) of New 

York’s Limited Liability Company Law, which provides that, “[a]fter the effective date of 

a limited liability company’s initial articles of organization, a person may be admitted as a 

member . . . upon compliance with the operating agreement or, if the operating agreement 

does not so provide, upon the vote or written consent of a majority in interest of the 

members,” with Plaintiff claiming that he has adequately pleaded that he has gained a 

membership interest in ECS and Defendants arguing that he has not. 

The Court believes that Plaintiff has adequately alleged that Mr. Hoffmann, as the 

sole member of ECS, consented in writing to grant Plaintiff the option of acquiring a 

membership interest in ECS. See FAC ¶¶ 2–3, 13; see also Employment Agreement. 

Plaintiff also alleges that 37,500 of the 150,000 stock options promised vested upon his 

acceptance of employment on August 21, 2015. See FAC ¶ 65; see also Employment 

Agreement. It is also clear, however, that Plaintiff never exercised the options to obtain 

any equity in ECS, albeit through no fault of his own. On the other hand, if Plaintiff is to 

be believed (as he must at this stage of the proceedings), Mr. Hoffmann granted Mr. Doshi 

the stock options without the intention of ever making good on them. See supra Section I.

The relevant question, therefore, is whether Mr. Hoffman’s conveyance to Mr. Doshi 

of an option to purchase equity in ECS suffices as a conveyance to Mr. Doshi of a 

membership interest in ECS, such that Defendants owed Mr. Doshi fiduciary duties as a 

non-managing member. Given the dearth of authority interpreting or applying Section 602,

 

some subject and misled plaintiff by false representations concerning that subject.’” Opp’n at 25 (footnote 

omitted) (quoting Roni LLC v. Arfa, 903 N.Y.S.2d 352, 355 (App. Div. 2010)). The Court agrees with 

Defendants that Roni LLC, a promoter liability case, is not applicable here. 

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the Court cannot conclude at this stage as a matter of law that Plaintiff has not adequately 

alleged that the requirements of Section 602 were fulfilled. Accordingly, the Court 

DENIES Defendants’ Motion to Dismiss as to Plaintiff’s sixth cause of action for breach 

of fiduciary duty.

VII. Eighth Cause of Action: Accounting

An accounting is an equitable remedy to which a plaintiff is entitled upon a showing 

of “a fiduciary relationship between the plaintiff and defendant and a breach of that 

fiduciary duty by the defendant.” Soley v. Wasserman, 823 F. Supp. 2d 221, 237 (S.D.N.Y. 

2011); see also AHA Sales, Inc. v. Creative Bath Prod., Inc., 867 N.Y.S.2d 169 (App. Div. 

2008) (“The right to an accounting is premised upon the existence of a confidential or 

fiduciary relationship.”) (internal quotation marks omitted). As with Plaintiff’s sixth cause 

of action for breach of fiduciary duty, Defendants argue that because no fiduciary 

relationship existed between Plaintiff and Defendants, Plaintiff is not entitled to an 

accounting. MTD at 18. Because the Court concludes that Plaintiff has adequately pled 

the existence of a fiduciary relationship, see supra Section VI, the Court DENIES 

Defendant’s Motion to Dismiss as to Plaintiff’s eighth cause of action for an accounting.

CONCLUSION

For the foregoing reasons, the Court DENIES Defendants’ Motion to Dismiss (ECF 

No. 7). Defendants SHALL FILE an answer to Plaintiff’s First Amended Complaint in 

accordance with the relevant rules.

IT IS SO ORDERED.

Dated: September 24, 2018

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