Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-01830/USCOURTS-casd-3_15-cv-01830-2/pdf.json

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

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FILED 

AUG 19 2016 

CLERK, U. . 01 TRICT COURT 

SOUTHERN 0 RI ALIFORNIA 

BY J DEPUTY

UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

ANIRUDHA SURABHI, CASE N0.15cvI830-WQH-MDD 

Plaintiff, 

v. 

ROBERT NIILLER; KENNETH 

STRONG; KRANHJM SPORTS, 

LLC; MOBILITY TOOLS, LLC; and 

DOtS 1-10, inclusive, 

ORDER 

Defendants. 

ROBERT MILLER- KENNETH 

STRONG; KRANn)M SPORTS, 

LLC; MOBILITY TOOLS, LLC; and 

DOtS 1-10, inclusive, 

Counterclaimants, 

v. 

ANIRUDHA SURABHI, 

Counterdefendant. 

HAYES, Judge: 

The matter before the Court is the motion to dismiss and/or strike 

Defendants' ICounterclaimants' amended counterclaims (ECF No. 31) filed by 

Plaintiff/Counterdefendant. 

I. Background 

On August 17,2015, Plaintiff initiated this action by filing a Complaint. (ECF 

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No.1). On September 4, 2015, Plaintiff filed a First Amended Complaint, alleging 

claims of fraud, breach of contract, breach of the covenant of good faith and fair 

dealing, promissory estoppel, violation of California Business and Professions Code 

Section 17200, et seq., unjust enrichment, negligence, constructive trust, and 

accounting. (ECF No.3). 

On February 1, 2016, Defendants filed an answer to the First Amended 

Complaint and counterclaims. (ECF No. 24). On February 3,2016, Defendants filed 

an amended answer to the First Amended Complaint and amended counterclaims, 

alleging nineteen affirmative defenses and counterclaims for "fraud; deceit; fraudulent 

and intentional misrepresentation; promissory fraud; and fraudulent inducement." 

(ECF No. 25). 

On February 29, 2016, Plaintiff filed the memorandum ofpoints and authorities 

for a motion for a more definite statement and/or to dismiss and strike Defendant's 

counterclaims. (ECF No. 29). On March 1, 2016, Plaintiff filed a motion to dismiss 

for failure to state a claim and dismiss and/or strike, attaching a memorandum ofpoints 

and authorities identical to the memorandum filed in ECF No. 29. (ECF No. 31). 

On March 25,2016, Defendants filed an opposition to the motion to dismiss. 

(ECF No. 35). Defendants requested that "should the Court determine and accept 

Plaintiffs MTD as being timely filed ... Defendants hereby move the Court for leave 

to amend this Opposition to address Plaintiff s [points and authorities] with more 

particularity ...." (ECF No. 35 at 5). 

On July 20, 2016, the Court issued an Order denying the initial memorandum of 

points and authorities filed by Plaintiff as moot, and allowing Defendants to respond 

to Plaintiffs motion to dismiss and/or strike and motion for a more definite statement 

(ECF No. 31) on or before July 25, 2016. 1 

On July 25, 2016, Defendants filed an amended opposition. (ECF No. 55). 

1 In the Court's July 20,2016 Order, the Court indicated that it would consider 

both Plaintiffs motion to dismiss (ECF No. 31) and Defendants' opposition to the 

motion to dismiss. Requests to strike based on tImeliness are denied. 

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Defendants contend that the counterclaims provide the requisite particularity. 

On August 1, 2016, Plaintiff filed a reply to the amended opposition. (ECF No. 

58). Plaintiff contends that "[ d]espite the Court allowing Defendants an additional 

opportunity to respond to the merits of Plaintiffs Motion to Strike and/or Dismiss .. 

. [Defendants] failed once again to address the merits of Plaintiffs motion." Id. at 3. 

II. Allegations of Counterclaims by all Defendants against Plaintiff 

"In or about May, 2013, Robert Miller and Ken Strong (collectively "M&S"), 

as members of Mobility Tools, LLC [("MTLLC")], conceived of providing the 

bikeshare market in the United States with inexpensive cardboard, collapsible, 

disposable, and recyclable helmets through vending machines at bike rental locations 

in major U.S. cities." (ECF No. 25 ~ 158). "MTLLC discovered that 

[Plaintiff/Counterdefendant and his employer, KL TD,] had purportedly designed a 

cardboard helmet." Id. ~ 159. 

Counterdefendant represented to M&S during the May 2013 telephone conversation(s) that he was the co-owner (which was subse911ently discovered to be untrue), head designer and engineer of KL TD. 

Counterdefendant further represented: ( a) that he had the e~pertise and 

capability to design and engineer a helmet to meet M&S's specific requirements (whlch was also untrue) ... (b) by utilizing KLTD's 

PAtented techriology (which was subsequently discovered tIiat neither 

KL TD nor Counterdefendant had). Counterdefendant represented to 

M&S that even without an outer shell, KL TD and Counterdefendants' 

EUl1?0rtedly patented cardboard honeycomb technology would fass 

l United States Consumer Protection Safety Commission standards ... which also turned out to be untrue. 

Id. ~~ 160, 185. "Counterdefendant represented to M&S that KL TD had patents on its 

helmet design; however M&S subsequently discovered that KL TD only recently ... 

filed applications to obtain European patents. No patents were in fact issued." Id. ~ 

164. 

"Based on Counterdefendants' representations, M&S agreed to pursue the 

purchase ofKLTD ...." Id. ~ 162. 

Counterdefendant .... claimed that he ... would 'sell' [his] expertise [to 

MTLLC] by workiQg for MTLLC in a yet-to-be-formed company tfiat 

would acqUlre KL TD, operate in Oceanslde, California and manufacture 

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Counterdefendant's helmet design(s) according to MTLLC's 

requirements.... M&S agreed to negotiate the purchase ofKLTD under 

these general parameters. 

Id. ~ 168. "During the due diligence process, it was discovered that Counterdefendant 

in fact did not own 50% ... of KL TD or any stock in KL TD whatsoever as he 

untruthfully claimed." Id. ~ 167. "On February 12, 2014, M&S caused Kranium 

Sports, LLC, Mobility Research, LLC; and Mobility Tools, LLC to be formed in 

anticipation of being involved in the purchase of KL TD and the possible future 

employment of Counterdefendant." Id. ~ 171. 

"After being asked on multiple occasions to produce his design, 

Counterdefendant finally admitted to M&S that [he] had only 'concepts' for such a 

helmet and had not actually designed one. When further asked to produce his 

'concepts,' Counterdefendant failed to do so." Id. ~ 175. "Counterdefendant finally 

conceded that he had not worked on a collapsible helmet at all and ... had no viable 

'concept' for one." Id. "Counterdefendant failed to exhibit the required engineering 

expertise, any practical knowledge or ability to design a certifiable, viable, collapsible 

helmet ...." Id. ~ 176. 

"[A]t M&S' substantial expense, immigration counsel worked extremely 

diligently on the non-immigrant visa required to enable Counterdefendant to work in 

the U.S." Id. ~ 177. "On July 25, 2014, ... [Counterdefendant] insisted he would not 

proceed with the visa application ifM&S did not remove a 3-year vesting provision in 

the unsigned Employment Agreement and give Counterdefendant outright 10% 

advance ownership ofKSLLC." Id. ~ 178. "Counterdefendant's agenda and intent all 

along was to leave KSLLC after using the immigration application process after laying 

claim to a 10% ownership interest in KSLLC." Id. ~ 179. 

Counterclaimants have been defrauded by Counterdefendant's deceit and 

misrepresentations . . . resulting in injury: and damages to 

Counterclaimants, inter alia from theIr purchase of KL TD and tile costs 

involved in attempts to secure Counterdefendant's employment in the 

U.S. and those payments to Counterdefendant he did not earn. 

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Id.';181. 

Under the heading "statement ofentitlement to relieffor fraud; deceit, fraudulent 

and intentional misrepresentation; promissory fraud; and fraudulent inducement," 

Defendants/Counterclaimants allege that "Counterdefendant maliciously, intentionally, 

deceitfully and fraudulently, made ... false representations and statements .... [and] 

Counterdefendant intended that Counterclaimants would rely on these misleading and 

false material representations ... to their detriment." Id. ,; 183. Counterclaimants 

allege that Counterdefendant acted with "intent to defraud M&S" and that 

Counterclaimants justifiably relied on Counterdefendant's representations, causing 

injuries and damages. Id. ,; 187. 

Counterclaimants' "Demand for Relief Sought" includes: 

Restitution and disgorgement for the purchase price ofKLTD ... ; The 

costs and cash mvestment in the project and business that 

Counterdefendant induced Counterclaimants to invest in ... ; Interest lost 

on Countercomplainants' investment ... ; Attorneys' fees and costs ... . and such relief includinK act~al, compensatory, punitive, and other 

damages accordmg to prooT at tnal .... 

Id. ,; 189. 

III. Motion to Dismiss 

A. Legal Standard 

Federal Rule ofCivil Procedure 12(b)( 6) permits dismissal for "failure to state 

a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Federal Rule of 

Civil Procedure 8 states, "A pleading that states a claim for relief must contain: (1) a 

short and plain statement ofthe grounds for the court's jurisdiction ... ; (2) a short and 

plain statement of the claim showing that the pleader is entitled to relief; and (3) a 

demand for the relief sought ...." Fed. R. Civ. P. 8(a). Federal Rule of Civil 

Procedure 10 states, "A party must state its claims or defenses in numbered paragraphs, 

each limited as far as practicable to a single set ofcircumstances.... Ifdoing so would 

promote clarity, each claim founded on a separate transaction or occurrence-and each 

defense other than a denial-must be stated in a separate count or defense." Fed. R. 

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Civ. P. 10. Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a 

cognizable legal theory or sufficient facts to support a cognizable legal theory. See 

Balistreri v. Pacifica Police Dep't, 901 F .2d 696, 699 (9th Cir. 1990). 

"[A] plaintiffs obligation to provide the 'grounds' ofhis '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." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) 

(quoting Fed. R. Civ. P. 8(a)). "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. '" Ashcroft v. Iqbal, 556 U.S. 662,678 (2009) (quoting Twombly, 

550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual 

content that allows the court to draw the reasonable inference that the defendant is 

liable for the misconduct alleged." Id. (citation omitted). "When there are 

well-pleaded factual allegations, a court should assume their veracity and then 

determine whether they plausibly give rise to an entitlement to relief." Id. at 679. "In 

sum, for a complaint to survive a motion to dismiss, the non-conclusory factual content, 

and reasonable inferences from that content, must be plausibly suggestive of a claim 

entitling the plaintiff to relief." Moss v. Us. Secret Serv., 572 F.3d 962,969 (9th Cir. 

2009) (quotations omitted). 

B. Contentions of the Parties 

Plaintiff/Counterdefendant contends that the counterclaims failed to plead fraud 

with particularity. Plaintiff/Counterdefendant contends that the counterclaims do not 

specify the allegedly false statements that were made by Plaintiff/Counterdefendant or 

the damage to Defendants/Counterclaimants caused by the alleged false statements. 

Plaintiff/Counterdefendant contends that under Federal Rule ofCivil Procedure 12( e), 

he is entitled to a more definite statement before he is obligated to respond to the 

counterclaims. Plaintiff/Counterdefendant contends that the allegations in the 

counterclaims fail to meet pleading standards under Federal Rules of Civil Procedure 

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8(a )(2), 8(d)(1) and 12(a)(1 ). Defendants/Counterclaimants contend that the 

Counterclaims allege sufficient facts to state "multiple counterclaims" against 

Plaintiff/Counterdefendant. (ECF No. 35 ~ 18). 

C. Discussion 

Under California law, the elements of a claim 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." Cadlo v. 

Owens-Illinois, Inc., 125 Cal. App. 4th 513,519 (2004) (citing Small v. Fritz Cos., Inc., 

30 Cal. 4th 167, 173 (2003)). Claims sounding in fraud or mistake must comply with 

the heightened pleading requirements ofFederal Rule of Civil Procedure 9(b), which 

requires that a complaint "must state with particularity the circumstances constituting 

fraud or mistake." Fed. R. Civ. P. 9(b). Rule 9(b) "requires ... an account ofthe time, 

place, and specific content ofthe false representations as well as the identities ofthe 

parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 

2007) (quotation omitted); see also Vess, 317 F.3d at 1106 (9th Cir. 2003) (avennents 

of fraud must be accompanied by "the who, what, when, where, and how of the 

misconduct charged") (quotation omitted). 

In this case, Section 0 ofthe counterclaims is titled, "statement of entitlement 

to relief for fraud; deceit; fraudulent and intentional misrepresentation; promissory 

fraud; and fraudulent inducement." See ECF No. 25 ,-r 185. To the extent that 

Defendants/Counterclaimants seek relief for "fraud; deceit; fraudulent and intentional 

misrepresentation," the Court finds that the counterclaims contain sufficient allegations 

of specific misrepresentations made by Plaintiff/Counterdefendant, 

Plaintiff/Counterdefendant's knowledge ofthe misrepresentation with intent to induce 

Defendants/Counterclaimants reliance on the misrepresentations, justifiable reliance 

by Defendants/Counterclaimants, and damages. The Court concludes that the 

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allegations of the counterclaims are sufficient to state a claim for fraud that complies 

with the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). 

To the extent that Defendants/Counterclaimants attempt to set forth separate 

claims for fraudulent inducement and promissory fraud, the counterclaims do not allege 

sufficient facts that suggest that Defendants/Counterclaimants are entitled to relief on 

those claims. See Ivey v. Bd. ofRegents ofthe Univ. ofAlaska, 673 F.2d 266, 268 (9th 

Cir. 1982) (holding that in evaluating whether complaint states a claim, even a "liberal 

interpretation ... may not supply elements of the claim that were not initially pled."). 

The Court concludes that to the extent that Defendants/Counteclaimants seek to bring 

separate claims for fraudulent inducement and promissory fraud, the counterclaims do 

not adequately inform Plaintiff/Counterdefendant of the claims alleged against him. 

See Twombly, 550 U.S. at 555 n.3 ("Rule 8(a)(2) .... requires a 'showing,' rather than 

a blanket assertion, of entitlement to relief. Without some factual allegation in the 

complaint, it is hard to see how a claimant could satisfY the requirement of providing 

not only 'fair notice' ofthe claim, but also 'grounds' on which the claim rests."). 

To the extent Defendants/Counterclaimants bring a counterclaim for fraud, the 

motion to dismiss is denied. To the extent Defendants/Counterclaimants bring 

separate counterclaims for promissory fraud and fraudulent inducement, the motion to 

dismiss is granted. Because the Court dismisses all counterclaims except for the fraud 

counterclaim, the Court denies the motion for a more definite statement as moot. 

IV. Motion to Strike Request for Attorney's Fees 

Plaintiff contends that the prayer for attorney's fees should be stricken from the 

counterclaims because Defendants/Counterclaimants fail to allege a contract or a 

statutory basis for recovery of attorney's fees. Federal Rule of Civil Procedure 12( f) 

provides that a court "may strike from a pleading an insufficient defense or any 

redundant, immaterial, impertinent, or scandalous matter." Motions to strike are 

generally disfavored and "should not be granted unless it is clear that the matter to be 

stricken could have no possible bearing on the subject matter ofthe litigation." Neveau 

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v. City ofFresno, 392 F. Supp. 2d 1159, 1170 (E.D. Cal. 2005) (citing Colaprico v. Sun 

Microsystems, Inc., 758 F. Supp. 1335, 1339 (N.D. Cal. 1991 )). "[C]ourts often require 

a showing of prejudice by the moving party before granting" a motion to strike, and 

"[u]ltimately, whether to grant a motion to strike lies within the sound discretion ofthe 

district court." Cal. Dept. ofToxic Substances Control v. Alco Pacific, Inc., 217 F. 

Supp. 2d 1028, 1033 (C.D. Cal. 2002) (citing Fantasy, Inc., v. Fogerty, 984 F.2d 1524, 

1528 (9th Cir. 1993)). In exercising its discretion, the court views the pleadings in the 

light most favorable to the non-moving party, and "resolves any doubt as to the 

relevance of the challenged allegations or sufficiency of a defense in the defendant's 

favor." Cal. Dept. ofToxic Substances Control, 217 F. Supp. 2d at 1033. "Even when 

the defense under attack presents a purely legal question, courts are reluctant to 

determine disputed or substantial questions of law on a motion to strike." s.E. C. v. 

Sands, 902 F. Supp. 1149, 1166 (C.D. Cal. 1995). At this stage in the proceedings, the 

Court declines to strike Defendants' request for attorney's fees. 

V. Conclusion 

IT IS HEREBY ORDERED that the motion to dismiss (ECF No. 31) is granted 

in part and denied in part. To the extent Plaintiff brings a claim for fraud, the motion 

to dismiss is denied. To the extent Plaintiffbrings separate claims for promissory fraud 

and fraudulent inducement, the motion to dismiss is granted. 

IT IS FURTHER ORDERED that the motion to strike is denied. 

DATED: f!~& 

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