Case Name: Biswas, Inc., et al. v. Rajesh Popli, et al.
Case No.: 2015-1-CV-288335

Currently before the Court is the demurrer of defendants Rajesh Popli (“Rajesh”), Sudha Popli (“Sudha”), and Cedar Aurient Management, LLC (“Cedar”) (collectively, the “Moving Defendants”) to the first amended complaint (“FAC”) of plaintiffs Biswas, Inc. (“Biswas”) and Som Sengupta (“Som”) (collectively, “Plaintiffs”).

Plaintiffs allege the following in their FAC: Biswas is a corporation that provides strategic consulting services and develops and markets technology-related products and services for the asset management industry. (FAC, ¶ 1.) Som is a business affiliate of Biswas and advisor to Tapabrata Biswas (“Tapabrata”), the CEO of Biswas. (FAC, ¶ 2.) In 2011, Rajesh, a former employee of Tapabrata, approached Biswas to gauge its interest concerning an investment opportunity in the wireless broadband industry in India and Bangladesh. (FAC, ¶18.) Rajesh stated that he controlled a 6 billion Euro fund backed by Aerolloyd Global Financing, a well-known conglomerate, and promised Plaintiffs that they would double their initial investment. (FAC, ¶ 19.) Based on Rajesh’s oral and written statements concerning the fund, Plaintiffs agreed to invest. (FAC, ¶ 25.)

To secure their place in the fund, Rajesh instructed Plaintiffs to wire their investment to three entities, defendant Limak Holdings, Inc. (“Limak”), Cedar and Delta Holding Group, a law firm. (FAC, ¶ 26.) At this time, Rajesh represented that he and his wife, Sudha, owned Limak and Cedar, which were U.S. affiliates of a larger entity called GMSI, the actual managing entity of the fund. (FAC, ¶ 30.) Plaintiffs subsequently invested a total of $382,000 and signed several memoranda of understanding with Limak governing repayment of the investment with interest. (FAC, ¶¶ 34-35.) Rajesh and Sudha, however, never invested these funds and instead merely pocketed Plaintiffs’ money. (FAC, ¶ 42.) In this respect, Rajesh and Sudha used investor funds deposited in Limak, Cedar, Delta Holding Group to purchase expensive clothing and to pay for their home in San Ramon, CA. (FAC, ¶ 44.)

Plaintiffs allege four causes of action against defendant Ajay Joshi (“Joshi”), Limak and the Moving Defendants for (1) intentional misrepresentation, (2) negligent misrepresentation, (3) breach of contract, and (4) unfair competition.

The Moving Defendants demur to each cause of action in the FAC on the ground of failure to state sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

A. First and Second Causes of Action for Intentional and
Negligent Misrepresentation

The Moving Defendants assert that the first and second causes of action for intentional and negligent misrepresentation are not pleaded with the requisite specificity. In particular, they argue that the FAC does not allege facts showing how, when, where, to whom, and by what means the misrepresentations were tendered.

“In California, fraud must be pled specifically; general and conclusory allegations do not suffice. … The particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.]” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) Courts “enforce the specificity requirement in consideration of its two purposes. The first purpose is to give notice to the defendant with sufficiently definite charges that the defendant can meet them. [Citation.] The second is to permit a court to weed out meritless fraud claims on the basis of the pleadings; thus, the pleading should be sufficient ‘to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud.’ [Citation].” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.) The specificity requirement also applies to negligent misrepresentation claims. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)

Here, the FAC adequately identifies the substance of the alleged misrepresentations, namely, that Cedar, Limak, and GMSI existed, Plaintiffs would make significant money on the investment, Rajesh and Sudha sat on the boards of Cedar and Limak, and that the funds were appreciating. (FAC, ¶¶ 55, 71.) The FAC, however, still does not specifically identify the approximate date on which each of these misrepresentations were made, which particular defendant made each misrepresentation to which particular plaintiff, and the manner in which each misrepresentation was communicated to each plaintiff. As such, the FAC fails to state sufficient facts to constitute causes of action for intentional misrepresentation and negligent misrepresentation. Given that that there is a reasonable possibility that Plaintiffs may allege these causes of action with the requisite specificity, the demurrer to the first and second causes of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [stating that leave to amend should be granted if there is any reasonable possibility that the plaintiff may state a cause of action].)

B. Third Cause of Action for Breach of Contract

The Moving Defendants claim that the third cause of action for breach of contract fails because Cedar and Sudha did not sign the memoranda of understanding and Rajesh signed the contracts as an officer of Limak, not in his personal capacity. (See Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444, 452 [stating that “only a signatory to a contract may be liable for any breach”]; United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595 [stating that “[d]irectors and officers are not personally liable on contracts signed by them for and on behalf of the corporation unless they purport to bind themselves individually”].) Accordingly, they argue that they cannot be liable for the breach of these contracts. In opposition, Plaintiffs contend that the Moving Defendants are liable for the breach of these agreements as the alter egos of Limak.

“Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations. A corporate identity may be disregarded – the ‘corporate veil’ pierced – where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation. Under the alter ego doctrine, then, when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners. The alter ego doctrine prevents individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds.” (Sonora Diamond Corp. v. Sup. Ct. (2000) 83 Cal.App.4th 523, 538, internal citations omitted.)

“In order to prevail in a cause of action against individual defendants based upon disregard of the corporate form, the plaintiff must plead and prove such a unity of interest and ownership that the separate personalities of the corporation and the individuals do not exist, and that an inequity will result if the corporate entity is treated as the sole actor.” (Vasey v. California Dance Co. (1977) 70 Cal.App.3d 742, 749.) In applying the doctrine, courts consider whether an individual or organization dominated and controlled the entity, the controlling party used the entity’s assets as his or her own, the entity served as a mere shell and conduit for the controlling party, the entity was undercapitalized, and the entity failed to abide by the formalities of corporate existence. (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235.) “Courts have followed a liberal policy of applying the alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure.” (First Western Bank & Trust Co. v. Bookasta (1968)
267 Cal.App.2d 910, 915.) As such, a party is only required to allege ultimate rather than evidentiary facts in support of such a theory. (Rutherford Holdings, LLC, supra, 223 Cal.App.4th at p. 236.)

Here, the FAC states that the Moving Defendants created Limak as a shell corporation to carry out the instant fraudulent investment scheme (FAC, ¶ 5), they used corporate funds to pay for personal clothing and housing (FAC, ¶ 85), Limak was vastly undercapitalized (FAC, ¶ 88), and Limak failed to abide by the formalities of corporate existence (FAC, ¶ 87). Accordingly, Plaintiffs allege sufficient ultimate facts to demonstrate a unity of ownership and interest between Limak and the Moving Defendants and that inequity would result if Limak is treated as a separate entity. Therefore, Plaintiffs adequately allege that the Moving Defendants are the alter egos of Limak and are liable for its acts, including breach of the written contracts at issue.

Since the Moving Defendants do not otherwise contend that the FAC fails to state a cause of action for breach of contract, the demurrer to the third cause of action is OVERRULED.

C. Fourth Cause of Action for Unfair Competition

The Moving Defendants assert that the fourth cause of action for unfair competition should be sustained because it is derivative of first and second causes of action for intentional and negligent misrepresentation, which likewise fail. This argument is well-taken. Plaintiffs acknowledge that their unfair competition claim is based on the Moving Defendants fraudulent activity. (Opposition, p. 10:20-24.) As previously discussed in connection with the first and second causes of action, Plaintiffs fail to allege sufficient facts to state causes of action for intentional or negligent misrepresentation. Since Plaintiffs fail to allege sufficient facts to support those causes of action, Plaintiffs similarly fail to state sufficient facts to constitute a derivative cause of action for unfair competition. (See Krantz v. BT Visual Images, L.L.C. (2001) 89 Cal.App.4th 164, 178 [stating that a derivative cause of action for unfair competition “stand[s] or fall[s] depending on the fate of the antecedent substantive causes of action”].) Accordingly, the demurrer to the fourth cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.