Bard v. GSV Asset Management, LLC

• Court: District Court, N.D. California
• Decided: June 29, 2023
• Docket: 3:23-cv-00488
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6

7 8 STEPHEN D BARD, Case No. 23-cv-00488-WHO 9 Plaintiff, ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS 10 v. Re: Dkt. Nos. 13, 15 11

12 GSV ASSET MANAGEMENT, LLC, et al., 13 Defendants. 14

15 16 INTRODUCTION 17 Plaintiff Stephen D. Bard (“Bard”) brought an action for breach of contract, fraud, and 18 intentional interference with contractual relations against GSV Asset Management, LLC 19 (“GSVAM”), Michael T. Moe (“Moe”), SuRo Capital Corporation (“SuRo”) and Mark Klein 20 (“Klein”) stemming from the execution and implementation of a Repurchase Agreement entered 21 by Bard and GSVAM. GSVAM and Moe filed a joint motion to dismiss the reformation, fraud, 22 and aiding and abetting fraud counts asserted against them, as well as to dismiss “the request for 23 24 punitive damages.” GSVAM and Moe Motion to Dismiss (“GSVAM Mot.”) [Dkt. No. 13] at 1. 25 This motion did not seek to dismiss the breach of contract and breach of implied covenant counts 26 against GSVAM. Separately, Klein and SuRo filed a joint motion to dismiss the two counts 27 asserted against them. SuRo and Klein Motion to Dismiss (“SuRo Mot.”) [Dkt. No. 15]. At the hearing on May 31, I ordered the parties other than SuRo to make comprehensive 1 2 initial disclosures including communications between the parties pertaining to Bard or the 3 disputed Repurchase Agreement. Civil Minutes, [Dkt. No. 42]. I also gave plaintiff leave to 4 amend his complaint. Id. 5 On June 13, Bard voluntarily dismissed all claims against defendants SuRo and Klein, with 6 prejudice. Notice re Voluntary Dismissal, [Dkt. No. 45]. This dismissal renders moot the Motion 7 to Dismiss filed by SuRo and Klein A, and it is DENIED as moot. On June 24, Bard filed an 8 amended complaint against GSVAM, Moe, and three new defendants. First Amended Complaint, 9 10 Dkt. No. 48]. The Motion to Dismiss filed by Moe and GSVAM regarding the original complaint 11 is perhaps rendered moot by changes in the FAC, but to the extent it is not, the motion is 12 GRANTED for the reasons discussed below. 13 FACTUAL BACKGROUND 14 Bard’s Complaint makes the following allegations, which I accept as true for purposes of 15 the motion to dismiss. Bard co-founded two companies with Michael T. Moe (“Moe”): GSV 16 Asset Management, LLC (“GSVAM”) and SuRo Capital Corporation (“SuRo”). Complaint 17 18 (“Compl.”) [Dkt. 1-1] at 1; ¶¶ 13-14. GSVAM is an investment management firm servicing 19 accredited institutions and high-net-worth individuals Id. ¶ 2. For most of the companies’ history, 20 SuRo has been GSVAM’s largest client and revenue source, based on an Investment Advisory 21 Agreement between the companies. ¶ 14. Bard served as Chief Financial Officer (CFO) and 22 Chief Compliance Officer (CCO) at SuRo and as Chief Operating Officer (COO) at GSVSM until 23 a dispute arose between Bard and Moe which led Bard to depart both companies in 2014. ¶¶ 15- 24 25 16. 26 On September 18, 2017, pursuant to a legal settlement, Bard and GSVAM executed a 27 Repurchase Agreement whereby Bard surrendered his interest in GSVAM in exchange for $5 payments of approximately $29,000 until the debt was paid. ¶ 18. The Repurchase Agreement 1 2 contains a provision that allows for a reduction of payments to Bard when trailing twelve-month 3 revenues (“TTM revenues”) from certain entities falls below $2.5 million. 4 (a) if, following the date hereof, the aggregate revenues earned during the twelve-month period immediately prior to a Pay Due Date (such 5 trailing twelve-month revenues shall be recognized on an accrual accounting basis in accordance with U.S. Generally Accepted 6 Accounting Principles, as of the calendar month preceding such Pay Due Date, as determined from time to time, the “Aggregate TTM 7 Revenues”), received by the Company from the entities identified on Annex A hereto (the “Identified Entities”) decreases below 8 $2,500,000 at any time or from time to time during any year, then the amount of the Recurring Payment Amount shall be reduced to an 9 amount equal to the product obtained by multiplying (i) the Aggregate TTM Revenues times (ii) ten percent (10%) times (iii) one-twelfth 10 (1/12);

11 Repurchase Agreement [Dkt. 18-1] at 3 § 3.1(a). The entities identified in Annex A include GSV 12 Capital Corp., now known as SuRo. Id. at 20. 13 In March 2019, SuRo announced that it was terminating its contract with GSVAM. ¶ 35. 14 SuRo explained during an earnings call that instead of using GSVAM as an outside vendor, SuRo 15 was internalizing the functions formerly served by GSVAM. Id. The repurchase agreement 16 17 contains a provision titled “No Frustration of Purpose.” ¶ 20; §10.4. One example specifically 18 contemplated by this provision is a scenario where GSVAM personnel provide similar services to 19 SuRo within two years after GSVAM ceases providing such services. §10.4; ¶21. 20 SuRo hired several GSVAM personnel, included Allison Green, formerly SVP of Finance 21 and Controller at GSVAM, who became CFO at SuRo, Jackson Stone, who had serviced SuRo 22 while at GSVAM and took a senior role at SuRo, and Defendant Klein, who became CEO of 23 SuRo. Compl. ¶ 36. These personnel were hired to perform the same tasks that GSVAM had 24 25 previously done for SuRo. Id. 26 In September 2022, GSVAM stopped making payments to Bard without prior notice. ¶ 45. 27 $1.8 million remained outstanding on the original purchase price. ¶ 46. This occurred after current CFO and CCO of GSVAM William Vastardis abruptly emailed Bard on September 7, 1 2 2022, claiming that GSVAM had been “overpaying you each month for the past two years.” ¶ 42 3 Vastardis attached spreadsheets purporting to show that TTM revenues (described as “Bard 4 Revenue” on the spreadsheets) had dropped to $0 in 2021. ¶ 44. GSVAM has refused to 5 elaborate on the content of these spreadsheets and has failed to provide Bard with a copy of its 6 audited financial statements despite being required to do so under the agreement. Repurchase 7 Agreement § 3.1(e). ¶ 50. 8 Bard alleges that he had an oral agreement with Klein, not memorialized in the executed 9 10 Repurchase Agreement, that Moe would transfer his individual interests in the companies listed at 11 Annex A to GSVAM. ¶ 88. Bard alleges that there was written evidence of this agreement in 12 GSVAM’s files, which he accessed through a data room terminal set up during the litigation 13 settled by the Repurchase Agreement. Id. The Repurchase Agreement does acknowledge Bard’s 14 reliance on information contained in a “data room.” ¶ 24. Specifically, § 7.10 states that GSVAM 15 “acknowledges that the Seller determined the Upfront Payment Amount and the Recurring 16 Payment Amount based on the information supplied by the Company in the Merrill Corporation 17 18 ‘DataSite Project Pegasus Dataroom 2017’ that the Seller was invited to access beginning on May 19 8, 2017 (the ‘Data Room’), including but not limited to management presentations, due diligence 20 discussions, estimates, projections or forecasts involving the Company and the Identified Entities. 21 The Company acknowledges and represents that the information in the Data Room was true and 22 accurate as of the date posted to the Data Room.” Repurchase Agreement § 7.10. 23 The spreadsheet that Vastardis provided to Bard distinguished between revenue that 24 25 GSVAM counted toward for purposes of its payments to Bard and other revenue that did not. 26 ¶ 44. While the spreadsheet indicated that GSVAM’s “Bard Revenue” in 2021 was zero, its 27 “Non-Bard Revenue” was high enough not to trigger any application of the Repurchase allege that the difference between “Bard Revenue” and “Non-Bard Revenue” was attributable to 1 2 Moe’s failure to transfer his interests to GSVAM as the parties had allegedly agreed. 3 LEGAL STANDARD 4 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint 5 if it fails to state a claim upon which relief can be granted. To survive a Rule 6 12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief that is 7 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially 8 plausible when the plaintiff pleads facts that “allow[] the court to draw the reasonable inference 9 10 that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 11 (2009) (citation omitted). There must be “more than a sheer possibility that a defendant has acted 12 unlawfully.” Id. While courts do not require “heightened fact pleading of specifics,” a plaintiff 13 must allege facts sufficient to “raise a right to relief above the speculative level.” Twombly, 550 14 U.S. at 555, 570. 15 In deciding whether a claim has been stated upon which relief can be granted, the court 16 accepts all factual allegations as true and draws all reasonable inferences in favor of the 17 18 plaintiff. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). “[A]llegations that are 19 merely conclusory, unwarranted deductions of fact, or unreasonable inferences,” however, need 20 not be “accept[ed] as true.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 21 (internal quotation omitted). 22 Rule 9(b) of the Federal Rules of Civil Procedure imposes a heightened standard for 23 alleging fraud or mistake: “a party must state with particularity the circumstances constituting 24 25 fraud or mistake.” Fed. R. Civ. P. 9(b). This standard applies even where a complaint does not 26 expressly plead fraud but makes claims that “sound in fraud.” Vess v. Ciba-Geigy Corp. USA, 317 27 F.3d 1097, 1103-04 (9th Cir. 2003). To satisfy the heightened pleading standard, a plaintiff must baseless claims and to “give defendants notice of the claims asserted against them.” Id. at 1106. 1 2 If the court dismisses a complaint, it “should grant leave to amend even if no request to 3 amend the pleading was made, unless it determines that the pleading could not possibly be cured 4 by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) 5 (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995)). In making this determination, 6 the court should consider factors such as “the presence or absence of undue delay, bad faith, 7 dilatory motive, repeated failure to cure deficiencies by previous amendments, undue prejudice to 8 the opposing party and futility of the proposed amendment.” Moore v. Kayport Package Express, 9 10 885 F.2d 531, 538 (9th Cir. 1989) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). 11 DISCUSSION 12 I. GSVAM AND MOE’S MOTION TO DISMISS 13 A. Fraud and Aiding and Abetting Fraud 14 Where a plaintiff alleges fraud against multiple defendants, he is required to plead facts 15 providing “each and every defendant with enough information to enable them ‘to know what 16 misrepresentations are attributable to them and what fraudulent conduct they are charged with.’” 17 18 Vega v. JP Morgan Chase Bank, N.A., 654 F. Supp. 2d 1104, 1115 (N.D. Cal. 2009) (citation 19 omitted). To support his claim of fraud, Bard only asserts that Klein made a misrepresentation to 20 him when negotiating the Repurchase Agreement, and that he was acting as an agent for GSVAM 21 and Moe in doing so. “Under California law, the elements of common law fraud are 22 ‘misrepresentation, knowledge of its falsity, intent to defraud, justifiable reliance, and resulting 23 damages.’” Rosal v. First Fed. Bank of Cal., 671 F. Supp. 2d 1111, 1131 (N.D. Cal. 2009). 24 25 Bard’s claims against GSVAM and Moe rely on an agency relationship because there is no 26 indication that GSVAM and Moe had actual knowledge of any misrepresentations made by Klein. 27 Bard cites a specific misrepresentation made by Klein on a phone call in August 2017. revenue from the entities listed in Annex A of the Repurchase Agreement to GSVAM. ¶ 29. Bard 1 2 further alleges that this agreement was memorialized in a document that he viewed in the data 3 room. However, in his initial complaint, Bard did not have sufficient information about 4 communications between Klein and defendants GSVAM and Moe to sufficiently establish that 5 they had knowledge of this representation, or that it should otherwise be attributed to them. Bard 6 also does not plead sufficient facts to establish reasonable reliance upon Klein’s representation. 7 Given Bard’s sophistication as a high-level officer of two financial services companies and Bard’s 8 history with the defendants, more is needed to establish why it was reasonable for him to rely 9 10 upon oral representations rather than ensure that the representations were memorialized in the 11 written agreement. 12 For the same reasons, Bard also fails to state a claim for aiding and abetting. For it, Bard 13 must plead with particularity that GSVAM and Moe both “knew” of and “gave substantial 14 assistance” to the fraud. Bradshaw v. SLM Corp., 652 F. App’x 593, 594 (9th Cir. 2016). Bard 15 does not adequately plead these required elements for his fraud-based claims against either party. 16 Even if Klein was acting as an agent for GSVAM and Moe, Bard cites no evidence suggesting that 17 18 these parties knew of this representation by Klein, nor that they gave any assistance, aside from 19 GSVAM’s execution of the negotiated agreement. 20 B. Request for Reformation 21 Because this remedy is premised on fraud or mistake, Bard must meet Rule 9’s heightened 22 pleading standard when moving for reformation. Fed. R. Civ. P. 9(b); see Jensen v. Quality Loan 23 Serv. Corp., 702 F. Supp. 2d 1183, 1197 (E.D. Cal. 2010). He must show “what the real 24 25 agreement was, what the agreement as reduced to writing was, . . . where the writing fails to 26 embody the real agreement[,] how the mistake was made, whose mistake it was, and what brought 27 it about.” Phillips Med. Capital, LLC v. Med. Insights Diagnostics Ctrs., Inc., 471 F. Supp. 2d alleges that the agreement was for Moe to transfer his personal interests to GSVAM, and that the 1 2 written agreement failed to embody this representation by Klein. For the same reasons discussed 3 above, Bard has not pleaded sufficient facts to meet Rule 9’s heightened pleading standard. 4 C. Punitive Damages 5 Punitive damages may be awarded in an action not arising in contract only if the plaintiff 6 proves by clear and convincing evidence that defendant is guilty of oppression, fraud, or malice. 7 Cal. Civ. Code § 3294 (2017); Stewart v. Truck Ins. Exchange, 21 Cal. Rptr. 2d 338, 347 (Cal. 8 1993). Because the fraud claims are dismissed, it is necessary to dismiss the request for punitive 9 10 damages as well. See Lee v. Kitchables Prods., No. 21-cv-01913-HSG, 2021 U.S. Dist. LEXIS 11 140045, at *9 (N.D. Cal. July 27, 2021). 12 D. Statute of Limitations 13 The applicable statute of limitations for Bard’s fraud claim is three years. Cal. Code Civ. 14 Proc. § 338(d). “An action for relief on the ground of fraud or mistake. The cause of action in that 15 case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts 16 constituting the fraud or mistake.” Id. The statute of limitations begins to run when Bard 17 18 sustained “harm.” Mayhew Plaza Woodland Hills II, LLC v. Kelsey, No. G055668, 2019 WL 19 2295784, at *8 (Cal. Ct. App. May 30, 2019). Where the harm was not discovered immediately, 20 plaintiffs must “specifically plead facts to show (1) the time and manner of discovery and (2) the 21 inability to have made earlier discovery despite reasonable diligence.” Rosa v. First Fed. Bank of 22 Cal., 671 F. Supp. 2d 1111, 1131–32 (N.D. Cal. 2009). 23 Only SuRo and Klein raised the statute of limitations defense in their motion, which is now 24 25 moot. I will not address this issue now, other than to note that it exists. Bard has amended his 26 complaint and I will consider the statute of limitations arguments if they are raised in the future. 27 II. SURO AND KLEIN’S MOTION TO DISMISS 1 and Klein. Notice, [Dkt. No. 45]. This dismissal renders moot the Motion to Dismiss filed by 9 || SuRo and Klein. Accordingly, SuRo and Klein’s motion to dismiss is DENIED as moot. 3 CONCLUSION 4 For the foregoing reasons, I|GRANT GSVAM and Moe’s motions to dismiss without 5 prejudice and DENY Suro and Klein’s motion to dismiss as moot. 6 IT IS SO ORDERED. 7 3 Dated: June 29, 2023

10 . H. Orrick 11 United States District Judge a 12

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