DSNR Media Group Ltd v. Vdopia, Inc.

• Court: District Court, N.D. California
• Decided: June 2, 2020
• Docket: 3:19-cv-07833
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 DSNR MEDIA GROUP LTD, et al., Case No. 19-cv-07833-WHO

8 Plaintiffs, ORDER GRANTING MOTION TO 9 v. DISMISS WITH LEAVE TO AMEND

10 VDOPIA, INC., et al., Re: Dkt. Nos. 14, 23, 40 Defendants. 11

12 13 Plaintiffs DSNR Media Group Ltd. (“DMG”) and DSNR Media Innovations Ltd. 14 (“DMI”) (collectively the “DSNRs”) are affiliated marketing companies that bring multiple claims 15 arising out of two contracts between them and defendant Vdopia. Inc. (“Vdopia”). Their claims 16 against Vdopia are encompassed by an arbitration provision in those contracts, and are therefore 17 barred, as are their claims against individual defendants for their acts as Vdopia employees. 18 Defendants’ motion to dismiss is GRANTED. 19 Pursuant to Civil Local Rule 7-1(b), I found this motion was appropriate for disposition 20 without oral argument and vacated the hearing scheduled for June 3, 2020. [Dkt. No. 39]. The 21 DSNRs request to be heard because they planned to argue defendants’ mischaracterization of what 22 is happening in arbitration regarding provisional remedies. See Plaintiffs’ Urgent Request to Be 23 Heard on Defendants’ Judicial Notices [Dkt. No. 40]. This attempt to reserve additional argument 24 for the hearing is improper. A party cannot withhold arguments to present at the hearing; they 25 must be briefed prior to the hearing. Their request for hearing is DENIED. They have an 26 opportunity to amend their complaint in accordance with this Order. 27 1 BACKGROUND 2 A. Non-Payment under the Agreements 3 The DSNRs provide media and video marketing solutions to businesses. Complaint 4 (“Compl.”) [Dkt. No. 1] ¶ 5. Vdopia is a “Chocolate” or “Chocolate Platform” which provides 5 advertising services to app developers and mobile publishers. Id. ¶ 7. Individual defendants 6 Bhatia, Kakani, and Upadhyay are founders of Vdopia; Bhatia is the Chief Executive Officer, 7 Kakani is the Chairman, and Upadhyay is the Chief Financial Officer. Id. ¶¶ 8-10. 8 On February 2, 2016, Vdopia entered into a contract with DMG and subsequently on 9 August 21, 2017, it entered into a contract with DMI (hereinafter the “Agreements”). Id., Ex. A 10 (“Vdopia Chocolate® Marketplace Agreement for Advertisers and Publishers” with DMG), Ex. B 11 (“Vdopia Chocolate® Marketplace Agreement for Advertisers and Publishers” with DMI). 12 Individual defendants Shrivastava and Kumar are managers and/or employees of Vdopia who 13 were in contact with the DSNRs regarding payments under the Agreements. Id. ¶¶ 11-12. 14 Pursuant to the Agreements, the DSNRs were “publishers” that offered advertising 15 opportunities (called “Placements”), on Vdopia’s auction platform. Id. ¶ 21. Using Vdopia’s 16 auction platform, advertisers then bid on the DSNRs’ Placements, and Vdopia identified the 17 winning bid for each placement. Id. See Agreements at Section 1.1. In other words, Vdopia acted 18 as a “middle man” between advertisers and publishers through the digital “marketplace” platform 19 it operated, receiving money from the advertisers with winning bids, and paying money to the 20 publishers, like the DSNRs, whose Placements are the subject of those bids. Id. ¶ 25. It calculated 21 and reported any “Monthly Revenue” due to the DSNRs at the end of every month. Id. ¶ 26. 22 Vdopia initially timely paid the Monthly Revenues owed to the DSNRs but, in January 23 2018, it began falling behind on payments. Id. ¶ 29. The DSNRs claim that Vdopia received 24 payments by advertisers for their Placements, but instead of using those funds to pay what was 25 owed to them under the contracts, Vdopia diverted the money for other purposes. Id. ¶ 31. They 26 further allege that Vdopia unilaterally imposed its own arbitrary “payment plan” and began paying 27 random amounts lower than what was owed. Id. ¶ 33. In sum, Vdopia owes $267,019.65 to DMG 1 D. 2 B. Pending Arbitration Proceedings 3 Section 8 of both Agreements provides that “[a]ll actions or proceedings arising in 4 connection with, touching upon or relating to this Agreement, the breach thereof and/or the scope 5 of the provisions of Section 10.4 will be submitted to the American Arbitration Association for 6 final and binding arbitration under its commercial Rules of Arbitration[.]” It adds that “[t]he 7 arbitrator will have the power to enter temporary restraining orders and preliminary and permanent 8 injunctions.” Agreements at Section 8. Most importantly, it provides a limited exception of when 9 matters may be resolved in a court of law: Neither party will be entitled or permitted to commence or maintain 10 any action in a court of law with respect to any matter in dispute until such matter will have been submitted to arbitration as herein provided 11 and then only for the enforcement of the arbitrator’s award; provided however, that prior to the appointment of the arbitrator or for remedies 12 beyond the jurisdiction of an arbitrator, at any time, either party may seek pendent lite relief in a court of competent jurisdiction in 13 Alameda County, without thereby waiving its right to arbitration of the dispute or controversy under this action. 14 Id. (emphasis in original). 15 On August 8, 2019, pursuant to the arbitration clause, the DSNRs commenced arbitration 16 proceedings against Vdopia before the American Arbitration Association (“AAA”) to recover the 17 amounts they were owed. Id. ¶ 2; see Request for Judicial Notice in Support of Defendant 18 Vdopia, Inc.’s Motion to Dismiss Plaintiffs’ Complaint (“RJN”) [Dkt. No. 15-1], Ex. 1 (Demand 19 for Arbitration in AAA Case Number 01-19-0002-4054). And on March 6, 2020, they filed a 20 motion for pre-hearing relief or a preliminary injunction in the AAA case, which was set to be 21 heard on May 6, 2020. See RJN, Ex. 2 (Motion for Pre-Hearing Relief or a Preliminary Injunction 22 in AAA case number 01-19-0002-4054); Request for Judicial Notice in Support of Defendants’ 23 Reply Brief in Support of Defendants’ Motion to Dismiss (“Suppl. RJN”) [Dkt. No. 27-1], Ex. 1 24 (email from arbitrator setting hearing date of May 6, 2020 on motion for preliminary relief).1 25

26 1 Defendants’ request for judicial notice of the following three documents related to AAA Case Number 01-19-0002-4054 is GRANTED: (i) the Demand for Arbitration; (ii) Motion for Pre- 27 Hearing Relief or a Preliminary Injunction; and (iii) email from the arbitrator setting a May 6, C. This Lawsuit 1 On November 29, 2019, the DSNRs filed this suit to seek “injunctive relief and a pre- 2 judgment attachment of Vdopia’s assets, in order to preserve Vdopia’s assets for satisfaction of the 3 ultimate arbitration award in [their] favor.” Compl. ¶ 4. Altogether they bring the following 4 eleven causes of action: (1) breach of contract; (2) common count: account stated; (3) injunctive 5 relief; (4) writ of attachment and right to attach order; (5) piercing the corporate veil; (6) unjust 6 enrichment; (7) fraud and deceit; (8) quantum meruit; (9) breach of implied covenant of good faith 7 and fair dealing; (10) negligence; and (11) false promise. Given Vdopia’s history of non-payment, 8 it seeks pre-judgment attachment and injunctive relief. Id. ¶ 44. 9 Defendants move to dismiss this case on grounds that the DSNRs seek duplicative relief in 10 the pending arbitration case and their claims are insufficiently pleaded. See Vdopia, Inc. et al.’s 11 Memorandum of Points and Authorities in Support of Their Motion to Dismiss Pursuant to 12 Federal Rule of Civil Procedure 12(b)(6) (“MTD”) [Dkt. No. 14-1].2 13 LEGAL STANDARD 14 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss if a claim 15 fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to 16 dismiss, the claimant must allege “enough facts to state a claim to relief that is plausible on its 17 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when 18 the plaintiff pleads facts that “allow the court to draw the reasonable inference that the defendant 19 is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation 20 omitted). There must be “more than a sheer possibility that a defendant has acted unlawfully.” Id. 21 While courts do not require “heightened fact pleading of specifics,” a claim must be supported by 22 facts sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 23

24 19CV00627MCEKJN, 2019 WL 5721835, at *1 (E.D. Cal. Nov. 5, 2019) (granting judicial notice of AAA materials as a matter of public record). 25

2 This motion is brought on behalf of Vdopia and three of the five individual defendants, Saurabh 26 Bhatia, Shivam Shrivastava, and Satish Kumar. The remaining two individual defendants seek to join because the arguments raised in the motion equally apply to them. See Defendants Venkata 27 Srikanth Kakani and Chhavi Upadhyay’s Notice of Joinder in Defendant Vdopia, Inc. et al.’s 1 570. 2 Under Federal Rule of Civil Procedure 9(b), a party must “state with particularity the 3 circumstances constituting fraud or mistake,” including “the who, what, when, where, and how of 4 the misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) 5 (internal quotation marks omitted). However, “Rule 9(b) requires only that the circumstances of 6 fraud be stated with particularity; other facts may be pleaded generally, or in accordance with Rule 7 8.” United States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 992 (9th Cir. 2011). In deciding 8 a motion to dismiss for failure to state a claim, the court accepts all of the factual allegations as 9 true and draws all reasonable inferences in favor of the plaintiff. Usher v. City of Los Angeles, 10 828 F.2d 556, 561 (9th Cir. 1987). But the court is not required to accept as true “allegations that 11 are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead 12 Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). 13 DISCUSSION 14 I. CLAIMS AGAINST VDOPIA 15 When all claims made in the litigation are subject to arbitration, courts may choose to 16 dismiss the action in its entirety for the failure to state a claim under Rule 12(b)(6). Semcken v. 17 Genesis Med. Interventional, Inc., No. C 04-02654 FMS, 2004 WL 2203561, at *2 (N.D. Cal. 18 Sept. 29, 2004), aff’d, 132 F. App’x 155 (9th Cir. 2005) (citing Sparling v. Hoffman Constr. 19 Co., 864 F.2d 635, 638 (9th Cir.1988)). Dismissal for failure to state a claim is appropriate when 20 “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which 21 would entitle him to relief.” Id. (citing Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 22 1138 (9th Cir. 2003)). 23 The arbitration clause contained in the Agreements between the DSNRs and Vdopia is 24 broadly worded: it covers “[a]ll actions or proceedings in connection with, touching upon or 25 relating to this Agreement [.]” Agreement at Section 8. Every claim in the Complaint is 26 predicated upon alleged non-performance or non-payment of the underlying Agreements and is 27 therefore barred by the arbitration clause. See Clarium Capital Mgmt. LLC v. Choudhury, No. C 1 arbitration clause does not limit arbitration to the literal interpretation or performance of the 2 contract but rather embraces every dispute between parties having a significant relationship to the 3 contract regardless of the label attached to the dispute.”) (citation and quotation marks omitted). 4 The DSNRs do not dispute that the arbitration provisions cover their dispute and admit that 5 they commenced arbitration proceedings against Vdopia prior to filing this suit. But they contend 6 that this suit is proper because the relief they seek falls within the exception to the arbitration 7 clause. The Agreements provide that “prior to the appointment of the arbitrator or for remedies 8 beyond the jurisdiction of an arbitrator, at any time, either party may seek pendent [sic] lite relief 9 in a court of competent jurisdiction in Alameda County.” Compl. ¶ 2 (citing Agreement at Section 10 8). They claim that the provisional remedy and injunctive relief sought here is pre-judgment relief 11 that exceeds the jurisdiction of the arbitrator; after the provisional remedies, they plan on keeping 12 this Complaint “standing until the arbitration will be over.” Id. ¶¶ 2, 77. 13 The Agreements expressly provide for preliminary relief in arbitration. Agreement at 14 Section 8 (“The arbitrator will have the power to enter temporary restraining orders and 15 preliminary and permanent injunctions.”). The DSNRs have already filed a motion with the 16 arbitrator for preliminary injunction and immediate payment of the alleged debt. See RJN, Ex. 2 17 (motion filed in AAA case, seeking an order that requires Vdopia to put money in a trust account 18 or an order that it not spend the unpaid amount of $519,325.46 until the arbitration is finalized). 19 The DSNRs do not explain how the relief they seek here is different from what they seek in the 20 arbitration or why it exceeds the jurisdiction of the arbitrator. Their claims against Vdopia in this 21 lawsuit are barred by the arbitration provision; the DSNRs have failed to show that the relief 22 sought is necessarily beyond the jurisdiction of an arbitrator. 23 II. CLAIMS AGAINST INDIVIDUAL DEFENDANTS 24 The DSNRs allege that the arbitration clause does not apply to their claims against 25 individual defendants because those defendants did not sign the arbitration agreement. Compl. ¶ 26 3. But “an obligation to arbitrate does not attach only to those who have actually signed the 27 agreement to arbitrate.” Amisil Holdings Ltd. v. Clarium Capital Mgmt., 622 F. Supp. 2d 825, 830 1 (1) the wrongful acts of the agents for which they are sued relate to their behavior as agents or in 2 their capacities as agents (citation omitted) and (2) the claims against the agents arise out of or 3 relate to the contract containing the arbitration clause (citation omitted).” Id. at 835.3 Those 4 criteria are met here. 5 The Complaint does not include any specific allegations regarding the individual 6 defendants and instead lumps them together with allegations against Vdopia. The individual 7 defendants are sued because of their duties to the DSNRs as officers and managers of Vdopia. 8 See, e.g. Compl. ¶ 101 (“The individuals have failed to conform to the standard of conduct”); id. ¶ 9 104 (alleging individual defendants “acted in bad faith and have not paid for the services as 10 promised” and therefore have “breached” the duty to exercise “ordinary care”). The allegations 11 against them arise out of or relate to the underlying Agreements and their alleged role in past due 12 invoices. Claims against the individual defendants are therefore barred by the arbitration clause.4 13 CONCLUSION 14 Defendants’ motion to dismiss is GRANTED. Given the breadth of the arbitration 15 provision and the facts as presently alleged, it seems unlikely that the DSNRs can plausibly and in 16 good faith assert claims that escape arbitration. But if the DSNRs think they can do so, and given 17 18 19 20 21

22 3 See Amisil Holdings Ltd., 622 F. Supp. 2d at 840 (collecting cases); Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir. 2002) (providing that a nonsignatory can compel arbitration when the 23 signatory raises allegations of substantially interdependent and concerted misconduct by the nonsignatory and the other signatory); Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 24 778 (2d Cir. 1995) (noting that a signatory can be bound to arbitrate with a nonsignatory “because of the close relationship between the entities involved, as well as the relationship of the alleged 25 wrongs to the nonsignatory's obligations and duties in the contract . . . and [the fact that] the claims were intimately founded in and intertwined with the underlying contract obligations”). 26

4 Because I find that the claims here are barred by arbitration, I need not address defendants’ 27 remaining arguments regarding insufficiency of fraud and negligence claims and whether DMI 1 the liberal right to amend, the DSNRs may amend their Complaint within 20 days of this Order. 2 IT IS SO ORDERED. 3 Dated: June 2, 2020

5 William H. Orrick 6 United States District Judge 4 8 9 10 11 a 12

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