Richards v. Centripetal Networks, Inc.

• Court: District Court, N.D. California
• Decided: January 2, 2024
• Docket: 4:23-cv-00145
• Status: Unknown

Opinion

1 UNITED STATES DISTRICT COURT 2 NORTHERN DISTRICT OF CALIFORNIA 3 4 ALBERT RICHARDS, Case No. 4:23-cv-00145-HSG

5 Plaintiff, ORDER GRANTING IN PART AND DENYING IN PART THE MOTION TO 6 v. DISMISS

7 CENTRIPETAL NETWORKS, INC.; Re: Dkt. No. 35 STEVEN ROGERS; JONATHAN 8 ROGERS; and JOHN DOES 1-10,

9 Defendants. 10

11 Pending before the Court is Defendant Centripetal Networks Inc., Steven Rogers, and 12 Jonathan Rogers’ Motion to Dismiss (Dkt. No. 35, “Mot.”) the First Amended Complaint (Dkt. 13 No. 26-1, “FAC”). Plaintiff opposes the motion. Dkt. No. 41 (“Opp.”). For the reasons set forth 14 below, the Court GRANTS the motion in part and DENIES the motion in part.1 15 I. BACKGROUND 16 Plaintiff Albert Richards purchased two identical Convertible Promissory Notes (the 17 “Notes”) in the amount of $250,000 each from Centripetal Networks, Inc. FAC ¶¶ 8–9. The 18 Notes guaranteed Plaintiff the option to convert his outstanding principal and interest into shares 19 of the company upon “any sale and issuance of equity securities” by Centripetal. FAC at 1. 20 Plaintiff alleges that from 2016 through 2019, Centripetal sold and issued different “equity 21 securities” without providing notice to Plaintiff as required in the Notes. Id. 22 In October 2019, the parties reached a settlement agreement in which Centripetal paid the 23 balance on the Notes and Plaintiff relinquished his conversion rights. Id. at 2. In the Settlement 24 Agreement, Defendants represented that “no equity securities have been issued that would give 25 rise to the Creditor’s option to convert” under the Notes. Id.; Id., Ex. S at 2. The Settlement 26 Agreement also provided that Plaintiff “acknowledges and agrees that the issuance by Centripetal 27 1 of common options and/or warrants do [sic] not constitute a Next Non-03 Round2 and the issuance 2 of any such options or warrants does not trigger any right or entitlement to conversion provided 3 for in the Notes.” Id. 4 Plaintiff claims that Defendants fraudulently induced him into signing the agreement. 5 Specifically, he alleges that Defendants falsely represented that they had not issued equity 6 securities in order to coax him into signing away his rights to conversion. Plaintiff accordingly 7 brings claims for breach of contract (Count One); breach of the implied covenant of good faith and 8 fair dealing (Count Two); breach of fiduciary duty (Count Three); constructive fraud (Count 9 Four); concealment (Count Five); negligent misrepresentation (Count Six); intentional fraud 10 (Count Seven); fraudulent inducement (Count Eight)3; violation of California Code § 1668 (Count 11 Nine); unjust enrichment (Count Ten); violation of California Corporation Code § 25401 12 prohibiting false statements in the sale of securities, and successor liability under the statute 13 (Counts Eleven and Twelve); and negligence (Count Thirteen). 14 II. LEGAL STANDARD 15 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain 16 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A 17 defendant may move to dismiss a complaint for failing to state a claim upon which relief can be 18 granted under Rule 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the 19 complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” 20 Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 21 12(b)(6) motion, a plaintiff need only plead “enough facts to state a claim to relief that is plausible 22 on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible 23 when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that 24 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 25

26 2 “Next Non-03 Round” refers to the then-anticipated round of financing by a company called Option3. FAC ¶ 14. 27 3 Plaintiff includes a violation of California Code § 1668 in his fraudulent inducement claim 1 In reviewing the plausibility of a complaint, courts “accept factual allegations in the complaint as 2 true and construe the pleadings in the light most favorable to the nonmoving party.” Manzarek v. 3 St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nevertheless, courts do not 4 “accept as true allegations that are merely conclusory, unwarranted deductions of fact, or 5 unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 6 (quoting Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001)). 7 Rule 9(b) imposes a heightened pleading standard where fraud is an essential element of a 8 claim. See Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party must state with particularity 9 the circumstances constituting fraud or mistake.”); see also Vess v. Ciba–Geigy Corp. USA, 317 10 F.3d 1097, 1107 (9th Cir. 2003). A plaintiff must identify “the who, what, when, where, and how” 11 of the alleged conduct, so as to provide defendants with sufficient information to defend against 12 the charge. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997). However, “[m]alice, intent, 13 knowledge, and other conditions of a person's mind may be alleged generally.” Fed. R. Civ. P. 14 Rule 9(b). 15 Even if the court concludes that a 12(b)(6) motion should be granted, the “court should 16 grant leave to amend even if no request to amend the pleading was made, unless it determines that 17 the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 18 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quotation omitted). 19 III. ANALYSIS 20 A. Breach of Contract (Count One) 21 Plaintiff claims Defendants breached the Notes by failing to provide Plaintiff with notice 22 of its sales and issuances of equity securities. Plaintiff further argues that this behavior breached 23 and invalidated the Settlement Agreement, which he claims was specifically based on the 24 representation that no equity securities had been issued at the time of execution. Defendants argue 25 that the Settlement Agreement bars these claims in the first instance. 26 Under California law, “[a] contract must be so interpreted as to give effect to the mutual 27 intention of the parties as it existed at the time of contracting.” Cal. Civ. Code § 1636. “[S]uch 1 ordinary and popular sense, unless it appears the parties used the terms in some special sense. AIU 2 Ins. Co. v. FMC Corp., 51 Cal. 3d 807, 822 (1995) (citing Cal. Civ. Code § 1639). If the language 3 used is “clear and explicit,” then it controls as a matter of law. Segal v. Silberstein, 156 Cal. App. 4 4th 627, 633 (2007). But where a contract is “capable of two or more constructions, both of which 5 are reasonable,” it is considered ambiguous. TRB Invs., Inc. v. Fireman’s Fund Ins. Co., 40 Cal. 6 4th 19, 27 (2006). Where the language “leaves doubt as to the parties’ intent,” the motion to 7 dismiss must be denied. Consul Ltd. v. Solide Enters., Inc., 802 F.2d 1143, 1149 (9th Cir.1986). 8 Virginia law governs the Settlement Agreement, see FAC, Ex. S at 4, although the parties 9 focus on California law in their arguments on this issue. The Court analyzes the issues raised 10 under the laws of both states. In Virginia, when a contract as analyzed on the whole is “clear, 11 unambiguous, and explicit, a court asked to interpret such a document should look no further than 12 the four corners of the instrument.” Pocahontas Min. Ltd. Liability Co. v. CNX Gas Co., LLC, 276 13 Va. 346, 353 (2008). Conflicting interpretations reveal an ambiguity only where they are 14 reasonable. Babcock & Wilcox Co. v. Areva NP, Inc., 292 Va. 165, 179, 788 S.E.2d 237 (2016). 15 An ambiguity exists when language is “of doubtful import, admits of being understood in more 16 than one way, admits of two or more meanings, or refers to two or more things at the same 17 time.” Allen v. Green, 229 Va. 588, 592 (1985). 18 i. Scope of Waiver in the Settlement Agreement 19 The Court first analyzes whether the Settlement Agreement bars Plaintiff’s claims. 20 Defendants argue that the carveout provision in question explicitly precludes the breach of 21 contract claim because Plaintiff “acknowledged and agreed” that Centripetal’s “issuance of 22 common options and/or warrants do [sic] not constitute a Next Non-03 Round” and that “the 23 issuance of any such options or warrants does not trigger any right or entitlement to conversion 24 provided for in the Notes.” In response, Plaintiff points to Paragraph 6 of the Settlement 25 Agreement, which notes that “[n]othing herein contained shall be construed as a substitution or 26 novation of the original Indebtedness evidenced by the Notes or any of the other Loan 27 Documents” and that “[n]othing herein contained shall be construed to modify any other 1 share holdings.” Opp. 15–16 (citing FAC, Ex. S at 2.) 2 Here, the Settlement Agreement contains a specific provision and a general disclaimer. It 3 is a “standard rule of contract interpretation” that “specific terms control over general ones.” 4 United States ex rel. Welch v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791, 797 (9th Cir. 5 2017) (quoting S. Cal. Gas Co. v. City of Santa Ana, 336 F.3d 885, 891 (9th Cir. 2003)); 6 Appalachian Reg’l Healthcare v. Cunningham, 294 Va. 363, 373 n.9 (2017) (“When two 7 provisions of a contract conflict with one another, and one provision specifically addresses the 8 dispute at hand while the other remains general, we have consistently held that the specific 9 provision will govern over the general.”). Accordingly, the specific provision governs over the 10 general. Plaintiff’s argument that the Settlement Agreement cannot “modify the terms of any 11 other agreement” would render the provision clarifying the scope of a triggering event 12 meaningless. See Pauma Band of Luiseno Mission Indians of Pauma & Yuima Rsrv. v. California, 13 813 F.3d 1155, 1171 (9th Cir. 2015) (“An interpretation which gives effect to all provisions of the 14 contract is preferred to one which renders part of the writing superfluous, useless or 15 inexplicable.”) (internal citation omitted); Appalachian Ins. Co. v. McDonnell Douglas Corp., 214 16 Cal. App. 3d 1, 12 (1989) (“An interpretation which renders part of the instrument to be 17 surplusage should be avoided.”); Pocahontas Min. Liab. Co. v. CNX Gas Co., LLC, 276 Va. 346, 18 353 (2008) (“No word or phrase employed in a contract will be treated as meaningless if a 19 reasonable meaning can be assigned to it, and there is a presumption that the contracting parties 20 have not used words needlessly.”).4 Therefore, the Court finds that the Settlement Agreement 21 operates to bar the breach of contract claims relating to the issuance of common options and 22 warrants. 23 ii. The Settlement Agreement Does Not Bar Claims for the “Exercise” of Options 24 As noted, the carveout in the Settlement Agreement provides that the “issuance of options 25

26 4 Plaintiff’s extrinsic allegation that Defendants “slipped” this carveout provision into the five- page contract with Plaintiff “unawares” does not suggest ambiguity and is not considered. See 27 FAC ¶¶ 146–47; see also Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1179 (9th Cir. 2014) 1 and/or warrants” does not trigger Centripetal’s obligations under the notes. Plaintiff contends that 2 the language in the carveout does not apply to the sale and issuance of common stock upon the 3 exercise of those options, and contends that the “issuance” of “warrants” is too general and 4 ambiguous to bar his allegations related to warrants. 5 As to the exercise of stock options, Plaintiff argues that the issuance of options and 6 issuance of shares on the exercise of options are two distinctly different acts. Plaintiff contends 7 that the issuance of an option does not necessarily precede or follow the issuance of shares upon 8 the exercise of that option because these acts occur at different times, new consideration is 9 exchanged, and different types of equity securities are issued.5 Defendants counter that the 10 issuance of options should encompass the sale and issuance of common stock upon the exercise of 11 those options. At this early stage, the Court finds that whether the carveout applies to bar claims 12 related to the issuance of shares after the “exercise” of these options is susceptible to multiple 13 interpretations. Woods v. Google, Inc., 889 F. Supp. 2d 1182, 1190–91 (N.D. Cal. 2012). See In 14 re Yahoo! Litig., 251 F.R.D. 459, 471–72 (C.D. Cal. 2008) (allowing plaintiffs to conduct 15 discovery regarding their interpretation that references to “Sponsored Search” and “Content 16 Match” products indicate a promise to target advertisements because “[a]t this stage of the 17 proceedings . . . the Court is unable to dismiss, out of hand, plaintiffs’ contention that extrinsic 18 evidence will show that they bargained for targeted advertising services, even if the Agreement 19 appears on its face to state otherwise.”).6 Plaintiff adequately pleads that his rights were triggered 20 when Centripetal issued shares of stock upon the exercise of stock options by their holders. See 21 FAC ¶ 59 (discussing shares issued as a result of 39,583 options exercised); id. ¶ 78 (“In the first 22 quarter of 2017, Centripetal issued 82,400 shares of stock at $0.05 per share”). 23 As to the scope of the “issuance” of “warrants,” Plaintiff argues that there is some 24 ambiguity based on extrinsic evidence of the parties’ prior use of these terms, and that “warrants”

25 5 Plaintiff contends that this exercise of options still falls under the ambit of the “sales and issuances of securities” provision under the Notes that triggers the right to convert. 26 6 Defendants note that California Corporations Code § 25017(e) provides that “neither the exercise of the right to purchase” shares pursuant to options or warrants “nor the issuance of securities 27 pursuant thereto is an offer of sale.” But they provide no authority suggesting that this definition 1 here may not encompass the various issuances of warrants at issue. Whereas the issuance of 2 shares upon the exercise of options is plausibly distinct from the issuance of options, the term 3 “warrant” naturally includes the various types of warrants and therefore is not ambiguous. See 4 HotChalk, Inc. v. Scottsdale Ins. Co., 736 F. App’x 646, 648 (9th Cir. 2018) (“California courts 5 ascribe words their plain meaning and give broad meaning to broad terms….”); see also Bay 6 Cities Paving & Grading, Inc. v. Lawyers’ Mutual Ins. Co., 5 Cal.4th 854, 868 (1993) (In contract 7 interpretation, “a word with a broad meaning or multiple meanings may be used for that very 8 reason—its breadth—to achieve a broad purpose.”); Smith v. Smith, 43 Va. App. 279, 287 (2004) 9 (“[I]f no patent or latent ambiguities exist, a court should enforce the plain meaning of the 10 contractual language without resort to extrinsic evidence.”). 11 Accordingly, the Court denies the motion to dismiss as to the breach of contract claim. 12 B. Breach of the Implied Covenant of Good Faith and Fair Dealing (Count Two) 13 Plaintiff alleges a violation of the implied covenant of good faith and fair dealing, but this 14 claim is duplicative of the breach of contract claim. Under California law, “[e]very contract 15 imposes on each party a duty of good faith and fair dealing in each performance and in its 16 enforcement.” Carson v. Mercury Ins. Co., 210 Cal. App. 4th 409, 429 (Cal. Ct. App. 2012) 17 (quotation omitted). The implied covenant may not, however, duplicate a breach of contract 18 claim. See Guz v. Bechtel Nat’l Inc., 24 Cal. 4th 317, 325, 352 (Cal. 2000) (“[W]here breach of an 19 actual [contract] term is alleged, a separate implied covenant claim, based on the same breach, is 20 superfluous.”); Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1401 (Cal. Ct. 21 App. 1990), as modified on denial of reh’g (Oct. 31, 2001) (“[A]s [the plaintiffs] have alleged 22 nothing more than a duplicative claim for contract damages, the trial court was correct in 23 sustaining a demurrer to this count without leave to amend.”). It supplements “the express 24 contractual covenants [] to prevent a contracting party from engaging in conduct which (while not 25 technically transgressing the express covenants) frustrates the other party’s rights to the benefits of 26 the contract.” Avidity Partners, LLC v. State, 221 Cal. App. 4th 1180, 1204 (Cal. Ct. App. 2013) 27 (quotation omitted). 1 Plaintiff alleges Centripetal breached the implied covenant “when it knowingly and willfully 2 deprived Richards of the benefit of his convertible Notes, by obscuring, omitting, or outright 3 denying the existence of the triggering events that gave rise to Richards’s right to convert.” FAC 4 ¶ 181. The same allegations underlie the breach of contract claim. See id. ¶ 174 (Defendants 5 “knowingly and repeatedly failed to give Richards notice of its sales and issuances of equity 6 securities, failed to disclose the material terms and conditions of [the] same, and denied Richards 7 his contractually-guaranteed opportunity to convert his Notes into validly issued, fully paid and 8 nonassessable shares of the securities issued”). Second, Plaintiff alleges that “Centripetal schemed 9 to induce Richards to sign a contract purporting to limit, restrict, and/or waive his rights” in 10 violation of the implied covenant. Id. ¶ 183. Again, this allegation is duplicative of the contract 11 claim. See id. ¶ 175 (“Centripetal’s breach extended to the fraudulently obtained 2019 settlement 12 agreement, which Richards signed based on Defendants’ years of misstatements, omissions, and 13 concealments. Centripetal falsely warranted, in Paragraph 5a of that agreement, that ‘no event of 14 conversion’ had occurred to trigger Richards’s conversion rights.”). 15 As such, these allegations “do not go beyond the statement of a mere contract breach and, 16 relying on the same alleged acts, simply seek the same damages or other relief already claimed in 17 a companion contract cause of action.” Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 18 3d 1371, 1377 (1990). The Court finds that Plaintiff’s claim for breach of the implied covenant 19 “may be disregarded as superfluous.” Id. 20 C. Fraudulent Inducement (Count Eight) 21 To establish that the Settlement Agreement is unenforceable as procured by fraud, Plaintiff 22 must plausibly allege five elements: “(a) misrepresentation (false representation, concealment, or 23 nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce 24 reliance; (d) justifiable reliance; and (e) resulting damage.” Lazar v. Superior Ct., 12 Cal. 4th 631, 25 638 (1996). The elements are the same under Virginia law. See Evaluation Research Corp. v. 26 Aleguen, 439 S.E. 2d 387, 390 (Va. 1994)). 27 Plaintiff alleges that Defendants fraudulently induced him to enter the Settlement 1 triggering event” took place under the Notes, and that this representation induced him to sign the 2 Settlement Agreement. 3 But Plaintiff specifically ceded that “issuance of options and/or warrants” would not 4 trigger the right to convert or notice of the same. Regardless of whether Centripetal issued options 5 and warrants, Plaintiff knowingly limited the scope of the trigger for conversion. Accordingly, the 6 Court construes the fraudulent inducement claim as follows: because Defendants knowingly 7 issued shares upon the exercise of options without notifying Plaintiff, they knowingly 8 misrepresented that no triggering event had occurred under the Notes to induce him into signing 9 the Settlement Agreement. Plaintiff plausibly alleges that he justifiably relied on the 10 misrepresentation and as a result the Settlement Agreement limited his rights to conversion, 11 causing injury. 12 Defendants argue that certain investor reports establish that Plaintiff had actual knowledge 13 that shares were issued upon the exercise of options. See Dkt. No. 48 at 9. But at the pleading 14 stage, accepting Plaintiff’s allegations as true, this argument does not establish that the claim fails 15 as a matter of law, and Plaintiff thus states a claim for fraudulent inducement. Whether he can 16 factually substantiate the claim is an issue for summary judgment or trial. 17 D. Violation of California Code § 1668 (Count Nine) 18 In general, § 1668 of the California Corporate Code applies only to concurrent or future 19 torts. SI 59 LLC v. Variel Warner Ventures, LLC, 29 Cal.App.5th 146, 152–153 (2018) (“[w]e are 20 not aware of any case law applying section 1668 to torts where all elements are past events . . . the 21 weight of authority recogniz[es] that section 1668 applies only to concurrent or future torts.”). In 22 other words, this provision is meant to prohibit contracts releasing liability for future or concurrent 23 torts, not to prohibit settlements of disputes relating to past conduct. City of Santa Barbara v. 24 Superior Court, 41 Cal.4th 747, 754–755 (2007). That said, courts have applied § 1668 “to negate 25 exemption clauses that would otherwise proscribe liability for fraudulent inducement of the very 26 contracts with the exemption clauses.” SI 59, 29 Cal.App.5th at 152 (citing Blankenheim v. E. F. 27 Hutton & Co., 217 Cal.App.3d 1463, 1471–1473 (1990) (plaintiffs were fraudulently induced into 1 the hold harmless clauses to exempt it from “responsibility for its own misrepresentations”); 2 Simmons v. Ratterree Land Co., 217 Cal. 201, 204 (1932) (citing § 1668 and stating “a seller 3 cannot escape liability for” fraudulent inducement of a contract by inserting a release of liability 4 into the contract)). Here, the waiver of Plaintiff’s rights involved past action and the Settlement 5 Agreement does not proscribe liability for fraudulent inducement. Accordingly, the § 1668 claim 6 fails. 7 E. Negligent Misrepresentation (Count Six); Fraud (Count Seven) 8 Plaintiff alleges numerous misrepresentations or omissions in the FAC about the financial 9 health of Centripetal and the existence (or absence) of events triggering Richards’s right to 10 convert. As to the first category of misrepresentations, Plaintiff fails to establish how he was 11 damaged by alleged misrepresentations regarding the financial health of the company, as the only 12 damages alleged arise from the lost opportunity to convert. As to the second category, Plaintiff 13 agreed that the “issuance of warrants and options” would not trigger a conversion event under the 14 Notes. The only potentially relevant misrepresentations regarding triggering events would 15 concern the issuance of shares upon the exercise of options. Here, the only alleged actionable 16 misrepresentation or omission occurred in the contract itself, when Defendants represented that no 17 triggering event had occurred. Because Plaintiff meets the standard for fraud, he also meets the 18 lower standard for negligent misrepresentation. 19 F. Breach of Fiduciary Duty (Count 3); Constructive Fraud (Count 4); Fraudulent Concealment (Count 5) 20 Plaintiff’s third, fourth and fifth claims, for breach of fiduciary duty, constructive fraud, 21 and concealment, respectively, each require a fiduciary duty. For a fiduciary duty to arise, a 22 defendant “must either knowingly undertake to act on behalf and for the benefit of another, or 23 must enter into a relationship which imposes that undertaking as a matter of law.” City of Hope 24 Nat’l Med. Ctr. v. Genentech, Inc., 43 Cal. 4th 375, 386 (2008) (quotation omitted). Under 25 California law, “[a]bsent special circumstances . . . a loan transaction is at arms-length and there is 26 no fiduciary relationship between the borrower and lender.” Oaks Mgmt. Corp. v. Superior Court, 27 1 (1992) (holding that under Delaware law, which the court stated is congruent with California law, 2 a corporation and its directors owe no fiduciary duty to holders of the corporation’s convertible 3 notes); True Gentlemen’s Jerky, Inc. v. 1K1V TGJ Holdings, LLC, 2022 WL 3370792, at *3–4 4 (N.D. Cal. Aug. 16, 2022) (granting motion to dismiss breach of fiduciary duty claim brought by 5 borrower against lender because no fiduciary relationship exists between company and holder of 6 its promissory notes). 7 The FAC does not allege any facts suggesting such “special circumstances.” See id.; 8 Yamauchi v. Cotterman, 84 F. Supp. 3d 993, 1017 (N.D. Cal. 2015) (finding no fiduciary duty 9 when plaintiff failed to allege counterparty had vulnerability such as youth or ill health “so as to 10 give rise to equitable concerns”). Because Plaintiff failed to plead anything more than a lender- 11 borrower relationship, he fails to state claims for breach of fiduciary duty, constructive fraud, and 12 concealment. 13 G. Negligence (Count 13) 14 Plaintiff fails to tie claims of general misconduct—including so-called “accounting 15 chicanery” and deceptive conduct regarding the financial state of Centripetal and its handling of 16 securities—with any damages suffered. As noted previously, the only damages alleged arise out 17 of the missed conversion opportunities. Therefore, the only conduct that is actionable is the 18 alleged misrepresentation in the Settlement Agreement. Because this allegation is encompassed 19 by the negligent misrepresentation claim, the general negligence claim is duplicative and therefore 20 dismissed. 21 H. Unjust Enrichment (Count Ten) 22 A claim for unjust enrichment requires a plaintiff to plead two elements: “receipt of a 23 benefit and unjust retention of the benefit at the expense of another.” Lectrodryer v. SeoulBank, 24 77 Cal.App.4th 723, 726, 91 Cal.Rptr.2d 881 (Cal. Ct. App. 2000). Fundamental to a claim for 25 unjust enrichment is the basic notion that a “person is not permitted to profit by his own wrong.” 26 Restatement (Third) of Restitution & Unjust Enrichment § 3. The gravamen of this claim is one 27 of quasi-contract. First Nationwide Savings v. Perry, 11 Cal.App.4th 1657, 1663 (1992); see also 1 and unjust enrichment “describe the theory underlying a claim that a defendant has been unjustly 2 conferred a benefit through mistake, fraud, coercion, or request” (internal quotation marks 3 omitted)). Though a plaintiff may be required to elect remedies at a later stage, at the pleading 4 stage a claim for restitution based on unjust enrichment may be pleaded in the alternative to a 5 contract claim. See Hawthorne v. Umpqua Bank, No. C-11-6700 YGR, 2012 WL 1458194, at *3 6 (N.D. Cal. Apr. 26, 2012); In re Natera Prenatal Testing Litig., 2023 WL 3370737, at *10 n.12 7 (N.D. Cal. Mar. 28, 2023) (noting that “subsequent Ninth Circuit law establishes that the 8 duplicative nature of an unjust enrichment/quasi-contract claim is not a valid reason to dismiss 9 it.”). 10 Plaintiff fails to allege that he conferred a benefit on Defendants and that Defendants 11 retained that benefit. Defendants repaid the balance due under the Notes and thus did not retain a 12 profit. FAC ¶ 153. Plaintiff fails to state a claim for unjust enrichment. 13 I. Violation of California Corporation Code Section 25401 and 25403 (Counts Eleven and Twelve) 14 Neither party made specific arguments concerning these statutes. As such, the motion is 15 denied as to these claims. 16 IV. CONCLUSION 17 Defendants’ motion to dismiss is GRANTED in part insofar as the Court dismisses with leave 18 to amend: 19 1. Count Two (breach of the implied covenant of good faith and fair dealing) 20 2. Count Three (breach of fiduciary duty) 21 3. Count Four (constructive fraud) 22 4. Count Five (concealment) 23 5. Count Nine (violation of California Code § 1668) 24 6. Count Ten (unjust enrichment) 25 7. Count Thirteen (negligence) 26 Defendants’ motion is otherwise DENIED. Plaintiffs shall file any Second Amended 27 Complaint no later than January 23, 2024. A case management conference is set for February 6, 1 2024, with a joint case management statement due by January 30, 2024. All counsel shall use the 2 || following dial-in information to access the call: 3 Dial-In: 888-808-6929 4 Passcode: 6064255 5 All attorneys appearing for a telephonic case management conference are required to dial 6 || in at least 15 minutes before the hearing to check in with the CRD. For call clarity, parties shall 7 NOT use speaker phone or earpieces for these calls, and where at all possible, parties shall use 8 landlines. 9 IT IS SO ORDERED. 10 || Dated: 1/2/2024 11 7 Haspucend 3 Ld, □□ HAYWOOD S. GILLIAM, JR. 12 United States District Judge

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