Arimilli v. Rezendes

1

Nirmala Arimilli, Plaintiff, v. Keith Rezendes, Defendant.

No. CV-21-00345-PHX-GMS

United States District Court, D. Arizona

March 31, 2023

ORDER

G MURRAY SNOW, CHIEF UNITED STATES DISTRICT JUDGE

Before the Court is Keith Rezendes's (“Defendant”) Motion to Dismiss Fourth Amended Complaint (Doc. 29). Also pending is Nirmala Arimilli's (“Plaintiff”) Motion for Joinder of Additional Parties (Doc. 24). For the following reasons, the motion to dismiss is granted in part and denied in part, and the motion for joinder is denied.

BACKGROUND

Plaintiff formed a relationship with Defendant between 1999 and 2000. In March 2017, Plaintiff visited Defendant, and was introduced to his purported wife, Ms. Rosen. During the visit, Defendant allegedly asked Plaintiff to invest in his company, Avidbrain Inc., claiming that she was eligible to invest in his company due to a change in the investment laws. Defendant also offered Plaintiff a job, which she accepted. By April 2017, Plaintiff had allegedly invested $125,000 in Defendant's company.

While employed by Defendant, Plaintiff noticed “discrepancies in relation to [the] overall success of the company.” (Doc. 23 at 3.) Plaintiff alleges that, due to her “years long trust in [Defendant],” she believed Defendant when he denied any wrongdoing. (Doc. 23 at 4.) After receiving further information that “affirmed [her] doubts and concerns about the company,” Plaintiff confronted Defendant and was subjected to a “torrent of vitriol and verbal abuse.” (Doc. 23 at 4.) Plaintiff's last communication with Defendant was in November 2017.

Plaintiff filed suit in Maricopa County Superior Court in October 2020. She amended her complaint twice in state court. Defendant then removed the case to this Court in February 2021, and subsequently moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court granted in part and denied in part Defendant's motion, giving Plaintiff leave to amend her complaint. (Doc. 14.) Plaintiff amended her complaint, and Defendant moved to dismiss the Third Amended Complaint, which the Court, again, granted in part and denied in part, giving Plaintiff leave to amend. (Doc. 22.) Plaintiff then filed her Fourth Amended Complaint (“FAC”), which Defendant's instant motion moves to dismiss under Rule 12(b)(6).

DISCUSSION

I. Motion to Dismiss

A. Legal Standard

1. Notice Pleading Requirements

Federal Rule of Civil Procedure 8(a) requires a complaint to contain “a short and plain statement of the claim showing that the pleader is entitled to relief,” Fed.R.Civ.P. 8(a), so that the defendant receives “fair notice of what the . . . claim is and the grounds upon which it rests,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To survive dismissal for failure to state a claim, a plaintiff's factual allegations in the complaint “must . . . suggest that the claim has at least a plausible chance of success.” Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014). Factual allegations in the complaint are accepted as true, and the pleading is construed “in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). But “allegations in a complaint . . . may not simply recite the elements of a cause of action [and] must contain sufficient allegations of underlying facts to give fair notice and enable the opposing party to defend itself effectively.” Levitt, 765 F.3d at 1135. Further, legal conclusions couched as factual allegations are not given a presumption of truthfulness, and “conclusory allegations of law and unwarranted inferences are not sufficient to defeat motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998).

Allegations in a pro se complaint are held to “less stringent standards than formal pleadings drafted by lawyers.” Erickson v. Pardus, 551 U.S. 89, 94 (2007). Pro se complaints must be liberally construed and afforded the benefit of any doubt. Hebbe v. Pliler, 627 F.3d 338, 342 (9th Cir. 2010).

2. Fraud Pleading Requirements

Federal Rule of Civil Procedure 9(b) requires that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). “To satisfy the particularity of circumstances, statements of time, place, and nature of the alleged fraudulent activities are sufficient, while mere conclusory allegations of fraud are not.” Arnold & Assocs., Inc. v. Misys Healthcare Sys., 275 F.Supp.2d 1013, 1028 (D. Ariz. 2003). In addition to setting out the “who, what, when, where, and how” of the misconduct, Cooper v. Picket, 137 F.3d 616, 627 (9th Cir. 1997), a plaintiff must “set forth what is false or misleading” about a particular statement, “and why it is false.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Decker v. GlenFed, Inc. (In re GlenFed, Inc. Sec Litig.), 42 F.3d 1541, 1548 (9th Cir. 1994), superseded by statute on other grounds as recognized in Avakian v. Wells Fargo Bank, N.A., 827 Fed.Appx. 765, 766 (9th Cir. 2020)).

B. Analysis

1. Fraudulent Misrepresentation (Count 1), Fraudulent Inducement (Count 3), and Fraudulent Concealment (Count 5)

The Court previously preserved Plaintiff's claims for fraudulent misrepresentation, fraudulent inducement, and fraudulent concealment to the extent the claims were based on Defendant's representation that “all company filings were accurate.” (Doc. 14 at 7.) These fraud claims are governed by Federal Rule of Civil Procedure 9, requiring a heightened pleading standard. Fed.R.Civ.P. 9(b). To prevail on a common law fraud claim, Plaintiff must show:

(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on the truth; (8) his right to rely thereon; and (9) his consequent and proximate injury.

Peery v. Hansen, 585 P.2d 574, 577 (Ariz.Ct.App. 1978).

In Plaintiff's FAC, she reiterates her fraud claims, adding several new alleged fraudulent statements. While Plaintiff states that she believes all of the additional statements to be false, she fails to plead the requisite elements for fraud. For example, for all of the newly added allegations, she fails to plead that she relied on the representations to her detriment and how the reliance on each statement was justified. Instead, she alleges, as with previous versions of the complaint, “Plaintiff justifiably relied on Defendant's representations with respect to good-standing nature of the company, and himself along with the promise to refund all funds provided upon the request.” (Doc. 23 at 10.) This statement addresses her previously preserved fraud claims based on Defendant's representations that the company's filings were accurate. It does not, however, address new claims such as the alleged misrepresentation as to Defendant's marital status or his educational background. Plaintiff has not met the pleading standard for the new grounds she raises for the fraud claims; they are therefore only preserved to the extent that the Court's previous orders have preserved them. (See Doc. 14 at 7; Doc. 22 at 9-10.)

2. Gross Negligence (Count 2)

The Court previously dismissed Plaintiff's claim for gross negligence because Plaintiff did “not allege that Defendant knew or had reason to know that his conduct would create an unreasonable risk of bodily harm.” (Doc. 14 at 8.) It also clarified that financial harm, rather than “an unreasonable risk of bodily harm,” is insufficient to support a gross negligence claim. Walls v. Ariz. Dep't of Pub. Safety, 826 P.2d 1217, 1221 (Ariz.Ct.App. 1991); (Doc. 22 at 5). Additionally, the Court previously held that “[e]ven though emotional distress may cause bodily harm, emotional distress itself is not a form of bodily harm under Arizona law.” (Id.)

In Plaintiff's FAC, she explains that she suffered “emotional distress that has manifested itself physically (extreme weight gain, graying of hair, health issues, etc.).” (Doc. 23 at 12.) Even accepting these statements as true, they do not show that Defendant's conduct created an “unreasonable risk of bodily harm to others . . . [and] a high probability that substantial harm will result.” Walls, 826 P.2d at 1221. The negligent acts that Plaintiff alleges Defendant committed are “fail[ing] to issue a complete investor contract along with other documentation,” knowingly falsifying revenue, misrepresenting his ability to procure and maintain relationships with investors, failing to disclose bankruptcy, and covering up the aforementioned actions. (Doc. 23 at 11.) None of these actions are sufficient to create an unreasonable risk of bodily harm to others and a high probability that substantial harm will result. A gross negligence claim requires more wanton conduct that gives rise to more substantial harm than the harms alleged here. As the Plaintiff has been afforded multiple opportunities to plead additional facts relating to this claim, it appears amendment would be futile. As such, the claim is dismissed with prejudice.

3. Breach of Fiduciary Duty (Count 6)

Plaintiff's breach of fiduciary duty claim is dismissed because she does not properly allege the existence of a fiduciary duty. In her FAC, Plaintiff added that a fiduciary duty existed because of “the newly established employer-employee and investment holder/manager-investor relationship with the Plaintiff.” (Doc. 23 at 20.) In Arizona, an employee owes her employer a fiduciary duty. McCallister Co. v Kastella, 825 P.2d 980, 982 (Ariz.Ct.App. 1992). An employer, however, does not owe his...