Streeter v. Izadi

MARK STREETER, Plaintiffs, v. ARMAN IZADI et al., Defendants.

No. 2:18-cv-01916-RFB-VCF

United States District Court, D. Nevada

September 21, 2021

ORDER

RICHARD F. BOULWARE, II UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

Before the Court is Defendants' Motion to Dismiss. ECF No. 47. For the reasons below, the Court denies the motion.

II. PROCEDURAL BACKGROUND

On October 4, 2018, Plaintiff commenced this lawsuit against Defendants. ECF No. 1. On March 23, 2020, Plaintiff filed a second amended complaint. ECF No. 34. On May 1, 2020, Defendants Armani Izadi, Sancho Van Ryan, The Orange Trust, and Brian Epling filed a motion to dismiss. ECF No. 47. On May 22, 2020, Plaintiff filed a response and on May 29, 2020 Defendants filed a reply. ECF Nos. 50, 53. On November 9, 2020, this Court held a hearing regarding the motion to dismiss. ECF No. 59.

III. FACTUAL ALLEGATIONS

Glow Threads, Inc. (“GTI”) was formed on February 3, 2016, by Defendant Van Ryan who was also appointed the initial officer and director of the company. In late 2015, Defendants Izadi and Van Ryan approached Plaintiff Streeter and pitched the opportunity to invest in GTI. In exchange for Streeter's investment, he was to receive shares in GTI and another company, Viva La Merch. In an April 2016 sales pitch, Van Ryan and Izadi claimed that they had the proprietary rights to clothing technology to be used on GTI and that GTI has exclusive rights to market and sell GTI. Izadi and Van Ryan also informed Streeter that Defendants Adli Law Group, P.C. (“Adli”) and Anthony DiMonte (“DiMonte”) were providing legal counsel to the company, obtaining required legal patents, and receiving equity.

Based on Van Ryan and Izadi's representations, in April 2016, Streeter invested $50, 000.00 in the company. At that time, the shares were divided in the following manner: The Orange Trust, Izadi's company, received 7, 100 shares, Brian Epling received 400 shares, Aldi received 500 shares, and Streeter received 2, 000 shares. Streeter never received any shares for Viva La Merch.

On May 20, 2016, Streeter purchased the domain name “mymerch.com” on behalf of Izadi and Van Ryan for GTI. In May 2016, Streeter invested an additional $60, 000 in GTI in exchange for 1, 000 additional shares. On May 18, 2016, and Streeter, Orange Trust, and Van Ryan signed an agreement acknowledging that Streeter invested $125, 000.00 into GTI.

In late May 2016, Izadi and Van Ryan requested more funds from Streeter claiming that GTI needed capital to secure inventory from GTI's suppliers. Streeter agreed and invested an additional $35, 000.00 on June 1, 2016. It was represented to Streeter that DiMonte was to secure the intellectual property right for GTI; however, it was never secured.

Bonnie Izadi (“Roberts”), Izadi's mother, was installed by Izadi as the Secretary, Treasurer and Chief Financial Officer of GTI. Izadi and Van Ryan appointed Roberts without an investigation to determine if she was qualified for such a role. Roberts made substantial payments to her son, Izadi, out of GTI accounts. By July 29, 2016, GTI's bank account was nearly completely drained ($74.27 remained). There were numerous cash withdrawals in June 2016 for different items; however, there were no invoices or other supporting documentation. Additionally, there were GTI cash funds transferred directly to Izadi. Throughout the relevant time period, Izadi used surrogates such as Van Ryan and his trust, the Orange Trust, to control GTI while using its funds for personal benefits.

IV. LEGAL STANDARD

An initial pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a). The court may dismiss a complaint for failing to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In ruling on a motion to dismiss, “[a]ll well-pleaded allegations of material fact in the complaint are accepted as true and are construed in the light most favorable to the non-moving party.” Faulkner v. ADT Sec. Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013) (citations omitted). To survive a motion to dismiss, a complaint need not contain “detailed factual allegations, ” but merely asserting “‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action'” is insufficient. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, a claim will not be dismissed if it contains “sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face, ” meaning that the court can reasonably infer “that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citation and internal quotation marks omitted). The Ninth Circuit, in elaborating on the pleading standard described in Twombly and Iqbal, has held that for a complaint to survive dismissal, the plaintiff must allege non-conclusory facts that, together with reasonable inferences from those facts, are “plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 2009).

V. DISCUSSION

a. Fed.R.Civ.P. 23.1

As a preliminary matter, this Court finds that Plaintiff has satisfied the requirements of Fed.R.Civ.P.23.1(a). “A derivative theory of recovery, whether asserted individually or on behalf of a class, is governed by Fed.R.Civ.P. 23.1.” Lewis v. Chiles, 719 F.2d 1044, 1050 (9th Cir. 1983). Rule 23.1 states that a derivative action brought by “one or more shareholders ... to enforce a right” of a corporation “may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of shareholders or members who are similarly situated in enforcing the right of the corporation or association.” Quinn v. Anvil Corp., 620 F.3d 1005, 1012 (9th Cir. 2010). In other words, to have standing, a plaintiff must be a shareholder at the time of the alleged wrongful acts and retain ownership of the stock for the duration of the lawsuit. See, e.g., id.; Lewis, 719 F.3d at 1047. To determine the adequacy of representation, the Ninth Circuit examines eight factors: (1) indications that the plaintiff is not the true party in interest; (2) the plaintiff's unfamiliarity with the litigation and unwillingness to learn about the suit; (3) the degree of control exercised by the attorneys over the litigation; (4) the degree of support received by the plaintiff from other shareholders; (5) the lack of any personal commitment to the action on the part of the representative plaintiff; (6) the remedy sought; (7) the relative magnitude of the plaintiff's personal interests and compared to his interest in the derivative action itself; and (8) the plaintiff's vindictiveness toward the defendants. Larson v. Dumke, 900 F.2d 1363, 1367 (9th Cir. 1990).

Under these factors, the Court finds that Streeter adequately represents the shareholders because there are no other similarly situated shareholders; therefore, Streeter is permitted to bring a derivative suit of one. Streeter is a true party in interest, holding a 30% of shares in GTI and there are no other similarly interested parties. Streeter alleges that he is not similarly situated to any other shareholders because Izadi, Van Ryan, Orange Trust, and Brian Epling were accomplices to the wrongdoing and harm to GTI. The Court concludes, therefore, that in this case, Streeter is the only shareholder similarly situated and that he meets the Rule 23.1 qualifications.

b. Claim One: Breach of Fiduciary Duties

Defendants assert that Plaintiff's first cause of action for breach of fiduciary duty fails to state a claim against Izadi, Van Ryan, The Orange Trust, and Roberts because none of these Defendants had any fiduciary obligations. This Court disagrees for the reasons below.

Under Nevada law, to prevail on a breach of fiduciary duty claim the plaintiff must establish: “(1) the existence of a fiduciary duty; (2) breach of that duty; and (3) the breach proximately caused the damages.” Klein v. Freedom Strategic Partners, LLC, 595 F.Supp.2d 1152, 1162 (D. Nev. 2009). Nevada Revised Statutes (“NRS”) § 78.138(3) provides that “[a] director or officer is not individually liable for damages as a result of an act or failure to act in his or her capacity as a director or officer except under circumstances described in subsection 7.”. NRS § 78.138(7) requires a two-step analysis to impose individual liability on a director or officer. First, the presumptions of the business judgment rule, codified in NRS § 78.138, must be rebutted. The business judgment rule states that “directors and officers, in deciding upon matters of business, are presumed to act in good faith, on an informed basis and with a view to the interests of the corporation.” NRS § 78.138(3). Second, the “director's or officer's act or failure to act” must constitute “a breach of his or her fiduciary duties, ” and that breach must further involve “intentional misconduct, fraud or a knowing violation of law.” NRS 78.138(7)(b)(1)-(2). Therefore, a plaintiff asserting a breach of fiduciary duty by officers and directors “must allege facts that when taken as true (1) rebut the business judgment rule, and (2) constitute a breach of a fiduciary duty involving ‘intentional misconduct, fraud or a knowing violation of law.'” Chur v. Eighth Judicial Dist. Court in & for Cty. of Clark, 458 P.3d 336, 341 (Nev. 2020). To rebut the presumption that the business judgment rule affords, a plaintiff must allege conduct where the fiduciary intentionally acts with a purpose other than that of advancing the best interests of the corporation, where the fiduciary acts with the intent to violate applicable positive law, or...