Yash Venture Holdings, LLC v. Moca Fin. Inc.

YASH VENTURE HOLDINGS, LLC,as designee of Manoj Baheti, Plaintiff, v. MOCA FINANCIAL INC,¹ JOHN A. BURNS,and RAJEEV ARORA, Defendants.

Case No. 4:19-cv-04176-SLD-JEH

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF ILLINOIS ROCK ISLAND DIVISION

December 14, 2020

ORDER

Before the Court are Defendants Moca Financial Inc. ("Moca"),² John A. Burns, and Rajeev Arora's Motion to Dismiss for Lack of Personal Jurisdiction, ECF No. 2;³ Rule 12(b)(6) Motion to Dismiss Amended Complaint for Failure to State a Claim, ECF No. 13; and Motion for Leave to File Reply to Plaintiff's Response to Motion to Dismiss for Lack of Personal Jurisdiction, ECF No. 15. For the reasons that follow, the motion to dismiss for lack of jurisdiction is DENIED, the motion to dismiss for failure to state a claim is GRANTED, and the motion for leave to file a reply is GRANTED.

BACKGROUND⁴

Moca is a start-up company that provides functionalities to the credit card industry, including developing payment gateway software. Burns is Moca's chief executive officer, and Arora is its chief operating officer. Mem. Supp. Mot. Dismiss Failure State Claim 1, ECF No. 14.

In December 2018, Defendants approached Manoj Baheti to become an investor in Moca. They provided him with a memorandum of understanding regarding formation of Moca, which stated, in relevant part, that the participants would be Burns, Baheti, and Arora and that Burns would have twenty percent equity in the company, Baheti would have fifteen percent equity, and Arora would have sixty-five percent equity. MOCA Financial MOU for Company Formation 1, Am. Compl. Ex. A, ECF No. 11-1 ("MOU"). The MOU listed the parties' responsibilities, in part, as follows: Burns was "[r]esponsible for creating and marketing products" and using his contacts to get a sponsoring bank and launch a Moca card; Baheti was responsible for providing support for development up to fifteen percent of the evaluation of the company; and Arora was responsible for providing software, enhancing it as needed, and running day to day operations of the company. Id.

Baheti agreed to the MOU. He "caused the formation" of Plaintiff Yash Venture Holdings, LLC "for the purpose of owning the fifteen percent . . . ownership interest in MOCA." Resp. Mot. Dismiss Lack Personal Jurisdiction 3 n.2, ECF No. 12. The Court hereinafter refers to Baheti and Plaintiff together as Plaintiff. "According to the MOU," Plaintiff was to receive a fifteen percent ownership interest in exchange for development work related to payment gatewaysoftware up to fifteen percent of Moca's initial valuation of $4,000,000.00, that is, $600,000.00. Am. Compl. 3-4, ECF No. 11. In other words, Plaintiff would provide Moca with $600,000.00's worth of software development work and receive fifteen percent of Moca's ownership; Moca would pay Plaintiff for any software development work in excess of that amount. In reliance on the MOU, at the direction of Plaintiff, Yash Technologies, Inc., which is also owned by Plaintiff, performed substantial development work related to the payment gateway software.

In March 2019, Moca provided Plaintiff with a term sheet which "was intended to more fully memorialize the MOU." Id. at 4. It changed the ownership structure as to other parties—it added additional owners and changed Arora's ownership share to fifteen percent, for example—but did not change Plaintiff's ownership interest. See Term Sheet for the Formation of Moca Financial, Inc. 2, Am. Compl. Ex. B, ECF No. 11-2 ("Term Sheet"). It did, however, change the investment required by Plaintiff from $600,000.00's worth of software development to $600,000.00 cash. Id. The parties discussed and negotiated changes to the Term Sheet other than Plaintiff's ownership interest. The parties agreed to the ownership structure as stated in the Term Sheet (i.e., that Plaintiff would be issued a fifteen percent ownership interest), but Moca failed to issue the requisite stock to Plaintiff.

On April 30, 2019, Moca created and provided to Plaintiff a capitalization table. See Capitalization Table as of April 30, 2019, Am. Compl. Ex. C, ECF No. 11-3. This table changed Plaintiff's ownership interest from fifteen percent to seven-and-a-half percent. Id. When Plaintiff inquired why its ownership interest was being diluted, Defendants informed it that other parties were involved in creating an opportunity for Moca and had to be compensated with equity in Moca. Plaintiff objected, stating that its interest should not be diluted for that purpose because it did not agree for its ownership interest to be diluted.

Burns and Arora sent Plaintiff's representative an email on June 10, 2019. They stated that if Plaintiff was "unable to see the value [they] . . . and the Key Execs ha[d] brought to [Plaintiff's] proposed $600,000 strategic investment in Moca since the March time frame, and the importance of driving valuation instead of ownership interest, then [they were] ready to move on without [its] investment." June 10, 2019 Email, Am. Compl. Ex. D, ECF No. 11-4. They also stated that if Plaintiff wanted to maintain its ownership position at fifteen percent, they could discuss an additional investment of $500,000.00. Id. On June 12, 2019, Burns presented Plaintiff with three investment options. See June 12, 2019 Email, Am. Compl. Ex. E, ECF No. 11-5. None offered it a fifteen percent ownership interest for $600,000.00 in the form of software development work.

Defendants thereafter presented Plaintiff with documents related to its ownership in Moca, but because the documents did not accurately reflect its fifteen percent ownership interest, Plaintiff did not sign them. On July 4, 2019, Burns emailed Plaintiff indicating that because it had failed to execute the documents, it forfeited the right to Moca ownership.

Plaintiff filed suit against Defendants on July 29, 2019. Compl., Not. Removal Ex. A, ECF No. 1-1. Defendants removed the case to this Court, Not. Removal, ECF No. 1, and subsequently filed a motion to dismiss for lack of personal jurisdiction, arguing that Defendants had no contacts with Illinois, Mot. Dismiss Lack Personal Jurisdiction 5-6; e.g., Mem. Supp. Mot. Dismiss Lack Personal Jurisdiction 1, ECF No. 2-3.

Plaintiff filed a nine-count Amended Complaint on September 18, 2019. Count I alleges securities fraud under section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78a-78qq. Am. Compl. 6-8. Count II alleges securities fraud under the Illinois Securities Law of 1953 (the "ISL"), 815 ILCS 5/1-19. Am. Compl. 8-9. Count III allegescommon law fraud. Id. at 9. Count IV alleges breach of contract. Id. at 9-10. Count V alleges promissory estoppel. Id. at 10-11. Count VI alleges equitable estoppel. Id. at 11-12. Count VII alleges breach of fiduciary duty against Burns, id. at 12, and count VIII alleges breach of fiduciary duty against Arora, id. at 12-13. Count IX is for injunctive relief. Id. at 13-14. Defendants move to dismiss the Amended Complaint for failure to state a claim.

DISCUSSION

I. Motion for Leave to File a Reply

"No reply to [a] response [to a motion] is permitted without leave of Court." CDIL-LR 7.1(B)(3). Defendants move for leave to file a reply to Plaintiff's response to their motion to dismiss for lack of personal jurisdiction, arguing that Plaintiff's response addresses claims newly asserted in the Amended Complaint and that Plaintiff references a factual basis for personal jurisdiction—a bank account—for the first time in its response. Mot. Leave File Reply 1-2. Plaintiff opposes the motion, arguing that "[t]he lion's share of the . . . proposed Reply merely attacks the merits of [its] claims of securities law violations." Resp. Mot. Leave File Reply ¶ 5, ECF No. 18 (citation omitted). Plaintiff also argues that Defendants should have addressed the bank account earlier and that Defendants misrepresent the facts regarding the bank account. Id. ¶¶ 9-10.

"Typically, reply briefs are permitted if the party opposing a motion has introduced new and unexpected issues in his response to the motion, and the Court finds that a reply from the moving party would be helpful to its disposition of the motion . . . ." Shefts v. Petrakis, No. 10-cv-1104, 2011 WL 5930469, at *8 (C.D. Ill. Nov. 29, 2011). Although the proposed reply primarily argues that Plaintiff has not adequately pleaded its securities fraud claims and refers back to the motion to dismiss for lack of personal jurisdiction for the common law fraud claim, itis helpful for the Court to know Defendants' position as to whether the Court has personal jurisdiction over it with respect to those new claims. The motion for leave to file a reply is therefore GRANTED. The Clerk is directed to file the reply, Mot. Leave File Reply Ex. 1, ECF No. 15-1, on the docket.

II. Motion to Dismiss for Lack of Personal Jurisdiction

a. Legal Standard

A party may move to dismiss a complaint because the court lacks personal jurisdiction. Fed. R. Civ. P. 12(b)(2). "[T]he plaintiff bears the burden of demonstrating the existence of [personal] jurisdiction." Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). If the court rules on a motion to dismiss for lack of personal jurisdiction "based on the submission of written materials without holding an evidentiary hearing, the plaintiff need only make out a prima facie case of personal jurisdiction." N. Grain Mktg., LLC v. Greving, 743 F.3d 487, 491 (7th Cir. 2014).

"[A] federal court has personal jurisdiction over the defendant if either federal law or the law of the state in which the court sits authorizes service of process to that defendant." Mobile Anesthesiologists Chi., LLC v. Anesthesia Assocs. of Houston Metroplex, P.A., 623 F.3d 440, 443 (7th Cir. 2010). The exercise of jurisdiction must also comport with due process. See id. ("Under . . . the Fourteenth Amendment's due process clause, a defendant is subject to personal jurisdiction in a...