1 2 3 4 UNITED STATES DISTRICT COURT 5 SOUTHERN DISTRICT OF CALIFORNIA 6 7 NATURAL SHRIMP, INC., Case No.: 19-cv-1239-WQH-BGS

8 Plaintiff, ORDER 9 v. 10 VISTA CAPITAL INVESTMENTS, LLC; and 11 DAVID CLARK, 12 Defendants. 13 HAYES, Judge: 14 The matter before the Court is the Motion to Dismiss Pursuant to Fed. R. Civ. P. 15 12(b)(6) filed by Defendants Vista Capital Investments, LLC, and David Clark. (ECF No. 16 9). 17 I. BACKGROUND 18 A. Procedural Background 19 On July 3, 2019, Plaintiff Natural Shrimp, Inc. (“Natural Shrimp”), initiated this 20 action by filing a Complaint against Defendants Vista Capital Investments, LLC (“Vista”), 21 and David Clark. (ECF No. 1). On September 6, 2019, Defendants filed a Motion to 22 Dismiss. (ECF No. 9). Defendants move to dismiss Natural Shrimp’s Complaint on the 23 grounds that Natural Shrimp fails to state a claim upon which relief can be granted pursuant 24 to Federal Rule of Civil Procedure 12(b)(6). In the alternative, Defendants move the Court 25 to consolidate this case with the breach of contract action filed by Vista against Natural 26 27 28 1 Shrimp, currently pending before this Court, and to designate Vista as the plaintiff in the 2 consolidated action. 3 On September 30, 2019, Natural Shrimp filed a Response in opposition to 4 Defendants’ Motion to Dismiss. (ECF No. 13). On October 7, 2019, Defendants filed a 5 Reply. (ECF No. 14). 6 B. Allegations in the Complaint 7 On or about January 23, 2017, Vista and Natural Shrimp entered into a Securities 8 Purchase Agreement. The Securities Purchase Agreement provides that Natural Shrimp 9 shall sell, and Vista shall purchase, 1) a promissory Note; and 2) a Warrant to purchase 10 shares of Natural Shrimp’s common stock. The Note is in the principal amount of 11 $250,000. The Warrant allows Vista “to purchase 350,000 shares of [Natural Shrimp’s] 12 Common Stock.” The Securities Purchase Agreement provides that “[t]he Warrants shall 13 vest such that [Vista] shall receive 1.4 warrants for every dollar funded to [Natural Shrimp] 14 under the Note.” The Securities Purchase Agreement provides that Vista “shall pay the 15 purchase price of $50,000.” “Upon the closing of [the Securities Purchase Agreement] and 16 initial funding of $50,000 . . . [Vista] shall receive a Warrant to purchase 70,000 shares of 17 common stock.” (ECF No. 1, Exhibit A at 28). 18 Clark is the “principal and sole representative” of Vista, a sole proprietorship. (Id. 19 ¶¶ 1, 12). On “multiple occasions in the days prior to execution” of the Securities Purchase 20 Agreement, Note, and Warrant, Clark made oral representations to Natural Shrimp’s CEO, 21 Bill Williams, and CFO, William Delgado. (Id. ¶¶ 22-23). Clark represented that 1) the 22 Warrant was not an “exploding warrant;” 2) there was a floor on the price of any future 23 share purchase by Vista; 3) there was a cap on the number of shares available for purchase 24 by Vista; 4) Vista would purchase 350,000 Warrants from Natural Shrimp for $250,000; 25 and 5) the $250,000 would be delivered in $50,000 increments over five months—after the 26 27 28 1 initial $50,000 payment, every thirty days, beginning thirty days after execution of the 2 Securities Purchase Agreement, Note, and Warrant. (Id. ¶¶ 22, 36). Clark represented that 3 the 70,000 shares of Common Stock that Vista could purchase after the initial $50,000 4 payment would remain at an exercise price of $0.60 per share, for a total aggregate exercise 5 price of $42,000. Clark “presented” the Warrant to Williams and Delgado as “a standard 6 form document unworthy of close review.” (Id. ¶ 29). Clark made these representations “to 7 induce Natural Shrimp to enter” the agreements. (Id. ¶ 22). 8 These representations were false. After making the initial $50,000 payment under 9 the Securities Purchase Agreement, Vista “failed and refused to provide the additional 10 funds that it promised.” (Id. ¶ 60). Natural Shrimp relied on Clark’s representations and 11 would not have executed the Securities Purchase Agreement, Note, or Warrant if it knew 12 that Clark “lied about Vista’s delivery of additional financing” and only intended to deliver 13 one-fifth of the financing promised. (Id. ¶¶ 65-66). 14 In addition, the Warrant contained “price-adjustment and cashless exercise 15 provisions” designed to benefit the drafting party, Vista, and mislead Natural Shrimp. (Id. 16 ¶¶ 32, 39). The price-adjustment provision made it so “the number of shares Vista was able 17 to acquire was on a sliding scale . . . . If the Exercise Price decreased, the number of shares 18 issuable pursuant to the Warrant increased.” (Id. ¶ 43). The cashless exercise provision 19 “permitted Vista to purchase shares without ever having to pay for them in cash” by 20 providing Vista with “the option to forego a portion of the shares to which it was entitled 21 in order to utilize those shares to pay for other shares at a reduced price.” (Id. ¶¶ 47-48). 22 The price-adjustment and cashless exercise provisions, drafted by Defendants, are 23 inconsistent with Clark’s representations regarding the exploding warrant, price floor, and 24 purchase cap. 25 On February 22, 2019, Vista sent Natural Shrimp a Notice of Exercise of Warrant 26 seeking to acquire 16,052,090 shares of Natural Shrimp’s common stock at a price of 27 $0.0026 per share. Instead of paying Natural Shrimp $42,000 to acquire the shares, Vista 28 sought to utilize the cashless exercise provision to acquire the shares without expending 1 additional funds. The shares had an aggregate market value of $7.135,154. Natural Shrimp 2 would never have agreed to the inclusion of the exploding warrant, but Clark concealed the 3 existence of the exploding warrant to induce Natural Shrimp to enter into the Securities 4 Purchase Agreement, Note, or Warrant. 5 Natural Shrimp brings claims against Vista for 1) rescission; 2) fraudulent 6 inducement; 3) breach of the covenant of good faith and fair dealing; 4) unjust enrichment; 7 and 5) promissory estoppel. Natural Shrimp brings a claim against Clark for fraudulent 8 inducement. Natural Shrimp seeks 1) rescission of the Securities Purchase Agreement, 9 Note, and Warrant; 2) general, special, exemplary, and punitive damages on all claims 10 except the rescission claim; 3) injunctive relief; 4) interest, attorneys’ fees, and costs; and 11 5) “such other and further relief as the Court may deem proper.” (Id. at 24-25). 12 II. DISCUSSION 13 Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state a 14 claim upon which relief can be granted.” In order to state a claim for relief, a pleading 15 “must contain . . . a short and plain statement of the claim showing that the pleader is 16 entitled to relief.” Fed. R. Civ. P. 8(a)(2). Dismissal under Rule 12(b)(6) “is proper only 17 where there is no cognizable legal theory or an absence of sufficient facts alleged to support 18 a cognizable legal theory.” Shroyer v. New Cingular Wireless Servs., Inc.,

, 19 1041 (9th Cir. 2010) (quotation omitted). 20 “To survive a motion to dismiss, a complaint must contain sufficient factual matter, 21 accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 22

(2009) (quoting Bell Atl. Corp. v. Twombly,

(2007)). 23 “A claim has facial plausibility when the plaintiff pleads factual content that allows the 24 court to draw the reasonable inference that the defendant is liable for the misconduct 25 alleged.” Ashcroft,

(citation omitted). “[A] plaintiff’s obligation to provide 26 the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and 27 a formulaic recitation of the elements of a cause of action will not do.” Twombly,

(quoting Fed. R. Civ. P. 8(a)). A court is not “required to accept as true allegations 1 that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” 2 Sprewell v. Golden State Warriors,

(9th Cir. 2001). 3 “In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual 4 content, and reasonable inferences from that content, must be plausibly suggestive of a 5 claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv.,

(9th Cir. 6 2009) (quotation omitted). If both parties advance plausible alternative explanations, then 7 the “plaintiff’s complaint survives a motion to dismiss under Rule 12(b)(6),” because “[t]he 8 standard at this stage of the litigation is not that plaintiff’s explanation must be true or even 9 probable.” Starr v. Baca,

(9th Cir. 2011). A complaint “may be 10 dismissed only when defendant’s plausible alternative explanation is so convincing that 11 plaintiff’s explanation is implausible.”

(emphasis in original). 12 Defendants contend that Natural Shrimp fails to plead rescission, fraud, and mistake 13 with particularity as required by Federal Rule of Civil Procedure 9(b). (ECF No. 9-1 at 16). 14 Defendants contend that Natural Shrimp “fails to identify the allegedly fraudulent 15 statement, its content, who made it, how and when.” Defendants contend that Natural 16 Shrimp fails to plead facts that show Clark knew any alleged statement was false. 17 Defendants contend Natural Shrimp fails to plead facts that “satisfy the elements of 18 causation and reliance.”2 (Id. at 17). Natural Shrimp contends that it alleges fraud with 19 particularity. Natural Shrimp contends the Complaint identifies fraudulent statements, their 20 content, who made the statements, and when the statements were made. (ECF No. 13 at 8). 21 Natural Shrimp contends that it alleges Clark drafted the agreements and therefore knew 22 his statements inconsistent with the express language of the agreements were false. (Id. at 23 9). 24

25 26 2 Defendants request the Court take judicial notice of three court filings. (ECF No. 9-2). Judicial notice of the requested documents is unnecessary for this Order. Defendants’ request for judicial notice is denied. 27 See Asvesta v. Petroustas,

, 1010 n. 12 (9th Cir. 2009) (denying request for judicial notice where judicial notice would be “unnecessary”). 28 1 Claims sounding in fraud or mistake must comply with the heightened pleading 2 requirements of Federal Rule of Civil Procedure 9(b), which requires that, “[i]n alleging 3 fraud or mistake, a party must state with particularity the circumstances constituting fraud 4 or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be 5 alleged generally.” Rule 9(b) “requires . . . an account of the time, place, and specific 6 content of the false representations as well as the identities of the parties to the 7 misrepresentations.” Swartz v. KPMG LLP,

(9th Cir. 2007) (quotation 8 omitted); see also Vess v. Ciba-Geigy Corp. USA,

(9th Cir. 2003) 9 (averments of fraud must be accompanied by “the who, what, when, where, and how of the 10 misconduct charged”) (quotation omitted). “To comply with Rule 9(b), allegations of fraud 11 must be specific enough to give defendants notice of the particular misconduct which is 12 alleged to constitute the fraud charged so that they can defend against the charge and not 13 just deny that they have done anything wrong.” Bly-Magee v. California,

, 14 1019 (9th Cir. 2001) (quotation omitted). “[A] plaintiff must set forth more than the neutral 15 facts necessary to identify the transaction. The plaintiff must set forth what is false or 16 misleading about a statement, and why it is false.” Vess,

. 17 The elements of fraud are “(a) misrepresentation (false representation, concealment, 18 or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to 19 induce reliance; (d) justifiable reliance; and (e) resulting damage.” Lazar v. Sup. Ct., 909

, 984 (Cal. 1996) (quoting 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, 21 § 676, p. 778). 22 Natural Shrimp alleges that Clark made false “oral” representations to Williams and 23 Delgado “on multiple occasions in the days prior to execution of” the Securities Purchase 24 Agreement, Note, and Warrant on January 23, 2017. (ECF No. 1 ¶¶ 23-25). Natural Shrimp 25 fails to specify when and where the alleged representations were made. See Neubronner v. 26 Milken,

(9th Cir. 1993) (“The complaint must specify such facts as the 27 times, dates, [and] places . . . of the alleged fraudulent activity.”) (citation omitted). Natural 28 Shrimp’s vague reference to “oral” statements on “multiple occasions” is not sufficiently 1 || detailed to meet the heightened pleading requirement of Rule 9(b). Natural Shrimp fails to 2 ||state with particularity the circumstances surrounding the alleged fraud. Each of Natural 3 Shrimp’s claims is based on Defendants’ alleged fraud. Accordingly, Natural Shrimp fails 4 ||to state a claim upon which relief can be granted. 5 CONCLUSION 6 IT IS HEREBY ORDERED that Defendants’ Motion to Dismiss Pursuant to Fed. R.

(b)(6) CECF No. 9) is GRANTED. Plaintiff's Complaint 1s DISMISSED 8 || WITHOUT PREJUDICE. Plaintiff shall file any motion for leave to amend the Complaint 9 || within thirty days of the date of this Order. If no motion 1s filed, the Clerk shall close the 10 |} case. 11 || Dated: November 1, 2019 BE: eg Ze. A a 12 Hon, William Q. Hayes 13 United States District Court 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28