Bibiji Kaur Puri v. Sopurkh Kaur Khalsa
674 F. App'x 679
9th Cir.2017Background
- Plaintiffs (individually and on behalf of Unto Infinity, LLC (UI) and Siri Singh Sahib Corporation (SSSC)) alleged defendants conspired to exclude them from management, converted corporate assets for personal benefit, and concealed fraud.
- District court dismissed plaintiffs’ derivative claims under Fed. R. Civ. P. 23.1(a) for inadequate representation and dismissed various direct claims on other grounds; plaintiffs appealed.
- Ninth Circuit vacated dismissal of plaintiffs’ First Amendment direct claims (in a concurrent opinion) but here affirmed dismissal of all derivative claims with prejudice.
- Court found plaintiffs’ interests antagonistic to UI/SSSC because plaintiffs sought substantial personal damages, had prior adverse litigation with the entities, and sought control of the entities if successful.
- The panel reviewed multiple defendants’ direct claims under Rules 9(b) and 12(b)(6), addressed statute-of-limitations issues under Oregon law (discovery rule), and evaluated defendants’ privilege and duty defenses.
- Result: derivative claims affirmed dismissed with prejudice; many direct claims dismissed in part for failure to plead with particularity or to allege required duties, with leave to amend for several claims against certain defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Derivative standing under Rule 23.1(a) | Plaintiffs could represent UI/SSSC on derivative claims | Plaintiffs’ interests were antagonistic and thus inadequate representatives | Affirmed dismissal with prejudice: plaintiffs inadequate because of personal damages claims, prior adverse litigation, and sought control of entities |
| Pleading fraud with particularity (Rule 9(b)) | Complaint alleged widespread fraudulent scheme and conspiracy | Allegations were boilerplate, lumped defendants, lacked who/what/when/where/how for many defendants | Fraud claims survive as to Sopurkh, Kartar, Lambert, SWW; otherwise dismissed without prejudice and leave to amend |
| Negligent misrepresentation (duty) | Lawyers owed duty to plaintiffs as putative board members or intended beneficiaries | No attorney-client duty to plaintiffs; plaintiffs not intended beneficiaries | Affirmed dismissal with prejudice as to Lane Powell/Horowitz for failure to plead duty; others dismissed without prejudice for 9(b) defects |
| Unjust enrichment against lawyers/law firms | Lawyers were unjustly enriched by fees tied to fraudulent transfers | Benefits were conferred by UI/SSSC (third parties), not plaintiffs; plaintiffs point to no exception | Dismissed with prejudice as to lawyer defendants (no plausible claim that plaintiffs conferred benefit); some unjust-enrichment claims vs. other defendants dismissed without prejudice under Rule 9(b) |
| Reynolds qualified privilege (lawyer liability) | Plaintiffs alleged lawyers aided fraud and thus are liable | Reynolds v. Schrock protects lawyers from joint liability absent acting outside lawyer-client scope | Privilege inapplicable if services were used to further fraud; Reynolds defense fails given fraud allegations |
| Legal malpractice against Lambert/SWW (duty/causation) | Plaintiffs alleged attorney-client relationship and malpractice causing harm | Complaint lacks factual allegations establishing an attorney-client relationship or reasonable reliance | Affirmed dismissal with prejudice for failure to plead attorney-client relationship or intended-beneficiary status |
| Statute of limitations (Oregon discovery rule) for fraud/related torts | Plaintiffs contend they discovered fraud later; claims timely under discovery rule | Defendants assert plaintiffs had inquiry notice by 2010 (or 2005 for some acts) and claims are time-barred | Court held accrual/discovery issues not apparent on face of complaint; statute-of-limitations defense fails at 12(b)(6) stage for several claims |
| RICO/ORICO pleading | Plaintiffs allege racketeering scheme tied to fraudulent conversion | RICO/ORICO allegations are conclusory, lack predicate details tied to each defendant | RICO/ORICO claims survive only as to Sopurkh, Lambert, SWW; others dismissed without prejudice under Rule 9(b) |
| Aiding and abetting; RICO-related aiding claims | Plaintiffs alleged defendants aided fraudulent scheme | Many allegations are conclusory and lump defendants | Aiding-and-abetting claim survives minimally (e.g., specific paragraph allegations); otherwise subject to Rule 9(b) dismissal without prejudice |
Key Cases Cited
- Quinn v. Anvil Corp., 620 F.3d 1005 (9th Cir. 2010) (standard for Rule 23.1 standing review)
- Kona Enters., Inc. v. Estate of Bishop, 179 F.3d 767 (9th Cir. 1999) (standard for Rule 23.1 standing review)
- Larson v. Dumke, 900 F.2d 1363 (9th Cir. 1990) (appellate standard for Rule 23.1 standing)
- Hornreich v. Plant Indus., Inc., 535 F.2d 550 (9th Cir. 1976) (Rule 23.1 standing review)
- Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (9th Cir. 2003) (Rule 9(b) particularity in mixed tort/fraud claims)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standards; conclusory allegations insufficient)
- Swartz v. KPMG LLP, 476 F.3d 756 (9th Cir. 2007) (fraud pleading and need to differentiate defendants’ roles)
- Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010) (who/what/when/where/how requirement under Rule 9(b))
- Cafasso v. Gen. Dynamics C4 Sys., 637 F.3d 1047 (9th Cir. 2011) (Rule 9(b) particularity requirements)
- United States ex rel. Lee v. SmithKline Beecham, 245 F.3d 1048 (9th Cir. 2001) (insufficiency of broad fraud allegations)
- Foman v. Davis, 371 U.S. 178 (U.S. 1962) (leave to amend standards)
- Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003) (when dismissal with prejudice is appropriate)