Mohebbi v. Khazen
2014 U.S. Dist. LEXIS 85992
N.D. Cal.2014Background
- Mohebbi (Iranian, Farsi speaker) invested $1.08M after dealings with USIIC and individual defendants to pursue an EB-5 immigrant investor visa; he signed two agreements (July 22 Engagement Agreement and Oct. 3 Subscription) written in English.
- Mohebbi alleges defendants misrepresented USIIC as an approved USCIS EB-5 Regional Center, concealed that status was pending, misled him about investments and protections, and removed/used funds despite escrow conditions.
- He filed a complaint asserting 23 causes of action (federal/state securities claims, fraud, RICO, conversion, Lanham Act false advertising, UCL, unjust enrichment, torts, etc.).
- Defendants moved to dismiss on (1) arbitration clause grounds and (2) Rule 12(b)(6) failure-to-plead grounds; Mohebbi sought leave to file a Second Amended Complaint (SAC) withdrawing some claims and adding others.
- The court denied dismissal on arbitration grounds without prejudice (FAA requires evidentiary resolution of factual disputes about arbitration) and granted in part / denied in part the Rule 12(b)(6) motion, dismissing many claims with leave to amend but preserving conversion and a §17500 false-advertising claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability/scope of arbitration clause | Mohebbi says clause procured by fraud (no disclosure in Farsi translation) so unenforceable | Defendants assert claims fall within arbitration and warrant dismissal | Court DENIED dismissal on this ground; factual disputes require FAA §4 proceeding; defendants may move to compel arbitration |
| Sufficiency of securities-registration claims (§5, Cal. §25110) | Mohebbi alleges unregistered offers/sales to him | Defendants argue Regulation D/Section 4(2) exemptions and federal preemption (NSMIA) | Claims DISMISSED with leave to amend to allege nonexempt/public offering facts |
| Securities fraud (§10b-5, Cal. §25401) and scienter | Mohebbi alleges multiple misrepresentations and omissions induced investment | Defendants say allegations are conclusory, fail Rule 9(b)/PSLRA particularity and fail to plead scienter, causation, loss | Claims DISMISSED with leave to amend for particularity and stronger scienter/loss-causation pleading |
| RICO predicate pleading | Mohebbi asserts enterprise and predicate crimes (mail/wire/OFAC/securities fraud) | Defendants say allegations are conclusory and securities fraud cannot be predicate for RICO civil claim | RICO claim DISMISSED with leave to amend (plaintiff failed to plead enterprise structure and particularized predicate acts; securities fraud as RICO predicate barred) |
| Common-law fraud (misrepresentation/inducement/execution/concealment) | Mohebbi points to promotional statements, translations, and oral assurances | Defendants contend Rule 9(b) required particularized who/what/when/where/how; plaintiff lumped defendants and statements | Fraud claims DISMISSED with leave to amend for Rule 9(b) specificity and clear mapping of statements to defendants |
| Conversion / escrow theory | Mohebbi alleges funds were to remain in escrow until EB-5 conditions met and were wrongfully diverted | Defendants contend once invested as LP funds belonged to the partnership | Conversion claim for wrongful diversion of escrow funds DENIED as to plaintiff (i.e., claim survives); embezzlement claim dismissed with prejudice |
| Lanham Act false advertising and UCL/§17500 claims | Mohebbi alleges promotional materials represented USIIC as a Regional Center | Defendants argue no false statements about product and securities-based UCL claims are improper | Lanham Act claim DISMISSED with leave to amend; §17500 false-advertising claim under state law SURVIVES; UCL claims based on securities transactions DISMISSED with prejudice |
| Leave to amend (SAC) | Mohebbi seeks to add contract-based claims, rescission, accounting, withdraw some claims | Defendants allege bad faith and arbitration controls | Court GRANTED leave to amend; ordered SAC within 21 days; cautioned amendments must address pleading defects |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (court must accept factual allegations but not legal conclusions)
- Tellabs, Inc. v. Makor Issues & Rights, 551 U.S. 308 (‘‘strong inference’’ standard for scienter under securities law)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614 (court first decides whether parties agreed to arbitrate)
- Thinket Info. Res. v. Sun Microsystems, 368 F.3d 1053 (arbitration issues can be decided on Rule 12(b)(6) in some circumstances)
- Ronconi v. Larkin, 253 F.3d 423 (PLSRA heightened pleading requirements for falsity and scienter)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (holistic scienter inquiry)
- Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025 (court construes pleadings favorably to nonmoving party)
- Lopez v. Smith, 203 F.3d 1122 (leave to amend should be freely given)
- Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (factors to deny leave to amend)
- Odom v. Microsoft Corp., 486 F.3d 541 (RICO enterprise requirement)
- Powers v. Wells Fargo Bank, N.A., 439 F.3d 1043 (civil RICO claims alleging securities fraud barred)