Yenidunya Investments v. Magnum Seeds, et al

Filing 23

MEMORANDUM and ORDER signed by Judge William B. Shubb on 10/28/2011 ORDERING that Dfts' 12 Motion to Dismiss is GRANTED and Dfts' 12 Motion to Strike is DENIED AS MOOT. The Status (Pretrial Scheduling) Order is VACATED. CASE CLOSED. (Zignago, K.)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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YENIDUNYA INVESTMENTS, LTD., a
Cyprus, EU Corporation;

NO. CIV. 2:11-1787 WBS

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Plaintiff,

MEMORANDUM AND ORDER RE:
MOTION TO DISMISS OR TO STRIKE
PORTIONS OF THE COMPLAINT

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v.
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MAGNUM SEEDS, INC., a
California Corporation; and
GENICA RESEARCH CORPORATION, a
Nevada Corporation;

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Defendants.

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/
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----oo0oo---Plaintiff Yenidunya Investments, Ltd. brought this

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action against defendants Magnum Seeds, Inc. (“Magnum”) and

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Genica Research Corporation (“Genica”) for declaratory relief and

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accounting arising out of defendants’ allegedly wrongful

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violation of plaintiff’s rights as a Magnum shareholder.

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Presently before the court is defendants’ motion to dismiss

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plaintiff’s Complaint pursuant to Federal Rule of Civil Procedure

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12(b)(6) for failure to state a claim upon which relief can be
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granted and defendants’ motion to strike portions of plaintiff’s

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Complaint pursuant to Rule 12(f).

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I.

Factual and Procedural Background

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In early October 2003, Spiros Spirou & Co. (“SS & Co.”)

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obtained common stock in Magnum by converting a $2,267,995.00

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loan into 2,267,995 shares of Magnum.

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1).)

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Agreement” containing the following provision:

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(Compl. ¶ 7 (Docket No.

As a shareholder, SS & Co. signed an “Amendment to Buy-Out

A.
The Corporation [Magnum] and the Shareholder [SS &
Co.] are parties to that certain Buy-Out Agreement dated
, 200 (the “Buy-out Agreement”), pursuant to which
the Corporation retains the right of first refusal on all
the shares of the Corporation’s common stock (the “Common
Stock”) owned by the Shareholder.

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(Id. ¶ 15, Ex. D at 80.)

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contained a provision later invoked by Magnum to acquire

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plaintiff’s shares:

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The Amendment to Buy-Out Agreement also

8(b) Call Options. If a person makes a bona fide offer
to purchase all (but not less than all) the outstanding
shares of the Corporation which the holders of at least
two-thirds (2/3) of the outstanding shares of stock of
the Corporation, whether Common or Series A Preferred or
both, are prepared to accept, the Corporation shall have
the right and option to require all Shareholders to
tender their shares on the same terms and conditions and
for the same price as the offeror has offered the said
holders of two-thirds (2/3) of the outstanding shares of
stock of the Corporation.
(Id. ¶ 15, Ex. D at 81.)
In late October 2003, SS & Co. transferred the 2,267,995

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shares of Magnum common stock to plaintiff, which is an

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affiliated company.

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Magnum recognized plaintiff as a shareholder and issued

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Certificate No. 6 to plaintiff for 2,267,995 shares of common

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stock.

(Id. ¶ 8.)

Upon notice of the transfer,

(Id. ¶¶ 8-9.)
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In March 2005, Genica offered to purchase all of the

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outstanding shares of Magnum from the existing shareholders.

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(Id. ¶ 13.)

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Genica offered to pay plaintiff $1,133,997.50 over a ten-year

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period.

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shares and never executed or delivered the Stock Purchase

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Agreement.

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Genica’s offer to purchase their shares and executed the Stock

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Purchase Agreement.

In a “Stock Purchase Agreement” dated March 7, 2005,

(Id.)

Plaintiff declined the offer to purchase its

(Id.)

All other Magnum shareholders accepted

(Id.)

A “Promissory Note” was delivered to

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plaintiff at closing pursuant to the Stock Purchase Agreement.

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(Id. ¶ 19.)

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section 8(b) of the Buy-Out Agreement to the terms of the Stock

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Purchase Agreement and Promissory Note because all other Magnum

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shareholders accepted the stock purchase offer.

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Defendants contend that plaintiff is bound under

(Id. ¶ 15.)

Since March 7, 2005, Magnum has not: (1) notified or

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given plaintiff the opportunity to attend Magnum shareholder

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meetings; (2) given plaintiff the opportunity to elect Magnum

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directors; (3) provided plaintiff with Magnum’s quarterly or

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annual financial statements; (4) allowed plaintiff the right to

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inspect Magnum’s books, records, and minute proceedings; or (5)

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paid plaintiff its proportionate share of shareholder dividends.

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(Id. ¶ 10.)

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On March 8, 2005, Magnum sent a Notice of Call of Stock

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to plaintiff advising plaintiff that “upon closing of the sale of

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shares to Genica . . . whether or not your share certificate and

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signed stock Assignment and Release have been received, you will

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cease to be a shareholder and will have no further rights,

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preferences or privileges as a shareholder of [Magnum].”
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(Kimport Decl. Ex. 1. (Docket No. 13).)

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Two days later, on March 10, 2005, plaintiff’s counsel,

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Dale Campbell, sent a letter to Magnum challenging Magnum’s

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ability to force plaintiff to transfer its shares to Magnum and

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promising to “take the steps necessary to protect its investment

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in Magnum and prevent the sale of Genica from occuring over its

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objection.”

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Kimport, responded on March 15, 2005, by informing plaintiff that

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the stock repurchase was enforceable and that plaintiff was no

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(Id. Ex. 2 at 3-4.)

longer a shareholder in Magnum.

Magnum’s counsel, David

(Id. Ex. 3.)

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On at least two separate occasions, February 15, 2005,

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and September 11, 2006, plaintiff’s principal requested Magnum’s

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financial reports.

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that it “is no longer a shareholder of Magnum and therefore no

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longer has a right to such financial information.”

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5.)

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On both occasions, plaintiff was informed

(Id. Exs. 4,

Plaintiff filed for declaratory relief seeking to be

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recognized as a Magnum shareholder on July 6, 2011.

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II.

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Discussion
A.

Motion to Dismiss
On a motion to dismiss, the court must accept the

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allegations in the complaint as true and draw all reasonable

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inferences in favor of the plaintiff.

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U.S. 232, 236 (1974), overruled on other grounds by Davis v.

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Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322

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(1972).

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“only enough facts to state a claim to relief that is plausible

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on its face.”

Scheuer v. Rhodes, 416

To survive a motion to dismiss, a plaintiff must plead

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
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(2007).

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than a sheer possibility that a defendant has acted unlawfully,”

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Ashcroft v. Iqbal, ––– U.S. ––––, ––––, 129 S.Ct. 1937, 1949

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(2009), and “[w]here a complaint pleads facts that are ‘merely

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consistent with’ a defendant’s liability, it ‘stops short of the

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line between possibility and plausibility of entitlement to

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relief.’”

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This “plausibility standard,” however, “asks for more

Id. (quoting Twombly, 550 U.S. at 557).
Plaintiff argues that it is premature to find that a

claim is time-barred upon a motion to dismiss.

A statute of

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limitations defense “may be raised by a motion for dismissal or

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by summary judgment motion.”

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F.2d 677, 682 (9th Cir. 1980).

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apparent on the face of the complaint, the defense may be raised

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by a motion to dismiss.”

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Jablon v. Dean Witter & Co., 614
“If the running of the statute is

Id.

Plaintiff’s action was filed in July 2011, while many

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of the events giving rise to the claim occurred in March 2005.

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Defendants have accordingly challenged plaintiff’s request for

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declaratory relief as time-barred.

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statue of limitations to be applied in a diversity action on

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state law claims.

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752-53 (1980).

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determined by the nature of the right sued upon and not by the

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form of the action or relief demanded.

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404, 411 (1963).

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reference to an obligation which has been breached and the right

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to commence an action for ‘coercive’ relief upon the cause of

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action arising therefrom is barred by the statute, the right to

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declaratory relief is likewise barred.”

California law supplies the

Walker v. Armco Steel Corp., 446 U.S. 740,

The applicable statute of limitations is

Day v. Greene, 59 Cal. 2d

“Thus, if declaratory relief is sought with

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Maguire v. Hibernia Sav.

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& Loan Soc’y, 23 Cal. 2d 719, 734 (1944).

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Plaintiff does not specify the nature of the right sued

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upon, rather the Complaint requests that the court declare that

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plaintiff remains a shareholder of Magnum and that the Stock

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Purchase Agreement, the Promissory Note, the Buy-Out Agreement,

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and the Amendment to the Buy-Out Agreement have no force on

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plaintiff.

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all, four-year statute of limitations for actions that do not

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appear to fit in any enumerated categories.

(Compl. at 9.)

The legislature has provided a catch-

Cal. Civ. Proc. Code

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§ 343.

The California Supreme Court applied the four-year catch-

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all in the factually similar case of Maguire v. Hibernia Savings

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& Loan Society, 23 Cal. 2d at 733, which addressed the membership

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interests of successors-in-interest of an incorporated savings

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and loan society.

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declaration of the status of its membership interest as a

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shareholder of Magnum.

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apply a four-year statute of limitations to determine if

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plaintiff’s request is time-barred.1

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Plaintiff has similarly requested a

(Compl. ¶ 11.)

The court will therefore

The statute of limitations generally begins to run at

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“the time when the cause of action is complete with all its

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elements.

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accrual of a cause of action until the plaintiff . . . suspects,

An exception is the discovery rule, which postpones

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In plaintiff’s Opposition to Motion to Dismiss,
plaintiff applies the four-year statute of limitations for a
breach of written contract under California Code of Civil
Procedure section 337. (Docket No. 16 at 4:7-8.) However,
because plaintiff contests the validity of the Promissory Note,
none of plaintiff’s claims arise out of a breach of contract.
Regardless of the underlying cause of action, neither party has
presented evidence that the applicable statute of limitations
should be longer than four years.
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or has reason to suspect, a factual basis for its elements.”

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Norgart v. Upjohn Co., 21 Cal. 4th 383, 389 (1999); see also

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Apple Valley Unified Sch. Dist. v. Vavrinek, Trine, Day & Co., 98

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Cal. App. 4th 934, 943 (2002).

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The application of the statute of limitations to

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actions for declaratory relief is addressed in Maguire, where the

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defendant denied plaintiffs’ status as members of the company

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based on a change to the bylaws that had occurred decades prior

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to the suit being filed.

Maguire, 23 Cal. 2d at 733.

There was

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no evidence that plaintiffs had knowledge of the change to the

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bylaws or that they were deprived of their membership rights

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during the intervening period.

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Supreme Court held that the statute of limitations “does not

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commence to run . . . until the stockholder has knowledge that

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his rights are denied or his status is controverted by the

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corporation.”

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Id. at 735.

The California

Id.

In March 2005, plaintiff received Genica’s offer to

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purchase all of Magnum’s outstanding shares and was aware that

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defendants believed that plaintiff was bound to sell its shares

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because all other shareholders accepted this offer.

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13.)

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as a shareholder were denied commencing in March 2005.

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10.)

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when the shareholder has knowledge that the corporation has

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denied its shareholder status and its membership rights have been

(Compl. ¶

Indeed, plaintiff alleges in its Complaint that its rights
(Id. ¶

Under Maguire, the statute of limitations begins to run

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denied.2

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had knowledge that Magnum terminated its shareholder status and

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that it was denied its rights as a shareholder beginning in March

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2005.3

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began to run in March 2005.

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On the face of the Complaint, plaintiff alleges that it

The court therefore finds that the statute of limitations

Plaintiff argues that the statute of limitations could

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not start running until July 2008, when the first payments to

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former shareholders were due pursuant to the Promissory Note.

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(Opp’n to Mot. to Dismiss at 4:5-10.)

Plaintiff cites United

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Pacific-Reliance Insurance Co. v. Didomenico, 173 Cal. App. 3d

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673 (1st Dist. 1985), to support its position that the statute of

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limitations does not begin to run until breach of the underlying

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contract is possible.

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United Pacific, the court relied on Maguire to find that the

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statute of limitations had not begun to run because the defendant

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continued to discharge its obligations and therefore no breach of

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contract existed.

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Pacific is misguided because, unlike the plaintiff in that case,

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plaintiff here is not suing to enforce a specific contract

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provision, and defendant’s breach of duties allegedly occurred in

(Opp’n to Mot. to Dismiss at 5:1-14.)

Id. at 677.

In

Plaintiff’s reliance on United

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Plaintiff disputes the applicability of Maguire in this
case by arguing that the Complaint goes beyond an effort to
repurchase plaintiff’s shares and in addition requests the court
to interpret the contract. As discussed in more detail below,
there is no evidence of plaintiff’s further requests on the face
of the Complaint.
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The court relies only on information contained on the
face of the Complaint to make the determination that plaintiff
was aware that its shareholder status was terminated and that its
membership rights were no longer recognized in March 2005.
Additional details provided by the defendants were not necessary
in making this determination as the fact was alleged in the
Complaint.

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2005.

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July 2008 would be the proper date for accrual of the

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statute of limitations if plaintiff acknowledged the validity of

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the Promissory Note and filed suit to enforce the Promissory

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Note’s provisions requiring Genica to make payments.

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the suit before the court.

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terms of the Promissory Note, rather the gravamen of its

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Complaint is that the Promissory Note was never a valid

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contract.4

That is not

Plaintiff is not suing to enforce the

During oral arguments, plaintiff argued for the first

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time that the statue of limitations has not begun to run in this

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case because the controversy continues to exist.5

Plaintiff

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Plaintiff’s Complaint asks the court for “a declaration
that neither the Stock Purchase Agreement, the Promissory Note,
the Buy-Out Agreement or the Amendment to Buy-Out Agreement are
valid and enforceable agreements with respect to YENIDUNYA.”
(Compl. ¶ 22.) Plaintiff argues that defendants miscategorize
its Complaint as “an action to void a contract,” however, that is
exactly what plaintiff is asking the court to do. Plaintiff
attempts to rhetorically distinguish its claims as being “to
determine the construction and the validity of the Note.” (SurReply in Supp. of Opp’n to Mot. to Dismiss at 6:15-17 (Docket No.
18)) (emphasis added). The Complaint contains no allegation
regarding enforcement of the terms of the Promissory Note and the
court is unwilling to read one into the pleadings. Thus, the
court sees no reasonable interpretation of the Complaint other
than that the plaintiffs seek declaratory relief to declare the
Promissory Note invalid (and therefore to void the contract).
“Actions to void contracts are nonetheless subject to the statute
of limitations.” Marin Healthcare Dist. v. Sutter Health, 103
Cal. App. 4th 861, 879 (3d Dist. 2002).
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Plaintiff’s Sur-Reply in Support of its Opposition to
the Motion to Dismiss makes a passing reference that “[t]he
statute of limitations on Plaintiff’s declaratory relief claim to
determine the legal rights and duties of the parties under the
Note has not run.” (Sur-Reply in Supp. of Opp’n to Mot. to
Dismiss at 4:1-2.) However, plaintiff’s contention in the SurReply appears to rely on the four-year statute of limitations for
breach of a written contract, and not its later claim that the
statute of limitations continues to run because of outstanding
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cites no support for the proposition that declaratory relief

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actions can be brought to challenge the underlying contract so

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long as the parties have outstanding obligations under the

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contract.6

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suit prior to breach, but they cannot be used to extend the

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statute of limitations beyond that for ordinary causes of action.

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See Maguire, 23 Cal. 2d at 734.

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plaintiff’s contention that declaratory relief actions can be

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brought so long as there are outstanding obligations under a

Actions for declaratory relief can be used to bring

If the court were to adopt

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contract, parties could freely circumvent the statute of

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limitations to raise claims long barred due to untimeliness.
Plaintiff further argues that if this action is

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dismissed, the parties’ rights and duties with respect to one

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another will not be resolved.

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plaintiff for its shares and collect the shareholder

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certificates, and plaintiff would like to remain a shareholder.

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(Sur-Reply in Supp. of Opp’n to Mot. to Dismiss at 2:8-16.)

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“Statutes of limitations are upheld regardless of hardship or of

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the underlying merits of the claim.”

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Co. v. Superior Court, 210 Cal. App. 3d 604 (6th Dist. 1989).

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“Statutes of limitation ‘require plaintiffs to diligently pursue

Defendants would like to pay

State Farm Fir & Casualty

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contractual obligations.
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To the contrary, the decision in Marin Healthcare
District suggests that this is not the law. In that case,
plaintiff sought a declaration from the court that a twelve-yearold lease was invalid because the district’s chief executive and
legal counsel had an undisclosed financial interest in the
agreement when it was executed. Despite the fact that there were
continuing obligations under the lease, the court found that the
statute of limitations barred challenges to the contract’s
validity. Marin Healthcare Dist., 103 Cal. App. 4th at 880.
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their claims’ and are ‘intended to run against those who are

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neglectful of their rights.’”

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Cal. App. 4th 1142, 1149 (1st Dist. 2001) (quoting Jolly v. Eli

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Lilly & Co., 44 Cal. 3d 1103, 1112 (1988); Pashley v. Pac. Elec.

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Ry. Co., 25 Cal. 2d 226, 228–29 (1944)).

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Traverso v. Dep’t of Transp., 87

“When a motion to dismiss is based on the running of

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the statute of limitations, it can be granted only if the

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assertions of the complaint, read with the required liberality,

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would not permit the plaintiff to prove that the statute was
Jablon, 614 F.2d at 682.

Plaintiff does not allege in

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tolled.”

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its Complaint that the statute of limitations has been tolled,

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nor does plaintiff allege any facts suggesting delayed discovery

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of the termination of its shareholder status.

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suggestion that further discovery or pleading would provide

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support for the tolling of the statute of limitations given

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plaintiff’s allegations that Magnum breached its obligations

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starting in March 2005.

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statute of limitations should be tolled, the remaining

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determination is a question of law and therefore resolution

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through a motion to dismiss is appropriate.

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plaintiff’s claim was filed over two years after the four-year

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statute of limitations had expired in March 2009, it is untimely

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and the court must grant defendants’ motion to dismiss.

There is no

As plaintiff does not contend that the

Accordingly, because

IT IS THEREFORE ORDERED that defendants’ motion to

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dismiss the Complaint be, and the same hereby is, GRANTED; and

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defendants’ motion to strike be, and the same hereby is, DENIED

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as moot.

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27, 2011 (Docket No. 22), is hereby VACATED.

The Status (Pretrial Scheduling) Order, filed October

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DATED:

October 28, 2011

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