Kanaan v. Yaqub

Background

Nabih Kanaan sued Nizar Yaqub and The Inn at Del Monte Beach, LLC. The opinion describes Kanaan and Yaqub as the LLC’s two members. Kanaan alleged that Yaqub engaged in fraud and other misconduct to push him out of the LLC and convert most or all of his ownership interest. The claims arose under California law and included breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing, violation of California Business and Professions Code section 17200, declaratory and injunctive relief, and fraudulent concealment.

The original complaint stated that Kanaan discovered the LLC’s use of business funds for personal expenses in 2010. After defendants moved to dismiss or strike that complaint, Kanaan filed a first amended complaint. He said the 2010 discovery date was a typographical error and that the correct allegations stated he discovered the wrongdoing in 2019. The amended complaint also alleged that Kanaan learned on June 1, 2018, that his equity interest had been reduced from 30% to 8%.

Court’s analysis

Defendants moved to dismiss five claims—Claims 1 through 5—as barred by the statute of limitations. Under the California limitations periods discussed by the court, Claims 1 through 4 generally had four-year periods. Declaratory and injunctive relief did not have a separate limitations period because the court treated them as forms of relief rather than independent claims.

The court held that the amended complaint did not show on its face that the limitations period had expired before Kanaan filed suit on December 10, 2021. Based on the allegations, the period began no earlier than June 1, 2018, when Kanaan learned of the alleged reduction in his ownership interest, and would have expired on June 1, 2022. The court therefore denied defendants’ motion to dismiss Claims 1 through 5 on statute-of-limitations grounds.

Defendants also argued that Kanaan could not amend the discovery date because it contradicted the original complaint. The court recognized conflicting Ninth Circuit decisions on inconsistent allegations in amended pleadings. It chose to follow the line of decisions holding that inconsistent or contradictory allegations are not themselves a basis for striking an amended pleading absent bad faith, and evaluated the limitations challenge using the amended complaint’s allegations.

As to Claim 6, the court applied the elements of fraudulent concealment: concealment of a material fact, a duty to disclose, an intent to defraud, the plaintiff’s lack of awareness and different action had the plaintiff known the fact, and resulting damage. The court found that Kanaan alleged that Yaqub failed to inform him of a capital call, prepared documents changing their ownership interests, amended the LLC’s operating agreement without Kanaan’s notice or approval, and concealed those actions to deprive Kanaan of his ownership interest. The court concluded that these allegations satisfied all elements of fraudulent concealment and denied the motion to dismiss Claim 6.

Defendants alternatively moved under Rule 12(f) to strike portions of the amended complaint. The court described that motion as relying on the same arguments as the dismissal motion— that Claims 1 through 5 were time-barred and Claim 6 was inadequately pleaded—and denied it.

Other evidentiary rulings and disposition

The court granted defendants’ request for judicial notice of Kanaan’s original complaint and defendants’ motion to dismiss that complaint. It denied the parties’ requests to consider counsel declarations and attached exhibits because those materials were not appropriate for consideration on the motions to dismiss or strike.

The final order states: (1) defendants’ motion to dismiss or strike the first amended complaint was denied; and (2) the order terminated ECF 20.