Jain v. Unilodgers, Inc.

Background

Shipra Jain alleged that Unilodgers, Inc. and Vaibhav Verma pushed her out of the company by excluding her from meetings, withholding information, and suggesting that she resign. Jain had served as Unilodgers’ chief operating officer and chief financial officer and as a member of its board. Verma served as the company’s chief executive officer and secretary and also sat on the board.

The parties had entered into a stock agreement and a vesting agreement. The vesting agreement gave Unilodgers an option to repurchase Jain’s unvested shares after her service ended and allowed the company to designate another person or organization to exercise that option. Jain alleged that Unilodgers repurchased all of her shares effective February 2020 and that she was later removed from the board.

Jain’s second amended complaint asserted claims for breach of contract against Unilodgers; tortious interference with contractual relations against Verma; breach of fiduciary duty against both defendants; conversion against both defendants; civil conspiracy against both defendants; and declaratory relief against Unilodgers. The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim.

Court’s analysis and rulings

The parties applied Delaware law, and the court did so as well. At the motion-to-dismiss stage, the court treated factual allegations as true and asked whether the complaint stated a plausible claim for relief, rather than deciding the ultimate truth of the allegations.

Tortious interference against Verma. The court dismissed this claim because Jain did not allege enough nonconclusory facts to plausibly show that Verma acted in bad faith and outside the scope of his employment. The court found that Verma’s alleged financial benefit and alleged false statements about Jain were insufficient for that purpose. The court granted Jain one final opportunity to amend this claim based on additional facts she identified in her opposition.

Breach of fiduciary duty against Verma. The court denied dismissal. It held that Jain’s new allegations plausibly described conduct that was distinct from the alleged contract breach, including excluding her from senior-management meetings, making allegedly false accusations to venture-capital firms, and instructing employees not to share material information with her. The court also declined to decide, at that stage, whether Verma could be liable based on the defendants’ arguments concerning his corporate capacity, joint-venture status, or partnership status.

Conversion. Conversion is the wrongful exercise of control over another person’s property. The court denied dismissal of Jain’s conversion claim against Verma because, drawing inferences in Jain’s favor, the complaint alleged that Verma used misinformation and other conduct to cause her board removal and exert control over her shares, potentially violating a duty independent of the vesting agreement.

The court granted dismissal of the conversion claim against Unilodgers. Jain had not identified an independent legal duty owed by Unilodgers apart from the contractual obligations. Because Jain had already amended her complaint twice and did not identify additional facts that would cure this problem, the court denied her leave to amend this claim.

Civil conspiracy. The court granted dismissal of the civil-conspiracy claim against both defendants. It concluded that Jain had not plausibly alleged that Verma stepped outside his corporate role and acted as a separate participant in a conspiracy. The court granted Jain one final opportunity to amend this claim.

Disposition

Judge Thomas S. Hixson granted in part and denied in part the defendants’ motion to dismiss. The court granted dismissal of the tortious-interference claim against Verma, the conversion claim against Unilodgers, and the civil-conspiracy claim against both defendants. It denied dismissal of the breach-of-fiduciary-duty and conversion claims against Verma. The court allowed Jain to file a third amended complaint by May 12, 2023, consistent with the amendment rulings described above.