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Ringdahl v. Afsharjavan

United States District Court, D. Maryland

May 24, 2019



          Paula Xinis United States District Judge.

         Pending before the Court is Defendant Artin Afsharjavan's motion to amend his answer to assert counterclaims (ECF No. 30) and Plaintiff Robert Ringdahl's motion to quash Afsharjavan's third-party subpoena. ECF No. 38. The motions are fully briefed, and no hearing is necessary. See Loc. R. 105.6. For the following reasons, the Court denies Afsharjavan's motion to amend and grants in part and denies in part Ringdahl's motion to quash.

         I. Background

         In June 2017, Ringdahl loaned $150, 000 to Binary Group, Inc (“Binary Group”). ECF No. 2-2 at 1. To induce Ringdahl to make the loan, Afsharjavan-who held stock in Binary Group-personally guaranteed the loan and memorialized its terms in a Guaranty Agreement. ECF No. 2-3 at 1. The Guaranty Agreement permitted Ringdahl to seek payment from Afsharjavan upon Binary Group's default on the loan, regardless of whether Ringdahl pursued remedies against Binary Group. Id. at 2. Separate from the Guaranty Agreement, Afsharjavan pledged 450, 000 shares of Binary Group stock to Ringdahl as security through an Agreement of Pledge Stock with the understanding that the pledge would terminate when the loan was paid in full. ECF No. 2-4 at 1.

         By January 1, 2018, Binary Group defaulted on the loan, triggering the obligations under the Guaranty Agreement. ECF No. 2-5 at 1. As a result, Ringdahl filed suit in the Circuit Court for Montgomery County, Maryland for breach of the Guaranty Agreement and Agreement of Pledge Stock. ECF No.2. Afsharjavan, proceeding pro se, removed the action to this Court. ECF No. 1. The Scheduling Order in this case set September 10, 2018 as the deadline for amendment of pleadings. ECF No. 17. On January 20, 2019, well beyond the amendment deadline and after the close of discovery, Afsharjavan moved to amend his answer to bring counterclaims against Ringdahl.

         Afsharjavan also subpoenaed documents held by third-party Eaglestone Tax & Wealth Advisors, Inc. (“Eaglestone”). ECF Nos. 34-35. Afsharjavan sought “[a]ll documents, communications . . ., and electronically stored information transmitted between Eaglestone and Robert Ringdahl between January 1, 2015 [sic] and the present” relating to nine entities or individuals, including Binary Group and its stockholders. ECF No. 39-1 at 7. Afsharjavan also requested the 2016 and 2017 federal and state tax returns for Ringdahl and Binary Group. Id. Ringdahl moved to quash the subpoena. ECF No. 38. The Court addresses each motion in turn.

         II. Motion to Amend

         Although Afsharjavan filed his answer on April 13, 2018, he now seeks to add counterclaims for “bad faith” and breach of the implied covenant of good faith and fair dealing. Although Courts “should freely give leave” to amend “when justice so requires, ” see Fed. R. Civ. P. 15(a)(2), leave may be denied when amendment would prejudice the opposing party, the movant has acted in bad faith, or amendment would be futile. Arora v. James, 689 Fed.Appx. 190, 190 (4th Cir. 2017).

         Amendment is futile when it would be subject to dismissal for failure to state a legally cognizable claim. Oliver v. Dep't of Pub. Safety & Corr. Servs., 350 F.Supp.3d 340, 346 (D. Md. 2018). The Court, therefore, reviews the proposed amended counterclaims for legal sufficiency pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Court takes as true all facts pleaded in the proposed counterclaim and in the light most favorable to Afsharjavan. See Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). Further, because Afsharjavan proceeds pro se, the Court affords his counterclaims a generous construction while also being mindful that it cannot allow patently frivolous or baseless claims to proceed simply because the movant is pro se. See Hughes v. Rowe, 449 U.S. 5, 9 (1980); Weller v. Dep't of Soc. Servs., 901 F.2d 387, 391 (4th Cir. 1990).

         Construing facts supporting the proposed counterclaims as true and most favorably to Afsharjavan, the claims are futile. The bad faith claim is grounded in the notion that Ringdahl caused Binary Group to default on the loan. ECF No. 30-1 at 8. In making this claim, Afsharjavan contends that Ringdahl “breached his duty owed to all shareholders to promptly pay all outstanding expenses and notes owed by Binary Group and he participated in self-dealing.” Id. at 7.

         The Court conceives of two potential ways in which this claim could be construed. First, if Afsharjavan intends that this claim covers Binary Group's breach of the promissory note to Ringdahl, the claim necessarily fails. “Maryland does not recognize failure to perform a contract as giving rise to a tort action for ‘bad faith.'” Republic Ins. Co. v. Bd. of Cty. Comm'rs of St. Mary's Cty., 68 Md.App. 428, 432 (1986). Accordingly, on that theory, any proposed counterclaim cannot proceed as a matter of law.

         Alternatively, Afsharjavan appears to be asserting a claim brought on behalf of “all shareholders, ” which likewise cannot proceed as a matter of law. It is true that “[a] majority shareholder owes a fiduciary duty to minority shareholders not to use his voting power for his own benefit or for a purpose adverse to the interests of the corporation and its stockholders.” Mona v. Mona Elec. Grp., Inc., 176 Md.App. 672, 697 (2007). Fatal to the claim, however, is that the proposed counterclaim does not aver facts plausibly supporting the inference that Ringdahl is a majority shareholder. Thus, even construing the proposed amendment most favorably to the “shareholders, ” it fails as a matter of law and is futile.

         Even if Afsharjavan could bridge this factual gap, he has not demonstrated that he has satisfied the necessary prerequisites for bringing a derivative action on behalf of all shareholders. When pursuing a majority shareholder for breaches of fiduciary duties “on behalf of all shareholders, ” the movant must first either make a demand on the board of directors to bring suit or show that such demand would be futile. See Mona, 176 Md.App. at 699; Bender v. Schwartz, 172 Md.App. 648, 667 (2007). Afsharjavan has not done either.

         Finally, and perhaps most fatally, Afsharjavan cannot maintain a derivative suit as a pro se plaintiff. See Bluefeld v. Cohen, No. PX 15-2857, 2017 WL 1546406, at *3 (D. Md. Apr. 27, 2017), aff'd697 Fed.Appx. 788 (4th Cir. 2017) (citing Phillips v. Tobin, 548 F.2d 408, 411-12 (2d Cir. 1976); Romman ex rel. Yuhe Int'l, Inc. v. Zhentao Gao, No. 2:11-CV-01178-MMD, 2013 WL 1811972, at *1 (D. Nev. Apr. 29, 2013); Pinnavaia v. Moody-Stuart, No. 09-03803 CW, 2009 WL 4899218, at *3 (N.D. Cal. Dec. 11, 2009); Weaver v. State of N.Y., 7 F.Supp.2d 234, 237 (W.D.N.Y. 1998); Robinette v. Merrill Lynch, No. 3:97-CV-0353D, 1998 WL 641815, at *1 (N.D. Tex. Sept. 16, 1998)). Thus, even if ...

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