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56 F.Supp.3d 1121United States District Court,
C.D. California.
SCRIPSAMERICA, INC., Plaintiff,v.
IRONRIDGE GLOBAL LLC d/b/a IronridgeGlobal IV, Ltd., John
Kirkland, Brendan
O'Neil, and Does 15, Defendants.
Case No. CV 1403962 MMM(AGRx). | Signed Nov. 3, 2014.
SynopsisBackground: Corporation that issued shares of its
commonstock to limited liability company (LLC) in return for
LLC'spayment of its outstanding accounts payable brought
actionagainst LLC and its directors, asserting claims for
securitiesfraud, breach of contract, tortious bad faith, and
declaratoryrelief, arising out of defendants' allegedly fraudulent
schemeto manipulate corporation's stock price to obtain
additionalshares. Defendants moved to dismiss, or, alternatively to
stay.
Holdings: The District Court, Margaret M. Morrow, J.,
heldthat:
[1] RookerFeldman doctrine did not bar corporation frombringing
claims for securities fraud, breach of contract, andbreach of
implied covenants; but
[2] RookerFeldman doctrine barred in part
corporation'sdeclaratory relief claim;
[3] Younger abstention was not warranted;
[4] threshold requirement of parallel federal and state
actions,for application of Colorado River abstention, was met;
[5] balance of factors weighed in favor of stay under
theColorado River abstention doctrine;
[6] corporation failed to plead with particularity
conductconstituting market manipulation, as required to state
asecurities fraud claim; and
[7] corporation failed to allege reliance on LLC's
allegedlyfraudulent statements.
Motion to dismiss granted in part and denied in part, andmotion
to stay granted.
West Headnotes (69)
[1] EvidenceRecords and decisions in other actions or
proceedingsEvidence
Proceedings in other courtsDistrict Court would take judicial
notice ofvarious documents related to corporation'searlier state
court breach of contract actionagainst limited liability company
(LLC) andits directors, on motion to dismiss, for failureto state a
claim, corporation's later actionasserting claims for securities
fraud, breachof contract, tortious bad faith, and
declaratoryrelief, arising out of LLC and directors'
allegedlyfraudulent scheme to manipulate corporation'sstock price
to obtain additional shares of itscommon stock under their
agreement pursuant towhich corporation issued shares of its
commonstock to LLC in return for LLC's payment ofits outstanding
accounts payable, where thosedocuments bore directly on whether the
DistrictCourt could properly exercise jurisdiction overthe case.
Fed.Rules Civ.Proc.Rule 12(b)(6), 28U.S.C.A.
Cases that cite this headnote
[2] Federal Civil ProcedureMatters considered in general
Because review on a motion to dismiss forfailure to state a
claim is confined to thecomplaint, the court typically does not
considermaterial outside the pleadings, for example,facts presented
in briefs, affidavits, or discoverymaterials, in deciding such a
motion; however,it may properly consider exhibits attached tothe
complaint and documents whose contentsare alleged in the complaint
but not attached,if their authenticity is not questioned.
Fed.RulesCiv.Proc.Rule 12(b)(6), 28 U.S.C.A.
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Cases that cite this headnote
[3] Federal Civil ProcedureMatters considered in general
Federal Civil ProcedureMotion
Taking judicial notice of matters of public recorddoes not
convert a motion to dismiss into amotion for summary judgment.
Cases that cite this headnote
[4] Federal Civil ProcedureMatters deemed admitted; acceptance
as
true of allegations in complaintOn a motion to dismiss for
failure to state aclaim, the court is not required to accept as
trueconclusory allegations which are contradictedby documents
referred to in the complaint.Fed.Rules Civ.Proc.Rule 12(b)(6), 28
U.S.C.A.
Cases that cite this headnote
[5] EvidenceRecords and decisions in other actions or
proceedingsEvidence
Proceedings in other courtsFederal courts may take judicial
notice of relatedstate court orders and proceedings.
Fed.RulesEvid.Rule 201(b), 28 U.S.C.A.
Cases that cite this headnote
[6] CourtsFederal-Court Review of State-Court
Decisions; Rooker-Feldman DoctrineUnder the RookerFeldman
doctrine, a federaldistrict court does not have subject
matterjurisdiction to hear a direct appeal from a finaljudgment of
a state court.
2 Cases that cite this headnote
[7] Courts
Federal-Court Review of State-CourtDecisions; Rooker-Feldman
DoctrineA losing party in state court is barred by theRookerFeldman
doctrine from seeking what insubstance would be appellate review of
a statejudgment in federal district court, even if theparty
contends the state judgment violated his orher federal rights.
2 Cases that cite this headnote
[8] CourtsFederal-Court Review of State-Court
Decisions; Rooker-Feldman DoctrineWhen there is parallel state
and federal litigation,the RookerFeldman doctrine is not
triggeredsimply by the entry of judgment in state court.
Cases that cite this headnote
[9] CourtsFederal-Court Review of State-Court
Decisions; Rooker-Feldman DoctrineProceedings end for
RookerFeldman purposeswhen the state courts finally resolve the
issuethat the federal court plaintiff seeks to relitigatein a
federal forum, even if other issues remainpending at the state
level; thus, when a federalaction is filed while the state court
actioncontinues in the appeals process in state court,the state
proceedings have not ended.
Cases that cite this headnote
[10] CourtsFederal-Court Review of State-Court
Decisions; Rooker-Feldman DoctrineThe RookerFeldman doctrine
precludes theexercise of jurisdiction not only over claims thatare
de facto appeals of a state court decisionbut also over suits that
raise issues that areinextricably intertwined with an issue
resolvedby the state court.
Cases that cite this headnote
[11] Courts
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Federal-Court Review of State-CourtDecisions; Rooker-Feldman
DoctrineIf claims raised in the federal court action
areinextricably intertwined with the state court'sdecision such
that the adjudication of the federalclaims would undercut the state
ruling or requirethe district court to interpret the application
ofstate laws or procedural rules, then the federalcomplaint must be
dismissed for lack of subjectmatter jurisdiction, pursuant to the
RookerFeldman doctrine.
1 Cases that cite this headnote
[12] CourtsFederal-Court Review of State-Court
Decisions; Rooker-Feldman DoctrineIn determining whether a
plaintiff's federalclaims are inextricably intertwined with a
statecourt decision, for purposes of the RookerFeldman doctrine, a
court cannot simplycompare the issues involved in the state
courtproceeding to those raised in the federal courtplaintiff;
rather, it must pay close attention to therelief sought by the
federal court plaintiff.
Cases that cite this headnote
[13] CourtsParticular Cases and Contexts
CourtsFraud
Claims for securities fraud, breach of contract,and breach of
implied covenants assertedby corporation that issued shares of
itscommon stock to limited liability company(LLC) in return for
LLC's payment of itsoutstanding accounts payable were
independentfrom corporation's previously dismissed breachof
contract claim, and, thus, corporation'scomplaint was not a de
facto appeal from earlierfinal state court judgment dismissing its
breachof contract claim, as would be barred by theRookerFeldman
doctrine, where the claimssought damages, not to invalidate the
parties'agreement or earlier state court order approvingstipulation
that embodied it.
Cases that cite this headnote
[14] CourtsFederal-Court Review of State-Court
Decisions; Rooker-Feldman DoctrineA settlement agreement may
constitute a statecourt judgment for purposes of the RookerFeldman
doctrine.
1 Cases that cite this headnote
[15] CourtsParticular Cases and Contexts
Declaratory relief claim asserted by corporationthat issued
shares of its common stock to limitedliability company (LLC) in
return for LLC'spayment of its outstanding accounts
payable,requesting the District Court to declare thatcorporation
had no obligation to comply withstate court's earlier stipulated
judgment to extentit compelled it to accede to LLC's demands
forissuance of shares in addition to those that statecourt directed
be issued in its enforcement order,was barred by the RookerFeldman
doctrine,where it was equivalent to a request that theDistrict
Court declare the state court orderapproving the stipulation, and
making it anenforceable judgment, void.
Cases that cite this headnote
[16] CourtsParticular Cases and Contexts
Declaratory relief claim asserted by corporationthat issued
shares of its common stock to limitedliability company (LLC) in
return for LLC'spayment of its outstanding accounts
payable,requesting the District Court to declare thatcorporation
had no obligation to issue additionalshares to LLC, was not barred
by the RookerFeldman doctrine, where state court's judgmentdenying
LLC's claims for additional shares wason appeal and was not yet
final.
Cases that cite this headnote
[17] Federal Courts
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Younger abstentionUnder the Younger abstention doctrine,
federalcourts must abstain from hearing cases thatwould interfere
with pending state courtproceedings that implicate important
stateinterests.
Cases that cite this headnote
[18] Federal CourtsYounger abstention
The Younger abstention doctrine is justified byconsiderations of
comity; a proper respect forstate functions, a recognition of the
fact thatthe entire country is made up of a union ofseparate state
governments, and a continuanceof the belief that the national
government willfare best if the states and their institutions are
leftfree to perform their separate functions in theirseparate
ways.
Cases that cite this headnote
[19] Federal CourtsYounger abstention
Absent extraordinary circumstances, Youngerabstention in favor
of state judicial proceedingsis required if the state proceedings:
(1) areongoing, (2) implicate important state interests;and (3)
provide the plaintiff an adequateopportunity to litigate federal
claims.
Cases that cite this headnote
[20] Federal CourtsYounger abstention
Younger abstention is appropriate only when thefederal action
enjoins the state court proceedingsor has the practical effect of
doing so.
Cases that cite this headnote
[21] Federal CourtsStay
If, in a case in which the plaintiff seeks damages,the court
determines that Younger abstention isappropriate, it should stay
the matter until the
state court proceedings are concluded, ratherthan dismissing the
action.
Cases that cite this headnote
[22] Federal CourtsDeclaratory judgment
Federal CourtsTorts in general
Federal CourtsContracts
Federal CourtsSecurities regulation
Younger abstention was not warranted in actionbrought in federal
court by corporation, thatissued shares of its common stock to
limitedliability company (LLC) in return for LLC'spayment of its
outstanding accounts payable,against LLC and its directors,
asserting claimsfor securities fraud, breach of contract,
tortiousbad faith, and declaratory relief, arising outof
defendants' allegedly fraudulent scheme tomanipulate corporation's
stock price to obtainadditional shares, although LLC's
enforcementproceedings against corporation were ongoingon appeal in
state court, where California did nothave substantial interest in
enforcing stipulatedjudgment in the enforcement proceedings.
Cases that cite this headnote
[23] Federal CourtsYounger abstention
For Younger abstention purposes, the state'strial-and-appeals
process is treated as a unitarysystem, and for a federal court to
disrupt itsintegrity by intervening in mid-process woulddemonstrate
a lack of respect for the state assovereign.
Cases that cite this headnote
[24] Federal CourtsYounger abstention
A necessary concomitant of Younger abstentionis that a party
wishing to contest in federalcourt the judgment of a state judicial
tribunal
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must exhaust his state appellate remedies beforeseeking relief
in the federal court.
Cases that cite this headnote
[25] Federal CourtsColorado River abstention
Federal CourtsStay
To decide whether a particular case presentsthe exceptional
circumstances that warrant aColorado River stay or dismissal, the
districtcourt must carefully consider both the obligationto
exercise jurisdiction and the combination offactors counseling
against that exercise.
Cases that cite this headnote
[26] Federal CourtsColorado River abstention
Federal CourtsStay
The factors relevant to assessing the proprietyof a stay or
dismissal under the Colorado Riverabstention doctrine are subjected
to a flexiblebalancing test, in which one factor may beaccorded
substantially more weight than anotherdepending on the
circumstances of the case, andwith the balance heavily weighted in
favor of theexercise of jurisdiction.
Cases that cite this headnote
[27] Federal CourtsColorado River abstention
The threshold question in deciding whetherColorado River
abstention is appropriate iswhether there are parallel federal and
state suits;exact parallelism between the two suits is notrequired,
and it is enough if the two proceedingsare substantially
similar.
Cases that cite this headnote
[28] Federal CourtsColorado River abstention
The inquiry into whether there are parallelfederal and state
suits, as required for ColoradoRiver abstention, examines whether
the suitsinvolve the same parties and the same claims,and whether
the disputes involve, in a moregeneral sense, the same facts.
Cases that cite this headnote
[29] Federal CourtsColorado River abstention
Federal CourtsStay
In determining whether two suits aresubstantially similar, if
the district court hasa substantial doubt as to whether the
stateproceedings will resolve the federal action, thedoubt
precludes the granting of a Colorado Riverstay.
1 Cases that cite this headnote
[30] Federal CourtsColorado River abstention
Federal CourtsStay
A district court may enter a Colorado Riverstay order only if it
has full confidence that theparallel state proceeding will end the
litigation.
Cases that cite this headnote
[31] Federal CourtsDeclaratory judgment
Federal CourtsTorts in general
Federal CourtsContracts
Threshold requirement of parallel federal andstate actions was
met, as required for applicationof Colorado River abstention in
federal courtaction brought by corporation, that issued sharesof
its common stock to limited liability company(LLC) in return for
LLC's payment of itsoutstanding accounts payable, against LLC
andits directors, asserting claims for breach ofcontract, tortious
bad faith, and declaratory
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relief, arising out of defendants' allegedlyfraudulent scheme to
manipulate corporation'sstock price to obtain additional shares,
whereLLC's state court enforcement proceedings andcorporation's
federal court action involved sameparties and substantially similar
claims, andcorporation sought substantially identical reliefin both
actions, namely, to avoid having toissue more shares of stock
pursuant to stipulatedjudgment in enforcement proceedings.
Cases that cite this headnote
[32] Federal CourtsIn rem and quasi in rem proceedings
In proceedings in rem or quasi in rem, the forumfirst assuming
custody of the property at issuehas exclusive jurisdiction to
proceed.
Cases that cite this headnote
[33] Federal CourtsColorado River abstention
Piecemeal litigation occurs, as would supportColorado River
abstention, when differenttribunals consider the same issue,
therebyduplicating efforts and possibly reachingdifferent
results.
Cases that cite this headnote
[34] Federal CourtsColorado River abstention
The mere possibility of piecemeal litigationdoes not constitute
an exceptional circumstance,as would support Colorado River
abstention;rather, the case must raise a special concern
aboutpiecemeal litigation, which can be remedied bystaying or
dismissing the federal proceeding.
Cases that cite this headnote
[35] Federal CourtsStay
Desire to avoid piecemeal litigation factor didnot weigh in
favor of stay under the ColoradoRiver abstention doctrine, in
federal court actionbrought by corporation, that issued shares
of
its common stock to limited liability company(LLC) in return for
LLC's payment of itsoutstanding accounts payable, against LLC
andits directors, asserting claims for breach ofcontract, tortious
bad faith, and declaratoryrelief, arising out of defendants'
allegedlyfraudulent scheme to manipulate corporation'sstock price
to obtain additional shares, wherefederal court action and LLC's
state court actionto enforce stipulated judgment raised the
sameissues and adjudication of federal case wouldinvolve addressing
many, if not all, of the sameissues that were being litigated in
state court;order in state court enforcement proceedingsrequired
corporation to issue additional shares ofstock to LLC, and
corporation in its federal courtaction sought to avoid doing
so.
Cases that cite this headnote
[36] Federal CourtsColorado River abstention
For purposes of Colorado River abstention factorregarding order
in which the forums obtainedjurisdiction, priority should not be
measuredexclusively by which complaint was filed first,but rather
in terms of how much progress hasbeen made in the two actions.
Cases that cite this headnote
[37] Federal CourtsStay
Order in which the forums obtained jurisdictionweighed in favor
of stay under the ColoradoRiver abstention doctrine, in federal
court actionbrought by corporation, that issued shares ofits common
stock to limited liability company(LLC) in return for LLC's payment
of itsoutstanding accounts payable, against LLC andits directors,
asserting claims for breach ofcontract, tortious bad faith, and
declaratoryrelief, arising out of defendants' allegedlyfraudulent
scheme to manipulate corporation'sstock price to obtain additional
shares, whereLLC's parallel state court enforcement actionagainst
corporation was filed first and had
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progressed substantially further than the federalaction.
Cases that cite this headnote
[38] Federal CourtsStay
Presence of state law issues weighed againststay under the
Colorado River abstentiondoctrine, in federal court action brought
bycorporation, that issued shares of its commonstock to limited
liability company (LLC) inreturn for LLC's payment of its
outstandingaccounts payable, against LLC and its
directors,asserting claims for breach of contract, tortiousbad
faith, and declaratory relief, arising outof defendants' allegedly
fraudulent scheme tomanipulate corporation's stock price to
obtainadditional shares, although corporation's claimsarose under
state law, and state law wouldtherefore provide rule of decision
with respectto those claims, where corporation's state lawclaims
involved routine issues of state law thatfederal court was fully
capable of deciding.
Cases that cite this headnote
[39] Federal CourtsColorado River abstention
Federal CourtsStay
A district court may not stay or dismiss thefederal proceeding
under the Colorado Riverabstention doctrine if the state proceeding
cannotadequately protect the rights of the federallitigants; for
example, if there is a possibility thatthe parties will not be able
to raise their claimsin the state proceeding, a stay or dismissal
isinappropriate.
Cases that cite this headnote
[40] Federal CourtsStay
Factor whether state court proceeding couldadequately protect
rights of the federal litigantswas of little or no weight in
determiningwhether stay was warranted under the Colorado
River abstention doctrine, in federal court actionbrought by
corporation, that issued shares ofits common stock to limited
liability company(LLC) in return for LLC's payment of
itsoutstanding accounts payable, against LLC andits directors,
asserting claims for breach ofcontract, tortious bad faith, and
declaratoryrelief, arising out of defendants' allegedlyfraudulent
scheme to manipulate corporation'sstock price to obtain additional
shares, wherecorporation's claims asserted involved issues ofstate
law.
Cases that cite this headnote
[41] Federal CourtsColorado River abstention
Under forum shopping factor of Colorado Riverabstention
doctrine, courts may consider thevexatious or reactive nature of
either the federalor the state litigation.
Cases that cite this headnote
[42] Federal CourtsStay
Factor regarding desire to avoid forum shoppingweighed slightly
in favor of stay under theColorado River abstention doctrine, in
federalcourt action brought by corporation, that issuedshares of
its common stock to limited liabilitycompany (LLC) in return for
LLC's payment ofits outstanding accounts payable, against LLCand
its directors, asserting claims for breachof contract, tortious bad
faith, and declaratoryrelief, arising out of defendants'
allegedlyfraudulent scheme to manipulate corporation'sstock price
to obtain additional shares, wherecorporation filed the action only
days after itappealed state court's enforcement order
thatimplicitly rejected claims that LLC breachedstipulation's
express and implied terms and thatrequired corporation to issue
additional shares ofstock to LLC.
Cases that cite this headnote
[43] Federal Courts
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Colorado River abstentionFederal Courts
StayWhen a district court decides to dismiss or stayunder
Colorado River, it presumably concludesthat the parallel state
court litigation will be anadequate vehicle for the complete and
promptresolution of the issues between the parties; ifthere is any
substantial doubt as to this, it wouldbe a serious abuse of
discretion to grant the stayor dismissal at all.
Cases that cite this headnote
[44] Federal CourtsColorado River abstention
State court proceedings would conclusivelyresolve all issues
pending in federal court,weighing in favor of stay under the
ColoradoRiver abstention doctrine, in federal court actionbrought
by corporation that issued shares ofits common stock to limited
liability company(LLC) in return for LLC's payment of
itsoutstanding accounts payable brought actionagainst LLC and its
directors, asserting claimsfor breach of contract, tortious bad
faith, anddeclaratory relief, arising out of defendants'allegedly
fraudulent scheme to manipulatecorporation's stock price to obtain
additionalshares, where only critical difference betweenstate and
federal actions was presence ofa securities fraud claim that could
not beadjudicated in state court, and corporation'sdefenses to
enforcement order in state courtwould have preclusive effect on its
claims forbreach of contract, breach of implied covenant,and
declaratory relief in the federal action.
Cases that cite this headnote
[45] JudgmentNature and requisites of former recovery as
bar in generalJudgment
Nature and requisites of former adjudicationas ground of
estoppel in generalRes judicata describes the preclusive effect ofa
final judgment on the merits: res judicata,
or claim preclusion, prevents relitigation of thesame cause of
action in a second suit between thesame parties or parties in
privity with them, andcollateral estoppel, or issue preclusion,
precludesrelitigation of issues argued and decided in
priorproceedings.
Cases that cite this headnote
[46] JudgmentMatters actually litigated and determined
JudgmentEssentials of Adjudication
In the case of issue preclusion, it must appearthat the first
matter presented some issue that isnecessary to the later claim or
defense, and thatthe issue was actually litigated and
necessarilydecided.
Cases that cite this headnote
[47] JudgmentMatters for defense in former action as
cause of action in secondJudgment
Matters which might have been litigatedIssue preclusion bars
later claims based on issuesthat were raised or could have been
raised asaffirmative defenses in the former action.
Cases that cite this headnote
[48] Federal CourtsInferior courts
Although a district court is not bound byunpublished decisions
of intermediate statecourts, unpublished opinions that are
supportedby reasoned analysis may be treated aspersuasive
authority.
Cases that cite this headnote
[49] JudgmentMatters actually litigated and determined
Under California law, an issue is actuallylitigated, for res
judicata purposes, when it isproperly raised by the pleadings or
otherwise,
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is submitted for determination and is actuallydetermined.
Cases that cite this headnote
[50] Securities RegulationPleading
A securities fraud complaint under 10(b)and Rule 10b5 must
satisfy the dualpleading requisites of rule requiring that,in all
averments of fraud or mistake, thecircumstances constituting fraud
or mistakebe stated with particularity and the PrivateSecurities
Litigation Reform Act (PSLRA).Private Securities Litigation Reform
Act of1995, 101(b), 15 U.S.C.A. 78u4; Fed.RulesCiv.Proc.Rule 9(b),
28 U.S.C.A.
Cases that cite this headnote
[51] Federal Civil ProcedureFraud, mistake and condition of
mind
Generally, a plaintiff must plead withparticularity the time and
place of the fraud,the statements made and by whom made,
anexplanation of why or how such statements werefalse or misleading
when made, and the role ofeach defendant in the alleged fraud.
Fed.RulesCiv.Proc.Rule 9(b), 28 U.S.C.A.
Cases that cite this headnote
[52] Securities RegulationMisrepresentation
A securities fraud claim cannot survive a motionto dismiss
merely by alleging that certainstatements were false; it must also
providespecifics concerning who made the statementand when it was
made. Securities Exchange Actof 1934, 10(b), 15 U.S.C.A. 78j(b); 17
C.F.R. 240.10b5; Fed.Rules Civ.Proc.Rule 9(b), 28U.S.C.A.
Cases that cite this headnote
[53] Securities RegulationPleading
The Private Securities Litigation Reform Act's(PSLRA) pleading
requirements prevent aplaintiff from skirting dismissal by filing
asecurities fraud complaint laden with vagueallegations of
deception unaccompanied bya particularized explanation stating why
thedefendant's alleged statements or omissions aredeceitful.
Securities Exchange Act of 1934, 10(b), 21D(b), 15 U.S.C.A. 78j(b),
78u4(b);17 C.F.R. 240.10b5.
Cases that cite this headnote
[54] Securities RegulationManipulative, Deceptive or
Fraudulent
ConductRegardless of whether a securities fraudplaintiff alleges
a misrepresentation, omission,or manipulation, he must plead and
prove thefollowing elements: (1) use or employment of amanipulative
or deceptive device or contrivance;(2) scienter, that is, a
wrongful state of mind;(3) a connection with the purchase or sale
ofa security; (4) reliance, often referred to astransaction
causation; (5) economic loss; and(6) loss causation, that is, a
causal connectionbetween the manipulative or deceptive deviceor
contrivance and the loss. Securities ExchangeAct of 1934, 10(b), 15
U.S.C.A. 78j(b); 17C.F.R. 240.10b5.
Cases that cite this headnote
[55] Securities RegulationScienter
For purposes of the Private Securities LitigationReform Act's
(PSLRA) requirement that asecurities fraud complaint must state
withparticularity facts giving rise to a stronginference that the
defendant acted with therequired state of mind, scienter refers toa
mental state embracing intent to deceive,manipulate, or defraud.
Private SecuritiesLitigation Reform Act of 1995, 101(b), 15U.S.C.A.
78u4(b)(2).
Cases that cite this headnote
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[56] Securities RegulationScienter
The requisite state of mind, under the PrivateSecurities
Litigation Reform Act (PSLRA), mustbe a departure from the
standards of ordinarycare that presents a danger of misleading
buyersthat is either known to the defendant or soobvious that the
actor must have been aware ofit. Private Securities Litigation
Reform Act of1995, 101(b), 15 U.S.C.A. 78u4(b)(2).
Cases that cite this headnote
[57] Securities RegulationScienter
If a securities fraud plaintiff relies on allegationsof
recklessness, the Private Securities LitigationReform Act's (PSLRA)
pleading standardrequires that it state specific facts indicatingno
less than a degree of recklessness thatstrongly suggests actual
intent. Private SecuritiesLitigation Reform Act of 1995, 101(b),
15U.S.C.A. 78u4(b)(2).
Cases that cite this headnote
[58] Securities RegulationScienter
To qualify as strong within the intendmentof the Private
Securities Litigation Reform Act(PSLRA), an inference of scienter
must bemore than merely plausible or reasonable; itmust be cogent
and at least as compelling asany opposing inference of
nonfraudulent intent.Private Securities Litigation Reform Act
of1995, 101(b), 15 U.S.C.A. 78u4(b)(2).
Cases that cite this headnote
[59] Securities RegulationScienter
Courts must consider a securities fraudcomplaint in its
entirety, as well as othersources courts ordinarily examine, when
rulingon motions to dismiss for failure to statea claim; the
inquiry is whether all of thefacts alleged, taken collectively,
give rise to
a strong inference of scienter, as required bythe Private
Securities Litigation Reform Act(PSLRA), not whether any individual
allegation,scrutinized in isolation, meets that standard.Private
Securities Litigation Reform Act of1995, 101(b), 15 U.S.C.A.
78u4(b)(2);Fed.Rules Civ.Proc.Rule 12(b)(6), 28 U.S.C.A.
Cases that cite this headnote
[60] Securities RegulationScienter
In determining whether a securities fraudplaintiff has alleged
facts giving rise to a stronginference of scienter, as required by
the PrivateSecurities Litigation Reform Act (PSLRA), thecourt must
draw all reasonable inferences fromthe allegations presented,
including inferencesunfavorable to plaintiffs; however, the
inferencethat the defendant acted with scienter need notbe
irrefutable, that is, of the smoking-gungenre, or even the most
plausible of competinginferences. Private Securities Litigation
ReformAct of 1995, 101(b), 15 U.S.C.A. 78u4(b)(2).
Cases that cite this headnote
[61] Securities RegulationScienter
To adequately plead a securities fraud claimunder the Private
Securities Litigation ReformAct (PSLRA), the inference of scienter
mustbe more than merely reasonable or permissible;rather, it must
be cogent and compelling inlight of other explanations. Private
SecuritiesLitigation Reform Act of 1995, 101(b), 15U.S.C.A.
78u4(b)(2).
Cases that cite this headnote
[62] Securities RegulationPleading
Corporation that issued shares of its commonstock to limited
liability company (LLC)in return for LLC's payment of
itsoutstanding accounts payable failed to pleadwith particularity
conduct constituting market
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manipulation, as required to state a securitiesfraud claim under
the Private SecuritiesLitigation Reform Act (PSLRA) against LLCand
its directors, arising out of defendants'allegedly fraudulent
scheme to manipulatecorporation's stock price to obtain
additionalshares, where it alleged only that LLC sold moreshares
than it purportedly agreed to sell withina given period, which
violated alleged oralagreement not to sell an amount of
corporation'sstock that exceeded 10 % of total shares traded onany
given day; terms of parties' agreement werefully disclosed.
Securities Exchange Act of 1934, 10(b), 21D(b)(1), 15 U.S.C.A.
78j(b),78u4(b)(1); 17 C.F.R. 240.10b5; Fed.RulesCiv.Proc.Rule 9(b),
28 U.S.C.A.
Cases that cite this headnote
[63] Securities RegulationFraud on the market; price
manipulation
For purposes of a securities fraud claim,deception arises when
an investor is erroneouslyled to believe that the price of the
security inquestion is driven by the natural interplay ofsupply and
demand, not rigged by manipulators;since nondisclosure is usually
essential to thesuccess of a manipulative scheme, the marketis not
misled when a transaction's terms arefully disclosed. Securities
Exchange Act of 1934, 10(b), 15 U.S.C.A. 78j(b); 17 C.F.R.
240.10b5.
Cases that cite this headnote
[64] Securities RegulationReliance
Corporation that issued shares of its commonstock to limited
liability company (LLC) inreturn for LLC's payment of its
outstandingaccounts payable failed to allege reliance onLLC's
allegedly fraudulent statements made aspart of scheme to manipulate
corporation's stockprice to obtain additional shares, as required
toplead a securities fraud claim under either amisrepresentation or
manipulation theory, whereparties' stipulation stated that it
contained allrelevant representations and warranties, and
none of its provisions restricted LLC from sellingshares
corporation issued to it, and corporationdid not allege that it was
damaged because itassumed and relied on an efficient market freeof
manipulation, but, rather, it alleged it wasdefrauded by LLC and
suffered damages as aresult of LLC's breach of the stipulation
andtortious bad faith. Securities Exchange Act of1934, 10(b), 15
U.S.C.A. 78j(b); 17 C.F.R. 240.10b5.
Cases that cite this headnote
[65] Securities RegulationReliance
Reliance by the plaintiff upon the defendant'sdeceptive acts is
an essential element ofa private cause of action for
securitiesfraud; it ensures that, for liability to arise,the
requisite causal connection between adefendant's misrepresentation
and a plaintiff'sinjury exists as a predicate for liability.
SecuritiesExchange Act of 1934, 10(b), 15 U.S.C.A. 78j(b); 17
C.F.R. 240.10b5.
Cases that cite this headnote
[66] Securities RegulationFraud on the market
In a securities fraud case, reliance can bepresumed under the
fraud on the markettheory when the alleged misrepresentations
weredisseminated in an impersonal, well developedsecurities market.
Securities Exchange Act of1934, 10(b), 15 U.S.C.A. 78j(b); 17
C.F.R. 240.10b5.
Cases that cite this headnote
[67] Securities RegulationFraud on the market
To plead reliance adequately for purposes ofa securities fraud
claim based upon marketmanipulation, a plaintiff must allege that
it reliedon an assumption of an efficient market free
ofmanipulation. Securities Exchange Act of 1934, 10(b), 15 U.S.C.A.
78j(b); 17 C.F.R. 240.10b5.
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Cases that cite this headnote
[68] Securities RegulationScienter
Corporation that issued shares of its commonstock to limited
liability company (LLC) inreturn for LLC's payment of its
outstandingaccounts payable failed to plead particularizedfacts
giving rise to a strong inference ofscienter, as required under the
Private SecuritiesLitigation Reform Act (PSLRA) to state
asecurities fraud claim against LLC and itsdirectors, arising out
of defendants' allegedlyfraudulent scheme to manipulate
corporation'sstock price to obtain additional shares,
whereallegations referring to scheme to defraud andmanipulate were
conclusory and did not raiseclaim above speculative level,
especially in lightof terms of parties' stipulation providing
thatshares could be immediately resold withoutrestriction, and
warning that issuance could havesubstantial dilutive effect.
Securities ExchangeAct of 1934, 10(b), 21D(b)(2), 15 U.S.C.A.
78j(b), 78u4(b)(2); 17 C.F.R. 240.10b5.
Cases that cite this headnote
[69] Securities RegulationPleading
A securities fraud complaint fails to allege losscausation if it
does not provide a defendantwith notice of what the relevant
economic lossmight be or of what the causal connection mightbe
between that loss and the misrepresentation;stated in the
affirmative, the complaint mustallege that the defendant's share
price fellsignificantly after the truth became known or
themanipulation took place. Securities ExchangeAct of 1934, 10(b),
15 U.S.C.A. 78j(b); 17C.F.R. 240.10b5.
Cases that cite this headnote
Attorneys and Law Firms
*1130 Carlos E. Needham, Carlos Needham Law Offices,Valencia,
CA, for Plaintiff.
Shannon Edward Mader, Gibson Dunn and Crutcher LLP,Los Angeles,
CA, for Defendants.
ORDER GRANTING IN PART AND DENYING INPART DEFENDANTS' MOTION TO
DISMISS AND
GRANTING DEFENDANTS' MOTION TO STAY
MARGARET M. MORROW, District Judge.
On May 22, 2014, ScripsAmerica, Inc. (Scrips) filed thisaction
against Ironridge Global LLC d/b/a Ironridge GlobalIV, Ltd., John
Kirkland, and Brendan O'Neil (collectivelyIronridge), as well as
certain fictitious defendants. 1 Thecomplaint alleges claims for
securities fraud, breach ofcontract, tortious bad faith, and
declaratory relief. The claimsarise from an allegedly fraudulent
scheme to manipulateScrips' stock price in order to obtain
additional shares ofthe stock under an *1131 agreement between the
partiespursuant to which Ironridge would pay off certain of
Scrips'accounts payable in exchange for issuance of stock set by
anagreed upon formula. 2
On June 25, 2014, defendants filed a motion to dismiss,
oralternatively to stay. 3 Scrips opposes the motion. 4
I. FACTUAL BACKGROUND
This action arises out of an allegedly fraudulent schemedevised
by Ironridge. Scrips is a pharmaceuticals distributorwhose stock is
publicly traded on the over-the-counter(OTC) market. Ironridge's
purported scheme involved theissuance of Scrips' common stock to
Ironridge in exchangefor an undertaking by Ironridge to pay Scrips'
outstandingaccounts payable. 5 Scrips alleges that the transaction
wasfirst proposed during a telephone call it received from
JohnKirkland and Brendan O'Neildirectors of IronridgeonAugust 28,
2013. 6 It contends that Kirkland and O'Neil toldScrips' chief
executive officer, Robert Schneiderman, thatIronridge could pay
Scrips' accounts payable, which totaledapproximately $700,000, in
exchange for an amount of Scripsstock to be determined by
contractual formula. 7 Kirkland
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and O'Neil explained that to effect the exchange, Scrips didnot
need to register the shares before transferring them toIronridge.
The parties discussed the transaction further onSeptember 4 and
October 2, 2013. 8
During the calls, Ironridge requested that the
contractmemorializing the transaction include a provision for
anadjustment to protect it in the event of a decline in
Scrips'stock price. 9 Scrips allegedly agreed to the inclusion of
sucha provision, pursuant to which Ironridge was to receive
morestock than the originally agreed amount if Scrips' stock
pricedeclined following consummation of the transaction. 10
Theadjustment mechanism was outlined, together with certainother
terms, in a term sheet Ironridge prepared and gaveto Scrips. 11
Scrips contends that Ironridge, Kirkland, andO'Neil did not
disclose their intention to manipulate themarket for Scrips shares
in order to reduce the share priceand increase the number of shares
Ironridge was entitled toreceive under the agreement. 12
On October 4, 2013, Schneiderman, Kirkland, and
O'Neilpurportedly discussed the potential effect Ironridge's saleof
the stock it received might have on Scrips' share price.Unlike
other entities that had funded Scrips in exchangefor stock,
Ironridge allegedly represented that it would notact to manipulate
or otherwise affect Scrips' stock price. 13
Specifically, Ironridge purportedly said that its sales of
Scripsshares would never be more than ten percent of the volumeof
sales on any *1132 given day. 14 Scrips contendsthat Ironridge's
representations were knowingly and wilfullyfalse. 15
Because the shares were unregistered, Ironridge and Scripshad to
obtain court approval under California and federalsecurities laws
before a transfer of the stock could takeplace. 16 Thus, on October
11, 2013, Ironridge filed a breachof contract complaint in Los
Angeles Superior Court thatsought to collect the accounts payable
debts; it sued as thesuccessor in interest to Scrips' creditors
under receivablespurchase agreements into which it had entered with
thecreditors. 17 Ironridge and Scrips then submitted a
stipulationto the court that was the means by which the
exchangetransaction was to be effected. The stipulation provided
thatScrips would transfer 8,690,000 shares of stock to Ironridgein
satisfaction of $686,962.08 in debt owned by Ironridge. 18The
shares were to be unrestricted and freely tradeable
exempted shares of Scrips common stock. 19 The stipulationstated
the shares had to be capable of being immediatelyresold ... without
restriction, 20 and noted that Ironridgecould sell any of its
shares of [Scrips] common stock issuedpursuant to the [stipulation]
at any time. 21 The stipulationwarned that issuance of the shares
could have a dilutiveeffect [on Scrips' stock], which [might] be
substantial. 22
The stipulation also memorialized the adjustment mechanismthe
parties had previously discussed. First, Scrips wouldimmediately
issue and deliver to Ironridge 8,690,000 sharesof its common stock;
the issuance, however, was subjectto certain adjustments,
issuances, returns, and ownershiplimitations. 23 Future adjustments
were to be made basedon trading activity in Scrips stock during the
calculationperiod. 24 The final amount of shares to which
Ironridgewas entitled was to be calculated by taking (a) the sum
ofthe claim amount [i.e., $686,962.08], 10 % of third partyagent
fees, and Ironridge's reasonable *1133 attorneys' feesand expenses,
and dividing it by (b) 80 % of the following:the closing price of
Scrips common stock on the tradingday immediately preceding the
date the state court enteredan order on the stipulation; the
resulting number was notto exceed the arithmetic average of the
individual volumeweighted average price of any five trading days
during thecalculation period, less $.01 per share (based on data
reportedby Bloomberg LP). 25
The stipulation also provided that if at any point during
thecalculation period the shares issued to Ironridge droppedbelow
any reasonably possible [f]inal [a]mount or if Scripsshares closed
below 80 % of the closing price on the tradingday prior to entry of
an order on the stipulation, Ironridgewas entitled to request the
issuance of additional shares. 26
At the conclusion of the calculation period, if the total
valueof the initial issuance and subsequent issuances was lessthan
the final amount, Scrips was required to issue furthershares so
that the total number of shares issued equaled thefinal amount;
conversely, if the number of shares issued toIronridge exceeded the
final amount, Ironridge was requiredto return the excess shares to
Scrips. 27 The stipulation stated,however, that Scrips was not
required to issue at any onetime a number of shares that,
aggregated with all other sharesbeneficially owned or controlled by
Ironridge or its affiliates,exceeded 9.99 % of the total number of
shares of commonstock outstanding. 28 Despite the fact that
Kirkland, O'Neil,and Schneiderman allegedly discussed the issue,
there is no
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provision in the stipulation requiring that Ironridge's sales
ofScrips shares not exceed 10% of the daily trading volume onany
given day.
On November 8, 2013, the parties filed a joint ex
parteapplication in state court for an order approving
thestipulation; they argued that ex parte relief was
necessarybecause the stipulation addressed the issuance of sharesof
[Scrips] stock with a substantially fluctuating marketprice. 29 The
application recited that over the course ofthe previous year, the
price of Scrips common stock hadfluctuated between $1.05 and $.08,
and that it would bedifficult to reach any negotiated resolution
that did not requireex parte relief, as the agreement could
collapse if Scrips'stock price fluctuated too much. 30 As support
for theirrequest that the court approve the stipulation, both
partiesfiled declarations stating that they believed the terms
ofagreement were fair. 31 The stipulation *1134 recited thatthe
agreement was fair to Ironridge and that Scrips' board hadresolved
that the terms were fair to and in the best interestsof its
shareholders. 32
On November 8, 2013, Superior Court Judge Rolf M. Treuentered an
order on the parties' stipulation. 33 Scrips allegesthat
thereafter, on several trading days, Ironridge sold anamount of
Scrips stock that exceeded ten percent of all saleson that day. 34
Specifically, it contends that Ironridge's salesduring the week of
January 6, 2014 represented 28.4 %of total sales; sales during the
week of January 21, 2014represented 22.6%; and weekly sales
throughout February2014 ranged from 3050%. 35 Scrips maintains that
Ironridgemade these sales with the intent and purpose of
manipulatingthe market to reduce the price of Scrips' stock so that
thenumber of shares to which it was entitled under the
parties'agreement would increase. Scrips contends that the sales
infact reduced its stock price. 36 It asserts that during the
periodof alleged manipulation, Ironridge refused to provide
anyinformation concerning its trading activity, claiming it
wasconfidential. 37
Based on the decline in Scrips' share price, Ironridgefiled an
ex parte application for an order compellingthe issuance of
additional shares pursuant to the May 6,2014 stipulation. 38 Scrips
opposed the application. 39 Itargued that the court should deny it
because Ironridge hadengaged in wrongful conduct in bad faith and
hadunclean hands. 40 Specifically, it asserted that Ironridge
had fraudulently manipulated the market for Scrips stock,
i.e.,engaged in open market manipulation, by short sellingScrips'
shares during the calculation period in an effort todrive the share
price down artificially and require Scrips toissue more shares to
Ironridge pursuant to the terms of theparties' agreement. 41 Scrips
also contended that Ironridge'sconduct was a breach of the parties'
agreement, as well as abreach of the covenant of good faith and
fair dealing impliedtherein. 42 Finally, it asserted that
additional issuance ofshares could be in violation of [federal]
securities *1135laws. 43
On May 6, 2014, Judge Treu implicitly rejected each ofScrips'
arguments. He entered an order enforcing the orderthat had approved
the stipulation (enforcement order), anddirecting that Scrips issue
an additional 1,646,008 sharesof common stock to Ironridge pursuant
to the adjustmentmechanism set forth in the stipulation. 44 Scrips
appealed theorder on May 14, 2014. 45 That appeal is presently
pendingbefore the California Court of Appeal, with Scrips'
openingbrief due October 15, 2014. 46
On May 22, 2014, eight days after appealing the
enforcementorder, Scrips filed this action, alleging claims for
breach ofcontract, tortious bad faith, violation of Rule 10b5,
anddeclaratory relief. Scrips seeks a declaration that it neednot
issue the additional 1,646,008 shares that the SuperiorCourt has
ordered it to issue. Scrips maintains that Ironridgeintentionally
engaged in post-stipulation trading activity tomanipulate the
market and reduce the price of Scrips' stockin order to increase
the number of shares it was to receivepursuant to the stipulation's
calculation formula. 47 Scripsasserts that Ironridge manipulated
its stock to send falseinformation regarding the supply of and
demand for Scrips'stock to the market, inducing others to sell
Scrips stock andcreating further market distortion. 48 Scrips
contends thatabsent illegal manipulation by Ironridge, its stock
would betrading at $0.15 per share instead of the current price
ofapproximately $0.10. It asserts that Ironridge's
manipulativeactions have caused it to issue 10.3 million shares,
instead ofthe 8.7 million initially required by the agreement, and
thatIronridge is seeking issuance of a further 1.6 million
sharesthrough the California courts. 49 As a result, Scrips
contends,it has been injured by issuing stock worth more than
$1.4million to Ironridge, in satisfaction of a less than
$770,000debt. 50
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II. DISCUSSION
A. Ironridge's Request for Judicial Notice[1] [2] Ironridge asks
that the court take judicial notice
of various documents related to the state court action. 51
Because Rule 12(b)(6) review is confined to the complaint,the
court typically does not consider material outside thepleadings
(e.g., facts presented in briefs, affidavits, ordiscovery
materials) in deciding such a motion. In reAmerican Continental
*1136 Corp./Lincoln Sav. & LoanSecurities Litig., 102 F.3d
1524, 1537 (9th Cir.1996). It may,however, properly consider
exhibits attached to the complaintand documents whose contents are
alleged in the complaintbut not attached, if their authenticity is
not questioned. Lee v.City of Los Angeles, 250 F.3d 668, 688 (9th
Cir.2001).
[3] [4] In addition, the court can consider matters thatare
proper subjects of judicial notice under Rule 201 of theFederal
Rules of Evidence. Id. at 68889; Branch v. Tunnell,14 F.3d 449, 454
(9th Cir.1994), overruled on other groundsby Galbraith v. County of
Santa Clara, 307 F.3d 1119 (9thCir.2002); Hal Roach Studios, Inc.
v. Richard Feiner andCo., Inc., 896 F.2d 1542, 1555 n. 19 (9th
Cir.1990); seealso Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S.308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007)
([C]ourtsmust consider the complaint in its entirety, as well as
othersources courts ordinarily examine when ruling on Rule 12(b)(6)
motions to dismiss, in particular, documents incorporatedinto the
complaint by reference, and matters of which a courtmay take
judicial notice). 52 The court is not required toaccept as true
conclusory allegations which are contradictedby documents referred
to in the complaint. Steckman v. HartBrewing Inc., 143 F.3d 1293,
1295 (9th Cir.1998).
[5] Ironridge asks that the court take judicial notice of
ninedocuments filed in the state court action. 53 These
documentsbear directly on whether the court can properly
exercisejurisdiction over this case. It is well established that
federalcourts may take judicial notice of related state court
ordersand proceedings. See Dawson v. Mahoney, 451 F.3d 550, 551(9th
Cir.2006) (taking judicial notice of state court orders
andproceedings); see also United States v. Black, 482 F.3d
1035,1041 (9th Cir.2007) (stating that an appellate court may
takenotice of proceedings in other courts, both within and
withoutthe federal judicial system, if those proceedings have a
directrelation to matters at issue); Farahani v. Floria, No.
12CV04637LHK, 2013 WL 1703384, *1 n. 1 (N.D.Cal. Apr.
19, 2013) (The remaining documents submitted for judicialnotice
are all documents filed in previous and concurrentlawsuits, which
are similarly suitable for judicial notice underFed.R.Evid.
201(b)).
The parties' state court stipulation, moreover, which is
ExhibitB to Ironridge's request for judicial notice, is attached
tothe complaint and therefore need not be judicially noticedto be
considered in deciding the motion. See Lee, 250 F.3dat 688 (a court
may consider material which is properlysubmitted as part of the
complaint on a motion to dismisswithout converting the motion to
dismiss into a motionfor summary judgment, quoting Branch, 14 F.3d
at 453).Finally, as Ironridge notes, the state court order
approving theparties' stipulation, which is Exhibit F to
Ironridge's requestfor judicial notice, is referenced in the
complaint, and can beconsidered under the incorporation by
reference doctrine. SeeUnited States v. Ritchie, 342 F.3d 903, 908
(9th Cir.2003)(acknowledging that a district court may assume that
thecontents of a document incorporated by reference are truefor
purposes of a motion to dismiss); *1137 In re DowneySec. Litig.,
No. CV 083261JFW, 2009 WL 2767670, *6 n.4 (C.D.Cal. Aug. 21, 2009)
(same).
B. Legal Standard Governing Motions to Dismiss underRule
12(b)(6)A Rule 12(b)(6) motion tests the legal sufficiency of
theclaims asserted in the complaint. A Rule 12(b)(6) dismissalis
proper only where there is either a lack of a cognizablelegal
theory, or the absence of sufficient facts alleged undera
cognizable legal theory. Balistreri v. Pacifica Police Dept.,901
F.2d 696, 699 (9th Cir.1988). The court must acceptall factual
allegations pleaded in the complaint as true, andconstrue them and
draw all reasonable inferences from themin favor of the nonmoving
party. Cahill v. Liberty Mut. Ins.Co., 80 F.3d 336, 33738 (9th
Cir.1996); Mier v. Owens, 57F.3d 747, 750 (9th Cir.1995).
The court need not, however, accept as true
unreasonableinferences or conclusory legal allegations cast in the
formof factual allegations. See Bell Atlantic Corp. v. Twombly,550
U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)(While a
complaint attacked by a Rule 12(b)(6) motion todismiss does not
need detailed factual allegations, a plaintiff'sobligation to
provide the grounds' of his entitle[ment] torelief requires more
than labels and conclusions, and aformulaic recitation of the
elements of a cause of action willnot do). Thus, a complaint must
contain sufficient factualmatter, accepted as true, to state a
claim to relief that is
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plausible on its face. ... A claim has facial plausibility
whenthe plaintiff pleads factual content that allows the court
todraw the reasonable inference that the defendant is liable forthe
misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678,129 S.Ct.
1937, 173 L.Ed.2d 868 (2009); see also Twombly,550 U.S. at 555, 127
S.Ct. 1955 (Factual allegations must beenough to raise a right to
relief above the speculative level, onthe assumption that all the
allegations in the complaint are true(even if doubtful in fact)
(citations omitted)); Moss v. UnitedStates Secret Service, 572 F.3d
962, 969 (9th Cir.2009)([F]or a complaint to survive a motion to
dismiss, the non-conclusory factual content, and reasonable
inferences fromthat content, must be plausibly suggestive of a
claim entitlingthe plaintiff to relief, citing Iqbal and Twombly
).
C. Whether the Court Should Dismiss Scrips' ClaimsBased on the
RookerFeldman Doctrine
1. Legal Standard Governing Applicationof the RookerFeldman
Doctrine
[6] [7] Under the RookerFeldman doctrine, which takesits name
from the Supreme Court's decisions in Rooker v.Fidelity Trust Co.,
263 U.S. 413, 416, 44 S.Ct. 149, 68 L.Ed.362 (1923), and District
of Columbia Court of Appeals v.Feldman, 460 U.S. 462, 476, 103
S.Ct. 1303, 75 L.Ed.2d 206(1983), a federal district court does not
have subject matterjurisdiction to hear a direct appeal from a
final judgment ofa state court. See Noel v. Hall, 341 F.3d 1148,
1155 (9thCir.2003). A losing party in state court is thus barred
fromseeking what in substance would be appellate review of astate
judgment in federal district court, even if the partycontends the
state judgment violated his or her federal rights.Johnson v.
DeGrandy, 512 U.S. 997, 100506, 114 S.Ct.2647, 129 L.Ed.2d 775
(1994); Allah v. Superior Court, 871F.2d 887, 891 (9th Cir.1989)
(stating that RookerFeldmandoctrine applies even though the direct
challenge is anchoredto alleged deprivations of federally protected
due processand equal protection rights), superseded by statute
*1138on other grounds as stated in Schroeder v. McDonald, 55F.3d
454, 458 (9th Cir.1995); Worldwide Church of God v.McNair, 805 F.2d
888, 891 (9th Cir.1986) (This doctrineapplies even when the
challenge to the state court decisioninvolves federal
constitutional issues).
The rationale behind the RookerFeldman doctrine isthreefold.
First, the only federal court with the power to hearappeals from
state courts is the United States Supreme Court.
Bennett v. Yoshina, 140 F.3d 1218, 1223 (9th Cir.1998).Second,
state courts are as competent as federal courts todecide federal
constitutional issues. Worldwide Church ofGod, 805 F.2d at 891.
Third, any other rule would result in awaste of judicial resources
and unnecessary friction betweenstate and federal courts. Id.
[8] [9] When there is parallel state and federal
litigation,RookerFeldman is not triggered simply by the entryof
judgment in state court. Th [e] [Supreme] Court hasrepeatedly held
that the pendency of an action in the statecourt is no bar to
proceedings concerning the same matter inthe [f]ederal court having
jurisdiction. Exxon Mobil Corp.v. Saudi Basic Indus. Corp., 544
U.S. 280, 292, 125 S.Ct.1517, 161 L.Ed.2d 454 (2005). Proceedings
end for RookerFeldman purposes when the state courts finally
resolve theissue that the federal court plaintiff seeks to
relitigate in afederal forum, even if other issues remain pending
at thestate level. Mothershed v. Justices of Supreme Court, 410F.3d
602 (9th Cir.2005) (emphasis added). Thus, where afederal action is
filed while the state court action continue[s]in the appeals
process in state court, the state proceedingsha[ve] not ended.
Nicholson v. Shafe, 558 F.3d 1266, 1278(11th Cir.2009); Guttman v.
Khalsa, 446 F.3d 1027, 1032(10th Cir.2006) ( In this case, Guttman
filed his federal suitwhile his petition for certiorari to the New
Mexico SupremeCourt was pending. His state suit was not final. As
such,the RookerFeldman doctrine does not bar his federal suitand
the district court does have subject matter jurisdiction tohear the
case); Federacion de Maestros de Puerto Rico v.Junta de Relaciones
del Trabajo de Puerto Rico, 410 F.3d 17,24 (1st Cir.2005) (Exxon
Mobil tells us when a state courtjudgment is sufficiently final for
operation of the RookerFeldman doctrine: when the state proceedings
[have] ended.If federal litigation is initiated before state
proceedings haveended, theneven if the federal plaintiff expects to
lose instate court and hopes to win in federal courtthe litigation
isparallel, and the RookerFeldman doctrine does not deprivethe
court of jurisdiction). 54
*1139 [10] [11] The RookerFeldman doctrine precludesthe exercise
of jurisdiction not only over claims that are defacto appeals of a
state court decision but also over suitsthat raise issues that are
inextricably intertwined with anissue resolved by the state court.
See Feldman, 460 U.S.at 483 n. 16, 103 S.Ct. 1303; Noel, 341 F.3d
at 1158. Asthe Ninth Circuit has explained: If claims raised in
thefederal court action are inextricably intertwined with thestate
court's decision such that the adjudication of the federal
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claims would undercut the state ruling or require the
districtcourt to interpret the application of state laws or
proceduralrules, then the federal complaint must be dismissed for
lack ofsubject matter jurisdiction. Bianchi v. Rylaarsdam, 334
F.3d895, 898 (9th Cir.2003).
[12] In determining whether a plaintiff's federal claimsare
inextricably intertwined with a state court decision, acourt cannot
simply compare the issues involved in thestate-court proceeding to
those raised in the federal-courtplaintiff. Id. at 900 (quoting
Kenmen Engineering v. Cityof Union, 314 F.3d 468, 476 (10th
Cir.2002)). Rather, it must pay close attention to the relief
sought by the federal-courtplaintiff. Id. As the Ninth Circuit
explained in WorldwideChurch of God,
claims are inextricably intertwined if the district courtmust
scrutinize not only the challenged rule itself, but thestate
court's application of the rule. If, in order to resolvethe claim,
the district court would have to go beyond merereview of the state
rule as promulgated, to an examinationof the rule as applied by the
state court to the particularfactual circumstances of the
plaintiff's case, then the courtlacks jurisdiction. Worldwide
Church of God, 805 F.2d at892 (quotations and internal alterations
omitted).
2. Application of RookerFeldman to the Facts of This Case
[13] [14] Ironridge argues that Scrips' complaint shouldbe
dismissed for lack of subject matter jurisdiction because itis a de
facto appeal from a final state court judgment and isthus barred by
the RookerFeldman doctrine. 55 Specifically,Ironridge contends that
Scrips' complaint is a de facto appealof the state court order
approving the parties' stipulationbecause it seeks to invalidate
the stipulation on the basis thatit was procured by fraud. 56 It
asserts that the state courtjudgment is final because the
stipulation was unappealable byits terms, 57 and because Scrips
*1140 failed to file a noticeof appeal within 60 sixty days of the
entry of an order on thestipulation, as required by California law.
See CAL. RULESOF COURT 8.104 (time for appeal is sixty days after
noticeor 180 days after the entry of judgment). 58
While the complaint contains allegations that Ironridgeexecuted
a scheme to defraud that induced Scrips to enterinto the agreement
and stipulation, these allegations appear
to form the basis for its Rule 10b5 claim, as opposed toits
breach of contract and breach of the implied covenant/tortious bad
faith claims. The Rule 10b5 claim does notseek to invalidate the
parties' agreement or the state courtorder approving the
stipulation that embodied it. Rather, itseeks damages for
securities fraud. This is an independentclaim that is not barred by
RookerFeldman. See ExxonMobil, 544 U.S. at 293, 125 S.Ct. 1517 (If
a federalplaintiff present[s] some independent claim, albeit one
thatdenies a legal conclusion that a state court has reached ina
case to which he was a party ..., then there is jurisdictionand
state law determines whether the defendant prevailsunder principles
of preclusion, quoting GASH Assocs. v.Rosemont, 995 F.2d 726, 728
(7th Cir.1993), and citing Noel,341 F.3d at 116364); Great Western
Mining & Mineral Co.v. Fox Rothschild LLP, 615 F.3d 159, 173
(3d Cir.2010)(holding, in a case where plaintiff alleged that
adversejudgments entered against it in state court were the
resultof a conspiracy between defendants and the
Pennsylvaniajudiciary, that RookerFeldman did not bar the claim
becausewhile Great Western's claim for damages may require reviewof
state-court judgments and even a conclusion that they
wereerroneous, those judgments would not have to be rejected
oroverruled for Great Western to prevail).
Similarly, Scrips' breach of contract and breach of theimplied
covenants claims do not seek to invalidate theparties' agreement,
or the stipulated order the state courtentered approving the
stipulation that embodied it. Rather,they seek damages based on
Ironridge's purported breachof the express or implied terms of the
agreement andstipulation. 59 Consequently, these claims likewise
are notbarred by RookerFeldman.
[15] Scrips' declaratory relief claim, however, is of adifferent
character. That claim requests that the court declarethat Scrips
has no obligation to meet [Ironridge's] demands[for additional
stock] because *1141 Scrips is excusedfrom performing under the
terms of the Stipulation dueto Ironridge's illegal conduct, breach
of the Stipulation,and tortious bad faith. 60 The claim asserts
that Ironridgecontinues to demand the issuance of additional shares
inaddition to those that the state court directed be issued in
itsenforcement order, now on appeal, 61 and requests that thecourt
declare that Scrips has no obligation to comply with thestipulated
judgment to the extent it compels Scrips to accedeto these demands.
This is equivalent to a request that the courtdeclare the state
court order approving the stipulation, andmaking it an enforceable
judgment, void. This is precisely
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the type of claim that is barred by RookerFeldman. In
thisregard, courts distinguish between federal court plaintiffswho
seek damages for fraud that led to the entry of a statecourt
judgment, and those that seek to invalidate the statecourt judgment
itself because it was procured by fraud.Compare Illinois Central
Railroad Co. v. Guy, 682 F.3d381, 391 (5th Cir.2012) (RookerFeldman
does not bar aclaim that state court plaintiffs' lawyers obtained a
settlementjudgment through fraudulent misrepresentations);
GreatWestern Mining & Mineral Co., 615 F.3d at 173
(RookerFeldman does not bar a federal plaintiff's damages
claimsbased on allegations that defendants conspired to engineer
itsloss in state court by exercising improper influence over
statejudges); McCormick v. Braverman, 451 F.3d 382, 39293(6th
Cir.2006) (RookerFeldman did not deprive the districtcourt of
jurisdiction to hear federal plaintiff's claims againsta state
court receiver and homeowners' insurer allegingfraud in obtaining a
receivership order from state court)with Morris v. American Home
Mortg. Servicing, Inc., 443Fed.Appx. 22, 24 (5th Cir.2011)
(Unpub.Disp.) (holding thatan otherwise independent unlawful debt
collection practicesclaim related to a foreclosure judgment was
barred becausethe only relief sought was the setting aside of the
stateforeclosure judgment and staying of the execution of thewrit
of possession); Turner v. Cade, 354 Fed.Appx. 108,11011 (5th
Cir.2009) (Unpub.Disp.) (holding that RookerFeldman barred a claim
that a state court divorce decree wasprocured through fraud when
the federal plaintiff asked thedecree be declared void); Ford v.
U.S. Dep't of TreasuryInternal Revenue Serv., 50 Fed.Appx. 490, 491
(2d Cir.2002)(Unpub.Disp.) (plaintiff's claim seeking invalidation
of a statecourt foreclosure judgment on the ground that it was
procuredthrough fraud was barred by RookerFeldman ). 62
[16] Scrips disputes this, arguing that it does not seek to
havethe court review the state court stipulated judgment, but
ratherIronridge's post-settlement abuse of [that] judgment. 63
Itcontends that, to the extent its complaint challenges anyruling
of the state court, it is the order *1142 enforcing thestipulated
judgment and requiring the issuance of additionalshares. Scrips
asserts that decision is not final for purposesof RookerFeldman
because it is presently on appeal. 64
See Mothershed, 410 F.3d at 605 n. 1 (Proceedings endfor
RookerFeldman purposes when the state courts finallyresolve the
issue that the federal court plaintiff seeks torelitigate in a
federal forum, even if other issues remainpending at the state
level); see also Nicholson, 558 F.3d at1278 (because the Appellants
filed the instant federal actionwhile the state court action
continued in the appeals process in
state court, the state proceedings had not ended); Guttman,446
F.3d at 1032 (In this case, Guttman filed his federal suitwhile his
petition for certiorari to the New Mexico SupremeCourt was pending.
His state suit was not final. As such,the RookerFeldman doctrine
does not bar his federal suitand the district court does have
subject matter jurisdictionto hear the case). The court would agree
that, to the extentthe declaratory relief claim seeks a declaration
that it hasno obligation to issue an additional 1.6 million shares
toIronridge, it attacks a judgment that is not yet final, and isnot
barred by the RookerFeldman doctrine for the reasonsenunciated in
Exxon Mobil. Exxon Mobil, 544 U.S. at 292,125 S.Ct. 1517. As noted,
however, the claim appears to reston demands for additional shares
beyond the 1.6 million,and to request that Scrips need not comply
with the terms ofthe stipulated judgment at any point in the
future. This is abroader attack on the validity of that judgment,
which is final,and falls within the scope of the RookerFeldman
bar.
For the reasons stated, the court denies Ironridge's motionto
dismiss Scrips' Rule 10b5, breach of contract, andbreach of the
covenant/tortious bad faith claims under theRookerFeldman doctrine.
It also denies Ironridge's requestto dismiss Scrips' declaratory
relief claim to the extent itseeks a declaration that it is not
obligated to issue 1.6 millionadditional shares of stock to
Ironridge as directed by thestate court's enforcement order
currently on appeal. It grantsIronridge's motion to the extent
Scrips seeks a declaration thatit be excused altogether from
performing under the terms ofthe stipulated judgment.
D. Whether the Court Should Abstain from DecidingScrips' Claims
under Younger v. Harris
1. Legal Standard Governing Abstention under Younger
[17] [18] Under the doctrine first articulated in Younger
v.Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971),federal
courts must abstain from hearing cases that wouldinterfere with
pending state court proceedings that implicateimportant state
interests. Potrero Hills Landfill, Inc. v. Countyof Solano, 657
F.3d 876, 881 (9th Cir.2011) (citing MiddlesexCounty Ethics Comm.
v. Garden State Bar Ass'n, 457 U.S.423, 432, 102 S.Ct. 2515, 73
L.Ed.2d 116 (1982)). Thedoctrine is justified by considerations of
comity; a properrespect for state functions, a recognition of the
fact thatthe entire country is made up of a Union of separate
stategovernments, and a continuance of the belief that the
National
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Government will fare best if the States and their
institutionsare left free to perform their separate functions in
theirseparate ways. Younger, 401 U.S. at 44, 91 S.Ct. 746.
[19] [20] Absent extraordinary circumstances,abstention in favor
of state judicial proceedings is required ifthe state *1143
proceedings (1) are ongoing, (2) implicateimportant state
interests, and (3) provide the plaintiff anadequate opportunity to
litigate federal claims. Hirsh v.Justices of Supreme Court of
California, 67 F.3d 708, 712(9th Cir.1995) (citing Middlesex County
Ethics Committee,457 U.S. at 437, 102 S.Ct. 2515). Even then,
abstention isappropriate only where the federal action enjoins the
statecourt proceedings or has the practical effect of doing
so.AmerisourceBergen Corp. v. Roden, 495 F.3d 1143, 1149(9th
Cir.2007); Gilbertson v. Albright, 381 F.3d 965, 978(9th Cir.2004)
(en banc) (If a state-initiated proceeding isongoing, and if it
implicates important state interests ..., andif the federal
litigant is not barred from litigating federalconstitutional issues
in that proceeding, then a federal courtaction that would enjoin
the proceeding, or have the practicaleffect of doing so, would
interfere in a way that Youngerdisapproves (emphasis
original)).
[21] While the Supreme Court has never directly addressedthe
subject, the Ninth Circuit has held that Youngerprinciples apply to
actions at law as well as for injunctiveor declaratory relief.
Gilbertson, 381 F.3d at 968 (reasoningthat a determination that the
federal plaintiff's constitutionalrights have been violated would
have the same practical effectas a declaration or injunction on
pending state proceedings).If, in a case in which the plaintiff
seeks damages, the courtdetermines that the Younger abstention is
appropriate, itshould stay the matter until the state court
proceedings areconcluded, rather than dismissing the action. Id. at
98182.
2. Application of Younger to the Facts of this Case
[22] [23] [24] Ironridge argues that the court shoulddismiss
Scrips' complaint under Younger because this actionis a blatant
attempt to interfere with the enforcement ofthe stipulated
judgment. 65 It contends that enforcementproceedings are ongoing
because they are currently on appealin state court. 66 Scrips
concedes that the enforcement order ison appeal to the California
Court of Appeal. 67 For Youngerpurposes, the State's
trial-and-appeals process is treated as aunitary system, and for a
federal court to disrupt its integrity
by intervening in mid-process would demonstrate a lack ofrespect
for the State as sovereign. New Orleans Pub. Serv.,Inc. v. Council
of City of New Orleans, 491 U.S. 350, 369, 109S.Ct. 2506, 105
L.Ed.2d 298 (1989). Thus, [a] necessaryconcomitant of Younger is
that a party [wishing to contest infederal court the judgment of a
state judicial tribunal] mustexhaust his state appellate remedies
before seeking relief inthe District Court. Id. (quoting Huffman v.
Pursue, Ltd.,420 U.S. 592, 608, 95 S.Ct. 1200, 43 L.Ed.2d 482
(1975)).For that reason, the first threshold requirement to
Youngerabstentionan ongoing state court proceedingis satisfied.
Ironridge argues that the second threshold requirement ismet as
well, because the state court enforcement proceedingimplicates an
important state interest, i.e., the state's interestin enforcing
the orders and judgments of its courts. SeeSprint Communications,
Inc. v. Jacobs, U.S. , 134S.Ct. 584, 588, 187 L.Ed.2d 505 (2013)
(citing Pennzoil Co.v. Texaco Inc., 481 U.S. 1, 107 S.Ct. 1519, 95
L.Ed.2d 1(1987)). Scrips counters that this action does not involve
thetype of matters that *1144 have traditionally been regardedas
vital state interests. 68 It asserts that, because the
stipulatedjudgment case was the product of an agreement betweenthe
parties, there was no substantial process in the statecourt, and
hence any de minimis state interest is outweighedby the federal
interest in enforcing securities laws. 69 TheSupreme Court has
repeatedly recognized that the Stateshave important interests in
administering certain aspects oftheir judicial system. Pennzoil
Co., 481 U.S. at 1213, 107S.Ct. 1519; ReadyLink Healthcare, Inc. v.
State Comp. Ins.Fund, 754 F.3d 754, 759 (9th Cir.2014) (Younger
applieswhen state court proceedings involve a state's interest
inenforcing the orders and judgments of its courts); Root v.Schenk,
953 F.Supp. 1115, 1121 (C.D.Cal.1997) (same).
As the Ninth Circuit has cautioned, however, [t]aken out
ofcontext, these statements suggest that California's interest
inenforcing the judgment in this particular case is of
sufficientimportance to meet Younger's second threshold element.
SeeAmerisourceBergen, 495 F.3d at 1150 (emphasis original).That
court has made it clear that [t]he importance of the[state's]
interest is measured by considering its significancebroadly, rather
than by focusing on the state's interest in theresolution of an
individual case. Id. (quoting Baffert v.Cal. Horse Racing Bd., 332
F.3d 613, 618 (9th Cir.2003));see also Champion Int'l Corp. v.
Brown, 731 F.2d 1406,1408 (9th Cir.1984) ([A] challenge[ ] [to]
only one ...order, not the whole procedure is not a substantial
enoughinterference with [a state's] administrative and judicial
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processes to justify abstention). Accordingly, binding[Ninth
Circuit] precedent prevents the court from finding thatCalifornia's
interest in enforcing this one particular judgmentas opposed to a
state's wholesale interest in preserving itsprocedure for posting
an appeal bond [see Pennzoil Co., 481U.S. at 1214, 107 S.Ct. 1519],
or its interest in retaininga particular contempt of court scheme
[see Juidice v. Vail,430 U.S. 327, 330, 335, 97 S.Ct. 1211, 51
L.Ed.2d 376(1977) ],qualifies as sufficiently important to
satisfyYounger's second threshold element. Id. For this reason,the
court cannot dismiss Scrips' complaint based on Youngerabstention.
70
*1145 E. Whether the Court Should Stay Scrips'Claims under
Colorado River Water Conservation Districtv. United States
1. The Colorado River Doctrine
Ironridge next asserts that the action should be dismissed
orstayed under Colorado River Water Conservation Districtv. United
States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47L.Ed.2d 483 (1976),
which applies in situations involvingthe contemporaneous exercise
of concurrent jurisdictions[.] In Colorado River, the Supreme Court
was concernedwith the problem posed by the contemporaneous exercise
ofconcurrent jurisdiction by state and federal courts. Smithv.
Central Ariz. Water Conservation Dist., 418 F.3d 1028,103233 (9th
Cir.2005) (citing Gilbertson, 381 F.3d at 982n. 17). In such cases,
the Court recognized there may becircumstances in which traditional
abstention principles donot apply, yet considerations of wise
judicial administration,giving regard to conservation of judicial
resources andcomprehensive disposition of litigation, nonetheless
justifya decision to stay or dismiss federal proceedings
pendingresolution of concurrent state court proceedings. Smith,
418F.3d at 1033 (internal quotation marks and citations
omitted).Such circumstances are, however, exceedingly rare. As[the
Ninth Circuit] previously observed, the Colorado Riverdoctrine is a
narrow exception to the virtually unflaggingobligation of the
federal courts to exercise the jurisdictiongiven them. Id.
[25] [26] To decide whether a particular case presents
theexceptional circumstances that warrant a Colorado River stayor
dismissal, the district court must carefully consider boththe
obligation to exercise jurisdiction and the combination offactors
counseling against that exercise. R.R. Street & Co.
Inc. v. Transport Ins. Co., 656 F.3d 966, 978 (9th
Cir.2011)(quoting Colorado River, 424 U.S. at 818, 96 S.Ct. 1236).
TheNinth Circuit has identified eight factors useful in
assessingthe propriety of a stay or dismissal under Colorado
River.These are: (1) which *1146 court first assumed
jurisdictionover any property at stake; (2) the inconvenience of
thefederal forum; (3) the desire to avoid piecemeal litigation;(4)
the order in which the forums obtained jurisdiction; (5)whether
federal law or state law provides the rule of decisionon the
merits; (6) whether the state court proceedings canadequately
protect the rights of the federal litigants; (7) thedesire to avoid
forum shopping; and (8) whether the statecourt proceedings will
resolve all issues before the federalcourt. 71 Id. at 97879. The
factors relevant to a givencase are subjected to a flexible
balancing test, in whichone factor may be accorded substantially
more weight thananother depending on the circumstances of the case,
andwith the balance heavily weighted in favor of the exerciseof
jurisdiction. Holder v. Holder, 305 F.3d 854, 87071(9th Cir.2002)
(quoting Moses H. Cone Memorial Hosp. v.Mercury Const. Corp., 460
U.S. 1, 16, 103 S.Ct. 927, 74L.Ed.2d 765 (1983)).
As an initial matter, Ironridge seeks a Colorado River stayonly
as to Scrips' breach of contract, breach of
impliedcovenant/tortious bad faith, and declaratory relief
claims.It acknowledges that the state court has no
concurrentjurisdiction to hear Scrips' Rule 10b5 claim, and thus
doesnot seek to have the court should stay that claim. See
IntelCorp. v. Advanced Micro Devices, Inc., 12 F.3d 908, 913 n.7
(9th Cir.1993) (the circuit courts, and the Ninth Circuit
inparticular, have uniformly held that a district court may
notgrant a stay in [cases involving claims subject to
exclusivefederal jurisdiction]); Minucci v. Agrama, 868 F.2d
1113,1115 (9th Cir.1989) ( the Colorado River doctrine onlyapplies
to claims under the concurrent jurisdiction of thefederal and state
courts); Silberkleit v. Kantrowitz, 713F.2d 433, 436 (9th Cir.1983)
(the district court has nodiscretion to stay proceedings as to
claims within exclusivefederal jurisdiction under the wise judicial
administrationexception); Krieger v. Atheros Communications, Inc.,
776F.Supp.2d 1053, 1058 (N.D.Cal.2011) (holding ColoradoRiver did
not apply to claims under the Securities ExchangeAct because such
claims fall within the exclusive jurisdictionof federal
courts).
The Ninth Circuit has not addressed the propriety of issuinga
partial Colorado River stay. District courts in the NinthCircuit
have repeatedly found partial stays permissible,
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however, where some, but not all, of a federal plaintiff'sclaims
are pending in a parallel state action. Krieger, 776F.Supp.2d at
106061 (staying plaintiff's state law classaction claims while
permitting federal securities law claimsto proceed); see also
Taylor v. AlliedBarton Sec. Servs.LP, No. 13CV01613AWI, 2014 WL
1329415, *5 n. 6(E.D.Cal. Apr. 1, 2014) (observing that [c]ourts in
the NinthCircuit have [ ] held that a partial stay of proceedings
isauthorized under the Colorado River doctrine, and stayingstate
law claims while permitting a Fair Labor StandardsAct claim to
proceed); SperberPorter v. Kell, No. CV0801424PHXGMS, 2009 WL
1600689, *5 (D.Ariz. June 8,2009) (Finally, Plaintiffs do not
disagree that the Court'sstay of the declaratory judgment claim was
proper. Plaintiffsconfine their motion to arguing that the Court
should not havestayed the breach of contract claim, and Plaintiffs
have neverdisputed that their declaratory judgment claim regarding
themeaning of paragraph fifteen of the settlement agreementis
identical to *1147 the issue before (and now decidedby) the state
court. Thus, there is no dispute that at leasta partial stay was
proper); In re Countrywide Fin. Corp.Derivative Litig., 542
F.Supp.2d 1160, 1172 (C.D.Cal.2008)(concluding that a partial stay
of state law claims raisedin both state and federal proceedings are
under ColoradoRiver was permissible, and permitting a federal
securities lawclaim to go forward); Daugherty v. Oppenheimer &
Co., No.CV 067725 PJH, 2007 WL 1994187, *6 (N.D.Cal. July 5,2007)
(In addition, contrary to the argument advanced byplaintiff, the
court finds that Colorado River applies evenwhere a state court
action will not resolve all the claims inthe federal action.
Neither Holder nor Intel supports plaintiff'sargument that the
Colorado River doctrine may not be usedto dismiss or stay only part
of an action. Holder and Intelsimply stand for the proposition that
a Colorado River motionmay not be granted where a defendant seeks
to stay claims inthe federal court action that are unrelated to the
state courtclaims. Here, by contrast, Oppenheimer does not seek to
stayor dismiss the nationwide collective action claims that willnot
be resolved by the Handler action). 72 Based on thereasoning of
these cases, and the purpose of the ColoradoRiver doctrine
generally, the court concludes that, consistentwith Ironridge's
motion, it may stay Scrips' breach of contract,breach of implied
covenant/tortious bad faith, and declaratoryrelief claims under
Colorado River, while permitting Scrips'Rule 10b5 claim to
proceed.
2. Whether a Stay Under ColoradoRiver Would Be Appropriate
[27] [28] The threshold question in deciding whetherColorado
River abstention is appropriate is whether thereare parallel
federal and state suits. Chase Brexton HealthServices, Inc. v.
Maryland, 411 F.3d 457, 463 (4th Cir.2005).In the Ninth Circuit,
exact parallelism [between the twosuits] ... is not required. It is
enough if the two proceedingsare substantially similar. Nakash v.
Marciano, 882 F.2d1411, 1416 (9th Cir.1989); see also County of
Marin v.Deloitte Consulting LLP, No. C 1100381 SI, 2011 WL3903222,
*1 (N.D.Cal. Sept. 6, 2011) (The threshold forapplying the Colorado
River doctrine is whether the twocases are substantially similar.
Substantial similarity doesnot mean that the cases must be
identical). This inquiryexamines whether the suits involve the same
parties and thesame claims. See Nakash, 882 F.2d at 1416 (The
presentparties are all named in the California suit); see also
IllinoisSchool Dist. Agency v. Pacific Ins. Co., Ltd., 471 F.3d714,
718 (7th Cir.2006) (The court also rejected Pacific'sargument that
the district court should abstain *1148 under[Colorado River ]
because the proceedings were not paralleland because they were
between different parties involvingdifferent contracts); Lumen
Const., Inc. v. Brant Const. Co.,Inc., 780 F.2d 691, 695 (7th
Cir.1985) (in deciding whethercases are parallel, a court should
look for a substantiallikelihood that the state litigation will
dispose of all claimspresented in the federal case); Crawley v.
Hamilton CountyCommissioners, 744 F.2d 28, 31 (6th Cir.1984)
(holdingthat the state proceeding were not parallel because
differentdefendants were named and the federal complaint
includedmore allegations); Innovation Ventures, LLC v.
UltimateLifestyles, LLC, No. 4:08CV232, 2009 WL 1490589,
*3(E.D.Tex. May 27, 2009) (The Court has weighed theColorado River
factors here and finds that abstention isnot appropriate at this
time. Primarily, this case and theDallas state court case involve
different parties); Becker v.Granholm, 272 F.Supp.2d 643, 645
(E.D.Mich.2003) ([T]heColorado River abstention doctrine is
inapplicable becausethe requirement of a parallel state proceeding
is lackingwhere, as here, the state and federal lawsuits involve
differentparties). The inquiry also asks whether the disputes
involve,in a more general sense, the same facts. See Nakash, 882
F.2dat 1416 (All of these disputes concern how the
respectiveparties have conducted themselves since Nakash purchased
aportion of Guess).
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[29] [30] In determining whether two suits aresubstantially
similar, if the district court has a substantialdoubt as to whether
the state proceedings will resolvethe federal action [the doubt]
precludes the granting of a[Colorado River ] stay. Intel Corp. v.
Advanced MicroDevices, Inc., 12 F.3d 908, 913 (9th Cir.1993). As
theSupreme Court has noted,
[w]hen a district court decides to dismiss or stay underColorado
River, it presumably concludes that the parallelstate-court
litigation will be an adequate vehicle for thecomplete and prompt
resolution of the issues betweenthe parties. If there is any
substantial doubt as to this, itwould be a serious abuse of
discretion to grant the stayor dismissal at all. Thus, the decision
to invoke ColoradoRiver necessarily contemplates that the federal
court willhave nothing further to do in resolving any substantive
partof the case, whether it stays or dismisses. Moses H.
ConeMemorial Hospital v. Mercury Construction Corp., 460U.S. 1, 28,
103 S.Ct. 927, 74 L.Ed.2d 765 (1983).
For this reason, [a] district court may enter a Colorado
Riverstay order only if it has full confidence that the
parallelstate proceeding will end the litigation. Intel, 12 F.3d at
913(citing Gulfstream Aerospace Corp. v. Mayacamas Corp.,485 U.S.
271,