Summary
staying federal disclosure claims brought under § § 14(d) and 14(e) of the Exchange Act in a putative class action shareholder suit in favor of parallel Delaware proceedings “ ‘because the relationship and nature of the exclusively federal claim and the state law claim are so decisively similar.’ ”
Summary of this case from Giles v. Icg Inc.Opinion
ORDER DENYING MOTION TO SHORTEN TIME AND STAYING CASE
SAMUEL CONTI, District Judge.
I. INTRODUCTION
Before the Court is a Motion to Shorten Time on Pending Motion for Expedited Discovery and Preliminary Injunction filed by Plaintiff Jon McCreary ("Plaintiff") against Defendants Celera, Corp., et al. ("Defendants"). ECF No. 11 ("Mot."). Defendants filed an Opposition. ECF No. 15. The Court, having considered the papers and pleadings on file, hereby DENIES the Motion. Furthermore, the Court STAYS the instant case pending the outcome of proceedings before the Delaware Court of Chancery in a nearly identical action.
II. BACKGROUND
On March 18, 2011, Celera Corporation ("Celera") and Quest Diagnostics, Inc. ("Quest") announced they had entered into a merger agreement pursuant to which Quest would commence a tender offer to purchase all outstanding shares of Celera common stock for $8.00 per share in cash, to be followed by a "second-step merger" upon the expiration of the tender offer on April 25, 2011. ECF No. 1 ("Compl.") ¶ 2.
On April 1, 2011, Plaintiff filed this action alleging that Defendants' actions relating to the proposed acquisition breached their fiduciary duties and violated the Securities Exchange Act of 1934 ("Exchange Act"). See Id . In short, Plaintiff alleges that the proposed acquisition is an effort by members of the Celera Board of Directors (including the individual Defendants named herein) to insulate themselves from liability in pending accounting and securities fraud litigation against Celera. Id . ¶ 3. Plaintiff asserts breach of fiduciary duty claims on behalf of all public shareholders of Celera, and he asserts an individual claim for violations of the Exchange Act. Id . ¶ 1. Plaintiff alleges that, in executing the proposed acquisition, Defendants breached their fiduciary duty to employ a sales process designed to maximize the value of Celera common stock. Id . ¶ 77. Plaintiff further alleges that the "Recommendation Statement" soliciting shareholder approval for the proposed acquisition omits material facts in violation of Defendants' fiduciary duties and in violation of sections 14(d)(4) and 14(e) of the Exchange Act. Id . ¶¶ 72, 78.
Between March 18, 2011, when Quest and Celera first announced the proposed acquisition, and April 1, 2011, when Plaintiff filed this lawsuit, seven other lawsuits seeking to enjoin the transaction were filed in three different jurisdictions. Opp'n at 1; see also ECF No. 14 ("Notice of Pendency").
Three of these actions were filed in the Delaware Court of Chancery and have been consolidated under the caption In re Celera Corp. Shareholder Litigation, Consol. C.A. No. 6304-VCP. See Notice of Pendency, Ex. 1 ("Del. Consol. Compl."). Expedited discovery is underway in that litigation and will close on April 13, 2011. Notice of Pendency, Ex. 5 ("Del. Case Scheduling Order"). On April 20, 2011, the Delaware Court of Chancery will hear the plaintiffs' motion for a preliminary injunction enjoining the proposed acquisition. Id.
In addition to the Delaware actions, three actions were filed in Alameda County Superior Court and were subsequently consolidated under the caption Lauver v. Ordonez, et al., RG11567227. Id., Exs. 2-4 ("Alameda Super. Ct. Complaints").
The last of the seven actions attempting to challenge the proposed acquisition and predating Plaintiff's Complaint is pending in this District. In In re Celera Corp. Derivative Litigation, No. 10-CV-02935-JW, plaintiffs moved on March 23, 2011 to amend their existing derivative claims to include additional class claims arising out of the proposed acquisition. See Notice of Pendency. Chief Judge Ware will hear the motion for leave to amend on April 18, 2010. Id.
All of the eight actions, including Plaintiff's, make substantially identical allegations against the same defendants. Each alleges that Celera's directors breached their fiduciary duties by approving the proposed acquisition and made false or misleading disclosures about the transaction. See Notice of Pendency, Exs. 1-4. Each action seeks to represent the same nationwide class of Celera stockholders. Id . Indeed, the only difference between Plaintiff's action and the others is that Plaintiff has added individual claims under the Exchange Act based on the same allegedly misleading disclosures that form part of the basis for his fiduciary duty claims.
On April 5, 2011, Plaintiff filed a Motion for Preliminary Injunction and Expedited Discovery. ECF No. 7 ("Mot. for Preliminary Injunction"). In his Motion for Preliminary Injunction, Plaintiff requests access to essentially the same documents that have been produced in connection with the Delaware litigation, as well as the opportunity to depose witnesses on short notice. Id. at 16. Plaintiff asks the Court to enjoin the proposed acquisition "until the Board properly shops [Celera] and/or at least ensures that shareholders have the information necessary to make a fully-informed decision with respect to any value-maximizing transaction." Id. at 2.
On April 6, 2011, Plaintiff filed the instant Motion to Shorten Time. Plaintiff seeks a hearing date at least ten days prior to the expiration of Celera's tender offer on April 25, 2011. The Motion for Preliminary Injunction is currently scheduled to be heard on May 27, 2011.
III. DISCUSSION
A. Plaintiff's Motion to Shorten Time
Plaintiff's Motion does not comply with the Civil Local Rules governing motions to enlarge or shorten time. Civil Local Rule 6-3 provides that a motion to shorten time must be accompanied by a declaration that (1) sets forth with particularity the reasons for the request; (2) describes the efforts the party has made to obtain a stipulation to the time change; (3) identifies the harm or prejudice that would occur if the Court did not change the time; (4) describes the moving party's compliance with Civil Local Rule 37-1(a) where applicable; (5) describes the nature of the underlying dispute and summarizes the position of each party; (6) discloses all previous time modifications in the case; and (7) describes the effect the requested modification would have on the schedule for the case. Here, Plaintiff has not included a declaration in support of his Motion and has satisfied none of these requirements. Accordingly, the Court DENIES Plaintiff's Motion to Shorten Time.
B. Stay of this action pending the outcome of the Delaware proceedings
In its Notice of Pendency, Defendants submit that this action should be stayed pending the outcome of the Delaware action. Notice of Pendency at 3. This Court agrees. A district court has inherent power to stay proceedings and "to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. North American Co. , 299 U.S. 248, 254 (1936). "A trial court may, with propriety, find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case." Leyva v. Cert. Grocers of Cal. , 593 F.2d 857, 863-64 (9th Cir. 1979).
Courts look to the Colorado River doctrine when determining whether to stay a federal action in light of a pending state action. Under the Colorado River doctrine, a federal court may abstain from exercising its jurisdiction in favor of parallel state proceedings where doing so would serve the interests of "[w]ise judicial administration, giving regard to the conservation of judicial resources and comprehensive disposition of litigation." Colorado River Water Conservation Dist. v. United States , 424 U.S. 800, 817 (1976). "Exact parallelism" between the state and federal actions is not required; it is enough if the two actions are "substantially similar." Nakash v. Marciano , 882 F.2d 1411, 1416 (9th Cir. 1989). Nonetheless, the Ninth Circuit has emphasized that "the Colorado River doctrine is a narrow exception to the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them.'" Holder v. Holder , 305 F.3d 854, 867 (9th Cir. 2002) (quoting Colorado River , 424 U.S. at 817). Accordingly, a stay of proceedings pursuant to the Colorado River doctrine is appropriate only where "exceptional circumstances" are present. Id.
If state and federal actions are parallel, then the Court must consider seven factors that, although not exclusive, are relevant to whether a stay is appropriate under Colorado River and its progeny: (1) whether the state court first assumed jurisdiction over property; (2) inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; (4) the order in which jurisdiction was obtained by the concurrent forums; (5) whether federal law or state law provides the rule of decision on the merits; (6) whether the state court proceedings are inadequate to protect the federal litigant's rights; (7) whether exercising jurisdiction would promote forum shopping. Holder , 305 F.3d at 870.
1. The instant action and the Delaware action are parallel
Plaintiff has asserted state law claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty and has also asserted a claim under section 14(e) of the Exchange Act based on the same facts underlying his state law claims. See Compl. Plaintiff's action is substantially similar to the Delaware action and therefore satisfies the "parallel proceedings" requirement of Colorado River. Both actions seek to represent the same class of Celera shareholders against exactly the same defendants. See Compl; Notice of Pendency, Ex. 1 ("Consol. Del. Compl."). Both allege that Celera's directors breached their fiduciary duties by approving the proposed acquisition and that all Defendants made false or misleading disclosures about the transaction in proxy statements filed with the Securities and Exchange Commission. Id . The primary relief sought in both actions is also substantially the same: an injunction enjoining the proposed acquisition until the Celera Board has complied with its fiduciary duties involving the transaction, and compensatory damages to class members. Id.
Plaintiff also purports to bring a Section 14(d)(4) claim, but that provision does not give rise to a private right of action. See, e.g., Erickson v. Wheatley Ventures, No. C-96 2934, 1997 WL 119849, *5 (N.D. Cal. Mar. 4, 1997); Washburn v. Madison Square Garden Corp. , 340 F.Supp. 504, 508 (S.D.N.Y. 1972).
2. The Colorado River factors favor staying the instant proceedings
The first factor - whether the Delaware court first assumed jurisdiction over property - is not a consideration in this case. The second factor, inconvenience of the federal forum, does not weigh in favor or against granting a stay. Many of the Defendants are located in California, Plaintiff is a citizen of Nevada, and the corporate Defendants are incorporated in Delaware. Because Celera's headquarters is located in California, it is likely that many witnesses and documents are located in California. However, those witnesses and documents will have to be produced, and likely have already been produced, in connection with the Delaware litigation regardless of whether this Court stays Plaintiff's action. Accordingly, the convenience of the federal forum is a neutral factor in this case.
The third factor, avoiding piecemeal litigation, favors a stay when "different tribunals consider the same issue, thereby duplicating efforts and possibly reaching different results." Travelers Indem. Co. v. Madonna , 914 F.2d 1364, 1369 (9th Cir. 1990). Permitting Plaintiff's claims to proceed in parallel with the Delaware action would waste significant judicial resources and create a serious risk of conflicting results that could impact thousands of shareholders.
The fourth factor - the order in which the concurrent forums obtained jurisdiction - also weighs heavily in favor of staying this case. The Delaware action commenced nearly two weeks prior to Plaintiff's action, expedited discovery in Delaware is nearly complete, and the Delaware court will hear the motion for preliminary injunction one week from today. Del. Case Scheduling Order.
The fifth factor - whether federal law or state law provides the rule of decision - weighs in favor of staying the proceedings. Plaintiff's fiduciary duty claims will be governed by Delaware law because Celera, Quest, and Spark Acquisition Corporation are all Delaware corporations. Davis & Cox v. Summa Corp. , 751 F.2d 1507, 1527 (9th Cir. 1985) ("Claims involving internal affairs' of corporations, such as breach of fiduciary duties, are subject to the laws of the state of incorporation."). The unique expertise of the Delaware court in applying Delaware corporate law militates in favor of allowing the Delaware court to rule on those claims.
The Court takes note of the fact that Plaintiff's Exchange Act claim is subject to exclusive federal jurisdiction, and generally district courts may not invoke the Colorado River doctrine to stay such claims. See Intel Corp. v. Advanced Micro Devices, Inc. , 12 F.3d 908, 913 n.7 (9th Cir. 1993) ("[T]he circuit courts, and the Ninth Circuit in particular, have uniformly held that a district court may not grant a stay in [cases involving claims subject to exclusive federal jurisdiction]."). Here, however, Plaintiff's Exchange Act claim is duplicative of the Delaware plaintiffs' state law claims. Plaintiff's Exchange Act claim alleges that Defendants violated the Act by filing a Recommendation Statement with the SEC that omitted material facts and was "materially misleading." Compl. ¶ 72. Counts I and III of the Delaware plaintiffs' Consolidated Complaint allege that the same defendants breached their fiduciary duties by filing false and misleading proxy statements with the SEC. Del. Consol. Compl. ¶¶ 95, 104. Other courts have found that abstention under Colorado River is appropriate in such circumstances. See International Jensen Inc. v. Emerson Radio Corp., No. 96-C-2816, 1996 U.S. Dist. LEXIS 12481, *18 (N.D. Ill. Aug. 26, 1996) (staying a federal action where the plaintiff asserted Exchange Act claims that were duplicative of state law fiduciary duty claims in a parallel Delware proceeding). In Jensen, the court found that a stay was warranted "because the relationship and nature of the exclusively federal claim and the state law claim are so decisively similar." Id. at *11. The court noted that Delaware common law recognizes claims based on material omissions in proxies similar to the plaintiff's Exchange Act claims, and that Delaware courts apply the same standard for materiality as the Supreme Court has recognized for Exchange Act claims. Id. at *12. Given the duplicative nature of Plaintiff's federal claim the Delaware plaintiffs' state law claims here, the Court finds that, as in Jensen, staying the proceedings is within the Court's discretion. The fifth factor thus weighs in favor of staying Plaintiff's action.
As in Jensen, Delaware common law recognizes claims identical to Plaintiff's Exchange Act claim here. A claim under section 14(e) of the Exchange Act requires a plaintiff to show that the defendant made materially false or misleading statements in connection with a tender offer. 15 U.S.C. § 78n(e). By comparison, Delaware state law requires that corporate board members disclose material information, provide a "truthful account of all matters, " and "avoid misleading partial disclosures" in connection with a tender offer. In re Pure Res. S'Holders Litig. , 808 A.2d 421, 447 (Del. Ch. 2002). The courts of Delaware apply the same standard of materiality that federal courts apply to Exchange Act claims. See Rosenblatt v. Getty Oil Co. , 493 A.2d 929, 944 (Del. 1985).
Sixth, the adequacy of state court action to protect the federal plaintiff's rights does not weigh very heavily in either direction. As noted above, although the Delaware court cannot adjudicate Plaintiff's Exchange Act claim, the primary relief Plaintiff seeks - an injunction against the merger and compensatory damages - can be awarded by the Delaware court. Whether an injunction is granted or denied by this Court or by the Delaware Court is unimportant - the effect of preventing or allowing the proposed acquisition to proceed is the same no matter which court takes action.
The seventh factor - whether exercising jurisdiction would promote forum shopping - weighs in favor of staying this action. The Ninth Circuit has indicated that "forum shopping weighs in favor of a stay when the party opposing the stay seeks to avoid adverse rulings made by the state court or to gain a tactical advantage from the application of federal court rules." Travelers , 914 F.2d at 1369. Plaintiff filed this action after six nearly identical actions were filed in state courts. Plaintiff's claims differ from the other actions only by including an Exchange Act claim based on the same underlying facts as the fiduciary duty claims asserted by Plaintiff and by plaintiffs in the other actions. The Court is therefore wary of the likelihood that Plaintiff filed this action to "gain a tactical advantage from the application of federal court rules." Id . Accordingly, the seventh factor weighs in favor of staying Plaintiff's case.
Weighing the factors relevant to the instant case and subjecting them to "a flexible balancing test, in which one factor may be accorded substantially more weight than another depending on the circumstances of the case, " Holder , 305 F.3d at 870-71, the Court concludes that a stay of Plaintiff's action is warranted. As discussed above, the claims raise heightened concerns about piecemeal litigation, fall within the Delaware court's unique expertise in Delaware corporate law, and are virtually identical to the claims raised in the Delaware actions. The proposed Delaware class action is capable of fully protecting the rights of Plaintiff and the purported shareholder class, and the Delaware proceedings have already progressed to an advanced stage. Taken together, these facts present the "exceptional circumstances" required to support a stay under the Colorado River doctrine.
IV. CONCLUSION
For the foregoing reasons, the Court DENIES Plaintiff's Motion to Shorten Time and STAYS all proceedings in this case pending the outcome of the consolidated action In re Celera Corp. Shareholder Litigation, Consol. C.A. No. 6304-VCP currently pending before the Delaware Court of Chancery.
The parties shall appear as scheduled for a Case Management Conference on July 22, 2011, at 10:00 a.m. in Courtroom 1, on the 17th floor, U.S. Courthouse, 450 Golden Gate Avenue, San Francisco, California 94102. A joint case management statement should be filed no later than seven (7) days prior to the Case Management Conference.
IT IS SO ORDERED.