MVP Asset Management (USA) LLC v. Vestbirk, et al

Filing 126

ORDER signed by Judge Garland E. Burrell, Jr. on 7/11/2012 GRANTING in part, DENYING in part 109 Motion to Dismiss; GRANTING in part, DENYING in part 111 Motion to Dismiss; DENYING 112 Motion to Dismiss as moot; ORDERING Plaintiff to file a Fourth Amended Complaint within 10 days. (Michel, G)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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MVP ASSET MANAGEMENT (USA) LLC,
a Delaware Limited Liability
Company,
Plaintiff,

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v.
STEVEN VESTBIRK, JEFF BALLIET,
ALLISON HANSLIK, JIM GRANT, ARK
ROYAL ASSET MANAGEMENT, LTD., a
Bermuda Limited Company,
VESTBIRK CAPITAL MANAGEMENT,
LTD., a Bermuda Limited Company,
ARK ROYAL ASSET MANAGEMENT, LLC,
a Nevada Limited-Liability
Company, ARK DISCOVERY, LLC, a
Business Entity of Unknown Form,
ARK ROYAL HOLDINGS, LLC, a
Nevada Limited-Liability
Company, ARK ROYAL SERVICES,
LLC, a Nevada Limited-Liability
Company, ARK ROYAL CAPITAL, LLC,
a Nevada Limited-Liability
Company, ARK ROYAL CAPITAL
FUNDING, LLC, a Nevada LimitedLiability Company, ARK ROYAL
CAPITAL, INC., a Nevada
Corporation, ARK ROYAL
RESOURCES, LLC, a Nevada
Limited-Liability Company, ARK
ROYAL ASSURANCE LLC, a Nevada
Limited-Liability Company, and
ARK ROYAL INVESTMENTS, LLC, a
Nevada Limited-Liability
Company,
Defendants.
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2:10-cv-02483-GEB-CKD
ORDER

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Defendants filed a motion to dismiss Plaintiff’s Third Amended

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Complaint

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12(b)(1), arguing, inter alia, Plaintiff lacks Article III standing and

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the Court lacks diversity jurisdiction over Plaintiff’s state claims.

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(Defs.’ Mot. to Dismiss TAC for Lack of Jurisdiction (“Defs.’ 12(b)(1)

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Mot.”); ECF No. 111.) Plaintiff opposes the motion, arguing it has

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properly alleged standing. (Pl.’s Opp’n to Defs.’ Mot. to Dismiss

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(“Pl.’s 12(b)(1) Opp’n”); ECF No. 116.)

(“TAC”)

under

Federal

Rule

of

Civil

Procedure

(“Rule”)

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Defendants also filed a motion to dismiss Plaintiff’s TAC

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under Rules 12(b)(6) and 12(b)(2), arguing “Plaintiff cannot state a

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valid claim for relief[ and] . . . cannot allege facts sufficient to

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establish personal jurisdiction over any Defendant.” (Defs.’ Mot. to

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Dismiss

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12(b)(6) Mot.”) 1:5-6; ECF No. 109.) Plaintiff opposes the motion,

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arguing it has “adequately stated” its federal and state law claims.

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(Pl.’s Opp’n to Defs.’ Mot. to Dismiss (“Pl.’s 12(b)(6) Opp’n”) 1:25-

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2:3; ECF No. 113.)

TAC

Pursuant

to

Rule

12(b)(6)

and

Rule

12(b)(2)

(“Defs.’

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Further, Defendant Steven Vestbirk filed a motion to dismiss

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Defendants’ TAC under Rule 12(b)(2), arguing Plaintiff has not alleged

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sufficient contacts with California to establish personal jurisdiction

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over Vestbirk. (Def.’s Mot. 1:22-24; ECF No. 112.) Plaintiff opposes the

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motion, arguing it is duplicative of Defendants’ 12(b)(2) motion to

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dismiss. (ECF No. 117.)

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For the reasons stated below, Defendants’ 12(b)(1) motion to

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dismiss is granted in part and denied in part; Defendants’ 12(b)(6)

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motion to dismiss is granted in part and denied in part; and Defendants’

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12(b)(2) and Defendant Vestbirk’s 12(b)(2) motions are denied as moot.

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I. STANDING

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Defendants argue in their 12(b)(1) dismissal motion that

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Plaintiff lacks Article III standing, since “Plaintiff, the uninjured

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investment advisor to the allegedly harmed underlying investor [MVP Fund

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of Funds Ltd. (‘MVP’)], simply cannot allege a valid assignment of MVP’s

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purported claims to [MVP Asset Management (USA) LLC (‘MVPAM’].” (Defs.’

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12(b)(1) Mot. 1:6-8.) Defendants argue:

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Plaintiff alleges little else new [in the TAC],
except that it was a “non-written agreement.” As
the agreement was not documented in any fashion,
and did not result from oral communications between
MVP and MVPAM, Plaintiff is left only with this coy
characterization; the alleged agreement to assign,
in other words, apparently exists only in the mind
of MVPAM’s principal: Michael Stratford.

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Id. 8:13-17 (quoting TAC ¶ 87). Plaintiff opposes the motion, contending

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“MVPAM

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authority, it caused MVP to assign its claims against Defendants to

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MVPAM for collection.” (Pl.’s 12(b)(1) Opp’n 2:17-19.) Defendants rejoin

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that Plaintiff’s allegations are merely legal conclusions; specifically,

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Defendants argue “no fact concerning any purported manifestation is

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alleged. All that is alleged is that MVPAM ‘caused’ an assignment, ergo

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there was an assignment.” (Pl.’s Reply to Defs.’ 12(b)(1) Opp’n 3:24-

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3:25.)

has

specifically

alleged

that,

pursuant

to

its

management

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“A suit brought by a plaintiff without Article III standing is

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not a ‘case or controversy,’ and an Article III federal court therefore

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lacks subject matter jurisdiction over the suit. In that event, the suit

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should be dismissed under Rule 12(b)(1).” Cetacean Cmty. v. Bush, 386

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F.3d 1169, 1174 (9th Cir. 2004) (citation omitted).

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[T]o satisfy Article
plaintiff must show
“injury in fact”
particularized and

III’s standing requirements, a
that (1) it has suffered an
that is (a) concrete and
(b) actual or imminent, not
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conjectural or hypothetical; (2) the injury
fairly traceable to the challenged action of
defendant; and (3) it is likely, as opposed
merely speculative, that the injury will
redressed by a favorable decision.

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is
the
to
be

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Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528

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U.S. 167, 180-81 (2000). Plaintiff has the burden of establishing

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jurisdiction. See Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377

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(1994).

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“A Rule 12(b)(1) jurisdictional attack may be facial or

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factual.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.

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2004). Here, Defendants challenge subject matter jurisdiction based on

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a facial attack. (Defs.’ 12(b)(1) Mot. 9:17.) “In a facial attack, the

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challenger asserts that the allegations contained in a complaint are

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insufficient on their face to invoke federal jurisdiction.” Safe Air for

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Everyone, 373 F.3d at 1039. “[I]n reviewing a Rule 12(b)(1) motion to

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dismiss for lack of jurisdiction, we take the allegations in the

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plaintiff's complaint as true . . . and draw all reasonable inferences

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in [Plaintiff’s] favor.”

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Cir. 2004) (internal quotation marks and citations omitted).

Wolfe v. Strankman, 392 F.3d 358, 362 (9th

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Here, the parties dispute whether a valid assignment occurred,

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which is a question of state law. See Dolch v. United Cal. Bank, 702

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F.2d 178, 181 (9th Cir. 1983) (“The nature and scope of renewal rights,

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as

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conditions for valid assignment are not.”) Since the parties agree that

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California law applies for purposes of the 12(b)(1) motion only, the

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Court will apply California law. (Defs.’ 12(b)(1) Mot. 3:1 n.1.; Pl.’s

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12(b)(1) Opp’n 4:3-9; see also 21X Capital, Ltd. v. Werra, 2008 WL

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753907, at *2 (N.D. Cal. Mar. 19, 2008) (“The parties agree that, for

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purposes of this motion, California law applies.”).)

well

as

their

assignability,

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are

federal

questions,

but

the

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Under California law, “[a] thing in action, arising out of the

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violation of a right of property, or out of an obligation, may be

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transferred by the owner.” Cal. Civ. Code § 954. “While no particular

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form of assignment is necessary, the assignment, to be effective, must

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include manifestation to another person by the owner of his intention to

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transfer the right, without further action, to such other person or to

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a third person.” Cockerell v. Title Ins. & Trust Co., 42 Cal. 2d 284,

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291 (1954); see also Cal. Ins. Guarantee Ass’n v. Workers’ Comp. Appeals

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Bd., 203 Cal. App. 4th 1328, 1335 (2012) (same). “[I]n the absence of a

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statute requiring that an assignment be in writing it is immaterial

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whether it is made orally or by writing.” Swing v. Lingo, 129 Cal. App.

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518, 523 (1933).

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Plaintiff alleges the following concerning the assignment of
its claims:
Plaintiff . . . is a Limited Liability Company
organized and existing under the laws of the State
of Delaware with its principal place of business
until August 2009 in Tahoe City, California and
since September 2009 in San Francisco, California.
At all relevant times mentioned herein, MVPAM has
been the investment manager to [MVP], an Investment
Company organized and existing under the laws of
the British Virgin Islands. On or about March 23,
2004, MVP and MVPAM entered into an Investment
Management Agreement (“IMA”) (a true and correct
copy of which is attached hereto as Exhibit A and
incorporated herein). Under the IMA, MVP, pursuant
to MVP’s Memorandum and Articles of Association
(“M&A”) (a true and correct copy of which is
attached hereto as Exhibit B and incorporated
herein), delegated to MVPAM a general power of
attorney including all powers and discretions to
manage the business and affairs of MVP. Under the
IMA MVPAM, as attorney in fact for MVP, was and is
entitled generally to exercise such powers and
discretions as may be necessary in order to perform
the duties delegated to it by MVP’s directors
including, among other things:

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(a)
“[to]
manage
the
investment
and
reinvestment of the assets of [MVP] with power
on behalf of and in the name of [MVP] to
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purchase, subscribe or otherwise acquire
investments and to sell, redeem, exchange,
vary or transpose the same”;

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(b) “to . . . purchase (or otherwise acquire),
sell (or otherwise dispose of) and invest
money and other assets for the account of the
Company
and
effect
foreign
exchange
transactions in connection with any such
purchase,
acquisition,
sale
or
other
disposal”;

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(c) “[to] enter into, make and perform such
contracts, agreements and other undertakings
as may in the opinion of [MVPAM] be necessary
or advisable or incidental to the carrying out
of
the
functions,
duties,
powers
and
discretions conferred on it pursuant to [the
IMA] and its role as Investment Manager of
[MVP]”;

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In making each of the investments, investment
decisions and decisions relating to the investments
alleged herein, MVPAM was acting pursuant to its
authority to manage the business and affairs of
MVP. MVPAM brings this action as assignee pursuant
to an assignment by MVP for collection as alleged
in more detail below.

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. . .
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In or around February 28 2009 [sic] at Tahoe City,
California, MVPAM and MVP entered into a nonwritten agreement under which MVP assigned its
claims arising out of and relating to the Ark
Discovery Fund (“MVP Claims”) to MVPAM for
collection in California in return for MVPAM’s
agreement to account to MVP for any recovery
obtained, net of the cost of prosecuting the MVP
Claims (the “Assignment”). As a result of the
Assignment, MVPAM holds legal title and MVP holds
beneficial title to the assigned MVP Claims.

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A.
MVPAM caused MVP to enter into the Assignment
in or around February 28 2009 [sic] at Tahoe City,
California pursuant to MVPAM’s authority under the
IMA as alleged in Paragraph 3 of this TAC,
including its power and discretion to manage MVP’s
business and affairs, its power and discretion to
manage the investment and reinvestment of the MVP’s
assets with power on behalf of and in the name of
MVP to sell, redeem, exchange, vary or transpose
MVP’s investments, its power and discretion to sell
(or otherwise dispose of) and invest money and
other assets for the account of the Company, and,
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its power and discretion to enter into, make and
perform such contracts, agreements and other
undertakings it deemed necessary or advisable or
incidental to the carrying out of the functions,
duties, powers and discretions conferred on it
pursuant to the IMA to its role as the manager of
MVP’s business and affairs, and pursuant to its
general power of attorney for MVP.

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B.
In or around February 28, 2009 at Tahoe City,
California,
Stratford,
as
the
sole
voting
shareholder of MVP, with the authority under the
M&A to delegate the management powers of MVP’s
Board of Directors, confirmed and approved on
behalf of MVP the Assignment to MVPAM of the MVP
Claims.

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C.
By resolution dated May 27, 2011 (a true and
correct copy of which is attached hereto as Exhibit
C and incorporated herein), MVP’s Board of
Directors (i) unanimously ratified, confirmed,
approved and adopted in all respects the Assignment
and (ii) agreed to be bound by any judgment entered
in this Action.

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D.
MVPAM has genuine commercial interest in the
enforcement of the MVP claims. As the manager of
MVP’s business affairs, with power over MVP’s
assets and investments, MVPAM has a legitimate
commercial interest in fulfilling its fiduciary
responsibility to MVP by taking actions for the
benefit of MVP including pursuing the MVP Claims.
MVPAM, as MVP’s investment manager, made the
decisions to invest in the Ark Discovery shares at
issue and caused MVP to purchase the shares. MVPAM
has a genuine commercial interest in recovering the
lost Ark Discovery investments because, under the
IMA, MVPAM’s compensation is based on the value of
MVP’s assets and on the performance of MVP’s
investments.

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E.
By bringing this action in California based on
Defendants’ violations of California law and the
federal securities laws, MVPAM is performing the
Assignment in California.
(TAC ¶¶ 3, 87.)

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Defendants’ argument centers on the manifestation requirement

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of an assignment; specifically, Defendants contend Plaintiff’s failure

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to allege oral communications or documentation supports drawing the

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inference that there was no manifestation of intent. However, “no
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particular form of assignment is necessary” as long as there is a

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“manifestation to another person by the owner of his intention . . . .”

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Cockerell, 42 Cal. 2d at 291. Plaintiff alleges that it was the same

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person, Stratford, who had the authority to assign the claims and the

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authority to approve the assignment. Plaintiff also alleges sufficient

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facts to permit drawing a reasonable inference that it was the intent of

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both entities to effectuate this assignment, and that this transaction

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occurred on February 28, 2009, in Tahoe City, California.

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The case relied upon heavily by Defendants, Property Asset

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Management, Inc. v. Chicago Title Insurance Co., Inc., 173 F.3d 84 (2d

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Cir. 1999), concerns the proof required at summary judgment in order for

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Plaintiff to meet its burden. Id. at 87; see also Cockerell, 42 Cal. 2d

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at 292 (explaining a plaintiff’s burden concerning assignments is as

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follows: “the evidence must not only be sufficient to establish the fact

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of assignment when that fact is in issue, . . . but the measure of

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sufficiency requires that the evidence of assignment be clear and

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positive to protect an obligor from any further claim by the primary

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obligee”). However, “at this stage of the pleading, [Plaintiff] need

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only show that the facts alleged, if proved, would confer standing upon

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[it].” Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1140 (9th

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Cir. 2003). Therefore, Plaintiff’s allegations are sufficient to state

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an assignment.

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II. FEDERAL CLAIMS
Defendants

seek

dismissal

of

Plaintiff’s

Securities

and

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Exchange Act of 1934 (“SEC Act”) claims under Rule 12(b)(6). Plaintiff’s

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first claim alleges a violation of Section 10(b), and its second claim

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alleges control person liability under Section 20(a). (TAC ¶¶ 88-98.)

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Defendants argue “Section 10(b) does not have extraterritorial reach,
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and controlling United States Supreme Court authority bars Plaintiff’s

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claims, which are based upon offshore transactions.” (Defs.’ 12(b)(6)

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Mot. 21:15-17.) Further, Defendants argue, “Plaintiff’s Section 20(a)

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claim falls along with the underlying Section 10(b) claim.” Id. 21:20-

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21. Plaintiff opposes the motion, contending the “transactions at issue

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are almost entirely domestic in nature[, and] are governed by the

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domestic securities law.” (Pl.’s 12(b)(6) Opp’n 11:13-15.)

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“In reviewing the dismissal of a complaint, we inquire whether
the

complaint’s

factual

allegations,

together

with

all

reasonable

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inferences, state a plausible claim for relief.” Cafasso, U.S. ex rel.

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v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1054 (9th Cir. 2011) (citing

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Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The material allegations

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of the complaint are accepted as true and all reasonable inferences are

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drawn in favor of the plaintiff. Al-Kidd v. Ashcroft, 580 F.3d 949, 956

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(9th

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conclusions.” Iqbal, 556 U.S. at 678. Further, “[a] pleading that offers

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‘labels and conclusions’ or ‘a formulaic recitation of the elements of

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a cause of action will not do.’ Nor does a complaint suffice if it

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tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”

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Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 557 (2007)).

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“In

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nonconclusory ‘factual content,’ and reasonable inferences from that

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content, must be plausibly suggestive of a claim entitling the plaintiff

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to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.

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2009).

Cir.

sum,

2009).

for

a

However,

complaint

this

to

tenet

survive

“is

a

inapplicable

motion

to

to

legal

dismiss,

the

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“To state a claim under § 10(b) . . . , a plaintiff must show

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that the securities transaction at issue was a securities transaction

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that is covered by the Exchange Act.” Cascade Fund, LLP v. Absolute
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Capital Mgmt. Holdings Ltd., No. 08-cv-01381-MSK-CBS, 2011 WL 1211511,

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at *3 (D. Colo. Mar. 31, 2011). “Section 10(b) reaches the use of a

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manipulative or deceptive device or contrivance only in connection with

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the purchase or sale of a security listed on an American stock exchange,

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and the purchase or sale of any other security in the United States.”

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Morrison v. Nat’l Austl. Bank Ltd., 558 U.S. ---, 130 S. Ct. 2869, 2888

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(2010). Therefore, “the focus of the Exchange Act is not upon the place

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where

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securities in the United States.” Id. at 2884.

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the

deception

Plaintiff

originated,

alleges,

and

but

this

upon

purchases

motion

to

and

dismiss

sales

of

concerns,

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domestic transactions of securities not listed on an American stock

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exchange. “[T]ransactions involving securities that are not traded on a

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domestic exchange are domestic if irrevocable liability is incurred or

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title passes within the United States.” Absolute Activist Value Master

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Fund Ltd. v. Ficeto, 677 F.3d 60, 67 (2d Cir. 2012).

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[I]n order to adequately allege the existence of a
domestic transaction, it is sufficient for a
plaintiff to allege facts leading to the plausible
inference that the parties incurred irrevocable
liability within the United States: that is, that
the purchaser incurred irrevocable liability within
the United States to take and pay for a security,
or that the seller incurred irrevocable liability
within the United States to deliver a security.

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Id. at 68. It is also sufficient “for the plaintiff to allege that title

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to the shares was transferred within the United States.” Id.

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Plaintiff

makes

the

following

allegations

concerning

alleged transactions:
At all times relevant hereto Verwaltungs- und
Privat-Bank Aktiengesellschaft (“VP Bank”) served
as the Custodian Bank for MVP. Citco Global Custody
NV (“Citco”) is a custodial service based in the
Netherlands. VP Bank maintains with Citco Account
Number 190023 in which, as MVP’s Custodian Bank, VP
Bank holds on behalf of MVP the assets of MVP. All
of MVP’s investments in the Ark Discovery Fund
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the

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alleged herein are held, and have been held at all
times since they were purchased, for the benefit of
MVP in VP Bank’s Account Number 190023 with Citco.
Pursuant to its power of attorney for MVP, MVPAM
caused MVP to make the investments in the Ark
Discovery Fund alleged herein through MVP’s
custodian, Citco. On or about April 1, 2008,
Plaintiff caused MVP, through Citco, to purchase
10,000 shares of the Ark Discovery Fund (Offshore)
Ltd. for $1 million. MVP’s purchase was consummated
when MVP’s purchase funds were wired by Citco from
its bank account at HSBC Bank in New York which, in
turn, completed the purchases by wiring the funds
to the Ark Discovery Fund’s account at JP Morgan
Chase in New York. Plaintiff is informed and
believes, and thereupon alleges, that the $1
million purchase funds never left the United States
but, instead, were held in New York on Ark
Discovery Fund’s account at JP Morgan Chase in New
York until disbursed in the United States to make
the loans to Petters which constituted Ark
Discovery Fund’s asset portfolio.

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. . .
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On or about July 1, 2008, Plaintiff caused MVP,
through Citco, to purchase 5,000 shares of the Ark
Discovery Fund (Offshore) Ltd. for $500,000. MVP’s
purchase was consummated when MVP’s purchase funds
were wired from Citco’s bank account at HSBC Bank
in New York which, in turn, completed the purchases
by wiring the funds to the Ark Discovery Fund’s
account at JP Morgan Chase in New York. Plaintiff
is informed and believes, and thereupon alleges,
that the $500,000 purchase funds never left the
United States but, instead, were held in New York
on Ark Discovery Fund’s account at JP Morgan Chase
in New York until disbursed in the United States to
make the loans to Petters which constituted Ark
Discovery Fund’s asset portfolio.

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. . .
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On or about August 1, 2008, Plaintiff caused MVP,
through Citco, to purchase 5,000 shares of the Ark
Discovery Fund (Offshore) Ltd. for $500,000. MVP’s
purchase was consummated when MVP’s purchase funds
were wired from Citco’s bank account at HSBC Bank
in New York which, in turn, completed the purchases
by wiring the funds to the Ark Discovery Fund’s
account at JP Morgan Chase in New York. Plaintiff
is informed and believes, and thereupon alleges,
that the $500,000 purchase funds never left the
United States but, instead, were held in New York
on Ark Discovery Fund’s account at JP Morgan Chase
in New York until disbursed in the United States to
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make the loans to Petters which constituted Ark
Discovery Fund’s asset portfolio.

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(TAC

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transactions, that certain funds were transferred in between New York-

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based banking institutions, are insufficient to establish the existence

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of a domestic transaction, as required under Section 10(b). See Cascade

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Fund, LLP, 2011 WL 1211511, at *3 (“That leaves the final fact urged by

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Cascade: that the funds to complete the transaction were wired (at least

9

initially) to New York. This assertion does not amount to a conclusion

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¶¶

51,

59,

71.)

Plaintiff’s

allegations

concerning

the

that the transaction was completed in New York . . . .”).

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Further, Defendants seek dismissal of Plaintiff’s § 20(a)

12

control person liability claim. “Congress has established liability in

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§ 20(a) for every person who, directly or indirectly, controls any

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person liable for violations of the securities laws.” Janus Capital Grp.

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v. First Derivative Traders, 564 U.S. ---, 131 S. Ct. 2296, 2304 (2011).

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Therefore, Plaintiff’s “control person claims under Section 20(a) are

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‘necessarily predicated on a primary violation of securities law.’ . . .

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Because Plaintiff[’s] primary claim[] under Section 10(b) . . . [is]

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dismissed, ‘these secondary claims must also be dismissed.’” In re

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Societe Generale Sec. Litig., No. 08 Civ. 2495, 2010 WL 3910286, at *9

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(S.D.N.Y. Sept. 29, 2010); see also Morrison, 130 S. Ct. at 2876 n.2.

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(“Liability under § 20(a) is obviously derivative of liability under

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some other provision of the Exchange Act.”).

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For the stated reasons, the portion of Defendants’ motion to

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dismiss concerning Plaintiff’s federal claims is GRANTED. Further, for

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the reasons stated below, the portion of Defendants’ motion to dismiss

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concerning Plaintiff’s state claims is DENIED.

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III. DIVERSITY JURISDICTION

2

In their 12(b)(1) motion to dismiss, Defendants argue “[i]f

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the Court . . . only dismisses the federal claims pursuant to the

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arguments raised in the Rule 12(b)(6) motion . . . , the entire action

5

should nonetheless be dismissed because the Court will lack diversity

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jurisdiction over the remaining state law claims.” (Defs.’ 12(b)(1) Mot.

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19:9-12.) Specifically, Defendants argue “federal law bars district

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courts from exercising jurisdiction over a civil action where a party

9

has used an improper or collusive assignment to join a party for

10

purposes of creating jurisdiction[.]” Id. 19:13-15. Plaintiff rejoins,

11

arguing “the allegations of the [TAC] establish[] legitimate business

12

reasons for MVP’s assignment to MVPAM[.]” (Pl.’s 12(b)(1) Opp’n 15:5-7.)

13

“The existence of federal jurisdiction is a matter of federal,

14

not state law[, and] an assignment [can] be improperly or collusively

15

made even though binding under state law[.]” Kramer v. Caribbean Mills,

16

Inc., 394 U.S. 823, 829 (1969) (internal quotation marks and citations

17

omitted). Under 28 U.S.C. § 1359, “[a] district court shall not have

18

jurisdiction of a civil action in which any party, by assignment or

19

otherwise, has been improperly or collusively joined to invoke the

20

jurisdiction of such court.” Attorneys Trust v. Videotape Computer

21

Prods., Inc., 93 F.3d 593, 597 (9th Cir. 1996).

22

In determining whether an assignment is collusive, “the main

23

focus is usually upon the reality of the transaction itself. . . . [I]s

24

the assignee truly a real party in interest or just a strawman for all

25

practical

26

jurisdiction will be dubbed improper.” Id. at 597.

27
28

purposes?

If

the

latter,

an

assignment

which

[C]ourts have set out a number of factors which are
to be considered in deciding whether an assignment
is improper or collusive. Among them are: were
there good business reasons for the assignment; did
13

creates

1

the assignee have a prior interest in the item or
was
the
assignment
timed
to
coincide
with
commencement of litigation; was any consideration
given by the assignee; was the assignment partial
or complete; and was there an admission that the
motive was to create jurisdiction.

2
3
4
5

Id. at 595-96. Further, “where an assignment is partial, the courts are

6

very likely to find that there is an improper or collusive transfer

7

because

8

Specifically,

9

assignment for collection (however framed or disguised) has been held to

10

the

prior

owner

“research

has

still
not

has

an

disclosed

interest.”
a

single

Id.
case

at

597.

where

an

be anything but collusive.” Id.

11

Plaintiff alleges an assignment for collection between itself

12

and MVP. (TAC ¶¶ 3, 87; TAC, Ex. C.) At the time of the assignment, both

13

entities were under the control of MVPAM. Id. “Courts presume that an

14

assignment is collusive in situations where the relationship between

15

assignor and assignee is close and provides an excellent opportunity for

16

manipulation, as in transfers between corporations and its subsidiaries

17

or officers.” Arsape S.A. v. JDS Uniphase Corp., No. C 03-4535, 2004 WL

18

2663180, at *4 (N.D. Cal. July 29, 2004). “To overcome this presumption,

19

the party asserting diversity must show a legitimate business reason for

20

the transfer.” Yokeno v. Mafnas, 973 F.2d 803, 810 (9th Cir. 1992).

21

“Simply articulating a business reason is insufficient; the burden of

22

proof is with the party asserting diversity to establish that the reason

23

is legitimate and not pretextual.” Id.

24

Plaintiff does not oppose Defendants’ argument that Plaintiff

25

alleges a partial assignment, or that there is a close relationship

26

between MVP and MVPAM; however, Plaintiff argues it has sufficiently

27

alleged a business reason for the assignment. (Pl.’s 12(b)(1) Opp’n

28

15:1-21.)

Plaintiff’s

business

reason
14

comprises

the

following

1

allegations:

2

MVPAM has genuine commercial interest in the
enforcement of the MVP claims. As the manager of
MVP’s business affairs, with power over MVP’s
assets and investments, MVPAM has a legitimate
commercial interest in fulfilling its fiduciary
responsibility to MVP by taking actions for the
benefit of MVP including pursuing the MVP Claims.
MVPAM, as MVP’s investment manager, made the
decisions to invest in the Ark Discovery shares at
issue and caused MVP to purchase the shares. MVPAM
has a genuine commercial interest in recovering the
lost Ark Discovery investments because, under the
IMA, MVPAM’s compensation is based on the value of
MVP’s assets and on the performance of MVP’s
investments.

3
4
5
6
7
8
9
10

(TAC

11

presumption of collusion. See Yokeno, 973 F.2d at 811 (“Disposing of a

12

clouded property interest to increase financial attractiveness is not a

13

legitimate business purpose that would overcome the presumption of

14

collusiveness if, once the cloud is removed, the assignor stands to reap

15

the benefits of the assignee’s success.”).

¶

87.)

16

These

allegations

are

insufficient

to

overcome

the

Further, since the issue concerning whether the assignment was

17

collusive

18

jurisdiction was the very thing which Congress intended to prevent when

19

it enacted § 1359[,]” the Court declines to address the portion of the

20

motions challenging the state claims since it is questionable whether

21

Plaintiff will be able to state viable federal claims or a basis for

22

diversity jurisdiction at this stage in the proceedings. Kramer v.

23

Caribbean

24

Defendants’ motion to dismiss Plaintiff’s state claims for lack of

25

jurisdiction is granted.

26

remains

Mills,

unresolved,

Inc.,

394

and

U.S.

the

823,

“manufacture

828-29

of

(1969).

[f]ederal

Therefore,

IV. CONCLUSION

27

For the stated reasons, Defendants’ 12(b)(1) motion to dismiss

28

is granted in part and denied in part; Defendants’ 12(b)(6) motion to
15

1

dismiss is granted in part and denied in part; and Defendants’ 12(b)(2)

2

and Defendant Vestbirk’s 12(b)(2) motions are denied as moot, because of

3

rulings on the other motions.

4

Plaintiff is granted ten (10) days from the date on which this

5

order is filed to file a Fourth Amended Complaint addressing the

6

deficiencies of Plaintiff’s pleading discussed in this order. Further,

7

Plaintiff is notified that this action may be dismissed with prejudice

8

under Federal Rule of Civil Procedure 41(b) if Plaintiff fails to file

9

an amended complaint within the prescribed time period.

10

Dated:

July 11, 2012

11
12
13

GARLAND E. BURRELL, JR.
Senior United States District Judge

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