IRA for the Benefit lof Karl Graulich v. Pincus et al

Filing 86

ORDER by Magistrate Judge Jacqueline Scott Corley granting 75 Motion to Lift Stay; granting 79 Motion to Dismiss. (ahm, COURT STAFF) (Filed on 5/17/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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In RE ZYNGA SHAREHOLDER

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DERIVATIVE LITIGATION

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United States District Court
Northern District of California

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Case No.12-cv-04327-JSC
ORDER LIFTING STAY AND
GRANTING MOTION TO DISMISS
Consolidated with Case Nos.
12-cv-4330 JSC
12-cv-4547-JSC
12-cv-4684-JSC

These consolidated shareholder derivative actions were filed in 2012. The parties
thereafter stipulated into a series of stays, most recently to stay these actions pending the Zynga
Special Litigation Committee’s investigation. (Dkt. No. 74.) A similar derivative action has been
proceeding in Delaware Court of Chancery, Sandys v. Pincus, Case No. 9512-CB. In March 2018
the plaintiffs in the Delaware derivative action reached a settlement with the defendants. The
settlement, if approved by the Delaware court, would resolve all derivative actions, including
those pending before this Court. Plaintiffs here therefore seek to lift the stay to permit them to
conduct discovery into the proposed settlement, otherwise known as Zapata discovery. (Dkt. No.
75.) In response, Defendants move to dismiss based on a forum selection clause in Zynga’s
Certificate of Incorporation. (Dkt. No. 79.) Having reviewed the parties’ submissions, the Court
finds that oral argument is not required, see Civ. L.R. 7-1(b), LIFTS the stay, and GRANTS
Defendants’ motion to dismiss based on the forum selection clause.
DISCUSSION
On September 14, 2011, prior to becoming a publicly traded company, Zynga amended its

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Certificate of Incorporation to include a forum selection clause:
Choice of Forum: The Court of Chancery of the State of
Delaware shall be the sole and exclusive fourm for (i) any derivative
action or proceeding brought on behalf of the Corporation; (ii) any
action asserting a claim for breach of a fiduciary duty owed by any
director, officer or other employee of the Corporation to the
Corporation of the Corporation’s stockholders; (iii) any action
asserting a claim against the Corporation arising pursuant to any
provision of the General Corporation Law, the Restated Certificate
of the Bylaws of the Corporation; or (iv) any action asserting a
claim against the Corporation governed by the internal affairs
doctrine. Any person or entity purchasing or otherwise acquiring
any interest in shares of capital stock of the Corporation shall be
deemed to have notice and to have consented to the provisions of
this Article VI.
(Dkt. No. 80-1 (Ex. E) at 37.) These derivative lawsuits fall squarely within this mandatory

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forum selection clause making Delaware Court of Chancery the exclusive forum. Defendants
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United States District Court
Northern District of California

accordingly move to dismiss these actions pursuant to the doctrine of forum non conveniens.
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“[T]he appropriate way to enforce a forum-selection clause pointing to a state or foreign
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forum is through the doctrine of forum non conveniens.” Atlantic Marine Const. Co., Inc. v. U.S.
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Dist. Court for W. Dist. Of Tex., 571 U.S. 49, 60 (2013) (internal quotation marks omitted). “A
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party moving to dismiss based on forum non conveniens bears the burden of showing (1) that there
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is an adequate alternative forum, and (2) that the balance of private and public interest factors
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favors dismissal.” Dole Food Co. v. Watts, 303 F.3d 1104, 1118 (9th Cir. 2002). However, the
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presence of the forum-selection clause requires courts to adjust the forum con veniens analysis in
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several ways. First, the court should give no weight to the plaintiff’s choice of forum. Atlantic
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Marine Const. Co., Inc., 471 U.S. at 63. Second, the court should not consider any arguments
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about the parties’ private interests. Id. at 64. Third, in considering the public interests, the court
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applies the choice-of-law principles of the venue specified in the forum selection clause. Id. at 6423
65. Finally, the party resisting the venue specified in the forum-selection clause bears the burden
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of showing that the case should proceed in the plaintiff’s chosen venue. Id. at 63-64. “[T]he
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practical result is that forum-selection clauses should control except in unusual cases.” Id. at 582.
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Plaintiffs do not dispute the adequacy of the Delaware forum. Nor could they: there is

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currently pending in Delaware Court of Chancery a similar action in which the court is presently

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evaluating a settlement of the derivative claims. And the public interest factors weigh in favor of

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maintaining the specified Delaware venue. Public-interest factors include “the administrative

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difficulties flowing from court congestion; the local interest in having localized controversies

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decided at home; [and] the interest in having the trial of a diversity case in a forum that is at home

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with the law.” Id. at 62 n.6. There are no administrative difficulties; again, the Delaware Court of

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Chancery is presently considering settlement of the very claims raised in this lawsuit (albeit

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brought by different attorneys). The local interest is a wash given that Zynga, while headquartered
in California, is incorporated in Delaware. Finally, Delaware is more familiar with applying

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United States District Court
Northern District of California

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Delaware law than this California court. Thus, pursuant to Atlantic Marine and the forum non

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conveniens doctrine, these actions should be dismissed without prejudice to proceeding in the

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appropriate forum.

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Plaintiffs nonetheless insist that the forum selection clause should not be enforced. The

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burden is on Plaintiffs “to show that enforcement would be unreasonable and unjust, or that the

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clause was invalid for such reasons as fraud or overreaching.” M/S Bremen v. Zapata Off-Shore

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Co., 407 U.S. 1, 15 (1972). Plaintiffs do not contend that the amendment of Zynga’s certificate of

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incorporation to include the forum selection clause long before any of the allegedly wrongful

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conduct alleged in these actions was the result of fraud or overreaching. Instead, they attempt to

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meet their heavy burden by challenging the forum-selection clause’s choice of a state venue.

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Citing a New York state case, they contend that a plaintiff’s right to proceed in a federal forum

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“cannot be contracted away” unless the balance of factors “strongly favors” the venue the

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defendants seek. (Dkt. No. 81 at 5 (citing Matter of Topps Co., Inc. S’holder Litig., 859 N.Y.S.2d

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907, 907, 2007 Misc. LEXIS 8973, at *8 (Sup. Ct. N.Y. County June 8, 2007).) Matter of Topps,

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however, did not involve a forum selection clause or even a federal forum and thus is unhelpful.

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Further, the Supreme Court in Atlantic Marine specifically addressed a forum selection clause that

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chose a state or foreign venue. 571 U.S. at 60. Plaintiffs have thus not identified any support for

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their contention and the Court is not aware of any.
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CONCLUSION

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Zynga’s certificate of incorporation includes a forum selection clause that specifies that

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these actions shall be brought in Delaware Court of Chancery. As Plaintiffs do not challenge the

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validity of the clause, and have not met their burden of showing that this is one of those unusual

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cases where the forum selection clause should not be enforced, Defendants’ motion to dismiss on

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forum non veniens grounds is GRANTED without prejudice. Plaintiffs’ motion for discovery is

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DENIED. Plaintiffs may seek such discovery from the court in the venue specified in the forum

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selection clause.

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United States District Court
Northern District of California

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This Order disposes of Docket Nos. 75, 79. The Clerk shall close the files of these
consolidated cases.
IT IS SO ORDERED.
Dated: May 17, 2018

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JACQUELINE SCOTT CORLEY
United States Magistrate Judge

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