Baker et al v. Arkansas Blue Cross and Blue Shield et al

Filing 107

ORDER by Judge Saundra Brown Armstrong, DENYING 95 Motion for Temporary Restraining Order and Order to Show Cause re Preliminary Injunction (lrc, COURT STAFF) (Filed on 3/19/2009) Modified on 3/20/2009 (jlm, COURT STAFF).

1 2 3 4 5 6 GEOFFREY BAKER, et al., 7 8 vs. Plaintiffs, Case No: CV 08-3974 SBA ORDER DENYING PLAINTIFF'S APPLICATION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE RE PRELIMINARY INJUNCTION [Docket 95] UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION

9 ARKANSAS BLUE CROSS, et al., 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Defendants.

The parties presently are before the Court on Plaintiff's Application for a Temporary Restraining Order and Order to Show Cause re Preliminary Injunction. Having received, read and considered the papers filed in connection with the application, and being fully informed, the Court DENIES the application. I. BACKGROUND Plaintiff Geoff Baker ("Plaintiff" or "Baker") is the founder of a software company called Med-Vantage, Inc. ("Med-Vantage"), which is not a party to this action. Med-Vantage sells data analysis software for use by health plans. In August 2007, B.P Informatics LLC ("BPI") gained control of Med-Advantage by purchasing a 52% interest in the company, leaving Baker with only a 31% equity interest. According to Plaintiff, BPI has since operated the company for its own self interest, at the expense of the minority shareholders. Among other things, Plaintiff complains that BPI installed its own board members and failed to vote for his board nominee, which he claims is in violation of the stockholders' agreement. The board election took place in December 2008, at which time BPI voted for its six nominees. On March 17, 2009, Plaintiffs filed a First Amended Complaint ("FAC") against BPI and various other entities and individuals. The FAC alleges four state law causes of action for (1) Breach of Fiduciary Duty and (2) Minority Shareholder Oppression; (3) Violation of Unfair

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Competition Law; and (4) Breach of Contract (solely against BPI). The FAC alleges, inter alia, that Defendants acted in a self-interested manner, thereby causing the company to lose value. The breach of contract claim is based on BPI's alleged failure to cast its votes for the board nominee proposed by Baker. Along with the FAC, Baker filed the instant application for a TRO. Specifically, Plaintiff seeks to enjoin Med-Advantage from entering into an agreement with BPI to provide MedAdvantage with a $3 million line of credit. The line of credit provides that if Med-Advantage defaults on its payments, BPI has the option of converting the debt to equity shares in the company. Baker contends that this "in effect will allow BPI to extract all of the remaining value of MedVantage for the benefit of BPI and its owners." (Pl.'s App. at 2.) BPI filed its opposition and supporting papers on March 18, 2009. The board is scheduled to vote on the proposed transaction on Thursday, March 19, 2009. II. LEGAL STANDARD The standard for a TRO is the same as for a preliminary injunction. See Lockheed Missle & Space Co. v. Hughes Aircraft, 887 F. Supp. 1320, 1323 (N.D. Cal. 1995); c.f., Motor Vehicle Board of Cal. v. Orrin W. Fox, 434 U.S. 1345, 1347 n.2 (1977). There are two tests applicable to a preliminary injunction. Under the traditional formulation, the plaintiff must show (1) a strong likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest (if applicable). See Natural Res. Def. Council, Inc. v. Winter, 518 F.3d 658, 677 (9th Cir. 2008). Under the alternative formulation, "a court may grant the injunction if the plaintiff demonstrates either a combination of probable success on the merits and the possibility of irreparable injury or that serious questions are raised and the balance of hardships tips sharply in his favor." Id. (citation omitted). The two formulations represent two points on a sliding scale with the focal point being the degree of irreparable injury shown. Oakland Tribune, Inc. v. Chronicle Publ'g Co., 762 F.2d 1374, 1376 (9th Cir. 1985). Preliminary injunctive relief is "an extraordinary and drastic remedy, one that should not be granted unless the movant, by

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a clear showing, carries the burden of persuasion." Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (citation and internal quotations omitted). II. DISCUSSION It is axiomatic that a request for injunctive relief must be predicated on a claim alleged in the complaint. Here, Plaintiff seeks to assert rights based on alleged harm which might be suffered by Med-Advantage which, in turn, might impair his financial interest in the company. It is questionable whether Plaintiff has standing to assert such injury. See Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033, 1039 (Del. 2004); see also Smith v. Waste Management, Inc., 407 F.3d 381, 384-85 (5th Cir. 2005) (following Tooley).1 Moreover, the Court has serious concerns regarding the propriety of enjoining a transaction where one of the principals to the agreement is not a party to the action, and neither principal requests such relief. See Krichbaum v. U.S. Forest Service, 991 F. Supp. 501, 507 (W.D. Va. 1998) (denying TRO to enjoin sale of timber where "the third party logging contractor and his employees would be financially harmed."). Perhaps more fundamentally, Plaintiff has failed to demonstrate "that there exists a significant threat of irreparable injury" sufficient to justify the requested TRO. See Oakland Tribune, 762 F.2d at 1376. Plaintiff contends that "[i]f the TRO is not granted, BPI will push before the improperly constituted Med-Vantage board a transaction that would forever change the path of the company Baker founded and in which he owns a significant economic interest." (Pl.'s App. at 13.) To the extent that Plaintiff's request is premised on the alleged failure of BPI to vote for his board nominee, the Court finds that the TRO request is untimely, since Baker has known about the board's composition since December 2008. Id. at 1377 (delay undermines showing of lack of urgency and irreparable harm). In addition, even if Plaintiff's nominee were elected, BP still would control the majority of the board. (Pl.'s App. at 14.) With regard to the possibility that the BPI line of credit agreement will dilute his stake in the company, Plaintiff makes no showing why such harm cannot be recompensed by monetary

The Court need not ultimately determine Plaintiff's likelihood of success on the merits where, as here, the movant has not made a "minimal showing" of a significant threat of irreparable injury. See Oakland Tribune, 762 F.2d at 1377.
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damages. See Dotster, Inc. v. Internet Corp. For Assigned Names and Numbers, 296 F. Supp.2d 1159, 1162 (C.D. Cal.2003) ("Irreparable injury is an injury that is not remote or speculative, but actual and imminent and for which monetary damages cannot adequately compensate."). Moreover, the harm posited by Baker is entirely speculative. Plaintiff's dilution allegedly would occur if the idea is presented to the board, if the board accepts, if Med-Advantage defaults under the terms of the credit agreement and then only if BPI elects to convert the debt to equity. "Speculative injury does not constitute irreparable injury sufficient to warrant granting a [TRO]." Caribbean Marine Serv. Co., Inc. v. Baldrige, 844 F.2d 668, 674 (9th Cir. 1988). Finally, even if Plaintiff had met his burden of demonstrating irreparable harm, the Court finds that the balance of hardships tips in favor of Defendant BPI. According to Michael Bodenstab, Med-Vantage's Vice-President of Finance, the company will exhaust its operating cash by the end of April 2009. (Bodenstab Decl. ¶¶ 1-4.) Absent the proposed line of credit, MedVantage is at risk of having to lay off employees, cancel ongoing initiatives and/or cease operations. (Id.; Goldbach Decl. ¶ 12.) The burden of these hardships obviously would be suffered by the company, which is not a party to this action. See Reid L. v. Illinois State Bd. of Educ., 289 F.3d 1009, 1021 (7th Cir. 2002) (court must consider harm to third party in granting or denying injunction). While Plaintiff questions whether Med-Vantage is in fact in financial straits, he fails to proffer any concrete evidence to support his speculation. II. CONCLUSION Plaintiff has failed to make a clear showing that immediate injunctive relief is either necessary or appropriate under the circumstances presented. Accordingly, IT IS HERE BY ORDERED THAT Plaintiffs' Application for a Temporary Restraining Order and Order to Show Cause re Preliminary Injunction (Docket 95) is DENIED.

Dated: March 18, 2009

____________________________ Hon. Saundra Brown Armstrong United States District Judge

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