Calcaterra v. Garrabrants et al

Filing 192

Order Staying Action and Denying Motion to Dismiss Without Prejudice (ECF No. 181 , 186 ). The parties are directed to file a joint monthly status report beginning on 4/5/2024. Plaintiff's Motion to Seal portions of his memorandum in opposition and the Individual Defendants' Request for Judicial Notice are granted. Signed by Judge Gonzalo P. Curiel on 3/5/24. (All non-registered users served via U.S. Mail Service)(jmo)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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IN RE:

Case No.: 15-cv-2722-GPC-KSC

BofI HOLDINGS, INC.,
SHAREHOLDER LITIGATION,

ORDER STAYING ACTION AND
DENYING MOTION TO DISMISS
WITHOUT PREJUDICE

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[ECF No. 181, 186]

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Pending before the Court is the Individual Defendants’ Motion to Dismiss

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Plaintiff’s Third Amended Shareholder Derivative Complaint. After reviewing the

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briefing, the Court orders that the motion be DENIED WITHOUT PREJUDICE and

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the action STAYED pending resolution of the appeal in the related whistleblower

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action. 1
Plaintiff’s shareholder derivative suit seeks to recoup from the individual

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defendants, inter alia, the cost of the company’s defense against a securities class action

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Plaintiff’s Motion to Seal portions of his memorandum in opposition, ECF No. 186, and
the Individual Defendants’ Request for Judicial Notice, ECF No. 181-2, are GRANTED.

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and a related whistleblower lawsuit brought by Charles Matthew Erhart. ECF No. 178

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(sealed). This Court previously dismissed portions of the derivative suit as unripe,

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concluding that Plaintiff’s theory of liability depended upon the outcomes of the then-

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pending securities and whistleblower actions. In re Bofi Holding, Inc S'holder Litig., 848

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F. App'x 234, 236 (9th Cir. 2021). The Court further declined to stay the derivative

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action pending resolution of the related suits. Id. The Ninth Circuit affirmed this Court’s

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holding on ripeness but reversed the refusal to stay the action, finding that the statute of

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limitations might bar the refiling of Plaintiff’s “now unripe claims . . . .” Id. at 237. The

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Court granted a joint motion to stay the matter on April 9, 2021. ECF No. 156.

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On October 14, 2022, the securities action settled, and on October 4, 2023, an

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amended judgment was entered for the whistleblower plaintiff after a bifurcated jury trial.

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ECF No. 178 (sealed). BofI appealed the whistleblower judgment, and that appeal pends

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before the Ninth Circuit. Id. Nevertheless, on December 1, 2023, this Court lifted the

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stay in the derivative action and ordered the filing of a third amended complaint. ECF

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No. 172.

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That complaint re-alleges the claims previously dismissed as unripe. ECF No. 178

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(sealed). Defendants argue that those claims, as they relate to the whistleblower action,

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remain unripe due to the pending appeal. They direct the Court to Delaware law, arguing

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that Plaintiff’s derivative claims do not ripen “[u]ntil the final judgment of the trial court

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withstands appellate review.” Scharf v. Edgcomb Corp., 864 A.2d 909, 920 (Del. 2004).

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Plaintiff responds that the claims are now ripe because federal judgments are final and

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given preclusive effect, even pending appeal. See, e.g., Eichman v. Fotomat Corp., 759

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F.2d 1434, 1439 (9th Cir. 1985).

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Rather than address ripeness, the Court concludes that the proper course is to

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renew the stay of the derivative action pending appeal of the whistleblower action. See

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Clinton v. Jones, 520 U.S. 681, 706–07 (1997). For this Court—even armed with the

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finality of federal judgments—to forge ahead without the Ninth Circuit’s decision would

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invite the waste of judicial resources. See ECF No. 190 at 12 (“[T]he Individual

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Defendants cannot be held liable if BofI prevails in its appeal.”). Furthermore, the Court

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finds that to move forward without the Ninth Circuit’s decision might require this Court

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to find that Plaintiff’s derivative claims are ripe. A finding that Plaintiff’s claims are

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unripe, coupled with a refusal to stay the action, would present the exact confluence of

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decisions previously rejected by the Ninth Circuit. In re Bofi Holding, 848 F. App'x at

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237.

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Defendants appear to suggest that the Court may decide this action now on the

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basis of demand futility. ECF No. 190 at 5 n.1. Defendants argue that Plaintiff has failed

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to allege “new particularized allegations.” Id. at 9. But Plaintiff has supplemented his

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initial claims with information discovered in the course of the whistleblower action,

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including allegations regarding BofI’s attempts following Erhart’s termination to defame

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and harass Erhart with lawsuits. ECF No. 178 at 9 (sealed). Defendants attempt to brush

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aside Plaintiff’s new allegations, including allegations related to the Board’s approval of

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“litigation against Erhart’s relatives,” as “protected litigation activity.” ECF No. 190 at

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10 n.4. But that argument was explicitly rejected by the jury in the whistleblower action.

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See ECF No. 178 at 158 (Jury Verdict Form Question 11) (sealed). These new

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allegations are intertwined with the merits of the whistleblower appeal, and thus the

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Court views them as further reason to stay the instant action.

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Accordingly, the motion to dismiss is DENIED WITHOUT PREJUDICE and

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the derivative action is STAYED. The parties are directed to file a joint monthly status

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report beginning on April 5, 2024.

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IT IS SO ORDERED.
Dated: March 5, 2024

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