Arcturus Therapeutics LTD. v. Payne et al

Filing 19

ORDER Denying 10 Plaintiff's Motion for Temporary Restraining Order; Vacating and Resetting Hearing on Motion for Preliminary Injunction and Expedited Discovery; Setting Briefing Schedule; and Denying as Moot 17 Defendant Payne's Motio n for an Extension of Time. While the Court finds no exigency requiring the issuance of a TRO, the Court acknowledges Plaintiff's request for a preliminary injunction and request for expedited discovery. Accordingly, the Court denies Plaintiff&# 039;s motion for a TRO, vacates the hearing currently set for 5/1/2018, and resets the hearing on Plaintiff's motion for a preliminary injunction and expedited discovery for 5/21/2018 at 2:30 p.m. in Courtroom 3D. As such, Defendants must file a n opposition, if any, on or before 5/7/2018 and Plaintiff must file its reply, if any, on or before 5/14/2018. As Defendants have not yet appeared in this action, the Court orders Plaintiff to provide a copy of this Order to Defendants no later than 5:00 p.m. Pacific Daylight Time on Thursday, 4/26/2018. Signed by Judge Michael M. Anello on 4/26/2018. (rmc)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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ARCTURUS THERAPEUTICS LTD.,

Case No.: 18cv766-MMA (NLS)

Plaintiff,

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v.

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ORDER DENYING PLAINTIFF'S
MOTION FOR TEMPORARY
RESTRAINING ORDER;

JOSEPH E. PAYNE; PETER FARRELL;
ANDREW SASSINE; BRADLEY
SORENSON; JAMES BARLOW; and
DOES 1 THROUGH 100,

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VACATING AND RESETTING
HEARING ON MOTION FOR
PRELIMINARY INJUNCTION AND
EXPEDITED DISCOVERY;

Defendants.

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SETTING BRIEFING SCHEDULE;
AND

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[Doc. No. 10]

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DENYING AS MOOT DEFENDANT
PAYNE’S MOTION FOR AN
EXTENSION OF TIME

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[Doc. No. 17]

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On April 19, 2018, Plaintiff Arcturus Therapeutics Ltd. (“Plaintiff” or “Arcturus”)

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filed the instant action alleging violations Section 13(d) of the Securities Exchange Act of

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1934, 15 U.S.C. § 78m(d), and Regulation 13D promulgated thereunder, against
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Defendants Joseph E. Payne, Peter Farrell, Andrew Sassine, Bradley Sorenson, and

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James Barlow. Doc. No. 1 (“Compl.”). Currently pending before the Court is Plaintiff’s

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motion for a temporary restraining order (“TRO”), preliminary injunction, and for

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expedited discovery. Doc. No. 10-1. For the reasons set forth below, the Court DENIES

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Plaintiff’s motion for a TRO, VACATES the hearing scheduled for May 1, 2018, and

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RESETS a hearing on Plaintiff’s motion for a preliminary injunction and expedited

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discovery for May 21, 2018 at 2:30 p.m. in Courtroom 3D.

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BACKGROUND
Plaintiff Arcturus is a corporation “working to develop and commercialize RNA

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technologies to treat various diseases,” including cancer. Compl., ¶ 10; Doc. No. 10-1 at

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8. Defendants are a group of shareholders who have allegedly “unlawfully and secretly

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agreed to buy, sell, and vote a controlling block of Ordinary Shares” of Arcturus in

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support of Defendant Payne’s proxy contest to take control of the Board of Directors of

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Arcturus (“Board”). Compl., ¶ 1. Plaintiff alleges that Defendants have violated Section

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13(d) and Regulation 13D by depriving shareholders of basic information needed to fairly

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assess the facts to inform their votes at an upcoming Extraordinary General Meeting

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(“EGM”). See id. Specifically, Plaintiff alleges that Defendants have failed to file

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Schedules 13D and amendments which disclose the existence of the group, the identities

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of the group’s members, and the accompanying beneficial ownership of Arcturus’

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securities held by such group members. Compl., ¶ 4.

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At Defendant Payne’s request, Arcturus scheduled an EGM for May 7, 2018.

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Compl., ¶ 8. However, Plaintiff alleges it “was forced to postpone the EGM due to a

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series of filings that Payne has made in Israeli court (where Payne has brought litigation

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against Arcturus), which collectively cast significant uncertainty on the agenda of the

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EGM.” Id. In response, Payne filed motions in Israeli court to compel Arcturus to hold

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the EGM. Id. A hearing in Israeli court is scheduled on that matter for May 9, 2018. Id.

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//

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//
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DISCUSSION

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The purpose of a TRO is to preserve the status quo before a preliminary injunction

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hearing may be held; its provisional remedial nature is designed merely to prevent

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irreparable loss of rights prior to judgment. Granny Goose Foods, Inc. v. Brotherhood of

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Teamsters & Auto Truck Drivers, 415 U.S. 423, 439 (1974). The standard for a TRO is

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the same as for a preliminary injunction. See Stuhlbarg Int’l Sales Co. v. John D. Brush

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& Co., 240 F.3d 832, 839 n.7 (9th Cir. 2001). To obtain preliminary injunctive relief, the

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moving party must show: (1) a likelihood of success on the merits; (2) a likelihood of

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irreparable harm to the moving party in the absence of preliminary relief; (3) that the

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balance of equities tips in the moving party’s favor; and (4) that an injunction is in the

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public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). The

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court may apply a sliding scale test, under which “the elements of the preliminary

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injunction test are balanced, so that a stronger showing of one element may offset a

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weaker showing of another.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127,

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1131 (9th Cir. 2011). A restraining order is an “extraordinary remedy that may only be

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awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter, 555

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U.S. at 22.

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With respect to issuing an ex parte TRO, Federal Rule of Civil Procedure 65(b)(1)

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provides that a “court may issue a temporary restraining order without written or oral

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notice to the adverse party or its attorney only if: (A) specific facts in an affidavit or a

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verified complaint clearly show an immediate and irreparable injury, loss, or damage will

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result to the movant before the adverse party can be heard in opposition; and (B) the

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movant’s attorney certifies in writing any efforts made to give notice and the reasons why

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it should not be required.”1 Fed. R. Civ. P. 65 (emphasis added).

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It is not clear whether Plaintiff attempted to file an ex parte TRO. To the extent it did, Plaintiff did not
comply with Rule 65. See Doc. No. 10.
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The United States Supreme Court has held that there are stringent restrictions

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imposed by Rule 65 because “our entire jurisprudence runs counter to the notion of court

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action taken before reasonable notice and an opportunity to be heard has been granted

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both sides of a dispute.” Granny Goose, 415 U.S. at 439. “[C]ircumstances justifying

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the issuance of an ex parte order are extremely limited.” Reno Air Racing Ass’n v.

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McCord, 452 F.3d 1126, 1131 (9th Cir. 2006). There are “a very narrow band of cases in

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which ex parte orders are proper because notice to the defendant would render fruitless

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the further prosecution of the action.” Id. (quoting American Can Co. v. Mansukhani,

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742 F.2d 314, 322 (7th Cir. 1984)). For example, to justify an ex parte proceeding where

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an alleged infringer is likely to dispose of infringing goods before the hearing, the

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“applicant must do more than assert that the adverse party would dispose of evidence if

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given notice.” Id. (citation omitted). “[P]laintiffs must show that defendants would have

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disregarded a direct court order and disposed of the goods within the time it would take

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for a hearing . . . [and] must support such assertions by showing that the adverse party has

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a history of disposing of evidence or violating court orders or that persons similar to the

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adverse party have such a history.” Id. (citation omitted).

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On April 25, 2018, Defendant Payne filed a motion to extend time to file his

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opposition to Plaintiff’s motion for a TRO and to move the hearing date. Doc. No. 17. In

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support, Payne explains that “there is no exigency supporting Plaintiff’s extraordinary

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request” because “there is no EGM currently set.” Id. at 17. Upon considering

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Plaintiff’s motion and supporting evidence, the Court agrees with Defendant Payne and

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finds that Plaintiff has failed to “clearly show that immediate and irreparable injury, loss,

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or damage will result to the movant before the adverse party can be heard in opposition,”

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as required for the issuance of an ex parte TRO. See Fed. R. Civ. P. 65(b) (emphasis

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added).

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As mentioned previously, an EGM was scheduled for May 7, 2018 to vote on the

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following proposals raised by Defendant Payne: (1) removal and transfer of five persons

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“as well as any other person that may be appointed to the Board . . . as of the date hereof
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and until the EGM” from the office of directors on the Board; (2) to amend particular

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articles “of the AOA, with immediate effect, so that the authority to determine the

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number of directors of the Company, as well as the authority to elect new directors to the

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Board, is also provided – in any circumstances – to extraordinary general meetings of the

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shareholders of the Company;” and (3) to elect Payne’s four nominees (Defendants

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Farrell, Sassine, and Barlow, and Magda Marquet) to serve as directors on the Board.

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Compl., Exhibit 2 at 6-7. On April 8, 2018, the Board postponed the EGM without

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setting a new date. Compl., Exhibit 1 at 7. Payne has since filed motions in Israeli court

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to compel Arcturus to hold the EGM, and the matter is set for hearing on May 9, 2018.

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Compl., ¶ 8.
Plaintiff’s motion states that the EGM is “on the immediate horizon,” but contends

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that even if the EGM is postponed, the urgency of requiring the alleged group to correct

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the disclosure record remains. Doc. No. 10-1 at 11 n.2. Plaintiff asserts that “immediate

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intervention is required to ensure an even playing field in the upcoming shareholder vote,

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and shareholders’ access to the SEC-mandated disclosures about [Defendants’]

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activities.” Id. at 11. According to Plaintiff, failure to do so immediately will result in

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irreparable harm. See id.

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In Treadway Companies, Inc. v. Care Corp., 638 F.2d 357 (2d Cir. 1980), the

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Second Circuit explained that the interests section 13(d) protects “are fully satisfied when

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the shareholders receive the information required to be filed.” Treadway, 638 F.2d at

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380. There, the Court held that “there was no risk of irreparable injury and no basis for

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injunctive relief” where the shareholders received the required information four months

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before the proxy contest in that case. Id. In 2011, the Second Circuit indicated that

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where disclosure, “[w]hether timely or not,” allows informed action by shareholders,

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there is no irreparable harm. CSX Corp. v. Children’s Inv. Fund Mgmt. (UK) LLP, 654

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F.3d 276, 287 (2d Cir. 2011).

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Here, Plaintiff does not dispute that there is no currently scheduled EGM. See
Doc. No. 18 (opposing Defendant Payne’s motion for an extension of time, but not
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addressing Payne’s exigency argument). As a result, even if all of Plaintiff’s allegations

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are true, the Court cannot determine whether Plaintiff and its shareholders are irreparably

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harmed because the Court has no information regarding the next scheduled EGM. In

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other words, the Court finds no exigency in determining whether or not Defendants must

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file corrected or original Schedules 13D because Plaintiff has not met its burden of

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establishing that failure to do so immediately would result in shareholders taking

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uninformed action.

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While the Court finds no exigency requiring the issuance of a TRO, the Court
acknowledges Plaintiff’s request for a preliminary injunction and request for expedited

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discovery. See Doc. No. 10-1. Accordingly, the Court DENIES Plaintiff’s motion for a

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TRO, VACATES the hearing currently set for May 1, 2018, and RESETS the hearing on

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Plaintiff’s motion for a preliminary injunction and expedited discovery for May 21, 2018

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at 2:30 p.m. in Courtroom 3D. As such, Defendants must file an opposition, if any, on

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or before May 7, 2018 and Plaintiff must file its reply, if any, on or before May 14,

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2018.2 As Defendants have not yet appeared in this action, the Court ORDERS Plaintiff

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to provide a copy of this Order to Defendants no later than 5:00 p.m. Pacific Daylight

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Time on Thursday, April 26, 2018.

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IT IS SO ORDERED.

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Dated: April 26, 2018

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In light of this Order, the Court DENIES AS MOOT Defendant Payne’s motion for an
extension of time. Doc. No. 17.
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