Mabvax Therapeutics Holdings, Inc. v. Honig et al

Filing 98

ORDER: Plaintiff's Motion to Remand (ECF No. #21 ) is granted. This action is remanded to the Superior Court for the State of California, County of San Diego, where it was originally filed under case number 37-2019-00018398-CU-SL-CTL. Defendants' Motions to Dismiss (ECF Nos. #8 , #38 , #68 ) are denied as moot (Certified copy sent to State Court via US Mail Service). Signed by Judge William Q. Hayes on 10/04/2019. (ag) (jao).

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1 2 3 4 UNITED STATES DISTRICT COURT 5 SOUTHERN DISTRICT OF CALIFORNIA 6 7 8 MABVAX THERAPEUTICS HOLDINGS, INC., a Delaware Corporation, 9 10 11 Case No.: 19-cv-981-WQH-MSB ORDER Plaintiff, v. BARRY HONIG, et al., 12 Defendants. 13 14 HAYES, Judge: The matter before the Court is the Motion to Remand filed by Plaintiff MabVax 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Therapeutics Holdings, Inc. (ECF No. 21). I. BACKGROUND On April 8, 2019, Plaintiff filed a Complaint in the Superior Court of the State of California for the County of San Diego against Defendants. (ECF No. 1-2). Plaintiff is a clinical-stage biotechnology company that develops cancer treatments. Id. ¶ 1. Plaintiff alleges that Defendants, “a group of market manipulators” led by Defendant Barry Honig, accumulated a controlling position in Plaintiff’s stock. Id. ¶ 3. Plaintiff alleges that Defendants “pretended they sought legitimate returns” by investing in Plaintiff, but they really sought to manipulate Plaintiff. Id. Plaintiff alleges that Defendants “defrauded [Plaintiff] through illicit transactions for their enormous profit to the detriment of [Plaintiff].” Id. Plaintiff alleges that, among other things, Defendants caused Plaintiff to issue Defendants “tens of millions of dollars’ worth of common stock;” cut Plaintiff off from legitimate investors; caused Plaintiff to be subjected to a SEC investigation; forced 1 19-cv-981-WQH-MSB 1 Plaintiff to “publicly disclaim reliance on past financial statements rendered inaccurate by 2 Defendants;” and caused Plaintiff to be delisted from trading on Nasdaq. Id. 3 Plaintiff brings state law claims against Defendants for 1) market manipulation in 4 violation of section 25400 of the California Corporations Code; 2) unlawful business 5 practices in violation of section 17200 of the California Business & Professions Code; 3) 6 fraud and deceit in violation of sections 1709 and 1710 of the California Civil Code and 7 California common law; 4) fraudulent concealment in violation of section 1710 of the 8 California Civil Code and California common law; 5) constructive fraud in violation of 9 section 1573 of the California Civil Code and California common law; 6) negligent 10 misrepresentation in violation of section 1710 of the California Civil Code and California 11 common law; 7) tortious interference with prospective economic advantage; 8) breach of 12 fiduciary duty; and 9) restitution for unjust enrichment. (ECF No. 1-2). Plaintiff seeks 13 damages, including punitive damages, attorneys’ fees, costs, and pre- and post-judgment 14 interest. Plaintiff requests that the Court require Defendants “to make a full disclosure and 15 accounting of their interests and transactions in Plaintiff’s securities” and seeks “other legal 16 and equitable relief as [the Court] may deem proper.” Id. at 42. 17 On March 21, 2019, Plaintiff filed a petition for relief under chapter 11 of title 11 of 18 the United States Code in the United States Bankruptcy Court for the District of Delaware. 19 (ECF No. 21-1 at 9). 20 On May 24, 2019, Defendants OPKO Health, Inc., Steven Rubin, Philip Frost, and 21 Frost Gamma Investments Trust (collectively, the “OPKO Defendants”) removed 22 Plaintiff’s California state court action to this Court “[p]ursuant to 28 U.S.C. §§ 1334, 1441 23 and 1452.” (ECF No. 1 at 3). The OPKO Defendants removed this action on the grounds 24 that this Court has jurisdiction based on this action’s relationship to Plaintiff’s bankruptcy 25 action. (ECF No. 1 at 5). The Notice of Removal states that the claims brought by Plaintiff 26 “represent an asset of the estate” in Plaintiff’s bankruptcy action. Any recovery in this 27 action “will have an effect on MabVax’s bankruptcy estate as it will inure to the benefit of 28 creditors.” Id. The OPKO Defendants assert that this Court, therefore, has jurisdiction 2 19-cv-981-WQH-MSB 1 under 28 U.S.C. § 1334, because this action is “related to” Plaintiff’s bankruptcy action. 2 Id. at 4. 3 On May 31, 2019, Defendants Robert Prag, The Del Mar Consulting Group, Inc., 4 and The Del Mar Consulting Group, Inc. Retirement Plan Trust (collectively, the “Del Mar 5 Defendants”) filed an Answer. (ECF No. 7). 6 On June 13, 2019, Plaintiff filed a Motion to Remand this action to state court. (ECF 7 No. 21). Plaintiff contends that the Court should exercise its discretion to remand this 8 action pursuant to 28 U.S.C. § 1452(b). Plaintiff contends that each of the 14 factors courts 9 may consider pursuant to § 1452(b) weigh in favor of remand. Id. at 11. On July 1, 2019, 10 the OPKO Defendants filed a Response in opposition to Plaintiff’s Motion to Remand. 11 (ECF No. 48). The OPKO Defendants contend that this Court has subject matter 12 jurisdiction pursuant to § 1452, and the 14 factors weigh in favor of maintaining this action 13 in federal court. (ECF No. 48 at 5-6). 14 On July 1, 2019, Defendants Michael Brausner, Grander Holdings, Inc., and Grander 15 Holdings, Inc. 401K (collectively, the “Grander Defendants”) joined the OPKO 16 Defendants’ Response. (ECF No. 51). On July 2, 2019, Defendants Honig, GRQ 17 Consultants, Inc., GRQ Consultants, Inc. 401K, GRQ Consultants, Inc. Roth 401K FBO 18 Barry Honig, GRQ Consultants, Inc. Roth 401K FBO Renee Honig, Barry and Renee 19 Honig Charitable Foundation, Inc., Southern Biotech, Inc. (collectively, the “GRQ 20 Defendants”) joined the OPKO Defendants’ Response. (ECF No. 55). Defendants John 21 O’Rourke, III and ATG Capital, LLC also Joined the OPKO Defendants’ Response.1 (ECF 22 No. 56). On July 8, 2019, Plaintiff filed a Reply. (ECF No. 65). 23 II. LEGAL STANDARD 24 “Federal courts are courts of limited jurisdiction.” Kokkonen v. Guardian Life Ins. 25 Co. of Am., 511 U.S. 375, 377 (1994). The party seeking to remove a case from state court 26 27 The Court will, hereinafter, refer to all Defendants that filed or joined the OPKO Defendants’ Response as “Defendants.” 1 28 3 19-cv-981-WQH-MSB 1 to federal court “always has the burden of establishing that removal is proper.” Gaus v. 2 Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). The propriety of removal may be “tested in 3 the federal court, either on a motion by a party to remand, or by the court on its own 4 motion.” Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1065 (9th Cir. 1979). There 5 is a “strong presumption against removal.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 6 1992). The removal statutes are strictly construed against removal; “any doubt about the 7 right of removal requires resolution in favor of remand.” Moore-Thomas v. Alaska Airlines, 8 Inc., 553 F.3d 1241, 1244 (9th Cir. 2009). 9 28 U.S.C. § 1452 governs the removal of claims related to bankruptcy proceedings. 10 Under § 1452, “[a]ny party may remove any claim or cause of action in a civil action . . . 11 to the district court for the district where such civil action is pending, if the district court 12 has jurisdiction . . . under section 1334 of this title.” 28 U.S.C. § 1452(a). Section 1334 13 provides that district courts have original, but not exclusive, jurisdiction of all civil actions 14 “arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). 15 A proceeding is “related to” a bankruptcy case if “‘the outcome of that proceeding could 16 conceivably have an effect on the estate being administered in the bankruptcy;’” that is, if 17 the outcome “‘could alter the debtor’s rights, liabilities, options, or freedom of action 18 (either positively or negatively) and which in any way impacts upon the handling and 19 administration of the bankrupt estate.’” In re Feitz, 852 F.2d 455, 457 (9th Cir. 1988) 20 (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984)). 21 Section 1452(b) allows the court to which an action has been removed under 22 subdivision (a) to “remand such claim or cause of action on any equitable ground.” In 23 determining whether equitable remand is appropriate, “[c]ourts may consider up to 24 fourteen factors.” Nielsen v. Nielsen, 419 B.R. 807, 820 (B.A.P. 9th Cir. 2009) (citing 25 Citigroup, Inc. v. Pac. Inv. Mgmt., 296 B.R. 505, 508 n. 2 (Bankr. C.D. Cal. 2003)). 26 The factors are: (1) the effect or lack thereof on the efficient administration of the estate if the Court recommends [remand or] abstention; (2) extent to which state law issues predominate over bankruptcy issues; (3) difficult or unsettled nature of applicable law; (4) presence of related proceeding commenced in 27 28 4 19-cv-981-WQH-MSB 1 state court or other nonbankruptcy proceeding; (5) jurisdictional basis, if any, other than § 1334; (6) degree of relatedness or remoteness of proceeding to main bankruptcy case; (7) the substance rather than the form of an asserted core proceeding; (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court; (9) the burden on the bankruptcy court's docket; (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties; (11) the existence of a right to a jury trial; (12) the presence in the proceeding of nondebtor parties; (13) comity; and (14) the possibility of prejudice to other parties in the action. 2 3 4 5 6 7 8 9 10 Nielsen, 419 B.R. at 821 n. 18. III. DISCUSSION 11 A. Original Jurisdiction 12 Plaintiff does not contest that this Court has original jurisdiction over this action 13 because it is “related to” Plaintiff’s bankruptcy proceeding, pursuant to § 1334(b). Plaintiff 14 and Defendants agree that “any recovery or outcome here will have an effect on MabVax’s 15 bankruptcy estate as it will inure to the benefit of creditors.” (ECF No. 21-1 at 13 (quoting 16 Notice of Removal, ECF No. 1 at 5)). As a potential asset, the outcome of this action could 17 “conceivably have an[] effect” on Plaintiff’s bankruptcy estate; therefore, it is “related to” 18 Plaintiff’s bankruptcy proceeding. See Stokes v. Duncan, No. MT-13-1097-TaPaJu, 2013 19 Bankr. LEXIS 4654, at *22 (B.A.P. 9th Cir., Sep. 23, 2013) (citing Feitz, 852 F.2d at 457). 20 B. Equitable Considerations 21 Plaintiff contends that all fourteen equitable factors courts may consider pursuant to 22 § 1452(b) favor remand. (ECF No. 21-1 at 11). Plaintiff has brought only state law claims. 23 Id. at 11-14, 16. Plaintiff contends that remand would aid in the efficient administration of 24 justice and support the principles of comity, because Plaintiff’s action raises no federal or 25 bankruptcy issues. Id. at 12-13, 15. Plaintiff commenced this action in state court prior to 26 removal by the OPKO Defendants. Id. at 12-13. Plaintiff contends that there is no 27 jurisdictional basis for the federal court to hear this case, apart from § 1334. Id. at 13. 28 Plaintiff’s action is a “noncore” proceeding. Id. at 14. The bankruptcy court cannot preside 5 19-cv-981-WQH-MSB 1 over a jury trial, and the state court deemed this action “complex.” Id. at 14-15. Plaintiff 2 contends that Defendants are forum shopping to get venue transferred to Delaware. 3 Plaintiff would be prejudiced if this action were moved to Delaware because Plaintiff 4 resides in California, and the conduct giving rise to the action occurred largely in 5 California. Id. at 15-16. All 31 Defendants are non-debtors. Id. at 15. 6 Defendants contend that most factors weigh in favor of this Court retaining this 7 action. Defendants contend that Plaintiff’s state law claims are straightforward, so there is 8 no need to refer them to state court. Both the district court and state court can provide a 9 jury trial. (ECF No. 48 at 7-8). Defendants contend that there are two related cases 10 involving Plaintiff in federal court, and the state proceeding was at an early stage when it 11 was removed. Id. at 9. Defendants contend that this action is Plaintiff’s primary remaining 12 asset. Id. at 10-11. Defendants contend that Plaintiff is forum shopping in California state 13 court, and Plaintiff will not be prejudiced if this action is heard in San Diego district court. 14 Id. at 11-12. 15 The Court finds that the equitable factors articulated in Nielsen weigh in favor of 16 remanding this action to state court. State law predominates in this action. Plaintiff has 17 brought claims under California state statutes and common law. Plaintiff has raised no 18 issues of federal law or bankruptcy law in the Complaint. This action is related to Plaintiff’s 19 bankruptcy action because any recovery in this action would be an asset to Plaintiff’s 20 bankruptcy estate. Remanding to state court would have little to no effect on the efficient 21 administration of Plaintiff’s bankruptcy estate. The first, second, sixth, and eighth factors, 22 therefore, favor remand. 23 The fifth factor weighs in favor of remand. This Court’s jurisdictional basis over this 24 action is § 1334. Defendants cite no basis for subject matter jurisdiction pursuant to § 1441 25 in their Notice of Removal or Response. The seventh and twelfth factors also favor remand. 26 Plaintiff is the only debtor in this case. All 31 Defendants are non-debtors. This action is 27 not a “core proceeding.” See Maitland v. Mitchell, 44 F.3d 1431, 1435 (9th Cir. 1995) 28 6 19-cv-981-WQH-MSB 1 (“[C]laims that arise under or in Title 11 are deemed to be ‘core’ proceedings, while claims 2 that are related to Title 11 are ‘noncore’ proceedings.”). 3 At least seven of the Nielsen factors weigh in favor of remand. The court in 4 McCarthy v. Prince affirmed the bankruptcy court’s remand based on similar findings. 230 5 B.R. 414 (B.A.P. 9th Cir. 1999). In McCarthy, the court concluded that the decision to 6 remand was “easy.” Id. at 418. The court found: 7 8 9 10 11 12 All counts in the four-count complaint are grounded upon state law. Two of them are purely statutory theories . . . that do not commonly arise in bankruptcy. Federal subject-matter jurisdiction over the counts is merely concurrent with state courts and is not exclusive. To the extent they are asserted against a non-debtor party, . . . jurisdiction is more attenuated. State courts are, by definition, fully competent to resolve disputes governed by state law. Nor is the outcome of the action likely to impair the ability of the trustee to distribute the estate. 13 Id. (citations omitted). The court found that “[any] of these, and a host of other reasons, 14 would justify an exercise of discretion to order remand under 28 U.S.C. § 1452(b).” Id. In 15 this case, at least half of the Nielsen factors weigh in favor of remand, any one of which 16 would be sufficient for this Court to exercise its discretion to remand. See 28 U.S.C. § 17 1452(b) (permitting remand on “any equitable ground”); see also McCarthy, 230 B.R. at 18 417-18 (to be affirmed on appeal, a district court’s decision to remand need only be 19 supported by “any plausible basis”). 20 The only factor that weighs against remand is the fourth. There is no pending state 21 court proceeding, because the state court proceeding has been removed. Schulman v. Cal., 22 237 F.3d 967, 981-82 (9th Cir. 2001). There are two related federal cases pending in this 23 Court, one of which has not been stayed pending the bankruptcy action. The fourth factor 24 weighs against remand because some of the issues and facts underlying this action also 25 predominate in the related federal action. However, the related federal action is against 26 different defendants and is based on different legal claims. The fourth factor, therefore, 27 does not outweigh the other factors suggesting remand. This is a state law case by a 28 company in California, that suffered harm in California, with witnesses and documents 7 19-cv-981-WQH-MSB 1 located in California. The remaining six factors are neutral. Accordingly, this Court 2 exercises its “broad discretion” to remand this action. See, e.g., In re Roman Catholic 3 Bishop, 374 B.R. 756, 761 (Bankr. S.D. Cal. 2007). 4 IV. CONCLUSION 5 IT IS HEREBY ORDERED that Plaintiff’s Motion to Remand (ECF No. 21) is 6 GRANTED. This action is REMANDED to the Superior Court for the State of California, 7 County of San Diego, where it was originally filed under case number 37-2019-00018398- 8 CU-SL-CTL. Defendants’ Motions to Dismiss (ECF Nos. 8, 38, 68) are DENIED AS 9 MOOT. 10 Dated: October 4, 2019 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 19-cv-981-WQH-MSB

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