Bell v. Taylor
Filing
56
ORDER Denying Defendant's Motion To Dismiss Or, Alternatively, To Stay Action re (35). Signed by JUDGE LESLIE E. KOBAYASHI on 8/13/2018. Associated Cases: 1:17-cv-00530-LEK-RLP, 1:18-cv-00016-LEK-RLP(cib, )
FOR THE DISTRICT OF HAWAII
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Plaintiff,
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vs.
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JEFFERY TAYLOR, DON LEE
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TAYLOR, L. JOHN LEWIS, S.
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RANDALL OVESON, and GANNON
GIGUIERE,
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Defendants,
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and
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ECO SCIENCE SOLUTIONS, INC., )
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a Nevada corporation,
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Nominal Defendant. )
_____________________________ )
IAN BELL, Derivatively on
Behalf of ECO SCIENCE
SOLUTIONS, INC.,
CIVIL 17-00530 LEK-RLP
ORDER DENYING DEFENDANT’S MOTION TO
DISMISS OR, ALTERNATIVELY, TO STAY ACTION
Before the Court is Defendants Jeffrey Taylor
(“J. Taylor”), Don Lee Taylor (“D. Taylor” and collectively “the
Taylors”), L. John Lewis, S. Randall Oveson, Gannon Giguiere
(collectively “Individual Defendants”), and Eco Science
Solutions, Inc.’s (“Eco Science” and all collectively
“Defendants”) Motion to Dismiss or, Alternatively, to Stay Action
(“Motion”), filed on March 16, 2018.
[Dkt. no. 35.]
On
March 19, 2018, Defendants filed a correction to the Motion,
containing two exhibits inadvertently not attached to the Motion
(“Correction”).
[Dkt. no. 37.]
Plaintiffs Ian Bell,
Derivatively on Behalf of Eco Science Solutions, Inc. (“Bell”);
and Marc D’Annunzio, Derivatively on Behalf of Eco Science
Solutions, Inc. (“D’Annunzio” and collectively “Plaintiffs”)
filed their memorandum in opposition on April 25, 2018, and
Defendants filed their reply on May 11, 2018.
47.]
[Dkt. nos. 46,
This matter came on for hearing on June 4, 2018.
Defendants’ Motion is hereby denied for the reasons set forth
below.
BACKGROUND
This action commenced on October 20, 2017.
no. 1.]
[Dkt.
On February 23, 2018, Plaintiffs filed their Verified
Consolidated Stockholder Derivative Complaint for Breach of
Fiduciary Duty, Aiding and Abetting, Waste of Corporate Assets,
and Unjust Enrichment (“Amended Complaint”).
[Dkt. no. 34.]
Plaintiffs allege the Individual Defendants profited by
wrongfully manipulating the share price of Eco Science.
Plaintiffs assert four claims under Nevada law:
1) breach of
fiduciary duty (“Count I”); [id. at ¶¶ 122-28;] 2) aiding and
abetting breach of fiduciary duty (“Count II”); [id. at ¶¶ 12933;] 3) waste of corporate assets (“Count III”); [id. at ¶¶ 13438;] and 4) unjust enrichment (“Count IV”), [id. at ¶¶ 139-42].
In July 2017, a derivative action based on same the
conduct as alleged in the Amended Complaint was filed in the
First Judicial District Court of the State of Nevada in and for
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Carson City (“Nevada state action” and “Nevada state court”).1
The Nevada state action is similar, but not identical, to the
instant action.
The Nevada state action does not name Gannon
Giguiere as a defendant, and in addition to the four claims
asserted in the Amended Complaint, also asserts claims for abuse
of control and gross mismanagement.
The instant Motion seeks stay or dismissal of this
action in favor of the Nevada state action under the Colorado
River doctrine.2
STANDARD
The Colorado River doctrine provides an exception to
the rule that, “‘[g]enerally, as between state and federal
courts, . . . the pendency of an action in the state court is no
bar to proceedings concerning the same matter’ in a federal
court.”
R.R. St. & Co. v. Transp. Ins. Co., 656 F.3d 966, 975
(9th Cir. 2011) (emphasis and some alterations in R.R. St.)
(quoting Colorado River, 424 U.S. at 817, 96 S. Ct. 1236).
The Ninth Circuit has stated:
Under “exceedingly rare” circumstances, Smith [v.
Cent. Ariz. Water Conservation Dist.], 418 F.3d
1
The Nevada state action is Glorioso v. Taylor, et al.,
No. 17OC001371B. A copy of the complaint filed in the Nevada
state action is Exhibit A to the Correction (“Glorioso
Complaint”). The Glorioso Complaint is not attached to any
authenticating declaration.
2
See Colo. River Water Conservation Dist. v. United States,
424 U.S. 800 (1976).
3
[1028,] 1033 [(9th Cir. 2005)], “considerations of
wise judicial administration, giving regard to
conservation of judicial resources and
comprehensive disposition of litigation,” may
counsel in favor of abstention, Colo. River, 424
U.S. at 817, 96 S. Ct. 1236 (alteration omitted)
(internal quotation marks omitted).
Colorado River and its progeny provide a
multi-pronged test for determining whether
“exceptional circumstances” exist warranting
federal abstention from concurrent federal and
state proceedings. We evaluate eight factors in
assessing the appropriateness of a Colorado River
stay or dismissal:
(1) which court first assumed jurisdiction
over any property at stake; (2) the
inconvenience of the federal forum; (3) the
desire to avoid piecemeal litigation; (4) the
order in which the forums obtained
jurisdiction; (5) whether federal law or
state law provides the rule of decision on
the merits; (6) whether the state court
proceedings can adequately protect the rights
of the federal litigants; (7) the desire to
avoid forum shopping; and (8) whether the
state court proceedings will resolve all
issues before the federal court.
R.R. St., 656 F.3d at 978–79. . . .
Seneca Ins. Co., Inc. v. Strange Land, Inc., 862 F.3d 835, 841-42
(9th Cir. 2017).
DISCUSSION
I.
The Colorado River Doctrine
The Ninth Circuit has stated:
The Supreme Court has emphasized that the federal
courts have a “virtually unflagging obligation
. . . to exercise the jurisdiction given them,”
including in cases involving parallel state
litigation. [Colo. River, 424 U.S. at 817, 96 S.
Ct. 1236.] “Abdication of the obligation to
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decide cases can be justified . . . only in the
exceptional circumstances where the order to the
parties to repair to the state court would clearly
serve an important countervailing interest.” Id.
at 813, 96 S. Ct. 1236 (internal quotation marks
omitted).
Id. at 841 (some alterations in Seneca Ins.).
Further, the eight
Colorado River factors
are not a “mechanical checklist”; indeed, some may
not have any applicability to a case. [Moses H.]
Cone Mem’l Hosp. [v. Mercury Constr. Corp.], 460
U.S. [1,] 16, 103 S. Ct. 927 [(1983)]. Rather, as
instructed by the Supreme Court, we examine them
in “a pragmatic, flexible manner with a view to
the realities of the case at hand.” Id. at 21,
103 S. Ct. 927. Moreover, we must carefully
balance the important factors, “with the balance
heavily weighted in favor of the exercise of
jurisdiction.” Id. at 16, 103 S. Ct. 927. The
underlying principle guiding this review is a
strong presumption against federal abstention:
“[O]ur task in cases such as this is not to find
some substantial reason for the exercise of
federal jurisdiction by the district court;
rather, the task is to ascertain whether there
exist ‘exceptional’ circumstances, the ‘clearest
of justifications,’ that can suffice under
Colorado River to justify the surrender of that
jurisdiction.” Id. at 25–26, 103 S. Ct. 927.
“Any doubt as to whether a factor exists should be
resolved against a stay, not in favor of one.”
Travelers Indem. Co. v. Madonna, 914 F.2d 1364,
1369 (9th Cir. 1990).
Id. at 842
II.
(emphases and some alterations in Seneca Ins.).
Weighing the Eight Colorado River Factors
The Court considers the eight Colorado River factors to
determine if a dismissal or stay of this action is warranted in
favor of the Nevada state action.
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The first Colorado River factor is inapplicable because
neither this Court nor the Nevada state court has assumed
jurisdiction over a res.
See id. (discussing first factor).
Second, the Court considers the inconvenience of the
federal forum.
Defendants argue Plaintiffs fail to show Hawai`i
is more convenient than Nevada.
[Mem. in Supp. of Motion at 17.]
Defendants point out that, although the Taylors live in Maui and
Eco Science is headquartered in Maui, the other Individual
Defendants reside in Utah and California, and Plaintiffs reside
in New York and North Carolina.
misconstrue this factor.
[Id. at 18-19.]
Defendants
First, it is Defendants who bear the
burden of showing exceptional circumstances warranting Colorado
River abstention.
Second, Defendants fail to explain why it
matters that Plaintiffs reside in New York and North Carolina.
For example, Defendants do not contend this will make production
of discovery more difficult if litigation proceeds in the
District of Hawai`i rather than in the Nevada state court.
To
the extent Defendants merely point out that Plaintiffs’ flight
times to Hawai`i will be longer as compared to their flight time
to Nevada, that does not affect the Court’s analysis of whether
the federal forum is exceptionally inconvenient.
The Court
considers the relatively greater burden for Individual Defendants
residing in Utah and California to travel to Hawai`i rather than
Nevada, and also considers that the Taylors are located in
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Hawai`i, and that Eco Science is located in Hawai`i, and that
none of the Defendants are located in Nevada.
These
circumstances do not show the federal forum is inconvenient.
Therefore, this factor does not weigh in favor of abstention.
Third, the Court considers “whether there are special
concerns associated with resolving the issues in a piecemeal
fashion via parallel proceedings.
Piecemeal litigation occurs
when different tribunals consider the same issue, thereby
duplicating efforts and possibly reaching different results.”
Seneca Ins., 862 F.3d at 842 (citation and internal quotation
marks omitted).
The Nevada state court has issued a stay and has
not issued any substantive rulings in the Nevada state action.
Defendants’ speculation that inconsistent rulings could arise is
insufficient to show “[t]he danger of piecemeal litigation in
this case is real.”
See Am. Int’l Underwriters (Philippines),
Inc. v. Cont’l Ins. Co., 843 F.2d 1253, 1258 (9th Cir. 1988).
Defendants also argue exceptional circumstances are
present because this is a shareholder derivative action and the
real party in interest is not the named Plaintiffs, but Eco
Science shareholders.
Specifically, Defendants argue the
shareholders will be harmed by the increased cost of litigating
duplicative actions in federal and state court.
of Motion at 10-11.]
[Mem. in Supp.
Even assuming Defendants are correct that,
for shareholders, the costs of duplicative litigation exceed the
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benefits, that does not establish the piecemeal litigation factor
under Colorado River:
it does not show the federal and state
courts are likely to “consider the same issue . . . and possibly
reach[] different results.”
See Seneca Ins., 862 F.3d at 842.
In the absence of a statute establishing a “clear federal policy”
against piecemeal litigation of shareholder actions, Defendants’
ordinary concerns about reducing litigation costs do not
establish the exceptional circumstances necessary to abstain
under Colorado River.
See id. at 843; see also In re McKesson
Corp. Derivative Litig., Case No. 17-cv-01850-CW, 2018 WL
2197548, at *5 (N.D. Cal. May 14, 2018) (defendants failed to
show piecemeal litigation factor warranted abstention, even
though, like “with any concurrent litigation, there may be some
duplication of effort in the cases”); In re Comverse Tech., Inc.
Derivative Litig., No. 06-CV-1849 (NGG)(RER), 2006 WL 3193709, at
*6 (E.D.N.Y. Nov. 2, 2006) (“[T]he potential for piecemeal
litigation is always present in potentially parallel litigations,
and the courts must look beyond this factor to ascertain whether
abstention is appropriate.”); cf. AmerisourceBergen Corp. v.
Roden, 495 F.3d 1143, 1156 (9th Cir. 2007) (Ferguson, J.,
concurring) (urging a change in law to authorize federal district
courts to abstain from exercising jurisdiction when on the
grounds that duplicative litigation is wasteful).
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Fourth, the Court considers the order of filing.
United States Supreme Court has stated:
The
“priority should not be
measured exclusively by which complaint was filed first, but
rather in terms of how much progress has been made in the two
actions.”
Cone, 460 U.S. at 21.
Because the Nevada state action
has not progressed far and is stayed, this factor does not weigh
in favor of abstention.
Fifth, the Court considers the source of law that
provides the rule of decision on the merits.
Defendants argue
this factor favors abstention because Plaintiffs do not assert
any federal claims and only assert claims under Nevada law.
[Mem. in Supp. of Motion at 17.]
The Ninth Circuit has stated:
That state law provides the rule of decision
supports abstention only when the state law
questions are themselves complex and difficult
issues better resolved by a state court; it is not
enough that a state law case is complex because it
involves numerous parties or claims. Cases
implicating only routine issues of state law —
misrepresentation, breach of fiduciary duty, and
breach of contract — which the district court is
fully capable of deciding do not entail rare
circumstances counseling in favor of abstention.
Seneca Ins., 862 F.3d at 844 (emphasis added) (internal citations
and quotation marks omitted).
. . .
“The fact that state law governs
does not support a stay except in ‘rare circumstances.’”
In re Galena Biopharma, Inc. Derivative Litig., 83 F. Supp. 3d
1033, 1041 (D. Or. 2015) (quoting Travelers, 914 F.2d at 1370).
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This case involves routine state law claims.
Accordingly, this
factor does not weigh in favor of abstention.
The sixth factor, adequacy of the state forum,
“pertains to whether there is an impediment to the state court
protecting the litigants’ federal rights.”
at 845.
Seneca Ins., 862 F.3d
This factor does not apply because Plaintiffs do not
assert any federal claims.
Seventh, the Court considers whether there is evidence
of forum shopping.
Defendants state “there is no indication of
forum shopping by any of the plaintiffs.”
Motion at 19.]
This Court agrees.
[Mem. in Supp. of
This factor does not weigh in
favor of abstention.
Finally, the Court considers whether “whether the state
court proceedings will resolve all issues before the federal
court (the ‘parallelism’ factor). . . .
The parallelism factor
provides that the existence of a substantial doubt as to whether
the state proceedings will resolve the federal action precludes a
Colorado River stay or dismissal.”
Seneca Ins., 862 F.3d at 845
(internal citations and quotation marks omitted).
Because “the
parallelism factor considers whether the parallel proceedings
address substantially similar claims,” it “is more relevant when
it counsels against abstention, because while . . . insufficient
parallelism may preclude abstention, the alternative[] never
compel[s] abstention.”
Id. (internal citation marks omitted).
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Plaintiffs argue the eighth factor weighs against
abstention because the Nevada state action is “less comprehensive
than the complaint in the present Action, since it fails to name
Giguiere - one of the primary architects and beneficiaries of the
illicit scheme at the heart of this litigation - as a defendant.”
[Mem. in Opp. at 18.]
The Court need not decide whether this
difference precludes abstention.
Under the facts of this case,
where none of the first seven Colorado River factors favor
abstention, even if this Court were to find that the Nevada state
action would “resolve all issues” in the instant case, this would
be insufficient to “compel abstention.”
See Seneca Ins., 862
F.3d at 845.
Balancing the eight Colorado River factors, the Court
finds a stay or dismissal is not warranted in this case.
CONCLUSION
On the basis of the foregoing, Defendants’ Motion to
Dismiss or, Alternatively, to Stay Action, filed on March 16,
2018, is HEREBY DENIED.
IT IS SO ORDERED.
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DATED AT HONOLULU, HAWAII, August 13, 2018.
/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
IAN BELL, ETC. VS. JEFFREY TAYLOR, ET AL.; CIVIL 17-00530 LEKRLP; ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR,
ALTERNATIVELY, TO STAY ACTION
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