King v. Standard Metals Processing, Inc.

Filing 28

ORDER that 17 Defendant Standard Metals Processing, Inc.'s Motion to Dismiss or Stay the Proceeding or in the Alternative, Request for a more Definite Statement is GRANTED in part and DENIED in part. The clerk is instructed to close the case. Signed by Judge James C. Mahan on 12/9/14. (Copies have been distributed pursuant to the NEF - MMM)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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DEBORAH A. KING,

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Plaintiff(s),

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Case No. 2:14-CV-751 JCM (NJK)
ORDER

v.
STANDARD METALS PROCESSING, INC,

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Defendant(s).

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Presently before the court is defendant Standard Metals Processing, Inc.’s (“Standard’s”)

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motion to dismiss or stay the proceeding or in the alternative, request for a more definite

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statement. (Doc. # 17). Plaintiff King filed a response in opposition, (doc. # 24), and Standard

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filed a reply, (doc. # 25).

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I.

Background

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Standard enacted the company’s stock option plan in April 2010. (Doc. # 14). On

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January 21, 2011, Standard amended its articles of incorporation (“the amendment.”) Id. The

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amendment increased the number of shares available under the stock option plan from 3 million

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to 13.5 million. Id. The board of directors approved the amendment. No stockholder vote was

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held. (See id.).

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The amendment provided authority for the company to issue up to 500 million shares of

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common stock and 50 million shares of preferred stock. These shares could be issued subject to

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the discretion of the board of directors.

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Plaintiff’s husband is a former chief executive officer and director of Standard. Id. On or

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about January 21, 2011, plaintiff’s husband entered into an individual stock option agreement

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with Standard pursuant to the amendment (“the individual agreement.”)

James C. Mahan
U.S. District Judge

Id.

Under the

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individual agreement, plaintiff’s husband was granted 3.5 million options to purchase Standard’s

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common stock at $0.51 per share. That same day, plaintiff’s husband assigned his options to

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plaintiff. Id.

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Between April 25, 2011 and September 9, 2011, plaintiff exercised her rights under the

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agreement and sold 40,655 Standard options/shares. Id. On April 11, 2014, Standard filed a

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Form 10-K, its “annual report,” for 2013. The report included a note to the company financials

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which stated that the amendment was invalid because it was not approved by the stockholders, as

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required by the terms of the stock option plan. Id.

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After learning of the statements in the April 11, 2014 Form 10-K, plaintiff learned that, in

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February 2014, another option holder attempted to exercise 310,000 options. Standard refused to

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comply with the exercise, claiming that, because the amendment increasing the number of shares

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was invalid, Standard had insufficient shares to issue the stockholder.

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On May 14, 2014, plaintiff filed the instant action for declaratory relief and anticipatory
repudiation. Plaintiff is a Georgia resident. Defendant Standard is a Nevada corporation.

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On June 14, 2014, plaintiff allegedly sought to buy 250,000 shares of stock. Standard has

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failed to honor her request. Standard’s April 11, 2014 Form 10-K indicated that there were only

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200,000 shares available to satisfy options it had granted plaintiff and others under the

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amendment. On June 25, 2014, plaintiff amended her complaint to include a breach of contract

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claim stemming from the June 14, 2014, attempted exercise. (Doc. # 14).

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On July 16, 2014, Standard filed a notice of related cases. (Doc. # 16). The instant

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action is related to Standard Metals Processing, Inc. v. Flechner, case no. 31-cv-2014-

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900345.00, a complaint for declaratory judgment in the Circuit Court of Etowah County,

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Alabama.1 Standard filed the complaint on April 29, 2014. The action was removed to the

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Northern District of Alabama on May 28, 2014.

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...

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James C. Mahan
U.S. District Judge

Standard also named fictitious plaintiffs A-Z who are individuals, entities, corporations,
trusts, organizations or others who may have been issued stock options by Standard pursuant to
the amendment.
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The instant action is also related to Flechner v. Standard Metals Processing, Inc., case

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no. 1:14-cv-01213, filed in the United States District Court for the District of Colorado on April

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29, 2014. There are pending motions to remand the Alabama case to state court and to transfer it

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to the District of Colorado.
Based on this procedural history, defendant has filed the instant motion to dismiss or stay

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the proceeding or in the alternative, request for a more definite statement. (Doc. # 17).

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II.

Legal Standard

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A court may dismiss a plaintiff's complaint for “failure to state a claim upon which relief

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can be granted.” Fed. R. Civ. P. 12(b)(6). A properly pled complaint must provide “[a] short

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and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.

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8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not

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require detailed factual allegations, it demands “more than labels and conclusions” or a

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“formulaic recitation of the elements of a cause of action.” Ashcroft v. Iqbal, 129 S.Ct. 1937,

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1949 (2009) (citation omitted).

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speculative level.” Twombly, 550 U.S. at 555. Thus, to survive a motion to dismiss, a complaint

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must contain sufficient factual matter to “state a claim to relief that is plausible on its face.”

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Iqbal, 129 S.Ct. at 1949 (citation omitted).

“Factual allegations must be enough to rise above the

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In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply

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when considering motions to dismiss. First, the court must accept as true all well-pled factual

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allegations in the complaint; however, legal conclusions are not entitled to the assumption of

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truth. Id. at 1950. Mere recitals of the elements of a cause of action, supported only by

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conclusory statements, do not suffice. Id. at 1949. Second, the court must consider whether the

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factual allegations in the complaint allege a plausible claim for relief. Id. at 1950. A claim is

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facially plausible when the plaintiff's complaint alleges facts that allow the court to draw a

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reasonable inference that the defendant is liable for the alleged misconduct. Id. at 1949.

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Where the complaint does not “permit the court to infer more than the mere possibility of

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misconduct, the complaint has alleged, but it has not shown, that the pleader is entitled to relief.”

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Id. (internal quotations and alterations omitted). When the allegations in a complaint have not

James C. Mahan
U.S. District Judge

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crossed the line from conceivable to plausible, plaintiff's claim must be dismissed. Twombly,

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550 U.S. at 570.

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The Ninth Circuit addressed post-Iqbal pleading standards in Starr v. Baca, 652 F.3d

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1202, 1216 (9th Cir. 2011). The Starr court stated, “[f]irst, to be entitled to the presumption of

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truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of

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action, but must contain sufficient allegations of underlying facts to give fair notice and to enable

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the opposing party to defend itself effectively. Second, the factual allegations that are taken as

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true must plausibly suggest an entitlement to relief, such that it is not unfair to require the

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opposing party to be subjected to the expense of discovery and continued litigation.” Id.

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III.

Discussion

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A. First-to-file rule

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The “first-to-file” rule is a doctrine of federal comity that permits a district court to

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decline jurisdiction over an action when a complaint involving the same parties and issues has

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already been filed in another district. Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 94-95

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(9th Cir. 1982) (citing Church of Scientology of Calif. v. U.S. Dep’t of the Army, 611 F.2d 738,

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749 (9th Cir. 1979)); see also Olin Corp. v. Cont'l Cas. Co., 2011 WL 1337407, *2 (D. Nev.

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April 6, 2011) (holding that the purpose of the first-to-file rule is to “avoid the waste of

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duplication, to avoid rulings which may trench upon the authority of sister courts, and to avoid

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piecemeal resolution of issues that call for a uniform result.”)

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Generally, sound judicial administration would indicate that when two identical actions

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are filed in courts of concurrent jurisdiction, the court which first acquired jurisdiction should try

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the lawsuit and no purpose would be served by proceeding with a second action. Id. However,

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the first-to-file rule is not a rigid or inflexible rule to be mechanically applied, but rather is to be

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applied with a view to the dictates of sound judicial administration. Id. The purpose of the rule

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is to promote efficiency and to avoid duplicative litigation and thus it should not be lightly

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disregarded. Alltrade, Inc. v. Uniweld Prod., Inc., 946 F.2d 622, 625 (9th Cir.1991).

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James C. Mahan
U.S. District Judge

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When applying the first-to-file rule, courts look to three threshold factors: “(1) the

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chronology of the two actions; (2) the similarity of the parties, and (3) the similarity of the

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issues.” Global Experience Specialists, Inc. v. Cunniffe, 2:14-cv-00421-JCM-NJK, 2014 WL

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3748931, *4 (D. Nev. July 30, 2014) (quoting Nesbit v. Fornaro, 2011 WL 1869917, *2 (D.

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Nev. March 31, 2011)). “[T]he first-to-file rule does not require strict identity of the parties, but

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rather substantial similarity.” Id. (quoting Nesbit, 2011 WL 1869917 at *3). Likewise, the

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sameness requirement does not mandate that the two actions be identical, but is satisfied if they

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are sufficiently similar. Id.

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Standard argues that plaintiff’s action should be dismissed under the first-to-file rule,

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because the complaint involves substantially the same issues and parties as the Alabama and

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Colorado cases. (Doc. # 17). In fact, plaintiff is a fictitious defendant in the Alabama case

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which was filed by Standard. Further, all three cases involve the same “property, transaction, or

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event” and “involve similar questions of fact and the same question of law,” namely, whether the

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amendment is valid. All of plaintiff’s claims depend on the amendment’s validity. Because the

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Alabama court’s declaration as to the validity of the amendment will be dispositive of plaintiff’s

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action, the first-to-file rule applies.

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Alternatively, Standard moves for a more definite statement as to plaintiff’s breach of

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contract claim. Although plaintiff alleges that she properly sought to exercise 250,000 of her

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stock options, (doc. #45), Standard claims it has not received any such demand, (doc. # 10 Ex.

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E).

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her stock options, Standard claims it cannot determine whether to plead a Rule 12(b)(6) defense

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in its answer.

In the absence of a more definite statement as to plaintiff’s purported demand to exercise

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Plaintiff responds that the first-to-file rule is inapplicable to the Alabama action because

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it is proceeding in state court. Plaintiff argues that the parties in the Colorado litigation are not

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substantially the same because a judgment in the Colorado litigation will not impact plaintiff’s

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right to pursue recovery pursuant to her agreement with Standard. (Doc. # 24). Further, plaintiff

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alleges the issues involved in the Colorado case are not substantially similar to the issues before

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this court because the two lawsuits do not involve the same business relationship, parties, or

James C. Mahan
U.S. District Judge

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contract. Alternatively, plaintiff argues equitable interests and federal comity weigh against

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application of the first-to-file rule. Finally, if the first-to-file rule applies, plaintiff requests the

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court stay rather than dismiss her case.

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(1) Chronology of the actions

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Standard commenced the Alabama action on April 29, 2014. (Doc. #17 Ex. 1). Plaintiff

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filed the instant action on May 5, 2014. The Alabama action was removed to the Northern

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District of Alabama on May 28, 2014. Although no Ninth Circuit case specifically addresses the

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issue, district courts have considered the initial filing date in state court of a subsequently

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removed action as the date of filing for purposes of the first-to-file rule. See Global Experience

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Specialists, 2014 WL 3748931 at * n. 4 (collecting cases). Likewise, the Colorado action was

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filed before the instant action on April 29, 2014. Therefore, the chronology factor of the first-to-

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file rule is satisfied.

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(2) Similarity of the Parties

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The parties in the Alabama case are substantially similar to those in the instant action.

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First, Standard is the plaintiff in the Alabama case. Second, the Alabama case caption identifies

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defendants as Stephen E. Flechner and also names “fictitious parties A-Z who are individuals . . .

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who may have been issued stock options by [Standard] pursuant to the January 21, 2011 Plan

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amendment.” (Emphasis added). Plaintiff is an individual who was in fact issued stock options

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pursuant to the January 21, 2011 amendment. Therefore, plaintiff is a fictitious defendant in the

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Alabama case.

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The parties to the instant case and the Colorado case are also substantially similar, albeit

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to a lesser degree. In the Colorado case, Mr. Flechner, as an owner of stock options issued by

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Standard pursuant to the amendment, is the plaintiff while Standard is, again, the defendant. As

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the first-to-file rule does not require strict identity of the parties, the court finds this requirement

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satisfied.

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(3) Similarity of the Issues

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The sameness requirement does not mandate that the two actions be identical. While the

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elements of the claims are distinct in part, resolution of the claims in each case will turn on a

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U.S. District Judge

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determination of fact, namely, whether the amendment is valid. For example, whether plaintiff

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can sue for breach of contract stemming from the June 14, 2014 attempted exercise depends on

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whether the amendment was valid. Likewise, plaintiff’s claims for declaratory judgment and

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anticipatory repudiation turn on the amendment’s validity. The validity of the amendment is at

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the center of both the Colorado and Alabama actions as well. “Due to the related nature of the

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underlying factual disputes, the issues involved in the various claims [are] substantially similar.”

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Williamson v. American Mastiff Breeders Counsel, 2009 WL 634231, * 3 (D. Nev. March 6,

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2009). Therefore, the third factor of the first-to-file rule is satisfied.

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All three factors weigh in favor of invoking the first-to-file rule. Therefore, the court will
exercise its discretion and invoke the rule unless principles of equity militate otherwise.

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B. Federal comity

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Even if the threshold factors of the first-to-file rule are satisfied, the district court retains

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discretion to disregard the rule in the interests of equity. Alltrade, 946 F.2d at 622, 625. The

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circumstances under which an exception to the first-to-file rule typically will be made include

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bad faith, anticipatory suit, and forum shopping. Id. at 628. A court may also relax the first-to-

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file rule if the balance of convenience weighs in favor of the later-filed action. While the

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Alltrade court cautioned that the respective convenience of the two courts normally “should be

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addressed to the court in the first filed action” rather than to the court in the later-filed action, it

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observed that “[i]n appropriate cases it would be relevant for the court in the second-filed action

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to give consideration to the convenience of the parties and witnesses.” Id. at 628.

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Plaintiff does not allege that any of the typical exceptions apply here. Plaintiff argues

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judicial efficiency will not be served by transferring or staying this action. Plaintiff is a Georgia

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resident; thus, she is not subject to jurisdiction in Colorado or Alabama. Additionally, Standard

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is a Nevada corporation and neither the Colorado nor the Alabama court has better access to the

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relevant evidence and witnesses than this court. (Doc. # 24).

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Defendant counters plaintiff’s action is virtually identical to the Alabama and Colorado

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actions in terms of claims, parties, and requested relief, therefore, the action is duplicative and

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judicial efficiency weighs in favor of staying or dismissing the proceedings. (Doc. # 17).

James C. Mahan
U.S. District Judge

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Because “[n]either fairness considerations nor equitable concerns bar the application of

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the rule to the instant case,” Alltrade, 946 F.2d at 628, the court will apply the first-to-file rule

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and dismiss or stay the proceeding.

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C. Dismissal or Stay

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Dismissal is proper where the court of first filing provides adequate remedies. Id. at

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627–28. If there are concerns regarding the availability of remedies in the court of first filing, or

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regarding its jurisdiction over claims which might implicate a statute of limitations if dismissed

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by that court, then the court of second filing should consider a stay. Id. at 627–29.

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Should the court invoke the first-to-file rule, plaintiff argues her suit should be stayed, not

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dismissed. (Doc. # 24). First, neither the Colorado nor Alabama lawsuit will resolve plaintiff’s

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personal rights against Standard.

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Additionally, if plaintiff’s case is dismissed, she will have to incur the additional expenses

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related to re-filing the lawsuit.

Nor does either court have jurisdiction over plaintiff.

The court finds that the court of first filing will provide plaintiff with adequate remedies.

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Therefore, the court will dismiss this case.

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D. More definite statement

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Because the court finds the first-to-file rule is satisfied and will exercise its discretion to

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dismiss the case, defendant’s motion for a more definite statement is denied as moot.

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IV.

Conclusion

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Accordingly,

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IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that defendant Standard

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Metals Processing, Inc.’s motion to dismiss or stay the proceeding or in the alternative, request

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for a more definite statement, (doc. # 17), is GRANTED in part and DENIED in part, consistent

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with the foregoing. The clerk is instructed to close the case.

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DATED December 9, 2014.

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James C. Mahan
U.S. District Judge

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UNITED STATES DISTRICT JUDGE

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