Werbowksky v. Hillsberg et al
Filing
48
Opinion and Order - Galena's motion for reconsideration (Dkt. 45 ) is DENIED. Signed on 10/30/2014 by Judge Michael H. Simon. Associated Cases: 3:14-cv-00382-SI, 3:14-cv-00514-SI, 3:14-cv-00516-SI (mja)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
In Re GALENA BIOPHARMA, INC.
DERIVATIVE LITIGATION,
This Document Relates To:
ALL ACTIONS
Case No. 3:14-cv-382-SI LEAD
3:14-cv-514-SI
3:14-cv-516-SI
OPINION AND ORDER
Christopher A. Slater and Michael J. Ross, SLATER ROSS, Sovereign Hotel, 4th Floor, 710
S.W. Madison Street, Portland, OR 97205; Robert B. Weiser, Brett D. Stecker, Jeffrey J.
Ciarlanto, THE WEISER LAW FIRM, P.C., 22 Cassatt Avenue, First Floor, Berwyn, PA 19312;
Kathleen A. Herkenhoff, THE WEISER LAW FIRM, P.C., 12707 High Bluff Drive, Suite 200,
San Diego, CA 92130; Michael J. Hynes and Ligaya Hernandez, HYNES KELLER &
HERNADEZ, LLC, 1150 First Avenue, Suite 501, King of Prussia, PA 19406; William B.
Federman and Sara E. Collier, FEDERMAN & SHERWOOD, 10205 N. Pennsylvania Avenue,
Oklahoma City, OK 73120. Of Attorneys for Plaintiffs.
Lois O. Rosenbaum and Stephen H. Galloway, STOEL RIVES LLP, 900 S.W. Fifth Avenue,
Suite 2600, Portland, OR 97204; Paul R. Bessette, Michael J. Biles, James P. Sullivan, KING &
SPALDING LLP, 401 Congress Avenue, Suite 3200, Austin, TX 78701. Of Attorneys for
Defendants.
PAGE 1 – OPINION AND ORDER
Michael H. Simon, District Judge.
Before the Court is the motion of nominal defendant Galena Biopharma, Inc. (“Galena”)
asking the Court to reconsider its opinion denying Galena’s motion to stay the pending
consolidated derivative actions for 90 days to allow sufficient time for an investigation by a
single-member special litigation committee (“SLC”) formed by Galena’s Board of Directors
(“Board”). For the following reasons, Galena’s motion for reconsideration is denied.
DISCUSSION
On October 22, 2014, the Court denied Galena’s motion to stay, finding that any decision
by Mr. Irving M. Einhorn, the sole member of the SLC, recommending that Galena not pursue
litigation would not withstand future judicial scrutiny. On October 28, 2014, Galena filed a
motion for reconsideration under Federal Rule of Civil Procedure 54(b), arguing that the Court
made clear errors of law and fact. Galena’s motion fails because it is based on arguments and
evidence that could have previously been raised with the Court and because, even if the
arguments and evidence were now properly before the Court, they do not show clear error by the
Court.
A. Galena’s Motion for Reconsideration is Procedurally Improper
A district court has inherent power, derived from the common law, to rescind, reconsider,
or modify an interlocutory order. City of Los Angeles, Harbor Div. v. Santa Monica
Baykeeper, 254 F.3d 882, 886 (9th Cir. 2001) (“A district court's power to rescind, reconsider, or
modify an interlocutory order is derived from the common law, not from the Federal Rules of
Civil Procedure.”); United States v. Martin, 226 F.3d 1042, 1049 (9th Cir. 2000) (noting that a
district court has the inherent authority to modify, alter, or revoke any non-final order). A district
court “‘possesses the inherent procedural power to reconsider, rescind, or modify an
interlocutory order for cause seen by it to be sufficient’” City of Los Angeles, 254 F.3d at 889
PAGE 2 – OPINION AND ORDER
(quoting Melancon v. Texaco, Inc., 659 F.2d 551, 553 (5th Cir. 1981))). In addition, Federal Rule
of Civil Procedure 54(b) provides that any interlocutory order “may be revised at any time before
the entry of a judgment adjudicating all claims and all the parties' rights and liabilities.”
Reconsideration may be appropriate where there has been an intervening change in
controlling law, new evidence has become available, or it is necessary to correct clear error or
prevent manifest injustice. Pyramid Lake Paiute Tribe of Indians v. Hodel, 882 F.2d 364, 369 n.5
(9th Cir. 1989) (“[T]he major grounds that justify reconsideration involve an intervening change
of controlling law, the availability of new evidence, or the need to correct a clear error or prevent
manifest injustice.” (citation and quotation marks omitted) (alteration in original)).
“[R]econsideration is appropriate only in very limited circumstances . . . .” Shalit v. Coppe, 182
F.3d 1124, 1132 (9th Cir. 1999). Raising arguments or providing evidence in a motion for
reconsideration that could have been included when litigating the original motion are not proper
grounds for reconsideration. See id. (finding no abuse of discretion by district court in denying a
motion for reconsideration when movant offered no reason for failure to provide the evidence
when litigating the underlying motion); Rosenfeld v. U.S. Dep’t of Justice, 57 F.3d 803, 811 (9th
Cir. 1995) (“The district court did not abuse its discretion in declining to consider an argument
raised for the first time on reconsideration without a good excuse.”); Cachil Dehe Band of
Wintun Indians of Colusa Indian Cnty. v. California, 649 F. Supp. 2d 1063, 1069 (E.D.
Cal. 2009) (“In the absence of new evidence or a change in the law, a party may not use a motion
for reconsideration to raise arguments or present new evidence for the first time when it could
reasonably have been raised earlier in the litigation.” (citing Carroll v. Nakatani, 342 F.3d 934,
945 (9th Cir.2003))).
PAGE 3 – OPINION AND ORDER
Here, Galena raises arguments and offers evidence for the first time in its motion for
reconsideration. Galena concedes that new arguments are not appropriate in a motion for
reconsideration, but states that the “new points raised in this Motion focus on the factual
assumptions and legal conclusions in the Court’s Order that reveal clear errors worthy of
reconsideration.” Galena’s contention that it is appropriately raising new arguments in response
to the Court’s Order is without merit.
Galena’s arguments and evidence could have been raised in Galena’s reply, but were not.
Plaintiffs argued at length in their response to Galena’s motion to stay that the single-member
SLC was not independent and had prejudged the merits of the investigation as evidenced by the
Special Committee report, citing, among other cases, Biondi v. Scrushy, 820 A.2d 1148 (Del.
Ch. 2003). Plaintiffs argued the same issues of law and fact upon which the Court based its
opinion and against which Galena now provides argument and evidence. But Galena offered only
a brief and conclusory response in its reply, stating that the “unique circumstances” of Biondi are
“not present here,” without offering evidence or argument. Galena further stated that the Board,
not the Special Committee, appointed and empowered the SLC, but did not argue how that fact
affects the Court’s consideration of the independence of the SLC. Further, Galena failed to
discuss the Special Committee report in its reply1 or respond to Plaintiffs’ arguments that
Mr. Einhorn cannot now objectively investigate the claims in this lawsuit because he already has
concluded in the Special Committee report that there was no wrongdoing by the directors and
officers of Galena and that Galena should not pursue any litigation. In its reply, Galena chose not
to assert arguments or provide evidence in response to these arguments raised and evidence
1
The only mention of the report in Galena’s reply is on page five, in a quote of Plaintiff’s
opposition brief at page 14 that parenthetically references the report. Galena did not, however,
address that portion of the quoted material.
PAGE 4 – OPINION AND ORDER
provided by Plaintiffs in their response. It is inappropriate for Galena now to do so through a
motion for reconsideration. Accordingly, Galena’s motion for reconsideration is denied.
B. Galena’s Motion for Reconsideration Also Fails on the Merits
Even if Galena’s motion for reconsideration were procedurally proper, it would fail on
the merits. Although Rule 54(b) does not address the standards a district court should apply when
reconsidering an interlocutory order, courts have held that:
Motions to reconsider under Rule 54(b), while generally
disfavored, may be granted if: (1) there are material differences in
fact or law from that presented to the court and, at the time of the
court’s decision, the party moving for reconsideration could not
have known the factual or legal differences through reasonable
diligence; (2) there are new material facts that happened after the
Court’s decision; (3) there has been a change in law that was
decided or enacted after the court’s decision; or (4) the movant
makes a convincing showing that the court failed to consider
material facts that were presented to the court before the court’s
decision.
Lyden v. Nike, Inc., 2014 WL 4631206, at *1 (D. Or. Sept. 15, 2014) (citing Stockamp & Assocs.
v. Accetive Health, 2005 WL 425456, at *6-7 (D. Or. Feb. 18, 2005); Nike, Inc. v. Dixon, 2004
WL 1375281,2 at *1-2 (D. Or. June 16, 2004); Motorola, Inc. v. J.B. Rodgers Mech.
Contractors, 215 F.R.D. 581, 583-86 (D. Ariz. 2003)). Additionally, “[w]hile a motion for
reconsideration allows a party to bring a material oversight to the court's attention, it is not
appropriate for a party to request reconsideration merely to force the court to ‘think about [an]
issue again in the hope that [it] will come out the other way the second time.’” Brown v. S.
Nevada Adult Mental Health Servs., 2014 WL 2807688, at *2 (D. Nev. June 20, 2014) (quoting
Teller v. Dogge, 2013 WL 508326, at *6 n.6 (D. Nev. Feb. 8, 2013)) (first alteration added,
remaining alterations in original).
2
There was a scrivener’s error in the Lyden opinion, erroneously listing the Nike, Inc. v.
Dixon Westlaw citation as 2004 WL 1845505.
PAGE 5 – OPINION AND ORDER
None of the factors supporting reconsideration under Rule 54(b) are present here. Galena
asserts that there are material differences of fact and law, but those could have been provided to
the Court in litigating the underlying motion and, regardless, do not affect the Court’s analysis.
There are no new material facts that arose after the Court’s decision and there has been no
change in the law. Finally, Galena fails to make a convincing showing that the Court failed to
consider material facts that were presented to the Court before the Court’s decision.
Galena asserts that the Court found that the SLC’s “sole purpose” was to re-investigate
the same issues that the Special Committee investigated and argues that this misunderstanding of
fact led to the Court’s erroneous conclusion that Mr. Einhorn’s participation in a previous
independent investigation destroys Mr. Einhorn’s independence. Galena further argues that there
is no reason to presume that Mr. Einhorn lost objectivity because he has already investigated
some of the underlying allegations. Galena’s arguments are without merit.
The Court did not find that the “sole purpose” of the SLC was to investigate the same
issues that the Special Committee investigated. Although the vast majority of the allegations that
Mr. Einhorn, as the single-member SLC, is currently investigating have already been
investigated by Mr. Einhorn as a member of the two-person Special Committee, the Court is
aware that there are two allegations that the Special Committee did not investigate: the Board’s
issuance of stock options in November 2013 and the Board’s unauthorized amendment to the
bylaws to add a forum selection clause. The fact that the Special Committee did not investigate
these two discrete acts does not change the Court’s analysis.
The Delaware Chancery Court has found that when an SLC was beginning its
investigation and a member of the SLC publicly commented on the conclusions of a separate
investigation, commenting that the earlier investigation exonerated one of the alleged
PAGE 6 – OPINION AND ORDER
wrongdoers and thus “put[] to rest any question” of wrongdoing, it was sufficient to call into
question whether the SLC’s investigation would ultimately be considered pre-judged. Biondi,
820 A.2d at 1165-66. The facts here even more strongly support reaching the same conclusion,
because Mr. Einhorn did not merely publicly comment on an outside investigation, he
participated in that investigation and personally exonerated the alleged wrongdoers for nearly all
of the alleged wrongful conduct. The fact that he did not previously exonerate the alleged
wrongdoers of two discrete acts does not negate Mr. Einhorn’s findings regarding the remaining
alleged conduct. As aptly stated by the Delaware Chancery Court:
How can the court and the company's stockholders reasonably
repose confidence in an SLC whose Chairman has publicly and
prematurely issued statements exculpating one of the key company
insiders whose conduct is supposed to be impartially investigated
by the SLC? The answer is that they cannot. Even if the SLC later
issues a report in favor of dismissal that reads well and that appears
to be factually supported, there will always linger a reasonable
doubt that its investigation was designed to paper a decision that
had already been made.
Id. at 1166. Similarly, here, Mr. Einhorn has previously issued a public report exculpating nearly
all of the alleged wrongdoers of nearly all of the alleged wrongful conduct.
Galena also argues that the report by the two-person Special Committee does not affect
the independence of the SLC because the Board was not given a copy of the Special Committee
report until after the Board appointed the SLC. First, this is evidence that could have been
submitted in Galena’s reply and Galena provides no explanation for why the evidence was not
previously provided to the Court.3 Second, this evidence does not affect the Court’s analysis.
3
Galena also notes that the Court erroneously assumed in its earlier Opinion and Order
that the report of the Special Committee was delivered to the Board in July whereas the report
was actually delivered to the Board in September. Galena, however, previously failed to provide
any evidence to the Court about when the report was actually submitted to the Board—in fact,
Galena failed to address the report in either its opening brief or its reply. Thus, the only evidence
the Court had before it was the name of the report, “Report to the Board of Directors of Galena
PAGE 7 – OPINION AND ORDER
Regardless of whether the Board was aware of the conclusions reached by Mr. Einhorn as a part
of the two-person Special Committee, it is beyond dispute that Mr. Einhorn reached those
conclusions. Now, the Board, the Court, and the stockholders are all aware that Mr. Einhorn has
already reached a conclusion regarding the majority of the allegedly wrongful conduct that he is
now tasked with objectively and independently investigating. Because of this, neither the Court
nor the stockholders can “repose confidence” in Mr. Einhorn as an objective SLC. Id. at 1166.
Finally, the Court notes that Galena offers as evidence of Mr. Einhorn’s independence the
fact that more than one month after the new allegations were asserted relating to the
November 2013 stock option grants (and six days after the Special Committee issued its report),
the Board disbanded the two-person Special Committee because the new allegations involved
actions taken by the second member of the Special Committee, William Ashton. This evidence,
however, only further supports the Court’s concerns about Mr. Einhorn as the sole member of
the SLC. Courts are to scrutinize closely the relationship between SLC members and interested
directors. See, e.g., Sutherland v. Sutherland, 2008 WL 1932374, at *3 (Del. Ch. May 5, 2008);
Biondi, 820 A.2d at 1157, 1166. The fact that Mr. Einhorn engaged in a lengthy and extensive
investigation alongside Mr. Ashton, who is now alleged to have engaged in wrongful conduct, is
further evidence that Mr. Einhorn cannot be considered “above reproach.” Lewis v. Fuqua, 502
A.2d 962, 967 (Del. Ch. 1985).
The Court previously found that “because Einhorn has already conducted an
investigation, issued a report to the Board as part of the two-person Special Committee, and
publicly announced his conclusion that the Galena insiders did not engage in any wrongdoing,
Biopharma, Inc. Regarding the 2012-2014 Market Visibility Campaigns and the Sales By
Insiders in the First Quarter of 2014,” and the date of the report, July 15, 2014. If Galena
considered the date that the report was actually provided to the Board to be relevant, it should
have timely provided that evidence to the Court.
PAGE 8 – OPINION AND ORDER
Einhorn fails an ‘unyielding’ evaluation of his independence and objectivity to proceed with the
SLC investigation.” Galena fails to show that this finding was clear error.
CONCLUSION
Galena’s motion for reconsideration (Dkt. 45) is DENIED.
IT IS SO ORDERED.
DATED this 30th day of October, 2014.
/s/ Michael H. Simon
Michael H. Simon
United States District Judge
PAGE 9 – OPINION AND ORDER
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