Trans Energy, Inc. v. Abcouwer
Filing
23
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE: It is ORDERED that Defendant's 10 Motion to Dismiss is GRANTED and the Court DISMISSES this case WITHOUT PREJUDICE. The Clerk is directed to enter a separate judgment order. Signed by District Judge Irene M. Keeley on 5/26/15. (cnd)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
TRANS ENERGY, INC.,
Plaintiff,
v.
//
CIVIL ACTION NO. 1:14CV176
(Judge Keeley)
JAMES K. ABCOUWER,
Defendant.
MEMORANDUM OPINION AND ORDER
GRANTING DEFENDANT’S MOTION TO DISMISS [DKT. NO. 10]
AND DISMISSING CASE WITHOUT PREJUDICE
_________________________________________________________________
The defendant, James K. Abcouwer (“Abcouwer”), has moved to
dismiss the amended complaint of the plaintiff, Trans Energy, Inc.
(“Trans Energy”), pursuant to Fed. R. Civ. P. 12(b)(1).
(Dkt. No.
For the reasons that follow, the Court GRANTS the motion and
10).
DISMISSES this case WITHOUT PREJUDICE.1
I. BACKGROUND
From January 2006 until resigning in June 2010, Abcouwer
served as the president and Chief Executive Officer of Trans Energy
-- a publicly traded Nevada corporation engaged in the oil and gas
industry, with a particular focus on the Marcellus Shale.
He also
served as chairman of Trans Energy’s board of directors from April
2006 until he resigned from that position in May 2011.
1
A dismissal for any defect in subject matter jurisdiction “must
be one without prejudice.” S. Walk at Broadlands Homeowner’s Ass’n, Inc.
v. OpenBand at Broadlands, LLC, 713 F.3d 175, 185 (4th Cir. 2013).
TRANS ENERGY, INC. v. ABCOUWER
1:14CV176
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE
Trans Energy alleges that, throughout his employment, Abcouwer
acquired shares of the company’s common stock that now total
2,250,000, or 16.6%, of the outstanding shares.
according
to
Trans
Energy,
are
unregistered
and
The shares,
contain
a
restrictive legend providing as follows:
The securities represented hereby have not been
registered under the United States Securities Act of
1933, and may not be sold, transferred, pledged or
hypothecated absent an effective registration thereof
under such act or compliance with an available exemption
from registration. The company may refuse to authorize
any transfer of the securities in reliance on an
exemption from registration until it has received an
opinion of counsel, satisfactory to the company and its
counsel, that such registration is not required.
(Dkt. No. 8 at 6).
Since resigning from his positions with Trans Energy, Abcouwer
has filed two lawsuits in the Circuit Court of Kanawha County, West
Virginia, against his former employer.
In March 2012, he sued the
company for its alleged breach of a stock option agreement.
Then,
in June 2013, he sued Trans Energy and two of its employees, Loren
E. Bagley (“Bagley”) and William F. Woodburn (“Woodburn”), alleging
breach of his oral agreement with Bagley and Woodburn to sell Trans
Energy (the “Oral Agreement Lawsuit”).
Regarding the Oral Agreement Lawsuit, Trans Energy hotly
contests the existence of any such agreement.
2
It asserts that its
TRANS ENERGY, INC. v. ABCOUWER
1:14CV176
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE
position is well-founded based on the fact that Abcouwer never
disclosed the agreement on the company’s Form 8-Ks or 10-Ks in his
capacity as president and CEO, or on a Schedule 13D in his personal
capacity. Of course, whether such a defense could prevail turns on
whether
the
law
actually
required
Abcouwer
to
disclose
the
agreement. As Trans Energy acknowledges, “Abcouwer denies that the
alleged oral agreement was required to be disclosed in any security
filing.”
(Dkt. No. 8 at 7).
Trans Energy alleges that, on October 13, 2014, while the two
state cases were pending, Abcouwer “threatened to file a third
lawsuit” if Trans Energy refused to remove the restrictive legend
from his stock certificates.
(Dkt. No. 8 at 7).
The following
day, a broker representing Abcouwer made a formal demand that Trans
Energy remove the restrictive legend.
According to Trans Energy,
it “could not agree to this request as it was not provided with a
legal opinion demonstrating Abcouwer’s satisfaction of a federal
registration
‘affiliate’
additional
exemption.”
of
Trans
Id.
Energy,
requirements
Moreover,
Abcouwer
before
an
Restrictive Legend is triggered.”
it
would
obligation
claimed,
“as
have
satisfy
to
to
remove
an
the
Id. at 11.
On October 17, 2014, Trans Energy initiated this action,
filing a declaratory judgment complaint in this Court invoking
3
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MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE
federal question jurisdiction. Abcouwer responded with a motion to
dismiss,
following
which
Trans
Energy
amended
its
complaint
pursuant to Fed. R. Civ. P. 15(a)(1)(b), seeking four declarations
from the Court.
The first two relate to the alleged third lawsuit
threatened by Abcouwer (“Cause of Action I”), and the second two
relate to the Oral Agreement Lawsuit (“Cause of Action II”).
First, Trans Energy seeks a declaration that it is “under no
obligation to remove the Restrictive Legend from Abcouwer’s stock
certificates because Abcouwer has not satisfied all conditions of
a federal registration exemption.”
(Dkt. No. 8 at 15).
Second, it
asks the Court to declare that “Abcouwer is an ‘affiliate’ of Trans
Energy, as that term is defined in 17 C.F.R. § 230.144.”
Id.
Third, it seeks a declaration that, “[t]o the extent Abcouwer had
an
agreement
with
Bagley
and
Woodburn
to
sell
Trans Energy,
Abcouwer was required to disclose it pursuant to the Securities
Exchange Act of 1934 on a Schedule 13D.”
Id.
Finally, Trans
Energy asks the Court to declare that, “[t]o the extent Abcouwer
had an agreement with Trans Energy and/or Bagley and/or Woodburn to
sell
Trans
Energy,
such
agreement
constituted
a
‘material
definitive agreement’ that Abcouwer was required to disclose on
Trans Energy’s Form 10-Ks and/or 8-Ks.”
4
Id.
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MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE
Abcouwer has moved to dismiss Trans Energy’s amended complaint
on three grounds.
First, he argues that the Court lacks subject
matter jurisdiction because Trans Energy’s amended complaint does
not “arise under” any federal law.
Second, he contends that the
Declaratory Judgment Act, 28 U.S.C. § 2201, et seq., does not
provide a remedy for Trans Energy because there is no “case of
actual controversy.”
Alternatively, Abcouwer urges the Court to
dismiss the case based on abstention under the principles outlined
in Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321 (4th Cir. 1937),
and Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371 (4th
Cir. 1994).
II. DISCUSSION
The three grounds for dismissal asserted by Abcouwer are
consistent with the “three essentials” of jurisdiction over a
declaratory judgment action.
[I]t is elementary that a federal court may properly
exercise
jurisdiction
in
a
declaratory
judgment
proceeding when three essentials are met: (1) the
complaint alleges an actual controversy between the
parties of sufficient immediacy and reality to warrant
issuance of a declaratory judgment; (2) the court
possesses an independent basis for jurisdiction over the
parties
(e.g.,
federal
question
or
diversity
jurisdiction); and (3) the court does not abuse its
discretion in its exercise of jurisdiction.
5
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Volvo Const. Equip. N.A., Inc. v. CLM Equip. Co., 386 F.3d 581, 592
(4th Cir. 2004) (internal quotation marks and citations omitted).
Nevertheless, as discussed below, the Court finds that, although
Trans
Energy’s
amended
complaint
presents
a
case
of
actual
controversy, the company has failed to establish subject matter
jurisdiction.2
A. Case of Actual Controversy
Abcouwer challenges this Court’s jurisdiction under Article
III of the Constitution, contending that Trans Energy’s amended
complaint does not present a “case of actual controversy.”
“The
Declaratory Judgment Act of 1934, in its limitation to ‘cases of
actual controversy,’ manifestly has regard to the constitutional
provision and is operative only in respect to controversies which
are such in the constitutional sense.”
Aetna Life Ins. Co. v.
Haworth, 300 U.S. 227, 240 (1937); see also Volvo Const. Equip.
N.A., Inc. v. CLM Equip. Co., 386 F.3d 581, 592 (4th Cir. 2004) (“A
case meets the actual controversy requirement only if it presents
a controversy that qualifies as an actual controversy under Article
III of the Constitution.”).
Thus, Trans Energy must demonstrate a
case or controversy as a “threshold requirement” to prosecuting
2
Because the Court lacks jurisdiction, it need not address the
abstention component of Abcouwer’s motion.
6
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this declaratory judgment action in federal court.
O’Shea v.
Littleton, 414 U.S. 488, 493 (1974).
“The test for a ‘case or controversy’ . . . is whether the
dispute ‘is definite and concrete, touching the legal relations of
parties having adverse legal interests.’”
White v. Nat’l Union
Fire Ins. Co., 913 F.2d 165, 167 (4th Cir. 1990) (quoting Aetna,
300 U.S. at 240-41).
declaratory
relief
“The same standard applies to a request for
and
requires
a
controversy
of
‘sufficient
immediacy and reality [as] to warrant the issuance of a declaratory
judgment.’”
Am. Whitewater v. Tidwell, 770 F.3d 1108, 1119 (4th
Cir. 2014) (alterations in original) (quoting Md. Cas. Co. v. Pac.
Coal & Oil Co., 312 U.S. 270, 273 (1941)).
1. Cause of Action I
As to its Cause of Action I, Trans Energy contends that (i)
Abcouwer’s history of filing lawsuits against it, (ii) his threat
of a third lawsuit, (iii) his broker’s immediate demand for the
removal of the restrictive legend, and (iv) the potential for
exorbitant damages resulting from the threatened litigation, when
taken together, create a case of actual controversy.
Abcouwer, on
the other hand, asserts that, even if he did threaten additional
7
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litigation,3 that threat does not present a substantial controversy
of sufficient immediacy and reality.
“The
Fourth
Circuit
has
recognized
that
in
certain
circumstances, the threat of future litigation may give rise to an
actual controversy.”
Standard Fire Ins. Co. v. Armstrong, No.
3:12CV181, 2012 WL 3730644, at *3 (E.D. Va. Aug. 28, 2012) (citing
Volvo, 386 F.3d at 593 n.12).
Based on Abcouwer’s two pending
lawsuits and his threat of a third, Trans Energy possesses “an
objective
and
reasonable
apprehension
of
future
litigation”
regarding its refusal to remove the restrictive legend.
Energy
Recovery, Inc. v. Hauge, 133 F. Supp. 2d 814, 817 (E.D. Va. 2000).
Abcouwer’s threat appears more than illusory; only one day
after the threat, Abcouwer’s broker made a formal demand that Trans
Energy remove the restrictive legend.
could
lead
imminent.
a
rational
With
that
person
in
to
mind,
This sequence of events
conclude
Trans
that
Energy
a
lawsuit
initiated
is
this
declaratory judgment action just three days after speaking with
3
“When considering a Rule 12(b)(1) motion to dismiss, a court
assumes that all factual allegations in the complaint are true.” Falwell
v. City of Lynchburg, Va., 198 F. Supp. 2d 765, 771-72 (W.D. Va. 2002)
(emphasis omitted); Anderson v. F.D.I.C., 918 F.2d 1139, 1140 (4th Cir.
1990). Accordingly, the Court accepts as true Trans Energy’s allegation
that “Abcouwer threatened to file a third lawsuit against Trans Energy
to remove the Restrictive Legend from Abcouwer’s stock certificates.”
(Dkt. No. 8 at 3).
8
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Abcouwer’s broker.
Its swiftness in bringing the action stemmed
from its concern that, given Abcouwer’s numerous shares, any
downtick
in
the
company’s
inordinate damages.
stock
price
could
translate
into
Thus, Abcouwer’s threat of a third lawsuit is
sufficiently immediate and real.
Furthermore, the parties’ interests are adverse. Abcouwer has
articulated
his
claim
that
the
restrictive
legend
should
be
removed. Trans Energy has taken the contradictory position that it
may not remove the restrictive legend, purportedly because Abcouwer
is an affiliate of the company has not provided a legal opinion
regarding any exemption.
These issues are adequately defined and
sufficiently concrete to constitute an actual controversy between
adverse parties.
Finally, Abcouwer’s reliance on the Fifth Circuit’s decision
in Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891 (5th Cir.
2000), is misplaced.
In that case, a party to a heated litigation
attached as an exhibit to another filing a “draft of a motion” to
set aside a prior judgment.
Id. at 894.
The opposing party then
filed a declaratory judgment action seeking “a res judicata ruling
barring not only the filing of the draft motion, but all future
actions arising out of or related to the financing transactions” at
the heart of the parties’ dispute.
9
Id. at 896 (italics in
TRANS ENERGY, INC. v. ABCOUWER
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MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE
original).
The defendant moved to dismiss the complaint, alleging
that “no actual controversy existed.”
Id. at 894.
Although the
district court found “an actual controversy,” it nevertheless
“exercised its discretion to abstain from hearing the declaratory
judgment complaint.”
Id. at 895.
On appeal, the Fifth Circuit vacated the district court’s
ruling after concluding that the declaratory judgment action was
not “ripe for adjudication.”
Id. at 898.
As to the attempt to bar
all future actions, it determined that such declaratory relief was
“largely, if not purely, hypothetical,” because “[t]he content of
the broad class of potential claims that OCAI seeks to bar, and the
certainty that any of these claims will ever be filed, are wholly
unknown.”
Id.
“Such unasserted, unthreatened, and unknown claims
do not present an immediate or real threat to OCAI such that
declaratory relief is proper.”
Id.
As to the attempt to bar the filing of the draft motion, the
court observed that “whether or not the Wolfes will ever file the
draft motion hinges upon several contingencies.”
Id. at 897.
Moreover, “[t]he precise legal issues that the Wolfes will raise in
the motion are unclear at this time,” and “[t]he contours of that
motion
could,
and
likely
would,
10
change.”
Id.
at
897-98.
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Therefore, concluded the court, “the district court erred in
finding that an ‘actual controversy’ existed.”
Id. at 898.
Unlike the plaintiff in Orix, here, Trans Energy does not seek
a ruling that would bar a broad class of unthreatened, unknown
claims.
Nor does it seek to bar the filing of any uncertain motion
contingent upon a host of unlikely circumstances.
Rather, Trans
Energy’s Cause of Action I seeks a declaration that, in its view,
would preclude any liability that might accrue to it based on its
refusal to remove the restrictive legend from Abcouwer’s stock
certificates.
Thus, Trans Energy’s Cause of Action I presents a
case of actual controversy.
2. Cause of Action II
Trans
Energy’s
Cause
of
Action
II
relates
to
the
Oral
Agreement Lawsuit pending before the Circuit Court of Kanawha
County.
More specifically, it relates to Trans Energy’s defense
that no agreement to sell the company could have existed because
Abcouwer did not disclose it on certain filings with the Securities
and Exchange Commission (“SEC”). Trans Energy contends that a case
of actual controversy exists because “the parties wholly dispute
Abcouwer’s obligations to disclose [the purported oral agreement]
to the SEC.”
(Dkt. No. 8 at 9).
11
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Abcouwer,
on
the
other
hand,
argues
that
any
dispute
concerning his SEC filing obligations is not immediate, real,
concrete, or definite until the Circuit Court of Kanawha County
determines that the alleged oral agreement to sell Trans Energy
actually existed.
Furthermore,
he
contends
that he
has
not
threatened a lawsuit regarding his filing obligations, and the SEC
has not begun an investigation.
Accordingly, he urges that Trans
Energy’s Cause of Action II fails to present a case of actual
controversy.
Abcouwer is incorrect on at least two levels. First, the Oral
Agreement Lawsuit presents a real, immediate dispute in which the
parties’ interests are directly adverse.
Second, his attempt to
compartmentalize the questions of his filing obligations and the
existence of an oral agreement misses the mark.
Under West
Virginia law, Abcouwer’s breach of contract claim requires him to
establish that “a contract exists between the parties.” Patrick v.
PHH Mortg. Corp., 937 F. Supp. 2d 773, 792 (N.D.W. Va. 2013).
Trans Energy contends that he cannot prove this element as a matter
of law (or as a matter of estoppel) because he did not identify the
putative agreement on the requisite SEC filings. Thus, contrary to
Abcouwer’s urging, the Circuit Court of Kanawha County cannot find
the existence of an agreement until it first addresses Trans
12
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Energy’s defense.
Consequently, a case of actual controversy
exists between the parties regarding Abcouwer’s filing obligations.
B. Subject Matter Jurisdiction
Having
determined
that
Trans
Energy’s
amended
complaint
presents a case of actual controversy, the Court turns next to the
challenge
to
its
subject
matter
jurisdiction.
Congress
has
authorized the federal courts to exercise original jurisdiction
over,
inter
alia,
“all
civil
actions
arising
Constitution, laws, or treaties of the United States.”
§ 1331.
under
the
28 U.S.C.
Importantly, “the Declaratory Judgment Act does not
‘extend’ the ‘jurisdiction’ of the federal courts.”
Medtronic,
Inc. v. Mirowski Family Ventures, LLC, __ U.S. __, __, 134 S. Ct.
843, 848 (2014) (citing Skelly Oil Co. v. Phillips Petroleum Co.,
339 U.S. 667, 671 (1950)).
That said, “[f]ederal courts have
regularly taken original jurisdiction over declaratory judgment
suits in which, if the declaratory judgment defendant brought a
coercive action to enforce its rights, that suit would necessarily
present a federal question.”
Franchise Tax Bd. of State of Cal. v.
Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 19 (1983).
In determining whether federal question jurisdiction lies,
courts must
bear
in mind
the
critical distinction
13
between
a
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potential federal claim in a threatened action, and an anticipatory
federal law defense asserted by a declaratory judgment plaintiff.
Where the complaint in an action for declaratory judgment
seeks in essence to assert a defense to an impending or
threatened state court action, it is the character of the
threatened action, and not of the defense, which will
determine whether there is federal-question jurisdiction
in the District Court. If the cause of action, which the
declaratory defendant threatens to assert, does not
itself involve a claim under federal law, it is doubtful
if a federal court may entertain an action for a
declaratory judgment establishing a defense to that
claim.
This is dubious even though the declaratory
complaint sets forth a claim of federal right, if that
right is in reality in the nature of a defense to a
threatened cause of action.
Federal courts will not
seize litigations from state courts merely because one,
normally a defendant, goes to federal court to begin his
federal-law defense before the state court begins the
case under state law.
Pub. Svc. Comm’n of Utah v. Wycoff Co., 344 U.S. 237, 248 (1952);
see also Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987)
(“The presence or absence of federal-question jurisdiction is
governed by the ‘well-pleaded complaint rule,’ which provides that
federal
jurisdiction
presented
on
the
exists
face
of
only
the
when
a
federal
plaintiff’s
question
properly
is
pleaded
complaint.”).
Still, there exists a “small class of ‘cases in which a wellpleaded complaint establishes . . . that the plaintiff’s right to
relief necessarily depends on resolution of a substantial question
14
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of federal law, in that federal law is a necessary element of one
of the well-pleaded . . . claims.’”
Pinney v. Nokia, Inc., 402
F.3d 430, 442 (4th Cir. 2005) (ellipses in original) (quoting
Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808
(1988)).
The substantial federal question doctrine “captures the
commonsense notion that a federal court ought to be able to hear
claims
recognized
under
state
law
that
nonetheless
turn
on
substantial questions of federal law, and thus justify resort to
the experience, solicitude, and hope of uniformity that a federal
forum offers on federal issues.”
Grable & Sons Metal Prods., Inc.
v. Darue Eng’g & Mfg., 545 U.S. 308, 312 (2005).
Importantly,
the
substantial
federal
requires “more than a federal element.”
question
doctrine
Empire Healthchoice
Assurance, Inc. v. McVeigh, 547 U.S. 677, 701 (2006).
The party
invoking federal jurisdiction –- in this case, Trans Energy –- must
establish that “a federal issue is: (1) necessarily raised, (2)
actually disputed, (3) substantial, and (4) capable of resolution
in federal court without disrupting the federal-state balance
approved by Congress.”
1059, 1065 (2013).
Gunn v. Minton, __ U.S. __, __, 133 S. Ct.
“Where all four of these requirements are met
. . . , jurisdiction is proper . . . .”
15
Id.
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As discussed below, the substantial federal question doctrine
is
not
available
to
Trans
Energy
because
it
has
failed
to
establish, beyond mere speculation, the particular cause of action
giving rise to a federal issue.
Moreover, even if the Court
accepted the proposed cause of action, jurisdiction would fail, at
a minimum, under requirements one and two of Gunn.4
1. Identifying the State Law Claim
Trans Energy concedes that any claim brought by Abcouwer would
be a creature of state law, thus triggering the “general rule” that
Abcouwer may “avoid federal jurisdiction by exclusive reliance on
state law.”
omitted).
Pinney, 402 F.3d at 442 (quotation marks and citation
It necessarily follows that Trans Energy’s only avenue
to federal court runs through the substantial federal question
doctrine.
In order to determine whether the doctrine applies, the
Court first must identify the state law cause of action at issue.
In the relevant cases, the Supreme Court has not seriously
grappled with this issue because the state law cause of action has
been readily apparent.
For example, in Grable, 545 U.S. at 311,
4
Because the Court lacks original jurisdiction over Trans Energy’s
Cause of Action I, the company’s assertion of supplemental jurisdiction
over its Cause of Action II necessarily fails. See 28 U.S.C. § 1367(a)
(“[I]n any civil action of which the district courts have original
jurisdiction, the district courts shall have supplemental jurisdiction
over all other claims . . . .”) (emphasis added).
16
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the plaintiff had filed a quiet title action against the defendant
in state court.
Likewise, in Gunn, 133 S. Ct. at 1063, the state
law cause of action –- legal malpractice -- was identified simply
by looking to the state court complaint.
In Medtronic, 134 S. Ct.
at 848-49, the Supreme Court devoted more attention to identifying
the relevant cause of action.
licensing
agreement
Medtronic
stops
between
paying
Nevertheless, because the patent
the
parties
royalties,
specified
Mirowski
can
that,
“if
terminate
the
contract and bring an ordinary patent infringement action,” the
Court simply relied on the contractual language to conclude that
the hypothetical threatened action was one for patent infringement.
Medtronic, 134 S. Ct. at 848.
The
case
complaint,
nor
at
bar
any
presents
agreement
particular cause of action.
neither
requiring
a
filed
Abcouwer
state
to
court
bring
a
Nonetheless, Trans Energy contends
that the appropriate cause of action is found in the Uniform
Commercial Code, which provides as follows:
(a) If a certificated security in registered form is
presented to an issuer with a request to register
transfer or an instruction is presented to an issuer with
a request to register transfer of an uncertificated
security, the issuer shall register the transfer as
requested if:
17
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(1) under the terms of the security the person
seeking registration of transfer is eligible to
have the security registered in its name;
(2) the indorsement or instruction is made by the
appropriate person or by an agent who has actual
authority to act on behalf of the appropriate
person;
(3) reasonable assurance is given that
indorsement
or
instruction
is
genuine
authorized (Section 8-402);
the
and
(4) any applicable law relating to the collection
of taxes has been complied with;
(5) the transfer does not violate any restriction
on transfer imposed by the issuer in accordance
with Section 8-204;
(6) a demand that the issuer not register transfer
has not become effective under Section 8-403, or
the issuer has complied with Section 8-403(b) but
no legal process or indemnity bond is obtained as
provided in Section 8-403(d); and
(7) the transfer is in fact rightful or is to a
protected purchaser.
(b) If an issuer is under a duty to register a transfer
of a security, the issuer is liable to a person
presenting a certificated security or an instruction for
registration or to the person’s principal for loss
resulting from unreasonable delay in registration or
failure or refusal to register the transfer.
U.C.C. § 8-401.
Although Abcouwer notes that “Trans Energy can
only speculate what [his] supposed claims might consist of,” he
nevertheless “address[es] the evaluation of a claim under this
state statute.”
(Dkt. No. 13 at 3 n.1) (emphasis omitted).
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A problem arises, however, when considering that states differ
about whether a cause of action exists under § 8-401 based on an
issuer’s refusal to remove a restrictive legend. Compare, e.g., In
re Marriage of Devick, 735 N.E.2d 153, 160 (Ill. App. Ct. 2000)
(concluding that “section 8-401 of the UCC is applicable to the
imposition of restrictive legends on stock certificates”); Bender
v. Memory Metals, Inc., 514 A.2d 1109, 1115 (Del. Ch. 1986)
(holding that “it is reasonable to construe the term ‘register the
transfer,’ as used in § 8-401 of the UCC, to include those
ministerial acts that normally accompany such registration”), with,
e.g., Midwest Inv. Partners, LLC v. Standard Metals Processing,
Inc., No. 3:14CV38, 2015 WL 566942, at *3 (S.D. Ind. Feb. 11, 2015)
(“If Indiana’s legislature aimed to create a judicial forum for
compelling removal of restrictive legends, it very simply could
have included that language in the statute.”); Steranko v. Inforex,
Inc., 362 N.E.2d 222, 274 (Mass. App. Ct. 1977) (“[W]e do not agree
that the bank’s refusal to remove the restrictive legends from
Steranko’s shares qualifies as a refusal to ‘register a transfer’
under the terms of s 8-401(2).”).
To accept Trans Energy’s argument that Abcouwer’s threatened
action necessarily involves a claim under § 8-401 is to assume that
the substantive law of a state permitting such a cause of action
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TRANS ENERGY, INC. v. ABCOUWER
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MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT’S
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under like circumstances applies.
The Court, however, lacks the
information necessary to conduct a choice-of-law analysis.5
Thus,
it remains unclear whether the substantive law applicable to
Abcouwer’s threatened lawsuit would recognize a cause of action
under § 8-401.
Accordingly, the Court has no path to move forward
under the Gunn analysis.
Even
asserting
had Abcouwer
filed
a
action
cause
of
jurisdiction would not lie.
a
third
under
§
lawsuit
8-401,
in
state
subject
court
matter
As discussed below, Trans Energy’s
proposed cause of action does not necessarily raise a federal
issue, nor does the record reflect that the federal issues asserted
by Trans Energy are actually disputed.
2. “Necessarily Raised”
Under Gunn, the Court must determine whether the threatened
state law cause of action necessarily raises a federal issue.
5
Trans Energy urges that, because it is a Nevada corporation,
Nevada’s version of § 8-401 would govern. It cites no authority for the
proposition that a defendant’s state of incorporation dictates the
substantive law applicable to a UCC claim.
Likewise, it cites no
authority for the proposition that Nevada law recognizes § 8-401 as a
cause of action when the issuer of a stock refuses to remove a
restrictive legend. Notwithstanding, a recent decision of the Supreme
Court of Nevada establishes that such a cause of action would be
permitted under that state’s substantive law.
See Guilfoyle v. Olde
Monmouth Stock Transfer Co., 335 P.3d 190, 195 (Nev. 2014) (“The phrase
‘request to register transfer’ in NRS 104.8401(1) applies to a request
to remove a restrictive legend from a person’s shares.”).
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MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE
Trans Energy observes that a claim under § 8-401 would require
Abcouwer
to
prove
that
“the
transfer
does
not
violate
any
restriction on transfer imposed by the issuer.” In the restrictive
legend stamped on Abcouwer’s stock certificates, Trans Energy
requires a legal opinion stating that the shares qualify for an
exemption to registration under the Securities Act of 1933 before
transferring the shares.
It therefore contends that the federal
issue necessarily raised is whether Abcouwer’s shares qualify for
an exemption to registration under federal securities law.6
Even
if Trans Energy is correct on this point, it still fails to
recognize that “a given claim necessarily depends on a question of
federal law only when every legal theory supporting the claim
requires the resolution of a federal issue.”
Dixon v. Coburg
Dairy, Inc., 369 F.3d 811, 816 (4th Cir. 2004) (emphasis in
original).
Recently, in Flying Pigs, LLC v. RRAJ Franchising, LLC, 757
F.3d 177, 182-83 (4th Cir. 2014), the Fourth Circuit had occasion
to apply this rule within the context of Gunn’s first requirement.
There, the plaintiff, Flying Pigs, had obtained and registered with
6
The reasoning in this section also applies to any assertion that
§ 8-401 somehow would require Abcouwer to prove that he has satisfied any
prerequisites to the removal of the restrictive legend arising from Trans
Energy’s contention that he is a company “affiliate.”
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the Patent
and
Trademark
Office
an
equitable
lien
against
a
debtor’s federally registered trademarks, in partial satisfaction
of a default judgment award.
Id. at 179.
After the trademarks
were sold through bankruptcy, the plaintiff sued the holder of the
trademarks, RRAJ, in North Carolina state court “to foreclose on
its equitable lien against the intellectual property, to subject
that property to a judicial sale, and to enjoin RRAJ from any
further use thereof.”
Id. at 180.
After RRAJ removed the case,
Flying Pigs moved to remand based on lack of federal jurisdiction.
Id.
The
district
court
denied
the
motion,
and
appealed, relying on the well-pleaded complaint rule.
Flying
Pigs
Id. at 181.
RRAJ, on the other hand, asserted that “an adjudication of Flying
Pigs’s complaint require[d] the application of federal trademark
law.”
Id.
In vacating the district court’s decision and remanding the
case to the state court, the Fourth Circuit held that, under the
first
requirement
of
Gunn,
federal
jurisdiction
was
lacking
inasmuch as Flying Pigs’s complaint did not “necessarily raise” a
federal issue.
Id. at 182-83.
It explained that the complaint “is
nothing more than an action to enforce that equitable lien,” and
“[i]t appears unnecessary, therefore, for Flying Pigs to again
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prove its entitlement to the equitable lien it seeks to enforce in
the [state] court.”
Id. at 182.
As an additional ground for its holding, our circuit court
observed that “trademark ownership is not acquired by federal or
state registration[;]” rather, “[o]wnership rights flow only from
prior use.”
Id. (internal quotation marks and citation omitted).
Consequently, Flying Pigs could have argued that ownership of the
intellectual property was determined “simply by virtue of its use.”
Id.
Because a state law claim necessarily raises a federal issue
only when “every legal theory supporting the claim requires the
resolution of a federal issue,” the court was unpersuaded that the
complaint satisfied Gunn’s first requirement.
Id. (emphasis in
original) (internal quotation marks and citation omitted); see also
Manning v. Merrill Lynch Pierce Fenner & Smith, Inc., 772 F.3d 158,
164 (3d Cir. 2014).
Here, even assuming Abcouwer’s assertion of a cause of action
under § 8-401, he might well be able to bring additional common law
causes of action.
For example, in Guilfoyle, 335 P.3d at 194, the
plaintiff brought causes of action for (1) violation of Nevada’s
version of § 8-401, (2) negligent and fraudulent misrepresentation,
(3) aiding and abetting breach of fiduciary duty, and (4) civil
conspiracy.
Rather than dismissing the common law claims as
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MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE
“displaced” by the UCC claim, as some courts have done, see, e.g.,
Kolber v. Body Cent. Corp., 967 F. Supp. 2d 1061, 1068 (D. Del.
2013); Clancy Sys. Int’l, Inc. v. Salazar, 177 P.3d 1235, 1236
(Colo. 2008) (en banc), the Supreme Court of Nevada analyzed all of
the plaintiff’s causes of action.
Guilfoyle, 335 P.3d at 194-99;
see also Schloss v. Danka Bus. Sys., PLC, No. 99 Civ. 0817, 2000 WL
282791, at *3-7 (S.D.N.Y. Mar. 16, 2000) (permitting simultaneous
causes of action for violation of § 8-401, breach of contract, and
conversion); cf. Burtman v. Tech. Chems. & Prods., Inc., 724 So. 2d
672, 673 (Fla. Dist. Ct. App. 1999) (permitting a plaintiff to
pursue both legal and injunctive relief under Florida’s version of
§ 8-401).
Because Trans Energy has failed to demonstrate that
every cause of action Abcouwer might assert would require the
resolution of a federal issue –- whether it be the qualification
for a registration exemption or Abcouwer’s “affiliate” status -- it
has failed to satisfy Gunn’s first requirement.
3. “Actually Disputed”
Although not necessary to the analysis, it is worth noting
that Trans Energy’s Cause of Action I also fails under Gunn’s
second requirement.
Assuming Abcouwer’s threatened action would
necessarily raise the issues of whether his shares qualify for a
registration exemption and whether he is an “affiliate,” there is
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TRANS ENERGY, INC. v. ABCOUWER
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MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE
a dearth of evidence that these particular issues are actually
disputed.
To
be
sure,
they
form
a
partial
basis
for
the
declaratory relief Trans Energy seeks; and to that point Trans
Energy’s responsive memorandum states that the issues are “wholly
disputed by the parties.”
Nevertheless,
(Dkt. No. 12 at 9).
neither
party
has
provided
documentation
confirming any contention by Abcouwer that his shares in fact do
qualify
for
“affiliate.”
a
registration
exemption,
or
that
he
is
not
an
See Keith v. Clarke Am. Checks, Inc., 261 F. Supp. 2d
419, 422 (W.D.N.C. 2003) (“It is well-settled that the existence of
subject matter
jurisdiction
is
evaluated
as
of the
time the
Complaint is filed.”). Even in his briefing on the pending motion,
Abcouwer does not contest these issues.
Consequently, this Court
has no actual basis upon which to find that the federal issues
advanced by Trans Energy are in dispute.
III. CONCLUSION
Trans Energy’s assertion that Abcouwer would have to bring a
cause of action exclusively under § 8-401 is too tenuous for the
company
to
invoke
the
substantial
federal
question
doctrine.
Moreover, if Abcouwer were required to bring his claim exclusively
under § 8-401, Trans Energy’s reliance on the substantial federal
question doctrine, at a minimum, would fail under the first two
25
TRANS ENERGY, INC. v. ABCOUWER
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MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS AND DISMISSING CASE WITHOUT PREJUDICE
requirements of Gunn.
Thus, although Trans Energy’s amended
complaint presents a case of actual controversy, there is no
subject matter jurisdiction under which this Court may hear the
matter.
It therefore GRANTS Abcouwer’s motion and DISMISSES this
case WITHOUT PREJUDICE.
It is so ORDERED.
The
Court
directs
the
Clerk
to transmit
copies
of
this
Memorandum Opinion and Order to counsel of record, to remove this
case from the active docket, and to enter a separate judgment
order.
DATED: May 26, 2015.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
26
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