Scripsamerica, Inc. v. Ironridge Global LLC
SCRIPSAMERICA, INC. v. IRONRIDGE GLOBAL LLC d/b/a Ironridge Global IV, Ltd., John Kirkland, Brendan O'Neil, and Does 1-5
Attorneys
Carlos E. Needham, Carlos Needham Law Offices, Valencia, CA, for Plaintiff., Shannon Edward Mader, Gibson Dunn and Crutcher LLP, Los Angeles, CA, for Defendants.
Full Opinion (html_with_citations)
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTSâ MOTION TO DISMISS AND GRANTING DEFENDANTSâ MOTION TO STAY
On May 22, 2014, ScripsAmerica, Inc. (âScripsâ) filed this action against Iron-ridge Global LLC d/b/a Ironridge Global IV, Ltd., John Kirkland, and Brendan OâNeil (collectively âIronridgeâ), as well as certain fictitious defendants.
On June 25, 2014, defendants filed a motion to dismiss, or alternatively to stay.
I. FACTUAL BACKGROUND
This action arises out of an allegedly fraudulent scheme devised by -âIronridge. Scrips is a pharmaceuticals distributor whose stock is publicly traded on the over-the-counter (âOTCâ) market. Ironridgeâs purported scheme involved the issuance of Scripsâ common stock to Ironridge in exchange for an undertaking by Ironridge to pay Scripsâ outstanding accounts payable.
During the calls, Ironridge requested that the contract memorializing the transaction include a provision for an adjustment to protect it in the event of a decline in Scripsâ stock price.
On October 4, 2013, Schneiderman, Kirkland, and OâNeil purportedly discussed the potential effect Ironridgeâs sale of the stock it received might have on Scripsâ share price. Unlike other entities that had funded Scrips in exchange for stock, Ironridge allegedly represented that it would not act to manipulate or otherwise affect Scripsâ stock price.
Because the shares were unregistered, Ironridge and Scrips had to obtain court approval under California and federal securities laws before a transfer of the stock could take place.
The stipulation also memorialized the adjustment mechanism the parties had previously discussed. First, Scrips would immediately issue and deliver to Ironridge 8,690,000 shares of its common stock; the issuance, however, was subject to certain âadjustments, issuances, returns, and ownership limitations.â
The stipulation also provided that if at any point during the calculation period the shares issued to Ironridge dropped below âany reasonably possible [fjinal [ajmountâ or if Scrips shares closed below 80 % of the closing price on the trading day prior to entry of an order on the stipulation, Ironridge was entitled to request the issuance of additional shares.
On November 8, 2013, the parties filed a joint ex parte application in state court for an order approving the stipulation; they argued that ex parte relief was necessary because the stipulation addressed the issuance of âshares of [Scrips] stock with a substantially fluctuating market price.â
On November 8, 2013, Superior Court Judge Rolf M. Treu entered an order on the partiesâ stipulation.
Based on the decline in Scripsâ share price, Ironridge filed an ex parte application for an order compelling the issuance of additional shares pursuant to the May 6, 2014 stipulation.
On May 6, 2014, Judge Treu implicitly rejected each of Scripsâ arguments. He entered an order enforcing the order that had approved the stipulation (âenforcement orderâ), and directing that Scrips issue an additional 1,646,008 shares of common stock to Ironridge pursuant to the adjustment mechanism set forth in the stipulation.
On May 22, 2014, eight days after appealing the enforcement order, Scrips filed this action, alleging claims for breach of contract, tortious bad faith, violation of Rule 10b-5, and declaratory relief. Scrips seeks a declaration that it need not issue the additional 1,646,008 shares that the Superior Court has ordered it to issue. Scrips maintains that Ironridge intentionally engaged in post-stipulation trading activity to manipulate the market and reduce the price of Scripsâ stock in order to increase the number of shares it was to receive pursuant to the stipulationâs calculation formula.
II. DISCUSSION
A. Ironridgeâs Request for Judicial Notice
Ironridge asks that the court take judicial notice of various documents related to the state court action.
In addition, the court can consider matters that are proper subjects of judicial notice under Rule 201 of the Federal Rules of Evidence. Id. at 688-89; Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir.2002); Hal Roach Studios, Inc. v. Richard Feiner and Co., Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir.1990); see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (â[Cjourts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) mo tions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial noticeâ).
Ironridge asks that the court take judicial notice of nine documents filed in the state court action.
The partiesâ state court stipulation, moreover, which is Exhibit B to Iron-ridgeâs request for judicial notice, is attached to the complaint and therefore need not be judicially noticed to be considered in deciding the motion. See Lee, 250 F.3d at 688 (âa court may consider âmaterial which is properly submitted as part, of the complaintâ on a motion to dismiss without converting the motion to dismiss into a motion for summary judgment,â quoting Branch, 14 F.3d at 453). Finally, as Iron-ridge notes, the state court order approving the partiesâ stipulation, which is Exhibit F to Ironridgeâs request for judicial notice, is referenced in the complaint, and can be considered under the incorporation by reference doctrine. See United States v. Ritchie, 342 F.3d 903, 908 (9th Cir.2003) (acknowledging that a district court may assume that the contents of a document incorporated by reference âare true for purposes of a motion to dismissâ); In re Downey Sec. Litig., No. CV 08-3261-JFW,
B. Legal Standard Governing Motions to Dismiss under Rule 12(b)(6)
A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. A Rule 12(b)(6) dismissal is proper only where there is either a âlack of a cognizable legal theory,â or âthe absence of sufficient facts alleged under a cognizable legal theory.â Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.1988). The court must accept all factual allegations pleaded in the complaint as true, and construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir.1995).
The court need not, however, accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (âWhile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the âgroundsâ of his âentitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not doâ). Thus, a complaint must âcontain sufficient factual matter, accepted as true, to âstate a claim to relief that is plausible on its face.â ... A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.â Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see also Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (âFactual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)â (citations omitted)); Moss v. United States Secret Service, 572 F.3d 962, 969 (9th Cir.2009) (â[F]or a complaint to survive a motion to dismiss, the non-conclusory âfactual content,â and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief,â citing Iqbal and Twombly).
C. Whether the Court Should Dismiss Scripsâ Claims Based on the Rooker-Feldman Doctrine
1. Legal Standard Governing Application of the Rooker-Feldman Doctrine
Under the Rooker-Feldman doctrine, which takes its name from the Supreme Courtâs decisions in Rooker v. Fidelity Trust Co., 263 U.S. 413, 416, 44 S.Ct. 149, 68 L.Ed. 362 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 476, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983), a federal district court does not have subject matter jurisdiction to hear a direct appeal from a final judgment of. a state court. See Noel v. Hall, 341 F.3d 1148, 1155 (9th Cir.2003). A losing party in state court is thus barred from seeking what in substance would be appellate review of a state judgment in federal district court, even if the party contends the state judgment violated.his or her federal rights. Johnson v. DeGrandy, 512 U.S. 997, 1005-06, 114 S.Ct. 2647, 129 L.Ed.2d 775 (1994); Allah v. Superior Court, 871 F.2d 887, 891 (9th Cir.1989) (stating that Rooker-Feldman doctrine âapplies even though the direct challenge is anchored to alleged deprivations of federally protected due process and equal protection rightsâ), superseded by statute
The rationale behind the Rooker-Feldman doctrine is threefold. First, the only federal court with the power to hear appeals from state courts is the United States Supreme Court. Bennett v. Yoshina, 140 F.3d 1218, 1223 (9th Cir.1998). Second, state courts are as competent as federal courts to decide federal constitutional issues. Worldwide Church of God, 805 F.2d at 891. Third, âany other rule would result in a waste of judicial resources and unnecessary friction between state and federal courts.â Id.
âWhen there is parallel state and federal litigation, Rooker-Feldman is not triggered simply by the entry of judgment in state court. Th[e] [Supreme] Court has repeatedly held that âthe pendency of an action in the state court is no bar to proceedings concerning the same matter in the [fjederal court having jurisdiction.â â Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 292, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). âProceedings end for Rooker-Feldman purposes when the state courts finally resolve the issue that the federal court plaintiff seeks to reliti-gate in a federal forum, even if other issues remain pending at the state level.â Mothershed v. Justices of Supreme Court, 410 F.3d 602 (9th Cir.2005) (emphasis added). Thus, where a federal action is filed âwhile the state court action eontinue[s] in the appeals process in state court, the state proceedings ha[ve] not ended.â Nicholson v. Shafe, 558 F.3d 1266, 1278 (11th Cir.2009); Guttman v. Khalsa, 446 F.3d 1027, 1032 (10th Cir.2006) (âIn this case, Guttman filed his federal suit while his petition for certiorari to the New Mexico Supreme Court was pending. His state suit was not final. As such, the Rooker-Feldman doctrine does not bar his federal suit and the district court does have subject matter jurisdiction to hear the caseâ); Federacion de Maestros de Puerto Rico v. Junta de Relaciones del Trabajo de Puerto Rico, 410 F.3d 17, 24 (1st Cir.2005) (âExxon Mobil tells us when a state court judgment is sufficiently final for operation of the Rooker-Feldman doctrine: when âthe state proceedings [have] ended.â If federal litigation is initiated before state proceedings have ended, thenâeven if the federal plaintiff expects to lose in state court and hopes to win in federal courtâthe litigation is parallel, and the Rooker-Feldman doctrine does not deprive the court of jurisdictionâ).
In determining whether a plaintiffs federal claims are âinextricably intertwinedâ with a state court decision, a court cannot simply ââcompare the issues involved in the state-court proceeding to those raised in the federal-court plaintiff.â â Id. at 900 (quoting Kenmen Engineering v. City of Union, 314 F.3d 468, 476 (10th Cir.2002)). Rather, it must â âpay close attention to the relief sought by the federal-court plaintiff.â â Id. As the Ninth Circuit explained in Worldwide Church of God,
âclaims are inextricably intertwined if the district court must scrutinize not only the challenged rule itself, but the state courtâs application of the rule. If, in order to resolve the claim, the district court would have to go beyond mere review of the state rule as promulgated, to an examination of the rule as applied by the state court to the particular factual circumstances of the plaintiffs case, then the court lacks jurisdiction.â Worldwide Church of God, 805 F.2d at 892 (quotations and internal alterations omitted).
2. Application of Rooker-Feldman to the Facts of This Case
Ironridge argues that Scripsâ complaint should be dismissed for lack of subject matter jurisdiction because it is a de facto appeal from a final state court judgment and is thus barred by the Rooker-Feldman doctrine.
While the complaint contains allegations that Ironridge executed a scheme to defraud that induced Scrips to enter into the agreement and stipulation, these allegations appear to form the basis for its Rule 10b-5 claim, as opposed to its breach of contract and breach of the implied covenant/tortious bad faith claims. The Rule 10b-5 claim does not seek to invalidate the partiesâ agreement or the state court order approving the stipulation that embodied it. Rather, it seeks damages for securities fraud. This is an âindependentâ claim that is not barred by Rooker-Feldman. See Exxon Mobil, 544 U.S. at 293, 125 S.Ct. 1517 (âIf a federal plaintiff âpresents] some independent claim, albeit one that denies a legal conclusion that a state court has reached in a case to which he was a party ..., then there is jurisdiction and state law determines whether the defendant prevails under principles of preclusion,ââ quoting GASH Assocs. v. Rosemont, 995 F.2d 726, 728 (7th Cir.1993), and citing Noel, 341 F.3d at 1163-64); Great Western Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159, 173 (3d Cir.2010) (holding, in a case where plaintiff alleged that adverse judgments entered against it in state court were the result of a conspiracy between defendants and the Pennsylvania judiciary, that Rooker-Feld-man did not bar the claim because âwhile Great Westernâs claim for damages may require review of state-court judgments and even a conclusion that they were erroneous, those judgments would not have to be rejected or overruled for Great Western to prevailâ).
Similarly, Scripsâ breach of contract and breach of the implied covenants claims do not seek to invalidate the partiesâ agreement, or the stipulated order the state court entered approving the stipulation that embodied it. Rather, they seek damages based on Ironridgeâs purported breach of the express or implied terms of the agreement and stipulation.
Scripsâ declaratory relief claim, however, is of a different character. That claim requests that the court declare that Scrips âhas no obligation to meet [Iron-ridgeâs] demands [for additional stock] be
Scrips disputes this, arguing that it does not seek to have the court review the state court stipulated judgment, but rather Ironridgeâs âpost-settlement abuse of [that] judgment.â
For the reasons stated, the court denies Ironridgeâs motion to dismiss Scripsâ Rule 10b-5, breach of contract, and breach of the covenant/tortious bad faith claims un-* der the Rooker-Feldman doctrine. It also denies Ironridgeâs request to dismiss Scripsâ declaratory relief claim to the extent it seeks a declaration that it is not obligated to issue 1.6 million additional shares of stock to Ironridge as directed by the state courtâs enforcement order currently on appeal. It grants Ironridgeâs motion to the extent Scrips seeks a declaration that it be excused altogether from performing under the terms of the stipulated judgment.
D. Whether the Court Should Abstain from Deciding Scripsâ Claims under Younger v. Harris 1. Legal Standard Governing Abstention under Younger
Under the doctrine first articulated in Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), federal courts must abstain from hearing cases that would interfere with pending state court proceedings that implicate important state interests. Potrero Hills Landfill, Inc. v. County of Solano, 657 F.3d 876, 881 (9th Cir.2011) (citing Middlesex County Ethics Comm. v. Garden State Bar Assân, 457 U.S. 423, 432, 102 S.Ct. 2515, 73 L.Ed.2d 116 (1982)). The doctrine is justified by considerations of comity; âa proper respect for state functions, a recognition of the fact that the entire country is made up of a Union of separate state governments, and a continuance of the belief that the National Government will fare best if the States and their institutions are left free to perform their separate functions in their separate ways.â Younger, 401 U.S. at 44, 91 S.Ct. 746.
âAbsent âextraordinary circumstances,â abstention in favor of state judicial proceedings is required if the state
While the Supreme Court has never directly addressed the subject, the Ninth Circuit has held âthat Younger principles apply to actions at law as well as for injunctive or declaratory relief.â Gilbertson, 381 F.3d at 968 (reasoning that âa determination that the federal plaintiffs constitutional rights have been violated would have the same practical effect as a declaration or injunction on pending state proceedingsâ). If, in a case in which the plaintiff seeks damages, the court determines that the Younger abstention is appropriate, it should stay the matter until the state court proceedings are concluded, rather than dismissing the action. Id. at 981-82.
2. Application of Younger to the Facts of this Case
Ironridge argues that the court should dismiss Scripsâ complaint under Younger because this action is âa blatant attempt to interfere with the enforcement of the stipulated judgment.â
Ironridge argues that the second threshold requirement is met as well, because the state court enforcement proceeding implicates an important state interest, i.e., the stateâs âinterest in enforcing the orders and judgments of its courts.â See Sprint Communications, Inc. v. Jacobs, â U.S. -, 134 S.Ct. 584, 588, 187 L.Ed.2d 505 (2013) (citing Pennzoil Co. v. Texaco Inc., 481 U.S. 1, 107 S.Ct. 1519, 95 L.Ed.2d 1 (1987)). Scrips counters that this action does not involve the type of matters that
As the Ninth Circuit has cautioned, however, â[t]aken out of context, these statements suggest that Californiaâs interest in enforcing the judgment in this particular case is of sufficient importance to meet Youngerâs second threshold element.â See AmerisourceBergen, 495 F.3d at 1150 (emphasis original). That court has âmade it clear that â[t]he importance of the [stateâs] interest is measured by considering its significance broadly, rather than by focusing on the stateâs interest in the resolution of an individual case.â â Id. (quoting Baffert v. Cal. Horse Racing Bd., 332 F.3d 613, 618 (9th Cir.2003)); see also Champion Intâl Corp. v. Brown, 731 F.2d 1406, 1408 (9th Cir.1984) (â[A] challengef] [to] only one ... order, not the whole procedureâ is ânot a substantial enough interference with [a stateâs] administrative and judicial processes to justify abstentionâ). âAccordingly, binding [Ninth Circuit] precedent prevents the court from finding that Californiaâs interest in enforcing this one particular judgment â as. opposed to a stateâs wholesale interest in preserving its procedure for posting an appeal bond [see Pennzoil Co., 481 U.S. at 12-14, 107 S.Ct. 1519], or its interest in retaining ĂĄ particular contempt of court scheme [see Juidice v. Vail, 430 U.S. 327, 330, 335, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977) ], â qualifies as sufficiently âimportantâ to satisfy Youngerâs second threshold element.â Id. For this reason, the court cannot dismiss Scripsâ complaint based on Younger abstention.
1. The Colorado River Doctrine
Ironridge next asserts that the action should be dismissed or stayed under Colorado River Water Conservation District v. United States, 424 U.S. 800, 817, 96 S.Ct. 1286, 47 L.Ed.2d 488 (1976), which applies âin situations involving the contemporaneous exercise of concurrent jurisdictions [.]â âIn Colorado River, the Supreme Court was concerned with the problem posed by the contemporaneous exercise of concurrent jurisdiction by state and federal courts.â Smith v. Central Ariz. Water Conservation Dist., 418 F.3d 1028, 1032-33 (9th Cir.2005) (citing Gilbertson, 381 F.3d at 982 n. 17). âIn such cases, the Court recognized there may be circumstances in which traditional abstention principles do not apply, yet considerations of wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation, nonetheless justify a decision to stay or dismiss federal proceedings pending resolution of concurrent state court proceedings.â Smith, 418 F.3d at 1033 (internal quotation marks and citations omitted). âSuch circumstances are, however, exceedingly rare. As [the Ninth Circuit] previously observed, the Colorado River doctrine is a narrow exception to the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them.â Id.
âTo decide whether a particular case presents the exceptional circumstances that warrant a Colorado River stay or dismissal, the district court must carefully consider âboth the obligation to exercise jurisdiction and the combination of factors counseling against that exercise.â â R.R. Street & Co. Inc. v. Transport Ins. Co., 656 F.3d 966, 978 (9th Cir. 2011) (quoting Colorado River, 424 U.S. at 818, 96 S.Ct. 1236). The Ninth Circuit has identified eight factors useful in assessing the propriety of a stay or dismissal under Colorado River. These are: â(1) which
As an initial matter, Ironridge seeks a Colorado River stay only as to Scripsâ breach of contract, breach of implied covenant/tortious bad faith, and declaratory relief claims. It acknowledges that the state court has no concurrent jurisdiction to hear Scripsâ Rule 10b-5 claim, and thus does not seek to have the court should stay that claim. See Intel Corp. v. Advanced Micro Devices, Inc., 12 F.3d 908, 913 n. 7 (9th Cir.1993) (âthe circuit courts, and the Ninth Circuit in particular, have uniformly held that a district court may not grant a stay in [cases involving claims subject to exclusive federal jurisdiction]â); Minucci v. Agrama, 868 F.2d 1113, 1115 (9th Cir. 1989) (âthe Colorado River doctrine only applies to claims under the concurrent jurisdiction of the federal and state courtsâ); Silberkleit v. Kantrowitz, 713 F.2d 433, 436 (9th Cir.1983) (âthe district court has no discretion to stay proceedings as to claims within exclusive federal jurisdiction under the wise judicial administration exceptionâ); Krieger v. Atheros Communications, Inc., 776 F.Supp.2d 1053, 1058 (N.D.Cal.2011) (holding Colorado River did not apply to claims under the Securities Exchange Act because such claims fall within the exclusive jurisdiction of federal courts).
The Ninth Circuit has not addressed the propriety of issuing a partial Colorado River stay. District courts in the Ninth Circuit have repeatedly found partial stays permissible, however, âwhere some, but not all, of a federal plaintiffs claims are pending in a parallel state action.â Krieger, 776 F.Supp.2d at 1060-61 (staying plaintiffs state law class action claims while permitting federal securities law claims to proceed); see also Taylor v. AlliedBarton Sec. Servs. LP, No. 13-CV-01613-AWI, 2014 WL 1329415, *5 n. 6 (E.D.Cal. Apr. 1, 2014) (observing that â[c]ourts in the Ninth Circuit have [ ] held that a partial stay of proceedings is authorized under the Colorado River doctrine,â and staying state law claims while permitting a Fair Labor Standards Act claim to proceed); Sperber-Porter v. Kell, No. CV-08-01424-PHX-GMS, 2009 WL 1600689, *5 (D.Ariz. June 8, 2009) (âFinally, Plaintiffs do not disagree that the Courtâs stay of the declaratory judgment claim was proper. Plaintiffs confĂne their motion to- arguing that the Court should not have stayed the breach of contract claim, and Plaintiffs have never disputed that their declaratory judgment claim regarding the meaning of paragraph fifteen of the settlement agreement is identical to
2. Whether a Stay Under Colorado River Would Be Appropriate
âThe threshold question in deciding whether Colorado River abstention is appropriate is whether there are parallel federal and state suits.â Chase Brexton Health Services, Inc. v. Maryland, 411 F.3d 457, 463 (4th Cir.2005). In the Ninth Circuit, âexact parallelism [between the two suits] ... is not required. It is enough if the two proceedings are âsubstantially similar.â â Nakash v. Marciano, 882 F.2d 1411, 1416 (9th Cir.1989); see also County of Marin v. Deloitte Consulting LLP, No. C 11-00381 SI, 2011 WL 3903222, *1 (N.D.Cal. Sept. 6, 2011) (âThe threshold for applying the Colorado River doctrine is whether the two cases are substantially similar. Substantial similarity does not mean that the cases must be identicalâ). This inquiry examines whether the suits involve the same parties and the same claims. See Nakash, 882 F.2d at 1416 (âThe present parties are all named in the California suitâ); see also Illinois School Dist. Agency v. Pacific Ins. Co., Ltd., 471 F.3d 714, 718 (7th Cir.2006) (âThe court also rejected Pacificâs argument that the district court should abstain
In determining whether two suits are substantially similar, if the district court has âa substantial doubt as to whether the state proceedings will resolve the federal action [the doubt] precludes the granting of a [Colorado River ] stay.â Intel Corp. v. Advanced Micro Devices, Inc., 12 F.3d 908, 913 (9th Cir.1993). As the Supreme Court has noted,
â[w]hen a district court decides to dismiss or stay under Colorado River, it presumably concludes that the parallel state-court litigation will be an adequate vehicle for the complete and prompt resolution of the issues between the parties. If there is any substantial doubt as to this, it would be a serious abuse of discretion to grant the stay or dismissal at all. Thus, the decision to invoke Colorado River necessarily contemplates that the federal court will have nothing further to do in resolving any substantive part of the case, whether it stays or dismisses.â Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 28, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).
For this reason, â[a] district court may enter a Colorado River stay order only if it has âfull confidenceâ that the parallel state proceeding will end the litigation.â Intel, 12 F.3d at 913 (citing Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 277, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988)).
The state court action and this action involve the same parties; their respective positions as plaintiff and defendant are simply reversed. The state action does not involve the federal securities claim; as noted, however, the court will not stay that claim. As for the claims that are subject of Ironridgeâs Colorado River motion â Scripsâ breach of contract, breach of implied covenant/tortious bad faith, and declaratory relief claims â the court concludes that the claims are, if not exactly parallel, certainly substantially similar, as the factual basis for all of the claims is nearly identical. Specifically, Scripsâ claims in this action assert that Ironridge breached the stipulationâs express and implied terms; these are the same claims it raised as a defense to Ironridgeâs application for an order enforcing the stipulation
The relief Scrips seeks, moreover, also appears to be the substantially identical in both actions. In state court, Scrips seeks, inter alia, to avoid having to issue more shares of stock pursuant to the stipulation. This is what Scrips seeks here as well, in addition to damages for securities fraud and breach of express and implied terms of the partiesâ agreement. Consequently, it appears the actions are substantially similar, and that the federal action is a âspin-offâ of more comprehensive state litigation. See Nakash, 882 F.2d at 1416 (noting that courts âshould be particularly reluctant to find that ... actions [a]re not parallel when the federal action [was] but a âspin off of more comprehensive state litigationâ). Because there is substantial overlap between the factual allegations, legal issues, and relief sought in the state and federal actions, the court concludes that the threshold requirement of parallel federal and state actions is met.
3. Examining the Colorado River Factors
a. The Desire to Avoid Piecemeal Litigation
âPiecemeal litigation occurs when different tribunals consider the same issue, thereby duplicating efforts and possibly reaching different results.â Am. Intâl Underwriters, (Philippines), Inc. v. Continental Ins. Co., 843 F.2d 1253, 1258 (9th Cir.1988). âThe mere possibility of piecemeal litigation does not constitute an exceptional circumstance.â R.R. Street & Co. Inc., 656 F.3d at 980. Rather, âthe case must raise a âspecial concern about piecemeal litigation,â which can be remedied by staying or dismissing the federal proceeding.â Id. (quoting Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 1369 (9th Cir.1990)).
The parties dispute whether the state and federal actions raise the same issues. Ironridge contends that the issues are essentially identical. The state court ordered Scrips to issue 1.6 million shares of stock to Ironridge, and Scrips now seeks declaratory relief, inter alia, that it need not do so; its damages claims, moreover, are based on the fact that it had to
Adjudication of the federal case will unquestionably involve addressing many of the same, if not all of the same, issues that are being litigated in state court. These include whether (1) Ironridgeâs trading activity was a breach of the express or implied terms of the stipulation; and (2) whether Scrips was required to issue additional shares as contemplated by the contractual formula set forth in the stipulation.
b. The Order in Which' the Forums Obtained Jurisdiction
This factor addresses the sequence in which the courts obtained jurisdiction over the action, and examines the relative progress of each case. See R.R. Street & Co., Inc., 656 F.3d at 980; see also Moses H. Cone Mem. Hospital, 460 U.S. at 21, 103 S.Ct. 927 (holding that courts should apply this factor âin a pragmatic, flexible manner with a view to the realities of the case at handâ). â[PJriority 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.â Moses H. Cone Mem. Hospital, 460 U.S. at 21, 103 S.Ct. 927.
The state court action was filed on October 11, 2013;
c. Whether Federal or State Law Provides the Rule of Decision on the Merits and Whether the State Court Proceedings Can Adequately Protect the Rights of the Federal Litigants
The court addresses these factors in tandem, as they raise overlapping issues. While âthe presence of federal-law issues must always be a major consideration weighing against surrenderâ of jurisdiction, Ironridge does not seek a stay of Scripsâ Rule 10b-5 claim. Moses H. Cone Mem. Hospital, 460 U.S. at 25, 103 S.Ct. 927. Scripsâ breach of contract, breach of the covenant/tortious bad faith, and declaratory relief claims arise under state law. State law will therefore provide the rule of decision with respect to these claims. The existence of state law issues, by itself, does not outweigh the federal courtâs obligation to provide a prompt resolution of all the claims before it, state and federal. See Travelers Indem., 914 F.2d at 1370 (stating that the presence of state law issues weighs against jurisdiction only in ââin some rare circumstances,â â and that the fact that the case raised only âroutine issues of state law â misrepresentation, breach of fiduciary duty, and breach of contractâwhich the district court [was] fully capable of decidingâ did not reflect such ârare circumstancesâ). Since Scripsâ state law claims involve routine issues of state law that this court is fully capable of deciding, there are no ârare circumstancesâ here that would justify a stay. See Travelers Indem., 914 F.2d at 1370; Melt Franchising, LLC, 2008 WL 4811097, at *3 (finding this factor weighed against dismissal or stay because state law claims were routine). Accordingly, this factor weighs against staying the federal action.
The next factor asks whether the state court proceeding can adequately protect the rights of the federal litigants. âA district court may not stay or dismiss the federal proceeding if the state proceeding cannot adequately protect the rights of the federal litigants. For example, if there is a possibility that the parties will not be able to raise their claims in the state proceeding, a stay or dismissal is inappropriate.â R.R. Street & Co. Inc., 656 F.3d at 981; see also Holder, 305 F.3d at 871 (stating that the state forum was inadequate because the âstate court proceedings [would] not reach the key issues that must be adjudicated to get reliefâ); Travelers Indem., 914 F.2d at 1370 (âThis factor involves the state courtâs adequacy to protect federal rights, not the federal courtâs adequacy to protect state rights,â and â âis more important when it weighs in favor of federal jurisdiction,â â quoting Bethlehem Contracting Co. v. Lehrer/McGovern, Inc., 800 F.2d 325, 328 (2d Cir.1986)); compare American Intern. Underwriters, 843 F.2d at 1259 (â[T]he state court procedure in this case that AIU labels inadequate is nothing more than a set of evidentiary rules AIU does not like. As Continental
Here, Scrips does not contend it is inadequately protected in state court. The Court of Appeal and Superior Court can unquestionably adequately protect its rights. However, the Ninth Circuit âhas not applied this factor against the exercise of federal jurisdiction, only in favor of it.â Travelers Indent., 914 F.2d at 1370. It has suggested, moreover, that âthe possibility that the state court proceeding might adequately protect the interests of the parties is not enough to justify the district courtâs deference to the state action. This factor, like choice of law, is more important when it weighs in favor of federal jurisdiction.â Id. (quoting Bethlehem Contracting Co., 800 F.2d at 328). Thus, because these claims involve state law issues, this factor is of little or no weight here. See id. (âThus, this factor is of little or no weight here; âunhelpfulâ is an apt characterization.â).
d. The Desire to Avoid Forum Shopping
âTo avoid forum shopping, courts may consider âthe vexatious or reactive nature of either the federal or the state litigation.â â R.R. Street & Co. Inc., 656 F.3d at 981 (quoting Moses H. Cone Mem. Hospital, 460 U.S. at 17 n. 20, 103 S.Ct. 927); see also American Intern. Underwriters, 843 F.2d at 1259 (âAfter two-and-a-half years, AIU is abandoning its state court case solely because it believes that the Federal Rules of Evidence are more favorable to it than the state evidentiary rules. This epitomizes forum shoppingâ).
Ironridge portrays this action as an egregious example of forum shopping by Scrips. Scrips does not respond directly, but asserts that it filed in federal court because the court has exclusive jurisdiction over its securities fraud claim. As respects Scripsâ breach of contract, breach of implied covenant/tortious bad faith, and declaratory relief claims, the reactive nature of the suit suggests forum shopping, as Scrips filed this action only days after it appealed the state courtâs enforcement order that implicitly rejected claims that Ir-onridge breached the stipulationâs express and implied terms and that required it to issue 1.6 million additional shares of stock. It thus appears that Scrips may have concluded it does not have a good Chance of prevailing on appeal and opted to pursue its claims in a new venue. See Conte v. Aargon Agency, Inc., No. 2:12-cv-02811-MCE-DAD, 2013 WL 1907722, *5 (E.D.Cal. May 7, 2013) (âPlaintiffs filing of her class action complaint in this Court appears to be an attempt to forum shop and avoid the state courtâs adverse ruling. The âreactive natureâ of the federal litigation is quite clear because Plaintiff filed her federal action shortly after the state courtâs ruling ^denying Plaintiff leave to amend her complaint to add a Section 632 claim.... Thus, it is obvious to the Court that Plaintiff, like [the] plaintiff in Nakash, has become dissatisfied with the state courtâs decision on the merits of her claim and now seeks a new forum to litigate that claim. The Ninth Circuit and this Court alike have no interest in encouraging Plaintiff s forum shopping practice. Thus, the seventh factor â the desire to avoid forum shopping â weighs strongly in favor of dismissal of the instant federal actionâ); see also Hume v. Bankhead, 108 F.3d 1385, 1997 WL 121202, *2 (9th Cir. Mar. 17, 1997) (Unpub.Disp.) (âFinally, the nature and timing of Humeâs federal action indicates that Hume impermissibly sought to avoid the adverse state court ruling by forum shopping. Here, the state court
The fact Scrips pled a Rule 10b-5 claim in addition to state law claims tempers this conclusion somewhat. See R.R. Street & Co., 656 F.3d at 982 (âPrior to filing the Federal Action, Street/National Union had not previously asserted their claims against Transport, and we are cautious about labeling as âforum shoppingâ a plaintiffs desire to bring previously unasserted claims in federal courtâ). Nonetheless, particularly given the timing of the suit, the court concludes that this factor weighs slightly in favor of staying the ease,
e. Whether the State Court Proceedings Will Resolve All Issues Before the Federal Court
The last, and most important, factor is whether state court proceedings will conclusively resolve all issues pending in federal court. â[T]he existence of a substantial doubt as to whether the state proceedings will resolve the federal action precludes the granting of a [Colorado River] stay.â Intel Corp., 12 F.3d at 913. âWhen a district court decides to dismiss or stay under Colorado River, it presumably concludes that the parallel state-court litigation will be an adequate vehicle for the complete and prompt resolution of the issues between the parties. If there is any substantial doubt as to this, it would be a serious abuse of discretion to grant the stay or dismissal at all.... â Id. (quoting Moses H. Cone Memorial Hospital, 460 U.S. at 28, 103 S.Ct. 927).
The only critical difference the court perceives between the state and federal actions is the presence of a securities fraud claim that cannot be adjudicated in state court. Scripsâ declaratory relief claim seeks a declaration that it need not issue any additional shares (including the 1.6 million shares the state court has ordered it to issue) to Ironridge; as respects the 1.6 million shares Scrips is required to issue pursuant -to the enforcement order, there is absolute identity between the actions. To the extent the declaratory relief claim seeks a declaration that Scrips need not issue other shares in the future, its claim in this court is not identical to its position in the state court action. Despite this fact, a determination as to whether Ironridgeâs trading conduct was a breach of the express or implied terms of the stipulation will resolve whether Scrips need issue additional shares as required by the formula set forth in the stipulation, since its only argument that it should not be compelled to do so is that Ironridge breached the express and/or implied contract terms. While Scrips has not asserted counterclaims for breach of contract or breach of the implied covenant in state court, it has raised and litigated all of the issues those claims present â i.e., that Ir-onridge acted unlawfully under the stipulated judgment. As Ironridge puts it, Scrips âhas simply repackaged [its] defenses to the enforcement order as claims for fraud, breach of contract, and bad faith.â
â âRes judicataâ describes the preclusive effect of a final judgment on the merits. Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them. Collateral estoppel, or issue preclusion, âprecludes relitigation of issues argued and decided in prior proceedings.â â Mycogen Corp. v. Monsanto Co., 28 Cal.4th 888, 896, 123 Cal.Rptr.2d 432, 51 P.3d 297 (2002) (quoting Lucido v. Superior Court, 51 Cal.3d 335, 341, 272 Cal.Rptr. 767, 795 P.2d 1223 (1990)). âIn the case of issue preclusion, it must appear that the first matter presented some issue that is necessary to the later claim or defense, and that the issue was actually litigated and necessarily decided.â See In re Fireside Bank Cases, 187 Cal.App.4th 1120, 1127, 115 Cal. Rptr.3d 80 (2010). Issue preclusion bars later claims based on issues that were raised or could have been raised as affirmative defenses in the former action. See Sutphin v. Speik, 15 Cal.2d 195, 202 (1940) (â[Issue preclusion] also operates to demand of a defendant that all his defenses to the cause of action urged by the plaintiff be asserted under the penalty of forever losing the right to thereafter so urge them,â quoting Price v. Sixth District, 201 Cal. 502, 511, 258 P. 387 (1927)); Anolik v. Deatsch, No. C060331, 2010 WL 3002793, *4 (Cal.App. Aug. 2, 2010) (Unpub.Disp.) (affirming the trial courtâs determination that a retaliatory eviction claim was precluded because in a prior unlawful detainer action, plaintiff, as the defendant, asserted retaliatory eviction as a defense); Snyder v. Ashkenazy Enterprises, Inc., 277 Cal.Rptr. 788, 802 (Cal.App. Jan. 30, 1991) (Unpub.Disp.) (finding that a claim related to compliance with a rent stabilization ordinance had been actually litigated and decided in prior actions because it had been raised as affirmative defense, and holding alternatively that even if the claim âhad not been raised as an affirmative defense [in the prior suit], the issue would now be barred since it could have been raised in the prior actionsâ).
Here, Scrips asserted defenses to the enforcement order that included breach of contract and breach of the implied covenant. It argued that Ironridge had violated the âexpress terms of the settlementâ by, inter alia, âshort selling, dumping, and/or through other tactics ... artificially depressing] the value of Scrips stock, which, in turn, has resulted in larger share issuances to Ironridge under the adjustment feature of the stipulation.â
Colorado River and its progeny permit abstention âif [the court] has full confidence that the parallel state proceeding will âbe an adequate vehicle for the complete and prompt resolution of the issues between the parties.â â Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 277, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988) (quoting Moses H. Cone Memorial Hospital, 460 U.S. at 28, 103 S.Ct. 927). The court concludes that this standard is met. The appellate court will either affirm the enforcement order, barring relitigation here of Scripsâ claims that Ironridge breached the express or implied contract terms, or reverse, holding that Scrips has no obligation to issue the shares because of Ironridgeâs breach. The, state courtâs determination will also resolve Scripsâ declaratory relief claim, which is premised on allegations that Ironridge breached the stipulation. The state court will expressly decide whether Scrips must issue the 1.6 million shares that are the .subject of the enforcement order, and the basis for this decision will control whether Scrips must perform' according to the formula in the stipulation in the future as well. Thus, the issues underlying the federal claims will be fully and finally resolved by the state court. For this reason, there is no substantial doubt that the state court action will resolve all of the issues raised by Scripsâ breach of contract, breach of the covenant/tortious bad faith, and declaratory relief claims.
f. Balancing the Colorado River Factors
In sum, Scripsâ state law claims in this action are nearly identical to the issues it raised in opposition to Ironridgeâs application for an order enforcing the stipulation and compelling the issuance of 1.6 million additional shares of Scrips stock. That application was filed, was decided on the merits in the trial court, and was appealed before this action was commenced. Final decision of the state court action will resolve whether Ironridge breached the express terms of the stipulation and/or the covenant of good faith and fair dealing implied therein. That determination will resolve whether Scrips must issue the additional 1.6 million shares that are the subject of the enforcement order, and/or other shares in the future pursuant to the formula in the stipulation. Exercising jurisdiction over Scripsâ breach of contract, breach of implied covenani/tortious bad faith and declaratory relief claims would therefore result in needlessly duplicative effort and present the potential for conflicting state and federal judgments on the same issues. â While there is no strong federal policy against piecemeal litigation in this instance, there is some indication that Scrips filed this action to forum shop following an adverse ruling by the state trial court. On balance, therefore, the court concludes that it is appropriate to stay Scripsâ claims for breach of contract, breach of the covenant/tortious bad faith, and declaratory relief under the Colorado River doctrine.
F. Whether the Court Should Dismiss Scripsâ Rule 10b-5 Claim
Ironridge argues that Scripsâ Rule 10b-5 claim fails for several reasons. First, it
1. Legal Standard Governing the Pleading of Securities Fraud Claims
âA securities fraud complaint under § 10(b) and Rule 10b-5 must satisfy the dual pleading requisites of Federal Rule of Civil Procedure 9(b) and the [Private Securities Litigation Reform Act (âPSLRAâ), 15 U.S.C. § 78u-4].â In re . VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 701 (9th Cir.2012). Rule 9(b) of the Federal Rules of Civil Procedure provides that the âcircumstances constituting fraud or mistake shall be stated with particularity.â Fed. R. Civ. Proc. 9(b). âGenerally, a plaintiff must plead âwith particularityâ the time and place of the fraud, the statements made and by whom made, an explanation of why or how such statements were false or misleading when made, and the role of each defendant in the alleged fraud.â See Cirulli v. Hyundai Motor Co., No. SACV 08-0854 AG (MLGx), 2009 WL 5788762, *4 (C.D. Cal. June 12, 2009) (citing In re GlenFed, Inc. Securities Litigation, 42 F.3d 1541, 1547-49 (9th Cir. 1994) (en banc); Lancaster Community Hospital v. Antelope Valley Hosp. Dist., 940 F.2d 397, 405 (9th Cir.1991)); see also Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.2007) (âGenerally, a plaintiff must plead the âtime, place, and specific contentâ of allegedly fraudulent conduct to satisfy Rule 9(b)â).
Thus, a securities fraud claim cannot survive a motion to dismiss merely by alleging that certain statements were false. Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1070 (9th Cir. 2008) (âA litany of alleged false statements, unaccompanied by the pleading of specific facts indicating why those statements were false, does not meet th[e Rule 9(b) ] standardâ); see also In re Oracle Corp. Securities Litigation, 627 F.3d 376, 390 (9th Cir.2010) (âPlaintiffs must âdemonstrate that a particular statement, when read in light of all the information then available to the market, or a failure to disclose particular information, conveyed a false or misleading impression,â â quoting In re Convergent Technologies Securities Litigation, 948 F.2d 507, 512 (9th Cir. 1991)). Rather, the complaint must allege âwhy the disputed statement was untrue or misleading when made.â In re Glen-Fed Inc. Securities Litigation, 42 F.3d 1541, 1549 (9th Cir.1994) (en banc) (emphasis added). It must also provide specifics concerning who made the statement and when it was made.
In 1995, Congress passed the PSLRA, which amended the Securities Exchange Act of 1934. The PSLRA modified Rule 9(b)âs particularity requirement, âproviding that a securities fraud complaint [must] identify: (1) each statement alleged to have been misleading; (2) the reason or reasons why the statement is misleading; and (3) all facts on which that belief is formed.â 15 U.S.C. § 78u-4(b)(1); see In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 996 (9th Cir.1999). The statute requires that, in pleading that each allegedly misleading statement or omission was made with scienter, the plaintiff âstate with particularity ... facts giving rise to a strong inference that the defendant acted with the required state of mind.â 15 U.S.C. § 78u-4(b)(2). If the complaint does not contain such allegations, it must be dismissed. 15 U.S.C. § 78u-
In enacting the PSLRA, âCongress âimposefd] heightened pleading requirements in actions brought pursuant to § 10(b) and Rule 10b-5.â â Tellabs, 551 U.S. at 320, 127 S.Ct. 2499 (citing Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006)). The PSLRAâs requirements âpreventf ] a plaintiff from skirting dismissal by filing a complaint laden with vague allegations of deception unaccompanied by a particularized explanation stating why the defendantâs alleged statements or omissions are deceitful.â Metzler, 540 F.3d at 1061 (citing Falkowski v. Imation Corp., 309 F.3d 1123, 1133 (9th Cir.2002)).
2. Legal Standard Governing Liability Under Section 10(b) and Rule 10b-5
Rule 10b-5, promulgated by the Securities and Exchange Commission pursuant to section 10(b) of the 1934 Act, makes it unlawful for any person to use âmanipulative or deceptive device[s]â in connection with the purchase or sale of securities. 15 U.S.C. § 78j(b). Specifically, one cannot â(a) ... employ any device, scheme, or artifice to defraud; (b) ... make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) ... engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.â 17 C.F.R. § 240.10b~5.
âRegardless of whether a § 10(b) plaintiff alleges a misrepresentation, omission, or manipulation, he must plead and prove the following elements: (1) ... use or employment of] a[] manipulative or deceptive device or contrivance; (2) scien-ter, i.e.[,] [a] wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance, often referred to.... as transaction causation; (5) economic loss; and (6) loss causation, i.e. [,] a causal connection between the manipulative or deceptive device or contrivance and the loss.â Desai v. Deutsche Bank Secs. Ltd., 573 F.3d 931, 939 (9th Cir.2009) (internal quotation marks omitted); see also Simpson v. AOL Time Warner Inc., 452 F.3d 1040, 1047 (9th Cir.2006), vacated on other grounds by Avis Budget Group, Inc. v. Cal. State Teachersâ Ret. Sys., 552 U.S. 1162, 128 S.Ct. 1119, 169 L.Ed.2d 945 (2008).
In addition to pleading falsity adequately, the pleading must âstate with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.â 15 U.S.C. § 78u-4(b)(2). âScienterâ refers to âa mental state embracing intent to deceive, manipulate, or defraud.â Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). The Ninth Circuit has articulated a âtwo-part inquiry for scienter: first, [the court must] deter
The Ninth Circuit has emphasized that, to allege scienter, âplaintiffs âmust plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct.â â Middlesex Retirement System v. Quest Software Inc., 527 F.Supp.2d 1164, 1179 (C.D.Cal.2007) (quoting Silicon Graphics, 183 F.3d at 974); see also Silicon Graphics, 183 F.3d at 977 (ârecklessness only satisfies scienter under § 10(b) to the extent that it reflects some degree of intentional or conscious misconductâ). The requisite state of mind must be a â âdeparture from the standards of ordinary care [that] presents a danger of misleading buyers that is either known to the defendant or so obvious that the actor must have been aware of it.ââ Zueco Partners, 552 F.3d at 991 (quoting Silicon Graphics, 183 F.3d at 984). If plaintiff relies on allegations of recklessness, the pleading standard requires that it âstate specific facts indicating no less than a degree of recklessness that strongly suggests actual intent.â Silicon Graphics, 183 F.3d at 979. Allegations of mere negligence are insufficient. Glazer Capital Management, LP v. Magistri, 549 F.3d 736, 748 (9th Cir.2008) (âAt most, it creates the inference that he should have known of the violations. This is not sufficient to meet the stringent scienter pleading requirements of the PSLRAâ); Police Retirement Systems of St. Louis v. Intuitive Surgical, Inc., No. 10-CV-03451-LHK, 2011 WL 3501733, *7 (N.D.Cal. Aug. 10, 2011) (â[T]he Ninth Circuit defines ârecklessnessâ as a highly unreasonable omission [or misrepresentation], involving not merely simple, or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must 'have been aware of itâ).
âTo qualify as âstrongâ within the intendment of ... the PSLRA ... an inference of scienter must be more than merely plausible or reasonableâit must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.â Tellabs, 551 U.S. at 314, 127 S.Ct. 2499 (emphasis added). â[C]ourts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss.... The inquiry ... is whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.â Id. at 322-23, 127 S.Ct. 2499 (emphasis original).
In determining whether a plaintiff has alleged facts giving rise to a strong inference of scienter, the court must draw all reasonable inferences from the allegations presented, including inferences unfavorable to plaintiffs. Gompper v. VISX, Inc., 298 F.3d 893, 897 (9th Cir. 2002). âHowever, the âinference that the defendant acted with scienter need not be irrefutable, i.e., of the âsmoking-gunâ genre, or even the âmost plausible of competing inferences.â ... [T]he inference of scienter must be more than merely âreasonableâ or âpermissible[,]â [however]âit
The Ninth Circuit often treats the falsity and scienter analyses as âa single inquiry, because falsity and scienter are generally inferred from the same set of facts.â In re New Century, 588 F.Supp.2d 1206, 1227 (C.D.Cal.2008) (citing In re Read-Rite Corp., 335 F.3d 843, 846 (9th Cir.2003), abrogated by Tellabs on other grounds, as recognized in South Ferry LP, No. 2 v. Killinger, 542 F.3d 776 (9th Cir.2008), and Ronconi v. Larkin, 253 F.3d 423, 429 (9th Cir.2001)). The court therefore analyzes Scripsâ falsity and scienter allegations in tandem below.
3. Whether Scrips Has Pled False or Misleading Statements or Manipulative Conduct with Particularity
Ironridge argues that Scrips fails to identify any false or misleading statements, or to explain why its actions or statements were purportedly false.
Scrips does not respond to these arguments; it contends instead that its allegations concern market manipulation.
Scrips pleads only that Ironridge sold more shares than it purportedly agreed to sell within a given period, which violated an alleged oral agreement not to sell an amount of Scrips stock that exceeded 10 % of the total shares traded on any given day. Deception arises when an investor is erroneously led to believe that the price of the security in question is driven by the â ânatural interplay of supply and demand, not rigged by manipulators.â â Desai, 573 F.3d at 944 (quoting Gurary v. Winehouse, 190 F.3d 37, 45 (2d Cir.1999)). â[Nondisclosure is usually essential to the success of a manipulative scheme.â Santa Fe Indus., Inc., 430 U.S. at 477, 97 S.Ct. 1292; see also In re UBS Auction Rate Sec. Litig., No. 08-CV-2967(LMM), 2010 WL 2541166, *17 (S.D.N.Y. June 10, 2010) (same). Thus, â[t]he market is not mis[led] when a transactionâs terms are fully disclosed.â See In re Bank of Am. Corp., No. 09-MD-02014 JSW, 2011 WL 740902, *7 (N.D.Cal. Feb. 24, 2011) (citing In re Merrill Lynch Auction Rate Sec. Litig., 704 F.Supp.2d 378, 390 (S.D.N.Y.2010) (internal quotation marks omitted)).
Here, the terms of the partiesâ agreement were disclosed in filings in the state court action â specifically, the stipulated judgment. As a result, Scrips â whose board approved the agreement and stipulation, and whose CEO stated that the terms of the stipulated agreement were fairâ cannot contend that the transactionâs terms were not fully disclosed. The partiesâ agreement, and hence the stipulated judgment, placed no cap on the number of Scrips shares Ironridge could sell in any given period; it provided, in fact, that the shares were âunrestrictedâ and âfreely tradable,â and that Ironridge could âsell any of its shares of [Scrips] common stock issued pursuant to the [settlement] at any time.â
S.E.C. v. Ficeto, 839 F.Supp.2d 1101 (C.D.Cal.2011), and S.E.C. v. Masri, 523 F.Supp.2d 361 (S.D.NY.2007), cited by Scrips, do not compel a different result. In Ficeto, the SEC alleged that defendants had engaged in âmatched orders,â âmarking the closeâ transactions, and wash trades â techniques that are âintended to mislead investors by artificially affecting market activity.â 839 F.Supp.2d at 1104. The SEC asserted that defendants carried out matched orders and wash trades by directing traders to execute buy and sell orders for stocks at specific times and in specific quantities; they used multiple brokers to buy and sell the same shares, and then reported the trades to FINRA, which publicly disseminated the trading price and volume to the market. This, in turn, gave the false impression of high trading volume when in fact the shares remained in the same hands. As a result of their actions, defendants allegedly made millions of dollars from stock sales, sales credits, commissions, and fees. Id. By contrast, here, Scrips alleges only that it was misled by Ironridgeâs statements and assurances regarding the amount of stock it would sell in a given period â statements that were not contained in the stipulated judgment or known to the market trading in its stock. Scrips does not complain that investors in its stock were misled as to the effect of Ironridgeâs trading activity. See
Masri is no more helpful. First, it is an out-of-circuit district court case that is not binding on the court. Second, Scripsâ allegations are quite different than those the SEC made in Masri. There, the SEC pled facts showing that defendants had engaged in âmarking the closeâ transactions, i.e., âthe practice of repeatedly executing the last transaction of the day in a security in order to affect its closing price.â Masri, 523 F.Supp.2d at 369. After surveying the law, the court concluded âthat if an investor conducts an open-market transaction with the intent of artificially affecting the price of the security, and not for any legitimate economic reason, it can constitute market manipulation.â Id. at 372. The court therefore held that âAllegations of other deceptive conduct or features of the transaction are only required to the extent that they render plausible allegations of manipulative intent.â Id. It noted that âthe SEC alleged that (1) defendants conducted activity within several minutes of the close of trade; (2) the transactions constituted a large majority of the purchases that day; (3) [an individual defendant] had outstanding put options expiring that day that he did not wish to be assigned; and (4) by purchasing 200,000 shares, he was able to avoid ... assignment of these options.â Id. It found these allegations sufficiently indicative of manipulative intent to state a claim for market manipulation. Scrips does not allege similar facts indicative of manipulative intent here. It merely alleges that Ironridge sold more shares of its stock than it represented it would sell before the parties entered into the stipulation. Absent additional factual allegations, the court cannot conclude that Scrips has adequately alleged that Ironridge engaged in market manipulation. This is particularly true in light of the fact that the stipulated judgment disclosed the fact that Ironridge could sell any of its Scrips stock at any time. Masri, therefore, is inapposite. Because Scrips does not allege with particularity conduct constituting market manipulation, as that term is defined for purposes of securities fraud claims, its Rule 10b-5 claim must be dismissed as inadequately pled.
4. Whether Scrips Has Adequately Pled Reliance
Ironridge also contends that Scrip fails adequately to allege reliance. âReliance by the plaintiff upon the defendantâs deceptive acts is an essential element of the § 10(b) private cause of action. It ensures that, for liability to arise, the ârequisite causal connection between a defendantâs misrepresentation and a plaintiffâs injuryâ exists as a predicate for liability.â Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 159, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 243, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988)); Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1159 (9th Cir.1996) (âJustifiable reliance âis a limitation on a rule 10b-5 action which insures that there is a causal connection between the misrepresentation and the plaintiffs harm,â â quoting Atari Corp. v. Ernst & Whinney,
Ironridge maintains that Scrips cannot plead reliance because it admitted in the stipulation on which the state court entered judgment that it was âadvised as to the terms and legal effectsâ of the stipulation, and that Ironridge did not âmake or has not made any representations or warranties other than those specifically set forth [in the stipulation].â
The court agrees that Scrips cannot plead reliance based on the facts alleged. The stipulation states that it contains all relevant representations and warranties; none of its provisions restricts Ironridge from selling the shares Scrips issued to it. For that reason, Scrips cannot plead reliance on Ironridgeâs allegedly fraudulent statements. See Bank of the West v. Valley Natâl Bank of Arizona, 41 F.3d 471, 476 (9th Cir.1994) (concluding that plaintiff had not shown reasonable reliance where plaintiff represented in an agreement that it had âindependently and without reliance upon any representations of [the lead bank] made ... relied upon [its] own credit analysis and judgmentâ because such language âimplie[d] that, to the extent that it did rely on [thd lead bankâs conflicting representations], [the participating bankâs] rebanee was not justifiable,â and holding that âthe contract could and did control whether such reliance would be justifiableâ for purposes of a fraud claim â (emphasis added));
The same is true with respect to Scripsâ contention that Ironridge engaged in market manipulation. To plead reliance adequately for purposes of a market manipulation claim, plaintiff must allege that it relied on âan assumption of an efficient market free of manipulation.â See ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 101 (2d Cir.2007) (âMarket manipulation requires a plaintiff to allege (1) manipulative acts; (2) damage (3) caused by reliance on an assumption of an efficient market free of manipulation; (4) scienter; (5) in connection with the purchase or sale of securities;. (6) furthered by the defendantâs use of the mails or any facility of a national securities exchange.â); see also In re Bank of America Corp., No. 09-md-02014 JSW, 2011 WL 740902, *7 (N.D.Cal. Feb. 24, 2011) (âDeception arises when an investor is erroneously lead to believe that the prices for the security in question are driven by the ânatural interplay of supply and demand, not rigged by manipulatorsâ â (citations and quotation marks omitted)). Scrips does not allege that it was damaged because it assumed and relied on an efficient market free of manipulation; it contends it was defrauded by Ironridge and suffered damages as a result of Ironridgeâs breach of the stipulation and tortious bad faith. For that reason, the court concludes that Scrips does not adequately plead reliance under either a misrepresentation or manipulation theory. Its Rule 10b-5 claim must be dismissed for this reason as well.
5. Whether Scrips Pleads Particularized Facts Giving Rise to a Strong Inference of Scienter
Ironridge next contends that Scripsâ scienter allegations are entirely conclusory. Specifically, it asserts that Scrips does not plead any facts giving rise to a strong inference of fraudulent intent, and that it cannot do so given the content of the stipulated judgment. In response, Scrips does not cite any allegations of scienter, or particular facts giving rise to a strong inference of scienter, as required by PSLRA. See Tellabs, 551 U.S. at 314, 127 S.Ct. 2499 (âA complaint will survive only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any plausible opposing inference one could draw from the facts allegedâ); Oklahoma Firefighters Pension & Ret. Sys. v. IXIA, No. CV 13-08440 MMM-SHX, 50 F.Supp.3d 1328, 1352,
The complaint is replete with allegations of a âscheme to defraud and manipulate,â
The few facts Scrips pleads regarding scienter, even in combination, do not support a strong inference of scienter. Given the disclosures in the stipulation, the more compelling inherence is that Ironridge did not intend to deceive, and that Scrips knewâor should have knownâthe nature of the transaction into which it had entered. Holistic review therefore does not demonstrate that it has sufficiently pled scienter. See In re Verifone Holdings, Inc. Sec. Litig., No. CV 07-06140 MHP, 2009 WL 1458211, *10 (N.D.Cal. May 26, 2009) (âThere are many allegations in this case, but they fare no better when read in combination than when read independentlyâ).
III. CONCLUSION
For the reasons stated, the court denies Ironridgeâs motion to dismiss Scripsâ claims for breach of contract and breach of the implied covenant/tortious bad faith under the Rooker-Feldman doctrine. It grants Ironridgeâs motion to dismiss Scripsâ claim for declaratory relief under Rooker-Feldman to the extent Scrips seeks a declaration that it is excused from performing generally under the stipulation. It denies the motion as to the bal-anee of the declaratory relief claim. The court denies Ironridgeâs motion to dismiss based on Younger abstention in its entirety. The court grants Ironridgeâs motion to stay Scripsâ breach of contract, breach of implied covenant/tortious bad faith, and declaratory relief claims under Colorado River, and grants Ironridgeâs motion to dismiss Scripsâ Rule 10b-5 claim.
As this is the first time the court has had an opportunity to pass on the adequacy of Scripsâ Rui 10b-5 claim, and Scrips may be able to amend the claim to allege a plausible claim for relief, the court grants Scrips leave to amend that claim. See Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051 (9th Cir.2008) (âDismissal without leave to amend is proper if it is clear that the complaint could not be saved by amendmentâ); California ex rel. California Department of Toxic Substances Control v. Neville Chemical Co., 358 F.3d 661, 673 (9th Cir.2004) (â[D]enial of leave to amend is appropriate if the amendment
Scrips may not plead additional claims or add allegations except those intended to cure the defects identified in its Rule 10b-5 claim. Should Scripsâ amended complaint exceed the scope of leave to amend granted by this order, the court will strike the offending portions from the pleading under Rule 12(f). See Fed.R.Civ.Proc. 12(f) (âThe court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter. The court may act: (1) on its own; or (2) on motion made by a party either before responding to the pleading or, if a response is not allowed, within 21 days after being served with the pleading.â); see also Barker v. Avila, No. 2:09-cv-00001-GEB-JFM, 2010 WL 3171067, *1-2 (E.D.Cal. Aug. 11, 2010) (striking an amendment to federal law claim where the court had granted leave to amend only state law claims).
. Complaint, Docket No. 1 (May 22, 2014).
. Id., ¶ 11.
. Motion to Dismiss or Stay Plaintiffs Complaint ("Motionâ'), Docket No. 9 (Jun. 25, 2014).
. Plaintiff's Opposition to Motion to Dismiss or Stay ("Oppositionâ), Docket No. 13 (Sept. 26, 2014).
. Complaint, ¶ 4, 11.
. Id.
. Id.
. Id.
. Id., ¶ 12
. Id.
. Id., ¶ 13. See also id., Exh. 1 (Term Sheet).
. Id., ¶ 12.
.Id., ¶ 15.
. Id.
. Id.
. California Corporation Code § 25017(f)(3) excludes from the definition of offer or saleâ and hence from the ambit of Californiaâs securities registration lawsâ '"any act incident to a transaction or reorganization approved by a state or federal court in which securities are issued and exchanged for one or more outstanding securities, claims, or property interests, or partly in that exchange and partly for cash.â See Cal. Corp.Code § 25017(f)(3). Section 3(a)(10) of the Securities Act of 1933 exempts from registration "any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests ... where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval.â See 15 U.S.C § 77c(10).
. Declaration of Shannon E. Mader in Support of Defendants' Motion to Dismiss or Stay Plaintiffs' Complaint ("Mader Decl.â), Docket No. 9-1 (June 25, 2014), Exh. A (Ironridge's State Court Complaint for Breach of Contract Against Scrips) (âState Court Complaintâ), ¶¶ 1-6.
. See Complaint, ¶ T6. See also id., Exh. 2 (Stipulation for Settlement of Claims) ("Stipulationâ), ¶¶ 1-3.
. See Stipulation, ¶¶ 1-3.
. Id., ¶ 6.
. Id.
. Id., ¶ 11.
. Id., ¶ 6.
. Id., ¶ 7.
. Id.
. Id., ¶ 8.
. Id., ¶ 10.
. Id., ¶ 9.
. Mader Decl., Exh. C (Joint Ex Parte Application for Order Approving Stipulation for Settlement of Claims) at 2-3.
. Id.
. Brandon O'Neil, Ironridge's Managing Director, stated that the terms of the agreement were fair to Ironridge. (See Mader Decl., Exh. D (Declaration of Brandon OâNeil in Support of Joint Ex Parte Application for Order Approving Settlement of Claims), ¶ 5 (âBased on my analysis, the terms and conditions of the issuance and exchange are fair to Ironridge. The number of shares to be issued pursuant to the settlement should more than fairly compensate Ironridge for the claimsâ). Robert Schneiderman, Scripsâ chief, executive officer, similarly reported that the terms were fair to Ironridge and to Scrips. (See id., Exh. E (Declaration of Robert Schneiderman in Support of Joint Ex Parte Application for Order Approving Settlement of Claims)), ¶ 8 ("It is my belief that the terms and conditions of the settlement of the claims, as set forth in the Stipulation, are fair, reasonable and adequate to Ironridge. Further, the board of directors of [Scrips] has considered the proposed settlement and has resolved that its terms and
. Stipulation, ¶ 4 (âPlaintiff has agreed to the proposed terms and conditions, and believes that they are sufficiently fair such that [Ironridge] is willing to enter into this stipulation. [Scrips'] board of directors has considered the proposed transaction and has resolved that its terms and conditions are fair to, and in the best interest of, [Scrips] and its stock holders. Accordingly, both parties request Court approval of the settlement provided for herein as fair, just and reasonableâ).
. Id., Exh. F (Order for Approval of Stipulation for Settlement of Claims).
. Id., ¶19.
. Id.
. Id., ¶ 20.
. Id., ¶ 22.
. Neither party has asked the court to take judicial notice of Ironridgeâs ex parte application for an order compelling the issuance of shares, nor is the document attached to the complaint. Nonetheless, it is referenced in (and logically antecedent to) Scrips' opposition to the ex parte application, a document that the court can judicially notice. (See Mader Decl., Exh. G (Defendant's Opposition to Plaintiff's Ex Parte Motion for an Order Compelling Issuance of Shares) (âOrder to Compel Opp.â).)
. See id.
. Id. at 1.
. Id. at 3.
. Id. at 4-5.
. Id. at 4.
. Mader Decl., Exh. H (Order Enforcing Pri- or Order for Approval of Stipulation for Settlement of Claims) ("Enforcement Orderâ) at 1-2.
. Id., Exh. I (Notice of Appeal).
. See Ironridge Global IV, Ltd. v. ScripsAmer-ica, Court of Appeal Case No. B256198, Order Granting Extension of Time to File Opening Brief, Docket No. 10 (Sept. 3, 2014).
. Id., ¶ 20.
. Id., ¶ 21. It is unclear from the complaint and judicially noticeable documents why Scrips asserts, on the one hand, that it has already issued 10.3 million shares to Iron-ridge (i.e., the approximately 8.7 million shares initially issued plus the additional 1.6 million that are the subject of the enforcement order), and on the other, that Ironridge seeks "a further 1.6- million shares through the California courts.â The complaint doe not allege that Scrips issued any stock to Ironridge beyond the initial 8.69 million shares.
. Id., ¶ 25.
. Id., ¶ 28.
. Request for Judicial Notice (âRJNâ), Docket No. 9-11 (Jun. 25, 2014) at 2-3.
. Taking judicial notice of matters of public record does not convert a motion to dismiss into a motion for summary judgment. MGIC Indemnity Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986).
. RJN at 2-3. See also Mader Decl., Exhs. A-I.
. Earlier Ninth Circuit decisions held that federal proceedings were barred by state court judgments under Rooker-Feldman whether or not the state court judgment was on appeal. See Dubinka v. Judges of Superior Court of State of California for County of Los Angeles, 23 F.3d 218, 221 (9th Cir.1994) (holding that the Rooker-Feldman doctrine "applies even when the state court judgment is not made by the highest state courtâ); Worldwide Church of God, 805 F.2d at 893 n. 3 ("We agree ... that the Feldman doctrine should apply to state judgments even though state court appeals are not finalâ). In concluding that Rooker-Feldman did not bar parallel federal court proceedings prior to the time the state court judgment was final, Exxon Mobil abrogated these Ninth Circuit holdings. The Ninth Circuit implicitly recognized this in Mothershed, stating that the doctrine applies only "when the state courts finally resolve the issue that the federal court plaintiff seeks to relitigate in a federal forum,â and citing the First Circuitâs decision in Federacion, which recognized Exxonâs implications See Mothershed, 410 F.3d at 604 n. 1; Federacion, 410 F.3d at 24 ("Exxon Mobil tells us when a state court judgment is sufficiently final for operation of the Rooker-Feldman doctrine: when 'the state proceedings [have] ended.' If federal litigation is initiated before
. Motion at 9.
. Id. at 11.
. Stipulation, ¶ 17 ("Each party hereto waives a statement of decision, all rights to appeal, and all defenses to the Order and its enforcement, including without limitations any based on jurisdiction, standing, or splitting causes of actionâ).
. The fact that the stipulation was denominated a âsettlementâ in state court does not change the result. "A settlement agreement may constitute a state-court judgment for purposes of the Rooker-Feldman doctrine.â See William Villa v. Heller, 885 F.Supp.2d 1042, 1048 (S.D.Cal.2012) (citing Sherrard v. Panazuelos, No. CV 10-9196-VAP-AGR, 2011 WL 1131523, *2 (C.D.Cal. Feb. 24, 2011) ("Effectively, Plaintiff is requesting that this Court set aside the settlement she reachedâ)); see also Wittich v. Wittich, 06CV1635(JFB)(WDW), 2006 WL 3437407, *3 (E.D.N.Y. Nov. 29, 2006) ("for purposes of Rooker-Feldman, because plaintiff now seeks to overturn the settlement, alleging that the Settlement Agreement violated his rights, the Court deems plaintiff a losing party in a state court actionâ); Green v. City of New York, 438 F.Supp.2d 111, 119 (E.D.N.Y.2006) ("[C]ourts have treated settlement agreements as final judgments for purposes of the Rooker-Feld-man doctrine.â). Thus, contrary to Scrips' argument (Opposition at 6), it can be deemed the loser in state court for Rooker-Feldman purposes.
. See Complaint, ¶¶ 42, 44 (asserting that Ironridge breached the terms of the partiesâ agreement "as reflected in paragraph 14 of the Stipulation,â and breached the covenant of good faith implied therein because its conduct was "at odds with the understanding, reflected in ... the Stipulation, that Ironridge would not engage in trading activity designed to depress stock priceâ).
. Id., ¶ 46 (emphasis added).
. Id.
. The Ninth Circuitâs decision in Kougasian v. TMSL, Inc., 359 F.3d 1136 (9th Cir.2004) is not to the contrary. There, the court held that the claims of a plaintiff alleging extrinsic fraud in the procurement of a state .court judgment were not barred by Rooker-Feldman even though plaintiff sought invalidation of the state court judgment because the wrong complained of was the an erroneous state court judgment but extrinsic fraud on the part of the adverse parly. The Kougasian court noted that "[ejxtrinsic fraud is conduct which prevents a party from presenting his claim in court.â Id. at 1140. Here, Scrips was not prevented from presenting its claim in court. Rather, it joined in seeking to have the state court enter the order approving the stipulation.
.Opposition at 7.
. Id.
. Motion at 11.
. Id. at 12-13.
. Opposition at 8.
. Id. at 9.
. Id.
. The court notes also that, notwithstanding the three threshold prerequisites to Younger abstention, Ironridge would also have to persuade the court that permitting this action to proceed "would enjoin the [state] proceeding, or have the practical effect of doing so.â See Gilbertson, 381 F.3d at 978 (âIf & state-initiated proceeding is ongoing, and if it implicates important state interests ..and if the federal litigant is not barred from litigating federal constitutional issues in that proceeding, then a federal court action that would enjoin the proceeding, or have the practical effect of doing so, would interfere in a way that Younger disapprovesâ (emphasis original)); see also Samples v. Washington State Executive Ethics Bd., No. 12-CV-5418-BHS, 2012 WL 5285202, *3 (W.D.Wash. Oct. 25, 2012) ("The final Younger requirement is that the federal suit would âinterfereâ with the ongoing state proceeding (i.e., enjoin or have the practical effect of enjoining the proceeding),â quoting San Jose Silicon Valley Chamber of Commerce Political Action Comm. v. City of San Jose, 546 F.3d 1087, 1095 (9th Cir.2008)). The mere fact that Scrips' Rule 10b-5, breach of contract, and breach of implied covenant/tortious bad faith claims seek a determination that Ironridge breached the stipulation does not automatically compel the conclusion that litigating the claims would have the practical effect of "enjoiningâ the state court proceedings. The same is true of Scripsâ declaratory relief claim to the extent that claim seeks a declaration that Scrips need not issue shares beyond the initial issuance and the 1.6 million shares that are the subject of the state court's enforcement order. To the extent, the state court would be free to proceed âin its own way and in its own time, without reference to the proceedings in th[is] [] court.â
Scrips' request for a declaration that it need not issue the additional 1.6 million shares that are the subject of the enforcement order, by contrast, would be the type of federal court involvement of which Younger disapproves. See Alsager v. Bd. of Osteopathic Med. & Surgery, 573 Fed.Appx. 619, 621 (9th Cir.2014) ("Alsagerâs federal complaint seeks a declaration that the investigatory component of Washingtonâs disciplinary process is unconstitutional and an injunction barring the use of certain information in the disciplinary proceedings. Either form of relief would 'enjoin, declare invalid, or otherwise involve the federal courtsâ in the proceedings against himâ). Because the stipulation does not implicate an important state interest, however, Ironridgeâs motion to dismiss on Younger abstention grounds must be denied.
. The first two of these factors are not relevant to this motion; consequently, the courtâs discussion is limited to the remaining six.
. District courts in other circuits have also issued partial Colorado River stays. See Calleros v. FSI Intâl, Inc., 892 F.Supp.2d 1163, 1171 (D.Minn.2012) (âSome cases, including Giles and In re Countrywide, have granted partial stays in similar circumstances, concluding that Exchange Act claims, which are subject to exclusive federal jurisdiction, cannot be stayed even when abstention [as to] related fiduciary-duty claims is warranted''); Big O Tires, LLC v. Felix Bros., No. 10-CV-00362-PAB-KLM, 2011 WL 6181448, *4 (D.Colo. Dec. 13, 2011) (granting a partial stay because â[pjroceeding here on claims that are not presently before the state court strikes an appropriate balance between the obligation to exercise jurisdiction and the inefficiency, inconvenience, and potential for piecemeal litigation presented by the adjudication of identical claimsâ); Giles v. ICG, Inc., 789 F.Supp.2d 706, 714 (S.D.W.Va. 2011) (finding "unpersuasive plaintiffs' argument that a stay was prohibited where a plaintiff asserted both state and federal causes of action,â and concluding that the âgrant of a partial stay will efficiently sever the issues to be determined by this Court and the Court of Chancery so that no court renders duplica-tive holdingsâ).
. âIn proceedings in rem or quasi in rem, the forum first assuming custody of the property at issue has exclusive jurisdiction to proceed.â 40235 Washington Street Corp. v. Lusardi, 976 F.2d 587, 589 (9th Cir.1992) (citing Colorado River, 424 U.S. at 819, 96 S.Ct. 1236, and Donovan v. City of Dallas, 377 U.S. 408, 411, 84 S.Ct. 1579, 12 L.Ed.2d 409 (1964)); see Federal Home Loan Mortgage Corp. v. Ha, 145 F.3d 1337, 1998 WL 340118, *1 (9th Cir. June 1, 1998) (Unpub.Disp.) ("Although the existence of a case in one forum does not generally defeat jurisdiction in another, there is a firmly-rooted exception to this rule: in cases concerning real property, whichever forum assumes control over the property first has exclusive jurisdiction to proceedâ). Neither the state court case nor this action is a proceeding in rem or quasi in rem. This factor is therefore neutral. Similarly, there is no indication that the federal forum will be any more or less convenient for the parties than state court. Both this court and the Los Angeles Superior Court are located in Los Angeles. Accordingly, this factor too is neutral.
. Opposition at 12.
. The court has already dismissed Scripsâ declaratory relief claim under Rooker-Feld-man insofar as it assails the validity and en-forcemenl of the underlying stale court order entering the stipulation.
.State Court Complaint at 1.
. Reply at 21.
.Anolik and Snyder are unpublished decisions of the California Court of Appeal. "Although the court is not bound by unpublished decisions of intermediate state courts, unpublished opinions that are supported by reasoned analysis may be treated as persuasive authority.â Scottsdale Ins. Co. v. OU Interests, Inc., No. C 05-313 VRW, 2005 WL 2893865, *3 (N.D.Cal. Nov. 2, 2005) (citing Employers Ins. of Wausau v. Granite State Ins. Co., 330 F.3d 1214, 1220 n. 8 (9th Cir.2003) ("[W]e may consider unpublished state decisions, even though such opinions have no precedential valueâ)).
. Order to Compel Opp. at 4.
. Id. at 5.
. Scrips argued at the hearing that its appeal concerns procedural irregularities, and does not attack the trial court's decision respecting its defenses to enforcement of the stipulation. The parties did not ask the court to take judicial notice of Scripsâ opening brief. Assuming this is correct, however, the defenses were unquestionably decided by the trial court. If the trial courtâs ruling is affirmed by the appellate court â even if on different grounds â the issue will have necessarily been fully and finally decided in the state court proceedings.
. The PSLRA creates a "safe harborâ for "forward-lookingâ statements that are immaterial, are limited by "meaningful cautionary statements,â or are made without actual knowledge of their falsity. 15 U.S.C. §§ 77z-2(c), 78u-5(c). Such statements include, but are not limited to, statements of future economic performance and management plans and objectives. 15 U.S.C. §§ 77z-2(I), 78u-5(1). This "safe harborâ has much the same effect as the "bespeaks cautionâ doctrine, which provides that forward-looking representations that contain adequate cautionary language or risk disclosure protect a defendant from securities liability. See, e.g., Plevy v. Haggerty, 38 F.Supp.2d 816, 830 (C.D.Cal.1998).
. Motion at 17.
. Stipulation, ¶ 11.
. Schneiderman Decl., ¶ 8.
. Opposition at 12-14.
. Stipulation, ¶¶ 6, 11.
. Id.., ¶ 11.
. Stipulation, ¶¶ 11, 16.
. Reliance can be presumed under the fraud on the market theory where the alleged misrepresentations were disseminated in an impersonal, well developed securities market. See Merrill Lynch, 704 F.Supp.2d at 397 (âWhen a plaintiff alleges that âmaterially misleading statements have been disseminated into an impersonal, well-developed market for securities, the reliance of individual plaintiffs on the integrity of the market price may be presumedâ â); see also Peil v. Speiser, 806 F.2d 1154, 1163 (3d Cir.1986) ("[T]he fraud on the market theory pertains to rule 10b-5(b) claimsâ). Here, the alleged misrepresentations/manipulation were part of an armâs length transaction, and Scrips does not allege that the market incorporated the alleged misrepresentations, or that the market for its stock was efficient. The stipulation, which stated that Scripsâ stock price fluctuated routinely, would also tend to undercut any such allegation. Consequently, any claim of fraud on the market fails. In re Citigroup Auction Rate Sec. Litig., 700 F.Supp.2d 294, 306 (S.D.N.Y.2009) ("However, where a plaintiff does not plead that the market in which he purchased his shares was efficient, he cannot rely on the 'fraud-on-the-market presumptionâ of reliance, and must instead specifically allege relianceâ). âReliance may also be presumed when a plaintiff alleges a material omission.â Merrill Lynch, 704 F.Supp.2d at 397. Here, however, Scrips alleges, at most, misstatements or manipulation â not omissions. Thus, it cannot take advantage of a presumption of reliance in this case.'
.Bank of the West involved common law fraud, but the Ninth Circuit has applied its reasoning to Rule 10b-5 claims. See Paracor Fin., Inc., 96 F.3d at 1160 ("In Bank of the West [ ], in the analogous situation of a common-law fraud cause of action, a lead bank and a participating bank in a loan to a corporation signed a participation agreement. In the agreement, the participating bank represented that it âindependently and without reliance upon any representations of [the lead bank] made and relied upon [its] own-credit analysis and judgment.â This language, we held, 'implies that, to the extent that it did rely on [the lead bank], [the participating bank's] reliance was not justifiableâ â).
. See, e.g., Complaint, ¶¶ 11-27
. Complaint, ¶ 15.
. Id., ¶ 20.
. Stipulation, ¶¶ 6, 11.
. Ironridge also argues that Scrips has failed adequately to plead loss causation. As explained in Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 342, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005), loss causation is the "causal connection between the [defendantâs] material misrepresentation and the [plaintiff's] loss.â A complaint fails to allege loss causation if it does not âprovide[ ] [a defendant] with notice of what the relevant economic loss might be or of what the causal connection might be between that loss and the misrepresentation[.]â Metzler, 540 F.3d at 1062 (quoting Dura Pharm., 544 U.S. at 347, 125 S.Ct. 1627); see also Teachersâ Ret. Sys. of La. v. Hunter, 477 F.3d 162, 186 (4th Cir.2007) (holding that plaintiffs must plead [loss causation] âwith sufficient specificity to enable the court to evaluate whether the necessary causal link existsâ). "Stated in the affirmative, the complaint must allege that the defendantâs âshare price fell significantly after the truth became known [or the manipulation took place].â â Id. Of course, a plaintiff need not prove loss causation to avoid dismissal. It must, however, properly allege it. See id.
Ironridge contends that Scripsâ only allegation concerning loss causation is that "[a]s a direct and proximate result of the wrongful conduct of [Ironridge], [Scrips] suffered damages.â (Complaint, ¶ 40.) Scrips, however, also alleges that Ironridgeâs scheme "successfully reduced the market price of [Scrips stock], which had been in the range of 15 cents ($.15) on day of delivery of stock, to the range of ten' cents ($.10) and below in April 2014." (Id., 1123.) It also alleges that there âwas no economic basis for this reductionâ and that it was "purely generatedâ by Iron-ridgeâs sales. (Id.) Had Scrips adequately alleged any of the other elements of a Rule 10b5 claim, the court could not say that this allegation fails to "provide[] [Ironridge] with notice of what the relevant economic loss might be or of what the causal connection might be between that loss and (he misrepresentation.â Metzler, 540 F.3d at 1062. For that reason, the court declines to dismiss Scripsâ Rule 10b-5 claim on this basis. Because the claim is not adequately pled for other reasons, however, it must nonetheless be dismissed.