1791 Mgmt. v. Energy Vault, Inc.
| Jurisdiction | United States,Federal,California |
| Parties | 1791 Management, LP, et al. v. Energy Vault, Inc., et al. |
| Decision Date | 23 January 2024 |
| Court | U.S. District Court — Central District of California |
| Docket Number | 2:23-cv-05292-AB-PD |
PRESENT: THE HONORABLE ANDRE BIROTTE JR., UNITED STATES DISTRICT JUDGE.
Before the Court is Plaintiff 1791 Management, LP's (“Plaintiff') Motion to Remand Case to the California Superior Court (“Motion,” Dkt. No. 25). Defendants Energy Vault, Inc., et al. (“Defendants”) filed an opposition and Plaintiff filed a reply. (Dkt. Nos. 29, 31.) The Court took the matter under submission. For the reasons set forth below, the Court GRANTS the Motion.
On May 18, 2022, Plaintiff filed this action against Defendant Energy Vault, Inc. (“Energy Vault”) in the California Superior Court for the County of Los Angeles. See Brandon S. Reif Decl. (“Reif Decl.”) ¶ 2 (Dkt. No. 26). Plaintiff filed its Second Amended Complaint (“2AC”) on September 13, 2022 against Defendants Energy Vault, Robert Piconi, William Gross, Zia Huque, Andrea Pedretti, Andrea Wuttke, Novus Capital Corporation II, Robert Laikin, Larry Paulson, and Jeffrey Foster. See Reif Decl., Ex. B (2AC). The 2AC asserted state law claims for (1) breach of fiduciary duty, (2) common law fraud, (3) negligent misrepresentation, (4) negligence, (5) constructive fraud, (6) violation of California Corporations Code §§ 25110-25118, and (7) violation of California Corporations Code §§ 25400-25550, arising from Defendants allegedly fraudulently inducing Plaintiff to invest in Defendant Energy Vault's warrants. Id. Defendant Energy Vault and the individual Defendants filed demurrers to the SAC. See Notice of Removal (“NOR”) ¶ 6.
On November 28, 2022, the state court sustained Defendant Energy Vault's demurrer to the breach of fiduciary duty and constructive fraud claims, without leave to amend as a matter of law, and overruled the demurrer to the remaining causes of action for common law fraud, negligent representation, negligence, violation of California Corporations Code §§ 25110-25118, and violation of California Corporations Code §§ 25400-25550. See NOR ¶ 7. The state court explained that no fiduciary duty was owed to a warrant holder under California law, and therefore Plaintiff's claims for breach of fiduciary duty and constructive fraud failed as a matter of law. See id.; John S. Warden Decl. (“Warden Decl.”), Ex. B (52-67) at 55-68 (Dkt. No. 1-8). On May 15, 2023, the state court sustained the individual Defendants' demurrer to Plaintiff's claims for breach of fiduciary duty, negligent misrepresentation, negligence, and constructive fraud, with leave to amend, and overruled their demurrer to Plaintiff's cause of action for common law fraud. See Warden Decl., Ex. B (68-93) at 202-207 (Dkt. No. 1-9).
On June 2, 2023, Plaintiff filed its Third Amended Complaint (“3AC”) in the California Superior Court. See Reif Decl., Ex. C (3AC). The 3AC adds EVH as a defendant and removes the claims for negligent misrepresentation and negligence, and asserts only the state law claims for (1) breach of fiduciary duty, (2) common law fraud, (3) constructive fraud, (4) violation of California Corporations Code §§ 25110-25118, and (5) violation of California Corporations Code §§ 25400-25550. Id. The 3AC largely reproduces the same allegations contained in the 2AC regarding Defendants misrepresenting or omitting material information concerning the registration of Novus as a Special Purpose Acquisition Company (“SPAC”), the SPAC status of Novus, Novus's initial public offering (“IPO”), the identification of Energy Vault as a target company, and Energy Vault's financial condition, sales performance, projected revenue, and business projects. See id. ¶¶ 31-44.
The 3AC asserts additional allegations, in relevant part, that Energy Vault and Novus merged in February 2022, EVH was created as a successor to Novus, and thereafter EVH issued stock and warrants. Id. ¶ 9. The 3AC also claims that Defendants allegedly made misrepresentations or omissions of material information regarding the registration of Energy Vault as a public company and EVH's financial condition, sales and revenue track records, then-current and ongoing business, and expected revenue, to induce investors to invest in EVH's securities. See id. ¶¶ 33, 35. Plaintiff asserts that it relied on Defendants' alleged misrepresentations and omissions of material information in purchasing EVH warrants, stock, and options. See id. ¶¶ 10, 47-48.
On July 3, 2023, Defendants removed the case to this Court. See NOR (Dkt. No. 1). Defendants argue that although the 3AC only contains state law claims, the Court has original jurisdiction over the case pursuant to 28 U.S.C. §§ 1331 and 1367 because the action partly arises under federal law, namely the Securities Act of 1933 (“the 1933 Act”), and the federal forum provision (“FFP”) contained in Defendant EVH's charter. Id. ¶ 1.
On August 18, 2023, Plaintiff filed its Fourth Amended Complaint (“4AC”) in this Court. See 4AC (Dkt. No. 17). The 4AC does not differ substantively from the 3AC. Id.
Plaintiff now moves to remand this case to the California Superior Court. Plaintiff argues that (a) neither the 3AC nor the 4AC arise under federal law or raise a substantial federal question that is necessary to resolve any of Plaintiff's claims; (b) assuming arguendo that Plaintiff's claims arose under the 1933 Act, 1933 Act claims brought in state court cannot be removed to federal court, absent an exception that is inapplicable here; and (c) supplemental jurisdiction cannot be exercised because there is no original federal jurisdiction. See Mot. at 6. Plaintiff also asserts that Defendants improperly rely on EVH's charter to support removal. See id.
A defendant may remove a civil action filed in state court to federal district court when the federal court has original jurisdiction over the action, “[e]xcept as otherwise expressly provided by Act of Congress.” 28 U.S.C. §1441(a). “The burden of establishing jurisdiction falls on the party invoking the removal statute, which is strictly construed against removal.” Sullivan v. First Affiliated Sec., Inc., 813 F.2d 1368, 1371 (9th Cir. 1987) (internal citations omitted); see also Duncan v. Stuetzle, 76 F.3d 1480, 1485 (9th Cir. 1996). “The ‘strong presumption' against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper.” Gaus v. Miles, Inc., 980. F.2d 564, 566 (9th Cir. 1992). If any doubt exists as to the right of removal, federal jurisdiction must be rejected. Id. at 566-67; see also Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009) (citing Id. at 566) (“[T]he court resolves all ambiguity in favor of remand to state court.”).
A federal district court has federal question jurisdiction over “civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. Courts look to the well-pleaded allegations of the complaint, not any defenses, in assessing whether an action arises under federal law. Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 808 (1986). Generally, a case arises under federal law “when federal law creates the cause of action asserted.” Gunn v. Minton, 568 U.S. 251, 257 (2013). “As the master of the complaint, a plaintiff may defeat removal by choosing not to plead independent federal claims.” Dennis v. Hart, 724 F.3d 1249, 1252 (9th Cir. 2013). Even if a plaintiff “can maintain [a] claim on both state and federal grounds, [a plaintiff] may ignore the federal question and assert only a state law claim and defeat removal.” Sullivan, 813 F.2d at 1372. Federal question jurisdiction can also apply where a “state-law claim necessarily raise[s] a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.” Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 314 (2005).
The artful pleading doctrine is a corollary to the well-pleaded complaint rule. Sullivan, 813 F.2d at 1372. Under the artful pleading doctrine, “[a] plaintiff cannot defeat removal by masking or “artfully pleading” a federal claim as a state claim.” Id. “The artful pleading doctrine allows courts to delve beyond the face of the state court complaint and find federal question jurisdiction by recharacterizing a plaintiff's state-law claim as a federal claim.” Lippitt v. Raymond James Fin. Servs., Inc., 340 F.3d 1033, 1041 (9th Cir. 2003). Courts use the artful pleading doctrine “only in limited circumstances,” such as complete preemption cases and substantial federal question cases. Lippitt, 340 F.3d at 1041-42. The second category of cases includes those cases where: (1) “a substantial, disputed question of federal law is a necessary element of the well-pleaded state claim or the claim is an ‘inherently federal claim' articulated in state-law terms, or (2) the right to relief depends on the resolution of a substantial, disputed federal question.” Id.
Defendants request the Court to take judicial notice of 1791 Management LP's registration documents filed with the State of Delaware and 1791 Management LLC's records filed with the Nevada Secretary of State, in support of Defendants' opposition to the Motion. See Request for Judicial Notice (“RJN,” Dkt. No. 30). The Court may take judicial notice of facts not subject to reasonable dispute that are either “generally known” in the community, or “capable of accurate and ready determination” by reference to sources whose accuracy cannot be reasonably questioned. ...
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