Cinedigm Corp. v. Gaiam Inc., CASE NO.: CV 15-01557 SJO (ASx)
| Decision Date | 05 May 2015 |
| Docket Number | CASE NO.: CV 15-01557 SJO (ASx) |
| Court | U.S. District Court — Central District of California |
| Parties | Cinedigm Corp. et al. v. Gaiam Inc. et al. |
Victor Paul Cruz
Courtroom Clerk
Not Present
Court Reporter
COUNSEL PRESENT FOR PLAINTIFFS:
Not Present
COUNSEL PRESENT FOR DEFENDANTS:
Not Present
PROCEEDINGS (In Chambers): ORDER DENYING PLAINTIFFS' MOTION TO REMAND [Docket No. 11], DENYING DEFENDANTS' MOTION TO STAY OR DISMISS [Docket No. 13], DENYING DEFENDANTS' MOTION FOR JUDGMENT ON THE PLEADINGS [Docket No. 14], AND GRANTING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION [Docket No. 16]
This matter is before the Court on Plaintiffs Cinedigm Corp. and Cinedigm Entertainment Holdings LLC's (collectively, "Plaintiffs") Motion to Remand Case to Los Angeles Superior Court, filed March 12, 2015, Plaintiffs' Motion for Preliminary Injunction, filed March 13, 2015, Defendants Gaiam Americas Inc. and Gaiam Inc.'s (collectively, "Defendants") Motion to Stay Pending Arbitration, filed March 13, 2015, and Defendants' Motion for Judgment on the Pleadings, filed March 13, 2015. An Opposition to Plaintiffs' Motion to Remand was filed on March 20, 2015, and Oppositions to the other Motions were filed on March 23, 2015. Replies to all motions were filed March 30, 2015. The Court found the matter suitable for disposition without oral argument and vacated the hearings set for April 13, 2015. See Fed. R. Civ. P. 78(b). For the following reasons, the Court DENIES Plaintiffs' Motion to Remand, Defendants' Motion to Stay or Dismiss, and Defendants' Motion for Judgment on the Pleadings, and GRANTS Plaintiffs' Motion for Preliminary Injunction.
Plaintiffs' Complaint alleges as follows. On or about October 22, 2013, Cinedigm and Gaiam entered into the Membership Interest Purchase Agreement ("MIPA"), whereby Cinedigm agreed to purchase Gaiam 's video distribution business ("Media Co.") for $51.5 million. (Compl. ¶¶ 2, 9, ECF No. 1-1.) After the transaction closed, Gaiam was required to transition the business to Cinedigm pursuant to a Transition Services Agreement ("TSA"), and the parties were required to work together to determine the appropriate value of Media Co.'s working capital as of the closing date. (Compl. ¶ 9.)
On December 16, 2013, Gaiam, without consultation with Cinedigm as is required in the MIPA, initially estimated that Media Co.'s working capital should be valued at $7 million more than the $20 million target value to which the parties had agreed in the MIPA, which would mean that Cinedigm would be required to pay Gaiam an additional $7 million on top the $51.5 million purchase price. (Compl. ¶ 10.) Cinedigm disputes these working capital calculations as a sham. (Compl. ¶ 11.) Cinedigm further alleges that Gaiam has defrauded it of millions of dollars in cash and misappropriated millions of dollars in accounts receivable, and is pursuing claims in arbitration for fraud (the "AAA Arbitration"). (Compl. ¶¶ 12-14, 17.)
Cinedigm is also attempting to pursue a separate Working Capital Arbitration pursuant to Section 2.04 of the MIPA, which has already been initiated by the parties. (Compl. ¶¶ 15-16.) Under the MIPA, Cinedigm is entitled to have the Working Capital Arbitration completed within approximately 45 days. (Compl. ¶ 16.) Gaiam allegedly refuses to proceed with the Working Capital Arbitration until after the parties have completed the AAA Arbitration. (Compl. ¶¶ 18.)
The MIPA provides specific procedures for calculation of working capital after the transaction closes. (See Compl. Ex. A ("MIPA") § 2.03.) The MIPA also provides specific "Closing Working Capital Disagreement Procedures" specifying that certain negotiations are to take place if there is a disagreement as to working capital and specifying that arbitration by an accounting firm is to take place if the parties still cannot reach an agreement. (MIPA § 2.04.) The MIPA contains an arbitration clause but also provides for injunctive relief: "[t]he only exception to this arbitration provision, and the mediation provision herein, shall be an action by either party seeking preliminary injunctive relief in a court of competent jurisdiction." (MIPA ¶¶ 9.08, 9.11.)
Despite several months of negotiations and participation recently in a two-day mediation which occurred on January 13 and 16, 2015, Gaiam and Cinedigm have not been able to agree upon the proposed forms of Closing Balance Sheet and Closing Working Capital Statement. (Compl. ¶ 21.) Gaiam maintains that the closing working capital exceeds the working capital target by roughly $7 million, whereas Cinedigm calculates the closing working capital to be several million dollars less than the closing working capital target. (Compl. ¶ 21.) Because the parties cannot agree on the proper calculation of the closing working capital despite extended efforts to negotiate a resolution, they are required under the MIPA to proceed with a Working Capital Arbitration to resolve their dispute on an expedited basis in accordance with the "Closing Working Capital Disagreement Procedures" provided in Section 2.04 of the MIPA. (Compl. ¶ 21.)
In late 2014, the parties agreed that Troy Dahlberg, a partner at KPMG, would serve as the Accounting Arbitrator in connection with the Working Capital Arbitration. (Compl. ¶ 22.) By letter dated January 23, 2015, Cinedigm proposed to the Accounting Arbitrator and Gaiam a schedule for completing the Working Capital Arbitration with hearings in March 2015. (Compl. ¶ 22.) On January 26, 2015, Gaiam responded that it would not proceed with the Working Capital Arbitration because it would be impossible to proceed with that arbitration until the claims asserted in the AAA Arbitration had been resolved. (Compl. ¶ 23.) Gaiam argues that the working capital disputedepends upon the parties' different interpretations of the MIPA, which cannot be resolved until discovery in the AAA Arbitration has been completed. (Compl. ¶ 23.)
On February 11, 2015, Cinedigm filed the instant action in the Superior Court of California, County of Los Angeles. On March 4, 2015, Gaiam removed the action to this Court, claiming that diversity jurisdiction existed under 28 U.S.C. § 1332. On March 17, 2015, Gaiam filed an Amended Notice of Removal, clarifying the citizenship of the parties. (Am. Notice of Removal, ECF No. 19.)
Plaintiffs move to remand this action for lack of subject matter jurisdiction. "It is a fundamental precept that federal courts are courts of limited jurisdiction." Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). "A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears." Stock W., Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989) (citation omitted). Lack of subject matter jurisdiction may be raised by any party at any time, and it is never waived. United States v. Cotton, 535 U.S. 625, 630 (2002); Miguel v. Country Funding Corp., 309 F.3d 1161, 1163-64 (9th Cir. 2002). "If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action." Fed. R. Civ. P. 12(h)(3); see also Wood v. City of San Diego, 678 F.3d 1075, 1082 (9th Cir. 2012).
An action is removable to federal court only if it could have been brought there originally. 28 U.S.C. § 1441(a). The Ninth Circuit has held that courts must "strictly construe the removal statute against removal jurisdiction" and reject federal jurisdiction "if there is any doubt as to the right of removal in the first instance." Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). "The strong presumption against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper." Id. (internal quotation marks omitted).
Federal courts have subject matter jurisdiction when an action presents a federal question under 28 U.S.C. § 1331, or when diversity of citizenship exists under 28 U.S.C. § 1332. Defendants' Amended Notice asserts that the Court has federal diversity jurisdiction under 28 U.S.C. § 1332. (Am. Notice ¶ 3.) A defendant may remove an action on the basis of diversity jurisdiction if (1) there is complete diversity between the adverse parties in the action, and (2) the amount in controversy exceeds $75,000, exclusive of interest and costs. 28 U.S.C. § 1332(a). Plaintiffs do not dispute that the complete diversity requirement is met (see generally Mot.), but argues that the amount in controversy does not exceed $75,000.
The object of the litigation here is Plaintiffs' claim for injunctive relief requiring the Working Capital Arbitration to proceed immediately. Relying principally on an unpublished district court case, PeriCor Therapeutics, Inc. v. Am. Arbitration Ass'n, No. CV 13-00049 GAF (JCGx), 2013 WL654123 (C.D. Cal. Feb. 20, 2013), Plaintiffs argue that this relief is "too speculative and immeasurable to satisfy the amount in controversy requirement." Pericor, 2013 WL 654123, at *2-3. PeriCor, however, dealt with a dispute over which parties could properly determine who could serve as an arbitrator in the case, a question significantly removed from the underlying claim. Id. at *2.
Here, the principal dispute is whether the parties are required to arbitrate now or whether they may arbitrate later. The dispute involves a difference of $7 million which, depending on the outcome of the arbitration, would have to be paid under MIPA. This amount greatly exceeds the statutory minimum. See Zibo Zhongshi Green Biotech Co. v. Pac. Chem. Int'l, Inc., No. 13-CV-4780 ODW JCx, 2013 WL 3872090, at *1 (C.D. Cal. July 24, 2013); Theis Research, Inc. v. Brown & Bain, 400 F.3d 659, 661 (9th Cir. 2005). Accordingly, diversity jurisdiction is proper here, and Plaintiffs' Motion to Remand is DENIED.
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