Oswald v. Identiv, Inc.
| Decision Date | 16 July 2018 |
| Docket Number | Case No. 16-cv-00241-CRB |
| Parties | RYAN OSWALD, Plaintiff, v. IDENTIV, INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
In October 2017, the Court denied Defendant Identiv, Inc.'s motion to dismiss based on demand futility. See Identiv MTD (dkt. 43); Demand Futility Order (dkt. 56). In April 2018, however, the Court granted three motions to dismiss for failure to state a claim—(1) former CEO Jason Hart's, see Hart MTD (dkt. 67); (2) former CFO Brian Nelson's, see Nelson MTD (dkt. 68); and (3) board chairman James Ousley's, board member Steven Humphreys', and board member Gary Kremen's, see OHK MTD (dkt. 64-4). See Order Granting MTD (dkt. 89). After the Court dismissed Plaintiff Ryan Oswald's claims, Proposed Intervenor Bhanu Chopra filed a motion for intervention (dkt. 92) and Oswald filed a motion for leave to amend (dkt. 38-3). As the Court's decision to dismiss Oswald's claims was based in part on Oswald's lack of standing to challenge conduct that occurred prior to his purchase of Identiv stock on September 24, 2014, Oswald contends that the addition of Chopra, an Identiv stockholder since February 15, 2013, will resuscitate the suit. See Motion for Leave to Amend at 4-5. It will not.
The first motion at issue is Chopra's motion to intervene.
Federal Rule of Civil Procedure ("Rule") 24 provides for both intervention as a matter of right and permissive intervention. See Fed. R. Civ. P. 24. Chopra seeks to intervene as a matter of right or in the alternative, by permission.
Rule 24(a)(2) allows a party to intervene as a matter of right when the movant "claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest." Fed. R. Civ. P. 24(a)(2). To prevail on a motion for intervention of right, the movant must demonstrate that "(1) it has a significant protectable interest relating to the subject of the action; (2) the disposition of the action may, as a practical matter, impair or impede its ability to protect its interest; (3) the application is timely; and (4) the existing parties may not adequately represent its interest." Peruta v. Cty. of San Diego, 824 F.3d 919, 940 (9th Cir. 2016) (citation omitted). Although Rule 24(a)(2) is construed broadly in favor of intervenors, Wilderness Soc'y v. U.S. Forest Serv., 630 F.3d 1173, 1179 (9th Cir. 2011) (en banc), the movant bears the burden of showing that he has met each of the four elements, Prete v. Bradbury, 438 F.3d 949, 954 (9th Cir. 2006). "Failure to satisfy any one of the requirements is fatal to the application[.]" Perry v. Proposition 8 Official Proponents, 587 F.3d 947, 950 (9th Cir. 2009).
A court may also permit a party to intervene who "has a claim or defense that shares with the main action a common question of law or fact" under Rule 24(b)(1)(B). Fed. R. Civ. P. 24(b)(1)(B). Permissive intervention to litigate a claim on the merits under Rule 24(b) requires "(1) an independent ground for jurisdiction; (2) a timely motion; and (3) a common question of law and fact between the movant's claim or defense and the main action." Beckman Indus., Inc. v. Int'l Ins. Co., 966 F.2d 470, 473 (9th Cir. 1992).
Although the Court will not allow Chopra to intervene as a matter of right, it doesallow him to intervene by permission.
Chopra may not intervene as a matter of right because he failed to fulfill the second requirement of a motion for intervention of right: demonstrating that "the disposition of the action may, as a practical matter, impair or impede [his] ability to protect [his] interest." Peruta, 824 F.3d at 940. On January 25, 2016, eleven days after Oswald filed this verified shareholder derivative action on behalf of Identiv, Chopra filed a verified shareholder derivative action on behalf of Identiv in the Superior Court for the State of California, County of Alameda. Motion for Intervention at 1. The parties in Chopra's state action stayed that case in favor of Oswald's federal suit on May 2, 2016. OHK Opp'n to Motion for Leave to Amend (dkt. 101) at 4. The Ninth Circuit has held that the resolution of an underlying lawsuit does not impair a proposed intervenor's interest if other means are available to protect the proposed intervenors' interest. See United States v. Alisal Water Corp., 370 F.3d 915, 921 (9th Cir. 2004). Disposition of this action will not impair Chopra's ability to protect his interest, because he could pursue his claims against Identiv in state court.1 Therefore, Chopra may not intervene as a matter of right. See Perry, 587 F.3d at 950 ().
However, Chopra may intervene by permission because he has an independent ground for jurisdiction, his motion was timely, and there is a common question of law and fact between his claim and Oswald's action. As a citizen of Texas making claims against citizens of California, Arizona, Maryland, and Switzerland for an amount that exceeds $75,000, Chopra has an independent ground for jurisdiction because a federal district court could hear his case based on diversity jurisdiction. See Proposed Third Amended Complaint ("PTAC") (dkt. 91-3). Chopra's motion is also timely. In determining whether a motion is timely, courts consider three factors: (1) the stage of the proceeding at which amovant seeks to intervene; (2) the prejudice to other parties; and (3) the reason for and length of the delay. See League of United Latin Am. Citizens v. Wilson, 131 F.3d 1297, 1302 (9th Cir. 1997). Chopra's motion is timely because the action, despite being two and a half years old, is still in the pleading stage, the defendants were already aware of Chopra's state court action, and Chopra sought to intervene upon learning that Oswald did not have the requisite standing to litigate the claims. Motion for Intervention at 7. There is also a common question of law and fact between Chopra's claim and Oswald's action. Both assert claims for breach of fiduciary duty arising from improper internal controls and inappropriate expenses by Identiv executives and board members. See Chopra State Complaint; Second Amended Complaint ("SAC"). As Chopra fulfills the elements of permissive intervention, he may intervene.
Chopra may also intervene because his intervention is unopposed. Although Hart did not file a reply to Chopra's motion, Nelson, Ousley, Humphreys, and Kremen do not oppose the motion. OHK Response to Motion for Intervention (Dkt. 92) at 1; Nelson's Response to Motion for Intervention (Dkt. 105) at 1. Ousley, Humphreys, and Kremen submit that Chopra should be required to immediately dismiss his pending state court action with prejudice if the Court grants his motion for intervention, but Chopra has agreed to do so only if the Court grants both his motion for intervention and Oswald's motion for leave to amend. OHK Response to Motion for Intervention at 1; Chopra Reply (dkt. 109) at 1. The Court will not require Chopra to dismiss his state court action.
The Court gave Chopra the opportunity to withdraw his motion at the motion hearing, but Chopra declined to do so. Accordingly, the Court GRANTS Chopra's motion to intervene.
The second motion at issue is Oswald's motion for leave to amend.
In assessing a motion for leave to amend, courts consider (1) bad faith, (2) unduedelay, (3) prejudice to the opposing party, (4) futility of amendment, and (5) whether the plaintiff has previously amended his complaint. See Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir. 2003). Futility alone can justify denying leave to amend. Id. at 808.
The Court denies Oswald's request to amend because amendment would be futile.2 The primary changes in the PTAC are the addition of Chopra, the elimination of the waste claim, and the addition of allegations concerning Hart's expenses derived from the Deloitte spreadsheet. See PTAC. As none of these changes would alter the Court's holdings, amendment would be futile.
In the Demand Futility Order, the Court held that Oswald does not have standing to bring claims for alleged breaches of fiduciary duty or waste that occurred before he became a shareholder on September 24, 2014. Demand Futility Order at 11. Oswald contends that the PTAC cures this standing deficiency. He maintains that the addition of Chopra as a plaintiff and the Deloitte Spreadsheet "establish that Chopra and Oswald collectively have clear standing to prosecute claims on behalf of Identiv arising from a continuous course of wrongdoing from approximately 2013 through the first quarter of 2015." Oswald Reply (dkt. 108) at 3. However, the Court's demand futility findings would not change based on Chopra's additional time as an Identiv shareholder or the expenses detailed in the Deloitte Spreadsheet. In the Demand Futility Order, the Court still considered conduct that occurred before Oswald became a shareholder, and the Deloitte Spreadsheet, because such conduct "may be relevant to the extent that it demonstrates a pattern of wrongful conduct." Demand Futility Order at 11.
To demonstrate demand futility under the Aronson rule, a shareholder plaintiff must create a reasonable doubt that either: "(1) the directors are disinterested and independent[or] (2) the challenged transaction was otherwise the product of a valid exercise of business judgment." Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984).
In evaluating the first Aronson prong, the Demand Futility Order examined conduct that occurred before Oswald became an Identiv shareholder on September...
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