ScripsAmerica, Inc. v. Ironridge Global LLC, CASE NO. CV 14–03962 MMM (AGRx)
| Citation | 119 F.Supp.3d 1213 |
| Decision Date | 11 August 2015 |
| Docket Number | CASE NO. CV 14–03962 MMM (AGRx) |
| Parties | ScripsAmerica, Inc., Plaintiff, v. Ironridge Global LLC d/b/a Ironridge Global IV, Ltd., John Kirkland, Brendan O'Neil, and Does 1–5, Defendants. |
| Court | U.S. District Court — Central District of California |
Carlos E. Needham, Carlos Needham Law Offices, Valencia, CA, for Plaintiff.
Shannon Edward Mader, Gibson Dunn and Crutcher LLP, Los Angeles, CA, for Defendants.
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
On May 22, 2014, ScripsAmerica, Inc. ("Scrips") filed this action against Ironridge Global LLC d/b/a Ironridge Global IV, Ltd., John Kirkland, and Brendan O'Neil (collectively "Ironridge"), as well as certain fictitious defendants.1 The complaint alleges claims for securities fraud, breach of contract, tortious bad faith, and declaratory relief. The claims concern defendants' allegedly fraudulent scheme to increase the shares of Scrips' stock to which they were entitled by manipulating Scrips' stock price. The parties had earlier entered into an agreement that obligated Ironridge to pay off certain of Scrips' accounts payable in exchange for the issuance of stock on an agreed formula.2
On June 25, 2014, defendants filed a motion to dismiss Scrips' breach of contract, tortious bad faith, and declaratory relief claims under the Rooker–Feldman doctrine3 and Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). Alternatively, defendants sought to have those claims stayed under Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Defendants also to have Scrips' Rule 10b–5 claim dismissed as inadequately pled.4 On November 3, 2014, the court granted in part and denied in part defendants' motion to dismiss. It dismissed Scrips' declaratory relief claim under Rooker–Feldman to the extent it sought a declaration that Scrips was excused from performing generally under a stipulated order entered by the state court. The court denied defendants' motion to dismiss on Younger abstention grounds, but stayed Scrips' breach of contract, tortious bad faith, and declaratory relief claims under Colorado River . It also granted defendants' motion to dismiss Scrips' Rule 10b–5 claim with leave to amend.5
On December 3, 2014, Scrips filed a first amended complaint,6 which defendants moved to dismiss on December 17, 2014.7 Scrips opposed the motion.8 On March 26, 2015, considering only Scrips' Rule 10b–5 claim (since Scrips' other claims had been stayed under Colorado River ), the court granted defendants' motion to dismiss with leave to amend.9
On April 27, 2015, Scrips filed a second amended complaint.10 Ironridge filed a motion to dismiss on May 27, 2015,11 which Scrips opposes.12
This action concerns an allegedly fraudulent scheme devised by Ironridge. Scrips is a pharmaceuticals distributor whose stock is publicly traded on the over-the-counter ("OTC") market. The purported scheme arose from an agreement pursuant to which Scrips agreed to issue shares of its common stock to Ironridge in exchange for Ironridge's undertaking to pay Scrips' outstanding accounts payable.13 Scrips alleges that the transaction was first proposed during a telephone call it received from John Kirkland and Brendan O'Neil—directors of Ironridge—on August 28, 2013.14 It contends that Kirkland and O'Neil told Scrips' chief executive officer, Robert Schneiderman, that Ironridge could pay Scrips' accounts payable, which totaled approximately $700,000, in exchange for an amount of Scrips stock to be determined by a contractual formula.15 Kirkland and O'Neil explained that to effectuate the transaction, Scrips did not need to register the shares before transferring them to Ironridge. The parties discussed the transaction further on September 4 and October 2, 2013.16
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 Scrips' stock price.17 Scrips allegedly agreed to the inclusion of such a provision, which gave Ironridge the right to receive more stock than the originally agreed amount if Scrips' stock price declined following consummation of the transaction.18 The adjustment mechanism was outlined, together with certain other terms, in a term sheet Ironridge prepared and gave to Scrips.19 Scrips contends that Ironridge, Kirkland, and O'Neil did not disclose their intention to manipulate the market for Scrips shares in order to reduce the share price and increase the number of shares Ironridge was entitled to receive under the agreement.20
On October 4, 2013, Schneiderman, Kirkland, and O'Neil purportedly discussed the potential effect Ironridge's sale of the stock it received might have on Scrips' 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 Scrips' stock price.21 Specifically, Ironridge purportedly said that it would "take no action to manipulate or [a]ffect [Scrips'] stock price" and that its sales of Scrips shares would "never be more than ten percent of the volume of sales on any given day."22 Scrips contends that Ironridge's representations were knowingly and willfully false.23
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.24 Thus, on October 11, 2013, Ironridge filed a breach of contract complaint in Los Angeles Superior Court that sought to collect the accounts payable debts; it sued as the successor in interest to Scrips' creditors under receivables purchase agreements into which it had entered with the creditors.25 Ironridge and Scrips then submitted a stipulation to the court that was the means by which the exchange transaction was to be effected. The stipulation provided that Scrips would transfer 8,690,000 shares of stock to Ironridge in satisfaction of $686,962.08 in debt owned by Ironridge.26 The shares were to be "unrestricted and freely tradeable exempted shares" of Scrips common stock.27 The stipulation stated the shares had to be capable of being "immediately resold ... without restriction,"28 and noted that Ironridge could "sell any of its shares of [Scrips] common stock issued pursuant to the [stipulation] at any time."29 The stipulation warned that issuance of the shares could "have a dilutive effect [on Scrips' stock], which [might] be substantial."30
The stipulation also memorialized the adjustment mechanism the parties had previously discussed. It stated that Scrips would immediately issue and deliver to Ironridge 8,690,000 shares of common stock subject to certain "adjustments, issuances, returns, and ownership limitations."31 The stipulation indicated that future adjustments would be made based on trading activity in Scrips stock during the "calculation period."32 The "final amount" of shares to which Ironridge was entitled was to be calculated by taking (a) the sum of the claim amount [i.e., $686,962.08], 10% of third party agent fees, and Ironridge's reasonable attorneys' fees and expenses, and dividing it by (b) 80% of the following: the closing price of Scrips common stock on the trading day immediately preceding the date the state court entered an order on the stipulation; the resulting number was not to exceed the arithmetic average of the individual volume weighted average price of any five trading days during the calculation period, less $.01 per share (based on data reported by Bloomberg LP).33
The stipulation provided that if at any point during the calculation period the shares issued to Ironridge dropped below "any reasonably possible [f]inal [a]mount," 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.34 At the conclusion of the calculation period, if the total value of the initial issuance and subsequent issuances was less than the final amount, Scrips was required to issue further shares so that the total number of shares issued equaled the final amount; conversely, if the number of shares issued to Ironridge exceeded the final amount, Ironridge was required to return the excess shares to Scrips.35 The stipulation stated, however, that Scrips was not required at any one time to issue a number of shares that, aggregated with all other shares beneficially owned or controlled by Ironridge or its affiliates, exceeded 9.99% of the total number of shares of common stock outstanding.36 Despite the fact that Kirkland, O'Neil, and Schneiderman allegedly discussed the issue, there is no provision in the stipulation requiring that Ironridge's sales of Scrips shares not exceed 10% of the daily trading volume on any given day.
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 "shares of [Scrips] stock with a substantially fluctuating market price."37 The application recited that over the course of the prior year, the price of Scrips common stock had fluctuated between $1.05 and $.08, and that it would be difficult to reach any negotiated resolution that did not require ex parte relief, as the agreement could collapse if Scrips' stock price fluctuated too much.38 As support for their request that the court approve the stipulation, both parties filed declarations stating that they believed the terms of agreement were fair.39 The stipulation recited that the agreement was fair to Ironridge and that Scrips' board had resolved that the terms were fair to and in the best interests of its shareholders.40
On November 8, 2013, Superior Court Judge Rolf M. Treu entered...
To continue reading
Request your trial
-
Vesta Corp. v. Amdocs Mgmt. Ltd.
...v. Amdocs Mgmt. Ltd., 80 F.Supp.3d 1152, 1157–58 (D.Or.2015) ; see also ScripsAmerica, Inc. v. Ironridge Global LLC, No. CV1403962MMMAGRX, 119 F.Supp.3d 1213, 1230-31, 2015 WL 4747807, at *7 (C.D.Cal. Aug. 11, 2015) ("The court takes judicial notice of the SEC filings only for their existen......
-
In re Facebook, Inc. Sec. Litig.
...that they relied on the allegedly false or misleading statements in purchasing Facebook stock. See ScripsAmerica, Inc. v. Ironridge Glob. LLC , 119 F. Supp. 3d 1213, 1252–53 (C.D. Cal. 2015) ; Matrixx Initiatives, Inc. , 563 U.S. at 37–38, 131 S.Ct. 1309. The reliance element "ensures that ......
-
P.R. Gov't Emps. & Judiciary Ret. Sys. Admin. v. Volkswagen AG (In re Volkswagen "Clean Diesel" Mktg., Sales Practices, & Prods. Liab. Litig.)
...referred to as Volkswagen.3 District courts within this circuit have done the same. See, e.g. , ScripsAmerica, Inc. v. Ironridge Global LLC , 119 F.Supp.3d 1213, 1250–51 (C.D. Cal. 2015) ; McPhail v. First Command , 247 F.R.D. 598, 613–14 (S.D. Cal. 2007) ; Negrete v. Allianz Life Ins. Co. ......
-
In re Kalobios Pharm., Inc.
...2012) (quoting Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999) ); see ScripsAmerica, Inc. v. Ironridge Glob. LLC, 119 F.Supp.3d 1213 (C.D. Cal. 2015) ("Taking judicial notice of news reports and press releases is appropriate to show that the market was aware ......