Starkle v. Wollrab

• Decision Date: 27 January 2011
• Docket Number: Civil No. 09cv2887 JAH(RBB).
• Citation: 818 F.Supp.2d 1231
• Court: U.S. District Court — Southern District of California
• Parties: Michael R. STARKLE, an individual; Kenneth L. Greenberg, and individual; William P. Jancosko, an individual; and Timepiece Capital Incorporated, an Arizona corporation, Plaintiffs, v. William WOLLRAB, an individual, Defendant.

818 F.Supp.2d 1231

Michael R. STARKLE, an individual; Kenneth L. Greenberg, and individual; William P. Jancosko, an individual; and Timepiece Capital Incorporated, an Arizona corporation, Plaintiffs,
v.
William WOLLRAB, an individual, Defendant.

Civil No. 09cv2887 JAH(RBB).

United States District Court, S.D. California.

Jan. 27, 2011.

[818 F.Supp.2d 1233]

Geoffrey M. Khotim, Ridenour Hienton & Lewis PLLC, Christopher A. Lavoy, Lavoy & Chernoff PC, Phoenix, AZ, Marco Antonio Torres, The Law Office of Marco A Torres, San Diego, CA, for Plaintiffs.

Gregory P. Olson, Law Office of Gregory P. Olson, San Diego, CA, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS [DOC. # 9] JOHN A. HOUSTON, District Judge.INTRODUCTION

Currently pending before this Court is the motion to dismiss, or in the alternative, to stay this action filed by defendant William Wollrab (“defendant” or “Wollrab”). The motion has been fully briefed by the parties. After a careful consideration of the pleadings and relevant exhibits submitted by the parties, and for the reasons set forth below, this Court GRANTS IN PART and DENIES IN PART defendant's motion.

BACKGROUND

The instant case stems from the dissolution of a company, 17th Street Capital Partners (“17th Street”), in which plaintiffs Starkle, Greenberg, and Jancosko (“the individual plaintiffs”) and Wollrab were shareholders. A majority of shareholders voted to dissolve the company on February 11, 2004, because it was insolvent and its members did not wish to contribute additional capital. Aside from the non-attending members, only defendant voted against dissolution. After 17th Street was dissolved, Starkle, Greenberg, Jancosko and Christopher Rule (a silent shareholder) started Timepiece.

On February 9, 2007, Wollrab filed a complaint against 17th Street and the individual plaintiffs in Colorado state court, alleging ten causes of action based on state law stemming from alleged misconduct by the individual plaintiffs in regards to the dissolution of 17th Street. None of Wollrab's claims in that suit were brought derivatively on behalf of 17th Street but, instead, were brought solely on Wollrab's behalf. On February 13, 2008, a bankruptcy petition was filed on behalf of 17th Street and defendant's state complaint was subsequently removed to the United States Bankruptcy Court in the District of Colorado (“the Bankruptcy Court”). The bankruptcy court, upon motion for summary judgment filed by the bankruptcy trustee, found that all but two of Wollrab's claims in the first lawsuit could not be

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brought by Wollrab because he lacked an injury in fact on those claims. The bankruptcy trustee then substituted in as the plaintiff on those claims and Wollrab remained as plaintiff on the two remaining claims. Starkle, Greenberg, Jancosko and Timepiece thereafter purchased the derivative claims from the trustee for $17,500.00, settling those claims. A settlement was later reached between Wollrab and the individual plaintiffs in which Wollrab agreed to dismiss one of his remaining two claims (the other claim was solely against 17th Street) without prejudice, and without waiver of any other claims, in exchange for plaintiffs' dismissal of their counterclaims against him. The bankruptcy court subsequently dismissed Wollrab's sole remaining claim upon the motion of the bankruptcy trustee.

Plaintiffs, on December 23, 2009, filed the instant declaratory relief action seeking a declaration that defendant had no more claims against them in regards to the dissolution of 17th Street. Plaintiffs' initial complaint alleged such a declaration was required because defendant threatened to sue plaintiffs again on grounds of misconduct during the bankruptcy proceedings. Defendant then, on February 11, 2010, filed the threatened suit in Colorado state court. Thereafter, plaintiffs filed a first amended complaint (“FAC”) before this Court on March 19, 2010, alleging a second cause of action for malicious prosecution. Defendant filed his motion to dismiss or stay on March 31, 2010. Plaintiffs' opposition was filed on May 7, 2010 and defendant's reply was filed on May 17, 2010. Defendant's motion was thereafter taken under submission without oral argument. See CivLR 7.1(d.1).

DISCUSSION

Defendant moves to dismiss plaintiff's first cause of action in their FAC pursuant Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction on the grounds that the Court should decline to exercise its discretion to accept jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201. In the alternative, defendant moves to dismiss plaintiffs' second cause of action in the FAC for failure to state a claim and stay the first cause of action pending resolution of the action filed by defendant in the Colorado state court.

1. Legal Standardsa. Rule 12(b)(1)

Under Rule 12(b)(1), a defendant may seek to dismiss a complaint for “lack of jurisdiction over the subject matter.” Fed.R.Civ.P. 12(b)(1). When considering a Rule 12(b)(1) motion to dismiss, the district court “is free to hear evidence regarding jurisdiction and to rule on that issue prior to trial, resolving factual disputes where necessary.” Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir.1983). “In such circumstances, ‘[n]o presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.’ ” Id. (quoting Thornhill Publishing Co. v. General Telephone & Electronics Corp., 594 F.2d 730, 733 (9th Cir.1979)). Plaintiffs, as the party seeking to invoke jurisdiction, have the burden of establishing that jurisdiction exists. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 114 S.Ct. 1673, 1675, 128 L.Ed.2d 391 (1994).

b. Declaratory Judgment Act

The Declaratory Judgment Act (“DJA”), 28 U.S.C. § 2201(a), permits a district court, in its discretion, to grant declaratory judgments in appropriate cases and to refuse to entertain such actions under certain circumstances. See

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Wilton v. Seven Falls Co., 515 U.S. 277, 286–87, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) (“The [DJA's] textual commitment to discretion, and the breadth of leeway we have always understood it to suggest, distinguish the declaratory judgment context from other areas of the law in which concepts of discretion surface.”); Brillhart v. Excess Ins. Co., 316 U.S. 491, 494, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942). The DJA does not confer subject matter jurisdiction but rather there must be an independent basis for jurisdiction. See Staacke v. United States Secretary of Labor, 841 F.2d 278, 280 (9th Cir.1988). In the present action, subject matter jurisdiction is predicated on diversity of citizenship. See Compl. ¶ 6.

28 U.S.C. § 2201(a) provides in relevant part:

In a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. § 2201(a).

“In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration.” Wilton, 515 U.S. at 288, 115 S.Ct. 2137. In considering the propriety of maintaining the action in federal court, “the appropriate inquiry for a district court in a Declaratory Judgment Act case is to determine whether there are claims in the case that exist independent of any request for purely declaratory relief, that is, claims that would continue to exist if the request for a declaration simply dropped from the case.” Snodgrass v. Provident Life and Accident Ins. Co., 147 F.3d 1163, 1168 (9th Cir.1998). “[W]hen other claims are joined with an action for declaratory relief ( e.g., bad faith, breach of contract, breach of fiduciary duty, rescission, or claims for other monetary relief), the district court should not, as a general rule, remand or decline to entertain the claim for declaratory relief.” Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir.1998). Consequently, claims that exist independent of the request for a declaration are not subject to the Declaratory Judgment Act's discretionary jurisdictional rule. See Maryland Cas. Co. v. Knight, 96 F.3d 1284, 1289 & n. 6 (9th Cir.1996). Instead, such independent claims invoke the “ ‘virtually unflagging’ ” obligation of the district court to hear jurisdictionally sufficient claims. First State Ins. Co. v. Callan Assocs., Inc., 113 F.3d 161, 163 (9th Cir.1997) (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976)).

The factors to be considered in exercising the Court's discretion include: (1) avoiding the needless determination of state law issues; (2) discouraging the filing of declaratory actions as a means of forum shopping; (3) avoiding duplicative litigation; (4) resolving all aspects of the controversy in a single proceeding if possible; (5) avoiding intervention unless the declaratory action will serve a useful purpose in clarifying the legal relations at issue; (6) avoiding procedural fencing or permitting one party to obtain an unjust res judicata advantage at the expense of the other; (7) avoiding entanglement between the federal and state court systems; and (8) avoiding jeopardizing the convenience of the parties. Dizol, 133 F.3d at 1225–26 (citing Brillhart, 316 U.S. at 494, 62 S.Ct. 1173).

When there are “parallel state proceedings involving the same issues and parties pending at the time the federal

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declaratory action...