Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-04134/USCOURTS-cand-5_06-cv-04134-4/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 28:1441 Petition for Removal

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28 This disposition is not designated for publication and may not be cited. 1

Case No. C06-4134

ORDER GRANTING PLAINTIFF’S MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT

(JFEX1)

**E-Filed 07/19/2007**

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

REBECCA PROCTOR, REX BROOKS, JOHN

DONOVAN, ROBERT NEEDLES et al. on behalf

of Siliconix, Inc., themselves, and on behalf of all

minority shareholders of Siliconix, Inc., similarly

situated,

 Plaintiffs,

 v.

VISHAY INTERTECHNOLOGY, INC., VISHAY

TEMIC SEMICONDUCTOR ACQUISITION

HOLDINGS CORPORATION, SILICONIX, INC.,

ERNST & YOUNG, FELIX D. ZANDMAN, and

DOE 1 through DOE 20, inclusive,

 Defendants.

Case Number C 06-04134 JF

ORDER GRANTING DEFENDANTS’ 1

MOTION TO DISMISS AND

MOTION FOR SUMMARY

JUDGMENT

[re: docket no. 40]

I. BACKGROUND

In 1998, Defendants Vishay Intertechnology became the majority owner of Siliconix Inc.,

(“Siliconix”) by acquiring 80.4% of its stock. Notice of Removal Ex. A ¶ 4. After the merger of

Siliconix and Vishay, Ernst & Young, LLP (“EY”) became Siliconix’s auditor. Id. ¶ 3. Plaintiffs

Case 5:06-cv-04134-JF Document 69 Filed 07/19/07 Page 1 of 6
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 Defendants have submitted three Requests for Judicial Notice containing the various 2

orders issued by the Delaware courts and transcripts from the Santa Clara Superior Court

proceedings. These requests are granted.

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Case No. C 06-4134 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT

(JFEX1)

allege that EY repeatedly breached its duty of care to Siliconix, and conspired with and aided and

abetted the other Defendants in “intentionally driving down the price of Siliconix so that Vishay

could acquire the stock of Siliconix’s minority shareholders below the stock’s true value.” Id. ¶¶

5-7. Plaintiffs further allege that EY aided and abetted the misappropriation of millions of dollars

of Siliconix’s sales commissions through the restructuring of Siliconix after the merger. Id. ¶¶ 7-

8. 

Plaintiffs filed the original complaint in this action in the Santa Clara Superior Court on

August 12, 2002, on behalf of the minority shareholders of Siliconix. Notice of Removal Ex. B.

The complaint encompassed both a shareholders’ derivative action for breach of fiduciary duty

and waste of corporate assets and a class action for breach of fiduciary duty. Id.

Plaintiffs allege that Vishay, in response to their first amended complaint (“FAC”), acted

to prevent Plaintiffs’ recovery by (1) making a tender offer on April 12, 2005, to acquire the

shares of Siliconix minority shareholders (representing 19.6% of the total Siliconix shares); and

(2) implementing a “freeze out merger” when it forced minority shareholders who did not accept

the tender offer to sell their Siliconix shares at prices below fair market value. Memorandum of

Points and Authorities in Support of Motion for Remand (“Remand Memo.”) 4-5. Plaintiffs

allege that in the tender offer and merger, Vishay did not make proper disclosure or give

shareholders’ adequate notice of their rights. Id.

As a result of the tender offer, several civil actions were filed in the Delaware Chancery

Court and consolidated. Id. Plaintiffs in the Delaware case settled with Vishay on October 25,

2005 (“Delaware Settlement”). Id. Prior to the final settlement hearing, the Chancery Court

ordered Vishay to provide notice of the settlement to all members of the class, consisting of all

owners of Siliconix common stock between March 3, 2005, and May 16, 2005. In re: Siliconix,

Inc. Shareholders Litigation, No. 1143-N at ¶¶ 2, 6 (Del. Ch. Sept. 13, 2005)(scheduling order).

2

The Chancery Court found that adequate notice had been given and entered an Order and Final

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Vishay Intertechnology, Inc., Vishay Temic Semiconductor Acquisition Holdings 3

Corporation, and Felix D. Zandman, the chairman, CEO, and controlling shareholder of Vishay. 

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Case No. C 06-4134 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT

(JFEX1)

Judgment certifying the class and approving the settlement of the class action. In re: Siliconix,

Inc. Shareholders Litigation, No. 1143-N (Del. Ch. Oct. 25, 2005) (order and final judgment).

With this settlement order, the tender offer and short-term merger were complete, and the

Chancery Court released all pending and future claims related to that merger. Id. at ¶ 8.

Plaintiffs in the instant action nonetheless continued litigation in the Santa Clara Superior

Court by filing a Second Amended Complaint (“SAC”) and then a subsequent SAC Amendment.

On June 13, 2006, the Vishay Defendants secured an injunction from the Delaware Chancery 3

Court against any further litigation in this action and requested that the Superior Court dismiss

the action in accordance with that injunction. Remand Memo. 9 The Superior Court advised

Plaintiffs that any concerns they might have with respect to the Delaware injunction should be

presented to the Delaware Chancery Court; it gave Plaintiffs’ counsel until August 15, 2006, to

decide upon a course of action. Proctor et al. v. Vishay Intertechnology, No. 1-04-CV-018977 at

10:1-20 (Cal. Super. Ct. June 13, 2006) (Reporter’s transcript)(“RT”).

A former Siliconix shareholder, not party to this litigation, appealed the Delaware

injunction to the Delaware Supreme Court. In dismissing the appeal, that court noted that,

“[despite] the entry of the [injunction], certain shareholders of Siliconix continued to prosecute

an earlier-filed action in the Superior Court of California, County of Santa Clara, which

encompassed the same claims that had been released in the settlement of the Delaware action.”

Fitzgerald v. Vishay Intertechnology, Inc., No. 363, 2006 at ¶ 3 (Del. Jan. 24, 2007) (order

dismissing appeal of injunction). 

On June 30, 2006, Defendants removed the instant action to this Court on the basis of 28

U.S.C. § 1331 and 28 U.S.C. § 1441(b). This Court denied Plaintiffs’ motion to remand on

February 13, 2007, holding that removal was proper as Plaintiffs’ class claim is completely

preempted by the Securities Litigation Uniform Standards Act (“SLUSA”), 15 U.S.C. § 78.

Proctor et al. v. Vishay et al., No. 06-04134 at 9-12, (N.D. Cal Feb. 13, 2007) (order denying

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Case No. C 06-4134 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT

(JFEX1)

motion to remand). EY filed the instant motion to dismiss on March 23, 2007, and Vishay filed a

motion for summary judgment on similar grounds on March 27, 2007. The Court heard oral

argument on both motions on July 13, 2007.

II. DISCUSSION

As set forth above, the Delaware Chancery Court issued an injunction against any further

proceedings in this action before the action was removed to this Court. In re: Siliconix Inc.

Shareholders Litigation, No. 1143-N (Del. Ch. June 13, 2006) (order issuing injunction on any

further litigation in the case of Proctor v. Vishay Intertechnology, Inc., No. 1-04-CV-018977

(Cal. Super. Ct.))(“Injunction”). On January 24, 2007, the Delaware Supreme Court upheld the

injunction on an appeal and noted in its order that certain shareholders have continued to litigate

this action despite entry of the injunction. Fitzgerald v. Vishay Intertechnology, Inc., No. 363,

2006 at ¶ 3 (Del. Jan. 24, 2007)(order dismissing appeal of injunction). Defendants argue that

Plaintiffs are violating the Delaware injunction by continuing to prosecute this action. Plaintiffs,

however, contend that the Delaware Chancery Court lacked jurisdiction to enjoin the instant

proceedings, and they seek an opportunity to conduct discovery to determine the preclusive effect

of the Delaware settlement on this action.

At a case management conference on June 13, 2006, the Superior Court advised Plaintiffs

that “if you are in disagreement with [the Delaware injunction] you need to appear [in Delaware]

and seek to have it quashed or modified or to have a rehearing, but you don’t just ignore it.” RT

at 6:16-18. Plaintiffs’ counsel assured the court, “[w]e are not going to ignore it.” Id. at 6:19. 

The Superior Court further warned that “this court is not going to be a party to a litigant violating

a valid order of another court,” and “direct[ed] the plaintiff to go back to Delaware and deal with

it.” Id. at 9:24-25, 10:2-3. Plaintiffs’ counsel continued to assert the “lack of jurisdiction and lack

of full and fair adjudication in Delaware,” and the Superior Court gave Plaintiffs’ counsel until

August 15, 2006, to determine an appropriate course of action. Id. at 10:17-20. 

Plaintiffs offer no evidence that they have attempted to address the Delaware injunction

in Delaware. Instead, they have continued to litigate the instant case in California, arguing that

they are entitled to a determination in California as to whether or not the Delaware settlement

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 It may be that the grounds upon which Plaintiffs may seek relief from the Delaware

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courts are limited because of Plaintiffs’ failure to seek such relief before now. However,

particularly in light of the admonition given by the Superior Court more than one year ago, the

responsibility for that situation rests squarely on Plaintiffs and their counsel. 

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Case No. C 06-4134 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT

(JFEX1)

bars their claims and whether the Delaware Chancery Court had jurisdiction to issue the

injunction. While Plaintiffs correctly state the general rule that a state court may not enjoin

proceedings in a federal court, the injunction at issue here “encompasses, among other claims, all

the claims asserted by the representative plaintiffs in Proctor v. Vishay Intertechnology, Inc.,

Case No. 1-04-CV-018977,” and “plaintiffs settled and released, among other claims, all the

claims asserted in [that action]. . . .” Injunction at 2. The fact that the case in question has been

removed to this Court because some of the claims asserted are pre-empted by SLUSA does not

entitle Plaintiffs to ignore the injunction any more than they were entitled to do so while the

matter was pending before the Superior Court. As a matter of federal-state comity, this Court will

not entertain arguments regarding the jurisdiction of the Delaware Chancery Court unless and

until Plaintiffs first have sought relief from the injunction in Delaware. Accordingly, the instant

action will be dismissed. In order to permit Plaintiffs to initiate appropriate proceedings in

Delaware, the dismissal shall be effective ninety (90) days after the date of this order.4

IV. ORDER

Good cause therefor appearing, IT IS HEREBY ORDERED, Defendants’ motion for

summary judgment and motion to dismiss are GRANTED, effective October 15, 2007. If

Plaintiffs secure relief prior to October 15, 2007, from the Delaware Chancery Court as to the

injunction issued on June 13, 2006, the Court will grant rehearing in accordance with the relief

granted.

DATED: July 19, 2007

 

JEREMY FOGEL

United States District Judge

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Case No. C 06-4134 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT

(JFEX1)

This Order has been served upon the following persons:

Joseph Wood jhclaw@yahoo.com 

James A. Hennefer jhennefer@hennefer-wood.com

Daniel H. Bookin dbookin@omm.com 

Alan R. Friedman afriedman@kramerlevin.com

Dhaivat H. Shah dshah@omm.com

Jonathan M. Wagner jwagner@kramerlevin.com

Norman C. Simon nsimon@kramerlevin.com

Patrick Edward Gibbs patrick.gibbs@lw.com

David Michael Friedman david.friedman@lw.com

Karli E. Sager Karli.Sager@lw.com

Peter Allen Wald peter.wald@lw.com

 

Case 5:06-cv-04134-JF Document 69 Filed 07/19/07 Page 6 of 6