Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_07-cv-04052/USCOURTS-cand-5_07-cv-04052-4/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1331 Fed. Question

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Case No. C 07-4052 JF PVT

ORDER DENYING MOTION TO REMAND

(JFLC3)

**E-Filed 12/07/07**

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

FINISAR CORP.,

 Plaintiff,

 v.

U.S. BANK TRUST NATIONAL ASSOCIATION,

 Defendant.

Case Number C 07-4052 JF PVT

ORDER DENYING MOTION TO 1

REMAND

[re: docket no. 15]

Plaintiff Finisar Corporation (“Finisar”) moves to remand the instant action to the Santa

Clara Superior Court for lack of subject matter jurisdiction. Defendant U.S. Bank Trust National

Association (“U.S. Bank”) opposes the motion. For the reasons discussed below, the motion will

be denied.

I. BACKGROUND

Finisar is a Delaware corporation in the business of performing performance tests on fiber

optic subsystems and networks. U.S. Bank is a national banking association with its

Case 5:07-cv-04052-JF Document 35 Filed 12/07/07 Page 1 of 6
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Case No. C 07-4052 JF PVT

ORDER DENYING MOTION TO REMAND

(JFLC3)

headquarters in Delaware. U.S. Bank is the designated trustee pursuant to a series of three trust

indentures (“Indentures”) under which Finisar issued three series of convertible notes (“Notes”). 

Section 4.02 of the Indentures reads:

The Company shall file with the Trustee, within 15 days after it files such annual and

quarterly reports, information, documents, and other reports with the SEC, copies of its

annual report and of the information, documents and other reports (or copies of such

portions of any of the foregoing as the SEC may be rules and regulations prescribe) which

the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the

[Securities] Exchange Act [of 1934]. If at any time the Company is not subject to Section

13 or 15(d) of the Exchange Act, such reports shall be provided at the times the Company

would have been required to provide reports had it continued to have been subject to such

reporting requirements. The Company also shall comply with the other provisions of

[Trust Indenture Act of 1939 (“TIA”)] Section 314(a). 

In December 2006, Finisar filed its first of several documents entitled “Notification of

Late Filing” with the SEC, informing both the SEC and the Trustee that it would be unable to file

or provide quarterly and annual reports until it completed an investigation of stock option grants

it made following its initial public offering on November 11, 1999. Based on its initial findings,

Finisar determined that it needed to restate its historical financial statements to record charges for

compensation expenses relating to past stock option grants and the tax impact related to such

adjustments. As of October 12, 2007, Finisar had not filed annual or quarterly reports with the

SEC or provided the information contained in such reports to the Trustee. U.S. Bank contends

that Finisar’s failure to file reports with the SEC and to provide copies of those reports to the

Trustee constitutes a default under Section 4.02 of the Indentures. 

The Trustee sent its first three “Notices of Default” to Finisar, one under each Indenture,

on January 4, 2007, as a result of the company’s failure to file its second quarterly report. The

Trustee contends that such notice gave rise to an “Event of Default” under each Indenture on

March 5, 2007. Shortly after receiving the Notices of Default, Finisar commenced a declaratory

relief action in state court, asserting that its failure to file quarterly and annual reports with the

SEC does not constitute default under Section 4.02 of the Indentures, or, alternatively, that

enforcement of remedies under the Indentures as a result of its failure to file reports with the SEC

would be inequitable. 

After Finisar filed its complaint for declaratory relief, the Trustee sent Finisar three

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Case No. C 07-4052 JF PVT

ORDER DENYING MOTION TO REMAND

(JFLC3)

additional Notices of Default, each dated April 24, 2007, as a result of the company’s failure to

file it third quarterly report. That notice purportedly gave rise to an Event of Default under each

Indenture on June 23, 2007. Finisar thereafter commenced a second declaratory relief action in

state court. 

U.S. Bank removed the first action for declaratory relief to this Court on April 13, 2007. 

On May 14, 2007, Finisar moved to remand that action to state court. Without reaching the issue

of whether a federal question was presented, this Court granted the motion on the basis that the

removal was untimely. On August 7, 2007, U.S. Bank filed its notice of removal with respect to

the second declaratory relief action, which was effectuated on August 8, 2007. On September

28, 2007, Finisar filed the instant motion to remand for lack of subject matter jurisdiction. The

Court heard oral argument on November 2, 2007.

II. LEGAL STANDARD

Pursuant to 28 U.S.C. § 1441(a), often referred to as “the removal statute,” a defendant

may remove an action to federal court if the plaintiff could have filed the action in federal court

initially. 28 U.S.C. § 1441(a); see also Ethridge v. Harbor House Restaurant, 861 F.2d 1389,

1393 (9th Cir.1988). A party may file an action in federal court if there is diversity of citizenship

among the parties or if the action raises a substantial federal question. Ethridge at 1393. The

party invoking the removal statute bears the burden of establishing federal jurisdiction. Id. The

removal statute is strictly construed against removal. Id. The matter therefore should be

remanded if there is any doubt as to the existence of federal jurisdiction. Gaus v. Miles, Inc., 980

F.2d 564, 565 (9th Cir. 1992). 

III. DISCUSSION

Finisar argues that the instant case should be remanded because it presents no federal

question. Specifically, Finisar argues that the contractual terms relevant to the parties’ dispute do

not originate in any federal statute. In its notice of removal, U.S. Bank stated that “[t]he relevant

provisions of the Indentures expressly incorporate the [Securities] Exchange Act [of 1934] and

the Trust Indenture Act [TIA] of 1939.” U.S. Bank argues that the resolution of this lawsuit

turns on a purely federal question of whether the TIA requires an issuer of public debt securities,

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Case No. C 07-4052 JF PVT

ORDER DENYING MOTION TO REMAND

(JFLC3)

such as Finisar, to provide SEC reports to the Trustee.

As noted above, Section 4.02 of the Indentures expressly requires that in addition to

Sections 13 and 15(a) of the Exchange Act, “[t]he Company also shall comply with the other

provisions of TIA Section 314(a).” The Indentures thus incorporate both the Exchange Act and

the TIA. Federal question jurisdiction under 28 U.S.C. §1331 exists when “a well-pleaded

complaint establishes either that federal question creates the cause of action or that the plaintiff’s

right to relief necessarily depends on resolution of a substantial question of law.” Empire

Healthcare Assurance, Inc. v. McVeigh, 126 S. Ct. 2121, 2131 (2006). The second part of this

test is satisfied when: (1) the claim necessarily raises a federal issue; (2) the federal issue is

actually disputed and substantial; and (3) federal jurisdiction would not disturb any

congressionally-approved balance of federal and state responsibilities. Grable & Sons Metal

Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005). 

Finisar argues that the Indentures require it only to provide the Trustee, within fifteen

days of filing, copies of SEC filings actually made and impose no duty to provide the Trustee

with such documents if Finisar elects to ignore its statutory obligations under the Exchange Act

or the TIA. U.S. Bank contends that Section 4.02 of the Indentures is a vehicle for implementing

the mandates of TIA Section 314(a) and thus cannot be understood without interpreting and

applying that federal statute. 

Having reviewed the Indentures as a whole in order to arrive at the most reasonable

interpretation of the parties’ agreement, this Court concludes that Finisar’s duty to provide

documents to the Trustee arises under federal statutes and that Section 4.02 of the Indentures is a

mechanism to enforce the provisions of those statues. Accordingly, determining the scope of

Finisar’s duty requires the Court to examine and interpret federal law. 

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Case No. C 07-4052 JF PVT

ORDER DENYING MOTION TO REMAND

(JFLC3)

IV. ORDER

Good cause therefor appearing, the motion for remand is DENIED. 

DATED: December 7, 2007

__________________________________

JEREMY FOGEL

United States District Judge

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Case No. C 07-4052 JF PVT

ORDER DENYING MOTION TO REMAND

(JFLC3)

This Order was served on the following persons:

Sterling A. Brennan

Workman Nydegger

1000 Eagle Gate Tower

60 East South Temple

Salt Lake City, UT 84111

D. Anthony Rodriquez

Morrison & Foerster LLP

425 Market Street

San Francisco, California 94105

Case 5:07-cv-04052-JF Document 35 Filed 12/07/07 Page 6 of 6