Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-02071/USCOURTS-cand-3_06-cv-02071-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:2201 Constitutionality of State Statutes

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

THELEN REID & PRIEST LLP,

Plaintiff and

Counterdefendant,

v

FRANÇOIS MARLAND,

Defendant and

Counterclaimant. /

No C 06-2071 VRW

ORDER

Thelen Reid & Priest LLP (“Thelen”) seeks to dismiss the

counterclaims in François Marland’s answer pursuant to Fed R Civ P

12(b)(1) and (b)(6). Doc #17. In the alternative, Thelen asks the

court to stay all consideration of Marland’s counterclaims pending

a determination of the validity of the parties’ December 2002

agreement. Id. For the reasons discussed below, Thelen’s motion

to dismiss and request for a stay are DENIED.

I

Thelen contends that Marland’s counterclaims are not ripe

and do not adequately state a claim for relief. Since both of

these challenges to the counterclaims require the court to assume

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United States District Court

For the Northern District of California

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their allegations to be true, the following is a summary of the

facts as alleged in Marland’s counterclaims.

Marland hired Thelen to provide advice on how to

capitalize upon knowledge of a secret agreement used by Credit

Lyonnais illegally to purchase insurance assets and junk bonds from

the California Department of Insurance (“DOI”). Doc #14 at 26. 

Thelen helped Marland incorporate an entity called RoNo LLC to

protect his anonymity through the process. Id. Thelen then

attempted to negotiate an agreement with DOI to retain Marland as

an expert witness for an investigation and lawsuit against Credit

Lyonnais. Id. This unsuccessful negotiation prompted the DOI to

conduct its own investigation, greatly reducing the potential value

of Marland’s information. Id.

Anticipating the DOI would file its own lawsuit, Thelen 

hurriedly counseled Marland to file a qui tam lawsuit through RoNo

LLC. Id at 27. Thelen and Marland signed a recovery splitting

agreement in February 1999. This agreement contained an

arbitration provision. Id. The DOI filed its lawsuit on the same

day that Thelen filed Marland’s qui tam lawsuit. Id.

 Thelen subsequently changed strategies and sought to be

hired as the lead counsel in DOI’s lawsuit, promising to split its

contingency fee with Marland under the same formula that would have

been used for the qui tam recovery. Id at 28. Thelen and Marland

entered into a June 1999 agreement which memorialized the new fee

splitting arrangement. Id at 29. In September 2001, the parties

signed an amendment to both the February 1999 and June 1999

agreements which reconciled the recovery arrangements to ensure

that Marland would recover the same amount regardless which lawsuit

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United States District Court

For the Northern District of California

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was ultimately successful. Id at 30. The September 2001 agreement

also provided for a new counsel, selected by Thelen, to litigate

RoNo LLC’s qui tam action to prevent a conflict with Thelen’s

representation of the DOI. Id. Thelen, however, continued to

serve as general counsel to RoNo LLC. Id.

Thelen always anticipated the litigation would involve

“hundreds of witnesses on two continents, millions of pages of

documents, complex regulatory issues and multiple criminal

investigations and charges.” Id. But Thelen began pressuring

Marland to relinquish a greater share of the recovery to cover the

costs of litigation shortly after signing the September 2001

agreement. Id. In July 2002 Thelen gave notice that it was

terminating the February 1999 agreement to represent Marland and

told Marland that this would exclude Marland from any recovery of

Thelen’s contingency fees from representing DOI. Id at 31. Thelen

further provided Marland with inaccurate information and legal

counsel regarding settlement negotiations, retaliation threats

against Marland and Marland’s obligation to produce a document

proving Credit Lyonnais secret agreement. Id at 31-32.

Marland signed an amended agreement in December 2002

which reduced his recovery by one third and contained a global

release of any claims, known or unknown, against Thelen. Id at 33. 

Marland alleges he was coerced into signing the agreement through

intentional misrepresentations and inadequate respresentation of

his interests by Thelen. Id at 32, 35-38, 41-42. Additionally,

the December 2002 agreement was conditioned upon approval by the

Commissioner of DOI, which was never obtained. Id 33. Marland

seeks to enforce his rights pursuant to the arbitration clause in

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United States District Court

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the June 1999 agreement. Doc #13, Ex A.

Thelen seeks to have this court enjoin the arbitration

proceedings and issue declaratory judgments that would invalidate

Marland’s claims. Doc #1. Marland responded by filing

counterclaims asserting claims similar to those originally filed in

the arbitration proceedings that Thelen seeks to enjoin. Doc #14,

Ex A. These counterclaims include breach of fiduciary duty, breach

of contract, bad faith denial of a contract, intentional

misrepresentation, and negligence. Doc #14 at 35-43.

Marland explicitly conditions each of his counterclaims

“in the event that Marland’s second affirmative defense (failure to

join an indispensable party) is dismissed and Marland’s and RoNo’s

demand for arbitration is permanently stayed or dismissed for any

reason.” Doc #14 at 25. But Marland earlier asserts in the

counterclaim that he is “prepared to litigate that issue in

whichever forum (arbitration or court) is most appropriate and

expeditious.” Doc #14 at 24. 

Thelen asks the court to dismiss these conditional

counterclaims. Doc #17. The court discusses separately the

motions to dismiss based on Fed R Civ P 12(b)(1) and (b)(6) below.

II

Thelen seeks to dismiss Marland’s counterclaims pursuant

to Fed R Civ P 12(b)(1) for lack of subject matter jurisdiction. 

Thelen alleges that the lack of subject matter jurisdiction appears

on the face of Marland’s counterclaims because the conditional

nature of his counterclaims make them hypothetical and

nonjusticiable. Doc #17. Specifically, Thelen argues that the

counterclaims are not ripe for adjudication because they depend

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upon the court’s future determination of the validity of the

December 2002 agreement.

The ripeness doctrine prevents premature adjudication of

cases before the parties have a concrete interest in the outcome. 

The ripeness inquiry requires the court to consider both the

fitness of the issues for judicial resolution and the hardship to

parties of withholding judicial consideration. Abbott Laboratories

v Gardner, 387 US 136, 148-49 (1967). In reviewing a facial

challenge to a pleading, the court must consider the allegations of

the counterclaims as true and in the light most favorable to the

non-moving party. Gould Elecs, Inc v United States, 220 F3d 169,

179 (3d Cir 2000). By that standard Marland’s counterclaims are

clearly fit for judicial resolution because they seek redress for

well documented disputes in the past. 

Claims which are contingent upon future action by the

parties involved are considered unripe, preventing judicial

consideration of a hypothetical controversy. Scott v Padadena

Unified School District, 306 F3d 646, 662 (9th Cir 2002). The

contingency of Marland’s counterclaims upon the ability to

arbitrate in another forum does not diminish the suitability of

seeking redress for past torts and contract breaches in this forum. 

While Marland partially conditions seeking redress in this forum

upon preliminary rulings by this court (Doc #14 at 25), his claims

are not based on any future actions by the parties which may or may

not occur. Marland’s claims present a live case or controversy;

they merely retain the possibility of litigating these disputes in

another forum. 

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Additionally, the factual record concerning Marland’s

counterclaims is well settled. In fact, the counterclaims’ factual

basis overlaps significantly with the factual recitals of Thelen’s

complaint. The factual inquiry into which agreement controls the

parties’ rights and obligations pertains to both Thelen’s attempt

to stay arbitration and Marland’s claims for damages in tort and

contract law. Marland’s counterclaims are as fit for judicial

inquiry as Thelen’s request for a declaratory judgment because they

both involve the same well documented series of past agreements.

Thelen argues that Marland will not suffer any hardship

from dismissal of his counterclaims because they will either be

arbitrated if the December 2002 agreement is invalid or be barred

by the mutual release provision if the December 2002 agreement is

valid. As discussed earlier, the court must consider each

allegation in the counterclaim as true for this facial challenge.

Accepting the allegations of the counterclaim as true, the court

finds the counterclaims are justiciable because they present a live

case or controversy regardless of the December 2002 mutual release

provision’s validity. 

First, Thelen argues that Marland’s counterclaims are

hypothetical because will not be litigated in this forum if the

December 2002 agreement is found to be unenforceable. Earlier in

the counterclaim, however, Marland states he “is prepared to

litigate that issue in whichever forum (arbitration or court) is

most appropriate and expeditious.” Doc #14 at 24. Viewing all

allegations in the light most favorable to the non-moving party in

this facial challenge, the court presumes Marland will continue to

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litigate his counterclaims in this court if it is most appropriate

and expeditious.

Second, two of the counterclaims remain live

controversies even if the December 2002 agreement and its mutual

release provision are found to be enforceable. Marland’s first

counterclaim alleges that Thelen breached its fiduciary duty owed

to Marland beginning in 1998 and continuing through 2005, well

beyond the December 2002 agreement and its release provision. Doc

#14 at 35. Marland’s fifth counterclaim alleges that Thelen was

negligent throughout its representation of Marland, including

representation following the December 2002 agreement as alleged in

paragraph 34 of the counterclaim. Doc #14 at 32-33. Regardless of

the court’s determination of the validity of the December 2002

agreement and its mutual release provision, the continued breach of

Thelen’s fiduciary duty and continued negligence beyond December

2002 is justiciable.

Accordingly, dismissal would bring hardship to Marland by

denying an opportunity to litigate his counterclaims in the forum

of his choice. 

The court finds the counterclaims are ripe because they

are fit for judicial resolution and dismissal would present a

hardship to Marland.

III

Thelen seeks to dismiss Marland’s counterclaims pursuant

to Fed R Civ P 12(b)(6) for failure to state a claim for which

relief can be granted. In responding to a 12(b)(6) motion the

court must assume all factual allegations in the counterclaims are

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true and construe them in the light most favorable to the nonmoving party. Cahill v Liberty Mutual Insurance, 80 F3d 336, 337-

38 (9th Cir 1996). The motion will be denied if Marland can prove

any set of facts which would support a counterclaim and entitle him

to relief. Id.

Thelen argues that “Marland’s counterclaims are selfcanceling in nature and, therefore, fail to state a claim for which

relief can be granted.” Doc #26 at 3. This assumes that the

counterclaims will either be withdrawn from this forum and

arbitrated if the December 2002 agreement is invalid or if the

December 2002 agreement is valid the claims are subject to the

mutual release provision. But Marland conditions his counterclaims

on more than just the inability to seek redress through arbitration

proceedings. The counterclaims vest upon both the dismissal or

permanent stay of arbitration and the dismissal of Marland’s second

affirmative defense which seeks to join RoNo LLC as an

indispensable party. Doc #14 at 25. This indicates that Marland

will continue to litigate if the court finds the December 2002

agreement unenforceable but Marland is successful in joining RoNo

LLC. Marland’s counterclaims are not necessarily “self-cancelling”

because there is a circumstance in which the counterclaim will be

litigated and not barred by the mutual release provision of

December 2002.

Additionally, Marland asserts that he “is prepared to

litigate that issue in whichever forum (arbitration or court) is

most appropriate and expeditious.” Doc #14 at 24. This indicates

the counterclaims are in fact conditional upon the dismissal or

permanent stay of arbitration only if arbitration is still

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perceived by Marland as the most appropriate and expeditious forum.

Since Marland asserts a set of facts that entitle him to

relief in each of his five counterclaims and indicates he is

prepared to seek relief in this forum, he has adequately stated a

claim for relief.

IV

Finally, the court declines to stay all proceedings

related to Marland’s counterclaims. Thelen contends that validity

of the December 2002 agreement would preclude all of Marland’s

counterclaims. Doc #17 at 13. (As discussed earlier, however, two

of Marland’s counterclaims allege conduct after the December 2002

agreement and its mutual waiver provision.) Since the

counterclaims encompass many of the same or similar issues as

Marlan’s counterclaims, the gains to judicial economy from staying

consideration do not justify delaying consideration of Marlan’s

properly pled counterclaims. Should the parties mutually agree

that the court should first determine the validity of the December

2002 agreement, the court will proceed in a bifurcated manner.

V

For the reasons discussed above, Thelen’s motions to

dismiss based on Fed R Civ P 12(b)(1) and (b)(6) and Thelen’s

request for a stay are DENIED.

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United States District Court

For the Northern District of California

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Additionally, the parties will comply with the following

schedule. Simultaneous letter briefs regarding the applicability

of the Hague Convention will be filed on September 12, 2006. All

phase one document discovery will be completed by October 13, 2006. 

All phase one depositions will be completed by February 2, 2007. A

hearing for dispositive motions will be held on April 5, 2007, at

2:00 PM and a case management conference will be held on May 15,

2007, at 9:00 AM.

SO ORDERED.

 __________________________________

 VAUGHN R WALKER

 United States District Chief Judge

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