Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-01429/USCOURTS-cand-3_07-cv-01429-13/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1391 Personal Injury

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MICHAEL B. ESHELMAN, D.D.S.; PETER

F. SILCHER, D.D.S.; and LORI SILCHER,

Plaintiffs,

v.

ORTHOCLEAR HOLDINGS, INC. et al.,

Defendants.

 /

No. C 07-1429 JSW

NOTICE OF TENTATIVE

RULING AND QUESTIONS

TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD, PLEASE TAKE

NOTICE OF THE FOLLOWING TENTATIVE RULING AND QUESTIONS FOR THE

HEARING SCHEDULED ON MAY 30, 2008 AT 9:00 A.M.:

The Court has reviewed the parties’ papers and, thus, does not wish to hear the parties

reargue matters addressed in those pleadings. If the parties intend to rely on authorities not

cited in their briefs, they are ORDERED to notify the Court and opposing counsel of these

authorities reasonably in advance of the hearing and to make copies available at the hearing. If

the parties submit such additional authorities, they are ORDERED to submit the citations to the

authorities only, without argument or additional briefing. Cf. N.D. Civil Local Rule 7-3(d). 

The parties will be given the opportunity at oral argument to explain their reliance on such

authority.

The Court tentatively GRANTS IN PART AND DENIES IN PART Defendant

OrthoClear and the D&O Defendants’ motion to dismiss and GRANTS 3i and Badawi’s motion

to dismiss and GRANTS Defendant Seifert’s motion to dismiss.

Case 3:07-cv-01429-JSW Document 142 Filed 05/15/08 Page 1 of 3
United States District Court

For the Northern District of California

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The parties shall each have 25 minutes to address the following questions:

OrthoClear and D&O Defendants’ Motion to Dismiss

1. In its prior order, the Court found that the allegations regarding statements about the

litigation early on and the anonymous petition for reexamination were insufficient to

plead falsity. Beside a brief analysis of the breadth of the Align patents, how does the

Third Amended Complaint vary from the Second Amended Complaint in this regard? 

2. What new facts in the Third Amended Complaint indicate scienter, or as Plaintiffs

contend, indicate that “Defendants deliberately understated the risk and potential impact

of the Align Litigation in order to obtain investor capital” from Plaintiffs (i.e., not from

3i)?

3. On what basis do Plaintiffs assert they may maintain derivative status under British

Virgin Islands law? Why should the decision to pursue corporate litigation not be left to

sound business judgment of the organization’s board of directors? On what basis do

Plaintiffs contend that the decision to litigate is not a “commercial matter”? See BVI

Companies Act at § 184C(2)(b). 

4. What authority stands for the proposition that a plaintiff whose own investment satisfies

the private placement exemption can recover an investment because some other investor

did not? See Koehler v. Pulvers, 614 F. Supp. 829, 836, 849 (S.D. Cal. 1985). If given

leave to amend, could Plaintiffs allege that there at least 35 investors who are not

accredited? (According to Nabwangu Declaration, there are 31 unaccredited investors. 

Are these facts judicially noticeable?)

5. Why are Plaintiffs not bound by the integration clause in the Purchase Agreements? Are

Plaintiffs’ claims about Defendants’ representations outside those in the Agreements

barred by virtue of the integration? 

Seifert’s Motion to Dismiss

1. How can Plaintiffs maintain a claim against OrthoClear for violation of the Securities

Act of 1933 when 15 U.S.C. § 771 only applies to public offerings? See Lewis v.

Fresne, 252 F.3d 352, 357 & n.4 (5th Cir. 2001).

2. On what factual basis do Plaintiffs contend they have stated a cause of action against

Defendant Seifert for violation of California Corporations Code §§ 25401 and 25501

considering there is no allegation that she “offered and sold securities”? If given leave

to amend, upon what facts could Plaintiffs rely?

3i and Badawi’s Motion to Dismiss

1. Plaintiffs allege that, due to the timing of his departure from the Board and the

subsequent 3i settlement, Badawi must have misappropriated confidential inside

information. If the motion to dismiss were granted and Plaintiffs were given leave to

amend to add facts to support such an inference, what would Plaintiffs allege? Does the

disclosure of the 3i settlement agreement in this round of motions alter Plaintiffs’

proposal? Can Plaintiffs plead any facts indicating that Badawi reviewed the letters sent

to shareholders dated September 28, 2006 and October 2, 2006?

Case 3:07-cv-01429-JSW Document 142 Filed 05/15/08 Page 2 of 3
United States District Court

For the Northern District of California

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2. OrthoClear and 3i negotiated a settlement agreement disposing of 3i’s potential claims

against the company.

a. Must the Court deem the Align settlement a “Deemed Liquidation Event”

under British Virgin Islands law? Is this a question of fact requiring

discovery?

b. If it were simply a liquidation event, why were Plaintiffs never informed

of the event, why is distribution by formal process not complete, and why

does the settlement agreement involve repurchase of shares instead of

liquidation? Does the fact that OrthoClear represented to shareholders

that the 3i settlement would not require OrthoClear to “cease operations

or dissolve” factor into the determination?

c. When did the 3i settlement become effective? Is that a judicially

noticeable fact?

d. What is the effect of OrthoClear’s release of all derivative claims in the

settlement agreement?

Do any of the parties have anything further they wish to address?

IT IS SO ORDERED.

Dated: May 15, 2008 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

Case 3:07-cv-01429-JSW Document 142 Filed 05/15/08 Page 3 of 3