Court Opinion

ID: 4663064
Source: CourtListenerOpinion
Date Created: 2021-02-25 21:00:36.588613+00
Date Added: 2024-06-11T08:02:26.158535
License: Public Domain

NOT FOR PUBLICATION                     FILED
                        UNITED STATES COURT OF APPEALS                    FEB 25 2021
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                                 FOR THE NINTH CIRCUIT

In re: BOFI HOLDING, INC.                         No.   19-55721
SHAREHOLDER LITIGATION,
                                                  D.C. No.
------------------------------                    3:15-cv-02722-GPC-KSC

ANDREW CALCATERRA, derivatively on
behalf of BofI Holding, Inc.,                     MEMORANDUM*

                   Plaintiff-Appellant,

  v.

GREGORY GARRABRANTS; et al.,

                   Defendants-Appellees.

                       Appeal from the United States District Court
                         for the Southern District of California
                       Gonzalo P. Curiel, District Judge, Presiding

                        Argued and Submitted September 2, 2020
                                 Pasadena, California

Before: SILER,** BERZON, and LEE, Circuit Judges.

       The Bank of the Internet (now Axos Bank) provides consumer banking

       *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
       **
            The Honorable Eugene E. Siler, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
products through the internet. After it terminated an internal auditor—Charles

Erhart—he sued for retaliation. He claimed that he was fired for reporting to

regulators what he believed were internal control deficiencies and potential

regulatory violations. Erhart v. BofI Holding Inc., No. 15-cv-2287 (S.D. Cal.).

Shareholders followed suit and filed a securities fraud class action. Houston

Municipal Employees Pension System v. BofI Holding, Inc., No. 18-55415 (9th

Cir.).

         Next came this derivative action against the board of directors and senior

management at the bank. Both the first amended complaint (FAC) and second

amended complaint (SAC) asserted four causes of action: (1) breach of fiduciary

duty; (2) abuse of control; (3) unjust enrichment; and (4) breach of duty of honest

services. The SAC, however, only asserted those causes of action against four

defendants. In his first amended complaint (FAC), Plaintiff Andrew Calcaterra

alleged the Bank was damaged in four ways: (1) “legal fees associated with the

lawsuits filed against the Company for violations of the federal securities laws and

for violation of the anti-retaliation provisions of Dodd-Frank and Sarbanes-Oxley

by Mr. Erhart”; (2) “loss of reputation and goodwill, and a ‘liar’s discount’ that

will plague the Company’s stock in the future due to the Individual Defendants’

false statements and lack of candor to the marketplace”; (3) “amounts paid to

outside lawyers, accountants, and investigators in connection with [the Bank’s]

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internal investigation”; and (4) “loss of revenues and profits due to any subsequent

restatements.” The plaintiff’s claims in the SAC were “reduced to one seeking

recovery against the Defendant directors and officers to reimburse amounts BofI

paid to outside lawyers, accountants, and investigators in connection with BofI’s

internal investigation.”

      The district court found Calcaterra’s claims in the FAC were either: (1)

unripe; (2) failed to state a claim for relief; or (3) not properly pled. We have

jurisdiction under 28 U.S.C. § 1291. We affirm. Calcaterra also complains the

district court erred when it denied: (1) a stay of the entire case and (2) leave to

amend the SAC. We agree.

      1. The district court properly determined that most of Calcaterra’s claims in

the FAC were not ripe. As to the claims held unripe, each request for relief is

contingent on the outcome of the two other ongoing lawsuits. For example, if the

Bank prevails, Calcaterra’s requests for legal fees is without merit. As a result, the

claim “rests upon contingent future events that may not occur as anticipated, or

indeed may not occur at all.” Texas v. United States, 523 U.S. 296, 300 (1998)

(internal quotation marks omitted). Calcaterra’s attempts to plead around ripeness

by requesting declaratory, injunctive, and restitutionary relief, Gator.com Corp. v.

L.L. Bean, Inc., 398 F.3d 1125, 1129 (9th Cir. 2005), and grouping multiple

breaches as a single fiduciary claim are unavailing. Cf. DaimlerChrysler Corp. v.

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Cuno, 547 U.S. 332, 352-53 (2006) (rejecting the reading of a prior case to “allow

standing as to one claim to suffice for all claims arising from the same nucleus of

operative facts” because it would allow a court to “entertain moot or unripe

claims” and undermine Article III (internal quotation marks omitted)).

      2. Because the bulk of claims in the FAC were found unripe, Calcaterra

requested a stay of the entire case per the district court’s instruction, though the

district court denied that request. A district court should consider “the hardship or

inequity which a party may suffer in being required to go forward.” Lockyer v.

Mirant Corp., 398 F.3d 1098, 1110 (9th Cir. 2005) (quoting CMAX, Inc. v. Hall,

300 F.2d 265, 268 (9th Cir. 1962) (citations omitted)). Because of a possibility

that the statute of limitations might bar the refiling of Calcaterra’s now unripe

claims, the district court abused its discretion when it found Calcaterra would not

face hardship from dismissal. See Lockyer, 398 F.3d at 1105. We therefore reverse

the denial of the stay.

      3. Calcaterra alleges his breach of the duty of candor claim was improperly

dismissed, but he cannot meet the heightened level of proof required by Delaware

law and Federal Rule of Civil Procedure 9(b). See Metro Commc’n Corp. BVI v.

Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 157-58 (Del. Ch. 2004)

(Delaware law requires heightened level of proof that directors “knowingly

disseminate[d] false information”); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097,

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1103-04 (9th Cir. 2003). None of his claims rise above a speculative level. See

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Calcaterra failed to

identify why certain statements were false or allege that the Defendants knew they

were false. Calcaterra also objects to the dismissal of individual defendants. Only

four of the eight instances of alleged wrongdoing identify a particular defendant.

As a result, the district court correctly concluded that a claim can only continue

against the specifically named defendants.

      4. Before proceeding on his shareholder derivative action, Calcaterra must

show demand futility. That is, he must plead with particularity, Fed. R. Civ. P.

23.1(b)(3), that a demand on the Board was futile under Delaware law (the place of

incorporation). See Rosenbloom v. Pyott, 765 F.3d 1137, 1148 (9th Cir. 2014).

The district court did not err by determining he had not. See Tindall v. First Solar

Inc., 892 F.3d 1043, 1044 (9th Cir. 2018). Calcaterra did not sufficiently allege

that most of the board was conflicted at the time of filing for either the FAC or

SAC. Likewise, while “the existence of a new independent board of directors is

relevant to a Rule 23.1 demand inquiry only as to derivative claims in the amended

complaint that are not already validly in litigation,” Calcaterra’s claim was not

“validly in litigation” after filing the FAC because “validly in litigation” means a

proceeding that can or has survived a motion to dismiss. Braddock v. Zimmerman,

906 A.2d 776, 779, 786 (Del. 2006). Therefore, the district court did not err in

                                          5                                    19-55721
reconsidering demand futility.

      5. Finally, Calcaterra’s attempts to recover investigation costs were

dismissed for failure to state a claim. We review the district court’s decision de

novo and find no error. Fayer v. Vaughn, 649 F.3d 1061, 1063 (9th Cir. 2011) (per

curiam). Calcaterra points to no cause of action for recovering investigation costs

under these circumstances.

      6. The district court dismissed the SAC without leave to amend the

complaint. The decision to deny leave to amend is generally reviewed de novo.

When the reason for denying leave is futility, however, the decision is reviewed for

abuse of discretion. United States v. United Healthcare Ins. Co., 848 F.3d 1161,

1172 (9th Cir. 2016). We consider five factors in considering denying leave to

amend: “undue delay, bad faith or dilatory motive on the part of the movant,

repeated failure to cure deficiencies by amendments previously allowed, undue

prejudice to the opposing party by virtue of allowance of the amendment, [and]

futility of amendment.” Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d 522, 532

(9th Cir. 2008) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). Nonetheless,

the presumption remains in favor of granting leave to amend. Eminence Capital,

LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Here, the district court

did not consider any of the five factors and thus abused its discretion.

      We AFFIRM the district court’s granting of the defendant’s motion to

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dismiss the FAC, REVERSE the denial of plaintiff’s motion for a stay of the case,

and REMAND the district court’s denial of plaintiff’s motion for leave to seek to

amend the complaint for reconsideration applying the appropriate standards.

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