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Czajkowski v. Reed Elsevier

March 20, 2008

JERRY CZAJKOWSKI, PLAINTIFF,
v.
REED ELSEVIER, INC., DEFENDANT.



The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge

ORDER GRANTING MOTION TO DISMISS WITH PREJUDICE, DENYING MOTION FOR SANCTIONS, AND DENYING MOTION FOR PRE-FILING ORDER AGAINST VEXATIOUS LITIGANT (Doc. Nos. 4, 9, 10)

Plaintiff, a California resident, sued defendant Reed Elsevier in propia persona for breach of contract. This claim arises out of stock held by Plaintiff and his mother (now deceased) in the late-1980s and early-1990s. Defendant filed a motion to dismiss on January 3, 2008, arguing that Plaintiff's complaint is barred by res judicata, collateral estoppel, and the statute of limitations. (Doc. no. 4.) Defendant subsequently filed motions for Rule 11 sanctions and for a pre-filing order based on vexatious conduct. (Doc. nos. 9, 10.) Plaintiff opposed all three motions. The court deemed the motion to dismiss appropriate for decision without oral argument, see Civ. L.R. 7.1(d)(1), and heard oral argument on the other motions on March 19, 2008. For the reasons set forth below, the court hereby grants the motion to dismiss with prejudice, denies the motion for sanctions, and denies the motion for a pre-filing order.

I. BACKGROUND

A. Plaintiff's HBJ Preferred Shares

The following facts related to Plaintiff's HBJ stock have been taken from his complaint. In 1991, Harcourt Brace Jovanovich, Inc. ("HBJ"), a New York corporation, merged with General Cinema Corporation ("GCC"). (Compl. at 3-4 ¶ 14.) Plaintiff and his mother held preferred stock in HBJ at the time of the merger. (See Compl. at 12-13 ¶ 53.) As stated in a merger prospectus, the preferred shares contained the following terms:

HBJ may, at its option, redeem shares of HBJ Preferred Stock in whole at any time, or from time to time in part, at a redemption price equal to the $13.50 per share liquidation preference plus accrued and unpaid dividends, if any, to the date fixed for redemption. HBJ is required to redeem, on June 30, 3003, and on each June 30 thereafter through June 30, 2006, 20% of all shares of HBJ Preferred Stock then outstanding and on June 30, 2007 all remaining shares of outstanding HBJ Preferred Stock, in each case at the redemption price of $13.50 per share, plus accrued interest and unpaid dividends, if any, to the date of redemption. (Compl. at 5-6 ¶ 22.) Plaintiff objected to the merger. (Compl. at 7 ¶ 30.) HBJ purchased 5,083 preferred shares from Plaintiff at $0.69 per share, making an 80 percent cash advance of the full $3,507.27 and requesting surrender of the stock certificate in exchange for the remaining 20 percent payment. (Compl. at 7-8 ¶ 31.) Plaintiff and his mother rejected HBJ's "offer" and made a counteroffer of $65,809.60, to which HBJ did not respond. (Compl. at 8 ¶33, 16 ¶ 59.) Plaintiff claims that the 5,083 shares constituted only a fraction of the total number of shares he owned. (See Compl. at 12 ¶ 53.)

B. The 1992 Litigation: First Round

Proceeding in propia persona, Plaintiff and his mother sued Peter Jovanovich and HBJ in California state court in February 1992 (the "1992 litigation"). The defendants removed the case to the United States District Court for the Southern District of California. See Czajkowski v. Jovanovich, No. 92CIV0431 B (AJB) (S.D. Cal.). Plaintiff and his mother claimed that HBJ violated a contract by purchasing their preferred shares at $0.69 per share rather than $13.50 per share plus unpaid dividends and interest. The district court ultimately granted the defendants' motion to dismiss.

On appeal, the Ninth Circuit reversed the order of dismissal and remanded the case. Czajkowski v. Jovanovich, No. 92-55787, 1994 WL 247089 (9th Cir. Jun. 8, 1994) ("Czajkowski I") (Compl., Exh. 4). The circuit court determined that "the Czajkowskis' action is in essence a claim that they were not paid enough for their shares[.]" Id. at **3 (indicating that plaintiffs received compensation for all their shares). The court held that New York law governed and, under New York law, the plaintiffs' exclusive remedy was an appraisal proceeding. Id. at **2. This sole remedy foreclosed the plaintiffs' request for "equitable relief." The court remanded to allow the plaintiffs to amend their complaint to seek appraisal of the fair value of their shares.

C. The 1992 Litigation: Second Round

On remand, the district court granted leave to file a fifth amended complaint. The plaintiffs filed the fifth amended complaint in December 1995, alleging claims for breach of contract, breach of fiduciary duty, and fraud, and requesting appraisal of the fair value of the plaintiffs' HBJ preferred shares. (Def.'s Request for Judicial Notice ("RJN"), Exh. E (Fifth Amended Compl.).*fn1 Instead of pursuing an appraisal proceeding, the plaintiffs then moved for summary judgment. The district court denied the motion on November 4, 1997. The court also denied the plaintiffs' subsequent motion for reconsideration of that order. (See RJN, Exh. F (Denial of Pls.' Mot. for Recon.).) The defendants then filed their own motion for summary judgment, which the court granted. The court denied the plaintiffs' motion for reconsideration on April 24, 1998.

The plaintiffs then appealed the grant of summary judgment for the defendants and the April 24, 1998 order denying reconsideration. Because the plaintiffs filed their notice of appeal almost three months after the summary judgment order, the Ninth Circuit dismissed that portion of the appeal for lack of jurisdiction. The circuit court affirmed the order denying reconsideration, concluding that "plaintiff essentially only sought to relitigate issues that were previously rejected by this court in [Czajkowski I], and plaintiffs have failed to demonstrate a sufficient basis" for reconsideration. Czajkowski v. Jovanovich, No. 98-55904, Mem. Op. at 2-3 (9th Cir. Apr. 15, 1999) ("Czajkowski II").

D. The Current Case

Plaintiff initiated the instant action against Reed Elsevier on December 19, 2007.*fn2 In addition to diversity jurisdiction, he asserts federal question jurisdiction based on Defendant's alleged violation of his rights under the United States Constitution. (See Compl. at 1 (federal question arising under U.S. Const. Art. I, § 10, and Amendment XIV, § 1).)

In his complaint, Plaintiff alleges a sole claim for breach of contract. He claims that he purchased 4,710 shares of the HBJ preferred stock between October 1989 and November 1990. (Compl. at 12.) He also alleges that his stock had grown to 83,165.50 shares by November 25, 1991 because the dividends on the preferred shares were to be paid in kind. Plaintiff alleges that Defendant breached its contractual promise to redeem Plaintiff's preferred shares on each June 30 from 2003-2007. (Compl. at 23.) Based on his own calculations, Plaintiff alleges that he owned 525,920.02 shares as of June 30, 2007, and that Defendant now owes him a total of $7,084,923.58 due to the breach of contract in 2003-2007. (Compl. at 24.)

II. DISCUSSION

A. Motion to Dismiss

Defendant argues that the court should dismiss the complaint under Rule 12(b)(6) for failure to state a claim upon which relief may be granted.

1. Legal Standards

Rule 12(b)(6) dismissal is proper only in "extraordinary" cases. United States v. Redwood City, 640 F.2d 963, 966 (9th Cir. 1981). In evaluating a 12(b)(6) motion, the court must accept the complaint's allegations as true and construe them in the light most favorable to Plaintiff. See, e.g., Concha v. London, 62 F.3d 1493, 1500 (9th Cir. 1995), cert. dismissed, 116 S.Ct. 1710 (1996). The complaint's "factual allegations must be enough to raise a right to relief above the speculative level . . . ." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (U.S. May 21, 2007) (allegations must provide "plausible grounds to infer" that plaintiff is entitled to relief). The court should grant 12(b)(6) relief only where the complaint lacks either a "cognizable legal theory" or facts sufficient to support a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, ...


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