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Shyh-Yih Hao v. Wu-Fu Chen


March 16, 2011


The opinion of the court was delivered by: Lucy H. Koh United States District Judge


Defendant Wu-Fu Chen moves to dismiss this action for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), or, in the alternative, to dismiss or stay the action 19 in deference to a dissolution proceeding currently underway in state court. Pursuant to Civil Local Rule 7-1(b), the Court concludes that this motion is appropriate for determination without oral 21 argument and vacates the hearing set for March 17, 2011. Having considered the submissions of 22 the parties and the relevant law, the Court DENIES Defendant's motion. The Court will hold a 23 case management conference on April 6, 2011 at 2 p.m. 24

I.Background 25

A.Factual Background

Plaintiff Shyh-Yih Hao ("Hao") is the brother-in-law of Defendant Wu-Fu Chen ("Chen"). Second Amended Compl. ("SAC") ¶ 4. Chen is a Silicon Valley venture capitalist who co-founded 28 Ardent Communications Corp., a successful IT company acquired by Cisco Systems in the 1990s.

SAC ¶ 4; Decl. of Wu-Fu Chen in Supp. of Mot. to Dismiss ("First Chen Decl.") ¶ 5(a), ECF 2 No. 7. Through this venture and others, Chen "amassed a considerable personal fortune." SAC 3 ¶ 4. In the mid-1990s, Chen began dating Hao's sister, Ellen Hao Chen ("Ellen"), and in 2000 they 4 married. First Chen Decl. ¶ 5(b). Chen and Ellen are currently involved in marriage dissolution 5 proceedings in the Santa Clara County Superior Court. Decl. of Christina Chen in Supp. of Mot. to 6

On February 26, 2010, Hao initiated this action against Chen, alleging conversion, breach of fiduciary duty, and unjust enrichment and seeking an accounting and other forms of relief. The 9 facts underlying Hao's allegations are highly contested. The Second Amended Complaint alleges 10 that Plaintiff Hao invested millions of dollars into two venture fund companies -- Chens, LLC, and

Dismiss ("Christina Chen Decl.") ¶ 1, ECF No. 40. 7

WFChen, LLC -- established by Defendant in July 1998 and April 2000, respectively. SAC ¶ 5.

Sometime thereafter, these companies were transferred to Cascade Capital Management, LLC, a 13 company formed in the Cayman Islands and allegedly managed by Defendant. SAC ¶ 9. Plaintiff 14 alleges that he was unaware of this transfer until sometime in 2009; that his signature was forged 15 on the Interest Transfer Agreement that transferred his ownership interest in Chens, LLC, and 16

Agreement. SAC ¶¶ 8-9. He therefore seeks an accounting of transactions relating to Chens, LCC, 18 and WFChen, LCC, as well as actual and punitive damages, restitution, disgorgement of profits, 19 and imposition of a constructive trust.

declarations filed in this action. According to Chen, Hao never invested any of his own money in 22 the venture funds. Rather, Chen alleges that while he and Hao's sister, Ellen, were dating, he 23 placed stock into a Charles Schwab account for Ellen to manage. First Chen Decl. ¶ 5(b). At the 24 time, Ellen was divorcing her first husband, and Chen alleges that he created the Schwab account 25 in Hao's name in order to prevent Ellen's first husband from learning about the transaction. First 26

Chen Decl. ¶ 5(c). Chen claims that the funds in the Schwab account were not a gift and that, 27 although held in Hao's name, the funds were expressly intended to be the community property of 28

WFChen, LLC; and that he never received the $7,084,808 he was due under the Interest Transfer 17

Defendant Chen has provided a very different account of the facts in the moving papers and Ellen and Chen when they married. Id. According to Chen, the money used to pay for Hao's interest in Chens, LLC, as well as allegedly unauthorized capital contributions to WFChen, LLC, 2 came from the funds in the Schwab account. First Chen Decl. ¶ 5(k). He therefore alleges that any 3 interest Hao claims in the venture funds was merely "a fiction intended to describe the interest of 4 Ellen." First Chen Decl. ¶ 5(l). 5

the federal district court had subject matter jurisdiction over the action pursuant to 28 U.S.C.

B.Procedural History

Hao initiated this action in federal court on February 26, 2010. The Complaint alleged that § 1332(a)(2), as an action between a United States citizen and a citizen of a foreign state. Compl. 9 at 1. In his first motion to dismiss, Chen urged the Court to dismiss this action for lack of subject 10 matter jurisdiction, on grounds that (1) diversity of citizenship was improperly pled, and (2) the action was subject to the domestic relations exception to diversity jurisdiction. In the alternative,

Chen requested that the Court abstain from exercising jurisdiction based on the overlap between 13 this action and the state-court domestic relations proceeding, or under the doctrines of Younger or 14

Colorado River abstention. In its order of October 5, 2010, the Court concluded that the domestic 15 relations exception to diversity jurisdiction did not apply, but agreed that the Complaint did not 16 adequately allege Chen's state citizenship. Accordingly, the Court granted the motion to dismiss 17 with leave to amend to cure the jurisdictional defect and deferred consideration of abstention until 18 the threshold issue of jurisdiction could be properly resolved. 19

Hao filed a Second Amended Complaint*fn1 on November 4, 2010, which contains facially sufficient allegations regarding Chen's state citizenship. See SAC ¶ 2. In his second motion to 21 dismiss, Chen argues that the Court should dismiss the case for lack of subject matter jurisdiction 22 because Chen is actually domiciled in Taiwan and therefore diversity of citizenship does not exist. 23

Alternatively, Chen argues that the Court should abstain from exercising jurisdiction based on the 24 close relationship between the issues in this case and those involved in the state-court dissolution 25 proceeding. The Court will first address the threshold issue of subject matter jurisdiction and then 26 turn to the question of abstention. 27

II.Diversity Jurisdiction 2

action because he is a United States citizen domiciled in Taiwan and thus a "stateless" person for 4 purposes of the diversity statute. Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 828 5 (1989). "In order to be a citizen of a State within the meaning of the diversity statute, a natural 6 person must both be a citizen of the United States and be domiciled within the State." Id. Thus, if 7 Chen is indeed a United States citizens domiciled in Taiwan, he is neither a citizen of a state, nor 8 an alien, and his presence necessarily destroys diversity. See Brady v. Brown, 51 F.3d 810, 815 9

As discussed below, however, the Court finds that Chen was domiciled in California at the outset of this action, and therefore diversity jurisdiction exists.

As a threshold matter, Chen argues that the Court lacks subject matter jurisdiction over this (9th Cir. 1995) (presence of foreign-domiciled U.S. citizen defendant destroys complete diversity).

A.Legal Standard

It is axiomatic that federal courts are courts of limited jurisdiction. Vacek v. U.S. Postal Service, 447 F.3d 1248, 1250 (9th Cir. 2006). "A federal court is presumed to lack jurisdiction in a 15 particular case unless the contrary affirmatively appears." A-Z Int'l v. Phillips, 323 F.3d 1141, 1145 16

Rule 12(b)(1), the party asserting jurisdiction ordinarily has the burden of establishing that subject 18 matter jurisdiction is proper. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). 19

(9th Cir. 2003). Accordingly, on a motion to dismiss for lack of subject matter jurisdiction under 17 A Rule 12(b)(1) motion may be either a facial or factual attack on jurisdiction. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004). In a facial attack, the defendant "asserts that the 21 allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction." 22

Id. In considering a facial attack, a court must take the allegations in the Complaint as true and 23 draw all reasonable inferences in the plaintiff's favor. Id. In contrast, a factual attack challenges 24 the truth of the allegations establishing federal jurisdiction. Id. "Once the moving party has 25 converted the motion to dismiss into a factual motion by presenting affidavits or other evidence 26 properly brought before the court, the party opposing the motion must furnish affidavits or other 27 evidence necessary to satisfy its burden of establishing subject matter jurisdiction." Savage v. 28

Glendale Union High School, Dist. No. 205, Maricopa County, 343 F.3d 1036, 1039 n.2 (9th Cir. 2003). A district court may hear evidence and make findings of fact necessary to rule on the 2 subject matter jurisdiction question, so long as the jurisdictional facts are not intertwined with the 3 merits. Rosales v. United States, 824 F.2d 799, 803 (9th Cir. 1987); accord Safe Air for Everyone 4 v. Meyer,373 F.3d 1035, 1039 (9th Cir. 2004). 5

citizen of California for purposes of diversity jurisdiction. Plaintiff claims that this Court has 8 jurisdiction pursuant to 28 U.S.C. § 1332(a)(2), which confers jurisdiction over cases between 9


In this case, Defendant Chen presents a factual attack challenging the allegation that he is a "citizens of a State and citizens or subjects of a foreign state" in which the amount in controversy 10 exceeds $75,000. It is undisputed that Plaintiff is a citizen of Taiwan and that the amount in controversy exceeds $75,000. The only question is whether Defendant is a citizen of California or any other State for purposes of the diversity statute.*fn2

749 (9th Cir. 1986). For purposes of diversity jurisdiction, domicile is determined as of the time 16 the lawsuit is filed. Id. at 750. A person is domiciled "in a location where he or she has 17 established a fixed habitation or abode in a particular place, and [intends] to remain there 18 permanently or indefinitely." Id. at 749-50 (quotation makes and citations omitted). A person 19 residing in a particular state is not necessarily domiciled there. Kanter v. Warner-Lambert Co., 20

265 F.3d 853, 857 (9th Cir. 2001). Rather, a person's domicile is determined by a number of 21 factors, none of them controlling, including: "current residence, voting registration and voting 22 practices, location of personal and real property, location of brokerage and bank accounts, location 23 of spouse and family, membership in unions and other organizations, place of employment or 24

"To demonstrate citizenship for diversity purposes a party must (a) be a citizen of the United States, and (b) be domiciled in a state of the United States." Lew v. Moss, 797 F.2d 747, 15 business, driver's license and automobile registration, and payment of taxes." Lew, 797 F.2d at 2 750. The courts evaluate domicile based on "objective facts" and accord little weight to statements 3 of intent that conflict with those facts. Id. 4

sharply dispute whether he was domiciled in California at the time this lawsuit was filed, in 6 Here, the parties agree that Chen is a dual citizen of the United States and Taiwan, but

February 2010. In order to establish Chen's domicile, Chen relies almost exclusively on his own 7 declaration, while Hao relies largely on statements made by Chen in his filings and deposition 8 testimony in the state-court dissolution proceeding.*fn3 The Court notes, as an initial matter, that it is 9 troubled by the number of inconsistencies between Chen's declaration in support of this motion 10 and the statements he has made in the state court action. While some of the apparent 11

confusion regarding the meaning of certain legal

inconsistencies may be attributable to Chen's 12 terms, other discrepancies are straightforward and rather inexplicable.*fn4 The Court attempts to 13 make sense of these apparent inconsistencies as it evaluates the Lew factors below. 14

undisputed that Chen owned property in both California and Taiwan at the time this action was 18 initiated, and both sides concede that he spent time in both places. The parties' dispute centers on 19

Wu-Fu Chen in Supp. of Mot. to Dismiss SAC ("Third Chen Decl.") ¶ 2. In his deposition testimony in the state-court proceeding, however, Chen stated that he earned a masters degree from 24 the University of Florida-Gainsville and was thereafter enrolled in a PhD program at the University of California-Berkeley in 1975. Decl. of Ellen Hao Chen In Supp. of Def.'s Mot. to Dismiss 25

("Ellen Decl.") Ex. O, 14:19-15:13. The deposition testimony indicates that Chen then worked continuously in the United States, with the exception of a one- or two-year period around 1990 26 when he commuted between Boston and Taiwan. Decl. of Ellen Hao Chen In Supp. of Def.'s Mot. to Dismiss ("Ellen Decl.") Ex. O, 15:15-27:25. Based on this information, it appears that Chen 27 either studied or worked in the United States from the mid-1970s until at least 2004, when he allegedly accepted full-time employment in Taiwan. Reply Decl. of Wu-Fu Chen Re: Mot. to 28

Dismiss ("Fourth Chen Decl.") ¶ 2(i). Other discrepancies are described in the analysis below.

1. Factors Supporting Domicile in California


Chen's residence in February 2010 is the Lew factor most contested by the parties. It is

the location of his primary residence at the time the lawsuit was filed. Chen acknowledges that 2 from 1998 until the break-up of his marriage with Ellen, his primary residence was their home in 3

Los Altos Hills, California.*fn5 The parties agree that Chen has not lived at the Los Altos Hills house 4 since early 2009, when he and Ellen began divorce proceedings. However, Chen also owns a 5 second house in Cupertino, California. Hao contends that this Cupertino house has been Chen's 6 primary residence since 2009. Chen acknowledges that he stays at the Cupertino home while in 7

Inconsistencies in Chen's representations make the question of primary residence somewhat difficult to resolve. In his opening brief, Chen submitted a declaration, signed under penalty of 10 perjury, claiming that he purchased a condominium in Taipei (the "Taipei Condominium") in 2005, the title to which was held jointly by him and Ellen. Third Chen Decl. ¶ 3(c). The declaration

states that beginning in 2006, Chen spent approximately 70 percent of his time in Taiwan and Asia, 13 and the Taipei Condominium became his primary residence. Id. ¶ 3(e). He claims that since 2006, 14 he has spent approximately 70 percent of his time in Taiwan; 10 percent in other countries in Asia; 15

15 percent in California; and 4 percent in Massachusetts. Id. ¶ 3(e), (g). He claims, further, that 16 had he not been required to travel to California to deal with the dissolution proceedings in state 17 court, he would not have spent any time in California, except for possible brief trips to visit his 18 children. Id. ¶ 3(h). The declaration states twice that the Taipei Condominium is now his primary 19 residence and was his primary residence in February of 2010. Id. ¶¶ 3(d), 6(a).

question. First, Hao clearly establishes, and Chen concedes, that Chen has not had access to the 22

November 18, 2010, in support of an application for exclusive use of the Taipei Condominium.

California, but claims that he moved his primary residence to Taiwan beginning in 2006. 8

In his opposition brief, however, Hao submits evidence that calls these representations into

Taipei condominium since mid-2009. Hao attaches a copy of a declaration submitted by Chen on 23

Decl. of Ellen Hao Chen In Supp. of Def.'s Mot. to Dismiss ("Ellen Decl.") Ex. P, ECF No. 63. In 2 this declaration, Chen claims that Ellen has had possession of the keys to the Taipei Condominium 3 since 2008, and that her mother has occupied the Condo since April 2009. The declaration states, 4 moreover, that Chen has not so much as entered the building in which the Condo is located since 5 mid-2009. Chen concedes that the declaration submitted in support of the exclusive use petition is 6 accurate. He claims that the discrepancies in the declaration filed in this action were an 7 unintentional error, due to miscommunication with his attorney, and maintains that the remainder 8 of his declaration is technically correct. In his reply declaration, Chen clarifies that since mid-9

Nangang Road in Taipei. Reply Decl. of Wu-Fu Chen Re: Mot. to Dismiss ("Fourth Chen Decl.") 11

time. Id. ¶ 4(b)(v) n.8. 13

finds that Chen's contentions regarding residency are further undermined by other statements and 15 declarations he made in the state-court dissolution proceedings. In those proceedings, Chen has 16 repeatedly represented himself as a resident of California, without suggesting that Taiwan is 17 actually his place of primary residence. See Ellen Decl. Ex. I, 2:22-23 ("I live at 20818 Fargo 18 (identifying himself as "a US citizen and California resident"); Ex. N ("WuFu Chen is, and at all 20 relevant times was, a resident of the County of Santa Clara."). Indeed, in a deposition conducted in 21 the state-court proceeding on March 18, 2010, Chen identified the Cupertino house as his primary 22 residence. Ellen Decl. Ex. O, 14:7-14. It is true, as Chen points out, that a person may have more 23 than one residence, and the Court agrees that the evidence suggests that in February 2010, Chen 24 may have been a resident of both Taiwan and California. Nonetheless, Chen's own statements in 25 the state-court proceedings, made between January of 2009 and March 2010, indicate that he 26 considered California to be his primary residence at the time this lawsuit was filed. While these 27 statements are not by themselves dispositive of domicile, they lead the Court to conclude that

2009, he has lived in a room in his family's home, now apparently occupied by his brother, on

¶ 4(b)(ii)-(v). He has also stayed in the homes of other siblings and friends in Taipei from time to

The Court is troubled by this significant omission from Chen's original declaration and

Drive, Cupertino, CA 95024, and maintain a home on Lanjing East Road, in Taipei"); Ex. K 19

California was Chen's primary residence in February 2010. Accordingly, the residence factor 2 weighs in favor of finding domicile in California. 3

the location of Chen's real and personal property and his driver's license and automobile 6 registration. First, although Chen possesses real and personal property in both California and 7

California, Chen owns two homes, a car, and has at least some other personal property. See 9

b. Other factors supporting domicile in California

The Court also finds that two other factors weigh in favor of finding domicile in California:

Taiwan, the Court finds that more of his property was located in California in February 2010. In 8

Christina Chen Decl. Ex. 1 (schedule of assets and debts filed with state court listing two California 10 homes, a Toyota Prius in Chen's possession, and other personal property in Ellen's possession). In 11

Taiwan, Chen owns the Condo from which he is currently excluded. Although Chen claims that

most of his personal property is located in the Taipei Condo, Third Chen Decl. ¶ 4(g), the Court 13 agrees with Hao that this contention is difficult to square with the fact that Chen has not had access 14 to the Taipei Condo for nearly two years. Indeed, if the Taipei Condo contains most of Chen's 15 personal property, as Chen claims, the Court finds it quite odd that he did not apply for exclusive 16 use of the Condo until nearly a year-and-a-half after he was first excluded from the Condo. 17

Accordingly, the Court cannot give much credence to the claim that most of Chen's personal 18 property is located in Taiwan, and this factor weighs somewhat in favor of finding domicile in 19

Second, as of February 2010, Chen possessed only a California driver's license. Chen concedes that this factor cuts against domicile in Taiwan, but argues that this factor is not entitled 22 to substantial weight because driving is not a required activity in Taiwan, as it is in the United States. The Court agrees that this is a fair point and thus will not accord this factor significant 24 weight in the analysis. Nonetheless, as Chen did subsequently acquire a Taiwanese driver's 25 license, there must be some utility in possessing a license, particularly for someone who intends to 26 be a long-term, full-time resident. Accordingly, the Court finds that this factor weighs slightly in 27 favor of finding domicile in California. 28

California. 20

2. Factors supporting Taiwan as domicile

The Court finds that of the remaining Lew factors, three weigh in favor of domicile in

Taiwan, to varying degrees: Chen's voting registration and voting practices, his membership in 4 organizations, and his place of employment. As to voting, Chen claims that he voted in the

States. Third Chen Decl. ¶ 4(a). Hao has offered no evidence that contradicts this representation, 7 and the Court therefore agrees that Chen's voting practices weigh in favor of domicile in Taiwan.

November 2008 Taiwan national election, but has never been registered to vote in the United

As to membership in organizations, Chen makes much of his commitment to the Taoist community 9 in Taiwan. He claims that his family has long been associated with Ikwan Tao and that his family 10 is currently involved in setting up a foundation and donating funds to build a temple and a nursing 11 home. Third Chen Decl. ¶ 5. Chen claims that since 2003, he has become very involved in these

Chen does not explain of what his involvement with Ikwan Tao consists or whether this 14 involvement requires his active presence in the Taoist community in Taiwan. Nonetheless, as Hao 15 has not offered any evidence challenging this association, the Court finds that this factor, too, 16 weighs in favor of finding domicile in Taiwan. Because Chen's association with Ikwan Tao 17 remains somewhat vague, however, the Court finds that this factor should not be given significant 18 weight in the analysis.

inconsistencies in Chen's representations. In his declaration, Chen claims that in 2004, he took a 21 job working as the manager of a venture investment fund, the Dragon Fund, located in Taipei.

Third Chen Decl. ¶ 3(b). He claims that after accepting this position, he resigned all of his 23 positions in California, including his position with a company called Acorn, and that he had 24 resigned from these positions long prior to February 2010. Id. In a deposition for the state 25 proceeding taken on March 18, 2010, however, Chen stated that he remains on the Board of 26

Ellen Decl. Ex. O, 154:4-24. Nonetheless, it seems that these California and U.S.-based positions activities and plans to dedicate most of his remaining life to "working in Tao" in Taiwan. Id.

As to place of employment, the Court again has a difficult time evaluating this factor due to

Directors of both Acorn, in Silicon Valley, and ATopTech, which is located in the United States. 27

are likely not full-time employment. Accordingly, Chen's place of employment weighs slightly in 2 favor of finding domicile in Taiwan. 3

ossible domicile. First, Chen's family is located in both California and Taiwan. In February

China. Fourth Chen Decl. ¶ 2(h); Third Chen Decl. ¶ 3(a). His siblings, however, live in Taiwan.

California and Taiwan. While he claims that the bulk of his money is held in accounts in Taiwan 10 and elsewhere in Asia, these funds appear to be held in a Charles Schwab account that presumably

can easily be accessed from anywhere.*fn6 See Christina Chen Decl. Ex. 1. Accordingly, the Court

does not find either of these factors to be very helpful in determining domicile. Finally, Chen has 13 paid taxes in both California and Taiwan since approximately 2003. Although he filed his 2009 14 return as a non-resident of California, the Court does not find this particularly probative of his 15 intent in February 2010, as the return was not filed until after this litigation was commenced. 16

Based on the above analysis, it seems that Chen has strong ties to both Taiwan and

California, and that he may lead a bi-coastal life that is not easily characterized as "fixed" in one 19 location or the other. On balance, however, the Court finds that the evidence put forth by Hao 20 demonstrates that in February 2010, Chen conceived of California as his fixed abode and intended 21 to remain there for the indefinite future. At that time, Chen repeatedly referred to California as his 22 place of residence, often without even mentioning his secondary residence in Taiwan. His ties to 23

California included two of his children, substantial real and personal property, a car and driver's 24 license, and continued professional obligations. The Court has found, moreover, that glaring 25 inconsistencies in Chen's declaration severely undermine the credibility of his claims that he had 26

3. Factors that do not strongly support either location

Finally, the Court finds that the remaining Lew factors do not strongly support either

2010, two of Chen's adult children lived in California, two lived in Massachusetts, and one lived in 7

Third Chen Decl. ¶ 4(d). Similarly, Chen maintains brokerage and bank accounts in both 9

4. Chen was domiciled in California in February 2010

gradually moved his domicile to Taiwan prior to 2010. Chen may not avoid this Court's 2 jurisdiction by omitting critical information or by recharacterizing the facts to fit his current needs. 3

Indeed, if Chen continues to attempt to mislead the Court in the future, he risks the imposition of 4 sanctions. For all of these reasons, the Court finds that Chen was domiciled in California when 5 this lawsuit was filed in February 2010. Accordingly, diversity jurisdiction exists, and Chen's 6 motion to dismiss for lack of subject matter jurisdiction is DENIED. 7

Chen argues, in the alternative, that if the Court finds that diversity jurisdiction exists, it

9 should nonetheless abstain from exercising jurisdiction because of the close relationship of this 10 action to the dissolution proceeding in state court. Chen's arguments regarding abstention are 11

III. Abstention 8

premised on his claim that Hao was merely a nominal holder of the Schwab account funds and the 12 interest in Chens, LLC, and WFChen, LLC. Chen contends that the Schwab account was held by 13

Hao for the benefit of Ellen, and that Ellen and Chen agreed that the funds held and managed 14 therein would become community property after their marriage. He claims further that Hao's 15 interest in the LLCs was funded entirely from the Schwab account and was likewise a nominal 16 interest only, held for the benefit of Ellen. On this theory, Chen argues the assets contained in the

Schwab account and used to purchase Hao's interest in the LLCs are either community property of 18 the marriage, separate property of Chen, or some combination of community and separate property. 19

As such, Chen argues that the state court will necessarily have to undertake a characterization and 20 accounting of these assets in order to distribute the marital property and resolve the dissolution 21 proceeding. He therefore claims that this Court should abstain from hearing Hao's claims and 22 defer to the proceedings already underway in state court. 23

rejected a motion by Chen to join Hao in the dissolution proceedings, apparently because the assets 25 in the Schwab account appeared to be separate property. See Reporter's Transcript of Proceedings 26

ECF No. 74 ("I do believe [Hao's] joinder would not be required for enforcement of the judgment 28 from this case since . . . he doesn't control any community property."). Chen has since amended

When this Court heard Chen's initial motion to dismiss, the state court had considered and

6, attached to Reply Decl. of Gina Azzolino in Supp. of Mot. to Dismiss ("Azzolino Decl.") Ex. C, 27

his Schedule of Assets and Debts in the dissolution proceeding to include (1) the Schwab account 2 as an asset held in Hao's name in trust, and (2) the potential liability to Hao in this action as a 3 potential debt that may be held by Hao beneficially for Ellen. See Christina Chen Decl. Ex. 1. 4

Chen also recently filed a renewed motion to join Hao in the dissolution proceeding, which is set 5 for hearing in state court on April 13, 2011. Azzolino Decl. ¶ 4. Chen argues that these 6 developments, along with the pre-existing overlap between the state and federal cases, justify a stay 7 of the federal action. In his motion, Chen identifies three possible grounds for abstention: (1) 8 principles of abstention for cases on the verge of the domestic relations exception to diversity 9 jurisdiction; (2) Colorado River abstention; and (3) Younger abstention. The Court will address 10 each abstention doctrine in turn.

relations exception to diversity jurisdiction.*fn7 See Ankenbrandt v. Richards, 504 U.S. 689, 704 14 (1992) ("the domestic relations exception encompasses only cases involving the issuance of a 15 divorce, alimony, or child custody decree"). As the Court previously noted, however, the Supreme 16

Court in Ankenbrandt indicated that "in certain circumstances, the abstention principles developed 17 in Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), might be relevant in 18 a case involving elements of the domestic relationship even when the parties do not seek divorce, 19 alimony, or child custody." Id. at 705. Here, Chen does not invoke Burford abstention, but instead 20 relies upon appellate decisions that find abstention appropriate in cases that are "on the verge" or 21 within the "penumbra" of the domestic relations exception. See, e.g., American Airlines, Inc. v. 22


A.Abstention for Cases on the Verge of the Domestic Relations Exception

The Court has already determined that this action does not fall within the narrow domestic

Block, 905 F.2d 12, 14 (2d Cir. 1990) (abstention appropriate for cases "on the verge" a matrimonial action); Friedlander v. Friedlander,149 F.3d 739, 740-41 (7th Cir. 1998) (abstention 2 appropriate for cases within the penumbra, but not the core, of the domestic relations exception).

not very clearly defined. The Seventh Circuit has defined the "penumbra" of the domestic relations 5 exception to include "ancillary proceedings, such as a suit for the collection of unpaid alimony, that 6 state law would require be litigated as a tail to the original domestic relations proceeding." 7

The contours of abstention for cases "on the verge" of the domestic relations exception are

Friedlander,149 F.3d at 740. The First Circuit, applying Burford abstention, has also approved 8 abstention in cases that "ask[] a federal court to decide in the first instance a series of sensitive 9 legal questions about the duties and privileges of parties to a then existing marriage," Dunn v. 10

Ninth Circuit has indicated that abstention may be appropriate in cases seeking to enforce a support 14 decree, to enforce or invalidate a divorce decree, or to determine the rights and obligations of 15 spouses under a statute or contract. Csibi v. Fustos, 670 F.2d 134, 137 (9th Cir. 1982); see also 16

Fern v. Turman, 736 F.2d 1367, 1370 (9th Cir. 1984) (finding abstention appropriate where action 17 sought invalidation of a term of divorce decrees). Such cases truly are closely related to the 18 domestic relations exception, in the sense that they directly determine the rights of one spouse vis-19 a-vis another or relate to decrees that the federal court lacks jurisdiction to issue in the first 20 instance. 21

In this case, the Court finds that the relationship between the instant federal action and the state-court dissolution proceedings is too tenuous and uncertain to justify abstention under these 23 principles. At this time, Hao is not a party to the state-court proceedings, and it remains unclear 24 whether the state court will need to resolve the issues presented in this case in order to characterize 25 and distribute assets in the dissolution proceeding. The state court has already rejected one attempt 26 to join Hao in its proceedings and has suggested that the assets contained in and flowing from the 27

Schwab account may not fall within its jurisdiction. See Reporter's Transcript of Proceedings 6, 28 attached to Azzolino Decl. Ex. C. The issues presented in this case do not depend upon a Cometa, 238 F.3d 38, 42 (1st Cir. 2001), and in cases that threaten to interfere with the state court's division of marital property. DeMauro v. DeMauro, 115 F.3d 94, 98-99 (1st Cir. 1997). Ninth Circuit authority on this type of abstention appears to be somewhat more confined, however. The 13 determination of the domestic relationship, see Ankenbrandt, 504 U.S. at 706 (stating that 2 abstention may be appropriate where the federal case depends upon the state court's determination 3 of the status of the domestic relationship), nor do they present novel or sensitive questions that 4 implicate state public policy regarding domestic relations. In raising the possibility that abstention 5 might be appropriate in certain cases related to divorce or custody proceedings, the Supreme Court 6 cautioned that "[a]bstention rarely should be invoked, because the federal courts have a 'virtually 7 unflagging obligation . . . to exercise the jurisdiction given them.'" Id. at 705 (quoting Colorado 8

Court does not believe that this case presents the rare circumstances in which abstention is 10 appropriate and thus will not abstain on this ground.

River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)). At this time, the 9

B. Colorado River Abstention

Chen also contends that a stay is appropriate pursuant to the doctrine articulated in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 818 (1976). Under the 14

Colorado River doctrine, a federal court may abstain from exercising its jurisdiction in favor of 15 parallel state proceedings where doing so would serve the interests of "[w]ise judicial 16 administration, giving regard to the conservation of judicial resources and comprehensive 17 disposition of litigation." Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 18 74 L.Ed.2d 765 (1983). "Exact parallelism" between the state and federal actions is not required; it 20 is enough if the two actions are "substantially similar." Nakash v. Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989). Nonetheless, the Ninth Circuit has emphasized that "the Colorado River doctrine 22 is a narrow exception to 'the virtually unflagging obligation of the federal courts to exercise the 23 jurisdiction given them.'" Holder v. Holder, 305 F.3d 854, 867 (9th Cir. 2002) (quoting Colorado 24 River, 424 U.S. at 817). Accordingly, a stay of proceedings pursuant to the Colorado River 25 doctrine is appropriate only where "exceptional circumstances" are present. Id. 26

carefully weighing a number of relevant factors, "with the balance heavily weighted in favor of the 28 exercise of jurisdiction." Moses H. Cone, 460 U.S. at 16. However, the Ninth Circuit has 818 (1976); Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 15, 103 S.Ct. 927, 19

Generally, a court determines whether Colorado River abstention is appropriate by

identified a "significant countervailing consideration" that may be dispositive, despite the presence 2 of other factors favoring a stay. Intel Corp. v. Advanced Micro Devices, Inc., 12 F.3d 908, 913 (9th 3

Cir. 1993). That is, "[u]nder the rules governing the Colorado River doctrine, the existence of a 4 substantial doubt as to whether the state proceedings will resolve the federal action precludes the 5 granting of a stay." Id. As the Supreme Court stated in Moses H. Cone:

vehicle for the complete and prompt resolution of the issues between the parties. If there is any substantial doubt as to this, it would be a serious abuse of discretion to grant the stay or dismissal at all.

460 U.S. at 28. Accordingly, a district court may stay a proceeding pursuant to Colorado River 10 only if it has "full confidence" that the state court proceeding will resolve the federal litigation.

(1988)). 13

14 in a case where the state court proceedings would resolve the issues in the federal action only if the 15 state court affirmed an arbitration award, but not if the state court overturned the award. 12 F.3d at 16 913. Because of these "contingencies," the Ninth Circuit found "substantial doubt sufficient to 17 preclude a Colorado River stay." Id. Here, similarly, Chen acknowledges that the state court 18 proceeding will fully resolve the federal action only if it finds Hao to be the nominal owner of the 19

Schwab account proceeds and the LLC interests, with Ellen as the true owner. In contrast, as Chen 20 concedes, "a negative finding on the nominal ownership issue could return the matter to this Court 21 for resolution of Mr. Hao's version of the same claims." Def.'s Reply at 7. At this point in the 22 proceeding, the Court has no basis for finding either of these outcomes to be more likely than the 23 other. The possibility that the state court could rule against Chen thus raises a "substantial doubt as 24 to whether the state proceedings will resolve the federal action" similar to that found in Intel. 25

Under Ninth Circuit precedent, this alone is sufficient to preclude abstention under Colorado 26

When a district court decides to dismiss or stay under Colorado River, it presumably concludes that the parallel state-court litigation will be an adequate

Intel, 12 F.3d at 913 (quoting Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 277

In Intel, the Ninth Circuit found that the district court abused its discretion in granting a stay

River.*fn8 See Intel, 12 F.3d at 913 n.7 ("Since we find that there exists a substantial doubt as to 27

whether the state court proceedings will resolve all of the disputed issues in this case, it is 2 unnecessary for us to weigh the other factors included in the Colorado River analysis.").

C. Younger Abstention

Finally, Chen argues that the Court should abstain under Younger v. Harris, 401 U.S. 37 (1971). Younger abstention is a jurisprudential doctrine rooted in principles of equity, comity, and 6 federalism that limits a federal court's power to enjoin or interfere with state-court litigation. San

F.3d 1087, 1092 (9th Cir. 2008). Under the doctrine articulated in Younger, a federal district court 9 must abstain from exercising jurisdiction if four conditions are met: (1) a state-initiated proceeding 10 is ongoing; (2) the proceeding implicates important state interests; (3) the federal plaintiff is not

Jose Silicon Valley Chamber of Commerce Political Action Committee v. City of San Jose, 546

barred from litigating federal issues in the state proceeding; and (4) the federal court action would

"enjoin the proceeding or have the practical effect of doing so, i.e., would interfere with the state 13 proceeding in a way that Younger disapproves." San Jose Silicon Valley Chamber of Commerce 14

Political Action Committee v. City of San Jose, 546 F.3d 1087, 1092 (9th Cir. 2008); see also 15

AmerisourceBergen Corp. v. Roden, 495 F.3d 1143, 1148-49 (9th Cir. 2007). A court should 16 abstain under Younger only when all four requirements are "strictly met." Id. at 1148. 17

18 dissolution proceeding is ongoing, and Plaintiff has raised no federal claims in this action. See 19

AmerisourceBergen, 495 F.3d at 1149 n.10 ("here, the third element is automatically satisfied 20 because Count I is a state law breach of contract claim and, accordingly, raises no federal questions 21

Here, the first and third requirements of Younger are clearly met. The state-initiated

therefore the Court cannot consider the state action to be a parallel proceeding. Chen claims that 22 this argument is mooted if Hao is found to be the mere nominal owner of the Schwab assets, for then Hao would stand in a special relationship to Ellen, who is a party to the state action. While 23 this may be true, the question of whether Hao is merely a nominal owner of the Schwab assets goes directly to the merits of this case and cannot be determined on this motion. Accordingly, this 24 theory cannot justify abstention under Colorado River. The Court notes, moreover, that a brief review of the Colorado River factors does not suggest exceptional circumstances justifying a stay. 25

Although the state court assumed jurisdiction first, the other factors cut against a stay. The state court has assumed jurisdiction over the res of Chen and Ellen's marriage, but not over the assets 26 contested in this case. The federal forum is not inconvenient to parties already litigating in California. It is not clear that the federal action will necessarily result in piecemeal litigation. The 27 case does not present sensitive or novel issues of state law. As Hao is not a party to the state court litigation, the state proceeding may not be adequate to protect his rights. Finally, the Court has no 28 reason to believe that retaining jurisdiction would promote forum shopping. See Holder, 305 F.3d at 870 (articulating Colorado River factors). 17

whatsoever"). Additionally, to the extent Chen is correct in claiming that this case is inextricably 2 intertwined with the dissolution proceeding, the second factor is likely satisfied. In determining 3 whether an important state interest is implicated, the Court must look to "the importance of the 4 generic proceedings to the State." New Orleans Public Service, Inc. v. Council of City of New 5

Orleans, 491 U.S. 350, 365 (1989). That is, the court does not focus on the state's interest in the 6 resolution of the individual case, but rather considers the significance of the interests involved 7 more broadly. Baffert v. California Horse Racing Bd., 332 F.3d 613, 618 (9th Cir. 2003). 8

Here, although the dissolution proceeding is not quasi-criminal in nature, it is a judicial proceeding, 10 and the regulation of domestic relations is well recognized as a unique state interest. See Csibi,

Whether the state proceedings are "judicial in nature" or "quasi-criminal" is also significant. Id. 9

670 F.2d at 137 (describing strong state interest and expertise in domestic relations). Evaluation of

the second factor is complicated, however, in that Hao contends that this case in fact bears little 13 relationship to the domestic relations issues being litigated in the state court action. 14

15 fourth requirement under Younger is clearly not met. The Ninth Circuit has emphasized that 16

"abstention is only appropriate in the narrow category of circumstances in which the federal court 17 action would actually 'enjoin the [ongoing state] proceeding, or have the practical effect of doing 18 so.'" AmerisourceBergen, 495 F.3d at 1151. This occurs, for instance, when a federal court's 19 finding that a state statute or regulatory scheme is unconstitutional would effectively enjoin 20 enforcement of that statute in ongoing state court proceedings. See Gilbertson v. Albright, 381 21 F.3d 965, 982 (9th Cir. 2004). In contrast, "the Supreme Court has rejected the notion that federal 22 courts should abstain whenever a suit involves claims or issues simultaneously being litigated in 23 state court merely because whichever court rules first will, via the doctrines of res judicata and 24 collateral estoppel, preclude the other from deciding that claim or issue." AmerisourceBergen, 495 25

Schwab assets and interests in the LLCs will not enjoin or in any way impede the state-court 27 dissolution proceeding. Rather, the state court will be "free to continue simultaneously with the 28 federal suit," id. at 1152,and if federal court resolves Hao's claims first, the state court will simply

In any case, the Court finds that abstention is not appropriate in this instance because the

F.3d at 1151. Here, as in AmerisourceBergen, this Court's determination of Hao's claims to the 26 apply principles to issue preclusion to determine the effect, if any, of that ruling on the relevant 2 issues in the dissolution proceeding. See id. (finding that potential application of collateral 3 estoppel arising from concurrent state and federal proceedings does not justify abstention under 4

Younger). Under such circumstances, concurrent jurisdiction over potentially related issues is 5 entirely proper, and it would be error for this Court to abstain pursuant to Younger. 6

As the Court has found that none of the grounds for abstention apply at this time, Chen's request, in the alternative, that the Court abstain from exercising jurisdiction is DENIED. 8

IV.Conclusion 9

For the foregoing reasons, the Court DENIES Defendant's motion to dismiss or, in the alternative, to abstain from exercising jurisdiction. The hearing on Defendant's motion set for

For the Northern District of California

March 17, 2011 is VACATED. As the Court has found that jurisdiction exists and the case will move forward, the Court will hold a case management conference on April 6, 2011 at 2 p.m. 13

Pursuant to the Local and Federal Rules, the parties shall file a joint case management statement no 14 later than March 30, 2011. 15


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