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Shovlin v. Careless

United States District Court, Ninth Circuit

June 6, 2013

IAIN SHOVLIN, Plaintiff,
v.
PAUL CARELESS, et al., Defendants.

REPORT AND RECOMMENDATION RE ORDER TO SHOW CAUSE [Dkt. No. 61]

JOSEPH C. SPERO, Magistrate Judge.

I. INTRODUCTION

Plaintiff Iain Shovlin ("Plaintiff") brought this action against Defendants Paul Careless ("Careless"), Nigel Warr ("Warr"), MoneyExpert Limited, MoneyExpert Holding Limited, MoneyExpert Insurance Services Limited, MoneyExpert Finance Holdings Limited, Finance Finder UK Limited, and Giant Investment Services Limited (collectively, "Defendants") alleging numerous causes of action.[1] On May 2, 2013, the Court issued an Order to Show Cause why the case should not be dismissed for lack of federal subject matter jurisdiction. At the time, Plaintiff's Motion for Default Judgment was pending. After issuance of the Order to Show Cause, Warr, MoneyExpert Limited, MoneyExpert Holding Limited, and MoneyExpert Insurance Services Limited Moved to Set Aside the Default and argued that the action should be dismissed for lack of subject matter jurisdiction. The Court finds that the OSC is suitable for decision without oral argument. Accordingly, the consolidated hearing on the Order to Show Cause and the pending motions and the case management conference scheduled for June 14, 2013 at 9:30 a.m are vacated. For the reasons set out below, the Court RECOMMENDS that the case be dismissed without prejudice for lack of subject matter jurisdiction and the pending motions be denied as moot.[2]

II. BACKGROUND

Plaintiff alleges as follows. Technology Crossover Ventures ("TCV") is a private equity and venture capital firm based in California that focuses on growth technology companies. First Amended Verified Complaint ("FAC"), ¶ 13. TCMI, Inc. ("TCMI") served as TCV's management company at all relevant times. Id. at ¶ 18. The FAC refers to both TCV and TCMI as "TCV." Id. Between June 2003 and February 2009, Plaintiff was employed by TCV. Id. at ¶ 21. He reported to its Palo Alto, California headquarters. Id. Plaintiff's job responsibilities included originating investments, conducting diligence on potential investments, and working on and with Boards of Directors for TCV portfolio companies. Id. at ¶ 23.

In or about October 2007, TCV asked Plaintiff to assist in the evaluation and due diligence investigation of MoneyExpert.[3] Id. at ¶ 24. TCV was contemplating investing $50 million in MoneyExpert at that time. Id. Plaintiff and his team reviewed financial information that MoneyExpert provided and warranted to be true and accurate. Id. at ¶¶ 25-27. The documents showed that MoneyExpert's revenues were experiencing a sustained upward trend. Id. at ¶ 26. Plaintiff also reviewed MoneyExpert's lead generation market, management, and relationships. Id. at ¶ 27. On the basis of the information provided, Plaintiff recommended that TCV invest in MoneyExpert, putting his professional reputation at stake. Id. at ¶ 28-29. Moreover, Plaintiff's compensation, in terms of salary and future board of directors appointments to other TCV portfolio companies, was linked to the success of any potential investment in MoneyExpert. Id. at ¶ 29. After Plaintiff's recommendation, TCV engaged in internal deliberations and meetings to determine whether to invest in MoneyExpert. Id. at ¶ 30. Warr, an owner, officer, and director of MoneyExpert, flew to California twice in early 2008 to make presentations to TCV soliciting the investment. Id. at ¶¶ 11, 31. Ultimately, in March 2008, TCV invested $50 million in MoneyExpert, securing a 41% percent ownership stake in the company. Id. at ¶ 32. Plaintiff was appointed to the MoneyExpert Board of Directors, for which TCV, and therefore Plaintiff, was compensated. Id. at ¶¶ 33-34. In his joint capacities, Plaintiff was under a duty to protect the best interests of both MoneyExpert and TCV. Id. at ¶ 35.

In April 2008, MoneyExpert held a meeting of its board of directors. Id. at ¶ 36. Plaintiff was provided and reviewed financial documents to prepare for the meeting. Id. at ¶ 37. Some of the documents were inconsistent with those he relied on in recommending that TCV invest in MoneyExpert. Id. Upon investigation, Plaintiff discovered that MoneyExpert's Chief Financial Officer had been denied access to financial records concerning companies named Finance Finder, Money Web, and SCB Media; companies that provided targeted sales leads in the lead generation market and would thus normally be competitors with, rather than customers of, MoneyExpert. Id. at ¶¶ 38-42. All three of those companies were owned in whole or in substantial part by Careless. who also owned a minority stake in MoneyExpert, and shared offices with Warr and MoneyExpert. Id. at ¶¶ 43-44. Finance Finder and Money Web were omitted from the list of customers provided to TCV. Id. at ¶ 45. In addition, Plaintiff discovered a $2 million discrepancy between the revenue MoneyExpert reported to TCV and that provided to Plaintiff in his capacity as a MoneyExpert board member over a four-month period. Id. at ¶ 46.

Plaintiff reported his findings to his superior at TCV, who was also a member of the MoneyExpert board, and was instructed to continue his investigation. Id. at ¶¶ 47-48. In May 2008, Plaintiff continued his investigation by obtaining a team of auditors from Ernst & Young to enter the MoneyExpert headquarters and examine its financial information to determine its financial condition and activities. Id. at ¶ 50. Plaintiff undertook this activity as a Director of MoneyExpert and on behalf of TCV to address the inconsistent and possibly fraudulent reporting made to TCV. Id. at ¶ 51.

At some point thereafter, Warr learned of Plaintiff's confiscation of certain MoneyExpert financial data and complained to TCV. Id. at ¶ 52. Further, Warr threatened suit if the information was not returned immediately and the audit was not terminated. Id. On information and belief, Plaintiff alleges that Warr made misleading statements about MoneyExpert's financial condition and about Plaintiff and Plaintiff's investigation, although Plaintiff is not aware of any specifics. Id. at ¶ 53. TCV ordered Ernst & Young to return the seized information and discontinue the audit. Id. at ¶ 54. Plaintiff never completed the investigation, but uncovered enough information to determine that it was highly likely that Defendants perpetrated fraud on TCV. Id. at ¶ 55.

In the summer of 2008, Warr initiated settlement discussions with TCV in an attempt to avoid Plaintiff's attempts to continue investigating MoneyExpert on behalf of TCV. Id. at ¶ 56. Warr offered a settlement that included a refund of nearly all of the money paid by TCV to MoneyExpert. Id. Plaintiff was instructed to analyze the various settlement options for TCV. Id. In December 2008 and January 2009, while conducting an analysis of settlement options, Plaintiff continued his fraud investigation by speaking at length with Careless. Id. at ¶ 57. To further his efforts to obtain information from Careless, Plaintiff told Careless that he might at some time in the future consider pursuing new business ventures with Careless if Careless helped uncover Warr's fraudulent acts. Id. at ¶ 76. Careless told Plaintiff that Warr intentionally provided inflated revenue figures for MoneyExpert to secure TCV's investment and conspired with Careless to use Careless' companies - Finance Finder and Money Web - to buy leads from MoneyExpert without any business reason to do so, using money provided by Warr in the transactions. Id. at ¶¶ 57-58. Plaintiff also learned that Warr paid another of Careless' companies - Giant - to provide a search engine optimization tool to MoneyExpert customers, enabling MoneyExpert to charge increased prices to its customers without paying Giant for the service. Id. at ¶ 59. Plaintiff reported his findings to TCV in February 2009, and advised them to refuse all settlement options and seek return of the full $50 million payment. Id. at ¶ 60. During December 2008 through February 24, 2009, Plaintiff was acting as a TCV employee and a MoneyExpert Board Member. Id. at ¶ 73.

At some point, Warr made the false accusation to one or more members of TCV's management that Plaintiff acted inappropriately in his conversations with Careless and his investigation of MoneyExpert in breach of his fiduciary duties. Id. at ¶ 64. On that basis, Warr threatened litigation against TCV. Id. Careless also made the allegation that Plaintiff had acted inappropriately in his conversations with Careless in breach of his fiduciary duties. Id. at ¶ 65. Plaintiff later learned, in February 2010, that Careless had accused Plaintiff of attempting to convince Careless to stop working with MoneyExpert and begin a new business venture with Plaintiff. Id. at ¶ 69. Plaintiff was never informed about any other specifics regarding the false accusations made against him by Careless. Id. at ¶ 65. Careless sent TCV a letter, with the help of Warr, in which he falsely accused Plaintiff of breaching his fiduciary duties to MoneyExpert. Id. at ¶ 66. Plaintiff has never seen a copy of the letter. Id. Plaintiff first became aware of the letter in March, 2010. Id. at ¶ 72.

On an unspecified date, Plaintiff was simultaneously removed from the MoneyExpert board and terminated by TCV. Id. at ¶ 77. After his termination, in March 2009, Plaintiff was offered one or more board seats with one or more other companies. Id. at ¶ 81. Plaintiff believes that TCV partners disclosed the defamatory statements made by Warr and Careless, and the letter executed by Careless, effectively blocking Plaintiff from being appointed to those board seats. Id. at ¶ 82.

On the basis of this factual background, Plaintiff pleads nine causes of action, as follows:

(1) Defamation - Libel (Against Careless, Finance Finder, and Giant): Plaintiff restates that Warr and Careless verbally provided untrue information to TCV management regarding Plaintiff's alleged malfeasance and Warr threatened to sue based on those accounts. Id. at ¶ 85. Plaintiff alleges that he did not fully know of the existence of such statements until March 2012, and still does not know the full content of the statements. Id. Plaintiff also restates that Careless drafted and executed a letter, likely with Warr's assistance or guidance, containing additional false allegations about Plaintiff. Id. at ¶ 86. Plaintiff alleges that Careless and/or Warr caused the letter to be delivered to TCV executives. Id. at ¶ 87. Plaintiff alleges that the letter was an unprivileged communication containing false information about Plaintiff. Id. at ¶ 88. Plaintiff alleges that the information caused him to be shunned and avoided and contributed to his termination and his removal from MoneyExpert's board. Id. at ¶¶ 89-91.

(2) Defamation - Slander Per Se (Against All Defendants): Plaintiff restates that Warr and Careless, in their individual capacities and as executives of the named corporate Defendants, verbally provided untrue information to TCV regarding Plaintiff's alleged malfeasance. Id. at ¶ 96. Plaintiff alleges that he did not fully know of the existence of such statements until March 2012, and still does not know the full content of the statements. Id. at ¶ 97. Plaintiff alleges that Warr and Careless stated to TCV executives that Plaintiff breached his fiduciary duties knowing he did ...


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