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ScripsAmerica, Inc. v. Ironridge Global LLC

United States District Court, C.D. California

November 3, 2014

SCRIPSAMERICA, INC., Plaintiff,
v.
IRONRIDGE GLOBAL LLC d/b/a IRONRIDGE GLOBAL IV, LTD., JOHN KIRKLAND, BRENDAN O'NEIL, and DOES 1-5, Defendants

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For ScripsAmerica, Inc., Plaintiff: Carlos E Needham, LEAD ATTORNEY, Carlos Needham Law Offices, Valencia, CA.

For Ironridge Global LLC, doing business as Ironridge Global IV, Ltd., John Kirkland, Brendan O'Neill, Defendants: Shannon Edward Mader, Gibson Dunn and Crutcher LLP, Los Angeles, CA.

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ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS AND GRANTING DEFENDANTS' MOTION TO STAY

MARGARET M. MORROW, UNITED STATES DISTRICT JUDGE.

On May 22, 2014, ScripsAmerica, Inc. (" Scrips" ) filed this action against Ironridge Global LLC d/b/a Ironridge Global IV, Ltd., John Kirkland, and Brendan O'Neil (collectively " Ironridge" ), as well as certain fictitious defendants.[1] The complaint alleges claims for securities fraud, breach of contract, tortious bad faith, and declaratory relief. The claims arise from an allegedly fraudulent scheme to manipulate Scrips' stock price in order to obtain additional shares of the stock under an

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agreement between the parties pursuant to which Ironridge would pay off certain of Scrips' accounts payable in exchange for issuance of stock set by an agreed upon formula.[2]

On June 25, 2014, defendants filed a motion to dismiss, or alternatively to stay.[3] Scrips opposes the motion.[4]

I. FACTUAL BACKGROUND

This action arises out of an allegedly fraudulent scheme devised by Ironridge. Scrips is a pharmaceuticals distributor whose stock is publicly traded on the over-the-counter (" OTC" ) market. Ironridge's purported scheme involved the issuance of Scrips' common stock to Ironridge in exchange for an undertaking by Ironridge to pay Scrips' outstanding accounts payable.[5] Scrips alleges that the transaction was first proposed during a telephone call it received from John Kirkland and Brendan O'Neil -- directors of Ironridge -- on August 28, 2013.[6] It contends that Kirkland and O'Neil told Scrips' chief executive officer, Robert Schneiderman, that Ironridge could pay Scrips' accounts payable, which totaled approximately $700,000, in exchange for an amount of Scrips stock to be determined by contractual formula.[7] Kirkland and O'Neil explained that to effect the exchange, Scrips did not need to register the shares before transferring them to Ironridge. The parties discussed the transaction further on September 4 and October 2, 2013.[8]

During the calls, Ironridge requested that the contract memorializing the transaction include a provision for an adjustment to protect it in the event of a decline in Scrips' stock price.[9] Scrips allegedly agreed to the inclusion of such a provision, pursuant to which Ironridge was to receive more stock than the originally agreed amount if Scrips' stock price declined following consummation of the transaction.[10] The adjustment mechanism was outlined, together with certain other terms, in a term sheet Ironridge prepared and gave to Scrips.[11] Scrips contends that Ironridge, Kirkland, and O'Neil did not disclose their intention to manipulate the market for Scrips shares in order to reduce the share price and increase the number of shares Ironridge was entitled to receive under the agreement.[12]

On October 4, 2013, Schneiderman, Kirkland, and O'Neil purportedly discussed the potential effect Ironridge's sale of the stock it received might have on Scrips' share price. Unlike other entities that had funded Scrips in exchange for stock, Ironridge allegedly represented that it would not act to manipulate or otherwise affect Scrips' stock price.[13] Specifically, Ironridge purportedly said ...


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