United States District Court, S.D. California
(1) DENYING DEFENDANT ASPEN HILLS AND THOMAS AND NANCY
LUNDEEN'S MOTIONS TO STAY ACTION PENDING RESOLUTION OF
IOWA STATE COURT RECEIVERSHIP PROCEEDINGS; AND (2) DENYING
ASPEN HILLS AND THOMAS AND NANCY LUNDEEN'S MOTIONS TO
DISMISS (Doc. Nos. 6, 16)
Anthony J. Battaglia United States District Judge
before the Court are Defendants Aspen Hills, Inc.
(“Aspen Hills”) and Thomas and Nancy
Lundeen's (collectively referred to as “the
Lundeens”) motions to dismiss Plaintiff Arctic Zero
Inc.'s (“Plaintiff”) first amended complaint,
or in the alternative to stay the action pending resolution
of the Iowa State Court Receivership Proceedings. (Doc. Nos.
6, 16.) Having reviewed the parties' arguments and
controlling legal authority, and pursuant to Civil Local Rule
7.1.d.1, the Court finds the matters suitable for decision on
the papers and without oral argument. For the reasons set
forth below, the Court DENIES both
Defendants' motions to stay and motions to dismiss.
FACTUAL AND PROCEDURAL BACKGROUND
is a corporation organized under the laws of the state of
Delaware with its principal place of business in San Diego,
California. (Doc. No. 3 ¶ 4.) Aspen Hills is a former
cookie dough manufacturer, organized under the laws of the
state of Iowa with its principal place of business in Garner,
Iowa. (Id. ¶ 5; Doc. No. 6 at 8.) The Lundeens are
individuals who reside in the state of Iowa and are co-owners
of Aspen Hills. (Doc. No. 3 ¶¶ 6, 7.)
events leading up to this dispute arose in 2016, when Aspen
Hills recalled 287 cases of allegedly negligently
manufactured brownie dough. (Doc. No. 6 at 8; Doc. No. 24 at
9.) Currently, there are over $11 million in claims being
asserted against Aspen Hills. (Doc. No. 6 at 8.) As a result
of the substantial claims asserted against Aspen Hills and
the limited assets available for distribution, receivership
proceedings involving Aspen Hills commenced in Iowa District
Court for Hancock County-A.H. Properties v. Aspen Hills,
Inc., Hancock County Case No.: EQCV019535.
and Aspen Hills were in an arrangement that centers on an
October 1, 2015 Ingredient Supply Agreement. (Doc. No. 3
¶ 19.) Under this agreement, Aspen Hills, among other
things, agreed to indemnify Plaintiff against any and all
claims, warranted that each ingredient conformed strictly to
all domestic and foreign regulatory requirements, and merited
that each ingredient would be fit and sufficient for the
purpose intended. (Id. ¶¶ 20-22; Doc. No.
3-1 at 7.) Additionally, Aspen Hills agreed to reimburse
Plaintiff for all costs and expenses incurred as a result of
a recall of ingredients supplied by it. (Doc. No. 3-1 at 10.)
Section 15(a) of the Agreement provides that:
In the event an Ingredient is the subject of a recall (which
includes safety notices) initiated by Arctic Zero, Supplier,
or a government or consumer protection agency, Supplier will
be responsible for all costs and expenses associated with the
recall or notice and shall reimburse Arctic Zero, for all
costs and expenses incurred by Arctic Zero related to the
recall or notice, including recalling, shipping and/or
destroying the Ingredient (and where applicable, any products
with which the Ingredient has been packaged, consolidated,
processed or commingled), including Arctic Zero's net
landed cost of unsold products containing the Ingredient.
the recall, Plaintiff allegedly incurred costs and expenses
amounting to at least $572, 375.33, including the cost of
disposed product, lost revenue, credits for products returned
to vendors, and various costs associated with transportation,
landfill fees, and testing fees. (Doc. No. 3 ¶ 33.) On
December 23, 2016, Plaintiff tendered this documentation of
its costs and expenses to Mr. Lundeen. (Id. ¶
Mrs. Lundeen are purportedly the corporate alter egos of
Aspen Hills acting as the President, Secretary, and Treasurer
to the company. (Id. ¶¶ 5, 6, 7.)
Plaintiff argues that as “insiders, ” the
Lundeens in 2016 began to transfer large amounts of money to
themselves, leaving Aspen Hills insolvent. (Id.
¶ 36.) In total, the alleged dividends transferred to
the Lundeens during 2016 totaled $1, 781, 700. (Id.
¶ 44.) Thus, after the supposed fraudulent transfers,
Aspen Hills was only left with approximately $250, 000 or
less in cash with an excess of approximately $9, 000, 000 in
liabilities. (Id. ¶ 47.)
about December 28, 2016, the Honorable Rustin Davenport,
District Court Judge for the Second Judicial District of Iowa
signed the “Order Granting the Joint Motion for the
Appointment of a Receiver” (the “Receivership
Order”). (Doc. No. 6 at 9.) The Receivership Order
includes a number of elements including that it prohibits any
litigation against Aspen Hills without first obtaining leave
of the court. (Id.)
Aspen Hills alleges that the business wind-down process is
underway with the Iowa Court exercising jurisdiction over all
receivership property. (Id. at 10.) Moreover, on
April 11, 2017, Judge Davenport signed the “Order on
Claims Process” to establish an orderly process to
address and resolve any claims that have been, or may be
asserted against Aspen Hills in light of the financial
resources that are available. (Id.)
March 6, 2017, Plaintiff filed its complaint against all
Defendants. (Doc. No. 1.) On April 26, 2017, Plaintiff filed
its amended complaint alleging causes of action for (1)
negligence; (2) express indemnity; (3) breach of contract;
(4) declaratory relief only as to Aspen Hills; and (5)
fraudulent transfers. (See generally Doc. No. 3.) On
May 19, 2017, and June 6, 2017, respectively, Aspen Hills and
the Lundeens filed the present motions, their motions to
dismiss or stay the action. (Doc. Nos. 6, 16.) On June 2,
2017, and June 20, 2017, Plaintiff responded in opposition to
the motions. (Doc. Nos. 13, 24.) Subsequently on June 28,
2017, Defendants filed a joint motion to continue the hearing
on their various motions, (Doc. No. 28), which was granted on
June 30, 2017, (Doc. No. 30). This Order now follows.
Motion to Dismiss
12(b)(6) motion to dismiss tests the sufficiency of the
complaint. Navarro v. Block, 250 F.3d 729, 732 (9th
Cir. 2001). However, “[w]hile a complaint attacked by a
Rule 12(b)(6) motion to dismiss does not need detailed
factual allegations, a plaintiff's obligation to provide
the grounds of his entitlement to relief requires more than
labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(internal quotation marks and citation omitted).
reviewing a motion to dismiss under Rule 12(b)(6), the court
must assume the truth of all factual allegations and must
construe them in the light most favorable to the nonmoving
party. See Cahill v. Liberty Mut. Ins. Co., 80 F.3d
336, 337-38 (9th Cir. 1996). Additionally, courts generally
do not look beyond the complaint for additional facts when
deciding a Rule 12(b)(6) motion. See United States v.
Ritchie, 342 F.3d 903, 907-08 (9th Cir. 2003). Further,
legal conclusions need not be taken as true “merely
because they are cast in the form of factual
allegations.” See Roberts v. Corrothers, 812
F.2d 1173, 1177 (9th Cir. 1987); W. Mining Council v.
Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly,
“conclusory allegations of law and unwarranted
inferences are not sufficient to defeat a motion to
dismiss.” Pareto v. FDIC, 139 F.3d 696, 699
(9th Cir. 1998).
Motion to Stay
court's power to stay proceedings is incidental to the
inherent power to control the disposition of its cases in the
interests of efficiency and fairness to the court, counsel,
and litigants. See Landis v. N. Am. Co., 299 U.S.
248, 254-55 (1936); Single Chip Sys. Corp. v. Intermec IP
Corp., 495 F.Supp.2d 1052, 1057 (S.D. Cal. 2007). A stay
may be granted pending the outcome of other legal proceedings
related to the case in the interests of judicial economy.
See Leyva v. Certified Grocers of Cal., Ltd., 593
F.2d 857, 863-64 (9th Cir. 1979). Discretion to stay a case
is appropriately exercised when the resolution of another
matter will have a direct impact on the issues before the
court, thereby substantially simplifying the issues
presented. See Mediterranean Enters. v. Ssangyong
Corp., 708 F.2d 1458, 1465 (9th Cir. 1983).
determining whether a stay is appropriate, a district court
“must weigh competing interests and maintain an even
balance.” Landis, 299 U.S. at 254-55.
“[I]f there is even a fair possibility that the stay .
. . will work damage to someone else, the stay may be
inappropriate absent a showing by the moving party of
hardship or inequity.” Dependable Highway Express,
Inc. v. Navigators Ins. Co., 498 F.3d 1059, 1066 (9th
Cir. 2007) (citation and internal quotation marks omitted).
“A stay should not be granted unless it appears likely
the other proceedings will be concluded within a reasonable
time in relation to the urgency of the claims presented to
the court.” Leyva, 593 F.2d at 864.
threshold issue, the Court will first turn to Plaintiff and
Defendants' requests for judicial notice. (Doc. Nos. 6-2,
8, 9, 15, 16-9, 26.) Aspen Hills requests judicial notice of
(1) a copy of the Receivership Order dated December 28, 2016;
and (2) a copy of the April 11, 2017, Order on Claims
Process. (Doc. No. 6-2 at 2; Doc. No. 8 at 2; Doc. No. 9 at
Plaintiff seeks judicial notice of (1) the joint motion for
appointment of a receiver filed on December 23, 2016; (2) the
Receivership Order; (3) the motion to intervene filed by the
Lundeens on April 5, 2017, in Iowa District Court for Hancock
County; and (4) the Fourth Report of Receiver, filed on May
16, 2017, in Iowa District Court. (Doc. No. 15 at 2; Doc. No.
26 at 2.) Finally, the Lundeens request judicial notice of
(1) the files in the case of A.H. Properties, LLC v.
Aspen Hills, Inc., Case No. EQCV019535; and (2) Exhibits
A through F of the declaration of Johannes H. Moorlach. (Doc.
Nos. 16-9 at 1-2.)
Rule of Evidence 201(b) provides the criteria for judicially
noticed facts: a judicially noticed fact must be one not
subject to reasonable dispute in that it “(1) is
generally known within the trial court's territorial
jurisdiction; or (2) can be accurately and readily determined
from sources whose accuracy cannot reasonably be
questioned.” Fed.R.Evid. 201(b). A court “must
take judicial notice if a party requests it and the court is
supplied with the necessary information.” Fed.R.Evid.
Court finds judicial notice of both Plaintiff and
Defendants' documents warranted as they are documents of
public record related to the Iowa state proceedings. See
United States v. S. Cal. Edison Co., 300 F.Supp.2d 964,
973 (E.D. Cal. 2004) (“Federal courts may ‘take
notice of proceedings in other courts, both within and
without the federal judicial system, if those proceedings
have a direct relation to the matters at issue.'”
(citing U.S. ex rel Robinson Rancheria Citizens Council
v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992)).
Moreover, “[j]udicially noticed facts often consist of
matters of public record.” Botelho v. U.S. Bank,
N.A., 692 F.Supp.2d 1174, 1178 (N.D. Cal. 2010)
(citations omitted). However, while “[a] court may take
judicial notice of the existence of matters of public record,
such as a prior order or decision, ” it should not take
notice of “the truth of the facts cited therein.”
Marsh v. San Diego Cty., 432 F.Supp.2d 1035, 1043
(S.D. Cal. 2006).
with the limitation stated above in mind, the Court
GRANTS Plaintiff, Aspen Hills, and the
Lundeens' unopposed requests for judicial notice.
Aspen Hills and the Lundeens' Motions to Stay these
Court now turns to the merits of Defendants' motions to
stay. (Doc. Nos. 6, 16-1.) Aspen Hills requests that this
Court stay the instant action under the Colorado
River and Burford doctrines to allow the Iowa
State receivership proceedings to complete its process. (Doc.
No. 6 at 18-23.) The Lundeens similarly assert that the
Colorado River factors weigh heavily in their favor
as well as argue that a stay is appropriate under the
Princess Lida doctrine. (Doc. No. 16-1 at 12-14,
21.) In opposition, Plaintiff mounts that there are no
grounds for abstention. (Doc. No. 13 at 19-21; Doc. No. 24 at
outset, the Court notes that it does not find abstention
appropriate under the Burford doctrine. Aspen Hills
argues that under First Penn-Pac. Life Ins. Co. v.
William R. Evans, Chtd., 304 F.3d 345 (4th Cir. 2002),
this Court should abstain from interfering with the state
court receivership under the Burford doctrine. (Doc.
No. 6 at 22.) However, not only is this a fourth circuit case
and thus not dispositive, but the court in this case clearly
stated that the underlying policy of the Burford
doctrine is that
Courts should abstain from deciding cases presenting
“difficult questions of state law bearing on policy
problems of substantial public import whose importance
transcends the result in the case then at bar, ” or
whose adjudication in a federal forum “would be
disruptive of state efforts to establish a coherent policy
with respect to a matter of substantial public
Id. at 348. Similarly, in Tucker v. First
Maryland Sav. & Loan, Inc., 942 F.2d 1401, 1407 (9th
Cir. 1991), the Court concluded that Burford
abstention “is designed to limit federal interference
with the development of state policy. It is justified where
the issues sought to be adjudicated in federal court are
primarily questions regarding that state's laws.”
Such concerns about state law policy considerations are not
readily apparent in the instant action nor has Aspen Hills
alleged any facts to support such a finding. Thus, the Court
will focus its attention on both parties' arguments under
the Colorado River doctrine.
the Colorado River doctrine, a federal court may
abstain from exercising its jurisdiction in favor of parallel
state proceedings where doing so would serve the interests of
“[w]ise judicial administration, giving regard to the
conservation of judicial resources and comprehensive
disposition of litigation.” Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 817
(1976); see also Moses H. Cone Mem'l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 15 (1983). Only in
“exceptional circumstances, ” may a federal court
decline its “‘virtually unflagging
obligation' to exercise federal jurisdiction, in
deference to pending parallel state proceedings.”
Montanore Minerals Corp. v. Bakie, 867 F.3d 1160,
1165 (9th Cir. 2017) (citation omitted). A stay is preferable
to dismissal because it “ensures that the federal forum
will remain open if, for some unexpected reason, the state
forum proves to be inadequate.” Daugherty v.
Oppenheimer & Co., Inc., No. C 06-7725-PJH, 2007 WL
1994187, at *3 (N.D. Cal. July 5, 2007).
River and Ninth Circuit opinions identify non-exhaustive
factors that are relevant to whether it is appropriate to
stay proceedings: “(1) which court first assumed
jurisdiction over any property at stake; (2) the
inconvenience of the federal forum; (3) the desire to avoid
piecemeal litigation; (4) the order in which the forums
obtained jurisdiction; (5) whether federal law or state law
provides the rule of decision on the merits; (6) whether the
state court proceedings can adequately protect the rights of
the federal litigants; (7) the desire to avoid forum
shopping; and (8) whether the state court proceedings will
resolve all issues before the federal court.” R.R.
St. & Co. Inc. v. Transp. Ins. Co., 656 F.3d 966,
978-79 (9th Cir. 2011); Holder v. Holder, 305 F.3d
854, 870 (9th Cir. 2002). These factors should be weighed in
a “pragmatic, flexible manner with a view to the
realities of the case at hand” and “with the
balance heavily weighted in favor of the exercise of
jurisdiction.” Moses, 460 U.S. at 16, 21.
Factors that are irrelevant to the particular inquiry are
disregarded. See Nakash v. Marciano, 882 F.2d 1411,
1415 n.6 (9th Cir. 1989).
threshold question in deciding whether Colorado
River abstention is appropriate is whether there are
parallel federal and state suits.” ScripsAmerica,
Inc. v. Ironridge Global LLC, 56 F.Supp.3d 1121, 1147
(C.D. Cal. 2014) (citing Chase Brexton Health Servs.,
Inc. v. Maryland, 411 F.3d 457, 463 (4th Cir. 2005)). In
the Ninth Circuit, “exact parallelism [between the two
suits] . . . is not required. It is enough if the two
proceedings are ‘substantially similar.'”
Nakash, 882 F.2d at 1416.
the state court action and this action both name Aspen Hills
as a Defendant. (Doc. No. 16-3 at 2; Doc. No. 16-6 at 2.)
Moreover, the claims that are the subject of the present
motion-negligence, express indemnity, and breach of
contract-are substantially similar if not identical to the
causes of action listed in the proof of claim filed by
Plaintiff in the Iowa state court petition. (Doc. No. 3; Doc.
No. 6-7.) Further, the relief Plaintiff seeks also appears to
be substantially identical. In state court, Plaintiff seeks,
inter alia, damages in the amount of at least $622,
375.33, attorney's fees, and other damages for Aspen
Hills's alleged fraudulent transfers in an effort to
delay or defraud creditors. (Doc. No. 6-7 at 7-8.) In this
case, Plaintiff similarly seeks damages, but in the amount of
$572.375.33, in ...