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In re Tezos Securities Litigation

United States District Court, N.D. California

May 25, 2018





         The lead plaintiff in this PSLRA action, Arman Anvari, moves to enjoin a parallel state court proceeding brought by Plaintiff Andrew Baker. For the reasons set forth below, Anvari's motion is denied.


         This consolidated class action (“In re Tezos”) arises from alleged securities law violations by Dynamic Ledger Solutions (“DLS”) and various other defendants involved with the Tezos Initial Coin Offering (“ICO”). While this case is relatively young and has not yet progressed past the motion to dismiss stage, no reasonable observer would claim its short life has suffered from a lack of motions practice. The instant motion is merely the latest skirmish over where and how the case should be litigated.

         Additional procedural background can be found in prior orders issued in both this case and Baker v. Dynamic Ledger Solutions, Inc., et al., No. 17-cv-6850. In brief, four putative class actions were filed in federal court last fall on behalf of individuals who contributed money to the Tezos ICO. A fifth action filed in state court was removed to federal court by the defendants. Baker, the state court plaintiff, moved for remand. At the time, an already argued Supreme Court case appeared poised to provide potentially dispositive guidance, within a matter of months, as to whether remand was appropriate. Accordingly, Baker's motion was denied without prejudice and his case stayed, pending issuance of the Supreme Court's decision. See Baker, Dkt. No. 18.

         While the Baker action was stayed, the four federal actions were consolidated and Arman Anvari was appointed lead plaintiff. In re Tezos, Dkt. No. 101. Shortly thereafter, the anticipated Supreme Court decision issued, see Cyan, Inc. v. Beaver Cty. Emp.'s Ret. Fund, et al., 138 S.Ct. 1061 (2018), and Baker renewed his motion for remand. Finding that Cyan had largely vindicated Baker's position, the Court granted the motion. Before that order even issued, however, Lead Plaintiff Anvari, who opposed the motion to remand, also filed the instant motion requesting, in the event of remand, that the Baker action be enjoined from proceeding in state court.


         The All Writs Act provides that “The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” 28 U.S.C. 1651(a). The Anti-Injunction Act, however, provides that a federal court “may not grant an injunction to stay proceedings in a State court except” when doing so is: (1) expressly authorized by a federal statute; (2) necessary in aid of the federal court's jurisdiction; or, (3) necessary to protect or effectuate the federal court's judgments. 28 U.S.C. 2283. These three exceptions are to be narrowly construed: “Any doubts as to the propriety of a federal injunction against state court proceedings should be resolved in favor of permitting the state courts to proceed in an orderly fashion to finally determine the controversy.” Atl. Coast Line R.R. Co. v. Bhd. of Locomotive Eng'rs, 398 U.S. 281, 295 (1970). Only the first exception is at issue here.


         A. Motion to Enjoin Baker Action

         Anvari argues the PSLRA expressly authorizes district courts to enjoin state proceedings by providing a mechanism for appointing a lead plaintiff in federal securities class actions. The power which that mechanism vests in the lead plaintiff to control the litigation, Anvari contends, is a “uniquely federal right” that cannot be given its intended meaning or scope if a state court can give control of duplicative litigation to another class member.

         Anvari's motion raises two key issues. The first is whether there are any circumstances under which a federal court can enjoin a state court proceeding based upon the PSLRA. The second is whether, assuming an injunction might be justified under certain circumstances, such circumstances exist in this case.

         A court in this District was recently confronted with similar issues in In re LendingClub Securities Litigation, 282 F.Supp.3d 1171 (N.D. Cal. 2017). In LendingClub, a number of putative class actions were filed in federal court on behalf of investors who purchased securities in the defendant's public offering. Those actions were consolidated in the Northern District and a lead plaintiff was appointed. When the lead plaintiff moved for class certification, however, class representatives in a parallel state court action (which had been filed three-and-a-half months before the federal ...

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