United States District Court, N.D. California
IN RE FACEBOOK, INC. SHAREHOLDER DERIVATIVE PRIVACY LITIGATION This Document Relates To ALL ACTIONS
ORDER DENYING DEFENDANT'S MOTION FOR PERMANENT
INJUNCTION Re: Dkt. No. 124
Haywood S. Gilliam, Jr. United States District Judge.
Pending
before the Court is Defendant Facebook's motion for
permanent injunction. Dkt. No. 124 (“Mot.”).
Defendant seeks an order enjoining an action captioned
O'Connor v. Zuckerberg, No. 19-CIV-03759,
pending before the Honorable Nancy L. Fineman in San Mateo
Superior Court (“O'Connor Action”). Judge
Fineman stayed the O'Connor Action for forty-five days
from the hearing on this motion or the issuance of a ruling,
whichever occurs first. Dkt. No. 141-1, Ex. A. Because the
Supreme Court has cautioned that the relitigation exception
to the Anti-Injunction Act permits a federal court to enjoin
a state court proceeding “only in rare cases, ”
the Court DENIES Defendant's motion.
See Smith v. Bayer Corp., 564 U.S. 299, 302
(2011).[1]
I.
BACKGROUND
On July
2, 2018, Plaintiffs filed a consolidated shareholder
derivative action against nominal Defendant Facebook and
individual Defendants, alleging the following eight causes of
action: (1) violation of Section 14(a) of the Exchange Act
and SEC Rule 14a-9; (2) violation of Section 10(b) of the
Exchange Act and SEC Rule 10b-5; (3) misappropriation of
information and breach of fiduciary duty for insider sales;
(4) violation of California Corporations Code § 25402;
(5) violation of California Corporations Code § 25403;
(6) breach of fiduciary duty; (7) contribution and
indemnification; and (8) aiding and abetting breaches of
fiduciary duty. Dkt. No. 56 (“Compl.”)
¶¶ 464-517. The Court found that Facebook's
forum selection clause was enforceable and dismissed all the
derivative state claims on forum non conveniens
grounds, without leave to amend but without prejudice to
their reassertion in the Delaware Court of Chancery. Dkt. No.
113 (“Dismissal Order”) at 7-12. Only
Plaintiffs' federal derivative claims remain in this
action.
John
O'Connor, another Facebook shareholder, filed his
derivative action on June 28, 2019, approximately three
months after the Court's Dismissal Order. Dkt. No. 124-2,
Ex. 1 (“O'Connor Compl.”). The parties do not
dispute that the O'Connor Action arises from the same
facts and circumstances as this case. See Mot. at 3;
Dkt. No. 132 (“O'Connor Opp.”) at 1
(“There is a case pending in this Court based on
similar factual allegations.”). In his complaint, Mr.
O'Connor brings the following five causes of action: (1)
declaratory relief; (2) violation of California Corporations
Code § 25400; (3) violation of California Corporations
Code § 25401; (4) violation of California Corporations
Code § 25402; and (5) control personal liability under
California Corporations Code § 25504. O'Connor
Compl. ¶¶ 408-71.
II.
LEGAL STANDARD
Under
the Anti-Injunction Act, “[a] court of the United
States may not grant an injunction to stay proceedings in a
State Court except as expressly authorized by Act of
Congress, or where necessary in aid of its jurisdiction, or
to protect or effectuate its judgments.” 28 U.S.C.
§ 2283. The Act is a “necessary concomitant of the
Framers' decision to authorize, and Congress'
decision to implement, a dual system of federal and state
courts.” Chick Kam Choo v. Exxon Corp., 486
U.S. 140, 146 (1988). “And the Act's core message
is one of respect for state courts.” Smith,
564 U.S. at 306.
The
Anti-Injunction Act is subject to only “three
specifically defined exceptions.” Id.
(citation and quotations omitted); see also 28
U.S.C. § 2283. The enumerated exceptions “are
narrow and are ‘not [to] be enlarged by loose statutory
construction.'” Smith, 564 U.S. at 306
(citation and quotations omitted and alterations in
original). “Indeed, ‘[a]ny 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.'” Id. (citation
omitted and alterations in original). “[T]he fact that
an injunction may issue under the Anti-Injunction
Act does not mean that it must issue.”
Chick Kam Choo, 486 U.S. at 151 (1988).
III.
DISCUSSION
At
issue here is whether the Act's third exception, known as
the “relitigation exception, ” warrants the Court
enjoining the O'Connor Action. Defendant argues that an
injunction is appropriate because the O'Connor Action
“seeks to relitigate an issue that this Court finally
determined in its March 22, 2019 order[, namely] whether the
Delaware exclusive forum provision in Facebook's charter
is valid and enforceable with respect to California
Corporations Code claims brought derivatively.” Mot. at
1. Mr. O'Connor (and Plaintiffs) argue that the
relitigation exception does not apply because: (1) the forum
selection issues are not identical; (2) the Dismissal Order
is not a final order; and (3) Mr. O'Connor is not in
privity with Plaintiffs. O'Connor Opp. at 5-11. In
addition, Mr. O'Connor argues that even if the
relitigation exception applies, the Court should decline in
its discretion to issue an injunction. Id. at 11-12.
A.
Relitigation Exception
Under
the third enumerated exception, a federal court can enjoin a
state court proceeding “to protect or effectuate its
judgments.” 28 U.S.C. § 2283. The relitigation
exception is “designed to implement
‘well-recognized concepts' of claim and issue
preclusion.” Smith, 564 U.S. at 306. It
“authorizes an injunction to prevent state litigation
of a claim or issue that previously was presented to and
decided by the federal court.” Id. (citation
omitted). The Supreme Court has held that in applying the
exception, it has “taken special care to keep it
‘strict and narrow.'” Id. at 306-07
(citation and quotations omitted). “Deciding whether
and how prior litigation has preclusive effect is usually the
bailiwick of the second court, ” so
“issuing an injunction under the relitigation exception
is resorting to heavy artillery.” Id. at 307
(citation omitted). For that reason, “every benefit of
the doubt goes toward the state court … an injunction
can issue only if preclusion is clear beyond
peradventure.” Id. (citation omitted).
In
W. Sys., Inc. v. Ulloa, 958 F.2d 864 (9th Cir.
1992), the Ninth Circuit read Chick Kam
Choo as “holding an injunction permissible
where a prior federal decision ‘necessarily
precludes' a certain result, even if that result was not
itself actually litigated.” Id. at 870. In
doing so, the Ninth Circuit disagreed with several circuit
courts which had concluded that the relitigation exception
was limited to issues “actually litigated” in a
prior court proceeding. Id. The Ninth Circuit held
that reading Chick Kam Choo as the other circuits
did would be “contrary to the language of
Choo, which would bar relitigation of
‘claims or issues [that] actually have been
decided.” Id. (citing Chick Kam Choo,
486 U.S. at 148; alterations in original); see also
id. (“To read Choo as the other Circuits
have, however, would in essence be to read res judicata
entirely out of section 2283.”). Therefore, under
Ulloa, the relitigation exception would apply to bar
“both claims actually litigated and those that arise
from the same transaction and could have been
litigated in a prior proceeding.” Id. at 868.
However,
Ulloa does not require the Court to issue an
injunction “solely because the claims pursued in a
state court are barred by res judicata.” See
Herrera v. CarMax Auto Superstores California, LLC, No.
EDCV14776MWFVBKX, 2014 WL 12567154, at *3 (C.D. Cal. Aug. 27,
2014). In Ulloa, the Ninth Circuit found that the
“principles announced in Choo” were not
“disserved by the district court's
injunction” because of the “compelling
circumstances of [that] case.” Ulloa, 958 F.2d
at 871 (finding “compelling circumstances” when
plaintiff brought a second complaint in a Guam territorial
court within one hour after the federal case settled after
seventeen years of litigation). ...