NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS FEB 25 2021 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
In re: BOFI HOLDING, INC. No. 19-55721 SHAREHOLDER LITIGATION, D.C. No. ------------------------------ 3:15-cv-02722-GPC-KSC
ANDREW CALCATERRA, derivatively on behalf of BofI Holding, Inc., MEMORANDUM*
Plaintiff-Appellant,
v.
GREGORY GARRABRANTS; et al.,
Defendants-Appellees.
Appeal from the United States District Court for the Southern District of California Gonzalo P. Curiel, District Judge, Presiding
Argued and Submitted September 2, 2020 Pasadena, California
Before: SILER,** BERZON, and LEE, Circuit Judges.
The Bank of the Internet (now Axos Bank) provides consumer banking
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Eugene E. Siler, United States Circuit Judge for the U.S. Court of Appeals for the Sixth Circuit, sitting by designation. products through the internet. After it terminated an internal auditor—Charles
Erhart—he sued for retaliation. He claimed that he was fired for reporting to
regulators what he believed were internal control deficiencies and potential
regulatory violations. Erhart v. BofI Holding Inc., No. 15-cv-2287 (S.D. Cal.).
Shareholders followed suit and filed a securities fraud class action. Houston
Municipal Employees Pension System v. BofI Holding, Inc., No. 18-55415 (9th
Cir.).
Next came this derivative action against the board of directors and senior
management at the bank. Both the first amended complaint (FAC) and second
amended complaint (SAC) asserted four causes of action: (1) breach of fiduciary
duty; (2) abuse of control; (3) unjust enrichment; and (4) breach of duty of honest
services. The SAC, however, only asserted those causes of action against four
defendants. In his first amended complaint (FAC), Plaintiff Andrew Calcaterra
alleged the Bank was damaged in four ways: (1) “legal fees associated with the
lawsuits filed against the Company for violations of the federal securities laws and
for violation of the anti-retaliation provisions of Dodd-Frank and Sarbanes-Oxley
by Mr. Erhart”; (2) “loss of reputation and goodwill, and a ‘liar’s discount’ that
will plague the Company’s stock in the future due to the Individual Defendants’
false statements and lack of candor to the marketplace”; (3) “amounts paid to
outside lawyers, accountants, and investigators in connection with [the Bank’s]
2 19-55721 internal investigation”; and (4) “loss of revenues and profits due to any subsequent
restatements.” The plaintiff’s claims in the SAC were “reduced to one seeking
recovery against the Defendant directors and officers to reimburse amounts BofI
paid to outside lawyers, accountants, and investigators in connection with BofI’s
internal investigation.”
The district court found Calcaterra’s claims in the FAC were either: (1)
unripe; (2) failed to state a claim for relief; or (3) not properly pled. We have
jurisdiction under 28 U.S.C. § 1291. We affirm. Calcaterra also complains the
district court erred when it denied: (1) a stay of the entire case and (2) leave to
amend the SAC. We agree.
1. The district court properly determined that most of Calcaterra’s claims in
the FAC were not ripe. As to the claims held unripe, each request for relief is
contingent on the outcome of the two other ongoing lawsuits. For example, if the
Bank prevails, Calcaterra’s requests for legal fees is without merit. As a result, the
claim “rests upon contingent future events that may not occur as anticipated, or
indeed may not occur at all.” Texas v. United States, 523 U.S. 296, 300 (1998)
(internal quotation marks omitted). Calcaterra’s attempts to plead around ripeness
by requesting declaratory, injunctive, and restitutionary relief, Gator.com Corp. v.
L.L. Bean, Inc., 398 F.3d 1125, 1129 (9th Cir. 2005), and grouping multiple
breaches as a single fiduciary claim are unavailing. Cf. DaimlerChrysler Corp. v.
3 19-55721 Cuno, 547 U.S. 332, 352-53 (2006) (rejecting the reading of a prior case to “allow
standing as to one claim to suffice for all claims arising from the same nucleus of
operative facts” because it would allow a court to “entertain moot or unripe
claims” and undermine Article III (internal quotation marks omitted)).
2. Because the bulk of claims in the FAC were found unripe, Calcaterra
requested a stay of the entire case per the district court’s instruction, though the
district court denied that request. A district court should consider “the hardship or
inequity which a party may suffer in being required to go forward.” Lockyer v.
Mirant Corp., 398 F.3d 1098, 1110 (9th Cir. 2005) (quoting CMAX, Inc. v. Hall,
300 F.2d 265, 268 (9th Cir. 1962) (citations omitted)). Because of a possibility
that the statute of limitations might bar the refiling of Calcaterra’s now unripe
claims, the district court abused its discretion when it found Calcaterra would not
face hardship from dismissal. See Lockyer, 398 F.3d at 1105. We therefore reverse
the denial of the stay.
3. Calcaterra alleges his breach of the duty of candor claim was improperly
dismissed, but he cannot meet the heightened level of proof required by Delaware
law and Federal Rule of Civil Procedure 9(b). See Metro Commc’n Corp. BVI v.
Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 157-58 (Del. Ch. 2004)
(Delaware law requires heightened level of proof that directors “knowingly
disseminate[d] false information”); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097,
4 19-55721 1103-04 (9th Cir. 2003). None of his claims rise above a speculative level. See
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Calcaterra failed to
identify why certain statements were false or allege that the Defendants knew they
were false. Calcaterra also objects to the dismissal of individual defendants. Only
four of the eight instances of alleged wrongdoing identify a particular defendant.
As a result, the district court correctly concluded that a claim can only continue
against the specifically named defendants.
4. Before proceeding on his shareholder derivative action, Calcaterra must
show demand futility. That is, he must plead with particularity, Fed. R. Civ. P.
23.1(b)(3), that a demand on the Board was futile under Delaware law (the place of
incorporation). See Rosenbloom v. Pyott, 765 F.3d 1137, 1148 (9th Cir. 2014).
The district court did not err by determining he had not. See Tindall v. First Solar
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NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS FEB 25 2021 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
In re: BOFI HOLDING, INC. No. 19-55721 SHAREHOLDER LITIGATION, D.C. No. ------------------------------ 3:15-cv-02722-GPC-KSC
ANDREW CALCATERRA, derivatively on behalf of BofI Holding, Inc., MEMORANDUM*
Plaintiff-Appellant,
v.
GREGORY GARRABRANTS; et al.,
Defendants-Appellees.
Appeal from the United States District Court for the Southern District of California Gonzalo P. Curiel, District Judge, Presiding
Argued and Submitted September 2, 2020 Pasadena, California
Before: SILER,** BERZON, and LEE, Circuit Judges.
The Bank of the Internet (now Axos Bank) provides consumer banking
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Eugene E. Siler, United States Circuit Judge for the U.S. Court of Appeals for the Sixth Circuit, sitting by designation. products through the internet. After it terminated an internal auditor—Charles
Erhart—he sued for retaliation. He claimed that he was fired for reporting to
regulators what he believed were internal control deficiencies and potential
regulatory violations. Erhart v. BofI Holding Inc., No. 15-cv-2287 (S.D. Cal.).
Shareholders followed suit and filed a securities fraud class action. Houston
Municipal Employees Pension System v. BofI Holding, Inc., No. 18-55415 (9th
Cir.).
Next came this derivative action against the board of directors and senior
management at the bank. Both the first amended complaint (FAC) and second
amended complaint (SAC) asserted four causes of action: (1) breach of fiduciary
duty; (2) abuse of control; (3) unjust enrichment; and (4) breach of duty of honest
services. The SAC, however, only asserted those causes of action against four
defendants. In his first amended complaint (FAC), Plaintiff Andrew Calcaterra
alleged the Bank was damaged in four ways: (1) “legal fees associated with the
lawsuits filed against the Company for violations of the federal securities laws and
for violation of the anti-retaliation provisions of Dodd-Frank and Sarbanes-Oxley
by Mr. Erhart”; (2) “loss of reputation and goodwill, and a ‘liar’s discount’ that
will plague the Company’s stock in the future due to the Individual Defendants’
false statements and lack of candor to the marketplace”; (3) “amounts paid to
outside lawyers, accountants, and investigators in connection with [the Bank’s]
2 19-55721 internal investigation”; and (4) “loss of revenues and profits due to any subsequent
restatements.” The plaintiff’s claims in the SAC were “reduced to one seeking
recovery against the Defendant directors and officers to reimburse amounts BofI
paid to outside lawyers, accountants, and investigators in connection with BofI’s
internal investigation.”
The district court found Calcaterra’s claims in the FAC were either: (1)
unripe; (2) failed to state a claim for relief; or (3) not properly pled. We have
jurisdiction under 28 U.S.C. § 1291. We affirm. Calcaterra also complains the
district court erred when it denied: (1) a stay of the entire case and (2) leave to
amend the SAC. We agree.
1. The district court properly determined that most of Calcaterra’s claims in
the FAC were not ripe. As to the claims held unripe, each request for relief is
contingent on the outcome of the two other ongoing lawsuits. For example, if the
Bank prevails, Calcaterra’s requests for legal fees is without merit. As a result, the
claim “rests upon contingent future events that may not occur as anticipated, or
indeed may not occur at all.” Texas v. United States, 523 U.S. 296, 300 (1998)
(internal quotation marks omitted). Calcaterra’s attempts to plead around ripeness
by requesting declaratory, injunctive, and restitutionary relief, Gator.com Corp. v.
L.L. Bean, Inc., 398 F.3d 1125, 1129 (9th Cir. 2005), and grouping multiple
breaches as a single fiduciary claim are unavailing. Cf. DaimlerChrysler Corp. v.
3 19-55721 Cuno, 547 U.S. 332, 352-53 (2006) (rejecting the reading of a prior case to “allow
standing as to one claim to suffice for all claims arising from the same nucleus of
operative facts” because it would allow a court to “entertain moot or unripe
claims” and undermine Article III (internal quotation marks omitted)).
2. Because the bulk of claims in the FAC were found unripe, Calcaterra
requested a stay of the entire case per the district court’s instruction, though the
district court denied that request. A district court should consider “the hardship or
inequity which a party may suffer in being required to go forward.” Lockyer v.
Mirant Corp., 398 F.3d 1098, 1110 (9th Cir. 2005) (quoting CMAX, Inc. v. Hall,
300 F.2d 265, 268 (9th Cir. 1962) (citations omitted)). Because of a possibility
that the statute of limitations might bar the refiling of Calcaterra’s now unripe
claims, the district court abused its discretion when it found Calcaterra would not
face hardship from dismissal. See Lockyer, 398 F.3d at 1105. We therefore reverse
the denial of the stay.
3. Calcaterra alleges his breach of the duty of candor claim was improperly
dismissed, but he cannot meet the heightened level of proof required by Delaware
law and Federal Rule of Civil Procedure 9(b). See Metro Commc’n Corp. BVI v.
Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 157-58 (Del. Ch. 2004)
(Delaware law requires heightened level of proof that directors “knowingly
disseminate[d] false information”); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097,
4 19-55721 1103-04 (9th Cir. 2003). None of his claims rise above a speculative level. See
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Calcaterra failed to
identify why certain statements were false or allege that the Defendants knew they
were false. Calcaterra also objects to the dismissal of individual defendants. Only
four of the eight instances of alleged wrongdoing identify a particular defendant.
As a result, the district court correctly concluded that a claim can only continue
against the specifically named defendants.
4. Before proceeding on his shareholder derivative action, Calcaterra must
show demand futility. That is, he must plead with particularity, Fed. R. Civ. P.
23.1(b)(3), that a demand on the Board was futile under Delaware law (the place of
incorporation). See Rosenbloom v. Pyott, 765 F.3d 1137, 1148 (9th Cir. 2014).
The district court did not err by determining he had not. See Tindall v. First Solar
Inc., 892 F.3d 1043, 1044 (9th Cir. 2018). Calcaterra did not sufficiently allege
that most of the board was conflicted at the time of filing for either the FAC or
SAC. Likewise, while “the existence of a new independent board of directors is
relevant to a Rule 23.1 demand inquiry only as to derivative claims in the amended
complaint that are not already validly in litigation,” Calcaterra’s claim was not
“validly in litigation” after filing the FAC because “validly in litigation” means a
proceeding that can or has survived a motion to dismiss. Braddock v. Zimmerman,
906 A.2d 776, 779, 786 (Del. 2006). Therefore, the district court did not err in
5 19-55721 reconsidering demand futility.
5. Finally, Calcaterra’s attempts to recover investigation costs were
dismissed for failure to state a claim. We review the district court’s decision de
novo and find no error. Fayer v. Vaughn, 649 F.3d 1061, 1063 (9th Cir. 2011) (per
curiam). Calcaterra points to no cause of action for recovering investigation costs
under these circumstances.
6. The district court dismissed the SAC without leave to amend the
complaint. The decision to deny leave to amend is generally reviewed de novo.
When the reason for denying leave is futility, however, the decision is reviewed for
abuse of discretion. United States v. United Healthcare Ins. Co., 848 F.3d 1161,
1172 (9th Cir. 2016). We consider five factors in considering denying leave to
amend: “undue delay, bad faith or dilatory motive on the part of the movant,
repeated failure to cure deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of the amendment, [and]
futility of amendment.” Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d 522, 532
(9th Cir. 2008) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). Nonetheless,
the presumption remains in favor of granting leave to amend. Eminence Capital,
LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Here, the district court
did not consider any of the five factors and thus abused its discretion.
We AFFIRM the district court’s granting of the defendant’s motion to
6 19-55721 dismiss the FAC, REVERSE the denial of plaintiff’s motion for a stay of the case,
and REMAND the district court’s denial of plaintiff’s motion for leave to seek to
amend the complaint for reconsideration applying the appropriate standards.
7 19-55721