City and County of San Francisco v. Purdue Pharma L.P.

District Court, N.D. California·Decided December 22, 2020·No. 3:18-cv-07591·Unknown

Opinion

No. 20-73430

IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

IN RE TEVA PHARMACEUTICAL INDUSTRIES LTD.,

Petitioner, vs. UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA, Respondent,

CITY AND COUNTY OF SAN FRANCISCO; THE PEOPLE OF THE STATE OF CALIOFRNIA, ACTING BY AND THROUGH SAN FRANCISCO CITY ATTORNEY DENNIS J. HERRERA, Real Party in Interest.

STATEMENT OF DISTRICT COURT JUDGE CHARLES R. BREYER IN RESPONSE TO MANDAMUS PETITION

United States District Court 450 Golden Gate Avenue San Francisco, CA 94102 IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

IN RE TEVA PHARMACEUTICAL INDUSTRIES LTD.

STATEMENT OF DISTRICT COURT JUDGE CHARLES R. BREYER IN RESPONSE TO MANDAMUS PETITION

Respondent District Court appreciates the opportunity to comment further on the issues raised in the Petition filed by Teva Pharmaceutical Industries Ltd. (“Teva”). See Petition (dkt. 1-3). Chiefly, in its Petition, Teva asserts the District Court committed clear legal error and abused its discretion when it found that Plaintiffs made a prima facie showing that Teva and its subsidiaries are alter-egos for the sake of establishing personal jurisdiction. See Petition at 19–30. Teva contends that Plaintiffs’ allegations, accepted as true, fall short of establishing alter-ego jurisdiction as a matter of law, and that because Plaintiffs failed to plead a viable theory of personal jurisdiction over Teva, it was error to rule in Plaintiffs’ favor. Petition at 21–22, 18. It remains the view of the Court that Plaintiffs’ allegations, accepted as true, plausibly allege a viable theory of jurisdiction against Teva, sufficient to survive a motion to dismiss, and that the existing disputes of fact require a jurisdictional ruling “either at a preliminary hearing or at trial.” See Order on Motions to Dismiss (dkt. 285) at 15 (citing Data Disc, Inc. v. Systems Tech. Assocs., Inc., 557 F.2d 1280, 1285 n.2 (9th Cir. 1977)). Insofar as Teva did not seek clarification of the Court’s initial jurisdictional holding,1 the Court welcomes the invitation to explain itself herein, particularly as to: (A) the role of undercapitalization in pleading alter-ego jurisdiction; (B) the “unity of interest” prong in pleading alter-ego jurisdiction; (C) Plaintiffs’ viable theory of personal jurisdiction; and (D) the Court’s intentions. A. Undercapitalization Teva argues that (1) pursuant to In re Boon Global Ltd., 923 F.3d 643, 654 (9th Cir. 2019), Plaintiffs failed to provide evidence of “undercapitalization,” “failure to keep adequate records, or “the free transfer of company assets”; and (2) Plaintiffs’ factual allegations demonstrated only “a desire” by Teva to control its U.S. subsidiaries, not “total control,” as is required by law. See Petition at 21.2 The Court disagrees with this characterization. Teva repeatedly cites Boon Global for the proposition that “[alter-ego] jurisdiction cannot lie where there is no evidence of undercapitalization, failure to keep adequate records, or the free transfer of company assets—all of which would normally be signs of a sham corporate veil.” See Petition at 18, 21, 25–26. Indeed, Teva states that the “question” for purposes of determining alter-ego jurisdiction “is whether the parent is trying to avoid liability through exploitation of the corporate form by operating a fictitious entity that lacks funding.” Id. at 26 (citing Daewoo Elecs. Am. Inc. v. Opta Corp., 875 F. 3d 1241, 1250 (9th Cir.

1 Besides mandamus, Teva has other adequate means of relief available which it has not pursued. For instance, Teva declined to file a motion for reconsideration before filing its petition for mandamus, which by itself has warranted denial of mandamus in the past. See Cole v. U.S. Dist. Court for Dist. Of Idaho, 366 F.3d 813, 922 (9th Cir. 2004) (“[M]otion for reconsideration . . . should be taken before extraordinary review by mandamus is sought.”). 2 Teva also challenges the successor theory of personal jurisdiction in its petition. Petition at 28– 30. However, because the Court did not undertake any analysis related to this theory in the underlying Order, see Order at 9 n.12, it does not address the successor theory here. 2017) (emphasis added)). However, this emphasis on “undercapitalization” misconstrues the relevant caselaw.3 First, although the dicta in Boon Global, 923 F.3d at 653 (citing Ranza v. Nike, Inc., 793 F.3d 1073–74 (9th Cir. 2015)), said, “[w]e have previously held that jurisdiction cannot lie where there is no evidence of undercapitalization, failure to keep adequate records, or the free transfer of company assets—all of which would normally be signs of a sham corporate veil,” Ranza indicates that undercapitalization, inadequate record-keeping, and a parent’s free transfer of its subsidiaries’ assets “would be signs of a sham corporate veil,” but did not say that any of those elements were necessary to establish alter-ego jurisdiction. See id. The “unity of interest” test—prong one of the alter-ego theory of jurisdiction—is ultimately about control, not capitalization, record-keeping, or free transfer. Id. at 1073 (“The . . . test requires ‘a showing that the parent controls the subsidiary to such a degree as to render the latter the mere instrumentality of the former.’”) (citing Doe v. Unocal, 248 F.3d 915, 926 (9th Cir. 2001)). In fact, courts historically apply the “unity of interest” test without discussing undercapitalization, record-keeping, or free transfer. See, e.g., American Tel. & Tel. Co v. Compagnie Burxelles Lambert, 94 F.3d 586, 591 (9th Cir. 1996); Kramer Motors, Inc. v. British Levland, Ltd., 628 F.2d 1175, 1177–79 (9th Cir. 1980). Even assuming that Boon Global and Ranza changed the unity of interest prong of the alter-ego analysis, Plaintiffs have likely met their burden. Plaintiffs alleged the free transfer of subsidiary assets—i.e., Teva’s control and transfer of its U.S. subsidiaries’ cash and accounts receivable—multiple times in the pleadings, and the Court relied on such allegations in its Order:

3 Boon Global further undermines Teva’s argument because the Ninth Circuit determined there that the district court did not commit “clear error” even when it misapplied the alter ego test. See 923 F.3d at 654. The City alleges that Teva Ltd. financially controlled its subsidiaries through “a trade receivables securitization program that took control and commingled its subsidiaries” receivables and collections via a Special Purpose Entity (SPE),’ which Teva Ltd. owns, controls, and primarily benefits from. Teva. Opp. at 9 (citing Fahey Decl. at 25) (internal quotation marks omitted). Additionally, the City alleges that Teva used its subsidiaries’ cash flows to repurchase its own shares and pay dividends to shareholders. Id. at 10 (citing Fahey Decl. at 26). Teva Ltd. also allegedly controlled large contracts signed by its subsidiaries, to ‘protect itself from third-party claims from those subsidiaries.’ Id. (citing Fahey Decl. at 27).

Order at 14–15; see also Teva Opp’n (dkt. 205-3). Teva similarly misunderstands Daewoo, which it cites for the proposition that, when applying the alter-ego test, the “[Ninth Circuit] looks to whether a subsidiary is operating without enough money to pay its bills in determining alter egos.” See Petition at 26. But Daewoo lists “inadequate capitalization” as a “relevant” factor, not a controlling factor, in determining whether sufficient unity of interest exists. 875 F.3d at 1250. Indeed, Daewoo makes clear that “California courts emphasize . . .

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