Judge: Robert C. Longstreth, Case: 37-2019-00018398-CU-SL-CTL, Date: 2024-02-16 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - January 25, 2024

01/26/2024  08:30:00 AM  C-65 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Robert Longstreth

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Civil - Unlimited  Securities Litigation Demurrer / Motion to Strike 37-2019-00018398-CU-SL-CTL MABVAX THERAPEUTICS HOLDINGS INC VS HONING [E-FILE] CAUSAL DOCUMENT/DATE FILED:

Cross-Defendants John David Hansen and Gregory P. Hanson's Demurrer to the Honig Cross-Complainants' Cross-Complaint is OVERRULED. (ROA 1950.) Cross-Defendants John David Hansen and Gregory P. Hanson's Demurrer to the Brauser Cross-Complainants' Cross-Complaint is OVERRULED. (ROA 1962.) The Honig Cross-Complainants are Barry Honig, John Stetson, GRQ Consultants, Inc., GRQ Consultants, Inc. 401K, GRQ Consultants, Inc. Roth 401K FBO Barry Honig, GRQ Consultants, Inc.

Roth 401K FBO Renee Honig, and HS Contrarian Investments LLC (hereinafter collectively 'Honig').

The Brauser Cross-Complainants are Michael Brauser, Grander Holdings, Inc., and Grander Holdings, Inc. 401K (hereinafter collectively 'Brauser').

At the outset, the court notes that a demurrer may be sustained only where it disposes of an entire cause of action; a demurrer does not lie as to only part of a claim. (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682-1683.) Thus, even if part of a claim is defective, a demurrer must be overruled as long as the remaining allegations state a claim.

Whether the Cross-Complaints are Barred by Res Judicata Cross-Defendants first assert the Cross-Complaints are barred in their entirety by res judicata, based on the interlocutory rulings of a New York federal court. Specifically, they assert the Cross-Complaints are barred by claim preclusion.

As a preliminary matter, Honig asserts Judge Frazier previously 'rejected' this argument when he granted Honig leave to file a cross-complaint on May 19, 2023. The minute order does not reflect that the court made any determination on the merits of the Cross-Complaints. (ROA 1882.) While the clear futility of a proposed pleading may at times be a ground for denying leave to file it, the grant of leave to amend, which is governed by liberal standards, is not an endorsement of the pleading as free from legal defect. Accordingly, the court has considered Cross-Defendants' argument that the Cross-Complaints are barred by res judicata.

'A diversity claim resolved in a federal action is subject to the law of res judicata of the state in which the federal court sits.' (Burdette v. Carrier Corp. (2008) 158 Cal.App.4th 1668, 1674.) 'For judgments in diversity cases, federal law incorporates the rules of preclusion applied by the State in which the Calendar No.: Event ID:  TENTATIVE RULINGS

3074819  9 CASE NUMBER: CASE TITLE:  MABVAX THERAPEUTICS HOLDINGS INC VS HONING [E-FILE]  37-2019-00018398-CU-SL-CTL rendering court sits.' (Taylor v. Sturgell (2008) 553 U.S. 880, 891, n. 4.) Accordingly, as the parties agree, this court is to apply New York law.

'In New York, res judicata, or claim preclusion, bars successive litigation based upon the same transaction or series of connected transactions [citation] if: (i) there is a judgment on the merits rendered by a court of competent jurisdiction, and (ii) the party against whom the doctrine is invoked was a party to the previous action, or in privity with a party who was [citations].' (People ex rel. Spitzer v. Applied Card Systems, Inc. (2008) 11 N.Y.3d 105, 122 (emphasis added).) '[O]nce a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy [citations].' (Simmons v. Trans Express Inc. (2021) 37 N.Y.3d 107, 111 (italics omitted; emphasis added).) New York law is thus unequivocal: a final judgment on the merits is required to give res judicata effect.

Cross-Defendants insist that under New York law, 'a partial, interlocutory dismissal can qualify as a 'final judgment' for res judicata purposes, even though the dismissal is not yet appealable and the litigation continues as to other claims.' (Mtn. at 13:16-18.) Cross-Defendants appear to have confused claim preclusion with issue preclusion, or collateral estoppel. Cross-Defendants cite Ferring B.V. v. Serenity Pharmaceuticals, LLC (S.D.N.Y. 2019) 391 F.Supp.3d 265, 284-290, which does state 'an interlocutory decision can be given preclusive effect' – but the opinion determined a partial grant of summary judgment was sufficiently final for purposes of issue preclusion, not for purposes of claim preclusion.

Cross-Defendants also cite U.S. v. McGann (E.D.N.Y. 1997) 951 F. Supp. 372. This case expressly states there are 'two branches' to the doctrine of res judicata, 'one being claim preclusion and the other, issue preclusion. The claim preclusion branch requires a final judgment on the merits of an action if the parties or their privies are to be precluded from relitigating issues that were or could have been raised in that action.' (McGann at p. 380 (italics omitted; emphasis added).) This is contrasted with issue preclusion. (Id. at pp. 380-382.) As noted above, with respect to claim preclusion, the law is uniformly clear that interlocutory orders have no preclusive effect.

Here, there is clearly significant overlap between the federal action pending in New York and this action.

Many of the parties are the same. Many of the same legal claims are asserted in both actions, and those claims are underpinned by many of the same factual allegations. The district judge expressly noted this: 'Although the parties may not all be the same, and the issues may not fully coincide, there is substantial overlap, and a determination of the California action will determine most, if not all, the issues in the actions before me.' (XD RJN at Exh. N, p. 3.) However, it is undisputed there has been no final judgment on the merits in the federal action. To the contrary, the district judge ordered the federal actions stayed with the expectation that the California lawsuit would proceed on the merits of the claims asserted, and as far as this court is aware, those actions remain stayed. (Ibid.) Accordingly, this court concludes the federal court's prior rulings dismissing various claims do not have claim preclusive effect on Honig's and Brauser's Cross-Complaints filed in this action.

Moreover, to the extent Cross-Defendants' demurrers might be construed to assert the Cross-Complaints are barred by issue preclusion (collateral estoppel), the court is not persuaded.

''Finality' within the meaning of collateral estoppel is a more flexible concept than it is in other contexts....' (Ferring at p. 285.) However, '[c]ollateral estoppel attaches where (i) an identical issue was raised in a previous proceeding against the party; (ii) the issue was actually litigated and decided in a previous proceeding; (iii) the party had a full and fair opportunity to litigate the issue; and (iv) resolution of the issue was necessary to support a valid and final judgment on the merits.' (Id. at p. 282.) Cross-Defendants did not analyze, and thus have not demonstrated, all of these requirements could be met here.

In any event, given the procedural posture of the federal action, which is stayed pending resolution of this case, it seems clear the issues have not yet been 'actually litigated and decided,' nor that Cross-Complainants had a 'full and fair opportunity' to be heard on the issues. Courts have the ability to modify interlocutory orders before final judgment is entered. They also have 'broad discretion to Calendar No.: Event ID:  TENTATIVE RULINGS

3074819  9 CASE NUMBER: CASE TITLE:  MABVAX THERAPEUTICS HOLDINGS INC VS HONING [E-FILE]  37-2019-00018398-CU-SL-CTL determine whether collateral estoppel applies.' (Ferring at p. 282.) Accordingly, for these reasons, the court concludes the federal court's prior rulings dismissing various claims do not have issue preclusive effect on Honig's and Brauser's Cross-Complaints in this action.

The court need not express its view of whether the federal court decisions cited by Cross-Defendants have persuasively construed New York law, or, in many cases, whether they even purport to have construed New York law.

The demurrers on res judicata grounds are overruled.

Whether the Cross-Complaints are Time-Barred Cross-Defendants next assert all of the cross-claims are time-barred.

Cross-Complainants' first and eighth causes of action are for violations of the Corporations Code. These claims must be 'brought before the expiration of five years after the act or transaction constituting the violation or the expiration of two years after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire.' (Corp. Code § 25506(b).) Cross-Complainants' second, third, fourth, and fifth causes of action are fraud claims. Fraud claims are generally subject to a three-year statute of limitations. (Code Civ. Proc. § 338(d).) Cross-Complainants' seventh cause of action for unjust enrichment based on allegations of fraud is also subject to a three-year statute of limitations. (Ibid.) A fraud claim 'is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.' (Ibid.) Cross-Complainants' sixth cause of action is for contribution. Cross-Defendants do not discuss the applicable statute of limitations, and argue the claim is unripe, effectively conceding that it has not even yet accrued.

Cross-Complainants allege Cross-Defendants made material misrepresentations regarding 1) the Oxford Loan (Honig XC ¶¶ 12, 16-17, 56-99; Brauser XC ¶¶ 15, 28-29, 93-137); 2) Cross-Defendants' Pay Cuts (Honig XC ¶¶ 15, 100-106; Brauser XC ¶¶ 138-152); 3) the Clinical Trial (Honig XC ¶¶ 11, 13, 114-151; Brauser XC ¶ 153-196); 3) the Juno Deal (Honig XC ¶¶ 6-7, 32-55; Brauser XC ¶¶ 8-9, 63-83), and 5) the Pre-Bankruptcy Statements (Honig XC ¶¶ 20, 152-171; Brauser XC ¶¶ 34-36, 197-214.) Emergency Rule 9 of the California Rules of Court provides that the statute of limitations was 'tolled from April 6, 2020 until October 1, 2020.' (Cal. R. Court, Appx. I, Emer. Rule 9(a).) As to the Corporation Code claims, Cross-Complainants allege that the Clinical Trial statements were made between November 14, 2016 and October 15, 2018. (Honig XC ¶¶ 121, 126-130, 135, 140, 143-145, 148; Brauser XC ¶¶ 165, 169, 170-173, 182, 187, 190-192.) They did not discover the falsity of these statements until approximately August 2022, after they had taken depositions of Hansen and others in this case. (Honig XC ¶ 119; Brauser XC ¶ 160.) Thus, the Corporations Code claims based on the Clinical Trial statements would have expired between May 2022 and April 2024; at least some claims are timely regardless of when the Cross-Complaints are deemed to have commenced. (Corp. Code § 25506(b) and Cal. R. Court, Appx. I, Emer. Rule 9(a).) Although Cross-Defendants assert the results of the trials were publicly disclosed, such that Cross-Complainants were on inquiry notice no later than January 2018 based on those publicly available results, such facts are not presented on the face of the pleadings or upon any matter of which the court could properly judicially notice.

As to the Corporation Code claims based on Pre-Bankruptcy statements, Cross-Complainants allege that between late 2018 and early 2019 MabVax and Cross-Defendants projected a message that 'all was well' while secretly 'selling out' shareholders for Cross-Defendants' personal benefit. MabVax's assets were allegedly sold to BioNTech and MabVax was placed into Chapter 11 bankruptcy on March 21, 2019. (Honig XC ¶ 168; Brauser XC ¶ 212.) Cross-Defendants assert Cross-Complainants were on Calendar No.: Event ID:  TENTATIVE RULINGS

3074819  9 CASE NUMBER: CASE TITLE:  MABVAX THERAPEUTICS HOLDINGS INC VS HONING [E-FILE]  37-2019-00018398-CU-SL-CTL inquiry notice no later than May 6, 2019, but they base this on a document filed in the federal action, which they do not provide and this court cannot access. (Dem. to Honig XC at 23: 2-6; Dem. to Brauser XC at 22:18-24.) Cross-Defendants also do not explain how consideration of this matter outside the operative pleadings in this action is appropriate at the demurrer stage. Accordingly, the court concludes Cross-Defendants have not sufficiently demonstrated these claims are time-barred.

Accordingly, the statute of limitations does not bar the entire Corporations Code causes of action, regardless of whether certain allegations contained within those causes of action are time-barred, and the demurrers to these causes of action are overruled.

As to fraud claims and unjust enrichment claims based on the Clinical Trial statements and Pre-Bankruptcy statements, the court finds for the reasons stated as to the Corporation Code claims that Cross-Defendants have failed to show that these claims are untimely. As to the Oxford Loan claims, Honig alleges they did not learn until December 30, 2019 that MabVax Therapeutics Holdings, Inc.

('MabVax') had requested the second tranche of $5 million and were rejected, rather than the loan merely 'expiring.' (Honig XC ¶ 80.) Brauser alleges that they discovered the relevant facts 'recently.' (Brauser XC ¶ 120.) Accordingly, the statute of limitations would normally have expired on December 30, 2022. (Code Civ. Proc. § 338(d).) However, per Emergency Rule 9, the statute of limitations was 'tolled from April 6, 2020 until October 1, 2020.' (Cal. R. Court, Appx. I, Emer. Rule 9(a).) Accordingly, the deadline for the Cross-Complainants to file the fraud claims did not expire until approximately June 2023 and the claims based on the Oxford Loan statements are timely. Although Cross-Defendants assert Cross-Defendants were on inquiry notice as early as 2016 when they announced the loan had 'expired,' Cross-Defendants allege that they reasonably relied on false statements to the contrary made by the Cross-Complainants, and the court is does not believe that this is a matter subject to determination on the operative pleadings.

Accordingly, the statute of limitations does not bar the entire fraud causes of action, regardless of whether certain allegations contained within those causes of action are time-barred, and the demurrers to these causes of action are overruled.

The demurrers on statute of limitations grounds as to the contribution claim are overruled.

Whether the Causes of Action State Facts Sufficient to Constitute a Cause of Action Cross-Defendants contend Cross-Complainants failed to state a claim based on the Juno Deal and the Pre-Bankruptcy statements. However, because Cross-Defendants failed to demonstrate as to other matters that the Corporations Code and fraud-based claims are time-barred, the court need not evaluate whether Cross-Complainants failed to state a claim based on the Juno Deal and the Pre-Bankruptcy statements, since the causes of action would survive regardless. Accordingly, the demurrers for failure to state a claim are overruled as to the Corporations Code and fraud claims.

Cross-Defendants contend Cross-Complainants failed to state facts sufficient to constitute a cause of action for unjust enrichment. They contend Cross-Complainants fail to plead an underlying tort; however, Cross-Complainants several fraud causes of action as the basis for the unjust enrichment claim. Second, Cross-Defendants contend Cross-Complainants do not adequately allege Cross-Defendants unjustly retained a benefit at Cross-Complainants' expense. The factual basis of the claim is that Cross-Defendants unjustly retained their salaries, which Cross-Complainants contend were procured through fraud. (Honig XC ¶ 218; Brauser XC ¶ 266.) Cross-Defendants assert there is no allegation that Honig's investments contributed to their compensation. However, Cross-Complainants do allege this. (Honig XC ¶ 217; Brauser XC ¶ 265.) Accordingly, the demurrers are overruled as to this cause of action.

Lastly, Cross-Defendants assert Cross-Complainants' contribution claim is 'unripe.' As to this cause of action, the demurrers are overruled. (American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578.) Calendar No.: Event ID:  TENTATIVE RULINGS

3074819  9 CASE NUMBER: CASE TITLE:  MABVAX THERAPEUTICS HOLDINGS INC VS HONING [E-FILE]  37-2019-00018398-CU-SL-CTL Requests for Judicial Notice Cross-Defendants' requests for judicial notice are granted as to Exhibits A-O. However, the court does not take judicial notice of information provided only by way of a web address; this does not '[f]urnish the court with sufficient information to enable it to take judicial notice of the matter.' (Evid. Code § 453(b).) Honig's requests for judicial notice are granted. Brauser's requests for judicial notice are granted.

The court notes Cross-Defendants referred in their papers to electronic court filings in the federal action.

This court does not have access to those filings and thus, except to the extent they were provided to the court by way of a request for judicial notice attaching the document, these citations were disregarded.

Excessive Memoranda The court admonishes all parties not to submit memoranda in excess of page limits. Continued violation of these rules may result in the court exercising its discretion to disregard some or all of the improper papers. (Cal. R. Court, rule 3.1113(d) and (g); 3.1300(d).) Once confirmed, this ruling shall be the final ruling of the court and no further written order is required.

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