Judge: Ronald F. Frazier, Case: 37-2022-00040355-CU-SL-CTL, Date: 2023-08-11 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - August 10, 2023

08/11/2023  08:30:00 AM  C-65 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Ronald F. Frazier

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Civil - Unlimited  Securities Litigation Motion to Dismiss 37-2022-00040355-CU-SL-CTL ASCANI VS KPMG LLP [E-FILE] CAUSAL DOCUMENT/DATE FILED: Motion to Dismiss, 12/16/2022

Defendants J.P. Morgan Securities LLC, Morgan Stanley & Company LLC, and Citigroup Global Markets Inc.'s Motion to Dismiss the Complaint for Forum Non Conveniens, and, in the Alternative, Motion to Stay is GRANTED IN PART. (ROA 18.) In the First Amended Complaint, Plaintiff alleges purchasing shares of TuSimple Holdings, Inc.

('TuSimple') as part of its initial public offering ('IPO'). Plaintiff asserts two causes of action for violation of the Securities Act against Defendants J.P. Morgan Securities LLC, Morgan Stanley & Company LLC, and Citigroup Global Markets Inc. ('Underwriter Defendants') and TuSimple's independent auditor, Defendant KPMG LLC ('KPMG').

A defendant may bring a motion to stay or dismiss for inconvenient forum before the deadline to file its responsive pleading. (Code Civ. Proc. § 418.10(a)(2).) In addition, when a court determines 'in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just.' (Code Civ. Proc. § 410.30(a).) Here, Underwriter Defendants seek to enforce a forum selection clause found in TuSimple's Restated Certificate of Incorporation, which states in relevant part: 'To the fullest extent permitted by law, unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.' (Smith Decl., Exh. 2 at Art. XII, pp. 16-17.) Underwriter Defendants assert the forum selection clause is valid and enforceable, and that enforcement of the clause will be neither unfair nor unreasonable.

The validity of a certificate of incorporation is governed by the law of the state of incorporation pursuant to the internal affairs doctrine. (Wong v. Restoration Robotics, Inc. (2022) 78 Cal.App.5th 48, 75.) Here, TuSimple is incorporated in the state of Delaware. Federal forum provisions contained in certificates of incorporation are considered facially valid under Delaware law. (See Salzberg v. Sciabacucchi (2020) 227 A.3d 102.) Plaintiff does not assert either the certificate or the forum selection clause is invalid.

Accordingly, the court concludes the provision is valid under Delaware law.

As to the enforceability of the provision, under California law '[w]hen a case involves a mandatory forum selection clause, it will usually be given effect unless it is unfair or unreasonable.' (Korman v. Princess Cruise Lines, Ltd. (2019) 32 Cal.App.5th 206, 216; see also Wong at p. 76.) Plaintiff does not assert Calendar No.: Event ID:  TENTATIVE RULINGS

2917600  18 CASE NUMBER: CASE TITLE:  ASCANI VS KPMG LLP [E-FILE]  37-2022-00040355-CU-SL-CTL enforcement of the provision would be either unfair or unreasonable in any way. The court concludes the provision is enforceable under California law.

'A certificate of incorporation is a contractual agreement between the corporation and its shareholders.' (Wong at p. 61.) Underwriter Defendants admit they are non-signatories to this contract. However, they assert they are nonetheless entitled to enforce the forum selection clause on the grounds they are closely related to the contractual relationship.

The mere fact that a nonsignatory party did not sign the relevant contract does not, by itself, render a forum selection clause unenforceable. As one appellate court observed, '[t]o hold otherwise would be to permit a plaintiff to sidestep a valid forum selection clause simply by naming a closely related party who did not sign the clause as a defendant.' (Lu v. Dryclean-U.S.A. of California, Inc. (1992) 11 Cal.App.4th 1490, 1494.) For a defendant to show it is 'closely related' to a contractual relationship, sufficient to enforce a forum selection clause found therein, the defendant 'must show by specific conduct or express agreement' that 1) the defendant agreed to be bound by the contract, 2) the defendant was an intended beneficiary of the contract (i.e., a third party beneficiary), or 3) 'sufficient evidence of a defined and intertwining business relationship with a contracting party.' (Bugna v. Fike (2000) 80 Cal.App.4th 229, 233.) Plaintiff asserts Underwriter Defendants may not enforce the forum selection clause in this case because Underwriter Defendants are not third-party beneficiaries of the certificate of incorporation. Underwriter Defendants, in fact, do not assert they are third-party beneficiaries. Rather, Underwriter Defendants assert they may enforce the forum selection clause on the grounds they have a 'defined and intertwining business relationship' with TuSimple.

Here, Underwriter Defendants have presented evidence of their underwriting agreement with TuSimple.

(Smith Decl., Exh. 3.) Underwriter Defendants also point to Plaintiff's own allegations in the First Amended Complaint which, although not evidence of the relationship between TuSimple and Underwriting Defendants, tend to support a conclusion that enforcement of the forum selection clause would not be unreasonable here. Plaintiff alleges the Underwriter Defendants assisted TuSimple in the planning of the IPO, were aware of the alleged misrepresentations in the Registration Statement, and yet 'caused the Registration Statement to be filed with the SEC and declared effective in connection with offers and sales of [TuSimple's] shares.' FAC ¶¶ 25-27.) Accordingly, the court grants Underwriter Defendants' motion and orders the case against them STAYED on forum non conveniens grounds. The court declines Underwriter Defendants' request for dismissal on these grounds. Moreover, because the court has granted Underwriter Defendants' motion on forum non conveniens grounds, it does not reach their alternative request for a discretionary stay based on the pendency of another federal action against Underwriter Defendants asserting the same claims.

Underwriter Defendants' requests for judicial notice are granted.

Defendant KPMG has separately filed a joinder in Underwriter Defendants' motion, asserting it too has 'defined and intertwining business relationship' with TuSimple sufficient to enforce the forum selection clause. However, as to KPMG, the court reaches a different conclusion. Unlike the Underwriter Defendants, KPMG relies solely on Plaintiff's allegations against it to support its assertion that it has a business relationship with TuSimple. However, this does not meet the requirements set forth in case law, which require a defendant to come forward with 'sufficient evidence' of the relationship by way of 'specific conduct or express agreement.' (Bugna at p. 233.) Moreover, at least as to KPMG, a discretionary stay is not justified. In determining whether to order a stay, a trial court may consider 'the importance of discouraging multiple litigation,' 'avoiding unseemly conflicts with the courts of other jurisdictions,' 'whether the rights of the parties can be best determined Calendar No.: Event ID:  TENTATIVE RULINGS

2917600  18 CASE NUMBER: CASE TITLE:  ASCANI VS KPMG LLP [E-FILE]  37-2022-00040355-CU-SL-CTL by the court of the other jurisdiction,' and whether the related action is 'pending in California' or in some other state. (Caiafa Prof. Law Corp. v. State Farm Fire & Cas. Co. (1993) 15 Cal.App.4th 800, 804.) Here, these factors do not weigh in favor of KPMG, because there is no evidence of any other pending related action against KPMG. As Plaintiff points out, KPMG is not a party to the related federal action that formed the basis of Underwriter Defendants' alternative request for a discretionary stay. Further, KPMG has not offered evidence of any other related litigation which might justify a stay of the action against it.

Accordingly, as to KPMG, the motion is denied.

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