Santelices v. Apttus Corporation

Background

Jeffrey Santelices originally filed the action in San Mateo Superior Court against his former employer, Apttus Corporation. He alleged that Apttus failed to pay severance benefits and the value of certain stock options. His claims included breach of contract, breach of the implied promise of good faith and fair dealing, and violations of the California Labor Code concerning unpaid wages and waiting-time penalties.

Santelices later amended his complaint to add Project Everest Parent, LLC and Project Everest Holdings, LLC, and to assert a claim under section 25110 of the California Corporate Securities Act. He alleged that defendants converted his stock options into less valuable Class C Units during Apttus’s sale and issued securities that had not been properly qualified under California law. The amended complaint referred to Rule 701 of the federal Securities Act of 1933 because California’s exemption provisions incorporate that rule.

Defendants removed the action to federal court, arguing that the federal reference created federal-question jurisdiction. Santelices moved to remand, meaning he asked the federal court to return the case to state court. Defendants also filed administrative motions to seal documents related to their motion to dismiss and their opposition to Santelices’s request to amend the complaint.

Motion to Remand

The court explained that federal-question jurisdiction generally exists when federal law creates a claim or when a federal issue appears on the face of the plaintiff’s properly pleaded complaint. A federal defense, including an anticipated defense, ordinarily does not create federal jurisdiction.

The court found that the amended complaint asserted only state-law causes of action. Santelices’s reference to Rule 701 was made in anticipation of a possible defense and did not itself create federal jurisdiction.

The court also considered whether the state-law securities claim presented a substantial federal issue under the rule allowing federal courts to hear certain state-law claims involving important federal questions. The court concluded that defendants had not explained why determining compliance with Rule 701 would be substantial. The court further reasoned that allowing federal jurisdiction whenever a defendant might invoke Rule 701 could routinely shift California securities disputes into federal court and disrupt the intended balance between federal and state courts.

Because the court lacked subject-matter jurisdiction, it granted Santelices’s motion to remand and ordered the action returned to San Mateo County Superior Court. The court did not decide the underlying claims or defendants’ motion to dismiss.

Motions to Seal

The court granted defendants’ administrative motions to file documents under seal. The documents concerned confidential business and financial information related to the Apttus merger, including the merger agreement and an email concerning the merger.

The court applied the stricter “compelling reasons” standard to documents connected to the motion to dismiss and the lower “good cause” standard to documents related to the motion for leave to amend. It found that sealing was justified because the documents disclosed confidential information, were unrelated to the public’s understanding of the proceedings, and would not be considered after the court remanded the action.

Disposition

Judge Haywood S. Gilliam, Jr. granted the motion to remand, granted the administrative motions to file under seal, remanded the action to San Mateo County Superior Court, denied as moot all other pending motions, and directed the clerk to close the case.