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Fares v. Lankau

United States District Court, Third Circuit

August 15, 2013

JIM FARES, Plaintiff,
v.
PETER LANKAU, et al., Defendants.

Seth D. Rigrodsky, Esquire, Brian D. Long, Esquire, and Gina M. Serra, Esquire of Rigrodsky & Long, P.A., Wilmington, Delaware. Counsel for Plaintiff. Of Counsel: Patrick W. Powers, Esquire, and Peyton J. Healey, Esquire of Powers Taylor LLP.

Dominick T. Gattuso, Esquire of Proctor Heyman LLP, Wilmington, Delaware. Counsel for Defendants. Of Counsel: Jonathan K. Cooperman, Esquire, and Nicole M. Hudak, Esquire of Kelley Drye & Warren LLP.

MEMORANDUM OPINION

SUE L. ROBINSON, District Judge.

I. INTRODUCTION

Fares, a shareholder of Nautilus Neurosciences, Inc. ("Nautilus"), filed this action on November 2, 2012 against Peter Lankau ("Lankau"), Douglas Karp ("Karp"), Eric Liebler ("Liebler"), William Maichle ("Maichle"), Neil Milano ("Milano"), Geoffrey Raker ("Raker"), Frank Sica ("Sica"), Zubeen Shroff ("Shroff'), David Azad ("Azad"), John Groom ("Groom"), Galen Partners V, L.P., Galen Partners International V, L.P., Tailwind Capital Partners LP, Tailwind Holdings (Cayman), L.P., Tailwind Management, L.P., Tailwind Capital Partners (Al), L.P., Tailwind Capital Partners (PP), L.P., and Tailwind Capital Partners (ERISA), L.P. (collectively, "defendants").[1] (D.I. 1) In his amended complaint, filed January 14, 2013, Fares alleges that defendants breached their fiduciary duty and/or aided and abetted a breach of fiduciary duty by wrongfully diluting the value of Nautilus and failing to issue adequate disclosure. (D.I. 12)

On June 19, 2013, the court issued a memorandum opinion and order granting defendants' motion to dismiss the amended complaint. (D.I. 28; D.I. 29) Currently before the court is Fares' motion for reconsideration under Federal Rule of Civil Procedure 60(b). (D.I. 30) The court has jurisdiction pursuant to 28 U.S.C. § 1332(a)(2).

II. BACKGROUND

A. Fares' Complaint

Fares founded Nautilus and was responsible for identifying, negotiating, and acquiring the flagship product of the company, "Cambia, " a migraine medication. (D.I. 12 at ¶ 26) He invested $750, 000 in Nautilus and has been a shareholder continuously throughout the relevant time period. ( Id. at ¶ 27) Cambia was a successful venture, achieving a sales run rate of $12 million between spring 2010 and spring 2011. ( Id. at ¶ 29) In April 2011, Fares left Nautilus but remained a shareholder. ( Id. at ¶ 30) In 2010, while still an employee, Fares was issued his shares of stock at $1, 000 per share and, upon termination, Tailwind Investor[2] offered Fares a 10% premium over his purchase price, or $1, 100 per share. ( Id. at ¶ 36)

Fares alleges that, after his departure, Tailwind Investor and Galen Partners acted in concert to cause Nautilus to issue shares with the goal of increasing their ownership while simultaneously diluting the ownership of minority shareholders. ( Id. at ¶ 32) To this end, on May 9, 2012, defendants allegedly caused Nautilus to issue a "Notice of Proposed Issuance of Notes" (the "May 9 notice"). ( Id. at ¶ 33) On May 11, 2012, defendants caused Nautilus to issue a "Notice of Proposed Issuance of Series C Preferred Stock" (the "May 11 notice"), which superceded the May 9 notice. ( Id. at ¶ 34) The Series C Convertible Stock was offered at par value $0.01 per share, at a price of $345 per share. ( Id. at ¶ 34)

Fares maintains that the offering price in the May 11 notice was unjustifiably low relative to the value of Nautilus. ( Id. at ¶ 36) To support his assertion that the company was devalued, Fares cites a valuation of the company made in 2011 based on the sales run rate or yearly sales and contends that Nautilus was expected to have a run rate of between $23 and $25 million. ( Id. at ¶¶ 38-39) In contrast, when Fares was issued his previous shares, the run rate was $12 million, yet Fares paid a higher purchase price of $1, 000 than the $345 purchase price offered in the May 11 notice. ( Id. at ¶ 38)

After Fares received the notices, he sent a letter through counsel on June 4, 2012 to defendant Maichle, CEO of Nautilus, objecting to the proposed issuance because it would dilute the interests of minority shareholders. ( Id. at ¶ 41) On June 13, 2012, Fares sent another letter requesting access to Nautilus' books and records. ( Id. ) His requests were denied. ( Id. at ¶ 42) Nautilus, by way of defendant Milano, Chief Financial Officer, Secretary and Treasurer, sent out a July 20 "Notice to Minority Stockholders of Nautilus Neurosciences, Inc., " which explained the amendment of the certificate of incorporation to reflect the addition of the new class of shares. ( Id. at ¶ 43)

B. Procedural History

On February 6, 2013, defendants filed a motion to dismiss Fares' amended complaint on various grounds. (D.I. 16) The court granted defendants' motion on June 19, 2013. (DI 28; D.I. 29) Fares then filed the motion for reconsideration currently before the court, as well as a notice of appeal. (D.I. 30; D.I. 31) On July 24, 2013, the Third Circuit issued an order ...


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