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Enzo Life Sciences, Inc. v. Adipogen Corp.

United States District Court, D. Delaware

March 12, 2015

ENZO LIFE SCIENCES, INC., a New York corporation, Plaintiff,
v.
ADIPOGEN CORPORATION, a California corporation, ADIPOGEN INTERNATIONAL, INC., a Delaware corporation, BIOAXXESS, INC., a Delaware corporation, GEORGES CHAPPUIS, an individual, TAMARA SALES, a individual, SILVIA DETTWILER, an individual, and DOES 1 through 50, Defendants

For Plaintiff: James Tobia, Esq., The Law Offices of James Tobia, Wilmington, DE; Andrew B. Kratenstein, Esq., McDermott Will & Emery LLP, New York, NY; Sandra B. Saunders, Esq., McDermott Will & Emery LLP, New York, NY.

For Defendants: John Leonard Reed, Esq., DLA Piper LLP, Wilmington, DE; Brian A. Biggs, Esq., DLA Piper LLP, Wilmington, DE; Joseph J. Ortego, Esq., Nixon Peabody LLP, New York, NY; Barbara A. Lukeman, Esq., Nixon Peabody LLP, New York, NY.

MEMORANDUM OPINION

Richard G. Andrews, UNITED STATES DISTRICT JUDGE.

Enzo Life Sciences, Inc. (" ELS" ), a New York corporation, brought this suit against Adipogen Corp., Adipogen International, Inc., Bioaxxess, Inc., Dr. Georges Chappuis, Ms. Tamara Sales, Ms. Silvia Dettwiler, and Does 1 through 50.[1] (D.I. 1). ELS is a publicly traded company that acquired Axxora Life Sciences, Inc., and its five wholly owned subsidiaries, including Alexis Corporation and Apotech Corporation, pursuant to a stock purchase agreement (" the Stock Purchase Agreement" ) dated May 29, 2007. ELS alleges that Dr. Chappuis, Ms. Sales, and Ms. Dettwiler (" the Individual Defendants" ) breached the Stock Purchase Agreement and, along with Adipogen and Bioaxxess (" the Corporate Defendants" ), committed various tortious acts. Defendants deny Plaintiff's allegations. There are no counterclaims or cross claims. The Court held a four-day bench trial on August 11-14, 2014.

The Court finds in favor of Plaintiff as to Count I and for Defendants on all remaining counts.[2] The Court grants nominal damages in the amount of one dollar against each of Ms. Sales and Ms. Dettwiler, and ten dollars against Dr. Chappuis, in addition to pre-and post-judgment interest.

FINDINGS OF FACT

The Court ordered the parties to propose findings of fact. (Tr. 1334-35). The parties submitted one hundred fifty-six pages of proposed findings of fact. (D.I. 180, 181, 182). The Court makes the following findings of fact.

I. ELS'S PURCHASE OF AXXORA

For over thirty years, Plaintiff ELS has been in the business of developing, producing, marketing, acquiring, sourcing, and selling life science research materials to scientific researchers in academia, clinical research, and drug discovery. (Tr. 57:1-2, 59:11-60:12). Between 2007 and 2009, ELS acquired four companies and their subsidiaries, at a total cost of over $40 million. (Tr. 60:24-61:12). One of the companies ELS acquired was Axxora Life Sciences, Inc. (" Axxora" ), a global manufacturer and marketer of life sciences research products. ( Id. ; Stip. Facts ¶ ¶ 27-30; [3] PX5). Axxora was a Delaware corporation. (PX5 at ADIPOGEN-0005283). Axxora had a number of subsidiaries, including two that are relevant to this lawsuit, the Swiss companies Alexis Corporation (" Alexis" ) and Apotech Corporation (" Apotech" ). (Tr. 63:16-22).

In May 2007, ELS paid approximately $16.3 million to acquire Axxora and its five wholly owned subsidiaries, as set forth in the Stock Purchase Agreement. (Tr. 66:1-24; PX5; Stip. Facts ¶ ¶ 27-28). Under the terms of the Stock Purchase Agreement, ELS acquired all of the issued and outstanding capital stock of Axxora. (Tr. 61:1-13; PX5; Stip. Facts ¶ 28). Axxora became a wholly owned subsidiary of ELS. (Tr. 66:20-24; PX5). Thus, Axxora and its subsidiaries brought substantial assets to the ELS family, including the various agreements related to the distribution, supply, consignment, and licensing of unique products as set forth in Schedule 3.4(c) of the Stock Purchase Agreement and the license/royalty agreements set forth in Schedule 3.10(e) of the Stock Purchase Agreement. (PX5 at ADIPOGEN-0005404-5406, ADIPOGEN-0005426-5437). Dr. Elazar Rabbani, CEO of ELS, approved the Stock Purchase Agreement before it was signed. (Tr. 68:9-19). Dr. Rabbani testified that he " did not read [the Stock Purchase Agreement] line by line" but was briefed on the principal provisions of the agreement. (Tr. 159:3-20). Dr. Carl Balezentis, President of ELS, negotiated the terms of the Stock Purchase Agreement on behalf of ELS. (Tr. 156:13-16, 156:23-157:4, 159:6-13, 159:19, 159:24-160:1, 160:14-18; PX5 ¶ 10.3).

One factor that ELS considered when it purchased Axxora was the experience of Dr. Chappuis, Axxora's President and Chief Executive Officer, and that of his management team. Dr. Chappuis presented himself to ELS as a knowledgeable, experienced, committed, and capable executive in the life sciences field with numerous industry contacts. (Tr. 65:10-18). Dr. Chappuis further represented that the Axxora management team, including Tamara Sales and Silvia Dettwiler, would be an integral part of his management contribution. (Tr. 65:19-24). Dr. Chappuis and Ms. Dettwiler had worked together for thirty-five years. (Tr. 983:3-984:5, 1289:7-9). Dr. Chappuis and Ms. Sales had worked together for over seventeen years. (Tr. 1139:20-1140:7,1162:19-22).

Dr. Chappuis and Elliot Feuerstein were designated as the " Securityholders' Representatives" in the Stock Purchase Agreement, and, as such, were authorized to act on behalf of Axxora's investors to consummate the transaction. (PX5 ¶ 1.8(a)). The signatories to the Stock Purchase Agreement included Dr. Chappuis, as President and CEO of Axxora, as well as all of the individual investors in Axxora, including Ms. Dettwiler, Ms. Sales, Craig Andrews (a lawyer at DLA Piper LLP who also served as Axxora's and Dr. Chappuis's counsel), and the Elliot Feuerstein Trust. (Tr. 70:8-72:12, 419:12-15; PX5 at ADIPOGEN-0005355-79). Dr. Chappuis executed the Stock Purchase Agreement in both his corporate and individual capacities, while Ms. Dettwiler and Ms. Sales signed only in their individual capacities. (Tr. 70:8-72:12; PX5 at ADIPOGEN-0005355-57, ADIPOGEN-0005372).

The Individual Defendants each owned equity interests in Axxora. (Tr. 70:8-72:12, 419:12-15; PX5 at ADIPOGEN-0005355-79). In connection with the acquisition, Dr. Chappuis received $1,374,945 for his Axxora equity interest. (Tr. 73:10-17; PX5 Schedule II). Ms. Dettwiler received $706,997 for her Axxora equity interest. (PX5 at ADIPOGEN-0005384). Ms. Sales received $227,448 for her Axxora equity interest. (PX5 at ADIPOGEN-0005387).

After ELS acquired Axxora, ELS acquired BVBA, a life sciences products distribution company. (Tr. 979:17-24). In May 2008, ELS acquired BIOMOL International (" Biomol" ) of Plymouth Meeting, Pennsylvania, which manufactures life sciences products. (Stip. Facts ¶ 48; D.I. 71-5 ¶ 11; Tr. 1009:23-1010:20). In March 2009, ELS acquired Assay Designs, Inc. (" Assay Designs" ) of Ann Arbor, Michigan, which manufactures life science products. (Tr. 275:18, 276:4,1009:23-1010:20; Stip. Facts ¶ 46-48; D.I. 71-5 ¶ 11).

II. THE STOCK PURCHASE AGREEMENT

Pursuant to Paragraph 5.17(a) of the Stock Purchase Agreement, entitled " Non-Competition," Dr. Chappuis, Ms. Dettwiler, Ms. Sales, and others agreed, for a period of two years from the execution of the Stock Purchase Agreement (that is, from May 31, 2007 through May 31, 2009), not to participate in any way in a business that directly or indirectly competes with any " Acquired Company," defined in the Stock Purchase Agreement as Axxora and its subsidiaries. (Tr. 75:3-78:2; PX5 ¶ 5.17(a), Art. IX). As provided by Schedule 2.1(d) and Schedule 3.4(a), " [t]he non-competition provisions of the Purchase Agreement and employment agreements may only be enforced to the extent they comply with applicable California law." (PX5 at ADIPOGEN-0005395, ADIPOGEN-0005403). Specifically, that paragraph provided:

During a period of two years from the Closing Date, each of Georges Chappuis, Ph.D., Silvia Dettwiler, Tamara Sales ... for himself, herself or itself or on behalf of or in conjunction with any other Person, will not, directly or indirectly, compete, own, operate, control, or participate or engage in the ownership, management, operation or control of, or be connected with as an officer, employee, partner, director, shareholder, representative, consultant, independent contractor, guarantor, advisor or in any other manner or otherwise have a financial interest in, any other Person that is engaged in a business that directly competes with any business of any Acquired Company, including the development, production, manufacturing, in-licensing, commercialization and worldwide marketing and sales of life sciences research reagents and the development, operation and worldwide marketing of online purchasing marketplaces for research reagents and businesses ancillary thereto (the " Business" )....

(PX5 ¶ 5.17(a) (emphasis omitted)). The paragraph continued:

[P]rovided, however, that nothing contained in this Section 5.17(a) shall be deemed to prevent such Party from (i) beneficially owning, directly or indirectly, 5% or less of any class of securities of an entity that has a class of securities registered under Section 12 of the Exchange Act or (ii) directly or indirectly (as a principal or agent or otherwise and alone or in association with any other Person) carrying on, engaging or taking part in, rendering service to or owning, sharing in the earnings or investing in the stocks, bonds or other securities of any Person 10% or less of whose gross revenues for the preceding calendar year were not, and for the calendar year in question are not reasonably expected to be, derived from being engaged in the Business; provided, further, that such relationships do not constitute bad faith efforts to circumvent the covenant set forth in this Section 5.17(a).

(PX5 ¶ 5.17(a) (emphasis omitted)).

Similarly, Paragraph 5.17(b) of the Stock Purchase Agreement, entitled " Non-Solicitation," prohibited Dr. Chappuis, Ms. Dettwiler, Ms. Sales, and others from soliciting, interfering with, or disrupting the relationship between any Acquired Company and any of its employees, customers, suppliers, or business partners for a period of two years from the execution of the Stock Purchase Agreement (that is, from May 31, 2007 through May 31, 2009). (PX5 ¶ 5.17(b); Tr. 79:10-19).

Specifically, that paragraph provided:

During a period of two years from the [May 31, 2007] Closing Date, each of [Dr. Chappuis], [Ms. Dettwiler], [and Ms. Sales] ... and their respective Affiliates, for himself, herself or itself or on behalf of or in conjunction with any other Person, will not, directly or indirectly: (i) solicit, endeavor to entice away from any Acquired Company, or otherwise interfere with or disrupt, or attempt to interfere with or disrupt, the relationship, contractual or otherwise, between any Acquired Company, on the one hand, and any Person who is employed by or otherwise engaged to perform services for any Acquired Company, on the other hand, or (ii) solicit, endeavor to entice away from any Acquired Company, or otherwise interfere with or disrupt, or attempt to interfere with or disrupt, the relationship, contractual or otherwise, between any Acquired Company, on the one hand, and any Person who is or was within the then most recent two year period, a client, customer, supplier, manufacturer, distributor, consultant, licensor, licensee, or other Person.

(PX5 ¶ 5.17(b)). Paragraph 5.17(c) of the Stock Purchase Agreement, entitled " Confidentiality," prohibited Dr. Chappuis, Ms. Dettwiler, Ms. Sales, and others from disclosing any confidential information of any Acquired Company. (PX5 ¶ 5.17(c); Tr. 79:20-23). That paragraph also required (without regard to any time period) that all confidential business information was to remain the property of the Acquired Companies and be returned upon departure from the company. (PX5 ¶ 5.17(c)). Specifically, Paragraph 5.17(c) stated:

From and after the Closing Date, each of [Dr. Chappuis], [Ms. Dettwiler], [and Ms. Sales] ... and their respective Affiliates, for himself, herself or itself or on behalf of or in conjunction with any other Person, will not, directly or indirectly, print, publish, divulge or communicate to any Person or use for his, her or its own account any trade or business secret, process, method or means, or any other Confidential Information concerning any Acquired Company. Such Party further agrees and acknowledges that all of such Confidential Information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Acquired Companies ....

Id.

These covenants were essential to ELS's decision to proceed with the acquisition of Axxora and the execution of the Stock Purchase Agreement. (Tr. 80:23-81:8; PX5 ¶ 5.17(d)). As memorialized in Paragraph 5.17(d) of the Stock Purchase Agreement:

Each of [Dr. Chappuis], [Ms. Dettwiler], [and Ms. Sales] . . . and their respective Affiliates, further acknowledge and agree that: (i) the covenants contained in this Section 5.17 are essential elements of this Agreement and that but for the agreements of such Party to comply with such covenants, the Buyer would not have entered into this Agreement....

Id.

These restrictive covenants could only be amended or waived in writing. (Tr. 81:9-82:11; PX5 ¶ 10.9). Specifically, Paragraph 10.9 of the Stock Purchase Agreement provided:

The Parties may mutually amend any provision of this Agreement at any time prior to the Closing. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer, the Company and the Shareholders' Representatives. No waiver of any right or remedy hereunder shall be valid unless the same shall be in writing and signed by the Party giving such waiver. No waiver by any Party with respect to any default, misrepresentation or breach of warranty or covenant hereunder shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

(PX5 ¶ 10.9). No written amendments to the Stock Purchase Agreement were made, nor was any written waiver granted. (Tr. 998:21-24).

Immediately after the acquisition of Axxora on June 1, 2007, the Individual Defendants were placed in high-level positions at Axxora and/or Alexis, an Axxora subsidiary, which was later renamed Enzo Life Sciences AG (" ELS AG" ).[4] (Tr. 66:14-19, 106:17-107:5; PX9). Dr. Chappuis was named President of Alexis. (PX6 ¶ 1(a)). The employment contract acknowledged that Dr. Chappuis " is and will continue to be non-compensated consultant with AdipoGen, Inc. (Seoul, Korea), BioViotica GmbH (Gottingen, Germany), CovalAb (Lyon, France) and Chimerigen, Inc. (Boston, USA)." (PX6 ¶ 1(d)).

Ms. Dettwiler was named Vice President Operations Europe of Alexis Corporation and deputy of Georges Chappuis. (PX7 ¶ 1(a); Stip. Facts ¶ 24). Ms. Dettwiler also had responsibility for purchasing, inventory control, systems support, customer and technical service, and had approximately eighteen employees reporting to her. (Tr. 284:9-21, 1306:3-22).

Ms. Sales signed a substantially similar Employment Agreement with Axxora, LLC, dated June 1, 2007, naming her Vice President of Finance and Administration of the life sciences business. (Tr. 91:4-93:11; PX8 ¶ ¶ 1(a), 5-8). The employment agreement was exclusively governed by New York law and contained an arbitration clause. (PX8 ¶ 13(d)). Ms. Sales also had responsibility for the ELS division financial reporting to ELS's parent company, Enzo Biochem, Inc. (Tr. 286:12-18).

In 2008, ELS named Dr. Chappuis Global Head of Marketing for all of ELS's operations. (Tr. 108:13-109:5, 280:18-24). Dr. Chappuis was in charge of global marketing, business development, and mergers and acquisitions. (Tr. 981:6-16; Stip. Facts ¶ 16). Dr. Chappuis introduced Jürgen Graner, of the consulting firm Globalator, to Dr. Balezentis. (Tr. 984:17-21). Upon Dr. Chappuis's urging, ELS retained Mr. Graner as a consultant to ELS. (Tr. 772:22-773:20).

III. THE EXCLUSIVE SALES AND MARKETING AGREEMENT WITH ADIPOGEN

A. The Original 2005 Exclusive Sales and Marketing Agreement with Adipogen

The Alexis-Adipogen relationship was based on an " Exclusive Sales and Marketing Agreement" dated November 2, 2005, by which Alexis was granted the exclusive right to import, market, distribute, use, and sell Adipogen's products in all global markets except Asia, and the non-exclusive right to use the name " AdipoGen" in marketing, distributing, and selling Adipogen products. (Tr. 110:3-115:1; PX1 ¶ 2). Dr. Chappuis signed the Exclusive Sales and Marketing Agreement on behalf of Alexis and Dr. Byung Soo-Youn signed it on behalf of Adipogen. (Tr. 110:3-24; PX1; Stip. Facts ¶ 36).

The text of the Exclusive Sales and Marketing Agreement contained a one-way exclusivity provision, which meant that the agreement imposed no restrictions on when, where, or to whom Alexis could sell its products. (Tr. 113:23-115:1, 146:24-148:8, 1014:5-1017:12; PX1 ¶ 2(a)). As Dr. Chappuis testified, the " legal text" of the Exclusive Sales and Marketing Agreement did not state that the exclusivity ran both ways. Rather, he believed that Alexis had an " ethical obligation" not to sell products that competed with Adipogen. Dr. Chappuis further testified that he did not explain his understanding of the ethical implications of the agreement to ELS during the negotiations between Axxora and ELS over the Stock Purchase Agreement. (Tr. 1014:5-1018:10).

The Exclusive Sales and Marketing Agreement also allowed Alexis to obtain Adipogen products at a 60% discount rate off of its U.S. list price. (Tr. 112:13-113:17; PX1 ¶ 1(b)). In exchange, Alexis was obligated to place a minimum amount of monthly orders with Adipogen and to " undertake a reasonable effort to market" Adipogen products. (PX1 ¶ 7). The initial term of the Exclusive Sales and Marketing Agreement was for two years, with automatic renewals thereafter for periods of one year each. (Tr. 115:5-12; PX1 ¶ 13). The agreement could be terminated by either party upon three months' notice before the expiration of the initial two-year period, or upon three months' notice before the expiration of any one-year term thereafter. (PX1 ¶ 14).

Adipogen was a supplier of products in the life science research reagent field. (Tr. 78:3-79:9, 99:10-11, 996:9-11). Dr. Chappuis believed that Adipogen had excellent technology and products and was very innovative. (Tr. 111:14-112:7; see also D.I. 15 ¶ 10). Adipogen's products include specialty antibodies, proteins, biochemicals, and immunoassay kits used in life sciences research. (PX1 ¶ 1(a)). As was later disclosed in the Stock Purchase Agreement, Adipogen was burdened with heavy financial debt. (Tr. 169:12-22, 931:15-932:10; PX5 at ADIPOGEN-0005452).

The Exclusive Sales and Marketing Agreement was governed by Swiss law and disputes arising out of or in connection with the agreement were to be settled by a court of competent jurisdiction in Basel, Switzerland. (PX1 ¶ ¶ 22, 23).

B. Appendix A

On or about November 17, 2006, Alexis and Adipogen entered into " Appendix A" to the Exclusive Sales and Marketing Agreement. (Tr. 115:13-116:16; PX4; Stip. Facts ¶ 37). Appendix A extended the term of the Exclusive Sales and Marketing Agreement until December 31, 2009, which could not be terminated early by Adipogen without penalties. (Tr. 116:23-117:3; PX4 ¶ ¶ 2, 5). Appendix A granted Alexis a " 10% discount on all direct bulk orders to resellers in the U.S. Bulk orders are orders to a single customer equal or exceeding $30,000.00 (thirty thousand) per order or a single product order equal or exceeding $30,000.00 (thirty thousand)." Alexis agreed to pay $50,000 to Adipogen as consideration for Appendix A. (Tr. 116:17-119:23; PX4 ¶ 1). Dr. Chappuis and Dr. Youn signed Appendix A on behalf of their respective companies. (PX4).

Appendix A also provided: " In case of a change in ownership of ALEXIS Corporation the Agreement (incl. Appendix A) is transferable to the new owners." (Tr. 117:21-119:5; PX4 ¶ 4). Furthermore, " [i]n the case of change of ownership of AdipoGen before December 31, 2009 the Agreement (incl. Appendix A) must be absorbed and respected by the new owners of AdipoGen." (PX4 ¶ 3). This provision regarding change in ownership was included in Appendix A to " dress up" Alexis for a potential sale. (Tr. 117:21-119:23, 1022:15-1023:7).

Appendix A was signed before ELS purchased Axxora and its subsidiaries, and was disclosed to ELS during the due diligence process. (Tr. 115:8-116:16). Accordingly, the Alexis-Adipogen Exclusive Sales and Marketing Agreement (including Appendix A) remained in effect after the Stock Purchase Agreement closed. (PX4 ¶ 4; Stip. Facts ¶ 38; PX5).

C. Appendix B

In mid-2007, Dr. Youn approached Dr. Chappuis to determine whether ELS would be interested in making a significant investment in Adipogen because of financial difficulties that Adipogen was experiencing. (Stip. Facts ¶ 39; Tr. 1089:5-10). Dr. Chappuis brought Dr. Youn's request to ELS's President, Dr. Carl Balezentis. (Stip. Facts ¶ 40; Tr. 120:3-121:2, 224:16-225:12, 1089:11-1090:17). Dr. Chappuis also drafted an acquisition proposal for Adipogen and a financial analysis of such an acquisition, which Dr. Chappuis submitted to Dr. Balezentis on October 22, 2007. (Tr. 815:1-816:23, 1090:19-23; Stip. Facts ¶ 41). Adipogen had a heavy debt load and required financial assistance. (Tr. 933:13-17; PX5). ELS understood that Adipogen was an important supplier and that it carried heavy debt. (Tr. 933:13-17; PX5). ELS decided not to acquire Adipogen. (Tr. 121:3-11, 133:8-21, 817:8-20, 1091:4-10; PX14; Stip. Facts ¶ 42). ELS declined the proposed deal for it to purchase Adipogen because ELS " already had a very, very good supply agreement without buying the company, so [ELS] had no interest in doing so." (Tr. 120:19-121:2). Instead, ELS approved a $150,000 payment from Alexis to Adipogen in exchange for strengthened rights to Adipogen products. (Tr. 121:12-128:24; PX14; PX16).

This agreement was memorialized in Appendix B to the Exclusive Sales and Marketing Agreement, dated January 1, 2008. (Tr. 121:12-128:24; PX15; Stip. Facts ¶ 43). Dr. Chappuis signed Appendix B on behalf of Alexis and Dr. Youn signed on behalf of Adipogen. (PX15; Stip. Facts ¶ 45). Among other things, Appendix B extended the Exclusive Sales and Marketing Agreement until December 31, 2011, required Alexis to pay $150,000 to Adipogen, and granted Alexis (later ELS AG) worldwide exclusive distribution rights to sell Adipogen's products, except for Korea, Japan, and two specific OEM customers in the U.S. (PX15 ¶ ¶ 1-3; Tr. 283:11-17).

Appendix B further provided that if the agreement were terminated before December 31, 2011, Alexis would be entitled to compensation in the amount of its " lost margins." (PX15 16). Paragraph 4 of Appendix B stated, " In the case of change of ownership of AdipoGen, Inc. before December 31, 2011 the Agreement (incl. Appendix A and B) must be assumed and respected by the new owners of AdipoGen, Inc." (Tr. 1189:1-7; PX15 ¶ 4). Paragraph 5 read: " In case of change of ownership of ALEXIS Corporation the Agreement (incl. Appendix A and B) is transferable to the new owners." (PX15 ¶ 5).[5]

Paragraph 9 of Appendix B provided that Adipogen would transfer to Apotech, upon request, certain technical manufacturing information and the identical clones for the monoclonal antibodies which are used in selected commercially available ELIS A Kits, or, if polyclonal antibodies were used, Adipogen would provide sufficient bulk material free of charge. (PX15 ¶ 9).

Paragraph 9(c) of Appendix B granted Alexis the right to sell the seven (7) selected ELISA Kits and paragraph 9(g) provided Apotech the right to manufacture the seven (7) selected ELISA Kits. Paragraph 9(b) also gave Apotech the right to " produce monoclonal antibodies (transferred under Appendix B) and the corresponding CE labeled ELISA Kits." (PX15 ¶ 9(b)).

Under Appendix B, Alexis/ELS AG and Apotech were also granted the right to use the supplied clones or antibodies to produce, market, and sell the antibodies and corresponding ELISA Kits under Apotech's own branded label. (PX15 ¶ 9(c)). For each ELISA Kit sold, Adipogen was entitled to a 15% royalty. ( Id. ¶ 9(d)).

Before Dr. Chappuis entered into Appendix B, he discussed its terms with, and sought the approval of, ELS management. (Tr. 122:24-123:17,223:8-225:17, 1101:7-10,1092:20-1093:1; PX14). Dr. Rabbani testified that he " folly discussed" Appendix B with Dr. Balezentis and participated in coming up with the " principal framework" of the agreement. (Tr. 122:24-129:1, 223:8-225:12). After considering the proposal, ELS management authorized Dr. Chappuis to sign Appendix B. (Tr. 121:12-129:1; PX14; PX16). The first $80,000 portion of the $150,000 payment was made upon signature as required by Appendix B. (Tr. 1093:2-15). Dr. Chappuis also approved transferring the second $70,000 to Adipogen even though Adipogen had not transferred all of the materials and know-how described in Paragraph 9 of the agreement. (Tr. 1093:16-1094:14). Dr. Chappuis testified that he authorized the $70,000 payment. (Tr. 1093:10-15). According to Dr. Chappuis, some know-how was transferred, and that triggered the payment obligation even though no material had yet been transferred. (Tr. 1094:10-14).

IV. CHAPPUIS'S INOXXIS INVESTMENT FUND

On August 17, 2007, Dr. Chappuis sent an email[6] to Elliot Feuerstein[7] stating that he planned to visit San Diego (where Mr. Feuerstein lived) in September 2007. The email stated, " Things at [ELS] are going well.... In the meantime my 'special fund project' is becoming more concrete and you might be interested to look at that." (Tr. 346:15-22; PX10; Tr. 343:20-348:23; PX10). Dr. Chappuis testified that the " special fund project" referenced in this email " might be" the project that " ultimately led to Bioaxxess." (Tr. 1102:14-24). Dr. Chappuis asked for a meeting with Mr. Feuerstein while Dr. Chappuis was visiting San Diego. (Tr. 346:6-14; PX10).

On March 13, 2008, Dr. Chappuis exchanged emails with Olivier Donzé, the site manager at Apotech. (Tr. 207:11-17, 349:1-350:23; PX20). Dr. Chappuis asked Mr. Donzé for a meeting on March 27, 2008 at Apotech's site in Lausen, Switzerland. Mr. Donzé asked, " Will Enzo people be present that day at Alexis! [sic]." Dr. Chappuis replied, " No Enzo people are present." (Tr. 349:1-350:23; PX20). On March 14, 2008, Dr. Chappuis emailed Mr. Feuerstein and asked him for another meeting in San Diego the following month. (Tr. 350:24-353:3; PX21). Dr. Chappuis's proposed agenda included " [information on the new 'Inoxxis Investment Fund.'" (Tr. 352:16-22; PX21). Dr. Chappuis also forwarded his exchange with Mr. Feuerstein to Craig Andrews, a lawyer in San Diego, who served as Axxora's and Dr. Chappuis's counsel, and was also himself an Axxora investor who had cashed out when ELS purchased Axxora. (Tr. 353:4-11; PX21; PX5 Schedule II).

Dr. Chappuis then sent a separate email to Mr. Andrews asking to meet with him while Dr. Chappuis was in San Diego in April " to discuss seriously my (our) project of the 'Inoxxis Investment Fund.'" (Tr. 353:12-356:13; PX22). Dr. Chappuis suggested to Mr. Andrews, " Maybe we can meet after the breakfast together with Tamara in your office." (Tr. 355:17-356:14; PX22). The reference to " Tamara" was to Ms. Sales. (Tr. 355:17-356:10). On April 15, 2008, Dr. Youn of Adipogen wrote to Dr. Chappuis concerning " a confidential matter on AdipoGen." (Tr. 359:1-5; PX24). Dr. Youn stated that he was " preparing for meeting you at personal level" and that he had " contacted two major owners of AdipoGen, basically agreeing upon making a third company based in the US." (Tr. 359:6-20; PX24). Dr. Youn further stated, " Stock exchange between AdipoGen and the third company would be the first choice whereas total buying out AdipoGen is the next one." (Tr. 359:15-20; PX24).

With respect to the ELISA Kits, Dr. Youn stated, " I would like to go through CE-labels for these new series of competitive ELISA kits independently of ApoTech. This process will be targeted to our future collaboration." (Tr. 360:19-361:8; PX24). Dr. Youn closed his email by stating, " I would like to make sure that all future communications will be personal and confidential based upon the sincere fact that you know who I am and I know who you are." (PX24).

By emails dated May 7 and 8, 2008, Dr. Chappuis and Dr. Youn arranged a meeting in June 2008 at Newark Airport, which was while Dr. Chappuis would be in the New York for ELS management meetings. (Tr. 364:5-366:12; PX26). In this email exchange, Dr. Chappuis stated, " I herewith confirm our tentative meeting on June 9-10 or June 10-11 in Newark to discuss and hopefully somehow launch our big project." (Tr. 365:3-16; PX26). In his reply, Dr. Youn asked Dr. Chappuis if Dr. Chappuis had a " personal email accoun[t] that can be shared with me." (Tr. 366:21-367:7; PX26).

Dr. Chappuis and Dr. Youn met at Newark Airport as planned. (Tr. 1105:6-1106:4). During the same trip, Dr. Chappuis also attended a meeting at ELS's headquarters in Farmingdale, New York regarding the integration and consolidation of ELS. (Tr. 365:17-366:12). Dr. Chappuis did not disclose to ELS his meeting or communication with Dr. Youn. (Tr. 366:13-20,1105:6-1106:4).

On May 30, 2008, Dr. Youn emailed Mr. Graner and Dr. Chappuis " the files you have requested, reflecting all the details of AdipoGen." (Tr. 367:20-369:23; PX29). Dr. Youn stated, " We do hope that all these information would lead to 'a reasonable] and precise valuation' of AdipoGen." (Tr. 370:17-371:16; PX29). Dr. Chappuis then forwarded Dr. Youn's email to Ms. Sales at her personal email address on June 4, 2008. (Tr. 369:24-371:16; PX29). The next day, June 5, 2008, Ms. Sales sent a letter to ELS resigning her position as Vice President of Finance and Administration at Axxora, and declaring that her final day at the company would be July 3, 2008. (Tr. 198:4-5, 371:17-373:22, 1169:16-1170:12; PX30). Ms. Sales resigned in order to spend more time with her family. (Tr. 1169:16-1170:12; PX30).

On June 23, 2008, Dr. Chappuis emailed Mr. Andrews, copying Ms. Sales at her personal email address, stating that " [t]he project 'Inoxxis' is progressing" ; " [t]he deal (mutual understanding) with AdipoGen stands" ; " [f]inancing of Inoxxis moves nicely forward" ; and " [a] Business Plan is in the process of being established." Dr. Chappuis also asked Mr. Andrews to recommend a lawyer in Korea. (Tr. 373:23-376:19; PX31). On June 29, 2008, Dr. Chappuis sent an email to Mr. Graner in anticipation of a week-long trip that Dr. Chappuis and Mr. Graner would make to Korea to visit Adipogen beginning on July 19, 2008. (Tr. 376:20-378:17; PX32). In his email, Dr. Chappuis set out an itinerary and various tasks, including: " July 19th: Meeting with Byung [Youn] (discuss details of Business Plan (Financials))" ; " July 21st or 22nd: Meeting with Mr. Lee (to be confirmed by [Byung])" ; " July 21st/22nd (or 23rd): Meeting with Lawyer. . ." ; " July21st-23rd: Refine Business Plan." (PX32).

On July 6, 2008, in anticipation of his trip to Korea, Dr. Chappuis sent an email to Dr. Youn titled " Supplemental Due Diligence List AdipoGen, Inc." (Tr. 383:16-385:2; PX35). This email refers to the " investment of Inoxxis" in Adipogen and requests detailed financial and operations information about Adipogen " to assure the timely continuation of our investment project (incl. the preparation of a Business Plan) and to guarantee efficient discussions when Jürgen [Graner] and I are visiting Seoul July 17-23, 2008 following a supplemental request for information as discussed before." (Tr. 385:3-386:13; PX35/ Dr. Chappuis forwarded the email to Ms. Sales and Mr. Graner. (Tr. 385:8-11; PX35).

Dr. Chappuis emailed reports to ELS AG on every meeting he attended on the trip, except for his meetings with Adipogen. (Tr. 794:6-21, 795:19-800:2, 800:21-811:6, 915:17-916:22; DX125-130). Dr. Chappuis invoiced ELS AG for this trip as travel and entertainment. (Tr. 378:18-383:15; PX33). Dr. Chappuis traveled to Asia in part to promote and further ELS's business interests in the region. (Tr. 954:1-957:165; DX125-130).

On July 27, 2008, Ms. Sales (then no longer employed by Axxora) emailed Dr. Chappuis, Mr. Andrews, and Mr. Graner, attaching the Axxora Operating Agreement, stating, " Attached is the document we used to form Axxora, LLC." (Tr. 386:14-389:7, Tr. 1164:10-13; PX37). Ms. Sales then discussed the " formation of Inoxxis" and how it could be structured to avoid certain tax issues that Axxora had encountered. ( Id. ). On July 28, 2008, Mr. Graner sent Dr. Chappuis an email with the subject line: " New Company Name," which listed various domain names that Mr. Graner had reserved. (Tr. 389:8-391:1; PX38). Mr. Graner's email noted that he has " already requested the input of Byung and Tamara regarding the company names." (Tr. 390:15-19; PX38). Ms. Dettwiler weighed in on the selection of a new company name by forwarding Mr. Graner's email from Dr. Chappuis's ELS AG email address to his personal email address, stating: " Hello, Georges. Attachment for your information. Apropos: Everything that is Adipro ... I don't like. Regards, sd." (Tr. 391:2-24, 392:10-21; PX38).

On July 29, 2008, Mr. Graner emailed Dr. Chappuis, copying Ms. Sales, an outline of key points of a proposed Inoxxis buyout of Adipogen. (Tr. 393:23-396:21; PX39). Mr. Graner's proposal stated, " Inoxxis will invest a total of USD 4 million into AdipoGen." (Tr. 394:21-395:2; PX39).

In discussing Alexis's Exclusive Sales and Marketing Agreement with Adipogen, Mr. Graner stated that Inoxxis's investment in Adipogen is " dependent on a renegotiation of the deal terms with Alexis Corporation. Since Inoxxis will provide a significant amount of funds to AdipoGen, it cannot tolerate an exclusive arrangement for all AdipoGen products anywhere outside of Korea and Japan." (Tr. 395:7-18; PX39).

V. THE ADIAGEN INVESTMENT MEMORANDUM

On October 6, 2008, Dr. Chappuis sent an email to a representative of another former Axxora investor, Semely Conseil & Gestion SA. (Tr. 396:22-397:13; PX41; PX5 Schedule II). Dr. Chappuis attached an investment memorandum, dated September 26, 2008 (" the Investment Memorandum" ), for an entity called " AdiaGen Holding Corporation," a Swiss company. (Tr. 398:6-399:7; PX41-42). According to the Investment Memorandum, a group of " international investors" planned to invest $4 million into the new company, which would wholly own the existing Adipogen and future Swiss and U.S. subsidiaries. (Tr. 400:2-402:23; PX41-42 at 3, 11). These " international investors" were the former Axxora investors. (PX5 Schedule II).

The Investment Memorandum touted the benefits of combining Adipogen with the proposed new Swiss and U.S. entities. The principal benefits would include access to technology, products, and amarketing and sales force. (Tr. 401:12-408:9; PX41-42). The products that " AdiaGen" proposed to sell through the new Swiss and U.S. entities were products already in ELS AG's catalog and then being sold by ELS AG. (Tr. 403:4-408:9; PX42 at 4, 6). The Investment Memorandum indicated that " AdiaGen" intended to distribute Adipogen's products directly. (Tr. 405:21-406:13; PX42 at 3, 5). The Investment Memorandum stated, " Key steps to increase global market visibility, which increases global sales volumes," included " [e]stablish[ing] and actively managing] a worldwide specialized distributor network in key markets." (PX42 at 6). It predicted in a financial forecast that " [t]he significant increase in gross margin between 2011 and 2012 is due to the fact that from January 1, 2012 onwards AdiaGen Holding handles the distribution of products manufactured by former AdipoGen directly." (Tr. 405:21-406:13; PX42 at 8).

The Investment Memorandum touted the expected return to the shareholders of more than 2.4 times their original investment. According to the Investment Memorandum, " The conservative expected sales multiple by the end of 2013 is 1.5 times sales, therefore resulting in an approximate exit value after 5 years of approximately USD 12-14 million (conservative)." (PX42 at 11; Tr. 407:2-17). The Investment Memorandum further emphasized the profitability of ELISA kits, stating, " In the field of in vitro diagnostic kits (CE labeled) and in vivo diagnostic kits (out-licensing) exists extraordinary growth potential." (Tr. 408:4-9; PX42 at 11).

Dr. Chappuis did not disclose to Dr. Balezentis his Bioaxxess investment and plan to take over Adipogen. (Tr. 1124:16-20).

VI. BIOAXXESS IS FORMED AND BIOAXXESS ACQUIRES A MAJORITY INTEREST IN AND CONTROL OVER ADIPOGEN

In late 2008, Dr. Chappuis and the other Individual Defendants changed the name of the corporate vehicle they would use to purchase Adipogen to Bioaxxess, Inc. (" Bioaxxess" ). (Tr. 411:4-8). Dr. Chappuis used ELS AG resources to help him set up Bioaxxess. (Tr. 1103:8-13).

On or about February 10, 2009, Bioaxxess filed a Certificate of Incorporation with the Secretary of State of Delaware. (Tr. 417:7-418:6; PX51; Stip. Facts ¶ 11). On March 12, 2009, Dr. Chappuis emailed Mr. Andrews, stating: " We need to move forward with the establishment of Bioaxxess, Inc. At the moment exists some momentum (again) which we should not [lose]." (Tr. 1113:10-16; PX55). On March 19, 2009, Dr. Chappuis sent an email to Mr. Andrews, Ms. Sales, and Mr. Graner with the subject line " Update/Summary of Open Issues Bioaxxess, Inc. & AdipoGen Deal." (Tr. 1113:17-1114:1; PX57). In this email, Dr. Chappuis gave specific instructions to Mr. Andrews concerning Bioaxxess's formation and future business. (Tr. 1114:12-23; PX57).

First, under " Board," Dr. Chappuis listed: " Craig Andrews (Chairman), David Ramsey, Georges Chappuis (CEO) (after June 1, 2009)." [8] (PX57). Dr. Chappuis confirmed that he in fact intended to become the CEO and a board member of Bioaxxess. (Tr. 1115:6-9). In this email, Dr. Chappuis also identifies Ms. Sales as " Secretary & Treasurer (ࡓ)" of Bioaxxess and a board member of Adipogen. (Tr. 1115:10-13; PX57). In reference to Bioaxxess, Dr. Chappuis further wrote: " U.S. Bank Account: May I ask Tamara to open a bank account (with the support of Craig)." (Tr. 1115:14-19; PX57).

On March 21, 2009, Dr. Chappuis sent an email to his lawyers, including Mr. Andrews, with the subject line " Open Issues Bioaxxess, Inc. - Urgent." (PX60). In that email, Dr. Chappuis stated, " Due to great work by [Mr. Graner] and Marty [Lorenzo, a partner of Mr. Andrews,] the AdipoGen Deal is almost done and ready to be executed." (Tr. 419:6-420:1; PX60). Dr. Chappuis stated, " We need now to finalize the establishment of Bioaxxess, Inc. asap," which included opening a bank account, issuing stock certificates, and " [s]igning the AdipoGen Deal on behalf of Bioaxxess." (Tr. 420:5-17; PX60).

According to Dr. Chappuis, Ms. Sales was to be " the lead," but he cautioned that she should not sign any stock certificates of Bioaxxess as President until the end of May 2009, which is when the non-competition and non-solicitation period of the Stock Purchase Agreement expired. (Tr. 420:22-421:22, 1117:4-13; PX60). In the alternative, Dr. Chappuis asked: " Could Craig Andrews sign as Chairman?" (PX60). Ms. Sales's involvement in the formation of Bioaxxess included receiving investor funds, setting up bank accounts, working with the lawyers to set up the corporate structure, and circulating board of director meeting binders. (Tr. 1175:10-1176:3,1198:15-1199:14).

Copies of the Bioaxxess Securities Purchase Agreement were executed by all of the purchasers of Bioaxxess stock, including Dr. Chappuis, Ms. Dettwiler, Mr. Donzé, Mr. Feuerstein, Mr. Andrews, and other former investors in Axxora. (PX142; PX215; Tr. 1119:21-23). With the formation of Bioaxxess on March 31, 2009,[9] Ms. Sales assumed the role of its Chief Financial Officer. (Tr. 1194:18-24). Dr. Chappuis was named to the Board of Bioaxxess. (Tr. 1125:21-1126:1, 1201:20-1202:13). Attorneys Andrews and ...


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