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Piper Jaffray, Inc. v. Marrone Bio Innovations, Inc.

Superior Court of Delaware

November 28, 2018

PIPER JAFFRAY, INC. a Delaware Corporation, Plaintiff,
v.
MARRONE BIO INNOVATIONS, INC., a Delaware Corporation, Defendant.

          Submitted: August 17, 2018

         Upon Defendant's Motion to Dismiss, DENIED.

          Eric Lopez Schnabel, Esquire, Alessandra Glorioso, Esquire, Dorsey & Whitney (Delaware) LLP, Wilmington, Delaware, Thomas P. Swigert, Esquire, Of Counsel (pro hac vice), Phil Steger, Esquire, Of Counsel (pro hac vice), Dorsey & Whitney LLP, Minneapolis, MN, Attorneys for Plaintiff Piper Jaffray, Inc.

          Elena C. Norman, Esquire, Benjamin M. Potts, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware, Judson E. Lobdell, Esquire, Of Counsel (pro hac vice), Morrison & Foerster LLP, San Francisco, CA, Attorneys for Defendants Marrone Bio Innovations, Inc.

          Eric M. Davis, Judge.

         I. INTRODUCTION

         This is a breach of contract action assigned to the Complex Commercial Litigation Division of the Court. Plaintiff Piper Jaffray Inc., an investment banking firm ("Piper Jaffray"), has brought suit against Defendant Marrone Bio Innovations, Inc. ("Marrone Bio") for payment of a Transaction Fee (defined below). Piper Jaffray contends that it is owed the Transaction Fee under the terms of an engagement letter, dated January 7, 2017, as amended (the "Engagement Letter"), [1] in connection with a private placement that Marrone Bio completed on February 6, 2018.

         On April 3, 2018, Piper Jaffray brought this cause of action against Marrone Bio for breach of contract seeking damages in excess of $2 million dollars. On May 24, 2018, Marrone Bio filed a Motion to Dismiss for failure to state a claim pursuant to Superior Court Rule 12(b)(6) (the "Motion to Dismiss"). For the following reasons set forth below, the Court DENIES the Motion to Dismiss.

         II. FACTUAL BACKGROUND[2]

         A. Parties, Jurisdiction and Choice of Law

         Piper Jaffray is an international investment bank and asset management firm. Piper Jaffray is incorporated in the State of Delaware.[3] Its principal place of business is in Minneapolis, Minnesota.[4]

         Marrone Bio is a Delaware corporation with its principal place of business in Davis, California.[5] Marrone Bio produces bio-based pest management and plant health products for agricultural and water markets in both the U.S. and internationally.[6] It is publicly traded on NASDAQ.[7]

         The Engagement Letter provides that it "will be governed by and construed in accordance with the laws of Delaware, without regard to [Delaware's] conflict of law principles."[8] In addition, the parties have waived their right to a jury trial in connection with any disputes arising out of the Engagement Letter.[9]

         B. Engagement of Piper Jaffray and NSC

         Marrone Bio completed its initial public offering in August of 2013.[10] Marrone Bio completed a secondary offering in June 2014 based on Marrone Bio's performance in 2013 and the first quarter of 2014.[11] After the secondary offering, the FBI and the SEC began an investigation of Marrone Bio's financials and its executives for securities fraud.[12] In addition, stockholders filed a related stockholder class action lawsuit.[13] In 2016, Marrone Bio paid a $1.75 million fine to the SEC and settled the class action suit for $12 million.[14] As a result of the foregoing, Marrone Bio's ability to continue as a going concern was in jeopardy and it was in need of additional financing.[15]

         On January 7, 2017, Piper Jaffray and Marrone Bio entered into the Engagement Letter under which Piper Jaffray agreed to provide investment banking services to Marrone Bio to facilitate a transaction for the benefit of Marrone Bio.[16] These services included, among other things, (i) assessing Marrone Bio's business operations, (ii) identifying and contacting potential purchasers, (iii) preparing a memorandum regarding Marrone Bio's operations and financials to present to potential purchasers, (iv) analyzing proposals received from potential purchasers and (v) assisting in negotiations with potential purchasers.[17] In exchange for Piper Jaffray's services, Marrone Bio agreed to pay Piper Jaffray: (a) a retainer in the amount of $150, 000 (to be credited against any Transaction Fee described below); (b) reasonable out-of-pocket expenses not to exceed $50, 000; (c) a fairness opinion fee, if requested; and (d) a Transaction Fee upon consummation of a transaction.[18]

         After the engagement, Piper Jaffray performed substantial work in 2017 at Marrone Bio's request.[19] Piper Jaffray (i) prepared detailed analysis and valuations of Marrone Bio (including an analysis of whether Marrone Bio should remain a public company), (ii) prepared and presented strategic alternatives for financing to Marrone Bio's Board of Directors and its executives, (iii) identified and negotiated with potential purchasers of Marrone Bio, (iv) coordinated due diligence with prospective purchasers, and (v) advised Marrone Bio and its Board of Directors throughout the process.[20] Piper Jaffray's efforts resulted in the execution of thirteen non-disclosure agreements and written proposals from two potential strategic buyers.[21]

         In August 2017, Marrone Bio engaged an additional financial advisor, National Securities Corporation (NSC"), to assist Marrone Bio with identifying potential transactions.[22] At that time, the retention of Piper Jaffray remained in effect.[23]

         C. Marrone Bio Obtains Bridge Financing and Subsequently Consummates a Private Placement

         After the engagement of NSC, Marrone Bio began discussions with a group of investors led by Dwight Anderson, the principal of Ospraie Ag Sciences LLC ("Ospraie").[24] On October 12, 2017, a member of Marrone Bio's Board of Directors sent an email to Tom Halverson, the lead banker from Piper Jaffray on the Marrone Bio engagement that provided:

Pam sent you a voicemail regarding a $1 million bridge loan from Ospraie. That is correct. However, I would not communicate that to Valagro [a strategic buyer] until we see a firm term sheet which we should get today. Leaves all options open in my opinion.[25]

         In an 8-K filed on October 18, 2017, Marrone Bio announced that it had entered into a bridge loan with Mr. Anderson on October 12, 2017, the terms of which provided for a $1 million unsecured promissory note with a three-year term at an interest rate of 1% per annum through December 31, 2017 (the "Bridge Loan").[26] The terms of the Bridge Loan also granted Mr. Anderson the option to convert any or all of the outstanding principal and interest on the Bridge Loan into Marrone Bio common stock.[27] Shortly thereafter, on October 24, 2017, Marrone Bio publicly announced in an 8-K that it had amended the Bridge Loan on October 23, 2017 to increase the loan amount up to $6 million.[28] The other terms of the Bridge Loan remained the same.[29]

         On the day the 8-K was filed, Marrone Bio gave Piper Jaffray notice of its election to terminate the Engagement Letter.[30] In accordance with the 10-day notice requirement set forth in the Engagement Letter, the effective date of termination was November 3, 2017.[31]

         On December 18, 2017, Marrone Bio announced through another 8-K that it had entered into a securities purchase agreement (the "Purchase Agreement") with a group of investors led by Ospraie.[32] Under the Purchase Agreement, the investors agreed to purchase an aggregate of 44, 00, 001 units (the "Units"), with each Unit purchased by Ospraie consisting of one share of Marrone Bio common stock and one warrant to purchase one share of Marrone Bio common stock and each Unit purchased by the other investors consisting of one share of Marrone Bio common stock and one warrant to purchase 0.8 shares of Marrone Bio common stock.[33] The aggregate purchase price under the Purchase Agreement was $30 million.[34] The Purchase Agreement provided that the aggregate purchase price was inclusive of funds being advanced by Mr. Anderson under the Bridge Loan. The 8-K further explained that, concurrent with entry into the Purchase Agreement, [35] Marrone Bio had amended certain debt obligations with two other of its creditors (not Ospraie) pursuant to which the creditors would also convert $45 million in aggregate principal amount of debt into shares of Marrone Bio common stock conditioned upon the closing of the Purchase Agreement.[36]

          On December 20, 2017, Piper Jaffray advised Marrone Bio that the series of related transactions announced by Marrone Bio constituted a Transaction under the Engagement Letter and, as a result, Piper Jaffray was entitled to a Transaction Fee upon closing.[37]

         On December 22, 2017, Marrone Bio and Mr. Anderson entered into another amendment to the Bridge Loan on largely the same terms as the initial Bridge Loan, except that Mr. Anderson was now taking a security interest in Marrone Bio's property.[38] On January 3, 2018, Marrone Bio filed a definitive proxy statement with the SEC seeking, among other things, stockholder approval of the issuance of Marrone Bio's common stock and warrants to purchase common stock in connection with the private placement and debt refinancings. The total number of shares of Marrone Bio common stock issued at closing was 71, 012, 286, which represented approximately 69% of Marrone Bio's total issued and outstanding shares.[39] On February 6, 2018, Marrone Bio announced that it had closed the transaction with Ospraie.[40]

         D. Specific Terms of the Engagement Letter at Issue

         As previous noted, the sole issue before the Court is whether the private placement consummated by Marrone Bio in February 2018 constitutes a Transaction under the Engagement Letter. If it does, Piper Jaffray contends it is entitled to the Transaction Fee. As such, the dispute turns on the facts of this case and the interpretation of the defined terms "Transaction" and "Transaction Fee" as set forth in the Engagement Letter.

         Under the terms of the Engagement Letter, "Transaction" means:

any transaction or series or combination of related transactions whereby, directly or indirectly, by merger, plan of exchange, sale, consolidation, recapitalization or otherwise 50% or more of the Company's capital stock (based on shares outstanding), or all or substantially all of the assets of the Company['s assets][sic] (based on book value) is transferred or exchanged by you [Marrone Bio] and/or your shareholders.[41]

         The term "Transaction Fee," provides, in pertinent part, as follows:

[i]n the event you [Marrone Bio] consummate a Transaction pursuant to a definitive agreement or written commitment entered into (i) during the term of this agreement, (ii) with (A) an Identified Party, [42] (B) any other party with whom you have had contact regarding a Transaction during the term of this agreement or (C) any other party with whom the Company consummates a Transaction after the Company has executed a definitive agreement regarding a Transaction during the term of this agreement or (ii) during the 9-month period following the termination of this agreement, with an Identified Party . . . a cash fee, payable at closing of the Transaction (the "Transaction Fee"), equal to the greater of (x) $2.0 million or (y) an amount determined as follows . . . .[43]

         III. STANDARD OF REVIEW

         When reviewing a Rule 12(b)(6) motion to dismiss for failure to state a claim, the Court must "view the complaint in the light most favorable to the non-moving party, accepting as true all well pleaded allegations and drawing reasonable inferences that logically flow from them," but "decline . . . to accept conclusory allegations unsupported by specific facts or to draw unreasonable inferences in favor of the non-moving party."[44] "Even vague allegations are considered well-pleaded if they give the opposing party notice of a claim."[45]

         "Dismissal is warranted where the plaintiff has failed to plead facts supporting an element of the claim, or that under no reasonable interpretation of the facts alleged could the complaint state a claim for which relief might be granted."[46] But, if the Court engages the standards described and ...


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