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Wise v. Biowish Technologies, Inc.

United States District Court, D. Delaware

January 11, 2019

VINCENT WISE, Plaintiff,
v.
BIOWISH TECHNOLOGIES, INC, a Delaware corporation; BIOWISH TECHNOLOGIES INTERNATIONAL, INC. a Delaware corporation; BIG I INVESTMENTS, LLC, a Delaware limited liability company; MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C., a Massachusetts professional corporation; JUVENTA TECHNOLOGIES, INC., a Delaware corporation; JUVENTA TECHNOLOGIES HOLDINGS, INC.; a Delaware corporation; IAN EDWARDS, an individual; IRWIN HELLER, an individual; NABIL SAKKAB, an individual; ROD VAUTIER, an individual; MARK MCGRATH, an individual; JEFFREY MCCORMICK, an individual; GEOFF ROSENHAIN, an individual. Defendants.

          MEMORANDUM

         Plaintiff Vincent Wise is a purported stockholder of Biowish Technologies, Inc., Biowish Technologies International, Inc., Juventa Technologies, Inc., and Juventa Technologies Holdings, Inc. Plaintiff has sued those corporate entities, their directors, their outside counsel, and at least one of their investors (collectively, the "Defendants") after a transaction in which the Juventa entities sold all or substantially all of their assets to the Biowish entities. Individual defendants Ian Edwards, Nabil Sakkab, and Jeffrey McCormick serve on the board of directors for the Biowish entities. (D.I. 1 at ¶¶ 10, 12, 15). Individual defendants Irwin Heller, Rod Vautier, and Mark McGrath serve on the board of directors for the Juventa entities. (Id. at ¶¶ 11, 13, 14). Heller is also a partner at the law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., which provided legal services to the Biowish and Juventa entities. (Id. at ¶ 11). Individual defendant Geoff Rosenhain serves on the board for both the Biowish and Juventa entities. (Id. at ¶ 16). Finally, Big I Investments is a stockholder in the Biowish and Juventa entities and is owned 50/50 by Edwards and Heller.[1] (Id. at ¶ 8).

         Plaintiff asserts seven counts against different groups of Defendants for breaches of fiduciary duty, legal malpractice, and securities fraud. Defendants have moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6). (D.I. 28). The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331 and 1367.[2] For the reasons stated below, Defendants' motion to dismiss is granted.

         I. BACKGROUND

         In 2007, Plaintiff co-founded Biowish Technologies Pty Ltd., an Australian company and the predecessor to the Delaware corporations Biowish Technologies, Inc. (formed in 2009) and Biowish Technologies International, Inc. (formed in" 2012). (D.I. 1 at ¶ 21). Plaintiff does not know the precise relationship between these two Delaware corporations and, therefore, refers to them collectively and without distinction as "Biowish." (Id. at ¶ 4). Plaintiff held stock in Biowish and served as its Executive Chairman. (Id. at ¶¶ 4, 23). Over time, Plaintiffs percentage interest in Biowish was reduced following capital investments by Big I Investments, Sakkab, McGrath, and Rosenhain. (Id. at ¶¶ 24-25). In 2012, Plaintiff resigned from the Biowish board of directors, but he remained a stockholder of the company. (Id. at ¶ 50.)

         In February 2012, Biowish's board of directors created two Delaware corporations, Juventa Technologies, Inc. and Juventa Technologies Holdings, Inc., to develop and commercialize Biowish's technology and intellectual property. (Id. at ¶ 51). Plaintiff does not know the precise relationship between the two Juventa entities and, therefore, refers to them collectively as "Juventa." (Id. at ¶ 7). Plaintiff is a stockholder of Juventa and served on its board of directors until his resignation sometime in 2013. (Id. at ¶¶ 7, 52, 80). Some time after Juventa's formation, Biowish and Juventa entered into a license agreement, which was prepared by the law firm Mintz Levin. (Id. at ¶¶ 58- 59; D.I. 1-1). Under the terms of the license agreement, Juventa received an exclusive license to commercialize certain Biowish technology and intellectual property. (D.I. 1 at ¶ 58). In exchange, Juventa agreed to pay a royalty based on the annual net sales of each product. (Id. at ¶ 64).

         The complaint alleges that Juventa "suffered from cash-flow problems typical of a start-up company." (Id. at ¶ 88). In March 2015, Biowish informed Juventa that it was in default of the licensing agreement, because it had failed to pay certain royalties and failed to repay a $60, 000 loan. (Id. at ¶¶ 90-96). Biowish further informed Juventa that unless the default was cured by April 17, 2015, it would terminate the license agreement. (D.I. 29-1 at p.4 of 51). Plaintiff alleges that at an April 17, 2015 meeting of the Juventa board of directors, the CEO of Juventa, Stan Weiss, presented the terms of a potential $1 million investment in Juventa by a "group of investors." (Id. at ¶ 101). The complaint does not identify the group of investors or describe any proposed terms beyond the amount. (Id.). According to the complaint, Heller cut off the conversation regarding the potential investment to instead propose that the company resolve its dispute with Biowish by entering into a "contribution agreement." (D.I. 1 at ¶¶ 103-106). Like the license agreement, the contribution agreement was prepared by Mintz Levin. (Id. at ¶ 107). Under the terms of the contribution agreement, Juventa would transfer to Biowish all rights and causes of action under the license agreement as well as all rights, title, and interest in all trademarks. (Id. ¶ 106; D.I. 29-1 at p. 9 of 51). In return, Biowish would assume certain liabilities of Juventa and, further, issue shares of Biowish stock to certain Juventa shareholders. (D.I. 1 at ¶ 126; D.I. 29-1 at p. 4 of 51). The Juventa board approved the contribution agreement that same day. (D.I. 1 at ¶ 109).

         The next month, the Juventa board sought stockholder approval of the contribution agreement.[3] Accordingly, on May 6, 2015, the company sent stockholders, including Plaintiff, a letter explaining the transaction and requesting that stockholders provide written consent. (D.I. 29-1). The letter stated that Juventa was seeking the consent of: (i) a majority of all outstanding Juventa common stock, (ii) a majority of Juventa common stock not receiving Biowish shares in this transaction, and (iii) a majority of the Juventa common stock subject to restricted stock agreements. (Id.). Attached to the letter was a copy of the contribution agreement and a stockholder written consent form. (Id.).

         Sometime that same month, defendants Edwards and Heller contacted Plaintiff and "explained that Juventa was struggling financially and that Juventa and Biowish faced potential legal liability from [a Juventa investor] stemming from his recent investment." (D.I. 1 at ¶ 120). According to the complaint, Heller also told Plaintiff that "if [he] did not sign the [contribution agreement], he stood to lose the entirety of his interest in both Juventa and Biowish and could face additional legal liability." (Id. at ¶ 122). During that conversation, "[n]either Heller nor Edwards ever informed [Plaintiff] about the potential for other outside investment in Juventa." (Id. at ¶ 123). In reliance on Heller's advice, Plaintiff provided his written consent.[4] (Id. at ¶ 131).

         II. STANDARD OF REVIEW

         Under Rule 12(b)(6), a party may move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). To survive the motion to dismiss, the complaint must contain sufficient factual matter "to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The factual allegations do not have to be detailed, but they must provide more than labels, conclusions, or a "formulaic recitation" of the claim elements. Twombly, 550 U.S. at 555. In assessing the plausibility of a claim, the court must accept all well-pleaded factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. In re Rockefeller Ctr. Prop., Inc. Sec. Litig., 311 F.3d 198, 215 (3d Cir. 2002). The court's review is limited to the allegations in the complaint, exhibits attached to the complaint, documents incorporated by reference, items subject to judicial notice, and matters of the public record. Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010).

         III. DISCUSSION

         Defendants have raised multiple arguments as to why each of the seven counts in the complaint should be dismissed. Nevertheless, I will primarily focus only on those arguments necessary to show why the complaint fails to state a claim. Specifically, Counts I and II, for breach of fiduciary duties, are dismissed pursuant to Fed.R.Civ.P. 23.1(b)(3) for failure to plead demand futility. Counts III, IV, and V, based on a purported attorney-client relationship between Plaintiff and Heller, are dismissed pursuant to Fed.R.Civ.P. 12(b)(6) for failure to plead facts from which the court can plausibly infer the existence of such attorney-client relationship. Counts VI and VII are dismissed pursuant to Fed.R.Civ.P. 9(b) for failure to plead fraud with particularity. Finally, I will address Defendants' argument that Counts I and VI should be dismissed pursuant to the applicable statute of limitations, so that the parties have the opportunity to address any perceived deficiencies should Plaintiff choose to file an amended complaint.

         A. Counts I & II: The Derivative Claims

         Counts I and II of the complaint assert that the directors of Juventa and Biowish, respectively, breached their fiduciary duties. (D.I. 1 at ¶¶ 140-47). Defendants argue that Counts I and II should be dismissed, because Plaintiff has failed to properly plead these counts as derivative claims. (D.I. 29 at 6-9). If a stockholder-plaintiff s claim is derivative in nature, then the plaintiff must plead "with particularity: (A) any effort by the plaintiff to obtain the desired action from the directors ...; and (B) the reasons for not obtaining the action or not making the effort." Fed.R.Civ.P. 23.1(b)(3). "If a party brings derivative claims without first making demand, and demand is not excused, those claims must be dismissed." Albert v. Alex. Brown Mgmt. Serv., Inc., 2005 WL 2130607, at *13 (Del. Ch. Aug. 26, 2005). Here, Plaintiff has not alleged that he made any ...


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