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Wise v. Biowish Technologies, Inc.

United States District Court, D. Delaware

September 12, 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 OPINION

         Currently pending before the court is Defendants' motion to dismiss Plaintiffs amended complaint pursuant to Fed.R.Civ.P. 12(b)(6). (D.I. 41). Plaintiff Vincent Wise is a stockholder of Biowish Technologies, Inc. and Biowish Technologies International, Inc. (collectively, "Biowish") as well as Juventa Technologies, Inc., and Juventa Technologies Holdings, Inc. (collectively, "Juventa"). Defendants are comprised of Biowish, Juventa, their directors, their outside counsel, and at least one of their investors (collectively, the "Defendants"). Wise asserts that different groups of Defendants committed breaches of fiduciary duty, legal malpractice, and securities fraud in connection with a transaction whereby Juventa sold all or substantially all of its assets to Biowish. The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331 and 1367. For the reasons stated below, Defendants' motion to dismiss is granted in part and denied in part.

         I. BACKGROUND

         In February 2012, Biowish's board of directors created Juventa, a Delaware corporation. (D.I. 40 at ¶ 51). Thereafter, Biowish and Juventa entered into a license agreement which gave Juventa the rights to commercialize certain technology and intellectual property belonging to Biowish. (Id. at ¶¶ 58, 64). In exchange, Juventa was obligated to pay royalties based on the annual net sales of each product. (Id.). The license agreement was prepared by the law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., where defendant Irwin Heller is a partner. (Id. at ¶¶ 11, 59). Heller and Mintz Levin served as outside counsel to both Juventa and Biowish. (Id. at ¶ 11). Heller also served as an officer and director of Juventa and an officer of Biowish. (Id.).

         In March 2015, Biowish informed Juventa that Juventa was in default of the license agreement. (Id. at ¶¶ 91-97). If Juventa did not cure the default by April 17, 2015 by paying a certain sum of money, Biowish would terminate the license. (Id.; D.I. 29-1 at 4). Wise alleges that, at an April 17, 2015 meeting of the Juventa board of directors, the CEO, Stan Weiss, presented the terms of a potential investment by a group of outside investors that would have been sufficient to cure the default. (D.I. 40 at ¶¶ 102, 106). Heller, however, proposed that Juventa enter into a "contribution agreement" whereby Juventa would transfer all of its rights under the license agreement as well as any trademarks to Biowish. (Id. at ¶¶ 104-107, 127; D.I. 29-1 at 4, 9). In return, Biowish would issue stock to certain Juventa shareholders and assume certain liabilities. (Id.). The board immediately took a vote and approved the idea. (D.I. 40 at ¶ 110). Like the license agreement, the contribution agreement was prepared by Mintz Levin. (Id. at ¶ 108).

         The contribution agreement required the approval of Juventa's stockholders. See 8 Del. C. § 122(4); 8 Del. C. § 271(a). Accordingly, on May 6, 2015, the company sent its stockholders, including Wise, a letter explaining the transaction and requesting 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 the 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 Irwin Heller and Ian Edwards contacted Wise regarding the written consent form. (D.I. 40 at ¶ 121). In addition to being an officer and director of Juventa, an officer of Biowish, and outside counsel to both entities, Heller is a 50% owner of Big I Investments, which is a stockholder in both the Biowish and Juventa entities. (Id. at ¶¶ 8, 10-11). The other 50% owner of Big I Investments is Edwards, who also serves as an officer and director of Biowish. (Id.). Heller and Edwards told Wise that Juventa was struggling financially and faced potential legal liability from an investor. (D.I. 40 at ¶ 121). They also told Wise that he would lose his entire interest in both Juventa and Biowish and could face legal liability if he did not give written consent. (Id. at ¶ 123). Heller and Edwards did not mention any alternatives to the contribution agreement, such as the outside investment proposed by Weis. (Id. at ¶ 124). Accordingly, in reliance on Heller's advice, Wise provided his written consent. (Id. at ¶ 132).

         II. STANDARD OF REVIEW

         To survive the motion to dismiss pursuant to Rule 12(b)(6), 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. Twombfy, 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. Twombfy, 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

         Counts I and II of the amended complaint are based on the fiduciary duties that the directors of Bio wish and Juventa, respectively, owe to their corporation and its stockholders. Counts III, IV, and V are based on an attorney-client relationship between Wise and Heller. Counts VI and VII allege fraud. Each set of claims is addressed in turn.

         A. Counts I & II: The Derivative Claims

         Counts I and II of the complaint assert derivative claims on behalf of Juventa and Bio wish, respectively, for breaches of fiduciary duty.[1] (D.I. 40 at ¶¶ 149-66; D.I. 44 at 5). Derivative claims that do not comply with Fed.R.Civ.P. 23.1 must be dismissed. Under Rule 23.1, a stockholder must allege that the company wrongfully refused a demand to address an alleged wrong, or that a demand on the board would have been futile. Allison v. Gen. Motors Corp., 604 F.Supp. 1106, 1112 (D. Del), aff'd, 782 F.2d 1026 (3d Cir. 1985). Wise did not make a pre-suit demand on the boards of either Juventa or Biowish, so he must show that demand is excused. "The substantive requirements of demand are a matter of state law." Blasband v. Rales, 971 F.2d 1034, 1047 (3d Cir. 1992). Under Delaware law, demand is excused if the complaint alleges with particularity that "a majority of the board lacks independence or is otherwise incapable of validly exercising its business judgment." Blaustein v. Lord Bait. Capital Corp., 84 A.3d 954, 958 (Del. 2014).

         In trying to determine if a majority of the board is independent, the court's job is to "count heads." dimming v. Edens, 2018 WL 992877, at *12 (Del. Ch. Feb. 20, 2018). Wise's amended complaint has made this job more difficult by failing to provide a complete list of the current members of each board. Instead, the amended complaint states that certain defendants "were" directors "at all relevant times." (See, e.g., D.I. 40 at ¶ 11). This leaves open the possibility that those defendants are no longer directors or that there are other unidentified individuals currently serving as directors.

         For Count I, the amended complaint alleges that Heller, Vautier, McGrath, and Rosenhain were directors of Juventa, so I will assume that they currently comprise the entire board. (Id. at ¶¶ 11, 13-14, 16). Wise alleges that demand is futile as to Count 1, "because the Biowish Insiders ... are not disinterested or independent." (Id. at ¶ 157). The "Biowish Insiders" is comprised of Vautier, Edwards, and Sakkab. (Id. at ΒΆ 81). Thus, the only overlap between the board of Juventa and the Biowish Insiders is one director-Vautier. One director is not a ...


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