Bing Fu Kung v. Carthy
| Decision Date | 03 May 2023 |
| Docket Number | A161965 |
| Parties | BING FU KUNG, Plaintiff and Appellant, v. CHRISTOPHER CARTHY et al., Defendants and Respondents. |
| Court | California Court of Appeals Court of Appeals |
NOT TO BE PUBLISHED
Plaintiff Bing Fu Kung (Kung) and defendant Christopher Carthy (Carthy) formed a limited liability company, defendant Armentum Partners, LLC (Armentum), to offer investment banking services. Under their agreement, Kung and Carthy were to share any net income earned by Armentum. After the first year of business, Kung sold back his interest in Armentum and executed a release of claims. Several years later notwithstanding the release, Kung brought this action seeking a share of money paid to Armentum after his departure.
The trial court granted summary judgment on Kung's claims finding them barred by the release. We affirm the grant of summary judgment. In response to Carthy's cross-appeal, we affirm the trial court's order sustaining a demurrer to a cause of action asserted in his cross-complaint, affirm its refusal to award the costs of electronic legal research, and vacate its denial of the costs of electronic document hosting.
Kung's complaint (complaint), filed in April 2018 against Carthy and Armentum (defendants), alleged that he and Carthy formed Armentum as a limited liability company in September 2009 under a written agreement (operating agreement). Pursuant to the operating agreement, Carthy owned 75 percent of Armentum and Kung owned 25 percent, and the pair were to be compensated proportionally from net revenues of Armentum. Soon after, Armentum began providing consulting services to Gatekeeper Pharmaceuticals, Inc. (Gatekeeper) with respect to the commercialization of a potential cancer treatment, known as WZ4002. Gatekeeper had arranged to license WZ4002 from the research institute that developed it.
Within a short time, Gatekeeper received a letter from another pharmaceutical company, Novartis International Pharmaceuticals, Ltd. (Novartis), challenging Gatekeeper's right to license WZ4002. After Gatekeeper expressed confidence in its licensing rights, Armentum continued providing services for about one year. In September 2010, the complaint alleges, Carthy told Kung that the dispute over the right to exploit WZ4002 was preventing Armentum from successfully completing its work for Gatekeeper. Carthy suggested that "they should stop working together" and Kung should sign a series of documents terminating his relationship with Armentum, including a Termination And Release Agreement (release). Kung executed the documents and ceased work for Armentum, but, the complaint alleges, he believed that he retained the right to receive a share of any compensation paid to Armentum for services rendered prior to his termination. That belief was founded on "Carthy's frequent prior assurances to [Kung] that [he] would receive 25% of any money Gatekeeper paid Armentum" and on Kung's trust in his friendship with Carthy.
After extensive litigation, Novartis relinquished its claim to WZ2004 and paid Gatekeeper a settlement. In July 2014, Kung learned that Gatekeeper paid Carthy $2 million from the settlement. In January 2018, Gatekeeper told Kung that the payment was actually $2.5 million and was paid as compensation for Armentum's services. In March 2018, Kung's attorney sent a letter to Carthy's attorney purporting to rescind the release.
The complaint, which seeks a 25 percent share of the $2.5 million payment from Gatekeeper, asserts claims for breach of the operating agreement against Carthy and Armentum and breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty against Carthy.
Carthy filed a cross-complaint. In addition to a series of claims against John Chant (Chant), Gatekeeper's President and CEO, which are not at issue here, the cross-complaint alleges a single cause of action against Kung for breach of the release, premised on Kung's filing of this action. Kung filed a demurrer to that claim, arguing that Carthy suffered no injury from the filing of the lawsuit other than incurring attorney's fees, which are not available under the release. The trial court sustained Kung's demurrer without leave to amend.
Defendants filed a motion for summary judgment, arguing that Kung's claims are barred by the release, the statute of limitations, and the doctrine of laches.
According to a declaration submitted by Carthy in support of the motion, he and Kung first became acquainted when both were working at an investment bank a few years before Armentum was founded. When Carthy decided to start Armentum, he invited Kung to join him, and the pair agreed to split any profits. For the first year of Armentum's existence, Carthy worked to find investors or partners for Gatekeeper in its efforts to commercialize WZ4002, but his efforts were stymied by the cloud over Gatekeeper's right to license the technology created by Novartis. Kung, who had continued to work full-time for another investment bank during this time, had limited involvement in Carthy's work for Gatekeeper.
When Armentum secured no other investment banking clients in the first year, Carthy decided to focus Armentum's business on debt financing. Because Kung had no experience in this area of finance, Carthy "explained to [Kung] that I was going to be taking Armentum in a different direction and asked him to withdraw." Kung executed the release and a letter of withdrawal. The release contains a provision stating that Kung and Armentum release each other "from any and all past or future claims, demands, causes of action of any kind, . . . whether known or unknown, suspected or claimed, disclosed or undisclosed, matured or unmatured which either party ever had, now has, or which may hereafter accrue or otherwise be acquired ...." The letter of withdrawal notified Armentum of Kung's intent to withdraw as a member and to return his ownership units to Armentum for a payment of $250, "in full and complete satisfaction of any and all obligations which [Armentum] has owed, owes or owes to [Kung] in the future." The $250 payment equaled Kung's capital contribution to Armentum.
Carthy thereafter formalized his work with Gatekeeper by becoming the company's Vice President of Business Development and assisting Gatekeeper on a full-time basis in its litigation against Novartis. Carthy was initially compensated in April 2011 by an award of shares in Gatekeeper. When Gatekeeper settled the lawsuit against Novartis in 2013, Carthy was paid $2.5 million. Carthy characterized this payment as compensation for his work for Gatekeeper between September 2010 and September 2013.
After the settlement, Carthy told Kung to contact Chant to discuss payment "for the work he did back in 2009-2010." Kung and Chant agreed that Kung would be paid $100,000 by Gatekeeper, half of which would be paid in Gatekeeper stock. At Chant's request, Kung asked Carthy whether Armentum would pay half of the remaining $50,000, but Carthy declined because Armentum had never received any compensation from Gatekeeper. Carthy heard no more about the matter until March 2018, when he was contacted by Kung's attorney.
In opposing summary judgment, Kung's declaration acknowledged that he continued to work full-time for another investment firm back during the year in which he participated in Armentum. His declaration, however, detailed work he performed for Armentum, including "spending numerous hours over the course of several months preparing extensive materials and contacting and meeting numerous potential partners, investors, and lenders on Gatekeeper's behalf." During that work, he became aware of the claims asserted by Novartis.
In September 2010, Carthy told Kung that "because Novartis's claim to have first rights to Gatekeeper's IP was blocking Armentum from closing any transactions with third parties for Gatekeeper, and because Armentum had not made any money from Gatekeeper, which was Armentum's only major client, we should stop working together." At that time, Kung was aware that Gatekeeper intended to bring an action against Novartis and was confident of a substantial recovery.
Kung acknowledged executing the release and letter of withdrawal and reading the documents prior to signing them. He did so believing that Gatekeeper would eventually receive money from Novartis and pay Armentum for services rendered in 2009 and 2010 and that he would receive 25 percent of that compensation. Kung averred that he would not have signed the documents if he had thought they effected a release of his claim to a share of the money paid by Gatekeeper for Armentum's services.
After Kung learned from Chant in 2013 that Gatekeeper had settled its lawsuit with Novartis, Kung was told by Carthy that Kung would receive $100,000 "as [his] share of the settlement." In August 2014, Kung was paid $50,000 by Gatekeeper and given an equity interest in the company.
The trial court granted the motion, reasoning that (1) the broad and general language of the release bars Kung's claims (2) Kung's purported rescission of the release was ineffective because the release was not a product of fraud, was unreasonably delayed, and constituted a prohibited partial rescission; (3) Kung affirmed the release when he accepted a payment from Gatekeeper in 2014; and (4) Kung's claims are barred by Code of Civil Procedure section 338, the three-year statute of limitations for fraud. In response to Kung's motion for a new trial, the court withdrew its ruling that the action is barred by the statute of limitations, but the court...
To continue reading
Request your trial