Gopinath v. SomaLogic, Inc.
| Docket Number | 3:23-cv-01164-W-WVG |
| Decision Date | 22 November 2023 |
| Parties | ASHWIN GOPINATH, an individual, Plaintiff, v. SOMALOGIC, INC., a Delaware, Defendant. SOMALOGIC, INC., a Delaware corporation, Counterclaimant, v. ASHWIN GOPINATH, an individual, Counter-Defendant. |
| Court | U.S. District Court — Southern District of California |
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS [DOC. 19]
Pending before the Court is Dr. Ashwin Gopinath's (“Counter-Defendant”) motion to dismiss ([Doc 19], “Motion”) all four of Somalogic, Inc.'s (“Counterclaimant”) counterclaims ([Doc. 17] “Countercomplaint”[1]). Counterclaimant opposes the Motion ([Doc. 28], “Opposition”). Counter-Defendant has replied. ([Doc. 33], “Reply”.)
The Court decides the matter on the papers submitted and without oral argument. See Civ. L.R. 7.1(d)(1). For the reasons stated below, the Court GRANTS IN PART and DENIES IN PART the Motion.
This lawsuit arises out of a business merger gone sour. As alleged, Counterclaimant (a biotech company) acquired the San Diego based DNA nanotechnology start-up company Palamedrix, Inc. (“Palamedrix”) in the summer of 2022. (Countercomplaint at ¶¶ 1-2, 17.) Palamedrix was founded by three individuals, Dr. Shane Bowen, Dr. Paul Rothemund, and Counter-Defendant (collectively, the “Founders”). (Id. at ¶ 2.) According to Counterclaimant, it was “primarily interested in acquiring Palamedrix” not because of any property Palamedrix owned, but instead because it wanted to employ its three Founders and “other scientists.” (Id. at ¶ 3.) As such, Counterclaimant executed a merger agreement (the “Merger Agreement”[2]) with Palamedrix on July 25, 2022, whereby Counterclaimant paid Palamedrix $14 million in cash (“Upfront Cash”) and an additional $21 million worth of Counterclaimant's common stock (“Upfront Stock”). (Id. at ¶ 19.) As alleged, this consideration was largely divided between Palamedrix's three Founders and for his part, CounterDefendant's share of the Upfront Stock was 456,286 individual shares. (Id. at ¶¶ 20, 33.) Additionally, the Merger Agreement provided that an additional $17.5 million worth of “consideration” may be paid to the three Founders if certain “revenue-based milestones” were met by August of 2027 and August of 2028 and if the Founders remained employed “full-time” by Counterclaimant (the “Milestone Consideration”). (Id. at ¶ 20; Merger Agreement at Section 2.16(g)(i).) The Merger Agreement closed on August 31, 2022 (the “Closing Date”).
To entice Counter-Defendant to remain with Counterclaimant after the merger, it also entered into a side agreement (the “Founder Side Letter”[3]) on July 25, 2022 (the same date the Merger Agreement was executed)-which, in relevant part, provided that certain percentages of the Counter-Defendant's shares of the Upfront Stock Consideration would not vest unless he remained employed with Counterclaimant 12, 24, and 36 months after the Closing Date. (Id. at ¶¶ 22-24, 30.) Specifically, the Founder Side Letter provided that Counter-Defendant would have 76,062.88 shares of the Upfront Stock vest to him on the Closing Date, and would then have an additional 126,756.25 shares of the Upfront Stock vest to him if he remained employed by Counterclaimant every 12 months thereafter for the next three years (i.e. 126,756.25 would vest 12 months after the Closing Date, another 126,756.25 would vest 24 months after the Closing Date, and the final 126,756.25 would vest to him 36 months after the Closing Date). (Id. at ¶¶ 33-34; see Founder Side Letter at Section 2(a)-(c).) If Counter-Defendant was fired for “Cause” or resigned without “Good Reason” before these dates, the outstanding, unvested stock would not vest to him. (Countercomplaint at ¶ 30). “Cause” and “Good Reason” are both defined terms in the Merger Agreement, although not in the Founder Side Letters. (Id. at ¶¶ 31-32.) Similarly, the Counter-Defendant was only eligible to receive the Milestone Consideration if the requisite revenue milestones were met in 2027 and 2028 and he remained employed by Counterclaimant full-time-unless he was fired without “Cause” or resigned with “Good Reason.” (Countercomplaint at ¶ 37-38; Merger Agreement at Section 2.16(g)(i).)
According to Counterclaimant, the Founders remaining after the merger was so important that the Merger Agreement specifically identified the Founders signing their Founder Side Letters and accepting employment offers (the “Founder Offer Letter”[4]) with Counterclaimant as “material inducement” to Counterclaimant executing the Merger Agreement and a “Condition to Closing.” (Id. at ¶ 22; Merger Agreement at 2.) In turn, the Founder Side Letters stated that “[e]ntering into this Side Letter will be a condition precedent to” Counterclaimant “executing the [M]erger [A]greement.” (Id. at ¶ 22; Founder Side Letter at Section 2.)
Unfortunately, the relationship between Counterclaimant and Counter-Defendant soured shortly after the merger. Indeed, on November 21, 2022, Counter-Defendant sent Counterclaimant's attorneys a letter (“Demand Letter”) asserting that he would be well within his rights to resign for “Good Reason” given that certain former Palamedrix employees had left Counterclaimant shortly after the merger. (Countercomplaint at ¶ 77.) Then, on March 14, 2023, Counterclaimant informed Counter-Defendant that he was in violation of numerous company policies and was suspending his access to the company systems and email. (Countercomplaint at ¶ 81.) On April 10, 2023, Counter-Defendant informed Counterclaimant that he was resigning. (Id. at ¶ 84.)
Shortly thereafter, on April 28, 2023, Counter-Defendant initiated this case by filing his complaint (“Complaint”[5]) against Counterclaimant in San Diego County Superior Court, seeking: (1) declaratory judgment that Counter-Defendant resigned for “Good Reason” under the Merger Agreement (thereby entitling him to the rest of his Upfront Stock vesting and his potential share of the Milestone Consideration despite no longer working for Counterclaimant); and (2) that alternatively, he was wrongfully discharged (i.e. without “Cause”) for “refusing to condone and reporting gender discrimination and harassment” at Counterclaimant. (Complaint at ¶¶ 80, 86.)
Defendant/Counterclaimant removed the case to this Court on June 22, 2023, citing diversity jurisdiction. (See generally, Notice of Removal.)
Counterclaimant then filed its Countercomplaint on September 5, 2023, asserting four causes of action: (1) “Fraud (Fraudulent Inducement, False Promise, Concealment, and Intention Misrelation”); (2) Negligent Misrepresentation; (3) Breach of the Implied Covenant of Good Faith and Fair Dealings; and (4) Declaratory Relief that CounterDefendant resigned without “Good Reason” or, alternatively, that Counter-Defendant was terminated for “Cause.” (Countercomplaint at ¶¶ 129.)
Generally, with respect to the first two causes of action, Counterclaimant alleges that during the negotiation of the Merger Agreement, Founder Side Letters, and FounderOffer Letters, Counter-Defendant made representations that: (i) he would remain as an employee with Counterclaimant for at least three years; (ii) that he would supervise employees in the San Diego office; (iii) that he would develop technology for Counterclaimant; and (iv) that he would work in good faith towards achieving the revenue goals that the Milestone Consideration was conditioned on. (Id. at ¶¶ 98, 110.) Of course, these four goals were largely not achieved in the sense that Counter-Defendant ceased to be an employee of Counterclaimant less than a year after the Closing Date, thus rendering the four above mentioned representations either-in Counterclaimant's view- fraudulent or negligent misrepresentations. For this, Counterclaimant seeks, among other things, repayment of the Upfront Cash and Upfront Stock. (Id. at ¶¶ 106, 117.)
Similarly, as to the third cause of action, Counterclaimant alleges that CounterDefendant violated the covenant of good faith and fair dealings with respect to the Founder Side Letter and Founder Offer Letter by “shirking his assigned work,” “poorly managing team members,” working on outside projects, violating Counterclaimant's policies, talking badly about Counterclaimant to his fellow employees, asserting in the Demand Letter that he had the right to resign for “Good Reason,” and generally by failing to perform his job duties. (Id. at ¶¶ 119-22.) For this, Counterclaimant seeks recovery of the salary paid to Counter-Defendant in the few months he was employed by Counterclaimant, the cost of replacing Counter-Defendant, as well as the Upfront Cash and Upfront Stock. (Id. at ¶ 124.)
As to the fourth cause of action, Counterclaimant alleges that Counter-Defendant resigned without “Good Reason” or, alternatively, was terminated for “Cause.” (Id. at ¶¶ 127-28.)
Counter-Defendant now moves to dismiss all four causes of action in the Countercomplaint, and Counterclaimant opposes.
Federal Rule of Civil Procedure 12(b)(6) allows a defendant to file a motion to dismiss for failing “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the complaint's sufficiency. See N. Star Int'l v Ariz. Corp. Comm'n., 720 F.2d 578, 581 (9th Cir. 1983). A complaint may be dismissed as a matter of law either for lack of a cognizable legal theory or for insufficient facts under a cognizable theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984). Additionally, in evaluating the motion, the Court must assume the truth of all factual allegations and must “construe them in light most favorable to the nonmoving party.” Gompper v. VISX, Inc., ...
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