Lindenberg v. Arrayit Corp.

• Decision Date: 18 February 2016
• Docket Number: Civil Action No. 14-833 (SRC)
• Parties: TAMARIN LINDENBERG, Plaintiff, v. ARRAYIT CORPORATION, ARRAYIT DIAGNOSTICS, INC., AVANT DIAGNOSTICS, INC., JOHN HOWELL, STEVEN SCOTT, and GREGG LINN, Defendants.
• Court: U.S. District Court — District of New Jersey

TAMARIN LINDENBERG, Plaintiff, v. ARRAYIT CORPORATION, ARRAYIT DIAGNOSTICS, INC., AVANT DIAGNOSTICS, INC.,JOHN HOWELL, STEVEN SCOTT, and GREGG LINN, Defendants.

Civil Action No. 14-833 (SRC)

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

February 18, 2016

OPINION

CHESLER,

District Judge

This matter comes before the Court upon the motion for summary judgment filed by Defendants Arrayit Diagnostics, Inc. ("AD"), Avant Diagnostics, Inc.,¹ Steven Scott, and Gregg Linn (together, "Defendants"), pursuant to Federal Rule of Civil Procedure 56 [Docket No. 59]. Plaintiff Tamarin Lindenberg ("Plaintiff" or "Lindenberg") has opposed the motion and cross-moved for summary judgment [Docket No. 62]. The Court has considered the papers filed by the parties. For the reasons that follow, the court will grant in part and deny in part Defendants' motion. The Court will deny Plaintiff's cross-motion.

I. BACKGROUND

This litigation arises out of the termination of Lindenberg's employment by Defendant AD, allegedly because Lindenberg fought to correct a materially misleading Form S-1 that AD filed with the Securities and Exchange Commission ("SEC"). AD is a medical technology company focused on developing diagnostic tests for early cancer detection. At the time relevant to this litigation, AD held intellectual property rights to Wayne State University patents for OvaDx, an early detection screen for ovarian cancer. (See Linn Aff. ¶ 2.) AD's goal was, and continues to be, to raise capital in order to secure FDA approval and bring OvaDx to market. (Id.; Pl.'s Dep. 20:5-6.) In February 2012, AD hired Lindenberg, an ovarian cancer survivor, for a three-year term as an executive consultant to promote the company and test. (Linn Aff. Ex. F; DiChiara Decl. Ex. 5; Pl.'s Dep. 138:14-17.)

Lindenberg alleges that she met with John Howell, AD's then-CEO and President, as well as financial, legal, and industry advisors to develop a plan to optimize the commercialization of the test. (Pl.'s Dep. 138:22-139:23; Bosin Cert. Ex. 5.) After extensive deliberations, a decision was made to isolate OvaDx in a newly formed company, YarraDx, Inc. ("Yarra"), which would focus on this venture. (Pl.'s Dep. 93:5-94:8; Bosin Cert. Ex. 5.) As memorialized in a June 15, 2012, term sheet, AD agreed to transfer its intellectual property rights associated with the Wayne State University patents to Yarra in exchange for approximately 32 million shares of Yarra common stock (AD obtained one share of Yarra common stock for each issued and outstanding share of AD common stock). (Linn Aff. Ex. E.) AD also received anti-dilution rights with a floor of twenty percent of issued Yarra common shares. Id. Lindenberg became Yarra's CEO, but was to remain employed by AD pending the implementation of the transfer. (Id.; Am. Compl. ¶ 33; Pl.'s Dep. 77:16-23.) Howell, AD's sole board member and holder of preferred stock carryingsupermajority voting rights, approved the deal. (Pl.'s SUF ¶ 5; DiChiara Decl. Ex. 12; Am. Compl. ¶ 25.)

Meanwhile, AD also sought to become a public company, and thus filed a registration statement with the SEC in November, 2012. (DiChiara Decl. Ex. 12.) Lindenberg alleges that the Form S-1 contained false information because it inaccurately described the Yarra agreement and misrepresented AD's financial obligations. The Form S-1 described the Yarra deal as a partial transfer of intellectual property related to the Wayne State University patents, which would allow AD to focus its resources on the development of diagnostics for prostate cancer, "a much larger market." Id. Although Lindenberg recalls being told by Howell that the technology covered by the patents could also be used to create a test for prostate cancer, she noted that the term sheet for the deal delineated a complete transfer of all intellectual property related to the patents to Yarra. Thus, Lindenberg believed that AD could not create a test for prostate cancer, as indicated in the registration statement, because the necessary patent rights were no longer within AD's possession. (Pl.'s Dep. 25:15-26:1, 41:14-42:2, 110:4-111:4.) Lindenberg also alleges that the S-1 understated AD's liabilities by failing to disclose Lindenberg's deferred compensation and the taxes due on her salary. (Pl.'s Dep. 68:13-21.) Lindenberg's employment agreement provided that her compensation would accrue but will not be paid until the company had raised at least $500,000 in capital. (Linn Aff. Ex. F.) AD was also required to withhold all customary taxes, which it allegedly failed to do. (Id.; Am. Compl. ¶ 31.)

Lindenberg reports making numerous attempts to correct the S-1. Initially, she addressed the issue with Howell, but he refused to amend the filing. (Pl.'s Dep. 66:8-18, 109:19-110:2.) For reasons undisclosed in the parties' submissions, Howell resigned on December 12, 2012. On December 16, 2012, Defendant Steven Scott assumed the role of AD's new CEO and DefendantGregg Linn became the company's President. (Linn Aff. ¶ 6.) Lindenberg testified that she attempted to alert the new officers to the problem, but her communications were avoided. (Pl.'s Dep. 31:4-32:23, 65:3-6, 76:1-77:1.) Failing to resolve the question within AD, Linn requested a meeting with Rene Schena, the CEO of AD's parent company, AC. (Pl.'s Dep. 32:21-25.) The conversation allegedly took place on December 17^th and 18^th, after which, Schena purportedly told Lindenberg that she would immediately notify Scott. (Pl.'s Dep. 33:1-3, 65:19-25.) On December 19, 2012, Scott contacted Lindenberg, but not about the S-1. Instead, Scott sent her a termination notice. (Linn Aff. Ex. A.) On December 20^th, AD withdrew the S-1. (Linn Aff. Ex. D.) Lindenberg insists that AD terminated her employment because she complained about the filing.

Defendants dispute Lindenberg's version of events. Most importantly, Defendants deny that Scott or Linn ever learned about inaccuracies in the registration statement from Lindenberg, directly, or through Schena, and note that they independently decided to withdraw the S-1 on December 17, 2012, before Lindenberg spoke about it with Schena. (Linn Aff. ¶¶ 4, 12, 14; Id. Ex. C.) Defendants paint the Yarra deal as deceitful, and aver that they discharged Lindenberg because she attempted to defraud the company by transferring AD's intellectual property to Yarra for allegedly worthless compensation in Yarra stock. (Linn Aff. ¶¶ 16-17; Defs.' SUF ¶ 11.)

On March 25, 2014, Lindenberg filed an Amended Complaint against AD, Avant Diagnostics, Inc., AC, and individual defendants John Howell, Gregg Linn, and Steven Scott, asserting the following state law claims against all Defendants: retaliatory termination in violation of the Conscientious Employee Protection Act ("CEPA"); breach of contract; breach of the implied covenant of good faith and fair dealing; economic duress; and intentional infliction of emotional distress. Lindenberg also brought a claim against AC for tortious interference with her employment agreement. Defendant AD counterclaimed for two counts of breach of contract.

By Order dated August 6, 2014 [Docket No. 47], in response to a motion to dismiss filed by AC for failure to state a claim, and a motion to dismiss by John Howell, for lack of personal jurisdiction, this Court dismissed Plaintiff's claims as to those Defendants. The remaining Defendants now move for summary judgment on Lindenberg's claims. Plaintiff opposes the motion and cross-moves for summary judgment on her breach of contract claim and AD's counterclaims.

II. DISCUSSION

A. Legal Standard for Summary Judgment

Federal Rule of Civil Procedure 56(a) provides that a "court shall grant summary judgment if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986) (construing the similarly worded Rule 56(c), predecessor to the current summary judgment standard set forth in Rule 56(a)). A factual dispute is genuine if a reasonable jury could return a verdict for the non-movant, and it is material if, under the substantive law, it would affect the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

"[W]ith respect to an issue on which the nonmoving party bears the burden of proof . . . the burden on the moving party may be discharged by 'showing'—that is, pointing out to the district court—that there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325. "When the moving party has the burden of proof at trial, that party must show affirmatively the absence of a genuine issue of material fact: it must show that, on all the essential elements of its case on which it bears the burden of proof at trial, no reasonable jury could find for the non-moving party." In re Bressman, 327 F.3d 229, 238 (3d Cir. 2003) (quoting United States v. Four Parcels of Real Property, 941 F.2d 1428, 1438 (11th Cir. 1991)). In considering amotion for summary judgment, a district court "must view the evidence 'in the light most favorable to the opposing party.'" Tolan v. Cotton, 134 S. Ct. 1861, 1866 (2014) (quoting Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970)). It may not make credibility determinations or engage in any weighing of the evidence. Anderson, 477 U.S. at 255; see also Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (holding same).

Once the moving party has satisfied its initial burden, the party opposing the motion must establish the existence of a genuine issue as to a material fact. Jersey Cent. Power & Light Co. v. Lacey Twp., 772 F.2d 1103, 1109 (3d Cir. 1985). "A nonmoving party has created a genuine issue of material fact if it has provided sufficient evidence to allow a jury to find in its favor at trial." Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138 (3d Cir. 2001), overruled on other grounds by Ray Haluch...