Overwell Harvest, Ltd. v. Widerhorn

• Decision Date: 01 November 2021
• Docket Number: 17 C 6086
• Parties: OVERWELL HARVEST LIMITED, a British Virgin Islands company, individually and derivatively on behalf of Neurensic, Inc. Plaintiff, v. DAVID WIDERHORN, PAUL GIEDRAITIS, and TRADING TECHNOLOGIES INTERNATIONAL, INC. Defendants.
• Court: U.S. District Court — Northern District of Illinois

OVERWELL HARVEST LIMITED, a British Virgin Islands company, individually and derivatively on behalf of Neurensic, Inc. Plaintiff,
v.
DAVID WIDERHORN, PAUL GIEDRAITIS, and TRADING TECHNOLOGIES INTERNATIONAL, INC. Defendants.

No. 17 C 6086

United States District Court, N.D. Illinois, Eastern Division

November 1, 2021

OPINION AND ORDER

SARA L. ELLIS United States District Judge.

While Trading Technologies International, Inc. (“Trading Technologies”) was negotiating with Neurensic, Inc. (“Neurensic”) to buy its assets, Overwell Harvest Limited (“Overwell”) brought this suit individually and derivatively in its capacity as a Neurensic shareholder to ensure the sale was lawful. Overwell initially sued Neurensic's Chief Executive Officer David Widerhorn^[1] and its Chief Operating Officer Paul Giedraitis.^[2] Approximately nine months later, Overwell added Trading Technologies to the lawsuit, alleging it aided and abetted certain of Widerhorn and Giedraitis' breaches of fiduciary duties. Specifically, Overwell alleges that Widerhorn and Giedraitis, with Trading Technologies' aid, breached their fiduciary duties by facilitating a transfer of certain Neurensic employees and assets to Trading Technologies prior to the sale of Neurensic's assets to Trading Technologies. Trading Technologies and Overwell have now filed cross-motions for summary judgment. Because questions of material

1

fact exist with respect to each element of the claim, the Court denies the parties' cross-motions for summary judgment.

BACKGROUND^[3]

Neurensic was a Delaware start-up corporation in the financial technology industry founded by Widerhorn, Giedraitis, and two others in October 2015. Overwell was formed the same year “for the sole purpose of investing in Neurensic.” Doc. 198 ¶ 1. Overwell's Board of Directors consists of Kenneth Chu, Benedict Ng, and Hilton Tam. Overwell was one of Neurensic's shareholders and its largest investor, investing a total of $3.5 million. Overwell initially invested $2.5 million in Neurensic in December 2015. Shortly after, in March 2016, Widerhorn reported to Overwell that Neurensic was low on resources and needed $500, 000 in “emergency funding.”Id. ¶ 38. In July and August 2016, Overwell invested an additional $1 million in Neurensic. After this investment, Widerhorn was the only shareholder that held more Neurensic stock than Overwell. In connection with this investment, Overwell negotiated a seat on Neurensic's Board of Directors and certain preferred stock options that entitled it to the first $8 million owed to Neurensic's shareholders from any sale of Neurensic or its assets. Chu took the seat on Neurensic's Board, joining Widerhorn and Giedraitis as the Directors of Neurensic.

2

Between March and August 2016, Jay Biondo, Morgan Trinkaus, Eric Eckstrand, and Evan Story, among others, began working for Neurensic. Each signed an employee agreement that required Neurensic to compensate them semi-monthly and provide them with health, vision, and dental benefits. The agreement also included an appendix that contained non-disclosure and restrictive covenant provisions. The non-disclosure provision forbade the employees from “directly or indirectly disclos[ing] or us[ing] . . . any of the Company's Confidential and Proprietary Information for [their] own purposes or for the purposes of any person or entity other than the Company.” Doc. 184 ¶ 22. The restrictive covenant forbade the employees from “engag[ing] in or perform[ing] any activities that directly compete with the Business of the Company, ” including “working or consulting for a competitor who engages in the business of trade surveillance, financial compliance data visualization, case management, market impact analysis and/or regulatory compliance software.”Id. ¶ 23. Trading Technologies, a private Delaware corporation, was not engaged in such business prior to acquiring Neurensic; it was in the business of “developing, marketing, and licensing trading screens for professional futures traders.” Doc. 198 ¶ 2.

By October 2016, Neurensic's financial status was dire and Widerhorn indicated that without immediate funding, Neurensic would need to file for bankruptcy. Accordingly, Widerhorn understood that Neurensic's “top mandate” from Overwell was selling the company.Id. ¶ 42. At the time, Neurensic had seven potential acquirers. In January 2017, Biondo, Trinkaus, Eckstrand, and Story entered into Revised Employment Agreements with Neurensic that granted the employees additional Neurensic stock in exchange for a reduction in their base salaries and, for Trinkaus and Story, a waiver of their right to the back pay owed to them. The Revised Employment Agreements did not include any non-disclosure or restrictive covenants

3

and stated, “The terms and conditions described in this revised employment agreement letter (the ‘Agreement'), will take effect immediately and replace any prior agreements, written or oral.” Doc. 184 ¶ 26; Doc. 186 at 151. By June 2017, Neurensic was significantly behind on payroll, most of its employees had left the company, and only five potential acquirers remained, including Trading Technologies. Eckstrand and Story both resigned in June 2017. Eckstrand estimates that Neurensic owed him approximately $40, 000 in back pay and indicated that at some point during his employment there, he did not receive health benefits. Story did not receive pay multiple times while employed at Neurensic and also did not receive health benefits for some amount of time.

By mid-August 2017, Neurensic was insolvent and Trading Technologies was the only remaining potential acquirer. In an August 16 email regarding Trading Technologies' due diligence of Neurensic, Widerhorn sent the contact and base salary information for Biondo, Trinkaus, and three other Neurensic employees to Trading Technologies. In return, Trading Technologies' Chief Legal Officer, Mike Ryan, requested copies of Neurensic's employment agreements with the five employees. Widerhorm replied, “We will need to dig these from our prior attorney team, please give a day or two.” Doc. 195 at 2. Shortly after, Trading Technologies' Chief Financial Officer at the time, Michael Kraines, asked Trading Technologies' Global Head of Human Resources to tell the five employees that “we plan to make permanent offers of employment to all” and informed her that these employees “may prove to be our best form of leverage here in terms of landing Neurensic.” Doc. 194 at 2.

On August 18, in an email to Neurensic's shareholders, Widerhorn stated, “I want to reiterate one clear point: if the investors (or a group of investors) would like to purchase the company for a fair price that satisfies emergency liens ($1.5 million or greater), we will have

4

fiduciary obligation to move forward with this offer and transfer full ownership of the business.” Doc. 184 ¶ 48. Widerhorn informed them that Neurensic would need a letter of intent by August 21 to “stop the [Trading Technologies] process.”Id. On August 22, Overwell filed this lawsuit against Widerhorn and Giedraitis and an application for a temporary restraining order (“TRO”) to stop the sale. On August 24, the Court ordered Widerhorn and Giedraitis not to sell Neurensic's assets in the next fourteen days. The next day, Trading Technologies submitted a term sheet to Neurensic that stated it would offer the five previously discussed Neurensic employees consulting agreements, which the employees must accept to close the deal. At the same time, Story began discussing potential employment opportunities with Trading Technologies, noting that there were “Neurensic topics [he is] not at liberty to discuss, ” that he “wouldn't discuss them regardless of negotiation state, ” and that his “non-compete doesn't mention [Trading Technologies].” Doc. 195 at 11.

A few days later, on August 28, Trading Technologies' Chief Technology Officer at the time, Drew Shields, told Kraines that Trading Technologies “will add surveillance” regardless of whether the deal with Neurensic “falls through” and it “will likely do it with a handful of ex-neurensic employees.” Doc. 184 ¶ 83; Doc. 193 at 13. Shields added, “Basically, we will take on the op-ex we'd add if we bought them but without buying them.” Doc. 184 ¶ 83. The next day, in an email to Kraines and Trading Technologies' Global Head of Human Resources, Shields said, “The three technical staff we are getting are not the people Jay [Biondo] said could recreate the business for us and for the most part are just good maintainers. The real data science power was a guy named Evan [Story] who I'm meeting Thur for coffee and the engineering horsepower that stitched all together from UI to back end was a guy named Erick [Eckstrand] I

5

met yesterday.... Based on Jay's feedback, we need these two, not the three guys we're getting in the deal.”Id.

On August 31, Widerhorn asked Ng if Overwell was “proposing an acquisition deal or investment deal of ANY kind as an alternative to the proposed [Trading Technologies] transaction.”Id. ¶ 53. Overwell did not respond. Biondo resigned from Neurensic on September 1 after not receiving any wages in 2017, and the same day, he received an employment offer from Trading Technologies. Biondo began working at Trading Technologies on September 5. Trinkaus resigned from Neurensic between September 4 and 7 after not receiving any wages in 2017 and not receiving health benefits. On September 7, the Court held an evidentiary hearing regarding Overwell's TRO and ordered that Widerhorn and Giedraitis “take no action with respect to the sale of [Neurensic's] assets unless and until the Board satisfies all applicable requirements of Delaware law and the Bylaws of Neurensic.” Doc. 19. Widerhorn's counsel informed Trading Technologies of the Court's order the same day.

On September 11, Neurensic and Trading Technologies signed a final term sheet for the sale...