Toutov v. Curative Labs.

Decision Date31 August 2021
Docket Number2:20-cv-11284-ODW (MAAx)
CourtU.S. District Court — Central District of California
PartiesANTON TOUTOV, Plaintiff, v. CURATIVE LABS INC.; CURATIVE INC.; JONATHAN MARTIN; PAUL SCOTT; KORVA HOLDINGS LLC; and KORVA SCIENTIFIC, INC., Defendants.

ORDER DENYING MOTION TO DISMISS [23]; AND GRANTING MOTION TO DISMISS [31]

OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE.

I. INTRODUCTION

Plaintiff Dr. Anton Toutov brings this action for breach of contract and fiduciary duties regarding his minority ownership of an anti-doping testing consultancy startup that ultimately became a very profitable COVID-19 testing company. (See Compl., ECF No. 1.) Defendants move to dismiss. (Curative Defs. Mot. Dismiss (“Curative Mot.”) ECF No. 23; Korva Defs. Mot. Dismiss (“Korva Mot.”), ECF No. 31.) For the reasons that follow, the Court DENIES the Curative Motion and GRANTS the Korva Motion.[1]

II. PLAINTIFF'S ALLEGATIONS

In November 2014, Jonathan Martin and Paul Scott started a laboratory testing consulting services company, initially incorporated under the name “SA Laboratories Inc, ” later renamed as “KorvaLabs, Inc., ” and ultimately “Curative Labs, Inc. (Compl. ¶¶ 2, 21, 27-31.) In April 2015, Martin recruited Toutov to join and become one of that company's three founders, to expand the company into a successful testing laboratory. (Id.) Scott was the Chief Executive Officer, Martin was the Chief Financial Officer and Chief Operations Officer, and Toutov would be the Chief Science Advisor. (Id. ¶¶ 4, 29-33.) Toutov would be the company's only founder with an advanced degree in chemical or biological sciences. (Id. ¶ 4.)

In exchange for Toutov contributing his scientific expertise, credentials, reputation, [2] and network to build the company into a testing laboratory, KorvaLabs offered Toutov “a 20% equity interest in the company and a promise of financial compensation in the future once the company started earning more revenues.” (Id. ¶¶ 30-32.) At the time, KorvaLabs had neither the infrastructure nor necessary certifications to conduct any scientific testing, and because it had no significant business operations, it could not offer Toutov a salary. (Id. ¶¶ 2, 28, 32.) Toutov accepted the offer. (Id. ¶¶ 31-33.)

Martin, Scott, and Toutov ran the company jointly, collaborating on all important decisions through informal meetings and telephone calls. (Id. ¶ 6.) Martin and Scott controlled the board of directors and the company's day-to-day finances and Toutov focused on the company's operations and growth. (Id.) For instance, Toutov arranged for KorvaLabs to move into and build out an advanced lab space in San Dimas, California that became critical to the company' growth and success. (Id. ¶¶ 36-40.)

After the company moved into the new lab space, KorvaLabs, Martin, and Scott gave Toutov a KorvaLabs stock grant certificate signed by Martin and Scott as Board Members “reaffirming” Toutov's 20% ownership of the company. (Id. ¶ 41, Ex. A.) The stock grant was unconditional and not subject to any vesting schedule. (Id. ¶ 42.)

Toutov became KorvaLab's “Chief Science Officer” and was listed as a member of its board of directors. (Id. ¶¶ 43, 54, Ex. C.) He oversaw the expansion of the company's lab space to double its initial size and was instrumental in obtaining Clinical Laboratory Improvement Amendments (“CLIA”) certification, which was necessary for the company to expand its testing to offer clinical diagnostic testing for certain human biological samples. (Id. ¶¶ 31, 33, 45-47, 51, 69.)

Toutov did not receive any monetary compensation from the company during his tenure. (Id. ¶ 52.) To the contrary, he paid expenses incurred on behalf of the company. (Id.) He worked “tirelessly” to support KorvaLabs's success because of his equity interest in the company and the agreement that he would receive additional cash compensation once the company earned reasonable revenues. (Id.)

In August 2019, unbeknownst to Toutov, KorvaLabs removed his name from the list of directors in a filing with the Secretary of the State. (Id. ¶ 56.) In September 2019, Martin and Scott failed to attend a scheduled meeting with Toutov to discuss the company's operations and future. (Id. ¶ 58.) Then, in late 2019, Martin and Scott demanded that Toutov voluntarily relinquish his 20% equity interest in the company. (Id. ¶ 59.) When Toutov refused, he was shut out and ousted from the company. (Id.) Toutov asked Scott about his equity interest, and Scott directed Toutov to send a request to review the company's books and records. (Id. ¶ 61.) Toutov sent the request on two separate occasions in January 2020 but never received the books and records requested. (Id. ¶¶ 61-62.)

In May 2020, KorvaLabs changed its name to “Curative Labs Inc., ” and then merged with “Curative Inc., ” a company newly registered with the California Secretary of State. (Id. ¶ 21, 64-65.) In mid-2020, Martin and Scott also registered Korva Holdings, LLC, and Korva Scientific, Inc. with the California Secretary of State. (Id. ¶ 66.) Toutov alleges that Curative Labs, Curative Inc., Korva Holdings, and Korva Scientific are merely alter egos of one another and are different names for the same corporate entity. (Id. ¶¶ 11, 21, 67-68.)

Curative Labs continues to operate out of the same CLIA-certified lab space Toutov secured, built, and established in San Dimas. (Id. ¶ 69.) Since early 2020, the company used this infrastructure to pivot and provide COVID-19 testing, obtaining Emergency Use Authorization to conduct COVID-19 testing at the San Dimas site. (See Id. ¶¶ 70-71.) The company became very successful and realized in excess of ten million dollars in profits during 2020. (Id. ¶ 74.)

Despite his 20% ownership, Toutov has not received a share of the company's corporate profits and distributions, nor has he been provided access to the company's books and records. (Id. ¶¶ 74-75.) Accordingly, Toutov filed the instant suit against Curative Labs (formerly known as SA Laboratories and KorvaLabs), Curative Inc., Martin, Scott, Korva Holdings, and Korva Scientific.[3] Toutov asserts four causes of action: (1) violation of California Corporations Code section 1600, for refusal to provide the company's books and records for review, against Curative Labs (Claim One); (2) breach of fiduciary duty, against the Individual Defendants (Claim Two); (3) accounting, against all Defendants (Claim Three); and (4) breach of contract, against Curative Labs, Curative Inc., and Korva Defendants, all as alter egos of each other (Claim Four). (Id. ¶¶ 78-97.) Defendants move to dismiss all claims.[4]

III. LEGAL STANDARD

A court may dismiss a complaint under Federal Rule of Civil Procedure (“Rule”) 12(b)(6) for lack of a cognizable legal theory or insufficient facts pleaded to support an otherwise cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988). To survive a dismissal motion, a complaint need only satisfy the minimal notice pleading requirements of Rule 8(a)(2)-a short and plain statement of the claim. Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual “allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). That is, the complaint must “contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). The determination of whether a complaint satisfies the plausibility standard is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. A court is generally limited to the pleadings and must construe all “factual allegations set forth in the complaint . . . as true and . . . in the light most favorable” to the plaintiff. Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001). However, a court need not blindly accept conclusory allegations, unwarranted deductions of fact, and unreasonable inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

Where a district court grants a motion to dismiss, it should generally provide leave to amend unless it is clear the complaint could not be saved by any amendment. See Fed. R. Civ. P. 15(a); Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Leave to amend may be denied when “the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986). Thus, leave to amend “is properly denied . . . if amendment would be futile.” Carrico v. City and Cnty. of San Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011).

IV. DISCUSSION

Curative Defendants move to dismiss the Complaint on the basis that Toutov fails to state a claim. (Curative Mot. 2-3.) Korva Defendants move to dismiss Claims Three and Four, arguing Toutov fails to adequately plead an alter ego theory of liability against them. (Korva Mot. 1-2.) The Court considers each cause of action in turn, delaying analysis of the accounting claim until after the other three.

A. California Corporations Code Section 1600 et seq. (Claim One)

Toutov contends that Curative Labs violated California Corporations Code section 1600 by depriving him of his statutory right to inspect corporate books and records. (Compl. ¶¶ 78-83.) California Corporations Code 1601 provides that “upon the written demand on the corporation of any shareholder, ” documents including “accounting books, records, and minutes of proceedings of the shareholders and the board” must be made available. Directors, too, have the “absolute...

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