Northern California Record

Wednesday, October 16, 2019

Judge rules on pleadings in favor of PLC Diagnostics in suit over investments


By Scott Holland | May 14, 2019

SAN FRANCISCO – A federal judge has ended a legal action stemming from disputed investments.

Magistrate Judge Thomas Hixson of the U.S. District Court for the Northern District of California granted the defendants' motion for judgment on the pleadings on May 2

Defendant PLC Diagnostics executed a joint venture with iNDx Technology in August 2013 to create iNDx Lifecare, under which PLC transferred patent ownership to iNDx and iNDx issued a $3.1 million promissory note. PLC's director and shareholder is Reuven Duer.

The next March, iNDx raised more than $2.1 million, including a $200,000 investment from Eurosemillas, believing the technology in development would be market-ready in six months.

In August 2014, defendant NMS became a strategic partner of iNDx, agreeing to develop, market and sell small molecule assay products. NMS loaned iNDx $1 million that November, and another $500,000 in May 2015. In January 2015, Eurosemillas also loaned iNDx $250,000, and which Eurosemillas said was conditional on the intercreditor agreement it signed with NMS and PLC. Eric Rieders was NMS board chairman.

Duer also was on iNDx’s board while Rieders was a managing consultant and later board chairman. According to Hixson's ruling, sometime in 2015 Duer began to "undermine iNDx’s efforts to remain solvent."

“The PLC-appointed directors on iNDx’s board blocked every proposed financing option, while Duer did everything he could to sabotage the company operationally,” Hixson wrote. “PLC’s goal was to drive iNDx into insolvency so PLC could take back its intellectual property. Because that intellectual property also secured NMS’ notes, PLC and NMS began to collude to devise a plan where they would both share the rights to the intellectual property to the exclusion of others, such as Eurosemillas.”

iNDx declared bankruptcy on Aug. 11, 2016, and no longer had the collateral that secured the Eurosemillas loan, as it ended up belonging to defendant LDIP LLC, an entity PLC and NMS jointly operated. 

Eurosemillas sued PLC and NMS over alleging breaching the intercreditor agreement and the covenant of good faith and fair dealing and sued Duer, Rieders, PLC and NMS over allegations of fraud in inducing it to invest and issue loans as well as for unfair competition.

Hixson said Eurosemillas’ second amended complaint lists LDIP as a defendant and requests relief, but none of the claims for relief bring allegations against LDIP. All the defendants moved for judgment on the pleadings, and in its response to that motion Eurosemillas said it only stated a claim for breach of contract against LDIP and doesn’t argue its other claims apply.

“The closest Eurosemillas comes to alleging it had a contractual relationship with LDIP,” Hixson wrote, is an allegation “in conclusory fashion that ‘PLC and NMS assigned to LDIP their rights and liabilities’ under the ICA, but even that falls short.” 

As such, he entered judgment in favor of LDIP for all four claims.

Hixson likewise said Eurosemillas’ fraud allegations against Duer and Rieders are deficient. He said Duer thought the technology had passed sample tests and would be to market in six months when he said so, and that opinions and predictions can’t be used to support a fraud claim.

“With iNDx having filed for bankruptcy and lost its employees and tangible and intangible assets three years ago, Eurosemillas does not plausibly allege a continuing threat of misconduct by Rieders or Duer, and so injunctive relief cannot be awarded under the unfair competition law,” Hixson wrote.

Hixson also denied Eurosemillas leave to amend its complaint, saying the deadline to do so was a year ago, the company is not trying to show good cause to do so and did not ask for permission in its opposition brief.

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