Northern California Record

Sunday, November 17, 2019

Eurosemillas not entitled to restitution in breach of contract case over bankrupt company, judge rules


By Scott Holland | May 29, 2019


SAN FRANCISCO – A federal magistrate judge has granted summary judgment in a legal dispute between medical technology investors.

Magistrate Judge Thomas Hixson of the U.S. District Court for the Northern District of California, ruled May 13 to grant PLC Diagnostics and National Medical Services' motion for summary judgment in a suit filed against them by Eurosemillas over allegations of breach of contract and other counts.

The ruling states PLC Diagnostics, through director and shareholder Reuven Duer, 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. In 2014, iNDx raised $200,000 from Spanish company Eurosemillas, which believed the technology in development would be market ready in six months.

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

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

On May 2, a court entered judgment in favor of LDIP for all four claims, and Hixson issued a May 13 opinion granting summary judgment in favor of PLC and NMS.

Hixson said Eurosemillas ultimately abandoned its contention PLC and NMS breached the January 2015 agreement — “in fact, there is no evidence that anyone signed” that agreement, he wrote — pivoting to an Oct. 22, 2014, intercreditor agreement with itself, PLC and iNDx, but not NMS. According to Hixson, PLC and NMS contend that agreement isn’t a contract because NMS didn’t sign, and even if it were a contract, there was no breach.

The record includes an email from NMS President and CEO Pierre Cassigneul that Hixson said constitutes “an unequivocal rejection” of the October 2014 agreement, which iNDx attempted to resolve in a draft of the January 2015 agreement. Eurosemillas insisted an NMS and PLC behaved as if an agreement were in place, including an allegation “NMS circulated a draft amendment to such a three-way intercreditor agreement on March 11, 2016, which necessarily presupposed that one existed,” the ruling states.

However, Hixson said, that amendment pointed to the January 2015 agreement, not the one from October 2014. Ultimately, he said, “there is no document that anyone can point to that states the terms of an intercreditor agreement that the three creditors agreed to.”

With the determination there wasn’t a three-way contract, Hixson said, Eurosemillas also failed to allege breach of implied covenant of good faith and fair dealing, as the covenant is an implied term in an express contract. Hixson also found Eurosemillas’ fraud claim deficient, saying there is no evidence showing Duer’s statements about market viability were knowingly false when made.

Hixson also said Eurosemillas’ unfair competition state law complaint failed on similar grounds, in that “every specific form of injunctive relief that Eurosemillas requests and all but two of the requested declarations are untenable in light of the court’s determination that there was no three-way intercreditor agreement.”

Finally, Hixson wrote in granting summary judgment, Eurosemillas is entitled to no restitution.

“Eurosemillas did not pay any money to PLC or NMS,” he wrote. “Rather, it lent to and invested in iNDx, which went bankrupt. Eurosemillas has no restitution claim because PLC and NMS received no money from it.”

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