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18 Kt.Tv, LLC v. Entest Biomedical

November 7, 2011

18 KT.TV, LLC,
PLAINTIFF
v.
ENTEST BIOMEDICAL, INC.; BIO-MATRIX SCIENTIFIC GROUP, INC.; AND DAVID R. KOOS, DEFENDANTS



The opinion of the court was delivered by: (Judge Munley)

MEMORANDUM

Before the court is defendants' motion to dismiss and strike pursuant to Federal Rule of Civil Procedure 12. (Doc. 10). The issues have been fully briefed and the parties appeared before the court for oral argument. For the following reasons, defendants' motion will be granted in part and denied in part. Background

This case arises out of a business dispute between the parties. Plaintiff 18KT.TV, LLC (hereinafter "plaintiff") is a financial consulting firm based in WilkesBarre, PA. (Doc. 7, Am. Compl. (hereinafter "A.C.") ¶ 1). Craig Fischer is plaintiff's sole member. (Id. ¶ 2). On August 11, 2009, plaintiff entered into a twelve month written contract with Defendant Bio-Matrix Scientific Group, Inc. (hereinafter "Bio-Matrix") for consulting and web-based marketing services (hereinafter the "Bio-Matrix Agreement"). (Id. ¶¶ 21-22). Fischer entered the Bio-Matrix Agreement on behalf of plaintiff and Defendant David R. Koos (hereinafter "Koos"), Bio-Matrix's corporate president, chief executive, and chairman of the board, executed the contract on behalf of Bio-Matrix in his capacity as a corporate officer. (Doc. 7-1, Ex. A, Bio-Matrix Scientific Group, Inc. Consulting Services Agreement (hereinafter "Bio-Matrix Agreement") at 9; A.C. ¶ 10).

The services plaintiff promised to perform under the Bio-Matrix Agreement are as follows:

(a) Identify catalysts and value propositions, as they relate to the Company's growth strategy;

(b) Facilitate the establishment and distribution of SEC compliant press releases to relay growth strategy to the financial community;

(c) Distribute an investment profile for the Company on Consultant's website, www.EquityDigest.com.

(d) Investor relations advice;

(e) Schedule and facilitate strategic shareholder calls with the management of the Company;

(f) Coordinate opt-in e-mail notifications; and

(g) Evaluate and provide an updated investor relations plan at 90-day intervals. (Bio-Matrix Agreement at 1). The Bio-Matrix Agreement provides that plaintiff receives 1.5 million shares of restricted Bio-Matrix common stock for its services.

(A.C. ¶¶ 23-24). Plaintiff alleges that it fully performed its obligations under the Bio-Matrix Agreement, but has not been paid the promised compensation of 1.5 million restricted Bio-Matrix common shares. (A.C. ¶¶ 25-27). Plaintiff alleges that Bio-Matrix has no justification for its breach and that it is entitled to 1.5 million Bio-Matrix common shares.

On August 25, 2009, plaintiff and Defendant Entest Biomedical, Inc. (hereinafter "Entest") entered into a twelve-month consulting contract (hereinafter the "Entest Agreement"). (Id. ¶ 30). The services subject to the Entest Agreement are identical to Bio-Matrix Agreement. (Doc. 7-1, Ex. B, Entest BioMedical Inc. Consulting Services Agreement (hereinafter "Entest Agreement") at 1). The Entest Agreement provides plaintiff with 250,000 shares of Entest restricted common stock for its services. (A.C. ¶¶ 32-33). Entest issued 50,000 shares to Craig Fischer, and these shares paid a dividend of $200,000 in 2009. (Id. ¶ 36; Doc. 7-1, Ex. C, Entest Biomedical, Inc. Stock Certificate; Ex. D, Form 1099-DIV). Fischer and Koos signed the Entest Agreement, like the Bio-Matrix Agreement, in their professional capacities. (Entest Agreement at 9). Plaintiff alleges that it fully performed its obligations under the Entest Agreement and is entitled to the unpaid shares of Entest stock. Plaintiff also claims that Entest must lift the restrictive legend affixed to the shares it has already issued to Craig Fischer.

Entest and Bio-Matrix are in the biomedical research industry. (A.C. ¶¶ 4, 6). Bio-Matrix is purported to be a biotechnology research and development company with facilities including two secure cryogenic stem cell banks, three research laboratories, aseptic cellular/tissue class 10,000/100 processing lab, hematology, microbiology and flow cytometry laboratories available for processing, culturing and storage of specimens; Bio-Matrix is ostensibly pursuing relationships with hospitals, medical institutes, research firms and biotechnology companies to assist in stem cell research, cell culturing and Regenerative Medicine therapies. (Id. ¶ 6). Entest purports to be a "biomedical research company specializing in new procedures, treatments and medical devices including the development of immuno-therapeutic treatments that address illnesses and maladies in both veterinary and human medicine." (Id. ¶ 4).

Bio-Matrix is alleged to be the majority shareholder of Entest. (Id. ¶ 7). Koos, a citizen of California, is alleged to completely dominate Bio-Matrix and Entest. (Id. ¶¶ 8-11). Plaintiff avers that "Koos dominates and controls Entest and Bio-Matrix to such an extent that these companies are merely his alter ego." (Id. ¶ 11). With respect to Koos's dominance in the transaction at issue, plaintiff further alleges that Koos "executed both the Entest Agreement and Bio-Matrix Agreement as CEO of the respective companies, notice under both the Entest Agreement and Bio-Matrix Agreement is to be sent to the attention of Koos and Koos is the only person/individual purporting to be an agent of Entest or Bio-Matrix with whom the Plaintiff was ever engaged relevant the (sic) Entest Agreement and Bio-Matrix Agreement." (Id. ¶ 14). Koos is alleged to be the impetus behind the two agreements and he allegedly caused the defendant corporations to breach the agreements. (Id. ¶ 16).

Plaintiff filed a complaint on February 3, 2011 (Doc. 1) and an amended complaint on April 18, 2011 (Doc. 7). Plaintiff's amended complaint alleges breach of contract, unjust enrichment and implied in fact contract claims against Bio-Matrix and Entest in Counts I through VI. Plaintiff alleges in Counts VII and VIII that Koos is personally liable under the participation theory and the equitable doctrine of piercing the corporate veil, respectively. Plaintiff seeks compensatory damages, punitive damages and attorneys fees. Defendants filed a motion under Federal Rule of Civil Procedure 12 to dismiss all of plaintiff's claims except for plaintiff's breach of an express contract claims. In their Rule 12 motion, defendants also seek to strike plaintiff's request for punitive damages and attorney's fees. For the following reasons, defendants' motion will be granted in part and denied in part. Jurisdiction

The court has jurisdiction pursuant to the diversity statute, 28 U.S.C. § 1332. Plaintiff is a Pennsylvania Limited Liability Corporation and its sole member, Craig Fischer, is a citizen of Pennsylvania. (A.C. ¶¶ 1-2). Defendant Bio-Matrix Scientific Group, Inc. is a Delaware corporation with a business address in California. (Id. ¶ 5). Defendant Entest Biomedical, Inc. is a Nevada corporation with a business address in California. (Id. ¶ 3). Defendant David R. Koos is a resident and citizen of California. (Id. ¶ 8). Because complete diversity of citizenship exists between the parties and the amount in controversy exceeds $75,000.00, the court has jurisdiction over the case. See 28 U.S.C. § 1332. Because we are sitting in diversity, the substantive law of Pennsylvania shall apply to the instant case. Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir. 2000) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938)).

Legal Standard

Defendants' Rule 12 motion attacks the complaint on two grounds. In the first, defendant seeks the dismissal of certain claims for failure to state a claim upon which relief can be granted. See FED. R. CIV. P. 12(b)(6). When a 12(b)(6) motion is filed, the sufficiency of the allegations in the complaint is tested. All well-pleaded allegations of the complaint must be viewed as true and in the light most favorable to the non-movant to determine whether "'under any reasonable reading of the pleadings, the plaintiff may be entitled to relief.'" Colburn v. Upper Darby Twp., 838 F.2d 663, 665-66 (3d Cir. 1988) (quoting Estate of Bailey by Oare v. Cnty. of York, 768 F.2d 503, 506 (3d Cir. 1985)). The plaintiff must describe "'enough facts to raise a reasonable expectation that discovery will reveal evidence of' [each] necessary element" of the claims alleged in the complaints. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). Moreover, the plaintiff must allege facts that "justify moving the case beyond the pleadings to the next stage of litigation." Id. at 234-35. In evaluating the sufficiency of a complaint the court may also consider "matters of public record, orders, exhibits attached to the complaint and items appearing in the record of the case." Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n.2 (3d Cir. 1994) (citations omitted). The court does not have to accept legal conclusions or unwarranted factual inferences. See Curay-Cramer v. Ursuline Acad. of Wilmington, Del., Inc., 450 F.3d 130, 133 (3d Cir. 2006) (citing Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997)).

The federal rules require only that plaintiff provide "'a short and plain statement of the claim showing that the pleader is entitled to relief,'" a standard which "does not require 'detailed factual allegations,'" but a plaintiff must make "'a showing, rather than a blanket assertion, of entitlement to relief' that rises 'above the speculative level.'" McTernan v. City of York, 564 F.3d 636, 646 (3d Cir. 2009) (quoting Twombly, 550 U.S. at 555). 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, 129 S. Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570). Such "facial plausibility" exists "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). "[T]he factual detail in a complaint [cannot be] so undeveloped that it does not provide a defendant the type of notice of claim which is contemplated by Rule 8." Phillips, 515 F.3d at 232 (citation omitted).

The Supreme Court has counseled that a court examining a motion to dismiss should, "begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Iqbal, 129 S. Ct. at 1950. Next, the court should make a context-specific inquiry into the "factual allegations in [the] ...


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