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Schmidt v. Skolas

United States District Court, Third Circuit

August 13, 2013

ALAN SCHMIDT, Plaintiff,
JOHN A. SKOLAS, et al., Defendants.


Berle M. Schiller, J.

Alan Schmidt, a former shareholder of Genaera Corporation (“Genaera”) and a former unitholder of the Genaera Liquidating Trust (“GLT”), filed the Amended Verified Class Action and Shareholder Derivative Complaint for Damages and Rescission of Sales of Assets to Ohr and Dipexium (“Amended Complaint”) against John A. Skolas, Leanne Kelly, John L. Armstrong, Jr., Zola B. Horovitz, Osagie O. Imasogie, Mitchell D. Kaye, Robert F. Shapiro, Paul K. Wotton, Robert DeLuccia, Griffin Securities, [1] David Luci, Steve Rouhandeh, Jeffrey Davis, Mark Alvino, GLT, Biotechnology Value Fund, Inc. (“BVF”), Ligand Pharmaceuticals, Inc. (“Ligand”), Xmark Capital Partners, LLC (“Xmark”), Argyce LLC (“Argyce”), Ohr Pharmaceuticals (“Ohr”), John L. Higgins, Genaera, SCO Financial Group (“SCO”), Dipexium Pharmaceuticals, LLC (“Dipexium”), MacroChem Corporation (“MacroChem”), Access Pharmaceuticals, Inc. (“Access”), and Mark N. Lampert for breach of their fiduciary duties, as well as aiding and abetting thereof, arising out of the liquidation of Genaera.

Eight groups of Defendants have moved to dismiss the Amended Complaint: (1) Trustee Argyce and Skolas (“Trustee Defendants”); (2) Directors and Officers Kelly, Armstrong, Horovitz, Imasogie, Shapiro, and Wotton (“D&O Defendants”); (3) Xmark and Kaye (“Xmark Defendants”); (4) Dipexium, DeLuccia, and Luci (“Dipexium Defendants”); (5) BVF and Lampert (“BVF Defendants”); (6) Ligand and Higgins (“Ligand Defendants”); (7) MacroChem, Access, Rouhandeh, Davis, Alvino (“Access Defendants”); and (8) Ohr, on grounds including statute of limitations and lack of personal jurisdiction. For the reasons that follow, the Court grants Defendants’ motions to dismiss.[2]


This action stems from the dissolution of Genaera, a biotechnology company that developed pharmaceutical drugs and held licenses to intellectual property and patents. (Am. Compl. ¶ 63.) Genaera was a Delaware corporation with its principal place of business in Pennsylvania that owned the rights to certain high value assets with “the potential to earn high returns for Genaera and its stockholders.” (Id. ¶¶ 11, 65.) It dissolved on June 12, 2009, and its assets were transferred to GLT, a Delaware entity, which was managed by Defendant Argyce as trustee. (Id. ¶¶ 24, 151-52.) The allegations of the Amended Complaint pertain mostly to D&O Defendants’ participation in a scheme to dissolve Genaera, and Trustee Defendants’ sale of the assets in GLT for less than their value to Genaera insiders and their affiliates, at the expense of Genaera shareholders.

A. Dissolution of Genaera

In April 2009, Genaera’s Board of Directors announced that the company’s prospects were “not promising” and stated that dissolution and liquidation would return the greatest value to stockholders. (Id. ¶ 123.) On April 18, 2009, the Board unanimously approved—and recommended that shareholders vote to approve—a plan to dissolve and dispose of all the company’s assets and make distributions to stockholders by establishing a liquidating trust. (Id. ¶ 125.) Defendant Kaye was not at this meeting. (Id.) The proxy statement falsely stated that no Genaera officers or directors would profit from the dissolution, and did not accurately describe how promising certain Genaera assets were, among other alleged misrepresentations. (Id. ¶¶ 128-29.) The proxy statement also did not explain that Defendant Argyce had already been selected as trustee, even though Defendant Skolas—one of Argyce’s only employees—had been fired as Genaera’s CFO in 2007. (Id. ¶¶ 138, 154-55.) Following the announcement of Board approval of the Plan of Dissolution, Genaera stock declined dramatically. (Id. ¶ 139.) At a special meeting of stockholders on June 4, 2009, the stockholders—the two largest of which were Xmark and BVF—approved the Board’s recommendation to adopt the Plan of Dissolution. (Id. ¶¶ 124, 140-41.) Genaera filed Articles of Dissolution with the Delaware Secretary of State on June 12, 2009, and the company’s assets and liabilities were transferred to GLT. (Id. ¶ 151.) Thereafter, each outstanding share of Genaera common stock was canceled and replaced by a unit in GLT. (Id. ¶¶ 159-60.) The trustee had three years to “monetiz[e]” Genaera’s assets. (Id. ¶ 187.) GLT terminated upon its final distribution of assets on March 31, 2011. (Defs. Argyce LLC’s and John A. Skolas’s Mot. to Dismiss Am. Compl. [Trustee’s Mot. to Dismiss] Ex. 19 [Grantor Letter Statement of Income].)

B. Post-Dissolution Sale of Assets

1.Aminosterol Assets

Genaera owned Squalamine and Trodusquemine compounds (“Aminosterol Assets”). (Am. Compl. ¶ 226.) One of these compounds was used for eye drops to treat age-related macular degeneration. (Id. ¶ 229.) On July 8, 2009, the Trustee accepted a $50, 000 down payment on the sale of the Aminosterol Assets for $200, 000 to BBM Holdings, Inc., the predecessor to Ohr. (Id. ¶¶ 218, 224.) On August 12, 2009, the Trustee publicly reported that the Aminosterol Assets had been sold in May 2009. (Id. ¶ 220.) On August 21, 2009, Ohr filed an 8-K Form announcing its purchase of the Aminosterol Assets, with the purchase agreement attached. (Trustee’s Mot. to Dismiss Ex. 7 [Aminosterol 8-K Form].) The Trustee “had the opportunity to sell the assets” for a higher price, and there was no public announcement of bidding for the assets. (Am. Compl. ¶¶ 219, 225.)

2.Pexiganan Asset

In 1999, Genaera developed Pexiganan, a topical cream for the treatment of diabetic foot infections. (Id. ¶ 82.) In July 2007 and again in October 2007, MacroChem licensed the right to develop Pexiganan from Genaera, with the possibility for Genaera to earn up to $35 million and ten percent royalty payments based on certain developmental milestones. (Id. ¶¶ 95-96.) In 2008, MacroChem “abruptly” stopped investing in the development of Pexiganan. (Id. ¶ 107.) In February 2009, Access acquired MacroChem and “ceased development of MacroChem’s dermatology products, including Pexiganan.” (Id. ¶¶ 112-13.) D&O Defendants knew that Genaera had a right under the licensing agreement with MacroChem to demand the return of Pexiganan if MacroChem refused to develop the drug, but they did not make any such demand. (Id. ¶ 114.) In December 2009, Pexiganan was returned to GLT, as announced in a March 2010 press release by GLT. (Trustee’s Mot. to Dismiss Ex. 17 [GLT March 2010 Update].) According to Plaintiff, Trustee Defendants terminated the previously existing licensing agreement with MacroChem in order to allow Dipexium Defendants to obtain the rights to Pexiganan without the royalty and milestone obligations of the original licensing agreement. (Am. Compl. ¶¶ 206, 207, 210.)

After Genaera’s dissolution, on January 11, 2010, the Trustee publicly solicited bids for Pexiganan, with a deadline for bids of February 12, 2010. (Id. ¶ 206.) Although the Amended Complaint does not allege the exact date of the transaction with Dipexium, a February 19, 2010 GLT update to unitholders announced multiple expressions of interest in Pexiganan, and a March 2010 GLT update reported negotiations for sales of the asset. (Trustee’s Mot. to Dismiss Ex. 16 [GLT Feb. 19, 2010 Update]; GLT March 2010 Update.) In an update on May 21, 2010, GLT declared that “the Trust ha[d] sold substantially all of the assets of the Trust and its predecessor in interest, Genaera Corporation.” (Trustee’s Mot. to Dismiss Ex. 24 [GLT May 21, 2010 Update]; see also Id . Ex. 14 [GLT July 2010 Update] (describing sale of Pexiganan under “January-May 2010” heading).) The Dipexium website announced the acquisition of Pexiganan “soon after th[e] transaction.” (Am. Compl. ¶ 213.)

3.Interlukin 9 (“IL9") Asset

Since 2007, Genaera had owned a licensor interest in the IL9 antibody program for asthma, which it licensed to MedImmune, LLC (“MedImmune”). (Id. ¶ 72.) Genaera could have received up to $54 million in payments and royalties from MedImmune if IL9 reached certain milestones in its development. (Id. ¶ 77.) On May 18, 2010, Trustee Defendants sold IL9 to Ligand. (Id. ¶ 176.) Ligand then sold half its interest in IL9 to BVF, which had previously owned more than fifteen percent of Ligand stock. (Id. ¶¶ 177, 190.) This subsequent transaction was not mentioned in GLT’s purchase agreement with Ligand. (Id. ¶ 177.) GLT sent a “Brief Update to Unitholders” dated May 21, 2010, in which it announced the sale of IL9 to Ligand for $2.75 million and revealed that Ligand conveyed half of its interest to BVF. (GLT May 21, 2010 Update.) In addition, Ligand filed an 8-K Form that also announced the details of the transaction. (Trustee’s Mot. to Dismiss Ex. 22 [IL9 8-K Form].)

C. Plaintiff’s Lawsuit

Schmidt, a former investment professional and former high-ranking employee of Brown Brothers Harriman, was a stockholder of Genaera from 1998 until its dissolution on June 12, 2009, and thereafter became a unitholder of GLT by operation of law. (Am. Compl. ¶¶ 10, 60.) “[T]hroughout the years[, Schmidt] has held many conversations with Genaera officers and directors” regarding the assets at issue and their values and prospects. (Id. ¶ 10.) He filed this lawsuit on June 8, 2012, on behalf of himself and all other former shareholders of Genaera, on behalf of all other unitholders of GLT, and derivatively on behalf of Genaera and GLT. (Id. ΒΆΒΆ 47, 53, 59.) Schmidt filed the Amended Complaint on December 19, 2012, and the above-listed groups of Defendants filed motions to dismiss on February 4, 2013. The Court held oral argument on the motions to dismiss on July 10, 2013. The remaining counts are: breach of fiduciary duty against D&O Defendants, and all other Defendants for aiding and abetting thereof, on behalf of the stockholder class; breach of fiduciary duty against Trustee Defendants, and all other non-D&O Defendants for aiding and abetting thereof, on behalf of the unitholder class; corporate waste against D&O Defendants, and all other Defendants for aiding and abetting thereof, derivatively on behalf of ...

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