United States District Court, S.D. California
YACOV TURGEMAN, derivatively on behalf of OREXIGEN THERAPEUTICS, INC., Plaintiff,
MICHAEL NARACHI, JOSEPH P. HAGAN, HEATHER D. TURNER, ECKARD WEBER, LOUIS C. BOCK, BRIAN H. DOVEY, PATRICK MAHAFFY, PETER K. HONIG, WENDY DIXON, JOSEPH S. LACOB, MICHAEL F. POWELL, AND DANIEL K. TURNER, III, Defendants. and OREXIGEN THERAPEUTICS, INC., Nominal Defendant.
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
A. HOUSTON United States District Judge
pending before the Court is the Motion to Dismiss
Plaintiff's Verified Shareholder First Amended Derivative
and Class Action Complaint (“FAC”) filed by
Defendants Michael A. Narachi, Heather D. Turner, Joseph P.
Hagan, Eckard Weber, Louis C. Bock, Brian H. Dovey, Patrick
Mahaffy, Peter K. Honig, Wendy Dixon, Joseph S. Lacob,
Michael F. Powell, Daniel K. Turner, III (collectively
“Defendant-Board Members”) and nominal Defendant
Orexigen Therapeutics, Inc. (collectively
“Defendants”). After a careful consideration of
the pleadings and relevant exhibits submitted, and for the
reasons set forth below, this Court GRANTS Defendants'
motion to dismiss.
Yacov Turgeman (“Plaintiff”) is a citizen of
Israel and has been a shareholder of Orexigen Therapeutics,
Inc. (“Orexigen”) since February 2011.
(See Doc. # 48, pg. 3). Orexigen is a
biopharmaceutical company headquartered in La Jolla,
California and incorporated in Delaware. (See Doc. #
48, pgs. 3-4). Orexigen is the only named Nominal Defendant.
Id. Michael A. Narachi, Heather D. Turner, Joseph P.
Hagan, Eckard Weber, Louis C. Bock, Brian H. Dovey, Patrick
Mahaffy, Peter K. Honig, Wendy Dixon, Joseph S. Lacob,
Michael F. Powell, and Daniel K. Turner III are current and
former members of Orexigen's Board of Directors, herein
referred to as Director Defendants. Id. The Director
Defendants and the Nominal Defendant Orexigen Therapeutics,
Inc. are referred to herein as Defendants.
became aware of a series of stock option grants awarded to a
Orexigen's President and Chief Executive Officer, Michael
A. Narachi (“Narachi”); Chief Business Officer,
Joseph P. Hagan (“Hagan”); and Senior Vice
President and General Counsel Secretary, Heather D. Tuner
(“Turner”) in 2011. (See Doc. # 48, pg.
2). Plaintiff alleges these grants were in violation of
Section 3.3 of the Orexigen shareholder-approved 2007 Equity
Incentive Award Plan (“Plan”). Id.
During the 2011 fiscal year, the Board awarded Narachi 4,
318, 950 stock options; Hagan 1, 509, 000 stock options; and
Turner 1, 650, 396 stock options. (See Doc. # 48,
pg. 7). Plaintiff alleges that the grants of stock exceed the
1, 500, 000 share cap set forth within Section
(See Doc. # 48, pgs. 7-8).
Plaintiff's Demand on the Board
22, 2013, Plaintiff sent a demand letter to Orexigen's
Board of Directors (“Board”) stating that the
Board had (1) exceeded its fiduciary duties in granting the
excess stock options; (2) acted outside of the business
judgment rule by not acting in the best interests of Orexigen
and its shareholders; and (3) unjustly enriched Narachi,
Hagan and Turner. (See Doc. # 48, pgs. 8-9). In
order to rectify the alleged violations, Plaintiff requested
the Board (1) rescind the excess awards granted to Narachi,
Hagan, and Turner and seek any appropriate relief on behalf
of Orexigen for any damages as a result; (2) investigate
whether there had been additional violations of Section
3.3's share cap and take action; and (3) adopt and
implement adequate internal controls to prevent any future
violations of the Plan. (See Doc. # 48, pg. 24).
response to Plaintiff's demand letter, the Board created
a Demand Review Committee (“DRC”), which
consisted of independent directors, (i.e. directors who had
not received stock grant awards), and independent counsel.
(See Doc. # 27-1, pg. 12; see also Doc. #
52-1, pg. 12). At the conclusion of the DRC's
investigation, the Board determined that it was against
Orexigen's and its shareholders' best interest to
initiate litigation against Defendant Directors.
(See Doc. # 52-1, pg. 13). On September 23, 2013,
the Board amended Section 3.3 of the Plan to provide that the
limit set forth in Section 3.3 applied only to qualified
performance-based compensation and that any amount awarded in
excess of the limit be deemed non performance-based
compensation. The amendment was made retroactive to June 10,
2011, the date on which the shares-in-question were awarded.
(See Doc. # 52-1, pg. 13). The retroactive
amendment, therefore, rendered Plaintiff's demand no
September 26, 2013, John C. Dwyer, Esq. of Cooley LLP,
Defendants' counsel, sent an email to Plaintiff's
counsel of the Board's decision and directed Plaintiff to
the Form 8-K (“8-K”) filed by Orexigen on
September 23, 2013. (See Doc. # 48, pg. 9).
Plaintiff maintains the Board wrongfully denied his demand
and subsequently initiated the instant suit.
December 9, 2013, Plaintiff filed a Verified Shareholder
Derivative lawsuit on behalf of nominal Defendant Orexigen
against Defendants. (See Doc. # 1). In the
complaint, Plaintiff alleged (1) breach of fiduciary duty,
(2) unjust enrichment, and (3) waste of corporate assets.
(Id., pgs. 12-13). On July, 23, 2014, Defendants
filed a motion to dismiss for failure to state a claim,
mootness, and standing. (See Doc. # 27-1, pgs. 7-8).
On, August 19, 2014, Plaintiff filed a response in opposition
for the motion to dismiss. (See Doc. # 31).
March 9, 2015, the Court granted the Defendants' motion
to dismiss noting the complaint failed to allege facts
rebutting the business judgment rule and failed to
sufficiently plead facts supporting plaintiff's claim
that his demand was wrongfully refused. (See Doc. #
47, pgs. 4-5).
April 8, 2015, Plaintiff filed his Verified Shareholder First
Amended Derivative and Class Action Complaint
(“FAC”). The operative complaint alleges
derivative claims under (1) breach of fiduciary duty (2)
waste of corporate assets, (3)unjust enrichment, and a direct
claim under (4) breach of contract. (See Doc # 48,
8, 2015, Defendants filed a motion to dismiss Plaintiff's
FAC. (See Doc. # 52). Plaintiff filed a response to
the Defendants' motion to dismiss on June 8, 2015,
(See Doc. # 55). On June 23, 2015, the
Defendants' filed a reply in support of its motion.
(See Doc. # 56).
Rule 201(b) of the Federal Rules of Evidence, a court may
take judicial notice of a fact not subject to reasonable
dispute because (1) it is generally known within the trial
court's territorial jurisdiction, or (2) can be
accurately and readily determined from sources whose accuracy
cannot reasonably be questioned. Fed.R.Evid. 201(b). When
ruling on a motion to dismiss, proper subjects of judicial
notice include legislative history reports, court documents
already in the public record or filed with other courts, and
publicly accessible websites. See Anderson v.
Holder, 673 F.3d 1089, 1094, n.1 (9th Cir. 2012)
(legislative history reports); Holder v. Holder, 305
F.3d 854, 866 (9th Cir. 2002)(court documents in the public
record or filed in other courts); Wible v. Aetna Life
Ins. Co., 375 F.Supp.2d 956, 965-66 (C.D. Cal. 2005)
(public websites); Caldwell v. Caldwell, No. C
05-4166 PJH, 2006 WL 618511, at *4 (N.D. Cal. Mar. 13,
2006)(public websites). The court may disregard allegations
in a complaint that are contradicted by matters properly
subject to judicial notice. Daniels-Hall v. Nat'l
Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010).
filed a request for judicial notice in support of its
opposition to Defendant's motion to dismiss.
(See Doc. # 55-1 - Doc. # 55-2). Plaintiff
requests the Court judicially notice Exhibit A and B, which
are transcripts of two oral arguments from two Delaware Court
of Chancery hearings, (1) La. Mun. Police Emps. Ret.
Sys., et al. v. Bergstein, et al, C.A. No. 7764-VCL
(Del. Ch. Oct. 14, 2013), and (2) In re Honeywell
Int'l Inc. Derivative Litig., C.A. 8469-CS (Del. Ch.
Jan. 8, 2014). Defendants did not file an opposition to
Plaintiff's request for judicial notice of the listed
also filed a request for judicial notice in support of its
motion to dismiss. (See Doc. # 52-2).Defendants have
requested twelve exhibits, Exhibit A through L, which are
various copies of company SEC forms, stock prices, an email
between the parties, and a transcript from a Delaware Court
of Chancery hearing. (See Doc 52-2, pgs. 2-3). The
Exhibits are: (A) Orexigen's Amended Form S-1 Securities
and Exchange Commission (“SEC”) dated December
19, 2006; (B) excerpts from Orexigen's SEC Form S.C.
TO-1; (C) Orexigen's Form 8-K, filed with the SEC on
September 23, 2013; (D) Orexigen's Form 8-K, filed with
the SEC on June 11, 2014; (E) excerpts from Orexigen's
Form 10-K, filed with the SEC on March 13, 2014; (F) table of
Orexigen's historical stock prices; (G) Orexigen's
Form 8-K, filed with the SEC on February 17, 2011; (H) an
email from Defendants' counsel John C. Dwyer of Cooley
LLP to Plaintiff's counsel Steven J. Purcell; (I)
Orexigen's Form 4, filed with the SEC on June 14, 2011;
(J) Orexigen's Form 8-K, filed with the SEC on July 26,
2011; (K) Orexigen's Form 8-K, filed with the SEC on
September 11, 2014; (L) transcript of the Delaware Chancery
Court's hearing in Gressman v. Brown (Symantec),
No. 9896-VCG (Del. Ch. Dec. 10, 2014). (Id.).
Plaintiff did not oppose the Defendants' request for
judicial notice in their reply, and ask the Court to use
Defendants' request for notice when considering
Plaintiff's request. (See Doc. # 55-1, pg. 3).
exhibits Plaintiff seeks to have judicially noticed are
publically accessible court filings. Defendants offer no
opposition to the request. Defendants have requested judicial
notice in regards to exhibits that are either publicly
accessible documents via the SEC, are regularly available by
both parties, or are publically accessible court filings.
Plaintiff does not offer any opposition to Defendants'
request in its reply motion. Therefore, the Court GRANTS both
parties' requests for judicial notice pursuant to Federal
Rule of Evidence 201(b).
TO DISMISS THE FAC
move to dismiss the FAC pursuant to Federal Rules of Civil
Procedure 9(b), 12(b)(1), 12(b)(6), and 23.1 on the grounds
that Plaintiff (1) lacks standing to bring a derivative suit
and direct suit, (2) fails to state a claim upon which relief
can be granted, (3) alleges claims that are moot and (4)
fails to plead particular facts in order to maintain his
derivative suit. In addition, Defendants contend that
Plaintiff's direct claim for breach of contract should be
dismissed because (1) it is not a direct claim under the
Tooley test; (2) the Plan is not a contract because
the Plan lacks the consideration element; and (3) the new
claim is barred by statute of limitations. (See Doc
# 52-1, at 8-9). The Defendants maintain that Plaintiff has
not asserted a claim for which relief may be granted because
his derivative claims lack facts of particularity and his
direct claim is not timely under the statute of limitations.
asserts in his FAC and subsequent pleadings that he has
stated particular facts for his derivative claims, the Plan
does constitute a contact, and that his direct breach of
contract claim is timely pursuant to Federal Rules of Civil
Procedure 15(d). Furthermore, Plaintiff asserts that he is
entitled to injunctive relief for both his derivative and
direct claims. Plaintiff is seeking a judgment declaring that
(1) the stock option grants were not authorized under the
Plan, (2) the excess stock options granted to Narachi, Hagan,
and Turner be rescinded, (3) Certification of the class,
naming Plaintiff as the Class representative and counsel as
Class counsel; (4) a judgment against the Defendant Directors
and in favor of Orexigen for the amount in damages sustained
by Orexigen as a result of the Defendants' breaches of
fiduciary duties and violation of the Plan, including
pre-judgment and post-judgment interest; (5) equitable and/or
injunctive relief as necessary or permitted by law; (6)
prohibiting Orexigen and the Board from making any further
awards under the Plan until new internal controls or
procedures have been adopted; (7) award attorney, experts,
and accountant fees; and (8) grant Plaintiff such other and
further relief as the Court may deem proper. (See
Doc. # 48, pgs. 18-19).
Legal Standard: Rule 12(b)(6) ...