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Turgeman v. Narachi

United States District Court, S.D. California

March 31, 2017

YACOV TURGEMAN, derivatively on behalf of OREXIGEN THERAPEUTICS, INC., Plaintiff,
v.
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 [DOC. #52]

          JOHN A. HOUSTON United States District Judge

         INTRODUCTION

         Currently 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.

         BACKGROUND

         1. The Parties

         Plaintiff 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.

         2. Factual Background

         Plaintiff 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 3.3[1]. (See Doc. # 48, pgs. 7-8).

         a. Plaintiff's Demand on the Board

         On May 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).

         In 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[2] 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 longer viable.

         On 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[3]. (See Doc. # 48, pg. 9). Plaintiff maintains the Board wrongfully denied his demand and subsequently initiated the instant suit.

         b. Procedural History

         On 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).

         On 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).

         On 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, pgs. 13-17).

         On May 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).

         JUDICIAL NOTICE

         Under 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).

         Plaintiff filed a request for judicial notice in support of its opposition to Defendant's motion to dismiss. (See Doc. # 55-1 - Doc. # 55-2).[4] 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 exhibits.

         Defendants also filed a request for judicial notice in support of its motion to dismiss. (See Doc. # 52-2).[5]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).

         The two 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).

         MOTION TO DISMISS THE FAC

         Defendants 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.[6] 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. (Id.).

         Plaintiff 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).

         1. Legal Standard: Rule 12(b)(6) ...


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