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Nautilus Neurosciences, Inc. v. Fares

United States District Court, Second Circuit

June 14, 2013

NAUTILUS NEUROSCIENCES, INC., Plaintiff,
v.
JAMES L. FARES, Defendant.

Jonathan J. Cooperman, Esq., Jessica L. Klarfeld, Esq., Kelley Drye & Warren LLP, New York, NY, for Plaintiff.

Peyton J. Healey, Esq., Powers Taylor LLP, Dallas, TX,

Eric M. Eusanio, Esq., Frenkel Lambert Weiss Weisman & Gordon LLP, New York, NY, for Defendant.

MEMORANDUM OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

I. INTRODUCTION

Defendant James Fares moves to stay this action by plaintiff Nautilus Neurosciences, Inc. ("Nautilus") pending resolution of an action Fares brought in Delaware against directors, officers, and controlling shareholders of Nautilus. Because the issues to be decided in the two cases are not virtually identical, the "first-filed rule" - which creates a presumption that the earlier-filed case takes priority - does not apply. Fares provides no other reason why this Court should stay this action, thus his motion to stay is denied.

II. BACKGROUND

A. The 2010 Promissory Note

Fares is the founder and former president of Nautilus, a Delaware corporation with its principal place of business in New Jersey.[1] On January 15, 2010, Fares and Nautilus signed a promissory note (the "Note"), through which Fares borrowed $75, 000 to be repaid by December 31, 2012.[2] The purpose of this transaction was to allow Fares to purchase Series A Preferred Stock in an offering from Nautilus.[3] The Note provided for interest on the unpaid principal at a rate of 0.57%, [4] and contained an acceleration clause causing the entire balance due under the Note to become immediately payable to Nautilus if Fares should ever default.[5]

B. The Delaware Action

In April 2011, Fares left the employ of Nautilus, but remained a shareholder of the company.[6] In letters dated May 9 and 11, 2012, Nautilus issued a "Notice of Proposed Issuance of Series C Preferred Stock, " granting Fares the option to purchase up to his proportionate share of new stock.[7] Fares did not purchase Series C shares under the offer.[8] Instead, he filed suit on November 12, 2012 in the United States District District Court for the District of Delaware (the "Delaware action"), alleging that the directors, officers, and controlling shareholders of Nautilus (the "Delaware defendants") breached their fiduciary duties to Fares and diluted his existing stock.[9]

C. The New York Action

Notwithstanding the filing of the Delaware action, the time for repayment of the Note continued to approach. On December 19, 2012, Nautilus sent Fares a letter reminding him of the now $76, 276.84 due under the Note and of the December 31 due date.[10] December 31 came and went, and Fares did not pay the amount stated in the letter.[11] On January 14, 2013, Nautilus initiated this action in New York State Supreme Court[12] by filing a "Motion for Summary Judgment in Lieu of Complaint, "[13] seeking recovery of the amounts allegedly owed to it by Fares under the Note.[14] Fares then removed to this Court based on diversity of citizenship, [15] and Nautilus then filed its Complaint.[16]

Before filing a responsive pleading, Fares moved to stay the instant action.[17] Fares claims that under the "first-filed rule, " this Court should delay consideration of the instant case until the Delaware action is concluded.[18] He argues that the rule applies here because the Delaware action will address the alleged dilution of his ...


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