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In re Navidea Biopharmaceuticals Litigation

United States District Court, S.D. New York

December 26, 2019

IN RE NAVIDEA BIOPHARMACEUTICALS LITIGATION

          OPINION AND ORDER

          VALERIE CAPRONI, UNITED STATES DISTRICT JUDGE

         Plaintiff Navidea Biopharmaceuticals, Inc. (“Navidea”), a pharmaceutical company, sued Michael Goldberg (“Goldberg”) for breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty. See Am. Compl., Dkt. 15. Goldberg answered the complaint and asserted counterclaims and third-party claims against Navidea and Third-Party Defendant Macrophage Therapeutics, Inc. (“Macrophage”), a subsidiary of Navidea, for breach of contract, wrongful discharge, injunctive relief, and quantum meruit. Dkt. 31. Goldberg moved to dismiss Plaintiff's breach of fiduciary duty claim on the grounds that it is time-barred and fails to state a claim. Dkt. 32. Goldberg also seeks advancement of attorneys' fees in connection with the fiduciary duty claim and Rule 11 sanctions against Plaintiff. Id. Navidea and Third-Party Defendant Macrophage moved to dismiss or strike certain of Goldberg's counterclaims and third-party claims pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 12(f). Dkt. 40. Defendant Goldberg's motion is GRANTED in part and DENIED in part. Plaintiff/Counterclaim Defendant Navidea and Third-Party Defendant Macrophage's motion is GRANTED.

         BACKGROUND

         On August 14, 2018, Navidea, Macrophage, and Goldberg, the former CEO of Navidea and founder of Macrophage, entered into an agreement (the “August Agreement”) with the intent of entering into a further transaction (“the Transaction”) to “provide for the separation of Goldberg from Navidea and the establishment of the parties' rights and obligations with respect to the ownership, management and continued operations of Macrophage.” Am. Compl., Dkt. 15 ¶ 12. Specifically, and as relevant to the pending motions, the August Agreement provided for: (1) Goldberg's resignation from Navidea, (2) the sale of 23.5 million shares of Navidea to Goldberg on the date of the consummation of the Transaction; (3) a six-month line of credit from Navidea to Macrophage of up to $750, 000, (4) an issuance to Goldberg of Macrophage Super Voting Common Stock shares in a number equal to 5% of the outstanding shares, and (5) Goldberg's waiver of all rights to collect any debt owed by Navidea to Goldberg. See August Agreement, Dkt. 31-1. Plaintiff alleges that the future-contemplated agreements have not been executed because Defendant “undertook certain actions which Navidea considered breaches of the August Agreement.” Am. Compl., Dkt. 15 ¶¶ 14, 44-67. Notwithstanding the Plaintiff's argument, the August Agreement expressly states that “any subsequent failure to execute the Transaction documents shall not render” the Agreement invalid. See August Agreement, Dkt. 31-1.[1]

         a. Defendant's Opening of the “Secret Account”

         On May 8, 2015, Navidea entered into a Term Loan Agreement with Capital Royalty Partners II (“CRG”) for a loan of up to $60, 000, 000. Am. Compl., Dkt. 15 ¶ 69. Pursuant to the loan agreement, Navidea was required to provide CRG with the control agreements for all depository accounts controlled by either Navidea or Macrophage and to notify CRG of any changes to the deposit accounts. Id. ¶ 71. Failure to provide such notice or control agreements was an event of default under the CRG Loan Agreement. Id.

         On December 1, 2015, allegedly following a rift between Goldberg and other members of Navidea management, Goldberg opened a Wells Fargo account for Macrophage (the “Secret Account”). Id. ¶¶ 72-74. Goldberg failed to inform CRG of the existence of the account and failed to provide CRG with a control agreement, thereby breaching the CRG Loan Agreement. Id. ¶ 74. CRG ultimately filed suit against Navidea in Texas state court, alleging numerous events of default under the Loan Agreement, including Goldberg's opening of the Secret Account. Id. ¶ 85. The Texas court entered summary judgment in favor of CRG, concluding that one or more events of default had occurred. Id. ¶ 86. Navidea alleges that, as a result of the summary judgment ruling, it was forced to sell significant assets, resulting in losses exceeding $50 million. Id. ¶¶ 86-91.

         b. The Platinum Debt

         Prior to becoming CEO of Navidea, Goldberg had been affiliated with Platinum-Montaur Life Sciences, LLC (“Platinum-Montaur”), a collaboration among Goldberg, Platinum Partners Value Arbitrage Fund LP, Platinum Partners Liquid Opportunity Master Fund L.P., and Platinum Opportunity (NY) LLC (collectively “Platinum Funds”). Am. Compl., Dkt. 15 ¶ 33. On July 25, 2012, Navidea executed a loan agreement and promissory note (the “Platinum Note”) payable to Platinum-Montaur in an amount of up to $35 million. Navidea and Macrophage Mem. of Law, Dkt. 41 at 4. On November 2, 2017, Platinum-Montaur sued Navidea seeking to recover funds owed by Navidea (the “Platinum Debt”), a part of which Defendant Goldberg asserts he is entitled to.[2] Am. Compl., Dkt. 15 ¶¶ 37-38. Goldberg alleges that Platinum assigned him $1.3 million of the Platinum Debt, and that, as of the August Agreement, Navidea owed him $2.5 million (including accrued interest), Counterclaims and Third-Party Claims (CC/TPC), Dkt. 31 ¶¶ 37-38. The August Agreement provided for the issuance of Navidea shares as compensation for Goldberg's agreement to release his portion of the Platinum Debt. Am. Compl., Dkt. 15 ¶ 39; CC/TPC, Dkt. 31 ¶ 130.

         DISCUSSION

         I. Defendant Goldberg's Motion to Dismiss

         Defendant moves to dismiss Plaintiff's fourth cause of action on the grounds that it is time-barred and fails to state a claim for which relief can be granted. Defendant also seeks attorneys' fees and Rule 11 sanctions.

         a. Plaintiff's Fourth Cause of Action is Dismissed as Time-Barred

         Plaintiff's fourth cause of action alleges that Goldberg breached his fiduciary duty of loyalty by “failing to advise Navidea's board members and management of his decision to open a secret Macrophage bank account in violation of the CRG Loan Agreement and without bothering to consult with Navidea legal counsel.” Am. Compl., Dkt. 15 ¶¶ 120-122. As noted, supra, Navidea and CRG entered into a Loan Agreement pursuant to which Navidea was required to provide CRG with the control agreements for all depository accounts controlled by Navidea or Macrophage. Id. ¶ 71. Plaintiff alleges that Goldberg's opening of the Secret Account, without providing the control agreements, caused Plaintiff to be in default under the CRG Loan Agreement and ultimately resulted in CRG obtaining summary judgment against Navidea. Id. ¶¶ 74, 82, 85, 86.

         i. Applicable Law

         New York choice of law rules dictate that the law of the state of incorporation governs claims for breach of fiduciary duty. Walton v. Morgan Stanley & Co. Inc., 623 F.2d 796, 798 n.3 (2d Cir. 1980). Thus, because Navidea is a Delaware corporation, Delaware law applies. Under Delaware law, claims for breach of fiduciary duty are governed by a three-year statute of limitations. Del. Code. Ann. Tit. 10, § 8106(a); In re AMC Inv'rs, LLC, 551 B.R. 148, 152 (D. Del. 2016) (“Delaware's three-year statute of limitations for breach of fiduciary duty claims applies, and [] the limitations period begins to run from the occurrence of the alleged wrong.”).

         ii. The Fourth Cause of Action is Time-Barred

         Plaintiff's fourth cause of action is time-barred because more than three years have passed since Goldberg's alleged breach of his fiduciary duty; Goldberg opened the “secret account” on December 1, 2015 and this action was filed on April 26, 2019. Am. Compl., Dkt. 15 ¶ 74. Navidea argues that Goldberg's opening of the bank account was part of an extended period of misconduct, or continuing wrong, which extended until April 27, 2016, at the earliest. Navidea Mem. of Law, Dkt. 45 at 9-10. Accordingly, Plaintiff argues that the appropriate triggering date for the statute of limitations is April 27, 2016. Id. at 10-12. The Court disagrees; the statute of limitations “begins to run at the time that the cause of action accrues, which is generally when there has been a harmful act by a defendant.” Barbara v. MarineMax, Inc., No. 12-CV-0368, 2012 WL 6025604, at *9 (E.D.N.Y. Dec. 4, 2012). Because Goldberg's alleged harmful act occurred when he opened the bank account on December 1, 2015, the statute of limitations began to run on that date.[3] Even if Navidea did not learn of the alleged breach on December 1, 2015, CRG filed suit against Navidea for breach of the Loan Agreement on April 7, 2016. See Navidea Mem. of Law, Dkt. 45 at 7. Thus, by at least April 7, 2016, and likely earlier, Plaintiff knew that Goldberg had opened the Secret Account. Accordingly, even if the Court views April 7, 2016, as the triggering date for the statute of limitations, the fourth cause of action remains time-barred.

         Because Plaintiff's fourth cause of action is barred by the statute of limitations, Defendant's motion to dismiss this claim is granted.[4] Accordingly, the Court will not address Defendant's arguments that the claim should also be dismissed for failure to state a claim.

         b. Attorneys' Fees

         Defendant requests an advancement of attorneys' fees with respect to Plaintiff's now-dismissed breach of fiduciary duty claim. Goldberg Mem. of Law, Dkt. 33 at 7-9. Article V of Navidea's bylaws dictate the circumstances and conditions governing indemnification and the payment of attorneys' fees. Specifically, Section 3 of Article V, entitled “Payment of Expenses” states:

Expenses (including attorneys' fees) incurred by an officer or director in defending any civil . . . action . . . shall be paid by the corporation in advance of the final disposition of such action . . . upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that ...

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