United States District Court, N.D. Illinois, Eastern Division
OVERWELL HARVEST LIMITED, a British Virgin Islands company, individually and derivatively on behalf of Neurensic, Inc. Plaintiff,
DAVID WIDERHORN, PAUL GIEDRAITIS and TRADING TECHNOLOGIES INTERNATIONAL, INC. Defendants.
OPINION AND ORDER
L. ELLIS, UNITED STATES DISTRICT JUDGE.
Trading Technologies International, Inc. (“Trading
Technologies”) bought Neurensic, Inc.
(“Neurensic”), Overwell Harvest Limited
(“Overwell”) brought this suit individually and
derivatively in its capacity as a Neurensic shareholder
against Neurensic's Chief Executive Officer David
Widerhorn, its Chief Operating Officer Paul Giedraitis, and
Trading Technologies. After several rounds of litigation
before this Court, Overwell filed a second amended
complaint alleging breach of fiduciary duty against
Giedraitis and Widerhorn (Count I), and aiding and abetting
breach of fiduciary duty against Trading Technologies (Count
II). Giedraitis and Trading Technologies move to dismiss the
respective claims against them.Giedraitis argues that this Court
does not have subject matter jurisdiction to hear
Overwell's suit against him because there is not complete
diversity between the parties, and because Overwell has
failed to prove the requisite amount in controversy. Trading
Technologies argues that Overwell has failed to state a
plausible claim for damages, and therefore the suit against
Trading Technologies must fail. The Court finds that these
arguments are without merit and denies the Defendants'
motions to dismiss.
is a Delaware corporate startup in the financial technology
sector that is now defunct. Widerhorn was the company's
CEO and president. Giedraitis was the Chief Operating
a British Virgin Islands company, was one of the principal
investors in Neurensic. It invested $3.5 million from 2015 to
2017 and received a seat on the Board of Directors. Overwell
made these investments based on Neurensic's false
representations that it had a value of $60 million, that it
had raised several millions more from other committed
investors, and that the investments would
“substantially improve the Company's exit
valuation.” Doc. 99 ¶ 20.
mid-August 2017, Neurensic was insolvent. According to
Widerhorn, the company owed approximately $3.5 million in
debt, including back wages to employees, back taxes and loans
to the government, as well as debts to general creditors. In
an email to shareholders on August 16, Widerhorn represented
that the company was working with an accounting firm and a
law firm to complete an audit. This was false. Instead
Widerhorn himself, who is not an accountant, performed the
audit. Even now, a third-party professional has yet to audit
the company's financials. Widerhorn also told
shareholders that the company's “assets must be
sold immediately.” Id. ¶ 24. Although
several entities were interested in buying the company, he
claimed they had “withdrawn their interest and [we]re
unwilling to move forward given the state of the
company's financial affairs.” Id. The only
interested buyer remaining was Trading Technologies, who
would likely offer between $200, 000 and $400, 000.
August 18, 2017, Widerhorn told shareholders that unless
another investor came forward by August 21 and agreed to buy
the company for at least $1.5 million-the amount of the
company's emergency liens-Neurensic planned to sell its
assets to Trading Technologies. On August 25, Widerhorn
stated that he and Giedraitis had met with Trading
Technologies and argued that “even with the
amortization cost, the book value of [Neurensic's]
technology assets [wa]s approximately $2.5 [million] and that
[the company's] investors would like to see a fair return
in line with the value of the assets[.]” Doc. 106-1 at
filed a complaint for injunctive relief on August 22, 2017,
asking this Court to stay the impending sale to Trading
Technologies because Neurensic failed to comply with notice
and disclosure requirements. On September 7, the Court
granted Overwell's motion in part and later issued an
Order directing Neurensic to halt the sale until “the
Board satisfies all applicable requirements of Delaware law
and the Bylaws of Neurensic, Inc.” Doc. 19.
that time, Trading Technologies began hiring former Neurensic
employees to help ensure a smooth transition of
Neurensic's business. On September 1, 2017, Trading
Technologies hired Jay Biondo, who continued servicing
Neurensic clients while working for his new employer. On
September 19, Trading Technologies hired Morgan Trinkhaus
“to ensure [Trading Technologies' acquisition of
Neurensic] ha[d] the greatest chance of reaching its
long-term potential.” Doc. 99 ¶ 56. Trading
Technologies also hired former Neurensic employees Eric
Eckstrand and Evan Story as software engineers to help
“recreate the business” for Trading Technologies.
Id. ¶ 57. All of these employees had signed
employment contracts with Neurensic that prohibited them from
competing with Neurensic or from disclosing the company's
proprietary information. Widerhorn knew that Biondo was
working for Trading Technologies no later than September 12.
Overwell's representative on the Board, Kenneth Chu,
raised concerns about Trading Technologies hiring former
employees at a board meeting on September 14. Giedraitis
raised the issue in a subsequent conference call with Trading
Technologies; beyond that, neither Giedraitis nor Widerhorn
took any action to enforce the non-compete and non-disclosure
September 11, 2017, Trading Technologies submitted a revised
term sheet to purchase the company for $300, 000. Among other
terms, the offer included earnout provisions that would allow
the company to receive a return on future earnings from its
assets. On September 14, a majority of Neurensic's Board
of Directors voted in favor of accepting the offer. The next
day Widerhorn provided shareholders with notice of the
agreement and scheduled a final vote on October 5.
October 4, Overwell submitted its own term sheet to purchase
Neurensic for $400, 000. It did not include other terms that
Trading Technologies had offered, such as an earnout
provision. Widerhorn and Giedraitis provided Overwell's
term sheet to Trading Technologies, which increased its
upfront cash offer to match Overwell's offer. Widerhorn
and Giedraitis did not allow Overwell to increase its offer.
Widerhorn informed shareholders on October 5 that Trading
Technologies' term sheet was better than Overwell's
term sheet. Neither he nor Giedraitis mentioned that they did
not allow Overwell to submit a second offer. On October 6,
2017, Neurensic sold its assets to Trading Technologies.
motion to dismiss under Rule 12(b)(1) challenges the
Court's subject matter jurisdiction. Fed.R.Civ.P.
12(b)(1). The party asserting jurisdiction has the burden of
proof. United Phosphorus, Ltd. v. Angus Chem. Co.,
322 F.3d 942, 946 (7th Cir. 2003), overruled on other
grounds by Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845
(7th Cir. 2012). The standard of review for a Rule 12(b)(1)
motion to dismiss depends on the purpose of the motion.
Apex Digital, Inc. v. Sears, Roebuck & Co., 572
F.3d 440, 443-44 (7th Cir. 2009). If a defendant challenges
the sufficiency of the allegations regarding subject matter
jurisdiction (a facial challenge), the Court must accept all
well-pleaded factual allegations as true and draw all
reasonable inferences in the plaintiff's favor. See
id.; United Phosphorus, 322 F.3d at 946. If,
however, the defendant denies or controverts the truth of the
jurisdictional allegations (a factual challenge), the Court
may look beyond the pleadings and view any competent proof
submitted by the parties to determine if the plaintiff has
established jurisdiction by a preponderance of the evidence.
See Apex Digital, 572 F.3d at 443-44; Meridian
Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 543 (7th Cir.
motion to dismiss under Rule 12(b)(6) challenges the
sufficiency of the complaint, not its merits. Fed.R.Civ.P.
12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510,
1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion
to dismiss, the Court accepts as true all well-pleaded facts
in the plaintiff's complaint and draws all reasonable
inferences from those facts in the plaintiff's favor.
AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th
Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint
must not only provide the defendant with fair notice of a
claim's basis but must also be facially plausible.
Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct.
1937, 173 L.Ed.2d 868 (2009); see also Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d
929 (2007). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Iqbal, 556 U.S.
the second time that Giedraitis and Trading Technologies move
to dismiss the respective claims against them. The Court
previously denied Giedraitis' motion to dismiss on the
basis that Overwell had sufficiently alleged the existence of
a fiduciary duty, and that Giedraitis breached that duty. The
Court found that Overwell need not allege anything else to
sufficiently state a claim at this stage of the proceeding.
The Court simultaneously granted Trading Technologies'
motion to dismiss on the basis that Overwell had not
sufficiently alleged damages. The Court reasoned that
“Overwell would have had to ...