Overwell Harvest, Ltd. v. Widerhorn

          OPINION AND ORDER

          SARA L. ELLIS, UNITED STATES DISTRICT JUDGE.

         After 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^[1] 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.^[2]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.

         BACKGROUND ^[3]

         Neurensic 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 Officer.

         Overwell, 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.

         By 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.

         On 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 28.

         Overwell 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.

         Around 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 agreements.

         On 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.

         On 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.

         LEGAL STANDARDS

         A 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. 2006).

         A 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. at 678.

         ANALYSIS

         This is 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 ...