Meridian Medical Systems, LLC v. Epix Therapeutics, Inc.

• Court: Superior Court of Maine
• Decided: May 25, 2020
• Docket: CUMbcd-cv-19-54
• Status: Unpublished

Opinion

STATE OF MAINE BUSINESS & CONSUMER COURT CUMBERLAND, ss. DOCKET NO. BCD-CV-2019-54

MERIDIAN MEDICAL SYSTEMS, LLC ) and KENNETH L. CARR, in his Capacity ) as Assignee of Claims of and from the ) Chapter 7 Estate of Debtor MERIDIAN ) ORDER ON DEFENDANTS’ MOTIONS MEDICAL SYSTEMS, LLC, ) TO DISMISS THE FIRST AMENDED ) COMPLAINT Plaintiffs, ) v. ) ) EPIX THERAPEUTICS, INC. f/k/a ) “Advanced Cardiac Therapeutics, Inc.”, ) MEDTRONIC, INC., ) OLIVER SMITH, and ) NEW ENTERPRISE ASSOCIATES, INC., ) ) Defendants ) )

Before the Court are Defendants’ Motions to Dismiss the First Amended Complaint.

Plaintiffs assert three claims in their Complaint: Count I, Aiding and Abetting a Breach of

Fiduciary Duty; Count II, Tortious Interference; and Count III, Conspiracy. In response,

Defendants contend that all of Plaintiff Carr’s claims fail as a matter of law. The Court grants

Defendants’ motions to dismiss on all counts.

STANDARD OF REVIEW

In reviewing a motion to dismiss under Rule 12(b)(6), the Court “consider[s] the facts in

the complaint as if they were admitted.” Bonney v. Stephens Mem. Hosp., 2011 ME 46, ¶ 16, 17

A.3d 123. The complaint is viewed “in the light most favorable to the plaintiff to determine

whether it sets forth elements of a cause of action or alleges facts that would entitle the plaintiff

to relief pursuant to some legal theory.” Id. (quoting Saunders v. Tisher, 2006 ME 94, ¶ 8, 902

1 A.2d 830). “Dismissal is warranted when it appears beyond a doubt that the plaintiff is not

entitled to relief under any set of facts that he might prove in support of his claim.” Id. Maine is a

notice pleading state, and the notice pleading standard is forgiving. The complaint need only

“give fair notice of the cause of action by providing a short and plain statement of the claim

showing that the pleader is entitled to relief. . .” Howe v. MMG Ins. Co., 2014 ME 78, ¶ 9, 95

A.3d 79. “The legal sufficiency of a complaint challenged pursuant to M.R. Civ. P. 12(b)(6) is a

question of law” and thus subject to de novo appellate review. Marshall v. Town of Dexter, 2015

ME 135, ¶ 2, 125 A.3d 1141.

FACTS

For the purpose of Defendants’ motions to dismiss, the Court considers the following

facts as if they are admitted, and in the light most favorable to Plaintiff:

Meridian Medical Systems (“MMS”) was founded in 2001 by Kenneth Carr (“Carr”) to

develop microwave technologies aimed at solving certain cardiac health matters, namely cardiac

arrhythmia. Later, in 2007, Carr co-founded Advanced Cardiac Therapeutics, Inc. (“ACT”).

Eventually Carr’s son, Jeff Carr, began working at MMS in 2009, and became President of the

company in 2010. Robert Allison (“Allison”) also joined the company, becoming a member of

MMS in 2011.

By 2013, ACT was functioning as a pre-market startup developing cardiac ablation

systems, and was backed by private equity.1 At some point in 2013, Plaintiff alleges ACT began

plotting to corrupt certain fiduciaries of MMS, namely Jeff Carr and Allison. Plaintiff further

1 Cardiac ablation systems are designed to treat cardiac arrhythmia by destroying excess tissue, and/or

implanting defibrillators and drugs. MMS and ACT aimed to reduce the risk of error in such procedures by utilizing microwave technology to precisely measure the temperature of targeted tissue, and determine how much tissue should be treated. According to Plaintiff, by 2013 the global market for such technology had reached approximately $3 billion, and early stage companies in the field had received payments in excess of $90 million to merge with larger medical device companies.

2 asserts that in connection with this plot, and for the purpose of building direct relationships with

ACT, Jeff Carr and Allison ousted Kenneth Carr, the then-Chairman and CEO of MMS, on June

10, 2013. Further, Plaintiff asserts that ACT negotiated personal deals involving direct financial

incentives with Jeff Carr and Allison, attempting to align them with ACT while compromising

the interests of MMS. Plaintiff also asserts that Defendant- New Enterprise Associates (“NEA”)

had direct regular contact with Jeff Carr and Allison, focusing on how to align their personal

interests with those of NEA and ACT at the expense of MMS and its technology, prior to coming

into control of ACT in or about April, 2014. Upon gaining control of ACT, Plaintiff contends

that NEA adopted ACT’s prior corruption of Jeff Carr and Allison, and then used ACT to further

exploit MMS.

As a result of NEA and ACT’s corrupting influence, manifesting itself in the form of

personal quid pro quo value, Jeff Carr and Allison breached their fiduciary duties owed to MMS.

The conduct of Jeff Carr and Allison’s alleged breach includes surrendering MMS’ intellectual

property, and compromising valuable trade secrets and patent rights to ACT, and by extension

NEA. At the time Jeff Carr and Allison were engaging in conduct harmful to MMS, and arguably

breaching their fiduciary duty, they hired Defendant- Oliver Smith (“Smith”), a close friend of

Jeff Carr. Plaintiff asserts that Smith negotiated and worked with ACT and NEA to obtain the

previously detailed quid pro quo, consulting agreements in exchange for the surrender of MMS’s

technology and assets, on behalf of Jeff Carr and Allison. Smith negotiated the deal such that

they received compensation disproportionate to what they would have received as members of

MMS, at the expense of MMS and other constituents.

At the same time, NEA was planning to sell another of their portfolio companies in the

ablation catheter field, Topera, to Abbott Laboratories, and planned to include ACT (and by

3 extension MMS’s technology) in the transaction to “sweeten the deal.” As a result of the parties’

negotiations, Abbott purchased a Warrant from ACT, promising Abbott certain exclusive rights

to purchase ACT stock. Plaintiff asserts that the Warrant with Abbott Laboratories locked up

ACT over the next three years, giving Abbott access to proprietary information, and devaluing

MMS’s intellectual property, without providing compensation. Meanwhile, other highly lucrative

deals were on the table, including an offer from Medtronic. Due to the devaluation of its core

intellectual property, Plaintiff states that MMS was forced to file for bankruptcy, a year after the

transaction with Abbott closed. However, while NEA enjoyed the benefits of selling Topera to

Abbott, the deal including ACT fell apart. Eventually, NEA sold ACT to Medtronic in a highly

lucrative transaction, but by this time MMS was already bankrupt.

MMS eventually brought claims against Ken Carr in the Maine Superior Court (the

“Prior Maine Action”), and in response Carr, in his individual capacity, asserted counterclaims

and third-party claims relating to his ouster from and unpaid loans to MMS. None of the

Defendants in this case were parties to the Prior Maine Action. On or about April 11, 2019, Carr

entered into a settlement agreement (the “Maine Settlement Agreement”) with Jeff Carr and

Allison. Pursuant to the Maine Settlement Agreement, Carr acquired exclusive ownership of

MMS. Although Carr settled claims with Jeff Carr and Allison in his individual capacity, the

Maine Settlement Agreement did not release them from liability in future actions brought by

MMS.

On May 13, 2019, the Bankruptcy Court entered a Sale Order approving the sale of

certain interests from MMS’s bankruptcy estate. Said interests, sold by the Chapter 7 Trustee,

were described as follows:

Any and all claims and causes of action held by the Debtor and the Debtor’s bankruptcy estate that arose before the Debtor’s bankruptcy filing (the “Assigned Claims”) on

4 September 11, 2015 (the “Petition Date”) . . . the Assigned Claims shall include without limitation, all claims and causes of action held by the Debtor that arose prior to the Petition Date against the following persons and entities. . .Advanced Therapeutics, Inc., Abbott Laboratories, New Enterprise Associates. . . and Oliver Smith.

Public Decl. Ex. 1 at pp. 1-2. It follows, Carr filed the First Amended Complaint with the Maine

Superior Court on October 1, 2019.

DISCUSSION

As an initial matter, Defendants assert MMS lacks standing, and thus must be dismissed

as Plaintiff in this suit. The Court agrees.

Upon commencement of their Chapter 7 bankruptcy case, MMS ceased all operations of

its business and created the Bankruptcy Estate. When the Bankruptcy Estate was created, MMS

surrendered “all legal and equitable interests.” 11 U.S.C. § 541(a)(1). Thereafter, the Chapter 7

Trustee became the sole representative of the estate, charged with managing and administering

all of the estate’s assests, including filing suit in the debtor’s name. 11 U.S.C. § 323(a); see

Commodity Futures Tranding Comm’n v. Weintraub, 471 U.S. 343, 352-53 (1985). When Carr

purchased claims from the Chapter 7 Trustee, the transaction transferred all right, title and

interest in and to these claims to Carr:

The transfer of the Assigned Claims to the Assignee [Carr] pursuant to the Claims Purchase Agreement constitute a legal, valid, and effective transfer of the Assigned Claims, and shall vest the Assignee [Carr] with all right, title, and interest of the Debtor [MMS] and the Bankruptcy Estate in and to the Assigned Claims free and clear of all interests, liens, claims and encumbrances of any kind or nature whatsoever.

Public Decl., Ex. 1 at p. 5, ¶ 6. Because Carr took assignment of the estate’s, and by extension

MMS’s, claims against the parties listed in the Sale Order, MMS lacks standing to assert these

claims. However, Carr argues the contrary.

5 Carr contends that because the Bankruptcy Court abandoned MMS’s claims against other

members (not the defendants subject to the Sale Order), MMS therefore has standing in this

action. When a Chapter 7 Trustee abandons claims of the Debtor, these claims are not considered

assets of the Chapter 7 Bankruptcy. 11 U.S.C. § 554. Once claims are abandoned, the Debtor is

free to commence proceedings on their own behalf to enforce those claims. However, the claims

abandoned by the Chapter 7 Trustee, and cited by Carr are not the same claims at issue in this

matter. MMS’s claims against the defendants were not abandoned. Instead, “all right, title, and

interest” to those claims was assigned to Carr. Therefore, the assigned claims are not subject to

the same treatment as those abandoned by the Chapter 7 Trustee.

Additonally, Carr contends that Defendants overstate applicable provisions of the

Bankruptcy Code, while failing to acknowledge certain nuances found in §§ 348, 541, and 554

concerning “conversion of cases from Chapter 11 to 7, property of the bankruptcy estate, and

past and developing abandonment of property and post-petition claims.” Unfortunately, Carr

fails to articulate what it is about those provisions he is arguing, and why the Court should ignore

the plain language of the Sale Order issued by the Bankruptcy Court. Accordingly, the Court

finds that MMS lacks standing to act as Plaintiff in this matter.2

Count I: Aiding and Abetting Breach of Fiduciary Duty

In Count I of Carr’s complaint, he asserts that NEA, ACT, Medtronic, and Oliver Smith

all aided and abetted breaches of fiduciary duty committed by Jeff Carr and Robert Allison.

2 Carr also contends that the Court may avoid addressing standing in this matter because 1) Carr himself has

standing to bring the claims in his capacity as assignee, 2) the interests of MMS and Carr are aligned, and 3) the determination of standing is unlikely to have any substantial impact on the litigation of this case. However, because the Court has already determined MMS lacks standing, the Court dismisses all claims as to MMS in the interest of efficiency.

6 Specifically, Carr contends that, by engaging in one form or another with the negotiation of

corrupting consulting agreements, the Defendants aimed to align their interests with Jeff Carr

and Robert Allison, aiding their breaches of fiduciary duty. To maintain a claim for aiding and

abetting a breach of fiduciary duty against Defendants, Carr must establish both an underlying

breach of fiduciary duty, and that liability attaches for aiding and abetting that breach of

fiduciary duty.

Defendants first point to the Prior Maine Action, in which Carr granted general releases

to Jeff Carr and Allison “from and against any and all claims and causes of action, of any kind,

nature or type”, thus prohibiting Carr from bringing future claims for breach of fiduciary duty

against them. As a result of settling of the Prior Maine Action and the resulting release,

Defendants argue that any breach of fiduciary claim brought by Carr would be precluded even if

adequately pled.

The Court finds Defendant’s argument unpersuasive. In the Prior Maine Action, Carr was

a defendant, counterclaim-plaintiff, and third-party plaintiff in his individual capacity. A party’s

involvement in two actions in different capacities does not satisfy the privity requirement for the

purposes of claim preclusion under Maine law. See Brown v. Osier, 628 A.2d 125, 128 (Me.

1993); Roy v. City of Augusta, Maine, 712 F.2d 1517, 1522 (1st Cir. 1983). Thus, despite granting

a general release from liability to Jeff Carr and Allison in his individual capacity, Carr is not

precluded from asserting said breach of fiduciary duty claim in his capacity as assignee of

MMS’s claims.

Nontheless, Carr fails to allege sufficient facts to assert a claim for breach of fiduciary

duty against Jeff Carr and Allison. In summary, the facts provided in the complaint allege that

Jeff Carr and Allison improperly “ousted” Carr from his role at MMS, and that this “ouster” was

7 committed so that Jeff Carr and Allison could negotiate consulting agreements with ACT or

otherwise “exploit MMS and its technology to their personal benefit.” Ousting Carr from his role

in MMS, and allegedly negotiating personal consulting agreements, without more, fails to satisfy

a claim for breach of fiduciary duty.

Furthermore, even were Carr to establish a breach of fiduciary duty, he must also

establish that Defendants aided and abetted that breach. A claim for aiding and abetting requires

that a Defendant:

(1) committed a tortious act in concert with another or pursuant to a common design with

the primary tortfeasor; (2) knew that the primary tortfeasor’s conduct constitutes a breach

of duty and gives substantial assistance or encouragement; or (3) gave substantial

assistance to the primary tortfeasor in accomplishing a tortious result and the defendant’s

own conduct, separately considered, constitutes a breach of duty to another.

Restatement (Second) of Torts § 876. In Maine, the cause of action for aiding and abetting tracks

the three prongs laid out in Section 876 of Restatement (Second) of Torts. The Complaint fails to

establish any of these three prongs.

First, the Amended Complaint fails to satisfy the first prong of Section 876 because it

does not plead facts showing that any of the defendants acted in concert or common design with

Jeff Carr or Allison. In order for parties to be acting in concert, they must cooperate in a

particular line of conduct, or to accomplish a particular result. Restatement (Second) of Torts §

876, cmt. a. Likewise, it is essential that the conduct of the actor be in itself tortious. Id. at cmt. c.

Here, the Amended Complaint does not allege that any of the conduct that NEA, ACT,

Medtronic, or Oliver Smith engaged in was subject to an agreement, or by itself, tortious.

8 Second, the Amended Complaint fails under the second prong because it is devoid of

sufficient facts to conclude that any of the Defendants provided substantial assistance or

encouragement to Jeff Carr and Allison. Instead, the Amended Complaint merely concludes, that

without factual support, that the negotiation of consulting agreements, in and of itself, qualifies

as sufficient encouragement to corrupt Jeff Carr and Allison, and to lead them to oust Carr from

MMS and retain employment with ACT. Finally, the Amended Complaint fails under the third

prong because it has not demonstrated how any of the Defendants’ conduct, separately

considered, constitutes a breach of duty to Carr. Accordingly, Count I of Carr’s complaint for

Aiding and Abetting Breach of Fiduciary Duty is dismissed with regard to all defendants.

Count II: Tortious Interference

Count II of Carr’s complaint alleges a claim for tortious interference. Under Maine law,

“interference with an advantageous relationship requires the existence of a valid contract or

prospective economic advantage, interference with that contract or advantage through fraud or

intimidation, and damages proximately caused by the interference.” Barnes v. Zappia, 658 A.2d

1086, 1090 (Me. 1995). Essentially, Carr contends that MMS enjoyed a reasonable expectation

of economic advantage based both on the Warrant with Abbott Laboratories, and the potential

deals it could have sought were ACT not “locked up” and MMS’s intellectual property not

devalued. However, the Amended Complaint does not allege that MMS was a party to the

Warrant, nor was it a third-party beneficiary of it. Likewise, the Amended Complaint fails to

articulate a cognizable prospective economic advantage. Rather, Carr’s complaint points to a

series of negotiations and transactions he feels MMS was locked out of. These allegations alone

are insufficient to establish the existence of an advantageous relationship.

9 Further, Carr fails to allege facts sufficient to plead either fraud, or intimidation as

required by the second element of tortious interference. First, to establish that a defendant

engaged in tortious interference with a prospective economic advantage through fraud, the

plaintiff must plead with particularity the elements of fraud:

(1) making a false representation (2) of a material fact (3) with knowledge of its falsity or in reckless disregard for whether it is true or false (4) for the purpose of inducing another to act or refrain from acting in reliance on it, and (5) the other person justifiably relies on the representation as true and act upon it to the damage of the plaintiff.

Rutland v. Mullen, 2002 ME 98, ¶ 14, 798 A.2d 1104. The Amended Complaint is completely

devoid of any allegations that Defendants made any fraudulent statements. Thus, the Court must

then evaluate whether the complaint alleges tortious interference by intimidation. According to

Maine law, tortious interference by intimidation involves unlawful coercion or extortion. Id. at ¶

16. However, the mere assertion that Defendants, by negotiating or offering consulting

agreements with Jeff Carr and Allison for the purpose of aligning economic interests fails to rise

to the level of unlawful coercion, and is certainly not extortion. Accordingly, the Court dismisses

Count II of the Amended Complaint as to all defendants.

Count III: Conspiracy

Finally, Count III of Carr’s complaint, which alleges a conspiracy to “exploit breaches of

fiduciary duties by Jeff Carr and Allison”, also fails. Under Maine law, “conspiracy fails as the

basis for the imposition of civil liability absent the actual commission of some independently

recognized tort.” Cohen v. Bowdoin, 288 A.2d 106, 110 (Me. 1972). “Thus, if the complaint at

issue is to be upheld as stating a claim upon which relief can be granted, it ust be on the ground

that the complaint sufficiently alleges the actual commission of the separate and independent

tort. . . against the plaintiff.” Id. The Court previously acknowledged that Carr failed to

10 sufficiently state an independent claim for breach of fiduciary duty. Therefore, the Court

dismisses Count III as to all defendants.

Conclusion

For the reasons set forth above, the Court dismisses the First Amended Complaint in its

entirety.

The Clerk is instructed to enter this Order on the docket for this case by incorporating it

by reference. M.R. Civ. P. 79(a).

So Ordered.

Dated:__5/25/2020____________ ___________/S___________________ Justice M. Michaela Murphy Business and Consumer Court

11 12 BCD-CV-2019-54

Meridian Medical Systems, LLC and Kenneth L.Carr

v.

EPIX Therapeutics, Inc., et al.

Meridian Medical Systems, LLC Randy Creswell, Esq. and Kenneth L.Carr Creswell Law 183 Middle St, Suite 100 Portland, ME 04101

EPIX Therapeutics, Inc., Clifford Ruprecht, Esq. Medtronic, Inc, Roach Hewitt 7 Ocean Ave Portland, ME 04103