Richards v. Centripetal Networks, Inc.

• Court: District Court, N.D. California
• Decided: January 21, 2025
• Docket: 4:23-cv-00145
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 ALBERT RICHARDS, Case No. 23-cv-00145-HSG

8 Plaintiff, ORDER DENYING MOTION FOR SUMMARY JUDGMENT 9 v. Re: Dkt. No. 126 10 CENTRIPETAL NETWORKS, INC., et al., 11 Defendants.

12 13 Pending before the Court is a motion for summary judgment filed by Defendants 14 Centripetal Networks LLC, Steven Rogers, and Jonathan Rogers. Dkt. No. 126. The Court finds 15 these matters appropriate for disposition without oral argument and the matters are deemed 16 submitted. See Civil L.R. 7-1(b). For the reasons detailed below, the Court DENIES the motion 17 for summary judgment. 18 I. BACKGROUND 19 The parties are familiar with the facts of this case, and the Court includes them here only as 20 relevant to the pending motion. The following facts are based on the evidence viewed in the light 21 most favorable to Plaintiff as the non-moving party.1 See Anderson v. Liberty Lobby, Inc., 477 22 U.S. 242, 255 (1986) (on a motion for summary judgment, “[t]he evidence of the nonmovant is to 23 be believed, and all justifiable inferences are to be drawn in [her] favor”). 24 25

26 1 To the extent that Plaintiff filed separate evidentiary objections, Dkt. No. 128-3, this was improper. Under the Local Rules, “[a]ny evidentiary and procedural objections to the motion must 27 be contained within the brief or memorandum.” See Civil L.R. 7-3(a). The Court therefore 1 A. Factual Background 2 In 2015 and 2016 Plaintiff Albert Richards purchased two Convertible Promissory Notes 3 (the “Notes”) in the amount of $250,000 each from Defendant Centripetal Networks, Inc. See 4 Dkt. No. 126-4, Ex. B; Dkt. No. 126-5, Ex. C. The terms and conditions of the Notes are 5 identical. Id. At the time Plaintiff purchased them, Centripetal was considering a “Series B 6 round” of investments led by a venture firm called Option 3 Cyber Investments, LLC or “O3.” 7 See Dkt. No. 126-7, Ex. E. The Notes would automatically convert into Centripetal stock in the 8 event of the closing of the sale and issuance of equity securities to O3 in excess of $5 million 9 (“Next O3 Round”). See Dkt. No. 126-4, Ex. B at ¶ 3; Dkt. No. 126-5, Ex. C at ¶ 3. The Notes 10 also gave Plaintiff the option to convert his Notes at a discounted price in the event of any other 11 “sale and issuance of equity securities” that did not involve O3 (“Next Non-O3 Round”). See id. 12 Specifically, the Notes stated: 13 If the Company closes any sale and issuance of equity securities that 14 do not constitute a Next O3 Round (each a “Next Non-O3 Round”), the Holder, at its option as evidenced by a written notice delivered to 15 the Company, may elect to convert this Note (and all then outstanding Conversion Amount) into validly issued, fully paid and non- 16 assessable shares of the securities issued in the Next Non-O3 Round (the “Future Non-O3 Stock”). 17 18 Id. at ¶ 4 (emphasis added). 19 Under the Notes, Centripetal had to provide Plaintiff with written notice of any such 20 triggering event: 21 The Company agrees that it shall: (i) give written notice to the Holder 22 at least 30 calendar days prior to the closing of any Next Non-O3 Round which notice shall include a summary of the material terms 23 and conditions of the Next Non-O3 Round and copies of all of the transaction documents related to such Next Non-O3 Round; and 24 (ii) provide the Holder with any revisions to the transaction documents related to such Next Non-O3 Round within one calendar 25 day after such documents are prepared and/or received (as applicable). 26 27 See id. (emphasis added). If neither a “Next O3 Round” nor a “Next Non-O3 Round” occurred by 1 accrued but unpaid interest. See Dkt. No. 126-4, Ex. B at ¶ 7; Dkt. No. 126-5, Ex. C at ¶ 7. 2 However, according to Plaintiff, from 2016 through 2019, Centripetal sold and issued 3 various types of “equity securities” without providing Plaintiff with the required notice. See Dkt. 4 No. 53 (“SAC”) at ¶ 30. Plaintiff asserts that these included: 5 6 • Stock Option Exercises: Centripetal issued tens of thousands of common stock 7 shares based on the exercise of employee stock options between December 2015 8 and December 2018. See Dkt. No. 128-1 (“Hejinian Decl.”) at ¶ 2, & Ex. 41 at 2. 9 10 • Convertible Notes: Centripetal issued a $250,000 convertible note to investor 11 Cristobal Conde in April 2016 with similar terms to the Notes at issue here. See 12 Dkt. No. 128-1, Ex. 25. And on 12 occasions in 2017 and 2018 Centripetal also 13 issued convertible notes with warrants attached to investor Douglas A. Smith. See 14 Hejinian Decl. at ¶ 3, & Exs. 26, 42–76. 15 16 • Stock Option Issuances: Centripetal issued multiple employee stock options 17 between 2016 and 2018. See Hejinian Decl. at ¶ 4, & Ex. 41 at 6–11. 18 19 • O3 Notes Conversion: Centripetal converted O3’s convertible notes into series A-2 20 preferred shares on October 18, 2019. See Hejinian Decl., Exs. 39–40. 21 22 Defendants do not appear to dispute that these events occurred, but respond that they do not 23 constitute triggering events as contemplated under the terms of the Notes, and that Plaintiff had 24 notice of them anyway. See generally Dkt. No. 126; Dkt. No. 133. 25 In August 2019, after the Notes’ maturity date had already passed, Plaintiff emailed 26 Defendant Steven Rogers, Centripetal’s founder and majority shareholder, to redeem his Notes. 27 See Dkt. No. 126, Ex. G. During the email exchange, Plaintiff explained: I think you’re doing a fantastic job in the face of some pretty strong 1 obstacles, but I really need to reduce my risk given a number of personal things as well as general worries about the economy. 2 3 See id. at 2. The parties therefore negotiated a document entitled “Notes Cancellation, Waiver of 4 Rights and Settlement Agreement” (the “Settlement Agreement”). See, e.g., Dkt. No. 128-1 5 (“Hejinian Decl.”), Exs. 28–35. In the course of these negotiations, Defendant Jonathan Rogers 6 mentioned that he had “been preoccupied along with our counsel on the closing we’re working 7 through.” See Hejinian Decl., Ex. 27.2 In response, Plaintiff asked if Defendants were 8 “negotiating an equity raise at the moment.” See id. Paul Barkworth, the company’s Chief 9 Financial Officer, stated that “[n]o, this is not an equity financing” and that “Centripetal is not 10 negotiating an equity financing with another party at present.” Id. 11 Jonathan Rogers nevertheless explained to Plaintiff: 12 [T]o be clear we are not trying to keep you from electing to convert 13 despite the fact that it hasn’t been triggered. This is your affirmative election to redeem. We can likely rep on the absence of the triggering 14 event. 15 16 See Hejinian Decl., Ex. 30. Mr. Rogers also later said it was “[t]oo bad we can’t twist your arm to 17 convert . . . .” See Hejinian Decl., Ex. 31. When Plaintiff said “I actually can’t convert, as there 18 isn’t any transaction to base a convert off of,” Mr. Rogers responded that it “can electively be 19 negotiated if you want.” See id. Despite this invitation, the parties continued to revise the 20 Settlement Agreement and executed it on October 17, 2019. See Dkt. No. 126-10, Ex. H. 21 Centripetal paid Plaintiff the balance on the Notes and Plaintiff relinquished his conversion rights. 22 See Hejinian Decl., Ex. 36. 23 The Settlement Agreement states in relevant part: 24 Centripetal expressly acknowledges and warrants that, as of the 25 Execution date . . . no equity securities have been issued that would give rise to the Creditor’s option to convert (a ‘Next Non-O3 Round”) 26

27 2 Jonathan Rogers is Steven Rogers’s son and the Chief Operating Officer of Centripetal. See under Clause 4 of the Notes . . . . 1 2 See Dkt. No. 126-10, Ex. H at § 5(a). In the same paragraph the Settlement Agreement also 3 provides that Plaintiff “acknowledges and agrees that the issuance by Centripetal of common 4 options and/or warrants do not constitute a Next Non-03 Round and the issuance of any such 5 options or warrants does not trigger any right or entitlement to conversion provided for in the 6 Notes.” Id. 7 Plaintiff claims that he was unaware of this specific addition to the Settlement Agreement. 8 See Dkt. No. 128-2 (“Richards Decl.”) at ¶¶ 28–31. Plaintiff had asked Defendants to accept his 9 changes and highlight any new changes to the draft agreement. See Hejinian Decl., Ex. 32. In 10 response, Defendants sent a revised draft of the five-page agreement with both Plaintiff’s and 11 Defendants’ proposed changes in redline. See Hejinian Decl., Ex. 34. In the body of the email 12 Jonathan Rogers stated that he “got the attached revs from counsel,” and that they “accommodated 13 the other changes you requested.” See Hejinian Decl., Ex. 35. Plaintiff apparently interpreted this 14 to mean that Centripetal had not made any of its own changes. See Hejinian Decl., Ex. 4 at 197:8– 15 198:4, 199:16–23. Plaintiff therefore did not forward this final version to his lawyers to review 16 before signing it. See id. 17 Plaintiff later stated that he regretted signing the Settlement Agreement. See Hejinian 18 Decl., Ex. 4 at 88:11–18. In October 2020, Centripetal won a patent judgment against Cisco 19 Systems potentially worth over $2 billion. See Centripetal Networks, Inc. v. Cisco Sys. Inc., 492 20 F. Supp. 3d 495 (E.D. Va. 2020), vacated and remanded by Centripetal Networks, Inc. v. Cisco 21 Sys., Inc., 38 F.4th 1025 (Fed. Cir. 2022).3 Plaintiff then emailed Steven and Jonathan Rogers that 22 “[o]f course, I now wish I had held onto the Convert [Notes], but that was my decision and the 23 structure wasn’t right anyway, as it converted at the ‘next share issue price,’ and there hasn’t been 24 one (right?).” See Dkt. No. 126-12, Ex. J. 25 Around this same time, Plaintiff suspected that Defendants had failed to provide him 26

27 3 On retrial following the Federal Circuit remand, Cisco completely prevailed. See Centripetal 1 notice of multiple triggering events under the Notes. See Richards Decl. at ¶¶ 35–64. Plaintiff 2 looked back at prior financial statements and investor disclosures and discovered several events 3 that he believes required notice. Id. He asserts that he was only aware of “a few” of these alleged 4 triggering events prior to starting his investigation in November 2020. See id. at ¶¶ 59–64. 5 Because Defendants had warranted during the Settlement Agreement negotiations and in the 6 agreement itself that no triggering events had occurred, Plaintiff claims that Defendants 7 fraudulently induced him into signing the Settlement Agreement. See id. at ¶ 47. 8 B. Procedural Background 9 Plaintiff initially filed this case in January 2023. See id. Plaintiff filed an amended 10 complaint, Dkt. No. 26-1, which Defendants moved to dismiss, Dkt. No. 35. In January 2024, the 11 Court granted in part and denied in part the motion. Dkt. No. 50 (“First MTD Order”). The Court 12 concluded that the Settlement Agreement barred some, but not all of Plaintiff’s claims. See id. As 13 relevant here, the Court reasoned that the Settlement Agreement barred the breach of contract 14 claims relating to the issuance of common options and warrants. Id. at 4–7. However, the Court 15 explained that it could not determine at the motion to dismiss stage whether the Settlement 16 Agreement also barred claims relating to the issuance of shares after the exercise of stock options 17 because the Settlement Agreement was “susceptible to multiple interpretations” as to that issue. 18 See id. at 6. The Court therefore allowed Plaintiff’s breach of contract claim, fraudulent 19 inducement, negligent misrepresentation, and fraud claims to move forward on this narrower 20 basis. Id. at 5–10. The Court also denied the motion to dismiss as to the claims arising under 21 California Corporation Code Sections 25401 and 25403, but dismissed Plaintiff’s other claims. Id. 22 at 5–12. 23 Plaintiff filed the second amended complaint, alleging virtually the same claims. See SAC. 24 The Court again granted in part and denied in part Defendants’ motion to dismiss. See Dkt. No. 25 79 (“Second MTD Order”). The Court did not repeat its analysis from the First MTD Order. 26 Instead, the Court rejected Defendants’ argument that Plaintiff’s claims were untimely and that 27 California Corporations Code § 25017 precluded Plaintiff’s breach of contract claim. See id. at 7– 1 when Centripetal issued shares of stock upon the exercise of stock options by their holder, and that 2 Defendants obscured this fact in their reports and communications with the intent to defraud 3 Plaintiff to deny him the benefit of his investment.” See id. at 13. Plaintiff’s remaining causes of 4 action in this case accordingly include a claim for breach of contract and four fraud-based claims 5 related to the Settlement Agreement—concealment; negligent misrepresentation; fraud – 6 intentional misrepresentation; and fraudulent inducement. See SAC at ¶¶ 238–279. 7 Defendants now move for summary judgment. Dkt. No. 126. 8 II. LEGAL STANDARD 9 Summary judgment is proper when a “movant shows that there is no genuine dispute as to 10 any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). 11 A fact is “material” if it “might affect the outcome of the suit under the governing law.” Anderson 12 v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). And a dispute is “genuine” if there is evidence 13 in the record sufficient for a reasonable trier of fact to decide in favor of the nonmoving party. Id. 14 But in deciding if a dispute is genuine, the court must view the inferences reasonably drawn from 15 the materials in the record in the light most favorable to the nonmoving party, Matsushita Elec. 16 Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587–88 (1986), and “may not weigh the evidence 17 or make credibility determinations,” Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997), 18 overruled on other grounds by Shakur v. Schriro, 514 F.3d 878, 884–85 (9th Cir. 2008). 19 The moving party bears the initial burden of identifying those portions of the record that 20 demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 21 U.S. 317, 322–23 (1986). The burden then shifts to the nonmoving party to “go beyond the 22 pleadings and by [his] own affidavits, or by the ‘depositions, answers to interrogatories, and 23 admissions on file,’ designate ‘specific facts showing that there is a genuine issue for trial.’” See 24 id. at 324 (quoting Fed. R. Civ. P. 56(e) (amended 2010)). The nonmoving party must show more 25 than “the mere existence of a scintilla of evidence.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 26 387 (9th Cir. 2010) (citing Liberty Lobby, 477 U.S. at 252). “In fact, the non-moving party must 27 come forth with evidence from which a jury could reasonably render a verdict in the non-moving 1 this showing, “the moving party is entitled to judgment as a matter of law.” Celotex Corp., 477 2 U.S. at 323. If a court finds that there is no genuine dispute of material fact as to only a single 3 claim or defense or as to part of a claim or defense, it may enter partial summary judgment. Fed. 4 R. Civ. P. 56(a). 5 III. DISCUSSION 6 Plaintiff contends that if his fraud claims are meritorious, then the Settlement Agreement is 7 voidable and can be rescinded, and does not bar his breach of contract claim as to any of the 8 alleged triggering events. See, e.g., Dkt. No. 128 at 12–15. Plaintiff’s claims, however, involve 9 considerable overlap with each other. Plaintiff can only succeed on his fraud-based claims, and 10 rescind the Settlement Agreement, if there was a triggering event under the terms of the Notes that 11 Defendants misrepresented, concealed, or failed to disclose. And similarly, Plaintiff can only 12 succeed on his breach of contract claim if there was such a triggering event as to which 13 Defendants failed to provide written notice. Plaintiff’s claims thus rise or fall based on what 14 constitutes a triggering event under the Notes. Specifically, the parties dispute the meaning of 15 “any sale and issuance of equity securities that do not constitute a Next O3 Round.” See Dkt. No. 16 126-4, Ex. B at ¶ 4 (emphasis added); Dkt. No. 126-5, Ex. C at ¶ 4 (emphasis added). 17 A. Scope of Triggering Events 18 As an initial matter, Defendants urge that the Court’s prior orders on the motions to 19 dismiss limited the scope of the possible triggering events under the Notes. See Dkt. No. 126 at 20 12–14. In the order on the first motion, the Court held that “the Settlement Agreement operates to 21 bar the breach of contract claims relating to the issuance of common options and warrants.” See 22 First MTD Order at 5–6. The Court further clarified that the Settlement Agreement barred “the 23 various types of warrants at issue” here. See id. at 6–7. However, the Court held that the issuance 24 of stock upon the exercise of stock options was not barred by the settlement agreement. See id. at 25 5–6. The Court did not explicitly revisit this holding in its order on the second round motion to 26 dismiss. See generally Second MTD Order. But the Court denied Defendants’ motion to dismiss 27 the breach of contract claim. Id. 1 matter of law that Mr. Richards cannot pursue contract or fraud claims based on Centripetal’s 2 issuance of warrants or stock options.” See Dkt. No. 126 at 2. Plaintiff, on the other hand, urges 3 that if, as he contends, he was fraudulently induced into entering into the Settlement Agreement, 4 then the agreement is voidable and can be rescinded. See Dkt. No. 128 at 14–15 (citing Rosenthal 5 v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 415 (1996)). The Settlement Agreement, therefore, 6 would not operate to limit Plaintiff—or his claims—in any way. Id. In particular, Plaintiff argues 7 that he would not be bound by his own representation in the Settlement Agreement that the 8 “issuance . . . of common options and/or warrants do not constitute” a triggering event. See id. at 9 15 (citing Hejinian Decl., Ex. 36 at § 5(a)). The Court finds it surprising (and inefficient) that the 10 parties did not raise any questions about the remaining scope of Plaintiff’s breach of contract 11 claim before now, which has resulted in an ongoing muddiness in nailing down what is now at 12 issue. In particular, part of the challenge is that Plaintiff’s theories appear to have shifted over 13 time. 14 Stock Option Issuances. Plaintiff has repeatedly disavowed that the issuance of stock 15 options constitutes a triggering event under the Notes. In his opposition to the first motion to 16 dismiss, Plaintiff stated explicitly that he “does not allege that Centripetal’s ‘issuance of options’ 17 gave him a right to convert.” See Dkt. No. 41 at 2. Rather, he explained that his theory was that 18 “the sale and issuance of common stock upon option exercises—a completely different event from 19 option issuance” triggered his conversion rights. See id. (emphasis in original); see also id. at 14. 20 In the SAC, Plaintiff similarly acknowledged that “Centripetal issued a significant number of 21 options” over the relevant time period. See SAC at ¶ 30, n.10. However, Plaintiff stated that “to 22 the best of Plaintiff’s knowledge, these options were all associated with grants to management and 23 employees, meaning they were not within the ‘sale’ portion of the ‘sale and issuance’ clause in the 24 Notes.”4 Id. (emphasis added). In short, Plaintiff has consistently stated that the issuance of 25 options is not a triggering event under the Notes. 26

27 4 In his declaration in opposition to the motion for summary judgment, Plaintiff has even 1 But now, Plaintiff appears to resuscitate the argument that the issuance of stock options to 2 employees constitutes a triggering event under the Notes. See Hejinian Decl. at ¶ 4, & Ex. 41 at 3 6–11; see also Dkt. No. 128 at 4–5, 14–15, & n.6. In his opposition to the motion for summary 4 judgment, for example, Plaintiff points out that “Defendants issued thousands of employee stock 5 options in three separate tranches, each a triggering event.” See Dkt. No. 128 at 14. He contends 6 that “[a]s with the other triggering events, Defendants never provided him with written notice of 7 these transactions as required by the Notes.” Id. at 5. Plaintiff has offered no justification for—or 8 legal authority permitting—this flip-flopping, and the Court will not permit him to base his breach 9 of contract claim on a theory that he has previously disavowed. See Am. Title Ins. Co. v. Lacelaw 10 Corp., 861 F.2d 224, 226 (9th Cir. 1988) (“Factual assertions in pleadings and pretrial orders, 11 unless amended, are considered judicial admissions conclusively binding on the party who made 12 them.”). Plaintiff may not argue, therefore, that the issuance of employee stock options constitutes 13 a triggering event. 14 Warrants. Defendants urge that the Court’s motion to dismiss orders preclude Plaintiff 15 from relying on warrants as triggering events under the Notes as well. Dkt. No. 126 at 12–13. 16 However, Plaintiff continues to argue that the issuance of warrants constitutes a triggering event. 17 See Dkt. No. 128 at 14–15. Plaintiff points out that under either California or Virginia law, 18 proving fraudulent inducement would permit him to rescind the entire Settlement Agreement, 19 including his own representation that the “issuance . . . of common options and/or warrants do not 20 constitute” a triggering event.5 Id.; see also Hejinian Decl., Ex. 36 at § 5(a)). Id. 21 Yet again, Plaintiff’s argument has become clearer over time. In opposition to the first 22 motion to dismiss, Plaintiff argued that his fraudulent inducement claim should not be dismissed 23 based on the Settlement Agreement because the Settlement Agreement “was a key component” of 24 Defendant’s alleged scheme to defraud him. See Dkt. No. 41 at 4–7. He pointed out that 25 California law contains “principles permitting one who has been fraudulently induced into signing 26 5 The Notes state that California law applies to them, see Dkt. No. 126-4, Ex. B at § 12 (“This 27 Note shall be governed by and construed under the laws of the State of California . . . .”), and the 1 a contract to either seek recission thereof or to affirm the contract and sue for fraud.” See id. at 4. 2 It is not clear from the subsequent discussion, however, whether Plaintiff was suggesting that he 3 intended to rescind the Settlement Agreement, in part or in full, or affirm it and sue for fraud. See 4 id. at 4–7. And in discussing the language in the Settlement Agreement that warrants are not 5 triggering events, Plaintiff did not argue, as he does now, that such language is unenforceable 6 because he has the right to rescind the entire agreement. Instead, he urged that Defendants 7 “slipped [the provision] past Richards unawares” during the drafting process. Id. at 7. The Court 8 therefore did not squarely address this (unpresented) recission argument in the First MTD Order. 9 The Court pointed out in a footnote that Plaintiff’s failure to read a contract does not excuse him 10 from his obligations under it. See First MTD Order at 5, n.4. And substantively, the Court briefly 11 noted that Plaintiff had “specifically ceded that ‘issuance of options and/or warrants’ would not 12 trigger the right to convert or notice of the same.” See id. at 9. 13 Still, the Court acknowledges that in his Prayer for Relief in the First Amended Complaint 14 and the Second Amended Complaint, Plaintiff requested “[r]ecission of the fraudulently-obtained 15 2019 settlement agreement.” See Dkt. No. 26-1, Ex. A at 41; Dkt. No. 53 at 51. And in his 16 opposition to the second motion to dismiss, Plaintiff more directly argued that “[a]s fraudulently- 17 induced contracts – including settlement agreements – are null and void (also under both 18 California and Virginia law), Defendants cannot rely on any provision of an agreement that has yet 19 to be proven to be valid.” Dkt. No. 69 at 21. But as noted above, the Court did not revisit its prior 20 order or specifically address whether Plaintiff could argue that the issuance of warrants constitutes 21 triggering events under the Notes. See Second MTD Order. The parties never sought further 22 clarification. 23 Now that the record has been made and the Court more fully understands Plaintiff’s 24 position, the Court finds that notwithstanding the orders on the motions to dismiss, Plaintiff is not 25 precluded from arguing that the issuance of warrants constituted triggering events. The Court 26 does so out of an abundance of caution. Although Plaintiff may not be bound by the terms of the 27 Settlement Agreement if he can establish that he was fraudulently induced to enter into it, the 1 Settlement Agreement that Centripetal’s “issuance of common options and/or warrants do [sic] not 2 constitute a Next Non-03 Round” and that “the issuance of any such options or warrants does not 3 trigger any right or entitlement to conversion provided for in the Notes” may still provide insight 4 into what the parties actually believed were triggering events under the Notes. Plaintiff has not, to 5 date, offered any persuasive argument that would allow him to sidestep that language—and his 6 apparent admission—in the Settlement Agreement entirely. 7 Convertible Notes. Similarly, Defendants suggest that the Court’s prior motion to dismiss 8 orders somehow preclude Plaintiff from asserting that the issuance of convertible notes triggered 9 his conversion rights. See Dkt. No. 126 at 13–14. But as Defendants recognize, Plaintiff did not 10 allege that the issuance of convertible notes triggered his conversion rights until the second 11 amended complaint. Id. So the Court had no occasion to address this issue in the First MTD 12 Order. In their second motion to dismiss, Defendants suggested that Plaintiff’s breach of contract 13 claim based on such convertible notes was barred by the statute of limitations. See Dkt. No. 63 at 14 7. However, in the Second MTD Order the Court rejected Defendants’ timeliness argument, 15 declining to address questions of disclosure and reasonable diligence at the motion to dismiss 16 stage. See Second MTD Order at 7–8. The Court’s prior orders, therefore, do not preclude 17 Plaintiff from arguing that the issuance of convertible notes constitutes triggering events. 18 In their reply brief, Defendants also suggest that Plaintiff cannot rely on any triggering 19 events that are not explicitly alleged in the complaint. See Dkt. No. 133 at 6–7. They cite no legal 20 authority for this sweeping proposition, and the Court declines to adopt it here. Through 21 discovery Plaintiff may have found additional events—such as warrants or convertible notes—that 22 he was previously unaware of, and Defendant has not provided any reasoned basis to preclude 23 Plaintiff from pursuing them now. 24 B. Notice of Triggering Events 25 Defendants argue that even assuming Plaintiff’s broad interpretation of “equity securities” 26 is accurate and encompasses the alleged triggering events above, Plaintiff had actual knowledge of 27 them. See Dkt. No. 126 at 15–21. Consequently, Defendants urge that Plaintiff’s causes of action 1 triggering events occurred for purposes of his fraud claims. See id. But the Court finds that there 2 are genuine disputes of material fact regarding whether Plaintiff knew or should have known of 3 the triggering events.6 4 Under the Notes, Defendants had an affirmative obligation to provide Plaintiff written 5 notice “at least 30 calendar days prior to the closing” of any triggering event. See Dkt. No. 126-4, 6 Ex. B at ¶ 4; Dkt. No. 126-5, Ex. C at ¶ 4. Defendants appear to have provided such formal notice 7 only once. See Hejinian Decl., Ex. 7; see also Richards Decl. at ¶ 12. Defendants do not present 8 evidence that they provided Plaintiff with any additional formal, written notice. Rather, 9 Defendants contend that Plaintiff either (1) acknowledged that he had actual notice of the alleged 10 triggering events; or (2) should have known of them based on information in his possession. 11 Stock Option Exercises. Defendants point out that during Plaintiff’s deposition, he 12 testified that he knew Defendants had issued stock to employees upon the exercise of their stock 13 options. See Dkt. No. 126 at 7–8, 15–16. Defendant appears to overread Plaintiff’s deposition 14 testimony. When asked directly whether Plaintiff knew that employees has exercised stock 15 options, he responded that “I can’t say with certainty at that point in time I did.” See Dkt. No. 16 126-3, Ex. A (“Richards Depo.”) at 76:6–9; see also id. at 89:1–4. Plaintiff acknowledged that he 17 had received financial statements that showed that stock options had been exercised. Id. at 76:9– 18 18, 89:1–11. However, he did not admit that he reviewed the statements and saw that stock 19 options had indeed been exercised. Id. Plaintiff states that he “only looked causally at these 20 statements and did not review them in search of triggers for my notes.” See Richards Decl. at 21 ¶ 13. He asserts that he instead relied on Defendants, as required under the Notes, to provide him 22 with the necessary notice. See id. at ¶ 46. Plaintiff also contends that it took him significant time 23 to piece together what triggering events had occurred “because the true nature of many of the 24 triggering events were either mislabeled, disguised, or not reported in Centripetal’s financial 25 reports.” See id. at ¶¶ 46–58. 26

27 6 Plaintiff “concedes that any breach claim based on the April 2017 issuance of the convertible 1 Warrants. Defendants also point out that Plaintiff testified that he knew warrants had been 2 issued. See Dkt. No. 126 at 7–8, 16. But again, Plaintiff’s deposition is not entirely clear. At one 3 point Plaintiff appears to acknowledge that he was aware of a single warrant that was issued in 4 2017. See Richards Depo. at 72:14–19. But then elsewhere he states “when I really focused on 5 the fact that there were warrants in the [documents Defendants disclosed], I can’t recall the date of 6 that.” See id. at 98:15–24. And he also stated “I still don’t understand the 16 million warrants.” 7 Id. at 99:12–15. 8 Convertible Notes. Defendants also assert that Plaintiff testified that he knew that 9 convertible notes had been issued. See Dkt. No. 126 at 9, 16. But like the warrants, Plaintiff did 10 not definitively state when he became aware that such convertible notes had been issued. Plaintiff 11 has only suggested that he knew about the issuance of one in 2017. See Dkt. No. 128 at 19, n.8. 12 Even as to that convertible note, however, Plaintiff explained in his declaration that “[d]ue to the 13 various misleading characterizations in Centripetal’s financial statements . . . I was unsure whether 14 the note issued to Mr. Smith in April 2017 was a convertible note until it was confirmed in 15 discovery in this case.” See Richards Decl. at ¶ 60. 16 Even assuming Plaintiff had financial documents in his possession that disclosed all of 17 these potential triggering events at the time, there remain factual disputes about the reasonableness 18 of Plaintiff’s conduct, including what Plaintiff reviewed and when he reviewed it, and whether 19 such documents should have put Plaintiff on notice of these alleged triggering events. 20 * * * 21 At least as currently presented, Plaintiff’s version of events is not overwhelmingly 22 persuasive. And in the face of Defendants’ evidence, Plaintiff appears to rely heavily on the 23 standard of review and his ipse dixit about the meaning of the Notes and the parties’ Settlement 24 Agreement. That stance will be tested at trial, where Plaintiff will no longer be entitled to any 25 presumptions. Nevertheless, drawing all inferences in Plaintiff’s favor as it must at this stage, the 26 Court finds that Plaintiff has raised at least one genuine dispute of material fact precluding 27 summary judgment. See Fed. R. Civ. P. 56(a). The Court therefore DENIES the motion. 1 employee stock options constitutes a triggering event. 2 || IV. CONCLUSION 3 The Court DENIES the motion for summary judgment. Dkt. No. 126. The prior 4 || scheduling order remains in effect. Dkt. No. 61. The Court understands that the parties attempted 5 to mediate this case in May, and it did not settle. See Dkt. No. 85. Nevertheless, given the current 6 stage of the case, the Court is inclined to refer the case to a magistrate judge for a settlement 7 || conference in advance of the bench trial in March 2025. The parties are therefore DIRECTED to 8 meet and confer and file a status report of no more than two pages by January 28, 2025, addressing 9 || whether they believe a settlement conference would be a productive use of everyone’s time. The 10 || case schedule otherwise remains in place. 11 IT IS SO ORDERED. 12 || Dated: 1/21/2025

4 HAYWOOD S. GILLIAM, JR. United States District Judge

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