SCHMIDT v. SKOLAS et al

Filing 194

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE BERLE M. SCHILLER ON 11/10/2015. 11/10/2015 ENTERED AND COPIES MAILED AND E-MAILED.(sg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
ALAN W. SCHMIDT, on behalf of himself
and in a representative capacity on behalf
of all others similarly situated and
derivatively on behalf of Genaera
Corporation and on behalf of the
Genaera Liquidating Trust
Plaintiffs,
v.
JOHN A. SKOLAS, et al.,
Defendants.

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CIVIL ACTION

No. 12-3265

MEMORANDUM
Schiller, J.

November 10, 2015

Alan Schmidt is a former shareholder of Genaera Corporation (“Genaera”) and a
unitholder of the Genaera Liquidating Trust (“GLT”). Following remand from the Third Circuit,
he filed the Second Amended Complaint (“SAC”) on behalf of himself, other Genaera
shareholders and unitholders, and derivatively on behalf of Genaera and GLT, against: John A.
Skolas; Leanne Kelly; Zola B. Horovitz; John L. Armstrong, Jr.; Osagie O. Imasogie; Mitchell
D. Kaye; Robert F. Shapiro; Paul K. Wotton; Robert DeLuccia; David Luci; Steve Rouhandeh;
Jeffrey Davis; Mark Alvino; Biotechnology Value Fund, LP, Biotechnology Value Fund II, L.P.,
and BVF Inc. (collectively, “BVF”); Ligand Pharmaceuticals, Inc. (“Ligand”); XMark Capital
Partners, LLC, XMark Opportunity Funds, L.P., XMark Opportunity Fund Ltd., XMark JV
Investment Partners LLC, XMark Opportunity Partners, LLC (collectively, “XMark”); Argyce
LLC (“Argyce”); SCO Financial Group (“SCO”); Dipexium Pharmaceuticals, LLC
(“Dipexium”); MacroChem Corporation (“MacroChem”); Access Pharmaceuticals, Inc.
(“Access”); Mark N. Lampert; John L. Higgins; and nominal defendants Genaera Corporation

and Genaera Liquidating Trust for breach of their fiduciary duties, as well as aiding and abetting
thereof, arising out of the liquidation of Genaera.
Seven groups of Defendants have moved to dismiss the Second Amended Complaint: (1)
Directors and Officers Kelly, Armstrong, Horovitz, Imasogie, Shapiro, and Wotton (“D&O
Defendants”); (2) Trustee Argyce and Skolas (“Trust Defendants”); (3) XMark and Kaye
(“XMark Defendants”); 1 (4) Dipexium, DeLuccia, and Luci (“Dipexium Defendants”); (5) BVF
and Lampert (“BVF Defendants”); (6) Ligand and Higgins (“Ligand Defendants”); and (7)
MacroChem, Access, SCO, Rouhandeh, Davis, Alvino (“Access Defendants”). For the reasons
that follow, the Court grants Defendants’ motions to dismiss.
I.

BACKGROUND
This action stems from the dissolution of Genaera, a biotechnology company that

developed pharmaceutical drugs and held licenses to intellectual property and patents. (Second
Am. Compl. ¶ 63.) Genaera was a Delaware corporation whose principal place of business was
in Pennsylvania. (Id. ¶ 11.) It was dissolved on June 12, 2009, and its assets were transferred to
GLT, a Delaware trust, which was managed by Defendant Argyce as trustee. (Id. ¶¶ 150–52,
158.) At that time, all shares of Genaera stock were canceled, and each stockholder became a
unitholder of GLT. (Id. ¶¶ 158–59.) Plaintiff’s allegations in the SAC revolve around two events:
the D&O Defendants’ participation in a scheme to wrongfully dissolve Genaera and the Trust
Defendants’ sale of the assets in GLT for less than their fair value to Genaera insiders and their
affiliates, at the expense of Genaera shareholders. The other Defendants named in the SAC
allegedly aided and abetted the D&O Defendants and Trust Defendants in breaching their

1

In this Memorandum, the term “D&O Defendants” includes Mitchell Kaye, who was a Genaera Director during the
relevant time period, but does not include his company, Xmark.

2

fiduciary duties. The following summarizes the factual allegations in the Second Amended
Complaint.
A.

Dissolution of Genaera

The SAC traces the conspiracy to dissolve Genaera back to 2007, when XMark began to
purchase large amounts of Genaera common stock. (Id. ¶¶ 5, 66.) By September 28, 2007, when
Mitchell Kaye, XMark’s CEO, was elected to Genaera’s Board of Directors, XMark owned 21%
of Genaera’s stock. (Id. ¶ 65, 68–69.) At that time, Kaye was a co-investor in Somanta
Pharmaceuticals with Defendants Rouhandeh, Davis, and SCO. (Id. ¶ 67.)
In May 2008, Genaera announced various initiatives to reduce costs in order to maintain
sufficient resources to continue to develop its assets. (Id. ¶ 112.) However, in April 2009,
Genaera’s Board of Directors announced that the company’s prospects were not promising and
stated that dissolution and liquidation would return the greatest value to stockholders. (Id. ¶ 120.)
On April 18, 2009, the Board unanimously approved—and recommended that shareholders vote
to approve—a plan to dispose of all of the company’s assets and to make distributions to
stockholders. (Id. ¶ 122.) Defendant Kaye did not attend this meeting. (Id.) Genaera’s stock price
declined dramatically following the announcement that the Board had approved the plan of
dissolution. (Id. ¶ 138.)
In anticipation of the shareholder vote on the plan of dissolution, the Directors issued a
proxy statement that the SAC alleges falsely asserted that no Genaera directors or officers would
profit from dissolution. (Id. ¶ 128.) The SAC also alleges that the proxy statement failed to
mention that Defendant Argyce had already been selected as trustee, omitted important details
that would have shown that some of Genaera’s assets were quite promising, and failed to explain
that Genaera’s large net operating loss could only have been monetized by selling the company

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as a whole. (Id. ¶¶ 118, 127, 137.) At a special meeting on June 4, 2009, the shareholders—the
two largest of which were XMark and BVF—approved the Board’s recommendation to adopt the
plan of dissolution. (Id. ¶¶ 121, 140.) The next day, XMark sold one-third of its shares of
Genaera at a price of $0.3095 per share, which was more than 1.6 times the average closing price
over the ten preceding days. (Id. ¶ 144–45.)
Genaera filed articles of dissolution with the Delaware Secretary of State on June 12,
2009, and the company’s assets and liabilities were transferred to GLT. (Id. ¶ 150.) Argyce LLC
was named Trustee, despite the fact that its President and CEO, Skolas, had been fired as
Genaera’s CFO in 2007. (Id. ¶¶ 152, 154). Thereafter, each outstanding share of Genaera
common stock was canceled and replaced by a unit in GLT. (Id. ¶¶ 158–59.) Under the Trust
Agreement, the Trustee would have three years to “monetiz[e]” Genaera’s assets. (Id. ¶ 124.) In
2010, the Trust reported “General and Administrative” expenses of $687,000.00, which was
nearly 25% of the Trust’s total revenue of $3.028 million that year. (Id. ¶ 221.)
B.

Genaera’s Assets
1.

Aminosterol Assets

At the time of its dissolution, Genaera owned the rights to Squalamine and
Trodusquemine compounds (“Aminosterol Assets”), some of which are used in eye drops that
treat wet age-related macular degeneration. (Id. ¶ 213.) On July 8, 2009, twenty-six days after
GLT was established, the Trustee accepted a $50,000 down payment on the sale of the
Aminosterol Assets for $200,000 to BBM Holdings, Inc., the predecessor to Ohr
Pharmaceuticals. (Id. ¶¶ 205, 214.) On August 12, 2009, the Trustee publicly reported that the
Aminosterol Assets had been sold in May 2009. (Id. ¶ 208.) According to the SAC, the Trustee

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“had the opportunity to sell the assets” for a higher price, and there was no public announcement
of bidding for the assets. (Id. ¶¶ 207, 212.)
2.

Pexiganan Asset

Pexiganan is a topical cream for the treatment of diabetic foot infections that Genaera and
its predecessor initially developed. (Id. ¶ 80.) In 2007, MacroChem licensed the right to develop
Pexiganan from Genaera for an initial fee of $1 million. (Id. ¶¶ 85, 87.) Under the license
agreement, Genaera could earn payments up to $35 million from MacroChem based on various
sales-based milestones, as well as ten percent royalty payments based on net sales. (Id. ¶ 85.) In
April 2008, MacroChem merged with Virium, a nonpublic company controlled by Defendants
Rouhandeh and SCO. (Id. ¶ 92.) Defendant Alvino was then a director of MacroChem, and the
SAC alleges that his firm Griffin Securities provided a “sham” fairness opinion in support of the
merger. (Id. ¶ 93.) MacroChem allegedly diverted funds that should have been used to develop
Pexiganan to Rouhandeh and Virium. (Id. ¶ 106.) Despite publicly praising Pexiganan’s
potential, MacroChem only spent $45,110 to develop the drug in 2008. (Id. ¶ 104.) In February
2009, Access acquired MacroChem and “ceased development of MacroChem’s dermatology
products, including Pexiganan.” (Id. ¶¶ 108, 110.) The SAC alleges that the D&O Defendants
knew that Genaera had a right under the licensing agreement with MacroChem to demand that
MacroChem return the Pexiganan assets by October 2009 if MacroChem refused to develop the
drug, but the Defendants did not make any such demand. (Id. ¶ 111.)
After Genaera’s dissolution, GLT terminated the licensing agreement and the Pexiganan
assets were returned to the Trust. (Id. ¶ 189.) On January 11, 2010, the Trustee publicly solicited
bids for Pexiganan, with a deadline for bids of February 12, 2010. (Id. ¶ 191.) During that time,
potential bidders were required to request and sign a confidential disclosure agreement in order

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to receive information about the asset. (Id.) Ultimately, GLT sold Pexiganan to Dipexium in two
separate sales on April 8, 2010, and March 21, 2011, for a total price of $272,500. (Id. ¶ 196.)
Dipexium had been formed in January 2010 by Defendants DeLuccia and Luci. After the
purchase of Pexiganan, Dipexium was able to raise $1.42 million from twenty-seven investors.
(Id. ¶ 192–93.) Whereas MacroChem’s Pexiganan license had required royalty and milestone
payments, the SAC alleges that the Trustee helped DeLuccia and Luci to acquire the rights to
Pexiganan free from royalty and milestone payment obligations. (Id. ¶ 203).
3.

Interlukin 9 (“IL9") Asset

Since 2007, Genaera had owned a licensor interest in the IL9 antibody program for
asthma, which it licensed to MedImmune, LLC (“MedImmune”). (Id. ¶ 70.) According to the
SAC, Genaera could have received up to $54 million in payments from MedImmune in addition
to royalties, if MedImmune reached certain milestones in the development of IL9. (Id. ¶ 75.) In
2008, Defendant Armstrong, as President of Genaera, made several public comments about the
value of the IL9 Program. (Id. ¶¶ 13, 75, 77.) The SAC further alleges that Dr. Michael Gast,
Genaera’s Chief Medical Officer, periodically shared MedImmune’s confidential information
about MedImmune’s development of the IL9 asset with Armstrong. (Id. ¶ 78.) The SAC infers
from these facts that the Genaera Board of Directors knew at the time of dissolution that
MedImmune was preparing to continue studies of the IL9 program that had been on clinical hold.
(Id. ¶ 79.)
On May 18, 2010, Trust Defendants sold IL9 to Ligand for $2.75 million, far less than
previous estimates of its value. (Id. ¶¶ 172–73.) Ligand then sold half of its interest in IL9 to
BVF. (Id. ¶ 173.) In anticipation of this transaction, BVF had sold off some of its stock in
Ligand, so that it owned less than a 10% interest, which the SAC alleges was the statutory

6

threshold for insiders. (Id. ¶ 171.) The sale to BVF was not mentioned in GLT’s purchase
agreement with Ligand. (Id. ¶ 173.) The SAC also alleges that Kaye provided confidential
information about the IL9 asset to Defendant Lampert, President of BVF. (Id. ¶ 185).
C.

Plaintiff’s Lawsuit

Schmidt, a former investment professional and high-ranking employee of Brown
Brothers Harriman, was a stockholder of Genaera from approximately 1998 until its dissolution
on June 12, 2009, and thereafter became a unitholder of GLT by operation of law. (Id. ¶¶ 10,
58.) “[T]hroughout the years, [Schmidt] has held many conversations with Genaera officers and
directors” regarding the assets at issue and their values and prospects. (Id. ¶ 10.) He filed this
lawsuit on June 8, 2012, on behalf of himself, all former shareholders of Genaera, and all
unitholders of GLT, and derivatively on behalf of Genaera and GLT. (Id. ¶¶ 45, 51, 57.) After
Schmidt filed an Amended Complaint, this Court granted Defendants’ motions to dismiss on the
ground that the statute of limitations barred Plaintiff’s claims, and dismissed Defendant Ohr
Pharmaceuticals for lack of personal jurisdiction. (Aug. 12, 2013 Mem. at 11, 14.) Plaintiff
appealed, and the Third Circuit reversed in part and remanded, holding that it was premature to
dismiss based on the statute of limitations. Schmidt v. Skolas, 770 F.3d 241, 253 (3d Cir. 2014).
Following remand, the Court held oral argument on the remaining Motions to Dismiss on
February 3, 2015, prior to which Plaintiff filed the SAC. The counts alleged in the SAC are
against: (1) the D&O Defendants for breach of fiduciary duty, and all other Defendants for
aiding and abetting; (2) the Trust Defendants for breach of fiduciary duty, and all other
Defendants for aiding and abetting; (3) all Defendants for punitive damages; and (4) Dipexium
for recission of the sale of Pexiganan. The Court held an additional oral argument on
Defendants’ motions to dismiss the SAC on September 30, 2015.

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II.

STANDARD OF REVIEW
In reviewing a motion to dismiss for failure to state a claim, a district court must accept

as true all well-pleaded allegations and draw all reasonable inferences in favor of the nonmoving party. See Powell v. Weiss, 757 F.3d 338, 341 (3d Cir. 2014). A court need not, however,
credit “bald assertions” or “legal conclusions” when deciding a motion to dismiss. Anspach ex
rel. Anspach v. City of Phila., Dep’t of Pub. Health, 503 F.3d 256, 260 (3d Cir. 2007); see also
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
“Factual allegations [in a complaint] must be enough to raise a right to relief above the
speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To survive a motion to
dismiss, a complaint must include “enough facts to state a claim to relief that is plausible on its
face.” Id. at 570. Although the Federal Rules of Civil Procedure impose no probability
requirement at the pleading stage, a plaintiff must present “enough facts to raise a reasonable
expectation that discovery will reveal evidence of the necessary element[s]” of a cause of action.
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008). “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. Simply reciting
the elements will not suffice. Id. (holding that a pleading that offers labels and conclusions
without further factual enhancement will not survive a motion to dismiss); see also Phillips, 515
F.3d at 231. In deciding a motion to dismiss, the court may consider “allegations contained in the
complaint, exhibits attached to the complaint and matters of public record.” Schmidt, 770 F.3d at
249.
The Third Circuit has established a two-part analysis for reviewing a motion to dismiss
for failure to state a claim. First, the factual allegations of the claim must be separated from the

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legal conclusions. The well-pleaded facts are accepted as true and any legal conclusions are
disregarded. Fowler v. UPMC Shadyside, 578 F.3d 203, 210–11 (3d Cir. 2009). Second, the
court must make a common sense determination as to whether the facts alleged in the complaint
are sufficient to state a plausible claim for relief. Id. at 211. If the court can only infer the
possibility of misconduct, the complaint must be dismissed because it has alleged—but failed to
show—that the pleader is entitled to relief. Id.
III.

DISCUSSION
A.

Breach of Fiduciary Duty Claims Against Director and Officer Defendants

Under Delaware law, corporate directors and officers owe fiduciary duties of care and
loyalty to the corporation and its shareholders. 2 Mills Acquisition Co. v. MacMillan, Inc., 559
A.2d 1261, 1280 (Del. 1989). Plaintiff alleges breaches of these fiduciary duties based on two
related, but distinct, courses of conduct: (1) wrongful dissolution of Genaera; and (2)
misrepresentations in the shareholder proxy.
1. Wrongful Dissolution
The core of Plaintiff’s first claim is that the D&O Defendants mismanaged Genaera’s
assets and unnecessarily steered the company toward dissolution to facilitate the sale of the
assets to Genaera insiders at unreasonably low prices. (Second Am. Compl. ¶ 1.) Under
Delaware law, courts faced with claims of breach of fiduciary duty by a corporation’s directors
and officers apply the business judgment rule. Cede & Co. v. Technicolor, Inc., 634 A.2d 345,
360–61 (Del. 1993). While the business judgment rule is an affirmative defense that cannot
generally form the basis of a Rule 12(b)(6) dismissal, it can be considered in evaluating a motion

2

The parties agree that Delaware substantive law applies to this dispute pursuant to Pennsylvania’s statutory
“internal affairs doctrine,” which requires federal courts sitting in Pennsylvania to look to the law of the state of
incorporation to resolve disputes involving the corporation’s internal affairs. Banjo Buddies, Inc. v. Renosky, 399
F.3d 168, 170 n.10 (3d Cir. 2005).

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to dismiss if the unanswered affirmative defense appears on the face of the complaint. In re
Tower Air, Inc., 416 F.3d 229, 238 (3d Cir. 2005). As in Tower Air, the SAC states that the
business judgment rule does not negate Plaintiff’s claims, and therefore Plaintiff must plead
around the rule. See id.; (Second Am. Compl. ¶ 226 (“The actions and decisions of the Director
and Officer Defendants are not protected by the business judgment rule . . . .”).)
The business judgment rule is a presumption that the board of directors makes its
decisions “on an informed basis, in good faith, and in the honest belief that the action taken was
in the best interests of the company.” Reis v. Hazlett Strip-Casting Corp., 28 A.3d 442, 457
(Del. Ch. 2011) (quoting Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984)). As long as this
presumption applies, a board action will be upheld unless it cannot be justified by any rational
business purpose. Cede & Co, 634 A.2d at 361. The shareholder has the initial burden of
rebutting the presumption by showing either a breach of the duty of loyalty or a breach of the
duty of care. Id. If the shareholder rebuts the presumption, the directors must prove the entire
fairness of the transaction. Id. If the shareholder fails, however, to rebut the presumption, he
must show that the directors’ decision was irrational. Reis, 28 A.3d at 457. Plaintiff argues that
the D&O Defendants breached both their duty of loyalty and their duty of care.
a. Breach of the Duty of Loyalty
To show a breach of the duty of loyalty, Plaintiff must allege that the directors were
either interested in the transaction at issue or lacked independence. Orman v. Cullman, 794 A.2d
5, 22 (Del. Ch. 2002). A director is interested in a transaction when, for example, she appears on
both sides of the transaction or receives some personal benefit not shared by the corporation’s
shareholders. Cede & Co., 634 A.2d at 362. If less than a majority of the board members has a
financial interest in the transaction, the presumption of the business judgment rule is only

10

rebutted if: (1) the interested director fails to disclose his interest to the rest of the board; or (2)
the other members are “dominated or controlled by a materially interested director.” Orman, 794
A.2d at 23. A director lacks independence when he is influenced by personal or external
considerations not limited to the corporate merits of the transaction. Cede & Co., 634 A.2d at
362.
Plaintiff does not allege facts sufficient to give rise to an inference of disloyalty. First, he
fails to show that Mitchell Kaye, who served concurrently as a director of Genaera and as CEO
of XMark, one of Genaera’s two largest shareholders, was either interested or otherwise lacked
independence with respect to Genaera’s dissolution. Plaintiff alleges that Kaye was interested in
the decision to dissolve because he had prearranged to sell a portion of XMark’s stock the day
after the shareholder vote. (Id. ¶¶ 144–48.) However, he neglects to identify to whom XMark
sold its shares or, more importantly, to explain why that party would condition the sale on
Genaera’s dissolution. Therefore the fact that the sale of XMark’s stock was prearranged does
not show that he received a personal benefit that would make him interested in the dissolution.
See Iqbal, 556 U.S. at 678 (noting that pleading facts that are “merely consistent with” liability
falls short of the requirements of Rule 8).
Plaintiff also alleges that Kaye lacked independence because he was an investment
partner in Somanta with Rouhandeh, Davis, and SCO, and because he was an acquaintance of
Lampert, the President of BVF. (Second Am. Compl. ¶¶ 65, 67). However, mere personal or
professional relationships do not give rise to an inference that a director lacks independence. See
Chaffin v. GNI Grp., Inc., Civ. A. No. 16211, 1999 WL 721569, at *5 & n.12 (Del. Ch. Sept. 3,
1999). Plaintiff fails to allege any specific facts that suggest that Rouhandeh, Davis, or Lampert
took any actions to influence Kaye’s decisions or provide a motive for why Kaye would sabotage

11

Genaera for their benefit. Plaintiff’s only specific allegation of collusion between Kaye and the
outside Defendants was that Kaye provided Ligand and BVF with confidential information about
the IL9 program during the bidding process. (Second Am. Compl. ¶ 179.) However, this would
have occurred after Genaera’s dissolution, when Kaye and the other D&O Defendants were no
longer directors or officers. Moreover, this allegation is made “upon information and belief.”
(Id.) While pleading based on information and belief is permissible, it must be based on facts that
make the inference plausible. See Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir.
2010). Aside from alleging that Kaye was a “close acquaintance” of Lampert, Plaintiff fails to
plead any facts to support the inference that Kaye colluded with Ligand and BVF. (Second Am.
Compl. ¶ 65.) Plaintiff therefore fails to meet the plausibility standard required to survive a
motion to dismiss. See Arista Records, 604 F.3d at 120.
Plaintiff pleads even fewer facts in support of his allegations against the remaining D&O
Defendants. Plaintiff argues that Armstrong and Kelly, as employees of Genaera, were interested
in the company’s dissolution because they would receive large severance packages upon their
discharge. (Second Am. Compl. ¶ 23.) However, Delaware law does not view the possibility of
payment upon change of control of a company as a disqualifying interest when this payment is to
be made under a preexisting employment agreement. In re Novell, Inc. S’holder Litig., Civ. A.
No. 6032, 2013 WL 322560, at *11 & n.148 (Del. Ch. Jan. 3, 2013).
Additionally, he infers that the other D&O Defendants were beholden to Kaye because
they made various decisions that allegedly benefitted Kaye and hurt the company. In particular,
Plaintiff claims that the D&O Defendants allowed Kaye to “benefit from the liquidation status of
the assets” by failing to maximize the value of Genaera’s assets, failing to disclose material
information in the proxy, and hiring Skolas as the Trustee. (Mem. of Law in Opp’n to D&O

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Defs. Mot. to Dismiss Second Am. Compl. at 13.) Plaintiff fails to allege how these choices
actually benefitted Kaye. Moreover, he argues, in effect, that the D&O Defendants must have
lacked independence because, in his view, these decisions were ill-advised. However, this
argument turns the business judgment rule on its head. Delaware law requires the Court to
presume that these business decisions were rational unless Plaintiff can show that the directors
lacked independence. While acquiescing to another’s wishes in contravention of sound business
judgment may constitute a breach of the duty of loyalty, see Tower Air, 416 F.3d at 241, Plaintiff
alleges no facts to suggest that such acquiescence occurred. Plaintiff’s allegations that the other
directors and officers were beholden to Kaye and Kaye’s business acquaintances are thus
conclusory, and are not entitled to the presumption of truth. See Iqbal, 556 U.S. at 680–81.
Plaintiff is unable to show a breach of the duty of loyalty.
b. Breach of the Duty of Care
A plaintiff may also overcome the business judgment rule by showing that the directors
failed to inform themselves of all material information reasonably available to them and to act on
the basis of that information. Cede & Co., 634 A.2d at 367. Directors breach the duty of care
when they consciously and intentionally fail to make a good faith effort to be informed and
exercise judgment. Tower Air, 416 F.3d at 240.
Plaintiff argues that the D&O Defendants breached the duty of care by failing to fully
inform themselves of the alternatives to dissolution, including selling the company as a whole,
by mismanaging Genaera’s assets, and by appointing Skolas’s firm Argyce as Trustee of GLT, a
position for which it was unqualified. (Mem. of Law in Opp’n to D&O Defs. Mot. to Dismiss
Second Am. Compl. at 20–21.) However, the SAC does not allege facts sufficient to show that
the D&O Defendants failed to inform themselves about alternatives. Plaintiff does not allege, for

13

example, that the D&O Defendants “failed to establish an information and reporting system” or
otherwise deliberately declined to gather necessary information about alternatives to dissolution
prior to the Board vote. See Tower Air, 416 F.3d at 238. In fact, Plaintiff alleges that he
discussed several of his preferred alternatives to dissolution with certain D&O Defendants and
other Genaera officers. (Second Am. Compl. ¶¶ 119, 166). At oral argument, Plaintiff’s attorney
asked the Court to infer a breach of the duty of care from allegations that the D&O Defendants
omitted relevant alternatives to dissolution from the shareholder proxy. (Sept. 30, 2015
Transcript at 25.) However, Plaintiff alleges that the D&O Defendants were aware of the
alternatives to dissolution and deliberately failed to disclose that information in the proxy. (See
Second Am. Compl. ¶¶ 117–19, 127.) Moreover, Directors are free to consider alternative
courses of action and then exclude them from the proxy, so a particular option’s absence from
the proxy does not give rise to an inference that the D&O Defendants did not consider it at all.
See Dent v. Ramtron Int’l Corp., Civ. A. No. 7950, 2014 WL 2931180, at *15 (Del. Ch. June 30,
2014).
Plaintiff’s additional arguments that the D&O Defendants mismanaged Genaera’s assets
and appointed a trustee who was unqualified for the position are equally ineffective in
establishing breach of the duty of care. These are business judgments that, even if ill-advised, do
not give rise to a plausible inference that the D&O Defendants were uninformed. Thus, Plaintiff
fails to allege facts sufficient to show breach of the duty of care.
c. Rationality
When, as here, the business judgment rule’s presumption applies, a court will uphold the
decisions in question unless they cannot be attributed to any legitimate business rationale. Reis,
28 A.3d at 257. A plaintiff must allege that the conduct in question is “so far beyond the bounds

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of reasonable judgment that it seems essentially inexplicable on any ground other than bad
faith.” Parnes v. Bally Entm’t Corp., 722 A.2d 1243, 1246 (Del. 1999). Tellingly, Plaintiff does
not argue that he has met this standard. While he questions the wisdom of several of the D&O
Defendants’ choices, he does not allege that they were inherently irrational. Since the SAC does
not show that dissolution was irrational, the business judgment rule requires the dismissal of
Plaintiff’s claim for breach of fiduciary duty by wrongful dissolution.
2. Misrepresentation in the Shareholder Proxy
In addition to his wrongful dissolution claim, Plaintiff argues that the D&O Defendants
breached their duty of disclosure by making various misrepresentations and omissions in the
shareholder proxy issued prior to the June 4, 2009 special meeting, when stockholders voted on
the plan of dissolution. (Second Am. Compl. ¶¶ 127–39.) To state a claim for breach of the duty
of disclosure on the basis of an affirmative misrepresentation, a plaintiff must allege facts
showing “(1) a material statement or representation in a communication contemplating
stockholder action (2) that is false.” Pfeffer v. Redstone, 965 A.2d 676, 685 (Del. 2009). To state
a claim on the basis of an omission, a plaintiff must show “(1) material, (2) reasonably available
(3) information that (4) was omitted from the proxy materials.” Id. at 686. An omitted or
misstated fact is material where there is a “substantial likelihood that a reasonable shareholder
would consider it important in deciding how to vote.” In re Orchard Enters., Inc. Stockholder
Litig., 88 A.3d 1, 17 (Del. Ch. 2014).
As an initial matter, the D&O Defendants argue that Plaintiff’s duty of disclosure claims
should be dismissed because Delaware law does not allow recovery of damages for disclosure
violations. (Mem. in Supp. of Mot. of D&O Defs. to Dismiss Second Am. Compl. at 19.) The
D&O Defendants rely on In re Transkaryotic Therapies, Inc., 954 A.2d 346 (Del. Ch. 2008), for

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the proposition that plaintiffs must seek a preliminary injunction before the shareholder vote to
enforce the duty of disclosure. Transkaryotic Therapies, Inc., 954 A.2d at 360. However,
Delaware law is far from settled on whether this constitutes a requirement rather than merely a
preference. See Orchard Enters., 88 A.3d at 52–53 (disagreeing with Transkaryotic and stating
that “[i]n my view, in an appropriate case Delaware law continues to recognize the possibility of
a post-closing award of damages as a remedy for a breach of fiduciary duty of disclosure”). In
any event, this is a consideration about the appropriate remedy that does not support the
dismissal of Plaintiff’s claim at this stage of the litigation. See id. at 53 (reserving judgment until
after trial as to whether damages are appropriate).
Plaintiff cites various misrepresentations in the proxy. First, Plaintiff argues that the
proxy affirmatively misrepresented the fact that the Trustee, rather than the Directors, would sell
the assets. (Mem. of Law in Opp’n to D&O Defs. Mot. to Dismiss Second Am. Compl. at 16.) In
particular, he cites a statement under the heading, “Sales of our Assets,” which provides that
“[s]ales of our assets will be made on such terms as are approved by the Board of Directors in its
sole discretion.” (Mot. of D&O Defs. to Dismiss Second Am. Compl., Ex. 1 [Proxy], at 15.)
However, alleged misrepresentations are not material when they would only mislead a
stockholder if read in isolation, rather than in the context of the entire document. See In re Best
Lock Corp. S’holder Litig., 845 A.2d 1057, 1071 (Del. Ch. 2001). Both on the page immediately
preceding the statement quoted above and in the section titled “Risk Factors to Be Considered by
Stockholders in Deciding Whether to Approve the Plan of Dissolution,” the proxy makes clear
that the Directors could resign and turn management of the liquidation process over to a thirdparty trustee at any time. (Proxy at 9, 14.) Therefore, Plaintiff does not state a claim for breach of
the duty of disclosure based on this allegation.

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Second, Plaintiff alleges that the following statement in the proxy is “deceitfully worded”
because it avoids disclosing the benefit to Kaye, who did not participate in the board vote: “it is
not currently anticipated that our liquidation and dissolution will result in any material benefit to
any of our executive officers or to directors who participated in the vote to adopt the Plan of
Dissolution.” (Second Am. Compl. ¶ 133; Mem. of Law in Opp’n to D&O Defs. Mot. to Dismiss
Second Am. Compl. at 16.) Plaintiff also argues that this statement fails to consider the
severance packages to which Armstrong and Kelly would be entitled upon dissolution. (Mem. of
Law in Opp’n to D&O Defs. Mot. to Dismiss Second Am. Compl. at 16.) In this case it is
Plaintiff’s argument, not the proxy, which is misleading. The sentence quoted above begins with
the phrase “[o]ther than as set forth above” and is directly preceded by a lengthy statement of the
benefits the directors and officers would receive, including the severance packages, as well as a
caveat that “[a]s a result of these benefits, our directors and executive officers generally could be
more likely to vote to approve the Plan of Dissolution.” (Proxy at 11–14.) As discussed above,
the SAC does not adequately allege that Kaye received any other benefits from the dissolution
besides those described in the proxy. Plaintiff does not state a claim on this point.
Third, Plaintiff argues that the D&O Defendants should have disclosed that selling
Genaera as a whole would have allowed it to monetize its net operating loss, which Plaintiff
believes was the most valuable alternative to dissolution. (Second Am. Compl. ¶ 118.) However,
Delaware law does not require directors to disclose all the possible alternatives, because it is the
directors’ responsibility to consider various courses of action and to decide which to propose.
Dent, 2014 WL 2931180, at *15. Plaintiff’s opinions about the relative strength of this option do
not make it a material omission, and thus Plaintiff fails to state a claim.

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Fourth, Plaintiff argues that various pieces of information about the value of Genaera’s
assets should have been disclosed in the proxy. None meets the requirements to state a claim for
breach of the duty of disclosure under Delaware law. He states that the proxy should have
included independent valuation estimates for the assets, but does not allege that current
valuations existed and were “within the board’s control.” (Second Am. Compl. ¶ 130); see
Loudon v. Archer-Daniel-Midlands Co., 700 A.2d 135, 143 (Del. 1997). He argues that the
directors should have disclosed that Genaera had the right to demand the return of Pexiganan but
that they, as Genaera’s directors, had refused to exercise that right. (Second Am. Compl.
¶ 127(h).) Even if this were true, which is not supported by Plaintiff’s reference to the license
agreement with MacroChem, directors are not required to engage in “self-flagellation” by
drawing legal conclusions that implicate themselves in breaches of fiduciary duty. See Loudon,
700 A.2d at 143; (Mem. of Law in Opp’n to D&O Defs. Mot. to Dismiss, at 18; D&O Defs. Mot.
to Dismiss, Ex. 7 [MacroChem License Agreement], at 25.). Plaintiff also alleges that the D&O
Defendants should have included information about MedImmune’s plans to end an existing
clinical hold and resume active development of the IL9 program. (Second Am. Compl. ¶ 127.)
However, since the proxy also does not discuss the clinical hold, the SAC does not state a claim
that information about the end of that hold would sufficiently alter the total mix of information to
be considered material. (See Proxy at 4.) Plaintiff alleges that the D&O Defendants failed to
disclose that bidders were seeking to purchase the Aminosterol Assets, but the Proxy does
discuss the Board’s ongoing negotiations for the sale of those assets. (See Second Am. Compl. ¶
127(g); Proxy at 5.)
Finally, Plaintiff alleges that the Directors had already selected Skolas to be the Trustee
of GLT and failed to disclose this information in the proxy. (Second Am. Compl. ¶ 137.) This is

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a factual allegation that the Court must credit, and it is supported by the short timeline of
approximately a month between the issuance of the proxy and the signing of the Trust
Agreement. (See Second Am. Compl. ¶ 150.) The choice of Trustee’s impact on the course of
Genaera’s dissolution would “sufficiently alter[] the total mix of information” available to the
shareholders. See Loudon, 700 A.2d at 143. Therefore, Plaintiff states a claim in this instance for
breach of the duty of disclosure.
In sum, there is a single allegation that states a claim against the D&O Defendants for
breach of fiduciary duty: that the D&O Defendants failed to disclose the fact that they had
already selected the Trustee. (Second Am. Compl. ¶ 137.) However, this claim, as described in
the next section, must be dismissed for lack of timeliness.
3. Statute of Limitations
On appeal from this Court’s August 12, 2013 Order, the Third Circuit held that Plaintiff’s
allegations, on their face, did not show that he had missed the statute of limitations with regard to
the sale of Genaera’s various assets. Schmidt, 770 F.3d at 253. The court acknowledged,
however, that a claim may be dismissed under Rule 12(b)(6) on the basis of the statute of
limitations if the defense is apparent from the face of the complaint, even if the plaintiff invokes
the discovery rule. Id. at 249, 251. The Third Circuit held that the face of the First Amended
Complaint did not make clear that Plaintiff knew or should have known more than two years
before the filing of this lawsuit that the Trustee had sold Genaera’s assets for unacceptably low
prices. See id. at 252–53. However, the Third Circuit did not address the narrower breach of the
duty of disclosure claim that now survives against the D&O Defendants under Count I.
Therefore, it is appropriate for this Court to now consider whether the sole claim under Count I
that satisfies federal pleading standards is facially barred by the statute of limitations.

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The parties have previously agreed that Pennsylvania’s two-year statute of limitations for
breach of fiduciary duty applies. Id. at 250. Generally, the statute begins to run “as soon as the
right to institute and maintain suit arises.” Haugh v. Allstate Ins. Co., 322 F.3d 227, 231 (3d Cir.
2003). The event that gave rise to the surviving breach of the duty of disclosure claim occurred
on the date the proxy was issued, May 14, 2009. (Proxy at 2.) However, under Pennsylvania’s
discovery rule, the statute is tolled until the plaintiff knew or reasonably should have known that
the opposing party caused his injury. Haugh, 322 F.3d at 231. The sole allegation in question is
that the Genaera directors failed to disclose in the proxy that John Skolas and his firm, Argyce,
LLC, had been selected as Trustee, a fact that Plaintiff plausibly infers from the timing of the
announcement shortly after the shareholder vote. (Id. ¶ 137.) The SAC alleges that Argyce was
officially named Trustee on June 12, 2009, at which time Plaintiff’s shares were converted to
units of the liquidating trust. (Second Am. Compl. ¶¶ 150–51, 159.) The SAC also alleges that
Plaintiff had discussed the disposition of Genaera’s assets with Skolas prior to the sale of the IL9
program on May 18, 2010. (Id. ¶¶ 172, 174.) Therefore, it is clear from the face of the complaint
that Plaintiff actually knew that Skolas’s firm was selected as Trustee, likely as early as June 12,
2009 and definitely prior to May 18, 2010. When he filed this complaint on June 8, 2012, the
two-year statute of limitations had run. Since the SAC alleges facts showing actual knowledge of
the alleged breach of the duty of disclosure, it is unnecessary to inquire into when Plaintiff
should have been aware of the conduct in question in the exercise of reasonable diligence and
considering the fiduciary relationship between the parties. See Schmidt, 770 F.3d at 252–53.
Plaintiff’s claim for breach of the duty of disclosure concerning the D&O Defendants’ failure to
inform shareholders of Argyce’s selection as Trustee is barred by the statute of limitations.

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B. Breach of Fiduciary Duty Against the Trust Defendants
Like corporate directors and officers, trustees owe beneficiaries duties of due care,
loyalty, and good faith. See Bogert & Bogert, The Law of Trusts and Trustees §§ 542–44 (2014).
Plaintiff alleges that Argyce and Skolas breached these duties, as well as the duties owed under
the Trust Agreement between Genaera and Argyce, by mismanaging the sale of Genaera’s assets
and selling the IL9 program, Pexiganan, and the Aminosterol Assets for unreasonably low prices
as part of a coordinated effort to deliver those assets to insider purchasers. (Second Am. Compl.
¶¶ 160–220). He also argues that the fees charged to the Trust were excessive. (Id. ¶ 221.)
The Trust Agreement imposes duties on the Trustee that generally mirror common law
fiduciary duties. (See Trustee Defs. Mot. to Dismiss Second Am. Compl., Ex. 2 [Trust
Agreement] § 7.1.) However, the Trust Agreement limits the Trustee’s liability, stating that
neither Argyce nor its employees or agents shall be subject to personal liability to any
beneficiary “except for gross negligence, fraud, or willful misconduct knowingly and
intentionally committed in bad faith.” (Id. § 7.3.) It also states that “the Trustee shall not be
liable for any reasonable error of judgment made in good faith.” (Id. § 7.1(d).) Delaware law
permits these types of exculpatory provisions, provided they do not exculpate conduct that rises
to the level of gross negligence. McNeil v. McNeil, 798 A.2d 503, 509 (Del. 2002). Plaintiff
briefly argues that the Trust Agreement should not be relied on because it is not integral to the
SAC. (See Mem. of Law in Opp’n to Trust Defs. Mot. to Dismiss Second Am. Compl. at 14 n.4.)
However, the SAC explicitly alleges breach of the Trust Agreement, and the common law
fiduciary duties underlying Plaintiff’s claim against the Trustee only exist by virtue of the
fiduciary relationship that the Trust Agreement creates. Therefore, this is a paradigm case in

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which a complaint explicitly relies on a document. See In re Burlington Coat Factory Sec. Litig.,
114 F.3d 1410, 1426 (3d Cir. 1997).
Because the Trustee was selling Genaera’s assets for cash, Delaware’s Revlon standard of
review, which requires the fiduciary to maximize shareholder value, applies. See Paramount
Comms. Inc. v. QVC Network Inc., 637 A.2d 34, 46 (Del. 1993). Although the Delaware
Supreme Court’s decision in Revlon came in the context of a challenge to the actions of
corporate directors, it stemmed from existing Delaware law that requires any fiduciary who sells
an asset for cash to pursue the single goal of obtaining the best price available. See Revlon, Inc.
v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 185 (Del. 1986); Wilmington Trust, 200
A.2d at 448 (noting that “ordinarily speaking, when selling trust assets a Trustee is required to
obtain the best price obtainable”). Thus, Argyce was under a duty to sell Genaera’s assets for the
highest possible price. However, under the Trust Agreement, Argyce can only be liable to
Plaintiff if it acted with gross negligence or in bad faith in failing to discharge this duty.
Plaintiff argues that the Trustee acted in bad faith, but he does not allege facts sufficient
to support this conclusion. The SAC does not allege any communications with the various
purchaser Defendants that would suggest that the Trustee conspired to sell them the assets at low
prices. Plaintiff alleges that the Trustee sold the IL9 program to Ligand with the purpose of
secretly benefiting BVF. However, he cites no legal authority to support the proposition that a
conflict of interest would have prevented BVF from purchasing the asset directly. (See Second
Am. Compl. ¶¶ 173, 184; Mem. of Law in Opp’n to Trustee Defs. Mot. to Dismiss, at 15.) This
is a legal conclusion that the Court need not credit, and in fact appears to be incorrect. See
Fowler, 578 F.3d at 210–11. Therefore, nothing in the series of apparently legal transactions
Plaintiff alleges that the Trustee engaged in suggests that it must have colluded with the

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purchasers in bad faith. See Twombly, 550 U.S. at 566 (requiring allegations of more than
parallel business conduct to state a claim for conspiracy). Plaintiff’s allegations of fraud and bad
faith are thus entirely conclusory.
Plaintiff also argues that the Trustee utilized inadequate bidding procedures for
Pexiganan, the IL9 program, and the Aminosterol Assets, which failed to foster sufficient
competition for the assets and thus yielded below-market prices. (See Second Am. Compl. ¶¶
173, 182, 191, 205–07.) While the facts alleged in the SAC suggest that the Trustee may have
rushed the sales of certain assets, these facts do not state a claim for gross negligence, as required
by the Trust Agreement. Under Delaware law, gross negligence constitutes an “extreme
departure from the ordinary standard of care” and is functionally equivalent to criminal
negligence. Hardy v. Hardy, Civ. A. No. 7531, 2014 WL 3736331, at * 15 (Del. Ch. July 29,
2014). In order to state a claim for gross negligence, Plaintiff must plead facts tending to show
that the Trustee acted “outside the bounds of reason.” See Albert v. Alex. Brown Mgmt. Servs.,
Inc., Civ. A. No. 762, 2005 WL 2130607, at *4 (Del. Ch. Aug. 26, 2005). While the Revlon
standard of review is less deferential than the business judgment rule, it does not give courts
license to second guess reasonable decisions. In re Lear Corp. S’holder Litig., 926 A.2d 94, 115
(Del. Ch. 2007).
The facts alleged in the SAC about the sales of the three assets at issue do not give rise to
an inference of unreasonableness. Plaintiff alleges that the Trustee’s valuation of the IL9
program was unreasonable based on independent market estimates of potential sales. (Second
Am. Compl. ¶ 169.) However, he explains that the Trustee had decreased the valuation of the
program to reflect the additional time that would be required to bring the drug to market, and
fails to explain why that adjustment was unreasonable. (See id. ¶ 168.) Plaintiff focuses on the

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alleged conspiracy to transfer the IL9 program to BVF, but does not show that the Trustee’s
decision to sell the program for $2.75 million constituted an extreme departure from the standard
of care. (See id. ¶¶ 178–83.) Plaintiff also argues that by setting a short deadline for bids on both
Pexiganan and IL9 of only one month after the first public announcement of their sale, the
Trustee favored insiders who were already familiar with the assets. (Id. ¶ 191.) While it may be
true that the short deadline was favorable to insiders, a short window for bids could just as easily
encourage, rather than discourage, potential purchasers to make offers, and thus the length of the
bidding period cannot itself state a claim for gross negligence. Finally, Plaintiff alleges that by
selling the Aminosterol Assets less than a month after the formation of the Trust, the Trustee lost
the opportunity to sell the assets to a higher bidder. (Id. ¶¶ 205–12.) However, as the SAC
alleges, Genaera was already in negotiations with the eventual purchaser, among others, to sell
the Aminosterol Assets prior to dissolution. (Id. ¶¶ 127(g).) The fact that the Trustee
consummated this transaction shortly after Genaera’s dissolution does not give rise to an
inference of gross negligence. Critically, plaintiff never alleges that the sale price of any of these
three assets was significantly below a contemporaneous valuation or an existing offer. Cf. In re
Comverge, Inc., Civ. A. No. 7368, 2014 WL 6686570, at *12 (Del. Ch. Nov. 25, 2014) (finding
that the plaintiff stated a claim for gross negligence under Revlon where the directors agreed to a
merger price 7.4% below the market price of the business’s common stock the day before the
announcement). Therefore, Plaintiff fails to allege facts stating a plausible claim of gross
negligence.
Plaintiff’s final contention is that the fees charged by the Trustee were “excessive.”
(Second Am. Compl. ¶ 221.) However, the SAC does not allege that the fee violated the terms of
the Trust Agreement or that the Trust Agreement’s fee provision was unreasonable. Nor does it

24

allege any other facts to support the claim that the fees were excessive. Therefore, Plaintiff does
not state a claim for breach of fiduciary duty against the Trust Defendants.
C. Aiding and Abetting the D&O Defendants’ and Trust Defendants’ Breaches of
Fiduciary Duty
In addition to alleging breach of fiduciary duty by the D&O Defendants and Trust
Defendants, Counts I and II allege aiding and abetting that breach by all of the other defendants.
“Under Delaware law, a valid claim for aiding and abetting a breach of fiduciary duty requires:
(1) the existence of a fiduciary relationship; (2) the fiduciary breached its duty; (3) a defendant,
who is not a fiduciary, knowingly participated in a breach; and (4) damages to the plaintiff
resulted from the concerted action of the fiduciary and the nonfiduciary.” Globis Partners, L.P.
v. Plumtree Software, Inc., No. 1577-VCP, 2007 WL 4292024, at *15 (Del. Ch. Nov. 30, 2007).
Knowing participation requires a plaintiff to show that the defendant advocated or assisted
conduct while knowing that the conduct constituted a breach of fiduciary duty. Malpiede v.
Townson, 780 A.2d 1075, 1097 (Del. 2001). As noted above, Plaintiff has not stated a claim
against the D&O Defendants or the Trust Defendants for breach of their fiduciary duties, aside
from a single time-barred breach of the duty of disclosure. Therefore, he similarly cannot state a
claim against the remaining Defendants for aiding and abetting. However, even if Plaintiff had
stated a primary claim under Count I or Count II, he still does not sufficiently allege knowing
participation by any of the defendants to establish aiding and abetting. The Court will briefly
discuss the allegations against each defendant.
1. D&O Defendants
Except Kelly, who was employed by Argyce, Plaintiff does not allege that any of the
D&O Defendants communicated with the Trustee in any way after the establishment of GLT.
The SAC makes no specific allegations about Kelly’s role in the Trustee’s alleged breach of
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fiduciary duty. As discussed above, the allegation that Kaye provided confidential information to
BVF, which was made “upon information and belief,” is not supported by facts that make the
inference plausible. (See Second Am. Compl. ¶ 179.) The SAC does not allege any facts that
show that the D&O Defendants advocated or assisted any of the Trustee’s conduct, much less
that they aided and abetted the Trustee in breaching its fiduciary duties. Plaintiff seems to
suggest that by selecting Argyce as the Trustee, the D&O Defendants enabled Argyce to breach
its fiduciary duties. However, the fact that they created the initial fiduciary relationship does not
mean that they aided and abetted a breach of the Trustee’s fiduciary duties.
2. Trust Defendants
Plaintiff’s argument that Skolas and Argyce aided and abetted the D&O Defendants’
alleged breach is similarly unsubstantiated by the SAC. The SAC does not allege any facts
tending to show that the Trust Defendants asked or encouraged the D&O Defendants to dissolve
Genaera. Rather, it alleges in a conclusory manner that they knew about and participated in the
D&O Defendants’ actions. (Id. ¶ 229); cf. Iqbal, 556 U.S. at 678. Plaintiff’s argument that
“Skolas’s knowing participation was necessary for the D&O Defendants’ breach to have
purpose,” is circular and highlights Plaintiff’s inability to show, based on the facts alleged in the
SAC, that he is entitled to relief. See Fowler, 578 at 211; (Mem. of Law in Opp’n to Trustee
Defs. Mot. to Dismiss, at 12.).
3. Access Defendants
Plaintiff argues that Access purposefully stopped developing Pexiganan in order to end
the original license and allow Luci and DeLuccia, who were then Access directors and officers,
to form a new company and buy Pexiganan on more favorable terms. He further suggests that
MacroChem’s previous acquisition of Virium was somehow part of this scheme. (Second Am.

26

Compl. ¶¶ 92–109, 198.) However, he does not allege any actual interactions between Access
and the D&O or Trust Defendants, other than arm’s-length transactions that cannot constitute
aiding and abetting. See Malpiede, 780 A.2d at 1097–98 (recognizing that arm’s-length
negotiations do not constitute aiding and abetting unless the bidder attempts to create or exploit
conflicts of interest in the target company’s board, or conspires with the board). While Plaintiff
alleges that Kaye had co-invested with Defendants Rouhandeh, Davis, and SCO in another
company, he does not allege facts that connect this investment to any breach of fiduciary duty
relating to Genaera. (Second Am. Comp. ¶ 67.) The allegations that the Access Defendants knew
that the Genaera directors were breaching their fiduciary duties and conspired with them to do so
are conclusory and are not supported by any facts showing that the Access Defendants actually
advocated or assisted in any challenged conduct.
4. BVF Defendants
Plaintiff alleges that BVF’s President, Lampert, used his personal relationship with Kaye
and BVF’s status as Genaera’s second-largest shareholder to encourage the company’s
dissolution and to obtain a partial interest in the IL9 program for BVF at a low price. (Second
Am. Compl. ¶¶ 65, 127(l), 173, 178–79.) However, as noted above, purchasing an asset at arm’slength does not constitute aiding and abetting. The only other fact that Plaintiff alleges about
BVF’s involvement is that Kaye provided Lampert with confidential information about IL9.
However, even if true, this fact would not state a claim. See In re Answers Corp. S’holder Litig.,
No. 6170-VCN, 2012 WL 1253072, at *10 (Del. Ch. Apr. 11, 2012) (“When a board is
negotiating the sale of the company it directs, the board typically provides potential purchasers
with confidential information about the company, and the receipt of confidential information,
without more, will not usually be enough to plead a claim for aiding and abetting.”). Plaintiff

27

does not allege any other facts that suggest that the BVF Defendants advocated or assisted any of
the D&O or Trust Defendants’ conduct.
5. XMark Defendants
The only action XMark is alleged to have taken to encourage the challenged conduct is
voting its shares in favor of Genaera’s dissolution. (Second Am. Compl. ¶ 142.) This fact,
however, does not give rise to an inference of wrongdoing. Rather, Delaware law presumes that
when a large shareholder votes for a decision, it does so with the goal of maximizing the value of
its own shares, and thus all other shareholders’ shares. See In re Morton’s Restaurant Grp., Inc.
S’holder Litig., 74 A.3d 656, 662 (Del. Ch. 2013). The only allegation suggesting that XMark
received a benefit at the expense of other shareholders is that it had prearranged to sell a large
amount of stock at a high price on the day after the shareholder vote. (Second Am. Compl. ¶
148.) However, the SAC does not allege facts showing any relationship between the dissolution
vote and the sale of stock that would create a motive for Xmark to circumvent the other
shareholders’ interests. The facts alleged against XMark are insufficient to state a claim for
aiding and abetting.
6. Dipexium Defendants
The Dipexium Defendants benefitted from Genaera’s dissolution. Luci and DeLuccia,
former directors and officers of Access and MacroChem, formed Dipexium in order to acquire
Pexiganan on more favorable terms than Access/MacroChem’s previous license. (Id. ¶ 193.)
However, Plaintiff does not allege any contact with the D&O Defendants or the Trust
Defendants that could constitute knowing participation. Again, arm’s-length negotiations do not
constitute aiding and abetting unless the Defendant tries to create, exploit, or otherwise profit
from a fiduciary’s conflict. In re Hechinger Inv. Co. of Del., Inc., 278 F. App’x 125, 130 (3d Cir.

28

2008). An allegation that a bidder got a favorable deal does not give rise to an inference of aiding
and abetting. In re Comverge, Inc., No. 7368-VCP, 2014 WL 6686570, at *19 (Del. Ch. Nov.
25, 2014). Thus the facts alleged against the Dipexium Defendants do not state a claim.
7. Ligand Defendants
Plaintiff similarly fails to state a claim against the Ligand Defendants. Ligand’s only
alleged involvement with Genaera was purchasing the IL9 program from the Trustee and then
selling a half interest to BVF. (Second Am. Compl. ¶ 173.) Contrary to Plaintiff’s claims,
however, there is no apparent reason why BVF could not have bought the IL9 program from
GLT directly. In any event, the SAC does not allege any interactions between the Ligand
Defendants and the D&O and Trust Defendants that could constitute aiding and abetting by the
Ligand Defendants.
D. Punitive Damages and Recission
Punitive damages and recission are remedies. See Fulton Bank, N.A. v. UBS Secs. LLC,
2011 WL 5386376, at *16 (E.D. Pa. 2011). Therefore, since the underlying causes of action in
Counts I and II of the SAC will be dismissed, Counts III and IV must be dismissed as well.
IV.

CONCLUSION
For the foregoing reasons, the Court grants Defendants’ motions to dismiss. An Order

consistent with this Memorandum will be docketed separately.

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