IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JAMES A. FELDMAN, individually
and derivatively on behalf of Precision
Biologics, Inc.,

Plaintiff,
v. C.A. No. 2017-0487-AGB
PATRICK SOON-SHIONG,
CHARLES KIM, CHRISTIAN ZAPF,
and NANTCELL, INC.,
Defendants,
and

PRECISION BIOLOGICS, INC.,

Nominal Defendant.

\/\/\/\./\/\./\_/\./\/V\./\/\_/\./\./\/\_/\/\./

ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS’ MOTION TO DISMISS

WHEREAS':
A. Nominal defendant Precision Biologics, Inc. (“Precision” or the

“Company”) is a research-and-development stage company that develops drugs

 

l The facts recited herein are taken from the Amended Complaint filed on November 6,
2017 (Dkt. 28), and documents incorporated therein. See Winshall v. Viacom Int’l, Inc.,
76 A.3d 808, 818 (Del. 2013) (citation and internal quotations omitted) (“[P]laintiff may
not reference certain documents outside the complaint and at the same time prevent the
court from considering those documents’ actual terms” in connection With a motion to
dismiss).

intended to extend survival and improve the quality of life of cancer patients, as Well
as diagnostic products intended to enable earlier detection of cancer.2 Plaintiff J ames
A. Feldman and his family have been investors in Precision and its predecessor since
their respective formations in 2012 and 2005.3

B. On October 2, 2015, Precision and defendant NantCell, Inc.
(“NantCell”) entered into a stock purchase agreement (the “Purchase Agreement”)
pursuant to Which NantCell purchased 40,964,051 shares of Precision’s Series A
Preferred Stock, representing 60.24% of the Company, for $50 million (the
“Transaction”).“

C. Defendant Patrick Soon-Shiong controls several affiliated companies,
one of Which is NantCell, and serves as NantCell’s CEO.5 Defendants Charles Kim
and Christian Zapf are executives at NantCell afflliates.6 Pursuant to a Voting
Agreement entered into in connection With the Transaction, NantCell secured the
right to appoint three of five directors and have permanent voting control of the

Precision board of directors (the “Board”) regardless of vacancies.7 At all relevant

 

2 Am. Compl.1l 3.

3 Am. Compl. 1111 26-27, 31, 36.

4 Am. Compl. 11 42; Defs.’ Opening Br. Ex. l § l.l(b) (Dkt. 34).

5 Am. Compl. 11 4.

6 Am. Compl. W 5, 49.

7 Am. Compl. W 46-47; Defs.’ Opening Br. Ex. 2 §§ l.l, l.2(a).
2

times, the NantCell appointees have been Soon-Shiong, Kim, and Zapf (the
“Individual Defendants”).8

D. Simultaneously With the execution of the Purchase and Voting
Agreements, Precision and certain of its investors, including NantCell and Feldman,
entered into an Investors’ Rights Agreement (the “Rights Agreement”).9 Among
other things, the Rights Agreement directs how the proceeds from the NantCell
investment are to be maintained and used, imposes certain governance obligations
on the Board, and establishes information rights for the Company’s “Major
Investors,” including plaintiff10

E. With respect to the management of the proceeds, Section 5.2 of the
Rights Agreement requires that the $50 million paid by NantCell be deposited in a
Company-owned account (the “Financing Account”) to be “maintained by NantCell
on behalf of the Company” and over Which Soon-Shiong has sole signature
authority.ll Section 5.2 further requires the Board to “direct the transfer of funds
from the Financing Account to [an Operating Account] in amounts (i) sufficient to

satisfy at all times at least three (3) months of budgeted expenses consistent With the

 

8 Am. Compl.11 48.
9 Am. Compl.11 53; Am. Compl. Ex. 1.
10 Am. Comp1.1111 53-61; Am. Compl. Ex. 1 §§ 3.1, 3.2, 5.2, 5.3.
" Am. Compl.1111 55-58; Am. Compl. Ex. l § 5.2.
3

Company’s business plan and budget as the same shall be approved and/or modified
by the Board, and (ii) necessary to satisfy other expenditures approved by the
Board.”12

F. Sometime in October 2015, Within thirty days of the closing of the
Transaction, Soon-Shiong Withdrew from the Financing Account approximately $47
million, representing about 94% of the Transaction consideration.13 Soon-Shiong
took this action Without notifying or consulting the Board.14 Over the next two years,
Soon-Shiong provided only sporadic ad hoc payments, totaling approximately $9
million to $10 million, to fund Precision’s operations.'5 As a result, the Company
allegedly lacked access to the three months of operating funds, as required under the
Rights Agreement, and Was months behind in paying its suppliers by mid-2016.16

G. On May 2, 2017, after the Company had not provided any of the
information required under the Rights Agreement, fifteen “Major Investors” sent a

Written request for the required information.17 On May 30, 2017, after Precision did

 

12 Am. Compl. Ex. l § 5.2.
13 Am. Compl. 11 72.

14 Am. Compl.11 73.

15 Am. Comp1.1111 63-65.

16 Am. Compl. 1111 63-71.

17 Am. Compl.11 16.

not respond to this request, plaintiff made a formal demand for information pursuant
to 8 Del. C. § 220.18

H. On June 15, 2017, the Board held its first meeting since before the
Transaction and terminated all of Precision’s administrative and accounting
employees.19 The Board outsourced these functions to NantCell or other companies
affiliated With Soon-Shiong in exchange for payments of hundreds of thousands of
dollars per month.20 That same day, shares of stock of two public corporations With
a market value of approximately $38.7 million Were deposited in the nearly depleted
Financing Account.21 On June 29, 2017, one of the two directors on the Board who
had not been appointed by NantCell, Stan Archibald, resigned from the Board out of
frustration and concern over how defendants Were operating the Company.22

I. On July 5, 2017, Feldman filed his initial complaint, Which he amended

on November 6, 2017.23 The Amended Complaint asserts six claims.24

 

18 Am. Compl.1111 16-17.

19 Am. Compl.1111 73, 82.
20 Am. Compl. 1111 82-83.

21 Am. Compl.11 107.

22 Am. Compl.11 51.

23 Dkt. l, 28.

24 Am.Comp1.1111115-157.

J. On November 21, 2017, defendants moved to dismiss the Amended
Complaint in its entirety under Court of Chancery Rules l2(b)(6) and 23.1.25

NOW THEREFORE, the court having considered the parties’ submissions,
IT IS HEREBY ORDERED, this 8th day of May, 2018, as follows:

l. The standards governing a motion to dismiss for failure to state a claim
for relief are Well-settled:

(i) all Well-pleaded factual allegations are accepted as true; (ii) even

vague allegations are “Well-pleaded” if they give the opposing party

notice of the claim; (iii) the Court must draw all reasonable inferences

in favor of the non-moving party; and ([iv]) dismissal is inappropriate

unless the “plaintiff Would not be entitled to recover under any

reasonably conceivable set of circumstances susceptible of proof.”26

2. Count I. This claim asserts that NantCell and the Individual
Defendants breached the Rights Agreement, including the implied covenant of good
faith and fair dealing therein. Defendants’ motion to dismiss Count I is DENIED in
part and GRANTED in part because the Amended Complaint (l) alleges facts from
Which it is reasonably conceivable that NantCell breached the express terms of

Section 5.2 of the Rights Agreement by failing to maintain the Financing Account

in accordance With that provision,27 but (2) does not allege facts sufficient to support

 

25 Dkt. 31.
26 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (citations omitted).
27 Am. Compl.1111 74, 118(b); Am. Compl. Ex. l § 5.2.

6

a claim (i) for breach of the implied covenant of good faith and fair dealing, or (ii)
against the Individual Defendants.

3. The core issue in Count I concerns Section 5 .2 of the Rights Agreement
That provision requires the Financing Account to be “established and maintained by
NantCell on behalf of the Company.”28 The term “maintained” is not defined in the
Rights Agreement A reasonable interpretation of that term in the context of the
agreement is that NantCell agreed to preserve the Transaction proceeds in the
Financing Account and only Would Withdraw funds from the Financing Account to
transfer them to the Operating Account in amounts necessary to satisfy certain
specified obligations, e.g., funds sufficient to satisfy three months of budgeted
expenses.29 NantCell did not operate the Financing Account in this manner. To the
contrary, Soon-Shiong, NantCell’s controller, Withdrevv $47 million of the $50
million in Transaction proceeds Within thirty days of the Transaction. Accordingly,
plaintiff has advanced a reasonable interpretation of Section 5.2 to state a claim for

relief and preclude dismissal of that aspect of Count I as to NantCell.30

 

28 Am. Compl. Ex. 1 § 5.2.
29 Id.

30 See VLIW Tech., LLC v. Hewlett-Packara’ Co., 840 A.2d 606, 615 (Del. 2003) (citations
omitted) (“Because the provisions at issue in the Agreement are susceptible to more than
one reasonable interpretation, for purposes of deciding a motion to dismiss, their meaning
must be construed in the light most favorable to the non-moving party. A trial court must
not dismiss any claim pursuant to Rule l2(b)(6) unless it appears With reasonable certainty

7

4. NantCell cannot be liable for the other alleged breaches of the express
terms of the Rights Agreement that Feldman asserts,31 because the obligations
arising from those provisions are owed by the Company or the Board, and not by
NantCe11.32 For similar reasons, the Individual Defendants, who are not parties to
the Rights Agreement, cannot be liable for breaching that contract,33 including any
implied covenant within the Rights Agreement.34 Thus, Count I is dismissed as to
the Individual Defendants.

5. Feldman also has failed to state a claim for breach of the implied

covenant of good faith and fair dealing against NantCell. “The covenant is best

 

that the plaintiff cannot prevail on any set of facts which might be proven to support the
allegations in the complaint.”).

31 Am. Compl. 11 118(a), (c)-(h).

32 Am. Compl. Ex. l §§ 3.1 (Company obligations to deliver certain information to each
Major Investor), 5.2 (Board obligations to direct the transfer of funds from the Financing
Account to the Operating Account), 5.3 (Company and/or Board obligations regarding
various Board-related matters). See VLIW, 840 A.2d at 612 (“In order to survive a motion

to dismiss for failure to state a breach of contract claim, the plaintiff must demonstrate,”
inter alia, “the breach of an obligation imposed by that contract”).

Feldman argues that NantCell is responsible for the Company’s and Board’s purported
breaches of the Rights Agreement because NantCell “controlled the Company through its
equity voting control and control of the Board.” Pl.’s Answering Br. 28-29. In effect,
Feldman contends that NantCell should be liable for aiding and abetting a breach of
contract. This argument fails where the claim asserted (Count I) is purely contractual in
nature. See Allen v. El Paso Pipelz'ne GP Co. L.L.C., 113 A.3d 167, 194 (Del. Ch. 2014).

33 See Wood v. Wallace, 752 A.2d 1175, 1180 (Del. Ch. 1999) (“It is a general principle of
contract law that only a party to a contract may be sued for breach of that contract.”).

34 See Brinckerho/j”v. Enbria'ge Energy Co., lnc., 2011 WL 4599654, at *11 (Del. Ch. Sept.
30, 2011) (citation omitted) (“The implied covenant . . . only potentially binds the parties
to an agreement.”).

understood as a way of implying terms in the agreement, whether employed to
analyze unanticipated developments or to fill gaps in the contract’s provisions.”35
Here, it could have been anticipated when the parties entered into the Rights
Agreement that NantCell would withdraw funds from the Financing Account, since
Soon-Shiong was provided sole signature authority over the accourit.36 Further,
Feldman has not identified any “gap” in the Rights Agreement. Rather, his breach
of contract claim is premised on NantCell’s violation of an express term of the Rights
Agreement, i.e., the obligation to “maintain” funds in the Financing Account.

6. Count II. Pled in the alternative to Count I, Count ll asserts that the
Individual Defendants tortiously interfered with the Rights Agreement. Defendants’
motion to dismiss Count II is GRANTED because Feldman has not alleged that the
Individual Defendants were acting outside the scope of their authority as directors
or officers of the Company (or of NantCell) when they purportedly tortiously

interfered with the Rights Agreement. “It is . . . generally accepted that officers or

directors may be held personally liable for tortious interference with a contract of

 

35 Nemec v. Shrader, 991 A.2d 1120, 1131 (Del. 2010) (citation and internal quotations
omitted).

36 See id. at 1126 (“The implied covenant only applies to developments that could not be
anticipated, not developments that the parties simply failed to consider.”).

0

the corporation if and only if they exceed the scope of their agency in so doing.”37

This pleading deficiency is fatal to Feldman’s tortious interference claim.38

7. Count III. This claim asserts that NantCell (as a controlling
stockholder) and the Individual Defendants (as directors of the Company) breached
their fiduciary duty of loyalty in two respects: (1) by failing to disclose information
to plaintiff “regarding the Financing Account proceeds,”39 and (2) by using “their
control to enrich NantCell and Soon-Shiong at the Company’s expense, most
obviously by taking $47 million in cash from the Company.”“°

8. The first aspect of Count III, which is a direct claim, fails to state a

claim for relief because there is no general fiduciary duty to disclose information to

 

37 Gola’mcm v. Pogo.com, Inc., 2002 WL 1358760, at *8 (Del. Ch. June 14, 2002) (citation,
internal quotation, and alterations omitted).

38 Feldman argues that “Defendants caused Precision Biologics to breach the Rights
Agreement not because it was in the Company’s best interest, but because it was in the best
interest of Soon-Shiong and NantCell to usurp the Company’s property.” Pl.’s Answering
Br. 34. This argument does not support a tortious interference claim but forms the basis of
a breach of fiduciary duty claim, as explained below with respect to Count III. See
Gola'man, 2002 WL 1358760, at *9 (citation omitted) (“I further note the absence of any
allegation in the Complaint to justify an inference that the directors acted outside the scope
of their authority. The Complaint raises questions as to whether the directors breached
their fiduciary duty of loyalty. Merely because directors are alleged to have acted in part
with adverse motives does not necessarily lead to the conclusion that they acted outside the
scope of their authority for the purposes of holding directors personally liable in tort for
interfering with the contractual rights of a shareholder.”).

39 Am. Compl. 11 130; Pl.’s Answering Br. 37 (Dl<t. 39).
40 Pl.’s Answering Br. 40.
l()

stockholders.41 That said, the Rights Agreement creates a contractual duty for the
Company_not any of the defendants individually_to provide certain information
to each “Major Investor.”42 The Amended Complaint, however, does not assert this
contractual claim against the Company,

9. Plaintiff acknowledges that the second aspect of Count III is derivative
in nature. “Under Delaware law, depending on the factual scenario, there are two
different tests for determining whether demand may be excused. . . . The test
articulated in Aronson v. Lewz`s applies when ‘a decision of the board of directors is
being challenged in the derivative suit.’ The test set forth in Rales v. Blasbana’, on
the other hand, governs when ‘the board that would be considering the demand did
not make a business decision which is being challenged in the derivative suit,’ such
as instances ‘where directors are sued derivatively because they failed to do

something.”’43 Under either test, a plaintiff “must impugn the ability of at least half

 

41 See Albert v. Alex. Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *3 (Del. Ch. Aug.
26, 2005) (“There is not, of course, any general duty to disclose information. To bring a
non-disclosure claim, a party must allege a fiduciary duty or a contractual duty to
disclose.”). Plaintiff has not alleged facts to support the existence of a fiduciary duty to
disclose information concerning the proceeds taken from the Financing Account.

42 Am. Compl. Ex. 1 § 3.1.

43 Feuer v. Rea’stone, 2018 WL 1870074, at *8 (Del. Ch. April 19, 2018) (citations omitted
and emphasis in original).

11

the directors in office when [he] initiated [his] action . . . to have considered a
demand impartially.”44 Plaintiff has done so here.

10. When this action was filed, there were four directors on the Board:
Soon-Shiong, Kim, Zapf, and non-defendant Phil Arlen.45 Soon-Shiong is not
disinterested with respect to the withdrawal of the $47 million from the Financing
Account, because he personally benefited from the transaction and was the one with
sole signature authority who removed the funds. Soon-Shiong also is self-interested
with respect to the decision to outsource the Company’s administrative and
accounting functions to entities that he controls in exchange for hundreds of
thousands of dollars per month. Furthermore, Kim and Zapf cannot impartially
consider a demand with respect to these matters because they are both economically
dependent on, and thus not independent from, Soon-Shiong.46 Defendants
appropriately concede that point.47 Accordingly, a majority of the Board could not

have impartially considered a demand with respect to these claims.

 

44 Teamsters Union 25 Health Servs. & Ins. Plan v. Bal'era, 119 A.3d 44, 57 (Del. Ch.
2015) (citation omitted).

43 Am. Compl. 1111 5, 50-51. As noted previously, Archibald resigned from the Board
shortly before this action was filed. See 11 H, supra

46 See Am. Compl. 1111 5, 49, 113 (alleging that Zapf and Kim are employees of Soon-
Shiong-controlled companies, such that they “owe their livelihoods to Soon-Shiong and
could not impartially consider a derivative demand”).

47 Tr. (Mar. 8, 2018) 36 (Dkt. 48).
12

11. The derivative aspect of Count III also states a claim for relief. The
Individual Defendants as well as NantCell, as a controller, owe a fiduciary duty of
loyalty to Precision’s stockholders “Most basically, the duty of loyalty proscribes
a fiduciary from any means of misappropriation of assets entrusted to his
management and supervision.”48 Here, Feldman adequately has pled that defendants
breached that obligation. The Amended Complaint alleges that NantCell and Soon-
Shiong withdrew hinds from the Financing Account to enrich themselves at the
expense of the Company, a quintessential breach of the duty of loyalty clairn.49
Feldman also has stated a claim against all defendants with respect to the Board’s
decision to terminate the employment of all of Precision’s administrative and
accounting employees, transferring a majority of their functions in conflicted
transactions with NantCell or other Soon-Shiong affiliated companies in exchange
for hundreds of thousands of dollars per month.50

12. Count III fails, however, to allege facts sufficient to support a non-
exculpated claim against Kim and Zapf, as Precision directors, for breach of

fiduciary duty with respect to the withdrawal of $47 million from the Financing

 

48 US West, lnc. v. Tl'rne Warner Inc., 1996 WL 307445, at ’1‘21 (Del. Ch. June 6, 1996)
(Allen, C.).

49 See generally Gth v. Loft, 5 A.2d 503 (Del. 1939).
50 Am. Compl. 1111 82-83.
13

Account. The Company’s certificate of incorporation contains an exculpation
provision authorized by 8 Del. C. § 102(b)(7) such that neither Kim nor Zapf can be
personally liable for money damages unless they acted disloyally or in bad faith.31
The Amended Complaint does not allege that Kim and Zapf personally benefitted
from the withdrawal of funds from the Financing Account and does not allege facts
sufficient to demonstrate that these individuals were intentionally derelict in
fulfilling their fiduciary obligations by failing to prevent the withdrawal of funds
from an account over which Soon-Shiong had sole signature authority.32

13. Finally, the alleged fact that shares of stock worth approximately $38.7
million were placed in the Financing Account over a year and a half after Soon-
Shiong withdrew $47 million from that account33 does not moot Feldman’s claims

with respect to the initial withdrawal. Breaches occur at the time of the alleged

 

31 Defs.’ Opening Br. Ex. 4 Art. SEVENTH; see In re Cornerstone Therapeatz'cs Inc.,
Stockhola’er Litig., 115 A.3d 1173, 1179-80 (Del. 2015) (Strine, C.J.) (“When a director is
protected by an exculpatory charter provision, a plaintiff can survive a motion to dismiss
by that director defendant by pleading facts supporting a rational inference that the director
harbored self-interest adverse to the stockholders’ interests, acted to advance the self-
interest of an interested party from whom they could not be presumed to act independently,
or acted in bad faith.”) (citation omitted).

32 See In re Cornerstone, 115 A.3d at 1187 (“[W]hen the plaintiffs have pled no facts to
support an inference that any of the independent directors breached their duty of loyalty,
fidelity to the purpose of Section 102(b)(7) requires dismissal of the complaint against
those directors.”).

33 Am. Compl.11 107.
14

wrongdoing,34 and a number of damages theories may allow the Company to recover
for the deprivation of funds, even it was only temporary.33 In sum, the motion to
dismiss Count III is GRANTED in part and DENIED in part in the manner
explained above.

14. Count IV. Feldman seeks in Count IV the appointment of a custodian
for the Company “to protect and preserve its assets and interests.”36 Although the
Amended Complaint invoked 8 Del. C. § 226 as one basis for this request,37 plaintiff
failed to address that statute in his brief and thus abandoned the issue.58 Instead,
plaintiff argues that, if any of his claims for breach of fiduciary duty, breach of
contract, or fraudulent inducement survives, “any such claim potentially supports
the appointment of a custodian under Delaware law” as an equitable remedy.39

15. Using its equitable powers, the court may appoint “a custodian or

receiver upon a showing of fraud, gross mismanagement, positive misconduct by

 

34 In re SiriusXMS’hola’er Litz`g,, 2013 WL 5411268, at *5 (Del Ch. Sept. 27, 2013) (Strine,
C.).

33 See, e.g., Thorpe v. CERBO, Inc., 676 A.2d 436, 445 (Del. 1996) (permitting damages
incidental to defendants’ breach of their duty of loyalty); Valeant Pharrns. Int'l v. Jerney,
921 A.2d 732, 753 (Del. Ch. 2007) (requiring disgorgement ofill-gotten gains).

36 Am. Compl.11 139.

37 Am.Compl.11133.

38 See E)nerala’ Partners v. Berlz'n, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed
are deemed waived.”).

39 Pl.’s Answering Br. 41.
15

corporate officers, breach of trust, or extreme circumstances showing imminent
danger of great loss which cannot otherwise be prevented.”60 “The appointment of
a custodian or receiver on the ground of mismanagement calls for a cautious exercise
of discretion of the Court. Such form of relief is radical and should be granted
grudgingly.”61 Although it is highly unlikely that the court would appoint a
custodian in this action based on the present allegations, the court is chary about
foreclosing potential forms of relief at this stage of the case and thus declines to do
so.62 Accordingly, the motion to dismiss Count IV is GRANTED insofar as that
claim is based on 8 Del. C. § 226, and DENIED insofar as a custodian is sought as
a potential equitable remedy.

16. Count V. This claim asserts that NantCell and Soon-Shiong
fraudulently induced Precision, plaintiff, and other “Major Investors” into entering
the Purchase Agreement, the Voting Agreement, and the Rights Agreement.
According to plaintiff, “NantCell or Soon-Shiong made the following false
statements: NantCell would pay 850 million for the Preferred Stock; the Company

would own the $50 million, with Shoon-Shiong having only signature authority over

 

60 Zutrau v. Jansing, 2013 WL 1092817, at *5 (Del. Ch. Mar. 18, 2013) (citation omitted).

61 Barry v. Full Mola’Process, Inc., 1975 WL 1949, at *2 (Del. Ch. June 16, 1975) (citation
omitted).

62 Crescent/Mach 1 Partners, L.P. v. Tarner, 846 A.2d 963, 991 (Del. Ch. 2000).
16

the account; the Board would regularly determine the Company’s cash needs and
control the Financing Account; and Soon-Shiong and NantCell would utilize the
Financing Account funds to continue the Company’s product development.”63

17. To state a claim for fraudulent inducement, a plaintiff must allege, inter
alia, “a false representation of material fact.”64 The “representations” that Feldman
points to, however, are merely contractual terms of the Purchase Agreement and the
Rights Agreement.63 A breach of contract claim “cannot be ‘bootstrapped’ into a
fraud claim merely by adding the words ‘fraudulently induced’ or alleging that the
contracting parties never intended to perform.”66 “Couching an alleged failure to
comply with the [Purchase Agreement or Rights Agreement] as a failure to disclose
an intention to take certain actions arguably inconsistent with th[ose] agreement[s]

is exactly the type of bootstrapping this Court will not entertain.”67 For this reason,

plaintiff has failed to state a claim for fraudulent inducement,

 

63 Pl.’s Answering Br. 43-44 (citing Am. Compl. 1111 42-44, 56-58).

64 CSH Theatres, LLC v. Nea'erlana'er of San Francl'sco Assocs., 2015 WL 1839684, at *21
(Del. Ch. Apr. 21, 2015) (citation omitted).

63 Pl.’s Answering Br. 43-44.

66 Iol‘ex Comlnc’ns, Inc. v. Defries, 1998 WL 914265, at *5 (Del. Ch. Dec. 21, 1998)
(citation omitted).

67 BAE Sys. N. Am. Inc. v. Lockheea’ Martz`n Corp., 2004 WL 1739522, at *8 (Del. Ch. Aug.
3, 2004).

17

18. Feldman cannot salvage his fraud claim by invoking a promissory fraud
theory. To state a claim from promissory fraud, a plaintiff “must plead specific facts
that lead to a reasonable inference that the promissor had no intention of performing
at the time the promise was made.”68 Feldman argues that the speed with which
NantCell and Soon-Shiong withdrew funds from the Financing Account and the
failure to fund the Company’s activities evidences their intention never to comply
with the Rights Agreement.69 These assertions, however, are based on events
occurring after the Rights Agreement was executed and are inconsistent with
specific allegations in the Amended Complaint that NantCell and Soon-Shiong did
fund the Company after the Transaction closed, albeit on an aa1 hoc and allegedly
insufficient basis.70 Fairly read, plaintiffs allegations demonstrate that the parties
disagree about the meaning of the terms of the Rights Agreement but are insufficient
to support a reasonable inference that NantCell and Soon-Shiong never intended to
perform under that agreement at the time of contracting For the reasons stated

above, defendants’ motion to dismiss Count V is GRANTED.

 

68 Grunstein v. Sl`lva, 2009 WL 4698541, at *13 (Del. Ch. Dec. 8, 2009) (citation and
internal quotations omitted).

69 Pl.’s Answering Br. 44.
79 Am. Compl. 1111 63-65.
18

19. Count VI. This claim asserts that NantCell and Soon-Shiong violated
the Blue Sky Laws of Texas and California, where NantCell’s representatives were
located. Defendants’ motion to dismiss Count VI is GRANTED because Feldman
has not pled any material misrepresentation, as required to state a claim under the
Blue Sky Laws of both California and Texas.71 Feldman alleges that NantCell and
Soon-Shiong falsely stated, both orally and in writing, that NantCell would exchange
$50 million for 40,964,051 shares of Precision preferred stock.72 The Amended
Complaint, however, flows from the premise that this exchange occurred. Similar
to Count V, Feldman’s actual grievance is that NantCell and Soon-Shiong did not
abide by the terms of the Rights Agreement and improperly withdrew funds from
the Financing Account. These allegations form the basis of viable claims for breach
of contract and breach of fiduciary duty, as discussed above, but do not state a claim

for a violation of the Blue Sky Laws of California or Texas.

 

ancellor

 

71 CAL. CORP. CoDE § 25401 (West 2018); TEx. REV. Clv. STAT. ANN. art. 581-33 (West
2017).

72 Am. Compl.11 152.
19

