Preview
1 DOWNEY BRAND LLP
WILLL\M R. WARNE (Bar No. 141280) FILED
2 ANNIE S. AMARAL (Bar No. 238189)
621 Capitol Mall, 18th Floor Superior Court Of Californi|3,
3 Sacramento, CA 95814-4731
Telephone: 916.444.1000
4 Facsimile: 916.444.2100 03/15/2018
bwame@downeybrand.com , Deputy
5 aamaral@downeybrand.com Castt Nu rti bui"
6 Attomeys for Plaintiff 34-2018=00223212
CHARLES SOMERS, individually and as tmstee for the
7 CHARLES SOMERS LIVING TRUST,
8 SUPERIOR COURT OF CALIFORNL\
9 COUNTY OF SACRAMENTO
10
11 CHARLES SOMERS, individually and as CASENO.
tmstee for the CHARLES SOMERS
12 LIVING TRUST, PLAINTIFF CHARLES SOMERS'S
PH COMPLAINT FOR DAMAGES
13 Plaintiff,
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15 DR. JAMES LONGORIA, an individual,
and DOES 1-10,
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Defendants.
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18 Plaintiff CHARLES SOMERS, individually and as tmstee for the CHARLES SOMERS
19 LIVING TRUST ("Somers" or "Plaintiff'), by and through his attomeys of record, hereby alleges
20 as follows:
21 PARTIES
22 1. Plaintiff Charles Somers ("Somers" or "Plaintiff') is, and at all relevant times
23 herein was, an individual doing business in Sacramento County, Califomia. Somers is the
24 tmstee for the Charles Somers Living Tmst.
25 2. Defendant James Longoria, M.D. ("Dr. Longoria" or "Defendant") is, and at
26 all times relevant herein was, an individual residing in Sacramento County, Califomia.
27 3. Plaintiff is ignorant of the tme names and capacities, whether individual,
28 corporation, association, or otherwise, of the defendants, and each of them, sued herein as DOES
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1 1 through 10, inclusive, and therefore sues these defendants, and each of them, under such
2 fictitious names. Plaintiff is informed and believes, and accordingly alleges, that these fictitiously
3 named defendants, and each of them, intentionally, negligently, or otherwise wrongfully
4 performed each of the acts and omissions alleged herein, and thereby legally caused the damages
5 directly or proximately to Plaintiff as alleged herein.
6 4. At all times relevant to this action, each Defendant was the agent, servant,
7 employee, partner, member, joint venture or surety of the other Defendants and was acting within
8 the scope of said agency, employment, partnership, venture or suretyship with the knowledge and
9 consent or ratification of each of the other Defendants.
10 JURISDICTION AND VENUE
11 5. The Court has subject matter jurisdiction over this action and personal jurisdiction
12 over each of the Defendants.
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I-I 13 6. Venue is proper in this Court pursuant to Califomia Code of Civil Procedure
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14 section 395, because Dr. Longoria resides in Sacramento County.
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OQ 15 FACTUAL BACKGROUND
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16 A. Background on the Relationship Between Mr. Somers and Dr. Longoria
o 17 7. Charles Somers is the founder and president of Somers Building Maintenance
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18 (SBM), a successful building maintenance services company that operates nationally and
19 intemationally. Dr. Longoria is an accomplished cardiothoracic surgeon who practices in
20 Sacramento. Dr. Longoria and Somers first met in approximately 2005, when Somers was told
21 that Dr. Longoria would be a good person to talk with to obtain a referral for a medical issue
22 confi"onting Somers's mother.
23 8. Thereafter, Somers and Dr. Longoria becamefiiends,and Somers suggested and
24 began assisting Dr. Longoria with exploring the possibility of opening a doctor-owned hospital in
25 the Sacramento area. Ultimately, to further assist with this effort, Somers purchased land in
26 Rancho Cordova known as "Montelena," and allowed Dr. Longoria and his private hospital
27 partners to purchase a minority interest in this same property. After Somers and Dr. Longoria
28 invested a significant amount of time and energy (and Somers a lot of money) into creating a
COMPLAINT
1 privately owned doctor's hospital, their dream came to an end with the Affordable Care Act's
2 passage in 2010, which made the creation of additional physician-owned hospitals illegal.
3 B. Dr. Longoria Induces Somers to Invest in His Medical Device Company in
Exchange for a Non-Controlling Ownership Interest.
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5 9. At some point in their relationship, Dr. Longoria informed Somers that he was
6 involved with patenting certain medical devices and surgery processes. Dr. Longoria touted his
7 schooling and reputation as a heart surgeon and told Somers that these devices would
8 revolutionize a number of common heart surgeries. Dr. Longoria initially told Somers that he had
9 filed for a patent on something called the L Chord, a synthetic cord used for perfonning what he
10 claimed would be revolutionary mitral valve prolapse repair. Later, he discussed that he had
11 obtained a patent on an RF ablation device which, among other things, would provide a better
OH 12 means of addressing atrial fibrillations. Dr. Longoria further explained that he was one of two
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16 and that the patented L Chord and ablation device were central to that effort.
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o 17 10. Dr. Longoria also introduced Somers to his "business partner" Roy Chin, who had
18 prior experience as the CEO and founder of SpineView, a medical device company focused on
19 spinal surgeries. Dr. Longoria and Mr. Chin, who were at the time the sole shareholders, officers,
20 and board members of Intrepid Medical, explained that Mr. Chin brought business experience to
21 the company and that Dr. Longoria brought medical expertise. Both Dr. Longoria and Mr. Chin
22 told Somers that their new company was looking for "start-up" funding.
23 11. In or about July or August of 2013, Mr. Chin and Dr. Longoria came to SBM to
24 pitch Somers on investing in the company. They discussed Intrepid's business plan, including the
25 steps they would take to obtain Food and Dmg Administration (FDA) approval to bring Intrepid's
26 patented devices to market and their plans to operate production facilities in Malaysia. They
27 further represented that Intrepid would be profitable by 2015.
28 12. During this pitch and others, Mr. Chin and Dr. Longoria conveyed to Somers and
COMPLAINT
1 to his CFO Ken Silva that they had the experience and ability to make Intrepid a success. As
2 Intrepid's President, Mr. Chin explained that he had a background of success infinancingand
3 growing a medical device company. As its Chairman, Dr. Longoria said he possessed the
4 surgical expertise to be the "face" of Intrepid and that he would be fully committed to developing
5 and marketing its products and that he was committed to putting in whatever time was necessary
6 to make Intrepid a complete success. They repeated to Somers and his CFO Silva that the
7 company would be profitable in two years. In the context of these representations, they indicated
8 that they needed $2 million to get started, and that they would raise additional fiinds thereafter by
9 selling equity in the company.
10 13. Thereafter, on August 15, 2013, Mr. Chin sent Mr. Silva a follow-up financial
11 spreadsheet, which, among other things, set forth Intrepid's proposed budget, created a critical
12 path timeline for the company's next steps, and broke down thefinancialmetrics associated with
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13 both the mitral valve market and the atrialfibrillationmarket. It again reiterated that Intrepid
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2 15 14. Somers considered the request for funding. He was impressed with Mr. Chin's
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17 wanted to help Dr. Longoria and tmsted his promise to fully commit his expertise, time, and
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19 funding the company would have little if any value and no chance of success.
20 15. Somers initially preferred to loan money to the company on conventional terms,
21 which would include repayment according to a specified schedule with interest, memorialized in
22 a promissory note. Dr. Longoria resisted this stmcture, arguing the better stmcture was for
23 Somers to become a shareholder in the company. He assured Somers that Intrepid's medical
24 devices would be approved by the FDA, proceed to market quickly, and rapidly become the
25 standard of care. If and when the company needed additional funding, Dr. Longoria told Somers
26 that Intrepid would allow him to take advantage of the same stmcture so that he could purchase
27 additional equity in the company, to whatever extent he was interested. Indeed, Intrepid's
28 August 15, 2013, projections indicated that Intrepid planned to raise additional capital in 2014
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COMPLAINT
1 and 2015 by selling equity. When Somers raised concems about company's status as an "S"
2 corporation and the resulting tax implications to him. Dr. Longoria promised that he would
3 convert Intrepid Medical to a limited liability company.
4 16. In another effort to induce Somers to conunit to making thisfinancialinvestment,
5 Dr. Longoria assured Somers that, in the imlikely event that the medical company was not
6 successful, he would personally reimburse Somers through the profits Dr. Longoria anticipated
7 receiving from the minority interest Somers had created for him in the Montelena real estate
8 investment, which was being held as an investment for sale to fUture residential developers.
9 17. Mr. Chin and Dr. Longoria's various representations to Somers were eventually
10 successful. In the fall of 2013, and in relieince on their representations, Somers agreed to provide
11 the company with start-up capital in the amount of $2 million, the first miUion of which Somers
12 invested on September 3, 2013, and the second million of which Somers invested on
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_) 13 November 29,2013. Under a "Common Stock Purchase Agreement," dated September 12,2013,
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m 16 both received 3,000,000 shares in exchange for their individual payments of $300 each, at a per
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18 Intrepid Medical's name was changed to LC Therapeutics, Inc. Dr. Longoria and Chin also
19 valued their now funded company at $ 10,000,000.
20 C. L C Therapeutics FaUs to Live Up to Its Business Flan.
21 18. As the months passed, Somers could see that the company was falling behind.
22 According to the business plans provided to Somers at the time he was investing, LC was
23 supposed to become incorporated in Malaysia in the third quarter of 2013, and submit its first
24 three products for FDA approval in the fourth quarter of 2013. In 2014, among other things, LC
25 was supposed to begin pre-production and pre-clinical testing of the L Chord in Malaysia in the
26 first quarter, obtain FDA and ASEAN approval of various medical device products in the second
27 and third quarters, and receive its first $3 million of revenue from the initial products it would
28 bring to market. None of these "key milestones" were occurring, and it was apparent that LC was
COMPLAINT
1 nowhere close to becoming profitable in 2015. Indeed, as time passed, LC was falling further and
2 further behind.
3 19. By the fall of 2014, Somers was growing increasingly concemed. In the last week
4 of October, Somers contacted Mr. Chin to set up a meeting. Mr. Chin agreed. Over a lunch
5 meeting in Vacaville, they discussed LC's continuous setbacks on design, product testing, and
6 regulatory requirements, and Somers also expressed great concem over LC's failure to track,
7 manage, and report its progress. He also complained specifically about Dr. Longoria's failure to
8 address and follow through on the design and approval process for the L Chord device. Among
9 other things, Somers discussed the immediate retention of two key contributors. Specifically, he
10 urged that LC hire a product director focused on regulatory, testing and quality issues and that LC
11 also hire a project manager.
12 20. The conversation eventually tumed to money, with the two of them discussing the
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13 company's need for an additional $3 million in funding. Because Somers was increasingly
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o 17 Longoria would each own 25%. Somers explained that his terms were more than generous,
18 especially since the company should be re-valued at $2,000,000 in view of its delays and apparent
19 need to put the L Chord product on hold. Somers told Chin that the company had to become
20 more disciplined, and that it should set regular meetings where he, the new product manager,
21 Mr. Chin, and Dr. Longoria could create a "stmctured reporting discipline."
22 21. On November 3,2014, Somers sent an email thanking Mr. Chin for agreeing to
23 meet with him on short notice. He copied Dr. Longoria and Mr. Silva. In addition to
24 summarizing their lunch discussion, Somers concluded by stating that, "Our goal needs to be
25 building a world class organization that builds world class products, and with the above changes
26 andfinancing,I believe we will get there."
27 22. Twenty days later, on November 23,2014, Mr. Chin sent Dr. Longoria an
28 unexpected email, advising him that he was resigning as the "CEO, board member, and co-
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1 founder of LC Therapeutics." In the same email, he also informed Dr. Longoria that his last day
2 with the company would be December 5,2014.
3 D. In Order to Obtain Financing from Somers. Dr. Longoria Promises Somers a
^ "Full Partnership" with Co-Equal Control of All Business Decisions.
5 23. Immediately after Mr. Chin's departure, Somers and Dr. Longoria went to Hawaii
6 with their families to celebrate the Thanksgiving holiday. While there, Somers and Dr. Longoria
7 spent time discussing Mr. Chin's departure, the future of the company, and its need for immediate
8 and ongoing financing. Somers again retumed to the points he had made in his email several
9 weeks earlier. He explained to Dr. Longoria that he had already invested $2 million in a failing
10 company, and that he would not agree to provide additional funds unless he had a fiill seat at the
11 table. Dr. Longoria wholeheartedly agreed, telling Somers that if Somers agreed to provide
12 additional equityfinancinghe would replace Mr. Chin on the board and have equal control over
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13 all company decisions. He said that they would be equal partners with equal control and that he
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16 with each other during their meeting in Hawaii and thereafter, using the phrase, "First money in,
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17 first money out." Somers and Dr. Longoria also agreed that Somers would have the option of
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18 buying additional equity or making loans, and that if he chose not to do so, the company would
19 seek outside funding. Dr. Longoria was enthusiastic, telling Somers that he imderstood the
20 necessity of this step for the company, and said the company needed someone with business
21 acumen to fill the position vacated by Mr. Chin.
22 24. In light of these discussions and Dr. Longoria's promises, Somers instmcted his
23 CFO to proceed with the paperwork associated with his agreement to fund the company. Taking
24 over Mr. Chin's role and moving from shareholder to Dr. Longoria's full "partner" would finally
25 give Somers the type of directional control he required before he agreed to invest even more
26 money in a company that had no demonstrated history of success and that was failing to meet the
27 key milestones of its own business plan. Dr. Longoria reiterated that he would recommit himself
28 to putting whatever time and energy was necessary to develop and market the company's
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COMPLAINT
1 products.
2 25. On January 30,2015, to formalize their post-Chin departure agreement, Somers
3 executed another "Common Stock Purchase Agreement," agreeing to buy 1,437,500 additional
4 shares of LC Therapeutics' stock at the price of $0,943 per share for the aggregate purchase price
5 of $ 1,355,000.00. In light of the 1,562,500 shares Somers purchased through the earlier
6 September 12,2013, stock purchase agreement, Somers and Dr. Longoria now each owned
7 3 million shares, as was the case between Mr. Chin and Dr. Longoria before Mr. Chin resigned.
8 Somers contributed this $1.355 million in liquidity to LC through eight separate capital infusions
9 between January 30,2015, and December 2,2015. Somers's willingness to provide LC
10 Therapeutics with these additional funds was not only generous to LC Therapeutics, it was
11 generous to Dr. Longoria, as his own ownership interest increasedfrom40% to 50%.
12 26. Unfortunately, Somers's willingness to provide these additional funds did not
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13 solve the company's execution problems. Dr. Longoria was disfracted by his practice and failing
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18 company through the purchase of additional equity. Instead, he told Somers he did not want to
19 lose his 50% interest in the company, that he wanted the two of them to remain co-equals
20 regarding company confrol. Dr. Longoria thus urged Somers to agree to provide any additional
21 money in the form of loans. In order to entice Somers to do so. Dr. Longoria repeated his
22 representation that he and Somers would share confrol and participate equally in all decisions. He
23 again promised that he would do all that was necessary to make the company successful, and that
24 he would never stand in the way of making sure that all of Somers's investments and/or loans
25 would be repaid on a "first money in,firstmoney out" basis, along with interest at 10% for
26 Somers's loans to the company.
27 27. In reliance on Dr. Longoria's assurances, Somers agreed to loan LC significant
28 sums of money. Specifically, between January 2016 and September 2017, Somers contributed an
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COMPLAINT
1 additional $3,746,317.89 to LC Therapeutics through 19 payments, and has made additional loans
2 since then. This was of course in addition to the $3,355 million he invested through the purchase
3 of company equity.
4 28. As time passed, the tension between Somers and Dr. Longoria began to increase as
5 the problems with the company's devices continued. In confrast to his promises, Dr. Longoria
6 was not fully committed to LC Therapeutics and its success. For instance, when the L Chord
7 began to fail. Dr. Longoria resorted to blaming the product engineers.
8 29. In order to keep the money flowing. Dr. Longoria was willing to say what he
9 needed to say to make sure Somers continued to believe that he had been given equal confrol over
10 the direction of the company. For instance, in July of 2016, Dr. Longoria created a "51 OK
11 Presubmission" Power Point presentation for the FDA regarding the L Chord repair and
12 replacement devices. Therein, Dr. Longoria identified himseff as the "Founder and CEO" of LC
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13 Therapeutics and identified Somers not as a mere shareholder but instead as his "Partner."
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COMPLAINT
1 30. Thereafter, Somers continued to fund the business through 2016 and 2017, paying
2 off the company's liabilities as they became due and owing, with the total amount of loans now
3 approaching $4 million.
4 31. In addition to what he communicated to third parties. Dr. Longoria also acted
5 towards Somers in a manner that confirmed that Somers was in fact a board member with shared
6 control over the company. For instance, in the fall of 2016, Dr. Longoria and Somers discussed
7 Dr. Longoria's busy schedule and the difficulty he was having driving back and forth to the Bay
8 Area in order to consult with the manufacturing entities LC had contracted with (unsuccessfully)
9 to manufacture the L Chord. They jointly discussed alternatives and mutually decided on creating
10 their own manufacturing facility in Sacramento. Both Somers and Dr. Longoria identified
11 potential locations, and they ultimately and mutually agreed that a location in McClellan Park was
12 the most economical and advantageous location. Thereafter, both Somers and Dr. Longoria
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18 board. Dr. Longoria also worked with Somers to locate a third board member for LC, someone
19 who could bring additional managerial acumen, experience and focus. In the context of doing so,
20 and in keeping with his status as a full partner with ownership confrol over LC Therapeutics,
21 Somers informed Dr. Longoria that he wanted to invite Roger Valine to become a board member.
22 In March of 2017, Dr. Longoria interviewed Mr. Valine over dinner at a restaurant in Sacramento.
23 Thereafter, Dr. Longoria discussed Mr. Valine's qualifications with Somers and agreed to bring
24 him on as a board member. Thus, by April of 2017, and in his capacity as a paid board member,
25 Mr. Valine began sending out resumes of individuals he had identified who could further help LC
26 Therapeutics build what Somers described as a "world class organization that builds world class
27 products." In early May, and consistent with the parties' agreement regarding Mr. Valine's
28 status, Mr. Valine set up a dinner with Somers and Dr. Longoria so that the three of them could
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COMPLAINT
1 interview another doctor with a background in obtaining regulatory approval for medical devices.
2 Dr. Longoria voiced no objection and enthusiastically participated in the meeting and in the
3 search for additional talent for the company. Thereafter, Somers, Dr. Longoria and Mr. Valine
4 continued to engage in additional discussions focused on growing the company.
5 E. Somers Refuses to Continue Funding L C Therapeutics and Dr. Longoria
^ Changes His Tune.
7 33. By the summer of 2017, Somers confirmed with his "partner" Dr. Longoria that
8 his willingness to fiind this business was not endless. He also told Dr. Longoria that in his
9 capacity as the company's CEO, Dr. Longoria should be focused on selling additional company
10 shares to private equity and/or on raising capital from additional sources. Somers again
11 discussed the ongoing delay in obtaining FDA approval and the company's lack of success on
12 other fronts. He informed Dr. Longoria that any further funding from him would have to come in
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18 LC Therapeutics also needed to retain a management company with experience in obtaining
19 regulatory approval for medical devices.
20 35. With the buildout of LC's facility in McClellan Park nearing completion, Somers
21 explained to Dr. Longoria that he would need to find additional funding to pay for the tenant
22 improvements and to fund the lease amount.
23 36. Somers also reminded Dr. Longoria of his earlier promise to convert the company
24 from an "S" corporation to a limited liability company, and Dr. Longoria refused to do so. On
25 information and belief, Somers alleges that Dr. Longoria has refused to change the form of the
26 company to preserve certain tax savings he is realizing through the company's current form.
27 37. Dr. Longoria and Somers began discussing raising capital by entering a license
28 agreement with a company interested in monetizing certain medical process patents owned by LC
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COMPLAINT
1 Therapeutics. Dr. Longoria, however, took over that task and began excluding Somers. He
2 refused to share information about who he hired, refused to provide details on the deal he was
3 seeking, and refused to provide any updates on what he had unilaterally chosen to pursue. When
4 Somers protested. Dr. Longoria responded by saying that Somers had no confrol over LC
5 Therapeutics and/or its business decisions and that he had norightto obtain information on the
6 progress of Dr. Longoria's unilateral efforts. Dr. Longoria also told Somers that he was nothing
7 but a shareholder.
8 38. Thereafter, Dr. Longoria unilaterally appointed his own board member without
9 consultation with Somers, a gentlemanfromStockton with a backgroimd in irrigation and pump
10 services. Without consulting Somers, Dr. Longoria and his appointed board member set an
11 "annual" shareholders meeting, and then ignored Somers's protestations that he was neither
12 consulted nor available on the day they had chosen. Additionally, Somers objected to any
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13 shareholder meeting taking place in Stockton, as both he, Mr. Valine and Dr. Longoria lived in
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17 39. Despite Dr. Longoria's numerous assurances to Somers while convincing him to
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19 Somers would have a full seat at the table - it is now clear that Dr. Longoria was acting behind
20 the scenes in a way that was directly confrary to those promises. For instance, on December 15,
21 2014, just after his promises to Somers in Hawaii to secure more funding. Dr. Longoria passed a
22 secret resolution making himself LC Therapeutics' President, CEO, CFO and Secretary. Dr.
23 Longoria kept this resolution a secretfromSomers for more than three years, only revealing it to
24 Somers in January of 2018 when Somers was sfrongly protesting Dr. Longoria's refusal to
25 respond to his emails about the status of certain business decisions and in response to protesting
26 Dr. Longoria's efforts to set board meetings without consulting Somers and Mr. Valine. Dr.
27 Longoria revealed the existence of this previously secret resolution to argue that Somers had no
28 basis to complain because he was merely a shareholder. Somers is informed and believes that Dr.
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COMPLAINT
1 Longoria passed this resolution without his knowledge to serve two purposes: to maintain full (or
2 ostensible) control of LC Therapeutics while, at the sametime,inducing Somers to continue
3 providing significant capital while assuring him and others that Somers had co-equal confrol as an
4 officer and board member who had taken Mr. Chin's position in the company.
5 40. Somers is now informed and believes that, even after securing Somers's additional
6 capital infusion of $ 1.355 million through the January 30, 2015 stock purchase agreement, and
7 despite his status as the company's Secretary, Dr. Longoria did nothing to document his
8 agreements with Somers. He failed to formally add Somers to the board and failed to
9 acknowledge in the corporate minutes the promises he had made to Somers to secure his funding.
10 The same is tme for 2016 and 2017. During the period of time when Somers was loaning LC
11 Therapeutics millions of dollars. Dr. Longoria kept up appearances on various documents he filed
12 with third parties, but did nothing in his capacity as Secretary to document the reality he promised
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1-1 13 Somers within the corporate stmcture of LC Therapeutics.
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18 his coordination of all business decisions with Somers. It was at this point that Dr. Longoria
19 began pointing to the intemal corporate documents and to the resolution he secretiy passed on
20 December 15,2014, claiming he could do whatever he chose to do and Somers, as an alleged
21 mere shareholder, could do nothing to stop him.
22 42. Because of Dr. Longoria's change of course, LC Therapeutics is on the brink of
23 collapse, and Somers has no choice but to bring this lawsuit to seek redress for thefraudand false
24 promises made by Dr. Longoria to induce Somers to invest in this ill-fated company, and the
25 breaches offiduciaryduties owed by Dr. Longoria to Somers.
26 ///
27 ///
28 ///
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COMPLAINT
1 FIRST CAUSE OF ACTION
(Fraud)
2 (Against All Defendants)
3 43. Somers incorporates and restates paragraphs 1 through 42 as though fully set forth
4 herein.
5 44. Dr. Longoria made the promises alleged above knowing they were false, intending
6 that they would induce Somers to provide money to LC Therapeutics and that Somers would rely
7 on them, but without ever intending to perform them. These false representations include, but are
8 not limited to, the following:
9 a. Dr. Longoria's promise in fall 2013 to convert LC Therapeutics from an "S"
10 corporation to an LLC.
11 b. Dr. Longoria's statement in fall 2013 that the company would use equity as
consideration for additional cash infusions.
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d. Dr. Longoria's promise to devote time and energy to the success of the company,
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17 45. Somers did reasonably and justifiably rely on Dr. Longoria's repeated
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18 representations, which included, but are not limited to. Dr. Longoria's oft repeated promises that
19 Somers would essentially take the place of Mr. Chin, that he would be a member of the board,
20 and that he would be full and equal participant in all business decisions with equal confrol.
21 46. Somers would not have acted as he did, and would not have funded the company
22 from 2015 onward through capital infusions and loans, had Dr. Longoria not concealed the tmth
23 regarding LC Therapeutics' corporate documents and if Somers had known that Dr. Longoria had
24 planned to use his failure to formally document his promises in an effort to relegate Somers to the
25 status of shareholder only once Somers decided to stop funding the company.
26 47. As a direct and proximate result of Dr. Longoria's tortious conduct, Somers
27 suffered and continues to suffer substantial damages in excess of the minimum jurisdictional
28 limits of this Court, in an amount to be ascertained and proven at trial. Additionally, Somers will
14
COMPLAINT
1 continue to be deprived of the use, benefit, profit and interest on the funds he lost as a result of
2 the Dr. Longoria's dishonesty and tortious conduct as described above.
3 48. On information and belief, Somers alleges that Dr. Longoria acted intentionally,
4 willfully,fraudulently,oppressively and with malice by engaging in the conduct as set forth
5 herein; the conduct was despicable and carried on with a willfiil and conscious disregard for the
6 rights of Somers; and as a consequence, Somers is entitled to punitive damages in an amount to
7 be awarded by the trier of fact.
8 SECOND CAUSE OF ACTION
(Negligent Misrepresentation)
9
(Against All Defendants)
10 49. Somers incorporates and restates paragraphs 1 through 48 as though fully set forth
11 herein.
12 50. Because of their status as equal shareholders and because of Dr. Longoria's
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19 52. Somers reasonably relied upon Dr. Longoria's representations. As a consequence,
20 Somers has been harmed, because he has incurred substantial losses as a result of Dr. Longoria's
21 negligent misrepresentations. Dr. Longoria's conduct was a substantial factor in causing the
22 damages herein alleged.
23
THIRD CAUSE OF ACTION
24 Unjust Enrichment
(Against All Defendants)
25
26 53. Plaintiff incorporates and restates paragraphs 1 through 52 as though fially set forth
27 herein.
28 ///
15
COMPLAINT
1 54. Somers invested in and loaned to LC Therapeutics more than $7 million, based in
2 part on Dr. Longoria's promise to convert LC Therapeutics to a limited liability company.
3 Despite Somers's requests that he do so, Dr. Longoria has refused and continues to refuse to
4 convert the company out of its current form as an "S" corporation. On information and belief,
5 Somers alleges that Dr. Longoria refuses to fulfill his initial promise because he has benefitted
6 from certain tax savings that are available to him so long as LC Therapeutics remains an "S"
7 corporation.
8 55. Thus, based on his refusal to follow through with his original representation in this
9 regard. Dr. Longoria has been unjustly enriched in an amount to be proven at trial.
10 FOURTH CAUSE OF ACTION
11 Breach of Fiduciary Duty
(Against All Defendants)
12 56. Plaintiff incorporates and restates paragraphs 1 through 55 as though fully set forth
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58. Dr. Longoria breached said duties in at least the following ways:
19
a. Dr. Longoria promised in fall 2013 to convert LC Therapeutics from an "S"
20 corporation to an LLC but in 2017, when Somers discussed doing so and then
presented paperwork to change the status of the company to an LLC, Dr. Longoria
21 refused. On information and belief, Somers alleges that Dr. Longoria refused to
22 convert the status of the corporation so as to promulgate his own self-interest.
23 b. Dr. Longoria understood and agreed early on that equity in the company would
have to be used to entice investors to make fiirther and necessary cash infusions.
24 In 2017, since leaming that LC Therapeutics is on the brink of collapsing, Somers
has tried to invoke this imderstanding and offered to contribute additional funds in
25 exchange for more shares. Risking the company's solvency and hanging Somers's
26 investment in the balance^ Dr. Longoria refused this offer, blatantiy telling Somers
that he "does not work for Somers" and categorically refusing to accept any
27 scenario by which Somers would end up with a confrolling interest in LC
Therapeutics.
28
16
COMPLAINT
1 c. Additionally, after requesting that Somersfinancea Sacramento-based facility to
accommodate his own schedule, and knowing that Somers executed a personal
2 guaranty in connection with the leasCj Dr; Longoria refused to occupy the space
3 rented, outfitted, and paid for by Somers.
4 d. Finally, Dr. Longoria put his own self-interest over Somers's interests and the
interests of LC Therapeutics when he passed a secret resolution in his capacity as
5 the sole board member making himself LC Therapeutics' President, CEO, CFO
and Secretary, in direct confravention of what he represented to Somers would be
6 the way in which the company was managed.
7 59. As a result of these breaches offiduciaryduty, Somers has been harmed and
8 damaged in an amount according to proof at trial.
9 PRAYER FOR R E L I E F
10 WHEREFORE, Somers respectfully requests that this Court enter judgment in his favor
11 and against Dr. Longoria as follows:
12 1. For general, special, and consequential damages according to proof at trial;
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DATED: 2018 DOWNEY BRAND LLP
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By
19
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WILLIAM R. WARNE
V I T T T T T A V F D W l A TJX
ANNIE S. AMARAL
20 Attomeys for Plaintiff
CHARLES SOMERS, individually and as tiiistee
21 for the CHARLES SOMERS LIVING TRUST
22
23
24
25
26
27
28
17
COMPLAINT
CIVIL DROP BOX
21]1B!1AR 16 FfH2:S!
GQS"C COURTHOUSE
SSJPERiOR COURT
OF CALIFORNIA
SACHAMENTO COUNTY
Preview
1 DOWNEY BRAND LLP WILLL\M R. WARNE (Bar No. 141280) FILED 2 ANNIE S. AMARAL (Bar No. 238189) 621 Capitol Mall, 18th Floor Superior Court Of Californi|3, 3 Sacramento, CA 95814-4731 Telephone: 916.444.1000 4 Facsimile: 916.444.2100 03/15/2018 bwame@downeybrand.com , Deputy 5 aamaral@downeybrand.com Castt Nu rti bui" 6 Attomeys for Plaintiff 34-2018=00223212 CHARLES SOMERS, individually and as tmstee for the 7 CHARLES SOMERS LIVING TRUST, 8 SUPERIOR COURT OF CALIFORNL\ 9 COUNTY OF SACRAMENTO 10 11 CHARLES SOMERS, individually and as CASENO. tmstee for the CHARLES SOMERS 12 LIVING TRUST, PLAINTIFF CHARLES SOMERS'S PH COMPLAINT FOR DAMAGES 13 Plaintiff, Q Z 14 < Pi 15 DR. JAMES LONGORIA, an individual, and DOES 1-10, m 16 Defendants. o 17 D 18 Plaintiff CHARLES SOMERS, individually and as tmstee for the CHARLES SOMERS 19 LIVING TRUST ("Somers" or "Plaintiff'), by and through his attomeys of record, hereby alleges 20 as follows: 21 PARTIES 22 1. Plaintiff Charles Somers ("Somers" or "Plaintiff') is, and at all relevant times 23 herein was, an individual doing business in Sacramento County, Califomia. Somers is the 24 tmstee for the Charles Somers Living Tmst. 25 2. Defendant James Longoria, M.D. ("Dr. Longoria" or "Defendant") is, and at 26 all times relevant herein was, an individual residing in Sacramento County, Califomia. 27 3. Plaintiff is ignorant of the tme names and capacities, whether individual, 28 corporation, association, or otherwise, of the defendants, and each of them, sued herein as DOES 1 COMPLAINT 1 1 through 10, inclusive, and therefore sues these defendants, and each of them, under such 2 fictitious names. Plaintiff is informed and believes, and accordingly alleges, that these fictitiously 3 named defendants, and each of them, intentionally, negligently, or otherwise wrongfully 4 performed each of the acts and omissions alleged herein, and thereby legally caused the damages 5 directly or proximately to Plaintiff as alleged herein. 6 4. At all times relevant to this action, each Defendant was the agent, servant, 7 employee, partner, member, joint venture or surety of the other Defendants and was acting within 8 the scope of said agency, employment, partnership, venture or suretyship with the knowledge and 9 consent or ratification of each of the other Defendants. 10 JURISDICTION AND VENUE 11 5. The Court has subject matter jurisdiction over this action and personal jurisdiction 12 over each of the Defendants. PH I-I 13 6. Venue is proper in this Court pursuant to Califomia Code of Civil Procedure D 14 section 395, because Dr. Longoria resides in Sacramento County. < OQ 15 FACTUAL BACKGROUND W 16 A. Background on the Relationship Between Mr. Somers and Dr. Longoria o 17 7. Charles Somers is the founder and president of Somers Building Maintenance D 18 (SBM), a successful building maintenance services company that operates nationally and 19 intemationally. Dr. Longoria is an accomplished cardiothoracic surgeon who practices in 20 Sacramento. Dr. Longoria and Somers first met in approximately 2005, when Somers was told 21 that Dr. Longoria would be a good person to talk with to obtain a referral for a medical issue 22 confi"onting Somers's mother. 23 8. Thereafter, Somers and Dr. Longoria becamefiiends,and Somers suggested and 24 began assisting Dr. Longoria with exploring the possibility of opening a doctor-owned hospital in 25 the Sacramento area. Ultimately, to further assist with this effort, Somers purchased land in 26 Rancho Cordova known as "Montelena," and allowed Dr. Longoria and his private hospital 27 partners to purchase a minority interest in this same property. After Somers and Dr. Longoria 28 invested a significant amount of time and energy (and Somers a lot of money) into creating a COMPLAINT 1 privately owned doctor's hospital, their dream came to an end with the Affordable Care Act's 2 passage in 2010, which made the creation of additional physician-owned hospitals illegal. 3 B. Dr. Longoria Induces Somers to Invest in His Medical Device Company in Exchange for a Non-Controlling Ownership Interest. 4 5 9. At some point in their relationship, Dr. Longoria informed Somers that he was 6 involved with patenting certain medical devices and surgery processes. Dr. Longoria touted his 7 schooling and reputation as a heart surgeon and told Somers that these devices would 8 revolutionize a number of common heart surgeries. Dr. Longoria initially told Somers that he had 9 filed for a patent on something called the L Chord, a synthetic cord used for perfonning what he 10 claimed would be revolutionary mitral valve prolapse repair. Later, he discussed that he had 11 obtained a patent on an RF ablation device which, among other things, would provide a better OH 12 means of addressing atrial fibrillations. Dr. Longoria further explained that he was one of two >-) h-l Q 13 board members and a 50% shareholder in a company known as Intrepid Medical, a business he < 14 co-founded with his partner Roy Chin in or about April of 2013, and that their company was the oa >H 15 owner of these patents. Dr. Longoria told Somers that Intrepid Medical would seize market share 16 and that the patented L Chord and ablation device were central to that effort. o o 17 10. Dr. Longoria also introduced Somers to his "business partner" Roy Chin, who had 18 prior experience as the CEO and founder of SpineView, a medical device company focused on 19 spinal surgeries. Dr. Longoria and Mr. Chin, who were at the time the sole shareholders, officers, 20 and board members of Intrepid Medical, explained that Mr. Chin brought business experience to 21 the company and that Dr. Longoria brought medical expertise. Both Dr. Longoria and Mr. Chin 22 told Somers that their new company was looking for "start-up" funding. 23 11. In or about July or August of 2013, Mr. Chin and Dr. Longoria came to SBM to 24 pitch Somers on investing in the company. They discussed Intrepid's business plan, including the 25 steps they would take to obtain Food and Dmg Administration (FDA) approval to bring Intrepid's 26 patented devices to market and their plans to operate production facilities in Malaysia. They 27 further represented that Intrepid would be profitable by 2015. 28 12. During this pitch and others, Mr. Chin and Dr. Longoria conveyed to Somers and COMPLAINT 1 to his CFO Ken Silva that they had the experience and ability to make Intrepid a success. As 2 Intrepid's President, Mr. Chin explained that he had a background of success infinancingand 3 growing a medical device company. As its Chairman, Dr. Longoria said he possessed the 4 surgical expertise to be the "face" of Intrepid and that he would be fully committed to developing 5 and marketing its products and that he was committed to putting in whatever time was necessary 6 to make Intrepid a complete success. They repeated to Somers and his CFO Silva that the 7 company would be profitable in two years. In the context of these representations, they indicated 8 that they needed $2 million to get started, and that they would raise additional fiinds thereafter by 9 selling equity in the company. 10 13. Thereafter, on August 15, 2013, Mr. Chin sent Mr. Silva a follow-up financial 11 spreadsheet, which, among other things, set forth Intrepid's proposed budget, created a critical 12 path timeline for the company's next steps, and broke down thefinancialmetrics associated with PH 13 both the mitral valve market and the atrialfibrillationmarket. It again reiterated that Intrepid Q Z 14 would be profitable by 2015. 2 15 14. Somers considered the request for funding. He was impressed with Mr. Chin's OQ >^ W 16 backgroxmd and was interested in being a part of revolutionizing certain heart surgeries. He also Z 17 wanted to help Dr. Longoria and tmsted his promise to fully commit his expertise, time, and o Q 18 energy into making Intrepid a success. They all acknowledged, however, that without start-up 19 funding the company would have little if any value and no chance of success. 20 15. Somers initially preferred to loan money to the company on conventional terms, 21 which would include repayment according to a specified schedule with interest, memorialized in 22 a promissory note. Dr. Longoria resisted this stmcture, arguing the better stmcture was for 23 Somers to become a shareholder in the company. He assured Somers that Intrepid's medical 24 devices would be approved by the FDA, proceed to market quickly, and rapidly become the 25 standard of care. If and when the company needed additional funding, Dr. Longoria told Somers 26 that Intrepid would allow him to take advantage of the same stmcture so that he could purchase 27 additional equity in the company, to whatever extent he was interested. Indeed, Intrepid's 28 August 15, 2013, projections indicated that Intrepid planned to raise additional capital in 2014 4 COMPLAINT 1 and 2015 by selling equity. When Somers raised concems about company's status as an "S" 2 corporation and the resulting tax implications to him. Dr. Longoria promised that he would 3 convert Intrepid Medical to a limited liability company. 4 16. In another effort to induce Somers to conunit to making thisfinancialinvestment, 5 Dr. Longoria assured Somers that, in the imlikely event that the medical company was not 6 successful, he would personally reimburse Somers through the profits Dr. Longoria anticipated 7 receiving from the minority interest Somers had created for him in the Montelena real estate 8 investment, which was being held as an investment for sale to fUture residential developers. 9 17. Mr. Chin and Dr. Longoria's various representations to Somers were eventually 10 successful. In the fall of 2013, and in relieince on their representations, Somers agreed to provide 11 the company with start-up capital in the amount of $2 million, the first miUion of which Somers 12 invested on September 3, 2013, and the second million of which Somers invested on PH _) 13 November 29,2013. Under a "Common Stock Purchase Agreement," dated September 12,2013, Q Z 14 Somers received a total of 1,562,500 shares in two equal closings, at the price of $1.28 per share. < oi OQ 15 Before Somers made this commitment. Dr. Longoria and Mr. Chin several months earlier had m 16 both received 3,000,000 shares in exchange for their individual payments of $300 each, at a per Z o 17 share price of $0.00001. Approximately one month after Somers made this initial investment, Q 18 Intrepid Medical's name was changed to LC Therapeutics, Inc. Dr. Longoria and Chin also 19 valued their now funded company at $ 10,000,000. 20 C. L C Therapeutics FaUs to Live Up to Its Business Flan. 21 18. As the months passed, Somers could see that the company was falling behind. 22 According to the business plans provided to Somers at the time he was investing, LC was 23 supposed to become incorporated in Malaysia in the third quarter of 2013, and submit its first 24 three products for FDA approval in the fourth quarter of 2013. In 2014, among other things, LC 25 was supposed to begin pre-production and pre-clinical testing of the L Chord in Malaysia in the 26 first quarter, obtain FDA and ASEAN approval of various medical device products in the second 27 and third quarters, and receive its first $3 million of revenue from the initial products it would 28 bring to market. None of these "key milestones" were occurring, and it was apparent that LC was COMPLAINT 1 nowhere close to becoming profitable in 2015. Indeed, as time passed, LC was falling further and 2 further behind. 3 19. By the fall of 2014, Somers was growing increasingly concemed. In the last week 4 of October, Somers contacted Mr. Chin to set up a meeting. Mr. Chin agreed. Over a lunch 5 meeting in Vacaville, they discussed LC's continuous setbacks on design, product testing, and 6 regulatory requirements, and Somers also expressed great concem over LC's failure to track, 7 manage, and report its progress. He also complained specifically about Dr. Longoria's failure to 8 address and follow through on the design and approval process for the L Chord device. Among 9 other things, Somers discussed the immediate retention of two key contributors. Specifically, he 10 urged that LC hire a product director focused on regulatory, testing and quality issues and that LC 11 also hire a project manager. 12 20. The conversation eventually tumed to money, with the two of them discussing the PH 13 company's need for an additional $3 million in funding. Because Somers was increasingly Q Z 14 concemed about the status of his initial $2 million start-up investment, he wanted greater control. < Pi OQ 15 He also told Mr. Chin that if he agreed to provide the additional funding, ownership of the >^ m 16 company's equity should be altered so that Somers would own 50% and Mr. Chin and Dr. Z o 17 Longoria would each own 25%. Somers explained that his terms were more than generous, 18 especially since the company should be re-valued at $2,000,000 in view of its delays and apparent 19 need to put the L Chord product on hold. Somers told Chin that the company had to become 20 more disciplined, and that it should set regular meetings where he, the new product manager, 21 Mr. Chin, and Dr. Longoria could create a "stmctured reporting discipline." 22 21. On November 3,2014, Somers sent an email thanking Mr. Chin for agreeing to 23 meet with him on short notice. He copied Dr. Longoria and Mr. Silva. In addition to 24 summarizing their lunch discussion, Somers concluded by stating that, "Our goal needs to be 25 building a world class organization that builds world class products, and with the above changes 26 andfinancing,I believe we will get there." 27 22. Twenty days later, on November 23,2014, Mr. Chin sent Dr. Longoria an 28 unexpected email, advising him that he was resigning as the "CEO, board member, and co- 6 COMPLAINT 1 founder of LC Therapeutics." In the same email, he also informed Dr. Longoria that his last day 2 with the company would be December 5,2014. 3 D. In Order to Obtain Financing from Somers. Dr. Longoria Promises Somers a ^ "Full Partnership" with Co-Equal Control of All Business Decisions. 5 23. Immediately after Mr. Chin's departure, Somers and Dr. Longoria went to Hawaii 6 with their families to celebrate the Thanksgiving holiday. While there, Somers and Dr. Longoria 7 spent time discussing Mr. Chin's departure, the future of the company, and its need for immediate 8 and ongoing financing. Somers again retumed to the points he had made in his email several 9 weeks earlier. He explained to Dr. Longoria that he had already invested $2 million in a failing 10 company, and that he would not agree to provide additional funds unless he had a fiill seat at the 11 table. Dr. Longoria wholeheartedly agreed, telling Somers that if Somers agreed to provide 12 additional equityfinancinghe would replace Mr. Chin on the board and have equal control over PH I-I I-I 13 all company decisions. He said that they would be equal partners with equal control and that he Q Z 14 was looking forward to it. Additionally, Dr. Longoria also promised Somers that, if he agreed to < Pi OQ 15 provide additional fimding, LC would pay Somers back first, a concept they repeatedly confirmed U 16 with each other during their meeting in Hawaii and thereafter, using the phrase, "First money in, Z 17 first money out." Somers and Dr. Longoria also agreed that Somers would have the option of o Q 18 buying additional equity or making loans, and that if he chose not to do so, the company would 19 seek outside funding. Dr. Longoria was enthusiastic, telling Somers that he imderstood the 20 necessity of this step for the company, and said the company needed someone with business 21 acumen to fill the position vacated by Mr. Chin. 22 24. In light of these discussions and Dr. Longoria's promises, Somers instmcted his 23 CFO to proceed with the paperwork associated with his agreement to fund the company. Taking 24 over Mr. Chin's role and moving from shareholder to Dr. Longoria's full "partner" would finally 25 give Somers the type of directional control he required before he agreed to invest even more 26 money in a company that had no demonstrated history of success and that was failing to meet the 27 key milestones of its own business plan. Dr. Longoria reiterated that he would recommit himself 28 to putting whatever time and energy was necessary to develop and market the company's 7 COMPLAINT 1 products. 2 25. On January 30,2015, to formalize their post-Chin departure agreement, Somers 3 executed another "Common Stock Purchase Agreement," agreeing to buy 1,437,500 additional 4 shares of LC Therapeutics' stock at the price of $0,943 per share for the aggregate purchase price 5 of $ 1,355,000.00. In light of the 1,562,500 shares Somers purchased through the earlier 6 September 12,2013, stock purchase agreement, Somers and Dr. Longoria now each owned 7 3 million shares, as was the case between Mr. Chin and Dr. Longoria before Mr. Chin resigned. 8 Somers contributed this $1.355 million in liquidity to LC through eight separate capital infusions 9 between January 30,2015, and December 2,2015. Somers's willingness to provide LC 10 Therapeutics with these additional funds was not only generous to LC Therapeutics, it was 11 generous to Dr. Longoria, as his own ownership interest increasedfrom40% to 50%. 12 26. Unfortunately, Somers's willingness to provide these additional funds did not PH i-:i I-I 13 solve the company's execution problems. Dr. Longoria was disfracted by his practice and failing Q Z 14 to tend to his duties as CEO and Secretary. At the end of 2015, even though Somers had already < cti OQ 15 invested $3,355 million in less than two years' time, LC Therapeutics was not even close to being w 16 profitable and remained in dire need of additional cash. When Dr. Longoria approached Somers Z o 17 for even more funding, he stepped awayfromhis earlier promise to allow Somers to fund the D 18 company through the purchase of additional equity. Instead, he told Somers he did not want to 19 lose his 50% interest in the company, that he wanted the two of them to remain co-equals 20 regarding company confrol. Dr. Longoria thus urged Somers to agree to provide any additional 21 money in the form of loans. In order to entice Somers to do so. Dr. Longoria repeated his 22 representation that he and Somers would share confrol and participate equally in all decisions. He 23 again promised that he would do all that was necessary to make the company successful, and that 24 he would never stand in the way of making sure that all of Somers's investments and/or loans 25 would be repaid on a "first money in,firstmoney out" basis, along with interest at 10% for 26 Somers's loans to the company. 27 27. In reliance on Dr. Longoria's assurances, Somers agreed to loan LC significant 28 sums of money. Specifically, between January 2016 and September 2017, Somers contributed an 8 COMPLAINT 1 additional $3,746,317.89 to LC Therapeutics through 19 payments, and has made additional loans 2 since then. This was of course in addition to the $3,355 million he invested through the purchase 3 of company equity. 4 28. As time passed, the tension between Somers and Dr. Longoria began to increase as 5 the problems with the company's devices continued. In confrast to his promises, Dr. Longoria 6 was not fully committed to LC Therapeutics and its success. For instance, when the L Chord 7 began to fail. Dr. Longoria resorted to blaming the product engineers. 8 29. In order to keep the money flowing. Dr. Longoria was willing to say what he 9 needed to say to make sure Somers continued to believe that he had been given equal confrol over 10 the direction of the company. For instance, in July of 2016, Dr. Longoria created a "51 OK 11 Presubmission" Power Point presentation for the FDA regarding the L Chord repair and 12 replacement devices. Therein, Dr. Longoria identified himseff as the "Founder and CEO" of LC PH I-I h-l 13 Therapeutics and identified Somers not as a mere shareholder but instead as his "Partner." Q Z 14 Moreover, in September of the same year. Dr. Longoria and Somers both executed an < Pi OQ 15 "Authorization For Information" form in relation to opening a business account with Wells Fargo Z 16 Bank. Consistent with Somers's understanding of their agreement. Dr. Longoria's signature O 17 confirmed that he and Somers were each an "Owner with Confrol of the Entity." Q 18 Owner/Key Smfiwtfual 1 infomatkm 19 CUsiouisrliaine iCHflRLES M SOMERS 20 21 PDdifoR/Iltie Daietfttnh: RereemitfOwreisNlp: 22 |50.0 1 1 23 Owner/Key EmfivkUuil2lnfonnaticm 24 CMnmfirNsne 25 KTAMES imGOKLA fliHlnrefietelionaUp: 26 tOwner with Control of the Entity 27 1 150.0 28 1 COMPLAINT 1 30. Thereafter, Somers continued to fund the business through 2016 and 2017, paying 2 off the company's liabilities as they became due and owing, with the total amount of loans now 3 approaching $4 million. 4 31. In addition to what he communicated to third parties. Dr. Longoria also acted 5 towards Somers in a manner that confirmed that Somers was in fact a board member with shared 6 control over the company. For instance, in the fall of 2016, Dr. Longoria and Somers discussed 7 Dr. Longoria's busy schedule and the difficulty he was having driving back and forth to the Bay 8 Area in order to consult with the manufacturing entities LC had contracted with (unsuccessfully) 9 to manufacture the L Chord. They jointly discussed alternatives and mutually decided on creating 10 their own manufacturing facility in Sacramento. Both Somers and Dr. Longoria identified 11 potential locations, and they ultimately and mutually agreed that a location in McClellan Park was 12 the most economical and advantageous location. Thereafter, both Somers and Dr. Longoria PH 1-1 I-I 13 discussed the facility's design, and the need to purchase a custom "clean room" to meet Dr. Q Z < 14 Longoria's exacting specifications. They also jointly discussed and agreed that they would spend Pi OQ 15 roughly $700,000 on tenant improvements to create appropriate office and meeting space within > Ui Z 16 this facility. o. 17 32. Moreover, in the spring of 2017, and in the context of forming a more effective Q 18 board. Dr. Longoria also worked with Somers to locate a third board member for LC, someone 19 who could bring additional managerial acumen, experience and focus. In the context of doing so, 20 and in keeping with his status as a full partner with ownership confrol over LC Therapeutics, 21 Somers informed Dr. Longoria that he wanted to invite Roger Valine to become a board member. 22 In March of 2017, Dr. Longoria interviewed Mr. Valine over dinner at a restaurant in Sacramento. 23 Thereafter, Dr. Longoria discussed Mr. Valine's qualifications with Somers and agreed to bring 24 him on as a board member. Thus, by April of 2017, and in his capacity as a paid board member, 25 Mr. Valine began sending out resumes of individuals he had identified who could further help LC 26 Therapeutics build what Somers described as a "world class organization that builds world class 27 products." In early May, and consistent with the parties' agreement regarding Mr. Valine's 28 status, Mr. Valine set up a dinner with Somers and Dr. Longoria so that the three of them could 10 COMPLAINT 1 interview another doctor with a background in obtaining regulatory approval for medical devices. 2 Dr. Longoria voiced no objection and enthusiastically participated in the meeting and in the 3 search for additional talent for the company. Thereafter, Somers, Dr. Longoria and Mr. Valine 4 continued to engage in additional discussions focused on growing the company. 5 E. Somers Refuses to Continue Funding L C Therapeutics and Dr. Longoria ^ Changes His Tune. 7 33. By the summer of 2017, Somers confirmed with his "partner" Dr. Longoria that 8 his willingness to fiind this business was not endless. He also told Dr. Longoria that in his 9 capacity as the company's CEO, Dr. Longoria should be focused on selling additional company 10 shares to private equity and/or on raising capital from additional sources. Somers again 11 discussed the ongoing delay in obtaining FDA approval and the company's lack of success on 12 other fronts. He informed Dr. Longoria that any further funding from him would have to come in PH 1-1 1-1 13 the form of selling Somers additional equity in the company, which would lead to a confrolling Q z 14 stake (as opposed to an equal stake) for Somers. Dr. Longoria rejected that suggestion, saying he < Pi OQ 15 would "never work for" Somers. > Ui 16 34. Additionally, Somers also told Dr. Longoria that the board needed further Z O 17 expansion through additional paid board members, preferably with five members total, and that Q 18 LC Therapeutics also needed to retain a management company with experience in obtaining 19 regulatory approval for medical devices. 20 35. With the buildout of LC's facility in McClellan Park nearing completion, Somers 21 explained to Dr. Longoria that he would need to find additional funding to pay for the tenant 22 improvements and to fund the lease amount. 23 36. Somers also reminded Dr. Longoria of his earlier promise to convert the company 24 from an "S" corporation to a limited liability company, and Dr. Longoria refused to do so. On 25 information and belief, Somers alleges that Dr. Longoria has refused to change the form of the 26 company to preserve certain tax savings he is realizing through the company's current form. 27 37. Dr. Longoria and Somers began discussing raising capital by entering a license 28 agreement with a company interested in monetizing certain medical process patents owned by LC 11 COMPLAINT 1 Therapeutics. Dr. Longoria, however, took over that task and began excluding Somers. He 2 refused to share information about who he hired, refused to provide details on the deal he was 3 seeking, and refused to provide any updates on what he had unilaterally chosen to pursue. When 4 Somers protested. Dr. Longoria responded by saying that Somers had no confrol over LC 5 Therapeutics and/or its business decisions and that he had norightto obtain information on the 6 progress of Dr. Longoria's unilateral efforts. Dr. Longoria also told Somers that he was nothing 7 but a shareholder. 8 38. Thereafter, Dr. Longoria unilaterally appointed his own board member without 9 consultation with Somers, a gentlemanfromStockton with a backgroimd in irrigation and pump 10 services. Without consulting Somers, Dr. Longoria and his appointed board member set an 11 "annual" shareholders meeting, and then ignored Somers's protestations that he was neither 12 consulted nor available on the day they had chosen. Additionally, Somers objected to any PH 1-1 13 shareholder meeting taking place in Stockton, as both he, Mr. Valine and Dr. Longoria lived in Q Z 14 Sacramento, and LC's primary place of business was also located in Sacramento. Dr. Longoria < Pi OQ 15 responded that Somers had norightto confrol the location of the meeting, and again stated that >H Ui 16 Somers had no confrol over any company decisions. z 17 39. Despite Dr. Longoria's numerous assurances to Somers while convincing him to o Q 18 provide capital and loan money to LC Therapeutics - which included numerous promises that 19 Somers would have a full seat at the table - it is now clear that Dr. Longoria was acting behind 20 the scenes in a way that was directly confrary to those promises. For instance, on December 15, 21 2014, just after his promises to Somers in Hawaii to secure more funding. Dr. Longoria passed a 22 secret resolution making himself LC Therapeutics' President, CEO, CFO and Secretary. Dr. 23 Longoria kept this resolution a secretfromSomers for more than three years, only revealing it to 24 Somers in January of 2018 when Somers was sfrongly protesting Dr. Longoria's refusal to 25 respond to his emails about the status of certain business decisions and in response to protesting 26 Dr. Longoria's efforts to set board meetings without consulting Somers and Mr. Valine. Dr. 27 Longoria revealed the existence of this previously secret resolution to argue that Somers had no 28 basis to complain because he was merely a shareholder. Somers is informed and believes that Dr. 12 COMPLAINT 1 Longoria passed this resolution without his knowledge to serve two purposes: to maintain full (or 2 ostensible) control of LC Therapeutics while, at the sametime,inducing Somers to continue 3 providing significant capital while assuring him and others that Somers had co-equal confrol as an 4 officer and board member who had taken Mr. Chin's position in the company. 5 40. Somers is now informed and believes that, even after securing Somers's additional 6 capital infusion of $ 1.355 million through the January 30, 2015 stock purchase agreement, and 7 despite his status as the company's Secretary, Dr. Longoria did nothing to document his 8 agreements with Somers. He failed to formally add Somers to the board and failed to 9 acknowledge in the corporate minutes the promises he had made to Somers to secure his funding. 10 The same is tme for 2016 and 2017. During the period of time when Somers was loaning LC 11 Therapeutics millions of dollars. Dr. Longoria kept up appearances on various documents he filed 12 with third parties, but did nothing in his capacity as Secretary to document the reality he promised PH 1-1 1-1 13 Somers within the corporate stmcture of LC Therapeutics. Q Z 14 41. In short, when Somers ultimately made it clear that he would no longer serve as an < Pi OQ 15 endless funding source for the company. Dr. Longoria changed course. With no more reason to PQ Z 16 mislead Somers in order to obtain Somers's funding. Dr. Longoria suddenly took a position that ^ O 17 was confrary to what he promised Somers, confrary to what he told third parties, and confrary to Q 18 his coordination of all business decisions with Somers. It was at this point that Dr. Longoria 19 began pointing to the intemal corporate documents and to the resolution he secretiy passed on 20 December 15,2014, claiming he could do whatever he chose to do and Somers, as an alleged 21 mere shareholder, could do nothing to stop him. 22 42. Because of Dr. Longoria's change of course, LC Therapeutics is on the brink of 23 collapse, and Somers has no choice but to bring this lawsuit to seek redress for thefraudand false 24 promises made by Dr. Longoria to induce Somers to invest in this ill-fated company, and the 25 breaches offiduciaryduties owed by Dr. Longoria to Somers. 26 /// 27 /// 28 /// 13 COMPLAINT 1 FIRST CAUSE OF ACTION (Fraud) 2 (Against All Defendants) 3 43. Somers incorporates and restates paragraphs 1 through 42 as though fully set forth 4 herein. 5 44. Dr. Longoria made the promises alleged above knowing they were false, intending 6 that they would induce Somers to provide money to LC Therapeutics and that Somers would rely 7 on them, but without ever intending to perform them. These false representations include, but are 8 not limited to, the following: 9 a. Dr. Longoria's promise in fall 2013 to convert LC Therapeutics from an "S" 10 corporation to an LLC. 11 b. Dr. Longoria's statement in fall 2013 that the company would use equity as consideration for additional cash infusions. 12 PH c. Dr. Longoria's repeated promises in 2014, 2015 and 2016 that Somers would share h-l hJ 13 control of the company and that he would become Dr. Longoria's full "partner" in Q all business decisions in exchange for his willingness to invest in the company and Z 14 to loan the company millions of dollars. < Pi OQ 15 d. Dr. Longoria's promise to devote time and energy to the success of the company, Ui 16 notwithstanding his other commitments. Z 17 45. Somers did reasonably and justifiably rely on Dr. Longoria's repeated o 18 representations, which included, but are not limited to. Dr. Longoria's oft repeated promises that 19 Somers would essentially take the place of Mr. Chin, that he would be a member of the board, 20 and that he would be full and equal participant in all business decisions with equal confrol. 21 46. Somers would not have acted as he did, and would not have funded the company 22 from 2015 onward through capital infusions and loans, had Dr. Longoria not concealed the tmth 23 regarding LC Therapeutics' corporate documents and if Somers had known that Dr. Longoria had 24 planned to use his failure to formally document his promises in an effort to relegate Somers to the 25 status of shareholder only once Somers decided to stop funding the company. 26 47. As a direct and proximate result of Dr. Longoria's tortious conduct, Somers 27 suffered and continues to suffer substantial damages in excess of the minimum jurisdictional 28 limits of this Court, in an amount to be ascertained and proven at trial. Additionally, Somers will 14 COMPLAINT 1 continue to be deprived of the use, benefit, profit and interest on the funds he lost as a result of 2 the Dr. Longoria's dishonesty and tortious conduct as described above. 3 48. On information and belief, Somers alleges that Dr. Longoria acted intentionally, 4 willfully,fraudulently,oppressively and with malice by engaging in the conduct as set forth 5 herein; the conduct was despicable and carried on with a willfiil and conscious disregard for the 6 rights of Somers; and as a consequence, Somers is entitled to punitive damages in an amount to 7 be awarded by the trier of fact. 8 SECOND CAUSE OF ACTION (Negligent Misrepresentation) 9 (Against All Defendants) 10 49. Somers incorporates and restates paragraphs 1 through 48 as though fully set forth 11 herein. 12 50. Because of their status as equal shareholders and because of Dr. Longoria's PH h-l hJ 13 various roles within the company, including as an officer and director. Dr. Longoria owed Somers D Z 14 a special duty of care. < Pi OQ 15 51. In the altemative to his cause of action forfraud,Somers alleges that Dr. Longoria Ui 16 Z negligentiy misrepresented one or more of the statements set forth above. Dr. Longoria breached o 17 his duty of care by making these representations without any reasonable basis for their Q 18 tmthfulness, thereby breaching the standard of care of a reasonably pmdent person. 19 52. Somers reasonably relied upon Dr. Longoria's representations. As a consequence, 20 Somers has been harmed, because he has incurred substantial losses as a result of Dr. Longoria's 21 negligent misrepresentations. Dr. Longoria's conduct was a substantial factor in causing the 22 damages herein alleged. 23 THIRD CAUSE OF ACTION 24 Unjust Enrichment (Against All Defendants) 25 26 53. Plaintiff incorporates and restates paragraphs 1 through 52 as though fially set forth 27 herein. 28 /// 15 COMPLAINT 1 54. Somers invested in and loaned to LC Therapeutics more than $7 million, based in 2 part on Dr. Longoria's promise to convert LC Therapeutics to a limited liability company. 3 Despite Somers's requests that he do so, Dr. Longoria has refused and continues to refuse to 4 convert the company out of its current form as an "S" corporation. On information and belief, 5 Somers alleges that Dr. Longoria refuses to fulfill his initial promise because he has benefitted 6 from certain tax savings that are available to him so long as LC Therapeutics remains an "S" 7 corporation. 8 55. Thus, based on his refusal to follow through with his original representation in this 9 regard. Dr. Longoria has been unjustly enriched in an amount to be proven at trial. 10 FOURTH CAUSE OF ACTION 11 Breach of Fiduciary Duty (Against All Defendants) 12 56. Plaintiff incorporates and restates paragraphs 1 through 55 as though fully set forth PL, h-l h-l 13 herein. Q Z 14 57. Based on his status as an equal shareholder in LC Therapeutics, a closely held < Pi OQ 15 corporation, and given his role as chief executive officer of the company. Dr. Longoria owes >^ Ui 16 Z Somers afiduciaryduty to exercise care and loyalty in conducting and managing the activities of o 17 LC Therapeutics. Q 18 58. Dr. Longoria breached said duties in at least the following ways: 19 a. Dr. Longoria promised in fall 2013 to convert LC Therapeutics from an "S" 20 corporation to an LLC but in 2017, when Somers discussed doing so and then presented paperwork to change the status of the company to an LLC, Dr. Longoria 21 refused. On information and belief, Somers alleges that Dr. Longoria refused to 22 convert the status of the corporation so as to promulgate his own self-interest. 23 b. Dr. Longoria understood and agreed early on that equity in the company would have to be used to entice investors to make fiirther and necessary cash infusions. 24 In 2017, since leaming that LC Therapeutics is on the brink of collapsing, Somers has tried to invoke this imderstanding and offered to contribute additional funds in 25 exchange for more shares. Risking the company's solvency and hanging Somers's 26 investment in the balance^ Dr. Longoria refused this offer, blatantiy telling Somers that he "does not work for Somers" and categorically refusing to accept any 27 scenario by which Somers would end up with a confrolling interest in LC Therapeutics. 28 16 COMPLAINT 1 c. Additionally, after requesting that Somersfinancea Sacramento-based facility to accommodate his own schedule, and knowing that Somers executed a personal 2 guaranty in connection with the leasCj Dr; Longoria refused to occupy the space 3 rented, outfitted, and paid for by Somers. 4 d. Finally, Dr. Longoria put his own self-interest over Somers's interests and the interests of LC Therapeutics when he passed a secret resolution in his capacity as 5 the sole board member making himself LC Therapeutics' President, CEO, CFO and Secretary, in direct confravention of what he represented to Somers would be 6 the way in which the company was managed. 7 59. As a result of these breaches offiduciaryduty, Somers has been harmed and 8 damaged in an amount according to proof at trial. 9 PRAYER FOR R E L I E F 10 WHEREFORE, Somers respectfully requests that this Court enter judgment in his favor 11 and against Dr. Longoria as follows: 12 1. For general, special, and consequential damages according to proof at trial; PH hJ h-l 13 2. For exemplary and pimitive damages according to proof at trial; Q ( Z 14 < 3. ' For prejudgment interest as appropriate; and Pi 15 4. For such other and further relief as the Court deems just and proper.. OQ Ui 16 DATED: 2018 DOWNEY BRAND LLP Z 17 O Q 18 By 19 ^ WILLIAM R. WARNE V I T T T T T A V F D W l A TJX ANNIE S. AMARAL 20 Attomeys for Plaintiff CHARLES SOMERS, individually and as tiiistee 21 for the CHARLES SOMERS LIVING TRUST 22 23 24 25 26 27 28 17 COMPLAINT CIVIL DROP BOX 21]1B!1AR 16 FfH2:S! GQS"C COURTHOUSE SSJPERiOR COURT OF CALIFORNIA SACHAMENTO COUNTY