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1 DOWNEY BRAND LLP '
WILLIAM R. WARNE (Bar No. 141280)
2 ANNIE S. AMARAL (Bar No. 238189)
BRADLEY C. CARROLL (Bar No. 300658)
3 621 Capitol Mall, 18th Flbor JAN -8 2019
Sacramento, CA 95814-4731
4 Telephone: 916.444.1000 By:. • E. Medina
Facsimile: 916.444.2100 Deputy Clerk
5 bwame(^downeybrand.cpin
aamaral@downeybrand.cbm
6 bcarroll@downeybrand.cbm
7 Attomeys for Plaintiff
CHARLES SOMERS, individually and as tmstee for the
8 CHARLES SOMERS LIVING TRUST
9 SUPERIOR COURT OF CALIFORNIA
10 COUNTY OF SACRAMENTO
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12 CHARLES SOMERS, individually and as CASENO. 34-2018-00229212
PH tinstee for the C H A R L E S SOMERS
h-l 13 LIVING TRUST, DECLARATION OF WILLIAM R.
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Z 14 Plaintiff, CHARLES SOMERS'S NOTICE OF
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and DOES 1-10, Date:
Time:
Febmary 8, 2019
9:00 a.m.
o Defendant. Dept.: 54
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Complaint Filed: March 16,2018
19 TrialDate: TBD
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21 1, William R. Wame, declare:
22 1. 1 am a partner at Downey Brand, LLP, and am an attomey of record for Plaintiff
23 Charles Somers ("Somers") in this case. I have personal knowledge of the facts set forth in this
24 declaration, except for those facts stated upon information and belief I believe all these facts to
25 be true, and I would testify to them if called upon to do so.
26 2. In March 2018, Somers filed a complaint for damages against Dr. James Longoria
27 ("Dr. Longoria"). The above-entitled action centers upon a dispute between Somers and
28 Longoria relating to a company called LC Therapeutics ("LC"), in which I understand Somers
1542277.1 1
WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT
1 made an initial $2 million investment in 2013, after Dr. Longoria pitched Somers on investing in
2 the company.
3 3. On October 9, 2018, Somers filed his operative First Amended Complaint, which
4 asserts causes of action against Dr. Longoria for promissory fraud, negligent misrepresentation,
5 and breach offiduciarydiity.
6 4. After the filing of the First Amended Complaint, and as the parties engaged in
7 initial discovery, I concluded that the First Amended Complaint needed to be amended further to
8 fill in some gaps in allegations and further explain the timeline of events.
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9 5. By way ofjexample, through review of discovery requests and responses as well as
10 documents received fromjDr. Longoria and a further review of his own documents, Somers has
11 recentiy found that he was copied on a December 15, 2014, email from Longoria which contained
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13 LC Therapeutics. This resolution was the consequence of third-party Roy Chin's resignation
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>- 15 confirm Chin's resignation, and so that the company could properly conduct its business at that
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18 wherein Somers promised to provide $1.355 million to the company in exchange for the promises
19 Longoria was making to him thereafter in December and January, Dr. Longoria did nothing to
20 formally confirm Somers's status as a director of the company.
21 6. Not long after Dr. Longoria's current counsel substituted into this case, I informed
22 counsel for Dr. Longoria; Port Parker, that my office was working on a Second Amended
23 Complaint and would eventually like to provide the Second Amended Complaint to counsel for
24 Dr. Longoria to review. Ideally, Dr. Longoria would simply stipulate to its filing. However, my
25 schedule and Somers's schedule prevented a speedy enough tum-around for Dr. Longoria's
26 counsel. Although my office offered extensions on responding to the First Amended Complaint,
27 Dr. Longoria instead decided to file a demurrer to the First Amended Complaint. Thus, the
28 Second Amended Complaint also makes changes and adds allegations to address the issues raised
WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT
1 by Dr. Longoria's demurrer. Attached hereto as Exhibit A is a tme and correct copy of Somers's
2 proposed Second Amended Complaint.
3 7. Somer's proposed Second Amended Complaint deletes some allegations and one
4 cause of action for promissory fraud (the former Fourth Cause of Action), and adds some new
5 allegations and three new breach of contract causes of action (the new Sixth, Seventh, and Eighth
6 Causes of Action).
7 8. The three new breach of contract causes of action all relate to the various oral
8 agreements entered into by and between Somers and Dr. Longoria. These causes of action relate
9 to the oral agreements between Somers and Dr. Longoria that: (1) Dr. Longoria would convert LC
10 from an S corporation into a limited liability company in exchange for Somers's agreement to
11 provide funding for LC; (2) Dr. Longoria would allow Somers to purchase additional equity
12 interest in LC should the company need additional funding in exchange for Somers's agreement
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18 timeline of events. More specifically, the Second Amended Complaint clarifies that Somers's
19 January 30, 2015, agreement to buy additional shares in LC was an oral agreement that the parties
20 relied upon and later formalized. The Second Amended Complaint also adds allegations further
21 discussing Dr. Longoria's failed promise to convert LC from an S corporation to a limited
22 liability company, including a discussion of Dr. Longoria's rejection of specific documents
23 Somers had prepared that would have converted LC to a limited liability company. The Second
24 Amended Complaint further clarifies the timeline of events that occurred when Somers was
25 attempting to exercise his equal control over the company in early 2018 and Dr. Longoria's
26 reaction to those efforts, including Dr. Longoria's revelation that Somers was "solely a
27 shareholder."
28 10. In addition, the Second Amended Complaint clarifies the role of the December 15,
1542277.1
WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT
1 2014, corporate resolution that made Dr. Longoria the sole director. President, CEO, CFA, and
2 Secretary for LC. As the Second Amended Complaint now alleges, while Somers has recentiy
3 found that he was copied on a December 15,2014, email from Longoria which contained a board
4 resolution making Dr. Longoria the sole director. President, CEO, CFO and Secretary for LC
5 Therapeutics (an email Somers did not discover until recentiy), this resolution was the
6 consequence of Roy Chin's resignation from LC on December 6,2014. Dr. Longoria passed the
7 resolution so as to confirm the actual status of the corporation at that point, and so that the
8 company could properly conduct its business at that point in time. However, when Dr. Longoria
9 thereafter secured Somers's commitment to provide additional funding for the company, and after
10 they entered into their January 30, 2015, agreement wherein Somers promised to provide $1,355
11 million to the company in exchange for the promises Longoria was making to him in late
12 November, December and January, Dr. Longoria did nbthing to formally confirm Somers's status
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h-l 13 as a director of the company. A true and correct copy of a redline showing Somers's proposed
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PQ 15 11. Finally, Somers's Second Amended Complaint includes amendments to address
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18 e.g.. Exhibit B at ^ 15, 22, 23, 37); clarifications regarding purported (but unsubstantiated)
19 inconsistencies (see e.g.. Exhibit B at ^ 17); and timing clarifications of when certain
20 misrepresentations were made (see Exhibit B at f 22).
21 12. This case is still in the early stages of discovery, no depositions have been taken,
22 and no trial date has beeh set. A case management conference was held shortly after new counsel
23 substituted into the case, and the court appeared willing to set a trial date. However, I understand
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WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT
1 that at the hearing, new counsel requested a continuance to allow an opportunity to get up to
2 speed, and as a professional courtesy, we readily agreed.
3 I declare under penalty of perjury under the laws of Califomia that the foregoing is tme
4 and correct. Executed this 8th day of January, 2019, at Sacramento, Califomia.
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6 By:
I L L I ^ R. WARNE
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1542277.1
WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT
EXHIBIT A
EXHIBIT A
to the Declaration of William R. Wame
1 DOWNEY BRAND LLP
WILLIAM R. WARNE (Bar No. 141280)
2 ANNIE S. AMARAL (Bar No. 238189)
621 Capitol Mall, 18th Floor
3 Sacramento, CA 95814-4731
Telephone: 916.444.1000
4 Facsimile: 916.444.2100
bwame@downeybrand.com
5 aamaral@downeybrand.com
6 Attomeys for Plaintiff
CHARLES SOMERS, individually and astinsteefor the
7 CHARLES SOMERS LIVING TRUST
8 SUPERIOR COURT OF CALIFORNIA
9 COUNTY OF SACRAMENTO
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11 CHARLES SOMERS, individually and as CASE NO.
trustee for the CHARLES SOMERS
12 LIVING TRUST, PLAINTIFF CHARLES SOMERS'S
PH SECOND AMENDED COMPLAINT FOR
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PQ 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 astinsteefor the CHARLES SOMERS
19 LIVING TRUST, by and through his attomeys of record, hereby alleges as follows:
20 PARTIES
21 1. Plaintiff Charles Somers ("Somers" or "Plaintiff') is, and at all relevant times
22 herein was, an individual doing business in Sacramento County, Califomia. Somers is the
23 trustee for the Charles Somers Living Tmst.
24 2. Defendant James Longoria, M.D. ("Dr. Longoria" or "Defendant") is, and at
25 all times relevant herein was, an individual residing in Sacramento County, Califomia.
26 3. Plaintiff is ignorant of the true names and capacities, whether individual,
27 corporation, association, or otherwise, of the Defendants, and each of them, sued herein as DOES
28 1 through 10, inclusive, and therefore sues these Defendants, and each of them, under such
SECOND AMENDED COMPLAINT
1 fictitious names. Plaintiff is informed and believes, and accordingly alleges, that these fictitiously
2 named Defendants, and each of them, intentionally, negligentiy, or otherwise wrongfully
3 performed each of the acts and omissions alleged herein, and thereby legally caused the damages
4 directly or proximately to Plaintiff as alleged herein.
5 4. At all times relevant to this action, each Defendant was the agent, servant,
6 employee, partner, member, joint venture or surety of the other Defendants and was acting within
7 the scope of said agency, employment, partnership, venture or suretyship with the knowledge and
8 consent or ratification of each of the other Defendants.
9 JURISDICTION AND VENUE
10 5. The Court has subject matter jurisdiction over this action and personal jurisdiction
11 over each of the Defendants.
12 6. Venue is proper in this Court pursuant to Califomia Code of Civil Procedure
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h-l 13 section 395 because Dr. Longoria resides in Sacramento County.
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PQ 15 A. Background on the Relationship Between Mr. Somers and Dr. Longoria
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18 Dr. Longoria is an accomplished cardiothoracic surgeon who practices in Sacramento. Dr.
19 Longoria and Somers first met in approximately 2005, when Somers was told that Dr. Longoria
20 would be a good person to talk with to obtain a referral for a medical issue confronting Somers's
21 mother.
22 8. Thereafter, Somers and Dr. Longoria becamefiiends,and Somers suggested and
23 began assisting Dr. Longoria with exploring the possibility of opening a doctor-owned hospital in
24 the Sacramento area. Ultimately, to further assist with this effort, Somers purchased land in
25 Rancho Cordova known as "Montelena," and allowed Dr. Longoria and his private hospital
26 partners to purchase a minority interest in this same property. After Somers and Dr. Longoria
27 invested a significant amount of time and energy (and Somers a lot of money) into creating a
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1530541.1 2
SECOND AMENDED COMPLAINT
1 privately owned doctor's hospital, their dream came to an end with the Affordable Care Act's
2 passage in 2010, which essentially made the creation of additional physician-owned hospitals
3 illegal.
4 B. Dr. Longoria Induces Somers to Invest in His Medical Device Company in
Exchange for a Non-Controlling Ownership Interest.
6 9. At some point in their relationship. Dr. Longoria informed Somers that he was
7 involved with patenting certain medical devices and surgery processes. Dr. Longoria touted his
8 schooling and reputation as a heart surgeon and told Somers that these devices would
9 revolutionize a number of common heart surgeries. Dr. Longoria initially told Somers that he had
10 filed for a patent on something called the L Chord, a synthetic cord used for performing what he
11 claimed would be revolutionary mitral valve prolapse repair. Later, he discussed that he had
12 obtained a patent on an RF ablation device which, among other things, would provide a better
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13 means of addressing atrial fibrillations. Dr. Longoria fiirther explained that he was one of two
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18 10. Dr. Longoria also introduced Somers to his "business partner" Roy Chin, who had
19 prior experience as the CEO and founder of SpineView, a medical device company focused on
20 spinal surgeries. Dr. Longoria and Mr. Chin, who were at the time the sole shareholders, officers,
21 and board members of Intrepid, explained that Mr. Chin brought business experience to the
22 company and that Dr. Longoria brought medical expertise. Both Dr. Longoria and Mr. Chin told
23 Somers that their new company was looking for "start-up" funding.
24 11. In or about July or August of 2013, Mr. Chin and Dr. Longoria came to SBM to
25 ' pitch Somers on investing in the company. They discussed Intrepid's business plan, including the
26 steps they would take to obtain Food and Dmg Administration ("FDA") approval to bring
27 Intrepid's patented devices to market and their plans to operate production facilities in Malaysia.
28 They further represented that Intrepid would be profitable by 2015.
1530541.1 3
SECOND AMENDED COMPLAINT
1 12. During this pitch and others, Mr. Chin and Dr. Longoria conveyed to Somers and
2 to his CFO Ken Silva that they had the experience and ability to make Intrepid a success. As
3 Intrepid's President, Mr. Chin explained that he had a background of success infinancingand
4 growing a medical device company. As its Chairman, Dr. Longoria said he possessed the
5 surgical expertise to be the "face" of Intrepid and that he would be fully committed to developing
6 and marketing its products and that he was committed to putting in whatever time was necessary
7 to make Intrepid a complete success. They repeated to Somers and his CFO Silva that the
8 company would be profitable in two years. In the context of these representations, they indicated
9 that they needed $2 million to get started, and that they would raise additional funds thereafter by
10 selling equity in the company.
11 13. Thereafter, on August 15, 2013, Mr. Chin sent Mr. Silva a follow-up financial
12 spreadsheet, which, among other things, set forth Intrepid's proposed budget, created a critical
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13 path timeline for the company's next steps, and broke down thefinancialmetrics associated with
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o 17 background and was interested in being a part of revolutionizing certain heart surgeries. Somers
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18 also wanted to help Dr. Longoria and trusted his promise to fully commit his expertise, time, and
19 energy into making Intrepid a success. They all acknowledged, however, that without start-up
20 funding the company would have little if any value and no chance of success.
21 15. Somers initially preferred to loan money to the company on conventional terms,
22 which would include repayment according to a specified schedule with interest, memorialized in
23 a promissory note. Dr. Longoria resisted this stmcture, arguing the better structure was for
24 Somers to become a shareholder in the company. He assured Somers that Intrepid's medical
25 devices would be approved by the FDA, proceed to market quickly, and rapidly become the
26 standard of care. If and when the company needed additional funding, Dr. Longoria told Somers
27 that Intrepid would allow him to take advantage ofthe same stmcture so that he could purchase
28 additional equity in the company, to whatever extent he was interested. Indeed, Intrepid's
1530541.1 4
SECOND AMENDED COMPLAINT
1 August 15, 2013, projections indicated that Intrepid planned to raise additional capital in 2014
2 and 2015 by selling equity. When Somers raised concems about company's status as an S
3 corporation and the resulting tax implications to him and the unfair benefit to Dr. Longoria, Dr.
4 Longoria orally promised Somers that he would convert Intrepid Medical to a limited liability
5 company.
6 16. Mr. Chin and Dr. Longoria's various representations to Somers were eventually
7 successful. But for those representations, Mr. Somers would not have invested in the enterprise at
8 all. In the fall of 2013, and in reliance on their representations, Somers agreed to provide the
9 company with start-up capital in the amount of $2 million, the first million of which Somers
10 invested on September 3, 2013, and the second million of which Somers invested on
11 November 29, 2013. Under a "Common Stock Purchase Agreement," dated September 12, 2013,
12 Somers received a total of 1,562,500 shares in two equal closings, at the price of $ 1.28 per share.
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hJ 13 Before Somers made this commitment. Dr. Longoria and Mr. Chin several months earlier had
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18 C. L C Fails to Live Up to Its Business Plan.
19 17. As the months passed, Somers could see that the company was falling behind. By
20 September of 2013, according to the business plans provided to Somers at the time he was
21 investing, LC's facility in Malaysia was supposed to be operational and, by the fourth quarter of
22 2013, the same facility was supposed to have submitted its first three products for FDA approval.
23 In 2014, among other things, LC was supposed to begin pre-production and pre-clinical testing of
24 the L Chord in Malaysia in the first quarter, obtain FDA and ASEAN approval of various medical
25 device products in the second and third quarters, and receive its first $3 million of revenue from
26 the initial products it would bring to market. None of these "key milestones" were occurring, and
27 it was apparent that LC was nowhere close to becoming profitable in 2015. Indeed, as time
28 passed, LC was falling further and further behind.
1530541.1 5
SECOND AMENDED COMPLAINT
1 18. By the fall of 2014, Somers was growing increasingly concemed. In the last week
2 of October, Somers contacted Mr. Chin to set up a meeting. Mr. Chin agreed. Over a lunch
3 meeting in Vacaville, they discussed LC's continuous setbacks on design, product testing, and
4 regulatory requirements, and Somers also expressed great concem over LC's failure to track,
5 manage, and report its progress. He also complained specifically about Dr. Longoria's failure to
6 address and follow through on the design and approval process for the L Chord device. Among
7 other things, Somers discussed the immediate retention of two key contributors. Specifically, he
8 urged that LC hire a product director focused on regulatory, testing, and quality issues and that
9 LC also hire a project manager.
10 19. The conversation eventually turned to money, with the two of them discussing the
11 company's need for an additional $3 million in funding. Because Somers was increasingly
12 concemed about the status of his initial $2 million start-up investment, he wanted greater control.
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17 need to put the L Chord product on hold. Somers told Chin that the company had to become
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19 Mr. Chin, and Dr. Longoria could create a "structured reporting discipline."
20 20. On November 3, 2014, Somers sent an email thanking Mr. Chin for agreeing to
21 meet with him on short notice. He copied Dr. Longoria and Mr. Silva. In addition to
22 summarizing their lunch discussion, Somers concluded by stating that, "Our goal needs to be
23 building a world class organization that builds world class products, and with the above changes
24 andfinancing,I believe we will get there."
25 21. Twenty days later, on November 23, 2014, Mr. Chin sent Dr. Longoria an
26 unexpected email, advising him that he was resigning as the "CEO, board member, and co-
27 founder of LC Therapeutics." In the same email, he also informed Dr. Longoria that his last day
28 with the company would be December 5, 2014.
1530541.1 6
SECOND AMENDED COMPLAINT
1 D. In Order to Obtain Financing from Somers, Dr. Longoria Promises Somers a
"Full Partnership" with Co-Equal Control of All Business Decisions.
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3 22. Immediately after Mr. Chin's notice, Somers and Dr. Longoria went to Hawaii
4 with their families to celebrate the Thanksgiving holiday. This was late in November of 2014.
5 While there, Somers and Dr. Longoria spent time discussing Mr. Chin's departure, the future of
6 the company, and its need for immediate and ongoingfinancing.Somers again returned to the
7 points he had made in his email several weeks earlier. He explained to Dr. Longoria that he had
g already invested $2 million in a failing company, and that he would not agree to provide
9 additional funds unless he had a full seat at the table. Dr. Longoria wholeheartedly agreed, telling
\0 Somers that if Somers agreed to provide additional equityfinancinghe would replace Mr. Chin
\\ on the board and have equal control over all company decisions. He said that they would
12 immediately be equal partners and that Somers would immediately obtain equal control of LC.
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15 phrase, "First money in, first money out." Somers and Dr. Longoria also agreed that Somers
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\8 not to do so, the company would seek outside funding. Dr. Longoria was enthusiastic, telling
19 Somers that he understood the necessity of this step for the company, and said the company
20 needed someone with business acumen to fill the position vacated by Mr. Chin. In light of Dr.
21 Longoria's representations, Somers was interested, and the two of them continued to discuss the
22 matter through December and into January. On each occasion, as 2015 approached and 2016
23 began. Dr. Longoria reiterated to Somers that LC required significant additional funding, that
24 without such funding it would not survive, and that he would immediately give Somers co-equal
25 control, authority and ownership in exchange for such funding.
25 In January of 2015, because of Dr. Longoria's repeated representations and assurances,
27 Somers instmcted his CFO to proceed with the paperwork associated with his agreement to fund
28 the company. Somers would not have invested these additional funds, and would not have lost
1530541.1 7
SECOND AMENDED COMPLAINT
1 these additional funds, but for Dr. Longoria's promises regarding co-equal control, authority, and
2 ownership. Taking over Mr. Chin's role and moving from shareholder to what Dr. Longoria
3 referred to as full "partner" would finally give Somers the type of directional control he required
4 before he agreed to invest even more money in a company that had no demonstrated history of
5 success and that was failing to meet the key milestones of its own business plan. Dr. Longoria
6 reiterated that he would recommit himself to putting whatever time and energy was necessary to
7 develop and market the company's products.
8 23. On January 30, 2015, Dr. Longoria and Somers entered into an oral agreement
9 whereby Somers agreed to buy 1,437,500 additional shares of LC's stock at the price of $0,943
10 per share for the aggregate purchase price of $ 1,355,000.00. In light of the 1,562,500 shares
11 Somers purchased through the earlier September 12, 2013, stock purchase agreement, Somers and
12 Dr. Longoria would own 3 million shares, as was the case between Mr. Chin and Dr. Longoria
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13 before Mr. Chin resigned. Somers contributed this $1,355 million in liquidity to LC through
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18 made to Somers about Somers assuming Mr. Chin's seat on the board and immediately thereafter
19 sharing equal control over all business decisions, promises which Dr. Longoria made expressly
20 and repeatedly immediately after Chin's decision to resign, and up to and through Somers's
21 decision to provide more financing. These oral promises made by Longoria to Somers after
22 Chin's resignation were the "but for cause" of Somers's late January 2013 decision to invest this
23 additional fianding. Because Dr. Longoria served as LC's President, CEO and Secretary, Somers
24 rightfully assumed that Dr. Longoria would see to it that LC's intemal documentation comported
25 with their agreement on all fronts.
26 24. Unfortunately, Somers's willingness to provide these additional funds did not
27 solve the company's execution problems. Dr. Longoria was distracted by his practice and failing
28 to tend to his duties as CEO and Secretary. At the end of 2015, even though Somers had already
1530541.1 8
SECOND AMENDED COMPLAINT
1 invested $3,355 million in less than two years' time, LC was not even close to being profitable
2 and remained in dire need of additional cash. When Dr. Longoria approached Somers for even
3 more funding. Dr. Longoria abandoned his earlier promise to allow Somers to fund the company
4 through the purchase of additional equity. Instead, he now told Somers he did not want to lose
5 his 50% interest in the company, that he wanted the two of them to remain co-equals regarding
6 company control. Dr. Longoria thus urged Somers to agree to provide any additional money in
7 the form of loans. In order to entice, Somers to do so. Dr. Longoria repeated his representation
8 that he and Somers would share control and participate equally in all decisions. He again
9 promised that he would do all that was necessary to make the company successfiil, and that he
10 would never stand in the way of making sure that all of Somers's investments £ind/or loans would
11 be repaid on a "first money in, first money out" basis, along with interest at 10% for Somers's
12 loans to the company.
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16 contributed an additional $3,746,317.89 to LC through 19 payments, and has made additional
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19 26. Astimepassed, the tension between Somers and Dr. Longoria began to increase as
20 the problems with the company's execution and its devices continued. In contrast to his
21 promises. Dr. Longoria was not fiilly committed to LC and its success. For instance, when the L
22 Chord began to fail. Dr. Longoria resorted to blaming the product engineers.
23 27. In order to keep the money flowing. Dr. Longoria was willing to say what he
24 needed to say to make sure Somers continued to believe that he had been given equal control over
25 the direction of the company. For instance, in July of 2016, Dr. Longoria created a "51 OK
26 Presubmission" Power Point presentation for the FDA regarding the L Chord repair and
27 replacement devices. Therein, Dr. Longoria identified himself as the "Founder and CEO" of LC
28 and Dr. Longoria expressly identified Somers as his "Partner" in LC Therapeutics. Moreover, in
1530541.1 9
SECOND AMENDED COMPLAINT
1 September of the same year. Dr. Longoria and Somers both executed an "Authorization For
2 Information" form in relation to opening a business account with Wells Fargo Bank. Consistent
3 with Somers's understanding of their agreement. Dr. Longoria's signature confirmed that he and
4 Somers were each an "Owner with Control of the Entity."
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18 liabilities as they became due and owing. And Somers did so as well in 2018, with the total
19 amount of loans now exceeding $4 million.
20 29. In addition to what he communicated to third parties. Dr. Longoria also acted
21 towards Somers in a manner that seemed to confirm that Somers was in fact a board member with
22 shared control over the company. For instance, in the fall of 2016, Dr. Longoria and Somers
23 discussed Dr. Longoria's busy schedule and the difficulty he was having driving back and forth to
24 the Bay Area in order to consult with the manufacturing entities LC had contracted with
25 (unsuccessfully) to manufacture the L Chord. They jointly discussed alternatives and mutually
26 decided on creating their own manufacturing facility in Sacramento. Both Somers and Dr.
27 Longoria identified potential locations, and they ultimately and mutually agreed that a location in
28 McClellan Park was the most economical and advantageous location. Thereafter, both Somers
1530541.1 10
SECOND AMENDED COMPLAINT
1 and Dr. Longoria jointly discussed the facility's design, and the need to purchase a custom "clean
2 room" to meet Dr. Longoria's exacting specifications. They also jointiy discussed and agreed
3 that they would spend roughly $700,000 on tenant improvements to create appropriate office and
4 meeting space within this facility.
5 30. Moreover, in the spring of 2017, and in the context of forming a more effective
6 board, Dr. Longoria also worked with Somers to locate a third board member for LC, someone
7 who could bring additional managerial acumen, experience, and focus. In the context of doing so,
8 and in keeping with his status as a full partner with ownership control over LC, Somers informed
9 Dr. Longoria that he wanted to invite Roger Valine to become a board member. In March of
10 2017, Dr. Longoria interviewed Mr. Valine over dinner at a restaurant in Sacramento. Thereafter,
11 Dr. Longoria discussed Mr. Valine's qualifications with Somers and agreed to bring him on as a
12 board member. Thus, by April of 2017, and in his capacity as a paid board member, Mr. Valine
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o 17 with a background in obtaining regulatory approval for medical devices. Dr. Longoria voiced no
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18 objection and enthusiastically participated in the meeting and in the search for additional talent
19 for the company. Thereafter, Somers, Dr. Longoria and Mr. Valine continued to engage in
20 additional discussions focused on growing the company.
21 E. Somers Refuses to Continue Funding L C and Dr. Longoria Changes His
Tune.
22
23 31. By the spring and summer of 2017, Somers confirmed with his "partner" Dr.
24 Longoria that his willingness to fund this business was not endless. He also told Dr. Longoria
25 that, in his capacity as the company's CEO, Dr. Longoria should be focused on selling additional
26 company shares to private equity and/or on raising capital from additional sources. Somers again
27 discussed the ongoing delay in obtaining FDA approval and the company's lack of success on
28 other fronts. He informed Dr. Longoria that any fiirther funding from him would have to come in
1530541.1 11
SECOND AMENDED COMPLAINT
1 the form of selling Somers additional equity in the company, which would lead to a controlling
2 stake (as opposed to an equal stake) for Somers. Contrary to his prior assurances. Dr. Longoria
3 rejected that suggestion, saying he would "never work for" Somers.
4 32. Additionally, Somers also told Dr. Longoria that the board needed further
5 expansion through additional paid board members, preferably with five members total, and that
6 LC also needed to retain a management company with experience in obtaining regulatory
7 approval for medical devices.
8 33. With the buildout of LC's facility in McClellan Park nearing completion, Somers
9 explained to Dr. Longoria that he would need to find additional funding to pay for the tenant
10 improvements and to fund the lease amount.
11 34. Somers also reminded Dr. Longoria of his earlier promise to convert the company
12 from an S corporation to a limited liability company. On May 3, 2017, Charles had documents
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18 LC Therapeutics remained a corporation and, contrary to his prior promises and assurances, that
19 Somers was merely a shareholder. On information and belief, Somers alleges that Dr. Longoria
20 has refused to change the form of the company in order to preserve significant and inappropriate
21 tax savings he has realized and is realizing through the company's current form.
22 35. Dr. Longoria and Somers began discussing raising capital by entering a license
23 agreement with a company interested in monetizing certain medical process patents owned by
24 LC. Dr. Longoria, however, took over that task in order to exclude Somers. He refused to
25 acknowledge or act on his promises to Somers that he was a director with equal control of the
26 company. Relatedly, and because of his assertion that Charles was merely a shareholder, he
27 refused to share information about who he hired regarding the licensing issue, refused to provide
28 details on the deal he was seeking, and refiised to include Somers in any of the negotiations he
1530541.1 12
SECOND AMENDED COMPLAINT
1 was pursuing on behalf of their jointly owned, jointly controlled company. When Somers
2 protested, and contrary to Dr. Longoria's earlier promises to Somers, Dr. Longoria responded by
3 saying that Somers had no control over LC and/or its business decisions and that he had no right
4 to obtain information on the progress of Dr. Longoria's unilateral efforts. Specifically, on
5 January 19, 2018, Dr. Longoria reiterated his earlier statements in an email to Somers, saying that
6 "LC remains a Delaware S Corporation. We each remain 50% shareholders. I remain the sole
7 officer and director. In the same email. Dr. Longoria stated "you are solely a shareholder of said
8 corporation."
9 36. Dr. Longoria unilaterally appointed his own board member without consultation
10 with Somers, a gentleman from Stockton with a background in irrigation and pump services.
11 Without consulting Somers, Dr. Longoria and his appointed board member set an "annual"
12 shareholders meeting, and then ignored Somers's protestations that he was neither consulted as a
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18 any company decisions.
19 37. Despite the numerous assurances Dr. Longoria made to Somers in order to
20 convince him to provide capital and loan money to LC - which included numerous promises that
21 Somers would have a full seat at the table - it is now clear that Dr. Longoria was acting in ways
22 that were directly contiary to those promises. While Somers has recently found that he was
23 copied on a December 15, 2014, email from Longoria which contained a board resolution making
24 Dr. Longoria the sole director. President, CEO, CFO and Secretary for LC Therapeutics (an email
25 Somers did not discover vintil recentiy), this resolution was the consequence of Roy Chin's
26 resignation from LC on December 6, 2014. Dr. Longoria passed the resolution so as to confirm
27 the actual status of the corporation at that point, and so that the company could properly conduct
28 its business. However, after Dr. Longoria secured Somers's commitment to provide additional
1530541.1 13
SECOND AMENDED COMPLAINT
1 fiinding for the company, and after they entered into their January 30, 2015, agreement wherein
2 Somers promised to provide $1.355 million to the company in exchange for the oral and repeated
3 promises Longoria was making to him in late November, December and January, Dr. Longoria
4 did nothing thereafter to cause LC's document to comport with Longoria's promises to Somers
5 regarding his status as a director a director of the company. For more than three years, and
6 despite Somers' decision to provide additional capital to LC in January of 2015, Dr. Longoria
7 never altered this resolution so as to include Somers as a member of the board. Indeed, Dr.
8 Longoria pointed to this 2014 resolution in January of 2018 when Somers was strongly protesting
9 Dr. Longoria's refusal to respond to his emails
Preview
1 DOWNEY BRAND LLP ' WILLIAM R. WARNE (Bar No. 141280) 2 ANNIE S. AMARAL (Bar No. 238189) BRADLEY C. CARROLL (Bar No. 300658) 3 621 Capitol Mall, 18th Flbor JAN -8 2019 Sacramento, CA 95814-4731 4 Telephone: 916.444.1000 By:. • E. Medina Facsimile: 916.444.2100 Deputy Clerk 5 bwame(^downeybrand.cpin aamaral@downeybrand.cbm 6 bcarroll@downeybrand.cbm 7 Attomeys for Plaintiff CHARLES SOMERS, individually and as tmstee for the 8 CHARLES SOMERS LIVING TRUST 9 SUPERIOR COURT OF CALIFORNIA 10 COUNTY OF SACRAMENTO 11 12 CHARLES SOMERS, individually and as CASENO. 34-2018-00229212 PH tinstee for the C H A R L E S SOMERS h-l 13 LIVING TRUST, DECLARATION OF WILLIAM R. h-l D WARNE IN SUPPORT OF PLAINTIFF Z 14 Plaintiff, CHARLES SOMERS'S NOTICE OF < MOTION A N D MOTION TO F I L E A oi 15 PQ SECOND AMENDED COMPLAINT >^ W 16 DR. JAMES LONGORIA, an individual, z 17 and DOES 1-10, Date: Time: Febmary 8, 2019 9:00 a.m. o Defendant. Dept.: 54 Q 18 Complaint Filed: March 16,2018 19 TrialDate: TBD 20 21 1, William R. Wame, declare: 22 1. 1 am a partner at Downey Brand, LLP, and am an attomey of record for Plaintiff 23 Charles Somers ("Somers") in this case. I have personal knowledge of the facts set forth in this 24 declaration, except for those facts stated upon information and belief I believe all these facts to 25 be true, and I would testify to them if called upon to do so. 26 2. In March 2018, Somers filed a complaint for damages against Dr. James Longoria 27 ("Dr. Longoria"). The above-entitled action centers upon a dispute between Somers and 28 Longoria relating to a company called LC Therapeutics ("LC"), in which I understand Somers 1542277.1 1 WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT 1 made an initial $2 million investment in 2013, after Dr. Longoria pitched Somers on investing in 2 the company. 3 3. On October 9, 2018, Somers filed his operative First Amended Complaint, which 4 asserts causes of action against Dr. Longoria for promissory fraud, negligent misrepresentation, 5 and breach offiduciarydiity. 6 4. After the filing of the First Amended Complaint, and as the parties engaged in 7 initial discovery, I concluded that the First Amended Complaint needed to be amended further to 8 fill in some gaps in allegations and further explain the timeline of events. 1 9 5. By way ofjexample, through review of discovery requests and responses as well as 10 documents received fromjDr. Longoria and a further review of his own documents, Somers has 11 recentiy found that he was copied on a December 15, 2014, email from Longoria which contained PlH 12 a board resolution making Dr. Longoria the sole director. President, CEO, CFO and Secretary for h-l h-l Q 13 LC Therapeutics. This resolution was the consequence of third-party Roy Chin's resignation Z < 14 from LC on December 6, 2014. Dr. Longoria appears to have passed the resolution so as to oi PQ >- 15 confirm Chin's resignation, and so that the company could properly conduct its business at that W Z 16 point in time. However, after Dr. Longoria later secured Somers's commitment to provide o 17 additional funding for the company, and after they entered into their January 30, 2015, agreement Q 18 wherein Somers promised to provide $1.355 million to the company in exchange for the promises 19 Longoria was making to him thereafter in December and January, Dr. Longoria did nothing to 20 formally confirm Somers's status as a director of the company. 21 6. Not long after Dr. Longoria's current counsel substituted into this case, I informed 22 counsel for Dr. Longoria; Port Parker, that my office was working on a Second Amended 23 Complaint and would eventually like to provide the Second Amended Complaint to counsel for 24 Dr. Longoria to review. Ideally, Dr. Longoria would simply stipulate to its filing. However, my 25 schedule and Somers's schedule prevented a speedy enough tum-around for Dr. Longoria's 26 counsel. Although my office offered extensions on responding to the First Amended Complaint, 27 Dr. Longoria instead decided to file a demurrer to the First Amended Complaint. Thus, the 28 Second Amended Complaint also makes changes and adds allegations to address the issues raised WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT 1 by Dr. Longoria's demurrer. Attached hereto as Exhibit A is a tme and correct copy of Somers's 2 proposed Second Amended Complaint. 3 7. Somer's proposed Second Amended Complaint deletes some allegations and one 4 cause of action for promissory fraud (the former Fourth Cause of Action), and adds some new 5 allegations and three new breach of contract causes of action (the new Sixth, Seventh, and Eighth 6 Causes of Action). 7 8. The three new breach of contract causes of action all relate to the various oral 8 agreements entered into by and between Somers and Dr. Longoria. These causes of action relate 9 to the oral agreements between Somers and Dr. Longoria that: (1) Dr. Longoria would convert LC 10 from an S corporation into a limited liability company in exchange for Somers's agreement to 11 provide funding for LC; (2) Dr. Longoria would allow Somers to purchase additional equity 12 interest in LC should the company need additional funding in exchange for Somers's agreement PL, h-l h-l 13 to provide fiirther funding for LC; and (3) Dr. Longoria would make Somers a member of the LC Q Z 14 Board of Directors and Somers would have equal control over LC, in exchange for Somers's < oi PQ 15 agreement to provide further funding for LC. >^ U Z 16 9. In addition to these three new causes of action, the Second Amended Complaint o 17 makes some additional new allegations to clarify previous allegations and fill in some gaps in the Q ! 18 timeline of events. More specifically, the Second Amended Complaint clarifies that Somers's 19 January 30, 2015, agreement to buy additional shares in LC was an oral agreement that the parties 20 relied upon and later formalized. The Second Amended Complaint also adds allegations further 21 discussing Dr. Longoria's failed promise to convert LC from an S corporation to a limited 22 liability company, including a discussion of Dr. Longoria's rejection of specific documents 23 Somers had prepared that would have converted LC to a limited liability company. The Second 24 Amended Complaint further clarifies the timeline of events that occurred when Somers was 25 attempting to exercise his equal control over the company in early 2018 and Dr. Longoria's 26 reaction to those efforts, including Dr. Longoria's revelation that Somers was "solely a 27 shareholder." 28 10. In addition, the Second Amended Complaint clarifies the role of the December 15, 1542277.1 WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT 1 2014, corporate resolution that made Dr. Longoria the sole director. President, CEO, CFA, and 2 Secretary for LC. As the Second Amended Complaint now alleges, while Somers has recentiy 3 found that he was copied on a December 15,2014, email from Longoria which contained a board 4 resolution making Dr. Longoria the sole director. President, CEO, CFO and Secretary for LC 5 Therapeutics (an email Somers did not discover until recentiy), this resolution was the 6 consequence of Roy Chin's resignation from LC on December 6,2014. Dr. Longoria passed the 7 resolution so as to confirm the actual status of the corporation at that point, and so that the 8 company could properly conduct its business at that point in time. However, when Dr. Longoria 9 thereafter secured Somers's commitment to provide additional funding for the company, and after 10 they entered into their January 30, 2015, agreement wherein Somers promised to provide $1,355 11 million to the company in exchange for the promises Longoria was making to him in late 12 November, December and January, Dr. Longoria did nbthing to formally confirm Somers's status PlH hJ h-l 13 as a director of the company. A true and correct copy of a redline showing Somers's proposed Q Z 14 changes is attached hereto as Exhibit B. PQ 15 11. Finally, Somers's Second Amended Complaint includes amendments to address >^ W Z 16 issues raised by Dr. Longoria's demurrer to the First Amended Complaint. These changes j o Q 17 include, but are not limited to, referencing where certain representations were made orally (see 18 e.g.. Exhibit B at ^ 15, 22, 23, 37); clarifications regarding purported (but unsubstantiated) 19 inconsistencies (see e.g.. Exhibit B at ^ 17); and timing clarifications of when certain 20 misrepresentations were made (see Exhibit B at f 22). 21 12. This case is still in the early stages of discovery, no depositions have been taken, 22 and no trial date has beeh set. A case management conference was held shortly after new counsel 23 substituted into the case, and the court appeared willing to set a trial date. However, I understand 24 /// 25 /// 26 /// 27 /// 28 /// WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT 1 that at the hearing, new counsel requested a continuance to allow an opportunity to get up to 2 speed, and as a professional courtesy, we readily agreed. 3 I declare under penalty of perjury under the laws of Califomia that the foregoing is tme 4 and correct. Executed this 8th day of January, 2019, at Sacramento, Califomia. 5 6 By: I L L I ^ R. WARNE 7 8 9 10 11 12 PH hJ hJ 13 D Z 14 < oi 15 z 16 o 17 D 18 19 20 21 22 23 24 25 26 27 28 1542277.1 WARNE DECLARATION ISO MOTION TO FILE SECOND AMENDED COMPLAINT EXHIBIT A EXHIBIT A to the Declaration of William R. Wame 1 DOWNEY BRAND LLP WILLIAM R. WARNE (Bar No. 141280) 2 ANNIE S. AMARAL (Bar No. 238189) 621 Capitol Mall, 18th Floor 3 Sacramento, CA 95814-4731 Telephone: 916.444.1000 4 Facsimile: 916.444.2100 bwame@downeybrand.com 5 aamaral@downeybrand.com 6 Attomeys for Plaintiff CHARLES SOMERS, individually and astinsteefor the 7 CHARLES SOMERS LIVING TRUST 8 SUPERIOR COURT OF CALIFORNIA 9 COUNTY OF SACRAMENTO 10 11 CHARLES SOMERS, individually and as CASE NO. trustee for the CHARLES SOMERS 12 LIVING TRUST, PLAINTIFF CHARLES SOMERS'S PH SECOND AMENDED COMPLAINT FOR h-J 13 Plaintiff, DAMAGES hJ Q Z 14 <" oi PQ 15 DR. JAMES LONGORIA, an individual, and DOES 1-10, 16 z Defendants. o 17 Q 18 Plaintiff CHARLES SOMERS, individually and astinsteefor the CHARLES SOMERS 19 LIVING TRUST, by and through his attomeys of record, hereby alleges as follows: 20 PARTIES 21 1. Plaintiff Charles Somers ("Somers" or "Plaintiff') is, and at all relevant times 22 herein was, an individual doing business in Sacramento County, Califomia. Somers is the 23 trustee for the Charles Somers Living Tmst. 24 2. Defendant James Longoria, M.D. ("Dr. Longoria" or "Defendant") is, and at 25 all times relevant herein was, an individual residing in Sacramento County, Califomia. 26 3. Plaintiff is ignorant of the true names and capacities, whether individual, 27 corporation, association, or otherwise, of the Defendants, and each of them, sued herein as DOES 28 1 through 10, inclusive, and therefore sues these Defendants, and each of them, under such SECOND AMENDED COMPLAINT 1 fictitious names. Plaintiff is informed and believes, and accordingly alleges, that these fictitiously 2 named Defendants, and each of them, intentionally, negligentiy, or otherwise wrongfully 3 performed each of the acts and omissions alleged herein, and thereby legally caused the damages 4 directly or proximately to Plaintiff as alleged herein. 5 4. At all times relevant to this action, each Defendant was the agent, servant, 6 employee, partner, member, joint venture or surety of the other Defendants and was acting within 7 the scope of said agency, employment, partnership, venture or suretyship with the knowledge and 8 consent or ratification of each of the other Defendants. 9 JURISDICTION AND VENUE 10 5. The Court has subject matter jurisdiction over this action and personal jurisdiction 11 over each of the Defendants. 12 6. Venue is proper in this Court pursuant to Califomia Code of Civil Procedure PH hJ h-l 13 section 395 because Dr. Longoria resides in Sacramento County. Q Z 14 FACTUAL BACKGROUND < oi PQ 15 A. Background on the Relationship Between Mr. Somers and Dr. Longoria > Ui 16 7. Somers is the founder and president of Somers Building Maintenance ("SBM"), a Z o 17 successful building maintenance services company that operates nationally and internationally. a 18 Dr. Longoria is an accomplished cardiothoracic surgeon who practices in Sacramento. Dr. 19 Longoria and Somers first met in approximately 2005, when Somers was told that Dr. Longoria 20 would be a good person to talk with to obtain a referral for a medical issue confronting Somers's 21 mother. 22 8. Thereafter, Somers and Dr. Longoria becamefiiends,and Somers suggested and 23 began assisting Dr. Longoria with exploring the possibility of opening a doctor-owned hospital in 24 the Sacramento area. Ultimately, to further assist with this effort, Somers purchased land in 25 Rancho Cordova known as "Montelena," and allowed Dr. Longoria and his private hospital 26 partners to purchase a minority interest in this same property. After Somers and Dr. Longoria 27 invested a significant amount of time and energy (and Somers a lot of money) into creating a 28 /// 1530541.1 2 SECOND AMENDED COMPLAINT 1 privately owned doctor's hospital, their dream came to an end with the Affordable Care Act's 2 passage in 2010, which essentially made the creation of additional physician-owned hospitals 3 illegal. 4 B. Dr. Longoria Induces Somers to Invest in His Medical Device Company in Exchange for a Non-Controlling Ownership Interest. 6 9. At some point in their relationship. Dr. Longoria informed Somers that he was 7 involved with patenting certain medical devices and surgery processes. Dr. Longoria touted his 8 schooling and reputation as a heart surgeon and told Somers that these devices would 9 revolutionize a number of common heart surgeries. Dr. Longoria initially told Somers that he had 10 filed for a patent on something called the L Chord, a synthetic cord used for performing what he 11 claimed would be revolutionary mitral valve prolapse repair. Later, he discussed that he had 12 obtained a patent on an RF ablation device which, among other things, would provide a better OH h-l 13 means of addressing atrial fibrillations. Dr. Longoria fiirther explained that he was one of two Q Z 14 board members and a 50% shareholder in a company known as Intrepid Medical ("Intiepid"), a < oi PQ 15 business he co-founded with his partner Roy Chin in or about April of 2013, and that their > w 16 company was the owner of these patents. Dr. Longoria told Somers that Intrepid would seize Z o 17 market share and that the patented L Chord and ablation device were central to that effort. Q 18 10. Dr. Longoria also introduced Somers to his "business partner" Roy Chin, who had 19 prior experience as the CEO and founder of SpineView, a medical device company focused on 20 spinal surgeries. Dr. Longoria and Mr. Chin, who were at the time the sole shareholders, officers, 21 and board members of Intrepid, explained that Mr. Chin brought business experience to the 22 company and that Dr. Longoria brought medical expertise. Both Dr. Longoria and Mr. Chin told 23 Somers that their new company was looking for "start-up" funding. 24 11. In or about July or August of 2013, Mr. Chin and Dr. Longoria came to SBM to 25 ' pitch Somers on investing in the company. They discussed Intrepid's business plan, including the 26 steps they would take to obtain Food and Dmg Administration ("FDA") approval to bring 27 Intrepid's patented devices to market and their plans to operate production facilities in Malaysia. 28 They further represented that Intrepid would be profitable by 2015. 1530541.1 3 SECOND AMENDED COMPLAINT 1 12. During this pitch and others, Mr. Chin and Dr. Longoria conveyed to Somers and 2 to his CFO Ken Silva that they had the experience and ability to make Intrepid a success. As 3 Intrepid's President, Mr. Chin explained that he had a background of success infinancingand 4 growing a medical device company. As its Chairman, Dr. Longoria said he possessed the 5 surgical expertise to be the "face" of Intrepid and that he would be fully committed to developing 6 and marketing its products and that he was committed to putting in whatever time was necessary 7 to make Intrepid a complete success. They repeated to Somers and his CFO Silva that the 8 company would be profitable in two years. In the context of these representations, they indicated 9 that they needed $2 million to get started, and that they would raise additional funds thereafter by 10 selling equity in the company. 11 13. Thereafter, on August 15, 2013, Mr. Chin sent Mr. Silva a follow-up financial 12 spreadsheet, which, among other things, set forth Intrepid's proposed budget, created a critical PH hJ 13 path timeline for the company's next steps, and broke down thefinancialmetrics associated with Q Z 14 both the mitral valve market and the atrial fibrillation market. It again reiterated that Intrepid < Oi PQ 15 would be profitable by 2015. > Z 16 14. Somers considered the request for funding. He was impressed with Mr. Chin's o 17 background and was interested in being a part of revolutionizing certain heart surgeries. Somers Q 18 also wanted to help Dr. Longoria and trusted his promise to fully commit his expertise, time, and 19 energy into making Intrepid a success. They all acknowledged, however, that without start-up 20 funding the company would have little if any value and no chance of success. 21 15. Somers initially preferred to loan money to the company on conventional terms, 22 which would include repayment according to a specified schedule with interest, memorialized in 23 a promissory note. Dr. Longoria resisted this stmcture, arguing the better structure was for 24 Somers to become a shareholder in the company. He assured Somers that Intrepid's medical 25 devices would be approved by the FDA, proceed to market quickly, and rapidly become the 26 standard of care. If and when the company needed additional funding, Dr. Longoria told Somers 27 that Intrepid would allow him to take advantage ofthe same stmcture so that he could purchase 28 additional equity in the company, to whatever extent he was interested. Indeed, Intrepid's 1530541.1 4 SECOND AMENDED COMPLAINT 1 August 15, 2013, projections indicated that Intrepid planned to raise additional capital in 2014 2 and 2015 by selling equity. When Somers raised concems about company's status as an S 3 corporation and the resulting tax implications to him and the unfair benefit to Dr. Longoria, Dr. 4 Longoria orally promised Somers that he would convert Intrepid Medical to a limited liability 5 company. 6 16. Mr. Chin and Dr. Longoria's various representations to Somers were eventually 7 successful. But for those representations, Mr. Somers would not have invested in the enterprise at 8 all. In the fall of 2013, and in reliance on their representations, Somers agreed to provide the 9 company with start-up capital in the amount of $2 million, the first million of which Somers 10 invested on September 3, 2013, and the second million of which Somers invested on 11 November 29, 2013. Under a "Common Stock Purchase Agreement," dated September 12, 2013, 12 Somers received a total of 1,562,500 shares in two equal closings, at the price of $ 1.28 per share. p^ hJ hJ 13 Before Somers made this commitment. Dr. Longoria and Mr. Chin several months earlier had Q Z 14 both received 3,000,000 shares in exchange for their individual payments of $300 each, at a per < oi PQ 15 share price of $0.00001. Approximately one month after Somers made this initial investment, > Z 16 Intrepid's name was changed to LC Therapeutics, Inc. ("LC"). Dr. Longoria and Chin also o 17 valued their now funded company at $ 10,000,000. 18 C. L C Fails to Live Up to Its Business Plan. 19 17. As the months passed, Somers could see that the company was falling behind. By 20 September of 2013, according to the business plans provided to Somers at the time he was 21 investing, LC's facility in Malaysia was supposed to be operational and, by the fourth quarter of 22 2013, the same facility was supposed to have submitted its first three products for FDA approval. 23 In 2014, among other things, LC was supposed to begin pre-production and pre-clinical testing of 24 the L Chord in Malaysia in the first quarter, obtain FDA and ASEAN approval of various medical 25 device products in the second and third quarters, and receive its first $3 million of revenue from 26 the initial products it would bring to market. None of these "key milestones" were occurring, and 27 it was apparent that LC was nowhere close to becoming profitable in 2015. Indeed, as time 28 passed, LC was falling further and further behind. 1530541.1 5 SECOND AMENDED COMPLAINT 1 18. By the fall of 2014, Somers was growing increasingly concemed. In the last week 2 of October, Somers contacted Mr. Chin to set up a meeting. Mr. Chin agreed. Over a lunch 3 meeting in Vacaville, they discussed LC's continuous setbacks on design, product testing, and 4 regulatory requirements, and Somers also expressed great concem over LC's failure to track, 5 manage, and report its progress. He also complained specifically about Dr. Longoria's failure to 6 address and follow through on the design and approval process for the L Chord device. Among 7 other things, Somers discussed the immediate retention of two key contributors. Specifically, he 8 urged that LC hire a product director focused on regulatory, testing, and quality issues and that 9 LC also hire a project manager. 10 19. The conversation eventually turned to money, with the two of them discussing the 11 company's need for an additional $3 million in funding. Because Somers was increasingly 12 concemed about the status of his initial $2 million start-up investment, he wanted greater control. PLi h-l h-l 13 He also told Mr. Chin that if he (Somers) agreed to provide the additional funding, ownership of Q Z 14 the company's equity should be altered so that Somers would own 50% and Mr. Chin and < oi CQ 15 Dr. Longoria would each own 25%. Somers explained that his terms were more than generous, > W 16 especially since the company should be re-valued at $2,000,000 in view of its delays and apparent Z 17 need to put the L Chord product on hold. Somers told Chin that the company had to become o Q 18 more disciplined, and that it should set regular meetings where Somers, the new product manager, 19 Mr. Chin, and Dr. Longoria could create a "structured reporting discipline." 20 20. On November 3, 2014, Somers sent an email thanking Mr. Chin for agreeing to 21 meet with him on short notice. He copied Dr. Longoria and Mr. Silva. In addition to 22 summarizing their lunch discussion, Somers concluded by stating that, "Our goal needs to be 23 building a world class organization that builds world class products, and with the above changes 24 andfinancing,I believe we will get there." 25 21. Twenty days later, on November 23, 2014, Mr. Chin sent Dr. Longoria an 26 unexpected email, advising him that he was resigning as the "CEO, board member, and co- 27 founder of LC Therapeutics." In the same email, he also informed Dr. Longoria that his last day 28 with the company would be December 5, 2014. 1530541.1 6 SECOND AMENDED COMPLAINT 1 D. In Order to Obtain Financing from Somers, Dr. Longoria Promises Somers a "Full Partnership" with Co-Equal Control of All Business Decisions. 2 3 22. Immediately after Mr. Chin's notice, Somers and Dr. Longoria went to Hawaii 4 with their families to celebrate the Thanksgiving holiday. This was late in November of 2014. 5 While there, Somers and Dr. Longoria spent time discussing Mr. Chin's departure, the future of 6 the company, and its need for immediate and ongoingfinancing.Somers again returned to the 7 points he had made in his email several weeks earlier. He explained to Dr. Longoria that he had g already invested $2 million in a failing company, and that he would not agree to provide 9 additional funds unless he had a full seat at the table. Dr. Longoria wholeheartedly agreed, telling \0 Somers that if Somers agreed to provide additional equityfinancinghe would replace Mr. Chin \\ on the board and have equal control over all company decisions. He said that they would 12 immediately be equal partners and that Somers would immediately obtain equal control of LC. PH hJ \3 He said was looking forward to it. Additionally, Dr. Longoria also orally promised Somers that, hJ Q Z 14 if he agreed to provide additional funding, LC would pay Somers back first, a concept they < oi 03 15 repeatedly confirmed with each other during their meeting in Hawaii and thereafter, using the Z 15 phrase, "First money in, first money out." Somers and Dr. Longoria also agreed that Somers o 17 would thereafter have the option of buying additional equity or making loans, and that if he chose Q \8 not to do so, the company would seek outside funding. Dr. Longoria was enthusiastic, telling 19 Somers that he understood the necessity of this step for the company, and said the company 20 needed someone with business acumen to fill the position vacated by Mr. Chin. In light of Dr. 21 Longoria's representations, Somers was interested, and the two of them continued to discuss the 22 matter through December and into January. On each occasion, as 2015 approached and 2016 23 began. Dr. Longoria reiterated to Somers that LC required significant additional funding, that 24 without such funding it would not survive, and that he would immediately give Somers co-equal 25 control, authority and ownership in exchange for such funding. 25 In January of 2015, because of Dr. Longoria's repeated representations and assurances, 27 Somers instmcted his CFO to proceed with the paperwork associated with his agreement to fund 28 the company. Somers would not have invested these additional funds, and would not have lost 1530541.1 7 SECOND AMENDED COMPLAINT 1 these additional funds, but for Dr. Longoria's promises regarding co-equal control, authority, and 2 ownership. Taking over Mr. Chin's role and moving from shareholder to what Dr. Longoria 3 referred to as full "partner" would finally give Somers the type of directional control he required 4 before he agreed to invest even more money in a company that had no demonstrated history of 5 success and that was failing to meet the key milestones of its own business plan. Dr. Longoria 6 reiterated that he would recommit himself to putting whatever time and energy was necessary to 7 develop and market the company's products. 8 23. On January 30, 2015, Dr. Longoria and Somers entered into an oral agreement 9 whereby Somers agreed to buy 1,437,500 additional shares of LC's stock at the price of $0,943 10 per share for the aggregate purchase price of $ 1,355,000.00. In light of the 1,562,500 shares 11 Somers purchased through the earlier September 12, 2013, stock purchase agreement, Somers and 12 Dr. Longoria would own 3 million shares, as was the case between Mr. Chin and Dr. Longoria PH h-l 13 before Mr. Chin resigned. Somers contributed this $1,355 million in liquidity to LC through Q Z 14 eight separate capital infusions between January 30, 2015, and December 2, 2015. Somers's < oi PQ 15 willingness to provide LC with these additional funds was not only generous to LC, it was PQ 16 generous to Dr. Longoria, as Dr. Longoria's ownership interest increased from 40% to 50%. z 17 Somers's willingness to provide these fiinds resulted directly from the promises Dr. Longoria o 18 made to Somers about Somers assuming Mr. Chin's seat on the board and immediately thereafter 19 sharing equal control over all business decisions, promises which Dr. Longoria made expressly 20 and repeatedly immediately after Chin's decision to resign, and up to and through Somers's 21 decision to provide more financing. These oral promises made by Longoria to Somers after 22 Chin's resignation were the "but for cause" of Somers's late January 2013 decision to invest this 23 additional fianding. Because Dr. Longoria served as LC's President, CEO and Secretary, Somers 24 rightfully assumed that Dr. Longoria would see to it that LC's intemal documentation comported 25 with their agreement on all fronts. 26 24. Unfortunately, Somers's willingness to provide these additional funds did not 27 solve the company's execution problems. Dr. Longoria was distracted by his practice and failing 28 to tend to his duties as CEO and Secretary. At the end of 2015, even though Somers had already 1530541.1 8 SECOND AMENDED COMPLAINT 1 invested $3,355 million in less than two years' time, LC was not even close to being profitable 2 and remained in dire need of additional cash. When Dr. Longoria approached Somers for even 3 more funding. Dr. Longoria abandoned his earlier promise to allow Somers to fund the company 4 through the purchase of additional equity. Instead, he now told Somers he did not want to lose 5 his 50% interest in the company, that he wanted the two of them to remain co-equals regarding 6 company control. Dr. Longoria thus urged Somers to agree to provide any additional money in 7 the form of loans. In order to entice, Somers to do so. Dr. Longoria repeated his representation 8 that he and Somers would share control and participate equally in all decisions. He again 9 promised that he would do all that was necessary to make the company successfiil, and that he 10 would never stand in the way of making sure that all of Somers's investments £ind/or loans would 11 be repaid on a "first money in, first money out" basis, along with interest at 10% for Somers's 12 loans to the company. PL, h-l hJ 13 25. In reUance on Dr. Longoria's assurances, and because Longoria's prior Q Z 14 representations had already caused Somers to invest $3 million, Somers agreed to loan LC <; oi 15 significant sums of money. Specifically, between January 2016 and September 2017, Somers PQ > 16 contributed an additional $3,746,317.89 to LC through 19 payments, and has made additional Z 17 loans since then. This was of course in addition to the $3,355 million he invested through the o Q 18 purchase of company equity. 19 26. Astimepassed, the tension between Somers and Dr. Longoria began to increase as 20 the problems with the company's execution and its devices continued. In contrast to his 21 promises. Dr. Longoria was not fiilly committed to LC and its success. For instance, when the L 22 Chord began to fail. Dr. Longoria resorted to blaming the product engineers. 23 27. In order to keep the money flowing. Dr. Longoria was willing to say what he 24 needed to say to make sure Somers continued to believe that he had been given equal control over 25 the direction of the company. For instance, in July of 2016, Dr. Longoria created a "51 OK 26 Presubmission" Power Point presentation for the FDA regarding the L Chord repair and 27 replacement devices. Therein, Dr. Longoria identified himself as the "Founder and CEO" of LC 28 and Dr. Longoria expressly identified Somers as his "Partner" in LC Therapeutics. Moreover, in 1530541.1 9 SECOND AMENDED COMPLAINT 1 September of the same year. Dr. Longoria and Somers both executed an "Authorization For 2 Information" form in relation to opening a business account with Wells Fargo Bank. Consistent 3 with Somers's understanding of their agreement. Dr. Longoria's signature confirmed that he and 4 Somers were each an "Owner with Control of the Entity." 5 CictwnerNanc 6 jCHARLES M SOMERS 7 Businaslidatiatth^: 8 jOwner with Control of the E n t i t y Ps^Drt/nus: OateoTOnh: Benemitf Ownership: 9 j50.0 1 1 10 Oi»retr/KeytocfivMual2 Inftwroatkm 11 CkBtDmerNane: \3PMES LONGORIA 12 PH SusliiBO Reiaiimuhl|i: hJ hJ 13 iOwner with Control of the E n t i t y Q 14 ftudtion/Tdtc DatetfStrtlc Pen&AtSOmsitiii^ Z < 1 i |50.0 oi 15 PQ >^ w 16 28. Thereafter, and with the understanding that he shared equal control of the entity, Z o 17 Somers continued to fund the business through 2016 and 2017, paying off the company's Q 18 liabilities as they became due and owing. And Somers did so as well in 2018, with the total 19 amount of loans now exceeding $4 million. 20 29. In addition to what he communicated to third parties. Dr. Longoria also acted 21 towards Somers in a manner that seemed to confirm that Somers was in fact a board member with 22 shared control over the company. For instance, in the fall of 2016, Dr. Longoria and Somers 23 discussed Dr. Longoria's busy schedule and the difficulty he was having driving back and forth to 24 the Bay Area in order to consult with the manufacturing entities LC had contracted with 25 (unsuccessfully) to manufacture the L Chord. They jointly discussed alternatives and mutually 26 decided on creating their own manufacturing facility in Sacramento. Both Somers and Dr. 27 Longoria identified potential locations, and they ultimately and mutually agreed that a location in 28 McClellan Park was the most economical and advantageous location. Thereafter, both Somers 1530541.1 10 SECOND AMENDED COMPLAINT 1 and Dr. Longoria jointly discussed the facility's design, and the need to purchase a custom "clean 2 room" to meet Dr. Longoria's exacting specifications. They also jointiy discussed and agreed 3 that they would spend roughly $700,000 on tenant improvements to create appropriate office and 4 meeting space within this facility. 5 30. Moreover, in the spring of 2017, and in the context of forming a more effective 6 board, Dr. Longoria also worked with Somers to locate a third board member for LC, someone 7 who could bring additional managerial acumen, experience, and focus. In the context of doing so, 8 and in keeping with his status as a full partner with ownership control over LC, Somers informed 9 Dr. Longoria that he wanted to invite Roger Valine to become a board member. In March of 10 2017, Dr. Longoria interviewed Mr. Valine over dinner at a restaurant in Sacramento. Thereafter, 11 Dr. Longoria discussed Mr. Valine's qualifications with Somers and agreed to bring him on as a 12 board member. Thus, by April of 2017, and in his capacity as a paid board member, Mr. Valine PH hJ h-l 13 began sending out resumes of individuals he had identified who could further help LC build what Q Z 14 Somers described as a "world class organization that builds world class products." In early May, < oi 15 and consistent with the parties' agreement regarding Mr. Valine's status, Mr. Valine set up a m z 16 dinner with Somers and Dr. Longoria so that the three of them could interview another doctor o 17 with a background in obtaining regulatory approval for medical devices. Dr. Longoria voiced no Q 18 objection and enthusiastically participated in the meeting and in the search for additional talent 19 for the company. Thereafter, Somers, Dr. Longoria and Mr. Valine continued to engage in 20 additional discussions focused on growing the company. 21 E. Somers Refuses to Continue Funding L C and Dr. Longoria Changes His Tune. 22 23 31. By the spring and summer of 2017, Somers confirmed with his "partner" Dr. 24 Longoria that his willingness to fund this business was not endless. He also told Dr. Longoria 25 that, in his capacity as the company's CEO, Dr. Longoria should be focused on selling additional 26 company shares to private equity and/or on raising capital from additional sources. Somers again 27 discussed the ongoing delay in obtaining FDA approval and the company's lack of success on 28 other fronts. He informed Dr. Longoria that any fiirther funding from him would have to come in 1530541.1 11 SECOND AMENDED COMPLAINT 1 the form of selling Somers additional equity in the company, which would lead to a controlling 2 stake (as opposed to an equal stake) for Somers. Contrary to his prior assurances. Dr. Longoria 3 rejected that suggestion, saying he would "never work for" Somers. 4 32. Additionally, Somers also told Dr. Longoria that the board needed further 5 expansion through additional paid board members, preferably with five members total, and that 6 LC also needed to retain a management company with experience in obtaining regulatory 7 approval for medical devices. 8 33. With the buildout of LC's facility in McClellan Park nearing completion, Somers 9 explained to Dr. Longoria that he would need to find additional funding to pay for the tenant 10 improvements and to fund the lease amount. 11 34. Somers also reminded Dr. Longoria of his earlier promise to convert the company 12 from an S corporation to a limited liability company. On May 3, 2017, Charles had documents PH hJ hJ 13 forwarded to Dr. Longoria that conformed to Dr. Longoria's promises and that, as such, would Q Z 14 convert LC Therapeutics from an S corporation to an LLC. On May 4, Dr. Longoria responded by < oi PQ 15 stating that his counsel had advised him that he should not sign the document as drafted and that a 1^ z 16 tax attomey was going to conduct a deeper review and provide potential alternatives. Those o 17 alternatives were never provided. Indeed, in January of 2018, Dr. Longoria informed Somers that Q 18 LC Therapeutics remained a corporation and, contrary to his prior promises and assurances, that 19 Somers was merely a shareholder. On information and belief, Somers alleges that Dr. Longoria 20 has refused to change the form of the company in order to preserve significant and inappropriate 21 tax savings he has realized and is realizing through the company's current form. 22 35. Dr. Longoria and Somers began discussing raising capital by entering a license 23 agreement with a company interested in monetizing certain medical process patents owned by 24 LC. Dr. Longoria, however, took over that task in order to exclude Somers. He refused to 25 acknowledge or act on his promises to Somers that he was a director with equal control of the 26 company. Relatedly, and because of his assertion that Charles was merely a shareholder, he 27 refused to share information about who he hired regarding the licensing issue, refused to provide 28 details on the deal he was seeking, and refiised to include Somers in any of the negotiations he 1530541.1 12 SECOND AMENDED COMPLAINT 1 was pursuing on behalf of their jointly owned, jointly controlled company. When Somers 2 protested, and contrary to Dr. Longoria's earlier promises to Somers, Dr. Longoria responded by 3 saying that Somers had no control over LC and/or its business decisions and that he had no right 4 to obtain information on the progress of Dr. Longoria's unilateral efforts. Specifically, on 5 January 19, 2018, Dr. Longoria reiterated his earlier statements in an email to Somers, saying that 6 "LC remains a Delaware S Corporation. We each remain 50% shareholders. I remain the sole 7 officer and director. In the same email. Dr. Longoria stated "you are solely a shareholder of said 8 corporation." 9 36. Dr. Longoria unilaterally appointed his own board member without consultation 10 with Somers, a gentleman from Stockton with a background in irrigation and pump services. 11 Without consulting Somers, Dr. Longoria and his appointed board member set an "annual" 12 shareholders meeting, and then ignored Somers's protestations that he was neither consulted as a PH h-l h-l 13 director nor available on the day they had chosen. Additionally, and as was his right as a LC Q Z 14 board member, Somers objected to any shareholder meeting taking place in Stockton, as both he, < oi 15 Mr. Valine and Dr. Longoria lived in Sacramento, and LC's primary place of business was also PQ Ui 16 located in Sacramento. Dr. Longoria responded that Somers had no right to control the location Z 17 of the meeting, and again stated that Somers was merely a shareholder who had no control over o Q 18 any company decisions. 19 37. Despite the numerous assurances Dr. Longoria made to Somers in order to 20 convince him to provide capital and loan money to LC - which included numerous promises that 21 Somers would have a full seat at the table - it is now clear that Dr. Longoria was acting in ways 22 that were directly contiary to those promises. While Somers has recently found that he was 23 copied on a December 15, 2014, email from Longoria which contained a board resolution making 24 Dr. Longoria the sole director. President, CEO, CFO and Secretary for LC Therapeutics (an email 25 Somers did not discover vintil recentiy), this resolution was the consequence of Roy Chin's 26 resignation from LC on December 6, 2014. Dr. Longoria passed the resolution so as to confirm 27 the actual status of the corporation at that point, and so that the company could properly conduct 28 its business. However, after Dr. Longoria secured Somers's commitment to provide additional 1530541.1 13 SECOND AMENDED COMPLAINT 1 fiinding for the company, and after they entered into their January 30, 2015, agreement wherein 2 Somers promised to provide $1.355 million to the company in exchange for the oral and repeated 3 promises Longoria was making to him in late November, December and January, Dr. Longoria 4 did nothing thereafter to cause LC's document to comport with Longoria's promises to Somers 5 regarding his status as a director a director of the company. For more than three years, and 6 despite Somers' decision to provide additional capital to LC in January of 2015, Dr. Longoria 7 never altered this resolution so as to include Somers as a member of the board. Indeed, Dr. 8 Longoria pointed to this 2014 resolution in January of 2018 when Somers was strongly protesting 9 Dr. Longoria's refusal to respond to his emails