Life Project, LLC v. GRAIL, INC.

Background

Life Project, LLC and Dr. Peter Bach brought breach-of-contract claims against GRAIL, Inc., Illumina, Inc., and Computershare Trust Company, N.A. The action was based on the alleged six-week delay in giving the plaintiffs access to Illumina shares converted from Life Project’s vested GRAIL stock options after Illumina acquired GRAIL. The plaintiffs alleged that the delay caused losses of at least $228,099.51 because Illumina’s share price declined during that period.

Under the consulting agreements, GRAIL agreed to compensate Life Project for consulting services and provide options for GRAIL shares. The agreements also allowed assignment to a successor after a change of control and excluded liability for indirect, incidental, special, consequential, lost-profit, and loss-of-business damages. The merger agreement described the conversion of GRAIL shares into Illumina shares and required Illumina to designate an exchange agent. The plaintiffs alleged that Computershare served in that role.

The First Amended Complaint asserted five counts: breach of the merger agreement against GRAIL and Illumina; breach of the merger agreement’s implied duty of good faith and fair dealing against those defendants; breach of the consulting agreements against GRAIL and Illumina; and breach of contract and breach of the implied duty of good faith and fair dealing against Computershare under an alleged exchange-agent agreement. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legally plausible claim. The plaintiffs also sought written discovery.

Claims Against GRAIL and Illumina Under the Merger Agreement

The court applied Delaware law to the merger agreement. The plaintiffs argued that they were intended third-party beneficiaries—people who are not parties to a contract but whom the contracting parties intended to benefit and allowed to enforce it.

The court rejected that argument. Section 11.05 stated that only the merger-agreement parties could enforce it, subject to specified exceptions. The court found that the exceptions strengthened the conclusion that other third parties, including the plaintiffs, were not intended beneficiaries. Section 3.02’s requirement that Illumina deposit converted shares with an exchange agent did not specifically overcome the no-third-party-beneficiaries provision. The plaintiffs also did not argue that any listed exception applied. The court therefore held that they could not sue under the merger agreement for breach of contract or breach of the implied duty of good faith and fair dealing.

Claims Under the Consulting Agreements

The court treated California law as governing the consulting-agreement claims because the parties’ briefs assumed that California law applied. Dr. Bach’s claim failed because he was not a party to the consulting agreements, and the plaintiffs did not argue that he was an intended third-party beneficiary.

Life Project’s claim also failed because the plaintiffs did not identify a provision that GRAIL or Illumina breached. The plaintiffs acknowledged that GRAIL had provided Life Project with the GRAIL shares required by the agreements. Their theory that GRAIL and Illumina had continuing obligations to ensure that the plaintiffs could freely use those shares was not tied to any provision in the consulting agreements.

The court separately held that the claim was barred by the agreements’ limitation on consequential damages. The plaintiffs attributed their alleged loss to the decline in Illumina’s share price while they lacked access to the converted shares. The court characterized that loss as consequential damages, which the agreements excluded.

Claims Against Computershare

The court applied New York law to the claims involving the alleged exchange-agent agreement. The breach-of-contract claim failed because the complaint did not identify a specific provision of that agreement that Computershare breached. Instead, it asserted generally that Computershare had to ensure prompt delivery and receipt of the Illumina shares.

The plaintiffs alternatively relied on Section 3.02 of the merger agreement. The court explained that Computershare was not a party to that agreement, and the agreement imposed no obligations on Computershare. It therefore could not support a breach-of-contract claim against Computershare.

The implied-covenant claim also failed. The implied duty of good faith and fair dealing cannot add a substantive obligation that the parties did not include in their contract. Because the complaint did not identify a provision of the exchange-agent agreement that Computershare’s conduct frustrated, it did not state this claim.

Discovery and Disposition

The court denied the plaintiffs’ request for discovery of the exchange-agent agreement because a plaintiff who has not adequately stated a claim is not entitled to discovery for the purpose of pursuing that claim.

Judge Denise Cote granted the October 11 motions to dismiss brought by GRAIL and Illumina and by Computershare. She denied the plaintiffs’ November 1 motion for discovery. The court directed the Clerk of Court to enter judgment for the defendants and close the case.

Classification

This is a procedural order under the stated classification convention because the court dismissed the claims under Rule 12(b)(6) for failure to state a claim, even though it analyzed the parties’ contract theories.