Anthony C. Lustig v. AzGen Scientific Holdings PLC

Background

Anthony C. Lustig sued AzGen Scientific Holdings PLC for allegedly breaching an employment agreement and violating California wage laws. Lustig alleged that AzGen failed to pay salary from April 2018 through July 12, 2018, reimburse approved travel expenses, pay a $100,000 bonus, and pay the required value for certain AzGen shares. The agreement provided for a daily rate of $1,000, an annual minimum potential bonus of $100,000 based on defined milestones, and four million shares subject to different payment terms depending on the circumstances of the end of Lustig’s employment.

AzGen initially retained Duane Morris LLP, which waived service on AzGen and represented the company until the court allowed the firm to withdraw because of nonpayment and insolvency issues. AzGen did not obtain new counsel. The court allowed Lustig to seek entry of default, and the clerk entered default on April 24, 2019. Paul Gray and Luis Siemens, who were directors and officers of AzGen, filed documents purporting to oppose the motion without a lawyer. The court explained that they could not represent the corporation themselves because they were not sued individually.

Jurisdiction, service, and default judgment standard

The court found that it had specific personal jurisdiction over AzGen. It relied on the alleged California-centered employment relationship, Lustig’s work based in California, negotiations involving California-based companies, and meetings in California involving AzGen’s directors. The court also found service sufficient. AzGen had waived service of the summons, and Lustig mailed the default-judgment motion to AzGen’s last known corporate address in Ireland and to its corporate secretary.

The court concluded that AzGen had not shown a clear purpose to defend the case that would require additional notice of the default-judgment motion. In any event, the court held that the mailed motion would have satisfied the applicable notice requirements even if notice had been required. The court then applied the seven factors used to decide whether to enter default judgment, including the merits of the claims, the amount at stake, the possibility of factual disputes, whether the default resulted from excusable neglect, and the preference for decisions on the merits. The court concluded that most factors favored default judgment, although the policy favoring decisions on the merits weighed against it because AzGen had not participated.

Claims and damages

The court found that Lustig had sufficiently alleged breach of contract. It treated the complaint’s well-pleaded factual allegations, other than those concerning damages, as true because AzGen was in default. The court found sufficient allegations that an agreement existed, Lustig performed his obligations, AzGen failed to pay salary and expenses, and Lustig suffered damages. The court also found sufficient evidence that Lustig completed the milestones required for the $100,000 bonus.

The court further found that Lustig had sufficiently alleged violations of California Labor Code sections 201(a) and 203(a). Section 201(a) requires an employer to immediately pay earned and unpaid wages when an employee is discharged. Section 203(a) provides for waiting-time penalties, up to 30 days of wages, when those wages are not timely paid.

The court awarded $200,034.72 for wages, travel expenses, the waiting-time penalty, and the bonus. That amount included $70,563 in unpaid salary, $8,638.72 in approved business expenses, approximately $20,833 for the maximum waiting-time penalty, and the $100,000 bonus. The court also awarded prejudgment interest on the amounts for which interest was available under California law. The opinion stated that the requested interest totaled $29,923 as of the January 9, 2020 hearing.

The court denied the requested $1,000,000 for the value of the shares. Lustig based that request on an estimated $30 million valuation of AzGen and his claimed entitlement to the market value of one-third of the four million shares. The court found that valuation unsupported because AzGen was insolvent and dissolved, and concluded that the evidence did not give the court a reasonable basis to value the shares. The court therefore declined to award any amount for them.

Attorneys’ fees, costs, and sealing

The court granted Lustig’s request for $180,625.50 in attorneys’ fees and $1,506.40 in costs. It found the hourly rates and documented work reasonable and relied on California Labor Code section 218.5, which the court described as requiring an award of reasonable fees and costs in the wage action.

The court also granted Lustig’s motion to seal declarations from Quarrio Corporation and CEEK VR, Inc., along with two sections of the motion. The materials contained confidential financial and business information, including information about investments, financing, shareholder equity, and future business plans. The court found that disclosure would likely cause harm and that the requests met the compelling-reasons standard.

Disposition

The court granted in part and denied in part Lustig’s motion for default judgment. It awarded $200,034.72 plus prejudgment interest, $180,625.50 in attorneys’ fees, and $1,506.40 in costs; declined to award any value for the shares; and granted the motion to seal. The court directed Lustig to submit a proposed form of judgment of no more than four pages by May 29, 2020.