Quintara Biosciences, Inc. v. Ruifeng Biztech Inc.

Background

Quintara Biosciences, Inc. was founded by Qun “Richard” Shan and Xueling “Sue” Zhao. According to the complaint, Quintara experienced cash-flow problems in 2013, after which Gangyou Wang proposed an interest-free $1 million loan involving his company, Ruifeng Biztech Inc. The arrangement allegedly included having Ruifeng appear to operate Quintara while Wang used the arrangement for his permanent-residence application. Quintara and Ruifeng later entered a collaboration agreement under which Ruifeng would own 51 percent and Quintara 49 percent of a proposed joint venture, but the parties never created a new entity.

In 2017, Ruifeng was added to the lease for Quintara’s headquarters. Quintara alleged that Wang forged Shan’s name on a lease-termination agreement, leaving the premises in Ruifeng’s name. After Quintara repaid the loan and Wang obtained his permanent residence, Quintara sought to end the relationship. Quintara alleged that Wang recruited several employees, changed the locks, and used Quintara’s premises, equipment, and former employees through RF Biotech LLC.

Quintara sued for various business-related claims and sought preliminary injunctive relief, but an earlier order denied that relief because Quintara’s delay undermined its claim of immediate and irreparable harm. The defendants then moved to dismiss selected claims.

Legal standard

The court applied the pleading standard under Rule 12(b)(6), which asks whether the complaint alleges enough factual matter to make entitlement to relief plausible. The court accepted factual allegations as true but could disregard legal conclusions presented as facts.

Fraud claim

The court dismissed Quintara’s fraud claim against Gangyou Wang. Quintara alleged that Wang mischaracterized the loan, collaboration agreement, and lease substitution as legitimate arrangements supporting his permanent-residence application, when they were allegedly part of a plan to take over Quintara’s business and assets.

Under California law, fraud requires a misrepresentation, knowledge of falsity, an intent to induce reliance, justifiable reliance, and resulting damage. The court agreed with defendants that Quintara did not adequately allege causation because its reliance was not justifiable. The court characterized Quintara’s conduct as willful blindness, pointing to the unwritten $1 million loan, the allegedly illusory joint-ownership agreement, and the suspect lease transaction, all undertaken over several years without consulting counsel. The court concluded that this alleged conduct foreclosed justifiable reliance on Wang’s representations.

Trade-secret exemplary damages and attorney’s fees

The court granted the motion in part concerning Quintara’s request for exemplary damages and attorney’s fees under the federal Defend Trade Secrets Act. The statute permits those remedies for willful and malicious misappropriation, but it also requires certain written agreements with employees to include a notice concerning disclosure of trade secrets for whistleblower and investigative purposes.

Quintara did not dispute that its alleged nondisclosure agreement lacked the required notice. The court held that the notice requirement did not bar exemplary damages and attorney’s fees claims against Wang, Ruifeng, and RF Biotech because they had never worked for Quintara. Those claims may proceed.

The court dismissed the same remedies claims against Quintara’s employees Alex Wong, Alan Li, and Rui Shao. Quintara argued that the notice requirement did not apply because those employees signed the relevant agreement before the federal statute took effect. But the complaint did not allege when the employees signed or updated their agreements. The court held that, on those pleadings, whether the notice requirement applied was speculative and the allegations did not give the employees fair notice of potential liability.

California unfair-competition claim

The court dismissed Quintara’s claim seeking damages under California Business and Professions Code § 17200. The court explained that California’s unfair-competition law provides restitution and injunctive relief, not damages. Because Quintara demanded relief that the claim could not provide, the damages claim failed under the pleading rule requiring a demand for the relief sought.

Disposition

Judge William Alsup granted defendants’ motion in part. He dismissed Quintara’s fraud claim against Gangyou Wang, its claim for damages under California Business and Professions Code § 17200, and its claim for exemplary damages and attorney’s fees under the Defend Trade Secrets Act against Alex Wong, Alan Li, and Rui Shao. The remainder of the motion was denied. The court stated that Quintara’s exemplary-damages and attorney’s-fee claim under the Act against Ruifeng Biztech Inc., Gangyou Wang, and RF Biotech LLC could proceed. The court also stated that the unchallenged claims for conversion, breach of the duty of loyalty, and trade-secret misappropriation could proceed. The court vacated the scheduled hearing and case-management conference and allowed Quintara to seek permission to amend its complaint.