Formic Ventures, LLC v. SomaLogic, Inc.

Background

The plaintiffs sued SomaLogic, Inc. and others over alleged payment obligations under SAFE notes. The complaint also asserted claims under California Penal Code § 496(c), fraudulent inducement, and conversion. The defendants moved to dismiss.

Breach of Contract

The court denied the motion to dismiss the breach-of-contract claim. It concluded that the allegations concerning the SAFE notes and SomaLogic’s payments plausibly stated a claim on their own. SomaLogic argued that Letters of Transmittal displaced the SAFE notes as the operative contracts. The court held that, at the motion-to-dismiss stage, this argument presented a defense to the well-pleaded allegations rather than a basis to reject the claim. The court also held that incorporating the Letters of Transmittal by reference would improperly allow SomaLogic to assert its version of events to defeat an otherwise cognizable claim.

California Penal Code § 496(c)

The court granted the motion to dismiss the claims under California Penal Code § 496(c), with leave to amend. Those claims required allegations of criminal intent. The court found that the complaint alleged only in a conclusory way that SomaLogic possessed funds it knew were owed. The allegations instead suggested that SomaLogic had a different understanding of its obligations under the SAFE notes, including that it could pay in restricted stock and that it was required only to begin transferring the amount due when the merger was completed. The court concluded that the allegations did not show the deliberate criminal intent required to transform an ordinary commercial default into theft.

Fraudulent Inducement

The court granted the motion to dismiss the fraudulent-inducement claims, with leave to amend. The complaint alleged that Palamedrix had no intent to perform its payment obligations when the SAFE notes were signed. The court found that those allegations were not stated with the particularity required for fraud claims under Federal Rule of Civil Procedure 9(b). The alleged facts did not sufficiently support an inference that Palamedrix knew, when it sought the plaintiffs’ investment, that the merger-related payment approach would violate the SAFE notes. The court also found that the complaint lacked enough detail about communications between Palamedrix and SomaLogic to support the alleged conspiracy to defraud.

Conversion

The court granted the motion to dismiss the conversion claims, with leave to amend. Conversion generally requires a plaintiff to have ownership or a right to possess specific property, along with an independent duty separate from a contractual payment obligation. The court concluded that the plaintiffs’ allegations amounted to a claim that SomaLogic failed to pay money owed under the SAFE notes, rather than a claim that SomaLogic exercised control over the plaintiffs’ property. A mere contractual right to payment was insufficient for conversion under the authorities discussed by the court.

Disposition

The court denied the motion to dismiss the breach-of-contract claim. It granted, with leave to amend, the motion to dismiss the claims for violation of California Penal Code § 496(c), fraudulent inducement, and conversion. The plaintiffs were given 14 days to file an amended complaint attempting to cure the defects. The court also stated that, if the plaintiffs proceeded only on the contract claims, they could later seek leave to add the dismissed claims if discovery provided a good-faith basis to reassert them.