Honig v. Hansen

Background

The court addressed two related cases, docket numbers 20-cv-5872 and 20-cv-8618. The defendants were John David Hansen and Gregory P. Hanson, identified as MabVax Therapeutics, Inc.’s chief executive officer and chief financial officer. The plaintiffs were private investors who bought MabVax common and preferred stock and warrants directly from MabVax in private placements.

The plaintiffs alleged that, between 2016 and 2018, Hansen and Hanson misrepresented or failed to disclose information about MabVax’s antibody clinical trial, a potential second $5 million loan tranche from Oxford Finance, the defendants’ compensation reductions, a Securities and Exchange Commission investigation, and registration rights. The complaints asserted California Corporations Code claims, fraudulent inducement, common-law fraud, negligent misrepresentation, and, in the Honig action, tortious interference with contract.

Motions to Strike

The plaintiffs asked the court to strike exhibits and references in the defendants’ motions to dismiss, arguing that the materials included facts outside the complaints. The court denied both motions to strike. It held that Rule 12(f) permits striking material from a pleading, but a motion is not a pleading under Rule 7, so Rule 12(f) did not authorize striking the challenged motion materials.

Motions to Dismiss

The defendants moved to dismiss for failure to state a claim. The court applied the rule requiring a complaint to allege enough facts to make relief plausible and applied the heightened fraud-pleading requirement because the claims were based on alleged fraud.

Statute of limitations

The court held that the California claims concerning registration rights and the defendants’ pay cuts were time-barred. It concluded that the plaintiffs were put on notice of possible fraud by disclosures in May 2018 concerning registration rights and by information available by July 2017 or, at the latest, April 2018, concerning the pay cuts. The plaintiffs filed the Honig action in July 2020 and the Grander action in October 2020.

The court rejected the statute-of-limitations argument as to the Oxford Loan. It held that the statements saying the second loan option had “expired” were not clear enough to put a reasonable investor on notice of possible fraud, even though the plaintiffs might have inferred that MabVax had not satisfied the loan’s conditions.

Alleged misstatements and omissions

The court held that the plaintiffs failed to allege a material misstatement or omission concerning the Securities and Exchange Commission investigation. MabVax had disclosed the investigation and stated that it intended to cooperate. The court concluded that information about whether particular shareholders were also subjects would not have significantly changed the total information available to a reasonable investor.

The court also held that the plaintiffs did not adequately plead a material misstatement concerning registration rights. The relevant agreements required MabVax to use “reasonable best efforts” to register the Grander plaintiffs’ shares, and the complaint did not provide specific facts about what Hanson allegedly represented beyond saying that he had touted the existence of registration rights.

By contrast, the court held that the plaintiffs adequately pleaded material omissions concerning the Oxford Loan and the suspension of patient enrollment. The allegation that MabVax described the loan option as having “expired,” without explaining that Oxford had rejected the request for the second tranche, could create a materially misleading impression about the clinical trial. The court also accepted, at the pleading stage, the allegations that patient enrollment had been suspended because of an adverse event and that the defendants omitted that information from trial disclosures.

Loss causation and related common-law claims

Despite finding sufficient allegations about the Oxford Loan and trial enrollment, the court held that the plaintiffs failed to plead loss causation—the required connection between the alleged misconduct and the claimed financial losses. The complaints alleged that the problems became known near the end of 2018, causing MabVax to lose its ability to raise capital and enter bankruptcy, but they did not provide facts showing that the alleged omissions caused the bankruptcy. They also did not identify a stock-price decline connected to a corrective disclosure about the trial-enrollment suspension.

The court therefore dismissed the claims for common-law fraud, fraudulent inducement, negligent misrepresentation, and tortious interference with contract. The opinion refers to these as Counts III through VII, although the listed complaints do not identify a Count VI in the excerpt provided.

California Corporations Code claims

For the claims under California Corporations Code sections 25400(d) and 25500, the court held that the plaintiffs adequately alleged material misrepresentations concerning the Oxford Loan and the adverse event but failed to plead facts creating a strong inference of fraudulent intent. The alleged desire to preserve executive compensation was a generalized corporate-officer motive, and the plaintiffs did not allege that the defendants made the statements to profit from selling their own shares. The court dismissed Count I.

For the claims under sections 25401, 25501, 25504, and 25504.1, the court held that the plaintiffs failed to plead the required direct relationship for primary liability because they bought the securities from MabVax, not from Hansen or Hanson. The court also held that the secondary-liability claims failed because the plaintiffs asserted no primary-liability claim against MabVax itself. The court dismissed Count II.

Disposition

The court granted the defendants’ motions to dismiss and denied the plaintiffs’ motions to strike. Judge Alvin K. Hellerstein directed the clerk to close civil cases 20-cv-5872 and 20-cv-8618 and the pending motions. The opinion does not specify whether the dismissals were with or without prejudice.