Honig v. Hansen

Background

The opinion addresses two related investor lawsuits against John David Hansen and Gregory P. Hanson, who were identified as officers of MabVax Therapeutics, Inc. The plaintiffs alleged claims under the California Corporations Code and California common law after purchasing MabVax securities between May 7, 2017, and May 11, 2018. The court had previously dismissed earlier complaints for failure to state plausible claims and allowed amended complaints. The defendants again moved to dismiss.

The plaintiffs relied on two alleged misstatements or omissions. First, MabVax’s public filing said that the “option” for a second tranche of an Oxford Finance loan had expired. The plaintiffs alleged that MabVax should also have disclosed that Oxford had not provided the additional funding because it did not consider interim clinical-trial data sufficiently positive. Second, the plaintiffs alleged that MabVax failed to disclose an adverse event and suspension of patient enrollment in Phase 1 trials, while April 2 and May 3, 2018, press releases described progress and sought funding for continued enrollment.

Court’s analysis

The court applied the standard for a motion to dismiss, under which a complaint must allege enough facts to make a claim plausible. Because the claims were based on alleged fraud, the court also required the circumstances of the alleged fraud to be stated with particularity and required facts supporting a strong inference of fraudulent intent.

The court held that the Oxford Loan statements were not actionable. Because the second tranche depended on both a NASDAQ listing and positive interim data, and MabVax obtained the listing but did not receive the second tranche, the court found that a reasonable investor could conclude that the positive-data condition had not been met. The statement that the loan term had “expired” therefore did not create a materially false impression. The court reconsidered its earlier contrary ruling and dismissed the claims based on the Oxford Loan statements with prejudice.

The court reached a different conclusion about the clinical-trial statements. Accepting the plaintiffs’ allegations as true at this stage, it found that the April 2 and May 3 press releases plausibly misrepresented the trial’s progress because they described continuing enrollment even though enrollment allegedly had been suspended after an adverse event. The court also found the omitted information material because a reasonable investor seeking to fund the trials would consider the suspension important.

The court held that the plaintiffs plausibly stated claims under California Corporations Code sections 25400(d) and 25500 by alleging a material misrepresentation made to induce investments, with an intent to defraud, and by connecting the alleged misrepresentation to their investment losses. It also held that the plaintiffs plausibly stated claims under sections 25401, 25501, 25504, and 25504.1 by alleging a primary securities-law violation by MabVax and secondary liability for the defendants as controlling officers or as actors who allegedly intended to defraud. The court further limited the actionable claims to investments made after the misleading press releases and before the October 15, 2018, corrective disclosure.

Disposition

The court denied in part and granted in part the defendants’ motion to dismiss. It denied the motion as to the claims of Robert S. Colman Trust UDT 3/13/85, GRQ Consultants, Inc. Roth 401K FBO Renee Honig, Grander Holdings 401K, Benjamin Brauser, Daniel Brauser, Gregory Brauser, and Joshua Brauser, who invested on May 2, 8, or 11, 2018. It granted the motion with prejudice as to all remaining plaintiffs and claims. The court also ordered the parties to make initial disclosures and appear for an initial conference.