Judge: Jon R. Takasugi, Case: 22STCV02085, Date: 2024-02-08 Tentative Ruling

Case Number: 22STCV02085    Hearing Date: February 8, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

QUANTGENE, INC., et al.

            vs.

SEBASTIAN DONOVAN, et al.

Plaintiffs’ motion for leave to amend is GRANTED.

On 1/31/2023, Plaintiffs Sebastian Donovan and Arconex (collectively, Plaintiffs) filed suit against Quantgene, Inc. and Johannes Bhakdi (collectively, Defendants), alleging: (1) breach of contract; (2) breach of implied covenant of good faith and fair dealing; (3) unjust enrichment; (4) intentional misrepresentation; (5) negligent misrepresentation; and (6) violation of Business and Professions Code section 17200.

            On 3/3/2022, Cross-Complainants Quantgene, Inc. and Johannes Bhakdi filed a cross-complaint (XC) against Cross-Defendants Sebastian Donovan and Arconex, alleging: (1) breach of contract; (2) breach of implied covenant of good faith and fair dealing; (3) false promise; (4) intentional misrepresentation; (5) concealment; (6) negligent misrepresentation; (7) conversion; (8) unjust enrichment; (9) intentional interference with contractual relations; and (10) unfair business practices.

            On 9/25/2023, Plaintiffs Sebastian Donovan and Arconex, Inc (Plaintiffs) moved for leave to file a First Amended Complaint (FAC).

Discussion

            Plaintiffs seek leave to amend to add facts and a cause of action that were not available to Plaintiffs at the time that the original Complaint was filed. More specifically, Plaintiffs seek to add a fraudulent transfer cause of action and to allege that Defendant Bhakdi and Quantgene, Inc. are alter-egos. 

            In support, Plaintiffs note that at the time that filed the Complaint, Plaintiffs were not privy to Quantgene’s financial situation. However:

[T]he limited discovery Quantgene has provided to date reflects that although Quantgene sold approximately $23 million in COVID testing sales in 2022, its bank account has run nearly dry. This is not the result of an mere business downturn. Plaintiffs are now aware that Mr. Bhakdi, who is the majority shareholder of Quantgene and exercises absolute control over its business dealings, has been systematically draining Quantgene of assets and using its assets for his own personal enrichment, which is likely in anticipation of Mr. Bhakdi’s scheme to shutter Quantgene as an empty shell, with all of its assets siphoned off and none remaining to pay its creditors.

The actions Mr. Bhakdi has taken to drain Quantgene of its assets include:

• Siphoning off funds from Quantgene outside of the ordinary course compensation process to an entity controlled by Mr. Bhakdi;

• Causing Quantgene to pay substantial sums of money for his personal residence and personal automobile.

• Attempting to sell off Quantgene’s valuable laboratory equipment, worth millions of dollars, so that he can seize the proceeds for his own personal benefit;

• Attempting to transfer Quantgene’s assets, without receiving fair consideration, to a newly formed genomics company that is intended to provide the same services as Quantgene while avoiding the obligations Quantgene has to creditors.

                        (Motion, 10: 9-22.)

            Plaintiffs contend that they are confident that further discovery will demonstrate additional acts by Mr. Bhakdi designed to operate Quantgene as an extension of himself and to enrich himself to the detriment of Quantgene’s vendors, creditors and business partners.

            After review, the Court agrees that leave to amend is warranted here. First, the policy favoring leave to amend is so strong that it is an abuse of discretion to deny an amendment unless the adverse party can show meaningful prejudice. (Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 761.) Second, the allegations that Plaintiffs seeks to add to the proposed amended complaint were not known to Plaintiffs at the time the original complaint was filed, and Plaintiff only learned of the supporting facts between the time of May 2023 and September 2023.[1] (Carnevale Decl. ¶ 10-12.) Third, there is inadequate evidence of meaningful prejudice to Defendants if leave to amend is granted. The trial date is in August 2024, leaving time for the parties to take discovery on the new causes of action and for Defendants to prepare their defenses for trial. Additionally, no depositions have yet occurred in the case, meaning that no witnesses who have already been deposed would need to sit for a second time. (Carnevale Decl. ¶ 14.) In addition, the majority of the written discovery that is relevant to these claims has already been propounded by Plaintiffs.

            Based on the foregoing, Plaintiffs’ motion for leave to amend is granted.

It is so ordered.

Dated:  February    , 2024

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.