106 Cal.App.5th 46
Cal. Ct. App.2024Background
- Longtime friends, professor Stanley N. Cohen (Stanford) and biotechnology investors Moshe and Chris Alafi, formed a biotech company, Nuredis, to develop a drug (HD106) for treating Huntington’s disease.
- The Alafis invested $20 million for a 20% stake; HD106 had previously been withdrawn from the market due to fatal toxicity but was hoped to be repurposed for Huntington's.
- The FDA rejected Nuredis’s request to begin trials due to safety concerns with HD106, and Nuredis abandoned its pursuit.
- The Alafis sued Cohen and another scientist for, among other claims, negligent misrepresentation, arguing Cohen failed to disclose HD106’s toxicity and withdrawal from the market.
- After a bench trial, the trial court found Cohen liable for negligent misrepresentation, awarded $20 million plus interest, and declined to reach other causes of action.
- Cohen appealed, arguing legal errors in the negligent misrepresentation claim and procedural error due to the court’s failure to issue a statement of decision upon request.
Issues
| Issue | Plaintiff's Argument (Alafi) | Defendant's Argument (Cohen) | Held |
|---|---|---|---|
| Was negligent misrepresentation properly found based on omissions? | Cohen omitted key facts about HD106’s withdrawal and dangers, and induced the investment through nondisclosure. | Mere omissions can’t support negligent misrepresentation; only affirmative misstatements qualify under the law. | Not reached—remanded for new findings due to procedural error. |
| Did plaintiffs justifiably rely on misrepresentations or omissions? | They would not have invested had the danger and withdrawal been revealed. | Plaintiffs knew of risks, as Cohen disclosed toxicity concerns and HD106’s history; any reliance was unjustified. | Not reached—remanded. |
| Were plaintiffs ignorant of the truth, or did their agent know the facts? | Plaintiffs (esp. Chris Alafi) were unaware; Moshe Alafi’s knowledge didn’t defeat their claim. | Moshe Alafi (agent) knew, so plaintiffs were not ignorant; thus claim fails. | Not reached—remanded. |
| Did the trial court’s failure to issue a statement of decision constitute prejudicial error? | Plaintiffs argued judgment/order sufficed and that defense waived the issue. | Failure to issue the statement prevented meaningful appellate review of findings and was prejudicial error. | Yes; judgment reversed and remanded for proper statement of decision. |
Key Cases Cited
- F.P. v. Monier, 3 Cal.5th 1099 (Cal. 2017) (failure to issue a statement of decision is not reversible per se but may require reversal if it impedes appellate review)
- Duarte Nursery, Inc. v. California Grape Rootstock Improvement Commission, 239 Cal.App.4th 1000 (Cal. Ct. App. 2015) (statement of decision must disclose ultimate facts and determination on material issues)
- Whittington v. McKinney, 234 Cal.App.3d 123 (Cal. Ct. App. 1991) (importance of statement of decision for appellate review)
- Karlsen v. Superior Court, 139 Cal.App.4th 1526 (Cal. Ct. App. 2006) (remand is proper remedy for failure to issue statement of decision)