DISCOVER GROWTH FUND, LLC v. FIORINO, 2:20-cv-00351

Background

In October 2018 Discover Growth Fund (Plaintiff) loaned Immune $5.5 million under a senior secured convertible debenture and obtained a broad security interest and IP Security Agreement purporting to list Immune's patents (including assets underpinning the drug bertilimumab "Bert").
Plaintiff alleges Immune and its officers/directors represented Immune had indefeasible title to the Collateral and that granting the security interest would not violate other agreements.
In February 2019 iCo (the licensor) terminated Immune's Product Sublicense for Bert after learning Immune encumbered IP; two days later Immune filed Chapter 11. Plaintiff alleges the termination constituted an Event of Default and destroyed its collateral rights.
During the bankruptcy, Immune agreed to a one‑month license/sale process for the Ceplene assets to Teper/Vector (who later failed to close) and separately sold certain Sale Assets (including the License/Bert assets) to Alexion over Plaintiff’s objections.
Plaintiff claims fraud, fraud in the inducement, negligent misrepresentation, breach of fiduciary duty, tortious interference (against Teper), and securities fraud, seeking ~$14.8M; defendants moved to dismiss the corrected amended complaint.
The district court denied dismissal of the fraud‑based claims, Rule 9(b) and fiduciary duty and tortious interference claims survived, but dismissed the securities fraud claim for lack of standing; overall motion granted in part and denied in part.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Reasonable reliance for fraud claims	Plaintiff relied on written representations (Rep & Warranties, Officer’s Certificate) that Immune owned listed IP, so reliance was reasonable	Plaintiff, a sophisticated investor, should have discovered competing ownership; failure to diligence defeats reliance	Plaintiff adequately alleged facts supporting reasonable reliance; reliance question is factual and survives dismissal
Rule 9(b) particularity and individual allegations	CAC identifies the misrepresentations in the Debt Documents, specific emails, and alleges each director/officer authorized the statements	Allegations are group pleading; fail to identify who made what and when with particularity	CAC satisfies Rule 9(b): supplies sufficient precision and alleges individual participation (participation theory)
Breach of fiduciary duty — choice of law and duty existence	New Jersey law applies; once insolvent, directors owe creditors fiduciary duties; Plaintiff (largest creditor) alleges insolvency so duty exists	Internal affairs doctrine points to Delaware law (state of incorporation), which would not recognize the asserted duty here	Court applies New Jersey law under Restatement contacts (NJ center of relationships) and finds Plaintiff plausibly alleges Insolvency-based fiduciary duty; claim survives
Tortious interference — preclusion by bankruptcy approval	Bankruptcy sale/license approval precludes relitigation; res judicata/collateral estoppel bar Plaintiff’s claim	Approval order was entered without prejudice to Plaintiff’s rights and is too brief to show the necessary identity of issues	Preclusion doctrines inapplicable on these facts; tortious interference claim not barred at pleading stage
Securities fraud (Rule 10b‑5) standing	If bankruptcy recharacterizes Plaintiff’s debt as equity, Plaintiff will be a purchaser with standing; keep claim pending	Plaintiff currently holds debt, not equity; claim depends on contingent future recharacterization and is not ripe	Dismissed for lack of standing because claim rests on contingent future event; Plaintiff may amend if recharacterization occurs

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state plausible claim to survive Rule 12(b)(6))
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
Allstate N.J. Ins. Co. v. Lajara, 222 N.J. 129 (2015) (elements of common‑law fraud under New Jersey law)
EP Medsystems, Inc. v. EchoCath, Inc., 235 F.3d 865 (3d Cir. 2000) (even sophisticated investors may rely on counterparties absent knowledge of misplaced trust)
Pricaspian Dev. Corp. v. Martucci, [citation="759 F. App'x 131"] (3d Cir. 2019) (Rule 9(b) requires date, time, place or other precision to inject substantiation)
Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975) (standing under Rule 10b‑5 requires purchaser or seller of securities)
Bd. of Trs. of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164 (3d Cir. 2002) (insolvent corporation directors assume fiduciary duties to creditors under New Jersey law)
Saltiel v. GSI Consultants, Inc., 170 N.J. 297 (2002) (officers/directors may be liable individually for personal participation in tortious acts)