Painter v. Turing Pharmaceuticals AG, 1:17-cv-07558

Background

Plaintiff Edward Painter sued Turing Pharmaceuticals, LLC and Martin Shkreli alleging securities fraud, state-law fraud, negligent misrepresentation, multiple breach-of-contract claims, unjust enrichment, and RICO based on three transactions: a promised 5% commission on sale of Benznidazole (the "Savant Deal"), a coerced $150,000 investment in Turing stock, and a $125,000 investment in KaloBios that lost value.
Defendants produced an Employment Agreement (with a broad arbitration clause) and a Separation Agreement (releasing claims "arising out of or related to" employment). Defendants moved to dismiss and to compel arbitration.
Painter filed an amended complaint that dropped employment-contract causes of action but added §20(a) securities claim, RICO claims, unjust enrichment, and separate breach claims based on the securities and commission agreements.
The Court granted Painter leave to amend (despite exceeding the narrow scope of leave), considered the Employment and Separation Agreements as integral to the pleadings, and addressed both arbitration/release and the RICO statute issues.
The Court held that Painter's fraud, negligent-misrepresentation, breach-of-contract, unjust-enrichment, and fiduciary-duty claims arise from his investor/contractor relationships (not his employment) and therefore are not subject to arbitration or barred by the Separation Agreement release; but Painter's civil RICO claims, premised on securities fraud, were dismissed under 18 U.S.C. § 1964(c) because the criminal-conviction exception did not cover the fraud underlying Painter's RICO theory.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Court should accept Painter's amended complaint that exceeded limited leave	Painter asked to amend and filed the amended complaint; leave should be allowed under Rule 15 absent prejudice	Defendants argued new claims exceeded court-ordered scope and should be disregarded	Court accepted the amended complaint—no bad faith or prejudice shown
Whether claims must be arbitrated under Employment Agreement's "arising out of or related to" language	Painter: claims are independent investor/business claims, not employment disputes	Defendants: broad arbitration clause covers disputes "related to" employment, so claims must be compelled	Court: claims do not sufficiently "relate to" employment; arbitration not compelled
Whether Separation Agreement release bars Painter's remaining claims	Painter: release unenforceable/doesn't cover investor-related claims; also disputes signature/representation	Defendants: release covers claims arising out of employment/termination	Court: release language does not cover these investor/contract claims; claims not barred (court declined to decide enforceability in full)
Whether RICO claims premised on securities fraud survive §1964(c) bar	Painter: RICO may proceed because Shkreli has a securities-fraud conviction and §1964(c) exception applies	Defendants: §1964(c) forbids civil RICO where underlying conduct is securities fraud unless defendant was criminally convicted for that same fraud	Court: dismissed RICO claims—conviction exception does not apply because Shkreli's conviction was for different frauds than those alleged here

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleadings)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must nudge claim across line from conceivable to plausible)
AT&T Techs., Inc. v. Commc'ns Workers, 475 U.S. 643 (U.S. 1986) (court decides arbitrability absent clear intent otherwise)
Global Network Commc'ns, Inc. v. City of New York, 458 F.3d 150 (2d Cir. 2006) (documents integral to complaint may be considered on motion to dismiss)
Concourse Village, Inc. v. Local 32 E, 822 F.2d 302 (2d Cir. 1987) (disputes should be submitted to arbitration unless clause clearly not applicable)
Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204 (11th Cir. 2011) ("related to" employment requires some direct relationship)
United States ex rel. Welch v. My Left Foot Children's Therapy, LLC, 871 F.3d 791 (9th Cir. 2017) (claims not "related to" employment where defendant could have committed same conduct absent employment)
MLSMK Inv. Co. v. JP Morgan Chase & Co., 651 F.3d 268 (2d Cir. 2011) (purpose of §1964(c) bar—prevent bootstrapping securities fraud into RICO)
Kaplan v. S.A.C. Capital Advisors L.P., 104 F. Supp. 3d 384 (S.D.N.Y. 2015) (criminal-conviction exception to §1964(c) construed narrowly)