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Vertical Biometrics, LLC v. Plex Research, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

December 28, 2018


          File Date: January 3, 2019


          Brian A. Davis, Associate Justice of the Superior Court

          Plaintiff Alex Sukharevsky ("Dr. Sukharevsky"), a founder and former Chief Technology Officer ("CTO") of defendant Plex Research, Inc. ("Plex" or the "Company"), filed this action in February 2018 claiming, among other things, that he was fraudulently induced into assigning certain intellectual property rights to Plex, and that he was wrongfully terminated by Plex from his position as CTO. Dr. Sukharevsky makes claims on behalf of himself and two of his companies, plaintiffs Vertical Biometric, LLC ("Vertical") and Lhasa, LLC ("Lhasa" or, collectively, "Plaintiffs"), not only against Plex, but also against defendants Douglas Selinger ("Mr. Selinger"), Marc F. Dupré ("Mr. Dupré "), Gunderson, Dettmer, Stough, Villenueve, Franklin & Hachigan, LLP ("Gunderson Dettmer"), Andrew Volpe ("Mr. Volpe"), First Star Ventures, LLC ("First Star"), First Star Ventures Fund II, LP ("First Star II"), Rajeev Surati ("Mr. Surati"), and Timothy Wall ("Mr. Wall" or, collectively, "Defendants"), all of whom are either officers, financiers, or employees of, or legal counsel to, Plex.[1] The following additional background facts are alleged in Plaintiffs’ Complaint:

          In 2004, Dr. Sukharevsky founded Lhasa, a software company that serves as a "consulting partner and provider of discovery software solutions for academic, government and industrial clients." Complaint (Docket Entry No. 1.0), ¶ 17. Eleven years later, Dr. Sukharevsky founded a second company, Vertical, that develops "data-driven biometric solutions for medical applications." Id. As a result of his work at both companies, Dr. Sukharevsky purportedly "developed extensive know-how in scientific data search engines, and, in particular, a significant volume of proprietary code for drug discovery applications, as well as for network analysis and data integration." Id.

          Mr. Selinger, then an employee at Novartis Pharmaceuticals ("Novartis"), met Dr. Sukharevsky in 2013 while Dr. Sukharevsky was performing contract work at Novartis. The two struck up a friendship and they continued to stay in touch after Dr. Sukharevsky’s work for Novartis ended.

          In late 2016, Mr. Selinger contacted Dr. Sukharevsky and asked him to help Mr. Selinger with his efforts to develop a new business based on a Novartis-owned scientific search engine known as "MOA Central." Dr. Sukharevsky accepted the offer and, as a result, turned down other business opportunities. Mr. Selinger and Dr. Sukharevsky’s business venture involving MOA Central was short-lived. They remained undeterred, however, and later decided to form another venture that would "develop[ ] from scratch" and commercialize a scientific search engine technology similar to MOA Central. Id., ¶ 24. As part of this new effort, Dr. Sukharevsky agreed to utilize the software, know-how, and intellectual property that he had developed at Lhasa and Vertical, as well as his professional network connections. In particular, Dr. Sukharevsky agreed to contribute the know-how and source code he had acquired in developing two scientific search engines known as "LHASA" and "SciGlass." Id., ¶ 43.

          In deciding how to structure their new venture, Mr. Selinger and Dr. Sukharevsky orally agreed that the Company, which they named "Plex," would be authorized to issue a total of 5 million shares of common stock. They also agreed that all important operational decisions would be made jointly. Both founders were to take full-time positions at Plex and to dedicate their work to the new Company. For Dr. Sukharevsky, this meant suspending the operations of Vertical and Lhasa. For Mr. Selinger, it meant leaving his position at Novartis. It was further agreed that both Mr. Selinger and Dr. Sukharevsky would receive a "standard C-level compensation package" at Plex, which included base salaries of $ 200, 000 per year, a six percent (6%) one-to-one match on 401K plan contributions, and other benefits typical in the industry. Id., ¶ 37. These benefits, however, were contingent on securing funding for the new Company from investors.

          On March 3, 2017, Mr. Dupré, an attorney with Gunderson Dettmer and Plex’s legal counsel, incorporated Plex in Delaware.[2] Three days later, Plex was registered to do business in Massachusetts. Dr. Sukharevsky learned at or around this time (allegedly to his surprise) that Plex’s Articles of Incorporation authorized the Company to issue 10 million shares of common stock, rather than the 5 million shares he and Mr. Selinger previously had agreed upon.

          With Plex’s incorporation, Mr. Selinger became the Company’s Chief Executive Officer ("CEO"), Dr. Sukharevsky became CTO, and Mr. Duprébecame Plex’s Secretary.[3] Both Mr. Selinger and Dr. Sukharevsky also became Directors of the Company. At or around the same time, Dr. Sukharevsky formalized his intellectual property contribution to the Company by executing a "Technology Assignment Agreement" (the "Assignment Agreement"), a "Stock Purchase Agreement" (the "SPA"), and a "Proprietary Information and Inventions Agreement" (the "Inventions Agreement").[4] In the Assignment Agreement, which is dated as of March 3, 2017, Dr. Sukharevsky assigned all of his intellectual property rights "applicable to [the] development and commercialization of a scientific search engine" to Plex in return for 2, 125, 000 shares of common stock in the Company. Id., Exhibit 3.

          On or about April 1, 2017, Mr. Volpe invested in Plex through his companies, First Star and First Star II, as part of an initial $ 1.5 million seed round of financing. Mr. Volpe thereafter began acting like a third member of Plex’s Board of Directors, although he never officially held the position of Director.

          Plex’s planned search engine was "fundamentally different" from MOA Central and required significant additional development work, which was led by Dr. Sukharevsky. Id., ¶¶ 40-45. While Plex’s technology development effort was underway, Mr. Selinger conducted weekly "investor" meetings. Initially, the meetings were attended by Dr. Sukharevsky, Mr. Selinger, and Mr. Volpe, as well as Mr. Surati, another investor in Plex, and Vadim Alexandrov ("Mr. Alexandrov"), Plex’s Chief Scientific Officer. Mr. Selinger, however, eventually asked Dr. Sukharevsky and Mr. Alexandrov to stop participating so they could focus on their development work. Mr. Selinger agreed to give Dr. Sukharevsky updates as to what occurred at the investor meetings. It is during the investor meetings Dr. Sukharevsky did not attend that Mr. Selinger, Mr. Surati, and Mr. Volpe allegedly "developed a conspiracy to remove [Dr.] Sukharevsky from any control at Plex." Id., ¶ 50.

          At some point after Dr. Sukharevsky stopped attending the investor meetings, Plex, relying upon the advice of Mr. Volpe and Mr. Surati, hired Mr. Wall, who was Mr. Surati’s former MIT roommate, as the Company’s lead system architect. Although Dr. Sukharevsky was Mr. Wall’s immediate supervisor, Mr. Wall purportedly exhibited adversarial and insubordinate behavior towards Dr. Sukharevsky soon after he was hired. Mr. Wall ignored Dr. Sukharevsky’s direct assignments and did not follow Dr. Sukharevsky’s outlined plans, which derailed the development process and led to project delays. According to Dr. Sukharevsky, "[Mr.] Wall’s conduct and actions were consistent with a conscious sabotage." Id., ¶ 54.

          Dr. Sukharevsky took a vacation from Plex during the period from December 15, 2017 to January 3, 2018. When he returned, he learned that Plex had decided at one of the investor meetings to engage in another round of seed financing without his consent. Dr. Sukharevsky "disagreed" with the decision to obtain more seed financing based, at least in part, on his fear that it would further dilute his stake in the Company. Id., ¶ 62. Dr. Sukharevsky also made multiple requests to Mr. Selinger at or around the same time to have the Company finally set up a corporate 401K plan and to fire Mr. Wall. These requests were repeatedly ignored by Mr. Selinger.

          Finally, on February 6, 2018, Mr. Selinger agreed to fire Mr. Wall and arrangements were made with Mr. Dupréto terminate Mr. Wall’s employment effective February 9, 2018. Mr. Selinger notified Dr. Sukharevsky on that date, however, that he had changed his mind and that Mr. Wall would remain employed by Plex. Then, three days later (i.e., on February 12, 2018), Mr. Selinger terminated Dr. Sukharevsky as CTO. Mr. Selinger initially told Dr. Sukharevsky that his termination was due to Dr. Sukharevsky’s inability to "create a team," but he later acknowledged that he "simply did not want to hear [Dr.] Sukharevsky’s objections to [his] decisions." Id., ¶ 72.

          Dr. Sukharevsky called Mr. Dupréthe following day "to seek legal advice" and to find out if Mr. Selinger had consulted with Mr. Duprébefore terminating him. Id., ¶ 73. According to Dr. Sukharevsky, Mr. Dupréfalsely denied that Mr. Selinger had discussed Dr. Sukharevsky’s firing with him. Dr. Sukharevsky later learned from Mr. Selinger that he had spoken with Mr. Dupréabout Dr. Sukharevsky’s termination in order to confirm that he could fire Dr. Sukharevsky without the approval of Plex’s Board of Directors. Dr. Sukharevsky alleges that Mr. Dupré ’s "self-serving" statements constitute proof that Mr. Dupréwas "involved in what appeared to be a conspiracy to remove [Dr.] Sukharevsky from Plex." Id., ¶ 74.

          Plex’s Board of Directors held an emergency meeting, at Dr. Sukharevsky’s request, on February 15, 2018, at Mr. Volpe’s office in Boston to discuss Dr. Sukharevsky’s termination. Dr. Sukharevsky offered at the meeting to transition from CTO into a role as an "individual contributor writing software code," but his proposal was rejected by the Board. Id., ¶¶ 75-77. The next day, Dr. Sukharevsky received a written separation agreement drafted by Mr. Dupré, which was followed by a formal termination letter. Dr. Sukharevsky left the Company on or about February 21, 2018.

          Dr. Sukharevsky commenced this Superior Court action less than one week later on February 26, 2018. His Complaint contains eleven counts on his own behalf and on behalf of Vertical and Lhasa. They are:

Count I against all Defendants, except Mr. Wall and Mr. Surati, seeking the "judicial dissolution" of Plex;
Count II against Plex, Mr. Selinger, and Mr. Dupréseeking "restitution, annulment" of the Assignment Agreement; [5]
Count III against all Defendants, except Mr. Wall and Mr. Surati, seeking a judicial declaration that Dr. Sukharevsky remains the "legal holder" of the intellectual property referenced in the Assignment Agreement;
Count IV against Mr. Selinger, Mr. Dupré, Mr. Volpe, First Star, and First Star II alleging that Dr. Sukharevsky was fraudulently induced to enter into the Assignment Agreement;
Count V against Mr. Selinger, Mr. Dupré, and Mr. Volpe alleging misrepresentation "regarding their goals" as to Plex;
Count VI against Mr. Selinger, Mr. Dupré, and Mr. Volpe alleging their participation in a "fraudulent scheme with regard to [Dr.] Sukharevsky";
Count VII against Mr. Selinger, Mr. Dupré, and Gunderson Dettmer alleging breach of their fiduciary duties ...

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