Nautilus Neurosciences v. Fares

Civil Practice

New York Law Journal


Judge Shira Scheindlin

Fares was president of Delaware firm Nautilus. Under a 2010 promissory note he borrowed $75,000—to be repaid by Dec. 31, 2012—to buy Series A Preferred Stock from Nautilus. Fares left Nautilus in 2011 but remained a shareholder. In letters of May 2012, Nautilus granted Fares the option to buy new Series C Preferred Stock. Fares's Nov. 12, 2012, federal suit in Delaware alleged that Nautilus's directors and officers breached their fiduciary duties. He claimed the C shares diluted his A stock. After he defaulted on the note, Nautilus sued Fares on Jan. 14, 2013. He removed suit to district court on diversity grounds. District court denied Fares's motion to stay Nautilus's suit—pending resolution of his Delaware action—under the "first-filed rule." Nautilus's attempt to collect a debt did not arise from the same dispute as the Delaware action. Because the issues in both cases were not virtually identical, the "first-filed rule" did not apply. Breach of the Delaware defendants' fiduciary duties in 2012 had no bearing on the consideration from Nautilus to Fares in exchange for the 2010 note. The evidence needed to show a breach of fiduciary duty by Nautilus's directors, officers and controlling shareholders would not establish nor preclude liability under the note.

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