PARACELSIAN'S ORIGINAL COMPLAINT PART II
THIRD CAUSE OF ACTION
Racketeering Influenced and Corrupt Organization Act
18 U.S.C. 1962 (c) and 1964 (c)
45. Plaintiff repeats and realleges herein the allegations set forth in paragraphs 1 through 44 above.
46. While employed by Paracelsian, an enterprise within the
meaning of 18 U.S.C. 1962 (c) , Babish engaged in a pattern of
racketeering activity to defraud Paracelsian, with his ultimate goal
to devalue the company to the point where Babish could purchase a
controlling share, or to compete with the company in an unfair
manner.
47. Babish used his position and authority at Paracelsian in
furtherance of theis scheme to defraud Paracelsian in violation of
18 U.S.C. 1962 (c).
48. The predicate acts of this scheme to defraud are the same as
those set forth above in plaintiff's second couse of action.
49. As a direct and proximate result of Babish's violation of 18 U.S.C. 1962 c , Paracelsian has been injured in its business and
property.
50. Paracelsian is therefore entitled to treble damages and
attorney's fees pursuant to 18 U.S.C. 1964 (c) .
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FOURTH CAUSE OF ACTION
Trademark Infringement
15 U.S.C. 1100 et seq
51. Paracelsian repeats and realleges herein the allegations set
forth in paragraphs 1 through 50 above.
52. The trademark "Paracelsian" (the "mark") was duly
registered and has been continously maintained in the United States
Patent and Trademark Office Pricnicpal Register beginning on June
6, 1995 under registration number 1,897,235.
53. The mark has been continuously used and continues to be
used in interstate or foreign commerce in connection with the sale,
offering for sale, distribution, or advertizing of goods or services.
54. Babish at all relevant times knew that the mark had been
registered, maintained and used as described above.
55. Babish has attempted to conduct business and/or has
conducted business under the trade name "ParaDocs."
56. Babish has used the trade name "ParaDocs" intentionally in
interstate commerce and in connection with the provision of goods
and services.
57. The intentional use of the trade name "ParaDocs" by Babish
is likely to cause confusion or to cause mistake, or to decive as the
result of the overall similarity of "ParaDocs" to the mark as
evidenced by similarity in sound.
58. The intentional use of the trade name "ParaDocs" by Babish
is likely to cause confusion, or to cause mistake, or to
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deceive as to the affiliation, connection or association of
Babish with Paracelsian.
59. The intentional use of the trade name "ParaDocs" by Babish
has and is likely to cause confusion, mistake, or deception as to the
origin, sponsorship, or approval of goods, services, or commercial
activities by Paracelsian and Babish.
60. Paracelsian has been damaged by Babish's intentional use of
the trade name "ParaDocs" and is likely to continue to be damaged
by this intentional use.
61. Upon information and belief, Babish has profited from his
intentional use of the name "ParaDocs."
62. Paracelsian is therefore entitled to monetary damages in the amount of its lost profits plus the profits of Babish, costs of the action including attorney's fees, and a permanent injunction from
future use by Babish of the trade name "ParaDocs."
FIFTH CAUSE OF ACTION
Securities Fraud
15 U.S.C. 78j (b) and C.F.R. 240.10b-5
63. Paracelsian repeats and realleges herein the allegations set
forth in paragraphs 1 through 62 above.
64. In at least tenty-one separate stock transactions between the dates of January 21, 1997 and February 26, 1997, Babish sold not
fewer than 209,000 shares of Paracelsian stock as follows:
a. 11,000 shares sold on January 21, 1997, at a price of
$2.0625 per share;
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b. 5,000 shares sold on January 23, 1997, at a price of
$2.0625 per share;
c. 5,000 shares sold on January 23, 1997, at a price of
$2.0312 per share;
d. 3,000 shares sold on January 28, 1997, at a price of
$1.8125 per share;
e 10,000 shares sold on January 29, 1997, at a price of
$1.8750 per share;
f. 10,000 shares sold on January 30, 1997, at a price of
$1.9375 per share;
g. 10,000 shares sold on February 3, 1997 at a price of
$1.8760 per share;
h. 10,000 shares sold on February 4, 1997 at a price of
$1.8750 per share;
i. 5,000 shares sold on February 6, 1997 at a price of
$1.8438 per share;
j. 10,000 shares sold on February 7, 1997 at a price of
$1.9375 per share;
k. 20,000 shares sold on February 10, 1997 at a price of
$2.1718 per share;
l. 10,000 shares sold on February 10, 1997 at a price of
$2.0625 per share;
m. 10,000 shares sold on February 10, 1997 at a price of
$1.9375 per share;
n. 10,000 shares sold on February 11, 1997 at a price of
$2.3125 per share;
o. 10,000 shares sold on February 12, 1997 at a price of
$2.1875 per share;
p. 6,500 shares sold on February 13, 1997 at a price of
$2.4375 per share;
q. 10,000 shares sold on February 14, 1997 at a price of
$2.2813 per share;
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r. 10,000 shares sold on February 18, 1997 at a price of
$2.1875 per share;
s. 12,000 shares sold on February 19, 1997 at a price of
$2.0442 per share;
t. 15,000 shares sold on February 24, 1997 at a price of
$1.7916 per share;
u. 8400 shares sold on February 25, 1997 at a price of
$1.7813 per share;
v. 5,000 shares sold on February 26, 1997 at a price of
$1.750 per share;
65. Upon information and belief, Babish conducted each sale
while maintining an intent to leave the employment of Paracelsian in
the immediate future. The basis for this belief is in part the
circumstances of the sales themselves and also Babish's express
admission of fraudulent intent made to a person outside of the
company on the date of his resignation.
66. Babish concealed his intention to leave the employment of
Paracelsian and his further intentions regarding the company from
the President and the Board of Directors.
67. Babish was a fiduciary of Paracelsian, and owed a duty of
loyalty to the company. As a result of the same, Babish had a duty
to disclose to the company his intentions to resign and to obtain
control of Paracelsian.
68. Information regarding Babish's intent to resign from the
company and his reasons therefore was material to proper valuation
of the stock, and upon information and belief, a reasonable
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shareholder would consider this information to be important
in making investment decisions.
69. Paracelsian reasonably relied on Babish's silence to
conclude that Babish had no immediate intent to leave the
company or to attempt a hostile takeover of the company.
70. Upon information and belief, no purchaser of stocks
sold by Babish was aware of his intention to leave the
employment of Paracelsian.
71. Upon information and belief, Babish's departure from
Paracelsian caused a significant decrease in price of
Paracelsian stock. This information and belief is based
upon, in part, Babish's leadership role in the development of
new product lines for the plaintiff.
72. Upon information and belief, Babish intends to
continue his attempts at both devaluing Paracelsian stock
and purchasing shares at a devalued rate. The facts giving
rise to this informaiton and belief include the allegations set
forth above in this Complaint and an admission of improper
intent made by Babish to a person outside of the company
on the day of Babish's resignation.
73. Babish's continuing actions against Paracelsian's
interests establish the likelihood of ongoing and irreparable
injury to Paracelsian. These injuries include, without
limitation: (a) strained relationship between Paracelsian and
its creditors, suppliers, and stockholders; b) a loss of good
will; (c) a loss of
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liquidity by virtue of Babish's scheme to devalue Paracelsian
stock; (d) decreased willingness to make substantial
investments in Paracelsian; (e) loss of corporate
opportunities caused by Paracelsian's disadvantageous
capital situation; (f) the potential of shareholder derivative
actions arising from allegations that Paracelsian knew or
should have known of Babish's plan; (g) decreased ability to
engage in capital-intensive projects which would benefit the
shareholders.
74. Paracelsian will suffer irreparable injury if Babish's
efforts to acquire Paracelsian stock and control are not
stopped. Further, Paracelsian will suffer irreparable injury in
the event that Babish attempts repurchase of Paracelsian's
assets.
75. Upon information and belief, an injunction
prohibiting Babish from acquiring any additional Paracelsian
shares will not cause significant harm to Babish. Babish
already has liquidated the majority of all of his assets in
Paracelsian, and has ample other investment opportunities.
76. Upon information and belief, the public interest
would be served by aggressive enforcement of the
securities laws in this instance by entry of an appropriate
injunction.
77. Accordingly, Babish's sale of Paracelsian stock without first disclosing his intention to resign was in violation of 15 U.S.C. 78j (b) and 17 C.F.R. 240.10b-5.
78. Paracelsian is entitled to a permanent injunction
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enjoining Babish from acquiring Paracelsian stock.
SIXTH CAUSE OF ACTION
Breach of duties of care and loyalty
79. Paracelsian repeats and realleges herein the allegations set
forth in paragraphs 1 through 78 above.
80. As Vice President, Chief Science Officer and member of the
Board of Directors, Babish was a fiduciary of Paracelsian and owed
Paracelsian duties of care and loyalty.
81. Babish breached those duties by concealing information
from Paracelsian regarding his plan to resign from the company, by
intentionally devaluing the stock of the company, and by his
concealment of his intention to subsequently purchase a controlling
interest in the devalued company.
82. As a direct and proximate result of Babish's breach of his
duties of care and loyalty, Paracelsian has suffered damages,
including without limitation, loss of business value, lost profits, loss of corporate opportuntiy, and loss of business reputation.
SEVENTH CAUSE OF ACTION
Usurpation of Corporate Opportunity
83. Paracelsian repeats and realleges herein the allegations set
forth in paragraphs 1 through 82 above.
84. During January 1997, Babish met with Lee Henderson,
President and Scientific Director of Viral Therapeutics, Inc.,
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regarding a possible joint venture between Paracelsian and VTI.
85. Henderson drafted a propoosed joint venture agreement as
a result of the meetings. Babish told Henderson that he was very
interested in the joint venture proposal and that he would deliver
the written proposal to Keith Rhodes and to the Paracelsian Board
of Directors.
86. Babish never delivered the written proposal to either
Rhodes or the Board of Directors.
87. Instead, Babish kept the proposal to himself until after he
resigned from Paracelsian, at which time he approached Lee
Henderson and proposed that VTI enter into a similar relationship
with Babish's new company ParaDocs, not Paracelsian.
88. During his employment at Paracelsian Babish also learned
about prospects for development of extracts from South American
herbs.
89. Babish failed to disclose that information to the company
prior to his resignation.
90. Babish's failure to inform Paracelsian regarding the
proposed joint venture or the South American product and his
attempt to develop these opportunities for himself constitutes an
improper usurpation of corporate opportunity and a breach of
Babish's duties of loaylty and care.
91. As a direct and proximate result of Babish's usurpation of
corporate opportunity, Paracelsian has suffered damage,
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including without limitation, lost profits, loss of business value, and loss of business reputation.
EIGHTH CAUSE OF ACTION
Breach of Contract
92. Paracelsian repeats and realleges herein the allegations set
forth in paragraphs 1 through 91 above.
93. Babish and Paracelsian entered into a valid and legally
binding Confidentiality Agreement dated October 12, 1992 (the
"Agreement").
94. The Agreement was in force and effect up to and through
and including March 17, 1997.
95. The Agreement prohibits Babish from engaging in certain
acts, including without limitation, the following:
a. disclosing any confidential information or material relating to Paracelsian either during or after Babish's employment with Paracelsian;
b. using or permitting the use of any confidential information for the benefit of a direct competitor of Paracelsian.
c. possessing any records of inventions, ideas, concepts,
discoveries, developments, process and methods in the form of
notes, sketches, drawings, data reports, models, samples,
equipment or customer lists upon termination of Babish's
employment with Paracelsian; and
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d. engaging in employment with any competitor of
Paracelsian for a period of one year after the termination of
employment with Paracelsian.
96 The Agreement provides expressly that certain of its terms
including those regarding confidentiality survive and continue
unabated after the termination of the employment relationship.
97. Pursuant to paragraph 12 of the Agreement, Babish
consented to the use of injunctive relief to enforce the Agreement,
and Babish agreed and acknowledged that any breach of the
Agreement "shall constitute irreparable harm to Paracelsian [.]"
98. Upon information and belief, Babish had disclosed
confidential information relating to Paracelsian in violation of the
Agreement.
99. Upon information and belief, Babish has used or permitted
to be used confidential information for the benefit of a direct
competitor of Paracelsian in violation of the Agreement.
100. Upon information and belief, Babish has maintained
possession of property of Paracelsian after his resignation and has
failed to return all such property in violation of the Agreement.
101. Upon information and belief, Babish has created and/or is
employed by a direct competitor of Paracelsian in the biotechnology
industry within one year after the termination of Babish's
employment with Paracelsian in violation of the Agreement.
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102. Upon information and belief, Babish has disclosed and
will continue to disclose inventions, ideas, concepts, discoveries,
developments, processes or methods (patentable or not) which
relate to the actual or anticipated business or research and
development of Paracelsian in violation of the Agreement.
103. As a result of Babish's breach of the Agreement,
Paracelsian has suffered irreparable harm and will continue to suffer
irrpearable harm, entitling Paracelsian to a permanent injunction
enforcing the terms of the Agreement.
104. As a result of Babish's breach of Agreement, Paracelsian
has suffered damages, including without limitation, lost profits, loss
of business value, and loss of business reputation.
NINTH CAUSE OF ACTION
Theft of Trade Secrets
105. Paracelsian repeats and realleges herein the allegations set forth in paragraphs 1 through 104 above.
106. Paracelsian possessed exclusinve and lawful title to
formulas, patterns, devices, data, and other information that was
used and or developed in Paracelsian's business and which were
kept secret as appropriate by Paracelsian ("trade secrets").
107. These trade secrets were entrusted to Babish in the course
of Paracelsian's business.
108. Babish obtained access to many of these trade secrets
solely because of his status as Chief Science Officer, Vice
President, and member of the Board of Directors.
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109. Babish and Paracelsian entered into a
Confidentiality Agreement dated October 12, 1992 whereby
Babish agreed to refrain from appropriating trade secrets
including without limitation the following: marketing plans,
advertising programs, new products, production processes,
financial matters, ingredients, inventions, ideas, proprietary
know-how and techniques, and propritary data.
110. The trade secrets obtained by Babish afford him an
advantage over other competitors of Paracelsian's to whom
that information is not available.
111. On information and belief, Babish has in his
possession certain of Paracelsian's trade secrets, and has
employed some of the same in the course of conducting his
own affairs and/or in the course of conducting business
through "ParaDocs" or another entity.
112. Paracelsian has been harmed and will continue to
be harmed by Babish's continued use of misappropriated
trade secrets.
113. Paracelsian is entitled to equitable relief including
without limitation an injunction whereby Babish is prohibited
from utilizing trade secrets wrongfully appropriated from
Paracelsian.
TENTH CAUSE OF ACTION
Conversion
114. Paracelsian repeats and realleges herein the allegations set forth in paragraphs 1 through 113 above.
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115. While employed by Paracelsian, Babish had
access to certain property of the company, including without
limitation, its business records, trade secrets, research
notations, records of patent searches, computer data and
information, patents, patent applications, notes and other
memoranda leading to patentable ideas, and other
intellectual property ("company property").
116. This company property belongs solely to
Paracelsian.
117. Without the consent of Paracelsian, Babish
intentionally and wrongfully removed company property form
Paracelsian premises.
118. Paracelsian has been damaged by this removal of
its property.
119. Paracelsian therefore is entitled to replevin of the
company property and compensatory damages.
WHEREFORE, plaintiff Paracelsian, Inc. hereby prays
for the following relief:
a. an order permanently enjoining Babish and/or anyone
acting in cooperation with Babish from acquiring any
Paracelsian stock and compelling Babish to conform to his
contractual and common law duties of loyalty and
confidentiality;
b. awarding Paracelsian compensatory damages in an
amount to be determined at trial;
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c. awarding Paracelsian treble its compensatory
damages and recovery of its litigation costs as permitted by
statute;
d. awarding Paracelsian other exemplary damages as
permitted by law in an amount to be determined at trial;
e. such other and further relief as the Court may deem
just and proper.
JURY DEMAND
The plaintiff hereby demands a trial by jury of all
issues in the case which are so triable by a jury.
Dated: Ithaca, New York
April 25, 1997
BROWN, PINNISI & MICHAELS, P.C.
Attorneys for Plaintiff
By:
Michael D. Pinnisi
118 North Tioga Street,
Suite 500
Ithaca, New York 14850
Telephone: (607) 256-2000
Bar Roll No. 505288 |
