Bono v. Daniel J. O'Connor, David J. Mauro, Samir Khleif, Robert G. Petit, Roni A. Appel, Richard J. Berman, Thomas J. Mckearn, James P. Patton, David Sidransky, Sara M. Bonstein, Gregory T. Mayes, & Advaxis, Inc.

DAVID BONO, Plaintiff, v. DANIEL J. O'CONNOR, DAVID J. MAURO, SAMIR KHLEIF, ROBERT G. PETIT,RONI A. APPEL, RICHARD J. BERMAN, THOMAS J. MCKEARN, JAMES P. PATTON,DAVID SIDRANSKY, SARA M. BONSTEIN, GREGORY T. MAYES, and ADVAXIS, INC., Defendants.

Civ. Action No.: 15-6326 (FLW)(DEA)

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

May 23, 2016

*NOT FOR PUBLICATION*

OPINION

Plaintiff David Bono ("Plaintiff"), a shareholder of Advaxis, Inc. ("Advaxis" or the "Company"), brings this shareholder derivative action on behalf of Advaxis, against the directors and officers of Advaxis¹ (collectively, "Defendants") for allegedly "spring-loading"² stock options. Plaintiff asserts claims against Defendants for violation of Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 14a-9 promulgated thereunder;as well as state law claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. In the present matter, Defendants move to dismiss the Complaint for failure to state a claim, or in the alternative, dismiss or stay Plaintiff's state law claims, pursuant to the Colorado River abstention doctrine.

For the following reasons, the motion to dismiss is granted in part and denied in part, and the motion to dismiss or stay, pursuant to the Colorado River abstention doctrine, is denied.

I. Procedural and Factual Background

The following allegations are taken from the Complaint and are assumed as true for the purposes of review under Fed. R. Civ. P. 12(b)(6).

Advaxis is a publically held clinical stage biotechnology company, incorporated in Delaware, with its principal offices in Princeton, New Jersey. Compl. ¶¶ 16, 84. The Company's business focuses on the development and commercialization of cancer immunotherapies based on its proprietary Lm-LLO (Listeria-like organisms) platform. Id. at ¶ 16. The following defendants are directors on the Advaxis Board of Directors (the "Board"): O'Conner, Khleif, Appel, Berman, McKearn, Patton, and Sidransky (collectively, "Director Defendants"). Id. at ¶¶ 17-28. In addition, the following defendants are Advaxis officers: O'Conner, Mauro, Petit, Bonstein, and Mayes (collectively, "Officer Defendants"). Id. at ¶¶ 17-28.

On March 30, 2015, the Board adopted, subject to subsequent shareholder approval, a new equity incentive plan (the "2015 Plan") to replace the Company's then-current equity incentive plan (the "2011 Plan").³ Id. at ¶ 3. The same day, under the new 2015 Plan, the Compensation Committee of the Board granted over 1.56 million stock options and nearly155,000 restricted stock units ("RSUs") of Advaxis stock (the "2015 Awards") to Advaxis' directors and officers, contingent on subsequent stockholder approval of the 2015 Plan. Id. at ¶ 3. The following Director Defendants were members of the Compensation Committee at the time the 2015 Awards were issued: Appel, Berman, and Sidransky (collectively, the "Committee Defendants"). Id. at ¶¶ 21-22, 25.

Plaintiff claims that the 2015 Awards were a "drastic break" from the compensation practices previously adopted by the Compensation Committee. Id. at ¶ 3. Specifically, Plaintiff alleges that in 2013, the Compensation Committee adopted a compensation strategy (the "2013 Compensation Policy"),⁴ which directed that each non-employee Advaxis director would receive yearly compensation of $100,000 at the start of the fiscal year, in either cash or equity, but at least 50% equity, at each individual director's discretion. Id. at ¶¶ 3, 43. Additionally, under the 2013 Compensation Policy, each director received a total of 50,000 RSUs in 2013, under the 2011 Plan, that would vest quarterly over the next three fiscal years (2013-2016). Id. at ¶ 3. In conformance with this policy, Advaxis' non-employee directors had already received their $100,000 salary, in equity and/or cash, for the 2015 fiscal year at the time that the 2015 Awards were issued. Id. at ¶ 3. Thus, the 2015 Awards were made in addition to the compensation that the non-executive directors had already received for 2015. Id. at ¶¶ 46-49.

Plaintiff alleges that Defendants conspired to approve the 2015 Plan and the 2015 Awards, on March 30, 2015, because Defendants had knowledge that certain information was about to be released to the public (the "April Disclosures") that would cause Advaxis' stockprice to increase. Id. at ¶ 50. In this manner, Plaintiff alleges that Defendants "spring-loaded" the 2015 Awards by ensuring that they would be in-the-money almost immediately after issuance. Id. at ¶ 50. During the month of April 2015, "the Company's stock price increased over 75%, going from $13.44, the Company's closing price on March 30, 2015" and the strike price⁵ given to the 2015 Awards, "to close at $23.61 on April 23, 2015." Id. at ¶ 5. Based on this increase, within a month of the issuance of the 2015 Awards, Plaintiff asserts that Defendants made a "paper profit of over $15.8 million." Id. at ¶ 5.

Plaintiff alleges that the April Disclosures were comprised of three public announcements of new information that caused the Advaxis stock price increase during April 2015. Id. at ¶ 50. First, on April 8, 2015, Advaxis announced that in cooperation with Merck, Advaxis had initiated its Phase 1/2 clinical trial to evaluate the combination of ADXS-PSA (Advaxis' product) and KEYTRUDA® (pembrolizumab) in patients with previously treated, metastatic castration-resistant prostate cancer. Id. at ¶ 51. On the heels of this news, Advaxis' stock price jumped from $15.39 per share to $18.10 per share. Id. at ¶ 52. Second, Aduro Biotech, Advaxis' competitor, commenced its initial public offering ("IPO") on April 15, 2015. Id. at ¶ 53. According to Plaintiff, Advaxis' stock price experienced a "halo effect" in anticipation of Aduro's IPO, and increased to $21.78 per share on April 14, 2015. Id. at ¶ 53. Third, on April 20 and 21, 2015, Advaxis announced positive results from its clinical study involving ADX-HER2 at the annual meeting of the American Association for Cancer Research ("AACR"). Id. at ¶ 54. In response to this news, between April 21 and April 23, the Advaxis stock price increased, peaking at $23.61 per share. Id. at ¶ 55.

Although Plaintiff does not allege specific facts demonstrating that on March 30, 2015, Defendants had foreknowledge of the April Disclosures, Plaintiff asserts that such knowledge can be inferred because "[t]he only reasonable conclusion from the timing of the March 30 equity grant is that the Board purposefully awarded the equity to take advantage of a known [upcoming] jump in stock price." Id. at ¶ 57. Specifically, Plaintiff relies on the following allegations to suggest that the timing of the 2015 Awards was suspicious:

(i) the equity grant deviated in timing and amount from the Compensation Committee's historical compensation practices;

(ii) the non-executive directors had already received their compensation for the 2015 fiscal year from the $100,000 base salary and the vesting of the 50,000 RSUs;

(iii) the Company did not have enough stock to grant the awards [under the 2011 Plan], so the Board had to provisionally adopt the [2015 Plan] and the Compensation Committee had to provisionally grant the awards, all subject to a stockholder vote, in order to award the equity before the jump in the Company's stock price;

(iv) the Compensation Committee did not wait until after the stockholders actually approved the 2015 Plan before making the awards;

(v) the Board and the Compensation Committee provided no explanation for why additional awards should be granted in light of the above; and

(vi) the timing of the Company's release of good news and stock price jump immediately after the March 30 grant demonstrates the spring-loading.

Id. at ¶ 57. Based on these alleged facts, Plaintiff claims that the Board knowingly granted the 2015 Awards at a strike price below fair market value, because the market price of Advaxis stock at the end of the day on March 30, 2015 was below what the Board knew to be the true value of the stock. Id. at ¶ 62.

On April 7, 2015, the Board issued a Proxy Statement (the "2015 Proxy") seeking, among other things, stockholder approval of the 2015 Plan, as well as Director Defendants' continuing election to the Board. Id. at ¶ 4, 58. Under the 2015 Proxy, if stockholders voted against adopting the 2015 Plan, the 2015 Awards would not go into effect. Id. at ¶ 4. Likewise, ifDirector Defendants were not re-elected to the Board, their portion of the 2015 Awards would not vest, and they would not reap their full value. Id. at ¶¶ 58, 69.

Plaintiff alleges that Director Defendants made two materially false and misleading statements in the 2015 Proxy, in an attempt to secure stockholder approval of the 2015 Plan and the 2015 Awards: (1) that the 2015 Plan promoted "[s]ound [c]orporate [g]ovenance [p]ractices" and was designed "to include a number of features that reinforce and promote alignment of equity compensation arrangements for employees, officers and non-employee directors with the interests of stockholders and the company," and (2) that stock options under the 2015 Plan "may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date." Id. at ¶¶ 4, 59. Plaintiff alleges that the first statement is materially false or misleading because the 2015 Plan did not promote sound governance, but rather "did the opposite, as spring-loading is a well-established breach of fiduciary duty and the antithesis of sound corporate governance." Id. at ¶ 63. As to the second statement, Plaintiff alleges that this was materially false or misleading because "[w]hile the stock options were technically granted at fair market value, the Compensation Committee and the rest of the Board knew that the Company was about to release positive news that would increase its stock price." Id. at ¶ 62. According to Plaintiff, Director Defendants should have disclosed to stockholders that "the ...