UDATED July 8, 2015, with comment from QT Vascular, stock performance.
AngioScore last week won a $20 million judgment against co-founder and former board member Eitan Konstantino, after a federal judge ruled that Konstantino violated his duties to AngioScore when he started TriReme Medical, Quattro Vascular and QT Vascular.
AngioScore, which Spectranetics (NSDQ:SPNC) acquired last year for $230 million, accused Konstantino of breaching his fiduciary duties to AngioScore by developing the TriReme’s Chocolate balloon catheter, which competed directly with AngioScore’s AngioSculpt balloon. The Chocolate device won 510(k) clearance from the FDA in June 2014. The lawsuit, filed in June 2012 in the U.S. District Court for Northern California, also accused TriReme, Quattro and QT Vascular (SGX:5I0) of abetting in Konstantino’s alleged breaches.
Judge Yvonne Gonzalez Rogers agreed July 1, ordering Konstantino to disgorge $250,000 received for licensing the Chocolate rights and a 2.85% royalty on sales of the device. Gonzalez Rogers also ordered Konstantino to cough up his roughly 15 million shares in QT Vascular, which were worth about $2 million at their July 2 closing price of ¢13.5 (0.182 SGD), and any profits gleaned from sales of the stock and any remuneration from consulting on the Chocolate device.
The judge also awarded nearly $3.0 million in lost profits and another $17.1 million in future lost profits to AngioScore on future sales from 2014 through the 2nd quarter of 2019. The news sent QT Vascular shares plunging some -36.3% in Singapore, to a SGD 11.6¢ close July 8.
“To say that Konstantino ‘downplayed’ the facts surrounding Chocolate would be an understatement. Konstantino did not inform [AngioScore CEO Tom] Trotter that the development of TriReme’s specialty balloon, which by that point had been called Chocolate for several months, was well underway. He did not disclose his personal role in the development and conceptualization of the device, nor did he disclose that a prototype had been created, a patent application and been submitted, animal testing had occurred, or that he had already engaged potential investors and funding sources,” Gonzalez Rogers wrote.
“Here, the court is confronted with facts establishing that Konstantino, aware of AngioScore’s competition-sensitive information, its then-existing financial condition, design challenges, and business objectives, developed a competing device while on AngioScore’s board and took affirmative steps to exploit it himself while concealing it from AngioScore. At the same time, Konstantino was aware that he owed AngioScore fiduciary duties. On these facts, that Konstantino invented the competitive technology does not serve his argument that he should be absolved of his fiduciary obligations to AngioScore. Rather, it works the opposite effect: Konstantino’s failure to abide by his duty is plainly all the more offensive,” she wrote.
AngioScore said it plans to go after Konstantino for legal costs it advanced him. QYT Vascular said it plans to files an appeal by September and signaled its willingness to pursue the case all the way to he U.S. Supreme Court.
“The defendants have been advised by their U.S. counsel that they have multiple grounds for appeal, and that the decision of the single judge in a federal district court in Northern California contains numerous legal errors, which an experienced panel of judges at the court of appeal may take a differing view of,” the company said in a press release. “Pending the conclusion of the appeal and final resolution of the state law claims, the defendants do not intend to make any payments to AngioScore.”
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