"Laid-off biotech employees sue board members and venture firms
Laid-off employees seek unpaid wages, name investment funds and boards"

The Daily Journal, May 16, 2014 

By Laura Hautala, Daily Journal Staff Writer

Laid-off employees of a defunct biotechnology company sued Merck & Co. Inc. and two venture capital firms Wednesday, seeking unpaid wages and other damages.

It's an unusual proposed class action that argues venture firms are responsible for employment law violations allegedly committed at a company they funded. It even names two individual board members, a move employment lawyers say is untested.

The suit claims the venture firms participated in fraud that transferred the assets of Irvine-based Aviir Inc. to another company after laying off all 85 employees without notice and then filing bankruptcy.

"These actions were taken at the expense of Aviir's hard working employees who were denied pay and benefits," the complaint alleges. Adelsohn v. Merck & Co. Inc. et al., BC545830 (Los Angeles Super Ct., filed May 14, 2014).

The companies named in the suit had representatives sitting on the board of Aviir at the time of the layoffs, the complaint alleges. Representatives from Merck and funder New Leaf Venture Partners declined comment, and the third named company, Bay City Capitol Management IV LLC, did not respond to requests.

Brian S. Kabateck, a plaintiffs' attorney at Kabateck Brown Kellner LLP in Los Angeles, said the layoffs were in violation of the WARN Act, which in California requires 60 days' notice for a mass layoff at a company of Aviir's size. Kabateck filed the suit on behalf of the employees, saying the whole situation "smelled."

The board members were involved in the fraud, he said. "Either they weren't keeping a watchful eye on what they were doing or were aware of it and were part of it."

Kabateck said he doesn't expect the potential damages to be huge - $500,000 for the WARN act violations, plus other penalties, court costs and attorney fees - but "the circumstances were crying out for the lawsuit."

Eric Kingsley, a plaintiffs' attorney at Kingsley & Kingsley in Encino, said the case would hinge on whether board members were really responsible for the layoffs.

"The focus is on who's controlling [the decision making]," he said. Based on precedents in California labor law, the companies could be held liable.

What's more, naming individual board members to the lawsuit enters into untested ground. Bryan Schwartz, a plaintiffs' attorney in Oakland not involved in this case, noted that neither the California Court of Appeal nor the state Supreme Court have said whether board members could be held liable for employment law violations.

Different standards apply to the different claims listed in the lawsuit, Schwartz said. But if the board was making decisions on hiring, firing and wages, "there's a decent chance" that individual board members can be held liable.