Touitou Affirmation Exhibit A
(FILED: NEW YORK COUNTY CLERK 02/17/2017 12/08/2016 01:38 54 PMl INDEX NO. 160298/2016 NYSCEF DOC. NO. 61 RECEIVED NYSCEF: 02/17/2017 12/08/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -------------------------------------------------------------){ STEVEN LISI INDE){ NO: Plaintiff, SUMMONS -against- LOWENSTEIN SANDLER LLP PlaintiffDesignates New York County as the Place oftrial The Basis ofvenue is Defendant's Defendant. Principle Place of Business -------------------------------------------------------------)( TO THE ABOVE NAMED DEFENDANTS: YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve a copy of your amended answer, or, if the complaint in this action and to serve a copy of your answer, or, if the complaint is not served with this summons, to serve a notice of appearance, on the Plaintiffs' Attorneys within (2) days of the service of the summons, exclusive of the day of service (or within (30) days after the service is complete if this supplemental summons is not personally delivered to you within the State of New York); and in case of your failure to appear to answer, judgment will be taken against you by default for the relief demanded in the complaint. Dated: New York, New York December 7, 20 16 LAW OFFICE OF ADAM T. NEWMAN, PC Attorneys for Plaintiff 1 1 of 15
By: V~1- (J~ ~T. Newn'ian, Esq. 2005 Merrick Road, Ste. 305 Merrick, New York 11566 917.658.4200 To: Philip Touitou, Esq. Hinshaw & Culbertson LLP Attorneys for Defendant Lowenstein Sandler LLP 800 Third Avenue, 13th Floor, New York, NY, I 0022 212.471.6211 2 2 of 15
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -----------------------------------------------------------)( STEVEN LISI Plaintiff, -against- VERIFIED COMPLAINT LOWENSTEIN SANDLER LLP Defendant. -------------------------------------------------------------)( Plaintiff, Steven Lisi (hereinafter referred to as "Plaintiff') by his attorneys, Law Office of Adam T. Newman, as and for his Verified Complaint, complaining of the defendants respectfully allege as follows: THE PARTIES 1. That plaintiff is and was at all times hereinafter mentioned a natural person and resident of New York State, County ofnassau. 2. Upon information and belief, defendant Lowenstein Sandler LLP ("Lowenstein") is a limited liability partnership that is actively engaged in the practice of law in the State of New York and other jurisdictions, with a principal place of business at 1251 Avenue of the Americas, New York, New York, 10020. 3. Venue is based on the location of defendant's principal office in New York County. NATURE OF THE CASE 4. This is an action to recover damages incurred as a result of professional malpractice. 3 3 of 15
5. In April, 2015, Lisi hired Lowenstein as his legal representative in connection with the negotiation of the legal terms of his separation from Flamel Technologies SA ("Flamel") and Eclat Phatmaceuticals, LLC. (hereinafter referred to collectively as the "Company"), where he had been employed as a Senior Vice President from June 25, 2012 through April 7, 2016. 6. Lisi had been a client of Lowenstein in both a personal and corporate capacity for several years prior to April, 2015 and was fully familiar with the firm. 7. Lowenstein had negotiated the terms oflisi's employment agreement with the Company in May, 2012 and was fully familiar with the terms of his employment. 8. In or about April4, 2015, with knowledge that the relationship with the Company had grown strained, Lisi contacted Lowenstein with a simple request. He said, "protect me." Lowenstein assured Lisi that they would. 9. As the primary part of his engagement in April, 2015, Lisi requested that Lowenstein draft and negotiate the legal terms of the Agreement with the Company. I 0. The Severance Benefits of the Agreement included, inter alia, the payment of salary and the treatment and vesting of options for 495,000 shares in Flamel Technologies. 11. At all times, Lowenstein was aware that the severance benefits included the treatment and vesting of options for 495,000 shares in Flamel Technologies. 12. Among other things, instead of providing Lisi with sound, reliable and con-ect legal advice on the treatment and vesting of options for 495,000 shares in Flamel Technologies, Lowenstein 4 4 of 15
failed to conduct sufficient independent due diligence and, as a result, failed to give Lisi critical advice regarding the exercise and tax treatment of said options. 13. Lowenstein, through its actions and omissions committed professional malpractice when it failed to advise Lisi of the tax treatment and consequences concerning the exercise of the options included in the severance benefits of the Separation Agreement. 14. Lowenstein, through its actions and omissions committed professional malpractice when it failed to do any due diligence regarding the options granted in connection with his severance benefits. 15. Lowenstein, through its actions and omissions committed professional malpractice when it failed to do any due diligence regarding the procedures and protocols offlamel Technologies regarding the exercise of stock options and the withholding of taxes. 16. Lisi has been injured by Lowenstein's negligence and failure to exercise the reasonable degree of care, skill, diligence and knowledge, and proximately suffered substantial damages in an amount to be proved at trial but believed to be in excess of $5,300,000. BACKGROUND FACTS 17. Lisi was employed as Senior Vice President of the Company between June, 2012 and April, 2015. 18. Pursuant to the terms of his employment, Lisi was granted certain stock options pursuant to a Company Stock Option Plan for the years 2012, 2013, and 2014. 5 5 of 15
19. Though not set forth in the Company Stock Option Plans, the options at issue were non-qualified stock options. 20. As of April, 2015, Lisi had not exercised any options in Flamel. 21. Based on their long association, Lowenstein's negotiation of the initial employment agreement with the Company, and Lowenstein's negotiation of the Agreement, Lowenstein was aware that Lisi had never exercised any options in Flame!. 22. Lowenstein knew or should have known that the options set forth in the Agreement were nonqualified stock options. 23. Lowenstein failed to review the Company Stock Option Plans prior to or during the negotiation of the legal tetms of the Agreement for any advisory regarding treatment of taxes. 24. Lowenstein failed to perform any due diligence whatsoever on the Company's handling and mechanisms for the treatment of tax consequences of an option exercise. 25. Despite the foregoing, Lowenstein and the Company negotiated the legal terms of the Agreement, including the Company's duties to withhold taxes in connection with the severance benefits set forth in the Agreement. 26. It was a foreseeable that the Company would breach its duties under the Agreement. 27. At no time did Lowenstein advise Lisi with respect to the duties of the Company to withhold taxes under the Agreement, including the application of said duty to any exercise of nonqualified stock options. 6 6 of 15
28. At no time did Lowenstein advise Lisi with respect to the tax consequences of any exercise of nonqualified stock options, whether the Company withheld such taxes or if Lisi paid them personally. 29. Lowenstein forwarded the negotiated legal terms of the Agreement to Lisi for execution and advised him that he "was protected." 30. Lisi executed the Agreement in reliance on Lowenstein's assurances and professional representations. Lowenstein's Employee Benefits and Executive Compensation Group 31. Lowenstein represented itself to Lisi as having a prominent, sophisticated legal practice inclusive of a specialization and expertise in employee benefits and executive compensation. 32. Lowenstein's firm website, 1F1FII'.Iowenstein.com, advises clients in its overview, "We' re all about you." 33. Under its Employee Benefit and Executive Compensation section, Lowenstein assures its clients: Our Employee Benefits & Executive Compensation group advises employers and executives on the full range of employee benefit and executive compensation matters. Our clients range from publicly traded and closely held employers with thousands of employees to employers with just a few employees, as well as large public and private pension funds, private equity firms, senior executives, trustees, and fmancial institutions. 34. Lowenstein ftu1her assures its clients: 7 7 of 15
Recognizing that employee benefit programs should never be "one size fits all," we draw on our team's comprehensive knowledge of relevant corporate, tax, employment, labor, and securities laws to help clients create, implement, and administer custom employee benefit programs that meet their specific objectives and requirements. Throughout, we collaborate with a network of professionals, including investment advisors, actuaries, benefit consultants and administrators, financial consultants, banks, insurance companies, and other financial institutions. 35. Lowenstein further advertises: Additionally, we work with corporate clients and individual executives to help them draft and negotiate attractive executive compensation packages, employment agreements, and equity and synthetic equity attangements. We provide proactive, strategic counsel to help our clients maintain compliance with the ever-growing body of regulations, cow1 decisions, and other requirements affecting both employee benefit and executive compensation arrangements. Even the most careful employers, however, can uncover various problems that can be expensive to correct and can create delicate employee relations concerns. Our substantial experience in dealing with plan compliance issues and government authorities uniquely qualifies us to help clients tackle- and resolve- any problem or issue that may arise. 36. Instead of providing Lisi with the "comprehensive knowledge of relevant corporate, tax, employment, labor and securities" to provide accurate and reliable advice consistent with a reasonable degree of care, skill, diligence and knowledge commonly possessed and applied by attorneys in projects of similar scale and scope, Lowenstein negligently failed to perform the routine due diligence required to properly advise Lisi, failed to request or review the Company Stock Option plans, failed to negotiate any mechanism for the facile exercise of the severance benefits including the stock options, and failed to warn or advise Lisi of the legal and/or tax compliance issues raised by the Severance Agreement. 37. Specifically with respect to the practice of Tax law, Lowenstein advises its clients: 8 8 of 15
The quality of tax advice that businesses, founders, and investors receive can mean the difference between a bearable and an unbearable tax burden-indeed, between success and failure. We advise public and private companies, individuals, and investment firms on the tax consequences of their business matters while minimizing risk and advancing their strategic visions. 38. Despite the potential adverse consequences of a multi-million dollar tax liability implicit in the exercise of 495,000 options offlamel stock, Lowenstein provided Lisi with absolutely no advice "on the tax consequences of [his] business matters while minimizing risk" and failed to assist Lisi in "advancing [his] strategic vision[ s]." The Stock Option Exercise 39. Pursuant to the terms of the Agreement, Lisi had a limited amount oftime to exercise the granted and vested options. 40. Lisi divested and sold all shares of Flamel in his possession on or before August, 2015 in preparation for the exercise of the Flamel options. 41. In August, 20 15, Lisi requested that Flamel provide all forms for the exercise of the options delineated in the Agreement. 42. On September 11, 2015, Lisi submitted the paperwork to exercise 495,000 shares offlamel. 43. Lisi began selling short sales in Flame! stock to "lock in" the price offlamel stock pending the receipt of the shares from Flame!, and did so to his utmost capacity, bearing margin losses as needed to minimize any stock fluctuation risk. 9 9 of 15
44. On September 17, 2015, Lisi completed the transfer of funds in full at his strike prices for 495,000 shares of Flamel. 45. On September 24, 2015, at the close of market, Flamel transfeited all495,000 shares to Lisi at Flamel's designated exercise price of$24.03 based on the closing price offlarnel on September 18, 2015. 46. Flamel failed to withhold any stock or money for the purposes of withholding taxes for income or FICA and failed to notify Lisi at any time in 2015 that any taxes were due. 4 7. Over the course of the ensuing days and months, Flamel stock prices dropped substantially and Lisi sold only limited amounts of stock, all at a price in excess of his strike price and for what he believed to be a net gain. 48. By letter dated January 25,2016, received on February 1, 2016, Lisi was first notified by Flame! that the exercise of 495,000 shares constituted income for the purposes of taxes, and that such income was based on the full exercise price of$24.03 per share, resulting in a tax liability to Lisi for 2015 in excess of $4,000,000 relative to the exercise of the subject stock options. 49. At no time prior to February 1, 2016 did Lowenstein advise Lisi that the exercise of options would constitute taxable income as opposed to a capital gain on any realized sale above the strike price. 50. Lisi was thereafter compelled to divest and sell the majority of his remaining Flarnel shares for the purposes ofthe payment oftaxes and since has sold all the shares offlamel granted and/or vested and as set forth in the Agreement, 10 10 of 15
51. Lisi incurred damages and sustained a net loss on the sale of the 495,000 shares of Flame!, the total value of which was below his tax liabilities in connection with the exercise of the referenced options. Damages Incurred 52. Flame! stock traded as high as 26.09 during the months following the execution of the Agreement. 53. The exercise of 495,000 shares constituted a taxable event with potential tax liabilities in excess of $4,000,000. 54. The tax event created a "closed" investment, with a fixed price set at the Company's purported exercise price of$24.03. 55. As a direct and proximate result of Lowenstein's professional negligence, Lisi was unaware that his cost basis for the stock was the exercise price of $24.03 as opposed to the strike price. 56. As a direct and proximate result of Lowenstein's professional negligence, Lisi was unable to capitalize on any course of action that allowed him to receive the optimal market value for the Flame! shares. 57. As a direct and proximate result of Lowenstein's professional negligence, Lisi was unable to account for the tax consequences incurred in connection with an exercise of non-qualified stock options. 11 11 of 15
58. As a direct and proximate result of Lowenstein's professional negligence, Lisi was unable to engage in adequate strategic management regarding the exercise of the Flame! stock options including but not limited to, staggering the exercise of shares to engage in equivalent short sales and/or engaging counter-parties for the transfer of blocks of shares at a fixed price to minimize market fluctuations. 59. As a direct and proximate result of Lowenstein's professional negligence, Lisi was unable to make an informed decision about the exercise of his stock options and/or the sale of the stock. 60. As a direct and proximate result of Lowenstein's professional negligence, Lisi was left vulnerable to the foreseeable consequence of the Company's breach of the Agreement. 61. As a direct and proximate result of Lowenstein's professional negligence, Lisi was left vulnerable to market fluctuations in the stock price of Flame!. AS AND FOR A FIRST CAUSE OF ACTION PROFESSIONAL MALPRACTICE 62. Plaintiff repeats and realleges paragraphs 1 through 61 hereof with the same force and effect as if fully set forth herein. 63. Lowenstein was engaged by Lisi as counsel to protect his interests in connection with the drafting and negotiation of the Agreement, including substantial severance benefits; most notably the granting/vesting of 495,000 options in Flame! stock. 12 12 of 15
64. Lowenstein was aware at all times that Lisi was relying on Lowenstein to advise him as to the terms and conditions of the Agreement. 65. Lowenstein was negligent because it failed to exercise the reasonable care, skill, diligence and knowledge commonly possessed and applied by attorneys operating in the field of employee benefits and executive compensation. 66. In violation of Lowenstein's duty to properly, diligently, and competently issue coitect advice, Lowenstein negligently issued no commentary whatsoever on the legal consequences of the terms of the Agreement, including but not limited to, the potential tax consequences associated with an exercise of nonqualified stock options. 67. But for Lowenstein's professional negligence, Lisi would not have sustained actual and significant losses in the exercise of the stock options. 68. But for Lowenstein's professional negligence, Lisi would have locked in his sales price for all options exercised to allow and account for the fixed exercise price and tax basis. 69. But for Lowenstein's professional negligence, Lisi would have capitalized on the sale of the shares at a fixed and higher price. 70. Lowenstein's conduct in c01mection with its legal work and legal advice constituted professional malpractice. 71. As a direct and foreseeable and proximate result of Lowenstein's professional negligence, carelessness, lack of skill and lack of diligence, Lisi has been injured and suffered substantial damages in an amount to be proved at trial, but not less than $5,300,000. 13 13 of 15
WHEREFORE, based on the foregoing, Plaintiff prays for relief as follows 1. On its First Cause of Action against Lowenstein, judgment in favor of Plaintiff for its damages against Lowenstein, in an amount to be determined at trial, plus prejudgment interest, 2. For costs, disbursements and attorney's fees along with such other and further relief as this Court deems just and proper. Dated: December 7, 20 16 Menick, New York Yours, etc., T. NEWMAN, P.C. ---- - 2005 Menick Road, Ste. 305 Merrick, New York 11566 917.658.4200 14 14 of 15
INDIVIDUAL VERIFICATION I, the undersigned, being duly swom, depose and say: I, STEVEN LISI, am the Plaintiff in the action herein. I have read the foregoing SUMMONS & VERIFIED COMPLAINT, and the same is true to my own knowledge, except as to the matters therein stated to be alleged upon information and belief, and as to those matters I believe them.jt.o..e.e-t:mr.:--- Sworn to before me this 7u' day December, 2016 15 of 15