OrthoClear Holdings, Inc. ("OrthoClear" or th Company) is an American cosmetic dentistry company.
The original Complaint alleges that the directors and certain officers of OrthoClear deceived investors by failing to disclose that OrthoClear's business was substantially based on patents and other intellectual property stolen from Align Technology, Inc. ("Align"). The Complaint also alleges that investors were misled about the nature and prospects for litigation brought by Align, and that after settling with Align, OrthoClear unlawfully distributed a substantial portion of the settlement funds to venture capital investor 3i Group PLC.
The Complaint alleges that within weeks of OrthoClear's launch, Align -- OrthoClear's sole competitor -- filed multiple law suits alleging OrthoClear had stolen Align's intellectual property, infringed its patents and used its propriety customer information without consent. OrthoClear Holdings raised $10-20 million from investors in private placements of Class A, B, and C Preferred Convertible Shares, while assuring potential investors that Align's claims and lawsuits were wholly without merit.
On the eve of first trial between Align and OrthoClear (and without warning) OrthoClear abandoned its defense of the Align litigation, announcing that it had entered into a settlement that required it to assign its intellectual property to Align and exit the orthodontic aligner business in return for a payment of only $20 million. In a letter to shareholders in October 2006, OrthoClear admitted for the first time that it was likely to lose the litigation with Align, and further acknowledged that the costs of prosecuting and defending the Align lawsuits were prohibitive.
The Complaint alleges that false and fraudulent statements made in OrthoClear's Purchase Agreements, press releases, and oral presentations assured that the operation of OrthoClear's business did not infringe any patent or other proprietary right of Align. The Complaint further alleges that, instead of using the $20 million for the benefit of all its shareholders, OrthoClear unlawfully refunded all or a significant portion of the $10 million investment made by 3i. It is alleged this distribution violated OrthoClear's own Memorandum of Association and applicable laws governing corporate distributions. It is also alleged this action constituted a breach of fiduciary duty by OrthoClear's current and former directors.
NOTE: The Class consists of investors who purchased Class A, B and C Preferred Convertible Shares between January 2005 and September 2006.
On April 12, 2007, the Plaintiffs filed a First Amended Class Action Complaint and later filed a Second Amended Complaint on July 24, 2007. On August 7, 2007, certain Defendants filed a motion to dismiss Counts III, V and VIII of Plaintiffs' Second Amended Class Action Complaint. On October 26, 2007, Defendants filed a motion to dismiss the Second Amended Complaint. By the Order issued by U.S. District Judge Jeffrey S. White on January 18, 2008, the Court granted Defendants OrthoClear and the D&O Defendants’ motion to dismiss and 3i and Badawi’s motion to dismiss. This ruling is without prejudice to Plaintiffs filing a third amended Complaint.
On February 19, 2008, the Plaintiffs filed a Third Amended Class Action Complaint. On March 24, 2008, the Defendants filed motions to dismiss the Third Amended Complaint. On February 27, 2009, District Court Judge Jeffrey S. White granted the Defendants’ motions to dismiss without leave to amend. Judgment was entered in favor of Defendants and against Plaintiffs. The case is now closed.
On March 26, 2009, the Plaintiffs filed a Notice of Appeal as to the Judgment and Order dismissing the action. According to the Mandate from the Ninth Circuit Court of Appeals entered on April 23, 2010, the parties have stipulated to the dismissal of this appeal under Fed. R. App. P. 42(b). This appeal is dismissed.
