Durham venture capital firm A.M. Pappas & Associates has won the first round of a contentious legal battle with former Chimerix CEO Kenneth Moch that was sparked by an allegedly malicious smear campaign.
Moch’s lawsuit against the firm and two of its top executives, which contended that they had perpetrated an “extortion scheme” against him, was dismissed by an Orange County Superior Court judge last week.
The dismissed lawsuit also named Art Pappas and Ford Worthy, a partner and chief financial officer at the venture capital firm, as defendants.
Both Pappas and Worthy said they were pleased with the judge’s ruling.
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Winston-Salem attorney Jeffrey Patton, who represents Moch, said his client was considering whether to appeal.
Moch’s lawsuit, which accused the venture capital firm of unfair and deceptive trade practice and abuse of process, was filed in November just hours after Moch himself was named the defendant in a libel lawsuit filed by Pappas.
That libel lawsuit, which remains active, contends Moch sent a series of anonymous emails to Pappas’ investors and others that raised questions about “potential misuse of funds” at the firm. Pappas has labeled the emails “vicious” and “a complete fabrication” that Moch sent even though he lacked “any documentary support for his allegation.”
Papps contends that Moch sent them because he was “resentful and angry that he was no longer CEO of Chimerix.”
Art Pappas, the founder of the venture capital firm, was a member of Chimerix’s board of directors when Moch left the business.
Moch abruptly resigned from Chimerix in April 2014 following a headline-making controversy that ensued when the company initially refused to make its experimental drug available to combat a potentially fatal virus contracted by a critically ill first-grader. Moch argued that selectively making the drug available would be unethical, but before he departed the company worked out a pilot program with federal regulators that made it available to the child and 20 others in similar situations.
Moch has admitted in court papers that he authored the emails and that he did so anonymously so that the recipients “would focus on the message and not the messenger” and out of fear that Pappas would retaliate against him “for simply raising these legitimate concerns.”
Moch asserted in his lawsuit that he was merely exercising his First Amendment rights by passing on comments received “from current and former general partners” at Pappas about its operations.
Moch’s lawsuit also argued that the venture capital firm had threatened him with a lawsuit as well as criminal prosecution “even though he violated no laws” in an effort to force him to pay $10 million in damages and provide information in an unrelated lawsuit Pappas had filed against a former general partner, Eric Linsley.
Moch’s lawsuit also noted there was no press coverage of the emails until Pappas filed a libel lawsuit against the unknown “John Doe or Jane Doe” who sent them. Pappas subsequently used the subpoena power that comes with filing a legal complaint to identify Moch as the anonymous emailer.
Judge James E. Hardin Jr.’s one-page order dismissing Moch’ lawsuit doesn’t detail his reasons for doing so.
But Pappas argued in its motion to dismiss that the actions that Moch contended were extortion were part of a “measured response” to reach an out-of-court settlement before pursuing legal action.
“North Carolina law is clear – settlement negotiations by counsel cannot form the basis for a claim of unfair and deceptive trade practices,” the firm’s motion contended.
“While we do have the utmost respect for the court’s ruling,” Patton said, “it is of course disheartening that, as this stage, Pappas has been able to essentially hide behind the conduct of their lawyers as if Pappas was not driving the the attempts to intimidate Mr. Moch into paying them millions of dollars.”
Pappas focuses on investing in life science companies and has managed $450 million in capital since it was founded in 1994.