Sales of assets and sales of businesses always face a looming threat of bankruptcy if the consideration is stock or later payments. In Lobesity LLC v Thompson Hine LLP
2025 NY Slip Op 34701(U) December 4, 2025 Supreme Court, New York County
Docket Number: Index No. 159051/2024 Judge, Joel M. Cohen found that there was virtually no way to protect against a bankruptcy filing two years after the transaction and that distribution of the shares after restrictions would not have benefited Plaintiff, but rather might have benefited its shareholders, who were not parties.

“As described below, Lobesity claims that Defendants failed to advise and/or protect
Lobesity against the risk that 9 Meters might someday file for bankruptcy (which it did two years after the transaction based on unrelated events); failed to promptly transfer restricted shares of 9 Meters’ stock to Lobesity’s shareholders after the transaction; and failed to take actions during the 9 Meters bankruptcy that purportedly could have prevented Lobesity’s Asset (which it had sold to 9 Meters) from being acquired by a third party (which outbid a group that included one of Lobesity’s founders). In a nutshell, Lobesity seeks to shift to its legal counsel the economic loss Lobesity suffered when its chosen business partner went under. For the following reasons, Defendants’ motion to dismiss Lobesity’s complaint is granted.

BACKGROUND
According to the Amended Complaint, Lobesity was formed in 2014 by M. Michael
Wolfe, MD (“Dr. Wolfe”) and Michael O. Boylan, Ph.D. emanating from their research at The MetroHealth Medical Center (“MHS”), a teaching hospital of Case Western Reserve University in Cleveland, Ohio. Lobesity was formed for the purpose of research and development of intellectual property focused on treating obesity (NYSCEF 5 [“Am. Compl.”] ¶¶ 10, 16).
Lobesity alleges that its rights under several patents for potential obesity treatments “represented the ‘Asset’ of Lobesity.” (id. ¶ 20).
In 2017, Lobesity engaged Thompson Hines as counsel via a written engagement letter.
That letter states that the firm was engaged “in connection with general legal representation, which may include various corporate licensing, tax, employee benefit, and regulatory matters.” (id. ¶ 22).
Lobesity sought to find an entity that would be able to “fund and market the Asset,” and
ultimately selected 9 Meters for that purpose (id. ¶¶ 28-30). An Asset Purchase Agreement (“APA”) was negotiated with counsel for 9 Meters by Defendants Charles and Vaughan on behalf of Lobesity, and provided that Lobesity’s Asset (including license rights under certain MHS patents) would be sold to 9 Meters in exchange for: 1) $2 million in cash, 2) $3 million of
9 Meters’ stock and 3) conditional “milestone and Royalty payments.” (id. ¶¶ 31-32).
According to the Amended Complaint, the APA restricted Lobesity’s ability to dispose of
the stock portion of the consideration. Specifically, 75% of the stock, approximately 1.8 million shares, could be “monetized” in January 2022 and the remaining 600,000 shares in January 2023 (id. ¶32). Nevertheless, Lobesity asserts that members of its management wanted to promptly distribute those shares directly to Lobesity’s shareholders after the transaction but Vaughan recommended that the stock be retained and distributed only after it could be monetized. The Board relied on Vaughan’s recommendation and agreed to delay the distribution (id. ¶¶ 33-34).
Lobesity alleges that at a Lobesity Board meeting in January 2022 (when the APA restriction on “monetizing” a portion of the acquired shares expired), Vaughn “was explicitly instructed to arrange for the distribution of 1.8 million shares of the stock” but did not do so (id. ¶ 35). At a subsequent board meeting in June 2022, after Vaughn had left the firm, the Board asked Charles what happened to the stock distribution, to which Charles allegedly replied that it was her understanding that it had been distributed at the time of closing (id. ¶¶38-39).
Around the same time, 9 Meters began experiencing “significant problems” with other
drugs in its development pipeline, causing the price of its stock to “plummet” (id. ¶¶ 41-43). When the stock was eventually distributed in the Spring of 2023, it was “essentially worthless as 9 Meters was on the verge of bankruptcy.” (id. ¶44).”

““A cause of action for attorney malpractice requires: (1) the negligence of the attorney;
(2) that the negligence was the proximate cause of the loss sustained; and (3) proof of actual damages” (Cabrera v Collazo, 115 AD3d 147, 148 [1st Dept 2014] [internal quotations marks omitted]). “In order to survive dismissal, the complaint must show that but for counsel’s alleged malpractice, the plaintiff would not have sustained some actual ascertainable damages” (Pellegrino v File, 291 AD2d 60, 63 [1st Dept 2002]).
Here, Lobesity alleges that Defendants ignored its instructions to transfer the stock, that they never made any effort to protect against a potential 9 Meters bankruptcy, and that they negligently failed to assert timely objections and preserve the rights of Lobesity in the 9 Meters bankruptcy proceedings. As discussed below, Lobesity’s allegations fail to plead a viable claim for relief.”

“First, the “reversion clause” that Lobesity purportedly directed Defendants to include in
the APA (to permit Lobesity to claw back its Asset in the event of a 9 Meters bankruptcy) would have been unenforceable as a matter of law. Section 541(c) of the United States Bankruptcy Code states, in relevant part, that an interest of the debtor in property becomes property of the bankruptcy estate “notwithstanding any provision in an agreement . . . (A) that restricts or conditions transfer of such interest by the debtor; or (B) that is conditioned on the insolvency or financial condition of the debtor . . . and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor’s interest in property” (11 USC § 541(c)(1); see Garcia v Garcia, 2016 NY Slip Op 32780[U], 3-4 [Sup Ct, Kings County 2016] [“Although the operating agreement for that LLC provides in § 11.1 for an automatic disassociation of a member upon ‘the bankruptcy of [that] Member,’ such provision is rendered unenforceable under 11 USC
§ 541 (c) (1) (B)”]).
Lobesity does not seriously contest that a “reversion clause” – the only specific
bankruptcy protection referenced in the Amended Complaint – would be unenforceable under that provision. Instead, in opposition to this motion Lobesity now speculates that “many lawful and enforceable restrictions” could have been included, referencing the possibility of placing Lobesity’s Asset in a trust or escrow rather than transferring it outright to 9 Meters in an Asset Purchase Agreement (see NYSCEF 25 at 7-8, citing “11 U.S.C. § 541(b), (c)(2) and (d) (‘A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title’) (property is included ‘only to the extent of the debtor’s legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold’)”). Even assuming such a radically different transaction structure would pass must under the bankruptcy laws, there is no factual allegation (or reasonable inference) to suggest that 9 Meters would have had any interest in developing a drug in which it did not have a direct ownership interest just to satisfy Lobesity’s purported concerns about a potential bankruptcy or that Lobesity would have walked away from the transaction unless 9 Meters had agreed to such a change. Any such allegation would, in any event, be too speculative to support a viable malpractice claim (Citidress II Corp. v Tokayer, 105 AD3d 798, 798 [2d Dept 2013]).
Next, as to the failure to distribute the stock as directed, even assuming that this request was made and that Defendants had the authority and ability to “distribute” stock to shareholders (not an obvious outside counsel function), the purported harm of this “failure” was not suffered by Lobesity but instead by its shareholders.”