In this case, a venture-backed company founder sold a portion of his common stock in two tranches, then sued the board and two venture capital firms when the company was sold a year later. The founder claimed that the venture capital firms and the board had failed to disclose material information to him at the time of his stock sales regarding the sale of one of the company's patents. The defendants brought motions to dismiss the case. The court dismissed all claims as to the board, finding that it had not taken any board action on these private sales. The court also dismissed all claims relating to the first tranche of sales, because all of the purchases were made by a third party who was not alleged to have had the undisclosed information. The court also dismissed all but two claims relating to the second tranche of sales, in which the two venture capital firms that were already investors in the company had participated as buyers. As to the two remaining claims, the court ruled, at the motion to dismiss stage, that because plaintiffs had alleged that some of the stock sales had occurred outside the mechanics of a simple exercise of the venture capital firms' contractual rights of first refusal, it was possible to state a claim. The court also suggested that if the plaintiff had alleged nothing more than a straightforward exercise of the contractual rights of first refusal, it likely would have dismissed all of the claims.
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