COMMITMENTS AND CONTINGENCIES | NOTE 12. COMMITMENTS AND CONTINGENCIES Leases and Sublease Agreements On October 1, 2013, the Company entered into building lease for office space located at One Kendall Square in Cambridge, Massachusetts. In August 2014, Retrophin ceased use of the facility at One Kendall Square and all employees formerly located at this facility moved into the new facility on Binney Street, Cambridge, Massachusetts. In March 2015, the Company entered into a termination agreement with the landlord and paid an $80,000 lease termination fee. On February 28, 2014, the Company amended its lease agreement for its offices located in Carlsbad, California. In October 2014, Retrophin ceased use of this facility, and all employees formerly located at that facility moved into the new headquarters facility in San Diego, California. In March 2015, the Company entered into an agreement to sublease a portion of the Carlsbad California lease for a three year term with an annual rent of approximately $56,000 annually with annual rent escalations. Research Collaboration and Licensing Agreements As part of the Company's research and development efforts, the Company enters into research collaboration and licensing agreements with unrelated companies, scientific collaborators, universities, and consultants. These agreements contain varying terms and provisions which include fees and milestones to be paid by the Company, services to be provided, and ownership rights to certain proprietary technology developed under the agreements. Some of these agreements contain provisions which require the Company to pay royalties, in the event the Company sells or licenses any proprietary products developed under the respective agreements. Contractual Commitments The following table summarizes our principal contractual commitments, excluding open orders that support normal operations, as of June 30, 2015 (in thousands): Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating Leases $ 2,095 $ 1,041 $ 1,054 $ - $ - Other commitments 3,060 437 1,236 1,387 - $ 5,155 $ 1,478 $ 2,290 $ 1,387 $ - Legal Proceedings On June 13, 2014, Charles Schwab & Co., Inc. (“Schwab”) sued the Company, Standard Registrar and Transfer Company (“Standard”), Jackson Su (“Su”), and Huang in federal court in the Southern District of New York (Charles Schwab & Co. v. Retrophin, Inc., Case No. 14-cv-4294). The complaint alleges that the defendants misled Schwab in connection with its sale of Company stock owned by Su and Huang. Schwab contends that Su and Huang improperly advised it that their Company stock was not restricted. Schwab’s claim against the Company is based on an agency theory. Schwab contends that it has incurred in excess of $2.5 million in damages as a result of the alleged misinformation. Su and Huang have asserted cross-claims against the Company and Standard for alleged negligent misrepresentation premised upon an alleged failure to inform them of restrictions on the sale of their Company stock. Su and Huang have also impleaded Katten Muchin Rosenman LLP as a third-party defendant. The Company has filed motions to dismiss Schwab’s claims, as well as Su’s and Huang’s cross claims. Those motions are fully briefed, but have not yet been decided by the court. On August 5, 2015, the parties submitted a stipulation of voluntary dismissal to the court agreeing to the dismissal with prejudice of Schwab’s claims. Su’s and Huang’s cross claims and third-party claims are not covered by the stipulation, and are still pending. On September 19, 2014, a purported shareholder of the Company sued Martin Shkreli, the Company’s former Chief Executive Officer, in federal court in the Southern District of New York (Donoghue v. Retrophin, Inc., Case No. 14-cv-7640). The Company is a nominal defendant in this action. The plaintiff seeks, on behalf of the Company, disgorgement of short-swing profits from Mr. Shkreli under section 16(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78(p)(b)). The first amended complaint alleged that, based on trades in the Company’s stock between November 2013 and November 2014, Mr. Shkreli realized short-swing profits in excess of $1.75 million, which belong to the Company. In December 2014, Mr. Shkreli filed an answer to the first amended complaint, in which he, among other things, admitted to owing the Company over $0.6 million in short-swing profits. On June 19, 2015, after obtaining leave from the court, the plaintiffs served a second amended complaint which seeks disgorgement of short-swing profits in excess of $2 million. The parties are currently engaged in discovery. The Company will record the money to be received from this claim at such time in the future should cash be received by the Company from Mr. Shkreli. On October 20, 2014, a purported shareholder of the Company filed a putative class action complaint in federal court in the Southern District of New York against the Company, Mr. Shkreli, Marc Panoff, and Jeffrey Paley (Kazanchyan v. Retrophin, Inc., Case No. 14-cv-8376). On December 16, 2014, a second, related complaint was filed in the Southern District of New York against the same defendants (Sandler v. Retrophin, Inc., Case No. 14-cv-9915). The complaints assert violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with defendants’ public disclosures during the period from November 13, 2013 through September 30, 2014. In December 2014, plaintiff Kazanchyan filed a motion to appoint lead plaintiff, to approve lead counsel, and to consolidate the two related actions. On February 10, 2015, the Court consolidated the two actions, appointed lead plaintiff, and approved lead counsel. Lead plaintiff filed a consolidated amended complaint on March 4, 2015, which again named the Company, Mr. Shkreli, Mr. Panoff, and Mr. Paley as defendants, but which also named Steven Richardson, Stephen Aselage, and Cornelius Golding as additional defendants. On May 26, 2015, with the consent of the lead plaintiff, the court ordered that the claims against Mr. Paley be dismissed. The remaining defendants, including the Company, have filed motions to dismiss the consolidated amended complaint. In January 2015, the Company received a subpoena relating to a criminal investigation by the U.S. Attorney for the Eastern District of New York. The subpoena requests information regarding, among other things, the Company’s relationship with Mr. Shkreli and individuals or entities that had been investors in investment funds previously managed by Mr. Shkreli. The Company has been informed that it is not a target of the U.S. Attorney’s investigation, and is cooperating with the investigation. The Company has also begun cooperating with a parallel investigation by the U.S. Securities and Exchange Commission. As of June 30, 2015 no accruals for loss contingencies have been recorded since these cases are neither probable nor reasonably estimable. From time to time the Company is involved in legal proceedings arising in the ordinary course of business. The Company believes there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on its results of operations or financial condition. On January 7, 2014, the Company sued Questcor Pharmaceuticals, Inc. (“Questcor”) in federal court in the Central District of California (Retrophin, Inc. v. Questcor Pharmaceuticals, Inc., Case No. SACV14-00026-JLS). The Company alleged that Questcor violated antitrust laws in connection with its acquisition of rights to the drug Synacthen, and sought injunctive relief and damages. The Company asserted claims under sections 1 and 2 of the Sherman Act, section 7 of the Clayton Act, California antitrust laws, and California’s unfair competition law. On June 4, 2015, pursuant to the terms of a Confidential Settlement Agreement and Release (the “Settlement Agreement”) the Company and Questcor filed a Stipulation of Dismissal, dismissing the Company’s lawsuit against Questcor. Under the terms of the Settlement Agreement, Questcor paid the Company $15.5 million, recorded as “Litigation Settlement Gain” in the quarter ended June 30, 2015, and the Company and Questcor granted a mutual release of all claims against the other. |