Shares of Abattis Bioceuticals (OTCQX:ATTBF) (CSE:ATT) declined early Monday after the company unleashed a lawsuit filed in Washington against prior employees of its subsidiary, PhytaLab, as well as former business associates and directors and competitor Affinor Growers.
The company, in a statement released after market Friday, said it filed suit for damages and injunctive relief in US Federal Court in Washington State against prior PhytaLab employees Dr. Kaleb Lund and Ms. Lauren Hilty, former business associate James Baxter, rival Affinor Growers, former Abattis director Nick Brusatore and Herbal Analytics employee Erin Leary.
PhytaLab is owned 51 percent by Abattis through its subsidiary. The company was the first laboratory to provide testing services in Washington State for medical cannabis under state law. It recently announced that it received provisional certification from the Washington State Liquor Control Board, enabling it to provide services for the new legal Cannabis industry in the state.
According to Abattis, in early September, Dr. Lund and Ms. Hilty, who were part owners of PhytaLab, gave the company 30-days notice of their resignations as managers. Prior to the effective date of their resignations, but after providing notice, they joined Baxter and Affinor Growers to incorporate a new Washington State limited liability company called Herbal Analytics.
Abattis said the purpose of the new company is to compete with PhytaLab in providing testing services for medical cannabis in Washington State.
"Last week Abattis obtained information that indicates that certain of the defendants, in conspiracy with the other defendants, stole confidential and proprietary information belonging to PhytaLab for the purpose of using PhytaLab's proprietary information to prepare an I-502 application with the state of Washington, to re-create PhytaLab's laboratory facilities and business model, and to take business from PhytaLab," it added.
The company filed suit against the former employees for breaching their fiduciary duties as managers of PhytaLab. The two employees were also appointed as ongoing consultants of Abattis. As an emergency motion, a hearing on the matter is anticipated to take place within the next 2-3 business days, Abattis said on Friday, with a temporary restraining order to be put in place at that time.
A full hearing for a preliminary injunction to run until the conclusion of legal proceedings is expected to occur some time within 30-45 days, Abattis said.
"Our shareholders have been financially attacked by individuals who owed an absolute duty of loyalty and goodwill to the company," said chairman and chief executive of Abattis, Mike Withrow.
"We will use all legal avenues available to us to stop their anticompetitive activity and recapture any and all losses suffered and any gains they made from their actions.
"Abattis welcomes spirited competition but we will not stand idly by and allow nefarious schemes to derail the execution of our best-in-class business model."
The company added that it has since replaced the staff at PhytaLab, and appointed Katherine Maloney and Kyle Shelton to join the team.
Abattis cultivates, licenses and markets proprietary ingredients, bio-similar compounds, patented equipment and consulting services to medicinal markets in North America. Shares were down 10.5 percent at 25.5 cents as of 11:30am ET on Monday.