IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA TAKEDA PHARMACEUTICALS U.S.A., INC., et al., Plaintiffs, CIVIL ACTION NO. 17-452 v. SPIRIDON SPIREAS, Defendant. TABLE OF CONTENTS I. INTRODUCTION .................................................................................................................. 4 II. BACKGROUND .................................................................................................................... 6 A. Spireas And Bolton Develop And Patent Their Liquisolid Technology And Form Hygrosol Pharmaceutical Corporation To Market The Technology ................................ 6 B. Mutual PA And United Enter Into An Agreement (“1998 Agreement”) With Spireas, Bolton, And Hygrosol To License The Liquisolid Technology To Develop Generic Drug Products ..................................................................................................... 7 C. Spireas and Bolton Receive Four (4) Liquisolid Technology Patents ........................... 10 D. Spireas Begins Working for Mutual PA, And Mutual PA And United License The Liquisolid Technology from Hygrosol to Develop Felodipine and Propafenone ...........11 E. Mutual PA And United Remit Royalty Payments To Hygrosol For Felodipine And Propafenone Drugs Pursuant To The 1998 Agreement .................................................. 13 F. In 2011, Mutual PA And United Sue Spireas, Bolton, And Hygrosol In State Court .... 16 G. Takeda Pharmaceuticals Acquires Mutual PA And United In 2012, And Sells The Generic Drug Business Of Mutual PA And United To Sun Pharmaceutical in 2013 .... 17 H. In 2013, The Internal Revenue Service (“IRS”) Challenges Spireas’ Treatment Of The Hygrosol Royalty Payments ................................................................................... 18 I. Ensuing Procedural History Of This Case ..................................................................... 19 III. STANDARD OF REVIEW .................................................................................................. 24 1 IV. ANALYSIS ........................................................................................................................... 25 A. Mutual Delaware Has Standing To Sue Under The 1998 Agreement ........................... 26 B. United Has Standing To Sue Under The 1998 Agreement ............................................ 27 C. Genuine Disputes Of Material Fact Exist As To Whether United Paid Royalties To Hygrosol Under The 1998 Agreement ...................................................................... 31 1. Enough Evidence Has Been Offered To Create Genuine Disputes Of Material Fact As To Whether United Made Royalty Payments Under The 1998 Agreement From 2002 To 2013 ............................................................ 32 2. Genuine Disputes Of Material Fact Exist As To Whether Mutual Delaware, A Successor To United, Made Royalty Payments Under The 1998 Agreement ... 35 D. Genuine Disputes Of Material Fact Exist As To Whether Spireas Received Royalty Payments From Hygrosol For Felodipine And Propafenone Under The 1998 Agreement ...................................................................................................... 36 1. Hygrosol Received Royalty Payments Under The 1998 Agreement And Then Distributed The Royalty Payments To Spireas And Bolton ........................ 38 2. Whether The Royalty Payment Passed Through Hygrosol Before Reaching Spireas Has No Effect On Mutual Delaware’s Claim For Money Had And Received ................................................................................................................ 40 3. On Its Claim for Breach of Contract, Mutual Delaware Is Entitled To Seek Royalty Payments Made By United To Hygrosol Under The 1998 Agreement ... 41 E. The October 2018 Settlement Agreement Between Takeda, Spireas, And Hygrosol Does Not Preclude Mutual Delaware’s Claims ..................................... 45 F. Genuine Disputes Of Material Fact Exist As To Whether Mutual Delaware And United Made Royalty Payments Under The 1998 Agreement Voluntarily As A Result Of An Unprovoked Mistake Of Law............................................................... 48 G. Spireas Is Not Entitled To Summary Judgment Based On Claim Preclusion ................ 49 H. Genuine Disputes Of Material Fact Preclude Judgment As A Matter Of Law On Spireas’ “Companion” Motion For Summary Judgment On Mutual Delaware’s Claim For Money Had And Received Based On False Pretenses ............................................ 52 1. Mutual Delaware Is Not Required To Prove Fraud In Order To Maintain Its Claim For Money Had And Received .............................................................. 53 2 2. Genuine Disputes Of Material Fact Have Been Shown As To Whether Spireas Made Material Misrepresentations to Mutual PA And/Or United In Connection With The 1998 Agreement ................................................................. 54 3. Genuine Disputes Of Material Fact Have Been Shown As To Whether Mutual PA And/Or United Justifiably Relied On Spireas’ Representations That They Were Selling Drugs That Contained The Patented Technology .......... 56 V. CONCLUSION ..................................................................................................................... 59 3 OPINION Slomsky, J. September 3, 2019 I. INTRODUCTION On June 12, 1998, Defendant Spiridon Spireas (“Spireas”), his business partner, Dr. Sanford Bolton (“Bolton”),1 and the company they formed together, Hygrosol Pharmaceutical Corp. (“Hygrosol”), executed a licensing agreement (the “1998 Agreement”) with Mutual Pharmaceutical Company, Inc., a Pennsylvania corporation (“Mutual PA”), and its sister corporation, United Research Laboratories, Inc. (“United” or “URL”). Under the 1998 Agreement, Spireas and Bolton, through Hygrosol, granted Mutual PA and United the exclusive right to license their patent-pending “liquisolid technology” to use in formulating and developing generic drug products. Liquisolid technology is a process through which non-soluble drugs can be dissolved and converted into powder or pill form. In March of 2000, Mutual PA and United licensed Spireas’ and Bolton’s now-patented liquisolid technology to develop generic propafenone and felodipine drug products, the active ingredients in the drugs Rythmol and Plendil, which are used respectively to treat irregular heart rates and high blood pressure. Under the terms of the 1998 Agreement, Spireas successfully developed formulations for felodipine and propafenone drug products for Mutual PA and United, after which Mutual PA and United began manufacturing and selling the drugs. In exchange for granting Mutual PA and United the right to their liquisolid technology, Spireas and Bolton received hundreds of millions of dollars from Mutual PA and United as royalties on the felodipine and propafenone products. 1 Dr. Bolton is not a party to this action. In 2011, Dr. Bolton passed away and his estate now holds “any rights and bears any obligations imposed” on him under the 1998 Agreement. (Doc. No. 64-1 at 5.) 4 In 2017, Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”), the successor-in-interest to Mutual PA, uncovered testimony that Spireas had given in a tax court proceeding unrelated to this case. During those proceedings, Spireas testified that the formulations he made for propafenone and felodipine under the 1998 Agreement did not use his and Bolton’s patented liquisolid technology. Consequently, Takeda filed this case, alleging that Spireas had breached the 1998 Agreement by misrepresenting the formulations of felodipine and propafenone. Takeda sought to recoup the $150 million in royalties that were paid to Spireas under the 1998 Agreement. At the motion to dismiss stage of these proceedings, based on Spireas’ argument that United was a necessary and indispensable party to this case, the Court ordered that Takeda join Mutual Pharmaceutical Company, Inc. (“Mutual Delaware”), the successor-in-interest to United, as a Plaintiff in this case. Takeda joined Mutual Delaware as a Plaintiff and, together, the parties filed an Amended Complaint against Spireas, alleging a claim for breach of contract (Count I), and claim for money had and received (Count II). In October of 2018, Takeda resolved its claims against Spireas in a settlement and was voluntarily dismissed from the case, leaving Mutual Delaware as the only remaining Plaintiff. On February 28, 2019, Spireas filed a Motion for Summary Judgment challenging Mutual Delaware’s claims for breach of contract and money had and received (Doc. No. 60), as well as a second Motion for Summary Judgment specifically on Mutual Delaware’s claim for money had and received (Doc. No. 61). In the second Motion, Spireas argues for summary judgment on this claim to the extent that Mutual Delaware premises the claim on allegations of Spireas’ fraudulent conduct. (Doc. No. 61.) These Motions are ripe for a decision. For the reasons discussed below, the Motions will be denied. 5 II. BACKGROUND A. Spireas And Bolton Develop And Patent Their Liquisolid Technology And Form Hygrosol Pharmaceutical Corporation To Market The Technology While a Ph.D. raymondrodriguez@example.org. John’s University, Spiridon Spireas met Sanford Bolton, who became his doctoral advisor. (Appendix (“App.”) 297, 1126.)2 Together, Spireas and Bolton developed their own “liquisolid technology,” a process through which insoluble drugs are dissolved in non-volatile solvents and then converted into powder or pill form. (App. 1133-1134.) Subsequently, Spireas and Bolton sought to protect their liquisolid technology in a patent, and they submitted patent application No. 08/658,514 to the U.S. Patent and Trademark Office (“PTO”) on June 10, 1996. (App. 54-57.) On January 2, 1997, while the patent application was still pending, Spireas and Bolton formed Hygrosol Pharmaceutical Corporation (“Hygrosol”). This company was formed to be a vehicle for “explor[ing] commercial interest in their liquisolid inventions.” (Doc. No. 64-1 at 8- 9; App. 49, 53.) Hygrosol was organized as a Delaware closely-held corporation, meaning that Spireas and Bolton were Hygrosol’s only two shareholders and officers. (App. 46, 53.) Hygrosol was also formed as an S-corporation, which meant that for tax purposes, it did not recognize income at the corporate level, but rather passed any income due through to Spireas and Bolton, who reported the income on their personal tax returns. (App. 47.) After forming Hygrosol and while the first patent application for their liquisolid technology was still pending, Spireas and Bolton submitted a second liquisolid patent application (Application 2 The Appendix (“App.”) and Confidential Appendix (“Conf. App.”) citations as used in this Opinion refer to the original Appendix and Confidential Appendix, and the supplements that have been submitted by the parties in connection with their summary judgment briefing. (App., Doc. Nos. 60-2, 60-3, 64-4, 64-5, 64-6, 64-7, 69-1; Conf. App., Doc. Nos. 62, 62-1, 66, 70, 77- 2, 78.) Because the Appendix and Confidential Appendix have been submitted multiple times on the docket, for ease of reference, the Court will refer to the App. or Conf. App. citation as opposed to the specific docket entry number. 6 No. 08/937,240) to the U.S. PTO on October 1, 1997. (Doc. No. 64-2 at 9; App. 58.) The second patent application was a “division” of the first application, intended to cover Spireas’ and Bolton’s “process claims” for the liquisolid technology as opposed to the first application which covered their “product claims.” (App. 1134.) B. Mutual PA And United Enter Into An Agreement (“1998 Agreement”) With Spireas, Bolton, And Hygrosol To License The Liquisolid Technology To Develop Generic Drug Products In the late 1990s, around the same time Spireas and Bolton were developing and patenting the liquisolid technology, Spireas formed his own pharmaceutical consulting company, SigmaPharm, Inc. (App. 1127.) Through SigmaPharm, Inc., Spireas began consulting with Mutual Pharmaceutical Company, Inc., a Pennsylvania corporation (“Mutual PA”), and became friendly with Richard H. Roberts, M.D., Ph.D. (“Roberts”), the President and Chief Executive Officer of both Mutual PA and Mutual PA’s sister corporation, United Research Laboratories, Inc. (“United”).3 (App. 53, 1127.) At the time, Mutual PA was in the process of trying to develop several generic drug products. In 1998, Spireas and Roberts began negotiating an agreement with Mutual PA and United to allow them to license Spireas’ and Bolton’s liquisolid technology for the development of new generic drugs. On June 1, 1998, in anticipation of entering into an agreement with Mutual PA and United, Spireas and Bolton held an annual meeting for Hygrosol. (App. 53.) At the meeting, Spireas and Bolton agreed to assign Hygrosol their liquisolid patents once the patents were approved so that Hygrosol, as opposed to Spireas and Bolton individually, could license the liquisolid technology to Mutual PA and United. (Id.) Spireas and Bolton recorded their assignment 3 As discussed in more detail infra, Mutual PA and United were “sister” corporations because they were both subsidiaries of the corporation URL Pharma, Inc. 7 agreement in the minutes of Hygrosol’s annual meeting, but otherwise took no steps to legally complete the assignment process. On June 12, 1998, Spireas, Bolton, and Hygrosol executed the licensing agreement (the “1998 Agreement”) with Mutual PA and United, giving these two entities exclusive rights to develop drug products using the liquisolid technology. (Doc. No. 64-1 at 4; App. 1-16.) The rights outlined in the 1998 Agreement were as follows: 2.1 Spireas, Bolton and Hygrosol grant to Mutual and United: 2.1.1 The exclusive rights to utilize the Technology to develop products that Mutual, United and Hygrosol, acting in good faith, will unanimously select. Hygrosol, Spireas, and Bolton shall supervise the development of said Products. 2.1.2 The exclusive right to produce, market, sell, promote and distribute (collectively, to “Produce and Sell”) in the markets of the United States of America said Products containing the Technology. Depending on the marketing strategy used for each Product and agreed by both parties, Hygrosol may extend to Mutual and United the exclusive right to Produce and Sell a certain Product on a world- wide basis. (App. 2.) These rights were triggered once Mutual PA, United, and Hygrosol collectively agreed on a product to develop using the “Technology”: The period during which Mutual and United shall have the exclusive right to Produce and Sell the Products identified by the parties as described herein commences as soon as: (a) said Product is identified by either party and agreed upon in writing by Hygrosol, Mutual and United; and (b) Mutual and United pay Spireas a sum of $10,000 as an initial development fee to conduct preliminary feasibility studies related to the Product’s development (as further described in Section 5.1 below). (App. 2 at § 2.2.) “Technology” was defined as the technology “which is the subject of the Patent.” (App. 1.) “Patent” was defined in the Agreement as the technology in Spireas’ and Bolton’s first patent application No. 08/658,514. (Id.) While application No. 08/658,514 was still pending at the time 8 the 1998 Agreement was executed, Spireas and Bolton had “obtained notice of allowance of their patent claims” made in the application such that approval of the patent was imminent. (Id.) Section 19 of the Agreement memorialized Spireas’ and Bolton’s anticipated assignment to Hygrosol of the patent based on application No. 08/658,514: The parties acknowledge that after the assignment of the Patent from Spireas and Bolton to Hygrosol, Spireas and Bolton will no longer have an individual interest in the Patent or the Technology (except as shareholders of Hygrosol). Accordingly, after such assignment all consents, approvals, actions, and decisions to be made hereunder by Hygrosol, Spireas and Bolton need be made only by Hygrosol. In addition, Hygrosol, Spireas and Bolton represent, warrant and covenant with Mutual and United that during the term of this Agreement each of Bolton and Spireas, acting alone, shall have the authority to bind Hygrosol in all matters relating to this Agreement. (Id. at 15, § 19.) The 1998 Agreement also set forth the way Hygrosol, Spireas, and Bolton would be compensated for granting the rights to the liquisolid technology. The Agreement provided that once Mutual PA and United began making a profit on the drugs developed under the Agreement, Mutual PA and/or United would compensate Hygrosol based on a percentage of that drug’s sales: If Mutual or United submits a New Drug Application (NDA) or an Abbreviated New Drug Application (ANDA) for a Product developed hereunder and manufactures and sells this Product, then twenty percent (20%) of the gross profit will be paid to Hygrosol quarterly. (Id. at 3, § 4.1.) Finally, although the 1998 Agreement was signed by Mutual PA, United, Hygrosol, Spireas, and Bolton, Section 17 provided that the obligations of the parties pursuant to the Agreement would be “binding upon, and shall insure to the benefit of the parties hereto and their heirs, executors, administrators, successors and assigns.” (Id. at 15, § 17.) 9 C. Spireas And Bolton Receive Four (4) Liquisolid Technology Patents On September 1, 1998, after executing the 1998 Agreement with Mutual PA and United, Spireas and Bolton officially received their first liquisolid technology patent for application No. 08/658,514 – U.S. Patent No. 5,800,834 (the “834 Patent”). (Doc. No. 64-2 at 9; App. 54.) Then, over a year later, on October 19, 1999, Spireas and Bolton were issued their second liquisolid patent based on application No. 08/937,240 – U.S. Patent No. 5,968,550 (the “550 Patent”). (Doc. No. 64-2 at 9; App. 58.) Shortly after executing the 1998 Agreement, Spireas and Bolton submitted an application for a third liquisolid patent on August 19, 1998. (App. 62.) Based on this application, Spireas and Bolton received U.S. Patent No. 6,096,337 (the “337 Patent”) on August 1, 2000. (Id.) The 337 Patent was a “continuation-in-part” of the 834 and 550 Patents, covering additional specifications for the liquisolid technology products and processes. (Id.) On May 10, 2000, before the 337 Patent was approved, Spireas, without Bolton, submitted an application for a fourth and final liquisolid patent. (Id. at 66.) On July 23, 2002, the application was approved and Spireas received U.S. Patent No. 6,423,339 (the “339 Patent”). (Id.) The 339 Patent was a “continuation” of the 834, 550 and 337 Patents. (App. 66, 1135.) Although Spireas and Bolton were supposed to assign their liquisolid patents to Hygrosol immediately upon issuance, Spireas admitted during his deposition that neither he nor Bolton knew how to accomplish the assignment process. (App. 1133.) It was not until Spireas received the advice of counsel in October of 2006 that he formally assigned all four liquisolid patents to Hygrosol. (App. 574, 1133, 1135.) 10 D. Spireas Begins Working For Mutual PA, And Mutual PA And United License The Liquisolid Technology From Hygrosol To Develop Felodipine And Propafenone In the late 1990s, Mutual PA was in the process of trying to develop generic felodipine and propafenone drugs, which are the active ingredients in the drugs Plendil and Rythmol, used respectively to treat high blood pressure and irregular heart rates. (Doc. No. raymondrodriguez@example.org.) Mutual PA was interested in developing generic propafenone and felodipine because no other company had yet done so. However, Mutual PA’s efforts at the time were proving to be unsuccessful. For example, for propafenone, Mutual PA had attempted to sub-license the formulation from Knoll Pharmaceutical Company, the maker of Rythmol, but the agreement fell through. (App. 290.) For felodipine, Mutual PA had attempted its own formulation, but was advised that their formulation risked infringing on the Plendil patent owned by AstraZeneca. (App. 200-10.) In 1999, in part to overcome the problems in the manufacture of the two drugs, Roberts offered Spireas a job as Mutual PA’s Vice President of Research and Development, and Spireas accepted the position. (App. 17, 1139-41.) In this role, Spireas was responsible for overseeing the development of drugs for Mutual PA, which necessarily included Mutual PA’s attempts to develop felodipine and propafenone. (Id.) Importantly, Spireas’ job responsibilities at Mutual PA were distinct from the obligations he owed to the company under the 1998 Agreement. In March of 2000, Mutual PA and United decided to invoke their rights under the 1998 Agreement and license Spireas’ and Bolton’s liquisolid technology from Hygrosol to develop “generic bioequivalent versions of Rythmol4 and Plendil Extended-Release5 . . . .” (App. 32.) On 4 Rythmol is the brand name of a drug used to treat arrhythmias. The active ingredient in Rythmol is propafenone. (Doc. No. raymondrodriguez@example.org.) 5 Plendil is the brand name of a drug used to treat hypertension. The active ingredient in Plendil is felodipine. (Doc. No. raymondrodriguez@example.org.) 11 March 7, 2000, Mutual PA, United, and Hygrosol memorialized the license in a letter signed by Roberts, on behalf of Mutual PA and United, and Spireas, on behalf of Hygrosol. (App. 32.) Shortly thereafter, and in accordance with his obligation under the 1998 Agreement to personally oversee the development of drug products, Spireas successfully developed formulations of generic felodipine and propafenone for Mutual PA and United. (Doc. No. 64-3 at 6.) On June 6, 2000, Mutual PA submitted an Abbreviated New Drug Application (“ANDA”) to the Food and Drug Administration (“FDA”) for generic felodipine extended-release tablets. (Doc. No. 64-3 at 6; App. 346.) In connection with the felodipine ANDA, “URL/Mutual” created internal product development reports that explained Spireas’ formulation for the felodipine tablets. (App. 1024-1052.) The product development reports, among other things, included a broad overview of the development process for felodipine, as well as a detailed review of Spireas’ formulation technique. (Id.) In the felodipine report submitted as part of the record for the felodipine 10 mg tablets, the abstract stated as follows: Extended release tablets containing 10 mg of felodipine, a calcium channel blocker, and denoted as Felodipine ER tablets, 10 mg were developed based on novel methodology relevant to the patented technique of Liquisolid Systems. (Id. at 1025.) On September 28, 2000, Mutual PA submitted an ANDA to the FDA for generic propafenone tablets. (Doc. No. 64-3 at 6; App. 346.) In connection with the propafenone ANDA, “URL/Mutual” compiled propafenone product development reports similar to the ones created for felodipine. (App. 987-1023.) The abstract of the propafenone report submitted as part of the record stated as follows: Propafenone HCI tablets containing 300 mg of propafenone HCI, an antiarrhythmic agent, were developed based on a novel methodology relevant to the patented technique of Liquisolid Systems (Patent # US5,968,550). 12 (App. 987.) Spireas was an integral part of creating the product development reports for felodipine and propafenone. He testified during his deposition that he was “preparing” or “being consulted for the language, the scientific stuff in any of these product development reports, especially the ones with the high technologies, high tech.” (App. 1146.) Following Mutual PA’s submission of the ANDAs to the FDA, Mutual PA and, as Mutual Delaware alleges, United,6 began selling and distributing generic felodipine and propafenone drugs. (Doc. No. 64-1 at 25; Confidential Appendix (“Conf. App.”) 1-7.) E. Mutual PA And United Remit Royalty Payments To Hygrosol For Felodipine And Propafenone Drugs Pursuant To The 1998 Agreement Beginning in 2002, Mutual Delaware contends that both Mutual PA and United paid royalties to Hygrosol pursuant to the 1998 Agreement based on a percentage of their sales from generic felodipine and propafenone. From 2002 until the first quarter of 2005, Mutual PA and United remitted royalty payments to Hygrosol by check, which were drawn on an account in the name of Mutual PA. (Doc. No. 64-1 at 25; Conf. App. 1-7, 374.) Starting with the second quarter of 2005, Mutual PA and United began remitting royalty payments to Hygrosol via wire transfers, which were also drawn on an account in the name of Mutual PA. (Doc. No. 64-1 at 25, Conf. App. 374.) On July 22, 2005, in preparation for the first wire transfer payment, Spireas wrote an email to Richard A. Kremer (“Kremer”), the Director of Finance for Mutual PA and United. (Conf. App. 332.) In the email, Spireas confirmed with Kremer that, “[a]s per our conversation, URL/Mutual 6 Spireas contends that United never made payments for felodipine and propafenone under the 1998 Agreement, and that any royalty payments made to Hygrosol under the 1998 Agreement were remitted only by Mutual PA. As discussed later in the Opinion, this is a factual issue that will be raymondrodriguez@example.org. To the extent the Opinion references United making royalty payments under the 1998 Agreement, it does so based on Mutual Delaware’s allegation that both United and Mutual PA paid Hygrosol royalties. No determination is being made that United did in fact make payments under the 1998 Agreement. 13 will make the payment for the Second-Quarter-2005 royalties due to Hygrosol next week.” (Id.) Spireas also provided Kremer with the wire transfer information for Hygrosol’s account. (Id.) On July 29, 2005, Kremer wrote an email to Spireas and Bolton to confirm that Mutual PA and United had remitted a royalty payment to Hygrosol via wire transfer. (Conf. App. 333.) Kremer also attached to his email documentation supporting Mutual PA’s and United’s royalty calculations. (Conf. App. 335-338.) From then on, each wire transfer followed a format similar to the first one. Kremer would accompany Mutual PA’s and United’s wire transfer with an email and, attached to the email, Kremer would send Hygrosol a formal cover letter and documentation showing a breakdown of Mutual PA’s and United’s royalty calculations. In his emails, Kremer often stated the amount being transferred into Hygrosol’s account were being made to Hygrosol by “URL/Mutual.” (Conf. App. 348, 362, 367, 372, 377, 382, 387, 392, 397, 402, 407, 412, 417, 422, 428, 433, 438, 443.) In the formal cover letters, Kremer would simply state that “Mutual Pharmaceutical Company, Inc.” had completed the corresponding wire transfer to Hygrosol. (Conf. App. 333, 340, 349, 353, 358, 363, 368, 373, 378, 383, 389, 393, 398, 403, 408, 413, 418, 423, 429, 434, 439, 444, 449, 454, 459, 464, 469, 474, 479, 484.) Most of the time, the documentation showing the royalty calculations for felodipine and propafenone were broken down into sales/payments for Mutual PA and United, respectively. (Conf. App. 355-56, 359-60, 364-65, 369, 375, 400, 410, 415, 420-21, 426-27, 431-32, 436-37, 441-42, 446-47, 451-52, 456-57, 461-62, 466-67, 471-72, 476-77, 481- 82, 486-87, 489-92.) Mutual PA and United kept close track of each wire transfer in their respective books and records. According to the declaration of Susan Perilli, United’s Assistant Controller from September 2005 to July 2013, while wire transfer payments to Hygrosol were drawn on Mutual 14 PA’s account, “the payments represented the total amounts of royalties owed by both Mutual PA and URL.” (App. 1422.) After each wire transfer, United “would then make an inter-company transfer to Mutual PA and thereby reimburse Mutual PA for [its] portion of the royalty payments owed under the License Agreement.” (App. 1422-23.) In order to keep track of what United and Mutual PA respectively owed under the 1998 Agreement, “Mutual PA and URL each had their own National Drug Code (“NDC”) labels under which they would sell these generic drugs.” (App. 1420.) Mutual PA and United also used separate “Company Codes” to track their sales of felodipine and propafenone – Mutual PA used assigned Code 100 and United used assigned Code 99. (App. 1422.) Based on their NDC labels and Company Codes, “the allocation of sales, revenues, royalty payments and other expenses between Mutual PA and URL . . . were based on the actual sales that each company separately made of felodipine and propafenone products, and their respective expenses.” (App. 1422.) Mutual PA and United remitted royalties to Hygrosol under the 1998 Agreement for felodipine and propafenone until the fourth quarter of 2012. Beginning with the first quarter of 2013, Mutual Delaware took over making the royalty payments in 2013 to 2015 for felodipine and propafenone under the 1998 Agreement. (See Doc. No. 64 at 27-29; App. 133-137.) As explained in more detail below, Mutual Delaware claims that in 2013 it began remitting royalty payments to Hygrosol for felodipine and propafenone because by that time, its parent corporation, Sun Pharmaceuticals Industries, LTD (“Sun Pharma”) had acquired United’s generics business, and Mutual Delaware had begun manufacturing and distributing the drugs. (Doc. No. raymondrodriguez@example.org.) In any event, once Hygrosol received a royalty payment under the 1998 Agreement, the evidence shows that payments would automatically be distributed to Spireas and Bolton. (Doc. No. 64-1 at 27-28; App. 1150-51.) Spireas testified during his deposition that he and Bolton had 15 an agreement under which Spireas would receive fifty-five percent of the payments to Hygrosol for felodipine, and fifty percent of the payments to Hygrosol for propafenone. (App. 1150.) F. In 2011, Mutual PA And United Sue Spireas, Bolton, And Hygrosol In State Court Although the present action was not initiated until 2017, the parties to the 1998 Agreement were involved in a prior state court action in 2011. On May 5, 2011, Mutual PA and United sued Spireas, Bolton, and Hygrosol in the Philadelphia County Court of Common Pleas for, among other things, breach of contract and fraudulent misrepresentation in connection with the 1998 Agreement. (App. 139.) The state court action arose after Mutual PA and United learned that St. John’s University, where Spireas and Bolton had first met, had filed a federal lawsuit against Spireas, Bolton, and Hygrosol, asserting ownership rights to Spireas’ and Bolton’s liquisolid patents.7 (App. 139-159.) Consequently, Mutual PA and United sued Spireas and Bolton in state court, claiming that Spireas, Bolton, and Hygrosol had misrepresented their ownership rights to the patents and had fraudulently induced Mutual PA and United to enter into the 1998 Agreement. (App. 147-148.) In response to the state court complaint, Spireas and Hygrosol filed thirteen counterclaims against Mutual PA and United. (App. 507-573.) Spireas and Hygrosol alleged, among other things, that Mutual PA and United were liable for intentionally concealing and reducing royalty payments owed to Hygrosol under the 1998 Agreement for various drug products. (Id.) St. John’s University ultimately settled its lawsuit with Spireas, Bolton, and Hygrosol. This led to Spireas, Hygrosol, and Bolton’s Estate8 filing a motion for summary judgment on June 25, 7 St. John’s University settled its lawsuit against Spireas, Bolton, and Hygrosol on January 16, 2015. (App. 180.) 8 By the time the state court issued its opinion, Bolton had passed away and his estate had taken over the litigation on his behalf. (App. 179.) 16 2015 regarding Mutual PA’s and United’s state court complaint. (App. 189.) On March 16, 2016, the Court of Common Pleas granted summary judgment in favor of Spireas, Bolton, and Hygrosol, which the Superior Court affirmed on April 3, 2017. (App. 179-191.) Spireas’ and Hygrosol’s counterclaims were not resolved in the Court of Common Pleas opinion. Instead, the counterclaims were later resolved privately in a settlement agreement executed on October 18, 2018 between Spireas, Hygrosol, and Takeda (who, by then, had become the successor-in-interest to Mutual PA).9 (App. 138-60.) G. Takeda Pharmaceuticals Acquires Mutual PA And United In 2012, And Sells The Generic Drug Business of Mutual PA And United To Sun Pharmaceutical in 2013 In 2012, Takeda acquired URL Pharma, Inc., the parent corporation of Mutual PA and United. (Doc. No. 64-2 at 3.) Then, in February 2013, Takeda sold URL Pharma, Inc.’s generic drug business to Sun Pharmaceutical Industries, LTD (“Sun Pharma”). (Doc. No. 64-2 at 3.) This sale included URL Pharma, Inc.’s assets which included felodipine and propafenone. (Doc. No. 64-2 at 3.) The Sun Pharma acquisition marked the end of Mutual PA’s and United’s relationship as sister corporations, since Takeda retained ownership over Mutual PA while United joined URL Pharma, Inc. to become a subsidiary of Sun Pharma. (Doc. No. 64-2 at 3; App. 596, 598.) In addition to Sun Pharma’s acquisition of United/URL Pharma, Inc. in February 2013, Sun Pharma acquired on May 2, 2013 the Plaintiff in this case, Mutual Delaware. (Doc. No. 64-2 at 3; App. 923.) Not to be confused with Mutual PA, Mutual Delaware is, as its name suggests, a Delaware corporation that was formed on July 11, 2012. (Doc. No. 64-2 at 3; App. 923.) 9 See Section II.G., infra. This is the same settlement agreement that resolved the claims Takeda asserted against Spireas in this case. (App. 138-160.) 17 Two years later, in April 2015, United/URL Pharma, Inc. merged with another subsidiary of Sun Pharma named URL Pharma, Inc., a Delaware corporation (“URL Delaware”).10 (Doc. No. 64-2 at 4; App. 952-954.) Shortly after United/URL Pharma, Inc. merged into URL Delaware, URL Delaware merged into Mutual Delaware. (Doc. No. 64-2 at 4; App. 955-957.) As a result, Mutual Delaware absorbed United in 2015. H. In 2013, The Internal Revenue Service (“IRS”) Challenges Spireas’ Treatment Of The Hygrosol Royalty Payments In 2013, the Internal Revenue Service (“IRS”) served a deficiency notice on Spireas and his wife for their treatment on their personal tax returns of the royalty payments Spireas received from Hygrosol. (Doc. No. 64-3 at 9; Doc. No. raymondrodriguez@example.org.) During the ensuing tax court proceedings, Spireas made statements indicating that his patented liquisolid technology was not actually used in his formulations of felodipine and propafenone under the 1998 Agreement. (App. 1222-1414.) For example, Spireas testified before the United States Tax Court as follows: Question: So I’m just going to ask you some question about Exhibits 1, 2, and 3 collectively. Who were the inventors on patents 1 [the 834 Patent], 2 [the 550 Patent], 3 [the 337 Patent]? Answer: Myself and Mr. Bolton. Question: And did these patents cover the felodipine and propafenone formulation technologies? Answer: Definitely not. (App. 1293-94; see also Conf. App. 579-80.) Moreover, in Spireas’ answering brief, filed with the tax court in 2015 after the trial, he specifically denied that his felodipine and propafenone formulations used the patented technology: 10 United’s parent corporation, URL Pharma, Inc., and URL Delaware appear to have the same name, but URL Pharma, Inc. and URL Delaware were two distinct corporations prior to the merger. (Doc. No. 64-3 at 4.) 18 Respondent surreptitiously attempts to conflate Dr. Spireas’ unique and patentable felodipine and propafenone technologies with the distinctly different technologies included in Dr. Spireas’ four liquisolid patents. By suggesting that Dr. Spireas did not somehow transfer all substantial rights to the “liquisolid patents” to URL/Mutual, respondent attempts to imply that the same is true for the patentable felodipine and propafenone technologies, which it is not. The four issued liquisolid patents could not be used to develop the felodipine and propafenone generic products that generated the royalty income here. . . . (App. 1073.) I. Ensuing Procedural History Of This Case Following the discovery of Spireas’ Tax Court testimony, Takeda initiated this case by filing a Complaint against Spireas on January 31, 2017. (Doc. No. 1.) In the Complaint, Takeda alleged that Spireas had falsely represented to Mutual PA that the felodipine and propafenone drug products were created by using the patented liquisolid technology and, for this reason, Spireas was not entitled to any royalty payments made by Mutual PA pursuant to the 1998 Agreement. (Doc. No. 1.) Takeda alleged claims against Spireas for fraud/misrepresentation (Count I), breach of contract (Count II), breach of duty of loyalty (Count III), breach of fiduciary duty (Count IV), conversion (Count V), and money had and received (Count VI). (Id.) On April 3, 2017, Spireas filed a Motion to Dismiss the Complaint in its entirety under Federal Rule of Civil Procedure 12(b)(6). (Doc. No. 16.) In the Motion to Dismiss, Spireas argued that (1) Takeda’s claims were barred by res judicata, or claim preclusion, as a result of the related state court action; (2) Takeda’s fraud claims (Count I) were implausible; (3) the Complaint must be dismissed for Takeda’s failure to join United as a necessary and indispensable party; (4) Takeda’s claims for fraud/misrepresentation (Count I), breach of duty of loyalty (Count III), breach of fiduciary duty (Count IV), conversion (Count V), and money had and received (Count VI) were barred by the applicable statutes of limitation with the exception of the claim for breach of contract 19 (Count II); and (5) Takeda’s claims with the exception of the breach of contract claim were barred by the gist of the action doctrine. (Id.) On October 3, 2017, the Court issued an Opinion (Doc. No. 33) and Order (Doc. No. 34), granting in part and denying in part the Motion to Dismiss. The Court rejected in part Spireas’ arguments and held that (1) Takeda’s claims were not barred by res judicata, and (2) Takeda’s claims for fraud/misrepresentation (Count I), breach of duty of loyalty (Count III), breach of fiduciary duty (Count IV), conversion (Count V), and money had and received (Count VI) were not barred by the applicable statutes of limitations. (Doc. No. 33.) As to Spireas’ argument regarding the gist of the action doctrine, the Court agreed with Spireas that the gist of the action doctrine barred Takeda’s claims for fraud/misrepresentation (Count I), breach of duty of loyalty (Count III), breach of fiduciary duty (Count IV), and conversion (Count V), but disagreed that it barred Takeda’s claim for money had and received (Count VI). The Court held that Takeda had sufficiently stated a claim for breach of contract (Count II) and for money had and received (Count VI) to survive Spireas’ Motion to Dismiss. On the issue of joinder, the Court agreed with Spireas that United was a necessary and indispensable party to the case, but because United no longer existed, the Court ordered that Mutual Delaware, United’s successor-in-interest, be joined in its place. (Id. at 20-25) The Court also afforded Takeda leave to amend the Complaint. (Id. at 41-42.) On October 24, 2017, Takeda and Mutual Delaware, together as Plaintiffs, filed an Amended Complaint against Spireas, alleging claims only for breach of contract (Count I) and money had and received (Count II).11 (Doc. No. 35.) Almost exactly one year later, on October 11 In the Amended Complaint, Takeda and Mutual Delaware preserved for appeal the previously- dismissed claims of fraud/misrepresentation, breach of duty of loyalty, breach of fiduciary duty, and conversion. (Doc. No. raymondrodriguez@example.org.) 20 25, 2018, Takeda filed a stipulation informing the Court that it had settled its claims with Spireas and was therefore agreeing to voluntarily dismiss its claims in this case. (Doc. No. 45.) Consequently, on October 29, 2018, the Court entered an Order dismissing Takeda as a Plaintiff in the case pursuant to Federal Rule of Civil Procedure 41. (Doc. No. 46.) Thus, Mutual Delaware remained as the only Plaintiff. On February 28, 2019, Spireas filed the present Motions for Summary Judgment against Mutual Delaware.12 (Doc. Nos. 60, 61.) In his first Motion, Spireas seeks summary judgment on Mutual Delaware’s claims for breach of contract and money had and received. (Doc. No. 60.) Spireas argues that (1) Mutual Delaware lacks standing to sue for breach of contract because only Mutual PA invoked the 1998 Agreement when it signed the March 2000 letter licensing the liquisolid technology for felodipine and propafenone; (2) Mutual Delaware lacks standing to sue for breach of contract because its alleged predecessor-in-interest, United, also lacks standing; (3) Mutual Delaware cannot recover payments made to Hygrosol because there is no evidence that United ever paid Hygrosol; (4) Mutual Delaware cannot maintain its claims because the royalty payments under the 1998 Agreement were made to Hygrosol, not to Spireas; (5) Mutual Delaware cannot recover the royalty payments made to Hygrosol because it would involve disregarding the corporate veils of Mutual PA and United, as well as the corporate veil of Hygrosol; (6) Mutual Delaware’s claims are barred by the settlement reached between Spireas and Takeda; (7) even if United/Mutual Delaware made payments under the 1998 Agreement, they did so because of a 12 On the same day, Mutual Delaware filed a Daubert Motion to Exclude the Opinions and Report of Defendant’s Proffered Expert, Gregory Cowhey (Doc. No. 59). Defendant filed a Response in Opposition on March 28, 2019 (Doc. No. 65). This Motion will be resolved in an Order filed contemporaneously with this Opinion. 21 mistake of law, not a mistake of fact; and (8) Mutual Delaware’s claims are barred by res judicata and collateral estoppel as a result of the state court action. (Id.) In the second Summary Judgment Motion, Spireas seeks judgment specifically regarding Mutual Delaware’s claim in Count II for money had and received based on alleged false pretenses. (Doc. No. 61.) In this Motion, Spireas argues that he is entitled to summary judgment on the money had and received claim because the claim rests on Mutual Delaware’s allegations that Spireas intentionally misrepresented to Mutual PA and United that his patented liquisolid technology was being used in his felodipine and propafenone drug products. (Id.) Spireas contends that Mutual Delaware cannot maintain the claim because Mutual Delaware has no evidence to show that Spireas engaged in such fraudulent conduct or made the alleged misrepresentations. (Id.) Spireas also argues that Mutual Delaware cannot maintain this claim because Mutual PA made an informed decision to pay Hygrosol royalties under the 1998 Agreement based on its extensive knowledge about the felodipine and propafenone formulations, and not because it was “tricked” by Spireas. (Id.) On March 28, 2019, Mutual Delaware filed a Response in Opposition to both Motions for Summary Judgment. (Doc. No. 64.) In response to the first Motion, Mutual Delaware argues that (1) both United, and Mutual Delaware, as United’s successor-in-interest, have standing to sue under the 1998 Agreement; (2) genuine disputes of material fact exist as to whether United/Mutual Delaware made royalty payments under the 1998 Agreement such that summary judgment is improper; (3) Mutual Delaware can maintain a claim for breach of contract and money had and received because evidence in the record shows that Spireas, and not just Hygrosol, received royalty payments under the 1998 Agreement; (4) Spireas’ arguments about piercing the corporate veil are irrelevant and nevertheless fail; (5) the settlement agreement executed between Takeda and Spireas 22 does not preclude Mutual Delaware’s claims in this case; (6) Mutual Delaware made royalty payments to Spireas because of his “fraudulent and inequitable conduct,” not because of a mistake of law; and (7) Spireas cannot argue that Mutual Delaware’s claims are barred by res judicata or collateral estoppel because the same argument was rejected at the motion to dismiss stage of these proceedings. (Id.) In response to the second Motion for Summary Judgment, Mutual Delaware argues that summary judgment as to its claim for money had and received is improper because (1) genuine disputes of material fact exist as to whether Spireas received money from Mutual Delaware; (2) there is a genuine dispute of material fact as to whether Spireas made misrepresentations about felodipine and propafenone; and (3) that Mutual PA’s knowledge about felodipine and propafenone formulations is irrelevant to the fact that Mutual PA and United were tricked by Spireas into believing that the propafenone and felodipine formulizations used his patented technology. (Id.) On April 12, 2019, Spireas filed Reply Briefs in support of both of his Motions for Summary Judgment (Doc. Nos. 68, 69). On July 2, 2019, the Court held a hearing on the Motions for Summary Judgment and heard oral argument from counsel for Mutual Delaware and Spireas. Following the hearing, the Court entered an Order allowing the parties additional time to submit supplemental memoranda on the Motions for Summary Judgment. (Doc. No. 72.) On July 29, 2019, Spireas submitted a supplemental brief in support of his Motions for Summary Judgment (Doc. No. 76), and Mutual Delaware submitted a supplemental Response in Opposition to the Motions (Doc. No. 77). The Motions for Summary Judgment are now ripe for disposition. For the reasons that follow, the Motions will be denied. 23 III. STANDARD OF REVIEW Granting summary judgment is an extraordinary remedy. Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). In reaching this decision, the court must determine whether “the pleadings, depositions, answers to interrogatories, admissions, and affidavits show there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.” Favata v. Seidel, 511 Fed. App’x 155, 158 (3d Cir. 2013) (quoting Azur v. Chase Bank, USA, Nat’l Ass’n, 601 F.3d 212, 216 (3d Cir. 2010)). A disputed issue is “genuine” only if there is a sufficient evidentiary basis on which a reasonable jury could find for the non-moving party. Kaucher v. County of Bucks, 455 F.3d 418, 423 (3d Cir. 2006) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). For a fact to be considered “material,” it “must have the potential to alter the outcome of the case.” Favata, 511 Fed. App’raymondrodriguez@example.org. Once the proponent of summary judgment “points to evidence demonstrating no issue of material fact exists, the non-moving party has the duty to set forth specific facts showing that a genuine issue of material fact exists and that a reasonable factfinder could rule in its favor.” Id. (quoting Azur, 601 F.3d at 216). In deciding a motion for summary judgment, “[t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.” Id. (alteration in original) (quoting Chambers ex rel. Chambers v. Sch. Dist. of Philadelphia Bd. of Educ., 587 F.3d 176, 181 (3d Cir. 2009)). The Court’s task is not to resolve disputed issues of fact, but to determine whether there exist any factual issues to be tried. Anderson, 477 U.S. at 247-49. Whenever a factual issue arises which cannot be resolved without a credibility determination, at this stage the Court must credit the nonmoving party’s evidence over that presented by the moving party. Id. at 255. If there is no factual issue, and if only one reasonable conclusion could arise from the record regarding the 24 potential outcome under the governing law, summary judgment must be awarded in favor of the moving party. Id. at 250. IV. ANALYSIS As previously noted, Spireas has filed two motions for summary judgment. In his first, all- encompassing Motion, Spireas argues for summary judgment on Mutual Delaware’s claims for breach of contract (Count I), and money had and received (Count II). (Doc. No. 60.) Spireas argues that there are no genuine issues of material fact and that he is entitled to judgment as a matter of law on both claims because (1) neither Mutual Delaware nor United have standing to sue under the 1998 Agreement; (2) Mutual Delaware cannot recover money that United may have transferred to Mutual PA, but never paid directly to Hygrosol; (3) Spireas never received payments under the 1998 Agreement, only Hygrosol did; (4) Mutual Delaware cannot pierce the corporate veils of Mutual PA, United, and Hygrosol in order to maintain its claims against Spireas; (5) Takeda has already released any viable claims against Spireas by virtue of the October 2018 settlement agreement; (6) the payments made by Mutual PA under the 1998 Agreement were made voluntarily and, if anything, as a result of an unprovoked mistake of law; and (7) Mutual Delaware’s claims in this case are barred by the doctrines of res judicata and collateral estoppel because they are duplicative with the claims asserted by Mutual PA and United in the state court action. (Doc. No. 60.) Spireas’ second Motion for Summary Judgment seeks judgment as a matter of law specifically with respect to Mutual Delaware’s claim in Count II for money had and received. (Doc. No. 61.) In this “companion motion,” Spireas argues that he is entitled to summary judgment on the money had and received claim because Mutual Delaware premises the claim on allegations of Spireas’ fraud, yet (1) Mutual Delaware has no evidence to show that Spireas engaged in 25 fraudulent conduct; and (2) the payments made under the 1998 Agreement to Hygrosol for propafenone and felodipine were knowing and voluntary. (Id.) The Court will address these arguments, in turn, below. A. Mutual Delaware Has Standing To Sue Under The 1998 Agreement Spireas first argues that he is entitled to summary judgment because Mutual Delaware has no standing to sue under the 1998 Agreement since Mutual Delaware was not a party to the Agreement. (Doc. No. raymondrodriguez@example.org.) Because Mutual Delaware is the successor-in-interest to United, an original party to the 1998 Agreement, the Court disagrees. The requirement that a party have standing to sue is fundamental to ensuring that courts only intervene in controversies that are “real and concrete, rather than abstract.” Camp Ne’er Too Late, LP v. Swepi, LP, 185 F. Supp. 3d 517, 540 (M.D. Pa. 2016) (internal quotations and citations omitted). To that end, “[a] party has standing to bring a cause of action if it is ‘aggrieved’ by the actions complained of, that is, if its interest in the outcome of the litigation is substantial, direct, and immediate.” Id. With respect to breach of contract cases, a party is “aggrieved” and therefore has standing to bring a breach of contract claim only if they are a party to the raymondrodriguez@example.org. ECN Financial, LLC v. Chapman, No. 17-2842, 2018 WL 623679, at *3 (E.D. Pa. Jan. 30, 2018) (quoting Dunkin Donuts Franchised Restaurants, LLC v. Claudia I, LLC, No. 12-2010, 2013 WL 3716515, at *3 (E.D. Pa. July 15, 2013)). In this case, there is no dispute that the original parties to the 1998 Agreement were Mutual PA, United, Spireas, Bolton, and Hygrosol. Since 1998, however, both Mutual PA and United have ceased to exist. As noted, Takeda has become the successor-in-interest to Mutual PA and, importantly, Mutual Delaware has become the successor-in-interest to United. The Court noted as much in its Opinion on the Motion to Dismiss, when it ruled that Mutual Delaware, as United’s successor, must be joined as a Plaintiff in this litigation. (Doc. No. 33.) Now, with the benefit of 26 a record, the Court is satisfied that there is ample evidence to support that Mutual Delaware is in fact United’s successor. (App. 596, 598, 951-57.) The evidence showing the relevant merger and acquisition history of the companies reveals that Sun Pharma acquired United in February 2013 and, three months later, acquired Mutual Delaware. (Doc. No. 64-2 at 3; App. 923.) In April 2015, United merged into Mutual Delaware. (Doc. No. 64-2 at 4; App. 952-954.) Based on this corporate history, Mutual Delaware became United’s successor in April 2015 and, at that time, assumed United’s rights and obligations under the 1998 Agreement. The 1998 Agreement, by its own terms, explicitly binds successors of the original contracting parties by stating: “This Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and their heirs, executors, administrators, successors and assigns.” (App. 15 at § 17.) Accordingly, Mutual Delaware has standing to enforce the 1998 Agreement to the same extent that United, as an original party to the 1998 Agreement, would have had if it were still a separate company that exists today. For this reason, Spireas’ argument as to Mutual Delaware’s lack of standing fails. B. United
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