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Branhaven, LLC v. Beeftek, Inc.

United States District Court, D. Maryland

August 15, 2013

BRANHAVEN, LLC, Plaintiff/Counter-Defendant,
v.
BEEFTEK, INC., et al., Defendants/Counter-Plaintiffs,
v.
SCIDERA, INC., Counter-Defendant

Decided: August 14, 2013.

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[Copyrighted Material Omitted]

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For Branhaven, LLC, Plaintiff, Counter Defendant: Steven Neal Leitess, LEAD ATTORNEY, Leitess Friedberg PC, Baltimore, MD; Tiasha Palikovic, PRO HAC VICE, Vanessa M Biondo, PRO HAC VICE, Mayer Brown LLP, New York, NY.

For Beeftek, Inc., BT Selection, LLC, Primebeefmarker, LLC, Defendants: Eric Job Seese, LEAD ATTORNEY, PRO HAC VICE, Keara Marie Gordon, PRO HAC VICE, DLA Piper LLP US, New York, NY; Hugh Jewett Marbury, LEAD ATTORNEY, Benjamin David Schuman, Thomas Brendan Kennedy, DLA Piper LLP US, Baltimore, MD.

For Scidera, Inc., ThirdParty Defendant: Jennifer Sutherland Lubinski, LEAD ATTORNEY, Baltimore City Law Department, Legal Affairs Division, Baltimore, MD; Tiasha Palikovic, PRO HAC VICE, Vanessa M Biondo, PRO HAC VICE, Mayer Brown LLP, New York, NY.

For Primebeefmarker, LLC, Beeftek, Inc., BT Selection, LLC, Counter Claimants: Eric Job Seese, LEAD ATTORNEY, PRO HAC VICE, Keara Marie Gordon, DLA Piper LLP US, New York, NY; Hugh Jewett Marbury, LEAD ATTORNEY, Benjamin David Schuman, Thomas Brendan Kennedy, DLA Piper LLP US, Baltimore, MD.

OPINION

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MEMORANDUM OPINION

William D. Quarles, Jr., United States District Judge.

Branhaven, LLC (" Branhaven" ) sued BeefTek, Inc. (" BeefTek" ), BT Selection, LLC (" BTS" ), and PrimeBeefMarker, LLC (" PML" ) (collectively the " defendants" ) [1] for declaratory judgment and an injunction. The defendants counterclaimed, joining Scidera, Inc. (" Scidera" ) as a counterdefendant, for declaratory judgment and specific performance. Pending are Branhaven's and the defendants' cross-motions for summary judgment. Also pending is the defendants' motion for leave to file a surreply. For

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the following reasons, the summary judgment and surreply motions will be denied.

I. Background [2]

MetaMorphix, Inc. (" MMI" ) and MetaMorphix Genomics, Inc. [3] (" MMIG" ) were genetics research companies. See ECF No. 74-3 at 3. MMI [4] developed genetics testing (the " Technology" ) for predicting various traits in cattle. See ECF No. 70-5 at 3, Tr. 11:23-12:4.

In 2009, the CEO of MMI, Dr. Edwin Quattlebaum, discussed with John Lamar the possibility of a business partnership to commercialize the Technology. See ECF No. 70-3 at 3-4, Tr. 33:1-34:17. To this end, Lamar and Tom Hogan formed BTS and PML. See id. at 4, Tr. 34:21-35:21. Michael Cohen worked with Lamar and Hogan at BTS and PML. See generally ECF No. 70-8. Lamar and Hogan intended BTS engage in " integrated beef development services," [5] and PML to market MMI's genetic tests to the cattle industry. ECF No. 70-3 at 4, at Tr. 37:2-11.

On August 25, 2009, Quattlebaum and Lamar exchanged several emails concerning a draft agreement between MMI and BTS for use of the Technology. ECF No. 66-19. The draft agreement gave BTS exclusive rights to the Technology so long as it met minimum test volumes starting in the second year of the contract. Id. at 4. Quattlebaum was concerned that if BTS failed to secure funding, MMI would be locked out of the marketplace for two years. Id. at 3. Lamar responded that they would " go[] forward" only if BTS was financed, which required a signed agreement. See id. at 2. He also stated that " if for any reason after the first year we do not go forward we will cancel and the exclusivity issue is moot. If we do go forward, we have minimum testing purchase requirements that assure MMI of ongoing volume. If we don't meet those requirements or pay for them then the agreement is over. I don't see where MMI is 'locked out.'" Id. The draft agreement did not contain any cancellation provisions. See id. at 4-6.

On September 22, 2009, MMI and BTS signed a document (the " Licensing Agreement" ) captioned:

LICENSING AGREEMENTMETAMORPHIX AND BEEFTEK

Letter of Agreement

ECF No. 70-4; see ECF No. 66-19. [6] The Licensing Agreement is a more detailed

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version of the draft agreement from the August 25, 2009 emails. Compare ECF No. 70-4 with ECF No. 66-19 at 4-6.

Under the Licensing Agreement, MMI agreed to (1) make the Technology available to BTS, (2) provide testing services " at rates to be agreed upon and which will be in accordance with the prices set forth on Schedule A," and (3) to provide testing results within 10 days of receipt during the first six months of the agreement and within 30 days thereafter. ECF No. 70-4 at 2. BTS was granted exclusive use of the Technology for an Integrated Beef Development System, so long as BTS ordered a minimum number of tests. [7] Id. MMI could revoke the exclusivity provision if BTS " fail[ed] to pay any undisputed amounts for Testing services in a timely manner after having been provided with a reasonable notice and cure period." Id.

Year 2

150,000 tests

Year 3

250,000 tests

Year 4

400,000 tests

Year 5 and beyond

500,000 tests

The Letter of Agreement also provided that " MMI and BT[S] will agree upon a satisfactory method to provide security to BT[S] for future Testing utilizing the Technology." Id. at 3. To this end, MMI represented that it had " identified and validated a testing services arrangement with a capable third party testing company ('TSC')" and would provide BTS " with an independent technical third party ('TTP') who will provide evidence reasonably satisfactory to BT[S] of the availability, capability and qualifications of such TSC to conduct the testing." Id. at 4. Additionally, " [s]uch security will include the placement of all necessary Technology . . . in a secure escrow account." Id. BTS and its TSC would gain access to the escrowed Technology " in the event of default by MMI in the performance of this Agreement, or MMI's failure to meet the standards and requirements necessary to remain the exclusive Testing provider." Id. Further, when " BT[s] has the right to utilize a TSC to conduct testing, it will have access to the escrowed [T]echnology . . . In such an event, BT[S] will be responsible for paying for test services directly to the TSC and for paying MMI the Predictability Incentive set forth in Schedule A." Id.

The Agreement was effective the earlier of October 2, 2012, or the date when Cargill agreed to implementation. Id. at 5. The Licensing Agreement stated that it was governed by Delaware Law. Id. The Licensing Agreement included a lengthy paragraph stating the parties' indemnification duties, and concluded that " [t]he formal contract that will further detail the agreement between the parties set forth herein will include customary terms and conditions concerning indemnification among the parties." Id. The last line of the Licensing Agreement stated that " MMI and BT[S] agree to execute a formal contract further detailing the agreement between the parties set forth herein." Id.

Attached to the Licensing Agreement was " Schedule A." Id. at 7. Schedule A listed the initial price for each DNA sample as $5.75 for a one-panel test, $7.16 for two panels, and $1.41 for each additional panel. Id. If MMI's costs changed by more than 10% in a quarter, it was permitted to revise the price, although the maximum was not permitted to exceed $7.00 for a one-panel test, and $1.41 for additional panels. Id. MMI was also entitled to a " predictability incentive" based on the

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number of cattle designated " Choice" or " Prime" under the USDA's grading system. See id. at 8 (incentive table). " Incentive compensation for additional traits will be mutually agreed upon when and if tests for such traits are developed by MMI and adopted by BT[S]." Id.

Schedule A also stated that

BT[S] shall have the option of arranging for alternative TSC(s) of its choice to conduct such testing and MMI shall be provided a two week option of meeting the alternative terms and conditions. In such an event BT[S] will be responsible for paying for test services directly to the TSC and for paying MMI the Predictability Incentive set forth in this Schedule A. [8]

Id. at 7. It also stated that the Predictability Incentive " shall not be due to MMI at any time that MMI is in breach of the [Licensing] Agreement or is not meeting the standards and requirements necessary to remain the exclusive testing provider hereunder." Id. at 8.

Effective October 15, 2009, [9] MMI and PML executed a " Distribution Agreement" in which MMI appointed " PML as MMI's independent representative to market and sell MMI Tests to the beef cattle industry." ECF No. 70-9 at 2. MMI agreed to make the testing available to PML for use in the beef cattle industry, including modifications, enhancements, or improvements and provide testing results within 10 days of receipt. Id. at 3.

The parties agreed to set a price for the testing of not more than $8.00 for a one-panel test, $10.00 for two panels, and $2.00 for each additional panel in a single DNA sample. Id. MMI was also " entitled to share in the profit . . . as outlined in Schedule A." [10] Id. PML was granted nine months of exclusivity, plus an additional six months if it met certain testing volume. See id. at 3-4. The parties agreed " to negotiate the terms for permanent exclusive rights to distribute Tests" provided additional quotas were met. Id. at 4.

The Distribution Agreement also stated that " MMI will provide security to PML for future Testing." Id. MMI identified a TSC and agreed to provide a TTP to evaluate the TSC. Id. MMI also agreed to place the Technology in an escrow account. Id. at 3. PML and its TSCs were to gain access to the Technology if MMI defaulted or it failed " to meet the standards and requirements necessary to remain the exclusive Testing provider." Id. If MMI were unable to provide testing results within the required time, " PML shall have the right to use a TSC . . . provided that, PML has provided MMI written notification." [11]

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Id. at 5. The Distribution Agreement stated that it was governed by Delaware law. Id. at 6.

Around the time the Agreements were executed, MMI selected BioStat as the TTP and provided it with the Technology. ECF Nos. 70-3 at 13, Tr. 106:1-2; 70-5 at 7, Tr. 28:2-6. MMI identified KBioscience as a potential TSC; however, about two days before the Licensing Agreement was executed, BioStat indicated that it could not recommend KBioscience. See ECF Nos. 70-3 at 14, Tr. 110:2-5, 110:22-111:4; 70-5 at 7, Tr. at 27:15-20, BioStat recommended other potential TSCs, but they were " extraordinarily expensive, cumbersome and more human genome related." ECF No. 70-3 at 14, Tr. 111:10-14.

BeefTek sent 1564 samples to MMI for the first testing. [12] ECF No. 70-6 at 4, Tr. at 38:2-12. Of those, 800 samples were misplaced, and BeefTek did not receive results for 40 days. Id. at Tr. 39:20-21, 40:6-8. For the next round of samples, MMI lacked the funds to purchase the reagent to extract the DNA from the card; BeefTek ultimately purchased the reagent. Id. at Tr. 41:6-20.

On November 4, 2009, Cohen emailed a potential investor indicating that the Licensing Agreement was in place, noting " [f]or all its flaws, it is serving us well--[MMI] has ramped up its efforts in support of our agenda wonderfully." ECF No. 66-20. Cohen also indicated that " DLA Piper is drafting both (a) a more-detailed contract, and (b) a [T]echnology escrow agreement." Id.

On January 28, 2010, holders of MMI's 10% promissory notes filed a petition for involuntary Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. In re MetaMorphix, Inc., No. 10-10273 (Bankr. D. Del.). Effective March 9, 2010, MMI executed with BTS the " First Amendment to the Licensing Agreement" and with PML the " First Amendment to the Distribution Agreement." ECF Nos. 70-10, 70-11. The Amendment to the licensing agreement added a " trigger date" for calculating the term of the agreement and the 60 days within which MMI had to provide testing results within ten days. ECF No. 70-10 at 2. The trigger date was the earlier of " (i) the date on which the two-hundredth test has been performed under this Agreement, or (ii) July 1, 2010." Id. at 5. The escrow release provision was revised to permit release:

in the event of default by MMI in the performance of this Agreement, or MMI's failure to meet the standards and requirements necessary to remain the exclusive Testing provider hereunder, or repeated material failures to perform under the Agreement, including failing to meet the timelines for delivery of Testing results as provided for in this Agreement or for use of a TSC permitted under this Agreement or as otherwise provided herein. [13]

Id. at 2-3. The Amendment stated that the licenses in the agreement were intellectual property licenses under 11 U.S.C. § 365(n); if MMI rejected the agreement under that section, BTS was permitted to retain its rights. Id. at 4. The amendment also stated that " The Agreement shall remain unchanged and in full force and effect."

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The Amendment to the Distribution Agreement was substantially the same, with the exclusivity provisions measuring from the trigger date. [14] See ECF No. 70-11 at 2.

On March 10, 2010, BTS and PML each entered into Three-Party Escrow Service Agreements with MMI and Iron Mountain Intellectual Property Management, Inc. (" Iron Mountain" ), through which MMI deposited the Technology for the benefit of BTS and PML respectively. ECF Nos. 70-12, 70-13. Release was permitted upon:

(i) Depositor's breach of the License Agreement or other agreement [subject to the two-week cure period and the Beneficiary being current on undisputed payments]; or
(ii) Failure of the Depositor to function as a going concern or operate in the ordinary course . . .; or
(iii) Depositor's failure to meet the standard and requirements necessary to remain the exclusive Testing . . . provider [subject to the two-week cure period and the ...

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