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Fein v. ChiRhoClin, Inc.

United States District Court, D. Maryland

February 3, 2017

SEYMOUR FEIN, Plaintiff,
v.
CHIRHOCLIN, INC., Defendant.

          MEMORANDUM OPINION

          PAULA XINIS, UNITED STATES DISTRICT JUDGE

         Pending in this breach of contract case is Plaintiff Seymour Fein's motion for summary judgment (ECF No. 32). The issues are fully briefed and the Court now rules pursuant to Local Rule 105.6 because no hearing is necessary. For the reasons stated below, Dr. Fein's motion is granted in part and denied in part.

         I. BACKGROUND

         Defendant ChiRhoClin, Inc. (“ChiRhoClin” or the “Company”) is a pharmaceutical company focused on developing orphan drug products for the gastrointestinal and radiological community. See Joint Undisputed Facts, ECF No. 42 at 1-2. The Company was formed in 1997 by the plaintiff, Dr. Seymour Fein, and Dr. Edward Purich. The two doctors launched ChiRhoClin to pursue their goal of developing and commercializing synthetic forms of secretin, a hormone important to pancreatic function, and they were each 50% owners of the Company from 1997 until May 2005. Id. at 2. In its early stages, ChiRhoClin was funded by personal loans made by Dr. Purich and Dr. Fein as well as funds received for consulting services carried out by the two doctors. Id.

         In 1999 ChiRhoClin entered into a licensing agreement with a larger biotechnology company called Repligen. That agreement gave Repligen the exclusive right to market ChiRhoClin's synthetic porcine secretin (“psecretin”) products in the event ChiRhoClin's New Drug Application (“NDA”) for psecretin was approved by the FDA. Id. at 2. ChiRhoClin eventually succeeded in obtaining FDA approval for two forms of synthetic secretin-psecretin and synthetic human secretin (“hsecretin”). The FDA approved ChiRhoClin's NDA for psecretin in 2002 and the NDA for hsecretin in 2004. Id. at 3. Because ChiRhoClin had granted an exclusive license to Repligen, only Repligen had the right to sell psecretin while the agreement with Repligen was in place.

         ChiRhoClin's relationship with Repligen eventually soured. Repligen commenced arbitration proceedings against ChiRhoClin in 2004, alleging ChiRhoClin had not fulfilled all of its obligations under their licensing agreement. Id. at 3-4. Ultimately, the parties reached a settlement as memorialized in their May 9, 2005 Repligen Agreement (the “Repligen Agreement”).

         The Repligen Agreement provided that ChiRhoClin would pay Repligen $750, 000 within five days of the execution of the agreement. It also required ChiRhoClin to deliver a total of 17, 000 vials of psecretin to Repligen by September 30, 2007 to cover sales of the product. Id. at 4. Repligen agreed to pay ChiRhoClin a royalty payment in the amount of the greater of 15% of net revenues per vial, or $30 per vial, from the sale or transfer of these 17, 000 vials. The parties termed this royalty period as the “Initial Period.”[1] Repligen Agreement, ECF No. 33-1 at 7 (Sealed). During the Initial Period, the Repligen Agreement provided that “[ChiRhoClin] shall not market, sell, or otherwise transfer to any third party its own pSecretin product.” Joint Undisputed Facts, ECF No. 42 at 4-5. Also, during the entire time that ChiRhoClin had any obligation under the Repligen Agreement-both during the Initial Period and thereafter-certain of ChiRhoClin's FDA-authorized documents were required to be placed in escrow for Repligen's use. Id. at 5.

         Dr. Purich and Dr. Fein agreed that each would contribute $375, 000 in the form of loans to ChiRhoClin to secure the $750, 000 needed for the settlement. Id. In the course of discussing his $375, 000 contribution, Dr. Fein explained to Dr. Purich that he wished to cease involvement with ChiRhoClin. Dr. Fein delivered a letter to Dr. Purich on May 4, 2005 (the “May 2005 Agreement” or the “Agreement”), which stated that Dr. Fein would return his portion of ownership to ChiRhoClin for $1.00, loan the company $375, 000, and agree to provide consulting services on an as-needed basis. May 2005 Agreement, ECF No. 32-3 at 5. In return, ChiRhoClin agreed that it:

4. Will pay to Seymour Fein a 15% royalty on gross revenues from the sale of hsecretin and psecretin. The obligation to pay this royalty will begin when the Company regains the right to sell psecretin. Said royalty to include sales of hsecretin and psecretin licensed to other organizations by the Company including sales in and outside of the United States.
5. Repay the $375, 000 loan in full and with interest, by July 1, 2011. This loan repayment is in addition to the 15% royalty.

Id. The May 2005 Agreement was drafted by Dr. Fein and signed by Dr. Purich. After signing the Agreement, Dr. Fein returned his shares of ChiRhoClin stock to the Company, loaned ChiRhoClin the $375, 000 it needed for settlement, and began providing consulting services to the Company upon request. Joint Undisputed Facts, ECF No. 42 at 6. ChiRhoClin records show that on May 4, 2009 ChiRhoClin paid $1.00 to Dr. Fein. Id. Since the Repligen settlement, Dr. Purich has operated ChiRhoClin as its CEO. Jean Purich, Dr. Purich's wife, is the CFO of ChiRhoClin, and his son, Skip Purich, is the Company's Chief Operating Officer. Id. at 1.

         In October 2008, the Initial Period of the Repligen Agreement came to an end. ChiRhoClin began to calculate and then make payments to Dr. Fein based upon secretin sales. Id. at 7. The only secretin product it was selling, and continues to sell, is ChiRhoStim®, a hsecretin product. It still holds an NDA for psecretin but has chosen not to market or sell a psecretin product.

         The first payment made to Dr. Fein was calculated based on 15% of the gross revenue that ChiRhoClin received from sales of ChiRhoStim during the fourth quarter of 2008. ChiRhoClin continued to make payments to Dr. Fein for fifteen subsequent quarters using the same methodology. In 2013, ChiRhoClin stopped making payments to Dr. Fein, citing financial and manufacturing difficulties which forced ChiRhoClin to halt temporarily production of hsecretin. However, Jean Purich continued to calculate the payments owed to Dr. Fein each quarter after January 2013 even though no payments were actually made. Id. at 10.

         In the spring of 2015, after receiving no payments for more than two years, Dr. Fein asked ChiRhoClin for an update regarding the Company's manufacturing problems. On July 28, 2015, ChiRhoClin resumed full production of its hsecretin product, ChiRhoStim®, having resolved its manufacturing issues. Skip Purich also reassessed the financial health of ChiRhoClin, which included reviewing its agreement with Dr. Fein and exploring the possibility of business expansion in the European Union. Id. at 11.

         In 2015, ChiRhoClin broached with Dr. Fein that the agreement appeared, improperly in ChiRhoclin's view, to base the royalty calculation on “gross revenue” as opposed to gross profit. Id. at 11. Dr. Fein refused to alter the basis of royalty payments from gross revenue. On November 10, 2015, Dr. Purich detailed in writing to Dr. Fein ChiRhoClin's position that the parties had orally agreed to base royalties on gross profit and that the 2005 Agreement did not accurately reflect the true agreement between them. Dr. Purich also noted that ChiRhoChin was not obligated to resume royalty payments because it never regained the right to sell psecretin following the Repligen Agreement. Id. at 12; S. Purich Email, ECF No. 32-3 at 12.

         On December 3, 2015, Dr. Fein filed the instant action against ChiRhoClin, alleging ChiRhoClin breached the May 2005 Agreement by not paying to him royalties from mid-2012 to August 2015 and repudiating its future obligation to pay Dr. Fein royalties upon regaining the right to see psecretin. ECF No. 1. Dr. Fein also sought to enjoin ChiRhoClin from further violations of the May 2005 Agreement and to compel its specific performance on the Agreement. Id. at 11. ChiRhoClin filed its own counterclaims for unjust enrichment and declaratory judgment on January 26, 2016. On June 23, 2016, ChiRhoClin also delivered written notice to Dr. Fein that purports to unilaterally terminate the May 2005 Agreement.

         On August 8, 2016, Dr. Fein moved for summary judgment, seeking the Court's determination that ChiRhoClin breached the May 2005 Agreement. Dr. Fein further sought declaratory and injunctive relief to ensure that ChiRhoClin continues to pay him royalties in the future. Dr. Fein also urged the Court to summarily deny ChiRhoClin's counterclaims for unjust enrichment and declaratory judgment.

         II. STANDARD OF REVIEW

         A court may enter summary judgment only if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Emmett v. Johnson, 532 F.3d 291, 297 (4th Cir. 2008). However, summary judgment is inappropriate if any material fact at issue “may reasonably be resolved in favor of either party.” Anderson v. Liberty Lobby, ...


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