United States District Court, D. Maryland
XINIS, UNITED STATES DISTRICT JUDGE
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.
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
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
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
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.” 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.
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
5. Repay the $375, 000 loan in full and with interest, by
July 1, 2011. This loan repayment is in addition to the 15%
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.
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.
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.
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.
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
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
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.
STANDARD OF REVIEW
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,