Opinion
Case No. 1:12-cv-179
03-31-2015
MEDPACE, INC., Plaintiff, v. BIOTHERA, INC., et al., Defendants.
ORDER: (1) DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT (Doc. 158); and (2) GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT (Doc. 160)
This civil action is before the Court on: (1) Defendants' motion for summary judgment (Doc. 158) and the parties' responsive memoranda (Docs. 173, 177, 182); and (2) Plaintiff's motion for partial summary judgment (Doc. 160) and the parties' responsive memoranda (Docs. 172, 176).
Both parties request oral argument. (Doc. 158 at 1, Doc. 173 at 1). The Court finds that the pleadings are clear on their face, and that oral argument is not necessary. See Whitescarver v. Sabin Robbins Paper Co., Case No. C-1-03-911, 2006 U.S. Dist. LEXIS 51524, at *7 (S.D. Ohio July 27, 2006) ("Local Rule 7.1(b)(2) leaves the court with discretion to grant a request for oral argument.").
I. BACKGROUND FACTS
Medpace requests summary judgment on the following claims and counterclaims: (1) partial summary judgment on Medpace's breach of contract claim against Biothera in the amount of $1,090,802.00; (2) Medpace's fraud claim against Defendants; (3) Biothera's counterclaim for rescission; and (4) Biothera's counterclaim for punitive damages.
Biothera requests summary judgment on Medpace's fraud claim.
II. DEFENDANTS' UNDISPUTED FACTS
See Doc. 158-1 and Doc. 173, Ex. A.
1. Medpace is a sophisticated contract research organization (CRO) that contracts with appropriate clients of its own free will and in good faith. (Doc. 158, Ex. A at 69; Ex. B at 9 (Request for Admission No. 2)).
2. Biothera was founded by Daniel K. Conners in 1997, and Conners is its current Chairman of the Board and President of the Pharmaceutical Group. (Doc. 25 at ¶¶ 1-3).
3. Medpace and Biothera entered into the Master Services Agreement (MSA) on or about April 29, 2009. (Doc. 158, Ex. C, Dep. Ex. 48 at MED_000966; see Doc. 88 at ¶ 6). Pursuant to the MSA, Biothera hired Medpace to provide clinical trial services. (Doc. 46-2 at ¶ 1).
4. Following the execution of the MSA, Biothera and Medpace entered into a series of Task Orders and Task Order Amendments and a Consulting Agreement. (Doc. 46-2 at ¶ 2).
5. In contracting with Biothera, Medpace was able to involve its legal department if it wanted to do so. (Doc. 158, Ex. A at 68; Ex. D at 63).
6. Medpace was under no pressure to sign the master services agreement with Biothera. (Doc. 158, Ex. A at 68).
7. Medpace negotiated the master services agreement with Biothera at arm's length. (Doc. 158, Ex. A at 69).
8. Medpace was not aware of any inappropriate relationship or undue pressure exerted that compelled Medpace to execute the master services agreement with Biothera. (Doc. 158, Ex. A at 70).
9. Medpace has entered into thousands of contracts with sponsors throughout its years of existence. (Doc. 158, Ex. A at 70).
10. Biothera chose Medpace as its CRO, in part, because Medpace understood Biothera's liquidity constraints and agreed to extend its customary payment terms to 120 days. (Doc. 158, Ex. I at 70-71).
11. One-hundred-twenty day payment terms are "outside the norm" of 30 days that Medpace has for payment terms. (Doc. 158, Ex. J at 48). Only one of Medpace's clients has those payment terms: Biothera. (Id., Ex. J at 122; Ex. K at 90).
12. Medpace specifically extended its normal payment terms from 30 to 120 days to accommodate Biothera because Medpace knew that Biothera "didn't have a lot of cash on the balance sheet." (Doc. 158, Ex. L at 53-54).
13. Medpace's CEO, August Troendle, was comfortable extending 120-day payment terms to Biothera because Medpace viewed Biothera's drug as safe and a promising product with which to work. (Doc. 158, Ex. L at 54-56; see Ex. K at 283, 286-287).
14. Biothera awarded Medpace its clinical trials in part because Biothera liked the fact that Medpace was "willing to work with them on payment schedules." (Doc. 158, Ex. M at MED_062591, page 2; see Ex. J, at 71, 119; Ex. N at MED_129055).
15. Medpace and Biothera worked together on a total of four clinical trials from early 2009 until February 29, 2012. (Doc. 67 at ¶¶ 8, 19). Collectively, these are known as the "Imprime Trials."
16. Medpace and Biothera were working together as a collaborative partnership over the course of the parties' relationship. (Doc. 158, Ex. K at 133, 190-191, 266; Ex. O at 219-220).
17. Medpace and Biothera shared a common goal of getting the Imprime Trials enrolled. (Doc. 158, Ex. K at 295). Medpace was happy to work with Biothera in a collaborative fashion to try and get Biothera's Trials enrolled as best as possible. (Id., Ex. O at 327).
18. Raising funds through angel investors frees Biothera from needing to raise funds at the retail level, but also leads to fluctuating funding levels and periodic liquidity constraints. (Doc. 158, Ex. P at 139; Ex. I at 65-66, 70-71).
19. Between January 2009 and February 2012, at least six people at Medpace were aware that Biothera had angel investors and that the amount of Biothera's funding through these angel investors varied: John Wynne (Medpace's Executive Director of Business Development Support), Adam Curley (a Medpace account manager), Jesse Geiger (Medpace's Chief
Financial Officer), Lyon Gleich (Medpace's Vice President of Medical Affairs who served as Biothera's Acting Chief Medical Officer), Terri Gaffney (a Medpace clinical trial manager), and Jennifer Cutter (a Medpace clinical trial manager). (Doc. 158, Ex. Q at 2).
20. Adam Curley, Medpace's account manager for the Imprime Trials, understood that Biothera had angel investors that were funding the trials. (Doc. 158, Ex. R at 202-203).
21. John Wynne, Medpace's Executive Director of Business Development Support, understood that Biothera had many investors, ranging from small to large. (Doc. 158, Ex. J at 28-29; Ex. S at 197, 221-222).
22. Over the course of its relationship with Medpace, Biothera made numerous payments to Medpace. (Doc. 158, Ex. R at 170; Ex. D at 154-155).
23. According to Jennifer Cutter, the lead clinical trial manager for Medpace on the two lung cancer trials, despite Biothera's varied sources of funding, Biothera "always seemed to come up with" funding. (Doc. 158, Ex. K at 90-91, 125). Biothera worked "in good faith" to "always come up with the money" for Medpace. (Id. at 281-282). Dr. Cutter honestly felt that Biothera wanted to pay Medpace. (Id. at 284).
24. Medpace's relationship with Biothera had been good from its inception through November 17, 2011. (Doc. 158, Ex. D at 64).
25. To date, Biothera's payments to Medpace have exceeded $7.5 million. (Doc. 158, Ex. T, Schedule 1).
26. By February 2011, Medpace was aware that Biothera had been invoiced for $1.5 million for three studies for which final task orders had not been executed. (Doc. 158, Ex. Z at MED_065375; Ex. J at 148). It was atypical for Medpace to have that high of an outstanding account balance without finalized task orders. (Id., Ex. AA at 317).
27. By the end of July 2011, Medpace had concluded that Biothera was in breach of its contract with Medpace for failure to timely pay invoices. (Doc. 158, Ex. D at 85).
28. Medpace was aware that Biothera had a "history of late payment." (Doc. 158, Ex. J at 172; see Ex. BB, Dep. Ex. 258).
29. In May 2011, CCMP Capital Advisors, LLC ("CCMP"), a private equity fund, purchased a majority stake in Medpace, adding its financial expertise to Medpace's industry experience. (Doc. 158, Ex. CC, BIO-00010337).
30. From July through November of 2011, representatives from both Biothera and Medpace participated in a series of telephone calls to discuss concerns. (Doc. 158, Ex. AA at 323, 325).
31. In calls between John Wynne, Medpace's Executive Director of Business Development Support, and Bill Gacki, Biothera's Chief Financial Officer, Mr. Wynne believes that Biothera stated that it had outstanding balances, that it had investors, that a large investment was imminent, that Biothera was going to make payments to Medpace as soon as Biothera received those investments, and that Medpace would receive the "lion's share" of those investments as it was on the "top of the list." (Doc. 158, Ex. AA at 326-327, 332-10). Mr. Wynne understood that Biothera was paying each vendor as much as it could to keep each vendor working during this time period. (Id. at 332).
32. By September 2011, Medpace began imposing interest charges as a step in "escalating" payment issues to Biothera's attention. (Doc. 158, Ex. EE; Ex. AA at 355).
33. In October 2011, representatives from Medpace and Biothera met in Cincinnati to discuss the Imprime Trials. During this meeting, Medpace voiced concerns around the lack of payment. (Doc. 158, Ex. AA at 359; Ex. FF, Dep. Ex. 365).
34. By November 10, 2011, Medpace had had several conversations with Biothera regarding the "need to get paid." (Doc. 158, Ex. S at 262, 264; Ex. GG, Dep. Ex. 256).
35. On November 17, 2011, a scheduled phone call between Biothera and Medpace took place. Dan Conners from Biothera and Jesse Geiger, John Wynne, and Adam Curley from Medpace participated. (Doc. 158, Ex. R at 153-154; Ex. D at 69).
36. During the November 17, 2011 phone call, Adam Curley, the Medpace account manager for the Imprime Trials, recalls Dan Conners of Biothera stating that Biothera would pay Medpace $1.2 million by the end of 2011 and then make payments of $1 million per month starting at the beginning of 2012 to catch up on amounts allegedly due. (Doc. 158, Ex. R at 172, 175, 207-208, 212-11, 212 -213).
37. Mr. Curley's contemporaneous records of the November 17, 2011 phone call speaks for itself. (Doc. 158, Ex. HH, Dep. Ex. 259; Ex. R at 248-249). This differed from what other Medpace participants recalled.
38. Mr. Curley could not think of a reason why the November 29, 2011 email mis-described the terms of the November 17, 2011 phone call. (Doc. 158, Ex. R at 239).
39. Mr. Curley does not recall any communications from any recipient of his November 29 email informing him that his recitation of the terms of the payment plan with Biothera was incorrect. (Doc. 158, Ex. R at 239-240).
40. Mr. Curley also recalls Biothera representing that it was "imminently close on a partnership to be able to get funding to be able to pay for" its clinical trials. (Doc. 158, Ex. R at 173, 218). Mr. Curley recalls an "agreed-upon payment schedule" being mentioned in the phone call. (Doc. 158, Ex. R at 206).
41. Mr. Curley does not recall specifically what words Dan Conners used in describing a pending transaction to secure additional funding, other than a partnership being "imminent." (Doc. 158, Ex. R at 218).
42. Biothera did not share the identity of its potential business or funding partner on the November 17, 2011 call. (Doc. 158, Ex. R at 219-220).
43. Biothera did not tell Medpace what the terms of its partnership were going to be. (Doc. 158, Ex. R at 221).
44. Mr. Curley does not know why Biothera did not consummate its transaction with a potential business partner. (Doc. 158, Ex. R at 242).
45. John Wynne, Medpace's Executive Director of Business Development Support, recalls Biothera agreeing to a plan to make two payments of $600,000 in 2011 and then agreeing to get "current within the first five or six months of 2012." (Doc. 158, Ex. J at 15; Ex. S at 205, 271; Ex. AA at 334). This was the first time he recalls Biothera making a specific promise to make payments to Medpace. (Id., Ex. AA at 322-323).
46. Mr. Wynne did not remember the due dates for the first and second payments of $600,000 from Biothera. (Doc. 158, Ex. J at 15-16). But Mr. Wynne disagrees, in part, with Mr. Curley's recollection. (Id., Ex. S at 270-271).
47. Biothera made the first payment of $600,000 "a bit later" than what Biothera had told Medpace. (Doc. 158, Ex. S at 207; Ex. AA at 334; see Ex. D at 65).
48. Mr. Wynne also recalls Mr. Conners of Biothera stating that he was "very close" to a potential investment or that one was "imminent." (Doc. 158, Ex. J at 25, 29).
49. Mr. Wynne's only factual support for his belief that Biothera did not have the means or intent to make payments is that Biothera did not make all of the payments discussed in the November 17, 2011 call. (Doc. 158, Ex. AA at 335, 336).
50. Mr. Wynne did not recall who suggested making two payments in 2011, who suggested that they be $600,000 each, or whether Mr. Conners of Biothera said he had money in hand to make those payments. (Doc. 158, Ex. J at 17-18).
51. Mr. Wynne does not recall Biothera having a contract or other written commitments confirming that large sums of money would be invested in Biothera closely following the November 17, 2011 phone call. (Doc. 158, Ex. J at 34; Ex. S at 199-200). Biothera never told Mr. Wynne it had a signed deal from a shareholder. (Id., Ex. J at 36).
52. Mr. Wynne cannot recall any obligation Biothera had to affirmatively disclose to Medpace the health of Biothera's financial picture. (Doc. 158, Ex. J at 37; Ex. AA at 338).
53. Jesse Geiger, Medpace's Chief Financial Officer, remembers that Dan Conners of Biothera communicated that Biothera was raising capital every week, and would pay Medpace $1.2 million by the end of the year, with one $600,000 payment by the end of November, another $600,000 payment by the end of December, and then a payment plan that would bring Biothera current over the first six months of 2012. (Doc. 158, Ex. II at 101-102, 104, 113-114, 134; Ex. D at 10-12, 109).
54. During the November 17 call, Medpace did not communicate any other consequences for what would happen if payments were not received. (Doc. 158, Ex. D at 13).
55. Mr. Conners also recalls that Jesse Geiger of Medpace asked about payments while Mr. Conners asked about accounting and invoicing. (Doc. 158, Ex. I at 60).
56. On December 5, 2011, Jesse Geiger and John Wynne of Medpace and Dan Conners of Biothera had another telephone call to discuss Biothera's payments. (Doc. 158, Ex. JJ at 110). The purpose of the call was to inquire about the status of the first $600,000 payment due at the end of November. (Id., Ex. D at 72).
57. During this call, Mr. Conners communicated that Biothera had missed the first $600,000 payment, and was trying to get Medpace paid. (Doc. 158, Ex. II at 110).
58. Biothera ultimately paid $600,000 to Medpace by the end of the first week in December. (Doc. 158, Ex. D at 76-77, 155).
59. Biothera made a second payment to Medpace of $100,000 in January 2012. (Doc. 158, Ex. R at 246; Ex. D at 27, 119).
60. The parties continued exchanging correspondence in January and February 2012. (See, e.g., Doc. 25-2 (February 1, 2012 letter), 25-3 (February 7, 2012 letter), 25-4 (February 20, 2012 letter), 25-5 (February 29, 2012 letter)).
61. On January 19, 2012, Medpace sent a letter to Biothera claiming that Biothera failed to make the promised payments. (Doc. 158, Ex. VV, Dep. Ex. 56). On January 27, Biothera proposed that Medpace take a portion of the amount Medpace claimed was due in the form of stock in Biothera. (Id., Ex. JJ, Dep. Ex. 60).
62. On February 1 and 7, 2012, Medpace informed Biothera that it was in default under the MSA for nonpayment. (Doc. 25-2, 25-3).
63. On February 8, 2012, Biothera notified Medpace that it was in default for failure to perform under the MSA. (Doc. 158, Ex. KK, Dep. Ex. 70).
64. Biothera terminated the contract with Medpace on February 29, 2012. (Doc. 67 at ¶ 19).
65. Medpace's employees did not ever think Biothera was lying to Medpace during the course of the parties' relationship. (Doc. 158, Ex. K at 281-282, 282-17; Ex. J at 23).
66. Jennifer Cutter, the lead clinical trial manager for Medpace on the two lung cancer trials, did not ever think that anyone from Biothera was lying to Medpace. (Doc. 158, Ex. K at 283-284).
67. Terri Gaffney, the lead clinical trial manager for Medpace on the largest of the two colorectal cancer trials, did not feel that anyone at Biothera was lying to her. (Doc. 158, Ex. O at 226-227, 232). While she had a "general feeling" that Biothera was being overly optimistic in its representations, Ms. Gaffney had no reason to doubt that Biothera truly wanted to interact as a team to continue progress on the Imprime Trials. (Id. at 230-231).
68. Jesse Geiger, Medpace's Chief Financial Officer, believed Biothera was going to make payments to Medpace. (Doc. 158, Ex. II at 106; Ex. D at 39).
69. On March 2, 2012, Medpace filed its complaint against Biothera, asserting breach-of-contract and unjust enrichment claims. (Doc. 1). The Complaint made no mention of fraud. Biothera filed its Answer and Counterclaims to Medpace's complaint on March 26, 2012. (Doc 6).
70. This Court granted Biothera's motion for a preliminary injunction on November 6, 2012. (Doc. 36).
71. This Court granted Biothera's motion for partial summary judgment on Biothera's conversion claim on April 4, 2013. (See Doc. 53).
72. Medpace took depositions of three of Biothera's finance department personnel on July 17 and 18, 2013: Penny Binley, Tamas Mir, and Bill Gacki. Even though none of these individuals were designated or had been prepared to testify as Rule 30(b)(6) corporate representatives, Medpace asked each of them questions about Biothera's overall finances. (See, e.g., Doc. 158, Ex. LL at 32-33, 53-55; Ex. MM at 65-66; Ex. NN at 22).
73. On August 7, 2013, counsel for Medpace first notified Biothera of its request for consent to file an Amended Complaint. (See Doc. 158, Ex. OO). In that letter, Medpace for the first time raised the possibility of adding a fraud claim against Biothera and the Chairman of its Pharmaceutical Division, Daniel Conners. (Id.)
74. On August 14, 2013, Medpace moved the Court for leave to add a fraud claim against Biothera and Dan Conners individually. (Doc. 60).
75. On August 27, 2013, this Court granted Medpace's Motion for Leave to Amend. (See Doc. 66). The Court noted that Biothera had more than three months before the dispositive motion deadline to decide whether to move the Court for summary judgment on the new claims. (Id. at 5).
76. The Court found that three allegations sufficed to withstand a motion to dismiss (see Doc. 66 at 6):
1. "Defendants Biothera, Inc. and Biopolymer Engineering agreed to pay $600,000 by November 30, 2011, $600,000 by December 31, 2011, and to make monthly payments on the past due balance from January through June 2012, as well as making timely payments under the terms of the MSA and Consulting Agreement as amounts became due."
2. "Defendants, specifically Conners, misrepresented Defendants' commitment and financial ability to pay the amounts due and owing to Medpace and the amounts Medpace would incur under the MSA and Task Orders in the coming months. Moreover, Defendants, specifically Conners, misrepresented Defendants Biothera, Inc.'s and Biopolymer Engineering's
financial status and funding environment and actively concealed Defendants Biothera, Inc.'s and Biopolymer Engineering's true financial status from Medpace;" and
3. "Defendants volunteered to provide relevant financial data to Medpace to demonstrate their ability and willingness to pay past due amounts and amounts that Medpace would incur if it did not issue a notice of default and terminate the MSA. Defendants' internal communications and testimony demonstrate that they did not disclose any information to Medpace that would have accurately depicted or disclosed their lack of funds and dire financial status."
77. This Court's Order did not grant Medpace leave to amend to assert fraud claims based on alleged misrepresentations relating to the closing of a pending debt facility or to alleged statements that Medpace was Biothera's "number one creditor." (See Doc. 66).
78. In discovery served after Medpace filed its Amended Complaint, Biothera asked Medpace to identify with particularity the facts that support its fraud claim. (See Doc. 158, Ex. B).
79. In responding to Biothera's fraud-based discovery requests, Medpace identified five allegedly false representations supporting its fraud claim:
1. "Biothera and Dan Conners agreed to pay $600,000 by November 30, 2011, $600,000 by December 31, 2011, monthly payments on the past due balance from January through June 2012, as well as making timely payments under the terms of the MSA and Consulting Agreement as amounts became due."
2. "Biothera and Dan Conners misrepresented Biothera's commitment and financial ability to pay the amounts due and owing to Medpace and the amounts Medpace would incur under the MSA and Task Orders in the coming months."
3. "Biothera and Conners misrepresented Biothera's funding environment by stating that Biothera was close to having a partnership with a large pharmaceutical company and that the partnership and financing was imminent."
4. "Biothera misrepresented a pending closing of a debt facility during the first week of December 2011."
5. "Biothera and Conners misrepresented that Medpace was the number one creditor that it would pay and was at the top of the list to pay."
(Doc. 158, Ex. B at 2; see also Ex. D at 7-9, 10-11, 13-14).
80. Medpace alleges that Biothera made the alleged misrepresentations on November 17, 2011, December 5, 2011, and "[s]tarting in July 2011 and specifically on November 17, 2011." (Doc. 158, Ex. B at 3).
81. Medpace had no insight into what Biothera's vendor allocations were at the time. (Doc. 158, Ex. D at 16).
82. Medpace did not expect all of its invoices to be paid before Biothera paid other vendors. (Doc. 158, Ex. D at 22-23).
83. Medpace's corporate representative did not have any evidence to suggest that Biothera prioritized other vendors over Medpace in 2011 in terms of total dollars spent. (Doc. 158, Ex. D at 25-26).
84. Medpace alleges that Jim Horstmann and Bill Gacki of Biothera made representations to John Wynne of Medpace throughout 2011 that Biothera was "on the verge of closing a large pharmaceutical deal." (Doc. 158, Ex. D at 28-30).
85. Biothera has always been in various stages of communication with current and prospective investors about further investments, and has raised approximately $150 million in its history. (See, e.g., Doc. 158, Ex. MM at 53-54).
86. Medpace alleges that Biothera informed Medpace that it should have a debt facility closed with investors "this week" on Monday, December 5, 2011. (Doc. 158, Ex. D at 71).
87. Medpace did not ask any questions about remaining steps that needed to be completed for the debt deal to be done. (Doc. 158, Ex. D at 74).
88. Medpace did not follow up with Biothera to determine if a debt facility had, in fact, closed and accepted $600,000 from Biothera around December 13, 2011. (Doc. 158, Ex. D at 78-79).
89. Prior to November 2011, Medpace never asked to see a letter of credit or term sheet regarding the closing of a debt facility, and never asked to see Biothera's balance sheet or any other financial data. (Doc. 158, Ex. D at 51).
90. Medpace specifically alleges that there was a "concealment of Biothera's financial position" during the November 17, 2011 phone call. (Doc. 158, Ex. D at 13).
91. In response to Biothera's interrogatory asking Medpace to identify the facts demonstrating its justifiable reliance, Medpace responded that "Biothera provided information and documents to support its misrepresentations, prior to the misrepresentations, Biothera had made promises to pay that it fulfilled, and Medpace did not issue a default notice to Biothera based upon Biothera's misrepresentations." (Doc. 158, Ex. B at 4).
92. John Wynne, Medpace's Executive Director of Business Development Support, explained that Medpace chose not to impose interest charges on Biothera because of Medpace's "customer service" and desire to "work with our clients." (Doc. 158, Ex. J at 162-163). He did not attribute Medpace's decision not to immediately impose interest charges to reliance on any alleged misstatements from Biothera. (Id. at 162-163).
93. Medpace alleges that Biothera's previous promises to pay which had been fulfilled caused Medpace to rely on Biothera's November 17 representations in delaying putting Biothera in default under the MSA. (Doc. 158, Ex. D at 147, 154).
94. Medpace claims that it relied to its detriment on Biothera's and Conners's representations by waiting to place Biothera into default until February 1, 2012, that it had the ability to declare Biothera to be in breach as early as August 2011, and that it became comfortable with the contractual relationship in November 2011 based upon the agreed-upon payment schedule. (Doc. 158, Ex. D at 155-156).
95. Medpace admits that it accepted Biothera's first installment payment of $600,000 on or about December 13, 2011. (Doc. 158, Ex. D at 158-159).
96. When asked about the factual basis for Medpace's allegation that Biothera made representations with knowledge of their falsity or that Biothera did not intend to perform any alleged representations, Medpace refered Biothera "to the depositions of Penny Binley and William Gacki and the exhibits to those depositions." (Doc. 158, Ex. B at 3, 5; Ex. D at 161-162).
97. John Wynne, Medpace's Executive Director of Business Development Support, does not believe that any of Biothera's statements about its pending investments were made with the intention not to make good on them. (Doc. 158, Ex. J at 39). Mr. Wynne does not believe that Mr. Conners had no intention of making good on payments discussed in the November 17, 2011 phone call. (Id. at 40).
98. Mr. Wynne had no facts regarding what Mr. Conners's intentions were regarding the payments discussed on the November 17, 2011 phone call. (Doc. 158, Ex. J at 42).
99. According to Medpace, it was not impossible for Biothera to raise the kind of funds that would have been necessary to comply with the payments promised during the November 17, 2011. (Doc. 158, Ex. D at 152-153).
100. Biothera made a payment of $600,000 to Medpace in early December 2011. (Doc. 158, Ex. D at 27).
101. Biothera made a second payment to Medpace of $100,000 in January 2012. (Doc. 158, Ex. R at 246; Ex. D at 27, 119).
102. Medpace admits that Biothera paid $700,000 of the amount allegedly discussed on the November 17, 2011 phone call. (Doc. 158, Ex. B at 10).
103. Medpace did not have a specific belief about Biothera's cash position in November 2011 (Doc. 158, Ex. D at 55), and did not know if it was impossible for Biothera to make payments discussed in the November 17, 2011 phone call. (Id. at 58-59).
104. When asked to identify the dates that Medpace contends Biothera first did not pay amounts that Medpace had invoiced as due under the MSA and Task Orders as well as the dates that Medpace first informed Biothera of
such amounts being allegedly invoiced and due, Medpace could only initially refer Biothera to "the expert report of Jeff Long." (Doc. 158, Ex. B at 6; see Ex. D at 163).
105. As of the date of Medpace's Fraud Discovery Responses, Jeff Long had submitted four expert reports. (See Doc. 158, Exs. PP, QQ, RR, and SS).
106. Medpace believed it had the ability to declare that Biothera had breached its agreements from August 2011 through the end of 2011. (Doc. 158, Ex. D at 158 -159).
107. Medpace has not identified what, if any, reputational damages stemmed from Biothera's representations. (Doc. 158, Ex. D at 170-171).
108. The amount Biothera agreed to pay Medpace in the allegedly fraudulent representation on the November 17, 2011 call was "money included under the task order already" executed between Biothera and Medpace. (Doc. 158, Ex. R at 253, 256-257).
109. The damages Medpace is claiming for fraud were incurred "for continuing performance on the Imprime trials and for continuing to pay sites and vendors on Biothera's behalf on the Imprime trials." (Doc. 158, Ex. TT at 2).
Medpace denies this fact to the extent that Cutter felt this way at the time of the relationship, not now. (Doc. 158, Ex. K at 281-284).
However, Medpace claims that Biothera always paid invoices as promised. (Doc. 158, Ex. D at 64, 147, 154; Doc. 158, Ex. K at 91).
However, Medpace claims that Mr. Wynne further testified that it was his understanding that Biothera was paying as much as it could while paying as little as it could to other vendors just to keep them working. (Id. at 332-333).
Medpace claims that the payment was made on December 12, 2011, twelve days later than the November 30, 2011 promised payment date. (Doc. 158, Ex. D at 27, 77-78).
However, Medpace claims that it did communicate that it would take actions to protect its interests during its oral and written communications with Biothera and that Biothera knew that was why Medpace required payments of the delinquent balance. (Doc. 158, Ex. D at 176-177).
Medpace claims that Mr. Conners also represented that Biothera was closing a $2 million debt facility that week and would close an incremental $3 million in funding by the end of 2011, and assured Medpace that it would use the proceeds from these deals to pay Medpace the amounts it was owed. Medpace denies the remainder of this paragraph to the extent that it mischaracterizes the entirety of Mr. Conners' representations. (Id. at 71, Dep. Ex. 386).
Medpace claims that it also identified a misrepresentation as having taken place on December 7, 2011. (Doc. 173-1, Ex. 10).
However, Medpace expected Biothera to make payments based on the payment schedule to which it agreed.
Medpace denies the inference that it does not now know and believe through the depositions and documents produced in this litigation that Biothera's statements were false and made with the intent to mislead Medpace. (Doc. 158, Ex. AA at 335; Ex. D at 49).
However, Medpace claims that such representational damages may be undiscovered or may occur in the future. (Doc. 158, Ex. D at 170-171).
Medpace also seeks punitive damages and attorneys' fees and costs as a result of Biothera's alleged fraud. (Doc. 67 at ¶¶ 35-43).
III. MEDPACE'S UNDISPUTED FACTS
Doc. 160, Ex. A and Doc. 172-1.
1. On April 29, 2009, Medpace and Biothera entered into the MSA, pursuant to which Biothera, as sponsor, hired Medpace to provide clinical trial services (the "Services"). (Doc. 71 at ¶ 7; Doc. 158, Ex. P at 90-91; Dep. Ex. 48).
2. Following the execution of the MSA, Biothera and Medpace entered into a series of Task Orders and Task Order Amendments, which set forth the parties' responsibilities with respect to performance of the Services and payment for the Services. Medpace and Biothera entered into four Task
Orders numbered PGG821 (BT-CL-PGG-CRC0821), PGG1AVA (BTCL-PGG-LCA0821), PGG2ERB (BT-CL-LCA0822), BTCRC31 (BT-CL-PGG-CRC1031) and a Consulting Agreement. (Doc. 71 at ¶ 8; Doc. 158, Ex. P at 100-109, Dep. Exs. 49-53).
3. In July 2011, Mr. Gacki drafted an email stating that Biothera had "minimal prospects of inflows from financing" and that "near term financing prospects are dim." (Doc. 158, Ex. MM at 106-107).
4. On October 7, 2011, Mr. Gacki drafted an email to Mr. Conners. (Doc. 158, Ex. MM at 123, Dep. Ex. 128).
5. Medpace had no reason to believe that Biothera and Mr. Conners were lying about their intent to pay Medpace or about Biothera's funding status. (Doc. 158, Ex. D at 56-57, 64-65; Doc. 158, Ex. J at 371-372; Doc. 158, Ex. A at 22-23, 28-30).
6. Biothera made a $600,000 payment, albeit 12 days late, on December 12, 2011. (Doc. 158, Ex. D at 26 -27, Dep. Ex. 386).
7. Biothera paid $100,000 to Medpace on January 10, 2012. (Doc. 158, Ex. D at 119, Dep. Ex. 382).
8. That $100,000.00 payment was the last payment that Biothera ever made to Medpace. (Doc. 158, Ex. P at 183, 195, Dep. Ex. 73).
9. On February 1, 2012, Medpace gave Biothera notice of default for nonpayment and notice that Biothera had 30 days to cure the default. (Doc. 158, Ex. P at 157-159, Dep. Ex. 64).
10. On February 29, 2012, Biothera terminated the MSA and Task Orders. (Doc. 158, Ex. P at 194-195, Dep. Ex. 78).
11. Biothera terminated the MSA and Task Orders before completion. (Doc. 158, Ex. P, Dep. Ex. 48).
12. Section 6.4 of the MSA provides that "[i]n the event of any termination of a Task Order before completion, SPONSOR agrees to pay MEDPACE for all Services rendered pursuant to the unfinished Task Order prior to such termination and any non-cancelable expenses incurred in connection with MEDPACE's performance of Services thereunder." (Doc. 158, Ex. P, Dep. Ex. 48).
13. Medpace's General Counsel at the time, Kay Nolen, and Medpace's outside counsel, Louis Solimine, and then later Medpace's current General Counsel, Stephen Ewald, determined that because Biothera was in material breach of the MSA and Task Orders by failing to pay millions of dollars due and owing, Medpace was relieved of its obligation under the MSA to return the Trial Master File to Biothera. (Doc. 160, Ex. 10 at 10-18).
14. Medpace's General Counsel advised Medpace not to return the Trial Master file to Biothera unless Biothera paid the amounts it owed, and Medpace followed that advice. (Doc. 160, Ex. 10 at 32-34, Dep. Ex. 427).
Biothera admits this statement, but denies that these documents are the exclusive source of the parties' responsibilities with respect to each other. (Doc. 53 at 3 ¶¶ 3 & n. 5).
However, Biothera claims that Mr. Gacki testified that this was a "forecasting" position and Mr. Gacki did not know what happened in reality. (Doc. 158, Ex. MM at 107; Doc. 172-2 at ¶¶ 2-9).
Biothera denies that Medpace performed the "Services" referenced in Section 6.4.
Biothera denies that these conclusions were reasonable under the plain terms of the MSA.
III. STANDARD OF REVIEW
A motion for summary judgment should be granted if the evidence submitted to the Court demonstrates that there is no genuine issue as to any material fact, and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party has the burden of showing the absence of genuine disputes over facts which, under the substantive law governing the issue, might affect the outcome of the action. Celotex, 477 U.S. at 323. All facts and inferences must be construed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
A party opposing a motion for summary judgment "may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 248 (1986).
IV. MEDPACE'S PARTIAL MOTION FOR SUMMARY
JUDGMENT
The Court addresses both parties' motions for fraud in Section V.
A. Breach of Contract Claim
Medpace moves for partial summary judgment on its breach of contract claim for $1,090,802.00. Medpace argues that Biothera admits that it owed this amount under the MSA and Task Orders.
In terminating the MSA and Task Orders prior to completion, Biothera triggered Section 6.4 of the MSA which unequivocally requires Biothera to pay "MEDPACE for all services rendered pursuant to the unfinished Task Order prior to such termination and any non-cancelable expenses incurred in connection with MEDPACE's performance of Services thereunder." (Doc. 160-2, Ex. 48). Medpace has calculated that amount, as of July 18, 2014 to be $6,976,619.94, with interest continuing to accrue. Of that amount, Medpace claims that Biothera concedes, through its own expert witness, Renee Marino, that it owes Medpace $1,090,802.00. (Supp. Expert Report of Jeff Long, Ex. 1a; Expert Report of Renee Marino, Schedule 3).
Medpace seeks to recover the balance at trial.
Defendants claim that Ms. Marino did not admit or concede that Biothera owes Medpace anything under the contract, because Ms. Marino's analysis of the amounts due under the parties' contract is based on several assumptions about the proper interpretation of the contract. For example, Ms. Marino's damages analysis is based on the assumption that the trier of fact will determine that an "input approach that measures Medpace's efforts" is the proper measure of amounts Medpace earned. (Doc. 158, Ex. K at 5). However, Ms. Marino expressly notes that if the trier of fact determines that amounts Medpace earned should be measured by an "output approach that measures the benefits Biothera received," Medpace would owe Biothera a sizeable refund under the contract. (Id. at 5-6). Additionally, Ms. Marino notes that her net contract liability figure does not reflect several categories of harm Biothera has allegedly suffered as a result of Medpace's breach. (Id.) Therefore, Defendants argue that Ms. Marino's calculation of $1,090,802.00 as the net amount owed - before any adjustments for these amounts - does not constitute an admission that Biothera owes Medpace anything. Moreover, Ms. Marino is a third-party expert who cannot "admit" or "concede" anything on Biothera's behalf.
The Court cannot find, as a matter of law, that there is an agreement on the amount due and owing under the contract. Simply because one of Defendants' experts opined that Biothera owes $1,090,802.00, does not mean that Defendants agree with her assessment. Accordingly, Medpace's motion for summary judgment on its breach of contract claim is denied.
B. Rescission
Next, Medpace argues that Biothera's Counterclaim for rescinding the MSA fails as a matter of law.
The grounds for rescission of a contract under Ohio law are fraud, duress, undue influence, or mistake. Trebilcock v. Elkinsky, No. 1:05cv2428, 2007 U.S. Dist. LEXIS 6167, at *15 (N.D. Ohio Jan. 29, 2007) ("Generally, without fraud, duress, undue influence, or mistake, one party to a contract cannot rescind or cancel it without the consent of the other party."). Additionally, in order to rescind a contract, the party seeking rescission must be willing and able to return the benefit or consideration it received under the contract. Passa v. City of Columbus, No. 2:03cv81, 2008 U.S. Dist. LEXIS 18604, at *29 (S.D. Ohio Mar. 11, 2008) ("The general rule under Ohio law is that a party seeking to rescind a contract or other instrument...must first place the other in status quo, by returning all money, property, or other benefits received by him under the contract which is sought to be rescinded, or by making a tender thereof to the other party."). "Under Ohio law, a party is not permitted to hold the fruits of his contract and at the same time repudiate it." Cincinnati Gas & Elec. Co. v. Gen. Elec., 656 F. Supp. 49, 68 (S.D. Ohio 1986).
"[A] party seeking to rescind a contract or other instrument, on the ground of mistake or fraud, or because of non-performance of conditions, or for any other cause, must first place the other in status quo, by returning all money, property, or other benefits received by him under the contract which is sought to be rescinded, or by making a tender thereof to the other party." Miller v. Bieghler, 174 N.E. 774, 776 (Ohio 1931).
See also Trebilcock, 2007 U.S. Dist. LEXIS 6167 ("A party may not accept the beneficial aspects of the parties' agreement, while at the same time seek to 'undo' those provisions that are not acceptable.").
Biothera argues that "[t]he consideration to be provided to [it] under the contract failed in whole or in party, through the fault of Medpace." (Doc. 71 at ¶ 71). However, failure of consideration is not grounds for rescission of a contract unless such failure is "expressly made a ground of forfeiture." Elyria Anestesia Servs., Inc. v. Valgento, No. 62378, 1993 Ohio App. LEXIS 2295, at *3 (Ohio App. Apr. 29, 1993). The MSA does not reference failure of consideration as a ground for forfeiture. Moreover, Biothera cannot return the money, property, or other benefits it received under the MSA to Medpace. In fact, Biothera accepted the benefits of Medpace's services on the four clinical trials and has been awarded possession of the trial property resulting from it. Therefore, rescission is not an available remedy. See, e.g., Trebilcock, 2007 U.S. Dist. LEXIS 6167 at 16 (because the party seeking rescission had accepted the benefits of the contract, rescission was not available).
Defendants argue that they are not seeking rescission of the entire MSA - only rescission of the task orders under which Medpace managed Biothera's phase II lung cancer studies (i.e., LCA0821 and LCA0822) and Biothera's phase III colorectal cancer study (i.e., CRC1031). As to these contracts, Defendants claim that rescission is appropriate because: (i) they are divisible from the other task orders; and (ii) Medpace materially breached them in a way that struck at the very heart and purpose of those contracts and effectively denied Biothera the benefit of its bargain. Rescission may be available for "divisible or separable contracts." Trebilcock, 2007 U.S. Dist. LEXIS 6167 at 5. "The severability of a contract is a question of law and depends upon the intent of the parties." Toledo Police Patrolmen's Ass'n v. Toldedo, 641 N.E.2d 799, 803 (Ohio App. 1994). Defendants argue that the parties intended the task orders to be separate, independent contracts governing four separate clinical trials with different divisions of responsibility. The Task Orders for each clinical trial was separately amended an executed. (Doc. 158-2 at 129-155, 167-186, 188-207, 157-66, 209-225). Accordingly, because the Task Orders are divisible, Defendants argue that they can be rescinded individually. However, this approach could never return the parties to the status quo, because Biothera would keep the trial property that Medpace helped generate.
The question of whether a contract is divisible "must be ascertained by the ordinary rules of construction, considering not only the language of the contract, but also, in cases of uncertainty, the subject matter, the situation of the parties, and circumstances surrounding the transaction, and the construction placed upon the contract by the parties themselves." Material Contractors, Inc. v. Donahue, 235 N.E.2d 525, 528 (Ohio 1968).
Biothera argues that even if it is not willing or able to "return the benefit or consideration it received under the contract, the court "has discretion in fashioning a decree that will return the parties to the position they occupied before they entered into the contract." Bell v. Turner, No. 12CA14, 2013 Ohio App. LEXIS 1238, at *15-16 (Ohio App. Mar. 25, 2013). See also Cincinnati Gas & Elec. Co., 656 F. Supp. at 68 ("the parties could be placed in the status quo by plaintiffs' tendering the pecuniary equivalent of the services provided."). However, both of these cases also hold that the parties must be able to return to the status quo in order for the remedy for rescission to exist under the law.
Accordingly, Defendants' rescission counterclaim fails as a matter of law.
C. Punitive Damages
Punitive damages may be awarded in a tort action only if "[t]he actions or omissions of that defendant demonstrate malice or aggravated or egregious fraud[.]" Ohio Rev. Code § 2315.21(C)(1). Actual malice is defined as "(1) that state of mind under which a person's conduct is characterized by hatred, ill will or a spirit of revenge, or (2) a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm." Preston v. Murty, 512 N.E.2d 1174, 1175 (Ohio 1987). An award of punitive damages based on the conscious disregard theory of malice "requires 'a positive element of conscious wrongdoing.' This element has been termed conscious, deliberate or intentional. It requires the party to possess knowledge of the harm that might be caused by his behavior." Malone v. Courtyard by Marriott P'ship, 659 N.E. 2d 1242, 1247-48 (Ohio 1996). The party seeking punitive damages has the burden to prove malice by clear and convincing evidence. Ohio Rev. Code § 2315.21 (C)(3).
Medpace argues that there is no evidence that it acted with malice in its decision to retain the trial property when Biothera terminated the MSA without paying the millions of dollars that it owed. The evidence demonstrates that Medpace made the decision to retain the property on the advice of its counsel. Brownlee v. Pratt, 68 N.E.2d 798, 801 (Ohio App. 1946) ("the fact that defendant acted in good faith upon advice of counsel may be a good defense"). However, while reliance on the advice of counsel may be a good defense, does not mean that it is a good defense as a matter of law.
See also Wagenheim v. Alexander Grant & Co., 482 N.E.2d 955, 966 (Ohio App. 1983) (a plaintiff's punitive damages claim could not survive summary judgment when the defendant presented evidence that his decision to commit the tortious act was made at the recommendation of his in-house counsel, and the plaintiff did not provide sufficient evidence of ill will or wanton behavior to rebut the defendant's evidence).
The Court found that Medpace's post-injunction conversion constituted contempt. (Doc. 101 at 7-8) ("Medpace violated a definite and specific order of this Court requiring it to perform or refrain from performing a particular act...Biothera has proven as much here"). See, e.g., Freudeman v. Landing of Canton, 702 F.3d 318, 330 (6th Cir. 2012) ("[A]ctual malice can be inferred from conduct and surrounding circumstances which may be characterized as reckless, wanton, willful or gross."). However, this Court expressly found that Medpace's conduct did not "rise[] to the level of either intentional or reckless, although it is a close call as to the latter." (Doc. 101 at 7). Even if whether Medpace acted recklessly is a factual issue subject to different interpretations, these arguments are tied to Medpace's post-preliminary injunction production of the trial property, which Biothera never alleged as a basis for punitive damages. (Doc. 71 at 79-87). Therefore, this argument cannot defeat summary judgment in Medpace's favor on the punitive damages claim.
Still, Biothera does not cite to any evidence in the record to establish that Medpace acted with malice or to rebut Medpace's affirmative evidence that it did not act with malice.
The party moving for summary judgment needs to support its motion with evidence negating the opponent's claim, but the moving party must affirmatively show the lack of evidence in the record. Once the moving party does this, the non-moving party, having the burden of persuasion on an essential element at trial, must come forward with evidence that demonstrates the existence of a genuine issue for trial.Schenk v. Rubbermaid, Inc., No. No. 90-3180, 1990 U.S. App. LEXIS 21765, at *2 (6th Cir. Dec. 12, 1990). Once Medpace produced evidence that it acted on the advice of counsel and did not act with malice, the only way that Biothera could overcome summary judgment was to produce affirmative evidence demonstrating that this was not the case, but Biothera failed to do so. Accordingly, Medpace's motion for summary judgment on punitive damages is granted.
V. FRAUD
To prevail on a claim for fraud under Ohio law, a plaintiff must prove: "(1) a representation, failure to disclose, or concealment of a material fact; (2) made falsely, with knowledge of, or a reckless attitude toward, its falsity; (3) with the intent of misleading another to rely on it; (4) actual and justifiable reliance; and (5) resulting injury caused by the reliance." Kehoe Component Sales, Inc. v. Best Lighting Prods, Inc., 933 F. Supp. 2d 974, 1008 (S.D. Ohio 2013). Defendants claim that Medpace cannot establish: the alleged actionable representation or concealment, actual and justifiable reliance, and intent to deceive. Accordingly, Defendants maintain that they are entitled to judgment as a matter of law on Medpace's allegation of fraud.
Medpace alleges that Defendants affirmatively misrepresented that: (i) Medpace was on the top of Biothera's list to be paid; (ii) Biothera had millions of dollars of deals and financing that were "imminent" and were closing by the end of 2011; (iii) Biothera would use the incoming money to pay Medpace; (iv) Biothera would pay Medpace $600,000 by November 30, 2011 and $600,000 by December 31, 2011; (v) Biothera would make equal monthly payments on the past due balance from January through June 2012 to get its account current; and (vi) Biothera would make timely payments under the terms of the MSA and Consulting Agreement as amounts became due. Medpace argues that Defendants undertook, over a period of several months, a fraudulent scheme to induce it to continue funding the clinical trials without intending to pay the full amount it owed under the contract until Biothera could terminate the MSA. Medpace claims that this scheme consisted of numerous material, factual misrepresentations regarding Biothera's funding status, ability to pay, and commitment to pay. Medpace argues that the Court should consider whether Defendants' representations, considered as a whole in the context in which they were made, create a genuine issue of fact for trial as to whether Defendants' conduct was fraudulent.
See, e.g., Schaffer v. Timberland Co., 924 F. Supp. 1298, 1313-14 (D.N.H. 1996) (in the securities fraud context, explaining that a court should not view allegedly fraudulent statements in isolation when determining whether they are actionable or mere puffery, but must consider the context of allegations as a whole).
A. Misrepresentations or Concealments
A fraud claim requires a false statement of material fact. Phillips v. PNC Bank, NA, 3:12cv207, 2012 U.S. Dist. LEXIS 174740 (S.D. Ohio Dec. 10, 2012). Medpace has alleged five "misrepresentations," but Defendants claim that none qualifies as a fraudulent representation as a matter of Ohio law.
1. Strike alleged misrepresentations
As a threshold matter, Defendants claim that Medpace did not have leave to assert misrepresentations relating to: (1) the future closing of a debt facility; or (2) Biothera's alleged statements that Medpace was its "number one creditor." Accordingly, Defendants maintain that such allegations should be stricken. Motions to strike are generally disfavored and "are typically denied unless the allegations at issue do not relate to the subject matter of the action and may cause 'significant prejudice' to one or more of the parties." New Day Farms, LLC v. Bd. of Trs. of York Twp., No. 2:08cv1107, 2009 U.S. Dist. LEXIS 130429, at *9 (S.D. Ohio June 10, 2009) (citing 5C Wright & Miller § 1382).
See also, Wuliger v. Cannella Response TV, Inc., No. 3:05cv854, 2011 U.S. Dist. LEXIS 4400, at *20 (N.D. Ohio Jan. 14, 2011) (declining to strike additional factual allegations in an amended complaint when they did not affect the substance of the claims and they did not prejudice defendant).
Pursuant to Fed. R. Civ. P. 9(b), only the "circumstances of the fraud [must] be pled with particularity, not the evidence of the case." Rheinfrank v. Abbot Labs., No. 1:13cv144, 2013 U.S. Dist. LEXIS 113289, at *13 (S.D. Ohio Aug. 12, 2013) (quoting Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 680 n.9 (6th Cir. 1988)). In accordance with this standard, "[a] party alleging fraud need not provide direct quotes to satisfy Rule 9(b). Instead, the party must plead the content of the representations." Id. at 22-23.
The factual misrepresentations Biothera seeks to strike are specific examples of fraudulent statements that were properly alleged in Medpace's Amended Complaint and listed in Medpace's interrogatory responses. Medpace's Amended Complaint alleges, in relevant part:
In the written and oral communications between Medpace and Defendants from July 2011 through January 2012, Defendants misrepresented their commitment and financial ability to pay the amounts due and owing to Medpace and the amounts Medpace would incur under the MSA and Task Orders in the coming months. Moreover, Defendants misrepresented Defendants Biothera, Inc.'s and Biopolymer Engineering's financial status and funding environment and actively concealed Defendants Biothera, Inc.'s and Biopolymer Engineering's true financial status from Medpace.(Doc. 67 at ¶ 36).
The allegation that Defendants misrepresented the pending closing of a debt facility in December 2011 is directly related to the allegation that "Defendants misrepresented their.financial ability to pay...[and] misrepresented Defendants Biothera, Inc.'s and Biopolymer Engineering's financial status and funding environment[.]" (Doc. 67 at ¶ 36). Likewise, the allegation that Defendants misrepresented that Medpace was its number one creditor and was at the top of Biothera's list to pay is directly related to the allegation that "Defendants misrepresented their commitment...to pay[.]" Id. Therefore, these allegations provided Biothera with sufficient notice of the representations that it seeks to strike under Rule 9(b), and Medpace adequately plead the "content of the representations," i.e., that Defendants misrepresented their commitment and financial ability to pay amounts due and owing under the MSA and Task Orders.
During the deposition of Medpace's corporate representative, Jesse Geiger, Biothera questioned Mr. Geiger about Medpace's representation that "Biothera and Connors misrepresented Biothera's funding environment[,]":
Q. Let's talk about this imminence regarding a deal with - was it large pharmaceutical company? Are you familiar with this allegation supporting fraud?
A. Yes.
Q. Okay. Who made that allegation? Was that Mr. Conners?
A. I think it was Jim Horstmann and Bill Gacki had made representations of that to John Wynne, you know, throughout 2011. The discussions that I had with Dan in November were about his shareholders, you know, broader than big pharma, were about 800 or 700 or so shareholders, that he had the accredited angel investors. He was speaking more to the fact that he was raising capital every week, sometimes multiple times a week.
Q. If we could -
A. He did speak about -
Q. Go ahead. I'm sorry.(Doc. 158, Ex. D at 28-29).
A. - two licensing deals that he was close on. One was with an Israeli - an Israeli company who was backed by Roy Disney and an equity firm. Another one was a Canadian company that Morris Goodman had started. So those were two different licensing deals that he communicated he was close on.
Accordingly, Defendants' alleged misrepresentations regarding licensing deals with "an Israeli company backed by Roy Disney" and a "Canadian company which Morris Goodman started" were clearly known to Defendants, because they were expressly referenced in Mr. Geiger's deposition testimony which was taken more than one year prior to the summary judgment filings.
Moreover, the allegations Biothera asks be stricken do not alter the theory of recovery or the substance of the claims. Defendants will suffer no prejudice in defending against these factual allegations. Accordingly, the Court declines to strike the same.
2. Identify material facts
This Court concluded that Medpace's fraud claim was plead with sufficient particularity to satisfy Rule 9(b), because a party need only plead the "circumstances" of the fraud, not the "evidence" of the fraud. (Doc. 66 at 6-8). However, Defendants claim that Medpace has not produced sufficient evidence supporting a claim of fraudulent concealment and continues to rely on the same broad-brush allegations of "concealment" contained in its Amended Complaint. Specifically, Defendants claim that all five alleged misrepresentations are insufficient to support a fraud claim because statements of opinion and puffery cannot form the basis of a fraud claim. Miller's Bottled Gas, Inc. v. Borg-Warner, Corp., 955 F.2d 1043, 1051 (6th Cir. 1992) ("A mere statement of opinion or prediction may not be the basis of an action.").
Medpace claims that Biothera misrepresented that it was Biothera's "number one creditor" and at the "top of the list." Defendants claim that these are statements of opinion and "mere puffery" which cannot support a fraud claim. Clayton v. McCary, 426 F. Supp. 248, 262 (N.D. Ohio 1976) (statement that a car was in "A Number One" condition was a "statement of opinion" that did not "satisfy all the conditions necessary to a finding of fraud"). Specifically, Defendants argue that Medpace cannot prove that such statements are untrue, because they concern Biothera's subjective perception and opinion. However, the Court finds that these statements are concrete and verifiable factual statements which involve the order Medpace would be paid in comparison to Biothera's other vendors and therefore are not mere predictions. In fact, Medpace evidences that it was the last to be paid out of Biothera's creditors (Doc. 158, Ex. MM at 104-108), and that on multiple occasions Biothera's "funding gap was solved by paying other vendors and not paying Medpace." (Doc. 158, Ex. D at 17, 21; Ex. MM at 104123; Ex. LL at 61, 138-168).
Defendants also allege that Medpace's allegations are non-actionable statements of future performance. "Representations concerning what will occur in the future are considered predictions and not fraudulent misrepresentations." Cleveland Constr., Inc. v. Roetzel & Andress, L.P.A, No. 94973, 2011 Ohio App. LEXIS 1072, at *17 (Ohio App. Mar. 17, 2011). Medpace claims that "[w]here, however, a malefactor makes a promise of future action, occurrence, or conduct, and at the time he makes the promise has no intention of keeping the promise, an action for fraud may lie." Carey v. FedEx Ground Package Sys., 321 F. Supp. 2d 902, 925 (S.D. Ohio 2004). Additionally, a fraud claim exists when a person makes a false statement about his financial condition, even if that statement involves something that will occur in the future. Link v. Leadworks Corp., 607 N.E.2d 1140, 1145 (Ohio App. May 4, 1992).
In Link, an actionable fraud claim existed based on misrepresentations of the defendant company's president and chairman of the board to an employee regarding the size and nature of the company's sales force, the company's growth by leaps and bounds, and the company's financial status and ability to pay employees. Id. at 738-40, 743. The president/chairman received the company's financial statements on a monthly basis and there was documentary evidence that the company was in "dire financial straits" at the time the statements were made and that it had been that way for several months. Id. at 743-44. The Court held that construing the evidence in favor of the plaintiff, summary judgment was improper because there was a genuine issue of fact as to whether the president/chairman made false statements of fact with the present intention not to fulfill his promise to pay the employee's wages. Id.
Specifically, Medpace claims that Defendants agreed to pay $600,000 by November 30, 2011, $600,000 by December 31, 2011, monthly payments on the past due balance from January through June 2012, as well as making timely payments under the terms of the MSA and Consulting Agreement as amounts became due. Defendants' payment plan representations are actionable because they are sufficiently concrete statements of fact and construing the evidence in favor of Medpace there is a genuine issue of fact as to whether Defendants had any intention to fulfill their promises since their financial prospects were "dim," and significant funding was not "imminent." (Doc. 158, Ex. MM at 104-123; Ex. LL at 61, 138-168).
Specifically, in his deposition, Medpace's corporate representative testified that Defendants made the following representations about Biothera's financial condition and ability to pay, including:
• In December 2011, Jim Horstmann and Bill Gacki communicated to John Wynne that the capital raise was $2 million plus, that shareholders had approved the financing, and that the funds would be available in several days. (Doc. 158, Ex. D at 28-29).In January 2011, Mr. Conners represented to Mr. Geiger that he was having discussions with "big pharma" and six of those were interested in moving forward with Biothera. (Doc. 158, Ex. D at 29).
• Mr. Conners communicated to Mr. Geiger that Biothera would close an incremental $3 million in funding by the end of 2011. (Doc. 158, Ex. D at 71)
• Mr. Conners communicated to Mr. Geiger that Biothera had 800 accredited angel investors and that he was raising capital every week. (Doc. 158, Ex. D at 29; 56).
• Mr. Conners communicated to Mr. Geiger that he had two licensing deals that he was close on. One was an Israeli company backed by Roy Disney and an equity form. The other was a Canadian company which Morris Goodman had started. (Doc. 158, Ex. D at 29).
Finally, Defendants maintain that Biothera had no duty to disclose information to Medpace. "Ordinarily in business transactions where parties deal at arm's length, each party is presumed to have the opportunity to ascertain relevant facts available to others similarly situated, and, therefore, neither party has a special duty to disclose information to the other." See Blon v. Bank One, Akron, N.A., 519 N.E.2d 363, 367 (Ohio 1988) (because there was "no special relationship of trust and confidence with the Blons," there was "no duty to disclose the details" of the financing fee arrangement). Here, the parties are sophisticated business entities and they negotiated the MSA at arm's length.
Medpace's Amended Complaint alleges that Defendants actively concealed Biothera and Biopolymer Engineering's true financial status from Medpace.
Defendants shared a plethora of financial documents with Medpace, including Biothera's audited 2009 and 2010 financial statements, consolidated balance sheets, statements of operations, statement of cash flow for 2011, and a private placement memorandum for investors. (Doc. 172-3 at 104-167). In fact, Biothera's auditor noted that "the Company has incurred significant losses and negative cash flows from operations since inception," creating conditions that "raise substantial doubt about the Company's ability to continue as a going concern." (Id. at 150). Biothera claims that its voluntary, pre-litigation decision to share this information precludes a finding that it created a misleading impression or that it intended to create a misleading impression.
However, Medpace claims that upon receipt of these financial documents, in late January 2012, it was able to discern, for the first time, that Biothera's finances were not as Defendants represented in July through December 2011, which prompted Medpace to place Biothera in default under the MSA days later on February 1, 2012. (Doc. 160 at 7; Doc. 173 at 14). Medpace claims that had Defendants been honest and forthcoming about their inability to pay and financial status, Medpace would have placed Biothera in default under the MSA as early as July 2011. (Id.)
The Court finds that Medpace has clearly identified the circumstances of Biothera's fraud. Accordingly, the Court finds that Medpace has alleged sufficient material facts to state a claim for fraud.
For example, during a November 17, 2011 telephone call with Medpace employees John Wynne and Jesse Geiger, Mr. Conners committed that Biothera would pay each invoice for new charges by the due date. (Doc. 158, Ex. I at 138). Additionally, Biothera made payments toward the payment plan - a first late payment of $600,000 and a second partial payment of $100,000. (Doc. 160 at 7-8). When Biothera transmitted the $100,000 on January 6, 2012 Biothera apologized for it being "only $100,000," confirming that the $100,000 payment was not complete under the terms of the payment plan. (Id. at 8). In a December 9, 2011 email to Mr. Conners and others, Mr. Gacki, Biothera's CFO confirmed the existence of the payment plan: "Dan are we settled on $600K? for the first payment to Medpace? We can easily make that happen on Monday." (Doc. 158, Ex. MM at 135). Additionally, Biothera employees testified that Biothera and Mr. Conners repeatedly told Medpace that it was on the top of Biothera's list to be paid and that Biothera had deals and financing that were "imminent." (Doc. 160 at 3-6; Doc. 173 at 3-5).
B. Justifiable Reliance
Next, Defendants argue that Medpace fails to establish that it actually relied on these alleged misrepresentations.
Medpace has the burden to show that its reliance on any alleged misrepresentations was justifiable. Scotts Co. LLC v. Liberty Mut. Ins. Co., 606 F. Supp.2d 722, 741 (S.D. Ohio 2009). The justifiable-reliance element only allows claims of "intentional fraud successfully practiced upon the simple-minded or unwary." Amerifirst Savings Bank of Xenia, Ohio v. Krug, 737 N.E.2d 68, 87 (Ohio App. 1999). In determining whether reliance is justified, courts consider various factors "including the nature of the transaction, the form and materiality of the representation, the relationship of the parties, the respective intelligence, experience, age, and mental and physical condition of the parties, and their respective knowledge and means of knowledge." Andrew v. Power Mktg. Direct, Inc., 978 N.E.2d 974, 992 (Ohio App. 2012). "Establishing justifiable reliance does not require a showing that a plaintiff's reliance conformed to what a 'reasonable man' would have believed." Howick v. Lakewood Vill., No. 10-06-25, 2007 Ohio App. LEXIS 3944, at ¶ 47 (Ohio App. Aug. 27, 2007). "The question of justifiable reliance is one of fact and requires an inquiry into the relationship between the parties. Reliance is justifiable if the representation does not appear unreasonable on its face and if there is no apparent reason to doubt the veracity of the representation under the circumstances." Mulch Mfg. Inc. v. Advanced Polymer Solutions, LLC, 947 F. Supp. 2d 841, 862 (S.D. Ohio May 23, 2013).
Defendants argue that Medpace, an experienced creditor, could not justifiably rely on vague, optimistic forward-looking statements from Biothera as the basis for a multi-million dollar forbearance agreement, particularly when Medpace had long viewed Biothera as a credit risk. Specifically, Biothera claims that Medpace's alleged reliance was not justifiable under the relevant circumstances, including: (1) Medpace's position of power and control over Biothera; (2) the parties' history of billing and collection disputes and Medpace's regular monitoring of Biothera as "credit risk"; (3) the ambiguous, aspirational nature of the alleged misrepresentations; and (4) the context of an undocumented seven-figure forbearance agreement.
Medpace argues that Defendants cannot escape liability for their fraudulent conduct by arguing that they never should have been believed in the first place. Primus Auto. Fin. Servs. v. Otto-Wal, Inc., No. 3:98cv7424, 2000 U.S. Dist. LEXIS 6415, at *15 n. 3 (N.D. Ohio Apr. 3, 2000) ("But the fact that [plaintiff] failed to do due diligence would not relieve [the defendant] of the consequences of its fraudulent conduct. Fraud is an intentional tort and a person who commits fraud cannot complain that he was successful only because the person defrauded was gullible."). Specifically, Medpace maintains that it justifiably relied on the representations of Biothera's founder and Chairman of the Board and other Biothera employees, Jim Horstmann and Bill Gacki, regarding Biothera's financial status and ability to pay
1. Oral misrepresentations
Biothera argues that Medpace's purported reliance on oral statements of opinon and predictions about the future is unjustifiable as a matter of law. Medpace maintains that its reliance on Defendants' oral promises was justifiable because Medpace had no reason to believe that Defendants were being untruthful. Hodell-Natco Indus. v. SAP Am., Inc., No. 1:08cv2755, 2013 U.S. Dist. LEXIS 186576, at *19 (N.D. Ohio June 13, 2013) (plaintiff's reliance solely on representations obtained during a telephone conference was not unjustifiable as a matter of law). The Court finds that Medpace's reliance on Defendants' oral statements is not unjustifiable as a matter of law.
2. Parties' relationship
Next, Biothera argues that given the parties relationship, Medpace could not have justifiably relied on the alleged misrepresentations. Biothera argues that it is a small development-stage biotechnology company with fewer than 100 employees, while Medpace is a sophisticated global contract research organization that has entered into thousands of contracts. Given Medpace's financial acumen and business experience, Biothera argues that Medpace's alleged reliance was unjustifiable. In re Nat'l Century Fin. Enters., Inc., Inv. Litig., 905 F. Supp. 2d 814, 824 (S.D. Ohio 2012) (holding reliance was not justifiable when sophisticated plaintiff signed a no-reliance letter). Moreover, Biothera claims that given its relationship with Medpace, Medpace could not have justifiably relied upon the misrepresentations alleged in the Amended Complaint. Morgan v. Mikhail, No. 08AP-87, 2008 Ohio App. LEXIS 3843 at *15 (Ohio App. Sept. 11, 2008) ("In determining whether a plaintiff is justified in relying upon the defendant's representations, a fact finder must not revert to a 'reasonable person' standard...Reliance is justified if, under the circumstances, the plaintiff did not have reason to doubt the veracity of the representation."). Specifically, Biothera argues that Medpace's alleged reliance is contradicted by an internal memorandum from its Chief Financial Officer, predating the alleged fraud, noting that Medpace viewed Biothera as a "credit risk" which it was "closely monitoring." Despite the fact that Medpace allegedly believed Biothera was a credit risk, it spent over $3 million in reliance upon alleged misrepresentations of Biothera's creditworthiness.
However, the fact that a plaintiff in a fraud case has expressed skepticism about the defendant's ability to perform does not demonstrate a lack of reliance. Regal Cinemas, Inc. v. W&M Props., 90 Fed. App'x 824, 830 (6th Cir. 2004) (the fact that the plaintiff expressed skepticism did not preclude reliance - "[a] jury might instead have concluded that, despite concerns about whether [the defendant] would follow through, [the plaintiff] signed the agreement because of [the defendant's] misrepresentations). Medpace understood that Biothera was constantly raising funds, so it was reasonable to believe Defendants' representations that additional financing was imminent.
See, e.g., Nationwide Book Indus v. A&S Booksellers, 950 F. Supp. 2d 264, 271-72 (D. Mass. 2013) (a reasonable juror could find that the plaintiff's reliance on the defendant's oral representations of payment was justifiable because the plaintiff considered the defendant to be honest and reliable based on their longstanding business relationship, the defendant had often been slow to pay for goods but had always ended up paying in full, and plaintiff understood that the defendant's business was cyclical).
3. Nature of transaction
All of the alleged misrepresentations concern the same core transaction: Medpace's continued performance under the MSA and Task Orders from late 2011 until January 2012. Biothera claims that Medpace did nothing to confirm any of the alleged misrepresentations upon which is supposedly relied, which demonstrates that Medpace did not reasonably investigate as required by Ohio law. Thompson v. Transam Trucking, Inc., No. 2:08cv927, 2011 U.S. Dist. LEXIS 61176, at *8 (S.D. Ohio June 8, 2011) ("Plaintiff certainly failed to exercise proper vigilance in dealing with this situation and to reasonably investigate it before relying on the representations.").
However, because it had no reason to doubt the veracity of Defendants' representations, Medpace's reliance was not unjustifiable merely because, in hindsight, it could have done more to investigate. Howick v. Lakewood Vill. Ltd. P'ship, No. 10-06-25, 2007 Ohio App. LEXIS 3944, at *39 (Ohio App. Aug. 27, 2007) (the fact that a prudent seller might have conducted its own investigations of the representations does not make its reliance unjustifiable).
See also Vigortone AG Products, Inc. v. PM AG Products, Inc., 217 F. Supp. 2d 858, 866 (N.D. Ill. Mar. 12, 2011) ("[A] plaintiff's duty to investigate may be absolved when the defendant's deliberate misrepresentations lull the plaintiff into a false sense of security, or attempt to block further inquiry. 'If you ask the defrauder point blank, you need not investigate further.'").
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Accordingly, construing the facts in the light most favorable to Medpace, the Court finds that Medpace has alleged sufficient facts that it justifiably relied on Defendants' misrepresentations.
C. Knowledge or Intent to Deceive
Finally, Defendants claim that Medpace fails to allege that it intended to deceive Medpace.
To prevail on a fraud claim, "a plaintiff has the burden to prove that defendant knowingly and intentionally misled or deceived plaintiff. Fraudulent conduct may not be established by conjecture; it must be provided by direct evidence or justifiable inferences from established facts." Doyle v. Fairfield Mach. Co., 697 N.E.2d 667, 667 (Ohio App. 1997). The intent element of a fraud claim requires that the defendant made the misrepresentations "with the intent of misleading another into relying on it." Nilavar v. Osborn, 711 N.E.2d 726, 739 (Ohio App. 1998). "In proving a fraud claim, a person's intent to mislead another into relying on a misrepresentation or concealment of a material fact generally must be inferred from the totality of the circumstances since a person's intent is rarely provable by direct evidence." Fairbanks Mobile Wash, Inc. v. Hubbell, Nos. CA2007-05-062, 2009 Ohio App. LEXIS 477, at ¶ 22 (Ohio App. Feb. 9, 2009). Whether a defendant acted with intent to mislead is generally a question of fact for the jury. Releasomers, Inc. v. Goodyear Tire & Rubber Co., No. 12535, 1986 Ohio App. LEXIS 9694, at *12 (Ohio App. Nov. 19, 1986). However, issues of intent and state of mind may be decided at the summary judgment stage. Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir. 1989).
Biothera argues that Medpace witnesses "repeatedly testified that they have no reason to believe Biothera ever intended to deceive them." (Doc. 158 at 27). However, those witnesses testified that at the time Biothera was making those representations, they did not believe that it intended to deceive them. (Doc. 158, Ex. D at 48, 56, 64-65; Ex. J at 371-72; Ex. L at 22-23, 28-30). Medpace does believe now that Defendants intended to deceive them.
Biothera also claims that the record is devoid of any direct evidence or justifiable inferences that Defendants intentionally misled or deceived Medpace. Stuckey v. Online Res. Corp, 909 F. Supp. 2d 912, 941 (S.D. Ohio 2012) ("Although corporate representatives] knew or should have known that the SEC comment letter and review were material disclosures that [the company] should have made, there is not enough evidence on the record to conclude [that the company] failed to disclose the letter and review in order to win the bidding process. Knowledge and intent to mislead another into relying are different elements"). In fact, Biothera argues that it paid Medpace $700,000 of the alleged payment plan, corroborating its intent to perform.
However, when evidence of fraudulent intent can be inferred, summary judgment is improper. The fact that Biothera allegedly made promises of payment when in fact it was in serious financial trouble, supports an inference that it may have intended to defraud Medpace. See, e.g., Nationwide Book Indus v. A&S Booksellers, 950 F. Supp. 264, 270 (D. Mass. May 22, 2013) (the fact that the defendant made assurances of its intention to pay when the evidence revealed that its financial situation was dire, supported the inference that the defendant "intentionally misled the plaintiff about the status of his business so that he could obtain books for which [his company] could not afford to pay.").
Construing the evidence and all reasonable inferences in Medpace's favor, there is a genuine dispute of material fact as to whether Defendants intended to mislead Medpace into relying on their misrepresentations regarding the payment plan, Biothera's ability to pay amounts due and owing under the MSA, Biothera's imminent funding and debt facility, and Medpace's priority with respect to Biothera's other creditors.
Accordingly, the Court finds that there are disputed issues of material fact that preclude summary judgment for either side.
VI. CONCLUSION
Accordingly, for the foregoing reasons: (1) Defendants' motion for summary judgment (Doc. 158) is DENIED; and (2) Medpace's motion for partial summary judgment (Doc. 160) is GRANTED IN PART and DENIED IN PART as explained herein.
IT IS SO ORDERED. Date: 3/31/15
s/ Timothy S. Black
Timothy S. Black
United States District Judge