Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-13-2005

MDNet Inc v. Pharmacia Corp
Precedential or Non-Precedential: Non-Precedential

Docket No. 03-4782




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Recommended Citation
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                                                               NOT PRECEDENTIAL


                   IN THE UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT


                                       No: 03-4782


                                     MDNET, INC.,

                                                 Appellant,

                                            v.


                        PHARMACIA CORPORATION, and
                      GREENSTONE LTD. t/d/b/a GREENSTONE
                           HEALTHCARE SOLUTIONS
                             ____________________

                    On Appeal from the United States District Court
                        for the Western District of Pennsylvania
                              District Court No. 02-CV-1237
                    District Judge: The Honorable Gary L. Lancaster
                                 ____________________

                       Submitted Under Third Circuit LAR 34.1(a)
                                   January 11, 2005

   Before: ROTH and CHERTOFF,* Circuit Judges, and SHAPIRO,** District Judge.

                            (Opinion Filed: June 13, 2005)



   *
     This case was submitted to the panel of judges Roth, Shapiro ** and Chertoff. Judge
Chertoff resigned after submission, but before the filing of the opinion. The decision is
filed by a quorum of the panel. 28 U.S.C. § 46(d).
   **
    Honorable Norma L. Shapiro, Senior District Judge for the United States District
Court for the Eastern District of Pennsylvania, sitting by designation.
                                         OPINION




SHAPIRO, District Judge.

       MDNet, Inc. (“MDNet”) filed this action against Pharmacia Corporation

(“Pharmacia”) and Greenstone Ltd. (“Greenstone”) for breach of contract, promissory

estoppel, and fraudulent misrepresentation. MDNet appeals the district court dismissal

for failure to state a claim upon which relief can be granted.

I. FACTS AND PROCEDURAL HISTORY

       MDNet is an “Internet e-Health Company” that develops virtual private networks

(“VPNs”) for doctors and hospitals.1 Pharmacia makes and distributes pharmaceuticals.

Greenstone is a wholly owned subsidiary of Pharmacia, and does data-mining, data

modeling, e-business applications and other marketing tasks. This dispute arose when

Greenstone and Pharmacia ended contract negotiations with MDNet. MDNet alleges an

oral contract had been formed; Pharmacia and Greenstone disagree.

       In May, 1999, Greenstone and MDNet entered into a three-month trial business

arrangement, memorialized in a written contract (“the May 1999 Agreement”); MDNet

provided marketing data to Greenstone for $30,000. The firms found the trial



   1
     A VPN is a private computer network that uses a public network such as the Internet
to connect users together securely.

                                              2
arrangement beneficial, and wanted to expand their venture so that MDNet would

develop VPNs for doctors and hospitals and create sales opportunities for Greenstone and

Pharmacia. The venture included the development of a VPN for a group of Texas

urologists (“Prime Medical”) that would enable Pharmacia to market the prescription drug

“Detrol” to the urologists.

       In October, 1999, MDNet, Greenstone, Pharmacia, and Prime Medical agreed by

written contract (“the October 1999 Agreement”) that MDNet would develop a VPN for

Prime Medical, and Greenstone would have access to the urologists and their data.

Greenstone orally agreed to provide $700,000 in funding. The October 1999 Agreement

contained the following clauses:

       10. Prime Medical, MDNet, and Greenstone/PNU intend to maintain a
       dialogue to consider further exploration of their business relationship.
       However, any binding agreement resulting from such dialogue must be
       entered into in writing.

       [...]

       14. This agreement shall continue in effect until any party gives at least 30
       days’ advance notice of its intention to terminate to the others, provided that
       this agreement may not be terminated prior to December 31, 2002, except
       by a non-breaching party upon any breach, default or other failure to
       perform by any other party hereto.

       Representatives of MDNet and Prime Medical met with representatives of

Pharmacia and Greenstone on August 17, 2000 to negotiate expansion of the venture.

MDNet alleges that Pharmacia and Greenstone entered into an oral agreement with

MDNet (“the August 2000 Agreement”). MDNet claims the terms of the August 2000

                                             3
Agreement were as follows: 1) Pharmacia would provide $2,000,000 in funding over two

years; 2) Pharmacia would make available a marketing and sales support team; and 3)

Pharmacia would receive exclusive access to MDNet’s VPN business model and the

Prime Medical urologists to promote Detrol and other drugs. The parties proceeded to

exchange proposed written contracts to formalize the agreement, but they could not reach

agreement. Before a written contract was signed, Pharmacia and Greenstone abandoned

the negotiations and refused to provide $2,000,000 in additional funding.

      MDNet filed this action alleging the August 2000 Agreement was an oral contract

breached by Pharmacia and Greenstone. The breach of contract claim also alleged

Pharmacia and Greenstone breached the October 1999 Agreement, but the complaint did

not specify the obligations that were unperformed. Additionally, MDNet alleged

promissory estoppel and fraudulent misrepresentation. It attached to the complaint copies

of the May 1999 and October 1999 Agreements, and a proposed written contract of

September, 2000 (“the September 2000 Proposed Contract”) that MDNet claims

memorialized the August 2000 Agreement.

      Pharmacia and Greenstone moved to dismiss all claims for failure to state a claim

upon which relief can be granted. They argued an oral contract had not been formed,

because the October 1999 Agreement contained a clause requiring that any further

agreements must be in writing. The magistrate judge issued a report and recommendation

recommending that the district court grant the motion. The district court adopted the



                                            4
report and recommendation, and granted the motion. This appeal followed.

II. JURISDICTION AND STANDARD OF REVIEW

       The district court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a).

This court has jurisdiction pursuant to 28 U.S.C. § 1291. Our review of a district court

dismissal of a complaint pursuant to Rule 12(b)(6) is plenary, and we apply the same test

as the district court. Doug Grant, Inc. v. Greate Bay Casino Corp., 

, 183 (3d

Cir. 2000). A motion to dismiss may be granted only if, accepting all well-pleaded

allegations in the complaint as true, and viewing them in the light most favorable to

plaintiff, plaintiff is not entitled to relief. 

may consider undisputedly

authentic exhibits attached to a complaint without converting a motion to dismiss into a

motion for summary judgment. Pension Benefit Guar. Corp. v. White Consol. Indus., 

, 1196 (3d Cir. 1993); Fed.R.Civ.P. 10(c). While our standard of review

requires us to accept as true all factual allegations in the complaint, we need not accept as

true unsupported conclusions and unwarranted inferences. Doug Grant, 

. The district court determined, and the parties agree, that Pennsylvania law

applies to all substantive questions of law.

III. DISCUSSION

       The district court concluded the parties could not have formed an oral contract

because a clause in the October 1999 Agreement required further agreements to be in

writing. The court held the clause operated as a condition precedent to the formation of a



                                               5
contract, and MDNet had not alleged any conduct on the part of defendants showing their

intent to waive the requirement. The court also dismissed the claim for breach of the

October 1999 Agreement, since MDNet failed to specify the obligations Pharmacia and

Greenstone had failed to perform. Finally, the court dismissed the claims for promissory

estoppel and fraud because MDNet could not have reasonably relied on the oral

agreement or defendants’ alleged misrepresentations.

A. Breach of Contract

       A breach of contract claim requires MDNet to show a contract between the parties,

the essential terms of the contract, a breach of a duty under the contract, and resultant

damages. See Electron Energy Corp. v. Short, 

(Pa. Super. Ct. 1991), aff'd,

(Pa. 1993). A valid, binding contract exists when the parties have

manifested an intent to be bound, the terms are sufficiently definite, and there is

consideration. In re Estate of Hall, 

, 621 (Pa. Super. Ct. 1999), appeal

denied, 

(Pa. 2000). Parties may bind themselves contractually prior to the

execution of a written document through mutual manifestations of assent, even where a

later formal document is contemplated. Luber v. Luber, 

, 773 (Pa. Super.

Ct. 1992), appeal denied, 

(Pa. 1993). MDNet alleges Pharmacia and

Greenstone manifested the intent to be bound during the August 2000 negotiations

because their authorized representatives stated they were “in” and “Pharmacia was their

partner in this venture.” The complaint states the terms of the contract were definite, and



                                              6
the consideration was two million dollars and a sales support team in exchange for

exclusive access to the MDNet business model and the Prime Medical VPN. The

complaint also alleges Pharmacia failed to provide the two million dollars, and MDNet’s

value was diminished as a result.

       The district court erred in finding the parties could not have formed an oral

contract because the clause requiring a written agreement created a condition precedent.

The court relied on Franklin Interiors v. Wall of Fame Management Co., 

,

762 (Pa. 1986). In Franklin Interiors, the court held that a document was not a contract

because it contained a clause stating that the document would not become a contract until

approved by an officer of Franklin Interiors; no officer had approved it. Franklin

Interiors does not directly apply to the facts of this action. A condition precedent to a

contract is formed not by past contracts, but the instant contract. See Restatement

(Second) of Contracts § 224 (1981). The usual examples are option contracts, or

contracts requiring financing or insurance. See Shovel Transfer & Storage Inc. v. PLCB,

, 139 (Pa. 1999); Cambria Sav. & Loan v. Estate of Gross, 

,

1239 (Pa. Super. Ct. 1982). Where a requirement is contained in a former contract, the

parties may waive the requirement by a later oral modification of the former contract.

Parties may orally agree to modify a written contract, even where the written contract

contains language prohibiting oral modifications. Universal Builders, Inc v. Moon Motor

Lodge, Inc., 

, 15 (Pa. 1968); C. I. T. Corp. v. Jonnet, 

(Pa.



                                              7
1965). Whether the clause at issue is described as a condition precedent is irrelevant,

since parties can waive a condition precedent. “The requirement of a written

authorization may also be considered a condition which has been waived.” Universal

Builders, 

(citing 5 Williston on Contracts § 689 (3rd ed. 1961)).

       An oral waiver or modification of a written contract must be proved by clear,

precise and convincing evidence, including conduct by the parties that “clearly shows the

intent to waive the requirement that the amendments be made in writing." Somerset

Community Hospital v. Allan Mitchell & Assocs., 685 A.2d 141,146 (Pa. Super. Ct.

1996). As the Pennsylvania Supreme Court forcefully stated:

       An oral contract changing the terms of a written contract must be of such
       specificity and directness as to leave no doubt of the intention of the parties
       to change what they had previously solemnized by a formal document. The
       oral evidence must be of such a persuasive character that it moves like an
       ink eradicator across the written paper, leaving it blank so that the parties in
       effect start afresh in their negotiations and mutual commitments.

Gloeckner v. School Dist. of Baldwin Tp., 

, 75 (Pa. 1961).

       In light of the exhibits attached to MDNet’s complaint, MDNet failed to plead

facts from which one could reasonably infer Pharmacia and Greenstone intended to waive

the clause requiring a written agreement. MDNet’s complaint makes no reference at all

to the writing requirement. MDNet’s complaint does not allege that Pharmacia and

Greenstone intended to waive or modify Paragraph 10 of the October 1999 Agreement.

The complaint does not allege that an authorized agent of Pharmacia or Greenstone ever

made any statement waiving the requirement of a writing. MDNet appears to argue that

                                              8
Greenstone and Pharmacia, by oral assent to the August 2000 Agreement, impliedly

waived or modified the requirement of written modification. This is not clear and

convincing evidence as a matter of law. The district court correctly dismissed the claim

for breach of contract.

B. Promissory Estoppel

       To make a claim for promissory estoppel, MDNet must allege: 1) Pharmacia and

Greenstone made a promise they should have reasonably expected to induce action or

forbearance on the part of MDNet; 2) MDNet actually took action or refrained from

taking action in reliance on the promise; and 3) injustice can be avoided only by enforcing

the promise. See Crouse v. Cyclops Industries, 

, 610 (Pa. 2000).

Promissory estoppel is applied to enforce a promise not supported by consideration,

where there is no binding contract. See, e.g., Bethlehem Steel Corp. v. Litton Indus., Inc.,

, 593 (Pa. 1985).

       MDNet’s complaint alleges Pharmacia expressly and intentionally promised

$2,000,000 in funding to induce MDNet to continue development of the VPN and forgo

other business opportunities. MDNet alleges its reliance was reasonable and justifiable.

The district court found MDNet could not have reasonably relied on the oral promises

made by appellees because their prior agreement required a writing for a further binding

agreement. The requirement of a written contract does not necessarily prevent an oral

waiver or modification, but MDNet alleges no facts showing an intention to waive or



                                             9
modify the requirement of a writing. Additionally, MDNet pled that there was

consideration for the exchange of promises, where promissory estoppel is applied to

enforce a promise not supported by consideration. See, e.g., Bethlehem Steel 

. The district court correctly dismissed the claim for promissory estoppel.

C. Fraudulent Misrepresentation

       A plaintiff alleging fraud must plead: (1) a representation; (2) material to the

transaction; (3) made falsely, with knowledge of its falsity or recklessness as to its

falsity; (4) with the intent of misleading another to rely on it; (5) justifiable reliance on

the misrepresentation; and, (6) resulting injury proximately caused by the reliance. Bortz

v. Noon, 

, 560 (Pa.,1999). "There is a special kind of proximate cause

requirement for fraud and misrepresentation, and plaintiff must demonstrate that a

specific statement caused a specific harm." Hurt v. Philadelphia Hous. Auth., 

, 530 n. 25 (E.D.Pa.1992) (emphasis in original).

       A pleading of fraud is subject to heightened specificity requirements. See

Fed.R.Civ.P. 9(b). Plaintiff may not simply point to a bad result and allege fraud, but

must “inject precision and some measure of substantiation into the allegations.” In re

Chambers Dev. Sec. Litig., 

, 616 (W.D.Pa.1994). When multiple

defendants are involved, the complaint must plead with particularity by specifying the

allegations of fraud applying to each defendant. Cinalli v. Kane, 

, 609

(E.D.Pa. 2002). MDNet failed to specify the defendant or agent making the alleged



                                              10
fraudulent statement.

       The district court found MDNet could not prove justifiable reliance because no

party could justifiably rely on an oral promise foreclosed by the requirement that a

subsequent agreement be in writing. MDNet alleges no facts from which one could

reasonably infer an intention to waive or modify the writing requirement. The continued

negotiation of the September 2000 Proposed Contract, defining many of the essential

terms of an agreement, made reliance on tentative oral statements unreasonable. The

district court correctly dismissed the claim for fraudulent misrepresentation.

IV. CONCLUSION

       For reasons other than those relied on by the district court, we affirm the dismissal

of the MDNet complaint.s




                                             11