WILLIAM D. QUARLES, JR., District Judge.
Branhaven, LLC ("Branhaven") sued BeefTek, Inc. ("BeefTek"), BT Selection, LLC ("BTS"), and PrimeBeefMarker, LLC ("PML") (collectively the "defendants")
MetaMorphix, Inc. ("MMI") and MetaMorphix Genomics, Inc.
In 2009, the CEO of MMI, Dr. Edwin Quattlebaum, discussed with John Lamar the possibility of a business partnership to commercialize the Technology. See ECF No. 70-3 at 3-4, Tr. 33:1-34:17. To this end, Lamar and Tom Hogan formed BTS and PML. See id. at 4, Tr. 34:21-35:21. Michael Cohen worked with Lamar and Hogan at BTS and PML. See generally ECF No. 70-8. Lamar and Hogan intended BTS engage in "integrated beef development services,"
On August 25, 2009, Quattlebaum and Lamar exchanged several emails concerning a draft agreement between MMI and BTS for use of the Technology. ECF.No. 66-19. The draft agreement gave BTS exclusive rights to the Technology so long as it met minimum test volumes starting in the second year of the contract. Id. at 4. Quattlebaum was concerned that if BTS failed to secure funding, MMI would be locked out of the marketplace for two years. Id. at 3. Lamar responded that they would "go[ ] forward" only if BTS was financed, which required a signed agreement. See id. at 2. He also stated that "if for any reason after the first year we do not go forward we will cancel and the exclusivity issue is moot. If we do go forward, we have minimum testing purchase requirements that assure MMI of ongoing volume. If we don't meet those requirements or pay for them then the agreement is over. I don't see where MMI is `locked out.'" Id. The draft agreement did not contain any cancellation provisions. See id. at 4-6.
On September 22, 2009, MMI and BTS signed a document (the "Licensing Agreement") captioned:
LICENSING AGREEMENT
METAMORPHIX AND BEEFTEK
Letter of Agreement
ECF No. 70-4; see ECF No. 66-19.
Under the Licensing Agreement, MMI agreed to (1) make the Technology available to BTS, (2) provide testing services "at rates to be agreed upon and which will be in accordance with the prices set forth on Schedule A," and (3) to provide testing results within 10 days of receipt during the first six months of the agreement and within 30 days thereafter. ECF No. 70-4 at 2. BTS was granted exclusive use of the Technology for an Integrated Beef Development System, so long as BTS ordered a minimum number of tests.
The Letter of Agreement also provided that "MMI and BT[S] will agree upon a satisfactory method to provide security to BT[S] for future Testing utilizing the Technology." Id. at 3. To this end, MMI represented that it had "identified and validated a testing services arrangement with a capable third party testing company (TSC)" and would provide BTS "with an independent technical third party ("FTP') who will provide evidence reasonably satisfactory to BT[S] of the availability, capability and qualifications of such TSC to conduct the testing." Id. at 4. Additionally, "[s]uch security will include the placement of all necessary Technology ... in a secure escrow account." Id. BTS and its TSC would gain access to the escrowed Technology "in the event of default by MMI in the performance of this Agreement, or MMI's failure to meet the standards and requirements necessary to remain the exclusive Testing provider." Id. Further, when "BT[s] has the right to utilize a TSC to conduct testing, it will have access to the escrowed [Technology.... in such an event, BT[S] will be responsible for paying for test services directly to the TSC and for paying MMI the Predictability Incentive set forth in Schedule A." Id.
The Agreement was effective the earlier of October 2, 2012, or the date when Cargill agreed to implementation. Id. at 5. The Licensing Agreement stated that it was governed by Delaware Law. Id. The Licensing Agreement included a lengthy paragraph stating the parties' indemnification duties, and concluded that "[t]he formal contract that will further detail the agreement between the parties set forth herein will include customary terms and conditions concerning indemnification among the parties." Id. The last line of the Licensing Agreement stated that "MMI and BT[S] agree to execute a formal contract further detailing the agreement between the parties set forth herein." Id.
Attached to the Licensing Agreement was "Schedule A." Id. at 7. Schedule A listed the initial price for each DNA sample as $5.75 for a one-panel test, $7.16 for two panels, and $1.41 for each additional panel. Id. If MMI's costs changed by more than 10% in a quarter, it was permitted to revise the price, although the maximum was not permitted to exceed $7.00 for a one-panel test, and $1.41 for additional panels. Id. MMI was also entitled to a "predictability incentive" based on the
Schedule A also stated that
Id. at 7. It also stated that the Predictability Incentive "shall not be due to MMI at any time that MMI is in breach of the [Licensing] Agreement or is not meeting the standards and requirements necessary to remain the exclusive testing provider hereunder." Id. at 8.
Effective October 15, 2009,
The parties agreed to set a price for the testing of not more than $8.00 for a one-panel test, $10.00 for two panels, and $2.00 for each additional panel in a single DNA sample. Id. MMI was also "entitled to share in the profit ... as outlined in Schedule A."
The Distribution Agreement also stated that "MMI will provide security to PML for future Testing." Id. MMI identified a TSC and agreed to provide a TTP to evaluate the TSC. Id. MMI also agreed to place the Technology in an escrow account. Id. at 3. PML and its TSCs were to gain access to the Technology if MMI defaulted or it failed "to meet the standards and requirements necessary to remain the exclusive Testing provider." Id. If MMI were unable to provide testing results within the required time, "PML shall have the right to use a TSC ... provided that, PML has provided MMI written notification."
Around the time the Agreements were executed, MMI selected BioStat as the TTP and provided it with the Technology. ECF Nos. 70-3 at 13, Tr. 106:1-2; 70-5 at 7, Tr. 28:2-6. MMI identified KBioscience as a potential TSC; however, about two days before the Licensing Agreement was executed, BioStat indicated that it could not recommend KBioscience. See ECF Nos. 70-3 at 14, Tr. 110:2-5, 110:22-111:4; 70-5 at 7, Tr. at 27:15-20, BioStat recommended other potential TSCs, but they were "extraordinarily expensive, cumbersome and more human genome related." ECF No. 70-3 at 14, Tr. 111:10-14.
BeefTek sent 1564 samples to MMI for the first testing.
On November 4, 2009, Cohen emailed a potential investor indicating that the Licensing Agreement was in place, noting "[f]or all its flaws, it is serving us well — [MMI] has ramped up its efforts in support of our agenda wonderfully." ECF No. 66-20. Cohen also indicated that "DLA Piper is drafting both (a) a moredetailed contract, and (b) a [Technology escrow agreement." Id.
On January 28, 2010, holders of MMFs 10% promissory notes filed a petition for involuntary Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. In re MetaMorphix, Inc., No. 10-10273 (Bankr.D.Del). Effective March 9, 2010, MMI executed with BTS the "First Amendment to the Licensing Agreement" and with PML the "First Amendment to the Distribution Agreement." ECF Nos. 70-10, 70-11. The Amendment to the licensing agreement added a "trigger date" for calculating the term of the agreement and the 60 days within which MMI had to provide testing results within ten days. ECF No. 70-10 at 2. The trigger date was the earlier of "(i) the date on which the two-hundredth test has been performed under this Agreement, or (ii) July 1, 2010." Id. at 5. The escrow release provision was revised to permit release:
Id. at 2-3. The Amendment stated that the licenses in the agreement were intellectual property licenses under 11 U.S.C. § 365(n); if MMI rejected the agreement under that section, BTS was permitted to retain its rights. Id. at 4. The amendment also stated that "The Agreement shall remain unchanged and in full force and effect."
On March 10, 2010, BTS and PML each entered into Three-Party Escrow Service Agreements with MMI and Iron Mountain Intellectual Property Management, Inc. ("Iron Mountain"), through which MMI deposited the Technology for the benefit of BTS and PML respectively. ECF Nos. 70-12, 70-13. Release was permitted upon:
ECF No. 70-12 at 14.
In July 2010, BTS and PML closed on their investors' funding, and BeefTek was incorporated in Delaware.
In the Fall of 2010, the holders of MMI's 12.5% promissory notes contacted Christopher Paxos — who had previously worked with the holders of MMI's 10% promissory notes — to advocate for them in the bankruptcy proceeding. See ECF No. 70-7 at 7, Tr. at 31:4-33:9. Around that time, Branhaven was formed as a Maryland LLC with Elena Fanno — a citizen of Ohio and friend of Paxos with no bovine genomics experience — as the sole member. Id. at 8, Tr. at 34:4-15; ECF Nos. 15 ¶ 1, 31 ¶ 1, 91-1 ¶ 4. The 12.5% noteholders invested $3,000,000 in Branhaven notes that were then converted into Scidera stock.
On September 30, 2010, MMI's bankruptcy was converted to Chapter 11. See In re MetaMorphix, Inc., No. 10-10273, ECF No. 63 (Bankr.D.Del). On November 18, 2010, MMIG filed a voluntary Chapter 11 petition. See In re MMI Genomics, Inc., No. 10-13775, ECF No. 1 (Bankr.D.Del.). On November 30, 2010,
Meanwhile, problems with testing continued. On November 9, 2010, Hogan emailed Quattlebaum complaining that at least two tests for "1,000 head ... from Schwertner" and "90 + head of Red Angus heifers"
In late 2010,
Quattlebaum spoke to MMI's bankruptcy attorney and presented the request to MMI's board, which did not object to the request. ECF No. 70-5 at 13, Tr. 59:14-60:2. On December 10, 2010, Quattlebaum, for MMI, and Lamar, for BeefTek as PML's parent, signed a Work Request for release of the Technology. ECF No. 66-12. Iron Mountain released the Technology.
On February 25, 2011, BeefTek and PML objected to MMI's assumption of the amended Licensing Agreement and Distribution Agreements in the bankruptcy case. In re MetaMorphix, Inc., No. 10-10273 (Bankr.D.Del), ECF No. 300. On March 9, 2011, Branhaven agreed to purchase substantially all of MMI and MMIG's assets and assume the majority of their contracts.
Six weeks after its purchase of MMI's assets, Branhaven transferred the majority of its assets to Scidera. ECF No. 70-7 at 9, Tr. at 38:20-39:8. However, the Technology and the Agreements with BTS and PML were not assigned to Scidera. Id. at 26, Tr. 110:12-17. Branhaven currently has no employees or operations. Id. at 9, Tr. at 39:9-14.
After Branhaven assumed the Agreements, BeefTek and PML forwarded samples
Not long thereafter, Paxos and Mark Ravich — one of the Branhaven investors — called Lamar and Cohen. See ECF No. 70-7 at 19, Tr. at 110:21-25. Ravich refused to discuss the Agreements or Branhaven's relationship until the Technology had been put back into escrow, and threatened to sue BeefTek and PML. ECF No. 70-3 at 17, Tr. 139:4-9; see ECF No. 70-8 at 9, Tr. at 92:2-93:15. BeefTek and PML had no further substantive communication with Branhaven or Scidera. See ECF No. 70-3 at 17, Tr. at 139:13-15. BeefTek and PML ultimately received all results from Branhaven and paid all outstanding invoices. See ECF No. 70-8 at 8, Tr. 89:10-20. However, BeefTek and PML failed to send sufficient tests to Branhaven to meet the minimum testing requirements and did not provide the data necessary to calculate the Predictability Incentive. ECF No. 66-17.
On July 29, 2011, BeefTek requested the release of the Technology from escrow to allow its use of a TSC. ECF No. 70-23. On August 10, 2011, Branhaven sent Lamar a letter asserting that BeefTek and PML were not entitled to the Technology because there had been no breach, and again demanded that BeefTek and PML return the previously escrowed Technology that they still possessed. ECF No. 15-13.
On August 22, 2011, Branhaven filed suit. ECF No. 1. On September 20, 2011, Lamar advised Paxos that BeefTek was "exercising [its] right under the Licensing Agreement to arrange for alternative TSC to conduct [its] testing." ECF No. 70-24. It appears Branhaven did not respond. BeefTek has since used an alternate TSC.
On November 10, 2011, the defendants answered and counterclaimed against Branhaven and Scidera, for (1) a declaration that BeefTek has satisfied its obligations under the Licensing Agreement entitling it to performance by Branhaven and Scidera, (2) specific performance under the Licensing Agreement, (3) a declaration that PML has satisfied its obligations under the distribution agreement and Branhaven and Scidera are in breach, (4) specific performance of the Distribution Agreement, and (5) a declaration that PML properly gained release of the Technology in escrow and may use it. ECF No. 31. On November 30, 2011, Branhaven and Scidera answered the counterclaim. ECF No. 34.
On September 7, 2012, Branhaven moved for summary judgment. ECF No. 66. On October 4, 2012, the defendants cross-moved for summary judgment and responded. ECF No. 70. On October 19, 2012, Branhaven responded and replied. ECF No. 74. On November 6, 2012, the defendants replied. ECF No. 77.
On January 2, 2013, Neogen Corporation issued a press release announcing that it had acquired the assets of Scidera Genomics, LLC.
Federal courts have "an independent obligation to determine whether subject-matter jurisdiction exists, even when no party challenges it." Hertz Corp. v. Friend, 559 U.S. 77, 130 S.Ct. 1181, 1193, 175 L.Ed.2d 1029 (2010). In its summary judgment brief, Branhaven claims diversity jurisdiction under 28 U.S.C. § 1332. ECF No. 66-1 at 10.
"Section 1332 requires complete diversity among parties, meaning that the citizenship of every plaintiff must be different from the citizenship of every defendant." Cent. W. Va. Energy Co. v. Mountain State Carbon, LLC, 636 F.3d 101, 103 (4th Cir.2011). As a corporation, BeefTek is a citizen of Delaware, the state of incorporation, and Texas, its principal place of business. See 28 U.S.C. § 1332(c)(1); ECF Nos. 15 ¶ 2; 31 ¶ 2.
LLCs bear the citizenships of all their members. See Gen. Tech. Applications, Inc. v. Exro Ltda, 388 F.3d 114, 120 (4th Cir.2004); Clephas v. Fagelson, Shonberger, Payne & Arthur, 719 F.2d 92, 93-94 (4th Cir. 1983). PML is wholly owned by BeefTek and bears its citizenship. See ECF No. 86. Similarly, BTS has been merged into BeefTek. Id. Branhaven is a citizen of Ohio as it bears the citizenship
Diversity jurisdiction alone, however, cannot sustain the defendants' counterclaim
Fed.R.Civ.P. 13(a) requires defendants to plead any counterclaims against the plaintiff that "arise[] out of the transaction or occurrence that is the subject matter of the opposing party's claim."
The defendants' counterclaim is the mirror image of Branhaven's claim: both parties seek declarations of their rights under the Licensing and Distribution Agreements and equitable relief enforcing that determination. See ECF Nos. 15, 31. Given the identical issues of facts and law and the logical relationship between the claims, the counterclaim is compulsory, and the Court has supplemental jurisdiction over the counterclaim against Scidera. See Vaughan, 217 Fed.Appx. at 223; Barefoot Architect, 632 F.3d at 836-37; Painter, 863 F.2d at 331. 28 U.S.C. § 1367(a); Fed.R.Civ.P. 13(a). This Court has jurisdiction over all the claims remaining in this case.
The defendants request leave to file a surreply, asserting that post-briefing facts — namely Branhaven's sale of Scidera Genomics to Neogen — have arisen which affect Branhaven's ability to perform under the Licensing Agreement. ECF Nos. 82, 82-2. Branhaven opposes the motion, claiming that the surreply raises a new argument rather than responds to a new argument in the reply. ECF No. 85 at 1. It also requests leave to file a sur-surreply if the motion is granted. Id. at 2.
Unless otherwise ordered by the Court, a party may not file a surreply. Local Rule 105.2(a) (D. Md. 2012). Leave to file a surreply may be granted when the movant otherwise would be unable to contest matters presented in the opposing party's reply. Khoury v. Meserve, 268 F.Supp.2d 600, 605 (D.Md.2003), aff'd 85 Fed.Appx. 960 (4th Cir.2004).
As discussed infra, the Court cannot determine whether the Licensing Agreement is enforceable on summary judgment. Accordingly, Branhaven's sale of Scidera is not relevant to any issue that the Court can currently resolve. The motion to file a surreply will be denied.
The Court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a).
The Court must "view the evidence in the light most favorable to ... the nonmovant and draw all reasonable inferences in [its] favor," Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 645 (4th Cir.2002), but the Court must abide by the "affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial," Bouchat v. Bait. Ravens Football Club, Inc., 346 F.3d 514, 526 (4th Cir.2003) (citation and internal quotation marks omitted).
When cross-motions for summary judgment are filed, "each motion must be considered individually, and the facts relevant to each must be reviewed in the light most favorable to the nonmovant." Mellen, 327 F.3d at 363 (citing Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.2003)).
The parties agree that Delaware law applies to interpretation of the Agreements. See ECF Nos. 66-1 at 25, 70-1 at 30 n. 15. When a claim is based on state law, the choice of law rules are those of the state in which the district court sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The Maryland Court of Appeals "has long recognized the ability of contracting parties to specify in their contract that the laws of a particular State will apply in any dispute over the validity, construction, or enforceability of the contract." Jackson v. Pasadena Receivables, 398 Md. 611, 921 A.2d 799, 803 (2007). Accordingly, the Court will honor the parties' choice of Delaware law for the contract claims.
Branhaven asserts that (1) the Licensing Agreement is unenforceable, and (2) the defendants are not entitled to the Technology under the Distribution Agreement. ECF No. 66-1.
Branhaven asserts that the Licensing Agreement is unenforceable because it is merely an agreement to agree that is ambiguous and missing essential terms. ECF No. 66-1 at 25-36. It also asserts that the defendants are not entitled to specific performance. Id. at 38. The defendants dispute these contentions and additionally assert that Branhaven's arguments are barred by (1) waiver and (2) estoppel.
The defendants assert that Branhaven has waived any argument that the Licensing Agreement is unenforceable by performance. ECF No. 70-1 at 42. Branhaven asserts that its attempted performance was not a waiver, but rather "evidence of good faith and of an effort to resolve a dispute between the parties as to the interpretation of the document." ECF No. 74 at 27.
The defendants' sole authority for the waiver by performance argument is Piccadilly Square v. Intercontinental Construction Co., 782 S.W.2d 178 (Tenn.Ct.App. 1989). Although the Chancellor in that case had found that Piccadilly Square's performance waived arguments of lack of consideration and mutuality of remedy, the Tennessee Court of Appeals did not adopt this reasoning. See id. at 182-83. Rather, the Court of Appeals examined the mutuality and consideration arguments on the merits, and alternatively found waiver in a settlement agreement. See id. at 183.
The defendants next assert that Branhaven is estopped from asserting that the Licensing Agreement is unenforceable. ECF No. 70-1 at 45. Branhaven asserts that the defendants cannot show the required reliance. ECF No. 74 at 26.
"The doctrine of equitable estoppel may be invoked when a party, by his statements or conduct, intentionally or unintentionally causes another, in reliance on those statements or conduct, to change position to his detriment."
BeefTek asserts that it detrimentally relied on Branhaven's representations that the Licensing Agreement was enforceable. ECF No. 70-1 at 46. It argues that if it had not relied on Branhaven's representation, it would not have withdrawn its objection and "could have sought the protection of Section 365(n) of the Bankruptcy Code to maintain its license of the Technology." ECF No. 70-1 at 46.
There are several problems with this argument. First, the stipulation stated that the Agreements "shall remain in full force and effect," and the "Stipulation is not a novation." ECF No. 70-18. Given this language, it is clear that the Licensing Agreement was only "in full force and effect" to the extent it ever could be; the "not a novation" provision indicates that no substantive change in the contractual relationship, if any, was intended. Further, even if the defendants relied upon a statement by Branhaven that the Licensing Agreement was enforceable, such a statement was a legal conclusion not supportive of equitable estoppel. Equitable estoppel depends on misrepresentation of facts that misled the party asserting estoppel.
BeefTek also contends that it "cannot operate efficiently and reliably without access to the Technology; Branhaven's contention is an attempt to deny BeefTek such access." Id. Belying this contention, BeefTek had already secured the release of the Technology from Iron Mountain with the agreement of MMI.
Branhaven asserts that the Licensing Agreement is unenforceable because (1) the parties did not intend an enforceable agreement, (2) the Licensing Agreement lacks the essential price term, and (3) the Licensing Agreement contains conflicting terms on usage of a TSC. ECF No. 66-1 at 29-37. BeefTek contends that all the requirements for a binding agreement were present. ECF No. 70-1 at 30.
Interpretation of a contract is a question of law. Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del.1992). "When interpreting [the terms of] a contract, the court's ultimate goal is to determine the parties' shared intent. Because Delaware adheres to the objective theory of contract
Under Delaware law, courts determining whether the parties intended to be bound by a contract make an objective inquiry: "whether a reasonable [person] would, based upon the `objective manifestation of assent' and all of the surrounding circumstances, conclude that the parties intended to be bound by contract."
Branhaven asserts that BTS executed the Licensing Agreement "when it was still actively searching for funding to enable it to do business. Had it not found funding, it would not have wished to be bound ECF No. 66-1 at 28. It bases this assertion on an August 25, 2009 email exchange between Quattlebaum and Lamar discussing the drafting of the Licensing Agreement. See ECF No. 66-127-28. In the email, Quattlebaum expressed his concern that if BeefTek was not financed, MMI would be "locked out for [the] 2 years" of exclusivity. ECF No. 66-19 at 3. Lamar responded that BTS would only be going forward if it was financed, which required a signed agreement. See id. at 2. Lamar indicated that "if for any reason after the first year we do not go forward we will cancel and the exclusivity issue is moot. If we do go forward, we have minimum testing purchase requirements that assure MMI of ongoing volume. If we don't meet those requirements or pay for them then the agreement is over. I don't see where MMI is `locked out.'" Id.
BeefTek suggests that by "cancel" Lamar meant that the parties would "negotiate a way to cancel the agreement."
Branhaven also asserts that the Licensing Agreement itself indicates a lack of intention to be bound, namely that "MMI and BT[S] will agree upon a satisfactory method to provide security to BT[S] for future Testing utilizing the Technology" and "the formal contract that will further detail the agreement between the parties set forth herein will include customary terms and conditions concerning indemnification
Despite its language, the Licensing Agreement indicates the intention to agree on these issues. The Licensing Agreement contains nearly an entire page on the complex procedure for BeefTek's utilization of a TSC if MMI were unable to process the results.
Finally, Branhaven asserts that the First Amendment to the Licensing Agreement's change of the effective date indicates a lack of intention to be bound by the original. ECF No. 66-1 at 28-29. This does not show a lack of intention to be bound; rather, the reasonable inference is that the effective date was postponed to compensate for MMI's financial difficulties and subsequent bankruptcy. Accordingly, Branhaven has not shown that the Licensing Agreement is unenforceable because the parties did not intend to be bound.
Branhaven next asserts that the contract is missing the essential price term. ECF No. 66-1 at 29. BeefTek asserts that the price term is included. ECF No. 70-1 at 34. The parties agree that price is an essential term that must be included for the Licensing Agreement to be valid. See ECF Nos. 66-1 at 25, 29; 70-1 at 34-35; see Leeds, 521 A.2d at 1101 (stressing necessity of essential terms for an enforceable contract).
The Licensing Agreement states that MMI agreed to "provide testing services... at rates to be agreed upon and which will be in accordance with the prices set forth on Schedule A." ECF No. 70-4 at 2. Schedule A states: "The initial testing price is based on MMI's current Test volumes. Each quarter MMI will determine the actual testing cost." Id. at 7. The initial prices were: $5.75 for a one panel test, $7.16 for two panels, and $1.41 for each additional panel. Id. If MMI's costs changed by more than 10%, it could revise the price on 30 days' notice. Schedule A also set a maximum of $7.00 for a single panel.
Branhaven asserts the License Agreement lacks a price term because of the flexibility for MMI to change the price. See ECF No. 66-1 at 29-30. Although MMI retained some flexibility in setting the price, Schedule A gave the starting price and a procedure restricting its adjustment. The essential price term was present.
Finally, Branhaven asserts that the Licensing Agreement and the First Amendment conflict with Schedule A on when BTS could utilize a TSC and appears to contend that the TSC provisions are essential
Related to its unenforceability argument, Branhaven asserts that BeefTek cannot sustain its specific performance claim because it cannot prove the terms of the Licensing Agreement — specifically the TSC provisions — by clear and convincing evidence. ECF No. 66-1 at 38. BeefTek asserts that the Licensing Agreement and Schedule A provide two methods for using a TSC: (1) Branhaven's breach (for which it would receive no predictability incentive) and (2) BeefTek's obtaining better terms for testing from a TSC (for which Branhaven would receive the predictability incentive). ECF No. 70-1 at 37-40 & n. 21.
"Under Delaware law, a party seeking the equitable remedy of specific performance must prove the existence and terms of an enforceable contract by clear and convincing evidence." Minn. Invco of RSA No. 7, Inc. v. Midwest Wireless Holdings LLC, 903 A.2d 786, 794 (Del.Ch.2006). Specific performance "is a matter of grace that rests in the sound discretion of the court," that may not be granted unless the party seeking release "demonstrates that there is no adequate remedy at law." Id. (internal quotation marks omitted).
To determine the meaning of disputed contract terms, such as the TSC provisions, the Court must look to the documents to discern the operation of the provisions. "When the plain, common, and ordinary meaning of the words lends itself to only one reasonable interpretation, that interpretation controls the litigation." Sassano, 948 A.2d at 462. "[W]hen there is uncertainty in the meaning and application of contract language, the reviewing court must consider the [extrinsic] evidence offered in order to arrive at a proper interpretation of contractual terms." Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del.1997).
The Licensing Agreement specifies that if "MMI is unable to provide Test results within the required reporting period, BT[S] shall have the right to use a TSC" on the condition that BTS provide MMI notification of its failure, and MMI had not cured within two weeks of the notice. ECF No. 70-4 at 4. The First Amendment slightly changed this provision, requiring BTS not to be delinquent on any payments, and providing MMI no cure period in the first six months if it had been late twice in providing marbling testing. See ECF No. 70-10 at 3.
Although these provisions appear contradictory, it is not beyond reason that the parties intended that BeefTek could use a TSC if either (1) MMI was not timely delivering results or was otherwise in breach or (2) it could obtain better terms from another provider. However, the Predictability Incentive terms render the provisions ambiguous.
In the section granting BeefTek security through the use of a TSC in the event of MMI's breach, the Licensing Agreement expressly states that if BTS has the right to utilize a TSC, MMI will still be paid the Predictability Incentive. See ECF No. 70-4 at 4. Schedule A, on the other hand, states that Predictability Incentive "payments shall not be due to MMI at any time that MMI is in breach of the Agreement or is not meeting the standards and requirements necessary to remain the exclusive testing provider hereunder." Id. at 8.
Given the structure of the security section in the Licensing Agreement, it appears that the Predictability Incentive would apply even in the event of MMI's breach. The Schedule A provision that MMI is not entitled to the Predictability Incentive if it is in breach seems directly contrary to this. Similarly, it would make little sense for the Licensing Agreement provision on the Predictability Incentive to apply only to BeefTek's ability to use a better-terms TSC, which is not described until Schedule A and is not contemplated by the Licensing Agreement.
Viewed in the light most favorable to the defendants, there is some evidence supporting its interpretation of two TSC provisions: (1) MMI's breach with no Predictability Incentive and (2) a better-terms TSC with a Predictability Incentive. For example, Quattlebaum explained that:
ECF No. 70-5 at 9, Tr. 36:15-25; see also ECF No. 70-3 at 10-, Tr. 76:14-22 (Lamar stating Quattlebaum's understanding). This supports the defendants' view of the two triggers for a TSC: MMI always intended to offer BTS the lowest price for the testing to ensure the commercial value of the Technology. Allowing BTS to use a TSC if it could obtain better terms than from MMI confirms this intention as MMI would still get the Predictability Incentive. Lamar clearly believed that BeefTek could
However, there is also evidence that the parties only intended use of a TSC and release of the Technology if MMI breached. On June 11, 2010, Quattlebaum wrote to Lamar that "[t]he only condition that permits [TSCs] to have access to our database is our failure to do testing on a timely basis." ECF No. 74-5. Lamar also testified that BeefTek's intention was for MMI "to survive and succeed, we didn't want to run [MMI], we didn't want to run a testing lab .... the last thing we wanted was for them to go away." ECF No. 74-6 at 3, Tr. 79:11, 17. The "arrangement that protected us in any event under any circumstance in the event that [MMI] was not there or incapable of performing or failed to perform or for any reason was going to go away that we had the ability to survive." Id., Tr. 80:9-14. Further, "[w]e wanted a workable deal that was going to protect everybody." Id., Tr. 81:14-15.
This testimony indicates that the parties' intention was not to enable BeefTek to have a provider other than MMI if it could simply negotiate better terms for testing. Additionally, there is evidence that Lamar, for BeefTek, drafted the Schedule A TSC release; as the construction of the provisions cannot be otherwise resolved, this favors construing the terms against BeefTek.
Accordingly, there is a genuine dispute of material fact about the terms of the TSC. Branhaven is not entitled to summary judgment on BeefTek's specific performance claim.
Branhaven also asserts that the Distribution Agreement does not permit the defendants to access and retain the Technology. ECF No. 66-1 at 38-40. The defendants assert that the conditions for release of the escrowed Technology were met. See ECF No. 77 at 15.
Under the Distribution Agreement, as amended, MMI agreed to provide PML the Testing Results within 10 days of receipt. ECF No. 70-9 at 3. Should MMI fail to do so, PML was entitled to use of a TSC and access to the escrowed Technology, provided that PML was not delinquent in undisputed payments. ECF Nos. 70-9 at 5, 70-11 at 3.
On November 9, 2010, Hogan emailed Quattlebaum indicating that testing for Schwertner had been sent a month before and Red Angus tests had been received by MMI on September 15, 2010; Hogan indicated that these tests were "WAY past due." ECF No. 70-14. On November 29, 2010, Lamar reiterated that those tests were still pending. ECF No. 70-15. Further he indicated that they "would like to take the cards that are run by [MMI] ... for processing at another alternate site so
Although unclear, it appears that the Red Angus tests were through PML
Accordingly, Branhaven is not entitled to judgment as a matter of law on the Distribution Agreement. The motion for summary judgment will be denied.
BeefTek asserts that the Licensing Agreement is an enforceable contract. ECF No. 70-1. Branhaven contends that it is an unenforceable agreement to agree. ECF No. 66-1.
First, BeefTek asserts that the Licensing Agreement contains all essential terms, particularly the price term. ECF No. 70-1 at 34. The Licensing Agreement states that MMI agreed to "provide testing services... at rates to be agreed upon and which will be in accordance with the prices set forth on Schedule A." ECF No. 70-4 at 2. Schedule A states: "The initial testing price is based on MMI's current Test volumes. Each quarter MMI will determine the actual testing cost." Id. at 7. The initial prices were: $5.75 for a one panel test, $7.16 for two panels, and $1.41 for each additional panel. Id. at 7. If MMI's costs changed by more than 10%, it could revise the price on 30 days' notice. Schedule A also set a maximum of $7.00 for a single panel. Id. at 7. This shows a mechanism for determination of the price: the initial price is set in Schedule A, and MMI had only a restricted ability to increase the price when its costs went up, subject to a maximum price. Accordingly, the Licensing Agreement contains a price term. See Seidensticker, 2007 WL 1930428, at *5-6; 1-4 Corbin on Contracts § 4.4.
Second, BeefTek asserts that the evidence shows that the parties intended to be bound by the Licensing Agreement. There is evidence for this. For example, the parties performed: Branhaven performed tests for which BeefTek paid. See ECF No. 70-8 at 8, Tr. 89:10-20. This indicates an intention to be bound. See Carlson v. Hallinan, 925 A.2d 506, 525 (Del.Ch.2006), clarified on other matters, 2006 WL 1510759.
However, Lamar's August 25, 2009 email, viewed in the light most favorable to Branhaven, supports the opposite conclusion. Lamar stated that "if for any reason after the first year we do not go forward we will cancel and the exclusivity issue is moot. If we do go forward, we have minimum testing purchase requirements that assure MMI of ongoing volume. If we don't meet those requirements or pay for them then the agreement is over. I don't see where MMI is `locked out.'" ECF No. 66-19 at 2. The Licensing Agreement does not indicate any ability to cancel, and it is unclear in the letter to what Lamar was referring. Cf. ECF No. 70-4. Further, the parties' unfulfilled intention to sign a more detailed contract indicates that the "cancellation" could be an intentional decision not to execute the final binding agreement. See ECF Nos. 66-20, 70-4 at 4-5.
Because there is a genuine dispute of material fact about the enforceability of the Licensing Agreement, the Court cannot determine whether either party has breached the Licensing Agreement or if BeefTek is entitled to the Technology under it.
For the reasons stated above, the motions for summary judgment and for leave to file a surreply will be denied.
"BeefTek is in the business of ... identifying, selecting, owning, managing cattle and employing a number of selection processes including DNA selection and management protocols to achieve an above average yield in return on the sale of the animals." ECF No. 70-3 at 5, Tr. 41:7-12.
Year 2 150,000 tests Year 3 250,000 tests Year 4 400,000 tests Year 5 and beyond 500,000 tests
ECF No. 70-4 at 3.
1 panel test: $13.00 2 panel test: $16.00 3 panel test: $19.00
1 panel test: $12.00 2 panel test: $15.00 3 panel test: $18.00
ECF No. 70-9 at 8.
