Pacira Biosciences, Inc. v. Fortis Advisory LLC

• Court: Court of Chancery of Delaware
• Decided: October 25, 2021
• Docket: C.A. No. 2020-0694-PAF
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PACIRA BIOSCIENCES, INC. and ) PACIRA CRYOTECH, INC., ) ) Plaintiffs, ) ) v. ) C.A. No. 2020-0694-PAF ) FORTIS ADVISORS LLC, SOLELY ) IN ITS CAPACITY AS ) REPRESENTATIVE OF THE ) FORMER SECURITYHOLDERS OF ) MYOSCIEINCE, INC., TIMOTHY ) STILL, GUMBALLA KRIS KUMAR, ) JESSICA PRECIADO, and THE ) FORMER SECURITYHOLDERS OF ) MYOSCIENCE, INC., ) ) Defendants. )

MEMORANDUM OPINION

Date Submitted: June 2, 2021 Date Decided: October 25, 2021

Lisa A. Schmidt, Raymond J. DiCamillo, Megan E. O’Connor, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Randy M. Mastro, Declan T. Conroy, GIBSON, DUNN & CRUTCHER LLP, New York, New York; Attorneys for Plaintiffs.

R. Judson Scaggs, Jr., Lauren K. Neal, Sarah P. Kaboly, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Christopher J. Marino, DAVIS MALM & D’AGOSTINE, P.C., Boston, Massachusetts; Attorneys for Defendant Fortis Advisors LLC. Henry E. Gallagher, Jr., Shaun Michael Kelly, Jarrett W. Horowitz, CONNOLLY GALLAGHER LLP, Wilmington, Delaware; Attorneys for Defendants Timothy Still, Gumballa Kris Kumar, and Jessica Preciado.

FIORAVANTI, Vice Chancellor Pacira BioSciences, Inc. (“Pacira”) acquired MyoScience, Inc.

(“MyoScience”) in a 2019 merger (the “Merger”). The merger agreement provided

for an up-front cash payment to MyoScience’s former securityholders along with

contingent consideration if certain post-closing milestones have been achieved.

Pacira has made certain milestone payments but seeks a declaration that it is not

required to make further milestone payments. That claim is not the subject of this

opinion. This opinion addresses a motion to dismiss the other six counts of the

complaint.

Pacira contends that the securityholders’ representative and three former

employees and securityholders of MyoScience owed and breached contractual

obligations, either direct or implied, not to interfere with Pacira’s operation of the

acquired company, now Pacira CryoTech, Inc. (“Pacira CryoTech” and together

with Pacira, the “Plaintiffs”). The defendants have moved to dismiss those claims,

and this opinion concludes that no such contractual obligation exists under the plain

language of the merger agreement. Nor does the complaint state a claim under the

implied covenant of good faith and fair dealing that the defendants made bad faith

demands for milestone payments, interfered with Plaintiffs’ relationships with their

employees, or impermissibly retained MyoScience’s former outside legal counsel.

Plaintiffs have also asserted breach of contract and breach of fiduciary duty claims

against two of the individual defendants based on post-merger conduct, and a claim against the other individual defendant for aiding and abetting those breaches of

fiduciary duty. This opinion dismisses those claims for lack of personal jurisdiction

over the individual defendants.

I. BACKGROUND

Unless otherwise specified, the facts recited in this Memorandum Opinion are

drawn from the Verified Complaint (the “Complaint” or “Compl.”) and documents

integral thereto. 1

A. The Parties

Pacira is a “provider of non-opioid pain management solutions.” 2 Pacira is a

Delaware corporation based in Parsippany, New Jersey.3 Pacira CryoTech is a

Delaware corporation based in Fremont, California and a wholly owned subsidiary

of Pacira. 4 Pacira CryoTech is a successor to MyoScience, a Delaware corporation

that Pacira acquired pursuant to an Agreement and Plan of Merger, dated March 4,

2019, by and among Pacira Pharmaceuticals Inc., 5 PS Merger, Inc., MyoScience,

1 Dkt. 1. Exhibits attached to the Complaint will be cited as “Ex.” 2 Compl. ¶ 3. 3 Id. ¶ 26. 4 Id. ¶¶ 27, 191. 5 Pacira Pharmaceuticals, Inc. changed its name upon completion of the Merger to Pacira Biosciences, Inc. (i.e., Pacira). See Pacira BioSciences, Inc. Annual Report (Form 10-K) at 7 (filed March 1, 2021). Under Rule 201 of the Delaware Uniform Rules of Evidence, the court can take judicial notice of this fact for purposes of the pending motions. See Wal- Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 n.28 (Del. 2004) (holding that

2 Inc., and Fortis Advisors LLC (“Fortis”), as the Securityholders’ Representative (the

“Merger Agreement”). 6 MyoScience, and now Pacira CryoTech, manufactures

iovera® (“iovera”), a medical device that “applies controlled doses of extreme cold

to targeted nerves to relieve pain.”7

Fortis (or the “Securityholders’ Representative”) serves as the representative

of the MyoScience Securityholders (as defined below) pursuant to the Merger

Agreement. 8 Defendants Timothy Still (“Still”), Gumballa Kris Kumar (“Kumar”),

and Jessica Preciado (“Preciado”) were MyoScience employees prior to the Merger.

Kumar, Preciado, and Still all reside in California, and they are collectively referred

to as the “Individual Defendants.” None of the Individual Defendants is a party to

the Merger Agreement.

Still was the CEO of MyoScience.9 Following the Merger, Still became a

member of a three-person “Advisory Committee” to Fortis.10

the court may take judicial notice of public documents such as SEC filings required by law to be filed). 6 Ex. A. (“Merger Ag’t.”). The Merger Agreement refers to Pacira as the “Parent”, MyoScience as the “Company” or the “Surviving Corporation”, and Fortis as the “Securityholders’ Representative.” Id. 7 Compl. ¶ 3. 8 Id. ¶ 28. 9 Id. ¶ 29. 10 Id. ¶ 122. 3 Kumar is a former head of Marketing & Product Management at

MyoScience. 11 “Following Pacira’s acquisition of MyoScience, Kumar worked for

six months as a consultant for Pacira [CryoTech].”12

Preciado is the former Principal Scientist at MyoScience.13 Following

Pacira’s acquisition of MyoScience, Pacira retained Preciado as Senior Director,

Health Outcomes Value Assessment. 14

B. Pacira Acquires MyoScience

Pacira acquired MyoScience in the Merger for $120 million in cash, subject

to certain adjustments, and contingent payments (“Milestone Payments”) of up to

$100 million to former MyoScience stockholders or option holders. 15 The Merger

closed on April 9, 2019.16 The former MyoScience stockholders or option holders

entitled to Milestone Payments executed either a Letter of Transmittal for Securities

of MyoScience or an Option Holder Letter of Transmittal for Company Options of

MyoScience (the “Option Holder Letter”).17 The foregoing signatories are referred

11 Id. ¶ 30. 12 Id. ¶¶ 30, 124. 13 Id. ¶ 31. 14 Id. 15 Id. ¶ 4; Merger Ag’t. § 1.11. 16 Pacira Biosciences, Inc., Current Report (Form 8-K) (Apr. 9, 2019). 17 Compl. ¶¶ 32, 95; Merger Ag’t. §§ 1.15(a)–(c). 4 to as the “Escrow Participants” or “MyoScience Securityholders.” 18 Among other

milestones triggering Milestone Payments, the Merger Agreement required Pacira

to pay up to $50 million to the Escrow Participants if treatments involving iovera in

certain specified medical settings could be reimbursed at certain specified levels

within a certain period of time. 19

C. The iovera Product and CPT Codes

iovera is a patented Class II FDA-cleared handheld medical device that

administers “cryoanalgesia” or “cryoneurolysis”—the application of “controlled

doses of extreme cold temperature to targeted nerves to relieve pain.” 20 iovera goes

under several technical names that the Merger Agreement refers to as “Smart Tip

Products.” 21 Pacira alleges that

[a]ccording to the [FDA’s] Indication Statement for the product, iovera can be used to (i) “destroy tissue during surgical procedures,” (ii) “produce lesions in peripheral nervous tissue by the application of cold to the selected site for the blocking of pain,” and (iii) “relie[ve] [] pain and symptoms associated with osteoarthritis of the knee for up to 90 days.” 22

18 “Escrow Participants” are defined in the Merger Agreement as “the holders of Series G Preferred Stock, Series F Preferred Stock, and Carve-Out Common Stock, Qualifying Warrant Holders and Qualifying Option Holders.” Merger Ag’t. Ex. A. 19 Compl. ¶¶ 8, 102–04; see Merger Ag’t. §§ 1.15(a)(iv), (b)(i). 20 Compl. ¶ 36; see id. ¶ 59. 21 Id. ¶ 102 n.2. 22 Id. ¶ 37. 5 The success of iovera “was closely tied” to reimbursement rates and guidance

issued by the Centers for Medicare and Medicaid (“CMS”). 23 In order to be

reimbursed by an insurance payer (e.g., Medicare or Medicaid) for performing a

medical procedure on a patient, a medical provider must be able to describe that

procedure using a generalized description known as a Current Procedural

Terminology code (“CPT Code”).24 The responsibility for maintaining and

publishing the list of CPT Codes falls to American Medical Association (“AMA”),

which also provides guidance on how to apply the codes.25 CMS sets the

reimbursement rates for each CPT Code pursuant to Section 1848(b) of the Social

Security Act.26 The reimbursement rates must be updated each year and are

published in the Medicare Physician Fee Schedule.27

The CPT Codes have national reimbursement rates as well as locality-specific

reimbursement rates. To determine the national reimbursement rate for a given CPT

Code, CMS quantifies and aggregates the costs of applying the procedures

associated with the CPT Code across several categories. 28 CMS also develops a

23 Compl. ¶ 39. 24 Id. ¶¶ 38–39. 25 Id. ¶¶ 5, 41. 26 Social Security Act § 1848(b), 42 U.S.C. § 1395w–4. 27 Id.; Compl. ¶ 39. 28 Compl. ¶ 44. 6 geographic practice cost index for each of more than 110 different localities that is

used to determine locality-adjusted reimbursement rates.29 According to Plaintiffs,

“[w]hen CMS publicizes the reimbursement rates for various CPT Codes, it

consistently cites to the standard, nationwide reimbursement rates for those codes,

not to the dozens of different locality-adjusted reimbursement rates.”30

As part of the annual process for updating the reimbursement rates, CMS

solicits “feedback from practitioners and industry groups regarding the costs

associated with types of procedures performed under the various CPT codes.”31

CMS then publishes draft reimbursement rates in July for a public comment period.32

After the comment period closes, “CMS reviews the feedback from industry

participants, updates reimbursement rates as appropriate, and then publishes the final

rules” for the upcoming calendar year in November. 33

The usage of a medical procedure depends in part on at least two factors. First,

it is important that the CPT Codes reflect the actual costs of the medical procedure

to ensure that the provider will be fully reimbursed for the costs of the procedure.34

29 Id. ¶¶ 46, 47. 30 Id. ¶ 48. 31 Id. ¶ 49. 32 Id. ¶¶ 51, 52. 33 Id. ¶ 52. 34 Id. ¶ 53. 7 Second, the popularity of a particular procedure depends on the clarity of guidance

from the AMA on the reimbursement rate for that procedure; “[p]ractitioners who

assign the wrong CPT Codes to procedures risk costly audits of their reimbursement

requests, as well as possible clawback of reimbursement payments.”35 With

inconsistent or ambiguous guidance, medical device manufacturers face the risk that

the usage of their device will “plummet.” 36

D. MyoScience Seeks New CPT Codes and Favorable Reimbursement

Rates

Prior to the Merger, the Individual Defendants, on behalf of MyoScience,

mounted a campaign in 2018 and 2019 to clarify which CPT Codes “should apply

to procedures that used the [iovera] product to treat knee pain” and to persuade the

AMA to rescind its “confusing” prior guidance.37 The Individual Defendants

worked with Gail Daubert, MyoScience’s “outside reimbursement counsel” to

persuade the AMA to rescind prior 2018 guidance recommending that practitioners

use a vague catch-all code for cryoneurolysis.38 The effort succeeded; in April 2019,

the AMA published a document clarifying that cryoneurolysis may be reported using

35 Id. ¶ 54. 36 Id. ¶ 55. 37 Id. ¶¶ 58–59, 64–72. 38 Id. ¶¶ 7, 15, 64, 69–72, 72 n.1. 8 a more specific code, CPT Code 64640, 39 which covers “[d]estruction by neurolytic

[i.e., nerve blocking] agent; other peripheral nerve or branch.” 40

A new opportunity to come under a favorable CPT Code emerged in May

2018, when “CMS announced a number of new CPT Codes that would become

available to practitioners on January 1, 2020.” 41 Among the new additions was CPT

Code 64xx1, a “placeholder code”42 specifically dedicated to a procedure that

“destr[oys]” the “genicular nerve branches” by a “neurolytic agent.” 43 CMS uses

“x”s instead of numbers in the placeholder codes to signify that the code is still in

draft form; CMS then replaces the “x”s with numbers when the code is finalized.44

Plaintiffs assert that, because CPT Code 64xx1 applied specifically to knee-

related cryoneurolysis, both MyoScience and the Individual Defendants understood

the development of the code to be “highly relevant to reimbursement rates for the

use of iovera.”45 MyoScience and the Individual Defendants thus teamed up with

39 Id. ¶ 72. 40 Id. ¶ 63. 41 Id. ¶ 74. 42 Id. ¶ 76. 43 Id. ¶ 75. 44 Id. ¶ 76. 45 Id. ¶ 82. 9 Daubert again to “influence CMS as it drafted the reimbursement rates that would

apply to CPT Code 64xx1 pre-merger.”46

These efforts were ongoing while the representatives of MyoScience

(including Still) negotiated the terms of Pacira’s acquisition of MyoScience. 47 The

Plaintiffs maintain that this backdrop “led to the inclusion of the CMS

Reimbursement Milestones in the Merger Agreement.” 48

E. The Mechanics of the Milestone Payment Provisions

1. The Milestone Payments

Section 1.15(a) of the Merger Agreement requires that certain Milestone

Payments be made to the Escrow Participants “in the event the corresponding

milestones” are achieved “at any time following the Closing.”49 The milestones fall

into four categories: (i) “Regulatory Milestones”; (ii) “Costs of Goods Sold”; (iii)

“Sales Milestones”; and (iv) “CMS Reimbursement Milestones.” Most pertinent

here, Section 1.15(a)(iv) (“CMS Reimbursement Milestones”) requires Pacira to pay

the Escrow Participants an amount equal to:

(1) in the case of reimbursement related to use of the Smart Tip Products to treat a patient in the office setting . . . $20,000,000, if CMS Reimbursement is effective in fiscal year 2020 in an amount equal to or greater than $600.00 per such procedure using such product pursuant to CPT Code 64xx1 (or a different 46 Id. ¶ 84; see id. ¶ 86. 47 Id. ¶ 91. 48 Id. ¶ 92. 49 Merger Ag’t., § 1.15(a). 10 code that is appropriate to describe a procedure in which the Smart Tip Products are used) . . .

(2) in the case of reimbursement related to use of the Smart Tip Products to treat a patient in the ambulatory surgery centers setting . . . $20,000,000, if CMS Reimbursement is effective in fiscal year 2020 in an amount equal to or greater than $800.00 per such procedure using such product pursuant to CPT Code 64xx1 (or a different code that is appropriate to describe a procedure in which the Smart Tip Products are used) . . . [and]

(3) in the case of reimbursement related to use of the Smart Tip Products to treat a patient in the out-patient hospital setting, $10,000,000, if CMS Reimbursement is effective at any time during the Milestone Achievement Period in an amount equal to or greater than $1,400.00 per such procedure using such product pursuant to CPT Code 64xx1(or a different code that is appropriate to describe a procedure in which the Smart Tip Products are used).

Sections 1.15(a)(iv)(i) and (ii) also provide for reductions in payments if the

relevant milestone is met “after the end of fiscal year 2020” but before December

31, 2023. 50 The obligation to make any Milestone Payments terminates after

December 31, 2023.51 The Milestone Payments must be paid “[n]o later than 60

days after the end of the fiscal quarter in which the applicable Milestone is

achieved.”52

50 Id. § 1.15(b)(i) (defining the “Milestone Achievement Period” as the period starting on January 1, 2019 and ending on December 31, 2023). The Merger Agreement does not define the phrase “fiscal year 2020.” 51 Id. 52 Id. § 1.15(c)(i). 11 2. The Parties’ Rights Under the Milestone Provisions

Section 1.15(d) of the Merger Agreement requires that “[f]ollowing the

Closing and for the duration of the Milestone Achievement Period, [Pacira] shall

operate [Pacira CryoTech] in good faith in the context of this Section 1.15 and shall

use commercially reasonable efforts to achieve the Milestones.”53 Further, Section

1.15(e) provides, in pertinent part, that:

(i) the sole and exclusive right of the Escrow Participants under this Section 1.15 will be to receive, subject to the other terms of this Agreement, the Milestone Payments payable pursuant to this Section 1.15 if [Pacira CryoTech] achieves such Milestone Payments within the time periods set forth herein and subject to each of the other conditions and qualifications contemplated herein;

(ii) [Pacira] will have the right to operate the business of [Pacira CryoTech] as it chooses, in its sole discretion, except as expressly set forth in this Section 1.15; [and]

(iii) [Pacira] is not under any obligation to provide any specific level of investment or financial assistance to [Pacira CryoTech] or to undertake any specific actions (or to refrain from taking any specific actions) with respect to the operation of the Surviving Corporation, except as expressly set forth in this Section 1.15.54

3. The Option Holder Letter

As a precondition to receiving its portion of the merger consideration,

including the Milestone Payments, each MyoScience Securityholder was required to

53 Id. § 1.15(d). 54 Id. §§ 1.15(e)(i)–(iii). 12 execute either a Letter of Transmittal for Securities of MyoScience or an Option

Holder Letter. 55 Pursuant to those agreements, the signatory’s “MyoScience shares

or options to purchase MyoScience shares, respectively, were converted into the

right to receive payments pursuant to the Merger Agreement.”56 Each of the

Individual Defendants executed a copy of the Option Holder Letter. 57 The Option

Holder Letter incorporates certain sections of the Merger Agreement, to which the

Individual Defendants agreed to be bound in their capacities as “Escrow

Participants”, “Indemnifying Securityholders”, “Qualifying Option Holders” or

“Securityholders.”58

Section (a) of the Option Holder Letter also provides that, by executing the

Option Holder Letter, the signatory appoints Fortis as “its true and lawful attorney-

in-fact with full power of substitution . . . and exclusive agent pursuant to the terms

of the Merger Agreement, the Escrow Agreement and related documents.” 59 The

signatory of each Option Holder Letter “consents to the taking of any and all actions

55 Compl. ¶ 32; see Merger Ag’t. §§ 1.11, 1.18(b). The Merger Agreement also required the holders of certain “Qualifying Company Warrants” for shares in MyoScience to execute a Warrant Cancellation Agreement as a precondition for receiving cash consideration for their warrants. Merger Ag’t. § 1.10. 56 Compl. ¶ 32. 57 Exs. B–D (“Option Holder Ltrs.”). When referring to the actions of the Individual Defendants in connection with the Option Holder Letter, this Opinion refers to the actions taken by Kumar, Preciado, and Still with respect to their respective Option Holder Letters. 58 Id. § (a). 59 Id. § (a)(i). 13 and the making of any decisions required or permitted to be taken by the

Securityholders’ Representative under the Merger Agreement, the Escrow

Agreement and related documents as if expressly confirmed and ratified in writing

by the undersigned.”60

Section (d) of the Option Holder Letter states that the payment of the merger

consideration “is conditioned on multiple items, including (i) closing of the

Transaction and, if applicable, receipt of the [proceeds] by the [paying agent] and

(ii) receipt by the Company, Paying Agent and Parent, as applicable, of an accurately

completed [Option Holder Letter] and required attachments.”61

The Option Holder Letter is governed by Delaware law, and each signatory

“consents to the exclusive jurisdiction of the state and federal courts sitting in the

State of Delaware and consents to personal jurisdiction of and venue in such courts

with respect to any and all matters or disputes arising out of this [agreement].” 62

F. Post-Merger Conduct of the Parties Leading to the Present Dispute

1. The Post-Merger Roles of the Individual Defendants

Following the merger, Kumar worked as a consultant for Pacira CryoTech for

six months starting on April 9, 2019. 63 The terms of that agreement are contained

60 Id. § (a)(ii). 61 Id. § (d). 62 Id. § (g). 63 Compl. ¶¶ 30, 124. 14 in a consulting agreement (the “Consulting Agreement”). Among other terms, the

Consulting Agreement required Kumar to “refrain from publishing, distributing, or

disclosing”64 information defined as “Confidential” without the company’s prior

written consent for a period of three years. 65 The Consulting Agreement states that

Kumar’s “relationship with Company is and shall be that of an independent

contractor, and neither party is authorized to nor shall act as the agent of the other.”66

After the Merger closed, Preciado became a “Senior Director, Health

Outcomes Value Assessment” at Pacira. 67 In that role, Preciado “led the

development of research and quality improvement programs” and “research

partnerships with key global, national, and regional health care executives across the

medical device industry.” 68 She also “regularly provides updates to senior

management at Pacira, for whom she is authorized to fill in during both internal and

external meetings.”69

64 Id. ¶ 126. 65 Id. ¶127; see Ex. F. 66 Ex. F. ¶ 6. The Consulting Agreement is governed by New Jersey law. Id. ¶ 13. 67 Compl. ¶ 31. 68 Id. ¶ 132. 69 Id. 15 Still joined what the Complaint describes as a three-person “Advisory

Committee” to Fortis. 70 Still held no formal position at Pacira or Pacira CryoTech

after the Merger. 71 Plaintiffs allege that, notwithstanding this fact, “Still sent

multiple messages to former MyoScience employees who had transitioned to

working for Pacira, demanding concrete action to reach various milestone goals.”72

In particular, Plaintiffs point to a May 1, 2019, email from Kumar to Still and

Andrew Jones, a former MyoScience employee who had remained at Pacira

CryoTech after the Merger, asking Jones for “the exact language in our final

purchase agreement on the reimbursement mile stones.”73 In the email, Kumar

stated that his “primary focus” would be to achieve “just that.”74 Plaintiffs maintain

that this comment shows that the Individual Defendants sought to implement a

strategy of achieving “the minimum threshold necessary to trigger the CMS

Reimbursement Milestones.”75

70 Id. ¶ 122. The Merger Agreement provides for an “Advisory Group” to “provide direction to the Securityholders’ Representative in connection with its services” under the Merger Agreement. Merger Ag’t. § 5.4(b). 71 Compl. ¶¶ 123, 141. 72 Id. ¶ 140. 73 Id. ¶ 163; see id. ¶ 258. 74 Id. ¶ 164. 75 Id. ¶ 165. 16 2. The Individual Defendants Coordinate After CMS Publishes Draft Reimbursement Rates and Fortis Hires Daubert

On July 29, 2019, CMS released the draft reimbursement rates for CPT Code

64xx1.76 Plaintiffs allege that “[e]ach of those draft rates failed to meet the threshold

for triggering the CMS Reimbursement Milestone.” 77

The release of the draft reimbursement rates prompted the Individual

Defendants to commence what Plaintiffs describe as a coordinated campaign to

ensure the final rates, when published, would trigger the CMS Reimbursement

Milestones.78 On July 29, “Kumar provided Still with internal Pacira

correspondence containing a Pacira consultant’s preliminary assessment of the draft

reimbursement rates.” 79 The Individual Defendants then exchanged “numerous

emails” and agreed to “get clarity” and “find out” additional information.80 Also on

July 29, 2019, Still emailed Gail Daubert, MyoScience’s former outside counsel,

stating, “I might need to consider engaging your expertise” on the draft

reimbursement rates for CPT Code 64xx1.81 Daubert wrote to Still that her acting

76 Id. ¶ 167. 77 Id. 78 Id. ¶ 174. 79 Id. ¶ 173. 80 Id. 81 Id. ¶ 194. 17 on behalf of the MyoScience Securityholders “would be adverse to Pacira.”82

Shortly thereafter, Still formally retained Daubert “on behalf of the Individual

Defendants”83 to persuade CMS and the AMA to “adjust the reimbursement rates

applicable to CPT Code 64xx1.”84 There is no allegation that, at the time of her

email exchange with Still, Daubert had been employed or retained by Pacira or

Pacira CryoTech in any capacity.

At roughly the same time, Pacira began to formulate its own response to the

draft reimbursement rates using Pacira’s pre-merger reimbursement counsel,

Latham & Watkins LLP (“Latham”).85 Unbeknownst to Pacira, Kumar and Preciado

sent Still a number of updates on Pacira’s internal discussions and shared documents

that the Complaint alleges were confidential. 86

• On July 30, 2019, Kumar “forwarded to Still an email with Pacira’s

General Counsel concerning the draft reimbursement rate for CPT code

64xx1” that had been intended for Latham.87

82 Id. ¶ 195. Still disagreed with this statement, responding “[n]o.” Id. 83 Id. ¶¶ 197. 84 Id. ¶¶ 199. 85 See id. ¶ 174 (referencing email from Pacira’s General Counsel to Latham concerning the draft reimbursement rate). 86 Id. ¶¶ 174–88. 87 Id. ¶ 174. 18 • On August 1, 2019, Kumar sent Still “an email reflecting information

provided to Pacira by Latham.” 88 The message reflected “Latham’s

impressions and advice regarding reimbursement procedures under

CPT Code 64xx1 and the reimbursement calculations proposed by

CMS.” 89

• On August 5, 2019, Preciado participated in a call with Pacira’s General

Counsel and Latham regarding the draft reimbursement rates that she

secretly recorded. 90 After the call, Preciado sent Kumar a file entitled

“Call with Latham Watkins re:646XX1 - 2019-8-5.m4a” from her

personal email account.91 Kumar then sent Still a “[s]ummary of our

discussion today with Latham & Watkins” for “[his] records.” 92

• On August 6, 2019, Preciado forwarded to Still a draft letter Pacira had

planned to send to CMS regarding the draft reimbursement rates for

CPT Code 64xx1.93 The Complaint does not describe the contents of

the letter and neither party has entered the document into the record.

88 Id. 89 Id. 90 Id. ¶¶ 181–82. 91 Id. ¶ 182. 92 Id. ¶ 186. 93 Id. ¶ 174. 19 • On August 10, 2019, Kumar sent Still “an email reflecting competitive

intelligence that Pacira had gathered about industry competitors,

including potential actions those competitors might take during the

CMS comment period.” 94

Still also sought to enlist Pacira’s support. On August 22, 2019, Still sent an

“unsolicited” email to Pacira’s CEO Dave Stack, listing “all the steps that he would

take, if he were in Stack’s position, to influence the draft reimbursement rates.”95

Still told Stack that MyoScience had worked with Daubert in the past and had “been

successful in the past with sending a memo; scheduling a phone call; and getting

clarification where AMA and CMS had misread / misinterpreted information

regarding iovera.”96

On August 28, 2019, Pacira’s General Counsel emailed Daubert asking if she

would “join the team” that was “formulating [Pacira’s] response to the iovera CM[S]

reimbursement proposed rule.”97 Daubert declined, telling Pacira that “we have a

conflict.” 98 Plaintiffs contend that “Still’s retention of Daubert led to significant

increased costs, inefficiencies, and duplicative work” because Pacira would not have

94 Id. 95 Id. ¶ 170 (emphasis omitted). 96 Id. 97 Id. ¶ 205. 98 Id. ¶ 207. 20 had to perform certain work that Daubert had already completed for MyoScience

before the merger if Pacira had been able to hire Daubert. 99

3. CMS Publishes Final Reimbursement Rates and Fortis Makes Demands for Milestone Payments

On November 1, 2019, CMS finalized CPT Code 64xx1 as CPT Code 64624

and published the final reimbursement rates. 100 CMS set the following

reimbursement rates:

• $417.56 for procedures that used CPT Code 64624 in the office

setting, compared to a CMS Milestone threshold of $600;

• $471.33 for procedures that used CPT Code 64624 in an ambulatory

surgery center setting, compared to a CMS Milestone threshold of

$800; and

• $1,872.01 for procedures that used CPT Code 64624 in an out-

patient hospital setting, compared to a CMS Milestone threshold of

1,400.00. 101

On January 3, 2020, Pacira sent Fortis a letter stating that the CMS Milestone

set forth in Section 1.15(a)(iv)(3) of the Merger Agreement (tied to “reimbursement

. . . in an out-patient hospital setting”) had been satisfied and that it would pay the

99 Id. ¶ 208. 100 Id. ¶¶ 155, 210, 214–15. 101 Id. ¶¶ 215–16. 21 MyoScience Securityholders $10 million on June 1, 2020. 102 Pacira made that

payment on May 27, 2020. 103

On May 29, 2020, Fortis sent Pacira a letter demanding $40 million in

Milestone Payments under both Section 1.15(a)(iv)(1) (tied to “reimbursement . . .

in the office setting”) and Section 1.15(a)(iv)(2) (tied to “reimbursement . . . in the

ambulatory surgery centers setting”).104 The letter demanded a response within one

week. 105 In the letter, Fortis asserted that, with respect to the 1.15(a)(iv)(1)

milestone, “where a Smart Tip procedure destroys three nerves (other than the

genicular nerve) in a single procedure . . . and is billed under CPT Code 64640, the

payment for that procedure will exceed the $600 milestone threshold in many

localities.”106 Fortis also contended that the local reimbursement rates for “CPT

code 64625 or 64635,” “CPT code 64640,” “CPT 64635 and 64636,” or “CPT 64633

+ 64634 + 64634” satisfied the Milestone Payment thresholds, justifying its demand

for payment.107

102 Id. ¶ 217. 103 Id. ¶ 218. 104 Id. ¶ 222. 105 Id. 106 Fortis Opening Br. Ex. 3; see also Compl. ¶ 226. 107 Compl. ¶ 229. 22 Attorneys for Pacira responded to Fortis on June 5, 2020, asserting that

“neither of the requested milestone payments is warranted” under Section

1.15(a)(iv)(1) or 1.15(a)(iv)(2) of the Merger Agreement.108 On June 8, 2020, Fortis

responded, stating that its “reimbursement experts” were “putting together a package

of background data” that was “supportive of the many ways we have identified in

which the milestones were reached.” 109

Plaintiffs allege that Fortis made this and other demands in bad faith.110 In

support of that position, Plaintiffs cite to a November 4, 2019 email to Still from

Chris Anson, the Director of M&A at Fortis, stating: “I agree that it makes sense to

use the ambiguous language to pressure them to pay quickly (and I will do so).” 111

Plaintiffs aver the reference to ambiguous language refers to the provisions in the

Merger Agreement governing the Milestone Payments.112

Since the closing of the Merger, Pacira has made three Milestone Payments

to the Escrow Participants. 113 The first, $7 million for satisfaction of the Regulatory

Milestone involving CE Markings in Section l.15(a)(i)(1), occurred in November

108 Id. ¶ 233. 109 Id. ¶ 236. 110 Id. ¶¶ 147, 156–57, 261–62. 111 Id. ¶ 148 (emphasis omitted). In the Complaint, Anson’s name is misspelled as “Anon.” 112 Pls.’ Ans. Br. 32. 113 Compl. ¶ 152. 23 2019 following a back-and-forth between Pacira and Fortis’s legal counsel about

whether the milestone had been met in the second or third quarter of that year.114

Pacira alleges that this initial disagreement evinced Still and Fortis’s willingness to

make bad faith payment demands without any justification.115 The second Milestone

Payment of $5 million occurred in either February or March 2020 after Pacira

obtained approval to use iovera in Canada, as set forth in Section l.15(a)(i)(2).116

The third milestone payment, $10 million for the satisfaction of the CMS

Reimbursement Milestone in Section l.15(a)(iv)(3), occurred in May 2020 as

described above.117

G. Procedural History

On August 21, 2020, Plaintiffs filed their Complaint. 118 The Individual

Defendants have moved to dismiss the Complaint in its entirety and Fortis has

moved to dismiss Count III.119 After briefing on the motions, the court heard oral

argument on June 3, 2021.

114 Id. ¶¶ 143–46; Merger Ag’t. § 1.15(a)(i)(1). 115 Compl. ¶¶ 144, 147. 116 Compare id. ¶ 150 (stating the payment was made on March 2, 2020), with id. ¶ 152 (stating that Pacira made payments in November 2019, February 2020, and May 2020). 117 Id. ¶¶ 151, 217, 221. 118 Dkt. 1. 119 Dkt. 13, 14. Fortis filed its Answer and Verified Counterclaim on October 5, 2020, alleging that Pacira breached the Merger Agreement and owes the Escrow Participants $40 million in Milestone Payments. Dkt. 12. 24 II. ANALYSIS

The Complaint contains seven counts. Count I seeks a declaratory judgment

that the MyoScience Securityholders are not entitled to Milestone Payments under

Sections 1.15(a)(iv)(1) or 1.15(a)(iv)(2) of the Merger Agreement. Count II asserts

that the Individual Defendants breached the Option Holder Letter. Count III is a

claim for breach of the implied covenant of good faith and fair dealing against Fortis

and the Individual Defendants. Count IV alleges that Kumar breached the

Consulting Agreement. Count V alleges Kumar breached his fiduciary duties.

Count VI alleges Preciado breached her fiduciary duties. Count VII alleges Still

aided and abetted Kumar and Preciado in breaching their fiduciary duties.

A. Standard of Review

On a motion to dismiss for failure to state a claim under Court of Chancery

Rule 12(b)(6):

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are well-pleaded if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and ([iv]) dismissal is inappropriate unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.

Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (cleaned up). Although

the pleading standards are minimal, Central Mortg. Co. v. Morgan Stanley Mortg.

Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011), “a trial court is required to accept

only those ‘reasonable inferences that logically flow from the face of the complaint’ 25 and ‘is not required to accept every strained interpretation of the allegations

proposed by the plaintiff.’” In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d

162, 168 (Del. 2006) (quoting Malpiede v. Townson, 780 A.2d 1075, 1083 (Del.

2001)). “[A] claim may be dismissed if allegations in the complaint or in the exhibits

incorporated into the complaint effectively negate the claim as a matter of law.”

Malpiede, 780 A.2d at 1083.

B. Alleged Breach of the Option Holder Letter

Count II alleges that each of the Individual Defendants breached the Option

Holder Letter by violating Section 1.15(e) of the Merger Agreement. The parties do

not dispute that the Option Holder Letter incorporates Section 1.15(e). Section

1.15(e)(i) (the “Exclusive Right Provision”) provides that the “sole and exclusive

right of the Escrow Participants under this Section 1.15 will be to receive, subject to

the other terms of this Agreement, the Milestone Payments payable pursuant to this

Section 1.15.” Section 1.15(e)(ii) (the “Sole Discretion Provision”) provides that

Pacira “will have the right to operate the business of [Pacira CryoTech] as it chooses,

in its sole discretion, except as expressly set forth in this Section 1.15.” Plaintiffs

fuse these provisions to impose contractual obligations upon the Individual

Defendants.

“In order to survive a motion to dismiss for failure to state a breach of contract

claim, the plaintiff must demonstrate: first, the existence of the contract, whether

26 express or implied; second, the breach of an obligation imposed by that contract; and

third, the resultant damage to the plaintiff.” VLIW Tech., LLC v. Hewlett-Packard

Co., 840 A.2d 606, 612 (Del. 2003).

Plaintiffs argue the Merger Agreement (through the Option Holder Letter)

imposes an obligation on the Individual Defendants to refrain from interfering in

Pacira’s internal affairs or operations. The Merger Agreement does not provide for

such an express obligation. Plaintiffs derive that obligation, however, from the Sole

Discretion Provision, which they claim gives Pacira “the exclusive right to operate

Pacira CryoTech free from interference,”120 and the Exclusive Right Provision,

which Plaintiffs assert imposes on the Individual Defendants an obligation to “limit

their post-merger role to potentially receiving milestone payments.”121 According

to Plaintiffs, the Individual Defendants breached this obligation in two ways. First,

they attempted to “influence and instruct”122 Pacira CryoTech employees to achieve

the “minimum threshold necessary to trigger the CMS Reimbursement

Milestones.”123 Second, the Individual Defendants “prevented Pacira from working

with Gail Daubert” by retaining her first.124 Plaintiffs allege that Pacira suffered

120 Pls.’ Ans. Br. 15–16. 121 Id. at 49. 122 Compl. ¶ 258. 123 Id. ¶ 165. 124 Id. ¶ 258. 27 damages “including, but not limited to, the deprivation of Pacira’s negotiated

contractual rights, the loss of valuable, confidential information, and the time and

money Pacira has been forced to expend due to the Individual Defendants’ retention

of Daubert.”125

The Individual Defendants respond that Section 1.15(e) “does not impose any

obligations on Individual Defendants or prohibit them from taking any action.”126

Section 1.15(e), on their reading, serves instead as a “disclaimer of any obligation”

by Pacira to “make payments to the former MyoScience securityholders under

Section 1.15 other than the Milestone Payments if they are achieved or . . . [to]

operate the company in a specific way following the Merger except as otherwise set

forth in Section 1.15.” 127

Where, as here, the meaning of a contract is in dispute, the court must “give

priority to the parties’ intentions as reflected in the four corners of the agreement,

construing the agreement as a whole and giving effect to all its provisions.”

Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014) (internal quotations omitted).

In doing so, the court must read a contract so as not to render any part of the contract

“mere surplusage,” Kuhn Const., Inc. v. Diamond State Port Corp., 990 A.2d 393,

125 Id. ¶ 296. 126 Indiv. Defs.’ Opening Br. 36. 127 Id. at 34–35. 28 396–97 (Del. 2010), or “illusory or meaningless.” O’Brien v. Progressive Northern

Ins. Co., 785 A.2d 281, 287 (Del. 2001). The court must also “interpret clear and

unambiguous terms according to their ordinary meaning.” Riverbend Cmty., LLC v.

Green Stone Eng’g, LLC, 55 A.3d 330, 335 (Del. 2012). “A contract is not rendered

ambiguous simply because the parties do not agree upon its proper construction.

Rather, a contract is ambiguous only when the provisions in controversy are

reasonably or fairly susceptible of different interpretations or may have two or more

different meanings.” Rhone–Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co.,

616 A.2d 1192, 1196 (Del. 1992).

Plaintiffs argue that “[o]n its face, Section 1.15(e) imposes a clear obligation

on the Escrow Participants.”128 As evidence for this proposition, Plaintiffs cite to

the Exclusive Right Provision. This argument ignores the plain language of Section

1.15(e). Nowhere does that section use the term “obligation” with respect to the

Escrow Participants. The only pertinent reference in Section 1.15(e) to any

obligation concerns Pacira:

[MyoScience] and the Securityholders’ Representative on behalf of each Escrow Participant acknowledge and agree that, without limiting the provisions and obligations of [MyoScience] in this Section 1.15 . . . [Pacira] is not under any obligation to provide any specific level of investment or financial assistance to the Surviving Corporation or to undertake any specific actions (or to refrain from taking any specific actions) with respect to the

128 Pls.’ Ans. Br. 50. 29 operation of the Surviving Corporation, except as expressly set forth in this Section 1.15. 129

Plaintiffs also fail to explain how a reference to the Escrow Participants’ “sole

and exclusive” right to receive the Milestone Payments could reasonably be read as

imposing an affirmative obligation on them. Because the agreement does not

contain any language demonstrating that the parties intended to impose obligations

on the Escrow Holders, I conclude that Section 1.15(e) of the Merger Agreement

unambiguously does not impose any obligation on the Individual Defendants.

Read within the context of the other provisions of Section 1.15, the Sole

Discretion Provision defines the scope of Pacira’s obligations to make Milestone

Payments to the Escrow Holders under the Merger Agreement’s Milestone Payment

provisions in Section 1.15(a). Section 1.15(d) provides that Pacira “shall operate

[Pacira CryoTech] in good faith in the context of this Section 1.15 and shall use

commercially reasonable efforts to achieve the Milestones.”130 Further refining

Pacira’s specific obligations, Section 1.15(e)(iii) states that Pacira need not “provide

any specific level of investment or financial assistance” to Pacira CryoTech to

achieve the milestones or to “undertake any specific actions (or to refrain from taking

any specific actions) with respect to [its] operation.”

129 Merger Ag’t. § 1.15(e). For a detailed discussion of efforts clauses, see Akorn, Inc. v. Fresenius Kabi AG, 2018 130

WL 4719347, at *85–86 (Del. Ch. Oct. 1, 2018), aff’d, 198 A.3d 724 (Del. 2018). 30 Section 1.15(e) operates as a disclaimer of Pacira’s obligations to engage in

any conduct beyond that specified in the Merger Agreement. As this court has noted

when interpreting a similar provision giving the purchaser “sole discretion with

regard to all matters relating to the operation of the Business,” these provisions “set

a contractual standard by which to evaluate whether [the buyer’s] failure to achieve

and pay [the] Milestones was improper.” Himawan v. Cephalon, 2018 WL 6822708,

at *8 (Del. Ch. Dec. 28, 2018) (“paraphras[ing]” Fortis Advisors LLC v. Dialog

Semiconductor PLC, 2015 WL 401371, at *5 (Del. Ch. Jan. 30, 2015)); see also,

e.g., Neurvana Med., LLC v. Balt USA, LLC, 2020 WL 949917, at *2, *14 (Del. Ch.

Feb. 27, 2021) (earn-out provision gave buyer the “sole discretion and authority

post-closing to make decisions concerning all matters relating to [the acquired

product]” provided it used commercially reasonable efforts to achieve a CE marking

milestone (internal quotations omitted)); Lazard Tech. P’rs., LLC v. Qinetiq N. Am.

Operations LLC, 114 A.3d 193, 196 (Del. 2015) (earn-out provision “left the buyer

free to conduct its business post-closing in any way it chose so long as it did not act

with the intent to reduce or limit the earn-out payment”); ev3, Inc. v. Lesh, 114 A.3d

527, 528 (Del. 2014) (earn-out provision imposed obligation on buyer to fund and

pursue certain regulatory milestones in its “sole discretion, to be exercised in good

faith”).

31 The Plaintiffs ask this court to read the Sole Discretion Provision as imposing

an obligation on the Escrow Holders to refrain from making any efforts to

communicate with Pacira employees or the authorities that determine reimbursement

rates which affect the calculation of the Milestone Payments. Plaintiffs cite no case

where the court read a similar provision as imposing the obligation Plaintiffs seek to

impose here. If that is what the parties had intended, they could have easily provided

for such an obligation in the Merger Agreement or the Option Holder Letter.

Section 1.15(e) demonstrates that the parties knew how to specify whether a party is

required “to refrain from taking any specific actions” in the post-closing operations

of the business. 131 Likewise, the parties’ use of the phrase “shall” in Section 1.15(d)

to impose legal obligations on Pacira indicates that, had the parties intended to

impose an obligation on the Individual Defendants, they would have used the same

construction.132 “[A]s a matter of contractual interpretation, [courts] should refrain

from writing a provision into a contract when the parties could have done so

themselves, but chose not to.” Vintage Rodeo Parent, LLC v. Rent-a-Center, Inc.,

2019 WL 1223026, at *21 (Del. Ch. Mar. 14, 2019). Absent any reference to the

131 Merger Ag’t. § 1.15(e)(iii) (“Parent is not under any obligation to provide any specific level of investment or financial assistance to the Surviving Corporation or to undertake any specific actions (or to refrain from taking any specific actions) with respect to the operation of the Surviving Corporation, except as expressly set forth in this Section 1.15.”). 132 Id. § 1.15(d) (“Following the Closing and for the duration of the Milestone Achievement Period, Parent shall operate the Surviving Corporation in good faith in the context of this Section 1.15 and shall use commercially reasonable efforts to achieve the Milestones.”). 32 obligations of the Escrow Holders, the plain meaning of Section 1.15 is not

susceptible to the Plaintiffs’ interpretation.

Because Section 1.15(e) plainly does not impose any obligation on the

Individual Defendants, the Plaintiffs have failed to specify an obligation that the

Individual Defendants breached. Count II is accordingly dismissed for failure to

state a claim.

C. Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing

Count III alleges that Fortis and the “MyoScience stockholders, through Fortis

Advisors” violated an implied covenant that Fortis “would only make proper, good-

faith demands for payments under the Merger Agreement’s milestone

provisions.”133 The Complaint further alleges that Fortis and the Individual

Defendants have breached the implied covenant of good faith and fair dealing by

engaging “in conduct intended to frustrate Pacira’s rights to receive the full benefits

of the Merger Agreement by making demands for Milestone Payments, that are not,

in fact, due.”134

The implied covenant of good faith and fair dealing “attaches to every contract

by operation of law,” Metro. Life Ins. Co. v. Tremont Grp. Hldgs, Inc., 2012 WL

133 Compl. ¶ 261. 134 Id. ¶ 263. 33 6632681, at *15 (Del. Ch. Dec. 12, 2012), and is “best understood as a way of

implying terms in the agreement.” E.I. DuPont de Nemours & Co. v. Pressman, 679

A.2d 436, 443 (Del. 1996). The doctrine “ensures that the parties deal honestly and

fairly with each other when addressing gaps in their agreement.” Glaxo Grp. Ltd. v.

DRIT LP, 248 A.3d 911, 919 (Del. 2021). It requires “a party in a contractual

relationship to refrain from arbitrary or unreasonable conduct which has the effect

of preventing the other party to the contract from receiving the fruits of the bargain.”

Dunlap v. State Farm Fire and Cas. Co., 878 A.2d 434, 442 (Del. 2005) (internal

quotations omitted).

The doctrine most often “comes into play in two situations”: (1) “when it is

argued that a situation has arisen that was unforeseen by the parties and where the

agreement’s express terms do not cover what should happen” or (2) “when a party

to the contract is given discretion to act as to a certain subject and it is argued that

the discretion has been used in a way that is impliedly proscribed by the contract’s

express terms.” Oxbow Carbon & Minerals Hldgs., Inc. v. Crestview-Oxbow

Acquisition, LLC, 202 A.3d 482, 504 n.93 (Del. 2019).

“In order to plead successfully a breach of an implied covenant of good faith

and fair dealing, the plaintiff must allege a specific implied contractual obligation, a

breach of that obligation by the defendant, and resulting damage to the plaintiff.”

Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998). “When

34 presented with an implied covenant claim, a court first must engage in the process

of contract construction to determine whether there is a gap that needs to be filled.”

Allen v. El Paso Pipeline GP Co., 113 A.3d 167, 183 (Del. Ch. 2014). “During this

phase, the court decides whether the language of the contract expressly covers a

particular issue, in which case the implied covenant will not apply, or whether the

contract is silent on the subject, revealing a gap that the implied covenant might fill.”

Id. “[O]ne generally cannot base a claim for breach of the implied covenant on

conduct authorized by the terms of the agreement.” Glaxo Grp. Ltd., 248 A.3d at

920. Put differently, the court may not use the doctrine to recognize any obligations

that “negate an unrestricted contractual right authorized by an agreement” or prohibit

conduct that the contract authorizes. Id. at 921.

“Even where the contract is silent as to the conduct in question, an interpreting

court cannot use an implied covenant to re-write the agreement between the parties,

and should be most chary about implying a contractual protection when the contract

could easily have been drafted to expressly provide for it.” Oxbow, 202 A.3d at 507

(cleaned up). Doing so would give the parties “contractual protections that they

failed to secure for themselves at the bargaining table.” El Paso Pipeline, 113 A.3d

at 183–84 (quoting Aspen Advisors LLC v. United Artists Theatre Co., 843 A.2d 697,

707 (Del. Ch. 2004), aff’d, 861 A.2d 1251 (Del. 2004)). Permissible considerations

at this stage include, for example, whether the “expectations of the parties were so

35 fundamental that it is clear that they did not feel a need to negotiate about them,”

Allied Cap. Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1033 (Del. Ch. 2006), or

whether the gap arises due to reasonably unforeseeable contingencies. El Paso

Pipeline, 113 A.3d at 184 (noting that “[e]ven the most skilled and sophisticated

parties will necessarily fail to address a future state of the world”) (cleaned up).

“Assuming a gap exists and the court determines that it should be filled, the

court must determine how to fill it.” Id. At this stage, the court “seeks to enforce

the parties’ contractual bargain by implying only those terms that the parties would

have agreed to during their original negotiations if they had thought to address

them.” Gerber v. Enter. Prods. Hldgs., LLC, 67 A.3d 400, 418 (Del. 2013). Because

“a court can only imply a contractual obligation when the express terms of the

contract indicate that the parties would have agreed to the obligation had they

negotiated the issue, the plaintiff must advance provisions of the agreement that

support this finding in order to allege sufficiently a specific implied contractual

obligation.” Fitzgerald, 1998 WL 842316, at *1. The court “must assess the parties’

reasonable expectations at the time of contracting and not rewrite the contract to

appease a party who later wishes to rewrite a contract [s]he now believes to have

been a bad deal.” Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010).

Proving breach of the implied claim “does not depend on the breaching party’s

mental state.” ASB Allegiance Real Est. Fund v. Scion Breckenridge Managing

36 Member, LLC, 50 A.3d 434, 442 (Del. Ch. 2012), rev’d on other grounds, 68 A.3d

665 (Del. 2013). The implied covenant therefore “does not require that a party [to]

have acted in subjective good faith.” El Paso Pipeline, 113 A.3d at 183.

1. Bad Faith Claim Against Fortis for Improper Demands

Plaintiffs argue that the Complaint states a claim for breach of the implied

covenant because: (1) Fortis had an obligation to refrain from making “premature,

bad-faith, and/or baseless demands” for payment under the Merger Agreement;135

(2) Fortis violated that obligation by making such demands; 136 and (3) Pacira

suffered damages because it was denied the “full benefits” 137 of the Merger

Agreement and because it had to “expend resources” to respond to such demands.138

Plaintiffs advance two broad points to support this claim. First, they argue the

Merger Agreement contains a “gap” regarding payment demands from Fortis as the

Securityholders’ Representative insofar as the “parties did not contract for Fortis to

submit demands for payment” and “did not appear even to have contemplated that

possibility.”139 Second, Plaintiffs urge the court to fill that gap with an implied

135 Compl. ¶ 262; see id. ¶ 261. 136 Id. ¶ 262. 137 Id. ¶ 263; see id. ¶ 267. 138 Id. ¶ 268. 139 Pls.’ Ans. Br. 21–22. 37 prohibition against the making of “bad-faith payment demands” because Pacira will

otherwise be denied “numerous post-merger benefits.” 140

The Plaintiffs’ argument fails at step one of the implied covenant analysis

because the Merger Agreement addresses the issue of demands from the

Securityholders’ Representative. There is no gap. Plaintiffs did contract for specific

circumstances in which Fortis is entitled to make demands of Pacira related to the

satisfaction of milestones, and to which Pacira has an obligation to respond. Section

1.15(f) of the Merger Agreement expressly provides that, “in the event of a dispute

with respect to any audit conducted or report provided under Section 1.15(f)” the

Securityholders’ Representative “shall deliver an objection notice” to Pacira.141

Section 1.15(f) also requires both parties to “work in good faith to resolve” the

disagreement and provides that, if the parties fail to reach agreement, they shall

submit their dispute to a mutually agreed upon accounting firm for resolution.142

Section 1.15(f) also imposes an express limitation on Fortis’s ability to lodge

objections under Section 1.15—“in no event shall the Securityholders’

140 Id. at 29; see id. at 18–19. 141 Merger Ag’t § 1.15(f)(ii). 142 Id. 38 Representative be entitled to submit a Milestone Objection Notice more than once

in any fiscal year.”143

Plaintiffs argue that Section 1.15(f) addresses a different subject matter—not

payment demands, but milestone reports—and is limited to a narrow range of

disputes involving “audits” of financial information. 144 But that point only serves to

undermine Plaintiffs’ argument. Plaintiffs’ argument thus concedes that the parties

contracted for specific circumstances in which Fortis’s ability to make demands of

Pacira is circumscribed. And they did so in the narrow context of Fortis demanding

financial information from Pacira to confirm whether certain milestones involving

“calculations” and “measurements” have been satisfied. What follows from this is

not that the contract contains a gap regarding Fortis’s demands in all other

circumstances. To the contrary, it confirms both that the parties agreed to place no

restrictions on the ability of Fortis to make demands for payment from Pacira and,

correspondingly, placed no obligation on Pacira to respond to any such demands.145

143 Id. In addition, Section 1.15(f)(i) expressly provides that “no more than once per fiscal year” the Securityholders’ Representative shall have the right to access “the financial books and records of Parent to the extent relating to the achievement or non-achievement of the Milestones.” Merger Ag’t § 1.15(f)(i). It also provides that, under certain circumstances, “Parent may restrict the foregoing access” in the exercise of its “good faith, reasonable judgment.” Id. 144 Pls.’ Ans. Br. 22–23. 145 Plaintiffs offer no authority for their assertion that the absence of any provision addressing unsolicited payment demands “suggests, at a minimum, that they are disfavored, if not outright disallowed.” Pls.’ Ans. Br. 24. Using the implied covenant to

39 That is particularly apt here. “We do not ordinarily speak of one’s entitlement to

make a demand of any sort; demands are simply made and, once they are made, the

question is not whether one was entitled to make the demand, but whether there is a

legal obligation to comply with it.” Schick Inc. v. Amalgamated Clothing & Textile

Workers Union, 533 A.2d 1235, 1240 (Del. Ch. 1987). The existence of Section

1.15(f) demonstrates that had the parties wanted to curtail or restrain Fortis’s ability

to make the types of demands for payment about which Pacira now complains, the

contract “could easily have been drafted to expressly provide for it.” Oxbow, 202

A.3d at 507.

Plaintiffs respond that the parties failed to provide for a prohibition against

bad faith demands not because they intended to leave all demands outside of the

narrow context of Section 1.15(f) unregulated, but rather because such a prohibition

was “too obvious to need expression.” 146 In support of that proposition, Plaintiffs

point to what they extol as “clear Delaware precedent”147—a bench ruling by then-

Vice Chancellor Strine in HCP CH1 Saddle River, LLC v. Sunrise Senior Living

create such a rule would “create a free-floating [negative] duty . . . unattached to the underlying legal document.” Dunlap v. State Farm Fire and Cas. Co., 878 A.2d 434, 441 (Del. 2005). 146 Pls.’ Ans. Br. 26 (quoting Dieckman v. Regency GP LP, 155 A.3d 358, 368 (Del. 2017)). 147 Id. at 20. 40 Services, Inc., C.A. No. 4691-VCS (Del. Ch. Dec. 9, 2009) (TRANSCRIPT)

(“Saddle River”).

Setting aside Plaintiffs’ assertion that a transcript ruling is “clear Delaware

precedent,” 148 Saddle River does not support the Plaintiffs’ argument. In Saddle

River, the counterclaim-defendant, “HCP”, acquired a portfolio of senior living

facilities operated by counterclaim-plaintiff, “Sunrise”, pursuant to certain

management agreements.149 HCP tried to renegotiate the agreements but Sunrise

resisted. 150 HCP then tried to pressure Sunrise to renegotiate the agreements by

exercising certain discretionary contractual rights in a manner that Sunrise alleged

was oppressive—such as serial demands for audits and other irrelevant

information.151 In denying a motion to dismiss an implied covenant claim alleging

that HCP had “repeatedly made demands of Sunrise in bad faith,” 152 the court held

that Sunrise had sufficiently pleaded that “HCP used its contractual discretion in bad

faith by engaging in harassing conduct designed to put financial and other kinds of

pressure on Sunrise to renegotiate.” Saddle River, C.A. No. 4691-VCS Hrg. Tr. at

148 Cf. Day v. Diligence, Inc., 2020 WL 2214377, at *1 (Del. Ch. May 7, 2020) (“Transcript Rulings generally have no precedential value in this Court and they should ordinarily not be relied on as precedent—at most they offer persuasive authority.”). 149 Saddle River, C.A. No. 4691-VCS (Dkt. 44 (Ans. & Verified Countercl.) ¶¶ 1–4). 150 Id. ¶¶ 5, 15. 151 Id. ¶¶ 8–9, 18–19, 24, 28, 35–36. 152 Id. ¶ 35. 41 55:7–10. The court made clear that the violation of the implied covenant claim

concerned HCP’s abuse of its “contractual power.” Id. at 11:16–21; see id. at 12:2–

6 (“THE COURT: . . . They point to the provisions of the contract that deal with

these things, and, yeah, they have a right to ask for information, they don’t have a

right to change their mind a million times, basically to do it pretexturally [sic] just

to drive us crazy.” (emphasis added)).

Unlike in Saddle River, where the counterclaim defendant had express,

unconditional contractual rights to seek books and records and discretionary rights

to refuse to approve the counterclaim plaintiff’s operating budget and capital

expenditures, the Merger Agreement here does not require Pacira to respond to any

unsolicited communication from Fortis outside the limited context of Section

1.15(f). In Saddle River, the express contractual rights were the necessary factual

predicate for the implied obligation not to exercise those rights in a harassing manner

with the aim of depriving the counterparty of its contract rights. Here, by contrast,

Pacira has no obligation to respond to any of Fortis’s demands until after Pacira

sends Fortis a written report pursuant to Section 1.15(f). Because Fortis’s demands

for milestone payments were not in response to a written report pursuant to Section

1.15(f)(i), Pacira was free to dismiss any requests related to the CMS Milestones out

42 of hand.153 Saddle River is thus consistent with well-established authority that

“[w]hen a contract confers discretion on one party, the implied covenant requires

that the discretion be used reasonably and in good faith.” See Airborne Health, Inc.

v. Squid Soap, LP, 984 A.2d 126, 146–47 (Del. Ch. 2009); see id. at 147 n.1

(collecting authorities). 154

In any event, Plaintiffs have failed to plead sufficient facts to show that the

communications sent to Pacira by Fortis or by Still on behalf of Fortis constituted

harassment or “oppressive or underhanded tactics.” Chamison v. HealthTrust-Hosp.

Co., 735 A.2d 912, 920 (Del. Ch. 1999); see id. at 920–23 (noting that defendant

HealthTrust, Inc. acted oppressively by refusing to “pay the reasonable fees and

expenses of [defense] counsel selected by [HealthTrust]” pursuant to an

indemnification provision by demanding that plaintiff Chamison accept an attorney

who “contemplated a group defense strategy that ignored Chamison’s unique

153 Merger Ag’t § 1.15(f)(i). Plaintiffs likewise have not alleged or argued that Pacira had a contractual obligation to respond to any of what Pacira characterizes as Fortis’s allegedly “premature, bad-faith, and/or baseless demands” made between April and August 2019. Compl. ¶¶ 144, 261. 154 Compare Travel Servs. Network, Inc. v. Presidential Fin. Corp. of Mass., 959 F.Supp. 135, 141 (D. Conn. 1997) (observing that “Massachusetts courts have left open the possibility that in certain circumstances lenders may violate the implied covenant by the manner in which they exercise express contractual rights” (emphasis in original)), with CSL Behring, LLC v. Bayer Healthcare, LLC, 2019 WL 4451368, at *4 (D. Del. Sept. 17, 2019) (“A defendant does not violate the implied covenant of good faith and fair dealing merely by acting in its own self-interest while also performing its express obligations under the contract.” (applying New York law) (internal quotations omitted)). 43 defenses” (emphasis omitted)), aff’d, 748 A.2d 407 (Del. 2000). Nor have Plaintiffs

alleged that Fortis’s demands for Milestone Payments were a pretext for some other

purpose. Cf. Saddle River, C.A. 4691-VCS Hrg. Tr. at 12:2–6 (describing claim that

demands were made pretextually).

The Complaint describes four separate instances of correspondence directed

at Pacira by or on behalf of Fortis. While the Complaint asserts that counsel for the

Securityholders’ Representative, Davis Malm, sent Pacira “multiple emails and

letters to Pacira between April and August 2019 prematurely demanding

payment”155 related to one of the Regulatory Milestones not at issue here, the

Complaint cites just two. The first is an August 26, 2019 email stating that Fortis

“expects to receive payment for the Milestone on Friday, August 30, 2019.”156 The

second is an August 28, 2019 email stating that “[a] failure to receive a CMS

reimbursement in 2020 is by all means unacceptable.” 157

With respect to the CMS Milestone Payments, Plaintiffs point to two letters

from Fortis—a May 29, 2020 letter requesting that Pacira “inform [the MyoScience

Securityholders] of the plans for the payment of $40 million within one week”158

and a June 8, 2020 reply to Pacria’s response letter, expressing “confiden[ce] . . .

155 Compl. ¶ 144. 156 Id. ¶ 145. 157 Id. ¶ 154. 158 Id. ¶ 222. 44 that all of the codes identified can be used for procedures using iovera, and that they

include codes under which iovera procedures were billed in the past.” 159

These emails are non-threatening business communications. Even when the

two emails from 2019 are considered in connection with Fortis’s 2020 demand

letters related to the CMS Milestone Payments—sent ten months later—these

communications fall far short of a “conscious, persistent campaign to put pressure

on somebody to renegotiate by making their life hellacious.” Saddle River at 10:6–

8. “Despite the appearance in its name of the terms ‘good faith’ and ‘fair dealing,’

the covenant does not establish a free-floating requirement that a party act in some

morally commendable sense . . . [n]or does satisfying the implied covenant

necessarily require that a party have acted in subjective good faith.” El Paso

Pipeline, 113 A.3d at 182–83 (internal citations omitted).

Plaintiffs’ other argument, that these emails constitute “bad faith” because

Fortis understood them to be baseless, is itself without merit. Plaintiffs’ only ground

for that assertion is an excerpt from a November 4, 2019 email to (not from) Still

from Chris Anson, the Director of M&A at Fortis, expressing an intent to use

“ambiguous language [in the Merger Agreement] to pressure [Pacira] to pay

159 Id. ¶ 235. 45 [milestone payments] quickly.”160 Plaintiffs offer no context for the email. 161 Even

if I draw the inference that Anson was referring to the CMS Regulatory Milestone

payments in light of CMS’s publication of the finalized reimbursement rates on

November 1, 2019, the statement fails to establish that Anson or Still understood

Fortis’s demands to be baseless. At most, it shows that they understood the contract

to be susceptible to multiple meanings, some of which were more favorable to its

position than others. Fortis was and remains free to leverage perceived ambiguities

in the contract to advance its positions—just as Plaintiffs have sought to do in this

action. See ASB Allegiance, 50 A.3d at 442 (“Proving a breach of contract claim

does not depend on the breaching party’s mental state.”).

Plaintiffs have also failed to plead sufficient facts to support their assertion

that Pacira was denied “multiple benefits of the bargain.” 162 Plaintiffs assert that

Fortis denied Pacira the right to operate Pacira CryoTech “as it chooses, in its sole

discretion.”163 But Plaintiffs have failed to allege facts from which it can be

reasonably inferred that any letters from Fortis demanding Milestone Payments

160 Compl. ¶ 148. 161 Aside from the language quoted, neither side to this action has submitted the email into the record on this motion. 162 Pls.’ Ans. Br. 27. 163 Id. at 29. 46 under the Merger Agreement deprived Pacira of its ability to operate Pacira

CryoTech as it chose or the benefits of the Merger.

For these reasons, the motion to dismiss Count III as to Fortis for failure to

state a claim is granted in its entirety.

2. Improper Interference Claims

Plaintiffs separately argue that the Individual Defendants “frustrated Pacira’s

rights to receive the full benefits of the Merger Agreement” by “interfering in

Pacira’s relationships” and “denying Pacira the rights and privileges it acquired

pursuant to Section 1.4 of the Merger Agreement.”164 Specifically, Plaintiffs argue

that Individual Defendants have interfered in Pacira’s internal affairs by “attempting

to commandeer and misdirect Pacira employees.”165 Plaintiffs also contend that the

“rights” and “privileges” Pacira obtained in Section 1.4 of the Merger Agreement

includes an implied covenant protecting any “external relationships” that

MyoScience had—specifically, the relationship with Daubert. 166 Plaintiffs then

assert that this implied covenant extends to the Individual Defendants.

The Individual Defendants contend that they are not proper defendants for the

implied covenant claims under the Merger Agreement because Fortis is the

164 Compl. ¶ 264. 165 Pls.’ Ans. Br. 1. 166 Id. 47 Securityholders’ Representative and the only party against whom these claims can

be asserted.167 Plaintiffs argue, however, that their implied covenant claims can

proceed against the Individual Defendants. 168 Plaintiffs rely on Shareholder

Representative Services, LLC v. RSI Holdco, LLC, 2019 WL 2207452, at *6-7 (Del.

Ch. May 22, 2019), where the court permitted unjust enrichment claims to proceed

against a group of former stockholders who also had a designated stockholder

representative representing their interests under the merger agreement. In that case,

the court allowed the unjust enrichment claims to proceed against the individuals

because the seller alleged that the contract itself was a product of fraud. Thus, the

sellers sought to recover monies that the individuals had received from the merger

in excess of the value of the company at the time the merger closed. Id. at *6. Unlike

in RSI Holdco, Plaintiffs’ implied covenant claim is based upon the terms of the

Merger Agreement and assumes its validity.

Even if the claims could be asserted directly against the Individual

Defendants, Plaintiffs have not identified a gap in the contract or to any “express

terms of the contract” indicating that the parties would have agreed to impose

167 Indiv. Defs.’ Opening Br. 40 (citing Fortis Advisors LLC v. Allergan W.C. Holding Inc., 2020 WL 2498068, at *3 (Del. Ch. May 14, 2020) (“The contractual appointment of a shareholder representative to bring certain actions makes that representative the real party in interest in those actions.”)). 168 Pls.’ Ans. Br. 54–56. 48 obligations on the Individual Defendants to refrain from communicating with or

recruiting Pacira’s current or former employees. Fitzgerald, 1998 WL 842316 at

*1. “[A] court should be cautious when implying a contractual obligation and do so

only where obligations which can be understood from the text of the written

agreement have nevertheless been omitted from the agreement in the literal sense.”

Id. If the parties had wanted to prohibit the selling stockholders from engaging with

or soliciting information from Pacira or Pacira CryoTech employees, “the contract

could easily have been drafted to expressly provide for it.” Oxbow, 202 A.3d at

507.169 Implying such a covenant would grant Plaintiffs contractual protections they

“failed to secure for themselves at the bargaining table.” Aspen Advisors LLC, 843

A.2d at 707.170

169 See, e.g., EBP Lifestyle Brands Hldgs., Inc. v. Boulbain, 2017 WL 3328363, at *2 (Del. Ch. Aug. 4, 2017) (describing non-compete covenant in Stockholders’ Agreement prohibiting a stockholder and former employee from “directly or indirectly (i) solicit[ing] or induc[ing], or attempt[ing] to solicit or induce or assist any Person in soliciting or inducing any employee or sales representative of [EBP] or any subsidiary to leave the employ or engagement of [EBP] or such subsidiary, or in any way interfere with the relationship between [EBP] or any subsidiary and any such employee or sales representative thereof”). 170 See Angela C. Zambrano, Robert Velevis & Frank J. Favia Jr., What Private Equity Sponsors Need to Know About an Implied Permanent Nonsolicitation Covenant Under New York Law, WESTLAW TODAY, Mar. 16, 2020, Doc. No. 2020 PRINDBRF 0055 (“Noncompetition and nonsolicitation restrictive covenants are familiar tools often used in mergers and acquisitions to encourage retention of key employees of a sold business and to discourage the seller or key employees from poaching important customers or suppliers post-sale.”); Krishna Veeraraghavan & Bradley S. King, Considerations in Carve-Out Transactions, THE M&A LAW., Nov./Dec. 2019, at 7 (noting that a “no-poach” or “non-

49 Nor can Plaintiffs rely on Section 1.4 to support their claim that Still’s hiring

of Daubert on behalf of Fortis violated the implied covenant. Section 1.4 of the

Merger Agreement provides that, as a result of the Merger, “all the property, rights,

privileges, powers and franchises of the Company and Merger Sub will vest in

[Pacira CryoTech]” and the debts and liabilities of the Company and Merger Sub

will become debts and liabilities of the Pacira CryoTech.171 Section 1.4 is not among

the provisions of the Merger Agreement to which the Individual Defendants became

bound under Paragraph “a” of the Option Holder Letter. It does not impose any

affirmative obligations on the Individual Defendants.

Even if the Individual Defendants had consented to Section 1.4, Plaintiffs

have again failed to identify a gap in the Merger Agreement that would license the

application of the implied covenant to prohibit Still’s interactions with Daubert—

whether in his individual capacity or on behalf of Fortis. Section 1.4 mirrors Section

259 of the Delaware General Corporation Law, which provides that following a

merger, “all property, rights, privileges, powers and franchises, and all and every

other interest shall be thereafter as effectually the property of the surviving or

resulting corporation . . . .” 172 In interpreting the statute, this court has held that

solicitation” covenant is “[a]nother post-closing commitment commonly sought by buyers” in carve-out M&A transactions). 171 Merger Ag’t. § 1.4. 172 8 Del. C. § 259. 50 “attorney-client privilege—like all other privileges—passes to the surviving

corporation in the merger as a matter of law.” Great Hill Equity P’rs. IV, LP v. SIG

Growth Equity Fund I, LLLP, 80 A.3d 155, 159 (Del. Ch. 2013). Plaintiffs seek to

transform Pacira’s contracted-for right to privileged information obtained by

Daubert over the course of her representation of MyoScience into an exclusive

implied contractual right to prohibit Fortis from hiring Daubert when she was no

longer engaged by MyoScience or Pacira. But Section 1.4 shows that the Merger

Agreement already addresses that issue; the Merger Agreement provides for Pacira’s

right to the privileged information in Daubert’s possession. Plaintiffs’ effort to

expand the terms “rights” and “privileges” in Section 1.4—a provision to which the

Individual Defendants are not parties—to create an implied covenant claim against

the Individual Defendants for retaining a former outside counsel to MyoScience is

untenable. This court may not imply a valuable term that Plaintiffs failed to secure

for themselves.173 There is no gap in the contract to be filled.174

For the foregoing reasons, the motion to dismiss Count III for failure to state

a claim against the Individual Defendants is granted in its entirety.

173 See Lou R. Kling & Eileen T. Nugent, Negotiated Acquisitions of Companies, Subsidiaries and Divisions § 18.07[4], at 18-44 (2021 ed.) (“Restrictive covenants such as non-competition and non-solicitation agreements are often valued elements of a corporate transaction.”). 174 Plaintiffs do not allege that Daubert violated, or that Still sought to induce Daubert to violate, her duty to safeguard Pacira CryoTech’s privileged information. 51 D. The Individual Defendants’ Motion to Dismiss Claims for Breach of Contract, Breach of Fiduciary Duty, and Aiding and Abetting

The Individual Defendants have moved to dismiss Counts IV, V, VI, and VII

for lack of personal jurisdiction over each of the Individual Defendants. 175 None of

the Individual Defendants is a Delaware resident, and the Complaint alleges no facts

indicating they have had any contacts with Delaware.

1. Motion to Dismiss for Lack of Personal Jurisdiction

“On a motion to dismiss under Rule 12(b)(2), the plaintiff has the burden to

show a basis for the court’s jurisdiction over the nonresident defendant.” EBG

Hldgs. LLC v. Vredezicht’s Gravenhage 109 B.V., 2008 WL 4057745, at *4 (Del.

Ch. Sept. 2, 2008). “When evaluating whether plaintiffs have met their burden of

showing a basis for jurisdiction over a nonresident defendant, Delaware courts

invoke a two-prong test.” Eagle Force Hldgs., LLC v. Campbell, 187 A.3d 1209,

1228 (Del. 2018) (internal quotations omitted). “In the first step, the court must

determine whether the plaintiff has identified a legally cognizable basis for asserting

jurisdiction over the defendant. Typically this involves identifying and meeting the

requirements of a statute, such as Delaware’s long-arm statute. Terramar Retail

175 In Section II of their Opening Brief, the Individual Defendants argued that they had not been served in compliance with 10 Del. C. § 3104. Indiv. Defs.’ Opening Br. 27–30. On December 7, 2020, the Individual Defendants stipulated and agreed to accept service of the Complaint and withdrew all arguments in Section II. Dkt. 28. The stipulation and proposed order related to service of process was granted on the same day. Dkt. 29. 52 Ctrs., LLC v. Marion #2-Seaport Tr. U/A/D/ June 21, 2002, 2017 WL 3575712, at

*8 (Del. Ch. Aug. 18, 2017), aff’d, 184 A.3d 1290 (Del. 2018). 176 Next, the Court

must engage in a due process inquiry to determine whether the “nonresident

defendant has sufficient minimum contacts with Delaware” so as to “reasonably

anticipate being required to defend itself in Delaware’s courts.” Eagle Force Hldgs.,

187 A.3d at 1228 (cleaned up). Yet “[w]here a party commits to the jurisdiction of

a particular court or forum by contract, such as through a forum selection clause, a

‘minimum contacts’ analysis is not required as it should clearly anticipate being

required to litigate in that forum.” Id. (citations omitted). In evaluating a motion to

dismiss for lack of personal jurisdiction, the “court may consider the pleadings,

affidavits, and any discovery of record.” EBG Hldgs., 2008 WL 4057745, at *4. If

“no evidentiary hearing has been held and discovery has not been taken, plaintiffs

need only make a prima facie showing of personal jurisdiction, and the record will

be construed in the light most favorable to the plaintiff.” Id.

176 If the Long Arm Statute does not permit the exercise of general jurisdiction over the defendant, then the Court must examine whether there is a “sufficient nexus” between the defendant’s “forum-directed conduct and [each] claim being asserted.” Terramar Retail Ctrs., LLC, 2017 WL 3575712, at *8. 53 2. The Scope of the Individual Defendants’ Consent to Jurisdiction Under the Merger Agreement

Plaintiffs argue that this court has jurisdiction over the breach of fiduciary

duty claims against Kumar and Preciado because they agreed, by signing the Option

Holder Letter, to the exclusive forum provision in Section 9.7 of the Merger

Agreement. 177 The Individual Defendants respond that they did not agree to be

bound by Section 9.7 of the Merger Agreement, and even if they did, Counts IV-VII

do not “arise out of the Merger Agreement or the matters contemplated [t]herein.”178

Section 9.7 of the Merger Agreement provides, in pertinent part:

Each Party irrevocably consents to the exclusive jurisdiction of . . . any state . . . court located in the state of Delaware in connection with any matter based upon or arising out of, or with respect to, this Agreement or the matters contemplated herein . . . .

The exclusive forum provision in Section 9.7 of the Merger Agreement

does not, by its terms, apply to the Individual Defendants. That provision

expressly applies to each “Party” to the Merger Agreement. None of the

Individual Defendants is a Party to the Merger Agreement.

The Option Holder Letter binds the Individual Defendants to certain

provisions of the Merger Agreement, but Section 9.7 is not one of them. Paragraph

“a” of the Option Holder Letter provides that the Option Holder:

177 Pls.’ Ans. Br. 43–44. 178 Indiv. Defs.’ Opening Br. 22–23 (internal quotations omitted). 54 agrees to be bound by the terms and conditions of the Merger Agreement . . . applicable to “Escrow Participants” . . . in their capacities as such, as applicable to a holder of securities of the type held by the undersigned . . . including the following: Section 1.8 (Company Options, Section 1.11 (Merger Consideration); Section 1.12 (Merger Consideration Payments); Section 1.13 (Working Capital Adjustment Escrow; Indemnity Escrow), Section 1.14 (Post-Closing Adjustment to Merger Consideration), Section 1.15 (Milestone Consideration) . . . Article VIII (Certain Remedies) (and all defined terms used in any of the foregoing provisions and Article IX to the extent applicable thereto).179

***

The undersigned consents to the exclusive jurisdiction of the state and federal courts sitting in the State of Delaware and consents to personal jurisdiction of and venue in such courts with respect to any and all matters or disputes arising out of this [Option Holder Letter]. 180

Paragraph “a” binds the signatories to specific provisions of the Merger

Agreement. Section 9.7 is not among the enumerated provisions. Undeterred,

Plaintiffs claim that the Option Holder Letter incorporates all of Article IX,

including Section 9.7. 181 That argument is based upon a mischaracterization and

partial quotation of the parenthetical in paragraph “a”. The parenthetical

unambiguously includes only the “defined terms” of Article IX.182

179 Option Holder Ltrs. ¶ (a). 180 Id. ¶ (g). 181 Pls.’ Ans. Br. 46. 182 The reference to Article IX in the parenthetical is most naturally read as the indirect object in the prepositional phrase “defined terms used in.” Thus, the only part of Article

55 In signing the Option Holder Letter, the Individual Defendants agreed to be

bound to certain terms of the Merger Agreement in their capacities as Escrow

Participants, Indemnifying Security Holders, Qualifying Option Holders, and

Securityholders. Section 9.7 of the Merger Agreement makes no reference to any of

these groups. It only mentions each “Party” to the Merger Agreement. The breach

of contract, breach of fiduciary duty, and aiding and abetting claims in Counts IV

through VII are not asserted against the Individual Defendants in their capacities as

stated in the Option Holder Letter.

Plaintiffs argue that, even if the Individual Defendants have not consented

directly to the jurisdictional provision in the Merger Agreement, they are still bound

by proxy. Plaintiffs maintain that the Individual Defendants are subject to personal

jurisdiction because the (i) the Individual Defendants consented to have Fortis, as

the Securityholders’ Representative, serve as their agent and (ii) Fortis, as a Party to

the Merger Agreement, consented to be bound by Section 9.7.183

This argument is unpersuasive for several reasons. First, Plaintiffs’ legal

support for this argument is inapposite. In Aveta v. Cavallieri, 23 A.3d 157 (Del.

Ch. 2010), the court held that a signatory to a purchase agreement who appoints a

IX that the Option Holder Letter incorporates are the “defined terms used in . . . Article IX.” 183 Pls.’ Ans. Br. 47. 56 stockholder representative is bound by the decisions of the stockholder

representative as a matter of agency law. See Aveta, 23 A.3d at 163, 168, 170–71.

The decision did not involve a party contesting personal jurisdiction, and unlike in

Aveta, the Individual Defendants are not signatories to the Merger Agreement. In

McWane, Inc. v. Lanier, 2015 WL 399582, at *9 (Del. Ch. Jan. 30, 2015), former

stockholders who had asserted claims in Alabama relating to the merger agreement

were held subject to the Delaware forum clause in the merger agreement under an

estoppel theory. McWane, 2015 WL 399582, at *6–7. Plaintiffs here are not

advancing an estoppel theory for jurisdiction. Neither Aveta nor McWane is

applicable here.

Second, Pacira’s argument ignores the plain terms of the Option Holder Letter

establishing the scope of Fortis’s permissible action.184 Under Section (a) of the

Option Holder Letter, the Individual Defendants agreed to be bound by “any and all

actions and the making of any decisions required or permitted to be taken by the

Securityholders’ Representative under the Merger Agreement.”

184 See, e.g., Concors Supply Co., Inc. v. Gieske Int’l, 1990 WL 28567, at *2 (Del. Super. Ct. Mar. 5, 1990) (“In general, a principal is only responsible for the acts of his agent which were done within the course of the agent’s employment and within the scope of his authority.”); see also Restatement (Second) Agency § 144 (1958) (“A disclosed or partially disclosed principal is subject to liability upon contracts made by an agent acting within his authority if made in proper form and with the understanding that the principal is a party.”); id. § 219(1) (“A master is subject to liability for the torts of his servants committed while acting in the scope of their employment.”). 57 Read together, the Option Holder Letter and the Merger Agreement give

Fortis a role in the distribution of the merger consideration to the Option Holders

and authorize Fortis to enforce the Option Holders’ right to receive that

consideration. That is consistent with Section (g) of the Option Holder Letter, which

grants this court jurisdiction over any claims “arising out of” the Option Holder

Letter, including the provisions of the Merger Agreement that the Option Holder

Letter incorporates. Plaintiffs point to nothing in the Merger Agreement that

“require[s] or permits” Fortis to bind the Option Holders to the jurisdiction of

Delaware courts for the resolution of disputes beyond what the Individual

Defendants agreed. To accept Plaintiffs’ theory, the court would render the

provision in the Option Holder Letter granting consent to be bound by the

enumerated provisions mere surplusage.185 And it would flip on its head a structure

designed to efficiently enforce the rights of the Option Holders against Pacira. 186

Even if this court were to assume, arguendo, that the Individual Defendants

consented to be bound by Section 9.7, the Plaintiffs have failed to establish that the

fiduciary duty claims are covered by the exclusive forum provision.

185 See e.g., NAMA Hldgs, LLC v. World Mkt. Ctr. Venture, LLC, 948 A.2d 411, 419 (Del. Ch. 2007) (“Contractual interpretation operates under the assumption that the parties never include superfluous verbiage in their agreement, and that each word should be given meaning and effect by the court.”), aff’d, 945 A.2d 594 (Del. 2008). 186 See, e.g., Ballenger v. Applied Digit. Sols., Inc., 2002 WL 749162, at *10 (Del. Ch. Apr. 24, 2002) (“To accomplish such efficiency, the merger agreement empowers plaintiffs . . . to act as ‘Stockholders’ Representatives’ for all the selling . . . stockholders.”). 58 Plaintiffs assert that, because Section 9.7 expressly covers both claims “based

upon” and matters “contemplated []in” the Merger Agreement, it must be “read

broadly” so as to encompass any claim that “touch[es] on” its rights or the

performance of its contractual obligations under the Merger Agreement. 187 In

support for that proposition, Plaintiffs cite to two cases by this court interpreting

forum selection provisions much broader than Section 9.7. In CA, Inc. v. Ingres

Corp., 2009 WL 4575009 (2009), aff’d, 8 A.3d 1143 (Del. 2010), the forum clause

covered “any claim directly arising out of or related to this Agreement.” Id. at *46.

The court observed that “[t]his is a broad forum selection clause sweeping in all

claims that ‘arise out of’ or ‘relate to’ the Legacy Support Agreement.” Id.

Similarly, in ASDC Hldgs., 2008 WL 4552508, the relevant provision extended to

“any claim or cause of action arising under or relating to this Agreement.” Id. at *5.

The court explained that “[b]road forum selection clauses . . . which expressly cover,

for example, all claims between the contracting parties that ‘arise out of’ or ‘relate

to’ a contract, apply not only to claims dealing directly with the terms of the contract

itself, but also to any issues that touch on contract rights or contract performance.

(internal quotations omitted). Id. These cases are inapposite because the provisions

they interpret, unlike the provision here, cover all claims that “relate to” the contract.

187 Pls.’ Ans. Br. 44–45. 59 “The phrase “relating to” is broader than the phrase ‘arising out of.’” Fla. Chem.

Co. v. Flotek Indus, Inc., 2021 WL 3630298, at *10 (Del. Ch. Aug. 19, 2021). The

Merger Agreement does not extend that far. By contrast, in Ruggiero v. FuturaGene,

plc., 948 A.2d 1124 (Del. Ch. 2008), the court held that a forum selection provision

in a shareholder agreement covering claims made “in connection with any matter

based upon or arising out of this Agreement or the matters contemplated herein” did

not reach contractual claims brought against a selling shareholder in his capacity as

“an officer or director” of the company. Id. at 1130, 1132-33, 1138.

Plaintiffs concede that “the Individual Defendants’ fiduciary obligations did

not technically arise from the Merger Agreement.”188 Other than the MyoScience

Securityholders’ right to receive Milestone Payments, nothing in the Merger

Agreement contemplates any fiduciary or contractual relationship between or among

the Plaintiffs on the one hand and any of the Individual Defendants on the other.

The Complaint does not base the fiduciary duty claims against Kumar and Preciado

upon duties arising under the Merger Agreement. As to Kumar, the claim is based

upon alleged duties “[a]s an agent of Pacira CryoTech pursuant to the Consulting

Agreement . . . with access to confidential information provided by that

agreement.”189 Similarly, as to Preciado, the fiduciary duty claim is based upon

188 Pls.’ Ans. Br. 47. 189 Compl. ¶ 280. 60 alleged duties “[a]s an agent of Pacira CryoTech in her capacity as a key manager at

Pacira CryoTech.”190 Accordingly, the resolution of the dispute about whether

Kumar and Preciado breached their fiduciary duties does not require the

interpretation of the Merger Agreement. See Ashall Homes Ltd. v. ROK Ent. Grp.

Inc., 992 A.2d 1239, 1252 n.66 (2010) (describing the test for whether a claim is

“based on the contract containing the [forum] selection clause” as “whether the

plaintiff’s claims depend on rights and duties that must be analyzed by reference to

the contractual relationship.”); Flotek, 2021 WL 3630298, at *10 (“For a claim to

stem from the contractual relationship, it must be based upon the rights and

obligations created by the underlying agreement.” (internal quotations omitted)).

Plaintiffs argue that their fiduciary duty claims are “based on” the Merger

Agreement because “viable causes of action for breach of fiduciary duty would not

exist absent the Merger Agreement.” 191 This is the same “but for” theory that

Ruggiero rejected, noting that the fiduciary duty claims over decision to approve

stock options were—as here—“only tangentially related to the Merger Agreement”).

948 A.2d at 1130–31, 1138. Section 9.7 cannot serve as the jurisdictional hook for

Counts IV through VII.

190 Id. ¶ 286. 191 Id. at 45. 61 3. Ancillary Personal Jurisdiction Theory

It is well-established that once a nonresident director or officer of a Delaware

corporation or a manager of a Delaware LLC is properly subject to personal

jurisdiction for a claim for breach of fiduciary duty pursuant to 10 Del. C. § 3114 or

6 Del. C. § 18-109(a), the court may subject that defendant to personal jurisdiction

for claims that are “‘sufficiently related’ or ‘[not] distantly related’ to the breach of

fiduciary duty claim.” Neurvana Med., LLC v. Balt USA, LLC, 2020 WL 949917,

at *9 (Del. Ch. Feb. 27, 2020) (quoting Hazout v. Tsang Mun Ting, 134 A.3d 274,

292 n.63 (Del. 2016)). The doctrine has also been extended outside this

paradigmatic context in a small set of cases where (i) the defendant had consented

to the Court’s jurisdiction by signing a contract with a jurisdictional provision; (ii)

the pendent claim was found to be “sufficiently related”192 to the anchor claim; and

(iii) the Court found that the exercise of ancillary jurisdiction would comport with

Fitzgerald v. Chandler, 1999 WL 1022065, at *4 (Del. Ch. Oct. 14, 1999); Cap. Grp. 192

Companies, Inc. v. Armour, 2004 WL 2521295, at *2 (Del. Ch. Oct. 29, 2004). 62 due process.193 Plaintiffs seek to invoke this doctrine here, which has been referred

to as “ancillary personal jurisdiction”194 or “pendent personal jurisdiction.” 195

The doctrine of pendent personal jurisdiction has its roots in the jurisprudence

of pendent subject matter jurisdiction. Olin v. Fisons PLC, 47 F.Supp.2d 151, 155

(D. Mass. 1999). It is described as “a federal case law doctrine.” Nam Chuong

Huynh v. Aker Biomarine Antarctic AS, 2017 WL 2242299, at *13 (Wash. App. May

22, 2017) (declining to apply the doctrine and noting that “even if due process

permits a [state] court to exercise pendant personal jurisdiction . . . the long arm

statute must also permit jurisdiction”); see also United States v. Botefuhr, 309 F.3d

1263, 1272–75 (10th Cir. 2002) (exploring the doctrine and its origin); Laurel

Gardens, LLC v. Mckenna, 948 F.3d 105, 123-24 (3d Cir. 2020) (discussing the

Third Circuit’s recognition of the doctrine in 1973).

193 See Chandler, 1999 WL 1022065, at *2, *4 (noting that the court’s “discretion emanates from a policy of achieving maximum judicial economy and efficiency of effort where substantive due process rights of the parties are not affected” and finding that the exercise of ancillary jurisdiction over pendent claims would comport with “traditional notions of fair play and substantial justice”); Armour, 2004 WL 2521295, at *2 (considering whether “the exercise of jurisdiction, in the context presented, comport[s] with due process.”). In each of these cases, the court held that it had jurisdiction and declined to dismiss the anchor claims. See Chandler, 1999 WL 1022065, at *3 (“No one can dispute that the Partnership Agreement’s forum selection clause gives this Court personal jurisdiction over the defendants as a result of claims that the defendants breached the Partnership Agreement.”); Armour, 2004 WL 2521295, at *2 (“[T]his court can exercise jurisdiction over Ritter in her capacity as trustee.”). 194 Ruggerio, 948 A.2d at 1138. 195 N. Am. Cath. Educ. Programming Found., Inc. v. Gheewalla, 2006 WL 2588971, at *7 n.73 (Del. Ch. Sept. 1, 2006), aff’d, 930 A.2d 92 (Del. 2007). 63 The exercise of personal jurisdiction under this doctrine is “entirely

discretionary.” Ruggerio, 948 A.2d at 1139. When deciding whether to exercise its

discretion over the pendent claim, the court considers (i) whether it would have to

consider a “significant number of facts wholly unrelated to those necessary to

determine” the merits of the anchor claim; (ii) whether the claims seek similar or

different relief; (iii) whether the claims are governed by Delaware law; and (iv)

whether Delaware courts have a “strong interest” in adjudicating the issues raised

by the pendent claim. Id. “Of course, if the only jurisdictionally sufficient claim is

dropped or dismissed, particularly if that occurs early in the litigation, the pendent

claim should be dismissed as well.” Gheewalla, 2006 WL 2588971, at *7 n.73

(quoting 4A CHARLES ALAN WRIGHT ET. AL., FEDERAL PRACTICE AND PROCEDURE

§ 1069.7 (2d ed. 1995)); see id., 2006 WL 2588971, at *7 (dismissing claims brought

under ancillary personal jurisdiction theory after finding court lacked personal

jurisdiction over anchor claim); see also Botefuhr, 309 F.3d at 1273 (discussing

pendent personal jurisdiction and noting: “Generally, when a district court dismisses

the [anchor] federal claims, leaving only supplemented state claims, the most

common response . . . has been to dismiss the [ancillary] state claim or claims

without prejudice.”) (cleaned up); Lisowski v. Henry Thayer Co., Inc., 501 F. Supp.

3d 316, 326 (W.D. Pa. 2020) (citing Botefuhr, 309 F.3d at 1273, for the same

proposition); Int’l Union, United Mine Workers of Am. v. CONSOL Energy, Inc.,

64 465 F. Supp. 3d 556, 581 (S.D.W. Va. 2020) (declining to exercise pendent personal

jurisdiction, reasoning that “if the court were to decide to exercise pendent personal

jurisdiction in this case despite the obvious deficiencies in the claim serving as the

source of jurisdiction, this would serve as an incentive to all plaintiffs who may lack

personal jurisdiction to add meritless claims where federal personal jurisdiction is

present to try to use them as a jurisdictional loophole.”).

Plaintiffs have not established a statutory basis for personal jurisdiction over

the Individual Defendants for any of their claims in Counts IV through VII. Nor

have they demonstrated that subjecting these defendants to personal jurisdiction in

Delaware for these claims would satisfy due process. Having granted the motion to

dismiss the anchor claims against the Individual Defendants, I decline to exercise

personal jurisdiction over the remaining counts against the Individual Defendants.

For these reasons, the motion to dismiss Counts IV through VII against the

Individual Defendants is granted for lack of personal jurisdiction.

III. CONCLUSION

For the foregoing reasons, the motions to dismiss by the Individual

Defendants and by Fortis are granted in their entirety.

IT IS SO ORDERED.