Value Health Sols., Inc. v. Pharm. Rsch. Assocs., 2021 Ncbc 24a
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Opinion
Value Health Sols., Inc. v. Pharm. Rsch. Assocs., 2021 NCBC 24A.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 18-CV-12318
VALUE HEALTH SOLUTIONS INC. and NAGARAJAN PARTHASARATHY,
Plaintiffs,
v. ORDER AND OPINION ON MOTIONS FOR SUMMARY JUDGMENT PHARMACEUTICAL RESEARCH ASSOCIATES, INC. and PRA HEALTH SCIENCES, INC.,
Defendants.
THIS MATTER comes before the Court on Defendants Pharmaceutical
Research Associates, Inc. (“PRA, Inc.”) and PRA Health Sciences, Inc.’s (“PRAHS”;
collectively, Defendants will be referred to as “PRA,” in the singular, except as
otherwise required) Motion for Summary Judgment (“PRA’s Motion,” ECF No. 110)
and Plaintiffs Value Health Solutions Inc. (“VHS”) and Nagarajan Parthasarathy’s
(“Parthasarathy”) Motion for Summary Judgment. (“Plaintiffs’ Motion,” ECF No.
115; collectively, PRA’s Motion and Plaintiffs’ Motion are the “Motions”).
THE COURT, having considered the Motions, the evidence filed by the parties,
the briefs submitted in support of and in opposition to the Motions, the arguments of
counsel at the hearing on the Motions, the applicable law, and other appropriate
matters of record, CONCLUDES that PRA’s Motion should be GRANTED, and
Plaintiffs’ Motion should be GRANTED, in part, and DENIED, in part. Mainsail Lawyers, by David Glen Guidry and Joseph Kellam Warren, for Plaintiffs Value Health Solutions Inc. and Nagarajan Parthasarathy.
Barnes & Thornhill, LLP, by John M. Moye, and Allen R. Baum, and Kilpatrick Townsend & Stockton LLP, by Joe P. Reynolds, for Defendants Pharmaceutical Research Associates, Inc. and PRA Health Sciences, Inc.
McGuire, Judge.
I. FACTUAL AND PROCEDURAL BACKGROUND
1. This matter arises from bitter disputes between the parties surrounding
PRA’s acquisition of VHS, its proprietary software, and Parthasarathy’s employment.
The action was filed in October 2018, and the parties engaged in lengthy and
extensive discovery involving the taking of at least seventeen depositions and the
exchange of many thousands of documents. During the litigation the parties sought
numerous orders sealing documents filed with the Court. Unfortunately, in
presenting the Motions to the Court, the parties have filed hundreds of individual
exhibits consisting of thousands of pages. The exhibits were filed in six 1 separate
filings, some of which consisted of dozens of individual exhibits contained in a single,
multi-hundred page and unindexed .pdf file. As a result, the Court’s review of the
record has been exceedingly difficult and time consuming. To expedite ruling on the
Motions and to simplify reference to the evidence in the record, the Court has chosen
to limit citation to the record to the extent possible and, in many cases, cites to those
portions of the parties’ briefs containing reference to the relevant evidence rather
than the exhibits containing the evidence.
1 The six filings include only the public, redacted filings, and not the companion sealed filings. A. The Parties
2. PRA is a large, publicly traded, contract research organization (“CRO”)
that provides a range of clinical trial services to large pharmaceutical companies and
biotechnology companies around the globe. PRA is headquartered in Raleigh, North
Carolina, employs more than 17,500 employees worldwide, and has participated in
approximately 4,000 clinical trials across the globe, resulting in the regulatory
approval of over 95 drugs. At all times relevant to this matter, Colin Shannon
(“Shannon”) was PRA’s Chief Executive Officer, and Mike Irene (“Irene”) was PRA’s
Executive Director of IT. (PRA’s Br. Supp. of Mot. For SJ, ECF Nos. 111 [SEALED]
and 113 [Public], at p. 1.)
3. PRA uses clinical trial management software (“CTMS”) to assist its
customers with clinical trials. The CTMS used by PRA is critical to the services PRA
provides to its customers. In 2014, PRA was using a CTMS system created by Seibel.
(Id.)
4. Parthasarathy founded VHS. In 2013, VHS developed a set of clinical
trial software applications called ClinTrial Max (“CTMax”), Cloud Max, and Info Max
(collectively, the “Solutions”). CTMax was a Salesforce®-based CTMS. (Id. at p. 2;
Plfs.’ Br. Supp. Mot. For SJ, ECF Nos. 116 [SEALED] and 117.1 [Public], at pp. 2–3.)
B. PRA’s Acquisition of the Solutions
5. In 2014 PRA’s IT department was pursuing a transition to a Salesforce®
environment. In April 2014, PRA approached Parthasarathy about acquiring
CTMax, and Plaintiffs and PRA subsequently engaged in a year-long period of negotiation and due diligence aimed at PRA’s acquisition of the Solutions. In addition
to negotiating over PRA’s purchase of the Solutions in order to integrate the software
into PRA’s clinical trial management environment, Shannon and Parthasarathy
discussed the potential for selling a stand-alone CTMS software to PRA’s customers.
(ECF Nos. 111/113, at pp. 2–3.)
6. Between April and October 2014, as part of the due diligence process,
VHS provided PRA full access to the software code for CTMax, and PRA performed
testing and analysis to understand its functionality. This included a gap analysis
which allowed PRA to learn CTMax’s capabilities and identify the functions that PRA
wanted to further develop after acquiring the software. In doing so, it became clear
that CTMax had several functional gaps compared to other CTMS applications in the
industry, including the Siebel CTMS then in use by PRA, and PRA advised
Parthasarathy of these gaps. (Id. at p. 3.) In July 2014, Irene prepared a list of key
product enhancements that PRA would need to “close the gap between CTMax and
[PRA’s] current CTMS.” (Id.)
i. The Letter of Intent
7. On October 15, 2014, PRA’s Health Executive Vice President and Chief
Financial Officer, Linda Baddour, sent Parthasarathy a document titled “Non-
Binding Letter of Intent” (“LOI”). (ECF No. 5, at Ex. A.) The LOI outlined PRA’s
proposal for the acquisition of the Solutions including, inter alia, as follows:
a. PRA would make a one-time, up-front payment to Plaintiffs of between $1 million and $3 million;
b. PRA would make incentive payments of $333,000 each conditioned upon successful completion of three separate “Integration Milestones,” described as (i) “Integrated Salesforce Environments,” (ii) “Key Product Enhancements,” and (iii) “CTMS Studies Migrated to ClinTrial Max” within 18 months following the closing of the transaction; and
c. PRA would make future incentive payments to Plaintiffs for achieving “Performance Milestones” regarding external sales of “licenses for VHS offerings” as follows:
i. a payment of $2.5 million for reaching $25 million in annual sales within two years of closing;
ii. a payment of $5 million for reaching $50 million in annual sales within three years of closing;
iii. a payment of $7.5 million for reaching $75 million in annual sales within four years of the closing; and
iv. payment of a one percent (1%) annual royalty on sales for an additional four years after the $75 million sales amount is reached.
(Id. at pp. 4–5.)
8. The LOI also stated as follows:
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Value Health Sols., Inc. v. Pharm. Rsch. Assocs., 2021 NCBC 24A.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 18-CV-12318
VALUE HEALTH SOLUTIONS INC. and NAGARAJAN PARTHASARATHY,
Plaintiffs,
v. ORDER AND OPINION ON MOTIONS FOR SUMMARY JUDGMENT PHARMACEUTICAL RESEARCH ASSOCIATES, INC. and PRA HEALTH SCIENCES, INC.,
Defendants.
THIS MATTER comes before the Court on Defendants Pharmaceutical
Research Associates, Inc. (“PRA, Inc.”) and PRA Health Sciences, Inc.’s (“PRAHS”;
collectively, Defendants will be referred to as “PRA,” in the singular, except as
otherwise required) Motion for Summary Judgment (“PRA’s Motion,” ECF No. 110)
and Plaintiffs Value Health Solutions Inc. (“VHS”) and Nagarajan Parthasarathy’s
(“Parthasarathy”) Motion for Summary Judgment. (“Plaintiffs’ Motion,” ECF No.
115; collectively, PRA’s Motion and Plaintiffs’ Motion are the “Motions”).
THE COURT, having considered the Motions, the evidence filed by the parties,
the briefs submitted in support of and in opposition to the Motions, the arguments of
counsel at the hearing on the Motions, the applicable law, and other appropriate
matters of record, CONCLUDES that PRA’s Motion should be GRANTED, and
Plaintiffs’ Motion should be GRANTED, in part, and DENIED, in part. Mainsail Lawyers, by David Glen Guidry and Joseph Kellam Warren, for Plaintiffs Value Health Solutions Inc. and Nagarajan Parthasarathy.
Barnes & Thornhill, LLP, by John M. Moye, and Allen R. Baum, and Kilpatrick Townsend & Stockton LLP, by Joe P. Reynolds, for Defendants Pharmaceutical Research Associates, Inc. and PRA Health Sciences, Inc.
McGuire, Judge.
I. FACTUAL AND PROCEDURAL BACKGROUND
1. This matter arises from bitter disputes between the parties surrounding
PRA’s acquisition of VHS, its proprietary software, and Parthasarathy’s employment.
The action was filed in October 2018, and the parties engaged in lengthy and
extensive discovery involving the taking of at least seventeen depositions and the
exchange of many thousands of documents. During the litigation the parties sought
numerous orders sealing documents filed with the Court. Unfortunately, in
presenting the Motions to the Court, the parties have filed hundreds of individual
exhibits consisting of thousands of pages. The exhibits were filed in six 1 separate
filings, some of which consisted of dozens of individual exhibits contained in a single,
multi-hundred page and unindexed .pdf file. As a result, the Court’s review of the
record has been exceedingly difficult and time consuming. To expedite ruling on the
Motions and to simplify reference to the evidence in the record, the Court has chosen
to limit citation to the record to the extent possible and, in many cases, cites to those
portions of the parties’ briefs containing reference to the relevant evidence rather
than the exhibits containing the evidence.
1 The six filings include only the public, redacted filings, and not the companion sealed filings. A. The Parties
2. PRA is a large, publicly traded, contract research organization (“CRO”)
that provides a range of clinical trial services to large pharmaceutical companies and
biotechnology companies around the globe. PRA is headquartered in Raleigh, North
Carolina, employs more than 17,500 employees worldwide, and has participated in
approximately 4,000 clinical trials across the globe, resulting in the regulatory
approval of over 95 drugs. At all times relevant to this matter, Colin Shannon
(“Shannon”) was PRA’s Chief Executive Officer, and Mike Irene (“Irene”) was PRA’s
Executive Director of IT. (PRA’s Br. Supp. of Mot. For SJ, ECF Nos. 111 [SEALED]
and 113 [Public], at p. 1.)
3. PRA uses clinical trial management software (“CTMS”) to assist its
customers with clinical trials. The CTMS used by PRA is critical to the services PRA
provides to its customers. In 2014, PRA was using a CTMS system created by Seibel.
(Id.)
4. Parthasarathy founded VHS. In 2013, VHS developed a set of clinical
trial software applications called ClinTrial Max (“CTMax”), Cloud Max, and Info Max
(collectively, the “Solutions”). CTMax was a Salesforce®-based CTMS. (Id. at p. 2;
Plfs.’ Br. Supp. Mot. For SJ, ECF Nos. 116 [SEALED] and 117.1 [Public], at pp. 2–3.)
B. PRA’s Acquisition of the Solutions
5. In 2014 PRA’s IT department was pursuing a transition to a Salesforce®
environment. In April 2014, PRA approached Parthasarathy about acquiring
CTMax, and Plaintiffs and PRA subsequently engaged in a year-long period of negotiation and due diligence aimed at PRA’s acquisition of the Solutions. In addition
to negotiating over PRA’s purchase of the Solutions in order to integrate the software
into PRA’s clinical trial management environment, Shannon and Parthasarathy
discussed the potential for selling a stand-alone CTMS software to PRA’s customers.
(ECF Nos. 111/113, at pp. 2–3.)
6. Between April and October 2014, as part of the due diligence process,
VHS provided PRA full access to the software code for CTMax, and PRA performed
testing and analysis to understand its functionality. This included a gap analysis
which allowed PRA to learn CTMax’s capabilities and identify the functions that PRA
wanted to further develop after acquiring the software. In doing so, it became clear
that CTMax had several functional gaps compared to other CTMS applications in the
industry, including the Siebel CTMS then in use by PRA, and PRA advised
Parthasarathy of these gaps. (Id. at p. 3.) In July 2014, Irene prepared a list of key
product enhancements that PRA would need to “close the gap between CTMax and
[PRA’s] current CTMS.” (Id.)
i. The Letter of Intent
7. On October 15, 2014, PRA’s Health Executive Vice President and Chief
Financial Officer, Linda Baddour, sent Parthasarathy a document titled “Non-
Binding Letter of Intent” (“LOI”). (ECF No. 5, at Ex. A.) The LOI outlined PRA’s
proposal for the acquisition of the Solutions including, inter alia, as follows:
a. PRA would make a one-time, up-front payment to Plaintiffs of between $1 million and $3 million;
b. PRA would make incentive payments of $333,000 each conditioned upon successful completion of three separate “Integration Milestones,” described as (i) “Integrated Salesforce Environments,” (ii) “Key Product Enhancements,” and (iii) “CTMS Studies Migrated to ClinTrial Max” within 18 months following the closing of the transaction; and
c. PRA would make future incentive payments to Plaintiffs for achieving “Performance Milestones” regarding external sales of “licenses for VHS offerings” as follows:
i. a payment of $2.5 million for reaching $25 million in annual sales within two years of closing;
ii. a payment of $5 million for reaching $50 million in annual sales within three years of closing;
iii. a payment of $7.5 million for reaching $75 million in annual sales within four years of the closing; and
iv. payment of a one percent (1%) annual royalty on sales for an additional four years after the $75 million sales amount is reached.
(Id. at pp. 4–5.)
8. The LOI also stated as follows:
It is understood that this letter merely constitutes a statement of the intentions of the parties with respect to a potential Transaction, and does not contain all matters upon which agreement must be reached in order for a definitive agreement to be finalized or for the Transaction to be consummated. Except for sections 3 through 8 of this LOI, which shall be legally binding in accordance with their respective terms, neither this LOI nor the acceptance thereof is intended to, nor shall it, create a binding legal obligation, or any obligation by any of the parties hereto to enter into any Transaction, negotiate or take any other action in contemplation thereof, or executive any definitive agreements. The parties further acknowledge and agree that, except as otherwise provided in the immediately preceding sentence, none of this LOI, any proposal made to the Company, nor the current on-going discussions between the parties are intended to (and shall not) create a legally binding obligation or commitment on the part of any party with respect to the negotiation or completion of the Transaction.
...
(Id. at p. 2.) The copy of the LOI provided in the record is not signed by VHS or
Parthasarathy, but Plaintiffs do not dispute that they entered into the LOI.
ii. The Asset Purchase Agreement
9. Effective May 21, 2015, PRA, VHS, and Parthasarathy entered into an
Asset Purchase Agreement (“APA”) for the purchase of the Solutions. (ECF No. 112.1,
at pp. 348–416.) The APA is governed by Delaware law.
10. Under the APA, Plaintiffs agreed to sell the Solutions to PRA for a
payment of PRA stock and cash of approximately $2.5 million at closing, and potential
“Contingent Payments” tied to achievement of certain milestones. (Id. at pp. 351–
52.) The first group of contingent payments were three separate payments dependent
on, respectively: the integration of CTMax into PRA’s clinical trial management
environment; the completion of the product enhancements to CTMax identified by
the gap analysis; and completion of the migration of PRA clinical trial studies into
CTMax (“Development Milestones”). (Id. at pp. 351, 387–90.) More specifically,
Article 2.6 of the APA provides:
Milestones. As additional consideration for the transactions contemplated hereby, and subject to the terms of this Section 2.6, Purchaser shall make (or PRAHS shall make on Purchaser’s behalf) the following payments (each, a “Contingent Payment”): (i) upon completion of the integration of the parties’ Salesforce™ environments set forth on Schedule 2.6(a)(i), PRAHS shall issue to Seller (or as otherwise directed by Seller’s Representative), within thirty (30) days after such completion, that number of shares of PRA Common Stock equal in value to Three Hundred Thirty-Three Thousand U.S. Dollars ($333,000.00), based on the Fair Market Value as of the date of issuance of such shares; provided, however, that completion occurs within the first consecutive eighteen (18) months from the Effective Time 2 (the “Integration Period”);
(ii) upon completion of the key product enhancements set forth on Schedule 2.6(a)(ii). PRAHS shall issue to Seller (or as otherwise directed by Seller’s Representative), within thirty (30) days after such completion, that number of shares of PRA Common Stock equal in value to Three Hundred Thirty-Three Thousand U.S. Dollars ($333,000.00), based on the Fair Market Value as of the date of issuance of such shares; provided, however, that completion occurs within the Integration Period;
(iii) upon completion of the migration of the clinical trial management systems studies of Purchaser and its Affiliates into ClinTrial Max as set forth on Schedule 2.6(a)(iii), PRAHS shall issue to Seller (or as otherwise directed by Seller’s Representative), within thirty (30) days after such completion, that number of shares of PRA Common Stock equal in value to Three Hundred Thirty-Three Thousand U.S. Dollars ($333,000.00), based on the Fair Market Value as of the date of issuance of such shares; provided, however, that completion occurs within the Integration Period[.]
(Id. at pp. 351–52; emphasis in original.) Schedules 2.6(a)(i)–(iii) to the APA provide
further detail as to the requirements for achieving each of the Development
2 The “Effective Time” is defined in the APA as 11:59 p.m. (EST) on the Closing Date. Id. at p. 353.) Milestones and state that each Development Milestone “shall be deemed completed .
. . as reasonably determined by [PRA].” (Id. at pp. 387–90.)
11. The second group of contingent payments provided for in the APA were
conditioned on PRA achieving certain levels of “External Sales” of licenses to the
Solutions within four years following the Closing (“Sales Milestones;” collectively the
Sales Milestones and the Development Milestones are the “Milestones”). (Id. at pp.
352, 374.) Article 2.6 of the APA provides:
(iv) upon the achievement of aggregate External Sales equal to Twenty Five Million U.S. Dollars ($25,000,000), Purchaser shall make, within thirty (30) days following the date on which PRAHS files its next quarterly report with the United States Securities and Exchange Commission (the “SEC”) after such achievement, a cash payment of Two Million Five Hundred Thousand U.S. Dollars ($2,500,000.00) to Seller (or as otherwise directed by Seller’s Representative) (the “First Milestone Payment”); provided, however, that such achievement occurs prior to the second (2nd) anniversary of the Closing Date (the “First Milestone Period”);
(v) upon the achievement of aggregate External Sales equal to Fifty Million U.S. Dollars ($50,000,000.00), Purchaser shall make, within thirty (30) days following the date on which PRAHS files its next quarterly report with the SEC after achievement, a cash payment of Five Million U.S. Dollars ($5,000,000.00) to Seller (or as otherwise directed by Seller’s Representative) (the “Second Milestone Payment”); provided, however, that such achievement occurs prior to the third (3rd) anniversary of the Closing Date (the “Second Milestone Period”);
(vi) upon the achievement of aggregate External Sales equal to Seventy Five Million U.S. Dollars ($75,000,000.00), Purchaser shall make, within thirty (30) days following the date on which PRAHS files its next quarterly report with the SEC after achievement, a cash payment of Seven Million Five Hundred Thousand U.S. Dollars ($7,500,000.00) to Seller (or as otherwise directed by Seller’s Representative) (the “Third Milestone Payment”); provided, however, that such achievement occurs prior to the fourth (4th) anniversary of the Closing Date (the “Third Milestone Period”); and
(vii) for four (4) consecutive calendar years following the achievement of aggregate External Sales equal to Seventy-Five Million U.S. Dollars ($75,000,000.00) (the “Major Milestone”, and the date on which the Major Milestone is achieved, the “Major Milestone Date”), Purchaser shall make, within thirty (30) days following the date on which PRAHS files its next quarterly report with the SEC after each of the four (4) anniversaries of the Major Milestone Date, a per annum royalty payment to Seller (or as otherwise directed by Seller’s Representative) equal to one percent (1%) of the aggregate amount of External Sales made during the applicable calendar year (such payments, the “Royalty Payments”). For the avoidance of doubt, any such Royalty Payments shall be made regardless of whether the First Milestone Payment, the Second Milestone Payment and/or the Third Milestone Payment have previously been made).
(Id. at p. 352; emphasis in original.) The APA provides that “External Sales” “means
the sale of one or more licenses to the Solutions by [PRA] or one of its Affiliates to a
third party which is not (i) an Affiliate of [PRA] or (ii) using such license(s) in
connection with providing services to [PRA] and/or any of its Affiliates.” (Id. at p.
374.)
12. The APA further states that contingent payments provided for in the
individual Development and Sales Milestones are “independent” obligations of PRA: Independence of Contingent Payments. [PRA]’s obligation to pay the Contingent Payments to [Plaintiffs] (or as otherwise directed by [Plaintiffs’] Representative) in accordance with Section 2.6(a) is an independent obligation of [PRA] and is not otherwise conditioned or contingent upon the satisfaction of any conditions precedent to any preceding or subsequent Contingent Payment and the obligation to pay a Contingent Payment to [Plaintiffs] (or as otherwise directed by [Plaintiffs’] Representative) shall not obligate [PRA] to pay any preceding or subsequent Contingent Payment. For the avoidance of doubt and by way of example, if the conditions precedent to the payment of the First Milestone Payment for the First Milestone Period are not satisfied, but the conditions precedent to the payment of the Second Milestone Payment for the Second Milestone Period are satisfied, then [PRA] would be obligated to pay such Second Milestone Payment for the Second Milestone Period for which the corresponding conditions precedent have been satisfied, and not the First Milestone Payment for the First Milestone Period.
(Id. at pp. 352–53.)
13. Finally, the APA contained a merger clause that provides as follows:
Entire Agreement. This Agreement, including the Schedules and Exhibits hereto, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior discussions, negotiations, and understandings.
(Id. at p. 371.)
14. Plaintiffs have acknowledged that the contingent payments provided for
in Article 2.6 of the APA were “never guaranteed” and were dependent on PRA
achieving the Milestones. (Pls.’ Mem. Supp. of Pls.’ Mot. Dismiss Counterclaims, ECF
No. 42, at p. 13.) 3
3 In their Mem. Supp. of Pls.’ Mot. Dismiss Counterclaims, Plaintiffs state: C. Parthasarathy’s Employment Agreement with PRA
15. In connection with the APA, PRA hired Parthasarathy as an employee. 4
On June 8, 2015, PRA executed an Employment Agreement with Parthasarathy,
hiring him as a Vice President of Technology for PRA, Inc. (“Employment
Agreement,” ECF No. 8.3.) The Employment Agreement states that Parthasarathy
will have the “status and responsibilities as determined from time to time by” PRA’s
“CEO or the CEO’s designee” and that the CEO or designee “will determine”
Parthasarathy’s “specific duties . . . and the means and manner by which [he] will
perform those duties.” (Id. at p. 1) The Employment Agreement does not expressly
assign Parthasarathy any specific job duties associated with achievement of the
Milestones.
16. The Employment Agreement also provides that Parthasarathy will use
his “best efforts . . . and [ ] devote [his] full time, skill, attention, and energies to
[PRA’s] business,” and that he will not engage in “business activity which is
The Milestones are, however, by their very nature, contingent and achievement of the Milestones was never guaranteed. See ECF No. 37, Ex. A at § 2.6(a)(i)-(vii). Indeed, that is why the Milestones provide that Plaintiffs would be entitled to additional, contingent consideration upon the [ ] Solutions’ achievement of various requirements. Id. Nothing in the APA states that achievement of the Milestones was guaranteed. Indeed, a cursory reading of the APA makes clear that the Milestones in Section 2.6 were not guaranteed because the APA states Plaintiffs would receive additional payments “provided, however, that the completion occurs within the Integration Period.
4 PRA also hired approximately twelve (12) programmers employed by VHS who work in
India. competitive with [PRA’s] business” or “which may (i) interfere with [his] ability to
discharge [his] responsibilities” or “(ii) detract from [PRA’s] business or its goodwill
and reputation.” (Id.) The Employment Agreement further provides that
Parthasarathy may not:
(i) work on either a part-time or independent contracting basis for any other company, business or enterprise without the prior written consent of the CEO; or
(ii) serve on the board of directors or comparable governing body of any other material business, civic or community corporation or similar entity without the prior written consent of the CEO.” (Id.)
D. The Development Milestones
17. The undisputed evidence in the record shows that neither Plaintiffs nor
PRA fully appreciated the difficulty of integrating CTMax into PRA’s clinical trial
management environment, and the optimistic schedule for implementation of the
new system envisioned by the parties quickly proved unattainable.
18. The attempt to integrate and implement CTMax into PRA proceeded in
fits and starts. In June 2015, Parthasarathy advised PRA that he believed his team
would be able to complete the deployment of the new CTMS at PRA within four to six
months, but they ultimately failed to do so. (ECF Nos. 111/113, at p. 5.) PRA then
set a series of new deadlines for completing the enhancements to CTMax and
implementing the integration of the software into PRA, but each of the deadlines
proved unachievable. (Id. at pp. 5–11.) 19. PRA subsequently changed the name of the new CTMS software it was
trying to implement to “Predictivv Study Operations” (“PSO”). PRA also decided to
“unmanage” the CTMax software package and to implement only certain
functionalities of CTMax into PRA’s clinical trial management environment rather
than trying to implement CTMax as a “managed” package. (Id.; Plfs.’ Br. Resp. to
PRA’s Mot. For SJ, ECF Nos. 125 [SEALED] and 133 [Public], at pp. 12–13.)
20. Over time, Shannon placed increasing importance and urgency on
completing the enhancements to PSO and implementing it within PRA. (ECF Nos.
111/113, at pp. 6–10; ECF Nos. 125/133, at pp. 11–12.) On August 2, 2016, PRA
circulated a directive from Shannon, advising that he expected increased urgency and
progress with developing PSO. The directive instructed the PSO project team to
promptly proceed with the implementation of PSO 3.0. (ECF Nos. 111/113, at pp. 6–
10.)
21. During the second half of 2016 and into 2017, PRA provided additional
resources and personnel towards completing the implementation of PSO into PRA.
In June 2016, PRA hired Deborah Jones-Hertzog (“Jones-Hertzog”) as the Senior VP
of IT and tasked her with pushing the PSO project to completion as soon as possible.
(Id.) PRA also restructured Parthasarathy’s role within PRA, removing his more
direct responsibilities for implementing PSO, and instead tasking him to consult with
the PSO project team and assist with preparing responses to customer Requests for
Proposals (RFP). (Id.)
22. It is undisputed that despite the efforts of Plaintiffs and PRA, the
Development Milestones were not achieved within the 18-month Integration Period as required by the APA. PRA was not able to fully implement PSO in its clinical trial
management environment until April 2018. (ECF Nos. 125/133, at p. 16.)
E. Sales Milestones
23. Over the course of Parthasarathy’s employment, he and PRA discussed
and evaluated various potential avenues for selling CTMax, and later PSO, to
companies in the biotech and pharmaceutical industries. (ECF Nos. 111/113, at pp.
11–12.) However, PRA was unwilling to sell PSO before PRA had successfully
implemented it within its own clinical trial management environment. (ECF Nos.
125/133, at pp. 6–7.) Although Parthasarathy disagreed, he agreed that PRA would
“need to have confidence in the software it is selling to customers,” and that, if PRA
lacked such confidence, “that would be a legitimate business reason not to sell
CTMax.” (ECF No. 112.1, at pp. 74–75.)
F. The Takeda Master Service Agreement
24. Effective August 31, 2016, PRA entered into a Master Services
Agreement to provide services to Takeda Pharmaceuticals (“Takeda MSA”). (ECF
No. 113.1 [SEALED]; ECF No. 116.5, Ex. D [SEALED].) Under the terms of the
Takeda MSA, PRA agreed to provide certain “Services” to Takeda, including clinical
trial management services, using “PRAHS Owned Technology.” (ECF No. 116.5, Ex.
D p. 2.) (Section 3.01), and Exhibit 1 (Definitions).) The Takeda MSA granted Takeda
a “License to PRAHS Owned Technology” as follows:
Section 7.02(b) License to PRAHS Owned Technology During the Term. As of the Commencement Date and for the remainder of the Term, PRAHS hereby grants Takeda, Takeda Affiliates and their respective Personnel and third party service providers the right to access and use PRAHS Owned Technology used in supporting or providing the Services for purposes of receipt and use of the Services in the conduct of Takeda’s and Takeda’s Affiliates’ business. For the avoidance of doubt, the foregoing right is granted under all PRAHS Owned IP and includes the right to use all configuration capabilities offered by the PRAHS Owned Technology.
“PRAHS Owned Technology” means (i) all confidential or proprietary processes, procedures, methodologies, standard operating procedures, software, templates, programs, and other protectable materials that are used generally by PRAHS in PRAHS’s business . . . (ii) derivative works of item (i); and (iii) any form of delivery for (i) and (ii) received as part of the Services, such as via Cloud Computing.
(Id. at p. 20 of 66; Exhibit 1 at p. 8 of 14.)
25. The Takeda MSA defines Cloud Computing to include a concept known
as “software as a service” or “SaaS.” (ECF No. 116.6). PRA’s Rule 30(b)(6) corporate
witness for the Takeda transaction, Brian Haas, testified that “software as a service
means that the client does not have to own the technology, that they can basically
utilize whether through licensing or combined with a service in order to be provided
with access to that output or that use of the software or the instance.” (Haas 30(b)(6)
Dep., ECF No. 116.7, at p. 15.)
26. The Takeda MSA also includes an Exhibit titled “Approved Third Party
Technology” that lists the technology Takeda has approved for PRA to use in
providing the Services to Takeda. (ECF No. 116.5, at pp. 34–36.) Identified among
the list of “Third Party Software,” is the Solutions. (Id.) Specifically, Section 2(A) of
Exhibit 18 refers to the Solutions (or components or pieces of the Solutions) including
“PSO,” “Predictivv Connect” (Base and Plus), “Project Portal,” “PAWS,” “Resource Management,” “Safety Case Tracker,” “Safety Letter Tracker,” “Predictivv Risk-
Based Monitoring Tool,” and “Predictivv Patient Recruitment Tool.” (Id.)
27. As discussed further below, Plaintiffs claim that the license granted to
Takeda as part of the Takeda MSA constitutes an “External Sale,” a term defined in
the APA, and that this license should be credited towards the Sales Milestones. PRA
earned “ten to twelve million” dollars under the Takeda MSA in 2016, “approximately
one hundred million” dollars in 2017, “a hundred and seventy million” in 2018, and
“approximately two hundred and eleven million” for 2019, for a total of approximately
$491 million dollars. (ECF No. 116.7, at p. 34.) PRA currently uses PSO (version 3.0)
to manage “approximately three to four” projects for Takeda under the Takeda MSA.
(Haas 30(b)(6) Dep., ECF No. 116.7, at p. 28.)
G. Discussions of Amendments to the Milestones
28. In December 2016, at Parthasarathy’s request, he and Shannon met to
discuss amending the APA to provide for new deadlines for achieving the Milestones.
Shannon subsequently asked Jones-Hertzog to work with PRA’s in-house counsel,
Chuck Munn (“Munn”), to develop an amended framework for the Milestones. Jones-
Hertzog and Irene worked on proposed terms of an amendment with Parthasarathy.
However, while draft proposed terms of an amendment were circulated between
Munn, Jones-Hertzog, and Irene, it is undisputed that they were never presented to
Parthasarathy. (ECF Nos. 111/113, at pp. 10–11 and 12–13.)
29. Plaintiffs allege that PRA “falsely promis[ed] to amend the APA and
extend the milestone deadlines” and “made representations to Mr. Parthasarathy
that induced him to believe that PRA intended to amend the payment milestone timelines.” (ECF No. 60.1, at ¶¶ 104–05, 109.) More particularly, on February 8,
2017, Shannon sent an email to Parthasarathy stating that PRA was “obviously
trying to get [VHS and/or Mr. Parthasarathy] a contract” to address the milestone
timeline issue, and in or around May 2017, Jones-Hertzog communicated to
Parthasarathy that she had proposed revised milestone timelines internally with
PRA and was awaiting approval. (ECF No. 60.1, at ¶¶ 116–17.)
30. In July 2017, Parthasarathy sent his own proposal to PRA containing
his suggestions regarding amendments of the Development Milestones and proposals
for potential resolutions of the Sales Milestones. (Dep. Ex. 161, ECF No. 112.1, at pp.
781–786.) In the proposal, Parthasarathy asserted: i) that Milestone One had been
satisfied and “should be paid as soon as possible”; and ii) that Milestones Two and
Three “need[ed] to be rewritten” or, alternatively, PRA needed to identify what
additional work was needed from Parthasarathy so that those milestones could be
completed and paid by no later than January 2018. (Id.).
31. In his proposal, Parthasarathy also acknowledged that the first Sales
Milestone had not been achieved and proposed terms for a potential financial
settlement between Plaintiffs and PRA. (Id. at p. 785.) Parthasarathy proposed three
options for settlement: that PRA pay VHS “7 million as a onetime payment . . . as a
royalty to use the product”; that PRA pay VHS “2 million dollars . . . for four years”;
or that PRA pay $2.5 million “immediate[ly]” and transfer the software back to
Parthasarathy. (Id. at p. 786.)
32. Ultimately, PRA and Plaintiffs were not able to reach an agreement on
amending the Milestones. H. My Game Solutions
33. Sometime in late 2016, unbeknownst to PRA, Parthasarathy launched
a mobile application for tennis players known as “My Game Solutions” (“MGS”).
(PRA’s Br. Opp. Pls.’ Mot. For SJ, ECF Nos. 122 [SEALED] and 120 [Public], at pp.
1–4.) Initially, Parthasarathy began work on MGS from his home, however,
sometime in August 2017, Parthasarathy opened an office space to conduct activities
related to MGS and hired paid employees to assist him with his work for MGS.
During late 2016 and 2017, Parthasarathy, who served as MGS’s President and CEO,
was involved in every aspect of the development of the application and the direction
of MGS’s employees. Parthasarathy also served on MGS’s board of directors but did
not inform PRA of his position on the MGS board. (Id.)
34. PRA claims that during 2017, Parthasarathy was “checked out of his
[PRA] responsibilities and duties.” (ECF No. 123, at p. 103; Dep. of Irene, at p. 116).
Jones-Hertzog stated that sometime in 2017, Parthasarathy was disengaged from his
job responsibilities, alleging that he would attend meetings without making any
comments and not reply to e-mails. (ECF No. 112.1, Dep. of Jones-Hertzog, Ex.7, at
p. 241.) Irene testified that Parthasarathy made a commitment “to dedicate his
efforts to PRA and not start other businesses while employed by PRA; that was the
commitment that he made,” and that Parthasarathy’s acceptance of compensation
from PRA while forming MGS is the basis of PRA’s breach of employment
counterclaim. (Dep. of Irene, at p. 117, 119.) I. PRA Terminates Parthasarathy’s Employment
35. In or around June 2017, PRA retained a consulting firm to review its
progress in implementing PSO. Shannon had becomes disenchanted with
Parthasarathy and hoped to use the consultant’s conclusions as a basis for
terminating Parthasarathy’s employment. Shannon believed that terminating
Parthasarathy would conclude PRA’s obligations under the APA. (ECF Nos. 125/133,
at pp., at pp. 17–18.)
36. In late October 2017, PRA terminated Parthasarathy’s employment.
The parties do not provide information regarding the reasons for Parthasarathy’s
termination.
37. On February 9, 2018, PRA and Parthasarathy entered into a
Confidential Release and Settlement Agreement, pursuant to which the parties
agreed that Parthasarathy’s employment ended effective December 29, 2017.
(“Settlement Agreement,” ECF No. 116.9.) In the Settlement Agreement,
Parthasarathy agreed to release PRA from any employment-related claims, and PRA
agreed to pay Parthasarathy $117,618.75 as a severance payment. (Id. at p. 1.) In
further exchange for the payment, Parthasarathy “represent[ed] that, as of the date
of execution of this Agreement . . . (b) [he] has not breached any provision of the
Employment Agreement . . . .” (Id. at p. 5.) The release in the Settlement Agreement
expressly excludes claims “arising under or related to the APA,” (Id. at p. 3), and PRA
expressly agreed to “adhere to and honor . . . all obligations set forth in or arising out
of or related to the” APA. (Id. at p. 2.) II. PROCEDURAL BACKGROUND
38. Plaintiffs filed the Complaint in this matter on October 5, 2018. (ECF
No. 5.) On November 15, 2018, this case was designated a mandatory complex
business case and assigned to the undersigned. (Designation Order, ECF No. 1;
Assignment Order, ECF No. 2.)
39. On November 1, 2019, the Court granted leave for Plaintiffs to file an
Amended Complaint. (Or. on Pls.’ Mot. to Am. Compl., ECF No. 74.) In the Amended
Complaint, Plaintiffs allege claims against PRA for: breach of contract (First Cause
of Action); intentional misrepresentation (Second Cause of Action); negligent
misrepresentation (Third Cause of Action); fraudulent inducement (Fourth Cause of
Action); violation of North Carolina’s Unfair and Deceptive Trade Practices Act,
N.C.G.S. § 75-1.1 (“UDTPA”) (mislabeled as the Sixth Cause of Action); promissory
estoppel (mislabeled as the Seventh Cause of Action); and unjust enrichment
(mislabeled as the Eighth Cause of Action). (ECF No. 60.1, ¶¶ 129–195.)
40. On March 26, 2019, PRA filed its Amended Answer, Affirmative
Defenses, and Counterclaims. (“Amended Counterclaims,” ECF No. 37.) PRA
brought counterclaims for: (1) breach of the APA against Parthasarathy and Value
Health; (2) fraudulent inducement against Parthasarathy and Value Health; (3)
negligent misrepresentation against Parthasarathy and Value Health; (4) breach of
the Employment Agreement and Settlement Agreement against Parthasarathy; and
(5) tortious interference with contractual relations against Parthasarathy. (Id.)
Plaintiffs filed a Motion to Dismiss seeking dismissal of Defendants’ counterclaims
pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. (ECF No. 41.) Following briefing and a hearing, the Court dismissed PRA’s counterclaims for
breach of the APA against Parthasarathy and Value Health, fraudulent inducement
against Parthasarathy and Value Health, and negligent misrepresentation against
Parthasarathy and Value Health. (ECF No. 61.) PRA subsequently filed a Voluntary
Dismissal of its counterclaim for tortious interference with contractual relations
against Parthasarathy. (ECF No. 86.) The sole counterclaim that remains is Count
IV of the Amended Counterclaim for Breach of Contract Against Parthasarathy.
(ECF No. 37, at p. 32.)
41. PRA filed a motion to dismiss seeking the dismissal of all of Plaintiffs’
claims except for the breach of contract claim pursuant to Rule 12(b)(6) of the North
Carolina Rules of Civil Procedure (“Rules”) (ECF No. 77.) Following briefing and a
hearing, the Court issued an Order and Opinion granting the motion to dismiss to
the extent it sought dismissal of Plaintiffs’ claims for: intentional misrepresentation
(fraud) and fraudulent inducement that were based on alleged pre-APA
misrepresentations except for those fraud and fraudulent inducement claims based
on alleged misrepresentations in the LOI; intentional misrepresentation (fraud) and
fraudulent inducement based on alleged omissions from the LOI; negligent
misrepresentation; promissory estoppel; and unjust enrichment. (ECF No. 106 at pp.
31–32.)
42. The four remaining claims in Plaintiffs’ Amended Complaint are:
Breach of Contract (Count I); Intentional Misrepresentation (Count II); Fraudulent
Inducement (Count IV); and Violation of the North Carolina Unfair and Deceptive
Trade Practices (“UDTPA”), N.C.G.S. § 75-1.1 (Count VI) (Id.) Defendants move for Summary Judgment on each of these four claims. (ECF No. 110, at p. 2.) PRA filed
its Brief in Support of Motion for Summary Judgment on June 12, 2020. (ECF No.
111.) Plaintiffs filed their Response to PRA’s Motion for Summary Judgment on
August 11, 2020. (ECF No. 125.) PRA filed a Reply in Support of Motion of Summary
Judgment on September 10, 2020. (ECF No. 129.)
43. Plaintiffs move for summary judgment on: (1) PRA’s sole-remaining
counterclaim of breach of contract against Parthasarathy (ECF No. 116 at p. 1; ECF
No. 37, at p. 22); and (2) the contention that Takeda MSA qualifies as an External
Sale under the APA. (ECF No. 116, at p. 2.) Plaintiffs filed an Opening Brief in
Support of their Motion for Summary Judgment. (ECF No. 116.) PRA filed a Brief
in Opposition to Plaintiffs’ Motion for Summary Judgment (ECF No. 120), Plaintiffs
filed their Reply in Support of their Motion for Summary Judgment. (ECF No. 128).
44. Plaintiffs and PRA also filed numerous sets of evidentiary materials in
support of and in opposition to the Motions.
45. The Court held a hearing on the Motions for Summary Judgment at
which counsel presented arguments. The Motions for Summary Judgment are now
ripe for disposition
III. ANALYSIS
A. Standard of Review
46. “The purpose of summary judgment is to dispense with formal trials in
cases where only legal issues remain ‘by permitting penetration of an unfounded
claim or defense in advance of trial and allowing summary disposition for either party
when a fatal weakness in the claim or defense is exposed.’” Miller v. Rose, 138 N.C. App. 582, 585–86 (2000) (citation omitted). “Summary judgment is appropriate ‘if the
pleadings, depositions, answers to interrogatories, and admissions on file, together
with affidavits, if any, show that there is no genuine issue as to any material fact and
that any party is entitled to judgment as a matter of law.’” Variety Wholesalers, Inc.
v. Salem Logistics Traffic Servs., LLC, 365 N.C. 520, 523 (2012) (quoting N.C.G.S. §
1A-1, Rule 56(c)). The moving party bears the burden of presenting evidence which
shows that there is no genuine issue of material fact and that the movant is entitled
to judgment as a matter of law. Hensley v. Nat’l Freight Transp., Inc., 193 N.C. App.
561, 563 (2008). The moving party may meet this burden by “proving an essential
element of the opposing party’s claim does not exist, cannot be proven at trial, or
would be barred by an affirmative defense.” Variety Wholesalers, Inc., 365 N.C. at
523. An issue is “material” if “resolution of the issue is so essential that the party
against whom it is resolved may not prevail.” McNair v. Boyette, 282 N.C. 230, 235
(1972). “A ‘genuine issue’ is one that can be maintained by substantial evidence.”
Dobson v. Harris, 352 N.C. 77, 83 (2000).
47. Once the movant presents evidence in support of the motion, the
nonmovant “cannot rely on the allegations or denials set forth in her pleading [ ] and
must, instead, forecast sufficient evidence to show the existence of a genuine issue of
material fact in order to preclude an award of summary judgment.” Steele v. Bowden,
238 N.C. App. 566, 577 (2014) (internal citation omitted). In conducting its analysis,
the Court must view the evidence in the light most favorable to the nonmovant.
Dobson, 352 N.C. at 83. 48. In determining whether the non-movant has met its burden in opposing
a motion for summary judgment, the judge “unavoidably asks whether reasonable
jurors could find by a preponderance of the evidence that the plaintiff is entitled to a
verdict[.]” Sloan v. Miller Bldg. Corp., 119 N.C. App. 162, 165–66
(1995) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252–55
(1986)) (quotations and emphasis omitted). As recently reiterated by the North
Carolina Court of Appeals, the burden on the non-movant goes beyond merely
producing some evidence, or a scintilla of evidence, in support of its claims. Rather,
[i]f the movant meets [its] burden, the nonmovant must take affirmative steps to set forth specific facts showing the existence of a genuine issue of material fact. . . . A genuine issue of material fact is one that can be maintained by substantial evidence. Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion and means more than a scintilla or a permissible inference.
Khashman v. Khashman, 255 N.C. App. 449 (Sept. 5, 2017) (unpublished) (citations
and quotation marks omitted). In summary, this Court must decide “not whether
there is literally no evidence, but whether there is any upon which a jury could
properly proceed to find a verdict for the party producing it, upon whom the onus of
proof is imposed.” Anderson, 477 U.S. at 251.
49. The Court will first address PRA’s Motion and then Plaintiffs’ Motion.
B. PRA’s Motion
50. Defendants move for summary judgment on the four remaining claims
in Plaintiffs’ Amended Complaint: breach of the APA (Count I); intentional
misrepresentation (Count II); fraudulent inducement (Count IV); and violation of the North Carolina Unfair and Deceptive Trade Practices (“UDTPA”), N.C.G.S. § 75-1.1
(Count VI).
1. Breach of the APA
51. Plaintiffs allege that PRA breached the express and implied terms of
the APA by failing to make the contingent payments to Plaintiffs for meeting the
Milestones. (ECF No. 60.1, at ¶¶ 129–33; ECF No. 125/133, at pp. 20–24.)
52. Preliminarily, the Court notes that the APA provides that Delaware law
shall apply to construction and enforcement of the agreement, and that Plaintiffs and
PRA argue that Delaware law is applicable to the claims for breach of the APA. “As
a general rule, North Carolina will give effect to a contractual provision agreeing to
a different jurisdiction’s substantive law.” Tanglewood Land Co. v. Byrd, 299 N.C.
260, 262 (1980) (“[W]here parties to a contract have agreed that a given jurisdiction's
substantive law shall govern the interpretation of the contract, such a contractual
provision will be given effect.”); Akzo Nobel Coatings Inc. v. Rogers, 2011 NCBC
LEXIS 42, at *21 (N.C. Super. Ct. Nov. 3, 2011). However, North Carolina courts will
not apply the chosen state’s law if “(a) the chosen state has no substantial relationship
to the parties or the transaction and there is no other reasonable basis for the parties’
choice, or (b) application of the law of the chosen state would be contrary to a
fundamental policy of [North Carolina].” Cable Tel Servs. v. Overland Contracting,
Inc., 154 N.C. App. 639 (2002) (applying North Carolina law to a contract dispute
despite a Colorado choice of law provision because there was no substantial
relationship between the parties or transaction to Colorado). 53. The Court concludes that Delaware law should be applied to the claim
for breach of the APA. First, PRA is a Delaware corporation which provides the
necessary substantial relationship between Delaware and the parties. (ECF No. 8.1
at APA, p. 1.) Akzo Nobel Coatings, Inc. v. Rogers, 2011 NCBC LEXIS 42, at *22 (N.C.
Super. Ct. Nov. 3, 2011) (finding “Delaware has a substantial relationship to the
transaction” where defendants’ contracts containing the Delaware choice of law
provision were with plaintiff, a Delaware corporation). Second, the Court has
reviewed the applicable law and concludes that applying Delaware law to the claim
for breach of the APA would not be contrary to any fundamental policy of North
Carolina.
54. Defendants seek summary judgment as to Plaintiffs’ claims that PRA
breached the APA by failing to make the contingent payments tied to the Milestones.
Under Delaware law, the elements of a breach of contract claim are: the existence of
a contract, the breach of an obligation imposed by that contract, and resulting
damages to the plaintiff. VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612
(Del. 2003). It is undisputed that the APA is a valid contract.
55. The Delaware Supreme Court has held
Delaware adheres to the objective theory of contracts, i.e. a contract’s construction should be that which would be understood by an objective, reasonable third party. We read a contract as a whole and [ ] will give each provision and term effect, so as not to render any part of the contract mere surplusage.
When the contract is clear and unambiguous, we will give effect to the plain meaning of the contract's terms and provisions. On the contrary, when we may reasonably ascribe multiple and different interpretations to a contract, we will find that the contract is ambiguous. An unreasonable interpretation produces an absurd result or one that no reasonable person would have accepted when entering the contract.
Estate of Osborn v. Kemp, 991 A.2d 1153, 1159–60 (Del. 2010) (internal citations and
quotations omitted). “The determination of ambiguity lies within the sole province of
the court.” Id. at 1160.
56. The Delaware Supreme Court has “upheld awards of summary
judgment in contract disputes where the language at issue is clear and unambiguous.
In such cases, the parol evidence rule bars the admission of evidence from outside the
contract's four corners to vary or contradict that unambiguous language.” GMG
Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 783 (Del. 2012)
(internal citations omitted). “But, where reasonable minds could differ as to the
contract's meaning, a factual dispute results and the fact-finder must consider
admissible extrinsic evidence. In those cases, summary judgment is improper.” Id.
The parties do not contend that the language in the Development Milestones
provisions of the APA is ambiguous or need interpretation.
a. Development Milestones
57. Significantly, Plaintiffs do not claim, and have not presented evidence,
that they fully achieved the Development Milestones as expressly set out in
Schedules 2.6(a)(i–iii) of the APA. Instead, Plaintiffs argue that PRA breached the
APA because: (a) PRA did not reasonably and in good faith determine the completion
of the Development Milestones in 2.6(a)(i) and 2.6(a)(ii); (b) PRA waived the
Development Milestones 2.6(a)(i) and 2.6(a)(ii); (c) VHS substantially performed the Development Milestones in sections 2.6(a)(i) and 2.6(a)(ii); and (d) PRA improperly
conditioned Development Milestone 2.6(a)(iii) on achievement of the Development
Milestones in sections 2.6(a)(i) and 2.6(a)(ii). (ECF Nos. 125/133, at pp. 20–29.) PRA
challenges these contentions. (ECF No. 110, at pp. 3–4; ECF Nos. 113/111, at pp.
114–19; ECF No. 129, at pp. 1–8.) The Court takes each argument in turn.
58. Plaintiffs first argue that the failure to meet the Development
Milestones should be excused because PRA failed to exercise its discretion in
determining whether VHS had achieved those milestones reasonably and in good
faith, and that its “decision making was arbitrary and improperly motivated.” (ECF
Nos. 125/133, at pp. 20, 21–22.) Plaintiffs contend that: “PRA knew the ‘modules’ and
‘functions’ . . . had been in a constant state of flux”; “PRA applied different technical
definitions of completion from those agreed to, knowingly disregarded substantial
changes to the Salesforce® modules to be integrated, and failed to consider that the
software functions PRA required were ‘mostly code complete’”; and “PRA directly and
indirectly prevented the completion of the requirements.” (Id. at pp. 20–21.)
Plaintiffs also claim that PRA “failed to credit completion of new and different
[development] requirements.” (Id. at p. 22.)
59. In addition, Plaintiffs claim that in 2017, after the deadlines for
completing the Development Milestones had passed, PRA engaged in conduct
demonstrating “bad faith.” (Id. at pp. 21–22.) Plaintiffs allege that in late 2016, PRA
was “focused on extracting product knowledge” from Mr. Parthasarathy, as opposed
to reasonably assessing completion. (Id. at p. 21.) By 2017, PRA was “actively
deceiving Mr. Parthasarathy about amending the APA and was determined to terminate his employment, mistakenly believing it would end PRA’s obligations
under the APA.” (Id. at pp. 21–22.)
60. Plaintiffs’ argument amounts to a claim that PRA breached an implied
duty of good faith and fair dealing under the APA. 5 Delaware will imply a covenant
of good faith and fair dealing to “honor the parties’ reasonable expectations” under
the contract. Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 447 (Del. 2005).
However, Delaware courts “will only imply contract terms when the party asserting
the implied covenant proves that the other party has acted arbitrarily or
unreasonably, thereby frustrating the fruits of the bargain that the asserting party
reasonably expected.” Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010). The
“implied covenant is a judicial convention designed to protect the spirit of an
agreement when, without violating an express term of an agreement, one side uses
oppressive or underhanded tactics . . . .” Chamison v. Healthtrust, Inc., 735 A.2d 912,
920 (Del. Ch. 1999), aff'd, 748 A.2d 407 (Del. 2000); see LSVC Holdings, LLC v.
Vestcom Parent Holdings, Inc., 2017 Del. Ch. LEXIS 865, *31 (2017).
61. The covenant of good faith “is not an equitable remedy for rebalancing
economic interests after events that could have been anticipated, but were not, [ ]
later adversely affected one party to a contract. Rather the covenant is a limited and
extraordinary legal remedy.” Nemec, 991 A.2d at 1128. The covenant will not be
implied “to give plaintiffs contractual protections that they failed to secure for
5 Indeed, the case authority cited by Plaintiffs in support of their argument, Gilbert v. El Paso
Co., 490 A.2d 1050 (Del.Ch. 1984), analyzed the issue as one falling under the implied covenant of good faith and fair dealing. Id. at 1054–55. themselves at the bargaining table.” Winshall v. Viacom Int'l, Inc., 55 A.3d 629, 636-
37 (Del. Ch. 2011). A court should not use the implied covenant to “rewrite a contract”
that a party “now believes to have been a bad deal.” Nemec, 991 A.2d at
1126. “Parties have a right to enter into good and bad contracts, the law enforces
both.” Id.
62. Once the Court determines that a “party has acted arbitrarily or
unreasonably,” Id., the task faced by a court in applying the covenant of good faith
and fair dealing as follows:
[T]he first step in evaluating an implied covenant claim is to determine whether the contract in fact contains a gap that must be filled. That is because the implied covenant applies only if the contract is silent as to the subject at issue. If the contract directly addresses the matter at hand, existing contract terms control . . . such that implied good faith cannot be used to circumvent the parties’ bargain. If, on the other hand, the express terms of the contract do not address the subject at issue, the Court must then consider whether implied contractual terms fill the gap. The Court conducts that inquiry by asking whether it is clear from what was expressly agreed upon that the parties who negotiated the express terms of the contract would have agreed to proscribe the act later complained of as a breach of the implied covenant of good faith—had they thought to negotiate with respect to that matter. The Court does not derive implied obligations from its own notions of justice or fairness. Instead, it asks what the parties themselves would have agreed to had they considered the issue in their original bargaining positions at the time of contracting. The implied covenant therefore operates only in that narrow band of cases where the contract as a whole speaks sufficiently to suggest an obligation and point to a result, but does not speak directly enough to provide an explicit answer.
MHS Capital LLC v. Goggin, 2018 Del. Ch. LEXIS 151, *30–32 (May 10, 2018)
(quotations and citations omitted). 63. The Court notes that despite invoking the covenant of good faith and
fair dealing, Plaintiffs do not argue how the standards established by Delaware courts
apply to the facts in this case. For example, Plaintiffs do not identify any “gaps” in
the provisions of the APA that need to be filled, nor argue what terms the parties
“would have agreed to had they considered the issue in their original bargaining
positions at the time of contracting.” MHS Capital LLC, 2018 Del. Ch. LEXIS 151 at
*31 (citing Katz v. Oak Industries, Inc., 508 A.2d 873, 880 (Del. 1986)). Instead,
Plaintiffs take issue with various decisions made by PRA and complain that, in
retrospect, they seem unfair or arbitrary.
64. It is not clear in what way Plaintiffs contend PRA failed to reasonably
exercise its discretion in determining that the first Development Milestone as
outlined in Schedule 2.6(a)(i) had not been achieved. The first Development
Milestone required that CTMax be integrated into PRA’s Salesforce environment
within 18 months following the closing. While the evidence may show that pieces of
CTMax functionality were integrated into PRA within the 18-month period, it is
undisputed that full integration did not occur until approximately April 2018, almost
three years after the Closing. Plaintiffs have not created a disputed issue of fact that
PRA did not act reasonably and in good faith in determining that Plaintiffs failed to
meet the first Development Milestone.
65. Plaintiffs also contend that PRA acted unreasonably because it did not
consider that individual “key product enhancements” listed in the Second Milestone
(Schedule 2.6(a)(ii)) had been completed and that certain other enhancements were
eliminated by PRA as unnecessary. The evidence shows that some individual product enhancements listed in Schedule 2.6(a)(ii) were completed before Parthasarathy’s
employment with PRA terminated, and that some of those enhancements were
accomplished within the required 18-month period following the Closing. The
evidence also shows that in implementing CTMax into PRA, PRA determined that at
least some of the product enhancements in Schedule 2.6(a)(ii) were not needed.
66. The evidence, however, does not support Plaintiffs’ contention that the
completion of some product enhancements and the elimination of others impeded
Plaintiffs’ achievement of the Second Milestone or that PRA unreasonably failed to
consider those facts in determining that Plaintiffs had not completed the second
Development Milestone.
67. Finally, Plaintiffs contend that after the deadlines for completing the
Development Milestones had passed, PRA engaged in conduct demonstrating that its
determinations as to the first and second Development Milestones were made in “bad
faith.” (ECF Nos. 125/133, at p. 21.) Plaintiffs claim that in late 2016 “PRA was
‘focused on extracting product knowledge’ from Mr. Parthasarathy, as opposed to
reasonably assessing completion.” (Id.) Plaintiffs also contend that “[b]y 2017, PRA
was actively deceiving [ ] Parthasarathy about amending the APA and was
determined to terminate his employment, mistakenly believing it would end PRA’s
obligations under the APA.” (Id. at pp. 21–22.)
68. Plaintiffs’ contention that PRA was “focused on extracting product
knowledge” is reference to a phrase contained in an email from Irene to Jones-Hertzog
sent in December 2016 discussing Irene’s review of the Milestones and his suggested
revisions for purposes of negotiating amendments to the Milestones with Parthasarathy. (ECF No. 125.15.) The full sentence from Irene’s email provides as
follows: “Here are some thoughts – focused on extracting product knowledge (IP) and
relating to PRA’s environment for purposes of expedited implementation.” (Id.
(emphasis added).) Rather than suggesting bad faith, the email indicates Irene’s
desire to acquire knowledge about the Solutions from Parthasarathy in order to
incorporate them into PRA as quickly as possible.
69. The evidence supports Plaintiffs’ contention that in or about June or
July 2017, Shannon concluded that he wanted to terminate Parthasarathy’s
employment with PRA and believed that it would end PRA’s obligations under the
APA. The evidence also shows that PRA stopped communicating with Parthasarathy
about amending the Milestones in late July 2017 but did not inform him that PRA
would not further negotiate over the amendments. 6 However, after careful
consideration, the Court concludes this evidence does not raise an issue of disputed
fact that PRA did not act reasonably and in good faith in determining that Plaintiffs
failed to meet the first and second Development Milestones. Even if the conduct
involved suggests a lack of good faith by PRA in handling Parthasarathy’s
termination, it occurred well after the deadline for completing the first and second
Development Milestones as provided in the APA, and there is no evidence linking
Shannon’s decision regarding Parthasarathy’s termination with PRA’s
determinations that the Development Milestones had not been achieved.
6 As discussed below in relation to Plaintiffs’ claims for fraud, the Court has concluded that
PRA did not make affirmative misrepresentations to Plaintiffs regarding PRA’s intent to amend the Milestones. 70. In summary, Plaintiffs’ evidence fails to raise an issue of fact as to PRA’s
reasonable exercise of its discretion in determining that Plaintiffs had not achieved
the first and second Development Milestones.
71. Plaintiffs next argue that PRA waived the deadlines for completing the
Development Milestones. (ECF Nos. 125/133, at p. 21.) Under Delaware law
[i]t is well settled . . . that a party may waive contractual requirements or conditions. But, the standards for demonstrating waiver -- the voluntary and intentional relinquishment of a known right -- are quite exacting. The doctrine implies knowledge of all material facts and an intent to waive, together with a willingness to refrain from enforcing those [ ] rights. Furthermore, the facts relied upon to demonstrate waiver must be unequivocal. Applying those principles, [Delaware courts] have held that three elements must be demonstrated to invoke the waiver doctrine: (1) that there is a requirement or condition capable of being waived, (2) that the waiving party knows of that requirement or condition, and (3) that the waiving party intends to waive that requirement or condition.
Amirsaleh v. Bd. of Trade of N.Y., 27 A.3d 522, 529–30 (Del. 2011) (quotations and
citations omitted).
72. PRA argues that the APA requires that any waiver of its terms must be
in writing. (ECF No. 112.1, at p. 370, “No waiver by a party of any term, covenant,
representation or warranty contained herein shall be effective unless in writing.”)
PRA contends that the written documents relied on by Plaintiffs in support of their
waiver argument were internal communications between PRA officials regarding the
amendment negotiations after the Development Milestone deadlines had passed and
that the communications were never shared with Plaintiffs. (ECF Nos. 113/111, at
pp. 16–17.) PRA further argues that Plaintiffs have failed to create an issue of fact as to whether PRA intentionally and voluntarily waived the Development Milestones.
(ECF No. 129, at p. 2.)
73. The Court has painstakingly reviewed the evidence cited by Plaintiffs in
support of their argument that PRA waived the deadlines for the Development
Milestones. First, the undisputed evidence shows that the written documents relied
upon by Plaintiffs were never shared with Plaintiffs and, therefore, cannot form the
basis for a claim of waiver. Second, the evidence simply does not raise a genuine
issue of fact that PRA intended to waive the Development Milestones. At best, the
evidence establishes that PRA engaged in various communications with
Parthasarathy about the possibility of amending the deadlines but fails to support
even an inference that PRA “unequivocal[ly]” waived any Milestones. Amirsaleh, 27
A.3d at 529.
74. Plaintiffs next contend that they have raised an issue of fact as to
whether PRA breached the APA because “there is adequate evidence of ‘substantial
performance’ of the first two [D]evelopment [M]ilestone requirements,” and cite in
support Gildor v. Optical Sols., Inc., 2006 Del. Ch. LEXIS 110, at *25 (Del. Ch. June
5, 2006). (ECF No. 125/133, at p. 21.) Plaintiffs argue that there is evidence that
some of the functionality required under sections 2.6(a)(i) and (ii) of the APA were
achieved. (Id.)
75. PRA contends that the theory of “substantial performance” is not
available to cure Plaintiffs’ failure to perform under the facts at issue. (ECF No. 129,
at p. 2.) Instead, PRA argues that Gildor and its progeny have applied the theory of
“substantial performance” to forgive a party’s failure to meet the express requirements of a contract only when the question is whether a party has adequately
complied with notice provisions contained in an agreement, citing Vintage Rodeo
Parent, LLC v. Rent-a-Ctr., Inc., 2019 Del. Ch. LEXIS 87, *43–44 (Del. Ch. Mar. 14,
2019) (“[T]his Court has, at times, accepted substantial compliance with notice
provisions in lieu of literal compliance, when the circumstances so justified.”).
76. The Court agrees with PRA’s argument. The only reported Delaware
decisions that the Court has located have applied the substantial performance theory
only in the narrow circumstances dealing with notice requirements in contracts. See
e.g., Arneault v. Diamondhead Casino Corp., C.A. No. 16-989-LPS, 2019 U.S. Dist.
LEXIS 93108, *8-9, (D. Del. 2019). The Court concludes that the substantial
performance theory does not apply to Plaintiffs’ failure to meet the express
requirements of the Development Milestones in the APA.
77. Plaintiffs also contend that PRA breached section 2.6(b) of the APA by
improperly conditioning the achievement of the Development Milestone in 2.6(a)(iii)
and Sales Milestones “on PRA’s internal development of PSO.” (ECF Nos. 125/133,
at pp. 22–24.) Plaintiffs’ argument, however, is difficult to discern. Although section
2.6(b) unambiguously provides that PRA cannot make the payment for achievement
of any Milestone conditional on having completed a prior Milestone, Plaintiffs
contend that the provision also “bar[s] PRA from conditioning or sequencing the
completion of the [M]ilestones (or requirements within a [M]ilestone).” (Id. at p. 23.)
Plaintiffs do not cite to any evidence in the record in their argument to support this
claim (see id. at pp. 22–23), and it is not at all clear to the Court in what way Plaintiffs
contend PRA violated section 2.6(b). 78. PRA argues that section 2.6(b) only prohibits PRA from conditioning the
payments for achievement of a particular Milestone on having achieved a prior
Milestone, and that “[t]here is no evidence that . . . any of the milestones were
achieved. Thus, PRA did not have an obligation to pay any of the milestones, nor did
it improperly ‘condition’ payment of one milestone ‘upon the satisfaction of any
conditions precedent to’ another milestone.” (ECF Nos. 113/111, at p. 15.)
79. The Court has thoroughly considered Plaintiffs’ argument and concludes
that the terms of section 2.6(b) are unambiguous, and that Plaintiffs have failed to
create any issue of material fact that PRA breached section 2.6(b) of the APA.
b. Sales Milestones
80. Plaintiffs next argue that PRA “interfered” with achievement of the
Sales Milestones in breach of the implied covenant of good faith and fair dealing.
(ECF No. 125/133, at pp. 25–29.) Plaintiffs claim that there is
substantial evidence that PRA used ‘oppressive or underhanded tactics’ that ‘thwarted’ [Plaintiffs’] reasonable expectations and a ‘fair opportunity to maximize’ the External Sales Earnout, such as by intending to block competitors from having access to the Solutions, preventing marketing of the Solutions and rejecting specific customer opportunities, limiting and eliminating qualifying license arrangements, exploiting the Solutions for Takeda MSA to earn service revenue for PRA but refusing to give VHS milestone credit, diverting resources and changing operational priorities, and repeatedly rejecting all External Sales proposals years before the milestone period ended, limiting Mr. Parthasarathy’s role and ultimately terminating his employment to try to escape the APA earnout obligations.
(Id. at pp. 28–29; quotations omitted.) Plaintiffs, however, do not cite to specific
record evidence or discuss the evidence supporting these claims in this portion of their argument in their brief (Id. at pp. 25–29), and it is not clear to the Court upon what
evidence Plaintiffs base some of these alleged actions by PRA.
81. In order to decide if the covenant of good faith and fair dealing should
be applied, the Court must decide whether PRA “has acted arbitrarily or
unreasonably, thereby frustrating the fruits of the bargain that [Plaintiffs]
reasonably expected,” Nemec, 991 A.2d at 1126, and if so, “determine whether the
contract in fact contains a gap that must be filled.” MHS Capital LLC, 2018 Del. Ch.
LEXIS 151 at *30–32. “[T]he implied covenant applies only if the contract is silent as
to the subject at issue . . . [i]f, on the other hand, the express terms of the contract do
not address the subject at issue, the Court must then consider whether implied
contractual terms fill the gap.” Id. However, the existence of “gap” does not
automatically require application of the implied covenant. Instead, the Court must
decide if the missing term is one that the parties did not, and could not have,
anticipated in negotiating the APA. “The implied covenant of good faith and fair
dealing involves a ‘cautious enterprise,’ inferring contractual terms to handle
developments or contractual gaps that the asserting party pleads neither party
anticipated,” Nemec, 991 A.2d at 1125, and is not a means for creating “contractual
protections that ‘they failed to secure for themselves at the bargaining table.”
Winshall, 76 A.3d at 816 (internal quotation omitted); see also Allied Capital Corp. v.
GC-Sun Holdings, L.P., 910 A.2d 1020, 1035 (Del. Ch. 2006) (“[C]ourts should be most
chary about implying a contractual protection when the contract easily could have
been drafted to expressly provide for it.”). Only if the missing term is one the parties
could not have anticipated will the Court provide an implied term. 82. Plaintiffs do not specifically identify the “gaps” in the APA that the
implied covenant must fill. Further, Plaintiffs do not address whether the parties
negotiated about or considered the missing term and, if not, why the parties could not
have anticipated the issue involved in the missing term. Plaintiffs also do not explain
“what the parties themselves would have agreed to had they considered the issue in
their original bargaining positions at the time of contracting.” MHS Capital LLC,
2018 Del. Ch. LEXIS 151, at *30–32. Instead, they contend only that PRA’s actions
were arbitrary or unfair.
83. Plaintiffs first contend that PRA interfered with the achievement of the
Sales Milestones because it acquired Plaintiffs’ software “to block competitors from
having access to the Solutions.” (ECF Nos. 125/133, at p. 28.) Plaintiffs do not
explain how PRA’s motivations for entering into the APA with Plaintiffs could be
characterized as a breach of covenant of good faith in performing under the APA.
Nevertheless, the Court has thoroughly reviewed the evidence presented by Plaintiffs
and concludes that, at worst, it suggests that one of the reasons PRA believed it would
be advantageous to acquire the Solutions was because PRA believed it was promising
technology and wanted to purchase it to prevent its competitors from acquiring the
technology. In other words, PRA appears to have had a legitimate business interest
in acquiring PRA’s technology.
84. In addition, there is no contractual gap regarding this issue. To the
contrary, in the preamble paragraphs in the APA, the parties expressly acknowledge
Plaintiffs’ “desire” to sell to PRA, and PRA’s desire to purchase, “the Solutions and
substantially all of the assets of [Plaintiffs]” related to Plaintiffs’ business of “provid[ing] cloud based solutions for the clinical trial process.” (ECF No. 112.1, at p.
349.) The implied covenant of good faith is not applicable to this issue.
85. Plaintiffs next argue that PRA violated a duty of good faith and fair
dealing by “preventing marketing of the Solutions and rejecting specific customer
opportunities, [and] limiting and eliminating qualifying license arrangements.” (Id.)
While Plaintiffs presented evidence that PRA refused to let Parthasarathy attempt
to sell CTMax/PSO to two potential customers (ECF Nos. 125/133, at pp. 6–7, 10–11,
and 16), PRA counters with evidence that it prevented Plaintiffs from selling the
Solutions because it had not yet implemented PSO within PRA and lacked confidence
that it could support the software until it was using it itself and was not yet prepared
to expend the extensive resources necessary to sell and support PSO to third-party
customers. (ECF No. 129, at pp. 3, 5–7.) Parthasarathy conceded that PRA’s lack of
confidence in PSO was a legitimate reason not to begin selling it to PRA’s customers.
(ECF No. 112.1, at pp. 74–75.)
86. Again, after careful review of the evidence in the record, the Court
concludes that no reasonable fact finder could conclude that PRA prevented sales of
PSO to specific customers to impede Plaintiffs from achieving External Sales, and
Plaintiffs’ argument is not supported.
87. Plaintiffs contend that PRA breached an implied duty of good faith by
“exploiting the Solutions for Takeda MSA to earn service revenue for PRA but
refusing to give VHS milestone credit.” (ECF Nos. 125/133, at p. 28.) Plaintiffs argue
that the licensing arrangement in the Takeda MSA in which PRA granted Takeda a
license to use PRA’s software in conjunction with managing clinical trials for Takeda (“Takeda license”) should be credited to Plaintiffs as an “External Sale” of the
Solutions under APA. (ECF Nos. 116/117.1, at pp. 13–16.) 7 Plaintiffs contend that
PRA’s failure to treat the license to Takeda as an “External Sale” violates an implied
duty of good faith and fair dealing. Plaintiffs do not expressly address how the
current definition of “External Sale” has a gap, or whether they did, or should have,
anticipated the need to further clarify the definition of “External Sale” in negotiating
the APA.
88. In this instance, however, it is not significant because the Court has
thoroughly considered the record and concludes that there is insufficient evidence to
create an issue of fact that PRA acted unreasonably or arbitrarily in failing to credit
the Takeda license as an “External Sale” of the Solutions. To the contrary, Plaintiffs
did not contend that the Takeda license should be counted as an “External Sale” until
after this lawsuit was filed, and first raised the claim in the Amended Complaint. As
discussed below, Plaintiffs and PRA have offered differing interpretations of the scope
of the term “External Sales.” Accordingly, the Court concludes that there is no issue
of fact and, as a matter of law, PRA did not violate an implied covenant of good faith
in failing to treat the license to Takeda as an “External Sale.”
89. Plaintiffs also argue that PRA breached a covenant of good faith and fair
dealing by “diverting resources and changing operational priorities” and “limiting Mr.
Parthasarathy’s role and ultimately terminating his employment,” thereby
7 Plaintiffs’ contention that the Takeda MSA constitutes an “External Sale” for purposes of
achieving the Sales Milestones is an issue raised in Plaintiffs’ Motion and is considered below in conjunction with decision of that motion. interfering with achievement of the Sale Milestones. (ECF Nos. 125/133, at pp. 28–
29.) PRA contends that, to the extent Plaintiffs now complain that PRA did not give
Parthasarathy sufficient control over, and did not devote sufficient resources to,
achieving the Milestones, Plaintiffs “could have insisted on specific contractual
commitments from PRA about the issues . . . , including the level of resources devoted
to developing CTMax, a guarantee that Parthasarathy would have ‘full authority’
over the development, or a plan for making external sales.” (ECF Nos. 113/111, at p.
17 (citing Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 145–47 (Del Ch.
Nov. 23, 2009) (“These provisions are familiar to any transactional lawyer, and [VHS]
was a sophisticated party represented by able counsel.”)).) PRA argues that “‘[t]he
implied covenant of good faith and fair dealing cannot properly be applied to give the
Plaintiffs contractual protections that ‘they failed to secure for themselves at the
bargaining table,’” quoting Winshall, 76 A.3d at 816. Finally, Defendants argue that
the evidence does not support a claim that PRA intentionally attempted to deprive
Plaintiffs of the ability to achieve the Milestones. (ECF Nos. 113/111, at pp. 18–19.)
90. Again, the Court finds that Plaintiffs could and should have bargained
for terms requiring PRA to provide certain levels of resources and for Parthasarathy’s
control over achievement of the Sales Milestones. In a case in which the defendant
argued the plaintiff breached a duty of good faith by failing to devote sufficient
resources to meeting incentive sales objectives, the Delaware Chancery Court held:
[Defendant]’s position is also undercut by the ease with which [Defendant] could have insisted on specific contractual commitments from [Plaintiff] regarding the expenditure of resources, or some form of “efforts” obligation for [Plaintiff]. These provisions are familiar to any transactional lawyer, and [Defendant] was a sophisticated party represented by able counsel. Moreover, Section 7.6, entitled “Obligations of Seller,” provides that “[e]ach Selling Partner agrees to take all reasonable actions necessary to cause Seller to perform its obligations hereunder and to otherwise comply with the terms of this Agreement.” [Defendant] could have insisted on a provision binding [Plaintiff]. Rather than holding out for these types of contractual protections, [Defendant] accepted earn-out provisions that are expressly phrased in conditional terms.
Airborne Health, Inc., 984 A.2d at 147. The implied covenant should not be applied
here to create obligations on PRA that Plaintiffs should have obtained at the
bargaining table.
91. The same holds true for Plaintiffs’ claim that PRA terminated
Parthasarathy to interfere with his ability to achieve the Sales Milestones.
Parthasarathy, with assistance of counsel, negotiated a comprehensive Employment
Agreement in which he agreed to accept at-will employment with PRA. There is no
reason that Parthasarathy should not have anticipated the need to negotiate
appropriate protections for himself against PRA terminating his employment before
he had an opportunity to achieve the Milestones. He did not do so, and this Court
cannot now provide him this protection under the guise of implying a duty of good
faith.
92. In sum, the Court finds that Plaintiffs have failed to establish that
PRA’s so-called “interference” with, and failure to devote sufficient resources to,
achievement of the Sales Milestones involved issues that Plaintiffs could not have
anticipated in negotiating the APA and Employment Agreement. 93. Finally, the Court again has exhaustively studied the evidence in the
record and concludes that Plaintiffs simply do not raise a genuine issue of material
fact regarding whether PRA used underhanded or oppressive tactics to prevent
Plaintiffs from achieving the Sales Milestones. In deciding whether Plaintiffs have
met their burden in opposing PRA’s Motion, this Court must decide “not whether
there is literally no evidence, but whether there is any upon which a jury could
properly proceed to find a verdict for the party producing it, upon whom the onus of
proof is imposed.” Anderson, 477 U.S. at 251. Plaintiffs’ evidence is not sufficient for
a reasonable factfinder to conclude that PRA unlawfully interfered with achievement
of the Sales Milestones.
94. Therefore, to the extent PRA seeks summary judgment on Plaintiffs’
claims for breach of the APA, PRA’s Motion should be GRANTED.
2. Intentional Misrepresentation and Fraudulent Inducement
95. Plaintiffs bring claims for intentional misrepresentation and fraudulent
inducement. (ECF No. 60.1, at ¶¶ 134–46 and 157–72.) The Court’s Order on
Defendants’ Motion to Dismiss left for determination only: (1) Plaintiffs’ claims for
“intentional misrepresentation (fraud) and fraudulent inducement based on the
alleged post-APA misrepresentations by Shannon and Jones-Hertzog about PRA’s
intent to modify the APA,” (ECF No. 106, at pp. 17–18); and (2) Plaintiffs’ claim that
PRA made fraudulent misrepresentations in the LOI. (Id. at pp. 17–20.)
a. Alleged misrepresentations by Shannon and Jones-Hertzog
96. VHS alleges that “[o]n or around February 8, 2017, PRA’s CEO, Colin
Shannon, sent an email to Mr. Parthasarathy stating that PRA was ‘obviously trying to get [VHS and/or Mr. Parthasarathy] a contract’ to address the milestone timeline
issue” and that “[i]n or around May 2017, Ms. Jones-Hertzog represented to Mr.
Parthasarathy that she had proposed a revised timeline internally and was awaiting
approval.” (ECF No. 60.1, at ¶¶ 116–17.) Plaintiffs further allege that despite these
representations, “PRA [ ] did not intend to . . . amend the terms of the APA to extend
the time for it to do so” (Id. at ¶ 124), and “knew its representations to be false when
it made them.” (Id. at ¶ 143.) Plaintiffs also allege that Parthasarathy relied on the
misrepresentations that PRA would modify the milestones to continue assisting PRA
with development of the Solutions. (Id. at ¶¶ 115, 120.)
97. In order to establish a claim for fraud or fraudulent inducement, a
plaintiff must prove: (1) false representation or concealment of a material fact, (2)
reasonably calculated to deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured party. Ragsdale v. Kennedy, 286
N.C. 130 (1974). 8
98. To qualify as an intentional misrepresentation for purposes of a fraud
claim, the misrepresentation must be "definite and specific." Libby Hill Seafood
Restaurants, Inc. v. Owens, 62 N.C. App. 695, 698 (1983). “An unfulfilled promise is
not actionable fraud, however, unless the promisor had no intention of carrying it out
at the time of the promise, since this is a misrepresentation of a material fact.”
McKinnon v. CV Indus., 213 N.C. App. 328, 338 (2011).
99. PRA argues that “Colin Shannon’s February 2017 statement was in fact
true that PRA was ‘trying to get’ Plaintiffs a contract amendment,” and “there is no
evidence that [ ] Shannon acted with a fraudulent intent” via his February 2017
email. (ECF Nos. 113/111, at pp. 25–27.) PRA contends that mere failure to
8 The parties have not discussed which state’s substantive law applies to the fraud claims,
but make their arguments based on North Carolina law. Generally, North Carolina applies a lex loci to determine the law that governs tort claims such as fraud. Harco Nat’l Ins. Co. v. Grant Thornton LLP, 206 N.C. App. 687, 692 (2010) (“Our traditional conflict of laws rule is that matters affecting the substantial rights of the parties are determined by lex loci, the law of the situs of the claim . . . . For actions sounding in tort, the state where the injury occurred is considered the situs of the claim.”); Camacho v. McCallum, 2016 NCBC LEXIS 81, at *17 (N.C. Super. Ct. Oct. 25, 2016) (“The place of the injury is the state where the injury or harm was sustained or suffered—the state where the last event necessary to make the actor liable or the last event required to constitute the tort takes place, and the substantive law of that state applies.”). It is unclear from the evidence, and the parties do not indicate to the Court, where Parthasarathy was physically located when the LOI was executed. Given there is some indication that Parthasarathy was situated in New York, the Court has reviewed New York law on fraudulent inducement. Hogan Willig, PLLC v. Kahn, 145 A.D.3d 1619, 1620– 21, (2016) (stating “[t]he elements of a fraud cause of action consist of a misrepresentation or a material omission of fact which was false and known to be false by [the] defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.” (internal citations omitted)). The Court finds the law on fraud in New York to be substantively similar to North Carolina’s law. Therefore, the Court conducts its analysis under North Carolina law. ultimately agree on amendments to the Milestones does not prove that Shannon’s
statement was fraudulent. Id.
100. Defendants also argue that Jones-Hertzog’s representations were not
false because Chuck Munn, PRA’s in-house counsel, had in fact received a draft of the
proposed amendments from Jones-Hertzog. (Id. at pp. 27–28.)
101. The Court has reviewed the relevant evidence presented by the parties
and concludes that Plaintiffs have failed to produce substantial evidence to create an
issue of fact that Shannon’s and Jones-Hertzog’s statements were not true at the time
they were made or that the statements were intended to mislead Parthasarathy.
Dobson, 352 N.C. at 83 (“A ‘genuine issue’ is one that can be maintained by
substantial evidence.”). Instead, the evidence establishes that PRA engaged in
several months of negotiations with Parthasarathy regarding potential amendment
of the Milestones, but that ultimately the parties failed to reach agreement on the
amendments. (ECF Nos. 113/111, at pp. 25–28.)
102. Therefore, to the extent PRA’s Motion seeks summary judgment on
Plaintiffs’ claims of intentional misrepresentation and fraudulent inducement based
on statements made by Shannon and Jones-Hertzog, PRA’s Motion should be
GRANTED.
b. Alleged fraudulent misrepresentations in the LOI
103. In its Order and Opinion on Defendants’ Motion to Dismiss Amended
Complaint, the Court dismissed Plaintiffs’ claims for fraud based on omissions from
the LOI, but held that the Court notes that PRA has not argued, and the Court does not consider at this time, whether representations contained within a letter of intent executed between two businesses as part of arms-length negotiations can form the basis for a claim for fraud or negligent misrepresentation. The Court has serious questions about the viability of such a claim under North Carolina law, and PRA is not prohibited from making such an argument at another appropriate time in this case. Nevertheless, the Court addresses the arguments that PRA does raise.
Value Health Sols. Inc. v. Pharm. Research Assocs., 2020 NCBC LEXIS 65, *20-21,
(N.C. Super. Ct. May 22, 2020). PRA now moves for summary judgment as to
Plaintiffs’ claims for fraud based on alleged affirmative misrepresentations in the
LOI.
104. In the Amended Complaint Plaintiffs allege as follows:
158. VHS and Mr. Parthasarathy agreed to enter into the APA for a relatively small closing payment in reliance on PRA’s representations about the existence of a reasonable opportunity to complete the milestones and receive the fixed and variable milestone payments based on the expressed management priorities and development strategy of PRA.
159. After closing, however, as described above, it became apparent that PRA’s representations were false and that a reasonable opportunity to complete the milestones did not exist.
(ECF No. 60.1, at ¶¶ 158–59.)
105. Plaintiffs further allege that “PRA knew its representations were false
at the time they made them. PRA did not intend to complete the software and sales
milestones set forth in Section 2.6 of the APA or to make the fixed and variable
milestone payments.” (Id. at ¶¶ 162–63.) 106. Referring to the language in the LOI that “the ability to earn [the Sales
Milestone payments] will last for the first [2, 3, and 4] fiscal years following the closing
date,” Plaintiffs contend that “PRA’s statement of intentions in the LOI was false” and
“PRA did not intend for VHS to have any ‘ability’ to earn the External Sales
milestone[s] for the ‘full’ anniversary periods stated.” (ECF Nos. 125/133, at pp. 29–
30.) Plaintiffs argue that PRA’s lack of intention to provide Plaintiffs with the ability
to earn the Sales Milestones is supported by evidence, inter alia, that: a presentation
to PRA’s board of directors in December 2014 revealed that PRA did not intend to
immediately “launch[ ]” CTMax “as a CTMS solution”; PRA acquired the Solutions to
“block” competing CROs from obtaining the Solutions; an internal PRA financial
analysis showed projections in which no income was generated from External Sales;
the so-called Siebel CTMS software “piracy” issue; and PRA’s alleged plan to use the
components of the Solutions but not allow Plaintiffs to make sales. (ECF Nos. 125/133,
at pp. 2–5, 29.)
107. PRA argues that a non-binding LOI cannot form the basis for a fraud
claim. (ECF Nos. 113/111, at p. 24). PRA contends that the LOI is titled “non-
binding” and contains express language stating: the LOI merely “outlines [PRA’s]
thinking regarding the possible structure of a Transaction”; that “none of this LOI,
any proposal made to the [Plaintiffs], nor the current on-going discussions between
the parties are intended to (and shall not) create a legally binding obligation or
commitment”; that the “Proposed Terms”—including the statement about Plaintiffs’
“ability to earn” consideration based on external sales—are just that: non-binding,
“proposed” terms, which, following due diligence, may be captured in a “definitive agreement to be finalized”; and that “any business decision either party makes in
anticipation of ” a final agreement “is at the sole risk of the party making the
decision.” (Id. at pp. 24–25.) In support of its argument, PRA cites Triad Packaging,
Inc. v. SupplyOne, Inc., 597 Fed. App’x 734, 739-40 (4th Cir. 2015) (applying North
Carolina law and holding that a party’s statements regarding the sale price and
closing date in a non-binding letter of intent were “classic projections, exemplified by
the letter’s non-binding nature” and “cannot, therefore, form the basis of a fraud
claim”).
108. The Court has provided the elements of a claim for fraud above. In
addition to establishing fraud, there must be evidence of a misrepresentation of
existing or ascertainable fact, as distinguished from a matter of opinion or
representation relating to future prospects. Ragsdale, 286 N.C. at 139 (citing Berwer
v. Insurance Co., 214 N.C. 554 (1938)); Cash Register Co. v. Townsend, 137 N.C. 652
(1905); see also Williams v. Williams, 220 N.C. 806, 810 (1942) (stating that mere
unfulfilled promises cannot be the basis of a fraud claim unless the promisor had no
intention of carrying out the promise at the time it was made and that proof of non-
performance is not sufficient to establish the necessary fraudulent intent).
109. The Court has considered the evidence and the arguments of the parties
and concludes that Plaintiffs have failed to establish an issue of material fact, and
PRA is entitled to summary judgment on Plaintiffs’ claims for fraud and fraud in the
inducement arising from the representation that Plaintiffs would have “the ability to
earn” the Sales Milestone payments. First, the Court does not believe that the
contents of the LOI can form the basis for a fraud claim under the facts present in this lawsuit. The LOI contains fulsome disclaimers making it clear that its contents
should not be relied upon by any party to the transaction, and that any reliance on
its terms are solely at the relying party’s risk. Under North Carolina law, letters of
intent that are expressly non-binding and contemplate a more detailed future
agreement between the parties are not binding agreements. E.g., Regency Ctrs.
Acquisition, LLC v. Crescent Acquisitions, LLC, 2018 NCBC LEXIS 7, *13–14 (Jan.
24, 2018); JDH Capital, LLC v. Flowers, 2009 NCBC LEXIS 8, at *15 (N.C. Sup. Ct.
Mar. 13, 2009) (finding that the letter of intent at issue was not a binding contract
because it, inter alia, stated on its face that it was a “letter of intent and that it is not
binding,” “contemplate[d] the execution of a more complete agreement,”
and contained “no language inferring an intent to be bound”) (citing Durham Coca-
Cola Bottling Co. v. Coca-Cola Bottling Co. Consol., 2003 NCBC LEXIS 5, at **23,
32–33 (N.C. Super. Ct. Apr. 28, 2003)); see also Boyce v. McMahan, 22 N.C. App. 254,
258 (1974) (holding that the agreement at issue was “made [ ] subject to a more
detailed agreement at some specific date to be agreed to by the parties hereto” and
was therefore not a binding contract) (internal quotation marks omitted).
110. Second, the “ability to earn” language relied on by Plaintiffs is, by its
very nature, a statement of future intent or a “representation relating to future
prospects.” Ragsdale, 286 N.C. at 139. Notably, this language did not make it into
the final APA, which is silent as to Plaintiffs’ ability to earn the Sales Milestones.
(ECF No. 112, at p. 352.)
111. Third, almost all the evidence upon which Plaintiff relies to establish
PRA’s fraudulent intent is from after the execution of the LOI in October 2014. In particular, the board of directors meeting in which Plaintiffs claim PRA disclosed its
alleged plans not to sell the Solutions and its intent to block competitors from
acquiring the Solutions took place in December 2014, which was two months after
the LOI was executed. Plaintiffs have not produced substantial evidence that raises
an issue of material fact regarding PRA’s intent at the time it entered into the LOI.
112. Finally, Plaintiffs cite no authority from North Carolina or other
jurisdictions, and the Court was not able to locate any, in which a court has
recognized a claim for fraud arising out of representations contained in a letter of
intent. This clearly is not the case in which this Court should consider recognizing
such a claim.
113. Therefore, to the extent PRA’s Motion seeks summary judgment on
Plaintiffs’ claims of intentional misrepresentation and fraudulent inducement based
on representations contained in the LOI, PRA’s Motion should be GRANTED.
3. Violation of UDTPA
114. Plaintiffs’ claim for violation of the UDTPA is a repackaging of their
breach of contract and fraud claims. (ECF No. 60.1, at ¶¶ 173–78.) Plaintiffs allege
PRA engaged in unfair or deceptive practices by fraudulently inducing Plaintiffs to
enter into the APA, falsely promising to amend the Milestones, and by breaching the
APA by engaging in conduct to “interfere with, and prevent the completion of the
[M]ilestones.” (Id. at ¶ 175.) Here, Plaintiffs’ claim turns on whether they have
produced sufficient evidence of unfair or deceptive acts by PRA. Whether an act or
practice is unfair or deceptive is ultimately a question of law for the Court.
Songwooyarn Trading Co. v. Sox Eleven, Inc., 213 N.C. App. 49, 56 (2011). 115. As a preliminary matter, the Court has dismissed Plaintiffs’ claims for
fraud and fraudulent inducement, so those claims do not support a claim for unfair
and deceptive trade practices. A claim for violation of the UDTPA does not require
a separate, actionable, underlying claim for fraud. See Gress v. Rowboat Co., 190 N.C.
App. 773 (2008). However, the dismissal of the fraud claims supports the conclusion
that Plaintiffs have not produced evidence of deceptive conduct.
116. Further, although a breach of contract accompanied by “substantial
aggravating circumstances” can sustain a claim for violation of the UDTPA, Branch
Banking & Trust Co. v. Thompson, 107 N.C. App. 53, 62 (1992), the Court has
dismissed Plaintiffs’ claim for breach of the APA.
117. Therefore, to the extent PRA’s Motion seeks summary judgment on
Plaintiffs’ claim for violation of the UDTPA, PRA’s Motion should be GRANTED.
C. Plaintiffs’ Motion
118. Plaintiffs move for summary judgment on only two claims: (a) PRA’s
remaining counterclaim against Parthasarathy for breach of the Employment
Agreement and the Settlement Agreement, and (b) whether the license granted in
the Takeda MSA constitutes an “External Sale” under the MSA, potentially entitling
Plaintiffs to certain Sales Milestone payments. (ECF Nos. 116/117.1, at pp. 1–2.) The
Court will address these claims in turn.
1. PRA’s Counterclaim for Breach of Contract Against Parthasarathy
119. Plaintiffs seek summary judgment in their favor on PRA’s counterclaim
for breach of contract against Parthasarathy. The counterclaim alleges: (1) that
Parthasarathy did not use his “best efforts” on behalf of PRA, as required by the Employment Agreement, because he devoted significant time and effort to forming
MGS; and (2) that “Parthasarathy’s breach of the Employment Agreement also
effectuated a breach of the Settlement Agreement, in which he represented that he
had ‘not breached any provision of the Employment Agreement.’” (ECF No. 37, at ¶¶
84–91.) In the counterclaim, PRA alleges “[a]s a direct and proximate result of
Parthasarathy’s breaches of the Parthasarathy Employment Agreement and
Settlement Agreement, PRA is entitled to actual damages, including the amount PRA
paid to Parthasarathy under the Settlement Agreement, plus attorneys’ fees and
interest.” (Id. at ¶ 91.)
120. In North Carolina, a party asserting breach of contract must show “(1)
existence of a valid contract; and (2) breach of the terms of that contract.” Cater v.
Barker, 172 N.C. App. 441, 445 (2005) (citing Poor v. Hill, 138 N.C. App. 19, 26
(2000)). In construing a contract, the courts are to give full effect to each
unambiguous contractual provision. Singleton v. Haywood Elec. Membership. Corp.,
357 N.C. 623, 629 (2003) (holding that “various terms of the [contract] are to be
harmoniously construed, and if possible, every word and every provision is to be given
effect”).
121. Our Court of Appeals has held, “[i]n order for a breach of contract to be
actionable it must be a material breach, one that substantially defeats the purpose of
the agreement or goes to the very heart of the agreement, or can be characterized as
a substantial failure to perform.” Supplee v. Miller-Motte Bus. Coll., Inc., 239 N.C.
App. 208, 220 (2015) (quoting Long v. Long, 160 N.C. App. 664, 668 (2003)). The
question of "[w]hether a breach is material or immaterial is ordinarily a question of fact[.]" McClure Lumber Co. v. Helmsman Constr., Inc., 160 N.C. App. 190, 198
(2003).
122. It is undisputed that the Employment Agreement and Settlement
Agreement are valid contracts. It also is undisputed that Parthasarathy helped
found, served on the board of directors of, and did extensive work in furtherance of
MGS while still employed by PRA, and that Parthasarathy neither disclosed his
involvement with MGS to Shannon or PRA, nor sought PRA’s consent to engage in
his activities with MGS. Parthasarathy’s activities for MGS are at least arguably
breaches of the unambiguous obligations contained in sections 3(a)(i) and 3(a)(ii) of
the Employment Agreement.
123. Plaintiffs argue that the only breach of the Employment Agreement and
Separation Agreement that PRA is now pursuing is Parthasarathy’s failure to get
Shannon’s consent to serve on the MGS’s board of directors. (ECF Nos. 116/117.1, at
pp. 10–11.) Plaintiffs contend that PRA’s Rule 30(b)(6) corporate witnesses on the
breach of contract counterclaim, Irene, testified that the
sole basis for PRA’s “best efforts” counterclaim against Mr. Parthasarathy is his failure “to inform PRA if he were on the board of another company” and that PRA “not aware of performance reasons for the counterclaim” and does not claim that Mr. Parthasarathy’s claimed failure to give notice had any impact on his performance of his job.
(Id. at p. 10.) Irene further testified that “PRA seeks the ‘$135,000 that was deposited
into [Parthasarathy’s] account as part of his severance agreement’” and “‘[s]o the
counterclaim is for the money paid to [Parthasarathy]. That is what the counterclaim
is. It’s not an evaluation of his job performance.’” (Id.) 124. Plaintiffs argue that Parthasarathy’s failure to notify PRA of his work
on MGS does not constitute a material breach such that rescissory damages should
be awarded to PRA. (Id. at pp. 10–11.) Plaintiffs further contend that “because PRA
does not seek any actual damages from the claimed breach, its counterclaim fails and
must be dismissed.” (Id. at p. 11; ECF Nos. 128/138, at p. 4.)
125. Finally, Plaintiffs argue that no North Carolina statute authorizes
PRA’s recovery of attorneys’ fees and that the “contractual provision PRA relies on is
an ‘indemnification’ clause in the Employment Separation Agreement.” (Id. at p. 12.)
126. In response, PRA argues that Plaintiffs’ contention that PRA admitted
that its counterclaim is based solely on Parthasarathy’s failure to notify PRA that he
was serving on MGS’s board of directors is a “gross” mischaracterization of Irene’s
testimony, and that Irene testified repeatedly that the counterclaim was based on
Parthasarathy’s work on behalf of MGS while still employed with PRA as well as his
failure to inform Shannon that he served on the board. (ECF Nos. 120/122, at p. 7.)
The Court has reviewed the relevant testimony and concludes that PRA is correct;
Irene testified on multiple occasions that PRA’s claim was based on Parthasarathy’s
employment with and work on behalf of MSG as well as his failure to notify Shannon.
PRA has not limited its breach of contract counterclaim to Parthasarathy’s failure to
inform Shannon that he was serving on MGS’s board of directors.
127. PRA next contends that it is not seeking the equitable remedy of
“recission” of the Settlement Agreement, but instead is seeking as actual damages
the amount it paid to Parthasarathy as separation pay. (Id. at pp. 8–9.) PRA claims
it merely seeks “compensation” for Parthasarathy’s breach of the Settlement Agreement that would place it “in the same position he would have occupied if the
contract had been performed.” (Id. at p. 9.)
128. PRA further argues that it is not required to prove it suffered actual
damages to survive summary judgment on a claim for breach of contract. (Id. at p.
6.) PRA is correct. See Midgett v. N.C. State Highway Comm'n, 265 N.C. 373 (N.C.
1965) (“When plaintiff proves breach of contract he is entitled at least to nominal
damages.”) (quotation and citation omitted); Crescent Univ. City Venture, LLC v. AP
Atl., Inc., 2019 NCBC LEXIS 46, at *127 (N.C. Bus. Ct. Aug. 8, 2019) (“[I]in a suit for
damages for breach of contract, proof of the breach would entitle the plaintiff to
nominal damages at least.”) (citing Delta Envtl. Consultants, Inc. v. Wysong & Miles
Co., 132 N.C. App. 160, 172 (1999))); Comm. to Elect Forest v. Emples. Political Action
Comm., 260 N.C. App. 1, 6–7 (2018) (“[O]ne has standing to seek nominal damages
where some legal right has been invaded but no actual loss or substantial injury has
been sustained. Nominal damages are awarded in recognition of the right and of the
technical injury resulting from its violation.”) (internal quotation omitted).
129. The Court has considered Plaintiffs’ arguments in support of entering
summary judgment against PRA on its claim for breach of the Employment
Agreement and Settlement Agreement and concludes that Plaintiff’s Motion on these
claims must fail. There is no dispute that the Employment Agreement and
Settlement Agreement are enforceable contracts, and there is evidence upon which a
finder of fact could find Parthasarathy’s activities for MGS were a material breach of
at least sections 3(a)(i) and 3(a)(ii) of the Employment Agreement and of
representations in the Settlement Agreement. PRA may be entitled to at least nominal damages for such breaches. Therefore, to the extent that Plaintiffs seek
summary judgment in their favor as to PRA’s counterclaim for breach of the
Employment Agreement and Settlement Agreement, Plaintiffs’ Motion should be
DENIED.
130. Regarding PRA’s counterclaim for breach of the Settlement Agreement,
Plaintiffs also argue that PRA cannot recover attorneys’ fees from Plaintiffs as a
matter of law. Plaintiffs contend that the provision in the Settlement Agreement
requiring Parthasarathy to indemnify PRA for its attorneys’ fees and costs for
pursuing its claim for breach of the Employment Agreement is unenforceable because
there is no statute authorizing an award of attorneys’ fees. (ECF Nos. 116/117.1, at
pp. 11–12.) North Carolina adheres to the “American Rule” that a “successful litigant
may not recover attorneys' fees, whether as costs or as an item of damages, unless
such a recovery is expressly authorized by statute.” Stillwell Enter. v. Interstate
Equip. Co., 300 N.C. 286, 289 (1980) (citing Hicks v. Albertson, 284 N.C. 236 (1972));
see also Burr v. Burr, 153 N.C. App. 504, 506 (2002) (“The recovery of attorney’s fees
is a right created by statute.”); Wiggins v. Bright, 198 N.C. App. 692, 695 (2009) (“A
trial court cannot award attorneys’ fees unless specifically authorized by statute.”).
This is true “[e]ven in the face of a carefully drafted contractual provision
indemnifying a party for such attorneys’ fees as may be necessitated by a successful action on the contract itself.” Stillwell Enter., 300 N.C. at 289 (citing Howell v.
Roberson, 197 N.C. 572 (1929) and Tinsley v. Hoskins, 111 N.C. 340 (1892)). 9
131. PRA does not contend that there is statutory authority for its claim for
attorneys’ fees in this case. Instead, it argues that “[w]here, as here, parties agree to
an attorney’s fees provision in a settlement agreement, such a provision is enforceable
under North Carolina law,” citing in support Ehrenhaus v. Baker, 243 N.C. App. at
28, and other cases.
132. PRA misinterprets Ehrenhaus and its application to the facts in this
lawsuit. In Ehrenhaus, the court held that the defendants’ agreement to pay the
plaintiffs’ attorneys fees in consideration for, and as part of, a settlement agreement
resolving pending claims between the parties was permissible even absent statutory
authority since North Carolina “recognizes the enforceability of settlement
agreements providing for the payment of one party’s attorneys’ fees by the other party
to the lawsuit.” Id. at 28 (citing Carter v. Foster, 103 N.C. App. 110, 114–15 (1991)).
The Court recognized “that giving effect to a negotiated settlement agreement
providing for the payment of one party’s attorneys’ fees by the other party is
consistent with the well-established policy of encouraging the settlement of disputes
between litigants” and does not implicate the public policy concerns addressed by the
American Rule. Id. at 27–28 (stating that the “rationale underlying American Rule
9 By statute, North Carolina has created a narrow exception to this rule in circumstances
where there are “[r]eciprocal attorneys’ fees provisions [contained] in business contracts.” N.C.G.S. § 6-21.6. It is undisputed that the attorneys’ fees provision at issue in this case is not reciprocal but, instead, inures only to the benefit of PRA. is that attorney fee awards against the non-prevailing party have a chilling effect on
open access to the courts.”) (quotation and citation omitted).
133. Unlike in Ehrenhaus, the attorneys’ fees provision here, although
contained within a document title “Confidential Release and Settlement Agreement,”
does not require Plaintiffs to pay attorneys’ fees in settlement of an existing dispute
between the parties. Rather, it is simply a device for requiring Plaintiffs to pay PRA’s
attorneys’ fees in the event PRA pursues a “claim” and proves that Parthasarathy
made a misrepresentation regarding his compliance with the terms of the
Employment Agreement. In other words, it provides for the payment of PRA’s
attorneys’ fees if PRA is the prevailing party on such a claim. This is easily
distinguishable from the type of attorneys’ fees agreement enforced in Ehrenhaus.
134. The Court has carefully considered the arguments and concludes that
the terms of the Settlement Agreement requiring Plaintiffs to pay PRA’s attorneys’
fees is unenforceable as a matter of law. GR&S Atl. Beach, LLC v. Hull, 2011 NCBC
LEXIS 38, at *2 (N.C. Super. Ct. Sept. 29, 2011) (stating that attorneys’ fees
“incurred in litigation between parties are not recoverable by the successful party in
the absence of statutory authorization, whether they are claimed as costs or damages
and whether or not an agreement between the parties expressly allows for the
recovery of such fees”). Accordingly, to the extent Plaintiffs’ Motion seeks summary
judgment in Plaintiffs’ favor dismissing PRA’s counterclaim for attorneys’ fees and
costs, Plaintiffs’ Motion should be GRANTED. 2. Plaintiffs’ claim that the license granted in the Takeda MSA constitutes an “External Sale” under the APA
135. In the Amended Complaint, Plaintiffs allege that “PRA entered into
transactions with Takeda (and, on information and belief, other customers) that
qualify as External Sales under the APA but has failed to pay the variable milestone
payments associated with the sales milestone.” (ECF No. 60.1, at ¶131.) Plaintiffs
now seek summary judgment on the issue of whether the license to access PSO
provided by PRA to Takeda constitutes an External Sale under the APA. 10
136. The relevant terms of the Takeda MSA are not in dispute. In or around
July 2016 PRA entered into the Takeda MSA. Under the Takeda MSA, PRA was to
provide services to Takeda including assistance with clinical trial management in
exchange for compensation by Takeda. The Takeda MSA grants Takeda the right to
access and use the “PRAHS Owned Technology” that PRA used in supporting or
providing the services. Under the Takeda MSA, “PRAHS Owned Technology”
includes the Solutions. The Takeda MSA does not expressly provide that a defined
amount or percentage of the compensation paid by Takeda for PRA’s services is
attributable to the license to access and use the Solutions.
137. To determine whether the Takeda MSA is an External Sale, the Court
must interpret the meaning of that term as used in the APA. Summarizing
Delaware’s rules of contract construction, the Delaware Supreme Court held:
10 In its Order on Rule 10.9 Discovery Dispute (ECF No. 82), the Court ordered that “[t]he
parties shall include as part of their briefing on motions for summary judgment, . . . argument regarding whether the type of access to PSO granted by the Takeda Agreement is an “External Sale” under the APA.” (Id. at p. 7.) Clear and unambiguous language . . . should be given its ordinary and usual meaning. Absent some ambiguity, Delaware courts will not destroy or twist [contract] language under the guise of construing it. When the language of a . . . contract is clear and unequivocal, a party will be bound by its plain meaning because creating an ambiguity where none exists could, in effect, create a new contract with rights, liabilities and duties to which the parties had not assented. . . .
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. Ambiguity does not exist where a court can determine the meaning of a contract without any other guide than a knowledge of the simple facts on which, from the nature of language in general, its meaning depends. Courts will not torture contractual terms to impart ambiguity where ordinary meaning leaves no room for uncertainty. The true test is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (2006) (quoting
Rhone-Poulenc, 616 A.2d at 1195–96). “The determination of ambiguity lies within
the sole province of the court.” Estate of Osborn, 991 A.2d 1160.
138. “[W]here the language at issue is clear and unambiguous. . . . the parol
evidence rule bars the admission of evidence from outside the contract's four corners
to vary or contradict that unambiguous language.” GMG Capital Invs., LLC, 36 A.3d
at 783. “But, where reasonable minds could differ as to the contract's meaning, a
factual dispute results and the fact-finder must consider admissible extrinsic
evidence. In those cases, summary judgment is improper.” Id. 139. A contract term or phrase is not ambiguous merely because the parties
dispute its proper construction. Lorillard Tobacco Co., 903 A.2d at 73. Rather,
[i]f parties introduce conflicting interpretations of a term, but one interpretation better comports with the remaining contents of the document or gives effect to all the words in dispute, the court may, as a matter of law and without resorting to extrinsic evidence, resolve the meaning of the disputed term in favor of the superior interpretation.
Wills v. Morris, James, Hitchens, & Williams, 1998 Del. Ch. LEXIS 213, *4-5 (Nov. 6,
1998) (citing E.I. duPont de Nemours v. Shell Oil Co., 498 A.2d 1108, 1113 (Del.
1985)).
140. With these rules of construction in mind, the Court turns to the relevant
language and provisions of the APA.
141. The APA states, in pertinent part, that External Sale “means the sale of
one or more licenses to the Solutions by [PRA] . . . to a third party.” (ECF No. 112, at
p. 352.) Clin Trial Max, Cloud Max, and Info Max are defined as the Solutions. (Id.
at p. 349.) The APA provides that Plaintiffs will earn incentive payments for the
achievement of the Sales Milestones upon “the achievement of aggregate External
Sales” within certain proscribed time periods following the Closing Date. (Id. at p.
374.) The Sales Milestones are separate from, and in addition to, the Development
Milestones tied to the functionality of the Solutions and their deployment within PRA
clinical trial management environment. (Id. at pp. 351–52.)
142. Plaintiffs do not argue that the meaning of the term External Sale is
unambiguous. (ECF Nos. 116/117.1, at pp. 4, 13–16; ECF Nos. 128/138, at pp. 8–16.)
Instead, relying heavily on deposition testimony and other extrinsic evidence, Plaintiffs contend that the definition of External Sale in the APA is broad enough to
“to capture the ‘myriad’ types of licensing transactions that would permit PRA to
commercially exploit the value of the Solutions.” (ECF Nos. 116/117.1, at pp. 4, 13–
16; ECF Nos. 128/138, at pp. 8–16.) Plaintiffs argue that nothing contained in the
definition of External Sale requires that “the transaction between PRA and PRA’s
customer” has to “be a software sales transaction or memorialized as a licensing
agreement.” (ECF Nos. 116/117.1, at p. 14.) Plaintiffs argue that “the Takeda MSA
includes an express license to Takeda of the Solutions used by PRA to provide
services,” that PRA has in fact used the Solutions to provide services to Takeda, and
that the transaction qualifies as an External Sale. (Id.)
143. PRA argues that the term External Sale in the APA is unambiguous,
and therefore the Court should not consider the extrinsic evidence offered by
Plaintiffs. (ECF Nos. 120/122, at pp. 17–24.) PRA contends that the word “sale is
generally understood to involve a conveyance of something in exchange for a payment
for that which is being conveyed” and cites a dictionary definition of “sale” as “the
transfer of ownership of and title to something “for a price.” (ECF No. 120/122, at p.
14.) PRA argues that providing its customers access to PRA’s technology and
software, including the Solutions, as part of providing clinical trial management
services to the customer without charging a fee for the access is not an External Sale.
PRA further asserts that Plaintiffs’ proposed interpretation would lead to “absurd
results” because “[u]nder Plaintiffs’ interpretation, PRA would apparently make a
‘sale’ of [the Solutions] any time it entered into a contract that either i) allowed the
customer the general right to access and use PRA’s technology; or ii) disclosed on an exhibit which technology applications PRA might use internally in providing clinical
trial services to a customer.” (Id. at p. 23.)
144. PRA also notes that the Takeda MSA does not expressly use the word
sale in connection with the license, and that there is no separate fee attributed to the
access to the Solutions. (Id.) PRA also argues that the “overall structure” of the
transaction, which involved a large number of Takeda employees transferring to work
on-site at PRA, suggests the license was simply a means for making it easier to work
“collaboratively.” (Id. at pp. 15–16.) PRA contends that merely providing a customer
access to and use of PSO as part of providing services is not a sale.
145. The Court begins by assessing the language used by the parties to define
the term External Sale in the APA. The key language at issue is “the sale of one or
more licenses to the Solutions by [PRA] . . . to a third party.” (ECF No. 112.1, at p.
374.) “License” is a familiar term when used in connection with software, typically
meaning a limited right to access and use a software product owned by another entity.
This meaning generally comports with an accepted dictionary definition of “license”
as “a grant by the holder of a copyright or patent to another of any of the rights
embodied in the copyright or patent short of an assignment of all rights.” License,
MERRIAM-WEBSTER.COM, https://www.merriam-webster.com/dictionary/license (last
visited Mar. 30, 2021). As PRA contends, “[a] ‘sale’ is generally understood to involve
a conveyance of something in exchange for a payment for that which is being
conveyed.” (ECF Nos. 120/122, at p. 14.) A common sense reading of the definition
of External Sale strongly suggests that an External Sale contemplates the payment
of a specific fee by a customer for the right use of the Solution. 146. This construction of the definition of External Sale is also consistent
with the overall purposes and structure of the APA. See E.I. duPont de Nemours v.
Shell Oil Co., 498 A.2d at 1113 (“In upholding the intentions of the parties, a court
must construe the agreement as a whole, giving effect to all provisions therein.
Moreover, the meaning which arises from a particular portion of an agreement cannot
control the meaning of the entire agreement where such inference runs counter to the
agreement's overall scheme or plan.”). In the APA, PRA purchased all of Plaintiffs’
proprietary rights and interests in the Solutions and became the owner of the
Solutions. Part of the compensation for the purchase was structured as incentive
payments to Plaintiffs for successfully and timely integrating the Solutions into
PRA’s clinical trial management environment in order for PRA to better provide
services to its customers―services for which it had an established revenue stream.
(ECF No. 112.1, at pp. 351–52.) A second and distinct set of incentive payments were
tied to PRA’s ability to create a new revenue stream derived from selling licenses to
the Solutions to customers. (Id. at p. 352.) The incentives are expressly tied to the
income generated by PRA from selling the licenses, and not an increase in PRA’s
overall revenue from providing its clinical trial management services caused by PRA’s
internal use of the Solution. 11
147. Plaintiffs and PRA offer differing interpretations of the term External
Sales. However, “[i]f parties introduce conflicting interpretations of a term, but one
11 The Court believes that a sale of a license to the Solutions could occur within an overall
services agreement between PRA and its customers if a separate and specific fee were attributed to the license or licenses. interpretation better comports with the remaining contents of the document or gives
effect to all the words in dispute, the court may, as a matter of law and without
resorting to extrinsic evidence, resolve the meaning of the disputed term in favor of
the superior interpretation.” Wills, 1998 Del. Ch. LEXIS 213, at *4-5. PRA urges the
language “the sale of one or more licenses to the Solutions by [PRA] . . . to a third
party” means the sale of a right to access and use the Solution for a specific payment
In this case, PRA has offered the “superior interpretation” of the meaning of External
Sale as being the grant of a license by PRA to a third party to use the Solutions in
exchange for a specific fee or payment attributable solely or separately to the license.
The Court concludes that the term External Sale is unambiguous and is not “fairly
susceptible of different interpretations,” and “a reasonable person in the position of
the parties would have thought [External Sales] meant” the grant of license by PRA
to a third party to use the Solutions in exchange for a specific fee or payment
attributable solely or separately to the license. Lorillard Tobacco Co.., 903 A.2d at
739.
148. Accordingly, to the extent Plaintiffs seek summary judgment in their
favor in finding that the Takeda MSA constituted an External Sale within the
meaning of the APA, Plaintiffs’ Motion should be DENIED. To the extent PRA’s
Motion seeks summary judgment on Plaintiffs’ claim that the Takeda MSA
constituted an External Sale within the meaning of the APA, PRA’s Motion should be
GRANTED. IV. CONCLUSION 12
THEREFORE, IT IS ORDERED, as follows:
1. PRA’s Motion is GRANTED.
2. To the extent Plaintiffs’ Motion seeks summary judgment in Plaintiffs’
favor as to PRA’s counterclaim for breach of the Employment Agreement
and Settlement Agreement, Plaintiffs’ Motion is DENIED.
3. To the extent Plaintiffs’ Motion seeks the entry of summary judgment in
Plaintiffs’ favor dismissing PRA’s counterclaim for attorneys’ fees and costs,
Plaintiffs’ Motion is GRANTED.
4. To the extent Plaintiffs’ Motion seeks the entry of summary judgment in
Plaintiffs’ favor finding the Takeda MSA constituted an External Sale
within the meaning of the APA, Plaintiffs’ Motion is DENIED.
5. To the extent PRA’s Motion seeks summary judgment on Plaintiffs’ claim
that the Takeda MSA constituted an External Sale within the meaning of
the APA, PRA’s Motion is GRANTED.
12 PRA also seeks summary judgment on its argument that the APA requires that claims
arising under the APA be tried to the Court without a jury and not to a jury, and that Plaintiffs waived their right to a jury trial. (ECF No. 110, at p. 5.) Since the Court has dismissed Plaintiffs’ remaining claims, the argument is moot. Therefore, to the extent PRA’s Motion seeks summary judgment on this argument, PRA’s Motion is DENIED without prejudice. SO ORDERED, this the 5th day of April, 2021.
/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases
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Value Health Sols., Inc. v. Pharm. Rsch. Assocs., 2021 Ncbc 24a, Counsel Stack Legal Research, https://law.counselstack.com/opinion/value-health-sols-inc-v-pharm-rsch-assocs-2021-ncbc-24a-ncbizct-2021.