Brennan v. FSD Pharma

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EDWARD BRENNAN, JR. and HUMA QAMAR v. FSD PHARMA INC. and FSD BIOSCIENCES, INC.

Civil Action No. 21-3771

United States District Court, E.D. Pennsylvania

December 13, 2021

MEMORANDUM

Gerald Austin McHugh United States District Judge

This is an action brought against FSD Pharma and its subsidiary, FSD Pharma Inc., following a change in control of the Board and the company's executive leadership. Plaintiffs Edward Brennan, Jr., and Huma Qamar, two former executives at FSD Pharma, allege that in the months leading up to the proxy fight, FSD Pharma's CEO entered into oral contracts with Plaintiffs which promised severance payments in the event of a leadership change. Plaintiffs plead that Defendants breached these contractual obligations by failing to provide severance packages following the corporate shake-up. Defendants respond that written contracts govern the parties' obligations, rendering the alleged oral modifications irrelevant, and therefore move to dismiss for failure to state a claim.

As to Ms. Qamar, standard contract principles guide the analysis and the written agreement she signed, which made no reference to a severance payment, entitles FSD to dismissal of her claims. As to Mr. Brennan, the case presents a complex threshold issue. The written contract between the parties specifies Ontario, Canada as the forum for any dispute. Mr Brennan contends that this forum selection clause was orally modified in favor of Pennsylvania. The question then arises should this Court decide whether such a modification occurred, or is that question properly decided by the Canadian court? For this court to presume to answer that question would amount to a premature decision on the merits of a critical issue in the case. I will therefore dismiss Brennan's claims without prejudice on forum non conveniens grounds, conditioned upon an Ontario court considering his contention that the forum selection clause was orally modified.

I. Factual Allegations

This case follows from a proxy fight over leadership of the Board of Directors of FSD Pharma. FSD is a publicly traded holding company and licensed producer of cannabis in Toronto, Canada, with a subsidiary called FSD Biosciences based in Pennsylvania. See Compl. ¶8, ECF 11. In January 2021, a struggle for control of FSD began when some shareholders sought to reduce the size of FSD's Board of Directors and replace six of the incumbent directors in anticipation of the May 2021 annual meeting. Compl. ¶14, ECF 1. During the shareholder meeting on May 14, 2021, FSD voted to remove FSD's Chairman and Chief Executive Officer, Raza Bokhari, from the Board. Compl. ¶27, 88. Mr. Bokhari was officially placed on administrative leave on or around May 17, 2021.^[1] Id. ¶88.

The pending dispute stems from events that took place in the months leading up to the proxy vote. Mr. Brennan and Ms. Qamar allege that, in advance of the vote, Mr. Bokhari entered into binding contracts with them on behalf of FSD specifying that if the proxy vote resulted in a leadership change^[2] and they resigned or were fired, they would receive severance payments. Id. ¶¶1, 30, 58. Once Bokhari was no longer in charge, Plaintiffs Edward Brennan, Jr. and Huma Qamar, employees of FSD, resigned: Mr. Brennan on June 3, 2002 and Ms. Qamar on May 26, 2021. Id. ¶¶89, 92. They never received their sought-after severance packages, which resulted in their decision to file suit.

The relevant facts are as follows: Plaintiff Edward Brennan, Jr. became the President of FSD Biosciences in May, 2019. Id. ¶17. He worked from Defendants' office in Bensalem, Pennsylvania. Id. ¶19. His employment was governed by a written contract. Relevant sections of the agreement contain 1) language specifying that modifications to his employment agreement must be in writing, 2) an Ontario choice of law provision, and 3) an Ontario forum selection clause:

● Section 7.5 specifies that “[n]o amendment of this Agreement shall be effective unless made in writing and signed by the parties.” Compl. Ex. 2 Employment Agreement, § 7.5.

● Section 7.8 specifies that the employment agreement, and any claims arising out of it, “shall be governed and construed with the laws of the Province of Ontario and the laws of Canada applicable in that Province and shall be treated, in all respects, as an Ontario Contract.” Id. § 7.8.

● Section 7.9 specifies as to venue, “[t]he parties agree to attorn to the exclusive jurisdiction of Ontario.” § 7.9.

During Brennan's employment, he became concerned about the brewing proxy fight and whether he should remain employed at FSD and sought assurances from Mr. Bokhari. Id. ¶¶21, 22. In a meeting between Mr. Brennan and Mr. Bokhari on February 7, 2021, Mr. Bokhari informed Brennan that he would be promoted to Chief Medical Officer (“CMO”) of FSD, his base salary would increase to $350, 000, and he would be entitled to severance in the event that there was a change in control of the Board and executive leadership of the company as a result of the proxy fight. Id. ¶¶20-25. Bokhari then informed Donal Carroll, Chief Financial Officer, about the modifications to Brennan's employment agreement. Brennan pleads that Bokhari advised Carroll that the venue provision was to be changed to Pennsylvania and instructed Carroll to prepare a written employment agreement memorializing the provisions. Id. ¶¶22, 28-30. Carroll never sent Brennan a modified, written employment contract, but some of the oral modifications - including an increase in pay and a change in job duties as CMO - were implemented by Defendants, during the period in which Bokhari was still employed at the company. Id. ¶¶34, 35. Following the proxy fight, Mr. Brennan resigned from his employment with FSD Biosciences on June 3, 2021, Id. ¶25, but Defendants never paid Brennan the severance payment allegedly owed under the oral agreement with Bokhari.

Plaintiff Huma Qamar began working as a Senior Director of FSD Biosciences in late January 2021. Compl. ¶54. Like Mr. Brennan, she expressed concerns about remaining employed at FSD depending on the outcome of the emerging proxy fight. Id. ¶56. To assuage her concerns, Mr. Bokhari agreed that Ms. Qamar would be promoted to the role of Senior Vice President of FSD and Head of the R&D Program, her base salary would increase to $250, 000, and, in the event that the Board and executive leadership changed as a result of the proxy fight, she could elect severance if she was terminated without cause or if she resigned. Id. ¶¶57-59.

Bokhari later informed Carroll about the modifications to Qamar's employment agreement, and he instructed Carroll to prepare a written employment agreement memorializing the provisions that Bokhari and Qamar had agreed upon. Id. ¶¶60, 61. Although Carroll informed Qamar that he was preparing the employment contract with the new terms, Carroll actually provided an employment contract without the inclusion of all the new terms. Most significantly for this case, the contract did not contain the severance provision. Id. ¶67. Nonetheless, “[a]fter several rounds of negotiations, ” Qamar signed the employment agreement on April 10, 2021, received a raise and was promoted to the position of Senior Vice President of FSD and Head of the R&D Program.^[3]Id. ¶¶72, 73. According to the Plaintiffs, Carroll informed her that if she did not sign that agreement, her employment would be terminated. Id. ¶71. The agreement that Qamar signed contained an integration clause which expressly states that it “supersedes all prior agreements” and specifies that “[t]he Employee hereby waives any right to assert a claim based on pre-contractual representations, negligent or otherwise, made by the Company or its representatives.” Compl. Ex. 3 § 7.1, ECF 1-1. Following the proxy vote, Qamar resigned on May 26, 2021. Id. ¶ 25. She did not receive a severance payment. Plaintiff claims that even though her employment contract contained no reference to the severance provision, she is entitled to severance because the oral contract is valid and must be enforced. Id. ¶¶ 74, 75.

II. Legal Standard

Within the Third Circuit, motions to dismiss under Fed.R.Civ.P. 12(b)(6) are governed by the well-established standard set forth in Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009).

III. Discussion

A. Brennan's Contract Claims are Dismissed on Forum Non Conveniens Grounds

Defendants argue that this Court cannot consider Brennan's claim that his contract was amended orally, because, as specified in his employment contract, his employment agreement is an “Ontario Contract” which “shall be governed and construed with the laws of Ontario and the laws of Canada” and where Ontario is the “exclusive jurisdiction.” Compl. Ex.2 Employment Agreement, §§ 7.8, 7.9. Plaintiff responds that when his contract was orally modified, the forum selection clause was also modified to favor Pennsylvania.^[4] This gives rise to an unusual procedural issue. Ordinarily under Rule 12, a court is obligated to treat all well-pleaded allegations as true. If I do so here and proceed to decide that an oral modification occurred, my application of a procedural standard would effectively determine the merits of the issue, because the threshold issue would be decided here rather than in Ontario as the written agreement requires. Given the existence of a forum selection clause in the document, and a substantial body of appellate authority emphasizing the primacy of forum selection clauses in determining venue, I am persuaded that whether there was an oral modification of the contract as to venue should in the first instance be decided by a Canadian court.

The Supreme Court has made clear that forum selection clauses hold controlling weight, and that “[i]n all but the most...