Harold ex rel. Harold v. McGann

Page 562

406 F.Supp.2d 562

Robert William HAROLD, Administrator of the ESTATE OF Robert George HAROLD, Plaintiff, v. Bryan A. MCGANN, et al. Defendants.

No. 05-CV-1493.

United States District Court, E.D. Pennsylvania.

December 29, 2005.

COPYRIGHT MATERIAL OMITTED

David E. Jokelson, Neil E. Jokelson, Neil E. Jokelson & Assoc., PC, Philadelphia, PA, for Plaintiff.

Gregory B. Lare, Helen Mountain, Sandra A. Jeskie, Duane, Morris LLP, Philadelphia, PA, for Defendant.

MEMORANDUM

ANITA B. BRODY, District Judge.

I. INTRODUCTION

Plaintiff Robert William Harold ("Plaintiff") brings this action against defendants alleging various breach of contract and tort claims arising out of a patent sale, and requesting both legal and equitable relief, including a claim pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201 et seq. Subject matter jurisdiction for the other claims is founded upon diversity pursuant to 28 U.S.C. § 1332, as Plaintiff is a Pennsylvania citizen and defendants are citizens of other states, with the corporate defendants maintaining their principal places of business outside Pennsylvania. Plaintiff alleges that defendant Bryan A. McGann ("McGann") fraudulently induced Plaintiff's father, Robert George Harold ("Decedent") to sell McGann a patent for a product to help administer medicine to pets, and then breached the contract in numerous ways. Plaintiff also alleges that McGann and the company he formed to market the patented product, Pill Pockets, Inc. ("PPI") breached their fiduciary duty or confidential relationship with Plaintiff and Decedent, engaged in conversion, unjust enrichment, breach of trust, fraudulent misrepresentation, and constructive fraud. In addition to damages and rescission for these claims, Plaintiff requests declaratory judgment and the imposition of an equitable lien against all defendants, including S & M NuTec ("S & M"). Presently before me are two motions to dismiss all claims, one filed by S & M (Doc. # 8) and one filed by McGann and PPI (Doc. # 9).¹ For the reasons set forth below, S & M's motion is granted and McGann and PPI's motion is granted in part and denied in part.

II. FACTUAL BACKGROUND²

In 1989, Decedent obtained United States Patent No. 4,857,333 ("the Patent") for his invention entitled "Food Product for Administering Medication to Animals." (Compl.¶ 13.) In April 1997, McGann began soliciting Decedent to purchase the patent, sending letters and a draft agreement. (Id. ¶¶ 14-16.) On or about May 15, 1997, McGann signed and forwarded a written agreement ("the Sale Agreement") to Decedent, who executed it in Pennsylvania on or about May 19, 1997. (Id. ¶ 17-18.) The first sentence of the Sale Agreement stated that "This letter will serve as the agreement between us for the sale and assignment" of the Patent.

The Sale Agreement provided that Decedent, by signing the Sale Agreement and accepting the enclosed check for $500, sold the Patent under the following terms:

• Bryan McGann will pay the maintenance fee on the patent which is approximately $1,175 plus attorney fees.

• Bryan McGann will pay the costs of preparing the sale and assignment documentation.

• Bryan McGann will pay to Bob Harold a royalty of 5% on net sales of products covered by the claims of the patent, up to a total cap of $100,000.00 in cumulative royalty payments. This royalty cap represents cumulative net sales of $2,000,000.00. Bryan McGann will report semi-annually to Bob Harold on the net sales of the product covered by this patent.

• If the patent is sold to another party, this agreement will survive the sale as a contingent payment obligation provided that the total payments to Bob Harold have not exceeded the $100,000.00 royalty cap.

• If the patent is infringed by a third party and a settlement is received, Bryan McGann, or the then owner of the patent, will pay to Bob Harold 5% of the net settlement amount (less costs, attorney fees etc.) up to $100,000.00.

• Bob Harold will provide background information on marketing efforts and company relationships concerning the patent.

• Bryan McGann will have the right of first refusal on any future invention and associated patent developed by Bob Harold if it is in the pet care field.

• In the event of unforeseen delays in the generation of sales, Bob Harold can exchange his royalty options for cash equal to $3,000.00 which is substantially equal to the patent sales price originally agreed upon between the parties ($5,000 less maintenance and attorney fees).

(Compl.Ex. B.)

The Sales Agreement was accompanied by a cover letter stating that McGann, after consulting his attorney, "deleted the minimum payment due under a sale and simply made it so [the] agreement survives any sale and will be the responsibility of any future owner of the patent." (Id.) Attached to the Sale Agreement was a patent assignment which Decedent executed on May 19, 1997 in Philadelphia. (Compl.¶ 22.)

Plaintiff alleges upon information and belief that before and on May 15, 1997, McGann represented to the Decedent that he would promptly produce and market a product based on the patent in order to generate sales. (Id. at ¶ 23.) On August 21, 1997, Decedent accepted an addendum to the Sale Agreement assigning to McGann "any rights that may exist to the potential trade name `STOWAWAY'" and rights to Decedent's artwork "for use on the labeling of the product." (Compl.Ex. C.) McGann attended law school at the University of North Carolina at Chapel Hill, without Decedent's knowledge, and did not communicate with Decedent from mid-1998 until March 14, 2002. (Compl.¶ 26.)

On March 14, 2002, McGann wrote Decedent a letter updating him on the status of the patent product. (Compl.Ex. D.) The letter read:

Dear Bob and Dorothy:

I know this letter must find you quite surprised since it has been so long. Given the twists and turns over the last few years, I am a little surprised to have the opportunity to write you with possible good news. In 1998 I returned to school and earned my law degree from the University of North Carolina at Chapel Hill. I have never lost my desire to get Stow Away to market, but as time went by, each opportunity seemed to have a catch that thwarted my efforts. On a more positive note, I have a four year old that has kept my non-law school attention.

Now I am able to give you a different report. I am involved with an individual in Colorado who obtained a patent in 2000 on different designs of Stow Away. While she cannot make her product without violating the Harold patent, she has the trademark on the name Pill Pockets which has received great praise in consumer focus groups. She is also very well connected in many of the veterinary circles and has given us the contacts we needed to move ahead full speed. In July of this year, we will introduce the product at the AVMA Convention in Nashville. We are displaying the product in an exhibitor booth and will hold a news conference along with some of our veterinary consultants. In all, we hope to build this effort quickly, and hope to entertain offers in the near future to purchase the product. Either way, however, we have received a great deal of support and enthusiastic cooperation as we have worked to get to this point. I will keep you informed of all events as they unfold.

I hope this letter finds you well. I know that you were having tough days back in 1997 and 1998 and I pray that you have found relief from the pain you described. I will look forward to talking with you soon. Take good care.

Id. McGann's signature line included the credentials "J.D., M.B.A." Id.

In July 2002, Decedent responded in an email to McGann that he and his wife were "thrilled to death" about the news because they had "been under EXTREME stress for many months" due to family medical problems, including Decedent's migraines. (Compl.Ex. E.) Decedent apologized for not writing back sooner, and wrote "Good luck at the show and thanks so much for your persistence." Id. On September 29, 2002, Decedent died intestate. (Compl.¶¶ 30, 34.)

Plaintiff informed McGann of Decedent's death at some point, at which time McGann informed him that he would honor the Sale Agreement. (Id. ¶ 31.) Shortly thereafter, McGann called Dorothy Harold and confirmed that he would honor the contract. (Id. ¶ 32.) Plaintiff alleges that McGann never intended to honor the Sale Agreement or the promises to Plaintiff and Dorothy Harold that he would honor the Sale Agreement. (Id. ¶ 33.)

At some time unknown to the Harolds, McGann incorporated PPI, named himself President and Chief Executive Officer of PPI, and transferred the Patent to it. (Id. ¶ 34.) Plaintiff alleges that McGann and PPI failed at the time of the patent transfer to execute appropriate documents ensuring that the Sale Agreement would survive the transfer as the responsibility of PPI, which they knew or should have known they were required to do. (Id. ¶ 35-36.)

Plaintiff called McGann periodically from 2002 through early 2005 to ask for updates on the product, and at no time did McGann inform him of any net sales of product. (Id. ¶ 37.) McGann told Plaintiff on one or more occasions that no money was being made and that he was not even taking a salary. (Id.) Unknown to the Harolds, products covered by the Patent had enjoyed over $35,000 in sales in the second half of 2003, entitling Decedent to over $1,800 in payments under the Sale Agreement. (Id. at ¶ 38.)

McGann wrote on PPI letterhead to Dorothy Harold on January 15, 2004, stating:

... Much has happened since we last spoke on the phone and I wanted to give you an update on the progress that Pill Pockets is making. Last year we merged with an investment group out of Colorado in exchange for a contribution of capital. This allowed us to build a plant in North Carolina in which we manufacture and distribute the product. So far, we have accomplished that task and we are now beginning to promote and actively market Pill Pockets...