Takeda Pharm. U.S.A.., Inc. v. Spireas

400 F.Supp.3d 185

TAKEDA PHARMACEUTICALS U.S.A., INC., et al., Plaintiffs,

v.Spiridon SPIREAS, Defendant.

CIVIL ACTION NO. 17-452

United States District Court, E.D. Pennsylvania.

September 3, 2019

Filed September 4, 2019

Ashley Kaplan, Benjamin W. Schrier, Peter E. Gratzinger, Munger, Tolles & Olson LLP, Los Angeles, CA, Grant S. Palmer, Blank Rome Comisky & McCauley, Charles S. Marion, Rosemary Mckenna, Blank Rome LLP, Philadelphia, PA, Rohit K. Singla, Munger, Tolles & Olsen LLP, San Francisco, CA, for Plaintiffs.

Timothy T. Myers, Andrew Estepani, Mary E. Kohart, Elliott Greenleaf PC, Blue Bell, PA, for Defendant.

OPINION

Slomsky, District Judge

TABLE OF CONTENTS

I. INTRODUCTION...192

II. BACKGROUND...193

A. Spireas And Bolton Develop And Patent Their Liquisolid Technology And Form Hygrosol Pharmaceutical Corporation To Market The Technology...193

B. Mutual PA And United Enter Into An Agreement ("1998 Agreement") With Spireas, Bolton, And Hygrosol To License The Liquisolid Technology To Develop Generic Drug Products...194

C. Spireas and Bolton Receive Four (4) Liquisolid Technology Patents...196

D. Spireas Begins Working for Mutual PA, And Mutual PA And United License The Liquisolid Technology from Hygrosol to Develop Felodipine and Propafenone...196

E. Mutual PA And United Remit Royalty Payments To Hygrosol For Felodipine And Propafenone Drugs Pursuant To The 1998 Agreement...198

F. In 2011, Mutual PA And United Sue Spireas, Bolton, And Hygrosol In State Court...199

G. Takeda Pharmaceuticals Acquires Mutual PA And United In 2012, And Sells The Generic Drug Business Of Mutual PA And United To Sun Pharmaceutical in 2013...200

H. In 2013, The Internal Revenue Service ("IRS") Challenges Spireas' Treatment Of The Hygrosol Royalty Payments...200

I. Ensuing Procedural History Of This Case...201

III. STANDARD OF REVIEW...204

IV. ANALYSIS...204

A. Mutual Delaware Has Standing To Sue Under The 1998 Agreement...205

B. United Has Standing To Sue Under The 1998 Agreement...206

C. Genuine Disputes Of Material Fact Exist As To Whether United Paid Royalties To Hygrosol Under The 1998 Agreement...208

1. Enough Evidence Has Been Offered To Create Genuine Disputes Of Material Fact As To Whether United Made Royalty Payments Under The 1998 Agreement From 2002 To 2013...209

2. Genuine Disputes Of Material Fact Exist As To Whether Mutual Delaware, A Successor To United, Made Royalty Payments Under The 1998 Agreement...210

D. Genuine Disputes Of Material Fact Exist As To Whether Spireas Received

Royalty Payments From Hygrosol For Felodipine And Propafenone Under The 1998 Agreement...211

1. Hygrosol Received Royalty Payments Under The 1998 Agreement And Then Distributed The Royalty Payments To Spireas And Bolton...212

2. Whether The Royalty Payment Passed Through Hygrosol Before Reaching Spireas Has No Effect On Mutual Delaware's Claim For Money Had And Received...213

3. On Its Claim for Breach of Contract, Mutual Delaware Is Entitled To Seek Royalty Payments Made By United To Hygrosol Under The 1998 Agreement...214

E. The October 2018 Settlement Agreement Between Takeda, Spireas, And Hygrosol Does Not Preclude Mutual Delaware's Claims...217

F. Genuine Disputes Of Material Fact Exist As To Whether Mutual Delaware And United Made Royalty Payments Under The 1998 Agreement Voluntarily As A Result Of An Unprovoked Mistake Of Law...218

G. Spireas Is Not Entitled To Summary Judgment Based On Claim Preclusion...219

H. Genuine Disputes Of Material Fact Preclude Judgment As A Matter Of Law On Spireas' "Companion" Motion For Summary Judgment On Mutual Delaware's Claim For Money Had And Received Based On False Pretenses...221

1. Mutual Delaware Is Not Required To Prove Fraud In Order To Maintain Its Claim For Money Had And Received...222

2. Genuine Disputes Of Material Fact Have Been Shown As To Whether Spireas Made Material Misrepresentations to Mutual PA And/Or United In Connection With The 1998 Agreement...222

3. Genuine Disputes Of Material Fact Have Been Shown As To Whether Mutual PA And/Or United Justifiably Relied On Spireas' Representations That They Were Selling Drugs That Contained The Patented Technology...223

V. CONCLUSION...225

I. INTRODUCTION

On June 12, 1998, Defendant Spiridon Spireas ("Spireas"), his business partner, Dr. Sanford Bolton ("Bolton"),¹ and the company they formed together, Hygrosol Pharmaceutical Corp. ("Hygrosol"), executed a licensing agreement (the "1998 Agreement") with Mutual Pharmaceutical Company, Inc., a Pennsylvania corporation ("Mutual PA"), and its sister corporation, United Research Laboratories, Inc. ("United" or "URL"). Under the 1998 Agreement, Spireas and Bolton, through Hygrosol, granted Mutual PA and United the exclusive right to license their patent-pending "liquisolid technology" to use in formulating and developing generic drug products. Liquisolid technology is a process through which non-soluble drugs can be dissolved and converted into powder or pill form.

In March of 2000, Mutual PA and United licensed Spireas' and Bolton's now-patented liquisolid technology to develop generic propafenone and felodipine drug products, the active ingredients in the drugs Rythmol and Plendil, which are used respectively to treat irregular heart rates and high blood pressure. Under the terms of the 1998 Agreement, Spireas successfully developed formulations for felodipine and propafenone drug products for Mutual PA and United, after which Mutual PA and United began manufacturing and selling the drugs. In exchange for granting Mutual PA and United the right to their liquisolid technology, Spireas and Bolton received hundreds of millions of dollars from Mutual PA and United as royalties on the felodipine and propafenone products.

In 2017, Takeda Pharmaceuticals U.S.A., Inc. ("Takeda"), the successor-in-interest to Mutual PA, uncovered testimony that Spireas had given in a tax court proceeding unrelated to this case. During those proceedings, Spireas testified that the formulations he made for propafenone and felodipine under the 1998 Agreement did not use his and Bolton's patented liquisolid technology. Consequently, Takeda filed this case, alleging that Spireas had breached the 1998 Agreement by misrepresenting the formulations of felodipine and propafenone. Takeda sought to recoup the $150 million in royalties that were paid to Spireas under the 1998 Agreement.

At the motion to dismiss stage of these proceedings, based on Spireas' argument that United was a necessary and indispensable party to this case, the Court ordered that Takeda join Mutual Pharmaceutical Company, Inc. ("Mutual Delaware"), the successor-in-interest to United, as a Plaintiff in this case. Takeda joined Mutual Delaware as a Plaintiff and, together, the parties filed an Amended Complaint against Spireas, alleging a claim for breach of contract (Count I), and claim for money had and received (Count II). In October of 2018, Takeda resolved its claims against Spireas in a settlement and was voluntarily dismissed from the case, leaving Mutual Delaware as the only remaining Plaintiff.

On February 28, 2019, Spireas filed a Motion for Summary Judgment challenging Mutual Delaware's claims for breach of contract and money had and received (Doc. No. 60), as well as a second Motion for Summary Judgment specifically on Mutual Delaware's claim for money had and received (Doc. No. 61). In the second Motion, Spireas argues for summary judgment on this claim to the extent that Mutual Delaware premises the claim on allegations of Spireas' fraudulent conduct. (Doc. No. 61.) These Motions are ripe for a decision. For the reasons discussed below, the Motions will be denied.

II. BACKGROUND

A. Spireas And Bolton Develop And Patent Their Liquisolid Technology And Form Hygrosol Pharmaceutical Corporation To Market The Technology

While a Ph.D. student at St. John's University, Spiridon Spireas met Sanford Bolton, who became his doctoral advisor. (Appendix ("App.") 297, 1126.)² Together, Spireas and Bolton developed their own "liquisolid technology," a process through which insoluble drugs are dissolved in non-volatile solvents and then converted into powder or pill form. (App. 1133-1134.) Subsequently, Spireas and Bolton sought to protect their liquisolid technology in a patent, and they submitted patent application No. 08/658,514 to the U.S. Patent and Trademark Office ("PTO") on June 10, 1996. (App. 54-57.)

On January 2, 1997, while the patent application was still pending, Spireas and Bolton formed Hygrosol Pharmaceutical Corporation ("Hygrosol"). This company was formed to be a vehicle for "explor[ing] commercial interest in their liquisolid inventions." (Doc. No. 64-1 at 8-9; App. 49, 53.) Hygrosol was organized as a Delaware closely-held corporation, meaning that Spireas and Bolton were Hygrosol's only two shareholders and officers. (App. 46, 53.) Hygrosol was also formed as an S-corporation, which meant that for tax purposes, it did not recognize income at the corporate level, but rather passed any income due through to Spireas and Bolton, who reported the income on their personal tax returns. (App. 47.)

After forming Hygrosol and while the first patent application for their liquisolid technology was still pending, Spireas and Bolton submitted a second liquisolid patent application (Application No. 08/937,240) to the U.S. PTO on October 1, 1997. (Doc. No. 64-2 at 9; App. 58.) The second patent application was a "division" of the first application, intended to cover Spireas' and Bolton's "process claims" for the liquisolid technology as opposed to the first application which covered their "product claims." (App. 1134.)

B. Mutual PA And United Enter Into An Agreement ("1998 Agreement") With Spireas, Bolton, And Hygrosol To License The Liquisolid Technology To Develop Generic Drug Products

In the late 1990s, around the same time Spireas and Bolton were developing and patenting the liquisolid technology, Spireas formed his own pharmaceutical consulting company, SigmaPharm, Inc. (App. 1127.) Through ...