Humanigen, Inc. v. Savant Neglected Diseases, LLC ( 2020 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
HUMANIGEN, INC. and MADISON
JOINT VENTURE LLC,
Plaintiffs,
Vv.
SAVANT NEGLECTED DISEASES,
LLC,
Defendant.
SAVANT NEGLECTED DISEASES,
LLC,
Plaintiff,
Vv.
HUMANIGEN, INC.,
NOMIS BAY LTD. and MADISON
JOINT VENTURE LLC,
Defendants.
C.A. N17C-07-068-PRW CCLD
C.A. No. 2019-0417-PRW
Submitted: July 24, 2020
Decided: August 17, 2020
OPINION AND ORDER
Upon Savant Neglected Diseases, LLC’s Motion for Summary Judgment,
DENIED.
Upon Savant Neglected Diseases, LLC’s Motion to Dismiss,
GRANTED IN PART and DENIED IN PART.
Upon Humanigen, Inc., Nomis Bay Ltd., and Madison Joint Venture, LLC’s
Motion to Dismiss,
DENIED.
Jeffrey L. Moyer, Esquire, Travis S. Hunter, Esquire, Tyler E. Cragg, Esquire,
RICHARDS LAYTON & FINGER, Wilmington Delaware, Attorneys for
Humanigen, Inc., Nomis Bay Ltd. and Madison Joint Venture LLC.
Steven P. Wood, Esquire, Dawn Kurtz Crompton, Esquire, Travis J. Ferguson,
Esquire, MCCARTER & ENGLISH, LLP, Wilmington, Delaware, Attorneys for
Savant Neglected Diseases, LLC.
WALLACE, J.
This suit arises out of a contractual dispute over the parties’ efforts to bring
benznidazole (the “Drug”) to market in the United States as a treatment for Chagas
disease.! Savant Neglected Diseases, LLC and Humanigen, Inc.” entered a
contractual agreement (“MDC”) to develop the Drug and pursue FDA approval
using Savant’s ostensibly proprietary data. The collapse of that relationship led
Humanigen and its principal creditor, Nomis Bay, Ltd. to create Madison Joint
Venture LLC as a vehicle for taking over development of and litigation surrounding
the Drug in exchange for debt forgiveness.’
Humanigen, later joined by Madison, filed suit before the Superior Court.°
Savant removed to the District of Delaware,° only for the case to eventually be
! Chagas disease is a tropical disease caused by an insect-borne parasitic infection. In addition
to acute symptoms that may or may not present immediately after exposure, years or decades later
infected people may develop a chronic form. Both the acute and chronic courses of Chagas disease
are life-threatening. See generally Parasites — American Trypanosomiasis, Centers for Disease
Control and Prevention, https://www.cdc.gov/parasites/chagas/gen_info/detailed.html (last
accessed Aug. 13, 2020).
2 Then known as KaloBios.
3 Def. Mot. to Dismiss Op. Br., Humanigen, Inc. v. Savant Neglected Diseases, LLC, N17C-07-
068, ex. A (D.I. 156). Hereinafter, all references to the docket in Superior Court case Humanigen,
Inc. v. Savant Neglected Diseases, LLC, N17C-07-068 are styled “D.I.” All references to the
docket in Court of Chancery case Savant Neglected Diseases, LLC v. Humanigen, Inc., 2019-0417
are styled “Ch. D.I.”
4 Second Amended Complaint at 137. (D.I. 138).
> Complaint (D.I. 1); Amended Complaint (D.I. 93); Second Amended Complaint (D.I. 138).
6 Notice of Filing of Notice of Removal (D.I. 5).
returned.’ Savant filed its own action in the Court of Chancery against Humanigen
and Madison,® later adding Nomis as a party defendant.’ All claims in both suits
relate to breach of or fraud in the inducement of the MDC. And the consolidated
action is now before the undersigned to hear and decide.'°
I. THE MOTIONS
Three dispositive Motions are pending before the Court, one from
Humanigen, Madison, and Nomis; and the other two from Savant. Humanigen,
Madison, and Nomis move for dismissal of the Chancery suit, arguing that Savant
lacks capacity to sue, that this Court lacks personal jurisdiction over Nomis, and that
Savant fails to state a claim.'! Savant for its part moves to dismiss Madison’s claims
7 Order Remanding Case (D.I. 9).
§ Complaint (Del. Ch. D.I. 1).
° Amended Complaint (Del. Ch. D.I. 11).
10 Del. Const. art IV, § 13(2) empowers the Chief Justice of the Delaware Supreme Court, upon
written request by the Chancellor or by the President Judge of the Superior Court, to cross-
designate a Judge of the Superior Court to sit in the Court of Chancery, or vice versa, for a specified
case and period of time. Wal-Mart Stores, Inc. v. AIG Ins., Co., 2006 WL 3742596, at *4 n.27
(Del. Ch. Dec. 12, 2006).
"Del. Ch. D.I. 20. Humanigen, Madison, and Nomis in their joint brief assert four additional
arguments, but these last four are all arguments against forms of relief Savant seeks for breach of
contract, and so are duplicative of the parties’ argument that Savant fails to state a claim for breach.
for lack of standing,’? while its second motion seeks summary judgment against both
Humanigen and Madison on grounds of common law champerty."?
Il. STANDARD OF REVIEW
Humanigen, Madison, and Nomis’s attack on Savant’s capacity to sue falls
under Court of Chancery Rule 9(a)!* for which the Court must weigh the evidence
presented.!°
Nomis’s challenge to personal jurisdiction falls under Court of Chancery Rule
12(b)(2). Jurisdictional challenges place the burden on the party seeking judicial
intervention to show that jurisdiction exists,'° keeping in mind that Delaware’s long-
arm statute!’ is “broadly construed to confer jurisdiction to the maximum extent
possible under the Due Process Clause.”’®
2 DIL. 155.
3° DI. 75.
14 “When a party desires to raise an issue as to the legal existence of any party or the capacity of
any party to sue or be sued or the authority of a party to sue or be sued in a representative capacity,
the party shall do so by specific negative averment, which negative averment shall include such
supporting particulars as are peculiarly within the pleader’s knowledge.” Del. Ch. Ct. R. 9(a).
15 See In re Jenzabar, Inc. Derivative Litig., 2014 WL 3827501, at *5 (Del. Ch. Jul. 30, 2014)
(“[O]n a motion to dismiss pursuant to Rule 9(a), this Court may consider supporting evidence of
such capacity, or lack thereof.”’).
16 Maloney-Refaie v. Bridge at School, Inc., 958 A.2d 871, 882 (Del. Ch. 2008).
17 DEL. CODE. ANN. tit. 10, § 3104(c) (2018).
'8 Hercules Inc. v. Leu Tr. & Banking (Bahamas) Ltd., 611 A.2d 476, 480-81 (Del. 1992).
By contrast, Humanigen, Madison, and Nomis’s allegation that Savant fails
to state a claim is analyzed under Rule 12(b)(6),’” as is Savant’s attack on Madison’s
standing.° By that standard, the Court accepts all of the non-movant’s well-pleaded
allegations as true, draws all reasonable inferences in its favor, and grants dismissal
only if recovery is not possible under any reasonably conceivable set of
circumstances susceptible of proof.!
Likewise, in Savant’s summary judgment motion under Superior Court Rule
56, the Court examines the record in the light most favorable to the non-movant, and
grants judgment only if there are no material issues of fact in dispute and the moving
party is entitled to judgment as a matter of law.” Rule 56 and Rule 12(b)(6)
standards are closely related such that a motion to dismiss accompanied by
19 Court of Chancery Rule 12(b)(6) and Superior Court Rule 12(b)(6) are verbatim identical.
20 See Appriva S’holder Litig. Co., LLC v. EV3, Inc., 937 A.2d 1275, 1285-86 (Del. 2007)
(“[W]here, as here, the issue of standing is so closely related to the merits, a motion to dismiss
based on lack of standing is properly considered under Rule 12(b)(6) rather than Rule 12(b)(1).”).
21 All Delaware courts treat precedents from the Court of Chancery and Superior Court’s
respective Rules 12(b)(6) interchangeably. See In re General Motors (Hughes) S’holder Litig.,
897 A.2d 162, 168 (Del. 2006) (a Court of Chancery appeal quoting the Rule 12(b)(6) standard
articulated in Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002), a Superior Court
appeal); see also CLP Toxicology, Inc. v. Casla Bio Holdings LLC, 2020 WL 3564622, at *9 n.65
(Del. Ch. Jun. 29, 2020) (explaining that the there is no substantive difference between the two
Courts’ rules nor any operative difference in the analyses thereunder that must be engaged to
decide a Rule 12(b)(6) motion to dismiss).
22 Cole v. Delaware League for Planned Parenthood, Inc., 530 A.2d 1119, 1124 (Del. 1987).
documents outside the adverse pleading may be treated by the Court as a motion for
summary judgment.”
Both of Savant’s Motions attack only Humanigen’s putative assignment of
the MDC to Madison. Savant’s challenge is, in effect, who of Humanigen and
Madison is permitted to champion the Superior Court Complaint’s MDC-related
claims rather than an attack on the substance of those claims per se.
By contrast, Humanigen, Madison, and Nomis’s Rule 12(b)(6) attacks assert
that Savant’s complaint fails to state a claim. As such, the Court summarizes the
facts of this case in the light most favorable to Savant as non-movant, except as to
the assignment, which is characterized in the light most favorable to Humanigen,
Madison, and Nomis as non-movants on that issue. Savant’s capacity, for which the
Court is fact finder, is addressed separately thereafter.
Il. FACTUAL BACKGROUND
The parties all agree that a nonparty competitor, Chemo Research,
misappropriated Savant’s data and used it to obtain FDA approval and market
exclusivity for the Drug ahead of Savant and Humanigen.”* Humanigen sued Savant
23 Furman y. Delaware Dept. of Transp., 30 A.3d 771, 774-75 (Del. 2011) (explaining the
conversion process under Superior Court Rules 12(b)(6) and 56); In re Santa Fe Pac. Corp.
S’holder Litig., 669 A.2d 59, 68-69 (Del. 1995) (same for Court of Chancery Rules 12(b)(6) and
56).
24 Second Amended Complaint {ff 5, 14 (D.L. 138).
in Delaware Superior Court, and Madison sued Chemo Research in federal court in
New Jersey (“New Jersey Suit”).”°
Savant alleges, and at this procedural stage the Court accepts as true, that
Humanigen had advance warning of the imminence of Chemo Research’s FDA
approval, and of its wrongful misappropriation of the proprietary Savant data.”°
Savant alleges that Humanigen withheld this information and abandoned its work on
the Drug, instead deciding to pursue a business strategy of litigation, both against
Chemo Research in the New Jersey Suit, and against Savant.?’
Nomis and Humanigen created and organized Madison on February 27,
2018.28 Nomis and Humanigen are the sole members of Madison, with respectively
70 percent and 30 percent ownership stakes.” That creation and organization
included Humanigen assigning Madison its MDC rights, including the license to the
Drug and its litigation rights against both Savant and Chemo Research.*°
25 See generally Complaint, Madison Joint Venture LLC v. Chemo Research S.L., 2:19-cv-08012
(D. N.J. Mar. 7, 2019).
26 First Amended Complaint §{] 59-62 (Del. Ch. D.I. 11).
27 Td.
28 See Aff. of Travis S. Hunter Ex. 15 [Madison Operating Agreement”] at 4 (D.I. 107)
(“Effective Date’ means February 27, 2018.”) (bold and italics omitted).
29 Madison Operating Agreement Ex. A.
30 Madison Operating Agreement Ex. B at 1-2.
This assignment of litigation rights provided that in the event of a favorable
judgment for certain of Humanigen’s claims against Savant combined with another
for Savant against Humanigen, Humanigen would be permitted to retain and offset
its own favorable judgment up to the value of Savant’s (“Offset Clause”).*’ The
transfer also purports to exclude from assignment the liabilities arising from the
MDC (“Liabilities Clause”).
Nomis and Humanigen specifically acknowledged in the documents
organizing Madison that the assets transferred to Madison were transferred to
Madison the entity, separate and distinct from themselves as its members.*? The
agreement disavows any connection between membership and control, but
provides that Madison compensate Humanigen for its employees’ work furthering
the ongoing lawsuits.*°
3) Id.
32 Madison Operating Agreement Ex. C at 1.
33 Madison Operating Agreement at 11.
34 Id. at 25-27.
35 Id. at 26.
IV. SAVANT’S CAPACITY
A business entity cannot maintain an action in Delaware if it is not in good
standing in this State.*° Defective status by a plaintiff entity is grounds to halt a suit,
but the entity does not suffer dismissal without an opportunity to cure.?’ Savant has
cured any defect in its status.°8
Humanigen, Nomis, and Madison rely on HWI Partners, LLC v. Choate, Hall
& Stewart LLP for the alternative theory that defective status is incurable and
requires dismissal of a suit? HWI Partners was a federal case that acknowledged
that entity status defects are curable in Delaware state courts, but held that the more
limited subject matter jurisdiction of federal district courts denies those tribunals the
power to permit cure.‘® Savant’s suit is and has always been in the Court of
Chancery, never entering the federal court system. The limitation in federal district
court jurisdiction articulated in HWI Partners has no effect on Savant’s suit.
36 B&B Financial Servs., LLC v. RFGV Festivals, LLC, 2019 WL 2006487, at *3 (Del. Super.
Ct. May 2, 2019).
37 Hudson Farms, Inc. v. McGrellis, 620 A.2d 215, 221 (Del. 1993).
38 See Wood Aff. ex. 1 (Del. Ch. D.I. 25) (certification from the Delaware Secretary of State that
Savant is in good standing and has legal existence as of October 17, 2019).
39 2013 WL 6493118, at *3 (D. Del. Dec. 11, 2013).
“Dan
V. PERSONAL JURISDICTION OVER NOMIS
Forming a Delaware entity for the purpose of engaging in a transaction
constitutes the “transaction of business” within the State of Delaware sufficient to
confer specific personal jurisdiction over the party forming the entity.’ And a single
transaction is sufficient to confer personal jurisdiction for claims based on that
transaction.’ By Nomis’s own description, Nomis formed Madison for the purposes
of undertaking business ventures related to the Drug, including pursuit of this
litigation.”
Having come to Delaware to form Madison specifically to seek redress against
Savant under the MDC in a Delaware courtroom, Nomis cannot escape that same
courtroom when Savant asserts its own rights under the precise same instrument and
transaction.
VI. FAILURE TO STATE A CLAIM
Breach of contract is a claim with three elements: “1) a contractual obligation;
2) a breach of that obligation by the defendant; and 3) a resulting damage to the
plaintiff."* A declaratory judgment is better understood as a remedy than a sort of
41 Hamilton Partners, L.P. v. Englard, 11 A.3d 1180, 1196 (Del. Ch. 2010) (citing Papendick v.
Robert Bosch GmbH, 410 A.2d 148, 152 (Del. 1979)).
42 Reid vy. Siniscalchi, 2018 WL 620475, at *14 (Del. Ch. Jan. 30, 2018).
“3 Mot. to Dismiss at 16 (Del. Ch. D.I. 20).
44 Connelly v. State Farm Mut. Auto. Ins. Co., 135 A.3d 1271, 1279 n.28 (Del. 2016) (quoting
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 140 (Del. Ch. 2003)).
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substantive claim or action. Recognition of a fraudulent transfer is likewise a
species of remedy, permitting a creditor or plaintiff to recover assets putatively
transferred by the debtor/defendant as though the debtor/defendant still possessed
them.’ A constructive trust is yet another type of remedy.*” While Savant’s
Chancery complaint and the corresponding Motion to Dismiss assert those remedies
as separate counts, they are each merely different remedial prayers relating to a
single cause of action, breach of the MDC.
Savant alleges that Humanigen concealed its knowledge that Chemo Research
had misappropriated Savant’s proprietary data, and abandoned development of the
Drug well ahead of Chemo Research’s FDA approval. If proven at trial, these acts
breach a variety of obligations the MDC creates‘ leading directly to Savant’s injury.
45° See Rollins Int’l., Inc. v. Int’l Hydronics Corp., 303 A.2d 660, 662 (Del. 1973) (“[T]he basic
purpose of the Declaratory Judgment Act is to enable the courts to adjudicate a controversy prior
to the time when a remedy is traditionally available and, thus, to advance the stage at which a
matter is traditionally justiciable.”).
46 See Ki—Poong Lee v. So, 2016 WL 6806247, at *3 (Del. Super. Ct. Nov. 17, 2016)
(“[Delaware’s Uniform Fraudulent Transfers Act] provides remedies to creditors who are
defrauded by debtors who transfer assets or incur obligations” in violation of its terms.) (citing Jn
re Mobilactive Media, LLC, 2013 WL 297950, at *30 (Del. Ch. Jan. 25, 2013)).
47 See Hogg v. Walker, 622 A.2d 648, 652 (Del. 1993) (“The doctrine of constructive trust
effectuates the principle of equity that one who would be unjustly enriched, if permitted to retain
property, is under an equitable duty to convey it to the rightful owner. It is an equitable remedy of
great flexibility and generality, and is viewed as a remedial and not a substantive institution.”)
(citing McMahon v. New Castle Assocs., 532 A.2d 601, 608 (Del. Ch. 1987)).
48 Eg. MDC § 4.4 (“each party shall use Diligent Efforts to, either by itself or in collaboration
with its Affiliates and Third Parties, conduct the activities assigned to it under the Joint
Development Plan”); MDC § 5.4 (requiring Humanigen to complete and convey a feasibility
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Because Savant properly pleads facts that would satisfy the three elements of breach,
it states a prima facie claim adequate to survive Rule 12(b)(6).
Humanigen and Madison additionally argue that the claim of breach fails due
to the requirements contained in the termination provisions of the MDC. Under the
provision for “Termination for Material Breach,” the party seeking termination must
first issue a notice of default and wait for the end of the contractual cure period.”
Humanigen and Madison argue that a temporary restraining order issued in the
federal bankruptcy court, extended by agreement until this Court issued the
preliminary injunction,*® enjoined issuance of a default notice and tolled the cure
period, vitiating any action for breach. But that termination provision is expressly
“without prejudice to any other remedies available to [the terminating party] at law
or in equity.”>'! A default notice under the MDC necessarily asserts an existing
breach, and so is not a prerequisite necessary to state a claim for breach. Rather, the
clause merely provides a potential contractual remedy for breach not requiring
judicial action.
analysis for development and commercialization of the Drug in the European Union and Japan);
MDC § 7.5(a) (requiring Humanigen and Savant to each report to the other if they become aware
of any unlawful activity in relation to the Drug, and take other remedial actions).
49 MDC § 13.3(a).
°° DiI. 248.
> MDC § 13.3(a).
-ll-
VII. SAVANT’S MOTIONS
A. MODERN CHAMPERTY
Champerty and maintenance are common law offenses of officiously
intermeddling in a stranger’s suit.-* Maintenance was assistance offered without
expectation of personal gain, which when aggravated by exchange for a share of the
suit became champerty. Such a sale of a lawsuit was severely punished under the
common law and its Roman antecedents.** Champerty is an ancient feature of
Delaware law, adopted from the common law by the colonial legislature in 1742.*°
Delaware continues to recognize a policy against sale of a lawsuit.°° At the
same time, Delaware generally favors the free exchange of property.°? These two
52 4 William Blackstone, Commentaries *134—35.
3 Id.
54 Jd. Some sources date the origins of the prohibition on sale of an interest in lawsuits further
still to Greek antiquity. Max Radin, Maintenance by Champerty, 24 Cal. L. Rev. 48, 51 (1935)
(citing Isaeus, In the Suit Against Dicaeogenes and Leochares (4th century B.C.E.), trans. and
printed in 4 The Works of Sir William Jones 81 (1799)).
> See Bayard v. McLane, 3 Harr. 139, 215 (Del. 1840) (“The earliest legislative act of this
government on the subject of maintenance and champerty is the act of 15 Geo. 2, Anno. 1742, (1
Del. Laws 239). It does not define the offence; but refers, generally, to the common law, and the
statute laws, of England.”). The version of common law champerty adopted at that time was
founded in legislation adopted by the English parliament during the reign of Edward I, as modified
by other enactments of the Delaware colonial legislature in the 1720s and 30s. Id. at 216.
© Schultz v. Ginsburg, 965 A.2d 661, 668 (Del. 2009) (citing Omnicare, Inc. v. NCS Healthcare,
Inc., 809 A.2d 1163, 1169 (Del. Ch. 2002)).
°7 See Tracey v. Franklin, 67 A.2d 56, 58 (Del. 1949) (“An important incident of the ownership
of property is its transferability and the proposition is frequently stated in the texts that a general
restraint upon alienation is invalid because contrary to public policy. . . [aJn examination of the
4 -
policies stand in tension, because superficially they appear to call into question
whether a property buyer obtains the right to prosecute property torts preceding the
purchase.°®
The resolution of this apparent tension is that Delaware permits conveyance
of a lawsuit so long as the transferor possesses and conveys a complete interest in
the underlying right and makes the litigant the “bona fide owner of the claim in
litigation”>’ and not just the litigation itself. By way of example, sale of property
adversely possessed by a third party is champertous.® In such a transaction, the
transferor is conveying not the right, but just an opportunity to seek a judicial order
conveying the right.
Champerty is inapplicable—and transfer of litigation rights permitted without
regard to the transferror’s complete possession of the underlying rights—when the
transferee already has a legal or equitable claim on the rights that predates and is
decisions, however, discloses that, as to personal property, and particularly corporate stock, the
rule is subject to frequent exceptions.”).
38 See Inre Activision Blizzard, Inc. Stockholder Litig., 124 A.3d 1025, 1050 n.14 (Del. Ch. 2015)
(noting that Schultz would have potentially destabilizing consequences if it were construed to
embody a public policy prohibiting “buying property rights that include choses in action.”).
59 Drake v. Northwest Natural Gas Co., 165 A.2d 452, 454 (Del. Ch. 1960).
60 See Hall v. Delaware, 655 A.2d 827, 830 (Del. Super. Ct. 1994) (sale of an impounded car
champertous because seller lacked possession).
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t,°* and so
outside of the transfer.°! Blood relationships provide such an interes
champerty is not implicated when an heir sues to recover property stolen from an
ancestor.® Similarly, a creditor can accept assignment of a debtor’s suit since the
debt itself creates in the creditor an interest in the debtor’s assets. This last example
appears to be the most attenuated permitted relationship in Delaware, since transfer
of litigation rights to a creditor’s creditor is void for champerty.®
Critically, these exceptions are only necessary for an assignee seeking to sue
in its own name. But a party is generally free to privately contract or assign the
proceeds of a judgment or a portion thereof, as distinct from the suit itself.%° In such
61 Drake, 165 A.2d at 454.
62 Hall, 655 A.2d at 830 (Del. Super. Ct. 1994) (finding of champertous assignment, in part,
because “absent from the record is any evidence suggesting that Petitioner stands in a close
relationship with [assignor] by consanguinity or affinity”) (citing Bayard, 3 Harr. at 208 (noting
that claims of champerty do not extend to persons “being in any way of kin or affinity to either of
the parties”) (emphasis in original)).
63 Eg. Altmann v. Republic of Austria, 335 F.Supp.2d 1066, 1067-68 (C.D. Cal. 2004) (the
“Woman in Gold” case, where an heir sought recovery of artwork stolen from her family during
Nazi rule in Austria).
64 In re Pursuit Capital Mgmt, LLC, 595 B.R. 631, 667 (Bankr. D. Del. 2018) (citing
Southeastern Chester Cty. Refuse Auth. v. BFI Waste Servs. of Pennsylvania, LLC, 2017 WL
2799160, at *8 (Del. Super. Ct. Jun. 27, 2017)).
65 Street Search Partners, L.P. v. Ricon Int’l., L.L.C., 2006 WL 1313859, at *4 (Del. Super. Ct.
May 12, 2006).
66 See Indus. Tr. Co. v. Stidham, 33 A.2d 159, 160-61 (Del. 1942) (where a plaintiff in an action
for breach of contract “does not purport to assign the chose in action but merely the amount of the
judgment subsequently to be recovered. . . the present assignment would have been valid and
enforceable if made at the time and under the circumstances contended.”).
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a case the assignor remains the named party and retains control of the litigation, as
occurs in contingent-fee representation.°”
B. THE ASSIGNMENT
Madison sues based on the assignment in the Loan Satisfaction Agreement
and Madison Operating Agreement. In those documents, Humanigen conveyed “all
assignable rights under or in connection with the Assigned Contracts.” The list of
Assigned Contracts includes the MDC.”
After that broad and inclusive language, the Madison Operating Agreement
includes the Offset Clause and thereafter the Liabilities Clause, purporting to restrict
the assignment by retaining offsets to a final judgment and all liabilities under the
MDC with Humanigen rather than Madison.”
67 See Smyth v. Klauder, 52 F.2d 109, 110 (3d Cir. 1931) (“[I]n those states [of the Third Circuit]
it is not champertous for an attorney to agree with his client to render services for a contingent
fee.”); Corcoran v. George Kellogg Structural Co., 166 N.Y.S. 269, 271 (N.Y. App. Div. 1917)
(A contingent-fee client retains “complete control of the litigation” and may fire the attorney and
then make a settlement “however arbitrary” with the adverse party, at which point the attorney
would be entitled to “only the reasonable value of the services which he has rendered.”).
68 Madison Operating Agreement, ex. B. at 1.
6 Id. at 2.
70 Madison Operating Agreement ex. C at 1.
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i. Humanigen’s Capacity to Assign Unilaterally
Personal service contracts generally cannot be assigned without the consent
of the other party.”1 The MDC expressly included a term providing consent in
Section 15.2, stating:
This Agreement (i) may be assigned by [Humanigen] in
whole or in part to any Third Party without the consent of
[Savant], and (ii) may not be assigned by [Savant] in
whole or in part without the consent of [Humanigen];
provided, that [Savant] may assign this Agreement in
whole without the consent of [Humanigen] to an Affiliate
or in the event of a Change of Control of the Company.
Any permitted assignee will expressly assume all
obligations imposed on the assigning Party by this
Agreement in writing. ”
Section 15.2 further characterizes any nonconforming assignment as “null and
void.””? Savant argues that the “Any permitted assignee” sentence modifies both
15.2(i) and 15.2(ii), and hence that the assignment was nonconforming and void
since Madison created no such writing.
The Court is compelled to interpret clear and unambiguous terms according
to their ordinary meaning in a manner that gives effect to all provisions therein.”
71 Great Am. Opportunities, Inc. v. Cherrydale Fundraising, LLC, 2010 WL 338219, at *11 (Del.
Ch. Jan. 29, 2010) (citing Grynberg v. Burke, 1981 WL 15118, at *1 (Del. Ch. May 20, 1981)).
2 MDC § 15.2.
3 Id.
7 GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 780 (Del. 2012).
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Section 15.2(i) includes a unilateral right for Humanigen to assign the contract in
part, which would be nonsensical if an assignee had to accept all obligations of the
contract in a case of a partial assignment. The “Any permitted assignee” sentence
therefore must modify only Section 15.2(ii) and so only limits Savant’s ability to
engage in a unilateral assignment in whole, and not Humanigen’s unrestricted right
to unilaterally assign the MDC in whole or in part.
Humanigen was therefore within its rights under the MDC to assign the
contract to Madison.
ii. The Effect of Assignment
Absent an agreement otherwise, the assignor of a contract remains liable as a
surety for the assignee’s performance.’> The MDC contains language identifying
what circumstances would relieve Humanigen of duties as a surety to its chosen
assignee(s):
Further (a) if the assignee of [Humanigen] is of equal or
superior (i) creditworthiness and (ii) ability to perform
obligations under this Agreement to [Humanigen] as of the
date of assignment, as demonstrated by the assignee’s (x)
ability to fund the Joint Development Program for the first
six (6) months after assignment and (y) track record of
research and development and product commercialization
in the biopharmaceutical industry, then [Humanigen] shall
not remain liable for the assignee’s performance of its
obligations under this Agreement, and (b) if the assignee
of [Humanigen] is not of equal or _ superior
75 Reserves Dev. LLC v. Crystal Props., LLC, 986 A.2d 362, 370 (Del. 2009).
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creditworthiness and ability to [Humanigen] as of the date
of assignment, then [Humanigen] shall remain directly
liable to the Company for all performance obligations
(including payment obligations) of the assignee under this
Agreement.
Madison describes itself as being a new joint venture between Humanigen and
Nomis for developing the Drug.” The document assigning the MDC is itself one of
Madison’s organizing documents. Madison as a newly formed entity plainly could
not have a “track record of research and development and product commercialization
in the biopharmaceutical industry” on par with Humanigen and therefore cannot
satisfy the conditions necessary to relieve Humanigen of responsibility to act as
surety.
Notwithstanding any assignment, Humanigen remains a surety of Madison to
Savant for performance under the MDC.
iii. The Effect of the Offset and Liabilities Clauses
As noted above, the plain language of the Madison Operating Agreement
assigns the MDC in toto to Madison. The Madison Operating Agreement expressly
conveys to Madison both control of and the duty to fund this litigation.” Humanigen
cannot then sue Savant under rights it conveyed to another.
76 Second Amended Compl. { 138 (D.I. 138).
77 Madison Operating Agreement at 14.
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Despite the assignment, the exhibits attached to the Madison Operating
Agreement purport to introduce limitations through the Offset Clause and Liability
Clause.
The Offset Clause excludes from the assignment “The amount of the Savant
Cost Overrun Claims that the Humanigen Member may utilize to offset claims
brought by Savant that the Humanigen Member owes Savant $2 million in milestone
payments under the MDC.”” The Liabilities Clause “disclaims” and denies the
assumption of “all Liabilities under the Assigned Contracts.” ”
The Liabilities Clause’s meaning is difficult to divine. The MDC is a
complicated document laying out two pharmaceutical companies’ mutual
obligations for the development and commercialization of the Drug. Many of these
complex personal services intrinsically involve cooperation and are nonamenable to
separation into distinct “assets” and “liabilities.”®° Moreover, the Offset Clause
addresses the MDC solely as a financial asset, describing assignment and retention
in purely fungible monetary terms.
78 Madison Operating Agreement Ex. B at 2.
7 Madison Operating Agreement Ex. C at 1.
80 For example, the MDC § 6.1 establishes the Joint Steering Committee, which is staffed equally
by the contracting parties [under §6.1(b)] who have the alternating responsibility to produce
meeting minutes [under §6.1(d)].
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Between these two clauses, the Madison Operating Agreement appears to
contemplate the MDC not as a contract for a mutual exchange of promises, but as a
bundle of litigation actions for money damages eventually to become a simple net
judgment. Under such a reading, the Offset Clause and Liability Clause are not
about parsing the MDC to reduce the scope of the original assignment. Instead,
those clauses are a separate agreement between Humanigen and Madison
contingently allocating a favorable judgment should Madison prevail in the
litigation—litigation which Humanigen assigned to Madison in toto.
Under this reading, the assignment avoids champerty. Humanigen assigned
the contract and litigation to Madison, and Madison sues in its own name. Madison
is in sole control of the Superior Court suit. The Offset Clause and Liabilities Clause
govern Humanigen and Madison’s respective rights against one another to the
proceeds of the final judgments in the two consolidated Delaware suits. Contractual
interest in a judgment does not implicate the prohibitions of champerty.
The only alternative reading bearing any semantic relationship to the
documents would be if Nomis, Humanigen, and Madison had sought to assign
Madison the right to sue Savant for money damages for breach under the MDC,
while leaving responsibility to perform with the financially-troubled Humanigen.
Separation of a lawsuit enforcing a contract from the underlying contract is
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champerty, and such a contract would be void.*! Delaware courts avoid
unreasonable contract interpretations,®” and so the Court declines this champertous
reading of the Madison Operating Agreement.
VII. CONCLUSION
Humanigen and Savant created the MDC to govern a mutual collaborative
relationship to develop and commercialize the Drug. Following the breakdown in
that relationship, both entities became financially insolvent. As part of a
restructuring agreement with its creditors, Humanigen spun off its business to
develop the Drug on to a new entity—Madison—which it jointly created with its
creditor, Nomis. In furtherance of this, and in exchange for extensive loan
forgiveness from Nomis, Humanigen assigned its interest in the MDC and in any
MDC-related litigation to Madison. In undertaking this transaction, Nomis
submitted itself to the jurisdiction of Delaware courts for MDC-related suits.
Savant, having cured any defect in its corporate status, has the capacity to now
seek redress via its initiated action.
81 See Gibson v. Gillespie, 152 A. 589, 593 (Del. Super. Ct. 1928) (“It would be the duty of the
court to dismiss a case in which the evidence disclosed that the assignment of the cause of action
sued upon was tainted with champerty.”).
82 See Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159-60 n.21 (Del. 2010) (“In placing a
construction on a written instrument, reasonable rather than unreasonable interpretations are
favored by law. Results which vitiate the purpose or reduce terms of the contract to an absurdity
should be avoided.”) (quoting Gore v. Beren, 867 P.2d 330, 337 (Kan. 1994)).
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The provisions of the MDC permitted the assignment Savant challenges. To
be true to its finding of the nonchampertous nature of that assignment, however, the
Court must find that having assigned away its interest in the MDC, Humanigen now
lacks standing in the Superior Court suit. Those claims belong to Madison alone.
Neither of Savant’s Motions asks precisely for Humanigen’s dismissal as a
party on standing grounds. But all issues surrounding the assignment, champerty,
and standing were fully litigated by Humanigen, Madison, and Nomis, and they
share greatly overlapping interests.? Likewise, the Court may consider standing sua
sponte,** and Humanigen was on notice that Savant sought to dispose of its claims
through these motions.
All that said, Humanigen retains its interest in the Superior Court suit through
its minority ownership stake in Madison. So Humanigen is DISMISSED from all
counts of its joint Superior Court complaint with Madison, but remains a litigant in
83 Just so, they share the same counsel.
84 See Mills v. Trans Caribbean Airways, Inc., 272 A.2d 702, 704 (Del. 1970) (“[S]tanding to
present a constitutional question is so fundamental as to permit examination thereof at any time,
including inquiry by the Court Sua sponte.”); see also In re Pantalone, 2011 WL 6357794, at *2
(Del. Ch. Dec. 9, 2011) (“Standing is a threshold question, and, because standing is jurisdictional
in nature, the Court may raise it sua sponte. . . .Standing is the requisite interest that must exist in
the outcome of the litigation at the time the action is commenced.” (internal citations and quotes
omitted); Kent Cty. Equip., Inc. v. Jones Motor Grp., Inc., 2009 WL 737782, at *1 (Del. Super.
Ct. Mar. 20, 2009) (Court raised the issue of standing sua sponte at argument on a separate
dispositive motion, and then imposed dismissal once party had notice and opportunity to respond
to the legal arguments which gave rise to the dismissal).
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Savant’s Chancery Court complaint where it is surety for Madison’s performance.
The parties’ motions are all otherwise DENIED.
Bede
Paul R. Wallace, Judge
IT IS SO ORDERED.
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