Broderson, H. v. Galderma Lab ( 2015 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
HAL S. BRODERSON, LAURA E. IN THE SUPERIOR COURT OF
SANCHEZ, AS TRUSTEE OF: TRUST PENNSYLVANIA
F/B/O R. PRICE-SANCHEZ, TRUST F/B/O
C. PRICE SANCHEZ; TRUST F/B/O S.
BRODERSON, TRUST F/B/O J.
BRODERSON, TRUST F/B/O TOREY
BRODERSON, TRUST F/B/O TY
BRODERSON, CHARLES G. HADLEY,
THOMAS M. ROSSI, KATHLEEN A. ROSSI
AS TRUSTEE OF JENNIFER LYNN ROSSI,
GIFTING TRUST, CHRISTOPHER THOMAS
ROSSI, GIFTING TRUST AND THOMAS
UHLMAN
Appellants
v.
GALDERMA LABORATORIES, L.P.
Appellee No. 3426 EDA 2014
Appeal from the Order Entered October 14, 2014
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): August Term, 2014 No. 140800353
BEFORE: LAZARUS, J., OLSON, J., and PLATT, J.*
MEMORANDUM BY LAZARUS, J.: FILED SEPTEMBER 30, 2015
Hal S. Broderson, Laura E. Sanchez, as Trustee of: Trust f/b/o R.
Price-Sanchez, Trust f/b/o C. Price Sanchez; Trust f/b/o S. Broderson, Trust
f/b/o J. Broderson, Trust f/b/o Torey Broderson, Trust f/b/o Ty Broderson,
Charles G. Hadley, Thomas M. Rossi, Kathleen A. Rossi as Trustee of Jennifer
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*
Retired Senior Judge assigned to the Superior Court.
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Lynn Rossi, Gifting Trust, Christopher Thomas Rossi, Gifting Trust and
Thomas Ulhman (hereinafter “Appellants”), appeal from Judge Glazer’s order
of October 14, 2014, granting Galderma Laboratories’ (“Galderma”) motion
for judgment on the pleadings. After our review, we affirm.
Appellants Broderson, Hadley, Rossi and Uhlman are former
shareholders of SansRosa Pharmaceutical Development, Inc., which held the
patents for the treatment of rosacea.1 SansRosa, which was wholly owned
by its shareholders, sold all its shares to CollaGenex Pharmaceuticals, Inc.
(“CollaGenex”) pursuant to a stock purchase agreement (“Agreement”). In
consideration for the sale of the SansRosa shares, CollagGenex, ultimately
succeeded by Galderma, agreed to pay the SansRosa shareholders up to
$6.8 million plus periodic Earn Out payments (“Earn Outs”). The Earn Outs
are the source of the controversy here.
The parties set forth the duration of the Earn Outs in the Agreement.
The Agreement provides in relevant part:
(c) Earn Out Consideration Payments. In consideration for
the Shares delivered by the Shareholders to CollaGenex at the
Last Closing, CollaGenex shall pay to the Shareholders, in
addition to the payment made at the Last Closing, an earn out
consideration (the “Earn Out Consideration”), based on
(i) Net Sales in the U.S. of SansRosa Patented
Products, whether sold directly by CollaGenex or
through a third party, as follows:
***
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1
Rosacea is a skin condition causing redness.
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(ii) Net Sales in the U.S of SansRosa Products,
whether sold directly by CollaGenex or through a
third party, if during any portion of any calendar
year no SansRosa Patented Products were being
sold, and Net Sales of SansRosa Products in the
U.S. exceeded $100 million in such calendar year,
as follows:
***
(iii) Net Sales outside the U.S. of SansRosa
Products, where such sales are made directly
by CollaGenex in a jurisdiction where a patent
arising out of the Patent Applications is either
issued or pending as following:
***
(iv) Out-License Payments received from
licensees outside the U.S., as follows:
***
(e) Limited Duration. The obligation to make any
payments of Earn Out Consideration shall expire
on the earlier of the fifteenth anniversary of the
Last Closing or December 31, 2022.
Stock Purchase Agreement, 12/15/05, at 6-8 (emphasis added).
Section 1(d)(vii) of the Agreement defines “Last Closing” as NDA (New
Drug Application) Approval. The Agreement states:
(vii) NDA Approval. Upon approval of the first New
Drug Application by the FDA that relates to a
SansRosa Product, CollaGenex shall purchase, and
the Shareholders shall deliver to CollaGenex, all of
the remaining Shares at a price per share that
results in the aggregate consideration payable for
such Shares being $1,500,000, plus the Earn Out
consideration described in section 2(c). The
$1,500,000 shall be payable at such closing (this
closing is sometimes referred to in this
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Agreement as the “Last Closing”) and the Earn
Out Consideration shall be payable as described in
section 2(c).
Stock Purchase Agreement, at 5. At the time the parties entered into the
Agreement, the patents were pending, so they could not know with certainty
when they would actually expire.
On August 4, 2014, Appellants filed a complaint against Galderma,
seeking reformation of the Agreement. Appellants alleged mutual mistake of
fact regarding the term for contractual Earn Outs owed to them. Galderma
filed an Answer and New Matter and a Motion for Judgment on the Pleadings.
On October 14, 2014, the trial court granted Galderma’s motion for
judgment on the pleadings. Appellants’ motion for reconsideration was
denied and this appeal followed. Appellants raise the following issues for our
review:
1. Did the trial court err by refusing to accept as true all of
Appellants’ well-pleaded averments of fact - particularly, specific
averments of fact that a mutual mistake was made by the
parties as to the appropriate date for which contractual earn-out
payments [“Earn Outs”] owed to Appellants would terminate?
2. Did the trial court err by relying on statements outside of
the pleadings when it concluded that Appellants and Galderma
committed no mutual mistake of existing fact as to the date on
which the contractual Earn Out payments would terminate, and
could have only “predicted” such date – which is a
characterization found nowhere in the pleadings and directly
contrary to Appellants’ position?
3. Did the trial court err by entering judgment on the
pleadings despite the parties’ disputes of fact regarding whether
a mutual mistake was made?
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4. Did the trial court err in entering judgment on the
pleadings despite the fact that Galderma prematurely filed its
Motion for Judgment on the Pleadings before the close of
pleadings?
5. Did the trial court err by entering a judgment on the
pleadings without affording Appellants the opportunity to amend
their Complaint to correct any alleged defects?
We address the first three claims together. Initially, we note that
judgment on the pleadings is inappropriate if there are unknown or disputed
issues of fact. Pa.R.C.P. 1034.2 Judgment on the pleadings will be granted
only where, on the facts averred, the law says with certainty no recovery is
possible. Smith v. Thomas Jefferson Univ. Hosp., 621 A.2d 1030, 1031
(Pa. Super. 1993). “It is fundamental that a judgment on the pleadings
should not be entered where there are unknown or disputed issues of fact.
The court must treat the motion as if it were a preliminary objection in the
nature of a demurrer. In conducting this inquiry, the court should confine its
consideration to the pleadings and relevant documents.” Piehl v. City of
Philadelphia, 987 A.2d 146, 154 (Pa. 2009) (citations omitted).
When reviewing the grant of a motion for judgment on the pleadings,
all well-pleaded statements of fact, admissions, and any documents properly
attached to the pleadings presented by the party against whom the motion
is filed, are considered as true. Citicorp North America, Inc. v.
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2
Rule 1034 states: “After the relevant pleadings are closed, but within such
time as not to unreasonably delay the trial, any party may move for
judgment on the pleadings.” Pa.R.C.P. 1034(a).
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Thornton, 707 A.2d 536, 538 (Pa. Super. 1998). The facts, then, are
gleaned from Appellants’ complaint and, to a limited extent, its response to
allegations raised in Galderma’s new matter. See Altoona Regional
Health System v. Schutt, 100 A.3d 260, 265 (Pa. Super. 2014); Swift v.
Milner, 371 Pa. Super. 302, 538 A.2d 28, 31 (Pa. Super. 1988) (in
determining propriety of trial court's award of judgment on the pleadings,
we accept as true all well-pleaded statements of fact of non-moving party
and “against that party only those facts specifically admitted.”).3
Appellants aver in their complaint that, “Although the Agreement
provides that Earn Outs shall expire on the earlier of the fifteenth
anniversary of the Last Closing [which would be in the year 2028,] or
December 31, 2022, the parties had always intended for the Earn Outs to be
paid through the last full year prior to the expiration of the final issued
SansRosa patent.” Complaint, 8/1/14, at ¶ 24. Galderma, in its Answer,
denied this allegation. Answer, 9/8/14, at ¶24. Galderma avers, to the
contrary, that “the Agreement is clear that “[t]he obligation to make any
payments of Earn Out consideration shall expire on the earlier of the
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3
Appellants claim, in issue four, that the trial court erred in granting
Galderma’s motion for judgment on the pleadings prior to Appellants’ Reply
to New Matter. We find no error. For the purposes of the disposition of the
motion, all of the averments in the defendant's answer are taken as true. In
ruling on a motion for judgment on the pleadings, the trial court is limited to
considering plaintiff's complaint and defendants' answer. See U.S. Steel &
Carnegie Pension Fund v. Decatur, 528 A.2d 165, 167 (Pa. Super. 1987),
citing Luria Steel & Trading Corp. v. Dittig, 199 A.2d 465 (Pa. 1964).
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fifteenth anniversary of the Last Closing or December 31, 2022.” Id., citing
Agreement, at 2(e).
Appellants allege that the parties “mistakenly” chose December 31,
2022 as the final date based on a prediction of when the patents would
expire, instead of December 31, 2023, the end of the full year prior to the
year of expiration. Appellants claim, therefore, that the mistake deprived
Appellants of one year of Earn Outs. In its Answer, Galderma denies a
mistake was made in the drafting of the Agreement, and states that the
Agreement represents the “final and complete expression of the parties’
agreement.” Answer, supra at ¶¶ 24, 30, 34-36, 38, 43.
A patent expires 20 years after filing of the patent application, 4 and,
apparently, as a result of filing delays, the parties’ assumption was
incorrect; the actual date of expiration of the patents is 2025, not 2023 (and
therefore the last full year prior to expiration is 2024, not 2022).
Appellants seek reformation of the contract, based on mutual mistake, to
reflect that fact.
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4
35 U.S.C. § (a)(2) provides, in relevant part:
“Subject to the payment of fees under this title, such grant shall
be for a term beginning on the date on which the patent issues
and ending 20 years from the date on which the application for
the patent was filed in the United States or, if the application
contains a specific reference to an earlier filed application or
applications under section 120, 121, 365(c), or 386(c) from the
date on which the earliest such application was filed.
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“It has long been the law that courts of equity have the power to
reform a written instrument where there has been a showing of fraud,
accident or mistake.” Giant Food Stores, LLC v. The Silver Spring
Development, L.P., 959 A.2d 438, 449 (Pa. Super. 2008). “Mutual mistake
will afford a basis for reforming a contract. Mutual mistake exists, however,
only where both parties to a contract [are] mistaken as to existing facts at
the time of execution. Moreover, to obtain reformation of a contract
because of mutual mistake, the moving party is required to show the
existence of the mutual mistake by evidence that is clear, precise and
convincing.” Holmes v. Lankenau Hosp., 627 A.2d 763, 767–68 (Pa.
Super. 1993) (emphasis added) (citations and quotation marks omitted);
see also Zurich Am. Ins. Co. v. O’Hanlon, 968 A.2d 765, 770 (Pa. Super.
2009). At this stage, however, Appellants are required to only to set forth
the material facts on which the claim of mutual mistake is based. Pa.R.C.P.
1019(a).
Here, the trial court found Appellants failed to demonstrate a mistake
of fact, as the allegedly mistaken “fact” was a future date that did not exist
at the time the parties executed the agreement. The parties both
acknowledge that the December 31, 2022 date was an assumption or
prediction, based on when the patent application was filed, and not a fact for
which there could be a mistake about at that time. As Judge Glazer states in
the explanatory footnote of his Order, the parties could have tied the Earn
Out period to the life of the patent, but instead chose a specific date. The
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parties could have included language that Appellants would receive Earn
Outs through the last full year prior to expiration of the patents. They did
not.
In support of their argument, Appellants refer to an email between
counsel, which states:
On the issue of sunset of earn out, I went with your last
closing rather than first closing end point, and rather than
limiting this by using the words life of the patent, slipped
in the same concept by taking a 12/31/22 drop dead date
(which would be the end of the last full year of the
anticipated life of the patents).
See Complaint, 8/1/14, Exhibit C. Notably, even in that email, the language
is indefinite; it refers to the “anticipated” life of the patents.
Essentially, Appellants’ argument is grounded on their claim that the
trial court has mischaracterized the parties’ mutual mistake as “nothing
more than a future prediction—a position found nowhere in the pleadings
and directly contradicted by Appellants’ allegations in their complaint and
exhibits attached thereto.” Appellants’ Brief, at 16-17. However, as
Galderma points out, the December 31, 2024 earn out expiration date that
Appellants suggest be substituted for the December 31, 2022 date, could not
have been calculated at the time the agreement was executed. In their
Complaint, Appellants aver that
the normal expiration dates on all five patents have been
affected, in varying ways, by patent term adjustments or delays
caused the U.S. Patent and Trademark Office and by terminal
disclaimers filed to avoid or overcome a rejection based on
double patenting. The actual expiration dates for the patents
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are as follows: US 8,231,885 - May 24, 2025; US 8,426,410 -
September 10, 2024; US 8,410,102 - October 23, 2024; and US
7,439,241 Patent and US 7,838,563 Patent - August 25, 2025.
Complaint, supra, at ¶ 20 (emphasis in original).
In its Answer, Galderma admitted that the normal expiration dates on
the five patents “have been affected by patent term adjustments for delays
caused by the U.S. Patent and Trademark Office after the Agreement was
executed and by terminal disclaimers filed after the Agreement was
executed.” Answer, supra, at ¶ 20. Galderma, therefore, cannot dispute
that at the time the parties executed the Agreement, an actual expiration
date could not be determined.
In New Matter, Galderma asserts that there was no mutual mistake
because it would have been impossible for the parties to have made the
mistake alleged in the Complaint at the time that the Agreement was
executed. The parties agreed to a date certain, Galderma admitted that
normal expiration dates were affected by delays and other term
adjustments. Therefore, at the time that the parties executed the
Agreement they did not and could not have known the actual expiration
dates of the patents. The parties could, however, set a date certain based
on normal patent term duration, which they did. The fact that delays
extended the duration of the patents and, thus, the expiration dates of those
patents does not equate to a mutual mistake made based on then-existing
facts. Holmes, supra. We conclude, therefore, that the trial court did not
err in granting Galderma’s Motion for Judgment on the Pleadings.
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In their final claim, Appellants argue that the court erred by entering
judgment on the pleadings without allowing Appellants the opportunity to
amend their complaint. This claim is waived. Appellants did not seek leave
to amend in the trial court and raise this for the first time on appeal. See
Pa.R.A.P. 302(a) (“Issues not raised in the lower court are waived and
cannot be raised for the first time on appeal.”). See also Coyne v. Porter-
Hayden Co., 428 A.2d 208, 211 n.4 (Pa. Super. 1981) (“[P]laintiff herein
did not request the lower court to grant leave to amend her pleadings.
Because plaintiff did not seek relief in the lower court, we cannot now
consider whether leave to amend should have been granted.”).
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/30/2015
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