MDNet Inc v. Pharmacia Corp , 147 F. App'x 239 ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
6-13-2005
MDNet Inc v. Pharmacia Corp
Precedential or Non-Precedential: Non-Precedential
Docket No. 03-4782
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NOT PRECEDENTIAL
IN THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No: 03-4782
MDNET, INC.,
Appellant,
v.
PHARMACIA CORPORATION, and
GREENSTONE LTD. t/d/b/a GREENSTONE
HEALTHCARE SOLUTIONS
____________________
On Appeal from the United States District Court
for the Western District of Pennsylvania
District Court No. 02-CV-1237
District Judge: The Honorable Gary L. Lancaster
____________________
Submitted Under Third Circuit LAR 34.1(a)
January 11, 2005
Before: ROTH and CHERTOFF,* Circuit Judges, and SHAPIRO,** District Judge.
(Opinion Filed: June 13, 2005)
*
This case was submitted to the panel of judges Roth, Shapiro ** and Chertoff. Judge
Chertoff resigned after submission, but before the filing of the opinion. The decision is
filed by a quorum of the panel. 28 U.S.C. § 46(d).
**
Honorable Norma L. Shapiro, Senior District Judge for the United States District
Court for the Eastern District of Pennsylvania, sitting by designation.
OPINION
SHAPIRO, District Judge.
MDNet, Inc. (“MDNet”) filed this action against Pharmacia Corporation
(“Pharmacia”) and Greenstone Ltd. (“Greenstone”) for breach of contract, promissory
estoppel, and fraudulent misrepresentation. MDNet appeals the district court dismissal
for failure to state a claim upon which relief can be granted.
I. FACTS AND PROCEDURAL HISTORY
MDNet is an “Internet e-Health Company” that develops virtual private networks
(“VPNs”) for doctors and hospitals.1 Pharmacia makes and distributes pharmaceuticals.
Greenstone is a wholly owned subsidiary of Pharmacia, and does data-mining, data
modeling, e-business applications and other marketing tasks. This dispute arose when
Greenstone and Pharmacia ended contract negotiations with MDNet. MDNet alleges an
oral contract had been formed; Pharmacia and Greenstone disagree.
In May, 1999, Greenstone and MDNet entered into a three-month trial business
arrangement, memorialized in a written contract (“the May 1999 Agreement”); MDNet
provided marketing data to Greenstone for $30,000. The firms found the trial
1
A VPN is a private computer network that uses a public network such as the Internet
to connect users together securely.
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arrangement beneficial, and wanted to expand their venture so that MDNet would
develop VPNs for doctors and hospitals and create sales opportunities for Greenstone and
Pharmacia. The venture included the development of a VPN for a group of Texas
urologists (“Prime Medical”) that would enable Pharmacia to market the prescription drug
“Detrol” to the urologists.
In October, 1999, MDNet, Greenstone, Pharmacia, and Prime Medical agreed by
written contract (“the October 1999 Agreement”) that MDNet would develop a VPN for
Prime Medical, and Greenstone would have access to the urologists and their data.
Greenstone orally agreed to provide $700,000 in funding. The October 1999 Agreement
contained the following clauses:
10. Prime Medical, MDNet, and Greenstone/PNU intend to maintain a
dialogue to consider further exploration of their business relationship.
However, any binding agreement resulting from such dialogue must be
entered into in writing.
[...]
14. This agreement shall continue in effect until any party gives at least 30
days’ advance notice of its intention to terminate to the others, provided that
this agreement may not be terminated prior to December 31, 2002, except
by a non-breaching party upon any breach, default or other failure to
perform by any other party hereto.
Representatives of MDNet and Prime Medical met with representatives of
Pharmacia and Greenstone on August 17, 2000 to negotiate expansion of the venture.
MDNet alleges that Pharmacia and Greenstone entered into an oral agreement with
MDNet (“the August 2000 Agreement”). MDNet claims the terms of the August 2000
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Agreement were as follows: 1) Pharmacia would provide $2,000,000 in funding over two
years; 2) Pharmacia would make available a marketing and sales support team; and 3)
Pharmacia would receive exclusive access to MDNet’s VPN business model and the
Prime Medical urologists to promote Detrol and other drugs. The parties proceeded to
exchange proposed written contracts to formalize the agreement, but they could not reach
agreement. Before a written contract was signed, Pharmacia and Greenstone abandoned
the negotiations and refused to provide $2,000,000 in additional funding.
MDNet filed this action alleging the August 2000 Agreement was an oral contract
breached by Pharmacia and Greenstone. The breach of contract claim also alleged
Pharmacia and Greenstone breached the October 1999 Agreement, but the complaint did
not specify the obligations that were unperformed. Additionally, MDNet alleged
promissory estoppel and fraudulent misrepresentation. It attached to the complaint copies
of the May 1999 and October 1999 Agreements, and a proposed written contract of
September, 2000 (“the September 2000 Proposed Contract”) that MDNet claims
memorialized the August 2000 Agreement.
Pharmacia and Greenstone moved to dismiss all claims for failure to state a claim
upon which relief can be granted. They argued an oral contract had not been formed,
because the October 1999 Agreement contained a clause requiring that any further
agreements must be in writing. The magistrate judge issued a report and recommendation
recommending that the district court grant the motion. The district court adopted the
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report and recommendation, and granted the motion. This appeal followed.
II. JURISDICTION AND STANDARD OF REVIEW
The district court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a).
This court has jurisdiction pursuant to 28 U.S.C. § 1291. Our review of a district court
dismissal of a complaint pursuant to Rule 12(b)(6) is plenary, and we apply the same test
as the district court. Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183 (3d
Cir. 2000). A motion to dismiss may be granted only if, accepting all well-pleaded
allegations in the complaint as true, and viewing them in the light most favorable to
plaintiff, plaintiff is not entitled to relief. Id. A court may consider undisputedly
authentic exhibits attached to a complaint without converting a motion to dismiss into a
motion for summary judgment. Pension Benefit Guar. Corp. v. White Consol. Indus., 998
F.2d 1192, 1196 (3d Cir. 1993); Fed.R.Civ.P. 10(c). While our standard of review
requires us to accept as true all factual allegations in the complaint, we need not accept as
true unsupported conclusions and unwarranted inferences. Doug Grant, Inc., 232 F.3d at
183-184. The district court determined, and the parties agree, that Pennsylvania law
applies to all substantive questions of law.
III. DISCUSSION
The district court concluded the parties could not have formed an oral contract
because a clause in the October 1999 Agreement required further agreements to be in
writing. The court held the clause operated as a condition precedent to the formation of a
5
contract, and MDNet had not alleged any conduct on the part of defendants showing their
intent to waive the requirement. The court also dismissed the claim for breach of the
October 1999 Agreement, since MDNet failed to specify the obligations Pharmacia and
Greenstone had failed to perform. Finally, the court dismissed the claims for promissory
estoppel and fraud because MDNet could not have reasonably relied on the oral
agreement or defendants’ alleged misrepresentations.
A. Breach of Contract
A breach of contract claim requires MDNet to show a contract between the parties,
the essential terms of the contract, a breach of a duty under the contract, and resultant
damages. See Electron Energy Corp. v. Short, 597 A.2d 175 (Pa. Super. Ct. 1991), aff'd,
618 A.2d 395 (Pa. 1993). A valid, binding contract exists when the parties have
manifested an intent to be bound, the terms are sufficiently definite, and there is
consideration. In re Estate of Hall, 731 A.2d 617, 621 (Pa. Super. Ct. 1999), appeal
denied, 751 A.2d 191 (Pa. 2000). Parties may bind themselves contractually prior to the
execution of a written document through mutual manifestations of assent, even where a
later formal document is contemplated. Luber v. Luber, 614 A.2d 771, 773 (Pa. Super.
Ct. 1992), appeal denied, 631 A.2d 1008 (Pa. 1993). MDNet alleges Pharmacia and
Greenstone manifested the intent to be bound during the August 2000 negotiations
because their authorized representatives stated they were “in” and “Pharmacia was their
partner in this venture.” The complaint states the terms of the contract were definite, and
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the consideration was two million dollars and a sales support team in exchange for
exclusive access to the MDNet business model and the Prime Medical VPN. The
complaint also alleges Pharmacia failed to provide the two million dollars, and MDNet’s
value was diminished as a result.
The district court erred in finding the parties could not have formed an oral
contract because the clause requiring a written agreement created a condition precedent.
The court relied on Franklin Interiors v. Wall of Fame Management Co., 511 A.2d 761,
762 (Pa. 1986). In Franklin Interiors, the court held that a document was not a contract
because it contained a clause stating that the document would not become a contract until
approved by an officer of Franklin Interiors; no officer had approved it. Franklin
Interiors does not directly apply to the facts of this action. A condition precedent to a
contract is formed not by past contracts, but the instant contract. See Restatement
(Second) of Contracts § 224 (1981). The usual examples are option contracts, or
contracts requiring financing or insurance. See Shovel Transfer & Storage Inc. v. PLCB,
739 A.2d 133, 139 (Pa. 1999); Cambria Sav. & Loan v. Estate of Gross, 439 A.2d 1236,
1239 (Pa. Super. Ct. 1982). Where a requirement is contained in a former contract, the
parties may waive the requirement by a later oral modification of the former contract.
Parties may orally agree to modify a written contract, even where the written contract
contains language prohibiting oral modifications. Universal Builders, Inc v. Moon Motor
Lodge, Inc., 244 A.2d 10, 15 (Pa. 1968); C. I. T. Corp. v. Jonnet, 214 A.2d 620 (Pa.
7
1965). Whether the clause at issue is described as a condition precedent is irrelevant,
since parties can waive a condition precedent. “The requirement of a written
authorization may also be considered a condition which has been waived.” Universal
Builders, Inc., 244 A.2d at 15 (citing 5 Williston on Contracts § 689 (3rd ed. 1961)).
An oral waiver or modification of a written contract must be proved by clear,
precise and convincing evidence, including conduct by the parties that “clearly shows the
intent to waive the requirement that the amendments be made in writing." Somerset
Community Hospital v. Allan Mitchell & Assocs., 685 A.2d 141,146 (Pa. Super. Ct.
1996). As the Pennsylvania Supreme Court forcefully stated:
An oral contract changing the terms of a written contract must be of such
specificity and directness as to leave no doubt of the intention of the parties
to change what they had previously solemnized by a formal document. The
oral evidence must be of such a persuasive character that it moves like an
ink eradicator across the written paper, leaving it blank so that the parties in
effect start afresh in their negotiations and mutual commitments.
Gloeckner v. School Dist. of Baldwin Tp., 175 A.2d 73, 75 (Pa. 1961).
In light of the exhibits attached to MDNet’s complaint, MDNet failed to plead
facts from which one could reasonably infer Pharmacia and Greenstone intended to waive
the clause requiring a written agreement. MDNet’s complaint makes no reference at all
to the writing requirement. MDNet’s complaint does not allege that Pharmacia and
Greenstone intended to waive or modify Paragraph 10 of the October 1999 Agreement.
The complaint does not allege that an authorized agent of Pharmacia or Greenstone ever
made any statement waiving the requirement of a writing. MDNet appears to argue that
8
Greenstone and Pharmacia, by oral assent to the August 2000 Agreement, impliedly
waived or modified the requirement of written modification. This is not clear and
convincing evidence as a matter of law. The district court correctly dismissed the claim
for breach of contract.
B. Promissory Estoppel
To make a claim for promissory estoppel, MDNet must allege: 1) Pharmacia and
Greenstone made a promise they should have reasonably expected to induce action or
forbearance on the part of MDNet; 2) MDNet actually took action or refrained from
taking action in reliance on the promise; and 3) injustice can be avoided only by enforcing
the promise. See Crouse v. Cyclops Industries, 745 A.2d 606, 610 (Pa. 2000).
Promissory estoppel is applied to enforce a promise not supported by consideration,
where there is no binding contract. See, e.g., Bethlehem Steel Corp. v. Litton Indus., Inc.,
488 A.2d 581, 593 (Pa. 1985).
MDNet’s complaint alleges Pharmacia expressly and intentionally promised
$2,000,000 in funding to induce MDNet to continue development of the VPN and forgo
other business opportunities. MDNet alleges its reliance was reasonable and justifiable.
The district court found MDNet could not have reasonably relied on the oral promises
made by appellees because their prior agreement required a writing for a further binding
agreement. The requirement of a written contract does not necessarily prevent an oral
waiver or modification, but MDNet alleges no facts showing an intention to waive or
9
modify the requirement of a writing. Additionally, MDNet pled that there was
consideration for the exchange of promises, where promissory estoppel is applied to
enforce a promise not supported by consideration. See, e.g., Bethlehem Steel Corp., 488
A.2d at 593. The district court correctly dismissed the claim for promissory estoppel.
C. Fraudulent Misrepresentation
A plaintiff alleging fraud must plead: (1) a representation; (2) material to the
transaction; (3) made falsely, with knowledge of its falsity or recklessness as to its
falsity; (4) with the intent of misleading another to rely on it; (5) justifiable reliance on
the misrepresentation; and, (6) resulting injury proximately caused by the reliance. Bortz
v. Noon, 729 A.2d 555, 560 (Pa.,1999). "There is a special kind of proximate cause
requirement for fraud and misrepresentation, and plaintiff must demonstrate that a
specific statement caused a specific harm." Hurt v. Philadelphia Hous. Auth., 806
F.Supp. 515, 530 n. 25 (E.D.Pa.1992) (emphasis in original).
A pleading of fraud is subject to heightened specificity requirements. See
Fed.R.Civ.P. 9(b). Plaintiff may not simply point to a bad result and allege fraud, but
must “inject precision and some measure of substantiation into the allegations.” In re
Chambers Dev. Sec. Litig., 848 F.Supp. 602, 616 (W.D.Pa.1994). When multiple
defendants are involved, the complaint must plead with particularity by specifying the
allegations of fraud applying to each defendant. Cinalli v. Kane, 191 F.Supp.2d 601, 609
(E.D.Pa. 2002). MDNet failed to specify the defendant or agent making the alleged
10
fraudulent statement.
The district court found MDNet could not prove justifiable reliance because no
party could justifiably rely on an oral promise foreclosed by the requirement that a
subsequent agreement be in writing. MDNet alleges no facts from which one could
reasonably infer an intention to waive or modify the writing requirement. The continued
negotiation of the September 2000 Proposed Contract, defining many of the essential
terms of an agreement, made reliance on tentative oral statements unreasonable. The
district court correctly dismissed the claim for fraudulent misrepresentation.
IV. CONCLUSION
For reasons other than those relied on by the district court, we affirm the dismissal
of the MDNet complaint.s
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