Opinion
16-P-612
02-16-2017
ARE-TECH SQUARE, LLC v. GALENEA CORP. & others.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The plaintiff, ARE-Tech Square, LLC (ARE-Tech), appeals from a judgment entered in Superior Court in favor of defendant Otsuka Pharmaceutical Co., Ltd. (Otsuka), after Otsuka's summary judgment motion was allowed. ARE-Tech contends that Otsuka was jointly liable with defendant Galenea Corp. (Galenea) for damages resulting from Galenea's breach of contract. We affirm.
Background . We summarize the undisputed facts appearing in the summary judgment record. In January, 2005, Galenea, a biotechnology company that was formed in 2004, entered into a research, development, and license agreement (R&D agreement) with Otsuka, a pharmaceutical company based in Japan. The R&D agreement between Galenea and Otsuka memorialized a collaboration between the two parties, whereby Otsuka funded Galenea's research and development of treatments for central nervous system diseases in exchange for exclusive intellectual property rights and the right to market the resulting compounds by Galenea. In October, 2008, an amended R&D agreement was entered into by Galenea and Otsuka, and extended their collaboration until December 31, 2011. Galenea and Otsuka also entered into a voting agreement and stock purchase agreement, through which Otsuka was permitted to appoint two representatives to Galenea's board of five directors and to purchase a minority share of Galenea's stock.
In November, 2005, Galenea entered a five-year lease with ARE-Tech for office space, and that lease was amended in 2006, 2008, and 2012. The lease was exclusively between ARE-Tech and Galenea; Otsuka was never mentioned in any of the documents.
Pursuant to the amended R&D agreement, the collaboration between Galenea and Otsuka ended on December 31, 2011. On January 4, 2012, the third amendment to the lease between ARE-Tech and Galenea was signed, at which point ARE-Tech was aware that the business relationship between Galenea and Otsuka had ended. That amendment, which was created in an apparent effort to accommodate the financial hardship Galenea was experiencing, gave Galenea a six-month abatement on its rent, led to Galenea vacating a portion of the leased premises, and required Galenea to deliver a new letter of credit. In February, 2012, ARE-Tech and Galenea entered into a separate revenue-sharing agreement, in which Galenea agreed to pay ARE-Tech a portion of its revenue earned from collaborations with other companies. Ultimately, Galenea's failure to pay its rent led to ARE-Tech's termination of the lease in July, 2012. ARE-Tech also claims that it is owed money by Galenea pursuant to the revenue-sharing agreement.
In its amended complaint, ARE-Tech advanced claims for breach of contract, unjust enrichment, fraudulent transfer, and reach and apply against Galenea as well as Otsuka. ARE-Tech alleged that Otsuka, as Galenea's partner at the relevant time, is jointly liable for damages from Galenea's breach of the lease and the revenue-sharing agreement or, alternatively, that Otsuka was unjustly enriched from Galenea's use and occupancy of the premises, and that Galenea fraudulently transferred corporate assets to Otsuka in an attempt to avoid its obligations to ARE-Tech. Otsuka's renewed motion for summary judgment was allowed, and a final judgment as to Otsuka entered pursuant to Mass.R.Civ.P. 54(b), 365 Mass. 821 (1974).
Discussion . We review the allowance of a motion for summary judgment de novo. Federal Natl. Mort. Assn . v. Hendricks , 463 Mass. 635, 637 (2012). Motions for summary judgment should be allowed when "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Mass.R.Civ.P. 56(c), as amended, 436 Mass. 1404 (2002). See Kourouvacilis v. General Motors Corp ., 410 Mass. 706, 714 (1991). Applying that standard, we conclude that the judge did not abuse her discretion or commit error in allowing Otsuka's renewed motion for summary judgement, and we affirm.
Breach of contract . a. Partnership and agency liability . ARE-Tech alleges that the undisputed facts and reasonable inferences therefrom were sufficient to establish a partnership or agency relationship between Galenea and Otsuka, such that all the counts against Otsuka should survive summary judgment. We disagree.
There were no issues between Galenea and ARE-Tech at any point during the relationship between Galenea and Otsuka, and Otsuka was never named in the lease, or it amendments, nor in the revenue-sharing agreement between Galenea and ARE-Tech. Notwithstanding, ARE-Tech alleges that a partnership existed between Galenea and Otsuka at the times relevant to this appeal, despite the winding up of their affairs prior to the third amendment to the lease and the subsequent revenue-sharing agreement. ARE-Tech argues that it was error for the judge to consider Otsuka's liability discharged by the third amendment, as Otsuka was a partner to Galenea throughout Galenea's lease with ARE-Tech and Otsuka's liability would therefore survive despite the termination of their business relationship.
A partnership can be found between two or more parties after considering the existence of "(1) an agreement by the parties manifesting their intention to associate in a partnership, (2) a sharing by the parties of profits and losses, and (3) participation by the parties in the control or management of the enterprise." Fenton v. Bryan , 33 Mass. App. Ct. 688, 690-691 (1992). While we appreciate the expansive nature of Galenea and Otsuka's business relationship, we conclude that the record does not support a finding that a partnership existed.
In considering whether Galenea and Otsuka were in fact partners, we first look to their R&D agreement, which stated that "[n]othing herein shall be deemed to create an agency, ... partnership, ... or similar relationship between Galenea and Otsuka." There is no evidence in the record that suggests that Galenea and Otsuka shared profits or losses except for a clause in the amended R&D agreement that offered Galenea an option to share in profits or losses stemming from improvements made to certain Galenea products by Otsuka. Finally, while Otsuka did occupy two seats on Galenea's board of directors, own a substantial but minority amount of shares, and fund substantially Galenea's projects, we conclude there is nothing to suggest that Otsuka's participation in Galenea's business was substantial enough to establish a partnership relationship. The record does not support the imposition of partnership liability on Otsuka.
ARE-Tech's agency argument, which in part alleges that Galenea was the apparent agent of Otsuka, similarly fails. "Apparent authority, is ‘created as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him.’ " Theos & Sons, Inc . v. Mack Trucks, Inc ., 431 Mass. 736, 745 (2000), quoting from Restatement (Second) of Agency § 27 (1958). ARE-Tech was aware that the business relationship between Galenea and Otsuka had ended before agreeing to the third amendment to the lease with Galenea. ARE-Tech's further argument that Galenea had actual authority, either express or implied, to act as Otsuka's agent likewise fails, as the relationship between Galenea and Otsuka remained one of separate corporate identities throughout. See Theos & Sons, Inc ., supra at 743 n.13. As such, there can be no liability placed on Otsuka for Galenea's breaches of contract.
b. Corporate disregard . The doctrine of corporate disregard "is not itself a cause of action but ‘an equitable tool that authorizes courts, in rare situations, to ignore corporate formalities, where such disregard is necessary to provide a meaningful remedy for injuries and to avoid injustice.’ " Kraft Power Corp . v. Merrill , 464 Mass. 145, 148 (2013), quoting from Attorney Gen . v. M.C.K., Inc ., 432 Mass. 546, 555 (2000). That doctrine is rarely, if ever, applied in contractual disputes and is generally reserved for tort. See Birbara v. Locke , 99 F.3d 1233, 1238 (1st Cir. 1996) ("We have found no Massachusetts Supreme Judicial Court case applying the veil piercing doctrine in a contract case").
To pierce the corporate veil, ARE-Tech must establish more than "common ownership of the stock of two or more corporations together with common management." My Bread Baking Co . v. Cumberland Farms, Inc ., 353 Mass. 614, 619 (1968). That burden could not be satisfied through the undisputed facts on the record, and it is clear that there was no confusion among the three parties as to the separate identities of Galenea and Otsuka throughout their relationship. Otsuka owned a minority share of Galenea's stock and occupied two of the seats on Galenea's five-member board of directors, and despite their considerable business relationship, Galenea continued to engage in other research projects independent of its relationship with Otsuka. Furthermore, ARE-Tech negotiated the third amendment to the lease, and subsequent revenue-sharing agreement, with the express understanding that Galenea's relationship with Otsuka had ended. We have no concern about fraud or injustice, and conclude that there is no basis for liability under the doctrine of corporate disregard.
Unjust enrichment . ARE-Tech further contends that it is entitled to recover from Otsuka under a theory of unjust enrichment. That argument, which in essence is that Otsuka unfairly accepted a benefit from Galenea's contract with ARE-Tech without proper compensation, is without merit. As noted by the judge, the "equitable remedy for unjust enrichment is not available to a party with an adequate remedy at law." Santagate v. Tower , 64 Mass. App. Ct. 324, 329 (2005). ARE-Tech has available to it a clear remedy at law in its breach of contract claim against Galenea.
Fraudulent transfer . ARE-Tech also argues that summary judgment was improperly entered as to its claim of fraudulent transfer. ARE-Tech asserts that Galenea fraudulently transferred certain assets to Otsuka in an effort to avoid its debts to ARE-Tech. Under that theory, a transfer of property by a debtor can be deemed fraudulent if made "with actual intent to hinder, delay, or defraud any creditor of the debtor" or "without receiving a reasonably equivalent value in exchange for the transfer." G. L. c. 109A, § 5(a )(1) & (2), inserted by St. 1996, c. 157.
General Laws c. 109A, § 5(b ), provides a nonexhaustive list of factors to consider in determining actual intent.
ARE-Tech challenges the transfer of patent applications made by Galenea to Otsuka pursuant to their R&D agreements. ARE-Tech had knowledge of the transfer when it was made, and the property transfer was in exchange for the funding given to Galenea by Otsuka pursuant to their R&D agreements. There was no evidence before the judge that would suggest that the transfer was made with actual intent to hinder, delay, or defraud ARE-Tech, nor is there anything to indicate that Galenea did not receive reasonably equivalent value in exchange.
The property transfer was made prior to any impending litigation between ARE-Tech and Galenea.
Reach and apply . As stated above, Otsuka is not liable for Galenea's alleged debts or obligation. Also, the record does not contain any evidence suggesting that intangible property was fraudulently transferred to Otsuka by Galenea.
Judgment entered January 11, 2016, affirmed .