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Fortis Advisors LLC v. The Medicines Co.

Court of Chancery of Delaware

December 18, 2019

FORTIS ADVISORS LLC, in its capacity as the Representative of Former Equityholders in Rempex Pharmaceuticals, Inc., Plaintiff,
v.
THE MEDICINES COMPANY, and MELINTA THERAPEUTICS, INC., Defendants. THE MEDICINES COMPANY, Cross-Claim Plaintiff,
v.
MELINTA THERAPEUTICS, INC., Cross-Claim Defendant.

          ORDER RESOLVING MOTION FOR JUDGMENT ON THE PLEADINGS AND MOTION TO DISMISS

          KATHALEEN ST. JUDE MCCORMICK, VICE CHANCELLOR

         1. Defendant The Medicines Company ("MedCo") acquired Rempex Pharmaceuticals, Inc. ("Rempex") pursuant to a merger agreement dated December 3, 2013 (the "Merger Agreement").[1] MedCo agreed to pay $140 million up front and $200 million post-closing. The post-closing payments were contingent upon achievement of contractually defined "milestone" events relating to the development and commercialization of certain drug candidates acquired through the merger.

         2. This litigation concerns a $30 million post-closing payment due upon the completion of "Milestone #4," which the Merger Agreement defines as regulatory approval by the European Medicines Agency of a drug called "Vabomere."[2] Around November 20, 2018, the European Medicines Agency approved Vabomere, thus triggering the $30 million payment obligation.

         3. The defendants do not dispute that Milestone #4 has been achieved or that the former Rempex equityholders are owed the corresponding $30 million milestone payment. They dispute only which defendant must make the payment. After MedCo acquired Rempex, but before Milestone #4 was achieved, MedCo sold Vabomere to Defendant Melinta Therapeutics, Inc. ("Melinta") pursuant to a purchase and sale agreement dated November 28, 2017 (the "Melinta-MedCo Agreement").[3] MedCo claims that the Melinta-MedCo Agreement obligates Melinta to make the payment under Milestone #4. Melinta disclaims any such obligation.

          4. The Merger Agreement names Plaintiff Fortis Advisors LLC ("Fortis" or "Plaintiff") as the representative of former Rempex equityholders. On March 28, 2019, Fortis filed a Verified Complaint (the "Complaint") against MedCo and Melinta to recover payment for Milestone #4. The Complaint alleges three counts: Counts I and II against MedCo for breach of the Merger Agreement and Count III against Melinta for breach of the Melinta-Medco Agreement.

         5. MedCo answered Counts I and II of the Complaint, and Fortis subsequently filed a motion for partial judgment on the pleadings as to those Counts. Melinta did not answer the Complaint, but instead filed a motion to dismiss Count III. The parties fully briefed both motions, and the Court heard oral arguments on September 19, 2019. MedCo also asserted a cross-claim against Melinta[4] and moved for judgment on the pleadings as to that cross-claim.[5] The parties agreed to present that motion separately.

         I. FORTIS'S MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS AS TO COUNTS I AND II

         6. Under Court of Chancery Rule 12(c), a motion for judgment on the pleadings may be granted "when no material issue of fact exists and the movant is entitled to judgment as a matter of law."[6] A motion for judgment on the pleadings "is a proper framework for enforcing unambiguous contracts, "[7] such as the Merger Agreement in this case. Thus, the Court may "consider the unambiguous terms of exhibits attached to the pleadings, including those incorporated by reference."[8]Under Rule 12(c), "a trial court is required to view the facts pleaded and the inferences to be drawn from such facts in a light most favorable to the non-moving party."[9]

         7. Fortis argues that it is entitled to judgment as a matter of law on Counts I and II because the Merger Agreement obligates MedCo to make the $30 million payment required upon achievement of Milestone #4. Fortis maintains that MedCo remains responsible for that payment regardless of Melinta's obligations under the Melinta-MedCo Agreement. As discussed above, MedCo concedes that Milestone #4 was achieved, [10] that the applicable milestone payment became due and owing on November 20, 2018, [11] and that neither MedCo nor Melinta has made the $30 million payment.[12] MedCo argues that it properly assigned its obligations to make milestone payments to Melinta and that, after this assignment, MedCo transformed from a primary obligor for Milestone #4 into a "guarantor of collection."[13]

         8. Delaware courts follow the objective theory of contracts, giving words "their plain meaning unless it appears that the parties intended a special meaning."[14]In practice, the objective theory of contracts requires that a court "give priority to the parties' intentions as reflected in the four corners of the agreement, construing the agreement as a whole and giving effect to all its provisions."[15]

         9. MedCo's argument turns on the plain language of Section 2.6(c)(i) of the Merger Agreement, which conditionally allows MedCo to assign or transfer its obligations under the Merger Agreement:

[T]he Buyer . . . shall not . . . license, sublicense, assign or transfer the Company Intellectual Property covering the applicable Product or Product Candidate subject to any such Milestone . . . or otherwise transfer or convey the right to market or sell such Product or Product Candidate, to any Person . . . unless . . . the Buyer remains ultimately responsible for the payment of all applicable Milestone Payments if and as they become due and owing . . . .[16]

         Relying solely on the word "ultimately" in the above-quoted provision, MedCo argues the Merger Agreement effectively permitted MedCo to unilaterally convert from a primary obligor to a guarantor. Because Section 2.6(c)(i) requires that MedCo remain "ultimately responsible for the payment of all applicable Milestone Payments, "[17] MedCo contends that the Merger Agreement permitted it to transfer its payment obligations provided that MedCo promised to answer for the payment of debt owed by the transferee. MedCo further reasons that when it transferred its obligation to make payments related to Milestone #4 to Melinta, Melinta became "liable in the first instance."[18] MedCo thus insists that Melinta must default before Fortis can resort to collecting from MedCo.

         10. MedCo's interpretation of Setion 2.6(c)(i) ignores and conflicts with the remaining language in that provision. In full form, that provision provides that in the event of a transfer or assignment of rights, MedCo "remains ultimately responsible for the payment of all applicable milestone payments if and as they become due and owing."[19] Section 2.6(a) of the Merger Agreement provides that "upon . . . achievement" of the milestone events, MedCo "shall pay . . . the applicable Milestone Payment."[20] Put differently, the payment became due and owing upon achievement of the milestone event. Read together, the language in Sections 2.6(a) and 2.6(c)(i) obligates MedCo to make a milestone payment upon the achievement of the corresponding milestone event. To instead interpret Section 2.6(c) as first requiring Fortis to enforce its obligations against Melinta before resorting to payment from MedCo would render meaningless the phrase "as they become due and owing."[21]

         11. The plain language of the Merger Agreement obligates MedCo to make payment for Milestone #4 at the time it became "due and owing," which the parties concede has passed. For the foregoing reasons, Fortis's Motion for Partial Judgment on the Pleadings as to Counts I and II is GRANTED.

         II. MELINTA'S MOTION TO DISMISS COUNT III

         12. On a motion pursuant to Rule 12(b)(6), the Court accepts "all well-pleaded factual allegations in the Complaint as true, [and] accept[s] even vague allegations in the Complaint as 'well-pleaded' if they provide the defendant notice of the claim."[22] "A trial court is not, however, required to accept as true conclusory allegations 'without specific supporting factual allegations.'"[23] The Court "draw[s] all reasonable inferences in favor of the plaintiff[s], and den[ies] the motion unless ...


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