KIVETT v. NEOLPHARMA, INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

DAVID KIVETT, Case No. 2:20-cv-00664-JDW

Plaintiff

v.

NEOPHARMA, INC., et al.,

Defendants.

MEMORANDUM

Cediprof Inc. and Lannett Company entered into two contracts. David Kivett

worked for years on a commission basis soliciting Lannett’s business for Cediprof’s

corporate affiliate Neolpharma Inc. Now he claims that Cediprof’s contract with

Lannett triggered his commission. Cediprof and Neolpharma think otherwise

because Mr. Kivett did not have a contract with Cediprof, and Neolpharma did not

enter into a contract with Lannett. The Court concludes that those cause-and-effect

questions are subject to factual disputes that prevent summary judgment on Mr.

Kivett’s breach of contract claim. But his fraud claim fails because the duty that he

says Neolpharma and Cediprof breached is really a contractual one, so the gist of the

action doctrine precludes the claim.

I. FACTS

A. Mr. Kivett’s Relationship With Neolpharma

Cediprof owns New Drug Applications (“NDA”) and Abbreviated New Drive

Applications (“ANDA”) to sell and market pharmaceuticals, but it does not

manufacture anything. Neolpharma manufactures pharmaceuticals for which

Cediprof owns an NDA or ANDA. Efram Compo owns 100% of Neolpharma’s stock

and 80% of Cediprof’s stock, and the two companies share office space and have

overlapping management.

On April 19, 2013, Mr. Kivett and Neolpharma entered into a Representation

Agreement (the “First Representation Agreement”). In that agreement, Neolpharma

retained Mr. Kivett as an “independent representative selling the services of

Neolpharma” by “solicit[ing] the services that Neolpharma offers to the industry to

include that of contract manufacturing and packaging . . . .” (ECF No. 33-7 at 2.)

Neolpharma agreed to pay Mr. Kivett a monthly fee of $3,500.00 “for his services to

represent and solicit sales on behalf of Neolpharma exclusively.” Neolpharma also

agreed to pay Mr. Kivett a commission “upon the successful completion of a Business

Transaction between Neolpharma and a client directly related with the services

provided by [Mr.] Kivett. . . .” (Id.) The commission amount varied depending on the

type of client Mr. Kivett solicited. (Id.)

In 2019, Mr. Kivett and Neolpharma entered into another Representation

Agreement (the “Second Representation Agreement”). The Second Representation

Agreement is identical to the First Representation Agreement, except it eliminates

the monthly payments to Mr. Kivett. It is unclear what led the parties to enter into

the Second Representation Agreement or whether the First Representation

Agreement had continued in effect until the execution of the Second Representation

Agreement.

B. Mr. Kivett’s Work Soliciting Business For Neolpharma

Mr. Kivett worked to pursue new opportunities for Neolpharma, including with

Dr. Reddy’s Laboratories, Glenmark Pharmaceuticals, Alembic Pharmaceuticals, and

Lannett Company. Mr. Kivett first contacted a representative from Lannett, Michael

Block, on August 7, 2013. Although the initial email did not generate business for

Neolpharma, Mr. Kivett continued to pursue a business relationship with Lannett

and its representatives.

In 2018, Mr. Kivett learned that Lannett lost its contract to distribute

Levothyroxine, so Mr. Kivett emailed Mr. Block suggesting that Neolpharma

manufacture Levothyroxine for Lannett. Mr. Kivett’s email interested Mr. Block, so

Mr. Kivett set up a conference call between Neolpharma’s and Lannett’s executives

to discuss Levothyroxine. The conference call did not result in an agreement between

Neolpharma and Lannett.

C. Cediprof’s Deal With Lannett

In July 2019, Cediprof entered into a Distribution Agreement with Lannett

(the “Lannett Agreement”), pursuant to which Lannett paid Cediprof $20 million to

begin distributing Levothyroxine in August 2022. Lannett and Cediprof also entered

into an Interim Distribution Agreement (“Interim Agreement”), pursuant to which

Lannett began distributing Levothyroxine from August 2020 through July 31, 2022.

Both the Lannett Agreement and the Interim Agreement are “between Lannett

Company, Inc., . . . and/or its Affiliates . . . and Cediprof, Inc., . . . and/or its

Affiliates. . . .” (ECF No. 33-11 at §1.01; ECF No. 33-12 at §1.3.) The agreements

define “Affiliate” as

any other person or legal entity directly or indirectly controlling or

controlled by or under direct or indirect common control with such

Party. For the purpose of this definition, ‘control’ when used with

respect to a specified person or legal entity means the power to direct

the management and policies of such person or legal entity directly or

indirectly, whether through the ownership of voting securities, by

contract or otherwise.

(ECF No. 33-11 at §1.01; see also ECF No. 33-12 at §1.3.)

D. Procedural History

Mr. Kivett filed this lawsuit in February 2020, after Neolpharma and/or

Cediprof refused to pay him his commission on the $20 million Lannett Agreement.

In his Amended Complaint, Mr. Kivett asserts breach of contract and fraud claims

against Neolpharma and Cediprof. On March 26, 2021, Cediprof and Neolpharma

moved for summary judgment arguing, inter alia, that the gist of the action doctrine

bars Mr. Kivett’s fraud claim and that he cannot succeed on his breach of contract

claim because Neolpharma is not a party to the Lannett Agreement. The Motion is

now ripe.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 56(a) permits a party to seek, and a court to

enter, summary judgment “if the movant shows that there is no genuine dispute as

to any material fact and the movant is entitled to judgment as a matter of law.” Fed.

R. Civ. P. 56(a). “[T]he plain language of Rule 56[(a)] mandates the entry of summary

judgment, after adequate time for discovery and upon motion, against a party who

fails to make a showing sufficient to establish the existence of an element essential

to that party’s case, and on which that party will bear the burden of proof at trial.”

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quotations omitted). In ruling on

a summary judgment motion, a court must “view the facts and draw reasonable

inferences ‘in the light most favorable to the party opposing the [summary judgment]

motion.’” Scott v. Harris, 550 U.S. 372, 378 (2007) (quotation omitted). However,

“[t]he non-moving party may not merely deny the allegations in the moving party’s

pleadings; instead he must show where in the record there exists a genuine dispute

over a material fact.” Doe v. Abington Friends Sch., 480 F.3d 252, 256 (3d Cir. 2007)

(citation omitted).

III. ANALYSIS

A. Preliminary Matters

Although Mr. Kivett’s Amended Complaint mentions transactions related to

Dr. Reddy’s Laboratories, Glenmark Pharmaceuticals, and Alembic Pharmaceuticals,

it does not assert that Neolpharma owed Mr. Kivett a commission and failed to pay

that commission in breach of its contractual obligation. Moreover, in his opposition

brief, Mr. Kivett states that he is not seeking commission for these claims. Because

these claims are not in the case, the Court has no basis to enter summary judgment,

but it will hold Mr. Kivett to his position that he does not seek compensation for work

done for those companies.

B. Breach Of Contract

Contract interpretation is a legal issue for the Court to resolve. See In re

Energy Future Holdings Corp., 842 F.3d 247, 253 (3d Cir. 2016); Commonwealth of

Pennsylvania v. UPMC, 208 A.3d 898, 910 (Pa. 2019). When examining a contract, a

court’s goal is to ascertain the intent of the parties, as objectively manifested by them.

Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1009 (3d Cir.1980).

First, the court must make a preliminary inquiry whether the contract before it is

ambiguous. Stendardo v. Federal Nat’l Mortgage Ass’n, 991 F.2d 1089, 1094 (3d

Cir.1993). A contract provision is ambiguous if it is susceptible of two reasonable

alternative interpretations. Mellon, 619 F.2d at 1011. Where the contract's written

terms are not ambiguous and can only be read one way, the court will interpret the

contract as a matter of law. Stendardo, 991 F.2d at 1094. If the contract is determined

to be ambiguous, then the interpretation of the contract is left to the factfinder. Id.

To prevail on a breach of contract claim, a plaintiff must plead: “(1) the

existence of a contract, including its essential terms, (2) a breach of a duty imposed

by the contract, and (3) resultant damages.” Williams v. Nationwide Mut. Ins. Co.,

750 A.2d 881, 884 (Pa. Super. Ct. 2000) (quoting another source). The parties do not

dispute the third element of Mr. Kivett’s breach of contract claim—Mr. Kivett’s

damages. But they have submitted evidence that creates a factual dispute about the

remaining elements of Mr. Kivett’s contract claim. Because the Court cannot resolve

those issues, it must deny Neolpharma’s summary judgment motion.

1. Existence of a contract

Nothing before the Court suggests that the First Representation Agreement

lapsed before Mr. Kivett attempted to solicit Lannett’s business. The First

Representation Agreement does not have a termination date. In Pennsylvania, “[t]he

general rule is that when a contract provides that one party shall render services to

another, . . . but does not specify a definite time or prescribe conditions which shall

determine the duration of the relationship, the contract may be terminated by either

party at will.” Cummings v. Kelling Nut Co., 368 Pa. 448, 451, 84 A.2d 323, 325 (1951).

Nothing before the Court suggests that either Neolpharma or Mr. Kivett terminated

the First Representation Agreement. To the contrary, Mr. Kivett’s efforts to solicit

Lannett’s business in 2018 suggest that he was acting under a contract. Because

there is no evidence that either party terminated the contract, the Court will assume

that the First Representation Agreement remained in effect when Mr. Kivett

contacted Lannett.

The Court is also unable to determine whether the Second Representation

Agreement modified the First Agreement or terminated it and started a new

contractual relationship. Unlike novation, “modification does not displace a prior

valid contract; rather, the new contract acts as a substitute for the original contract,

but only to the extent that it alters it.” Melat v. Melat, 602 A.2d 380, 385 (Pa. Super.

1992). On the other hand, novation “may only be found where ‘the evidence

demonstrates the displacement and extinction of a valid contract, the substitution for

it of a valid new contract, . . . a sufficient legal consideration for the new contract, and

the consent of the parties.” Id. (quoting Buttonwood Farms, Inc. v. Carson, 478 A.2d

484, 486 (Pa. Super. 1984) (emphasis in original)). Because (a) the two agreements

are essentially identical, (b) there is no evidence on the record as to the parties’ intent,

and (c) the Court must draw all reasonable inferences in favor of Mr. Kivett, the Court

will assume that the Second Representation Agreement modified the First

Representation Agreement and that no novation occurred. Thus, to the extent Mr.

Kivett performed work pursuant to his agreement with Neolpharma and Neolpharma

entered into a “Business Transaction” as a result of that work, it owed Mr. Kivett a

commission regardless of whether Mr. Kivett was acting pursuant to the First

Representation Agreement or the modified version of that agreement. This result is

consistent with Pennsylvania law, which holds that “generally [Courts] will not divest

an employee’s right to an earned commission” where a contract is silent or ambiguous.

Little v. USSC Grp., Inc., 404 F. Supp. 2d 849, 854 (E.D. Pa. 2005) (“[A]n employee

selling on a commission basis is entitled to his or her commission on a sale when the

sale is made and accepted by the employer.”).

Neolpharma tries to avoid this outcome by citing to an unpublished decision,

Antonelli v. Youth Educ. in the Arts!, No. 19-CV-3927-JMY, 2020 WL 1042424, at *3

(E.D. Pa. Mar. 3, 2020). But Antonelli is distinguishable from Mr. Kivett’s case

because the plaintiff in Antonelly performed work prior to the express start date of

his employment contract and admitted to volunteering for the organization he was

suing before he signed the contract. That’s not the case here. When the Court resolves

all factual disputes in Mr. Kivett’s favor, as it must, the record demonstrates that Mr.

Kivett and Neolpharma were parties to a contract from 2013 forward, without

interruption.

2. Breach of a contractual duty

Under the First Representation Agreement, Neolpharma owes Mr. Kivett a

commission if it enters into a “Business Transaction.” Although it uses capital letters,

the Agreement does not define “Business Transaction.” The Court will therefore give

the term its ordinary meaning. See Vogel v. Berkley, 511 A.2d 878, 881 (Pa. Super.

1986) (“The ordinary meaning must be attributed to the language, unless a different

meaning was clearly intended.”). Mr. Kivett entered the First Representation

Agreement in 2013 and Second Representation Agreement in 2018. At both times,

“business transaction” meant an “action that affects the actor’s financial or economic

interests, including the making of a contract.” Black’s Law Dictionary 227 (9th ed.

2009); see also Black’s Law Dictionary 241 (10th ed. 2014). Thus, under the

Representation Agreement, if Neolpharma entered into a contract with Lannett, it

owes Mr. Kivett a commission.

Both the Lannett Agreement and the Interim Agreement state that they are

made “between Lannett Company. . . and Cediprof . . . and/or its Affiliates.” Both

Agreements define Affiliates as “any other person or legal entity directly or indirectly

controlling or controlled by or under direct or indirect common control with such

Party.” (E.g., ECF No. 33-11 at § 1.01.) The Agreements also state that “control”

means “the power to direct the management and policies of such person or legal entity

directly or indirectly, whether through the ownership of voting securities, by contract

or otherwise.” (Id.) Mr. Campo directly controls both Neolpharma and Cediprof.

Neolpharma therefore qualifies as Cediprof’s affiliate under the Lannett Agreement

and the Interim Agreement, and each agreement describes Cediprof’s affiliates as

parties to the agreement. All of which leads to the conclusion that Neolpharma is a

party to an agreement with Lannett that affects its financial or economic interests

and therefore qualifies as a “Business Transaction” under the First Representation

Agreement.

The language of the Lannett Agreement and the Interim Agreement is not the

only reason to conclude that Neolpharma is a party to those agreements (though the

language alone is enough). Both agreements anticipate that Lannett will distribute

products that Cediprof manufactures, but Cediprof does not manufacture anything.

Only Neolpharma does. Thus, even if there were some ambiguity to the language of

the Lannett Agreement and the Interim Agreement (and the Court sees none), the

evidence viewed in Mr. Kivett’s favor would still support the conclusion that

Neolpharma owes Mr. Kivett a commission.

Defendants argue that Mr. Kivett should not get a commission because he was

not involved in the formation of the Lannett Agreement or the Interim Agreement.

But the First Representation Agreement did not require his involvement. Under that

contract, Mr. Kivett must “solicit services that Neolpharma offers to the

industry. . . .” “Solicit” means “an attempt or effort to gain business.” Black’s Law

Dictionary 1520 (9th ed. 2009). The parties do not dispute that Mr. Kivett sent

multiple emails to Mr. Block attempting to sell Neolpharma’s services. Thus, under

this definition, Mr. Kivett performed under the contract by soliciting Lannett’s

business. A jury might conclude that those efforts did not lead to the Lannett

Agreement or the Interim Agreement. But that’s a factual dispute not appropriate on

summary judgment and the Court will not make such a determination.

C. Fraud

The gist of the action doctrine “prevents a party from bringing ‘a tort claim for

what is, in actuality, a claim for breach of contract.’ ” Norfolk S. Ry. Co. v. Pittsburgh

& W. Virginia R.R., 870 F.3d 244, 256 (3d Cir. 2017) (quoting Bruno v. Erie Ins. Co.,

106 A.3d 48, 60 (Pa. 2014). “If the facts of a particular claim establish that the duty

breached is one created by the parties by the terms of their contract—i.e., a specific

promise to do something that a party would not ordinarily have been obligated to do

but for the existence of the contract—then the claim is to be viewed as one for breach

of contract.” Bruno, 106 A.3d at 68. On the other hand, if the “facts establish that the

claim involves the defendant's violation of a broader social duty owed to all

individuals, which is imposed by the law of torts and, hence, exists regardless of the

contract, then it must be regarded as a tort.” Id.

While the applicability of the doctrine is a matter of law, Synthes, Inc. v.

Emerge Med., Inc., 25 F. Supp. 3d 617, 724 (E.D. Pa. 2014), the Pennsylvania

Supreme Court has not articulated a standard by which to determine if a claim

implicates a broader social duty owed to all individuals. Indeed, the Third Circuit has

recognized that the gist of the action doctrine “cannot be captured by any precisely

worded test. Instead, [it calls] for a fact-intensive judgment as to the true nature of a

claim.” Williams v. Hilton Grp. PLC, 93 F. App’x 384, 386 (3d Cir. 2004); see also

Frank C. Pollara Grp., LLC v. Ocean View Inv. Holding, LLC, 784 F.3d 177, 186 (3d

Cir. 2015).

Similarly, the economic loss doctrine bars a tort plaintiff from recovering

purely economic damages. However, the Pennsylvania Supreme Court has held that

“purely economic losses are recoverable in a variety of tort actions” and that “a

plaintiff is not barred from recovering economic losses simply because the action

sounds in tort rather than contract law.” Dittman v. UPMC, 196 A.3d 1036, 1053 (Pa.

2018) (quote omitted). Thus, if a “duty arises under a contract between the parties, a

tort action will not lie from a breach of that duty. However, if the duty arises

independently of any contractual duties between the parties then a breach of that

duty may support a tort action.” Id. This decision renders the gist of the action

doctrine and the economic loss doctrine effectively coextensive under Pennsylvania

law.

Mr. Kivett alleges that Neolpharma “subvert[ed] its agreement with [Mr.]

Kivett to avoid paying any commission” by having Cediprof enter the Lannett

Agreement. (ECF No. 22 at ¶ 89.) In essence, Mr. Kivett says that Neolpharma had

a duty to pay him the commission and avoided that duty through its subsidiary. But

whatever duty Neolpharma owed Mr. Kivett arose out of their contractual

relationship. Thus, the gist of the action doctrine bars Mr. Kivett’s breach of contract

claim.

To the extent, Mr. Kivett argues that Neolpharma fraudulently induced him

to enter into the Representation Agreement in the first place, that argument is

without merit. Mr. Kivett does not claim that he entered into the Representation

Agreement because of Neolpharma’s misrepresentation about its corporate structure.

Rather, he asserts that after he entered into the Agreement and performed his side

of the bargain, Neolpharma avoided its contractual obligation through fraud.

Permitting this fraud claim to go forward would swallow the gist of the action doctrine

in its entirety. A plaintiff could bring a fraud claim anytime he asserted that the

defendant never intended to abide by its contract in the first place.

IV. CONCLUSION

Mr. Kivett’s dispute with Neolpharma is a contractual one. He cannot

repackage it as a tort claim. Therefore, the Court will grant summary judgment on

Mr. Kivett’s fraud claim (Count II). But it will not do so on his breach of contract

claim (Count I) because the facts viewed in the light most favorable to Mr. Kivett

establish that he had a valid contract with Neolpharma and that Neolpharma

breached it. An appropriate Order follows.

BY THE COURT:

/s/ Joshua D. Wolson

HON. JOSHUA D. WOLSON

United States District Judge

May 27, 2021