545 F.3d 114 (2nd Cir. 2008), 07-0050, Vacold LLC v. Cerami

Docket Nº:07-0050-cv.
Citation:545 F.3d 114
Party Name:VACOLD LLC, Immunotherapy, Inc., Plaintiffs-Appellants, v. Anthony CERAMI, Carla Cerami, VLN LLC and Cerami Consulting Corporation, Defendants-Appellees.
Case Date:October 02, 2008
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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545 F.3d 114 (2nd Cir. 2008)

VACOLD LLC, Immunotherapy, Inc., Plaintiffs-Appellants,


Anthony CERAMI, Carla Cerami, VLN LLC and Cerami Consulting Corporation, Defendants-Appellees.

No. 07-0050-cv.

United States Court of Appeals, Second Circuit.

October 2, 2008

Argued: March 14, 2008.

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Franklin B. Velie, Sullivan & Worcester LLP, New York, N.Y. (Eric J. Grannis, Law Offices of Eric J. Grannis, New York, NY, on the brief), for Plaintiffs-Appellants.

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Mark J. Hyland (Jeffrey M. Dine, Ellen E. Lafferty, on the brief), Seward & Kissel LLP, New York, NY, for Defendants-Appellees.

Before: B.D. PARKER, LIVINGSTON, Circuit Judges, and HALL, District Judge.[*]

LIVINGSTON, Circuit Judge:

Immunotherapy, Inc. and its successor in interest, Vacold LLC (together, “ Immunotherapy" ), appeal from a judgment of the United States District Court for the Southern District of New York (Richard M. Berman, J.) in favor of Immunotherapy's former business partner, Cerami Consulting Corporation (“ CCC" ) and its affiliates, Anthony Cerami, Carla Cerami, and VLN LLC (“ VLN" ), on claims of securities fraud and related state law causes of action. Because we conclude that the parties' agreement of April 9, 1999, constituted a definitive agreement to buy and sell the stock described in that agreement, the defendants were under no duty of disclosure after that date. See Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 890-91 (2d Cir.1972). We therefore affirm.


In November 1997, CCC and Immunotherapy agreed to collaborate on three biomedical research projects. One of the projects was the development of a virtual lymph node-“ a tiny tubular capsule ... inserted under a patient's skin in order to trigger certain reactions in the patient's immune system." Vacold LLC v. Cerami, No. 00 Civ. 4024(AGS), 2001 WL 167704, at *1 n. 1 (S.D.N.Y. Feb. 16.2001). Their efforts proved fruitful. By October 1998, officers of CCC and Immunotherapy had filed a patent application relating to virtual lymph node technology, and CCC and Immunotherapy had formed a new entity, later renamed Applied Vaccine Technologies, Inc. (“ AVT" ), to commercialize their developments. CCC and Immunotherapy each received 50% of AVT's 100,000 shares of stock. Mr. Cerami and Immunotherapy's Chief Executive Officer, C. Leonard Gordon, became co-chief executives of AVT, and Ms. Cerami became a vice president of AVT.

Immunotherapy was a thinly capitalized startup that did not have enough cash to survive as a going concern much past the end of 1998. While AVT was trying to obtain financing or a development partner so it could independently fund its operations and bring its product to market, Immunotherapy began to think about how to wind up its operations and distribute its assets, including its 50,000 shares of AVT.

On October 16, 1998-only eight days after AVT was capitalized-Gordon wrote to Mr. Cerami that Immunotherapy was running out of money and intended to liquidate by the end of 1998, inviting a discussion about how AVT might assist Immunotherapy in its windup. Apparently dissatisfied with their relationship, CCC did not wish to pursue joint development of the virtual lymph node with Immunotherapy. Discussions between Immunotherapy and CCC over the following two months therefore centered around the structure of what Ms. Cerami referred to as the “ divorce settlement" between Immunotherapy and CCC. They discussed three “ settlement" possibilities: (1) Immunotherapy might purchase CCC's AVT stock; (2) CCC might purchase Immunotherapy's AVT stock; and (3) some third

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party might acquire AVT. After the new year, they began to pursue the second of these options in earnest.

On January 19, 1999, CCC sent to David Dove, Immunotherapy's Chief Operating Officer, a two-page letter labeled a “ confidential summary of discussions." According to the letter, the parties contemplated that, by April 16, 1999, a not-yet-in-existence subsidiary of CCC-referred to in the parties' correspondence as NewCo, which ultimately became defendant VLN-would purchase Immunotherapy's AVT stock for $1 million plus an ongoing royalty based on the proceeds from sales of virtual lymph node products and license fees derived from the virtual lymph node technology. The proposal was expressly conditioned upon CCC's obtaining financing at terms acceptable to CCC. Additionally, the parties stated their expectation that they would prepare, negotiate, and execute a definitive purchase agreement reflecting the above terms and also containing “ customary" representations, warranties, conditions, and covenants. The letter concluded with the following statement, printed in boldfaced text:

The understandings contained herein do not constitute a binding agreement among the parties hereto but merely express a confidential summary of the current discussions with respect to the Transaction, and the understandings contained herein shall only become binding when definitive agreements are executed.

Over the next few weeks, CCC, Immunotherapy, and their attorneys exchanged less-than-cordial letters regarding the January 19 proposal. Immunotherapy objected principally to the financing condition, which, in its view, gave CCC too much optionality in that its obligation to purchase was conditioned on its ability to obtain financing that it deemed suitable, with no consequences to flow from its failure to go forward. A new draft of the divorce settlement, which emerged on February 3, attempted to address this concern. This draft, a three-page letter described as setting forth “ on a confidential basis ... the terms which [CCC] and [Immunotherapy] ha[d] been discussing," provided for the same purchase price of $1 million plus ongoing royalties. It added a minimum annual royalty of $50,000. It also stated that if CCC were unable to obtain financing for the purchase price by May 1, the parties “ agree[d] to divide each area of use of the [virtual lymph node] technology between them in a fair and equitable manner." The letter concluded with the same boldface disclaimer of the letter's nonbinding nature as appeared in the January 19 draft. Finally, the letter bore a signature block in which Immunotherapy could-but did not-indicate its acceptance and agreement.

The parties again exchanged comments, this time more congenially, principally regarding the minimum royalty obligation and the division of the virtual lymph node technology should CCC be unable to obtain financing. In particular, Dove asked for greater specificity in the procedure by which CCC and Immunotherapy would divide the use of the technology should CCC fail to purchase Immunotherapy's AVT stock. Dove's letter insisted that the division of the technology “ be decided upon now as part of this agreement," “ become effective upon expiration" of CCC's deadline for obtaining financing, and “ be binding as to [CCC's] making efforts to finance, and as to ... the plan [for dividing the technology] if [CCC] fails to purchase [the] AVT interests."

A more elaborate draft followed on March 16. This one, four pages in length and again styled a “ confidential summary of discussions," set forth a mechanism

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through which CCC and Immunotherapy would divide the market if CCC could not finance its purchase: with Immunotherapy picking first, the parties would alternate choosing from eight enumerated market segments until each claimed three, and each party would agree not to compete in the other's three segments but could enter any other segment. This draft also altered the date by which CCC had to obtain financing, specifying that if CCC were unable to obtain financing for the purchase price by April 1-a deadline that would be extended to May 1 if an investor promised CCC by April 1 that it would provide financing-“ then the parties ... agree[d] to divide each area of use as provided in th[e] letter." The draft did not contain the boldfaced disclaimer language that the previous drafts contained, but like the February 3 draft, it bore a signature block that was left unsigned.

The negotiations began to pick up speed. CCC and Immunotherapy exchanged fourth and fifth drafts-each after only brief comments-on March 22 and March 31, respectively. Each was again labeled a “ confidential summary of discussions," each again bore a signature block, and as before, Immunotherapy did not sign either one. These drafts also made clear that the arrangement by which CCC and Immunotherapy would divide the market for the virtual lymph node would not be triggered if the parties' failure to consummate the transaction was occasioned by Immunotherapy's“ refusal to comply with the provisions" of the agreement. After the fifth draft, Dove sent back what he referred to as “ only a few minor changes," including an instruction to change the opening paragraph of the letter so that it was styled a “ letter agreement" rather than a “ summary of discussions." On April 9, CCC sent back a new draft, which had grown to six pages, that included this change. Gordon signed this letter agreement, which we reprint as an appendix to this opinion, on behalf of Immunotherapy. He dated it April 9, and he sent two copies to CCC's attorney with a request that he have both copies fully executed.

Paragraph 3 of the April 9 agreement stated, in accord with the previous drafts, that the transaction was expressly conditioned upon CCC's obtaining financing. It expressly forbade CCC from securing this financing from Coulter Pharmaceutical Corporation, with which Immunotherapy had prior dealings. Aside from this prohibition, however, the agreement imposed no restriction on the potential sources to which CCC might turn for financing, nor did it require that CCC identify the nature or source of any financing it secured.

Paragraph 4 of the April 9 agreement stated, as had all the previous drafts, that CCC and Immunotherapy...

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