Value Health Solutions Inc. v. Pharmaceutical Research Associates, Inc.

• Court: Superior Court of North Carolina
• Writing for the Court: Gregory P. McGuire Special Superior Court Judge.
• Citation: Value Health Solutions Inc. v. Pharmaceutical Research Associates, Inc., 2019 NCBC 68, 18-CV-12318 (N.C. Super. Ct. Sep 06, 2019)
• Decision Date: 06 September 2019
• Docket Number: 18-CV-12318
• Parties: VALUE HEALTH SOLUTIONS INC. and NAGARAJAN PARTHASARATHY, Plaintiffs, v. PHARMACEUTICAL RESEARCH ASSOCIATES, INC. and PRA HEALTH SCIENCES, INC., Defendants.

2019 NCBC 68

VALUE HEALTH SOLUTIONS INC. and NAGARAJAN PARTHASARATHY, Plaintiffs, v. PHARMACEUTICAL RESEARCH ASSOCIATES, INC. and PRA HEALTH SCIENCES, INC., Defendants.

No. 18-CV-12318

Superior Court of North Carolina, Wake

September 6, 2019

THIS MATTER comes before the Court on Plaintiffs Value Health Solutions, Inc. ("Value Health") and Nagarajan Parthasarathy's ("Parthasarathy"; collectively "Plaintiffs") Motion to Dismiss Amended Counterclaims. ("Motion", ECF No. 41.) The Court having considered the Motion, the briefs submitted in support of and in opposition to the Motion, and the arguments of counsel at the hearing on the Motion, concludes that the Motion should be GRANTED, in part, and DENIED, in part for the reasons set forth below.

Mainsail Lawyers by David Glen Guidry and Joseph Kellam Warren for Plaintiffs Value Health Solutions, Inc. and Nagarajan Parthasarathy.

Kilpatrick Townsend & Stockton LLP by Randy Avram, John Moye, and Joe P. Reynolds for Defendants Pharmaceutical Research Associates, Inc. and PRA Health Sciences, Inc.

ORDER AND OPINION ON PLAINTIFFS' MOTION TO DISMISS DEFENDANTS' AMENDED COUNTERCLAIMS

Gregory P. McGuire Special Superior Court Judge.

I. FACTUAL AND PROCEDURAL BACKGROUND

1. The Court does not make findings of fact on motions to dismiss under Rule 12(b)(6), but only recites those facts included in the complaint that are relevant to the Court's determination of the Motion. See e.g., Concrete Serv. Corp. v. Inv'rs Grp., Inc., 79 N.C.App. 678, 681, 340 S.E.2d 755, 758 (1986). The facts relevant to the determination of the Motion are drawn from Defendants' Amended Counterclaims. ("Amended Counterclaims", ECF No. 37 at CC.)^[1]

2. Defendants Pharmaceutical Research Associates, Inc. ("PRA, Inc.") and PRA Health Sciences ("PRA Health") comprise "one of the world's leading global contract research organizations (CRO), engaging in the design, implementation, and management of clinical trials all over the world." (ECF No. 37 at CC, ¶¶ 1, 11.) (Collectively, Defendants will be referred to herein as "PRA," in the singular, except as otherwise required.) PRA conducts clinical trials for pharmaceutical and biotech companies. As of December 20, 2018, PRA employed 15, 000 employees in 60 different countries. (Id. at ¶ 11.)

3. Plaintiffs are the developers of clinical trial management software ("CTMS"), a type of software CRO's use to manage clinical trials. Plaintiffs developed a software product, called the "Solution," which they represented to PRA as being suitable for use by large CRO's for conducting global clinical trials. (Id. at ¶¶ 13-14.) Parthasarathy was employed by Value Health as its president.

A. Negotiation and Sale of Plaintiffs' Solution to PRA and Alleged Misrepresentations by Plaintiffs

4. From early 2014 through May 2015, Plaintiffs and PRA engaged in negotiations for PRA's acquisition of the Solution. (Id. at ¶¶ 1, 11-20.) During the negotiations, PRA alleges that Plaintiffs "represented themselves to PRA as sophisticated software developers with expertise in," CTMS and with "expertise [in] implementation of CTMS on a global-scale." (Id. at ¶ 13 (quotation marks omitted).) Parthasarathy represented that the Solution "was capable, over the next five years, of simultaneously addressing the specific needs of up to 20 'Big Pharma' customers, . . . 80 'Big Biotech' customers, . . . and 100 'Small Pharma' customers[.]" (Id. at ¶ 15.) "Parthasarathy knew the details of the clinical trial management system ("CTMS") then in use by PRA and the requirements that PRA had for any CTMS it deployed in the future, including the requirement that the CTMS be capable of handling global, sophisticated clinical trials." (Id. at ¶ 16.)

5. Additionally, after allegedly conducting a functionality comparison between the Solution and the clinical trial management system then used by PRA, Parthasarathy "represented that . . . the Solution had higher 'functionality' with respect to (1) 'user interface, . . . (2) upgradability, . . . and (3) externalization[.]'" (Id. at ¶ 16.) Plaintiffs even advised PRA that "the Solution would be an improvement over the clinical trial management system PRA had in place . . . and that implementing it would save PRA money." (Id. at ¶ 25.) Lastly, Parthasarathy claimed that if it acquired the Solution PRA could expect to generate around $250 million in revenue over five years from licensing the Solution to third parties. (Id. at ¶ 15.)

6. Plaintiffs also made certain representations to PRA regarding Plaintiffs' ability to enhance the functionality of the Solution to ensure that it met PRA's needs. On June 2, 2014, PRA's Executive Director of IT provided Parthasarathy with a summary of key product enhancements "the Product Enhancements") that were needed to "close the gap" between the Solution and the clinical trial management system then used by PRA. (Id. at ¶ 17.) In response, on November 20, 2014, Parthasarathy communicated to PRA that Plaintiffs had implemented a majority of the Product Enhancements and that seven of the Product Enhancements were "ready and tested," including: "PDF templates;" "Confirmation/Follow-Up Letters;" "Interim Payments (Advances) calculations;" "Milestone Payments;" "Budget Templates & Items;" and "Enable export to XLS/CSV from Views." (Id. at ¶ 18.) PRA alleges "upon information and belief" Plaintiffs had not implemented the seven Product Enhancements and "Parthasarathy knew these enhancements had not been implemented into the Solution and were not 'ready and tested.'" (Id. at ¶ 19.)^[2]

7. On May 21, 2019, PRA and Plaintiffs entered into an Asset Purchase Agreement (the "APA", ECF No. 8.1 at APA), which contained the terms for Plaintiffs' sale of the Solution to PRA.^[3] (ECF No. 37 at CC, ¶ 20.) PRA alleges it relied on Plaintiffs' representations, and particularly on Parthasarathy's representation that ten of the Product Enhancements had been implemented into the Solution and were "ready and tested" in deciding to enter into the APA. (Id. at ¶ 20.)

8. Pursuant to the APA, PRA paid Plaintiffs $2, 457, 000 in stock and cash for the Solution. (ECF No. 8.1 at APA, p. 3.) The APA also provided for additional contingent payments to be made by PRA to Plaintiffs if certain milestones set forth in the APA were met. (Id. at pp. 3-4.) A separate document entitled Schedules to the Asset Purchase Agreement, referenced in the APA, details the requirements Plaintiffs were expected to satisfy to achieve the milestones in the APA. ("Schedules", ECF No. 8.1 at Schedules.) Three of the milestones set were contingent upon Plaintiffs (1) integrating the Solution with PRA's existing clinical trial management software ("First Milestone"); (2) completing key product enhancements to the Solution ("Second Milestone"); and (3) migrating PRA's former clinical trial management studies into the Solution ("Third Milestone", collectively "Milestones"), all within eighteen months from the closing date of the sale. (ECF No. 8.1 at APA, pp. 3-4; ECF No. 8.1 at Schedules, pp. 4-7; ECF No. 37 at CC, ¶¶ 21-24.) The closing date of the APA was June 8, 2015 ("the Closing"). (ECF No. 37 at CC, ¶ 31.)

9. PRA claims Plaintiffs made multiple representations prior to entering into the APA that led PRA to believe Plaintiffs could achieve the above Milestones within eighteen months after the Closing. Plaintiffs claimed that the Solution "would allow PRA to build, within eighteen months of the closing date, a new platform that would have functionality equivalent to-if not better than-PRA's prior clinical trial management system." (ECF No. 37 at CC, ¶ 25.) Plaintiffs further stated that the Solution was 90% ready and that it would not be difficult to integrate and incorporate some of the functions PRA needed in its trial management system within eighteen months of the Closing. (Id. at ¶ 26.) Parthasarathy also represented that ten of the twenty Product Enhancements needed to achieve the Second Milestone in the APA "had already been implemented into the Solution." (Id. at ¶ 26.)

10. According to PRA, however, many of the representations made by Plaintiffs prior to entering into the APA were either knowingly false or made negligently. PRA alleges that "at the time [Plaintiffs] entered into the APA, and made the representations identified above, [Plaintiffs] knew, or should have known, that the Solution would not be capable of achieving the functionality set forth in the Milestones within eighteen months of the closing date of the sale." (Id. at ¶ 28.) PRA further alleges that Plaintiffs "failed to inform PRA that the Solution was suitable only for small-scale clinical trials; that it lacked the stated and identified functionality; and thus that it was plainly incapable of being used in the types of global clinical trials PRA is engaged to perform." (Id. at ¶ 30.) Lastly, PRA claims that Parthasarathy knew that the enhancements to the Solution requested by PRA had not been implemented into the Solution and were not "ready and tested." (Id. at ¶ 19.)

B. Parthasarathy's Employment with PRA, Inc. and Alleged Breaches of Employment Agreement and Settlement Agreement

11. On June 8, 2015, Parthasarathy and PRA, Inc. entered into an Employment Agreement. ("Employment Agreement", ECF No. 8.3.) Pursuant to the Employment Agreement, Parthasarathy was employed as Vice President of PRA, Inc. (ECF No. 37 at CC, ¶¶ 32-33; ECF No. 8.3, at p. 1.) Among other things, the Employment Agreement required Parthasarathy to "use [his] best efforts in support of the Company's business and [ ] devote [his] full time, skill, attention and energies to the Company's business." (ECF No. 37 at CC, ¶ 33; ECF No. 8.3, at p. 1.) The Employment Agreement also prohibited Parthasarathy from "engag[ing] in any other...