Court Opinion

ID: 215172
Source: CourtListenerOpinion
Date Created: 2011-04-21 16:46:36+00
Date Added: 2024-06-11T17:28:22.868789
License: Public Domain

NOT PRECEDENTIAL

                   UNITED STATES COURT OF APPEALS
                        FOR THE THIRD CIRCUIT
                             _____________

                           Nos. 10-1869 and 10-2085
                                _____________

                          GEORGE KONTONOTAS
                                Appellant No. 10-2085

                                        v.

              HYGROSOL PHARMACEUTICAL CORPORATION;
                  SPIRO SPIREAS; SANFORD BOLTON,

                         Hygrosol Pharmaceutical Corporation,
                                   Appellant No. 10-1869
                               _____________

                  Appeals from the United States District Court
                    for the Eastern District of Pennsylvania
                        (D.C. Civil No. 2-07-cv-04989)
                    District Judge: Honorable Jacob P. Hart
                                _____________

                            Argued March 14, 2011

           Before: RENDELL, BARRY and CHAGARES, Circuit Judges

                             (Filed: April 21, 2011 )
                                 _____________

Steven A. Haber, Esq.
James E. Kurack, Esq.
Obermayer, Rebmann, Maxwell & Hippel
1617 John F. Kennedy Boulevard
One Penn Center, 19th Floor
Philadelphia, PA 19103
Dorothy A. Hickok, Esq. [ARGUED]
Alfred W. Putnam, Jr., Esq.
Drinker, Biddle and Reath
18th & Cherry Streets
One Logan Square
Philadelphia, PA 19103

Nick S. Williams, Esq.
Sondhi Williams
420 Lexington Avenue
Suite 300
New York, NY 10170
   Counsel for Appellee/Cross Appellant
  Hygrosol Pharmaceutical Corporation

Joseph M. Fioravanti, Esq.
217 North Monroe Street
P.O. Box 1826
Media, PA 19063

Thomas D. Schneider, Esq.
55 Green Valley Road
Wallingford, PA 19086

Eugene J. Malady, Esq. [ARGUED]
Suite 309
200 East State Street
Media, PA 19063
   Counsel for Appellant/Cross Appellee
   George Kontonotas

                                    _____________

                              OPINION OF THE COURT
                                  _____________

RENDELL, Circuit Judge.

      Following a bench trial, the District Court for the Eastern District of Pennsylvania

held that Hygrosol Pharmaceutical Corporation was obligated to pay broker George

Kontonotas $1,689,062.93 under a quantum meruit/unjust enrichment theory. The

                                            2
District Court awarded Kontonotas an additional $310,050.01 in prejudgment interest, for

a total final award of $1,999,112.94. It also denied Hygrosol‟s request for attorney‟s

fees.1

         On appeal, Hygrosol makes three central claims. First, it argues that New York

law2 does not permit a quasi-contract/unjust enrichment award here, because an

enforceable, binding agreement existed between the parties. Next, it contends that, even

if such an action were permissible, it was barred by New York‟s six-year statute of

limitations for unjust enrichment claims. Finally, Hygrosol claims it is entitled to

attorney‟s fees based on its “prevailing party” status in Kontonotas‟s breach of contract

claim. On cross-appeal, Kontonotas claims that the District Court erred in applying

Pennsylvania‟s, instead of New York‟s, statutory rate to calculate prejudgment interest.

We will affirm the District Court‟s orders as to the statute of limitations, the propriety

and amount of the quantum meruit award, and Hygrosol‟s request for attorney‟s fees. We

will remand in order for the District Court to calculate prejudgment interest according to

New York law.

   1
      The District Court issued these rulings in three separate orders. It had subject-matter
jurisdiction over this matter pursuant to 28 U.S.C. § 1332, and we have jurisdiction over
this appeal of a final order under 28 U.S.C. § 1291.
   2
     The parties do not dispute the District Court‟s determination that New York law
applies to Kontonotas‟s quantum meruit claim.

                                              3
                                          A.

       Kontonotas had a Broker‟s Agreement with Hygrosol providing that he would be

compensated if he secured contracts for the use of Hygrosol‟s “liquisolid” technology3 in

health and nutritional products. After arranging an introduction between Hygrosol and

Mutual Pharmaceutical Company – the result of which was a License Agreement

between the two companies for the development of pharmaceutical products – and not

receiving any payment, Kontonotas sued Hygrosol alleging breach of contract or, in the

alternative, quantum meruit/unjust enrichment. He sought a percentage of the profits that

had accrued to Hygrosol from the sales of three generic pharmaceutical drugs it

developed with Mutual.

       Following a bench trial, the District Court found that Hygrosol had no contractual

obligation to pay Kontonotas. It found that the scope of the Broker‟s Agreement between

Kontonotas and Hygrosol was limited to health/nutritional products and did not reach

pharmaceutical products. However, it held that Hygrosol was liable to Kontonotas based

on a theory of quantum meruit/unjust enrichment because: (1) Kontonotas rendered a

service to Hygrosol in good faith by introducing it to Mutual; (2) Hygrosol accepted that

service when it entered into a Licensing Agreement with Mutual; (3) Kontonotas had a

   3
     “Liquisolid” technology, which was developed by Hygrosol founder Spiro Spireas,
eases the assimilation of an active pharmaceutical ingredient into the bloodstream by
making it more water-soluble. The technology has the potential to make a drug safer and
more effective, and it is a cost-saver for drug manufacturers since less of the drug‟s active
ingredient is required when the technology is used.

                                               4
reasonable expectation of compensation for the service; and (4) the evidence was

sufficient to demonstrate the value of Kontonotas‟s service – as calculated by the District

Court, 1.25% of the approximately $141 million Hygrosol earned as a direct result of the

introduction. See Leibowitz v. Cornell Univ., 584 F.3d 487, 509 (2d Cir. 2009).

       In analyzing Kontonotas‟s unjust enrichment claim, the District Court relied, at

the outset, on a letter from Spiro Spireas, founder and President of Hygrosol, to

Kontonotas in which Spireas recognized Kontonotas‟s contribution in forging a

connection with Mutual and promised a “fair commission for [Kontonotas‟s] efforts”

should Hygrosol and Mutual enter into a deal. The Court also looked to a handwritten

note from Spireas to Dr. Richard Roberts, President of Mutual, in the margins of a draft

of the Hygrosol-Mutual Licensing Agreement. It interpreted the note to represent an

acknowledgment on the part of Hygrosol that Kontonotoas was ethically entitled to

benefit from Hygrosol‟s deal with Mutual. The District Court did not credit Spireas‟s

testimony that he was only thinking of nutritional products when he wrote this note. The

document on which the note was written, the Court pointed out, pertained only to

pharmaceutical products.

       In a later order, the District Court set the value of Kontonotas‟s prejudgment

interest award at $310,050.01, calculated at Pennsylvania‟s rate of 6% simple interest, see

41 Pa. Stat. Ann. § 202, to bring Kontonotas‟s total award to $1,999,112.94. It relied on

Yohannon v. Keene Corp., 924 F.2d 1255, 1264-65 (3d Cir. 1991), for its decision to

apply Pennsylvania law, instead of New York law, to the calculation of the prejudgment

interest award.

                                             5
       Finally, in an order denying Hygrosol‟s Rule 52 Motion for Reconsideration, the

District Court denied Hygrosol‟s request for attorney‟s fees and rejected Hygrosol‟s

argument that the statute of limitations had run on Kontonotas‟s unjust enrichment claim.

Section 2.2 of the Kontonotas-Hygrosol Broker‟s Agreement, the Court found, did not

entitle Hygrosol to attorney‟s fees for “prevailing” on Kontonotas‟s breach of contract

claim. On the statute of limitations, the District Court held that Kontonotas‟s claim was

subject to equitable tolling based on Hygrosol‟s fraudulent concealment of the profits it

was earning from its deal with Mutual. The Court found that Kontonotas‟s complaint

alleged with particularity all elements of fraudulent concealment so as to satisfy the

requirements of Fed. R. Civ. P. 9(b): Kontonotas had alleged that, between 1998 and

2005, he communicated with Spireas concerning the progress of Spireas‟s projects at

Mutual; that Spireas repeatedly assured Kontonotas that he would compensate him for

products Spireas developed for Mutual “when the right time comes”; that he did not learn

until the spring of 2005 that Hygrosol was benefitting from hundreds of millions of

dollars in sales of products developed by Mutual with Hygrosol; and that he subsequently

requested payment from Hygrosol. Judge Hart found Kontonotas‟s allegations and

testimony with regard to these events to be credible and, accordingly, held that the statute

of limitations did not begin to run until sometime in the spring of 2005.

                                          B.

       We apply a de novo standard of review to the district court‟s legal conclusions,

Brisbin v. Superior Value Co., 398 F.3d 279, 285 (3d Cir. 2005), and we review the

                                               6
district court‟s factual findings for clear error. Prusky v. ReliaStar Life Ins. Co., 532 F.3d

252, 257-58 (3d Cir. 2008). Under the clear error standard, we must accept the trial

court‟s factual determinations unless they are either (1) “completely devoid of minimum

evidentiary support displaying some hue of credibility,” or (2) “bear[] no rational

relationship to the supportive evidentiary data.” Haines v. Ligett Grp., Inc., 975 F.2d 81,

92 (3d Cir. 1992). We have held that interpreting an ambiguous contract to discern the

parties‟ intent is a question of fact and, accordingly, is subject to review under a clear

error standard. Fed. R. Civ. P. 52(a); John F. Harkins Co., Inc. v. Waldinger Corp., 796

F.2d 657, 659-60 (3d Cir. 1986). A district court‟s conclusions regarding the legal effect

or operation of any agreement, however, are questions of law and therefore subject to

plenary review. ATACS Corp. v. Trans World Commc’ns, Inc., 155 F.3d 659, 665 (3d

Cir. 1998).

       We review the reasonableness of a district court‟s decision to award attorney‟s

fees and prejudgment interest for abuse of discretion. Lanni v. New Jersey, 259 F.3d 146,

148 (3d Cir. 2001); Brock v. Richardson, 812 F.2d 121, 126 (3d Cir. 1987). Our review

of a district court‟s determination as to which state‟s law applies to the calculation of a

prejudgment interest award, however, is de novo. Hammersmith v. TIG Ins. Co., 480

F.3d 220, 226 (3d Cir. 2007).

                                           C.

       On appeal, Hygrosol repeatedly and insistently claims that an unjust enrichment

award was impermissible here because Hygrosol and Kontonotas had an enforceable and

                                                7
binding Broker‟s Agreement that established how and under what conditions Kontonotas

would be compensated. The existence of this agreement, Hygrosol argues, forecloses

Kontonotas‟s extra-contractual equitable claim. However, Hygrosol fails to acknowledge

that the District Court made a factual finding that the Broker‟s Agreement did not cover

pharmaceutical products developed by Hygrosol with the aid of Kontonotas‟s brokering,

and a written contract only precludes quasi-contract recovery “for events arising out of

the same subject matter.” Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 516 N.E. 2d

190, 193 (N.Y. 1987). We refuse to find clear error as to the District Court‟s

interpretation of Hygrosol and Kontonotas‟s contract and, accordingly, we agree with the

District Court‟s analysis as to the permissibility of an unjust enrichment claim here and

with its ruling that Kontonotas fulfilled all the elements of that claim.

         We also find that equitable tolling was properly applied here and that the District

Court did not err in holding that Kontonotas‟s claim was timely. Finally, the District

Court did not abuse its discretion in refusing Hygrosol‟s request for attorney‟s fees;

section 2.2 of the Broker‟s Agreement has no application here, as this litigation did not

arise out of “circumvention” as the term was defined in the agreement.

         Regarding the District Court‟s prejudgment interest determination, we note that

Travelers Casualty & Surety Co. v. Insurance Co. of North America, 609 F.3d 143 (3d

Cir. 2010),4 not Yohannon, controls. In Travelers, a breach of contract case in

Pennsylvania federal court based on diversity jurisdiction, New York law governed the

contracts in question. 609 F.3d at 148. We distinguished Yohannon and applied New

   4
       Travelers was decided after the District Court issued its opinion in this case.
                                               8
York‟s interest rate to calculate prejudgment interest, based on our prediction that the

Pennsylvania Supreme Court would conclude that the rate of prejudgment interest is an

issue of substantive law. Id. at 174. We make the same prediction in the context of a

quasi-contract action. Therefore, we will remand to ask the District Court to reconsider

its prejudgment interest determination in light of our conclusion that New York law

governs calculation of the prejudgment interest rate.

                                             D.

       For the reasons set forth above, we affirm the District Court‟s January 26, 2010

order granting Kontonotas unjust enrichment relief and its March 16, 2010 order rejecting

Hygrosol‟s claims that the statute of limitations had run and that it was entitled to

attorney‟s fees.

       We will vacate the District Court‟s February 23, 2010 order as to prejudgment

interest and remand for further proceedings on this issue pursuant to Travelers.5

   5
     We also note here that we are entering a separate order asking the parties to supply
reasons for their ongoing request to keep the briefs and appendices in this case under seal.
We have already asked them to provide support for their request, in a letter dated
February 3, 2011, but their efforts at responding have fallen short. The parties are each
given ten days from the entry of this order to show cause why the record should not be
unsealed with specific redactions of classified material only. The parties should
specifically identify which parts of the record need to remain under seal, and why. If
they fail to do so or absent a showing of good cause, see Pansy v. Borough of
Stroudsburg, 23 F.3d 772, 790 (3d Cir. 1994), the Court will direct that the record be
unsealed. See United States v. Wecht, 484 F.3d 194, 211 (3d Cir. 2007) (“[W]hen there is
an umbrella protective order „the burden of justifying the confidentiality of each and
every document sought to be covered by a protective order remains on the party seeking
the protective order.‟”) (quoting Cipollone v. Liggett Grp., Inc., 785 F.2d 1108, 1122 (3d
Cir. 1986)); Miller v. Indiana Hosp., 16 F.3d 549, 552 (3d Cir. 1994) (finding it
“incumbent upon us to direct the district court to unseal the record” and explaining that
                                              9
“we see no reason to maintain the impoundment” where “defendants have chosen not to
appear to defend the district court‟s order [sealing the record], and the district court
provided no findings as the basis for its decision.”).
                                           10