IN RE: NAVIDEA BIOPHARMACEUTICALS LITIGATION

Background

Navidea Biopharmaceuticals, Inc. sued Michael Goldberg for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief. Goldberg asserted contract counterclaims against Navidea and third-party claims against Macrophage Therapeutics, Inc., Navidea’s wholly owned subsidiary. The parties cross-moved for summary judgment, which is a procedure for deciding claims without a trial when there is no genuine dispute over a material fact.

The dispute centered on an August 2018 agreement. It provided for Navidea to issue Goldberg 23.5 million shares of Navidea common stock, for Macrophage to issue him shares of Macrophage super-voting stock, and for Navidea to pay the cost of continuing his health coverage for 16 months after the closing date. It also contemplated later transaction documents. The court found the agreement poorly drafted and ambiguous in several important respects.

Goldberg later formed M1M2 Therapeutics, Inc. Macrophage transferred its Navidea sublicense to M1M2, issued M1M2 common stock to Macrophage, and issued M1M2 super-voting stock to Goldberg. The Delaware Court of Chancery had previously found that Goldberg breached his fiduciary duty of loyalty to Macrophage through those transactions, but awarded only $1 in nominal damages and did not decide whether the transactions violated the August Agreement.

Navidea’s claims against Goldberg

The court denied Navidea’s motion for summary judgment on its breach-of-contract claim and granted Goldberg’s cross-motion on that claim. Navidea alleged that Goldberg breached the August Agreement by failing to execute the later transaction documents, entering into the M1M2 transactions, and failing to forward health-insurance payments to the insurer. The court assumed, without deciding, that Navidea could prove a breach, but held that Navidea had not shown damages directly traceable to the alleged breaches. The court also held that litigation costs and administrative fees could not serve as contract damages under the circumstances.

The court denied Navidea’s motion for summary judgment on its implied-covenant claim and granted Goldberg’s cross-motion. The court held that Goldberg’s effort to negotiate the later transaction documents was not shown to be bad faith. It also held that entering into the M1M2 transactions breached the implied covenant because the transactions deprived Navidea of the benefit it reasonably expected from the agreement. Nevertheless, Navidea’s claim failed because Navidea had not demonstrated damages.

The court denied without prejudice both parties’ motions concerning Navidea’s declaratory-judgment claim. Navidea sought a declaration that it could terminate the August Agreement or, alternatively, a declaration defining the parties’ continuing rights and obligations. The court held that the claim was not ripe for decision because factual disputes remained about whether either party breached the agreement. The court allowed the parties to re-brief that claim after trial.

Goldberg’s claims

Goldberg sought summary judgment on his claim that Navidea breached the agreement by failing to issue all 23.5 million promised Navidea shares. Navidea had issued 18.5 million shares in November 2018, though some were placed in escrow and not all were issued under Regulation D, and Navidea never issued the additional five million shares scheduled for January 2, 2019.

The court denied both Goldberg’s motion and Navidea’s cross-motion on that claim. The agreement was ambiguous about whether execution of later transaction documents and occurrence of a closing date were conditions that had to occur before Navidea’s obligation to issue the shares arose. The court held that the parties’ intent presented a factual question requiring trial.

Goldberg also claimed that Macrophage breached the agreement by failing to issue him Macrophage super-voting shares. The court denied Goldberg’s motion and granted Macrophage’s cross-motion. The court held that Goldberg’s entry into the M1M2 transactions was a breach of the implied covenant and therefore a breach of the agreement for purposes of the rule that a party who materially breaches first cannot maintain an action based on the other party’s later nonperformance.

Disposition and next steps

The court denied Navidea’s motion on its contract and implied-covenant claims and granted Goldberg’s cross-motion on those claims. It denied both parties’ motions without prejudice on the declaratory-judgment claim. It denied both parties’ motions on Goldberg’s contract claim against Navidea, denied Goldberg’s motion on his contract claim against Macrophage, and granted Macrophage’s cross-motion on that claim. The court stated that trial on Goldberg’s claim against Navidea would begin July 8, 2024, and directed the clerk to close the two summary-judgment motions at docket entries 314 and 318.