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October 5, 1995

ROBERT H. TANNEN, PH.D, Defendant/Counterclaimant, v. KIRK PENDLETON, Counterclaim defendant, and FORT WASHINGTON RESOURCES, INC., Counterclaim defendant.

The opinion of the court was delivered by: JOYNER

 Joyner, J.

 This diversity case was tried before this Court in a non-jury trial on September 19-23, 1994 and November 14-17, 1994. The plaintiff is Fort Washington Resources, Inc. ("FWR"), a Pennsylvania company that seeks damages for breach of contract, negligent performance of professional services, intentional interference with a prospective business advantage, and conversion. The defendant, Dr. Robert H. Tannen, has responded with a counterclaim against FWR and its Chief Executive Officer, Kirk Pendleton, under four theories of liability: (1) fraudulent misrepresentation, (2) negligent misrepresentation, (3) defamation, and (4) breach of contract. In a previous Memorandum and Order, we awarded summary judgment to FWR regarding its conversion claim. Moreover, we granted summary judgment in favor of Dr. Tannen with respect to FWR's claim for intentional interference with a prospective business advantage. See Fort Washington Resources, Inc. v. Tannen, 846 F. Supp. 354 (E.D. Pa. 1994). Thus, we are left to consider the remaining claims. The parties have submitted their proposed findings of fact and conclusions of law and the matter is now ripe for decision. Accordingly, the Court makes the following factual findings and legal conclusions.


 1. FWR is a company that was formed for the purpose of developing and marketing flausterone, a drug which has demonstrated great promise in the treatment of a variety of serious maladies, including diabetes and cancer. Tr., 9/19/94, pp. 34-36; 9/23/94, p. 10.

 2. FWR's key personnel include the following:

 (1) Kirk Pendleton. Mr. Pendleton is a shareholder and investor who acted as FWR's chairman of the board during the time when the events giving rise to this lawsuit occurred. Tr., 9/19/94, p. 33.

 (2) James Saltzman. Mr. Saltzman was an investor and shareholder of FWR who became a director of the company in the fall of 1993. Tr., 9/23/94, pp. 21, 90-91.

 (3) Arthur Schwartz, Ph.D. During the relevant time period, Dr. Schwartz was a professor at the Temple University Medical School in Philadelphia. Dr. Schwartz has been working to develop flausterone since 1975, and is the man chiefly responsible for its invention. Tr., 11/14/94, pp. 2-3. Dr. Schwartz served as chief scientist for FWR and was one of its shareholders. Tr., 11/14/94, pp. 12, 135.

 (4) Abraham Bavely, Ph.D. Dr. Bavely worked for Resource Technologies Corporation ("RTC") until 1982. In this capacity, Dr. Bavely would travel to the many universities with whom RTC had a relationship and discuss the substance of the ongoing research with the resident scientists, with an eye toward securing a patent for worthy discoveries. In 1978, Dr. Bavely became associated with Dr. Schwartz. Tr., 11/16/94, pp. 17, 20. He became involved with FWR in 1985 and was a shareholder. Tr., 11/16/94, p. 38.

 (5) Robert Tannen, Ph.D. Dr. Tannen, the defendant and counterclaimant, became associated with Dr. Schwartz and flausterone in the early 1980's while completing a post-doctoral fellowship at the Fels Research Institute in Philadelphia. Tr., 11/15/94, p. 166. Dr. Tannen subsequently assumed a position in the private sector, but remained in touch with Dr. Schwartz and repeatedly voiced his desire to work on the flausterone project. Tr., 11/15/94, pp. 166, 170. FWR hired Dr. Tannen in 1992. Tr., 11/15/94, p. 197-98.

 (6) Robert B. Kaskey. Mr. Kaskey became associated with FWR in the mid-1980's and served as the leader of the company until his resignation in February of 1991. Tr., 11/15/94, pp. 88, 102-03.

 3. In 1989, FWR acquired a license from RTC to develop flausterone. Tr., 9/19/94, pp. 46, 51.

 4. Under the terms of the licensing agreement, FWR was obliged to develop the drug and file an Investigational New Drug ("IND") application with the Food and Drug Administration ("FDA"). Tr., 9/19/94, p. 52.

 5. Temple University and RTC were entitled to advance royalty payments pursuant to the licensing agreement. RTC elected to waive its royalty payments in favor of stock. Tr., 9/20/94, pp. 33-34. Temple, on the other hand, demanded that its royalty payments be made in cash. Thus, in March of 1993, FWR agreed that it would make a $ 100,000 payment to Temple in June of 1993 and an additional $ 360,000 payment by the end of that year. Tr., 9/20/94, pp. 34-35.

 6. In the event that FWR failed to file the IND with the FDA, FWR would lose the license, and therefore its reason for existence and value. Tr., 9/23/94, p. 56.

 7. In order to maintain the license, FWR was required to submit the IND application by April 15, 1993. Tr., 9/19/94, p. 79. There was a general understanding that RTC would extend the filing deadline if FWR could demonstrate that it was working diligently to advance the process. Tr., 11/16/94, p. 30.

 8. In the late winter of 1992, FWR initiated a search for a consultant to complete the IND application. FWR's interest settled on Dr. Tannen. Tr., 9/19/94, p. 71.

 9. Dr. Tannen had expressed considerable interest in the project during its initial stages, and had acquired considerable knowledge of flausterone through discussions with Dr. Schwartz. Tr., 9/19/94, p. 77.

 10. In May of 1992, Mr. Pendleton interviewed Dr. Tannen for the position. Although Dr. Tannen had never prepared or filed an IND application previously, he assured Mr. Pendleton that he possessed sufficient experience to complete the IND application in a timely fashion. Tr., 9/19/94, p. 77.

 11. Mr. Pendleton asked whether Dr. Tannen could complete the IND application by the April 15, 1993 deadline. Dr. Tannen replied that he could complete the task within four to six months. Tr., 9/19/94, pp. 77, 79; 11/15/94, pp. 195-96.

 12. FWR agreed to hire Dr. Tannen as a consultant for the four to six month period in which the IND application would be assembled and filed. Dr. Tannen was promised a salary of $ 100,000 per year. Dr. Tannen was also promised stock in the event that the IND filing was successful. Tr., 9/19/94, pp. 77-78; 11/15/94, pp. 183, 196-98.

 13. The parties never executed a written employment contract. Mr. Pendleton did, however, memorialize the meeting in a letter, which he addressed to Dr. Tannen. The letter reads, in pertinent part, as follows:

Should the IND filing be successful and we mutually agree to continue a relationship, it is our intent to offer you a position as an employee of Fort Washington Resources on terms and conditions satisfactory to both parties. One of these conditions would be your participation in a stock option program which will be presented for approval in the future.

 Defendant's Ex. 5.

 14. Dr. Tannen argued at trial that the letter did not fully represent the terms of their agreement, yet he concedes that he never expressed to Mr. Pendleton his dissatisfaction with the terms set forth in the letter. Tr., 11/15/94, p. 200.

 15. Dr. Tannen was hired and began working in June of 1992. Tr., 9/19/94, p. 90.

 16. When Dr. Tannen began working, he was under the impression that the IND preparation would be an "assembly job;" that is, Dr. Tannen would assemble pre-existing documents, summarize laboratory notebooks, and write clinical reports based upon data that had previously been compiled. Tr., 11/17/94, p. 48.

 17. By October, Dr. Tannen realized that the filing of the IND would require more than just assembly, and that additional formulation work was required before the IND application could be submitted. Tr., 11/17/94, p. 48.

 18. Dr. Tannen prepared periodic time and event schedules to update his progress regarding the completion of the IND filing. The first such time and event schedule was submitted on July 15, 1992. The projected IND filing date was December of 1992. Tr., 9/19/94, p. 99; Plaintiff's Ex. 6.

 19. Dr. Tannen submitted a second time and event schedule on August 6, 1992, indicating that the IND would be completed by January, 1993. Tr., 9/19/94, p. 100; Plaintiff's Ex. 7.

 20. The third time and event schedule, submitted on October 15, 1992, indicated that the IND application would be completed by March of 1993, one month prior to the April 15 deadline. Tr., 9/19/94, pp. 114-15; Plaintiff's Ex. 8.

 21. At a progress meeting convened on October 28, 1992, Dr. Tannen assured FWR that the April 15 deadline would ...

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