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Schmidt v. Skolas

United States District Court, E.D. Pennsylvania

May 9, 2018

ALAN SCHMIDT, Plaintiff,
JOHN A. SKOLAS, et al., Defendants.


          SCHILLER, J.

         Alan Schmidt, a former shareholder of Genaera Corporation and then a unitholder of the Genaera Liquidating Trust, brought a putative class action complaint against more than two dozen defendants alleging a number of claims related to the dissolution of Genaera. The case has now been pared down to one defendant, Argyce LLC, the Trustee of Genaera Liquidating Trust, and one count of breach of fiduciary duty related to the sale of two pharmaceutical assets and the Trustee's fees. The Court ordered limited discovery on the issue of the statute of limitations and Argyce now moves for summary judgment. The sole question before the Court is whether Schmidt's claims are barred by the statute of limitations. In short, what did Schmidt know (or what should he have known) and when did he know (or when should he have known) it?

         Because the Court finds that Schmidt knew, or should have known, of his injuries and their cause related to the sales of two of the pharmaceutical assets more than two years before suing Genaera, it will grant summary judgment to Argyce on the breach of fiduciary duty claim related to those transactions. The Court will deny summary judgment as to the claim related to the Trustee's fees, however, because there remains a genuine issue of material fact as to when that alleged injury was incurred.


         This action arises from the dissolution and liquidation of Genaera, a biotechnology company that developed pharmaceutical drugs. Schmidt's claim of breach of fiduciary duty is premised on the sale of two classes of pharmaceutical compounds and administrative fees charged by the Trustee resulting from the administration of the Trust.


         Prior to its dissolution, Genaera developed pharmaceutical drugs and licensed its intellectual property. (Second Am. Compl. (“SAC”) ¶ 61.) Its core assets at the time of dissolution included: (1) Interlukin 9 (“IL9” or “IL-9”), an antibody program for asthma, (2) several squalamine and other aminosterol compounds (the “Aminosterol Assets”); and (3) Pexiganan, a topical cream treatment for diabetic foot infections. (SAC ¶ 3.)

         On April 18, 2009, Genaera's Board of Directors approved a dissolution plan, which created a liquidating trust and tasked it with winding up Genaera's affairs and disposing all of its assets within three years. (SAC ¶¶ 122, 124.) In June 2009, Genaera's stockholders approved the dissolution plan and Genaera transferred all of its assets and liabilities to the Genaera Liquidating Trust, which all Genaera shareholders became unitholders in. (SAC ¶¶ 139-140, 150, 159.) Argyce became the Trustee of the Liquidating Trust. (SAC ¶ 151.) John Skolas, who years earlier was Genaera's Chief Financial Officer, Secretary, and General Counsel, was the President of Argyce. (SAC ¶ 153.) As the Trustee, Argyce owed a fiduciary duty to the unitholders of the Liquidating Trust.

         B. Aminosterol Assets

         The Trust sold the Aminosterol Assets for $200, 000, including a $50, 000 down payment. (SAC ¶ 205.) In early January 2010, the buyer disclosed in its 10-K filing that it had “completed the acquisition” of the Aminosterol Assets on August 19, 2009. (Pl.'s Stmt. of Add'l Facts ¶ 54.) Schmidt alleges that Argyce breached its fiduciary duty by not publicly requesting bids or having the Aminosterol Assets appraised, accepting a down payment only 26 days after the Liquidating Trust was formed, and selling the Aminosterol Assets for the “unacceptable” price of $200, 000. (SAC ¶¶ 205-07.) According to Schmidt, other potential buyers had expressed interest in the Aminosterol Assets and the Trust could have received a higher price had it not sold the compounds prematurely. (SAC ¶¶ 212, 218-19.)

         C. Pexiganan

         Genaera first licensed Pexiganan, a topical anti-infective cream, to a company called MacroChem in 2007. (SAC ¶¶ 80-81, 84-85.) The final license agreement provided for a $1 million upfront payment to Genaera, in addition to a 10% royalty on net sales and additional payments based on clinical, regulatory, and sales-based milestones. (SAC ¶¶ 75, 85, 88.) By late 2008, however, MacroChem “abruptly reversed course” and drastically cut its development budget for Pexiganan. (SAC ¶ 104.)

         After the development of Pexiganan stalled, the Liquidating Trust terminated the license agreement in November 2009. (SAC ¶ 189.) On January 11, 2010, the Trust announced that it was seeking bids for Pexiganan and set a one-month bidding period. (SAC ¶ 191.) It ultimately sold Pexiganan for $272, 500 and a reduced royalty to a company started by former MacroChem executives. (SAC ¶¶ 36-37, 191, 193, 195.)

         Schmidt alleges that Argyce breached its fiduciary duty by not preparing Pexiganan for sale earlier or allowing potential buyers to have more time to bid, which he claims resulted in an unreasonably low sale price. (SAC ¶¶ 190, 201-03.)

         D. Trustee's Fees

         The Liquidating Trust Agreement (the “Agreement”) provided for the Trustee to be compensated at $250 per hour, in addition to one to three percent of the distributions made to unitholders. (Def.'s Stmt. of Undisputed Facts Ex. C, at 22-23.) The Agreement also allowed the Trustee to be reimbursed for all reasonable expenses. (Id. at 23.)

         In March 2011, the Trust published financial statements for the year 2010, which showed that it had incurred “General and administrative expenses” of $687, 000 while realizing just over $3 million of revenue. (Def.'s Stmt. of Undisputed Facts Ex. E, at 14.) Schmidt challenges these fees as excessive. (SAC ¶ 221.)

         E. Alan Schmidt's Lawsuit

         Schmidt initially filed a complaint on June 8, 2012, and later filed a First Amended Complaint and Second Amended Complaint. Schmidt alleges that Argyce and its CEO, John Skolas, breached their fiduciary duty to the unitholders of the Liquidating Trust in the sales of IL9, the Aminosterol Assets, and Pexiganan. (First Am. Compl. (“FAC”) ¶¶ 245-48; SAC ¶¶ 230-41.) Schmidt also claims that Argyce unlawfully enriched itself by billing $687, 000 in “General and Administrative” expenses in 2010. (FAC ¶ 236; SAC ¶ 221.)

         This Court dismissed the First Amended Complaint in its entirety, finding that the statute of limitations barred Schmidt's claims against Argyce. On appeal, the Third Circuit reversed in part, holding that dismissal on statute of limitations grounds was premature. Schmidt v. Skolas, 770 F.3d 241, 252-53 (3d Cir. 2014). In particular, the Third Circuit found that extraneous documents were required to determine the date of the Pexiganan sale and whether sufficient warnings existed to require Schmidt to inquire into his injury. Id.

         In 2015, this Court dismissed Schmidt's Second Amended Complaint. After noting that the Trust Agreement limited the Trustee's liability to gross negligence, this Court found that Schmidt failed to adequately allege gross negligence. On appeal, the Third Circuit affirmed the dismissal of the claims related to IL9, but reinstated the claims related to sale of the Aminosterol Assets and Pexiganan, noting that a trustee's performance is subject to enhanced scrutiny and finding that Schmidt's allegations were plausible. Schmidt v. Skolas, 706 Fed.Appx. 68, 73 (3d Cir. 2017). The Court of Appeals also found Schmidt's claim regarding the fees to be plausible and reinstated that claim. Id. at 73 n.6.


         Summary judgment is appropriate when the admissible evidence fails to demonstrate a genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). When the movant does not bear the burden of persuasion at trial, it may meet its burden on summary judgment by showing that the nonmoving party's evidence is insufficient to carry its burden of persuasion. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986).

         Thereafter, the nonmoving party demonstrates a genuine issue of material fact if it provides evidence sufficient to allow a reasonable finder of fact to find in its favor at trial. Anderson, 477 U.S. at 248. In reviewing the record, a court “must view the facts in the light most favorable to the nonmoving party and draw all inferences in that party's favor.” Prowel v. Wise Bus. Forms, Inc., 579 F.3d 285, 286 (3d Cir. 2009). A court may not, however, make credibility determinations or weigh the evidence in considering motions for summary ...

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