Opinion
PWG-20-892
07-26-2021
MEDSENSE, LLC, Plaintiff, v. UNIVERSITY SYSTEM OF MARYLAND, et al., Defendant.
MEMORANDUM OPINION
Paul W. Grimm United States District Judge
MedSense, LLC (“MedSense”) filed this lawsuit in October 2019 in the Circuit Court for Prince George's County, Maryland, against Defendants, University System of Maryland and University of Maryland College Park (collectively, “the University”), alleging unauthorized disclosures and misappropriation of licensed materials and trade secrets related to fiber optic technology. Compl., ECF No. 3. Defendants timely removed the case to this Court and filed the pending motion to dismiss, or, in the alternative, for summary judgment. See ECF Nos. 1, 20. I have reviewed the filings and find a hearing unnecessary. See Loc. R. 105.6 (D. Md. 2021). For the reasons stated below, Counts 2, 3, 4, and 8 shall be dismissed without prejudice, and I shall grant summary judgment to the University on the remaining claims on the basis of the parties' mutual release and covenant not to sue, which the University asserts as an affirmative defense.
This Court has original jurisdiction over the federal claims under 28 U.S.C. § 1331 and supplemental jurisdiction over the non-federal claims under 28 U.S.C. § 1367.
Mot., ECF No. 20; Resp., ECF No. 21; Reply, ECF No. 23; approximately 20 exhibits, and the prior related cases' decisions.
BACKGROUND
The facts are taken primarily from the Plaintiff's Complaint, ECF No. 3, and for purposes of considering a motion to dismiss, this Court takes the facts alleged in the complaint as true. See Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009).
MedSense designs and manufactures miniature fiber optic pressure and temperature sensors and sensor-based systems and provides related services in medical and industrial fields. Compl. ¶ 3. In March 2010, MedSense's predecessor entered into an Exclusive Licensing Agreement with the University of Maryland, under which it licensed certain inventions and patent rights in ultra-miniature fiber optic sensor technology. Id. at ¶¶ 15, 17, 19; Lic. Agmt, Ex. A. After entering into the agreement, MedSense's predecessor discovered that the inventions were not ready for commercialization, so it began working on a prototype sensor with Miao Yu (“Dr. Yu”) and Hyung Dae Bae (“Dr. Bae”), scientists at the University of Maryland who had developed the technology. Id. at ¶¶ 24-25. Their efforts failed, and as of January 2012, no working proof of concept or prototype had been produced. Id. at ¶ 26. In April 2012, manufacturing was outsourced to Washington State University MEMS Lab at a cost of $16,500, but although valuable insight was gained into how not to manufacture the sensor, the prototype development ultimately failed. Id. at ¶¶ 26-28.
“Plaintiff is the successor entity to MedSense Technologies, LLC, whose members were Stephen Kohn and Angela Kohn. On or about July 2013, the members of MedSense Technologies LLC contributed and transferred the assets of MedSense Technologies, LLC to Plaintiff in exchange for equity interests in Plaintiff.” Compl. ¶ 16.
Patent rights included the following United States Patent Application Serial Nos.: 61/230, 899 filed Aug. 3, 2009; 12/849, 436 filed Aug. 3, 2010 (which issued Apr. 10, 2012 as Patent No. 8, 151, 648); 13/440, 139 filed Apr. 5, 2012; and 61/657, 293 filed Jun. 8, 2012. Compl. ¶ 20.
In early 2013, new strategies for commercializing the licensed technology were discussed with the University of Maryland Office of Technology Commercialization. Id. at ¶ 29. As a result, in July 2013, a new entity, MedSense, LLC, was formed, and the License Agreement was amended. Id. at ¶¶ 29-31. The University, Drs. Yu and Bae, and other individuals were granted equity interests in the new entity in exchange for their contributions of existing and future work in the development of a working proof of concept, prototype, and a batch manufacturing process. Id. at ¶ 31. Additionally, three state grants were applied for and received: Maryland Technology Economic Development Corporation (“TEDCO”) Phase I Grant, the University's Maryland Industrial Partnerships (“MIPS”) Phase I Grant, and TEDCO Phase III Grant. Id. at ¶ 32.
Dr. Yu led the efforts of the TEDCO Phase I grant for sensor design, modeling, and project management, and Dr. Bae was responsible for sensor development, fabrication, and evaluation as a continuation of the Washington State University work. Id. at ¶ 34. The MIPS grant required the parties to enter into a MIPS Partnerships Agreement in August 2014, under which MedSense paid additional contributions to the University to secure research funding. Id. at ¶ 36. The MIPS Partnerships Agreement contained confidentiality provisions, restricted the University's right to publish papers and make public representations related to the work performed under the agreement, and allowed the jointly developed technology to be jointly owned. Id. at ¶¶ 37-39. MedSense alleges that the final report and deliverables-specifically, a high-speed optical box capable of interpreting the data off the sensor technology-for the MIPS Grant were not delivered to it. Id. at ¶ 40; but see ¶ 71 (“On January 15, 2017, Plaintiff was finally given the MIPS Grant Final Report and the deliverables, specifically, a high optical box capable or reading and interpreting the data off of the sensor technology.”).
In its response in opposition to Defendants' pending motion, MedSense asserts that these deliverables were wrongfully withheld and only provided after the parties executed a Mutual Release and Covenant Not to Sue. Resp. 10.
Additionally, the manufacturing of a prototype sensor technology was moved into the University's Technology Advancement Program (“TAP”) Building under a TAP License Agreement. Id. at ¶ 41. The TAP Licensing Agreement also included a provision relating to intellectual property rights. Id. at ¶ 41. Under the TEDCO Phase III Grant, Drs. Yu and Bae successfully engineered a batch fabrication process to mass produce the first-generation fiber optic sensor. Id. at ¶ 42. It was completed in March 2015, and MedSense engaged a Maryland-based manufacturer to replicate the system in their facility so the product could be available on the market in the third quarter of 2015. Id. at ¶¶ 42, 69. MedSense alleges that it owns the technology developed under the TEDCO Phase III Grant. Id. at ¶ 43. It also alleges that the results were falsified, and none of the sensors were ever delivered to MedSense. Id. at ¶¶ 68, 70, 75.
MedSense alleges that Drs. Yu and Bae began submitting articles directly related to the licensed inventions and processes without disclosing the publications to MedSense in advance, and without approval, which is a violation of the parties' agreements. Id. at ¶¶ 43-48, 57-67. From January 2015 to May 2016, MedSense engaged Dr. Bae on a part-time basis as a research engineer to complete the development of the proof of concept, prototype, and batch manufacturing process while he was also still employed by the University. Id. at ¶ 51. MedSense also employed Dr. Bae's interns on a part-time basis. Id. at ¶¶ 54-55. In June 2016, Dr. Bae ended his employment at the University, and Dr. Bae and his interns signed non-disclosure agreements with MedSense in April 2017. Id. at ¶¶ 51, 54-55. MedSense alleges that while Dr. Bae was employed by MedSense, he co-authored a detailed manufacturing manual for the fiber optic sensors that included MedSense's confidential information. Id. at ¶ 57.
MedSense alleges that certain information, trade secrets and know-how were not disclosed in the patents and is only valuable if it remains confidential, and the parties' agreements created a duty of confidentiality between MedSense and the University in connection with this information. Resp. 2 (citing Compl. ¶¶ 22, 28); see Id. at 6-8.
Further, MedSense alleges that the University continues to abuse its equitable interests in MedSense to finance its own research and commercial interests to the detriment of MedSense. Id. at ¶ 77. As an example, MedSense alleges that Dr. Yu borrowed an expensive microscope, never returned it, and continues to use it to the detriment of MedSense. Id. at ¶ 78. Drs. Yu and Bae also continue to publish articles related to improvements to miniature fiber optic sensor technology. Id. at ¶ 79.
II. Procedural Background
On October 22, 2018, MedSense filed a lawsuit against the University, and Drs. Yu and Bae, alleging that the University had breached the exclusive licensing agreement by failing to disclose authored publications to MedSense and that Drs. Yu and Bae had disclosed trade secrets and confidential information in those publications. Compl. n.1 (citing MedSense, LLC v. University System of Maryland, et al., Case No. 8:18-CV-03262-GLS). Judge Simms dismissed the case without prejudice on September 27, 2019, holding that Eleventh Amendment immunity barred MedSense's claims against the University as well as the claims against Drs. Yu and Bae in their official capacity as employees of the University, and Drs. Yu and Bae were also entitled to immunity under the Maryland Tort Claims Act. See Mem. Op., ECF No. 36 in GLS-18-3262, published at MedSense, LLC v. Univ. Sys, 420 F.Supp.3d 382 (D. Md. 2019).
MedSense filed this action against the University on October 25, 2019, in the Circuit Court for Prince George's County, Maryland. Not. Removal ¶ 1, ECF No. 1. On the same day, in GLS-18-3262, MedSense moved for leave to file a Second Amended Complaint and vacate the order of dismissal as to Drs. Yu and Bae, seeking to hold them liable in their individual capacities. Mot. Amend, ECF No. 38 in GLS-18-3262. The University removed the state court case to this Court on April 3, 2020, and in response to the Court's Standing Order Concerning Removal (ECF No. 4), the University stated its intention to file a dispositive motion. Not. Removal; Stmt. Removal, ECF No. 7. Pursuant to my Letter Order Regarding the Filing of Motions (ECF No. 5), I ordered the University to file a letter outlining its basis for the proposed dispositive motion and allowed MedSense an opportunity to amend its complaint in response. Order, Apr.23, 2020, ECF No. 8.
On April 29, 2020, MedSense filed a motion to consolidate this case with GLS-18-3262. See Not., ECF No. 9; Mot. Consolidate, ECF No. 40 in GLS-18-3262. The Defendants in both cases opposed consolidation. Not., ECF No. 11; Resp., ECF No. 42 in GLS-18-3262. MedSense declined the opportunity to amend its complaint in this case and requested that I stay this case pending the outcome of the motion to consolidate. Ltr., May 14, 2020, ECF No. 12. I denied MedSense's request to stay this case, and the dismissal motion briefing proceeded as scheduled. Order, May 21, 2020, ECF No. 16. Shortly thereafter, MedSense filed a motion for my recusal based on my affiliation with the University as a part-time adjunct professor at the University of Maryland Carey School of Law. Mot. Recusal, ECF No. 17. The recusal motion was denied as unmeritorious. Mem. Op. & Order, June 29, 2020, ECF No. 22. No ruling was issued on the consolidation motion in GLS-18-3262. Rather, Judge Simms denied MedSense's motion for leave to file a Second Amended Complaint, holding that Drs. Yu and Bae were entitled to statutory immunity, and the case was closed. See Mem. Op., July 6, 2020, ECF No. 43 in GLS-18-3262.
In this case, MedSense alleges the following eight causes of action against Defendants, University System of Maryland and University of Maryland College Park:
• First Cause of Action - Breach of Contract
• Second Cause of Action - Intentional Misrepresentation - Inducement
• Third Cause of Action - Negligent Misrepresentation
• Fourth Cause of Action - Constructive Fraud
• Fifth Cause of Action - Declaratory Judgment Pursuant to Md. Cts. & Jud. Proc. § 3-401 et seq.
• Sixth Cause of Action - Misappropriation of Trade Secrets Pursuant to 18 U.S.C. § 1836
• Seventh Cause of Action - Misappropriation of Trade Secrets Pursuant to Md. Code, Comm. Law, § 11-1201
• Eighth Cause of Action - Unjust EnrichmentCompl., ECF No. 3.
By their motion, Defendants seek dismissal of all claims with prejudice, or alternately, they seek summary judgment on all claims. Mot. 1, ECF No. 20; Mot. Mem. 1, ECF No. 20-1.
STANDARD OF REVIEW
I. Dismissal Standard
Defendants move to dismiss under Federal Rules of Civil Procedure 12(b)(1) and (6). Under Fed.R.Civ.P. 12(b)(1), the plaintiff bears the burden of proving subject matter jurisdiction by a preponderance of the evidence. See Demetres v. E. W. Constr., Inc., 776 F.3d 271, 272 (4th Cir. 2015); see also Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999). In a facial challenge to subject matter jurisdiction, “the facts alleged in the complaint are taken as true, and the motion must be denied if the complaint alleges sufficient facts to invoke subject matter jurisdiction.” Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009). When the jurisdictional facts are challenged, the court “is to regard the pleadings as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment.” Evans, 166 F.3d at 647; see also Williams v. United States, 50 F.3d 299, 304 (4th Cir. 1995).
Finding that a defendant is entitled to sovereign immunity “deprives federal courts of jurisdiction to hear claims, and a court finding that a party is entitled to sovereign immunity must dismiss the action for lack of subject-matter jurisdiction.'” Cunningham v. Gen. Dynamics Info. Tech., Inc., 888 F.3d 640, 649 (4th Cir. 2018) (quoting Ackerson v. Bean Dredging LLC, 589 F.3d 196, 207 (5th Cir. 2009)). However, the defendant bears the burden of demonstrating sovereign immunity, which is “akin to an affirmative defense.” Hutto v. S.C. Ret. Sys., 773 F.3d 536, 543 (4th Cir. 2014).
Federal Rule of Civil Procedure 12(b)(6) provides for “the dismissal of a complaint if it fails to state a claim upon which relief can be granted.” Velencia v. Drezhlo, Civil Action No. RDB-12-237, 2012 WL 6562764, at *4 (D. Md. Dec. 13, 2012). This rule's purpose “‘is to test the sufficiency of a complaint and not to resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.'” Id. (quoting Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006)). To that end, the Court bears in mind the requirements of Rule 8, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009) when considering a motion to dismiss pursuant to Rule 12(b)(6). Specifically, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), and must state “a plausible claim for relief, ” as “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice, ” Iqbal, 556 U.S. at 678-79. See Velencia, 2012 WL 6562764, at *4 (discussing standard from Iqbal and Twombly). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 663.
All claims rooted in fraud allegations are subject to a heightened pleading standard. Rule 9(b) states that “in alleging a fraud or mistake, a party must state with particularity the circumstances constituting the fraud or mistake.” Fed.R.Civ.P. 9(b). Such allegations of fraud typically “include the ‘time, place and contents of the false representation, as well as the identity of the person making the misrepresentation and what [was] obtained thereby.'” Piotrowski v. Wells Fargo Bank, N.A., No. DKC-11-3758, 2013 WL 247549, at *5 (D. Md. Jan. 22, 2013) (quoting Superior Bank, F.S.B. v. Tandem Nat'l Mortg., Inc., 197 F.Supp.2d 298, 313-14 (D. Md. 2000)).
II. Rule 12(d) Conversion
When reviewing a motion to dismiss, “[t]he court may consider documents attached to the complaint, as well as documents attached to the motion to dismiss, if they are integral to the complaint and their authenticity is not disputed.” Sposato v. First Mariner Bank, No. CCB-12- 1569, 2013 WL 1308582, at *2 (D. Md. Mar. 28, 2013); see also CACI Int'l v. St. Paul Fire & Marine Ins. Co., 566 F.3d 150, 154 (4th Cir. 2009). And without converting the motion to a summary judgment motion, I may “consider documents that are explicitly incorporated into the complaint by reference.” Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 166 (4th Cir. 2016); see also CACI Int'l, 566 F.3d at 154; Fed.R.Civ.P. 10(c) (“A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes.”). Moreover, where the allegations in the complaint conflict with an attached written instrument, “the exhibit prevails.” Fayetteville Inv'rs v. Commercial Builders, Inc., 936 F.2d 1462, 1465 (4th Cir. 1991); see Azimirad v. HSBC Mortg. Corp., No. DKC-10-2853, 2011 WL 1375970, at *2-3 (D. Md. Apr. 12, 2011).
However, if the Court considers matters outside the pleadings, the Court must treat the motion as a motion for summary judgment under Rule 56. Fed.R.Civ.P. 12(d); Syncrude Canada Ltd. v. Highland Consulting Grp., Inc., 916 F.Supp.2d 620, 622-23 (D. Md. 2013). Under Fourth Circuit law, proper conversion under Rule 12(d) requires two things: (1) that all parties “be given some indication by the court that it is treating the 12(b)(6) motion as a motion for summary judgment;” and (2) that all parties “be afforded a reasonable opportunity for discovery.” Gay v. Wall, 761 F.2d 175, 177 (4th Cir. 1985).
Notably, “the Federal Rules do not prescribe that any particular notice be given before a Rule 12 motion is converted to a Rule 56 motion.” Ridgell v. Astrue, DKC-10-3280, 2012 WL 707008, at *7 (D. Md. Mar.2, 2012). Thus, this requirement “can be satisfied when a party is ‘aware that material outside the pleadings is before the court.'” Walker v. Univ. of Md. Med. Sys. Corp., No. CCB-12-3151, 2013 WL 2370442, at *3 (D. Md. May 30, 2013) (quoting Gay, 761 F.2d at 177). Indeed, while the Court “clearly has an obligation to notify parties regarding any court-instituted changes in the pending proceedings, [it] does not have an obligation to notify parties of the obvious.” Laughlin v. Metro. Wash. Airports Auth., 149 F.3d 253, 261 (4th Cir. 1998). Here, the title of the motion itself, “Defendants' Motion to Dismiss or, in the Alternative, for Summary Judgment, ” makes it obvious that the Court might construe it as seeking summary judgment, and thereby provides sufficient notice to Plaintiff. See Ridgell, 2012 WL 707008, at *7; see Laughlin, 149 F.2d at 260-61.
Generally, however, summary judgment is inappropriate “where the parties have not had an opportunity for reasonable discovery.” E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc., 637 F.3d 435, 448-49 (4th Cir. 2011); see Putney v. Likin, 656 Fed.Appx. 632, 639-40 (4th Cir. 2016) (per curiam); McCray v. Md. Dep't of Transp., 741 F.3d 480, 483 (4th Cir. 2015). Certainly, “the party opposing summary judgment ‘cannot complain that summary judgment was granted without discovery unless that party has made an attempt to oppose the motion on the grounds that more time was needed for discovery.'” Harrods Ltd. v. Sixty Internet Domain Names, 302 F.3d 214, 244 (4th Cir. 2002) (quoting Evans v. Techs. Applications & Serv. Co., 80 F.3d 954, 961 (4th Cir. 1996)). To that end, Federal Rule of Civil Procedure 56(d) unambiguously provides that:
If a nonmovant shows by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition, the court may:
(1) defer considering the motion or deny it;
(2) allow time to obtain affidavits or declarations or to take discovery; or
Fed. R. Civ. P. 56(d).(3) issue any other appropriate order.
Here, pursuant to Rule 56(d), MedSense submitted additional facts to oppose summary judgment through the affidavit of Dr. Stephen Kohn. Resp. Mem. 4, n. 2, ECF No. 21-1; Resp. Ex. 1, ECF No. 21-2. MedSense has not argued that the motion should not be converted into one for summary judgment and did not make a motion under Rule 56(d). MedSense has also attached multiple exhibits to Dr. Kohn's affidavit. Resp. Exs. 1-A - 1-F, ECF Nos. 21-3 - 21-8. MedSense asserts that “Defendants' affirmative defense of release cannot be a basis for dismissal.” Resp. 8-9 (citing Perry v. Merit Sys. Prot. Bd., 137 S.Ct. 1975, 1986 n. 9 (2017)). And MedSense questioned “the legal force and effect of the various unauthenticated documents attached to the motion to dismiss.” Resp. Mem. 4, n. 2 (referring by example to the 2013 Agreement, Mot. Ex. 4, ECF No. 20-7). However, the Complaint attached and incorporated the License Agreement “as amended from time to time, ” referring specifically to the 2013 amendment, and MedSense also attached exhibits to its response that refer to the 2013 Agreement. See, e.g., Compl. ¶¶ 15 n.2, 16, 29-31, Resp. Exs. 1, 1-C, 1-D.
Accordingly, to facilitate resolution of this case, I will consider the documents attached to Defendants' motion and the documents attached to MedSense's response in opposition, converting Defendants' motion into a motion for summary judgment, except where I specifically refer to dismissal under Rule 12(b)(1). I shall indicate under which standard I am analyzing each portion of the motion. Further, where I have considered an exhibit that was attached to the motion or response in my analysis under the dismissal standard, I specifically note it.
III. Summary Judgment Standard
Federal Rule of Civil Procedure 56(a) provides for the judgment in favor of the movant “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” In reviewing the evidence related to a motion for summary judgment, the Court considers undisputed facts, as well as the disputed facts viewed in the light most favorable to the non-moving party. Ricci v. DeStefano, 557 U.S. 557, 586 (2009); George & Co., LLC v. Imagination Entm't Ltd., 575 F.3d 383, 391-92 (4th Cir. 2009); Dean v. Martinez, 336 F.Supp.2d 477, 480 (D. Md. 2004). Only factual disputes that “might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Additionally, the factual dispute must be genuine to defeat a motion for summary judgment, in that “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.; Scott v. Harris, 550 U.S. 372, 380 (2007) (“When opposing parties tell two different stories, one of which is blatantly contradicted by the record. . . a court should not adopt that version.”). It is the nonmoving party's burden to confront a motion for summary judgment with affirmative evidence to show that a genuine dispute of material fact exists. Anderson, 477 U.S. at 256. A plaintiff nonmovant, “to survive the defendant's motion, need only present evidence from which a jury might return a verdict in his favor.” Id.
DISCUSSION
Defendants assert that MedSense's claims fail for several reasons: (1) the tort claims are barred by State sovereign immunity because MedSense did not comply with the Maryland Tort Claims Act; (2) the claims are barred by a “Mutual Release and Covenant Not to Sue” as well as the express terms of the various agreements; (3) the claims are barred by limitations; and (4) the Complaint fails to allege facts sufficient to state a claim upon which relief can be granted. Mot. Mem. 2. I shall begin with the jurisdictional issue.
This section is analyzed under the dismissal standard under Rule 12(b)(1).
MedSense's tort claims (fraudulent inducement, negligent misrepresentation, constructive fraud, and unjust enrichment) implicate the doctrine of sovereign immunity because “the University is considered to be an arm of the State Government.” Magnetti v. University of Maryland, 937 A.2d 219, 224, 227 (Md. 2007)). Under the doctrine of sovereign immunity, plaintiffs may not bring a contract or tort action against the State without the State having given specific legislative consent to suit. Dep't of Natural Res. v. Welsh, 521 A.2d 313, 315 (Md. 1986). The State “has partially waived this immunity by statute.” Cooper v. Rodriguez, 118 A.3d 829, 845 (Md. 2015) (quoting Ford v. Balt. City Sheriff's Office, 814 A.2d 127, 133 (Md. Ct. Spec. App. 2002)). But, a plaintiff can sue the State or one of its agencies, only after complying with the notice requirements of the statute, i.e., the Maryland Tort Claims Act (“MTCA”), Md. Code Ann., State Gov't § 12-101, et seq., which requires written notice to the State Treasurer or its designees within one year of the alleged injury. Gray v. Maryland, 228 F.Supp.2d 628, 640-41 (D. Md. 2002) (citing Md. Code Ann., State Gov't, § 12-106 (b)(1), eff. Oct. 1, 1995).
Although the State waives immunity to actions brought in Maryland state courts, Weller v. Dep't of Soc. Servs. for City of Baltimore, 901 F.2d 387, 397 (4th Cir. 1990), immunity is not waived for tortious acts or omissions of State personnel made with malice or gross negligence or not within the scope of public duties, Md. Code Ann., Cts. & Jud. Proc. § 5-522(a).
The University asserts that MedSense failed to provide the mandatory notice to the State Treasurer's Office. Mot. Mem. 10-11. The University also contends that MedSense failed to file suit in state court within three years of the causes of action arising, which means that it failed to satisfy “a strictly applied condition precedent to the State's waiver of sovereign immunity.” Id. at 12 (quoting Higginbotham v. Public Serv. Comm'n of Md., 985 A.2d 1183, 1192 (Md. 2009)).
In response, MedSense argues that it “substantially complied with the MTCA's notice requirement” by sending letters to the University. Resp. Mem. 12 (citing Md. Code Ann., State Gov't § 12-106(c)(2) ). Because the language quoted by MedSense in its Response is the language from the MTCA version effective October 1, 2016, the University argues that “substantial compliance” does not apply here since MedSense's tort claims all arose before the 2016 amendments to the statute. Mot. Mem. 11 n.8, Reply 4-5 (citing 2016 Md Laws Ch. 623 (H.B. 636) §§ 2-3)). MedSense asserts that its causes of action did not arise until January 15, 2017 and February 1, 2017, which is after the 2016 amendments, and both of those dates are within a year of its notice by letters to the University on October 10 and November 8, 2017. Resp. Mem. 14-15. To determine whether the amendments apply here, I must first determine when MedSense's causes of action arose.
MedSense alleges that its attorney sent a letter on October 10, 2017 to the Associate General Counsel at the University, which sufficiently identified the nature of its claims, a follow-up letter provided further details on November 8, 2017, and a demand letter with a draft complaint was sent on March 2, 2018, to which it received a response letter from the University on March 12, 2018. Compl. ¶¶ 74-75, Ex. 1.
Section 12-106(c)(2) was added, effective October 1, 2016: “Subsection (b)(1) and (2) of this section does not apply if, within 1 year after the injury to person or property that is the basis of the claim, the State has actual or constructive notice of: (i) the claimant's injury; or (ii) the defect or circumstances giving rise to the claimant's injury.”
In Haupt v. State, 667 A.2d 179 (Md. 1995), the Maryland Court of Appeals considered the question of when an injury arises under the notice requirement of the MTCA and held that notice had to be given when the “legally operative facts” permitting the filing of the claim came into existence. 667 A.2d at 185. Therefore, to determine when a cause of action arose, a court must examine “when facts exist to support each element” of the cause of action. Heron v. Strader, 761 A.2d 56, 59 (Md. 2000) (quoting Owens-Illinois v. Armstrong, 604 A.2d 47, 54 (Md. 1992)). The discovery rule-under which a cause of action does not accrue for statute of limitations purposes until such time as the plaintiff is on inquiry notice of the alleged wrong-does not apply to the statutory notice claim under the MTCA because timely filing of the claim with the State Treasurer is a condition precedent to filing suit and not a statute of limitations. State v. Copes, 927 A.2d 426, 438-39 (Md. Ct. Spec. App. 2007). In other words, “the injury arises when the cause of action arises.” Gray v. Maryland, 228 F.Supp.2d 628, 641 (D. Md. 2002) (citing Heron, 761 A.2d at 59). “[It does] not concern knowledge on the part of a potential plaintiff of facts, wrongs, opinions, or anything; rather, [it] concern[s] the existence vel non of the facts that make up the elements of a given cause of action, irrespective of knowledge.” Copes, 927 A.2d at 439 (emphasis in original).
MedSense's claims of fraud and misrepresentation (Counts 2, 3, and 4) have similar elements. See Saxon's Inc. v. MacKenzie Retail, LLC, No. 3322, Sept. Term, 2018, 2020 WL 4384239, at *4 (Md. Ct. Spec. App. 2020) (citing the elements for negligent misrepresentation, fraud, and intentional misrepresentation); see also Estate of Adams v. Continental Ins. Co., 161 A.3d 70, 84 (Md. Ct. Spec. App. 2017) (noting the similarities between negligent and fraudulent misrepresentation). Specifically, intentional misrepresentation requires the following elements to be proven:
(1) that a representation made by a party was false; (2) that either its falsity was known to that party or the misrepresentation was made with such reckless indifference to truth to impute knowledge to him; (3) that the misrepresentation was made for the purpose of defrauding some other person; (4) that that person not only relied upon the misrepresentation but had the right to rely upon it with full belief of its truth, and that he would not have done the thing from which damage resulted if it had not been made; and (5) that that person suffered damage directly resulting from the misrepresentation.Id. at * 5-6 (quoting Brass Metal Products, Inc. v. E-J Enterprises, Inc., 984 A.2d 361, 386 (Md. Ct. Spec. App. 2009). Negligent misrepresentation requires the following elements to be proven:
(1) The defendant, owing a duty of care to the plaintiff, negligently asserts a false statement;
(2) The defendant intends that his statement will be acted upon by the plaintiff;
(3) The defendant has knowledge that the plaintiff will probably rely on the statement, which, if erroneous, will cause loss or injury;
(4) The plaintiff, justifiably, takes action in reliance on the statement; and
(5) The plaintiff suffers damage proximately caused by the defendant's negligence.Id. at *5 (quoting Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, 130 A.3d 1024, 1046 (Md. Ct. Spec. App. 2016), aff'd, 155 A.3d 445 (Md. 2017)). And, the following elements must be proven for fraud:
1) that the defendant made a false representation to the plaintiff;
2) that its falsity was either known to the defendant or that the representation was made with reckless indifference as to its truth;
3) that the misrepresentation was made for the purpose of defrauding the plaintiff;
4) that the plaintiff relied on the misrepresentation and had the right to rely on it; and
5) that the plaintiff suffered compensable injury resulting from the misrepresentation.Id. (quoting Sass v. Andrew, 832 A.2d 247, 260 (Md. Ct. Spec. App. 2003)).
In its Complaint, MedSense alleges that the University made false representations to induce it to enter into agreements beginning prior to entering into the License Agreement in 2010, and on the execution of the 2013 License Agreement, as well as on the date of delivery of the TEDCO Phase III report. Compl. ¶¶ 97-102, 111-114, 120. The TEDCO Phase III Grant was completed on March 13, 2015. Id. at ¶ 42. MedSense alleges that the University knew that its representations were false and were purposefully made “to fraudulently induce Plaintiff to enter into the 2010 License Agreement, the 2013 License Agreement, the TAPS License Agreement, the MIPS Partnership Agreement and the other agreements, ” and that it rightfully relied on the misrepresentations in entering into those agreements. Id. at ¶¶ 103-106, 115-16, 121-25. MedSense entered into the referenced agreements beginning in 2010, the TEDCO Phase I Grant was awarded in August 2013, id. at ¶ 34, the MIPS Grant was awarded on March 15, 2014, id.at ¶ 36, the MIPS Partnership Agreement was dated August 1, 2014, id., the TAP License Agreement was entered into on August 11, 2014, id. at ¶ 41, and the TEDCO Phase III Grant was approved on March 13, 2014, id. at ¶ 42. MedSense also alleged that it suffered damage resulting from the misrepresentations by continuing to fund the efforts related to the technology and by never being able to adequately commercialize the technology. Id. at ¶¶ 108-109, 118, 126.
MedSense further alleged that after it signed the License Agreement in March 2010, it discovered that there was no working sensor, proof of concept, or prototype for the licensed technology, it recognized that the licensed technology had several major issues in January 2012, and it entered into a new license agreement after failing to produce a prototype in 2013. Id. at ¶¶ 24, 27, 29-32. Based on these allegations, the facts that support the elements of MedSense's claims of fraud, intentional misrepresentation, and negligent misrepresentation came into existence no later than 2014.
Finally, a claim for unjust enrichment has three elements: 1) a benefit conferred upon the defendant by the plaintiff; 2) an appreciation or knowledge by the defendant of the benefit; and 3) acceptance or retention by the defendant of the benefit without the payment of its value. Hill v. Cross Country Settlements, LLC, 936 A.2d 343, 351 (Md. 2007). As a general rule, Maryland courts do not recognize quasi-contract claims such as quantum meruit or unjust enrichment “when an express contract defining the rights and remedies of the parties exists.” United States ex rel. Tusco, Inc. v. Clark Constr. Grp., LLC, 235 F.Supp.3d 745, 755 (D. Md. 2016) (quoting Cty. Comm'rs of Caroline Cty. v. J. Roland Dashiell & Sons, Inc., 747 A.2d 600, 610 (Md. 2000)). But Maryland courts have also recognized exceptions to the general rule, noting that other jurisdictions have permitted recovery under these theories “when there is evidence of fraud or bad faith, there has been a breach of contract or a mutual recission of the contract, when recission is warranted, or when the express contract does not fully address a subject matter.” Dashiell, 747 A.2d at 608-09.
Here, MedSense's claim for unjust enrichment is based on the conferring of equity interests to the University and Drs. Yu and Bae, which references the updated licensing agreement in 2013. Compl. ¶¶ 29-31, 151. Therefore, the subject matter of MedSense's claim is covered by an express contract. Regardless, even if the claim could be asserted under an exception to the rule, as with MedSense's claims of fraud and misrepresentation described above, the facts that support the elements of the claim came into existence no later than 2014.
The MTCA version in effect at the time that MedSense's claims came into existence is the version that was effective from October 1, 1995 until September 30, 2015. Md. Code Ann., State Gov't § 12-106 (effective October 1, 1995 to September 30, 2015) provided, in pertinent part:
(b) A claimant may not institute an action under this subtitle unless:
(1) the claimant submits a written claim to the Treasurer or a designee of the Treasurer within 1 year after the injury to person or property that is the basis of the claim;
(2) the Treasurer or designee denies the claim finally; and
(3) the action is filed within 3 years after the cause of action arises.
MedSense was required to submit its written claim to the Maryland State Treasurer, or designee, within a year, but it did not; it sent a letter to the University general counsel in 2017. It also failed to file its lawsuit within three years; it filed its lawsuit in October 2019. MedSense did not provide a “communication that provides the State requisite and timely notice of facts and circumstances giving rise to the claim.” Ferguson v. Loder, 975 A.2d 284, 296 (Md. Ct. Spec. App. 2009) (quoting Candelero v. Cole, 831 A.2d 495, 498 (Md. Ct. Spec. App. 2003)). Because MedSense did not comply with the notice requirements, its tort claims against the University are barred by State sovereign immunity. Id. at 297-98. As such, this Court has no jurisdiction to hear MedSense's tort claims. Cunningham, 888 F.3d at 649. Counts 2, 3, 4, and 8 shall be dismissed without prejudice.
This section is analyzed under the summary judgment standard.
The University asserts that this case cannot proceed because MedSense's claims are barred by a Mutual Release and Covenant Not to Sue that was signed by MedSense in December 2016. Mot. Mem. 6 (citing Mutual Release & Covenant Not to Sue, Mot. Ex. 10, ECF No. 20-13). The Mutual Release and Covenant Not to Sue provides, in relevant part:
This release and covenant not to sue (the “Agreement”) is hereby entered into by and between the University of Maryland College Park (“UMD”), a public agency and instrumentality of the State of Maryland, located in College Park, Maryland, on behalf of UMD's Maryland Industrial Partnerships program (“MIPS”) and MedSense, LLC . . . .
1. Definition. The term “Party” shall refer to the entities described above and, in addition, to their employees, officers, directors, representatives, agents, successors, and assigns. An agreement by a Party shall operate as an agreement on behalf of its employees, officers, directors, representatives, agents, successors, and assigns.
2. Releases. The Parties hereby release each other from all actions, causes of action, claims, demands, damages (including compensatory, exemplary, statutory, and punitive damages), and other costs of any kind related to or arising out of the MIPS Agreement No. 5430 and any events related thereto occurring on or before the date of this Agreement.
3. Covenant Not to Sue. Each Party hereby promises not to sue or proceed in any manner against the other Party, in agency or other proceedings, whether at law, in equity, by way of administrative hearing, or otherwise, for any claims, actions, or events related to MIPS Agreement No. 5430 occurring on or before the date of this Agreement.
The Release and Consent provisions of this Agreement may be pleaded as a full and complete defense to, and may be used as the basis of an injunction against, any action, suit, or other proceeding which may be instituted, prosecuted, or attempted in breach of this Agreement.
. . . .
6. No Admission of Liability. It is understood and agreed that this Agreement does not constitute an admission of liability by either Party. Rather, Parties have entered into this Agreement to terminate any further expense or controversy about claims that have been or could be made concerning the matters described herein.
7. No Duress. Each Party has read and fully understands this Agreement and has signed the Agreement without any duress.Mot. Ex. 10. The document was signed by MedSense on December 19, 2016, and by the University of Maryland College Park on January 17, 2017.
MedSense argues that the Release applies only to MedSense and the MIPS program, and contends that the University is not a party to the agreement. Resp. 10-11. However, given the language of the Release, the language of the MIPS Agreement, and the Release's broad definition of “Party, ” the University System of Maryland and University of Maryland College Park are certainly parties to the agreement.
The referenced MIPS Agreement No. 5430 states:
This Agreement, effective August 01, 2014 (“Effective Date”) is entered into, by and between MedSense LLC, . . . (hereinafter “Company”); the University of Maryland, College Park, acting through that institution's Maryland Industrial Partnerships Program in the Maryland Technology Enterprise Institute where expressly provided (hereinafter “MIPS/University” or “MIPS”), and the University of Maryland College Park (hereinafter “Recipient”) when the Project is performed with the use of personnel, facilities and/or resources of Recipient.Mot. Ex. 5, ECF No. 20-8; see also Md. Code Ann. Educ. § 12-101(b)(3); Brownscombe v. Dep't of Campus Parking, 203 F.Supp.2d 479, 482 (D. Md. 2002) (recognizing the University System of Maryland and University of Maryland as the “same legal entity, ” based on state law).
MedSense also argues that the Mutual Release & Covenant Not to Sue is voidable as a matter of law because it was coerced into executing the Release through the University's withholding of deliverables under the MIPS Agreement. Resp. 9-10 (citing Resp. Ex 1 ¶ 17, ECF No. 21-2 (“On December 19, 2016, I signed under duress on behalf of MedSense a Mutual Release and Covenant Not to Sue because of the importance of the MIPS Deliverables to our continued efforts to commercialize the licensed inventions and patent rights described in the 2013 Agreement.”); Compl. ¶ 71 (“On January 15, 2017, Plaintiff was finally given the MIPS Grant Final Report and the deliverables . . . .”)).
In his affidavit, discussing the importance of the MIPS deliverables, Stephen Kohn states: “I did not receive ‘Attachment B' to the MIPS Agreement prior to signing the MIPS Agreement on behalf of MedSense.” Resp. Ex. 1 ¶ 14. I note, however, that Stephen Kohn did not sign the MIPS Agreement; rather, the MIPS Agreement was signed by Angela Kohn, Vice President of Marketing, on behalf of MedSense. Mot. Ex. 20-8 at 10.
To establish duress under Maryland law, there must be a “wrongful act which deprives an individual of the exercise of his free will.” Eckstein v. Eckstein, 379 A.2d 757, 761 (Md. Ct. Spec. App. 1978); see also Dean v. Fed. Home Loan Mortg. Corp., CIVIL NO.: WDQ-05CV-1240, 2005 WL 8174435, at *2 (D. Md. 2005) (requiring a showing that the “manifestation of assent was induced by an improper threat which left [the party] with no reasonable alternative save to agree.”). Financial pressure or unequal bargaining power is insufficient to establish economic duress. See Reed v. SmithKline Beckman Corp., 569 F.Supp. 672, 675 (D.C. Pa. 1983) (“Mere economic or financial pressure does not suffice to invalidate a release.”). The Mutual Release and Covenant Not to Sue contains language indicating that it was signed without duress. Mot. Ex 10, ¶ 7. Although a start-up company, MedSense was a sophisticated party that had entered into multiple complex contractual agreements with the University over many years, presumably with legal representation. MedSense also had a contractual right in the MIPS Agreement to the final report (one of the mentioned deliverables), which was due no later than 60 days after the end of the project. See MIPS Agreement ¶ 3.3, Mot. Ex. 5, ECF No. 20-8. MedSense alleges that the final report was submitted on June 18, 2015 but not provided despite continual requests. Compl. ¶ 40. MedSense could have exercised its contractual rights to receive the final report and any other deliverables it was due under the MIPS Agreement. These facts, even when viewed in the light most favorable to MedSense, as I must do under summary judgment analysis, simply do not support voiding the agreement based on duress.
MedSense also argues that the scope of the release is limited to releasing the parties from any duties or obligations related to the MIPS project. Resp. 10-11. A release is a contract and is “construed and applied according to the rules of contract law.” Owens-Illinois, Inc. v. Cook, 872 A.2d 969, 985 (Md. 2005) (citations omitted). As such, it is “construed according to the intent of the parties and the object and purpose of the instrument, and that intent will control and limit its operation.” Id. (quoting Shriver v. Carlin & Fulton Co., 141 A. 434, 440 (Md. 1928)). Maryland courts follow the objective law of contract interpretation, which means that the court considers “what a reasonable person in the position of the parties would have meant at the time it was effectuated.” Id. (quoting Gen. Motors Acceptance Corp. v. Daniels, 492 A.2d 1306, 1310 (Md. 1985)). “Under Maryland law, when the language of a release is clear and unambiguous, ‘the court will presume that the parties intended what they expressed, even if the expression differs from the parties' intentions at the time they created the contract.'” Kimball Constr. Co., Inc. v. XL Specialty Ins. Co., Civil No. CCB-16-2619, 2016 WL 6082411, at *5 (D. Md. 2016) (quoting Chicago Title Ins. Co. v. Lumbermen's Mut. Cas. Co., 707 A.2d 913, 917 (Md. Ct. Spec. App. 1998)).
Here, MedSense and the University agreed to “release each other from all actions, causes of action, claims, demands, damages . . . and other costs of any kind related to or arising out of the MIPS Agreement No. 5430 and any events related thereto” and “promises not to sue . . . for any claims, actions, or events related to MIPS Agreement No. 5430 occurring on or before” the date of the release, although they may “engage in suits or other actions related to patent and copyright infringement.” Mot. Ex. 10, ¶¶ 2-3, 8. Black's defines “mutual release” as “[a] simultaneous exchange of releases of legal claims held by two or more parties against each other.” Mutual release, Black's Law Dictionary (11th ed. 2019). A release will “ordinarily release all present, but not future, claims.” 29 Williston on Contracts § 73:10 (4th ed.); accord Kaye v. Wilson-Gaskins, 135 A.3d 892, 903-04 (Md. Ct. Spec. App. 2016) (describing a release as a giving up or relinquishment of a claim that “immediately discharges any obligation within the scope of the agreement”). And a covenant not to sue “is a promise to forbear from litigating with respect to an obligation.” Kaye, 135 A.3d at 904.
When analyzing the scope of an agreement, language is often characterized as either broad or narrow, and here, the language of both the release and covenant not to sue is written broadly, including using the terms “related to or arising out of . . . and any events related thereto, ” and it specifically references the MIPS Agreement. See Mot. Ex. 10 ¶¶ 2, 3. MedSense states that the MIPS Agreement was entered into by the parties for the purpose of securing a grant for research to commercialize the licensed inventions and patent rights as described in the 2013 Agreement. See Resp. Ex. 1 ¶ 17; Compl. ¶¶ 31-32. The MIPS Agreement and the 2013 Agreement are certainly interrelated. More importantly, MedSense makes multiple references to the MIPS Agreement in its Complaint. See, e.g., Compl. ¶¶ 37-39, 41, 87, 99, 104, 112, 133-36, 142-46 (describing the confidentiality and intellectual property provisions underlying MedSense's claims against the University). None of MedSense's claims are for patent or copyright infringement, which were specifically excluded from the scope of the release. As such, the scope of the release and covenant not to sue encompasses the contract and misappropriation claims that MedSense has asserted against the University. MedSense contracted not to pursue these claims, and I shall grant summary judgment to the University on its affirmative defense.
Because I have no jurisdiction over the tort claims, and I have granted summary judgment to the University on the remainder of the claims, further discussion of the University's additional reasons for dismissal are unnecessary.
CONCLUSION
For the foregoing reasons, Defendants' Motion to Dismiss or, in the Alternative, for Summary Judgment, ECF No. 20, is GRANTED. Counts 2, 3, 4, and 8 are DISMISSED WITHOUT PREJUDICE for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). Summary judgment is GRANTED in favor of Defendants on Counts 1, 5, 6, and 7.
A separate order follows.