Pharmacy Corporation of America v. Askari

Filing 224

TRIAL OPINION: Plaintiffs have failed to meet their burden of showing that Defendant breached the Operating Agreement at either the First or Second Call. Plaintiffs have also failed to meet their burden of showing that Defendant breached the implie d covenant of good faith and fair dealing. Defendant has failed to meet its burden of showing that Askari has breached the restrictive covenant in § 7.2(a) of the MIPA. The parties are directed to jointly submit an agreed-upon form of final judgment within one week. Signed by Judge Richard G. Andrews on 9/8/2020. (nms)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

PHARMACY CORPORATION OF
AMERICA/ASKARI CONSOLIDATED
LITIGATION

Civil Action No. 16-1123-RGA
CONSOLIDATED

TRIAL OPINION

Jeffrey S. Cianciulli, WEIR & PARTNERS LLP, Wilmington, DE; Walter Weir, Jr., Steven E.
Angstreich, Amy R. Brandt, Andrew Park WEIR & PARTNERS LLP, Philadelphia, PA; James
Sawyer, Jericho, NY;
Attorneys for Kaveh Askari, Onco360 Holdings 1, Inc., Onco360 Holdings 2, Inc., and
Onco360 Holdings 3, Inc.

Brett D. Fallon, MORRIS JAMES LLP, Wilmington, DE; Christopher G. Kelly, Stosh Silivos,
HOLLAND & KNIGHT LLP, New York, NY; Jeremy M. Sternberg, HOLLAND & KNIGHT
LLP, Boston, MA;
Attorneys for Pharmacy Corporation of America

September 8, 2020

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/s/ Richard G. Andrews
ANDREWS, U.S. DISTRICT JUDGE:
This case is the consolidation of two related lawsuits. In one, Plaintiffs Kaveh Askari
and Onco360 Holdings 1, Inc., Onco360 Holdings 2, Inc., and Onco360 Holdings 3, Inc. (“the
Onco360 holding companies”) bring suit against Defendant Pharmacy Corporation of America
(“PCA”). In the other, PCA brings suit against Askari individually. The Court held a three-day
virtual bench trial on July 6-8, 2020. (D.I. 218, 219, 220). I have considered the parties’ posttrial briefing. (D.I. 217, 221, 222). This opinion constitutes my findings of fact and conclusions
of law.
I.

BACKGROUND
In 1991 Plaintiff Askari owned and operated a retail pharmacy in Brooklyn. (D.I. 218 at

22:7-11). Askari opened his second retail pharmacy, Manhasset Park Pharmacy, in 1998. (Id. at
22:12-20). Askari began his specialty pharmacy company, which went by the corporate name of
Sina Drug Corp., in 2002. (Id. at 23:8-11). It was located in the basement of Manhasset Park
Pharmacy. (Id. at 23:15-18). It did business as “OncoMed Pharmaceutical Services” (D.I. 110 at
¶ 17). OncoMed focused on oncology drugs. (D.I. 218 at 23:12-22). Burt Zweigenhaft joined
OncoMed in 2006. (Id. at 23:23-24:2). Zweigenhaft obtained a minority ownership interest. In
late 2012 and early 2013, Askari and Zweigenhaft began to negotiate with PharMerica for the
sale of OncoMed. (Id. at 25:2-7). Askari, Zweigenhaft, and the Onco360 holding companies
entered into the Membership Interest Purchase Agreement (“MIPA”) with PCA. (D.I. 1-3,
hereinafter “MIPA”). The MIPA, dated October 10, 2013, provided that PCA would purchase
37.5% of the membership interests in OncoMed (which then became “OncoMed Specialty,”
hereinafter “Specialty”) from the Onco360 holding companies for $7.8 million. (MIPA at 1, 9;
D.I. 218 at 157:7-11).

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Section 7.2(a) of the MIPA contains a restrictive covenant, which reads:
Restrictive Covenants. (a) To assure that the Buyer will realize the benefits
of the transactions contemplated hereby, and as part of the value to be received by
the Buyer in connection with such transactions, for a period of five (5) years from
and after the closing date (the “Non-Compete Period”), none of the Selling
Shareholders nor the Sellers shall own, manage, operate or control, or otherwise
become involved in, whether as an officer, director, employee, investor, partner,
stockholder, trustee, consultant, agent, representative, broker, promoter, or
otherwise, in the United States of America, any business that competes with the
Business (the “Competitive Business”); provided, however, that (i) the foregoing is
not intended to prohibit or restrict the ownership, directly or indirectly by any of
the Selling Shareholders or the Sellers, of up to 2% of the equity interests in any
Competitive Business, (ii) no owner of 2% or less of the outstanding equity interests
of any entity shall be deemed to engage, solely by reason thereof, in its business,
(iii) Kaveh Askari may engage in the practice of pharmacy pursuant to the New
York Education Law as long as he does not engage in a Competitive Business; and
(iv) ownership of a retail pharmacy by Kaveh Askari shall not be deemed a
violation of this paragraph.
(MIPA § 7.2(a)).
The parties also entered into the Operating Agreement, dated December 6, 2013. (D.I.
155-3, hereinafter “OA”). The Operating Agreement sets out PCA’s purchase rights for the
remainder of the shares in Specialty. Askari and Zweigenhaft owned 62.5% after the 2013
closing. (OA at 1). Thirty-six months after entering into the Operating Agreement, PCA had the
right to purchase up to 30.5% of the membership interests owned directly or indirectly by Askari
and 13.5% owned directly or indirectly by Zweigenhaft (the “First Call”). 1 (OA § 9.1(a)). Sixty
months after entering into the Operating Agreement, PCA had the obligation to purchase all
remaining membership interests within 60 days (the “Second Call”). (OA § 9.1(b)). The
purchase price at each call was to be determined by a formula set out in § 9.2(a):
Determination of Purchase Price. (a) The purchase price for the
Membership Interest purchased pursuant to the provisions of Section 9.1(a), 9.1(b),
or 9.1(c) shall be an amount equal to (A) (i) the product of (x) the trailing twelve
1

The 13.5% represented all of Zweigenhaft’s remaining shares. (D.I. 218 at 28:11-20). The
30.5% would leave Askari with 18.5% of the shares. (Id. at 52:3-5).
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(12) months of EBITDA and (y) the Valuation Multiplier, less (ii) the Net Debt of
the Company, less (iii) the purchase price for any acquisition of assets, business or
Person by the Company, unless such amount is included in the calculation of Net
Debt, multiplied by (B) the Percentage Interests of the Company being purchased.
(OA § 9.2(a)).
Section 1.1 of the Operating Agreement defines “Net Debt” as “an amount equal to (i)
$6.5 million plus (ii) the amount of debt owed by [Specialty] to [PCA] or its Affiliates under the
Working Capital Loan (as defined in the Loan Documents (as defined in the Purchase
Agreement)) minus (iii) the amount of the [Specialty’s] cash and cash equivalents.” (OA § 1.1).
The Operating Agreement gave control of Specialty to a PCA-appointed board, and it
allowed Plaintiff and Zweigenhaft to attend board meetings as non-voting observers. (OA § 5.1).
Section 5.8 of the Operating Agreement provides that any action that constitutes a “Major
Decision” must be approved by at least 75% of the membership interests. (OA § 5.8). Section
5.8 reads:
Actions Requiring Consent of Members. The Members shall have no right
to participate in the management of the Company. All rights of Members pursuant
to the Act are hereby disclaimed. Notwithstanding the foregoing or anything in this
Agreement to the contrary, no action shall be taken, sum expended, decision made
or obligation incurred with respect to a matter within the scope of any of the major
decisions enumerated below (the “Major Decisions”), unless such Major Decision
has been approved by the Members holding at least 75% of the Percentage Interests.
The Major Decisions are:
(a) causing the issuance of any additional Membership Interest or Equity
Security to any Person;
(b) causing (A) the sale, pledge, lease, or other disposition of all or any
substantial portion of the assets of the Company or Subsidiaries (other than sales of
inventory in the ordinary course of business), or (B) the granting or incurrence of
any lien, mortgage, charge, pledge, security interest or other similar encumbrance
on all or any substantial portion of the assets of the Company or Subsidiaries, except
as contemplated by the Loan Documents (as defined in the Purchase Agreement);
(c) enter into any Related-Party Transaction that is not specifically
authorized pursuant to Section 5.9;
(d) any amendment to this Section 5.8 of the Agreement; and
(e) agreeing or committing, or causing any Subsidiary, to do any of the
foregoing.

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(OA § 5.8).
Section 5.9 of the Operating Agreement defines Related-Party Transactions. Section 5.9
reads:
Related Party Transactions. Any lease, contract or agreement or any other
transaction or arrangement involving payments or remuneration between the
Company and any Member or an Affiliate of a Member (a “Related-Party
Transaction”) must be disclosed to the Board of Managers and each Board Observer
and receive approval of the Board of Managers. The Company is specifically
authorized to: (i) engage in any transaction that involves a Member or an Affiliate
of a Member providing services, equipment or supplies to the Company in
exchange for consideration for such services, equipment or supplies that is no
greater than an amount the Company would pay to obtain such services, equipment
or supplies from a Third Party, as reasonably determined by the Board of Managers;
(ii) to participate in any of the joint purchasing arrangements to which any of the
members or their Affiliates are a party; (iii) to engage the PharMerica Member or
any of its Affiliates for the activities set forth on the Shared Services Agreement
substantially in the form attached hereto as Exhibit B; and (iv) to obtain debt
financing from an Affiliate of the PharMerica Member on terms that are equivalent
to those available to such Affiliate of the PharMerica Member in an arm’s-length
transaction with a Third Party providing debt financing to such Affiliate of the
PharMerica Member.
(OA § 5.9). The Operating Agreement defines PCA as the “PharMerica Member.” (OA
§ 1.1).
The parties also entered into a Loan Agreement, dated December 6, 2013. (D.I. 155-4,
hereinafter “LA”). In relevant part, the Loan Agreement reads:
WHEREAS, in connection with the Purchase Transaction, [Specialty]
desires to enter into a financing transaction with [PCA] pursuant to which [PCA]
will commit, subject to the terms and conditions set forth in this Agreement, to (i)
make a term loan to [Specialty] in the amount of $6,500,000.00 (the “Term Loan”)
and (ii) make advances to [Specialty] up to the aggregate principal amount of
$10,00,000.00 [sic] (the “Working Capital Loan”, and together with the Term Loan,
the “Loans”).
WHEREAS, [Specialty] ha[s] agreed to secure all of its obligations under
the Loans by granting to [PCA] a security interest in and lien upon all of its existing
and after-acquired personal and real property.

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(LA at 1). The Loan Agreement defines “Working Capital Loan Limit” to mean the “Working
Capital Loan Commitment.” (LA at A-17).
When the deal closed in December 2013, the Working Capital Loan was set at
$10,000,000 per the Loan Agreement. Specialty thereafter drew down on this loan periodically
until it reached a loan balance of $10,000,000 as of June 5, 2015. (D.I. 219 at 485:16-24). The
Loan Agreement was amended on June 5, 2015 to increase the Working Capital Loan from
$10,000,000 to $30,000,000. (D.I. 155-10 at § 1.1). Specially continued to draw down
incrementally on the loan, and the Loan Agreement was amended a second time on October 4,
2016 to increase the Working Capital Loan from $30,000,000 to $64,000,000. (D.I. 219 at
485:25-487:4; D.I. 155-11 at § 1.1).
Askari was advised of both increases to the Working Capital Loan. (D.I. 218 at 35:236:22; 90:15-94:14). In regard to the first increase, Askari’s response was to ask what the
business reason for the increase was. (Id. at 91:22-92:10). Askari testified that he “objected” to
the increase (id. at 92:11-15), but to the extent that could be interpreted to mean something more
than he asked a question about it, I reject the testimony as lacking credibility considering that it
is completely unsupported by any documentary or other corroborating evidence.
PCA exercised its First Call right on December 7, 2016 to purchase 30.5% of the
membership interests owned by Askari, and all remaining interests owned by Zweigenhaft. (D.I.
155-9). At that time, the Working Capital Loan balance was $28,600,000. (D.I. 219 at 486:3-5).
Net Debt was thus calculated to be $28,039,289, and the purchase price was - $7,463,707. (D.I.
155-9 at 5). Because the purchase price was calculated to be a negative number, PCA tendered
$1 for the purchased interests at the First Call. (Id. at 1). PCA exercised its Second Call right in
January 2019 to purchase all remaining membership interests owned by Askari. (D.I. 162-7). At

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the time of the Second Call, the Working Capital Loan balance was about $12,079,000. (D.I.
219 at 507:16-19).
Askari and Zweigenhaft were paid $7,800,000 for 37.5% of the membership interests at
the closing in December 2013. (MIPA at 9). Despite the fact that Askari was offered only $1 for
his shares at the First Call, the purchase price for his remaining shares was $18,854,499 at the
Second Call. (D.I. 162-7 at 3). Thus, Askari’s overall return for the 49% of shares that he had
retained after the December 2013 closing was $18,854,500. Thus, the return on the retained
shares was nearly twice that of the return on the shares sold at closing.
The instant suit is a consolidation of two related cases. PCA filed the first against Askari,
claiming a breach of the restrictive covenant of the MIPA. (D.I. 1). Askari and the Onco360
holding companies filed the second seeking a declaratory judgment and claiming breach of
contract under the Operating Agreement. (No. 17-870, D.I. 1). After consolidation, Askari and
the Onco360 holding companies filed a Second Amended and Supplemental Complaint. (D.I.
110).
II.

LEGAL STANDARD
“Delaware follows the objective theory of contracts,” which means that “a contract’s

construction should be that which would be understood by an objective, reasonable third party.”
MBIA Insurance Corp. v. Royal Indemnity. Co., 426 F.3d 204, 210 (3d Cir. 2005); Osborn ex rel.
Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010).
“When the [contract] provisions in controversy are fairly susceptible of different
interpretations or may have two or more different meanings, there is ambiguity.” Eagle
Industries, Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997). “Ambiguity
does not exist where the court can determine the meaning of a contract ‘without any other guide

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than a knowledge of the simple facts on which, from the nature of language in general, its
meaning depends.’” Rhone-Poulenc Basic Chemicals Co. v. American Motorists Insurance Co.,
616 A.2d 1192, 1196 (Del. 1992) (quoting Holland v. Hannan, 456 A.2d 807, 815 (D.C. App.
1983)).
“In construing an ambiguous contractual provision, a court may consider evidence of
prior agreements and communications of the parties as well as trade usage or course of dealing.”
Eagle Industries, 702 A.2d at 1233; see Pellaton v. Bank of New York, 592 A.2d 473, 478 (Del.
1991). “[T]he contracting parties’ course of conduct may [also] be considered as evidence of
their intended meaning of an ambiguous contractual term.” AT&T Corp. v. Lillis, 970 A.2d 166,
172 (Del. 2009).
“Because it is hornbook law that (when no fiduciary relationship exists) the party alleging
a breach of contract bears the burden of proving the elements of a breach of contract, the burden
of proving the meaning of ambiguous terms in the contract is on the party alleging the breach.”
Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc., 247 F.3d 79, 102 (3d Cir. 2001)
(substantially cleaned up). “[T]he party seeking judicial enforcement of [its] interpretation of an
ambiguous contract . . . bear[s] the burden of proof.” Lillis v. AT&T Corp., 2008 WL 2811153,
at *4 (Del. Ch. July 21, 2008).
“A duty of good faith and fair dealing is implied in every contract.” Connelly v. State
Farm Mutual Automobile Ins. Co., 135 A.3d 1271, 1274 (Del. 2016). “The implied covenant of
good faith and fair dealing involves a ‘cautious enterprise,’ inferring contractual terms to handle
developments or contractual gaps that the asserting party pleads neither party anticipated.”
Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010). Only when the party “asserting the implied
covenant proves that the other party has acted arbitrarily or unreasonably, thereby frustrating the

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fruits of the bargain” will the Court imply contract terms. Id. at 1126. “General allegations of
bad faith conduct are not sufficient. Rather, the plaintiff must allege a specific implied
contractual obligation and allege how the violation of that obligation denied the plaintiff the
fruits of the contract.” Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009).
III.

DISCUSSION
A. Plaintiffs’ Claims
Plaintiffs’ complaint (D.I 110) details six counts. The remaining claims 2 of Counts I and

II allege that Defendant breached the Operating Agreement in exercising the First Call because:
(1) the purchase price was incorrectly calculated because of a “Net Debt” input that exceeded the
$16,500,000 limit (effectively) set by the Operating Agreement and Loan Agreement; and (2) the
purchase price was incorrectly calculated because EBITDA did not include “revenues derived
from shared services.” As a basis for the first theory, the allegations are that “Net Debt” could
not be greater than $16,500,000 because the Operating Agreement (in conjunction with the Loan
Agreement) prohibited such a “Major Decision” without consent of 75% of the membership
interests, and there was no such consent. (D.I. 110 at ¶¶ 79-99).
Counts III and IV relate to the Second Call and allege that Defendant breached the
Operating Agreement because (1) the First Call breach means that the First Call is null and void,
and therefore the Second Call is also null and void, meaning that Askari and Zweigenhaft
continue to own 62.5% of the membership interest in Specialty; or, in the alternative, (2) the
First Call breach means that Defendant had to purchase 62.5% of the membership interests at the
Second Call. These Counts also claim that the purchase price was incorrectly calculated because

2

Plaintiffs abandoned the claim that Defendant breached the Operating Agreement by failing to
purchase a valid percentage of membership interests. (D.I. 196 at 2 n.1).
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“revenues derived from shared services” were not included in the EBITDA calculation. (Id. at ¶¶
100-09)
Count V involved a breach of contract claim against three individual Defendants. (Id. at
¶¶ 110-20). I granted summary judgment in favor of those Defendants. (D.I. 194).
Count VI is a claim of breach of the covenant of good faith and fair dealing based on the
increase of the Working Capital Loan. (D.I. 110 at ¶¶ 121-28).
Defendant filed a motion in limine which raised a dispute between the parties about the
scope of issues for trial as exceeding Plaintiffs’ complaint. (D.I. 184-18). In resolving that
motion, I identified two contract issues in the complaint for trial. (D.I. 196). The first was
whether the increases of the Working Capital Loan were “Major Decisions” within the meaning
of the Operating Agreement. (Id. at 3). The second was whether “revenues derived from shared
services” were incorrectly calculated in the purchase price. (Id.). Plaintiff included in the
Proposed Pretrial Order various allegations relating to adjustments to EBITDA based on events
in 2013 and 2014, inclusion of non-operating expenses, other EBITDA errors, issues about an
Intercompany Receivable, issues about related-party transactions, Board of Managers’ meetings
without notice, and an abandoned Business Plan. (D.I. 184 at ¶¶ 60-64, 73-78). I did not see
how any “of [those] asserted factual issues [were] relevant to the actual disputed factual and
legal issues as framed by the complaint” and thus “excluded [them] from the trial as irrelevant to
the disputed issues.” (D.I. 196 at 4). Plaintiffs filed a motion for reargument (D.I. 197), which I
denied. (D.I. 211).
1.

Are increases of the Working Capital Loan “Major Decisions” within the
meaning of the Operating Agreement?
a.

Section 5.8(b)

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The Operating Agreement defines Major Decisions in § 5.8. At summary judgment,
Plaintiffs argued that increasing the Working Capital Loan was a Major Decision under the clear
and unambiguous language of § 5.8(b)(B) because it “obviously increased the amount of the
security interest and lien on Specialty’s assets.” (D.I. 163 at 2). I, however, determined that the
language of § 5.8 was not clear and unambiguous because it was not apparent that either of the
loan amendments “grant[ed] or incurre[d] . . . any lien, mortgage, charge, pledge, security
interest or other similar encumbrance on all or any substantial portion of the assets of the
Company or Subsidiaries, except as contemplated by the Loan Documents (as defined in the
Purchase Agreement).” (D.I. 192 at 6; OA § 5.8(b)(B)).
Plaintiffs argue that § 5.8 was intended to “protect the sellers from dilution by PCA in a
buyout,” as the sellers were no longer managing Specialty. (D.I. 217 at 6; D.I. 222 at 1). Thus,
Plaintiffs contend that the Working Capital Loan could not be raised higher than $10,000,000, as
set out in the Loan Agreement. (D.I. 217 at 6). Plaintiffs therefore conclude that § 5.8 must be
interpreted to “prohibit the very dilutive practices employed by PCA.” (Id. at 7). Plaintiffs also
assert that the language of § 5.8 is far broader than Defendant’s reading of the provision. (Id. at
9). Plaintiffs argue that the language “no action shall be taken, sum expended, decision made or
obligation incurred with respect to a matter within the scope of any of the major decisions
enumerated” expands the meaning of Major Decisions beyond those expressly enumerated.
(Id.). Plaintiffs further argue that because the language of § 5.8(b)(B) refers to “any” lien or
security interest, it does not apply only to “new” ones. (Id. at 10). Plaintiffs assert that, when the
Working Capital Loan was increased, it also increased the amount of PCA’s lien on Specialty’s
assets, and thus each increase was a Major Decision. (D.I. 222 at 2-3).

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Defendant provides an alternative understanding of the provision. Defendant argues that
the loan amendments merely increased the amount that was owed by Specialty to Defendant.
(D.I. 221 at 6). Thus, Defendant asserts that, because the “increases [were] ‘within the scope of
the original security interest and Lien,’” they did not grant or incur a lien or other security
interest. (Id. at 6-7). Defendant contends that the loan amendments merely “altered the
borrowing limit under the [Working Capital Loan], but everything else, including the previously
granted security interest, explicitly remained unchanged.” (D.I. 221 at 7; see D.I. 155-10 at
§ 2.1, D.I. 155-11 at § 2.1).
Defendant also argues that $10,000,000 Working Capital Loan as set out in the Loan
Agreement was “merely a reflection of [Defendant’s financial] commitment” to Specialty, rather
than being an absolute cap. 3 (D.I. 221 at 8). Mr. Weishar, PCA’s CEO during the relevant
period, testified at trial that Defendant was concerned that Askari and Zweigenhaft would
“think[] [Defendant] had an open checkbook.” (D.I. 219 at 400:12-24). Mr. Weishar also
testified by deposition that that Defendant was “always capable of providing more capital as
[Specialty] needed it.” (Id. at 260:14-15). The Working Capital Loan “was only limited by what
[Defendant was] willing to provide.” (Id. at 260:11-12). Ms. Rose, Specialty’s controller,
testified that the increases in the Working Capital Loan provided capital that was used to
“support the growth” of Specialty. (Id. at 481:20-21, 482:23-24). Defendant’s expert, Dr.
Mortimer, testified that increasing the loan so that Specialty could implement an extensive
“forward-buy strategy” benefitted Specialty and Plaintiffs by increasing Specialty’s profitability

3

The Loan Agreement’s language is that “[PCA] will commit . . . to . . . (ii) make advances to
[Specialty] up to the aggregate principal amount of $10,00,000.00 [sic].” (emphasis added).
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and thus Plaintiffs’ buyout price at the Second Call by approximately $2,500,000 to $2,900,000.
(D.I. 220 at 587:13-21; 590:3-6).
While one of the purposes of § 5.8 was to protect the interests of the sellers, it does not
follow that Plaintiffs’ interpretation of § 5.8(b)(B) is correct. Plaintiffs have not met their burden
of proving the meaning of the ambiguous language of § 5.8(b)(B). Plaintiffs broad reading of
§ 5.8 is counterintuitive. The provision’s language—“The Major Decisions are:”—clearly states
that the Major Decisions must be within the bounds of the enumerated actions, not beyond those
bounds. Further, in arguing that the language of § 5.8(b)(B) is not limited to “new” security
interests, Plaintiffs do not explain how their understanding of “granting” or “incurring” a lien or
security interest, as expressed in the provision, applies to the loan amendments. Similarly,
Plaintiffs’ argument that the increase in the Working Capital Loan increased the lien on
Specialty’s assets does not address how the loan increase “grants” or “incurs” a lien within the
meaning of the provision. There is also no language in the loan amendments themselves that
suggests that they grant or incur an encumbrance, and Plaintiffs do not argue otherwise.
Based on the record before me, Plaintiffs have not proven that the increases in the
Working Capital Loan were Major Decisions within the scope of § 5.8(b)(B). If anything, the
record suggests the opposite. First, the amendments to the Loan Agreement explicitly state that
only the amount of the loan in the Loan Agreement is to change, and that otherwise “the
provisions of the Loan Agreement shall remain in full force and effect with no amendment or
modification thereto other than as set forth herein.” (D.I. 155-10 at § 1.1, § 2.1; D.I. 155-11 at §
1.1, § 2.1). The Loan Agreement granted Defendant “a security interest in and lien upon all of
[Specialty’s] existing and after-acquired personal and real property,” and the amendments
seemingly continued to be secured by that same encumbrance. (LA at 1). Second, the testimony

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of Defendant’s witnesses supports the notion that the intent of the Working Capital Loan was to
allow Defendant to limit its commitment to loan money to Specialty to $10,000,000, not to
prevent it from lending more than $10,000,000 to Specialty. Generally speaking, the more
money PCA was willing to put into Specialty, the greater the opportunity for profit and a bigger
payoff for Plaintiffs at the time of the First and Second Calls. But if for some reason Specialty
had become a money pit, PCA’s exposure was limited by contract. Third, the parties’ conduct at
the time of the first Working Capital Loan amendment is consistent with Defendant’s
interpretation, not Plaintiffs’. Defendant matter-of-factly advised Askari of the amendment.
Askari did not raise legal or any other objections to it, although he did want to know the business
reasons for it. And, when he asked for the business reasons, Defendant provided it – to fund the
forward buy strategy. The parties’ conduct during and immediately after the time of the first
Working Capital Loan amendment was that nothing out of the ordinary had taken place, and that
supports Defendant’s reading of § 5.8(b).
Thus, I do not find that the Working Capital Loan amendments breached
subsection (b) of the Major Decision provision.
b.

Section 5.8(c)

Section 5.8(c) of the Operating Agreement defines as a Major Decision “enter[ing] into
any Related-Party Transaction that is not specifically authorized pursuant to Section 5.9.”
Plaintiffs argue that the increases in the Working Capital Loan were Related-Party Transactions
that were not specifically authorized under § 5.9 and therefore were Major Decisions under
§ 5.8(c). (D.I. 217 at 10). I am not sure why Plaintiffs do so. After considering the allegations
in Plaintiffs’ complaint and reviewing the pretrial order to resolve a motion in limine, I explicitly
excluded from the trial “issues about related-party transactions” as irrelevant “to the actual

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disputed factual and legal issues as framed by the complaint.” (D.I. 196 at 4). Plaintiffs moved
for reargument on that decision, broadly asserting that the paragraphs of the proposed pretrial
order I excluded were related to the improper increase of the Working Capital Loan. (D.I. 198 at
5). Plaintiffs did not argue then, as they do now, that “the entirety of § 5.8 is at the heart of this
case” and that their complaint sufficiently put Defendant on notice that they were alleging breach
of § 5.8(c). (D.I. 222 at 3-5). It is unfair to Defendants that Plaintiffs continue to advance a
theory of breach of § 5.8(c) after I precluded it from trial.
Even if I had not excluded the issue of related-party transactions from trial, Plaintiffs
have not proven that the increases in the Working Capital Loan caused Specialty to “enter into
any Related-Party Transaction.” Plaintiffs’ argument that the increases to the Working Capital
Loans were unauthorized Related-Party Transactions is merely a conclusory recitation of the
language of § 5.8(c) and § 5.9. (See D.I. 217 at 2, 10; D.I. 222 at 3). Plaintiffs offer no
argument as to the plausibility of their interpretation. (See id.). As previously expressed, I do
not understand the amendments to the Loan Agreement to do anything other than increase the
amount of the Working Capital Loan. This means that the increases to the Working Capital
Loan merely amended the Loan Agreement that Specialty had previously entered into with
Defendant, but the increases did not themselves cause Specialty to “enter” into an agreement or
other transaction.
Therefore, even if related-party transactions were still at issue in the instant case,
Plaintiffs have not met their burden of proving that increases to the Working Capital Loan were
Major Decisions under § 5.8(c). Thus, Plaintiffs have not proven that Defendant breached
§ 5.8(c) by increasing the Working Capital Loan without approval of 75% of the membership
interests. Plaintiffs therefore have not proven that the purchase price was incorrect for including

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a Net Debt that was higher than the $6,500,000 Term Loan plus the original $10,000,000
Working Capital Loan.
2.

Was the purchase price incorrectly calculated because EBITDA did not
include “revenues derived from shared services”?

Plaintiffs argue that Defendant incorrectly calculated the purchase price at the First Call
because EBITDA did not include revenues derived from services shared between Specialty and
Defendant. (D.I. 217 at 2, 5, 7). At trial, however, Plaintiffs did not offer anything useful to
prove their case on shared services. (See D.I. 220 at 629:8-13). Plaintiffs’ post-trial briefing
similarly expresses only their conclusory claim that EBITDA was miscalculated for failing to
include shared services revenue, but does not show how or why that is. (See D.I. 217 at 2-7).
While it was not PCA’s burden to do so, PCA called Ms. Rose, the company’s controller and a
very credible and convincing witness, who testified at trial that the shared services revenue was
properly included in EBITDA and that those calculations were subject to both internal and
external auditing for accuracy. (D.I. 219 at 500:16-501:6, 503:7-20, 504:21-505:11, 519:25520:11; D.I. 220 at 552:2-7). Thus, Plaintiffs have not met their burden of showing that revenues
derived from shared services were improperly excluded from the EBITDA calculation.
3.

Did Defendant breach the Operating Agreement?

Plaintiffs have not proven by a preponderance of the evidence that Defendant breached
the Operating Agreement by calculating an incorrect purchase price at the First Call. Because
Plaintiffs have not proven that Defendant breached the Operating Agreement in calculating the
purchase price at the First Call, Plaintiffs have not shown that the First Call was null and void.
Therefore, Plaintiffs have not shown that the Second Call was null and void or that the purchase
price and membership interest percentages were improperly calculated at the Second Call.

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Plaintiffs thus have not met their burden of proving that the Second Call breached the Operating
Agreement.
4.

Did Defendant breach the implied covenant of food faith and fair dealing?

Plaintiffs claim that Defendant breached the implied covenant of good faith and fair
dealing by increasing the Working Capital Loan to drive down the purchase price at the First
Call. (D.I. 110 at ¶ 126; D.I. 217 at 15). Plaintiffs argue against Defendant’s contention that the
reason why Defendant increased the Working Capital Loan was to benefit Specialty (and
consequently both Plaintiffs and PCA) by increasing operating capital and implementing a
forward-buy strategy. (D.I. 217 at 15-16). Other than the fact that the purchase price at the First
Call was calculated to be negative number (with the result that PCA offered Plaintiffs $1 for their
First Call shares), Plaintiffs have not offered any evidence of Defendant’s breach of an implied
covenant or of any motivation to harm the business or cause losses or to do anything else that
would negatively impact all of the owners of Specialty, not just Plaintiffs.
Furthermore, Plaintiffs do not specify what they believe the implied covenant was
supposed to be. To sufficiently allege a breach of an implied covenant, Plaintiffs “must allege a
specific implied contractual obligation and allege how the violation of that obligation denied the
[Plaintiffs] the fruits of the contract.” Kuroda, 971 A.2d at 888. Generally alleging bad faith
conduct is not enough. See id. Thus, Plaintiffs’ failure to identify a specific implied obligation
is alone sufficient to determine that Plaintiffs have not met their burden of proving that
Defendant breached that unspecified implied covenant.
Plaintiffs’ briefing suggests that an implied covenant in the Operating Agreement could
be for Defendant to not purposefully “drive down the purchase price” at the First Call. (D.I. 217

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at 15). Even if this were a properly pleaded implied covenant, Plaintiffs have not met their
burden of proving that Defendant breached it.
Contrary to Plaintiffs’ assertion, the record reflects that Defendant did not act in bad faith
when increasing the Working Capital Loan. Mr. Weishar testified, by deposition, that
“everything” Defendant “did was an attempt to drive EBITDA and the business” and that
Defendant increased the loan because it “felt more capital was needed to drive the earnings of the
company.” (D.I. 219 at 263:13-18; see id. at 265:22-266:3, 409:11-16). Mr. Weishar also
testified at trial that the growth of Specialty “demanded certain amount of expenditures that were
requiring [Defendant] to increase the level of working capital,” something he considered was
“totally in line with the transaction.” (Id. at 405:4-11). Ms. Rose also testified that the increase
of the Working Capital Loan was “to support the growth of the business to increase [Specialty’s]
inventory.” (Id. at 482:23-24).
Dr. Mortimer demonstrated how Defendant’s actions of increasing the Working Capital
Loan to provide Specialty with more capital to implement a forward-buy strategy benefitted both
Specialty and Plaintiffs. (D.I. 220 at 587:13-21). Dr. Mortimer calculated Specialty’s EBITDA
in a hypothetical world where Specialty did not have access to funds in excess of the original
$10,000,000 Working Capital Loan to implement a forward-buy strategy. (Id. at 578:12580:22). Dr. Mortimer determined that, had Specialty been unable to continue the forward-buy
strategy after reaching a Working Capital Loan drawdown balance of $10,000,000, Specialty’s
EBITDA during the period leading up to the First Call would have been approximately $700,000
less than what it actually was. (Id. at 580:16-581:20). When the lower EBITDA is taken into
account with a Working Capital Loan capped at $10,000,000 the purchase price formula still
yields a negative value at the First Call. (D.I. 221, Ex. A). I am satisfied, and therefore find, that

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had the Working Capital Loan never exceeded $10,000,000, the amount that would have been
tendered to Plaintiffs at the First Call was the nominal $1 that was actually tendered.
Moreover, Dr. Mortimer testified that Specialty’s borrowing under the increased Working
Capital Loan substantially increased Plaintiffs’ payout at the Second Call. (D.I. 220 at 587:1321). This is because, as Dr. Mortimer testified, the forward buys have continuing benefits in
future years. (D.I. 220 at 572:20-575:13; 586:5-18). Dr. Mortimer calculated that the forwardbuy strategy that Specialty was able to implement because of the increased Working Capital
Loan actually increased the purchase price at the Second Call by $2,893,527 over what it would
have been had Specialty not borrowed in excess of $10,000,000. (Id. at 586:19-587:21; 590:3-6;
D.I. 221, Ex. B).
Assuming that the implied covenant was for Defendant to not purposefully “drive down
the purchase price,” Defendant’s increases to the Working Capital Loan were not a violation of
that implied covenant. (D.I. 217 at 15). Defendant has shown that, while the increases may have
resulted in a nominal payout at the First Call, they actually benefitted Plaintiffs substantially at
the Second Call. Multiple witnesses testified that this business strategy was the reason for
increasing the loan. Plaintiffs have shown little to counter that other than their frustration with
the purchase price at the First Call. That is not enough to show that Defendant acted to
purposefully decrease the purchase price. Plaintiffs therefore have not met their burden of
proving that Defendant breached the implied covenant of good faith and fair dealing when it
increased the Working Capital Loan above $10,000,000.
B. Defendant’s Claims
Defendant claims that Askari breached the restrictive covenant, § 7.2(a), of the MIPA.
(D.I. 1 at ¶ 25-26; D.I. 221 at 18). The restrictive covenant prevents Askari, for five years after

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the closing date, from engaging in any business that competes with Specialty in providing
“specialty pharmacy services . . . including the provision of oncology pharmaceuticals.” (MIPA
at 1, § 7.2(a)). The restrictive covenant, however, specifically provides that Askari may “engage
in the practice of pharmacy . . . as long as he does not” engage in a business that competes with
Specialty by providing specialty pharmacy services, and that Askari may own a retail pharmacy.
(MIPA § 7.2(a)(iii)-(iv)).
Defendant argues that Askari sold oncology drugs in competition with Defendant during
the non-compete period, thus violating the restrictive covenant. (D.I. 221 at 18). Defendant
asserts that Askari was covertly operating Alegria Pharmacy Services, a specialty pharmacy, to
deliver these oncology drugs, and had filled prescriptions for cancer medications with delivery
tickets bearing the Alegria name. (Id. at 19).
At trial, Askari admitted to selling certain oncology drugs at his Manhasset Park retail
pharmacy after he left Specialty. (D.I. 218 at 126:8-127:25). Askari argues, however, that he
did not breach the restrictive covenant because his retail pharmacy business was specifically
carved out from the restrictive covenant. (D.I. 222 at 7-8). Askari contends that the oncology
drugs he sold though Manhasset Park Pharmacy are available to be sold through retail
pharmacies, and that Dr. Mortimer did not show otherwise. (Id. at 8).
I agree that Defendant’s evidence is not persuasive. While Defendant did establish that
Askari sold oncology drugs during the non-compete period, Defendant did not show that those
drugs were unavailable at retail pharmacies. Dr. Mortimer testified that “most of the drugs on
[the] list [of oncology drugs] comprising the bulk of sales by Mr. Askari are not typically sold
through a retail channel, through a retail pharmacy.” (D.I. 220 at 591:6-8) (emphasis added).
Although Dr. Mortimer reviewed publicly available, nationwide datasets of drug sales and

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availability, he could not conclude that the oncology drugs that Askari sold were unavailable
through retail pharmacies. (Id. at 600:8-12, 601:1-6).
It seems to me that the drugs at issue could have been sold by Askari at his Manhasset
Park retail pharmacy in its capacity as a retail pharmacy. Further, the fact that some
prescriptions for oncology drugs were filled on a delivery ticket bearing a name other than
“Manhasset Park Pharmacy” is unpersuasive of the assertion that Askari was secretly running a
specialty pharmacy. Thus, Defendant has not shown that Askari breached the restrictive
covenant in § 7.2(a) of the MIPA.
IV.

CONCLUSION
For the foregoing reasons, Plaintiffs have failed to meet their burden of showing that

Defendant breached the Operating Agreement at either the First or Second Call. Plaintiffs have
also failed to meet their burden of showing that Defendant breached the implied covenant of
good faith and fair dealing. Defendant has failed to meet its burden of showing that Askari has
breached the restrictive covenant in § 7.2(a) of the MIPA.
The parties are directed to jointly submit an agreed-upon form of final judgment within
one week.

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