Opinion
01 Civ. 8095 (HB)
November 12, 2002
OPINION ORDER
Defendant Alza Corp. ("Alza") moves for summary judgment pursuant to Fed.R.Civ.P. ("FRCP") 56(c) on eight different points, which plaintiff Innomed Labs, LLC. ("Innomed") opposes. Oral argument was held on the motion October 21, 2002. For the reasons set forth below, Alza's motion is GRANTED-IN-PART and DENIED-IN-PART.
I. BACKGROUND
This action was originally based on Innomed's allegation that Alza breached its obligations under a December 1997 distribution agreement ("the written agreement"). Under the written agreement, Alza designated Innomed to be a semi-exclusive distributor of three Alza cold and allergy products: (1) the Chlor product, (2) the Pseud product, and (3) the Combo product. Before Alza entered into the written agreement with Innomed, Alza entered into another distribution agreement with Warner-Lambert ("W-L") in which W-L was to be the semi-exclusive distributor of the Pseud product.
On November 28, 2000, Alza notified Innomed of its intention to terminate the distribution arrangement as per a provision in the written agreement that also provided Innomed with a certain time to cure its default for having failed to make payments under the agreement. Innomed alleges that the parties later orally agreed in January 2001 to permit Innomed to cure its default by assigning its distribution rights to a third-party, American Home Products ("AHP"). Innomed had realized for some time that it did not have the requisite cash and could only continue business if such an arrangement could be consummated. Before Innomed could complete any such assignment, Alza terminated the written agreement. It was also around this time period that Alza agreed to merge with Johnson Johnson, a major competitor of AHP.
The original complaint essentially claimed that Alza breached the contract with Innomed when Alza refused to allow Innomed to assign its right to AHP. Innomed alleged that Alza breached the written agreement, breached the oral agreement, and wrongfully interfered with Innomed's business relations with AHP. I denied on April 23, 2002 Alza's motion to dismiss for failure to state a claim upon which relief could be granted. Innomed Labs, LLC. v. Alza Corp., 01 Civ. 8095, slip op. at 2 (S.D.N.Y. Apr. 23, 2002).
I later granted Innomed leave to amend its complaint to include a claim against Alza for violation of § 2(a) of the Robinson-Patman Act ("the R-P Act"). Innomed claims that Alza violated § 2(a) of the R-P Act when it charged W-L significantly lower prices than it charged Innomed for both the right to distribute the Pseud Product and the various costs associated with W-L's distribution of it. Accordingly, Innomed asserts that the alleged price discrimination forced it out of business.
II. DISCUSSION
A. Standard for summary judgment
Evidence in support of a motion for summary judgment must be reviewed in a light most favorable to the non-movant. FRCP 56(c), Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). If, when "[v]iewing the evidence produced in the light most favorable to the nonmovant . . . a rational trier could not find for the nonmovant, then there is no genuine issue of material fact and entry of summary judgment is appropriate." Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir. 1991). While the burden to demonstrate that no genuine issue of material fact rests solely with the moving party, FDIC v. Giammetti, 34 F.3d 51, 54 (2d Cir. 1994), once the moving party has provided sufficient evidence to support a motion for summary judgment, the opposing party must "set forth specific facts showing that there is a genuine issue for trial" and cannot rest on "mere allegations or denials." Rule 56(e); see Rexnord Holdings, Inc. v. Biderman, 21 F.3d 522, 525-26 (2d Cir. 1994). The "mere existence of a scintilla of evidence in support of the plaintiff's position" is insufficient to defeat a motion for summary judgment. Anderson, 477 U.S. at 252. An "opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). With this standard in mind, I review Alza's following claims in its summary judgment motion.
B. Alza's summary judgment motion
Alza claims it is entitled to summary judgment on the following eight claims:
1) Violation § 2(a) of the R-P Act;
2) Breach of contract and breach of the implied covenant of good faith and fair dealings;
3) Fraudulent inducement of Innomed to enter into the written agreement;
4) Breach of the written agreement;
5) Breach of covenant of good faith and fair dealing by failing to give Innomed a reasonable time to cure its breach under the written agreement or by engaging in actions that effectively interfered with Innomed's ability to assign its rights to AHP;
6) Breach of the January 26, 2001 oral agreement;
7) Tortious interference with Innomed's prospective business advantage when it terminated the written agreement before Innomed could assign its rights to a third party; and
8) Alza's counterclaims.
Claim 1
First, Alza asserts Innomed cannot show that the price discrimination was "contemporaneous" as required under § 2(a) of the R-P Act. Alza made exactly the same claim in opposition to Innomed's motion to amend its complaint. When Alza made that claim to oppose Innomed's motion to amend, it asserted that the W-L and Innomed agreements were executed at different times ( i.e., August 1997 and December 1997), and therefore Alza did not charge the two buyers different prices in contemporaneous transactions, as required by the R-P Act. The R-P Act requires that the sales, which form the basis of the discrimination, must be reasonably proximate in time. 3 Earl W. Kintner Joseph P. Bauer, Federal Antitrust Law: The Robinson Patman Act § 20.5 at 124 (1983). You rejected Alza's claim, noting that a plaintiff can satisfy this requirement by showing that the plaintiff "engaged in actual competition with the favored purchaser(s) as of the time of the price differential." Innomed Labs, LLC, v. Alza Corp., 2002 WL 1628943, at *3 (S.D.N.Y., July 23, 2002) (quoting Best Brands Beverage, Inc. v. Falstaff Brewing Corp., 842, F.2d 578, 584 (2d Cir. 1987).
Alza contends that it has "now" learned that the prices given to W-L were set in 1996, almost a year and a half before Alza's pricing was set. Innomed notes that the 1996 "INTERIM AGREEMENT" that Alza relies on to establish the lack of temporal proximity between transactions did not, in fact, firmly set the actual price that W-L was ultimately charged with until August 28, 1997, when the negotiated agreement was signed. According to the 1996 W-L interim agreement, if W-L wanted to settle upon a "definitive agreement," the parties were to "negotiate in good faith a definitive agreement . . . for the marketing of the product by W-L." Exh. 31 at ALZ 1497. Following negotiation between Alza and W-L, the terms originally set forth in the 1996 interim agreement were amended to provide for a $500,000 up-front payment and a separate $500,000 payment after delivery of "launch quantities" of Alza's product in consideration for access to Alza's pseudoephedrine technology. I agree with Innomed that there is at least a factual dispute in regard to when pricing for the Pseud product was "determined." Furthermore, as a matter of law, I have found nothing to support the position that contracts formed a few months apart cannot be considered "contemporaneous" for purposes of analysis under the Robinson-Patman Act. Given the congruence in subject matter, territory, and termination date in the Innomed and W-L agreements, as well as the few months separating the formation of the agreements, I find that a reasonable juror could conclude that the two agreements are contemporaneous for purposes of analysis under the R-P Act. See Exhs. 4, 32.
Second, Alza contends that there is no evidence that any differences in pricing between the agreements was "likely to substantially lessen competition or to create a monopoly in any line of commerce." See 15 U.S.C. § 13 (a). Innomed correctly observes that Alza conveniently truncates the balance of § 13(a), which states that it shall also be unlawful to "injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination." As explained by the Second Circuit, [t]he purpose of this passage was to relieve secondary-line plaintiffs . . . from having to prove harm to competition market wide, allowing them instead to impose liability simply by proving effects on individual competitors." George Haug Co. v. Rolls Royce Motor Cars Inc., 148 F.3d 136, 142 (2d Cir. 1998). Thus, competitive injury may be inferred from evidence demonstrating injury to an individual competitor. Id. Evidence of competitive injury to Innomed is provided by its expert, Dr. Iain Cockburn, who opines at length that Innomed suffered economic injury as a result of Alza's discriminatory pricing. Exh. 41. Alza asserts that Innomed's expert makes certain erroneous assumption in his report when evaluating the price of commodities for purposes of the R-P Act. Alza, however, cites no law or expert authority to support its contention that the expert's inclusion of upfront, milestone, and royalty payments for calculating price is improper for purposes of the Act.
In further support of its contention that the analysis by Innomed's expert is faulty, Alza attempts to recast the same argument it made earlier in opposition to Innomed's motion to amend — namely, that upfront and milestone payments were consideration for non-tangible commodities. I had earlier rejected this claim, noting that a review of the written agreement, under which the payment was made, arguably concerns the marketing and selling of tangible commodities. Innomed Labs, 2002 WL 1628943, at *3. Alza has not presented any new evidence, which would change my mind.
Furthermore, Alza contends that the upfront payment that was owed by Innomed was for three different products, the Pseud product, the Chlor product, and the Combo product, whereas W-L's upfront and milestone payments were strictly for the Pseud product. Therefore, according to Alza, the payments under the Innomed and W-L agreement cannot be compared for purposes of the R-P Act. Although the Act requires that the analysis for price discrimination be between commodities of "like grade and quality," George Haug, 148 F.3d at 141, nothing precludes one from allocating a portion of the payments to the like products at-issue ( i.e., the Pseud product). The proper allocation of payment made for the Pseud product appears by itself to raise a genuine issue of material fact.
Third, Alza contends that Innomed has failed to show that it suffered sufficient antitrust injury to warrant damages to a private plaintiff. In particular, Alza alleges that (1) Innomed's resale prices were lower than W-L's prices; (2) Innomed's expert's opinion is speculative and fails to consider other causes of Innomed's lost sales; and (3) Innomed did not make payments for the supposedly discriminatory pricing. With respect to the first issue, Alza again fails to provide legal or other expert authority to support its claim. Indeed, Innomed makes the very valid point that the R-P Act was intended, in part, to protect small competitors from discriminatory pricing in favor of larger purchasers, who would have the power to impose higher prices with their stronger brand names. See, e.g., Abbott Labs. v. Portland Retail Druggists Ass'n, Inc., 425 U.S. 1, 11 (1976). With respect to the second issue, Alza appears to dismiss, primarily on counsel argument, Innomed's expert's report, which opines that Innomed suffered antitrust injury. Citing Stelwagon Mfg. Co. v. Tarmac Roofing Sys., Inc., Alza notes that the Third Circuit reversed the district court because it found that the expert's analysis was flawed. 63 F.3d 1267, 1275-76 (3d Cir. 1995). More specifically, the Third Circuit determined that the expert had failed to adequately account for reasons, apart from price discrimination, why the plaintiff had lost sales, and thus it reversed the district court's finding of a Robinson-Patman violation. Id. The reversal by the Third Circuit, however, was not in the context of a summary judgment motion . While Alza contends that the analysis by Innomed's expert, Dr. Cockburn, fails for reasons similar to those expressed in Stelwagon, we must view the evidence in the light most favorable to the non-movant, Innomed. Although some of Alza's claims may in the last analysis prove to have some merit, motions, such as this, are not by definition the last analysis. Dr. Cockburn finds a connection between Innomed's lost sales and price discrimination. Whether that connection in fact caused lost sales to Innomed is an issue for a jury to decide. See B.F. Goodrich v. Betkoski, 99 F.3d 505, 526-27 (2d Cir. 1996) (noting that reliability of expert opinion on a subject requiring expert testimony, but which is opposed only by lawyer argument raises genuine issues of material fact that is not properly resolved on summary judgment).
With respect to the third issue, how Innomed's $2 million dollars should be parsed is a genuine issue of material fact because it lies at the very heart of whether Innomed's expert's price analysis is in fact proper. Alza notes that Innomed only paid half of the required $4 million up-front and milestone payment, and that Innomed's expert incorrectly calculates damages assuming Innomed had paid the full $4 million. Innomed does not dispute that Dr. Cockburn's analysis appears to be based on the full dollar amount that was to be paid. Notwithstanding Innomed's failure to pay the entire $4 million, Innomed contends that it paid at least $1.4 million more than W-L in up-front payments, and that this differential lead Innomed to incur debts that prevented it from making payments under the written agreement and which ultimately resulted in the termination of the agreement. Again, the lynchpin seems to be what weight, if any, should be given to Innomed's expert analysis on whether Innomed suffered any kind of economic harm as a result of the alleged difference in the amount of money paid. There may come a time to outright reject Dr. Cockburn's testimony as unfounded and based on unrealistic assumptions, but this is not it. Cf. In re Simon II Litigation, 2002 WL 31375510, at *72 (E.D.N.Y. Sept. 19, 2002) ("Courts must be especially careful not to hobble the jury system by excluding potential evidence" through Daubert hearings and summary judgment.).
Claim 2
Innomed's claims for breach of contract and breach of the implied covenant of good faith and fair dealings (Innomed's second and third claims) are predicated on its R-P Act claim. Given Alza's failure to show that the R-P claim, Alza's contention on the plaintiff's second and third claims must be rejected.
Claim 3
Innomed alleges that Alza fraudulently induced Innomed to enter into a written agreement by representing that performance under the agreement did not violate any law, including the § 2(a) of the R-P Act. Furthermore, Innomed contends that Alza had made various representations about the amount Alza would charge for up-front and milestone payments, as well as the amount that would be charged per pill. Alza claims that because of the insufficiency of Innomed's claim under the R-P Act, summary judgment should be granted against Innomed for fraudulent inducement. As shown above, Alza's claim regarding the insufficiency of Innomed's R-P claim fails.
Alza contends that Joseph Krivulka, the CEO of Hogil, predecessor to Innomed, testified that Alza never made any representation that Innomed's upfront and milestone payments or price per pill would be the same as those agreed to by Alza's other semi-exclusive distributor. Although Krivulka stated in his deposition that he did not have any recollection explicitly regarding "upfront and milestone payments," Krivulka Tr. at pp. 16-17, he submitted a later affidavit indicating that Alza had assured him that Innomed "would not be put at a competitive disadvantage to the other semi-exclusive distributor." Krivulka Decl. ¶¶ 2-5. Alza, citing Mack v. United States, 814 F.2d 120, 124 (2d Cir. 1987), contends that I should disregard Krivulka's affidavit because it contradicts his own prior deposition. I do not find Krivulka's affidavit testimony, however, necessarily contradictory to his prior deposition testimony. Merely because Krivulka could not recall specific discussion in regard to up-front or milestone payments does not preclude the possibility that he was assured by Alza that Innomed would not be put at a competitive disadvantage. How Innomed would be put on equal footing with its competitors through, for example, up-front and milestone payments, may simply have not come up. At best, the affidavit is a prior inconsistent statement, which may be used in an effort to impeach credibility if Krivulka testifies. I can not conclude at this juncture that his affidavit is contradictory without drawing an improper inference as to his credibility. United States v. Diebold, 369 U.S. 654, 655 (1962) (holding that courts do not sit to judge witness credibility on a motion for summary judgment); Hayes v. New York City of Dept. of Corrections, 84 F.3d 614, 620 (2d Cir. 1996).
Alza further seizes on Krivulka's statement during his deposition that he could not recall whether Alza ever told him that the price per pill charged to Innomed would be exactly the same as other distributors. Krivulka Decl. at p. 17. Alza, however, completely ignores Krivulka's later recollection that Bob Meyer, vice-president of commercial development at Alza, had agreed with him that the price per pill would be same. Krivulka Decl. at p. 18. Viewing Krivulka's equivocal testimony in the light most favorable to Innomed, I find it inconclusive whether Alza, indeed, had not made misrepresentations regarding the price that Innomed would be charged compared to W-L, and thus there is a genuine issue of material fact in regard to Alza's Claim 3.
Claim 4
Innomed asserts that there are at least three genuine issues of material fact surrounding the alleged breach of the written agreement by Alza's termination of the agreement — specifically, 1) the amount of time Innomed was given to cure, 2) the amount of time Innomed was entitled to have in order to cure; and 3) what Innomed needed to do in order to cure. I find each assertion to be meritless. Pursuant to § 12.2(c) of the agreement, Alza notified Innomed on November 28, 2000 that it intended to terminate the written agreement sixty days from that date because Innomed had failed to make payments under the written agreement. On January 23, 2001, five days before the date set for termination, Innomed informed Alza that it planned to file an order to show cause for a temporary restraining order to prevent Alza from terminating the written agreement. The following day, the parties entered into a "standstill agreement" in which Alza agreed not to terminate the written agreement and neither party would commence any legal action against the other. The January 24, 2001 standstill agreement was scheduled to terminate February 11, 2001. Innomed and Alza subsequently agreed to extend the standstill agreement three more times, giving Innomed, in total, more than 120 days to cure from the time it first received notice of Alza's intent to terminate the written agreement, pursuant to § 12.2(c). Nothing in any of the communications however, states or suggests that the standstill agreement tolled the 60-day cure period.
In regard to the second issue of fact, Alza contends that the extended reasonable cure period for material breaches provided by § 12.2(c) of the written agreement does not apply because Innomed's breach could be cured within 60 days. I agree. I remain unconvinced that the extended cure period should apply to scenarios when there is a failure to pay amounts due, because a failure to pay can "always be cured within a 60 day period if in no other way than by payment." Innomed Labs, LLC v. Alza Corp., 2001 WL 406211, at *2 (S.D.N.Y. Apr. 19, 2001). Indeed, Howard Wendy, Innomed's principal testified that he was prepared personally "to put up the amount of money necessary to cure the default" before the 60-day cure period expired in January 2001. Wendy Tr. at p. 134-136. Thus, Innomed cannot claim, as a practical matter, that it could not cure the material breach within the established 60 days.
In regard to the third issue, Innomed contends that there is a dispute about what Innomed needed to do in order to cure. Because Alza was allegedly charging Innomed more money than W-L, perhaps in contravention of the R-P Act, Innomed seems to suggests either that it was entitled to simply disregard the payments called for by the written agreement or that the dispute regarding the amount owed to Alza somehow excused it from making any sort of payment under the written agreement. First, merely because the written agreement may be held unlawfully discriminatory under the R-P Act does not give Innomed permission to ignore its obligations under the agreement. Bruce's Juices, Inc. v. American Can Co., 330 U.S. 743, 756-57 (1947) (finding no legislative support for defendant's claim that it was free from obligations under the contract because it may violate the R-P Act); see also Viacom Int'l Inc. v. Tandem Prods., Inc., 526 F.2d 593, 597-600 (2d Cir. 1975) (rejecting defendant's contention that it could avoid its obligations under the contract because it may violate antitrust laws). Second, I find Innomed has presented no colorable arguments on any other basis that would excuse its non-performance under the written agreement. Certainly, as shown by Wendy's transcript, Innomed was capable of paying at least some portion of the money putatively owed under the written agreement. I see no evidence to support Innomed's contention that either the standstill agreement tolled the 60-day cure period or that the extended cure period should apply to Innomed's failure to pay amounts due. Accordingly, I find that Alza was well within its rights, pursuant to § 12.2(c), to terminate the written agreement after it gave Innomed more than twice the amount of time enumerated by the written agreement to cure its breach. I am granting Alza summary judgment on this claim.
Claim 5
Innomed alleges that Alza breached the covenant of good faith and fair dealing that is implied in (1) the written agreement, by failing to give Innomed a reasonable time to cure and (2) the January 26, 2001 oral agreement, by engaging in actions that effectively destroyed Innomed's ability to complete the alleged assignment to AHP. First, I agree that Alza did not breach the covenant of good faith and fair dealing by failing to give Innomed sufficient time under the written agreement to cure. See supra, Point 4. Second, in view of the misrepresentation or mistake by by Wendy in regard to the purported deal with AHP, I find that Alza has a right to avoid the written agreement, see infra Claim 6, and thus Innomed cannot claim that Alza's alleged termination of the oral agreement constitutes a breach of the covenant of good faith and fair dealing. Accordingly, Alza's motion on this claim is granted.
Claim 6
Innomed alleges that Alza orally agreed on January 26, 2001 to allow Innomed to assign its distribution rights to AHP, and that Alza breached this oral agreement by terminating the written agreement before it provided Innomed with reasonable time to consummate the third-party assignment. Surprisingly, I find that there is a paucity of testimony presented by either side, which might inform me of the content of the oral agreement.
Irrespective of what Innomed and Alza orally agreed to, Alza notes that the oral agreement was induced by Wendy's representation to Alza near the end of January 2001 that there was a deal with AHP, whereby AHP would pay $8 million and a 5% royalty on gross royalty to Innomed. At his deposition, Wendy admitted that he conveyed his belief to Meyer at Alza some time after January 24, 2001 that there was such a deal, subject to AHP's due diligence. See Wendy Tr. at pp. 119-21. Gregory Bobycock, the assistant vice president who was responsible for licensing acquisition for AHP, however testified that AHP never agreed to the terms specified by Wendy and that it never had any deal to acquire Innomed's rights to distribute Alza's products. Bobycock Tr. at pp. 76-77, 82-84. In rebuttal, Innomed mentions that Marc Benson, Alza's senior counsel admitted in his affidavit that Innomed had conveyed only "hopes" of being able to assign its rights. The passage that Innomed relies on, however, pertained to a communication from December 6, 2000 by Innomed's counsel, Paul Corcoran. Benson Tr. at pp. 70-72. There appears to be undisputed evidence that Alza relied to its detriment on Wendy's representation that the assignment to AHP was imminent, which resulted in a series of extensions on the standstill agreement. Meyer Tr. at p. 96. Regardless of whether Wendy's belief was merely an innocent misrepresentation or mistake, in California, "a contract may be rescinded by a contracting party unilaterally if his consent to be bound by the agreement was induced either by a material misrepresentation though innocently made, or a mistake." 5 Cal. Civ. Code § 1689 (West 1985); Wood v. Kalbaugh, 114 Cal.Rptr. 673, 675-76 (Cal.Ct.App. 1974) (finding a statement, though arguably puffery, may render a contract subject to rescission if intended to convey an impression that is inaccurate in regard to basic assumption upon which the contract is made). Accordingly, Alza's motion on this claim by Innomed is granted.
Claim 7
Innomed alleges that Alza tortiously interfered with Innomed's prospective business advantage when it terminated the written agreement and the oral agreement before Innomed had the chance to assign its rights under the written agreement to a third-party. When asked about the basis for the tortious interference, Innomed's counsel responded that there "was a contract in place, [which Alza] wrongfully breached." Apr. 23, 2002 Tr. at pp. 27-28. As shown by the discussion above in connection with Claims 4 and 6, however, I found no genuine issues of material fact as to Alza's alleged breach of the written agreement or the oral agreement. Nonetheless, I find that Alza's alleged price discrimination may stand as a "wrongful act" that is actionable for purposes of a cause of action claiming tortious interference with economic relations. Penna v. Toyota Motor Sales, U.S.A., 902 P.2d 740, 751 (Cal. 1995) (noting that wrongful conduct element of tortious interference may include anticompetitive behavior in violation of state or federal law). Thus, I must deny Alza's motion for summary judgment on this point.
Claim 8
Alza asserts two counter-claims for breach of the written agreement. Namely, Innomed allegedly failed to provide Alza (1) $2,792,495.27 that is due under the written agreement, (2) any monthly, quarterly, or annual reports of its net Sales, and (3) 5% product payments on its sale of Alza products. Because Alza cannot demonstrate the absence of a genuine issue of material fact in regard to whether Innomed was fraudulently induced to accept the written agreement ( see supra Claim 3), Alza's motion for summary judgment on its counterclaims must fail. See Patrick Carter Associates, Inc. v. Rent, 781 F. Supp. 207 (S.D.N.Y. 1991) ("Resolution of the issue of intent on a motion for summary judgment is inappropriate here, as it involves assessing the credibility of the conflicting statements of the parties to the alleged fraud.").
III. CONCLUSION
For the foregoing reasons, Alza motion for summary judgment on its Claims 4, 5, 6 are GRANTED and Claims 1, 2, 3, 7, and 8 are DENIED.