- 98 Civ. 861, 99 Civ. 3607
- U.S District Court, S.D., New York
- Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories, Inc., et al.
CONTRACT FORMATION AND INTERPRETATION - LIBERAL APPROACH BY CISG IN APPLICATION OF GENERAL PRINCIPLE OF GOOD FAITH IN INTERNATIONAL TRADE (ART.7 (1))
USAGES AND PRACTICES - INDUSTRY PRACTICE AUTROMATICALLY INCORPORATED INTO ANY AGREEMENT UNLESS EXPLICITLY EXCLUDED (ART. 9)
CONTRACT FOR FUTURE SUPPLY OF "COMMERCIAL QUANTITIES" OF GOODS -SUFFICIENTLY DEFINITE (ART. 14 CISG)
ACCEPTANCE - PROVISION OF REFERENCE LETTER TO GOVERNMENT AGENCY MAY CONSTITUTE ASSENT TO CONTRACT (ART. 18(3) CISG)
IRREVOCABLE OFFER ACCORDING TO ART. 16(2)(B)- PROMISSORY ESTOPPEL DOCTRINE UNDER US LAW - DIFFERENCES
CLAIM BASED ON PROMISSORY ESTOPPEL DOCTRINE UNDER US LAW TO DENY EXISTENCE OF FIRM OFFER - PREEMPTED
SCOPE OF CISG - MATTERS EXCLUDED - CONSIDERATION - QUESTION OF VALIDITY TO BE DECIDED UNDER DOMESTIC LAW (ART. 4(A) CISG)
SCOPE OF CISG - TORT CLAIMS GENERALLY NOT PREEMPTED UNDER CONVENTION
Canadian Defendant manufactured a chemical ingredient (clathrate) for use in the production of an anticoagulant medication (warfarin sodium). In 1994 Defendant supplied Plaintiff, a U.S. company, with samples of the ingredient and confirmed that it would support Plaintiff's application for approval by the Food and Drug Administration (FDA) as the supplier of the ingredient for the manufacture of the drug. In 1995, Defendant issued a letter to the FDA confirming it would serve as a supplier of clathrate to the Plaintiff. Later in 1995, Defendant executed a confidential contract for the exclusive supply of commercial quantities of clathrate to a third company that would be violated if Defendant were to proceed with sales of commercial quantities to Plaintiff. When Plaintiff received approval for the manufacture of the drug in 1997, it submitted a purchase order to Defendant for the purchase of commercial quantities of clathrate, which was refused by Defendant.
Plaintiff claims that, under CISG, it has a contract with the Defendant for the sale of commercial quantities of clathrate and that Defendant breached that contract by refusing to supply the ingredient after the drug was approved. Plaintiff argues that according to industry practice supplying sufficient quantities of clathrate to support an FDA application creates a contract for future supply. Plaintiff also claims that Defendant should be liable under the doctrine of promissory estoppel under the law of the State of New York. Plaintiff contends that a claim of promissory estoppel based on the otherwise applicable domestic law is not preempted by and does not conflict with CISG.
As to the applicable law, the Court held that the claim should be decided in accordance with CISG because the alleged sales contract involves international trade in goods.
As to the merits of the case, the Court held that in accordance with the general principle of good faith in international trade stated in Art. 7(1) CISG the Convention embodied a liberal approach to contract formation and interpretation and a strong preference for enforcing obligations and representations customarily relied upon by others in the industry. Indeed, as stated in Art. 9 CISG, usages and practices of the industry are automatically incorporated into any agreement, unless explicitly excluded. Thus the Court agreed with Plaintiff's argument that industry practice should be analyzed at trial in order to determine whether a contract existed.
The Court analyzed the elements of offer, acceptance, validity, and performance relevant to the question of contract formation under CISG. The Court found that the contract for future supply of “commercial quantities” of goods was sufficiently definite under Art. 14 of CISG. On the topic of acceptance, the Court found that under Art. 18(3) the provision of the reference letter to the FDA could qualify as an act indicating assent to a contract. Whether Defendant's acts actually indicated assent to a contract would be analyzed at trial on the basis of industry custom.
The Court analyzed Defendant's argument that consideration was lacking as a question of validity. The Court found that validity of the contract, pursuant to Art. 4(a) is to be decided under domestic law determined by the application of traditional conflict of laws analysis. On the basis of the Court's conflict of laws doctrine, the Court found that New Jersey law should apply. Applying New Jersey law, the Court found that consideration was sufficient on the basis of the alleged facts. The Court also rejected Defendant's argument that, in any event, Plaintiff failed to perform under the alleged contract by failing to give commercially reasonable notice for its purchase order. The Court stated that under Art. 60(a) of CISG failure to give commercially reasonable notice by Plaintiff does not entitle Defendant to terminate the contract.
As to state law contract claims, the Court held that CISG preempted such claims, as the availability of independent state contract law causes of action would frustrate the goals of uniformity and certainty embraced by the CISG. Parties would be subjected to different states’ laws and the very same ambiguities regarding international contracts that the CISG was designed to avoid. As a consequence, parties to international contracts would be unable to predict the applicable law, and the fundamental purpose of the CISG
would be undermined.
Concerning the possibility of a claim based on the U.S. doctrine of promissory estoppel, the Court first of all noted that such doctrine differed from Art. 16 (2)(b) of CISG, in so far that the latter provision did not expressly require that the offeree’s reliance must have been foreseeable to the offeror and does not expressly require that the offeree’s reliance be detrimental. Consequently a claim based on the doctrine of promissory estoppel in order to deny the existence of a firm offer was preempted by the Convention.
As to tort claims, the Court held that they were in general not preempted by CISG, but a tort claim which is actually a contract claim, or that bridges the gap between contract and tort law, may be preempted.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Case Nos. 98 Civ. 861 (RWS), 99 Civ. 3607 (RWS)
GENEVA PHARMACEUTICALS TECHNOLOGY CORP.,
(as successor in interest to INVAMED, INC.), Plaintiff,
- against -
BARR LABORATORIES, INC., BRANTFORD CHEMICALS INC., BERNARD C. SHERMAN,
APOTEX HOLDINGS INC., APOTEX INC. and SHERMAN DELAWARE, INC.,
- against -
BARR LABORATORIES, INC., BRANTFORD CHEMICALS INC., BERNARD C. SHERMAN,
APOTEX HOLDINGS INC., APOTEX INC. and SHERMAN DELAWARE, INC.,
Defendants Barr Laboratories, Inc.; Brantford Chemicals, Inc.; Bernard C. Sherman; Apotex Holdings, Inc.; Apotex Inc.; and Sherman Delaware Inc. have moved for summary judgment to dismiss the complaint of plaintiffs Geneva Pharmaceuticals Technology Corp. (as successor in interest to Invamed, Inc.) and Apothecon Inc. alleging violations of the federal antitrust laws, the New York antitrust laws, and numerous related state law claims.
For the foregoing reasons, that motion is granted in part and denied in part.
A. The Plaintiffs
Plaintiff Geneva Pharmaceuticals Technology Corp. (“GPTC”) is a New Jersey corporation with its principal place of business in New Jersey. GPTC is in the business of developing, manufacturing and marketing generic pharmaceuticals. GPTC is a wholly owned subsidiary of Geneva Pharmaceuticals, Inc. (“Geneva”), which itself is a member of the generics sector of Novartis AG, the Austrian pharmaceutical company. Until its purchase by Geneva in December 1999, GPTC was known as Invamed, Inc. (“Invamed”).
Plaintiff Apothecon, Inc. (“Apothecon”) is a Delaware corporation with its principal place of business in New Jersey. Apothecon is a wholly-owned subsidiary of the Bristol-Myers Squibb Company (“BMS”), one of the world’s leading pharmaceutical companies, and is engaged in the business of developing, manufacturing and marketing generic pharmaceuticals. Apothecon’s approximate annual sales are $600 million.
C. The Defendants
Defendant Barr Laboratories, Inc. (“Barr”) is a New York corporation with its principal place of business in New York. Barr is engaged in the business of developing, manufacturing and marketing generic pharmaceuticals. Defendant Brantford Chemicals, Inc. (“Brantford”) is a Canadian corporation with its principal place of business in Brantford, Ontario. Brantford is engaged in the business of manufacturing and marketing active pharmaceutical ingredients (“API”), chemical compounds used in the manufacture of pharmaceuticals. Brantford was known as ACIC (Canada) (“ACIC”)
Defendant Apotex Inc. (“Apotex”) is a Canadian corporation with its principal place of business in Weston, Ontario. Apotex is engaged in the business of researching, manufacturing and marketing both generic and branded pharmaceuticals. Apotex does not currently manufacture or market pharmaceuticals for sale in the United States.
Defendant Apotex Holdings, Inc. (“Apotex Holdings”) is a Canadian holding company with its principal place of business in Weston, Ontario.
Defendant Dr. Bernard C. Sherman (“Sherman”) is an individual residing in Canada. Sherman founded Apotex in 1974 and is the chairman of its board of directors. Sherman is also a member of the board of directors of Barr1 and the president of Apotex Holdings.
Defendant Sherman Delaware, Inc. (“Sherman Delaware”) is a Delaware holding company with its principal place of business in Delaware.
Invamed’s eleven causes of action are as follows. Count I and II allege monopolization and attempted monopolization against Barr and ACIC/Brantford in both the relevant warfarin sodium market and the market for clathrate, the bulk material used to make the drug. Counts III and IV allege conspiracy to monopolize against Barr and ACIC/Brantford. Count V alleges against all defendants that the acquisition of ACIC/Brantford by Apotex and, through Apotex, by Apotex Holdings, Sherman, Sherman Delaware, and Barr, violates Section 7 of the Clayton Act. Counts VI and VII allege breach of contract and promissory estoppel against ACIC/Brantford. Counts VIII and IX allege tortuous interference with contract and with business relations against Barr. Counts X and XI allege negligence and negligent misrepresentation against ACIC/Brantford.
Apothecon filed a separate suit on May 19, 1999, and the cases were consolidated on July 29, 1999. Apothecon included the same causes of action discussed above as well as a few additional ones. Against Barr and ACIC Brantford, it alleged violation of the Donnelly Act, New York’s antitrust law (Count VI) and fraud (Count VIII). Further, it alleged breach of fiduciary obligation (Count XIV) against ACIC/Brantford and unfair competition against Barr (Count XV).
The defendants moved for summary judgment on August 6, 2001. They filed a joint motion on plaintiffs’ antitrust claims, and ACIC/Brantford and Barr each submitted a separate motion addressing the state law claims against them. Oral argument was heard on February 13, 2002, and submissions were considered fully complete at that time.
The following facts are taken from the parties’ Rule 56.1 statements and, as required, are construed in the light most favorable to the non-movant, as applicable. …
A. Warfarin Sodium
Warfarin sodium is an oral anti-coagulant medication that, in tablet form, is prescribed for the treatment of venous thrombosis and pulmonary embolism, or blood clots, particularly in patients over the age of 60. In its simplest terms, warfarin sodium thins the blood, preventing harmful clots that can cause strokes and heart attacks.
A pharmaceutical product that has a narrow range between its therapeutic dose and its toxic dose is considered a narrow therapeutic index (“NTI”) product. Warfarin sodium is an NTI drug. Patients for whom warfarin sodium is indicated are often high-risk patients for whom changes in their medication are viewed with great concern. Warfarin sodium possesses potential side effects that include increased bleeding. Patients taking warfarin sodium are supposed to be monitored in order to ensure that the appropriate amount of the drug is present. The active pharmaceutical ingredient (“API”) for warfarin sodium is known as “bulk” warfarin sodium or warfarin sodium clathrate (“clathrate”). Clathrate and its related compounds are also used in one form of rat poison.
It is disputed whether the process of making clathrate is simple or complex. Plaintiffs claim that it can take a supplier several years to develop a procedure for the production of clathrate. Clathrate has a shelf life of 22 months.
B. Generic Pharmaceutical Drugs
To develop any generic drug, a pharmaceutical company must first procure the raw materials necessary to make the drug, including its API. Numerous companies manufacture APIs for sale to the pharmaceutical industry. In the developmental stage, pharmaceutical companies typically obtain small quantities of API (generally less than 1 kg) and technical product information from API suppliers for initial analysis and testing. A sample is typically a small quantity measured in grams and is usually provided free of charge.
Following evaluation of the initial samples, pharmaceutical companies typically obtain developmental or “R&D” quantities of the API to begin dosage form development and initial formulation analysis. An R&D quantity is smaller in size (e.g., 1-25 kg) than larger “commercial” quantities (e.g., more than 50 kg) that are later used to put the finished-dosage product into commercial production. R&D quantities and commercial quantities frequently differ in price.
Generic drug manufacturers obtain FDA [Food and Drug Administration] approval for generic forms of innovator or branded drugs by filing an Abbreviated New Drug Application (“ANDA”), which includes information demonstrating that the subject drug is bioequivalent to the branded drug. An ANDA must contain information to show that the generic product has the same active ingredient, conditions of use, route of administration, dosage form, strength, and labeling as the branded drug.
The FDA requires pharmaceutical companies to identify in the ANDA the API supplier or suppliers they intend to use in manufacturing the product. Plaintiffs claim that applicants tend to specify [*15] only one supplier of its pharmaceutical ingredients so as to minimize the time taken by the FDA for its review and approval.
API suppliers submit Drug Master Files (“DMFs”) to the FDA, which summarize the equipment, manufacturing steps, raw materials and laboratory controls used to prepare the particular API. In a DMF “reference letter,” the API supplier commits to the FDA that it will manufacture its material as set forth in its DMF. In the letter (which is sent by the supplier to the FDA), the supplier authorizes the FDA to refer to its DMF in connection with an ANDA filed by the drug manufacturer. The FDA reviews a supplier’s DMF in conjunction with its review of the pending ANDA. If both are in order, the drug will be approved for marketing.
Because of the need for approval to change suppliers after approval, plaintiffs allege that it is a widespread practice throughout the industry that a supplier providing a reference letter commits itself to providing commercial quantities of the raw material. Plaintiffs also allege that throughout the 1990’s it was also practice to rely on informal oral arrangements, rather than written supply contracts. For example, more than 90% of the bulk pharmaceutical ingredients purchased by Barr, and the majority of bulk pharmaceuticals sold by ACIC/Brantford, do not involve written supply agreements.
1. The Supply Agreement
By letter agreement dated September 19, 1995 (the “Supply Agreement”), Barr and ACIC contracted for ACIC to supply Barr with clathrate. The Agreement obligated Barr to purchase 900 kilograms of clathrate from ACIC for $1.8 million regardless of whether it could use the product or not. The Supply Agreement was negotiated as an arm’s length transaction, and at the time it was signed, Barr’s President, Bruce Downey, was unaware of any relationship between ACIC/Brantford and Apotex or Sherman.
The Supply Agreement provided that ACIC would exclusively supply Barr with commercial quantities of clathrate in the U.S. until another manufacturer began selling generic warfarin sodium. Barr agreed to purchase 100% of its commercial requirements from ACIC during the exclusivity period.
As to delivery requirements, the Supply Agreement provided that “ACIC will supply the [clathrate] in quantities requested by Barr, provided that Barr provides ACIC with lead times consistent with its normal operations.”
Because the Supply Agreement applied only to commercial quantities of clathrate, it did not prohibit ACIC from selling sample or developmental quantities to other generic manufacturers seeking FDA approval of their products. In addition, because the Supply Agreement applied only to clathrate manufactured in ACIC’s facilities, it did not prevent ACIC from brokering clathrate manufactured by other suppliers. The Supply Agreement also permitted ACIC to supply commercial quantities to DuPont. Finally, the Supply Agreement permitted Barr, at its option, to purchase sufficient quantities of clathrate from another supplier in order to qualify that supplier as an alternate source.
2. The Confidentiality Agreement
On October 5, 1995, approximately seven days after the Supply Agreement was signed, Barr and ACIC executed a Confidentiality Agreement restricting disclosure of “valuable, proprietary, technical, commercial and other confidential information” for five years. This agreement precluded ACIC/Brantford from disclosing to Invamed or any other entity the existence of the exclusive supply contract. It was also ACIC’s practice to keep all of its contracts and commercial transactions with its customers confidential.
Soon after these agreements were signed, ACIC removed clathrate from its internal products list, and Calenti advised his sales representatives to stop promoting it to new clients. Plaintiffs claim that if they had known about the exclusive arrangement, they could have sought another supplier in 1995 and entered the market in a timely fashion.
III. Invamed's Attempts To Secure A Supply Of Clathrate
Between 1993 and 1996, Invamed explored the possibility of obtaining clathrate from a number of different sources. Invamed’s vice president, Dr. Mahendra Patel (“Patel”), was responsible for the company’s research and development efforts for new drugs, including warfarin sodium. Patel co-founded Invamed in 1983 after several years in the pharmaceutical industry, including six years at BMS. It was Patel’s responsibility to identify and select potential API suppliers. Plaintiffs claim that Invamed concluded that ACIC/Brantford was the only viable supplier.
V. Invamed Files Its Warfarin Sodium ANDA
On June 14, 1996, Invamed submitted its ANDA for warfarin sodium to the FDA. Invamed listed ACIC as its source for raw material and included the DMF reference letter ACIC had sent in April 1995. Plaintiffs relied on the alleged repeated representations by ACIC/Brantford that it would supply commercial quantities of clathrate to Invamed and the purported industry practice that it would do so. …
On June 28, 1996, Invamed and Apothecon entered into an exclusive five-year Development and Supply Agreement in connection with the manufacture and marketing of a number of generic pharmaceuticals, including warfarin sodium. In that agreement, Invamed contracted to manufacture warfarin sodium for Apothecon, which Apothecon would then market to its customers. Invamed received $2.1 million up front and was to be paid a transfer price for the tablets it made for Apothecon plus a percentage of the profits. The timetable attached to the agreement targeted June 1997 as the date for FDA approval of Invamed’s ANDA for warfarin sodium, and listed August 1995 as the date the “drug substance vendor” had been “contracted.” As of August 1995, Invamed had executed a written contract with only Banyan, which did not have the capability of producing clathrate at the time.
VII. Invamed’s ANDA Is Approved And It Submits A Purchase Order To Brantford For 750 kg Of Clathrate
A. Invamed Submits a Purchase Order To Brantford
On September 30, 1997, Invamed received approval from the FDA for its warfarin sodium ANDA. The next day, October 1, 1997, Invamed submitted a $1,875,000 purchase order to ACIC Fine Chemicals for 750 kilograms of clathrate in three shipments of 250 kilograms each, at a price of $2,500 per kilogram. The purchase order requested that the first shipment be delivered “as soon as possible (rush order)” and that the second and third shipments be delivered on January 1, 1998 and April 1, 1998, respectively.
Invamed’s purchase order was accompanied by a cover letter to Getrajdman in which Invamed informed Getrajdman that it had received FDA approval to manufacture and distribute warfarin sodium tablets. The letter requested that ACIC Fine Chemicals, Inc. supply Invamed with clathrate pursuant to the purchase order enclosed and made reference to an “agreement” for the supply of clathrate.
No one at Invamed advised Getrajdman in advance of the purchase order. Prior to submission of the purchase order, Invamed made no inquiries regarding Brantford’s availability or capacity to manufacture clathrate, its campaign schedule,13 or its price. Invamed also did not keep ACIC informed of Invamed’s anticipated launch date, commercial requirements or delivery forecasts. Before it submitted its purchase order, Invamed did not provide ACIC with a projection of its commercial or launch quantities, and did not discuss with Brantford the price, quantity, annual requirements, payment terms, delivery schedule, packaging or labeling requirements, or in any other way determine whether the terms were acceptable to Brantford.
There were no discussions at any time between Invamed and ACIC regarding a guarantee by Invamed to purchase clathrate from ACIC or Brantford. Patel never asked Getrajdman or Calenti about the possibility of entering a written supply contract, and Invamed never sought or discussed an exclusive with ACIC or Brantford.
B. Brantford Rejects Invamed’s Purchase Order
In early October 1997, James Berhalter, Brantford’s new director of finance and administration (“Berhalter”) received the order. Plaintiffs claim that upon receipt of the letter ACIC/Brantford immediately advised Barr that Invamed was seeking to purchase clathrate.
On October 16, 1997, Patel sent letters to Calenti and Berhalter threatening legal action against ACIC Fine Chemicals, Inc. and Brantford if Invamed did not receive clathrate from ACIC by October 20, 1997. Berhalter was wary of dealing with Invamed because of Brantford’s earlier problems with Invamed. After conferring with the company’s president, Dr. Murthy, Berhalter decided to reject Invamed’s purchase order and sent a letter to Invamed to that effect on October 20, 1997. ACIC/Brantford thereafter refused to accept Invamed’s orders, and plaintiffs learned for the first time that ACIC/Brantford would not supply clathrate to Invamed as a result of its agreement with Barr.
Plaintiffs claim that ACIC/Brantford had the capacity to manufacture clathrate for plaintiffs and would have filled plaintiffs’ order if not for its agreement with Barr. ACIC/Brantford had planned the production of 1100 kilograms of clathrate in the fall of 1997, even though Barr had only requested 900 kilograms. In fact, it was unable to produce 1100 kilograms because it did not obtain timely delivery of raw material.
This Court has jurisdiction pursuant to 28 U.S.C. § 1337 in that it involves a federal question under the antitrust laws of the United States, particularly the Sherman Antitrust Act, 15 U.S.C. § 1 et seq. and sections 4, 7 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 18, & 26 and pursuant to this Court’s supplemental jurisdiction under 28 U.S.C. § 1367(a) and Rule 18(a) of the Federal Rules of Civil Procedure.
VI. Invamed's State Law Claims Against ACIC/Brantford
Invamed alleges claims against ACIC/Brantford based on breach of contract, promissory estoppel, negligence and negligent misrepresentation. Each is addressed in turn.
A. Breach of Contract
Invamed alleges that an “implied-in-fact contract” was created for Brantford to supply Invamed with clathrate under the Convention for the International Sale of Goods (“CISG”), 15 U.S.C. App. 52,26 and that ACIC/Brantford breached the contract by failing to supply clathrate in response to a specific purchase order. Invamed Compl. Count VI. Invamed alleges that an implied-in-fact contract existed because it (1) purchased research and development quantities of clathrate from ACIC/Brantford (at $2,500 per kilogram); (2) invested a substantial amount of money in developing its warfarin sodium product based on ACIC/Brantford’s raw material; and (3) relied on the reference letter provided by ACIC/Brantford in connection with the ANDA for warfarin sodium that it submitted to the FDA.
Note 26 Because the alleged sales contract involves international trade, Invamed’s claims must be analyzed according to the provisions of the United Nations Convention on the International Sale of Goods (“CISG”). 15 U.S.C. App. 2. The CISG is an international treaty that embodies a uniform set of rules for the creation of a contract of sale and the related obligations of parties to international sales transactions. Id. To the extent that the CISG reserves issues for the application of domestic law, New Jersey law applies, as discussed infra.
The CISG, intended to ensure the observance of good faith in international trade, CISG Art. 7(1), embodies a liberal approach to contract formation and interpretation, and a strong preference for enforcing obligations and representations customarily relied upon by others in the industry. E.g., MCC-Marble Ceramic Center, Inc. v. Ceramic Nuova D’Agostino, S.p.A., 144 F.3d 1384, 1387 (11th Cir. 1998) (CISG abandons parol evidence rule); Delchi Carrier S.p.A. v. Rotorex Corp., 71 F.2d 1024, 1028 (2d Cir. 1995) (UCC case law is not per se applicable to cases governed by the CISG). A contract may be proven by a document, oral representations, conduct, or some combination of the three. CISG Art. 11. The usages and practices of the parties or the industry are automatically incorporated into any agreement governed by the Convention, unless expressly excluded by the parties. CISG Art. 9.
While embodying a liberal approach, the CISG does not vitiate the need to prove concepts familiar to the common law, including offer, acceptance, validity and performance. ACIC/Brantford challenges all of these elements.
Article 14 of the CISG states two requirements for the creation of an offer: it must (1) be “sufficiently definite,” meaning that it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and price; and (2) indicate the intention of the offeror to be bound in case of acceptance. CISG Art. 14(1).
Invamed claims that a well-established custom in the industry was to rely on implied, unwritten supply commitments.27 Defendant Sherman affirmed under oath that “the predominant practice is for these commitments not to be embodied in formal legal documents.” Further, he stated, “When a supplier provides access to a manufacturer to its Drug Master File and the manufacturer relies upon such access as the basis of its New Drug Submission, it is the custom and the understanding of both the manufacturer and the supplier that, upon the issuance of the Notice of Compliance, the supplier will supply the product.”
Note 27 Defendants point out that Invamed acted inconsistently with the alleged “industry custom,” and Invamed concedes that at least in 1995 it did not adhere to this “industry custom” in dealing with
ACIC and Invamed’s other suppliers. Dave testified that Invamed’s standard practice in dealing with ACIC and most suppliers was to discuss Invamed’s interest in placing an order for a specific quantity and then to reach an agreement on terms (price, quantity, delivery dates, payment terms) before submitting a purchase order. This failure to conform to what they allege is industry custom is
insufficient to disprove, as a matter of law, that there was not an industry custom to this effect in 1997 and that Invamed relied on it in 1997. It remains an issue of fact as to whether Invamed’s general behavior in 1995 carried over to 1997, when it submitted a purchase order without contacting ACIC/Brantford and without first agreeing to terms.
The alleged contract clearly identifies the goods at issue, clathrate. Invamed alleges that the parties had already agreed to a price and to the production of “commercial quantities” of clathrate and admits no discussion took place regarding a delivery schedule.28 However, accepting as true Invamed’s allegations of an industry custom, the contract was sufficiently definite. Further, the alleged contract indicated Invamed’s intention to be bound; it would only send in a purchase order if it in fact needed a commercial quantity of clathrate.
Note 28 Defendants suggest that the offer fails because it did not specify a delivery date. Depending on the circumstances, additional terms such as delivery dates may be required for an offer. CISG, Commentary 105-06 (Schlecteriem, ed.) (2d ed. 1998) (hereinafter “Commentary”). Defendants state that Invamed discussed delivery dates with its API suppliers as a matter of practice, and that delivery dates are important to the supplier because it needs to plan its production schedule to meet customer requirements. Invamed disputes that it discussed delivery dates with its API suppliers as a matter of practice. Thus, this issue cannot be decided as a matter of law.
Relying on the provision of the CISG addressing oral offers, defendants argue that the offer had to be accepted immediately. However Invamed is relying on a contract established by the conduct of the parties. In such a situation CISG Art. 18(3) applies. It states that “the offeree may indicate assent by performing an act, such as one relating to the dispatch of goods or payment of the price,” [and] “the acceptance is effective at the moment the act is performed, provided the act is performed” either within the time fixed by the offeror, if no such time is fixed, within a reasonable time. CISG 18(3). Invamed alleges that it was industry custom that the provision of a reference letter indicates acceptance. That defendants dispute this material fact only argues against summary judgment being granted.
Under the CISG, the validity of an alleged contract is decided under domestic law. CISG Art. 4(a); Commentary at 43. By validity, CISG refers to any issue by which the “domestic law would render the contract void, voidable, or unenforceable.” H.Hartnell, Rousing the Sleeping Dog: The Validity Exception to the Convention on Contracts for the International Sale of Goods, 18 Yale J. of Int’l Law 1, 45 (1993). Defendants challenge the requirement of consideration.
a. Choice of Law
To determine applicable domestic law, the court “must engage in a traditional conflict of laws analysis to determine what substantive law governs.” Hartnell, supra, at 14. When construing international treaties, the forum’s choice of law rules apply. E.g., Pescatore v. Pan Am World Airways, Inc., 97 F.3d 1, 12-13 (2d Cir. 1996) (determining that New York, as opposed to federal, choice of law rules apply in action brought under Warsaw Convention).
In contract cases, New York courts employ a “center of gravity” inquiry to determine the jurisdiction with the most significant relationship to the dispute. Lazard Freres & Co. v. Protective Life Ins., 108 F.3d 1531, 1539 (2d Cir. 1997); Constitution Reins. Corp. v. Stonewall Ins. Co., 980 F. Supp. 124, 126 (S.D.N.Y. 1997). This approach looks to the place of contracting, the places of negotiation and performance, the location of the subject matter of the contract, and the domicile or place of business of the contracting parties. Id.
Invamed is located in New Jersey. Getrajdman, the ACIC sales representative who dealt with Invamed, had his office in New Jersey and made sales calls on Invamed in New Jersey. Invamed contacted Getrajdman and sent its purchase orders to Getrajdman’s New Jersey office. Invamed asked for delivery of the clathrate in New Jersey and intended to manufacture sodium warfarin in New Jersey. The only other potentially applicable law besides that of New Jersey is Canadian law. ACIC/Brantford had its manufacturing facility in Canada, and sent its shipments from Canada. New Jersey law should apply as it has the greater contacts with the subject matter of the case. It was the place of contracting, negotiation and performance and is the plaintiff’s domicile.
b. Consideration under New Jersey law
“The essential requirement of consideration is a bargained-for exchange of promises or performance that may consist of an act, or forbearance, or the creation, modification, or destruction of a legal relation.” Fregara v. Jet Aviation Business Jets, 764 F. Supp. 940, 948 (D.N.J. 1991) (citing Restatement (Second) Contracts § 71 (1981)). The consideration exchanged need not be of equal value or like manner. Shebar v. Sanyo Business Systems Corp., 111 N.J. 276, 289, 544 A.2d 377, 384 (N.J. 1988) (“If the consideration requirement is met, there is no additional requirement of gain or benefit to the promisor, loss or detriment to the promisee, equivalence in the values exchanged, or mutuality of obligation.”); see also Restatement (Second) Contracts § 79 (consideration need not be equivalent) and § 80 (multiple promises from one side may be exchanged for one promise from the other).
Invamed states that the consideration for the implied-infact contract was primarily its forbearance, claiming it relied on ACIC/Brantford’s reference letter in connection with its submission to the FDA. Forbearance must be part of a bargained-for exchange to qualify as consideration. Restatement (Second) of Contracts § 71 (1981); Shebar, 544 A.2d at 383 (N.J. 1988); Swider v. Ha-Lo Indus., Inc., 134 F. Supp.2d 607, 617 (D.N.J. 2001). Further it must induce the consideration of the other. Id.; Shebar, 544 A.2d at 384 (employee agreed to give up position “in exchange for” promise of a new position).
Defendants claim that there is no evidence that ACIC/Brantford made a promise to supply clathrate that induced reliance by Invamed and, reciprocally, that Invamed’s reliance induced ACIC/Brantford to promise to supply. Invamed contends that, as a practical matter, its reliance locked it into purchasing raw materials from ACIC/Brantford at least until another reliable source of clathrate could be located and approved by the FDA for use by Invamed.29 ACIC/Brantford was thus guaranteed a customer of its clathrate. This is sufficient to allege consideration for the purposes of this summary judgment motion.
29 Although this Court decided earlier that Invamed was not “locked in” as a matter of antitrust law, it is nonetheless arguable that the resulting delay and cost in changing suppliers practically meant that Invamed would buy from ACIC/Brantford even if it were not required to do so. This is sufficient to establish consideration, even though it is not sufficient as a matter of law to present a Kodak lock-in situation.
Defendants challenge whether Invamed met the requirements under CISG Art. 60(a) in terms of its performance. That provision requires that a buyer of goods perform “all of the acts which could reasonably be expected of [it] in order to enable the seller to make delivery.” CISG Art. 60(a). Further, preparatory measures “such as the provisions of plans or data, are also part of the cooperation required of the buyer since ultimately they serve to enable the seller to make delivery.” Commentary at 478.
Patel testified that one of the obligations under the implied-in-fact contract was that Invamed was required to give ACIC/Brantford commercially reasonable notice. He also testified that Invamed did not give ACIC/Brantford commercially reasonable notice.
Invamed contends that short notice is consistent with industry practice, and that short notice would not affect ACIC/Brantford’s ability to supply clathrate. However, Invamed cannot rely on industry custom to trump an agreed-upon obligation. Milonas v. Public Employment Relations Bd., 648 N.Y.S.2d 779, 785 (App. Div. 1996) (admissible only if agreement is ambiguous); Western Union Tel. Co. v. American Commons Ass’n, 299 N.Y. 177, 184 (1949) (“Evidence of custom is not permitted for the purpose of contradicting the agreements which the parties have made.”).
Invamed is persuasive, however, in arguing that even if commercially reasonable notice were required, ACIC/Brantford could “not refuse to sell the material altogether and withdraw Invamed’s [reference letter].” The alleged contract at issue is not the October 1997 purchase order. Instead, it is an implied-in-fact contract to supply clathrate when given commercially reasonable notice or to inform Invamed that it will not be able to supply in a commercially reasonable time. Under this contract, ACIC/Brantford was not required to supply clathrate in October 1997 because Invamed failed to give it commercially reasonable notice. However, in the absence of terms to the contrary, this failure to give commercially reasonable notice does not amount to a breach of the implied-in-fact supply contract. Thus, Invamed did not breach the agreement by failing to give commercially reasonable notice and ACIC/Brantford did not breach by refusing to fulfill the order. Therefore, when ACIC/Brantford refused to supply any clathrate to Invamed in the future, it did breach the implied-in-fact contract.
The motion for summary judgment is denied on this claim.
B. CISG’s Preemption of Equitable and Tort Claims
The issue of whether or not the CISG preempts state law is a matter of first impression in this Circuit.
In the case of federal statutes, “the question of whether a certain action is preempted by federal law is one of congressional intent. The purpose of Congress is the ultimate touchstone.” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45(1987) (internal quotations and citations omitted). Confronting the question of preemption by a treaty, the Court focuses on the intent of the treaty’s contracting parties. Husmann v. Trans World Airlines, Inc., 169 F.3d 1151, 1153 (8th Cir. 1999) (finding Warsaw Convention preempts state law personal injury claim); Jack v. Trans World Airlines, Inc., 820 F. Supp. 1218, 1220 (N.D. Cal. 1993) (finding removal proper because Warsaw Convention preempts state law causes of action).
The intent of the contracting parties to the CISG can be discerned from the introductory text, which states that “the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade.” 15 U.S.C. App. at 53. The CISG further recognizes the importance of “the development of international trade on the basis of equality and mutual benefit.” Id. These objectives are reiterated in the President’s Letter of Transmittal of the CISG to the Senate as well as the Secretary of State’s Letter of Submittal of the CISG to the President. Id. At 70-72. The then-Secretary of State, George P. Shultz, noted:
Sales transactions that cross international boundaries are subject to legal uncertainty -- doubt as to which legal system will apply and the difficulty of coping with unfamiliar foreign law. The sales contract may specify which law will apply, but our sellers and buyers cannot expect that foreign trading partners will always agree on the applicability of United States law. ... The Convention’s approach provides an effective solution for this difficult problem. When a contract for an international sale of goods does not make clear what rule of law applies, the Convention provides uniform rules to govern the questions that arise in making and performance of the contract. Id. at 71.
This Court concurs that “the expressly stated goal of developing uniform international contract law to promote international trade indicates the intent of the parties to the treaty to have the treaty preempt state law causes of action.” Asante Tech., Inc. v. PMC -Sierra, Inc., 164 F.Supp.2d 1142, 1151 (N.D. Cal. 2001).
In Asante, the court held in a case of first impression that state contract causes of action are pre-empted, as the availability of independent state contract law causes of action would frustrate the goals of uniformity and certainty embraced by the CISG. Allowing such avenues for potential liability would subject contracting parties to different states’ laws and the very same ambiguities regarding international contracts that the CISG was designed to avoid. As a consequence, parties to international contracts would be unable to predict the applicable law, and the fundamental purpose of the CISG
would be undermined.
Id. at 1151; see also William S. Dodge, Teaching the CISG in Contracts, 50 J. Legal Educ. 72, 72 (March 2000) (“As a treaty the CISG is federal law, which preempts state common law and the UCC.”); David Frisch, Commercial Common Law, The United Nations Convention on the International Sale of Goods, and the Inertia of Habit, 74 Tul. L. Rev. 495, 503-04 (1999) (“Since the CISG has the preemptive force of federal law, it will preempt article 2 when applicable.”).
Although the plaintiff in Asante brought claims sounding in tort and contract, the court focused only on the state contract claims, recognizing the limited scope of CISG’s preemption. 164 F. Supp.2d at 1151-52; see also Viva Vino Import Corp. v. Farnese Vini S.r.l., 2000 WL 1224903, at *1 (E.D. Pa. Aug. 29, 2000); Peter Schlechtriem, The Borderland of Tort and Contract: Opening a New Frontier?, 21 Cornell Int’l L.J. 467, 473-74 (1988) (CISG does not preempt claims for “misrepresentation, fraud, betrayal and intentional harm to economic interests”).
Invamed’s other claims include promissory estoppel, negligence, negligent misrepresentation and tortious interference. The CISG clearly does not preempt the claims sounding in tort. Viva Vino Import Corp. v. Farnese Vini S.r.l, 2000 WL 1224903 (E.D. Pa. Aug. 29, 2000) (“The CISG does not apply to tort claims.”).30
Note 30 Just because a party labels a cause of action a “tort” does not mean that it is automatically not pre-empted by the CISG. A tort that is in actuality a contract claim, or that bridges the gap between contract and tort law may very well be pre-empted. Schlechtriem, supra, at 474.
The question of whether it preempts a separate claim for promissory estoppel presents a closer question. Breach of contract and promissory estoppel “are two sides of the same coin, and that coin is a cause of action for breach of contract.” Qatar Nat’l Navigation & Transp. Co. v. Citibank N.A., No. 89 Civ. 464, 1998 WL 516117, at *7 (S.D.N.Y. Aug. 20, 1998) (“Promissory estoppel is an equitable remedy, the effect of which . . . is to estop [the defendant] from denying the existence of the contract pleaded.”); Pitak v. Bell Atl. Network Servs. Inc., 928 F. Supp. 1354, 1367 (D.N.J. 1996) (“Promissory estoppel is a cause of action closely related to breach of contract.”); Leonardis v. Burns Intern. Sec. Servs. Inc., 808 F. Supp. 1165 (D.N.J. 1992) (same).
Commentary on the CISG has not specifically addressed the issue of whether it should preclude a claim for promissory estoppel. However, one commentator’s discussion of the provision for “firm offers” under the CISG provides insight into the issue. Article 16(2)(b) provides that an offer is irrevocable “if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.” CISG, Art. 16(2)(b). The commentator writes:
Paragraph 2(b) looks very much like American promissory estoppel doctrines, although it does not expressly require that the offeree’s reliance must have been foreseeable to the offeror and does not expressly require that the offeree’s reliance be detrimental. Despite these omissions, we can expect that many tribunals will apply paragraph 2(b) in much the same fashion as American courts have used promissory estoppel.
Henry Mather, Firm Offers Under the UCC and the CISG, 105 Dick. L. Rev. 31, 48 (Fall 2000). The fact that Article 16(2)(b) appears to employ a modified version of promissory estoppel suggests that if a plaintiff were to bring a promissory estoppel claim to avoid the need to prove the existence of a “firm offer,” that claim would be preempted by the CISG. The CISG establishes a modified version of promissory estoppel that does not appear to require foreseeability or detriment, and to apply an American or other version of promissory estoppel that does require those elements would contradict the CISG and stymie its goal of uniformity.
Here, Invamed utilizes promissory estoppel to prove that a promise on which it relied should be recognized as binding as if it were a contract. Thus, if the CISG had contemplated a similar “reliance” principle in its determination of whether a contract had formed, this promissory estoppel claim would be preempted. The defendants have presented no argument that the CISG does so, and therefore this particular promissory estoppel claim is not preempted.31
31 This holding is limited to promissory estoppel as claimed by Invamed. Other promissory estoppel claims, such as that discussed above, could be preempted.
C. Negligence and Negligent Misrepresentation
The New Jersey Supreme Court32 held in Spring Motors Dist., Inc. v. Ford Motor Co., 489 A.2d 660 (N.J. 1985) that “economic expectations” protected by contract principles are not entitled to “supplemental protection by negligence principles.” Id. at 673. While the majority of courts have carved out exceptions for intentional fraudulent conduct, the rule still holds for negligence actions. E.g., Henry Heide Inc. v. WRH Products Co., 766 F.2d 105,109 (3d Cir. 1985) (dismissing claim for negligent misrepresentation because “it should be analyzed within the framework of the UCC rather than by the rules of nonintentional tort law”); Boyes v. Greenwich Boat Works, Inc., 27 F. Supp.2d 543, 550 (D.N.J. 1998) (“Plaintiff’s claim that negligent misrepresentation is an exception to th[e Spring Motors] rule is unavailing.”); Hoke, Inc. v. Cullinet Software Inc., 1992 WL 102715, *2 (D.N.J. March 18, 1992) (“[T]he court is convinced that under New Jersey law, the Spring Motors holding would extend to bar tort suits for negligent misrepresentation inducing the formation of contracts between commercial parties.”).
Note 32 New York courts apply an “interest analysis to determine whether a state’s substantive law applies to tort claims.” Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Investcorp,
S.A., 80 F. Supp.2d 129, 135 (S.D.N.Y. 1999). The focus on this analysis is on the parties’ domiciles and the locus of the tort. Aro Chem. Inter., Inc. v. Buirkle, 968 F.2d 266, 270 (2d Cir. 1992). In the context of conduct regulating torts such as those asserted by Invamed, the law of the place of the wrong governs. La Luna Enters. Inc. v. CBS Corp., 74 F. Supp.2d 384, 389 (S.D.N.Y. 1999). In this case, the place of the wrong is where the injury occurred, New Jersey. Id.; Rosenberg v. Pillsbury Co., 718 F. Supp. 1146, 1150 (S.D.N.Y. 1989).
Invamed’s cases stand only for the proposition that intentional torts, such as fraud, are not subject to the economic loss doctrine. E.g., Coastal Group, Inc. v. Dryvit Systems, 274 N.J. Super. 171, 177, 643 A.2d 649, 652 (N.J. Super. App. Div. 1994); Lo Bosco v. Kure Eng’g Ltd., 891 F. Supp. 1020, 1032-33 (D.N.J. 1995) (individual may sue alleged joint venture partner for fraud as well as breach of contract).
Invamed claims that ACIC/Brantford was required and failed to disclosed the fact that after September 19, 1995, it was no longer willing or able to supply Invamed with clathrate for a commercial launch. Moreover, Invamed claims that it reasonably relied on the belief that ACIC/Brantford would supply Invamed with clathrate for a commercial launch. These allegations are also involved in Invamed’s breach of contract claim and the economic remedy sought is the same. Therefore, the economic loss doctrine under New Jersey law bars Invamed’s claims of negligence and negligent misrepresentation. Invamed’s Counts X and XI are dismissed.
D. Promissory Estoppel
A claim for promissory estoppel requires: (1) a clear and definite promise, (2) the promise is made with the expectation that the promisee will rely on it, (3) the promisee in fact reasonably relied on the promise; and (4) the promisee suffered a definite and substantial detriment as a result of the reliance. Royal Assoc. v. Concannon, 200 N.J. Super. 84, 91-92, 490 A.2d 357, 361 (N.J. Super. Ct. App. Div. 1985); R.J. Longo Constr. Co. v. Transit America Inc., 921 F. Supp. 1295, 1305 (D.N.J. 1996).
Defendants argue that Invamed has failed to demonstrate a clear and definite promise and reasonable reliance and that summary judgment is therefore appropriate. They cite to three cases, only one of which applies New Jersey law, where courts granted summary judgment in promissory estoppel cases. In all three cases, the courts found that the plaintiff had failed to prove multiple elements of the cause of action. Aircraft Inventory Corp. v. Falcon Jet Corp., 18 F. Supp.2d 409 (D.N.J. 1998) (lack of clear and definite promise and lack of reliance under New Jersey law); Ellis v. Providen Life & Acc. Ins. Co., 3 F. Supp.2d 399, 410 (S.D.N.Y. 1998) (no elements present); Rosen v. Hyundai Group (Korea), 829 F. Supp. 41, 48 (E.D.N.Y. 1993) (lack of clear and definite promise, reliance and reliance injury as well as effective Statute of Frauds defense).
1. Clear and Definite Promise
“A clear and definite promise is the ‘sine qua non for the applicability of [promissory estoppel].’” Aircraft Inventory, 18 F. Supp.2d at 416 (citation omitted).
A reasonable jury could determine on the basis of the facts alleged that ACIC/Brantford had made a clear and definite promise according to industry custom. In September 1994, ACIC/Brantford advised Invamed that “there is not an exclusive on [clathrate] and we can provide it to Invamed.” Invamed claims that from 1994 to 1997, ACIC/Brantford then encouraged Invamed to develop warfarin sodium based on ACIC/Brantford’s clathrate, and solicited Invamed’s business. Defendants dispute this latter allegation, but this merely demonstrates that a genuine issue of material fact exists and summary judgment cannot be granted on this basis.
Defendants suggest that Aircraft Inventory should be controlling. In Aircraft Inventory, an aircraft buyer engaged in extensive discussions with a seller’s broker regarding the purchase of a jet airplane for $3.1 million. During those discussions, the broker purportedly made two oral promises to the buyer to the effect that, “you’ve got the airplane.” The buyer also issued a written offer to the broker. The broker ultimately decided to put the plane on the market at a higher price and the would-be buyer sued for promissory estoppel. The court found a lack of definite promise because “[d]etails such as warranties, disclaimers, delivery, taxes, and allocation of the risk of loss were not established or even discussed.” Id. Moreover, contingencies and conditions existed on both sides. Id.
Invamed is persuasive in arguing that the promises in Aircraft Industry were vague and indefinite as opposed to the laundry list of actual, definite promises that it claims were made to it. The defendants dispute the fact that such promises were made, but that is an issue for the jury to decide.
2. Reasonable Reliance
Invamed claims that its conduct was consistent with the widespread practice in the industry and that it was not “lax” in not requiring a written agreement. The undisputed facts reveal that many supply contracts in the industry were not put into written form. Defendant Sherman and other witnesses testified to the industry practice of relying on oral representations, and a letter of access, in lieu of a detailed contract.
It is true, as defendants point out, that the parties were sophisticated business persons involved in a multi-year, multimillion deal. These are important considerations. E.g., In re Resorts Int’l, Inc., 181 F.3d 505, 510 (3d Cir. 1999) (companies represented by sophisticated business persons are subject to stricter standard of reasonable reliance); Harsco Corp. v. Bowden, 1995 WL 152523, at *7 (S.D.N.Y. April 5, 1995) (finding no reasonable reliance as a matter of law in light of plaintiff’s sophistication and size of transaction, $400 million). Given Invamed’s allegations about industry custom, however, and the undisputed fact that Barr, ACIC/Brantford and others in the pharmaceutical industry routinely relied on unwritten agreements for multi-year million-dollar contracts, these are considerations for the jury.
For the reasons stated above, defendants’ motions are granted in part and denied in part. Plaintiffs’ antitrust claims are hereby dismissed entirely. (Invamed Compl. Counts I-V; Apothecon Compl. Counts I-VI.) Further, all of Apothecon’s state law claims are dismissed. (Apothecon Compl. Counts VII-XV.) Further, Invamed’s counts X and XI are dismissed.