Kavod Pharm. v. Sigmapharm Labs. (In re Tri Harbor Holdings Corp.)

Chapter: 11

LOWENSTEIN SANDLER Wojciech F. Jung, Esq. Reynold Lambert, Esq. Gavin J. Rooney, Esq., Attorneys for Plaintiffs

ELLIOTT GREENLEAF, PC Henry F. Siedzikowski, Esq. Timothy Myers, Esq. Andrew Estepani, Esq., Attorneys for Defendant, Sigmapharm Laboratories, LLC

OPINION

VINCENT F. PAPALIA UNITED STATES BANKRUPTCY JUDGE.

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I. INTRODUCTION

These matters are before the Court on two separate motions for summary judgment. First, Plaintiffs Kavod Pharmaceuticals LLC, f/k/a Rising Pharmaceuticals, LLC f/k/a Rising Pharmaceuticals, Inc. ("Rising"), and Tri Harbor Holdings Corp., f/k/a Aceto Corporation ("Aceto"), seek partial summary judgment (the "Plaintiffs' Motion") on certain counts of their Complaint against Defendant Sigmapharm Laboratories, LLC ("Sigmapharm" or "Sigma") and certain of Sigmapharm's Counterclaims against Rising and Aceto.^[1] Rising and Aceto are sometimes collectively referred to in this Opinion as the "Plaintiffs" or "Rising/Aceto." Next, Defendant Sigmapharm moved for summary judgment seeking dismissal of Plaintiffs' Complaint in its entirety (the "Sigmapharm Motion").^[2] Because of the close factual and legal relationship between the two Motions, both were argued and are being decided at the same time.

II. JURISDICTIONAL STATEMENT

The Court has jurisdiction over these matters under 28 U.S.C. § 1334(b) and the Standing Orders of Reference entered by the United States District Court on July 10, 1984 and amended on September 18, 2012. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (C) and (O). In its Answer, Sigmapharm admitted this Court's core jurisdiction.^[3] Venue is proper in this Court under 28 U.S.C. § 1408. The Court issues the following findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052. To the extent that any of the findings of fact might constitute

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conclusions of law, they are adopted as such. Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such.

III. STATEMENT OF RELEVANT FACTS^[4]

A. General Background

(i) The Agreement at the Center of These Motions

The dispute underlying these Motions and the litigation between the parties arise from a Master Product Development and Collaboration Agreement (the "Agreement") entered on June 22, 2006 between Sigmapharm and Rising Pharmaceuticals, Inc. ("Rising," which is sometimes referred to as "Old Rising" or "RP"). The Agreement was entered into approximately three and one-half years before Rising was acquired by a wholly owned subsidiary of Aceto (Sun Acquisition Corp.) in or about December 2010.^[5] Sigmapharm is a Pennsylvania limited liability corporation with its principal place of business at 3375 Program Drive, Bensalem, Pennsylvania.^[6]

Under the Agreement, Sigmapharm and Rising contracted to collaborate on the development of generic pharmaceuticals, with Sigmapharm developing the products and obtaining FDA approvals and Rising doing the marketing, accounting for essential matters, such as "Net Sales" and "Net Profits" (as defined in the Agreement), and serving as exclusive distributor for Sigmapharm.^[7] The Agreement generally provided that: (i) Sigmapharm would be paid the cost

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of manufacture plus 55% of the Net Profits; and (ii) Rising would be paid for the cost of distribution plus 45% of the Net Profits, as calculated in accordance with the Agreement. ^[8] Additionally, Rising/Aceto was entitled to an administrative fee for its services under the Agreement pursuant to § 1.52, which was subsequently amended.^[9]

Sigmapharm asserts that Rising had "complete control" over the accounting for both parties pursuant to the Agreement.^[10] Rising disputes that it had complete control over accounting, ^[11] but does state that it:

took primary responsibility for managing the inventory marketing and selling the drugs to the major pharmaceutical wholesalers; and handling the complex accounting process required in the business of generic drug distribution ([Agreement] §§ 5.5 - 5.7.) Stated otherwise, the collaboration leveraged the respective strengths of each company-Sigmapharm, in product development and manufacture and Rising, in the sale and marketing of the products to wholesalers.^[12]

In their Supplemental SUMF, Plaintiffs devoted one-and-one-half pages (paragraphs 11-18) to describing the computation of Net Sales and Net Profits under the Agreement ("[t]he calculation . . . is complicated and performed using formulas that take into consideration multiple factors and components").^[13]

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Both Motions require reference to certain specific provisions of the Agreement that define and describe the Parties to the Agreement, how and when the Agreement may be terminated, including the notice required to declare a breach and termination, and the effect of termination, as is discussed in more detail below.

(ii) The Parties as Defined in the Agreement and the Governing Law

The Preamble to the Agreement identified Rising, as a contracting Party, to include its "subsidiaries and Affiliates."^[14] The Agreement at § 1.4 defined "Affiliate" as follows:

1.4. "Affiliate" of any Party shall mean any corporation, partnership, association, trust, or other business entity or organization, directly or indirectly Controlling, Controlled by, or under common Control with such Party.^[15]

The Agreement at § 1.11 also defined "Control":

1.11. "Control" shall mean: (i) in the case of corporate entities, direct or indirect ownership of more than fifty percent (50%) of the stock or shares having the right to vote for the election of directors; and (ii) in the case of non-corporate entities, direct or indirect ownership of at least fifty percent (50%) of the equity interest with the power to direct the management and policies of such non-corporate entity.^[16]

The Agreement at § 14.9 ("Governing Law; Jurisdiction") further provided that New Jersey law would govern the interpretation of the Agreement in all events:

14.9. Governing Law; Jurisdiction. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of New Jersey, without regard to conflict of law principles thereof, and the Parties consent to and agree to submit to the jurisdiction of the courts of the State of New Jersey, state and federal, with respect to actions and proceedings relating to or arising out of this Agreement.^[17]

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(iii) Aceto's Acquisition of Rising and the Assignment of the Agreement

As noted above, in or about December 2010, Rising was acquired by Sun Acquisition Corp. ("Sun"). Ron Gold ("Mr. Gold"), then President and CEO of Rising, described Sun as a wholly owned subsidiary of Aceto Corporation.^[18] Pursuant to that transaction, the Agreement was assigned to Sun, which eventually changed its name back to "Rising," and was sometimes referred to as "New Rising." This acquisition and assignment are evidenced in the exhibits by a December 20, 2010 letter from Gold to Sigmapharm describing the transaction:

Rising Pharmaceuticals, Inc. ("RP") has entered into a definitive agreement under which Sun Acquisition Corp., a wholly owned subsidiary of Aceto Corporation, will acquire substantially all of the assets of RP (the "Transaction"). Sun Acquisition Corp., which will change its name to Rising Pharmaceuticals, Inc. upon the closing of the Transaction (the "Closing"), is referred to herein as "New Rising". We have agreed to assign to New Rising, and New Rising has agreed to assume from RP, the agreement, dated February 2, 2006, between you and RP (the "Agreement"), effective as of the Closing. We will inform you of the date of the Closing, which is anticipated to be prior to December 31 2010.^[19]

The December 20, 2010 letter asked Sigmapharm to indicate its consent to the assignment by countersigning the letter. Spiro Spireas, Ph.D. ("Dr. Spireas"), Chairman and CEO of Sigmapharm, did so on January 6, 2011.^[20] This transaction, the definitions of Affiliate and Control, and the December 20, 2010 letter are central to Sigmapharm's argument that the December 20, 2010 assignment renders Aceto liable as the parent corporation and "Affiliate" of "New Rising" for the damages that Sigmapharm now claims against both Aceto and Rising, as well as Plaintiffs' efforts to rebut that argument. Sigmapharm argues that, under the terms of the Agreement, at the Preamble, § 1.4 ("Affiliate") and § 1.11 ("Control"), Aceto, with a 100% controlling interest in Rising, became a "Party" to the Agreement, without being a signatory.^[21]

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Plaintiffs argue principally that only Rising is potentially liable under the Agreement because only Rising signed the December 20, 2010 letter and that Sigmapharm's interpretation would render meaningless the Assignment provision (§ 14.1) of the Agreement as applied to Affiliates.^[22]Plaintiffs also argue that the Agreement's Indemnification provision (§ 13) describes when an Affiliate may be liable under the Agreement, showing an intent that Affiliates are not liable in all cases.^[23]

(iv) The Required Notice to Declare a Breach and Terminate the Agreement

The provisions in the Agreement for "Term and Termination" (§ 12) and "Correspondence and Notices" (§ 14.4) are also particularly relevant to these Motions. The term of the Agreement was indefinite, unless terminated by either Party as provided in the Agreement (§ 12.1).^[24] The Agreement at § 12.2 ("Termination for Cause") described the termination procedure that is at issue on these...