Court Opinion

ID: 219681
Source: CourtListenerOpinion
Date Created: 2011-06-24 20:22:01+00
Date Added: 2024-06-11T17:28:41.682861
License: Public Domain

10-3679-cv
Verus Pharm., Inc. v. AstraZeneca AB

                                 UNITED STATES COURT OF APPEALS
                                     FOR THE SECOND CIRCUIT

                                        SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.

      At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New
York, on the 24th day of June, two thousand eleven.

PRESENT: CHESTER J. STRAUB,
         REENA RAGGI,
         RICHARD C. WESLEY,
              Circuit Judges.

----------------------------------------------------------------------
VERUS PHARMACEUTICALS, INC.,
                                 Plaintiff-Appellant,

                     v.                                                    No. 10-3679-cv

ASTRAZENECA AB, TIKA LÄKEMEDEL AB,
                   Defendants-Appellees.

----------------------------------------------------------------------
APPEARING FOR APPELLANT:                          BLAIR C. FENSTERSTOCK, Fensterstock &
                                                  Partners LLP, New York, New York.

APPEARING FOR APPELLEES:                          AARON RUBINSTEIN (Phillip A. Geraci,
                                                  Michael S. Bullerman, Aaron F. Miner, on the
                                                  brief), Kaye Scholer LLP, New York, New York.

          Appeal from a judgment of the United States District Court for the Southern District

of New York (Barbara S. Jones, Judge).
       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment entered on August 19, 2010, is AFFIRMED.

       Plaintiff Verus Pharmaceuticals, Inc., appeals from the dismissal, pursuant to Fed. R.

Civ. P. 12(b)(6), of its complaint against defendants AstraZeneca AB and Tika Läkemedel

AB for breach and anticipatory breach of contracts relating to plaintiff’s intellectual property

rights in certain treatments for pediatric asthma (“the acquired assets”), fraud, conversion,

breach of the implied covenant of good faith and fair dealing, and unjust enrichment.1 To

survive dismissal, a complaint must plead “enough facts to state a claim to relief that is

plausible on its face,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007), which standard

is met “when the plaintiff pleads factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged,” Ashcroft v. Iqbal, 129 S.

Ct. 1937, 1949 (2009). A fraud claim must further satisfy Rule 9(b), which requires the

complaint to “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P.

9(b). While we review a judgment of dismissal de novo, see, e.g., Chambers v. Time

Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002), in this case, applying New York law to the

contracts at issue – the Asset Purchase Agreement (“APA”), the Collaboration Services

Agreement (“CSA”), and the Repurchase Option Agreement (“ROA”) – we affirm largely

       1
         Tika Läkemedel AB is a wholly-owned subsidiary of AstraZeneca AB. The relevant
agreements identify Tika Läkemedel as “Purchaser” and AstraZeneca as “Parent,” and
impose varying obligations on each. The parties have not assigned any significance to this
distinction, however, and address their arguments on appeal to both defendants together. For
convenience, we adopt this convention and refer to Tika Läkemedel and AstraZeneca
collectively as “defendants.”

                                               2
for the reasons stated by the district court in its thorough opinion, see Verus Pharm., Inc. v.

AstraZeneca AB, No. 09 Civ. 5660, 2010 WL 3238965 (S.D.N.Y. Aug. 16, 2010). We

assume the parties’ familiarity with the facts and record of prior proceedings, which we

reference only as necessary to explain our decision to affirm.

1.     Breach of Contract

       a.     APA

       Plaintiff contends that APA § 5.3.3 imposes on defendants an obligation to take the

acquired assets to an End of Phase 2 meeting (“EOP II meeting”) with the U.S. Food and

Drug Administration (“FDA”). The argument finds no support in the contract. See, e.g.,

Diesel Props S.r.l. v. Greystone Bus. Credit II LLC, 631 F.3d 42, 51 (2d Cir. 2011)

(observing interpretation of unambiguous contract is matter of law). Viewed in context, §

5.3.3 is reasonably interpreted to relate only to regulatory processes associated with

execution of the asset purchase transaction, not subsequent development of the purchased

assets. See, e.g., Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458,

466 (2d Cir. 2010) (interpreting contract in “context of the entire integrated agreement”);

Matter of Riconda, 90 N.Y.2d 733, 738, 665 N.Y.S.2d 392, 396 (1997) (looking to “entirety”

of agreement in context of “parties’ relationship and circumstances”). This conclusion

follows from § 5.3.3’s placement among other provisions in the APA addressing pre-

transaction regulatory and other obligations. See APA § 5.3.2 (establishing obligations with

respect to filings required by Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub.

L. No. 94-435 (Sept. 30, 1976)), see also §§ 5.2.2, 5.4, 5.5, 5.6 (establishing certain pre-

                                              3
closing covenants and other pre-closing obligations). The conclusion is reinforced by the

totality of documents structuring the parties’ relationship, which make clear that the CSA,

not the APA, was intended to govern development of the acquired assets. See CSA pmbl.

¶ 4. Consequently, plaintiff fails to state a claim that defendants breached APA § 5.3.3 by

failing to take the acquired assets to an EOP II meeting.

       b.      CSA

       Plaintiff contends that the CSA also imposes an obligation on defendants to take the

acquired assets to an EOP II meeting. Like the district court, we conclude that the CSA can

only be construed to impose on defendants an obligation to use “diligent efforts” to develop

the acquired assets, CSA § 10.1.1, not an “unqualified requirement to reach an EOP II

meeting,” Verus Pharm., Inc. v. AstraZeneca AB, 2010 WL 3238965, at *10. CSA § 10,

entitled “The Purchaser Business Covenants,” obligates defendants to “use Diligent Efforts

to develop the [acquired assets] consistent with and in furtherance of the Joint Development

Plan.” CSA § 10.1.1.2 The Joint Development Plan “outlines the technical and regulatory

plans to move [the acquired assets] forward to a successful [EOP II meeting],” the “key

project objectives” of which are set forth in accompanying Study Schedules. Joint Dev. Plan

       2
         Diligent efforts are defined as the “efforts and resources used by [defendants] for
[their] own compounds or products with similar commercial and scientific potential and at
a similar stage in their lifecycle, taking into consideration their safety and efficacy, their cost
to develop, the competitiveness of alternative or competing compounds or products, and the
nature and extent of their market exclusivity . . ., the likelihood of regulatory approval, their
expected profitability, . . . and all other relevant factors.” CSA § 1.

                                                4
at 3.3 Thus, rather than create an unqualified obligation to reach an EOP II meeting, these

provisions require defendants to use diligent efforts to develop the acquired assets consistent

with plans intended to move the assets towards a successful meeting.

              (i)    CSA § 2.2

       In urging otherwise, plaintiff relies on CSA § 2.2, which states that “Purchaser shall

perform the Purchaser Transition Services and use Diligent Efforts to execute the Joint

Development Plan for the development of the Products (excluding Albuterol) and generate

the applicable Work Product.” CSA § 2.2. Because “Transition Services” are defined as “all

services and other obligations to be conducted pursuant to [the CSA], including all services

set forth on the Study Schedules,” CSA § 1 (emphasis added), plaintiff argues that defendants

are required to complete each Study Schedule, including Study Schedule 8. This argument

proves too much. If CSA § 2.2 creates an obligation to complete each Study Schedule, it also

creates an obligation to complete “all services and other obligations” required by the CSA,

including the Joint Development Plan. Such a construction conflicts with both the general

obligation (created in CSA § 10.1.1 and referred to in CSA § 2.2) that defendants use diligent

efforts to execute the Joint Development Plan, and the specific obligation imposed by CSA

§ 3.3 to use diligent efforts in completing the Study Schedules. See, e.g., Gessin Elec.

Contractors, Inc. v. 95 Wall Assocs., LLC, 74 A.D.3d 516, 518, 903 N.Y.S.2d 26, 28 (1st

Dep’t 2010) (stating “courts should construe a contract in a manner that avoids

       3
       Study Schedule 8 contemplates taking the acquired assets to an EOP II meeting with
the FDA.

                                              5
inconsistencies and reasonably harmonizes its terms”); accord Law Debenture Trust Co. of

N.Y. v. Maverick Tube Corp., 595 F.3d at 468.

       We therefore reject plaintiff’s interpretation of CSA § 2.2 and, consequently, its

argument that defendants breached that section by not taking the acquired assets to an EOP

II meeting.

              (ii)   Diligent Efforts

       Plaintiff next contends that defendants breached the CSA by failing to use diligent

efforts to develop the acquired assets, but plaintiff’s complaint does not allege a failure of

diligent efforts. Rather, it alleges that defendants abandoned development of the acquired

assets “[a]s soon as . . . potential delays” arose to pursue a transaction with plaintiff’s

competitor, whose own pediatric asthma product was close to receiving FDA approval.

Compl. ¶ 69; see also id. ¶¶ 67-68. These allegations fail to state a violation of the CSA’s

“diligent efforts” standard because that standard specifically contemplates that defendants’

actions will be informed by, inter alia, “the competitiveness of alternative or competing

compounds or products, . . . the nature and extent of their market exclusivity, [and] the

likelihood of regulatory approval.” CSA § 1.4

       4
         The district court concluded that plaintiff did not state a violation of the “diligent
efforts” standard because the complaint alleged that defendants ceased development of the
acquired assets due to professed safety concerns. See Verus Pharm. v. AstraZeneca AB,
2010 WL 3238965, at *10. Plaintiff now faults this conclusion as impermissible fact-finding,
arguing that the district court effectively credited defendants’ proffered reason over
plaintiff’s well-pleaded alternative. We need not address this argument because plaintiff’s
alternative also fails to state a violation of the “diligent efforts” standard for the reasons
stated above.

                                              6
              (iii)   CSA § 4.4.14

       Finally, plaintiff contends that defendants breached CSA § 4.4.14 by refusing further

to develop the acquired assets. Although that provision vests the Joint Development

Committee with authority to “determine whether and when to discontinue any Studies,” CSA

§ 4.4.14, the Joint Development Committee itself is vested only with responsibility for

“overseeing the development of the Products,” id. § 4.4.           Thus, although the Joint

Development Committee was authorized to direct how the acquired assets would be

developed, defendants retained authority to determine whether they should be developed at

all through the use of diligent efforts.5 As a consequence, plaintiff fails to state a § 4.4.14

breach.

       c.     ROA

       Plaintiff contends that its right to repurchase the acquired assets never matured

because it did not receive a timely or complete Loss Amount Certificate (“LAC”), and that

defendants therefore breached the ROA by asserting that plaintiff’s repurchase rights had

       5
          Plaintiff urges a different interpretation in light of defendants’ own efforts to
persuade the Joint Development Committee to cease development of the acquired assets. We
need not resort to such extrinsic evidence because the language of CSA § 4.4 is clear. See,
e.g., Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569, 750 N.Y.S.2d 565, 569 (2002);
see also LaSalle Bank Nat’l Ass’n v. Nomura Asset Capital Corp., 424 F.3d 195, 205 (2d Cir.
2005). Moreover, defendants’ responsibilities to use “Diligent Efforts” terminated on the
“Diligence Covenant Termination Date,” or October 2, 2008. CSA § 1. Therefore
defendants’ efforts to persuade the Joint Development Committee to discontinue the studies
are irrelevant to the breach of contract claim as the parties were no longer subject to product
development obligations at the time of the defendants’ attempts at persuasion. Rather, the
parties were only subject to their respective repurchase obligations.

                                              7
expired.6

              (i)      Timeliness

       Plaintiff’s timeliness argument relies on its contention that the Earnout Payment

Termination Date (“EPTD”), see APA Ex. 1, which triggered defendants’ obligation to

submit an LAC, see APA § 9.6.2 (requiring LAC to be submitted within five business days

of EPTD), had not yet occurred when defendants submitted their LAC on October 8, 2008.

This is not correct.

       As relevant for this appeal, the EPTD was the EOP II Drop Dead Date, which was

defined to be October 2, 2008. See APA Ex. 1. Plaintiff submits that the EOP II Drop Dead

Date was subject to an automatic extension provision so long as defendants “[were] using

commercially reasonable best efforts” to pursue an EOP II meeting. Id. But that provision

does not apply because, as plaintiff itself recognizes, defendants had ceased using any such

efforts as of October 2, 2008. See Compl. ¶¶ 57-58. While plaintiff points to other

allegations indicating defendants’ earlier pursuit of an EOP II meeting in June 2008, the fact

remains that plaintiff’s own allegations indicate that by October 2, 2008, defendants had

altogether ceased efforts to take the acquired assets to an EOP II meeting. Therefore, the

EOP II Drop Dead Date was not extended, and defendants’ October 8, 2008 LAC was timely.

       6
         In its complaint, plaintiff also alleges that, assuming defendants’ LAC was timely
and complete, defendants wrongly rejected plaintiff’s Exercise Notice. Instead, the district
court construed plaintiff’s Exercise Notice as a counter-offer that defendants were entitled
to and did reject. See Verus Pharm., Inc. v. AstraZeneca AB, 2010 WL 3238965, at *9.
Plaintiff does not challenge the district court’s construction. Rather, it argues that because
an Exercise Notice was not then required, plaintiff “was free to later send a second Exercise
Notice.” Appellant’s Br. at 42 n.36. That argument is forfeited and, in any event, fails
because plaintiff’s contention that its Exercise Notice obligation had not yet matured is not
supported by the ROA.

                                              8
              (ii)    Completeness

       Alternatively, plaintiff contends that the LAC was incomplete because of objections

raised in an October 22, 2008 letter to defendants. See ROA § 2.2 (indicating Exercise

Notice must be transmitted within 45 days “after delivery of the complete [LAC]”).

Although plaintiff now asserts that “material information about the liabilities that [plaintiff]

would be assuming upon a Repurchase Closing” was omitted from the LAC, Reply Br. at 12

(citing Compl. ¶ 61), it did not identify that objection in its October 22, 2008 letter. In any

event, to the extent this belated assertion references information required to be in the LAC,

namely “the amounts referred to in Section 2.3.1(ii), (iv), and (v),” ROA § 12.4(a), the LAC

did include such information. Plaintiff’s dispute as to the accuracy of that information,

therefore, goes to finality of the LAC, see APA § 9.6.3(a), a dispute which may only be

resolved through mandatory arbitration, see id. § 9.6.3(b), and provides no cause to delay the

potential repurchase closing, see id. § 9.6.3(c). Consequently, plaintiff’s argument that its

obligation to submit an Exercise Notice never matured fails as a matter of law.

2.     Other Claims

       Having rejected plaintiff’s claims for breach of the relevant contracts, we further

conclude that plaintiff’s other claims – for anticipatory breach, fraud, conversion, unjust

enrichment, and breach of the implied covenant of good faith and fair dealing – must be

dismissed for the reasons stated by the district court. See Verus Pharm., Inc. v. AstraZeneca

AB, 2010 WL 3238965, at *11-13.

                                               9
3.     Leave to Amend

       Plaintiff submits that the district court abused its discretion in failing to grant a request

for leave to amend the complaint, a request plaintiff included on the final page of its brief in

opposition to defendants’ motion to dismiss and did not renew after grant of the motion. See,

e.g., Chavis v. Chappius, 618 F.3d 162, 167 (2d Cir. 2010) (reviewing denial of leave to

amend complaint for abuse of discretion). Our precedent clearly holds that a district court

does not abuse its discretion in declining to address such informal requests for leave to

amend. See In re Lehman Bros. Mortgage-Backed Sec. Litig., --- F.3d ----, 2011 WL

1778726, at *16 (2d Cir. 2011) (quoting In re Tamoxifen Citrate Antitrust Litig., 466 F.3d

187, 220 (2d Cir. 2006)).

4.     Conclusion

       We have considered plaintiff’s remaining arguments on appeal and conclude that they

are without merit. Accordingly, the judgment of the district court is AFFIRMED.

                                     FOR THE COURT:
                                     CATHERINE O’HAGAN WOLFE, Clerk of Court

                                                10