Court Opinion

ID: 4288393
Source: CourtListenerOpinion
Date Created: 2018-06-26 15:00:16.328197+00
Date Added: 2024-06-11T14:37:21.168634
License: Public Domain

17-2400
     Ortho-Clinical Diagnostics Bermuda Co. et al. v. FCM, LLC et al.

                                            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.

 1          At a stated term of the United States Court of Appeals for the Second Circuit, held at
 2   the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York,
 3   on the 26th day of June, two thousand eighteen.
 4
 5   PRESENT:
 6              PETER W. HALL,
 7              SUSAN L. CARNEY,
 8                          Circuit Judges,
 9              JOHN G. KOELTL,
10                          District Judge.*
11   _________________________________________
12
13   ORTHO-CLINICAL DIAGNOSTICS BERMUDA CO. LTD.,
14   a Bermuda exempted Limited Liability Company,
15   ORTHO-CLINICAL DIAGNOSTICS, INC., a New York
16   Corporation,
17
18                       Plaintiffs-Appellants,
19
20                                 v.                                             No. 17-2400-cv
21
22   FCM, LLC, a Delaware Limited Liability Company,
23   MITCHELL HABIB, an Ohio Resident,
24
25              Defendants-Appellees.
26   _________________________________________
27

     *
       Judge John G. Koeltl, of the United States District Court for the Southern District of New York,
     sitting by designation.
 1   FOR PLAINTIFFS-APPELLANTS:                             MELISSA ARBUS SHERRY (Allen M.
 2                                                          Gardner, Scott C. Jones, Alexandra P.
 3                                                          Shechtel, on the brief), Latham & Watkins
 4                                                          LLP, Washington, DC.
 5
 6   FOR DEFENDANTS-APPELLEES:                              AIDAN SYNNOTT (Shane D. Avidan,
 7                                                          Elizabeth J. Grossman, on the brief), Paul,
 8                                                          Weiss, Rifkind, Wharton & Garrison LLP,
 9                                                          New York, NY.
10
11          Appeal from a judgment of the United States District Court for the Southern District
12   of New York (Buchwald, J.).

13          UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
14   ADJUDGED, AND DECREED that the judgment entered on July 6, 2017, is
15   AFFIRMED.

16          Plaintiff Ortho-Clinical Diagnostics Bermuda Co. Ltd. (“Ortho”) appeals from the
17   District Court’s dismissal of its breach of contract claims against FCM, LLC (“FCM”),
18   arising out of the parties’ IT consulting agreement and subsequent termination of that
19   agreement.1 Ortho contends that the District Court erred when it found (1) that Ortho
20   released its claim for breach of the parties’ initial agreement, under which FCM agreed to
21   provide Ortho with an independent IT operating system (the “Engagement Agreement”),
22   and (2) that Ortho failed to plead adequately that FCM breached the parties’ Settlement
23   Agreement by not providing the required “Transition Assistance.” We review de novo a
24   district court’s dismissal of a complaint under Federal Rule of Civil Procedure 12(b)(6) for
25   failure to state a claim, “accept[ing] as true all factual allegations in the complaint and
26   draw[ing] all reasonable inferences in favor of the plaintiff.” Progressive Credit Union v. City of

     1
      Plaintiff Ortho-Clinical Diagnostics, Inc., an entity related to plaintiff Ortho-Clinical Diagnostics
     Bermuda Co. Ltd., also appeals the dismissal of its breach of contract claims against FCM.
     Additionally, both Ortho entities appeal the dismissal of their claims against Mitchell Habib, FCM’s
     Chief Executive Officer. Neither plaintiff contests, however, that Ortho-Clinical Diagnostics, Inc.,
     and Habib are not parties to either of the contracts at issue here. Accordingly, we affirm the District
     Court’s dismissal of the breach of contract claims brought by Ortho-Clinical Diagnostics, Inc.,
     against both defendants, and the breach of contract claim brought by Ortho-Clinical Diagnostics
     Bermuda Co. Ltd. against Habib.

                                                        2
 1   N.Y., 889 F.3d 40, 48 (2d Cir. 2018). We assume the parties’ familiarity with the underlying
 2   facts, the procedural history of the case, and the issues on appeal, to which we refer only as
 3   necessary to explain our decision to affirm.

 4       I.       Background

 5             In May 2014, Ortho engaged FCM to build it an IT operating system. In the
 6   Engagement Agreement, FCM agreed to build the system by “lifting” functionality from the
 7   existing IT system that Ortho was then using (and for which it paid nearly $4 million per
 8   month to a corporate affiliate) and “shifting” that functionality, over 25 months, to a new,
 9   independent system. Although the size of the transaction was significant—Ortho agreed to
10   pay FCM $70 million for the system—the Engagement Agreement set forth few details.
11   Importantly, it neither contained technical specifications for the final product (Ortho’s IT
12   system) nor described with particularity the methods FCM would use to build the product,
13   other than referring generally to a “lift and shift” approach.2

14             Ortho alleges that, because of FCM’s mismanagement of subcontractors and failure
15   to meet promised objectives, its relationship with FCM quickly deteriorated. On March 30,
16   2015—ten months into the 25-month contract—FCM and Ortho entered into a second
17   agreement (the “Settlement Agreement”), by which the parties intended to end the
18   engagement. The Settlement Agreement terminated FCM’s obligation to deliver a complete
19   IT system to Ortho. In it, FCM agreed to provide “Transition Assistance” to Ortho while
20   Ortho transferred the project to a different contractor. FCM also agreed to release all of its
21   related claims against Ortho. Ortho, however, agreed to release only those claims against
22   FCM that were “actually known” to three named Ortho executives (Ortho’s Chief Executive
23   Officer, Chief Operating Officer, and Director of IT) when the Settlement Agreement was
24   signed.

     2
      When evaluating the adequacy of a complaint, we may consider documents attached to and
     incorporated by reference in the complaint. Subaru Distribs. Corp. v. Subaru of Am., Inc., 425 F.3d 119,
     122 (2d Cir. 2005). In Ortho’s case, these include the Engagement Agreement and Settlement
     Agreement.
                                                        3
 1             After entering into the Settlement Agreement, Ortho allegedly discovered that FCM
 2   had completed far less preparatory work than Ortho had believed. In particular, FCM had
 3   not created the “end-to-end” infrastructure plans that Ortho saw as necessary to enable
 4   subcontractors to complete their assigned work. Joint App’x at 289 (Am. Compl. at ¶ 58). As
 5   a result of FCM’s failure, Ortho incurred additional subcontractor fees, and completion of its
 6   IT system was delayed by 12 to 18 months.

 7             Ortho thereupon sued FCM, bringing two breach of contract claims (as well as a
 8   number of other claims not at issue in this appeal). It charged FCM with: (1) breach of the
 9   Engagement Agreement, based on FCM’s failure to create a “comprehensive plan for the
10   infrastructure build-out, along with detailed plans for the components of such a plan,” Joint
11   App’x at 284 (Am. Compl. at ¶ 35), and (2) breach of the Settlement Agreement, based on
12   FCM’s failure to provide “Transition Assistance” in the form of infrastructure plan
13   documents. The District Court dismissed both claims under Rule 12(b)(6). It concluded that
14   Ortho released all of its claims for breach of the Engagement Agreement under the terms of
15   the Settlement Agreement. Ortho-Clinical Diagnostics Bermuda Co. v. FCM, LLC, No. 15 Civ.
16   5607 (NRB), 2016 WL 4939370, at *7 (S.D.N.Y. Sept. 12, 2016). It further ruled that the
17   Settlement Agreement did not require FCM to create any infrastructure planning documents,
18   and therefore its failure to provide any such documents did not breach the Settlement
19   Agreement. Ortho-Clinical Diagnostics Bermuda Co. v. FCM, LLC, No. 15 Civ. 5607 (NRB),
20   2017 WL 2984023, at *2–3 (S.D.N.Y. July 6, 2017). Ortho appeals both of those decisions.

21       II.      Breach of the Engagement Agreement

22             We do not reach the District Court’s conclusion that Ortho released all claims for
23   breach of the Engagement Agreement in the Settlement Agreement, because we conclude
24   that Ortho has failed to plead a claim for breach of the Engagement Agreement at all.3 The
25   Engagement Agreement required FCM to build an IT system, but contains no provision
26   requiring FCM to develop a comprehensive infrastructure plan as a separate deliverable.

     3
      We may “affirm the district court’s judgment on any ground appearing in the record, even if the
     ground is different from the one relied on by the district court.” Liberty Mut. Ins. Co. v. Hurlbut, 585
F.3d 639, 648 (2d Cir. 2009) (quoting Doninger v. Niehoff, 527 F.3d 41, 50 n.2 (2d Cir. 2008)).
                                                         4
 1   Ortho acknowledges as much, but asserts that it “expected” that FCM would prepare such a
 2   plan in light of “standard practice in the industry.” Joint App’x at 284 (Am. Compl. at ¶ 35),
 3   290 (Am. Compl. at ¶ 62). These allegations are not sufficient to impose on FCM a
 4   contractual obligation that lacks support in the parties’ contract itself. See W.W.W. Assocs.,
 5   Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990) (“Evidence outside the four corners of the
 6   document as to what was really intended but unstated or misstated is generally inadmissible
 7   to add to or vary the writing.”); Quadrant Structured Prods. Co. v. Vertin, 23 N.Y.3d 549, 559–60
 8   (2014). FCM thus did not breach the Engagement Agreement when it failed to create
 9   infrastructure plans, however useful such plans might have been.

10          Ortho contends in the alternative that, notwithstanding the release it effected in the
11   Settlement Agreement, it may bring a breach of contract action against FCM for other
12   breaches of the Engagement Agreement of which it was aware when it entered the
13   Settlement Agreement, so long as it did not know, at that time, the extent of the damages it
14   would suffer in connection with that breach. Spelling out this theory, Ortho argues that it
15   released FCM only for “Claims actually known” by the three specified Ortho executives.
16   Joint App’x at 321. Because the Settlement Agreement defines “Claims” as encompassing
17   “claims, actions, causes of action, suits, obligations, debts, demands, liabilities, damages, costs,
18   expenses, and attorneys’ fees,” Ortho proposes that it did not release any claims to recover
19   damages, insofar as the full extent of its damages was not actually known by any of the three
20   executives when it signed the agreement. Id. (emphasis added).

21          We agree with the District Court that Ortho’s proposed interpretation of the release
22   in the Settlement Agreement is unreasonable. Ortho’s interpretation would mean that Ortho
23   released causes of action against FCM, but did not release “damages” associated with those
24   causes of action—a nonsensical reading. As the District Court observed, “[i]f [Ortho]
25   intended to release only ‘claims, actions [and] causes of action’ to the extent of ‘damages,
26   costs [and] expenses’ that one of [the specified Ortho executives] actually knew, ‘surely no
27   problem of draftsmanship would have stood in the way of its being spelled out.’” Ortho-
28   Clinical Diagnostics Bermuda Co., 2016 WL 4939370, at *4 (quoting George Backer Mgmt. Corp. v.
29   Acme Quilting Co., 46 N.Y.2d 211, 218 (1978)).
                                                      5
 1      III.    Breach of the Settlement Agreement

 2          As to Ortho’s claim for breach of the Settlement Agreement, we agree with the
 3   District Court that FCM did not breach the Transition Assistance provision of the
 4   Settlement Agreement by failing to provide infrastructure plan documents to guide
 5   subcontractors during the transition period. Under the terms of the Settlement Agreement,
 6   FCM agreed:

 7             [to] provide [Ortho] and the Successor Providers with all reasonably
 8             required assistance necessary to facilitate the transition of responsibility for
 9             [the work described in the Engagement Agreement] from FCM to the
10             Successor Providers (“Transition Services”). Such Transition Services will
11             include providing information, data, software code, documentation, and
12             access to relevant FCM personnel and answering questions about the
13             services.

14   Joint App’x at 318. This provision requires only that FCM “facilitate the transition of
15   responsibility”—that is, fill in gaps based on work already done and hand off the job—to
16   FCM’s replacement contractors (the “Successor Providers”), not complete the planning
17   elements of the job. This provision did not require FCM to bring the project to any
18   particular stage of completion before assisting in the job’s transition to the Successor
19   Providers. Thus, FCM’s obligation to provide “documentation” to Ortho can reasonably be
20   interpreted only as an obligation to provide existing documentation to the Successor
21   Providers. The Transition Assistance provision imposed no obligation to create new
22   infrastructure plan documents that might guide the Successor Providers in their completion
23   of the project, just as it imposed no obligation on FCM to write new code in the course of
24   providing “software code” to Ortho.

25          Ortho contends that the phrase “reasonably required assistance necessary to facilitate
26   the transition” is best read to include the provision of (even previously non-existent)
27   infrastructure plan documents, because the parties intended for FCM to provide Ortho with
28   plan documents when they entered the Settlement Agreement. But Ortho’s allegations
29   regarding its own intentions are insufficient to establish that FCM too intended to assume
30   and knowingly undertook an unstated obligation to create additional infrastructure plan

                                                      6
 1   documents. Moreover, when interpreting a contract, we look to evidence of the parties’
 2   intentions only if the written text of the agreement is ambiguous. Shook v. Blue Stores Corp., 30
 3 A.D.3d 811, 812 (N.Y. App. Div. 2006). We find no such ambiguity here: the Transition
 4   Assistance provision required FCM to provide existing infrastructure plan documents, not to
 5   create new infrastructure plan documents for Ortho’s benefit.

 6                                                * * *

 7          We have considered Ortho’s remaining arguments and conclude that they too
 8   provide no basis for vacating the District Court’s judgment. Accordingly, the judgment of
 9   the District Court is AFFIRMED.

10                                                        FOR THE COURT:
11                                                        Catherine O’Hagan Wolfe, Clerk of Court

                                                     7