Shareholder Representative Services LLC. V. Sandoz Inc., SANDOZ AG, SANDOZ INTERNATIONAL GmbH, Jeff George and Christina Ackerman, Index No. 653506/2013, 03/16/2015 (Bransten, J.)

Merger Agreement; breach; Failure to state a Claim; breach of the merger agreement.

By Ashley Prinz | Staff Writer

Plaintiff, Shareholder Representative Services LLC (“SRS”) represents former shareholders of Oriel Therapeutics Inc. (“Oriel), a generic pharmaceutical company. Oriel entered into a Merger Agreement with Defendant, Sandoz AG a multinational pharmaceutical company, on April 18, 2010.

In addition to payment up front in cash, Sandoz’s purchase price included consideration upon completion of certain milestones (“Milestone Events”) that were set forth in the Merger Agreement. The Milestone Events were largely based on the development of a particular product in Oriel’s pipeline. The Merger Agreement provided that Sandoz AG would use “diligent efforts” to achieve Milestone Events. The Merger Agreement also defined diligent efforts as “[T]hat level of effort and resources consistent with such efforts and resources as would normally be exerted or employed by a similarly-situated generic pharmaceutical company for a product of similar market potential and at a similar stage in development or product life as [the Product].”

 Plaintiff asserts that Defendant breached the Merger Agreement by failing to use diligent efforts to achieve the first Milestone Event. Specifically, Plaintiff contends that Defendant failed to take steps towards the manufacture of “the Product” until after the deadline had already passed. The Merger Agreement also contained a Delaware choice of law provision, thus the Court applied Delaware law.

 Although the Merger Agreement contained a “release provision,” Defendant does not contend that Plaintiff’s claim falls under this provision, thus the Court must determine if this claim can survive a motion to dismiss for failure to state a claim. The burden is on Plaintiff to show that there was the existence of a contract, that was express or implied, that there was a breach of an obligation imposed by the contract, and that this breach resulted in damage to the Plaintiff.

The Court found that the Plaintiff successfully met this burden. The existence of a contract between Plaintiff and Defendant was an express contract as demonstrated by the Merger Agreement. Under this agreement, Defendant was obligated to use “Diligent Efforts” to achieve the Milestone Events that were set forth in the contracts. Finally, Plaintiff contends that they did not receive payments that were to be associated with reaching the Milestone Events and thus was damaged.

Defendant alleged that they maintained the discretion to determine whether and when to commence launch or sale of “the Product” but the Court rejected this reading as contrary to the language of the “Diligent Efforts” as provided in the Merger Agreement. Thus, the Court denied Defendant’s motion to dismiss the breach of contract claim.

 Shareholder Representative Services LLC. V. Sandoz Inc., SANDOZ AG, SANDOZ INTERNATIONAL GmbH, Jeff George and Christina Ackerman, Index No. 653506/2013, 03/16/2015 (Bransten, J.).

 

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