Jasty v. Wright Medical Technology, Inc.

• Decision Date: 05 June 2008
• Docket Number: No. 07-1744.,No. 07-1743.,07-1743.,07-1744.
• Citation: 528 F.3d 28
• Parties: Murali JASTY, M.D., Plaintiff, Appellee/Cross-Appellant, v. WRIGHT MEDICAL TECHNOLOGY, INC; Wright Medical Group, Inc., Defendants, Appellants/Cross-Appellees.
• Court: U.S. Court of Appeals — First Circuit

528 F.3d 28

Murali JASTY, M.D., Plaintiff, Appellee/Cross-Appellant, v. WRIGHT MEDICAL TECHNOLOGY, INC; Wright Medical Group, Inc., Defendants, Appellants/Cross-Appellees.

No. 07-1743.

No. 07-1744.

United States Court of Appeals, First Circuit.

Heard March 4, 2008.

Decided June 5, 2008.

James L. Beausoleil, Jr., with whom Anthony L. Gallia, Duane Morris LLP, and Darlene D. Moreau were on brief, for appellants.

Joanne D'Alcomo, with whom Howard P. Blatchford, Jr. and Jager Smith P.C. were on brief, for appellee.

Before HOWARD, Circuit Judge, Wolf,^* District Judge, and Besosa,^** District Judge.

HOWARD, Circuit Judge.

Appellants Wright Medical Technology, Inc. and Wright Medical Group, Inc. (collectively, "Wright") challenge the district court's summary judgment ruling that Wright breached its contract with Dr. Murali Jasty, as well as the district court's refusal to consider newly submitted facts on review of the report and recommendation of a magistrate judge. Jasty's cross-appeal challenges the district court's summary judgment ruling that Wright did not violate state consumer protection statutes. Jasty also challenges the district court's decision not to compel a Wright expert to testify, as well as the court's choice of law ruling with respect to the calculation of prejudgment interest on a damages award. We affirm the district court across the board.

I. Facts.

A. Background.¹

Tennessee-based Wright Medical Technology, Inc. designs, manufactures and markets orthopedic implant devices. Dr. Murali Jasty, an orthopedic surgeon associated with Massachusetts General Hospital, was one of a group of surgeons nationwide whom Wright engaged to act as consultants and to help Wright develop and commercialize a new artificial knee system, the "ADVANCE® Knee." In March 1995 Wright entered into a written contract with Jasty. Under the contract, Wright agreed to compensate Jasty for providing a variety of services in support of the development of the Advance Knee.

Jasty's responsibilities, as set forth in the first paragraph of the contract, were to "act as a designer, product spokesperson and consultant." He agreed to provide Wright with "services and expertise" including but not limited to:

(a) Current clinical design or other experience with total knee systems ... (b) Time away from [his] practice necessary to participate in clinical consultant meetings and/or technical meetings ... (c) Time necessary to review and co-author papers and publications ... (d) Time necessary to develop product educational information ... (e) ... [R]eview[ing] clinical data and mak[ing] oral presentations to peer groups, regulatory agencies and the general public as required ... [and] (f) ... [P]rovid[ing], at Wright's request, regular written activity reports.

Compensation was to take three different forms: 1) a flat payment, for the period November 1, 1994 through November 1, 1999, of $145,000 per year; 2) royalty payments for ten years based on sales of the Advance Knee; and 3) specified payments on the date of and subsequent anniversaries of Wright's initial public offering ("IPO"), should Wright become a publicly traded company. The $145,000 annual payment for the period November 1994 to November 1999 was expressly designated as payment "in return for the above services," that is, those set out in the first paragraph. The contract further specified with respect to that annual payment, "Payment of this sum is to compensate you for spending time away from your practice to provide such services and consultations to [Wright] during that period as well as to compensate you for your design input and the rights to commercialize ... your rights to inventions currently under patent." After November 1999, "all payments for services under this Agreement shall be pursuant to paragraph 2.b. (and paragraph 2.d. if applicable)." Paragraphs 2.b. and 2.d. provide for the royalty and IPO payments. The contract also provided for an offset: should royalties based on sales be payable prior to November 1, 1999, the annual payments would be reduced by the amount of the royalty payments.

Under the royalty provision, Jasty would be entitled to royalties "[w]hen a component of the Products results from these collaborative efforts for which you have contributed significant design input." Royalties were to be paid quarterly for ten years, based on a specified percentage of net sales. This provision contains no language about Jasty's services or any other conditions, other than the requirement that Jasty must have contributed "significant design input."

The IPO compensation provision establishes cash payments if Wright were to become a public company. The first payment of $100,000 would be made at the time of the IPO. Later payments of $50,000 each were to be made on the first two anniversaries of the IPO date, with another payment of $100,000 to be made on the third anniversary. The IPO payments were to be triggered only if Jasty was "continuing to perform consulting services to [Wright] under this agreement at the time of payment, unless such nonperformance is due to death or disability".

Under the contract's termination provision, termination for cause may be by either party on thirty days written notice and after an opportunity to cure. The contract could also be terminated for cause without written notice and opportunity to cure for failure to comply with paragraph 5, the contract's exclusivity provision. That provision prohibited Jasty from working on competitor products. Additionally, the contract contained an as-of-right termination provision for Jasty: on November 1, 1999, Jasty would become free to terminate the contract.

It is undisputed that Jasty contributed to the development of the Advance Knee and was eligible for royalties.² He began receiving royalty payments under the contract in the second quarter of 1995. Wright also made all of the required $145,000 annual payments to Jasty between November 1994 and November 1999.

The first sign of trouble in the consulting relationship appeared in October 1998. Wright's then-President and CEO Tom Patton traveled to Boston to meet with Jasty to discuss Jasty's work. Patton testified in his deposition that he informed Jasty of Wright's dissatisfaction with his performance and that his contract would be terminated if he did not conform his performance to expected standards.

Contemporaneously, Patton sent Jasty a letter purporting to summarize the meeting. In the letter, Patton stated, "I am glad we had the opportunity to meet last week and discuss your ongoing role with our business." The letter also mentioned Patton's intention to "reduce our discussions to writing."

The letter continued: "[O]n-going promotional, marketing and scientific services from you are critical to the success of the Advance Knee, have always been contemplated by our agreement, and provide the basis for continued payments under our contract." The letter stated that Patton and Jasty "agreed that it was important for [Jasty] to do" the following: "use the Advance Knee in the majority of your knee cases," "host surgeons for surgical demonstrations," "develop published studies from your lab" and "make yourself more readily available to speak." In the letter, Patton also expressed the view that Jasty's work in developing and promoting a competing product was "unacceptable."

The letter contained no threat of termination. It did not state that Wright considered Jasty in breach of the contract, nor did it mention a thirty-day time frame or an opportunity for Jasty to cure. The letter did advise Jasty that Wright personnel would contact him regarding specific projects.

Almost three years later, in September 2001, Wright terminated Jasty's contract via a letter from Wright's Senior Vice President, Glen Coleman. That letter stated, "[t]his situation was brought to your attention during a meeting with Tom Patton in October 1998. Since that time, improvement has not been made ... we believe it is appropriate to ... end the current consulting agreement." The letter contained a settlement offer of royalty payments through the end of 2002. In a March 2002 letter, Wright retracted the settlement offer and stated that royalty payments had ceased as of the end of 2001.

At this point, Wright had been paying royalties to Jasty under the contract since 1995. In addition, Wright became a public corporation in July 2001, and Jasty received $100,000 pursuant to the IPO provision in the contract. As of the end of 2001, Jasty had received annual payments of $145,000 for the years between 1994-1999, the $100,000 payment at the time of the July 2001 IPO, and royalty payments based on sales of the product from 1995 through the last quarter of 2001.

B. Procedural History.

Jasty filed suit against Wright in Massachusetts state court. In his June 2003 amended complaint, he claimed that Wright breached the contract and violated the Massachusetts and Tennessee consumer protection statutes, Mass. Gen. Laws ch. 93A and Tenn.Code Ann. § 47-18-01.³ Wright timely removed the case to federal court and counterclaimed on three issues: 1) breach of contract; 2) breach of the implied covenant of good faith and fair dealing; and 3) the above-mentioned state consumer protection statutes.

The parties each sought summary judgment. A magistrate judge recommended that partial summary judgment be granted to Jasty on his breach of contract claim, as well as summary judgment on his opposition to Wright's three counterclaims. As to Wright's cross-motion for summary judgment on all of Jasty's claims, the magistrate judge recommended awarding summary judgment to Wright on Jasty's consumer protection claims and the other claims not on appeal.

Wright objected to the magistrate judge's report, as permitted by 28 U.S.C. § 636(b). As part of the objection, Wright included a number of exhibits, many of which had not been before the magistrate judge. The district judge...