Formulatrix, Inc. v. Rigaku Automation, Inc.

• Decision Date: 01 November 2018
• Docket Number: CIVIL ACTION NO. 15-12725-JGD
• Citation: 344 F.Supp.3d 410
• Parties: FORMULATRIX, INC., Plaintiff, v. RIGAKU AUTOMATION, INC. and Rigaku Americas Holding, Inc., Defendants.
• Court: U.S. District Court — District of Massachusetts

344 F.Supp.3d 410

FORMULATRIX, INC., Plaintiff,

v.RIGAKU AUTOMATION, INC. and Rigaku Americas Holding, Inc., Defendants.

CIVIL ACTION NO. 15-12725-JGD

United States District Court, D. Massachusetts.

Filed November 1, 2018

Joseph P. Crimmins, Adam L. Littman, Posternak, Blankstein & Lund, Boston, MA, for Plaintiff.

Eric P. Magnuson, Alison T. Holdway, Brian K. Lee, Nutter, McClennen & Fish, LLP, Boston, MA, for Defendant.

MEMORANDUM OF DECISION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

DEIN, United States Magistrate Judge

I. INTRODUCTION

Plaintiff Formulatrix, Inc. ("Formulatrix") has brought this action against Rigaku Automation, Inc. ("Rigaku") and Rigaku Americas Holding, Inc. ("Rigaku Americas") (together "Rigaku") for breach of contract and other causes of action related to a January 2015 Customer Support Agreement ("CSA") between the parties. At the heart of Plaintiff's complaint is its allegation that Rigaku failed to comply with certain provisions of the CSA governing the transmission of business documents within a 90 day period. Defendants dispute this allegation and assert counterclaims against Plaintiff, alleging that Formulatrix breached the CSA by improperly withholding installment payments due to Rigaku and that Formulatrix violated Mass. Gen. Laws ch. 93A by engaging in a pattern of extra-contractual demands coupled with the threat of contractual nonperformance or litigation.

On June 22, 2015, Formulatrix initiated the instant action against Defendants alleging the following causes of action: breach of contract; tortious interference with contractual and/or advantageous business relationship; breach of the covenant of good faith and fair dealing; request for attorneys' fees under the CSA; unfair and deceptive conduct in violation of Mass. Gen. Laws ch. 93A § 11 ; and enforcement of a guaranty given by Rigaku America in the CSA. (See Docket No. 1). On April 5, 2016, Defendants filed a Counterclaim asserting claims of breach of contract; breach of the covenant of good faith and fair dealing; declaratory judgment; violation of Mass. Gen. Laws ch. 93A § 11 ; and attorneys' fees under the CSA. (See Docket No. 17). On August 25, 2016, following a ruling on Defendants' motion to dismiss, which struck Formulatrix's tortious interference and ch. 93A claims (Docket No. 15), Formulatrix filed an Amended Complaint reasserting the claims that survived Defendants' motion to dismiss. (See Docket No. 42). On September 1, 2016, Defendants filed a Counterclaim reasserting the same causes of action asserted in its original Counterclaim. (See Docket No. 43).

This matter is before the court on Formulatrix's "Motion for Partial Summary Judgment" (Docket No. 66), by which Formulatrix is seeking summary judgment with respect to Rigaku's claims for (1) breach of contract, (2) breach of the covenant of good faith and fair dealing, and (3) violation of Mass. Gen. Laws ch. 93A. This matter is also before the court on Rigaku's "Motion for Partial Summary Judgment" (Docket No. 70), by which Rigaku is seeking summary judgment with respect to all of Formulatrix's remaining claims, and affirmatively on its own breach of contract and breach of the covenant of good faith and fair dealing claims. Both parties are also seeking summary judgment on the issue of entitlement to attorneys' fees. For the reasons detailed herein, Formulatrix's Motion for Partial Summary Judgment is DENIED and Rigaku's Motion for Partial Summary Judgment is ALLOWED IN PART AND DENIED IN PART. Specifically, Rigaku's motion is ALLOWED with respect to Count I of Rigaku's Counterclaim (breach of contract), Count II of Formulatrix's Amended Complaint (breach of covenant of good faith and fair dealing), but DENIED with respect to Count IV of Formulatrix's Amended Complaint (guaranty) and Count V of Rigaku's Counterclaim (attorneys' fees). With respect to Count I of Formulatrix's Amended Complaint (breach of contract), Rigaku's motion is ALLOWED as to the reports required by Art. 2.02 and accurate representations and warranties under Schedule 5.06, but otherwise DENIED. As detailed herein, this court concludes that the issue of entitlement to attorneys' fees is premature.

II. STATEMENT OF FACTS ¹

The following facts are undisputed unless otherwise indicated.

The CSA

Formulatrix is in the business of developing, manufacturing, and selling protein crystallization automation products ("Automation Products") to customers in the protein crystallization industry. (PF ¶ 1). As of the beginning of 2015, Rigaku was a direct competitor to Formulatrix in the Automation Products industry. (PF ¶¶ 2, 4). On January 15, 2015, Formulatrix presented Rigaku with an offer to purchase its assets, and thereafter, the two companies engaged in negotiations related to the offer. (DOppF ¶ 1).

Effective January 20, 2015, Formulatrix and Rigaku entered into a Customer Support Agreement ("CSA" or "Agreement"). (PF ¶ 2). Generally speaking, under the CSA, Rigaku agreed to exit the business of developing, manufacturing, and selling protein-crystallization-automation equipment; to transfer certain assets and license certain intellectual property to Formulatrix; to transfer certain business documents to Formulatrix within 90 days; and to provide transition support services to Formulatrix for up to 90 days. (See PEx. 1 Arts. 1.01, 1.02, 2.01, 2.04, 3.01). In turn, Formulatrix agreed to provide support services to Rigaku's protein-crystallization customers and to pay Rigaku $2 million upon the execution of the CSA and then an additional sum of $1.825 million in equal installments over the course of 12 months commencing on January 20, 2016, one year after the execution of the CSA. (See PEx. 1 Arts. 1.02, 4.01).

The parties agree that Formulatrix did not conduct due diligence with respect to Rigaku's financial representations and warranties before signing the CSA. (PF ¶ 6; DR ¶ 6). However, the parties dispute whether this was by mutual agreement, as Rigaku contends, or because Rigaku refused to allow Formulatrix to conduct such due diligence, as Formulatrix contends. (See DR ¶ 6; PROppF ¶ 2). Among the representations and warranties provided by Rigaku in the CSA is a schedule containing Rigaku's financial information. (PEx. 1 Art. 5.06, Schedule 5.06). Rigaku's financial information, provided in Schedule 5.06, includes Rigaku's revenue for FYE2014 and projected revenue for FYE2015. (Id. ). Formulatrix asserts, but Rigaku disputes, that Formulatrix agreed to pay Rigaku the amount of monetary consideration in the CSA in reliance upon Rigaku's representations and warranties as to such revenue. (See PF ¶ 5; DR ¶ 5).

At the heart of Formulatrix's case is the CSA's records transfer provision, which provides in relevant part:

Art. 2.04 Records. On or promptly following the Effective Date, and in no event later than ninety (90) days following the Effective Date, Rigaku shall deliver to Formulatrix a copy of all of the following records of Rigaku (whether such materials are evidenced in writing, electronically or otherwise) with respect to the Products² : (i) purchasing and production records; (ii) all customer lists (including contact information for each customer); (iii) all vendor, supplier and service provider lists (including a copy or description of the underlying commercial agreements or arrangements with such vendors, suppliers or service providers); (iv) blueprints, technology, technical designs, drawings, specifications; (v) pricing and cost information, including a copy of any purchase order to be filled by Formulatrix, (vi) service support records and (vii) other books, records and files used or held for use by or on behalf of Rigaku, in each case which are solely related to the Products or used solely in conjunction with the Business³ (the "Records"). Rigaku shall provide all Records in excel format or shall provide Formulatrix with a copy of the software necessary to access the Records in their existing format, in each case to the extent reasonably practicable.

(PEx. 1 Art. 2.04).

At issue in the instant case is whether Rigaku breached the CSA's record transfer provision by failing to transmit within 90 days certain documents that Formulatrix asserts were required to be transferred pursuant to the CSA. Specifically, the parties dispute whether the transfer of documents related to historical instrument sales and service revenue (invoices, quotes, and purchase orders) was required under the CSA, and whether, if required, the transfer of these documents and/or their transfer within 90 days was a material term of the CSA. (See PF ¶¶ 5, 7; DR ¶¶ 5, 7; Docket No. 67 at 6, 12; Docket No. 80 at 14-15). Formulatrix contends that such documents were necessary for it to confirm Rigaku's representations in the CSA regarding Rigaku's financial information so that Formulatrix could determine if the purchase price Formulatrix had agreed to was justified. (See Docket No. 67 at 11-12). Rigaku contends that these documents were irrelevant since the purchase price was not dependent on any historic sales and revenue figures and that Formulatrix is using the documents as a belated justification for failing to make payments when due. (See Docket No. 80 at 1, 14-15, 20).

The CSA also provides for the award of attorneys' fees, stating that "In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof or thereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy." (PEx. 1 Art. 9.12). The parties dispute which party should be considered the "successful party" entitled to attorneys' fees in the present litigation.

Performance During The 90 Day Record Transfer Period

Immediately following the execution of the CSA, the parties began performance. There is no dispute that Formulatrix transferred $2 million to Rigaku and that Rigaku stopped developing, manufacturing, and selling...