In re Access Cardiosystems, Inc., No. 05-40809-HJB.

CourtUnited States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts
Writing for the CourtHenry J. Boroff
Citation361 B.R. 626
PartiesIn re ACCESS CARDIOSYSTEMS, INC., Debtor.
Docket NumberNo. 05-40809-HJB.
Decision Date16 February 2007

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361 B.R. 626
In re ACCESS CARDIOSYSTEMS, INC., Debtor.
No. 05-40809-HJB.
United States Bankruptcy Court, D. Massachusetts.
February 16, 2007.

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COPYRIGHT MATERIAL OMITTED

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Jeffrey D. Sternklar, Jennifer L. Hertz, Duane Morris, LLP, Boston, MA, for Debtor.

Charles R. Bennett, Jr., Christian J. Urbano, Harold B. Murphy, Jesse I. Redlener, Hanify & King, P.C., Boston, MA, for Creditor Committee Creditors Committee Access Cardiosystems.

MEMORANDUM OF DECISION

HENRY J. BOROFF, Bankruptcy Judge.


Before the Court is the "Debtor's Omnibus Objection to General Unsecured

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Claims Asserted by European Distributors" (the "Objection" or "Objection to Claims") filed by Access Cardiosystems, Inc. (the "Debtor"). The Objection and various supplementary memoranda filed by the Debtor and the claimants raise several issues of contract law and interpretation. The Debtor asks this Court to disallow the claims in their entirety as foreclosed by various provisions of agreements between the Debtor and the claimants. The claimants, in turn, ask this Court to conduct an evidentiary hearing to determine factual issues regarding the Debtor's alleged breach of the contracts and the amount of damages resulting from that breach.

I. FACTS AND TRAVEL OF THE CASE

A. The Distribution Agreements

The present controversy arises from several distribution agreements (the "Agreements") executed by the Debtor and various European distributors1 (the "Distributors") during the latter part of 2001 and the early part of 2002, several years prior to the filing of the instant Chapter 11 bankruptcy case. Under the Agreements, the Distributers were granted exclusive rights to market and sell the Debtor's automated external defibrillators ("AEDs" or "Access AEDs")2 within their respective territories throughout Europe.3

Section 3 of the Agreements detailed various obligations of the Distributors, including promotion, marketing, minimum commitments and training criteria. In addition, under Section 3.17, except as otherwise provided or agreed to in writing by the Debtor and a Distributor, the Distributors bore "all costs and expenses incurred in the performance of Distributor's obligations under th[e] Agreement[s]." In return, the Distributors each received a limited license of the Debtor's intellectual property rights to sell the AEDs exclusively within their respective European territories.

The initial term of each. Agreement was two years, unless terminated pursuant to Section 11. Under Section 11.2, either party could terminate the Agreement for cause,4 and under Section 11.3, either party

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could terminate the Agreement with or without cause, provided that written notice was given of the termination six months prior to the effective date of the termination. The Agreement further limited liability with respect to terminations under Section 11 of the Agreement.5

Each Agreement also disclaimed all warranties relative to the Access AEDs, with the exception of limited warranties extended to the ultimate end-users of the product.6 In addition to excluding warranties, Section 15 of the Agreements also limited the parties' liability in the event of breach:

15. LIMITED LIABILITY

15.1 Limitations and Exclusions. REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN OR ACCESS CARDIOSYSTEMS'S LIMITED WARRANTY ACCOMPANYING DELIVERY OF THE ACCESS CARDIOSYSTEMS PRODUCT FAILS OF ITS ESSENTIAL PURPOSE OR OTHERWISE, NEITHER PARTY WILL BE LIABLE FOR ANY LOST PROFITS OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL,

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PUNITIVE OR OTHER SPECIAL DAMAGES SUFFERED BY DISTRIBUTOR, ITS CUSTOMERS OR OTHERS ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE ACCESS CARDIOSYSTEMS PRODUCT, FOR ALL CAUSES OF ACTION OF ANY KIND (INCLUDING TORT, BREACH OF CONTRACT, NEGLIGENCE, STRICT LIABILITY AND BREACH OF WARRANTY) EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

15.2 Maximum Aggregate Liability. IN NO EVENT WILL ACCESS CARDIOSYSTEMS'S TOTAL CUMULATIVE LIABILITY IN CONNECTION WITH THIS AGREEMENT OR THE ACCESS CARDIOSYSTEMS PRODUCT, FROM ALL CAUSES OF ACTION OF ANY KIND, INCLUDING TORT, BREACH OF CONTRACT, NEGLIGENCE, STRICT LIABILITY AND BREACH OF WARRANTY, EXCEED THE TOTAL AMOUNT PAID BY DISTRIBUTOR TO ACCESS CARDIOSYSTEMS HEREUNDER.

15.3 Acknowledgment. Distributor agrees that the limitations of liability and disclaimers of warranty set forth in this Agreement are independent of any remedies hereunder and apply regardless of whether any remedy fails of its essential purpose. Distributor acknowledges that Access CardioSystems has set its prices and entered into this Agreement in reliance on the disclaimers of liability, the disclaimers of warranty and the limitations of liability set forth in this Agreement and that the same form an essential basis of the bargain between the parties.

Given the nature of the AEDs and the regulations imposed by the United States Food and Drug Administration (the "FDA"), it is unsurprising that the Agreements also contained provisions regarding the parties' rights and obligations in the event of a recall. The relevant provisions of Section 9 of the Agreements provide:

9.2 Notification by Access CardioSystems. If a product investigation by a party or government office or agency results in a potential product recall or correction of the Access Cardiosystems Product, Access CardioSystems shall retain full authority and responsibility for decisions on such recall or correction. If Access CardioSystems decides to conduct a recall or correction, Access CardioSystems will provide written notice to Distributor within twenty-four (24) hours of such decision, and a summary of the reason for and implementation of such action. Access CardioSystems shall provide such information as Distributor may reasonably require to prepare any additional customer notification of such recall or correction, which notification shall be issued by Distributor.

9.3 Procedure. Any such recall, correction or notification shall be handled in accordance with the recall, correction and customer notification policy and procedures maintained by Access Cardiosystems. Access CardioSystems shall promptly reimburse all reasonable, necessary and documented costs for any recall of the Access CardioSystems Product that are incurred by Distributor with the prior approval of Access CardioSystems.7

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B. The Recall

In October of 2004, the Debtor learned of potential problems with the AEDs that eventually led to the issuance, on November 3, 2004 of its "Urgent Recall Notice" (the "Recall Notice"). The Recall Notice was mailed to customers and the Distributors, and provided:

URGENT RECALL NOTICE — IMMEDIATE ACTION REQUIRED
Access CardioSystems, Inc.'s Access AED and AccessALS Automated External Defibrillators

November 3, 2004

Dear Customer:

According to our records, you have purchased one or more of Access CardioSystems, Inc.'s ("Access CardioSystems" or the "Company") AccessAED or AccessALS automated external defibrillator ("AED") devices. The Company has become aware of two potential issues involving certain of its AEDs that warrant your immediate attention....

. . .

PLEASE IMMEDIATELY DISCONTINUE USE OF AND REMOVE FROM SERVICE ACCESS CARDIOSYSTEMS AED DEVICES WITH THE ABOVE REFERENCED CATALOG AND SERIAL NUMBERS

IMPORTANT: Certain of the AccessAED or AccessALS AEDs in your possession may have one, both, or neither of the issues described above. However, the Company has made a business decision, effective November 3, 2004, to discontinue manufacturing and marketing ALL models of its AEDs and to discontinue supporting its AEDs that are currently in the field. We are no longer accepting orders for disposable parts used with our AEDs. Therefore, when your supply of disposable parts is depleted, please immediately discontinue use of and remove from service all of the Company's AEDs that you have in your possession. It is your responsibility to equip yourself with AEDs that meet your medical needs.

* * *

Please immediately sign and return the attached form by facsimile to Access CardioSystems ... indicating that you have received and understand this letter.

The Food and Drug Administration is being notified of this voluntary recall. We regret any inconvenience that this action may cause. If you have any questions about this letter, please contact the Recall Coordinator at [phone number provided].8

The details of the events precipitated by this Recall Notice are the subject of some dispute between the parties. According to the Distributors, they made numerous attempts to contact the Debtor following receipt of the Recall Notice, but claim that the Debtor was "totally non-responsive. Phone calls and correspondence from the European Distributors were completely ignored."

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Two Distributors claim to have submitted "formal notices" requesting reimbursement of costs associated with the recall, as provided by Section 9.3 of the Agreements. Relevant documents attached to the Distributors' supplemental response to the Objection (the "Distributors' Supplemental Response") include: (1) a letter to the Debtor from Reavita dated November 14, 2004; (2) a letter to the Debtor from Arthur M. Dolby ("Arthur Dolby"), Dolby's managing director, dated November 22, 2004; and (3) a second, undated, letter to the Debtor from Arthur Dolby. Both Reavita, and Dolby raised concerns regarding their inability to contact the Debtor and both referenced Section 9.3 of the Agreements and the required approval of costs associated with the Recall. The Reavita letter stated, in relevant part:

Dear Sir,

Accesscardiosystems sent us by courier an information dated November 3, 2004, about a Recall of Access products.

. . .

• There are two different "Recall phone numbers" mentioned. By today, none of our calls has been answered personally neither is it possible to leave a message.

• Calling the Recall phone number provided by Access, we are...

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1 practice notes
  • IN RE BH S & B HOLDINGS LLC, No. 08-14604 (MG).
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • April 7, 2010
    ...clerk . . . as of the date of its original delivery." Courts have granted similar relief in the past. In re Access Cardiosystems, Inc., 361 B.R. 626, 638-39 (Bankr.D.Mass.2007) ("Regarding the failure to file the proofs of claim with KCC, this Court also finds that procedural error to be of......
1 cases
  • IN RE BH S & B HOLDINGS LLC, No. 08-14604 (MG).
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • April 7, 2010
    ...clerk . . . as of the date of its original delivery." Courts have granted similar relief in the past. In re Access Cardiosystems, Inc., 361 B.R. 626, 638-39 (Bankr.D.Mass.2007) ("Regarding the failure to file the proofs of claim with KCC, this Court also finds that procedural error to be of......

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