Nasik Breeding & Research Farm v. Merck & Co.

Decision Date30 August 2001
Docket NumberNo. 00 CIV. 5628 AGS.,00 CIV. 5628 AGS.
Citation165 F.Supp.2d 514
PartiesNASIK BREEDING & RESEARCH FARM LTD., C & M Farming Ltd., and Silvassa Poultries Pvt. Ltd (Formerly M/S Silvassa Poultries), Plaintiffs, v. MERCK & CO., INC., Hubbard Farms, Inc., Merial LLC, Hubbard ISA, Rhone Merieux, John Preston, John Gascoyne, Robert L. Owen, Patricio Liberona, David Fyfe, Jerome Baudon, Charles W. Shaw, and Darrel D. Rector, Defendants.
CourtU.S. District Court — Southern District of New York

Rohit Sabharwal, Sabharwal & Assoc., New York City, Richard Herman, New York City, for Plaintiff.

Matthew Gluck, Bonnie Steingart, Fried, Frank, Harris, Shriver & Jacobson, New York City, for Merck & Co., Inc.

Thomas C. Morrison, Naomi Schrag, Patterson, Belknap, Webb & Tyler, for Merial LLC and Hubbard ISA.

OPINION AND ORDER

SCHWARTZ, District Judge.

This action arises out of a dispute over the sale of allegedly diseased breeding chickens to plaintiff Nasik Breeding & Research Farm Ltd. by defendants Hubbard Farms, Inc. and Hubbard ISA. Plaintiffs seek to rescind a settlement they entered into with certain defendants relating to the supply of such chickens, and to recover compensatory and punitive damages against defendants under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962 et seq., and under state law for common law fraud, breach of contract and the implied covenant of good faith and fair dealing, fraudulent and negligent misrepresentation, tortious interference with contractual relations, and related statutory claims. Currently before the Court are defendants' motions to dismiss each of plaintiffs' claims pursuant to Fed.R.Civ.P. 12(b)(6) ("Rule 12(b)(6)") and Fed.R.Civ.P. 9(b) ("Rule 9(b)"). For the reasons set forth below, the motions are granted.

I. Factual Background
A. Parties

Plaintiff Nasik Breeding & Research Farm Ltd. is a company organized and existing under the laws of India with its principal place of business in Maharashtra, India. It belongs to the C & M Group, a pioneer in the Indian poultry industry and now a successful conglomerate. (First Amended Complaint ("Amend.Compl.") ¶¶ 4, 18-24.) The Group also includes plaintiffs C & M Farming Ltd. and Silvassa Poultries Pvt. Ltd. (Id. ¶¶ 5-6.) Plaintiffs and their predecessors have been in the poultry business in India for over forty years, and through a series of expansions and deals, became India's largest commercial egg producers and the largest suppliers of day old broiler chicks in Western India. (Id. ¶¶ 18-24.) All references to "Nasik" in this Opinion hereinafter refer to each of the three plaintiffs.1

Defendant Merck & Co. ("Merck"), a New Jersey corporation with its principal place of business in Whitehouse Station, New Jersey, is a health care and pharmaceutical conglomerate that is engaged in the manufacture, distribution and sale of pharmaceutical and health care products worldwide. (Id. ¶ 7.) Defendant Hubbard Farms, Inc. ("Hubbard") was a wholly-owned subsidiary of Merck, with its principal place of business in New Hampshire, and was among the largest breeders of broiler chickens for domestic and international markets. (Id. ¶¶ 8, 32-39.) Following the creation of Merial Animal Health in 1997, a 50/50 joint venture between Merck AgVet, a division of Merck, and defendant Rhone Merieux, a French conglomerate, Hubbard merged with ISA, Rhone Merieux's poultry business, to form defendant Hubbard ISA. (Id. ¶ 9.) Hubbard ISA is a now a wholly-owned subsidiary of defendant Merial LLC ("Merial"), which is a Delaware limited liability corporation with its principal place of business in New Hampshire. (Id. ¶ 10; Memorandum of Law in Support of Merial and Hubbard ISA's Motion to Dismiss ("Merial and Hubbard ISA Mem.") at 3.)

Individual defendant John Preston ("Preston"), a citizen of New Jersey, is Chairman of Merial Animal Health, and, prior to the joint venture, was president of Merck AgVet. Defendant John Gascoyne ("Gascoyne"), a citizen of New Hampshire, is currently president of Hubbard ISA and was president of Hubbard. Defendant Robert L. Owen ("Owen"), a citizen of New Hampshire, is director of veterinary services at Hubbard ISA, and held the same position at Hubbard.2 Defendants Patricio Liberona ("Liberona"), David Fyfe ("Fyfe"), and Jerome Baudon ("Baudon") are employees of Hubbard and citizens of Canada, Scotland, and Tennessee, respectively. Defendants Charles W. Shaw ("Shaw"), a citizen of New Hampshire, and Darrel D. Rector ("Rector"), a citizen of North Carolina and an employee of the State of North Carolina, are practicing veterinarians. (Amend.Compl. ¶¶ 11-17.) Hereinafter all defendants are collectively referred to as "defendants."

B. 1994 Agreement

On November 21, 1994, Hubbard and Nasik entered into a Grandparent Breeding Stock Lines Sales and Distribution Agreement (the "1994 Agreement"), pursuant to which Hubbard agreed to sell certain lines of chicken breeding stock to Nasik for a period of five years. The chicken broiler breeding business involves four different kinds of stock: pure line stock, great-grandparent stock, grandparent stock, and parent stock. Pure line stock is used to produce great-grandparent stock, great-grandparent stock is used to produce grandparent stock, and so on. (Id. ¶ 26.) Pursuant to the 1994 Agreement Hubbard provided Nasik with grandparent lines in the form of day-old grandparent chicks, from which Nasik would produce parent stock for distribution and sale. (Id. ¶ 27.) Nasik agreed to maintain a strict set of quality controls in exchange for its right to breed and distribute Hubbard's chickens. (1994 Agreement, Affidavit of Matthew Gluck dated Aug. 31, 2000 ("Gluck Aff."), Ex. D, §§ VI, VII, VIIII, X.) The 1994 Agreement also (i) appointed Nasik as Hubbard's exclusive distributor in India and neighboring countries, (ii) required that Nasik obtain Hubbard's consent to sell or distribute hatching eggs, chicks, or breeding stock other than those purchased from Hubbard, and (iii) gave Hubbard the right to inspect Nasik's stock for communicable disease, which occurred through quarterly inspections of Nasik's hatcheries by Hubbard veterinarians. (Amend. Compl. ¶¶ 40-43; 1994 Agreement §§ III, IX, X.)

C. Misrepresentations by Defendants Regarding Diseased Chickens

According to Nasik, chicken breeding stock is commonly susceptible to various forms of disease, and because of the costs involved in producing such stock, "great care must be taken to ensure that Breeding Stock is free from diseases, which can ultimately impair or destroy the value of the flocks produced by that Breeding Stock." (Amend.Compl.¶ 63.)

In or about late 1995 or early 1996, Merck and Hubbard allegedly discovered that certain of the latter's pure line and grandparent breeding stock was susceptible to, and certain lines were in fact afflicted by, a virulent cancer virus.3 (Id. ¶ 48.) Nasik alleges that over approximately the next 18 months, defendants concealed the problem because of fears of eroding market share and the possible effect such news could have on Merck's upcoming merger with Rhone Merieux, and conspired to distribute and sell diseased breeding stock worldwide in order to continue reaping profits from such sales. Pursuant to the alleged conspiracy, diseased chicks were diverted to India and other third world countries "where defendants believed that early detection of the disease would be unlikely." (Id. ¶¶ 48, 49, 70-77.) Nasik further alleges that Hubbard representatives were told not to reveal the disease unless a customer first produced evidence of its existence. (Id. ¶¶ 77, 84, 92.) The alleged deception also included the procurement of false export certificates from the United States Department of Agriculture ("USDA"), which, Nasik claims, are intended in part "to ensure that animals, poultry, semen, embryos, and hatching eggs intended for export are free from evidence of communicable disease and exposure thereto ...." (Id. ¶¶ 49, 51-62, 99, 102.) The "issuing veterinarians" for such certificates were Shaw and Rector. (Id. ¶ 100.)

The fraud allegedly resulted in the virtual destruction of Nasik's broiler chicken business, through loss of sales, reputation, and goodwill. (Id. ¶¶ 50, 96-97.) Nasik states that it noticed a high mortality rate among its Hubbard breeding stock, beginning in early 1996 and continuing throughout 1996. Upon inquiries by Nasik through the middle of 1997, defendants failed to disclose the virus. On July 31, 1997, after a visit to Nasik's facilities, Owen stated that Hubbard's flocks were infected with the cancer virus. (Id. ¶¶ 78, 84, 90.) Subsequent testing resulted in the destruction of the overwhelming majority of Nasik's then-existing stock, and damages of approximately $40 million. (Id. ¶¶ 96, 104, 133.) Nasik claims it discovered the alleged fraud in October 1997 in further discussions with Hubbard representatives. (Id. ¶ 92.)

D. 1998 Settlement, Release, and New Agreement

After the July 1997 disclosure of the cancer virus by defendants, Nasik requested $46 million in compensation from Hubbard and the parties entered into settlement discussions. (Id. ¶¶ 104-105.) On January 22, 1998, Nasik's former counsel, Kelley Drye & Warren, sent Merck a draft complaint (the "Draft Complaint") alleging claims against Merck, Hubbard, Merial, Preston, Gascoyne, and Owen for fraud, breach of contract and RICO violations in connection with the 1994 Agreement and the events described above. (Draft Complaint, Ex. B to Gluck Aff.) On February 26, 1998, attorneys for the parties entered into a Standstill Agreement to explore the possibility of settlement. Settlement meetings and communications occurred over the next nine months, principally in the six months between May and November 1998. The principal negotiators were Paul Doyle, a Kelley Drye attorney,...

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