Noramco LLC v. Dishman U.S., Inc.
| Decision Date | 03 February 2023 |
| Docket Number | Civil Action 21-1696-WCB |
| Parties | NORAMCO LLC, Plaintiff, v. DISHMAN USA, INC., Defendant. |
| Court | U.S. District Court — District of Delaware |
On December 19, 2022, I granted summary judgment to plaintiff Noramco LLC, holding that defendant Dishman USA, Inc. breached a supply agreement between the two parties. Dkt. No 75 at 13. In my order granting Noramco's motion, I directed the parties to confer regarding the remedy to be awarded to Noramco and to submit briefs if agreement could not be reached on that issue. Id. The parties could not agree on a remedy and subsequently filed two rounds of simultaneous briefing on the issue of damages. Dkt. Nos 83-84, 88-89. I construe the parties' submissions as cross-motions for summary judgment on the issue of damages. Dishman has also filed a motion to dismiss for lack of subject matter jurisdiction. Dkt. No. 82. For the reasons set forth below, both motions for summary judgment on damages are GRANTED IN PART and the motion to dismiss is DENIED.
This case involves a contract dispute regarding a supply agreement (the “Agreement”) between Noramco and Dishman. Noramco, a manufacturer of active pharmaceutical ingredients (“APIs”), entered into the Agreement with Dishman, in which Dishman agreed to supply Noramco with olivetol, an ingredient used in the production of Noramco's APIs. Dkt. No. 69-2 §§ 1.2, 2.1.
The Agreement provided that Dishman would produce the olivetol at Dishman's facility in Lodariyal, India, and deliver the olivetol to Noramco. Id. §§ 1.7, 2.1. The Agreement further provided that the olivetol that Dishman supplied would comply with “current good manufacturing practices” (“cGMP” or “GMP”) as required by standards promulgated by the U.S. Food and Drug Administration, the European Union, and the Swiss Agency for Therapeutic Products (“Swissmedic”). Id. §§ 1.4, 4.1.
Between February 26 and 28, 2020, before Dishman manufactured the olivetol to be supplied under the Agreement, Swissmedic and the European Directorate for the Quality of Medicines and HealthCare (“EDQM”) inspected Dishman's facility in Lodariyal. Dkt. No. 69-7 at 1. That inspection resulted in a finding that Dishman's facility was not compliant with cGMP. Id. As explained in more detail in my order regarding Noramco's summary judgment motion, Dkt. No. 75, the results of the inspection compelled a conclusion that, as a matter of law, the olivetol had to be treated as having been produced under conditions that were not compliant with cGMP.
A brief recitation of the events following the production of the olivetol that was delivered to Noramco is relevant to the damages issue currently before the court. In early March 2020, Dishman manufactured six batches of olivetol. Dkt. No. 69-12. On March 26, 2020, Dishman shipped those batches of olivetol to Noramco, which received the olivetol on April 2, 2020. Id. Dishman informed Noramco of the results of the Swissmedic and EDQM inspection two weeks later, on April 16, 2020. Dkt. No. 69-17.
On April 18, 2020, after learning of the Swissmedic and EDQM inspection, Noramco notified Dishman of its concerns regarding the inspection results and the impact those results would have on the olivetol Noramco had received. Dkt. No. 69-18. The two parties then conferred for several months regarding the status of the olivetol. See, e.g., id.; Dkt. Nos. 69-6, 69-21. On August 19, 2020, Noramco notified Dishman in writing that the olivetol Dishman supplied to Noramco did not comply with the Agreement. Dkt. No. 69-20. As part of that notification, Noramco requested that Dishman arrange for the material be returned to Dishman. Id.
In the correspondence between Dishman and Noramco, Dishman appears to have agreed to arrange for the return of the olivetol and to refund Noramco for the purchase, although Dishman disputes that proposition. See Dkt. No. 69-6 (); Dkt. No. 69-21 (). When no portion of the refund was paid in the fourth quarter of 2020, Noramco asked Dishman when the refund would be made. Dkt. No. 69-6. Noramco represents that Dishman never responded to that inquiry. Dkt. No. 69 at 10. Noramco then brought this action.
The parties' Agreement governing the purchase of the olivetol contains several provisions that are relevant to the determination of damages in this case. The general provisions of the Agreement make clear that “disputes with respect to non-conforming Material” are governed by Section 4.3 of the Agreement. Dkt. No. 69-2 § 12.3; see also id. § 12.4 (same).
Section 4.3.1 of the Agreement sets forth the procedures that Noramco was required to follow in order to reject material that it believed to be non-conforming. First, that section makes clear that, in order to reject the olivetol it received, Noramco was required to notify Dishman of its rejection within 30 business days of receiving that material. Id. § 4.3.1. That section adds that if Noramco discovered a latent defect after the 30-day notification period ended, Noramco could still enforce its rights under the Agreement if Noramco notified Dishman of its rejection within 15 business days of the date on which Noramco discovered or should have discovered the defect. Id. Section 4.3.1 further adds that Noramco “shall be responsible for storage and handling [of] the Material” upon delivery. Id.
Section 4.3.2 of the Agreement outlines the procedures for resolving disputes regarding the conformity of the olivetol to the contract specifications. Specifically, that section explains that if Dishman and Noramco did not agree as to whether the olivetol was non-conforming, the parties were required to “use reasonable efforts to resolve such disagreement as promptly as possible.” Id. § 4.3.2. Those efforts could include, but were not limited to, submitting a sample of the olivetol to a testing laboratory. Id.
Section 4.3.3 of the Agreement provides the remedies available to Noramco in the event that the olivetol was determined to be non-conforming. That section provides that Noramco may withhold payment for any rejected material or receive a refund of prior payments for that material. Id. § 4.3.3. That section adds that if the olivetol is “accepted by [Dishman] as not meeting the applicable requirements” or “is determined by the Laboratory not to meet such requirements or the specifications,” the olivetol should be either returned to Dishman or disposed of “as directed by [Dishman], at [Dishman's] expense.” Id. Section 4.3.3 further provides that “[t]he remedies provided by this Section 4.3.3 shall be the sole and exclusive remedies of [Noramco] in respect to any out of Specification material that was rejected.” Id.
Section 12.4 of the Agreement provides an arbitration clause, which forms the basis for Dishman's motion to dismiss for lack of subject matter jurisdiction. That section states that “any dispute or claim arising out of or in connection with this Agreement or the performance, breach or termination thereof” shall be submitted to arbitration. Id. § 12.4. However, section 12.4 by its terms does not apply to “any disputes with respect to non-conforming Material, which shall be resolved in accordance with Section 4.3.” Id.
I begin by addressing the parties' proposals regarding damages in this case. Noramco requests damages in the amount of the purchase price it paid for the olivetol, along with the storage, disposal, and financing costs associated with the olivetol transaction. Noramco also requests prejudgment interest, postjudgment interest, and attorneys' fees. Dishman opposes Noramco's requests on several grounds. Because the parties' disputes turn exclusively on legal questions, or present questions on which there is no genuine dispute of material fact, the court can resolve those disputes on a summary judgment basis.
Dishman first argues that Noramco is not entitled to any damages because Noramco failed to timely reject the olivetol in accordance with Section 4.3.1 of the Agreement. That provision requires that Noramco reject the olivetol within 30 days of receiving the olivetol, or in the alternative, within 15 days of the time Noramco discovered or should have discovered a latent defect in the product. Id. § 4.3.1. Dishman argues that because the olivetol was delivered on April 2, 2020, and Noramco did not formally reject the olivetol until August 19, 2020, Noramco did not timely reject the olivetol under Section 4.3.1 of the Agreement. There are two problems with that argument.
First Dishman has forfeited the right to assert as a defense that Noramco failed to timely reject the olivetol. Despite Noramco's request in its motion for summary judgment that the court enter judgment for Noramco “inclusive of Noramco's demand for damages,” Dkt. No. 69 at 20, Dishman did not assert in its answering brief that Noramco would not be entitled to damages, based on Noramco's allegedly untimely rejection of the olivetol, even if the olivetol were found to be non-compliant with cGMP.[1] See generally Dkt. No. 71. Although it is true that Dishman raised that defense in its answer, Dishman's failure to raise that defense at the summary judgment stage results in a forfeiture of that defense. See Jenkins v. Cnty. of Riverside, 398 F.3d 1093, 1095 n.4 (9th Cir. 2005) (...
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