Pfizer, Inc. v. Stryker Corp.
| Decision Date | 02 December 2004 |
| Docket Number | No. 02 Civ.8613(LAK).,02 Civ.8613(LAK). |
| Citation | 348 F.Supp.2d 131 |
| Parties | PFIZER, INC., et ano., Plaintiffs, v. STRYKER CORPORATION, et ano., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Charles B. Updike, Beth L. Kaufman, Schoeman, Updike & Kaufman, LLP, New York, NY, for Plaintiffs.
Herbert J. Stern, Joel M. Silverstein, Stern & Kilcullen, Roseland, NJ, for Defendants.
In 1998, Pfizer, Inc. and MTG Divestitures, Inc. (collectively "Pfizer") sold its prosthetic joint and implant business to Stryker Corp. and Howmedica Osteonics Corp. (collectively "Stryker") for $1.6 billion. The pertinent agreements provided, broadly speaking, that Pfizer would retain liability for third party product liability claims arising in respect of prosthetic joints sold prior to the closing, while Stryker would be responsible for claims relating to joints sold after the closing. Once the deal closed, however, the parties each sought to shift responsibility to the other with respect to a particular prosthetic joint, the Duracon Uni-Compartmental Knee, on a variety of theories. Discovery having concluded, Pfizer moves for partial summary judgment on certain of its claims. Both sides move for summary judgment on certain of Stryker's counterclaims.
The Duracon Uni-Compartmental Knee system ("DUK") is a prosthetic knee implant that was manufactured by Howmedica, Inc., a former Pfizer subsidiary, and used to replace a part or a condyle of a knee.1 The DUK has two components, a femoral piece made of cobalt chrome and a tibial component made of ultra high molecular weight polyethylene ("UHMWPE") packaged in standard atmospheric conditions and sterilized through a process of gamma sterilization in air, also known as conventional radiation sterilization.2
The DUK first was approved by the FDA in 1993. The tibial components were manufactured in Limerick, Ireland, between May and September of 1993 and shipped to Pfizer's Rutherford, New Jersey warehouse for distribution in the United States.3 As a result of Pfizer's effort to redesign the femoral component, however, the DUKs were not distributed in the United States until May of 1997.4
UHMWPE degrades over time when not implanted.5 In accordance with FDA regulations, Pfizer adopted a policy in 1996 that all conventionally radiation sterilized UHMWPE products should not be sold for implementation more than five years after their manufacture.6 Pfizer's policy also prohibited distribution of UHMWPE products more than four years after their manufacture, although the scope of this aspect of the policy is unclear.7
In order to implement this five year rule, Howmedica created a computer program, known as the SPCS or Poly Filter File, to track UHMWPE products and ensure that they were not shipped after they expired.8 Although the SPCS was primarily responsible for tracking UHMWPE products, some Pfizer warehouse employees testified that they were supposed to check the labels of devices and manually remove those that had been manufactured more than five years earlier.9
In late 1996 or early 1997, Howmedica decided to sell the DUK in the United States and put together a team to launch the product and repackage the tibial components. As part of this effort, the team redesigned the label to indicate the date on which the components were manufactured.10 Certain members of the Howmedica team had concerns about marketing the DUK so close to the time at which it no longer could be implanted.11 For example, Paul Amregian, a packaging engineer for Howmedica, expressed concerned that the product was being released too close to the date after which it no longer should have been distributed.12 Other employees expressed concerns about the timing of the release as well, specifically with regard to the Pfizer policy that UHMWPE products not be distributed more than four years after being manufactured.13 In any event, Howmedica began to market the products in May of 1997 and reordered new products from Ireland for sale after the tibial components manufactured in 1993 were too old to be used.14
None of the DUK components manufactured in 1993 was entered into the SPCS.15 In a memo dated March 11, 1997, Robert Blair Harvey, then manager of regulatory compliance at Howmedica, requested that Douglas O'Connor, a Howmedica employee who worked on the development of the SPCS,16 enter the catalog numbers of the DUK products into the SPCS.17 Mr. Harvey never followed up on this request and Mr. O'Connor cannot recall receiving such a request, although he has no reason to suspect that he did not.18 Mr. O'Connor testified that he did not know why the DUKs were never entered into the system and surmised that it was an oversight.19 Similarly, Elizabeth Staub, an employee of Howmedica Osteonics Corporation, testified, on the basis of corporate documents she had reviewed, that she could find no reason why the DUKs would have been excluded from the tracking system.20 Although Mr. O'Connor testified that the system had been tested thoroughly, he acknowledged that it was limited in scope and, at the time in question, did not include products manufactured outside the United States.21
The first DUK tibial components were sold in the United States in or around May of 1997.22 The tibial components continued to be sold and implanted in patients until sometime in early 2000.23 It is undisputed that some of the DUKs were sold and implanted more than five years after they had been manufactured and sterilized.24
On August 13, 1998, Pfizer and Stryker entered into a written stock and asset purchase agreement pursuant to which Stryker bought Pfizer's specialty trauma and prosthetic joint business, which primarily took the form of the Howmedica Corporation.25 On December 4, 1998, the deal closed and Howmedica changed its name to MTG Divestitures, Inc. The new business was incorporated into Stryker as the Howmedica Osteonics Corp. ("HOC").26 Approximately 2,000 of the DUK tibial components that had been manufactured in Ireland in 1993 were transferred to Stryker as part of the sale.27
The Purchase Agreement contains several provisions relating to the parties' liability for third party claims arising from the sale of medical devices. Section 2.5 provides:
"Assumption of Certain Obligations of the Business. Upon the terms and subject to the conditions of this Agreement, Purchaser agrees, effective at the Closing, to assume all Liabilities of the Seller Corporations to the extent relating to the Conveyed Assets or the Business and to cause the Conveyed Subsidiaries and their Subsidiaries to satisfy and discharge their respective Liabilities whether arising on, prior to or after the Closing Date, and whether accrued or fixed, known or unknown, absolute or contingent, matured or unmatured or determined or determinable as of the Closing Date, other than Retained Liabilities (all of the foregoing liabilities and obligations being herein collectively called the `Assumed Liabilities'). Except for Liabilities expressly within the definition of Retained Liabilities or as otherwise provided in this Agreement, Assumed Liabilities shall include, without limitation, the following:
(a) except as provided in Section 2.6(g), all lawsuits commenced and claims made after the Closing Date to the extent resulting from the conduct of the Business or the ownership of the Shares or the Conveyed Assets prior to, on or after the Closing Date;
* * * * * *
(c) all Liabilities resulting from a claim by a third party for money or other compensation (beyond the cost of a particular product) in respect of injury allegedly due and owing as a result of the use or application of a product of the Business sold after the Closing Date, including, without limitation, warranty obligations and irrespective of legal theory asserted."28
Section 2.6 of the Purchase Agreement defined the Retained Liabilities of the Business for which Pfizer remains liable:
The parties agreed also to indemnify each other in certain circumstances. Section 8.1 provides for indemnification by Pfizer:
"Pfizer agrees to defend, indemnify and hold harmless Purchaser and its Affiliates, and, if applicable, their respective directors, officers, agents, employees, successors and assigns from and against any and all claims, actions, causes of action, judgments, awards, liabilities, losses, costs or damages (collectively, a `Loss' or, the `Losses') claimed or arising directly from (i) any Retained Liability, ... (iii) any breach by the Seller Corporations of any of its covenants or agreements contained in this Agreement or in any agreement, (iv) any breach of any representation and warranty of the Seller Corporations contained in this Agreement, it being understood that for purposes of this Article VIII, all materiality exceptions and qualifications set forth in any representation and warranty of Pfizer contained in this Agreement shall be disregarded, the materiality standard for Pfizer's obligations to indemnify Purchaser and its Affiliates, ... in respect of a breach of a representation and...
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