PVI Inc. v. Ratiopharm GmbH

• Decision Date: 12 February 2001
• Docket Number: No. 99-2692,99-2692
• Citation: 253 F.3d 320
• Parties: (8th Cir. 2001) PVI, INC., AND WILLIAM G. SKELLY, APPELLANTS, v. RATIOPHARM GMBH, A GERMAN CORPORATION, APPELLEE. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 320

253 F.3d 320 (8th Cir. 2001)

PVI, INC., AND WILLIAM G. SKELLY, APPELLANTS, v. RATIOPHARM GMBH, A GERMAN CORPORATION, APPELLEE.

No. 99-2692

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Submitted: February 12, 2001

Filed: June 7, 2001

Appeal from the United States District Court for the Western District of Missouri. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before Wollman, Chief Judge, and Bowman and Morris Sheppard Arnold, Circuit Judges.

Morris Sheppard Arnold, Circuit Judge.

PVI, Inc., and William Skelly (collectively, PVI) were minority stockholders in Martec, Inc., a pharmaceutical company. In 1995, PVI exercised an option that required ratiopharm, Martec's majority stockholder, to purchase PVI's interest in Martec. Although an independent appraiser determined a price at the request of the parties, PVI refused to turn over the stock certificates and sued ratiopharm, claiming, among other things, that ratiopharm had breached the stockholders' agreement as well as a fiduciary duty to PVI; ratiopharm counterclaimed, requesting the district court to compel PVI to hand over the stock certificates.

The district court granted summary judgment to ratiopharm on PVI's complaint and on the counterclaim, and also awarded to ratiopharm its attorneys' fees along with prejudgment interest on those fees. PVI appeals. We affirm the grants of summary judgment on ratiopharm's counterclaim and on PVI's claim for breach of fiduciary duty, but reverse the grant of summary judgment on PVI's claim for breach of contract.

I.

In 1990, ratiopharm purchased 51 percent of the stock of Martec, which had been wholly owned by PVI. At that time, ratiopharm and PVI entered into a stockholders' agreement that gave PVI the right to require ratiopharm to purchase the remaining 49 percent of Martec stock at any time after five years. In 1995, PVI gave notice to ratiopharm that it was exercising this option.

PVI and ratiopharm were unable to agree on a price, a circumstance in which the stockholders' agreement required each party to submit a proposed purchase price "based on an appropriate multiple of Martec's earnings or sales and other factors deem[ed] appropriate." The agreement further provided that if the proposed prices were within 10 percent of each other the price was to be the average of the two. If not, the parties were to select an independent expert to "determine which submitted purchase price best approximates the fair market value of the Stock, based on an appropriate multiple of Martec's earnings or sales, and such other facts as such expert considers appropriate." The agreement stated that the expert's determination "shall be final, binding and conclusive upon all Stockholders."

Pursuant to this agreement, PVI submitted a price of $36,750,000 for the Martec stock, while ratiopharm submitted a price of $545,860. PVI believed that ratiopharm's submission was not based on an appropriate multiple of Martec's earnings and thus violated the stockholders' agreement. PVI then notified ratiopharm by letter that "[a]lthough we believe that ratiopharm has failed to comply with its obligations under the Agreement, we intend to continue with the procedures set forth in the Agreement and trust that ratiopharm will proceed in good faith as contemplated by the agreement. In doing so, however, neither [PVI] nor Mr. Skelly is waiving any right associated with ratiopharm's breach" (emphasis supplied).

PVI and ratiopharm then completed the valuation process, with each party making substantial efforts to persuade the expert appraiser to select its proposed price. When the expert appraiser selected ratiopharm's price as better approximating the fair market value of the stock, PVI rejected ratiopharm's tender of the selected amount and refused to deliver the stock certificates.

PVI then sued ratiopharm, alleging that ratiopharm had violated the stockholders' agreement by proposing an inappropriate price for the Martec stock. PVI also claimed, in an unrelated count, that ratiopharm had breached a fiduciary duty owed to PVI by transferring Martec's manufacturing facilities to a ratiopharm affiliate in a transaction that occurred after PVI exercised the option to sell its Martec stock. In a counterclaim, ratiopharm sought specific performance of the stockholders' agreement, contending that PVI should be required to deliver its stock for the price that the appraiser had selected.

After the district court granted summary judgment to ratiopharm on PVI's claim and on the counterclaim, both PVI and ratiopharm requested the court to reopen the judgment pursuant to Fed. R. Civ. P. 59(e): PVI sought interest on the purchase price of the Martec stock and ratiopharm sought attorneys' fees. The district court rejected PVI's request, but awarded ratiopharm its requested attorneys' fees in full, an amount totaling approximately $1,156,130, of which approximately $104,130 was prejudgment interest.

II.

We first consider whether the district court properly granted summary judgment to ratiopharm on PVI's breach of contract claim and ratiopharm's counterclaim for specific performance. We review a grant of summary judgment de novo, giving the non-moving party (PVI in this case) the most favorable reading of the record as well as the benefit of any reasonable inferences that arise from the record. See Anderson v. North Dakota State Hospital, 232 F.3d 634, 635 (8th Cir. 2000).

PVI contends that ratiopharm submitted a price for the Martec stock that was not based on an appropriate multiple of Martec's earnings. If this is true, ratiopharm broke the stockholders' agreement, since it requires ratiopharm to submit a price based on such a multiple. Because of the current procedural posture of the case, we assume that ratiopharm's price did not comply with the stockholders' agreement and then consider whether PVI's subsequent conduct prevents it from asserting this breach.

If ratiopharm's submitted price was in breach of the stockholders' agreement, PVI had an immediate cause of action against ratiopharm, and was entitled to obtain whatever damages it suffered as a result of ratiopharm's breach. PVI's right to damages for the breach, however, does not prevent it from going forward with the remainder of the contract: An injured party may choose to continue a contract after a breach and nevertheless bring an action for the damages that resulted from the breach. See 2 E. Allan Farnsworth, Farnsworth on Contracts § 8.15 at 490-91 (2d ed. 1998). This is the course of action that PVI chose to take in this case, going forward with the appraisal process and bringing an action for partial breach of the stockholders' agreement.

That does not mean that PVI's decision to go forward with the terms of the stockholders' agreement by participating in the appraisal process is without consequences. By proceeding under the agreement, PVI accepted, as the agreement puts it, the appraisal as a "final, binding and conclusive" determination of the value of the Martec stock. When "one party to a contract continues performance after a breach by the other he must continue on the contract terms," Newark Slip Contracting Co. v. New York Credit Men's Adjustment Bureau, 186 F.2d 152, 154 (2d Cir. 1951), cert. denied, 341 U.S. 931 (1951); see generally 2 Farnsworth, Farnsworth on Contracts § 8.15 at 490-91, noting that a party who chooses to continue a contract after a breach is not itself excused from performance.

Because PVI entered the appraisal process, it may not subsequently challenge the appraiser's conclusion that $545,860 better approximated the value of the Martec stock. We therefore hold that the district court properly granted summary judgment to ratiopharm on its counterclaim for specific performance of the contract, because ratiopharm is entitled to buy the Martec stock at the price of $545,860.

III.

This holding does not by itself have any implications for PVI's claim for damages from ratiopharm for breach of the stockholders' agreement. PVI's damages, if any, arise from ratiopharm's submission of a price that was not based on an appropriate multiple of Martec's earnings. The fact that ratiopharm prevailed in the valuation proceeding indicates only that the expert's estimation of the value of the Martec stock was closer to ratiopharm's proposed price of $545,860 than it was to PVI's proposed price of $36,750,000. That determination has no bearing on the question of whether ratiopharm's proposed price was appropriate.

If ratiopharm submitted an inappropriate price, however, this injured PVI, because the inappropriate submission resulted in the appraiser's choice of a lower purchase price than if ratiopharm had made an appropriate submission. If, for example, the lowest appropriate submission would have been $10,545,860, PVI suffered $10,000,000 in damages, since the appraiser would have chosen $10,545,860 as the purchase price instead of ratiopharm's inappropriate submission of $545,860. The measure of PVI's damages, therefore, would be the difference between the lowest appropriate submission and $545,860, ratiopharm's actual submission. (It is just possible that the measure of damages would be different. If the lowest appropriate submission turned out to be within 10 percent of PVI's submission, or at least $33,075,000, PVI's damages would equal the average of this submission and its own submission, minus $545,860. This is because, as noted earlier, the contract stipulated that the purchase price would be the average of the two submissions should they be within 10 percent of each other.)

Ratiopharm contends, however, that by participating in the appraisal process PVI is precluded from asserting a breach. Ratiopharm presents several theories in support of this contention and we address each of them in turn.

First, ratiopharm maintains that PVI may not challenge the result of the valuation proceeding because it amounted to a...