Rij Pharmaceutical Corp. v. Ivax Pharmaceuticals

• Decision Date: 14 June 2004
• Docket Number: No. 02 CIV.4301 CM.,02 CIV.4301 CM.
• Citation: 322 F.Supp.2d 406
• Parties: RIJ PHARMACEUTICAL CORP., Plaintiff, v. IVAX PHARMACEUTICALS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

322 F.Supp.2d 406

RIJ PHARMACEUTICAL CORP., Plaintiff, v. IVAX PHARMACEUTICALS, INC., Defendant.

No. 02 CIV.4301 CM.

United States District Court, S.D. New York.

June 14, 2004.

Jerold C. Feuerstein, Kriss & Feit, P.C., New York City, for Plaintiff.

James E. Cecchi, Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, Roseland, NJ, for Defendant.

MEMORANDUM DECISION AND ORDER

MCMAHON, District Judge.

Plaintiff RIJ Pharmaceutical Corp. ("RIJ") brings this action against Defendant Ivax Pharmaceuticals, Inc. ("Ivax") alleging breach of contract for the sale of goods. Defendant has filed counterclaims alleging the same. Defendant now moves for partial summary judgment on its counterclaims, and partial dismissal of Plaintiff's claims. Plaintiff cross-moves for summary judgment on all its claims, and dismissal of all of Defendant's counterclaims.

For the following reasons, Defendant's motion is denied in part, and granted in part. Plaintiff's motion is denied in its entirety.

FACTS

The Parties

RIJ is a pharmaceutical manufacturer of over-the-counter generic pharmaceutical products for private labels. A significant part of its business is the sale of generic over-the-counter pharmaceuticals for private labels. Thus, RIJ manufactures a line of generic products, bottles the product under the name of the distributor and ships the goods to the distributor for sale. Ivax, known prior to February 7, 2001 as Zenith Goldline Pharmaceuticals, Inc. ("Goldline"), manufactures and distributes both over-the-counter and prescription generic pharmaceutical products.

Since 1986, Ivax has outsourced to RIJ the manufacture of certain over-the-counter products, including antacid, cough/cold and laxative products, which would then be sold under one or more of Ivax's trade names, or otherwise sold or distributed by Ivax.

There was no underlying contract between RIJ and Ivax. Instead, the parties would typically negotiate price on a product-by-product basis, and Ivax would order the products from RIJ as needed by submitting purchase orders.

In 1999, Ivax began allowing RIJ to bid on multiple products at once. (Brij Gupta Dep., p. 41:8-14 to 43:18).

In September 2000, Ivax conducted a routine audit of RIJ's facilities in Middletown, New York (the "September 2000 Audit"). The purpose of the audit was to ensure the products produced by RIJ to be sold under Ivax's trade names or otherwise sold or distributed by Ivax were being produced in accordance with Ivax's standards, as well as to ensure that RIJ complied in all respects with applicable FDA regulations. Ivax asserts that the audit uncovered numerous deficiencies in RIJ's facilities and manufacturing processes, including bacterial contamination. Ivax subsequently brought these deficiencies to the attention of RIJ. (Counterclaim, ¶¶ 14-15).

The Instant Complaint

On June 1, 2002, RIJ brought a complaint against Ivax seeking compensation for various actions taken by Ivax during the course of its relationship with RIJ. Specifically, RIJ has alleged that Ivax is liable for (1) unpaid product deliveries to Ivax; (2) inventory for a month's worth of future orders which RIJ contends that it maintained pursuant to an agreement between the parties; and (3) product orders which Ivax cancelled.

The October 2000 Purchase Orders

Beginning on or about October 17, 2000, Ivax submitted a series of purchase orders totaling $112,533.76 (the "First Group of Purchase Orders") to RIJ for various pharmaceutical products. The purchase orders were made in accordance with a bid award dated March 16, 2000. (Complaint, ¶ 5). Most of the orders were for a product called Genfiber Powder, the generic equivalent of Metamucil laxative, which accounted for $98,567.68 of the total purchase price. The remaining orders were for Losopan, the generic equivalent of Riopan antacid, and totaled $13,290.16. Upon the completion of their manufacture, RIJ shipped the pharmaceutical products requested in the First Group of Purchase Orders to Ivax. Ivax received the products, along with invoices (the "Invoices") from RIJ requesting payment.

The Excess Inventory Agreement

During November or December of 2000, Ivax began to increase its orders of Genfiber beyond the amount that RIJ typically shipped each month (approximately 40,000 bottles of regular and 15,000 bottles of orange-flavored Genfiber).

RIJ alleges that because the lead time needed to fill the orders was approximately eight weeks, the parties agreed that RIJ would manufacture and hold one month of Genfiber in its inventory in order to prevent a sudden shortfall (Gupta Dep., p. 89:8-14; pp. 110:22-111 to 111:25; pp. 116:7-20.) Dr. Brij Gupta ("Gupta"), RIJ's President, testified that he believes that the agreement was confirmed in writing between his sales representative, Bi-Costal Pharmaceutical Corp. ("Bi-Costal") and Ivax. (Gupta Dep., p. 89:55 to p. 90:6.) RIJ, however, has not produced the agreement. In reliance on this agreement, RIJ claims to have expended $100,710 on raw materials, caps and bottles, which were specially manufactured for Ivax or Goldfine, an affiliate of Ivax. (Plf.'s 56.1 Statement of Facts, at ¶ 5.)¹

Bi-Costal's representative, Brett Barczak ("Barczak"), tells a different story. At his deposition, Barczak testified that there was a "floor stock" program existing between Ivax and RIJ in 1997, when he began working for Bi-Costal. (Brett Barczak Dep., pp. 35:3-36:6.) Under this "floor stock" program, RIJ was to keep one month's worth of inventory on all products, and three months inventory of "key products" to fill orders on a more timely basis. (Barczak Dep., pp. 33:11 to 14; pp. 67:19 to 68:60.) The purported "floor stock" agreement was never reduced to writing. (Id., pp. 70:18 to 71:3.) There was no agreement whatsoever as to what would happen with any leftover inventory if a product or the relationship were terminated. (Id., pp. 68:20 to 69:19.) Barczak testified that it is ordinary practice in the industry for a customer, such as Ivax, to purchase any leftover inventory if a product were discontinued, but if such an agreement existed, it would ordinarily be memorialized in a purchase order or some other writing. (Id., pp. 69:10 to 72:4.)

Ivax denies asking RIJ to manufacture or agree to purchase from RIJ an additional one-month of inventory of Genfiber, and claims that no writing memorializing a "floor stock" program or other similar agreement was ever produced by RIJ. In that connection, Sandra Dalling, Ivax's buyer responsible for RIJ accounts, testified at her deposition that Ivax has never made a request, from RIJ or any other supplier, that a supplier keep inventory on hand for future orders unless the request was confirmed by a purchase order. (Sandra Dalling Dep., pp. 19:11 to 20:3.)

Cancelled Orders

RIJ also alleges that Ivax is responsible for seven cancelled product orders totaling $80,411.44. On January 18, 2001, Ivax representative Sandra Darling ("Darling") sent a fax to Dr. Gupta cancelling three of the purchase orders, nos. 52993, 52995 and 53864. Dr. Gupta confirmed the cancellations by signing, dating and returning the fax to Darling on January 24, 2001. (Decl. of Lindsey H. Taylor, Exh. D.) The remaining orders were cancelled when Ivax terminated the relationship between the parties on May 8, 2001. (Id. Exh. E.) As of the time that those purchase orders were cancelled, all were overdue. (Id. Exh. F.) At his deposition, Gupta testified that RIJ was "making no claim" for the order cancelled by the January 18 fax because RIJ was able to sell those products to other customers. (Gupta Dep., pp. 118:24 to 120:19.) The total amount of those purchase orders (52993, 52995 and 53864) is $24,098.32.

As to the remaining four cancelled orders, Gupta testified that all of the products RIJ manufactures are suitable for sale to any of its customers that sell the same product, e.g., the generic Mylanta made for one customer would be suitable for sale to another customer distributing generic Mylanta. (Id., pp. 38:10 to 39:12.) Gupta further testified that he believed many of the products manufactured for Ivax's cancelled orders were sold to other customers. The only reason RIJ would not be able to sell those products is if they were "slow movers." (Id., pp. 162:24 to 170:4.) He further testified that RIJ had kept records of which products were sold to customers, which were still being held in inventory and which had been destroyed because they expired before they could be sold. (Gupta Dep., pp. 38:10 to 39:12; pp. 162:24 to 170:4; p.. 176:12-15; pp. 100:17 to 101:7.) Ivax made several requests to RIJ for documentation relating to the sales of the products to third parties to which RIJ failed to respond.

As a result of these transactions, RIJ now seeks to recover damages for (1) the cost of the Genfieber and Losopan products, for which Ivax has not paid; (2) the cost of one month's worth of inventory of regular Genfiber and orange-flavored Genfiber that Ivax allegedly agreed to purchase; and (3) the cost of the cancelled purchase orders.

Ivax's Counterclaims

On August 16, 2002, Ivax interposed a counterclaim for breach of implied and express warranties against RIJ seeking to hold it liable for (1) certain pharmaceutical products RIJ shipped to Ivax, which Ivax contends were defective; (2) expenses associated with the recall of the allegedly defective products; and (3) consequential damages resulting from the defective and recalled pharmaceutical products.

On January 11, 2001, Ivax received a complaint from a hospital pharmacist that a bottle of liquid Genaton antacid had an unusual smell. The product was returned to Ivax for testing, and the testing revealed that the product was contaminated with bacteria. The bacteria was the same kind of bacteria that Ivax's September 2000 Audit had discovered in RIJ's facilities previously. Following the complaint, Ivax suspended all then-pending orders of liquid...