Watson Laboratories, Inc. v. Rhone-Poulenc Rorer

Decision Date20 April 2001
Docket NumberNo. CV 99-7947 AHM.,CV 99-7947 AHM.
CourtU.S. District Court — Central District of California
PartiesWATSON LABORATORIES, INC., Plaintiff, v. RHÔNE-POULENC RORER, INC., et al., Defendants.

G Pagnanelli, Mitchell Silberberg & Knupp, Los Angeles, CA, for plaintiff.

Rodney Joseph Stone, Wayne M Barsky, Gregory L Doll, Victoria C. Shapiro, Gibson Dunn & Crutcher, Los Angeles, CA, Michael F. Quinn, David J. Sheehan, Pamela M. Madas, James M. Lee, Gibbons Del Deo Dolan Griffinger & Vecchione, Newark, NJ, for defendants.

ORDER GRANTING WATSON'S MOTION FOR PARTIAL SUMMARY JUDGMENT IN PART AND GRANTING IN PART AND DENYING IN PART RHÔNE-POULENC'S FOUR MOTIONS FOR PARTIAL SUMMARY ADJUDICATION

MATZ, District Judge.

INTRODUCTION

This matter comes before the Court on Plaintiff's Motion for Partial Summary Judgment ("Plaintiff's Motion") and Defendants' four separate Motions for Partial Summary Adjudication ("Defendants' Motions"). This dispute between pharmaceutical companies arises out of Defendants' alleged breach of its contractual obligations to supply Plaintiff with the hypertension drug Dilacor XR® and to not compete with Plaintiff in that drug market.

Plaintiff's omnibus, sprawling Motion seeks to establish that (1) Defendants breached the two contracts at issue; (2) Defendants may not rely on a force majeure affirmative defense; (3) Defendants' Third, Fifth and Eighth Affirmative Defenses (unclean hands, waiver and mitigation) to liability for breach of their supply obligations fail; (4) Defendants' Sixth and Ninth Affirmative Defenses (laches and good faith competition) are no defense to breach of the non-compete provisions; (5) the U.S.-based defendant parent company is liable for breaching the contracts signed by its subsidiaries (also defendants); (6) Defendants' counterclaim for a declaratory judgment that they are not in breach of the non-compete provision fails; and (7) Defendants engaged in unfair competition in violation of Cal. Bus. & Prof.Code § 17200.

Defendants' First Motion seeks a determination that Plaintiff is not entitled to "disgorgement" of profits as a remedy under Cal. Bus. & Prof.Code §§ 17200, 17203. Defendants' Second Motion seeks to establish that Plaintiff may not recover lost profits incurred after Defendants' supply obligation terminated. Defendants' Third Motion seeks a ruling that the event that caused their breach of the supply commitment qualifies as a force majeure event. Defendants' Fourth Motion seeks summary judgment on Plaintiff's Cal. Bus. & Prof.Code § 17200 claim.

The Court concludes, first, that no material factual disputes prevent the Court from construing the relevant contractual provisions to find liability on the breach of contract claims. Next, Plaintiff may proceed only on the "unlawful" prong of Cal. Bus. & Prof.Code § 17200 and that claim must be resolved at trial. Third, Plaintiff may not recover "disgorgement" of Cardizem CD® profits under § 17203. Finally, all other damages issues must be resolved at trial. Accordingly, the Court GRANTS Plaintiff's Motion in part, GRANTS in part Defendants' First and Fourth Motions for Partial Summary Adjudication and DENIES Defendants' Second and Third Motions for Partial Summary Adjudication.

FACTS1
I. Background

The following summary reflects that the very names (and the abbreviations the parties used for those names), identities and interrelationships of Defendants (and of affiliated parties) is confusing. It would have been helpful to the Court if at least one of the very lengthy sets of briefs had contained a glossary. Here is one the Court prepared, to assist the reader.

                Referred to as: Full Name Relationship & Definition
                --------------------------------------------------------------------------------------
                Watson           Watson Laboratories, Inc.          Plaintiff
                RPR              Rhone-Poulenc Rorer, Inc.          Defendant, parent/owner of RPRPI
                                                                      and RPPI. U.S.-based "headquarter
                                                                      company."
                RPSA            Rhone-Poulenc, S.A.                Non-party, RPR's European parent
                RPRPI           Rhone-Poulenc Rorer                Defendant, signatory to the Supply
                                  Pharmaceuticals, Inc.              Agreement. RPR's wholly-owned
                                                                     subsidiary and main pharmaceutical
                                                                     operating company of the RPR group
                                                                     of companies in the U.S
                RPPI            Rorer Pharmaceutical               Defendant, signatory to the License
                                  Products Inc.                      Agreement. RPR's wholly-owned
                                                                     subsidiary and holding company for
                                                                     intangible rights, including pharmaceutical
                                                                     patents and trademarks
                Centeon         Centeon LLC                        Non-party, 50% owned by RPR
                                                                     through an indirect wholly-owned
                                                                     subsidiary. Pharmaceutical manufacturing
                                                                     facility
                HMR             Hoechst Marion Roussel,            Non-party, U.S. subsidiary of Hoechst
                                  Inc.                               (a German company). Manufacturer
                                                                     and seller of Cardizem CD
                Aventis         Aventis, S.A.                      Non-party, RPSA's name after the
                                                                     merger of Hoechst into RPSA
                API             Aventis Pharmaceuticals,           Non-party, new name for HMR after
                                  Inc.                               the merger.
                APPI            Aventis Pharmaceuticals            New name for RPRPI after the
                                  Products, Inc.                     merger.
                Dilacor XR                                         Subject of the License and Supply
                                                                     Agreements. Hypertension drug
                                                                     containing the active ingredient
                                                                     diltiazem.
                Cardizem CD                                        Hypertension drug containing the
                                                                     active ingredient diltiazem.
                

On June 30, 1997, Watson and two of Rhone-Poulenc Rorer, Inc.'s ("RPR") subsidiaries (collectively the "RPR entities" or "Defendants") entered into six interrelated contracts effecting the transfer by the RPR entities to Watson of exclusive rights to Dilacor XR®, a hypertension drug containing the chemical compound diltiazem. Watson's Separate Statement of Uncontroverted Facts ("UF") ¶ 1. Among the six contracts were "(a) a Manufacturing and Supply agreement (`Supply Agreement') signed by RPR's wholly owned subsidiary, then named Rhone-Poulenc Rorer Pharmaceuticals, Inc. (`RPRPI')[] and (b) a License Agreement." Watson's UF ¶ 2. The License Agreement was signed by another RPR subsidiary, Rorer Pharmaceutical Products, Inc. ("RPPI"). Watson's UF ¶ 3. "RPR is the `headquarter company' which holds participations in its worldwide affiliates." Watson's UF ¶ 4. "RPRPI is the main pharmaceutical operating company of the RPR group of companies in the United States." Watson's UF ¶ 5. "RPPI is a holding company for intangible rights, including pharmaceutical patents and trademarks." Watson's UF ¶ 6.

"Under the Supply Agreement, RPRPI agreed to supply (on a cost plus basis) all of Watson's requirements of Dilacor XR® through June 30, 1999." Watson's UF ¶ 7. In Paragraph 3.2(a) of the separate License Agreement RPPI agreed: "[A]s an inducement to Watson to enter into this Agreement RPPI agrees ... RPPI shall not, and will cause each of its Affiliates2 not to, directly or indirectly ... (i) in the U.S.A. produce, supply, market, distribute or sell any pharmaceutical product containing diltiazem that competes with the Product, or acquire, own or maintain an interest in any Person that in the U.S.A., directly or indirectly supplies, markets, distributes or sells any such pharmaceutical product, as a direct or indirect proprietor, partner, stockholder, officer, director, principal, agent or trustee."3 Watson's UF ¶ 26.

II. Supply Agreement

"When Watson and RPRPI signed the Supply Agreement, RPR owned (through a[n `indirect' wholly-owned] subsidiary) 50% of a company called Centeon LLC (`Centeon')." Watson's UF ¶ 8; RPR's Statement of Genuine Issues ("SGI") ¶ 8. "Centeon operated a manufacturing plant in Kankakee, Illinois, which the Federal Drug Administration (`FDA') had approved to manufacture Dilacor XR®." Watson's UF ¶ 10. "As of June 30, 1997, Centeon had been manufacturing Dilacor XR® at the Kankakee plant for RPR under a January, 1996 contract between RPR and Centeon (the Toll Manufacturing Agreement). RPRPI relied on this contract to obtain from Centeon the Dilacor XR® needed to satisfy RPRPI's obligations to Watson under the Supply Agreement." Watson's UF ¶ 11.

"At the time the parties signed the Supply Agreement, Centeon was operating under an FDA Consent Decree, to which Centeon had stipulated in January, 1997." Watson's UF ¶ 12. "The Consent Decree resulted from an FDA inspection that had found the Kankakee plant in violation of numerous `current Good Manufacturing Practices' (`cGMP'), which are established by FDA regulations." Watson's UF ¶ 13. "The Consent Decree provided, among other things, that if Centeon failed to comply with cGMP requirements, the FDA could immediately order Centeon to stop all manufacturing of pharmaceutical products." Watson's UF ¶ 14.4 It appears that "[t]he Kankakee...

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