Opinion
Case No. CV 99-7947 AHM (RZx)
August 15, 2001
ORDER GRANTING DEFENDANTS' MOTION IN LIMINE TO PRECLUDE DISGORGEMENT OF CARDIZEM CD® PROFITS AS A REMEDY FOR BREACH OF CONTRACT
INTRODUCTION
This matter comes before the Court on Defendants' Motion In Limine to Preclude Disgorgement of Cardizem CD® Profits as a Remedy for Breach of Contract. ("Defendants' Motion"). Defendants' Motion is not a typical motion in limine because it is much more akin to a summary judgment motion precluding a remedy sought in the First Amended Complaint ("FAC"). However, the Motion was filed in response to the express invitation of the Court in its 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 entered on April 20, 2001.
As in the Court's April 20, 2001 Order, the following nomenclature applies:
Defendants' First Motion for Partial Summary Adjudication sought a determination that Plaintiff is not entitled to "disgorgement" of profits as a remedy under, Cal. Bus. Prof. Code §§ 17200, 17203. The Court granted that motion, but reserved ruling on whether "disgorgement" was an available remedy under any other of Plaintiffs claims.
Footnote 15 in the Court's April 20, 2001 Order stated that
In its opposition to this motion Plaintiff claims to be entitled to disgorgement in any event, as a remedy for Defendants' breaches of the Supply Agreement and/or License Agreement. This issue is beyond the scope of Defendants' motion, which only seeks to eliminate disgorgement as a possible remedy for the § 17200 claim. Accordingly, the Court declines to express any view on what remedies are available to Plaintiff on its breach of contract claims. At the hearing, Defendants' counsel requested an opportunity to submit new and additional briefs demonstrating that Plaintiff cannot recover for "unjust enrichment" nor recover disgorgement as a remedy for any other breach. Before any such permission will be granted, the parties must meet and confer and set forth their respective positions as to such recovery. If Plaintiff winds up claiming in good faith a basis for such recovery which Defendants in good faith reject, then Defendants can file a carefully targeted motion in limine to preclude such effort.
Plaintiffs FAC clearly seeks injunctive relief against RPR and RPPI for RPPI's alleged breach of the non-compete provisions in the License Agreement. See FAC ¶¶ 17-20. But nowhere does it seek to impose a constructive trust on the profits derived by the sale of Cardizem. While the FAC seeks restitution under Cal. Bus. Prof. Code § 17203 (see FAC ¶ 34), it does not otherwise demand disgorgement of those profits. Even if liberally construed, as a complaint must be, the FAC does not state sufficient facts to put Defendants on notice that Plaintiff was seeking "disgorgement" under its claim for breach of contract. However, the facts Plaintiff cites at pages 11-13 of its Opposition do suggest that long ago Plaintiff placed Defendants on notice that in fact it was seeking to recover RPR's Cardizem profits.
To avoid disposing of this Motion on a procedural basis, the Court will address the merits. And with the issue now squarely before it, the Court concludes that is not entitled to the "disgorgement" of Cardizem profits as a remedy for breach of contract. Accordingly, the Court GRANTS Defendants' Motion.
The Court initially was inclined to defer a final ruling until it had the benefit of evaluating all the evidence at trial, and so indicated in a tentative opinion circulated at the hearing. That opinion was not the product of considered analysis of the underlying legal principles. Upon further reflection and to avoid subjecting the parties to unnecessary cost, delay and uncertainty, the Court has now reviewed the briefs anew.
DISCUSSION
I. Non-Compete Provisions In The License Agreement
The Court granted summary judgment in favor of Plaintiff, finding that Defendants breached their obligation not to compete with Plaintiffs sales of Dilacor XR®, in violation of Paragraph 3.2 of the License Agreement. That paragraph provides in part:
The facts described herein are adapted from the undisputed facts as found by the Court in its April 20, 2001 Order and as supplemented by the parties for purposes of the current Motion.
[A]s an inducement to Watson to enter into this Agreement RPPI agrees . . . RPPI shall not, and will cause each of its Affiliates 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.
Watson's UF ¶ 26. "`Affiliates' is defined as RPR and Persons `directly or indirectly controlled by RPR.'" Watson's UF ¶ 27.
II. Whether Defendants Agreed That Equitable Relief Would Be Appropriate
In support of its "disgorgement" theory, Plaintiff now relies on Paragraph 3.2(e) of the License Agreement, which provides as follows:
Each party specifically recognizes that any breach by it of this Section 3.2 will cause irreparable injury to the other party and that actual damages may be difficult to ascertain, and in any event, may be inadequate. Accordingly (and without limiting the availability of legal or equitable, including injunctive, remedies under any other provisions of this Agreement), such party agrees that in the event of any such breach, such other party shall be entitled to injunctive relief in addition to such other legal and equitable remedies that may be available.
Pagnanelli Decl. Ex. B, License Agreement ¶ 3.2(e) (emphasis added).
Contrary to Plaintiffs apparent assertions in opposition to the current Motion, the plain language of Paragraph 3.2(e) does not reflect that Defendants agreed that broad equitable, rather than merely injunctive, relief would be recoverable for any breach of the non-compete provisions. The italicized portion of the provision merely reflects that the parties accepted the possibility that such remedies might — or might not — be available. Therefore, the Court cannot say that Defendants consented to the imposition of a constructive trust over any profits made in violation of the non-compete provisions. Neither the plain language of Paragraph 3.2(e) nor any other evidence before the Court supports such a contention.
III. Whether the Law Independently Supports Disgorgement of the Cardizem Profits as a Remedy for Breach of Contract
Defendants argue that the type of contract breach alleged in the FAC could not support the imposition of a constructive trust or any other theory of equitable relief that would accomplish the "disgorgement" sought by Plaintiff because there was no relationship of "trust and confidence," actual damages are sufficient and Plaintiff had no contractual or other interest in Cardizem CD® profits. See Cal. Civ. Code § 2224.
While some of the cases that Plaintiff discusses can fairly be cited for the proposition that equitable remedies sometimes can be awarded for breach of contract, the precise remedy that Watson seeks here would itself result in an inequity: Watson would obtain a huge monetary windfall, strikingly disproportionate to the nature of RPPI's breach and its impact on Watson. As the Court previously noted, Watson never had a right to be free of competition from Cardizem or to an interest in the profits that Cardizem generated.
In Eden Hannon Co. v. Sumitomo Trust Banking Co., 914 F.2d 556, 563-64 (4th Cir. 1990), the court relied on and applied Virginia law to find that "[e]quitable remedies are available in Virginia to address the harm visited by a violation of noncompetition agreements." Plaintiff cites no California case embracing that principle or resulting in that outcome. Moreover, in Eden Hannon what the defendant was forced to "disgorge," under a constructive trust theory, was the profits derived by its intentional misuse of the plaintiffs claimed trade secret. Thus, the plaintiff parted with the very thing — proprietary information — that the defendant improperly exploited to generate the profits in question. Again, that is not the case here; Plaintiff never conferred anything on RPR that enabled RPR to exploit Cardizem to Plaintiffs detriment.
It is unnecessary to distinguish the many other cases on which Plaintiff relies, especially the out-of-state cases. Too often those cases are cited for language that is dicta. Instead, the Court adopts Defendants' correct summary:
The key element missing from Watson's claim to a constructive trust over the Cardizem CD® its is any good faith assertion — much less roof — that but for some wrongful conduct by RPR, Watson itself would have earned these profits from the sale of Cardizem CD®. The undisputed facts are that Watson was never in the business of selling Cardizem CD®, and never had any right — contractual or otherwise — to obtain the Cardizem CD® profits.
Reply at 7.
The Court of course does not preclude Watson from recovering compensatory damages for breach of the License Agreement. True, Watson claims such damages are difficult, if not impossible, to ascertain. Paragraph 3.2(e) recognized that fact, and therefore entitled the victim of a breach to injunctive relief. But that does not entitle Watson to disgorgement.
Perhaps the "theory" that Allen Chao once postulated — see Defendants' Reply at 4-5 — now can be established.
CONCLUSION
For all the foregoing reasons, the Court is persuaded by Defendants' arguments that Plaintiff is not entitled to the equitable relief it seeks. Accordingly, and good cause appearing therefor, Defendants' Motion is GRANTED.IT IS SO ORDERED.
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 Pharmaceuticals, Inc. Defendant, signatory to the Supply Agreement. RPR's wholly-owned subsidiary RPPI Rorer Pharmaceutical and main pharmaceutical operating company Products Inc. of the RPR group of companies in the U.S. Centeon Centeon LLC Defendant, signatory to the License Agreement. RPR's wholly-owned subsidiary HMR Hoechst Marion Roussel, and holding company for intangible rights, Inc. including pharmaceutical patents and trademarks. Aventis Aventis, S.A. Non-party, 50% owned by RPR through an API Aventis Pharmaceuticals, indirect wholly-owned subsidiary. Inc. Pharmaceutical manufacturing facility. APPI Aventis Pharmaceuticals Non-party, U.S. subsidiary of Hoechst (a Products, Inc. German company). Manufacturer and seller of Cardizem CD. Dilacor XR Non-party, RPSA's name after the merger of Cardizem CD Hoechst into RPSA. Non-party, new name for HMR after the merger. New name for RPRPI after the merger. Subject of the License and Supply Agreements. Hypertension drug containing the active ingredient diltiazem. Hypertension drug containing the active ingredient diltiazem.CIVIL MINUTES — GENERAL
PROCEEDINGS:
(IN CHAMBERS) Defendants Rhone-Poulenc Rorer, Inc., Aventis Pharmaceuticals Products, Inc., and Rorer Pharmaceutical Products, Inc.'s Motion In Limine No. 5 to Exclude Evidence Regarding Outsourcing Lost Profits
IT IS HEREBY ORDERED that the above motion in limine be filed under seal.