Solchem Italiana, S.P.A. v. Bio-Technology General Corp.

99-1218 (U.S. Dist. Ct. D. N.J. 2001) (Unpublished)

Opinion Date: April 4, 2001
Business Law
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CONTRACTS; ABANDONMENT—There is a high standard to be met by a party to a contract alleging that the other party abandoned its rights thereunder and the court analyzes those standards in the context of an exclusive supply agreement.

A pharmaceutical marketing company entered into an exclusive supply agreement with a foreign company that was to supply a drug for sale in the United States and other territories. The agreement listed three affiliates of the manufacturer that were also bound by the agreement. A dispute arose as to whether one of the affiliates was actually an affiliate of the drug manufacturer, and could therefore be bound by the agreement. The affiliate claimed that it was a subdivision of the drug manufacturer only up until six years before the exclusive dealing agreement and from then on was unaffiliated with the drug manufacturer. The marketing company claimed that both the manufacturer and the affiliate were both part of the group of companies that were controlled by the same family. It also claimed that the head of that family had the power to direct the management and policies of both the drug manufacturer and its alleged affiliate. The marketing company alleged that for three and a half years after the execution of the supply agreement, the affiliate conducted itself in a manner fully consistent with it being bound by the agreement. It claimed that the affiliate’s attitude began to change as it was preparing to be sold to another company. The affiliate, however, claimed that four years after the agreement was signed, the drug company began to look to it as a supplier of the drug because the drug manufacturer that had signed the agreement could no longer meet the marketing company’s needs. It claimed that it was only at that time that it learned of the agreement. Discussions began between the marketing company and the alleged affiliate about renegotiating the supply agreement. In the course of such discussions, the two companies executed a confidentiality agreement, even though a similar one was contained in the original supply agreement with the alleged parent company. A great deal of correspondence passed between the two companies, with the subsidiary claiming that it was not a party to the original supply agreement and the marketing company claiming that the subsidiary was, in fact, a party. Eventually, the marketing company entered into a supply agreement with yet another manufacturer. That second supply agreement contained a warranty by the marketing company that there were “no other agreements, amendments, or licenses which affect[ed]” the marketing company’s authority to enter into the second supply agreement and preform its obligations thereunder. At the same time, the alleged affiliate was negotiating with another marketing company for distribution of the same drug in the United States and an action for declaratory judgment was filed to protect the rights of the parties to the second supply agreement. One of the grounds put forth by the alleged subsidiary was that the original marketing company had effectively abandoned the original supply agreement as it applied to the alleged subsidiary. “As a general rule, a contract will be treated as abandoned where one party acts in a manner inconsistent with the existence of the contract and the other party acquiesces in that behavior.” Abandonment of a contract “can only take place by the consent of both parties, and requires as clear evidence of the waiver as of the existence of the contract.” The alleged subsidiary cited four acts by the marketing company that showed the abandonment of the original agreement. First, it claimed that the marketing company “clearly acquiesced in [the alleged subsidiary’s] ‘inconsistent contractual position’ that the [original] Agreement was unenforceable… .” The Court rejected this based on the voluminous correspondence in which the marketing company continually asserted that the alleged affiliate was bound by the agreement. Consequently, the alleged affiliate could not show “positive and unequivocal” evidence that the marketing company was attempting to abandon the agreement. Second, the alleged affiliate claimed that the marketing company’s attempts to negotiate a new supply agreement showed further evidence of abandonment. It relied heavily on the fact that it was presented with a new proposed supply agreement and confidentiality agreement, arguing that because there was a confidentiality agreement in the original supply agreement, presentation of a new confidentiality agreement showed abandonment of the first. The Court accepted the marketing company’s position that the new confidentiality agreement was presented in the interest of trying to resolve a clear dispute where it believed that the existing agreement was in effect and the alleged affiliate did not. Third, the alleged affiliate focused on a nine-month lapse during which the marketing company took no action to enforce the contract. The Court did not find this period of time to be a “positive and unequivocal” statement of abandonment. Fourth and finally, the alleged affiliate argued that the original agreement was abandoned when the marketing company signed an agreement with another drug supplier. The Court found this to be the most compelling argument for abandonment, because the representation that there were no other agreements which affected the marketing company’s authority to enter into the second agreement would seem to be an admission that the original agreement was no longer in effect. As such, the second agreement undermined the marketing company’s claims that the original agreement was still in effect. “However, given the high standard for a finding of abandonment, and the procedural posture of this motion for summary judgment, [the Court found] that there [were] still questions of fact as to whether [the marketing company] unequivocally abandoned the Agreement and whether [the alleged affiliate] understood [the marketing company] to be abandoning the Agreement by its actions.” Therefore, summary judgment on the issue of abandonment was denied. In addition, any concurrent claim of estoppel was also denied. Finally, the alleged affiliate was not entitled to summary judgment on its claims that there was not sufficient consideration in the entry of the original agreement because, although the Court found that the original agreement clearly listed sufficient consideration to be valid, there was a disputed issue as to whether the alleged affiliate received any part of the consideration that the original drug manufacturer had received in connection with the original supply agreement.

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