Clinical Technology, Inc. v. Covidien Sales, LLC

192 F. Supp. 3d 223, 2016 U.S. Dist. LEXIS 78561, 2016 WL 3360481
CourtDistrict Court, D. Massachusetts
DecidedJune 16, 2016
DocketCivil Action No. 14-12169-PBS
StatusPublished
Cited by10 cases

This text of 192 F. Supp. 3d 223 (Clinical Technology, Inc. v. Covidien Sales, LLC) is published on Counsel Stack Legal Research, covering District Court, D. Massachusetts primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Clinical Technology, Inc. v. Covidien Sales, LLC, 192 F. Supp. 3d 223, 2016 U.S. Dist. LEXIS 78561, 2016 WL 3360481 (D. Mass. 2016).

Opinion

MEMORANDUM AND ORDER

Saris, Chief United States District Judge

INTRODUCTION

Plaintiff Clinical Technology, Inc. (CTI), is a specialty distributor of medical products in thé'Midwest. CTI brings this action against Defendant Covidien Sales, LLC, alleging breach of contract (Count I), breach of the implied covenant of good faith and fair dealing (Count II), unjust enrichment (Count III), negligent misrepresentation (Count V), and violations of Massachusetts General Laws Chapter 93A, § 11 (Count VI).1 The claims all arise from Covidien’s termination of a written distribution agreement, under which CTI sold Oridion Capnography, Inc., products from 2008 to 2013. CTI first entered into the distribution agreement with Oridion in June 2008. In June 2012, Covidien acquired Oridion, and became the successor-in-interest to the distribution agreement.

Roughly eight months later, in February 2013, Covidien notified CTI that it was exercising its contractual right to terminate the agreement. The termination had an effective date of March 31, 2013. The parties agree that § 15 of the distribution agreement gave Covidien the right to terminate the agreement, but dispute the meaning of other termination provisions. Covidien now moves for summary judgment on the ground that the contract language is unambiguous.

CTI argues that § 15(d) of the distribution agreement obligated Covidien to continue selling products tó CTI after termi[228]*228nation so that CTI could sell such products to specific end users, which had fixed-term contracts, for the duration of those end-user agreements. CTI also alleges that Covidien engaged in deceptive practices surrounding contracts it signed directly with some of CTI’s customers. Covidien responds that there are no genuine disputes of material fact as to the meaning of the agreement because it states that Covi-dien, not CTI, is entitled to sell directly to end users upon termination. Covidien further maintains that there is no evidence of unfair or deceptive conduct. The Court ALLOWS in part and DENIES in part the Motion for Summary Judgment for the reasons that follow.

UNDISPUTED FACTS

With all reasonable inferences drawn in favor of the nonmoving party, CTI, the following facts are not in dispute, except where noted.

I. The Distribution Agreement

Oridion Capnography, Inc. sold noninvasive ventilation monitoring equipment and products. Oridion’s relationship with CTI began in 2004, when the parties entered a prior contract for CTI to distribute Ori-dion products from October 20, 2004 to June 11, 2008. In late 2007, Oridion presented CTI with a new, form distribution agreement, which required CTI to make some up-front investments. For example, it required CTI to invest in clinical employees to train end users on the monitoring equipment Oridion and CTI sold.

CTI President, Dennis Forchione, was initially reluctant to sign the new agreement because he was concerned that the contract did not provide sufficient protection for such investments in the event Or-idion later terminated the agreement. Section 15(a)(ii) of the agreement granted Oridion the right to terminate the agreement “immediately upon delivery of written notice to Distributor: (x) if there shall be a ‘Change of Control’ of the Company or any of its parent entities; or (y) the Company, in its sole discretion, determines to engage in a direct sales effort in the Territory.” Draft Agreement, Docket No. 68, Ex. 8, at 16. Section 16(c) outlined the compensation CTI would receive if Oridion terminated the agreement:

In the event of a termination of this Agreement pursuant to Sections 15(a)(ii), the Company hereby agrees to pay Distributor an amount equal to 5% of the net revenue collected by Company attributable to sales of Products in the Territory during the 12 month period immediately prior to such termination (as determined by the Company in its sole discretion) and shall not owe Distributor any other compensation whatsoever.

Id. Mr. Forchione approached Oridion’s President, Gerald Feldman, about For-chione’s concerns with these provisions, and suggested adding a provision that would have required Oridion to pay CTI a “buyout” or its “lost profit” after termination. Forchione Dep., Docket No. 74, Ex. B, at 44-49. Mr. Feldman rejected this suggestion, and after further negotiations, the parties ultimately agreed upon a separate change to § 15. Section 15(d) of the new agreement originally stated:

Should the Company choose to terminate this Agreement, the Company shall be obligated to honor those agreements between Distributor and end-users of Company Products provided for by this Agreement until the next anniversary of the Agreement after termination, and shall sell Products to such Hospitals, ambulatory surgery centers, outpatient surgery centers and EMS Environments at established Oridion ODN Prices.

[229]*229Draft Agreement, Docket No. 68, Ex. 8, at 16 (emphasis added). The final version of § 15(d) that the parties .signed states: '

Should the Company choose to terminate this Agreement, the Company shall be obligated to honor those agreements between Distributor and end-users of Company Products provided for by this Agreement until the termination of Distributor’s agreements with end-users, and shall sell Products to such Hospitals, ambulatory surgery centers, outpatient surgery centers and EMS Environments at established Oridion ODN Prices.

Amended and Restated Distribution Agreement, Docket No. 74, Ex. E, at 15.

According to CTI, Mr. Forchione’s intent in negotiating the change to § 15(d) was to allow CTI to continue to supply end users until the end of their contracts’ terms in the event Oridion terminated the distribution agreement. Such an arrangement would “protect CTI’s investments on an account-by-account basis post-termination” by requiring Oridion to sell products to CTI that CTI would then sell to the end users until expiration of the end-user contracts. Docket No. 75, at 3. In signing the 2008 distribution agreement, Mr. For-chione highlighted and initialed the change to § 15(d) in order to draw attention to the revised language.

The parties did not change the above-quoted language in § 15(a)(ii) or § 15(c) in the final 2008 distribution agreement. Thus, Oridion maintained the right to terminate the agreement “to engage in a direct sales effort” in CTI’s territory, and the final agreement states that in the event of such a termination, Oridion would not owe CTI any compensation beyond “an amount equal to 5% of the net revenue collected by [Oridion] attributable to sales of Products in the Territory during the 12 month period immediately prior to such termination.” Amended and Restated Distribution Agreement, Docket No. 74, Ex. E, at 14-15. The final agreement also included a clause specifying that § 15 would survive termination. Id at 15.

Under the agreement, CTI was the exclusive distributor for some Oridion products, such as “filterlines,”2 in the Midwest from June 2008 until April 2013. CTI purchased products from Oridion at one price, and then sold'them to its customers,' the end users, at a mark-up. Section 8(b) of the agreement required CTI to use “its best efforts to actively promote sales” of Oridion products within its defined territory. Id. at 9.

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Bluebook (online)
192 F. Supp. 3d 223, 2016 U.S. Dist. LEXIS 78561, 2016 WL 3360481, Counsel Stack Legal Research, https://law.counselstack.com/opinion/clinical-technology-inc-v-covidien-sales-llc-mad-2016.