Ferndale Laboratories, Inc. v. Schwarz Pharma, Inc.

123 F. App'x 641
CourtCourt of Appeals for the Sixth Circuit
DecidedJanuary 13, 2005
Docket02-2256, 02-2258
StatusUnpublished
Cited by5 cases

This text of 123 F. App'x 641 (Ferndale Laboratories, Inc. v. Schwarz Pharma, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Ferndale Laboratories, Inc. v. Schwarz Pharma, Inc., 123 F. App'x 641 (6th Cir. 2005).

Opinions

[644]*644GIBBONS, Circuit Judge.

Ferndale Laboratories (“Ferndale”) and Reed and Carniek (“R & C”), a division of Block Drug Company (“Block”), were parties to a supply agreement by which Fern-dale sold a prescription cream to R & C. The supply contract contained a provision that prohibited either party from assigning the agreement without the prior written consent of the other party. After years of engaging in transactions pursuant to this agreement, Block entered into an asset purchase agreement with Schwarz Pharma, Inc. (“Schwarz”) to sell all of R & C’s assets to Schwarz, including the Ferndale supply agreement. Ferndale did not consent to assignment of the supply contract. To avoid offending the anti-assignment provision, Block then entered into a supplemental distribution agreement with Schwarz, whereby Block continued purchasing the prescription cream from Fern-dale and, in turn, sold all of this cream to Schwarz for the same price.

Ferndale filed a breach of contract claim against Block in the United States District Court for the Eastern District of Michigan basing jurisdiction on diversity of citizenship. Schwarz later intervened, and Fern-dale amended its complaint to include a count against Schwarz for unjust enrichment. All parties filed motions for summary judgment. The district court granted summary judgment to Ferndale on the issue of Block’s liability and denied the motions for summary judgment filed by Block and Schwarz. After a bench trial, the district court awarded Ferndale a judgment of $8,304,000.00 against Block for breach of contract and $2,100,000.00 against Schwarz for unjust enrichment.

On appeal, Block asserts that it did not materially breach its supply contract with Ferndale and that, even if it had done so, the district court erred in calculating Ferndale’s damages resulting from the breach. Schwarz appeals the award of unjust enrichment damages to Ferndale.

For the reasons set forth below, we affirm the grant of summary judgment to Ferndale on the issue of Block’s liability for breach of contract. We conclude, however, that the court’s calculation of damages for Block’s contractual breach was clearly erroneous, and we remand this issue to the district court with instructions to enter judgment to Ferndale against Block in the amount of $216,499.00. We also reverse the award of unjust enrichment damages to Ferndale against Schwarz and remand this issue to the district court with instructions to enter judgment for Schwarz.

. I.

Ferndale manufactures the prescription cream Analpram. In 1987, Ferndale entered into a supply agreement with R & C. The agreement gave R & C the right to market and distribute Analpram under R & C’s trade name, Proctocream, with the understanding that it would be a product line extension of Block’s own Proctofoam. Among the supply agreement’s provisions was an anti-assignment clause, which read: Assignment

This Agreement shall not be assigned or transferred by either party except as provided herein without the prior written consent of the other party and otherwise shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. Either party may freely assign or transfer this Agreement to its wholly-owned subsidiary provided that it provides the other party hereto with written notice of such assignment, and provided further that assignor shall remain a guarantor of the performance and obligation of such assignee.

[645]*645The agreement also contained a default provision, which provided:

Default

This Agreement may be terminated by either party hereto in the event of the breach or default (“Default”) by the other party of the terms and conditions hereof; the party claiming such Default shall first give written notice to the defaulting party of the proposed termination of the Agreement, specifying the grounds therefore. The defaulting party shall have sixty (60) days from the date of such notice to cure such Default. If the Default is not cured during such period, this Agreement shall terminate at the expiration of such sixty (60) day period.

(emphasis added). Under the agreement and subsequent extensions, Ferndale agreed to supply Analpram to Block until 1998.1

In June 1995, Block entered into an asset purchase agreement with a division of Schwarz. The purchase agreement provided that Schwarz would obtain Block’s assets, including its supply agreement with Ferndale. Block then contacted Ferndale, seeking its consent to Block’s assignment of the supply agreement to Schwarz. On June 22, 1995, Ferndale notified Block and Schwarz that it would not consent to an assignment of the supply agreement. Nonetheless, the closing of the SehwarzBlock asset purchase agreement took place on June 30, 1995. During the following week, Ferndale’s counsel sent Block a letter stating that Ferndale believed Block’s agreement with Schwarz violated the anti-assignment provision of the FerndaleBlock contract. Schwarz and Block then executed a supplemental distribution agreement, which provided that Block would continue ordering Analpram from Ferndale and would distribute the Anal-pram exclusively to Schwarz at the same price it paid Ferndale for the cream.

In late 1995, Ferndale filed a complaint in district court against Block alleging breach of contract. Schwarz intervened as a defendant. Ferndale’s complaint alleged that Block breached its supply contract with Ferndale by contracting with Schwarz and that Schwarz was unjustly enriched by this arrangement. On March 31, 1997, the district court granted summary judgment to Ferndale on its breach of contract claim against Block, finding that Block had engaged in a “de facto assignment” of the supply agreement in violation of the agreement’s anti-assignment provision. On September 30, 1998, the court denied Schwarz’s motion for summary judgment on Ferndale’s claim of unjust enrichment. It is around this period — three years after the closing of the asset purchase agreement between Block and Schwarz — that Ferndale finally stopped filling Block’s orders for Analpram.

On September 5, 2002, following a bench trial, the district court found that Block’s de facto assignment materially breached the supply agreement and that Ferndale was entitled to lost profits damages from Block and unjust enrichment damages from Schwarz. The court then entered judgment against Block in the amount of $8,304,000.00 and against Schwarz in the amount of $2,100,000.00. Block and Schwarz each filed a timely notice of appeal of the district court’s grant of summary judgment to Ferndale and the court’s bench trial decision.

II.

This court reviews a district court’s order granting summary judgment de novo. [646]*646Laderach v. U-Haul, 207 F.3d 825, 827 (6th Cir.2000). Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c).

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123 F. App'x 641, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ferndale-laboratories-inc-v-schwarz-pharma-inc-ca6-2005.