PRISTINE PHARMA CORPORATION, ETC. VS. CISPHARMA, INC. (L-1112-13, MERCER COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: September 25, 2020
• Docket: A-4453-18T1
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-4453-18T1

PRISTINE PHARMA CORPORATION, a corporation of the State of New Jersey

Plaintiff,

v.

CISPHARMA, INC., a corporation of the State of New Jersey, SRINIVAS R. PARUCHURI, RAVINDER ANNAMANENI, MUKESH DESAI, PEDDANA GUMMUDAVALLI, SUNEPTA V. ADUSOM, DAS LAKKIRAJAU, RANJA NAMBURI, HASMUKH PATEL (COO), HASMUKH PATEL (QC), UDAYA SANKAR, ANITA PATEL, VISHWESWARA KADIYAM, VILAS NIRANJAN SHAH, JYOTI SUBODH SHAH,

Defendants,

RAVINDER ANNAMANENI and SRINIVAS PARUCHURI, Cross-Plaintiffs/Respondents,

CISPHARMA, INC.,

Cross-Defendant,

and

MUKESH DESAI, HASMUKH PATEL, and JYOTI SUBODH SHAH,

Cross-Defendants/Appellants.

RAVINDER ANNAMANENI and SRINIVASA R. PARUCHURI,

Third-Party Plaintiffs,

VENKAT KAKANI,

Third-Party Defendant.

Argued telephonically September 15, 2020 - Decided September 25, 2020

Before Judges Yannotti and Haas.

On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-1112-13.

A-4453-18T1 2 Andrew T. Fede argued the cause for appellants (Archer & Greiner, attorneys; Patrick Papalia and Tyler Wicks on the briefs).

Susheela Verma argued the cause for respondents.

PER CURIAM

Mukesh Desai (Desai), Hasimukh Patel (Patel), and Jyoti Subodh Shah

(Shah) appeal from orders entered by the Law Division, which granted motions

for summary judgment by Ravinder Annamaneni (Annamaneni) and Srinivasa

Paruchuri (Paruchuri) on their indemnification claims and awarded them

attorney's fees and costs. We affirm.

I.

We briefly summarize the relevant facts and procedural history. In May

2011, Pristine Pharma Corporation (Pristine) and Cispharma, Inc. (Cispharma)

entered into an agreement to provide International Trade Association of

America, Inc. (ITA) certain over-the-counter pharmaceutical products,

including aspirin (the OTC Agreement).

Under the OTC Agreement, Cispharma was responsible for

manufacturing and bottling the pharmaceutical products, and Pristine was

responsible for labeling, boxing, and preparing the products for delivery to ITA.

From November to December 2011, Cispharma delivered various lots of aspirin

A-4453-18T1 3 to Pristine, which were provided to ITA. In January 2012, lots of the aspirin

were delivered to certain ports in Russia.

On January 27, 2012, Desai, Patel, Shah and others entered into an

agreement to sell their shares of common stock in Cispharma and their

membership interests in another entity to Annamaneni and Paruchuri for

$2,329,977 (the Purchase Agreement). Annamaneni and Paruchuri thus

acquired about sixty percent of Cispharma's issued and outstanding shares of

common stock.

According to the Purchase Agreement, the shares and membership

interests were transferred to the buyers free and clear of any liens or

encumbrances, except for two loans. The Purchase Agreement states that the

buyers "shall be included on the existing guarantees for these two loans, as

shareholders and individuals, and the process to include the [b]uyer[s] on such

documents shall commence immediately and at the discretion of the lenders."

The Purchase Agreement further provides in relevant part that the sellers

and the buyers shall

defend, indemnify and hold harmless the other . . . from and against any claim, damage, liability, loss, cost or expense (including, without limitation, reasonable attorneys' fees) arising directly or indirectly out of:

A-4453-18T1 4 (i) any material failure by the indemnifying party or parties to perform their obligations as set forth in this Agreement of the Escrow Agreement;

(ii) any material inaccuracy or breach of any of the indemnifying party or parties representations or warranties made in this Agreement, and

(iii) any and all actions, suits, litigations, arbitrations, proceedings, investigations, claims or liabilities of whatever nature arising out of any of the foregoing. Without limiting the generality of the foregoing, each of the [s]ellers . . . hereby agrees to defend . . . the [b]uyers . . . from and against any claim . . . cost or expense (including, without limitation, reasonable attorneys' fees) arising directly out of: (1) any debt, liability or obligation of any or all of the [s]ellers, the Company and the LLC, or other debt, liability or obligation, arising out of the ownership, use or operation of the assets and business of the Company or the LLC prior to the Closing other than those disclosed in the financial statements of the Company and the LLC provided to [the] [b]uyer[s] or otherwise notified to [b]uyer[s] in writing prior to the Closing; (2) any and all taxes attributable to any pre-Closing tax period except to the extent such taxes are disclosed in the financial statements of the Company or the LLC provided to [the] [b]uyer[s] or otherwise notified to [the] [b]uyer[s] in writing prior to the Closing . . . .

In March 2012, the Russian Ministry of Health informed ITA that the

aspirin it delivered did not meet certain standards for dissolution. Pristine

claimed the aspirin Cispharma manufactured and provided to ITA was defective.

Cispharma disputed the claim.

A-4453-18T1 5 In May 2013, Pristine filed a complaint against Cispharma seeking

damages for losses arising from the allegedly defective aspirin. Pristine

thereafter amended the complaint and added certain Cispharma officers and

employees, including respondents, as defendants. In July 2014, respondents

informed Shah, Patel, Desai and the other sellers of the Cispharma shares that

they were seeking indemnification pursuant to the Purchase Agreement for the

expenses, damages, and liability related to the defense of Pristine's claims.

Respondents later filed a motion in the trial court to dismiss Pristine’s

claims. The trial court denied the motion. In July 2015, respondents filed an

answer, defenses, crossclaims, and a third-party complaint alleging that Shah,

Patel, Desai and the other sellers of the Cispharma shares breached the Purchase

Agreement.

Respondents claimed these parties made false and misleading statements

that induced them to purchase the Cispharma shares. They asserted a claim

against Shah, Patel, Desai and the other sellers for indemnification for any

liability or loss arising from Pristine's claims against them, as well as the

attorney's fees and costs incurred in defense of those claims.

Respondents also asserted claims against Venkat Kakani (Kakani), the

Chief Executive Officer (CEO) of Pristine. Respondents alleged that before they

A-4453-18T1 6 acquired the Cispharma shares, Kakani acted as Cispharma's CEO and

supervised production of the allegedly defective aspirin. Respondents further

alleged Kakani made false and misleading statements, which induced them to

enter the Purchase Agreement.

Thereafter, Desai filed an answer to respondents' claims and a third-party

complaint naming certain officers and employees of Cispharma, including

respondents, as defendants. Respondents later renewed their motion to dismiss

Desai's claims, and filed a motion for summary judgment on Pristine's claims.

In January 2019, the judge granted respondents' motions and dismissed Desai's

third-party complaint and Pristine's claims.

In February 2019, respondents filed a partial motion for summary

judgment on their indemnification claims against Cispharma, Desai, Patel, and

Shah, seeking attorney's fees and costs. On March 15, 2019, the judge heard

oral argument on the motion and placed his decision on the record. The judge

found respondents were entitled to indemnification under the Purchase

Agreement and directed them to submit a certification detailing the attorney's

fees and costs incurred in the litigation. The judge memorialized his decision in

an order dated March 15, 2019. On that date, the judge also entered default

against Cispharma.

A-4453-18T1 7 On April 18, 2019, the judge considered respondents' application for

attorney's fees and costs and placed his decision on the record. The judge found

the fees and costs sought were reasonable. The judge noted that the litigation

was "very scientific and complex" and required an understanding of the process

in which aspirin is manufactured.

The judge also noted that many parties in the case had been self-

represented and this "made [the case] burdensome and complicated." The judge

found the results respondents obtained, specifically the dismissal of Pristine's

claims, "were excellent." The judge awarded respondents attorney's fees and

costs totaling $251,630.36.

After the judge rendered his decision, Desai and Patel filed opposition to

respondents' motion for the award of attorney's fees and costs. The judge

considered the late-filed opposition and placed his findings on the record. The

judge found that respondents did not protract the litigation, as Desai and Patel

claimed. The judge stated that Desai and Patel did not identify any specific

entry in the attorney's fee request that was "redundant, unnecessary or

unproductive." The judge memorialized his decision in an order dated April 30,

2019.

A-4453-18T1 8 In May 2019, appellants filed a motion for relief from and reconsideration

of the court's April 30, 2019 order. Appellants argued that respondents were not

entitled to indemnification because Pristine's claims did not arise out of

Cispharma's business. They contended that respondents breached the Purchase

Agreement and, therefore, could not enforce the Agreement. They also argued

the award included attorney's fees and costs that were not incurred defending

Pristine's claims.

Respondents opposed the motion and filed a cross-motion for additional

attorney's fees and costs related to the motion. The judge heard oral argument

and placed his decision on the record. The judge stated that "[t]he claims by

Pristine against the [respondents] fell within the plain language of the

indemnification provision and there is nothing in the plain language that would

allow for the exclusion of those claims."

The judge noted that appellants did not provide sufficient evidence to

show that respondents breached the Purchase Agreement. The judge also noted

that the billings in the attorney's fee certification were "conservative given the

complexity of [the] litigation." The judge did not exclude the fees and costs

respondents incurred pursuing their indemnification claims against appellants.

A-4453-18T1 9 The judge therefore denied appellants' motion for reconsideration and

granted respondents' cross-motion. The judge awarded respondents $2,610 in

attorney's costs and fees incurred opposing the motion. The judge memorialized

his decision in orders dated June 7, 2019. This appeal followed.

Appellants argue that the motion judge erred by: (1) granting summary

judgment to respondents on the indemnification claims under the Purchase

Agreement; (2) failing to apply the "American Rule" on attorney's fees and

awarding respondents fees and costs for pursuing their affirmative claims in the

litigation; (3) denying their motion for reconsideration; and (4) awarding

respondents attorney's fees and costs incurred for the summary judgment motion

on the indemnification claims and opposing appellants' reconsideration motion.

II.

We first consider appellants' contention that the motion judge erred by

granting respondents' motion for summary judgment on their claims for

indemnification under the Purchase Agreement. Appellants contend

respondents were not entitled to indemnification for the defense of the claims

Pristine asserted against them. They also contend the judge erred by gran ting

summary judgment and enforcing the indemnification provision of the Purchase

A-4453-18T1 10 Agreement because there were genuine issues of material fact as to whether

respondents breached the Agreement.

When reviewing an order granting a motion for summary judgment, we

apply the standard the trial court applies when ruling on the motion. Woytas v.

Greenwood Tree Experts, Inc., 237 N.J. 501, 511 (2019). Summary judgment

shall be granted if the record before the court shows there is no genuine issue as

to any material fact and the moving party is entitled to judgment as a matter of

law. R. 4:46-2(c).

"An issue of fact is genuine only if, considering the burden of persuasion

at trial, the evidence submitted by the parties on the motion, together with all

legitimate inferences therefrom favoring the non-moving party, would require

submission of the issue to the trier of fact." Ibid. The trial court should grant

summary judgment "when the evidence 'is so one-sided that one party must

prevail as a matter of law.'" Brill v. Guardian Life Ins. Co. of Am., 142 N.J.

520, 540 (1995) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252

(1986)).

Here, the motion judge noted that the Purchase Agreement provides in

pertinent part that the sellers of the Cispharma shares shall indemnify the buyers

for "any claim, damage, liability, loss, cost or expense (including, without

A-4453-18T1 11 limitation, reasonable attorneys’ fees) arising directly or indirectly out of"

claims pertaining to "the ownership, use or operation of" Cispharma's assets and

business prior to closing on the sale, except for claims disclosed in the

company's financial statements or by written notice to the buyers. The judge

stated that respondents incurred costs and expenses defending claims asserted

by Pristine, which arose out of the operation of Cispharma's assets and business

before respondents purchased the Cispharma shares.

The record supports the judge's conclusion that the Purchase Agreement

required appellants to indemnify respondents for the costs and expenses they

incurred defending Pristine's claims. Appellants argue, however, that

respondents are not entitled to indemnification under the Purchase Agreement

because Pristine's claims were based on the allegation that Cispharma produced

and distributed the allegedly defective aspirin.

Appellants contend that Pristine failed to establish Cispharma

manufactured the aspirin. According to appellants, evidence was produced that

showed another entity manufactured the allegedly defective aspirin. Appellants

therefore contend Pristine's claims did not arise from the operation of

Cispharma's assets or business and respondents are not entitled to

A-4453-18T1 12 indemnification under the Purchase Agreement for the defense of those claims.

We disagree.

Although Pristine did not establish that Cispharma manufactured the

allegedly defective aspirin, respondents were entitled under the Purchase

Agreement to indemnification by the sellers of the Cispharma shares for the

attorney's fees and costs they incurred in defending against those claims. The

claims arose from the operation of Cispharma's assets and business before the

closing on the sale of the Cispharma shares.

As the motion judge correctly noted, the indemnification provision of the

Purchase Agreement does not exclude indemnification for claims that ultimately

fail as a matter of law. Furthermore, while the trial court dismissed Pristine's

claims on summary judgment, the court never found that the claims were

frivolous. The judge correctly found respondents were entitled to

indemnification for the costs and expenses incurred in defending the claims.

Appellants further argue the motion judge erred by granting summary

judgment on the indemnification claims because respondents allegedly breached

the Purchase Agreement. Again, we disagree.

"To establish a breach of contract claim, a [claimant] has the burden to

show that the parties entered into a valid contract, that the [allegedly breaching

A-4453-18T1 13 party] failed to perform [its] obligations under the contract and that the

[claimant] sustained damages as a result." Murphy v. Implicito, 392 N.J. Super.

245, 265 (App. Div. 2007). The materiality of a breach is a question of fact that

requires determining whether the alleged failure "goes to the essence of the

contract." Neptune Research & Dev., Inc., v. Teknics Indus. Sys., Inc., 235 N.J.

Super. 522, 531 (App. Div. 1989).

Here, appellants claim respondents breached the Purchase Agreement by

failing to guarantee two of Cispharma's outstanding loans. As noted, the

Purchase Agreement provides that respondents "shall be included on the existing

guarantees for these two loans, as shareholders and individuals, and the process

to include the [respondents] on such documents shall commence immediately

and at the discretion of the lenders."

However, appellants did not provide sufficient factual support for the

claim that respondents breached this provision of the Purchase Agreement .

Moreover, appellants did not show they sustained any loss as a result of

respondents' alleged failure to guarantee the loans. Thus, they did not present

sufficient evidence to establish that respondents breached a material term of the

Purchase Agreement.

A-4453-18T1 14 Appellants further contend respondents breached the Purchase

Agreement by allegedly transferring without authorization certain Cispharma's

assets to a company respondents own. They contend the transfer of the assets

constituted a breach of the Purchase Agreement and Cispharma's shareholder

agreement. In support of this allegation, appellants cite claims Desai asserted

in a separate action. They did not, however, submit any evidence to the trial

court in this case to substantiate the claim.

We therefore conclude the motion judge did not err by granting

respondents' motion for summary judgment on their claim against appellants for

indemnification under the Purchase Agreement. The judge correctly found the

evidence on this issue was "so one-sided" that respondents were entitled to

judgment as a matter of law. Brill, 142 N.J. at 540 (quoting Liberty Lobby, 477

U.S. at 252).

III.

Next, appellants argue the motion judge erred by awarding respondent

attorney's fees and costs related to the pursuit of affirmative claims against

Kakani. We disagree.

As noted previously, the indemnification provision of the Purchase

Agreement requires appellants, as sellers of the Cispharma shares, to indemnify

A-4453-18T1 15 the buyer for any "claims or liabilities of whatever nature" that arise from the

operation of Cispharma's assets or business prior to the closing on the sale,

except for claims disclosed in the financial statements or by written notice to the

buyers. Here, the record shows that appellants refused their request for a defense

of Pristine's claims.

Thus, respondents were required to provide their own defense for these

claims. As part of their defense strategy, respondents raised affirmative claims

against Kakani, thereby seeking to limit or avoid liability. Respondents were

entitled to indemnification for these costs and expenses because they arose

"directly or indirectly" from Pristine's claims against them.

Appellants also argue that the judge erred by awarding respondents

attorney's fees and costs for the summary judgment motion on their

indemnification claim and the opposition to appellants' motion for

reconsideration. Appellants contend there is no provision in the Purchase

Agreement which authorizes the award of these fees and costs, and further, the

award violates the "American Rule," which requires litigants to bear their own

attorney's fees. Again, we disagree.

The Purchase Agreement provides in pertinent part that the sellers of the

Cispharma shares must indemnify and hold the buyers harmless from any costs

A-4453-18T1 16 or expenses, including reasonable attorney's fees, arising "directly or indirectly"

out of "any material failure by the indemnifying party or parties to perform their

obligations as set forth in this Agreement . . . ." The costs and expenses

respondents incurred pursuing their affirmative claims against appellants for

indemnification clearly come within the ambit of this provision of the

indemnification clause.

We have considered appellants' other contentions and conclude they lack

sufficient merit to warrant discussion in this opinion. R. 2:11-3(e)(1)(E).

Affirmed.

A-4453-18T1 17