10-3679-cv
Verus Pharm., Inc. v. AstraZeneca AB
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New
York, on the 24th day of June, two thousand eleven.
PRESENT: CHESTER J. STRAUB,
REENA RAGGI,
RICHARD C. WESLEY,
Circuit Judges.
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VERUS PHARMACEUTICALS, INC.,
Plaintiff-Appellant,
v. No. 10-3679-cv
ASTRAZENECA AB, TIKA LÄKEMEDEL AB,
Defendants-Appellees.
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APPEARING FOR APPELLANT: BLAIR C. FENSTERSTOCK, Fensterstock &
Partners LLP, New York, New York.
APPEARING FOR APPELLEES: AARON RUBINSTEIN (Phillip A. Geraci,
Michael S. Bullerman, Aaron F. Miner, on the
brief), Kaye Scholer LLP, New York, New York.
Appeal from a judgment of the United States District Court for the Southern District
of New York (Barbara S. Jones, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment entered on August 19, 2010, is AFFIRMED.
Plaintiff Verus Pharmaceuticals, Inc., appeals from the dismissal, pursuant to Fed. R.
Civ. P. 12(b)(6), of its complaint against defendants AstraZeneca AB and Tika Läkemedel
AB for breach and anticipatory breach of contracts relating to plaintiff’s intellectual property
rights in certain treatments for pediatric asthma (“the acquired assets”), fraud, conversion,
breach of the implied covenant of good faith and fair dealing, and unjust enrichment.1 To
survive dismissal, a complaint must plead “enough facts to state a claim to relief that is
plausible on its face,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007), which standard
is met “when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged,” Ashcroft v. Iqbal, 129 S.
Ct. 1937, 1949 (2009). A fraud claim must further satisfy Rule 9(b), which requires the
complaint to “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P.
9(b). While we review a judgment of dismissal de novo, see, e.g., Chambers v. Time
Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002), in this case, applying New York law to the
contracts at issue – the Asset Purchase Agreement (“APA”), the Collaboration Services
Agreement (“CSA”), and the Repurchase Option Agreement (“ROA”) – we affirm largely
1
Tika Läkemedel AB is a wholly-owned subsidiary of AstraZeneca AB. The relevant
agreements identify Tika Läkemedel as “Purchaser” and AstraZeneca as “Parent,” and
impose varying obligations on each. The parties have not assigned any significance to this
distinction, however, and address their arguments on appeal to both defendants together. For
convenience, we adopt this convention and refer to Tika Läkemedel and AstraZeneca
collectively as “defendants.”
2
for the reasons stated by the district court in its thorough opinion, see Verus Pharm., Inc. v.
AstraZeneca AB, No. 09 Civ. 5660, 2010 WL 3238965 (S.D.N.Y. Aug. 16, 2010). We
assume the parties’ familiarity with the facts and record of prior proceedings, which we
reference only as necessary to explain our decision to affirm.
1. Breach of Contract
a. APA
Plaintiff contends that APA § 5.3.3 imposes on defendants an obligation to take the
acquired assets to an End of Phase 2 meeting (“EOP II meeting”) with the U.S. Food and
Drug Administration (“FDA”). The argument finds no support in the contract. See, e.g.,
Diesel Props S.r.l. v. Greystone Bus. Credit II LLC, 631 F.3d 42, 51 (2d Cir. 2011)
(observing interpretation of unambiguous contract is matter of law). Viewed in context, §
5.3.3 is reasonably interpreted to relate only to regulatory processes associated with
execution of the asset purchase transaction, not subsequent development of the purchased
assets. See, e.g., Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458,
466 (2d Cir. 2010) (interpreting contract in “context of the entire integrated agreement”);
Matter of Riconda, 90 N.Y.2d 733, 738, 665 N.Y.S.2d 392, 396 (1997) (looking to “entirety”
of agreement in context of “parties’ relationship and circumstances”). This conclusion
follows from § 5.3.3’s placement among other provisions in the APA addressing pre-
transaction regulatory and other obligations. See APA § 5.3.2 (establishing obligations with
respect to filings required by Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub.
L. No. 94-435 (Sept. 30, 1976)), see also §§ 5.2.2, 5.4, 5.5, 5.6 (establishing certain pre-
3
closing covenants and other pre-closing obligations). The conclusion is reinforced by the
totality of documents structuring the parties’ relationship, which make clear that the CSA,
not the APA, was intended to govern development of the acquired assets. See CSA pmbl.
¶ 4. Consequently, plaintiff fails to state a claim that defendants breached APA § 5.3.3 by
failing to take the acquired assets to an EOP II meeting.
b. CSA
Plaintiff contends that the CSA also imposes an obligation on defendants to take the
acquired assets to an EOP II meeting. Like the district court, we conclude that the CSA can
only be construed to impose on defendants an obligation to use “diligent efforts” to develop
the acquired assets, CSA § 10.1.1, not an “unqualified requirement to reach an EOP II
meeting,” Verus Pharm., Inc. v. AstraZeneca AB, 2010 WL 3238965, at *10. CSA § 10,
entitled “The Purchaser Business Covenants,” obligates defendants to “use Diligent Efforts
to develop the [acquired assets] consistent with and in furtherance of the Joint Development
Plan.” CSA § 10.1.1.2 The Joint Development Plan “outlines the technical and regulatory
plans to move [the acquired assets] forward to a successful [EOP II meeting],” the “key
project objectives” of which are set forth in accompanying Study Schedules. Joint Dev. Plan
2
Diligent efforts are defined as the “efforts and resources used by [defendants] for
[their] own compounds or products with similar commercial and scientific potential and at
a similar stage in their lifecycle, taking into consideration their safety and efficacy, their cost
to develop, the competitiveness of alternative or competing compounds or products, and the
nature and extent of their market exclusivity . . ., the likelihood of regulatory approval, their
expected profitability, . . . and all other relevant factors.” CSA § 1.
4
at 3.3 Thus, rather than create an unqualified obligation to reach an EOP II meeting, these
provisions require defendants to use diligent efforts to develop the acquired assets consistent
with plans intended to move the assets towards a successful meeting.
(i) CSA § 2.2
In urging otherwise, plaintiff relies on CSA § 2.2, which states that “Purchaser shall
perform the Purchaser Transition Services and use Diligent Efforts to execute the Joint
Development Plan for the development of the Products (excluding Albuterol) and generate
the applicable Work Product.” CSA § 2.2. Because “Transition Services” are defined as “all
services and other obligations to be conducted pursuant to [the CSA], including all services
set forth on the Study Schedules,” CSA § 1 (emphasis added), plaintiff argues that defendants
are required to complete each Study Schedule, including Study Schedule 8. This argument
proves too much. If CSA § 2.2 creates an obligation to complete each Study Schedule, it also
creates an obligation to complete “all services and other obligations” required by the CSA,
including the Joint Development Plan. Such a construction conflicts with both the general
obligation (created in CSA § 10.1.1 and referred to in CSA § 2.2) that defendants use diligent
efforts to execute the Joint Development Plan, and the specific obligation imposed by CSA
§ 3.3 to use diligent efforts in completing the Study Schedules. See, e.g., Gessin Elec.
Contractors, Inc. v. 95 Wall Assocs., LLC, 74 A.D.3d 516, 518, 903 N.Y.S.2d 26, 28 (1st
Dep’t 2010) (stating “courts should construe a contract in a manner that avoids
3
Study Schedule 8 contemplates taking the acquired assets to an EOP II meeting with
the FDA.
5
inconsistencies and reasonably harmonizes its terms”); accord Law Debenture Trust Co. of
N.Y. v. Maverick Tube Corp., 595 F.3d at 468.
We therefore reject plaintiff’s interpretation of CSA § 2.2 and, consequently, its
argument that defendants breached that section by not taking the acquired assets to an EOP
II meeting.
(ii) Diligent Efforts
Plaintiff next contends that defendants breached the CSA by failing to use diligent
efforts to develop the acquired assets, but plaintiff’s complaint does not allege a failure of
diligent efforts. Rather, it alleges that defendants abandoned development of the acquired
assets “[a]s soon as . . . potential delays” arose to pursue a transaction with plaintiff’s
competitor, whose own pediatric asthma product was close to receiving FDA approval.
Compl. ¶ 69; see also id. ¶¶ 67-68. These allegations fail to state a violation of the CSA’s
“diligent efforts” standard because that standard specifically contemplates that defendants’
actions will be informed by, inter alia, “the competitiveness of alternative or competing
compounds or products, . . . the nature and extent of their market exclusivity, [and] the
likelihood of regulatory approval.” CSA § 1.4
4
The district court concluded that plaintiff did not state a violation of the “diligent
efforts” standard because the complaint alleged that defendants ceased development of the
acquired assets due to professed safety concerns. See Verus Pharm. v. AstraZeneca AB,
2010 WL 3238965, at *10. Plaintiff now faults this conclusion as impermissible fact-finding,
arguing that the district court effectively credited defendants’ proffered reason over
plaintiff’s well-pleaded alternative. We need not address this argument because plaintiff’s
alternative also fails to state a violation of the “diligent efforts” standard for the reasons
stated above.
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(iii) CSA § 4.4.14
Finally, plaintiff contends that defendants breached CSA § 4.4.14 by refusing further
to develop the acquired assets. Although that provision vests the Joint Development
Committee with authority to “determine whether and when to discontinue any Studies,” CSA
§ 4.4.14, the Joint Development Committee itself is vested only with responsibility for
“overseeing the development of the Products,” id. § 4.4. Thus, although the Joint
Development Committee was authorized to direct how the acquired assets would be
developed, defendants retained authority to determine whether they should be developed at
all through the use of diligent efforts.5 As a consequence, plaintiff fails to state a § 4.4.14
breach.
c. ROA
Plaintiff contends that its right to repurchase the acquired assets never matured
because it did not receive a timely or complete Loss Amount Certificate (“LAC”), and that
defendants therefore breached the ROA by asserting that plaintiff’s repurchase rights had
5
Plaintiff urges a different interpretation in light of defendants’ own efforts to
persuade the Joint Development Committee to cease development of the acquired assets. We
need not resort to such extrinsic evidence because the language of CSA § 4.4 is clear. See,
e.g., Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569, 750 N.Y.S.2d 565, 569 (2002);
see also LaSalle Bank Nat’l Ass’n v. Nomura Asset Capital Corp., 424 F.3d 195, 205 (2d Cir.
2005). Moreover, defendants’ responsibilities to use “Diligent Efforts” terminated on the
“Diligence Covenant Termination Date,” or October 2, 2008. CSA § 1. Therefore
defendants’ efforts to persuade the Joint Development Committee to discontinue the studies
are irrelevant to the breach of contract claim as the parties were no longer subject to product
development obligations at the time of the defendants’ attempts at persuasion. Rather, the
parties were only subject to their respective repurchase obligations.
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expired.6
(i) Timeliness
Plaintiff’s timeliness argument relies on its contention that the Earnout Payment
Termination Date (“EPTD”), see APA Ex. 1, which triggered defendants’ obligation to
submit an LAC, see APA § 9.6.2 (requiring LAC to be submitted within five business days
of EPTD), had not yet occurred when defendants submitted their LAC on October 8, 2008.
This is not correct.
As relevant for this appeal, the EPTD was the EOP II Drop Dead Date, which was
defined to be October 2, 2008. See APA Ex. 1. Plaintiff submits that the EOP II Drop Dead
Date was subject to an automatic extension provision so long as defendants “[were] using
commercially reasonable best efforts” to pursue an EOP II meeting. Id. But that provision
does not apply because, as plaintiff itself recognizes, defendants had ceased using any such
efforts as of October 2, 2008. See Compl. ¶¶ 57-58. While plaintiff points to other
allegations indicating defendants’ earlier pursuit of an EOP II meeting in June 2008, the fact
remains that plaintiff’s own allegations indicate that by October 2, 2008, defendants had
altogether ceased efforts to take the acquired assets to an EOP II meeting. Therefore, the
EOP II Drop Dead Date was not extended, and defendants’ October 8, 2008 LAC was timely.
6
In its complaint, plaintiff also alleges that, assuming defendants’ LAC was timely
and complete, defendants wrongly rejected plaintiff’s Exercise Notice. Instead, the district
court construed plaintiff’s Exercise Notice as a counter-offer that defendants were entitled
to and did reject. See Verus Pharm., Inc. v. AstraZeneca AB, 2010 WL 3238965, at *9.
Plaintiff does not challenge the district court’s construction. Rather, it argues that because
an Exercise Notice was not then required, plaintiff “was free to later send a second Exercise
Notice.” Appellant’s Br. at 42 n.36. That argument is forfeited and, in any event, fails
because plaintiff’s contention that its Exercise Notice obligation had not yet matured is not
supported by the ROA.
8
(ii) Completeness
Alternatively, plaintiff contends that the LAC was incomplete because of objections
raised in an October 22, 2008 letter to defendants. See ROA § 2.2 (indicating Exercise
Notice must be transmitted within 45 days “after delivery of the complete [LAC]”).
Although plaintiff now asserts that “material information about the liabilities that [plaintiff]
would be assuming upon a Repurchase Closing” was omitted from the LAC, Reply Br. at 12
(citing Compl. ¶ 61), it did not identify that objection in its October 22, 2008 letter. In any
event, to the extent this belated assertion references information required to be in the LAC,
namely “the amounts referred to in Section 2.3.1(ii), (iv), and (v),” ROA § 12.4(a), the LAC
did include such information. Plaintiff’s dispute as to the accuracy of that information,
therefore, goes to finality of the LAC, see APA § 9.6.3(a), a dispute which may only be
resolved through mandatory arbitration, see id. § 9.6.3(b), and provides no cause to delay the
potential repurchase closing, see id. § 9.6.3(c). Consequently, plaintiff’s argument that its
obligation to submit an Exercise Notice never matured fails as a matter of law.
2. Other Claims
Having rejected plaintiff’s claims for breach of the relevant contracts, we further
conclude that plaintiff’s other claims – for anticipatory breach, fraud, conversion, unjust
enrichment, and breach of the implied covenant of good faith and fair dealing – must be
dismissed for the reasons stated by the district court. See Verus Pharm., Inc. v. AstraZeneca
AB, 2010 WL 3238965, at *11-13.
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3. Leave to Amend
Plaintiff submits that the district court abused its discretion in failing to grant a request
for leave to amend the complaint, a request plaintiff included on the final page of its brief in
opposition to defendants’ motion to dismiss and did not renew after grant of the motion. See,
e.g., Chavis v. Chappius, 618 F.3d 162, 167 (2d Cir. 2010) (reviewing denial of leave to
amend complaint for abuse of discretion). Our precedent clearly holds that a district court
does not abuse its discretion in declining to address such informal requests for leave to
amend. See In re Lehman Bros. Mortgage-Backed Sec. Litig., --- F.3d ----, 2011 WL
1778726, at *16 (2d Cir. 2011) (quoting In re Tamoxifen Citrate Antitrust Litig., 466 F.3d
187, 220 (2d Cir. 2006)).
4. Conclusion
We have considered plaintiff’s remaining arguments on appeal and conclude that they
are without merit. Accordingly, the judgment of the district court is AFFIRMED.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, Clerk of Court
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