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BAXTER HEALTHCARE CORP. v. O.R. CONCEPTS

December 6, 1994

Baxter Healthcare Corporation, a Delaware Corporation, Plaintiff,
v.
O.R. Concepts, Inc., a Texas Corporation, Defendant.


Blanche M. Manning, United States District Court Judge


The opinion of the court was delivered by: BLANCHE M. MANNING

On May 10, 1994, plaintiff Baxter Healthcare Corporation ("Baxter") filed its complaint pursuant to 28 U.S.C. section 2201 for declaratory judgment against defendant O.R. Concepts, Inc. ("O.R.") seeking a declaration that defendant: (1) breached its contract with plaintiff; (2) violated section 2-210 of the Uniform Commercial Code; and (3) breached the covenant of good faith and fair dealing. On May 31, 1994, defendant filed a motion to dismiss plaintiff's complaint and memorandum in support, alleging that the complaint failed to state a claim.

 On October 21, 1994, defendant filed a motion to stay discovery, or alternatively for an extension of time to respond to pending discovery. The motion was briefed by both parties. On October 31, 1994, this court granted defendant's motion to stay discovery pending resolution by the court of the motion to dismiss. *fn1" This memorandum order addresses defendant's motion to dismiss.

 BACKGROUND

 Baxter is a corporation organized under the laws of Delaware and sells a large range of products to hospitals and other health care providers. Baxter also manufactures some of the products it sells and purchases others for resale. O.R. is a Texas corporation with its principal place of business in Minnesota. O.R. manufactures and sells certain products for the health care field, including a product called Thermadrape, a heat retention drape used to prevent hypothermia.

 In January 1992, Baxter and O.R. signed a Distribution Agreement. Jim Elder was the majority stockholder and signed the Distribution Agreement on behalf of O.R. Baxter alleges in its complaint that Elder discussed with the Baxter representative the eventual development of an exclusive distribution relationship. The complaint also alleges that Elder discussed with Baxter his willingness to work with Baxter in identifying customers for the thermadrape product, that Baxter would be offered the right of first refusal to distribute O.R.'s new products and favorable pricing not to be increased during the contract period. The complaint further alleges that implicit in the discussions of the parties was an understanding that O.R. would not compete with Baxter in the sale of Thermadrape products.

 The Agreement expressly provided for Baxter, as a distributor, to purchase $ 3 million of Thermadrape and other products from supplier O.R., including existing products and new products. The term of the Agreement began February 1, 1992 and was to comprise a 27 month period. The obligations of both parties were set forth in the Agreement, including a provision in 11(g) that provided:

 
"This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that SUPPLIER shall not transfer or assign its interests in this Agreement without the prior written consent of BAXTER."

 The Agreement did not state that it was an exclusive Agreement, nor did it contain a provision that prohibited Elder or any other stockholders of O.R. from selling their shares in the corporation.

 In November 1992, Elder advised Baxter that he and others were selling about 95% of the stock of O.R. to Vital Signs, Inc. ("Vital"), a corporation with its principal place of business in New Jersey. Elder remained in control of O.R. until June 1993 when he resigned as president. Elder subsequently informed Baxter that the 120 person sales staff at Vital would begin selling Thermadrape "together with Baxter Healthcare" and that O.R. was relocating to Texas.

 On June 18, 1993, Baxter sent a letter to O.R. advising it that O.R. was in breach of the Distribution Agreement by assigning O.R.'s interest in the Agreement to Vital in violation of paragraph 11(g). On May 10, 1994, Baxter sent a second letter to O.R. notifying the company that it was terminating the contract and planned to file a lawsuit, which it did.

 DISCUSSION

 The issue before this court involves interpretation of a written contract provision. Baxter first maintains that O.R. breached the contract by "transferring" the license agreement to the new corporation without the written consent of Baxter. Baxter asserts that the resulting "transfer" of the license to the corporation, a competitor of Baxter, was in violation of the anti-assignment clause of the Agreement between the parties.

 The interpretation of a written contract is a question of law. Owens v. Midwest Tank and Manufacturing, 192 Ill. App. 3d 1039, 549 N.E.2d 774, 140 Ill. Dec. 123 (1989). A court's primary objective in construing a contract is to give effect to the intention of the parties. Lucas et al. v. Beaton, Jr. et al., 201 Ill. App. 3d 341, 346, 559 N.E.2d 20, 147 Ill. Dec. 20 (1990). Where the contract is unambiguous the intent of the parties must be determined as a matter of law from the writing itself. Quake Construction, Inc. v. American Airlines, Inc., 141 Ill. 2d 281, 565 N.E.2d 990, 152 Ill. Dec. 308 (1990). A contract is ambiguous only where the language is reasonably and fairly susceptible to more than one meaning. Farm Credit Bank of St. Louis v. Whitlock, 144 Ill. 2d 440, 581 N.E.2d 664, 163 Ill. Dec. 510 (1991). Assertions by ...


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