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ABBOTT LABORATORIES v. ORASURE TECHNOLOGIES

April 16, 2004.

ABBOTT LABORATORIES, Petitioner,
v.
ORASURE TECHNOLOGIES, INC., Respondent



The opinion of the court was delivered by: DAVID COAR, District Judge

MEMORANDUM OPINION AND ORDER

Abbott Laboratories and OraSure Technologies, Inc. are parties to a commercial contract that contains an agreement to submit their disputes to binding arbitration. Following the development of a dispute between the parties, a neutral arbitrator conducted an arbitration pursuant to the agreement in February 2004. Subsequently, pursuant to section 9 of the Federal Arbitration Act, 9 U.S.C. § 1-16 ("the Act"), Abbott filed a Petition to Confirm Arbitration Award. Shortly thereafter, pursuant to sections 10 and 11 of the Act, OraSure filed a Motion to Modify Arbitration Award and to Stay Execution.

For the reasons set forth below, the court denies both Abbott's petition and OraSure's motion without prejudice and remands the Award to the Arbitrator for clarification on a single issue.

 I. Background

  A. The Agreement

  On June 14, 2002, the parties entered into a "Co-Exclusive Distributor Agreement" ("the Agreement"). The Agreement provided that Abbott would become the co-exclusive distributor of OraSure's OraQuick HIV diagnostic test device ("device"). Under the Agreement, OraSure agreed to provide Ameritech with a supply of devices at $3.75 per device. Abbott consented to making a "Firm Purchase Commitment," under which it committed to purchasing a designated minimum number of devices within a certain time period. The Agreement specified that OraSure would supply product with a nine-month shelf life. Finally, the Agreement contained a termination provision requiring that an allegedly breaching party be given written notice and 30 days to cure its breach before the Agreement would automatically terminate.*fn1

  The Agreement also contained an arbitration clause, which provided that, "any dispute in connection with [the Agreement] shall be settled by final and binding alternative dispute resolution." (Pet., Exh. A). The arbitration clause set forth the procedure governing the parties' resolution of disputes, culminating with arbitration by a neutral arbitrator. The clause provided for what Abbott has deemed "baseball-style" arbitration, pursuant to which each party would be required to supply written notice identifying the issues to be resolved and proposed rulings on those issues. Following the arbitration, the arbitrator would be required to adopt in their entirety only one of the parties' proposed rulings on each of the disputed issues and would be disabled from issuing a written opinion or otherwise explaining basis for the ruling. Finally, the clause provided that arbitration awards would be "binding, non-reviewable, and non-appealable, and may be entered as a final judgment in any court having jurisdiction." (Pet., Exh. A). B. The Parties' Initial Dispute*fn2

  In 2003, a dispute arose between the parties. The dispute related to Abbott's obligation and failure to meet its Firm Purchase Commitment under the Agreement (i.e., to purchase the specified minimum amount of product). The parties entered into negotiations in an effort to amend the Agreement, but the negotiations were not successful. Abbott took the position that it was relieved of its obligation to meet its Firm Purchase Agreement because the FDA approved a seven-month shelf life for the device, as opposed to a nine-month shelf life, as specified in the Agreement. OraSure did not accept Abbott's position and, on August 7, 2003, sent a letter to Abbott in which it demanded that Abbott cure its purchase deficiency (and invoked the Agreement's termination provision). In October 2003, OraSure asserted that Abbott's failure to meet its Firm Purchase Commitment (and to cure its purchase deficiencies following its receipt of the August 7th letter) effected the termination of the Agreement.

  Abbott opted to submit the matter to arbitration and initiated arbitration proceedings. The parties entered into a Reservation of Rights Agreement ("RRA"), pursuant to which they agreed that, pending the resolution of their dispute through arbitration, OraSure would supply Abbott with the devices outside of the Agreement and at the higher price of $6.00 per device.

  On October 7 and 13, 2003, Abbott made purchase orders of the device at a rate of $3.75 per device. On October 29, 2003 — and presumably, after the intervening events described above — Abbott amended its October 7th and 13th purchase orders and placed an order under the RRA at a rate of $6.00 per device. The parties agree that, through its October 2003 purchase orders and pursuant to the RRA, Abbott committed to purchase 410,000 devices at a rate of $6.00 per device. The parties agreed that those devices would be delivered to Abbott on a monthly schedule from December 2003 through May 2004. It is also apparent from the parties' submissions that the October 2003 purchase orders were not "orders" within the common understanding of the term, but rather were commitments to place orders in the future for the specified number of devices.

  C. The Arbitration and Award

  On February 3 and 4, 2004, Arbitrator William H. Levit, Jr. ("the Arbitrator") conducted hearings, at which both parties presented evidence. Pursuant to the Agreement, both parties had prepared issues and proposed rulings for the Arbitrator.

  In relevant part, Abbott contended that OraSure was in breach of the Agreement for failing to supply product to Abbott in compliance with the pricing terms of set forth in the Agreement (i. e., for requiring OraSure to pay $6 per device pursuant to the RRA rather than the $3.75 per device specified in the Agreement). On that basis, Abbott argued that it should be awarded damages of $922,500. Abbott thus sought to collect from OraSure the $2.25 difference between the per device price of $3.75 provided for under the Agreement and the per device price of $6.00 provided for under the RRA, multiplied by the number of devices (410,000) that Abbott committed in October 2003 to purchase at the $6.00 per device price. At the arbitration, Abbott noted that it was seeking to be made whole for the losses it had incurred. Notably, Abbott also conceded that it had not yet paid all of the excess charges that formed the basis for its proposed award.

  OraSure opposed Abbott's contentions in this regard by arguing that the Agreement automatically terminated following Abbott's failure to meet its Firm Purchase Commitment (i.e., to purchase the minimum amount of product designated in the Agreement) and that Abbott should not be awarded any damages. OraSure did not dispute Abbott's damages calculation by providing an alternative measure of damages (i.e., to be applied in the event OraSure was required to compensate Abbott for its excess charges). Abbott, in turn, contended that it was excused from its failure to comply with any obligation to meet its FPC by OraSure's ...


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