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Altana, Inc. v. Abbott Laboratories

August 29, 2006

ALTANA, INC., PLAINTIFF,
v.
ABBOTT LABORATORIES, DEFENDANT.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Altana, Inc. ("Plaintiff") is a New York corporation in the business of producing and selling topical prescription lotions, creams, and ointments including erythromycin ophthalmic ointment. Erythromycin opthalmic ointment ("ointment") is a medical ointment applied prophylactically to prevent eye infections. Abbott Laboratories ("Defendant") is an Illinois corporation that manufactures Erythromycin, USP Base, Dihydrate ("base"), an ingredient in the production of Plaintiff's ointment.

Plaintiff entered into a contract with Defendant whereby Defendant provided a specified amount of base which Plaintiff then used in the production of ointment. The base provided to Plaintiff by Defendant under this contract proved to be defective, and all ointment produced with that base had to be destroyed. Plaintiff brings this action alleging state law claims of breach of contract and breach of express and implied warranties. Defendant admits liability, and "concedes that [Plaintiff] is entitled to recover the direct costs of making the products that were destroyed, the costs of destruction and disposal, and the additional costs incurred in effecting cover (i.e., overtime)." Still at issue is the question of whether Plaintiff is entitled to lost profits for the ointment that had to be destroyed. Plaintiff and Defendant have cross-moved for partial summary judgment on this remaining issue. Because Plaintiff cannot prove any lost profits resulting from Defendant's breach of their contract, Defendant's motion for partial summary judgment is granted, and Plaintiff's motion for partial summary judgment is denied.

Statement of Facts

In 2002, Plaintiff, Altana, and Defendant, Abbott, entered into a contract whereby Plaintiff purchased fifty (50) kilograms of base from Defendant for a total sum of $7,500. See Defendant's 56.1 Statement of Fact ("Def.'s 56.1."), ¶6. Plaintiff purchased this base for use in the manufacture of ointment. See Def.'s 56.1., ¶ 7. After the base had been delivered to Plaintiff under the contract, Defendant discovered that it was defective. See Def.'s 56.1, ¶ 9. Because of this defect, Defendant voluntarily recalled the base under the advisement of the Food and Drug Administration. See Def.'s 56.1, ¶ 11; Plaintiff's 56.1 Response ("Plf.'s Resp."), ¶ 12. In response to this recall, Plaintiff destroyed all of the finished and work-in-process ointment that had been manufactured using the defective base. See Def.'s 56.1, ¶¶ 14, 15. Defendant does not dispute that Plaintiff was unable to sell the ointment that was made with the defective base and, therefore, was correct in destroying the ointment. See Plf.'s Resp., ¶ 14. Plaintiff returned all of the unused defective base to Defendant. See Def.'s 56.1, ¶ 13.

To replace the ointment that they had to destroy, Plaintiff manufactured additional units of ointment. See Def.'s 56.1, ¶ 17. Plaintiff produced this additional ointment to replenish its inventory, from which it satisfies contractual commitments. See Plf.'s Resp., ¶ 17. The process of manufacturing ointment is "a highly specialized and costly process . . . which cumulatively requires approximately 95 days to complete." See Plaintiff's 56.1 Statement of Fact ("Plf.'s 56.1"), ¶¶ 22- 23. The manufacture of replacement ointment was done at cost to Plaintiff, and involved various adjustments to Plaintiff's manufacturing schedule. In order to produce this additional ointment without falling behind in overall production, Plaintiff's employees on the ointment production line worked overtime. See Def.'s 56.1, ¶ 18. Plaintiff also transferred employees from other departments to the ointment production line to assist in the manufacture of the replacement ointment. See Def.'s 56.1, ¶ 20. These transferred employees then worked overtime to ensure that production within their departments would remain on schedule. See Def.'s 56.1, ¶ 21. Through this overtime work, Plaintiff was able to manufacture approximately the same amount of ointment as it had to destroy while maintaining its production levels in all other departments. See Def.'s 56.1, ¶ 28. Plaintiff sold this replacement product it manufactured at its normal profit. See Plf.'s Resp., ¶¶ 33, 36. During this time, Plaintiff's salespersons did not lessen their efforts to sell ointment due to Defendant's breach. See Plf.'s Resp., ¶ 68. Further, "[n]o customer or potential customer placed an order . . . which [Plaintiff] was unable to fill as a result of [Defendant's] breach and recall." Plf's. Resp., ¶ 39. Finally, Plaintiff never exhausted its inventory. See Plf.'s 56.1, ¶ 62.

Standard of Review

Summary judgment is proper when "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 judgment as a matter of law." Fed. R. Civ. P. 56(c). In determining whether a genuine issue of fact exists, the Court must view the evidence and draw all reasonable inferences in favor of the party opposing the motion. Bennington v. Caterpillar Inc., 275 F.3d 654, 658 (7th Cir. 2001); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The Court, however, will "limit its analysis of the facts on summary judgment to evidence that is properly identified and supported in the parties' [Local Rule 56.1] statement." Bordelon v. Chicago Sch. Reform Bd. of Trustees, 233 F.3d 524, 529 (7th Cir. 2000). Where a proposed statement of fact is supported by the record and not adequately rebutted, the court will accept that statement as true for purposes of summary judgment. An adequate rebuttal requires a citation to specific support in the record, an unsubstantiated denial is not adequate. See Albiero v. City of Kankakee, 246 F.3d 927, 933 (7th Cir. 2001); Drake v. Minnesota Mining & Mfg. Co., 134 F.3d 878, 887 (7th Cir. 1998) ("Rule 56 demands something more specific than the bald assertion of the general trust of a particular matter[;] rather it requires affidavits that cite specific concrete facts establishing the existence of the trust of the matter asserted.").

DISCUSSION

Before reaching the substance of this dispute, the Court must determine which state's law to apply. A federal court sitting in diversity applies the choice-of-law rules of the state in which it sits to determine the applicable substantive law. See Hinc v. Lime-O-Sol Co., 382 F.3d 716, 719 (7th Cir. 2004). Under Illinois choice-of-law rules, a determination of applicable law need be made only when the bodies of law at issue are in conflict with one another, and the parties express disagreement over which state's laws apply. See Wood v. Mid-Valley Inc., 942 F.2d 425, 427 (7th Cir. 1991) (holding that "courts do not worry about conflict of laws unless the parties disagree on which state's law applies"). Both Plaintiff and Defendant recognize that UCC 2-715 governs this dispute, a provision that has been adopted into both Illinois and New York law. See 810 ILCS 5/2-715; 38 N.Y. UCC § 2-715. Since the parties have not identified a conflict between the two bodies of state law which might apply to their case, the law of the forum state -- Illinois -- governs the dispute. See Massachusetts Bay Ins. Co. v. Vic Koenig Leasing, Inc., 136 F.3d 1116, 1120 (7th Cir. 1998); Vantassell-Matin v. Nelson, 741 F. Supp. 698, 703 (N.D. Ill. 1990) ("If all interested jurisdictions (including the forum state) apply the same legal rule to any issue, the court should apply to that issue the law with which it is most familiar--that of the forum").

Because Plaintiff was able to cover, or mitigate fully against any lost profit by producing the replacement ointment, Plaintiff is entitled to its mitigation costs, but not lost profits. In addition, UCC 2-708, commonly known as the 'Lost Volume Seller' Doctrine, is not applicable because Plaintiff is not the seller under the parties' contract. See Allsopp Sand & Gravel v. Lincoln Sand & Gravel, 525 N.E.2d 1185, 1187 (Ill. App. Ct. 1988). For the foregoing reasons, Plaintiff is not entitled to damages for lost profits from the ointment that had to be destroyed.

I. Recovery of Lost Profits

A buyer that has suffered losses due to a seller's breach of contract may recover incidental and consequential damages. See UCC 2-715, codified at 810 ILCS 5/2-715. Section 2-715 defines consequential damages as "any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise." 810 ILCS 5/2-715(2)(a). Lost profits are an element of consequential damages. See Burrus v. Itek Corp., 360 N.E.2d 1168, 1173 (Ill. App. Ct. 1977).

In determining Plaintiff's damages and deciding whether recovery of lost profits is appropriate, this Court must "determine that sum of money that will put the plaintiff in as good a position as he would have been in if both plaintiff and defendant had performed all of their promises under the contract." Nilsson v. NBD Bank of Illinois, 731 N.E.2d 774, 781 (Ill. App. Ct. 1999) (quoting Illinois Pattern Jury Instructions-Civil 700.13). Specifically, "[l]ost profits will be allowed as compensation for breach of contract where the following conditions are met: (1) the court is satisfied that the wrongful acts of defendant caused the loss; (2) at the time the contract was entered into, the profits were reasonably within the contemplation of the defaulting party; and (3) the lost profits can be proved with reasonable certainty." F. E. Holmes & Son, 435 N.E.2d at 728. Defendant admits that its acts ...


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