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Kreg Therapeutics, Inc v. Vitalgo

November 3, 2011

KREG THERAPEUTICS, INC., PLAINTIFF,
v.
VITALGO, INC., DEFENDANT.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Plaintiff Kreg Therapeutics, Inc. has sued Defendant VitalGo, Inc. seeking to enjoin VitalGo from breaching the parties' contract. In turn, VitalGo has counterclaimed, alleging claims for account stated and breach of contract, and seeking a declaratory judgment as to the parties' rights and obligations. Before the Court is Kreg's motion for a temporary restraining order and preliminary injunction [4].*fn1 Kreg asks the Court to enjoin VitalGo from refusing to recognize Kreg as its exclusive distributor of VitalGo's adjustable hospital bed, the Total Lift BedTM ("Total Lift Bed"), in certain geographical territories through May 31, 2012. For the reasons set forth below, the Court respectfully denies Kreg's motion for a temporary retraining order [4].

I. Background

A. The Agreements

Plaintiff Kreg is an Illinois corporation that provides specialty medical equipment to nursing homes and hospitals. Defendant VitalGo is a Delaware corporation that manufactures the Total Lift Bed, a hospital-grade bed that can take a patient from lying down to a fully standing position with no lifting by the caregiver. On December 23, 2009, Kreg and VitalGo entered into a written contract ("the agreement") for the sale by VitalGo and the purchase and distribution by Kreg of Total Lift Beds in Indiana, Illinois, Wisconsin, and greater Metropolitan Atlanta, Georgia ("the original territories"). The agreement granted Kreg "the exclusive and non-assignable right to sell, lease and rent" Total Lift Beds in the original territories until January 31, 2011 in consideration of Kreg's initial purchase of twenty beds.

The agreement contemplates a relationship lasting longer than just one year. To maintain its exclusivity beyond January 31, 2011, however, the agreement required Kreg to commit to future minimum purchases of Total Lift Beds. Paragraph 1(B) of the agreement states that both VitalGo and Kreg "agree that a yearly minimum purchase requirement will need to be established per Territory for [Kreg] to maintain its exclusivity in each Territory." (Amend. Compl., Ex. A.) Specifically, the agreement states that Kreg could renew its exclusive distribution rights for an additional twelve month period "by agreeing to commit to future minimum purchases in 2011 * * * prior to the completion of the current period." (Id.)

Paragraph 1(B) sets forth a formula by which the parties would calculate Kreg's minimum purchase requirements for each territory. The agreement sets the minimum purchase requirement at $200,000 of Total Lift Beds yearly per territory, but the yearly requirement could be "adjusted up or down by [VitalGo] based on the yearly purchases of other distributors in different territories" and would be "adjusted up or down pro rata based on the population of the geographic regions in" the original territories. (Id.) Although the agreement also states that VitalGo could lower the minimum purchase requirements or extend the period of time in which to complete the purchases, the agreement appears to permit such adjustments in VitalGo's discretion. Finally, the agreement provides that if Kreg does not meet the annual minimum purchase requirement in any year, VitalGo's "sole remedy is to strip [Kreg] of its exclusivity in that Territory only." (Id.)

On April 6, 2010, Kreg and VitalGo entered into an amendment to the agreement ("the amendment"). The amendment adds Florida, Greater Metropolitan Philadelphia and South New Jersey area, and Greater Metropolitan St. Louis, Missouri ("the additional territories") to the list of exclusive territories in Exhibit B of the agreement. Paragraph 2 of the amendment states that Kreg "shall have exclusive distribution rights, as set forth in Paragraph 1 of the Agreement, for all Territories of amended Exhibit B until at least May 31, 2012." (Amend. Compl., Ex. B.) In return, Kreg agreed to an initial purchase of sixteen beds for the additional territories.

Paragraph 2 of the amendment goes on to state that Kreg could continue as exclusive distributor in the additional territories beyond May 31, 2012 if Kreg "meets the minimum purchase requirements set forth in the Agreement for any of the additional Territories." (Id.) Paragraph 6 of the amendment provides that "[p]rices, terms and yearly quotas for the additional Territories shall be the same as set forth in the Agreement, except that the dates for the computation of yearly minimums for the additional Territories * * * shall begin on June 30, 2010." (Id.) The amendment makes clear that all other terms and conditions in the agreement remained unchanged.

B. The Parties' Performance Under the Agreement

Pursuant to the parties' contract, Kreg purchased a total of twenty Total Lift Beds for the original territories, and fifteen Total Lift Beds for the additional territories. Kreg modified the Total Lift Beds that it purchased from VitalGo and marketed them to intensive care units in hospitals. It worked to gain approval of the beds at hospitals in its territories by funding studies and trials, training intensive care unit staff and physicians, and assisting with the development of protocols and treatment regimes. Specifically, Kreg entered into an agreement with at least one hospital to conduct a trial of the bed in its intensive care unit. That trial led to the hospital adopting a protocol for the use of the beds in its intensive cardiac care unit, which Kreg expects will increase demand for the Total Lift Bed. Kreg estimates that it has spent more than $250,000 promoting the Total Lift Bed.

C. The Dispute

On June 2, 2011, VitalGo's President and CEO, Ohad Paz, sent a letter to Kreg's owner and President, Craig Poulos, in which he informed Mr. Poulos that the parties' agreement dated December 23, 2009 and amendment dated April 6, 2010 had expired and, accordingly, Kreg no longer had exclusive distribution rights in any of its territories. After Mr. Poulos told Mr. Paz that he believed that the parties' agreement remained in effect, Mr. Paz sent Mr. Poulos another letter, dated June 8, 2011, in which he stated that the agreement had expired because Kreg had not committed to minimum purchases prior to January 31, 2011. Mr. Paz further stated that his June 2, 2011 letter was not a letter of termination resulting from Kreg's breach of contract, but was instead "a formal notification" that Kreg was no longer an exclusive distributor of Total Lift Beds. VitalGo then entered into a national exclusive distributor agreement with RecoverCare LLC, a company that distributes wound care, bariatric, and safe patent-handling equipment to healthcare facilities. VitalGo's agreement with RecoverCare grants RecoverCare the exclusive right to distribute the Total Lift Bed through 2014, in exchange for RecoverCare's commitment to make minimum purchases.

On September 15, 2011, more than three months after it received Mr. Paz's letter stating that Kreg and VitalGo's agreement had expired, Kreg sent VitalGo a purchase order for five Total Lift Beds and some related parts. VitalGo refused to fill the purchase order for the beds, but stated that VitalGo would continue to supply Kreg "with after sale support of spare parts" for the beds that it previously had purchased. (Amend. Compl., Ex. F.) A little over a week after VitalGo refused to fill Kreg's purchase order for the five beds, Kreg filed ...


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