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Pharmaceutical Horizons, Inc v. Sxc Health Solutions

May 15, 2012

PHARMACEUTICAL HORIZONS, INC., PLAINTIFF,
v.
SXC HEALTH SOLUTIONS, INC. DEFENDANT.



The opinion of the court was delivered by: Judge Blanche M. Manning

MEMORANDUM AND ORDER

The plaintiff, Pharmaceutical Horizons, Inc. ("PHI"), has sued SXC Health Solutions, Inc. ("SXC"), contending the SXC breached the parties' value-added reseller agreement. SXC counterclaimed alleging that PHI breached the contract and its duty of good faith and fair dealing, and seeking a declaratory judgment to that effect. PHI has moved for judgment on the pleadings with respect to both its and SXC's claims. For the reasons stated below, the motion is granted.

Facts

The facts of the case are undisputed. The parties entered into an Asset Purchase Agreement ("APA") on September 30, 2005, under which SXC purchased certain assets of PHI, including its "Rebate Program." The APA contained a provision under which PHI agreed not to compete with SXC in the business of providing rebate processing services for three years from the closing date of September 30, 2005. On the same day the APA was executed, the parties also signed a Value-Added Reseller Agreement ("VAR Agreement") under which PHI agreed to act as a value-added reseller of SXC's pharmaceutical rebate processing services. Specifically, the VAR Agreement appointed PHI as an "independent, nonexclusive, value-added reseller to promote, distribute and sublicense [SXC's] Rebate Services." VAR, §1(a). Under the terms set forth by the parties, payment for the Rebate Services ordered by PHI and provided by SXC was to be "deducted by SXC from the rebate amounts received" with the balance to be remitted to PHI's customers with a written reconciliation. VAR §5(c). The VAR Agreement did not contain a non-compete or non-solicitation provision.

For several years after the execution of the APA and the VAR Agreement, PHI used SXC's pharmaceutical rebate processing services for its customers. However, on or around January 11, 2011, several of PHI's customers switched rebate processing services from SXC to one of its competitors. SXC sent a letter to PHI alleging breach of contract claiming that the VAR Agreement created an exclusive arrangement whereby PHI's customers were required to use SXC's rebate processing services. SXC threatened to (and ultimately did) withhold over $900,000 in rebate monies due PHI and its customers as damages for PHI's purported breach of contract. PHI then brought the instant suit alleging breach of contract by SXC for its failure to pay to PHI (and, ultimately, its customers) the over-$900,000 in rebate funds due under the VAR. SXC filed a counterclaim alleging breach of contract and breach of the duty of good faith and fair dealing, and seeking a declaratory judgment that PHI had breached the contract. PHI has moved for judgment on the pleadings with respect to its breach of contract claim as well as SXC's counterclaim.

The relevant contract provisions are as follows:

Section 1(a)--under which PHI was appointed "as an independent, nonexclusive, value-added reseller to promote, distribute and sublicense the Rebate Services" to certain PHI customers.

Section 1(c)--which provides that "PHI may not authorize any . . . value added resellers or other third parties to distribute the Rebate Services."

Section 3(b)--which required PHI to "conduct business in a manner that reflects favorably at all times on the Rebate Services and the name, goodwill and reputation of SXC."

Section 10--which provides how the VAR Agreement could be terminated. "Rebate Services"--defined as SXC's "services to process pharmaceutical rebates."

Standard

As noted by the Seventh Circuit, in the instance where a party is attempting to dispose of a case on the merits using Rule 12(c), the appropriate standard is that applicable to summary judgment, except that the court may consider only the contents of the pleadings. Thus, we take all well-pleaded allegations in the plaintiffs' pleadings to be true, and we view the facts and inferences to be drawn from those allegations in the light most favorable to the plaintiffs. We will not affirm the granting of the . . . 12(c) motion unless no genuine issues of material fact remain to be resolved and unless the [moving party] is entitled to judgment as a matter of law.

Alexander v. City of Chicago, 994 F.2d 333, 336 (7th Cir. 1993) (internal citations omitted). Analysis

According to the plaintiffs, the disposition of the case depends on whether PHI was obligated to use SXC as its exclusive provider of rebate services under the terms of the VAR Agreement (PHI contends no). To establish a breach of contract under Illinois law, a plaintiff must prove: (1) that a valid and enforceable contract exists; (2) that it has substantially performed; (3) that the defendant has committed ...


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