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GlaxoSmithKline Biologicals, S.A. v. Hospira Worldwide, Inc.

United States District Court, N.D. Illinois, Eastern Division

September 30, 2016

GlaxoSmithKline Biologicals, S.A., Plaintiff,
v.
Hospira Worldwide, Inc., and Hospira, Inc., Defendants.

          MEMORANDUM OPINION AND ORDER

          Manish S. Shah United States District Judge.

         In late 2010, GlaxoSmithKline and Hospira entered into an agreement for Hospira to manufacture GSK's flu vaccine, but the parties stopped working together within two years. GSK sued for breach of contract, promissory estoppel, quantum meruit, and unjust enrichment, and Hospira counterclaimed for breach of contract, quantum meruit, and unjust enrichment. [50]; [63].[1] Hospira now moves for summary judgment on GSK's claims. [110].

         For the following reasons, summary judgment is granted on Count III (quantum meruit and unjust enrichment) and denied on Counts I and II (breach of contract and promissory estoppel).

         I. Legal Standards

         Summary judgment is appropriate if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). A genuine dispute as to any material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Justifiable inferences are drawn in the nonmovant's favor, id. at 255, and the party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         II. Background[2]

         In 2006, the Food and Drug Administration licensed GSK to sell thimerosal-containing FluLaval TIV, a seasonal flu vaccine, to adults in multi-dose vials. [124] ¶ 8. (“TIV” stands for “trivalent influenza vaccine, ” consisting of three different virus strains; a “quadrivalent influenza vaccine” or “QIV” has four virus strains. [64] ¶¶ 10, 33.) GSK began to develop a version of FluLaval TIV without thimerosal (a mercury-containing preservative), which would be administered to patients as a single dose in pre-filled syringes. [124] ¶¶ 9-10. On December 31, 2010, GSK and Hospira entered into a Toll Manufacturing Agreement. In the contract, GSK promised to supply Hospira with bulk vaccine and Hospira promised to “manufacture” the vaccine by filling syringes; the agreement's termination date was December 31, 2015. [124] ¶ 16; [115-14] at 6, 40. The toll agreement defined the “Vaccine Product” as “the GSK influenza vaccine product which includes the Bulk, filled and finished by Hospira.” [115-14] at 11. (“Bulk” is defined as “the antigen component of the Vaccine Product.” [115-14] at 7.)

         Essentially, the toll agreement had two phases. [124] ¶ 24. FDA approval of Hospira's manufacturing process was required prior to commercial production, so the toll agreement required Hospira to complete validation work before it would be permitted to manufacture the vaccine for commercial use. [124] ¶¶ 23-24. In this validation or development phase, GSK agreed to transfer technical information to Hospira-as specified in the Technical Transfer Program (Schedule 4 to the toll agreement)-and Hospira agreed to perform validation work and prepare for technical regulatory filings to the FDA. [124] ¶¶ 23-24; [115-14] at 12-14. During this stage, Hospira was to be paid for nine milestones listed in Schedule 3. [124] ¶ 18; [115-14] at 51. According to the terms of the agreement, actual manufacture was conditioned on (a) GSK's approval of the first three validation batches and (b) GSK's receipt of approval from the FDA “to sell the Vaccine Product Manufactured by Hospira pursuant to this Agreement.” [115-14] at 10. Hospira would then begin the commercial manufacturing process and receive payment per unit of vaccine product; Schedule 2 provided prices for the 2013, 2014, and 2015 flu seasons. [124] ¶¶ 23-24; [115-14] at 10, 22-23, 47.

         The parties signed the toll agreement on December 31, 2010, but eight of the nine development milestones in Schedule 3 had been scheduled for completion prior to that date (i.e., in November and December 2010). [124] ¶¶ 16, 26; [115-14] at 51. And Hospira missed those milestones before the parties' executed the contract (Hospira's initial validation work (a “consistency campaign”) was unsuccessful). [124] ¶ 25. The last milestone-preparation and review for the regulatory filing- was to be completed in 2011. [124] ¶ 19. The toll agreement stated that GSK could refuse payment for a milestone invoice “only if it is not substantially complete, requires material corrections or if the relevant milestone has not been completed according to the Technical Transfer Program [Schedule 4] criteria.” [124] ¶¶ 20-21; [115-14] at 52. GSK paid all but one of Hospira's milestone invoices, but GSK points to evidence suggesting that Hospira did not invoice GSK for all of the milestones, discounted several invoices, and did not seek payment according to the milestone schedule. [124] ¶ 22. GSK temporarily suspended the project in February 2011, but did not terminate it. [124] ¶¶ 27-28. Following a series of engineering trials and some process changes, GSK elected to continue the project, and Hospira resumed its work around April or May 2011. [124] ¶ 30.

         Separately, GSK attempted to obtain a pediatric indication for thimerosal-free (i.e., mercury-free) TIV. [124] ¶ 33. GSK made its FDA submission in August 2010 and expected to receive approval in June 2011. [124] ¶ 34. But in February 2011, the FDA informed GSK that it had failed to satisfy the efficacy requirement and could not obtain the desired pediatric indication for TIV without efficacy data from a QIV study; these study results were not expected until 2012 or 2013. [124] ¶¶ 35-37. During the following months, GSK attempted to seek a pediatric indication for TIV through an accelerated approval process, but was unsuccessful. [124] ¶ 38.

         By the fall of 2011, GSK recognized that it was unlikely to obtain a pediatric indication for TIV in time for the 2012 or 2013 flu season. [124] ¶ 45. GSK's vaccine team reported internally that without the pediatric indication, thimerosal-free TIV would be of “no interest” because it had “no value” to the U.S. market. [124] ¶¶ 40- 41.[3] Around this time, GSK also learned that the QIV study results would be available earlier than expected, allowing GSK to launch its QIV product in 2014, a year ahead of schedule. [124] ¶ 43. Hospira was not involved with GSK's pursuit of a pediatric indication, and GSK did not share information with Hospira about its pursuit of a pediatric indication or its commercial evaluation of an adult-only, thimerosal-free TIV product. [124] ¶¶ 39, 42.

         In October 2011, GSK audited Hospira's plant. [124] ¶ 49. The audit found no “critical” observations but did find some “major” observations, concluding that the plant was not on track to support the submission of technical filings to the FDA and was not ready for an FDA pre-approval inspection; ultimately, GSK did not approve the plant for commercial manufacture. [124] ¶¶ 50-51; [135] ¶ 19. At the time, Hospira disputed GSK's observations and GSK's claim that Hospira's plant would not be read for a pre-approval inspection by the FDA. [124] ¶ 53; [135] ¶ 20. The parties dispute whether these audit findings were directed at manufacturing the TIV product specifically or were directed at the syringe-filling process more generally. See [124] ¶ 51.

         In November 2011, GSK's Vaccine Development & Commercialization Board formally decided to delay submission of the TIV file and decided that TIV would not be launched in 2013. [124] ¶¶ 46-48.[4] The parties dispute whether this decision was the result of GSK's failure to obtain a pediatric indication for TIV, the issues and delays with Hospira's validation work, or a combination of both circumstances. See [124] ¶¶ 46-48; [135] ¶¶ 22, 25. GSK did not terminate the toll agreement in November 2011, and it did not provide Hospira with a notice and opportunity to cure in accordance with the contract. [124] ¶ 55.

         After the board's decision, the parties' focus shifted to QIV. The parties began negotiations in November 2011 relating to QIV, and they submitted proposals, counterproposals, and price quotations, eventually meeting for discussions in Belgium on December 6, 2011. [124] ¶¶ 60-61; [135] ¶ 27. Hospira asserts that GSK closed out the TIV project and was negotiating modifications to the toll agreement and its schedules for Hospira to manufacture QIV; GSK asserts that the toll agreement already covered Hospira's obligations for manufacturing QIV, and that the parties' negotiations were merely for ironing out technical details and pricing QIV validation work. [124] ¶¶ 58-70; [135] ¶¶ 26-27.

         Through January and February 2012, GSK and Hospira were still discussing QIV validation work and costs. [124] ¶ 64. On March 22, 2012, Hospira informed GSK that the project needed to be stopped. [124] ¶ 71; [135] ¶¶ 29-30. By this time, Hospira had not made any QIV consistency batches (for the validation work), and GSK had not paid Hospira for any of Hospira's QIV-related prefatory work (and never did). [124] ¶ 74; [135] ¶ 31. Hospira asserts that it delayed the project to give the parties time to complete negotiations to modify the toll agreement before engaging in the QIV development and manufacturing work; GSK asserts that Hospira unilaterally terminated the toll agreement because it could not afford to devote resources to the project. [124] ¶¶ 71-72; [135] ¶¶ 28-29. GSK never brought TIV to the market, but did bring QIV to the market (without Hospira) in time for the 2014 flu season. [124] ¶¶ 75-76.

         GSK then brought suit against Hospira in the Southern District of New York, asserting breach of contract (Count I), promissory estoppel (Count II), and quantum meruit and unjust enrichment (Count III). [1]; [50]. Hospira counterclaimed for breach of contract (Count I), quantum meruit (Count II), and unjust enrichment (Count III) and successfully moved to transfer the case to this district. [23]; [63]. Hospira also moved to dismiss GSK's claims, but the motion was denied in an opinion also holding that New York law applies to the parties' breach of contract claims and Illinois law applies to their quasi-contract claims. [62] at 5-6.

         III. Analysis

         A. Breach of Contract Claim

         GSK's breach of contract claim does not assert that it terminated the toll agreement pursuant to breaches by Hospira. Instead (as argued in briefing Hospira's motion to dismiss), GSK contends that New York law allows a non-breaching party to elect to continue the agreement (in lieu of termination) and sue for damages for interim breaches, if notice is given to the breaching party. Under this doctrine, GSK argues that it is entitled to damages for Hospira's failure to produce timely, acceptable TIV validation work and for Hospira's unilateral termination of the contract in 2012. Hospira seeks summary judgment on GSK's breach of contract claim, arguing that GSK relieved Hospira of its contractual obligations by stopping the TIV project before performance was due, that Hospira's conduct caused no injury because the TIV project was of no value to GSK without the pediatric indication, and that Hospira had no contractual obligations as to QIV because the parties' negotiations failed.

         1. Scope of the Toll Agreement

         Hospira's arguments for summary judgment on GSK's breach of contract claim focus on whether the toll agreement encompasses both TIV and QIV. Hospira contends that QIV is not covered and that its contractual obligations ended when GSK stopped the TIV project in November 2010, a month or two before Hospira's final development milestone was due. GSK responds that the toll agreement encompasses QIV (or at least is ambiguous) and therefore it can sue for breach relating to QIV, as well as earlier breaches regarding TIV validation work and preparedness for FDA submissions.

         Under New York law, “the initial question for the court on a motion for summary judgment with respect to a contract claim is whether the contract is unambiguous with respect to the question disputed by the parties, ” which is a question of law. Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 465 (2d Cir. 2010) (marks omitted). “Where the language used is susceptible to differing interpretations, each of which may be said to be as reasonable as another, and where there is relevant extrinsic evidence of the parties' actual intent, the meaning of ...


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