Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

BELMAC HYGIENE, INC. v. MEDSTAR

January 12, 1996

BELMAC HYGIENE, INC., Plaintiff, against MEDSTAR, INC., MAXIMED, INC. and ROBERT S. COHEN, Defendants. MEDSTAR, INC., Plaintiff, - against - BELMAC CORPORATION, Defendant.


The opinion of the court was delivered by: SWEET

 Sweet, D.J.

 Both the plaintiff Belmac Hygiene, Inc. ("Belmac Hygiene") and the defendant and counterclaim plaintiff Medstar, Inc. ("Medstar") sought injunctive relief in this consolidated diversity action to resolve the disputes arising out of their agreement entered into as of March 11, 1994 ("the Agreement"). Upon all the prior proceedings and the trial before the court and upon the findings and conclusions set forth below, judgment will be entered upon the settlement of the judgment, and all injunctive relief will be denied.

 The Parties

 Defendant, in the later filed action, Belmac Corporation ("Belmac"), is a publicly held Florida corporation having its principal place of business at One Urban Centre, Suite 550, 4830 West Kennedy Boulevard, Tampa, Florida 33609, engaged in the development, manufacture and sale of pharmaceutical products and related medical products. Belmac is the owner of all of the outstanding capital stock of Belmac Hygiene, a subsidiary formed by Belmac to enter in the Agreement.

 Defendant Maximed, Inc. ("Maximed") is a Delaware corporation having its principal place of business at 535 Fifth Avenue, New York, New York 10017, which sought to develop a new controlled release drug delivery system ("Lotus RDC") by which women may take certain drugs intra-vaginally ("Drug Delivery System"), including a vaginal contraceptive originally known as Lotus Espernil and later known as Lotus 24. Defendant Robert S. Cohen ("Cohen") is a citizen of the State of New York and is the founder and Chief Executive Officer of Maximed. Maximed owns all of the outstanding capital stock of defendant and counterclaim plaintiff Medstar, which was formed by Maximed to enter in the Agreement.

 Prior Proceedings

 Belmac filed its complaint on December 9, 1994, alleging causes of action for injunction to prevent interference in the affairs of the partnership, for fraudulent inducement, negligent misrepresentation, breach of warranty and the covenant of fair dealing, and indemnification. By order to show cause signed March 30, Belmac sought preliminary injunctive relief. Medstar answered and counterclaimed on April 5 alleging material misrepresentation, fraud, failure of performance, breach of contract, as well as affirmative defenses. On May 5, 1995, Medstar then initiated an action against Belmac to enforce a guaranty of a Belmac obligation to fund the partnership created under the Agreement (the later filed action, Medstar, Inc. v. Belmac Corporation, 95 Civ. 3152). Belmac entered an answer reasserting its claims in the first filed action.

 Discovery proceeded, pretrial conferences were held, and it was determined that the hearing on the injunctions requested and the trial on the merits would be consolidated pursuant to Rule 65(a)(2) Fed. R. Civ. P. The later filed action by Medstar was consolidated with the earlier filed action. The trial was held from August 21 through August 23, final argument was heard on October 25, 1995, and the action was considered finally submitted on October 27, 1995.

 The Facts

 Belmac in 1993 sought to identify a pharmaceutical product with which to enter the United States market and to offset its past inability to do so. James Murphy, then president of MacroChem Corporation, now President and Chief Executive Officer of Belmac, learned of a product being developed by Maximed and Cohen known as the RDC and Lotus Drug Delivery System and the Lotus drug products, including a vaginal contraceptive known as Lotus 24.

 In an effort to obtain financial backing, Maximed had prepared a 42-page business plan dated September 1, 1993 ("the Business Plan") that detailed Maximed's history and business, its patented technology, marketing strategy, its management, including its scientific advisory board and a statement of expected operations, including schedules of projected sales and gross revenues.

 The Business Plan represented that Maximed had made a submission to the Federal Drug Administration ("FDA") in April 1991 and described the FDA regulatory process for drugs such as Lotus 24 at page 7, stating that:

 
LOTUS 24, the Company's vaginal contraceptive product, the first intended for marketing, is in a unique regulatory position. The active ingredient in LOTUS 24, nonoxynol-9, has been determined as safe and effective under the guidelines set forth in the FDA Monograph on Vaginal Contraceptives. The monograph describes the parameters that all spermicidal preparations must meet and the Company's product meets or exceeds those requirements. The other components of the formulation are Generally Regarded AS Safe (GRAS). As a result, there is no review requirements by the FDA.

 The Business Plan further stated that:

 
In April 1992, a notice of intention to market LOTUS 24 was filed with the FDA. The FDA has thirty days to respond with any objection before marketing may commence. No objections have been received by the company.
 
* * *
 
Pursuant to the FDA monograph on vaginal contraceptives, Maximed's introductory product, a vaginal contraceptive, will be immediately marketed upon completion of funding.

 The Business Plan also made representations regarding the identification of a manufacturer for Lotus 24, the existence and adequacy of an applicator and the lack of the need for capital expenditures, stating:

 
The Company has identified a contract manufacturer to initially manufacture all of its products. Packaging for LOTUS 24 will contain 4 pre-filled, syringe type cardboard (environmentally safe) vaginal applicators. (Business Plan, p.14);
 
Phase I First 6 mos. (i) commence production of LOTUS 24 (Business Plan, p. 15);
 
LOTUS 24 ... is projected as being sold in packages of 4 pre-filled cardboard vaginal applicators. Suggested retail price will be $ 6.00 ... Per package of 4 ... total Cost per Dozen $ 4.80. (Business Plan, p. 35);
 
there will be no capital expenditures for the project (Business Plan, pp. 31, 37-38); and
 
Sales for LOTUS 24 are expected to commence six months after funding. (Business Plan, p. 41).

 Cohen had demonstrated products at MacroChem, and Murphy contacted Belmac's Chief Science Officer and Senior Vice President, Dr. Robert M. Stote ("Dr. Stote") to see if Belmac would be interested in the products. Dr. Stote contacted Maximed and arranged for a meeting with Cohen to discuss Maximed's business and products.

 Thereafter, representatives of Belmac, including Dr. Stote, met with Cohen from January through March 1994 to discuss Maximed's Drug Delivery System and products and the possibility of entering into a business arrangement for their manufacture, marketing and sale. Although Belmac found merit in the product, it made plain to Cohen that Belmac was not interested in a development project and was desirous of entering into a business relationship involving at least one pharmaceutical product that was ready to be manufactured, marketed and sold.

 Cohen on behalf of Maximed made representations consistent with, and in affirmance of, its written representations in the Business Plan which was given to Dr. Stote. Cohen declared that Lotus 24 was ready for marketing, that it would be marketed in "4 to 6 months" and affirmed the statements that Maximed had identified a manufacturer that was qualified to manufacture Lotus 24. Cohen stated that "all problems with the manufacturing had been worked out and they would sign a contract immediately upon funding," that "he had a manufacturer who could manufacture the product ... they were ready to go," and that "as soon as he had funding and could sign the contract, they would start manufacturing," and that no further capitalization would be required.

 Cohen reiterated the status of the product with the FDA as set forth in the Business Plan. Cohen told Dr. Stote prior to entering into the Belmac/Maximed partnership Agreement that Maximed had discontinued consideration of one manufacturer, Healthcare packaging Inc., months before he met Dr. Stote, that they had to find a new manufacturer, and that he was going to visit a new manufacturer, American Distilling & Manufacturing ("AD&M").

 Maximed provided Belmac with a copy of a letter to the FDA dated April 15, 1992 with an attachment from Maximed, signed on its behalf by Cohen, notifying the FDA of Maximed's intention to market Lotus 24.

 The FDA letter states, in pertinent part, that:

 
This letter will serve to notify you that Maximed Corporation intends to market LOTUS ESPERNIL (trade name), a nonoxynol-9 vaginal suppository, which conforms to the criteria of the Food and Drug Administration's (FDA) proposed monograph on Over-The-Counter (O-T-C) contraceptives ... In vitro testing of LOTUS ESPERNIL ... revealed that the product was spermicidal at forty (40) seconds and for up to twelve (12) hours. A copy of the summary report provided by the University of Miami School of Medicine is appended (Attachment I). The results of stability tests undertaken at the University of Kansas Medical Center reveal that the product has a shelf life of at least nine (9) months and is likely to have a shelf life of twenty-four (24) months. A copy of the summary stability report is appended (Attachment II). The labeling for LOTUS ESPERNIL is being provided to the O-T-C Labeling Group, for your review. A copy of the labeling is appended (Attachment III).

 The three attachments referred to in the FDA letter were Attachment I - the spermicidal test, Attachment II - the purported stability test, and Attachment III - the labeling information. However, the only paper attached to the copy of the FDA letter that Maximed provided to Belmac contained the labeling information which presumably was Attachment III, although it was not designated as such.

 Cohen and Maximed represented to Belmac prior to entering into the Partnership Agreement that Lotus 24 would be marketed by September 1994. Cohen and Maximed had submitted a Belmac/Maximed Partnership Business Plan, from which Cohen and Maximed had removed pages which stated that the launch date for Lotus 24 was September 1994.

 At a meeting held on March 3, 1994 between Belmac and Maximed, the purpose of which was to set forth the terms of the Belmac/Maximed Partnership Agreement, Belmac reiterated its desire to enter into a business venture involving pharmaceutical products that were market-ready. Certain figures for the cost of manufacturing were already contained in a draft of the proposed contract and Belmac asked Cohen during that meeting whether he could attest to the veracity of those figures. Cohen left the meeting and after a 15-minute interval returned and verified the cost figures.

 Dr. Stote was aware that under the FDA approved monograph system, the FDA establishes rules for products containing ingredients that have been on the market for years and that have proven safety records. These rules mandate that a company planning to market a new product containing such an ingredient submit a letter to the FDA setting forth, among other things, its intention to market the product, stability testing and labeling information and other supporting documentation. The FDA has thirty days to respond with any objections before ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.