United States District Court, Southern District of New York
March 17, 2003
GENEVA PHARMACEUTICALS TECHNOLOGY CORP., (AS SUCCESSOR IN INTEREST TO INVAMED, INC.), PLAINTIFF,
BARR LABORATORIES, INC., BRANTFORD CHEMICALS INC., BERNARD C. SHERMAN, APOTEX HOLDINGS INC., APOTEX INC. AND SHERMAN DELAWARE, INC., DEFENDANTS. APOTHECON, INC., PLAINTIFF, V. BARR LABORATORIES, INC., BRANTFORD CHEMICALS INC., BERNARD C. SHERMAN, APOTEX HOLDINGS INC., APOTEX INC. AND SHERMAN DELAWARE, INC., DEFENDANTS.
The opinion of the court was delivered by: Sweet, District Judge
Defendant Brantford Chemicals Inc. ("Brantford") has moved pursuant to Rule 39(a)(2) of the Federal Rules of Civil Procedure to strike the jury demand on the promissory estoppel claim alleged in the Seventh Cause of Action ("Count VII") of the complaint filed by plaintiff Geneva Pharmaceuticals Technology Corp. ("Geneva") as successor in interest to Invamed, Inc. ("Invamed").
In addition, Geneva has moved for reconsideration of this Court's discovery order of January 16, 2003.
For the following reasons, Brantford's motion to strike the jury demand is granted, and Geneva's motion for reconsideration is granted in part and denied in part.
Invamed filed its complaint on February 6, 1998, alleging violations of the antitrust laws of the United States and various state law claims arising out of defendants' alleged efforts to monopolize and restrain trade in the markets for an oral anti-coagulant medication known as warfarin sodium. The complaint alleged eleven causes of action against the defendants. The claim at issue, Count VII, alleged promissory estoppel against Brantford, as follows:
In its dealings with Invamed prior to October 1997,
including providing supplies of clathrate and providing
the "Letter of Access," and in its communications with
Invamed prior to October 1997, and in light of the custom
and practice in the industry and the prior business
dealings between Brantford and Invamed, Brantford
understood and intended, or reasonably should have
understood and intended, that Invamed reasonably would
rely to its detriment on Brantford to supply clathrate to
Invamed following Invamed's receipt of approval from the
Invamed, in fact, in good faith did reasonably rely
to its detriment on Brantford to supply clathrate to
Invamed following Invamed's receipt of approval f[rom]
By virtue of the foregoing, Invamed has been damaged
in an amount to be established at trial, but believed to
be substantially in excess of $75,000.
Compl. ¶¶ 76-78.
On April 9, 1998, Sherman, Apotex Holdings, Apotex, and Sherman Delaware moved under Fed.R.Civ.P. 12(b)(6) to dismiss Invamed's First, Second, Third, Fourth, Eighth, and Ninth Causes of Action, claiming that there are no allegations in the complaint that would establish the basis for those claims. The Court granted this motion to dismiss with leave to replead. Invamed did not replead.
Apothecon filed a separate suit on May 19, 1999, and the cases were consolidated on July 29, 1999. Apothecon included the same causes of action discussed above as well as a few additional ones.
The defendants moved for summary judgment on August 6, 2001, which motion was considered fully submitted on February 13, 2002. In an opinion dated May 10, 2002, all of the antitrust claims (Invamed Compl. Counts I-V; Apothecon Compl. Counts I-VI) and all of Apothecon's state law claims (Apothecon Compl. Counts VII-XV) were dismissed. Further, Invamed's counts X and XI were dismissed.
Brantford moved on January 3, 2003 to strike the jury demand of Geneva as to Count VII. Geneva replied on January 17, 2003.
An opinion issued on January 16, 2003 in response to a series of letters regarding discovery requests. By letter dated January 22, 2203, Geneva moved for reconsideration of one aspect of that order regarding judgment-sharing agreements and also moved for an extension of the deadlines set in that order. Brantford replied by letter dated January 23, 2003.
By memorandum opinion dated January 27, 2003, discovery and trial on Geneva's remaining state claims were stayed pending an appeal of the summary judgment decision rejecting all of the antitrust claims.
Both of the instant motions were considered fully submitted after oral argument on January 29, 2003.
I. The Jury Demand Will Be Stricken
A. Standard of Review
The Federal Rules of Civil Procedure contemplate that a jury trial will be conducted on all issues properly triable before a jury once a demand has been made:
unless (1) the parties or their attorneys of record, by
written stipulation made in open court and entered in the
record, consent to trial by the court sitting without a
jury or (2) the court upon motion or of its own
initiative finds that a right to a trial by jury of some
or all of those issues does not exist under the
Constitution or statutes of the United States.
Geneva rests its claim to a jury trial on the Constitution. The Seventh Amendment to the United States Constitution guarantees the right to trial by jury only for "[s]uits at common law." U.S. Const. Amend. VII. The phrase "[s]uits at common law" refers to "suits in which legal rights [are] to be ascertained and determined, in contradistinction to those where equitable rights alone [are] recognized, and equitable remedies were administered. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41 (1989) (quoting Parsons v. Bedford, 28 U.S. (3 Pet.) 433, 447 (1830)). See also Wm. Passalacqua Builders Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 135 (2d Cir. 1991) (jury required for alter ego claim).
Whether a suit is legal or equitable is determined by federal law, even while the cause of action is created by state law. Simler v. Conner, 372 U.S. 221, 222 (1963) ("characterization of [a] state-created claim as legal or equitable for purposes of whether a right to jury trial is indicated must be made by recourse to federal law"); see also McGuire v. Wilson, 1988 WL 45627, at *1-*2 (S.D.N.Y. May 4, 1988) (denying motion to strike jury demand). Application of federal law is required so that the right to jury trial will be exercised uniformly as demanded by the Seventh Amendment. Id.
To determine whether a particular action will resolve legal rights, courts look first to the nature of the issues involved by comparing the action to the 18th-century action brought in the courts of England prior to the merger of the courts of law and equity, and second to the nature of the remedy sought. German v. Connecticut Nat'l Bank, 988 F.2d 1323, 1328 (2d Cir. 1993) (citing Granfinanciera, 492 U.S. at 42). The second stage of this analysis is more important than the first. Granfinanciera, 492 U.S. at 42.
B. Applying the Teachings of Merex, Count VII Is
Not "Legal" Promissory Estoppel
The Second Circuit has discussed in particular the legal and equitable nature of promissory estoppel in Merex A.G. v. Fairchild Weston Systs. Inc., 29 F.3d 821
(2d Cir. 1994). The plaintiff in Merex invoked the doctrine of promissory estoppel to recover more than $1.6 million in damages based on the breach of an alleged oral commission agreement. Id. at 825. The district court permitted the promissory estoppel claim to go to the jury but only on an advisory basis. Id. at 823. The advisory jury rendered a verdict for the plaintiff, but the district court rejected the jury's advice and entered judgment for the defendant. On appeal, the plaintiff challenged the district court's decision, arguing that the plaintiff was entitled to a jury trial on its promissory estoppel claim.
The Second Circuit affirmed the district court's ruling, applying the two-prong test discussed above. It held first that promissory estoppel "eludes classification as either entirely legal or entirely equitable, and the historical evidence is equivocal," but that "its modern uses have historical antecedents in both law and equity." Id. at 824 (emphasis in original). The court explained that promissory estoppel claims are of two types. First and "most traditionally," promissory estoppel may be invoked under a theory of "detrimental reliance" where the promise to be enforced was expected to and did induce detrimental reliance by the promissee and should be binding and enforceable to prevent injustice. Id. (citing Restatement (Second) of Contracts § 90 (1981); Schmidt v. McKay, 555 F.2d 30, 36 (2d Cir. 1977) ("Schmidt alleges that he reasonably relied on appellees' promises to his detriment and that appellees are bound under the doctrine of promissory estoppel.")). This type of claim is legal in nature because its roots are in the common law action of assumpsit. Id. at 825 ("[W]here a plaintiff sues for contract damages and uses detrimental reliance as a substitute for consideration, the analogy to actions in assumpsit is compelling."); see also Corbin on Contracts § 8.11, at 42 ("[I]t is generally accepted that equity gave promissory estoppel relief before the 1500's; thereafter, in the sixteenth and seventeenth centuries the common law courts predicated on the action for assumpsit enforced informal promises based on the reliance principle.") (Joseph M. Perillo, ed., Rev. Ed. 1996). Second, promissory estoppel may be pled to provide recovery where "the contract is rendered unenforceable by operation of the Statute of Frauds." Id. (citing Restatement (Second) of Contracts § 139(1); Philo Smith & Co. v. USLIFE Corp., 554 F.2d 34, 36 (2d Cir. 1977) (per curiam)). This type of claim is derived from equitable estoppel and thus is rooted in equity. Id.
The Court held that the plaintiff had pled the second type of claim in that it was attempting to bypass the Statute of Frauds. Merex, 29 F.3d at 825-26. The Court also concluded that plaintiff's attempt to obtain legal relief was outweighed by "the undeniably equitable nature of the promissory estoppel claim as a whole." Id.
Geneva argues that its Count VII falls squarely within the first, and "legal," category of promissory estoppel in that it is a claim based on detrimental reliance. While the language of Merex could be construed so broadly, Brantford's argument in opposition is more compelling. Brantford claims that Merex was intended only to apply to one certain type of promissory estoppel — that used as a consideration substitute in a contract claim — that is not present here.
A commentator's explication of four distinct "stages" of promissory estoppel in American law sheds light on this theory. According to the commentator, the doctrine of promissory estoppel has evolved, to varying degrees, in the following progression: (1) use as (defensive and offensive) equitable estoppel; (2) use as a consideration substitute on contractual claims; (3) use as an independent claim for detrimental reliance; and, finally, (4) use as an equitable tool, with solely equitable rights and remedies. Corbin, supra, at § 8.11, at 45-58. Brantford urges that Merex stands only for the proposition that cases invoking the second stage of promissory estoppel — use of reliance as a consideration substitute — are "legal" claims, while it is silent on whether the other stages of evolution are more legal than equitable (except to the extent that the use of promissory estoppel to avoid the statute of frauds, an equitable claim according to Merex, fits into either the third or fourth categories). Language used in the Merex opinion supports this hypothesis: "[W]here a plaintiff sues for contract damages and uses detrimental reliance as a substitute for consideration, the analogy to actions in assumpsit is compelling." Merex, 29 F.3d at 825. The distinction also makes sense: in the second stage, using reliance as a consideration substitute, courts are acting defensively in support of contract rights; the third and fourth stages involve courts creating a right where otherwise there would be none. Corbin, supra, at § 8.11, at 53. The creation of a new right in the interests of justice is equity in action.
Geneva has asserted a separate claim for promissory estoppel, rather than a contract claim on which it relies on the doctrine to provide consideration. It would thus appear to fall outside of the situation described in Merex as compellingly legal in nature.*fn1 In answer to the first prong of the test, therefore, the instant promissory estoppel claim appears to be more equitable than legal.
As discussed above, it is the second prong — the type of remedy sought — that is most important in determining whether a right to jury trial should obtain. The remedy provided under New Jersey law is equitable in nature. Corbin, supra, at § 8.12, at 146 ("New Jersey recognizes promissory estoppel as a cause of action with emphasis on both the contract requirement of a promise (equivalent to an offer) and its equitable pedigree in avoiding injustice by reliance damage awards."). While there is some debate between the parties as to whether Geneva is entitled to expectation damages, and thus is seeking a legal remedy, that contention is rejected. Geneva is not entitled to the benefit of the bargain because there was no bargain. E.g., Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 73 & n. 2 (2d Cir. 1989) ("Out-of-pocket damages are particularly appropriate where, as may be the case here, the plaintiff cannot rationally calculate the benefit of the bargain."); Elvin Assocs. v. Aretha Franklin, 735 F. Supp. 1177, 1183 (S.D.N.Y. 1990) (awarded reliance damages to musical producer, who relied on Aretha Franklin's promise to star in a musical, for custom-made costumes, $12,500 production fee, amounts paid to composer, unpaid debts to collaborator and choreographer, and debts to potential investors for $72,155 they lost in failed venture). Although Geneva seeks monetary damages, those damages are to be awarded for its reliance and are equitable in nature.
Given the "protean" nature of promissory estoppel (and the confusing variances in potential claims that may be considered "promissory estoppel") and the equitable remedy sought here in the form of reliance damages, the cause of action is more equitable than legal and a right to jury trial does not attach. Brantford's motion to strike is therefore granted.
II. Reconsideration of the Discovery Order
Geneva has first moved to alter the discovery deadlines set out in the Memorandum Opinion of January 16, 2003. In light of the stay imposed by the Order dated January 27, 2003, however, those dates are no longer binding. Instead, any discovery ordered to be produced that has not yet been produced should be so produced within ten (10) days after the lifting of the stay.
Second, Geneva has moved for reconsideration of one aspect of the January 16, 2003 order in which Brantford's request for production of a judgment-sharing agreement between Invamed and Apothecon was granted. Geneva points to two predicate facts that it claims this Court did not consider. First, Geneva asserts that no Bristol-Myers Squibb employees will be testifying at trial and thus any argument based on potential conflicts arising therefrom are meritless. Second, Geneva states that it has not balked at settlement agreements but that the defendants have been the uncooperative ones. It concludes that until the defendants represent that they are willing to engage in serious negotiations, there is no cause for the production of the judgment-sharing agreements.
In opposition, Brantford points out that nine of the thirty-one witnesses on Geneva's draft witness list were (at least at the time of deposition) Bristol-Myers employees. Further, it points out that even if Bristol-Myers is no longer the employer of these nine witnesses, it does not necessarily remove the potential for bias from trial testimony and does not affect any potential bias that was present at the time of deposition when the persons were still so employed. With regard to the second argument, Brantford points out that Geneva informed Brantford at the mediation/settlement talks that it would not discuss a settlement without Apothecon, and that Geneva had even before that refused to discuss settlement separately, telling defendants that "you have to talk to Apothecon."
The new facts put forward by Geneva are not sufficiently persuasive in light of the above representations by Brantford to justify the granting of their motion for reconsideration. As a result, when the stay is lifted, Geneva is therefore ordered to produce either a judgment-sharing agreement or a signed affidavit by Geneva and Apothecon stating that there is no such agreement between them. Such production should take place within ten (10) days of the lifting of the stay.
Finally, Geneva has sought an order from the Court ordering Brantford to produce any judgment-sharing agreement between it and Barr Laboratories, Inc. Brantford has stated in response that it is willing to comply with such an order, but that there is no such judgment-sharing agreement in effect. In light of the above, Brantford is ordered to produce either a judgment-sharing agreement or a signed affidavit stating that there is no such agreement between it and Barr within ten (10) days of the lifting of the stay.
For the foregoing reasons, Brantford's request to strike the jury demand is granted, and Geneva's motion for reconsideration is granted in part and denied in part. Any discovery ordered in the January 16, 2003 order — including judgment-sharing agreements or affidavits denying the existence thereof from both parties — should be produced within ten (10) days after the stay is lifted.
It is so ordered.