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PFIZER, INC. v. STRYKER CORPORATION

United States District Court, S.D. New York


November 24, 2004.

PFIZER, INC., et ano., Plaintiffs,
v.
STRYKER CORPORATION, et ano., Defendants.

The opinion of the court was delivered by: LEWIS KAPLAN, District Judge

MEMORANDUM OPINION

In 1998, Pfizer, Inc. and MTG Divestitures, Inc. (collectively "Pfizer") sold its prosthetic joint and implant business to Stryker Corp. and Howmedica Osteonics Corp. (collectively "Stryker") for $1.6 billion. The pertinent agreements provided, broadly speaking, that Pfizer would retain liability for third party product liability claims arising in respect of prosthetic joints sold prior to the closing, while Stryker would be responsible for claims relating to joints sold after the closing. Once the deal closed, however, the parties each sought to shift responsibility to the other with respect to a particular prosthetic joint, the Duracon Uni-Compartmental Knee, on a variety of theories. Discovery having concluded, Pfizer moves for partial summary judgment of liability on certain of its claims. Both sides move for summary judgment on certain of Stryker's counterclaims.

  I

  A. The Duracon Uni-Compartmental Knee

  The Duracon Uni-Compartmental Knee system ("DUK") is a prosthetic knee implant that was manufactured by Howmedica, Inc., a former Pfizer subsidiary, and used to replace a part or a condyle of a knee.*fn1 The DUK has two components, a femoral piece made of cobalt chrome and a tibial component made of ultra high molecular weight polyethylene ("UHMWPE") packaged in standard atmospheric conditions and sterilized through a process of gamma sterilization in air, also known as conventional radiation sterilization.*fn2

  The DUK first was approved by the FDA in 1993. The tibial components were manufactured in Limerick, Ireland, between May and September of 1993 and shipped to Pfizer's Rutherford, New Jersey warehouse for distribution in the United States.*fn3 As a result of Pfizer's effort to redesign the femoral component, however, the DUKs were not distributed in the United States until May of 1997.*fn4

  UHMWPE degrades over time when not implanted.*fn5 In accordance with FDA regulations, Pfizer adopted a policy in 1996 that all conventionally radiation sterilized UHMWPE products should not be sold for implementation more than five years after their manufacture.*fn6 Pfizer's policy also prohibited distribution of UHMWPE products more than four years after their manufacture, although the scope of this aspect of the policy is unclear.*fn7

  In order to implement this five year rule, Howmedica created a computer program, known as the SPCS or Poly Filter File, to track UHMWPE products and ensure that none were shipped after its shelf-life had expired.*fn8 Although the SPCS was primarily responsible for tracking UHMWPE products, some Pfizer warehouse employees testified that they were supposed to check the labels of devices and manually remove those that had been manufactured more than five years earlier.*fn9

  In late 1996 or early 1997, Howmedica decided to sell the DUK in the United States and put together a team to launch the product and repackage the tibial components. As part of this effort, the team redesigned the label to indicate the date on which the components were manufactured.*fn10 Certain members of the Howmedica team had concerns about marketing the DUK so close to the time at which it no longer could be implanted.*fn11 For example, Paul Amregian, a packaging engineer for Howmedica, expressed concerned that the product was being released too close to the date after which it no longer should have been distributed.*fn12 Other employees expressed concerns about the timing of the release as well, specifically with regard to the Pfizer policy that UHMWPE products not be distributed more than four years after being manufactured.*fn13 In any event, Howmedica began to market the products in May of 1997 and reordered new products from Ireland for sale after the tibial components manufactured in 1993 were too old to be used.*fn14 None of the DUK components manufactured in 1993 was entered into the SPCS.*fn15 In a memo dated March 11, 1997, Robert Blair Harvey, then manager of regulatory compliance at Howmedica, requested that Douglas O'Connor, a Howmedica employee who worked on the development of the SPCS,*fn16 enter the catalog numbers of the DUK products into the SPCS.*fn17 Mr. Harvey never followed up on this request and Mr. O'Connor cannot recall receiving such a request, although he has had no reason to suspect that he did not.*fn18 Mr. O'Connor testified that he did not know why the DUKs were never entered into the system and surmised that it was oversight.*fn19 Similarly, Elizabeth Staub, an employee of Howmedica Osteonics Corporation, testified, on the basis of corporate documents she had reviewed, that she could find no reason why the DUKs would have been excluded from the tracking system.*fn20 Although Mr. O'Connor testified that the system had been tested thoroughly, he acknowledged that it was limited in scope and, at the time in question, did not include products manufactured outside the United States.*fn21

  The first DUK tibial components were sold in the United States in or around May of 1997.*fn22 The tibial components continued to be sold and implanted in patients until sometime in early 2000.*fn23 It is undisputed that some of the DUKs were sold and implanted more than five years after they had been manufactured and sterilized.*fn24

  B. The Purchase Agreement

  On August 13, 1998, Pfizer and Stryker entered into a written stock and asset purchase agreement pursuant to which Stryker bought Pfizer's specialty trauma and prosthetic joint business, which primarily took the form of the Howmedica Corporation.*fn25 On December 4, 1998, the deal closed and Howmedica changed its name to MTG Divestitures, Inc. The new business was incorporated into Stryker as the Howmedica Osteonics Corp. ("HOC").*fn26 Approximately 2,000 of the DUK tibial components that had been manufactured in Ireland in 1993 were transferred to Stryker as part of the sale.*fn27

  1. Liability for Third Party Claims The Purchase Agreement contains several provisions relating to the parties' liability for third party claims arising from the sale of medical devices. Section 2.5 provides:

"Assumption of Certain Obligations of the Business. Upon the terms and subject to the conditions of this Agreement, Purchaser agrees, effective at the Closing, to assume all Liabilities of the Seller Corporations to the extent relating to the Conveyed Assets or the Business and to cause the Conveyed Subsidiaries and their Subsidiaries to satisfy and discharge their respective Liabilities whether arising on, prior to or after the Closing Date, and whether accrued or fixed, known or unknown, absolute or contingent, matured or unmatured or determined or determinable as of the Closing Date, other than Retained Liabilities (all of the foregoing liabilities and obligations being herein collectively called the `Assumed Liabilities'). Except for Liabilities expressly within the definition of Retained Liabilities or as otherwise provided in this Agreement, Assumed Liabilities shall include, without limitation, the following:
(a) except as provided in Section 2.6(g), all lawsuits commenced and claims made after the Closing Date to the extent resulting from the conduct of the Business or the ownership of the Shares or the Conveyed Assets prior to, on or after the Closing Date;
* * *
(c) all Liabilities resulting from a claim by a third party for money or other compensation (beyond the cost of a particular product) in respect of injury allegedly due and owing as a result of the use or application of a product of the Business sold after the Closing Date, including, without limitation, warranty obligations and irrespective of legal theory asserted."*fn28
  Section 2.6 of the Purchase Agreement defined the Retained Liabilities of the Business for which Pfizer remains liable:

 

"Notwithstanding any provision in this Agreement, the Seller Corporations shall retain and be responsible for the following (the `Retained Liabilities'):
* * * "(c) Liabilities for which any Seller Corporation expressly has responsibility pursuant to the terms of this Agreement;
* * *
"(g) Liabilities resulting from a claim by a third party for money or other compensation (beyond the cost of a particular product) in respect of injury allegedly due and owing as a result of the use or application of a product of the Business sold on or prior to the Closing Date, including, without limitation, warranty obligations and irrespective of the legal theory asserted."*fn29
2. Indemnification
  The parties agreed also to indemnify each other in certain circumstances. Section 8.1 provides for indemnification by Pfizer:

 

"Pfizer agrees to defend, indemnify and hold harmless Purchaser and its Affiliates, and, if applicable, their respective directors, officers, agents, employees, successors and assigns from and against any and all claims, actions, causes of action, judgments, awards, liabilities, losses, costs or damages (collectively, a `Loss' or, the `Losses') claimed or arising directly from (i) any Retained Liability, . . . (iii) any breach by the Seller Corporations of any of its covenants or agreements contained in this Agreement or in any agreement, (iv) any breach of any representation and warranty of the Seller Corporations contained in this Agreement, it being understood that for purposes of this Article VIII, all materiality exceptions and qualifications set forth in any representation and warranty of Pfizer contained in this Agreement shall be disregarded, the materiality standard for Pfizer's obligations to indemnify Purchaser and its Affiliates, . . . in respect of a breach of a representation and warranty contained herein being set forth in Section 8.6 hereof."*fn30
Section 8.2 similarly provides for Stryker to defend, indemnify and hold harmless Pfizer against any and all Losses arising from, inter alia, "any Assumed Liability" and events occurring after the Closing Date.*fn31

  The materiality provision in Section 8.6 of the Agreement provides that neither party shall have any obligation to indemnify the other under either Section 8.1(a)(iv) or Section 8.2(a)(iii) for Losses, net of insurance:

"unless the aggregate of all such Losses for which either party would, but for this provision, be liable exceeds on a cumulative basis $17,500,000, but if such amount is exceeded, such party shall be required to pay only the amount of such Losses which in the aggregate exceed $17,500.000."*fn32
  Significantly, the parties agreed also to certain procedures for claiming indemnification with respect to third party lawsuits. Section 8.3 requires the party seeking indemnification to give notice of the claim and tender the defense of such action or suit.*fn33 Section 8.4 gives the indemnifying party the right, "but not the obligation, to conduct and control, through counsel of its choosing, any third party claim, action or suit."*fn34 It provides further that "[n]o Indemnified Party may compromise or settle any Third Party Claim for which it is seeking indemnification hereunder without the consent of the Indemnifying Party."*fn35

  C. The Transitional Services Agreement

  The parties entered also into a Transitional Services Agreement (the "TSA") pursuant to which Stryker purchased from Pfizer services and the right to use necessary facilities so that the business at issue could continue to operate without interruption*fn36 during the period between the closing on December 4, 1998 and, so far as relevant here, December 31, 1999.*fn37 In performing those services, Pfizer "represent[ed] and warrant[ed] that they [would] . . . perform the services . . . hereunder in a competent, businesslike manner."*fn38

  The TSA contains its own liabilities and remedies provisions. It limits liabilities for breach to the greater of "(i) a refund of price paid for the particular Service or (ii) Buyer's incremental cost of performing the Service itself or (iii) Buyer's incremental cost of obtaining the Service from a third party."*fn39 In addition, it provides:

"Notwithstanding anything to the contrary herein, in no event shall Pfizer have any liability for loss of profit, diminution in value, loss of goodwill or consequential, incidental or punitive or other special damages as a result of provision of or failure to provide the services under the terms of this Agreement."*fn40
D. The DUK Third Party Litigation

  Beginning in late 2000, a series of products liability suits relating to the DUKs were brought against Pfizer, Stryker and HOC. The plaintiffs generally alleged that they received one or more UHMWPE tibial components that had been manufactured and sterilized more than five years prior to implantation.*fn41 On November 30, 2000, Stryker tendered the defense of all claims, whether they arose from products sold before or after December 4, 1998, to Pfizer.*fn42 Pfizer in turn tendered the defense of all claims arising from products sold after the closing to Stryker, which refused to assume the defense.*fn43 Pfizer asserts that it accepted Stryker's tender with respect to the claims relating to pre-closing sales,*fn44 although Stryker maintains that its counsel obtained its dismissal from several pre-closing actions.*fn45 It is undisputed that Pfizer provided counsel to defend Stryker in at least two suits and that the parties cooperated in several of the DUK cases pursuant to a joint defense agreement.*fn46

  One of the largest suits, entitled Orrick v. Stryker Corp., was a consolidation of approximately forty cases, including eleven pre-closing and twenty-nine post-closing cases.*fn47 Stryker there stipulated that the devices it sold were defective, that the defects proximately caused the plaintiffs' injuries, and that it was liable to the plaintiffs for breach of implied warranty of merchantability.*fn48 Stryker's counsel in the Orrick litigation informed Pfizer of its discussions with opposing counsel and provided Pfizer's counsel with a draft of the proposed stipulation, though the timing of this occurrence is disputed.*fn49 Stryker then obtained a voluntary dismissal from all forty Orrick cases. In 2002, Pfizer settled with the Orrick plaintiffs, including those whose cases arose from DUKs sold after the closing.*fn50

  The parties subsequently have been subjects of other suits involving old DUKs and now seek to resolve their rights to indemnification for their losses under the Purchase Agreement.

  II

  A. Summary Judgment Standard Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.*fn51 The moving party has the burden of demonstrating the absence of a genuine issue of material fact*fn52 and the Court must view the facts in the light most favorable to the nonmoving party.*fn53 Where, as here, there are cross motions for summary judgment, a court need not "grant judgment as a matter of law for one side or the other," but "must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration."*fn54

  B. The Parties' Claims

  Pfizer here seeks (1) a declaration that Stryker is obliged (a) to defend, indemnify and hold it harmless for any and all claims and actions arising as a result of any injury caused by the use of a product of the business sold after the closing date; (b) reimburse Pfizer for any and all litigation expenses accrued for products sold after the closing date; (c) reimburse Pfizer for all judgments, awards, liabilities or settlements it is obligated to pay as a result of any third party claims for any injury allegedly due to the use of a product sold after the closing date; and (d) reimburse Pfizer for all attorney's fees and litigation expenses in connection with its effort to enforce its rights to indemnification in this declaratory judgment action;*fn55 (2) damages for breach of contract as a result of Stryker's failure to indemnify and hold it harmless against claims arising from post-closing sales of the DUK;*fn56 and (3) summary judgment dismissing Stryker's counterclaims for a declaratory judgment, indemnification, breach of contract, and fraud.*fn57

  Stryker seeks summary judgment requiring Pfizer to indemnify it for all losses it has suffered as a result of the expired DUKs, which it asserts flow from Pfizer's breach of its representation and warranty in Section 5.9 of the Purchase Agreement, and dismissing Pfizer's amended complaint.*fn58

  C. Declaratory Judgment Action

  The parties advance competing interpretations of the Purchase Agreement in support of their conflicting views of their respective obligations with respect to third party claims relating to DUKs. As both seek summary judgment on their claims for relief, it is convenient to discuss the issue in one place.

  1. Indemnity for Third Party Claims

  Each party asserts that the other must indemnify it for all losses arising from DUKs sold after December 4, 1998. Stryker claims that it is entitled to indemnification by Pfizer as to all losses relating to DUKs, whenever sold, and that in defending against third party claims, it is entitled to attorneys of its own choosing, with costs borne by Pfizer.*fn59

  Pfizer's argument is simple: Stryker is obliged by Sections 2.5, 2.6(g) and 8.1 to indemnify Pfizer against any loss incurred as a result of DUKs sold after the closing date. It maintains that it is entitled to summary judgment for declaratory relief to that effect.*fn60

  Stryker's position is more complex. It begins by arguing that Pfizer shipped old DUKs prior to the closing and during the transition period and thus breached covenants and warranties contained in Sections 5.9(a), 7.2 and 7.18. At least some of the post-closing claims for which Pfizer seeks indemnification allegedly arose out of the implantation of outdated DUKs. These, in Stryker's view, therefore are Retained Liabilities — claims for which Pfizer retained responsibility under Section 2.6(c). Stryker then argues that the phrase "[n]otwithstanding any provision in this Agreement" at the outset of Section 2.6 overrides Sections 2.5(c) and 8.2, which in its absence would have made Stryker to be responsible for claims with respect to DUKs sold after the closing.*fn61 Accordingly, Stryker argues, Pfizer is obligated to defend and indemnify Stryker on these claims, as well as with respect to claims based on DUKs sold before the closing.*fn62

  Pfizer counters by arguing that Stryker misreads the agreement which, in its view, unambiguously makes Stryker responsible for all post-closing claims. While Pfizer acknowledges that it could be liable for a breach of covenant or warranty related to the DUKs, its liability would be subject to the $17.5 million materiality threshold contained in the Purchase Agreement.

  Under New York law,*fn63 the interpretation of an unambiguous contract is a question of law for the court.*fn64 When an agreement is ambiguous, however, its meaning is a question of fact. Whether a contract is unambiguous is a threshold question.*fn65 The existence of an ambiguity depends on whether there is a reasonable basis for difference of opinion as to the meaning of the contract.*fn66 A contractual provision is not ambiguous merely because the parties urge different interpretations of it.*fn67 Summary judgment is appropriate if the contract is unambiguous or if the language is ambiguous but there is relevant extrinsic evidence that creates no genuine issue of fact and permits interpretation of the agreement as a matter of law.*fn68

  Section 2.5 of the Purchase Agreement assigns liability to Stryker, except as otherwise provided in Section 2.6(g), for "all lawsuits commenced and claims made after the Closing Date to the extent resulting from the conduct of the Business or the ownership of the Shares or the Conveyed Assets prior to, on or after the Closing Date" and for liabilities resulting from products sold after the closing date.*fn69 Section 2.6(g) assigns responsibility to Pfizer for all claims arising from products sold on or prior to the closing. Hence, the Agreement plainly and unambiguously makes Stryker responsible for all third party claims in respect of products sold after the closing.

  Stryker's alternative interpretation of the Agreement is unpersuasive. Its starting premise is that post-closing third party products liability claims are Retained Liabilities within the meaning of the Purchase Agreement because they arose out of the implantation of outdated DUKs and therefore out of breaches by Pfizer of covenants and warranties for which Pfizer is obliged to indemnify Stryker. But this premise is the product of a tortuous reading of the contract that cannot be squared with its plain language.

  To begin with, the Retained Liabilities are those liabilities of the business sold to Stryker that were not to be assumed by Stryker, but kept by Pfizer. Any liabilities that might have arisen out of breach by Pfizer of covenants and warranties given in the Purchase Agreement, however, are not liabilities of the business sold. Indeed, they are liabilities that did not even exist when Pfizer owned the business and thus liabilities incapable of being retained.*fn70 While they are liabilities of Pfizer, to be sure, they are not Retained Liabilities within the meaning of the Agreement. That being so, the preambulary language in Section 2.6 — the phrase "[n]otwithstanding any provision in this Agreement" — cannot make Pfizer responsible for defending and indemnifying Stryker on third party claims arising out of post-closing DUKs sales through the medium of Section 2.6(c).

  This view is confirmed by the overall structure of the Purchase Agreement. Sections 2.5 and 2.6 allocate liability between Pfizer and Stryker based upon the dates of claims brought and, in the case of third party product liability suits, the dates of when the products were sold. To interpret Retained Liability to include all potential breaches in a manner that would make Pfizer responsible for all losses arising from DUKs — whether sold before, on, or after the closing date — would be at odds with this careful allocation of liability.

  Stryker disputes this interpretation, relying on International Multifoods Corp. v. Commercial Union Insurance Co.*fn71 for the proposition that Section 2.6(c), which requires Pfizer to retain and be responsible for liabilities for which it is responsible under the Agreement, overrides Section 2.5(c).*fn72 But this argument is unconvincing.

  In International Multifoods, the Second Circuit considered whether an insurance policy that plaintiff had obtained from the Indemnity Insurance Company of North America ("IINA") covered its losses from a cargo of frozen poultry and meat products that had been seized by Russian authorities.*fn73 The policy contained a free-of-capture-or-seizure ("FC&S") clause, which provided that, "[n]otwithstanding anything herein contained to the contrary this insurance is warranted free from . . . capture, seizure, arrest, restraint . . . and the consequences thereof . . . whether in time of peace or war and whether lawful or otherwise."*fn74 The other insurer in the case, who sought contribution from IINA, argued that this FC&S clause was limited by another section of the contract, which provided that "all goods and/or merchandise shipped, except as may be hereinafter especially provided, are insured . . . against all risks of physical loss or damage from any external cause (excepting risks excluded by the FC&S . . . warranty unless covered elsewhere herein)."*fn75 The Second Circuit held that "because the FC&S clause alone among relevant provisions applie[d] notwithstanding anything else in the contract" it overrode "any inconsistent language elsewhere in the IINA policy."*fn76 The provisions of the Purchase Agreement differ from those at issue in International Multifoods. Section 2.6(c) is not inconsistent with the allocation of responsibility for third party suits provided in Sections 2.5(c) and 2.6(g). Rather, the Purchase Agreement creates different types of liabilities, each with its own remedy. Accordingly, Pfizer's responsibility for its Retained Liabilities and Stryker's liability for claims for products sold after the closing are not inconsistent with one another and each clause therefore may be given force.

  2. Is the Indemnification Agreement Enforceable?

  Stryker next argues, notwithstanding the allocation of liability in the contract, that this aspect of the Purchase Agreement is unenforceable because all of Pfizer's losses from the post-closing cases are a direct result of Pfizer's intentional actions in selling the DUKs more than five years after their manufacture.*fn77 It relies on the principle that indemnification agreements that "purport to indemnify a party for damages flowing from the intentional causation of injury" are unenforceable as against public policy.*fn78 In this regard, it is important to bear in mind that the requisite intent is a party's intent to cause injury.*fn79 Indemnification agreements are enforceable where the damages are due to a party's grossly negligent, but not willful or intentional, conduct.*fn80 Stryker would have the burden of proving at trial that Pfizer intentionally caused the damages for which it seeks indemnification. In moving for summary judgment, it therefore is sufficient for Pfizer to point to a lack of evidence to go to the trier of fact on an essential element of Stryker's claim.*fn81 It asserts that there is no evidence to support Stryker's contention. Accordingly, Stryker may avoid summary judgment only if the evidence, construed in its favor, would permit a trier of fact reasonably to find for it on this issue.

  Stryker points to evidence that personnel at Howmedica began marketing and selling the DUK tibial components in late 1996 and 1997, only a short time before the company's four-year limit on distribution of conventionally radiation sterilized UHMWPE was reached.*fn82 It asserts also that the failure of numerous people to enter the DUKs into the SPCS or otherwise quarantine the products belies Pfizer's claim of inadvertence. It maintains that this failure more plausibly is explained by evidence that Pfizer sought the release of the DUK to increase its market share and provide a total knee product.*fn83

  Viewed in the light most favorable to the nonmoving party, Stryker's evidence suggests that Howmedica personnel were negligent with regard to the DUK products. It does not, however, raise any genuine issue of fact that Pfizer distributed the DUKs with the intent to cause injury or intentionally distributed them with a reckless disregard for the consequences. Consequently, public policy does not forbid Pfizer's enforcement of its right to indemnity for losses resulting from DUKs sold after the closing.

  3. Punitive Damages

  Stryker seeks also a declaration that even if the indemnity agreement is otherwise enforceable, it is not required to indemnify Pfizer for any punitive damages.*fn84 New York prohibits indemnification for punitive damages as against public policy.*fn85 Pfizer therefore is not entitled to indemnification for any losses from post-closing cases resulting from a punitive damage award.

  4. Attorney's Fees

  As the prevailing party, Pfizer seeks a declaration that Stryker is obliged to reimburse it for its attorney's fees incurred in this action to enforce its right to indemnity for Losses from post-closing DUKs under the Purchase Agreement.

  Attorney's fees are incidents of litigation. Pfizer therefore may recover them here only if the Purchase Agreement expressly provides for indemnification for costs of litigation between the parties.*fn86 The standard for determining if such a promise exists is whether there is an "unmistakably clear" intent to indemnify, either from the language or the structure of the agreement.*fn87

  Section 8.2 of the Purchase Agreement provides that Stryker is obliged to indemnify Pfizer as to:

"any and all Loss claimed or arising directly from (i) any Assumed Liability, (ii) any breach by [Stryker] of any of its covenants or agreements in this Agreement, (iii) any breach of any warranty or representation of Purchaser contained in this Agreement, or (iv) events occurring on or after the Closing Date in connection with the Business (other than the Excluded Assets and the Retained Liabilities)."*fn88
The Agreement creates a notice of claim procedure, which sets forth a general mechanism for enforcing claims as well as special provisions where a party seeks indemnification as a result of a third party suit.*fn89 Section 8.4 further the specifies rights and obligations for indemnification for third party claims and provides that the indemnifying party shall have the right to conduct and control any third party claim.*fn90 It provides also that the indemnified party may employ counsel at its own expense to defend against a third party suit.*fn91

  Here, the Purchase Agreement's provision for indemnification by Stryker for a breach of warranty or representation suggests that the indemnification clause refers both to inter-party and third party claims. As a court in this district noted in its interpretation of a similar agreement, "[i]t is difficult to imagine a third-party action as a result of" the indemnifying party's misrepresentation.*fn92 Since the Agreement provides indemnity for a party's costs, this may be read as an intent to cover attorney's fees in the case of inter-party claims.

  The structure of the Purchase Agreement evinces also their intent to indemnify for costs relating to inter-party claims. The provisions treating third party claims would be surplusage if Section 8.2 did not refer also to claims between the parties themselves.*fn93 As the intent to provide such indemnification is "clearly implied from the language and purpose of the entire agreement and the surrounding facts and circumstances," Pfizer is entitled to indemnification for its reasonable attorney's fees in prosecuting the declaratory judgment action.*fn94

  D. Pfizer's Motion for Summary Judgment

  1. On Pfizer's Breach of Contract Claim

  Pfizer asserts that it is entitled to summary judgment on count two of its amended complaint, which charges Stryker with breach of contract for its failure to indemnify and hold it harmless with respect to litigation relating to DUKs sold after the closing date.*fn95

  A plaintiff must prove four elements to prevail on a breach of contract claim: (1) the making of a contract, (2) plaintiff's performance, (3) defendant's breach, and (4) damages.*fn96 It is undisputed that Pfizer notified Stryker of its claims for indemnification and formally tendered the defense of those suits to Stryker.*fn97 Stryker refused Pfizer's tender and rejected claims for indemnification for post-closing suits.*fn98 Hence, Stryker is liable for breach of contract unless it is excused from indemnifying Pfizer for the post-closing cases.

  Stryker first contends that its failure to indemnify Pfizer with respect to the preclosing claims is excused because Pfizer breached first. It asserts that Pfizer did not fully accept its tender of defense and that Stryker's lawyers were responsible for having it dismissed from the preclosing cases in Orrick v. Stryker Corp.*fn99

  Even assuming that Pfizer wrongfully had declined to defend Stryker for all preclosing claims, such a breach would not excuse Stryker's failure to perform its indemnification obligation. Where an indemnifying party is notified of a claim and improperly declines to defend it, the remedy for such a breach is generally that the indemnitor must reimburse the indemnitee for the cost of defending the action*fn100 as well as for the judgment or any settlement to the extent that it was reasonable and entered into in good faith.*fn101 Accordingly, Pfizer's alleged failure to defend Stryker does not raise a genuine issue of fact that Stryker is excused from performing its defense and indemnification obligation under the Agreement.*fn102

  Stryker claims also that its breach is excused on the theory that Pfizer breached its obligations in Sections 5.9(a), 7.2, and 7.18 of the Purchase Agreement.*fn103 Stryker's failure to perform may be excused only if its indemnification obligation is dependent upon Pfizer's performance of Sections 5.9(a), 7.2 and 7.18.*fn104 "[T]he question whether covenants are to be held dependent or independent of each other is to be determined by the intention and meaning of the parties, as expressed by them, and by the application of common sense."*fn105 If two promises are independent, breach of one does not excuse performance of the other. The Purchase Agreement provides different remedies depending on the reason indemnity is sought. Sections 8.1(a)(i)-(iii) provide for full indemnity for any losses Stryker might sustain that arise directly from any Retained Liability or any breach by Pfizer of its covenants. Section 8.1(a)(iv) provides indemnity for a breach of a warranty and representation, but has a materiality provision as well, which allows indemnification only where the loss exceeds $17.5 million, net of insurance. This materiality provision does not apply where a party seeks indemnification for expenditures relating to a third party product liability claim. The parties' creation of distinct indemnification provisions for any breaches of warranties and representations, and for losses arising from third party claims, indicates that they intended the obligations to be independent.

  Stryker does not point to any evidence of the parties' intent to make these provisions dependent so that Pfizer's alleged breach of warranty would relieve Stryker of further performance. Indeed, insofar as the parties expressly provided for each to indemnify the other in the case of a breach of covenant, warranty or representation, they suggested that they did not intend such a breach to excuse further performance by the non-breaching party. Pfizer's alleged breaches of the warranty and notice provisions of the Purchase Agreement therefore do not raise a genuine issue of material fact with regard to its entitlement to indemnity for losses as a result of DUKs sold after December 4, 1998.

  Pfizer claims losses from post-closing DUKs, including reasonable attorney's fees and interest, in the amount of $10,971,844.77 as of September 12, 2003.*fn106 Stryker asserts that this is not a reasonable estimate as many of the cases upon which that figure is based have settled.*fn107 Accordingly, Pfizer is entitled to summary judgment with respect to liability on its breach of contract claim, with damages to be determined at trial.

  2. Dismissing Stryker's Claims for Indemnification with Respect to Pre-Closing Third Party Claims

  The first three counts of Stryker's counterclaim allege various breaches of the Purchase Agreement relating to the outdated DUKs. They claim that all of Stryker's losses with regard to the expired DUKs are attributable to those breaches and that Pfizer therefore should indemnify it for those losses and fully and timely defend any lawsuits arising from the expired DUKs.*fn108 Pfizer seeks dismissal of this claims. It argues that Stryker is barred from indemnification because it has settled claims without the permission of Pfizer, a prerequisite for indemnification under the Purchase Agreement.*fn109

  Stryker's initial response is that Pfizer may not now raise the issue of failure to seek its permission to settle because it did not deny "specifically and with particularity" Stryker's allegation that it had performed all obligations under the contract as required by Rule 9(c). This need not long detain us. There would be no prejudice to Stryker in allowing Pfizer to assert this point now. The Court therefore construes Pfizer's motion for summary judgment as one seeking also to amend the pleadings so as to assert that Stryker failed to obtain its permission to settle claims and permits the amendment.*fn110

  Passing to the merits, the Purchase Agreement provides that "[n]o Indemnified Party may compromise or settle and Third Party Claim for which it is seeking indemnification hereunder without the consent of the Indemnifying Party."*fn111 It is undisputed that Stryker settled at least some of the relevant claims without the express approval of Pfizer. Stryker, however, contends that Pfizer implicitly consented to the settlements. It points to evidence that it notified Pfizer of its intention to settle the claims, furnished its counsel with a draft of the stipulation of liability in the Orrick litigation, and that Pfizer offered no objection.*fn112 Pfizer for its part contends that it was not informed of the stipulation before Stryker entered into it and that the established course of dealings between the parties was to seek explicit consent.*fn113

  In all the circumstances, there is a genuine issue of material fact as to whether Pfizer consented to the settlements. Pfizer's motion for summary judgment dismissing the first three counts of Stryker's counterclaim therefore must be denied. 3. Dismissing Stryker's Claim for Losses Attributable to Breach of Warranty and Misrepresentation

  Count five of Stryker's amended counterclaim seeks indemnification for Pfizer's alleged breach of the warranty in Section 5.9(a) that "each Seller Corporation and each Conveyed Subsidiary . . . is in compliance with all Laws applicable to the ownership or operation of its assets or the Business, except to the extent that the failure to comply therewith would not have a Material Adverse Effect."*fn114 It is based on the theory that Pfizer was not in compliance with FDA medical device regulations by reason of its shipment of the outdated DUKs. Pfizer seeks summary judgment dismissing count five to the extent that Stryker's losses fall below the $17.5 million threshold set forth in Section 8.6. It claims also that it is not obliged to indemnify Stryker until its actual losses as a result of this alleged breach exceed that amount.

  Stryker first asserts that Pfizer's failure to plead specificallyand with particularity that Stryker had not yet met the $17.5 million threshold for indemnity for breach of warranty precludes it from asserting that argument now. Since Pfizer asserted that Stryker has not yet suffered losses amounting to more than $17.5 million as a result of the alleged breach of warranty in the amended pretrial order, the Rule 9(c) pleading requirement has been satisfied. The Court therefore turns to the substance of the claim.

  It is undisputed that, if a breach under Article V of the contract were proven, Pfizer would be obliged to indemnify Stryker for such losses to the extent that they exceed $17.5 million, net of insurance.*fn115 However, the parties differ in their interpretation of how this applies to the situation at hand. Stryker argues that it has DUK-related claims against it in excess of $90 million and thus meets the $17.5 million threshold, even though it has not yet suffered damages in excess of that amount. In Stryker's view, once its contingent liability is greater than $17.5 million, it may obtain indemnification from Pfizer notwithstanding the fact that its actual losses are less than $17.5 million.*fn116

  Pfizer counters that a claim for indemnification accrues only when liability is incurred by way of actual payment. Consequently, Pfizer contends, it is liable only for damages as a result of breach of warranty, if proved, when and if Stryker actually incurs losses of more than $17.5 million, net of insurance.*fn117

  The interpretation urged by Stryker would be at odds with New York contract and indemnification law.*fn118 To assert a claim under a loss or liability indemnification agreement, a party must establish that the amount claimed is fixed. This may be established by proving that Stryker has paid the claims or, in the case of liability indemnity, "(1) by proof that a judgment has been obtained against [the party] or (2) by admission of liability . . . and independent proof in the action against the indemnitors of the validity of the claims and the absence of any defense thereto."*fn119 Here, Stryker has not established that it is liable for the $90 million in claims, much less that the amount of liability is fixed.*fn120

  Pfizer's contention that Stryker may collect only once it has paid out claims in excess of $17.5 million, however, may assume too much as well. New York recognizes agreements that indemnify against loss and those that indemnify against liability.*fn121 Under an agreement to indemnify against loss, a claim does not accrue until the indemnified party has made a payment, or actually suffered a loss.*fn122 A right to indemnification against liability, however, arises when the party faces a fixed liability, even though it has not paid the claim and thus suffered no damage.*fn123

  The Purchase Agreement allows indemnification for what it terms a "Loss" or "the Losses."*fn124 It defines "Losses" to include "all claims, actions, causes of action, judgments, awards, liabilities, losses, costs or damages . . . claimed or arising directly from" one of the enumerated liabilities, including a breach of warranty or representation.*fn125 The Purchase Agreement provides also that these Losses shall be net of insurance or other collateral sources of reimbursement.*fn126

  Although loss indemnification is more common, courts have construed an indemnification agreement to be one against liability where there is some express indication that the parties so intended. In United States Fidelity & Guaranty Co. v. Sequip Participacoes, S.A., the court interpreted the indemnification agreement as one for liability indemnity because it indemnified against "any and all liability for losses and/or expenses of whatsoever kind or nature (including, but limited to, interest, court costs, and counsel fees)" and expressly required indemnification "as soon as liability exists or is asserted."*fn127 Similarly, in Goodridge v. Harvey Group, Inc., the court found that the agreement was one for liability where it indemnified against "any claims, losses, liabilities and expenses."*fn128

  Here, Section 8.1 provides indemnification against Losses, but defines it to include liabilities, costs or damages. This definition, as Stryker suggests, is expansive and could suggest the parties intent to indemnify each other against any possible expense of litigation, including the payment of judgment. The requirement that the Losses be net of insurance, however, indicates that each party is required to actually suffer a loss, obtain insurance reimbursement if applicable and only then seek indemnification from the other party. This latter interpretation best accords with the parties' course of action. Stryker here has paid out at least $12 million in claims and has sought contribution from its insurer, thus treating the agreement as one for loss indemnification.*fn129

  Accordingly, Pfizer's motion for partial summary judgment dismissing count five of Stryker's counterclaim is granted to the extent it seeks indemnification for Losses that have not yet exceeded $17.5 million.

  4. Dismissing Stryker's Claims for Breach of the TSA

  a. Indemnification

  Count four of Stryker's counterclaim alleges that Pfizer breached its agreement to provide services under the TSA "in a competent, businesslike manner."*fn130 Pfizer asserts that it is entitled to summary judgment dismissing this claim because Stryker waived all claims except those for gross negligence or fraud under the TSA by failing to give Pfizer written notice within thirty days of any service that is subject to the claim.*fn131

  Section 6.1 of the TSA provides that the receipt by Stryker or one of its affiliates of services

 

"shall be an unqualified acceptance of, and a waiver by [Stryker] and its Affiliates of their rights to urge any claim (other than one based on gross negligence or fraud) with respect to such services unless [Stryker] gives Pfizer written notice of a claim within thirty (30) days after performance by Pfizer or its Affiliates of the service which is the subject of the claim."*fn132
Section 6.2 limits Pfizer's liability and provides that Stryker's "sole remedy" for breach of that agreement is the greater of a refund of the price of providing the service or the cost of Stryker to provide itself or hire a third party to do so.*fn133 Moreover, Section 11.8 provides that the rights under the TSA "shall be cumulative to and not exclusive of the rights and obligations of the parties contained in the Purchase Agreement."*fn134

  Stryker did not give the prescribed notice under the TSA. Rather, it argues that it is entitled to indemnification for losses sustained by virtue of the alleged breach of the TSA under Section 8.1(a)(iii) of the Purchase Agreement, which provides for indemnification for "any breach by the Seller Corporations of any of its covenants or agreements contained in this Agreement or in any agreement."*fn135 Stryker therefore maintains that the TSA's notice and waiver provisions do not limit or preclude recovery for a violation of the TSA under Section 8.1(a)(iii).*fn136

  To be sure, the Purchase Agreement's provision for indemnification for breach of "any agreement" sweeps broadly and superficially includes the TSA. This interpretation, however, would have the effect of rendering the notice and waiver provisions of the TSA meaningless. Such an interpretation is not preferred if there is another construction that "gives a reasonable and effective meaning to all terms of a contract."*fn137

  Here, in addition to the TSA, other agreements were attached as exhibits to the Purchase Agreement, including a Transitional Intellectual Property License Agreement,*fn138 release agreements for individual and group terminations*fn139 and a collective bargaining agreement.*fn140 At the closing of the Purchase Agreement, the parties entered also into a joint defense and cooperation agreement, which does not itself contain any remedy or waiver provisions in the case of a party's breach.*fn141 Since there are agreements other than the TSA attached to the Purchase Agreement, an interpretation of Section 8.1(a)(iii) that does not allow indemnification for breach of the TSA would not render that section meaningless. Moreover, even if this interpretation narrows the meaning of "any" in Section 8.1(a)(iii), it better accords with the clearly expressed intent of the parties to limit Pfizer's liability under the TSA.*fn142 Stryker's alternative interpretation fails therefore. Summary judgment is granted dismissing count four of its counterclaim. b. Reckless and Grossly Negligent Performance

  In count eleven of its counterclaim, Stryker asserts that it is entitled to indemnification for losses allegedly caused by Pfizer's reckless or grossly negligent performance of its services under the TSA.*fn143 Pfizer seeks summary judgment dismissing this count.*fn144

  A tort claim in favor of one contracting party arises from another party's negligent performance of its contractual obligations only if the potential consequences of the breach to members of the public are sufficiently catastrophic and threaten the public safety.*fn145 In Sommer v. Federal Signal Corp., for example, the New York Court of Appeals held that a fire alarm company that negligently had deactivated a fire alarm only moments before a fire broke out in a commercial building was liable in tort as well as in contract because the injury that arose was an "abrupt, cataclysmic occurrence," which was typical of a tort claim.*fn146 Other courts have found tort claims to lie where a contracting party's negligence caused an electrical transformer to explode and leak oil containing PCBs into the plaintiff's building,*fn147 a large piece of concrete to fall in a heavily trafficked area,*fn148 extensive termite damage to the plaintiff's home,*fn149 and the possibility of serious health consequences from the inclusion of ingredients in vitamins which were not listed on the label and, in some cases, prohibited by law.*fn150

  Here, there is evidence from which a jury could conclude that the expired DUKs exposed recipients to serious health risks, including knee failure and the need for premature revision surgery, as well as the risks associated with that type of procedure.*fn151 That none of the individuals receiving the implants may have suffered catastrophic knee failure is immaterial, where, as here, there is a foreseeable risk of such a consequence.*fn152 The increased risk of having to undergo an invasive surgery earlier than necessary is sufficiently serious to give rise to an independent duty of care. Pfizer's motion for summary judgment dismissing this count therefore is denied.

  5. Dismissing Stryker's Fraud Claims

   Pfizer warranted and represented in Section 5.9(a) that it "[was] in compliance with all Laws applicable to the ownership or operation of its assets or the Business, except to the extent that the failure to comply therewith would not have a Material Adverse Effect."*fn153 Stryker asserts in counts eight and nine of its counterclaim that this representation was fraudulent because Pfizer knew that the DUKs were expired and thus that it was in violation of applicable FDA regulations.*fn154

   Pfizer seeks summary judgment dismissing these claims. It argues that Stryker explicitly waived all non-contractual claims and causes of action in the purchase agreement, thus foreclosing these fraud claims.*fn155 Moreover, it contends that Stryker's evidence of scienter is insufficient to create a genuine issue of fact.

   a. Limitation of Remedies

   Section 8.1 of the Purchase Agreement obliges Pfizer to defend and indemnify Stryker against losses arising from Retained Liabilities and, inter alia, any breach by Pfizer of any of its covenants, agreements, representations or warranties. Section 8.9 limits the remedies "with respect to the subject matter of this Agreement" to those provided in Section 8.1. It goes on to provide that "the parties hereby waive, to the fullest extent permitted by applicable law, any and all other rights, claims and causes of action (including rights of contribution, if any), known or unknown, foreseen or unforeseen, which may exist or may arise in the future."*fn156

   Pfizer contends that the waiver in Section 8.9 precludes Stryker from bringing this fraud claim or, at least, limits its remedies to whatever is obtainable under Section 8.1. Stryker rejoins that such a limitation is unenforceable as against public policy.

   New York does not enforce agreements that purport to exonerate or limit a party's liability for willful or grossly negligent acts.*fn157 The limitation of remedies section does not exonerate Pfizer for fraud. It does, however, limit Stryker's remedy to actual, not consequential, damages. The question therefore becomes whether Stryker has raised a genuine issue of material fact as to whether Pfizer's conduct was fraudulent.

   b. Was Pfizer's Conduct Fraudulent?

   In order to recover damages for fraud under New York law a claimant must prove, by clear and convincing evidence, inter alia that the false representation relied upon was made recklessly or with knowledge of its falsity.*fn158

   Pfizer argues that there is no evidence that Pfizer, when it made its representation in Section 5.9(a), knew it was not in compliance with FDA regulations and that its lack of compliance would have a Material Adverse Effect.*fn159

   Scienter may be proved through circumstantial evidence by establishing facts showing a motive for committing fraud and a clear opportunity to do so.*fn160 Stryker first argues that a jury reasonably could find that Pfizer had an intent to defraud based on its financial interest in selling its prosthetics business, which Stryker asserts was declining, for a high price.*fn161 It next asserts that Pfizer's interest in selling the business as quickly as possible after Stryker's financing fell through and negotiated a reduction in the purchase price from $1.9 billion to $1.6 billion gave Pfizer a reason to conceal any negative information.*fn162

   Although the financial motives Stryker points to suggest reasons for Pfizer to have concealed any negative information, they are typical of the general profit motivations of business persons. Such general allegations do not give rise to a strong inference of fraud.*fn163 This evidence of motive therefore does not raise a genuine issue of material fact that Pfizer "knew" that Howmedica was not in compliance with applicable regulations when it represented that it was in Section 5.9.

   Stryker next asserts that a jury could infer scienter from Pfizer's actions in selling the product so close to the time at which it would be outdated that it knew that it was not in compliance with FDA regulations. As discussed earlier, however, this evidence does not give rise to a strong inference of fraud on the part of Howmedica personnel. Finally, Stryker contends that a Pfizer response to a request to admit in this case gives rise to a strong inference of its fraudulent intent. Stryker submitted to Pfizer a request to admit that in or around May of 1993 to the closing date in 1998, it was the usual and ordinary course of business for Pfizer to be in compliance with applicable regulations. The response said that Pfizer "`made every effort . . . and went to great lengths to comply with applicable regulations.'"*fn164 Stryker asserts that this statement is a contradiction of Pfizer's representation in Section 5.9 that it was "in compliance with all Laws applicable to the ownership or operation of its assets . . . except to the extent that the failure to comply therewith would not have a Material Adverse Effect."*fn165 In essence, Stryker asserts that while Pfizer represented that it was in compliance with all laws in the Purchase Agreement, it now claims only that it made its best efforts.

   This discrepancy does not give rise to an inference that Pfizer knew of the falsity of its representation when it assured Stryker of its compliance with the laws.*fn166 Indeed, Section 5.9 represented and warranted that Pfizer was in compliance with the law only to the extent that any lack of compliance would have a Material Adverse Effect on the business. So the response to the request to admit is not even contradictory. Consequently, summary judgment is granted dismissing counts eight and nine of Stryker's amended counterclaim. E. Stryker's Motion

   Stryker here seeks summary judgment on count five of its amended counterclaim and dismissing of Pfizer's amended complaint.

   1. Dismissing the Amended Complaint

   The motion to dismiss Pfizer's amended complaint rests on the argument Stryker made in opposition to Pfizer's declaratory judgment action; namely, that Pfizer is responsible for Losses arising from all DUKs, whether sold before, on or after the closing date as Retained Liabilities.*fn167 For the reasons given above, Stryker's motion is denied.

   2. For Judgment on Count Five of the Counterclaim

   Stryker argues that Pfizer breached its representation and warranty in Section 5.9 of the Purchase Agreement, which asserted that Pfizer "is in compliance with all Laws applicable to the ownership or operation of its assets or the Business, except to the extent that the failure to comply therewith would not have a Material Adverse Effect."*fn168 It argues that it is entitled to summary judgment because it has established (1) that Pfizer and its subsidiaries were not in compliance with all laws, and (2) that its losses exceed the $17.5 million threshold.*fn169 Pfizer disputes Stryker's assertion on several grounds. It argues first that it was in compliance with all laws at the time of the closing. Next, it contends that even if it was not in compliance, Stryker misreads the Purchase Agreement. In its view, Stryker must establish both that Pfizer's failure to comply with all laws had a Material Adverse Effect and that it incurred losses in excess of $17.5 million to obtain indemnification for any alleged breach.*fn170 Pfizer argues further that even if the breach was material Stryker cannot show that all of its losses from the DUKs were proximate consequences of this breach.

   1. Compliance With All Laws

   It is undisputed that Howmedica's pre-closing shipment of 59 expired DUK's violated the FDA's Quality System Regulations ("QSR").*fn171 Pfizer argues, notwithstanding those shipments, that Howmedica and the other subsidiaries at issue were in compliance with the QSR at the closing.*fn172

   Parts 820.150 and 820.160 of Title 21 of the Code of Federal Regulations regulate the storage and distribution of medical devices. Part 820.150 requires each manufacturer to establish and maintain procedures "to ensure that no obsolete, rejected or deteriorated product is used or distributed."*fn173 Part 820.160 requires further that manufacturers develop procedures "to ensure that only those devices approved for release and distributed" and that "[w]here a device's fitness for use or quality deteriorates over time, the procedures shall ensure that expired devices or devices deteriorated beyond acceptable fitness for use are not distributed."*fn174 Pfizer's regulatory expert William Damaska opined that Howmedica was in compliance with these regulations on the closing date insofar as it had established and maintained a procedure and the poly filter system was validated and functioning.*fn175 However, Part 820.160 does not require merely that a manufacturer establish and maintain a procedure. It mandates that those procedures ensure that no expired devices are distributed. Here, for whatever reason, Howmedica's procedures prior to December 4, 1998 did not ensure that expired devices were not distributed for implantation. Accordingly, at the very least, Howmedica was not in compliance with Part 820.160 at the time of the closing.

   2. Material Adverse Effect

   Notwithstanding Pfizer's lack of compliance with the FDA regulation, its warranty in Section 5.9 is breached only if such failure to comply with applicable law would have a Material Adverse Effect. A Material Adverse Effect is defined in the Purchase Agreement as "an effect that is materially adverse to business results, operations or financial condition of the Business taken as a whole," excluding effects stemming from conditions in the economy as a whole or the medical device industry.*fn176 Pfizer asserts that its lack of compliance with the FDA regulation did not have a Material Adverse Effect on the business as a whole and therefore it did not breach Section 5.9.

   Stryker disputes this interpretation, arguing that Section 8.1, which provides that any materiality standard "shall be disregarded" for the purpose of indemnification and replaced by a $17.5 million threshold, means that does not have to establish that the breach had a materially adverse effect but rather that its Losses exceed $17.5 million.*fn177 But this interpretation is not supported by the plain language of the Agreement.

   Section 8.1 states that "for purposes of this Article VIII, all materiality exceptions and qualifications set forth in any representation and warranty of Pfizer contained in this agreement shall be disregarded."*fn178 The "shall disregard" language refers to Article VIII and therefore does not alter or negate the qualification in Section 5.9(a) that Pfizer was in compliance with all laws to the extent that noncompliance would not have a Material Adverse Effect.

   Pfizer's interpretation best accords with the structure of the Agreement as well. The Material Adverse Effect qualifier limits only the representation in Section 5.9 with regard to compliance with all laws. The materiality provision of Section 8.1, however, applies to all breaches of the warranties and representations in Article V. Accordingly, Stryker must first establish that Pfizer's lack of compliance had a Material Adverse Effect in order to prove breach of warranty.

   Pfizer claims that it was in substantial compliance with all laws at the time of the closing and that its pre-closing shipment of 59 outdated DUKs did not have an adverse effect on the business, as evidenced by the fact that the FDA did not cite either Howmedica or HOC for its shipment of the DUKs.*fn179 Moreover, it asserts that as it is responsible for the liability for these preclosing DUKs, the business has not suffered any Material Adverse Effect.

   Stryker counters that had Pfizer been in compliance with the QSR prior to the closing, none of the outdated DUKs would have been shipped, pre- or post-closing. It contends that Pfizer's noncompliance therefore must be measured by the total amount in liability Stryker faces from the DUK litigation, which it claims exceeds $76 million.*fn180 This amount, in Stryker's view, establishes that Pfizer's noncompliance had a Material Adverse Effect.

   Assuming arguendo that Stryker has suffered losses from the DUKs in the amount it claims, Pfizer contends that there is a genuine issue whether its noncompliance was the proximate cause of Stryker's alleged losses. It asserts that Stryker's own negligent conduct was a superseding cause of, or a substantial contributor to, its losses from the post-closing DUKs. Pfizer points to evidence that Stryker had actual knowledge that not all of the products transferred to it as part of the sale were merchantable*fn181 and as early as November of 1999, of adverse events caused by the DUKs yet continued to distribute them.*fn182 Pfizer argues also that the Purchase Agreement's waiver of all warranties of merchantability and fitness gave Stryker constructive notice that it had to inspect each product to ensure its fitness prior to sale.*fn183 In all the circumstances, Pfizer has raised a genuine issue of fact whether all of Stryker's losses are attributable to its alleged breach of Section 5.9. Consequently, summary judgment on this count is denied. IV

   For the foregoing reasons, Pfizer's motion for summary judgment [DI 91] is granted to the following extent:

1. It is hereby declared that Stryker shall indemnify, defend and hold Pfizer harmless for all Losses, as defined in the Purchase Agreement, other than punitive damages from third party claims relating to DUKs sold after December 4, 1998, and reimburse Pfizer for its reasonable attorney's fees in connection with the instant declaratory judgment action.
2. Stryker is liable to Pfizer on count two of Pfizer's Amended Complaint [DI 44], breach of contract, for an amount to be ascertained at trial.
3. Count four of Stryker's Amended Counterclaim [DI 46] is dismissed.
4. Count five of Stryker's Amended Counterclaim [DI 46], to the extent that it seeks indemnification for Losses as a result of any breach of warranty which, in the aggregate, amount to less than $17.5 million, is dismissed.
5. Counts six and seven of Stryker's Amended Counterclaim [DI 46], to the extent that they seek indemnification for Losses resulting from DUKs sold after December 4, 1998, are dismissed.
6. Counts eight and nine of Stryker's Amended Counterclaim [DI 46] are dismissed.
The motion is denied in all other respects.

   Stryker's motion for summary judgment [DI 94] is denied in all respects.

   SO ORDERED.


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