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PFIZER, INC. v. STRYKER CORPORATION

United States District Court, S.D. New York


January 10, 2005.

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

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

ORDER

Defendants seek reargument of several aspects of the Court's December 2, 2004 opinion, familiarity with which is assumed, which granted in part and denied in part Pfizer's motion for summary judgment and denied Stryker's motion for summary judgment. See Pfizer, Inc. v. Stryker Corp., ___ F. Supp. 2d ___, 2004 WL 2750090 (S.D.N.Y. December 2, 2004).

Rule 6.3 of the Local Civil Rules of the United States District Courts for the Southern and Eastern Districts of New York authorizes the filing of a motion for reargument when counsel believes there are "matters or controlling decisions which . . . the court has overlooked." LOCAL CIV. R. 6.3 (McKinney 2004). To prevail on a motion for reargument, a party "must demonstrate that the Court overlooked controlling decisions or factual matters that were put before it on the underlying motion." Mukaddam v. Permanent Mission of Saudi Arabia to the United Nations, 136 F.Supp.2d 257, 259 (S.D.N.Y. 2001) (quoting Eisemann v. Greene, 204 F.3d 393, 395 n. 21 (2d Cir. 2000) (in turn quoting Shamis v. Ambassador Factors Corp., 187 F.R.D. 148, 151 (S.D.N.Y. 1999)). Accordingly, a motion for reconsideration is not intended as a vehicle for repetition of arguments that have been considered fully. Caleb & Co. v. E.I. DuPont De Nemours & Co., 624 F. Supp. 747, 748 (S.D.N.Y. 1985). Nor may the motion advance new facts, issues or arguments not previously presented to the court. Questrom v. Federated Dept. Stores, Inc., 192 F.R.D. 128, 130-31 (S.D.N.Y. 2000) (citing Polsby v. St. Martin's Press, Inc., No. 97 Civ. 690 (MBM), 2000 WL 98057 *1 (S.D.N.Y. Jan. 18, 2000)), aff'd, 2 Fed. Appx. 81 (2d Cir. 2001).

  Stryker argues that the Court (1) overlooked critical facts and controlling decisions with regard to its fraud claims, including (a) critical evidence from which, it contends, a jury could infer scienter, (b) controlling decisions regarding how scienter may be proved, and (c) the motive and opportunity standard for alleging scienter, (2) overlooked critical language in the Transitional Services Agreement, (3) misinterpreted its argument with regard to Count Five and overlooked language in the Purchase Agreement that supported it, (4) overlooked language in the Purchase Agreement that makes Pfizer liable for all losses arising from the outdated DUKs as Retained Liabilities, and (5) overlooked a genuine factual issue as to whether Pfizer obtained Stryker's consent to settle third party claims arising from the DUK litigation.

  These last four grounds merely reassert arguments that the Court considered already or make new arguments and raise issues that were not presented previously. Accordingly, they provide no grounds for reargument. Stryker's assertions with regard to the dismissal of its fraud claims, however, warrant further attention. A. Evidence of Scienter

  Stryker asserts that the Court overlooked evidence from which a reasonable jury could infer scienter. It points first to the facts that Howmedica (1) began to market the DUK around the time that the products were approaching the expiration of the four-year distribution period, and (2) had internal discussion and disagreements about that marketing. Corrected Memorandum of Law in Support of Defendant's Motion for Reconsideration ("Def. Mem.") 3-4.

  To be sure, scienter may be inferred from instances of recklessness or gross negligence. See, e.g., State Street Trust Co. v. Ernst, 278 N.Y. 104 (1938); DiRose v. PK Mgmt Corp., 691 F.2d 628, 632 (2d Cir. 1982). But the issue here is not whether the evidence is sufficient to warrant a finding that Pfizer deliberately or recklessly shipped out of date product. Rather, it is whether Pfizer deliberately or recklessly misrepresented, in Section 5.9(a) of the Purchase Agreement, it was compliance with all pertinent laws "except to the extent that the failure to comply therewith would not have a Material Adverse Effect." Updike Aff., Ex. 1, Reid Decl., Ex. A, Purchase Agreement § 5.9(a), at 59. The evidence, construed most favorably to Stryker, could not justify such a finding.

  Stryker next argues that the Court overlooked denials by Pfizer that it had complied with applicable laws in the operation of the business. Def. Mem. 5-6. It focuses in particular on Pfizer's reply to paragraph 31 of Stryker's amended counterclaim, which alleged that,

  "[a]t all relevant times, it was [Pfizer's] ordinary and usual course of business consistent with past practice to establish and maintain procedures as required by 21 C.F.R. §§ 820.150 and 820.160 concerning (i) all products and devices the fitness for use or quality of which deteriorates over time, and in particular, (ii) conventionally radiation sterilized [Ultra High Molecular Weight Polyethelyne (`UHMWPE')] orthopedic implant components." The denial of this allegation, it argues, would justify a jury finding that Pfizer intentionally failed to comply with all laws and that its representation of compliance in Section 5.9(a) therefore was made with an intent to deceive, or, at least, without knowledge of or any genuine belief in its accuracy.

  Although the Court did not address this particular argument in its earlier opinion, it discussed a similar denial in response to a request to admit. As the Court there explained, the discrepancy between Pfizer's representation 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" and its later denial that it complied with the pertinent FDA regulations does not give rise to a strong inference that Pfizer made that representation with knowledge of its falsity or with reckless indifference to its truth. Pfizer's representation in Section 5.9(a) was qualified and pertained to a specific moment in time. Pfizer's denials and responses to requests to admit indicate that, looking back, it was not in compliance with all laws. But, as discussed above, the mere fact of Pfizer's noncompliance does not raise a genuine issue that it made its representation in Section 5.9(a) with knowledge that the representation was false. DiRose, 691 F.2d at 632-33.

  Third, Stryker argues that the Court overlooked evidence that links Howmedica's failure to comply with the applicable FDA regulations to its alleged misrepresentation in Section 5.9(a) of the Purchase Agreement. It asserts that (1) Pfizer failed to prevent shipment of DUKs that were expired or approaching expiration, (2) Pfizer monitored and supervised Howmedica's regulatory compliance, (3) Pfizer had concerns about Howmedica's regulatory compliance, (4) had Pfizer revealed these regulatory concerns to Stryker during the negotiations, it would have led to the termination of the deal or a substantial reduction in the purchase price, and (5) Pfizer was unwilling to lose the deal and went to improper lengths to avoid reducing the purchase price. Def. Mem. 7-9. Stryker argues that these are facts from which a jury could infer that Pfizer took deliberate steps to conceal its noncompliance with the law and mislead Stryker with regard to such compliance.

  The evidence underlying these assertions does not support such a story. Stryker's assertion that Pfizer had "significant legal and regulatory concerns about Howmedica's manufacture, control, and marketing of UHMWPE products," for example, is based upon two so-called "sweep" letters, id. at 7; Def. 56.1 Counter Statement of Facts ¶ 131, which asked employees to determine whether they had documents that related to particular knee systems and UHMWPE in order to "assist Howmedica in our continuing defense of product liability lawsuits and claims and as part of our ongoing responsibility to identify and collect Howmedica documents related to litigation and regulatory activities." Silverstein Cert. 11/29/03, Exs. 59, 72. The fact that Pfizer collected documents in connection with product liability suits simply does not justify Stryker's assertion.

  Moreover, Stryker's evidence that Pfizer was unwilling to lose the deal is equivocal at best and was considered fully in the Court's earlier opinion. Indeed, in moving for reargument, Stryker asserts that this Court erred in concluding that the general financial motives it alleged did not raise a genuine issue of scienter. Without belaboring the point, the Court considered Stryker's evidence carefully and found it wanting. Stryker and Pfizer are sophisticated companies that were involved in a $1.6 billion transaction. Each was represented by able counsel and exacted significant concessions from the other. Viewed in this context, Stryker's evidence does not warrant an inference that Pfizer made the representation in Section 5.9(a) with scienter. B. Standard for Proving Scienter

  Stryker next argues that the Court overlooked controlling decisions about how scienter may be proven. It asserts that the Court "considered Stryker's evidence of Pfizer's scienter solely under the `motive and opportunity' test applied by the Second Circuit in securities fraud cases," Def. Mem. 11., and overlooked the other ways in which common law fraud may be proven, such as by "alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Id. (quoting Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001)).

  In stating that scienter might be inferred from circumstantial evidence of motive and opportunity, the Court did not intend to imply that this is the only basis. It merely referred to the least demanding standard upon which Stryker might rely. Obviously, more direct evidence (or other circumstantial evidence) of fraudulent intent could suffice also. The correct standards for determining scienter were applied. As is clear from the prior opinion, the Court considered specific instances of alleged conscious misconduct and recklessness that Stryker asserted raised genuine issues of fact as well as evidence of Pfizer's supposed motive. By whatever standard, Stryker's evidence is insufficient.

  C. Application of the Motive and Opportunity Standard

  Stryker asserts also that this Court misapplied the motive and opportunity standard for inferring fraud. It argues that the Court misapprehended Second Circuit law in finding that the financial motives to which Stryker pointed were general profit motivations that did not give rise to a strong inference of fraud. It asserts that the financial motives it raised entailed concrete benefits that could have been realized by the alleged misrepresentation in Section 5.9(a) and therefore adequately raised a genuine issue of fact as to Pfizer's scienter. Def. Mem. 12.

  In Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000), the Second Circuit explained that for a motive to be adequate under the motive and opportunity standard for inferring scienter for securities fraud, it must "entail concrete benefits that could be realized by one or more of the false statements and wrongful nondisclosures alleged." Id. at 307 (quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1130 (2d Cir. 1994)). It explained further that motives held by almost all corporate insiders or for-profit endeavors are not adequate from which to infer fraud. Id. These include a company's desire to maintain a high bond or credit rating, negotiate as favorable a deal as possible, or to eliminate the competition. Id. (collecting cases); see also Kalnit v. Eichler, 99 F. Supp. 2d 327, 340-41 (2000) (collecting cases), aff'd, 264 F.3d 131 (2001). Here, Pfizer's alleged desire to obtain as high a price as possible is typical of the motives that have been unpersuasive in raising a strong inference of fraud. Although the Second Circuit has not held that the desire to consummate a corporate transaction never can be a motive sufficient to warrant an inference of fraud, see Rothman v. Gregor, 220 F.3d 81, 93 (2d Cir. 2000), in all the circumstances, such a weak motive does not sufficiently raise an issue of clear and convincing scienter in this case.

  Indeed, although this Court cited to Novak and Kalnit to illustrate that general profit motivations do not give rise to a strong inference of fraud, these decisions are not controlling here. They addressed the requirements for pleading scienter in securities fraud claims in light of Federal Rule of Civil Procedure 9(b) and, in most recent instances, the Private Securities Litigation Reform Act. The issue here, in contrast, is whether Stryker's evidence on this motion for summary judgment is sufficient to warrant a finding of scienter under the more demanding clear and convincing evidence standard applicable in New York to this common law fraud claim. Nothing in Stryker's motion suggests that it is.

  For the foregoing reasons, Stryker's motion for reargument is denied.

  SO ORDERED.

20050110

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