United States District Court, S.D. New York
B. DANIELS, United States District Judge.
REPORT AND RECOMMENDATION ON MOTION FOR SUMMARY
W. LEHRBURGER, UNITED STATES MAGISTRATE JUDGE.
UMB Bank, N.A., as Trustee ("UMB") moves for
summary judgment on Count VI of its Second Amended Complaint.
Count VI asserts a claim for declaratory relief that
Defendant Sanofi is contractually obligated to submit to and
pay for an independent audit of sales of Lemtrada, a drug for
the treatment of multiple sclerosis. UMB also requests that
the Court compel Sanofi to submit to the audit now. For the
reasons set forth below, I recommend GRANTING UMB's
motion for partial summary judgment as to its entitlement to
an independent audit and DENYING UMB's request to compel
Sanofi's immediate compliance with the audit provision.
case stems from Sanofi's 2011 acquisition of Genzyme
Corporation, a biotechnology company. As part of the
acquisition, Sanofi issued contingent value rights
("CVRs") to Genzyme shareholders and entered into a
Contingent Value Rights Agreement (the "CVR
Agreement"). (Sanofi 56.1 Responses ¶ 1;
Declaration of Gavin Wilkinson dated Oct. 5, 2017
("Wilkinson Deck") ¶ 2.) The CVR Agreement
establishes a trust for the benefit of the CVR holders.
(Sanofi 56.1 Responses ¶ 1; the CVR Agreement, attached
as Ex. A to Wilkinson Decl.) UMB is the current trustee of
that trust. (Sanofi 56.1 Responses ¶ 2; Wilkinson Decl.
Agreement entitles the CVR holders to payments from Sanofi
totaling billions of dollars if Sanofi completes certain
milestone events by certain dates. For instance, a milestone
payment would have been due if Lemtrada received approval
from the U.S. Food and Drug Administration ("FDA")
by March 31, 2014. (CVR Agreement §§ 1.1, 3.1(d).)
The approval milestone is followed by four milestones
connected to product sales, the first of which required
achieving at least $400, 000, 000 in product sales in certain
markets within a defined period following Lemtrada's
launch. (CVR Agreement §§ 1.1,
3.1(c)-(e).) The CVR Agreement requires Sanofi to use
"Diligent Efforts" as defined in the agreement to
achieve the approval and sales milestones. (CVR Agreement
§ 7.10.) The CVR Agreement does not guarantee
achievement of any milestones.
succeeded in obtaining FDA approval of Lemtrada and then
launching and selling the product. (See Sanofi 56.1 Counter
¶¶ 13-14.) UMB alleges, however, that Sanofi did
not use diligent efforts, which caused it to miss the dates
that would have triggered the approval and sales milestone
payments. (See Second Amended Complaint dated August 29. 2017
(Dkt. 125) ¶¶ 43-125.) Whether that is so is the
crux of this case.
issue on the present motion, however, is solely the extent of
Sanofi's obligations under Section 7.6(a) of the CVR
Agreement pertaining to UMB's right to audit product
sales figures. Section 7.6(a) provides, in relevant part:
Upon written request of the [CVR shareholders] (but no more
than once during any calendar year), and upon reasonable
notice, [Sanofi] shall provide an . . . "Independent
Accountant" . . . with access during normal business
hours to such of the records of [Sanofi] as may be reasonably
necessary to verify the accuracy of the statements set forth
in [the product sales statements] and the figures underlying
the calculations set forth therein for any period within the
preceding three (3) years that has not previously been
audited in accordance with this Section 7.6. The fees charged
by [the Independent Accountant] shall be paid by [Sanofi].
The Independent Accountant shall disclose to the [CVR
shareholders] any matters directly related to their findings
and shall disclose whether it has determined that any
statements set for in the [product sales statements] are
CVR Agreement § 7.6(a).
December 19, 2016, UMB, on behalf of the CVR holders, sent a
letter to Sanofi invoking the CVR holders' rights under
Section 7.6(a). (Wilkinson Decl. ¶ 11; Letter of Michael
Brenner Weiss dated Dec. 19, 2016 ("Weiss Letter"),
attached as Exh. A to Declaration of Brent L. Andrus dated
Oct. 5, 2017 ("Andrus Decl.").) Sanofi refused
UMB's request for an audit. (Sanofi 56.1 Responses ¶
15; Letter of John A. Neuwirth, dated Jan. 12, 2017, attached
as Exh. B to Andrus Decl.)
commenced this action in November 2015. The initial complaint
did not include a claim concerning Section 7.6(a) or
Sanofi's audit obligations. (Dkt. 5.) On May 26, 2016,
UMB moved to file a supplemental complaint to add a claim for
payment of the Trustee's attorneys' fees and costs
expended in prosecuting this action. (Dkt. 39.) Several
months later, UMB moved for summary judgment on that claim
and sought an order requiring Sanofi to immediately begin
reimbursing UMB for its fees and costs. (Dkt. 60.) The Court
denied UMB's motion. UMB I, 2016 WL 4938000 at
months later, UMB for the first time issued a demand that
Sanofi comply with the audit provisions of the CVR Agreement.
(Wilkinson Decl. ¶ 11; Weiss Letter.) After Sanofi
refused, and more than a year after UMB initiated this
action, UMB filed an amended complaint adding its claim for
declaratory judgment that Sanofi is required to comply with
the audit provision. (Dkt. 93.) UMB then filed its motion for
partial summary judgment on its audit claim on October 6,
2017. (Dkt. 134.) UMB argues that Sanofi's obligation to
submit to and pay for an audit of Lemtrada's product
sales is clear and unambiguous under Section 7.6(a) and that
there is no disputed issue of material fact that impedes
granting summary judgment on its claim for declaratory
judgment under, and to compel immediate enforcement of, its
opposing the motion, Sanofi does not argue that Section
7.6(a) is ambiguous. Rather, it argues that there are two
disputed issues of material fact that require denial of
summary judgment at this time. First, Sanofi contends that
because Lemtrada's launch date is the subject of dispute
(Sanofi 56.1 Counter ¶¶ 15-19), conducting an audit
is premature and wasteful. Second, Sanofi seizes upon its
affirmative defense that UMB breached the implied obligation
of good faith and fair dealing inherent in any contract. More
specifically, Sanofi argues that UMB asserted its audit
rights for the sole reason of harassing Sanofi and not for
any good faith reason. Sanofi contends that further discovery
will shed light on this disputed issue and that summary
judgment therefore should be denied under Fed.R.Civ.P.
Summary Judgment Standard
"[c]ourt shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of
law." Fed.R.Civ.P. 56(a); see Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986); Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The
Court's task is not to resolve contested issues of fact,
but rather to determine whether there exists any disputed
issue of material fact. Donahue v. Windsor LocksBoard of Fire Commissioners,834 F.2d 54, 58 (2d
Cir. 1987); Knight v. U.S. Fire Insurance Co., 804
F.2d 9, 11 (2d Cir. 1986), cert, denied, 480 U.S. 932 (1987).
"A fact is material when it might affect the outcome of
the suit under governing law." Gorham-DiMaggio v.
Countrywide Home Loans, Inc., 421 Fed.Appx. 97, 101 (2d
Cir. 2011) (quoting McCarthy v. Dun & Bradstreet
Corp., 482 F.3d 184, 202 (2d Cir. 2007)) ...