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UMB Bank, N.A. v. Sanofi

United States District Court, S.D. New York

April 12, 2018

UMB BANK, N.A., as Trustee, Plaintiff,
v.
SANOFI, Defendant.

          GEORGE B. DANIELS, United States District Judge.

          REPORT AND RECOMMENDATION ON MOTION FOR SUMMARY JUDGMENT

          ROBERT W. LEHRBURGER, UNITED STATES MAGISTRATE JUDGE.

         Plaintiff 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.

         Factual Background [1]

         This 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.)[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. ¶ 3.)

         The CVR 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.[3] (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.

         Sanofi 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.

         At 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.[4] 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 incorrect.

CVR Agreement § 7.6(a).

         On 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.)

         Procedural Background

         UMB 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 *7-8.[5]

         A few 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 audit rights.

         In 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.[6] 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. 56(d).[7]

         Discussion

         A. Summary Judgment Standard

         A "[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)) ...


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