Opinion
01 Civ. 8095 (HB)
July 22, 2002
OPINION AND ORDER
Plaintiff moves for leave to amend its amended complaint and defendants Alza Corp. ("Alza") and Johnson Johnson oppose the motion. Oral argument was held on the motion June 12, 2002, during which I granted plaintiff leave from the bench. The following sets forth in more detail the reasoning underlying my ruling.
I. BACKGROUND
This action originally arose out of Innomed's allegation that Alza breached its obligations under a December 1997 distribution agreement ("1997 Agreement") between the parties. Pursuant to the 1997 Agreement, Innomed was designated as a semi-exclusive distributor of three of Alza's cold and allergy products: (1) the "Chlor product," (2) the "Pseud product," and (3) the "Combo product." Four months prior to entering into the 1997 Agreement, Alza had entered into a distribution agreement with Warner-Lambert Co. ("Warner-Lambert") that similarly designated Warner-Lambert as a semi-exclusive distributor of the Pseud product.
"Alza initially entered the 1997 Agreement with Hogil Pharmaceutical Corporation, Innomed's predecessor in interest and parent corporation. Thereafter, Innomed was substituted for Hogil as the contracting party to the agreement.
In March 1998, a magazine published a negative article about one of Innomed's products that allegedly caused a sharp decline in sales. As a result, Innomed claimed it was unable to meet its various payment obligations to Alza. Although the parties subsequently amended the 1997 Agreement several times to provide a more manageable payment plan, Innomed continued to fail to live up to its end of the bargain. By March 1999, Innomed owed Alza approximately $3 million.
On November 28, 2000, Alza notified Innomed of its intention to terminate the distribution arrangement as per a provision in the 1997 Agreement that also provided Innomed with a certain time to cure its default. Innomed claims that during this time the parties orally agreed in January 2001, although this is disputed by Alza, to permit Innomed to cure its default by assigning its distribution rights to a third-party, American Home Products ("AHP"). Innomed had realized for some time that it did not have the requisite cash and could only continue business if such an arrangement could be consummated. Before Innomed could complete any such assignment, Alza terminated the 1997 Agreement. It was also around this time period that Alza agreed to merge with Johnson Johnson, a major competitor of AHP.
In its original complaint filed on August 29, 2001, Innomed asserted two claims for breach of contract — one with respect to the 1997 Agreement and another as to the purported oral agreement of January 2001, and an additional claim for wrongful interference with its business relations with AHP.
I note that this is not the first time the parties on these facts have come before me. Innomed earlier commenced a lawsuit in March 2001, but subsequently withdrew the action in August 2001, the same month it initiated the instant action.
On December 7, 2001, a pretrial conference was held during which the parties agreed to a pretrial scheduling order that set March 15, 2002, as the last date to add parties or causes of action, discovery by April 15, 2002, the last date to submit fully briefed dispositive motions by June 3, 2002, and trial in September 2002. Subsequently, I granted the parties' request to extend discovery to May 15, 2002, or any later date as agreed to by the parties, and fully briefed motions by July 2, 2002.
On April 15, 2002, Innomed for the first time moved for leave to amend its complaint. Oral argument was held on the motion on April 23, 2002, during which I allowed Innomed's claim against Johnson Johnson, Alza's parent company, for intentional interference with its attempt to assign its distribution rights to AHP. I denied as futile Innomed's proposed antitrust claim under Section 1 of the Sherman Act, 15 U.S.C. § 1, against Johnson Johnson and Alza. See, e.g., Chill v. General Electric Co., 101 F.3d 263, 271 (2d Cir. 1996) ("futility is a "good reason' to deny leave to amend").
Innomed again moves for leave to amend the complaint. In this latest attempt to recast its lawsuit as an antitrust action, Innomed now seeks to drop Johnson Johnson as a defendant and assert new claims against Alza for, among other things, a violation of § 2 of the Robinson-Patman Act, 15 U.S.C. § 13(a). Innomed additionally asserts new claims for breach of contract, breach of an implied covenant of good faith and fair dealing and fraudulent inducement arising out of the alleged Robinson-Patman violation.
In its proposed second amended complaint, Innomed also maintains four of its prior claims which for purposes of this motion are not contested by Alza and I do not consider them here.
II. DISCUSSION
A. Standard for motion to amend the pleadingsPermission to file an amended complaint will ordinarily be granted. "The rule in this Circuit has been to allow a party to amend its pleadings in the absence of a showing by the nonmovant of prejudice or bad faith." Block v. First Blood Assocs. 988 F.2d 344, 350 (2d Cir. 1993).
In determining what constitutes prejudice, the court considers whether the newly asserted claim would "(i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction." Id. Further, mere delay "absent a showing of bad faith or undue prejudice, does not provide a basis for a district court to deny the right to amend." Id.
As defendant has argued before with respect to Innomed's first motion to amend, Alza contends that Innomed's newly asserted claims should be denied as futile. See. e.g., Mui v. Union of Needletrades, Indus. Textile Employees. 1999 WL 4918, at *5 (S.D.N.Y. Jan. 5, 1999) (Baer, J.) (noting that "leave to amend will be denied when an amendment is offered in bad faith, would cause undue delay or prejudice, or would be futile"). Futility, however, is a minimal standard to overcome — perhaps the lowest bar. See Sumitomo Electric Research Triangle v. Corning Glass Works, 109 F.R.D. 627 (S.D.N.Y. 1986) ("On a motion for leave to amend, the court need not finally determine the merits of the proposed claim or defense, but merely satisfy itself that it is colorable and not frivolous"). Innomed's proposed causes of action are neither futile nor frivolous and therefore survive.
B. Innomed's Robinson-Patman Act claim
Innomed claims that Alza violated § 2(a) of the Robinson-Patman Act when it charged Warner Lambert significantly lower prices than it charged Innomed for both the right to distribute the Pseud Product and the various costs associated with Warner-Lambert's distribution of it. Accordingly, Innomed asserts that the alleged price discrimination forced it out of business.
Section 2(a) of the Robinson-Patman Act provides, in pertinent part, that:
It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality . . . where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them . . .15 U.S.C. § 13(a).
Put another way, "[[t]he Act requires that each purchaser be given an "equal opportunity" by the seller to receive the benefit of higher or lower prices." George Haug Co. v. Rolls Royce Motor Cars, Inc., 148 F.3d 136, 140 (2d Cir. 1998).
To state a claim for secondary-line price discrimination under section 2(a), a plaintiff must allege that: (i) the seller made sales in interstate commerce; (ii) the seller discriminated in price between two buyers; (iii) the product sold to both purchasers was the same grade and quality; and (iv) the price discrimination had an unlawful effect on competition. Id. at 141. In order to establish an unlawful effect on competition, a plaintiff must allege that it was actually competing with the favored purchaser at the time of the price discrimination. Id.
Alza fails to show that Innomed's claim under the Robinson-Patman Act is futile. Alza first argues that its distribution agreements with Innomed and Warner-Lambert were essentially licensing or service contracts and therefore not covered under the Robinson-Patman Act. Although Alza correctly cites the law that the "the prohibition set forth in § 2(a) applies only to the sale of tangible commodities and not to services," Gall v. Home Box Office, 1992 WL 230245, at *3 (S.D.N.Y. Aug. 31, 1992), its application to the distribution agreements at bar is at least arguably misplaced. As Innomed points out, a review of the distribution agreements suggests at the very least that the agreements concern the marketing and selling of tangible commodities, i.e., pills. Further, the distribution agreements at issue are distinguished from the contracts in the cases cited by Alza because those cases involved intangible rights to manufacture a product, to use a patent or copyright or to provide services, while here Alza chose not to license the drug delivery technology to either Innomed or Warner-Lambert but rather to retain the technology and manufacture the pills itself before it sold them to the distributors for resale.
Alza additionally argues that because the distribution agreements for Warner-Lambert and Innomed were executed at different times, i.e., one in August 1997, and the other in December 1997, Innomed can not show that the price discrimination was "contemporaneous," as required under the Robinson-Patman Act. See e.g., National Ass'n of College Bookstores v. Cambridge Univ Press, 990 F. Supp. 245, 249 (S.D.N.Y. 1997) (Scheindlin, J.) ("A prevailing Robinson-Patman plaintiff must . . . demonstrate . . . that the defendant charged different purchasers different prices in contemporaneous transactions"). I disagree with Alza's interpretation, especially in light of Best Brands Beverage. Inc. v. Falstaff Brewing Corp., 842 F.2d 578, 584 (2d Cir. 1987) (noting more generally that a plaintiff can show contemporaneous transactions by alleging that it was "engaged in actual competition with the favored purchaser(s) as of the time of the price differential.").
Finally, Alza argues that because I previously denied Innomed leave to assert an antitrust claim under the Sherman Act, I should necessarily deny Innomed's Robinson-Patman Act claim.
Alza, however, fails to recognize a critical distinction between the prima facie elements of the two antitrust causes of action. With respect to the Sherman Act, I denied Innomed's claim in light of the fact that, among other things, it failed to adequately allege — nor could it point to any facts to support an allegation — that it sustained the requisite injury, i.e., that the "challenged action has had an actual adverse effect on competition as a whole in the relevant market." See George Haug Co., George Haug Co. v. Rolls Royce Motor Cars, Inc., 148 F.3d 136, 139 (2d Cir. 1998). Plaintiff need not similarly allege an injury on the market under the Robinson-Patman Act. Id. at 142 ("It is hornbook law . . . that anti-competitive injury need not be alleged to sustain a claim for violation of the Robinson-Patman Act; a price differential . . . is enough"). Further, the allegations in the instant case are not inapposite to those in George Haug Co. — a case admittedly overlooked by defense counsel — in which the Circuit reversed a dismissal of a Robinson-Patman claim.
The claimant alleging an antitrust violation under the Sherman Act must allege: (1) concerted action; (2) by two or more persons; (3) that unreasonably restrains interstate or foreign trade or commerce. See Capital Imaging Assoc., P.C. y. Mohawk Valley Med. Assoc., Inc., 996 F.2d 537, 542 (2d Cir. 1993). Innomed's allegation that it had merely been harmed as an individual competitor did not suffice to establish a colorable claim. Id.
In George Haug, the plaintiff was an authorized parts and service dealer of defendant Rolls Royce autos. Plaintiff alleged a Robinson-Patman violation (and a Sherman Act violation) based on its claims that Rolls Royce had afforded a more favorable credit and price arrangement to a second dealer, Carriage House, which included paying Carriage House's rent and allowing it to offer free work to customers. While the Circuit affirmed the dismissal of the Sherman Act claim for failure to state an antitrust injury, the Robinson-Patman claim survived. George Haug 148 F.3d at 142. So must Innomed's Robinson-Patman claim here.
C. Innomed's remaining claims
Alza also objects to Innomed's three proposed claims for breach of contract, breach of covenant of good faith and fair dealing and fraudulent inducement arising out of Alza's alleged violation of the Robinson-Patman Act. Alza's only objection to these claims, however, is that they should be denied if the Robinson-Patman Act claim is denied. As I find that the Robinson-Patman claim survives, plaintiffs remaining claims survive.
D. Alza has failed to show prejudice
Alza has failed to show that Innomed's latest amendment to the complaint — albeit filed after the deadline set in the pretrial scheduling order — will cause any undue prejudice under the test spelled out in Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993). Innomed claims that it became aware of the facts underlying the newly asserted causes of action only after Alza produced its distribution agreement with Warner-Lambert, a document that should have been produced far earlier in response to Innomed's first document request. Alza initially had objected to the production of the document before I ordered Alza during a conference call with the parties on April 19, 2002, to produce it forthwith. Innomed then apparently first received the document on April 23, 2002, the day of argument on the first amended complaint and too late for it to address the Robinson-Patman claim in that motion.
At Alza's request, I will again extend the dates in the pretrial scheduling order — although I rarely do so — for fully briefed motions from July 2, 2002, to September 16, 2002, and the trial from September 2002 to November 2002, to afford Alza sufficient time to move, if it chooses, with respect to the second amended complaint. In short, while it may be exasperating to the defendant to say nothing of the Court that it took plaintiff this long to get it right, to me at least the interests of justice require this result.
III. CONCLUSION
For the foregoing reasons, and in accordance with my decision on the record, the plaintiffs motion for leave to file a second amended complaint is GRANTED. The date for fully briefed motions is extended to September 16, 2002, and this matter is set for trial in the last week of November, 2002, with the pretrial order due November 15, 2002. I doubt further extensions will be granted.
SO ORDERED.