Biotronik A.G., Appellant,v.Conor Medsystems Ireland, Ltd., et al., Respondents.BriefN.Y.January 7, 2014To be Argued by: RONALD S. RAUCHBERG (Time Requested: 30 Minutes) New York County Clerk’s Index No. 603751/07 Court of Appeals of the State of New York BIOTRONIK, A.G., Plaintiff-Appellant, - against - CONOR MEDSYSTEMS IRELAND, LTD., CONOR MEDSYSTEMS IRELAND LIMITED, CONOR MEDSYSTEMS, INC., CONOR MEDSYSTEMS, INC., as successor by merger of CONOR MEDSYSTEMS, INC. and CONOR MEDSYSTEMS LLC, Defendants-Respondents. BRIEF FOR PLAINTIFF-APPELLANT RONALD S. RAUCHBERG ANNA G. KAMINSKA PROSKAUER ROSE LLP 11 Times Square New York, New York 10036 Tel.: (212) 969-3000 Fax: (212) 969-2900 - and - BERTRAND C. SELLIER VANDENBERG & FELIU LLP 60 East 42nd Street, 51st Floor New York, New York 10165 Tel.: (212) 763-6800 Fax: (212) 763-6810 Attorneys for Plaintiff-Appellant Date Completed: May 21, 2013 APL-2012-00291 i DISCLOSURE PURSUANT TO 22 NYCRR 500.1(F) Appellant Biotronik, A.G. is a subsidiary of MS Holding II SE, and has the following subsidiaries: Cortronik I, Cortronik II, and Biotronik CRC. The following entities are affiliates of Biotronik, A.G.: Biotronik, Inc., Worldwide Biotronik Group, Biomédica Argentina, S.A., Biotronik Australia Pty. Ltd., Biotronik Vertriebs-GmbH, Aamal Medical Co., Biotronik Belgium, S.A., Biotronik Commercial Médica Ltda., Biotronik Bulgaria Ltd., Biotronik Canada, Inc., Arlab Ltda., Biotronik (Beijing) Medical Devices Ltd., World Medical S.A.S., Cardiotronik S.A.S., Corporación Biomur, S.A., Biotronik d.o.o., Comefin, Ralf Med International BV, Medsoll Holdings Ltd., Biotronik Praha Spol. s.r.o., Biotronik ApS, CentralMed, S.A., Insumedical S.A.-T, Technowave S.A.E, Plusmed OÜ, Biotronik OY, Biotronik France S.A.S., Biotronik Vertriebs GmbH & Co. KG, Biotronik SE & Co. KG, Intertronics Hellas, Semicom, S.A., Biotronik Hong Kong Limited, Biotronik Hungária Kft, Biotronik Medical Devices India Private Ltd., Biotronik Singapore- Asia Pacific Pte Ltd., Matana Company of Medical Equipments & Trading, Medlab Ltd., Biotronik Italia S.p.A., Biotronik Japan, Inc., Rawhi Drug Store, Ashcott Ltd., Ali Abdulwahab, Sons & Co., Universal Technology & Medical, Biotronik Baltija SIA, GreenMed Co. s.a.r.l., UAB FGT, Promedika, V.J. Salomone Pharma Ltd., Ducray Lenoir Ltd., Impulso Mexicano S.A. de C.V., ii Biotronik Nederland b.v., Coranica, Octopus Medical AB, Technomedical International Ltd., Biotronik Latin America, Calypso, Biomedist-Biomedical Distributors S.A.C., Edge Medical Devices and Services, Inc., Biotronik Polska Sp. z.o.o, Farmimpex Cardio Equipamentos Médico Cirúrgicos, Ltda., Meddev Technologies, Inc., Solution for Services and Health Care W.L.L., SC Medical Devices & Diagnostics S.R.L., Eximrom Biocard S.R.L., OOO “Biotronik,” OOO “Biotronik Ural,” Al Faisaliah Medical Systems, Biotronik d.o.o., Biotronik Slovensko Spol. s.r.o., Biotronik SA (Pty) Ltd., Vasocare Co., Ltd., Biotronik Korea Co., Ltd., IMT Medical Co., Ltd., C.E.M. Biotronik S.A., Biotronik Sri Lanka, Biotronik Schweiz, A.G., New Biomedical Center, Union-Link Corporation, Biotronik Biyomedikal Teknolojiler Ltd. Sti., MPC-Modern Pharmaceutical Company, ArabianEthicals, Biotronik UK Ltd., Lentix S.A., Hospal Medica, Systolic Medical Products Import Export Limited, Raydan Medical Co. Ltd., and Likar Ltd. iii TABLE OF CONTENTS Page DISCLOSURE PURSUANT TO 22 NYCRR 500.1(F) ............................................. i TABLE OF AUTHORITIES ....................................................................................... v JURISDICTIONAL STATEMENT ........................................................................... 1 QUESTIONS PRESENTED ........................................................................................ 1 PRELIMINARY STATEMENT ................................................................................. 3 STATEMENT OF RELEVANT FACTS .................................................................... 6 The CoStar Stent ................................................................................................. 6 The Agreement .................................................................................................... 7 The Parties’ Performance Under The Agreement .............................................. 10 Conor’s Breach Of The Agreement .................................................................... 13 Biotronik’s Amended Complaint ........................................................................ 16 Relevant Proceedings Below .............................................................................. 18 SUMMARY OF ARGUMENT ................................................................................... 21 STANDARD OF REVIEW ......................................................................................... 23 ARGUMENT ............................................................................................................... 23 I. THE APPELLATE DIVISION ERRED IN CONCLUDING THAT BIOTRONIK SEEKS CONSEQUENTIAL DAMAGES........................................................................................................ 23 iv A. Under New York Law, An Exclusive Distributor’s Lost Profits On Sales To Third Parties, Caused By The Manufacturer’s Breach Of Its Supply Obligation, Are Direct Damages. ..................................... 25 B. The Order Below Conflicts With Out-Of State Authority Deciding This Issue Under The UCC. .................................... 29 II. ANY DOUBT ABOUT WHETHER BIOTRONIK’S DAMAGES ARE DIRECT OR CONSEQUENIAL WOULD PRESENT A FACTUAL QUESTION FOR THE JURY. ................................ 36 III. BIOTRONIK’S DAMAGES ARE NOT LIMITED TO THE TIME PERIOD THROUGH APRIL 2008 ............................................... 37 CONCLUSION ............................................................................................................ 38 v TABLE OF AUTHORITIES Page(s) Cases Am. Elec. Power Co. v. Westinghouse Elec. Corp., 418 F. Supp. 435 (S.D.N.Y. 1976) ..................................................................... 36 Am. List Corp. v. U.S. News & World Report, Inc., 75 N.Y.2d 38 (1989) ..................................................................................... 25, 27 Appliance Giant, Inc. v. Columbia 90 Assocs., LLC, 8 A.D.3d 932 (3d Dep’t 2004) ...................................................................... 34, 35 Biovail Pharms. v. Eli Lilly & Co., No. 5:01-CV-352-BO(3), 2003 WL 25901513, 2003 U.S. Dist. LEXIS 27916 (E.D.N.C. Feb. 28, 2003) ....................................................... 30, 31, 32, 34 Callisto Corp. v. Inter-State Studio & Publ’g Co., No. 05-11953-GAO, 2006 WL 1240711, 2006 U.S. Dist. LEXIS 31004 (D. Mass. May 4, 2006) ...................................................................................... 32 Cherokee County Cogeneration Partners, LP v. Dynegy Mktg. & Trade, 305 S.W.3d 309 (Tex. App. 2009) ..................................................................... 32 Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co., 650 F. Supp. 2d 314 (S.D.N.Y. 2009) ................................................................ 28 D.P. Serv., Inc. v. AM Int’l, 508 F. Supp. 162 (N.D. Ill. 1981) ................................................................. 30, 34 Kerr S.S. Co. v. Radio Corp. of Am., 245 N.Y. 284 (1927) ..................................................................................... 23, 30 Long Island Lighting Co. v. Transamerca Delaval, Inc., 646 F. Supp. 1442 (S.D.N.Y. 1986) ................................................................... 36 Niagara Mohawk Power Corp. v. Stone & Webster Eng’g Corp., No. 88-CV-819, 1992 WL 121726, 1992 U.S. Dist. LEXIS 7721 (N.D.N.Y. May 23, 1992) ................................................................................... 36 Orange & Rockland Util., Inc. v. New England Petroleum Corp., 60 A.D.2d 233 (1st Dep’t 1977) ......................................................................... 37 vi Orester v. Dayton Rubber Mfg. Co., 228 N.Y. 134 (1920) ................................................................... 26, 27, 28, 29, 36 Ortiz v. Varsity Holding, LLC, 18 N.Y.3d 335 (2011) ......................................................................................... 23 Simon v. Electrospace Corp., 28 N.Y.2d 136 (1971) ......................................................................................... 37 Vega v. Restani Constr. Corp., 18 N.Y.3d 499 (2012) ......................................................................................... 23 Viastar Energy, LLC v. Motorola, Inc., No. 01:05-cv-1095-DFH-WTL, 2006 WL 3075864, 2006 U.S. Dist. LEXIS 78331 (S.D. Ind. Oct. 26, 2006) ................. 30, 31, 32, 34 Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88 (1917) ............................................................................................. 25 Woods v. MONY Legacy Life Ins. Co., 84 N.Y.2d 280 (1994) ................................................................................... 29, 32 Statutes N.Y. C.P.L.R. § 5602(a)(1)(i) .................................................................................... 1 U.C.C. § 1-102(2)(c) ................................................................................................ 29 U.C.C. § 2-715(2)(a) .............................................................................. 29, 32, 33, 34 Other Authorities 1 James J. White & Robert S. Summers, Uniform Commercial Code § 10-4 (4th ed. 1995) .............................................. 34 1 Appellant Biotronik, A.G. (“Biotronik”) respectfully submits this brief in support of its appeal from a decision and order of the Appellate Division, First Department which determined that Biotronik’s claim for lost-profits damages was barred as a matter of law by the contract at issue and dismissed its Amended Complaint (“Order”). JURISDICTIONAL STATEMENT The Appellate Division granted Biotronik’s motion for leave to appeal to this Court by order dated September 25, 2012.1 Therefore, this Court has jurisdiction to entertain Biotronik’s appeal under CPLR 5602(a)(1)(i). The issues presented in this appeal were preserved for review, as Biotronik raised them in its briefs and at oral argument before both the trial court and the Appellate Division.2 QUESTIONS PRESENTED 1. When a manufacturer breached its obligation to supply goods under an exclusive distribution agreement, were the profits the distributor would have made by reselling the goods at a mark-up, as it was expressly obligated to do under the agreement, direct damages the distributor may recover, or instead were 1 R. 3a. References preceded by “R. __” are to the record contained in the four-volume, consecutively paginated Record on Appeal submitted herewith. 2 R. 5a-7a; R. 44-49. 2 those damages barred by a provision in the agreement disallowing the recovery of “any indirect, special, consequential, incidental or punitive damage”? The Appellate Division erred in concluding that the distributor’s lost-profits damages were barred by the agreement, and the court’s error effectively granted the manufacturer the unfettered right to cancel the agreement without cost at any time, thereby rendering both the manufacturer’s supply obligation and the specified duration of the agreement illusory. 2. In the alternative, should any question about whether the provision at issue was intended to bar the damages sought have been submitted to the jury? The Appellate Division erred in determining that the damages claim was barred by the agreement as a matter of law. 3. Is the amount of a damages claim determined at the time of the breach, or instead can a breaching party reduce the recoverable damages by purporting to cancel the agreement a month after the material breach? The Appellate Division did not decide this issue. The trial court erred in giving effect to the breaching party’s post-breach cancellation notice. 3 PRELIMINARY STATEMENT Biotronik commenced this action against the defendants (collectively, “Conor”) seeking to recover damages for Conor’s breach of an exclusive distribution agreement (“Agreement”). Under the Agreement, Conor promised to supply Biotronik with a coronary stent called CoStar and appointed Biotronik its exclusive distributor of the stent in a territory consisting of most of the world outside of the United States. Conor sought out Biotronik because of Biotronik’s strong direct sales organizations in many European countries and Biotronik’s network of dealers where it did not operate directly. The Agreement explicitly required Biotronik to make CoStar sales to third parties. It also set the price that Biotronik would pay Conor for CoStar as a percentage of the amounts Biotronik received from the required resales, thus building Biotronik’s profit margin directly into the Agreement. Biotronik’s distribution of CoStar was highly successful. Conor, however, breached the Agreement by cutting off Biotronik’s supply of CoStar in the midst of the Agreement’s term. About a month later, Conor served Biotronik with a cancellation notice purporting to shorten the term of the Agreement. Biotronik commenced this action seeking to recover the profits that it would have made on the resales of CoStar but for Conor’s breach. After the completion of discovery, Conor moved for summary judgment, making both 4 liability and damages arguments. The liability arguments were unsuccessful. As to damages, Conor contended that Biotronik’s lost-profits claim was barred by a provision in the Agreement that precludes the recovery of “indirect, special, consequential, incidental or punitive damage.” Conor also argued that its post- breach cancellation notice shortened the time period for which Biotronik could recover any damages. The trial court agreed with Conor’s damages arguments and held that Biotronik was not entitled to recover any lost profits as a matter of law. The court also concluded that Biotronik’s damages in any event would be limited because Conor properly exercised its right to cancel the Agreement following its breach. The Appellate Division affirmed. The court understood New York law to require that lost profits may never be recovered as general damages except when a non-breaching party is suing to recover moneys that were directly owed to it by the breaching party under the terms of the contract. The court did not address whether Conor’s post-breach cancellation notice limited Biotronik’s damages. The court also did not address any liability issues. Subsequently, the Appellate Division granted Biotronik’s motion for leave to appeal to this Court. As set forth below, the Appellate Division erred in concluding that Biotronik seeks consequential damages. In the Agreement, Biotronik bargained 5 for and obtained the right to earn distribution profits. Indeed, Biotronik’s resale of CoStar stents for profit was the very purpose of the Agreement. Biotronik’s loss of these profits was not only probable-it was inevitable-once Conor stopped supplying CoStar. These lost profits are thus general damages flowing directly from Conor’s breach, not some “consequential” side effect that would be barred by the Agreement. As also shown below, this Court has flatly held that such lost profits under a distribution agreement are direct rather than consequential damages. The question has also arisen in several other states under the Uniform Commercial Code, yielding decisions that such damages are direct and general and not consequential. The Appellate Division’s categorical exclusion from general damages of all cases not involving payments by the breaching party makes particularly little sense here. The Agreement, by requiring resales and providing for a percentage split of the proceeds, provides in effect for the creation of a pool of funds and for the sharing of the pool by the parties. There can be no principled difference between recovering moneys to be paid by the breaching party, and recovering moneys from a common pool that the breaching party helped to create and explicitly agreed to share. 6 Moreover, if there were any doubt about the meaning of the provision at issue, the determination of whether Biotronik’s lost profits are direct or consequential damages should have been reserved for the jury. Finally, Biotronik’s damages should be determined without reference to the cancellation notice that Conor delivered after its breach. The relevant point at which to measure damages was at the time of Conor’s breach. Conor cannot limit its liability by its unilateral action to shorten the Agreement a month following the breach. The Appellate Division’s errors warrant a reversal with a remand of the case for trial. STATEMENT OF RELEVANT FACTS The CoStar Stent By Spring 2004, Conor-a single-product start-up company-had developed a novel drug-eluting coronary stent called CoStar.3 A stent is a physical structure that holds a vessel open. A drug-eluting stent carries a drug that is gradually released into the tissue surrounding the stent following implantation and thereby helps to prevent the development of blood clots. Conor’s belief, and the weight of scientific opinion at the time, was that CoStar’s 3 R. 874. 7 structure both decreased the incidence of blood clots and allowed for easier implantation in blocked vessels, making it a uniquely desirable product.4 By May 2004, CoStar had been subjected to a variety of studies. An additional study called EUROSTAR I was in its early stages. EUROSTAR I was designed to permit CoStar to obtain a CE mark-that is, the approval by the European regulatory agencies authorizing the sale of CoStar.5 In EUROSTAR I, patients with narrowing of the coronary arteries were implanted with the CoStar stent and monitored for at least a year. Instances of death, heart attack, and the need for a repeat procedure-considered major adverse cardiac events, or MACE-were measured. The results were compared to the results for other stents in other tests.6 The Agreement Biotronik is a leading manufacturer and distributor of medical devices, primarily in Europe but in much of the rest of the world as well.7 In early 2004, with EUROSTAR I’s results for CoStar not yet known, Conor approached Biotronik to suggest negotiations for an exclusive distribution arrangement. 4 R. 957-58; R. 961-62; R. 965-66; R. 972-77; R. 1011; R. 1100-04; R. 1108-11; R. 1118; R. 1428-30, at 93:8-95:23; R. 1443-46, at 19:25-22:16. 5 R. 954. 6 R. 1888-92. 7 R. 874. 8 Conor made presentations to Biotronik describing CoStar’s technological breakthroughs, the promising test results, and the ongoing EUROSTAR I trial.8 In May 2004, with EUROSTAR I still in progress, the parties entered into the Agreement. Conor “appointed” Biotronik as “its exclusive [CoStar] distributor in the territory,”9 defined to include Europe and much of the rest of the world excluding the United States.10 The Agreement required Biotronik to make sales of CoStar11 and also required Conor to assist in that sales effort.12 In addition, resales were necessary to determine the price that Biotronik was to pay for CoStar stents.13 As stated in the Agreement, “Conor is appointing Biotronik as its distributor hereunder with respect to [CoStar] for sale to any purchasers for use (or for re-sale in the case of Biotronik’s subdistributors) in the Territory,”14 and “Biotronik shall pay Conor the price for [CoStar] as provided in” the pricing formula.15 According to the pricing formula, the amounts paid to Conor were a percentage of the net sales of CoStar that Biotronik made to third parties (61% for direct sales, and 75% for 8 R. 854-55, at ¶¶2-4. 9 R. 874. 10 R. 876, at §§2.1-2.3, 2.5; R. 899. 11 R. 876, at §§2.1, 2.5(i). 12 R. 877, at §§2.7, 2.8. 13 R. 900-01. 14 R. 876, at §2.2. 15 R. 879, at §5.1 9 Biotronik’s sales through its dealers).16 Conor thus expected-indeed, required-Biotronik to resell CoStar so that Conor could be paid. The Agreement required Biotronik’s purchases to reach certain minimums and also required Biotronik regularly to provide Conor with forecasts of the size of the orders it would be making.17 Section 14.5 of the Agreement provided that “neither party shall be liable to the other for any indirect, special, consequential, incidental or punitive damage with respect to any claim arising out of this agreement.”18 The term of the Agreement was through December 31, 2007, with an automatic extension to December 31, 2008, unless either party gave notice by July 1, 2007 of its election to end the Agreement on December 31, 2007.19 The Agreement entitled Biotronik to sell CoStar for a four-month sell-off period following termination or expiration of the Agreement.20 (Neither party had given notice of an election to end the Agreement by the time of the breach in May 2007.) 16 R. 900. 17 R. 877, at §3.1; R. 878, at §3.5; 902. 18 R. 889-90, at §14.5. 19 R. 891, at §16.1. 20 R. 893, at §16.5. 10 The Agreement recites that Conor expects to obtain regulatory approval for CoStar in the European Union by September 30, 2005, and obligates Conor, once approval is obtained, to maintain it.21 Article 7 of the Agreement, entitled “Assurance of Supply,” provides that if Conor decides to discontinue the manufacture of CoStar, it must give Biotronik notice 12 months in advance, and specifies how many CoStar stents Biotronik may order during that period. Article 7 also obligates Conor, in the event of a product discontinuance, to supply Biotronik with a replacement stent if one is available: “Where possible, the Parties shall agree on a replacement of such discontinued Product. . . .”22 The replacement obligation is unconditional, and the reason for the discontinuance is irrelevant. The Agreement is governed by New York law.23 The Parties’ Performance Under The Agreement. The EUROSTAR I trial showed CoStar to work safely and effectively in addressing blockages in vessels.24 Accordingly, a CE mark allowing CoStar distribution in most of Biotronik’s territory was obtained in February 2006. Conor promptly began supplying CoStar stents to Biotronik, and Biotronik 21 R. 881, at §8.1. 22 Id. at §7 (emphasis added). 23 R. 897, at §18.1. 24 R. 1888-92. 11 promptly began marketing.25 Sales began strong and continued stronger. Physicians appreciated the fact that CoStar was more flexible than any other drug-eluting stent on the market, thus making it easier to implant.26 Biotronik was able quickly to achieve a 4% market share.27 Sales were expected to grow substantially in 2007.28 After completing the manufacture of the CoStar stents needed to conduct the EUROSTAR I trial, however, Conor changed both the process it used to manufacture CoStar and the design and functioning of CoStar. Conor says it was concerned that the drug used in CoStar-paclitaxel-could be toxic in large dosages, and therefore altered CoStar to reduce the initial burst of paclitaxel released by the stent immediately upon implantation.29 This revised version of CoStar-Altered CoStar-was supplied to Biotronik for distribution. Conor never informed either Biotronik or the European regulators that Original CoStar-the product that was the subject of the Agreement, the product that was tested in EUROSTAR I, and the product that was approved by the European regulators for marketing-had been changed.30 25 R 1017. 26 R. 1443-46, at 19:25-22:16; R. 961-62; R. 1428-30, at 93:8-95:23. 27 R. 1334-36. 28 Id. 29 R. 2013-17; R. 2019-21; R. 2026, 2028-29; R. 1232; R. 1362, at 100:4-17. 30 R. 1360, at 57:11-18; R. 1369, at 127:4-11; R. 859-60, at ¶21. 12 The failure to advise the European regulators of the changes, and to obtain their approval, violated European law.31 With Biotronik’s successful marketing of CoStar in progress, Johnson & Johnson (“J&J”), already a leader in the field with its Cypher stent, acquired Conor. At the time the acquisition closed, in February 2007, Conor had begun another trial, called COSTAR II, that was designed to achieve FDA approval for marketing CoStar in the United States. COSTAR II involved a randomized head- to-head comparison of Altered CoStar with another stent, Taxus. The manufacturing and design changes between Original CoStar and Altered CoStar were not documented when Conor implemented them; the only documents referring to them were prepared years later, as part of an after-the-fact analysis by J&J.32 J&J’s analysis concluded that the changes lacked an adequate scientific basis: “due to lack of understanding and scientific rigor, [Altered CoStar’s] elution specifications were not based on data, and the changes were not rigorously reviewed or understood,” “changes were not validated or verified with animal test data,” and Conor’s “design control assessment had major deficiencies in almost every element.”33 31 R. 1437.15-.16, at 200:7-201:12; R. 1437.17-.18, at 209:13-210:10; R. 1437.19-.21, at 213:20-215:2. 32 R. 1263, at No. 11; R. 1437.21-.22, at 215:18-216:5; R. 2023-40. 33 R. 1214; see also R. 1437.21-.22, at 215:18-216:5. 13 While Conor itself had no sales force, J&J had a powerful global medical- device sales organization. Once J&J acquired Conor, there was no need for Biotronik as a distributor. Richard Dakers, J&J’s Vice-President of Franchise Development, testified that immediately following the acquisition J&J planned “to fire all the distributors.”34 Conor’s Breach Of The Agreement. In late April 2007, the results of the COSTAR II trial became available to J&J.35 The trial compared two groups of patients, one receiving Altered CoStar and the other Taxus. The results were disappointing, largely because Altered CoStar performed less effectively than Original CoStar had in the EUROSTAR I trial.36 Thus, Altered CoStar did not perform as effectively as Taxus, and J&J decided not to pursue U.S. approval for Altered CoStar. J&J decided instead to develop the next generation of drug-eluting coronary stents, which would consist of the “Conor platform”-CoStar’s proprietary structure-dispensing Sirolimus, the drug J&J used with its Cypher stent, and meanwhile to continue to market Cypher throughout the world.37 There was no room for Biotronik in J&J’s plans. A senior J&J executive, Nick Valeriani, put together an ad hoc group consisting entirely of J&J 34 R. 1383-84, at 40:18-41:4. 35 R. 1957. 36 R. 1164-66; R. 1227. 37 R. 1936-37; R. 1145-46, 1148; R. 2045; R. 1359, at 53:7-16; R. 1381, at 34:8-23; R. 1382, at 36:8-12. 14 employees-no one from Conor was invited to participate-to consider the CoStar situation outside of the United States. No contemporaneous documents recording the ad hoc group’s discussions have been produced in this case. The participants wrote no memos to each other. No one took any notes-or at least, none were produced.38 The trial court called the absence of any contemporaneous documents both “strange” and “inconceivable.”39 The J&J group decided that Conor would put Biotronik out of the stent business. J&J would have Conor discontinue the manufacture of the CoStar stent and withdraw all existing Altered CoStar stents from the market pursuant to a purported product recall.40 Valeriani implemented this decision on May 7, 2007.41 Conor did not discuss in good faith with Biotronik whether the recall was appropriate or required, as required by Section 10.6 of the Agreement.42 Biotronik requested Cypher as a “suitable replacement” that Conor was required to provide under Article 7. J&J, however, refused to allow Conor to supply Cypher. Valeriani testified that Altered CoStar was pulled from the market because the COSTAR II trial showed it to be a danger to patient health and welfare.43 The 38 R. 1462-63, at 17:18-18:6; R. 1466-67, at 21:17-22:7; R. 1471-73, at 62:24-63:4. 39 R. 63. 40 R. 1470, at 59:11-17; R. 1131; R. 1135. 41 R. 1457, at 12:12-19; R. 1470, at 59:11-17. 42 R. 859, at ¶20; R. 1472-73, at 63:5-64:14. 43 R. 838-39, at 39:22-40:24. 15 evidence, however, shows that CoStar, even as altered, was safe and effective, and both Conor and J&J knew it.44 J&J, however, saw no reason to supply Biotronik with the means to compete with Cypher in important European markets, and concluded that this was the best way to preserve the Conor platform for use in J&J’s planned next-generation stent.45 Internal documents at Conor and J&J establish that the claim that CoStar presented any safety concerns is a complete sham. Conor’s Health Hazard Analysis-the formal document apparently used whenever a product is taken off the market46-prior to being bowdlerized by J&J,47 states that the removal of CoStar from the market was done for “business reasons,” concludes flatly that “[n]o potential hazards and harms or immediate and/or long range health consequences exist.”48 Substantial additional evidence that CoStar, even as altered, was safe and effective, including J&J’s and Conor’s contemporaneous admissions, was summarized in Biotronik’s opposition to Conor’s summary judgment motion and was credited by the trial court below.49 44 R. 1502-04, at ¶24 (R. 1138-39; R. 1182, 1185; R. 1131; R. 1138; R. 1144; R. 1202-03, 1205-06; R. 2009-10; R. 1962; R. 2050; R. 1977; R. 1128-29; R. 1210; R. 1192; R. 1447-48, at 51:18-52:8; R. 1758-59). 45 R. 1507-08, at ¶32 (R. 1978; R. 2052; R. 1363-64, at 103:1-104:1; R. 1354, at 125:3-16; R. 1355-56, at 142:14-143:14). 46 R. 1973-78. 47 R. 1980-82; R. 1373-74, at 57:22-58:9; R. 1375, at 59:7-13. 48 R. 1976-78. 49 R. 1502-04, at ¶24 (see note 44, supra). 16 On June 6, 2007, about a month after pulling CoStar off the market, Conor sent Biotronik a notice purporting to terminate the Agreement effective December 31, 2007.50 Although the performance of Altered CoStar in the COSTAR II trial was within the range of other drug-eluting stents approved for sale in Europe, it was, as we have previously noted, not as good as had been seen for Original CoStar in the EUROSTAR I trial. J&J and Conor specifically attributed this reduction in CoStar’s performance to the reduced dose of paclitaxel resulting from the secret manufacturing and design changes discussed above.51 Neither Conor nor J&J has ever claimed that there is any reason to believe that Original CoStar presented any safety issues. And neither J&J nor Conor has ever advanced any supposed justification for not supplying Original CoStar to Biotronik for the duration of the Agreement. Biotronik’s Amended Complaint Biotronik commenced this action seeking damages for Conor’s breach of the Agreement. Biotronik’s first cause of action alleged that Conor breached its supply obligations under Sections 2.1, 3.3, and 4.1 of the Agreement by 50 R. 555. 51 R. 1501-02, at ¶23 (R. 1174-75; R. 1985; R. 1145-46, 1148; R 1157,; R 1174-75; R. 1957; R. 2040; R. 2050; R. 1234; R. 2001). 17 terminating the supply of CoStar stents to Biotronik and refusing to supply those stents to Biotronik for the balance of the term.52 Biotronik further alleged that Conor breached Section 10.7, which provides for product recalls, and the implied covenant of good faith and fair dealing by purporting to “recall” CoStar when Conor knew that the stent was safe and effective. Biotronik alleged that the supposed recall was motivated by bad faith because J&J intended to bolster its own line of coronary stent products by removing CoStar from the market with the intent of introducing it with its drug Sirolimus in place of paclitaxel in the future. Biotronik also alleged that J&J withdrew CoStar knowing that Conor had made substantial changes to the paclitaxel dosage which made the stent less effective. In addition, Biotronik claimed that Conor recalled CoStar without consulting Biotronik as required by Section 10.6.53 Biotronik’s second cause of action alleged that Conor breached Article 7 by discontinuing the manufacture of CoStar without giving Biotronik the required 12 months’ advance notice and an opportunity to place orders in the interim.54 Biotronik further alleged that once Conor discontinued CoStar, Conor was 52 R. 154-55. 53 R. 151, 153-55. 54 R. 153, 155-56. 18 required to supply Biotronik with Cypher because Conor had access to that stent from J&J.55 As a result of these breaches, Biotronik sustained lost-profits damages in the amount of $85 million based on the stents that it was unable to resell as Conor’s appointed distributor.56 Relevant Proceedings Below Conor moved for summary judgment, raising both liability and damages issues.57 The trial court correctly found issues of fact on the liability issues. The court found in Biotronik’s favor on this branch of the motion because the evidence would permit a jury to conclude the following: There is no basis for concern about the safety of CoStar, even as altered, and therefore no basis for a “recall” under Sections 10.6 and 10.7 of the Agreement58; Conor was obligated under Section 7 to give Biotronik 12 months’ advance notice of any decision to discontinue the manufacture of CoStar and to fill orders in the interim59; 55 Id. 56 R. 1339-40. 57 R. 167-68. 58 R. 39-40. 59 R. 31-33. 19 The Altered CoStars Conor supplied to Biotronik and that Conor claimed were unsafe were materially different from the Original CoStar stents contracted for in the Agreement60; and Conor breached Section 7 of the Agreement by failing to supply Cypher as a replacement product.61 The trial court, however, erroneously held that Biotronik’s claim for damages in the form of lost profits was barred as a matter of law. Relying on Section 14.5 of the Agreement, which precludes liability for “indirect, special, consequential, incidental or punitive” damages, the court found that all the damages Biotronik seeks are consequential because they are the lost profits that Biotronik would have made on the resale of CoStar to third parties.62 The court thus left Biotronik without any remedy for Conor’s breach. In addition, the court determined that Biotronik’s damages would be limited to the time period through April 2008.63 The court decided that Conor had the right, which it exercised after its breach, to terminate the Agreement effective at the end of 2007, and thus Biotronik had the right to sell CoStar only until the end of 2007 plus a four-month period sell-off period in 2008. 60 R. 40-41. 61 R. 42. 62 R. 47-49. 63 R. 44, at n.5. 20 Because the court concluded that Biotronik could not seek lost profits-its only damages claim-the order effectively ended Biotronik’s case. Consequently, the court entered final Judgment dismissing the complaint.64 Biotronik appealed.65 The Appellate Division affirmed. The court understood New York law to create a categorical rule that lost profits may be recovered as general damages “only where the non-breaching party seeks to recover money owed directly by the breaching party under the parties’ contract.”66 It thus held that Biotronik’s damages were barred by the Agreement as a matter of law. The Appellate Division did not reach the question of whether Biotronik’s damages could be limited in light of Conor’s post-breach cancellation notice. Nor did it decide any liability issues. Biotronik subsequently filed a timely motion in the Appellate Division for leave to appeal from the Order to this Court. The motion was granted.67 64 R. 51-54. 65 R. 8-9. 66 R. 5a-6a. 67 R. 3a. 21 SUMMARY OF ARGUMENT The Appellate Division erred in dismissing Biotronik’s claim for lost profits. The Agreement plainly distinguishes between damages that flow naturally and directly from a breach, which are recoverable, and damages that are, in the words of Section 14.5, “indirect, special, consequential, incidental or punitive.” The damages sought here flow directly and naturally from Conor’s breach. This was not a simple sales contract where the seller has no interest in what the buyer does with the goods once they are delivered and paid for. Rather, the Agreement appoints Biotronik as Conor’s exclusive distributor and Conor was vitally interested in Biotronik’s resale of the goods. Biotronik was obligated to sell stents and to turn over to Conor a percentage of the amounts that Biotronik received from making the required sales. The remainder, Biotronik’s mark-up, was Biotronik’s to keep. Biotronik’s lost profits on these resales thus flow directly from Conor’s refusal to continue its supply of stents. There are no damages Biotronik could suffer that are more direct than those claimed here. Not only are there no more direct damages, there are no other recoverable damages at all. By denying the recoverability of Biotronik’s lost profits, the Appellate Division’s Order gives Conor the ability to cease supplying stents at any time without compensating Biotronik, and thus renders Conor’s supply obligation meaningless. It also renders meaningless the Agreement’s 22 specified duration, as Conor could end the Agreement at any time (under the Appellate Division’s reading) simply by ceasing the manufacture of the product. The decision below, moreover, allows such breaches by Conor even when they are intentional, in bad faith, and done with the intent to eliminate a competitor. The Appellate Division’s decision, moreover, was inconsistent with holdings of this Court in two respects. First, this Court has flatly held that lost distribution profits like those sought by Biotronik here are general, not consequential, damages. Second, this Court has held that decisions in other states under the Uniform Commercial Code should be given weight in light of the UCC’s goal of creating uniformity. The Appellate Division here ignored the well-reasoned cases cited to it from other states, all holding that a distributor’s lost profits from resales are general damages. In any event, if there were any doubt about the meaning of Section 14.5- that is, if it were ambiguous-the issue would be for a jury. It was error for the Appellate Division to decide against Biotronik as a matter of law. Finally, Biotronik’s damages should not be limited to the period through April 2008. At time of the breach, the term of the Agreement ran until December 31, 2008, plus a four-month sell-off period through April, 2009. A termination notice served after the breach does not affect the damages that had accrued by the time of the breach. These errors warrant a reversal here. 23 STANDARD OF REVIEW The standard of review for an appeal from a summary judgment ruling is de novo. On Conor’s motion for summary judgment, all facts must be viewed in the light most favorable to Biotronik. See Vega v. Restani Constr. Corp., 18 N.Y.3d 499, 503 (2012) (citing Ortiz v. Varsity Holdings, LLC, 18 N.Y.3d 335, 339 (2011)). ARGUMENT I. THE APPELLATE DIVISION ERRED IN CONCLUDING THAT BIOTRONIK SEEKS CONSEQUENTIAL DAMAGES. The Appellate Division erroneously attached the conclusory label “consequential damages” to Biotronik’s claim for lost profits without adequately addressing the nature of the damages sought and the context in which they arise. The court simply applied a broad mechanical rule limiting lost-profit general damages to those based on “payments by the breaching party.”68 The distinction between general and special damages, however, is not absolute but depends on the circumstances of each contract. “To put it in other words,” as this Court explained long ago, “damage which is general in relation to a contract of one kind may be classified as special in relation to another.” Kerr S.S. Co. v. Radio Corp. of Am., 245 N.Y. 284, 288-89 (1927) (Cardozo, J.). 68 R. 6a. 24 Biotronik’s expectation of profit was never incidental or collateral to the performance of the Agreement; it was the very essence of it. The contract at issue is a distribution agreement. Biotronik was required to buy from Conor and to resell at a higher price, with the “spread”-Biotronik’s gross profit-built into the terms of the contract. The price that Biotronik was contractually required to pay Conor was calculated as a fixed percentage of Biotronik’s proceeds from its sales to its customers. Moreover, the approximate volume of product that Biotronik would buy was known to Conor from Biotronik’s order forecasts, also required by the Agreement. Biotronik’s loss of these profits was thus not only the probable- but the inevitable-consequence of Conor’s breach. Conor tries to diminish the significance of the Agreement actually fixing Biotronik’s profit margin by arguing that this is “nothing but a [pricing] formula.”69 Well, yes, but that does not change the fact that this formula required the proceeds of the resales to be shared in stated percentages between the parties. The Agreement treats the proceeds of Biotronik’s sales as a pool of funds to be divided by the parties. Biotronik’s share of the pool, Biotronik’s lost profits on resales, are thus specifically provided for in the Agreement and their loss thus constitutes direct, general damages. 69 Conor Ltr-Brief to Ct. of Appeals dated Nov. 30, 2012, at 2. 25 The Appellate Division’s Order to the contrary renders Conor’s supply obligation and the Agreement’s specified duration entirely illusory. The court’s erroneous reading of the Agreement would allow Conor at any time to say, “we’ve changed our minds; despite our obligation, we don’t intend to supply you with CoStar anymore; since your lost-profits damages are consequential, you can’t recover a penny from us.” The law does not permit a party to read all its obligations out of a contract so easily. See Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88 (1917).70 The provision in the Agreement barring “consequential” damages thus cannot be interpreted as barring Biotronik’s claim for lost profits; as Judge Cardozo observed, “[w]e are not to suppose that one party was to be placed at the mercy of the other.” Id. at 91. A. Under New York Law, An Exclusive Distributor’s Lost Profits On Sales To Third Parties, Caused By The Manufacturer’s Breach Of Its Supply Obligation, Are Direct Damages. As this Court has stated, “[g]eneral damages are those which are the natural and probable consequence of the breach, while special damages are extraordinary in that they do not so directly flow from the breach.” Am. List Corp. v. U.S. News & World Report, Inc., 75 N.Y.2d 38, 42-43 (1989) (citation omitted). 70 Since Conor initiated a product recall in addition to a product discontinuance here, it was required under Section 10.7 of the Agreement to reimburse Biotronik for certain expenses associated with the recall. Conor did so. This does not support an argument by Conor that such payment saved the Agreement as read by the Appellate Division from being illusory. If Conor simply had refused to supply any more CoStars but did not recall the product already sold, under the Appellate Division’s reading of the Agreement Conor’s breach would require no payment to Biotronik whatsoever. 26 This Court has previously considered damages from a manufacturer’s breach of its supply obligation in an exclusive distribution agreement. In Orester v. Dayton Rubber Mfg. Co., 228 N.Y. 134 (1920), the Court had before it a claim for damages consisting of the profits lost by a tire distributor on sales that it was unable to make to third parties because of the manufacturer’s breach of its obligation to supply tires. This Court held that the lost-profits damages sought in such circumstances were not “consequential.” Id. at 138-39. This Court’s decision in Orester thus directly addresses the distribution context relevant here. By contrast, none of the cases cited in the Appellate Division’s Order involves the breach by a manufacturer of its supply obligation under a distribution agreement. Accordingly, none of those cases determines the outcome here. The Appellate Division, by relying on broad statements taken out of context, failed to address the essence of an exclusive distribution agreement: the decision by a manufacturer not to attempt the marketing of its goods itself; the appointment of a distributor to perform that work; the requirement that the distributor then distribute-i.e., make contracts of resale with third parties; and the distributor’s inability to perform when the manufacturer refuses to supply the goods. In this common framework, not addressed by any case cited in the Order, the lost-profits damages when the manufacturer breaches its supply obligation flow naturally and directly from the breach. 27 Conor cannot distinguish Orester but would disregard it because it is “old” and pre-dates the UCC.71 But Orester continues to be good law, and its age establishes only that it is firmly rooted in New York jurisprudence. None of the cases cited by Conor, nor the enactment of the UCC, disturbs Orester’s holding. And while Conor observed that Orester did not involve a limitation-of-liability provision, that fact is irrelevant; what is relevant is that this Court was squarely presented with the question of whether the lost profits claimed in that case were direct or consequential (because the requirements of proof differ), and it held that the lost-profits damages were direct. Contrary to Conor’s argument below, this Court did not overrule Orester, or say or hold anything to undermine it, in American List, supra. The defendant magazine there agreed to rent, over a 10-year period, mailing lists to be compiled by the plaintiff. The magazine repudiated the contract and the trial court awarded the plaintiff the present value of balance due on the contract for the remainder of the 10-year term. This Court upheld the damages award, holding that the plaintiff recovered, as general damages, “moneys which defendant undertook to pay under the contract.” 75 N.Y.2d at 43. That moneys which defendant undertook to pay can be recovered as general damages does not mean that all other moneys are not general damages. American List did not deal with a distribution agreement, was 71 Conor Ltr-Brief to Ct. of Appeals dated Nov. 30, 2012, at 8. 28 not decided under the UCC, and did not reject the recovery of any damages at all, and so does nothing to help Conor or to undermine Orester. Moreover, the general standard set forth in American List, quoted above, if anything supports reversal of the Order here. Nor is the holding in Orester disturbed by Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co., 650 F. Supp. 2d 314 (S.D.N.Y. 2009), cited in the Appellate Division’s Order.72 Pepsi, a federal decision, is inapposite because it did not involve a breach of the supply obligation in a distribution agreement. Rather, there the defendant’s alleged breach was its failure to take affirmative steps to prevent others from selling competing products within the plaintiff’s territory. Plaintiff complained about Pepsi’s failure to protect it from competition even though the parties’ agreement contained no requirement that Pepsi do so. Id. at 323. The court dismissed the complaint on numerous grounds, one of which was that plaintiff’s claim for lost profits was barred because the damages allegedly produced by the breach were consequential. Id. at 322. Since the only alleged breach in Pepsi was of an alleged collateral (and, indeed, unstated) obligation to prevent sales by third parties within the plaintiff’s territory, the facts are far from analogous to those presented here. 72 R. 6a. 29 Finally, nothing about the enactment of the UCC affects Orester’s holding. As set forth below, cases from across the nation deciding the question presented here under the UCC have applied the same rule from Orester. Orester therefore remains consistent with UCC principles and should be applied here. B. The Order Below Conflicts With Out-Of-State Authority Deciding This Issue Under The UCC. The Appellate Division’s Order does not follow this Court’s precedent requiring New York courts to aim at consistency with rulings in other jurisdictions on matters of UCC interpretation. The contract at issue here is indisputably a sales contract and, thus, within the sales article of the UCC. Section 2-715 of that article describes “consequential damages” and the Appellate Division cited that section,73 thus recognizing the pertinence of the UCC here. The UCC in § 1-102(2)(c) provides that one of its goals is “to make uniform the law among the various jurisdictions.” This Court, recognizing the statutory aim of nationwide uniformity, has held that UCC decisions in other states “may be entitled to considerable weight.” Woods v. MONY Legacy Life Ins. Co., 84 N.Y.2d 280, 285 (1994) (internal quotation marks omitted). State and federal cases in other jurisdictions considering the precise damages issue presented here have held that under the UCC, the distributor’s lost- 73 Id. 30 profits damages when a manufacturer breaches its supply obligation constitute direct damages. Viastar Energy, LLC v. Motorola, Inc., No. 01:05-cv-1095-DFH- WTL, 2006 WL 3075864, 2006 U.S. Dist. LEXIS 78331 (S.D. Ind. Oct. 26, 2006); Biovail Pharms. v. Eli Lilly & Co., No. 5:01-CV-352-BO(3), 2003 WL 25901513, 2003 U.S. Dist. LEXIS 27916 (E.D.N.C. Feb. 28, 2003); D.P. Serv., Inc. v. AM Int’l, 508 F. Supp. 162, 167 (N.D. Ill. 1981). Biovail is on all fours with this case. In Biovail, the plaintiff was an exclusive distributor of a drug that the defendant manufacturer recalled from the market and discontinued manufacturing. Plaintiff sued for lost profits on its future sales of the drug, and defendant moved for summary judgment to dismiss the claim, arguing that the lost profits were not recoverable under a contractual provision barring “consequential” damages. The court denied the motion. It recognized that there are cases holding lost profits in different contexts to be consequential damages, but, quoting the language of Judge Cardozo in Kerr S.S Co., the court said that “it is well established that damages that are consequential in one case might be direct in another.” Biovail Pharms., 2003 WL 25901513, at *2. The court then reviewed the common law and UCC decisions in several different states and concluded that whether a given damages claim is direct or consequential depends ultimately on how probable it is that the damages will result from a breach. As to the exclusive distribution agreement before it, the 31 court held that, “given the nature of the contract, lost profits were not only highly probable, but an inevitable consequence of the breach where [the seller] no longer supplies [product] to [the distributor] to re-sell on the market.” Id. at *3. The Biovail court held that plaintiff’s lost profits were direct damages even in the absence of any contractual language like that here, where the gross profit, consisting of the difference between the amounts Biotronik is to pay Conor and the amounts Biotronik will receive from its customers, is itself a negotiated term of the Agreement. The Biovail case thus a fortiori compels the same result here. Similarly, in Viastar Energy, LLC v. Motorola, Inc., No. 01:05-cv-1095- DFH-WTL, 2006 WL 3075864, 2006 U.S. Dist. LEXIS 78331 (S.D. Ind. Oct. 26, 2006), plaintiff entered into a contract in which defendant agreed to develop a product which it would sell to plaintiff for resale to utility companies. The contract capped damages according to a formula that considered, among other factors, the parties’ most current sales forecasts. When defendant breached the contract and did not supply the product, plaintiff sued for the profits it would have made on its resales, and the court upheld the claim despite a contractual provision barring the recovery of “consequential” damages. The court held that the key to classifying lost profits as direct or consequential damages lay in “the degree to which the breaching party could foresee that the other party’s lost profits would be a result of its breach.” 2006 WL 3075864, at *2. The court reasoned that the 32 parties’ inclusion of sales forecasts in the damages cap showed that plaintiff’s lost profits were a reasonably foreseeable consequence of defendant’s breach and, thus, direct damages under the contract. The contract between Biotronik and Conor is at least as clear as that in Viastar in showing that Biotronik’s profits were foreseeable to Conor. See also Callisto Corp. v. Inter-State Studio & Publ’g Co., No. 05-11953- GAO, 2006 WL 1240711, at *2, 2006 U.S. Dist. LEXIS 31004, at *6 (D. Mass. May 4, 2006) (“damages that flow according to common understanding as the natural and probable consequences of the breach” are not “consequential” (internal quotation marks omitted)); Cherokee County Cogeneration Partners, LP v. Dynegy Mktg. & Trade, 305 S.W.3d 309, 314 (Tex. App. 2009) (same). The trial court, notwithstanding this Court’s instructions in Woods, swept aside all the out-of-state authority cited to it as not New York law.74 The Appellate Division simply made no mention of it. Conor, unable to distinguish Biovail and the other UCC cases cited above, contends they are incorrect. According to Conor, all the courts in other jurisdictions simply misunderstood UCC § 2-715(2)(a), which, Conor asserts, “says that the lost profits of a buyer in the resale business are consequential damages and may be recoverable as such because they are always foreseeable to 74 R. 47-48. 33 the seller.”75 But that UCC provision says no such thing. UCC § 2-715(2)(a) provides that recoverable consequential damages from a seller’s breach include “any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know.” That some buyers might be able to recover greater damages by proving that their sellers knew of their plans for the purchased goods-that is, their particular requirements-has nothing to do with the present case. Conor is not a seller uninterested in Biotronik’s use of the goods that has nonetheless somehow gotten knowledge of Biotronik’s “particular requirements.” Conor obtained Biotronik’s specific contractual obligations concerning how Biotronik would deal with the purchased goods-resell them in a specified territory and share the proceeds with Conor. Thus, Biotronik’s damages claim here arises directly out of the express, negotiated provisions on the face of the Agreement without any proof of anything that Conor knew. The leading commentators on the UCC make precisely this distinction between damages flowing from what the seller has reason to know and damages flowing from the express terms of the agreement: If the requirements or needs of the buyer are explicitly incorporated into the subject matter of the promised performance, then at least the immediate damages from breach [including lost profits] will be direct because they flow in the ordinary course of 75 Conor Ltr-Brief to Ct. of Appeals dated Nov. 30, 2012, at 8. 34 events from the breach. It follows that even the damages for loss of profits in Hadley [v. Baxendale] itself could have been direct, assuming that the carrier made an explicit promise to return the shaft without delay in order that the mill could operate and generate profits. 1 James J. White & Robert S. Summers, Uniform Commercial Code § 10-4, at 573-74 (4th ed. 1995). Such a provision is exactly what we have here. Conor promised to supply stents to Biotronik in order that Biotronik could earn profits by reselling them at a higher price. The Viastar, Biovail, and D.P. Serv. cases, cited above, show that UCC § 2-715 does not create any rule that a distributor’s lost profits on resales always constitute consequential damages, and instead show that a distributor’s lost profits on resales easily fit within the ambit of direct damages. These cases should have been followed here. Neither the Appellate Division nor the trial court cited to any case in New York or elsewhere holding that lost profits are consequential damages in this distribution context, where profits on resales to third parties are at the very core of the agreement. Instead, the courts below relied on cases that are nothing like this case because they involved circumstances where the nexus between the plaintiff’s claim for lost profits and the contract was remote. For example, in Appliance Giant, Inc. v. Columbia 90 Assocs., LLC, 8 A.D.3d 932 (3d Dep’t 2004)76, plaintiff entered into an agreement to sublease an appliance store located in a 76 Cited by the trial court at R. 45. 35 shopping center owned by defendant. The lease also provided for access to a specified amount of parking. Defendant engaged in some construction work that deprived plaintiff’s customers of the use of some parking spaces and so caused plaintiff to lose business. Plaintiff sued for its lost profits. Relying on a provision in the sublease that barred the recovery of “consequential” damages, the court rejected plaintiff’s claim. The court explained that plaintiff’s direct damages would be the actual rental value of the lost parking spaces. Plaintiff’s lost profits on sales were indirect and “consequential.” The nexus in Appliance Giant between the loss of parking spaces and the lost sales and profits was not found in the text of the sublease. The case therefore has no relevance here. And none of the other cases relied on by the courts below is any closer. These cases do not speak at all to the situation here, where the sales that Biotronik was unable to make by reason of the breach were sales expressly required by the distribution contract. Biotronik’s lost profits are not consequential damages, but rather the utterly unavoidable direct result of Conor’s failure to supply stents to Biotronik in breach of the Agreement. 36 II. ANY DOUBT ABOUT WHETHER BIOTRONIK’S DAMAGES ARE DIRECT OR CONSEQUENTIAL WOULD PRESENT A FACTUAL QUESTION FOR THE JURY. There is no evidence, and no reason to believe, that the phrase “consequential damages” as used in the Agreement was intended by the parties to exclude the kind of damages that were recoverable in Orester. If, however, the phrase could be understood differently from how Orester understood it, at most that would create a jury question as to its meaning. See, e.g., Long Island Lighting Co. v. Transamerica Delaval, Inc., 646 F. Supp. 1442, 1459 n.30 (S.D.N.Y. 1986) (applying New York law) (“reserv[ing] for trial the question of whether the plaintiff’s claimed damages should be characterized as direct, incidental, or consequential”); Am. Elec. Power Co. v. Westinghouse Elec. Corp., 418 F. Supp. 435, 460 (S.D.N.Y. 1976) (applying New York law) (“the precise scope of direct [versus consequential] damages must be left for resolution at trial”); see also Niagara Mohawk Power Corp. v. Stone & Webster Eng’g Corp., No. 88-CV-819, 1992 WL 121726, 1992 U.S. Dist. LEXIS 7721 (N.D.N.Y. May 23, 1992) (same). In no event should Biotronik’s claim have been dismissed as a matter of law. 37 III. BIOTRONIK’S DAMAGES ARE NOT LIMITED TO THE TIME PERIOD THROUGH APRIL 2008. In a brief footnote to its decision, the trial court erroneously rejected Biotronik’s claim that it is entitled to damages through April 2009.77 The court found that Conor could exercise rights under the Agreement even following its breach-in particular, the right to cancel the Agreement-and thus Biotronik’s damages are limited to the time period through April 2008. The Appellate Division did not reach this issue. The trial court’s ruling improperly limits Biotronik’s recovery by reason of events after Conor’s breach, rather than measuring damages at the time of the breach-as required under New York law-when Conor had not yet exercised its cancellation right. See Simon v. Electrospace Corp., 28 N.Y.2d 136, 145 (1971) (“The proper measure of damages for breach of contract is determined by the loss sustained or gain prevented at the time and place of breach.”); Orange & Rockland Util., Inc. v. New England Petroleum Corp., 60 A.D.2d 233, 236 (1st Dep’t 1977) (New York law “measures damages from the time of the breach and it does not inquire into later events” (internal quotation marks omitted)). Conor issued its purported cancellation notice effective December 31, 2007 only after it had improperly discontinued the manufacture of Costar on May 6, 2007. As of the time of Conor’s breach, therefore, the Agreement would not have expired 77 R. 44, at n.5. until December 31, 2008, not including the four-month sell-off period into April 2009. Accordingly, Biotronik's damages should include the time period from the breach through April 2009. CONCLUSION For the reasons stated above, Biotronik respectfully requests that this Court reverse the Order below, and remand this case for trial. Dated: May 21, 2013 Respectfully Submitted, Ronald S. Rauchberg Anna G. Kaminska PROSKAUER ROSE LLP 11 Times Square New York, NY 10036 212-969-3000 Bertrand C. Sellier VANDENBERG k, FELIU LLP 60 East 42nd Street, 51st Floor New York, NY 10165 (212) 763-6833 Attorneys for Appellant Biotronik, A. G. 38