Court of Chancery Finds Company Liable for Breach of Contract for Failing to Employ “Diligent Efforts”
By Ronnie L. White II, Greensfelder, Hemker & Gale, P.C.
In BTG Int’l, Inc. v. Wellstat Therapeutics Corp., C.A. No. CV 12562-VCL, 2017 WL 4151172 (Del. Ch. Sept. 19, 2017), the Delaware Court of Chancery provided a thorough review and instructive analysis of the elements in a breach of contract claim and the proper measure of damages when it determined whether a pharmaceutical company breached its obligation to employ “diligent efforts” in promoting, distributing, and selling a prescription drug for another pharmaceutical company. After developing a new drug, Wellstat Therapeutics Corp. (Wellstat), entered into a distribution agreement with BTG International, Inc. (BTG), pursuant to which BTG agreed to use “diligent efforts” to market and sell Wellstat’s new product. The court held that BTG failed to satisfy the contractually defined “diligent efforts” standard and breached the distribution agreement by focusing the majority of its marketing efforts on an unrelated product and failing to dedicate sufficient manpower and financial resources to Wellstat’s drug. This opinion serves as a useful tool for lawyers advising clients about the implications of entering into similar agreements that set forth specific standards for performance.
Preliminary Injunction Granted Against Non-signatories to a Franchise Agreement
By Dominique de Vastey, Greensfelder, Hemker, & Gale, P.C.
In The Maids Int’l, Inc. v. Maids on Call, LLC, No. 8:17CV208, 2017 WL 4277146 (D. Neb. Sept. 25, 2017), the U.S. District Court for the District of Nebraska held that non-signatories to franchise agreements could be bound by non-compete and non-solicitation provisions in those agreements. Because a newly created cleaning company was closely connected to the former owners of a competing cleaning company franchisee, the court found that both the former owners and the new company could be enjoined from competing against the former owners’ franchisor based on the former owners’ restrictive covenants. In reaching this conclusion, the court noted that the new cleaning company and the former competing franchisee owners used the same email address, operated the same vehicles, and called upon the same customers. In addition, the former owners of the competing franchisee served as the website administrator for the new company, sometimes worked for the new company, and solicited business from its former franchise. Given this conduct, the court found that the new company and the former owners of a competing franchise were so aligned that the new company was in privity of contract with the competing franchisor so as to be bound by the former franchisee owners’ restrictive covenants. This decision serves as a cautionary tale for lawyers advising clients with respect to certain rights and obligations under franchise agreements.
United States Court of Appeals Affirms Sanctions for One-Day-Late Discovery Responses
By Ann Marie Fitzpatrick, Greensfelder, Hemker & Gale, P.C.
In Wine & Canvas Dev., LLC v. Muylle, 868 F.3d 534 (7th Cir. 2017), the U.S. Court of Appeals for the Seventh Circuit affirmed sanctions issued by a district court against a plaintiff for serving its discovery responses one day after they were due. Although the punishment seems harsh, it is notable that the plaintiff’s discovery responses were the subject of multiple extensions of time and a court order compelling the responses. Citing its previous decision, Raymond v. Ameritech Corp., 442 F.3d 600, 605 (7th Cir. 2006), the 7th Circuit held that the sanctions were reasonable and related to the costs incurred by the defendant in bringing its prior motion to compel. In Raymond, the court explained that “Rule 6(b) . . . clearly gives both the authority to establish deadlines and the discretion to enforce them.” The Muylle decision serves as a reminder to all lawyers of the broad discretion federal district courts possess and that deadlines should be taken seriously.