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Lesh v. EV3, Inc.

Superior Court of Delaware, New Castle

August 29, 2013

MICHAEL LESH, M.D. and ERIK VAN DER BURG, acting jointly as the Shareholder Representatives for former shareholders of Appriva Medical, Inc., Plaintiffs,
v.
EV3, INC., Defendant.

Date Submitted: June 20, 2013.

On Defendant's Renewed Motion for Judgment as a Matter of Law.

On Defendant's Motion for New Trial or Remittitur.

Jon E. Abramczyk, Esq., Matthew R. Clark, Esq., Morris of Nichols, Arsht & Tunnell, LLP, Wilmington, Delaware and Jay Lefkowitz, Esq., Eric F. Leon, Esq., John Del Monaco, Esq., of Kirkland & Ellis, LLP, New York, New York and Robert A. Goodin, Esq., Francine T. Radford, of Goodin, MacBride, Squeri, Day & Lamprey, LLP, San Francisco, California. Attorneys for Plaintiffs.

Matt Neiderman, Esq., Benjamin A. Smyth, Esq. of Duane Morris, LLP, Wilmington, Delaware and Jeffrey J. Bouslog, Esq., Bret A. Puls, Esq., Dennis E. Hansen, Esq., Cynthia S. Wingert, Esq. of Oppenheimer, Wolff & Donnelly, LLP, Minneapolis, Minnesota and Matthew A. Taylor, Esq., James L. Beausoleil, Jr., Esq., Seth A. Goldberg, Esq. of Duane Morris, LLP, Philadelphia, Pennsylvania. Attorneys for Defendant ev3, Inc.

Scott, J.

Introduction

Before the Court is Defendant ev3, Inc.'s ("ev3") renewed motion for judgment as a matter of law and motion for new trial, or remittitur. The Court has reviewed the parties' submissions and, for the following reasons, ev3's motions are DENIED.

Background

Plaintiffs, former Appriva, Inc. ("Appriva") shareholders ("Plaintiffs"), and ev3 entered into a merger agreement ("Merger Agreement") in which ev3 acquired a medical device from Appriva and agreed to make certain payments to the Appriva shareholders ("Milestone payments") which were dependent on certain regulatory events ("Milestones").[1] The Merger Agreement required ev3 to fund and pursue the Milestones "notwithstanding any provision to the contrary […] at its sole discretion, to be exercised in good faith."[2] The Merger Agreement also incorporated a March 15, 2002 Letter of Intent ("Letter of Intent"), which stated that ev3 would "commit to funding based on the projections prepared by its management to ensure that there is sufficient capital to achieve the performance milestones […]" When the Milestones were not achieved by ev3, Plaintiffs filed suit for breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent inducement, and violations of the California Corporations Code.

Prior to the trial, ev3 submitted various motions in limine, including motions to exclude evidence relating to the funding provision of the Letter of Intent and pre-merger communications contradicting the plain language of the Merger Agreement. The Court ruled that Section 9.6 of the Merger Agreement, the provision concerning ev3's obligations to fund and pursue the Milestones, was unambiguous and that parol evidence would be inadmissible to vary its terms. The Court also permitted evidence and argument relating to the funding provision of the March 15, 2002 Letter of Intent ("Letter of Intent").

After a nine-day trial, the jury rendered a verdict finding that ev3 breached the Merger Agreement and that Plaintiffs were entitled to $175 million in damages, which represented the sum of the four Milestone payments. The jury found that ev3 did not commit fraud. After the close of the evidence, ev3 submitted a motion for judgment as a matter of law. The Court took the matter under advisement pursuant to Rule 50 and submitted the case to the jury without ruling on the motion. ev3 then submitted a renewed motion for judgment as a matter of law and a motion for new trial or, in the alternative, remittitur.

Discussion

I. DEFENDANT'S RENEWED MOTION FOR JUDGMENT AS A MATTER OF LAW

Superior Court Rule 50 sets forth the proper procedure for filing a motion for judgment as a matter of law. Under Rule 50(a)(1)

If during a trial by jury a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue, the Court may determine the issue against the party and may grant a motion for judgment as a matter of law against that party with respect to a claim or defense that cannot under the controlling law be maintained or defeated without a favorable finding on that issue.

The Court must view the evidence in the light most favorable to the nonmoving party and determine whether the evidence and all reasonable inferences justify a jury verdict in favor of the plaintiff.[3]

A party may file a motion for judgment as a matter of law any time before the case is submitted to the jury, but that motion "shall specify the judgment sought and the law and the facts on which the moving party is entitled to the judgment."[4]Where a motion is not granted, a party may file a renewed motion for judgment as a matter of law within 10 days after the judgment.[5] A "renewed motion" should actually renew a prior motion for JML.[6] In other words, the moving party cannot present new legal theories or arguments not advanced in the original motion.[7] ev3 moved for judgment as a matter of law on all counts contained in Plaintiffs' Amendment Complaint, but only specifically addressed three of plaintiff's claims: the common law fraud claim, the claim for breach of Milestone 4, and the claim for violation of the California securities laws.

Thereafter, ev3 filed a renewed motion for judgment as a matter of law on all claims. However, ev3 specifically argued that there was no basis for the jury to have found that ev3 failed to act with good faith in regard to Milestone 1, that Plaintiffs failed to show that the failure to achieve Milestone 2 was based on anything other than a reasonable business decision, and that there was no evidence to show that ev3's actions proximately caused its failure to achieve Milestones 3 and 4.

As stated above, ev3 cannot present new arguments in its renewed motion for judgment as a matter of law that were not specifically argued in the original motion. ev3 did not address Milestone 2, Milestone 3, or the good faith claim relating to Milestone 1 in the original motion Therefore, those arguments have been waived. Furthermore, it is not necessary to address the fraud claim since the jury found for ev3 on that claim or the claims based on the California Corporations Code since Plaintiffs dismissed that claim. The only remaining argument to address is ev3's argument based on Milestone 4.

ev3 argues that Plaintiffs failed to meet their burden to prove that ev3's failure to act in good faith in pursuing and funding Milestone 1, which involved developing and conducting a trial for the medical device, was the proximate cause of the failure to achieve Milestone 4, which was Premarket Approval ("PMA") of the device by the Food & Drug Administration ("FDA"). Under Restatement (Second) of Contracts § 245, "[w]here a party's breach by non-performance contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused."[8] Comment b to §245 states "[a]lthough it is implicit in the rule that the condition has not occurred, it is not necessary to show that it would have occurred but for the lack of cooperation. It is only required that the breach have contributed materially to the non-occurrence."[9] Plaintiffs introduced evidence that Milestone 4 was contingent upon the submission of the IDE Application, which was the basis for Milestone 1. Although ev3 is correct that is not possible to predict with certainty that Milestone 4 would have been achieved, once Plaintiff showed that ev3 did not pursue Milestone 1 in good faith, Plaintiffs only had to show that that breach materially contributed to the non-occurrence of Milestone 4.

II. DEFENDANT'S MOTION FOR NEW TRIAL OR REMITTITUR[10]

A. Standard of Review

A motion for new trial may be joined with a motion for judgment as a matter of law.[11] "A new trial may be granted as to all or any of the parties and on all or part of the issues in an action in which there has been a trial for any of the reasons for which new trial have heretofore been granted in the Superior Court."[12] A jury's verdict should be set aside only when its "manifestly and palpably against the weight of the evidence, or for some reason, justice would miscarry if the verdict were allowed to stand."[13] The Court's duty "when considering a motion for a new trial, the Court weighs the evidence in order to determine if the verdict is one which a reasonably prudent jury would have reached."[14]

B. Language from Letter of Intent

Defendant argues that the Court should grant a new trial because the Court allowed Plaintiffs to introduce evidence and argument regarding the funding provision in the Letter of Intent. The Court allowed Plaintiffs to introduce the funding provision of the letter of intent because the Letter of Intent was expressly incorporated into the Merger Agreement via Section 16.9; therefore, it was not barred by the parol evidence rule. The funding provision of the letter intent states that "ev3 will commit to funding based on the projections prepared by its management to ensure that there is sufficient capital to achieve the performance milestones […]"[15] Section 16.9 states

This Agreement contains the entire understanding among the parties hereto with respect to the transactions contemplated hereby and supersede and replace all prior and contemporaneous agreements and understandings, oral or written, with regard to such transactions, other than the Letter of Intent, dated March 15, 2001, as amended. […][16]

"The parol evidence rule bars 'evidence of additional terms to a written contract, when that contract is a complete integration of the agreement of the parties.'"[17] Such evidence "'may not be used to interpret a contract or search for the parties' intentions where the contract is clear and unambiguous on its face.'"[18]However, where a written contract "expressly recognizes the existence of other agreements between parties, these may be shown."[19] Here, the parties expressly contracted to include the Letter of Intent into the Merger Agreement. Therefore, the Letter of Intent and its funding provision did not constitute additional terms and testimony related to them was not parol evidence.

Defendant argues that the funding provision was "expressly nonbinding" based on the fact that the funding provision in the Merger Agreement, Section 9.6, which stated that ev3's obligation to provide funding "shall be at [ev3's] sole discretion, to be exercised in good faith" was to apply "[n]otwithstanding any other provision to the contrary".[20] The funding provision in the Letter of Intent requires ev3 to carry out its obligation to fund the Milestones based on projections by management. The funding provision in the Merger Agreement requires ev3 to carry out its obligation to fund the Milestones based on its "sole discretion, to be exercised in good faith." The funding provision in the Letter of Intent does not contradict the good faith standard in Section 9.6 of the Merger Agreement.

C. Pre-Contractual Statements and Rebuttal Evidence

ev3 argues that the Court wrongfully permitted Plaintiffs to introduce evidence and argument regarding pre-contractual statements in support of their fraud claim without allowing ev3 to rebut that evidence.[21] ev3 further argues that allowing evidence of the fraud claim created "prejudicial spillover" and warrants a new trial on that basis.[22]

The pre-contractual statements introduced by Plaintiffs were admissible because they related to the representations and reliance required to support Plaintiffs' fraud claim and not to contractual construction. Thus, the statements were not barred by the parol evidence rule.[23] ev3's argument that it was unable to introduce evidence to rebut the pre-contractual statements is without merit since those statements related to fraud and the jury found in ev3's favor on that claim.

D. Instruction regarding the Meaning of Good Faith

ev3 also moves for new trial based on the Court's purported failure to adequately instruct the jury on the meaning of "good faith." The Court instructed the jury that

Good Faith is a state of mind consisting in:

(1) Honesty in belief or purpose.
(2) Faithfulness to one's duty or obligation.
(3) Observance of reasonable commercial standards of fair dealing in a given trade or business; or
(4) Absence of intent to defraud or to seek unconscionable advantage.
Good faith performance of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the party.[24]

Although ev3 requested that the Court include additional language, ev3 ultimately accepted the language in the Court's jury instruction on "good faith."[25]Therefore, ev3 has waived its opportunity to challenge the language in the instruction. Nevertheless, ev3 did challenge the Court's refusal to include the additional language involving bad faith and a rule stating that party has a right to include its own financial considerations when exercising good faith.

Jury instructions "need not be perfect [] and a party does not have a right to a particular instruction in a particular form."[26] Instead, the trial court is only required to provide jury instructions that "give a correct statement of the substance of the law [which are] 'reasonably informative and not misleading.'"[27] The Court should first rely on the pattern jury instructions; although, such reliance is not dispositive because the instructions may require modification based on the law and facts of the case.[28] However, if the jury instructions, viewed as a whole, are reasonably informative and not misleading, those instructions will be sufficient.[29]

The Court is not persuaded by ev3's argument that the instruction should have included a rule that "a party is entitled to take into account their own financial considerations in exercising rights in good faith."[30] The Court's instruction follows the pattern jury instructions and is "reasonable informative and not misleading." Furthermore, it is consistent with the Chancery Court's rationale in Policemen's Annuity & Benefit Fund of Chicago v. DV Realty Advisors LLC, 2012 WL 3548206 (Del. Ch. Aug. 16, 2012), a case in which the court was required to determine "some rubric" to define "good faith" in the absence of the parties' express definition by which to define a contractual, discretionary "good faith" standard.[31]

The Court also notes that no error was committed when it allowed Plaintiffs to quote Mr. Spencer's, ev3's founder, deposition testimony regarding his definition of good faith in the opening statement, despite later ruling that it was inadmissible.[32] The Court informed the jury in the beginning of trial and before deliberation that statements that an attorney makes in opening or closing arguments are not evidence.

E. Special Verdict Form

The Special Verdict Form was adapted from the Model Jury Instructions and required the jury to answer whether "ev3 breach[ed] the Merger Agreement" and whether "the Defendant's breach was the proximate cause of some or all of the damages to plaintiffs." Ev3 argues that the form failed to instruct the jury to find breach and causation independently for each Milestone. The Court's use of the model jury instructions as the basis for the special verdict form did not constitute prejudicial error.[33]

Conclusion

For the foregoing reasons, Defendant's renewed motion for judgment of a matter of law and motion for new trial or remittitur are DENIED and IT IS SO ORDERED.


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