G. David Jang v. Boston Scientific Scimed, Inc. et al
Filing
73
MEMORANDUM OPINION. Signed by Judge Sue L. Robinson on 9/30/2011. (nmf)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
G. DAVID JANG, M.D.,
Plaintiff,
v.
BOSTON SCIENTIFIC SCIMED,
INC., a corporation; and
BOSTON SCIENTIFIC
CORPORATION, a corporation,
Defendants.
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) Civ. No. 10-681-SLR
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Tara M. DiRocco, Esquire of Cross & Simon LLC, Wilmington, Delaware. Counsel for
Plaintiff. Of Counsel: Jed I. Bergman, Esquire and Marc E. Kasowitz, Esquire of
Kasowitz, Benson, Torres & Friedman LLP.
Karen L. Pascale, Esquire of Young Conaway Stargatt & Taylor LLP, Wilmington,
Delaware. Counsel for Defendants. Of Counsel: Edward Han, Esquire, John Nilsson,
Esquire, and Matthew M. Wolf, Esquire of Arnold & Porter LLP.
MEMORANDUM OPINION
Dated: September 30,2011
Wilmington, Delaware
R~~ge
I. INTRODUCTION
Plaintiff G. David Jang, M.D. ("plaintiff') filed a complaint in the United States
District Court for the Central District of California on May 25, 2010 against Boston
Scientific Scimed, Inc. ("Scimed") and Boston Scientific Corporation ("BSC")
(collectively, "defendants") alleging breach of contract, fiduciary duty, and implied
covenant of good faith and fair dealing, and seeking enforcement of an equitable lien.
(0.1. 1) The case was transferred to this court on August 9,2010. (0.1. 17) Currently
before the court is defendants' motion for judgment on the pleadings pursuant to
Federal Rule of Civil Procedure 12(c), and cross-motion to stay discovery pending
resolution of Rule 12(c) motions. (0.1. 31,61) Also before the court is plaintiffs Rule
12(c) motion for judgment on the pleadings as to liability on counts I and II of the
complaint, and motion to compel discovery pursuant to Rule 37. (0.1. 49, 57) The court
has jurisdiction over this case pursuant to 28 U.S.C. § 1332(a). For the reasons that
follow, the court grants defendants' motion for judgment on the pleadings.
II. BACKGROUND
Plaintiff is a medical doctor and a citizen of California. (0.1. 1 at ~ 1) Plaintiff is
the inventor of, inter alia, the intravascular stent covered by United States Patent No.
5,922,021 ("the '021 patent"). (Id. at ~ 5) Scimed is a Minnesota corporation with its
headquarters and principal place of business in Maple Grove, Minnesota. (Id. at ~ 2)
BSC is a Delaware corporation with its headquarters and principal place of business in
Natick, Massachusetts. (Id.)
Plaintiff designed and developed stent technology, certain of which Scimed
desired to acquire. (0.1. 47, ex. A at 56) On June 3, 2002, plaintiff and Scimed entered
into an assignment agreement ("the Agreement") in which plaintiff agreed to assign
numerous patents,1 including the '021 patent (collectively, "the Jang stent patents"), to
Scimed. (0.1. 1 at 11 7) Plaintiff and BSC entered into a part time employment
arrangement to facilitate the development and commercialization of the stent
technology.2 (0.1. 47, ex. A) Scimed agreed to pay plaintiff $50 million at closing and
up to an additional $110 million depending upon the occurrence of various
contingencies. (0.1. 1 at 11 7) One such contingency involves the outcome of any
litigation Scimed may commence against a third party infringer of any of the assigned
Jang stent patents. (Id. at 11 8) The Agreement provides that plaintiff is entitled to ten
percent of Scimed's recovery from a third party infringer. (Id.) Plaintiff alleges that he is
entitled to an additional $50 million if Scimed's sales or a third party infringer's sales of
stents, covered by any of the Jang stent patents during a five year period commencing
upon the first U.S. sale, equals or exceeds $2.5 billion. (Id. at 11 9) The Agreement
provides that it shall be governed and construed in accordance with the law of the
Commonwealth of Massachusetts. (0.1. 47, ex. A at § 9.7)
On January 12, 2003, Cordis Corporation ("Cordis") sued defendants for patent
infringement in this court. (0.1. 1 at 11 10) (Civ. No. 03-027) Defendants filed a
counterclaim against Cordis on March 5, 2003 seeking recovery for infringement of the
1United States Patent Numbers: 5,922,021; 5,954,743; 6,039,756; 6,152,957;
6,235,053; 6,241,760; 6,409,761; 6,770,088; 6,783,543; 7,081,130; 7,326,241. (0.1.
47, ex. C at § 1.3)
2The court is unable to locate the employment agreement, exhibit 4.2(g) of the
Agreement, entered into by Jang and BSC.
2
'021 patent. (0.1. 1 at ~ 10) A jury returned a verdict on July 1,2005 in favor of
defendants, finding that the '021 patent was valid and that Cordis had infringed it. (Id.
at ~ 11) The United States Court of Appeals for the Federal Circuit affirmed the jury's
verdict on March 31, 2009. Ud.); Cordis Corp. v. Boston Scientific Corp., 561 F.3d 1319
(Fed. Cir. 2009). The case was remanded to this court for a trial on damages. (ld. at ~
11) On October 17, 2008, Cordis filed a second suit against defendants for patent
infringement, Civ. No. 08-779. (ld. at ~ 10)
On October 5, 2009, plaintiff gave notice to defendants that he was claiming a
lien on: (1) all rights of BSC and/or Scimed to recover from Cordis for infringement of
the '021 patent in Civ. No. 03-027; and (2) all consideration received or received in the
future by BSC and/or Scimed from Cordis, Johnson & Johnson, Inc. ("J&J"), or any
other person or entity in Civ. No. 03-027.3 (ld. at ~ 12) On February 1, 2010, before the
damages trial, BSC settled Civ. No. 03-027. (ld. at ~ 13) BSC: (1) granted Cordis and
J&J fully paid-up, retroactive, perpetual, and irrevocable licenses to eleven Jang stent
patents, including the '021 patent which Cordis infringed; (2) stipulated to entry of
judgment in Civ. No. 03-027 and Civ. No. 08-779 in favor of J&J and paid $1.75 billion;
and (3) released all pending claims against Cordis and J&J in Civ. No. 03-027 for
infringement of any of the Jang stent patents, including the '021 patent. (0.1. 47, ex. C
at § 6.1) Cordis and J&J: (1) granted defendants fully paid-up, retroactive, perpetual,
3Johnson
& Johnson, Inc. and Cordis Corporation collectively brought suit
against defendants in Civ. No. 03-027. (0.1. 46 at 1)
3
and irrevocable licenses to the Gray patents owned by Cordis and J&J;4 (2) granted
defendants fully paid-up, retroactive, perpetual, and irrevocable licenses to the Palmaz
patents;5 and (3) released any pending claims against defendants for infringement of
these patents in both Civ. Nos. 03-027 and 08-779. (D.1. 1 at,-r 14; D.1. 47, ex. Cat §
6.2)
In the complaint at bar, plaintiff seeks: (1) $100 million, consisting of a ten
percent share of the Civ. No. 03-027 settlement capped at $50 million for the recovery
of damages for infringement and $50 million from infringing sales allegedly reaching
$2.5 billion; (2) $100 million, consisting of $50 million for the irrevocable licenses to the
eleven Jang stent patents granted to Cordis in addition to $50 million from the licensing
consideration allegedly reaching $2.5 billion; (3) "an amount not less than $100 million"
for breach of the implied covenant of good faith and fair dealing; (4) "an amount not
less than $100 million" for breach offiduciary duty; and (5) foreclosure of Jang's lien on
the licenses to the Gray and Palmaz patents or, in the alternative, $100 million in
damages against defendants for settling Civ. No. 03-027 without clearing plaintiff's lien.
(D.1. 1 at 6-11)
On February 4, 2010, plaintiff wrote to defendants asking whether defendants
intended to make any payments obligated to plaintiff under the Agreement. (Id. at,-r 18)
Defendants responded on February 16,2010 denying any obligation under the
4United States Patent Numbers: 5,895,406; 5,938,682; 5,980,553; and
6,162,243. (D.I. 47, ex. Cat § 1.5)
5United States Patent Numbers: 4,733,665; 4,739,762; 4,776,337; 5,102,417;
5,195,984; and 5,902,332. (D.1. 47, ex. Cat § 1.5)
4
Agreement to pay plaintiff in virtue of the settlement between defendants and Cordis.
(ld. at ~ 19)
III. STANDARD OF REVIEW
A motion under Rule 12(c) is reviewed under the same standard as a motion to
dismiss under Rule 12(b)(6). Turbe v. Government of the Virgin Islands, 938 F.2d 427,
428 (3d Cir. 1991). The court must accept all factual allegations in a complaint as true
and take them in the light most favorable to plaintiff. See Erickson v. Pardus, 551 U.S.
89,94 (2007); Christopher v. Harbury, 536 U.S. 403, 406 (2002). A complaint must
contain "a short and plain statement of the claim showing that the pleader is entitled to
relief, in order to give the defendant fair notice of what the ... claim is and the grounds
upon which it rests." Bell At!. Corp. v. Twombly, 550 U.S. 544, 545 (2007) (interpreting
Fed.R.Civ.P. 8(a)) (internal quotations omitted). A complaint does not need detailed
factual allegations; however, "a plaintiff's obligation to provide the 'grounds' of his
entitle[ment] to relief requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do." (ld. at 545) (alteration in
original) (citation omitted). The
'T~actual
allegations must be enough to raise a right to
relief above the speculative level on the assumption that all of the complaint's
allegations are true." (ld.) Furthermore, "[w]hen there are well-ple[d] factual allegations,
a court should assume their veracity and then determine whether they plausibly give rise
to an entitlement to relief." Ashcroft v. Iqbal, -
U.S. -,129 S.Ct. 1937, 1950 (2009).
Such a determination is a context-specific task requiring the court "to draw on its judicial
experience and common sense." (ld.)
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IV. DISCUSSION
A. Legal Standard
Under Massachusetts law, contract interpretation is a question of law unless the
contract is ambiguous. Nicolaci v. Anapol, 387 F.3d 21, 26 (1st Cir. 2004). A contract is
ambiguous if "an agreement's terms are inconsistent on their face or where the
phraseology can support reasonable differences of opinion as to the meaning of the
words employed and obligations undertaken." (Id. at 27) (quoting Lohnes v. Level 3
Comms., Inc., 272 F.3d 49,53 (1st Cir. 2001». Whether a contract term is ambiguous is
a question of law for the court. (ld. at 27) Ambiguity is not created because parties
disagree about the meaning of the contract. (ld.) In interpreting contract language, the
contract is considered as a whole. (ld.) In interpreting the contract, "courts should not
attempt to accomplish by judicial fiat what [a party] neglected to achieve contractually."
Federal Deposit Ins. Corp. v. Singh, 977 F.2d 18, 23 (1 st Cir. 1992). Courts are not in
the position to "rewrite contracts freely entered into between sophisticated business
entities." AccuSoft Corp. v. Palo, 237 F.3d 31, 41 (1st Cir. 2001) (quoting Mathewson
Corp. v. Allied Marine Industries, Inc., 827 F.2d 850, 856 (1st Cir. 1987).
B. Breach of Contract Claims
Plaintiff claims breach of contract in counts one and two arising from defendants'
settlement of Civ. Nos. 03-027 and 08-779 with Cordis. As described above, defendants
paid Cordis $1.75 billion; granted Cordis fully-paid up, retroactive, perpetual and
irrevocable licenses to eleven Jang stent patents; and released all infringement claims
against Cordis. (0.1. 1 at 1113) Cordis granted defendants fully-paid up, retroactive,
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perpetual and irrevocable licenses to the Gray and Palmaz patents and released
defendants of any claims for infringing those patents. (Id. at,-r 14) In short, the
settlement involved a mutual exchange of technology and a payment of $1.75 billion
from defendants to Cordis. In count one of the complaint, plaintiff alleges Cordis'
infringement of the '021 patent is worth a benefit of at least $2.5 billion and that
defendants are obligated to pay $50 million for recovery of damages. (Jd. at ,-r 22)
Plaintiff further contends that defendants are obligated to pay an additional $50 million
from Cordis' infringing sales of the '021 patent reaching $2.5 billion. (ld.) In count two,
plaintiff alleges that defendants are obligated to pay $50 million for consideration
received in the fully-paid up, retroactive, perpetual and irrevocable licenses to eleven
Jang stent patents. (Id. at ,-r 26) In addition, plaintiff contends that defendants are
obligated to pay $50 million for the license consideration allegedly reaching $2.5 billion.
(ld.) With respect to both counts, the question at bar is whether the Agreement
unambiguously provides that plaintiff can recover damages based upon defendants' inkind, non-monetary settlement with Cordis. 6
Section 7.3(c) of the Agreement states:
Any recovery of damages by Scimed in a suit brought
pursuant to the provisions of this section 7.3 shall be applied
first in satisfaction of any unreimbursed expenses and legal
fees of Scimed relating to the suit or settlement thereof. The
61n plaintiff's Rule 12(c) motion, plaintiff argues breach of contract due to
defendants' violation of the anti-assignment clause, § 9.4 of the Agreement. (0.1. 50 at
5) As this assertion is not in the complaint, the court will not discuss it here.
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balance, if any, remaining after Scimed has been
compensated for expenses shall be retained by Scimed;
provided that any recovery of ordinary damages based upon
such infringement shall be deemed to be "Net Sales" and
upon receipt of such recovery amount, Scimed shall pay
Jang as additional Earn Out from such recovery amount an
amount calculated in accordance with Section 3.1 (c) to
reimburse Jang for payments due in respect of lost sales of
Contingent Payment Products. Any such recovery shall
count towards Net Sales as of the date of the infringement for
purposes of Section 3.1 (d). The allocation described in this
Section 7.3(c) shall not apply as to special or punitive
damages.
(0.1. 47, ex. A) (emphasis added)
Plaintiff asserts in his motion that "if BSC had achieved a direct cash settlement
recovery, they would clearly be subject to § 7.3(c)." (0.1. 46 at 9) "Instead, BSC opted
to offset the value of that recovery against its own liability to J&J, and to recover licenses
to two J&J patents." (/d.) According to plaintiff, defendants worked around the
settlement to avoid a cash settlement recovery by acquiring and granting licenses to
Cordis.
The language in § 7.3(c), such as "the balance," "upon receipt," and "Scimed shall
pay as additional Earn Out from such recovery amount an amount calculated," refers to
cash received or monetary profits. (0.1. 47, ex. A) Defendants did not "receive" any
monetary payments. Since no money was received, there was no "balance" to be
further processed according to § 7.3(c). On its face then, the Agreement does not
contemplate payments to plaintiff based on the "non-monetary value" of the Jang stent
patents. 7
7Terms not used in § 7.3(c) include "benefit," "value," or "consideration received."
8
In his motion, plaintiff argues that "damages" are broadly defined under
Massachusetts case law and allows for recovery from license considerations and sales
profits. The cited cases, however, are distinguishable from the facts at bar. In Wyman
Gordon Company v. Liberty Mutual Fire Insurance Company, Civ. No. 96-2208A, 2000
WL 34024139, at *7 (Mass. Super. July 14, 2000), the court stated that the term
"damages has not been read literally by Massachusetts courts." That case, however,
was a class action case couched with an ERISA claim that entitled plaintiffs to recover
reasonable attorney fees as damages. (Id. at *7) In Hazen Paper Company v. United
States Fidelity and Guaranty Company, 555 N.E.2d 576, 583 (Mass. 1990), the court
ruled "damages includes environmental clean-up costs." In that case, "damages" was
used in a rational, common sense manner because the language in the policy was
rendered ambiguous. (Id. at 583)
By contrast, the language in the Agreement is not ambiguous, as § 7.3(c)
describes the apportionment of monetary "balance(s)" between parties. The court is
unable to accomplish by judicial fiat what plaintiff neglected to achieve contractually.
Federal Deposit Ins. Corp., 977 F.2d at 23. Nor is this court in the position to "rewrite
contracts freely entered into between sophisticated business entities." AccuSoft Corp.,
237 F.3d at 41 (quoting Mathewson Corp. v. Allied Marine Industries, Inc., 827 F.2d 850,
856 (1st Cir. 1987».
Plaintiff also claims that defendants are obligated to pay $50 million from Cordis'
infringing sales after its sales amounts allegedly reached $2.5 billion. (0.1. 1 at ~ 22)
Section 3.1 (d) of the Agreement reads:
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In addition to the contingent payment due Jang pursuant to
section 3.1 (c), Scimed shall pay to Jang as additional
consideration for the purchase of the Assets, an additional
purchase price amount equal to $50,000,000 of the
aggregate Net Sales of Contingent Payment Products8 on a
worldwide basis during the period commencing on the date of
the First Commercial Sale of Contingent Payment Products in
the United States and ending at 11 :59 PM on the fifth
anniversary of the date of the First Commercial Sale of
Contingent Payment Products in the United States (the
Performance Period) equals or exceeds $2,500,000,000.
(0.1.47, ex. A) If the Contingent Payment Products covered by any of the eleven Jang
stent patents (including the '021 patent) equals or exceeds $2.5 billion, defendants are
obligated to pay plaintiff $50 million for breach of contract. (0.1. 47, ex. A § 3.1 (d)) If the
Contingent Payment Products are not covered by any of the Jang stent patents, then
defendants did not breach the contract and are not obligated to pay plaintiff. (ld.)
Plaintiffs complaint makes the general allegation that infringing sales by Cordis
reached $2.5 billion. (0.1. 1 at 1[22) There is no mention of Contingent Payment
Product sales by third parties in any section of the Agreement. (0.1. 33, ex. A) In his
motion, plaintiff argues that "sales by an infringing third party reduce BSC's potential
sales yet do not impose a separate requirement that Jang prove BSC's actual lost
sales." (0.1. 50 at 14) Plaintiff does not give any specific details as to the products sold
or covered by the eleven Jang stent patents, nor does he correlate any such products to
8"Contingent Payment Products means any stent, including any stent pre
mounted on a delivery system or any stent with coatings, coverings or other features,
manufactured by or for Scimed or any of its Affiliates the development,
manufacture, use, or sale of which is covered by one or more Valid Claims of the
Patents in the jurisdiction in which such stent is manufactured or sold or which, but for
the assignment made pursuant to this Agreement, would infringe one or more Valid
Claims of the Patents." (0.1. 47, ex. A) (emphasis added)
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any particular patent(s).9 Still, defendants have not received any cash payments for any
sales and plaintiff does not so assert in the complaint. Moreover, plaintiff has previously
received $10 million from defendants for failure to commercialize Jang stent patents.
(0.1. 1 at ~ 8) For these reasons, the claims should be dismissed as unactionable on the
face of the Agreement.
C. Breach of Implied Covenant of Good Faith and Fair Dealing
Plaintiff claims the manner in which defendants structured the settlement with
Cordis violated the covenant of good faith and fair dealing by depriving plaintiff of the
benefits to which he should have been entitled under the Agreement. Under
Massachusetts law, "every contract is subject to an implied covenant of good-faith and
fail dealing." Anthony's Pier Four, Inc. v. HBC Assocs., 583 N.E.2d 806, 821 (Mass.
1991). The covenant provides that "neither party shall do anything that will have the
effect of destroying or injuring the right of the other party to receive the fruits of the
contract." (Id. at 820) (quoting Uproar Co. v. National Broadcasting Co., 81 F.2d 373,
377 (1st Cir. 1936)). There can be no breach of covenant of good faith and fair dealing,
however, in the absence of a breach of contract. Epstein, Becker & Green, P. C. v. Atlas
Venture, Civ. No. 02-5445, 2003 Mass. Super. LEXIS 84, at *14 (Mass. Super. Mar. 24,
2003); Dimaio Family Pizza Luncheonette, Inc. v. Charter Oak Fire Ins., 349 F. Supp. 2d
9The United States District Court for the Central District of California previously
ruled defendants have never sold any products covered by plaintiffs' patents. (0.1. 33,
ex. 10) (Civ. No. 05-00426) On appeal, the United States Court of Appeals for the
Federal Circuit ruled there was a lack of proper context for an accurate claim
construction and remanded back for clarification. Jang v. Boston Scientific Corp., 532
F.3d 1330 (Fed. Cir. 2008). The Federal Circuit was unclear as to the effect of claim
construction on the ultimate breach of contract issue. That issue is pending in
California.
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128, 134 (D. Mass. 2004); See a/so AccuSoft Corp. v. Palo, 237 F.3d 31,45 (1st Cir.
2001) ("The requirement of good-faith performance ultimately is circumscribed by the
obligations - the contractual "fruits" - actually contained in the agreement"). As
defendants did not breach the contract, they could not have violated the covenant of
good faith and fair dealing.
D. Breach of Fiduciary Duty
In count four of his complaint, plaintiff claims defendants breached their fiduciary
duties in structuring the settlement with Cordis. Section 9.4, entitled "Independent
Contractors," reads:
Each party represents that it is acting on its own behalf as
an independent contractor and is not acting as an agent
for or on behalf of any third party. This Agreement and the
relations hereby established by and between Jang and
Scimed do not constitute a partnership, joint-venture,
franchise, agency or contract of employment Scimed is
not granted, and shall not exercise, the right or authority
to assume or create any obligation or responsibility on
behalf of or in the name of Jang or its Affiliates.
(0.1. 47, ex. A) (emphasis added) On its face, the language in § 9.4 does not
contemplate any fiduciary duties between plaintiff and defendants. Both parties have
agreed to act on their own behalf and, according to Massachusetts law, "a person who
contracts to perform an act for another, but who is not a fiduciary for the 'other' is an
independent contractor." Bennett Importing Co. v. Continental Airlines, Civ. No. 87
2957-K, 1988 U.S. Dist. LEXIS 19410, at *11 (D. Mass. Dec. 27, 1988). In light of the
fact that no fiduciary duty existed, defendants could not have breached one.
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E. Claim for Relief for Enforcement of Equitable Lien
In count five, plaintiff claims enforcement of an implied or equitable lien on all
rights and considerations of defendants to recover from the '021 patent infringement
action (Civ. No. 03-027), and settlement of said action. (0.1. 1 ~ 39) Under
Massachusetts law, an equitable lien is a "charge upon specific property, entitling the
holder of the lien to have the property applied in equity to the payment of his debt as
against all other claimants of the property." U.S. v. Friedman, 143 F.3d 18,23 (1st Cir.
1998). An equitable lien may "arise out of express agreement by a debtor to pay a
creditor out of a specific fund." (ld. at 23) It may also be "implied and declared by a
court out of general considerations of right and justice." In re Morais, Civ. No. 09-42079,
2009 8ankr. LEXIS 3014, at *10 (8ankr. Mass. Sept. 18, 2009). The party asserting an
equitable lien must establish its validity. In re Linehan, Civ. No. 05-22470, 341 8.R 110,
at *20 (8ankr. Mass. Apr. 28, 2006). Equitable lien is not a cause of action but, instead,
constitutes substitute or compensatory relief, and nothing more. See Oep't of the Army
v. Blue Fox, 525 U.S. 255, 263 (1999); Check v. Kaplan. 280 Mass. 170, 174 (Mass.
1932).
The issue at bar, therefore, is whether the parties to the Agreement expressly or
impliedly created a fund. Plaintiff asserts § 7.3(c) contains language that creates a fund
for damages recovered in infringement suits. (0.1. 46 at 19) The court disagrees.
Recovery owed to plaintiff was to originate from any recovery of damages by defendants
in an infringement suit or settlement. (Id.) There is no language which states the
recovery was to be deposited into any "fund," "account," or "trust." (Id.) Section 7.3(c) is
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not ambiguous on this matter. Moreover, as established above, defendants did not
recover any monetary damages through the settlement with Cordis. Judgment shall be
entered in favor of defendants as to count five.
v.
Conclusion
For the aforementioned reasons, defendants' motion for judgment on the
pleadings is granted. An appropriate order shall issue.
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