Pentech Phar Inc, et al v. Par Phar Inc, et al

Filing 295

MEMORANDUM Opinion and Order Signed by the Honorable Morton Denlow on 2/9/2009:Mailed notice(dmk, )

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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION PENTECH PHARMACEUTICALS, INC., ) an Illinois corporation, ) ) Plaintiff, ) ) v. ) ) PAR PHARMACEUTICAL, INC., a ) Delaware corporation, ) ) Defendant. ) No. 04 C 3149 Magistrate Judge Morton Denlow MEMORANDUM OPINION AND ORDER This case involves a claim for breach of contract and declaratory judgment brought by Plaintiff Pentech Pharmaceuticals, Inc. against Defendant Par Pharmaceutical, Inc., arising out of a contract between them relating to a generic version of Paxil. The Court conducted a bench trial on December 9-12 and 15-16, 2008 and heard closing arguments on December 22, 2008. The Court has considered the testimony of the witnesses who testified at the trial, the deposition excerpts of the witnesses who were not available to testify in person, the parties' trial exhibits, the stipulations made by the parties, the proposed findings and conclusions submitted by the parties, and the closing arguments of counsel. The following constitute the Court's findings of fact and conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure. To the extent certain findings of fact may be deemed conclusions of law, they shall also be considered conclusions of law. Similarly, to the extent matters contained in the conclusions of law may be deemed findings of fact, they shall also be considered findings of fact. I. ISSUES PRESENTED 1. Whether Section 2.3 or Section 5.2 of the First Amendment to the Supply and Marketing Agreement applies to the dispute. ANSWER: 2. Section 2.3. Whether the License and Supply Agreement between Par and GlaxoSmithKline is part of a settlement to which Pentech is a party. ANSWER: 3. Yes. How much is owed to Pentech from Par arising out of the First Amendment to the Supply and Marketing Agreement. ANSWER: 4. $49.5 million. How much prejudgment interest is owed to Pentech from Par. $20,455,476. II. FINDINGS OF FACT ANSWER: A. The Parties 1. Pentech Pharmaceuticals, Inc. ("Pentech" or "Plaintiff") is an Illinois corporation with its principal place of business in Illinois. Pentech is in the business of 2 developing generic pharmaceutical drugs for approval by the United States Food and Drug Administration ("FDA"). Pl. Agreed Facts ¶1, T. 106:22-107:1.1 2. Par Pharmaceutical, Inc. ("Par" or "Defendant") is a Delaware corporation with its principal place of business in New Jersey. Par has, at all relevant times, been engaged in the business of manufacturing, distributing and selling pharmaceutical drugs. Id. ¶2. 3. Par is the operating subsidiary of Par Pharmaceutical Companies, Inc., a publicly traded company listed on the New York Stock Exchange. Id. ¶3. B. Paxil 4. In order to market a pharmaceutical drug in the United States, a company must first obtain FDA approval. Id. ¶4. 5. FDA approval of pharmaceutical drugs is obtained pursuant to a New Drug Application ("NDA") or an Abbreviated New Drug Application ("ANDA"). The NDA process applies to new or "brand" drugs. The ANDA process applies to drugs that are therapeutically equivalent to existing "brand" drugs. Id. ¶5. A copy of the Undisputed Portions Of Plaintiff's Proposed Findings of Fact and Conclusions of Law (hereinafter, "Pl. Agreed Facts ¶__") is Exhibit A to the Undisputed Portions of the Parties' Proposed Findings of Fact and Conclusions of Law, filed in this matter on December 18, 2008. A copy of the Undisputed Portions of Defendant's Proposed Findings of Fact and Conclusions of Law (hereinafter "Def. Agreed Facts ¶ ___") is Exhibit B to the Undisputed Portions of the Parties' Proposed Findings of Fact and Conclusions, filed in this matter on December 18, 2008. References to "T.__" are references to the Transcript of Proceedings in this case. References to "___ Dep." are references to designations in deposition transcripts submitted to the Court. References to "PX__" and "DX__" are references to Plaintiff's and Defendant's trial exhibits, respectively. References to " Dkt.__" are references to docket entries. The Court has provided selected citations to the factual findings. These are intended to be representative citations and there may be other factual support in the record that is not specifically cited. 3 1 6. Since 1993, SmithKline Beecham Corporation and affiliates ("GSK")2 have manufactured and sold paroxetine hydrochloride ("paroxetine") under the trademark "Paxil" for use in the treatment of depression, among other things. GSK owns patent rights concerning Paxil. Paxil was approved by the FDA pursuant to an NDA, and is sold only in tablet form. Id. ¶6. 7. Paxil was enormously successful for GSK, generating billions of dollars of sales in the United States. In 2000, 2001 and 2002, sales of Paxil in the United States by GSK and affiliates were approximately $1.8 billion, $2.2 billion and $2.2 billion, respectively. Id. ¶7 and Def. Agreed Facts ¶4. C. Efforts to Develop a Generic Version of Paxil 8. After GSK launched Paxil, several generic drug companies launched efforts to develop a generic paroxetine competitor to Paxil that would not infringe GSK's patents on Paxil. Pentech was one such company. During the 1990s, Pentech worked to develop a formulation of paroxetine that would be therapeutically equivalent to Paxil, but would not violate the Paxil patents. Pentech worked to develop a formulation of paroxetine that would be different from Paxil in several significant respects. First, although Paxil was a hard tablet, Pentech sought to develop its paroxetine product as a soft capsule. Second, the active ingredient contained in Paxil is a hemihydrate (or "crystalline") form of paroxetine. Pentech sought to develop an "amorphous" (i.e., non-crystalline) form of paroxetine, which Pentech In January 2000, SmithKline Beecham Corp. and Glaxo Wellcome combined to form GlaxoSmithKline. 4 2 believed would not infringe GSK's paroxetine patents. In 1997, Pentech was awarded a patent for a paroxetine composition that differed from GSK's. In 1997, Pentech also submitted applications for two additional patents on paroxetine, and patents on these applications were ultimately awarded in 2003. Pl. Agreed Facts ¶8 and Def. Agreed Facts ¶¶4-5. 9. In March of 2000, Pentech filed an ANDA with the FDA, seeking FDA approval to manufacture and distribute Pentech's form of paroxetine as a generic competitor to Paxil for the treatment of depression. Specifically, Pentech sought FDA permission to manufacture and distribute paroxetine capsules in doses of 10 mg and 20 mg, whereas, Paxil was available in 10 mg, 20 mg, 30 mg and 40 mg dosages. Pl. Agreed Facts ¶9 and Def. Agreed Facts ¶¶6-7. 10. Another company, Apotex, had previously filed an ANDA for a generic tablet Under 21 U.S.C. § 355(j)(5)(B)(iv) ("Hatch-Waxman Act"), version of paroxetine. Pentech's ANDA had "first-to-file" status with respect to a capsule form of generic paroxetine. Pl. Agreed Facts ¶10 and Def. Agreed Facts ¶8. As a consequence of its first-to-file status, Pentech had a potential opportunity to be the sole generic alternative to Paxil on the market for at least 180 days after the FDA approved its ANDA. The filing of this "first filed" ANDA meant, under the rules of the Hatch-Waxman Act, that if Pentech could actually succeed in (i) manufacturing the amorphous capsule product specified in its ANDA, (ii) defeating any patent-infringement challenges from GSK, and (iii) gaining FDA approval, Pentech could be entitled to a 180-day "exclusivity period" after the launch of its 5 product during which no other company would be permitted to bring a similar paroxetine capsule product to market as a generic competitor, although this would not prevent a generic tablet paroxetine competitor from entering before or during this 180-day period. T. 107:17108:5; 124:10-125:6. See, e.g., Mylan Pharm., Inc. v. U.S. Food and Drug Admin., 454 F.3d 270, 273 (4th Cir. 2006) (describing significance of first-to-file status). 11. Because it had not received an "AB rating" from the FDA, without which it could not be automatically substituted by pharmacists for a Paxil prescription, the success of the Pentech capsule product would be largely dependent on Pentech being first to enter the market against GSK's branded Paxil. DX 81 at 3; DX 72 at W462; T. 307:14-21, 308:914. D. The GSK Litigation Against Pentech 12. On May 11, 2000, shortly after Pentech filed its paroxetine ANDA, GSK commenced suit against Pentech in the United States District Court for the Northern District of Illinois, Case No. 00 C 2855. On September 22, 2000, GSK commenced a second suit against Pentech in the same court (Case No. 00 C 5831), and the cases were consolidated. The two cases (collectively, the "GSK Litigation" or "Paragraph IV Litigation") asserted patent infringement claims relating to Pentech's ANDA for paroxetine. In each of the cases, GSK alleged that it was the owner of a patent (Patent Nos. 4,721,723 and 6,080,759), and, in each case, GSK sought orders prohibiting any approval by the FDA of Pentech's paroxetine hydrochloride drug product, and enjoining Pentech from the commercial manufacture, use or sale of its paroxetine hydrochloride drug product. Pl. Agreed Facts ¶11, 6 Def. Agreed Facts ¶9. This was Pentech's first involvement in Paragraph IV litigation. T. 344:20-24. E. Negotiations Leading up to the 2001 Supply and Marketing Agreement 13. Par is a major generic drug company that has marketed a number of highly successful generic drugs. T. 721:15-722:13. As an important part of its business plan, Par frequently entered into agreements with third parties with respect to the development of new products and technologies. Def. Agreed Facts ¶10. In particular, Par was interested in acquiring the opportunity to market a version of paroxetine hydrochloride that would not infringe GSK's patents and which would enable it to enter the generic Paxil market before other generic makers came to market. Pl. Agreed Facts ¶12. In 1998, Par had entered into a contract with Genpharm that gave Par the exclusive right to market a paroxetine tablet that Genpharm was working to develop, should Genpharm ever succeed in developing and obtaining FDA approval for that product. DX 59; T. 648:16-649:13. As explained by Par Chief Executive Officer Scott Tarriff ("Tarriff"), Par had significant experience in partnering with ANDA filers and conducting the related patent litigation, which was an important part of Par's "business plan." PX 43, p. PH 41781; T. 509:25-512:5. Tarriff made it a point to keep himself informed and personally involved in Par's litigation matters. T. 512:6-20. 7 14. By late summer 2001, Pentech was in need of additional cash to fund its substantial ongoing litigation and development expenses. T. 282:9-285:22; DX 62. Pentech sought a partner who could provide financial support for its ANDA. DX 72; T. 128:4129:19; 287:8-12; 298:16-21; 304:15-306:5. In addition, as a product development company, Pentech did not have any marketing or sales capability and had never manufactured a commercial product or marketed a pharmaceutical product. T. 180:20-181:5; 306:6-12. Pentech did not have a commercially reliable manufacturing source. T. 298:1-21. There were three primary stages to the manufacturing process: 1) receipt of the active pharmaceutical ingredient ("API"); 2) encapsulation of the API; and 3) filling the capsule. T. 176:21-177:21. 15. Given Pentech's financial situation and its lack of marketing capability, Pentech began looking for a top-tier generic company that could provide financial support and the ability to successfully market and sell generic products. DX 72; DX 81; T. 285:18286:23; 309:2-310-11. The speed at which Pentech could bring its products to market was very important to its financial success. T. 308:5-309:12; DX 81. 16. In September 2001, Tarriff and Pentech's President Albert Hummel ("Hummel") began negotiating the business terms of a potential agreement under which Par would make an investment in Pentech's ANDA. Pl. Agreed Facts ¶13. Because airline travel was difficult in the wake of September 11, 2001, initial negotiations were by telephone. T. 129:13-19; 159:21-23. Pentech provided Par with a confidential memo outlining its business and litigation strategy regarding Pentech's ANDA. DX 73; T. 130:78 135:11; 324:8-326:19. Because Pentech's ANDA covered only capsules, the initial scope of the proposed relationship was limited to capsules. The primary goal of that relationship was to bring Pentech's product to market either through a victory or favorable settlement in the ongoing Paragraph IV Litigation with GSK. DX 1 at 1 (recitals); T. 348:17-349:7; 380:2-14; 758:13-20. 17. following: Par provides $200,000 at contract signing, $200,000 at final FDA approval, and $200,000 at a successful lower court (District Court) decision for a total of $600,000 in payments. Par will be responsible for all legal costs up to the first $2,000,000 associated with supporting the paragraph IV litigation. In the event legal costs exceed $2,000,000 the expenses will be shared 70% by Par and 30% by Pentech. The case will be transferred to Frommer, Lawrence and Haug. Par will not reimburse Pentech for previous litigation costs. Par will be responsible for all sales, marketing, shipping, distribution, billing and pricing of the product. Par will receive 70% of gross profit generated by the sale of the product. In the event Par/Pentech is marketing the only generic version of paroxetine the profits will be split equally. PX 20; T. 145:4-147:7; 152:6-152:17. Tarriff viewed Paxil as a big business opportunity worth potentially $100 million to which Par would provide several million dollars and excellent sales and marketing capability. T. 720:14-722:2. 18. While these negotiations were in progress, Tarriff disclosed to Hummel that On September 24, 2001, Tarriff sent a letter to Hummel proposing the Par was under a contractual obligation with another company to sell a generic paroxetine 9 tablet that was the subject of an ANDA, should that tablet ever be approved by the FDA. T. 162:24-164:10; 310:12-311:3; 723:3-7. At some point much later, in or around 2003, Pentech learned the name of the company was Genpharm. T. 164:11-21. 19. During these negotiations, the parties exchanged drafts of a Supply and Marketing Agreement for review and comment by the parties and their respective outside counsel. T. 158:21-159:6; 397:12-17; DX 33 at 14 (interrog. 2); DX 77; DX 80. 20. Both parties and their counsel are sophisticated and experienced with contracts. Par has entered into many licensing agreements with companies other than Pentech. Pentech's CEO Hummel, and its Chairman, James D. Lumsden ("Lumsden"), are experienced in contracting, pharmaceutical investment, and corporate relationships. T. 104:10-24; 110:22-111:11; 794:1-8; 810:8-15. 21. According to Hummel, Tarriff assured him that Genpharm's paroxetine tablet was stuck in litigation, was behind a "first to file" ANDA filed by Apotex, and that Pentech's capsule product would get to market earlier. T. 164:22-165:6; 170:4-171:24. When Hummel learned of Par's tablet agreement, he asked Tarriff to add a provision to the prospective contract between Pentech and Par that would entitle Pentech to a share of any sales of Genpharm's tablet in the event the Pentech capsule was on the market and Par thereafter started to market the tablet. T. 162:24-165:20. F. The 2001 Supply and Marketing Agreement 22. On or about November 19, 2001, Pentech and Par entered into an agreement titled Supply and Marketing Agreement Between Pentech Pharmaceuticals, Inc. and Par 10 Pharmaceutical, Inc. ("the 2001 Agreement"). Pl. Agreed Facts ¶14; PX 29; DX 1. By this time, Pentech had invested approximately $7 million in the paroxetine capsule project. T. 144:12-15. 23. Under the 2001 Agreement, Par received the exclusive right to distribute Pentech's paroxetine capsule, should Pentech ever obtain FDA approval for the product, and agreed to purchase all of its requirements for paroxetine capsules from Pentech, to the extent Pentech was able to meet its supply needs. DX 1 § 3.1. 24. Pentech maintained the responsibility under the agreement for completing the development and regulatory approval process and for ensuring the manufacture and supply of paroxetine capsules to Par. DX 1 § 3.1; T. 315:20-316:19. 25. The 2001 Agreement incorporated each of the terms outlined in Tarriff's September 24 letter. It provided, among other things, for Par to pay up to $600,000 in three incremental "milestone" payments to Pentech upon Pentech achieving certain benchmarks. DX 1, § 2.1. In addition, Par agreed to finance part of the cost of Pentech's paroxetine project and the defense of the GSK Litigation. Id. § 2.2. In exchange, Par received the exclusive right to sell, market and distribute Pentech's capsule, and the right to control the defense of the GSK Litigation. Id. §§ 2.1 and 2.2. Pentech's principal obligation under the 2001 Agreement was to manufacture paroxetine capsules and sell them to Par. Id. 26. The parties understood that Par's primary contribution to the project would be Par's marketing and distribution efforts. Under the 2001 Agreement, Pentech would develop and supply the product, and Par would market it. T. 321:14-322:8; 721:15-722:2. 11 27. The 2001 Agreement included the following provisions, among others: (a) The "Product" was defined by reference to Exhibit A to the agreement, which included four references to a "capsule" product and none to a "tablet" product. PX 29, Article 1 & Ex. A. (b) Section 2.2 provided that Pentech's defense in the GSK Litigation would be conducted under the guidance of new counsel designated by Par: Frommer, Lawrence & Haug, LLP ("FLH"). Pl. Agreed Facts ¶15. Section 2.2 further provided that Par would have ultimate decision-making authority with respect to the GSK Litigation. PX 29, § 2.2. (c) The 2001 Agreement made no provision for the consequence of a settlement of the GSK Litigation. Section 2.3 provided, however, that Pentech and Par would both need to agree to any such settlement. Specifically, Section 2.3 provided: 12 Any Paragraph IV Litigation or any other litigation regarding the ability of Par to market the Product brought by a third-party against Par or Pentech shall only be settled upon the mutual satisfactory approval of Par and Pentech. Each of Par and Pentech hereby agree that it will not unreasonably withhold such approval if such approval is requested by the other party. PX 29, § 2.3. (d) Section 3.1 set forth terms governing the manufacture and supply of the Product "[u]pon final FDA regulatory approval granting Pentech the right to manufacture, sell and distribute the Product." Pentech agreed to supply Par's reasonable requirements for the Product. Pl. Agreed Facts ¶15(c). (e) Section 3.5, titled "Sales and Marketing," provided that, "[s]ubject to Section 3.1, Par shall be the exclusive seller of the Product to third-parties in the Territory." PX 29, § 3.5. (f) Article 5 was entitled "PAYMENT FOR THE PRODUCT." That Article began with Section 5.1, which provided: "Payment for the Product shall be made by Par, on the terms and conditions set forth herein, and shall consist of (i) the Transfer/Contract Price for the quantity of Product delivered by Pentech to Par pursuant to a Firm Order (the "Transfer/Contract Price Payment") and (ii) as more fully described in Section 5.2 hereof, a percentage of the Gross Profit generated from the sale by Par of any Product (the "Profit Payment"). Section 5.1 defined the "Transfer Contract Price" as "Pentech's actual cost of manufacture plus Pentech's internal burden rate." PX 29, § 5.1. 13 (g) Section 5.2 provided that "[i]n addition to the Transfer/Contract Price Payment and subject to Section 3.1," Par would pay Pentech "Profit Payments" on sales of the "Product" at varying percentages of "Gross Profits," depending on whether there was generic paroxetine competition on the market. PX 29, § 5.2(A), (B). (h) Subsection 5.2(C) addressed Hummel's concerns expressed to Tarriff about the possibility that Par would sell both the Pentech capsule and a competing generic tablet form of paroxetine, stating: To the extent that Par is marketing both a capsule and tablet generic version of the Product, the Profit Payment on the capsule version of the Product shall be as set forth in Subsection 5.2(B) above. In addition, a Profit Payment on the tablet version of the Product shall be paid by Par to Pentech in an amount equal to 15% of Par's gross profit generated by the sales of the tablet version of the Product. PX 29, § 5.2(C) (emphasis added). Pentech sought to protect itself against the possibility that Par would shelve Pentech's capsule product and come to market with the tablet product also under development. T. 162:24-165:20; 1080:4-1085:8. (i) Section 5.3 provided that the initial Profit Payment would be paid within 75 days "after the launch of the Product by Par," and that "[t]hereafter, payment of the Profit Payment for the Product and the tablet version of the Product, if applicable, shall be made within ten (10) days of the end of each calendar month." PX 29, § 5.3(B) (emphasis added). 28. There is some dispute as to whether the defined term "Product" refers specifically to Pentech's capsule version of paroxetine. The parties agree that the capsule 14 form of paroxetine was the only form covered by Pentech's ANDA. T. 168:2-15; 541:16-18. Numerous provisions throughout the 2001 Agreement make sense only if the "Product" is understood to refer to the Pentech capsule. (E.g., PX 29 (third, fourth and fifth "whereas" clauses), § 4.1.) In several places, the agreement refers to the tablet "form," or tablet "version" of the "Product." The Court finds, based on the text of the agreement and the circumstances surrounding its execution, that the defined term "Product" referred to Pentech's capsule except in those instances in which the Agreement expressly provides otherwise through use of the phrase "the tablet version [or "form"] of the Product." G. Circumstances Leading to the 2002 Amendment 29. The parties entered into discussions starting in the summer of 2002 to amend the 2001 Agreement. As with the 2001 Agreement, the essential business terms of the amendment were negotiated by Tarriff and Hummel. At some point, Par's Vice President Paul Campanelli ("Campanelli") became involved in the efforts to draft an agreement consistent with those negotiated terms. T. 210:18-211:7; 887:20-22. 30. By April 2002, Pentech had made requests to Par to increase its financial commitment to the project. In particular, Hummel asked Tarriff to provide an additional $5 million of funding from Par to Pentech. DX 177 at FS38; T. 455:15-456:6; 825:2-7. Those efforts by Hummel were unsuccessful. Par did not commit to invest any additional money in the project in April, May, or June of 2002. T. 824:7-826:4. 31. Meanwhile, in May 2002, Pentech began discussions with GSK to settle the Paragraph IV Litigation. DX 158 at P86432; DX 33 at 5 (interrog. 1). 15 32. One factor that precipitated the amendment was that the parties became aware that the costs of the GSK Litigation would exceed Par's funding commitment under the 2001 Agreement, and Pentech also needed assistance to develop its capacity to manufacture its paroxetine product. Pl. Agreed Facts ¶18; PX 182; DX 99. In particular, the parties determined that Par would assume from Pentech responsibility for developing and manufacturing the capsule, and obtaining FDA approval of the ANDA. As a result, the parties anticipated that Par would invest approximately $9 million more than previously expected, including, among other things, roughly $4 million in raw material costs, $2.5 million to prepare Pentech's Chicago facility for manufacturing of solid dispersion and $500,000 to expand Par's own manufacturing facilities. PX 43; T. 180:3-181:23. In addition, Par determined there were significant problems with all three components of the manufacturing process, including the relationship with the manufacturer of Pentech's ASI, Pentech's production capacity and the manufacturer for the encapsulation stage. T. 733:3737:16. 33. At the same time, the parties perceived that the financial risk and the possible return on the project had increased. T. 586:20 - 587:2. As Tarriff explained to Par's board of directors, "the financial value of the opportunity is greater than first assumed." PX 43. H. Settlement Offers From GSK 34. Among the additional events that precipitated the amendment to the 2001 Following a meeting between Agreement were two settlement offers from GSK. representatives of Pentech and GSK in June, 2002, GSK made the first offer in July 2002 at 16 an informal meeting in Newark, New Jersey, between GSK's counsel and Pentech's counsel James Rubin ("Rubin"). T. 183:7-191:12; Rubin Dep. 68:25-71:14. Rubin related GSK's offer to Hummel, who determined that the value of the product offered by GSK was so insignificant that he instructed Rubin to reject the offer immediately. T. 187:20-190:15. Soon thereafter, Hummel informed Tarriff for the first time that Pentech was having settlement discussions with GSK. T. 560:21-562:13. There is conflicting testimony as to the substance of these various communications regarding the GSK settlement offer. According to Hummel, he told Tarriff that GSK had offered to settle by supplying Pentech with a small quantity of paroxetine product that could be marketed as a treatment for depression, as well as the use of paroxetine active pharmaceutical ingredient ("API") for treatment for premature ejaculation ("PE"). T. 186:13-20; 190:16-191:2. Tarriff claims, however, that he recalls Hummel describing the GSK offer as a $5 million payment to acquire Pentech's patents for paroxetine as a treatment for PE. T. 560:21-561:5; 739:13-741:4. Rubin recalls, consistent with Hummel's testimony, that GSK offered to provide a supply of paroxetine that could be marketed for depression. Rubin Dep. 68:25-71:14; PX 46; T. 1024:13-1026:25. 35. Hummel was disappointed by what he perceived to be a very meager settlement offer from GSK; however, Tarriff reacted positively upon being told of the GSK offer. T. 192:13-193:2. Hummel recalls that Tarriff was encouraged by GSK's proactive conduct and interest in settling, and was optimistic that Par and Pentech would be able to settle with GSK if Par and Pentech could expand production capacity for the Pentech capsule. T. 194:12- 17 196:13; 407:9-408:2. Tarriff did have a concern that Pentech could negotiate a lucrative settlement for itself, while leaving Par "holding the bag." T. 583:7-584:6; 740:23-741:4. 36. Hummel and Tarriff negotiated two major issues: 1) an increased investment by Par in the effort to manufacture a paroxetine capsule, and 2) an agreement regarding the division of profits arising out of a possible settlement with GSK. Regarding the first point, Par agreed to invest additional sums and take on additional responsibility in exchange for a greater share of the profits. With respect to the second issue, the parties agreed that in the event of a settlement, Par would recover its direct costs and split profits 60% to Par and 40% to Pentech. T. 198:9-201:8; 421:5-423:10. The Court finds that there was never any discussion in the negotiations limiting amended Section 2.3 to a cash settlement payment from GSK. T. 236:4-237:5. The amendment to the 2001 Agreement was the first time the parties made any agreement as to a particular percentage split of settlement proceeds. T. 411:15-20. 37. Campanelli recalled Hummel informing Par in the late summer or early fall of 2002 that GSK made an offer to Pentech or Pentech's attorney in which GSK offered 100 kilograms of paroxetine tablets, which had a sale value of approximately $5 million. T. 884:2-887:13. He also recalled the quantity of the tablet offer was based on GSK's assessment of Pentech's manufacturing capacity. Id. 38. On August 2, 2002, just days after his conversation with Hummel, Tarriff sent a letter to Hummel proposing a revision to the 2001 Agreement. DX 99. In the letter, Tarriff noted that "the amount of work and expense" necessary to get Pentech's paroxetine capsule 18 to market was "far greater than originally forecasted." Tarriff stated that Par was prepared to take on the additional responsibility and expense necessary to "fund the project to the level necessary to commercialize the project," but that Par would require two modifications to the existing 2001 Agreement. First, Tarriff stated that Par's share of the profits resulting from marketing Pentech's capsule "be increased from 70% to 75% and include time in which Par is the sole marketer of paroxetine, other than GSK." The second modification that Tarriff sought was an agreement that, in the event of a settlement affecting the ANDA, "Par would be reimbursed for all of its expenses," after which the remaining "settlement funds would be split 60% to Par." DX 99; T. 575:23-578:16. The first of these modifications was reflected in the changes that were ultimately made to the parties' capsule sales profit splits under Section 5.2. The second modification outlined in Tarriff's letter was reflected in the parties' addition of a second paragraph to Section 2.3. PX 66. The 2002 Amendment addressed the possible GSK settlement and the significant additional investment and responsibility being assumed by Par. T. 198:9-2001:8; 380: 9-19; 576:6-577:17. Par believed it needed to take more control if the project was going to be successful. T. 566:1-567:11. 39. On August 7, 2002, Tarriff wrote an internal memorandum to Par's board of directors describing the situation with Pentech and seeking the board's approval for an additional investment in the Pentech paroxetine project. PX 43. Tarriff described the Pentech paroxetine opportunity as "far greater than first assumed," but cautioned that the project would "require a far greater investment than originally projected." Tarriff also stated: "From a litigation standpoint, paroxetine provides a better likelihood of success than Par's 19 other first to file opportunities, with the exception of megestrol." Tarriff told Par's board that "[t]hese opportunities are far and few between," and that pursuit of the opportunity represented "a prudent risk with the right risk/reward profile." Tarriff recommended that Par "continue to aggressively pursue this undertaking." Id.; T. 586:1-589:21. 40. On August 7, 2002, Tarriff received a memo from Par's Vice President of Engineering and Manufacturing Operations, Bill Bundenthal, and Executive Vice President of Scientific and Regulatory, Robert Fernia, concluding that the capsules can be "safely and efficiently manufactured" at Pentech's facility and that they were "confident that the process of facility renovation process improvement and procurement of all necessary permitting can be accomplished by June of 2003 in time for launch." PX 44. Par was ready to proceed on two possible tracks: a settlement track and a litigation/manufacturing track. 41. On September 4, 2002, GSK's counsel, Ken Frankel, made a second settlement offer, this time to FLH attorney Robert E. Colletti. GSK proposed to settle the litigation by Pentech conceding infringement in exchange for GSK supplying Pentech with a limited quantity of GSK's paroxetine tablets (100 kilograms per year) and a license authorizing Pentech to sell those tablets for the treatment of depression. This settlement offer was described in a memorandum written that day by Colletti. PX 46. There is no reference to a possible cash offer from GSK. Pentech's former attorney, Rubin, testified that this offer was the same as the offer that he recalled GSK had made in Newark earlier in July. Rubin Dep. 70:12-71:14. 20 42. That same day, Tarriff sent FLH attorney Ed Haug an e-mail in which he: (a) calculated the value of GSK's offer to be approximately $4 million; (b) confirmed that he had directed Hummel to "have all settlement conversations flow through FLH"; and (c) directed FLH to prepare a "revised contract" between Pentech and Par. PX 47. Tarriff explained that the $4 million referenced in his e-mail was believed to be the value of the 100 kilograms of paroxetine contained in Colletti's September 4 memorandum. PX 46; T. 594:69. There was no reference to a cash offer in the memorandum. PX 46; T. 594:10-17. The product quantity term of GSK's offer was based on GSK's understanding of Pentech's then current capsule manufacturing capacity. Tarriff sought an amendment to the 2001 Agreement in order to control the settlement with GSK and to make sure Pentech could not sell out Par. T. 595:9-13. 43. Both parties knew at least two months before executing the amendment to the 2001 Agreement that GSK had proposed to settle the litigation by, among other things, providing a license and supply of paroxetine tablets for treatment of depression. See, e.g., PX 46 and 47. The parties adopted the broad language in Section 2.3 because they did not know what the precise terms of a settlement might be with GSK and a settlement with GSK would be favorable to both Par and Pentech. T. 218:12-220:17; 433:11-436:19. 44. In sum, at the time of the execution of the 2002 Amendment, two events were underway--efforts to prepare for the prospective settlement with GSK on the one hand, and efforts to increase capsule production capacity on the other hand. I. The 2002 Amendment 21 45. Par's counsel prepared drafts of the 2002 Amendment for review by Par. PX 49-51. In none of those drafts or in the communications between Par and its counsel, is there any indication that amended section 2.3 was to apply only to a cash settlement. Campanelli sent the proposed 2002 Amendment to Hummel on September 20, 2002. PX 54. A further revision was sent to Hummel by Campanelli's assistant on October 22, 2002. PX 57. Once again, nothing in either transmittal indicates any intention to limit the broad language contained in amended section 2.3 to a cash settlement with GSK. 46. On or about November 12, 2002, Hummel and Tarriff executed the 2002 Amendment. Pl. Agreed Facts ¶20. (Hereinafter, the 2001 Agreement, as amended by the 2002 Amendment, is referred to as the "Contract.") The Court finds Hummel's explanation of the purpose of amended Section 2.3 to be credible and rejects as not credible the explanations provided by Tarriff and Campanelli. The explanation provided by Hummel is consistent with the language of amended Section 2.3. 47. The 2002 Amendment (DX 2) included the following provisions: (a) Amended Section 2.2 gave Par "sole and exclusive control" of the GSK Litigation, and "full responsibility" for all regulatory activities for the paroxetine capsule product, and assigned Par project management responsibility for the project. DX 2 §§ II. A, C. This represented a substantial increase in Par's responsibilities. T. 606:13-607:12. (b) The 2002 Amendment significantly increased Par's financial investment in the project in the range of $10 million to $14 million. DX 2 §§ II. A, C; T. 577: 10-17; DX 99; PX 43 at PH 41779. 22 (c) A second paragraph was added to Section 2.3 of the 2001 Agreement concerning the division of proceeds from a settlement. As amended, Section 2.3 provided, in its entirety as follows (text added by the 2002 Amendment in italics): 2.3 Settlement. Any Paragraph IV Litigation or any other litigation regarding the ability of Par to market the Product brought by a third party against Par or Pentech shall only be settled upon the mutual satisfactory approval of Par and Pentech. Each of Par and Pentech hereby agree that it will not unreasonably withhold such approval if such approval is requested by the other party. Par and Pentech further agree that in the event of any settlement to which Pentech and a third party are parties, which relates to paroxetine, Par will first be reimbursed for all of its direct costs relating to the development and marketing of paroxetine, including but not limited to manufacturing related costs (e.g. spray drying equipment, facility modifications and API start-up costs) and legal expenses, out of any amounts received in the settlement by Par and Pentech, any remaining amounts that are received by Par and Pentech out of such a settlement will be divided 60% to Par and 40% to Pentech. (d) The parties added Section 2.4, which provided, among other things, for Par to "have sole decision-making control over the project" and for Par to reimburse Pentech for up to $1.3 million in "corporate costs" incurred in 2003. DX 2, § II. C. T. 607:13-608:9. (e) A new Section 5.2 was substituted for existing Section 5.2, providing an increased share of profits to Par, and provided in its entirety as follows: 5.2 Profit Payment. In addition to the Transfer/Contract Price Payment and subject to Section 3.1 hereof, Par shall pay Pentech the following Profit Payments: (A) Subject to Section 3.1, during the Term and any Renewal Term, the Profit Payment to be paid by Par to 23 Pentech shall equal 25% of the Gross Profit generated by Par from sales of capsule paroxetine product. (B) To the extent Par markets a generic tablet version of paroxetine, during the Term of this Agreement and any Renewal Term, Par shall pay to Pentech a Profit Payment in the amount of 15% of Par's gross profit generated by sales of the tablet version of paroxetine. Par's gross profit generated by the sales of the tablet version shall be calculated using the same methodology as set forth herein for calculating the Gross Profit for sales of the capsule and shall include as a "Cost of Goods" any license, royalty, profit or similar payment required to be made by Par to a third party in connection with Par's sale of the tablet version of the paroxetine as well as any payments similar to the Transfer/Contract Price Payment, which are made to a third Party in connection with the tablets. (f) Section 5.3 of the Supply and Marketing Agreement was not changed by the 2002 Amendment. Pl. Agreed Facts ¶21. J. Settlement Of The GSK Litigation 48. Subsequent to the execution of the 2002 Amendment, Par and its counsel, FLH, on Pentech's behalf, entered into settlement negotiations with GSK concerning the resolution of the GSK Litigation. Par made a presentation to GSK in December 2002 in an effort to convince GSK to settle the GSK Litigation and to allow Pentech and Par to become GSK's generic partner for Paxil. DX 47; T. 220:20-228:15. 49. At a meeting in January 2003, GSK, Par and Pentech reached an agreement in principle on the basic terms of a settlement of the GSK Litigation. T. 239:9-243:14. The substance of the agreement was that GSK would provide a supply of unbranded Paxil tablets 24 and a license to sell the tablets, and GSK would receive a portion of the tablet sales revenues. Id. GSK consistently refused to include a cash component in the settlement. T. 766:13-16; 482:2-24. 50. That agreement in principle was thereafter modified at GSK's behest. T. 245:11-246:3. Hummel recalls that Tarriff called him on or about February 7, 2003, to inform him of the modifications to the deal. Id. According to Hummel, he and Tarriff discussed the financial impact that the modification would have on Pentech and, in particular, how the diminished short term value of the settlement would affect Pentech based on the Par/Pentech 60/40 settlement split. T. 248:5-23. 51. On February 8, 2003, Par's board of directors met telephonically and approved the proposed settlement. Pl. Agreed Facts ¶22. 52. On February 8, 2003, Pentech's board of directors also met telephonically to approve the proposed settlement. DX 130. No one from Par attended this meeting. Pentech's board authorized Hummel to proceed with the settlement. Pl. Agreed Facts. ¶23. FLH attorney Ed Haug attended a portion of this meeting, during which Par's 60/40 split with Pentech was discussed. T. 250:12-251:1; 875:9-876:3. 53. On February 24, 2003, two days before signing the GSK Litigation settlement, Tarriff wrote a letter to Asahi Glass Company--which had been Pentech's supplier of paroxetine API under the ANDA--in which he made the following settlement offer to Asahi: "Par will pay AGC 2% of the proceeds it receives under a settlement with GSK, after Par first recovers its costs for this litigation . . . ." PX 100. See also PX 104 and 115. The 25 language in Tarriff's offer to Asahi is similar to the language used in the amendment to Section 2.3 of the 2002 Amendment. 54. 2003. Par, Pentech and GSK entered into a Settlement Agreement on February 26, Contemporaneously with the execution of the Settlement Agreement and in consideration thereof, Par and certain GSK affiliates entered into a License and Supply Agreement. Pl. Agreed Facts ¶24; PX 102, 103. Pursuant to the Settlement Agreement, Par could market Paxil in packaging that did not use the Paxil name. PX 179, ¶29. 55. These documents were later revised. On April 16, 2003, Pentech, GSK and Par signed an Amended and Restated Settlement Agreement (hereinafter, the "Settlement Agreement"); and GSK and Par signed an Amended and Restated License and Supply Agreement (hereinafter, the "License and Supply Agreement"). Pl. Agreed Facts ¶25; PX 116, 117. 56. Par summarized the GSK settlement in a press release issued April 18, 2003, as follows: "The settlement will allow Par to distribute in Puerto Rico substitutable generic paroxetine hydrochloride immediate release tablets supplied and licensed from GSK for a royalty paid to GSK. Par will be entitled to distribute the same product in the U.S. market once another generic version fully substitutable for Paxil becomes available there." PX 120. Par began selling tablets in Puerto Rico in April or May, 2003. T. 484:5-10. Pentech never received any profit payments or accounting from these sales pursuant to Sections 5.2 and 5.3(B) of the 2002 Amendment. T. 485:4-486:5. This fact supports the conclusion that Par understood that Section 2.3, and not Section 5.3(C), applied. 26 57. Pursuant to an order of the District Court in the GSK Litigation, both the Settlement Agreement and the License and Supply Agreement were submitted for Court approval on April 23, 2003. After a hearing, the Court approved the settlement on May 2, 2003. SmithKline Beecham Corp. v. Pentech Pharmaceuticals, Inc., 261 F. Supp. 2d 1002 (N.D. Ill. 2003) (Posner, J.). Pl. Agreed Facts ¶26. 58. The Settlement Agreement provided: This Settlement Agreement, the License and Supply Agreement, and the Stipulations in the proposed Stipulated Order are the only consideration exchanged by on or on behalf of Plaintiffs or GSK, on the one side, and Pentech or Par, on the other side, in reaching the agreement to settle the Litigation. Id. ¶27. 59. In the Settlement Agreement, Pentech and Par admitted that the commercial manufacture of Pentech's paroxetine product would infringe one of GSK's patents that was due to expire in 2006, and further admitted that the patents were valid and enforceable. PX 179, ¶¶ 3 and 31. In return, GSK agreed to dismiss its lawsuits against Pentech and not to assert three other GSK paroxetine patents against the Pentech capsule. DX 3, ¶¶7, 9. 60. The License and Supply Agreement provided for Par to receive its entire requirement of unbranded paroxetine tablets from GSK, and gave Par permission to market those tablets in Puerto Rico starting immediately. PX 117, §§ 4.1, 4.3(a); PX 120. It further provided that, upon entry of a generic Paxil competitor into the United States, Par could immediately market the unbranded Paxil tablet throughout the United States. PX 117, § 4.2; 27 PX 120. The License and Supply Agreement also required Par to make a "royalty payment" to GSK of 60 percent of its Net Sales of the tablet. PX 117, § 3.1. 61. The unbranded tablets provided to Par by GSK are identical in chemical composition to Paxil. PX 179, ¶34. Likewise, they are manufactured by the same manufacturer as Paxil, in the same doses and dosage forms, but without brand identification, and are marketed pursuant to the FDA's approval of GSK's NDA for Paxil. PX 129, pp. 1718. The unbranded tablets, in contrast to the possible Pentech capsule, were subject to automatic substitution by pharmacists and available in all four strengths of the branded Paxil product. PX 129, § 4.1. 62. Although Par assumed control and responsibility over development of the Pentech capsule no later than the date of the 2002 Amendment, Pentech's ANDA has never been approved by the FDA. PX 179, ¶54. K. Benefits of the GSK Settlement 63. 669:3-675:6. Par and Pentech received substantial benefits from the GSK settlement. T. A generic drug with an "AB" rating from the FDA is automatically substitutable by a pharmacist for the brand drug. A non-AB rated generic drug is not automatically substitutable. As a result, an AB rating for a generic drug is preferred from a marketing perspective. T. 140:19-141:9; 305:9-21; Tarriff Dep. 57:4-58:15. The parties expected that Pentech's capsule would not receive an "AB" rating. T. 672:7-9; Tarriff Dep. 57:4-18. In contrast, the paroxetine tablet that GSK supplied Par under the GSK Litigation 28 settlement was "AB" rated and fully substitutable for Paxil. T. 672:16-18; PX 129, pp. 17-18. 64. Pentech's capsule was to be available for sale in only two dosages, 10 and 20 milligrams. In contrast, the GSK unbranded tablet licensed to Par is available in the same four dosages as Paxil. T. 153:22-154:3; 671:22-672:18. 65. The timing of market entry is crucial to the commercial success of a generic drug. T. 736:6-8. At all relevant times, the timing of the market entry for the Pentech capsule was uncertain, because of the GSK Litigation and the fact that the FDA had not yet approved Pentech's ANDA. In contrast, under the Settlement Agreement, the GSK generic tablet--which also was manufactured by GSK, and was identical to Paxil except in name-- would be immediately available for sale in unlimited volumes. T. 672:19-22. 66. By reason of the foregoing, both Tarriff and Hummel understood that the potential market for the GSK tablet to be supplied by GSK under the settlement would be greater than the market for the Pentech capsule. T. 422:19-423:10; 671:22-673:16. 67. On April 19, 2003, in an e-mail to Par's board of directors regarding the GSK settlement, Tarriff explained the various ways in which the settlement would reduce Par's risk, while increasing profitability. PX 122. 68. It is clear that Par used Pentech's ANDA to negotiate a settlement that reduced the parties' risks (which, at that time, had largely been assumed by Par) while, at the same time, it increased the amount of the parties' potential reward and Par received significant benefits. T. 669:10-673:25. 29 L. "Interrelatedness" of The Settlement Agreement and the License And Supply Agreement 69. The License and Supply Agreement between Par and GSK is part of a "settlement" to which Pentech is a party. T. 710:5-8; 775:11-18. The evidence is clear that all parties to the settlement consistently treated the Settlement Agreement and License and Supply Agreement as one unitary "settlement" of the GSK Litigation among Pentech, Par and GSK: (a) Both in their original form and as amended, the Settlement Agreement and the License and Supply Agreement were negotiated and executed at the same time by the same parties. T. 665:14-24; PX 102, 103, 116, 117. The settlement allows Par to distribute product. T. 677:10-12. (b) The language of the contracts plainly describes the relationship between them. For example, the Settlement Agreement expressly provides that the License and Supply Agreement is the consideration exchanged to settle the GSK Litigation. Pl. Agreed Facts ¶27. Moreover, the License and Supply Agreement states in its first recital: "WHEREAS, the Parties wish to amicably settle patent litigation currently ongoing between them." PX 117, p.1. (c) In a May 1, 2003 filing submitted to Judge Posner presiding over the GSK Litigation, GSK referred to the License and Supply Agreement as "the core of its settlement with defendant Pentech Pharmaceuticals, Inc. (`Pentech') and non-party Par Pharmaceutical, Inc. (`Par') . . . ." PX 132 at 1; (emphasis added). 30 (d) All parties consistently referred to the Settlement Agreement and the License and Supply Agreement collectively as the "settlement agreements" in the papers they filed in the GSK Litigation and in their oral representations to the District Court. E.g., PX 127, p. 1; PX 128, p. 1; PX 129, p. 10; PX 130, p. 1; PX 131, pp. 1, 5; PX 171, p. 1. (e) Various court orders from the GSK Litigation refer to the Settlement Agreement and License and Supply Agreement, interchangeably, as the "settlement." PX 125; PX 140. (f) On April 18, 2003, Par issued a press release announcing that "[t]he settlement will allow Par to distribute . . . generic paroxetine hydrochloride immediate release tablets supplied and licensed from GSK for a royalty paid to GSK." PX 120 (emphasis added). (g) On April 21, 2003, Tarriff conducted a conference call with investors and pharmaceutical industry analysts to announce the settlement of the GSK Litigation. On that call, Tarriff described Par's exchange of the rights to Pentech's paroxetine capsule for the right to sell unbranded tablets under the License and Supply Agreement, as "trad[ing] up on draft day." PX 123; PX 124; T. 674:18-675:16. (h) Par's quarterly and annual reports filed with the Securities and Exchange Commission ("SEC") state that: "[a]s a result of the settlement, [Par] will be permitted to distribute . . . substitutable generic paroxetine hydrochloride immediate release tablets supplied and licensed from GSK . . ." PX 126, p. 2; "[t]he settlement allows Par to distribute . . . substitutable generic paroxetine . . . tablets supplied and licensed from GSK" 31 PX 142 , p. 19; PX 157, p. 34; (emphasis added) and that "Par has been granted the right under the settlement to distribute [GSK-supplied paroxetine tablets] in the United States . . . ." PX 168, p. 40 (emphasis added); T. 685:7-688:1. (i) GSK's 2004 Annual Report referred to GSK's "settlement with Pentech and Par Pharmaceuticals to which Pentech had granted rights under Pentech's ANDA for paroxetine hydrochloride capsules," and stated "[t]he settlement allowed Par to distribute . . . paroxetine hydrochloride tablets supplied and licensed from [GSK] . . . ." PX 173, p. 117 (emphasis added). (j) On October 24, 2003, Tarriff appeared on a CNBC television program and referred to Par's sales of the unbranded Paxil tablets as "a settlement from litigation." T. 681:12-682:18; PX 165 (19:45-24:34). (k) On February 26, 2004, on a public earnings conference call, Tarriff stated: "Paxil was a settlement with GSK . . . we had first to file status in that, and that's how we settled that." PX 175 at P100695. Par settled the patent litigation with GSK "by becoming the authorized generic." T. 709:14. (l) One of the benefits Par received out of the GSK settlement was the License and Supply Agreement with GSK. T. 661:25-662:11. 32 M. Par's Internal Communications Support this Court's Finding that Section 2.3 Governs 70. On March 12, 2003, Par's Vice President Paul Campanelli sent the following e-mail to Dennis O'Connor, Par's Chief Financial Officer, and Joe Schott, Par's Senior Director of Finance, with a copy to Tarriff: Two separate business terms were addressed in the Pentech amendment 1) legal expenses and 2) what happens in the event of a settlement. It is clearer if you read the contract and amendment together. It is understood by Pentech, that #2 is in effect, we are in a Settlement. 1. Legal Expenses: Par is responsible for legal fees and expenses for P-IV litigation after November 2002. Legal expenses in excess of $2 million is credited against profit. 2. Settlement: In the event of a settlement, Par is first reimbursed it [sic] direct costs related to marketing, manufacturing, facility modification, API and legal expenses out of amounts received in a settlement. Remaining amounts received are split 60/40, Par taking the lion's share. T. 923:14-926:1; PX 109. Par's executives sent several responses to Campanelli's March 12 e-mail, none of which disagreed with the stated understanding that Pentech was to receive a 40 percent share. PX 106, 107,108, 110A, 110B, 111. 71. Campanelli and Tarriff testified that these e-mail exchanges were meant to relate only Pentech's understanding of the deal, an understanding with which they disagreed at that time. T. 924:2-16; 925:19-926:1; Tarriff Dep. 208:18-24. This testimony is at odds, however, with the text of the e-mails, which contain no expression or suggestion of 33 disagreement. The e-mail response from Tarriff (PX 107), to the contrary, suggested concurrence: "Paul, Joe, Also we get up to 3% of SALES for SG&A . . ." (Emphasis added.) Further, the circumstances and broader context suggest that Campanelli's March 12 e-mail was intended to provide information for Par's 2002 SEC Form 10-K, which was then being prepared. The e-mail is addressed to Par's Director of Finance Joe Schott ("Schott"), and Chief Financial Officer Dennis O'Connor ("O'Connor"), who were responsible for preparing the Form 10-K. See T. 926:21-927:11; PX 108; see also PX 58, 61, 63-65, 67-69, 73 (10-Qs demonstrating O'Connor and Schott's roles in preparing SEC filings). Par filed its 10-K on March 28, 2003, only two weeks after Campanelli's e-mail. PX 114. E-mail responses from Schott and O'Connor indicate that they understood the March 12 e-mail concerned the soon-to-be-filed 10-K report. PX 111 ("I think the current disclosure in the 10-K is correct because the settlement is not final"); PX 106 ("Shouldn't November 2002 be 2001, the signing date of the agreement?"). Campanelli acknowledged that, "from time to time, just in the ordinary course," he is asked to provide information that is needed for use in Form 10-K annual reports. T. 916:8-15. Consistent therewith is Campanelli's testimony that his March 12 e-mail merely identified and described two terms that had been changed by the 2002 Amendment. T. 925:14-926:1. 72. Before either Pentech or Par approved the settlement with GSK, Hummel advised Campanelli that Pentech understood it was to be paid a 40 percent share of the amounts Par derived from its sales of the unbranded paroxetine tablets from GSK. T. 917:5919:11; 922:5-922:11; 990:7-991:8. Nevertheless, at no time before at least December 2003 34 did Par ever state to Pentech, either in writing or orally, that Pentech was entitled only to a 15 percent share. T. 280:3-12. 73. On May 5, 2003, Tarriff sent an e-mail to two Par employees asking them to prepare a complete list of all expenses related to Paxil to be sent to Hummel because "[w]e get our expense back." PX 134. This request is consistent with Section 2.3. 74. On May 23, 2003, a Par employee, Michael McHugh, sent Par CEO Scott Tarriff an e-mail transmitting "files containing the 2003 & 2004 forecasts that include the changes we went over on Wednesday." The attached spreadsheet shows that Par's "Gross margin %" in connection with the sale of paroxetine TABS was 24%. T. 692:6-695:10; PX 149, pp. PB 7103, PB 7107. This 24% figure is the percentage that would be derived from paying GSK 60% of net sales, and paying Pentech 40% of the remaining 40%, thereby leaving Par with 60% of 40%, or 24%. T. 694:11-695:10. 75. The purpose of Section 2.3, according to Tarriff's testimony, was to address a settlement proposal advanced by GSK in 2002. T. 562:15-563:10. Yet, the only settlement proposals advanced by GSK during 2002 were proposals for GSK to provide a supply of paroxetine for re-sale, precisely the settlement arrangement that GSK, Pentech and Par ultimately reached. T. 710:9-18; PX 46; PX 47. At trial, Tarriff testified that he understood those settlement offers to be "cash" offers (T. 594:10-24), but that testimony is inconsistent with his previous deposition testimony (Tarriff Dep. 141:4-18), which describes GSK's offer as having $5 million of "value", and also with the evidence showing that GSK offered a 35 tablet supply again in September 2002, and that Tarriff was immediately made aware of that offer. See PX 46, 47 (with references to "100 kg" of product). 76. Tarriff testified that the parties anticipated they would probably have an opportunity to market paroxetine tablets from GSK. T. 532:25-533:18. Among other things, Tarriff testified "[i]t's pretty common that in all of your Paragraph IV litigation that ultimately you try to settle your cases." T. 533:2-4. When asked whether he told Mr. Hummel before the parties signed the Supply and Marketing Agreement that Par contemplated marketing a GSK tablet, Tarriff testified: "[n]o, but I think it was pretty common at that point that that's a frequent occurrence, and Mr. Hummel was and I think he still is, a board member of a large generic company in the U.S., and I think this is just something that's standard that happens pretty frequently." T. 533:14-18. N. Amounts Par Obtained From Its Sales of Paroxetine Supplied by GSK Are "Amounts Out of Settlement" Under Section 2.3 77. On September 8, 2003, third party Apotex Inc. entered the United States market as a generic competitor to Paxil. As provided for in the License and Supply Agreement with GSK, Par immediately began selling generic paroxetine tablets manufactured by GSK, in competition with the Apotex product. Def. Agreed Facts. ¶19; PX 158; T. 697:14-698:11. 78. The paroxetine tablet supplied by GSK under the settlement became Par's largest selling drug ever, as well as its second most profitable drug ever. Tarriff Dep. 238:521. As of September 30, 2007, Par's gross sales of paroxetine tablets exceeded $400 million. 36 T. 714:10-25. Pentech had no responsibility--financial or otherwise--relating to the marketing and sales of the GSK-supplied tablet. T. 417:5-8. 79. The language of the 2002 Amendment and extrinsic evidence demonstrate that the parties intended and understood that Pentech would receive a 40 percent share of Par's proceeds from its sales of unbranded paroxetine pursuant to Section 2.3. At the time the 2002 Amendment was executed, the parties were aware that the settlement with GSK might include the supply of tablets because GSK had rejected requests for cash payments. In light of this, the decision by the parties to select broad and all-inclusive language in the 2002 Amendment to Section 2.3 with the terms "any settlement," "any amount received in settlement," and "any remaining amounts that are received by Par and Pentech," the Court finds that the parties intended to treat the GSK settlement under Section 2.3, not Section 5.2. O. The Litigation 80. Beginning in or around September 2003, the dispute arose regarding whether Pentech was entitled to a 40 percent share of the amounts out of the GSK settlement. T. 267:8-276:3. At no time before at least December 2003 did Par ever state to Pentech, either in writing or orally, that Pentech was entitled only to a 15 percent share. T. 280:3-12. Pentech filed this lawsuit against Par on May 3, 2004. Dkt. 1. On March 28, 2006, Judge Filip denied the parties' cross-motions for summary judgment. Dkt. 202. On October 25, 2007, Judge Filip granted Par's motion for summary judgment on Pentech's breach of fiduciary duty and equitable accounting claims. Dkt. 231. Subsequently, this Court 37 conducted a bench trial on December 9-12 and 15-16, 2008 and heard closing arguments on December 22, 2008. III. CONCLUSIONS OF LAW A. Jurisdiction and Choice of Law 81. This action includes two counts: Count I for breach of contract; and Count II for declaratory judgment. The Court has diversity jurisdiction over both counts. 28 U.S.C. § 1332(a)(1). Section 1332(a)(1) provides federal courts with jurisdiction over all civil cases where the matter in controversy is in excess of $75,000 exclusive of interest and costs and is between citizens of different states. In this case, both requirements are satisfied. The parties have consented to magistrate judge jurisdiction pursuant to 28 U.S.C. § 636(c)(1). 82. Venue is proper in this district under 28 U.S.C. § 1391(b) because this is a civil action founded only on diversity jurisdiction. Plaintiff resides in this district and a substantial part of the alleged events or omissions giving rise to Plaintiff's claims occurred in this district. 83. Pursuant to the parties' agreement, New York law applies in this case. The Contract provides that it "shall be deemed to have been entered into and shall be governed by and construed under the internal laws of the State of New York." DX 1 § 13.3; DX 2. The Court finds this is an enforceable choice of law provision. See Fix v. Quantum Indus. Partners, LDC, 374 F.3d 549, 552 (7th Cir. 2004). Accordingly, the Court will apply New York law with respect to all issues relating to the Contract. B. Breach Of Contract Claim 38 84. Count I of the Complaint alleges breach of contract. Under New York law, a breach of contract claim has four elements: (1) formation of a contract between plaintiff and defendant; (2) performance by plaintiff; (3) defendant's failure to perform; and (4) resulting damage. Labajo v. Best Buy Stores, L.P., 478 F. Supp. 2d 523, 529 (S.D.N.Y. 2007) (applying New York law). Pentech must prove each element by a preponderance of the evidence. Pl. Agreed Facts ¶34. 1. 85. First and Second Elements The first and second elements, the existence of a contract and performance by plaintiff, are undisputed. Id. at ¶¶33-35; Def. Agreed Facts ¶¶3, 13, 15. The Court concludes that the Contract is a valid, enforceable contract between Pentech and Par. The Contract is a written agreement signed by the presidents of both companies and includes warranties by both parties of their respective signatories' authority to enter into a binding contract. Both Pentech and Par provided adequate consideration and treated the Contract as in effect. The Court also concludes that Pentech performed all conditions precedent under the Contract. 39 2. 86. Third Element Regarding the third element, breach, the Court finds that Par breached the parties' agreement when it failed to pay Pentech 40 percent of amounts Par has received from sales of the paroxetine tablets, net of certain direct costs, and that Pentech is entitled to such payment under Section 2.3 of the Contract. While Pentech argues it is entitled to payment under Section 2.3, Par disputes this. Par contends Section 5.2 governs Pentech's share of the paroxetine tablet sales revenues, entitling Pentech to only a 15 percent share thereunder, net of certain expenses. Pl. Agreed Facts ¶37. 87. Precedent instructs the Court to construe the Pentech-Par Contract to effectuate the intention of the parties as they expressed it in the contractual language, assuming such language does not fairly allow for more than one conclusion. W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 162 (N.Y. 1990). Only when the terms of a contract are ambiguous may a court turn to evidence outside the agreement's four corners to ascertain the parties' intent. In re Delmar Pediatrics Asthma & Allergy Care, P.C., 828 N.Y.S. 2d 589, 590 (N.Y. App. Div. 2006). Under New York law, "if [a] contract is ambiguous and relevant extrinsic evidence as to its meaning is available, its interpretation is a question of fact for the factfinder." New Windsor Volunteer Ambulance Corps, Inc. v. Meyers, 442 F.3d 101, 111 (2d Cir. 2006). A contract is ambiguous if its terms are "reasonably susceptible to more than one interpretation." Chimart Assocs. v. Paul, 66 N.Y.2d 570, 573 (N.Y. 1986). In other words, the central inquiry is whether the terms "could suggest `more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the 40 entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.'" DaPuzzo v. Globalvest Mgmt. Co., 263 F. Supp. 2d 714, 729 (S.D.N.Y. 2003) (quoting Morgan Stanley Group Inc. v. New Eng. Ins. Co., 225 F.3d 270, 275 (2d Cir. 2000)). As the trier of fact, a court may consider extrinsic evidence "that clarifies the ambiguity, so long as the evidence is not inconsistent with the express terms of the contract." Golden Pacific Bancorp v. F.D.I.C., 273 F.3d 509, 517 (2d Cir. 2001). 88. A court interpreting an ambiguous contract under New York law must select an interpretation that the language of the contract and the relevant extrinsic evidence reasonably permit. See Chock Full O'Nuts Corp. v. Tetley, Inc., 152 F.3d 202, 205 (2d Cir. 1998); Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153, 161 (2d Cir. 2000). 89. An omission in a contract, such as a failure to include a specific contingency, does not permit the court to imply a term or interpret the contract in a way that is inconsistent with the language of the contract. A failure to include in a contract a co

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