Glaxosmithkline Biologicals, S.A v. Hospira Worldwide, Inc. et al

Filing 62

ENTER MEMORANDUM Opinion and Order Signed by the Honorable John W. Darrah on 3/31/2014: Mailed notice (jmp, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
GLAXOSMITHKLINE BIOLOGICALS, S.A.,
Plaintiff,
v.
HOSPIRA WORLDWIDE, INC. and
HOSPIRA, INC.,
Defendants.

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Case No. 13-cv-4346
Judge John W. Darrah

MEMORANDUM OPINION AND ORDER
Plaintiff GlaxoSmithKline (“GSK”) filed an Amended Complaint against Defendants
Hospira Worldwide, Inc. and Hospira, Inc. (collectively, “Hospira”), alleging three causes of
action: (I) breach of contract; (II) promissory estoppel; and (III) quantum meruit and unjust
enrichment. Hospira moves to dismiss all counts, pursuant to Fed. R. Civ. P. 12(b)(6). For the
reasons provided below, this Motion is denied.
BACKGROUND
GSK is a healthcare company that researches and develops vaccines for worldwide
distribution, with its principal place of business in Belgium. (Am. Compl. ¶ 12.) Hospira
Worldwide, Inc. and Hospira, Inc. are corporations that provide injectable drugs, infusion
technologies, and other pharmaceutical products, with their principal place of business in Lake
Forest, Illinois. (Id. ¶¶ 13-14.) GSK and Hospira entered into an agreement (“the Agreement”),
dated December 13, 2010, providing Hospira would produce an influenza vaccine product for
distribution throughout the United States. (Id. ¶ 18.)
The Agreement comprised various schedules, describing the product, work to be
performed, price and payment terms, and duration, all of which were necessary to the overall

Agreement. (Id. ¶¶ 18-19.) Schedules 5 and 7 were individually executed by Hospira, Inc., a
provider of injectable drugs and other pharmaceutical products, based in Lake Forest Illinois.
(Id. ¶ 14.) The remainder of the Agreement was executed by Hospira Worldwide, Inc., a whollyowned subsidiary of Hospira, Inc. (Id. ¶ 13.) Pursuant to the Agreement, GSK supplied the raw
materials to Hospira, which would, in turn, produce batches of Vaccine Product in compliance
with the Agreement and “otherwise acceptable to GSK at its sole discretion.” (Id. ¶¶ 20-21.)
Vaccine Product “means the GSK influenza vaccine product which includes the Bulk [i.e, raw
materials] filled and finished by Hospira.” (Id. ¶ 23.)
The parties initially contemplated a Trivalent influenza vaccine (“TIV”). (Id. ¶ 4.)
However, after Hospira failed to produce an acceptable validation batch, GSK agreed to work
with Hospira to produce a Quadrivalent influenza vaccine (“QIV”). (Id.) The definition of
Vaccine Product draws no distinction between the two versions, and allows for the version to
change over the life of the Agreement. (Id. ¶ 5.) All production was to be in accordance with
current good manufacturing practices (“cGMP”). (Id. ¶ 2.) The parties agreed to a timetable that
required Hospira to produce all Validation Batches for regulatory filing in 2011. (Id. ¶ 25.)
Hospira failed to maintain its production facilities in accordance with cGMP and
produced Validation Batches that generally failed to satisfy the quality requirements of the
Agreement. (Id. ¶¶ 28, 30.) As a result, Hospira failed to submit to GSK a product appropriate
for regulatory filing. (Id. ¶ 29.) On at least three dates, Hospira acknowledged that its batches
were “invalid” and “unacceptable for GSK.” (Id. ¶ 31.) GSK consistently notified Hospira that
Hospira was in breach of the Agreement. (Id. ¶¶ 32-33.)

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In addition to notifying Hospira of its breaches, GSK worked with Hospira to achieve an
acceptable vaccine. (Id. ¶ 34.) GSK proposed a plan to develop a vaccine for regulatory filing
by October 2012. (Id.) The new proposal called for development of a quadrivalent influenza
vaccine (“QIV”). (Id. ¶ 4.) Hospira again failed to produce a Validation Batch in accordance
with the Agreement. (Id. ¶ 35.)
On March 22, 2012, Hospira informed GSK that Hospira intended to terminate the
Agreement more than three years before the scheduled term end of December 2015, and
confirmed its decision to terminate in an email that same day. (Id. ¶ 36.) On March 30, 2012,
Hospira again confirmed its decision to terminate in a conversation with GSK. (Id.) On April 2,
2012, GSK informed Hospira that a termination would constitute material breach of the
Agreement, and Hospira responded that Hospira considered the agreement terminated. (Id. ¶¶
37-38.) Hospira has failed to perform and materially breached its obligations under the
Agreement as Hospira: (a) failed to produce Vaccine Batches and Product in compliance with
the Agreements quality requirements; (b) failed to produce Vaccine Batches and Product in
accordance with cGMP; (c) failed to produce Vaccine Batches and Product appropriate for
regulatory submission by the end of 2011; (d) failed to produce Vaccine Batches and Product
otherwise acceptable to GSK; (e) failed to maintain its Kansas facility; (f) failed to cure or
remedy its breaches; and (g) unilaterally terminated the Agreement on March 22, 2012.
(Id. ¶ 43.) The breach resulted in GSK sustaining damages in excess of $25 million. (Id. ¶ 45.)

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GSK brought an action in the Southern District of New York, alleging claims for breach
of contract, promissory estoppel, and quantum meruit and unjust enrichment. 1 Hospira then
successfully moved to transfer the case to the Northern District of Illinois. GSK filed the
Amended Complaint on November 27, 2013. Hospira now moves to dismiss the Amended
Complaint.
LEGAL STANDARD
When considering motions brought pursuant to Rule 12(b)(6), all well-pleaded
allegations within the complaint are read in the light most favorable to the plaintiff and presumed
true. Lavalais v. Village of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013). This presumption
is not extended to “legal conclusions, or threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements.” Alam v. Miller Brewing Co., 709 F.3d 662, 666 (7th
Cir. 2013) (quoting Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009)). A proper claim requires
only short and plain statements of jurisdiction and entitlement to relief, as well as a demand for
the relief sought. Fed. R. Civ. P. 8(a). However, the pleading “demands more than an
unadorned, the-defendant-unlawfully-harmed-me-accusation.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
A defendant may move to dismiss, pursuant to Rule 12(b)(6), if the plaintiff has failed to
state a claim upon which relief can be granted. Withstanding such a motion requires alleging
enough facts to support a claim that is “plausible on its face.” Chasensky v. Walker, 740 F.3d
1088, 1095 (7th Cir. 2014) (quoting Iqbal, 556 U.S. at 678)). Facial plausibility exists when the

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GlaxoSmithKline Biologicals, S.A. v. Hospira Worldwide, Inc., No. 13 Civ. 1395(PKC),
2013 WL 2244315 (S.D.N.Y. 2013).
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court can “draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 663. The court must consider context, but if it still must speculate, plausibility
is lacking. Id.
In most cases, a motion to dismiss should be decided on the complaint alone. Burke v.
401 N. Wabash Venture, LLC, 714 F.3d 501, 505 (7th Cir. 2013). Yet, a document “that is an
exhibit to a pleading is a part of the pleading for all purposes.” Fed. R. Civ. Pro. 10(c). “The
court is not bound to accept the pleader's allegations as to the effect of the exhibit, but can
independently examine the document and form its own conclusions as to the proper construction
and meaning to be given the material.” Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 661
(7th Cir. 2002) (citation omitted).
ANALYSIS
Choice-of-Law
The parties agree that New York law governs GSK’s breach of contract claim, and
New York’s choice-of-law rules determine under which state’s laws the remaining claims should
be analyzed. 2 However, Hospira argues that New York’s choice-of-law rules require all quasicontractual claims be resolved under Illinois law. New York applies a “center of gravity” test
that weighs significant contacts, including the locations of contracting, negotiations, and the
domicile of the parties. Lazard Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1539
(2d Cir. 1997) (citations omitted). It is apparent that the most significant contacts occurred in

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When a case is transferred from another district, the receiving court applies the choiceof-law rules the transferring district would apply. Cromeens, Holloman, Sibert, Inc. v. AB Volvo,
349 F.3d 376, 383 (7th Cir. 2003).
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Illinois. 3 The negotiation and execution of the Agreement occurred in Illinois, where Hospira is
domiciled. Accordingly, Illinois law controls the quasi-contract claims of promissory estoppel
(Count II) and quantum meruit (Count III) not subject to the choice-of-law provision within the
Agreement.
Hospira, Inc.
Hospira argues that Count I of the Amended Complaint must be dismissed as to
Hospira, Inc. because “only parties to a contract can be sued for breach. (Def. Mot. at 13.)
However, GSK alleges that Hospira, Inc. was, in fact, the signatory of Schedules 5 and 7 of the
Agreement. (Am. Compl. ¶ 14.) It is undisputed that the Agreement must be read in conjunction
with the various appended documents and schedules, including the Product Transfer
Specification (“PTS”). 4 Therefore, because the allegations in the Amended Complaint are
presumed true and read in the light most favorable to GSK, Hospira’s Motion to Dismiss Count I
is denied with respect to Hospira, Inc.
Breach of Contract With Respect to a TIV
The parties agree that the Agreement constituted a valid contract between GSK and
Hospira with respect to the TIV. GSK alleges that the Agreement was breached by Hospira, as
set out above, and that GSK notified Hospira of Hospira’s breaches on at least five occasions. 5

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The entire performance of the Agreement was intended to, and in large part did, take
place in Kansas, yet neither party argues that Kansas law should apply. Still, there are sufficient
contacts within Illinois to deem it the “center of gravity.”
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See, e.g., (Am Compl. ¶ 18) and (Def. Mot. at 3).
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GSK alleges it “informed” Hospira of Hospira’s breach on September 7, 2011;
“distributed to Hospira an audit report” detailing Hospira’s breach in October of 2011; and
provided notice to Hospira in written memoranda in November 2011, December 2011, and
February 2012.
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Hospira argues that these breaches are foreclosed by New York’s election of remedies doctrine,
which provides in breach of contract claims that the non-breaching party “can elect to terminate
the contract and recover liquidated damages or [it] can continue the contract and recover
damages solely for the breach.” ESPN, Inc. v. Office of the Comm’r of Baseball, 76 F. Supp. 2d
383, 387 (S.D.N.Y 1999) (quoting Bigda v. Fischbach Corp., 898 F. Supp. 1004, 1011-12
(S.D.N.Y. 1995) (Bigda II)) (alteration in original). That is, once a party has elected to continue
a contract despite a breach, it may never terminate based on that breach. Id. at 387-388.
Notwithstanding the clear language “terminate the contract and recover liquidated
damages” (emphasis added), Hospira argues that GSK’s failure to terminate the Agreement, and
eventually to attempt to work with Hospira to produce a QIV, precludes GSK’s ability to sue for
damages of any kind related to the TIV.
In support of this argument, Hospira relies in part on Alesayi Beverage Corp. v.
Canada Dry Corp., 947 F. Supp. 658 (S.D.N.Y. 1996). 6 However, the holding in Alesayi is
directly contrary to the well-established doctrine that “[d]espite an election to continue a

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In that case, Alesayi had breached its manufacturing and distribution agreements with
Canada Dry by dealing with a third company. Rather than terminate the contract, Canada Dry
elected to enter a modified agreement with Alesayi, which Alesayi subsequently also breached.
The district court held that, by entering into the modified agreement, Canada Dry had forgiven
all of Alesayi’s prior breaches and could collect only damages related to breach of the modified
agreement. In its assessment that Canada Dry had forgiven all breaches prior to the modified
agreement and, therefore, could not recover even damages, the district court cited Bigda v.
Fischbach Corp., 849 F. Supp. 895, 901 (S.D.N.Y. 1994) (Bigda I). Yet, Bigda I was a summary
judgment decision regarding a non-breaching party seeking termination and liquidated damages
after continued performance. In Bigda II the district court held that the election of remedies
doctrine rendered continued performance to be a bar to termination and liquidated damages,
expressly reserving the non-breaching party’s right to “recover damages solely for the breach.”
Bigda II, 898 F. Supp. at 1011.

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contract, the non-breaching party may later sue for damages due to the breach.” Marathon
Enters., Inc. v. Schroter GMBH & Co., No. 01 Civ. 0595(DC), 2003 WL 355238, at *6
(S.D.N.Y. Jun. 23, 2004) (citing Times Mirror Magazines, Inc. v. Field & Stream Licenses Co.,
103 F. Supp. 2d 711, 736 (S.D.N.Y. 2000)). Further, New York courts have consistently held
that a party that continues performance despite breach can lose its right to sue if it does not notify
the breaching party at the time of the breach. See, e.g., Hallinan v. Republic Bank & Trust Co.,
519 F. Supp. 2d 340, 351 (S.D.N.Y. 2007) (“If a party chooses to continue performance, it must
give notice of breach to the other side, or it waives its rights to sue the breaching party.”);
Purchase Partners, LLC v. CarverFed. Sav. Bank, 914 F. Supp. 2d (S.D.N.Y. 2012) (holding
non-breaching party’s notice of breach preserved right to sue for damages but not right to
terminate agreement). To hold that GSK had sacrificed all rights and not just to terminate or
pursue liquidated damages would render the notification requirement meaningless. As set out
above, GSK alleges it notified Hospira of the earlier breach. Accordingly, GSK has properly
pled breach of contract.
Quasi-Contract Claims
Lastly, Hospira argues that the absence of dispute over whether a contract existed with
respect to the TIV makes impossible any claim for quasi-contract relief. “Quasi-contractual
relief is available when one party has benefitted from the services of another under
circumstances in which, according to the dictates of equity and good conscience, he ought not to
retain such benefit.” Cromeens, Holloman, Sibert, Inc. v. AB Volvo, 349 F.3d 376, 397 (7th Cir.
2003) (quoting Barry Mogul & Assocs., Inc. v. Terrestris Dev. Co., 643 N.E.2d 245, 251 (Ill.
App. Ct. 1994)). However, there can be no quasi-contract relief when an express contract exists

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between the parties. Slameck v. Empire Kosher Poultry, Inc., 290 F. Supp. 2d 934, 938 (7th Cir.
2003). Therefore, a party may plead breach of contract or, if it is determined that no contract
exists, plead for quasi-contractual relief in the alternative. Cromeens, 349 F.3d at 397.
Hospira contends that GSK is precluded from pursuing quasi-contract claims because
there is “no dispute” as to the existence of a contract between the parties. (Def. Mot. at 15.)
However, GSK alleges a substantial dispute: that the contract allowed GSK to change the type
of vaccine produced from TIV to QIV, which Hospira denies. Therefore, the Motion to Dismiss
with respect to Counts II and III is denied.
CONCLUSION
For the foregoing reasons, Hospira’s Motion to Dismiss [53] is denied.

Date:

3/31/14

______________________________
JOHN W. DARRAH
United States District Court Judge

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