The Research Foundation of State University of New York v. Nektar Therapeutics, Inc.

Filing 167

MEMORANDUM-DECISION and ORDER - That Nektar's letter motion seeking permission to file corrected versions of its memorandum of law and statement of material facts (Dkt. No. 156) is GRANTED and those documents are deemed FILED. That Nektar 9;s motion for summary judgment (Dkt. Nos. 154, 156) is GRANTED IN PART and DENIED IN PART as follows: GRANTED to the extent that RF SUNY's claim for specific performance is DISMISSED as moot. DENIED in all other respects. That breach is esta blished with respect to the second Bayer milestone payment, leaving only the issue of damages for resolution at trial. That RF SUNY's motion for partial summary judgment (Dkt. No. 155) is DENIED. That Nektar's motion for sanctions due to spoliation of evidence (Dkt. No. 153) is DENIED. Signed by Chief Judge Gary L. Sharpe on 5/15/2013. (jel, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
________________________________
THE RESEARCH
FOUNDATION OF STATE
UNIVERSITY OF NEW YORK,
Plaintiff,

1:09-cv-1292
(GLS/CFH)

v.
NEKTAR THERAPEUTICS,
Defendant.
________________________________
APPEARANCES:
OF COUNSEL:
FOR THE PLAINTIFF:
Bond, Schoeneck Law Firm
One Lincoln Center
Syracuse, NY 13202
Fish, Richardson Law Firm
601 Lexington Avenue - 52nd Floor
New York, NY 10022

FOR THE DEFENDANT:
O’Melveny, Myers Law Firm
7 Times Square
Times Square Tower
New York, NY 10036

DAVID L. NOCILLY, ESQ.
STUART F. KLEIN, ESQ.

IRENE E. HUDSON, ESQ.
BRIAN D. COGGIO, ESQ.
CINDY CHANG, ESQ.
DAVID FRANCESCANI, ESQ.
ELIZABETH E. BRENCKMAN,
ESQ.
JENNIFER N. SCARPATI, ESQ.
YOUNG J. PARK, ESQ.

CHARLES E. BACHMAN, ESQ.
DANIEL J. FRANKLIN, ESQ.
LEAH GODESKY, ESQ.
ROBERTA HARTING
VESPREMI, ESQ.

Iseman, Cunningham Law Firm
9 Thurlow Terrace
Albany, NY 12203

JAMES P. LAGIOS, ESQ.

Gary L. Sharpe
Chief Judge
MEMORANDUM-DECISION AND ORDER
I. Introduction
Plaintiff The Research Foundation of State University of New York
(“RF SUNY”) commenced this diversity action against defendant Nektar
Therapeutics seeking specific performance, damages, and declaratory
relief. (See 2d Am. Compl., Dkt. No. 67.) Pending are Nektar’s motions
for summary judgment dismissing the Second Amended Complaint and
sanctions due to spoliation of evidence. (See Dkt. Nos. 153, 154; see also
Dkt. No. 156.1) RF SUNY has separately moved for partial summary
judgment. (See Dkt. No. 155.) For the following reasons, Nektar’s motion
for summary judgment is granted to the limited extent that it seeks
dismissal of RF SUNY’s claim for specific performance. Nektar’s motion

1

The court notes that Nektar’s letter motion seeking permission to
file a corrected memorandum of law and statement of material facts in
support of its motion for summary judgment is granted, and those
documents are deemed filed. (See Dkt. No. 156.)
2

for summary judgment is denied in all other respects. Moreover, upon
searching the record, the court grants summary judgment to RF SUNY on
a narrow issue discussed below, denies RF SUNY’s motion for partial
summary judgment, and denies Nektar’s motion for sanctions due to
spoliation of evidence.
II. Background
A.

Facts2
In 2003, RF SUNY, “a non-profit educational corporation” operating

“pursuant to an agreement with the State University of New York [(SUNY)]
to administer sponsored research programs for and on behalf of SUNY,”
and Nektar, a Delaware corporation and “clinical-stage biopharmaceutical
company,” entered into a contract (hereinafter “the Agreement”) related to
certain technology developed by Drs. Gerald Smaldone and Lucy Palmer,
employees of SUNY. (Pl.’s Statement of Material Facts (SMF) ¶¶ 1-2, 7,
14, Dkt. No. 155, Attach. 2; Def.’s SMF ¶¶ 4, 14, Dkt. No. 156, Attach. 2.)

2

Unless otherwise noted, the facts are undisputed. The court also
notes that, while the parties have taken great pains to protect certain
documents from becoming public, (see, e.g., Dkt. No. 55), the materials
relied upon by the court are drawn from publicly-filed documents that have
been attached to the parties’ motion papers.
3

The technology relates to, among other things, “methods for evaluating the
utility of various means and devices to deliver aerosolized agents to the
lung.” (Dkt. No. 154, Attach. 4 at 37.)
Under the Agreement, Nektar, which was granted an “exclusive
license to the [RF SUNY] Patents and Technology, and the right to
sublicense” the same, is obligated to pay RF SUNY “a fraction of Gross
Sublicensing Revenues” (GSR). (Pl.’s SMF ¶ 24; Dkt. No. 154, Attach. 4,
at 9.) The Agreement defines GSR as:
“all non-refundable or non-creditable milestone
payments or option or license fees [Nektar] and its
Affiliates receive from any non-Affiliated third party in
consideration of an option to negotiate for a license or
other authorization to practice TECHNOLOGY or
Licensed Patents, and any milestone payments or
option or license fees [Nektar] and its Affiliates
receive from any non-Affiliated third party pursuant to
a license, sublicense or other authorization to practice
TECHNOLOGY or Licensed Patents. Royalties,
amounts received to fund or reimburse research and
development activities of [Nektar] and its Affiliates
(including without limitation, reimbursement of those
amounts incurred by [Nektar] and its Affiliates prior to
granting an option to negotiate for a license or other
authorization to practice TECHNOLOGY or Licensed
Patents, or a license, sublicense or other
authorization to practice TECHNOLOGY or Licensed
Patents, as well as those amounts paid by [Nektar] to
[RF SUNY] in connection with the research and
development of Products), lines of credit to purchase
4

capital related to the development or manufacture of
Products, and amounts received by [Nektar] and its
Affiliates for the manufacture and supply of Products
(including Products for clinical trials) are not Gross
Sublicensing Revenues hereunder.”
(Dkt. No. 154, Attach. 4 at 35.) This provision is at the heart of the parties’
dispute.
The technology is part of what Nektar calls the “Amikacin Program.”
(Def.’s SMF ¶ 41.) In 2006, Bayer Healthcare LLC “expressed interest in
jointly developing the Amikacin Program with Nektar.” (Id. ¶ 69.) Bayer’s
interest culminated in a contract with Nektar (hereinafter “the Bayer
Agreement”) that, in part, granted Bayer sublicensing rights to the
technology. (Id. ¶¶ 81-82.) The Bayer Agreement required Bayer to make
“several ‘milestone payments’ if Nektar achieved certain milestone events,
including execution of the [Bayer Agreement] itself.” (Pl.’s SMF ¶ 34.) The
first milestone payment of $50 million, which was due forty-five days from
the Bayer Agreement’s effective date, was characterized in the agreement
as “reimbursement by Bayer for Nektar’s past investment in PDDS
Platform Technology, and including partial reimbursement for acquisition of
Aerogen assets in connection with Exploitation of the Product.” (Dkt. 154,
Attach. 17 at 40; see Def.’s SMF ¶ 84.) In 2005, prior to negotiation or
5

execution of the Bayer Agreement, Nektar had acquired Aerogen, Inc. and
its intellectual property assets, which included a platform, known as PDDS,
to deliver an inhaled antibiotic. (Def.’s SMF ¶ 44; Dkt. No. 154, Attach. 56
at 9; Dkt. 154, Attach. 61 at 23.) Bayer timely made the first milestone
payment of $50 million. (See Def.’s SMF ¶ 101.) Bayer made a second
milestone payment of $10 million to Nektar in May 2008. (See id. ¶ 123.)
The Bayer Agreement required Nektar to use the second milestone to
reimburse Bayer’s development costs of conducting any “Phase III Clinical
Trial.” (Dkt. No. 154, Attach. 17 at 40-41.) Additional milestone payments
may become due over the life of the Bayer Agreement depending upon the
occurrence of certain events; the final such payment would become due
upon the commercial launch of a particular product. (See id. at 40.)
On October 20, 2008, Nektar and Novartis Pharmaceuticals Corp.
and Novartis Pharam AG (collectively “Novartis”) “executed an asset
purchase agreement under which Nektar transferred certain physical and
intellectual property assets to Novartis in exchange for $115 million”
(hereinafter “the Novartis Agreement”). (Def.’s SMF ¶ 129; see id. ¶ 25.)
While the Agreement was specifically excluded from the transfer of assets
from Nektar to Novartis, (see Dkt. No. 154, Attach. 35 at 2), the Novartis
6

Agreement granted Novartis an option to sublicense RF SUNY’s
technology upon request (see Def.’s SMF ¶ 141; Dkt. No. 154, Attach. 34
at 50).
In July 2009, RF SUNY retained accountant Daniel Burns to “review
Nektar’s [research and development (R&D)] expenses associated with the
Amikacin Program through an audit” expressly permitted under the
Agreement. (Def.’s SMF ¶ 47.; Dkt. No. 154, Attach. 4 at 14.) More
specifically, the audit was intended “to determine whether Bayer’s
payments to Nektar ‘were reimbursement for past R&D costs.’” (Def.’s
Resp. SMF ¶ 58, Dkt. No. 157, Attach. 1.) This litigation followed soon
after.
B.

Procedural History
RF SUNY commenced this action in November 2009. (See Compl.,

Dkt. No. 1.) After filing an amended complaint with the court’s permission,
RF SUNY filed the operative Second Amended Complaint in accordance
with a stipulation of the parties. (See Dkt. Nos. 46, 47, 62; 2d Am. Compl.)
In its pleading, RF SUNY asserts claims for specific performance of its
auditing rights, breach of contract regarding the Bayer Agreement and
Novartis Agreement, a declaration of contractual rights and future
7

obligations under the Agreement, and a breach of the implied duty of good
faith and fair dealing with respect to Nektar’s negotiation, drafting,
execution and/or performance of the Bayer Agreement. (See Dkt. No. 67
¶¶ 76-102.) After joinder of issue and the completion of discovery, the
parties filed the instant motions. (See Dkt. Nos. 68, 153, 154, 155.)
III. Standard of Review
A.

Summary Judgment
The standard of review pursuant to Fed. R. Civ. P. 56 is well

established and will not be repeated here. For a full discussion of the
standard, the court refers the parties to its decision in Wagner v. Swarts,
827 F. Supp. 2d 85, 92 (N.D.N.Y. 2011).
B.

Spoliation of Evidence
“Spoliation is the destruction or significant alteration of evidence, or

the failure to preserve property for another’s use as evidence in pending or
reasonably foreseeable litigation.” West v. Goodyear Tire & Rubber Co.,
167 F.3d 776, 779 (2d Cir. 1999). A party seeking an adverse inference
instruction based on spoliation must show that: (1) a duty to preserve the
evidence existed at the time it was destroyed; (2) the evidence was
“destroyed with a culpable state of mind;” and (3) the “evidence was
8

relevant to the party’s claim or defense such that a reasonable trier of fact
could find that it would support that claim or defense.” Twitty v. Salius, 455
F. App’x 97, 99 (2d Cir. 2012) (internal quotation marks and citation
omitted). The necessary showing of culpability, which poses a legal
question for the court to decide, is determined sui generis, but may be
supported by proof of intentional destruction, bad faith, gross negligence,
or ordinary negligence. See Residential Funding Corp. v. DeGeorge Fin.
Corp., 306 F.3d 99, 109 n.4 (2d Cir. 2002); Byrnie v. Town of Cromwell,
Bd. of Educ., 243 F.3d 93, 108 (2d Cir. 2001); GenOn Mid-Atl., LLC v.
Stone & Webster, Inc., 282 F.R.D. 346, 358 (S.D.N.Y. 2012). Other than
the relative nature of the terms, there are no concrete definitions for the
states of mind relevant to this case—gross and ordinary negligence.
“[A] showing of gross negligence in the destruction or untimely
production of evidence will in some circumstances suffice, standing alone,
to support a finding that the evidence was unfavorable to the grossly
negligent party.” Residential Funding Corp., 306 F.3d at 109 (emphasis
added). Thus, the same evidence establishing gross negligence “will
frequently also be sufficient to permit a jury to conclude that the missing
evidence is favorable to the party (satisfying the ‘relevance’ factor).” Id.
9

(emphasis added).3
IV. Discussion
A.

Summary Judgment
1.

Nektar’s Motion

The court addresses first Nektar’s motion. Nektar argues that,
because the unambiguous language defining GSR in the Agreement
excludes reimbursements for R&D and refundable milestone payments, RF
SUNY’s claim for breach of contract regarding Bayer’s first and second
milestone payments should be dismissed because they were not GSR.
(See Dkt. No. 156, Attach. 1 at 18-20.) Regarding the Novartis breach of
contract claim, Nektar contends that the payment it received from Novartis

3

Nektar, relying on GenOn, overstates the law in this regard,
claiming that a showing of gross negligence automatically entitles it to a
rebuttable presumption that the third prong is met. See GenOn, 282
F.R.D. at 358; (Dkt. No. 162 at 9.) Indeed, this court is aware of no such
pronouncement by the Second Circuit, and a careful reading of the other
case Nektar relies upon, Orbit One Communications, Inc. v. Numerex
Corp., 271 F.R.D. 429, 441 (S.D.N.Y. 2010), (see Dkt. No. 162 at 9 n.16),
confirms the proper rule of law: “once it has been established that
discovery-relevant material has been destroyed in bad faith or through
gross negligence, it may be presumed that it would have been harmful to
the spoliator.” (emphasis added); see Chin v. Port Auth. of N.Y. & N.J.,
685 F.3d 135, 162 (2d Cir. 2012) (“[A] finding of gross negligence merely
permits, rather than requires, a district court to give an adverse inference
instruction.”).
10

is not GSR because it did not transfer the technology to Novartis. (See id.
at 20-21.) Moreover, Nektar claims that the Novartis payment is not GSR
because the option it was granted “has no value.” (Dkt. No. 163 at 6; see
Dkt. No. 156, Attach. 1 at 31 n.13.) Generally speaking, Nektar argues
that RF SUNY’s interpretation of the Agreement is flawed, and that
extrinsic evidence cannot be considered to interpret it. (See Dkt. No. 156,
Attach. 1 at 21-25.) Alternatively, Nektar asserts that, if extrinsic evidence
may be considered, it demonstrates that the first milestone payment “was a
reimbursement of [its] R&D expenditures and that [it] did not transfer the
. . . [t]echnology to Novartis.” (Id. at 25-35.)
Moving on to RF SUNY’s claim for breach of the implied covenant of
good faith and fair dealing related to the Bayer Agreement, Nektar argues
that it too should be dismissed because: (1) it is duplicative of RF SUNY’s
breach of contract claim; (2) the Agreement cannot be read to imply a term
in direct conflict with its express language; and (3) there is no evidence of
breach by virtue of the fact that Nektar merely permissibly exercised its
contractual rights. (See id. at 35-43.) Nektar next contends that RF
SUNY’s remaining claim of specific performance is moot and is a
remedy—as opposed to a cause of action—and that no independent cause
11

of action lies for a “declaration of contractual rights and future obligations.”
(Id. at 44-45.)
In response, RF SUNY asserts that Nektar’s interpretation of the
Agreement is invalid. (See Dkt. No. 159 at 18-25.) In particular, RF SUNY
argues that the Bayer milestone payments are GSR because, under the
Agreement, the reimbursement exclusion to the GSR provision only applies
to non-milestone payments, and only refundable payments made “in
consideration of an option to negotiate for a license or other authorization
to practice” avoid the GSR provision. (Id. at 18-20.) RF SUNY also urges
the court to adopt its definition of the term “reimbursement,” which it
contends “requires a prior obligation to repay,” i.e., “repayment for past
services requested.” (Id. at 21-25.) In the event that the court does not
hold that “reimbursement” requires some prior obligation, RF SUNY argues
that issues of fact—namely, whether the opinion of its accounting expert
Steven Stanton demonstrates that Bayer’s first milestone payment was not
a bona fide reimbursement, Nektar’s tax and accounting treatment of the
first milestone payment suggests the same, and Nektar’s claim that certain
expenses were part of R&D has been called into question by Stanton and
RF SUNY’s licensing expert Mark Edwards—exist which require denial of
12

Nektar’s motion as to the first milestone payment. (See id. at 25-33.)
As for the Novartis payment, RF SUNY asserts that whatever portion
of that payment is attributable to the option that Nektar granted Novartis is
GSR. (See id. at 33-34.) Moving to its claim of breach of the implied
covenant of good faith and fair dealing, RF SUNY alleges that it is not
duplicative of the breach of contract claim pertaining to the Bayer
Agreement because it is premised upon Nektar’s conduct in the formation
of the Bayer Agreement as opposed to its purported breach of the
Agreement. (See id. at 39-41.) Moreover, RF SUNY contends that
Nektar’s argument that it was merely acting within the scope of the
Agreement is belied by the fact that the Agreement does not permit Nektar
to intentionally avoid the GSR payment provision. (See id. at 41-42.)
Finally, RF SUNY argues that its remaining claims for specific performance
and declaratory judgment should not be dismissed. (See id. at 42-43.)
Specific performance, RF SUNY claims, is supported by Nektar’s
independent breach of the Agreement for failing to comply with its requests
related to the audit; and declaratory relief is appropriate with respect to
Nektar’s pronouncement that it will “continue to deduct its [R&D] expenses
from any monies due [RF SUNY] under the GSR-sharing provisions in the
13

[A]greement.” (Id.)
Initially, the court notes that the Agreement is governed by New York
law. (See Def.’s SMF ¶ 29; Dkt. No. 156, Attach. 1 at 18 n.10.) Under
New York law, “[t]he elements of a cause of action for breach of contract
are (1) formation of a contract between plaintiff and defendant; (2)
performance by plaintiff; (3) defendant’s failure to perform; and (4) resulting
damage.” Clearmont Prop., LLC v. Eisner, 58 A.D.3d 1052, 1055 (3d
Dep’t) (internal quotation marks and citation omitted). The defendant’s
performance, or nonperformance as the case may be, often turns on
interpretation of the parties’ agreement.
If the contractual language is clear and unambiguous, the court, as a
matter of law, enforces the provisions in accordance with their plain and
ordinary meaning. See Vintage, LLC v. Laws Constr. Corp., 13 N.Y.3d
847, 849 (2009). Where ambiguity is absent from the contract, extrinsic
evidence generally cannot be considered in its interpretation. See W.W.W.
Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990). “Ambiguity is
present if language was written so imperfectly that it is susceptible to more
than one reasonable interpretation.” Brad H. v. City of N.Y., 17 N.Y.3d
180, 186 (2011). Whether an agreement is ambiguous is a question of law
14

answered by the court. See Riverside S. Planning Corp. v. CRP/Extell
Riverside, L.P., 13 N.Y.3d 398, 404 (2009). And “[w]hen the interpretation
of an ambiguous contract depends on extrinsic evidence, it presents a
question of fact for a jury.” See Arrow Commc’n Labs., Inc. v. Pico Prods.,
Inc., 219 A.D.2d 859, 860 (4th Dep’t 1995); see also Sutton v. E. River
Sav. Bank, 55 N.Y.2d 550, 554 (1982).
First, the court notes that, in some ways, the language of the
Agreement is ambiguous, and yet, in other ways, it is unambiguous.
Beginning with the first Bayer milestone payment, the Agreement itself
states that:
[r]oyalties, amounts received to fund or reimburse
[R&D] activities of [Nektar] and its Affiliates
(including without limitation, reimbursement of those
amounts incurred by [Nektar] and its Affiliates prior to
granting an option to negotiate for a license of other
authorization to practice TECHNOLOGY or Licensed
Patents, or a license, sublicense or other
authorization to practice TECHNOLOGY or Licensed
Patents, as well as those amounts paid by [Nektar] to
[RF SUNY] in connection with the research and
development of Products), lines of credit to purchase
capital related to the development or manufacture of
Products, and amounts received by [Nektar] and its
Affiliates for the manufacture and supply of Products
(including Products for clinical trials) are not Gross
Sublicensing Revenues hereunder”

15

(hereinafter “the reimbursement exclusion clause”). (Dkt. No. 154, Attach.
4 at 35 (emphasis added).) The parties disagree as to the meaning of the
word “reimburse,” with RF SUNY contending that reimbursement connotes
a “prior obligation to repay.” (Dkt. No. 159 at 21-25.) Despite the
commentary in Mathisen ex rel. Mathisen v. Secretary of the Department of
Health & Human Services, No. 92-0703V, 1994 WL 808593, at *2-3 (Fed.
Ct. Cl. 1994), that “reimburse” reasonably “carries the connotation of a
legal obligation,” the court is not convinced that the meaning of
“reimburse,” as used in the Agreement, is unambiguous. In other words,
the parties advance reasonable competing interpretations of the word
“reimburse.”
Moreover, RF SUNY’s contention, (see Dkt. No. 159 at 18-19), that
the language in the sentence preceding the reimbursement exclusion
clause—“any milestone payments . . . pursuant to a license, sublicense or
other authorization to practice TECHNOLOGY or Licensed
Patents”—demonstrates that the reimbursement exclusion clause can only
pertain to non-milestone payments, is a reasonable reading of the
Agreement. Otherwise stated, the Agreement is susceptible to more than
one reasonable interpretation as to the application of the reimbursement
16

exclusion clause to non-milestone payments, rendering it ambiguous. As
such, interpretation of the reimbursement exclusion clause presents
questions of fact for the jury. As made clear by the extensive briefing and
evidence submitted in support thereof, if the jury should find that the
reimbursement exclusion clause is applicable to a milestone payment
made for R&D expenses in the absence of a prior obligation to repay,
triable issues of fact remain as to whether the “reimbursement” was bona
fide and the expenses considered R&D by Nektar were, in fact, R&D
expenses. (See, e.g., Def.’s SMF ¶¶ 42, 43, 49, 52, 70, 71, 74.)
Whether the second Bayer milestone payment is GSR turns on an
interpretation of unambiguous language. As relevant here, the Agreement
provides that:
“‘Gross Sublicensing Revenues’ means [(1)] all
non-refundable or non-creditable milestone payments
or option or license fees [Nektar] and its Affiliates
receive from any non-Affiliated third party in
consideration of an option to negotiate for a license or
other authorization to practice TECHNOLOGY or
Licensed Patents, and [(2)] any milestone payments
or option or license fees [Nektar] and its Affiliates
receive from any non-Affiliated third party pursuant to
a license, sublicense or other authorization to practice
TECHNOLOGY or Licensed Patents.”
(hereinafter “the GSR definitions provision”). (Dkt. No. 154, Attach. 4 at
17

35.) The only reasonable interpretation of the GSR definitions provision is
that refundability pertains to the first, but not the second, clause. Indeed,
the modifiers “non-refundable or non-creditable” are present in the first
clause alone, and the second clause refers to “any milestone payments” as
opposed to “all non-refundable or non-creditable milestone payments.”
(Id.) The plain language indicates that non-refundability is not a
requirement of the second clause. Despite the competing interpretations
offered by the parties, a refundable milestone payment “in consideration of
an option to negotiate for a license or other authorization to practice
TECHNOLOGY or Licensed Patents” does not meet the definition of GSR
provided by the first clause of the GSR definitions provision. Any such
refundable milestone payment is excluded from the definition of GSR even
if the milestone payment meets the requirements of that clause other than
non-refundability. On the other hand, a milestone payment received
“pursuant to a license, sublicense or other authorization to practice
TECHNOLOGY or Licensed Patents” meets the definition of GSR provided
by the second clause of the GSR definitions provision whether such
payment is refundable or not. Here, there is no dispute that Bayer made
the second milestone payment pursuant to a sublicense, and not in
18

consideration of an option to negotiate for a license or other authorization.
(See Def.’s SMF ¶ 82.) Thus, the second Bayer milestone payment is
GSR under the second clause of the GSR definitions provision.
While RF SUNY did not seek summary judgment on this claim, the
court may nonetheless grant it judgment because the issue has been
squarely presented by Nektar. See New England Health Care Emps.
Union, Dist. 1199, SEIU AFL-CIO v. Mount Sinai Hosp., 65 F.3d 1024,
1030 (2d Cir. 1995). The only outstanding issue for trial as to RF SUNY’s
claim related to the second Bayer milestone payment is damages.
Pursuant to the first clause of the GSR definitions provision, the
Novartis payment of $115 million is also GSR to the extent, if any, that
such payment was an option fee “in consideration of an option to negotiate
for a license or other authorization to practice TECHNOLOGY.” (Dkt. No.
154, Attach. 4 at 35.) The parties dispute whether any portion of the
Novartis payment was made in consideration of the option to sublicense
the technology. (Compare Def.’s SMF ¶¶ 143-45, with Pl.’s Resp. to Def.’s
SMF ¶¶ 143-45, Dkt. No. 160.) While Novartis and Nektar claim that
neither assigned any value to the option, thus demonstrating that no
portion of the payment was an option fee, (see Def.’s SMF ¶¶ 143-45),
19

Nektar’s own expert certified licensing professional, Louis Berneman,
opined that, “conceptually, in economic terms, . . . option[s] ha[ve] value,”
(Dkt. No. 160, Attach. 2 at 6-7, 61-62). While the court recognizes that the
first clause of the GSR definitions provision requires that some
remuneration be made “in consideration of” an option in order for that
payment to be GSR, an issue of fact remains regarding what, if any,
portion of the Novartis payment was given in consideration of the option.
The implied covenant of good faith and fair dealing, inherent in all
contracts, requires that neither party engage in behavior to destroy or
injure the other’s right to receive the fruits of the agreement. See 6243
Jericho Realty Corp. v. AutoZone, Inc., 71 A.D.3d 983, 984 (2d Dep’t
2010). The covenant cannot be construed in a way to nullify express
contractual terms, or, in other words, an implied obligation flowing from the
covenant can only be found where it is consistent with express terms of the
agreement. See Murphy v. Am. Home Prods. Corp., 58 N.Y.2d 293, 304
(1983). A claim premised on such conduct should be dismissed as
duplicative if based upon the same facts underpinning a pleaded breach of
contract claim. See MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 87
A.D.3d 287, 297 (1st Dep’t 2011); 2470 Cadillac Res., Inc. v. DHL Express
20

(USA), Inc., 84 A.D.3d 697, 698 (1st Dep’t 2011).
Nektar’s argument that this claim should be dismissed as duplicative,
(see Dkt. No. 156, Attach. 1 at 35-36), is without merit. The facts
supporting the breach of contract claim related to the Bayer milestone
payments are different than the basis of RF SUNY’s breach of the implied
covenant of good faith and fair dealing claim. See Elmhurst Dairy, Inc. v.
Bartlett Dairy, Inc., 97 A.D.3d 781, 784-85 (2d Dep’t 2010). The latter
claim is premised on RF SUNY’s allegation that Nektar breached “in
connection with its negotiation, drafting, execution and/or performance of”
the Bayer Agreement; the former relies on Nektar’s allegedly improper
refusal to pay RF SUNY a percentage of the milestone payments. (2d Am.
Compl. ¶¶ 85, 101.) Nektar’s remaining arguments on this claim, (see Dkt.
No. 156, Attach. 1 at 36-43), rely, in part, on assumptions about issues that
will be determined during trial. Accordingly, summary judgment is denied
on RF SUNY’s claim of breach of the implied covenant of good faith and
fair dealing.
Turning next to RF SUNY’s claim denoted as “[s]pecific
[p]erformance of [a]udit [r]ights,” (2d Am. Compl. ¶¶ 76-82), assuming that
it is properly pleaded as a “claim,” it is nonetheless dismissed as moot.
21

See Lillbask ex rel. Mauclaire v. Conn. Dep’t of Educ., 397 F.3d 77, 84 (2d
Cir. 2005). Nektar asserts that it “agreed to permit RF SUNY to audit its
books and records” after November 2009 and that RF SUNY has since
obtained “robust discovery through the litigation process.” (Dkt. No. 156,
Attach. 1 at 44-45.) As narrowed by its response, RF SUNY contends only
that “[c]ontrary to Nektar’s assertions, [it] has not produced, nor denied the
existence of, any valuations of the . . . [t]echnology, including valuations
conducted at the time of the Novartis acquisition.” (Dkt. No. 159 at 43.)
However, with its reply, Nektar furnished the affirmation of Gil Labrucherie,
senior vice president, general counsel, and secretary to Nektar, in which
he declares that “Nektar does not currently possess any valuations of the .
. . [t]echnology, including any valuations conducted at the time [that] the
Novartis [Agreement] was executed.” (Dkt. No. 163, Attach. 6 ¶¶ 2, 5; see
Dkt. No. 163 at 9-10.) Labrucherie’s affirmation defeats RF SUNY’s sole
argument against finding its claim for specific performance moot.
Accordingly, RF SUNY’s claim seeking specific performance is dismissed.
Finally, the cases that Nektar relies on for the proposition that RF
SUNY’s claim for declaratory relief must be dismissed are readily
distinguishable from this case. (See Dkt. No. 156, Attach. 1 at 45.) In both
22

Chevron Corp. v. Naranjo, 667 F.3d 232, 244-45 (2d Cir. 2012), and Dow
Jones & Co. v. Harrods, Ltd., 237 F. Supp. 2d 394, 420 (S.D.N.Y. 2002),
relief based upon the Declaratory Judgment Act (DJA), 28 U.S.C. §§ 22012202, was, in essence, the only claim before the court. The conclusion of
those courts that dismissal was warranted because the DJA does not
create an independent cause of action does not apply where, as here,
there are other substantive claims asserted demonstrating an “actual
controversy.” 28 U.S.C. § 2201(a). Indeed, “a court may only enter a
declaratory judgment in favor of a party who has a substantive claim of
right to such relief.” In re Joint E. and S. Dist. Asbestos Lit., 14 F.3d 726,
731 (2d Cir. 1993). Even in Alloush v. Nationwide Mutual Fire Insurance
Co., No. 1:05-CV-1173, 2008 WL 544698, at *5-6 (N.D.N.Y. Feb. 26,
2008), the court found that, of the two pressed claims—for breach of
contract and relief under the DJA—there was no breach as a matter of law,
and, thus, it had no live controversy before it such that it could grant
declaratory relief.
As recognized by RF SUNY, (see Dkt. No. 159 at 43), while the court
may properly make a declaration of the future rights and obligations of the
parties, its decision to so act is discretionary. See 28 U.S.C. § 2201(a)
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(“[A]ny court . . . may declare the rights and other legal relations of any
interested party seeking such declaration.” (emphasis added)); Pub. Affairs
Assocs. v. Rickover, 369 U.S. 111, 112 (1962). “[A] court must entertain a
declaratory judgment action: (1) when the judgment will serve a useful
purpose in clarifying and settling the legal relations in issue, or (2) when it
will terminate and afford relief from the uncertainty, insecurity, and
controversy giving rise to the proceeding.” Cont’l Cas. Co. v. Coastal Sav.
Bank, 977 F.2d 734, 737 (2d Cir. 1992). It is plain to the court that both
prongs are met in this case. Notably, Nektar makes no argument about
whether the court should exercise its discretion. (See Dkt. No. 156, Attach.
1 at 45; Dkt. No. 163 at 10.) Thus, Nektar’s motion is denied as to this
claim.
2.

RF SUNY’s Motion

RF SUNY’s motion for partial summary judgment on the breach of
contract claim related to the Bayer milestone payments contains several of
the same kinds of arguments it makes in response to Nektar’s motion on
that claim. In a nutshell, RF SUNY claims that there is no applicable
reimbursement exception to the GSR-sharing provision that Nektar claims
entitled it to refuse to share any portion of the milestone payments with RF
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SUNY. (See generally Dkt. No. 155, Attach. 1 at 11-22.) For the reasons
stated above, see supra Part.IV.A.1, RF SUNY’s motion for partial
summary judgment is denied.
B.

Spoliation
Turning to the issue of spoliation of evidence, Nektar argues that RF

SUNY’s failure to preserve documents related to this litigation warrants an
adverse inference instruction and monetary sanctions—in particular,
Nektar seeks “to recover the costs and fees associated with investigating
RF SUNY’s discovery failures and [its spoliation] motion.” (Dkt. No. 153,
Attach. 1 at 19.) Nektar further contends that RF SUNY’s duty to preserve
evidence arose in mid-2009, the time that it should have known that
evidence may have been relevant to future litigation, it was grossly
negligent in its efforts to preserve documents,4 and the spoliated evidence
is relevant to Nektar’s defense. (See id. at 11-18.) Specifically, on the
issue of culpability, Nektar asserts that RF SUNY was grossly negligent
because it failed “to timely issue written litigation-hold notices,” “preserve

4

Nektar argues that an adverse inference instruction is warranted
even if RF SUNY was merely negligent. (See Dkt. No. 153, Attach. 1 at
17.)
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all relevant backup-tape data,” and “suspend its auto-delete practices.”
(Dkt. No. 162 at 4-9; see Dkt. No. 153, Attach. 1 at 12-17.) RF SUNY
responds by arguing that it had no duty to preserve until October 2009, its
preservation was adequate in any event, and Nektar fatally failed to identify
any documents relevant to its defense. (See generally Dkt. No. 158.)
After carefully reviewing the evidence, the court does not agree with
Nektar that RF SUNY’s document retention efforts were grossly negligent.5
Indeed, RF SUNY had in place, since 2001, a comprehensive standard
document preservation policy, issued both verbal and written litigation hold
notices, preserved backup tapes of emails from before commencement,
and confirmed that no custodian had deleted any documents related to this
matter. (See Dkt. No. 160, Attach. 2 at 246, 251-53, 261-63, 266, 271,
630.) While there may have been some shortcomings in RF SUNY’s
document retention protocol, it was, at most, negligent in its effort to
preserve evidence related to this litigation. As such, the discretionary
5

It is noted that RF SUNY’s duty to preserve began in October 2009
when Nektar refused to fully cooperate with RF SUNY’s audit, causing it to
contemplate litigation. See Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d
423, 436 (2d Cir. 2001) (“The obligation to preserve evidence arises when
the party has notice that the evidence is relevant to litigation or when a
party should have known that the evidence may be relevant to future
litigation.”); (Dkt. No. 160, Attach. 2 at 147, 148, 231.)
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presumption articulated in Residential Funding Corp. does not apply in any
event.
Nektar’s spoliation motion fails, then, on the “inability [of Nektar] to
adduce evidence suggesting the existence, let alone destruction, of
relevant documents.” Kullman v. New York, No. 8:07-cv-716, 2012 WL
1142899, at *2 (N.D.N.Y. Apr. 4, 2012). Indeed Nektar acknowledges that
it would be “impossible” for it “to prove what RF SUNY may have
destroyed.” (Dkt. No. 162 at 10.) And, despite its contention that
circumstantial evidence demonstrates that events surrounding the
commencement of this litigation “likely led to a significant number of
[relevant] communications,” it has failed to meet its burden of establishing
the relevance prong. (Dkt. No. 153, Attach. 1 at 18.) Accordingly, Nektar’s
spoliation motion seeking an adverse inference instruction and monetary
sanctions is denied.
V. Conclusion
WHEREFORE, for the foregoing reasons, it is hereby
ORDERED that Nektar’s letter motion seeking permission to file
corrected versions of its memorandum of law and statement of material
facts (Dkt. No. 156) is GRANTED and those documents are deemed
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FILED; and it is further
ORDERED that Nektar’s motion for summary judgment (Dkt. Nos.
154, 156) is GRANTED IN PART and DENIED IN PART as follows:
GRANTED to the extent that RF SUNY’s claim for specific
performance is DISMISSED as moot; and
DENIED in all other respects; and it is further
ORDERED that breach is established with respect to the second
Bayer milestone payment, leaving only the issue of damages for resolution
at trial; and it is further
ORDERED that RF SUNY’s motion for partial summary judgment
(Dkt. No. 155) is DENIED; and it is further
ORDERED that Nektar’s motion for sanctions due to spoliation of
evidence (Dkt. No. 153) is DENIED; and it is further
ORDERED that the Clerk provide a copy of this MemorandumDecision and Order to the parties.
IT IS SO ORDERED.
May 15, 2013
Albany, New York

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