RxUSA Inc et al v. Capital Returns Inc et al

Filing 126

ORDER signed by Chief Judge Rudolph T Randa on 07/10/2009 denying 88 121 Motion for Summary Judgment. The Court will initiate and conduct a telephonic status conference on August 13, 2009 at 10:00 am (CST). The purpose of the call will be to schedule this matter for trial and a final pretrial conference. (cc: all counsel) (Koll, J)

UNITED STATES DISTRICT COURT E A S T E R N DISTRICT OF WISCONSIN

R x U S A , Inc. and RxUSA INTERNATIONAL, Inc.,

P l a i n t if f s , C a s e No. 06-C-790 -vs-

C A P I T A L RETURNS, Inc., CLAUDE A. DANCE, P E T E M. SKLADANEK and JOHN DOES 1-10,

Defendants.

D E C IS IO N AND ORDER

P lain tiff s Rx USA, Inc. and RxUSA International, Inc. (collectively "RxUSA") sell p h a rm a c eu tic a l products to retailers, wholesalers and institutions. Defendant Capital

R e tu rn s , Inc. ("Capital Returns" or "Capital") is a reverse distributor of pharmaceutical p ro d u c ts engaged in the business of returning pharmaceutical products to manufacturers on b e h a lf of clients and arranging for the destruction of outdated and non-returnable p h a r m a c e u t ic a l products. In 2003, RxUSA contracted for the use of Capital Returns' reverse d i str ib u tio n services. R x U S A argues that it was promised and entitled to almost $1.7 million in return for its pharmaceuticals but received only $827,034.02. RxUSA brings claims in diversity for

in ten tio n a l misrepresentation, breach of warranty, negligence and breach of contract.1 C a p i ta l Returns alleges a breach of contract counterclaim for unpaid commission payments. N o w before the Court is Capital's motion for summary judgment. For the reasons that f o llo w , this motion is denied. BACKGROUND P la in tif f s RxUSA and RxUSA International are foreign corporations, both of which a re incorporated in New York. RxUSA is comprised of different divisions, some of which a re retail sellers of pharmaceuticals, some of which are wholesale sellers. Robert Drucker o w n s 80% of RxUSA. Mark Scovotti owns 20% of RxUSA. Defendant Capital Returns is a Wisconsin corporation. Defendant Claude A. Dance (" D a n c e " ) is the Vice-President of Sales and Marketing for Capital Returns. Mr. Dance is a resident of Wisconsin. Defendant Pete M. Skladanek ("Skladanek") is a Regional Account R e p re se n ta tiv e for Capital Returns. Mr. Skladanek is a resident of Wisconsin.2 In the pharmaceutical industry, manufacturers typically provide various types of credit f o r outdated or expired pharmaceutical products returned by their distributors. The process o f returning such outdated pharmaceuticals for credit is known as "reverse distribution." C a p ita l Returns functions as a reverse distributor, handling the logistics and details of the re tu rn process for distributors and manufacturers in exchange for a fee.

1

RxUSA withdrew its accounting claim during the course of summary judgment briefing.

This matter was originally filed in the Eastern District of New York, but transferred here pursuant to a valid fo r u m selection clause.

2

-2-

I.

I n itia l Solicitation In 2003, Ronald Roach ("Roach") was the Institutional Business Manager for Capital

R e tu rn s . Roach was in charge of supervising the institutional sales team and generating new sa les opportunities. Roach was authorized to prepare and send out sales proposals to p o ten tial customers. He had standard form proposals on his computer that he would fill-in w ith customer-particular information. O n or about October 8, 2003, Roach sent a written Pharmaceutical Returns M a n a g e m en t Proposal to RxUSA. The proposal indicated that Capital Returns would s e p a r a t e returnable from non-returnable products and determine the return value of the re tu rn a b le products in accordance with manufacturers' then-existing policies. Capital would a ls o send to RxUSA a "compliance portfolio" which contained the details of the return (i.e., w h a t was returnable and what was not), according to the then-existing policy of each ap p lica b le manufacturer. The Compliance Portfolio was supposed to contain "the return s u m m a ry and the outdate report of what happened with all of the drugs [received from R x U S A ] and why," as well as the waste detail. In the initial solicitation, Capital represented that its "compliance portfolio" would c o n ta in an "Estimated Return Value" or "ERV" applicable to what Capital determined to be th e returnable portion of the products submitted by RxUSA for return. Capital generally c a lc u la te s ERV based upon manufacturer policies. The initial solicitation stated that RxUSA w o u ld be assured of a "realistic return value." Capital's salespeople explained to potential cu stom ers that ERV was the amount of credit which could be reasonably expected in return

-3-

f o r expired goods.

RxUSA understood that ERV equaled the creditable amount, as

c a lcu late d by Capital in conformance with manufacturer policies, which RxUSA should rec eive for outdated returnable product. "Creditable" means the dollar amount Capital's c lie n t expected to receive from the manufacturer in credits. In the initial solicitation, Capital represented that it would prepare a "Return S u m m a ry" (as part of the Compliance Portfolio) which broke down Capital's ERV by m an u fa c tu rer, detailing the credits that RxUSA would receive from each manufacturer. C a p ita l also represented that it would prepare a "Waste Detail Report" (as part of the C o m p l ia n c e Portfolio) indicating which of RxUSA's products were not returnable. The first p ro p o s a l further contained a section entitled "100% Guarantee" stating as follows: "Capital R e tu rn s guarantees that customers actively participating in the program will receive 100% o f the Estimated Return Value. If the Estimated Return Value is less than 100%, we will is s u e the pharmacy a credit for the difference of our service fee." T h e initial solicitation requested a fee of 7% of Capital's ERV. The initial solicitation c o n tain e d additional representations, to wit: (1) Capital would "partner with RxUSA to e n s u r e that RxUSA received the maximum possible amount of credit for its returned p h a r m a c e u tic a l products; (2) Capital would provide "a comprehensive service that m a x im iz e s credit return to RxUSA"; (3) Capital maintained a "complete tracking system for b o th returnable and non-returnable pharmaceutical products"; (4) Capital would "access a d a ta b a se of over 350,000 line items, which was updated continuously with current m a n u f ac tu re rs ' return policies" and was current as of the month RxUSA provided a pre-

-4-

sh ipm en t inventory analysis of product being sent, so as to ensure that all returns were p ro p e rly submitted and all funds claimed were received by RxUSA; (5) RxUSA was assured o f receiving a realistic return value; (6) Capital would "prepare all pharmacy products for re tu rn according to the manufacturers' instructions" including "completing forms, faxing for R e tu rn Goods Authorization numbers, or calling for special instructions"; (7) Capital would a c cu ra te ly separate returnable products from nonreturnable products based upon current m a n u f a c tu re r policy; (8) Capital would maintain, on file at its offices, copies of all " C e rtific a tes of Destruction" of all non-returnable products that are sent by Capital to waste in c in e ra tio n facilities for destruction. F in ally, the initial solicitation represented that "accounts are processed within ten (10) b u s in e ss days of receipt." It contained a section entitled "Partnership Commitments," which p rov ided that Capital would "partner with RxUSA to provide proactive information to return re a l dollars to RxUSA's pharmacy budgets." II. S e c o n d Solicitation O n October 9, 2003, Roach and Deborah Kanak ("Kanak"), Capital's Director of S a l e s and Sales Support, sent a revised proposal to RxUSA. It contained the same

re p re se n ta tio n s that were included in the initial proposal, except that it contained a requested f e e of 3% of Estimated Acquisition Cost ("EAC"), not ERV. EAC is a term of art in the p h a rm a c eu tic a l distribution industry. It is an estimate of the price paid by the distributor w h e n it purchased the product. EAC is not always the same as ERV, i.e., the value of the cre d it a manufacturer will give for returnable product, particularly as different manufacturers

-5-

h a v e different return policies and may not provide any credit at all. EAC includes the cost to acquire product that is both returnable and non-returnable waste. T h e second solicitation also contained a description of an additional service, an e x tra n e t based system operated by Capital called the "CapNet Online Returns Information A cc ess" program. The CapNet system was set up to draw information from Capital's d a ta b a se and put it on the internet so that it would be accessible to Capital's clients. That in f o rm a tio n included net return value statistics and real-time access to all returns data. It was a significant selling point to Capital's clients that they could track their return online in s ta n ta n e o u s ly. RxUSA was never given access to this system. III. F u r th e r Solicitations O n October 10, 2003, Roach made additional written representations to RxUSA. The th ird solicitation stated that by "partnering with Capital Returns, Inc., the leader in p h a rm a c e u tica l returns processing, you will realize the benefits of the best returns service in th e industry." It stated that Capital's "customized reports offer comprehensive information d etailin g the estimated credit due from each manufacturer so you know what to expect." It re p re se n te d that RxUSA would receive a "personal account manager" who would be R x U S A 's "partner," would "facilitate the returns process" and "address any concerns that m a y arise." It stated that RxUSA would receive a "professional customer service

re c o n cilia tio n representative" who would "research the status of [RxUSA's] credit and p ro v id e [RxUSA] with up to date information." Finally, the letter stated that RxUSA should " sim p ly ship all outdated pharmaceuticals together" to Capital and Capital "will take care of

-6-

th e rest." The letter emphasized that RxUSA should "choose Capital Returns, Inc. as [its] p a rtn e r in pharmaceutical returns management." O n or about October 17, 2003, Capital (through defendant Dance) sent RxUSA a d o c u m e n t entitled "Capital Returns ­ Partner with the Leader in Pharmaceutical Returns M a n a g e m e n t ." This document contained a synopsis of various manufacturer return policies, i n c l u d i n g the statement that "indirect accounts must include wholesaler information and D E A # to avoid a delay in processing." This solicitation also included the returned goods p o lic ie s of eleven manufacturers. Only two of those manufacturers (Ovation

P h a rm a c eu tic a ls and UDL Laboratories) limited returns to "direct accounts only," i.e., those e n titie s which purchased goods directly from those manufacturers (as opposed to having p u r c h a s e d them from a reseller). All others accepted return goods from indirect purchasers, s u c h as RxUSA. RxUSA did not attempt to return any goods from Ovation or UDL. T h e fourth solicitation also represented that CapNet, "the industry's first on-line re tu rn s information program," was "available exclusively to [Capital's] business partners," a n d provided a "bird's eye view of all member returns delivered right to [RxUSA's] d esk top ." It further stated that RxUSA would have "real time access" to "current return d a ta " which would allow them to "instantaneously ascertain what the status was of any p a rtic u la r product that had been returned." C a p i ta l was the "end user" for some pharmaceutical manufacturers. For those m a n u f a c tu re rs, Capital would receive goods, determine which of the same were returnable o r creditable according to the manufacturer's policies, notify the manufacturer of that

-7-

d e te rm in a tio n , and then destroy the returnable product.

Once Capital made that

d e te rm in a ti o n , there was no further review by the manufacturer. Capital was the end user f o r 11 manufacturers in 2003. IV . F in a l Negotiations O n or about October 14, 2003, Roach, on behalf of Capital, sent a proposed agreement to RxUSA. The proposed agreement provided for a fee of 6.25% of ERV, defined as "an e stim a te of the refunds and/or credits to be obtained from the manufacturer/wholesaler based u p o n a bid price of a current Wholesaler Acquisition Cost (WAC) price of the products, w h ic h e v e r is applicable." O n October 15, Mark Scovotti from RxUSA sent an email to Roach, stating that he f o u n d "no guarantee" in the proposed contract. In a subsequent conversation with Roach, R x U S A stated that it had seen a "guarantee" in the prior solicitations and inquired as to why it was not contained in the proposed contract. Roach replied that it was unnecessary to place it in the contract because it was contained in the solicitation materials and that it was, th e re f o re , a normal contractual responsibility for Capital. Roach pointed out that the p ro p o s e d contract contained a provision stating that the agreement included the "normal c o n tra c tu a l responsibilities" for each party, which would cover the responsibilities listed in th e solicitations. In a subsequent conversation with Mr. Roach, Mr. Scovotti from RxUSA advised that it wanted Capital to hold any product deemed returnable for a period of time to obtain a r e tu r n authorization from the applicable manufacturer authorizing a return of the goods.

-8-

F a ilin g the obtainment of a return authorization, Scovotti wanted the goods returned to R x U S A . RxUSA specifically stated that it "wanted to get back the product that Capital said w a s returnable but that the manufacturer wouldn't take back." Roach thereafter discussed R x U S A 's concerns with defendant Claude Dance. A s a result of those discussions, on October 16, Dance sent an e-mail to RxUSA, s ta tin g that Capital "delivers what it presents," maximizes the value of returns, ensures " a cc u r a c y of production" and "access to useful information," and commits to a 10-day tu rn a ro u n d . The October 16 email contained two pricing options: (1) 5.5% of Capital's ERV o r (2) 2.5% of EAC. Neither ERV nor EAC were defined in Dance's email. O n October 17, Mr. Scovotti from RxUSA sent an e-mail to Mr. Dance stating that R x U S A chose the EAC-based fee structure. RxUSA also repeated that it was "concerned a b o u t product that your company deems returnable but the manufacturer does not," and asked " w h a t happens in this scenario?" Later the same day, Dance responded by saying that it w o u ld "hold inventory (returnable) for 30 days if we have not received approval for the re tu rn we can send back to you as requested." Capital never returned product to RxUSA, w h e th e r a Return Authorization was generated or not. O n multiple occasions between October 17 and October 20, Dance orally represented to RxUSA that once Capital determined the ERV of RxUSA's pharmaceutical goods, R x U S A would receive 100% thereof within, at most, ninety days, because Capital p u r p o r te d l y represented the various manufacturers involved in the return, was acting as those

-9-

m a n u f ac tu re rs ' agent, and was therefore authorized to commit to the return value to be re c eiv e d within the represented ninety-day time frame. O n October 20, RxUSA forwarded to Capital a pro forma document setting forth the p h a rm a c eu tic a l products that RxUSA intended to deliver to Capital for processing if an ag ree m en t could be reached, and requested that Capital give RxUSA an oral ball park e stim a te as to the return value of the same. On October 20, Dance orally warranted and re p re se n te d to RxUSA that the return value of the materials was in excess of $1.7 million. D a n c e did not ask RxUSA whether the goods had been acquired directly from the m an u fa ctu re rs or through another wholesaler. V. S e r v ic e Agreement O n October 20, Capital and RxUSA entered into a one-year Service Agreement. S e c tio n 11 of the Service Agreement states: "Return Policy. Capital Returns will process p h a rm a c eu tic a l product to obtain available manufacturer credit. Capital Returns does not w a rra n t that any current manufacturer refund policies will continue or that any processing o f outdates will result in a credit to RxUSA. In the event RxUSA elects to have Capital R e tu rn s ship any creditable inventory to RxUSA, Capital Returns shall not be held liable in a n y manner for the safety or efficacy of such inventory and as a licensed distributor in the s ta te of Wisconsin is governed by PDMA CRF 200-299." The Service Agreement also c o n tain s an integration clause which states: "Entire Agreement. This Agreement contains t h e full agreement between the parties. The parties herein intend and agree that this A g re e m e n t is to be executed as a Wisconsin Agreement and to be construed in accordance

-10-

w ith the laws of the State of Wisconsin." Despite the lack of a specific provision, Capital u n d erst o o d that RxUSA had the right to have its product returned in the event that no Return A u t h o r iz a tio n was received within thirty days of processing the RxUSA goods. R x U S A explicitly chose the terms of Capital's commission rate, 2.5% of EAC, which g a v e Capital Returns a lower percentage commission based on the entire estimated amount o f the return (both returnable and unreturnable product) versus a higher percentage c o m m is s io n based on returnable product only.3 Even before the Service Agreement was e x e c u ted , Defendant Dance stated that Robert Ryan, the Chief Executive Officer of Capital, b e lie v e d that the 2.5% of EAC service fee agreed to by Capital was too low, and further a d m itte d that Ryan "may be right." V I. P e r fo r m a n c e Under the Service Agreement T h e Service Agreement contained a provision that "shipping charges from RxUSA to Capital Returns will be prepaid by or charged to RxUSA." The Agreement also provides, in the same section, that Capital is solely responsible for "shipping and handling costs from C ap ital Returns to the manufacturer(s)." On October 20, 2003, before any goods were s h ip p e d by RxUSA to Capital, Skladanek sought to upcharge those freight charges as fo llo w s: "This is a new acct. that is sending us 6 skids collect via Roadway soon. Since part o f their contract is that they will be paying for the ship-in charges (after-the-fact), we need

Section 4 of the Service Agreement provides: "Service fee will be 2.50% of the estimated acquisition value ( E A C ) of all inventory shipped to Capital Returns for processing. Capital Returns will invoice RxUSA directly. . . . EAC s h a ll mean the total value associated with the return based upon the bid price or a discounted average wholesale price ( A W P ) of all products returned to Capital Returns."

3

-11-

to be sure that these charges are added to the folder before we mail out the invoice. Per C la u d e we will be adding a 10% service fee to these collect charges as well . . ." 4 O n or about October 21, 2003, and before any shipment was made by RxUSA to C a p ital, Skladanek sent an e-mail to RxUSA, thanking RxUSA for "partnering" with Capital, a n d representing that Capital had "one vision ­ to structure customized returns management p ro g ra m s for our customers that will maximize the values of the returns . . ." Skladanek o f f e r e d to answer any questions about "our partnership." According to Skladanek, the use o f the word "partnering" by Capital was a "sale term" intended to "be construed by RxUSA a s meaning that there would be a relationship of trust between the parties." In or about early November 2003, RxUSA shipped pharmaceutical products to Capital f o r return processing. On or about November 11, 2003, Capital sent to RxUSA a formal R eturn Detail Report showing that Capital's calculation of the Return Value of RxUSA's g o o d s was $1,733,962.73 and a Waste Detail Report showing the value of non-returnable g o o d s was $45,932.61.5 B a se d upon the Service Agreement and the accompanying representations from C a p i ta l, RxUSA expected to receive $1,733,962.55 (the amount of Capital's ERV), less
4

On November 4, 2003, Capital sought to further upcharge those freight expenses, and bill in advance for " p o te n t ia l " additional charges, when Defendant Dance directed the following: "we may be sending some inventory back, w e will need to estimate this cost and add it to the freight bill, in addition I would suggest as a minimum a 20% upcharge. . . ." Capital billed RxUSA for $1,353.39 in shipping charges. It is unclear if any of this amount was related to up ch arg es. The W a ste Detail Report set forth the reasons why Capital deemed such goods "nonreturnable," including: (1) t h e manufacturer accepts only full cases, (2) the manufacturer does not accept outdates, (3) the manufacturer accepts d i r e c t accounts only (i.e., returns from entities that purchased the goods directly from the manufacturer), (4) the m a n u fa c tu r e r does not accept returns at all, (5) the product is beyond its permissible return date and (6) the manufacturer d o e s not accept partial returns. None of those reasons for rejection appeared on Capital's report with respect to the r e tu r n a b le goods which Capital represented had a return value of $1,733,962.73.
5

-12-

C a p ita l's 2.5% fee ($43,349.06) in manufacturers' credits within 90 days (on or before F e b ru a ry 11, 2004). Capital obtained for RxUSA the aggregate sum of only $827,034.02 in m an u fa ctu re rs' credits, only a small percentage of which was procured on or before February 1 1 , 2004. Capital either shipped out RxUSA's inventory for return to the various

m a n u f a c tu re rs or destroyed it pursuant to the manufacturer's policy. R x U S A failed to receive more credit primarily for the following reasons: · A p o te x , one of the "big 3" manufacturers, refused to provide a $380,305.76 c r e d it to RxUSA until RxUSA produced original invoices to Apotex for the p ro d u ct returned. In a letter dated August 3, 2004 to RxUSA from Apotex's c o u n se l, Apotex advised RxUSA that the denial of credit to RxUSA tried to p ro c e ss its return through McKesson Drug Company though Apotex had d e te rm in e d that a majority of the product had not been purchased through M c K e s s o n . Though Apotex was still willing to grant credit if RxUSA p ro d u c e d invoices, RxUSA refused to provide any invoices for the product R x U S A claimed to have purchased. P L IV A refused to provide an estimated credit of $297,346.59 because RxUSA w a s not a "direct buyer" of the product from the manufacturer. PLIVA also re q u e ste d proof of purchase that was never forthcoming.

·

B y the middle of December 2003, RxUSA started to press Capital for reports as to w h ic h product shipped at what time. On December 22, 2003, defendants Skladanek and D an ce advised Rx USA's principal, Robert Drucker, that Capital received Return A u th o riz a tio n s for all of the RxUSA goods at Capital's ERV values, that those goods had p u rp o rte d ly been shipped to the respective manufacturers, and that credits for the goods w o u ld be issued shortly. When RxUSA asked for a breakdown of that, Skladanek advised R x U S A that he would prepare a spreadsheet, to include the Return Authorization and the d a te s , and fax it to RxUSA.

-13-

T h e following day, Skladanek sent an internal e-mail to Dance attaching a draft of a ta b le containing a breakdown, by manufacturer, ERV, Return Authorization and ship date, o f the RxUSA return. Skladanek asked for information regarding ship dates to manufacturers f o r RxUSA products that were highlighted in his table. A few hours later, after seeing the tab le and the highlighted portions that did not include any ship dates, Dance sent an e-mail to Capital's CEO, wherein Dance admitted that "on the call yesterday [with RxUSA] we sold s o m e th in g much different as for ship outs ­ I hope we find our information is wrong, either w a y it stinks." O n December 29, Capital (through Skladanek) sent to RxUSA a table of what p u rp o rte d to be a breakdown, by manufacturer, of RxUSA's returnable product, setting forth C ap ital's ERV, the Return Authorizations received for that ERV, the dates of the Return A u tho riza tio n s, and whether or not the product was actually shipped to the manufacturer. T h e table was sent to "let [RxUSA] now [sic] that they could expect to receive $1,700,000 a n d change." However, the return to Pliva (Sidmak) indicated an ERV of $297,056.59, but th e actual Return Authorization was for only $15,735.96 according to Pliva's return policy. A d d itio n a lly, Capital never received any Return Authorizations from almost half (14 of 30) o f the manufacturers reflected in the table. Capital destroyed all of the product that it re c eiv e d from RxUSA that it did not ship out, whether that product was creditable or not, and re f u se d to give RxUSA any information it was receiving regarding credits being issued by m a n u f a c tu re rs. By February 2, 2004, all of RxUSA's product had been returned for credit

-14-

o r destroyed pursuant to manufacturer's policy and direction. At that time, Capital simply s to p p e d responding to RxUSA's requests for information. A N A L Y SIS U n d er Rule 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a m a tte r of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The Court must accept a s true the evidence of the nonmovant and draw all justifiable inferences in his favor. See A n d e rs o n v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Ultimately, the "plain language o f Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery a n d upon motion, against a party who fails to make a showing sufficient to establish the e x is te n c e of an element essential to that party's case, and on which that party will bear the b u rd e n of proof at trial." Celotex, 477 U.S. at 322. I. I n t e n tio n a l Misrepresentation 6 In Wisconsin, a common law claim for intentional misrepresentation contains the f o llo w in g elements: (1) defendant made a factual representation; (2) which was untrue; (3) th e defendant made the representation knowing it was untrue or made it recklessly without c a rin g whether it was true or false; (4) the defendant made the representation with intent to d e f ra u d and to induce another to act upon it; and (5) the plaintiff believed the statement to

RxUSA's tort claims ­ misrepresentation and negligence ­ are not barred by the economic loss doctrine b e c a u s e the contract between RxUSA and Capital is a contract for services. See Ins. Co. of N. Am. v. Cease Elec. Inc., 2 7 6 W is . 2d 361, 365, 688 N.W.2d 461, 2004 W I 139. The parties agree that W is c o n s i n law applies.

6

-15-

b e true and relied upon it to his/her detriment. See Kaloti Enters., Inc. v. Kellogg Sales Co., 2 8 3 Wis. 2d 555, 569, 699 N.W.2d 205, 2005 WI 111. Wisconsin law generally limits f ra u d u le n t misrepresentation to present, or preexisting, material facts, not to any promises o f future events. See U.S. Oil Co. v. Midwest Auto Care Servs., Inc., 150 Wis. 2d 80, 86, 440 N .W .2 d 825 (Wis. Ct. App. 1989) (citing Hartwig v. Bitter, 29 Wis. 2d 653, 656, 139 N .W .2 d 644 (1966)). Wisconsin recognizes a limited exception to this rule when the promise is made with a present intention not to perform in the future. See Guyer v. Cities Service Oil C o ., 440 F. Supp. 630, 632 (E.D. Wis. 1977) (citing Alropa Corp. v. Flatley, 226 Wis. 561, 5 6 6 , 277 N.W. 108 (1938)). To be actionable, such inducements must be promises "upon w h ic h the purchaser has a right to rely." Id. In other words, the claimant's reliance must be ju s tif ia b le or reasonable. See Ritchie v. Clappier, 109 Wis. 2d 399, 404, 326 N.W.2d 131, 1 3 4 (Ct. App. 1982). R x U S A helpfully reduces its evidence of misrepresentation into two general c a te g o rie s : (1) misrepresentations regarding Capital's general business practices; and (2) m is re p re se n ta tio n s specific to the relationship between Capital and RxUSA. The central m i s re p re se n ta tio n is Capital's alleged guarantee that customers would receive 100% of C a p ita l's ERV calculation. C a p ita l initially argues that any alleged statements outside of the Service Agreement a re inadmissible under the parol evidence rule. The parol evidence rule renders evidence of m isre prese n ta tio n inadmissible to contradict the written terms of an unambiguous agreement. S e e State v. Conway, 26 Wis. 2d 410, 417, 132 N.W.2d 539 (1965). However, the parol

-16-

e v id e n c e rule is inapplicable in the context of a tort claim for misrepresentation. In other w o rd s , parol evidence is not offered by RxUSA to contradict the terms of the written Service A g re e m e n t. See, e.g., Winger v. Winger, 82 F.3d 140, 146 (7th Cir. 1996) ("Plaintiff . . . b rin g s a tort claim for intentional misrepresentation that is independent of a cause of action fo r breach of contract. . . . The parol evidence rule does not bar evidence of Defendant's inten tio n al misrepresentation") (emphasis in original). C a p ita l argues that RxUSA could not reasonably rely upon the alleged m is r e p r e se n ta tio n s because they are contradicted by the express terms of the Service A g re e m e n t. See Amplicon, Inc. v. Marshfield Clinic, 786 F. Supp. 1469, 1478 (W.D. Wis. 1 9 9 2 ); Durkee v. Goodyear Tire & Rubber Co., 676 F. Supp. 189, 193 (W.D. Wis. 1987). S e c tio n 20 of the Service Agreement contains an integration clause which states that "This A g re e m e n t contains the full agreement between the parties." D. 91, Exhibit C, Section 20. H o w e v e r, the agreement also provides that it "will include the normal contractual re sp o n s ib ilitie s for each party." Id., Section 2. According to the evidence provided by R x U S A , Capital represented that the "normal contractual responsibilities" language would e n c o m p a s s representations that were not included in the Service Agreement that was u ltim a te ly reduced to writing. This creates an issue of fact regarding the reasonableness of R x U S A 's reliance upon representations outside of the Service Agreement. M o re specifically, Capital argues that it was unreasonable to rely upon the repeated g u a ra n te e that RxUSA would receive 100% of its ERV because the guarantee was c o n tra d ic te d by the Service Agreement. Section 11 of the Service Agreement provides that

-17-

" C a p ita l Returns does not warrant that any current manufacturer refund policies will continue o r that any processing of outdates will result in a credit to RxUSA" (emphasis added). H o w e v e r, this language does not necessarily contradict the alleged 100% guarantee. Section 1 1 does not refer to ERV, and ERV is not referenced anywhere else in the Agreement. A d iffe ren t (and reasonable) interpretation is that the language "processing of outdates" refers to the time period during which Capital conducts its evaluation of goods to determine ERV. P u r s u a n t to this interpretation, the alleged "100% of ERV" guarantee applies after Capital s e p a ra te d returnable from nonreturnable goods (i.e., after the process is completed). In other w o rd s , the language is not as clear as Capital claims it to be. The Court cannot conclude that R x U S A 's reliance was unreasonable as a matter of law in light of the language in the Service A g re e m e n t. C ap ital further argues that RxUSA cannot prove that Capital's representations were m a d e with a present intention not to perform. See Durkee, 676 F. Supp. at 193. Capital's u ltim a te failure to perform cannot establish a present intention not to perform the alleged m is re p re s e n ta tio n s . Id. at 194. However, Capital goes farther by completely denying that it made an unqualified "100% of ERV" guarantee. Assuming, as the Court must, that such a guarantee was actually made, Capital's complete and total denial "is open to no other in te rp re t a t i o n than that there was no intention of performing the guaranty at the time [d ef en d an t] made such representation to the plaintiffs." Anderson v. Tri-State Home

Im p r o v e m e n t Co., 268 Wis. 455, 463, 67 N.W.2d 853 (1955).

-18-

In addition, RxUSA provides evidence of defendants' insistence that they were bound o n ly by the written terms of the Service Agreement. For example, defendant Dance testified a s follows: Q : So, if it is not in your contract, you don't provide it? A : Our contracts would determine what we do. Q : Right. Nothing else? Nothing that you might have said to th e client before; nothing that you might have put in a document b e f o re ; the only thing that you provide is what's in the contract, rig h t? A : That's correct. (D . 105, Dance Deposition at 98).7 This gives rise to the inference that Capital's prec o n tra c tu a l representations were made only for the purpose of inducing the contract, and th e r e was no present intention to perform on those promises. F in a lly, Capital argues that RxUSA's fraud claim should be dismissed for failure to p r o v e or create an issue of fact on damages. Capital's damages argument is waived because it was raised for the first time on reply. See Kelso v. Bayer Corp., 398 F.3d 640, 643 (7th C ir. 2005).8 Setting aside the waiver, there is enough evidence in the record to create an

Dance further testified that if a promise or representation was "not in the contract, that would not be an o b lig a tio n [of Capital], even if he included the promise or representation in an e-mail to RxUSA." See Dance Deposition a t 105. For the first time in its reply, Capital also argues in a footnote that its pre-contractual guarantees were " m e a n i n g l e s s sales patter" and "puffery." Capital's alleged "100% of ERV" promise was not a subjective representation. On summary judgment, the Court cannot conclude that it was unreasonable for RxUSA to rely upon any of the alleged m i s r e p r e s e n t a t i o n s , including the "100% of ERV" promise. See Corley v. Rosewood Care Center, Inc. of Peoria, 388 F . 3 d 990, 1008-09 (7th Cir. 2004) ("The phrase `high quality' is highly subjective. . . . W ith o u t elaboration, it comes u n d e r the category of sales puffery upon which no reasonable person could rely in making a decision . . .").
8

7

-19-

issue of fact regarding whether RxUSA was damaged by acting in reliance on Capital's f r a u d u le n t misrepresentations. II. B re a ch of Warranty R x U S A 's breach of warranty claim is based on Capital's written and oral "100% of E R V " guarantee. The initial solicitation provides that "Capital Returns guarantees that cu stom ers actively participating in the program will receive 100% of the Estimated Return V a lu e . If the Estimated Return Value is less than 100%, we will issue the pharmacy a credit fo r the difference of our service fee" (emphasis added). Capital argues that the guarantee in th e first sentence is qualified by the second sentence, which states that Capital will cut its c o m m is s io n percentage if RxUSA does not receive 100% of ERV. At best, the emphasized lang u ag e is ambiguous as to how it impacts the initial guarantee. Clearly, there is some form o f guarantee here, supplemented by oral representations that were not accompanied by any s u b s ta n tiv e limitations. Under the well-established rule that contractual ambiguities must be c o n stru e d against the drafter, the Court cannot dismiss RxUSA's claim based upon a plain la n g u a g e reading. See Wisconsin Label Corp. v. Northbrook Prop. & Cas. Ins. Co., 233 Wis. 2 d 314, 328, 607 N.W.2d 276, 2000 WI 26. The Court sees little relevance in distinguishing b e tw e e n a qualified or an unqualified guarantee. T h e main question is whether the guarantee (in whatever form) is enforceable. Capital in v o k e s the parol evidence rule again, this time in its appropriate context. Capital portrays th e Service Agreement as a completely integrated contract, one which precludes the in tro d u c tio n of parol evidence to vary its terms. The Court already discussed the relevant

-20-

c o n tra c t provisions in the context of its "reasonable reliance" argument. In short, Section 2 0 's integration clause ("This Agreement contains the full agreement between the parties") is limited by Section 2 (contract "will include the normal contractual responsibilities for each p a rty" ). Taken together, these two provisions render the Service Agreement only partially in te g ra te d . "When a writing is shown to be only a partial integration of the agreement r e a c h e d by the parties, it is proper to consider parol evidence which establishes the full ag ree m en t, subject to the limitation that such parol evidence does not conflict with the part th a t has been integrated in the writing." Production Credit Ass'n v. Rosner, 78 Wis. 2d 543, 5 4 8 , 255 N.W.2d 79 (1977). The Court also held, supra, that the language in Section 11 (p e rta in in g to the "processing of outdates") does not conflict with the alleged "100% of E R V " guarantee. Therefore, RxUSA's parol evidence in support of its breach of warranty claim is admissible to supplement the terms of the written Service Agreement. The Court's ratio n al e applies with equal force to RxUSA's Breach of Contract Claim (Count V).9 III. N e g lig e n c e ­ Bailment C a p ita l argues that this claim should be dismissed because RxUSA raised the concept o f bailment for the first time in response to Capital's motion for summary judgment. This a rg u m e n t is without merit. Both the current version of RxUSA's complaint and the original c o m p la in t alleged that "Capital was negligent in dealing with the goods delivered to it by P lain tiff s in that it failed to exercise that duty of care which is exercise [sic] by similarly

This is a new claim in RxUSA's amended complaint. The Court granted leave to file this amendment after C a p ita l filed its motion for summary judgment. The parties agree that their arguments with respect to the breach of w a r r a n ty claim also apply to this new claim.

9

-21-

situ a ted entities in handling such goods and obtained credits therefore." D. 26, Complaint, ¶ 55.1 0 These allegations encompass the legal concept of bailment. Under the notice p le a d in g standard, a plaintiff is only required to plead "claims, not facts or legal theories." V in c e n t v. City Colleges of Chicago, 485 F.3d 919, 923 (7th Cir. 2007). Capital always had n o tic e of RxUSA's claim pursuant to the pleadings, which distinguishes this case from the c a s e s cited by Capital. See Conner v. Illinois Dept. of Natural Resources, 413 F.3d 675, 679 (7 th Cir. 2005); E.E.O.C. v. Lee's Log Cabin, Inc., 546 F.3d 438, 443 (7th Cir. 2008) (d is tin g u is h in g a "mere adjustment in the legal theory of the case" from "a major alteration o f `what the claim is' and the `grounds upon which it rests'"). RxUSA's use of a bailment th e o ry in response to Capital's motion for summary judgment is not an impermissible a ttem p t to amend the complaint. A bailment is created by "the delivery of personal property from one person to another to be held temporarily for the benefit of the bailee, the bailor, or both." Yao v. Chapman, 287 W is . 2d 445, 458, 705 N.W.2d 272, 2005 WI App 200. A bailment may be created pursuant to an express or implied contract. Id. "Under a bailment, `the word contract is used in a b ro a d sense.' . . . [A] bailment is rooted in tort principles of negligence, not contract." Id. a t 467. Accordingly, the relevant duty is defined by general tort principles, although the duty m a y arise from a contractual relationship. See Bushweiler v. Polk County Bank, 129 Wis. 2 d 357, 359, 384 N.W.2d 717 (Ct. App. 1986); Burns v. State, 145 Wis. 373, 128 N.W. 987, 9 9 0 (1910). This accords with the general rule in Wisconsin that "a breach of contract is not
RxUSA does withdraw the language "and obtained credits therefore" from the pleadings in response to C a p i t a l ' s motion for summary judgment. This alteration does not prejudice Capital.
10

-22-

a tort, but a contract may create the state of things which furnishes the occasion of a tort. . . . the `state of things' which arises out of a contract furnishes the occasion for the tort, but n o t the underlying duty for the tort." Landwehr v. Citizens Trust Co., 110 Wis. 2d 716, 7222 3 , 329 N.W.2d 411 (1983) (citing Colton v. Foulkes, 259 Wis. 142, 47 N.W.2d 901 (1951)). C a p ita l argues that a bailment was not created because the contract did not c o n te m p la te the return of pharmaceutical goods to RxUSA. "The law is that, in order to c o n stitu t e a bailment, there must be an agreement, expressed or implied, to redeliver the p ro p e rty bailed when the purpose of the bailment has been fulfilled." Am. Nat. Red Cross v . Banks, 265 Wis. 66, 69, 60 N.W.2d 738 (1953). However, there is evidence in the record s u g g e stin g that Capital agreed to return goods to RxUSA that were deemed unreturnable by th e manufacturers.1 1 In other words, Capital undertook a duty to safeguard and ultimately re tu rn that portion of the pharmaceutical products which, as it turned out, could not be su b m itte d to the manufacturer for credit. Capital may be held liable for negligence under this t h e o r y. C a p ital also argues that this claim should be dismissed because RxUSA fails to p r o v id e evidence of damages. Once again, this argument was raised for the first time in C a p ita l's reply, so the argument is waived for purposes of summary judgment. See Kelso, 3 9 8 F.3d at 643.1 2 RxUSA should have the opportunity to prove that it was damaged by

This evidence contradicts Section 4 of the Service Agreement, which provides that "Capital Returns will take th e responsibility of arranging for destruction of all non-returnable pharmaceutical products . . ." The Court must resolve t h i s conflict in favor of RxUSA, the nonmoving party. This is true even though RxUSA did not raise the concept of bailment until it responded to Capital's motion fo r summary judgment. Damages is a necessary element of any claim for negligence.
12

11

-23-

C a p ita l's alleged negligence at trial. See United States v. Crown Equip. Corp., 86 F.3d 700, 7 0 7 (7th Cir. 1996) ("the general measure of damages for tort claims involving the complete d e stru c tio n of personal property [is] the fair market value of the property at the time and p lace of its destruction"). IV . C a p ita l's Counterclaim F in a lly, Capital moves for summary judgment on its counterclaim for unpaid c o m m is s io n payments.1 3 Section 4 of the Service Agreement provides for a Service fee of " 2 .5 0 % of the estimated acquisition cost (EAC) of all inventory shipped to Capital Returns." It is unclear whether the calculations in the invoice (D. 120, Exhibit B) are based upon EAC o r ERV. This issue of fact precludes summary judgment on Capital's counterclaim. A ls o , RxUSA's duty to pay Capital's commission may be excused by a material b re a c h . See Management Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 1 5 8 , 183, 557 N.W.2d 67 (1996). The issue of whether a party's breach excuses the other p a rty's future performance is a question of fact under Wisconsin law. See id. at 184. The C o u rt cannot resolve this issue of fact in the context of Capital's motion for summary ju d g m e n t.

The amount of the invoice is $46,194.12. Capital alleges in the amended answer that the amount due and o w in g on the invoice is $43,242.01.

13

-24-

N O W , THEREFORE, BASED ON THE FOREGOING, IT IS HEREBY O R D E R E D THAT: 1. 2. C a p i ta l' s motion for summary judgment [D. 88, 121] is DENIED; and T h e Court will initiate and conduct a telephonic status conference on

A u g u s t 13, 2009 at 10:00 am (CST). The purpose of the call will be to schedule this matter f o r trial and a final pretrial conference. D a te d at Milwaukee, Wisconsin, this 10th day of July, 2009. S O ORDERED,

s / Rudolph T. Randa HON. RUDOLPH T. RANDA Chief Judge

-25-