47 F. Supp. 3d 941
N.D. Cal.2014Background
- Volcano merged with CardioSpectra in Dec 2007 for about $25.2 million, with four earn‑out milestones totaling $38 million if OCT products met targets.
- Milestone 1: $11M upon regulatory approval of Gen 1 OCT System by 2009; Milestone 2: $10M upon FDA approval/510(k) by 2010; Milestones 3–4: $10M by 2013 and $7M by 2014 upon cumulative OCT product sales.
- Plaintiffs contend Volcano breached the MERGER Agreement by not using good faith/commercially reasonable efforts to achieve Milestone 2.
- Plaintiffs also contend Axsun Technologies’ post‑merger sales count toward Milestones 3 and 4, which Volcano disputes.
- Court granted Volcano summary judgment on Milestones 2–4 and denied sanctions; contract interpretation governs OCT Products and precludes Axsun sales from Milestones 3–4.
- Milestone 1 was satisfied; Milestone 2 disputed fact pattern; court finds OCT Products definition unambiguous and Axsun not included under Milestones 3–4.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Milestone 2: were efforts commercially reasonable and in good faith? | Pltfs. claim Volcano failed good faith/commercial efforts. | Volcano asserts proper good faith and commercially reasonable efforts per Merger Agreement. | Volcano granted summary judgment on good faith and attempts to achieve Milestone 2. |
| Do Axsun post‑acquisition sales count toward Milestones 3–4? | OCT Products include Axsun laser sources as part of OCT system. | OCT Products defined to four categories from CardioSpectra assets; Axsun not included. | Volcano granted summary judgment; Axsun sales do not count toward Milestones 3–4. |
| Is OCT Products definition ambiguous, allowing broad open‑ended interpretation? | OCT Products broadly includes any OCT component. | Definition limited to four categories; parenthetical explains consoles; unambiguous. | Unambiguous; plaintiffs’ broad interpretation rejected. |
| Anticipatory breach claim viability? | Volcano effectively abandoned commercialization of Gen 1 OCT System. | No clear repudiation or impossibility before November 2013 commercial failure. | Anticipatory breach claim dismissed; no legal repudiation shown. |
Key Cases Cited
- DV Realty Advisors, LLC v. Policemen’s Annuity & Ben. Fund of Chi., 75 A.3d 101 (Del. 2013) (subjective good faith standard in contracts; not limited to partnerships)
- United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810 (Del.Ch. 2007) (contract interpretation; ambiguity analysis; extrinsic evidence limits)
- Chamison v. Health-Trust, Inc., 735 A.2d 912 (Del.Ch. 1999) (implied covenant vs. contractually obligated good faith)
- Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228 (Del.1997) (interpretation of terms in contract; extrinsic evidence restraint)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) (summary judgment standard: need evidence on which jury could rely)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (genuine issue of material fact; credibility judgments reserved for jury)
- JANA Master Fund Ltd. v. CNET Networks, Inc., 954 A.2d 335 (Del.Ch. 2008) (contract interpretation when ambiguity exists; extrinsic evidence usage)