183 F.Supp.3d 277
D. Mass.2016Background
- Hancock (insurance investors) and Abbott entered a Research Funding Agreement (RFA) on March 13, 2001: Hancock agreed to pay up to $214M over four years to fund development of nine Program Compounds in exchange for milestones and royalties; Abbott agreed to fund the remainder and to meet annual and aggregate spending targets.
- Abbott supplied Descriptive Memoranda and an Annual Research Plan (ARP) incorporated into the RFA and made express representations and warranties about the accuracy and material completeness of those exhibits (Article 12); ARP projections affected Hancock’s obligation to continue payments (Section 3.4(iv)).
- Three compounds are central: ABT-518 (MMPI cancer drug) — development briefly halted March 11, 2001 and later terminated after ASCO 2001; ABT-594 (NNR agonist for pain) — Phase IIb enrollment stopped short (269 vs. planned 320), later terminated Oct–Nov 2001 for narrow therapeutic window; ABT-773 (ketolide antibiotic) — dosing, QTc and liver-toxicity questions; development later suspended in major markets.
- Hancock sought to audit Abbott under §2.5 in 2004; the court found Abbott failed to provide adequate documents for the audit and StoneTurn (auditor) billed $198,731.49.
- Procedural posture: Hancock previously litigated termination in Hancock I (declaratory judgment that Hancock’s obligation to make the 3rd and 4th payments had terminated); this case is a follow-on asserting breach of contract, fraud, rescission, and indemnification. The court issued findings after a bench trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Hancock may seek rescission for alleged fraud | Hancock sought rescission as remedy for alleged fraudulent misrepresentations/omissions in March 2001 disclosures | Abbott sought to strike rescission as barred by election of remedies, undue delay, and judicial estoppel | Stricken: Hancock elected inconsistent remedy (enforced contract in Hancock I), delay and judicial estoppel bar rescission |
| Whether Abbott breached express warranties/representations (Art.12) re: ABT-518, ABT-594, ABT-773 | Hancock: Abbott made material misrepresentations/omissions about status, spending, and safety that induced entry into RFA | Abbott: either disclosed risks or facts were not material or were honest judgments; some issues unknown/unresolved at signing | Court found material breaches as to ABT-518 (failure to disclose halt) and certain omissions re ABT-594 (2001 spending reduction); not material as to ABT-773 safety/pediatric program in key respects |
| Whether Hancock proved damages for lost royalties/milestones from breached representations | Hancock’s expert used probability-weighted (expected-value) approach to compute but-for vs. actual royalties and milestones | Abbott challenged method as speculative and improperly formed (wrong inputs; ‘‘but-for’’ incorporated adverse info; ‘‘actual’’ used post-termination probabilities) | Damages theory rejected as speculative and not reasonably certain; lost-profit/new-business barriers sustained; no recovery beyond audit fees |
| Whether Abbott breached RFA obligations (outlicensing, ARP projections, audit, §3.3 aggregate carryover) | Hancock: Abbott failed to outlicense ceased compounds, failed to provide expected (risk-adjusted) spending projections, failed audit obligations, and owes 1/3 of $99.1M aggregate shortfall under §3.3(b) | Abbott: made reasonable outlicensing efforts, ARP provided nominal projections and was adequate, audit responses complied, §3.3(b) doesn't apply because Hancock did not fully perform and applying it here would be an unenforceable penalty | Court: Abbott breached the audit provision — award $198,731.49; Abbott did not breach outlicensing or ABT-773/other sections as to materiality; court construed §2.2 to require expected spending but found no damages from that breach; §3.3(b) not enforceable here (implied condition and penalty concerns) |
Key Cases Cited
- New Hampshire v. Maine, 532 U.S. 742 (2001) (judicial estoppel factors and purpose)
- Kinkel v. Cingular Wireless, 859 N.E.2d 250 (Ill. 2006) (liquidated damages vs. penalty rule)
- Lake River Corp. v. Carborundum Co., 769 F.2d 1284 (7th Cir. 1985) (unenforceable penalty doctrine)
- TAS Distrib. Co. v. Cummins Engine Co., 491 F.3d 625 (7th Cir. 2007) (lost profits/new business rule; reasonable certainty of damages)
- Hancock II, 478 F.3d 1 (1st Cir.) (prior appellate disposition affirming enforceability of the RFA and choice-of-law; relied on for applying Illinois law)