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Bennett v. Itochu International

January 25, 2010

JOHN BENNETT, ET AL., PLAINTIFFS,
v.
ITOCHU INTERNATIONAL, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Joyner, J.

MEMORANDUM AND ORDER

Before the Court is Defendants' Motion to Dismiss Amended Complaint (Doc. No. 29), and responses thereto (Doc. Nos. 32, 34). For the reasons set forth in this Memorandum, the Court grants this Motion in part and denies in part.

I. BACKGROUND*fn1

The parties in this case have a long history of negotiations and agreements spanning the course of several years. This case revolves around several of the negotiations and agreements signed between the parties during the last three years. Plaintiff John Bennett ("Bennett") was the Chief Executive Officer of Devon Robotics and the Chief Executive Officer of Devon Health during the relevant time period. Plaintiffs Devon Robotics and Devon Health Services ("Devon Health") are businesses involved in distributing various health care supplies. Defendants Itochu International ("Itochu") and MedSurg Specialty Devices ("MedSurg") are also involved in distribution of various medical supplies. MedSurg is a subsidiary of Itochu. Defendant Thomas Apple ("Apple") was Vice President, Corporate Counsel and Senior Advisor to the General Manager of Human Resources of Itochu during the relevant time period. Defendant Mounir Rabbat was Senior Vice President, Chief Operating Officer and General Manager of Business Development and/or a director of MedSurg during the relevant time period. Defendant Yoshihisa Suzuki was Chief Executive Officer and President of Itochu during all relevant time periods.

Health Robotics, S.r.L. ("HRSRL") is an Italian company that developed, designed, marketed and licensed robotic medication preparation products, including CytoCare and i.v.Station. On August 22, 2008, Devon Robotics entered into an agreement with HRSRL which provided them with exclusive distribution rights for i.v.Station in North America. On September 12, 2008, Devon Robotics also entered into the CytoCare Agreement with HRSRL for exclusive distribution rights for CytoCare in North America.

In August and September 2008, prior to entering the i.v.Station and CytoCare agreements with HRSRL, Plaintiffs were involved in several negotiations with Defendants. Rabbat advised Bennett that Itochu would partner with Devon Robotics in the distribution of both CytoCare and i.v.Station in consideration for its subsidiary, MedSurg, having distribution rights with respect to CytoCare. Rabbat told Bennett that Itochu would share in the costs of research and development, licensing fees, and capital expenses associated with i.v.Station and CytoCare. Additionally, the parties agreed that a new company would be formed to distribute the robots and that this company was to be owned jointly by Devon Robotics and Itochu. Plaintiffs entered the i.v.Station and CytoCare agreements with HRSRL in reliance on these statements by Rabbat.

On November 5, 2008, Itochu entered a Line of Credit Agreement with Devon Robotics. Pursuant to this agreement, Itochu provided a $4 million line of credit to fund Devon Robotics' operating expenses in distributing i.v.Station. In exchange, Itochu received a call option that gave them the right to enter into a "50/50" distribution arrangement with Devon Robotics whereby Itochu would pay half of the fees already paid by Devon Robotics on i.v.Station and would forgive half the debt on the line of credit in exchange for fifty percent ownership of Devon Robotics. The Line of Credit Agreement contains an integration clause which says, "This Agreement and the Notes contain the entire agreement between the parties relating to the subject matter hereof and supersede all oral statements and prior writings with respect thereto." Additionally, Itochu issued a $5 million Letter of Credit in favor of HRSRL so that Devon Robotics could pay costs and licensing fees to HRSRL. However, ultimately, the parties never signed an agreement which would make Itochu a fifty percent partner in the distribution project with Devon Robotics and Itochu never paid any of the research and development costs, licensing fees, or capital expenses associated with the distribution of i.v.Station or CytoCare.

The parties also had several discussions regarding Itochu's potential investment in Devon Health Services. This investment would be made via payment to Bennett, the Chief Operating Officer and owner of Devon Health Services. Under the terms of this agreement Itochu would purchase fifty percent of the shares of Devon Health from Bennett for $27.5 million. While the parties were negotiating this agreement, they were also discussing a distribution agreement between MedSurg, Itochu's subsidiary, and Devon Robotics. Rabbat advised Bennett that Itochu did not want a distribution agreement between MedSurg and Devon Robotics to require MedSurg to sell any minimum number of robots. Rabbat and Suzuki told Bennett that in exchange for the removal of the minimum robot requirement in the MedSurg agreement, Itochu would close on the transaction in which Itochu would purchase fifty percent of the shares of Devon Health from Bennett for $27.5 million. Suzuki advised Bennett that Bennett did not have to worry about the removal of the minimum quota from the Medsurg Distribution Agreement because Itochu would cover Devon Robotics financially should MedSurg fail to sell any robots. On November 5, 2008, Devon Robotics and MedSurg executed a distribution agreement ("MedSurg Distribution Agreement") which gave Medsurg the exclusive rights to distribute CytoCare robots and which did not require Medsurg to sell any minimum number of robots. Medsurg ultimately never sold any robots.

Following discussions on November 5, 2008, the parties signed a Term Sheet on November 11, 2008 regarding the deal in which Itochu would buy fifty percent of the shares of Devon Health from Bennett. The Term Sheet stated that the deal was to close on December 15, 2008 and that, "Nothing set forth herein shall give rise to binding obligations on the part of Purchaser. Binding obligations shall only arise through the execution of definitive agreements expressing a clear and express intention to be bound in accordance with the terms thereof."

Plaintiffs, in reliance on the agreements they had negotiated with Defendants, began to negotiate a deal with HRSRL. Under the terms of the Share Purchase Agreement, Devon Robotics agreed to pay HRSRL € 6 million for 13.33% of the shares in HRSRL. Bennett was planning on using the proceeds from Itochu's purchase of Devon Health's shares for $27.5 million to fund Devon Robotics' purchase of shares in HRSRL. However, on December 10, 2008, five days before the closing of the Share Purchase Agreement between Devon Robotics and HRSRL, Rabbat informed Bennett that Itochu would not proceed with the transaction as outlined in the November 11, 2008 Term Sheet, even though Itochu was aware of the Share Purchase Agreement between Devon Robotics and HRSRL. As a result, Devon Robotics withdrew from the Share Purchase Agreement with HRSRL.

On December 15, 2008, Rabbat met with Bennett. Bennett told Rabbat that he wanted to proceed with the sale of Devon Health's shares under new terms so that Devon Robotics could enter into a new share purchase agreement with HRSRL. Itochu agreed to purchase 30% of the shares of Devon Health for $16,500,000. A second Term Sheet was executed between the parties on December 19, 2008, which provided that the deal would close no later than January 23, 2009.

Devon Robotics, in reliance on the December 19, 2008 Term Sheet, then entered into an Amended Share Purchase agreement with HRSRL in which Devon Robotics agreed to pay HRSRL € 12.5 million for 40% of the shares in HRSRL with a non-refundable deposit of € 5 million. Bennett later told Rabbat that Devon Robotics entered into an amended agreement with HRSRL and asked that Rabbat close the Itochu/Devon Health transaction so that Devon Robotics would have the funds to complete its transaction with HRSRL. Rabbat stated that he would close the deal. However, ultimately Itochu and Devon Health never closed their deal and as a result Devon Robotics was again unable to successfully close the deal with HRSRL.

One of Plaintiffs' claims is also based on an interaction outside of these negotiations. In the spring of 2008, Rabbat approached Bennett and suggested that they formalize the relationship between Itochu and Bennett. On June 26, 2008, Rabbat suggested that Bennett take the title of "Executive Advisor" to Itochu and Bennett agreed. In this position, Bennett was given the authorization to act on behalf of Itochu regarding business opportunities in the health care field. Then, on March 19, 2009, Defendant Apple wrote a letter in which he accused Bennett of fraudulently misrepresenting that he was an agent of Itochu and that Bennett was not and never had been an Executive Advisor to Itochu. Apple sent this letter to the general counsel for HRSRL, Rabbat and the general counsel for Devon International Group.

II. STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 12(b)(6), a complaint should be dismissed if the plaintiff has failed to state a claim on which relief can be granted. In evaluating a motion to dismiss, the court must take all well-pleaded factual allegations as true, but it is not required to blindly accept "a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 283 (1986); Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). Although a plaintiff is not required to plead detailed factual allegations, the complaint must include enough facts to "raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Merely pleading facts consistent with liability is not sufficient; the plaintiff must plead facts which permit the court to make a reasonable inference that defendant is liable. Twombly, 550 U.S. at 570.

In evaluating a motion to dismiss, courts can consider the allegations of the complaint, exhibits attached to the complaint, matters of public record, and any undisputedly authentic document that a defendant attaches to a motion to dismiss if the plaintiff's claims are based on the document. Lum v. Bank of Am., 361 F.3d 217, 222 n. 3 (3d Cir. 2004); Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). When the court considers documents outside of these, it generally must convert the motion to dismiss into a summary judgment motion. In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997). However, a court can consider a "'document integral to or explicitly relied upon in the complaint.' " Id. (quoting Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996)). Plaintiffs cannot prevent a court from looking at the texts of the documents on which its claim is based by failing to attach or explicitly cite them. Id. The rationale for these exceptions is that "the primary problem raised by looking to documents outside the complaint-lack of notice to the plaintiff-is dissipated '[w]here plaintiff has actual notice ... and has relied upon these documents in framing the complaint.' " In re Rockefeller Ctr. Props., Inc. Sec. Litig., 184 F.3d 280, 287 (3d Cir. 1999).

III. Discussion

As a preliminary matter, Defendants argue that several agreements and letters following the negotiations among the parties preclude several of Plaintiffs claims. However, these documents are not properly before the Court at this time in deciding the motion to dismiss except for Count V, breach of duty to negotiate in good faith. When condsidering a motion to dismiss, courts can only consider the allegations of the complaint, exhibits attached to the complaint, matters of public record, and any undisputedly authentic document that a defendant attaches to a motion to dismiss if the plaintiff's claims are based on the document. Lum v. Bank of Am., 361 F.3d at 222 n. 3; Pension Benefit Guar. Corp., 998 F.2d at 1196. Although Defendants attached these documents to their Motion to Dismiss and the documents are undisputedly authentic, none of Plaintiffs' claims, except the claim of breach of duty to negotiate in good faith, are based on the documents which Defendants claim preclude Plaintiffs' claims; therefore the documents cannot be considered by the Court at ...


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