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Animal Hospital of Nashua, Inc. v. Antech Diagnostics and Sound-Elkin VCA Cenvet, Inc.

United States District Court, District of New Hampshire

May 22, 2014

Animal Hospital of Nashua, Inc.
v.
Antech Diagnostics and Sound-Elkin VCA Cenvet, Inc. d/b/a Antech Diagnostics
v.
Animal Hospital of Nashua, Inc.; AHN Pet Hospitals, Inc.; AHN Animal Hospital Services Inc.; and Dr. Leo Bishop, individually and d/b/a The Animal Hospital of Nashua Opinion No. 2014 DNH 106

ORDER

Landya McCafferty United States District Judge

This case arises from a now-defunct business relationship involving Animal Hospital of Nashua, Inc. ("AHN") and a supplier of laboratory services and medical equipment, VCA Cenvet, Inc. ("Antech"). The dispute concerns AHN's dissatisfaction with the quality of certain services and equipment provided to it by Antech, and Antech's unhappiness over AHN's termination of the business relationship. More specifically, the case consists of: (1) AHN's claims against Antech for breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment (Counts I, II, and VII of the complaint); (2) AHN's claims against Sound-Elkin ("Sound") under the same three theories (Counts VIII, IX, and XIII); and (3) Antech's counterclaims against AHN and two related corporate entities for breach of contract (Count I of the counterclaim) and breach of the covenant of good faith and fair dealing (Count II), plus Antech's counterclaim for unjust enrichment against the three corporate entities and AHN's president, Dr. Leo Bishop (Count III) .

Now before the court are: (1) a motion for partial summary judgment filed by counterclaim defendants (collectively "AHN") in which they asks the court to rule that the damages to which Antech might be entitled on its counterclaims are limited by several provisions in the service agreements that governed the parties' business relationship; (2) Antech's motion to strike certain summary-judgment exhibits; (3) a motion for partial summary judgment filed by Antech and Sound in which they argue that they are entitled to judgment as a matter of law on AHN's claims that the equipment Antech provided was deficient; and (4) AHN's motion for partial summary judgment that Antech is not entitled to damages in the form of lost profits. The parties made oral arguments on all four pending motions on April 10, 2014. The court considers each motion in turn, but begins by addressing the briefing the parties submitted in response to the show-cause order of February 10, 2 010, document no. 117.

Discussion

A. The Parties' Show-Cause Briefing

In its show-cause order, the court expressed concerns arising from the imprecision of the written documents the parties had identified as memorializing the agreement under which they conducted their business relationship. Without belaboring the point, the court is now satisfied that there was, indeed, an enforceable contract between AHN and Antech, as described in the two service agreements in the record.

B. Document No. 8 9

All three counts of Antech's counterclaim are based upon AHN's decision to walk away from its business relationship with Antech approximately three years into the six-year term of the two service agreements. While the parties agree, as a factual matter, that AHN stopped using Antech's laboratory services and began to use the services of one of Antech's competitors, AHN contends that its actions were a permissible response to Antech's prior breach of the agreement, while Antech disagrees. In any event, in document no. 89, AHN asks the court to rule that in the event Antech prevails on any of its counterclaims, the damages to which it is entitled are limited in a variety of ways. Antech objects. Antech's objection is well taken.

1. Summary-Judgment Standard

"Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Ponte v. Steelcase Inc., 741 F.3d 310, 319 (1st Cir. 2014) (quoting Cortes-Rivera v. Dept. of Corr., 626 F.3d 21, 26 (1st Cir. 2010)); see also Fed.R.Civ.P. 56(a). When ruling on a motion for summary judgment, the court must "view[] the entire record 'in the light most hospitable to the party opposing summary judgment, indulging all reasonable inferences in that party's favor.'" Winslow v. Aroostook Cty., 736 F.3d 23, 29 (1st Cir. 2013) (quoting Suarez v. Pueblo Int'l, Inc., 229 F.3d 49, 53 (1st Cir. 2000)).

"The object of summary judgment is to 'pierce the boilerplate of the pleadings and assay the parties' proof in order to determine whether trial is actually required.'" Davila v. Corp. de P.R. para la Diffusion Pub., 498 F.3d 9, 12 (1st Cir. 2007) (quoting Acosta v. Ames Dep't Stores, Inc., 386 F.3d 5, 7 (1st Cir. 2004)). "[T]he court's task is not to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Noonan v. Staples, Inc., 556 F.3d 20, 25 (1st Cir. 2009) (citations and internal quotation marks omitted).

2 . Background

The agreement that underlies the parties' business relationship is memorialized in two documents, each captioned "Service Agreement." Each service agreement required AHN to use Antech as its exclusive provider of laboratory services for six years starting on August 1, 2008, and also required AHN to use and pay for $1.2 million worth of Antech's services over those six years. The agreements further provided that AHN was to receive "pricing consideration" in the form of billing at a rate of "35% off Antech's list fee schedule." AHN's Mem. of Law, Ex. A (doc. no. 89-2), at A033946; id., Ex. B (doc. no. 89-3), at A033950.[1] Hereinafter, the court uses the terms "pricing consideration" and "laboratory-fee discount" interchangeably.

One of the two service agreements (hereinafter "Loan Agreement") includes terms related to a loan made by Antech to AHN as an incentive for AHN to use Antech as its exclusive provider of laboratory services. The Loan Agreement includes the following relevant provisions:

3.3. Default. If . . . (ii) Animal Hospital Owner breaches the exclusivity provisions set forth in Section 1 hereof . . . then such [breach] shall constitute an event of default with respect to the Loan. At any time after the occurrence of an event of default, Antech may declare the entire amount of the Loan to be due and payable, whereupon the Loan shall become forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived .... The remedies available to Antech hereunder are intended to compensate Antech for the Loan and discounts provided hereunder, which Loan and discounts would not have been provided unless Animal Hospital agreed to the Minimum Average Annual Fee requirements set forth herein, the requirements set forth in Section 1 regarding exclusivity, and the payment for Laboratory Services hereunder in a timely manner.
5. Termination. If (i) a default with respect to the loan occurs as described in Section 3.3 . . . then Antech may terminate this Agreement upon written notice to Animal Hospital Owner.

AHN's Mem. of Law, Ex. A (doc. no. 89-2), at A033942-43 (emphasis in the original).

The other service agreement (hereinafter "Equipment Agreement") incudes terms related to certain x-ray equipment, manufactured by Sound, with a retail value of approximately $13 9, 000, that Antech provided to AHN, also as an incentive.

The Equipment Agreement includes the following provisions:

3.1 .... If (i) the term of this Agreement is terminated in accordance with Section 5 . . . Antech shall cause to be removed from the premises [of AHN] the [Sound] Equipment, and Animal Hospital shall provide reasonable access to its premises in order for Antech to remove such equipment. If the Agreement is terminated in accordance with Section 5, Animal Hospital will have the option to purchase the [Sound] Equipment on the following schedule; During Year 1100% of original price, year 2 80% of original price, year 3 60% of original price, year 4 40% of original purchase price, year 5 2 0% of original purchase price.
5. Termination. If (i) Animal Hospital breaches the exclusivity provision set forth in Section 1 hereof . . ., then Antech may terminate this Agreement upon written notice to Animal Hospital.

AHN's Mem. of Law, Ex. B (doc. no. 89-3), at A033948-49 (emphasis in the original).

By letter dated August 4, 2011, Dr. Bishop notified Antech that AHN had "entered into a new, multi-year, strategic agreement with IDEXX Laboratories" to provide the laboratory services it had been getting from Antech. AHN's Mem. of Law, Ex. C (doc. no. 89-4), at 2. By letter dated September 7, 2011, Dr. Bishop transmitted to Antech: (1) a check in the amount of the most recent invoice AHN had received from Antech; and (2) a second check, for $62, 500, to cover the amount of the loan it had not yet repaid. Dr. Bishop also indicated that AHN did not intend to purchase the Sound equipment it had been provided by Antech, and asked Antech to make arrangements to retrieve it. Antech has neither cashed AHN's checks nor picked up the equipment. Moreover, Antech appears never to have terminated the service agreements pursuant to the termination provisions included in each of them.

In their initial disclosures, Antech and Sound responded to a question about computation of Antech's damages in the following way:

As discovery has not yet begun, any estimate of Antech's damages is, necessarily, preliminary and incomplete at this time, and is subject to revision. However, based on currently available information, Antech estimates its current damages as approximately $885, 000 (exclusive of interest, costs and, where applicable, attorneys' fees), consisting of approximately: (a) $315, 000 in lost profits for the balance of the contract term; (b) $306, 000 in laboratory fee discounts; (c) $139, 000 worth of equipment; (d) loan balance of approximately $85, 000; and (e) accounts receivable of approximately $40, 000.

AHN's Mem. of Law, Ex. D (doc. no. 89-5), at 10.

3. Discussion

AHN asks the court to rule that Antech may not recover: (1) lost profits; (2) $306, 000 in laboratory-fee discounts; and (3) $13 9, 000 for the equipment. It further asks the court to rule that Antech's remedies are limited to: (1) repayment of the loan balance; (2) return of the Sound equipment; and (3) payment of outstanding invoices. AHN's primary argument is that it is entitled to all of the relief seeks because the two service agreements provide that Antech's remedies are limited to liquidated damages, which would preclude the recovery of lost profits, laboratory-fee discounts, and money damages for the value of the Sound equipment. AHN also makes a separate argument ...


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