Covidien (NYSE:COV) subsidiary ev3 wants the Delaware Supreme Court to grant a new trial in a lawsuit over $175 million ev3 allegedly owes its own Appriva Medical acquisition.
Last summer a jury in the Delaware Superior Court ruled that ev3 broke its contract with Appriva Medical when it denied the $175 million milestone for Appriva’s Plaato device, which it acquired in August 2002 for a $50 million cash payment plus milestones, according to court documents.
Now ev3 wants the First State’s high court to order a new trial, arguing that the lower court erred in allowing the jury to interpret a portion of the ev3/Appriva deal it had previously ruled unambiguous, according to court documents. The trial judge also should have instructed the jury that the merger agreement wasn’t subject to a previous non-binding letter of intent, the company argued in its appeal. And the jury instructions should have included the meaning of the term "good faith," ev3 argued.
Appriva countered ev3’s claim that the letter of intent should have been excluded.
"To begin, ev3 argues that a letter of intent executed before the merger ‘was not incorporated’ and should therefore have been excluded. This argument flatly contradicts ev3’s position at trial, where it told the court that ‘the letter of intent was incorporated by reference into the agreement.’ Also, the [letter of intent] was plainly relevant to, and provided context for, the factual question of whether ev3 breached its obligation to act in good faith. Instructing the jury to ‘not consider’ it would have been legal error," Appriva argued, according to the documents. "On appeal, ev3 seeks to re-characterize as a legal dispute what was a straightforward factual dispute at trial: namely, whether ev3’s conduct breached its express obligation to act in ‘good faith.’"
As for the argument over the jury instructions for the meaning of "good faith," Appriva argued that the trial judge did in fact issue guidance to the jury.
"The parties proposed, and the judge ultimately gave, an instruction on the meaning of ‘good faith.’ At the close of the prayer conference, ev3 accepted in relevant part that instruction, which tilted heavily in its favor by requiring plaintiffs to prove that ev3’s conduct violated both subjective and objective good faith," Appriva argued in the documents.
"In their answering brief, plaintiffs attempt to transform this appeal into a fact-intensive inquiry into whether ev3’s decisions constituted ‘good faith. It is not. This appeal turns on legal questions of contractual interpretation that are antecedent to any such factual inquiry: what does ‘sole discretion, to be exercised in good faith" mean in Delaware, and can a nonbinding statement in a pre-merger LOI trump and fundamentally alter the "sole discretion" provision? Because the trial court did not properly address and answer these antecedent legal questions, the jury could not fairly perform its duty to resolve the factual questions that should have been before it," ev3 said in its rebuttal [emphasis theirs]. "On appeal, plaintiffs run from the theory of the case they presented to the jury – primarily, their repeated arguments and testimony that ev3 was contractually ‘obligated’ to fund pursuit of the milestones and that ev3 had discretion only over how to do so – no doubt because their trial position is flatly contrary to the plain language of the parties’ final agreement. Plaintiffs further attempt to recast what happened at trial by arguing that ev3 waived its right to challenge legal errors that were among the most hotly and repeatedly contested issues in the trial. While plaintiffs understandably want to divert this court from the events that actually transpired at trial, the record is undeniable and indefensible."
The background
Appriva’s co-founders sued ev3 for failing to pay the milestones for Appriva’s Plaato percutaneous left atrial appendage transcatheter occlusion device, designed to prevent strokes by correcting a structural heart defect. But after ev3’s proposed trial design change was shot down by the FDA and its then-private equity owners couldn’t drum up the cash to fund the FDA-approved trial, ev3 tried to renegotiate the milestone agreement with Appriva. The company eventually scrapped the Plaato program in September 2005 "based on several considerations," according to the documents.
The jury found for ev3, awarding the milestones plus interest but ruling against awarding punitive damages.
Mansfield, Mass.-based Covidien, which acquired ev3 for $2.6 billion in July 2010, estimated last summer that the case could cost up to $275 million, including interest.
