Sandoz Inc. v. Cediprof, Inc.

Background

Sandoz brought claims for injunctive relief and specific performance against Cediprof. The parties had a 2002 agreement, as amended, under which Sandoz held exclusive marketing and distribution rights for Cediprof’s levothyroxine sodium tablets, a drug used to treat hypothyroidism. Cediprof was required to make reasonable efforts to manufacture and deliver the product. The agreement included a 90-day period to cure alleged defaults, a six-month termination notice period, an arbitration clause, and a provision allowing a party to seek temporary remedies such as an injunction or specific performance before the arbitrator ruled.

Sandoz alleged that Cediprof improperly terminated the agreement for cause after identifying alleged defaults involving inventory levels and audits. Cediprof notified Sandoz on June 19, 2020—51 days after raising the defaults—that it was terminating the agreement effective July 31, 2020, would generally stop supplying the drug, and would cancel previously submitted and accepted orders. Sandoz also alleged that Cediprof was working with a competitor to distribute the drug and was using confidential information about Sandoz’s customers, customer volume, and pricing.

Sandoz began arbitration on July 20, 2020, and moved in this court for a temporary restraining order and preliminary injunction. It sought to prevent Cediprof from selling the drug to anyone in the United States and covered territories other than Sandoz, require continued supply under the agreement, and prohibit use of Sandoz’s confidential customer information.

Legal standard

A temporary restraining order and a preliminary injunction require the same showing. The moving party must show irreparable harm—actual and imminent injury that money damages cannot remedy—and either a likelihood of success on the merits or serious questions warranting litigation combined with a hardship balance that strongly favors the moving party.

The court treated irreparable harm as the most important requirement. It also explained that, unlike on a motion to dismiss, it was not required to accept Sandoz’s factual allegations as true when deciding the request for preliminary relief.

Court’s analysis

The court rejected Sandoz’s argument that the agreement’s provision allowing injunctive relief established irreparable harm. The court held that a contract cannot itself establish the required factual showing.

The court concluded that Sandoz’s alleged loss of market share, future sales, and profits could be addressed through money damages. The parties’ extensive history of dealing made those damages calculable, and Sandoz’s arbitration demand had already estimated its lost profits. The court also found Sandoz’s allegations about goodwill and reputation too general, noting that Sandoz had not shown why the loss of this particular product would harm its broader business or other products.

The court likewise found that Sandoz had not shown irreparable harm from the alleged misuse of confidential information. Sandoz’s claim was based on information and belief, while Cediprof submitted a sworn statement that it knew only two of Sandoz’s customers and had not shared that information with Lannett, its new partner. The court found Cediprof’s explanation at least as plausible as Sandoz’s unsupported belief that Cediprof probably shared confidential information. The court also stated that any damages from a confidentiality breach could be addressed with money damages.

Finally, the court did not decide whether Cediprof likely terminated the agreement wrongfully. It held that any harm from triggering the agreement’s four-year non-compete provision could also be calculated and remedied through damages in arbitration. Because Sandoz failed to show irreparable harm, the court did not consider likelihood of success on the merits or the alternative preliminary-injunction test.

Subject-matter jurisdiction

The court separately identified a possible problem with federal subject-matter jurisdiction. Sandoz relied on the Federal Arbitration Act, but the court explained that statute does not independently give federal courts subject-matter jurisdiction. Sandoz alleged that it was a Colorado corporation with its principal place of business in New Jersey and that Cediprof was a Puerto Rican corporation, but the complaint did not specifically allege Cediprof’s principal place of business or the amount in controversy.

A declaration stated that Cediprof’s principal place of business was in Puerto Rico and indicated the amount at issue in the arbitration. Assuming diversity jurisdiction exists and the amount in controversy exceeds $75,000, the court directed Sandoz to amend its complaint to state those facts.

Disposition

The court ordered that Sandoz’s motion for a temporary restraining order and preliminary injunction was DENIED. The court directed Sandoz to file an amended complaint within 21 days of the order’s date to clarify the basis for subject-matter jurisdiction.