3DT Holdings LLC v. Bard Access Systems Inc.

Background

3DT Holdings LLC sold its Precisive Navigation Technology to Bard Access Systems Inc. in 2013 under three related agreements: an Asset Purchase Agreement, a Development Agreement, and a Statement of Work. The technology was intended for use in navigating, tracking, and confining the location of a catheter tip during heart surgery. Bard acquired the technology for further development, regulatory approval, and sale.

The Purchase Agreement required Bard to make a remaining milestone payment if it received specified regulatory clearance for a medical device using the technology. It also allowed Bard to stop supporting development at any time and for any reason if Bard gave 3DT at least 30 days’ written notice and paid the milestone amount. The Development Agreement separately required Bard to provide commercially reasonable personnel, financial, and other support for developing a Bard product using the technology. That support was to be determined by Bard in good faith and based on its reasonable business judgment.

The Development Agreement also stated that, after the third anniversary of the agreement, Bard could stop supporting development without making the milestone payment if it determined in good faith, based on reasonable business judgment, that exploiting the technology was no longer commercially practicable for one of several listed reasons. One listed reason was the creation, development, or commercial availability of superior technology. The third anniversary occurred on August 29, 2016.

Bard developed a project called Penske to create a product using the technology. The record contained competing evidence about Bard’s work on Penske during 2016. 3DT argued that Bard largely suspended the project and diverted resources to other projects before and after August 29, 2016. Bard maintained that it continued work, although at a slower pace, and that it acted within the discretion granted by the agreements. In December 2016 and February 2017, Bard told 3DT that it was focusing on an alternative, superior technology later identified as Modus II.

Claims and Motions

3DT sued for breach of contract and breach of the implied covenant of good faith and fair dealing. Both parties moved for summary judgment under Rule 56, which allows judgment without a trial when no genuine dispute over an important fact exists and the moving party is entitled to judgment under the law.

3DT argued that Bard owed the milestone payment because it stopped providing commercially reasonable support before August 29, 2016, or failed to resume that support afterward. Bard argued that its support was commercially reasonable as a matter of law and that, after the three-year period, it had reasonably and in good faith determined that development was no longer commercially practicable because Modus II was superior.

Bard also sought summary judgment on the good-faith-and-fair-dealing claim. 3DT based that claim on Bard’s alleged failure to keep 3DT informed about development and its failure to provide information supporting Bard’s assertion that another technology was superior.

Court’s Contract Interpretation

The court held that the agreements required Bard to provide some support for developing a product using the Precisive Navigation Technology and to seek the required regulatory clearance, although Bard had discretion to determine the level of support. “Commercially reasonable” support was an objective contractual standard, but the agreement qualified that standard by giving Bard authority to determine the appropriate support in good faith and based on reasonable business judgment.

The court ruled that Bard could not simply stop providing all support before August 29, 2016 because another technology appeared more attractive. Before that date, Bard could stop supporting the project under the Purchase Agreement only by giving the required notice and paying the milestone amount. After that date, Bard could stop support without that payment if it made the required good-faith and reasonable-business-judgment determination based on one of the contract’s specified circumstances.

The court further held that Bard did make a determination, at least by the time of its February 2017 letter, that exploitation of a product using 3DT’s technology was no longer commercially practicable. Bard did not have to determine that the technology could never be used in the future; the agreement allowed a determination that development was not presently commercially practicable. But Bard still had to show that one of the listed triggering circumstances existed, such as the development of superior technology.

Summary-Judgment Rulings on the Contract Claim

The court denied summary judgment to both sides on the breach-of-contract claim. It identified factual disputes about whether Bard provided any support from January through August 2016; whether the level of support was based on Bard’s determination of commercial reasonableness; whether that determination was reasonable and made in good faith; and whether Modus II was actually superior technology under the agreement.

Although Bard presented evidence that Modus II had important advantages, the evidence did not conclusively establish that Modus II was superior overall. A Bard witness testified that the answer depended on how “superior” was defined and that the two technologies each had advantages. Because a reasonable jury could find for either side, the court ruled that the breach-of-contract claim had to proceed to a jury.

Good-Faith-and-Fair-Dealing Claim

The court granted Bard summary judgment on the claim for breach of the implied covenant of good faith and fair dealing. Under New York law, that covenant prevents a party from acting in a way that deprives the other party of the contract’s benefits, but it cannot create obligations beyond those stated or implied by the contract.

The court found that neither agreement required Bard to keep 3DT informed about its development efforts or to provide information about superior technologies that Bard was developing. The agreements gave Bard rights concerning the acquired technology and required certain information from 3DT, but did not impose equivalent reporting duties on Bard. The court therefore declined to create an additional disclosure obligation through the implied covenant.

Disposition

The court denied 3DT’s motion for summary judgment. It granted in part and denied in part Bard’s motion for summary judgment: it granted the motion as to the good-faith-and-fair-dealing claim and denied it as to the breach-of-contract claim. The contract claim remained for resolution at trial.