Carl Zeiss Meditec, Inc. v. Insight Photonics Solutions, Inc.

Background

Carl Zeiss Meditec, Inc. sued Insight Photonics Solutions, Inc. over agreements concerning the development and supply of laser technology for ophthalmological uses. Zeiss asserted claims for breach of contract, breach of the implied duty of good faith and fair dealing, and contractual indemnification.

In 2017, the parties restructured their relationship through several related transactions. Zeiss acquired 52% of Insight’s subsidiary, Ophthalmic Laser Engines, LLC (OLE), while Insight retained 48%. The parties also entered an Operating Agreement, a Supply Agreement, and a Development Agreement. Under the Development Agreement, Insight agreed to use its best efforts to complete development of the lasers in a stable, commercially saleable form and to keep OLE advised about development progress and material problems.

The Development Agreement identified $8.6 million in expected future development and manufacturing-startup costs. It provided that Insight would be responsible for costs above that amount, subject to provisions concerning additional funding. The parties disputed whether OLE’s general and administrative expenses were included within the $8.6 million. After OLE’s funding was exhausted, work on the project substantially slowed, and Insight ultimately stopped funding and performing development work. The opinion states that Insight did not achieve stable, reproducible lasers meeting all of the agreement’s specifications.

Motion and Issues

Insight moved for summary judgment on all claims. Summary judgment is a decision without a trial that is appropriate when the evidence shows no genuine dispute over an important fact and the moving party is entitled to judgment under the law.

Zeiss alleged that Insight breached Section 2.1(b) by failing to use best efforts to complete development and Section 2.1(c) by failing to provide information about progress and material problems. Insight argued that its obligations to provide additional funding and resources had not arisen because a contractual prerequisite had not been satisfied. Insight also argued that Zeiss lacked sufficient evidence of a best-efforts breach and could not prove damages.

Breach of Contract

The court denied summary judgment on Zeiss’s Section 2.1(b) claim. It held that the funding language was ambiguous because the definition of “Subsequent Development Costs” could reasonably be read either to include or exclude OLE’s general and administrative expenses. The court also identified evidence supporting Zeiss’s interpretation, including the parties’ funding structure, the absence of a clear mechanism for separately funding general and administrative expenses, and evidence that Insight appeared to understand it was responsible for obtaining additional funding. Because the contract language and the evidence could support competing interpretations, the issue could not be resolved on summary judgment.

The court also rejected Insight’s argument that Zeiss needed expert testimony to prove that Insight failed to use its best efforts. The court stated that a jury could evaluate the evidence, including missed deadlines and milestones, reductions in project personnel, slowed or stopped work, stopped payments to a project vendor, and Insight’s admission that it had lost interest in the project and was focusing on its light-detection-and-ranging business. The court concluded that these matters were not beyond an ordinary juror’s understanding.

The court further rejected Insight’s argument that Zeiss could not prove damages because Zeiss’s payments were made under the Purchase and Operating Agreements rather than the Development Agreement. The court treated the Purchase, Operating, and Development Agreements as one integrated transaction because they were signed at the same time, concerned the same subject matter, and depended on one another. The court therefore found a genuine dispute over whether Zeiss suffered damages.

The court granted summary judgment to Insight on Zeiss’s claim based on Section 2.1(c). That provision unambiguously required Insight to keep OLE—not Zeiss—advised about development progress, material problems, efforts to address those problems, and estimated completion dates. The court found that Zeiss had not presented sufficient evidence that Insight failed to provide the information required to OLE. Evidence that Insight may have misrepresented information to Zeiss did not establish a violation of the provision as written.

Implied Duty of Good Faith and Fair Dealing

The court granted summary judgment on Zeiss’s claim for breach of the implied duty of good faith and fair dealing and dismissed that claim. Under New York law, a separate claim based on that duty is generally unavailable when it relies on the same conduct, seeks the same damages, and duplicates a breach-of-contract claim. The court found that Zeiss relied on the same allegations—that Insight abandoned the project, failed to fund it, and failed to take steps to achieve the agreement’s objectives—for both claims.

Contractual Indemnification

The court denied summary judgment on Zeiss’s contractual-indemnification claim. It found that the claim depended on Zeiss prevailing on its remaining substantive contract claim. Because factual disputes remained concerning the alleged breach of Section 2.1(b), the court considered the indemnification claim premature for summary judgment.

Disposition

The court granted in part and denied in part Insight’s Motion for Summary Judgment. Summary judgment was denied as to Zeiss’s breach-of-contract claim and contractual-indemnification claim. Summary judgment was granted as to Zeiss’s breach-of-the-implied-duty claim, and the court dismissed that claim. The opinion directed the parties to appear for a telephonic pretrial conference and directed the Clerk to terminate the motion.