Perrigo Pharma International Designated Activity Co. v. Mead Johnson & Co. LLC

Background

Perrigo manufactures regular and extensively hydrolyzed infant formula. Because Perrigo’s Ohio facility could not package the formula, Perrigo entered into agreements with Maple Island, Inc. for packaging at a facility in Wanamingo, Minnesota. Mead Johnson later bought that facility. Perrigo, Mead Johnson, and Maple Island then agreed that Mead Johnson would assume Maple Island’s contractual rights and duties.

Perrigo alleged that the agreements required Mead Johnson to accept Perrigo’s written purchase orders, package the ordered formula, and return it by the required dates. Perrigo claimed that Mead Johnson failed to meet packaging commitments for regular formula under an August 3, 2022 purchase order, failed to accept or fulfill an October 11, 2022 purchase order for extensively hydrolyzed formula, and failed to meet packaging commitments made in a January 9, 2023 agreement. Perrigo also alleged that Mead Johnson breached the implied duty of good faith and fair dealing by limiting or refusing packaging services.

The agreements included a limitation on liability. The court explained that this provision barred indirect damages unless Perrigo adequately alleged bad faith, gross negligence, or intentionally wrongful conduct by Mead Johnson. Perrigo alleged that Mead Johnson acted improperly during the infant formula shortage and sought damages including losses from expired formula, lost profits, customer-relationship harm, and harm to its extensively hydrolyzed formula business.

Rule 12(b)(6) Standard

Mead Johnson moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. At this stage, the court accepts well-pleaded factual allegations as true and draws reasonable inferences for the plaintiff, but conclusory statements are not enough.

Claims I and II: August 3 and October 11 Purchase Orders

The court rejected Mead Johnson’s argument that the January 9 agreement made Perrigo’s earlier claims moot. According to the opinion, the January 9 agreement addressed injunctive relief but Perrigo reserved its damages claims. The court therefore held that the earlier claims remained live.

The court also held that Perrigo sufficiently alleged that Mead Johnson breached its packaging duties. Mead Johnson argued that the parties’ practice of working together on mutually agreeable schedules had changed or waived Perrigo’s right to demand strict performance of the written agreement. The court declined to decide waiver as a matter of law because the complaint did not clearly establish that Perrigo intended to give up its contractual rights. The court found that Perrigo’s efforts to work with Mead Johnson and its repeated complaints could instead be consistent with trying to encourage Mead Johnson to perform.

The court concluded that Perrigo adequately alleged direct damages for Claim I, involving the August 3 purchase order. Perrigo alleged that formula delivered to Mead Johnson for packaging expired because Mead Johnson did not package and return it. The court treated the alleged loss of that formula as potentially direct damages not barred by the limitation-of-liability provision.

The court reached a different conclusion for Claim II, involving the October 11 purchase order. Perrigo did not allege that it delivered any extensively hydrolyzed formula to Mead Johnson for packaging under that order. Because Perrigo identified no recoverable direct damages for that claim, the court granted the motion in full as to Claim II.

The court found that Perrigo had not adequately alleged bad faith, gross negligence, or intentionally wrongful conduct. Allegations about Mead Johnson’s advertising challenge and other conduct were not sufficiently connected to the specific packaging breaches. The court also found that acting in Mead Johnson’s own economic interest, without more, did not establish the required misconduct. Accordingly, the motion was denied as to Claim I to the extent Perrigo sought direct damages and granted to the extent it sought indirect damages barred by the limitation-of-liability provision. The motion was granted in full as to Claim II.

Claim III: January 9 Agreement

Perrigo alleged that Mead Johnson breached the January 9 agreement by failing to complete the required regular-formula packaging on time. The court held that Perrigo sufficiently alleged a breach and did not need to resolve the parties’ dispute about whether the January 9 agreement incorporated a particular timing provision from the earlier agreement.

For the same reasons discussed above, the court held that Perrigo had not adequately alleged bad faith, gross negligence, or intentionally wrongful conduct. The court nevertheless found that Perrigo adequately alleged direct damages connected to the failure to meet the January 2023 packaging commitment. The motion was therefore denied as to Claim III to the extent Perrigo sought direct damages and granted to the extent it sought indirect damages barred by the limitation-of-liability provision.

Claim IV: Implied Duty of Good Faith and Fair Dealing

The court declined to dismiss Claim IV as duplicative. The parties disputed whether their course of dealing had modified the written agreement and, if so, what duties Mead Johnson had when negotiating and following packaging schedules. Because the implied-duty claim could remain viable even if the express-contract claims failed, the court found that the claims could be pursued as alternatives at this stage.

The court also held that Perrigo sufficiently alleged a breach of the implied duty of good faith and fair dealing. Perrigo alleged that Mead Johnson knew well in advance that Perrigo needed packaging for an extensively hydrolyzed formula campaign, reassured Perrigo that it would honor its commitments, and then repudiated those commitments. These allegations plausibly suggested that Mead Johnson’s conduct deprived Perrigo of the benefit of the contract.

The court distinguished this conclusion from its finding that Perrigo had not alleged bad faith. A party can violate the duty of good faith and fair dealing by undermining the other party’s contractual benefits without acting with the malicious or intentionally wrongful motive required to avoid a limitation-of-liability clause. The motion was denied as to Claim IV to the extent Perrigo sought direct damages and granted to the extent it sought indirect damages barred by the limitation-of-liability provision.

Leave to Amend and Disposition

Perrigo requested permission to amend if the motion was granted. The court granted leave to amend because Perrigo might be able to add facts supporting bad faith, gross negligence, or intentionally wrongful conduct. The court cautioned that Perrigo would not receive unlimited opportunities to amend.

Judge Ramos’s final disposition was that Mead Johnson’s motion was granted in part and denied in part. Perrigo’s claims were dismissed without prejudice to the extent they sought indirect damages barred by the limitation-of-liability provision, while the claims could proceed to the extent they sought direct damages. Perrigo was permitted to file an amended complaint by April 16, 2024. The requests for oral argument were denied as moot.