Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories

LARRY J. McKINNEY, UNITED STATES DISTRICT JUDGE


I. FACTUAL AND PROCEDURAL BACKGROUND

Defendant Lederle Laboratories is a pharmaceutical manufacturer and distributor that makes a number of drugs, including the DTP vaccine. Plaintiff Corinthian Pharmaceutical is a distributor of drugs that purchases supplies from manufacturers such as Lederle Labs and then resells the product to physicians and other providers. One of the products that Corinthian buys and distributes with some regularity is the DTP vaccine.

Lederle periodically issued a price list to its customers for all of its products. Each price list stated that all orders were subject to acceptance by Lederle at its home office, and indicated that the prices shown "were in effect at the time of publication but are submitted without offer and are subject to change without notice." The price list further stated that changes in price "take immediate effect and unfilled current orders and back orders will be invoiced at the price in effect at the time shipment is made.

From 1985 through early 1986, Corinthian made a number of purchases of the vaccine from Lederle Labs. During this period of time, the largest single order ever placed by Corinthian with Lederle was for 100 vials. . .

Lederle decided in early 1986 to self-insure against [risks arising from DTP]. In order to cover the costs of self-insurance, Lederle concluded that a substantial increase in the price of the vaccine would be necessary. . .

[T]he price of the DTP vaccine would be raised from $ 51.00 to $ 171.00 per vial. . .

Lederle Labs wrote a letter dated May 20, 1986, to its customers announcing the price increase . . . Corinthian somehow gained knowledge of this letter on May 19, 1986, the date before the price increase was to take effect. In response to the knowledge of the impending price increase, Corinthian immediately ordered 1000 vials of DTP vaccine from Lederle. Corinthian placed its order on May 19, 1986, by calling Lederle's "Telgo" system. The Telgo system is a telephone computer ordering system that allows customers to place orders over the phone by communicating with a computer. After Corinthian placed its order with the Telgo system, the computer gave Corinthian a tracking number for its order. On the same date, Corinthian sent Lederle two written confirmations of its order. On each form Corinthian stated that this "order is to receive the $ 64.32 per vial price."

On June 3, 1986, Lederle sent invoice 1771 to Corinthian for 50 vials of DTP vaccine priced at $ 64.32 per vial. . . The 50 vials were sent to Corinthian and were accepted. At the same time, Lederle sent its customers, including Corinthian, a letter regarding DTP vaccine pricing and orders. This letter stated that the "enclosed represents a partial shipment of the order for DTP vaccine, which you placed with Lederle on May 19, 1986." The letter stated that under Lederle's standard terms and conditions of sale the normal policy would be to invoice the order at the price when shipment was made. However, in light of the magnitude of the price increase, Lederle had decided to make an exception to its terms and conditions and ship a portion of the order at the lower price. The letter further stated that the balance would be priced at $ 171.00, and that shipment would be made during the week of June 16. The letter closed, "If for any reason you wish to cancel the balance of your order, please contact [us] . . . on or before June 13."

Based on these facts, plaintiff Corinthian Pharmaceutical brings this action seeking specific performance for the 950 vials of DTP vaccine that Lederle Labs chose not to deliver. [Lederle moved for summary judgment]. In support of its summary judgment motion, Lederle urges a number of alternative grounds for disposing of this claim, including that no contract for the sale of 1000 vials was formed, that if one was formed, it was governed by Lederle's terms and conditions, and that the 50 vials sent to Corinthian were merely an accommodation. Before reaching these issues, the relevant summary judgment standards must be set forth.

The Amended Complaint vaguely seeks damages, costs, and attorney's fees. The undisputed facts show that Corinthian did not have specific contracts for resale of the vaccine lined up at the date of its order. Not surprisingly, then, plaintiff now merely seeks specific performance for the 950 vials of DTP that were not delivered. . . .

III. DISCUSSION

The fundamental question is whether Lederle Labs agreed to sell Corinthian Pharmaceuticals 1,000 vials of DTP vaccine at $ 64.32 per vial. As shown below, the undisputed material facts mandate the conclusion as a matter of law that no such agreement was ever formed.

A. Lederle Labs Never Agreed to Sell 1,000 Vials at the Lower Price:

Initially, it should be noted that this is a sale of goods covered by the Uniform Commercial Code, and that both parties are merchants under the Code. The parties do not discuss which state's laws are to apply to action, but because the Code is substantially the same in all states having any connection to this dispute, the Court will, for ease of reference, refer in general to the U.C.C. with relevant interpretations from Indiana and other states.

The starting point in this analysis is where did the first offer originate. An offer is "the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it." . . . The only possible conclusion in this case is that Corinthian's "order" of May 19, 1986, for 1,000 vials at $ 64.32 was the first offer. Nothing that the seller had done prior to this point can be interpreted as an offer.

First, the price lists distributed by Lederle to its customers did not constitute offers. It is well settled that quotations are mere invitations to make an offer, . . . particularly where, as here, the price lists specifically stated that prices were subject to change without notice and that all orders were subject to acceptance by Lederle. . . .

Second, neither Lederle's internal price memorandum nor its letter to customers dated May 20, 1986, can be construed as an offer to sell 1,000 vials at the lower price. There is no evidence that Lederle intended Corinthian to receive the internal price memorandum, nor is there anything in the record to support the conclusion that the May 20, 1986, letter was an offer to sell 1,000 vials to Corinthian at the lower price. If anything, the evidence shows that Corinthian was not supposed to receive this letter until after the price increase had taken place. Moreover, the letter, just like the price lists, was a mere quotation (i.e., an invitation to submit an offer) sent to all customers. As such, it did not bestow on Corinthian nor other customers the power to form a binding contract for the sale of one thousand, or, for that matter, one million vials of vaccine.

Thus, as a matter of law, the first offer was made by Corinthian when it phoned in and subsequently confirmed its order for 1,000 vials at the lower price. The next question, then, is whether Lederle ever accepted that offer.

Under the Code, an acceptance need not be the mirror-image of the offer. . . . However, the offeree must still do some act that manifests the intention to accept the offer and make a contract. Under Sec. 2-206, an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances. The first question regarding acceptance, therefore, is whether Lederle accepted the offer prior to sending the 50 vials of vaccine.

The record is clear that Lederle did not communicate or do any act prior to shipping the 50 vials that could support the finding of an acceptance. When Corinthian placed its order, it merely received a tracking number from the Telgo computer. Such an automated, ministerial act cannot constitute an acceptance. . .

The next question, then, is what is to be made of the shipment of 50 vials and the accompanying letter. Section 2-206(b) of the Code speaks to this issue:

"An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer."

Thus, under the Code a seller accepts the offer by shipping goods, whether they are conforming or not, but if the seller ships non-conforming goods and seasonably notifies the buyer that the shipment is a mere accommodation, then the seller has not, in fact, accepted the buyer's offer. . . .

In this case, the offer made by Corinthian was for 1,000 vials at $ 64.32. In response, Lederle Labs shipped only 50 vials at $ 64.32 per vial, and wrote Corinthian indicating that the balance of the order would be priced at $ 171.00 per vial and would be shipped during the week of June 16. The letter further indicated that the buyer could cancel its order by calling Lederle Labs. Clearly, Lederle's shipment was non-conforming, for it was for only 1/20th of the quantity desired by the buyer. . . The narrow issue, then, is whether Lederle's response to the offer was a shipment of non-conforming goods not constituting an acceptance because it was offered only as an accommodation under Sec. 2-206.

An accommodation is an arrangement or engagement made as a favor to another. . . . The term implies no consideration. In this case, then, even taking all inferences favorably for the buyer, the only possible conclusion is that Lederle Labs' shipment of 50 vials was offered merely as an accommodation; that is to say, Lederle had no obligation to make the partial shipment, and did so only as a favor to the buyer. The accommodation letter, which Corinthian is sure it received, clearly stated that the 50 vials were being sent at the lower price as an exception to Lederle's general policy, and that the balance of the offer would be invoiced at the higher price. The letter further indicated that Lederle's proposal to ship the balance of the order at the higher price could be rejected by the buyer. Moreover, the standard terms of Lederle's invoice stated that acceptance of the order was expressly conditioned upon buyer's assent to the seller's terms.

Under these undisputed facts, Sec. 2-206(1)(b) was satisfied. Where, as here, the notification is properly made, the shipment of nonconforming goods is treated as a counteroffer just as at common law, and the buyer may accept or reject the counteroffer under normal contract rules. . . .

Thus, the end result of this analysis is that Lederle Lab's price quotations were mere invitations to make an offer, that by placing its order Corinthian made an offer to buy 1,000 vials at the low price, that by shipping 50 vials at the low price Lederle's response was non-conforming, but the non-conforming response was a mere accommodation and thus constituted a counteroffer. Accordingly, there being no genuine issues of material fact on these issues and the law being in favor of the seller, summary judgment must be granted for Lederle Labs. . .